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April-May, 2015 – DATE CERTAIN M&A OF DIGITAL CADDIES INC. – Gerbsman Partners

Posted in Uncategorized, tagged , , , , , , , on April 27, 2015| Leave a Comment »

DATE CERTAIN M&A OF DIGITAL CADDIES INC.

Gerbsman Partners (http://www.gerbsmanpartners.com) has been retained by Venture Lending & Leasing VI, Inc. and Venture Lending & Leasing VII, Inc. (together “WTI”), the senior secured lender to Digital Caddies, Inc., (“Digital Caddies”) to solicit interest for the acquisition of all or substantially all of Digtial Caddies’s assets, including its Intellectual Property (“IP”), in whole or in part (collectively, the “Digital Caddies Assets”) http://www.digitalcaddies.net . Please be advised that the Digital Caddies Assets are being offered for sale pursuant to Section 9-610 of the Uniform Commercial Code. Purchasers of the Digital Caddies Assets will receive all of Digital Caddies’s right, title, and interest in the purchased portion of WTI’s collateral, which consists of substantially all of Digital Caddies assets, as provided in the Uniform Commercial Code.

The sale is being conducted with the cooperation of WTI and Digital Caddies. Digital Caddies has advised WTI that it will use its best efforts to make its employees available to assist purchasers with due diligence and assist with a prompt and efficient transition at mutually convenient time.

IMPORTANT LEGAL NOTICE:

The information in this memorandum does not constitute the whole or any part of an offer or a contract.

The information contained in this memorandum relating to the Digital Caddies Assets has been supplied by third parties and obtained from a variety of sources. It has not been independently investigated or verified by WTI or Gerbsman Partners or their respective agents.

Potential purchasers should not rely on any information contained in this memorandum or provided by WTI or Gerbsman Partners (or their respective staff, agents, and attorneys) in connection herewith, whether transmitted orally or in writing (the “information”), as a statement, opinion, or representation of fact. Please further note that all information provided herein relating to the operations of Digital Caddies business and its market positions relates to periods on or prior to April 21 2015. Interested parties should satisfy themselves through independent investigations as they or their legal and financial advisors see fit.

WTI and Gerbsman Partners, and their respective staff, agents, and attorneys, (i) disclaim any and all implied warranties concerning the truth, accuracy, and completeness of any information provided in connection herewith and (ii) do not accept liability for the information, including that contained in this memorandum, whether that liability arises by reasons of WTI’s or Gerbsman Partners’ negligence or otherwise.

Any sale of the Digital Caddies Assets will be made on an “as-is,” “where-is,” and “with all faults” basis, without any warranties, representations, or guarantees, either express or implied, of any kind, nature, or type whatsoever from, or on behalf of, WTI and Gerbsman Partners. Without limiting the generality of the foregoing, WTI and Gerbsman Partners, and their respective staff, agents, and attorneys, hereby expressly disclaim any and all implied warranties concerning the condition of the Digital Caddies Assets and any portions thereof, including, but not limited to, environmental conditions, compliance with any government regulations or requirements, the implied warranties of habitability, merchantability, or fitness for a particular purpose.

This memorandum is not to be supplied to any other person without Gerbsman Partners’ prior consent. The information contained herein is not subject to the Non-Disclosure Agreement, however any additional requested information will require execution of the attached NDA attached hereto as Exhibit A. Also attached is a detail sales letter, Exhibit B, Digital Caddies Fixed Asset List (the assets of Digital Caddies is subject to a secured lien by the IRS. It the objective to clear this lien prior to a final transaction.

BACKGROUND

Digital Caddies, Inc. (“Digital Caddies,” “CADY” or the “Company”) is a corporation which was incorporated under the laws of the State of Oklahoma on September 7, 2011. The shares of stock and warrants of the Company were previously held in the name of DNA Beverage Corp., a Nevada Corporation. Since inception, the company has raised a total of $7.8M that has been invested into the technology and the network. $1.7M was raised privately by the company, and $6.1M was raised through Paulson Investments, a leading national boutique investment bank headquarted in Portland Oregon.

Digital Caddies, Inc. is a golf-centric technology and information-dissemination company that uses tablet technology and wireless connectivity to create, a content and informational medium that enables advertisers to directly market to golfers through multifunctional web-enabled interactive tablets installed on golf cars owned by the Company’s customer golf course businesses.

These Internet-connected interactive tablets are designed to provide services to both golfers and golf courses alike.

Once interactive tablets are installed, players can be provided with a number of interactive services and applications, such as GPS-based hole/course information, scoring applications, messaging platforms (for cart-to-cart and cart-to-course communications), the ability to wirelessly call for the beverage cart, plus news, weather, sports, and entertainment. (most features are not yet available)

More importantly, the platform provides a broad portfolio of course management tools designed to enable golf course managers to improve player pace of play via GPS-based cart tracking and communications, potentially increase merchandise and concession sales via real-time on-tablet promotions, and access to additional revenue streams (e.g., sale of local advertising.).

With an always on, always connected device in front of the golfer for four and a half hours while they play golf, the network generates a significant number of impression opportunities with the affluent golfer.

An impression opportunity is calculated as the number of times we can potentially place an advertisement in front of that golfer.

Currently our software provides up to 3 ad locations (300X250 size) that are always on the screen plus one additional larger custom ad location. Each ad location is completely interactive and can be linked to URLs and other content that the advertiser might like to provide.

With 4 ad locations integrated into our software and a 4.5 hour round of golf (270 minutes) and assuming 30 second intervals between ads, we provide an impression inventory of approximately 2,000 for every round of golf that is played. (If you assume there are 2 golfers in the golf cart, which is usually the case, the effective inventory is 4,000)

Therefore, each golf course can produce over 120,000,000 impression opportunities every year (the average golf course completes 30,000 rounds of golf per year).

These impressions are what the company sells to advertisers in order generate revenue – we are a publisher.

Pricing for these ad units vary based on many factors and are typically priced in the form of a price for 1000 impressions, referred to as “CPM” (Cost per thousand).

In order to calculate the revenue possibility, take the number of impressions available and divide it by 1000 and multiply it by the CPM Rate then multiply it by the “fill rate,” which is defined as the number of impressions actually sold. Single golf course example: 120,000,000 impression opportunities X 10% fill rate X $2 CPM rate = $24,000

