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The Rockport Company Sale Objection Filed

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Adidas AG and Reebok International filed with the U.S. Bankruptcy Court an objection to Debtors’ motion requesting approval of the sale of Debtors’ assets. The objection asserts, “The Debtors purport to pluck certain assets from that transaction—specifically, certain indemnity rights and an IP license—and selectively transfer them to the Purchaser without satisfying any of their obligations to adidas or Reebok. Similarly, the Debtors endeavor to isolate particular liabilities from the pool of claims adidas and Reebok hold against Rockport and, once those select claims are resolved, to impose on adidas a non-consensual release of Rockport’s foreign affiliates….Specifically, the Debtors and their non-Debtor affiliates are jointly and severally liable for no less than $54 million in obligations owed to adidas in connection with the post-closing transition. Further, the IP license the Debtors purport to assign cannot even be assumed without the consent of adidas, which has not been given. adidas and Reebok are willing to work cooperatively with the Debtors, the Stalking Horse Bidder, and other interested parties to achieve a successful sale of the Rockport business. However, the sale as currently proposed so obscures the baseline legal entitlements of adidas and Reebok that they are compelled to object to the sale, to clarify for the Court and other creditors the nature and magnitude of their claims against both the Debtors and their non-Debtor affiliates, and otherwise to reserve all their rights. None of this should be permitted….The plain language of the Management Agreement thus makes Rockport and each of its affiliates, including the ‘Acquired Companies’ (as defined in the Stalking Horse Agreement) jointly and severally liable for the Closing Liability, which is an amount not less than $54,304,560. The amount of the Acquired Companies’ liability to adidas is important because that liability is to be deducted from the Purchase Price to be paid by the Successful Bidder. The Debtors have made certain representations to the Stalking Horse Bidder about the extent of the Adidas Liability under the Stalking Horse Agreement….The Stalking Horse Agreement provides that, if the Debtors resolve the Adidas Liability for more than the amount of the adidas escrow (i.e., approximately $7 million), the Debtors agree that, unless otherwise agreed to by Purchaser, the Debtors ‘shall be liable for all of such amount, and Purchaser shall have no liability therefore’ (the ‘Third-Party Release’). The Debtors cannot unilaterally agree on adidas’s behalf that only certain entities shall be responsible for the Adidas Liability (which would effectively release all of Rockport’s non-Debtor affiliates that currently have obligations to adidas).”

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