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Full title: Declaration Of: Tony Lopez in Support of Confirmation of Debtors' Joint Plan of Liquidation (as Revised) Filed by WILLIAM M. NOALL on behalf of GUMP'S BY MAIL, INC., GUMP'S CORP., GUMP'S HOLDINGS, LLC (Related document(s)585 Amended Chapter 11 Plan filed by Debtor GUMP'S HOLDINGS, LLC, Jnt Admin Debtor GUMP'S CORP., Jnt Admin Debtor GUMP'S BY MAIL, INC.) (NOALL, WILLIAM) (Entered: 04/28/2021)
Document posted on Apr 27, 2021 in the bankruptcy, 11 pages and 0 tables.
Bankrupt11 Summary (Automatically Generated)
Over the next fe14 weeks, Debtors negotiated the terms of an agreement for the conduct of an orderly liquidation sal15 of Debtors’ merchandise and fixtures with a joint venture between Hilco Merchant Resource16 LLC and Gordon Brothers Retail Partners, LLC (the “Agent”), along with the terms of postpetitio17 financing from Sterling necessary to finance the Debtors’ liquidation process.Thereafter, the Debtors, the Committee, and Sterling reached a compromis21 regarding the Contested Matters, including the amount of the pre- and post-petition claims an22 liens of Sterling, which was approved on April 18, 2019 by the Order Approving Settleme23 Between Sterling Business Credit, LLC and the Debtors and the Official Committee of Unsecure24 Creditors, and Transfer of Claims [ECF No. 381] (“Sterling 9019 Order”).After considering the effects that a Chapter 7 liquidation would have on the ultimat13 proceeds available for distribution, including the costs and expenses of a liquidation under Chapt14 7 arising from fees payable to a Chapter 7 trustee and professional advisors with no knowledge 15 the history of the case or the Debtors’ business, along with priority Claims which might arise, 16 believe that confirmation of the Plan will provide each holder of an Allowed Claim with a recover17 that is greater than, and certainly not less than, such holder would receive pursuant to th18 liquidation of the Debtors under Chapter 7.With respect to Intercompany Claims, Debtors jointly proposed the Plan providin25 for the Intercompany Claims to be extinguished and for Debtors to receive no distributions o26 account of their Intercompany Claims, and none of the Debtors or their respective creditors hav27 objected to the Plan on the basis of discriminatory or unfair treatment or on the basis that an28 senior class is receiving more than the full value of their Claims.The Plan contemplates liquidation, and I have estimated that the Debtors will hav18 sufficient cash on hand to pay or reserve for Allowed Claims under 11 U.S.C. § 1129(a)(19 exclusive of holders of such Claims who agree to less favorable treatment.
List of Tables
Document Contents1 WILLIAM M. NOALL 2 Nevada Bar No. 3549 E-mail: email@example.com 3 GABRIELLE A. HAMM Nevada Bar No. 11588 4 E-mail: firstname.lastname@example.org 5 MARK M. WEISENMILLER Nevada Bar No. 12128 6 E-mail: email@example.com 7251 Amigo St., Suite 210 7 Las Vegas, Nevada 89119 Telephone (725) 777-3000 8 Facsimile (725) 777-3112 9 Attorneys for Debtors 10 UNITED STATES BANKRUPTCY COURT 11 FOR THE DISTRICT OF NEVADA 12 In re: Case No.: BK-S-18-14683-mkn Chapter 11 13 GUMP’S HOLDINGS, LLC Jointly administered with: 14 Affects this Debtor. No. BK-S-18-14684-mkn (In re Gump’s Corp.) 15 No. BK-S-18-14685-mkn (In re Gump’s By Affects all Debtors. Mail, Inc.) 16 17 Affects Gump’s Corp. Confirmation Hearing: 18 Date: April 29, 2021 Affects Gump’s By Mail, Inc. Time: 1:30 p.m. 19 20 DECLARATION OF TONY LOPEZ IN SUPPORT OF CONFIRMATION OF DEBTORS’ JOINT PLAN OF LIQUIDATION (AS REVISED) 21 22 I, Tony Lopez, hereby declare under penalty of perjury under the laws of the United State23 of America as follows: 24 1. I am more than 21 years old, mentally competent, and I have never been convicte25 of a felony or of any crime involving moral turpitude. 26 2. I am a Certified Public Accountant licensed in California and a Certified Frau27 Examiner. I hold a B.A. degree in accounting from California State University, Long Beach an28 an M.B.A. from Pepperdine University.
