(A) Authorizing the Debtors to Assume the Closing
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Case 16-10527-BLS Doc 15 Filed 03/02/16 Page 1 of 229 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: Chapter 11 SPORTS AUTHORITY HOLDINGS, INC., et al.,1 Case No. 16-10527 (___) Debtors. (Joint Administration Requested) DEBTORS’ EMERGENCY MOTION FOR INTERIM AND FINAL ORDERS (A) AUTHORIZING THE DEBTORS TO ASSUME THE CLOSING STORE AGREEMENT, (B) AUTHORIZING AND APPROVING STORE CLOSING SALES FREE AND CLEAR OF ALL LIENS, CLAIMS AND ENCUMBRANCES, (C) AUTHORIZING THE IMPLEMENTATION OF CUSTOMARY EMPLOYEE BONUS PROGRAM AND PAYMENTS TO NON-INSIDERS THEREUNDER, (D) APPROVING DISPUTE RESOLUTION PROCEDURES, AND (E) APPROVING THE DEBTORS’ STORE CLOSING PLAN Sports Authority Holdings, Inc. and its affiliated debtors and debtors in possession in the above-captioned chapter 11 cases (collectively, the “Debtors”) hereby move this Court (this “Motion”) for the entry of an interim order (the “Interim Order”), substantially in the form annexed hereto as Exhibit A, and a final order (the “Final Order”), substantially in the form annexed hereto as Exhibit B, pursuant to sections 105(a), 363, 365, and 554 of title 11 of the United States Code (the “Bankruptcy Code”), Rules 6003 and 6004 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), and Rule 9013-1(m) of the Local Rules of Bankruptcy Practice and Procedure of the United States Bankruptcy Court for the District of Delaware (the “Local Rules”), (a) authorizing the Debtors to assume2 the agreement dated as of February 17, 2016 by and among Gordon Brothers Retail Partners, LLC (“GBRP”), Tiger 1 The Debtors and the last four digits of their respective taxpayer identification numbers are as follows: Sports Authority Holdings, Inc. (9008); Slap Shot Holdings, Corp. (8209); The Sports Authority, Inc. (2802); TSA Stores, Inc. (1120); TSA Gift Card, Inc. (1918); TSA Ponce, Inc. (4817); and TSA Caribe, Inc. (5664). The headquarters for the above-captioned Debtors is located at 1050 West Hampden Avenue, Englewood, Colorado 80110. 2 Pursuant to this Motion, the Debtors seek an interim order confirming that the Closing Store Agreement is operative and effective, and a final order granting the Debtors authority to assume the Closing Store Agreement. 01:18375416.1 Case 16-10527-BLS Doc 15 Filed 03/02/16 Page 2 of 229 Capital Group, LLC (“TCG” and collectively with GBRP, the “Liquidation Consultant”), and TSA Stores, Inc. (as amended, modified, or restated as of the date hereof, and together with all exhibits thereto, the “Closing Store Agreement”), a copy of which is attached to the Interim Order as Exhibit 2 thereto; (b) authorizing the Debtors to continue to conduct store closing sales (collectively, the “Closing Sales”) at certain store locations designated by the Debtors (such store locations, the “Closing Stores”) in accordance with the proposed sale guidelines (the “Sale Guidelines”) attached hereto as Exhibit C, with such sales to be free and clear of all liens, claims, encumbrances, and interests (collectively, the “Encumbrances”); (c) authorizing, but not directing, the Debtors to honor a customary bonus program for certain non-insider personnel with responsibilities related to the Closing Stores (the “Bonus Program”); (d) approving the proposed dispute resolution procedures described herein to resolve any disputes with governmental units (the “Resolution Procedures”) regarding certain applicable non-bankruptcy laws that regulate liquidation and similar-themed sales; and (e) approving the Debtors’ strategic plan in connection with the closure of certain retail locations by implementing the foregoing documents and procedures (the “Store Closing Plan”). In support of this Motion, the Debtors rely on the Declaration of Jeremy Aguilar in Support of the Debtors’ Chapter 11 Petitions and Requests for First Day Relief (the “First Day Declaration”) and the Declaration of Stephen Coulombe in Support of the Debtors’ Emergency Motion for Interim and Final Orders (A) Authorizing the Debtors to Assume the Closing Store Agreement, (B) Authorizing and Approving Store Closing Sales Free and Clear of All Liens, Claims and Encumbrances, (C) Authorizing the Implementation of Customary Employee Bonus Program and Payments to Non-Insiders Thereunder, (D) Approving Dispute Resolution Procedures, and (E) Approving the 01:18375416.1 2 Case 16-10527-BLS Doc 15 Filed 03/02/16 Page 3 of 229 Debtors’ Store Closing Plan (the “Coulombe Declaration”), and respectfully represent as follows: JURISDICTION AND VENUE 1. The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334(b) and 157, and the Amended Standing Order of Reference from the United States District Court for the District of Delaware dated as of February 29, 2012. This is