Relevant Documents:Settlement MotionMotion to Expedite
The Toys “R” Us debtors filed a motion this afternoon seeking approval of a settlement that resolves all matters concerning licensing agreements between the Toys Asia joint venture and Toys Delaware subsidiary Geoffrey LLC in addition to other intercompany issues. The settlement comes “after more than a year of inter-silo disputes related to a multitude of issues,” including the dispute over
source code ownership, private-label goods and trademarks.
The debtors are seeking an expedited hearing on the settlement motion, requesting that a hearing be held contemporaneously with the previously scheduled omnibus hearing set for Thursday, Dec. 13, at 11 a.m. ET. The debtors note that approval of the settlement motion is a condition to the resolution of the source code dispute (which was originally scheduled for closing arguments Monday before the
settlement was reached), the Asia JV sale and the confirmation of the Taj debtors’
plan, among other things. Those matters are also set for hearing on Dec. 13. The debtors request that objections to the settlement be filed “as soon as possible.”
Parties that have agreed to the terms of the intercompany settlement include: the debtors, the Taj noteholders steering group, the Asia JV, the unsecured creditors committee, TRU GSO (HK) Ltd. and certain other nondebtor subsidiaries, and the ad hoc group of B-4 lenders. The intercompany settlement agreement is attached as an exhibit to the motion.
The agreement resolves a variety of disputes relating to, among other things, licensing arrangements, certain releases in the plan, “the substantial contribution payment” to Cyrus Capital LP and the allocation of certain professional fees to date, the debtors state. Today’s settlement follows the Taj debtors’ earlier resolution of its inter-silo dispute with Fung Retailing through an agreement that was
approved by Judge Keith Phillips on Nov. 29.
Through the settlement, Geoffrey LLC (the Delaware entity holding the Toys “R” Us intellectual property rights) would enter into an amended master license agreement, or MLA, with the Asia JV with a fixed 15-year term, subject to extension by the Asia JV. Under the amended MLA, the Asia JV would pay Geoffrey a 2% net royalty rate and the Asia JV would relinquish its rights to $26.3 million “it claims it is owed by Geoffrey under the Subsidy Agreement.”
Also under the settlement, the Asia JV would pay $3.72 million to Geoffrey on the effective date of the plan. On April 30, 2019, the Asia JV is to pay $6 million to Toys Delaware subject to Toys Delaware’s compliance with certain transition services obligations including certain obligations related to assisting the Asia JV with migration off Toys Delaware shared services prior to April 30, 2019. The Taj Debtors would pay Toys Delaware $3 million in settlement of certain professional fee allocation disputes.
Per the settlement, Toys Delaware would deliver the source code and Oracle data to the Asia JV, which will then in turn 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 IT services to the Asia JV in return for a $1.5 million monthly fee, payable as of Dec. 1. The agreement also sets out that Geoffrey and the Asia JV would “work in good faith” to document their private-label relationship, including the Asia JV’s “ability to source private-label goods and use trademarks.”
The settlement also provides that the ad hoc group of B-4 lenders and the UCC will withdraw their objections to the plan and that each debtor will mutually release each other debtor of all intercompany claims and causes of action except for certain claims explicitly reserved. The Taj debtors and the Asia JV and its direct and indirect subsidiaries will exchange mutual releases with the debtors of TRU Inc., Toys Delaware and Geoffrey.
In support of the settlement, the motion highlights the following, among other things:
- The settlement provides for the debtors’ mutual releases of all claims not expressly preserved, releases between the debtors and the Asia JV except as otherwise provided in the settlement agreement. In addition, the settlement resolves the debtors’ outstanding disputes regarding allocation of professional fees and expenses.
- Holders of Taj senior notes claims agree to waive recoveries with respect to specific claims against TRU Inc.
- TRU Inc. is responsible for a specified portion of any administrative claims for state or federal taxes for any of the debtors is liable, and LEGO’s and Mattel’s asserted administrative claims against TRU Inc. will be allowed as general unsecured claims in amounts to be agreed upon in a separate stipulation between the debtors, LEGO and Mattel.
- Geoffrey LLC or its successor will hold title, and the Asia JV will waive its rights, to the approximately $26.3 million owing under Geoffrey’s subsidy agreement with the Asia JV through Nov. 30, 2018.
- Under the terms of the settlement, on the plan effective date, the Taj debtors shall pay to Toys Delaware, “in settlement of certain fee allocation issues and disputes among the debtors,” $3 million on account of Prime Clerk LLC fees and expenses in the cases.
- Geoffrey would enter into a license agreement with Jellej Jouets consistent with the terms attached to the settlement agreement, which terms would apply as of Jan. 15, 2019. Before Jan. 15, the existing license agreement would remain in effect in France, the motion adds.
- The cash at MAP 2005 Real Estate LLC would be allocated to resolve allocation disputes among the debtors relating to professional fees and expenses, with the balance to be distributed consistent with the plan’s priority waterfall, as modified by the settlement agreement.
- After TRU (Vermont) Inc.’s wind-down, any proceeds from TRU (Vermont) Inc. would be distributed to TRU Inc.and then distributed consistent with the plan’s priority waterfall, as modified by the settlement agreement.
- The Taj debtors and Taj noteholders would fund $1.25 million for distribution to TRU Inc.’s creditors in accordance with the settlement agreement and the Taj debtors and TRU Inc. plan.
- The UCC and the ad hoc B-4 lenders group would withdraw their objections to the Taj debtors and TRU Inc. plan.
The debtors maintain that the settlement was “negotiated in good faith and at arm’s length,” is “well within the range of reasonableness” and is in the best interests of the estates, creditors and other parties in interest.
The Taj debtors’ plan confirmation hearing was adjourned several times prior to the debtors
announcing last week the latest adjournment to Dec. 13 in order to allow the parties time to document and finalize the global settlement. The debtors also filed today a
confirmation brief in support of the Taj debtors and TRU Inc. chapter 11 plan, as well as the declarations of financial advisors
Cari Turner of Alvarez & Marsal and
Christian Tempke of Lazard. The chapter 11 plan of the Toys Delaware and Geoffrey debtors
was confirmed on Nov. 13.
Tempke explains the plan’s credit-bid mechanism in his declaration and reviews that the debtors did not receive any third-party bids for the Asia JV, “let alone third-party bids that did not require releases from the TRU Inc. Debtors and the Taj Debtors.” Jeffrey Stein, one of two independent directors at TRU Taj, submitted a
declaration in support of the plan in which he states his belief that the value of settlement, compromise and confirmation of the plan outweighs any value that could be obtained by pursuing any potential claims and causes of action that the Taj debtors could assert against the released parties.