11 2 Angeles-based business advisory firm that provides accounting and strategic transaction service3 financial advisory services, and risk and compliance services. 4 4. Since approximately 2012, I have served as the Chief Financial Officer and Chie5 Operating Officer of Gump’s Holdings, LLC, a Nevada LLC (“Holdings”), Gump’s Corp., 6 California corporation (“Retail”), and Gump’s By Mail, Inc., a Delaware corporation (“Direct,7 or collectively with Holdings and Retail, the “Debtors”), debtors and debtors-in-possession in th8 above-captioned jointly administered Chapter 11 cases (the “Chapter 11 Cases”). 9 5. I have served in such capacity since September of 2012 as a consultant, and fro10 July 8, 2013 to present, pursuant to a Consulting Agreement with my limited liability partnershi11 Assurance Partners, LLP. 12 6. In my capacity as the Debtors’ CFO/COO, I am responsible for, among othe13 things, overseeing the Debtors’ accounting, treasury, tax, credit, and audit matters, along with the14 operations. In this capacity, I have extensive knowledge of, and experience with, the event15 leading up to the commencement of the Chapter 11 Cases, the business and financial affairs of th16 Debtors, the Debtors’ pre-petition efforts to market the Debtors’ business, and the Debtors17 operations during the Chapter 11 Cases. 18 7. Except as otherwise indicated, all facts set forth in this Declaration are based upo19 my personal knowledge of the Debtors’ operations and finances, information learned from m20 review of relevant documents, and information supplied to me by the Debtors’ advisors. If calle21 upon to testify, I could and would testify competently to the facts set forth in this Declaration. 22 8. I submit this Declaration in support of confirmation of Debtors’ Joint Plan 23 Liquidation (as Revised) dated March 3, 2021 [ECF No. 585] (as it may be amende24 supplemented, or modified, including exhibits and schedules annexed thereto or reference25 therein, the “Plan”)1 and final approval of the adequacy of the Disclosure Statement Concernin26 27 1 Initially capitalized terms not defined herein will have the meanings ascribed to them in Debtors’ Brief in Suppo28 of Confirmation of Debtors’ Joint Plan of Liquidation (as Revised) or the Plan, in that order.
21 2 “Disclosure Statement”). 3 9. On August 3, 2018 (the “Petition Date”), each of the Debtors commenced 4 voluntary case under Chapter 11 of the Bankruptcy Code, commencing the Chapter 11 Cases. O5 August 10, 2018, the Bankruptcy Court entered orders jointly administering the Chapter 11 Case6 ECF No. 57. 7 10. Debtors continue to operate their businesses and manage their affairs as debtors-i8 possession pursuant to Sections 1107(a) and 1108 of the Bankruptcy Code. No trustee or examine9 has been appointed in the Chapter 11 Cases. 10 A. Debtors’ Business and Summary of Circumstances Leading to Chapter 11. 11 11. On the Petition Date, Gump’s was comprised of two operating companies—Reta12 and Direct—both wholly owned by Holdings. Retail operated the flagship Gump’s departme13 store at 135 Post Street near Union Square in San Francisco, California, which also housed th14 Debtors’ corporate offices (the “Store”). Direct operated the Debtors’ distribution center (th15 “Distribution Center”) in Olive Branch, Mississippi, which fulfilled direct-to-consumer sale16 including catalogue and e-commerce sales, and delivered merchandise to the Retail store. 17 12. As of the Petition Date, Retail and Direct, as borrowers, and Holdings, as guaranto18 were parties to three (3) credit facilities. The first lien was held by Sterling Business Credit, LL19 (“Sterling”) pursuant to the Loan and Security Agreement (as amended and together with th20 ancillary documents, the “Prepetition Loan Agreement”) dated December 29, 2015 for 21 revolving credit facility of up to $15,000,000 (the “Sterling Loan”), secured by substantially a22 of the assets of Retail and Direct, including, but not limited to, inventory, accounts receivabl23 general intangibles, equipment, trademarks, trade names, business names, service marks, logo24 certain related intellectual property, and proceeds from any of the foregoing, and the property 25 Holdings. As of the Petition Date, the aggregate principal amount outstanding under the Prepetitio26 Loan Agreement was asserted by Sterling to be $5,752,648.87. 27 13. The junior lien was held by Corporate Partners II Limited (“Corporate Partners28 pursuant to a Secured Promissory Note dated May 24, 2012, as amended, in the principal amou
