Case CSS Doc 16 Filed 09/14/16 Page 1 of 286 UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE

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1 Case CSS Doc 16 Filed 09/14/16 Page 1 of 286 UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE x : In re : Chapter 11 : GOLFSMITH INTERNATIONAL : Case No. 16- ( ) HOLDINGS, INC., et al., : : Joint Administration Requested Debtors. 1 : : x MOTION OF DEBTORS FOR INTERIM AND FINAL ORDERS (I) AUTHORIZING THE DEBTORS TO OBTAIN POSTPETITION FINANCING, (II) AUTHORIZING USE OF CASH COLLATERAL, (III) GRANTING LIENS AND SUPERPRIORITY ADMINISTRATIVE EXPENSE STATUS, (IV) GRANTING ADEQUATE PROTECTION, (V) MODIFYING AUTOMATIC STAY, AND (VI) SCHEDULING A FINAL HEARING Golfsmith International Holdings, Inc. and its debtor affiliates in the abovecaptioned chapter 11 cases, as debtors and debtors in possession (collectively, the Debtors or Golfsmith ), submit this motion (the Motion ) and respectfully represent: Bankruptcy Rule 4001 and Local Rule Concise Statements 1. Pursuant to Bankruptcy Rule 4001(b) and Local Rule (a), the Debtors submit the following concise statement of the material terms of the DIP Credit Agreement and Interim Order (each as defined herein). 2 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, as applicable, are: Golfsmith International Holdings, Inc. (4847); GMAC Holdings, LLC (3331); Golf Town USA Holdco Limited (5562); Golf Town USA Holdings Inc. (7038); Golf Town USA, LLC (0259); Golfsmith 2 GP, L.L.C. (2218); Golfsmith Europe, L.L.C. (2408); Golfsmith Incentive Services, L.L.C. (2730); Golfsmith International, Inc. (7337); Golfsmith International, L.P. (4257); Golfsmith Licensing, L.L.C. (5499); Golfsmith NU, L.L.C. (2404); and Golfsmith USA, L.L.C. (2405). The Debtors corporate headquarters is located at North IH-35, Austin, TX Any summary of the terms of the DIP Credit Agreement and Interim Order contained in this Motion is qualified in its entirety by reference to the provisions of the DIP Credit Agreement and Interim Order. To the extent the Motion and the Interim Order or DIP Credit Agreement are inconsistent, the Interim Order or DIP Credit Agreement, as applicable, shall control. The Debtors reserve the right to supplement the statements made pursuant to Bankruptcy Rule 4001 and Local Rule herein. Capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed to such terms in the Interim Order. RLF v.1

2 Case CSS Doc 16 Filed 09/14/16 Page 2 of 286 Summary of Material Terms Location Borrowers Bankruptcy Rule 4001(c)(1)(B) Additional Guarantors Bankruptcy Rule 4001(c)(1)(B) Agent and Lenders Bankruptcy Rule 4001(c)(1)(B) Borrowing Limits Bankruptcy Rule 4001(c)(1)(B) Interest Rates Bankruptcy Rule 4001(c)(1)(B) Debtors: Golfsmith Europe, L.L.C., Golfsmith Licensing, L.L.C., Golfsmith Incentive Services, LLC, Golfsmith 2 GP, L.L.C., Golfsmith International, Inc., Golfsmith International, L.P., Golfsmith NU, L.L.C., Golfsmith USA, L.L.C., Golf Town USA, L.L.C., Golfsmith International Holdings, Inc., and Golf Town USA Holdco Limited (collectively, the U.S. Borrowers ) Non-Debtor CCAA Applicants: Golf Town Canada Inc., Golf Town GP II Inc., and Golf Town Operating Limited Partnership (collectively, the Canadian Borrowers, and together with the U.S. Borrowers, the Borrowers ) Debtors: Golf Town USA Holdings Inc., GMAC Holdings, LLC (collectively, the U.S. Guarantors ) Non-Debtor CCAA Applicants: Golf Town Canada Holdings, Inc. (together with the U.S. Guarantors, the Guarantors ) Each of the U.S. Borrowers, U.S. Guarantors, Canadian Borrowers, and Canadian Guarantors are jointly and severally obligated under the entire DIP Facility. Agent: Antares Capital LP ( Antares or the DIP Agent ) Lenders: First Lien Lenders (in their capacity as lenders under the DIP Credit Agreement, the DIP Lenders, and collectively with the DIP Agent, the DIP Secured Parties ) The DIP Facility operates as a revolving credit facility with a common borrowing base comprised of assets of the Borrowers and Guarantors and provides financing that may be utilized by Golfsmith and Golf Town. The $135 million revolving DIP Facility allows for extensions of credit (in the form of loans and letters of credit) (the DIP Loans ) up to an aggregate outstanding principal amount of $135 million at any one time outstanding, including: (a) a sublimit for letters of credit denominated in U.S. dollars up to $10 million and letters of credit denominated in Canadian dollars up to CDN$10 million; and (b) a sublimit of $5 million aggregate principal amount of swing loans denominated in U.S. dollars, and a sublimit of the U.S. dollar equivalent of $5 million aggregate principal amount of swing loans denominated in Canadian dollars (collectively, the Swing Loans ). The DIP Facility also provides for a CDN$60 million sublimit on Canadian dollar DIP Loans. DIP Loans shall bear interest on the outstanding principal amount thereof from the date when made at a rate per annum equal to the LIBOR, the Base Rate, the Canadian Prime Rate or the BA Rate, as the case may be, plus the Applicable Margin; provided that (i) Swing Loans may not be LIBOR Loans or BA Rate Loans, (ii) only DIP Loans denominated in Canadian Dollars may be BA Rate Loans or Canadian Prime Rate Loans and (iii) only DIP Loans denominated in U.S. Dollars may be LIBOR Loans or Base Rate Loans. DIP Credit Agreement Preamble Interim Order Preamble DIP Credit Agreement, Preamble; Guarantor Definition DIP Credit Agreement Preamble DIP Credit Agreement, 1.1; Canadian Dollar Revolving Sublimit Definition Interim Order, 3 DIP Credit Agreement, RLF v.1

