June 24, 2020 – The Debtors filed a motion requesting Court authority to (i) begin a U.S. and Canadian store closing/sales process and (ii) assume an existing consulting agreement with each of (a) Tiger Capital Group, LLC and Great American Group, LLC (collectively, the “U.S. Consultant”) and (b) Tiger Asset Solutions Canada, ULC and GA Retail Canada ULC (collectively, the “Canadian Consultant” and, together with the U.S. Consultant, “Tiger” or the "Consultant") [Docket No. 16]. The U.S. and Canadian "Store Closing Procedures" are attached to the motion; as is a list of the locations being closed.
The Debtors' motion goes to lengths to explain the (sort of) Hobson's choice facing landlords/leaseholders of whom they are already asking 3 months rent forgiveness: give us "sufficient relief" in lease negotiations or take a place on the "additional stores" closing list.
The motion states, “The Debtors have worked in concert with their secured lenders to facilitate an expedited sale and orderly wind-down process for certain stores that will maximize value and recoveries for stakeholders in these cases. Concurrently, the Debtors, with the assistance of A&G Realty Partners, LLC and MPA Inc., are negotiating lease modifications with many of the Debtors’ landlords in the U.S. and Canada, respectively, for certain rent concessions and early termination rights (the ‘Lease Negotiations’), with the goal of improving the financial performance of the Debtors’ remaining store base. These Lease Negotiations are ongoing and the Debtors’ ability to negotiate more favorable lease terms and rent reductions will drive the determination of whether or not to close additional stores. Where the Debtors are unable to obtain sufficient relief in the Lease Negotiations concerning stores that are on the cusp of failing to meet certain performance standards, such stores may close as part of the Store Closings (which may begin simultaneously or on a rolling basis, depending on the relative timing the various Lease Negotiations conclude).
The Debtors selected and engaged the Consultant to (a) manage the Store Closings; (b) sell their store inventory (the ‘Merchandise’), owned furniture, furnishings, trade fixtures, machinery, equipment, office supplies, supplies and other tangible personal property (the ‘FF&E’) under the Consulting Agreements, and solely with respect to the U.S. Consulting Agreement, the ‘Additional Consultant Goods’ (the ‘Additional Consultant Goods’ and together with the FF&E and the Merchandise, the ‘Store Assets’) located in the stores; and (c) surrender the stores to the Debtors on the terms set forth in the Consulting Agreements, including, without limitation, the terms of the sale guidelines attached to the Canada Consulting Agreement (such guidelines, the ‘Canadian Sale Guidelines’) in the case of Store Closings in Canada.
The Debtors have a historical relationship with the Consultant, who has helped the Debtors with annual appraisals of inventory and accounts receivable, making the Consultant familiar with the Debtors’ businesses. In early 2020, the Debtors retained the Consultant for a store closing test, at which time the Consultant was subject to an evaluation process that included, among other things, review of proposals from other service providers, providing candidates with equal access to all information (such as store level volume, margins, and inventory) provided by the Debtors; seeking references; providing standard requirements for the submission or recovery assumptions; conducting forecasts and analysis; and phone and in-person meetings with the Debtors’ management. Given the Consultant’s longstanding familiarity with the Debtors’ business, the efficiencies resulting from the same to the Debtors’ estates, and the Consultant’s experience in conducting store closings on an expedited timeline, the Debtors’ management, in consultation with the Debtors’ advisors, selected the Consultant to manage the Store Closings. The Canadian Store Closing Procedures in respect of Store Closings in Canada incorporate the Canadian Sale Guidelines, which guidelines are substantially consistent with the store closing process that is typically used in Canada, and which Canadian Store Closing Procedures shall control such Store Closings. To the extent that the Canadian Store Closing Procedures differ from the U.S. Store Closing Procedures, it is to reflect such sale guidelines and such typical Canadian store closing process.”
The motion continues, “…the Debtors seek to assume the Consulting Agreements so that the Consultant may continue in its role as Consultant for the Store Closings on a post-petition basis without interruption. The Debtors have determined, in an exercise of their business judgment, that (a) the continuation of services by the Consultant is necessary for efficient large-scale execution of the Store Closings, and to maximize the value of the assets being sold, and (b) any change in or elimination of the Consultant would significantly disrupt the Store Closing process and impair the value of the remaining assets in the stores. Further, the Store Closings are a critical component of the Debtors’ go-forward business plan, and assumption of the Consulting Agreements will allow the Debtors to conduct the Store Closings in an efficient, controlled manner that will maximize value for the Debtors’ estates. The relief requested in this Motion is integral to maximizing the value of the Debtors’ estates. It will permit the Debtors to commence the Store Closings in a timely manner as contemplated by this Motion and will establish fair and uniform store closing procedures to assist the Debtors and their creditors through the Debtors’ transition to a smaller, more profitable enterprise”
Consultant Compensation (in addition to budgeted expenses, see below)
In consideration of its services, Consultant shall earn a base fee of USD$1,000 per GOB Store and USD$500 per Closing Store (the “Base Fee”) payable as follows for the U.S Consulting Agreement: (x) 50% upon entry of an interim Approval Order of the Court authorizing the Sale pursuant to the terms and conditions of the U.S. Consulting Agreement and (y) 50% upon entry of the final Approval Order; and payable as follows for the Canada Consulting Agreement: (x) 50% upon entry of the Interim Order (as defined in the Canada Consulting Agreement) and (y) 50% upon entry of the Final Order (as defined in the Canada Consulting Agreement). In addition, Merchant may earn an additional incentive fee (the “Incentive Fee” and together with the Base Fee, the “Consulting Fee”) based upon the following thresholds of Gross Proceeds received during the Sale divided by the Cost Value of the Merchandise sold during the Sale (the “Gross Recovery Percentage”) calculated back to the first dollar received:
|
Gross Recovery Percentage |
Total Incentive Fee |
|
Between 120% to 134.99% |
.50% of Gross Proceeds |
|
Between 135% to 149.99% |
.75% of Gross Proceeds |
|
150.0% or above |
1.25% of Gross Proceeds |
After it is determined that Consultant has earned an Incentive Fee, Merchant shall pay such Incentive Fee as earned as part of the weekly reconciliations and in any event no later than the Final Reconciliation.
Consultant shall also be entitled to a commission equal to 15% of the Gross FF&E Proceeds.
Expense Budgets
About the Debtors
According to the Debtors: “GNC Holdings, Inc. (NYSE: GNC) is a leading global health and wellness brand that provides high quality science-based products and solutions consumers need to live mighty, live fit, live long and live well.
The brand touches consumers worldwide by providing its products and services through company-owned retail locations, domestic and international franchise locations, digital commerce and strong wholesale and retail partnerships across the globe. GNC’s diversified, multi-channel business model has worldwide reach and a well-recognized, trusted brand. By combining exceptional innovation, product development capabilities and an extensive global distribution network, GNC manages a best in class product portfolio. As of March 31, 2020, GNC had approximately 7,300 locations, of which approximately 5,200 retail locations are in the United States (including approximately 1,600 Rite Aid licensed store-within-a-store locations) and the remainder are locations in approximately 50 countries.”
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