HANSON BRIDGETT LLP NEAL L. WOLF, SBN 202129 ANTHONY J ...

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HANSON BRIDGETT LLP NEAL L. WOLF, SBN 202129 [email protected] ANTHONY J. DUTRA, SBN 277706 [email protected] 425 Market Street, 26th Floor San Francisco, California 94105 Telephone: (415) 777-3200 Facsimile: (415) 541-9366 Attorneys for Debtor and Debtor in Possession

UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA, OAKLAND DIVISION

In re CALIFORNIA-NEVADA METHODIST HOMES,1

Debtor.

Case No. 20-40363 Chapter 11 MOTION OF DEBTOR CALIFORNIA-NEVADA METHODIST HOMES FOR ENTRY OF ORDER APPROVING AUCTION AND BID PROCEDURES, AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF

Pursuant to Section 363 of the United States Bankruptcy Code, 11 U.S.C. §101 et.

seq. (the “Bankruptcy Code”), Debtor and Debtor in Possession California-Nevada

Methodist Homes (“CNMH” or “Debtor”) respectfully requests that the Bankruptcy Court

enter an order approving Auction and Bid Procedures (the “Bid Procedures”), a true and

correct copy of which is attached hereto as Exhibit A.

A proposed form of order granting the relief requested herein is annexed hereto as

Exhibit B (the “Order”).

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1 The last four digits of the Debtor’s federal tax identification number are 2411. The mailing address for the Debtor is 1850 Alice Street Oakland, CA 94612.

Case: 21-40363 Doc# 279 Filed: 08/30/21 Entered: 08/30/21 16:07:32 of12

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In support of this Motion, the Debtor relies upon the following Memorandum of

Points and Authorities and accompanying Declaration of Neal L. Wolf, counsel for the

Debtor.

MEMORANDUM OF POINTS AND AUTHORITIES

I. Introduction and Background

A. CNMH commenced this case by filing a voluntary petition on March 16,

2021.

B. CNMH remains a debtor in possession.

C. The United States Trustee has appointed an Official Committee of

Unsecured Creditors (“Committee”) in the case/

D. For a substantial period of time, the Debtor has been sustaining severe

operating losses. See Declaration of Neal L. Wolf (“Wolf Declaration”).

E. In the opinion of the Debtor and its Chief Restructuring Officer, these

substantial operating losses cannot quickly be reversed or rectified absent a sale or

merger transaction. Id.

F. On May 20, 2021, upon motion by the debtor, the bankruptcy court entered

an order authorizing the Debtor to employ B.C. Ziegler & Company (“Ziegler”) to

orchestrate a sale or merger process (“Sale Process”). Ziegler quickly went to work

implementing that process. Ziegler contacted dozens of potentially interested parties,

circulated a comprehensive “offering memorandum” to those parties who expressed

interest in a transaction, and engaged many of those parties in direct, one-on-one

discussions. Id.

G. The Debtor recognizes that the Sale Process is far from complete. To date,

however, the Sale Process has been quite successful. Ziegler has elicited non-binding

letters of interest from ten potential purchasers or merger partners. Id.

H. In recent weeks, Ziegler has conducted a de facto auction process. It has

called upon and encouraged potential buyers and merger partners to both enhance and


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expand their respective proposals. Certain of these potential buyers and merger partners

have enhanced their proposals on two or more occasions. Id.

I. As of today, the Debtor has received a number of nonbinding proposals that

would, if effectuated and realized, involve (a) the continued operation of CNMH (or a

successor entity) by a financially-strong purchaser or partner with an excellent, proven

track record in the Continuing Care Retirement Community field, (b) the assumption of all

liabilities to residents, former residents, and their successors-in-interest, and (c) the

satisfaction of a substantial portion of CNMH’s other financial liabilities. Id.

J. The process of identifying the appropriate purchaser or merger partner is

complex. That process does not involve merely selling the assets to the highest bidder.

The Debtor is instead attempting to identify a purchaser or merger partner that will (a)

best serve the paramount needs and interests of present and former residents on an

ongoing basis, (b) be financially strong and stable, (c) satisfy the claims of creditors to the

greatest extent possible, and (d) obtain the support and approval of state regulatory

agencies on an expeditious basis. Id.

II. The Requested Auction and Bid Procedures

By this motion, the Debtor seeks bankruptcy court approval of proposed auction

and bid procedures, a copy of which are attached hereto as Exhibit A and incorporated

by reference herein. The Debtor respectfully submits that the proposed procedures are

simple and straightforward, can be accomplished within a relatively short period of time,

and can be accomplished economically, especially in light of the informal auction process

that has taken place to date.

The debtor further submits that, in light of the ongoing operating losses of the

debtor and the great unlikelihood that the debtor will be able to reverse those losses in

the near future, and expeditious sale or merger is absolutely necessary. Such sale or

merger will serve the interests more fully outlined above.

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III. Potential Substitution of Motion for Direct Sale

Notwithstanding the foregoing, the Debtor expressly reserves the right to withdraw

this motion prior to the hearing date and instead to file a motion seeking court approval of

a direct sale to one of the sale or merger partners with whom the Debtor and Ziegler have

been negotiating. Those negotiations are ongoing. If the negotiations result in a proposal

that, in the opinion of the Debtor, its advisors, and its legal counsel, after consultation

with other parties in interest (including the Committee and California state regulators),

would best serve the interests outlined more fully above, the Debtor may substitute this

motion with a motion seeking authority to conduct a direct sale.

IV. Notice

Out of an abundance of caution, in accordance with Rule 2002(a)(2) of the Federal

Rules of Bankruptcy Procedure (“Rules”), the Debtor has provided notice of this motion

to the United States Trustee, the Committee, the California Office of Statewide Planning

and Development, the California Department of Social Services, all creditors, and all

other parties entitled to notice.

V. Conclusion

For the reasons more fully outlined above, the Debtor respectfully requests that

the Court enter an order approving the auction and sale procedures more fully outlined in

Exhibit A.

DATED: August 30, 2021 HANSON BRIDGETT LLP By: /s/ Neal L. Wolf NEAL L. WOLF

ANTHONY J. DUTRA Attorneys for Debtor and Debtor in Possession


EXHIBIT A

EXHIBIT ACase: 21-40363 Doc# 279 Filed: 08/30/21 Entered: 08/30/21 16:07:32 of

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EXHIBIT A

AUCTION SALE: MILESTONES, DEADLINES AND BIDDING PROCEDURES 1. Milestones, Key Dates, and Deadlines A. September 24, 2021 -- Designation of Stalking Horse Bidder; APA On or before September 24, 2021, if reasonably possible, the Debtor shall designate a stalking horse bidder ("Stalking Horse") by filing with the Court both a written "Designation of Stalking Horse" ("Designation") and a, fully executed, proposed Asset Purchase Agreement ("APA") pursuant to which the Stalking Horse has agreed to purchase the Assets, as defined below. The APA shall be subject to no contingencies or conditions other than [i] entry of a final Bankruptcy Court order approving the APA, [ii] completion of the Stalking Horse's due diligence, as more fully defined and provided for in the APA, and [iii] receipt of requisite approvals and licenses from appropriate regulatory agencies of the State of California. B. October 15, 2021 -- Deadline for Submission of Qualified Bids On or before 5:00 PM (Pacific Daylight Savings Time), October 15, 2021, Qualified Bidders, as defined below, shall submit Qualified Bids, as defined below, to Neal L. Wolf, counsel for the Debtor, at the following email address: [email protected], and to Dan Revie, at [email protected]. C. October 19, 2021 -- Auction In the event that one or more Qualified Bids, are submitted by Qualified Bidders at or prior to the deadline for submission of Qualified Bids, then, at 10:00 AM (Pacific Daylight Savings Time) on October 19, 2021, the Debtor will commence the conduct of an auction ("Auction") of the Assets. The Auction will be conducted by Neal L. Wolf, legal counsel to the Debtor, on a virtual basis, by Zoom or a comparable technological medium. In the event that the Debtor determines, in its sole and absolute discretion, that no Qualified Bids have been submitted by Qualified Bidders at or prior to the deadline for submission of Qualified Bids, there shall be no Auction. In that event, the Assets will be sold to the Stalking Horse, in accordance with the APA, subject to the approval of the Bankruptcy Court and appropriate regulatory agencies. D. No Later than October 19, 2021 or One Business Day Following Conclusion of the Auction -- Designation of Optimal Bid Not later than October 19, 2021 or one business day following the conclusion of the Auction, the Debtor shall file a written designation of the optimal bid, containing not merely the name of the Qualified Bidder that submitted the so-designated, optimal bid, but a copy of the APA that had been fully executed by the prevailing Qualified Bidder. The selection and designation of the optimal bid shall be in the sole discretion of the Debtor, in consultation with its attorneys and advisors. The Debtor may, but shall not be required to, consult with other parties in interest in the case (including but not limited to the


mailto:[email protected]

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California Office of Statewide Planning and Development ("OSHPD"), the California Department of Social Services ("DSS") and the Official Committee of Unsecured Creditors ("Committee")) before determining the optimal bid. The optimal bid can, but will not necessarily be, the highest bid from the standpoint of financial consideration to be paid by the buyer. E. October 22, 2021 -- Bankruptcy Court Hearing to Approve Optimal Bid At 11:00 AM (Pacific Daylight Savings Time) on October 22, 2021, or such later date and time as the Bankruptcy Court shall designate, the Bankruptcy Court shall conduct a hearing on the Debtor's motion for approval of the optimal bid, which may, but shall not necessarily, be the initial bid made by the Stalking Horse as reflected in the APA or a subsequent "overbid" made by the Stalking Horse. F. April 8, 2022 -- Deadline for Closing of Sale Transaction By no later than April 8, 2022, all approvals by appropriate regulatory agencies shall have been obtained and the sale transaction shall have closed. 2. Assets Subject to Purchase The assets that are subject to purchase ("Assets") shall include all, or substantially all, of the assets of California-Nevada Methodist Homes ("CNMH"), but shall not include cash or cash equivalents and any causes of action belonging to the chapter 11 bankruptcy estate of CNMH ("Estate"), including but not limited to and any avoidance actions arising under chapter 5 of the United States Bankruptcy Code. 3. Qualified Bidder To participate in the Auction, a Potential Bidder must be a Qualified Bidder. A "Qualified Bidder" is any potential bidder that, inter alia, (A) delivers to the Debtor an executed nondisclosure agreement that is in form and substance acceptable to the Debtor; (B) demonstrates to the Debtor a reasonable certainty of its financial ability to close the sale transaction in a timely manner; and (C) demonstrates to the Debtor a reasonable certainty of its ability to obtain any necessary governmental, licensing, regulatory, or other approvals. The determination that a potential bidder is a Qualified Bidder shall be in the sole and absolute discretion of the Debtor.

The Stalking Horse shall be treated as a Qualified Bidder that has made a timely Qualified Bid.

4. Qualified Bid The Debtor shall, in its sole and absolute discretion, determine whether a bid qualifies as a "Qualified Bid." To constitute a Qualified Bid, a bid must, inter alia: (A) be delivered no later than the bid deadline established pursuant to this order; (B) state unequivocally that such offer is irrevocable until (i) the closing of the sale transaction, if the bidder is deemed a Qualified Bidder and such Qualified Bidder is designated as the successful bidder, or (ii) if the bidder is deemed a Qualified Bidder and such Qualified Bidder is designated as the backup bidder, until the earliest of two business days after the closing of the sale transaction, 120 days after the date of the auction, or April 29, 2022; (C) constitute a good faith, bona fide offer to effect the sale transaction; (E) set forth the anticipated time frame for obtaining any required government,


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regulatory, or other approvals and for consummating the sale transaction; and (F) be in essentially the same form as the Stalking Horse's APA. 5. Auction The "rules" of the Auction shall be as follows: A. Only the Stalking Horse and any Qualified Bidders who have submitted Qualified Bids and/or their authorized representatives shall be eligible to participate and submit bids at the Auction. B. All Qualified Bidders will be entitled to be present for all bidding, and all material terms of each bid shall be fully disclosed to all Qualified Bidders. C. Through its legal counsel, the Debtor will announce the required opening bid. D. The required opening bid will include a breakup fee for the Stalking Horse in an amount to be designated by the Debtor upon the date of designation of the Stalking Horse. E. Thereafter, bidding shall be in increments of $200,000. F. Each Qualified Bidder will be permitted a fair and reasonable amount of time to respond to the previous bid at the Auction. G. The Auction may be adjourned as the Debtor deems appropriate. Reasonable notice of such adjournment and the time and place for the resumption of the Auction shall be given to all Qualified Bidders that have submitted Qualified Bids. H. Each Qualified Bidder that participates at the Auction will be required to confirm that it has not engaged in any collusion with respect to the bidding process or the sale. I. All Qualified Bids, the Auction, and the bid procedures set forth herein are subject to such additional terms and conditions as are announced by the Debtor. J. The Debtor reserves the right as it may reasonably determine to be in the best interest of the Estate, subject to conformity with these bid procedures, to determine which bidders are Qualified Bidders; determine which bids are Qualified Bids; determine which Qualified Bid is the highest or otherwise optimal proposal and which is the next highest or next most optimal proposal; reject any bid that is inadequate or insufficient or not in conformity with the requirements of these bid procedures or the Bankruptcy Code or contrary to the best interests of the Debtor or its Estate; waive terms and conditions set forth herein with respect to all potential bidders; impose additional terms and conditions with respect to all potential bidders; extend the deadlines set forth herein; adjourn or cancel the Auction without further notice; or modify the bid procedures as the Debtor may determine to be in the best interest of the Estate.