3 Case CSS Doc 16 Filed 09/14/16 Page 3 of 286 Summary of Material Terms Location Maturity Bankruptcy Rule 4001(c)(1)(B) Parties with an Interest in Cash Collateral Bankruptcy Rule 4001(b)(1)(B)(i) Purposes for Use of Cash Collateral Bankruptcy Rule 4001(b)(1)(B)(ii) Terms of Use Cash Collateral Bankruptcy Rule 4001(b)(1)(B)(ii) Termination Events Bankruptcy Rule 4001(b)(1)(B)(iii) Carve-Out Bankruptcy Rule The earliest to occur of: (i) the Revolving Termination Date (as defined in the DIP Credit Agreement), and (ii) the date on which the DIP Facility terminates in accordance with the provisions of the DIP Credit Agreement or the DIP Orders. The Prepetition Secured Parties (as defined in this Motion). The Debtors shall use the proceeds of the DIP Facility and any Cash Collateral solely as follows: (i) to pay costs and expenses associated with the closing of the transactions under the DIP Credit Agreement and (ii) to fund these chapter 11 cases in accordance with the Approved Budget and for the financing of Debtors ordinary working capital, letters of credit and other general corporate needs including certain fees and expenses of professionals retained by the Debtors, subject to the Carve-Out, and for certain other prepetition and prefiling expenses that are approved by this Court and permitted by the Approved Budget. The Debtors shall not be permitted to use the proceeds of the DIP Facility or any Cash Collateral in contravention of the provisions of the Interim Order or the Bankruptcy Code, including any restrictions or limitations on the use of proceeds contained therein. For greater certainty, the Debtors shall not use the proceeds of the DIP Facility advanced under the DIP Credit Agreement to repay the Prepetition Secured Obligations; provided, however, that nothing in the DIP Credit Agreement, shall prohibit the postpetition payment of Prepetition Secured Obligations, including principal, interest, fees, penalties or recoverable costs, due and payable in connection with the First Lien Credit Agreement with the proceeds of DIP Collateral or Prepetition Collateral. The Debtors are authorized to use Cash Collateral subject to the terms and conditions of the Interim Order, the DIP Facility, and the DIP Documents and in accordance with the Approved Budget. Nothing in the Interim Order authorizes the disposition of any assets of the Debtors or their estates outside the ordinary course of business, or any Debtor s use of any Cash Collateral or other proceeds resulting therefrom, except as permitted in the Interim Order, the DIP Facility, the DIP Documents, and in accordance with the Approved Budget. The DIP Agent may declare a termination of the Debtors ability to use Cash Collateral without any application, motion or notice to, hearing before, or order from the Bankruptcy Court upon (i) the occurrence the failure of the Debtors to perform, in any respect, any of the terms, provisions, conditions, covenants, or obligations under the Interim Order or the CCAA Initial Order or (ii) an Event of Default under the DIP Credit Agreement. The Interim Order provides (and the Final Order shall provide) for a Carve- Out of certain statutory fees and allowed professional fees of the Debtors and any statutory committee of creditors (a Creditors Committee ) appointed in 3 DIP Credit Agreement, definition of Revolving Termination Date Interim Order, 32 N/A Interim Order, Findings of Fact I(v) DIP Credit Agreement, 4.10 Interim Order, 10 Interim Order, 30 See DIP Credit Agreement, 6.1, 6.2 Interim Order, 40 RLF v.1

4 Case CSS Doc 16 Filed 09/14/16 Page 4 of 286 Summary of Material Terms 4001(b)(1)(B)(iii) the chapter 11 cases pursuant to sections 327 and 1103 of the Bankruptcy Code. The payment of professionals appointed by the Canadian Court, and all other charges and expenses imposed in the CCAA Proceeding is not governed by the Interim Order but is the subject of the CCAA Initial Order entered by the Canadian Court. Location Adequate Protection Bankruptcy Rule 4001(b)(1)(B)(iv) First Priority Secured Parties. As adequate protection for any Diminution in Value in the interests of the First Priority Secured Parties in the First Lien Collateral, the First Lien Agent will receive, for the benefit of itself and the First Priority Secured Parties: Interim Order, o Adequate Protection Liens. Replacement liens on all of the Debtors assets, which shall be junior only to (i) Permitted Prior Liens, (ii) the Carve-Out, (iii) the DIP Liens, and (iv) the First Priority Liens (the First Priority Adequate Protection Liens ). o 507(b) Claims. Allowed, senior secured, superpriority claims as provided in section 507(b) of the Bankruptcy Code, with priority in payment over all administrative claims and unsecured claims against the Debtors or their estates including, without limitation, administrative expenses of the kinds specified in or ordered pursuant to sections 105, 326, 328, 330, 331, 365, 503(a), 503(b), 507(a), 507(b), 546(c), 546(d), 726, 1113 and 1114 or any other provision of the Bankruptcy Code or otherwise subject and subordinate only to the Carve-Out and DIP Superpriority Claim (the First Priority Superpriority Claim ). o Adequate Protection Payments. The Debtors are authorized and directed to provide adequate protection to the First Priority Secured Parties in the form of current payment of (i) fees, costs, charges and expenses (including without limitation, legal and other professionals fees and expenses of the First Lien Agent) to the extent, and at the times, payable under the First Lien Documents, including any unpaid fees, costs and expenses accrued prior to the Petition Date, (ii) interest accruing on the First Priority Obligations at the applicable rate set forth in the First Lien Documents, which shall be paid on the last calendar day of each month commencing after the Closing Date; and (iii) principal due under the First Lien Documents (the Adequate Protection Payments ). Indenture Trustees and Second Lien Noteholders. As adequate protection for any Diminution in Value in the interests of the Second Priority Secured Parties in the Second Lien Collateral, the Collateral Agent will receive, for the benefit of itself and the Second Priority Secured Parties: o Adequate Protection Liens. Replacement liens on the all of the Debtors assets, which shall be junior only to (i) Permitted Prior Liens; (ii) the Carve-Out; (iii) the DIP Liens; (iv) the First Priority Liens; (v) the First Priority Adequate Protection Liens; and (vi) the Second Priority Liens (the Second Priority Adequate Protection Liens ). 4 RLF v.1

