Full text
1
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
IN RE:
. Chapter 11
. Case No. 24-11217 (BLS)
VYAIRE MEDICAL, INC., .
et al.,
. (Jointly Administered)
.
. Courtroom No. 1
. 824 Market Street
Debtors.
. Wilmington, Delaware 19801
.
. Friday, August 30, 2024
. . . . . . . . . . . . . . 10:35 a.m.
TRANSCRIPT OF HEARING
BEFORE THE HONORABLE BRENDAN L. SHANNON
UNITED STATES BANKRUPTCY JUDGE
APPEARANCES:
For the Debtors:
Patrick J. Reilley, Esquire
COLE SCHOTZ, P.C.
500 Delaware Avenue
Suite 1410
Wilmington, Delaware 19801
-and-
Spencer A. Winters, Esquire
KIRKLAND & ELLIS, LLP
333 West Wolf Point Plaza
Chicago, Illinois 60654
(APPEARANCES CONTINUED)
Audio Operator: Dana L. Moore, ECRO
Transcription Company: Reliable
The Nemours Building
1007 N. Orange Street, Suite 110
Wilmington, Delaware 19801
Telephone: (302)654-8080
Email: gmatthews@reliable-co.com
Proceedings recorded by electronic sound recording,
transcript produced by transcription service.
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 1 of 111
2
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
APPEARANCES (CONTINUED):
For the Debtors:
Tabitha J. De Paulo, Esquire
KIRKLAND & ELLIS, LLP
609 Main Street
Houston, Texas 77002
For the Official
Committee of
Unsecured Creditors:
Kevin M. Regan, Esquire
Maris J. Kandestin, Esquire
MCDERMOTT WILL & EMERY, LLP
The Brandywine Building
1000 N. West Street
Suite 1400
Wilmington, Delaware 19801
For the 1L Ad Hoc
Group and DIP Lenders:
Joshua K. Brody, Esquire
GIBSON, DUNN & CRUTCHER, LLP
200 Park Avenue
New York, New York 10166
For the U.S. Trustee:
Benjamin A. Hackman, Esquire
UNITED STATES DEPARTMENT OF JUSTICE
OFFICE OF THE UNITED STATES TRUSTEE
J. Caleb Boggs Federal Building
844 North King Street
Suite 2207, Lockbox 35
Wilmington, Delaware 19801
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 2 of 111
3
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
INDEX
MOTIONS:
PAGE
Agenda
Item 1:
Motion of Debtors for Entry of an Order (I)
Approving Bidding Procedures in Connection
with the Sale of Substantially All of The
Debtors' Assets, (II) Authorizing The Debtors
to Enter into a Stalking Horse Agreement and
Provide Bid Protections, (III) Approving the
Form and Manner of Notice Thereof, (IV)
Scheduling an Auction and Sale Hearing, (V)
Approving Procedures for the Assumption and
Assignment of Contracts, (VI) Approving the
Sale of the Debtors' Assets Free and Clear,
and (VII) Granting Related Relief
(Filed June 10, 2024) [Docket No. 16]
6
Court's Ruling:
101
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 3 of 111
4
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
INDEX
WITNESSES CALLED
BY THE DEBTORS:
PAGE
CHARLES N. BRALEY
Direct examination by Ms. De Paulo
14
Cross-examination by Mr. Regan
47
Redirect examination by Ms. De Paulo
78
EXHIBITS
DEBTORS' EXHIBITS:
PAGE
4 - Holdback schedule
82
5 - Cash forecast
27
COMMITTEE'S EXHIBITS:
PAGE
Tab 11 - Variance report
52
DECLARATIONS
DECLARATIONS:
PAGE
1) Declaration of Elise S. Frejka
11
2) Declaration of Michael Schlappig 12
3) Declaration of Charles N. Braley 13
Transcriptionists' Certificate 111
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 4 of 111
5
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
(Proceedings commenced at 10:35 a.m.)
THE COURT: All rise.
Please be seated.
Good morning. Mr. Reilley, good morning. Good to
see you.
MR. REILLEY: Good morning, Your Honor. Nice to
see you.
Patrick Reilley from Cole Schotz, on behalf of the
Debtors.
Your Honor, the only item going forward today is
the Debtors' sale motion. Thank you to Your Honor and to
your chambers for hearing us this morning on the Friday
before the holiday weekend.
THE COURT: Happy to oblige.
Mr. Winters will be presenting the sale motion and
argument. We received permission for Mr. Winters to appear
via Zoom.
THE COURT: Right.
MR. REILLEY: Thank you, again, Your Honor, for
that accommodation.
Tabitha De Paulo from Kirkland will be handling
the evidentiary portion of today's hearing.
Before turning things over to Mr. Winters, the
Debtors have a presentation that we will -- we received
permission to share the screen, Your Honor.
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 5 of 111
6
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
I have a hard copy if you'd like?
THE COURT: I'd like the hard copy, as well.
MR. REILLEY: If I may approach?
THE COURT: Sure. Thank you.
(Pause)
MR. REILLEY: So, now, Your Honor, I'd propose to
cede the podium to Mr. Winters.
Thank you, Your Honor.
MR. WINTERS: Good morning, Your Honor.
Can you hear me okay?
THE COURT: I sure can.
Good morning, sir.
MR. WINTERS: Good morning.
Spencer Winters of Kirkland & Ellis, LLP on behalf
of the Debtors. Your Honor, I asked that I might appear by
Zoom; once again, at another important hearing, I spent the
evening yesterday at O'Hare and even taxied out on the runway
before, somehow, ending up back at my house. I looked into
making it up there this morning, but it was going to be very,
very tight, so I figured the better part of valor was to
appear by Zoom.
THE COURT: No, I think that makes sense.
And, certainly, I have been -- I think everybody
in this room has been through that precise experience, so --
MR. WINTERS: Thank you, Your Honor.
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 6 of 111
7
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
THE COURT: -- I'm happy to proceed today.
MR. WINTERS: Thank you, Your Honor.
Your Honor, when we were here on Monday, I thought
that maybe a 15-minute adjournment or at least the balance of
the day, was going to get us to a resolution. It did get us
there with the secured lenders and we filed revised proposed
orders on Tuesday reflecting that agreement with the secured
lenders. Clearly, even the balance of the week didn't get us
there with the Official Creditors Committee and so that's
what we're here to address today.
The good news is I believe we're down to that one
objection today, and that's the Committee's objection. The
Committee filed a supplemental objection on the docket
yesterday afternoon. We filed a reply overnight.
I have a very brief argument --
THE COURT: I have seen and read both of those
documents.
MR. WINTERS: Great. Thank you, Your Honor.
I have a very brief argument that I'd like to
present, together with the slides that we've got put up here,
and then after yielding the podium to others, I'm going to
ask my colleague, Ms. De Paulo, to call our one witness,
Mr. Charlie Braley from AlixPartners.
THE COURT: Mr. Winters, let me ask you a
question --
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 7 of 111
8
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
MR. WINTERS: Yes, Your Honor?
THE COURT: -- in terms of mechanics of today's
hearing. Again, I appreciate getting submissions right
before the hearing from both sides. I understand that this
has been in active negotiation now for the better part of a
week.
I think the Committee was careful to note that the
Committee has no objection to the sales that are being
proposed, but to the supplemental or specific issues, with
respect to the use of funds, disbursement of sale proceeds,
and the budget and funding for post-sale activities.
Is that a fair characterization?
MR. WINTERS: That's right, Your Honor.
I think we are really arguing today about the
paydown and the holdback.
THE COURT: So the question I would ask is, just
in terms of -- remind me if you would, I know that we started
the hearing last week and then pretty promptly adjourned, but
I don't know that we had admitted into evidence the various
declarations that go to the Debtors' case in chief for
purposes of approval of the sale, business judgment, good
faith, the 363 standards, which, again, I assume are not in
material dispute now. And so I'm just wondering if we ought
to sort of deal with the record for the sale and then turn
our issue to what seems to be the live dispute in front of us
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 8 of 111
9
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
today.
Does that make sense?
MR. WINTERS: Yes, Your Honor.
So, you are right that I don't think the sales and
the fact that the sales are value-maximizing are in dispute.
You're also correct that the declarations have not yet been
admitted.
Our plan for today was to allow for argument from
all sides around the issue that's open, then I was going to
turn it over to Ms. De Paulo, who's going to introduce the
three declarations and call Mr. Braley. I don't think that
there's any objection to the declarations going in, and I
think that Mr. Braley will then get on the stand and testify
about the narrow issue that's in dispute regarding the
paydown and the holdback. The Committee will cross him, and
then I think the Court can rule or take it under advisement
at that point. So that's how we planned to proceed.
If you'd rather do declarations now, I'm happy to
do that, as well.
THE COURT: Yeah, I think it would make more sense
to do the declarations now and to do the -- elicit the
testimony, and then I would hear argument from the two sides.
MR. WINTERS: Great, Your Honor.
THE COURT: You know, I don't want to --
obviously, I understand the dispute that is before me today,
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 9 of 111
10
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
but just in terms of details, and if I were the buyer, I
would want to make sure that the record got fully entered for
a good faith finding, and then we'll deal with the dispute
over what happens to sale proceeds, which is I think where we
are.
So I would suggest that we proceed first with the
decks.
MR. WINTERS: And, Your Honor, with the
declarations and the live testimony from Mr. Braley, and then
we'll do argument after that?
THE COURT: Yes.
MR. WINTERS: That sounds good to me, Your Honor.
In that case, I will turn it over to Ms. De Paulo
to put those declarations in and to call Mr. Braley.
THE COURT: Great.
Ms. De Paulo, welcome.
MS. DE PAULO: Good morning, Your Honor. Tabitha
De Paulo from Kirkland & Ellis, on behalf of the Debtors.
As Your Honor suggested, I would first move to
admit the declarations. The first declaration of Ms. Elise
Frejka was filed at Docket 403. Ms. Frejka is on the Zoom
and available to answer questions, and we would request
admission of Ms. Frejka's declaration into evidence at this
time.
THE COURT: Very good.
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 10 of 111
11
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
The Court notes that permission has already been
given for Ms. Frejka to appear remotely today for our
proceedings.
I would ask if there are any objections to the
admission of Ms. Frejka's declaration in support of the
Debtors' case in chief for purposes of obtaining approval of
the sales that are before the Court?
(No verbal response)
THE COURT: Hearing no objection, Ms. Frejka's
declaration is admitted.
(Frejka Declaration received in evidence)
THE COURT: I would ask if there are any parties
that intend or expect to cross-examine Ms. Frejka regarding
the contents of her declaration?
(No verbal response)
THE COURT: Very well.
Ms. Frejka's declaration is admitted.
MS. DE PAULO: Thank you, Your Honor.
The second declaration is of Michael Schlappig
from PJT Partners, which was filed at Docket 405.
Mr. Schlappig is also on the Zoom and available to answer any
questions.
At this time, we would request admission of
Mr. Schlappig's declaration into evidence.
THE COURT: Very good.
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 11 of 111
12
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
And I would ask if there are any objections to the
admission of Mr. Schlappig's declaration, again, as part of
the Debtors' case in chief for purposes of the sales that are
before the Court today?
(No verbal response)
THE COURT: Very well.
Mr. Schlappig's declaration is admitted.
(Schlappig Declaration received in evidence)
THE COURT: Is there any party that intends or
expects to cross-examine Mr. Schlappig regarding the contents
of his declaration?
(No verbal response)
THE COURT: Very well.
That declaration, is, likewise, admitted, without
contradiction.
MS. DE PAULO: Thank you, Your Honor.
Finally, the Debtors have Mr. Braley here to
testify live, but in an effort to streamline his live
presentation, we would request admission of his declaration
into evidence, which was filed at Docket 404.
THE COURT: The Court understands that Mr. --
Braley?
MS. DE PAULO: Braley.
THE COURT: That Mr. Braley is --
Welcome, sir.
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 12 of 111
13
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
-- that Mr. Braley is going to testify live. I
would ask if there are any objections to admission of his
declaration, subject, of course to the opportunity to cross-
examine?
MS. DE PAULO: No, Your Honor.
THE COURT: Hearing no objection, Mr. Braley's
declaration is admitted.
(Braley Declaration received in evidence)
THE COURT: Are there any other decks?
MS. DE PAULO: That is all the declarations.
THE COURT: Shall we call Mr. Braley?
MS. DE PAULO: Yes, Your Honor.
The Debtors call Mr. Braley.
THE COURT: Good morning and welcome.
MR. BRALEY: Good morning, Your Honor.
THE COURT: Please remain standing. We'll swear
the witness.
CHARLES N. BRALEY, DEBTORS' WITNESS, SWORN
THE WITNESS: I do.
THE CLERK: Please state and spell your name for
the record.
THE WITNESS: My name is Charles Braley, C-h-a-r-
l-e-s B-r-a-l-e-y.
THE COURT: Very good. Welcome.
Have a seat, sir.
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 13 of 111
14
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
DIRECT EXAMINATION
BY MS. DE PAULO:
Q Good morning, Mr. Braley.
I know you have submitted a number of declarations in
this case that the Court has reviewed, but since you haven't
had the chance to present here in court, I would like you to
introduce yourself to the Court today.
A Good morning, everyone.
I'm Charles Braley --
THE COURT: Can you pull the mic -- I'm sorry.
I can hear you just fine. Pull the mic a little
closer to you so that the court reporter can pick you up.
THE WITNESS: Good morning, everyone.
My name is Charles Braley. I'm a partner and
managing director at AlixPartners, currently serving as chief
restructuring officer at Vyaire Medical, Inc.
BY MS. DE PAULO:
Q How long have you worked at AlixPartners?
A I've been with AlixPartners, cumulatively, just over 20
years and beginning in 2001.