31 2 subordinate to Sterling pursuant to the Intercreditor and Subordination Agreement dated as o3 December 29, 2015. As of the Petition Date, the balance due on the Junior Note was approximatel4 $9,634,000. 5 14. Finally, Retail and Direct, as borrowers, obtained an additional loan fro6 Methuselah Capital Partners, L.P., an affiliate of director John Chachas,2 in the principal amou7 of $250,000 pursuant to that certain Secured Promissory Note dated July 21, 2017 (th8 “Methuselah Note”). The Methuselah Note was subordinated to Sterling, but not to Corporat9 Partners. As of the Petition Date, the balance due on the Methuselah Note was approximatel10 $289,000.00. 11 15. Compounding high operating costs and a large debt load, the Debtors faced a12 increasingly challenging retail environment for a number of years in light of changes in th13 department store segment of the U.S. retail industry in response to market-disrupting competitiv14 retail formats, including the increased prominence of specialty retailers and online retailers, as we15 as the expansion of the internet and the pervasive role of mobile technology and social media i16 the retail consumer shopping experience. 17 16. Despite implementing strategies to improve the companies’ performance, includin18 retention of a new management team and implementation of an aggressive marketing plan, th19 Debtors incurred losses and negative cash flows for several years, sustaining operations onl20 through the infusion of capital and loans by its majority equity holder, Corporate Partners. Whil21 the Debtors achieved certain improvements in financial performance, they were not enough t22 achieve positive cashflow. By January 28, 2017, Holdings had an accumulated members’ defic23 of approximately $58,428,974. 24 17. On January 25, 2017, Sterling declared that certain Events of Default (as defined i25 the Prepetition-Loan Agreement) had occurred under the Prepetition Loan Agreement arising fro26 breach of certain financial covenants. Following a forbearance period and an unsuccessful attem27 28 2 Mr. Chachas resigned as a director of Holdings on August 3, 2018, but remains a member of Holdings.
41 2 “Style by Gump’s” and “Gump’s Style” as required by Sterling, Sterling declared a further defau3 on May 5, 2018. 4 18. As Debtors’ financial condition deteriorated rapidly in early 2018 and funding fro5 Corporate Partners became uncertain due to fund limitations, Debtors retained Lincol6 International, LLC to pursue strategic alternatives, including one or more sales, a refinance of th7 Sterling Loan, or a capital raise. Despite aggressive marketing, prospective lenders were hesita8 to lend without additional equity investment to provide needed liquidity and working capital i9 light of the Debtors’ negative cashflow and overburdened capital structure. 10 19. In early July 2018, Debtors received separate proposals from Hilco Mercha11 Resources, LLC and Gordon Brothers Retail Partners, LLC for a liquidation of the Debtors’ asset12 and on or about July 13, 2018, Debtors received a joint proposal from Hilco and Gordon Brother13 for an orderly liquidation of the Debtors’ assets pursuant to a store closing sale. Over the next fe14 weeks, Debtors negotiated the terms of an agreement for the conduct of an orderly liquidation sal15 of Debtors’ merchandise and fixtures with a joint venture between Hilco Merchant Resource16 LLC and Gordon Brothers Retail Partners, LLC (the “Agent”), along with the terms of postpetitio17 financing from Sterling necessary to finance the Debtors’ liquidation process. 18 B. Material Events in the Chapter 11 Cases. 19 20. At the outset of the Chapter 11 Cases, Debtors sought and obtained interim an20 final approval of a post-petition loan from Sterling in the amount of approximately $737,000 t21 provide Debtors with sufficient liquidate to fund a liquidation of the inventory and administrativ22 expenses of the Chapter 11 Cases. 23 21. On August 10, 2018 the Bankruptcy Court entered its Order: (A) Approving Agenc24 Agreement, (B) Authorizing and Approving Store Closing Sale Free and Clear of all Liens, Claim25 and Encumbrances, (C) Granting Liens, and (D) Granting Related Relief [ECF No. 58] (the “GO26 Approval Order”), approving, inter alia, that certain Agency Agreement dated on or abo27 August 5, 2018 (the “Agency Agreement”) for the conduct of a going out of business sale (“Sale28 by Debtors and the Agent.
51 2 end of October 2018, the lease was rejected, and the premises surrendered. 3 23. Thereafter, the Agent and Debtors prepared the Final Reconciliation (as defined i4 the Agency Agreement) reflecting the results of the Sale, which was the subject of the Fin5 Reconciliation and Settlement Agreement. On March 12, 2019, the Debtors and Agent filed the6 Joint Motion by Debtors and Liquidating Agent for Approval of Final Reconciliation an7 Settlement Agreement [ECF No. 302] (the “Reconciliation Motion”). 8 24. Disputes arose among the Debtors, Sterling, the Agent, and the Committee relatin9 to, inter alia, the Final Reconciliation and Settlement Agreement and the conduct of the Sale unde10 the GOB Approval Order and Agency Agreement, along with the amount of Sterling’s clai11 Sterling’s objection and the Committee’s informal objection to the Reconciliation Motion wer12 resolved by the terms of the Order Approving Final Reconciliation & Settlement Agreement [EC13 No. 371], including the supplement to the Agency Agreement attached thereto as Exhibit 1 (th14 “Reconciliation Order”). 15 25. Pursuant to the Reconciliation Order, the Agent paid to Sterling on behalf o16 Debtors the remaining proceeds of the Sale (as augmented pursuant to the Reconciliation Order17 in the total amount of $923,000 on or about March 29, 2019, and mutual releases were grante18 between Sterling and the Agent. The disputes between Sterling and the Debtors and the Committe19 were continued for further proceedings (“Contested Matters”). 20 26. Thereafter, the Debtors, the Committee, and Sterling reached a compromis21 regarding the Contested Matters, including the amount of the pre- and post-petition claims an22 liens of Sterling, which was approved on April 18, 2019 by the Order Approving Settleme23 Between Sterling Business Credit, LLC and the Debtors and the Official Committee of Unsecure24 Creditors, and Transfer of Claims [ECF No. 381] (“Sterling 9019 Order”). Under the Sterlin25 9019 Order, Sterling retained the $923,000 paid to it by the Agent and transferred its outstandin26 secured claims to a special purpose entity created by Debtors, and releases were granted by Sterlin27 to the Committee and Debtors, and by Debtors and the Committee to Sterling. 28
61 2 Assets”) under terms dictated by Sterling proved unsuccessful, largely due to the lack of a stalkin3 horse and Sterling’s refusal to allow a reasonable marketing period. However, during th4 reconciliation process, Debtors received an offer for the IP Assets from GH Acquisitions, LL5 (“GH”), an affiliate of John Chachas. Debtors negotiated the sale and assignment of Debtors’ I6 Assets and certain related property and contracts to GH, along with releases, and on June 20, 2017 the Court entered an order authorizing the sale under Section 363(f) of the Bankruptcy Code. Se8 ECF No. 413. 9 C. The Plan and Disclosure Statement. 10 28. The Plan seeks to maximize value for creditors by establishing a Liquidating Tru11 on the Effective Date to take possession of all property of the estates not distributed on or befor12 the Effective Date, reduce remaining non-cash assets to cash to the extent that doing so woul13 maximize the value of the estates, and prosecute any claim objections that it deems advisable. Th14 Plan provides for the Liquidating Trust to make distributions to the holders of Allowe15 Administrative Claims, Professional Fee Claims, and Priority Tax Claims on and after th16 Effective Date from reserves. 17 1. Classification and Treatment of Claims. 18 29. With the exception of Priority Tax Claims and Administrative and Professional Fe19 Claims, the Plan designates four (4) Classes of Claims, divided into twelve (12) subclasses, an20 one (1) Class of Equity Securities, subdivided into four (4) subclasses. The classification schem21 separately classifies Claims and Equity Securities based on valid business, factual, and leg22 reasons, such as the relative priority of claims under Section 507(a) of the Bankruptcy Code an23 the nature of the claims. 24 30. With respect to Classes 5(a) and 5(b), the Equity Securities of John Chachas i25 Holdings are separately classified because Chachas was granted releases by the Debtors and thei26 estates in connection with the GH purchase of the IP Assets. 27 31. Upon information and belief, the Plan’s classification scheme does not place an28 dissimilar claims within the same class.
