Case No. 99-02649-GP3-11, Jointly AdministeredUnited States Bankruptcy Court, M.D. Tennessee, Nashville Division.
October 31, 2002
Paul G. Jennings, Beth A. Dunning, BASS, BERRY SIMS PLC, Nashville, TN; John Wm. Butler, Jr., George N. Panagakis, SKADDEN, ARPs, SLATE, MEAGHER FLOM (ILLINOIS) Chicago, IL, for Debtors and Debtors-in-Possession.
ORDER PURSUANT TO 11 U.S.C. § 363, 365, 502 AND 506(I) AUTHORIZING AND APPROVING THE SALE OF CERTAIN FEE-OWNED PROPERTIES, AND ASSIGNMENT OF ONE UNEXPIRED LEASE, TO THE DESIGNATION RIGHTS PURCHASER, FREE AND CLEAR OF INTERESTS AND (II) ESTABLISHING THE ALLOWED UNSECURED DEFICIENCY CLAIM OF THE LTCB NOTEHOLDERS
GEORGE C. PAINE II, United States Bankruptcy Judge
Upon the motion dated October 16, 2002 (the “Motion”),[1] of Service Merchandise Company, Inc. (“Service Merchandise”) and 31 of its affiliates (the “affiliate Debtors”), debtors and debtors-in-possession in the above-captioned cases (Service Merchandise and the affiliate Debtors, collectively, the “Debtors”), for entry of an order (the “Order”), pursuant to 11 U.S.C. § 363 (b) and (f), 365(a), 502(a) and 506(a), (I) authorizing and approving the Debtors’ sale/assignment of the LTCB Properties (defined below) to KLA/SM, LLC or its designee (the “Designation Rights Purchaser”), free and clear of all liens, claims, encumbrances and interests (collectively, the “Interests”), and (II) establishing the allowed unsecured deficiency claim of the LTCB Noteholders, as more fully described in the Motion; and it appearing that the relief requested is in the best interest of the Debtors, their estates, creditors and other parties in interest and is a proper exercise of the Debtors’ business judgment; and all parties in interest having been heard or having had the opportunity to be heard; and it appearing that good and sufficient notice of the Motion having been given and that no other or further notice of the Motion or at the entry of this Order need be provided; and upon the entire record herein; and good and sufficient cause appearing therefor,
IT IS HEREBY FOUND AND DETERMINED:
A. The Court has jurisdiction over the Motion pursuant to 28 U.S.C. § 157 and 1334, and this matter is a core proceeding pursuant to 28 U.S.C. § 157 (b)(2)(A), (N) and (O). Venue of these cases and the Motion in this district is proper under 28 U.S.C. § 1408
and 1409.
B. The statutory predicates for the relief sought herein are sections 363, 365, 502, 506 and 1146 of the Bankruptcy Code and Bankruptcy Rules 6004 and 6006.
C. As evidenced by the affidavits of service filed with the Court, and based on the representations of counsel, (i) proper, timely, adequate and sufficient notice of the Motion has been provided in accordance with sections 102(1), 363 and 365 of the Bankruptcy Code and Bankruptcy Rules 2002, 6004, 6006 and 9014, including notice to several of the major subordinated noteholders (ii) such notice was good and sufficient, and appropriate under the particular circumstances, and (iii) no other or further notice of the Motion or this hearing regarding the Motion is or shall be required.
D. The Debtors provided notice of the Motion to several of the most likely prospective purchasers and no bidders interested in the LTCB Properties materialized.
E. The Debtors, in the proper exercise of their business judgment, determined that the sale/assignment of the LTCB Properties to the Designation Rights Purchaser as provided under the LTCB Sale Agreement maximized the value of the LTCB Properties.
F. The proposed sale/assignment of the LTCB Properties pursuant to the LTCB Sale Agreement was negotiated, proposed and entered into by the Debtors and the Designation Rights Purchaser without collusion, in good faith, and from arm’s length bargaining positions. Neither the Debtors nor the Designation Right Purchaser have engaged in any conduct that would cause or permit the proposed sale or the LTCB Sale Agreement to be avoided under section 363(n) of the Bankruptcy Code.
G. The only non-residential real property lease included within the LTCB Properties has already been assumed by the Debtors and any cure claim owed in connection therewith has already been paid by the Debtors.
H. The LTCB Noteholders’ consent to the sale of the LTCB Properties tree and clear of the Interests under section 363 of the Bankruptcy Code is based upon the LTCB Noteholders’ reliance on the allowance and relative priority of its general unsecured deficiency claim of $9,000,000.
I. The Designation Right Purchaser is a good faith purchaser under section 363(m) of the Bankruptcy Code and, as such, is entitled to all of the protections afforded thereby. The Designation Right Purchaser will be acting in good faith within the meaning of section 363(m) of the Bankruptcy Code in closing the transactions contemplated by this Order and the LTCB Sale Agreement.
