Case 20-13076-BLS Doc 315 Filed 01/14/21 Page 1 of 12
IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE
) In re: ) Chapter 11 ) FRANCESCA’S HOLDINGS ) Case No. 20-13076 (BLS) CORPORATION, et al., ) ) Jointly Administered ) Debtors. ) Hearing Date: January 21, 2021 at 11:00 AM Sale Objection Date: January 14, 2021 Cure Objection Date: January 18, 2021
Docket No. 45 & 295
ORACLE’S LIMITED OBJECTION TO AND RESERVATION OF RIGHTS REGARDING (1) DEBTORS’ MOTION FOR ENTRY OF AN ORDER (1) (A) APPROVING SALE OF SUBSTANTIALLY ALL OF THE DEBTORS’ ASSETS FREE AND CLEAR OF ALL LIENS, CLAIMS, INTERESTS, AND ENCUMBRANCES, (B) APPROVING ASSUMPTION AND ASSIGNMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES AND (C) GRANTING RELATED RELIEF; and (2) AMENDED NOTICE OF POTENTIAL ASSUMPTION AND ASSIGNMENT OF EXECUTORY CONTRACTS OR UNEXPIRED LEASES AND CURE AMOUNTS
Oracle America, Inc., successor in interest to MICROS Systems, Inc., BEA Systems, Inc.,
Sunopsis, Retek, NetSuite, Inc., and Bronto Software, Inc. (“Oracle”), a creditor and contract counter-party in the above-captioned jointly administered Chapter 11 cases, submits this limited objection to and reservation of rights (“Rights Reservation”) regarding: (1) Motion of Debtors for
Entry of Orders (I)(A) Approving Bidding Procedures for Sale of Substantially All of the Debtors’
Assets, (B) Approving Stalking Horse Bid Protections, (C) Scheduling Auction for, and Hearing to Approve, Sale of Substantially All of the Debtors’ Assets, (D) Approving Form and Manner of
Notices of Sale, Auction and Sale Hearing, (E) Approving Assumption and Assignment Procedures and (F) Granting Related Relief and (II)(A) Approving Sale of Substantially All of the Debtors’
Assets Free and Clear of All Liens, Claims, Interests and Encumbrances, (B) Approving
Assumption and Assignment of Executory Contracts and Unexpired Leases and (C) Granting Case 20-13076-BLS Doc 315 Filed 01/14/21 Page 2 of 12
Related Relief [Dkt. No. 45] (“Sale Motion”); and (2) Amended Notice of Potential Assumption and Assignment of Executory Contracts or Unexpired Leases and Cure Amounts (“Assumption
Notice”), filed by Francesca’s Holding Corporation, et al. (“Debtors”).
I. INTRODUCTION
1. In connection with the Sale Motion, the Debtors seek Bankruptcy Court authority to, among other things, assume and assign certain executory contracts between the Debtors and
Oracle.
2. Oracle objects to the proposed assumption and assignment for several reasons.
a) First, the targeted Oracle agreements are, or pertain to, one or more licenses of intellectual property which are not assignable absent Oracle’s consent pursuant to both the underlying license agreements and applicable law.
b) Second, the Assumption Notice does not provide a complete description of the Oracle contracts which the Debtors seek to assume and assign. As a result, Oracle is unable to identify with certainty the agreements at issue, or to confirm whether the Debtors’ proposed cure is accurate. In addition, the Assumption Notice identifies certain agreements between the Debtors and two Oracle partners/resellers. Oracle is currently in the process of reviewing its records to determine the scope of its relationship and the impact the assignment may have on those agreements.
c) Third, the Sale Motion does not provide Oracle with sufficient information to determine whether the ultimate purchaser/assignee is capable of performing under the terms of the contracts the Debtors seek to assume and assign.
d) Finally, the APA (defined below) could potentially include the unauthorized shared use of Oracle’s licenses, in a manner which is not permitted by Oracle’s agreements. Oracle objects to any unauthorized shared use of its licenses which may be contemplated by the Debtors.
