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IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE
------x : In re: : Chapter 11 : Lucky Brand Dungarees, LLC, et al.,1 : Case No. 20-11768 (_____) : Debtors. : (Joint Administration Requested) : ------x MOTION OF DEBTORS FOR ENTRY OF INTERIM AND FINAL ORDERS (I) AUTHORIZING THE DEBTORS TO (A) OBTAIN POSTPETITION FINANCING, AND (B) USE CASH COLLATERAL, (II) GRANTING ADEQUATE PROTECTION TO THE PREPETITION LENDERS, (III) GRANTING LIENS AND SUPERPRIORITY CLAIMS, (IV) MODIFYING THE AUTOMATIC STAY, (V) SCHEDULING A FINAL HEARING, AND (VI) GRANTING RELATED RELIEF
The above-captioned debtors and debtors in possession (collectively, the “Debtors”)
respectfully represent as follows in support of this motion (this “Motion”):2
RELIEF REQUESTED
By this Motion, the Debtors seek entry of an interim order, substantially in the form
attached hereto as Exhibit A (the “Interim Order”), and a final order (the “Final Order” and,
together with the Interim Order, the “DIP Orders”):
(i) authorizing the Borrower (as defined below) to obtain secured postpetition financing (“DIP Financing”) on a superpriority basis consisting of a junior secured term loan credit facility in the aggregate principal amount of $15,600,000 (the “Junior DIP Facility”) which shall include a $4,100,000 sublimit for the issuance of letters of credit pursuant to that certain Superpriority Junior Debtor-in-Possession Secured Promissory Note,
1 The Debtors in these cases, along with the last four digits of each Debtor’s federal tax identification number, are: Lucky Brand Dungarees, LLC (3823), LBD Parent Holdings, LLC (4563), Lucky Brand Dungarees Stores, LLC (7295), Lucky PR, LLC (9578), and LBD Intermediate Holdings, LLC (7702). The Debtors’ address is 540 S Santa Fe Avenue, Los Angeles, California 90013. 2 Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the DIP Facility Documents or the Interim Order (each as defined below), as applicable.
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substantially in the form attached to the Interim Order as Exhibit A (as may be amended, restated, supplemented, waived or otherwise modified from time to time, the “DIP Promissory Note” and collectively with any other related agreements, security agreements, or pledge agreements, including the DIP Orders, collectively, the “DIP Facility Documents”), by and among Debtor Lucky Brand Dungarees, LLC (the “Borrower”), as borrower, the guarantors party thereto, Lantern Capital Partners or its designee, “LCP”) in its capacity as administrative agent and collateral agent (in such capacity, the “DIP Lender Representative”), LCP, ReStore Capital, LLC or one of its affiliates (“ReStore”) and Clover Holdings II, LLC or one of its affiliates (“Clover Holdings” and, together with LCP and ReStore, the “DIP Lenders,” and, together with the DIP Lender Representative, the “DIP Secured Parties”);
(ii) authorizing the Debtors to execute and deliver the DIP Facility Documents and to perform such other acts as may be necessary or desirable in connection with the DIP Facility Documents;
(iii) authorizing the Debtors to grant, in each case subject to the Carve-Out (as defined in the Interim Order), to the DIP Secured Parties:
1. valid, enforceable, non-avoidable, automatically and fully perfected DIP Liens (as defined below) in all DIP Collateral (as defined below) to secure the DIP Obligations, which DIP Liens shall be (i) junior to the First Liens (as defined in the Interim Order) and any other valid, perfected, and non-avoidable liens in existence immediately prior to the Petition Date (other than liens on the Second Lien Collateral) and to any valid and non-avoidable liens in existence immediately prior to the Petition Date that are perfected subsequent to the Petition Date as permitted by section 546(b) of the Bankruptcy Code, in each case, that are senior to the First Liens; (ii) junior to the Prepetition Senior Adequate Protection Liens (as defined below); (iii) senior to the Second Liens (as defined below); and (iv) senior to the Prepetition Junior Adequate Protection Liens (as defined below); and
2. superpriority administrative expense claims that are junior to the superpriority administrative expense claims granted to the First Lien Secured Parties.
(iv) authorizing the Debtors to pay the principal, interest, fees, expenses and other amounts payable under the DIP Facility Documents as such become earned, due and payable, including, commitment fees, exit premium, agent fees, audit fees, closing fees, service fees, facility fees, or other fees, costs, expenses, charges, and disbursements of the DIP Secured Parties (including
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the reasonable and documented fees and expenses of each of the DIP Secured Parties’ attorneys, advisors, accountants and other consultants), all to the extent provided in, and in accordance with, the DIP Facility Documents;
(v) authorizing the Debtors to use Cash Collateral within the meaning of section 363(a) and 363(c) of the Bankruptcy Code;
(vi) authorizing the Debtors to grant, in each case subject to the Carve-Out, adequate protection to the First Lien Secured Parties (as defined below) in the form of:
(a) current cash payment of Unused Commitment Fees, Letter of Credit Fees (both as defined in the First Lien Credit Agreement) and interest on the obligations under the First Lien Facility at the default rate for Base Rate Loans (as defined in the First Lien Credit Agreement) provided thereunder;
(b) replacement or, if applicable, new liens on and security interests in the DIP Collateral that are senior to the liens securing the DIP Junior Facility (such replacement or new liens, the “First Lien Adequate Protection Liens”);
(c) superpriority claims as provided for in section 507(b) of the Bankruptcy Code that will have a priority in payment over any and all administrative expenses of the kinds specified or ordered pursuant to any provision of the Bankruptcy Code (the “First Lien Adequate Protection Claims”); and
(d) the payment of all reasonable and documented out-of-pocket fees and expenses payable to the prepetition First Lien Agent under the prepetition First Lien Documents, whether incurred pre- or post- petition.
(vii) authorizing the Debtors to grant, in each case subject to the Carve-Out, adequate protection to the Second Lien Secured Parties (as defined below and together with the First Lien Secured Parties, the “Prepetition Secured Parties”) in the form of:
(a) current cash reimbursement of reasonable and documented fees and expenses and other disbursements under the Second Lien Term Loan A Credit Agreement or Second Lien Term Loan B Credit Agreement, as applicable, incurred in connection with the Debtors’ Chapter 11 Cases, whether incurred prior to, on, or after the Petition Date (subject to procedures for the payment of such amounts set forth in paragraph 5.15 of the Interim Order);
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(b) replacement or, if applicable, new liens on and security interests in the DIP Collateral that are junior to the liens securing the DIP Junior Facility and junior to the First Lien Adequate Protection Liens (such replacement or new liens, the “Second Lien Adequate Protection Liens”); and
(c) superpriority claims as provided for in section 507(b) of the Bankruptcy Code that will have a priority in payment over any and all administrative expenses of the kinds specified or ordered pursuant to any provision of the Bankruptcy Code (the “Second Lien Adequate Protection Claims”) that are junior to the First Lien Adequate Protection Claim.
(viii) vacating and modifying the automatic stay imposed by section 362 of the Bankruptcy Code to the extent necessary to implement and effectuate the terms and provisions of the DIP Facility Documents and the Interim Order;
(ix) scheduling a final hearing (the “Final Hearing”) to consider the relief requested in this Motion; and
(x) granting related relief.
In support of the Motion, the Debtors submit the (i) Declaration of Eric Winthrop
in Support of Motion of Debtors for Entry of Interim and Final Orders (I) Authorizing Debtors to
(A) Obtain Postpetition Financing and (B) Use Cash Collateral, (II) Granting Adequate
Protection to the Prepetition Lenders, (III) Granting Liens and Superpriority Claims, (IV)
Modifying the Automatic Stay, (V) Scheduling a Final Hearing and (VI) Granting Related Relief,
attached hereto as Exhibit B (the “DIP Declaration”) and (ii) the Declaration of Mark A. Renzi,
Chief Restructuring Officer of the Debtors, in Support of Chapter 11 Petitions and First Day Relief
(the “First Day Declaration”),3 filed contemporaneously herewith and incorporated herein by
reference. The Debtors’ initial budget with respect to the Junior DIP Facility is attached to the
Interim Order as Exhibit B.
3 The First Day Declaration and other relevant case information is available on the following website maintained by the Debtors’ proposed claims and noticing agent, Epiq Corporate Restructuring, LLC (“Epiq”), at https://dm.epiq11.com/LuckyBrand. 26731835.1 4
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JURISDICTION AND VENUE
The Court has jurisdiction to consider this Motion 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, 2012. This is a core proceeding pursuant to 28 U.S.C.
§ 157(b). Venue is proper before the Court pursuant to 28 U.S.C. §§ 1408 and 1409. The statutory
predicates for the relief requested herein are sections 105, 361, 362, 363(b), 363(c)(2), 363(e),
364(c)(1), 364(c)(2), 364(c)(3), 364(d)(1), 364(e), 503, 507 and 552 of title 11 of the United States
Code (the “Bankruptcy Code”), Rules 2002, 4001, 6004, and 9014 of the Federal Rules of
Bankruptcy Procedure (the “Bankruptcy Rules”), and Rules 2002-1, 4001-1, 6004-2 and 9014-1
of the Local Rules of Bankruptcy Practice and Procedure of the United States Bankruptcy Court
for the District of Delaware (the “Local Rules”).
Pursuant to Local Rule 9013-1(f), the Debtors consent to the entry of a final order
or judgment by the Court in connection with this Motion if 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.
BACKGROUND
On the date hereof (the “Petition Date”), the Debtors commenced with the Court
voluntary cases (the “Chapter 11 Cases”) for relief under chapter 11 of the Bankruptcy Code.
The Debtors are authorized to continue operating their businesses and managing their properties
as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. No
trustee, examiner, or statutory committee has been appointed in the Chapter 11 Cases.
Contemporaneously herewith, the Debtors have filed with the Court a motion
requesting joint administration of the Chapter 11 Cases pursuant to Bankruptcy Rule 1015(b).
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Additional information regarding the Debtors’ businesses, capital structure, and the
circumstances leading to the commencement of the Chapter 11 Cases is set forth in the First Day
Declaration.
PRELIMINARY STATEMENT
The Debtors filed these Chapter 11 Cases to pursue a value-maximizing sale for the
benefit of the Debtors’ stakeholders and to facilitate the orderly winding up of their estates through
confirmation of a chapter 11 liquidating plan. The Debtors have negotiated a global deal
surrounding the Stalking Horse Purchase Agreements (as defined below) and the corresponding
DIP Financing, which will allow the Debtors to maximize the value of their estates and preserve
the going-concern value of the Debtors’ iconic American denim and apparel business. By this
Motion, the Debtors seek authorization to access the Junior DIP Facility and Cash Collateral
critical to (i) the continued, uninterrupted operation of the Debtors’ business in chapter 11 while
they seek to implement a going-concern sale of substantially all of the Debtors’ assets, which is
required to be consummated by August 14, 2020 in the DIP Facility Documents (as defined below),
(ii) maintaining the value of the Debtors’ estates throughout this process and beyond, and (iii) the
payment of necessary expenses associated with administering the Chapter 11 Cases. During the
sale process and following the closing of the sale transaction, the Debtors intend to move quickly
to confirmation of a chapter 11 plan, which will, subject to the approved Wind-Down Budget (as
defined below), distribute the proceeds of the going-concern sale and other asset dispositions to
creditors in accordance with the priority of their claims.
Access to the Junior DIP Facility is necessary to avoid the immediate and
irreparable harm that would otherwise result if the Debtors are denied incremental liquidity. The
Debtors filed these Chapter 11 Cases with limited cash on hand and an intent to consummate a
going concern sale transaction. As discussed below and in the First Day Declaration, the Debtors 26731835.1 6
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and their advisors have worked tirelessly to solicit and develop various strategies to address their
substantial funded debt obligations, significant lease obligation, and trade indebtedness, which
have been exacerbated due to the pressures of the ongoing COVID-19 pandemic. These efforts
resulted in the Debtors’ entry into the Stalking Horse Purchase Agreements and the proposed
expedited sale process, which is intended to pay the obligations of the First Lien Lenders in full.
Accordingly, the Junior DIP Facility is necessary to administer these Chapter 11 Cases in a manner
that will allow the Debtors to achieve their goals, to the benefit of all stakeholders. The Junior
DIP Facility and use of Cash Collateral are thus critical to ensure the Debtors’ smooth entry into
chapter 11 and their ability to operate their business prudently during the pendency of these
Chapter 11 Cases and successfully complete their going concern sale transaction, including the
continued marketing of the Company and its assets, which will provide for an open, comprehensive
sale process that encourages the participation of many bidders and increases the amounts available
to the Debtors’ estates. The Junior DIP Facility will provide sufficient liquidity to fund these
Chapter 11 Cases and the Debtors’ operations and will permit the Debtors to effectuate the
contemplated sale transaction.
The terms of the Junior DIP Facility are competitive and reasonable. The Junior
DIP Facility was evaluated by the Debtors and their professionals and was thoroughly negotiated
at arm’s length between the Debtors and their Prepetition Lenders (as defined below). Moreover,
despite their efforts, the Debtors have been unable to obtain any alternative source of financing.
Accordingly, under the circumstances, the Debtors believe that the Junior DIP Facility is the most
favorable form of financing available.
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THE PROPOSED JUNIOR DIP FACILITY
Concise Statement Pursuant to Bankruptcy Rule 4001
Pursuant to Bankruptcy Rules 4001(b), (c) and (d), the following is a concise
statement and summary of the proposed material terms of the DIP Facility Documents and DIP
Orders:4
Summary of the Material Terms Reference
Borrower Lucky Brand Dungarees, LLC (the “Borrower”) Interim Order, Fed. R. Bankr. P. preamble ¶ 1 4001(c)(1)(B) Guarantors LBD Intermediate Holdings, LLC; Lucky Brand Dungarees Stores, DIP Promissory Fed. R. Bankr. P. LLC; Lucky PR, LLC Note, Annex A 4001(c)(1)(B) Lenders Lantern Capital Partners or one of its affiliates (or its designee, Interim Order, Fed. R. Bankr. P. “LCP”), ReStore Capital, LLC or one of its affiliates (“ReStore”) preamble ¶ 1 4001(c)(1)(B) and Clover Holding II, LLC or one of its affiliates (“Clover Holdings” and, together with LCP and ReStore, the “DIP Lenders” and, together with the DIP Lender Representative (as defined below), the “DIP Secured Parties”) DIP Lender LCP, in its capacity as administrative agent and collateral agent (in Interim Order, Representative such capacity, the “DIP Lender Representative”). preamble ¶ 1 Fed. R. Bankr. P. 4001(c)(1)(B) Junior DIP Facility $15,600,000 super priority junior secured debtor-in-possession Interim Order, Fed. R. Bankr. P. term loan facility, including a $4,100,000 sublimit solely for the preamble ¶ 1 4001(c)(1)(B); issuance of letters in credit. Local Rule 4001- 2(a)(ii) Borrowing Limits $6,500,000 will be available upon entry of the Interim Order and Interim Order, Fed. R. Bankr. P. $4,100,000 which shall solely be used for the issuance of letters of preamble ¶ 1 4001(c)(1)(B); credit (the “Initial DIP Loan”). Local Rule 4001-2(a)(ii) DIP Budget Borrowing under the Junior DIP Facility and use of Cash Collateral Interim Order, Fed. R. Bankr. P. (as defined in the Interim Order) shall be in accordance with the § 5.9 4001(c)(1)(B) Initial Budget (as defined in the Interim Order) for the first six week period after the Petition Date.
4 This statement is qualified in its entirety by reference to the applicable provisions of the DIP Facility Documents. To the extent there exists any inconsistency between this concise statement and the provisions of the DIP Facility Documents or the DIP Orders, the provisions of the DIP Facility Documents or the DIP Orders, as applicable, shall control. 26731835.1 8
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(i) Total receipts variance testing beginning on the fourth week after the Petition Dated, tested weekly on a four week rolling basis such that “Total Receipts” for each four week rolling period shall not be less than 85% of the sum of “Total Receipts” for such period as set forth in the Approved Budget (as defined in the Interim Order);
(ii) total mandatory disbursements variance test beginning on the second week after the Petition Date, tested weekly on a two week rolling basis such that “Total Mandatory Disbursements” for each two week rolling period shall not exceed 115% of the sum of “Total Mandatory Disbursements” for such period as set forth in the Approved Budget;
and (iii) total Professional Fees for estate professionals variance test beginning on the fourth week after the Petition Date, tested weekly on a rolling four week basis such that total Professional Fees for estate professionals for each four week rolling period shall not exceed 110% of the sum of total professional fees for estate professions for such period as set forth in the Approved Budget (collectively the “Permitted Variances”)
Use of Proceeds The proceeds from the DIP Facility and the Cash Collateral will be Interim Order, and Cash used for: § 3.1 Collateral working capital; Fed. R. Bankr. P. other general corporate purposes of the Debtors; 4001(c)(1)(B) permitted payments of the costs of administration of the Chapter 11 Cases; payment of such prepetition expenses as consented to by the DIP Lender Representative and First Lien Agent; funding of the Carve-Out Account, in accordance with paragraph 5.10 of the Interim Order; and such other uses as set forth in the Approved Budget. Interest Rates The unpaid principal amount of the DIP Promissory Note shall DIP Promissory Fed. R. Bankr. P. accrue interest at a rate equal to 17.0% per annum; provided that Note, § 3(a) 4001(c)(1)(B); upon the occurrence and during the continuance of an Event of Local Rule Default, the outstanding principal amount of the DIP Promissory 4001-2(a)(ii) Note and any accrued and unpaid interest and all other overdue amounts shall each bear interest until paid at the stated rate plus 3.00% per annum. All payments of interest upon the DIP Promissory Note shall be paid monthly in cash on the last Business Day of each month. Maturity Date and Maturity Date: DIP Promissory Termination Date Note, Annex A; Fed. R. Bankr. P. The Maturity Date means, unless extended by the DIP Lender Interim Order, 4001(c)(1)(B); Representative and the DIP Lenders in their respective sole and § 3.1 Local Rule absolute discretion with agreement by the Obligors, the earliest to 4001-2(a)(ii) occur of (i) the date falling three (3) months after the Petition Date if the Toggle does not occur or, in the event that the Toggle occurs, October 31, 2020; (ii) the 363 Sale Effective Date; (iii) the date on
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which a sale of a material portion of the Intellectual Property of the Obligors is consummated pursuant to a 363 Sale or otherwise (other than in connection with the occurrence of the Toggle); and (iv) the date that the DIP Promissory Note is accelerated upon the occurrence of an Event of Default or otherwise in accordance with the terms herein.
Termination Date:
The Termination Date is the earliest of (x) August 30, 2020 unless the First Lien Obligations have been paid in, full in cash, (y) thirty (30) days after the Petition Date unless a Final Order has been entered and (z) the fifth (5th) business day following written notice from the applicable Prepetition Agent of the occurrence of a Termination Event (as defined in paragraph 5.4 of the Interim Order) Material The conditions precedent to final funding are reasonable and DIP Promissory Conditions to customary for facilities of this size, type, and purpose, and include, Note, § 16 Closing and Each among others: Borrowing The DIP Lenders shall have received all updates required Fed. R. Bankr. P. with respect to the Approved Budget and the Obligors shall 4001(c)(1)(B) be in compliance with the Approved Budget The Final Order shall be entered not later than thirty (30) days after the Petition Date, and shall (i) have included waivers of (x) the automatic stay in connection with the DIP Lenders’ enforcement of remedies upon an Event of Default, (y) any surcharge of costs or expenses with respect to the Prepetition Lender or DIP Lenders’ interest in the Collateral under sections 506(c) and 552 of the Bankruptcy Code or any other statue or applicable law permitting a surcharge of the Collateral, and (z) the equitable doctrine of marshaling, and otherwise be in form and substance satisfactory to the DIP Lenders, be in full force and effect, and shall not have been reversed, modified, amended, stayed or vacated (in whole or in part) absent prior written consent of the DIP Lender and (ii) grant a perfected lien on the Collateral in favor of the DIP Representative, on behalf of the DIP Lenders, on the terms and conditions set forth in the DIP Promissory Note. Events of Default The Events of Default and Termination Events are reasonable and DIP Promissory Fed. R. Bankr. P. customary for facilities of this size, type, and purpose, and include, Note, § 7, Interim 4001(c)(1)(B) among others: Order, § 5.4
Events of Default: failure to (i) to pay any principal or any portion thereof when due under this Note, or (ii) to pay any interest or any portion thereof or any other amount hereunder or under the DIP Orders, the LC Fees or any other Loan Document (including amounts required to be paid pursuant to Section
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12(a) of the DIP Promissory Note) within five (5) Business Days after the same becomes due; failure to perform under the DIP Promissory Note; any Budget Event occurs; representations or warranties made or reaffirmed prove to be materially incorrect; use Cash Collateral, DIP Collateral or Prepetition Collateral in any manner not authorized by the DIP Orders and the Loan Documents; Chapter 11 Cases are dismissed, suspended, or converted under chapter 7 of the Bankruptcy Code.
Termination Events: the DIP Loans are not funded as and when set forth in the Approved Budget; the entry of an order of this Court terminating the right of any Debtor to use Cash Collateral; the dismissal of any of the Cases or the conversion of any of the Cases to a case under chapter 7 of the Bankruptcy Code; the appointment in any of the Cases of a chapter 11 trustee or an examiner with expanded powers; the entry of any order of the Court that avoids or disallows in any way the security interests, liens, priority claims or rights granted to any Prepetition Agent under the terms of this Interim Order. Carve Out Carve-Out shall mean the sum, without duplication, of (i) all fees Interim Order, Fed. R. Bankr. P. required to be paid to the Clerk of the Bankruptcy Court and to the § 5.10 4001(c)(1)(B); Office of the U.S. Trustee under section 1930(a) of title 28 of the Local Rule United States Code plus interest at the statutory rate (without 4001-2(a)(i)(F) regard to the notice set forth in (iii) below); (ii) all reasonable and documented fees, costs and expenses up to $50,000 incurred by a trustee under section 726(b) of the Bankruptcy Code (without regard to the notice set forth in (iii) below); (iii) subject to the terms and conditions of the Interim Order and the Approved Budget, to the extent allowed at any time, whether by interim order, procedural order, or otherwise, all reasonable unpaid fees, costs and expenses (the “Professional Fees”) incurred by persons or firms retained by the Debtors pursuant to section 327, 328, or 363 of the Bankruptcy Code (collectively, the “Debtor Professionals”) and any official committee (the “Committee Professionals” and, together with the Debtor Professionals, the “Professional Persons”) appointed in the Chapter 11 Cases pursuant to section 1103 of the Bankruptcy Code that are incurred at any time on or prior to the first calendar day following the delivery by the First Lien Agent or DIP Lender Representative of a Carve-Out Trigger Notice (as defined below), that are allowed by the Bankruptcy Court, subject to the amount of such fees, costs and expenses, allocated to each Professional Person on a line-by-line basis as provided for in the Approved Budget; provided, that Professional
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Persons may carry forward budgeted but unused disbursements set forth in the Approved Budget for any week for use in any subsequent week; and (iv) Professional Fees incurred on and after the first calendar day after the delivery by the First Lien Agent or DIP Lender Representative of the Carve-Out Trigger Notice, to the extent allowed at any time, whether by interim order, procedural order or otherwise in an aggregate amount not to exceed $1,000,000 with respect to Professional Persons (the amounts set forth in this clause (iv) being the “Post Carve-Out Trigger Notice Cap”). For purposes of the foregoing, any success, restructuring, sale or other similar fees shall not be included in the Post Carve- Out Trigger Notice Cap.5 In the event that Professional Fees exceed or are expected to exceed the amounts provided in the Approved Budget, the parties will negotiate in good faith (but without further obligation) regarding a proposed amendment to the Approved Budget to address such additional Professional Fees.
Wind-Down Account. “Wind-Down Account” shall mean an account that, shall be funded with cash or cash equivalents upon closing and from the proceeds of a sale of all or substantially all of the Debtors’ assets. The Wind-Down Account shall constitute cash collateral of the DIP Lenders and/or the Second Lien Lenders (as applicable), which funds may only be used by the Debtors for the purposes of winding down the Chapter 11 Cases and confirming a chapter 11 plan of reorganization or liquidation in accordance with the budget substantially in the form annexed to the Interim Order as Exhibit D (as may be amended with the consent of the Debtors and the DIP Lenders and/or the Second Lien Lenders, the “Wind- Down Budget”); provided, however, that the funding of the Wind- Down Account in accordance with the Wind-Down Budget shall not guarantee or otherwise ensure that such funds will prove to be sufficient for the Debtors to fund and confirm a chapter 11 plan. In the event that a Wind-Down Account is fully funded, the amount of Professional Fees reserved for in the Wind-Down Budget will be funded to the Carve-Out Account in lieu of the Post Carve-Out Trigger Notice Cap, such that the Carve-Out Account will contain the entire amount reserved for Professional Fees in the Wind-Down Budget plus any amounts previously funded to the Carve-Out Account. Notwithstanding anything in the Interim Order to the contrary, no professional fees or other adequate protection payments related to the Second Lien Obligations shall be made from the Wind-Down Account. Priority and “DIP Collateral” shall mean: (i) assets constituting Prepetition Interim Order, Collateral Collateral, (ii) any assets of the Debtors that, as of the Petition findings ¶ F(v); Fed. R. Bankr. P. Date, were not otherwise subject to a security interest, including Interim Order, 4001(c)(1)(B)(i) any assets comprising Excluded Assets (under and as defined in § 2.4 (a)
5 Any fee that is or will become due and payable upon the consummation of a transaction shall be payable solely from the proceeds received by the Debtors resulting from such transaction, fee and clear of the liens of the Prepetition Agents, the Prepetition Secured Parties, the DIP Lender Representative, and the DIP Lenders. 26731835.1 12
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any of the Prepetition Loan Documents),6 and for avoidance of doubt, the DIP Collateral shall include (x) subject to and effective upon entry of the Final Order granting such relief, the proceeds of any claim or cause of action arising under or pursuant to section 549 of the Bankruptcy Code, and (y) subject to the entry of the Final Order, the proceeds (the “Avoidance Proceeds”) of any other claim or cause of action arising under or pursuant to chapter 5 of the Bankruptcy Code or under any other similar provisions of applicable state, federal, or foreign law (including any other avoidance actions under the Bankruptcy Code) (collectively, the “Avoidance Actions”).
The DIP Liens and DIP Lenders’ claims shall have the following priority:
The DIP Liens on the DIP Collateral securing the DIP Obligations shall be first and senior in priority to all other interests and liens of every kind, nature, and description, whether created consensually, by an order of the Court or otherwise, including, without limitation, liens or interests granted in favor of third parties in conjunction with sections 363, 364, or any other section of the Bankruptcy Code or other applicable law; provided, however, that the DIP Liens on (A) the First Lien Priority Collateral (whether in existence on the Petition Date or hereafter arising) shall be subject and subordinate to the Carve-Out, the First Liens, and the First Lien Adequate Protection Liens; (B) the Second Lien Collateral (whether in existence on the Petition Date or hereafter arising) shall be subject and subordinate to the Carve-Out; and (C) Prepetition Collateral subject to Permitted Liens shall be junior to such Permitted Liens; and (D) any unencumbered assets as of the Petition Date shall be subject and subordinate to the Carve-Out and First Lien Adequate Protection Liens. Adequate With respect to the Second Lien Secured Parties: effective Interim Order, § 4 Protection / upon the date of the Interim Order, valid and perfected Identity of Each postpetition replacement security interests in and liens Entity with upon the DIP Collateral (the “Second Lien Adequate Interest in Cash Protection Liens”), which liens shall: (i) be subject and Collateral subordinate to the Carve-Out, the DIP Liens, and the Prior Fed. R. Bankr. P. Permitted Liens; (ii) be junior to the First Liens and the 4001(c)(1)(B)(ii); First Lien Adequate Protection Liens (as defined below) (b)(1)(B)(i), (iv) and (iii) be senior to all other security interests in, liens on, or claims against the Second Lien Collateral, whether now existing or hereafter arising or acquired.
With respect to the First Lien Secured Parties: effective upon the date of the Interim Order, valid and perfected
6 Notwithstanding anything contained in the Interim Order only the proceeds from any sale, termination, or other disposition of any leasehold interests of the Debtors (but not the leasehold interests themselves) shall constitute DIP Collateral. 26731835.1 13
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postpetition replacement security interests in and liens upon the DIP Collateral (the “First Lien Adequate Protection Liens” and, together with the Second Lien Adequate Protection Liens, the “Prepetition Adequate Protection Liens”), which liens shall: (i) be subject and subordinate to the Carve-Out and the Prior Permitted Lien; and (ii) be senior to all other security interests in, liens on, or claims against the First Lien Priority Collateral or DIP Collateral, whether now existing or hereafter arising or acquired, including for the avoidance of doubt the DIP Liens, Prepetition Second Liens, and the Second Lien Adequate Protection Liens.
Prepetition Secured Parties shall be granted allowed superpriority administrative expense claims pursuant to sections 503(b), 507(a), and 507(b) of the Bankruptcy Code (the “Adequate Protection Superpriority Claims”), which Adequate Protection Superpriority Claims shall be allowed claims against each of the Debtors (jointly and severally), with priority (except they shall be junior to the Carve-Out and as otherwise provided herein) over any and all administrative expenses and all other claims against the Debtors, including the DIP Superpriority Claim with respect to the First Lien Secured Parties.
Second Lien Term Loan A Secured Parties to receive adequate protection in for the form of (i) current cash reimbursement of reasonable and documented fees and expenses and other disbursements under the Second Lien Term Loan A Credit Agreement, incurred in connection with the Debtors’ Chapter 11 Cases, whether incurred prior to, on, or after the Petition Date (subject to the procedures for the payment of such amounts in paragraph 5.16 of the Interim Order); (ii) to the extent of any Diminution in Value of their prepetition security interests, replacement or, if applicable, new liens on the Second Lien Term Loan A Collateral that are junior to the liens securing the Junior DIP Facility (in the same relative priority as the Second Lien Term Loan A Facility) and to the Adequate Protection Superpriority Claims; (iii) to the extent of any Diminution in Value of their prepetition security interests, superpriority claims as provided for in section 507(b) of the Bankruptcy Code that are junior to the claims under the Junior DIP Facility and any superpriority claims granted to the First Lien Facility; and (iv) financial reporting and information rights substantially similar to those granted pursuant to the DIP Facility Documents.
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Second Lien Term Loan B Secured Parties to receive adequate protection in for the form of (i) current cash reimbursement of reasonable and documented fees and expenses and other disbursements under the Second Lien Term Loan B Credit Agreement, incurred in connection with the Debtors’ Chapter 11 Cases, whether incurred prior to, on or after the Petition Date (subject to the procedures for the payment of such amounts in paragraph 5.16 of the Interim Order); (ii) to the extent of any Diminution in Value of their prepetition security interests, replacement or, if applicable, new liens on the Second Lien Term Loan B Collateral that are junior to the liens securing the Junior DIP Facility (in the same relative priority as the Second Lien Term Loan B Facility) and to the Prepetition Senior Secured Parties Adequate Protection Claims; (iii) to the extent of any Diminution in Value of their prepetition security interests, superpriority claims as provided for in section 507(b) of the Bankruptcy Code that are junior to the claims under the Junior DIP Facility and any superpriority claims granted to the First Lien Credit Agreement; and (iv) financial reporting and information rights substantially similar to those granted pursuant to the DIP Facility Documents.
First Lien Secured Parties to receive further adequate protection in the form of (i) current cash payment of Unused Commitment Fees (as defined in the First Lien Credit Agreement), Letter of Credit Fees (as defined in the First Lien Credit Agreement) and interest on the obligations under the First Lien Facility at the default rate provided for thereunder; (ii) current cash reimbursement of reasonable and documented fees and expenses and other disbursements of the holders of the First Lien Facility, incurred in connection with the Debtors’ Chapter 11 Cases on or after the Petition Date; (iii) adequate protection payments set forth in paragraph 4.5 and 4.6 of the Interim Order; (iv) to the extent of any Diminution in Value of their prepetition security interests, replacement or, if applicable, new liens on the First Lien Priority Collateral that are senior to the liens securing the Junior DIP Facility (in the same relative priority as the First Lien Facility) and senior to the adequate protection liens granted to the holders of the Second Lien Term Loan A Facility and the Second Lien Term Loan B Facility; (iv) to the extent of any Diminution in Value of their prepetition security interests, superpriority claims as provided for in section 507(b) of the Bankruptcy Code that are senior to the claims under the Junior DIP Facility and senior to the superpriority claims granted to the Second Lien Lenders; and (v) financial reporting and
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information rights substantially similar to those granted pursuant to the DIP Facility Documents. Debtors’ The Debtors’ stipulate to, among other things, the following: Interim Order, Stipulations As of the Petition Date, the First Lien Obligors were jointly findings ¶ F Fed. R. Bankr. P. and severally indebted and liable to the First Lien Secured 4001(c)(1)(B)(iii) Parties under the First Lien Documents in an aggregate Local Rule principal amount not less than $111,178,787.46, plus all 4001-2(a)(i)(B) interest, fees, and expenses accrued and accruing under the First Lien Documents. As of the Petition Date, the Second Lien Term Loan A Obligors, without defense, counterclaim, or offset of any kind, were jointly and severally indebted and liable to the Second Lien Term Loan A Secured Parties under the Second Lien Term Loan A Documents (A) in an aggregate principal amount of not less than $54,533,739.10, plus all interest accrued and accruing under the Second Lien Term Loan A Documents. As of the Petition Date, the Second Lien Term Loan B Obligors, without defense, counterclaim, or offset of any kind, were jointly and severally indebted and liable to the Second Lien Term Loan B Secured Parties under the Second Lien Term Loan B Documents (A) in an aggregate principal amount of $16,809,241.34, plus all interest accrued and accruing under the Second Lien Term Loan B Documents. The Prepetition Obligations owing to the Prepetition Secured Parties and the Prepetition Loan Documents constitute legal, valid, binding and non-avoidable obligations of the Debtors and their applicable affiliates, enforceable against them in accordance with their respective terms. The Prepetition Liens granted to the Prepetition Secured Parties constitute legal, valid, binding, enforceable (except to the extent that enforcement thereof is stayed by any insolvency law), and perfected security interests in and liens on the Prepetition Collateral, were granted to, or for the benefit of, the Prepetition Secured Parties for fair consideration and reasonably equivalent value, and are not subject to defense, counterclaim, recharacterization, subordination, avoidance, “claim” or recovery pursuant to the Bankruptcy Code or applicable non-bankruptcy law or regulation by any person or entity and constitute the legal, valid, and binding obligation of the Debtors, enforceable in accordance with the terms of the applicable Prepetition Loan Documents. Waiver or The automatic stay provisions of section 362 of the Bankruptcy Interim Order, Modification of Code and any other restriction imposed by an order of the Court or § 5.7 Automatic Stay applicable law shall be modified without further notice, Fed. R. Bankr. P. application, or order of the Court to the extent necessary to permit 4001(c)(1)(B)(iv) the Debtors and each of the DIP Lender Representative and the
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Prepetition Agents, as applicable, to perform any act authorized or permitted under or by virtue of this Interim Order or the DIP Facility Documents, as applicable, including, without limitation, (A) to execute, deliver and implement the postpetition financing arrangements authorized by this Interim Order, (B) to take any act to create, validate, evidence, attach or perfect any lien, security interest, right or claim in the DIP Collateral, (C) to assess, charge, collect, advance, deduct and receive payments with respect to the Prepetition Obligations and DIP Obligations (or any portion thereof), including, without limitation, all interests, fees, costs, and expenses permitted under any of the DIP Facility Documents, the First Lien Documents, the Second Lien Term Loan A Documents, or the Second Lien Term Loan B Documents and apply such payments to the applicable obligations, and (D) subject to the Remedies Notice Period, to take any action and exercise all rights and remedies provided to it by this Interim Order, the DIP Facility Documents, or applicable law in accordance with paragraph 5.5 of the Interim Order. Waiver or N/A N/A Modification of Right to File a Plan Fed. R. Bankr. P. 4001(c)(1)(B)(v) Milestones The Milestones are attached to the Interim Order as Exhibit C and Interim Order, Fed. R. Bankr. P. are as follows: Exhibit C 4001(c)(1)(B)(vi) Timeline Event No later than 2 calendar days after Debtors shall file a motion to the Petition Date approve the Bidding Procedures No later than 2 calendar days after Debtors shall file a motion to the Petition Date assume the Consulting Agreement No later than 5 calendar days after The Bankruptcy Court shall have the Petition Date entered the Interim Order On or before July 31, 2020 The Bankruptcy Court shall have entered an order (the “Bidding Procedures Order”) approving the Bidding Procedures in a form and substance satisfactory to the Stalking Horse Bidder and Prepetition Secured Parties No later than July 31, 2020 The Bankruptcy Court shall have entered an order approving the assumption of the Consulting Agreement in a form and substance satisfactory to the DIP Lender Representative and First Lien Agent. No later than July 31, 2020 The Bankruptcy Court shall have entered the Final Order in a form and substance satisfactory to the DIP Lender Representative and First Lien Agent.
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No later than August 10, 2020 The Debtors shall have held an auction (if necessary) pursuant to the Bidding Procedures Order No later than August 12, 2020 The Bankruptcy Court shall have held the hearing (the “Sale Hearing”) to consider entry of the order in a form and substance satisfactory to the DIP Lender Representative and First Lien Agent (the “Sale Order”) approving the sale of substantially all of the Debtors’ assets or the Debtors’ intellectual property assets No later than August 13, 2020 The Bankruptcy Court shall have entered the Sale Order and such order shall be in full force and effect and not reversed, modified or stayed No later than August 14, 2020 Closing of the sale approved by the Sale Order No later than 45 calendar days after The Debtors shall file the Plan and the Petition Date Disclosure Statement No later than 75 calendar days after The Bankruptcy Court shall have the Petition Date entered an order approving the Disclosure Statement No later than 120 calendar days The Bankruptcy Court shall have after the Petition Date entered an order confirming the Plan No later than 135 calendar days Effective Date of the Plan after the Petition Date Release, Waiver or The Debtors’ Stipulations shall be binding upon all other parties in Interim Order, Limitation on any interest, subject to the Challenge Period. Any party in interest with § 5.11 Claim or Cause of standing to challenge must timely commence an adversary Action proceeding or contested matter by no later than (i) with respect to Fed. R. Bankr. P. the Second Lien Lenders, the earliest of (A) if no Committee has 4001(c)(1)(B)(viii) been appointed, 75 calendar days from the date of entry of this Interim Order, (B) if a Committee has been appointed, 60 calendar days after the date of formation of such Committee, (ii) with respect to the First Lien Secured Parties, the earliest of (A) the date on which they are requested to release their liens following the discharge of the First Lien Obligations and (B) 75 days after the Petition Date, and (iii) any such later date as has been agreed to, in writing, without further order of the Court by the Prepetition Agents, as applicable.