J. The Designation Right Purchaser was represented by counsel of its choosing. The Designation Right Purchaser did not have an undue advantage over the other potential buyers at any time.
K. The Designation Right Purchaser is a third-party purchaser, unrelated to the Debtors. The Designation Right Purchaser is not a successor in interest to the Debtors and is a non-insider of the Debtors.
L. The consideration provided by the Designation Right Purchaser for the LTCB Properties pursuant to the LTCB Sale Agreement (i) is fair and reasonable, (ii) is the highest or otherwise best offer for the LTCB Properties, (iii) will provide a greater recovery for the Debtors’ creditors than would be provided by any other practicable available alternative, and (iv) constitutes reasonably equivalent value and fair consideration under the Bankruptcy Code and under the laws of the United States, any state, territory, possession, or the District of Columbia.
M. The sale/assignment of the LTCB Properties to the Designatian Right Purchaser, and settlement with the LTCB Trustee and LTCB Noteholders, is a reasonable and valid exercise of the Debtors’ business judgment and is otherwise appropriate under sections 363, 365, 502 and 506 of the Bankruptcy Code.
N. The Court has statutory authority to approve the transactions contemplated herein pursuant to sections 363, 365, 502, 506 and 1146 of the Bankruptcy Code and Bankruptcy Rules 2002, 6004, 6006 and 9014.
O. All parties who did not properly and timely file an objection to the Motion are forever barred, precluded and estopped from asserting any objections, responses or other challenges to the relief requested in the Motion, this Order and approval of the proposed sale.
P. Nothing contained in any other documents which may relate to the LTCB Properties but as to which the Debtors are not bound (i.e. unrecorded exclusive use provisions granted by a landlord to another tenant) can prohibit, restrict or otherwise prevent the sale/assignment of the LTCB Properties to the Designation Rights Purchaser.
Q. It is necessary and appropriate for the Court to retain jurisdiction to interpret and enforce the tents of this Order and to adjudicate, if necessary, any and all disputes concerning any provision hereof.
R. Any findings of facts contained in the foregoing paragraphs that may be construed as matters of law, shall be treated as conclusions of law as if set forth below.
IT IS THEREFORE ORDERED, ADJUDGED AND DECREED:
1. The Motion is granted in its entirety.
2. The Debtors’ business judgment to sell/assign the LTCB Properties to the Designation Rights Purchaser pursuant to an agreement substantially similar to form of agreement attached hereto as Exhibit 1
is reasonable and appropriate under the circumstances and is hereby approved under section 363 and 365 of the Bankruptcy Code.
3. The Debtors are authorized to sell/assign the LTCB Properties to the Designation Rights Purchaser pursuant to the LTCB Sale Agreement for approximately $25,893,050 (not subject to offset or any closing costs).[2]
A list of the LTCB Properties is attached hereto as Exhibit 2. The Debtors are authorized to sell/assign the LTCB Properties to the Designation Rights Purchaser by private sale, and do not need to establish bidding procedures and/or conduct an auction for or in connection with such sale/assignment.
4. The Debtors are authorized to sell/assign the LTCB Properties to the Designation Right Purchaser, free and clear of all liens, claims, encumbrances and interests pursuant to sections 363(f) of the Bankruptcy Code. Thereafter, the sale proceeds of approximately $26,043,050 (not subject to offset or any closing costs) will be paid by the Designation Rights Purchaser either directly to the LTCB Trustee for the benefit of the LTCB Noteholders or to the Debtors subject to the liens of the LTCB Trustee and thereafter promptly paid by the Debtors to the LTCB Trustee for the benefit of the LTCB Noteholders.
5. The LTCB Noteholders shall have an allowed unsecured deficiency claim of $9,000,000 under section 502 and 506 of the Bankruptcy Code in full satisfaction of any and all claims the LTCB Noteholders have against the Debtors or any creditor, including any creditor subordinated to the claim of the LTCB Noteholders. This $9 million allowed unsecured deficiency is senior to the subordinated noteholders’ claims in accordance with the terms of the applicable inter-creditor agreements. This $9 million settlement with the LTCB Trustee and LTCB Noteholders is fair and reasonable under the circumstances, a proper exercise of the Debtors’ business judgment and hereby approved in all respects pursuant to sections 502 and 506 of the Bankruptcy Code.
6. The LTCB Trustee and LTCB Noteholders shall reserve the right to recapture the voluntary reduction of their deficiency claim and thereby seek a deficiency claim to the full extent provided for under applicable law to the extent that a party objects to the purchase price offered by the Designation Rights Purchaser or the $9 million unsecured deficiency claim of the LTCB Noteholders.
