The Walking Company Holdings, Inc. sold Feb. 22 the trademarks and other intellectual property of its Big Dogs business for $5 million in cash, subject to a later working capital adjustment. The additional capital has allowed the company to expand its rights under its credit line with Wells Fargo Bank and finance the redemption of preferred stock it issued last year to facilitate its exit from bankruptcy. The company simultaneously licensed back the Big Dogs IP to allow the company to continue to operate its Big Dogs business online.
In 2010, the company had issued $10 million of preferred stock, the terms of which provided that if the preferred is not redeemed by spring 2011, the company could be required to conduct a rights offering of common stock that could result in severe dilution to common stockholders. To avoid that, over the last several months the company has explored various options to fund the redemption of the preferred through conventional finance sources. The sale and license-back of the Big Dogs IP was determined to be the most beneficial to the company.
“The sale is a win-win for the company,” Kayne continued. “It brings immediate cash to the company (prior attempts to sell Big Dogs had all failed) and also allows the company to participate in the future upside of Big Dogs over the term of the License. We were able to monetize an underutilized asset not central to our business. The sale has strengthened our credit position and allowed us to redeem the Preferred Stock that was issued to allow us to exit from bankruptcy last year, all to the benefit of the company and its shareholders. This was the final piece in the puzzle to complete the financing restructuring that occupied much of the company's attention over the last year and a half. The company can now return its full focus to core operations and making money. I am happy with the progress of the Company.”
On Feb. 22, the Big Dogs IP was sold for $5 million in cash to Big Dog Licensing LLC (“BDL”), a newly-formed company owned by the former holders of the preferred Stock (Richard Kayne and KA-Sabes Investments, a company he controls) and company CEO Andrew Feshbach. The Big Dogs IP was then licensed back to the company pursuant to a License Agreement through Dec. 31, 2013 (which can be extended another year), subject to certain early termination rights. Upon termination of the License Agreement, the company is required to convey to BDL (without payment) $2.5 million in Big Dogs inventory (or in cash).
In addition to being a former holder of the preferred Stock, Richard Kayne is also a holder of approximately 10% of the outstanding common stock of the company and is the brother of Fred Kayne, the Chairman of the Board and controlling stockholder of the company. Fred Kayne has no interest in BDL. Due to the related-party nature of the transaction, the company engaged an independent financial advisory firm to advise the directors, who advised that the sales was fair to the Company from a financial point of view.