Indemnification The DIP Lender Representative, the DIP Lenders, HMR, and the Interim Order, Fed. R. Bankr. P. Prepetition Secured Parties have acted in good faith, and without findings ¶ F (xi) 4001(c)(1)(B)(ix) negligence or violation of public policy or law, in respect of all actions taken by them in connection with or related in any way to negotiating, implementing, documenting, or obtaining the requisite approvals of the Junior DIP Facility and the use of Cash Collateral, including in respect of the granting of the DIP Liens and the
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Prepetition Adequate Protection Liens (as defined below), and all documents related to any and all transactions contemplated by the foregoing. Accordingly, subject to and effective upon entry of a Final Order granting such relief, and subject to the rights contained in paragraph 5.11 of the Interim DIP Order, the Prepetition Secured Parties, the DIP Lender Representative, HMR, and the DIP Lenders shall be and hereby are indemnified and held harmless by the Debtors in respect of any claim or liability incurred in respect thereof or in any way related thereto, provided that no such parties will be indemnified for any cost, expense, or liability to the extent determined in a final, non-appealable judgment of a court of competent jurisdiction to have resulted from any such party’s gross negligence or willful misconduct. No exception or defense exists in contract, law, or equity as to any obligation set forth, as the case may be, in paragraph F (xi) of the Interim order, in the Prepetition Loan Documents, or in the DIP Facility Documents, to the Debtors’ obligation to indemnify and/or hold harmless the Prepetition Secured Parties, the DIP Lender Representative, or the DIP Lenders, as the case may. Section 506(c) Subject to the entry of the Final Order providing such relief, no Interim Order, Waiver costs or expenses of administration which have been or may be § 5.24 Fed. R. Bankr. P. incurred in these Chapter 11 Cases at any time (including, without 4001(c)(1)(B)(x) limitation, any costs and expenses incurred in connection with the Local Rule preservation, protection, or enhancement of value by the DIP 4001-2(a)(i)(C) Lender Representative or the DIP Lenders upon the DIP Collateral, or by the Prepetition Secured Parties upon the Prepetition Collateral, as applicable) shall be charged against the DIP Lender Representative, DIP Lenders, or Prepetition Secured Parties, or any of the DIP Obligations or Prepetition Obligations or the DIP Collateral or the Prepetition Collateral pursuant to sections 105 or 506(c) of the Bankruptcy Code or otherwise without the prior express written consent of the affected DIP Secured Parties and/or affected Prepetition Secured Parties, in their sole discretion, and no such consent shall be implied, directly or indirectly, from any other action, inaction, or acquiescence by any such agents or creditors (including, without limitation, consent to the Carve-Out or the approval of any budget hereunder). Liens on DIP Collateral shall include (x) subject to and effective upon entry Interim Order, Avoidance Actions of the Final Order granting such relief, the proceeds of any claim findings ¶ G(v) Fed. R. Bankr. P. or cause of action arising under or pursuant to section 549 of the 4001(c)(1)(B)(xi) Bankruptcy Code, and (y) subject to and effective upon the entry of the Final Order granting such relief, the proceeds (the “Avoidance Proceeds”) of any other claim or cause of action arising under or pursuant to chapter 5 of the Bankruptcy Code or under any other similar provisions of applicable state, federal, or foreign law (including any other avoidance actions under the Bankruptcy Code) (collectively, the “Avoidance Actions”) Section 552(b) The Debtors have agreed as a condition to obtaining financing Interim Order, Waiver under the Junior DIP Facility and using Cash Collateral as provided § 5.25 Fed. R. Bankr. P. in the Interim Order that, subject to entry of the Final Order, the 4001(c)(1)(B) Prepetition Secured Parties are and shall each be entitled to all of 26731835.1 19
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the rights and benefits of section 552(b) of the Bankruptcy Code and that the “equities of the case” exception under section 552(b) shall not apply to the DIP Lender Representative, the DIP Lenders, the DIP Obligations, and, subject to entry of the Final Order, providing such relief, the Prepetition Secured Parties, or the Prepetition Obligations Fees The Borrower shall pay to the DIP Lenders an upfront fee in cash DIP Promissory Fed. R. Bankr. P. in an amount equal to 1.0% of the Maximum DIP Commitment (the Note, ¶ 3(b) 4001(c)(1) “UpFront Premium”). The UpFront Premium shall be fully earned and due and payable in cash on the Closing Date (for the avoidance of doubt, such Upfront Premium shall be netted from the Final Loans). The Letters of Credit will be subject to customary letter of credit documentation fees and a fronting fee payable to the L/C Issuer equal to (i) 0.125% of the face amount of each Letter of Credit (the “LC Fees”) plus (ii) $305.00, each such fee in clauses (i) and (ii) to be payable by the Borrower in cash directly to the LC Issuer on the date of issuance of any Letter of Credit. All amounts paid under the DIP Promissory Note shall be nonrefundable once paid Discharge Subject to and effective upon the entry of the Final Order granting Interim Order, Fed. R. Bankr. P. such relief, the DIP Obligations and the obligations of the Debtors § 5.22 4001(c)(1)(B) with respect to adequate protection hereunder, including granting the Prepetition Adequate Protection Liens and the Adequate Protection Superpriority Claims, shall not be discharged by the entry of an order confirming any plan of reorganization in any of these Cases, notwithstanding the provisions of section 1141(d) of the Bankruptcy Code, unless such obligations have been indefeasibly paid in full in cash, on or before the effective date of such confirmed plan of reorganization, or each of the DIP Secured Parties or the Prepetition Secured Parties, as applicable, has otherwise agreed in writing.
THE DEBTORS’ PREPETITION INDEBTEDNESS
As set forth below, as of the Petition Date, the Debtors have outstanding funded
debt obligations consisting of approximately $181.97 million. As of the Petition Date,
approximately $49.27 million is outstanding under the First Lien Term Loan Facility (inclusive of
principal, interest, fees, and expenses). Approximately $61.31 million is outstanding under the
First Lien Revolving Facility (inclusive of principal, interest, fees, and expenses), including issued
letters of credit with an aggregate face amount of approximately $9.69 million. Approximately
$54.58 million (inclusive of principal, interest, fees, and expenses) is outstanding under the Second
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Lien Term A Loan and approximately $16.81 million (inclusive of principal, interest, fees, and
expenses) is outstanding under the Second Lien Term B Loan.
The following table summarizing the Debtors’ outstanding funded debt obligations
as of the Petition Date:
Funded Debt Maturity Approximate Principal Amount Outstanding First Lien Term Loan Facility November 2024 $49.27 million First Lien Revolving Facility November 2024 $61.31 million (including Letters of Credit in the amount of $9.69 million) Second Lien Term A Loan February 2025 $54.58 million Second Lien Term B Loan February 2025 $16.81 million Total Funded Debt $181.97 million
The First Lien Credit Agreement
Debtor Lucky Brand Dungarees, LLC, as borrower (the “Borrower”), LBD
Intermediate Holdings, LLC, as holdings (“Holdings”), Wells Fargo Bank, National Association
as administrative agent, term loan agent, and collateral agent (the “First Lien Agent”) and Gordon
Brothers Finance Company, LLC are parties to the Third Amended and Restated Credit
Agreement, dated as of November 12, 2019 (as amended, restated, amended and restated,
supplemented or otherwise modified from time to time, the “First Lien Credit Agreement”),
under which Wells Fargo Bank, National Association and Gordon Brothers Finance Company,
LLC as lenders (the “First Lien Term Lenders”) agreed to provide to the Borrower a $50 million
term loan facility (the “First Lien Term Loan Facility”) and Wells Fargo Bank, National
Association as lender (the “First Lien Revolving Lender” and together with the First Lien Term
Lenders, the “First Lien Lenders”) agreed to provide to the Borrower a $150 million revolving
credit facility with a swing line sublimit of up to $15 million and a letter of credit sublimit of $25
million (the “First Lien Revolving Facility”).
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The First Lien Term Loan and the First Lien Revolving Facility each mature on
November 12, 2024. The obligations under the First Lien Credit Agreement have been
unconditionally guaranteed by Holdings and the other direct and indirect domestic subsidiaries of
the Borrower (collectively, the “Guarantors”). Lucky Parent and Lucky Canada are not
Guarantors.
The First Lien Term Loan Facility and the First Lien Revolving Facility are secured
by a first-priority interest in the Senior Collateral, which comprises substantially all of the Debtors’
assets.7 Pursuant to the First Lien Credit Agreement, the First Lien Term Lenders have priority
over the First Lien Revolving Lender with respect to any proceeds from Senior Collateral that
comprises Term Priority Collateral (as defined in the First Lien Credit Agreement and including,
without limitation, the fixed asset categories of fixtures and equipment, intellectual property,
general intangibles, commercial tort claims, permits and licenses and books and records). The
First Lien Revolving Lender has priority over the First Lien Term Lenders with respect to any
proceeds from all other Senior Collateral not comprising Term Priority Collateral (including,
among other things, inventory, accounts receivable, and cash). Senior Collateral includes, among
other things, the Company’s and each Guarantor’s right, title, and interest in all accounts, chattel
paper, documents, equipment, general intangibles, goods and fixtures, instruments, inventory,
investment property, intellectual property, and products and proceeds thereof. The Senior
Collateral excludes, among other things, certain excluded contracts, certain excluded equipment,
35 percent of the voting stock of the Company’s and each Guarantor’s foreign subsidiaries, certain
trademarks, leasehold interests in real property and products and proceeds thereof.
7 “Senior Collateral” means all the “Collateral” (or equivalent term) as defined in any Collateral Document (as defined in the First Lien Credit Agreement) and shall include the Mortgaged Properties (as defined in the First Lien Credit Agreement). 26731835.1 22
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The Second Lien Credit Agreements
The Borrower, Holdings, Wilmington Trust, National Association, as
administrative agent and collateral agent (the “Second Lien Term Loan A Agent”) and Lucky
Holdings JV, LLC as lender (the “Second Lien Term Loan A Lender”) are parties to that Second
Lien Credit Agreement, dated as of November 12, 2019 (as amended, restated, amended and
restated, supplemented or otherwise modified from time to time, the “Second Lien Term Loan A
Credit Agreement”), under which the Second Lien Term Loan A Lender provided a term loan in
an aggregate principal amount of $50 million (the “Second Lien Term A Loan”) to the Borrower.
The Second Lien Term A Loan matures on February 11, 2025.
The Second Lien Term Loan A Credit Agreement is secured by a second-priority
security interest in the Senior Collateral. The obligations under the Second Lien Term Loan A
Credit Agreement have been unconditionally guaranteed by the Guarantors.
The Borrower, Holdings and Clover Holdings II LLC8 as administrative agent and
collateral agent (in such capacity, the “Second Lien Term Loan B Agent” and together with the
Second Lien Term Loan A Agent, the “Second Lien Agents”) and as lender (in such capacity, the
“Second Lien Term Loan B Lender” and, collectively with the Second Lien Term Loan A
Lender, the “Second Lien Lenders” and together with the First Lien Lenders, the “Prepetition
Lenders”) are parties to that Second Lien Credit Agreement, dated as of November 12, 2019 (as
amended, restated, amended and restated, supplemented or otherwise modified from time to time,
the “Second Lien Term Loan B Credit Agreement” and, collectively with the Second Lien Term
Loan A Credit Agreement, the “Second Lien Credit Agreements”). Second Lien Term Loan B
8 Clover Holdings is an affiliate of funds managed by Leonard Green & Partners, L.P. (“LGP”). As further described in the First Day Declaration, Clover Holdings is the current majority equityholder of Debtor LBD Parent Holdings, LLC (“Lucky Parent”). 26731835.1 23
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Lender is owed a term loan in an aggregate principal amount of $15.4 million (the “Second Lien
Term B Loan”) to the Borrower. The Second Lien Term B Loan matures on February 11, 2025.
The Second Lien Term Loan B Credit Agreement is secured by a second-priority security interest
in the Senior Collateral. The obligations under the Second Lien Term Loan B Credit Agreement
have been unconditionally guaranteed by the Guarantors.
The Intercreditor Agreements
The rights of the First Lien Lenders and the Second Lien Lenders with respect to
their shared collateral are governed by that certain Intercreditor Agreement, dated as of November
12, 2019, by and among the First Lien Agent, the Second Lien Term Loan A Agent and the Second
Lien Term Loan B Agent and acknowledged and agreed to by Holdings, the Borrower and the
other Guarantors (as amended, restated, amended and restated, supplemented or otherwise
modified from time to time, the “First Lien/Second Lien Intercreditor Agreement”). The First
Lien/Second Lien Intercreditor Agreement governs, among other things, the priority of distribution
of the Senior Collateral and the respective rights of the First Lien Lenders and the Second Lien
Lenders and their respective representatives in connection with certain bankruptcy matters, such
as the provision of postpetition financing. In accordance with the First Lien/Second Lien
Intercreditor Agreement: (i) the First Lien Lenders are afforded first priority with respect to Senior
Collateral; and (ii) the Second Lien Lenders are afforded second priority with respect to the Senior
Collateral.
The respective rights of the Second Lien Lenders as between themselves with
respect to their respective second-priority security interests in the collateral are governed by that
certain Second Lien Pari Passu Intercreditor Agreement, dated as of November 12, 2019, by and
among the Second Lien Term Loan A Agent and the Second Lien Term Loan B Agent and
acknowledged and agreed to by Holdings, the Borrower and the other Guarantors (as amended, 26731835.1 24
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restated, amended and restated, supplemented or otherwise modified from time to time, the
“Second Lien Pari Passu Intercreditor Agreement” and together with the First Lien/Second
Lien Intercreditor Agreement, the “Intercreditor Agreements”). The Second Lien Pari Passu
Intercreditor Agreement governs, among other things, the priority of distribution of the Senior
Collateral with respect to the Second Lien Lenders’ respective pari passu second-priority security
interests and the respective rights of the Second Lien Term Loan A Lender and the Second Lien
Term Loan B Lender in connection with certain bankruptcy matters, such as the provision of
postpetition financing. In accordance with the Second Lien Pari Passu Intercreditor Agreement:
(i) the Second Lien Lenders are secured on a pari passu basis amongst each other with respect to
their respective second-priority security interests in the Senior Collateral; and (ii) the Second Lien
Term Loan A Agent is entitled to exercise remedies with respect to the Senior Collateral before
the Second Lien Term Loan B Agent is so entitled.
THE DEBTORS’ LIQUIDITY NEEDS AND MARKETING EFFORTS
The Debtors Have an Immediate Need to Use Cash Collateral and Obtain DIP Financing
The Debtors are entering chapter 11 with limited cash on hand, and the Prepetition
Lenders’ (in particular the First Lien Lenders’) consent to the use of cash collateral is conditioned
upon the DIP Financing and the transactions contemplated in the Stalking Horse Agreements. The
Debtors require access to the Junior DIP Facility and authority to use Cash Collateral to ensure
they have sufficient liquidity to operate their business and administer their estates during these
Chapter 11 Cases while maintaining sufficient cash to conduct a going concern marketing and sale
process. As discussed further in the First Day Declaration, the Debtors’ chapter 11 strategy is
focused on the pursuit of a sale of the Company’s operations as a going concern. To that end, in
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late May 2020, the Debtors, with the assistance of their advisors, began a marketing process for a
going concern sale transaction.
As a result of the Debtors’ outreach and the targeted prepetition marketing process,
on June 9, 2020, the Debtors received a single non-binding letter of intent (“LOI” and such LOI
the “Stalking Horse LOI”) from Authentic Brands Group, LLC (“ABG”), SPARC Group LLC
(“SPARC”), and the Second Lien Lenders (collectively, the “Stalking Horse Parties”). After
evaluation of the Stalking Horse LOI and further outreach to potential bidders, on July 3, 2020,
the Debtors entered into a stalking horse asset purchase agreement (the “All Assets Purchase
Agreement”) with SPARC for the sale of substantially all of the Company’s assets, and pursuant
to the All Assets Purchase Agreement, SPARC has agreed to designate certain assets to the
following parties (or their respective designees), in exchange for payment of a portion of the
purchase price thereunder: (i) ABG, (ii) each of the DIP Lenders (as defined below) and (iii) each
of the Second Lien Lenders (as defined below).
Concurrently with the execution of the All Assets Purchase Agreement, the Debtors
entered into an additional asset purchase agreement (the “IP Purchase Agreement” and together
with the All Assets Purchase Agreement, collectively, the “Stalking Horse Purchase
Agreements” and each a “Stalking Horse Purchase Agreement”) with ABG-Lucky, LLC for
the sale of the Debtors’ intellectual property and certain other assets in the event that the Toggle
(as defined and described in the First Day Declaration) occurs and the All Assets Purchase
Agreement is terminated.
The Debtors require immediate access to DIP Financing so that the Debtors can
stabilize their business, fund the administrative cost of these Chapter 11 Cases, and provide
sufficient runway to consummate a value-maximizing sale for the benefit of all stakeholders. The
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Debtors are entering chapter 11 with limited cash on hand and without access to the DIP Financing
(and the associated use of Prepetition Lenders’ cash collateral), the Debtors would not be able to
sufficiently fund the Chapter 11 Cases to effectuate a going-concern sale transaction.
Prior to the filing of the Chapter 11 Cases, the Debtors and Berkeley Research
Group, LLC (“BRG”) analyzed the Debtors’ projected cash needs and prepared a budget outlining
the Debtors’ postpetition cash needs in the initial 13 weeks of these Chapter 11 Cases (the “Initial
Budget”). The Initial Budget will allow the Debtors to meet their obligations—including the
administrative expenses of these Chapter 11 Cases—and is reasonable and appropriate under the
circumstances. The Initial Budget incorporates the funds provided by the Junior DIP Facility and
access to Cash Collateral, without which the Debtors may need to liquidate immediately to the
detriment of the Debtors, their stakeholders, and all other parties-in-interest.
Absent authority to enter into and access the Junior DIP Facility, even for a limited
period of time, the Debtors will be unable to continue operating their businesses, resulting in a
deterioration of value and immediate and irreparable harm to the Debtors’ estates and a
corresponding inability to properly conduct a marketing and sale process. Accordingly, immediate
access to the Junior DIP Facility is essential so the Debtors can stabilize their business, fund the
administrative cost of these Chapter 11 Cases, and provide sufficient runway for a value-
maximizing sale to the benefit of all stakeholders.
The Debtors’ Efforts to Obtain Postpetition Financing
Leading up to the Petition Date, the Debtors, with the assistance of Houlihan Lokey
(“Houlihan”) and BRG, engaged in a thorough and competitive marketing process to obtain
postpetition DIP Financing on the best available terms. The Debtors and their advisors worked
diligently to evaluate options for financing from the First Lien Lenders, Second Lien Lenders, and
potential third-party lenders. This marketing process focused on developing financing proposals 26731835.1 27
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with (a) the Debtors’ existing funded debt, and (b) alternative sources of capital from parties
outside the Debtors’ existing capital structure
The Debtors, with the assistance of their advisors, engaged with the Second Lien
Lenders in May 2020 to discuss potential DIP Financing in connection with the Chapter 11 Cases.
In order to evaluate the DIP Financing request, the Second Lien Lenders were provided
information on an ongoing basis, including but not limited to (a) updates on operating results from
the first half of 2020, (b) updates on the Debtors’ ongoing negotiations with key creditors on other
potential transactions, (c) the Debtors’ potential alternative chapter 11 plan and DIP Financing
needs, (d) an initial DIP Financing term sheet describing the framework for the potential DIP
Financing, and (e) monthly and weekly financial forecasts with underlying assumptions that
provided estimates for the Debtors’ operations and included forecasts of costs related to chapter
11. Further, as board observers, the Second Lien Lenders are intimately familiar with the
Company’s assets, capital structure, and financial situation.
On June 4, 2020, the Second Lien Lenders proposed, as an integrated package deal
with the Stalking Horse Purchase Agreements, a term sheet for DIP Financing. The proposed DIP
Financing proposal provides for a $15,600,000 super priority junior secured debtor-in-possession
term loan facility, which allows for the use of cash collateral pursuant to the Initial Budget,
established certain fees and expenses, and set the interest rate equivalent to that of the Second Lien
Credit Agreements, including default interest. The proposed DIP Financing also provides
adequate protection for the First Lien Term Lenders and Second Lien Lenders in the form of cash
payments, replacement liens, and superpriority administrative claims in connection with the use of
the First Lien Lenders’ “cash collateral” as defined in section 363(a) of the Bankruptcy Code
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(“Cash Collateral”). As detailed below, following receipt of the term sheet, the Debtors and their
advisors continued to negotiate with the Second Lien Lenders.
The Debtors, with the assistance of Houlihan, evaluated the proposal, considering
the terms and conditions in light of the Company’s needs. In evaluating the proposal, the Debtors
considered the Second Lien Lenders’ indicative proposed economics, perceived ability to fully
commit and underwrite the facility, the proposed financing structure, perceived deal risk, and
proposed covenants, among other factors.
Upon receipt of the Second Lien Lenders’ proposal, the Debtors and their
professionals sought to negotiate the best possible DIP Financing from the Second Lien Lenders.
All negotiations between the Debtors and the Second Lien Lenders regarding the provision of the
DIP Financing were conducted in good faith and on an arms’-length basis, and included
negotiations with the First Lien Lenders regarding consensual use of cash collateral. For nearly
two weeks, the Debtors and their advisors engaged in extensive negotiations with the First Lien
Lenders and Second Lien Lenders in an effort to obtain the best possible deal for the Debtors. As
negotiations progressed, the Debtors actively sought out a deal that would offer the most liquidity
to fund these Chapter 11 Cases while simultaneously providing flexibility to run an efficient and
fulsome, yet expedited, postpetition sale process, especially with respect to the case milestones
required by the Second Lien Lenders and Stalking Horse Bidder (as defined in the First Day
Declaration).
Concurrently with negotiations with the Second Lien Lenders, beginning on June
2, 2020, the Debtors and Houlihan conducted a marketing process to determine if any third-party
lenders would be willing to provide DIP financing on more favorable terms than those negotiated
with the Second Lien Lenders. The Debtors’ advisors contacted 30 financial institutions to solicit
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offers to provide the Debtors with DIP financing on a junior lien basis, a priming basis, and/or
collateralized only by unencumbered assets. The Debtors’ advisors also made it clear to the
potential third-party financing sources that the Debtors were willing and open to evaluate any
financing structures within the art of the possible, provided such financing structure would meet
the required liquidity need to fund the Chapter 11 Cases and the ongoing operations of the Debtors.
The Debtors’ advisors sent non-disclosure agreements (“NDA”) to nine potential lenders and
ultimately executed NDAs with six of those potential lenders. Each party that executed an NDA
received comprehensive diligence files including detailed information regarding the Debtors as
well as a company and process overview presentation to guide their decision-making processes.
In spite of these efforts and multiple rounds of telephonic conversations with each of the potential
lenders who executed NDAs, none of the third parties ultimately was able to submit a viable
alternative proposal for DIP financing.
The Debtors and their advisors determined that none of the potential third-party
lenders contacted was able to offer debtor in possession financing that was on better terms than
the DIP Financing negotiated with the Second Lien Lenders, particularly in light of the fact that
the vast majority of the Debtors’ assets are encumbered by liens granted to the First Lien Lenders
and Second Lien Lenders, such that any potential third-party financing would have to be all or
partially unsecured, be on a junior basis, “prime” the Debtors’ existing secured lenders’ prepetition
liens, or be secured by the Debtors’ limited unencumbered assets.
Given these facts, even if a lender offered debtor in possession financing on terms
ostensibly better than those offered by the Second Lien Lenders, a third-party DIP loan would have
resulted in a long, costly, and risky priming fight with the Prepetition Lenders. Equally important,
any attempt by the Debtors to compel a nonconsensual priming would undermine the global deal
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surrounding the Stalking Horse Purchase Agreements and corresponding DIP Financing, and harm
the Debtors’ ability to maximize value, all to the significant detriment of the Debtors’ estates.
Therefore, the DIP Financing offered by the Second Lien Lenders reflects the most favorable and
best postpetition financing available to the Debtors, and the terms are fair and reasonable under
the circumstances of these Chapter 11 Cases.
Further, the DIP Facility Documents contain milestones that the Debtors must meet
throughout the Chapter 11 Cases, including sale-related milestones. The milestones were
negotiated by the DIP Lender Representative and the DIP Lenders as a condition to providing the
Junior DIP Facility, and provide the Debtors with limited time to effectuate a potentially value-
maximizing sale of the Debtors’ assets. Given the financial and operating condition of the Debtors
and the robust negotiations with each of the potential DIP lenders, these fees and milestones are
reasonable under the circumstances, and are the best executable terms available to the Debtors as
of the Petition Date.
BASIS FOR RELIEF REQUESTED
I. The Debtors Should be Authorized to Obtain Postpetition Financing Through the DIP Facility Documents
A. Entry into the Junior DIP Facility is an Exercise of the Debtors’ Sound Business Judgment
Provided that an agreement to obtain secured credit does not run afoul of the
provisions of, and policies underlying, the Bankruptcy Code, courts grant a debtor considerable
deference in acting in accordance with its sound business judgment in obtaining such credit. See,
e.g., In re Trans World Airlines, Inc., 163 B.R. 964, 974 (Bankr. D. Del. 1994) (approving a
postpetition loan and receivables facility “reflect[ed] sound and prudent business judgement”); In
re L.A. Dodgers LLC, 457 B.R. 308, 313 (Bankr. D. Del. 2011) (“[C]ourts will almost always defer
to the business judgment of a debtor in the selection of the lender.”); In re Ames Dep’t Stores, Inc., 26731835.1 31
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115 B.R. 34, 40 (Bankr. S.D.N.Y. 1990) (“[C]ases consistently reflect that the court’s discretion
under section 364 [of the Bankruptcy Code] is to be utilized on grounds that permit [a debtor’s]
reasonable business judgment to be exercised so long as the financing agreement does not contain
terms that leverage the bankruptcy process and powers or its purpose is not so much to benefit the
estate as it is to benefit a party-in-interest.”); In re Farmland Indus., Inc., 294 B.R. 855, 881
(Bankr. W.D. Mo. 2003) (noting that approval of postpetition financing requires, inter alia, an
exercise of “sound and reasonable business judgment.”).
In determining whether the Debtors have exercised sound business judgment in
selecting a particular DIP financing proposal, a court need only “examine whether a reasonable
business person would make a similar decision under similar circumstances.” In re Exide Techs.,
340 B.R. 222, 239 (Bankr. D. Del. 2006). Here, the Debtors’ determination to secure the Junior
DIP Facility was a business decision guided by the Debtors’ financial needs. Specifically, the
Debtors, with the advice and counsel of their advisors, determined that the Debtors will require
immediate liquidity to fund the administrative costs of a chapter 11 sale process and the on-going
needs of the Debtors’ business. Indeed, without immediate additional liquidity, the Debtors would
be unable to preserve their business nor maximize value, to the detriment of the Debtors’
customers, creditors, employees, vendors, and other parties in interest.
Bankruptcy courts will not generally second-guess a debtor’s business decisions
when those decisions involve “a business judgment made in good faith, upon a reasonable basis,
and within the scope of [its] authority under the [Bankruptcy] Code.” In re Curlew Valley Assocs.,
14 B.R. 506, 513 (Bankr. D. Utah 1981) (footnote omitted). To determine whether the business
judgment test is met, “the court ‘is required to examine whether a reasonable business person
would make a similar decision under similar circumstances.’” In re Exide Techs., 340 B.R. at 239.
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The Debtors determined that they will require immediate additional liquidity to
continue operating “business as usual” while completing their sale process. The Debtors, with the
assistance of their advisors, carefully reviewed each of their options with respect to postpetition
financing and carefully weighed the advantages and disadvantages of the selected proposal. The
Debtors ultimately determined that the proposal from their Second Lien Lenders was the best
option reasonably available under the totality of the circumstances.
Accordingly, the Debtors submit that entry into the Junior DIP Facility is in the best
interests of the Debtors’ creditors, is necessary to preserve the value of estate assets, and is an
exercise of the Debtors’ sound and reasonable business judgment.
B. Entry into the Junior DIP Facility also Satisfies an Entire Fairness Analysis
As noted above, one of the Second Lien Lenders providing the Junior DIP Facility
is an affiliate of the Debtors’ current majority equityholder. Nevertheless, the Junior DIP Facility
should be approved under the business judgment rule notwithstanding the fact that the DIP
Financing is a related-party transaction, because it was negotiated and approved by the Special
Committee (as defined in the First Day Declaration). However, even if the Court were to apply
the heightened “entire fairness” standard to its analysis of the Junior DIP Facility, the Debtors’
actions in reviewing and approving the Junior DIP Facility more than satisfy this standard.
The entire fairness standard consists of “two aspects, fair dealing and fair price,
both of which must be examined together in resolving the ultimate question of entire fairness.”
Rosenblatt v. Getty Oil Co., 493 A.2d 929, 937 (Del. 1985). Ordinarily, the party seeking to
consummate the challenged transaction bears the burden of proving entire fairness. See Kahn v.
Lynch Comm’ns Sys., Inc., 638 A.2d 1110, 1117 (Del. 1994). The burden of proving unfairness
“shifts . . . entirely” to the challenging party, however, where the challenged transaction was
approved by an independent committee of directors. Rosenblatt, 493 A.2d at 937. Where a 26731835.1 33
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controlling shareholder did not dictate the terms of the transaction and an independent negotiator
had real bargaining power which was exercised on an arm’s-length basis, the burden to prove
unfairness falls to the challenging party. Kahn, 638 A.2d at 1117. Indeed, the business judgment
rule is set aside only upon a showing that the debtor’s directors were uninformed, grossly
negligent, or lacking independence. See Dodgers, 457 B.R. at 313; In re Mid-State Raceway, Inc.,
323 B.R. 40, 58 (Bankr. S.D.N.Y. 2005) (“To overcome the business judgment rule, the entity
opposing the decision by the directors must establish that they acted in bad faith or with fraudulent
intent.”).
Here, there can be no doubt that the Debtors went to great lengths to ensure the
independence, transparency, and fairness of the DIP financing selection process. Although
members of the Stalking Horse Parties and the DIP Lenders have prepetition connections to the
Debtors, the approval and negotiation of the Stalking Horse LOI and the Stalking Horse Purchase
Agreements and DIP Financing was within the sole authority of the Special Committee and
Independent Director (as defined in the First Day Declaration). The negotiation of the Stalking
Horse Purchase Agreements, the Stalking Horse LOI, and DIP Financing on the Company’s behalf
was led and conducted by the Debtors’ Chief Restructuring Officer and the Debtors’ professionals
and outside advisors under the oversight of the Independent Director. Entry into the Stalking
Horse Purchase Agreement and DIP Financing was approved by the Special Committee and
thereafter recommended to the full board, which subsequently consented to the actions and adopted
resolutions to enter into the Stalking Horse Purchase Agreement and DIP Financing.
In sum, the process that led the Debtors, acting through the Special Committee, to
agree to the Junior DIP Facility was conducted in good faith and at arm’s length, the terms of the
Junior DIP Facility are likewise fair and favorable, and entry into the Junior DIP Facility is in the
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best interest of the Debtors’ estates. Accordingly, the Debtors’ entry into the Junior DIP Facility
satisfies the entire fairness standard to the extent such standard applies.
C. The Debtors Should be Authorized to Obtain Postpetition Financing on a Secured and Superpriority Basis
The Debtors propose to obtain financing under the Junior DIP Facility by providing
security interests and liens as set forth in the DIP Facility Documents pursuant to section 364(c)
of the Bankruptcy Code. Specifically, section 364(c) of the Bankruptcy Code provides that:
If the trustee is unable to obtain unsecured credit allowable under section 503(b)(1) of this title as an administrative expense, the court, after notice and a hearing, may authorize the obtaining of credit or the incurring of debt:
(1) with priority over any or all administrative expenses of the kind specified in section 503(b) or 507(b) of this title; [or]
(2) secured by a lien on property of the estate that is not otherwise subject to a lien;
(3) secured by a junior lien on property of the estate that is subject to a lien[.]
11 U.S.C. § 364(c).
To satisfy the requirements of section 364(c) of the Bankruptcy Code, a debtor need
only demonstrate “by a good faith effort that credit was not available” to the debtor on an
unsecured or administrative expense basis. Bray v. Shenandoah Fed. Savs. & Loan Ass’n (In re
Snowshoe Co.), 789 F.2d 1085, 1088 (4th Cir. 1986) (“The statute imposes no duty to seek credit
from every possible lender before concluding that such credit is unavailable.”); see also Pearl-Phil
GMT (Far East) Ltd. v. Caldor Corp., 266 B.R. 575, 584 (S.D.N.Y. 2001) (superpriority
administrative expenses authorized where debtor could not obtain credit as an administrative
expense). When few lenders are likely to be able and willing to extend the necessary credit to a
debtor, “it would be unrealistic and unnecessary to require [the debtor] to conduct such an
exhaustive search for financing.” In re Sky Valley, Inc., 100 B.R. 107, 113 (Bankr. N.D. Ga. 1988),
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aff’d sub nom., Anchor Savs. Bank FSB v. Sky Valley, Inc., 99 B.R. 117, 120 n. 4 (N.D. Ga. 1989);
see also Ames Dep’t Stores, 115 B.R. at 40 (approving financing facility and holding that the
debtor made reasonable efforts to satisfy the standards of section 364(c) where it approached four
lending institutions, was rejected by two, and selected the most favorable of the two offers it
received).
As set forth above, the Debtors, through their advisors, solicited other potential DIP
Financing sources but despite their good faith efforts, the Debtors did not receive any other
proposals. The Debtors have determined that the Junior DIP Facility provides the most favorable
terms whereby it offers the most efficient transaction costs while reducing execution risks and
provides the Debtors with incremental liquidity necessary to operate their business during the
Chapter 11 Cases provided on reasonable terms under the circumstances. Simply put, the Junior
DIP Facility provide the Debtors with the liquidity they need at the lowest cost available while
simultaneously placing the Debtors on an optimal path for a successful going concern sale
transaction. Therefore, the Debtors submit that the requirement of section 364 of the Bankruptcy
Code that alternative credit on more favorable terms be unavailable to the Debtors is satisfied.
D. The Junior DIP Facility Provides for Consensual Priming and Cash Collateral Use
In addition to authorizing financing under section 364(c) of the Bankruptcy Code,
courts may authorize a debtor to obtain postpetition credit secured by a lien that is senior or equal
in priority to existing liens on the encumbered property, without the consent of the existing lien
holders, if the debtor cannot otherwise obtain such credit and the interests of existing lien holders
are adequately protected. See 11 U.S.C. § 364(d)(1). Specifically, section 364(d)(1) of the
Bankruptcy Code provides:
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(1) The court, after notice and a hearing, may authorize the obtaining of credit or the incurring of debt secured by a senior or equal lien on property of the estate that is subject to a lien only if:
(A) the trustee is unable to obtain such credit otherwise; and
(B) there is adequate protection of the interest of the holder of the lien on the property of the estate on which such senior or equal lien is proposed to be granted.
(2) In any hearing under this subsection, the trustee has the burden of proof on the issue of adequate protection.
11 U.S.C. § 364(d).
When determining whether to authorize a debtor to obtain credit secured by senior
liens as authorized by section 364(d) of the Bankruptcy Code, courts focus on whether the
transaction will enhance the value of the Debtors’ assets. Courts consider a number of factors,
including:
whether the party subject to a priming lien has consented to such treatment;
whether alternative financing is available on any other basis (i.e., whether any better offers, bids, or timely proposals are before the court);
whether the proposed financing is necessary to preserve estate assets and is necessary, essential and appropriate for continued operation of the debtors’ business;
whether the terms of the proposed financing are reasonable and adequate given the circumstances of both the debtors and proposed lender(s); and
whether the proposed financing agreement was negotiated in good faith and at arms’ length and entry therein is an exercise of sound and reasonable business judgment and in the best interest of the debtor’s estate and its creditors.
See, e.g., Ames Dep’t Stores, 115 B.R. at 37–39; Bland v. Farmworker Creditors, 308 B.R. 109,
113-14 (S.D. Ga. 2003); Farmland Indus., 294 B.R. at 865–79; Barbara K. Enters., 2008 WL
2439649 at *10. The DIP Financing satisfies these factors.
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First, although the Junior DIP Facility consensually primes the Second Lien
Lenders’ prepetition liens in the Prepetition Collateral, it does not seek to prime the First Lien
Lenders’ prepetition liens in the Prepetition Collateral.
Second, the Junior DIP Facility provide the Debtors with the immediate access to
capital necessary to consummate their proposed sale process, and the financial flexibility required
to administer these Chapter 11 Cases effectively and efficiently. Further, the Budget provides the
flexibility needed for the Debtors to run their operations in the ordinary course. Collectively, the
features of the Junior DIP Facility provide substantial benefits to the Debtors that would not
otherwise be available from any other party.
Third, the structure of, and the financial terms proposed under, the Junior DIP
Facility are customary and usual for debtor-in-possession financings of this type. Specifically, the
contemplated interest rate and other payments related to the Junior DIP Facility as well as the
collateral structure and related terms were all negotiated for at arm’s length as an integrated
package of terms from the DIP Lenders and are in the aggregate generally consistent with the cost
and structure of debtor-in-possession financings in comparable circumstances.
Ultimately, the Junior DIP Facility is the best and only viable option available to
the Debtors. The Junior DIP Facility was negotiated in good faith and at arm’s length and the
Debtors’ entry into the Junior DIP Facility is an exercise of sound and reasonable business
judgment. Absent access to the DIP Financing and use of the Cash Collateral, the Debtors would
be unable to operate their businesses or prosecute their Chapter 11 Cases, which would
immediately threaten the Debtors’ going concern value. Providing the Debtors with the liquidity
necessary to preserve their going concern value through the pendency of these Chapter 11 Cases
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is in the best interest of the Debtors and their stakeholders and will maximize the return available
to stakeholders from a sale process.
E. The Prepetition Lenders Are Adequately Protected
A debtor may obtain postpetition credit “secured by a senior or equal lien on
property of the estate that is subject to a lien only if the debtor, among other things, provides
“adequate protection” to those parties whose liens are primed. See 11 U.S.C. § 364(d)(1)(B). What
constitutes adequate protection is decided on a case-by-case basis, and adequate protection may
be provided in various forms, including payment of adequate protection fees, payment of interest,
or granting of replacement liens or administrative claims. In re Mosello, 195 B.R. 277, 289 (Bankr.
S.D.N.Y. 1996) (“[T]he determination of adequate protection is a fact-specific inquiry . . . left to
the vagaries of each case.”); In re Realty Sw. Assocs., 140 B.R. 360, 366 (Bankr. S.D.N.Y. 1992)
(“‘Adequate protection’ is a question of fact because it has as its linchpin the concept of value, and
therefore is determined on a case-by-case basis.”); In re Beker Indus. Corp., 58 B.R. 725, 736
(Bankr. S.D.N.Y. 1986) (finding the application of adequate protection “is left to the vagaries of
each case, but its focus is protection of the secured creditor from diminution in the value of its
collateral during the reorganization process”) (citation omitted).
The proposed DIP Lenders and the Debtors propose granting to the First Lien
Secured Parties, or the First Lien Agent on their behalf, adequate protection in accordance with
the following, subject to the Carve-Out and the DIP Liens and Superpriority Claims granted in
respect of the DIP Obligations:
Current cash payment of Unused Commitment Fees, Letter of Credit Fees (both as defined in the First Lien Credit Agreement) and interest on the obligations under the First Lien Facility at the default rate for Base Rate Loans (as defined in the First Lien Credit Agreement) provided thereunder;
the First Lien Adequate Protection Liens;
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the First Lien Adequate Protection Claims; and
the payment of all reasonable and documented out-of-pocket fees and expenses payable to the prepetition First Lien Agent under the prepetition First Lien Documents, whether incurred pre- or post-petition.
The proposed DIP Lenders and the Debtors propose granting to the Second Lien
Lenders, or the Second Lien Agents on their behalf, adequate protection in accordance with the
following, subject to the Carve-Out and the DIP Liens and Superpriority Claims granted in respect
of the DIP Obligations:
Current cash reimbursement of reasonable and documented fees and expenses and other disbursements under the Second Lien Term Loan A Credit Agreement or the Second Lien Term Loan B Credit Agreement, as applicable, incurred in connection with the Debtors’ Chapter 11 Cases, whether incurred prior to, on, or after the Petition Date (subject to procedures for the payment of such amounts set forth in paragraph 5.16 of the Interim Order);
the Second Lien Adequate Protection Liens; and
the Second Lien Adequate Protection Claims.
The Prepetition Lenders have consented to the proposed adequate protection.
Accordingly, the Debtors also propose to provide them replacement or, if applicable, new
continuing, valid, binding, enforceable, non-avoidable and automatically perfected postpetition
security interests in and liens on the DIP Collateral. In addition, subject to entry of the Final Order,
the Debtors propose to provide the Prepetition Lenders with customary lender protections,
including 506(c) and 552(b) waivers and stipulations in respect of the validity of prepetition liens
and obligations, among other things.
The Debtors submit that their provision of adequate protection to the Prepetition
Lenders is fair and reasonable, is sufficient to satisfy the requirements of section 364(d)(1)(B) of
the Bankruptcy Code.
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The Debtors Should be Authorized to Use Postpetition Collateral, Including Cash Collateral
Section 363 of the Bankruptcy Code places certain restrictions on a debtor’s use of
Cash Collateral. Specifically, section 363(c) provides, in pertinent part, that:
The trustee may not use, sell, or lease cash collateral . . . unless
(A) each entity that has an interest in such cash collateral consents; or
(B) the court, after notice and a hearing, authorizes such use, sale, or lease in accordance with the provisions of this section [363].
11 U.S.C. § 363(c)(2). Further, section 363(e) provides that “on request of an entity that has interest
in property . . . proposed to be used, sold or leased, by the trustee, the court, with or without a
hearing, shall prohibit or condition such use, sale, or lease as is necessary to provide adequate
protection of such interest.” 11 U.S.C. § 363(e).
The Debtors submit that the requirements of sections 363(c)(2) and (e) are met here,
and the Debtors should be authorized to use the Cash Collateral. First, the Prepetition Lenders
have consented to the use of Cash Collateral. In addition, and as more fully discussed above, the
Debtors are providing the Prepetition Lenders with adequate protection that is fair and reasonable,
sufficient to satisfy the requirements of section 364(d)(1)(B) of the Bankruptcy Code.