We believe that advertisers will be very interested in presenting their message on our Digital Caddies because of our ability to generate a large number of impression opportunities and provide them an opportunity to interact with affluent consumers in ways that have not been possible before.
Event Timeline
1.  Fall 2012 business plan completed
2.  2013 $1.7M raised to complete proof of concept
3.  New management brought in to run the company – founder Brad Nightingale moved out
4.  Alpha version of the Digital Caddies platform launched in June 2013 then beta in November of 2013.
5.  Spring 2014 $6.1M raised to build the network
6.  Platform was formally launched in April of 2014 with a business model where the basic platform was free for select golf courses and revenue was to be generated through advertising sales and add on software upgrades.
7.  Rapid growth of the network commenced and by August of 2014 approximately 140 golf facilities were on the network (165 Eighteen Hole Equivalents or “EHE’s)
8.  Several advertising partnerships were established during this time including agreements with Double Click For Publishers, Google Adx, Nexage, Smaato, LiveRail, Brightroll, Access Sports Media and more, to help monetize the network through advertising sales.
9.  Fall 2014 revenue expectations set by the partners did not materialize
10. Winter 2014 secured our first few large brand advertisers including Fidelity, Callaway and Golf Now
11. Winter 2014 engaged with Roth Capital to fund additional growth – financing failed due to market conditions that effected their investment partners plus time lost due to Christmas holidays.
12. With no capital to sustain the network management resigned in February 2015 and Brad Nightingale stepped back in to operate the business
13. Dramatic cuts to costs occurred and operating costs dropped from $250,000+ per month to $60k+.
March 2015 renegotiated a partnership deal with Sprint to change the business model whereby Sprint charges the golf course for the wireless connectivity.
14. As of April 1st, any golf course that wished to keep our service now has to pay $15 per tablet per month for connectivity but can cover their cost by either charging the golfer a fee of approximately $0.35 per golfer or by selling local advertising to put on the platform. The average course requires 2 advertisers per hole per month.
15. In the last 3 weeks, approximately 25 have agreed to keep or install the service, 60 facilities have decided to remove the system and the rest are still undecided.
16. Any equipment we receive back from courses, can easily be re-purposed and used at a new customers location
17. Company is already seeing interest from new locations for the service and with over 15,000 golf courses in the United States with very few that have GPS for golf, there is lots of opportunity

As we re-build the network under our new business model, we still believe the majority of our revenue will come from the sale of advertising although the focus will be more geared towards local advertising from businesses surrounding the golf courses we are installed on. Once the network is re-established, we will resume selling advertising to national brands and also sell value added upgrades to the golf course.

Digital Caddies Assets
14,500 tablets and all related equipment in inventory including:
5000 7” color touch screen devices manufactured by ZTE
9,500 10” color touch screen Tab 2 tablets manufactured by Samsung.
Formal partnership with Sprint
Fully functioning network
http://www.digitalcaddies.net Domain
Completed website and marketing material
Database of all golf courses in the United States populated with detailed information
Rep network in place for distribution

Intellectual Property
Software (copyrighted)
Intellectual Capital
People – dedicated/loyal team
10+ years of industry experience
Established Customer base
Complete Database of all golf courses in the United States
Highly scalable process in place
Solution for powering tablets on the golf cart
“The Players Network” trademark (applied)

Barrier To Entry
First Mover Advantage – The company is recognized as a first mover in the industry utilizing new technology and software in the market segment
We are known and trusted in the golf industry with over 10 years of relationships. The golf industry is not welcoming to new-comers.

Why are the Assets Attractive
Great working partnership with Sprint Corp. – Sprint provides us the people and resources to manage the wireless connectivity for the tablets at the golf course.
Currently there are approximately 2000 tablets active or being activated on the network at this time.
Already have relationships with brand advertisers
Banana Boat to begin advertising at golf courses and give away samples of a new sunscreen – $55,000 gross revenue per 4 week campaign
Established relationships with 3rd party advertising networks
Proven technology and network performance
Over 10 years of experience in GPS/Technology for golf courses
We have all the necessary people in place
The product has been widely accepted and approved by the industry
Processes are in place to allow for a highly scalable re-build of the network
Price point is currently still the lowest in the marketplace
New business model requires very little additional capital
Significant revenue and growth opportunities with more investment capital
Streamlined process that allows us to prepare and deliver tablets to be installed in under 5 days allowing for rapid growth
Experienced team of people and partners

Brad Nightingale – Founder
Mr. Nightingale (44 years old) the founder of Digital Caddies, Chief Executive Officer and Chairman. Mr. Nightingale founded Digital Caddies in 2003 and introduced a low cost, easy to use and easy to implement GPS service to golf courses. The device was installed on golf carts at golf courses and the company grew to have over 150 golf course customers by 2007. After managing the company through the recession, Mr. Nightingale established the new business plan to utilize tablet technology that the company is using today. Prior to founding the company, Mr. Nightingale had a career in finance where he advised and financed early stage technology companies.

Theodore Konyi – CoFounder
Mr. Konyi (60 years old) is a Director, co-founder and investor in Digital Caddies. Mr. Konyi takes an active role with the company and assists with all aspects of the business including managing the wireless relationship with our partner Sprint. Mr. Konyi is also President and Chief Executive Officer of Maxwell Mercantile Inc., a merchant bank specializing in small technology and energy investments. As founder of the Maxwell, he has been actively involved in the start-up and growth phases of many corporations.

Ted Bradley – Advertising & Marketing
Ted Bradley (40 years old) is responsible for managing and executing on all aspects of the revenue generation part of the business. Prior to joining the company in June 2013, Mr. Bradley had been instrumental in building several Digital Out of Home Networks from the ground up, including sales strategy, planning and execution. His experience includes senior media sales roles with many companies including: Telephoto Technologies Inc., where he was responsible for sales and business development; OnTrack Media where he served as Vice President of Media, Sales and Operations; Roberts Media Network – Vice President of Sales and Marketing. From 2009 to the present, Mr. Bradley has served as a board member for the Digital Place Based Advertising Association (DPAA).

Tony Giannandrea – Controller
Mr. Giannandrea (age 54) manages all finances for the business. He is experience as a senior accountant started with Spartan Homes where he managed entire operations, and was primarily involved with financial reporting to the Parent company on 13 limited liability companies throughout four counties in southeast Michigan. He was also responsible for reporting directly to commercial lenders and private investors. Prior to working with Digital Caddies, Mr. Giannandrea was a founder and operator of other early stage companies including Premiere Enterprises, building high-end custom homes and Fusion Tech, an technology company that used infrared to repair asphalt for commercial centers and municipalities.

Allan Kaplan – Advisory Board
Mr. Kaplan (age 43) is an investor in Digital Caddies and advises the company on all aspects of the business. He is an entrepreneur with strong experience in Internet infrastructure and consumer services. He was a founder of Limelight Networks, GlobalCenter, Entera, Primenet. Some notable early stage investments he has been involved with include Facebook, Zynga, Alibaba, Flipkart, and Linkedin.

Other Key Operation Partners
Yourbow – DFP specialist that traffic all our advertisements
HScott Mobile – manage, source and implement all 3rd party mobile monetization partners
Techmileage – Manage all aspects of our network and assisted with the development of the software.
Digital Wasabi – Manages all development of the software for the tablets and network.

Solutions for Golfers

Digital Caddies connects golfers to advertisers by installing multifunctional web-enabled interactive tablets (currently manufactured by Samsung) in golf cars that operate on our customer golf courses. These Internet-connected interactive tablets are designed to provide a host of services to both golfers and golf courses alike. Once interactive tablets are installed on a golf course, players can be provided with a number of services and applications, such as GPS-based hole/course information, interactive maps to navigate distance information on the course to hazards or layup locations or to the green so golfers can select a location of where the hole is located that day.


In future versions, the platform will be able to provide real-time scoring applications and leaderboards, messaging platforms (for cart-to-cart messaging), the ability to easily notify the beverage cart that you want service, the ability to order food from the clubhouse, get news, weather and sports and even watch TV. The android based tablet platform is very flexible and many other services and features can be easily added.

