I just spoke to Steven King, Shaman's Chief Operating Officer. I'll post here first, then to the old board. Steven says that what persuaded SHPH to file the bankruptcy was the unwillingness of the landlord to accept the offer of about $400,000 as its share of the residual value of the lease of Shaman’s property. The bankruptcy should allow SHPH to keep all of the residual value of the lease for itself and leave nothing for the greedy landlord.
I have been practicing commercial landlord-tenant law for over 15 years, so I’m speaking about a subject in which I have some expertise. Most commercial leases have clauses that severely restrict a tenant’s right to assign (i.e., sell) its lease or to sublet its leased premises. In the SF area (which is where I work), most such leases include a clause that states that any profit realized by the tenant in assigning its lease or subletting its leased premises will be split 50/50 with the landlord. The bankruptcy law states that those “bonus rent sharing” provisions can be nullified in order to allow the debtor to realize the maximum value of its asset (the lease) for the benefit of the debtor’s creditors. Just this week the local legal rag, The Recorder, featured a front-page article about a law firm (Landels Ripley) that filed bankruptcy for the strategic purpose of capturing the full value of its lease in this way. Landels’ lease was of prime office space in downtown San Francisco. Landel’s annual rental rate was $30 per square foot, but today’s market rate for its building is $100 per square foot. The landlord, Shorenstein, argued that the bankruptcy was a sham designed to cheat Shorenstein out of its right under the lease to share in 50% of any profits realized upon any subletting of the premises or sale of the lease. The bankruptcy court ruled in favor of Landels and Shorenstein ended up paying Landels $5 million to get the office space back free and clear of the lease.
Steven was not fully conversant with the terms of Shaman’s lease, but believed it did have a “bonus rent sharing” provision such as I’ve described. He said that Shaman’s lease includes two 5-year renewal options, which are considered very valuable. He believed that the options allowed renewal at a certain percentage of the then current market rate, but that the market rate would be calculated based upon use as warehouse space. He believes that the space can be relet as office or R&D space at a much higher rate. Once again, the bankruptcy law can be useful here, because the lease probably includes a clause prohibiting a change in use from warehouse to office or R&D, but the bankruptcy law makes those clauses voidable as well (with certain limited exceptions for shopping centers).
Steven also shared with me that GNC expects to launch the NSF product by the end of this month and that Shaman is receiving lots of interest in the licensing of NSF for development as a pharmaceutical for IBS.
Steven agreed that this bankruptcy filing (which is for Reorganization – Chapter 11 – and not for Liquidation – Chapter 7) could be very helpful at allowing the company to realize long-term value for stockholders.
Marc |