Accordingly, the Court should authorize the Debtors to use the Cash Collateral under section
363(c)(2) of the Bankruptcy Code.
The Debtors Should be Authorized to Pay the Fees Required Under the DIP Facility Documents
As described above, the Debtors have agreed, subject to Court approval, to pay
certain fees to the DIP Lenders and DIP Lender Representative (collectively, the “DIP Fees”) in
exchange for their providing and/or acting as agent under the Junior DIP Facility. The DIP Fees
include an up front fee in cash in an amount equal to 1.0% of the Maximum DIP Commitment (the
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“Up Front Premium”). The Up Front Premium shall be fully earned and due and payable in cash
on the Closing Date (as defined in the DIP Promissory Note). The Letters of Credit will be subject
to customary letter of credit issuance and a fronting fee payable to the L/C Issuer equal to (i)
0.125% of the face amount of each Letter of Credit (the “LC Fees”) plus (ii) $305.00, each such
fee in clauses (i) and (ii) to be payable by the Borrower in cash directly to the LC Issuer on the
date of issuance of any Letter of Credit. All amounts paid under the DIP Promissory Note shall
be nonrefundable once paid.
In addition, in consideration for the First Lien Secured Parties’ consent to the use
of Cash Collateral, the Debtors will pay the First Lien Agent weekly fee in the amount of $150,000
until all First Lien Obligations (as defined in the Interim Order) have been paid in full, in cash (the
“Administration Fee” and together with the DIP Fees, the “Fees”); provided, however, that in the
event that the All Assets Stalking Horse Purchase Agreement is terminated as a result of the debt
financing contingency therein, and the First Lien Secured Parties are paid down pursuant to
paragraph 5.27 of the Interim Order upon closing of the IP Stalking Horse Purchase Agreement
(or such other higher or otherwise better bid as determined by the Debtors at an auction), such
Administration Fee shall be reduced to $100,000.
The Fees, together with the other provisions of the DIP Facility Documents,
represent the most favorable terms the DIP Lenders or any other potential investor would agree to
make the Junior DIP Facility available to the Debtors. The Debtors considered the Fees when
determining in their sound business judgment whether the DIP Facility Documents constituted the
best terms on which the Debtors could obtain sufficient postpetition financing necessary to
continue their operations and fund the Chapter 11 Cases and sale process. Paying the Fees—which
were negotiated at arms’-length among the parties—in order to obtain the Junior DIP Facility and
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use of Cash Collateral is in the best interests of the Debtors’ estates, creditors and other parties in
interest. Accordingly, the Court should authorize the Debtors to pay the Fees.
The DIP Lenders Should be Deemed Good-Faith Lenders Under Section 364(e)
Section 364(e) of the Bankruptcy Code protects a good faith lender’s right to collect
on loans extended to a debtor, and its right in any lien securing those loans, even if the authority
of the debtor to obtain such loans or grant such liens is later reversed or modified on appeal. 11
U.S.C. § 364(e). Section 364(e) provides that:
The reversal or modification on appeal of an authorization under this section [364 of the Bankruptcy Code] to obtain credit or incur debt, or of a grant under this section of a priority or a lien, does not affect the validity of any debt so incurred, or any priority or lien so granted, to an entity that extended such credit in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and the incurring of such debt, or the granting of such priority or lien, were stayed pending appeal. Id.
Here, the Debtors believe the DIP Facility Documents embody the most favorable
terms on which the Debtors could obtain DIP Financing. As discussed in the DIP Declaration, all
negotiations regarding the provisions of the Junior DIP Facility were conducted in good faith and
on an arm’s length basis. The terms and conditions of the Junior DIP Facility are fair and
reasonable, and the proceeds of the Junior DIP Facility will be used only for purposes that are
permissible under the Bankruptcy Code. Further, no consideration is being provided to any party
to the Junior DIP Facility other than as disclosed herein. Accordingly, the Court should find that
the DIP Lenders are “good faith” lenders within the meaning of section 364(e) of the Bankruptcy
Code, and are entitled to all of the protections afforded by that section.
The Scope of the Carve-Out Is Appropriate
The DIP Liens, Superpriority Claims, Prepetition Liens, Adequate Protection
Liens, and Adequate Protection Claims are subject to the Carve- Out. Without the Carve-Out, the
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Debtors and other parties in interest may be deprived of certain rights and powers because the
services for which professionals may be paid in these Chapter 11 Cases would be restricted. See
In re Ames Dep’t Stores, Inc., 115 B.R. 34, 40 (Bankr. S.D.N.Y. 1990) (observing that courts insist
on carve-outs for professionals representing parties in interest because “[a]bsent such protection,
the collective rights and expectations of all parties-in-interest are sorely prejudiced”). The Carve-
Out does not directly or indirectly deprive the Debtors’ estates or other parties in interest of
possible rights and powers. Additionally, the Carve-Out ensures that assets will be available for
the payment of fees of the Clerk of the Bankruptcy Court or the U.S. Trustee and professional fees
of the Debtors and an unsecured creditors’ committee, if one is appointed. Accordingly, the Carve-
Out is necessary and appropriate, and should be approved.
The Automatic Stay Should be Modified on a Limited Basis
The relief requested herein contemplates a modification of the automatic stay to
permit the Debtors to grant the DIP Liens. Specifically, the Junior DIP Facility contemplates
modifying the automatic stay so as to (i) permit the creation and perfection of the DIP Liens, and
(ii) provide for the automatic vacation of such stay to permit the DIP Lender Representative and
the DIP Lenders to enforce its rights with respect to the DIP Collateral in the event of an Event of
Default under the Junior DIP Facility, subject to five business days’ written notice to counsel to
the Debtors, and the U.S. Trustee.
Stay modifications of this kind are ordinary and standard features for postpetition
financings, and in the Debtors’ business judgment, are reasonable and fair under the present
circumstances. See, e.g., In re The NORDAM Group, Inc., Case No. 18-11699 (MFW) (Bankr. D.
Del. July 25, 2018) (D.I. 85); In re Claire’s Stores, Inc., Case No. 18-10584 (MFW) (Bankr. D.
Del. Mar. 20, 2018) (D.I. 130); In re Golfsmith Int’l Holdings, Inc., Case No. 16-12033 (LSS)
(Bankr. D. Del. Sep. 16, 2016) (D.I. 89); In American Apparel, Inc., Case No. 15-12055 (BLS) 26731835.1 44
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(Bankr. D. Del. Oct. 6, 2015) (D.I. 80); In re Sears Holdings Corp., Case No. 18-23538 (RDD)
(Bankr. S.D.N.Y Oct. 16, 2018) (D.I. 101); In re Westinghouse Electric Co. LLC, Case No. 17-
10751 (MEW) (Bankr. S.D.N.Y May 26, 2017) (D.I. 86); In re Breitburn Energy Partners LP,
No. 16-11390 (SMB) (Bankr. S.D.N.Y. July 19, 2016) (D.I. 278); In re Aeropostale, Inc., No. 16-
11275 (SHL) (Bankr. S.D.N.Y. May 6, 2016) (D.I. 99).
BANKRUPTCY RULE 6003 HAS BEEN SATISFIED AND BANKRUPTCY RULE 6004 SHOULD BE WAIVED
Certain aspects of the relief requested herein may, if granted, be subject to
Bankruptcy Rule 6003. Pursuant to Bankruptcy Rule 6003, a court may grant such relief if it is
necessary to avoid immediate and irreparable harm. The Debtors anticipate that the
commencement of these Chapter 11 Cases will significantly and immediately increase the
demands on their liquidity as a result of, among other things, the costs of administering these
Chapter 11 Cases, implementing critical restructuring initiatives, and addressing key constituents’
concerns regarding the Debtors’ financial health and ability to continue operations in light of these
Chapter 11 Cases. Accordingly, the Debtors have an immediate need for access to liquidity to,
among other things, continue the operation of their business, maintain important relationships with
customers, meet payroll for their employees, and otherwise satisfy their working capital and
operational needs, all of which are required to preserve and maintain the Debtors’ going concern
value for the benefit of all parties in interest. The Debtors would suffer immediate and irreparable
harm if the relief sought herein is not promptly granted. Accordingly, the Debtors submit that the
relief requested herein is necessary to avoid immediate and irreparable harm, and, therefore,
Bankruptcy Rule 6003 is satisfied.
To implement the foregoing successfully, the Debtors seek a waiver of the notice
requirements under Bankruptcy Rule 6004(a) and the fourteen (14) day stay of an order authorizing
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the use, sale, or lease of property under Bankruptcy Rule 6004(h). Pursuant to Bankruptcy Rule
6004(h), “[a]n order authorizing the use, sale, or lease of property other than cash collateral is
stayed until the expiration of fourteen (14) days after entry of the order, unless the court orders
otherwise.” Fed. R. Bankr. P. 6004(h). As explained above, the relief requested herein is
necessary to avoid immediate and irreparable harm to the Debtors. Accordingly, ample cause
exists to justify the waiver of the notice requirements under Bankruptcy Rule 6004(a) and the
fourteen-day stay imposed by Bankruptcy Rule 6004(h), to the extent such stay applies.
REQUEST FOR A FINAL HEARING
Pursuant to Bankruptcy Rules 4001(b)(2) and 4001(c)(2), the Debtors request that
the Court set a date for the Final Hearing that is as soon as practicable, and in no event after thirty
(30) days after the Petition Date, and fix the time and date prior to the Final Hearing for parties to
file objections to this Motion.
RESERVATION OF RIGHTS
Nothing contained herein is or should be construed as: (i) an admission as to the
validity of any claim against the Debtors or the existence of any lien against the Debtors’ property;
(ii) a waiver of the Debtors’ rights to dispute any claim or lien on any grounds; (iii) a promise to
pay any claim; (iv) an implication or admission that any particular claim would constitute an
allowed claim; (v) an assumption or rejection of any executory contract or unexpired lease
pursuant to section 365 of the Bankruptcy Code; or (vi) a limitation on the Debtors’ rights under
section 365 of the Bankruptcy Code to assume or reject any executory contract with any party
subject to the Orders once entered. Nothing contained in the Orders shall be deemed to increase,
reclassify, elevate to an administrative expense status, or otherwise affect any claim to the extent
it is not paid.
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NOTICE
Notice of this Motion will be provided to (i) the U.S. Trustee, (ii) the holders of the
thirty (30) largest unsecured claims against the Debtors on a consolidated basis, (iii) Choate Hall
& Stewart LLP, counsel to Wells Fargo Bank, N.A., as administrative agent under the First Lien
Credit Agreement, (iv) Greenberg Traurig, LLP, counsel to Wells Fargo Bank, N.A, as term agent
under the First Lien Credit Agreement, (v) DLA Piper LLP (US), counsel to certain of the Second
Lien Lenders, certain of the DIP Lenders, and the DIP Lender Representative, (vi) Paul Hastings
LLP, counsel to Hilco Merchant Resources LLC, (vii) Richards, Layton & Finger, PA, counsel to
Clover Holdings II, LLC, (viii) Alston & Bird LLP, counsel to Wilmington Trust, N.A., as Second
Lien Term Loan A Agent, (ix) Paul, Weiss, Rifkind, Wharton & Garrison LLP, counsel to SPARC
Group LLC and ABG-Lucky, LLC, (x) counterparties to the Debtors’ real property leases; (xi) the
Banks, (xii) the Securities and Exchange Commission, (xiii) the United States Attorney’s Office
for the District of Delaware, (xiv) the Internal Revenue Service, and (xv) any party that has
requested notice pursuant to Bankruptcy Rule 2002. As this Motion is seeking “first day” relief,
the Debtors will serve copies of this Motion and any order entered in respect of this Motion as
required by Local Rule 9013-1(m). The Debtors believe that no further notice is required.
A copy of this Motion is available on the website maintained by the Debtors’
proposed claims and noticing agent, Epiq, at https://dm.epiq11.com/LuckyBrand.
[Remainder of page left intentionally blank]
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WHEREFORE the Debtors respectfully request entry of the Orders granting the relief
requested herein and such other and further relief as the Court may deem just and appropriate.
Dated: July 3, 2020 YOUNG CONAWAY STARGATT & TAYLOR, LLP Wilmington, Delaware
/s/ Kara Hammond Coyle Michael R. Nestor (No. 3526) Kara Hammond Coyle (No. 4410) Andrew L. Magaziner (No. 5426) Joseph M. Mulvihill (No. 6061) Rodney Square 1000 North King Street Wilmington, Delaware 19801 Telephone: (302) 571-6600 Facsimile: (302) 571-1253 Email: [email protected] [email protected] [email protected] [email protected] - and -
LATHAM & WATKINS LLP
George A. Davis (pro hac vice admission pending) 885 Third Avenue New York, New York 10022 Telephone: (212) 906-1200 Facsimile: (212) 751-4864 Email: [email protected]
- and -
Ted A. Dillman (pro hac vice admission pending) Lisa K. Lansio (pro hac vice admission pending) 355 South Grand Avenue, Suite 100 Los Angeles, California 90071 Telephone: (213) 485-1234 Facsimile: (213) 891-8763 Email: [email protected] [email protected]
Proposed Counsel for Debtors and Debtors in Possession
26731835.1
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Exhibit A
INTERIM ORDER
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Case 20-11768-CSS Doc 14 Filed 07/03/20 Page 50 of 185
IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE ------x : In re: : Chapter 11 : Lucky Brand Dungarees, LLC, et al.,1, : Case No. 20-11768 (___) : Debtors. : (Jointly Administered) ------x
INTERIM ORDER PURSUANT TO 11 U.S.C. §§ 105, 361, 362, 363, 364, 503, 507 AND 552 (I) AUTHORIZING THE DEBTORS TO (A) OBTAIN POSTPETITION FINANCING, AND (B) USE CASH COLLATERAL; (II) GRANTING ADEQUATE PROTECTION TO THE PREPETITION LENDERS; (III) GRANTING LIENS AND SUPERPRIORITY CLAIMS; (IV) MODIFYING THE AUTOMATIC STAY; (V) SCHEDULING A FINAL HEARING; AND (VI) GRANTING RELATED RELIEF
Upon the motion (the “DIP Motion”) of the above-captioned debtors and debtors-in-
possession (collectively, the “Debtors”) in the above-referenced chapter 11 cases (the “Cases”)
seeking entry of an interim order (this “Interim Order”) pursuant to sections 105, 361, 362,
363(b), 363(c)(2), 363(e), 364(c)(1), 364(c)(2), 364(c)(3), 364(d)(1), 364(e), 503, 507 and 552 of
title 11 of the United States Code (as amended, the “Bankruptcy Code”), Rules 2002, 4001, 6004
and 9014 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”) and Rules
2002-1, 4001-1, 6004-2 and 9014-1 of the Local Rules of Bankruptcy Practice and Procedure of
the United States Bankruptcy Court for the District of Delaware (the “Local Rules”), that, among
other things:
(1) authorizes the Borrower (as defined below) to obtain up to an aggregate principal
amount not to exceed USD $15,600,000 (the “DIP Commitment”), in postpetition secured
financing (the “Junior DIP Facility”), which shall include a $4,100,000 sublimit solely for the
1 The Debtors in these cases, along with the last four digits of each Debtor’s federal tax identification number, are: Lucky Brand Dungarees, LLC (3823), LBD Parent Holdings, LLC (4563), Lucky Brand Dungarees Stores, LLC (7295), Lucky PR, LLC (9578), and LBD Intermediate Holdings, LLC (7702). The Debtors’ address is 540 S Santa Fe Avenue, Los Angeles, California 90013.
1.3 2 6731836.1
Case 20-11768-CSS Doc 14 Filed 07/03/20 Page 51 of 185
issuance of letters of credit, pursuant to (and in accordance with the terms of) that certain
Superpriority Junior Debtor-in-Possession Secured Promissory Note, substantially in the form
annexed hereto as Exhibit A (as amended, restated, supplemented or otherwise modified from
time to time, the “DIP Promissory Note”, and collectively with any other related agreements,
security agreements, or pledge agreements, including the DIP Orders, collectively, the “DIP
Facility Documents”), by and among Lucky Brand Dungarees, LLC (the “Borrower”), as the
borrower, the guarantors party thereto, Lantern Capital Partners (or its designee, “LCP”), in its
capacity as administrative agent and collateral agent (in such capacity, the “DIP Lender
Representative”), LCP, ReStore Capital, LLC or one of its affiliates (“Restore”) and Clover
Holdings II, LLC or one of its affiliates (“Clover Holdings” and, together with LCP and Restore,
the “DIP Lenders” and, together with the DIP Lender Representative, in such capacities, the
“DIP Secured Parties”), which Junior DIP Facility shall be available as term loans (the “DIP
Loans”) to the Borrower and the other Debtors upon entry of the Interim Order and satisfaction
of the other conditions set forth in the DIP Facility Documents in the amount of up to
$15,600,000, including $11,500,000 of aggregate DIP Loan proceeds (of which $6,500,000 will
be available upon entry of the Interim Order) and $4,100,000 (which will be available upon entry
of the Interim Order), which shall solely be used for the issuance of letters of credit provided that
unreimbursed letters of credit thereunder may be converted into DIP Loans in accordance with
the terms of the DIP Promissory Note (the “Initial DIP Loan”);
(2) authorizes the Borrower and the other Debtors to enter into the DIP Promissory
Note and the other DIP Facility Documents and to take such other and further acts as may be
required in connection with the DIP Facility Documents;
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(3) authorizes the Debtors to pay all amounts, obligations, and liabilities owing or
payable to the DIP Secured Parties pursuant to the DIP Facility Documents, including, without
limitation, any principal, interest, commitment fees, exit premium, agent fees, audit fees, closing
fees, service fees, facility fees, or other fees, costs, expenses, charges, and disbursements of the
DIP Secured Parties (including the reasonable and documented fees and expenses of each of the
DIP Secured Parties’ attorneys, advisors, accountants and other consultants, whether incurred
prior to, on, or after the Petition Date, subject to the procedures set forth in paragraph 5.16
below), and any obligations in respect of indemnity claims, whether contingent or absolute, in
each case, to the extent constituting obligations of any kind under the DIP Facility Documents
(such obligations, the “DIP Obligations”) subject to the terms of this Interim Order;
(4) authorizes the Debtors, immediately upon entry of this Interim Order, to use
proceeds of the Initial DIP Loan as expressly provided in the DIP Facility Documents and solely
in accordance with this Interim Order and the applicable Approved Budget (as defined below)
(subject to permitted variances and other exclusions set forth in the DIP Facility Documents) to:
(A) pay costs, premiums, fees, and expenses incurred to administer or related to the Cases or in
connection with the Junior DIP Facility; and (B) provide financing for working capital, letters of
credit, and for other general corporate purposes of the Debtors in accordance with the Approved
Budget (subject to permitted variances and other exclusions set forth in the DIP Facility
Documents);
(5) grants to the DIP Lender Representative, for the benefit of itself and the other DIP
Secured Parties valid, enforceable, non-avoidable, automatically and fully perfected DIP Liens
(as defined below) in all DIP Collateral (as defined below) to secure the DIP Obligations, which
DIP Liens shall be (i) junior to the First Liens (as defined below) and any other valid, perfected,
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and non-avoidable liens in existence immediately prior to the Petition Date (other than liens on
the Second Lien Collateral) and to any valid and non-avoidable liens in existence immediately
prior to the Petition Date that are perfected subsequent to the Petition Date as permitted by
section 546(b) of the Bankruptcy Code, in each case, that are senior to the First Liens (the “Prior
Permitted Liens”); provided that, in no event shall any alleged right of reclamation or return
(whether asserted under Section 546(c) of the Bankruptcy Code or otherwise) be deemed or
treated hereunder as a Prior Permitted Lien; provided, further, that nothing contained in this
Interim Order or in the DIP Facility Documents shall be deemed an admission or waiver of any
arguments in connection with the determination regarding the amount, extent, priority or validity
of any such liens, and all such rights and defenses are hereby preserved; (ii) junior to the First
Lien Adequate Protection Liens (as defined below); (iii) senior to the Prepetition Second Liens
(as defined below); and (iv) senior to the Second Lien Adequate Protection Liens (as defined
below);
(6) authorizes the Debtors to use, among other things, solely in accordance with the
Approved Budget (subject to permitted variances and other exclusions set forth in the DIP
Facility Documents) and the limitations provided herein, any Cash Collateral in which any of the
Prepetition Secured Parties (as defined below) and/or the DIP Secured Parties may have an
interest, and granting adequate protection to the Prepetition Secured Parties solely to the extent
of any postpetition diminution in the value of the Prepetition Secured Parties’ respective interests
in the Prepetition Collateral, including without limitation, the Cash Collateral, as a result of,
among other things, (i) the incurrence of the DIP Obligations, (ii) the Debtors’ use of Cash
Collateral as set forth in this Interim Order, (iii) the subordination of the obligations of the
Prepetition Secured Parties and the DIP Secured Parties to the Carve-Out (iv) any other
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diminution in value of the Prepetition Secured Parties’ respective interests in the Prepetition
Collateral arising from the Debtors’ use, sale, or disposition of such Prepetition Collateral or the
proceeds thereof, and (v) and the imposition of the automatic stay pursuant to section 362 of the
Bankruptcy Code (collectively, “Diminution in Value”);
(7) the modification of the automatic stay imposed by section 362 of the Bankruptcy
Code solely to the extent necessary to implement and effectuate the terms and provisions of this
Interim Order and the other DIP Facility Documents to the extent hereinafter set forth;
(8) waives the Debtors’ right to seek surcharge pursuant to section 506(c) of the
Bankruptcy Code against any DIP Collateral and, subject to and effective upon entry of a final
order granting the relief requested in the Motion on a final basis (the “Final Order” and, together
with the Interim Order, the “DIP Orders”), the Prepetition Collateral, and subject to and effective
upon entry of the Final Order granting such relief, waiving the Debtors’ right under the “equities
of the case” exception of section 552(b) of the Bankruptcy Code with respect to DIP Collateral
and the prepetition collateral;
(9) seeks this Court’s waiver of any applicable stay (including under Bankruptcy
Rule 6004) and providing for immediate effectiveness of this Interim Order; and
(10) schedules a final hearing on the Motion (the “Final Hearing”) to consider entry of
the Final Order granting the relief requested in the Motion on a final basis, and approving the
form of notice with respect to the Final Hearing; and granting the Debtors such other and further
relief as is just and proper.
The interim hearing on the Motion having been held by this Court on July __,
2020 (the “Interim Hearing”), and upon the record made by the Debtors at the Interim Hearing,
including the Motion, the First Day Declaration and the DIP Declaration; any exhibits in
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connection with the foregoing, and the filings and pleadings in these Cases, the Court having
found that the interim relief requested in the Motion is fair and reasonable and is in the best
interests of the Debtors, the Debtors’ bankruptcy estates (as defined under section 541 of the
Bankruptcy Code, the “Estates”), their stakeholders and other parties in interest, and represents a
sound exercise of the Debtors’ business judgment and is essential for the continued operation of
certain of the Debtors’ businesses, and the preservation of the value of the Debtors’ Estates; it
appearing to the Court that granting the interim relief requested in the Motion is necessary to
avoid immediate and irreparable harm to the Debtors and their Estates pending the Final
Hearing; and adequate and sufficient notice of the Motion, the interim relief requested therein,
and the Interim Hearing (the “Notice”) having been given under the circumstances; and the
Notice having been served by the Debtors in accordance with Bankruptcy Rules 4001 and 9014
and the Local Rules on (i) the U.S. Trustee, (ii) the holders of the thirty (30) largest unsecured
claims against the Debtors on a consolidated basis, (iii) Choate Hall & Stewart LLP, counsel to
the First Lien Agent, (iv) DLA Piper, counsel to the DIP Lender Representative and the Second
Lien Term Loan A Secured Parties, (v) Richards, Layton & Finger, PA, counsel to the Second
Lien Term Loan B Secured Parties, (vi) the Banks, (vii) the Securities and Exchange
Commission, (viii) the United States Attorney’s Office for the District of Delaware, (ix) the
Internal Revenue Service, and (x) any party that has requested notice pursuant to Bankruptcy
Rule 2002 (collectively, the “Notice Parties”); and no other notice need be provided for the relief
to be granted on an interim basis; and all objections, if any, to the relief requested in the Motion
on an interim basis having been withdrawn, resolved, or overruled by the Court; and after due
deliberation and sufficient cause appearing therefor;
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THE COURT HEREBY MAKES THE FOLLOWING FINDINGS OF FACT AND
CONCLUSIONS OF LAW:2
A. Petition Date. On July 3, 2020 (the “Petition Date”), each Debtor filed a
voluntary petition for relief under chapter 11 of the Bankruptcy Code. The Debtors continue to
manage their business and properties as debtors in possession pursuant to sections 1107(a) and
1108 of the Bankruptcy Code. No chapter 11 trustee or examiner has been appointed in any of
the Cases.
B. Jurisdiction and Venue. This Court has jurisdiction over these Cases, the Debtors,
property of the Debtors’ Estates and this matter under 28 U.S.C. §§ 157 and 1334. This is a core
proceeding within the meaning of 28 U.S.C. § 157(b)(2). Pursuant to Rule 9013-1(f) of the
Local Rules, the Debtors consent to the entry of a final judgment or order with respect to the
Motion if it is determined that this 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. §§ 1408 and 1409. The statutory and legal predicates for
the relief sought herein are sections 105, 361, 362, 363, 364, 503, 507 and 552 of the Bankruptcy
Code and Bankruptcy Rules 2002, 4001, 6004 and 9014 and Local Rules 2002-1, 4001(a)-1,
6004-2, 9013-1 and 9014-1.
C. Committee Formation. As of the date hereof, no official committee of unsecured
creditors under section 1102 of the Bankruptcy Code (the “Committee”) or any other statutory
committee has been appointed in the Cases.
2 The findings and conclusions set forth herein constitute the Court’s findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052, made applicable to this proceeding pursuant to Bankruptcy Rule 9014. To the extent that any of the following findings of fact constitute conclusions of law, they are adopted as such. To the extent any of the following conclusions of law constitute findings of fact, they are adopted as such. 1.2 2 6731836.1 7
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D. Notice. The Notice was given in the manner described in the Motion. Under the
circumstances, the Notice given by the Debtors of the Motion, the Interim Hearing, and the relief
granted under this Interim Order complies with Bankruptcy Rule 4001 and the Local Rules.
E. Stalking Horse Bids. On July 3, 2020, the Debtors entered into a stalking horse
asset purchase agreement (the “All Assets Stalking Horse Bid”) with SPARC Group LLC (the
“All Assets Stalking Horse Bidder”) for the sale of substantially all of the assets of the Debtors,
as described in greater detail therein. Concurrently with the execution of the All Assets Stalking
Horse Bid, the Debtors entered into an additional asset purchase agreement (the “IP Stalking
Horse Bid” and together with the All Assets Stalking Horse Bid, each a “Stalking Horse Bid”)
with Authentic Brands Group, Inc. (the “IP Stalking Horse Bidder”) for the sale of the Debtors’
intellectual property and other assets as described in greater detail therein. The All Assets
Stalking Horse Bid is contingent on the All Assets Stalking Horse Bidder’s ability to obtain debt
financing for the purchase of inventory and certain other assets. In the event that the All Assets
Stalking Horse Bidder does not obtain debt financing or otherwise waive such contingency as
outlined further in the applicable asset purchase agreement, then the All Assets Stalking Horse
Bid shall terminate, thereby triggering the effectiveness of the IP Stalking Horse Bid subject to
the terms and conditions contained therein (the “Toggle”).
F. Parties’ Acknowledgments, Agreements, and Stipulations. In requesting the
Junior DIP Facility and use of Cash Collateral, and in exchange for and as a material inducement
to the DIP Lenders and the Prepetition Secured Parties to agree to provide, or consent to, the
Junior DIP Facility, the use of Cash Collateral, and subordination of the DIP Liens to the Carve-
Out, as provided herein, and as a condition to providing financing under the Junior DIP Facility
and consenting to the use of Cash Collateral as set forth in this Interim Order, subject to the
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rights of any statutory committee appointed in these Cases or other parties in interest (other than
the Debtors) set forth in paragraph 5.11 of this Interim Order and subject to and effective upon
the entry of a Final Order granting such relief, the Debtors permanently and irrevocably admit,
stipulate, acknowledge, and agree, as follows:
(i) Prepetition First Lien Facility. Lucky Brand Dungarees, LLC as
borrower, LBD Intermediate Holdings, LLC as a guarantor, certain subsidiaries of Lucky Brand
Dungarees, LLC as guarantors (such parties, collectively, the “First Lien Obligors”), the lenders
from time to time party thereto (collectively, the “First Lien Lenders”), and Wells Fargo Bank,
National Association, as administrative agent, term loan agent and collateral agent (in such
capacities, the “First Lien Agent” and, together with the First Lien Lenders, and other “Secured
Parties” (as defined in the First Lien Credit Agreement (as defined below)) collectively the “First
Lien Secured Parties”), are parties to that certain Third Amended and Restated Credit
Agreement, dated November 12, 2019 (as amended, restated, supplemented, or otherwise
modified from time to time, the “First Lien Credit Agreement” and, together with all other
agreements, documents, and instruments executed and/or delivered with, to or in favor of the
First Lien Secured Parties, including, without limitation, all security agreements, notes,
guarantees, mortgages, Uniform Commercial Code financing statements, documents, and
instruments, including any fee letters, executed and/or
delivered in connection therewith or related thereto, the “First Lien Documents”). Pursuant to
the First Lien Documents, the First Lien Secured Parties provided the First Lien Obligors with
asset-based credit facilities (collectively, the “First Lien Facility”), consisting of (i) a revolving
credit facility (the “First Lien Revolving Facility”) and (ii) a term loan facility (the “First Lien
Term Loan Facility”), all as set forth in the First Lien Credit Agreement. As of the Petition Date,
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the First Lien Obligors, without defense, counterclaim, or offset of any kind, were jointly and
severally indebted and liable to the First Lien Secured Parties under the First Lien Documents
(A) in an aggregate principal amount not less than $111,178,787.46, consisting of: (1)
$51,615,924.36 in an aggregate principal amount outstanding under the First Lien Revolving
Facility (2) Letters of Credit (as defined in the First Lien Credit Agreement) in the aggregate
undrawn face amount of $9,574,113.10, (3) $49,988,750.003 in aggregate principal amount
outstanding under the First Lien Term Loan Facility plus (B) all interest accrued and accruing
under the First Lien Documents (including any default rate interest), together with all costs, fees,
expenses (including attorneys’ fees and legal expenses) and all other Obligations (as defined in
the First Lien Credit Agreement) accrued, accruing or chargeable in respect thereof or in addition
thereto, ((A)-(B) collectively the “First Lien Obligations”). The First Lien Obligations and the
First Lien Documents constitute the legal, valid, binding and non-avoidable obligations and
agreements of the Debtors, enforceable in accordance with their terms. The First Lien
Obligations are secured by a first priority security interest granted by the Borrower and other
Debtors on all right, title and interest in all present and future assets, both real and personal,
tangible and intangible and including all intellectual property of the Borrower and other Debtors,
including all equity interests, including any Mortgaged Property (as defined in the First Lien
Credit Agreement) in each case, as to the extent provided in the First Lien Documents and
excluding any Excluded Assets (as defined in the First Lien Credit Agreement) (the “First Lien
3 In accordance with the terms and conditions of the First Lien Documents the Debtors are obligated to the “Term Lenders” under the First Lien Credit Agreement (“First Lien Term Lenders”) with respect to a Prepayment Fee (as defined under the First Lien Credit Agreement) in an amount of $1,477,500.00. The Prepayment Fee is currently fully earned and due and payable in full. Notwithstanding the foregoing, subject to paragraph 5.27 of this Interim Order, the First Lien Term Lenders have agreed that only 50% of the Prepayment Fee shall be capitalized and added to principal balance of the First Lien Term Loan Facility and the balance of the Prepayment Fee shall be waived if the First Lien Obligations are Paid in Full on or before August 15, 2020. 1.2 2 6731836.1 10
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Priority Collateral” and, such first priority liens and security interests in the First Lien Priority
Collateral, the “First Liens”).
(ii) Second Lien Term Loan A Facility. Lucky Brand Dungarees, LLC, as
borrower, LBD Intermediate Holdings, LLC as a guarantor, certain subsidiaries of Lucky Brand
Dungarees, LLC designated as “Guarantors” thereto (such parties, collectively, the “Second Lien
Term Loan A Obligors”), the lenders from time to time party thereto (collectively, the “Second
Lien Term Loan A Lenders”), Wilmington Trust, National Association, as administrative agent
and collateral agent (in such capacities, the “Second Lien Term Loan A Agent”, and together
with the Second Lien Term Loan A Lenders, the “Second Lien Term Loan A Secured Parties”),
are parties to that certain Second Lien Credit Agreement, dated November 12, 2019 (as
amended, restated, amended and restated, supplemented, or otherwise modified from time to
time, the “Second Lien Term Loan A Credit Agreement” and together with any other related
agreements, documents or security agreements, collectively, the “Second Lien Term Loan A
Documents”). Pursuant to the Second Lien Term Loan A Documents, the Second Lien Term
Loan A Lenders provided the Second Lien Term Loan A Obligors with a term loan facility (the
“Second Lien Term Loan A Facility”), all as set forth in the Second Lien Term Loan A Credit
Agreement. As of the Petition Date, the Second Lien Term Loan A Obligors, without defense,
counterclaim, or offset of any kind, were jointly and severally indebted and liable to the Second
Lien Term Loan A Secured Parties under the Second Lien Term Loan A Documents (A) in an
aggregate principal amount of not less than $54,533,739.10 (inclusive of payment-in-kind
interest accrued as of the Petition Date pursuant to the terms of the Second Lien Term Loan A
Credit Agreement) plus (B) all interest accrued and accruing under the Second Lien Term Loan
A Documents, together with all costs, fees, expenses (including attorneys’ fees and legal
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expenses) and all other Obligations (as defined in the Second Lien Term Loan A Credit
Agreement) accrued, accruing or chargeable in respect thereof or in addition thereto, ((A)-(B)
collectively, the “Second Lien Term Loan A Obligations”). The Second Lien Term Loan A
Obligations and the Second Lien Term Loan A Documents constitute the legal, valid, binding
and non-avoidable obligations and agreements of the Debtors, enforceable in accordance with
their terms. The Second Lien Term Loan A Obligations are secured by a second priority security
interest granted by the Borrower and other Debtors on all right, title and interest in all present
and future assets, both real and personal, tangible and intangible and including all intellectual
property of the Borrower and other Debtors, including all equity interests, including any
Mortgaged Property (as defined in the Second Lien Term Loan A Credit Agreement) in each
case, as to the extent provided in the Second Lien Term Loan A Documents and excluding any
Excluded Assets (as defined in the Second Lien Term Loan A Credit Agreement) (the “Second
Lien Term Loan A Collateral” and, such second priority liens and security interests in the Second
Lien Term Loan A Collateral, the “Term Loan A Second Liens”).
(iii) Second Lien Term Loan B Facility. Lucky Brand Dungarees, LLC, as
borrower, LBD Intermediate Holdings, LLC as a guarantor, certain subsidiaries of Lucky Brand
Dungarees, LLC designated as “Guarantors” thereto (such parties, collectively, the “Second Lien
Term Loan B Obligors” and together with the First Lien Obligors and the Second Lien Term
Loan A Obligors, the “Prepetition Obligors”), the lenders from time to time party thereto
(collectively, the “Second Lien Term Loan B Lenders” and, together with the Second Lien Term
Loan A Lenders, the “Second Lien Lenders” and the Second Lien Lenders, together with the
First Lien Lenders, the “Prepetition Lenders”), Clover Holdings, as administrative agent and
collateral agent (in such capacities, the “Second Lien Term Loan B Agent” and together with the
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Second Lien Term Loan B Lenders, the “Second Lien Term Loan B Secured Parties” and
together with the Second Lien Term Loan A Secured Parties, the “Second Lien Secured Parties”,
and the Second Lien Secured Parties together with the First Lien Secured Parties, the
“Prepetition Secured Parties”), are parties to that certain Second Lien Credit Agreement, dated
November 12, 2019 (as amended, restated, amended and restated, supplemented, or otherwise
modified from time to time, the “Second Lien Term Loan B Credit Agreement” and together
with any other related agreements, documents or security agreements, collectively, the “Second
Lien Term Loan B Documents”, and together with the First Lien Documents and the Second
Lien Term Loan A Documents, the “Prepetition Loan Documents”). Pursuant to the Second
Lien Term Loan B Documents, the Second Lien Term Loan B Secured Parties provided the
Second Lien Term Loan B Obligors with a term loan facility (the “Second Lien Term Loan B
Facility”), all as set forth in the Second Lien Term Loan B Credit Agreement. As of the Petition
Date, the Second Lien Term Loan B Obligors, without defense, counterclaim, or offset of any
kind, were jointly and severally indebted and liable to the Second Lien Term Loan B Secured
Parties under the Second Lien Term Loan B Documents (A) in an aggregate principal amount of
not less than $16,809,241.34 (inclusive of payment-in-kind interest accrued as of the Petition
Date pursuant to the terms of the Second Lien Term Loan B Credit Agreement) plus (B) all
interest accrued and accruing under the Second Lien Term Loan B Documents, together with all
costs, fees, expenses (including attorneys’ fees and legal expenses) and all other Obligations (as
defined in the Second Lien Term Loan B Credit Agreement) accrued, accruing or chargeable in
respect thereof or in addition thereto, ((A)-(B) collectively, the “Second Lien Term Loan B
Obligations” and together with the Second Lien Term Loan A Obligations, the “Second Lien
Obligations” and together with the First Lien Obligations, the “Prepetition Obligations”). The
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Second Lien Term Loan B Obligations and the Second Lien Term Loan B Documents constitute
the legal, valid, binding and non-avoidable obligations and agreements of the Debtors,
enforceable in accordance with their terms. The Second Lien Term Loan B Obligations are
secured by a second priority security interest granted by the Borrower and other Debtors on all
right, title and interest in all present and future assets, both real and personal, tangible and
intangible and including all intellectual property of the Borrower and other Debtors, including all
equity interests, including any Mortgaged Property (as defined in the Second Lien Term Loan B
Credit Agreement) in each case, as to the extent provided in the Second Lien Term Loan B
Documents and excluding any Excluded Assets (as defined in the Second Lien Term Loan B
Credit Agreement) (the “Second Lien Term Loan B Collateral” and, together with the Second
Lien Term Loan A Collateral, the “Second Lien Collateral” and the Second Lien Collateral
together with the First Lien Priority Collateral, the “Prepetition Collateral” and such second
priority liens and security interests in the Second Lien Term Loan B Collateral, the “Term Loan
B Second Liens”, and together with the Term Loan A Second Liens, the “Prepetition Second
Liens”, and the Prepetition Second Liens together with the First Liens, the “Prepetition Liens”).
(iv) First Lien/Second Lien Intercreditor Agreement. Wells Fargo Bank,
National Association, in its capacity as First Lien Agent, Wilmington Trust, National
Association, in its capacity as Second Lien Term Loan A Agent, and Clover Holdings, in its
capacity as Second Lien Term Loan B Agent are parties to that certain Intercreditor Agreement,
dated as of November 12, 2019 (the “First Lien/Second Lien Intercreditor Agreement”). The
Debtors admit, stipulate, and agree that the First Lien/Second Lien Intercreditor Agreement was
entered into by themselves in good faith and is fair and reasonable to the parties thereto and
enforceable in accordance with the terms thereof. The First Lien/Second Lien Intercreditor
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Agreement constitutes a “subordination agreement” within the meaning of section 510 of the
Bankruptcy Code and, except as expressly modified by the terms of this Interim Order and any
Final Order, remains in full force and effect, enforceable against the Second Lien Secured
Parties, the First Lien Secured Parties, and the Debtors party thereto.
(v) Second Lien Pari Passu Intercreditor Agreement. Wilmington Trust,
National Association, in its capacity as Second Lien Term Loan A Agent and Clover Holdings,
in its capacity as Second Lien Term Loan B Agent are parties to that certain Second Lien Pari
Passu Intercreditor Agreement, dated as of November 12, 2019 (the “Second Lien Pari Passu
Intercreditor Agreement”). The Debtors admit, stipulate, and agree that the Second Lien Pari
Passu Intercreditor Agreement was entered into by themselves in good faith and is fair and
reasonable to the parties thereto and enforceable in accordance with the terms thereof. Except as
expressly modified by the terms of this Interim Order and any Final Order, the Second Lien Pari
Passu Intercreditor Agreement remains in full force and effect, enforceable against the Second
Lien Secured Parties and the Debtors party thereto.