Solutions for Golf Courses

Our platform provides a broad portfolio of course management tools designed to enable course managers to improve player pace of play via GPS-based cart tracking and communications. Through any web connected device, a golf course manager can view where every golf cart is on their golf course and communicate with the carts through a messaging system. This allows the golf course to better manage the pace of play on the golf course which is one of the most important factors in running a golf course and keeping golfers happy. The platform also provides a pace of play monitor so courses can easily see what groups might be falling being the regular pace of play.

In addition, golf courses can use the system to potentially increase merchandise and concession sales via on-tablet advertising and promotion. Golf courses are also provided the opportunity to sell to local advertisers to add an additional revenue stream. All of these services are currently provided to our customer golf course free of charge and the only fee they are required to pay is to Sprint for the wireless connectivity. By utilizing the platform, golf courses can also save money in many ways. More efficient management of pace of play may require a reduced need for course marshals, using the geo-fencing service, courses can be notified if a cart is removed/stolen from the golf course, cart history can show maintenance crews where golfers have travelled on the course so they can be more efficient plus managers can confirm whether or not a golfer has completed a round of golf when they try to play 2 rounds for the price of one.

Additional features and upgrades we can develop for additional revenue:

1. Enhanced Graphics (already completed)
2. Beverage cart call button to notify the cart girl that you require service. The cart girl will have access to a map showing where all the golf carts are on the course that want service, allowing her to be more efficient and sell more product. (in production)
3. Create an online community where golfers can provide all their information and track their game and keep stats – called the Players Network
4. Allow golfers to watch sporting events/financial news live on the platform
5. Capture email addresses of every golfer for the golf course and Digital Caddies
6. Display “best score on this hole today”, average scores, lifetime scores
7. Show average scoring on the hole by handicap so golfers know how hard the hole is to play
8. Allow YouTube channel to record daily welcome video, playing tips from the pro, message from a CEO for a golf tournament or for a charity event.
9. Social Media posting of highlights and scorecards.
10. Automatic tie-in of scores to official handicap systems
11. Food ordering with linked payment system for on course purchases PayPal/visa etc
12. Custom advertising for tournament sponsorship ads
13. Live scoring and tournament scoring for shotgun scrambles, best ball etc posted live on a real-time leaderboard that can be viewed on any web enabled device.
14. Allow forwarding of ads they are interested in to their email for later review
15. Data collection – repeat rounds, length of rounds, total number of holes played, total number of golfers and many more
16. Display pace of play information on the tablet automatically so golfer knows if they need to speed up.
17. Scores will be maintained and tracked in a database so they can be accessed later so when a golfer returns to a course, the system automatically recalls scorecards from their previous rounds so they can compare their current round.
18. Maintain stats like, greens in regulation, fairways hit, number of puts, missed fairway left or right, stored that golfers can review later
19. Instant sale promotions from clubhouse “next hour buy 1 bud light get a bag of chips for free”
20. Ability to score different types of games, match, skins, stableford and many more
21. Adding paypal or similar donation button for tournaments and charity events to raise money during their outing
22. Play golf against a virtual professional on the tablet.
23. Enabling the golf course to enter the daily pin positions via a + or – indicator displayed near the center of green number. For example, if the pin is 5 yards past the center of the green there will be an indicator that shows “PIN +5”. There has to be an easy way for the golf course to enter this number each day.
24. Import/Export files to tie into current reservation systems, inventory control and POS systems.
25. Private golf courses – provide the name of the person on the carts so members can see who is slow playing on the course. (by request from a golf course)
26. Add a “make a suggestion” under the I menu
27. Find your ball. When someone hits their ball in an area they might find hard to navigate, they can click on the map the approximate area they think their ball landed so when driving there the tablet will tell them where they need to go
28. Welcome message to golfer by name which will also provide a name to the cart girl so golfers can be treated like members.

Competitive Business Conditions, the Issuer’s Competitive Position in the Industry, and Methods of Competition;

The Golf GPS Market is competitive and is primarily composed of two segments: (i) companies that offer golf GPS systems directly to consumers; and (ii) companies that offer golf GPS systems directly to businesses. Our business focus is to offer our Digital Caddies golf GPS system directly to golf businesses, and not to individual consumers. Golf courses have different needs than individual golfers, such as the need for course management functionality, cart tracking, food and beverage service options, and mechanisms to promote golfer retention, we do not believe that consumer products that provide golfers with Golf GPS will adversely affect our business because they lack features that are specially customized to meet the needs of golf courses and golf course operators.

With the fact that our business model is based primarily on generating revenue from advertising displayed though the Digital Caddies platform, an argument could be made that our competitors are also any other advertising medium however the unique approach the company takes by providing a value added services that golf courses use through our platform, we consider our biggest competitors to be other companies that currently offer golf GPS systems directly to golf businesses, such as public/private golf courses, golf resorts, etc. It should be noted that these systems do not implement our strategy of using web enabled, open source applications to be able to seamlessly deliver advertising and content to their platforms.

There are many “mom and pop” type companies that offer basic GPS systems for golf courses but only 2 other companies have had any presence in the market that provide good quality GPS services directly to golf courses in a manner which is similar to the product we provide. Our largest potential competitor in this space is GPS Industries, a Florida based company formed in 2009 from the amalgamation of multiple companies that have existed in the marketplace for many years. GPS Industries is a private company so specific details about the Company are not available, but we believe based on the history of the amalgamated companies that their total customer base is about 400 courses out of a total of 15,000 golf courses in the US. Their system is considered to be the most advanced in the market place but comes with a hefty cost of approximately $300,000 for the average golf course. Another competitor is DSG Tag Systems. This company provides similar GPS services to Digital Caddies. Their product was launched last year and we estimate has a customer base of less than 50 golf courses and costs the average golf course approximately $150,000.

With over 15,000 golf courses in the United States we believe that the market has not yet reached saturation and that there is room for growth in this market segment.

Advertising Partners

Liverail
DFP – Double Click for Publishers
Smaato
Nexage
Mopub
Millenial Media
Brightroll
Aerserve
Mobile Theory
The Rubicon Project
Access Sprots Media
Starcom
Direct ads sold and Pipeline

Callaway
Golf Channel
Golf Now
Golf Advisor
Adidas
Taylormade
Banana Boat
Bermuda Tourism
Sprint
Samsung
PGA
World Golf Tour (online game)
Magna Global
Pepsi
Advantage Marketing
Eaton Golf Pride
Quicken Loans
Amex
]ATT
Lexus North East
Bridgestone
Macy’s
Bank of America
Heinekin
Lexus
Honda
Clarion Capital Partners
Aruba Tourism

Impressions and Ad Formats
Digital Caddies reached over 300 million impressions opportunities per month to approximately 400,000 people when the network was in place with 140 facilities. The platform currently supports many standard IAB formats, including the following sizes:

Full page video ads
Full page rich media/static ads
300×600 sky scraper
Medium Rectangle – 300×250
Custom ad sizes also available

The Bidding Process for Interested Buyers

Interested and qualified parties will be expected to sign a nondisclosure agreement (attached hereto as Exhibit A) to have access to key members of the management and intellectual capital teams and the due diligence “war room” documentation (the “Due Diligence Access”). Each interested party, as a consequence of the Due Diligence Access granted to it, shall be deemed to acknowledge and represent (i) that it is bound by the bidding procedures described herein; (ii) that it has an opportunity to inspect and examine the Digital Caddies Assets and to review all pertinent documents and information with respect thereto; (iii) that it is not relying upon any written or oral statements, representations, or warranties of WTI, Gerbsman Partners, or Digital Caddies, or their respective staff, agents, or attorneys; and (iv) all such documents and reports have been provided solely for the convenience of the interested party, and WTI, Digital Caddies, and Gerbsman Partners (and their respective, staff, agents, or attorneys) do not make any representations as to the accuracy or completeness of the same.