5 Case CSS Doc 16 Filed 09/14/16 Page 5 of 286 Summary of Material Terms o 507(b) Claims. Allowed superpriority claims as provided in section 507(b) of the Bankruptcy Code, with priority in payment over all administrative claims and unsecured claims against the Debtors or their estates including, without limitation, administrative expenses of the kinds specified in or ordered pursuant to sections 105, 326, 328, 330, 331, 365, 503(a), 503(b), 507(a), 507(b), 546(c), 546(d), 726, 1113 and 1114 of the Bankruptcy Code subject and subordinate only to the First Priority Obligations, the Carve-Out, the DIP Superpriority Claim, and the First Priority Superpriority Claim (the Second Priority Superpriority Claim ). Location Cross- Collateralization Local Rule (a)(i)(A) Stipulations Local Rule (a)(i)(B) The Interim Order does not provide for cross-collateralization, other than priming liens and replacement liens as adequate protection. The Debtors acknowledge and agree that as of the Petition Date: (i) (ii) (iii) (iv) (v) the Prepetition Liens on the Prepetition Collateral were, other than with respect to the Lapsed Second Priority Lien relating to the Second Priority Obligations valid, binding, enforceable, non-avoidable and properly perfected and were granted to, or for the benefit of, the First Priority Secured Parties and the Second Lien Notes Parties for fair consideration and reasonably equivalent value; the First Priority Liens were senior in priority over any and all other liens on the Prepetition Collateral, subject only to certain liens otherwise permitted by the First Lien Documents (solely to the extent such permitted liens were valid, properly perfected (before the Petition Date or in accordance with section 546 of the Bankruptcy Code), non-avoidable, and senior in priority as a matter of law to the First Priority Liens, the First Lien Permitted Prior Liens ) the Second Priority Liens were junior and subordinate to the First Priority Liens on the Prepetition Collateral and otherwise, with the exception of the Lapsed Second Priority Lien, had priority over any and all other liens on the Prepetition Collateral, subject only to certain liens otherwise permitted by the Second Lien Documents (solely to the extent such permitted liens were valid, properly perfected (before the Petition Date or in accordance with section 546 of the Bankruptcy Code), non-avoidable, and senior in priority as a matter of law to the Second Priority Liens, the Second Lien Permitted Prior Liens, and together with the First Lien Permitted Prior Liens, the Permitted Prior Liens ). the Prepetition Secured Obligations constitute legal, valid, binding, and non-avoidable obligations of the Debtors enforceable in accordance with the terms of the applicable Prepetition Documents; no offsets, challenges, objections, defenses, claims or counterclaims of any kind or nature to any of the Prepetition Liens or Prepetition Secured Obligations exist, other than with respect to the Lapsed Second Priority Lien relating to the Second Priority Obligations, and no portion of the Prepetition Liens or Prepetition Secured Obligations N/A Interim Order, Findings of Fact E 5 RLF v.1

6 Case CSS Doc 16 Filed 09/14/16 Page 6 of 286 Summary of Material Terms (vi) (or any payment made in respect of any thereof), other than with respect to the Lapsed Second Priority Lien relating to the Second Priority Obligations, is subject to any challenge or defense, including, without limitation, avoidance, disallowance, disgorgement, recharacterization, or subordination (equitable or otherwise) pursuant to the Bankruptcy Code or other applicable law; and the Debtors and their estates have no claims, objections, challenges, causes of action, and/or choses in action, including without limitation, avoidance claims under chapter 5 of the Bankruptcy Code or actions for recovery or disgorgement, against any of the First Priority Secured Parties, the Second Priority Secured Parties, or any of their respective affiliates, or any of the respective agents, attorneys, advisors, professionals, officers, directors and employees of the foregoing, arising out of, based upon or related to their respective obligations to same. Location Effect of Stipulations Local Rule (a)(i)(B) Section 506(c) Waiver Local Rule (a)(i)(C) Liens on Chapter 5 Causes of Action Local Rule (a)(i)(D) Provisions Deeming Prepetition Debt to be Postpetition Debt Local Rule (a)(i)(E) The stipulations contained in the Interim Order are binding upon the Debtors and their estates in all circumstances. Parties in interest, including a Creditors Committee (if appointed) must commence, as appropriate, a contested matter or adversary proceeding raising an objection or challenge to the Debtors stipulations, including, without limitation, any claim against the First Priority Secured Parties or the Second Lien Notes Parties in the nature of a setoff, counterclaim or defense to the Prepetition Secured Obligations, respectively, or must file a motion seeking standing within the earlier of: (i) with respect to a Creditors Committee (if appointed) or sixty (60) calendar days from the selection of counsel to a Creditors Committee, and (ii) solely if no Creditors Committee is appointed, with respect to other parties-in-interest with requisite standing other than the Debtors or a Creditors Committee (if appointed), seventy-five (75) calendar days from the entry of this Interim Order (the Challenge Period ). Subject to entry of a Final Order, no costs or expenses of administration which have been or may be incurred in the Cases at any time shall be charged against the DIP Agent, DIP Lenders, the First Priority Secured Parties or the Senior Notes Secured Parties, or any of their respective claims, the DIP Collateral, or the Prepetition Collateral pursuant to sections 105 or 506(c) of the Bankruptcy Code, or otherwise, without the prior written consent, as applicable, of the DIP Agent, DIP Lenders, First Priority Secured Parties or Senior Notes Secured Parties, and no such consent shall be implied from any other action, inaction, or acquiescence by any such agents or lenders. The Interim Order does not provide for liens on the Debtors claims and causes of action arising under chapter 5 of the Bankruptcy Code (collectively, the Avoidance Actions ), other than actions brought under section 549 to recover any postpetition transfer of DIP Collateral. The DIP Facility is structured as a creeping roll-up. The Interim Order provides that the First Priority Obligations shall be reduced from the net proceeds of DIP Collateral that is sold in the ordinary course or pursuant to the sale of Golf Town or liquidated pursuant to a Permitted Store Closing Sale or a Store Liquidation. All proceeds of DIP Collateral shall be applied first, to permanently reduce the 6 Interim Order, 43 Interim Order, 46 Interim Order, 5 Interim Order, 23 DIP Credit Agreement, 1.10 RLF v.1

