CPI CORP., Et Al.,1 Debtors. : : Chapter 7 : (Join
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Case 13-11158-BLS Doc 39 Filed 05/30/13 Page 1 of 32 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: : : Chapter 7 CPI CORP., et al.,1 : (Jointly Administered) : Debtors. : Case No. 13-11158 (BLS) : : Hearing Date: TBD : Objection Deadline: TBD MOTION OF CHAPTER 7 TRUSTEE PURSUANT TO BANKRUPTCY CODE SECTIONS 105, 363 AND RULES 2002, 6004, 6006 AND 9014 OF THE FEDERAL RULES OF BANKRUPTCY PROCEDURE FOR (I) AN ORDER (A) APPROVING THE STALKING HORSE ASSET PURCHASE AGREEMENT AND BREAK-UP FEE RELATING TO THE SALE OF CERTAIN ASSETS OF THE DEBTORS, SUBJECT TO HIGHER AND BETTER OFFERS, FREE AND CLEAR OF LIENS, CLAIMS AND ENCUMBRANCES, (B) APPROVING THE NOTICE AND SALE PROCEDURES RELATED THERETO, AND (C) SETTING AUCTION AND HEARING DATES; AND (II) AN ORDER (A) APPROVING THE SALE OF CERTAIN ASSETS OF THE DEBTORS, AND (B) GRANTING RELATED RELIEF Charles A. Stanziale, Jr., in his capacity as the Chapter 7 Trustee (the “Trustee”) in the above-captioned cases, by and through his counsel McCarter & English, LLP, hereby moves (the “Motion”) the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) pursuant to sections 105(a) and 363 of Title 11 of the United States Code, §§ 101-1532 (as amended, the “Bankruptcy Code”), Rules 2002, 6004 and 9014 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”) and Rule 2002-1 and 6004-1 of the Local Rules of Bankruptcy Practice and Procedure of the United States Bankruptcy Court for 1 The jointly administered debtors in these cases are CPI Corp., Bella Pictures Holdings, LLC, Centrics Technology, Inc., Consumer Programs, Inc., Consumer Programs Partner, Inc., CPI Canadian Holdings, Inc., CPI Images, LLC, CPI International Holdings, Inc., CPI Prints Plus, Inc., CPI Research & Development, Inc., CPI Technology Corp., Image Source, Inc., Myportraits.com, Inc., Ridgedale Prints Plus, Inc., Sandy Realty Holdings, LLC, and Texas Portraits, L.P. (collectively, the “Debtors” and each, separately, a “Debtor”). The Debtors’ estates shall collectively be referred to as the ““CPI Bankruptcy Estates”. ME1 15730859v.4 Case 13-11158-BLS Doc 39 Filed 05/30/13 Page 2 of 32 the District of Delaware (respectively, “Local Rule 2001-1” and “Local Rule 6004-1”), for entry of (i) an order, substantially in the form attached hereto as Exhibit A (a) approving the terms of the stalking horse asset purchase agreement and the break-up fee relating to the sale of certain Assets (defined herein) of the Debtors, subject to higher and better offers, free and clear of liens, claims, encumbrances and interests, (b) approving the notice and sale procedures related thereto, and (c) setting auction and hearing dates; and (ii) an order (a) approving the sale of certain Assets of the Debtors, and (b) granting related relief. In support of this Motion, the Trustee respectfully represents as follows: I. JURISDICTION, VENUE AND PREDICATES FOR RELIEF 1. The Court has jurisdiction over this Motion under 28 U.S.C. § 1334. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A). Venue of this Motion and the Debtors’ cases is proper in this District pursuant to 28 U.S.C. §§ 1408 and 1409. The predicates for the relief requested herein are sections 105(a) and 363(b), (f), (m) and (n) of the Bankruptcy Code, Bankruptcy Rules 2002, 6004 and 9014, and Local Rule 2001-1 and Local Rule 6004-1 (or collectively, the “Local Rules”). II. INTRODUCTION 2. Faced with assets of the Debtors located in over eighteen hundred locations inside various Sears, Wal-Mart and Toys “R” Us stores and various warehouses located across the United States of America, the Chapter 7 Trustee has aggressively sought to locate a stalking horse bidder to immediately commence the sale process, the culmination of such efforts are set forth herein. 2 ME1 15730859v.4 Case 13-11158-BLS Doc 39 Filed 05/30/13 Page 3 of 32 III. SUMMARY OF RELIEF REQUESTED 3. This Motion seeks relief in two stages and the entry of two Orders related to the sale of the Assets. First, the Trustee hereby requests an initial hearing on the Motion (the "Preliminary Hearing") for the Court to consider entry of an order substantially in the form attached hereto as Exhibit A (the “Bidding Procedures Order”): (i) approving the Purchase Agreement as the form of the asset purchase agreement to be used in conjunction with the sale procedure and the sale and approving the break-up fee, (ii) establishing and approving the form of notice and bidding procedures (the "Bidding Procedures") for the sale hearing (the "Sale Hearing") with respect to the sale free and clear of liens, claims, encumbrances and interests; and (iii) setting auction and hearing dates to consider higher and better offers, if any, and to approve the sale. 4. The Trustee also requests the entry of a further order granting substantive relief at the conclusion of the Sale Hearing. Specifically, the Trustee will seek an order (the “Sale Order”) approving the sale of the Assets pursuant to an asset purchase agreement entered into between the Trustee and Lifetouch Portrait Studios Inc. (“Lifetouch” or the “Stalking Horse Bidder”), dated May __, 2013 (as may be amended, the “Purchase Agreement”, a copy of which is annexed hereto as Exhibit C) or such other purchase agreement entered into between the Trustee and any alternate bidder selected pursuant to the Bidding Procedures. 