Scott F. Gautier (State Bar No. 211742) SGautier ... · PDF file Scott F. Gautier (State Bar...

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Transcript of Scott F. Gautier (State Bar No. 211742) SGautier ... · PDF file Scott F. Gautier (State Bar...

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    Scott F. Gautier (State Bar No. 211742) [email protected] Lorie A. Ball (State Bar No. 210703) [email protected] Kevin D. Meek (State Bar No. 280562) [email protected] ROBINS KAPLAN LLP 2049 Century Park East, Suite 3400 Los Angeles, CA 90067 Telephone: (310) 552-0130 Facsimile: (310) 229-5800 Proposed Counsel for Debtor and Debtor in Possession

    UNITED STATES BANKRUPTCY COURT

    CENTRAL DISTRICT OF CALIFORNIA

    LOS ANGELES DIVISION

    In re:

    NASTY GAL INC., a California Corporation,

    Debtor.

    Case No. 2:16-bk-24862-BB

    Chapter 11

    DECLARATION OF JOE SCIROCCO IN SUPPORT OF EMERGENCY FIRST DAY MOTIONS FOR RELIEF

    Hearing:

    Date: November 14, 2016

    Time: 10:00 a.m.

    Place: Courtroom 1539

    255 East Temple Street

    Los Angeles, CA 90012

    I, Joe Scirocco, declare as follows:

    1. I am the President and Chief Restructuring Officer of Nasty Gal, Inc.

    (“Nasty Gal” or the “Debtor”), a California corporation and I am authorized to submit

    and I make this declaration (“Declaration”) on behalf of the Debtor in support of the

    Case 2:16-bk-24862-BB Doc 4 Filed 11/10/16 Entered 11/10/16 12:07:39 Desc Main Document Page 1 of 46

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    voluntary petition (the “Bankruptcy Petition”) filed by the Debtor under chapter 11 of

    title 11 of the United States Code (the “Bankruptcy Code”) commencing this chapter 11

    case (the “Chapter 11 Case”) and in support of each of the emergency motions, motions,

    applications and requests for relief filed concurrently herewith (collectively, the “First

    Day Pleadings”).

    2. Except as otherwise noted herein, I have personal knowledge of the facts

    presented in this Declaration, or have reviewed the Debtor’s books, records and

    information referred to herein that were prepared and maintained by the advisors and

    employees engaged by the Debtor at my direction.

    3. I have reviewed the First Day Pleadings and reviewed the relief requested

    therein and I believe that the relief requested is necessary to minimize the effects on the

    Debtor’s business operations of the filing of the Bankruptcy Petition and to preserve and

    maximize the value of the Debtor’s estate.

    I. GENERAL BACKGROUND

    4. On November 9, 2016, (the “Petition Date”), the Debtor filed a voluntary

    petition for relief under Chapter 11 of the Bankruptcy Code. I am informed that the

    Debtor is authorized to continue to operate its business and manage its assets as a debtor

    in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code.

    A. The Debtor’s Business

    5. Founded in 2008 by entrepreneur Sophia Amoruso (author and

    protagonist of the celebrated best-selling autobiography #GIRLBOSS and the illustrated

    book Nasty Galaxy), Nasty Gal is a California Corporation, headquartered in Los

    Angeles.

    6. Nasty Gal is a leading lifestyle brand promoting professionally curated

    fashion merchandise coupled with imagery, content, and an intuitive web experience. To

    its primary demographic—young educated professional women— Nasty Gal is a highly

    respected style authority with a track record of delivering on-trend merchandise at a

    great price point. Nasty Gal enjoys an incredible and loyal customer base that connects

    Case 2:16-bk-24862-BB Doc 4 Filed 11/10/16 Entered 11/10/16 12:07:39 Desc Main Document Page 2 of 46

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    with the Nasty Gal brand and the lifestyle that it promotes. Nasty Gal’s clientele are

    active shoppers with a higher than average household income.

    7. Approximately 87% of Nasty Gal’s revenues are derived from online sales,

    with the remainder conducted through two retail store locations in Los Angeles, one in

    Santa Monica and the other in West Hollywood.

    8. The majority of Nasty Gal’s online operations, merchandising, purchasing,

    production and corporate management are handled from its downtown Los Angeles

    headquarters. Nasty Gal’s customer orders are processed and shipped from its state of

    the art e-commerce and fulfillment facility in Kentucky.

    B. Debtor’s Management

    9. I was brought in during September, 2016 as President to assist the Debtor

    with a potential transaction to recapitalize Nasty Gal, including to pursue a sale to or

    merger with a strategic partner. My role with the Debtor has evolved to include the role

    of Chief Restructuring Officer and I will be the “responsible officer”, responsible for day

    to day decision making, during the pendency of the chapter 11 case.

    10. The Debtor’s current directors are: Chairperson, Sophia Amoruso; CEO,

    Sheree Waterson; Ron Johnson; Mark Colella; and Danny Rimer.

    C. Events Precipitating the Chapter 11 Filing

    11. Since its inception, Nasty Gal grew rapidly, generating net revenue of $85

    million for the year ended January 31, 2015 (fiscal 2014). Nasty Gal experienced

    difficulties, however, in managing its business to keep pace with this incredible growth,

    including adjusting its product mix and merchandise offerings for a booming customer

    base and developing internal systems to manage and control the business. Nasty Gal

    experienced a material contraction in revenue in 2015 and incurred a large operating

    loss. Although sales have stabilized and begun to grow again in the U.S. market in 2016,

    Nasty Gal’s international sales have declined significantly, in part due to adverse

    movements in global currency.

    Case 2:16-bk-24862-BB Doc 4 Filed 11/10/16 Entered 11/10/16 12:07:39 Desc Main Document Page 3 of 46

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    12. The costs associated with managing and controlling Nasty Gal’s aggressive

    growth and the setbacks in international markets has created significant liquidity issues

    that the Debtor attempted to correct with additional financing and capital-raise

    initiatives. Unfortunately, however, the Debtor’s attempts to attract new capital have

    been hampered by recent market conditions that have depressed valuations of retail

    companies in general and online businesses in particular. Additionally, efforts at selling

    or merging the company have been hindered by a complex capital structure, the

    significant aging of Nasty Gal’s existing accounts payable, strained vendor relationships

    that have disrupted the normal flow of merchandise and the need to further right-size its

    staff and facilities.

    13. The Debtor believes that the protections and tools afforded to a chapter 11

    debtor in possession will provide the breathing room to permit it to adjust its balance

    sheet, optimize operations, right-size its capital structure, maximize returns to existing

    creditors and emerge as a profitable enterprise poised for growth.

    D. Pre-Petition Financing and Sale Efforts

    14. The Debtor formally retained the investment banking firm of Peter J

    Solomon Company (