a core proceeding pursuant to 28 U.S.C. § 157(b), and pursuant to Local Rule 9013-1(f), the Debtors consent to the entry of a final order by the Court in connection with this Motion to the extent that it is later determined that the Court, absent consent of the parties, cannot enter final orders or judgments in connection herewith consistent with Article III of the United States Constitution. Venue is proper before this Court pursuant to 28 U.S.C. §§ 1408 and 1409. The statutory predicates for the relief requested herein are sections 105(a), 363, 365, and 554 of the Bankruptcy Code, Bankruptcy Rules 6003 and 6004, and Local Rule 9013-1(m). BACKGROUND A. General Background 2. On the date hereof (the “Petition Date”), each of the Debtors commenced a voluntary case under chapter 11 of the Bankruptcy Code. Pursuant to sections 1107(a) and 1108 of the Bankruptcy Code, the Debtors are continuing to manage their financial affairs as debtors in possession. 3. Contemporaneously herewith, the Debtors filed a motion seeking joint administration of their chapter 11 cases (the “Chapter 11 Cases”) pursuant to Bankruptcy Rule 1015(b) and Local Rule 1015-1. No trustee, examiner, or official committee of unsecured creditors has been appointed in these Chapter 11 Cases. 01:18375416.1 3 Case 16-10527-BLS Doc 15 Filed 03/02/16 Page 4 of 229 4. Information regarding the Debtors’ history and business operations, capital structure and primary secured indebtedness, and the events leading up to the commencement of these Chapter 11 Cases can be found in the First Day Declaration. B. The Debtors’ Store Closing Plan 5. As of January 30, 2016, the Debtors operated 464 stores in 40 states and Puerto Rico, and five distribution centers3 located in New Jersey, California, Colorado, Georgia, and Illinois. Prior to the Petition Date, the Debtors commenced a restructuring process to streamline their savings and efficiency initiatives. As part of this process, the Debtors completed a comprehensive review of the performance of all of their retail stores to analyze, among other things, the profitability and viability of each store location and to determine the Debtors’ optimal footprint. The Debtors also engaged FTI to, among other things, assist with analyses around cost reduction including a headcount reduction that took place prior to the Petition Date. 6. As a culmination of these efforts, the Debtors developed the Store Closing Plan, which they continue to refine from time to time, whereby they have planned an orderly exit from certain underperforming or unprofitable store locations in an effort to conserve resources and maximize utility. FTI also advised the Debtors regarding an optimization of their store and distribution center footprint. Pursuant to the Store Closing Plan, the Debtors have identified up to 200 additional underperforming and/or unprofitable store locations that may be designated as Closing Stores and, in consultation with FTI, determined that it is in the best interest of their estates to immediately prepare for the closure of up to 200 stores and 2 of their 5 distribution centers. 3 The Debtors anticipate that they will close two of the distribution centers during the course of these Chapter 11 Cases. 01:18375416.1 4 Case 16-10527-BLS Doc 15 Filed 03/02/16 Page 5 of 229 C. Engagement of Liquidation Consultant; Closing Store Agreement 7. The Debtors retained the Liquidation Consultant because of its combined extensive expertise in conducting store closing sales, including the orderly liquidation of the inventory (the “Merchandise”) and certain furniture, fixtures, equipment and other assets that the Debtors do not wish to retain (collectively, the “Offered FF&E” and collectively with the Inventory and any other assets located in a Closing Store, the “Store Assets”) at the respective Closing Stores, with an eye toward maximizing revenues and value for the Debtors and their creditors. The Debtors selected the Liquidation Consultant to conduct the Closing Sales at the Closing Stores, and determined that engaging the Liquidation Consultant was in the best interest of the Debtors and their stakeholders. The Debtors negotiated the terms and conditions of the Store Closing Agreement in good faith and at arms’ length. Accordingly, on February 17, 2016, the Debtors and the Liquidation Consultant executed the Closing Store Agreement. Although the Debtors respectfully refer the Court to the Closing Store Agreement4 in its entirety, the material terms thereof are summarized in the table below: TERM CLOSING STORE AGREEMENT Services The Liquidation Consultant will be retained as the Debtors’ exclusive, Provided by independent consultant to conduct the Closing Sales at the Closing Stores Liquidation during the Sale Term to, among other things: (a) recommend appropriate