(vi) Prepetition Obligations. The Prepetition Obligations owing to the
Prepetition Secured Parties and the Prepetition Loan Documents constitute legal, valid, binding
and non-avoidable obligations of the Debtors and their applicable affiliates, enforceable against
them in accordance with their respective terms. The Prepetition Obligations constitute allowed
secured claims under sections 502 and 506(a) of the Bankruptcy Code and no portion of the
Prepetition Obligations owing to the Prepetition Secured Parties or any payments made to the
Prepetition Agents or applied to the Prepetition Obligations owing under the Prepetition Loan
Documents prior to the Petition Date is subject to avoidance, recharacterization, reduction, set-
off, offset, counterclaim, cross-claim, recoupment, defenses, disallowance, impairment,
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recovery, subordination, any other challenges or “claim” (as defined in the Bankruptcy Code) of
any kind, nature or description pursuant to the Bankruptcy Code or applicable non-bankruptcy
law or regulation by any person or entity.
(vii) Prepetition Liens. The Prepetition Liens granted to the Prepetition
Secured Parties constitute legal, valid, binding, enforceable (except to the extent that
enforcement thereof is stayed by any insolvency law), and perfected security interests in and
liens on the Prepetition Collateral, were granted to, or for the benefit of, the Prepetition Secured
Parties for fair consideration and reasonably equivalent value, and are not subject to defense,
counterclaim, recharacterization, subordination, avoidance, “claim” or recovery pursuant to the
Bankruptcy Code or applicable non-bankruptcy law or regulation by any person or entity and
constitute the legal, valid, and binding obligation of the Debtors, enforceable in accordance with
the terms of the applicable Prepetition Loan Documents.
(viii) Second Lien Lenders’ Consent to Priming. Each of the Second Lien
Lenders have consented (a) to the adequate protection and the priming of the Prepetition Second
Liens provided for, and solely to the extent contained, in this Interim Order4 and (b) have agreed
that such adequate protection and priming are authorized and permitted under the First
Lien/Second Lien Intercreditor Agreement; provided, however, that the respective consents of
the Second Lien Secured Parties to the priming of the Prepetition Second Liens, the use of the
Prepetition Collateral (including Cash Collateral) and the sufficiency of the respective adequate
protection provided for herein are expressly conditioned upon the entry of, and solely to the
extent provided under, this Interim Order and such consents shall not be deemed to extend to any
other replacement financing or debtor-in-possession financing other than the Junior DIP Facility
4 In connection with its consent, Lucky Holdings JV, LLC (in its capacity as the sole and exclusive Second Lien Term Loan A Secured Lender) has directed the Second Lien Term Loan A Agent to similarly consent in accordance with the terms of the Second Lien Term Loan A Credit Agreement. 1.2 2 6731836.1 16
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provided for under the DIP Documents; provided, further, that such consents shall be of no force
and effect in the event this Interim Order is not entered (or is entered and subsequently vacated)
and the DIP Documents are not approved in form and substance acceptable to the Second Lien
Lenders in their sole discretion; provided, further, however, that in the event of the occurrence of
the Maturity Date (as defined in the DIP Promissory Note), nothing herein shall alter the burden
of proof set forth in the applicable provisions of the Bankruptcy Code at any hearing concerning
the Debtors’ continued use of Prepetition Collateral (including Cash Collateral).
(ix) First Lien Agent Consent. The First Lien Agent, on behalf of the First
Lien Secured Parties, hereby consents to the Junior DIP Facility and agrees that the DIP
Financing Conditions (as defined in the First Lien/Second Lien Intercreditor Agreement) have
either been satisfied or waived.
(x) No Challenges/Claims. No offsets, challenges, objections, defenses,
claims or counterclaims of any kind or nature to any of the Prepetition Liens or Prepetition
Obligations exist, and no portion of the Prepetition Liens or Prepetition 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
applicable non-bankruptcy law. The Debtors and their Estates have no valid Claims (as such
term is defined in section 101(5) of the Bankruptcy Code) objections, challenges, causes of
action, and/or choses in action against any of the Prepetition Secured Parties or any of their
respective affiliates, agents, attorneys, advisors, professionals, officers, directors, and employees
with respect to the Prepetition Loan Documents, the Prepetition Obligations, the Prepetition
Liens, or otherwise, whether arising at law or at equity, including, without limitation, any
challenge, recharacterization, subordination, avoidance, recovery, disallowance, reduction, or
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other claims arising under or pursuant to sections 105, 502, 510, 541, 542 through 553, inclusive,
or 558 of the Bankruptcy Code or applicable state law equivalents. The Prepetition Obligations
constitute allowed, secured claims within the meaning of sections 502 and 506 of the Bankruptcy
Code.
(xi) Indemnity. The DIP Lender Representative, the DIP Lenders, HMR, and
the Prepetition Secured Parties have acted in good faith, and without negligence or violation of
public policy or law, in respect of all actions taken by them in connection with or related in any
way to negotiating, implementing, documenting, or obtaining the requisite approvals of the
Junior DIP Facility and the use of Cash Collateral, including in respect of the granting of the DIP
Liens and the Prepetition Adequate Protection Liens (as defined below), and all documents
related to any and all transactions contemplated by the foregoing. Accordingly, subject to and
effective upon entry of a Final Order granting such relief, and subject to the rights contained in
paragraph 5.11, the Prepetition Secured Parties, the DIP Lender Representative, HMR, and the
DIP Lenders shall be and hereby are indemnified and held harmless by the Debtors in respect of
any claim or liability incurred in respect thereof or in any way related thereto, provided that no
such parties will be indemnified for any cost, expense, or liability to the extent determined in a
final, non-appealable judgment of a court of competent jurisdiction to have resulted from any
such party’s gross negligence or willful misconduct. No exception or defense exists in contract,
law, or equity as to any obligation set forth, as the case may be, in this paragraph F (xi), in the
Prepetition Loan Documents, or in the DIP Facility Documents, to the Debtors’ obligation to
indemnify and/or hold harmless the Prepetition Secured Parties, the DIP Lender Representative,
or the DIP Lenders, as the case may be.
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(xii) Sale and Credit Bidding. The Debtors admit, stipulate, acknowledge, and
agree that, in connection with any sale process or sale authorized by the Court, subject to and
effective upon the entry of a Final Order granting such relief, and to the rights preserved in
paragraph 5.11, the DIP Lenders, the First Lien Agent, subject to paragraph F (xiii) below, and
the Second Lien Lenders, or any assignee or designee of the foregoing, shall have the right to
credit bid any or all of the obligations under the Junior DIP Facility or Prepetition Loan
Documents, as applicable, in connection with any disposition of property of the estates subject to
the provisions of section 363(k) of the Bankruptcy Code,5 and neither the Debtors nor any
Prepetition Secured Parties shall oppose such right, provided, however, subject to paragraph 5.27
of this Interim Order, that any credit bid by the DIP Lenders or the Second Lien Lenders shall
provide that the First Lien Secured Parties are paid in full, in cash, under the First Lien Credit
Agreement upon consummation of such sale.
(xiii) Subject to the provisions of section 363(k) of the Bankruptcy Code, the
First Lien Agent shall have the right to credit bid any or all of the obligations owed to it by the
Debtors in connection with any disposition of property of the Debtors’ estates; provided,
however, such credit bid by the First Lien Agent may be exercised only at an auction in the event
that (i) the All Assets Stalking Horse Bid is terminated or (ii) a third-party (other than the First
Lien Agent or First Lien Lenders) timely submits a bid that is higher or otherwise better than the
All Assets Stalking Horse Bid.
(xiv) Release. Subject to paragraph 5.11 of this Interim Order and subject to
and effective upon entry of the Final Order granting such relief, each of the Debtors, their
5 With respect to the exercise of the right to credit bid the rights under the Second Lien Term Loan A Credit Agreement, the Second Lien Term Loan A Lenders are entitled to exercise such rights by directing the Second Lien Term Loan A Agent to similarly consent in accordance with the terms of the Second Lien Term Loan A Credit Agreement. 1.2 2 6731836.1 19
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Estates, the Borrowers, the Guarantors, and the Prepetition Obligors, on their own behalf and on
behalf of each of their past, present and future predecessors, successors, heirs, subsidiaries, and
assigns (collectively, the “Releasing Parties”), hereby forever, unconditionally, permanently, and
irrevocably release, discharge, and acquit each of the DIP Secured Parties and the Prepetition
Secured Parties and (in such capacity) each of their respective successors, assigns, affiliates,
parents, subsidiaries, partners, controlling persons, representatives, agents, attorneys, advisors,
financial advisors, consultants, professionals, officers, directors, members, managers,
shareholders, and employees, past, present and future, and their respective heirs, predecessors,
successors and assigns (collectively, the “Released Parties”) of and from any and all claims,
controversies, disputes, liabilities, obligations, demands, damages, expenses (including, without
limitation, attorneys’ fees), debts, liens, actions, and causes of action of any and every nature
whatsoever, whether arising in law or otherwise (in each case, arising on or prior to the date of
this Interim Order), and whether known or unknown, matured or contingent, arising under, in
connection with, or relating to the Prepetition Obligations or the Prepetition Loan Documents,
including, without limitation, (a) any so-called “lender liability” or equitable subordination
claims or defenses, (b) any and all “claims” (as defined in the Bankruptcy Code) and causes of
action arising under the Bankruptcy Code, and (c) any and all offsets, defenses, claims,
counterclaims, set off rights, objections, challenges, causes of action, and/or choses in action of
any kind or nature whatsoever, whether arising at law or in equity, including any
recharacterization, recoupment, subordination, avoidance, or other claim or cause of action
arising under or pursuant to section 105 or chapter 5 of the Bankruptcy Code or under any other
similar provisions of applicable state, federal, or common law, including, without limitation, any
right to assert any disgorgement or recovery, in each case, with respect to the extent, amount,
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validity, enforceability, priority, security, and perfection of any of the Prepetition Obligations,
the Prepetition Loan Documents, or the Prepetition Liens, and further waive and release any
defense, right of counterclaim, right of setoff, or deduction to the payment of the Prepetition
Obligations that the Debtors now have or may claim to have against the Released Parties, arising
under, in connection with, based upon, or related to any and all acts, omissions, conduct
undertaken, or events occurring prior to entry of this Interim Order; provided, that nothing herein
shall relieve the Released Parties from fulfilling their obligations or commitments under (x) the
DIP Documents (as applicable) and (y) the terms of this Interim Order.
(xv) Senior Cash Collateral. The Debtors admit, stipulate, acknowledge, and
agree that all of the cash of the Debtors, wherever located, and all cash equivalents, including
any cash in deposit accounts, constitutes “cash collateral” of the First Lien Secured Parties
within the meaning of section 363(a) of the Bankruptcy Code (the “Senior Cash Collateral”).
(xvi) Junior Cash Collateral. The Debtors admit, stipulate, acknowledge, and
agree that all of the cash of the Debtors, wherever located, and all cash equivalents, including
any cash in deposit accounts constitutes “cash collateral” of the Second Lien Secured Parties
within the meaning of section 363(a) of the Bankruptcy Code (the “Junior Cash Collateral”, and
together with the Senior Cash Collateral, the “Cash Collateral”).
G. Findings Regarding the Postpetition Financing and Use of Cash Collateral.
(i) Postpetition Financing. The Debtors have requested from each of the DIP
Secured Parties, and the DIP Secured Parties are willing, subject to the terms of this Interim
Order, to extend the DIP Loans on the terms and conditions set forth in this Interim Order and
the DIP Facility Documents, respectively.
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(ii) Need for Postpetition Financing and the Use of Cash Collateral. The
Debtors have an immediate and critical need to use Cash Collateral on an interim basis and to
obtain credit on an interim basis pursuant to the Junior DIP Facility, in each case, as set forth in
this Interim Order, in order to, among other things, maintain, administer and preserve their
businesses and maximize the value of their assets. Without the ability of the Debtors to obtain
sufficient working capital and liquidity through the proposed postpetition financing arrangements
with the DIP Secured Parties and the use of Cash Collateral as set forth in this Interim Order, the
Debtors, their Estates, and parties-in-interest would be immediately and irreparably harmed.
Accordingly, the Debtors have an immediate need to obtain the postpetition financing and to use
Cash Collateral as set forth in this Interim Order to, among other things, minimize the disruption
of their business operations and preserve and maximize the value of the assets of the Debtors’
Estates to maximize the recovery to all creditors of the Estates.
(iii) No Credit Available on More Favorable Terms. Given their current
financial condition, financing arrangements, and capital structure, coupled with the economic
uncertainty resulting from the COVID-19 pandemic, the Debtors have been and continue to be
unable to obtain financing from sources other than the DIP Lenders on terms more favorable
than the Junior DIP Facility. The Debtors are unable to obtain unsecured credit allowable under
Bankruptcy Code section 503(b)(1) as an administrative expense. The Debtors have also been
unable to obtain: (a) unsecured credit having priority over that of administrative expenses of the
kind specified in sections 503(b), 507(a) and 507(b) of the Bankruptcy Code; (b) credit secured
solely by a lien on property of the Debtors and their estates that is not otherwise subject to a lien;
or (c) credit secured solely by a junior lien on property of the Debtors and their estates that is
subject to a lien. Financing on a postpetition basis is not otherwise available without granting
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the DIP Lender Representative, for the benefit of itself and the DIP Lenders: (1) perfected
security interests in and liens on (each as provided herein) the DIP Collateral (as specified
herein), (2) superpriority claims and liens, and (3) the other protections, terms and conditions set
forth in this Interim Order.
(iv) Budget. The Debtors have prepared and delivered to the DIP Secured
Parties and the Prepetition Secured Parties an initial budget reflecting the All Assets Stalking
Horse Bid (the “Initial Budget”), a copy of which is attached hereto as Exhibit B. The Initial
Budget reflects the Debtors’ anticipated cash receipts and anticipated disbursements for each
calendar week during the period from the Petition Date through and including the end of the
sixth calendar week following the Petition Date (the Initial Budget and each subsequent budget
approved by the First Lien Agent, DIP Lender Representative and DIP Lenders then in effect, an
“Approved Budget”). The Debtors submit that the Initial Budget is reasonable under the facts
and circumstances. The Debtors have also prepared and delivered to the DIP Secured Parties and
the Prepetition Secured Parties an alternative budget reflecting termination of the All Assets
Stalking Horse Bid as a result of the debt financing contingency therein, thereby triggering the
effectiveness of the IP Stalking Horse Bid (the “Initial IP Toggle Budget”). Within two (2)
business days following termination of the All Assets Stalking Horse Bid as a result of the debt
financing contingency therein, the Debtors shall file with the Court the Initial IP Toggle Budget,
which shall be deemed an Approved Budget. The DIP Secured Parties and the Prepetition
Secured Parties are relying upon the Debtors’ agreement to comply with the terms set forth in the
DIP Facility Documents, the Approved Budget, and this Interim Order in determining to enter
into the postpetition financing arrangements provided for herein and to consent to the Debtors’
use of Cash Collateral.
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(v) Certain Conditions to Junior DIP Facility. The DIP Lenders’ willingness
to make the DIP Loans is conditioned upon, among other things: (a) the Debtors obtaining Court
approval to enter into the DIP Facility Documents and to incur all of the obligations thereunder,
and to confer upon the DIP Secured Parties all applicable rights, powers, and remedies
thereunder in each case as modified by this Interim Order; (b) the provision of adequate
protection of the Prepetition Secured Parties’ interests in the Prepetition Collateral pursuant to
sections 361, 363, and 364 of the Bankruptcy Code; (c) the DIP Secured Parties being granted, as
security for the prompt payment of the Junior DIP Facility and all other obligations of the
Debtors under the DIP Facility Documents, subject to the Carve-Out and the priorities described
herein, superpriority perfected security interests in and liens upon all property and assets of the
Debtors, including, but not limited to, a valid and perfected security interest in and lien upon all
of the now existing or hereafter arising or acquired: (i) assets constituting Prepetition Collateral,
(ii) any assets of the Debtors that, as of the Petition Date, were not otherwise subject to a security
interest, including any assets comprising Excluded Assets (under and as defined in any of the
Prepetition Loan Documents) (collectively hereinafter referred to as the “DIP Collateral,6” and
for avoidance of doubt, the DIP Collateral shall include (x) subject to and effective upon entry of
the Final Order granting such relief, the proceeds of any claim or cause of action arising under or
pursuant to section 549 of the Bankruptcy Code, and (y) subject to and effective upon the entry
of the Final Order granting such relief, the proceeds (the “Avoidance Proceeds”) of any other
claim or cause of action arising under or pursuant to chapter 5 of the Bankruptcy Code or under
6 Notwithstanding anything contained herein only the proceeds from any sale, termination, or other disposition of any leasehold interests of the Debtors (but not the leasehold interests themselves) shall constitute DIP Collateral. 1.2 2 6731836.1 24
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any other similar provisions of applicable state, federal, or foreign law (including any other
avoidance actions under the Bankruptcy Code) (collectively, the “Avoidance Actions”)).
(vi) Business Judgment and Good Faith Pursuant to Section 364(e). Any
credit extended, loans made, and other financial accommodations extended to the Debtors by the
DIP Secured Parties, including, without limitation, pursuant to this Interim Order, have been
extended, issued, or made, as the case may be, in “good faith” within the meaning of section
364(e) of the Bankruptcy Code and in express reliance upon the protections offered by
Bankruptcy Code section 364(e), and the Junior DIP Facility, the DIP Liens, and the DIP
Superpriority Claims (as defined below) shall be entitled to the full protection of Bankruptcy
Code section 364(e) in the event that this Interim Order or any provision hereof is vacated,
reversed, or modified on appeal or otherwise.
H. Adequate Protection. The Prepetition Secured Parties are entitled, pursuant to
sections 361, 362, 363, and 364 of the Bankruptcy Code, to receive adequate protection against
any Diminution in Value of their respective interests in the Prepetition Collateral (including Cash
Collateral).
I. Sections 506(c) and 552(b). The Debtors have agreed as a condition to obtaining
financing under the Junior DIP Facility and the use of Cash Collateral as set forth in this Interim
Order that as a material inducement to the DIP Secured Parties to agree to provide the Junior DIP
Facility and the Prepetition Secured Parties’ consent to the use of Cash Collateral as set forth in
this Interim Order, and in exchange for (a) the DIP Secured Parties’ willingness to provide the
Junior DIP Facility to the extent set forth herein, (b) the DIP Secured Parties’ and the Prepetition
Secured Parties’ agreement to subordinate their liens and superpriority claims to the Carve-Out,
as provided herein (provided that with respect to the First Lien Secured Parties, the First Liens
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are subject to the Carve-Out solely to the extent of the amount of the Carve-Out that can be
satisfied with Cash Collateral previously remitted to the Debtors or with funds in the Carve-Out
Account or with sale proceeds, except as to any Statutory Fees, as defined in section 5.10(a)
below as to which the First Liens shall be subject without any limitations), and (c) the consensual
use of Cash Collateral consistent with the Approved Budget and the terms of this Interim Order,
subject to and effective upon entry of the Final Order containing such relief, the DIP Secured
Parties and the Prepetition Secured Parties are entitled to receive (1) a waiver of any equities of
the case exceptions or claims under section 552(b) of the Bankruptcy Code and a waiver of
unjust enrichment and similar equitable relief as set forth below, and (2) a waiver of the
provisions of section 506(c) of the Bankruptcy Code.
J. Good Cause. Good cause has been shown for the entry of this Interim Order. The
relief requested in the Motion is necessary, essential, appropriate and is in the best interest of and
will benefit the Debtors, their creditors, and their Estates, as its implementation will, among
other things, provide the Debtors with the necessary liquidity to (1) minimize disruption to the
Debtors’ remaining operating businesses and on-going operations, (2) preserve and maximize the
value of the Debtors’ Estates for the benefit of all the Debtors’ creditors, and (3) avoid
immediate and irreparable harm to the Debtors, their creditors, their businesses, their employees,
and their assets. The terms of the Junior DIP Facility and this Interim Order are fair and
reasonable, reflect each Debtor’s exercise of its business judgment, and are supported by
reasonably equivalent value and fair consideration. The Junior DIP Facility and this Interim
Order are the product of reasonable, arm’s length, good faith negotiations between the Debtors,
the DIP Secured Parties and the Prepetition Secured Parties.
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K. Immediate Entry. Sufficient cause exists for immediate entry of this Interim
Order pursuant to Bankruptcy Rule 4001(c)(2). Any objections that were made to entry of this
Interim Order (to the extent such objections have not been withdrawn, waived, resolved, or
settled) are hereby overruled on the merits.
L. Interim Hearing. Notice of the Interim Hearing and the relief requested in the
DIP Motion has been provided by the Debtors, whether by facsimile, electronic mail, overnight
courier or hand delivery, to the Notice Parties. The Debtors have made reasonable efforts to
afford the best notice possible under the circumstances and no other notice is required for the
relief to be granted in this Interim Order.
Based upon the foregoing, and upon the record made before the Court at the Interim
Hearing, and after due consideration and good cause appearing therefor;
IT IS HEREBY ORDERED, ADJUDGED, AND DECREED THAT:
Section 1. Motion Approval
1.1 Interim Approval of Motion. The Motion is granted on an interim basis to
the extent provided in this Interim Order. Any objections to the entry of this Interim Order that
have not been withdrawn, waived, resolved, or settled, and all reservations of rights included
therein (except to the extent reserved to be presented at the Final Hearing), are hereby denied and
overruled on the merits. The rights of all parties in interest to object to the entry of a Final Order
on the Motion are reserved.
Section 2. Junior DIP Facility Authorization
2.1 Authorization of Junior DIP Facility.
(a) The Debtors are hereby authorized and empowered to immediately
execute and deliver the DIP Facility Documents and to incur and perform the DIP Obligations,
pursuant to the terms and conditions of this Interim Order, in an aggregate principal amount not
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to exceed $6,500,000 of DIP Loan proceeds on an interim basis (exclusive of the $4,100,000
sublimit for the issuance of letters of credit outlined in paragraph 2.1(c), below), with the Initial
DIP Loan to be made upon entry of this Interim Order and satisfaction of the other conditions set
forth in the DIP Facility Documents.
(b) The Debtors are hereby authorized to (i) borrow under and use
proceeds of the Junior DIP Facility for: (a) working capital; (b) other general corporate purposes
of the Debtors; (c) permitted payments of the costs of administration of the Cases; (d) payment
of such prepetition expenses as consented to by the DIP Lender Representative and First Lien
Agent; and (e) funding of the Carve-Out Account, in accordance with paragraph 5.10 below; (ii)
obtain letters of credit in accordance with the DIP Facility Documents, and (iii) pay all interest,
costs, fees, and other amounts and obligations accrued or accruing under the DIP Facility
Documents, in each case, pursuant to the terms and conditions of this Interim Order, the
Approved Budget and the other DIP Facility Documents, in each case during the period
commencing on the date of this Interim Order through and including the earlier to occur of (x)
entry of the Final Order and (y) an Event of Default (as defined in the DIP Promissory Note)
(the “Interim Financing Period”). The Initial Budget is hereby approved in all respects. The
Debtors shall use the proceeds of the Junior DIP Facility solely in a manner consistent with the
Approved Budget (subject to Permitted Variances (as defined herein) and other exclusions set
forth in the DIP Facility Documents) and the terms and conditions of the DIP Facility
Documents and this Interim Order.
(c) Upon entry of the Interim Order, to the extent permitted by the DIP
Facility Documents, Hilco Merchant Resources, LLC (“HMR”) is authorized to issue letters of
credit under the DIP Facility Documents in an aggregate amount not to exceed $4,100,000, on an
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uninterrupted basis and to take all actions reasonably appropriate with respect thereto on an
uninterrupted basis, for and on behalf of the DIP Lenders, which shall constitute DIP
Obligations. The DIP Lenders covenant and agree, severally, but not jointly, to repay HMR on
account of such DIP Obligations in the event the letters of credit are drawn for the amount
drawn, plus any applicable fees and interest associated therewith.
2.2 Financing Documents.
(a) Authorization. The Debtors are hereby authorized to enter into,
execute, deliver, and perform all obligations under the DIP Facility Documents, which are
approved. No obligation, payment, transfer, or grant of security hereunder or under the DIP
Facility Documents shall be stayed, restrained, voidable, avoidable, or recoverable under the
Bankruptcy Code or under any applicable state, federal, or common law (including, without
limitation, under chapter 5 of the Bankruptcy Code or under any applicable state Uniform
Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act, or similar statute or common
law), or be subject to any defense, reduction, setoff, counterclaim, recoupment, offset,
recharacterization, subordination (whether equitable, contractual or otherwise), cross-claims, or
any other challenge under the Bankruptcy Code or any applicable law, rule, or regulation by any
person or entity.
(b) Approval; Evidence of Borrowing Arrangements. The terms,
conditions, and covenants of this Interim Order and the DIP Documents shall be sufficient and
conclusive evidence of (i) the borrowing arrangements by and among the Debtors, the DIP
Lender Representative, and the DIP Lenders, and (ii) each Debtor’s assumption and adoption of,
and agreement to comply with, all the terms, conditions, and covenants of the DIP Facility
Documents for all purposes, including, without limitation, to the extent applicable, the payment
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of all DIP Obligations arising thereunder, including, without limitation, all principal, interest,
fees, and other expenses, including, without limitation, all of the DIP Lender Representative’s
and DIP Lender’s closing, arranger, and administrative fees, consultant fees, professional fees,
attorney’s fees and legal expenses, as more fully set forth in the DIP Facility Documents, subject
to the procedures set forth in paragraph 5.16 below. Upon effectiveness thereof, the DIP Facility
Documents shall evidence the DIP Obligations, which DIP Facility Documents and DIP
Obligations shall be valid, binding, and enforceable against the Debtors, their Estates, and any
successors thereto, including, without limitation, any trustee appointed in any of these Cases or
any case under chapter 7 of the Bankruptcy Code upon the conversion of any of these Cases
(collectively, the “Successor Cases”), and their creditors and other parties-in-interest, in each
case, in accordance with the terms of this Interim Order and the DIP Facility Documents.
(c) Payment of DIP Fees and Other Expenses. Any and all fees and
expenses payable pursuant to the DIP Facility Documents (collectively, any and all such fees and
expenses, the “DIP Fees”) are hereby approved and the Debtors are hereby authorized and
directed to pay, currently in cash or as otherwise provided on the DIP Facility Documents and
Approved Budget, all reasonable and documented out-of-pocket expenses (including but not
limited to reasonable legal fees and expenses) of the DIP Lender Representative, HMR and the
DIP Lenders incurred at any time (including prior to, on, or after the Petition Date), as provided
by the DIP Facility Documents and this Interim Order in accordance with paragraph 5.16 hereof.
The DIP Fees shall not be subject to any offset, defense, claim, counterclaim, or diminution of
any type, kind, or nature whatsoever, except as set forth in paragraph 5.16.
2.3 Indemnification. Subject to and effective upon entry of a Final Order
granting such relief, the Debtors shall indemnify and hold harmless the DIP Lender
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Representative, each DIP Lender, HMR, and, solely in their capacities as such, each of their
respective successors, assigns, affiliates, parents, subsidiaries, partners, controlling persons,
representatives, agents, attorneys, advisors, financial advisors, consultants, professionals,
officers, directors, members, managers, shareholders and employees, past, present and future,
and their respective heirs, predecessors, successors and assigns (each, an “Indemnified Party”),
from and against all reasonable and documented out-of-pocket costs, expenses (including but not
limited to reasonable and documented legal fees and expenses which shall include the fees and
expenses of counsel for each of the DIP Lender Representative, HMR, and the DIP Lenders and
any additional counsel to the extent reasonably required due to actual or perceived conflicts) and
liabilities arising out of or relating to the transactions contemplated hereby and any actual or
proposed use of the proceeds of any loans made under the Junior DIP Facility, in accordance
with, and subject to, the DIP Facility Documents, which indemnification is hereby authorized
and approved, provided that no such parties will be indemnified for any cost, expense, or liability
to the extent determined in a final, non-appealable judgment of a court of competent jurisdiction
to have resulted from any such party’s gross negligence or willful misconduct.
2.4 Postpetition Liens.
(a) Postpetition DIP Lien Granting. As security for the DIP
Obligations, the DIP Lender Representative, for the benefit of itself and the DIP Lenders, shall
have and is hereby granted, effective as of the Petition Date, continuing, valid, binding,
enforceable, non-avoidable, and automatically and properly perfected security interests in and
liens (collectively, the “DIP Liens”) upon all DIP Collateral, subject to the rankings and
priorities set forth below.
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(a) DIP Lien Priority in DIP Collateral. The DIP Liens on the DIP Collateral
securing the DIP Obligations shall be first and senior in priority to all other interests and liens of
every kind, nature, and description, whether created consensually, by an order of the Court or
otherwise, including, without limitation, liens or interests granted in favor of third parties in
conjunction with sections 363, 364, or any other section of the Bankruptcy Code or other
applicable law; provided, however, that the DIP Liens on (A) the First Lien Priority Collateral
(whether in existence on the Petition Date or hereafter arising) shall be subject and subordinate
to the Carve-Out, the First Liens, and the First Lien Adequate Protection Liens; (B) the Second
Lien Collateral (whether in existence on the Petition Date or hereafter arising) shall be subject
and subordinate to the Carve-Out; and (C) Prepetition Collateral subject to Prior Permitted Liens
shall be junior to such Prior Permitted Liens; and (D) any unencumbered assets as of the Petition
Date shall be subject and subordinate to the Carve-Out and First Lien Adequate Protection Liens.
2.5 Superpriority Administrative Expenses. Subject to the Carve-Out and the
Adequate Protection Superpriority Claims granted to the First Lien Secured Parties, all DIP
Obligations now existing or hereafter arising pursuant to this Interim Order, the DIP Facility
Documents, or otherwise, the DIP Lender Representative, for the benefit of itself and the DIP
Lenders, is granted an allowed superpriority administrative expense claim pursuant to section
364(c)(1) of the Bankruptcy Code, having priority in right of payment over any and all other
obligations, liabilities, and indebtedness of the Debtors, whether now in existence or hereafter
incurred by the Debtors, and over any and all administrative expenses or priority claims of the
kind specified in, or ordered pursuant to, sections 503(b) and 507(a) of the Bankruptcy Code,
including, to the extent allowed under the Bankruptcy Code, any and all other administrative
expenses or other claims arising under sections 105, 328, 330, 331, 364(c)(1), 503(b), 507(a)
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(other than section 507(a)(1)), 507(b), 546(c), 1113, or 1114 of the Bankruptcy Code, which
allowed superpriority administrative claim shall be payable from and have recourse to all
prepetition and postpetition property of the Debtors and all proceeds thereof (including, upon
entry of the Final Order granting such relief, proceeds of claims or causes of action under section
549 of the Bankruptcy Code, and subject to and effective upon entry of the Final Order granting
such relief, proceeds of other Avoidance Actions) (such superpriority administrative expense
claim, the “DIP Superpriority Claim”).
Section 3. Use of Cash Collateral
3.1 Subject to the terms and conditions of this Interim Order, the Debtors are
authorized to use Cash Collateral and the proceeds of the Junior DIP Facility, on an interim basis
and in accordance with the Approved Budget for: (a) working capital; (b) other general corporate
purposes of the Debtors; (c) permitted payments of the costs of administration of the Cases; (d)
payment of such prepetition expenses as consented to by the DIP Lender Representative and
First Lien Agent; (e) funding of the Carve-Out Account, in accordance with paragraph 5.10
below; until the earliest of (x) August 30, 2020 unless the First Lien Obligations have been paid
in, full in cash, (y) thirty (30) days after the Petition Date unless a Final Order has been entered
and (z) the fifth (5th) business day following written notice from the applicable Prepetition
Agent of the occurrence of a Termination Event (as defined in paragraph 5.4 herein) (the
“Termination Date”); and (f) such other uses as set forth in the Approved Budget; provided,
however, that during the Remedies Notice Period (as defined herein) the Debtors’ use of Cash
Collateral shall be limited solely to fund the Carve-Out Account, pay current payroll (other than
severance), and to pay expenses critical to the administration of the Debtors’ Estates strictly in
accordance with the Approved Budget (except for Statutory Fees, which shall not be subject to
any budget), as consented to by the First Lien Agent and the DIP Lender Representative, and 1.2 2 6731836.1 33
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after payment in full of the First Lien Obligations, the DIP Lender Representative and the
Second Lien Term Loan A Agent and the Second Lien Term Loan B Agent.
3.2 As a condition to entry into the DIP Facility Documents, the loans under
the Junior DIP Facility and authorization to use Cash Collateral, the Debtors, the DIP Lender
Representative, and the DIP Lenders agreed that, as of and commencing on the date of entry of
this Interim Order, the Debtors shall apply the proceeds of the DIP Collateral in accordance with
this Interim Order and the DIP Facility Documents.
Section 4. Prepetition Secured Parties’ Adequate Protection
4.1 Adequate Protection Liens and Superpriority Claims. The Prepetition
Secured Parties are entitled, pursuant to sections 361, and 363(e) of the Bankruptcy Code and
nunc pro tunc to the Petition Date, to adequate protection of their respective interests in the
Prepetition Collateral, including the Cash Collateral, in an amount equal to the aggregate
Diminution in Value of the Prepetition Secured Parties’ respective interests in the Prepetition
Collateral from and after the Petition Date. On account of the Prepetition Secured Parties’
adequate protection claims, the Prepetition Secured Parties are hereby granted the following, in
each case subject to the Carve-Out as applicable (collectively, the “Adequate Protection”):
(a) Second Lien Adequate Protection Liens. The Second Lien Secured
Parties are hereby granted (effective and perfected upon the date of this Interim Order and
without the necessity of any Perfection Act) valid and perfected postpetition replacement
security interests in and liens upon the DIP Collateral (the “Second Lien Adequate Protection
Liens”), which liens shall: (i) be subject and subordinate to the Carve-Out, the DIP Liens, and
the Prior Permitted Liens; (ii) be junior to the First Liens and the First Lien Adequate Protection
Liens (as defined below) and (iii) be senior to all other security interests in, liens on, or claims
against the Second Lien Collateral, whether now existing or hereafter arising or acquired. 1.2 2 6731836.1 34
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(b) First Lien Adequate Protection Liens. The First Lien Secured
Parties are hereby granted (effective and perfected upon the date of this Interim Order and
without the necessity of any Perfection Act) valid and perfected postpetition replacement
security interests in and liens upon the DIP Collateral (the “First Lien Adequate Protection
Liens” and, together with the Second Lien Adequate Protection Liens, the “Prepetition Adequate
Protection Liens”), which liens shall: (i) be subject and subordinate to the Carve-Out and the
Prior Permitted Liens; and (ii) be senior to all other security interests in, liens on, or claims
against the First Lien Priority Collateral or DIP Collateral, whether now existing or hereafter
arising or acquired, including for the avoidance of doubt the DIP Liens, Prepetition Second
Liens, and the Second Lien Adequate Protection Liens.
(c) Adequate Protection Superpriority Claims. The Prepetition
Secured Parties are hereby granted allowed superpriority administrative expense claims pursuant
to sections 503(b), 507(a), and 507(b) of the Bankruptcy Code (the “Adequate Protection
Superpriority Claims”), which Adequate Protection Superpriority Claims shall be allowed claims
against each of the Debtors (jointly and severally), with priority (except they shall be junior to
the Carve-Out and as otherwise provided herein) over any and all administrative expenses and all
other claims against the Debtors, including the DIP Superpriority Claim with respect to the First
Lien Secured Parties, now existing or hereafter arising, of any kind specified in section 507(b) of
the Bankruptcy Code, including, to the extent allowed under the Bankruptcy Code, all other
administrative expenses or other claims arising under sections 105, 327, 328, 330, 331, 503(b),
507(a) (other than section 507(a)(1)), 507(b), or 1114 of the Bankruptcy Code and be payable
from and have recourse to all pre- and post-petition property (including all claims and causes of
action) of the Debtors. The Adequate Protection Superpriority Claims granted to the First Lien
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Secured Parties shall be subject to the Carve-Out but senior to the DIP Superpriority Claim and
Adequate Protection Superpriority Claims granted to the Second Lien Secured Parties.
4.2 Adequate Protection Payments and Protections for Second Lien Term
Loan A Secured Parties. Pursuant to sections 361, 363(e) and 364(d)(1) of the Bankruptcy Code,
the Debtors are authorized and directed to provide adequate protection to the Second Lien Term
Loan A Lenders and the Second Lien Term Loan A Agent (subject to the priority of obligations
under the First Lien/Second Lien Intercreditor Agreement and the Second Lien Pari Passu
Intercreditor Agreement): (i) current cash reimbursement of reasonable and documented fees and
expenses and other disbursements under the Second Lien Term Loan A Credit Agreement,
incurred in connection with the Debtors’ Cases, whether incurred prior to, on, or after the
Petition Date (subject to procedures for the payment of such amounts set forth in paragraph
5.16); (ii) to the extent of any Diminution in Value of their prepetition security interests,
replacement or, if applicable, new liens on the Second Lien Term Loan A Collateral that are
junior to the liens securing the Junior DIP Facility (in the same relative priority as the Second
Lien Term Loan A Facility) and to the Adequate Protection Superpriority Claims; (iii) to the
extent of any Diminution in Value of their prepetition security interests, superpriority claims as
provided for in section 507(b) of the Bankruptcy Code that are junior to the claims under the
Junior DIP Facility and any superpriority claims granted to the First Lien Facility; and (iv)
financial reporting and information rights substantially similar to those granted pursuant to the
DIP Facility Documents. Notwithstanding the preceding, nothing herein shall modify or
otherwise diminish the Second Lien Term Loan A Agent’s rights to compensation and
indemnification as against any money or property distributable to the Second Lien Term Loan A
Lenders including permitting Second Lien Term Loan A Agent from maintaining, enforcing, and
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exercising its charging liens, if any, against any such distributions to the Second Lien Term Loan
A Lenders.
4.3 Adequate Protection Payments and Protections for Second Lien Term
Loan B Secured Parties. Pursuant to sections 361, 363(e) and 364(d)(1) of the Bankruptcy Code,
the Debtors are authorized and directed to provide adequate protection to the Second Lien Term
Loan B Lenders (subject to the priority of obligations under the Second Lien Pari Passu
Intercreditor Agreement): (i) current cash reimbursement of reasonable and documented fees and
expenses and other disbursements under the Second Lien Term Loan B Credit Agreement,
incurred in connection with the Debtors’ Cases, whether incurred prior to, on, or after the
Petition Date (subject to the procedures for the payment of such amounts in paragraph 5.16); (ii)
to the extent of any Diminution in Value of their prepetition security interests, replacement or, if
applicable, new liens on the Second Lien Term Loan B Collateral that are junior to the liens
securing the Junior DIP Facility (in the same relative priority as the Second Lien Term Loan B
Facility) and to the Prepetition Senior Secured Parties Adequate Protection Claims; (iii) to the
extent of any Diminution in Value of their prepetition security interests, superpriority claims as
provided for in section 507(b) of the Bankruptcy Code that are junior to the claims under the
Junior DIP Facility and any superpriority claims granted to the First Lien Credit Agreement; and
(iv) financial reporting and information rights substantially similar to those granted pursuant to
the DIP Facility Documents.
4.4 Adequate Protection Payments and Protections for First Lien Secured
Parties. Pursuant to sections 361, 363(e) and 364(d)(1) of the Bankruptcy Code, the Debtors are
authorized and directed to provide adequate protection to the First Lien Secured Parties, in
connection with the Debtors’ use of Cash Collateral, of (i) current cash payment of Unused
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Commitment Fees (as defined in the First Lien Credit Agreement), Letter of Credit Fees (as
defined in the First Lien Credit Agreement) and interest on the obligations under the First Lien
Facility at the default rate for Base Rate Loans (as defined in the First Lien Credit Agreement)
provided for thereunder; (ii) current cash reimbursement of reasonable and documented fees and
expenses and other disbursements of the holders of the First Lien Facility, incurred in connection
with the Debtors’ Cases on or after the Petition Date; (iii) adequate protection payments set forth
in paragraph 4.5 and 4.6 below; (iv) to the extent of any Diminution in Value of their prepetition
security interests, replacement or, if applicable, new liens on the First Lien Priority Collateral
that are senior to the liens securing the Junior DIP Facility (in the same relative priority as the
First Lien Facility) and senior to the adequate protection liens granted to the holders of the
Second Lien Term Loan A Facility and the Second Lien Term Loan B Facility; (iv) to the extent
of any Diminution in Value of their prepetition security interests, superpriority claims as
provided for in section 507(b) of the Bankruptcy Code that are senior to the claims under the
Junior DIP Facility and senior to the superpriority claims granted to the Second Lien Lenders;
and (v) financial reporting and information rights substantially similar to those granted pursuant
to the DIP Facility Documents.