Q How many years' experience do you have in the
restructuring space?
A Over 20 years' experience.
Q Can you give the Court a few examples of companies that
you have advised?
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 14 of 111
15
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
A Yeah. Some have been here in Delaware; others, in
other jurisdictions. The cases I've been part of most
recently, Mallinckrodt Pharmaceuticals, Basic Energy
Services, NPC International, Bearingpoint International, RCN
Cable, to name a few.
Q Since we're here today for approval of some sale
orders, can you describe some of your experience as it
relates to sale processes in Chapter 11?
A Yeah, I've been -- the overwhelming majority, frankly,
of my cases have been -- have resulted in a sale of some or
all of the business as part of the bankruptcy process. And
I'm also familiar with the auction process. And, hence, the
wind-down and estate obligations that result have having
sold, you know, substantively, all the business as part of a
bankruptcy process.
Q So what experience do you have as it relates to
preparation of wind-down budgets and winding down estates?
A Considerable experience.
I've done it in at least, I'd say seven or eight cases,
in some varying levels of complexity.
This one is a similarly complex situation, given its
international operations, but it's something that I'm very
familiar with.
Q Specifically in your role at AlixPartners, how have you
participated in their analysis of wind-down situations?
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 15 of 111
16
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
A So, I am the co-lead of a subpractice within our
restructuring practice that focuses on wind-down; myself and
a couple other colleagues are the resident experience, if you
will, for wind-down planning, preparation, and execution.
Q Turning to your work for the Debtors here, when was
AlixPartners first retained by the Debtors?
A We were retained in March of '24.
Q In your role as CRO, what have been your primary
responsibilities as it relates to the Debtors?
A It was to help advise the Debtors in the pre-bankruptcy
process to consider options around a path forward. Since the
decision was made to file the company, it's been in support
of preparing and administering the cases, as well as
operationally supporting the company in liquidity management,
general business operations, and then most recently, as part
of the marketing-and-sale process to support the company
through those efforts.
Q Have you helped to prepare some demonstratives today to
walk the Court through your testimony?
A Yes, I have.
MS. DE PAULO: Your Honor, my colleague
Mr. Raphael is on the line.
Is he able to publish? And I also have hard
copies available for the Court.
THE COURT: I would like a hard copy, but it looks
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 16 of 111
17
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
like he's on and able to manage.
MS. DE PAULO: May I approach?
THE COURT: Yes, of course.
Thank you. Can you give one to my law clerk,
please?
(Pause)
BY MS. DE PAULO:
Q Mr. Braley, today I'd like to talk to you about the
Debtors' marketing-and-sale process, particularly, the sales
we're seeking approval of today; some of the background with
the lenders, as it relates to the sale; your forecasts and
holdback estimates; and then a few responses to some of the
arguments that the Committee has made.
Are you prepared to testify today on each of these
topics?
A Yes, I am.
Q How were you involved in the Debtors' efforts to market
and sell their assets?
A We supported the pre-sale process in helping the
company develop marketing materials and diligence from
interested parties in the lead-up to what was an auction on
the vent side and, ultimately, an agreement of a sale
agreement on the RDx side of the business.
Q Okay. Since we already admitted your declaration, I'm
not going to go into a lot of the detail on the background
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 17 of 111
18
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
there, but can you just describe, in particular, your role in
participating in the auction?
A So, specifically, we were, obviously, in attendance and
executing the auction in coordination with Kirkland and PJT.
We were, I guess, the essential responsible party for
evaluating the bids and understanding the economic impacts of
the various bids in the different rounds that were conducted.
And in an effort to ensure that each, you know,
subsequent bid did, indeed, constitute an overbid, met the
value requirements to do so, and then were able to educate
the remaining buyers and bidders on, you know, what their
options were for moving forward with another subsequent
overbid.
Q Why did the Debtors decide to conduct an auction?
A We believed in our reasonable business judgment that it
was the value-maximizing path to realizing value for the
estate for the constituents.
Q How would you describe the Debtors' engagement with the
Committee and the lenders throughout the auction process?
A It was consent throughout.
We were -- after each round of bids, we would provide
updates on what the updated bid profile looked like and the
economic impact of that bid and provided, you know,
consistent updates at day's end when we would adjourn into
the next day.
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 18 of 111
19
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
It was a multi-day auction process, so -- and there
were a lot of complicated bid dynamics, so we were trying to,
you know, organize those, simplify them, explain them to the
counterparties so they could understand where we were at in
value realization.
Q Let's talk about the results of that auction first.
Which of the qualified bidders was selected as the
successful bidder at the auction?
A That's ZOLL Medical, Inc.
Q What are the key terms of the ZOLL bid?
A The key terms of the ZOLL bid are, essentially, it is a
going-concern acquisition of the ventilators business. It is
both, U.S. and internationally. It has a $30 million
proceeds -- $37 million proceeds headline number, but in
addition to that, it has the assumption of a number of
liabilities, both in the U.S. and internationally. And, in
addition to that, it provides for continued employment of,
you know, a great majority of the ventilators' employees.
Q Speaking of the continued employment, why was it
important that this bid was a going-concern bid for the
Debtors?
A It provides -- well, first of all, the ventilators
business provides essential, life-saving equipment to the
medical community in the U.S. and internationally, and has,
you know, daily, lives are in their products' hands, if you
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 19 of 111
20
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
will.
So it was important to ensure the continuation of those
products into the marketplace, but in addition to that, it
was important for, as a going-concern bid would provide the
best path forward for both, the employees, the customers, and
the vendor community that serves Vyaire.
Q What made ZOLL's bid the occasion attractive to the
buyers?
A It was the highest and best value we received. It
provided for meaningful recovery, and as I said, and it was,
in our reasonable business judgment, it was an overbid amount
from the nearest competing bid of approximately $1.2 million.
Q Let's talk briefly about the respiratory diagnostics
assets sale. Are you okay if I call that "RDx"?
A Yes, I am.
Q Okay. That -- those assets were not subject to the
auction, right?
A They were not.
Q Okay. Who had the Debtors selected as the successful
bidder for the RDx assets?
A That is Trudell Medical Ltd.
Q Why did the Debtors select Trudell as the successful
bidder?
A Trudell was the only actionable bid that we received
during the process and was the one that was providing -- and
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 20 of 111
21
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
also the one that, based on interested parties, was providing
the most value.
Q How much time did the Debtors spend negotiating with
Trudell to improve the terms of its bid?
A We spent a number of weeks negotiating specifics and
providing -- be responsive to diligence requests that they
had.
Q What, ultimately, became the key terms of the Trudell
bid?
A The key terms of the Trudell bid were $53.5 million of
sale proceeds. It is also a going-concern sale of the RDx
business, both in the U.S. and internationally, and provides
for continued employment of the RDx employee base. I think
that's about it.
Q Why are the Debtors seeking approval of the Trudell APA
today?
A We're seeking approval of the Trudell APA because, in
our business judgment, it is the highest-and-best bid or
offer, and it also constitutes a going-concern sale, and
those were the primary objectives we were seeking at the
outset.
Q So we talked about the vent sale. We talked about the
RDx sale.
What is the total cash consideration that the Debtors
expect to receive on account of those sales?
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 21 of 111
22
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
A Well, despite the success we had in finding buyers, the
unfortunate reality is it's $90 million, which is below what
we had endeavored to kind of achieve there, but it is, you
know, nearly $90.5 million in total.
Q Before we get to what the Debtors intend to do with
those proceeds, I want to talk about your engagement with the
lenders over the last few weeks as the terms of those sales
crystallized.
Are you familiar with the bidding procedures order
entered by this Court?
A I am.
Q By the way, when did the Debtors file those proposed
bidding procedures?
A The bidding procedures were initially filed on the
petition date, which had been June 9th or 10th and I think
the order was entered July 11th.
Q What did the bidding procedures provide in terms of the
rights of the Debtors' DIP lenders as it relates to the sale?
A The DIP lenders had consent rights and there were
obligations to repay proceeds at the time of sale back to
them.
Q Okay. So in terms of the requirements for a qualified
bidder, a successful bid, what were the requirements of the
bidding procedures order?
A So the requirements of the bidding procedures order,
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 22 of 111
23
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
with respect to the bids were there was a minimum bid
requirement of $140 million in aggregate, and that's the
shortfall I cited when I mentioned the 90.5, so we did not,
ultimately, achieve that amount. But we did still believe
that the auction process was the highest and best, you know,
going to create the highest and best recovery value back to
the estate.
Q So you mentioned that the bids didn't meet that minimum
bid requirement.
What were the rights under the bidding procedures order
if that requirement was not met?
A We could have been ordered to cancel the auction.
Q So, we obviously know that an auction went forward.
The bid requirement wasn't met.
What happened here?
A We negotiated with the lenders to achieve their
approval to move forward with the auction and the sale of the
RDx, and continued pursuing the sale of the RDx business.
And, ultimately, they conceded, subject to, you know, some
negotiated outcomes.
Q Okay. The negotiated outcomes, what were those?
A The negotiated outcome was a reduction in the overall
DIP size, as well as a sharing mechanism, where they would
have, you know, a split of the recoveries that would result
or that any recovery -- any improvement in value that
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 23 of 111
24
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
resulted from the auction process on the ventilators
business.
Q Okay.
THE COURT: So I just want to make sure of the
timeline.
This was on the cusp of the auction?
THE WITNESS: Yes.
THE COURT: And there was an agreement to reduce
the DIP by $5 million?
THE WITNESS: That's correct.
THE COURT: Okay. And then anticipating if the
auction was a homerun, there was a sharing mechanism that the
parties had agreed to, and, again, this was all agreed to on
the 11th before the auction or when?
THE WITNESS: It was right before the auction,
yeah.
THE COURT: When was the DIP reduction
communicated to the Committee?
THE WITNESS: The DIP reduction was communicated
to the Committee when the, I believe on the 20th or after we
had both executed APAs and provided the initial motion to --
for the sale.
THE COURT: Very good.
Sorry for the interruption. You may proceed.
MS. DE PAULO: No, that's fine.
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 24 of 111
25
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
BY MS. DE PAULO:
Q When would the terms of -- when would the agreements to
reduce the DIP actually go into effect?
A Ultimately, what was -- the impact of the DIP reduction
would have been once the newly agreed upon amount of
$40 million was fully drawn, there would be no more
availability. So it was, essentially, the last draw that we
had forecast of approximately $5 million was no longer going
to be accessible.
Q Why did the Debtors ultimately agree to reduce the new-
money portion of the DIP?
A The gain the lenders' consent to move forward with the
auction. And also after doing an analysis to determine that,
we believe in our reasonable -- in my personal business
judgment, that it is adequate to get us through both of the
sales. So we reevaluated the timeline and felt comfortable
with the $40 million.
Q Okay.
MS. DE PAULO: Your Honor, I have an exhibit to
review. May I approach?
I believe Your Honor has a copy of our exhibit
binder --
THE COURT: I do.
MS. DE PAULO: -- but it's only one page, so I
also have copies if you would prefer paper?
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 25 of 111
26
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
THE COURT: Oh, that would be better.
Thank you, Ms. De Paulo.
THE WITNESS: Thank you.
BY MS. DE PAULO:
Q I've handed you what was pre-marked as Debtors'
Exhibit 5.
Do you recognize this document?
A I do.
Q What is this?
A This document is -- illustrates the weekly cash
forecast projection through October 18th and the time
period -- the timeline to get to the close of both, the ZOLL
and Trudell sales.
Q Who prepared this document?
A I did.
Q How was this document prepared?
A It was prepared by estimating the weekly collection of
accounts receivable, as well as estimating the weekly
disbursements for a variety of payables, payroll, and other
expense lines. And then, lastly, as estimating what the
professional fees incurred would be on a weekly basis through
the remainder of that timeline.
Q What does this cash forecast show in terms of the total
DIP funds that the Debtors anticipate drawing?
A It shows a draw of up to $40 million. So the two
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 26 of 111
27
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
remaining DIP draws that are reflected here, would take us up
to the full commitment of $40 million.
Q Can you explain what this document shows in terms of
whether the Debtors think that $40 million will be sufficient
to get them through the closing of the sales uh?
A Yeah, we do believe that.
In my reasonable judgment, I think it is tighter
than -- I'll concede the fact that it is tighter than what we
previously had been forecasting; that said, we believe that
there's reasonable cushion in the budget that will get us
through and it reflects that cushion being global liquidity
balances that, you know, are in the nine-to-eight-million-
dollar range. That seems to be adequate liquidity to be able
to absorb any possible shortfalls we might experience or
variances we might experience on the way there.
MS. DE PAULO: Your Honor, I would move to admit
Exhibit 5 into evidence.
THE COURT: Any objection?
(No verbal response)
THE COURT: Very well.
It's admitted.
(Exhibit 5 received into evidence)
MS. DE PAULO: Thank you.
BY MS. DE PAULO:
Q I'd like to talk now about --
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 27 of 111
28
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
THE COURT: Hang on just a second. I'm sorry.
Mr. Braley, I have a question. As I look at the
ending international liquidity line for global liquidity, I
see a net positive of a million and a half dollars.
THE WITNESS: Yeah --
THE COURT: And your testimony a second ago was
that you saw eight or $9 million.
What am I missing?
THE WITNESS: So the first sale is scheduled to
close in week 7, October 4th. And I was really focusing on
the period through the first close, because at that point in
time, Your Honor, the line item that reads "other non-
operational," the thirteen seven fifty, it's not showing as
cash in our accounts, but it's essentially funding the estate
with a subset of proceeds that are intended to support the
wind-down efforts.
So, while this does reflect, you know, a further
deterioration in the cash, it's a model construct, I think,
that's being reflected here, whereby, it's not giving -- it's
not reflecting the fact that the thirteen seven fifty and
the 1.7 that's on -- in week 9, would actually remain with
the estate, so...
