December 11, 2018 – Toys “R” Us requested Court approval of a settlement agreement, dated December 11, 2018, amongst (i) the Debtors, (ii) Toys (Labuan) Holding Limited (the “Asia JV”), (iii) the TRU Non-Debtor Subsidiaries, (iv) the Ad Hoc Group of B-4 Lenders, (v) the Taj Holders Steering Group, and (vi) the Debtors’ Official Committee of Unsecured Creditors (the “Intercompany Settlement Agreement”) [Docket No. 5922].
The Debtors’ motion states, “After more than a year of inter-silo disputes related to a multitude of issues, the Debtors, their key stakeholders, and the Official Committee of Unsecured Creditors (the ‘Creditors’ Committee’) have reached a comprehensive agreement reflecting a balanced resolution of all issues, thereby paving the way for the conclusion of these cases. Among other things, the intercompany settlement agreement resolves all matters concerning licensing agreements between Toys (Labuan) Holding Limited (the ‘Asia JV’), its subsidiaries, and Geoffrey, LLC (‘Geoffrey’), source-code-ownership, private-label goods and trademarks, and all other intercompany issues (including professional-fee allocation).
The Intercompany Settlement Agreement also establishes the framework of the various Debtors’ go-forward business relationship—and resolves significant ongoing disputes regarding that relationship—as it addresses the provision of transition services to the Asia JV or its subsidiaries; the new licensing agreement between Geoffrey and the Asia JV and/or its subsidiaries; the private-label arrangements; and the ownership of the Source Code… Once this Court approves the Intercompany Settlement Agreement, the Debtors and the rest of the Settlement Parties will be able to allocate their resources toward resolving any remaining issues and expeditiously confirming and consummating the chapter 11 plans. All use of the Debtors’ property contemplated by the Intercompany Settlement Agreement and any stipulations contemplated thereby is, in the Debtors’ business judgment, appropriate given the circumstances.”
Key provisions of the Intercompany Settlement Agreement include:
- Geoffrey will enter into new license agreements with the Asia JV and certain of its subsidiaries, as well as the French business.
- The new license agreements will have a fixed 15-year term, subject to extension by the Asia JV after the 15-year term, and will have other amended terms as set forth in the Settlement Agreement.
- The Asia JV and/or its subsidiaries will pay Geoffrey a 2% net royalty rate under the new licensing agreements.
- The Asia JV will relinquish its rights to $26,279,192 it claims it is owed by Geoffrey under the Subsidy Agreement.
- The Asia JV or its subsidiaries will pay $3,720,808 to Geoffrey on the effective date of the Plan.
- The Asia JV and/or its subsidiaries will pay $6,000,000 to Toys “R” Us – Delaware, Inc. (“Toys Delaware”) on April 30, 2019.
- The Taj Debtors will pay Toys Delaware $3 million in settlement of certain professional fee allocation disputes.
- Toys Delaware will deliver the Source Code and Oracle Data to the Asia JV or its subsidiaries, which, following receipt of the Source Code and Oracle Data, will pay Toys Delaware $5 million, plus unpaid invoiced amounts under the ITASSA (which total approximately $7.6 million).
- Toys Delaware will enter into a transition services agreement to provide existing IT services to the Asia JV or its subsidiaries, as well as transition and migration services set forth in the Settlement Agreement or appended Statement of Work, and the Asia JV or its subsidiaries will pay Toys Delaware a $1.5 million monthly fee payable as of December 1, 2018.
- Geoffrey and the Asia JV will work in good faith to document their future private label relationship, including the Asia JV’s ability to source private-label goods and use trademarks, based on certain agreed-upon principles set forth in the Settlement Agreement.
- Funds of MAP 2005 Real Estate, LLC (“MAP 2005”) will be used to resolve certain intercompany fee allocation disputes, including through payment to Toys Delaware of $1.25 million, as well as payment to the Taj Debtors of $1.25 million.
- The Taj Debtors and Taj Noteholders will provide a $1.25 million payment to be contributed to TRU, Inc. as a fund for creditors of TRU Inc. (to be distributed in accordance with the Intercompany Settlement Agreement and Plan) (the “Taj Settlement Consideration”).
- The Ad Hoc Group of B-4 Lenders and the Creditors’ Committee will withdraw their objections to the Plan.
- Each Debtor will mutually release each other Debtor of all intercompany claims and causes of action (except those explicitly reserved).
- The Taj Debtors and the Asia JV and its direct and indirect subsidiaries will exchange mutual releases with the TRU Inc. Debtors, Toys Delaware Debtors, and Geoffrey Debtors.
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