3. Accordingly, Oracle requests that the Court deny the Debtors’ request for authority to assume and assign, transfer, or share use of any Oracle agreement without Oracle’s consent.
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II. FACTUAL BACKGROUND
4. The Debtors filed the above captioned cases on December 3, 2020 and an order directing joint administration was entered shortly thereafter. The Debtors continue to operate as debtors in possession.
5. On December 4, 2020, the Debtors filed the Sale Motion, which seeks Court authority to sell substantially all of the Debtors’ assets. The stalking horse bidder is TerraMar
Capital, LLC (the “Stalking Horse”).
6. On January 4, 2021, an Order [Dkt. No. 263] was entered approving certain bid and assumption and assignment procedures (“Bid Procedures Order’).
7. The Bid Procedures Order sets forth the following deadlines: (a) January 13 at 5:00 p.m. for bids; (b) January 14 at 5:00 p.m. to object to the Sale Motion; (c) January 15 at 10:00 a.m. for the auction; and (4) January 19th at 5:00 p.m. to object to the auction results.
8. This timeline requires that objections to the Sale Motion be filed prior to the auction’s occurrence.
9. In addition, if someone other than the Stalking Horse is the winning bidder, this timeline provides little time for interested parties to review any additional or amended sale or purchaser related documents, including the resultant asset purchase agreement.
10. On January 6, 2021, the Debtors filed their Notice of Potential Assumption and
Assignment of Executory Contracts or Unexpired Leases and Cure Amounts [Dkt. No. 271]
(“Initial Assumption Notice”).
11. The Initial Assumption Notice listed numerous contracts between Oracle and the
Debtors.
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12. On January 10, 2021, the Debtors filed their Assumption Notice. Exhibit “1” to the
Assumption Notice identifies several Oracle agreements (“Oracle Agreements”) which may be assumed and assigned, each with a stated $0.00 cure amount.
13. The Oracle Agreements are identified as follows:
Contract Counterparty Date of Contract Description Cure Amount Oracle America, Inc. 2/10/20 Ordering Document $0.00 Oracle America, Inc. 11/27/2013 Oracle Master Agreement $0.00 Amendment Three Oracle America, Inc. 4/5/2016 Oracle Master Agreement $0.00 Amendment Two Oracle America, Inc. 11/27/2013 Executable Quote $0.00 Oracle America, Inc. 4/28/2106 Ordering Document $0.00 Oracle America, Inc. 5/2/2016 Executable Quote $0.00 Oracle America, Inc. 5/2/2016 Executable Quote $0.00 Oracle America, Inc. 4/28/2016 Amendment One $0.00 Oracle America, Inc. 10/17/2016 Limited Use License $0.00 Document
14. In addition to the Oracle Agreements, the Assumption Notice identifies eight agreements with Kibo Software, Inc, (“Kibo”) accompanied by a stated $349,079 cure (“Kibo
Agreements”).
15. The Kibo Agreements are identified as follows:
Contract Counterparty Date of Contract Description Cure Amount Kibo Software, Inc. 1/1/2017 Service Package Order Kibo Software, Inc. 1/14/2019 Statement of Work Kibo Software, Inc. 5/31/2017 eCommerce Email Service Order - Renewal Kibo Software, Inc. 11/20/2017 eCommerce Email Service Order - Renewal $349,079 Kibo Software, Inc. 12/06/2018 eCommerce Email Service Order - Renewal Kibo Software, Inc. 6/06/2017 eCommerce Email Service Order - Renewal Kibo Software, Inc. 6/16/2017 Fourth Amendment – Agreement Extension Kibo Software, Inc. 6/08/2016 Third Amendment – Agreement Extension
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16. The Assumption Notice also identifies seven agreements with MarketLive, Inc.
(Bronto) (“MarketLive”) with a $0.00 cure amount (“MarketLive Agreements”).