7 Case CSS Doc 16 Filed 09/14/16 Page 7 of 286 Summary of Material Terms First Priority Obligations until indefeasibly paid in full in cash. The First Priority Obligations, including those under the First Lien FILO Facility and the Prepetition First Lien LC Facility, entered into with the First Priority Secured Parties shall be refunded, refinanced, replaced and paid in full, upon such event, the commitments of all First Lien Lenders under the First Lien Credit Agreement shall be terminated, and all security interests in, and liens on, Prepetition Collateral granted to secure the First Priority Obligations shall be immediately, and without the necessity of further action, deemed to be included among the DIP Liens granted pursuant to the DIP Orders to secure the DIP Obligations. The proceeds of DIP Collateral shall then be applied to reduce the DIP Obligations. Location Disparate Treatment of Professionals Under Carve-Out Local Rule (a)(i)(F) Non-Consensual Priming Liens Local Rule (a)(i)(G) Section 552(b)(1) Waiver Local Rule (a)(i)(H) The Interim Order contains no provision for disparate treatment for professionals retained by a Creditors Committee, if any, with respect to the Carve-Out. The Interim Order does not provide for non-consensual priming of any existing secured lien. Subject to entry of the Final Order, the equities of the case exception under section 552(b) of the Bankruptcy Code shall not apply to the Prepetition Secured Parties. Preliminary Statement N/A N/A As described in greater detail in the Declaration of Brian E. Cejka in Support of the Debtors Chapter 11 Petitions and Related Requests for Relief (the Cejka Declaration ), the Debtors are commencing these chapter 11 cases on a consensual basis with their prepetition first lien lenders, who have agreed to provide postpetition financing that will allow the Debtors to preserve and maximize the value of their assets through a going concern sale in advance of the critical end-of-year holiday season. 3. The Debtors commenced these chapter 11 cases concurrently with the commencement of a proceeding (the CCAA Proceeding, and collectively with these chapter 11 cases, the GSI Restructuring Proceedings ) under the Companies Creditors Arrangement Act (the CCAA ) in the Ontario Superior Court of Justice (Commercial List) (the Canadian 7 RLF v.1

8 Case CSS Doc 16 Filed 09/14/16 Page 8 of 286 Court ) to restructure certain non-debtor affiliates (collectively, Golf Town and, together, with Golfsmith, GSI or the Company ). The strategic goal of the GSI Restructuring Proceedings is to (i) either implement a chapter 11 plan of reorganization for the Debtors (the Golfsmith Restructuring ) supported by Second Lien Noteholders (as defined herein) Fairfax Financial Holdings Limited ( Fairfax ) and certain investment funds managed by CI Investments Inc. ( CI ), or complete a sale of the businesses or assets of Golfsmith in an auction process (the Sale Process ) if such a sale provides a higher and better recovery for stakeholders, and (ii) sell the Company s Canadian business (the Golf Town Transaction, and together with the Golfsmith Restructuring/Sale Process, the Restructuring Transactions ) to an entity owned by Fairfax and CI through the CCAA Proceeding. 4. The proposed DIP Facility (as defined herein) provides Golfsmith and Golf Town with the necessary liquidity and time to implement the Restructuring Transactions. While the Company pursues the Restructuring Transactions, the Company s sales and operations must continue in the ordinary course of business to preserve the value of the Debtors estates. It is imperative that the Company make a seamless transition into these chapter 11 cases and the CCAA Proceeding in order to preserve the reputation of its businesses and the loyalty and goodwill of its customers, suppliers, and employees. 5. Pursuant to this Motion, the Debtors seek authorization to enter into a $135.0 million senior secured superpriority revolving debtor in possession credit facility (the DIP Facility ) 3 in order secure the liquidity necessary to successfully implement the Restructuring Transactions and maintain the Company s operations. The DIP Facility is 3 Both Golfsmith and Golf Town entities are borrowers and guarantors under the proposed DIP Facility. While Golfsmith is seeking authority to access the DIP Facility in these chapter 11 cases, Golf Town is seeking similar relief in the CCAA Proceeding. Approval of the DIP Facility in both proceedings is a condition precedent to the effectiveness of the DIP Credit Agreement (as defined below). 8 RLF v.1