EXHIBIT B

EXHIBIT BCase: 21-40363 Doc# 279 Filed: 08/30/21 Entered: 08/30/21 16:07:32 of

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17824869.1 1





Debtor.

Case No. 21-40363 Chapter 11 ORDER GRANTING MOTION FOR ENTRY OF ORDER APPROVING AUCTION AND BID PROCEDURES

1 The last four digits of the Debtor’s federal tax identification number are 2411. The

mailing address for the Debtor is 1850 Alice Street Oakland, CA 94612.


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This cause came before the Court at the hearing on the Motion For Entry of Order

Approving Auction and Bid Procedures (the “Motion”). The Court having found that the

notice provided by the Debtor was proper, that the relief requested in the Motion is in the

best interests of creditors and the Estate, and that no party in interest has objected to the

Motion, it is hereby ordered, adjudged and decreed:

IT IS HEREBY ORDERED THAT:

1. The Motion is GRANTED.

*** END OF ORDER ***


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COURT SERVICE LIST

Recipients are ECF Participants.


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Debtor.

Case No. 20-40363 Chapter 11 DECLARATION OF NEAL L. WOLF IN SUPPORT OF MOTION FOR ENTRY OF ORDER APPROVING AUCTION AND BID PROCEDURES

I, Neal L. Wolf, declare as follows:

1. I am a partner in the law firm of Hanson Bridgett LLP, counsel of record in

this matter for Debtor and Debtor-in-Possession, California-Nevada Methodist Homes

(“Debtor”). I have personal knowledge of the matters set forth in this declaration and

could and would competently testify to them. All of the matters stated herein are known

to me personally, unless stated on information and belief; and with regard to those

statements, I am informed and reasonably believe them to be true.

2. I submit this Declaration in support of the Motion For Entry of Order

Approving Auction and Bid Procedures (the “Motion”).

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1 The last four digits of the Debtor’s federal tax identification number are 2411. The mailing address for the Debtor is 1850 Alice Street Oakland, CA 94612.

Case: 21-40363 Doc# 279-1 Filed: 08/30/21 Entered: 08/30/21 16:07:32 Page 1of 3

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3. Debtor commenced the above-captioned chapter 11 case (the “Chapter 11

Case”) on March 16, 2021.

4. The Debtor has requested that the Bankruptcy Court enter an Order

approving Bid Procedures, a copy of which is attached to the Debtor’s Motion as Exhibit

A.

5. For a substantial period of time, the Debtor has been sustaining severe

operating losses. See Declaration of Neal L. Wolf (“Wolf Declaration”).

6. In the opinion of the Debtor and its Chief Restructuring Officer, these

substantial operating losses cannot quickly be reversed or rectified absent a sale or

merger transaction. Id.

7. On May 20, 2021, upon motion by the debtor, the bankruptcy court entered

an order authorizing the Debtor to employ B.C. Ziegler & Company (“Ziegler”) to

orchestrate a sale or merger process (“Sale Process”). Ziegler quickly went to work

implementing that process. Ziegler contacted dozens of potentially interested parties,

circulated a comprehensive “offering memorandum” to those parties who expressed

interest in a transaction, and engaged many of those parties in direct, one-on-one

discussions. Id.

8. The Debtor recognizes that the Sale Process is far from complete. To date,

however, the Sale Process has been quite successful. Ziegler has elicited non-binding

letters of interest from ten potential purchasers or merger partners. Id.

9. In recent weeks, Ziegler has conducted a de facto auction process. It has

called upon and encouraged potential buyers and merger partners to both enhance and

expand their respective proposals. Certain of these potential buyers and merger partners

have enhanced their proposals on two or more occasions. Id.

10. As of today, the Debtor has received a number of nonbinding proposals that

would, if effectuated and realized, involve (a) the continued operation of CNMH (or a

successor entity) by a financially-strong purchaser or partner with an excellent, proven

track record in the Continuing Care Retirement Community field, (b) the assumption of all


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liabilities to residents, former residents, and their successors-in-interest, and (c) the

satisfaction of a substantial portion of CNMH’s other financial liabilities. Id.

11. The process of identifying the appropriate purchaser or merger partner is

complex. That process does not involve merely selling the assets to the highest bidder.

The Debtor is instead attempting to identify a purchaser or merger partner that will (a)

best serve the paramount needs and interests of present and former residents on an

ongoing basis, (b) be financially strong and stable, (c) satisfy the claims of creditors to the

greatest extent possible, and (d) obtain the support and approval of state regulatory

agencies on an expeditious basis. Id.

I declare under penalty of perjury under the laws of the United States of America

that the foregoing is true and correct.

Executed on August 30, 2021 at Dublin, California.

/s/ Neal L. Wolf

Neal L. Wolf


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