case 8:19-bk-12375-mw doc 677 filed 11/27/20 entered …...todd c. ringstad (state bar no. 97345)...

This form is mandatory. It has been approved for use in the United States Bankruptcy Court for the Central District of California.

December 2012 F 6004-2.NOTICE.SALE

Sale Date: Time:

Location:

Type of Sale: Public Private Last date to file objections:

Terms and conditions of sale:

Proposed sale price: _________________________________

Attorney or Party Name, Address, Telephone & FAX Nos., State Bar No. & Email Address

FOR COURT USE ONLY

Individual appearing without attorneyAttorney for:

UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA - DIVISION

CASE NO.:

CHAPTER:

In re:

NOTICE OF SALE OF ESTATE PROPERTY

Debtor(s).

Todd C. Ringstad (State Bar No. 97345) [email protected] Nanette D. Sanders (State Bar No. 120169) [email protected] R. Chase Donahoo (State Bar No. 322191)[email protected] & SANDERS LLP4343 Von Karman Avenue, Suite 300Newport Beach, CA 92660Telephone: 949-851-7450Facsimile: 949-851-6926

Thomas H. Casey, Chapter 11 Trustee

SANTA ANA DIVISION

SOUTH COAST BEHAVIORAL HEALTH, a California corporation,

8:19-bk-12375 MW

11

12/17/2020 10:00 am

The Auction sale will be conducted via virtual live video stream.

12/07/2020

See Exhibit 1 attached hereto.

$ 5,800,000.00

**Subject to prequalification. See Exhibit 2.Description of property to be sold:The operating business of South Coast Behavioral Health. See Notice of Motion of Chapter 11 Trustee requesting approval of the sale of Estate assets (ECF Dkt. No. 673), a copy of which is attached hereto as Exhibit 1 for more detail.

Case 8:19-bk-12375-MW Doc 677 Filed 11/27/20 Entered 11/27/20 12:44:16 DescMain Document Page 1 of 27

This form is mandatory. It has been approved for use in the United States Bankruptcy Court for the Central District of California.

December 2012 F 6004-2.NOTICE.SALE

Overbid procedure (if any):

If property is to be sold free and clear of liens or other interests, list date, time and location of hearing:

Contact person for potential bidders (include name, address, telephone, fax and/or email address):

Date:

See Order approving overbid procedures (ECF Dkt. No. 657), a copy of which is attached hereto as Exhibit 2.

Hearing for Approval of Sale of Specified Assets of Debtor Free and Clear of Liens is scheduled for:

Date: December 21, 2020 Time: 2:00 p.m. Location: Courtroom 6C

411 West Fourth Street Santa Ana, CA 92701-4593

Nancy Weisling, Managing Director The Braff [email protected] 290-7273

11/27/2020


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General Bankruptcy Counsel for Thomas H. Casey, Chapter 11 Trustee

UNITED STATES BANKRUPTCY COURT

CENTRAL DISTRICT OF CALIFORNIA – SANTA ANA DIVISION

In re:

SOUTH COAST BEHAVIORAL HEALTH, a California corporation,

Debtor.

Case No. 8:19-bk-12375-MW

Chapter 11 Proceeding

NOTICE OF MOTION OF CHAPTER 11 TRUSTEE REQUESTING (A) APPROVAL OF SALE OF SPECIFIED ASSETS OF THE DEBTOR FREE AND CLEAR OF LIENS UNDER 11 U.S.C. § 363(f), SUBJECT TO OVERBID; AND (B) APPROVAL OF ASSUMPTION, ASSIGNMENT, AND SALE OF PURCHASED CONTRACTS

Hearing: Date: December 21, 2020 Time: 2:00 p.m. Location: Courtroom 6C

411 West Fourth Street, Santa Ana, CA 92701-4593

TO THE HONORABLE MARK WALLACE, UNITED STATES BANKRUPTCY JUDGE, THE OFFICE OF THE UNITED STATES TRUSTEE, AND OTHER INTERESTED PARTIES:

PLEASE TAKE NOTICE that on December 21, 2020, at 2:00 p.m., in Courtroom 6C of the United States Bankruptcy Court, located at 411 West Fourth Street, Santa Ana, California, Thomas H. Casey, Chapter 11 trustee (“Trustee”) for the bankruptcy estate (“Estate”) of South Coast Behavioral Health, Inc. (the “Debtor”), hereby moves this Court pursuant to sections 105,


Exhibit "1"


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363, and 365 of Title 11 of the United States Code (the “Bankruptcy Code”), Rules 2002, 6004, 6006, and 9014 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), and Local Bankruptcy Rule (“LBR”) 6004-1(c), to enter an order approving the sale of the specified assets of the Debtor (referred to herein as the “Purchased Assets”) to Yogesh Desai, his designees, nominees, or assigns (the “Stalking Horse Bidder”) or the highest or otherwise best bidder that complies with the Court’s Order approving bidding procedures (the “Bidding Procedures Order”) for such sale (the “Motion”).

SUMMARY OF THE MOTION

The following is a summary of the Motion. You may obtain a copy of the full and complete Motion, together with its supporting Memorandum of Points and Authorities, Declarations of Thomas H. Casey, Nancy Weisling and Donald T. Fife and exhibits by contacting Becky Metzner at Ringstad & Sanders LLP, 4343 Von Karman Avenue, Suite 300, Newport Beach, California 92660; Telephone (949) 851-7450; Facsimile (949) 851-6926.

I. INTRODUCTION

Thomas H. Casey, the duly appointed and acting Chapter 11 Trustee (“Trustee”) for the Bankruptcy Estate (“Estate”) of South Coast Behavioral Health, Inc. (“Debtor”), has executed an Amended Purchase Offer from Yogesh Desai, his designees, nominees, or assigns (the “Stalking Horse Bidder” or “Purchaser”) for the sale of the majority of the Debtor’s assets (the “Purchased Assets”) as designated in a Stalking Horse Asset Purchase Agreement (“Stalking Horse APA”) to be executed by the Stalking Horse bidder

After engaging in significant postpetition marketing efforts, the Trustee believes that the Amended Purchase Offer currently represents the highest and best bid that has been received for the Purchased Assets. The Amended Purchase Offer is the result of extensive arm’s length negotiations between the Trustee and remains subject to higher and better bids. The Trustee has determined, in the exercise of his sound business judgment, that a sale of the Debtor’s assets consistent with the Amended Purchase Offer, pursuant to the Standard Form Asset Purchase Agreement (“Standard Form APA”) will maximize the value of the Estate and is in the best interest of creditors.

The Trustee intends to continue to market the Debtor’s assets in an effort to obtain higher and better bids at an auction pursuant to the Bidding Procedures Order. The Trustee has received inquiries from multiple interested parties that are expected to submit higher and better bids pursuant to the proposed bidding procedures.

By this Motion, the Trustee seeks approval of the sale of the business to the Stalking Horse Bidder pursuant to a Standard Form APA acceptable to both the Trustee and the Stalking Horse Bidder. In the event that the Trustee receives a higher and better bid consistent with the Bidding Procedures Order, the Trustee seeks approval to sell the Purchased Assets to the highest or best bidder (the “Winning Bidder”), as determined by the Trustee in his exercise of reasonable business judgment, pursuant to an asset purchase agreement (the “Overbid APA”). In addition, this Motion seeks approval of the assumption, assignment, and sale of certain executory contracts and unexpired leases of the Debtor (the “Purchased Contracts”) to the Purchaser or Winning


Exhibit "1"


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Bidder. Based on the foregoing reasons and the reasons set forth below, the Court should approve the foregoing requests and grant further relief as the Court deems just and proper.