9 Case CSS Doc 16 Filed 09/14/16 Page 9 of 286 comprised of an asset-based revolving credit facility, a letter of credit subfacility, and a swingline loan subfacility (the borrowings under each, the DIP Obligations ), and is provided by the Prepetition ABL Lenders in their capacity as DIP Secured Parties. The Prepetition ABL Lenders have been supportive of the Company s transition into the GSI Restructuring Proceeding by, among other things, continuing to fund the Company prior to the Petition Date on a discretionary basis, giving the Company additional time to finalize key components of the contemplated Restructuring Transactions. 6. The Debtors are also seeking authority to use their cash collateral (as such term is defined by section 363(a) of the Bankruptcy Code, Cash Collateral ) pursuant to this Motion in order to, among other things, fund the cash needs related to their operations, including amounts necessary to administer these chapter 11 cases. The Debtors access to sufficient working capital and liquidity and the incurrence of the additional secured indebtedness under the DIP Facility is vital to Golfsmith s ability to pursue its chapter 11 strategy and complete the Restructuring Transactions. 7. As further described herein, the First Priority Secured Parties (as defined herein), who have been supportive of the Company s restructuring and sale efforts, have agreed to provide postpetition financing and have consented to the priming of their liens in exchange for certain customary protections, including the granting of certain liens and superpriority administrative expense status to the Prepetition Secured Parties as adequate protection. The DIP Obligations will be secured by, among other interests, a priming first priority lien on the collateral of the First Priority Secured Parties. In addition, the terms of the DIP Facility contemplate a creeping roll-up (the Roll-Up ) of the outstanding funded obligations under the First Lien Facility in the amount of approximately $100.7 million. As described further herein 9 RLF v.1

10 Case CSS Doc 16 Filed 09/14/16 Page 10 of 286 and in the Cejka Declaration, no parties in interest will be prejudiced by the Roll-Up because (i) the First Lien Lenders are oversecured as of the Petition Date, and (ii) parties will be given an opportunity to challenge the First Lien Lenders liens in the Debtors chapter 11 cases. 8. Subject to Court approval, the Company expects to have approximately $11.2 million in incremental available liquidity upon entry of an interim order approving the DIP Facility and use of Cash Collateral. The Company s additional liquidity will primarily be derived from an estimated reduction of approximately $8.9 million in required ABL Borrowing Base (as defined herein) reserves, which under the prepetition First Lien Credit Facility were $23.9 million, and under the postpetition DIP Facility are anticipated to be $15.1 million. 9. The Company believes that entry into the Restructuring Transactions, supported by the DIP Facility, is the best available outcome for the Company and its stakeholders under the circumstances. If implemented, these transactions will result in the going concern sale of the Golf Town business and either a sale or financial restructuring, as well as an operational restructuring of the Golfsmith business. The Restructuring Transactions will stabilize and, on a go-forward basis, improve the liquidity and financial position of the Golf Town and Golfsmith businesses, while also allowing for the continued operation of the vast majority of the Company s existing retail locations and corresponding continuation of supplier, employee and customer relationships. As such, the Debtors believe that authority to enter into the DIP Facility and use Cash Collateral is in the best interests of the Debtors, their estates, and their creditors, and respectfully request that the relief requested herein be granted. Background 10. On the date hereof (the Petition Date ), each of the Debtors commenced with this Court a voluntary case under chapter 11 of title 11 of the United States Code (the Bankruptcy Code ). The Debtors are authorized to continue to operate their businesses 10 RLF v.1

11 Case CSS Doc 16 Filed 09/14/16 Page 11 of 286 and manage their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. No trustee, examiner, or statutory committee of creditors has been appointed in these chapter 11 cases. 11. Contemporaneously herewith, the Debtors have filed a motion requesting joint administration of these chapter 11 cases pursuant to Rule 1015(b) of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules ). 12. Information regarding the Debtors businesses, capital structure, and the circumstances leading to the commencement of these chapter 11 cases, as well the marketing and negotiation of the DIP Facility, is set forth in the Cejka Declaration, which has been filed contemporaneously herewith and is incorporated by reference herein. Jurisdiction 13. This Court has jurisdiction to consider this matter pursuant to 28 U.S.C. 157 and 1334, and the Amended Standing Order of Reference from the United States District Court for the District of Delaware dated February 29, This is a core proceeding pursuant to 28 U.S.C. 157(b) and, pursuant to Rule (f) of the Local Rules of Bankruptcy Practice and Procedure of the United States Bankruptcy Court for the District of Delaware (the Local Rules ), the Debtors consent to the entry of a final order by the Court in connection with this Motion to the extent that it is later determined that the Court, absent consent of the parties, cannot enter final orders or judgments consistent with Article III of the United States Constitution. Venue is proper before this Court pursuant to 28 U.S.C and Relief Requested 14. By this Motion, pursuant to sections 105, 361, 362, 363, and 507 of the Bankruptcy Code, Bankruptcy Rules 2002, 4001, 6003, 6004, and 9014, and Local Rule , the Debtors request entry of interim and final orders that, among other things: (i) authorize the 11 RLF v.1

12 Case CSS Doc 16 Filed 09/14/16 Page 12 of 286 Debtors to obtain senior secured, superpriority, postpetition financing; (ii) authorize the Debtors to use Cash Collateral; (iii) grant liens and provide superpriority administrative expense status to the Prepetition Secured Parties (as defined herein); (iv) grant adequate protection to the Prepetition Secured Parties; (v) modify the automatic stay imposed under section 362 of the Bankruptcy Code to the extent necessary to implement and effectuate the terms of such orders; and (vi) schedule a hearing to consider the relief requested herein on a final basis (the Final Hearing ). 15. For the avoidance of doubt, the Debtors are requesting that the Court grant such relief only with respect to Golfsmith, and not Golf Town. 4 The Canadian Borrowers and Canadian Guarantors are separately seeking similar relief in the CCAA Proceeding contemporaneously herewith. The DIP Agent and DIP Lenders have required approval of the DIP Facility by both this Court and the Canadian Court as a condition precedent to providing postpetition financing to Golfsmith and Golf Town. 16. A proposed form of order granting the relief requested in this Motion on an interim basis is attached hereto as Exhibit A (the Interim Order ) That certain Senior Secured, Super-Priority Debtor-in-Possession Credit Agreement (as the same may be executed, amended, restated, supplemented, or otherwise modified from time to time) by and among the Borrowers, the Guarantors, the DIP Agent, and the DIP Lenders, substantially in the form of the agreement attached hereto as Exhibit B (the DIP Credit Agreement ). 4 As noted above, Golfsmith refers to the Debtors, which are all based in the United States. Golf Town is party to a separate CCAA Proceeding in Canada. Unless otherwise indicated, data or statistics referenced herein are described solely with respect to Golfsmith, and not Golf Town. 5 Capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed to such terms in the Interim Order. 12 RLF v.1