Following an initial round of due diligence, interested parties will be invited to participate with a sealed bid, for the acquisition of the Digital Caddies Assets. Sealed bids must be submitted so that they are actually received by Gerbsman Partners no later than Thursday, May 28, 2015 at 3:00 p.m. Pacific Time (the “Bid Deadline”) at Digital Caddies office, located at 15210 N. Scottsdale Rd # 280, Scottsdale, AZ 85254. Please also email steve@gerbsmanpartners.com with any bid.

Bids should identify those assets being tendered for in a specific and identifiable way.

Any person or other entity making a bid must be prepared to provide independent confirmation that they possess the financial resources to complete the purchase where applicable. All bids must be accompanied by a refundable deposit check in the amount of $200,000 (payable to Venture Lending and Leasing VII, Inc.). The winning bidder will be notified within 3 business days of the Bid Deadline. Unsuccessful bidders will have their deposits returned to them within 3 business days of notification that they are an unsuccessful bidder.

WTI reserves the right to, in its sole discretion, accept or reject any bid, or withdraw any or all of the assets from sale. Interested parties should understand that it is expected that the highest and best bid submitted will be chosen as the winning bidder and bidders may not have the opportunity to improve their bids after submission.

WTI will require the successful bidder to close within a 7 day period. Any or all of the assets of Digital Caddies will be sold on an “as is, where is” basis, with no representation or warranties whatsoever.

All sales, transfer, and recording taxes, stamp taxes, or similar taxes, if any, relating to the sale of the Digital Caddies Assets shall be the sole responsibility of the successful bidder and shall be paid to WTI at the closing of each transaction. For additional information, please see below and/or contact:

For additional information, please see below and/or contact:

Steven R. Gerbsman
Gerbsman Partners
(415) 456-0628
steve@gerbsmanpartners.com

Kenneth Hardesty
Gerbsman Partners
(408) 591-7528
ken@gerbsmanpartners.com

James Skelton
Gerbsman Partners
(949) 466-7303
jim@gerbsmanpartners.com

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February, 2015 Bidding Process for Date Certain M&A Palyon Medical Corp., its Assets and Intellectual Property

Posted in Uncategorized, tagged , , , , on February 2, 2015| Leave a Comment »

The Bidding Process, Procedures for the Sale of certain Assets and Intellectual Property of Palyon Medical Corp.

Further to Gerbsman Partners previous e-mail and sales letter of January, 2015, regarding the sale of certain assets of Palyon Medical Corp., (Palyon), I attach the form of agreement (“APA”) that we will be requesting the bidders for certain Assets and Intellectual Property of Palyon execute and deliver in connection with such transaction. The Palyon Assets have been previously supplied, as outlined in Palyon sales letter. Also attached is Exhibit A, the NDA and updated Fixed Asset list. Ken and I will be following up to review the Bidding Process.

Gerbsman Partners (http://www.gerbsmanpartners.com) has been retained by Palyon MedicalCorp.,  to solicit interest for the acquisition of all or substantially all of Palyon’s assets, including its Intellectual Property (“IP”), in whole or in part (collectively, the “Palyon Assets”).

Any and all the assets of Palyon will be sold on an “as is, where is” basis and will be subject to “The Bidding Process for Interested Buyers”, outlined below.

Prior to the bid date of March 6, 2015., I would encourage all interested parties to have their counsel speak with Maggie Wong, Esq. of Goodwin Procter counsel to Palyon. She is available to discuss any questions or comments of a legal nature relating to the transactions contemplated by the APA. 415 733 6071 – mwong@goodwinprocter.com

The Bidding Process for Interested Buyers

Interested and qualified parties will be expected to sign a nondisclosure agreement (attached hereto as Exhibit A) to have access to key members of the management and intellectual capital teams and the due diligence “war room” documentation (the “Due Diligence Access”). Each interested party, as a consequence of the Due Diligence Access granted to it, shall be deemed to acknowledge and represent (i) that it is bound by the bidding procedures described herein; (ii) that it has an opportunity to inspect and examine the Palyon Medical Corp. Assets and to review all pertinent documents and information with respect thereto; (iii) that it is not relying upon any written or oral statements, representations, or warranties of Gerbsman Partners, or their respective staff, agents, or attorneys; and (iv) all such documents and reports have been provided solely for the convenience of the interested party, and Gerbsman Partners (and their respective, staff, agents, or attorneys) do not make any representations as to the accuracy or completeness of the same.

Following an initial round of due diligence, interested parties will be invited to participate with a sealed bid, for the acquisition of the Palyon Medical Corp. Assets. Sealed bids must be submitted so that it is actually received by Gerbsman Partners no later than Friday, March 6, 2015 at 3:00 p.m. Central Daylight Time (the “Bid Deadline”) at Palyon Medical Corp.s’ office, located at 28432 Constellation Road, Santa Clarita CA . Please also email steve@gerbsmanpartners.com with any bid.

Bids should identify those assets being tendered for in a specific and identifiable way.

Any person or other entity making a bid must be prepared to provide independent confirmation that they possess the financial resources to complete the purchase where applicable. All bids must be accompanied by a refundable deposit check in the amount of $200,000 (payable to Palyon Medical Corp., Inc.). The winning bidder will be notified within 3 business days of the Bid Deadline. Unsuccessful bidders will have their deposit returned to them within 3 business days of notification that they are the unsuccessful bidder.

Palyon Medical Corp. reserves the right to, in its sole discretion, accept or reject any bid, or withdraw any or all of the assets from sale. Interested parties should understand that it is expected that the highest and best bid submitted will be chosen as the winning bidder and bidders may not have the opportunity to improve their bids after submission. Palyon Medical Corp. will require the successful bidder to close within a 7 day period. Any or all of the assets of Palyon Medical Corp. will be sold on an “as is, where is” basis, with no representation or warranties whatsoever. All sales, transfer, and recording taxes, stamp taxes, or similar taxes, if any, relating to the sale of the Palyon Medical Corp. Assets shall be the sole responsibility of the successful bidder and shall be paid to Palyon Medical Corp. at the closing of each transaction.

