Case Doc 567 Filed 02/25/19 Page 1 of 14 IN THE UNITED STATES BANKRUPTCY COURT MIDDLE DISTRICT OF NORTH CAROLINA DURHAM DIVISION

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1 Case Doc 567 Filed 02/25/19 Page 1 of 14 IN THE UNITED STATES BANKRUPTCY COURT MIDDLE DISTRICT OF NORTH CAROLINA DURHAM DIVISION In re: ) Chapter 11 ) Advanced Sports Enterprises, Inc., et al., 1 ) ) Case No ) (Joint Administration) ) Debtors. ) ) MOTION TO APPROVE (A) RETENTION OF GORDON BROTHERS RETAIL PARTNERS, LLC AND (B) LIQUIDATION OF FURNITURE, FIXTURES AND EQUIPMENT FREE AND CLEAR OF ALL LIENS, CLAIMS AND ENCUMBRANCES Advanced Sports Enterprises, Inc., Advanced Sports, Inc., Performance Direct, Inc., Bitech, Inc. and Nashbar Direct, Inc. (collectively, the Debtors ) file this Motion to Approve (A) Retention of Gordon Brothers Retail Partners, LLC and (B) Liquidation of Furniture, Fixtures and Equipment Free and Clear of All Liens, Claims and Encumbrances (the Motion ). In support of this Motion, the Debtors respectfully represent as follows: 1. This Court has jurisdiction to consider this Motion pursuant to 28 U.S.C. 157 and Consideration of this Motion is a core proceeding pursuant to 28 U.S.C. 157(b). Venue of this proceeding is proper before this Court pursuant to 28 U.S.C and The statutory predicates for relief requested herein are sections 105, 363, 365 and 554 of title 11 of the United States Code, 11 U.S.C. 101 et seq. (the Bankruptcy Code ) and 1 The Debtors in this case, along with each Debtor s case number, are: (i) Advanced Sports Enterprises, Inc., Case No ; (ii) Advanced Sports, Inc., Case No ; (iii) Performance Direct, Inc., Case No ; (iv) Bitech, Inc., Case No ; and (v) Nashbar Direct, Inc., Case No

2 Case Doc 567 Filed 02/25/19 Page 2 of 14 Rules 2002, 6003 and 6004 of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules ). 3. Pursuant to prior motions, the Debtors sought authority to retain Gordon Brothers Retail Partners, LLC ( Gordon Brothers ) to conduct store closings sales at all of the Debtors retail store locations. The Court granted such relief by interim and final orders (Doc. 89, 168, 204 and 247), pursuant to which Gordon Brothers is liquidating the merchandise and fixtures in the Debtors retail stores. 4. The Debtors by this Motion now seek authority to retain Gordon Brothers to liquidate certain furniture, fixtures and equipment ( FF&E ) located in the Debtors office and warehouse facility located at One Performance Way, 144 Old Lystra Road, Chapel Hill, NC 27517, and in the Debtor s warehouse distribution centers located at (i) 2728 Capital Boulevard, Raleigh, NC 27604, and (ii) Marquardt Avenue, Santa Fe Springs, CA (collectively, the Locations ) in the manner and for the compensation and reimbursement of expenses summarized as follows and set forth in more detail in the proposed consulting agreement, a copy of which is attached as Exhibit 1 (the Agreement ), with such sales to be free and clear of all liens, claims and encumbrances. 5. The FF&E to be liquidated by Gordon Brothers is primarily if not entirely property of the estate of Performance Direct, Inc. and/or Bitech, Inc., as reflected in the filed Schedules of Assets and Liabilities, and not included in any of the Acquired Assets previously sold to BikeCo, LLC, AMain.com, Inc. or K&B Investment Corporation pursuant to the Order Approving Sale, Transferring Liens to Proceeds, and Granting Other Relief (Doc. 505, the Sale Order ).