13 Case CSS Doc 16 Filed 09/14/16 Page 13 of 286 Debtors Prepetition Secured Indebtedness 18. Below is a summary of the Debtors prepetition secured indebtedness impacted by the relief requested in this Motion. As of the Petition Date, the Company s outstanding funded debt obligations total approximately $195.7 million (the Prepetition Indebtedness ), which obligations are described in greater detail below. The Prepetition Indebtedness funds the operations of Golfsmith and Golf Town. The borrowers, issuers, and guarantors of the Prepetition Indebtedness include Golfsmith entities and Golf Town entities, and each of the Debtors are either borrowers, issuers, or guarantors of the Prepetition Indebtedness. A. The First Lien Credit Agreement 19. On July 24, 2012, certain of the Debtors entered into that certain Credit Agreement (as amended, supplemented, or otherwise modified from time to time, the First Lien Credit Agreement ), among the Borrowers, each of the Debtor and non-debtor guarantors named therein (the First Lien Guarantors, and collectively with the Borrowers, the First Lien Credit Parties ), 6 Antares as successor in interest to the agent for the lenders (the First Lien Agent ), 7 and the lenders party thereto (collectively, the First Lien Lenders and, together with the First Lien Agent, the First Priority Secured Parties ). 20. Pursuant to the First Lien Credit Agreement, the First Lien Lenders provided the Borrowers with among other things, (i) $135 million in aggregate principal amount of revolving commitments, including letters of credit and swingline loan commitments (the First Lien Revolving Credit Facility ) including a $10 million subfacility available for 6 The First Lien Guarantors consist of both the Borrowers and the Guarantors. 7 The original swingline lender and First Lien Agent under the First Lien Credit Agreement was General Electric Capital Corporation ( GECC ). On August 21, 2015, Antares Holdings, a subsidiary of Canada Pension Plan Investment Board Credit Investments Inc., acquired Antares from GECC. On or around July 2015, Antares became the successor in interest to GECC as First Lien Agent. 13 RLF v.1

14 Case CSS Doc 16 Filed 09/14/16 Page 14 of 286 the issuance of letters of credit (the First Lien LC Facility ), and (ii) a CDN$15 million nonrevolving first-in, last-out term loan facility (the First Lien FILO Facility, and together with the First Lien Revolving Credit Facility and the First Lien LC Facility, the First Lien Facility ) As of the Petition Date, the First Lien Lenders are owed (i) approximately $89.3 million under the First Lien Revolving Credit Facility (including approximately $1.6 million under the First Lien LC Facility), and (ii) approximately $11.4 million (CDN$15 million) outstanding under the First Lien FILO Facility (collectively, the First Priority Obligations ). 22. The Debtors obligations under the First Lien Credit Agreement are secured pursuant to that certain Guaranty and Security Agreement, dated July 24, 2012 (the First Lien Security Agreement, and together with the First Lien Credit Agreement, the Notice of Default Letters (as defined herein), and any other agreements and documents executed or delivered in connection therewith, each as may be amended, restated, supplemented, or otherwise modified from time to time, the First Lien Documents ). Pursuant to the First Lien Security Agreement, each of the First Lien Credit Parties granted to the First Lien Agent, for the benefit of itself and the First Priority Secured Parties, a first priority security interest in and continuing lien on (the First Priority Liens ) substantially all of the First Lien Credit Parties 8 As of September 13, 2016, the Borrowers borrowing base under the First Lien Facility (the Revolver Borrowing Base ) and the First Lien FILO Facility (the FILO Borrowing Base and, together with the Revolver Borrowing Base, the ABL Borrowing Base ) was $91,946,498 and $5,329,281 respectively. The ABL Borrowing Base takes into account the estimated value of GSI s sales revenues, inventory, real estate, indebtedness and other relevant factors consistent with customary retail lending criteria. In its reasonable credit judgment, the First Lien Agent may, at any time, modify the ABL Borrowing Base. 14 RLF v.1

15 Case CSS Doc 16 Filed 09/14/16 Page 15 of 286 assets and property, including Cash Collateral (as defined herein) (collectively, the First Lien Collateral ). 23. Events of default have occurred and are continuing under the terms of the First Lien Documents as a result of the Borrowers failure, by September 6, 2016, to either (i) repay in full in cash all of the First Priority Obligations, or (ii) replace or refinance the First Priority Obligations. The First Lien Facility is subject to (a) that certain Notice of Events of Default and Reservation of Rights dated September 6, 2016, (b) that certain Notice of Discretionary Funding dated September 9, 2016, and (c) that certain Notice of Events of Fault; Reservation of Rights dated September 13, 2016 (collectively, the Notice of Default Letters ). Pursuant to the Notice of Default Letters, and in accordance with the terms of the First Lien Credit Agreement, the First Lien Agent exercised its right, prior to the Petition Date, to (i) charge default interest on the outstanding First Priority Obligations, (ii) implement a reserve with respect to potential claims and administrative expenses that might be asserted by the Borrowers vendors, and (iii) determine, in its sole and absolute discretion, whether to make any further extensions of credit. The First Lien Agent also expressly reserved all of its rights, powers, privileges and remedies under the First Lien Documents and/or applicable law. Notwithstanding the events of default, the First Lien Lenders continued to fund the Company s operations on a discretionary basis and worked with the Company to support its sale and restructuring process. B. Second Lien Notes 24. On July 24, 2012, Golfsmith International Holdings Inc. ( GS USA or the U.S. Issuer ) and non-debtor Golf Town Canada Inc. ( GT Canada or the Canadian Issuer, and collectively with the U.S. Issuer, the Issuers ) issued, in a private placement, 125,000,000 units ( Units ) for aggregate gross proceeds of CDN$125 million (approximately $95.0 million) (the Second Priority Obligations, and collectively with the First Priority 15 RLF v.1

