Note: Previous and ongoing coverage of Tough Mudder's difficulties in 2020 can be found here – Who Will Save Tough Mudder? Will TM Disappear in 2020?
January 9, 2020, United States Bankruptcy Court, Delaware:
Spartan files a statement in support of an emergency motion of petitioning creditors to appoint a Chapter 11 trustee.
“Spartan is frustrated that Tough Mudder abruptly stopped negotiations towards a sale transaction consistent with the LOI, and is very concerned that the value of the Alleged Debtors’ global business is quickly evaporating. While Spartan is also concerned about the negative impact on value that may result from a contested involuntary chapter 11 petition, it appears there may be no alternative for Tough Mudder. Notwithstanding these significant concerns, Spartan remains interested in certain Tough Mudder assets, and would be willing to consummate a transaction through a bankruptcy court proceeding, subject to limited diligence, reaching definitive agreements, and entry of an acceptable sale order to consummate the transaction. At this juncture, it appears that the best alternative for Tough Mudder is the appointment of a chapter 11 trustee as it will allow Tough Mudder to maximize value for the benefit of all stakeholders through an immediate sale of the Alleged Debtors’ assets.” – Tough_Mudder_Incorporated__debke-20-10036__0011.0 (PDF)
Spartan's Statement Shows TM Timeline
- 11/29/2019 – After extensive and arm’s length negotiations, Spartan entered into a letter of intent with Tough Mudder on November 29, 2019 (the “LOI”). As is customary, the LOI outlined a framework for a potential asset sale transaction and the parties agreed to work in good faith towards definitive transaction agreements.
(i) a sixty (60) day exclusive period for Spartan to negotiate and sign definitive transaction agreements (i.e., through January 29, 2020) (the “Sale Exclusive Period”) (ii) requirement for Tough Mudder’s co-founders and Active Network, LLC (“Active”) to participate in a mediation and resolve their intercompany disputes on or before December 10, 2019 (the “Binding Intercompany Settlement”). While most of the LOI is non-binding, the Sale Exclusive Period and Binding Intercompany Settlement provisions remain
- 12/23/2019 – Spartan had been in extensive negotiations to acquire substantially all of their business in the US, as well as Tough Mudder’s business in the United Kingdom (“UK”), Germany and Canada, through a series of transactions. As the Petitioning Creditors noted in the Motion, on December 23, 2019, the UK affiliate of Spartan entered into an option agreement to acquire the Alleged Debtors’ affiliate businesses in the UK, Germany, and Canada
- 12/30/2019 – Shortly after signing the UK/Canada Option Agreement, on December 30, 2019, a Notice of Intention to Make a Proposal under subjection 50.4(1) of the Bankruptcy and Insolvency Act of Canada was filed, resulting in an automatic stay of all proceedings in Canada.
- 12/30/2019 – In addition to the collapse of the Canadian entity, there is an apparent impasse with the UK entity. After the execution of the UK/Canada Option Agreement, Tough Mudder appointed its majority shareholder, William Dean, as the new director for the UK affiliate entity and the prior director that authorized the UK/Canada Option Agreement was removed. Since that time in late December 2019, the UK entity has not been in regular operations and has taken no actions with respect to the UK/Canada Option Agreement. The existing UK director does not appear to be acting in the best interests of the UK company’s creditors. There is a potential that the UK entity will soon be in a formal administration under English insolvency law.
“While Spartan was aware that various intercompany disputes existed between Tough Mudder’s co-founders and its lender, Spartan was hopeful the parties could sufficiently resolve their intercompany disputes to enable Tough Mudder to consummate its proposed transaction pursuant to the LOI. Upon information and belief, the co-founders and Active did not participate in mediation or otherwise agree on a Binding Intercompany Settlement. It appears to Spartan that the intercompany disputes have now rendered Tough Mudder incapable of continuing operations. Tough Mudder has essentially gone dark and ceased its regular day to day operations. In addition, Tough Mudder has failed to engage with Spartan to prepare the definitive agreements.”
United States Bankruptcy Court, Delaware, Case #1:20-bk-10036