3 Case Doc 567 Filed 02/25/19 Page 3 of For purposes of this Motion, the FF&E shall not include any equipment or other tangible personal property which (a) was previously sold pursuant to the Sale Order, (b) is identified by the Debtors as items not to be sold, for whatever reason, or (c) is leased to any of the Debtors, including but not limited to the Debtors leases with (i) Raymond Leasing Corporation, (ii) Hewlett-Packard Financial Services Company, (iii) Ikon Financial Svcs., and (iv) Cisco Systems Capital Corporation. 7. Pursuant to the Agreement, Gordon Brothers will receive compensation for its services in disposing of the FF&E in an amount equal to 15% of gross sales of the FF&E. In addition, pursuant to the Agreement, Gordon Brothers will receive reimbursement for certain Consultant Controlled Expenses (as defined in the Agreement) incurred by Gordon Brothers, subject to limitation as set forth below: Consultant Controlled Expenses Amount Field Supervision Expenses $32,200 Temp. Labor (set up) $4,800 Marketing and supplies $2,100 Legal Expenses $5000 Total $44, Upon completion of the sale of the FF&E, Gordon Brothers will file a final report as to sales receipts and commissions and expenses paid; provided, Gordon Brothers shall be paid in the manner and at the time set forth in the Consulting Agreement without any further approval of the Bankruptcy Court and without the requirement of filing of any fee application. 9. In connection with the sale of the FF&E, the Debtors propose that any liens,

4 Case Doc 567 Filed 02/25/19 Page 4 of 14 claims, and encumbrances asserted against the FF&E be transferred to and attach to the amounts realized by the Debtors through the proposed liquidation sales. 10. With respect to any party asserting a lien, claim, or encumbrance against the FF&E, the Debtors are able to satisfy one or more of the conditions set forth in section 363(f). Upon information and belief, only the following parties have or assert liens on some or all of the FF&E: a. York Street Mezzanine Partners II, L.P. ( York Street ), A. Garry Snook and Sharon M. Snook, Howard Heavin and Diane Heavin, and Peter A. Roy. i. York Street, as the duly appointed agent for all of these secured creditors, has consented to the disposition of the FF&E and transfer of their respective liens to the net proceeds of sale. b. Advanced Holdings Co. Ltd. i. The UCC-1 financing statements were filed eight days prior to the Petition Date, to perfect a security interest granted approximately 11 months before. ii. The security interest is avoidable as a preferential transfer, and thus is the subject of bona fide dispute. 11. While the Debtors are seeking to sell all the remaining FF&E at the Locations, the Debtors may determine that the costs associated with holding or selling some of the FF&E exceeds the proceeds that will be realized upon its sale, or that such property is not sellable at all. In such event, the property is of inconsequential value and benefit to the estates and/or may be burdensome to retain. 12. To maximize the value of the Debtors assets and to minimize the costs to the

5 Case Doc 567 Filed 02/25/19 Page 5 of 14 estates, the Debtors respectfully request authority to abandon in place any of its remaining FF&E or other property which has not been sold by Gordon Brothers, without incurring liability to any person or entity. The Debtors further request that the owner of the respective Locations at which any abandoned FF&E is located be authorized to dispose of such property without liability to any third parties. WHEREFORE, the Debtors respectfully request that the Court authorize the Debtors to retain Gordon Brothers on the terms and conditions set forth in the proposed Agreement, authorize the sale or abandonment of the FF&E as set forth above, transfer all liens to the net proceeds of sale, and grant such other relief as the Court deems just and proper. Dated: February 25, 2019 NORTHEN BLUE LLP /s/ John A. Northen John A. Northen (NC Bar No. 6789) jan@nbfirm.com Vicki L. Parrott (NC Bar No ) vlp@nbfirm.com John Paul H. Cournoyer (NC Bar No ) jpc@nbfirm.com 1414 Raleigh Road, Suite 435 Chapel Hill, North Carolina Telephone: (919) and FLASTER/GREENBERG P.C. William J. Burnett (PA Bar No ) (pro hac vice) william.burnett@flastergreenberg.com Harry J. Giacometti (PA Bar No ) (pro hac vice) Damien Nicholas Tancredi (PA Bar No ) (pro hac vice) 1835 Market Street, Suite 1050 Philadelphia, PA (215) Telephone (215) Facsimile COUNSEL FOR DEBTORS IN POSSESSION

