August 15, 2022 – The Court hearing the Cherry Man Industries, Inc. case issued an order authorizing the Chapter 11 Trustee assigned to the Debtor’s case to: (i) sell substantially all of the Debtor’s assets to Euro Style, LLC (the "Buyer," an acquisition entity to be created by CSC Generation Holdings, Inc.*) and (ii) enter into an asset purchase agreement (the “APA”) with the Buyer [Docket No. 376]. A finalized APA is to track the sale term sheet and proposed form of APA attached to the U.S. Trustee's motion [Docket No. 357].
*CSC Generation Holdings states on its website, “We acquire overlooked store and catalogue-based retailers and transform them into high-performance, ‘digital-first’ brands through our proven omni-channel technology platform, operating expertise and scale.” Notably, in August 2020, a joint venture comprised of CSC Generation Holdings and Marquee Brands received bankruptcy court approval to purchase substantially all of the assets of Sur la Table.
Case Background
On March 17, 2022, privately held Cherry Man Industries, Inc. (“Cherry Man” or the “Debtor”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Central District of California, case number 22-11471 (Judge Neil W. Bason). At filing, the Debtor, an El Segundo, California-based importer and wholesaler of commercial furniture, was owned 61% by Frank Lin and 39% by Edward Kim.
On April 29th, Creditor Cathay Bank (Cathay) filed a motion seeking the (i) immediate appointment of a Chapter 11 Trustee or (ii) dismissal of the Debtor’s Chapter 11 case [Docket No. 171] arguing that the Debtor's "incompetence and gross mismanagement" had resulted in a case "in complete disarray;" and on May 9th, the Court issued an order appointing the requested Chapter 11 Trustee [Docket No. 207].
Key Terms of Term Sheet/Draft APA:
- Seller: Hamid R. Rafatjoo (“Seller”), solely in his capacity as Chapter 11 Trustee of the estate of Cherry Man Industries, Inc. (the “Company” and collectively with Seller, the “Sellers”)
- Buyer: Euro Style, LLC, a subsidiary of CSC Generation Holdings, Inc.
- Purchase Price: At Closing, provided there remains at least $15,000,000 of new, first quality and non-obsolete inventory (the “Inventory”) at historical landed cost in the distribution centers of which at least $8,000,000 is ready to sell (as reasonably determined by Hilco), Purchaser will pay to Seller: (1) 13% of the agreed upon cost of the Inventory at Closing; and (2) 20% of the Revenue received by Purchaser upon fulfilling purchase orders for the Inventory (“POs”) after Closing no later than the 15th of every month.
- Closing Date: The closing of the Sale must occur no later than fifteen business days after the Court approves the Sale, but in no circumstance will the Closing Date extend beyond August 15, 2022**.
** No specific reference is made in the order to extensing the Closing Date, although the order provides: "the Trustee and Purchaser are hereby authorized and empowered to take all actions and execute and deliver any and all documents and instruments that either the Trustee or Purchaser deem necessary, desirable or appropriate to implement and effectuate the terms of the Term Sheet, the Final APA and this Order."
Sale Background
The Chapter 11 Trustee's sale motion [Docket No. 357] provides: “Since his appointment, the Trustee has worked diligently to, among other things: (1) obtain an understanding of the Debtor’s bankruptcy estate, assets, liabilities and business operations; (2) operate the Debtor’s business; (3) evaluate the bankruptcy estate’s most pressing needs and issues; (4) evaluate whether the Debtor’s business is profitable and what actions need to be taken to maximize the value of the estate; and (5) take actions necessary to preserve and protect the estate’s assets, eliminate unnecessary expenses of the estate and maximize the value of the estate.
