UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF …€¦ · consultation with the Official...

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK --------------------------------------------------------------------- In re: CHOXI.COM, INC., a/k/a NOMORERACK.COM, INC., Debtors. ---------------------------------------------------------------------

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Chapter 11

Case No. 16-13131 (SCC)

REPLY OF CREEK EQUITY PARTNERS TO OBJECTIONS

TO ENTRY OF ORDER APPROVING SALE TO CREEK EQUITY PARTNERS

TO THE HONORABLE SHELLY CHAPMAN, UNITED STATES BANKRUPTCY JUDGE:

The undersigned counsel to Creek Equity Partners LLC (the “Successful

Bidder”) submit the following reply (the “Reply”) to the objections of (i) TVII Corp.,

Bhungalia Family, LLC and Ronak (the “First Lien Objection”) and (ii) N.D. Gems, Inc,

9th LLC and Lucent Jewelers Inc. (the “Gems Objection,” and together with the First

Lien Objection, the “Objections”) to the selection of the Successful Bidder as highest and

best bidder. In support of the Reply, the Successful Bidder attaches the declaration of

Gregory Spinder, a partner in the Successful Bidder (the “Spinder Declaration”)

annexed hereto as Exhibit “A” and respectfully states:

TOGUT, SEGAL & SEGAL LLP One Penn Plaza, Suite 3335 New York, New York 10119 (212) 594-5000 Frank A. Oswald Kyle J. Ortiz Attorneys to Creek Equity Partners

Hearing Date: January 19, 2017 at 1:30 p.m. (Prevailing Eastern Time)

16-13131-scc Doc 69 Filed 01/18/17 Entered 01/18/17 22:14:41 Main Document Pg 1 of 7

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REPLY

1. The Debtor held an open and robust auction on January 12, 2017

(the “Auction”). In accordance with the Court’s approved bid and auction procedures,

at the conclusion of the Auction the Debtor determined in its business judgment, and in

consultation with the Official Committee of Unsecured Creditors (the “Committee”),

that the Successful Bidder’s bid (total value $5.84 million) was higher and better than

the competing final bid submitted by N.D. Gems (total value $5.11 million) and

declared the Successful Bidder the winning bidder.

2. While the business judgment of the Debtor, reached with the

support of experienced bankruptcy professionals and a seasoned Chief Restructuring

Officer (as well as the Committee), stands on its own, the hyperbole and ad hominem

attacks made against the Successful Bidder and its principals in the Objections compel

the Successful Bidder to reply. The Reply will first address financial wherewithal and

then the more tangential issues raised by the Objections.

FINANCIAL WHEREWITHAL AND EXPERTISE

3. The Successful Bidder not only has the financial wherewithal to

perform under the license agreement, but also has the financial wherewithal and

requisite expertise to launch a highly successful business that will inure to the benefit of

all parties in interest in these cases (including the objecting parties). The Successful

Bidder’s financial abilities have already been demonstrated. The Successful Bidder has

paid $500,000 to the Debtor on account of its first year obligations to the Debtor (out of

$2 million). The Successful Bidder will also provide a cross corporate guarantee against

all of the assets of its affiliate, the Source Force (“Source”). Additionally, Source has


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provided a UCC lien against all of its assets securing the first year’s payments under the

License Agreement (which at $2 million will satisfy most of the first lien lenders’ claim).

Additionally, the Successful Bidder has provided a UCC lien on all of its assets securing

the obligations of the Successful Bidder for the duration of the License Agreement.

4. Since the Auction, the Successful Bidder has been further

capitalized by an additional $210,000 by the partners. Spinder Declaration ¶ 9.

Additionally, the partners of the Successful Bidder have committed to capitalize up to

$1 million immediately. See Memorandum of Understanding attached as Exhibit 1 to

the Spinder Declaration.