6 Case Doc 567 Filed 02/25/19 Page 6 of 14 Exhibit A Proposed Consulting Agreement

7 Case Doc 567 Filed 02/25/19 Page 7 of 14 February 25, 2019 To: Advanced Sports Enterprises, Inc., et al 1 ( Merchant ) One Performance Way Chapel Hill, NC From: Gordon Brothers Retail Partners, LLC ( Consultant ) 800 Boylston Street, 27 th Floor Boston, MA Re: FF&E Sale Consulting Agreement Ladies and Gentlemen: This consulting agreement (this Agreement ) shall serve as the agreement of Consultant and Merchant pursuant to which Consultant shall serve as the exclusive consultant to Merchant to sell certain furniture, fixtures, and equipment (the Sale ) at Merchant s following locations: office and warehouse facility at One Performance Way, 144 Old Lystra Road, Chapel Hill, NC, and warehouse/distribution centers at (i) 2728 Capital Boulevard, Raleigh, NC 27604, and (ii) Marquardt Avenue, Santa Fe Springs, CA 90670, (each a Location and collectively, the Locations ), subject to the terms and conditions set forth herein. 1. RETENTION (A) Merchant hereby retains Consultant as its exclusive, independent consultant to conduct the Sale at the Locations during the Sale Term (as defined below). (B) On or around March 1, 2019, subject to court approval (the Sale Commencement Date ), Merchant shall inform Consultant of those items of furniture, fixtures, and equipment located at the Locations which are not to be sold (because Merchant does not have the right to sell such items, because Merchant wishes to retain such items for itself, or otherwise) (collectively, Retained FF&E ). 1 The Debtors in this case, along with each Debtor s case number, are: (i) Advanced Sports Enterprises, Inc., Case No ; (ii) Advanced Sports, Inc., Case No ; (iii) Performance Direct, Inc., Case No ; (iv) Bitech, Inc., Case No ; and (v) Nashbar Direct, Inc., Case No

8 Case Doc 567 Filed 02/25/19 Page 8 of 14 (C) With respect to all furniture, fixtures, and equipment located at the Locations which is not Retained FF&E (collectively the Offered FF&E ), Consultant shall be permitted to sell all such items and shall in connection therewith throughout the Sale Term: (i) (ii) (iii) (iv) (v) Recommend appropriate strategies to effectively sell all of the Offered FF&E located at the Locations as of the Sale Commencement Date, and recommend internal and external advertising in connection therewith. Create signage and pricing manuals for, and conduct operational kick-off conference call with, Merchant s managers. Provide qualified supervision to oversee the conduct of the Sale. Maintain focused and constant communication with Merchant s managers regarding discount promotions and with Merchant s corporate team regarding results of the Sale. Assist Merchant s management teams to coordinate shipments of Retained FF&E to Merchant s corporate offices or other designated locations 2. SALE TERM (A) The term Sale Term with respect to the Locations shall commence on or about Sale Commencement Date and shall end on April 30, 2019 ( Sale Termination Date ); provided however, that Consultant and Merchant may mutually agree upon a revised Sale Termination Date. (B) Upon the conclusion of the Sale Term, Consultant shall leave each Location in broom clean condition, subject to Consultant s right to abandon in a neat and orderly manner all unsold Offered FF&E and all Retained FF&E (if not otherwise returned to Merchant pursuant to Section 1 above), without liability to Merchant or any third party. 3. EXPENSES (A) All expenses incident to the conduct of the Sale during the Sale Term (including all other corporate expenses associated with the Sale) shall be borne by Merchant. (B) Attached hereto as Exhibit A is budget of sale expenses for the Consultant Controlled Expenses. Consultant will advance funds for the Consultant Controlled Expenses, and Merchant shall reimburse Consultant therefor (up to the aggregate budgeted amount) in connection with each weekly reconciliation contemplated by Section 5(B) upon presentation of reasonable documentation for such actually-incurred expenses. The parties may from time to time mutually