THE COURT: All right. I understand.
Thank you for the clarification.
You may proceed.
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 28 of 111
29
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
BY MS. DE PAULO:
Q So I want to talk now about the requirement of the bid
procedures to pay -- use the cash to pay down the DIP.
A Uh-huh.
Q Have you helped to prepare a demonstrative to address
this point?
A I have.
MS. DE PAULO: Mr. Raphael, could we go to
Slide 2, please.
BY MS. DE PAULO:
Q Can you describe what this slide shows in terms of how
the Debtors expect to use the cash proceeds of the sale?
A Sure.
At the very top section, it outlines the proceeds that
are coming in from the two sales, as well as the estimated
cash on hand at the conclusion of the second sale. As Your
Honor pointed out, the 1.566 does tie back to the forecast,
as presented, leaving approximately $92 million of total
proceeds.
The division of those proceeds was going to be used as
follows -- as shown on the bottom with $25.1 million of a
holdback reserve intended for the future wind-down of the
estate; there are transaction fees resulting from the sales
that would be paid out; the repayment of the $40 million new-
money DIP; and a small recovery on the roll-up; and then
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 29 of 111
30
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
there are some remaining fees for the first lien agent's
advisors that are due, as well.
THE COURT: One question I have for you,
Mr. Braley, if I may interrupt, is, there's a reference -- I
just want to ask -- you may be getting to this. I want to
ask while it's still in front of mind.
As we talk about these, there's a point made in
the Committee objection that notwithstanding the reduction of
the DIP from 45 to 40, that the fees and the roll-up are a
predicated amount of $45 million DIP; is that accurate? The
fees and the roll-up that the lender is obtaining by virtue
of the DIP, are calculated, still, according to a $45 million
DIP?
THE WITNESS: Oh, I'm sorry, Your Honor. Yes, I
now understand.
Yes, the $175 million roll-up gross value was
predicated on a $45 million amount. The interest that's
calculated here is only on the amounts drawn; however, some
of the up-front and closing fees were as agreed to in the
original $45 million DIP.
THE COURT: Very good.
You may proceed.
BY MS. DE PAULO:
Q So in terms of the $13.435 million recovery
contemplated for the roll-up, can you give an idea of what
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 30 of 111
31
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
percentage recovery that is on the total value of the roll-
up?
A It's very small, unfortunately, and, again, an outcrop
of the ultimate value that we were able to realize for the
sales. But the $175 million original roll-up amount, less
the $40 million still leaves a roll-up value of $130 million.
Even if you adjusted it down, it's still in excess of
approximately 115 -- I'm doing fast math here, so I
apologize -- so it's --
Q I didn't mean to put you on the spot.
A -- it's a pretty -- it's a less than 10-percent
recovery on the non, new-money portion of that.
Q So the bottom-left corner has a holdback reserve of
$25.1 million.
MS. DE PAULO: And if we could go to the next
slide, Mr. Raphael, I'd like to talk a little bit more about
this 25.1 holdback reserve.
BY MS. DE PAULO:
Q So, can you explain to the Court what is included in
that $25.1 million, as shown on this slide?
A Yeah.
The reserves are effectively established for the use of
these amounts, not to satisfy ongoing liabilities of the U.S.
estate and some international entities, as well. As well as
paying for a plan administrator, plan administrator's
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 31 of 111
32
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
advisors, and other legal expenses that would be incurred,
legal and administrative expenses incurred to execute the
wind-down, and it's shown split between the U.S. and
international balances that were estimated to develop the
reserve balance.
Q This chart includes approximately $12.1 million on
account of international payments.
Can you explain what those relate to?
A Yeah, it's a bit complex, but there are a number of
legal entities internationally. Not all of those are going
to be part of the transaction with ZOLL or with Trudell. But
in many instances, there are legal entities where the full
entity is not being acquired, but there are assets that need
to convey to the buyers because they're part of the
transaction.
And what we've done here is attempt to estimate the
liabilities for those legal entities that are contributing
assets to the buyers, the satisfaction of those liabilities
in order to make sure that we're able to equitably satisfy
the liabilities and secure the proper release of the assets
and title to the assets.
Q So, why, specifically, have the Debtors included
this $12.1 million in international amounts in their holdback
reserve?
A We've done it to ensure that we can complete the sales
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 32 of 111
33
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
and transfer the necessary assets. And these are estimates
based on the company's books and records and our personal
judgment, professional judgment.
Q Just to be clear, has any amount been committed to pay
this $12.1 million?
A No, these are estimates at this point in time.
Q When do the Debtors expect that this wind-down,
estimate wind-down budget would kick in?
A Immediately upon a conclusion of the sale, the second
sale, the Trudell sale, which is expected to lag behind ZOLL.
But, in fact, much of the work that's being outlined here is
going to begin in earnest as soon as -- once the sales are
approved and we'll begin to work to, both, transition the
company for sale, as well as begin the wind-down efforts.
Q How long have the Debtors contemplated a wind-down
budget in these cases?
A Since prior to filing. It was something we had
contemplated, negotiated for, and discussed prior to filing.
Q Do you know when a wind-down budget was first provided
to the Committee's advisors?
A So the wind-down budget, I think there's a version of
that, that was provided on July 2nd. And, obviously, it's
the wind-down budget and, ultimately, the amounts that
underlie these reserve balances has been part of an ongoing
recovery analysis that we've been sharing with the
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 33 of 111
34
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Committee's advisors throughout the process since then.
Q What are your views on whether $25.1 million is
sufficient to wind-down the Debtors' estates?
A We believe, or I believe in my personal business
judgment that it is satisfactory to achieve the wind-down
efforts that we've outlined here.
Q Just to be clear, why did the Debtors agree to the
immediate $56 million paydown and the $25.1 million wind-down
reserve?
A It was necessary to gain the consent of the lenders to
approve the sales.
Q Based on your participation in the process, what is
your understanding of the consequences if the Debtors and the
lenders had not reached an agreement on the paydown and the
wind-down budget?
A My fear was that if they chose not to move forward with
the business, it would ultimately -- or to move forward with
the sales, we would be facing a potential conversion to a
Chapter 7, a liquidation of the business, and, you know,
negative impacted outcomes for all the different
constituents: the vendors, the customers, the patient care,
and the employees, as well.
Q How, if at all, does the immediate paydown of a portion
of the DIP claims affect the Debtors' ability to negotiate
and confirm a Chapter 11 plan?
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 34 of 111
35
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
A I don't believe it does.
Q And how, if at all, do the recoveries to unsecured
creditors change based on the paydown of the DIP claims in
connection with the sale?
A Unfortunately, at the levels that we achieved for the
sales, I don't believe it impacts their recovery at all.
Q And why is that?
THE COURT: Why is that?
THE WITNESS: Because the recovery value does not
even -- was not sufficient to fully repay the first lien debt
for the DIP lenders.
THE COURT: I understand. I think that the next
question would be: Do you have an expectation of -- I mean,
the results of the sale are what they are. The parties need
a wind-down budget; there's no dispute about that. The
parties, the mechanics of the process need to play out. We
are engaged in a discussion about the amounts and a process
that we've used to get to today.
Is it your expectation that there would be any
distribution to any unsecured creditors in this case?
THE WITNESS: Not at this time.
THE COURT: Okay. I understand.
You may proceed.
MS. DE PAULO: Thank you, Your Honor.
//
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 35 of 111
36
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
BY MS. DE PAULO:
Q I want to move on to our last topic today, which is
some responses to a few issues that the Committee raised.
We've already talked about some of them.
Did you review the limited objection that the Committee
filed yesterday?
A I did.
Q They raised an issue of cure costs, so I have a few
questions for you on that point.
What does the ZOLL APA provide with respect to cure
obligations?
A These were heavily negotiated points; I just want to
draw attention to that.
And what the ZOLL bid provides is that they will assume
and pay cure costs for assumed contracts up to a capped
amount of $5 million.
Q What process do the Debtors expect to occur between now
and the closing of the sales, as it relates to executory
contracts?
A Once the sales are approved, we would expect that the
buyers would begin to further refine their assumptions around
or their analysis of the contracts and determine which they'd
like to assume or, in many instances, we would expect that we
would facilitate discussions between vendor parties and the
buyers to, (A), understand the working relationship they
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 36 of 111
37
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
desire going forward, and, (B), you know if there are -- is a
desire to modify or negotiate a different agreement, that
we'd help facilitate that.
Q What the Debtors' expectation with respect --
THE COURT: Actually, can I ask a question about
the mechanics of the ZOLL -- we're talking about the ZOLL
contract assumption, which has a component built in of
$5 million of cures?
THE WITNESS: That's correct.
THE COURT: I think I know the answer to this, but
I'm going to ask it.
If ZOLL decides that they want to assume contracts
that have a total amount of cures of $7 million, is the
debtor obliged to pay that $2 million of cures under the
contract?
THE WITNESS: Under the contract it is.
THE COURT: It is?
THE WITNESS: Yes.
THE COURT: Okay.
You may proceed.
BY MS. DE PAULO:
Q So in the event there is a circumstance like Your Honor
just asked you about, where the cure costs exceed the
$5 million cap, what options do the Debtors have in that
event?
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 37 of 111
38
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
A So the Debtors have a couple of different options.
First of all, we're not obligated to assume the
contract; the contract could be rejected and the buyer and
vendor could negotiate their own commercial agreement and
avoid the cure component altogether.
There are alternatives. I think we would help
facilitate the, as I mentioned, the conversation between the
buyer and the vendor. Often times in my experience, those
are active negotiations that go on once a sale has been
approved and, often times, the buyer has ideas around whether
or not they view the commercial terms of the contract as
currently written, whether they're in their best interests or
not.
And so, we would help facilitate to see if those
amounts would be reduced or negotiated down as part of an
agreement between the buyer and the vendor with us helping
facilitate those conversations.
Last, but not least, we could always ask the buyer if
they exceeded it, to see if they would be willing to
contribute more value to address any excess to the current
cap.
Q And in the event that none of those options work out
and you're near closing, what might happen with the sale?
A It's possible that we would be unable to execute the
sale and would have to be unable to get to closing. That
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 38 of 111
39
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
brings with it a number of negative outcomes, but if it was
financially unable to be concluded, then we would have to
withdraw from the sale.
Q So that was the issue of cure costs.
The Committee has also suggested that the holdback
reserves and the lower DIP budget might not be sufficient for
the rest of these cases. So, I guess, first, are there any
guarantees that the Debtors will achieve their forecasts and
stay within their wind-down budget?
A There is not a guaranty of that at all.
Q But how have the Debtors endeavored to ensure that that
does not happen?
A We've used our reasonable business judgment and my
considerable experience in this area to evaluate a timeline,
what are the necessary costs that we are likely to incur,
what are the obligations that we need to pay, and estimate to
the best of our ability, you know, what a reserve for those
amounts would be and we're comfortable with the
$25.1 million.
Q You just mentioned the timeline.
The Committee's objection suggests that the Debtors
expect that regulatory approvals will delay this closing of
the sales. What's your understanding of that issue?
A We've worked with counsel and the company's experts,
regulatory experts to estimate the time period required to
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 39 of 111
40
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
conclude the -- to gain the necessary regulatory approvals --
this is particularly around the RDx business, which has an
international requirement -- and we estimated the timeline
from the point of the contract being -- the purchase
agreement being agreed upon and estimated October 18th as a
reasonable close timeline.
Go ahead. Sorry.
Q What if the Debtors' estimates of their wind-down costs
end up being higher? The Debtors actually need a higher
amount or the timeline ends up being longer, what happens
then?
A So the $25.1 million is a reserve out of the sale
proceeds, as we've noted, and any cash on hand at the
conclusion of a sale. There are other assets that the
company will have behind that it would be part of the
obligations of the wind-down estate to seek to monetize those
assets and it would provide the opportunity for some self-
funding if the amount of funding needs for the wind-down, you
know, exceed the $25.1 million reserved.
Q Okay. Looking at the slide that has just been pulled
up on your screen, can you just describe what this shows with
respect to monetization of some of the remaining assets?
A Yes. The first two line items are an outcrop of the
ZOLL transaction, whereby, there are certain pools of
accounts receivable and inventory that are not transferring
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 40 of 111
41
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
with the sale. So we would seek to recover any amounts, or
AR balances, collect those in the normal course.
We have, for prudence, you know, adjusted the recovery
estimate just in case there are amounts that are
unrecoverable, ultimately, to, you know, two to $2.5 million.
Similarly, with the inventory, we've estimated the
value, the book value of $7.8 million; it's unclear whether
that will have value or not and how to best monetize that to
(indiscernible) recovery estimate there.
There's a tax credit with the State of California for
research and development work that the company has done that
is due, that is not transferring with the sale, and that
we're expecting to collect in the next couple of months.
There is a -- the reference to the Cotia sale; this is
our Brazil operations. The Brazil operations are not a party
to the ZOLL agreement. And there is active work around
seeking how to best monetize that production facility and
real estate that's owned in country and recover value back to
the estate, either as a going-concern sale or as a real
estate and asset sale.
And then there is a handful of select litigation
matters where Vyaire, or one of its affiliates, is a
Plaintiff and where there is a believed, you know, pathway to
recovery and, ultimately, be awarded a recovery in those
cases. So we've estimated values at, you know, the full
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 41 of 111
42
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
freight of what the -- if the case were able to be won
outright or estimates of settlement discussions that had been
taking place prior to our involvement on the low end.
Q How might the Debtors use these assets in the event
that there's a shortfall in the wind-down budget?
A So these values would accrue back to the estate. We
would seek to, you know, achieve highest and best value of
that path forward for all of these items. Ultimately, this
value would accrue back to the estate and be distributed as
part of a plan, but, ultimately, it does provide, you know,
incremental opportunity to self-fund if there are shortfalls.