II. BACKGROUND

A. Jurisdiction and Venue

The Court has jurisdiction over the Motion pursuant to 28 U.S.C. § 157 and 1334. This proceeding is a core proceeding under 28 U.S.C. §§ 157(b)(2). Venue of these cases and the Motion is proper in this district pursuant to 28 U.S.C. §§ 1408. The statutory predicates for the relief sought herein are sections 105, 363(b), (f), and (m), and 365 of the Bankruptcy Code, Bankruptcy Rules 2002, 6004, 6006, and 9014, and LBR 6004-1.

B. General Background

The Debtor is a full spectrum addiction treatment provider. Services provided include clinically supervised residential sub-acute detox services, therapeutic and residential treatment facilities, partial hospitalization programs and outpatient treatment services. The Debtor’s inpatient and out-patient treatment facilities are located in Orange County, California.

The Debtor filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code on June 20, 2019 (the “Petition Date”). From the Petition Date through February 26, 2020, the Debtor operated its business affairs in the ordinary course as the debtor-in-possession.

On February 26, 2020, the Official Committee of Unsecured Creditors filed an emergency motion seeking either the removal of current management or the appointment of a Chapter 11 trustee. After reviewing the evidence, the Court entered an order appointing a Chapter 11 trustee on February 27, 2020. The Appointment of Thomas H. Casey as Chapter 11 trustee was approved by Order entered February 28, 2020. See Dkt. No. 429.

C. The Trustee’s Marketing Efforts

The Trustee has engaged in substantial efforts to market the Debtor’s business despite delays caused by the COVID-19 pandemic. The Debtor had retained American Healthcare Capital, LLC (“AHC”) on September 19, 2019, to assist in these services. See Dkt. 304. Unable to find a purchaser, AHC consensually terminated its employment by the estate. The Trustee retained a new investment banking advisor and on August 26, 2020, the Court entered an order granting the Trustee’s application to employ The Braff Group (“TBG”) as its investment banking advisor. See Dkt. 619.

Anticipating due diligence by potential acquirers, the Trustee’s professionals created a data room with information for interested parties and created a Non-Disclosure Agreement (“NDA”) and Protected Health Information Agreement (“PHI”) which all interested parties are required to sign in order to access the data room. These efforts resulted in multiple interested parties executing NDAs and PHIs, including the offer made by the Stalking Horse Bidder.


Exhibit "1"


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In order to expose the purchase opportunity nationwide, the Trustee has sought and obtained Court approval of the engagement of The Braff Group, an investment banking firm specializing in the representation of sellers of healthcare -related businesses. The Order approving the Trustee’s engagement of The Braff Group was entered August 26, 2020 as Dkt. No. 619.

The Braff Group has exposed the opportunity to purchase the business of the Debtor to a nationwide group of over 350 persons and entities engaged in aspects of the behavioral health industry. To date, 16 parties contacted by The Braff Group have executed Non-Disclosure Agreements (“NDA”) and Protected Health Information Agreements (“PHI”), received The Braff Group offering memorandum, and accessed a data room that is populated by financial information concerning the Debtor’s operations and other relevant due diligence information. Several parties have indicated to Braff Group an intention to bid at any auction conducted for the sale of the business.

The Trustee has now selected the offer that is the subject of this Motion Requesting (A) Approval of Sale of Specified Assets of the Debtor Free and Clear of Liens Under 11 U.S.C. § 363(f), Subject To Overbid, Etc. (the “Sale Motion”). The proposed buyer of the assets is referred to herein as the “Stalking Horse Bidder.” The offer of the Stalking Horse Bidder will be subject to overbids from qualified bidders at an auction to be conduct during the hearing on the Sale Motion (the “Sale Hearing”). The Trustee determined that the offer from the Stalking Horse Bidder represented the highest and best offer with the most certainty currently available and established a substantial floor for further bidding. The Trustee will continue to engage in marketing efforts to produce competing bids until the deadline set forth in the Bidding Procedures.

The Trustee has sought and obtained Court the engagement of Nelson Hardiman, a highly-qualified law firm with considerable expertise in transactions involving healthcare-related companies, as special counsel to assist and advise the Trustee with matters pertaining to negotiating, documenting, and closing a sale of the business as a going concern, including drafting a standard form asset purchase agreement (the “Standard APA Form”) to be used by all bidders for presentation of offers. The Trustee proposes to require all bidders, including the Stalking Horse Bidder, to present offers in the form of the Standard APA Form, with any changes to the Standard APA Form indicated by redlining. This will make it easier for the Trustee to identify and understand any differences in competing offers and determine which offer provides the greatest value to the estate.

III. THE PROPOSED SALE

A. The Material Terms of the Stalking Horse Offer

The Trustee proposes to sell a majority of the Debtor’s assets as a going concern business to the Stalking Horse Bidder, free and clear of all liens, encumbrances, claims, and interests, in accordance with sections 363(b), (f) and (m). On November 25, 2020, the Trustee, on behalf of the Estate, and the Stalking Horse Bidder executed the Amended Purchase Offer. The Amended Purchase Offer will be reflected in a Stalking Horse APA and is subject to overbids from


Exhibit "1"


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qualified bidders at an auction to be conducted at or prior to the hearing (the “Sale Hearing”) on this Motion.

A copy of the Amended Purchase Offer is attached to the Declaration of Thomas H. Casey (the “Casey Declaration”) attached to the Motion as Exhibit “1.”The following is a summary of the material terms of the proposed sale to the Purchaser under the Amended Purchase Offer and the Standard Form APA1:

1. Purchase Price consists of five million eight hundred thousand dollars ($5,800,000).

2. Deposit consists of $250,000.00 which will be applied to the Purchase Price, andwhich Deposit will be fully refundable until satisfaction of all of the Conditions (asdefined in the Stalking Horse APA) upon the occurrence of which the Deposit shallbecome nonrefundable and shall be forfeited by Purchaser and retained by Seller asliquidated damages in the event of default by Purchaser.

3. Assets consists of all of the Debtor’s licenses, agreements, accreditations, contracts,including the Assumed Leases and all Assumed Executory Contracts (as defined in theStalking Horse APA), furniture, fixtures, equipment , personal property, utility deposits,and lease deposits for the Assumed Leases, intellectual property, and goodwill, exceptfor the Excluded Assets (as defined in the Stalking Horse APA).

4. Excluded Assets means the Rejected Leases, the Rejected Executory Contracts, allcash on hand at the Closing Date including all monies in deposit accounts, monies intransit, uncashed checks, all accounts receivable and work in process as of theClosing Date, and all claims and choses in action held by the Trustee and the estate,including but not limited to those in pending litigation.

5. Assumed Leases includes assumption and assignment to Purchaser of the realproperty leases of the following real properties:

2220 University Drive, Newport Beach, CA 92660 6 Banyan Tree Lane, Irvine, CA 92612* 559 Pierpont Drive, Costa Mesa, CA 92626* 5302 Kenilworth Drive, Huntington Beach, CA 92649* 1958 Balearic Drive, Costa Mesa, CA 92626** 1068 San Pablo Circle, Costa Mesa, CA 92626** 275 E. Wilson Street, Costa Mesa, CA 92627** 3151 Airway Avenue, N-1, Costa Mesa, CA 92626*** 3151 Airway Avenue, N-2, Costa Mesa, CA 92626***

* Month to month; new one-year lease available from third party landlord.** Month to month; new one-year lease available from Seller. Lease will includeright of first refusal to purchase title for six months following the Closing.***Month to month; longer term lease available from Seller on terms to benegotiated. May be Rejected Leases at option of Purchaser.