16 Case CSS Doc 16 Filed 09/14/16 Page 16 of 286 Obligations, the Prepetition Secured Obligations ), pursuant to that certain Indenture (the Indenture, collectively with any other agreements and documents executed or delivered in connection therewith, the Second Lien Documents, and together with the First Lien Documents, the Prepetition Debt Documents ) among (i) the Issuers, (ii) the Debtor and non- Debtor guarantors party thereto (the Second Lien Guarantors ), 9 (iii) BNY Trust Company of Canada and The Bank of New York Mellon, each in their respective capacities as indenture trustees and collateral agents in Canada and the United States (collectively in such respective capacities, the Indenture Trustee and Collateral Agent and together with the Second Lien Noteholders (as defined herein), the Second Priority Secured Parties ) Each Unit consists of (i) CDN$0.64 principal amount of 10.50% senior secured second lien notes of GT Canada due July 24, 2018 (the Golf Town Notes ), and (ii) CDN$0.36 principal amount of 10.50% senior secured second lien notes of GS USA due July 24, 2018 (the Golfsmith Notes, and collectively, with the Golf Town Lien Notes, the Second Lien Notes, with the holders of such Second Lien Notes being the Second Lien Noteholders ). 26. As of the Petition Date, the aggregate principal amount outstanding under the Second Lien Notes is approximately CDN$125 million, which amount consists of (i) approximately CDN$80 million under the Golf Town Notes, and (ii) approximately CDN$45 million under the Golfsmith Notes. Interest payments of approximately CDN$6.6 million are made on account of the Second Lien Notes on a semi-annual basis. 9 Each of the First Lien Guarantors is a Second Lien Guarantor. However, the U.S. Issuer is not a Second Lien Guarantor of the Golf Town Notes, and the Canadian Issuer is not a Second Lien Guarantor of the Golfsmith Notes. 10 The First Priority Secured Parties, collectively with the Second Priority Secured Parties, being the Prepetition Secured Parties. 16 RLF v.1

17 Case CSS Doc 16 Filed 09/14/16 Page 17 of As set forth in the Indenture, the Second Lien Notes are secured by a second priority security interest in and continuing lien on (the Second Priority Liens, and collectively with the First Priority Liens, the Prepetition Liens ) substantially all of the assets of the Issuers and Second Lien Guarantors (the Second Lien Collateral, and together with the First Lien Collateral, the Prepetition Collateral ). C. Intercreditor Agreement 28. On July 24, 2012, the First Lien Agent, the Indenture Trustee, the Collateral Agent, and the Credit Parties (as defined therein) entered into that certain Intercreditor Agreement, dated July 24, 2012 (the Intercreditor Agreement ), to govern the respective rights, interests, obligations, priority, and positions of the Prepetition Secured Parties. Pursuant to the Intercreditor Agreement, (i) the First Priority Liens in respect of the Prepetition Collateral securing the First Priority Obligations are senior and prior in right to any Second Priority Lien in respect of Prepetition Collateral securing the Second Priority Obligations, and (ii) the Second Priority Liens in respect of the Prepetition Collateral securing the Second Priority Obligations are junior and subordinate in all respects to the First Priority Liens in respect of Prepetition Collateral securing the First Priority Obligations. 29. The restrictions on the Prepetition Secured Parties ability to exercise remedies against the Prepetition Collateral are also governed by the Intercreditor Agreement. The Intercreditor Agreement provides that if any of the Credit Parties seek approval of debtor-inpossession financing ( DIP Financing ) to be provided by the First Lien Agent or First Lien Lenders, the Indenture Trustee and Second Lien Noteholders agree not to object to any use of Cash Collateral derived from Prepetition Collateral or any such DIP Financing, and agree not to demand any form of adequate protection in connection with such use of Cash Collateral derived from Prepetition Collateral or DIP Financing, except additional or replacement liens and super- 17 RLF v.1

18 Case CSS Doc 16 Filed 09/14/16 Page 18 of 286 priority administrative expense claims for diminution in value to the extent that the same are granted to the First Lien Lenders. D. OMERS Letter of Credit 30. The First Lien Credit Agreement was amended on October 14, 2014 (the First ABL Amendment ) in order to provide additional credit support to the Company by temporarily increasing the availability under the First Lien Revolving Credit Facility from $135 million to $155 million. As a condition to the increased availability under the First Lien Revolving Credit Facility, OCPI GT SPV Limited (the Sponsor Guarantor ), a special purpose entity and an indirect wholly-owned subsidiary of OMERS, entered into that certain Limited Recourse Guarantee, dated October 14, 2014 (the Sponsor Guarantee ) pursuant to which it delivered a limited recourse guarantee of the First Priority Obligations in favor of the First Lien Agent. 31. To secure the Sponsor Guarantee, Borealis Infrastructure Management Inc. ( Borealis ), on behalf of the Sponsor Guarantor, arranged for a standby letter of credit to be issued by the Royal Bank of Canada in the original face amount of $15 million (the Sponsor LC ) in favor of the First Lien Agent. The liability of the Sponsor Guarantor under the Sponsor Guarantee is limited solely to the right of the First Lien Agent to draw on the Sponsor LC upon the occurrence of certain events described in the First Lien Credit Agreement and the Sponsor Guarantee. The Sponsor LC is not property of the Debtors estates and the Debtors have no liability under the Sponsor LC, except for their obligation to pay actual out-of-pocket costs and expenses incurred by the Sponsor Guarantor as reimbursement to Borealis in connection with the issuance of the Sponsor LC. 32. Following the First ABL Amendment, the Sponsor LC was subsequently reduced to approximately $11.5 million in connection with certain permanent repayments of the 18 RLF v.1

19 Case CSS Doc 16 Filed 09/14/16 Page 19 of 286 First Lien Obligations by the Company. Prior to the Petition Date, the First Lien Lenders again worked with the Company to provide increased liquidity as well as the support necessary to conduct a prepetition sale process. Specifically, the Company negotiated that certain Second Amendment of Credit Agreement dated August 10, 2016 (the Second ABL Amendment ), which provided that until the earlier of (i) September 6, 2016, and (ii) the occurrence of an event of default under the First Lien Facility, the First Lien Agent would not establish any additional ABL Borrowing Base reserves or modify any existing ABL Borrowing Base reserves or other criteria under the First Lien Facility that would have the effect of reducing the ABL Borrowing Base. In connection with the Second ABL Amendment, the Sponsor LC and Sponsor Guarantee were amended to increase the face amount of the Sponsor LC to approximately $16.5 million. E. Other Letters of Credit 33. Golfsmith has guaranteed four letters of credit: (i) one in the amount of $550,000 in connection with a U.S. workers compensation insurance policy, (ii) one in the amount of $100,000 to secure payment of credit cards in the U.S., and (iii) two in the amounts of $674,000 and $250,000 as security for leased store space in the U.S. Debtors Need to Access DIP Financing and use Cash Collateral 34. The orderly continuation of the Company s operations, the preservation of the value of its assets, and the ability to successfully implement the Restructuring Transactions are all largely dependent upon the Company s ability to access the DIP Financing and use Cash Collateral to support its business operations. The DIP Financing and Cash Collateral will be used to fund the Debtors payments to vendors, employees, landlords, and to satisfy the other ordinary costs of operations, including rent, taxes, and insurance. Absent authority to access the incremental liquidity provided by the DIP Facility and the coinciding use of Cash Collateral, even for a limited period of time, the Company s businesses would suffer immediate and 19 RLF v.1

20 Case CSS Doc 16 Filed 09/14/16 Page 20 of 286 irreparable harm to the detriment of the Debtors respective estates and creditors. Accordingly, immediate access to the DIP Facility and the use of Cash Collateral on the terms provided under the DIP Credit Agreement is critical to preserve and maintain the going concern value of the Debtors estates. 35. Furthermore, the Company requires access to the DIP Facility and Cash Collateral in order to fund the GSI Restructuring Proceedings, finalize and consummate the Restructuring Transactions it has been pursuing, and otherwise effect a restructuring of its operations and balance sheet. The DIP Facility and Cash Collateral provide the Company with ample liquidity and breathing room to achieve these goals for the benefit of all interested stakeholders. Marketing and Negotiation of the DIP Facility 36. As detailed in the Cejka Declaration, prior to the commencement of these chapter 11 cases, the Company undertook a number of steps to improve its liquidity, including negotiating amendments to the First Lien Credit Agreement, securing additional collateral to increase available borrowings under the First Lien Credit Agreement, and increasing the availability under the Sponsor LC. Despite the efforts of the Debtors and their senior management to actively manage their capital structure to enhance liquidity, the challenges in the golf retail industry have made the Debtors leveraged capital structure untenable. Accordingly, in the last several months, the Company began to explore potential transactions that would allow it to deleverage its capital structure and reorganize its businesses, as well as obtain financing to give it the runway to execute the sales of its businesses, and better position Golfsmith s businesses for long-term success. 37. The Company s primary strategic consideration when considering a potential financing was the identification of an affordable source of financing that would ensure 20 RLF v.1

21 Case CSS Doc 16 Filed 09/14/16 Page 21 of 286 a smooth transition into chapter 11 a difficult proposition for many retail companies in the current economic market. Adding to that difficulty was the fact that the obligations owed to the Prepetition Secured Parties were secured by substantially all of the Company s assets, such that either (i) the liens of the Prepetition Secured Parties would have to be primed to obtain postpetition financing, or (ii) the Debtors would have to find a postpetition lender willing to extend credit that would be junior to the liens of the Prepetition Secured Parties. 38. In August 2016, the Company and its professional advisors engaged with the First Lien Agent and other potential financing sources to ascertain their interest in providing DIP Financing to the Company. The Company and its advisors contacted thirteen parties and distributed non-disclosure agreement ( NDAs ) to five parties that expressed interest. Three parties entered into NDAs for the purpose of evaluating the DIP Financing opportunity and three additional parties that had executed NDAs in connection with the prepetition Sale Process also had discussions regarding DIP Financing with Jefferies LLC ( Jefferies ), the Company s investment banker. 39. Other than the First Lien Agent, all potential financing sources contacted by the Company and Jefferies indicated that they were extremely hesitant to advance DIP financing based on their assessment that the First Priority Secured Parties were unlikely to support a priming DIP financing proposal from a third-party. Given the concerns about a potential priming fight with the First Lien Agent, the terms proposed by the potential third-party sources were substantially more costly than the terms the Company would be able to obtain from its prepetition lenders. 40. Accordingly, the Company commenced negotiations with the First Lien Agent on potential DIP Financing as well as the consensual use of Cash Collateral. After 21 RLF v.1