4.5 Fees and Expenses. The Prepetition Secured Parties shall be entitled to
receive payment out of Cash Collateral in accordance with paragraph 3.1 of this Interim Order,
all reasonable and documented fees and out-of-pocket expenses incurred and paid by such
Prepetition Secured Parties that are required to be paid by the Debtors under the Prepetition Loan
Documents (but no more than one set of primary counsel for each of the First Lien Secured
Parties, the Second Lien Term Loan A Agent, the Second Lien Term Loan A Secured Parties (as
a whole) and the Second Lien Term Loan B Secured Parties (as a whole)), and allowed in
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accordance with paragraph 5.16 below, including the reasonable and documented pre- and post-
petition fees and out-of-pocket expenses of (A) DLA Piper LLP (US) (the “Second Lien Term
Loan A Professionals”), (B) Alston & Bird LLP (the “Second Lien Term Loan A Agent
Professionals”) (B) Richards, Layton & Finger, PA (the “Second Lien Term Loan B
Professionals”), and (C) Choate Hall & Stewart LLP, Reed Smith LLP, and Greenberg Traurig,
LLP (together, the “First Lien Professionals” and, together with the Second Lien Term Loan A
Professionals and the Second Lien Term Loan B Professionals, the “Adequate Protection
Professionals”).
4.6 Mandatory Pay Downs of First Lien Obligations.
(a) The Debtors shall maintain their cash management system as in
effect as of the Petition Date. All proceeds from any disposition, sale or casualty of any
Prepetition Collateral or DIP Collateral shall continue to be deposited into deposit accounts
subject to the Debtors’ existing cash management system and transferred to the Concentration
Account (as defined in the First Lien Credit Agreement). Notwithstanding the foregoing, prior to
indefeasible payment in full, in cash, of the First Lien Obligations, on Monday of each week
commencing on or after July 25, 2020 (or on a different or additional day of any week mutually
agreeable to the First Lien Agent and the Debtors) the First Lien Agent shall remit Cash
Collateral to the Debtors’ operating account ending in 6823 (the “Operating Account”) in an
amount requested by the Debtors in accordance with the Approved Budget and the Permitted
Variances (as defined below); provided that the Debtors may submit a request on a different day
of any week mutually agreeable to the First Lien Agent and the Debtors, for additional funds in
an amount which, as of such day, is compliant with the Approved Budget and the Permitted
Variances to the First Lien Agent and the DIP Lender Representative in form and substance
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acceptable to the First Lien Agent and the DIP Lender Representative and the First Lien Agent
shall remit an amount not to exceed such amount. Subject to paragraph 5.27 of this Interim
Order, on (i) July 24, 2020, (ii) August 14, 2020 and (iii) on each Friday thereafter until the
Payment in Full, in cash, of the First Lien Obligations, the First Lien Agent is hereby authorized
and directed to transfer to the First Lien Agent (or the Debtors at the direction of the First Lien
Agent shall initiate such transfer) all cash then on deposit in the Concentration Account and the
Operating Account in excess of (x) all then outstanding checks; and (y) 115% of the amount set
forth in line 28 of the Approved Budget “Ending Cash Balance” for such week (the “Excess
Proceeds”), or such lesser amount as agreed by the First Lien Agent, such Excess Proceeds to be
thereupon applied in permanent reduction and repayment of the First Lien Obligations in
accordance with the terms of the First Lien Documents. On and after the Termination Date, but
subject to the Remedies Notice Period and paragraph 3.1 herein, and after the funding of the
Carve-Out Account, the First Lien Agent shall be authorized to apply any and all Cash Collateral
on hand or thereafter received by the First Lien Agent against the First Lien Obligations for
permanent application against such debt without further notice to the Debtors or any other party.
The term “Payment in Full” or “Paid in Full” means (I) all of the First Lien Obligations have
been paid in full in cash; (II) cash collateral for all issued and outstanding Letters of Credit in
accordance with the terms and conditions of the First Lien Credit Agreement; (III) in the case of
any contingent or unliquidated First Lien Obligations, including, without limitation, any
obligations that Debtors are required to furnish cash collateral to the First Lien Agent in
accordance with the First Lien Documents, and any other liabilities arising from matters or
circumstances known to the First Lien Secured Parties at the time which are reasonably expected
to result in any actual loss, cost, damage or expense (including attorneys’ fees and legal
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expenses) to one or more of the First Lien Secured Parties, the provision to the First Lien Agent
of cash collateral in an amount determined by the First Lien Agent to fully secure and
collateralize such contingent or unliquidated obligations and liabilities; and (IV) that First Lien
Secured Parties shall receive a release from each Debtor and the Committee, if any, of and from
all demands, actions, causes of action, suits, covenants, contracts, controversies, agreements,
promises, sums of money, accounts, bills, reckonings, damages and any and all other claims,
counterclaims, defenses, rights of set-off, demands and liabilities in form and substance
acceptable to First Lien Agent. For the avoidance of doubt, prior to any payment to the DIP
Lender Representative or DIP Lenders on account of the obligations under the Junior DIP
Facility or to any Prepetition Secured Party on account of any adequate protection or Prepetition
Obligations, the Debtors must first utilize all cash on hand as of the Termination Date and any
availability or proceeds of any other postpetition financing facility to fund the Carve-Out
Account in an amount equal to the full Carve-Out Reserve Amount (as defined below) (to the
extent not previously funded into the Carve-Out Account) to be held in trust to pay all amounts
included in the Carve-Out, provided, however, that any payment made to the First Lien Lenders
in connection with their liens are subject to paragraph 5.12 of this Interim Order.
(b) The Debtors shall cause the First Lien Obligations to be Paid in
Full upon the closing of a sale pursuant to an order approving the All Assets Stalking Horse Bid
(or such higher or otherwise better bid as determined by the Debtors at an auction for the sale of
all or substantially all of the Debtors’ assets).
(c) Maintenance of Borrowing Base and Additional Pay Downs. On
Wednesday of each week the Debtors shall deliver to the First Lien Agent a Borrowing Base
Certificate (as defined in the First Lien Credit Agreement) calculated as of the close of business
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of the immediately preceding Saturday. The First Lien Agent shall have in its sole discretion the
right to implement Availability Reserves (as defined in the First Lien Credit Agreement),
including reserves in the amount of the Carve-Out, store closing reserves, for any administrative
expenses for rent, and upon the Toggle reflecting the purchase price for inventory reflected in the
IP Stalking Horse Bid. If at any time the Revolving Credit Outstanding (as defined in First Lien
Credit Agreement) exceeds the sum of the Revolving Borrowing Base minus the Excess
Availability (as defined in the First Lien Credit Agreement) required to be maintained in Article
VI of the First Lien Credit Agreement (an “Overadvance”), the First Lien Agent is authorized to
immediately apply funds on deposit in the Concentration Account in the amount of such
Overadvance.
4.7 Consent/Administration Fee. In consideration for the First Lien Secured
Parties’ consent to the use of Cash Collateral in accordance with the terms of this Interim Order
and continued maintenance of the Debtors’ cash management system, the First Lien Agent shall
be paid, in addition to all other First Lien Obligations owing by Debtors to the First Lien Agent
and the other First Lien Secured Parties, a weekly fee in the amount of $150,000 until all First
Lien Obligations have been paid in full, in cash (the “Administration Fee”); provided, however,
that in the event that the All Assets Stalking Horse Bid is terminated as a result of the debt
financing contingency therein, and the First Lien Secured Parties are paid down pursuant to
paragraph 5.27 of this Interim Order upon closing of the IP Stalking Horse Bid (or such other
higher or otherwise better bid as determined by the Debtors at an auction), such Administration
Fee shall be reduced to $100,000. The Administration Fee shall be fully earned and payable on
Monday of each week, commencing on the Monday following entry of the Interim Order
granting such relief. The Administration Fee shall be part of the First Lien Obligations. The
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First Lien Agent is hereby authorized to apply any Cash Collateral on hand at any time to the
permanent payment of the Administration Fee without further notice to the Debtors or any other
party; provided, however, that such Administration Fee shall be subject to paragraph 5.12 of this
Order.
4.8 Prepetition Indemnity Account. Effective upon entry of the Final Order
granting such relief, the Debtors shall establish a segregated non-interest bearing account with
the First Lien Agent and in the control of the First Lien Agent (the “Prepetition Indemnity
Account”), into which the sum of $500,000 of Cash Collateral shall be deposited as security for
any reimbursement, indemnification, or similar continuing obligations of the Debtors in favor of
the First Lien Agent and the other First Lien Secured Parties under the First Lien Documents (the
“Prepetition Indemnity Obligations”). The funds in the Prepetition Indemnity Account shall
secure all costs, expenses, and other amounts (including reasonable and documented attorneys’
fees) incurred by the First Lien Agent and the other First Lien Secured Parties, in connection
with or responding to (1) formal or informal inquiries and/or discovery requests, any adversary
proceeding, cause of action, objection, claim, defense, or other challenge as contemplated in
Paragraph 5.11 hereof, or (2) any Challenge Proceeding (as defined herein) against the First Lien
Agent or the other First Lien Secured Parties related to the First Lien Documents, the First Liens,
or the First Lien Obligations, whether in the Cases, any Successor Case(s) or independently in
any other forum, court, or venue. The Prepetition Indemnity Obligations shall be secured by a
first priority lien on the Prepetition Indemnity Account and the funds therein. All amounts in the
Prepetition Indemnity Account shall be promptly released to the Debtors upon the earlier of (i)
after the expiration of the Challenge Period, if no Challenge Proceeding has been brought against
the First Lien Secured Parties and all Prepetition Indemnity Obligations have been paid in full, in
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cash; (ii) if a Challenge Proceeding has been brought against the First Lien Secured Parties, and
such Challenge Proceeding is successful, after any order granting the relief sought by the
Challenge Proceeding becomes a final order no longer subject to appeal and all Prepetition
Indemnity Obligations other than with respect to the Challenge Proceeding to the extent
successful have been paid in full; and (iii) Payment in Full of the First Lien Obligations.
4.9 Audits and Appraisals. The First Lien Agent may conduct one Inventory
Appraisal and one Field Examination (each as defined in the First Lien Credit Agreement) at the
cost and expense of the Debtors.
Section 5. Provisions Common to Junior DIP Facility and Use of Cash Collateral
5.1 Postpetition Lien Perfection.
(a) This Interim Order shall be sufficient and conclusive evidence of
the priority, perfection, and validity of the DIP Liens, the Prepetition Adequate Protection Liens,
and the other security interests granted herein, effective as of the Petition Date, without any
further act and without regard to any other federal, state, or local requirements or law requiring
notice, filing, registration, recording, or possession of the DIP Collateral, or other act to validate
or perfect such security interest or lien, including, without limitation, control agreements with
any financial institution(s) party to a control agreement or other depository account consisting of
DIP Collateral, or requirement to register liens on any certificates of title (a “Perfection Act”).
Notwithstanding the foregoing, if the DIP Lender Representative, the First Lien Agent, the
Second Lien Term Loan A Agent, or the Second Lien Term Loan B Agent, as applicable, shall,
in its sole discretion, elect for any reason to file, record, or otherwise effectuate any Perfection
Act, then the DIP Lender Representative, the First Lien Agent, the Second Lien Term Loan A
Agent, or the Second Lien Term Loan B Agent, as applicable, is authorized to perform such act,
and the Debtors are authorized to perform such act to the extent necessary or required by the DIP 1.2 2 6731836.1 44
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Facility Documents, which act or acts shall be deemed to have been accomplished as of the date
and time of entry of this Interim Order notwithstanding the date and time actually accomplished,
and, in such event, the subject filing or recording office is authorized to accept, file, or record
any document in regard to such act in accordance with applicable law. The DIP Lender
Representative, the First Lien Agent, the Second Lien Term Loan A Agent, or the Second Lien
Term Loan B Agent, as applicable, may choose to file, record, or present a certified copy of this
Interim Order in the same manner as a Perfection Act, which shall be tantamount to a Perfection
Act, and, in such event, the subject filing or recording office is authorized to accept, file, or
record such certified copy of this Interim Order in accordance with applicable law. Should the
DIP Lender Representative, the First Lien Agent, the Second Lien Term Loan A Agent, or the
Second Lien Term Loan B Agent, as applicable, so choose and attempt to file, record, or perform
a Perfection Act, no defect or failure in connection with such attempt shall in any way limit,
waive, or alter the validity, enforceability, attachment, priority, or perfection of the postpetition
liens and security interests granted herein by virtue of the entry of this Interim Order.
(b) To the extent that any applicable non-bankruptcy law otherwise
would restrict the granting, scope, enforceability, attachment, or perfection of any liens and
security interests granted and created by this Interim Order (including the DIP Liens and the
Prepetition Adequate Protection Liens) or otherwise would impose filing or registration
requirements with respect to such liens and security interests, such law is hereby pre-empted to
the maximum extent permitted by the Bankruptcy Code, applicable federal or foreign law, and
the judicial power and authority of this Court; provided, however, that nothing herein shall
excuse the Debtors from payment of any local fees, if any, required in connection with such
liens. By virtue of the terms of this Interim Order, to the extent that the DIP Lender
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Representative, the First Lien Agent, the Second Lien Term Loan A Agent, or the Second Lien
Term Loan B Agent, as applicable, has filed Uniform Commercial Code or PPSA financing
statements, mortgages, deeds of trust, or other security or perfection documents under the names
of any of the Debtors (including all Guarantors), such filings shall be deemed to properly perfect
its liens and security interests granted and confirmed by this Interim Order without further action
by the DIP Lender Representative, the First Lien Agent, the Second Lien Term Loan A Agent, or
the Second Lien Term Loan B Agent, as applicable.
(c) Except as provided in paragraph 5.11 herein and with respect to the
Carve-Out, the DIP Liens, the DIP Superpriority Claims, the Prepetition Adequate Protection
Liens, and the Adequate Protection Superpriority Claims (i) shall not be made subject to or pari
passu with (A) any lien, security interest, or claim heretofore or hereinafter granted in any of
these Cases or any Successor Cases and shall be valid and enforceable against the Debtors, their
Estates, any trustee, or any other estate representative appointed or elected in these Cases or any
Successor Cases and/or upon the dismissal of any of these Cases or any Successor Cases; (B) any
lien that is avoided and preserved for the benefit of the Debtors and their Estates under section
551 of the Bankruptcy Code or otherwise; or (C) any intercompany or affiliate lien or claim; and
(ii) shall not be subject to sections 510, 549, 550, or 551 of the Bankruptcy Code.
5.2 Amendments to DIP Facility Documents. Subject to the terms and
conditions of the applicable DIP Facility Documents, the Debtors and the applicable DIP
Secured Parties, with the prior written consent of the First Lien Agent, may make amendments,
modifications, or supplements to any DIP Facility Document, and the DIP Lender Representative
and the DIP Lenders may waive any provisions in the DIP Facility Documents, without further
approval of the Court; provided that any amendments, modifications, or supplements to any DIP
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Facility Documents that are material and adverse to the Debtors or their Estates, including those
that operate to increase the aggregate commitments, the rate of interest payable thereunder, or
existing fees or add new fees thereunder (excluding, for the avoidance of doubt, any amendment,
consent or waiver fee) other than as currently provided in the DIP Facility Documents
(collectively, the “Material DIP Amendments”), shall be filed with the Court in advance of the
effective date of such Material DIP Amendments, and the Debtors shall provide prior written
notice of and an opportunity to object to the Material DIP Amendment to (i) counsel for each of
the Prepetition Agents, (ii) counsel to the Committee, or, in the event no such Committee is
appointed at the time of such Material DIP Amendment, the Debtors’ consolidated list of thirty
(30) largest unsecured creditors, and (iii) the U.S. Trustee; provided, further, that the consent of
the foregoing parties will not be necessary to effectuate any such amendment, modification or
supplement, except that any Material DIP Amendment subject to a timely and unresolved
objection must be approved by the Court; provided, further, that copies of any proposed
amendments, modifications, or supplements to any DIP Facility Documents that the Debtors do
not believe are Material DIP Amendments shall be provided to the U.S. Trustee and the
Committee, both of which shall have three (3) business days to object on grounds that the
proposed modification is a Material DIP Amendment and should be subject to the notice
procedures with respect to Material DIP Amendments. For the avoidance of doubt, the Debtors
must receive written consent as to any Material DIP Amendment (i) from the DIP Secured
Parties prior to filing notice thereof with the Court and (ii) from the First Lien Agent, on behalf
of the First Lien Lenders, the Second Lien Term Loan A Agent on behalf of the Second Lien
Term Loan A Lenders, and the Second Lien Term Loan B Agent on behalf of the Second Lien
Term Loan B Lenders (collectively, the “Prepetition Agents”) for any amendment, modification,
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supplement, or waiver to the Approved Budget or that materially adversely affects any rights of
applicable Prepetition Secured Parties hereunder or the treatment of the applicable Prepetition
Obligations hereunder.
5.3 DIP Milestones. As a condition to the Junior DIP Facility and the use of
Cash Collateral, the Debtors shall comply with the milestones annexed hereto as Exhibit C
(collectively, the “Case Milestones”). Any Case Milestone that would otherwise fall on a
Saturday, Sunday or federal holiday will be treated in accordance with Bankruptcy Rule 9006.
For the avoidance of doubt, the failure of the Debtors to comply with any of the Case Milestones
shall (a) constitute an Event of Default (under and as defined in the DIP Promissory Note) under
(i) the DIP Promissory Note and (ii) this Interim Order; and (b) subject to (i) the absence of an
order of the Court determining that an Event of Default (as defined in the DIP Promissory Note)
is not continuing, and (ii) the expiration of the Remedies Notice Period, shall result in the
automatic termination of the Debtors’ authority to use Cash Collateral under this Interim Order;
and (d) permit the (i) DIP Lender Representative to exercise the rights and remedies provided for
in this Interim Order and the DIP Promissory Note; and (ii) First Lien Agent to exercise the
rights and remedies provided for in this Interim Order. For the avoidance of doubt, in the event
of a Termination Event, remedies may not be exercised until the Carve-Out Account has been
funded.
5.4 Cash Collateral Termination Events: Upon written notice by the First
Lien Agent (or after the First Lien Obligations have been Paid in Full, the Second Lien Term
Loan A Agent and the Second Lien Term Loan B Agent), the following shall constitute a
Termination Event (collectively, the “Cash Collateral Termination Events” and, together with the
occurrence of any Event of Default (as defined in the DIP Promissory Note), each a
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“Termination Event” and collectively, the “Termination Events”) (unless waived by the First
Lien Agent, or after the First Lien Obligations have been Paid in Full, in which case unless
waived by the Second Lien Term Loan A Agent and the Second Lien Term Loan B Agent) (i)
the DIP Loans are not funded as and when set forth in the Approved Budget; (ii) the entry of an
order of this Court terminating the right of any Debtor to use Cash Collateral; (iii) the dismissal
of any of the Cases or the conversion of any of the Cases to a case under chapter 7 of the
Bankruptcy Code; (iv) the appointment in any of the Cases of a chapter 11 trustee or an examiner
with expanded powers; (v) the entry of any order of the Court that avoids or disallows in any
way the security interests, liens, priority claims or rights granted to any Prepetition Agent under
the terms of this Interim Order; (vi) this Interim Order shall cease, for any reason, to be in full
force and effect, or the Debtors shall so assert in writing, or any liens or claims created in favor
of the Prepetition Agents under this Interim Order shall cease to be enforceable and of the same
effect and priority purported to be created hereby, or the Debtors shall so assert in writing; (vii)
any of the Debtors challenge or object to the extent, validity, enforceability, priority, perfection
and/or non-avoidability of the Prepetition Obligations or the Prepetition Agents security interests
in and liens upon the Prepetition Collateral; (viii) an order of this Court shall be entered
reversing, staying, vacating or otherwise modifying this Interim Order or any provision
contained herein without the prior written consent (which writing may be in e-mail) of the First
Lien Agent; (ix) the actual amount of (1) “Total Receipts”; (2) “Total Mandatory
Disbursements”; and (3) “Professional Fees” for any applicable period deviates beyond the
Permitted Variance as set forth in Paragraph 5.9 from the amounts set forth in the Approved
Budget for such period, without, in each instance, the prior written consent (which writing may
be in e-mail) of the Prepetition Agents; (x) any Debtor fails to pay in full the First Lien
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Obligations in accordance with the terms set forth in this Interim Order, without the prior written
consent (which writing may be in e-mail) of the First Lien Agent; (xi) any material
misrepresentation by any Debtor in the financial reporting or certifications to be provided by the
Debtors to the Prepetition Agents under this Interim Order; (xii) without the prior written consent
of the Prepetition Agents (which writing may be in e-mail), any of the Debtors propose or
support any plan of reorganization or sale of all or substantially all of any Debtor’s assets or
entry of any order confirming any such plan or sale that is not conditioned on the payment in full
in cash, on the effective date of such plan of reorganization or sale, of all First Lien Obligations,
it being understood and agreed (A) that the Prepetition Agents have consented to the Stalking
Horse Bids, the related sale process and the store closings sales identified as of the date of this
Interim Order, and (B) in the event that the All Assets Stalking Horse Bid is terminated as a
result of the debt financing contingency therein, and the sale under the IP Stalking Horse Bid (or
such other higher or otherwise better bid as determined by the Debtors in the auction) does not
provide payment in full, in cash, of all First Lien Obligations, this subsection (xii) shall not be
deemed to be a Termination Event; (xiii) the Debtors fail to provide any additional adequate
protection ordered by the Court and such failure shall continue unremedied for more than three
(3) business days after written notice thereof; (xiv) without the prior written consent of the
Prepetition Agents (which writing may be in e-mail), the obtaining after the Petition Date of
credit or the incurring of indebtedness that is, in each case, (A) secured by a security interest,
mortgage or other lien on all or any portion of the Prepetition Collateral or DIP Collateral that is
equal or senior to any security interest, mortgage or other lien of the applicable Prepetition
Agent, including, without limitation, any Prepetition Adequate Protection Liens, as applicable,
granted hereunder, or (B) entitled to priority administrative status that is equal or senior to that
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granted to the applicable Prepetition Agent herein, including, without limitation, the Adequate
Protection Superpriority Claims, as a applicable; (xv) without the prior written consent of the
Prepetition Agents (which writing may be in e-mail), the entry of an order by the Court granting
relief from or modifying the automatic stay of section 362 of the Bankruptcy Code to allow any
creditor to execute upon or enforce a lien on or security interest (except for any statutorily
permitted liens, such as mechanics’, materialmens’, shippers’ or other similar liens) in (1) any
inventory or (2) in any other Prepetition Collateral that is senior to any liens or security interests
of the First Lien Agent having a value greater than $100,000; (xvi) without the prior written
consent of the Prepetition Agents (which writing may be in e-mail), the return by the Debtors of
more than $50,000 of the Debtors’ inventory pursuant to section 546(h) of the Bankruptcy Code;
(xvii) any Debtor’s failure to perform, in any respect, any of its material obligations under this
Interim Order; (xviii) without the prior written consent of the Prepetition Agents (which writing
may be in e-mail), the termination by the Debtors of Gordon Brothers Retail Partners, LLC as
Debtors’ liquidation consultant; (xix) without the prior written consent (not to be unreasonably
withheld) of the Prepetition Agents (which writing may be in e-mail), the termination and/or
discontinuation of the Store Closing Sales at the Initial Closing Stores; (xx) without the prior
written consent of the First Lien Agent (which writing may be in e-mail), the failure of the
Debtors to indefeasibly pay in full the First Lien Obligations by (a) August 30, 2020 if there is
no Toggle or (b) in the event of the Toggle, with respect to (1) the First Lien Secured Parties,
unless the First Lien Obligations have been paid in full in cash, September 19, 2020; and (2) with
respect to the DIP Secured Parties and Second Lien Secured Parties, October 31, 2020 (the “IP
Second Lien Toggle Outside Date”); (xxi) other than as contemplated under paragraph 5.27 of
this Interim Order, the termination or modification of the Stalking Horse Bids (such modification
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being a Termination Event only to the extent that the modification materially affects the First
Lien Secured Parties); (xxii) the Debtors breach of one of the Milestones, as set forth on Exhibit
C; (xxiii) there is an Overadvance which has not been paid in full due to insufficient funds
within 1 business day from such occurrence in accordance with paragraph 4.6 above; (xxiv) the
occurrence of and during the continuance of an Event of Default (as defined in the DIP
Promissory Note); and (xxv) subsequent to the Payment in Full of the First Lien Obligations, but
prior to the payment in full of the Junior DIP Facility, the Debtors propose or support any
chapter 11 plan of reorganization or sale of all or substantially all of the Debtors’ assets, or order
confirming such plan or approving such sale, that is not conditioned upon the payment or
satisfaction in full, in cash, of the DIP Obligations.
5.5 Rights and Remedies upon Termination Event. During the period covered
by this Interim Order, after five (5) business days following the delivery of a written notice by
the DIP Lender Representative, the First Lien Agent, the Second Lien Term Loan A Agent, or
the Second Lien Term Loan B Agent of the occurrence of and during the continuance of a
Termination Event, as applicable (the “Remedies Notice Period”), (a) the DIP Lender
Representative shall be entitled to independently take any act or exercise any right or remedy as
provided in this Interim Order or any DIP Facility Document, as applicable, including, without
limitation, (i) declare all DIP Obligations owing under the DIP Facility Documents to be
immediately due and payable; (ii) terminate, reduce, or restrict any commitment to extend
additional credit to the Debtors to the extent any such commitment remains; (iii) terminate the
Junior DIP Facility and any DIP Loan Document as to any future liability or obligation of the
DIP Secured Parties, but without affecting any of the DIP Obligations or the DIP Liens securing
the DIP Obligations; (iv) invoke the right to charge interest at the default rate under the DIP
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Facility Documents; and/or (v) stop lending and (b) the Prepetition Agents (i) may terminate the
use of Cash Collateral; and (ii) shall each have automatic and immediate relief from the
automatic stay with respect to the Prepetition Collateral (without regard to the passage of time
provided for in Fed. R. Bankr. P. 4001(a)(3)), and shall be entitled to exercise all rights and
remedies available under the Prepetition Loan Documents and applicable nonbankruptcy law
(subject to the First Lien/Second Lien Intercreditor Agreement), and the Debtors shall surrender
the Prepetition Collateral and otherwise cooperate with the Prepetition Agents in the exercise of
their rights and remedies under the Prepetition Loan Documents and applicable nonbankruptcy
law (subject to the First Lien/Second Lien Intercreditor Agreement). Notwithstanding the
foregoing, during the five (5) business day period following the Termination Event, Debtors may
seek relief including an order of this Court determining that the event alleged to have given rise
to the Termination Event did not occur; provided, however, that during such five (5) business
day period, the Debtors may use any Cash Collateral to meet current payroll obligations (other
than severance), to pay expenses critical to the administration of the Debtors’ Estates strictly in
accordance with the Approved Budget and as consented to by the DIP Lender Representative and
Prepetition Agents, and to assert that no Event of Default has occurred. For the avoidance of
doubt, in the event of a Termination Event remedies may not be exercised until the Carve-Out
Account has been funded.
5.6 Debtors’ Waivers.
(a) Prior to the payment in full of the Prepetition Obligations and all
DIP Obligations, any request by the Debtors with respect to the following shall also constitute a
Termination Event: (i) to obtain postpetition loans or other financial accommodations pursuant
to section 364(c) or 364(d) of the Bankruptcy Code that does not provide for the repayment in
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full of the DIP Obligations and the First Lien Obligations, other than as provided in this Interim
Order or, with respect to the DIP Obligations, as may be otherwise permitted pursuant to the DIP
Facility Documents; (ii) to challenge the application of any payments authorized by this Interim
Order pursuant to section 506(b) of the Bankruptcy Code; (iii) to propose or support any
challenge by any party in interest to seek to limit or prevent the DIP Lenders or the Prepetition
Secured Parties, from exercising their credit bid rights in connection with the sale of any assets
of the Debtors; or (iv) to seek relief under the Bankruptcy Code, including, without limitation,
under section 105 of the Bankruptcy Code, to the extent any such relief would restrict or impair
(A) the rights and remedies of the DIP Lender Representative, the DIP Lenders or the Prepetition
Secured Parties against the Debtors as provided in this Interim Order or any of the DIP Facility
Documents or Prepetition Loan Documents or (B) the exercise of such rights or remedies by the
DIP Lender Representative, the DIP Lenders or the Prepetition Secured Parties against the
Debtors in accordance with this Interim Order or the Prepetition Loan Documents; provided,
however, that the DIP Lender Representative, the Prepetition Agents, as applicable, may
otherwise consent in writing, but no such consent shall be implied from any other action,
inaction, or acquiescence by DIP Lender Representative, any DIP Lender or any Prepetition
Secured Party.
5.7 Modification of Automatic Stay. The automatic stay provisions of
section 362 of the Bankruptcy Code and any other restriction imposed by an order of the Court
or applicable law are hereby modified without further notice, application, or order of the Court to
the extent necessary to permit the Debtors and each of the DIP Lender Representative and the
Prepetition Agents, as applicable, to perform any act authorized or permitted under or by virtue
of this Interim Order or the DIP Facility Documents, as applicable, including, without limitation,
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(A) to execute, deliver and implement the postpetition financing arrangements authorized by this
Interim Order, (B) to take any act to create, validate, evidence, attach or perfect any lien, security
interest, right or claim in the DIP Collateral, (C) to assess, charge, collect, advance, deduct and
receive payments with respect to the Prepetition Obligations and DIP Obligations (or any portion
thereof), including, without limitation, all interests, fees, costs, and expenses permitted under any
of the DIP Facility Documents, the First Lien Documents, the Second Lien Term Loan A
Documents, or the Second Lien Term Loan B Documents and apply such payments to the
applicable obligations, and (D) subject to the Remedies Notice Period, to take any action and
exercise all rights and remedies provided to it by this Interim Order, the DIP Facility Documents,
or applicable law in accordance with paragraph 5.5.
5.8 Reporting. The Debtors shall timely provide the DIP Lenders and the
Prepetition Secured Parties with (a) reasonable access to the Debtors’ facilities, management,
books, and records required under the Prepetition Loan Documents, (b) copies of all financial
reporting provided to the DIP Lender Representative and DIP Lenders pursuant to the DIP
Facility Documents substantially simultaneously with such delivery to the DIP Lenders, and (c) a
budget variance report/reconciliation by 5:00 p.m. prevailing Eastern Time on Wednesday of
each week for the week most recently ended (i) showing by line item actual cash receipts,
disbursements, Professional Fees, capital expenditures and billings for the immediately
preceding week, the immediately preceding rolling four week cumulative period on and after the
closing date, noting therein all variance, on a line-item basis, from amounts set forth for such
period in the Approved Budget, and shall include explanations for all material variance for such
week, and (ii) certified by a responsible officer of the Debtors. The Debtors shall also comply
with the reporting requirements set out in Sections 7.1(a), 7.1(b), 7.1(c), 7.2(a), 7.2(d), 7.2(e),
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7.2(g), 7.2(h) and 7.2(j) of the First Lien Credit Agreement and the equivalent reporting
provisions (as applicable) under each of the Second Lien Term Loan A Credit Agreement and
the Second Lien Term Loan B Credit Agreement. The Debtors are also directed to allow
Prepetition Secured Parties (and their representatives and advisors), reasonable access to all of
the Debtors' premises, information systems, facilities, management, books, and records for the
purpose of enabling Prepetition Secured Parties to inspect, appraise and audit the DIP Collateral.
Without limiting the foregoing, the Debtors are also directed to allow representatives of the First
Lien Agent and representatives of First Lien Agent’s advisor, to access all billing and collection
information, including invoice history and such other information as may be reasonably
requested by First Lien Agent (or its agents or advisors).
5.9 Budget Maintenance. The use of borrowings under the Junior DIP Facility
and the use of Cash Collateral shall be in accordance with the Initial Budget for the first six week
period from and after the Petition Date, which shall be in form and substance satisfactory to, and
approved by the First Lien Agent, DIP Lender Representative and the DIP Lenders in each’s sole
discretion (as so approved, the Initial Budget). The Approved Budget shall be updated by the
Debtors (with the consent of the DIP Lender Representative and the DIP Lenders in each’s sole
discretion) from time to time in accordance with the DIP Facility Documents and the Debtors
shall comply with the Approved Budget in all respects, subject to: (i) a total receipts variance test
beginning on the fourth week after the Petition Date, tested weekly on a four week rolling basis
such that “Total receipts” for each four week rolling period shall not be less than 85% of the sum
of “Total Receipts” for such period as set forth in the Approved Budget; (ii) a total mandatory
disbursements variance test beginning on the second week after the Petition Date, tested weekly
on a two week rolling basis such that “Total Mandatory Disbursements” for each two week
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rolling period shall not exceed 115% of the sum of “Total Mandatory Disbursements” for such
period as set forth in the Approved Budget; and (iii) total Professional Fees for estate
professionals variance test beginning on the fourth week after the Petition Date, tested weekly on
a rolling four week basis such that total Professional Fees for estate professionals for each four
week rolling period shall not exceed 110% of the sum of total professional fees for estate
professions for such period as set forth in the Approved Budget (collectively the “Permitted
Variances”). No such updated, modified or supplemented budget shall be effective until so
approved by each of the First Lien Agent, DIP Lender Representative and each of the DIP
Lenders and once approved shall be deemed the “Approved Budget”; provided, however, that in
the event that the First Lien Agent, DIP Lender Representative and the DIP Lenders and the
Debtors cannot agree as to an updated, modified or supplemented budget, the prior Approved
Budget shall continue in effect for these Cases, and such disagreement shall give rise to an Event
of Default under and as defined in the DIP Promissory Note or a Cash Collateral Termination
Event under this Interim Order once the period covered by the prior Approved Budget has
terminated. A copy of any Approved Budget shall be delivered to counsel for a Committee (if
appointed) and the U.S. Trustee after (or if) it has been approved by the DIP Lender
Representative, the Prepetition Agents, and each of the DIP Lenders and shall be filed with the
Court. Pursuant to paragraph 5.27 of this Interim Order, in the event that the All Assets Stalking
Horse Bid is terminated as a result of the debt financing contingency therein, the Initial IP
Toggle Budget shall be deemed an Approved Budget.
5.10 Carve-Out Provisions.
(a) Carve-Out. For purposes of this Interim Order, “Carve-Out” shall
mean the sum, without duplication, of (i) all fees required to be paid to the Clerk of the
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Bankruptcy Court and to the Office of the U.S. Trustee under section 1930(a)(6) of title 28 of the
United States Code plus interest at the statutory rate (without regard to the notice set forth in (iii)
below) (collectively, the “Statutory Fees”), which shall not be subject to the Approved Budget or
any other budget; (ii) all reasonable and documented fees, costs and expenses up to $50,000
incurred by a trustee under section 726(b) of the Bankruptcy Code (without regard to the notice
set forth in (iii) below); (iii) subject to the terms and conditions of this Interim Order and the
Approved Budget, to the extent allowed at any time, whether by interim order, procedural order,
or otherwise, all reasonable unpaid fees, costs and expenses (the “Professional Fees”) incurred
by persons or firms retained by the Debtors pursuant to section 327, 328, or 363 of the
Bankruptcy Code (collectively, the “Debtor Professionals”) and any official committee (the
“Committee Professionals” and, together with the Debtor Professionals, the “Professional
Persons”) appointed in the Case pursuant to section 1103 of the Bankruptcy Code that are
incurred at any time on or prior to the first calendar day following the delivery by the First Lien
Agent or DIP Lender Representative of a Carve-Out Trigger Notice (as defined below), that are
allowed by the Bankruptcy Court, subject to the amount of such fees, costs and expenses,
allocated to each Professional Person on a line-by-line basis as provided for in the Approved
Budget; provided, that Professional Persons may carry forward budgeted but unused
disbursements set forth in the Approved Budget for any week for use in any subsequent week;
and (iv) Professional Fees incurred on and after the first calendar day after the delivery by the
First Lien Agent or DIP Lender Representative of the Carve-Out Trigger Notice, to the extent
allowed at any time, whether by interim order, procedural order or otherwise in an aggregate
amount not to exceed $1,000,000 with respect to Professional Persons (the amounts set forth in
this clause (iv) being the “Post Carve-Out Trigger Notice Cap”). For purposes of the foregoing,
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any success, restructuring, sale or other similar fees shall not be included in the Post Carve-Out
Trigger Notice Cap.7 In the event that Professional Fees exceed or are expected to exceed the
amounts provided in the Approved Budget, the parties will negotiate in good faith (but without
further obligation) regarding a proposed amendment to the Approved Budget to address such
additional Professional Fees.
(b) Carve-Out Trigger Notice. For purposes of the foregoing, “Carve-
Out Trigger Notice” shall mean a written notice delivered invoking the Post Carve-Out Trigger
Notice Cap to the Debtors, Latham & Watkins as their lead restructuring counsel, the U.S.
Trustee, and any statutory committee. The Carve-Out Trigger Notice may be delivered by email.
(c) Carve-Out Account and Carve-Out Funding Before a Carve-Out
Trigger Notice. Upon entry of this Interim Order, the Debtors shall establish a segregated
account (the “Carve-Out Account”) with Young Conaway Stargatt & Taylor, LLP (“YCST”) for
the payment of Professional Fees, which shall, prior to delivery of a Carve-Out Trigger Notice,
be funded weekly in an amount equal to (i) the aggregate amount of Professional Fees in the
Approved Budget remaining unpaid as of the Friday of the preceding week (unless such amounts
were previously funded to the Carve-Out Account) plus (ii) an amount equal to the Professional
Fees set forth in the Approved Budget for each week with borrowings under the Junior DIP
Facility or cash on hand (including Cash Collateral), in accordance with the terms of this Interim
Order; plus (iii) all other obligations that are a part of the Carve-Out, including Statutory Fees.
Amounts in the Carve-Out Account shall be held in trust to pay all amounts included in the
Carve-Out. All Professional Fees of Professional Persons that have been approved by the Court
7 Any fee that is or will become due and payable upon the consummation of a transaction shall be payable solely from the proceeds received by the Debtors resulting from such transaction, fee and clear of the liens of the Prepetition Agents, the Prepetition Secured Parties, the DIP Lender Representative, and the DIP Lenders. 1.2 2 6731836.1 59
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or are permitted to be paid pursuant to the provisions of any order for interim compensation
entered by the Court shall be paid to the applicable Professional Person first from the Carve-Out
Account in accordance with the order or orders of the Court allowing such Professional Fees.
For the avoidance of doubt, (a) in making payments from the Carve-Out Account, YCST shall be
entitled to conclusively rely upon written certifications of each Professional Person as to the
amount due and owing to such Professional Person from the Carve-Out Account and shall have
no liability to any party based upon its reliance on such certifications; and (b) in no
circumstances shall YCST be obligated to pay any Professional Persons other than from funds
held, from time to time, in the Carve-Out Account. Notwithstanding anything to the contrary in
this or any other Court order, the Carve-Out Account and the amounts on deposit in the Carve-
Out Account shall be available and used only to satisfy obligations of Professionals Persons
benefitting from the Carve-Out, and the other obligations that are a part of the Carve-Out,
including Statutory Fees. The failure of the Carve-Out Account to satisfy Professional Fees in
full shall not affect the priority of the Carve-Out; provided that, to the extent that the Carve-Out
Account is actually funded, the Carve-Out shall be reduced by such funded amount dollar-for-
dollar. Any amounts in the Carve-Out Account after payment of all allowed Professional Fees of
the Professionals Persons with respect to which such amounts pertain, and payment of the other
Carve-Out obligations, shall be returned to the Debtors and shall be Prepetition Collateral,
subject to the relative priorities set forth herein.