17. The MarketLive Agreements, some of which appear to have the same contract descriptions as the Kibo Agreements, are identified as follows:
Contract Counterparty Date of Contract Description Cure Amount MarketLive, Inc. (Bronto) 5/31/2017 eCommerce Email Service $0.00 Order - Renewal MarketLive, Inc. (Bronto) 11/20/2017 eCommerce Email Service $0.00 Order - Renewal MarketLive, Inc. (Bronto) 12/06/2018 eCommerce Email Service $0.00 Order - Renewal MarketLive, Inc. (Bronto) 6/06/2017 eCommerce Email Service $0.00 Order - Renewal MarketLive, Inc. (Bronto) 6/25/2015 Extension and Renewal $0.00
MarketLive, Inc. (Bronto) 6/16/2017 Fourth Amendment – $0.00 Agreement Extension MarketLive, Inc. (Bronto) 6/08/2016 Third Amendment – $0.00 Agreement Extension
18. Oracle believes that the Kibo Agreements and the MarketLive Agreements relate to certain NetSuite products and services.
19. Both MarketLive and Kibo are Oracle partners/resellers. Based on Oracle’s records, MarketLive changed its name to Kibo, and the reseller agreement between the parties was terminated on September 30, 2020.
20. Oracle is in the process of determining whether a new agreement was entered into and if so, the terms of such an agreement.
21. Since this investigation is ongoing, Oracle reserves its rights with respect to assumption and assignment of the Kibo and MarketLive Agreements.
22. On January 8, 2021, the Debtors filed a Notice of Filing of Stalking Horse
Agreement [Dkt. No. 280] (“Notice”).
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23. Attached as Exhibit 2 to the Notice is the Asset Purchase Agreement between the
Debtors and the Stalking Horse (“APA”).
24. The APA appears to intend to grant both the Stalking Horse and the Debtors simultaneous access to certain information for up to twelve (12) months following the Closing
Date.
25. The relevant language on this point in the APA is as follows:
Upon reasonable request from Seller during reasonable hours and taking into consideration the workload of Buyers’ employees on behalf of Buyers, Acquisition Buyer will, for a period of twelve (12) months following the Closing Date, provide to Seller, and the accountants, counsel and representatives of Seller, including any administrator or liquidator of Seller’s estate, such access to the pre-Closing books and records relating to the Business as is reasonably necessary to permit Seller to monetize any Excluded Assets and otherwise liquidate its estate after the Closing and to conclude the Bankruptcy Case, including the reconciliation and litigation of claims and making of distributions to creditors or otherwise. Such services will include (i) reasonable access to Acquisition Buyer’s personnel, information technology systems and books and records and (ii) the use of office space for individuals and office support of appropriate secretaries or clerks for employees of Seller engaged in such wind-down and liquidation process. Following the Closing, upon reasonable request from Seller during reasonable hours and taking into consideration the workload of Buyers’ employees on behalf of Buyers, Buyers shall, and shall instruct their respective representatives to reasonably cooperate with, and assist Seller in performing a financial closing of the accounting books and records of the Seller entities for the fiscal year ending January 31, 2021. Acquisition Buyer will provide the foregoing services free of any charges, fees or rents, provided that Seller will reimburse Acquisition Buyer for reasonable out-of- pocket costs and expenses incurred by Acquisition Buyer in connection with providing such services (which, for the avoidance of doubt, will not include salaries paid to Acquisition Buyer’s consultants or employees or Acquisition Buyer’s overhead but may include temporary service workers (at customary and reasonable hourly costs) if needed based upon the reasonable time demands of the regular work of Acquisition Buyer’s employees and the reasonable time demands of Seller’s employees engaged in the liquidation).
APA@ 6.2(a)(i).
26. The scope of the information to be accessed by the Debtors is unclear, as is the platform by which such access may be allowed.
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27. Until Oracle receives additional information regarding both the potential usage’s scope, and the method for accessing the information, Oracle is unable to determine how its contracts will be impacted by the post-Closing provisions of the APA.
28. In addition, since the sale is subject to overbid, the Stalking Horse may not be the ultimate purchaser.
29. Therefore, Oracle reserves all rights regarding any subsequent APA that may be filed which proposes to include transitional use.
