Consummated Plan Based Upon Qualified Bid for Equity Received Pursuant to Sale Process Not “Sale Transaction” for Purposes of Investment Banker’s Retention Agreement

In re Hipcricket, Inc., Case No. 15-10104 (LSS), 2015 WL 5728552 (Bankr. D. Del. Sept. 29, 2015)

In this Memorandum Order, Judge Silverstein approved Canaccord Genuity Inc.’s (“Canaccord”) success fee for its work as an investment banker to Hipcricket, Inc. (the “Debtor”) over an objection of Hal L. Baume (the “Distribution Trustee”).  By the terms of Canaccord’s retention, a success fee was due to it unless a proposed buyer provided debtor in possession financing as part of “a contemplated sale transaction” and such sale transaction was consummated.  In this case, the Distribution Trustee asserted that the consummated plan, which was based upon a qualified bid received for the Debtor’s equity during an approved bidding procedures and auction process and which included debtor in possession financing, invalidated Canaccord’s right to a success fee.  A dispute thus arose over the Canaccord retention agreement’s meaning of a “sale transaction.”

Shortly after the Debtor filed its petition, the Court approved bid procedures for a sale of substantially all of the Debtor’s assets to stalking horse bidder SITO Inc. (“SITO”).  ESW Capital, Inc. (“ESW”) submitted a bid in the form of an acquisition of the Debtor’s equity through a plan, with ESW as the plan sponsor.  ESW’s bid also offered replacement debtor in possession financing.  SITO declined to increase its bid, and the Debtor declared the ESW bid the highest and best.  The Court later held a contested sale hearing where it ruled that the ESW bid was a “qualified bid” under the bid procedures and that the ESW bid was the highest and best offer, and thus, it approved the sale.  A plan based upon ESW’s qualified bid was ultimately confirmed.

Following confirmation, Canaccord filed its fee application and the Distribution Trustee objected to Canaccord’s requested success fee in the amount of $135,000, arguing that the transaction was a “sale transaction” as contemplated by Canaccord’s retention agreement.  The Distribution Trustee appeared to rely on comments that Judge Silverstein made during her bench ruling on the sale motion whereby the Court noted that the plan contemplated in the ESW bid essentially effected a sale of the Debtor’s assets.  The Court, however, stated that Canaccord’s right to a success fee was based upon its retention agreement and not the Court’s characterization of the transaction at the sale hearing.  Further, the Court noted that the retention agreement stated “sale transaction” and that it was clear to the Court from the context of the retention agreement that it meant a sale of the Debtor’s assets and not the acquisition of new equity through a plan process.  Therefore, the Court granted Canaccord’s fees and expenses in the requested amount, including the success fee.