(d) Carve-Out Funding After a Carve-Out Trigger Notice. On the day
on which a Carve-Out Trigger Notice is received by the Debtors (the “Carve-Out Trigger Date”),
and prior to any payment to the DIP Lender Representative or DIP Lenders on account of the
obligations under the Junior DIP Facility or to any Prepetition Secured Party on account of any
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adequate protection or Prepetition Obligations, the Carve-Out Trigger Notice shall constitute a
demand to the Debtors to utilize all cash on hand as of such date to fund the Carve-Out Account
in an amount equal to the full Carve-Out Reserve Amount (as defined below) (to the extent not
previously funded into the Carve-Out Account) to be held in trust to pay all Professional Fees
that are validly included in the Carve-Out. For purposes of the foregoing, the “Carve-Out
Reserve Amount” shall mean an amount equal to the sum of the following: (i) the Post Carve-
Out Trigger Notice Cap, plus (ii) all unpaid Professional Fees in section 5.10(a)(iii) (to the extent
not previously funded into the Carve-Out Account and to the extent incurred prior to the Carve-
Out Trigger Date), in each case to be held in trust to pay all Professional Fees that are validly
included in the Carve-Out. Notwithstanding anything to the contrary in the DIP Facility
Documents, this Interim Order, or Final Order, the DIP Lender Representative and the First Lien
Agent shall not exercise remedies on cash (including cash received as a result of the sale or other
disposition of any assets) of the Debtors until the Carve-Out Account has been fully funded, but
shall each have a valid and perfected security interest in any residual interest in the Carve-Out
Account, subject to the relative priorities set forth herein. Further, notwithstanding anything to
the contrary in this Interim Order (i) the failure of the Carve-Out Account to satisfy in full the
Professional Fees shall not affect or impair the priority of the Carve-Out, and (ii) disbursements
by the Debtors from the Carve-Out Account shall not constitute DIP Loans or increase or reduce
the balance of the DIP Obligations outstanding; provided, however, in no event shall the DIP
Lenders or DIP Lender Representative be obligated to make DIP Loans in excess of the
aggregate commitment amount set forth in the DIP Promissory Note. Nothing contained herein
shall limit or otherwise impair the rights of the DIP Lenders, the DIP Lender Representative, or
any other third party to object to Professional Fees of any Professional Persons. For the
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avoidance of doubt and notwithstanding anything to the contrary herein or in any intercreditor
agreement, the DIP Documents, or in any of the Prepetition Loan Documents, the Carve-Out
shall be senior to all liens and claims securing the DIP Loans (including the DIP Superpriority
Claims), and any and all other forms of adequate protection, liens, or claims securing the Junior
DIP Facility or the obligations under the Prepetition Loan Documents.
(e) Payment of Professional Fees. Any payment or reimbursement in
respect of any Professional Fees made after the occurrence of the Carve-Out Trigger Date shall
permanently reduce the Carve-Out on a dollar-for-dollar basis. Notwithstanding anything to the
contrary in this Interim Order in no way shall the Approved Budget, Carve-Out, Post Carve-Out
Trigger Notice Cap, Carve-Out Account, or any of the foregoing be construed as a cap or
limitation on the amount of the Professional Fees allowed by the Court and due and payable by
the Debtors as allowed administrative expenses.
(f) Except for funding the Carve-Out Account as provided herein,
none of the Prepetition Secured Parties shall be responsible for the funding, direct payment or
reimbursement of any fees or disbursements of any Professional Persons incurred in connection
with the Cases or any Successor Cases. Nothing in this Interim Order or otherwise shall be
construed to obligate the Prepetition Secured Parties in any way to pay compensation to, or to
reimburse expenses of, any Professional Person, or to guarantee that the Debtors have sufficient
funds to pay such compensation or reimbursement.
(g) Wind-Down Account. “Wind-Down Account” shall mean an
account that, shall be funded with cash or cash equivalents upon closing and from the proceeds
of a sale of the Debtors’ assets. The Wind-Down Account shall constitute cash collateral of the
DIP Lenders and/or the Second Lien Lenders (as applicable), which funds may only be used,
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notwithstanding any Termination Event and subject to paragraph 5.27, by the Debtors for the
purposes of winding down the Cases and confirming a chapter 11 plan of reorganization or
liquidation in accordance with the budget substantially in the form annexed hereto as Exhibit D
(as may be amended with the consent of the Debtors and the DIP Lenders and/or the Second
Lien Lenders, the “Wind-Down Budget”), and to pay Statutory Fees; provided, however, that the
funding of the Wind-Down Account in accordance with the Wind-Down Budget shall not
guarantee or otherwise ensure that such funds will prove to be sufficient for the Debtors to fund
and confirm a chapter 11 plan. In the event that a Wind-Down Account is fully funded, the
amount of Professional Fees reserved for in the Wind-Down Budget will be funded to the Carve-
Out Account in lieu of (and to the exclusion of) the Post Carve-Out Trigger Notice Cap, such
that the Carve-Out Account will contain the entire amount reserved for Professional Fees in the
Wind-Down Budget plus any amounts previously funded to the Carve-Out Account.
Notwithstanding anything herein to the contrary, no professional fees or other adequate
protection payments related to the DIP Obligations or Second Lien Obligations shall be made
from the Wind-Down Account. Any amounts in the Wind-Down Account after funding of the
Carve-Out Account shall be Cash Collateral, subject to the relative priorities set forth herein, and
to the extent any amounts in the Wind-Down Account are not otherwise reserved on account of
administrative or priority claims under a chapter 11 plan of liquidation, such amounts shall be
distributed to the DIP Lenders and/or Second Lien Lenders, as applicable.
5.11 Reservation of Third Party Challenge Rights. The stipulations, releases,
agreements, and admissions contained in paragraph F of this Interim Order, and the releases
contained in clause (xiv) thereof (collectively, the “Debtors’ Stipulations”), shall be binding on
the Debtors in all circumstances. The Debtors’ Stipulations shall be binding on all entities (as
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defined in the Bankruptcy Code), including without limitation, each and every creditor and party
in interest, including, without limitation, the Committee (if any), unless, and solely to the extent
that (a) any such creditor or party in interest, including the Committee (if any), with standing and
requisite authority has timely commenced an adversary proceeding or other appropriate
contested matter (subject to the limitations contained herein, including, inter alia, in this
paragraph 5.11) by no later than (i) (A) 75 calendar days from the date of entry of this Interim
Order for any party in interest other than the Committee, and (B) for any Committee that has
been appointed, 60 calendar days after the date of formation of such Committee, or any such
later date as has been agreed to, in writing, without further order of the Court by the Prepetition
Agents, as applicable (with such extension applying only to the party to such agreement) (such
time period established by the foregoing, the “Challenge Period”), against any Prepetition
Secured Party in connection with matters related to the Prepetition Loan Documents, the
Prepetition Obligations, the Prepetition Liens, and the Prepetition Collateral, including by
(A) objecting to or challenging the amount, validity, perfection, enforceability, priority, or extent
of the Prepetition Obligations or Prepetition Liens, or (B) otherwise asserting or prosecuting any
action for preferences, fraudulent transfers or conveyances, other avoidance power claims or any
other claims, counterclaims, or causes of action, objections, contests, or defenses with respect to
the Prepetition Obligations, Prepetition Liens or the acts or omissions of any Prepetition Secured
Party (a “Challenge Proceeding”) and (b) there is a final, non-appealable order in favor of the
plaintiff sustaining any Challenge Proceeding in any such timely filed adversary proceeding or
contested matter; provided that any pleadings filed in connection with any Challenge Proceeding
shall set forth with specificity the basis for such challenge and any challenges or claims not so
specified prior to the expiration of the Challenge Period shall be deemed forever waived,
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released, and barred. For the avoidance of doubt, a party in interest’s commencement of a timely
Challenge Proceeding shall preserve the Challenge Period only with respect to such party in
interest commencing the Challenge Proceeding (and such challenge shall be limited to the
challenge identified with specificity prior to the expiration of the Challenge Period). If no such
Challenge Proceeding is timely commenced, then: (i) the Debtors’ stipulations, admissions,
agreements, and releases contained in paragraph F of this Interim Order, and the releases
contained in clause (xiv) thereof, shall be binding on all parties in interest; (ii) any and all
Challenge Proceedings by any party (including, without limitation, the Committee, any chapter
11 trustee, or any examiner and/or other estate representative appointed or elected in these Cases,
and any chapter 7 trustee and/or examiner or other estate representative appointed or elected in
any Successor Case) shall be deemed to be forever waived, released, and barred; (iii) to the
extent not theretofore repaid, the Prepetition Obligations shall constitute allowed claims, not
subject to counterclaim, setoff, subordination, recharacterization, reduction, defense or
avoidance, for all purposes in these Cases and any subsequent chapter 7 case; (iv) the Prepetition
Liens on the Prepetition Collateral shall be deemed to have been, as of the Petition Date, and to
be, legal, valid, binding, perfected and of the priority specified in paragraph F of this Interim
Order, not subject to defense, counterclaim, recharacterization, subordination or avoidance; and
(v) the obligations under the Prepetition Loan Documents and the Prepetition Liens on the
Prepetition Collateral shall not be subject to any other or further challenge by the Debtors, the
Committee (if any) or any other party in interest, each of whom shall be enjoined from seeking to
exercise the rights of the Debtors’ Estates, including, without limitation, any successor thereto
(including, without limitation, any estate representative or a chapter 7 or chapter 11 trustee
appointed or elected for any of the Debtors with respect thereto). If any Challenge Proceeding is
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timely commenced, the stipulations, releases, agreements, and admissions contained in paragraph
F of this Interim Order, and the releases contained in clause (x) thereof, shall nonetheless remain
binding and preclusive (as provided in this paragraph) on the Debtors, the Committee (if any),
and any other person or entity, except as to any such findings and admissions that were expressly
and successfully challenged in such Challenge Proceeding as set forth in a final, non-appealable
order of a court of competent jurisdiction. Nothing in this Interim Order vests or confers on any
entity (as defined in the Bankruptcy Code), including the Committee (if any), standing or
authority to pursue any cause of action belonging to the Debtors or their Estates, including,
without limitation, claims and defenses with respect to the First Lien Credit Agreement or
Prepetition Second Lien Agreement or the Prepetition Liens on the Prepetition Collateral.
Notwithstanding the foregoing, if a chapter 11 trustee is appointed or the Cases are converted to
chapter 7 prior to the expiration of the Challenge Period, (1) the chapter 11 trustee or chapter 7
trustee, as applicable, shall have until the later of the end of the Challenge Period or the twentieth
(20th) day after the appointment of the chapter 11 trustee or the conversion of the Case to
chapter 7, as applicable, to commence a Challenge Proceeding, subject to any further extension
by order of the Court for cause, so long as such extension is entered prior to the end of the
Challenge Period, and (2) if the Committee has asserted a Challenge Proceeding prior to the end
of the Challenge Period, the chapter 11 trustee or chapter 7 trustee will stand in the shoes of the
Committee in such Challenge Proceeding. The filing of a motion seeking standing to file a
Challenge Proceeding before the end of the Challenge Period, which attaches a proposed
Challenge Proceeding, shall extend the Challenge Period with respect to that party and solely
with respect to the causes of action raised in such motion until the earlier of (i) two (2) business
days after the Court enters any order or ruling on the standing motion, or such other time period
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ordered by the Court in granting the standing motion; (ii) thirty (30) calendar days of the filing of
the standing motion if the Court has not heard such standing motion by such date. If the Court
denies the standing motion, such denial shall cause the Challenge Period to immediately
terminate.
5.12 Notwithstanding anything to the contrary contained in this Interim Order,
in the event there is a timely and successful Challenge Proceeding by any party in interest (in
accordance with paragraph 5.11 hereof), this Court may unwind the repayment of the First Lien
Obligations and order the repayment of such amount to the extent that such payment resulted in
the payment of any First Lien Obligations consisting of an unsecured claim or other claim or
amount not allowable under Section 502 of the Bankruptcy Code. Notwithstanding the
foregoing, a successful Challenge Proceeding shall not in any way affect the validity,
enforceability or priority of the DIP Obligations or the DIP Liens.
5.13 The DIP Loan proceeds and Cash Collateral shall not, directly or
indirectly, be used to pay administrative expenses of the Debtors and or the Estates except for (a)
the Carve-Out; (b) those operating expenses that are set forth in the Approved Budget or with the
prior written consent (which writing may be in e-mail) of the DIP Lender Representative and the
Prepetition Secured Parties and (c) the Stalking Horse Protections (as defined in the Sale
Motion).8 The DIP Loan proceeds, Cash Collateral and the Carve-Out may not be used in
connection with or to finance in any way: (a) any action, suit, arbitration, proceeding,
application, motion or other litigation of any type (i) for the payment of any services rendered by
8 The “Sale Motion” means the motion of debtors for entry of Orders (I)(A) Approving Bidding Procedures for the Sale of the Debtors’ Assets, (B) Approving Stalking Horse Protections, (C) Scheduling Auction for, and Hearing to Approve, Sale of the Debtors’ Assets, (D) Approving Form and Manner of Notice Of Sale, Auction and Sale Hearing, (E) Approving Assumption and Assignment Procedures, and (F) Granting Related Relief, and (II)(A)Approving Sale of The Debtors’ Assets Free and Clear of All Liens, Claims, Interests, and Encumbrances, (B) Approving Assumption and Assignment of Executory Contracts and Unexpired Leases, and (C) Granting Related Relief filed contemporaneously herewith. 1.2 2 6731836.1 67
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the professionals retained by any Debtor or Committee, or other representative of any estate, in
connection with the assertion of or joinder in any claim, counterclaim, action, proceeding,
application, motion, objection, defense or other contested matter, the purpose of which is to seek,
or the result of which would be to obtain, any order, judgment, determination, declaration or
similar relief invalidating, setting aside, avoiding or subordinating, in whole or in part, any
Prepetition Liens or Prepetition Obligations, (ii) for monetary, injunctive or other affirmative
relief against the Prepetition Agents, the Prepetition Lenders, or any Prepetition Collateral, or
(iii) preventing, hindering or otherwise delaying the exercise by the Prepetition Agents or
Prepetition Secured Parties of any rights under this Interim Order; (b) objecting to or challenging
in any way the claims, liens, or interests held by or on behalf of the Prepetition Secured Parties;
(c) asserting, commencing or prosecuting any claims or causes of action whatsoever, including,
without limitation, any actions under chapter 5 of the Bankruptcy Code, against the Prepetition
Agents, the Prepetition Secured Parties, the Prepetition Obligations, or the Prepetition Liens; or
(d) prosecuting an objection to, contesting in any manner, or raising any defenses to, the validity,
extent, amount, perfection, priority, or enforceability of any of the Prepetition Liens, the
Prepetition Obligation, or any other rights or interest of the Prepetition Secured Parties;
provided, that up to an aggregate amount of $50,000 of (x) the proceeds of the Prepetition
Collateral and/or (y) the Carve-Out may be used by the Committee during the Challenge Period
(defined below) to investigate the claims and liens of the Prepetition Secured Parties (and other
potential claims, counterclaims, causes of action or defenses against the Prepetition Secured
Parties).
5.14 No Modification or Stay of this Interim Order. The Prepetition Agents,
Prepetition Secured Parties, DIP Lender Representative and the DIP Lenders have acted in good
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faith in connection with the Junior DIP Facility and with this Interim Order, and their reliance on
this Interim Order is in good faith, and the Prepetition Agents, Prepetition Secured Parties, DIP
Lender Representative and the DIP Lenders are entitled to the protections of Bankruptcy Code
section 364(e).
5.15 Power to Waive Rights; Duties to Third Parties.
(a) Subject to the terms of the DIP Facility Documents, the DIP
Lender Representative shall have the right (acting at the direction of the Required Lenders (as
defined in the DIP Facility Documents) if so required by the DIP Facility Documents) to waive
any of the terms, rights, and remedies provided or acknowledged in this Interim Order that are in
favor of the DIP Lenders (the “DIP Lender Rights”), and shall have no obligation or duty to any
other party with respect to the exercise or enforcement, or failure to exercise or enforce, any DIP
Lender Right(s); provided that the DIP Lender Representative shall obtain the prior written
consent of the Prepetition Agents, as applicable, for any waiver that affects any rights of the
Prepetition Secured Parties, as applicable, hereunder or any treatment of the First Lien
Obligations. Any waiver by the DIP Lender Representative of any DIP Lender Rights shall not
be nor shall it constitute a continuing waiver unless otherwise expressly provided therein. Any
delay in or failure to exercise or enforce any DIP Lender Right shall neither constitute a waiver
of such DIP Lender Right, subject the DIP Lender Representative or any DIP Lender to any
liability to any other party, nor cause or enable any party other than the Debtors to rely upon or
in any way seek to assert as a defense to any obligation owed by the Debtors to the DIP Lender
Representative or any DIP Lender.
(b) Each of the Prepetition Agents shall have the right to waive any of
the terms, rights, and remedies provided or acknowledged in this Interim Order that are in favor
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of the Prepetition Secured Parties, respectively (as applicable, the “Prepetition Lender Rights”),
and shall have no obligation or duty to any other party with respect to the exercise or
enforcement, or failure to exercise or enforce, any Prepetition Lender Right(s); provided that the
First Lien Agent, the Second Lien Term Loan A Agent, or the Second Lien Term Loan B Agent,
as applicable, shall (except to the extent provided in the First Lien/Second Lien Intercreditor
Agreement) obtain the prior written consent of the DIP Lender Representative for any waiver
that affects any rights of the DIP Secured Parties hereunder or any treatment of the DIP
Obligations. Any waiver by either the First Lien Agent, the Second Lien Term Loan A Agent, or
the Second Lien Term Loan B Agent of any Prepetition Lender Rights shall not be, nor shall it
constitute, a continuing waiver unless otherwise expressly provided therein. Any delay in or
failure to exercise or enforce any Prepetition Lender Right shall neither constitute a waiver of
such Prepetition Lender Right, subject the Prepetition Agents or any Prepetition Lender to any
liability to any other party, nor cause or enable any party other than the Debtors to rely upon or
in any way seek to assert as a defense to any obligation owed by the Debtors to the Prepetition
Agents or any Prepetition Lender.
5.16 DIP and Other Expenses; Procedures for Payment of DIP Lender
Representatives’, DIP Lenders’ and Prepetition Secured Parties’ Professional Fees and Expenses.
Any time that professionals for the DIP Lender Representative, each of the DIP Lender
Professionals, and the Adequate Protection Professionals seek payment of fees and expenses
incurred postpetition from the Debtors, each professional shall provide copies of its invoices
(which shall not be required to contain time entries, but shall include a general, brief description
of the nature of the matters for which services were performed, and which may be redacted or
modified to the extent necessary to delete any information subject to the attorney-client privilege,
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any information constituting attorney work product, or any other confidential information, and
the provision of such invoices shall not constitute any waiver of the attorney client privilege or of
any benefits of the attorney work product doctrine) to the Debtors, the U.S. Trustee and counsel
for a Committee (if appointed). If no written objection is received by the applicable professional
by 4:00 p.m., prevailing Eastern Time, on the date that is ten (10) days after delivery of such
invoice to the Debtors, the U.S. Trustee, and any Committee, such fees and expenses shall be
paid in full promptly by the Debtors. If an objection to a professional’s invoice is timely
received by such professional, such fees and expenses shall be paid by the Debtors in the
undisputed amount of the invoice, and this Court shall have jurisdiction to determine the
disputed portion of such invoice if the parties are unable to resolve the dispute consensually.
Pending such resolution, the undisputed portion of any such invoice will be, (i) with respect to a
DIP Lender Representative or DIP Lender professionals, paid promptly by the Debtors and (ii)
with respect to the Adequate Protection Professionals for the First Lien Secured Parties, paid out
of Cash Collateral that would otherwise have been remitted to the Debtors pursuant to paragraph
3.1(c) of this Interim Order. Notwithstanding the foregoing, the Debtors are authorized and
directed to pay on the Closing Date (as defined in the DIP Facility Documents) all reasonable,
undisputed and documented pre-petition fees, costs and expenses, other than the fees and
expenses of counsel and other professionals of the DIP Lender Representative, each of the DIP
Lenders, and the Prepetition Secured Parties incurred on or prior to (including prior to the
Petition Date) such date without the need for any professional engaged by the DIP Lender
Representative, each DIP Lender, or the Adequate Protection Professionals to first deliver a copy
of its invoice as provided for herein; provided, however, that such professionals shall provide
copies of their invoices to the U.S. Trustee and any Committee promptly after the Closing Date.
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The DIP Lender Representative professionals, the DIP Lenders professionals, and the Adequate
Protection Professionals shall not be required to file applications or motions with, or obtain
approval of, the Court for the payment of any of their fees or out-of-pocket expenses (other than
with respect to disputed amounts), nor are they subject to the U.S. Trustee fee guidelines.
Payments of any amounts set forth in this paragraph are subject to paragraph 5.12.
5.17 No Unauthorized Disposition of Collateral. The Debtors shall not sell,
transfer, encumber, otherwise dispose of, or enter into any lease post-Petition Date for, any
portion of the DIP Collateral (including equipment and Cash Collateral), other than in ordinary
course of the Debtors’ businesses or pursuant to the terms of this Interim Order or as permitted
by the DIP Facility Documents or further order of the Court. For the avoidance of doubt, Store
Closing Sales and the sale of substantially all of the assets of the Debtors as contemplated in the
All Assets Stalking Horse Bid (or in the event that the All Asset Stalking Horse Bid is terminated
as a result of the debt financing contingency therein, the sale of the Debtors’ intellectual property
and other assets in the IP Stalking Horse Bid) subject to section 363 of the Bankruptcy Code are
expressly permitted under this Interim Order.
5.18 No Waiver. The failure of the DIP Lenders or the Prepetition Lenders, as
applicable, to seek relief or otherwise exercise their rights and remedies under the DIP Facility
Documents, the Junior DIP Facility, the Prepetition Loan Documents, or the Interim Order, as
applicable, shall not constitute a waiver of any of the DIP Lenders’ or Prepetition Lenders’ rights
hereunder, thereunder, or otherwise. Notwithstanding anything herein, the entry of this Interim
Order is without prejudice to, and does not constitute a waiver of, expressly or implicitly, or
otherwise impair the rights of the DIP Lenders or the Prepetition Lenders under the Bankruptcy
Code or under non-bankruptcy law, including, without limitation, the rights of the DIP Lenders
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and the Prepetition Lenders to: (a) request conversion of the Cases to cases under chapter 7,
dismissal of the Cases, or the appointment of a trustee in the Cases; (b) propose, subject to the
provisions of section 1121 of the Bankruptcy Code, a plan; or (c) exercise any of the rights,
claims, or privileges (whether legal, equitable, or otherwise) of the DIP Lenders or the
Prepetition Lenders.
5.19 Maintenance of Collateral. Unless the DIP Lender Representative, the
Prepetition Agents otherwise consents in writing, until (i) the payment in full or otherwise
acceptable satisfaction of all DIP Obligations and the First Lien Obligations and (ii) the
termination of the DIP Lender Representative’s and the DIP Lenders’ obligations to extend
credit under the Junior DIP Facility, the Debtors shall comply with the covenants contained in
the DIP Facility Documents regarding the maintenance and insurance of the DIP Collateral.
Upon entry of this Interim Order and to the fullest extent provided by applicable law, each of the
DIP Lender Representative (on behalf of the DIP Lenders), the First Lien Agent (on behalf of the
First Lien Secured Parties), the Second Lien Term Loan A Agent (on behalf of the Second Lien
Term Loan A Lenders) and the Second Lien Term Loan B Agent (on behalf of the Second Lien
Term Loan B Lenders) shall be, and shall be deemed to be, without any further action or notice,
named as additional insureds and loss payees on each insurance policy maintained by the
Debtors that in any way relates to the DIP Collateral.
5.20 Reservation of Rights. The terms, conditions, and provisions of this
Interim Order are in addition to and without prejudice to the rights of each DIP Secured Party
and Prepetition Secured Party, subject to the First Lien/Second Lien Intercreditor Agreement, as
applicable, to pursue any and all rights and remedies under the Bankruptcy Code, the DIP
Facility Documents, the Prepetition Loan Documents, or any other applicable agreement or law,
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including, without limitation, rights to seek adequate protection and/or additional or different
adequate protection, to seek relief from the automatic stay, to seek an injunction, to oppose any
request for use of cash collateral or granting of any interest in the DIP Collateral or the
Prepetition Collateral, as applicable, or priority in favor of any other party, to object to any sale
of assets, and to object to applications for allowance and/or payment of compensation of
professionals or other parties seeking compensation or reimbursement from the Estates.
5.21 Binding Effect.
(a) All of the provisions of this Interim Order and the DIP Facility
Documents, the DIP Obligations, all liens, and claims granted hereunder in favor of each of the
DIP Secured Parties and the Prepetition Secured Parties, and any and all rights, remedies,
privileges, immunities and benefits in favor of the DIP Lender Representative, DIP Lenders, and
Prepetition Secured Parties set forth herein, including, without limitation, the parties’
acknowledgements, stipulations, and agreements in Section E of this Interim Order, subject to
paragraph 5.11 hereof (without each of which the DIP Secured Parties would not have entered
into or provided funds under the DIP Facility Documents and the Prepetition Secured Parties
would not have consented to the priming of the Prepetition Liens as set forth herein and use of
Cash Collateral provided for hereunder) provided or acknowledged in this Interim Order, and
any actions taken pursuant thereto, shall be effective and enforceable nunc pro tunc to the
Petition Date immediately upon entry of this Interim Order and not subject to any stay of
execution or effectiveness, pursuant to Bankruptcy Rules 4001(a)(3), 6004(h), 6006(d), 7062,
and 9024, or any other Bankruptcy Rule, or Rule 62(a) of the Federal Rules of Civil Procedure,
shall continue in full force and effect, and shall survive entry of any other order or action,
including, without limitation, any order which may be entered confirming any chapter 11 plan
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providing for the refinancing, repayment, or replacement of the DIP Obligations, converting one
or more of the Cases to any other chapter under the Bankruptcy Code, dismissing one or more of
the Cases, approving any sale of any or all of the DIP Collateral or the Prepetition Collateral, or
vacating, terminating, reconsidering, revoking, or otherwise modifying this Interim Order or any
provision hereof, in accordance with section 364(e) of the Bankruptcy Code; provided that in the
event a Final Order is entered, the terms and conditions of such Final Order shall control over
this Interim Order; provided further that such Final Order must affirm each of the provisions,
protections, grants, statements, stipulations, and agreements in this Interim Order in order for
such provisions, protections, grants, statements, stipulations, and agreements to remain in effect
after entry of the Final Order.
(b) No order dismissing one or more of the Cases under section 1112
or otherwise may impair the DIP Superpriority Claim, the Adequate Protection Superpriority
Claim, and the DIP Secured Parties’ and the Prepetition Secured Parties’ respective liens on and
security interests in the DIP Collateral and the Prepetition Collateral, respectively, and all other
claims, liens, adequate protections, and other rights granted pursuant to the terms of this Interim
Order, which shall continue in full force and effect notwithstanding such dismissal until the DIP
Obligations and Prepetition Obligations are indefeasibly paid and satisfied in full.
Notwithstanding any such dismissal, this Court shall retain jurisdiction for the purposes of
enforcing all such claims, liens, protections, and rights referenced in this paragraph and
otherwise in this Interim Order, to the extent allowed by applicable law.
(c) Except as set forth in this Interim Order, in the event this Court
modifies, reverses, vacates, or stays any of the provisions of this Interim Order or any of the DIP
Facility Documents, such modifications, reversals, vacatur, or stays shall not affect the
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(i) validity, priority, or enforceability of any DIP Obligations incurred prior to the actual receipt
of written notice by the DIP Lender Representative or Prepetition Agents, as applicable, of the
effective date of such modification, reversal, vacatur, or stay, (ii) validity, priority, or
enforceability of the DIP Liens, the DIP Superpriority Claims, the Prepetition Adequate
Protection Liens and the Adequate Protection Superpriority Claims or (iii) rights or priorities of
the DIP Lender Representative, DIP Lenders or the Prepetition Secured Parties pursuant to this
Interim Order with respect to the DIP Collateral or any portion of the DIP Obligations. All such
liens, security interests, claims and other benefits shall be governed in all respects by the original
provisions of this Interim Order, and the DIP Secured Parties and the Prepetition Secured Parties
shall be entitled to all the rights, remedies, privileges and benefits granted hereto, including the
liens and priorities granted herein.
(d) This Interim Order shall be binding upon the Debtors, the Second
Lien Term Loan A Obligors, the Second Lien Term Loan B Obligors, the First Lien Obligors, all
parties in interest in the Cases, and their respective successors and assigns, including, without
limitation, (i) any trustee or other fiduciary appointed in the Cases or any subsequently converted
bankruptcy case(s) of any Debtor and (ii) any liquidator, receiver, administrator, or similar such
person or entity appointed in any jurisdiction or under any applicable law. This Interim Order
shall also inure to the benefit of the Debtors, DIP Lender Representative, DIP Lenders,
Prepetition Secured Parties, and each of their respective successors and assigns.
5.22 Discharge. Subject to and effective upon the entry of the Final Order
granting such relief, the DIP Obligations and the obligations of the Debtors with respect to
adequate protection hereunder, including granting the Prepetition Adequate Protection Liens and
the Adequate Protection Superpriority Claims, shall not be discharged by the entry of an order
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confirming any plan of reorganization in any of these Cases, notwithstanding the provisions of
section 1141(d) of the Bankruptcy Code, unless such obligations have been indefeasibly paid in
full in cash, on or before the effective date of such confirmed plan of reorganization, or each of
the DIP Secured Parties or the Prepetition Secured Parties, as applicable, has otherwise agreed in
writing.
5.23 No Priming of Prepetition Obligations. Notwithstanding anything to the
contrary herein, from and after the entry of this Interim Order, absent the express written consent
of the Prepetition Lenders, no Debtor shall seek authorization from this Court to obtain or incur
any indebtedness or enter into an alternative financing facility from a party other than the DIP
Lenders (a “Competing DIP Facility”) seeking to impose liens on any DIP Collateral ranking on
a pari passu or priming basis with respect to the DIP Liens held by the Prepetition Secured
Parties; provided, however, that nothing herein shall preclude the Debtors from seeking
authorization to incur any indebtedness or enter into any Competing DIP Facility that provides
for the payment in full of the Prepetition Obligations (except as may be permitted under the
Prepetition Loan Documents) and the payment in full of the DIP Obligations at the initial closing
of such Competing DIP Facility.
5.24 Section 506(c) Waiver. Subject to and effective upon the entry of the
Final Order providing such relief, no costs or expenses of administration which have been or
may be incurred in these Cases at any time (including, without limitation, any costs and expenses
incurred in connection with the preservation, protection, or enhancement of value by the DIP
Lender Representative or the DIP Lenders upon the DIP Collateral, or by the Prepetition Secured
Parties upon the Prepetition Collateral, as applicable) shall be charged against the DIP Lender
Representative, DIP Lenders, or Prepetition Secured Parties, or any of the DIP Obligations or
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Prepetition Obligations or the DIP Collateral or the Prepetition Collateral pursuant to sections
105 or 506(c) of the Bankruptcy Code or otherwise without the prior express written consent of
the affected DIP Secured Parties and/or affected Prepetition Secured Parties, in their sole
discretion, and no such consent shall be implied, directly or indirectly, from any other action,
inaction, or acquiescence by any such agents or creditors (including, without limitation, consent
to the Carve-Out or the approval of any budget hereunder).
5.25 Section 552(b) Waiver. The Debtors have agreed as a condition to
obtaining financing under the Junior DIP Facility and using Cash Collateral as provided in this
Interim Order that, subject to and effective upon entry of the Final Order granting such relief, the
Prepetition Secured Parties are and shall each be entitled to all of the rights and benefits of
section 552(b) of the Bankruptcy Code and that the “equities of the case” exception under
section 552(b) shall not apply to the DIP Lender Representative, the DIP Lenders, the DIP
Obligations, or the Prepetition Secured Parties, or the Prepetition Obligations.
5.26 No Marshaling/Application of Proceeds.
(a) In no event shall the DIP Lender Representative, the DIP Lenders,
or, subject to the entry of the Final Order providing such relief, the Prepetition Secured Parties be
subject to the equitable doctrine of “marshaling” or any similar doctrine with respect to the DIP
Collateral or the Prepetition Collateral, as applicable, and all proceeds shall be received and
applied in accordance with the DIP Facility Documents and the Prepetition Loan Documents
(including the First Lien/Second Lien Intercreditor Agreement), as applicable.
(b) Notwithstanding anything to the contrary in this Interim Order, the
DIP Obligations shall be satisfied from the proceeds of DIP Collateral.
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5.27 Stalking Horse Toggle. Notwithstanding anything to the contrary
contained in this Interim Order, in the event that (i) the All Assets Stalking Horse Bid is
terminated as a result of the debt financing contingency therein, (ii) either (A) the Debtors close
on the IP Stalking Horse Bid or (B) the Debtors commence an auction and close on the sale of a
bid determined by the Debtors to be higher or otherwise better than the IP Stalking Horse Bid
(each an “IP Sale”), and (iii) the proceeds of such IP Sale (the “IP Sale Proceeds”) are
insufficient to pay the First Lien Secured Parties in full, then (1) the outside date for waiver of a
portion of the Prepayment Fee by the First Lien Term Lenders, as identified in footnote 4, shall
be extended to September 19, 2020; (2) upon the closing of the IP Sale and after giving effect
thereto the Debtors shall cause to be paid to the First Lien Agent the greater of (x) $75,000,000
and (y) the sum by which the aggregate of the IP Sale Proceeds plus the cash then on deposit in
the Concentration Account and the Operating Account exceeds the sum of (x) then outstanding
check and (y) $10,500,000; (3) on each Friday after the closing of the IP Sale until the Payment
in Full, in cash, of the First Lien Obligations, the First Lien Agent is hereby authorized and
directed to transfer to the First Lien Agent (or the Debtors at the direction of the First Lien Agent
shall initiate such transfer) all cash then on deposit in the Concentration Account and the
Operating Account in excess of (x) all then outstanding checks; and (y) $10,500,000 (which
amounts set forth in clause (2) and (3) above thereupon applied in permanent reduction and
repayment of the First Lien Obligations in accordance with the terms of the First Lien
Documents); and (4) the Debtors shall be permitted to use Cash Collateral and the proceeds of
the DIP Loans for the purposes of administering the Cases, liquidating remaining assets, and
confirming a chapter 11 plan of liquidation in accordance with the Initial IP Toggle Budget until
the IP Toggle Second Lien Outside Date. Upon the occurrence of the IP Toggle Second Lien
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Outside Date, the Debtors will use Cash Collateral to fund the Wind-Down Account, which shall
be administered in accordance with the Initial IP Toggle Budget.
5.28 Relief Subject to a Final Order. For the avoidance of doubt, nothing in
this Interim Order shall be deemed to grant or approve (a) a waiver of the Debtors’ ability to
surcharge against any Prepetition Collateral pursuant to section 506(c) of the Bankruptcy Code;
(b) any right of the Debtors under the “equities of the case” exception in section 552(b) of the
Bankruptcy Code with respect to the Prepetition Secured Parties; (c) the application of the
equitable doctrine of “marshaling” or any similar doctrine with respect to the Prepetition
Collateral; or (d) a lien on or superpriority claim against the Avoidance Proceeds.
5.29 Limits on Lender Liability.
(a) Subject to and effective upon entry of the Final Order granting
such relief, and paragraph 5.11 hereof, by virtue of determining to make any loan under the DIP
Facility Documents, authorizing the use of Cash Collateral or in exercising any rights or
remedies as and when permitted pursuant to this Interim Order or the DIP Facility Documents,
the DIP Lender Representative, the DIP Lenders, and the Prepetition Secured Parties shall not be
deemed to (i) be in control of the operations of the Debtors or to be acting as a “controlling
person”, “responsible person”, or “owner or operator” with respect to the operation or
management of the Debtors, so long as the such party’s actions do not constitute, within the
meaning of 42 U.S.C. § 9601(20)(F), actual participation in the management or operational
affairs of a facility owned or operated by a Debtor, or otherwise cause liability to arise to the
federal or state government or the status of responsible person or managing agent to exist under
applicable law (as such terms, or any similar terms, are used in the Internal Revenue Code,
WARN Act, the United States Comprehensive Environmental Response, Compensation and
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Liability Act, 42 U.S.C. §§ 9601 et seq., as amended, or any similar federal or state statute) or
(ii) owe any fiduciary duty to any of the Debtors. Furthermore, nothing in this Interim Order
shall in any way be construed or interpreted to impose or allow the imposition upon any of the
DIP Secured Parties or the Prepetition Secured Parties of any liability for any claims arising from
the prepetition or postpetition activities of any of the Debtors and their respective affiliates (as
defined in section 101(2) of the Bankruptcy Code).
(b) Nothing in this Interim Order or the DIP Facility Documents shall
permit the Debtors to violate 28 U.S.C. § 959(b).
(c) As to the United States, its agencies, departments, or agents,
nothing in this Interim Order or the DIP Facility Documents shall discharge, release or otherwise
preclude any valid right of setoff or recoupment that any such entity may have.
5.30 Release. Subject to and effective upon entry of a Final Order granting
such relief, and subject to paragraph 5.11 of this Interim Order, each of the Releasing Parties on
their own behalf and on behalf of each of their past, present and future predecessors, successors,
heirs, subsidiaries, and assigns, hereby forever, unconditionally, permanently, and irrevocably
release, discharge, and acquit each of the DIP Secured Parties and the Prepetition Secured Parties
and (in such capacity) each of their respective successors, assigns, affiliates, parents,
subsidiaries, partners, controlling persons, representatives, agents, attorneys, advisors, financial
advisors, consultants, professionals, officers, directors, members, managers, shareholders, and
employees, past, present and future, and their respective heirs, predecessors, successors and
assigns of and from any and all claims, controversies, disputes, liabilities, obligations, demands,
damages, expenses (including, without limitation, attorneys’ fees), debts, liens, actions, and
causes of action of any and every nature whatsoever, whether arising in law or otherwise, and
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whether known or unknown, matured or contingent, arising under, in connection with, or relating
to (i) the Junior DIP Facility or the DIP Facility Documents or (ii) the Prepetition Loan
Documents, as applicable, including, without limitation, (a) any so-called “lender liability” or
equitable subordination claims or defenses, (b) any and all “claims” (as defined in the
Bankruptcy Code) and causes of action arising under the Bankruptcy Code, and (c) any and all
offsets, defenses, claims, counterclaims, set off rights, objections, challenges, causes of action,
and/or choses in action of any kind or nature whatsoever, whether arising at law or in equity,
including any recharacterization, recoupment, subordination, avoidance, or other claim or cause
of action arising under or pursuant to section 105 or chapter 5 of the Bankruptcy Code or under
any other similar provisions of applicable state, federal, or foreign law, including, without
limitation, any right to assert any disgorgement or recovery, in each case, with respect to the
extent, amount, validity, enforceability, priority, security, and perfection of any of the DIP
Obligations, the DIP Facility Documents, or the DIP Liens, and further waive and release any
defense, right of counterclaim, right of setoff, or deduction to the payment of the DIP
Obligations that the Debtors now have or may claim to have against the Released Parties, arising
under, in connection with, based upon, or released to any and all acts, omissions, conduct
undertaken, or events occurring prior to entry of this Interim Order.
5.31 Survival. The provisions of this Interim Order, the validity, priority, and
enforceability of the DIP Liens, the DIP Superpriority Claims, the Prepetition Adequate
Protection Liens, the Adequate Protection Superpriority Claims, and any actions taken pursuant
hereto shall survive, and shall not be modified, impaired or discharged by, entry of any order that
may be entered (a) confirming any plan of reorganization in any of these Cases, (b) converting
any or all of these Cases to a case under chapter 7 of the Bankruptcy Code, (c) dismissing any or
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all of these Cases, (d) terminating the joint administration of these Cases or any other act or
omission, (e) approving the sale of any DIP Collateral pursuant to section 363(b) of the
Bankruptcy Code (except to the extent permitted by the DIP Facility Documents or the First
Lien/Second Lien Intercreditor Agreement), or (f) pursuant to which the Court abstains from
hearing any of these Cases. The terms and provisions of this Interim Order, including the claims,
liens, security interests, and other protections (as applicable) granted to the DIP Lender
Representative, the DIP Lenders, and the Prepetition Secured Parties pursuant to this Interim
Order, notwithstanding the entry of any such order, shall continue in any of these Cases,
following dismissal of any of these Cases or any Successor Cases, and shall maintain their
priority as provided by this Interim Order until (i) in respect of the Junior DIP Facility, all of the
DIP Obligations, pursuant to the DIP Facility Documents and this Interim Order, have been
indefeasibly paid in full in cash (such payment being without prejudice to any terms of
provisions contained in the Junior DIP Facility which survive such discharge by their terms) and
all commitments to extend credit under the Junior DIP Facility are terminated, and (ii) in respect
of the Prepetition Obligations, all of the adequate protection obligations owed to the Prepetition
Secured Parties provided for in this Interim Order and under the First Lien Credit Agreement or
the Second Lien Agreements have been indefeasibly paid in full in cash.
5.32 Proofs of Claim. None of the Prepetition Secured Parties shall be required
to file proofs of claim in any of these Cases or subsequent cases of any of the Debtors under any
chapter of the Bankruptcy Code, and the Debtors’ Stipulations in this Interim Order shall be
deemed to constitute a timely filed proof of claim against the applicable Debtor(s).