For additional information, please see below and/or contact:

Steven R. Gerbsman Gerbsman Partners

(415) 456-0628

steve@gerbsmanpartners.com

Kenneth Hardesty Gerbsman Partners

(408) 591-7528

ken@gerbsmanpartners.com

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Successful “Date Certain M&A” of AxioMed Spine Corp. it Assets and Intellectual Property – Gerbsman Partners

Posted in "Date Certain M&A Process", AxioMed Spine Corp, Blog of Intellectual Capital, Board Of Intellectual Capital, Crisis Management, Date Certain M&A, Distressed Intellectual Property, Distressed IP, Gerbsman Partners, Inetellectual Property, Intellectual capital, Medical Device, Motti Abramovitz, Steven R. Gerbsman, Uncategorized, Venture Capital, tagged , , , , on November 17, 2014| Leave a Comment »

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San Francisco, November, 2014
Successful “Date Certain M&A” of AxioMed Spine Corp. it Assets and Intellectual Property
Steven R. Gerbsman, Principal of Gerbsman Partners, Kenneth Hardesty and James Skelton, members of Gerbsman Partners Board of Intellectual Capital, announced today their success in maximizing stakeholder value for a venture capital and senior lender backed spine medical device company.

Gerbsman Partners provided Crisis Management and Investment Banking leadership, facilitated the sale of the business unit’s assets and its associated Intellectual Property. Due to market conditions, the board of directors and senior lender made the strategic decision to maximize the value of the business unit and Intellectual Property. Gerbsman Partners provided leadership to the company with:

1.  Crisis Management and medical device domain expertise in developing the strategic action plans for maximizing value of the business unit, Intellectual Property and assets;
2.  Proven domain expertise in maximizing the value of the business unit and Intellectual Property through a Gerbsman Partners targeted and proprietary “Date Certain M&A Process”;
3.  The ability to “Manage the Process” among potential Acquirers, Lawyers, Creditors Management, Advisors and the Receiver;
4.  Communicate with the Board of Directors, senior management, senior lender, creditors, vendors and all stakeholders in interest.
About Gerbsman Partners

Gerbsman Partners focuses on maximizing enterprise value for stakeholders and shareholders in under-performing, under-capitalized and under-valued companies and their Intellectual Property. Since 2001, Gerbsman Partners has been involved in maximizing value for 87 Technology, Life Science, Medical Device, Solar, Fuel Cell and Digital Marketing/Social Commerce companies and their Intellectual Property and has restructured/terminated over $810 million of real estate executory contracts and equipment lease/sub-debt obligations. Since inception in 1980, Gerbsman Partners has been involved in over $2.3 billion of financings, restructurings and M&A transactions.

Gerbsman Partners has offices and strategic alliances in San Francisco, Boston, New York, Washington, DC, McLean, VA, Europe and Israel.

 

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GERBSMAN PARTNERS
Cell: +1 415 505 4991
Email: steve@gerbsmanpartners.com
Web: www.gerbsmanpartners.com
BLOG of Intellectual Capital: blog.gerbsmanpartners.com

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Successful “Date Certain M&A” of ClearEdge Power, LLC, its Assets and Intellectual Property to the Doosan Corporation. Gerbsman Partners, Financial Advisor

Posted in Uncategorized, tagged , , , , , on July 22, 2014| Leave a Comment »

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San Francisco, August 2014

Successful “Date Certain M&A” of ClearEdge Power, LLC, its Assets and Intellectual Property to the Doosan Corporation. Gerbsman Partners, Financial Advisor

Steven R. Gerbsman, Principal of Gerbsman Partners, Kenneth Hardesty, Managing Principal and James Skelton, member of Gerbsman Partners Board of Intellectual Capital, announced today their success in maximizing stakeholder value for ClearEdge Power, LLC, (http://clearedgepower.com) through a 363 Chapter 11 sale to the Doosan Corporation (http://doosan.com).

Gerbsman Partners provided Financial Advisory leadership to ClearEdge Power, LLC, through the Chapter 11 process, facilitated the sale of the business unit’s assets and its associated Intellectual Property and closing of the sale. Due to market conditions, the board of directors of ClearEdge Power made the strategic decision to maximize the value of the business unit and Intellectual Property. Gerbsman Partners provided leadership to the company with:

1.  Business Consulting and Investment Banking domain expertise in developing the strategic action plans for maximizing value of the business unit, Intellectual Property and assets;
2.  Proven domain expertise in maximizing the value of the business unit and Intellectual Property through a Gerbsman Partners targeted and proprietary “Date Certain M&A Process”;
3.  The ability to “Manage the Process” among potential Acquirers, Lawyers, Creditors Management, Advisors and the Chapter 11 process;
4.  Communications with the Board of Directors, senior management, senior lenders, creditors, vendors and all stakeholders in interest.

About Gerbsman Partners

Gerbsman Partners focuses on maximizing enterprise value for stakeholders and shareholders in under-performing, under-capitalized and under-valued companies and their Intellectual Property. Since 2001, Gerbsman Partners has been involved in maximizing value for 83 Technology, Life Science, Medical Device, Solar, Fuel Cell and Digital Marketing companies and their Intellectual Property and has restructured/terminated over $810 million of real estate executory contracts and equipment lease/sub-debt obligations. Since inception in 1980, Gerbsman Partners has been involved in over $2.3 billion of financings, restructurings and M&A transactions.

Gerbsman Partners has offices and strategic alliances in San Francisco, Boston, New York, Washington, DC, McLean, VA, Europe and Israel.

GERBSMAN PARTNERS
Phone: +1.415.456.0628, Cell: +1 415 505 4991
Email: steve@gerbsmanpartners.com
Web: www.gerbsmanpartners.com
BLOG of Intellectual Capital: blog.gerbsmanpartners.com

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May 21 Update to ClearEdge Power, Inc. – Asset Purchase Agreement and Bid Procedures, subject to Court approval

Posted in Uncategorized, tagged , , , , , on May 21, 2014| Leave a Comment »

 

Sale of ClearEdge Power, Inc.

Further to Gerbsman Partners emails of May, 14, 2014 and May 1, 2014, regarding the sale of Assets and Intellectual Property of ClearEdge Power, Inc. (“ClearEdge”), ClearEdge and two of its subsidiaries (collectively, “ClearEdge Power”) filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code (“Bankruptcy Code”) in the United States Bankruptcy Court for Northern District of California, San Jose Division (such cases are jointly administered under Case No. 14-51955)

Gerbsman Partners – http://gerbsmanpartners.com – has been retained by ClearEdge (http://www.clearedgepower.com) to solicit interest for the acquisition of all or substantially all of ClearEdge’s assets, including its Intellectual Property in whole or in part (collectively, the “ClearEdge Assets”) and equipment, inventory and work-in-progress located at ClearEdge Power’s various facilities. Attached is a sales memorandum, patent list, fixed asset list and inventory list.

Please be advised that the ClearEdge Assets are being offered for sale pursuant Section 363 of the United States Bankruptcy Code. It is anticipated that the Bankruptcy Court will approve certain sale procedures within the next 30 days and sale procedures will set forth when and how bids, will be submitted, deposit requirements and if the bids are subject to overbids. Final Sale Procedures are subject to Court approval, which the ClearEdge expects in early June.

Outlined below is a summarization of the basic provisions of the Bidding Process being reviewed by the Court and a ClearEdge Asset Purchase Agreement to be submitted by all interested and qualified parties.

Please call Stephen O’Neill, Esq. 408 843 2719 oneill.stephen@dorsey.com and/or John WalsheMurray, Esq. 408 843 2718 murray.john@dorsey.com regarding legal questions.

IMPORTANT LEGAL NOTICE:

The information in this memorandum does not constitute the whole or any part of an offer or a contract.

The information contained in this memorandum relating to the ClearEdge Power Assets has been supplied by ClearEdge, by third parties and obtained from a variety of sources. It has not been independently investigated or verified by Gerbsman Partners or their respective agents.

Potential purchasers should not rely on any information contained in this memorandum or provided by Gerbsman Partners (or their respective staff, agents, and attorneys) in connection herewith, whether transmitted orally or in writing as a statement, opinion, or representation of fact. Interested parties should satisfy themselves through independent investigations as they or their legal and financial advisors see fit, as the Fixed Asset, Inventory and Patent lists may not be accurate.

Gerbsman Partners, and their respective staff and agents, (i) disclaim any and all implied warranties concerning the truth, accuracy, and completeness of any information provided in connection herewith and (ii) do not accept liability for the information, including that contained in this memorandum, whether that liability arises by reasons of ClearEdge Power’s or Gerbsman Partners’ negligence or otherwise.

Any sale of the ClearEdge Power Assets will be made pursuant to the Bankruptcy Code and will require approval of the United States Bankruptcy Court. All sales will be “as-is,” “where-is,” and on a “with all faults” basis, without any warranties, representations, or guarantees, either express or implied, of any kind, nature, or type whatsoever from, or on behalf of Gerbsman Partners. Without limiting the generality of the foregoing, Gerbsman Partners and their respective staff and agents, hereby expressly disclaim any and all implied warranties concerning the condition of the ClearEdge Power’s Assets and any portions thereof, including, but not limited to, environmental conditions, compliance with any government regulations or requirements, the implied warranties of habitability, merchantability, or fitness for a particular purpose.

BID PROCEDURES

In the exercise of their good faith reasonable business judgment, ClearEdge Power, Inc., ClearEdge Power LLC and ClearEdge Power International Service LLC (collectively, the “Debtors”) have determined to solicit and complete a transaction (a “Transaction”) selling substantially all of the Debtors’ assets, in whole or in part (the “Purchased Assets”), subject to the approval of the United States Bankruptcy Court for the Northern District of California, San Jose Division, Courtroom 3070, 280 S. First Street, San Jose, CA 95113-3099 (the “Bankruptcy Court” or the ‘Court”) after an opportunity for Qualified Bidders (as defined below) to submit competing bids (“Competing Bid(s)” or ”Bid(s)”) at an auction (the “Auction”).

Subject to approval of the Bankruptcy Court, the procedures hereinafter set forth (the “Bid Procedures”) will govern the bidding and sale process. As provided below and in the Purchase Agreement (as defined below), the Bid Procedures will be incorporated into a binding order (the “Bid Procedures Order”) entered by the Bankruptcy Court.

Bidding Process

The Debtors will:

(a) Determine the steps to be completed, and the timing in respect of such steps, for the marketing and sale of the Purchased Assets[1];

(b) Determine whether any person is a Qualified Bidder (as defined below);

(c) Determine whether a Qualified Bidder has made a Qualified Bid (as defined below); and

(d) Negotiate any offer set forth in a Qualified Bid.

Participation Requirement

Unless otherwise ordered by the Bankruptcy Court, in order to participate in the bidding process, each person (a “Potential Bidder”) must first deliver to: TGI Financial, Inc. dba Gerbsman Partners (“Gerbsman” or “Gerbsman Partners”), Attn: Steven R. Gerbsman, email steve@gerbsmanpartners.com, tel.: 415 505-4991, an executed confidentiality agreement in form and substance reasonably acceptable to the Debtors.

Access To Due Diligence Materials

Upon a Potential Bidder’s satisfaction of the participation requirements described herein, such bidder will be deemed to be a “Qualified Bidder.” The Debtors shall afford each Qualified Bidder due diligence access to the Debtors’ assets and business, subject to competitive and other business concerns, which diligence may include access to the Debtors’ electronic data room, management presentations and site visits, and such other diligence as Potential Bidders may request and to which the Debtors, in their sole and absolute discretion, may agree; provided, however, that the Debtors shall have no obligation to provide due diligence access to any Qualified Bidder after the Bid Deadline (as defined below). The Debtors will coordinate efforts and provide all reasonable requests for additional information and due diligence access for Qualified Bidders. The Debtors will provide a form of proposed asset purchase agreement (a “Purchase Agreement”) to each Qualified Bidder.
The Debtors (and their respective staff, agents, attorneys or representatives) make no representation or warranty as to the information to be provided through the due diligence process or otherwise, except to the extent set forth in the Purchase Agreement with the Successful Bidder (as defined below). Each Qualified Bidder, as a consequence of the due diligence access granted to it, shall be deemed to acknowledge and represent (i) that it has had an opportunity to inspect and examine the Debtors’ assets and business and to review all pertinent documents and information with respect thereto; (ii) that it is not relying upon any written or oral statements, representations, or warranties of the Debtors or Gerbsman Partners, or their respective staff, agents, attorneys or representatives; and (iii) all such documents and reports have been provided solely for the convenience of the Qualified Bidder, and the Debtors and Gerbsman Partners (and their respective employees, agents, attorneys, representatives, consultants and financial advisors) do not make any representations as to the accuracy or completeness of the same.

Bid Deadline

The deadline for submitting bids by a Qualified Bidder is June 25, 2014, at 4:00 p.m. (Pacific Daylight Time) (the “Bid Deadline”). No later than the Bid Deadline, a Qualified Bidder that desires to make a bid to acquire the Purchased Assets (a “Bid”) shall deliver written copies of its Bid in both written and electronic format to: (1) counsel for the Debtors, Dorsey & Whitney LLP, 305 Lytton Avenue, Palo Alto, CA 94301, email: murray.john@dorsey.com (“Mr. Murray”); and (2) Gerbsman Partners, Attn: Steven R. Gerbsman, email steve@gerbsmanpartners.com.

Determination of Qualified Bid Status

In order to be eligible for consideration as a Qualified Bid (defined below), each Bid must satisfy each of the following conditions:

(a) Marked Purchase Agreement: A Bid must be accompanied by a black-lined version of the Purchase Agreement (including any schedules or disclosures that are a part thereof) showing the purchase price and any changes to the Purchase Agreement requested by the Bidder, including those related to the assumption and assignment of contracts and licenses, and other material terms such that the Debtors may determine how such Bid compares to the terms of the Purchase Agreement and Competing Bids.

(b) Assets: Bids may be submitted for all or part of the Purchased Assets. Bids must identify, with specificity, which Purchased Assets are included in such Bid.

(c) Combining Bids: The Debtors, in their sole and absolute discretion, may determine that the sum of bids for less than all of the Purchased Assets is collectively the best and highest bid for all of the Purchased Assets and, upon such determination, may combine such bids.

(d) Joint Bids: Prospective Qualified Bidders may submit a “joint competing bid” for the Purchased Assets; provided, however, that the identity of each bidder participating in such “joint bid” must be disclosed in the Bid, and such “joint bid” will be subject to section 363(n) of the Bankruptcy Code.