9 Case Doc 567 Filed 02/25/19 Page 9 of 14 agree in writing to increase the budget of Consultant Controlled Expenses based upon circumstances of the Sale. 4. CONSULTANT COMPENSATION (A) As its compensation hereunder and pursuant to section 328 of the Bankruptcy Code, subject to approval by the Court, Consultant shall earn a commission equal to fifteen percent (15.0%) of the gross sales of Offered FF&E at each Location, net only of sales tax, if applicable (the FF&E Commission ). (B) The parties acknowledge that the fee has been established based upon Consultant s reliance that Merchant s personnel (including store managers and store-level personnel) will provide Consultant with reasonable and good faith cooperation and support throughout the Sale Term in connection with the conduct of the Sale. (C) On a weekly basis in connection with each weekly reconciliation contemplated by Section 5(B) below, Merchant shall pay Consultant an amount equal to the FF&E Commission on account of the prior week s sales of Offered FF&E as an advance on account of the fees payable hereunder. The parties shall determine the definitive FF&E Commission in connection with the Final Reconciliation (as defined below). Immediately thereafter (and as part of the Final Reconciliation), Merchant shall pay Consultant any additional amount owed on account of the FF&E Commission, subject to review and approval by the Court. 5. CONDUCT OF SALE; OTHER SALE MATTERS (A) Merchant shall have control over the personnel in each Location and shall handle the cash, debit and charge card payments for all Offered FF&E in accordance with Merchant s normal cash management procedures, subject to Consultant s right to audit any such items. Merchant (and not Consultant) shall be responsible for ensuring that the Sale (before, during, and after the Sale Term) shall be conducted in compliance with all applicable laws and regulations. (B) The parties will meet on each Wednesday during the Sale Term to review any Sale matters reasonably requested by either party; and all amounts payable or reimbursable to Consultant for the prior week (or the partial week in the case of the first and last weeks) shall be reconciled and paid immediately thereafter. No later than twenty (20) days following the end of the Sale, the parties shall complete a final reconciliation and settlement of all amounts contemplated by this Agreement ( Final Reconciliation ). From time to time upon request, each party shall prepare and deliver to the other party such other reports as either party may reasonably request. Each party to this Agreement shall, at all times during the Sale Term and during the one (1) year period thereafter, provide the other with access to all information, books and records relating to the Sale

10 Case Doc 567 Filed 02/25/19 Page 10 of 14 and to this Agreement. All records and reports shall be made available to Consultant and Merchant during regular business hours upon reasonable notice. (C) Merchant shall be solely responsible for the computing, collecting, holding, reporting, and paying all sales taxes associated with the sale of Offered FF&E during the Sale Term, and Consultant shall have absolutely no responsibilities or liabilities therefor. (D) Although Consultant shall undertake its obligations under this Agreement in a manner designed to achieve the desired results of the Sale and to maximize the recovery to the Merchant, Merchant expressly acknowledges that Consultant is not guaranteeing the results of the Sale. (E) Merchant acknowledges that (i) the parties are not conducting an inspection of the Offered FF&E located at each Location; (ii) Consultant has made no independent assessment of the existence or condition of such items; and (iii) Consultant shall not bear any liability for any loss to Merchant s property located at any Location (including without limitation the Offered FF&E). (F) All sales of Offered FF&E in each Location during the Sale shall be made in the name, and on behalf, of Merchant. (G) All sales of Offered FF&E in each Location during the Sale Term shall be final sales and as is, and all advertisements and sales receipts will reflect the same. 6. HAZARDOUS MATERIALS Notwithstanding any other provision of this Agreement to the contrary, Consultant shall bear no responsibility for removing, disposing of, or otherwise handling any hazardous materials or other fluids or substances in connection with its agency relating to selling the Offered FF&E or this Agreement (the full responsibility of which shall unless and until any such equipment is sold to a buyer, remain with the Merchant). Consultant shall not have any obligation whatsoever to cap any electrical or plumbing outlets, or purchase, sell, make, store, handle, treat, dispose, or remove any hazardous materials from any Location or otherwise. 7. INSURANCE; RISK OF LOSS During the Sale Term: (a) Merchant shall maintain (at its expense) insurance with respect to the Offered FF&E in amounts and on such terms and conditions as are consistent with Merchant s ordinary course operations, and (b) each of Merchant and Consultant shall maintain (at each party s respective expense) comprehensive liability insurance covering injuries to persons and property in or in connection with each Location in such amounts as are reasonable and consistent with its ordinary practices, for bodily injury, personal injury and/or property damage. Each party shall be added as an additional insured on all such insurance of the other party, all such insurance shall

11 Case Doc 567 Filed 02/25/19 Page 11 of 14 provide that it shall be non-cancelable and non-changeable except after 30 days prior written notice to the other party, and each party shall provide the other with certificates of all such insurance prior to the commencement of the Sale. Notwithstanding any other provision of this Agreement, Merchant and Consultant agree that Consultant shall not be deemed to be in possession or control of any Location or the Offered FF&E or other assets located therein or associated therewith, or of Merchant's employees located at each Location, and Consultant does not assume any of Merchant's obligations or liabilities with respect thereto. Notwithstanding any other provision of this Agreement, Merchant and Consultant agree that Merchant shall bear all responsibility for liability claims (product liability and otherwise) of customers, employees and other persons arising from events occurring at each Location, and Offered FF&E sold at a Location, before, during and after the Sale Term. 8. INDEMNIFICATION (A) Consultant shall indemnify and hold Merchant and its affiliates, and their respective officers, directors, employees, consultants, and independent contractors harmless from and against all claims, demands, penalties, losses, liability or damage, including, without limitation, reasonable attorneys' fees and expenses, directly or indirectly asserted against, resulting from or related to: (i) (ii) (iii) (iv) Consultant s material breach of or failure to comply with any of its agreements, covenants, representations or warranties contained herein or in any written agreement entered into in connection herewith; any harassment or any other unlawful, tortious or otherwise actionable treatment of any employees or agents of Merchant by Consultant, its affiliates or their respective officers, directors, employees, agents, independent contractors or representatives (including without limitation any supervisors); any claims by any party engaged by Consultant as an employee or independent contractor (including without limitation any non-merchant employee supervisor) arising out of such employment or engagement; or the negligence, willful misconduct or unlawful acts of Consultant, its affiliates or their respective officers, directors, employees, Consultants, independent contractors or representatives. (B) Merchant shall indemnify and hold Consultant, its affiliates and their respective officers, directors, employees, consultants, and independent contractors harmless from and against all claims, demands, penalties, losses, liability or damage, including, without limitation, reasonable attorneys' fees and expenses, directly or indirectly asserted against, resulting from or related to:

12 Case Doc 567 Filed 02/25/19 Page 12 of 14 (i) (ii) (iii) (iv) Merchant's material breach of or failure to comply with any of its agreements, covenants, representations or warranties contained herein or in any written agreement entered into in connection herewith; any claims by any party engaged by Merchant as an employee or independent contractor arising out of such engagement; any consumer warranty or products liability claims relating to any Offered FF&E; and/or the negligence, willful misconduct or unlawful acts of Merchant, its affiliates or their respective officers, directors, employees, agents, independent contractors or representatives. 9. MISCELLANEOUS (A) In connection with Merchant s chapter 11 bankruptcy cases in the United States Bankruptcy Court for Middle District of North Carolina (the Bankruptcy Court ), Merchant shall promptly seek to have this Agreement and the transactions contemplated by this Agreement approved by the Bankruptcy Court pursuant to Sections 328 and 363 of the United States Bankruptcy Code pursuant to an order of the Bankruptcy Court acceptable to both Merchant and Consultant. This Agreement shall not be effective until such order is entered by the Bankruptcy Court. (B) This Agreement constitutes the entire agreement between the parties with respect to the matters contemplated hereby and supersedes and cancels all prior agreements, including, but not limited to, all proposals, letters of intent or representations, written or oral, with respect thereto. This Agreement may not be modified except in a written instrument executed by each of the parties hereto. No consent or waiver by any party, express or implied, to or of any breach or default by the other in the performance of its obligations hereunder shall be deemed or construed to be a consent or waiver to or of any other breach or default in the performance by such other party of the same or any other obligation of such party. The failure on the part of any party to complain of any act or failure to act by the other party or to declare the other party in default, irrespective of how long such failure continues, shall not constitute a waiver by such party of its rights hereunder. Nothing contained in this Agreement shall be deemed to create any relationship between Merchant and Consultant other than that of Consultant as an independent contractor of Merchant, and it is stipulated that the parties are not partners or joint venturers in any way. Unless expressly set forth herein to the contrary, to the extent that either party s consent is required/requested hereunder, such consent shall not be unreasonably withheld or delayed. This Agreement shall inure to the benefit of and be binding upon the parties and their respective successors and assigns; provided however, that this Agreement may not be assigned by either party without the prior written consent of the other. Written notices contemplated by this Agreement shall be sent by (i) if to Merchant c/o the person indicated below at the address specified above; and (ii) if to Consultant c/o Mackenzie Shea at mshea@gordonbrothers.com

13 Case Doc 567 Filed 02/25/19 Page 13 of 14 Very truly yours, Gordon Brothers Retail Partners, LLC By: Print Name and Title: Agreed and Accepted: Advanced Sports Enterprises, Inc. By: Print Name and Title:

14 Case Doc 567 Filed 02/25/19 Page 14 of 14 EXHIBIT A Advanced Sports Enterprises, Inc. Consultant Controlled Expenses Total Dollars Field Supervision Expenses $32,200 Temp Labor (set up) $4,800 Marketing/Signs/Supplies $2,100 Legal Expense $5,000 Total Consultant Controlled Expenses: $5, ,100