5. Just as important as financial wherewithal, the Successful Bidder

has a plan to immediately monetize the assets and a team in place to implement that

plan. One of the Successful Bidder’s partners, Jeremy Ring, was hired as the first

outside sales executive for Yahoo. He opened Yahoo’s New York office – its first

satellite office and, as the original sales executive hired by Yahoo, was instrumental in

growing sales to over $1 billion in just five years. See Exhibit 2 to the Spinder

Declaration. Scott Zack, another partner, runs multiple businesses that together have

gross annual revenues in excess of $65 million. See Exhibit 3 to the Spinder Declaration.

Finally, Gregory Spinder is the CEO of the Source-Force, which provides products and

services to the e-commerce marketplace including daily deal websites, online retailers,

discount and retail outlets. See Spinder Declaration ¶ 13. The three partners of the

Successful Bidder unquestionably have the requisite skill and experience to monetize

the assets conveyed in the License Agreement. Additionally, the Successful Bidder has

engaged Webonise USA LLC, a worldwide product development and services company

to assist the Successful Bidder with the technical side of the business. Spinder

Declaration ¶ 14.


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6. The First Lien Objection focuses on the five-year term of the License

Agreement and the risk that a five-year term creates for creditors. That argument

ignores that both bids were for a five-year term and the Successful Bidder modified its

bid to front load $2 million of consideration into the first year ($500,000 of which has

already been paid to the Debtors).

7. Contrary to what the Objections imply, there is no requirement that

the Successful Bidder demonstrate that it can make all five years of payments today

with cash on hand. The license agreement is set up with a five-year term because all

parties recognize that bidders were bidding for an asset that everyone involved

anticipates will generate revenues over a period of time. Further, as the Gems Objection

notes, there was “robust” bidding at the auction held at the initial hearing to select a

“stalking horse.” Gems Objection ¶ 21. This demonstrates that numerous parties with

knowledge of the business expect the assets being licensed to the Successful Bidder will

generate considerable revenue for years to come.

8. The Gems Objection notes that the Successful Bidder was formed

prior to the Auction for the express purpose of bidding on the assets. Gems Objection

¶ 49. This is certainly commonplace, particular in bankruptcy sales. The age of the

Successful Bidder is irrelevant, it is a partnership of experienced individuals with the

funds and skills necessary to monetize the assets in order for the business to be a

success. The Gems Objection attempts to minimize the Successful Bidder’s partners

commitment to fund an additional $500,000 into the Successful Bidder stating that

“even if such funds materialize, the $500,000 initial capitalization would be consumed

by the immediate payment of the $500,000 administration fee due at closing.” Id. What

Gems fails to recognize is that the two amounts are not the same. The Successful Bidder

has already wired $500,000 to the Debtor – leaving zero uncertainty about that payment.


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The Successful Bidder is in the process of capitalizing the Successful Bidder. The

partners have already contributed an additional $210,000 and pursuant to an MOU

between the partners are committed to contribute up to a million dollars initially. See

Exhibits 1 and 2 to the Spinder Declaration. The MOU further provides that additional

dollars will be contributed by the partners as needed on an equal basis among the

partners. See Exhibit 2 to the Spinder Declaration.

9. The Successful Bidder has the financial wherewithal to monetize

the assets and make the minimum payments and the sale of the assets to the Successful

Bidder should be approved. Based on the foregoing, and having made the highest

offer, the Successful Bidder won the Auction, in a fair and transparent manner.

TANGENTIAL ISSUES

10. The Objections make a number of tangential and irrelevant ad

hominem attacks on the Successful Bidder and its principals based on nothing but

conjecture.

11. The Gems Objection spends considerable time discussing an

alleged relationship with USA Dawgs, a party that participated in the initial auction

held in December. The Successful Bidder has no affiliation with USA Dawgs, period.

Spinder Declaration ¶ 15. USA Dawgs in not a partner of the Successful Bidder, has

made no contributions to the Successful Bidder and was in no way involved in the

Successful Bidder’s bid. Id. The identity of the three partners of the Successful Bidder

has been shared with all parties involved in the Auction. Id. At no time did the

Successful Bidder ever represent that USA Dawgs was a participant in its bid. Id. All of

the Gems Objection’s conjecture and conspiracy theory regarding USA Dawgs is simply

wrong.