The Trustee has moved expeditiously and decisively to reduce unnecessary expenses and administer this chapter 11 case. There is significant secured debt in this case, and the Trustee’s analysis of the Debtor’s business operations and business prospects has led the Trustee to the conclusion that, unless the Trustee sells the Assets as a going concern immediately, the estate will eventually run out of cash and will be unable to fund the expenses of the operation of the Debtor’s business. The Debtor’s business operations (as they exist today) do not generate sufficient revenue and absent an immediate sale of the Debtor’s assets this bankruptcy estate will quickly run out of cash. Moreover, absent a going-concern sale, the Debtor’s assets would be liquidated in a fire-sale, piecemeal basis, which is anticipated to generate substantially less revenue than projected under the proposed sale to Purchaser.
The Trustee retained Province, LLC (‘Province’) as financial advisor and sale process advisor in this case. Province undertook significant efforts to market the Debtor’s assets as a going concern and identified Purchaser as a potential purchaser of the Debtor’s Assets.”
Marketing Efforts
In support of the motion Paul Navid, Senior Director at Province, LLC, states in a declaration [Docket No. 358], “Province undertook significant efforts to market the Debtor’s assets as a going concern and identified Purchaser as a potential purchaser of the Debtor’s Assets. Province assisted the Trustee with negotiating with Purchaser the Term Sheet setting forth the terms and conditions under which Purchaser would purchase the Assets. Purchaser and the Trustee entered into the Term Sheet (as described in the Motion and attached as Exhibit 1 to the Motion) and are in the process of finalizing negotiation of an Asset Purchase Agreement, which is presently in draft form.
Province was retained by the Trustee to assist the Trustee in running an expedited sale process for one month and to market test the Debtor’s Assets. Province’s professionals have worked closely with the Trustee, the Debtor’s management, employees, and other advisors to assist the Trustee with, among other things, contacting prospective buyers, making presentations to prospective buyers and participating in negotiations with Cathay Bank, the Trustee and prospective buyers to help facilitate a going concern sale of the Debtor’s Assets.
Immediately after being engaged by the Trustee, Province began working on a sale process, creating a teaser, preparing an information memorandum, modeling financials, contacting potentially interested parties and returning dozens of inbound inquiries.
During the marketing process, Province sent a teaser to more than three hundred seventy (370) interested parties, of which approximately 50% were strategic investors. Fourteen (14) of those parties executed non-disclosure agreements. The Debtor’s financial and operational details were immediately provided to parties who executed non-disclosure agreements. Five (5) of these parties indicated they were primarily interested in the asset at or around liquidation value and the remainder (except for Purchaser) were either interested in selected assets or passed on the opportunity.
The proposed transaction with Purchaser constitutes the highest and best offer for the Debtor’s Assets, and will provide a greater recovery for the estate than would be provided by any other available alternative. The Term Sheet and its terms represent a fair and reasonable offer to purchase the Debtor’s Assets under the circumstances of the Chapter 11 case. In addition, no other person or entity, or group of entities has offered to purchase the Assets for greater value to the estate than Purchaser.
Since receiving the initial purchase offer from Purchaser, Province, Cathay Bank and the Trustee have participated in extensive diligence sessions and negotiations. Purchaser’s offer would include purchasing substantially all of the Debtor’s Assets, which could potentially preserve over twenty jobs of employees that depend on the continued operation of Debtor’s business and maximize the value of the Debtor’s estate. The Debtor has already suffered significant employee attrition during the pendency of this case and any further losses may jeopardize the viability of the company as a going concern business.
Given the current status of the financial condition of this estate, and the availability of Purchaser now, a time- and cost-intensive marketing and auction process is not feasible, and in order to avoid the loss of Purchaser, the proposed sale is not subject to overbid. Without a sale such as the one proposed herein, the Trustee would likely be required to retain a liquidator to sell the Assets piecemeal at ‘fire sale’ prices, and, if such a liquidation is not successful, to abandon such Assets. In summary, the proposed sale represents an effective and advantageous solution to the estate’s efforts to monetize the Assets and is supported by the Debtor’s primary secured creditor Cathay Bank which asserts a lien against all of the Assets.”
About the Debtor
According to the Debtor: “Over the past decade, Cherryman has been instrumental in establishing the value market in commercial furniture and has been recognized as a benchmark for delivering sustainable solutions across the U.S. and Canada.”
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