(e) Conditions/Contingencies: Except as provided in the Purchase Agreement, a Qualified Bid must not be subject to material conditions or contingencies to closing, including without limitation obtaining financing, internal approvals or further due diligence.

(f) Authorization: A Bid must include evidence of authorization and approval, subject to verification by the Debtors and Gerbsman, from such Qualified Bidder’s board of directors or governing body with respect to the submission, execution, delivery and closing.

(g) Good Faith Deposit: Each Qualified Bid shall be accompanied by a good faith cash deposit in the amount of $250,000 in the form of a wire transfer, certified check or other form acceptable to the Debtors in their sole and absolute discretion. Each good faith deposit will be deposited and held in the trust account of Dorsey & Whitney LLP, counsel to the Debtors (“Dorsey”). Requests for wire transfer instructions should be directed to Mr. Murray.

(h) Evidence Of Financial Ability To Perform: Each Bid must contain evidence satisfactory to the Debtors, in their sole and absolute discretion, that the bidder is reasonably likely (based upon financial wherewithal, availability of financing, experience and other considerations) to be able to timely consummate a Transaction if selected as the Successful Bidder, and must further provide adequate assurance of future performance of all contracts and leases to be assumed and assigned. Such evidence must include, without limitation, the Qualified Bidder’s most current audited and latest unaudited financial statements or, if the bidder is an entity formed for the purpose of making a bid, the current audited and latest unaudited financial statements of the equity holder(s) of the bidder or such other form of financial disclosure, and a guaranty from such equity holder(s).

(i) Bid Irrevocable/Back-up Bid: A Bid must provide that it is irrevocable until two (2) business days after the closing of the Sale. Each Qualified Bidder further agrees that its Bid, if not chosen as the Successful Bidder, shall serve, without modification, as a Back-up Bid (as defined below) or Alternate Back-up Bid (as defined below) as may be designated by the Debtors at the Sale Hearing, in the event the Successful Bidder fails to close as provided in the Purchase Agreement, as modified, if at all, and the Sale Order.

(j) A written statement agreeing to being contractually bound by all of the terms of these Bid Procedures.

After the Bid Deadline, the Debtors will immediately review all Bids and will notify any Qualified Bidder whose Bid does not meet the above requirements why such Bid is insufficient. All Bidders shall have until June 30, 2014 (the “Qualifying Bid Deadline”), to cure any deficiencies in their Bids in order to become Qualified Bids. A Bid received from a Qualified Bidder on or before the Qualifying Bid Deadline that meets the above requirements, in the Debtors’ sole and absolute judgment, will constitute a qualified bid (a “Qualified Bid”). No later than five (5) days before the Sale Hearingall Bidders shall be notified whether or not their Bids are Qualified Bids. In the event a Bid is determined not to be a Qualified Bid, such Bidder shall be refunded its good faith deposit within three (3) business days of that determination.

Selection of Stalking Horse Bid

At any time prior to the hearing before the Bankruptcy Court to conduct the Auction of the Purchased Assets (the “Sale Hearing”), the Debtors may, in their sole and absolute discretion, designate a Qualified Bid as the “Stalking Horse Bid” submitted by the “Stalking Horse Bidder” for the Purchased Assets who shall execute the Purchase Agreement, subject to any modifications as agreed upon by the Debtors (the “Stalking Horse Purchase Agreement”). Such designation may result in a modification of these Bid Procedures. Immediately upon any such designation, the Debtors shall provide notice to all Qualified Bidders of such designation and provide such bidders with the Stalking Horse Purchase Agreement and the revised Bid Procedures, if any.

In the event the Debtors do not designate a Stalking Horse Bidder, each Qualified Bid will be designated a Competing Bid (defined below). At the Auction, the Debtors will announce one or more Qualified Bids to be the highest and best bid (s) for the Purchased Assets, in whole or in part, and the Auction will be conducted in accordance with the procedures set forth below.

The Auction and Sale Hearing

The Debtors shall hold the Auction at the Sale Hearing at the Bankruptcy Court before the Honorable Charles Novack, United States Bankruptcy Judge, at which time the Debtors shall conduct the Auction for Qualified Bidders to submit Bids for the Purchased Assets (each, a “Competing Bid” submitted by a “Competing Bidder”).

The Debtors and their advisors will conduct the Auction. At the beginning of the Auction, the Debtors shall announce (a) the Stalking Horse Bid or, in the event that no Stalking Horse Bid has been designated, one or more of the Competing Bids as the highest and best Bid(s) for the Purchased Assets (the “Opening Bid(s)”), and (b) the manner in which the bidding will be conducted. Any disputes arising with respect to any aspect of the Auction will be resolved by the Debtors in their sole and absolute discretion.

All Qualified Bidders, including the Stalking Horse Bidder, if any, may submit further Competing Bids, along with a markup or a further markup of the Purchase Agreement. The Auction will be conducted in rounds. All bidders are required to bid in each round or they forfeit their right to participate in subsequent rounds. At any time, a bidder may request that the Debtors announce the then current highest and best bid. If requested, the Debtors shall use reasonable efforts to clarify any and all questions any Qualified Bidder may have regarding the Debtors’ announcement of the then current highest and best bid. Bidders will have no longer than ten minutes between bidding rounds. If a bidder is not present in time to submit a bid in the next round, that bidder forfeits its right to participate in subsequent rounds.

In the event that a Stalking Horse Bidder is designated, each Competing Bid made at the Auction for the Purchased Assets in a single Transaction following announcement of the Opening Bid or Bids must be, at a minimum, equal to the sum of (i) the Purchase Price (as defined in the Stalking Horse Purchase Agreement); (ii) $250,000 representing the Break-Up Fee (defined below); and (iii) $500,000.00.

Each Competing Bid thereafter must be in increments of no less than the greater of (a) 5% of the Purchase Price (or, in the instance no Stalking Horse Bid is designated, 5% of the Purchase Price of the best and highest bid(s) as determined and announced by the Debtors prior to the Auction, and (b) $250,000; provided, however, that the Debtors reserve the right, in their sole and absolute discretion, to modify the incremental bidding requirement at the Auction.
An overbid made by a Competing Bidder must remain open and binding on the Competing Bidder for (a) each round of bidding, and (b) for those Competing Bidders not selected as the Successful Bidder for purposes of serving as a Back-up Bid or Alternate Back-up Bid (as defined below).

All bids must be in cash.

The Debtors may, in their sole and absolute discretion, (a) determine which Qualified Bid, if any, is the highest and best bid for the Purchased Assets, and (b) reject at any time before the entry of the Sale Order any bid that is (i) inadequate or insufficient, (ii) not in conformity with the requirements of the Bankruptcy Code or the Bid Procedures, or (iii) contrary to the best interests of the Debtors, the bankruptcy estates, and creditors and interest holders thereof.

At the conclusion of the Auction, the Debtors shall announce the winner of the auction (the “Successful Bidder(s)”) and request that the Court enter the Sale Order reciting the same.
The Debtors may announce at any time prior to or during the Auction such modifications to the Bid Procedures that they, in their sole and absolute discretion, believe will better promote the goals of the auction process and are in the best interest of the bankruptcy estates.