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12. The Gems Objection asserts that the Successful Bidder was not a

Qualified Bidder. See Gems Objection ¶ 39. However, the Successful Bidders status as

a Qualified Bidder is not their determination to make. Paragraph 5 of the bidding

procedures [Docket No. 42, Exhibit 1] provides that “[i]n the event the Debtor receives

by the Bid Deadline one or more submissions that the Debtor determines to be from

Qualified Bidders, then the Debtor shall conduct an auction with respect to the Licensed

Property.” Bidding Procedures ¶ 5 (emphasis added). The Debtor, in consultation with

the Committee, declared the Successful Bidder’s bid package to qualify as a “Qualified

Bid” and announced that the Auction would occur. The Auction was held, no objection

was raised at the Auction, and thus, the issue should be deemed moot.

13. The Gems Objection takes pains to unfairly paint the Successful

Bidder in the worst possible light. For instance, the Gems Objection claims that the

Successful Bidder’s bids were “submitted in haste . . . without taking any time for

contemplation or reflection.” Gems Objection ¶ 51. Gems never considers that the

Successful Bidder developed a bidding strategy prior to the Auction to maximize the

likelihood of success. It is simply irrelevant if a bidder takes 30 seconds or three hours

to make a bid at an auction that was noticed nearly a month earlier.

14. The Gems Objection asserts that Source’s inventory “consists of

‘low-end’ goods”; an inappropriate and irrelevant comment. Gems Objection ¶ 53.

History is full of jewelers that have gone out of business and business empires built on

the back of five and dime stores. The fact is that Source Force’s inventory consists of a

wide array of products ranging from electronics to home goods that are in high demand

across the economic spectrum. Spinder Declaration ¶ 17.

15. In light of the above, the Successful Bidder (i) supports the business

judgment of the Debtor, made in consultation with the Committee, in selecting its bid as


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the highest and best; (ii) respectfully requests that the Court overrule the Objections in

their entirety; and (iii) requests that the Court issues an order approving the sale to the

Successful Bidder.

Dated: New York, New York January 18, 2017

Creek Equity Partners LLC By Their Attorneys, TOGUT, SEGAL & SEGAL LLP By: /s/Frank A. Oswald FRANK A. OSWALD KYLE J. ORTIZ One Penn Plaza, Suite 3335 New York, New York 10119 (212) 594-5000


Exhibit A

Spinder Declaration

16-13131-scc Doc 69-1 Filed 01/18/17 Entered 01/18/17 22:14:41 Exhibit A: Spinder Declaration Pg 1 of 5

TOGUT, SEGAL & SEGAL LLP One Penn Plaza, Suite 3335 New York, New York 10119 (212) 594-5000 Frank A. Oswald Kyle J. Ortiz Attorneys to Creek Equity Partners

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK --------------------------------------------------------------------- In re: CHOXI.COM, INC., a/k/a NMORERACK.COM, INC., Debtors. ---------------------------------------------------------------------

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Chapter 11

Case No. 16-13131 (SCC)

DECLARATION OF GREGORY SPINDER IN SUPPORT OF THE

REPLY OF CREEK EQUITY PARTNERS TO OBJECTIONS TO ENTRY OF ORDER APPROVING SALE TO CREEK EQUITY PARTNERS

Pursuant to 28 U.S.C. § 1746, I, Gregory Spinder, declare:

1. I am a partner of Creek Equity Partners LLC (the “Successful

Bidder”) and the CEO of the Source Force (“Source”).

2. I submit this declaration (the “Declaration”) in support of the Reply

of Creek Equity Partners to Objections to Entry of Order Approving Sale to Creek

Equity Partners (the “Reply”).1

3. I attended the auction held by the Debtor on January 12, 2017 (the

“Auction”) at the conclusion of which the Debtor selected the Successful Bidder the

winning bidder.

1 Unless otherwise defined herein, all capitalized terms shall have the meanings ascribed to them in the

Reply


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4. I believe the Successful Bidder not only has the financial

wherewithal to perform under the license agreement, but also has the financial

wherewithal and requisite expertise to launch a highly successful business that will

inure to the benefit of all parties in interest in these cases (including the Objectors).

5. To date, we have taken the following steps to demonstrate our

financial wherewithal.

6. Source, which I am the CEO of, has provided a cross corporate

guarantee to guarantee the Successful Bidders obligations under the license agreement.

Additionally, Source has provided a UCC lien against all of its assets securing the first

year’s payments under the License Agreement (which at $2 million, I understand will

satisfy most of the first lien lenders’ claim).

7. The Successful Bidder has already paid $500,000 of the $2 million

due during the first year pursuant to wire transfers of $260,000 and $240,000 sent to an

escrow account maintained by the Debtor’s counsel on January 6, 2017 and January 13,

2017, respectively.

8. The Successful Bidder has provided a UCC lien on all of its assets

securing the obligations of the Successful Bidder for the duration of the License

Agreement.

9. As demonstrated by Exhibit 1 attached hereto, the Successful

Bidder has been further capitalized by an additional $210,000 capital contribution by the

partners since the Auction.

10. As demonstrated by Exhibit 2 attached hereto, I and the other

partners of the Successful Bidder have committed to capitalize up to $1 million

immediately.


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11. Together with my partners, we have developed a plan to

immediately monetize the assets and put a team in place to implement that plan. I

believe my partners and I have the requisite experience to implement our plan. As

demonstrated by his bio attached as Exhibit 3, one of my partners, Jeremy Ring, was

hired as the first outside sales executive for Yahoo. He opened Yahoo’s New York

office – its first satellite office and, as the original sales executive hired by Yahoo, was

instrumental in growing sales to over $1 billion in just five years.

12. As demonstrated by his bio attached as Exhibit 4, my other partner,

Scott Zack, runs multiple businesses that together have gross annual revenues in excess

of $65 million.

13. Finally, I am the CEO of the Source-Force, which provides products

and services to the e-commerce marketplace including daily deal websites, online

retailers, discount and retail outlets. I provided a balance sheet and tax return to the

Debtor prior to the auction and will have copies with me in Court at the hearing

scheduled for Thursday, January 19, 2017, available for review by the Court in camera.

14. We have engaged Webonise USA LLC, a worldwide product

development and services company to assist the Successful Bidder with the technical

side of the business.

15. The Successful Bidder has no affiliation with USA Dawgs. USA

Dawgs in not and has never been a partner of the Successful Bidder, has made no

contributions to the Successful Bidder and was in no way involved in the Successful

Bidder’s bid.

16. The three partners of the Successful Bidder are (i) myself,

(ii) Jeremy Ring, and (iii) Scott Zack. At no time did the Successful Bidder ever

represent that USA Dawgs was a participant in its bid.


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17. Sources’ inventory consists of a wide array of products ranging

from electronics to home goods that are in high demand across the economic spectrum.

18. My partners and I believe we not only have the financial

wherewithal to execute our business plan, but that it will result in significant value

creation for the benefit of the Debtor’s estate and all parties in interest.

Pursuant to 28 U.S.C. § 1746 I declare under penalty of perjury that the

foregoing is true and correct.

Dated: New York, New York January 18, 2017

/s/Gregory Spinder GREGORY SPINDER Partner, Creek Equity Partners LLC


Exhibit 1

Memorandum of Understanding

16-13131-scc Doc 69-2 Filed 01/18/17 Entered 01/18/17 22:14:41 Exhibit 1: Memorandum of Understanding Pg 1 of 3

MEMORANDUM OF UNDERSTANDING

This Memorandum of Understanding (“MOU”) is executed on January 6, 2017 by and

among Gregory Spinder (“Greg”), Jeremy Ring (“Jeremy”) and Scott Zack (“Scott”). Greg, Jeremy and Scott may collectively be referred to as the “Partners”.

RECITALS

a. The Partners intend to form an entity to be called Creek Equity Partners, LLC, a Florida limited liability company (“Creek”), to purchase the assets of Choxi.com, Inc. (“Assets”) which is presently in bankruptcy.

b. The bidding process for the Assets will conclude next week, so the Partners are

preparing for the bid by forming Creek and providing the deposit funds necessary to submit their bid to the Bankruptcy Court for the Assets.

c. The Partners wish to minimize their expenses in case their bid is unsuccessful. d. Rather than preparing an Operating Agreement and taking the other actions

necessary to fully organize and document the new business, they decided to enter into this MOU for the purpose of describing their points of agreement, their intentions and their respective rights and obligations.

In consideration of $10 and other good and valuable consideration, the receipt and sufficiency of which is acknowledged by the Partners, the Partners agree as follows: 1. The above Recitals are true and correct and incorporated into this Agreement.

2. The Partners will each contribute a total of $350,000 when needed to Creek if the bid is successful and the Assets are purchased. The contribution will be in the form of a portion as debt and a portion as equity after consulting with the company’s accountant. Jeremy and Scott will contribute the first $700,000. Greg, Scott and Jeremy will equally contribute the final $300,000. Any dollars above the initial $1,000,000 will be contributed equally

3. The full amount of the Partner’s contributions may not have to be made in one lump sum. The Partners shall make any partial contributions in equal amounts.

4. If the bid is successful, the Assets are purchased and Creek is fully funded, the ownership of the membership units shall be 60 units for Greg, 20 units for Jeremy and 20 units for Scott.

5. Greg has another operating company named Source Force, LLC, a Florida limited liability company. If the bid is successful, the Assets are purchased and Creek is fully funded, Greg


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shall convey ownership of 20% of the issued and outstanding membership units in Source Force, LLC with 10% of ownership issued to Jeremy and 10% of ownership issued to Scott

6. Greg will guarantee the annual royalties and use the Source-Force Company as collateral should the partners secure the asset.

7. The Partners all agree that if the bid is successful, the Assets are purchased and Creek is fully funded Jeremy will run the day to day operations of Creek.

8. The Partners will fund the amounts necessary to submit their bid and pay the expenses incurred in forming Creek and submitting the bid.

9. If the bid is successful, the Partners will proceed with finalizing the funding of Creek and formalizing their agreement by preparing an Operating Agreement for Creek with terms and conditions appropriate for a venture of this type such as voting or approval of extraordinary matters; distributions; salaries; closing, expanding or changing the nature of the business; taking in additional members or expelling members.

10. If the bid is not successful, the Partners will be refunded any capital they contributed less their pro rata share of expenses incurred in submitting their bid, forming Creek and other related legal fees and costs.

11. The provisions of this MOU are confidential and not to be disclosed except where required by law.

12. The Partners agree that the provisions of this MOU are binding provisions on the Partners but they realize that if the bid is successful, the Assets are purchased and Creek is fully funded, there are provisions to be inserted into the Operating Agreement for Creek which have not yet been discussed among the Partners and which may still be subject to negotiation.

13. This MOU shall be governed by the laws of the State of Florida.

IN WITNESS WHEREOF, the parties have signed this MOU on January 6, 2017.

Gregory Spinder Jeremy Ring Scott Zack


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Exhibit 2

Jeremy Ring Bio

16-13131-scc Doc 69-3 Filed 01/18/17 Entered 01/18/17 22:14:41 Exhibit 2: Jeremy Ring Bio Pg 1 of 3

Jeremy Ring Bio:

Jeremy Ring was raised in Massachusetts and upon graduating from high school he attended Syracuse University, where he received his degree from the Newhouse Communications School in 1992. Mr. Ring moved to New York City, and at the age of 25 was hired as the first outside sales executive for Yahoo. He opened the New York office and first satellite office for Yahoo. As the original sales executive hired by the company, he was instrumental in growing sales to over $1 billion in just five years. Mr. Ring, having relocated to Silicon Valley launched and led the Programs Team, working with Global Fortune 500 businesses on their internet marketing strategies. In doing so, he was a pioneer in development and growth of the online advertising industry.

After leaving Yahoo in 2001, Mr. Ring relocated to Florida, where he immediately became involved in his community. He co-‐founded, along with the Nova Southeastern University Graduate School of Humanities and Social Sciences, the organization, SUPERB, (Students United with Parents and Educators to Resolve Bullying). The mission is to teach children social and behavioral skills in order to create a safe school environment enabling students to enjoy school and learn effectively. SUPERB’s eight-‐week program has trained over 40,000 students on the need to build a sense of empathy, diffuse bullying, address isolation, and empower by-‐standers within their school, club or troop.

Following SUPERB, Mr. Ring co-‐founded Collegiate Images, which was a joint venture with Collegiate Licensing Corp. and later IMG Worldwide. The Company was acquired in 2008 by XOS Technologies, Inc. Collegiate Images serves as the centralized licensing and rights clearance agency that manages the distribution of copyrighted intellectual property content, focusing exclusively on college sports. Partners include premier collegiate athletic programs, collegiate conferences, bowl games, and national and regional sports networks.

Senator Ring first ran for office in 2006. After winning a three way primary with more than 55% of the vote he was elected to the Florida Senate in November 2006. He was reelected in November 2010 with more than 63% of the popular vote and November of 2012 with over 65% of the vote. Senator Ring was term limited in November 2016

In the Florida Senate, Senator Ring has past served as the Vice Chairman of the Higher Education Appropriations Committee and the Higher Education Policy Committee. From 2009 – 2016, Mr. Ring served as the Chairman of the Governmental Accountability and Oversight committee, which has legislative oversight of the Florida Pension Fund, the State Board of Administration and other government entities in the State of Florida. Governor Charlie Crist, appointed him as the Chairman of the Statewide Committee of Bio-‐technology Competitiveness. Senator Ring has sponsored and passed several major bills designed to commercialize and secure capital for IP developed within the State University System. Mr. Ring has created the Florida Institute of Commercialization, which acts as a business incubator to innovations developed at Florida’s State Universities, the Florida Technology Seed Capital Fund, for early stage investing, The Florida Opportunity Fund, which serves as the first round of institutional investment and the Florida Growth Fund, which provides later stage capital investment.


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From 2012 -‐ 2016, Mr. Ring worked as an Operating Partner for Sterling Partners, a $5 billion Private Equity firm with vast holdings in education, healthcare and business services. Mr. Ring continues to assist several Sterling Portfolio Companies in Business Development pursuits.


Exhibit 3

Scott Zack Bio

16-13131-scc Doc 69-4 Filed 01/18/17 Entered 01/18/17 22:14:41 Exhibit 3: Scott Zack Bio Pg 1 of 2

Dr. Scott Zack, D.C. CEO, Investor, Advisor, Consultant Dr. Zack was born and raised in the suburbs of Detroit, Michigan. He earned his bachelor’s degree in Psychology from Ohio State University where he played basketball. He then went on to pursue a chiropractic degree from the Life College in Atlanta, Georgia. He now resides in South Florida with his wife of 15 years and his three young children. Dr. Zack has been involved in several businesses over the past fifteen years that he has owned, operated and managed personally. His most recent ventures include a partnership that manages and controls seven MRI centers, three outpatient orthopedic surgery centers, a national toxicology lab as well as multiple commercial real estate sites in South Florida and Michigan. These businesses together employ over 300 people. Gross revenues exceed sixty-‐five million dollars per year. As a partner in Creek Equity Partners, Dr. Zack will provide financial backing and assist in management of the company alongside his two partners. His strengths include implementing procedures and protocols, streamlining businesses, managing staff, mulit-‐tasking as well as vertical integration of various companies.

16-13131-scc Doc 69-4 Filed 01/18/17 Entered 01/18/17 22:14:41 Exhibit 3: Scott Zack Bio Pg 2 of 2

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