7. The Debtors are authorized, with the reasonable consent of the LTCB Trustee, to terminate the Adequate Protection Order without further order of this Court in any event, and such adequate protection order shall be terminated provided that the LTCB Sale Agreement closes and the payments required thereunder are timely made to the LTCB Trustee.
8. The Debtors and their respective officers, employees and agents, are authorized to perform all of their obligations, take whatever actions necessary, and issue, execute and deliver whatever documents may be necessary or appropriate to consummate the transactions contemplated by this Order and thereby sell/assign the LTCB Properties and settle with the LTCB Trustee and LTCB Noteholders.
9. The conditions of section 365(f)(2) of the Bankruptcy Code with respect to the assignment of an unexpired lease or executory contract have been satisfied in connection with the assignment/sale of the LTCB Properties. In particular, the Debtors and Designation Rights Purchaser have provided the Landlords with adequate assurance of future performance pursuant to section 365(f)(2)(B).
10. The Debtors have no cure claim liability in connection with any of the LTCB Properties. Moreover, the Debtors shall have no further liability of any type under the LTCB Properties arising after the date that this Order is entered.
11. The sale/assignment of the LTCB Properties shall be made free and clear of all claims against the Debtors or defaults by the Debtors under the LTCB Properties.
12. Any provisions contained in the LTCB Properties that expressly or otherwise prohibit, restrict or condition assignment are unenforceable under section 365(f) of the Bankruptcy Code and shall not restrict, limit, or prohibit the sale/assignment of the LTCB Properties to the Designation Rights Purchaser.
13. Any person or entity who was served with, but did not object to, the Motion within the time for objections provided in the notice thereof, is deemed to have consented to the relief requested therein.
14. In accordance with section 1146(c) of the Bankruptcy Code, the Debtors sale/assignment of LTCB Properties is hereby exempt from any law imposing a stamp tax, transfer tax or similar tax.
15. Each and every federal State and local government agency or department is hereby directed to accept any and all documents and instruments necessary or appropriate to consummate the sale/assignment of the LTCB Properties, all without imposition and payment of any stamp tax, transfer tax or similar tax, pursuant to section 1146(c) of the Bankruptcy Code. The register or recorder of deeds (or other similar recording agency) is hereby directed to accept and include a certified copy of this Order along with any other appropriate conveyance documents used to record and index the assignment in the appropriate public records.
16. The transactions contemplated herein are entitled to the full protections of section 363(m) of the Bankruptcy Code.
17. This Order shall survive and remain in full force and effect notwithstanding dismissal, conversion of, appointment of a trustee in or confirmation of a plan of reorganization in these chapter 11 cases. The Court shall retain jurisdiction to enforce the terms of this Order.
18. Any conclusions of law contained in the foregoing paragraphs which may be construed as findings of fact, shall be treated as findings of fact as set forth above.
19. Notwithstanding Rules 6004(g) and 6006(d) of the Federal Rules of Bankruptcy Procedure or any other Bankruptcy Rule, this Order shall take effect immediately upon its entry.
20. Notwithstanding any other provision of this Order, SJM Realty continues to possess a right of first refusal with respect to the Debtors’ fee-owned property located in Baytown, Texas and known as Store Number 461 (the “Texas Property”), as set forth in the March 14, 2002 stipulation between the Designation Rights Purchaser and SJM Realty concerning the Texas Property (the “Stipulation”). The Designation Rights Purchaser’s and SJM Realty’s respective rights concerning use as set forth in paragraph 1 of the Stipulation are preserved until sale of the Texas Property from the Designation Rights Purchaser to an end user.
21. Subsequent to entry of this Order approving the sale of the LTCB Properties as a package, SJM Realty and the Designation Rights Purchaser shall continue to negotiate in good faith regarding the price allocated to the Texas Property, which price shall be 105% of the reasonable market value allocation in light of the fair market value of the Texas Property as compared to the fair market value of the other properties comprising the LTCB Properties. In the event the Designation Rights Purchaser and SJM Realty reach a resolution regarding the Texas Property, the Debtors and the Designation Rights Purchaser are hereby authorized to modify the Allocated Value schedule to account for such agreement without further Order of this Court. If SJM Realty and the Designation Rights Purchaser are unable to consensually resolve this matter, then such matter will be heard at the December 17, 2002 Omnibus Hearing in these cases.
22. The Tax Collectorts Objection to Motion for Order Pursuant to 11 U.S.C. § 363, 365, 502 and 506(I) Authorizing and Approving the Sale of Certain Fee-Owned Properties, and Assignment of One Unexpired Lease, to the Designation Rights Purchaser, Free and Clear of Interests and (II) Establishing the Allowed Unsecured Deficiency Claim of the LTCB Noteholders is overruled.
[EDITORS’ NOTE: EXHIBIT 1 IS ELECTRONICALLY NON-TRANSFERRABLE.]