The Debtors may, in their sole and absolute discretion, prior to or during the auction, postpone or terminate the auction and the sale process without selecting any Bid as the Successful Bid. Neither the Debtors, their bankruptcy estates, employees, agents, attorneys, representatives, consultants nor financial advisors shall have any liability to anyone if the Debtors postpone or terminate the auction and the sale process.

The Debtors may modify these Bid Procedures if they determine, in their sole and absolute discretion, such modifications to be in the best interest of the bankruptcy estates.

Bid Protections

In the event the Debtors designate a Stalking Horse Bidder and the Stalking Horse Bidder is not the Successful Bidder, the Debtors shall pay in consideration of its being the Stalking Horse Bidder and to reimburse it for its reasonable and necessary out of pocket expenses, including all professional fees, an amount up to $250,000 (the “Break-Up Fee”) in accordance with the terms and conditions set forth in the Purchase Agreement and as approved by the Bankruptcy Court. If the Stalking Horse Bidder submits an overbid it will not be entitled to the Break-Up Fee. No other bidder will be entitled to any expense reimbursement, break-up fee, termination or similar fee or payment. Such payments are conditioned on the close of a Transaction.

“As Is Where Is”

The sale of the Purchased Assets will all be on an “as is, where is” basis without representations or warranties of any kind or nature, except to the extent set forth in the purchase agreement(s) with the Successful Bidder(s). Except as may be set forth in such purchase agreement(s), the Purchased Assets are sold free and clear of any and all liens, claims, interests, encumbrances, restrictions, charges and encumbrances of any kind or nature to the fullest extent permissible under the Bankruptcy Code, with such liens, claims, interests, encumbrances, restrictions, charges, and encumbrances to attach to the net proceeds of sale in their order of priority.

Conclusion of the Auction, Determination of the Successful Bidder and Sale Hearing

At the conclusion of the bidding, the Debtors shall (1) determine the Successful Bidder(s) on the basis of, among other things: (a) the amount of the Qualified Bid(s), (b) the number, type and nature of any modifications to the Purchase Agreement, and the extent to which such modifications are likely to delay the closing of a sale of the Purchased Assets and the costs attendant thereto, (c) the likelihood of the bidder’s ability to close a Transaction and the timing thereof; and (d) the net value to the Debtors; and (2) submit the highest and best bid, determined in the Debtors’ sole and absolute discretion, (the “Successful Bid”) for approval by the Bankruptcy Court pursuant to Section 363 of the Bankruptcy Code. For avoidance of doubt, the Debtors, in their sole and absolute discretion, may select a combination of Qualified Bids for the Purchased Assets in multiple lots, in determining the Successful Bid(s).

Prior to the Debtors submitting a Successful Bid to the Bankruptcy Court for approval, such Successful Bidder shall present evidence to the Court establishing to the Court’s satisfaction such bidder’s provision of adequate assurance of future performance of executory contracts and unexpired leases to be assumed and assigned to such bidder.

Any Qualified Bidder that intends to request that the Bankruptcy Court make a finding under Bankruptcy Code Section 363(m) that such bidder’s purchase of the Purchased Assets or the assignment to it of an executory contract or unexpired lease is in good faith, shall, in advance of the Sale Hearing, file with the Court and serve on the Service Parties (as defined in Section 29-a of the Bid Procedures Motion), a written declaration of a competent witness demonstrating (a) the bidder’s good faith, and (b) the absence of fraud or collusion between the bidder and any other bidder, party or the Debtors or their representatives. The declaration must also disclose any facts material to the good faith determination, including:

(a) The bidder’s pre- and post-petition relationships with (i) any other bidder, (ii) the Debtors or the Debtors’ current or former officers, directors, agents or employees, and (iii) any of the Debtors’ major creditors or equity security holders;

(b) The bidder’s anticipated relationship after the sale with any of the Debtors’ current or former officers, directors, agents or employees;

(c) Whether any offers of employment or compensation have been or will be made to any of the Debtors’ current or former officers, directors, agents or employees; and

(d) Whether the bidder has paid or contemplates paying consideration in connection with the sale to any person other than the Debtors.

Prior to the conclusion of the Sale Hearing, the Debtors shall designate, in their sole and absolute discretion, the next highest and best bid to serve as the first back-up bid (the “Back-up Bid” of the “Back-up Bidder”), and one or more alternate back-up bids (each, an “Alternate Back-up Bid” of an “Alternate Back-up Bidder”), as applicable, for the Purchased Assets.

In the event the Successful Bid is approved, but not consummated by the closing date designated in the Stalking Horse Purchase Agreement (or such later date as the Debtors and the Successful Bidder shall mutually agree in writing), the Debtors will request that the next highest and best bid (i.e., the Back-up Bid), and the next highest and best bid to that bid (i.e., the first Alternate Back-up Bid), and so on, be approved without the necessity of further order of the Bankruptcy Court, and that such bidder be required to consummate the Transaction contemplated in its bid within seven (7) business days of being declared the Successful Bidder.

In the event a Successful Bid is not consummated, the Debtors shall notify each Back-Up Bidder and Alternate Back-up Bidder within one (1) day of such bidder’s designation as the new Successful Bidder, Back-up Bidder or next Alternate Back-up Bidder, as applicable.

The Debtors may, in their sole and absolute discretion, prior to or during the auction and sale process, postpone or terminate the auction and sale process without selecting any Bid as the Successful Bid. Neither the Debtors nor their bankruptcy estates, employees, agents, attorneys, representatives, consultants nor financial advisors shall have any liability to anyone if the Debtors postpone or terminate the auction and the sale process.

Treatment of Deposits

The good faith deposit of the Successful Bidder will be applied to the purchase price of such Transaction at the closing date of the Sale set forth in its Purchase Agreement.

The good faith deposit of each of the Back-up Bidders and Alternate Back-up Bidders will be held in held in Dorsey’s trust account until the earlier of five (5) business days after the close of the Transaction contemplated in the Successful Bid(s), and thereafter returned (with the interest earned thereon) to the Back-up Bidder and/or Alternate Back-up Bidder. The good faith deposits of any Bidder not selected as a Back-up Bidder or an Alternate Back-up Bidder will be held in Dorsey’s trust account until no later than two (2) business days after the Sale Hearing, and thereafter returned (with the interest earned thereon) to the respective bidders. If a Successful Bidder, Back-up Bidder, or Alternate Back-up Bidder, as applicable, fails to consummate an approved sale because of a breach or failure to perform on the part of such Bidder, the Debtors (a) shall retain the good faith deposit of such Bidder as liquidated damages resulting from the breach or failure to perform by such Bidder; and (b) be authorized, but not required, to consummate the Back-up Bid, or Alternate Back-up Bid, as applicable, without further notice or order of the Bankruptcy Court.

[1] Capitalized terms not otherwise defined herein will have the meanings ascribed to them in the Amended Motion for Order Approving Bid Procedures and Related Matters Re Sale of Certain Assets of Debtors (the “Bid Procedures Motion”)

For additional information, please see below and/or contact:

Steven R. Gerbsman
Gerbsman Partners
(415) 505-4991
steve@gerbsmanpartners.com

Kenneth Hardesty
Gerbsman Partners
(408) 591-7528
ken@gerbsmanpartners.com

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