Notwithstanding the foregoing, any Prepetition Agent (on behalf of itself and the Prepetition
Lenders) is hereby authorized and entitled, in its discretion, but not required, to file (and amend
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and/or supplement, as applicable) a master proof of claim for any claims of any of the Prepetition
Secured Parties arising from the Prepetition Loan Documents or in respect of the Prepetition
Obligations; provided, however, that nothing in this Interim Order shall waive the right of any
Prepetition Lender to file its own proof of claim against any of the Debtors.
5.33 No Third Party Rights. Except as specifically provided for herein, this
Interim Order does not create any rights for the benefit of any third party, creditor, equity
holders, or any direct, indirect, or incidental beneficiary.
5.34 No Avoidance. Subject to paragraph 5.11 hereof, no obligations incurred
or payments or other transfers made by or on behalf of the Debtors on account of the Junior DIP
Facility shall be avoidable or recoverable from the DIP Lender Representative or the DIP
Lenders under any section of the Bankruptcy Code, or any other federal, state, or other
applicable law.
5.35 Reliance on Order. All postpetition advances and use of Cash Collateral
under the DIP Facility Documents are made in reliance on this Interim Order.
5.36 Payments Free and Clear. Any and all payments or proceeds remitted to
the DIP Lender Representative on behalf of the DIP Secured Parties or the Prepetition Agents on
behalf of the applicable Prepetition Secured Parties, pursuant to the provisions of this Interim
Order, any subsequent order of this Court or the DIP Facility Documents, shall, subject to
paragraph 5.11 hereof, and if applicable, section 506(c) and 552(b) of the Bankruptcy Code, be
irrevocable, received free and clear of any claims, charge, assessment, or other liability, whether
asserted or assessed by, through or on behalf of the Debtors, subject to the Carve-Out in all
respects.
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5.37 Limited Effect. In the event of a conflict between the terms and
provisions of any of the DIP Facility Documents, or the Motion, and this Interim Order, the
terms and provisions of this Interim Order shall govern.
5.38 Headings. Section headings used herein are for convenience only and are
not to affect the construction of or to be taken into consideration in interpreting this Interim
Order.
5.39 Bankruptcy Rules. The requirements of Bankruptcy Rules 4001, 6003,
and 6004, in each case to the extent applicable, are satisfied by the contents of the Motion.
5.40 General Authorization. The Debtors, the DIP Secured Parties, and the
Prepetition Secured Parties are authorized to take any and all actions necessary to effectuate the
relief granted in this Interim Order.
5.41 Retention of Exclusive Jurisdiction. This Court shall retain exclusive
jurisdiction and power with respect to all matters arising from or related to the implementation or
interpretation of this Interim Order and the DIP Facility Documents.
5.42 Final Hearing and Response Dates. The Final Hearing on the Motion
pursuant to Bankruptcy Rule 4001(c)(2) will be held on ______, 2020, at ______,
prevailing Eastern Time. Within two business days of the entry of this Order, the Debtors shall
mail copies of this Interim Order, the Motion (to the extent not previously served) and notice of
the final hearing to the Notice Parties, to any other party that has filed a request for notices with
this Court, to any Committee after same has been appointed, or the Committee’s counsel if same
shall have filed a request for notice, to all parties known to the Debtors to be asserting liens
against or security interest in, any of the DIP Collateral or Prepetition Collateral; all state taxing
authorities in the states in which the Debtors have any tax liabilities; any federal or state
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regulatory authorities governing the Debtors’ industry; and the Delaware Attorney General. The
Motion and this Interim Order are available at the Debtors’ claims and noticing agent’s website:
https://dm.epiq11.com/LuckyBrand.
5.43 Any party in interest objecting to the relief sought at the Final Hearing
shall serve and file written objections, which objections shall be served upon: (i) proposed
counsel to the Debtors, (a) Latham & Watkins LLP, 355 South Grand Avenue, Suite 100, Los
Angeles, California 90071 (Attn: Ted A. Dillman ([email protected]), Christina Craige
([email protected]), and Brian S. Rosen ([email protected])), and (b) Young Conaway
Stargatt & Taylor, LLP, Rodney Square, 1000 N. King Street, Wilmington, Delaware 19801
(Attn: Kara Hammond Coyle ([email protected]) and Joseph M. Mulvihill
([email protected])), (ii) counsel to certain of the Second Lien Lenders, certain of the DIP
Lenders and the DIP Lender Representative, DLA Piper LLP (US), 1251 Avenue of the
Americas, 27th Floor, New York, NY 10020 (Attn: Thomas Califano
([email protected]) and Daniel M. Simon ([email protected])), (iii)
counsel to the Stalking Horse Bidder, Paul, Weiss, Rifkind, Wharton & Garrison LLP 1285
Avenue of the Americas, New York, NY 10019 (Attn: Kelley A. Cornish
([email protected]), Edward T. Ackerman ([email protected]), Brian Bolin
([email protected]), and Jeffrey L. Stricker ([email protected])), (iv) counsel to
Wells Fargo Bank, National Association, as administrative agent under the First Lien Credit
Agreement, (a) Choate Hall & Stewart LLP, Two International Place, Boston, MA 02110 (Attn:
Kevin J. Simard ([email protected]) and Jennifer Conway Fenn ([email protected])), and
(b) Reed Smith LLP, 1201 Market Street, Suite 1500, Wilmington, DE 19801 (Attn: Kurt
Gwynne ([email protected])), (v) counsel to Wells Fargo Bank, National Association, as
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term agent under the First Lien Credit Agreement, Greenberg Traurig, LLP, One International
Place, Suite 200, Boston, MA 02110 (Attn: Jeffrey Wolfe ([email protected])), (vi) counsel to
Hilco Merchant Resources LLC, Paul Hastings LLP, 71 S. Wacker Drive, 45th Floor, Chicago,
IL 60606 (Attn: Holly Snow ([email protected])), (vii) counsel to Clover Holdings
II, LLC, Richards, Layton & Finger, PA, 920 N King Street, Wilmington, DE 19801 (Attn: Mark
D. Collins ([email protected])), (viii) counsel to Wilmington Trust, N.A., as Second Lien Term
Loan A Agent, Alston & Bird LLP, One Atlantic Center, 1201 West Peachtree Street, Suite
4900, Atlanta, GA 30309-3424 (Attn: David A. Wender ([email protected]) and Antone
J. Little ([email protected])), (ix) counsel to the Committee, if any, (x) counsel to the
Successful Bidder, and (xi) the U.S. Trustee, 844 King Street, Suite 2207, Lockbox 35,
Wilmington, Delaware, 19801 (Attn: Juliet Sarkessian ([email protected])) and
shall be filed with the Clerk of the United States Bankruptcy Court for the District of Delaware,
in each case, no later than 4:00 p.m. (prevailing Eastern Time), on ______, 2020.
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EXHIBIT A
DIP Promissory Note
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SUPERPRIORITY JUNIOR DEBTOR-IN-POSSESSION SECURED PROMISSORY NOTE
$15,600,000 July [_], 2020
FOR VALUE RECEIVED, Lucky Brand Dungarees, LLC a Debtor and Debtor-in-Possession under Chapter 11 of the Bankruptcy Code (the “Borrower”), hereby promises to pay to the order of Lantern Capital Partners or one of its affiliates (“LCP”), ReStore Capital (LKY), LLC (an affiliate of the L/C Issuer) or one of its affiliates (“ReStore”) and Clover Holdings II, LLC or one of its affiliates (“Clover” and, together with LCP and ReStore, the “DIP Lenders”), the principal sum of Fifteen Million Six Hundred Thousand Dollars ($15,600,000) or as much thereof (up to the Maximum Loan Commitment) as has been or may be advanced as loans (such advances being referred to herein collectively as the “Loans”) or as much thereof (up to the LC Commitment (as defined below)) as has been or may be issued as letters of credit which have not been reimbursed (such letters of credit being referred to herein collectively as the “Letters of Credit” and, together with the Loans, the “DIP Obligations”), together with interest, in each case in the manner described in this Superpriority Junior Debtor-In-Possession Secured Promissory Note (and, together with Annex A and Annex B attached hereto, this “Note”). Certain terms used herein are defined in Annex A.
1. Commitments; Letters of Credit. (a) Subject to the terms and conditions hereof and relying upon the representations and warranties set forth herein and in the other Loan Documents, the DIP Lenders agree to make on the (i) Closing Date (as defined below), a Loan to the Borrower in the amount of $6,500,000 (the “Interim Loans”), (ii) Final Funding Date, a Loan to the Borrower in the aggregate amount of $5,000,000 (the “Final Loans”) and (iii) Closing Date and thereafter, a letter of credit facility (the “L/C Facility”) available to the Borrower in the aggregate amount not to exceed $4,100,000 (the “LC Commitment”); provided further that the aggregate principal amount of all Loans funded by the Lenders hereunder shall in no event (i) prior to the Final Funding Date, exceed the aggregate amount of the Interim Loans and (ii) at any time, exceed the Maximum Loan Commitment; provided further that the aggregate principal amount of all Letters of Credit issued by Hilco Merchant Resources, LLC (or, with not less than three Business Days’ notice to the Obligors, another affiliate of the DIP Lenders), as letter of credit issuer (the “L/C Issuer”) hereunder shall in no event exceed the LC Commitment. The LC Commitment shall only be available to issue letters of credit on behalf of the Borrower and, subject to Section 1(b) below, shall not be available to advance funds directly to the Borrower. The loan Commitments of each of the DIP Lenders is set forth on Schedule I(A).
(b) Letters of Credit. Upon request by any Obligor to the L/C Issuer, the L/C Issuer shall issue trade or standby letters of credit on behalf of the Obligors or any of their affiliates provided that the face amount of all undrawn Letters of Credit does not exceed the LC Commitment. Letters of Credit shall be issued by the L/C Issuer upon three Business Days prior written notice to the L/C Issuer (unless such period is waived by the L/C Issuer; it being agreed and understood that an Obligor may apply for a Letter of Credit on less than three Business Days’ notice as long as such Letter of Credit is issued within three Business Days of initial application), which shall be accompanied by such letter of credit application and other documentation as the L/C Issuer may request. Undrawn Letters of Credit shall accrue interest at the rate set forth in Section 3(a) below (which shall accrue to the benefit of each DIP Lender in accordance with their pro rata Letter of Credit commitment set forth on Schedule I(B); provided that 2.5% shall be reserved for the L/C Issuer) and shall be subject to the fees set forth in Section 3(b) below (which shall be paid to the L/C Issuer). In the event that there is a drawing under a Letter of Credit, the Obligors shall reimburse the L/C Issuer within one Business Day of notice of such drawing in an amount equal to the amount of such drawing; provided that, at the request of the Obligors, the amount of the unreimbursed Letters of Credit may be converted to Loans, which shall accrue interest at the rate set forth in Section 3(a) hereof; provided that such Loans will be attributed to the LC Commitment and not the Maximum Loan Commitment; provided further that each DIP Lender acknowledges and agrees that, if the Obligors do not reimburse the
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L/C Issuer or elect to have such reimbursement amount converted into Loans, then each DIP Lender will immediately fund to the L/C Issuer an amount equal to its respective pro rata percentage of such drawing, notwithstanding the occurrence or continuation of an Event of Default or the failure to satisfy any conditions hereunder, on a pro rata basis pursuant to the Letter of Credit commitments of each DIP Lenders set forth on Schedule I(B).
2. Payments of Principal. Subject to the acceleration provisions of Section 8, all unpaid principal, fees and accrued and unpaid interest shall be due and payable in full on the Maturity Date. To the extent any Letters of Credit remain outstanding at the Maturity Date, such Letters of Credit, on the Maturity Date, shall be cash collateralized in an amount equal to 105% of the principal amount of the applicable Letters of Credit (the “CC LC Amount”) by DIP Lenders depositing the CC LC Amount with the LC Issuer in accordance with the pro rata commitments on Schedule I(B) under Letters of Credit Commitments; provided, however, that in lieu of such DIP Lenders’ obligations, the Borrower or the purchaser of the Acquired Assets may deposit such CC LC Amount with the LC Issuer. The LC Issuer shall hold the CC LC Amount in a separate bank account and only use funds in such bank account to cover any draws on the Letters of Credit, including by reimbursing the LC Issuer if the amounts drawn on the Letters of Credit are drawn from a different account. Once the Letters of Credit expire, and only if the Letters of Credit have not been fully drawn prior to the expiration of the applicable Letters of Credit, amounts remaining in such bank account shall be paid to the DIP Lenders pro rata based on commitments on Schedule I(B) under Letters of Credit Commitments.
3. Interest; Fees.
(a) Interest. The unpaid principal amount of this Note shall accrue interest at a rate equal to 17.0% per annum; provided that upon the occurrence and during the continuance of an Event of Default, the outstanding principal amount of this Note and any accrued and unpaid interest and all other overdue amounts shall each bear interest until paid at the stated rate plus 3.00% per annum. All payments of interest upon this Note shall be paid monthly in cash on the last Business Day of each month (commencing with the first full month ending after the date hereof), provided, however, for any month in which interest is due hereunder and the 363 Sale Effective Date occurs, such interest shall be due and the Borrower shall pay such interest on the last Business Day before the 363 Sale Effective Date. All computations of interest shall be made on the basis of a 360-day year based on the actual number of days elapsed in the period during which it accrues.
(b) Fees. The Borrower shall pay to the DIP Lenders an upfront fee in cash in an amount equal to 1.0% of the Maximum DIP Commitment (the “UpFront Premium”). The UpFront Premium shall be fully earned and due and payable in cash on the Closing Date (for the avoidance of doubt, such Upfront Premium shall be netted from the Final Loans). The Letters of Credit will be subject to customary letter of credit documentation fees and a fronting fee payable to the L/C Issuer equal to (i) 0.125% of the face amount of each Letter of Credit (the “LC Fees”) plus (ii) $305.00, each such fee in clauses (i) and (ii) to be payable by the Borrower in cash directly to the LC Issuer on the date of issuance of any Letter of Credit. All amounts paid hereunder shall be nonrefundable once paid.
4. Payments; Payment Terms. The Borrower may at any time and from time to time pay any principal amount of this Note in whole or in part without premium or penalty, subject to the Exit Premium (as defined below) and the other provisions of this Section 4. Payments of any outstanding amounts under the DIP Obligations shall be subject to an exit premium at the Exit Premium Rate, which shall be earned upon entry of the Interim Order and payable on the Maturity Date (the “Exit Premium”); provided, however, that if the DIP Lenders (or their respective Related Parties) are the successful bidder in a section 363 Sale of the Acquired Assets, the Exit Premium will be waived in its entirety by the DIP Lenders at the closing of such transaction. All payments of principal of, and interest upon, this Note shall be made by the Borrower
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to the DIP Lenders in cash in immediately available funds in lawful money of the United States of America, by wire transfer to the bank account designated by the DIP Lenders in writing from time to time. All payments under this Note shall be made to the DIP Lenders without withholding, defense, set-off, counterclaim, or deduction. Payments made to the DIP Lenders by the Borrower hereunder shall be applied first to expenses recoverable under Section 12, then accrued interest and then to principal. If the due date of any payment under this Note would otherwise fall on a day that is not a Business Day, such due date shall be extended to the next succeeding Business Day, and interest shall be payable on any principal so extended for the period of such extension.
5. Guarantee. The Guarantors hereby jointly and severally guarantee to the DIP Lenders and their respective successors and assigns the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise, including amounts that would become due but for the operation of the automatic stay under the Debtor Relief Laws) of the Obligations. The Guarantors hereby further jointly and severally agree that if the Borrower shall fail to pay in full when due (whether at stated maturity, by acceleration or otherwise, including amounts that would become due but for the operation of the automatic stay under the Debtor Relief Laws) any of the Obligations strictly in accordance with the terms of any document or agreement evidencing any such Obligations, including in the amounts, in the currency and at the place expressly agreed to thereunder, irrespective of and without giving effect to any law, order, decree or regulation in effect from time to time of the jurisdiction where the Borrower, any Guarantor or any other person obligated on any such Obligations is located, the Guarantors will promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Obligations, the same will be promptly paid in full when due (whether at extended maturity, by acceleration or otherwise) in accordance with the terms of such extension or renewal. The obligations of the Guarantors under this Section 5 are primary, absolute and unconditional, joint and several, irrespective of the value, genuineness, validity, regularity or enforceability of the obligations of the Borrower under this Note and the other Loan Documents, or any substitution, release or exchange of any other guarantee of or security for any of the Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 5 that the obligations of the Guarantors hereunder shall be absolute and unconditional, joint and several, under any and all circumstances and shall apply to any and all Obligations now existing or in the future arising. The guarantee in this Section 5 is a continuing guarantee and is a guaranty of payment and not merely of collection and shall apply to all Obligations whenever arising.
6. Security and Administrative Priority
(a) Collateral; Grant of Lien and Security Interest.
(i) As security for the full and timely payment and performance of all of the Obligations, upon authorization by the Bankruptcy Court under any of the DIP Orders, each of the Obligors hereby assigns, pledges and grants to the DIP Lenders, a superpriority security interest in, and Lien on, all of the property, assets or interests in property or assets of such Person, of any kind or nature whatsoever, real or personal, tangible and intangible now existing or hereafter acquired or created, including all property of the “estate” (within the meaning of the Bankruptcy Code) of the Obligors, and all cash, money, cash equivalents, deposit accounts, securities accounts, accounts, other receivables, chattel paper, contract rights, goods and inventory (wherever located), instruments, documents, securities (whether or not marketable) and investment property (including, without limitation, all of the issued and outstanding capital stock of each of its subsidiaries), furniture, fixtures, equipment, franchise rights, trade names, trademarks, servicemarks, copyrights, patents, Intellectual Property, general intangibles of any kind, rights to the payment of money, supporting obligations, guarantees, general intangibles, letter of credit rights, commercial tort claims, causes of action and all substitutions, books and records related to the foregoing, and accessions and
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proceeds of the foregoing, wherever located, including insurance or other proceeds, the proceeds of all Avoidance Actions (subject to entry of a Final Order), rights under section 506(c) of the Bankruptcy Code (subject to the entry of a Final Order), all Cash Collateral, which, in accordance with the DIP Order, includes Excluded Assets (as such term is defined in the Security Agreement as such term is defined in the Prepetition Senior Credit Facility), and all cash and non-cash proceeds, rents, products, substitutions, accessions and profits of any of collateral described above (all property of the Obligors subject to the security interest referred to in this clause (6)(a)(i) being hereinafter, collectively, referred to as the “Collateral”); provided that the DIP Obligations shall be (i) junior in right of payment to the valid, binding, continuing, enforceable, fully perfected security interests and liens granted to the lenders under the Prepetition Senior Credit Facility and other liens to the extent constituting “Prior Permitted Liens” as defined in the DIP Order, (ii) junior to the First Lien Adequate Protection Liens, (iii) senior in right of payment to the valid, binding, continuing, enforceable, fully perfected security interests and liens granted to the lenders under the Prepetition Second Lien Credit Facilities and (iv) senior to the Second Lien Adequate Protection Liens. The DIP Obligations shall retain a superpriority lien with respect to all other indebtedness and liens of the Obligors, subject to the Carve-Out. Unless otherwise specified, terms used in this Section 6(a)(i) that are defined in the UCC shall have the meangings set forth therein.
(ii) The security interests and Liens in favor of the DIP Lenders in the Collateral shall be effective immediately upon the entry of the Interim Order and have the priority set forth in the DIP Orders. Such Liens and security interests, and their priority, shall remain in effect until the Commitments shall have been terminated and all Obligations shall have been paid in full.
(iii) Notwithstanding anything herein to the contrary, the Carve-Out shall be senior to all liens and claims securing the DIP Obligations, any adequate protection liens and claims (including with respect to superpriority administrative liens and claims) and any and all other liens or claims securing the Prepetition Loan Agreements and/or this Note.
(iv) Notwithstanding anything herein to the contrary, no Person entitled to the Carve-Out shall be entitled to sell or otherwise dispose of any Collateral.
(v) Subject only to prior payment of the Carve-Out and the claims of the Prepetition Senior Lenders arising under the Prepetition Senior Credit Facility, no costs or expenses of administration which have been or may be incurred in the Chapter 11 Cases or any conversion of the same or in any other proceedings related thereto, and no priority claims, are or will be prior to or on a parity with any claim of the DIP Lenders or DIP Representative against any Obligor in respect of any Obligation.
(b) Administrative Priority. Each Obligor agrees that its Obligations shall constitute allowed superpriority administrative expenses in the Chapter 11 Cases, having priority set forth in the DIP Orders, and each Obligor waives all rights, claims and causes of action arising under any provision of the Bankruptcy Code or otherwise seeking to surcharge the Collateral with respect to the DIP Lenders or Prepetition Collateral with respect to the Prepetition Lenders, or assert damages or obtain a judgment against the Prepetition Lenders or DIP Lenders for any costs of the administration of the Chapter 11 Cases.
(c) Grants, Rights and Remedies; Conflicts. This Note, the DIP Orders and any other Loan Documents supplement each other, and the grants, priorities, rights and remedies of the DIP Representative and the DIP Lenders hereunder and thereunder are cumulative. In the event of a conflict between the terms and provisions of any of the Loan Documents and a DIP Order, the terms and provisions of the DIP Order shall govern.
(d) Survival. The Liens, lien priority, administrative priorities and other rights and remedies granted to the DIP Representative and DIP Lenders pursuant to this Note, the DIP Orders and the other Loan Documents (specifically including, but not limited to, the existence, perfection and priority of the
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Liens and security interests provided herein and therein, and the administrative priority provided herein and therein) shall not be modified, altered or impaired in any manner by any other financing or extension of credit or incurrence of Indebtedness by the Obligors (pursuant to section 364 of the Bankruptcy Code or otherwise), or by any dismissal or conversion of any of the Chapter 11 Cases, or by any other act or omission whatsoever. Without limitation, notwithstanding any such order, financing, extension, incurrence, dismissal, conversion, act or omission:
(i) except to the extent of the Carve-Out and the claims of the Prepetition Senior Lenders arising under the Prepetition Senior Credit Facility, no fees, charges, disbursements, costs or expenses of administration which have been or may be incurred in the Chapter 11 Cases or any conversion of the same or in any other proceedings related thereto, and no priority claims, are or will be prior to or on parity with any claim of the DIP Lenders against the Obligors in respect of any Obligation;
(ii) the Liens in favor of the DIP Lenders set forth in clause (a)(i) of this Section shall constitute valid and perfected Liens and security interests having the priority set forth in the DIP Orders, and except with respect to the Liens created under the Prepetition Senior Credit Facility and as otherwise set forth in the DIP Orders, shall be prior to all other Liens and security interests, now existing or hereafter arising, in favor of any other creditor or any other Person whatsoever; and
(iii) the Liens in favor of the DIP Lenders set forth herein and in the other Loan Documents shall continue to be valid and perfected without the necessity that the DIP Lenders file financing statements or mortgages, take possession or control of any Collateral, or otherwise perfect its Lien under applicable non-bankruptcy law.
7. Events of Default. An “Event of Default” shall exist hereunder if any one or more of the following events shall occur:
(a) the Borrower shall fail (i) to pay any principal or any portion thereof when due under this Note, or (ii) to pay any interest or any portion thereof or any other amount hereunder or under the DIP Orders, the LC Fees or any other Loan Document (including amounts required to be paid pursuant to Section 12(a)) within five (5) Business Days after the same becomes due; or
(b) any Obligor shall fail to perform or observe any term, covenant or agreement to be performed or observed by it pursuant to Section 10; or
(c) any Obligor shall fail to perform or observe any other covenant or agreement to be performed or observed by it contained herein, in the DIP Orders (which such failure to perform or observe constitutes a Termination Event under and as defined in the DIP Orders) or in any other Loan Document; or
(d) any Budget Event occurs; or
(e) any representation or warranty of any Obligor made herein or in any other Loan Document proves to have been materially incorrect when made or reaffirmed; or
(f) any fraudulent act, fraudulent conduct or fraudulent omission by the Obligors with respect to the Loan Documents or the Chapter 11 Orders; or
(g) a Change of Control shall occur, except as may occur or have occurred as a result of or as contemplated by the Chapter 11 Cases and the DIP Orders; or
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(h) Obligors shall use Cash Collateral, DIP Collateral (as defined in the DIP Orders) or Prepetition Collateral in any manner not authorized by the DIP Orders and the Loan Documents; or
(i) any material provision of the Loan Documents, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or thereunder or satisfaction in full of all Obligations (other than contingent obligations not due and payable as of such date) ceases to be in full force and effect or any Obligor shall contest the validity or enforceability of any part of this Note or any other Loan Document; or
(j) any of the Chapter 11 Cases shall be dismissed (or the Bankruptcy Court shall make a ruling requiring the dismissal of any of the Chapter 11 Cases (in either case, unless such dismissal does not provide for termination of the use of the DIP Collateral and require and result in the payment in full in cash of the Obligations)), suspended, or converted to a case under chapter 7 of the Bankruptcy Code, or any Obligor shall file any pleading requesting any such relief; or a motion shall be filed by any Obligor for the approval of, or there shall arise, any other Claim having priority senior to or pari passu with the claims of the DIP Lenders under the Loan Documents or any other claim having priority over any or all administrative expenses of the kind specified in clause (b) of section 503 or clause (b) of section 507 of the Bankruptcy Code (other than the Carve-Out); or
(k) any Obligor files a motion in the Chapter 11 Cases to (i) obtain additional or replacement financing from a party other than DIP Lenders under section 364(d) of the Bankruptcy Code or (ii) to use Collateral under section 363(c) of the Bankruptcy Code other than any application related to the DIP Order, except (i) (x) with the express written consent of the DIP Representative and DIP Lenders or (y) to the extent any such financing shall provide for the payment in full of the DIP Obligations and (ii) to the extent such financing is secured by Prepetition Collateral, (x) with the express written consent of the applicable Prepetition Lenders or (y) to the extent any such financing shall provide for the payment in full of the Prepetition Obligations (unless such financing is permitted under the Prepetition Loan Documents); or
(l) any Obligor shall file a motion seeking, or the Bankruptcy Court shall enter, an order (i) granting relief from the automatic stay applicable under section 362 of the Bankruptcy Code to any holder of any security interest to permit foreclosure on any assets or to permit other actions that would have a material adverse effect on such Obligor or its estate or (ii) approving any settlement or other stipulation not approved by the DIP Representative and DIP Lenders and not included in the Approved Budget (including any Permitted Variance) with any secured creditor of any Obligor providing for payments as adequate protection or otherwise to such secured creditor (in each case, other than Permitted Adequate Protection Payments or as provided in the DIP Orders); or
(m) (i) entry of a judgment or order by the Bankruptcy Court or any other court modifying, limiting, subordinating, re-characterizing, or avoiding the validity, enforceability, perfection, or priority (as set forth in this Note) of any of the Obligations or the liens securing the Obligations (or any invalidation or impairment of such liens and/or superpirority claims of the DIP Lenders shall otherwise occur) or (ii) subject to entry of the Final Order, any impositition, surcharge or assesment against the DIP Lenders’ interest in the Collateral, or the Prepetition Lender’s interest in the Prepetition Collateral (subject to entry of the Final Order), whether pursuant to sections 506(c) or 552 of the Bankruptcy Code; or
(n) any of the Obligors shall breach any non-monetary provisions with respect to the adequate potection provisions set forth in the DIP Orders and such breach shall remain uncured for five (5) Business Days after the Borrower’s receipt of written notice thereof; or
(o) the Bankruptcy Court shall enter an order appointing a trustee under Chapter 7 or Chapter 11 of the Bankruptcy Code, or a responsible officer or an examiner with enlarged powers relating to the operation of the business (powers beyond those set forth in subclauses (3) and (4) of clause (a) of section
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1106 of the Bankruptcy Code) under clause (b) of section 1106 of the Bankruptcy Code in the Chapter 11 Cases (or any Obligor shall file, or otherwise support, any pleading seeking such appointment or acquiesce in or fail to object to, any such appointment), in each case without the written consent of the DIP Representative and the DIP Lenders (which consent may be witheld in their respective sole discretion); or
(p) entry of an order by the Bankruptcy Court terminating or modifying the exclusive right of any Obligor to file a chapter 11 plan pursuant to section 1121 of the Bankruptcy Code, without the prior written consent of the DIP Representative and DIP Lenders; or
(q) the Obligors or any of their affiliates shall support (in any such case by way of any motion or other pleading filed with the Bankruptcy Court or any other writing to another party-in-interest executed by or on behalf of the Obligors or any of their Subsidiaries) any other Person’s opposition of any motion made in the Bankruptcy Court by the DIP Lenders seeking confirmation of the amount of the DIP Lenders’ claim; or
(r) (i) the Obligors or any of their affiliates shall file any pleading or proceeding which could reasonably be expected to result in a material impairment of the rights or interests of the DIP Lenders under the Loan Documents or (ii) entry of an order of the Bankruptcy Court with respect to any pleading or proceeding brought by any Person which results in such a material impairment of the rights or interests of the DIP Lenders under the Loan Documents; or
(s) any judgments or orders (not covered by insurance) as to any postpetition obligation shall be rendered against any of the Obligors after the date hereof and the enforcement thereof shall not be stayed, vacated or discharged; or there shall be rendered against any of the Obligors a non-monetary judgment with respect to a postpetition event which causes or would reasonably be expected to cause a Material Adverse Effect; or
(t) other than the All Assets Stalking Horse Bid or IP Stalking Horse Bid (as such terms are defined in the DIP Orders) a sale order shall be entered or a plan confirmed in the Chapter 11 Cases which does not provide for payment in full in cash of the DIP Obligations on the closing date thereof;
(u) any failure to comply with a milestone set forth in the Interim Order or the Final Order;
(v) the initiation by the Obligors of any contested matter or adversary proceeding with respect to any provision of this Note, the Obligations of the DIP Representative or DIP Lenders, including, but not limited to, any actions pursuant to Chapter 5 of the Bankruptcy Code, in each case, except as may otherwise be permitted under the DIP Orders; or
(w) the occurrence of any other Termination Event under and as defined in the DIP Orders.
8. Remedies. Upon the occurrence and during the continuance of any Event of Default, the DIP Lenders may, with respect to this Note and any other Loan Documents, take the actions specified in the DIP Orders as being available to the DIP Lenders upon the occurrence of and during the continuation of a Termination Event (as defined in the DIP Orders), within the timeframes and in accordance with the provisions specified therein.
9. Obligors’ Representations and Warranties. Each Obligor represents and warrants to the DIP Representative and DIP Lenders that, (i) on the Closing Date, subject to the Bankruptcy Court’s entry of the Interim Order, (ii) on the Final Funding Date, subject to the Bankruptcy Court’s entry of the Final Order and (iii) on each L/C Issuance Date:
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(a) General Representations. It is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has full power and authority to execute, deliver and perform its obligations under this Note and the other Loan Documents. It has duly authorized and taken all other appropriate action for the execution, delivery and performance of this Note and any other document or instrument delivered pursuant hereto or in connection herewith and the consummation of the transactions provided for in this Note. It has duly executed and delivered each Loan Document and each Loan Document constitutes its legal, valid and binding obligation, enforceable in accordance with its terms. The execution and delivery of the Loan Documents, the performance of the transactions contemplated thereby and the fulfillment of the terms thereof will not (i) conflict with or violate any of its organizational documents or its contractual obligations, (ii) conflict with or violate any postpetition order, judgment or decree of governmental authority binding on it, (iii) conflict with or violate any applicable laws except to the extent that such conflict or violation could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, or (iv) result in or require the creation or imposition of any Lien upon any of its properties or assets (other than any Liens created under the Loan Documents). Other than the Chapter 11 Cases, there are no actions, suits or proceedings by or before any arbitrator or governmental authority pending against or, to the knowledge of such Obligor, threatened against or affecting any Obligor (A) that arose on or after the Petition Date and as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect or (B) that involve the Loan Documents or the transactions contemplated hereby. It is not an “investment company” as defined in, or subject to regulation under, the Investment Company Act of 1940.
(b) Collateral Representations. It owns the Collateral purported to be owned by it or otherwise has rights or the power to transfer rights in the Collateral in which it purports to grant a security interest hereunder and no Lien exists upon the Collateral other than (i) the security interest created or provided for herein and (ii) Permitted Liens. The full and correct legal name, type of organization, jurisdiction of organization and mailing address of each Obligor are correctly set forth in Schedule II.
(c) Bankruptcy Representations.
(i) From and after the entry of the Interim Order, and pursuant to and to the extent permitted under and provided for in the Interim Order and the Final Order, all Obligations (x) shall constitute allowed superpriority administrative expense claims in the Chapter 11 Cases having the priority set forth in the DIP Orders and (y) are secured by a Lien on all of the Collateral and such Lien has the priority set forth in the DIP Orders.
(ii) The Interim Order (with respect to the period prior to the entry of the Final Order) or the Final Order (with respect to the period on and after the Final Funding Date), as applicable, and the transactions contemplated hereby and thereby, are in full force and effect and has not been vacated, reversed, modified, amended or stayed without the prior written consent of the DIP Representative and the DIP Lenders.
(d) Purpose of Loans; Cash Collateral. Cash Collateral and proceeds of the Loans shall solely be used in the manner specified in the DIP Orders.
10. Covenants. Each Obligor covenants and agrees as provided in Annex B.
11. Governing Law; Submission to Jurisdiction; Waiver of Jury Trial, Etc. This Note shall be governed by, and construed in accordance with, the law of the State of New York except to the extent superseded by the Bankruptcy Code. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS NOTE OR ANY OTHER LOAN DOCUMENT SHALL BE BROUGHT IN THE BANKRUPTCY COURT, AND, BY EXECUTION AND DELIVERY OF THIS NOTE, EACH
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OBLIGOR HEREBY IRREVOCABLY ACCEPTS IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE BANKRUPTCY COURT AND IRREVOCABLY WAIVES ANY OBJECTION IN RESPECT THEREOF. EACH OBLIGOR HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF THE BANKRUPTCY COURT AND IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE OBLIGORS AT THEIR ADDRESS FOR NOTICES AS SET FORTH IN SECTION 12. EACH OBLIGOR, THE DIP REPRESENTATIVE AND THE DIP LENDERS HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS NOTE OR THE OTHER LOAN DOCUMENTS, OR UNDER ANY AMENDMENT, WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION THEREWITH, OR ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH THIS NOTE, AND AGREES THAT ANY SUCH ACTION, PROCEEDINGS OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. EACH OBLIGOR HEREBY ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE DIP LENDERS ENTERING INTO THIS NOTE.
12. Expenses; Amendments; Indemnity; Notices.
(a) Expenses. The Borrower and each Guarantor shall jointly and severally promptly pay within five Business Days of written demand all costs and expenses of the DIP Representative and DIP Lenders whether incurred prior to, on, or after the Petition Date in accordance with the expense provisions set out in the DIP Orders.
(b) Amendments. This Note may not be changed, modified or terminated orally, but only by an agreement in writing signed by the Obligors, the DIP Representative and the DIP Lenders.
(c) Indemnity. The Obligors agree, jointly and severally, to indemnify the DIP Representative, the DIP Lenders and the L/C Issuer in accordance with the indemnification provisions set out in the DIP Orders.
(d) Notices. All notices and other communications in respect of this Note shall be given or made in writing at the address set forth (i) on the signature pages hereto for the DIP Lenders and on Schedule II hereto for the Obligors. Except as otherwise provided in this Note, all such communications shall be deemed to have been duly given when transmitted by electronic transmission or personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid. For purposes of this Note, any notice delivered to the Borrower shall be deemed delivered to all Obligors.
13. Right of Setoff. Subject to the provisions of the DIP Orders, if an Event of Default shall have occurred and be continuing, the DIP Representative and the DIP Lenders are hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to set off and apply any and all deposits at any time held and other obligations at any time owing by the DIP Lenders to or for the credit or the account of any Obligor against any and all of the obligations of such Obligor now or hereafter existing hereunder to the DIP Lenders or, irrespective of whether or not the DIP Lenders shall have made any demand hereunder and although such obligations of the Borrower may be contingent or unmatured or are owed to a branch or office of the DIP Lenders different from the branch or office holding such deposit or obligated on such indebtedness.
14. Assignments. The Borrower may not assign any of its rights or obligations under this Note or the other Loan Documents without the consent of the DIP Representative and the DIP Lenders. The DIP
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Lenders may at any time assign all or a portion of its rights and obligations under this Note and the other Loan Documents with concurrent notice to the Obligors of such assignment or participation; provided that so long as no Event of Default has occurred and is continuing, the DIP Lenders shall not be permitted to assign its rights and obligations, or grant participations, without the Obligors’ prior written consent; provided, further, however, that the DIP Lenders may assign loans or grant participations to a portfolio company or debt fund affiliate of any of the DIP Lenders or their affiliates.
15. Conditions Precedent to Interim Funding. The obligation of the DIP Lenders to lend the Interim Loans to the Borrower and to issue Letters of Credit on the Closing Date is subject to the satisfaction (or waiver by the DIP Representative and the DIP Lenders) of the following conditions (the date on which such conditions are satisfied being referred to herein as the “Closing Date”):
(a) Loan Documents. The DIP Representative and the DIP Lenders shall have received this Note executed and delivered by each of the Obligors.
(b) UCC Searches. The DIP Representative and the DIP Lenders shall have received the results of a search of the UCC filings (or equivalent filings) made with respect to each Obligor in its state of formation.
(c) Representations and Warranties. The representations and warranties contained in this Note and each other Loan Document shall be true and correct in all material respects (unless otherwise qualified by materiality in which case such representations and warranties shall be true and correct in all respects) immediately prior to and as of the Closing Date.
(d) Fees and Expenses. The DIP Representative and the DIP Lenders shall have received all costs, fees and expenses due and payable to the DIP Representative and the DIP Lenders on or prior to the Closing Date, including reimbursement or payment of all reasonable expenses (including reasonable fees, charges and disbursements of counsel, financial advisors and other advisors subject to the provisions of the DIP Orders) for which invoices have been presented and/or amounts otherwise agreed between the Borrower and the DIP Lenders on or prior to the Closing Date. All such amounts will be paid with proceeds of Interim Loans made on the Closing Date and will be reflected in the funding instructions agreed between the Borrower and the DIP Lenders on or before the Closing Date.
(e) Defaults. There shall be no Default or Event of Default under the Loan Documents before or immediately after giving effect to the relevant borrowing or issuance of Letter of Credit.
(f) Material Adverse Effect. Since the Petition Date, no event or circumstance or change shall have occurred that has or could be reasonably expected to have a Material Adverse Effect.
(g) Budgets. The DIP Lenders shall have received (i) the Initial Budget reflecting the All Assets Stalking Horse Bid, which shall be in form and substance acceptable to the DIP Lenders (it being acknowledged and agreed that the Initial Budget delivered to the DIP Lenders prior to the Closing Date is acceptable to them), (ii) the Initial IP Toggle Budget, which shall be in form and substance acceptable to the DIP Lenders (it being acknowledged and agreed that the Initial IP Toggle Budget delivered to the DIP Lenders prior to the Closing Date is acceptable to them) and (iii) such other information (financial or otherwise) as the DIP Lenders may reasonably request.
(h) Collateral. The DIP Representative shall have been granted a perfected lien on the Collateral by the Interim Order on the terms and conditions set forth in the Interim Order.
(i) Petition Date. The Petition Date shall have occurred, and each Obligor shall be a debtor and a debtor-in-possession under Chapter 11 of the Bankruptcy Code.
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(j) Cash Management. The DIP Representative and the DIP Lenders shall be reasonably satisfied with the cash management arrangements of the Borrower (it being acknowledged and agreed that the cash management systems of the Obligors on the Closing Date are acceptable to the DIP Representative and DIP Lenders).
(k) Bankruptcy Related Conditions.
(i) The Chapter 11 Cases shall have been commenced in the Bankruptcy Court by [__], 2020 and all of the “first day orders” and all related pleadings to be filed at the time of commencement of the Chapter 11 Cases or shortly thereafter shall be in form and substance reasonably satisfactory to the DIP Representative and the DIP Lenders.
(ii) The Interim Order shall have been entered by the Bankruptcy Court (and no appeal thereof shall have been filed or remain pending) no later than five (5) days after the Petition Date, the DIP Representative and the DIP Lenders shall have received a true and complete copy of such order and such order shall be in form and substance reasonably satisfactory to the DIP Representative and the DIP Lenders in all respects, be in full force and effect, and shall not (in whole or in part) have been reversed, modified, amended, stayed or vacated absent prior written consent of the DIP Representative and the DIP Lenders.
(iii) No appeal of the DIP Orders shall have been filed or remain pending.