Q The Committee contends that the Debtors have kind of
kept them out of the loop on this process and failed to
consult with them throughout.
Do you agree with that characterization?
A I disagree with that.
MS. DE PAULO: And if we could go to the next
slide? Yeah, the last slide.
BY MS. DE PAULO:
Q Can you describe, generally, what this timeline that
you helped prepare shows?
A Yeah, we wanted to show the active dialogue that we
were having with the Committee advisors. What's noted here
is weekly and periodic calls that PJT was conducting with --
to bring -- keep them apprised of the sale process and the
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 42 of 111
43
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
evolution of that process.
In addition, AlixPartners, personally, had lengthy
calls when the Committee was first appointed and the advisors
were brought on to bring them up to speed on the cases, let
them know the anticipated path forward, and get them fully
informed on the process so they could serve their clients.
Since then, we've had weekly calls and have provided
regular reporting throughout the process to keep them
apprised of how cash flows are performing, how the sale
process is moving along, and during the sale process,
understand how values were moving.
Q I think we hit on this earlier, but when, specifically,
was the first time that the Debtors communicated a potential
breakdown for a wind-down reserve?
A The first time was as part of a July 2nd presentation,
which anticipated costs to wind-down the business.
Obviously, this process and these estimates have
evolved over time, as the picture became clearer through the
sale process what was going to be needed. So it's been an
evolution and it wasn't until very recently that we had, you
know, a final number, if you will, but it was an active
dialogue and they were brought along throughout the process.
Q Your Honor asked a question to you earlier about when
the reduction of the DIP -- the contemplated reduction of the
DIP amount was communicated to the Committee.
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 43 of 111
44
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Do you recall that?
A I do, yes.
Q And what was that date?
A It was August 11th -- no, August -- was it 9th?
Q The 20th?
A Oh, the first communicated? Got it.
Q Yes, the first communicated.
A Yeah, I'm sorry.
Yeah, August the 20th.
Q When did the Debtors expect that that change would
actually go into effect? How would that change be
implemented?
A It would have to -- well, it was subject to Court
approval, of course, so it was going to be once we had the
sale order approved.
Q Okay.
MS. DE PAULO: You can take this down,
Mr. Raphael. Thank you.
BY MS. DE PAULO:
Q Just a couple questions here to wrap up, Mr. Braley.
How would you describe the Debtors' marketing and sale
efforts and, in particular, their engagement with various
constituencies throughout the process?
A Very active and in good faith and extremely active.
Q Why are the Debtors requesting approval of the ZOLL and
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 44 of 111
45
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Trudell sales today?
A Because in our reasonable business judgment, they
represent the highest and best value for the estate and
provide the best possible outcome for the constituents.
Q Based on your participation in the sales and the
negotiations since, what are your views on whether reduction
of the DIP amount and the estimated holdback here are
necessary?
A I believe they're necessary because I wouldn't want to
jeopardize moving forward with these transactions and they're
necessary to gain the consent of the Debtors. They're also
adequate for their intended purposes and we're comfortable
with that.
Q Okay. And I think you just hit on it, but what are
your views on whether the DIP and holdback amounts are
sufficient to complete these cases and wind-down the estates?
A While tight, they are sufficient for their intended
purposes.
MS. DE PAULO: Thank you, Your Honor.
I will pass the witness now.
THE COURT: All right. Why don't we do this,
we'll take just a five-minute break.
Mr. Braley, you're not to discuss your testimony
with anyone during the break and we'll return for cross-
examination, okay?
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 45 of 111
46
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Stand in recess. Five minutes. Thank you.
(Recess taken at 11:28 a.m.)
(Proceedings resumed at 11:45 a.m.)
THE CLERK: All rise.
THE COURT: Please be seated.
Mr. Braley, I would remind you, sir, you remain
under oath.
THE WITNESS: Yes.
THE COURT: Counsel?
MR. REGAN: Good morning, Your Honor. Kevin Regan
of McDermott Will & Emery --
THE COURT: Welcome.
MR. REGAN: -- counsel for the Official Committee
of Unsecured Creditors.
With your permission, Your Honor, I have several
sets of exhibits, or potential exhibits --
THE COURT: Okay.
MR. REGAN: -- that I've exchanged with Debtors'
counsel. With your permission, I'd like to approach and give
you a copy.
THE COURT: Very good.
MR. REGAN: I also have a copy for the witness,
Your Honor.
THE COURT: Very good.
THE WITNESS: Thank you.
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 46 of 111
47
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
(Pause)
CROSS-EXAMINATION
BY MR. REGAN:
Q Good morning, Mr. Braley.
A Good morning.
Q If I may, I'd like to start with a demonstrative that
your counsel shared with you while you were on direct
examination.
Do you have a copy of that in front of you?
A Which one?
Q This would be -- it's the one that if you look to
Slide 7, it has the timeline.
A I apologize, I don't have a copy of that.
Thank you.
THE COURT: Which PowerPoint is this? Is this the
first one or the second one?
MR. REGAN: This is, I think, the second
PowerPoint that I handed up.
THE COURT: Yep.
MR. REGAN: It's on the screen now.
BY MR. REGAN:
Q So, Mr. Braley, if you could turn to Slide 7.
A Yes.
Q This PowerPoint is a timeline, and you discussed this
timeline with your counsel.
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 47 of 111
48
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
I want to draw your attention, there's a note on the
bottom, right-hand corner of this slide and it says:
"The Committee was appointed on June 26th, 2024."
Do I have that correct?
A Yes.
Q And that refers to the Committee of Unsecured
Creditors, right?
A That's correct.
Q Okay. And if you look at the timeline, do you see
where on July 30, it references:
"Weekly recurring call with the Committee advisors
to discuss sale process and DIP lender status."
Do you see that?
A Yes, I do.
Q And it defines that as a weekly status call?
A I see that.
Q And is it correct that the first such weekly status
call occurred on July 30th?
A With PJT Partners, I believe that's what's reflected
here, yes.
Q Okay. And there were no prior weekly status calls with
the Committee advisors prior to this?
A AlixPartners was conducting weekly calls with the
Committee advisors prior to that. This -- the amounts or the
items in purple are the -- for the PJT Partners' weekly
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 48 of 111
49
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
status calls.
Q That's PJT Partners' status calls with BRG?
A Yes.
Q And so there were earlier status calls with -- between
AlixPartners and BRG?
A Yes, that's correct.
Q Do you know how many of those were?
A The items we've shown in red here are the various
calls. Not every one of these was like a standing status
call; some of these were requests for just diligence items or
calls to discuss specific details of the case.
But the items noted between July 1 and, essentially,
July 29, were the onboarding process, as we would call it,
with AlixPartners, speaking with the Committee advisors to
bring them up to speed on the cases and then that eventually
turned into a weekly call with AlixPartners and then further
supplemented bi-weekly calls with PJT Partners.
Q Are weekly status calls with counsel for the Committee
reflected on this timeline?
A No, they're not.
Q Okay. Thank you for helping me with that.
A No problem.
Q So, Mr. Braley, you and your firm AlixPartners were
engaged by Debtors to serve as their restructuring advisor in
March of 2024; is that right?
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 49 of 111
50
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
A That's correct.
Q Okay. And you have assisted the debtor in preparing
financial forecasts in connection with this bankruptcy
proceeding; is that right?
A That's correct.
Q And you, personally, were involved with preparing
forecasts?
A Yes, I have -- I was or I am.
Q And, for example, you assisted with the involvement of
Debtors' 13-week cash flow forecasts; is that right?
A That's right.
Q And there've been subsequent forecasts, I assume, since
the original 13-week?
A There have been revised projections. The DIP budget
has not changed, but there have been -- we're regularly
updating projections.
Q Okay. And the document that your counsel discussed
with you is Exhibit 5.
Do you have that available?
A I do, yes.
THE COURT: I'm sorry, is this your Exhibit 5?
MR. REGAN: This is Debtors' Exhibit 5.
THE COURT: Okay.
BY MR. REGAN:
Q Mr. Braley, this is the document that reflects
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 50 of 111
51
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
forecasts through what is identified as week 9; is that
right?
A That's correct.
Q And that week 9 is through October 18th; is that right?
A That's right.
Q What is the significance of October 18th?
A That's the anticipated close date for the RDx
transaction with Trudell.
Q And you would agree with me forecasting is not an exact
science, right?
A I would agree.
Q It's not perfectly predicted?
A I would agree.
Q And, in fact, the forecasts that were done in
connection with this bankruptcy have not been 100 percent
accurate; is that right?
A They have not.
Q And there have been various variances reports that have
been shared with counsel for the Committee and Debtors'
counsel and I assume other parties, as well?
A Yeah, there are weekly variance reports that are
provided, prepared and provided, yes.
Q Okay. And these variance reports have been provided
each week over the last 10 weeks; is that right?
A I believe that's right. I don't know the exact number
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 51 of 111
52
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
of weeks, but it's a reporting requirement that was coincided
with the approval of the DIP budget, so that sounds about
right.
Q Understood.
And do you recall preparing a variance report dated
August 16th, 2024?
A Yes.
Q Okay. And if you could turn to Tab 11 in the binder
that I handed up to you --
A Uh-huh.
Q -- and you see that this document is dated August 21st,
2024?
A Yep.
Q And it's titled "Draft August 16th cash variances."
Do you see that?
A I do see that.
Q Do you recognize this document?
A I do.
Q Are you familiar with its contents?
A I am.
MR. REGAN: Your Honor, I'd like to move, it's
Document Tab 11 into evidence, please.
MS. DE PAULO: No objection.
THE COURT: Very well, it's admitted.
(Committee's Exhibit Tab 11 received into evidence)
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 52 of 111
53
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
BY MR. REGAN:
Q Mr. Braley, if you could turn to page 3 of this
document.
A Okay.
Q And do you see where there's a series of columns here,
but the furthest-right column before the notes, it shows 10-
week variances?
A Yes, I see that.
Q There's an amount on the left and a percentage on the
right?
A That's correct.
Q And if we go down to the bottom, before the thick,
black bar there, you'll see there's a series of figures there
for total restructuring receipts?
A Yes.
Q And so based on this document, is it correct that as of
August 16th, 2024, restructuring receipts were $10.6 million
or 64 percent lower than forecasts?
A No, that's not exactly what's conveyed here.
What's conveyed here is that there was a -- we had
drawn approximately $6 million fewer on the DIP at that point
in time, and so we viewed that as a negative variance,
because we weren't -- you know, we weren't using as many
funds at that point in time. In addition, there are some
negative variance for -- variances for professional fees of
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 53 of 111
54
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
about $3.9 million, totaling -- so a combination of those
two, plus some other smaller items totals the negative
$10 million variance, but driven largely by the use of less-
than-forecasted DIP or having lower-than-forecasted DIP draws
at that point.
Q Understood.
So, fair to say that professional fees were higher than
forecast?
A Through that period of time they were, yes.
Q Through that period?
A Yes.
Q And that DIP lending draws were lower than forecasted?
A That's correct.
Q Do you have an understanding as to why DIP draws were
lower than forecasts?
A If you look at the items up above in similar columns,
we were trending positive on overall operations, so our
variances were very small in cash receipts, but our vendor
payments and payroll had been lighter than forecasts through
that period of time, and so that it was providing an
$8.9 million positive variance from what we term our
"operating cash receipts" and, you know, offset by the lower
section that we just talked about.
Q Okay. Did the lenders need to approve the draws before
they could be taken by the debtor?
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 54 of 111
55
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
A They did.
We submitted draw requests and they were -- ultimately,
needed to be approved in order to fund.
Q Did the lenders negotiate the amounts of those draw
requests?
A We negotiated the increments and part of the DIP and so
as long as we were complying with the increment components
that we previously negotiated, I don't think there was a
further negotiation on a specific amount.
Q Now, is it fair to say that professional fees will
continue to be incurred between the closing date of any sale
and the date of an eventual plan confirmation?
A That's right.
Q Okay. And you don't know for certain how long that
period of time will be, between closing of sales and plan
confirmation?
A We don't, no. We would expect it to be, you know,
shortly after the Trudell sale closes, but that's our
expectation at this point in time.
Q The Trudell sell is expected to close in October?
A 18th. Yeah, that's right.
Q Okay. And the ZOLL sale is scheduled to close on
October 4th?
A That's correct.
Q That's roughly five weeks from now?
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 55 of 111
56
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
A Uh-huh.
Q So once the sales closes, the Debtors have to wind-down
their estates, correct?
A That's right.
Q So the Debtors presumably intend to file a plan of
liquidation and have it confirmed by or shortly after
October 18th?
A That's right.
Q Has the debtor proposed a plan of liquidation yet?
A We don't have that plan finalized and it hasn't been
submitted yet.
Q I want to circle back to the DIP draws question.
Have the lenders granted every DIP draw request in
full?
A They have not.
Q They have not?
So they have rejected certain DIP draw requests; is
that right?
A They've asked for supplemental information as part of
approving the DIP draw to understand where the proceeds were
ultimately going to be used for and we accommodated those
requests in order to ensure that we got the money that we
were requesting.
Q Understood.
As a result of exchanging that information with them,
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 56 of 111
57
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
have they come back to you with a request for, or an
insistence upon a lower-than-originally-asked-for DIP draw
amount?
A They have.
Q Okay. I'd like to talk to you about the ZOLL sale.
Has the buyer agreed to a sale closing by October 4th?
A They are actually seeking a sooner -- to close sooner
than that. So, actually, the October 4th date is well within
their closing timeline and they would seek to do it sooner,
if possible. That's what they've communicated to us.
Q Okay. But the closing date has not been set in stone
at this point?
A Not set in stone, no.
Q ZOLL will assume certain contracts in connection with
the sale; is that right?
A We believe so.
Q And if you turn to Tab 9 from the binder I provided,
this is the first supplemental notice to contract parties of
potentially assumed and assigned executory contracts and
unexpired leases.
MR. REGAN: And this is a document, Your Honor,
that was already filed and is in the record as Doc. 462.
THE COURT: Okay.
BY MR. REGAN:
Q And, Mr. Braley, if you turn to what is noted as
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 57 of 111
58
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
page 710?
A Yes, I see it.
Q And this appears to be a list of potentially assumed
and assigned contracts; is that right?
A That's correct.
Q And does this list all the contracts that ZOLL has
asked to assume as a result of the sale?
A I wouldn't characterize it like that.
I would characterize -- this isn't -- this is a list of
contracts, executory contracts and cure amounts for contracts
that are -- could be assumed, but I wouldn't -- this list is
not a list of assumed contracts; it's potentially assumed
contracts.
Q Potentially assumed contracts.
You don't know how many of these contracts ZOLL is
interested in assuming?
A We don't.
And the buyer has further time, once the sale is
approved, it can conduct further diligence, and, ultimately,
they're required to provide a final list prior to close.
Q Understood.
Now, if we take this list and we total up all of these
different contract figures that we see in this list, we get
to approximately $9.1 million.
Does that sound right?
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 58 of 111
59
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
A Yeah, I believe that's correct.
Q Okay. But ZOLL has agreed only to cover $5 million of
total cure costs; is that right?
A That's right.
Q Which would leave the Debtors to cover the additional
$4.1 million; is that right?
A It's -- that's the way the APA is written, that we're
obligated to pay any overage above and beyond the cap.
Q Now, you prepared an estimated holdback schedule; is
that right?
A Yes.
Q Does that holdback schedule account for a payment of
$4.1 million in cure costs?
A It does not.
Q Okay. And if the cure costs are not paid, these
contracts cannot be assigned to ZOLL; is that right?
A Well, it may be said a different way.
If the contract is assumed and assigned, a cure amount
would be due if it hasn't been negotiated, further
negotiated.
Q And what happens if that cure amount is not paid?
A It wouldn't be able to be assigned.
Q Can ZOLL refuse to close if it doesn't get all the
contracts it wants to have assigned to it?
A I'm not certain.
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 59 of 111
60
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Q Do you know if it would be a breach of the APA if they
don't get the contracts they want to have assigned to them?
A I don't recall at the moment.
Q Pursuant to the ZOLL APA, ZOLL is acquiring the equity
of certain international nondebtors; is that right?
A That's correct.
Q And these nondebtors have accounts payable balances; is
that right?
A They do.
Q Were you able to verify these accounts payable
balances?
A We are using the company's books and records as an
estimate of the value of those obligations.
Q And when you say, "the company's books and records,"
you're referring to the books and records of the debtor or of
the nondebtor entities?
A Of all the -- I mean, it's a consolidated business and
each of the entities has their own balance sheet, if you
will, so we're using the company's monthly financial records
as -- to determine the amount of liabilities at any of those
entities.
Q Is that a challenging exercise to determine the amount
of accounts payable?
A Well, in so much as we just wanted to validate what,
you know, that the amounts were reasonably accurate in our
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 60 of 111
61
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
business judgment and, ultimately -- but, no, the company
prepares monthly financial statements, in accordance with
GAAP, so...
Q These are nondebtor companies, right?
A That's correct.
Q So you don't have the same level of access and insight
into these nondebtor entities as you do into the Debtors, do
you?
A I don't know of any financial records we've been unable
to obtain. Some of the accounting personnel don't reside in
the U.S., but it's a fully functioning finance organization,
so we have access to anything we seek.
Q And these creditors -- there are creditors of these
nondebtors, correct?
A They are.
Q And these creditors and nondebtors will be paid on
accounts payable while unsecured creditors in the U.S. will
receive no recovery on their claims; is that right?
A To the extent that amounts, the prepetition amounts are
part of a cure payment, they're -- that -- yes, there is
going to be an unsecured pool that is likely to get no
recovery on their claim.
THE COURT: Hang on, I'm not sure I followed that
answer.
THE WITNESS: Okay.
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 61 of 111
62
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
THE COURT: Can you ask the question again?
This was about the foreign entities, nondebtor
affiliates and unsecured claims against those, not cures,
right?
MR. REGAN: That's right. In contrast to the
cures.
Let me -- I'll ask the question again and see if
we can get to the bottom of that.
BY MR. REGAN:
Q So these creditors of nondebtors will be paid on
accounts payable; is that right?
A To the extent that they are -- that their entity is
being acquired through a stock transaction or to the extent
that they are -- that there's a nondebtor that needs to
convey an asset as part of a sale process, the amounts or the
liabilities of those entities are projected to be satisfied.
Q And those accounts payable don't need to be cured in
order for this transaction to close?
A They don't, no.
Q Okay. Meanwhile, for U.S. unsecured creditors with
contracts that are not cured, they would, presumably, be left
with nothing?
A To the extent they're not cured or if they don't have a
contract, yeah, there's a mechanism for that, that's correct.
Q Okay.
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 62 of 111
63
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
A For prepetition amounts, not for post-petition amounts.
Q Okay. Turning to the Trudell sale closing.
I think we established that the Trudell sale is
expected to close by October 18th; is that right?
A That's correct.
Q But that date isn't set in stone either, right?
A It is not.
Q And that closing date is contingent on certain factors?
A It is, yeah.
Q Including, for example, that the sale requires
regulatory approval in Germany?
A That's right.
Q And you testified, I believe, on direct that you
estimated the regulatory approval would be achieved by
October 18th; is that right?
A That's right.
Q What is that estimate based on?
A
It's estimated based on an expectation that anywhere
from eight to ten weeks could be required for that. We
picked a nine-week period from the point at which the
contract was signed as a reasonable estimate, you know, not
landing on eight, not being overly optimistic or overly
detrimental.
Q
The debtor isn't in control of that timeline from a
regulatory --
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 63 of 111
64
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
A
Not entirely, no. We, obviously, have -- we are
actually -- we are working with the buyer to seek and gain
the approvals, but, no, it's not entirely within our control.
Q
So, it is entirely possible that it could go past
October 18th.
A
It's possible.
Q
So, I want to turn to the holdback schedule. This is
Tab 10. This, again, is a document that has been filed with
the Court, Document 470. You can see its page 58 of 111.
This is the estimated holdback schedule, is that right?
A
That’s right.
Q
Do you recognize this document?
A
I do.
Q
And you assisted in preparing this?
A
I did.
Q
Were you primarily responsible for preparing this
document?
A
I was.
Q
Now, this estimated holdback schedule, this assumes an
October 18th closing date. Is that right?
A
To some degree this is agnostic to the close date.
This is really to fund the winddown efforts of the business
and satisfy liabilities that would exist post-close. So,
while its presumed to begin immediately after October 18th,
it's not dependent upon an October 18th close.
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 64 of 111
65
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Q
There is some presumed time period over which this
estimated holdback schedule is assumed to be operative.
A
Yes. That is correct.
Q
Beginning approximately October 18th.
A
Beginning approximately October 18th.
Q
And ending at some indeterminant time in the future.
A
We estimate work streams that will last up to 15
months, but with the majority of that work being conducted in
the first two to three months and then very little activity,
you know, thereafter, but a majority of the work would fall
in the first two to three months, less so in the next four to
six and limited thereafter.
Q
Would that 15-month estimated timeframe be effected by
the date on which a plan confirmation occurs, plan approval?
A
I don’t believe so. I think much of the work that is
going to be done here would begin, you know, prior to a plan
approval as there will be work that needs to be done to
address employees or legal entities that are not going to be
conveyed to begin the winddown process final to the final
plan.
Q
There are professionals fees that will presumably be
incurred in connection with that plan approval process, is
that right?
A
With the plan approval?
Q
Right.
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 65 of 111
66
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
A
Yes.
Q
And if that plan approval process goes longer than
anticipated for any reason you would expect that those
professional fees would increase with time, correct?
A
Yeah. We, in fact, projected that the cash flow
forecast that you referred to earlier was done on a per
professional basis and it was with the expectation that a
plan may be able to be achieved by October 18th so the
workstreams that are necessary to get to a plan, solicit a
plan, to get approval, to negotiate any outcomes are all
accounted for. The timeline could slip, but we believe that
the professional fees budget reflected in the budget is
agnostic a bit to timeline because it's the same set of
workstreams; although, it could happen over a longer period
of time.
Q
I think you said that you made estimates with an
assumption of a plan confirmation in the neighborhood of the
October 18th date, is that right?
A
Well, I think that was more for simplicity sake if we
believe that there is an October 18th close to complete the
weekly look at that point in time and I guess what I was
referring to is that so what is reflected here is the
professional fees needed to get to a plan confirmation.
This forecast, essentially, concludes on the week of
October 18th but if a plan is unable to be, you know,
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 66 of 111
67
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
solicited, approved and completed by then, which the timeline
is, obviously, moving on us, then it would need to be
extended out for a couple of weeks. Again, just to reiterate
my point, we believe that the professional fees forecasted
here are adequate to the timeline if it extends beyond
the 18th.
Q
When you say it would need to be extended out a couple
of weeks you mean the forecast would need to be extended out
a couple of weeks?
A
The -- yes, the forecast would need to be extended out
a couple of weeks.
Q
So, the holdback schedule does not necessarily account
for a period in time between the end of your current
forecasting and whenever closing might occur?
A
Well, I'd say it actually does because what we are
assuming here is that once the company -- once the sale
transactions are closed there is no operations. There is no
employee payroll that has not been accounted for in the
winddown budget, there is no receipts that aren't accounted
for in the assets identified here, there is no other
operating expense of the business.
The business has, effectively, been shut down. It would
just be the tail of the process to get to the plan
confirmation that might extend beyond this but at that point
in time you are, effectively, into the winddown of that. So,
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 67 of 111
68
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
if that overlaps a little bit with when the plan is
ultimately confirmed we don’t see that that requires more
funding. We just see that the activities -- there might be
some activities that could extend beyond the 18th.
In this case that you are putting forward, if there is
a plan confirmation that is two weeks to that then a
professional fee budget would likely go out an extra couple
of weeks, but the same aggregate amount would be expected to
fund all the way to a plan confirmation.
Q
Just to be clear, you don’t know exactly how much
professional fees will be incurred during a period between
close and plan confirmation. You have no way of knowing
that.
A
That is true. I mean we have provided -- we prepared a
budget or professional fee forecast based on the work streams
that are required by the individual professional groups and
with an expectation of what's it going to take to get to plan
confirmation. We then put that into a weekly look. So, to
the extent that the weeks change, that the aggregate amount
is not changing. It would be -- you know, we would anticipate
that you would see variances in the individual weeks, but the
aggregate amount is still expected to remain the same.
Q
The prior forecast for professional fees have come in
low, right, or the forecast had been low. The actual
professional fees have come in high.
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 68 of 111
69
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
A
That’s correct. That is why it was important that we
do a reforecast to get comfortable with the lower funding
amount. So, we refreshed this professional fee forecast in
earnest on a per professional basis. Its critical to make
sure we are not short here and we did our best to update this
forecast with the best available information we have
acknowledging the negative -- the variances that we had
realized to this point.
Q
Understood. What is at stake if the debtor comes up
short on professional fees?
A
Well, I don’t see why we would. If we were short, it
would impact our cash balance, our net cash balance, but,
again, I am not expecting that we are going to be short
there. To the extent needed, I guess we would seek to self-
fund through the realization of any of the asset values or
have to reallocate within buckets in the winddown budget and
seek to utilize some of that funding if it was absolutely
required.
Q
I want to talk about the DIP funding briefly. So, the
DIP lenders originally committed $45 million in new money to
the debtors for these cases, is that right?
A
That is right.
Q
And the DIP budget included $5 million of such
commitments for winddown activities, is that right?
A
That’s right.
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 69 of 111
70
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Q
And the debtors and the DIP lenders agreed to reduce
the total DIP commitments from $40 million to $45 million, is
that right?
THE COURT: Vice versa, from $45 to $40.
MR. REGAN: From $45 to $40. Thank you, Your
Honor.
THE WITNESS: That’s correct.
BY MR. REGAN:
Q
And when did that occur?
A
there was a conversation around it prior to the
auction. So, I think it was around about August 9th. Then
in the subsequent week it was further refined as we got into
the auction.
Q
That was a conversation with who or between whom?
A
Between the DIP lenders and the company and its
advisors.
Q
When was the committee made aware of that agreement?
Do you know?
A
The committee was made aware of it, I believe, on
August 20th.
Q
Do you know how they were made aware of it?
A
It was included in the motion for the sale.
Q
It was included in the sale order?
A
Yes. In the sale order draft.
Q
Do you know if it was directly communicated to the
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 70 of 111
71
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
committee or its counsel that that agreement had been
reached?
A
I don’t know about counsel. It had been discussed that
there was a potential reduction in the DIP funding with the
financial advisors, but I don’t know if counsel was made
aware.
Q
Turning back to tab 10, which is the holdback schedule,
I think you mentioned on direct that there was an original
holdback schedule prepared in July, is that right?
A
That’s right.
Q
But that was not a final holdback schedule.
A
No.
Q
Did that even have numbers on it?
A
It did.
Q
Those numbers, I assume, changed over time.
A
They have.
Q
Do you know what the original total for the estimated
holdback in July was?
A
I don’t recall the one on July 2nd. It contemplated a
different outcome. So, it was -- the scenario that it was
forecasting was vastly different. I don’t recall at the
moment.
Q
The final holdback schedule was the product of
negotiations with lenders, right?
A
That’s correct.
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 71 of 111
72
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Q
And there was a give and take on that?
A
Yes.
Q
Did debtors originally propose a higher number?
A
We did originally, yes.
Q
Do you know what that number was?
A
That was $29.7 million.
Q
Why was that number changed to $25.1?
A
That number was changed in order to, you know,
facilitate a negotiated negotiation to gain the lenders
support for the sales. It was adjusted to a level that we
felt we would, obviously, try and account for potential
variances when we are setting reserve levels. So, we refined
our estimates and were able to get comfortable with $25.1. It
was heavily negotiated and ultimately that is where we
landed.
Q
Understood. To be clear, that $25.1 was not changed
from $29 to $25 as a result of updated forecasting, is that
right?
A
We had to update the forecast in order to see if we
were comfortable with $25.1.
Q
After the $25.1 number was suggested, I assume?
A
No. There was a lot of back and forth. Frankly, this
number is higher, much higher, I think, then the lenders, DIP
lenders, would have preferred, but we had hit a point where
we weren't comfortable in making any further reductions and
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 72 of 111
73
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
we were able to, you know, understand where we had potential
ability to either do something more efficiently, do it at a
lower cost, or avoid certain liabilities was the reason we
were comfortable in moving down from $29.7 to $25.1.
Q
So, there are four categories reflected in the holdback
schedule. There is estimated employer related costs,
estimated post-petition AP, and 503(b)(9) claims, estimated
tax, and estimated winddown and other expenses. Is that
right?
A
That is correct.
Q
Okay. Does this account for accounts payable?
A
It accounts for accounts payable that are not being
assumed by either of the buyers. There is a bucket that has
been negotiated in both of the sale agreements for the
assumption of post-petition accounts payable or
administrative claims, if you will. That bucket for Zoll is
$8 million and there is a similar bucket of approximately
$3.3 or $3.4 million for Trudell.
Q
Okay. So, the bucket, as accounted for in the holdback
schedule, is the estimate post-petition AP and 503(b)(9)
claims?
A
Mm-hmm.
Q
And there is $1.3 million allocated for that?
A
That’s right.
Q
Now is it true the debtors accounts payable systems are
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 73 of 111
74
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
complex? Would you characterize them as complex?
A
Yes. That’s a fair characterization.
Q
Using these systems, are the debtors able to determine
their accounts payable balance at any one moment in time?
A
With a little work we are able to estimate the accounts
payable balances, but it's not a push button exercise.
Q
Is there a lag in recognizing payables due to these
complex systems?
A
Yeah, but that is common for any system in so much as
until an invoice has actually been processed. It's not
technically an accounts payable, it's an accrued liability.
So, when we estimate what the total liabilities are we are
considering what is currently processed in our accounts
payable system as well as estimating what amounts -- what is
the accrual balance that hasn't made its way into a formal
accounts payable yet.
Q
The holdback schedule accounts for ongoing
administrative costs, is that right?
A
That’s correct.
Q
Where is that accounted for in the holdback schedule?
A
That in estimated winddown and other expenses.
Q
And there is a total of $9.1 million allocated for
that?
A
That is right.
Q
When is the administrative and governmental bar date,
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 74 of 111
75
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
do you know?
A
Well, the administrative bar date hasn't been set yet.
The governmental bar date is December 9th, I believe.
Q
So, is it fair to say, given that those dates haven't
passed yet, that the debtors do not know the universe of
administrative or governmental claims because the dates
haven't passed yet?
A
We don’t know the official numbers. We have made
reasonable best efforts to estimate these amounts based on
our experience with the business and based on our
professional experience prior to this point.
Q
And does this holdback schedule account for all
accounts payable accrued and accruing from and after the
petition date?
A
Does this holdback schedule?
Q
Yeah.
A
No. As I described, there was a heavily negotiated
component with both buyers that they assume any accounts
payable or accrued liabilities, post-petition liabilities, if
you will, for any vendor that services that business. So,
that is approximately -- between the two that is a value of
$11.3 million that would be to satisfy any amounts due to
vendors that support those businesses post-petition.
Q
Right. And because of the cap, though, on cure
payments there is about $4.1 million that is not being
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 75 of 111
76
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
covered by Zoll. Is that right?
A
We're speaking about cures again? I want to be clear,
I was talking about post-petition liabilities there.
Q
Post-petition liabilities, they are not accounted for
in this holdback statement.
A
They are not. They are accounted for in the APA's and
with the buckets that have been established for buyers to
assume the liabilities for post-petition liabilities.
Q
And buyers are going to assume 100 percent of the post-
petition --
A
Up to their respective caps.
Q
What are those caps?
A
I think it's -- well, it's more complex on Trudell
because it's part of their holdback, but estimated at
approximately $3.3 million for Trudell and there is an
$8 million bucket for Zoll for the ventilation business.
Q
Are those caps going to be sufficient to cover the
total amount of accounts payable?
A
We believe so. We believe they may be more than
sufficient, yes.
Q
One more question, Mr. Braley.
A
Sure.
Q
Is the debtor paying post-petition liabilities as they
come due?
A
There was a period of time when our funding was not
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 76 of 111
77
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
coming forth. I think our AP payments were disrupted for a
period of about a week and a half. Since then, we have been
making payments. You know, there is a payment review process
each week to pay amounts as they are due and payable as part
of the normal accounts payable process.
Q
Did the debtor need to rely on credit for that period
in time when it was unable to make payments as they came due?
A
When it was unable to make payments as they came due, I
think we had to reduce the amount of payments. It's not that
no payments went out, it was reduce the amounts to make sure
we were paying, you know, anybody who would become past due
or if it was a critical -- you know, had a critical nature to
it. So, for those two weeks, that week and a half, I would
say, we moderated the -- no, two weeks we moderated out
payments process and then resumed normal function once our
funding resumed.
MR. REGAN: Thank you. No further questions at
this time.
THE COURT: Redirect.
MS. DE PAULO: Yes, Your Honor.
THE COURT: Mr. Braley, you doing all right or do
you want a break?
THE WITNESS: I'm fine. Thank you though.
MS. DE PAULO: Thank you, Your Honor. Tabitha De
Paulo from Kirkland & Ellis again on behalf of the debtors.
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 77 of 111
78
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
REDIRECT EXAMINATION
BY MS. DE PAULO:
Q
Just a few questions to wrap up here. Counsel for the
committee started out discussing this timeline with you. Can
you just clarify, was this timeline intended to show all
communications between the committee and the debtors?
A
No, it was not.
Q
Were there other communications that you are aware of
that were not included on this timeline?
A
Absolutely, yeah. There were multiple ad hoc requests
that were addressed or requests for a phone call or things
that were not official organized or even text communications
at times. So, yes, there was a dialog outside of these
items.
Q
Okay. You looked with counsel for the committee about
a variance report from August 16th. Were there other
variance reports that you have provided?
A
Each week we have provided a variance report and
provided that to both the DIP lenders as well as the
committee and it's been a reporting obligation we have under
the DIP.
Q
Can you give us an understanding of how those variance
reports have shaken out over the course of these cases, how
they are looking?
A
Yeah, I think -- and I tried to describe this before,
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 78 of 111
79
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
but I think it's important to note two different components.
One is kind of operating performance and our operating
performance has -- we have had a small positive variance in
our collections and our accounts receivable. We have had a
positive variance on payroll and trade AP payments netting to
a positive operating variance of over $8 million. So,
$8 million either more received or less spent over that
period of time. Then there was a negative variance on
professional fees about $3.9 million.
Q
Counsel asked you a few questions about the guarantees
that regulatory approval for the sales would come through on
that timeline. I think we talked about this in direct, but
how did the debtors determine that the August --
October 18th, sorry, date was a reasonable date to include
for that timeframe.
A
We spoke to the regulatory personnel at the company who
know this process best, because they have been through it
before, to get a reasonable estimate of how long they
expected it would take for the German authorities to grant
the relief they are looking for, the approvals they are
looking for. Again, that was estimated at eight to ten
weeks.
Q
Let's look again at the holdback schedule which,
Mr. Raphael, this was slide 4, if you could pull that up for
us.
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 79 of 111
80
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Counsel for the committee asked you a few questions
about the $12.1 million here and payment of those costs as
compared to payments to general unsecured creditors. I just
want to be clear here, have the debtors made any commitments
to pay this $12.1 million for international liabilities?
A
No. These are estimates, but there is no commitment to
pay. Ultimately, a plan administrator will likely be
appointed and that person will ultimately need to determine
what amounts ultimately get paid, but these were used to
establish a reserve level.
Q
And we -- you have a few categories in this holdback
schedule. In the event of a shortfall in one category, how
might those amounts be made up?
A
We are a little bit agnostic to the categories, but if
there was a shortfall in a particular category more than
likely we would reallocate from other categories.
Q
And just to reiterate here, what are the debtors views
on whether the amounts that you are forecasting and have
provided for in the holdback schedule are reasonable here?
A
What is my opinion on that?
Q
Yes.
A
My opinion is in my professional judgment both the
$40 million DIP funding is adequate to get the company -- to
fund the company through the closing of both sales and the
$25.1 million reserve is adequate to the winddown efforts
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 80 of 111
81
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
that are currently imagined or expected.
MS. DE PAULO: Your Honor, if I could just confer
with counsel briefly and then we will try to wrap up.
THE COURT: Sure.
(Pause)
MS. DE PAULO: Thank you, Your Honor. That is all
the questions I have at this time.
THE COURT: Any recross for the witness?
MR. REGAN: No, Your Honor.
THE COURT: Mr. Braley, thank you. You may step
down.
THE WITNESS: Thank you.
(Witness excused)
THE COURT: Mr. Winters, does the debtor have any
other evidence? We have admitted the declarations. We have
received the testimony of Mr. Braley. I think we have
admitted a number of the exhibits that were addressed. None
of them were the subject of controversy or objection in the
examination. So, any items that were addressed by the
witness I would be prepared to admit unless there's an
objection.
UNIDENTIFIED SPEAKER: No objection.
MS. DE PAULO: Your Hoor, just as a housekeeping
matter we used the holdback schedule that is Exhibit 4 in the
debtors set of exhibits. If we could just move to admit that
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 81 of 111
82
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
at this time.
THE COURT: I think both sides look at that.
Sure, that is admitted then.
(Debtors' Exhibit 4 received into evidence)
MS. DE PAULO: That should conclude our
evidentiary presentation for the debtors case in chief then.
THE COURT: Very good. Let me ask, does the
committee have any witnesses or testimony to adduce or are we
turning to argument?
MS. KANDESTIN: Argument.
THE COURT: Okay. So, why don’t we do this, let's
just take a ten-minute break. We will reconvene at 12:45 and
the Court will take argument from the parties with respect to
the narrow issues.
Mr. DeBaecke, did you wish to be heard?
(No verbal response)
THE COURT: Oh, okay, you're just jumping the gun.
(Laughter)
THE COURT: I've sat in those benches; they are
not that comfortable. I would stand if I were you as well.
All right. We will take ten minutes. Stand in
recess. Thank you.
(Recess taken at 12:35 p.m.)
(Proceedings resumed at 12:48 p.m.)
MR. WINTERS: Your Honor, its Mr. Winters. I
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 82 of 111
83
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
can't hear you. I don’t know if you can hear me. Now I can.
THE COURT: Are you able to hear me now?
MR. WINTERS: Yes. I am, Judge.
THE COURT: Okay. I assume that you would go
first if you're doing the argument. It is your motion.
MR. WINTERS: Yes, Your Honor. I am going to
dispense with the slide since they were more designed for an
opening and you have already seen a bunch of slides today. I
will also plan to be relatively brief since you have heard a
lot from us. We filed our brief overnight and it’s the
Friday before a holiday weekend.
I think two of the most important numbers that you
heard about today in the testimony are $90.5 million which is
the total proceeds from a sale of substantially all of this
business after a robust marketing process that nobody is
disputing. The other is the total amount of the DIP
including the rollup which there is some back and forth about
fees, whether the rollup applies to the $45 or the $40. I
think it's just the $40. It doesn’t really matter because
none of that is ever going to get paid.
The minimum amount of that DIP is $160 million.
That is an allowed secured priming lien on all the assets of
the estate and a superpriority administrative claim that
needs to be paid before any other, even admin claims are paid
or priority claims are paid or secured claims are paid, let
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 83 of 111
84
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
alone general unsecured claims.
In a case where recoveries barely clear the funded
amount of the DIP and don’t get anywhere close to clearing
the agreed rollup amount of the DIP, general unsecured
creditors aren't going to get a recovery. So, this isn't
changing that. The challenge period has expired. So, these
claims are not subject to any contest.
So, where we find ourselves is absent DIP lender
consent these 160 million plus of claims need to be paid in
full in cash prior to any of those categories I mentioned;
that’s true for a Chapter 11 plan or any other context. So,
in short, in all cases these claims are entitled to full cash
payment, first in line, absent DIP lender consent. The good
news is that the debtor obtained DIP lender consent to pay a
host of claims in front of the DIP lenders, 25 million of
them. This holdback will be used to pay admin, priority, and
international claims necessary to implement the sales and to
implement a Chapter 11 plan.
To obtain the DIP lenders consent as holdback, the
debtors agreed to reduce the DIP commitment from $45 to $40
as we heard many times today. This concession is subject to
Court approval. We are asking for that approval today. This
concession was very important to the DIP lenders because they
want to fund as little as possible in cash between now and
closing, for understandable reasons under the circumstances
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 84 of 111
85
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
given how distressed the situation is.
The concession was acceptable to the debtors
because, as the testimony showed, we're confident there is
enough money to get us to closing. In return for this
concession, the debtors received, essentially, another
$25 million of funding for the cases.
I would like to talk a little bit, Your Honor, now
about the surprise narrative that showed up in the
committee's objection filed yesterday afternoon. The
narrative is false and the evidence showed that. When it
comes to be consulted on the bids, the bidders, the marketing
process, the evidence will show that the committee's advisors
were consulted on a near daily basis, and the evidence did
show, Your Honor (indiscernible) marketing process. It is
simply false that they were not consulted. It's also false
that they were not consulted on the holdback, the winddown
and the DIP reduction.
The paydown at the closing of a sale transaction,
subject to a holdback, is in the bidding procedures order.
It was in the order that was filed on the first day and it
was in the order that was entered. The committee --
THE COURT: The amount was not.
MR. WINTERS: That’s right, Your Honor. I agree,
but the concept that the proceeds would be used to pay down
the DIP, subject to an agreed holdback has been out there
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 85 of 111
86
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
since the beginning of the cases and has been agreed. So,
the committee really should not be able to come now and say
they are objecting to the concept of the paydown, Judge,
especially without providing any alternative approach to
obtain the secured lenders consent to the sales.
In its objection the committee attempts to put
forward a narrative that there was some backroom deal around
the DIP reduction and the holdback. This is also false.
Going into the auction the funded new money amount of the DIP
was impaired based on the starting bid. The lenders did not
want the auction to even go forward for that reason. On
august 11th, the Sunday before the auction, we agreed over
email with DIP lenders counsel to propose a $40 million DIP
reduction that was going to be proposed in the sale orders.
We expected those sale orders to be filed as soon as the next
day.
The auction was scheduled for the 12th, we
expected to file those sale orders coming out of that
auction. The auction went on for three days and when we were
done with that we still weren't done with the RDx bidder who
took the following weekend to get done. We then filed the
proposed orders which had the reduction in them. There was
no intention to hide this from the committee in any way.
I, frankly, personally had no idea that this was
going to be so controversial and didn’t until we walked into
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 86 of 111
87
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Court on Monday. After that, we agreed -- on Monday we
agreed to the committee's adjournment to Friday and sat down
and walked them through all this. That was the adjournment
that they requested. They have all the information now.
They have what we are proposing to get this deal done.
Same with the committee's objection that they
(indiscernible) consulted on the holdback reserve. Its false.
The committees advisor, BRG, first saw a version of the
buildup to the holdback reserve on July 12th. That reserve
has been under continued negotiation until Monday of this
week when it was finally agreed with the lenders. We
immediately walked the UCC advisors through it on Monday
after we were here in Court. They asked for an adjournment
to Friday to keep reviewing those numbers. We granted the
adjournment.
On Tuesday, we filed proposed orders with all the
numbers filled in and the holdback schedule laid out and we
are now here asking for Court approval of those numbers.
There was no surprise. Is it a tight timeline, yes, but that
is by virtue of how distressed the situation is, how tight we
are on cash.
In short, this really comes down to whether the
$40 million DIP and the $25 million holdback are enough to
fund these Chapter 11 cases. To be clear, that's $65 million
of funding for a business with a market value of
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 87 of 111
88
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
$90.5 million. So, that is a lot of funding.
Reduction of the DIP commitment, and here's what
Mr. Braley's testimony shows, reduction of the DIP commitment
and the DIP paydown were necessary to get the lenders to
consent to the sales. As mentioned, the sales were
$50 million below the $140 million minimum bid imposed by the
lenders. As it stands, after holding back the $25 million
winddown reserve, the proceeds that cleared the funded amount
of the new money portion of the DIP, and Mr. Braley testified
to this, the proceeds are clear that the funded amount are
$13.4 million. That is against over half a billion dollars
of secured debt that was lent to these debtors. That is
their recovery. And yet the DIP lenders still, from today
forward, need to fund another $9 million under the DIP to get
us to closing of these sales. That is a tough pill to
swallow.
So, we gave two concessions: a reduction in a DIP
commitment from $45 to $40, subject to Court approval, and a
slightly smaller winddown budget which is still a very, very
large number for a case of this size of $25 million; both
subject to Court approval. That is what we are here today
asking for.
The committee wants the Court to call the lender's
bluff on this. My concern is that that could lead to a
disastrous outcome. We are here trying to save these two
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 88 of 111
89
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
businesses and as you heard, there is no chance of a recovery
to general unsecured creditors, but there is a chance of a
going concern outcome that satisfies admin claims and
priority claims in full, that it continues a bunch of
contracts, that keeps a bunch of employees employed and that
transfers a bunch of critical product lines to reputable
medical companies.
So, that is the outcome we are trying to
facilitate today. We don’t love the reduction from $45
to $40. We don’t love having to agree to the skinniest
winddown we could. We did it because we believe that its
necessary to save the business. That is why we are here
today.
Mr. Braley's testimony also showed that the
$40 million is a reasonable amount of DIP funding to get us
from here to closing. Again, the critical issue from the
perspective of the lenders is to limit the amount that they
need to fund into a very risky situation with a very low
likelihood of any major recovery.
The testimony also showed that the $25 million is
a reasonable holdback amount to fund a plan. The committee
focuses on the fact that the vents buyer is only agreeing to
pay up to $5 million of cures when there are potentially
$9 million of cures. We have told that buyer we can't close
unless they can fit those cures within the $5 million and we
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 89 of 111
90
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
have a fiduciary out that runs through closing.
So, they are going to need to talk to those
vendors and get that inside that budget and I think they
will. If they don’t we are going to ask them to increase it
or we are going to find the money somewhere else either in
the $25 or we're going to be back with our hand out again.
That is a reasonable deal to make under the circumstances of
a case that is as distressed as this one.
Similar is the story about closing the deal on
October 18th. The winddown is going to start when the second
sale closes. The debtors aren't going to have any business
anymore after that. So, most of the DIP budget is not needed
at that point. It's true that at this point plan
confirmation will likely lag by a matter of weeks. We plan
to get a plan on file imminently. That shouldn’t materially
change the $65 million of funding that we have for this and
it can be any issue with professional fee overrun and it can
be remedied by the group of folks in the courtroom today
getting in a room after this and getting this thing settled.
Your Honor, in sum, the evidence showed that
reducing the DIP commitment to $40 million and agreeing to a
$25 million holdback reserve are a sound exercise of the
debtors' business judgment. We would accordingly respectfully
request that the Court approve the sale orders as submitted
by the debtors on Tuesday.
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 90 of 111
91
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Unless the Court has any questions, I will yield
the podium.
THE COURT: I don’t have questions at this point,
Mr. Winters.
I would ask if the committee wishes to be heard --
I'm sorry, before I hear from the committee I meant the
lender. Does the lender wish to be heard before we hear from
the committee? Good afternoon, counsel.
MR. BRODY: Good afternoon, Your Honor. Josh
Brody, Gibson Dunn, on behalf of the lenders.
THE COURT: Welcome.
MR. BRODY: Candidly, I was not going to stand up
and say anything.
THE COURT: That is why I asked.
MR. BRODY: I appreciate Your Honor doing that.
Look, I think the only thing I could add to what Mr. Winters
said is perhaps a little bit of perspective. I think it's
often the case that from Your Honor's point of view in
situations like this where the value just isn't there that
there is a certain perspective that Your Honor would have to
make sure the lenders aren't doing anything taking advantage
of anyone.
Sometimes, you know, I think Your Honor could look
at things and wonder this one, candidly, I would submit
appreciated what I am about to say may be a self-serving
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 91 of 111
92
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
statement, it's not a close call. The lenders are -- my
clients are taking it on the chin. At various points in time
in this case Your Honor may recall we moved and agreed to
move a number of the bid deadlines because of the fact that
at certain points it was unclear whether or not the funded
amount of the DIP the new money was going to be covered.
We worked with the debtors and the debtors
advisors multiple times throughout the course of this case to
make sure that we gave the debtors the best opportunity to
maximize value and keep these businesses running. Think at
the beginning of the case, even before the company filed, the
indications of interest that we lent and put the new money
into and agreed to go forward on I think was $130 something
million dollars potential bid value and we are clearly not
anywhere near that. I honestly don’t know and I can't
remember the last time this happened to me in my career, I
don’t know right now that my clients are better off with this
outcome then had they not lent anything into the DIP and had
liquidated this under Chapter 7 from day one.
So, I think from our perspective we have been
extremely reasonable to come to the best outcome we could and
I think that what the debtors are asking for I think really
is the best outcome for these estates.
THE COURT: Thank you for your comments.
MR. BRODY: Thank you, Your Honor.
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 92 of 111
93
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
THE COURT: Does the United States Trustee have
any position with respect to -- there's a narrow issue today
before us and I would just ask if your office has any
position at which point the committee then could respond to
pretty much everybody.
Mr. Hackman, good morning. Good to see you as
always, or good afternoon.
MR. HACKMAN: Good afternoon, Your Honor. May I
please the Court, Ben Hackman for the U.S. Trustee.
We take no position on the present dispute. We
had provided informal comments about the forms of sale order
and those have been revised.
THE COURT: I believe those have been built in
satisfactorily.
MR. HACKMAN: I thank counsel for working with us
on our comments.
THE COURT: Very good. Thank you, Mr. Hackman.
MR. HACKMAN: Thank you.
THE COURT: Okay. I will hear from the committee.
Ms. Kandestin, good to see you.
MS. KANDESTIN: You too, Your Honor. I wish it
was under better circumstances.
Your Honor, we support the sale. I think that has
been very clear. Up until Monday we thought everyone was
working towards the same goal of a going concern sale of
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 93 of 111
94
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
these assets and getting to a consensual plan that hopefully
would include recoveries to unsecured creditors. It became
readily apparent, after Monday's hearing, that these goals
were not shared with the lenders and the debtors.
It was only after Monday's hearing that we learned
of this allocation agreement, as we call it in our papers,
that the debtors and lenders entered into on August 11th.
The fact that they slipped it into a sale order that was
filed on August 20th, to me, is not a proper discussion to
have with the committee. At no point during the auction or
following the auction or at any point leading up to Monday
where we told, specifically addressed, that this entire
agreement existed or that the DIP was going to be reduced by
$5 million which is a material modification of the DIP and
there is nothing in these orders that puts that on notice.
There is no motion. This is, basically, a 9019. There is no
notice of that. There is absolutely no due process related
to what they have slipped into these orders.
Just to be clear about what this agreement, it had
four points, was. These are case dispositive terms in my
mind.
First, giving up the $5 million despite paying the
fees and getting the rolled up amounts on that.
Second, the agreement on the allocation of the
sale proceeds. Of course, nothing was put aside for
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 94 of 111
95
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
unsecured creditors.
Third, the debtors stipulated that after the DIP
paydown amount was made that the lenders would retain all of
their secured claims and everything that comes into the
estate after that would be paid directly to them under a
plan.
And, fourth, the lenders were to come to an
agreement on a winddown budget. This winddown budget we saw
drafted on Sunday. I am today years old when I got the one
that is Exhibit 5. I didn’t see that until today. So, we
have not had a chance to evaluate that. We could cobble
something together on our own. It was put up on a screen
after the hearing on Monday, but I didn’t have my phone out
to screenshot it, so I couldn’t see it. And it's not filed
on the docket.
As outlined in our papers, we have concerns just
even based on the old version. One is no allocation for the
$4.1 million of cure costs. I still have not heard a good
explanation from the debtors as to how that is going to be
addressed. Even if they waddle it down a lot it's not going
to be zero and the fact of the matter is Zoll has until three
days before closing to decide what to take and what not to
take. The debtors say it could be less, but that applies on
the flip side, it could also be more. They also -- the
notice of the contract says that they can assume contracts or
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 95 of 111
96
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
reject them post-closing.
So, this is just a completely unknown variable
which is not addressed in this winddown budget. We heard
testimony today that the debtors are responsible for these
payments. There is nothing in this APA that says that they
are not. The statement that Mr. Winters made, and it's in
their papers too, that they made it clear to the buyer that
they can't pay -- they basically can't live up to their
obligation under the APA to satisfy cures above the cure cap.
That is not in the agreement. That is nowhere in the
agreement.
If they don’t -- they can't say like, oh no, we
are going to reject these contracts that Zoll wants. That is
not an option, that is a breach of the agreement. There are
so many different ways that they are going to breach this
agreement before closing potentially. Then the estate is
going to be responsible for the damages.
Then, you know, one of our other concerns is this
situation with the DIP. We had testimony today that the
lenders have been trickling out the DIP. You know, there
have been some adjustments have had to make. The positive
variance, I think, Mr. Braley mentioned was because they have
not been spending the critical vendor dollars, meaning
unsecured creditors are not getting paid. They have
reallocated that to cover the lack of DIP funding.
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 96 of 111
97
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Based on the interim DIP budget, which Mr. Braley
said has not changed, filed at Docket No. 12, the debtors are
supposed to have had access to $36.655 million. We are 81
days into this case and they basically have had $10 million.
So, my concern, especially after hearing from creditors,
including ones on my own committee, that they are not getting
paid on their post-petition claims is that there is more out
there that we don’t know about. I am also very concerned
that the debtors may be pushing off these admins that they
think are going to be assumed as liabilities by purchasers.
I have no confidence in this admin claim in the
amount that they have done because there are too many
variables, we haven't had time to vet this. We have no input
on this or the settlement, the reduction of the DIP, nothing.
One of my committee members is owed almost $900,000 on a
post-petition basis. That is, you know, not even talking
about the prepetition stuff.
A lot of why this going concern sale worked was
because creditors who were owed on their prepetition claims
continue to do business to get to this place. The reward
they get is potentially not having their admins paid and
being completely cut out of any process or to be involved in
a plan. No disclosure was provided. I am sure most people
involved in this case, creditors have no idea that the plan
is, basically, already set if this is approved.