71 2 32. The Plan and the Liquidating Trust Agreement provide for: (i) the creation of th3 Liquidating Trust and vesting of certain assets therein; (ii) the appointment of the Liquidatin4 Trustee; and (iii) the procedures for resolving Claims and making distributions to holders 5 Allowed Claims. Based on these provisions, among others, I believe that the Plan provide6 adequate means for its implementation. 7 33. The Plan is a liquidating plan that provides for the winddown of the Debtors, th8 disposition of Debtors’ remaining assets, and the distribution of the proceeds thereof to the holder9 of Liquidating Trust Beneficial Interests pursuant to the terms of the Plan. See Plan Art. V; §§ 5. 10 5.13. Accordingly, Debtors will not issue any securities. 11 3. The Plan Has Been Proposed in Good Faith. 12 34. I believe that the Plan complies with the Bankruptcy Code and that the Debtor13 have complied with the Bankruptcy Code in connection with the formulation and solicitation o14 the Plan. 15 35. The Plan has been proposed in good faith. The primary purpose of the Plan is t16 reduce remaining non-cash assets to cash to the extent that doing so would maximize value for th17 benefit of creditors, and prosecute any claim objections that the Liquidating Trustee deem18 advisable. The holders of Allowed General Unsecured Claims in Classes 3(a), (b), and (c) wi19 receive pro rata shares of the Liquidating Trust Beneficial Interests, and after the expenses o20 administration are paid, all Liquidating Trust Property not reserved for payment of the Unclassifie21 and Priority Unsecured Claims will be paid pro rata to the holders of Liquidating Trust Benefici22 Interests. See Plan, § 5.3.12. I believe the Plan has been filed to achieve results consistent wit23 the objectives and purposes of the Bankruptcy Code, including to maximize the value of th24 bankruptcy estate and to satisfy creditors’ claims. 25 4. The Plan Satisfies the Best Interests Test. 26 36. As demonstrated by the Liquidation Analysis attached to the Disclosure Statemen27 each holder of an Allowed Claim or Equity Security under the Plan is receiving or retaining und28
81 2 would receive or retain if the Debtors were liquidated under Chapter 7 of the Bankruptcy Code. 3 37. To determine what holders of Claims and Equity Securities of each impaired Clas4 would receive if the Debtors were liquidated under Chapter 7, I have estimated the dollar amou5 that would be generated from the liquidation of the Debtors’ assets and properties in the conte6 of a Chapter 7 liquidation case. The cash amount that would be available for satisfaction of Claim7 and Equity Securities would consist of the proceeds resulting from the disposition of the assets an8 properties of the Debtors, augmented by the cash held by the Debtors at the time of th9 commencement of the liquidation case. Such cash amount would be reduced by the amount of th10 costs and expenses of the liquidation and by such additional administrative expense and priorit11 claims that might arise in a Chapter 7. 12 38. After considering the effects that a Chapter 7 liquidation would have on the ultimat13 proceeds available for distribution, including the costs and expenses of a liquidation under Chapt14 7 arising from fees payable to a Chapter 7 trustee and professional advisors with no knowledge 15 the history of the case or the Debtors’ business, along with priority Claims which might arise, 16 believe that confirmation of the Plan will provide each holder of an Allowed Claim with a recover17 that is greater than, and certainly not less than, such holder would receive pursuant to th18 liquidation of the Debtors under Chapter 7. 19 5. The Plan Does not Unfairly Discriminate and is Fair and Equitable a20 to Classes 4 (Intercompany Claims) and 5 (Equity Securities). 21 39. Holders of Intercompany Claims (Classes 4(a), (b), and (c)) and holders of Equit22 Securities are deemed impaired as they receive no distribution under the Plan. See Plan §§ 4. 23 4.5. 24 40. With respect to Intercompany Claims, Debtors jointly proposed the Plan providin25 for the Intercompany Claims to be extinguished and for Debtors to receive no distributions o26 account of their Intercompany Claims, and none of the Debtors or their respective creditors hav27 objected to the Plan on the basis of discriminatory or unfair treatment or on the basis that an28 senior class is receiving more than the full value of their Claims.