1 The summary of material terms is provided for discussion purposes only. In the event of any conflict between the terms of the Stalking Horse APA and this summary, the Stalking Horse APA shall be controlling.


Exhibit "1"


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6. Assumed Executory Contracts specifically includes all insurance provideragreements, including the Anthem Blue Cross Mental Health ParticipatingHospital/Facility Agreement, Effective Date August 20, 2015 and such otherexecutory contracts as are designated by Purchaser for assumption.

7. Rejected Leases as used herein means all real property leases other than the AssumedLeases, and may include one or both locations at 3151 Airway Avenue, CostaMesa, CA 92626 at Purchaser’s option.

8. Rejected Executory Contracts means any executory contracts not designated byPurchaser for assumption prior to the Closing Date.

9. Conditions include: execution by Purchaser and Seller of the Standard Form AssetPurchase Agreement (“APA”), entry of an Order of the Bankruptcy Court in formand substance acceptable to Purchaser approving the sale to Purchaser of the Assetspursuant to the terms of the APA, free and clear of all liens, encumbrances, andinterests, which Order contains a finding that Purchaser is a purchaser in good faithpursuant to 11 U.S.C. § 363(m), and which Order is final and no longer subject toappeal with no appeal therefrom pending, or, if an appeal has been filed, no stay ofenforcement of the Order has been entered by any court of competent jurisdiction.

10. Closing Date means a date mutually agreeable to Purchaser and Seller not more than30 days after satisfaction of all Conditions.

11. Right of First Refusal. Following the Closing Date, Purchaser shall have a right offirst refusal to purchase the bankruptcy estate’s interest in the real propertiescommonly known as 1958 Balearic Drive, Costa Mesa, CA 92626, 1068 San PabloCircle, Costa Mesa, CA 92626, and 275 E. Wilson Street, Costa Mesa, CA 92627, for aperiod of six months following the Closing Date, which right may be exercised bymatching the prevailing purchase price and terms of any proposed sale of any of suchproperties at any sale hearing or auction conducted for such purpose pursuant tosection 363 of the Bankruptcy Code.

B. The Material Terms of the Management and Operations Transfer Agreement.

In addition to the Stalking Horse APA, the Stalking Horse Bidder (or the WinningBidder) will be required to enter into the Management and Operations Transfer Agreement (the “MOTA”). A copy of the MOTA is attached as Exhibit E to the Standard Form APA, which is attached to the Motion as Exhibit “2.” The MOTA is intended to resolve the issues that occur in closing and transferring operations of a healthcare provider to a new purchaser. Such agreements are commonplace in transactions involving the sale of operating healthcare businesses, because the sale itself must close before the buyer can apply to the California Department of Health Care Services to transfer the healthcare licenses. The MOTA allows the buyer to take over operations at the closing of the sale and operate the business pursuant to a management agreement until such time as DHCS has approved the transfer of the licenses to the buyer. A brief summary of the material terms of the MOTA follows:


Exhibit "1"


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The MOTA allows the Buyer (identified as the “New Operator” to take over operation of the business upon the Closing of the Asset Purchase Agreement (identified as the “Operations Transfer Date” in the MOTA), and operate the business pursuant to the terms of the MOTA until such time as the California Department of Health Care Services has issued new Permits to the Buyer (the “Transition Date”). The Seller (“Licensee” under the MOTA) appoints Buyer as the New Operator with responsibility for day to day operations. The Buyer subleases all facilities and is responsible for all rent and other charges with respect thereto, until such time as the Transition Date has occurred and Buyer takes over full ownership. All existing employees of the business that Buyer intends to retain become employees of Buyer on the Operations Transfer Date, and Buyer is responsible for all costs and expenses related thereto. The Buyer is responsible for patient care, billing, collections, accounts payable, and employee wages, salaries and benefits. As a Management Fee, the Buyer gets to retain all profits generate from the operation of the business after the Operations Transfer Date, and is responsible for bearing all operating expenses and operating losses.

The MOTA includes a broad indemnification of the Buyer by the Estate for any Retained Liabilities of the Estate, and acts and omissions, including accounts payable occurring and arising prior to the Operations Transfer Date, and a broad indemnification of the Estate by the Buyer for all claims arising from Buyer’s operations after the Operations Transfer Date, in all operating expenses, accounts payable, and any other claims that may arise from any acts or omissions of the Buyer.

Reference should be made to the specific terms of the MOTA for greater detail concerning its terms.

C. The Bidding Procedures

The Stalking Horse APA will be subject to higher and better bids so long as suchbids satisfy the requirements of the Court-approved bidding procedures, which are set forth in detail in the Order Granting Motion to Approve Bidding Procedures. See Dkt. No. 657, a copy of which is attached to the Motion as Exhibit “4.”

The following is a summary of the material terms of the Bidding Procedures, as updated to reflect the current schedule the occurrence of key events:

The Braff Group, the investment bankers to the Trustee, is entitled to a commission of 7% of the gross selling price for all bidders except for certain parties who had been contacted in connection with the potential purchase of the Sale Assets prior to the engagement of The Braff Group (the “Excluded Bidders”)2. All bidders except the Excluded Bidders are referred herein as “Non-Excluded Bidders.” In order to accurately calculate the benefit to the bankruptcy estate of each bid, the value of the bids of Excluded Buyers and Non-Excluded buyers will be calculated differently to account for the payment of a commission to The Braff Group from the bid of any Non-Excluded Bidder. The methodology of that calculation is described in paragraph 7, below.

2 A list of the Excluded Bidders is included in the Sale and Bidding Procedures which is attached as Exhibit A to the Bidding Procedures Order, a copy of which is attached hereto as Exhibit “4.”


Exhibit "1"


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The procedures for bidding are as follows:

1. A Standard APA Form will be made available to all potential bidders who haveexecuted Non-Disclosure Agreements and accessed the data room for due diligencepurposes, and who intend to submit a bid. Any proposed bid must be submitted onthe Standard APA form, with all changes to the Standard APA Form redlined orotherwise marked (including all exhibits and schedules thereto).

2. Any prospective bidder other than the Stalking Horse Bidder (each a “PotentialBidder”) that wishes to participate in the bidding process for the majority of theDebtor’s assets must, no later than December 7, 2020 at 3:00 p.m. PST (the “BidDeadline”):

a. Submit to the Trustee by email or as otherwise instructed by the Trustee,through their respective counsel if applicable, an offer in the form of anexecuted purchase and sale agreement on the Standard APA Form, at a pricethat conforms with the following Paragraph (b), and on such other terms thatare no less favorable to the Debtor than those contained in the Stalking HorseAPA executed by the Stalking Horse Bidder (the “Overbid APA”), except aspermitted by the Trustee. Each Overbid APA must specifically describe all ofthe Bidder’s conditions and contingencies. The Trustee, in the exercise of theTrustee’s reasonable business discretion, may determine that certainconditions or contingencies are not acceptable, in which case the Bidder willnot be deemed a Qualified Bidder unless the Bidder agrees to waive theunacceptable conditions or contingencies. Each bid must be irrevocablethrough the hearing to consider approval of the sale (the “Sale Hearing”),unless the bid is selected as the Winning Bid or the Back-Up Bid (as suchterms are defined below) at the Sale Hearing, in which case such bid shall beirrevocable through the closing of the sale to the Winning Bidder or Back-UpBidder (as such terms are defined below), as the case may be, in accordancewith the terms of the Overbid APA.

b. Agree in such Overbid APA to a purchase price that is no less than (a) ifBidder is an Excluded Bidder, the sum of $5,900,000; or (b) if the Bidder is aNon-Excluded Bidder, the sum of $5,900,000 divided by .93, rounded to thenearest increment of $5,000 (i.e., $6,345,000).

c. Make a good faith cash deposit in an amount no less than $250,000.00 (“BidDeposit”) in the same manner required under the Standard Form APA. TheBid Deposit shall be shall be credited toward the purchase consideration ifand when the transaction with the Potential Bidder making such deposit isapproved by the Court as the winning bid (the “Winning Bid” and the“Winning Bidder”) at the Sale Hearing and such transaction is closed inaccordance with the terms of the Overbid APA. The Bid Deposit shall berefundable only if the Potential Bidder’s bid is not designated as a QualifiedBid (as defined below) or such bid is not approved as the Winning Bid or theBack-Up Bid at the Sale Hearing.


Exhibit "1"


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d. Provide written evidence reasonably satisfactory to the Trustee in theTrustee’s sole discretion of (A) its financial ability to (i) fully and timelyperform all obligations under the Overbid APA if it is declared to be theWinning Bidder, and (ii) provide adequate assurance of future performanceunder all contracts and leases to be assigned to it, and (B) its qualification toown the assets and operate the business that are the subject of the OverbidAPA in compliance with all applicable federal, state, and local laws.

e. Disclose any connections or agreements with the Debtor, the Stalking HorseBidder, any other known Potential Bidder or Qualified Bidder (as definedbelow), and/or any officer, director or direct or indirect equity security holderof the Debtor.

3. If a Potential Bidder complies with all the requirements described above (includingthe Bid Deposit) by the Bid Deadline, the Trustee shall determine whether thePotential Bidder (i) has demonstrated the legal qualification and financial ability toconsummate the proposed transaction, (ii) is reasonably likely to be able to andwilling to consummate the contemplated transactions, (iii) has including financing,due diligence or other contingencies that are not acceptable to the Trustee, and (iv)has otherwise satisfied all of the requirements described above. If so, the Trusteeshall designate the Potential Bidder as a “Qualified Bidder” and such bid as a“Qualified Bid.” The identify of all Qualified Bidders, including the Stalking HorseBidder, shall be disclosed to the Court at or prior to the Sale Hearing and shall be amatter of public record. For the avoidance of doubt, the Stalking Horse Bidder isdeemed to be a Qualified Bidder and the Stalking Horse Bid is deemed to be aQualified Bid for all purposes.

4. If the Debtor receives at least one (1) Qualified Bid from a Qualified Bidder (otherthan the Stalking Horse Bidder) (the “Initial Overbid”) prior to the Bid Deadline,then the Trustee shall notify the Stalking Horse Bidder and each other QualifiedBidder that the Trustee intends to conduct an auction (the “Auction”), subject toreasonable rules and procedures as may be established by the Trustee, consistentwith this Order.

5. If the Trustee does not receive at least one (1) Qualified Bid from a Qualified Bidderother than the Stalking Horse Bidder, then no Auction shall be scheduled orconducted, and the Court at the Sale Hearing shall solely consider the approval of thesale transaction to the Stalking Horse Bidder as set forth in the Stalking Horse APA;the Court shall not consider any competing or alternative efforts or proposals topurchase any of the Debtor’s assets (unless consented to by the Trustee), nor shallthe Court consider any subsequent objections that are based on the existence orpotential for other or different offers of proposals to purchase the Debtor’s assets.

6. The Auction to determine the successful bidder for the Purchased Assets shall beconducted on December 17, 2020 at 10:00 a.m. PST virtually as follows:

The Auction will be conducted via virtual live video stream. Qualified Bidders and/or their representatives will be allowed to participate via a


Exhibit "1"


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- 10 -

live video and audio feed. Parties seeking to bid who are not Qualified Bidders as described herein will not be permitted to participate in the Auction. Qualified Bidders will be provided more detailed instructions in the days leading up to the Auction. Interested creditors and parties in interest will be allowed to monitor both the video and audio feed, but will not have a live line and will not be seen nor heard during the Auction. Creditors and parties in interest monitoring the auction are expressly prohibited from contacting or attempting to contact any Qualified Bidder or their representatives during the auction. Creditors and parties in interest wishing to monitor the proceedings may contact Becky Metzner via email at [email protected] at least two business days before the auction to arrange access.

7. Only the Stalking Horse Bidder and other Qualified Bidders may bid at the Auction.Copies of all Qualified Bids shall be provided to the Stalking Horse Bidder and eachother Qualified Bidder by no later than one (1) business day prior to the Auction. Atthe commencement of the Auction, the Trustee shall identify the bid that he hasdetermined to be the highest and/or best offer and shall permit the Stalking HorseBidder and other Qualified Bidders to submit higher and/or better bids.

8. Because the bids of Excluded Bidders are not subject to a commission paid by thebankruptcy estate to The Braff Group, but the bids of Non-Excluded Bidders aresubject to a 7% commission to be paid from sale proceeds by the bankruptcy estate,the Trustee will compare the value of competing bids net of the commission, ifapplicable, in order to determine whether a subsequent bid will provide a greateroverall value to the estate. The Initial Bidding Increment, i.e., the net amount bywhich the initial overbid submitted pursuant to paragraph 1.b. above must exceed theamount of the Stalking Horse Bid is $100,000, rounded to the nearest increment of$5,000. After the Initial Overbid, each subsequent bid must exceed the amount ofthe immediately preceding and accepted bid by not less than $100,000.00(“Minimum Bidding Increment”) net of The Braff Group commission, and shall notbe modified in a manner that causes it no longer to be a Qualified Bid. The net valueof the bid from an Excluded Bidder will be the face amount of the bid. The net valueof the bid of a Non-Excluded Bidder will be 93% of the face amount of the bid. Forexample, if the immediately preceding and accepted bid were $6,500,000 made by anExcluded Bidder, then the minimum overbid would be $6,600,000 for an ExcludedBidder, and $7,095,000 for a Non-Excluded Bidder ($6,600,000 /.93 = $7,096,774rounded to $7,095,000). If the immediately preceding and accepted bid were$6,500,000 made by a Non-Excluded Bidder and therefore subject to a 7%commission to The Braff Group, the minimum overbid would be $6,600,000 foranother Non-Excluded Bidder, but an Excluded Bidder would be able to deduct thecommission amount from the immediately preceding and accepted bid of the Non-Excluded Bidder and then add the Minimum Bidding Increment of $100,000 in orderto determine the minimum bid amount for the Excluded Bidder. In this example, theminimum overbid amount for the Excluded Bidder would be $6,145,000 ($6,500,000x .93 = $6,045,000 + $100,000 = $6,145,000). Thus, once active biddingcommences, the net value to the estate for each bid must exceed the value to the


Exhibit "1"


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- 11 -

estate of the immediately preceding and accepted bid by an amount not less than $100,000.

9. Each bidder participating at the Auction shall be required to confirm that (a) it hasnot engaged in any collusion with respect to the bidding or the sale and (b) itsQualified Bid does not contain any financing or due diligence contingencies (unlessconsented to by the Trustee).

10. The Trustee shall supervise the bidding process and conduct the Auction in such amanner as to provide the Stalking Horse Bidder and other Qualified Bidders a full,fair, and equal opportunity to participate in the Auction. The Trustee, inconsultation with his counsel and advisors, shall determine which Qualified Bid is tobe recommended to the Court for approval as the highest and/or best bid (the“Winning Bid”). The Trustee may use reasonable business discretion in determiningto accept any bid and in evaluating the merits of competing bids. The Trustee maytake into account factors other than the net value to the estate of the face amount ofeach bid in determining which bid should be accepted as the Winning Bid, such asnon-standard conditions or contingencies, financial ability of the bidder or otherfactors. Ultimately, the Trustee may accept as the Winning Bid a bid that is notnecessarily the highest offer received. Any Qualified Bidder who believes that thebid that they submitted during the auction represents a greater value to the estatethan the bid accepted by the Trustee as the Winning Bid, may appear at the SaleHearing to present to the Bankruptcy Court any argument they may have as to whytheir bid should be accepted as the highest and best bid made during the auction.

11. If Qualified Bids have been submitted by more than one Qualified Bidder, theQualified Bidder that makes the next-highest and/or best Qualified Bid to that of theproposed Winning Bidder shall have the option, but not the obligation, to become theback-up bidder (the “Back-Up Bidder”), in which event such Back-Up Bidder’s finaland highest and/or best Qualified Bid (the “Back-Up Bid”) shall remain open andirrevocable in accordance with the terms of the Stalking Horse APA or OverbidAPA, as applicable, pending the closing of the Winning Bid (“Closing Date”) inaccordance with the APA of the Winning Bidder. If the transaction with theWinning Bidder does not close prior to the Closing Date (as such date may beextended by agreement of the Trustee and the Winning Bidder), then the Back-UpBid shall, upon notice to the Back-Up Bidder by the Trustee, be deemed the WinningBid without further order of the Court, and the Back-up Bidder shall be required toconsummate the transaction in accordance with the Stalking Horse APA or OverbidAPA, as applicable.

12. The Trustee shall file a notice announcing the results of the Auction and the identityof the proposed Winning Bidder and the Back-Up Bidder on the Court’s docket assoon as practicable after the conclusion of the Auction. The Trustee shall request atthe Sale Hearing that the Court authorize the Trustee to consummate the saletransaction to such proposed Winning Bidder, or the Back-up Bidder in the eventthat the Winning Bidder defaults in consummating the sale.


Exhibit "1"


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- 12 -

13. Any Bid Deposit from a Qualified Bidder determined not to be a Back-Up Bidder orWinning Bidder shall be refunded to such bidder by deposit in the U.S. Mail withinthree (3) calendar days of such a determination, unless otherwise agreed by theQualified Bidder and the Trustee. If a dispute arises over whether a Bid Deposit isrefundable or non-refundable, the Bid Deposit shall be held the Trustee pending adetermination of the dispute by the Court or written agreement of the parties.

14. Upon approval by the Court of a Winning Bidder, the Bid Deposit of such WinningBidder shall become non-refundable if the APA of such Winning Bidder is thereafterterminated by the Trustee as a result of a breach by the Winning Bidder of itsobligations thereunder. The Bid Deposit of a Back-Up Bidder shall remain ondeposit with the Trustee, pending the Closing Date, and such deposit shall becomenon-refundable if the Back-Up Bidder becomes the Winning Bidder and its OverbidAPA is thereafter terminated by the Trustee as a result of a breach by such Back-UpBidder. In either case, the forfeiture of the Deposit shall constitute liquidateddamages and the Debtor, the Trustee, and the bankruptcy estate shall retain no otherrights, remedies, claims, counterclaims and defenses against the Stalking HorseBidder or such other Qualified Bidder, as applicable.

15. The Trustee may grant any proposed Winning Bidder additional time to perform and,to the extent necessary, extend the Closing Date. The Trustee shall have thediscretion to modify, supplement, amend, or waive the procedures set forth herein ifnecessary, to maximize the value of the estates and otherwise comply with theDebtor’s fiduciary obligations.

The following chart summarizes the Trustee’s proposed timetable for the sale, whichis subject to change.

DESCRIPTION OF MILESTONE/DEADLINE DATE (PACIFIC TIME) Bid Deadline December 7, 2020 at 3:00 p.m. PST Auction

December 17, 2020 at 10:00 a.m. PST Sale Hearing December 21, 2020 at 2:00 p.m. PST

The dates set forth above are tentative dates only and are subject to change in the discretion of the Trustee.

V. CONCLUSION

For all the foregoing reasons, the Trustee respectfully requests that this Court enter an order:

1. Granting the Motion;

2. Approving the sale of the Debtor’s Assets to the Stalking Horse Bidder pursuant tothe Stalking Horse APA or, in the alternative, to the Winning Bidder pursuant to anOverbid APA and consistent with the Court’s Bidding Procedures Order;


Exhibit "1"


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3. Approving the assumption, assignment, and sale of the Purchased Contracts under theStalking Horse APA or Overbid APA, whichever is applicable; and,

4. Granting such other and further relief as is just and proper under the circumstances.

IF YOU DO NOT OPPOSE THE MOTION, you need take no further action.

IF YOU DESIRE TO OPPOSE THE MOTION, any response must be filed not less than fourteen (14) days prior to the scheduled hearing on the Motion. Any response must be filed with the Clerk of the above-captioned Court located at 411 West Fourth Street, Santa Ana, California 92701, and copies of such response must be served on Ringstad & Sanders LLP to the attention of Todd C. Ringstad, Esq. at the address indicated in the upper-left hand corner of this document, and the Office of the United States Trustee, located at 411 West Fourth Street, Suite 7160, Santa Ana, California 92701.

PLEASE TAKE FURTHER NOTICE that Local Bankruptcy Rule (“LBR”) 9013-1(f)(1) provides that any opposition must be a complete written statement of all reasons in opposition to the Motion. The opposition must include an alternative cure amount and evidence supporting such amount. The opposition must include any declarations and copies of all photographs and documentary evidence on which the responding party intends to rely, and any opposing memorandum of points and authorities.

PLEASE TAKE FURTHER NOTICE that LBR 9013-1(h) provides that if a party does not timely file and serve documents, the Court may deem this to be consent to the granting of the Motion. SEE LOCAL BANKRUPTCY RULE 9013-1.

RINGSTAD & SANDERS LLP

Dated: November 25, 2020 By: ________________ Todd C. Ringstad

General Bankruptcy Counsel for Thomas H. Casey, Chapter 11 Trustee for South Coast Behavioral Health


Exhibit "1"


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General Bankruptcy Counsel for Thomas H. Casey, Chapter 11 Trustee

UNITED STATES BANKRUPTCY COURT

CENTRAL DISTRICT OF CALIFORNIA – SANTA ANA DIVISION

In re:

SOUTH COAST BEHAVIORAL

HEALTH, a California corporation,

Debtor.

Case No. 8:19-bk-12375-MW

Chapter 11 Proceeding

ORDER GRANTING MOTION OF

TRUSTEE REQUESTING APPROVAL OF

BIDDING PROCEDURES FOR THE SALE

OF THE SPECIFIED ASSETS OF THE

DEBTOR

Telephonic Hearing

Date: November 2, 2020

Time: 2:00 p.m.

Location: Courtroom 6C

411 West Fourth Street,

Santa Ana, CA 92701-4593

The hearing on the Motion of Thomas H. Casey, Chapter 11 trustee (“Trustee”) for the

bankruptcy estate (“Estate”) of South Coast Behavioral Health, Inc. (the “Debtor”) for approval

of Bidding Procedures for the Sale of the Specified Assets of the Debtor (Dkt. No. 643) (the

“Motion”) came on for hearing via CourtCall as scheduled on November 2, 2020 at 2:00 p.m.

before the Honorable Mark S. Wallace, United States Bankruptcy Judge, presiding. Appearances

FILED & ENTERED

NOV 09 2020

CLERK U.S. BANKRUPTCY COURTCentral District of CaliforniaBY DEPUTY CLERKjle


Exhibit "2"


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- 2 -

were made by Thomas H. Casey, Chapter 11 Trustee and by Todd C. Ringstad of Ringstad &

Sanders LLP, counsel to the Trustee. Other appearances were made as are reflected in the record.

The Court having considered the Motion, the Declaration of the Trustee in support of the

Motion, any responsive pleadings filed in connection with the Motion, the record in the above-

captioned case, and the representations and arguments of counsel made at the hearing, and

sufficient cause appearing therefor,

IT IS HEREBY FOUND AND DETERMINED THAT:

A. The Court has jurisdiction over this matter and over the property of the Debtors

and their respective bankruptcy estates pursuant to 28 U.S.C. §§ 157(a) and 1334. This matter is a

core proceeding pursuant to 28 U.S.C. § 157(b)(2). The statutory predicates for the relief sought

herein are sections 105, 363, and 365 of Title 11 of the United States Code (the “Bankruptcy

Code”), Bankruptcy Rules 2002, 6004, 6006, and 9014, and Local Rule 6004-1. Venue of these

cases and the Motion is proper pursuant to 28 U.S.C. §§ 1408 and 1409.

B. The relief granted herein is in the best interests of the Debtors, their estates, their

stakeholders, and all other parties in interest.

C. The notice of the Motion and the Hearing given by the Debtors constitutes due,

adequate and sufficient notice thereof in accordance with Local Bankruptcy Rule 6004(b)(1).

D. The Debtors have articulated good and sufficient reasons for the Court to approve

the dates, deadlines and procedures set forth herein in respect of the sale of a majority of the

Debtors’ assets (the “Bidding Procedures”), and

E. The Sale and Bidding Procedures, a copy of which are attached to this Order as

Exhibit “A” hereto, are reasonable and appropriate and represent a fair and appropriate method

for maximizing the realizable value of the Debtors’ assets.

IT IS HEREBY ORDERED THAT:

1. The Motion is GRANTED;

2. The Sale and Bidding Procedures as set forth in Exhibit “A” attached hereto are

hereby approved;

3. The Trustee is hereby authorized to alter the sale schedule, bid deadline, date and


Exhibit "2"


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time of the auction, if any, and date and time of the proposed Sale Hearing in the Trustee’s

discretion, and to make any changes in the Bidding Procedures that the Trustee determines are

necessary to clarify the Bidding Procedures, or to avoid confusion, without further Order of the

Court.

IT IS SO ORDERED.

###

Date: November 9, 2020


Exhibit "2"


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Exhibit “A”

Sale and Bidding Procedures

The Estate has engaged The Braff Group as investment bankers to assist in

marketing the assets offered for sale. The Braff Group is entitled to a commission of

7% of the gross selling price for all bidders except for certain parties who had been

contacted in connection with the potential purchase of the Sale Assets prior to the

engagement of The Braff Group (referred to herein as the “Excluded Bidders”).1 All

bidders except the Excluded Bidders are referred herein as “Non-Excluded Bidders.”

In order to accurately calculate the benefit to the bankruptcy estate of each bid, the

value of the bids of Excluded Buyers and Non-Excluded buyers will be calculated

differently to account for the payment of a commission to The Braff Group from the

bid of any Non-Excluded Bidder. The methodology of that calculation is described

in paragraph 7, below.

The procedures for bidding are as follows:

1. A Standard APA Form will be made available to all potential bidders who have

executed Non-Disclosure Agreements and accessed the data room for due diligence

purposes, and who intend to submit a bid. Any proposed bid must be submitted on

the Standard APA form, with all changes to the Standard APA Form redlined or

otherwise marked (including all exhibits and schedules thereto).

2. Any prospective bidder other than the Stalking Horse Bidder (each a “Potential

Bidder”) that wishes to participate in the bidding process for the majority of the

Debtor’s assets must, no later than November 23, 2020 at 3:00 p.m. PST (the “Bid

Deadline”):

a. Submit to the Trustee by email or as otherwise instructed by the Trustee,

through their respective counsel if applicable, an offer in the form of an

executed purchase and sale agreement on the Standard APA Form, at a price

that conforms with the following Paragraph (b), and on such other terms that

are no less favorable to the Debtor than those contained in the Stalking Horse

APA executed by the Stalking Horse Bidder (the “Overbid APA”), except as

permitted by the Trustee. Each Overbid APA must specifically describe all of

the Bidder’s conditions and contingencies. The Trustee, in the exercise of the

Trustee’s reasonable business discretion, may determine that certain

conditions or contingencies are not acceptable, in which case the Bidder will

not be deemed a Qualified Bidder unless the Bidder agrees to waive the

unacceptable conditions or contingencies. Each bid must be irrevocable

through the hearing to consider approval of the sale (the “Sale Hearing”),

unless the bid is selected as the Winning Bid or the Back-Up Bid (as such

terms are defined below) at the Sale Hearing, in which case such bid shall be

irrevocable through the closing of the sale to the Winning Bidder or Back-Up

Bidder (as such terms are defined below), as the case may be, in accordance

with the terms of the Overbid APA.

1 The Excluded Buyers are identified in Exhibit “1” attached hereto.


Exhibit "2"


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b. Agree in such Overbid APA to a purchase price that is no less than (a) if

Bidder is an Excluded Bidder, the sum of $5,900,000; or (b) if the Bidder is a

Non-Excluded Bidder, the sum of $5,900,000 divided by .93, rounded to the

nearest increment of $5,000 (i.e., $6,345,000).

c. Make a good faith cash deposit in an amount no less than $250,000.00 (“Bid

Deposit”) in the same manner required under the Standard Form APA. The

Bid Deposit shall be shall be credited toward the purchase consideration if

and when the transaction with the Potential Bidder making such deposit is

approved by the Court as the winning bid (the “Winning Bid” and the

“Winning Bidder”) at the Sale Hearing and such transaction is closed in

accordance with the terms of the Overbid APA. The Bid Deposit shall be

refundable only if the Potential Bidder’s bid is not designated as a Qualified

Bid (as defined below) or such bid is not approved as the Winning Bid or the

Back-Up Bid at the Sale Hearing.

d. Provide written evidence reasonably satisfactory to the Trustee in the

Trustee’s sole discretion of (A) its financial ability to (i) fully and timely

perform all obligations under the Overbid APA if it is declared to be the

Winning Bidder, and (ii) provide adequate assurance of future performance

under all contracts and leases to be assigned to it, and (B) its qualification to

own the assets and operate the business that are the subject of the Overbid

APA in compliance with all applicable federal, state, and local laws.

e. Disclose any connections or agreements with the Debtor, the Stalking Horse

Bidder, any other known Potential Bidder or Qualified Bidder (as defined

below), and/or any officer, director or direct or indirect equity security holder

of the Debtor.

3. If a Potential Bidder complies with all the requirements described above (including

the Bid Deposit) by the Bid Deadline, the Trustee shall determine whether the

Potential Bidder (i) has demonstrated the legal qualification and financial ability to

consummate the proposed transaction, (ii) is reasonably likely to be able to and

willing to consummate the contemplated transactions, (iii) has including financing,

due diligence or other contingencies that are not acceptable to the Trustee, and (iv)

has otherwise satisfied all of the requirements described above. If so, the Trustee

shall designate the Potential Bidder as a “Qualified Bidder” and such bid as a

“Qualified Bid.” The identify of all Qualified Bidders, including the Stalking Horse

Bidder, shall be disclosed to the Court at or prior to the Sale Hearing and shall be a

matter of public record. For the avoidance of doubt, the Stalking Horse Bidder is

deemed to be a Qualified Bidder and the Stalking Horse Bid is deemed to be a

Qualified Bid for all purposes.

4. If the Debtor receives at least one (1) Qualified Bid from a Qualified Bidder (other

than the Stalking Horse Bidder) (the “Initial Overbid”) prior to the Bid Deadline,

then the Trustee shall notify the Stalking Horse Bidder and each other Qualified

Bidder that the Trustee intends to conduct an auction (the “Auction”), subject to


Exhibit "2"


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- 6 -

reasonable rules and procedures as may be established by the Trustee, consistent

with this Order.

5. If the Trustee does not receive at least one (1) Qualified Bid from a Qualified Bidder

other than the Stalking Horse Bidder, then no Auction shall be scheduled or

conducted, and the Court at the Sale Hearing shall solely consider the approval of the

sale transaction to the Stalking Horse Bidder as set forth in the Stalking Horse APA;

the Court shall not consider any competing or alternative efforts or proposals to

purchase any of the Debtor’s assets (unless consented to by the Trustee), nor shall

the Court consider any subsequent objections that are based on the existence or

potential for other or different offers of proposals to purchase the Debtor’s assets.

6. The Auction to determine the successful bidder for the Purchased Assets shall be

conducted on [ date and time to be determined ] virtually as follows:

The Auction will be conducted via virtual live video stream. Qualified

Bidders and/or their representatives will be allowed to participate via a

live video and audio feed. Parties seeking to bid who are not Qualified

Bidders as described herein will not be permitted to participate in the

Auction. Qualified Bidders will be provided more detailed instructions

in the days leading up to the Auction. Interested creditors and parties

in interest will be allowed to monitor both the video and audio feed,

but will not have a live line and will not be seen nor heard during the

Auction. Creditors and parties in interest monitoring the auction

are expressly prohibited from contacting or attempting to contact

any Qualified Bidder or their representatives during the auction.

Creditors and parties in interest wishing to monitor the proceedings

may contact Becky Metzner via email at [email protected] at

least two business days before the auction to arrange access.

7. Only the Stalking Horse Bidder and other Qualified Bidders may bid at the Auction.

Copies of all Qualified Bids shall be provided to the Stalking Horse Bidder and each

other Qualified Bidder by no later than one (1) business day prior to the Auction. At

the commencement of the Auction, the Trustee shall identify the bid that he has

determined to be the highest and/or best offer and shall permit the Stalking Horse

Bidder and other Qualified Bidders to submit higher and/or better bids.

8. Because the bids of Excluded Bidders are not subject to a commission paid by the

bankruptcy estate to The Braff Group, but the bids of Non-Excluded Bidders are

subject to a 7% commission to be paid from sale proceeds by the bankruptcy estate,

the Trustee will compare the value of competing bids net of the commission, if

applicable, in order to determine whether a subsequent bid will provide a greater

overall value to the estate. The Initial Bidding Increment, i.e., the net amount by

which the initial overbid submitted pursuant to paragraph 1.b. above must exceed the

amount of the Stalking Horse Bid is $100,000, rounded to the nearest increment of

$5,000. After the Initial Overbid, each subsequent bid must exceed the amount of

the immediately preceding and accepted bid by not less than $100,000.00

(“Minimum Bidding Increment”) net of The Braff Group commission, and shall not


Exhibit "2"


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be modified in a manner that causes it no longer to be a Qualified Bid. The net value

of the bid from an Excluded Bidder will be the face amount of the bid. The net value

of the bid of a Non-Excluded Bidder will be 93% of the face amount of the bid. For

example, if the immediately preceding and accepted bid were $6,500,000 made by an

Excluded Bidder, then the minimum overbid would be $6,600,000 for an Excluded

Bidder, and $7,095,000 for a Non-Excluded Bidder ($6,600,000 /.93 = $7,096,774

rounded to $7,095,000). If the immediately preceding and accepted bid were

$6,500,000 made by a Non-Excluded Bidder and therefore subject to a 7%

commission to The Braff Group, the minimum overbid would be $6,600,000 for

another Non-Excluded Bidder, but an Excluded Bidder would be able to deduct the

commission amount from the immediately preceding and accepted bid of the Non-

Excluded Bidder and then add the Minimum Bidding Increment of $100,000 in order

to determine the minimum bid amount for the Excluded Bidder. In this example, the

minimum overbid amount for the Excluded Bidder would be $6,145,000 ($6,500,000

x .93 = $6,045,000 + $100,000 = $6,145,000). Thus, once active bidding

commences, the net value to the estate for each bid must exceed the value to the

estate of the immediately preceding and accepted bid by an amount not less than

$100,000.

9. Each bidder participating at the Auction shall be required to confirm that (a) it has

not engaged in any collusion with respect to the bidding or the sale and (b) its

Qualified Bid does not contain any financing or due diligence contingencies (unless

consented to by the Trustee).

10. The Trustee shall supervise the bidding process and conduct the Auction in such a

manner as to provide the Stalking Horse Bidder and other Qualified Bidders a full,

fair, and equal opportunity to participate in the Auction. The Trustee, in

consultation with his counsel and advisors, shall determine which Qualified Bid is to

be recommended to the Court for approval as the highest and/or best bid (the

“Winning Bid”). The Trustee may use reasonable business discretion in determining

to accept any bid and in evaluating the merits of competing bids. The Trustee may

take into account factors other than the net value to the estate of the face amount of

each bid in determining which bid should be accepted as the Winning Bid, such as

non-standard conditions or contingencies, financial ability of the bidder or other

factors. Ultimately, the Trustee may accept as the Winning Bid a bid that is not

necessarily the highest offer received. Any Qualified Bidder who believes that the

bid that they submitted during the auction represents a greater value to the estate

than the bid accepted by the Trustee as the Winning Bid, may appear at the Sale

Hearing to present to the Bankruptcy Court any argument they may have as to why

their bid should be accepted as the highest and best bid made during the auction.

11. If Qualified Bids have been submitted by more than one Qualified Bidder, the

Qualified Bidder that makes the next-highest and/or best Qualified Bid to that of the

proposed Winning Bidder shall have the option, but not the obligation, to become the

back-up bidder (the “Back-Up Bidder”), in which event such Back-Up Bidder’s final

and highest and/or best Qualified Bid (the “Back-Up Bid”) shall remain open and

irrevocable in accordance with the terms of the Stalking Horse APA or Overbid

APA, as applicable, pending the closing of the Winning Bid (“Closing Date”) in


Exhibit "2"


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accordance with the APA of the Winning Bidder. If the transaction with the

Winning Bidder does not close prior to the Closing Date (as such date may be

extended by agreement of the Trustee and the Winning Bidder), then the Back-Up

Bid shall, upon notice to the Back-Up Bidder by the Trustee, be deemed the Winning

Bid without further order of the Court, and the Back-up Bidder shall be required to

consummate the transaction in accordance with the Stalking Horse APA or Overbid

APA, as applicable.

12. The Trustee shall file a notice announcing the results of the Auction and the identity

of the proposed Winning Bidder and the Back-Up Bidder on the Court’s docket as

soon as practicable after the conclusion of the Auction. The Trustee shall request at

the Sale Hearing that the Court authorize the Trustee to consummate the sale

transaction to such proposed Winning Bidder, or the Back-up Bidder in the event

that the Winning Bidder defaults in consummating the sale.

13. Any Bid Deposit from a Qualified Bidder determined not to be a Back-Up Bidder or

Winning Bidder shall be refunded to such bidder by deposit in the U.S. Mail within

three (3) calendar days of such a determination, unless otherwise agreed by the

Qualified Bidder and the Trustee. If a dispute arises over whether a Bid Deposit is

refundable or non-refundable, the Bid Deposit shall be held the Trustee pending a

determination of the dispute by the Court or written agreement of the parties.

14. Upon approval by the Court of a Winning Bidder, the Bid Deposit of such Winning

Bidder shall become non-refundable if the APA of such Winning Bidder is thereafter

terminated by the Trustee as a result of a breach by the Winning Bidder of its

obligations thereunder. The Bid Deposit of a Back-Up Bidder shall remain on

deposit with the Trustee, pending the Closing Date, and such deposit shall become

non-refundable if the Back-Up Bidder becomes the Winning Bidder and its Overbid

APA is thereafter terminated by the Trustee as a result of a breach by such Back-Up

Bidder. In either case, the forfeiture of the Deposit shall constitute liquidated

damages and the Debtor, the Trustee, and the bankruptcy estate shall retain no other

rights, remedies, claims, counterclaims and defenses against the Stalking Horse

Bidder or such other Qualified Bidder, as applicable.

15. .The Trustee may grant any proposed Winning Bidder additional time to perform

and, to the extent necessary, extend the Closing Date. The Trustee shall have the

discretion to modify, supplement, amend, or waive the procedures set forth herein if

necessary, to maximize the value of the estates and otherwise comply with the

Debtor’s fiduciary obligations.

The following chart summarizes the Trustee’s proposed timetable for the sale, which

is subject to change.

DESCRIPTION OF MILESTONE/DEADLINE DATE (PACIFIC TIME)

Bid Deadline November 23, 2020 at 3:00 p.m. PST


Exhibit "2"


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Auction Date and Time to be Determined and

Announced Prior to Bid Deadline

Sale Hearing December 7, 2020 at 2:00 p.m. PST

The dates set forth above are tentative dates only and are subject to change in the

discretion of the Trustee.


Exhibit "2"


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Exhibit 1

List of Excluded Parties

Pursuant to the terms of the engagement of The Braff Group as investment

banking firm to the bankruptcy estate, it is agreed that The Braff Group’s

right to earn a commission upon the sale of the operating business of South

Coast Behavioral Health shall not apply to any sale or disposition of the

Company to the following persons and entities or their designees, or

nominees, or related entities in which such person or entities hold an

ownership interest of greater than 50% (such parties referred to individually

as an “Excluded Party” and collectively as the “Excluded Parties”) and such a

disposition referred to as an “Exempt Transaction”:

Yogesh Desai, Pacifica Recovery, Inc. SCBD Holdings, LLC, and related parties Sarah Cox, Integritox

Laboratories, LLC, Ali Beheshti, and Zealie

John Peloquin, Individually

Michael Rubin, Destiny Recovery Center, LLC

Frank Brady, Ark Behavioral Health

Pine Tree Capital

Acadia Healthcare

Vogue Recovery Center


Exhibit "2"


This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California.

June 2012 F 9013-3.1.PROOF.SERVICE

PROOF OF SERVICE OF DOCUMENT I am over the age of 18 and not a party to this bankruptcy case or adversary proceeding. My business address is: 4343 Von Karman Avenue, Suite 300, Newport Beach, CA 92660

A true and correct copy of the foregoing document entitled (specify): NOTICE OF SALE OF ESTATE PROPERTY will be served or was served (a) on the judge in chambers in the form and manner required by LBR 5005-2(d); and (b) in the manner stated below:

1. TO BE SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING (NEF): Pursuant to controlling General Orders and LBR, the foregoing document will be served by the court via NEF and hyperlink to the document. On November 27, 2020, I checked the CM/ECF docket for this bankruptcy case or adversary proceeding and determined that the following persons are on the Electronic Mail Notice List to receive NEF transmission at the email addresses stated below:

• Melody G Anderson [email protected]• Reem J Bello [email protected],

[email protected];[email protected];[email protected];[email protected];[email protected]• Brett Berman [email protected], [email protected]• Patrick Bobko [email protected]• Melissa Briggs [email protected], [email protected]• Bert Briones [email protected],

[email protected];[email protected];[email protected]• Frank Cadigan [email protected]• Thomas H Casey [email protected], [email protected]• Thomas H Casey (TR) [email protected], [email protected]• Lei Lei Wang Ekvall [email protected],

[email protected];[email protected];[email protected]• Thomas S Engel [email protected]• Timothy W Evanston [email protected],

[email protected];[email protected];[email protected]• Steven R Fox [email protected], [email protected]• Eric J Fromme [email protected], [email protected]• Jeffrey I Golden [email protected],

[email protected];[email protected];[email protected];[email protected]• Nancy S Goldenberg [email protected]• David M Goodrich [email protected], [email protected];[email protected];[email protected]• Vanessa M Haberbush [email protected],

[email protected],[email protected],[email protected],[email protected],j [email protected],[email protected]

• Christopher J Harney [email protected], [email protected]• D Edward Hays [email protected],

[email protected];[email protected];[email protected];[email protected]• Ivan L Kallick [email protected], [email protected]• Crystle Jane Lindsey [email protected], [email protected];[email protected];[email protected]• Robert S Marticello [email protected],

[email protected];[email protected];[email protected]• Randall P Mroczynski [email protected]• Queenie K Ng [email protected]• Michael N Nicastro [email protected]• Sean A OKeefe [email protected], [email protected]• Giovanni Orantes [email protected], gorantes@orantes-

law.com,[email protected],[email protected],[email protected];[email protected]

Case 8:19-bk-12375-MW Doc 677 Filed 11/27/20 Entered 11/27/20 12:44:16 DescMain Document of 27

This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California.

June 2012 F 9013-3.1.PROOF.SERVICE

• Keith C Owens [email protected], [email protected]• Garrett Prybylo [email protected], [email protected]• Elizabeth Redmond [email protected]• Todd C. Ringstad [email protected], [email protected]• Karel G Rocha [email protected], [email protected]• Nanette D Sanders [email protected], [email protected]• James R Selth [email protected], [email protected];[email protected];[email protected];[email protected]• Derrick Talerico [email protected], [email protected],[email protected]• Tamar Terzian [email protected], [email protected]• John M Thompson [email protected]• United States Trustee (SA) [email protected]• Leland A Wahl [email protected]• Daniel J Weintraub [email protected], [email protected];[email protected];[email protected]• David B Zolkin [email protected], [email protected],[email protected]

Service information continued on attached page 2. SERVED BY UNITED STATES MAIL:On __________ , I served the following persons and/or entities at the last known addresses in this bankruptcy case or adversary proceeding by placing a true and correct copy thereof in a sealed envelope in the United States mail, first class, postage prepaid, and addressed as follows. Listing the judge here constitutes a declaration that mailing to the judge will be completed no later than 24 hours after the document is filed.

Service information continued on attached page

3. SERVED BY PERSONAL DELIVERY, OVERNIGHT MAIL, FACSIMILE TRANSMISSION OR EMAIL (state method for each person or entity served): Pursuant to F.R.Civ.P. 5 and/or controlling LBR, on November 27, 2020, I served the following persons and/or entities by personal delivery, overnight mail service, or (for those who consented in writing to such service method), by facsimile transmission and/or email as follows. Listing the judge here constitutes a declaration that personal delivery on, or overnight mail to, the judge will be completed no later than 24 hours after the document is filed.

Via Personal Delivery: Honorable Mark S. Wallace, U.S. Bankruptcy Court, Ronald Reagan Federal Building, 411 W. Fourth St., Suite 6135, Judge Wallace’s mail slot by 6th floor elevators, Santa Ana, CA 92701-4593

Service information continued on attached page

I declare under penalty of perjury under the laws of the United States that the foregoing is true and correct.

November 27, 2020 Becky Metzner /s/ Becky Metzner Date Printed Name Signature

Case 8:19-bk-12375-MW Doc 677 Filed 11/27/20 Entered 11/27/20 12:44:16 DescMain Document of 27

case 8:19-bk-12375-mw doc 677 filed 11/27/20 entered …...todd c. ringstad (state bar no. 97345)...

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