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 97 of 111
98
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
I am not confident that we are going to have
enough to get to a plan. Even if they filed the plan
tomorrow, it's still another 66 days, at least, of funding
well beyond, I think, October 18th. I don’t see any -- I
think I did the math and even if you took the least amount of
time under the local rules under the combined disclosure
statement they would have had to file their plan on the 13th
of August. So, there is just no real planning here, it's
like, oh, we have a pot of money and we will just shift it
around and move it around, but I am not confident that they
are not going to run out of that money before admins get paid
or priority claims.
The debtors, in their reply, make a lot of hay out
of the fact that the bid procedures said that all proceeds go
to the lenders. You know, we are aware of that language. We
tried to negotiate that out, but at that point what wasn't
settled was the amount of the winddown and there was still
time to negotiate. When they entered into this allocation
agreement they took away all of those possibilities for the
committee and decided that everything was going to the
lenders.
I understand the priority scheme under the
bankruptcy code more than anyone. I am usually on that side
of the table, but, you know, to me you don’t set that without
committee involvement. The committee being out of the money
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 98 of 111
99
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
is not an excuse or justification for excluding the
committee, it's really just arrogant in my mind.
So, again, slipping this into the sale orders I
just think is inappropriate at this time. There is no reason
this has to be done now. It is depriving creditors of the
opportunity to fully vet this process and be involved and
establish anything, not to mention we are in the middle of
investigating prepetition claims. So, how are we going to
continue to do that.
THE COURT: I thought the challenge period is
expired.
MS. KANDESTIN: No, not the liens. Like
prepetition claims against other third parties.
THE COURT: Oh, okay.
MS. KANDESTIN: I don’t know if there is going to
be money for us to continue that. Those claims are just going
to go poof. In our mind what they are trying to do here is a
sub rosa plan. And they even have a finding that this isn't
a sub rosa plan in their sale orders. So, clearly it's on
their minds.
At bottom, Your Honor, these cases have been
solely for the benefit of the lenders. They could have had
pulled the plug on this at any time. They didn’t. Now they
have cut this backroom deal excluding the committee and there
is -- you know, we're just stuck. They have not given me a
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 99 of 111
100
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
good reason why or the Court why this has to be done today,
why the sale orders have to provide this. I mean it's
unusual to have this in the sale orders. And they certainly
didn’t provide any explanation as to why there was no
engagement with the committee on these settlement terms.
So, with that, Your Honor, we would respectfully
request that the sale orders be entered, but without all of
these extraneous terms.
THE COURT: Very good. Mr. Winters, very briefly.
MR. WINTERS: Very briefly, Your Honor. We do
share the goal to get a recovery to general unsecured
creditors. I just haven't heard a single word from the
committee as to how that would be possible because it's not.
It's not true that there has been no due process, the concept
of the paydown and the reserve have been pleaded from the
outset of the case. The evidence showed that the committee's
advisors have been consulted nearly constantly throughout the
course of the cases. What we heard from committee counsel
just now was a lot of things that are not in evidence about
consultation.
The last point I will make, Judge, is the idea
that there has been no real planning here is simply not true.
The debtors have been fighting every day to save the
business. It does provide major benefits to people other than
the secured lenders including admin creditors, priority
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 100 of 111
101
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
creditors, contract counterparties, members of committee
counsel's committee. Our goal is to get that consummated
today.
Ms. Kandestin said that there is no reason why
this needs to be done today, but the reason is that I have no
confidence that the DIP lenders will consent to this sale if
these terms are not approved. So, I think without this we
are in limbo.
With that, Your Honor, we request that the Court
enter the proposed order. Thank you.
THE COURT: Very good. Thank you.
Here is what we are going to, I have before me the
request of the debtor to approve two separate sales. I will
approve those sales. I have a limited objection from the
official committee of unsecured creditors not to the sales
themselves, but to the treatment of proceeds arising from
those sales. I will overrule that limited objection and I
will give you my reasons.
Before I turn to that, I would note that the
record with respect to the debtors request for an order
approving, under Section 363 of the Code, the sale to Zoll
and the sale to Trudell are functionally uncontested.
The Court has admitted the declarations of
Ms. Frejka, Mr. Schlappig. We've admitted the declaration of
Mr. Braley and we've also obtained the benefit of his live
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 101 of 111
102
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
testimony and cross-examination, with respect to the sale and
the sale process, and the Debtors' thought process in going
through the marketing and sale of the asset and the Debtors'
decision-making process in choosing a winning bid out of the
auction and sale process that the Court had set by the
bidding procedures.
So I'm not going to burden the record with
extensive findings. With respect to the Debtors' burden
under Bankruptcy Code Section 363 and Bankruptcy Rule 6003
for purposes of approval and consideration of asset sales.
I would note, specifically, that in this
jurisdiction, under the Abbotts Dairies case and its progeny,
a debtor is obliged to demonstrate that a proposed sale
transaction represents the exercise of the Debtors' best
business judgment and proceeds in good faith.
For the reasons that I've stated a moment ago, I'm
satisfied that the declarations that have been submitted, as
well as the evidence and the record developed today,
certainly satisfy that the debtor has carried its burden as
to reasonable business judgment.
The proposed sale represents the Debtors' best
business judgment. It is undisputed that this debtor lacks
the liquidity and resources to continue to operate these bias
and the Court is cognizant of an overlay of the nature of
these particular Debtors' businesses.
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 102 of 111
103
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
We deal with all kinds of businesses and every
debtor that operates and has employees in front of this Court
is important. This debtor serves a particularly vulnerable
client base and, ultimately, customer base in the medical
care field. And the debtor has, from the very beginning of
the case through today, advised that one of its priorities is
to try to ensure that the employees continue to be employed
and that this business continues to service the customers and
the hospitals and the medical providers that continue to do
so.
But more importantly for bankruptcy terms, this
debtor does not have an operating alternative to the sale
that's before us. It lacks the resources and liquidity. It
is miles underwater by any estimation in terms of its secured
debt obligations and, therefore, it has no meaningful
alternative to the sale, other than, presumably, to liquidate
the Debtors' business operations, so the business judgment is
satisfied.
Likewise, based upon the record before me and the
declarations that have been submitted, the debtor has
scrupulously complied with the bid procedures order that
required the debtor to go out to market to solicit its
assets, to evaluate bids, to conduct an auction, and,
ultimately, to identify the highest and best bids for its
assets.
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 103 of 111
104
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Those purchasers are, respectively, ZOLL and
Trudell, and, again, the record before the Court certainly
describes with specificity the process by which those bids
were ultimately negotiated and received and accepted by the
debtor. So I'm satisfied that both, ZOLL and Trudell, are
good faith purchasers within the meaning of Bankruptcy Code
Section 363(m) and they're entitled to all of the protections
associated therewith.
That brings us, then, to -- so, I'm satisfied that
the debtor has carried its burden under Abbotts Dairies for
purposes of obtaining the relief that it seeks today.
That brings us, then, to the subject of the
Committee's objection. Again, I am certainly solicitous and
concerned about the issues that have been raised by the
Committee: the lack of a meaningful recovery here and
concerns with respect to the mechanics by which we have
gotten to today's hearing. But I'm satisfied, again, that
the record is sufficient and adequate to allow the Court to
permit the matter to move forward.
I start first with Mr. Winters' comments from the
podium on Monday, where he observed that the sale process was
compliant with the bidding procedures and was successful in
all respects, other than the purchase price, which leads to
the old, "Other than that, Mrs. Lincoln, how was the play?"
But the fact is that's where we are. And this
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 104 of 111
105
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Court does a lot of sales. Bankruptcy courts do, generally,
and we are significantly committed to the process.
The Court notes that there was a reserve price for
a minimum bid that was not achieved here and I ascribe
significance to that. The DIP lender enjoys liens and the
lender's prepetition lender enjoys liens in the Debtors'
business. That makes the business their collateral. They
identified that they would not be prepared to accept a bid
below $140 million.
The bids came in, collectively, at just over
$90 million. It is not lost upon me, the fact that the
economic result of this case is less than I deal for all
stakeholders, and, certainly, for the lenders, as well. And
I appreciate bank counsel's comments.
Experience teaches that the bank probably
considered, with cold and clear eyes, its alternatives, which
included liquidating this case with the consequences for the
stakeholders that I addressed earlier. And they elected, I
assume, for their own rationale business reasons not to do so
and to continue to support this process.
I am concerned, but I'm not -- again, I don't
believe it's dispositive that, perhaps, agreements were
reached with respect to the economics and, particularly, to
the adjustment of the DIP financing that were not, perhaps,
immediately communicated to the Committee. But I don't
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 105 of 111
106
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
believe, again, that if that did occur, that it would be
fatal to where we are today.
Again, the economics of the case reflect some
pretty stark realities and the record reflects that there was
a negotiated reduction in the DIP to be funded and that would
be reflected in a proposed sale order, because the reduction
would be in response to, or as a result of, analysis of the
bids and, presumably, the result of the auction and the
figuring out the economics and the budgeting for the case
going forward to get to a confirmed plan.
So that brings us, then, to whether or not the
Court should approve the DIP financing orders that include
the mechanics that have been identified to get us to that,
and I'm prepared to approve those provisions.
I share, or I understand the Committee's issue,
with respect to a sub rosa plan. I'm not satisfied that this
meets that requirement; that is, there are commonly features
in sale orders that courts approve in situation such as this
in terms of dealing with the DIP lender and providing
mechanics for a post-sale wind-down process, either to a plan
or to a liquidation or a conversion or a dismissal.
In this case, Mr. Braley testified at length and
was cross-examined with respect to his assessment and
judgment of the economics of the case, where the cash flows
would be. It is true that he testified candidly that there
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 106 of 111
107
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
are no guarantees that the debtor will achieve the results
that it wants and be able to pay all the obligations that it
has.
He also testified, as I would have expected and
predicted, given his long experience, that if the debtor were
in a position where there were shortfalls in one area, I
think his phrase was, We're agnostic as to where the money
comes from, in terms of the budget.
In addition, Mr. Braley testified that there are
certain other material assets that remain and will remain in
the estate post-closing, for purposes of being liquidated and
presumably and hopefully, they will be available, to the
extent that there are issues.
But, again, under the circumstances of this case,
I am satisfied that the Debtors have carried their burden and
that the mechanics that they've described to get promptly to
a plan here and to a wind-down process are appropriate and
warranted and supported by competent evidence.
I'd note further that in Monday's hearing,
Mr. Winters described, at length, the process leading up to
closing and post-closing, and specifically, that I believe
both of these transactions require and anticipate a TSA, a
transition services agreement. And, again, given the nature
of the company's business, the fact that these are being
transitioned to strategic purchasers as an operating
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 107 of 111
108
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
business, a going-concern sale, the Court is not priced that
there is a need for a TSA and I believe that interests will
be aligned to ensure that the debtor has the adequate
resources to continue to operate and to perform under the TSA
and to get to a plan.
Finally, with respect to the plan, I make no
comment on the contents or the specifics of a plan. But I
have made no secret over the years that I am a big fan of
combined plans and disclosure statements, particularly in
sales that result in the receipt of funds and the transfer of
assets to purchasers, leaving the estate with a relatively
limited collection of assets to either liquidate or monetize.
And what I said before, I will repeat to the
parties today: You can expect that the Court will be a
willing partner with all stakeholders in terms of getting a
plan process underway and getting to plan confirmation.
The Committee's significant, and I think well-
founded concerns are: Is there enough money in this estate?
Will there be enough to allow us to get across that finish
line?
And to me, the most significant controllable, or
the most easily controlled aspect of that is the speed with
which a pretty vanilla liquidating plan and disclosure
statement are prepared, filed, and prosecuted diligently. So
I would expect that some poor associate is going to have a
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 108 of 111
109
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Labor Day assignment that will move this process forward.
Because, again, the -- I have expressed before
probably one of the biggest frustrations I have are cases
that fail to get through to a confirmation because the
administrative expenses -- the burn -- and, particularly, the
professional burn of getting to plan confirmation are too
burdensome and we just -- it just dies of its own accord.
This can be done simply and done quickly and I
would admonish and encourage the parties to do so.
But for the reasons that I've shared, I will
overrule the limited objection of the Official Committee and
I would be prepared to enter orders approving the sales to
ZOLL and Trudell.
Are there any questions?
(No verbal response)
THE COURT: One final comment. I believe given
Mr. Braley's testimony, the debtor is not expecting to close
either of these transactions within 14 days, so I don't
believe there's a need for a waiver of the Rule 6004 stay and
I just wanted to confirm that.
Mr. Winters, do I have that right?
MR. WINTERS: You have that right, Your Honor.
THE COURT: Very well.
All right. Are there any questions?
(No verbal response)
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 109 of 111
110
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
THE COURT: Very good.
Mr. Winters, do we have anything further today?
MR. WINTERS: Nothing further, Your Honor.
THE COURT: All right. I very much appreciate
everyone's time. I appreciate the parties' coordination in
the adjourned time from Monday to today, and, again, parties
providing their time and attention on a Friday before the
long weekend.
With that, we are adjourned. Be well. Enjoy your
weekend.
Stand in recess.
MR. WINTERS: Thank you, Your Honor.
(Proceedings concluded at 1:26 p.m.)
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 110 of 111
111
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
CERTIFICATION
We certify that the foregoing is a correct
transcript from the electronic sound recording of the
proceedings in the above-entitled matter to the best of our
knowledge and ability.
/s/ William J. Garling August 31, 2024
William J. Garling, CET-543
Certified Court Transcriptionist
For Reliable
/s/ Mary Zajaczkowski August 31, 2024
Mary Zajaczkowski, CET-531
Certified Court Transcriptionist
For Reliable
Case 24-11217-BLS Doc 504 Filed 09/06/24 Page 111 of 111