91 2 discriminatory and is fair and equitable. While Debtors’ books and records reflected certai3 intercompany payables as of the Petition Date, Debtors determined these amounts reflected boo4 entries made on account of customer returns of inventory to, rather than on the basis of loans 5 transfers of money or property between the Debtors. In addition, Debtors’ pre-petition financi6 statements disregarded intercompany transactions and Debtors utilized a consolidated cas7 management system in which all expenses were paid by Retail, regardless of the legal entity th8 may have incurred the expense, and Retail received all cash inflows. Finally, no holder of a Clai9 of Equity Interest junior to the holders of Intercompany Claims will receive or retain any propert10 on account of such Claim or Equity Security. Therefore, 11 U.S.C. § 1129(b)(2)(B) is satisfied an11 Classes 4(a), (b), and (c) may be crammed down. 12 42. Similarly, no holder of an Equity Security has objected to the Plan, nor contende13 that any senior class is receiving more than the full value of its claim and no class of Claims 14 Equity Securities junior to Class 5 will receive or retain property on account of such interest und15 the Plan. 16 6. The Plan is Feasible. 17 43. The Plan contemplates liquidation, and I have estimated that the Debtors will hav18 sufficient cash on hand to pay or reserve for Allowed Claims under 11 U.S.C. § 1129(a)(19 exclusive of holders of such Claims who agree to less favorable treatment. Because the Pla20 provides for final liquidation of the Debtors’ remaining assets and dissolution of the Debtor21 Debtors are not likely to require further financial reorganization or liquidation. Debtors therefor22 submit that the Plan is feasible. 23 D. Inapplicable Confirmation Requirements. 24 44. Debtors are not subject to any rate regulations. 25 45. None of the Debtors are required by a judicial or administrative order or by statut26 to pay domestic support obligations. 27 46. None of the Debtors are individuals or not-for-profit organizations. 28
101 2 Bankruptcy Code. As such, the Plan does not provide for the continuation after the Effective Dat3 of payment of any retiree benefits. 4 E. Plan Modifications. 5 48. Debtors will be filing a modification to amend the post-confirmation injunction i6 § 9.4 of the Plan to conform to Section 1141(d)(3) of the Bankruptcy Code and to corre7 typographical and clerical errors. I do not believe such modifications are material because the8 are not of the type that would cause a creditor who voted to accept the plan to reconsider it9 acceptance. 10 Pursuant to 28 U.S.C. § 1746, I declare under penalty of perjury that the foregoing is tru11 and correct to best of my knowledge and belief. Tony Digitally signed by Tony Lopez 12 DATED April 22, 2021. DN: cn=Tony Lopez, o=Assurance Partners, LLP, ou, Lopez email=tlopez@assurancepartners llp.com, c=US 13 Da te: 2021.04.27 1 4:15:33 -07'00' TONY LOPEZ 14 15 4848-1113-8022, v. 1 16 17 18 19 20 21 22 23 24 25 26 27 28