III. ARGUMENT
A. Debtors May Not Assume And Assign Any Oracle Agreement Absent Oracle’s Consent Because The Oracle Agreements Pertain To One Or More Licenses Of Intellectual Property.
30. Section 365(c) of the Bankruptcy Code provides, in relevant part:
The trustee may not assume or assign any executory contract ... of the debtor ... if (1)(A) applicable law excuses a party, other than the debtor, to such contract or lease from accepting performance from or rendering performance to an entity other than the debtor ..., whether or not such contract or lease prohibits or restricts assignment of rights or delegation of duties; and (B) such party does not consent to such assumption or assignment.
31. Federal law makes non-exclusive copyright licenses non-assignable absent consent of the licensor. See In re Catapult Entertainment, Inc., 165 F.3d 747 (9th Cir. 1999), cert. dismissed, 528 U.S. 924 (1999) (patent law renders non-exclusive patent licenses personal and non-assignable under Bankruptcy Code § 365(c)(1)); In re Sunterra Corp., 361 F.3d 257, 271 (4th
Cir. 2004) (holding that a debtor was statutorily barred by § 365(c)(1) from assuming a computer software license where contract counterparty did not consent to the assumption); See, In Re Access
Beyond Technologies, Inc., 237 B.R. 32, 48-49 (Bankr. D. Del 1999) citing In Re: West Elec., Inc.)
852 F. 2d 79 (3d Cir. 1988); In Re ANC Rental Corporation, Inc., 277 B.R. 226, 235 (Bankr. D.
Del. 2002); In Re Golden Books Family Entertainment, Inc., 269 B.R. 311, 316 (Bankr. D. Del.
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2001)); see also In re Trump Entm’t Resorts, Inc., 526 B.R. 116, 126 (Bankr. D. Del. 2015) (“Non- exclusive patent and copyright licenses create only personal and not property rights in the licensed intellectual property and so are not assignable.”); In re Rupari Holding Corp., 573 B.R. 111, 119
(Bankr. D. Del. 2017) (holding that the debtor could not assume and assign a trademark license without the consent of the non-debtor licensor).
32. Oracle’s agreements are, or pertain to, non-exclusive licenses of copyrighted software.
33. Therefore, pursuant to Bankruptcy Code section 365, the Debtors may not assume and assign any Oracle agreement without Oracle’s consent.
34. For the reasons discussed herein, Oracle does not consent to the Debtors’ proposed assumption and assignment at this time.
B. The Debtors Have Not Adequately Identified The Oracle Agreements To Be Assumed and Assigned.
35. The Debtors’ Assumption Notice very generally describes the Oracle Agreements which the Debtors seek to assume and assign. In some instances, only amendments are identified.
36. The Debtors also failed to identify any governing master agreement or support renewals. It is impermissible for the Debtors to segregate the underlying Oracle license agreement from the corresponding support and master agreements for purposes of assumption and assignment, if that is the Debtors’ intention. See, e.g., In re Interstate Bakeries Corporation, 751
F.3d 955, 963 (8th Cir. 2014); In re Buffets Holdings, 387 B.R. 115 (Bankr. D. Del. 2008).
37. An executory contract must be assumed in its entirety and “[c]orrespondingly, all of the contracts that comprise an integrated agreement must either be assumed or rejected, since they all make up one contract.” In re Taylor-Wharton Int'l LLC, 2010 WL 4862723, at *3 (Bankr.
D. Del. Nov. 23, 2010) (citing In re Exide Tech., 340 B.R. 222, 228 (Bankr. D. Del. 2006)).
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38. Under California law,1 made applicable by the Oracle Agreements, “[s]everal contracts relating to the same matters, between the same parties, and made as parts of substantially one transaction, are to be taken together.” Cal. Civ. Code § 1642.
39. Because the support agreements and master agreement relate to the underlying license agreements as part of substantially the same transaction, they constitute integrated contracts which may not be separately assumed and assigned.
40. To clarify which Oracle contracts Debtors hope to assume and assign, Oracle requests that the Debtors specify the targeted contract’s (a) name and date; (b) identification number; (c) any associated support or support renewals; and (d) the governing license agreement.
41. This information will enable Oracle to evaluate whether the Oracle Agreements are assignable, supported, expired or in default, and, if in payment default, the appropriate cure amount.
42. Additionally, the information will allow Oracle to assess whether Oracle may accept performance from an entity other than the Debtors.
43. Oracle reserves its right to be heard on this issue until after the Oracle Agreements the Debtors seek to assume and assign are identified with greater specificity.
C. The Debtors May Not Have Provided The Correct Cure Amount.
44. Before assuming and assigning any executory contract, the Debtors must cure (or provide adequate assurance of a prompt cure of) any default under the subject contracts. 11 U.S.C.
§ 365(b)(1).
1 In re Hawker Beechcraft, Inc., No. 12-11873 (SMB), 2013 WL 2663193, at *3 (Bankr. S.D.N.Y. June 13, 2013) (“State law governs the question whether an agreement is divisible or indivisible for the purposes of assumption and rejection under Bankruptcy Code § 365.”) 9
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45. The Debtors have identified a $0.00 cure amount associated with each of the Oracle
Agreements identified by the Assumption Notice.
46. However, the Debtors have failed to describe the Oracle Agreements they seek to assume and assign with sufficient particularity for Oracle to identify which agreements are at issue, and thereby confirm the corresponding cure amount.
47. Oracle is in the process of reviewing the accuracy of any amounts shown as owed in connection with the Kibo Agreements and the MarketLive Agreements, and therefore reserves as to those cure issues also.
48. Oracle reserves its right to be heard regarding all cure amounts until after the contract or contracts the Debtors seek to assume and assign are identified with enough specificity to allow Oracle to determine the correct cure amounts owed under each of them.
D. The Debtors Have Not Provided Adequate Assurance of Future Performance By the Assignee.
49. Before assuming and assigning any executory contract, the Debtors must provide adequate assurance of future performance. 11 U.S.C. § 365(b)(1).
50. The Sale Motion is subject to overbid, and although Oracle anticipates that the
Stalking Horse will be an acceptable customer, the Stalking Horse may not be the successful buyer.
51. If necessary, an auction will be held on January 15, 2021, after the deadline for
Oracle to object to the Sale Motion2.
52. To satisfy Bankruptcy Code section 365(b), Oracle requests that the Debtors provide the following information about the ultimate purchaser: (a) financial bona fides;
(b) confirmation that the purchaser is not an Oracle competitor; and (c) confirmation that the
2 Oracle is aware that pursuant to the Assumption Notice, counterparties have until January 20, 2021 at noon in which to file an objection to adequate assurance if the successful bidder is someone other than the Stalking Horse. However, in order to save duplicate filings, Oracle incorporates its objection to adequate assurance in this Rights Reservation. 10
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ultimate assignee will (i) execute an Oracle Assignment Agreement and related documentation which identifies with specificity the Oracle executory contract(s) to be assigned; and, if appropriate
(ii) enter into an Oracle Master License Agreement.
53. Absent these assurances, Oracle cannot determine the proposed assignee’s creditworthiness, its suitability as an Oracle customer, or its ability to adequately perform the terms of the Oracle Agreements.
54. Until the information described above is provided, the Debtors have not complied with the requirements of section 365(b)(1)(C).
E. Oracle’s Agreements Do Not Authorize Simultaneous Use By The Debtors and the Stalking Horse/Eventual Purchaser.
55. The APA contemplates that undisclosed transitional or shared services will be provided between the Debtors and the Stalking Horse.
56. The Debtors have not provided adequate information about the nature of the proposed simultaneous use, precluding Oracle from determining either its scope, or how Oracle’s contracts will be affected.
57. Simultaneous use of, and access to, Oracle’s licensed software exceeds the scope of the permitted uses under any Oracle agreement.
58. It would potentially result in an unauthorized “splitting” of the licenses between the
Debtors and the ultimate purchaser.
59. Oracle objects to the extent that any transitional or shared use arrangement purports to grant to both the Debtors and purchaser(s) the right to shared use of the Oracle licenses beyond the license terms.
60. Oracle reserves all rights regarding any transitional use, including under any APA, or any TSA, pending Oracle’s review of same, and an opportunity to assess how it may impact
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Oracle, including whether the use contemplated thereunder constitutes non-compliance under the terms of any Oracle agreement.
IV. CONCLUSION
61. For the reasons set forth above, Oracle respectfully requests that the Court deny the
Debtors’ request for authority to assume and assign, transfer or share use of any Oracle agreement.
Oracle reserves its right to be heard on all issues set forth herein.
Dated: January 14, 2021 MARGOLIS EDELSTEIN Wilmington, Delaware By: /s/ James E. Huggett James E. Huggett, Esq. (#3956) 300 Delaware Avenue, Suite 800 Wilmington, Delaware 19801 Telephone: (302) 888-1112 E-mail: [email protected]
Amish R. Doshi, Esq. DOSHI LEGAL GROUP, P.C. 1979 Marcus Avenue, Suite 210E Lake Success, NY 11042 Tel: (516) 622-2335 E-Mail: [email protected]
Shawn M. Christianson, Esq. BUCHALTER, A PROFESSIONAL CORPORATION 55 Second Street, Suite 1700 San Francisco, CA 94105 Tel: (415) 227-0900
Deborah Miller, Esq. Alice Miller, Esq. ORACLE AMERICA, INC. 500 Oracle Parkway Redwood City, California 94065 Telephone: (650) 506-5200
Attorneys for Oracle America, Inc.
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Case 20-13076-BLS Doc 315-1 Filed 01/14/21 Page 1 of 2
IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE
) In re: ) Chapter 11 ) FRANCESCA’S HOLDINGS ) Case No. 20-13076 (BLS) CORPORATION, et al., ) ) Jointly Administered ) Debtors. )
CERTIFICATE OF SERVICE
I, James E. Huggett, hereby certify that on January 14, 2021, I served a copy of Oracle’s
Limited Objection To And Reservation Of Rights Regarding (1) Debtors’ Motion For Entry Of An
Order (1) (A) Approving Sale Of Substantially All Of The Debtors’ Assets Free And Clear Of All
Liens, Claims, Interests, And Encumbrances, (B) Approving Assumption And Assignment Of
Executory Contracts And Unexpired Leases And (C) Granting Related Relief; And (2) Amended
Notice Of Potential Assumption And Assignment Of Executory Contracts Or Unexpired Leases
And Cure Amounts on the parties listed on the attached Service List via electronic mail, where available.
_/s/ James E. Huggett______James E. Huggett (#3956)
Case 20-13076-BLS Doc 315-1 Filed 01/14/21 Page 2 of 2
SERVICE LIST
BY ECF
Michael J. Merchant, Esq. Linda J. Casey, Esq. Jason M. Madron, Esq. OFFICE OF UNITED STATES TRUSTEE RICHARDS LAYTON & FINGER, P.A. 844 King Street, Suite 2207, Lockbox 35 One Rodney Square Wilmington, Delaware 19899 920 North King Street Wilmington, DE 19801
Dennis A. Meloro, Esq. Justin R. Alberto, Esq. GREENBERG TRAURIG, LLP COLE SCHOLTZ, LLP 1007 North Orange Street, Suite 1200 500 Delaware Avenue, Suite 1410 Wilmington, DE 19801 Wilmington, DE 19801
BY REGULAR MAIL
Maria J. DiConza, Esq. Jeffrey M. Wolf, Esq. Diana M. Perez, Esq. Nathan A. Haynes, Esq. O’MELVENY & MEYERS, LLP Leo Muchnik, Esq. Times Square Tower GREENBERG TRAURIG, LLP Seven Times Square MetLife Bldg., New York, New York 10036 200 Park Avenue New York, NY 10166 Seth Van Aalten, Esq. Sarah A. Carnes, Esq. COLE SCHOTZ, P.C. 1325 Avenue of the Americas, 19th Floor New York, NY 10019
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