5. The proposed Sale Order will (i) approve the sale of the Assets on the terms and conditions set forth in the Purchase Agreement or an asset purchase agreement similar thereto selected by the Trustee pursuant to sections 105(a) and 363(b) of the Bankruptcy Code, authorizing the Trustee to proceed with the transaction contemplated by the selected asset purchase agreement, (ii) include a specific finding pursuant to section 363(m) of the Bankruptcy Code that the purchaser is a good faith buyer, (iii) order that pursuant to section 3 ME1 15730859v.4 Case 13-11158-BLS Doc 39 Filed 05/30/13 Page 4 of 32 363(f) of the Bankruptcy Code, the sale shall be on an “AS IS” “WHERE IS” basis and free and clear of all liens, claims, encumbrances and interests whatsoever, with such liens, claims, encumbrances and interests attaching to the net proceeds of the sale, and (iv) authorize the Trustee to consummate the sale and to arrange for the mutual execution of all necessary documents, agreements and contracts in conjunction therewith. IV. BACKGROUND A. The Debtors and the Bankruptcy Cases 6. On May 1, 2013 (the "Petition Date"), the Debtors filed their respective voluntary petitions for relief under chapter 7 of Title 11 of the United States Code, 11 U.S.C. §§ 101-1532 (as amended, the "Bankruptcy Code") in the United States Bankruptcy Court for the District of Delaware. 7. On May 1, 2013, the Office of the United States Trustee for the District of Delaware appointed Charles A. Stanziale, Jr. as the Chapter 7 Trustee for the Debtors. 8. Prior to the Petition Date, the Debtors retained Lazard, Ltd., who commenced an extensive marketing campaign to locate a buyer for its professional photographic business (the “Business”). 9. The Debtors own certain items currently located in numerous studios across the United States, including, but not limited to, studio cameras, studio camera cables, studio camera lenses, passport cameras, passport printers, passport cables, passport background, portrait printers, printer cables, backgrounds and tubes; power packs and cables, computer CPUs, and camera room lights as well as certain production and technology systems and equipment, photographic equipment, information technology systems, software, inventory and supplies, fixtures, 4 ME1 15730859v.4 Case 13-11158-BLS Doc 39 Filed 05/30/13 Page 5 of 32 furniture and equipment located at three warehouses maintained by the Debtors as well as certain intangible assets (collectively, the “Assets2”). 10. The Trustee is in the process of retaining Logistics International LLC (“Logistics”) as a professional logistical company to assist the Chapter 7 Trustee in retrieving, transporting and safeguarding the Assets so that he may conduct an organized sale process to maximize value for all creditors of the CPI Bankruptcy Estates. B. The Debtors’ Debt Structure 11. Prior to the Petition Date, (a) CPI Corp. entered into a certain Credit Agreement, dated as of August 30, 2010 (as amended, the “Credit Agreement”), with Bank of America, N.A. (“Agent”), as administrative agent for the various financial institutions identified as “Lenders” therein (the “Lenders”), and the Lenders (collectively with the Agent, the “Lender Parties”), and (b) the Debtors entered into a certain Guaranty and Collateral Agreement, dated as of August 30, 2010 (as amended, the “Guaranty/Security Agreement”), with Agent. 12. The Agent asserts that the Lender Parties hold valid, perfected, first-priority security interests in, and liens upon, the Assets.3 2 A complete description of the Assets is referenced on Exhibit B to the Purchase Agreement. 3 The Lender Parties and the Trustee have agreed that the Trustee shall have sixty (60) days after the filing of the Chapter 7 Trustee’s Motion For Entry Of (I) Order Authorizing The Employment Of Logistics International LLC As A Professional Logistical Company To Assist The Chapter 7 Trustee, Nunc Pro Tunc To May 29, 2013, Pursuant To 11 U.S.C. § 363, And (II) Interim And Final Orders Authorizing Chapter 7 Trustee To Obtain Funding Needed To Compensate Logistics International, LLC Pursuant To 11 U.S.C. §§ 105, 362, 363, And 364 And Rule 4001 Of The Federal Rules Of Bankruptcy Procedures to challenge the extent, validity and priority of the Lender Parties’ liens on the Assets.