(iv) The making of the Interim Loans or issuance of Letters of Credit on the Closing Date shall not result in the aggregate outstanding amounts under the Note exceeding the amount authorized by the Interim Order.
16. Conditions Precedent to Final Funding. The obligation of the DIP Lenders to lend the Final Loans to the Borrower is subject to the satisfaction of the following conditions (the date on which such conditions are satisfied being referred to herein as the “Final Funding Date”):
(a) Approved Budget. The DIP Lenders shall have received all periodic updates required hereunder with respect to the Approved Budget, and the Obligors shall be in compliance with the Approved Budget.
(b) Final Order. The Final Order shall have been entered by the Bankruptcy Court (and no appeal thereof shall have been filed or remain pending) not later than thirty (30) days after the Petition Date, and such Final Order shall (i) have included waivers of (x) the automatic stay in connection with the DIP Lenders’ enforcement of remedies upon an Event of Default, (y) any surcharge of costs or expenses with respect to the Prepetition Lender or DIP Lenders’ interest in the Collateral under sections 506(c) and 552 of the Bankruptcy Code or any other statue or applicable law permitting a surcharge of the Collateral, and (z) the equitable doctrine of marshaling, and otherwise be in form and substance satisfactory to the DIP Lenders, be in full force and effect, and shall not have been reversed, modified, amended, stayed or vacated (in whole or in part) absent prior written consent of the DIP Lender and (ii) grant a perfected lien on the Collateral in favor of the DIP Representative, on behalf of the DIP Lenders, on the terms and conditions set forth in this Note. The making of the Loans or issuance of Letters of Credit shall not result in the aggregate outstandings under the Note exceeding the amount authorized by the Final Order.
(c) Representations and Warranties. The representations and warranties contained in this Note and each other Loan Document shall be true and correct in all material respects (unless otherwise qualified by materiality in which case such representations and warranties shall be true and correct in all respects) immediately prior to and as of the Final Funding Date.
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(d) No Default. There shall be no Default or Event of Default under the Loan Documents before or immediately after giving effect to the relevant borrowing on the Final Funding Date.
17. Additional Conditions Precedent to the issuance of Letters of Credit. The obligation of the L/C Issuer to issue Letters of Credit after the Closing Date shall be subject to the following conditions, all such conditions to be satisfied as of the date of issuance of such Letter of Credit (each such date, an “L/C Issuance Date”):
(a) Approved Budget. The DIP Lenders shall have received all periodic updates required hereunder with respect to the Approved Budget, and the Obligors shall be in compliance with the Approved Budget.
(b) Representations and Warranties. The representations and warranties contained in this Note and each other Loan Document shall be true and correct in all material respects (unless otherwise qualified by materiality in which case such representations and warranties shall be true and correct in all respects) immediately prior to and as of the Final Funding Date.
(c) No Default. There shall be no Default or Event of Default under the Loan Documents before or immediately after giving effect to the relevant borrowing on the Final Funding Date.
(d) Final Order. With respect to any L/C Issuance Date on or after the date of the Final Order, the Final Order shall have been entered by the Bankruptcy Court (and no appeal thereof shall have been filed or remain pending) not later than thirty (30) days after the Petition Date, and such Final Order shall (i) have included waivers of (x) the automatic stay in connection with the DIP Lenders’ enforcement of remedies upon an Event of Default, (y) any surcharge of costs or expenses with respect to the Prepetition Lender or DIP Lenders’ interest in the Collateral under sections 506(c) and 552 of the Bankruptcy Code or any other statue or applicable law permitting a surcharge of the Collateral, and (z) the equitable doctrine of marshaling, and otherwise be in form and substance satisfactory to the DIP Lenders, be in full force and effect, and shall not have been reversed, modified, amended, stayed or vacated (in whole or in part) absent prior written consent of the DIP Lender and (ii) grant a perfected lien on the Collateral in favor of the DIP Representative, on behalf of the DIP Lenders, on the terms and conditions set forth in this Note. The making of the Loans shall not result in the aggregate outstandings under the Note exceeding the amount authorized by the Final Order.
18. Credit Bid. Each Obligor hereby irrevocably authorizes the DIP Lenders (or their respective designees), to bid and purchase by credit bidding their respective claims or otherwise (either directly or through one or more acquisition vehicles) all or any portion of the Collateral or any of the obligations under the Prepetition Second Lien Credit Facilities at any sale thereof conducted (including the 363 Sale) (i) under the provisions of the UCC, including pursuant to sections 9-610 or 9-620 of the UCC, (ii) under the provisions of the Bankruptcy Code, including sections 363, 365 and 1129 of the Bankruptcy Code or (iii) in accordance with Applicable Law.
19. Voting. Any amendment or waiver of the terms of this Note or the DIP Obligations shall require the approval of the Borrower, a majority in interest of the DIP Lenders holding DIP Obligations and the DIP Lender Representative; provided that the DIP Obligations of any DIP Lender shall not be treated disproportionately and adversely in any respect in relation to the DIP Obligations of the other DIP Lenders; and provided further that, the following amendments or waivers of the terms of this Note or the DIP Obligations shall require the approval of the Borrower, the DIP Lender Representative and all of the DIP Lenders:
(a) any increase in the DIP Obligations or Commitments of any DIP Lender;
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(b) the reduction of the principal of, or the rate of interest specified herein on, any Loan, or any fees or other amounts payable hereunder or under any other Loan Document;
(c) any change to any provision of this Section 19; or
(d) (i) subordination of the DIP Obligations to any other Indebtedness, or (ii) subordination of the Liens granted hereunder or under the other Loan Documents to any other Lien.
20. Taxes and Other Deductions. Except as required by law, all payments are to be free and clear of any present or future taxes, withholdings or other deductions whatsoever (other than income and franchise taxes in the United States or the jurisdiction of the DIP Lenders’ organization or applicable lending office). The DIP Lenders and the DIP Lender Representative will use commercially reasonable efforts to minimize to the extent possible any applicable taxes, and the Obligors will provide customary tax indemnities consistent with the Prepetition Second Lien Credit Facilities.
21. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any person shall be construed to include such person’s successors and assigns, (c) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Note in its entirety and not to any particular provision hereof, (d) all references herein to Sections shall be construed to refer to Sections of this Note and (e) any reference to any law or regulation herein shall, unless otherwise specified, refer to such law or regulation as amended, supplemented or otherwise modified from time to time. The rules of construction set forth in this Section 17 shall be applicable to the Loan Documents mutatis mutandis.
[signature pages follow]
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IN WITNESS WHEREOF, the undersigned have caused this Note to be executed and delivered by their duly authorized officers, as of the date and year and at a place first above written.
LUCKY BRAND DUNGAREES, LLC, as Borrower
By: ______Name: Christopher Cansiani Title: Chief Financial Officer
LBD INTERMEDIATE HOLDINGS, LLC, as a Guarantor
By: ______Name: Christopher Cansiani Title: Treasurer
LUCKY BRAND DUNGAREES STORES, LLC, as a Guarantor
By: ______Name: Christopher Cansiani Title: Chief Financial Officer
LUCKY PR, LLC, as a Guarantor
By: ______Name: Christopher Cansiani Title: President and Secretary
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Confirmed, Acknowledged and Agreed:
Lantern Capital Partners, as DIP Representative
By: ______Name: Chris Halpin Title: Chief Financial Officer
Address for Notices:
Address: 300 Crescent Ct Suite 1100, Dallas TX 75201 Attention: Chris Halpin Email: [email protected] Fax: 214-245-5882
LCP LB, LLC, as a DIP Lender By: LCPF I Holdings (E), LP, its sole member
By: ______Name: Chris Halpin Title: Chief Financial Officer Address for Notices:
Address: 300 Crescent Ct Suite 1100, Dallas TX 75201 Attention: Chris Halpin Email: [email protected] Fax: 214-245-5882
ReStore Capital (LKY), LLC, as a DIP Lender
By: ______Name: Title:
Address for Notices:
Address: Attention: Email: Fax:
Hilco Merchant Resources LLC, as initial L/C Issuer
By: ______Name: Title:
Address for Notices:
Address:
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Attention: Email: Fax:
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CLOVER HOLDINGS II LLC, as a DIP Lender
By: LEONARD GREEN & PARTNERS, L.P., its Manager By: LGP MANAGEMENT, INC., its General Partner
By: ______Name: Andrew Goldberg Title: General Counsel
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ANNEX A
Definitions. The following capitalized terms, when used in this Note, shall have the following meanings:
“363 Sale” means the sale transactions set forth in the All Assets Stalking Horse Bid.
“363 Sale Effective Date” means the date of the consummation of the 363 Sale, pursuant to the terms of the All Assets Stalking Horse Bid.
“Acquired Assets” means all of the Borrower’ and Guarantors’ rights, titles and interests in and relating to the assets contemplated to be acquired pursuant to the All Assets Stalking Horse Bid.
“All Assets Stalking Horse Bid” has the meaning assigned to such term in any DIP Order. “Approved Budget” means each of (a) the Initial Budget, (b) the Initial IP Toggle Budget and (c) any subsequent Budget delivered by the Borrower and approved in writing by the DIP Representative and the DIP Lenders in their respective sole discretion, in each case in accordance with the DIP Orders. “Avoidance Actions” means all causes of action arising under sections 502(d), 542, 544, 545, 547, 548, 549, 550, 551, 553(b), 732(2) or 724(a) of the Bankruptcy Code and any proceeds therefrom.
“Bankruptcy Code” means Title 11 of the United States Code entitled “Bankruptcy,” as applicable to the Chapter 11 Cases, now and hereafter in effect or any successors to such statute.
“Bankruptcy Court” means the United States Bankruptcy Court for the District of Delaware.
“Bidding Procedures” has the meaning assigned to such term in any DIP Order.
“Budget” means the budget in effect from time to time pursuant to any DIP Order.
“Budget Event” means a failure to comply with the Approved Budget, in a manner not permitted by the budget maintenance requirements set forth in Section 5.9 of the DIP Orders.
“Business Day” means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of New York.
“Carve-Out” has the meaning assigned to such term in the DIP Orders.
“Cash” means money, currency or a credit balance in any demand or deposit account.
“Cash Collateral” has the meaning assigned to such term in the DIP Orders.
“Cash Equivalents” shall have the meaning set forth in the Prepetition Second Lien Credit Facility.
“CC LC Amount” has the meaning assigned to such term in Section 2 hereof.
“Change of Control” means that the Obligors shall, directly or indirectly, in one or more related transactions, (a) consolidate or merge with or into another Person, or (b) sell, assign, license, lease, transfer, convey or otherwise dispose of all or substantially all of their properties or assets to another Person or (c) consummate a stock purchase agreement or other business combination (including a reorganization, recapitalization, spin-off or scheme of arrangement).
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“Chapter 11 Cases” means the voluntary cases commenced by the Obligors under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court.
“Chapter 11 Orders” means the DIP Orders and the Non-DIP Orders.
“Commitment” means the commitment of the DIP Lenders to make Loans hereunder.
“Controlled Account” means a deposit account maintained by an Obligor at a depository approved by the DIP Representative and the DIP Lenders and, if requested by the DIP Representative, that is subject to a deposit account control agreement in favor of the DIP Representative.
“Debtor Relief Law” means the Bankruptcy Reform Act of 1978, codified as 11 U.S.C. §§101 et seq, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.
“Default” means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would constitute an Event of Default.
“DIP Orders” means, collectively, the Interim Order and the Final Order.
“DIP Representative” means Lantern Capital Partners, in its capacity as administrative agent and collateral agent under the Loan Documents.
“Equity Interests” means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person, and any warrants, options or other rights entitling the holder thereof to purchase or acquire any such equity interest.
“Exit Premium Rate” means 1.50% on the Maximum DIP Commitments.
“Final Order” means the final order of the Bankruptcy Court with respect to the Obligors, among other things, approving the Note and the other Loan Documents and granting the Prepetition Lender adequate protection, in form and substance satisfactory to the DIP Representative and the DIP Lenders in all respects, as the same may be amended, modified or supplemented from time to time with the express written consent of the DIP Representative and the DIP Lenders.
“First Lien Adequate Protection Liens” shall have the meaning given to such term in the Interim Order.
“Guarantors” means any person named on the signature pages hereto as a “Guarantor”.
“Indebtedness” of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed,
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(g) all guarantees by such Person of Indebtedness of others, (h) all capital lease obligations of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (j) all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor.
“Initial Budget” shall mean the Budget prepared by the Borrower and furnished to and approved in writing by the DIP Representative and the DIP Lenders in the form attached to Exhibit B of the Interim Order.
“Initial IP Toggle Budget” shall mean the Budget prepared by the Borrower and furnished to and approved in writing by the DIP Representative and the DIP Lenders.
“Intellectual Property” shall be broadly defined and shall mean (i) the worldwide rights to all of the Obligors’ trademarks, copyrights, patents, trade dress, service marks, trade names, brand names, logos and designs including but not limited to all intellectual property related to the Lucky brand; (ii) the worldwide rights to all of the Obligors’ internet domain names; (iii) the worldwide rights to all of the Obligors’ social media accounts; (iv) the Obligors’ entire customer list and database (including without limitation all lists of current and past customers of the Obligors); (v) all the Obligors’ product designs, private label product names, technical and other know-how, marketing materials, product catalogs and samples; (vi) all owned software owned by the Obligors and used in the luckybrand.com operations; and (vii) all goodwill, rights and contracts (including all licenses and sublicenses granted or obtained with respect thereto) related to the foregoing including but not limited to the Camuto License (as defined in the Prepetition Second Lien Credit Facilities).
“Interim Order” means the interim order of the Bankruptcy Court with respect to the Obligors, among other things approving the Note and the other Loan Documents and granting the Prepetition Lender adequate protection, in form and substance satisfactory to the DIP Representative and the DIP Lenders in all respects, as the same may be amended, modified or supplemented from time to time with the written consent of the DIP Representative and the DIP Lenders.
“IP Stalking Horse Bid” has the meaning assigned to such term in any DIP Order.
“Lien” means (i) any lien, mortgage, pledge, assignment, security interest, charge or encumbrance of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, and any lease or license in the nature thereof) and any option, trust or other preferential arrangement having the practical effect of any of the foregoing and (ii) in the case of Equity Interests, any purchase option, call or similar right of a third party with respect to such Equity Interests.
“Loan Documents” means this Note any other documents, instruments or agreements entered into or made by the DIP Lenders and/or the Borrower in connection with the foregoing, together with the DIP Orders.
“Material Adverse Effect” means a material adverse effect on and/or material adverse developments (except for the commencement of the Chapter 11 Cases and the effects that customarily result therefrom) with respect to (i) the business, operations, properties, assets or financial condition of the Obligors, taken as a whole, (ii) the ability of the Obligors (taken as a whole) to fully and timely perform its payment obligations under any Loan Document, (iii) the legality, validity, binding effect or enforceability against an Obligor of any Loan Document or (iv) the rights, remedies and benefits available to, or conferred upon, the DIP Lenders under this Note or any other Loan Document.
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“Maturity Date” means, unless extended by the DIP Representative and the DIP Lenders in their respective sole and absolute discretion with agreement by the Obligors, the earliest to occur of (i) the date falling three (3) months after the Petition Date if the Toggle does not occur or, in the event that the Toggle occurs, October 31, 2020; (ii) the 363 Sale Effective Date; (iii) the date on which a sale of a material portion of the Intellectual Property of the Obligors is consummated pursuant to a 363 Sale or otherwise (other than in connection with the occurrence of the Toggle); and (iv) the date that this Note is accelerated upon the occurrence of an Event of Default or otherwise in accordance with the terms herein.
“Maximum DIP Commitment” means an aggregate principal amount not to exceed $15,600,000.
“Maximum Loan Commitment” means an aggregate principal amount not to exceed $11,500,000.
“Non-DIP Orders” means all orders other than the DIP Orders relating to the DIP Obligations, Loan Documents or the Prepetition Obligations entered by the Bankruptcy Court, including without limitation orders pertaining to adequate protection.
“Obligations” means, collectively, (a) in the case of the Borrower, all obligations of the Borrower under this Note and the other Loan Documents to pay principal, fees, interest (including default interest), expenses and other amounts whatsoever, whether direct or indirect, absolute or contingent, now or hereafter from time to time owing by the Borrower to the DIP Lenders, and (b) in the case of the Guarantors, all obligations of the Guarantors in respect of its guarantee under Section 5 and all other obligations of the Guarantors under this Note or any other Loan Document and (c) in the case of each of the foregoing, including all interest thereon and expenses related thereto.
“Obligors” means the Borrower and the Guarantors.
“Permitted Investments” means: (a) investments expressly contemplated by the Approved Budget (including any Permitted Variance (as defined in the DIP Orders)); (b) investments in assets that are Cash Equivalents; (c) investments consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of business, and investments received in satisfaction or partial satisfaction thereof from financially troubled account debtors and other credits to suppliers in the ordinary course of business; (d) investments consisting of Liens, Indebtedness, fundamental changes and Restricted Payments permitted under this Note; (e) investments (including debt obligations and Equity Interests) received in connection with the bankruptcy or reorganization of suppliers and customers or in settlement of delinquent obligations of, or other disputes with, customers and suppliers arising in the ordinary course of business or upon the foreclosure with respect to any secured investment; (f) advances of payroll payments to employees in the ordinary course of business; (g) investments in the ordinary course of business consisting of UCC Article 3 endorsements for collection or deposit and Article 4 customary trade arrangements with customers consistent with past practices; and (h) guarantees by any of the Obligors of leases of any of the Obligors existing on the Petition Date or guarantees by any of the Obligors of any other obligations that do not constitute Indebtedness, in each case entered into in the ordinary course of business.
“Permitted Liens” means, with respect to any person: (a) Liens arising by operation of law which were incurred in the ordinary course of business and which do not in the aggregate materially detract from the value of the property subject thereto or materially impair the use thereof in the operations of the business of such person; (b) pledges or deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance or other similar social security legislation; (c) Liens securing taxes, assessments and other governmental charges, the payment of which is not yet due or is being contested in good faith by appropriate proceedings promptly initiated and diligently conducted and for which such reserve or other appropriate provisions, if any, as shall be required by generally accepted accounting principles shall have been made; (d) Liens in respect of the Prepetition Obligations; (e) Liens existing on
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the Petition Date; (f) Liens granted pursuant to the DIP Orders; (g) statutory or common law Liens of landlords, carriers, warehousemen, mechanics, materialmen, repairmen, construction contractors or other like Liens or other customary Liens (other than in respect of Indebtedness) in favor of landlords, so long as, in each case, such Liens arise in the ordinary course of business that secure amounts not overdue for a period of more than thirty (30) days or, if more than thirty (30) days overdue, are unfiled and no other action has been taken to enforce such Lien or that are being contested in good faith and by appropriate actions, if adequate reserves with respect thereto are maintained on the books of the applicable person; (h) deposits to secure the performance of bids, trade contracts, governmental contracts and leases (other than Indebtedness for borrowed money), statutory obligations, surety, stay, customs and appeal bonds, performance bonds and other obligations of a like nature (including those to secure health, safety and environmental obligations) incurred in the ordinary course of business; (i) Liens arising from judgments or orders for the payment of money not constituting an Event of Default under Section 7(i); (j) easements, rights-of-way, restrictions (including zoning restrictions), encroachments, protrusions and other similar encumbrances and title defects affecting real property that, in the aggregate, do not in any case materially interfere with the ordinary conduct of the business of the Obligors taken as a whole, or the use of the property for its intended purpose, and any other exceptions to title found on any mortgage policies relating thereto; (k) pledges and deposits in the ordinary course of business securing liability for reimbursement or indemnification obligations of (including obligations in respect of letters of credit or bank guarantees for the benefit of) insurance carriers providing property, casualty or liability insurance to any of the Obligors; (l) leases, licenses, subleases or sublicenses granted to others in the ordinary course of business which do not materially interfere with the business of the Obligors, taken as a whole; (m) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods in the ordinary course of business; (n) Liens on insurance policies and the proceeds thereof securing the financing of the premiums with respect thereto; (o) any interest or title of a lessor, sublessor, licensor or sublicensor or secured by a lessor’s, sublessor’s, licensor’s or sublicensor’s interest under leases or licenses entered into by any of the Obligors in the ordinary course of business; (p) Liens arising out of conditional sale, title retention, consignment or similar arrangements for sale of goods entered into by any of the Obligors in the ordinary course of business; (q) ground leases in respect of real property on which facilities owned or leased by the Borrower or any of its Subsidiaries are located; (r) purported Liens evidenced by the filing of precautionary UCC financing statements or similar public filings; (s) Liens of a collection bank arising under Section 4-208 of the UCC or other applicable law on the items in the course of collection; (t) Liens in favor of a banking or other financial institution arising as a matter of law encumbering deposits or other funds maintained with a financial institution (including the right of set off) and that are within the general parameters customary in the banking industry; (u) any zoning or similar law or right reserved to or vested in any governmental authority to control or regulate the use of any real property that does not materially interfere with the ordinary conduct of the business of the Obligors, taken as a whole; (v) rights of set-off against credit balances of any of the Obligors with credit card issuers or credit card processors or amounts owing by such credit card issuers or credit card processors to any of the Obligors in the ordinary course of business, but not rights of set-off against any other property or assets of any of the Obligors pursuant to agreements (as in effect on the Petition Date) entered into by any Obligor for the benefit of any Obligor, in each case with any credit card issuers or credit card processors to secure the obligations of any of the Obligors to the credit card issuers or credit card processors as a result of fees and chargebacks; (w) deposits of cash with the owner or lessor of premises leased and operated by any of the Obligors in the ordinary course of business of the Obligors to secure the performance of such Obligor’s obligations under the terms of the lease for such premises; and (x) Liens that are customary contractual rights of setoff (i) relating to the establishment of depository relations with banks or other deposit-taking financial institutions in the ordinary course of business and not given in connection with the issuance of Indebtedness or (ii) relating to pooled deposit or sweep accounts of any of the Obligors to permit satisfaction of overdraft or similar obligations incurred in the ordinary course of business of the Obligors.
“Permitted Variances” has the meaning given to that term in the DIP Orders.
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“Person” means and includes natural persons, corporations, limited partnerships, general partnerships, limited liability companies, limited liability partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and governmental authorities.
“Petition Date” means the date on which the Obligors commenced the Chapter 11 Cases which is July [__], 2020.
“Prepetition Agents” means collectively (i) the Prepetition Junior Agent, (ii) the Prepetition Pari Junior Agent and (iii) the Prepetition Senior Agent.
“Prepetition Collateral” means collectively “Collateral” as defined in each of the Prepetition Loan Documents.
“Prepetition Junior Agent” means Wilmington Trust, National Association, in its capacity as administrative agent and collateral agent under the Prepetition Second Lien Credit Facility.
“Prepetition Junior Lenders” means the lenders party to the Prepetition Second Lien Credit Facility.
“Prepetition Lenders” means collectively, (i) the Prepetition Junior Lenders, (ii) the Prepetition Pari Junior Lenders and (iii) the Prepetition Senior Lenders.
“Prepetition Loan Agreements” means collectively, (i) the Prepetition Senior Credit Facility and (ii) the Prepetition Second Lien Credit Facilities.
“Prepetition Loan Documents” means the Prepetition Loan Agreements and all instruments and documents executed at any time in connection with any thereof.
“Prepetition Obligations” means all indebtedness, obligations and liabilities of the Obligors to the applicable Prepetition Agents and the applicable Prepetition Lenders incurred prior to the Petition Date arising from or related to the applicable Prepetition Loan Agreements and the other agreements, instruments and other documents related thereto including fees, premiums, expenses, indemnities and reimbursement obligations due thereunder and interest thereon accruing both before and after the Petition Date, whether such indebtedness, obligations or liabilities are direct or indirect, joint or several, absolute or contingent, due or to become due, whether for payment or performance, now existing or hereafter arising.
“Prepetition Pari Junior Agent” means Clover Holdings II LLC, in its capacity as administrative agent and collateral agent under the Prepetition Pari Second Lien Credit Facility.
“Prepetition Pari Junior Lenders” means the lenders party to the Prepetition Pari Second Lien Credit Facility.
“Prepetition Pari Second Lien Credit Facility” means that certain Second Lien Credit Agreement, dated as of November 12, 2019, by and among the Borrower, LBD Intermediate Holdings LLC, the Prepetition Pari Junior Lenders and the Prepetition Pari Junior Agent.
“Prepetition Second Lien Credit Facilities” means collectively the Prepetition Second Lien Credit Facility and the Prepetition Pari Second Lien Credit Facility.
“Prepetition Second Lien Credit Facility” means that certain Second Lien Credit Agreement, dated as of November 12, 2019, by and among the Borrower, LBD Intermediate Holdings, LLC, the Prepetition Junior Lenders and the Prepetition Junior Agent.
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“Prepetition Senior Agent” means Wells Fargo Bank, National Association, in its capacity as administrative agent, term agent and collateral agent under the Prepetition Senior Credit Facility.
“Prepetition Senior Credit Facility” means that certain Third Amended and Restated Credit Agreement, dated as of November 12, 2019, by and among the Borrower, LBD Intermediate Holdings, LLC, the Prepetition Senior Lenders and the Prepetition Senior Agent.
“Prepetition Senior Lenders” means the lenders party to the Prepetition Senior Credit Facility.
“Related Parties” shall mean, with respect to any specified Person, such Person’s affiliates and the respective equityholders, managers, investors, fiduciaries, trustees, officers, directors (including directors or authorized signatories of the general partner of any Person), employees, agents, advisors, representatives, controlling persons, members, partners, successors and permitted assigns of such Person and such Person’s affiliates.
“Restricted Payment” means any dividend or other distribution (whether in cash, securities or other property) with respect to any Equity Interests in any of the Obligors or any Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such Equity Interests or any option, warrant or other right to acquire any such Equity Interests.
“Second Lien Adequate Protection Liens” shall have the meaning given to such term in the Interim Order.
“Subsidiary” means, with respect to any Person, any corporation, partnership, limited liability company, association, joint venture or other business entity of which more than 50% of the total voting power of shares of stock or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof.
“Toggle” has the meaning assigned to such term in any DIP Order.
“UCC” means the Uniform Commercial Code (or any similar or equivalent legislation) as in effect from time to time in any applicable jurisdiction.
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ANNEX B
Each Obligor covenants and agrees as follows:
(a) Indebtedness. The Obligors shall not create, incur, assume or permit to exist any Indebtedness, except:
(i) Indebtedness created hereunder;
(ii) Indebtedness of any Obligor to any other Obligor;
(iii) Guarantees by an Obligor of Indebtedness of any other Obligor; provided that such Indebtedness so guaranteed is permitted by this Section;
(iv) Indebtedness existing in respect of the Prepetition Obligations;
(v) Indebtedness existing on the Petition Date;
(vi) Indebtedness incurred in the ordinary course of business;
(vii) all premiums (if any), interest (including post-petition interest), fees, expenses, charges and additional or contingent interest on obligations described in clauses (i) through (vi) above.
(b) Liens. The Obligors shall not create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except Permitted Liens.
(c) Fundamental Changes. The Obligors shall not merge into or consolidate with any other Person (other than an Obligor), or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) any assets except in the ordinary course of business, or any stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve.
(d) Investments, Loans, Advances, Guarantees and Acquisitions. The Obligors shall not purchase, hold or acquire (including pursuant to any merger with any Person that was not an Obligor prior to such merger) any capital stock, evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit, except Permitted Investments, investments by the Obligors existing on the date hereof in the capital stock of their respective Subsidiaries and investments existing on the Petition Date.
(e) Restricted Payments. The Obligors shall not declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except Restricted Payments expressly identified and provided for in the Approved Budget (including any Permitted Variances).
(f) Transactions with Affiliates. The Obligors shall not sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its affiliates, except (i) transactions expressly identified and provided for in the Approved Budget (including any Permitted Variance); (ii) transactions amongst the Obligors; (iii) transactions amongst affiliates in the ordinary course of business, (iv) entry into the All
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Assets Stalking Horse Bid or the IP Stalking Horse Bid (in each case, to the extent that any affiliate of the Obligors is a party thereto); and transactions under this Note.
(g) Use of Proceeds/Collateral. The proceeds of the Loans shall be used by the Borrower to fund the cost of administering the Chapter 11 Cases and for general working capital in accordance with the Approved Budget and the DIP Orders. No portion of any Cash Collateral or proceeds of the Loans shall be used in any manner that is not permitted by the DIP Orders and expressly provided for or included in the Approved Budget (including any Permitted Variance).
(h) Milestones. The Obligors shall ensure that the milestones set forth in the Interim Order are completed on a timely basis. Any failure to comply with a milestone shall result in an Event of Default.
(i) Cash Management. The Borrower shall (i) at all times maintain (or shall cause to be maintained) proceeds of the Loans in a Controlled Account and otherwise maintain cash managements systems reasonably acceptable to the DIP Representative and the DIP Lenders and in accordance with the applicable Chapter 11 Orders (it being acknowledged and agreed that the cash management systems of the Obligors on the Closing Date are acceptable to the DIP Representative and DIP Lenders) and (ii) only withdraw proceeds of the Loans from a Controlled Account in accordance with the DIP Orders.
(j) Variance Report. The Borrower shall deliver to the DIP Representative and DIP Lenders variance reports in accordance with the DIP Orders.
(k) Chapter 11 Filings. The Borrower shall, to the extent reasonably practicable, furnish to the DIP Representative and the DIP Lenders and their respective counsel (i) in advance of filing, the motion seeking approval of and proposed forms of the Interim Order and Final Order, which motion shall be in form and substance reasonably satisfactory to the DIP Representative and the DIP Lenders in their respective sole discretion, (ii) as applicable, any motions seeking approval of the Bidding Procedures and any sale pursuant to section 363 of the Bankruptcy Code of any assets of the Obligors, and the proposed forms of orders related thereto, which shall be in form and substance reasonably satisfactory to the DIP Representative and the DIP Lenders in their respective sole discretion, (iii) any such proposed orders and pleadings relating to the Loan Documents, which orders and pleadings shall be in form and substance reasonably satisfactory to the DIP Representative and the DIP Lenders in their respective sole discretion, (iv) as applicable, any Chapter 11 plan and/or any disclosure statement relating to such plan (which plan or disclosure statement shall comply with the requirements set forth herein); (v) all “first-day” pleadings and proposed interim and final orders related thereto; (vi) any motion and proposed form of order filed with the Bankruptcy Court relating to any management equity plan, incentive, retention or severance plan, or the assumption, rejection, modification or amendment of any material contract (each of which must be in form and substance satisfactory to the DIP Representative and the DIP Lenders in their respective sole discretion); and (vii) to the extent not covered by the preceding clauses (i) – (vi) promptly after the same is available, copies of all other pleadings, motions, applications, judicial information, financial information and other documents filed by or on behalf of the Borrower or any other Obligor with the Bankruptcy Court in the Chapter 11 Cases.
(l) Chapter 11 Orders. The Borrower shall comply with each Chapter 11 Order.
(m) Reporting Requirements. Concurrently with the delivery of the Variance Report (as defined in the DIP Orders), the Borrower shall deliver to the DIP Representative and DIP Lenders (a) a compliance certificate certifying as to whether a Default or Event of Default has occurred and is continuing; (b) copies of any notices received in connection with the Prepetition Senior Credit Facility; (c) copies of any notices received from any landlords or license counterparty; and (d) other information as may be reasonably requested by the DIP Representative or the DIP Lenders.
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(n) Further Assurances. Each Obligor shall promptly upon reasonable request by the DIP Representative from time to time give, execute, deliver, file, record, authorize or obtain all such financing statements, continuation statements, notices, instruments, documents, agreements or consents or other papers as may be necessary or, in the reasonable judgment of the DIP Lenders, desirable to create, preserve, perfect, maintain the perfection of or validate the security interest granted pursuant hereto or to enable the DIP Representative on behalf of the DIP Lenders to exercise and enforce its rights hereunder with respect to such security interest.
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Schedule I(A)
Loan Commitments
LCP $4,396,024.46 38.2%
ReStore $4,396,024.46 38.2%
Clover $2,707.951.08 23.5%
Total $11,500,000 100%
Schedule I(B)
Letters of Credit Commitments
LCP $1,567,278.30 38.2%
ReStore $1,567,278.30 38.2%
Clover $965,443.40 23.5%
Total $4,100,000 100%
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Schedule II
Legal Names of Obligors
Legal Name of Obligor Type of Entity Jurisdiction of Notice Information Organization
Lucky Brand Dungarees, LLC Limited liability Delaware 540 S Santa Fe Avenue company Los Angeles, CA 90013 Attention: Maryn Miller, Chris Cansiani Telephone: 213-443-5700 Telecopier: 213-947-1146 Email: [email protected], [email protected] LBD INTERMEDIATE Limited liability Delaware c/o Leonard Green & HOLDINGS, LLC company Partners, L.P. 11111 Santa Monica Boulevard, Suite 2000 Los Angeles, CA 90025 Attention: Michael Kirton Telephone: 310-954-0445 Telecopier: 310-954-0404 Email: [email protected]
Lucky Brand Dungarees Stores, Limited liability Delaware 540 S Santa Fe Avenue LLC company Los Angeles, CA 90013 Attention: Maryn Miller, Chris Cansiani Telephone: 213-443-5700 Telecopier: 213-947-1146 Email: [email protected], [email protected] Lucky PR, LLC Limited liability Delaware 540 S Santa Fe Avenue company Los Angeles, CA 90013 Attention: Maryn Miller, Chris Cansiani Telephone: 213-443-5700 Telecopier: 213-947-1146 Email: [email protected], [email protected]
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EXHIBIT B
Initial Budget
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Lucky Brand DIP Budget $ in M
Fiscal Week Wk 26 Wk 27 Wk 28 Wk 29 Wk 30 Wk 31 Wk 32 7 Wk FCST Accrued GOB Wind Post Fiscal Month Jun-20 Jul-20 Jul-20 Jul-20 Jul-20 Aug-20 Aug-20 Jul-20 Pre-Close Expenses Down Close Grand Week Ending 7/4/20 7/11/20 7/18/20 7/25/20 8/1/20 8/8/20 8/15/20 8/15/20 Total Total Total Total Total Fcst / Actual Proj Proj Proj Proj Proj Proj Proj Proj Proj Proj Proj Proj Proj Post-Petition Auction Date Inflows 1.) Receipts from Operations 2.8 4.7 2.5 3.1 3.3 3.1 3.0 22.4 - 0.3 - 0.3 22.7 2.) Auction Proceeds ------133.1 133.1 7.0 - - 7.0 140.1 3.) Total Collections 2.8 4.7 2.5 3.1 3.3 3.1 136.0 155.5 7.0 0.3 - 7.3 162.8 Outflows 4.) Operating Disbursements (1.3) (4.4) (4.2) (9.3) (2.7) (8.1) (6.7) (36.6) (13.8) (0.2) (1.3) (15.3) (51.9) 5.) Professional Fees (0.5) (0.8) (0.8) (0.8) (0.8) (1.1) (2.9) (7.9) - - (3.1) (3.1) (11.0) 6.) Non-Operating Disbursements (2.0) (0.7) (1.0) (0.6) (0.6) (0.6) (6.6) (12.1) (8.2) (0.0) (2.9) (11.1) (23.2) 7.) Total Disbursements (3.9) (6.0) (6.0) (10.7) (4.1) (9.7) (16.2) (56.5) (22.0) (0.2) (7.3) (29.5) (86.0) 8.) Net Cash Flow (1.1) (1.3) (3.5) (7.6) (0.8) (6.6) 119.9 99.0 (15.0) 0.1 (7.3) (22.2) 76.8 Financing & Availability 9.) Beginning Cash Balance 15.3 12.5 16.8 13.3 5.7 10.0 3.3 15.3 22.2 7.2 7.3 22.2 15.3 10.) Net Cash Flow (1.1) (1.3) (3.5) (7.6) (0.8) (6.6) 119.9 99.0 (15.0) 0.1 (7.3) (22.2) 76.8 11.) ABL Draw / (Paydown) (1.7) (0.9) - - - - (51.0) (53.6) - - - - (53.6) 12.) New Money DIP Draw / (Paydown) - 6.5 - - 5.0 - - 11.5 - - - - 11.5 13.) Paydown of IP Loan ------(50.0) (50.0) - - - - (50.0) 14.) Ending Cash Balance 12.5 16.8 13.3 5.7 10.0 3.3 22.2 22.2 7.2 7.3 - - - 15.) Pre-Petition ABL 53.6 51.9 51.0 51.0 51.0 51.0 51.0 53.6 - - - - 53.6 16.) Borrowings / (Paydown) (1.7) (0.9) - - - - (51.0) (53.6) - - - - (53.6) 17.) Ending Pre-Petition ABL Balance 51.9 51.0 51.0 51.0 51.0 51.0 ------18.) ABL - SBLC's 4.9 4.9 4.9 4.9 4.9 4.9 ------19.) ABL - Inventory LCs 4.4 4.3 4.1 3.0 2.6 ------20.) Pre-Petition ABL Balance + LCs 61.2 60.2 60.1 58.9 58.5 55.9 ------21.) New Money DIP - Cash Outstanding - 6.5 6.5 6.5 11.5 11.5 ------22.) New Money DIP - LCs Outstanding - 3.8 3.9 3.7 3.6 4.1 2.3 ------23.) Total New Money DIP - 10.3 10.4 10.2 15.1 15.6 2.3 ------24.) Net Borrowing Base (Weekly) 69.7 67.7 67.7 67.6 69.4 71.3 ------25.) - ABL Balance (61.2) (60.2) (60.1) (58.9) (58.5) (55.9) ------26.) - Fin. Covenant (7.5) (7.5) (7.5) (7.5) (7.5) (7.5) ------27.) Net Availability 1.0 - 0.2 1.2 3.4 7.8 ------28.) + Cash Balance 12.5 16.8 13.3 5.7 10.0 3.3 22.2 22.2 7.2 7.3 - - - 29.) Liquidity (Weekly) 13.5 16.8 13.5 6.9 13.4 11.2 22.2 22.2 7.2 7.3 - - -
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Exhibit C
Milestones
Timeline Event No later than 2 calendar days after the Debtors shall file a motion to approve the Petition Date Bidding Procedures No later than 2 calendar days after the Debtors shall file a motion to assume the Petition Date Consulting Agreement No later than 5 calendar days after the The Bankruptcy Court shall have entered the Petition Date Interim Order On or before July 31, 2020 The Bankruptcy Court shall have entered an order (the “Bidding Procedures Order”) approving the Bidding Procedures in a form and substance satisfactory to the Stalking Horse Bidder and Prepetition Secured Parties No later than July 31, 2020 The Bankruptcy Court shall have entered an order approving the assumption of the Consulting Agreement in a form and substance satisfactory to the DIP Lender Representative and First Lien Agent. No later than July 31, 2020 The Bankruptcy Court shall have entered the Final Order in a form and substance satisfactory to the DIP Lender Representative and First Lien Agent. No later than August 10, 2020 The Debtors shall have held an auction (if necessary) pursuant to the Bidding Procedures Order No later than August 12, 2020 The Bankruptcy Court shall have held the hearing (the “Sale Hearing”) to consider entry of the order in a form and substance satisfactory to the DIP Lender Representative and First Lien Agent (the “Sale Order”) approving the sale of substantially all of the Debtors’ assets or the Debtors’ intellectual property assets No later than August 13, 2020 The Bankruptcy Court shall have entered the Sale Order and such order shall be in full force and effect and not reversed, modified or stayed No later than August 14, 2020 Closing of the sale approved by the Sale Order No later than 45 calendar days after the The Debtors shall file the Plan and Disclosure Petition Date Statement No later than 75 calendar days after the The Bankruptcy Court shall have entered an
1.7 2 6731836.1
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Petition Date order approving the Disclosure Statement No later than 120 calendar days after the The Bankruptcy Court shall have entered an Petition Date order confirming the Plan No later than 135 calendar days after the Effective Date of the Plan Petition Date
1.6 2 6731836.1
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Exhibit D
Wind-Down Budget
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Lucky Brand Wind Down Amount Detail $ in M
Accrued GOB Wind Pre-Close Expenses Down Total I. Post Close Disbursements Operating Disbursements 1.) Merchandise Payments (4.6) - - (4.6) 2.) Payroll & Related (0.2) (0.2) (1.1) (1.4) 3.) Freight & Duty (4.3) - - (4.3) 4.) Ecomm Professional Fees (0.7) - - (0.7) 5.) Rent - - (0.0) (0.0) 6.) Occupancy - (0.0) - (0.0) 7.) Sales & Use Tax (2.4) (0.0) - (2.4) 8.) Other Operating Costs (0.5) - - (0.5) 9.) