First Day Declaration
Cash Collateral Motion
First Day Hearing Agenda
|Alliant Technologies does business as TenFour, which provides subscription-based networking, communications and security services for businesses
|Seeks to sell substantially all assets as a going concern to Acuative Corporation
|Case would be funded by the use of cash collateral, with the consent of prepetition secured lender Valley National Bank
Morristown, N.J.-based Alliant Technologies, which does business as TenFour
, a provider of turnkey, subscription-based networking, communications and security services for businesses, filed for chapter 11 protection today in the Bankruptcy Court for the District of New Jersey. According to the first day declaration of Mark Cantaluppi, the CEO of debtor Technology Keiretsu LLC, which serves as parent of the other debtors, the company filed chapter 11 to effectuate a sale of substantially all of its assets, with Acuative Corporation as stalking horse.
Acuative’s bid includes the payment of $3.25 million at closing, “then additional earn-out payments at twelve and twenty-four months after closing, depending on whether certain revenue targets are met.” Based on recent financial performance and current trends, the debtors say, “it is possible that the final, all-in payment total from the Stalking Horse Purchaser could potentially be $6,000,000.” In addition, the stalking horse would assume certain of the debtors’ liabilities, including all of its capital leases (the debtors’ capital lease obligations were $6.9 million as of Sept. 30). Cantaluppi submits that a several-month marketing and sale process was “ultimately fruitful” and the debtors “now stand on the threshold” of consummating a going concern sale “designed to maximize recoveries for creditors, continue uninterrupted service to the Debtors’ customers, and preserve employment for TenFour’s workforce.”
The debtors seek to conduct an auction on an expedited timeline, cautioning that the debtors “continue to burn cash and liquidity is limited.”
The debtors seek to proceed under subchapter V of chapter 11.
The first day hearing has been scheduled for Thursday, Dec. 23 at 11 a.m. ET.
According to the first day declaration, the debtors have approximately $21.7 million in assets and $21.6 million in liabilities as of Sept. 30, 2021. The company’s prepetition capital structure includes:
- Secured debt:
- Valley National Bank: $2.4 million
- Unsecured debt:
- Subordinated convertible promissory notes (Jan. 31, 2022 maturity): $6 million
- Capital lease obligations: $6.9 million (as of Sept. 30)
- Trade debt: $3.3 million (as of Sept. 30)
- Equity: Alliant Technologies LLC’s equity is held 99.99% by debtor Technology Keiretsu LLC and 0.01% by non-debtor TenFour LLC.
Valley National Bank and TenFour entered into two forbearance agreements prepetition on Nov. 5 and Dec. 9, each of which required a $50,000 paydown to Valley Bank, with the last agreement running through Dec. 17.
The debtors describe the subordinated noteholders as “rescue” investors, which include Technology Keiretsu, NSG IV Unblocked AIV, L.P. and NSG IV Subsidiary AIV, L.P. Technology Keiretsu also issued a series of convertible subordinated notes to certain members of management. The notes were provided in lieu of bonuses and salary, with $73,000 in total principal outstanding under the deferred salary notes as of the petition date. The subordinated executive compensation notes are subordinated to the Valley National Bank debt, accrue interest (that remains unpaid) of 12% and mature on Jan. 31, 2022.
The debtors are represented by Faegre Drinker Biddle & Reath in Florham Park, N.J. as counsel, Stout Risius Ross as investment banker and Eisner Advisory Group as restructuring and financial advisor. Donlin Recano is the claims agent. The case has been assigned to Judge John K. Sherwood (case no. 21-19748).
Events Leading to the Bankruptcy Filing / Prepetition Restructuring Efforts
The first day declaration says that despite the debtors’ fundamentally strong business, it is “one of the many companies” severely affected by the Covid-19 pandemic and its impact on global supply chains. “While many sectors of the economy have recovered from the pandemic, the IT industry continues to suffer major supply chain shortages,” the first day declaration adds, noting a “major worldwide shortage” of microchips. Toward the end of 2019, the debtors raised approximately $2.1 million of capital from a private investor group and sought to implement a new go-to-market strategy and repay outstanding trade balances and the balance under the letter of credit loan with Valley National Bank.
The company applied for and received a $1.8 million PPP loan, which was forgiven in May 2021 under the CARES Act.
“As the economy ground to a halt during the second quarter of 2020,” Cantaluppi writes, customer payments slowed, TenFour’s operating revenue fell and outstanding payables grew. In response, the debtors’ management initiated an “aggressive” cost control campaign. In July 2020, management salaries were reduced by 20% and many rank and file employees were moved to a four-day work week at reduced compensation.
During the third quarter of 2020, the debtors began negotiations with vendors to structure payment terms on outstanding balances and by September 2020 implemented labor cost settings by furloughing 12 employees, temporarily reducing leadership compensation by 40% and reducing compensation for “most other employees” by 20%. Also in September 2020, the debtors, in consultation with Valley National Bank, arrived at an agreement for the terms of a three tranches, each in the amount of $2 million, of subordinated “rescue capital” from NSG IV Unblocked AIV LP, NSG IV Subsidiary AIV LP and the other investors. This funding allowed the debtors to pay their vendors and landlord and to pay down $350,000 of the Valley indebtedness.
The debtors’ senior management collectively agreed to defer cash compensation of $345,000 that was owed to them in March 2021, and up to an additional $106,000 owed through the remainder of 2021. In lieu of paying their salaries and bonuses in cash, the senior management now holds the subordinated executive compensation notes. By Aug. 1, all employees were brought back to full compensation levels and only five employees remained on furlough. Under the CARES Act, the debtors availed themselves of the employee retention credit program, which allowed the debtors to reduce payments to the IRS for employment taxes by $422,000 in the second quarter of 2021 and by $482,000 in the third quarter.
As an example of the supply chain issues the debtors face, the debtors explain that TenFour entered into a “significant new customer contract” in July 2021, and that usually, the equipment necessary to implement the new system would arrive in less than 30 days, “typically closer to twenty days.” However, “given the current supply delays, TenFour does not expect that its revenue streams will return to normal until at least the second quarter of 2022.” The debtors' management believes that the supply chain interruptions are causing delays in buying decisions, resulting in fewer closing opportunities in the fourth quarter of 2021.
TenFour is a provider of comprehensive turnkey, subscription-based networking and communications services “for companies around the world.” The company handles hardware, software, connectivity, and services from design to deployment to monitoring and problem mitigation. “Founded in 1998 as Alliant Technologies and headquartered in Morristown, N.J., TenFour has a legacy of solving challenging problems in complex IT environments,” the debtors say.
The debtors say that TenFour’s competitive advantage is based on its positioning “at the forefront of the Network-as-a-Service (‘NaaS’) trend,” which it describes as an emerging model for organizations to consume network infrastructure through flexible operating expense subscriptions that bundle hardware, software, management tools, licenses and service into a single package. The company’s comprehensive services include all of the networking and communications technology needed to securely and reliably manage employees and resources paired with “24x7x365” support from TenFour’s “Network Operations Center,” which the debtors note is located at the debtors’ headquarters. TenFour’s NaaS capabilities are built upon its proprietary reference architecture and system designs, allowing the business to efficiently customize and scale its services to meet each customer’s unique needs.
The company’s revenue pipeline includes national retailers and manufacturers “representing key customer demographics with increasing recognition of the compelling advantages of NaaS solutions—proven to be efficiently adapted across distributed environments while offering maximum flexibility with no up-front costs as new locations come online.” TenFour has long-standing relationships with key industry players Cisco and AT&T and notes that it has identified additional partnership opportunities for expanding the debtors’ marketing and service delivery capabilities “specifically for the mid-market.”
The debtors' largest unsecured creditors are listed below:
|10 Largest Unsecured Creditors
|Ingram Micro Inc.
|Mount Kemble Corporate Center LLC
|Raich Ende Malter & Co. LLP
||Florham Partk, N.J.
|DDI Leasing Alliant
TD SYNNEX Corporation
|Diversified Systems Resources
|McCarter & English
The case representatives are as follows:
||Michael P. Pompeo
Biddle & Reath
|Florham Park, N.J.
|Marita S. Erbeck
|Counsel to Valley
|Stephen R. Catanzaro
|Joshua W. Cohen
|Counsel to Acuative
||Kevin M. Capuzzi
Cash Collateral Motion
The debtors request the use of cash collateral, proposing as adequate protection to prepetition secured lender Valley National Bank replacement liens, superpriority administrative expense claims, payment of non-default interest, $25,000 monthly adequate protection payments, reimbursement of expenses and payments from the sale of collateral.
There is no proposed carveout.
The proposed budget for the use of cash collateral is HERE
The lien challenge deadline is the later of 60 days from entry of the interim order and confirmation of a plan.
KEIP / KERP and Employee Wages
The debtors have adopted a key employee retention plan, or KERP, designed to encourage the retention of certain valuable, hard-to-replace, non-senior management employees and/or contract service personnel, and a key employee incentive plan, or KEIP, to provide performance incentives to certain senior management employees who are essential to the debtors’ restructuring and would aid in maximizing the value of the debtors’ estates. The KERP and KEIP plan was approved by the debtors’ board on Dec. 14, 2021.
The KERP participants would be separated into three levels: Level 1 (Individual Contributor), Level 2 (Director, Manager and Supervisor) and Level 3 (Vice President and Senior Vice President). Each participant would be entitled to receive retention payments payable on the KERP effective dates. Assuming that all KERP participants remain employed through the applicable vesting periods, the total potential aggregate payout under the KERP is approximately $395,000 - $185,000 as the maximum payment for level 1 ($5,000 per eligible employee), $60,000 as the maximum payment for level 2 ($10,000 per eligible employee) and $150,000 for level 3 ($30,000 per eligible employee).
The motion states that the KEIP is designed to incentivize two participants: the chief executive officer and chief administrative officer.
Each KEIP participant would be entitled to receive retention payments based on (a) distributions to general unsecured creditors above what is currently projected and (b) a percentage of future recoveries of disputed amounts collected from former customers as more fully described in the KERP and KEIP plans. If the recovery to general unsecured creditors increases by $1 million, then the KEIP participants would be awarded payments of up to $112,500. Similarly, if the debtors are able to recover $1.8 million in disputed amounts, the KEIP participants would be awarded up to $242,500. “In other words, the KEIP Payments are tied directly to and conditioned upon on the recovery to general unsecured creditors being enhanced,” the debtors say. Subject to entry of the final order and after notice and a hearing, the debtors seek authorization, but not direction, to honor prepetition obligations under the KERP and KEIP plans in the ordinary course of business.
As for employee obligations, the debtors owe approximately $110,000 on account of unpaid wages, all of which is being sought in payment on an interim basis, $5,000 with respect to sales-based commissions and incentives, $3,000 to Automatic Data Processing Inc. for payroll maintenance, and $50,000 in payroll taxes, all of which is being sought in payment. The debtors also seek to pay $15,000 with respect to reimbursable expenses on an interim basis and $25,000 in total payment on an final basis.
The debtors also filed various standard first day motions, including the following: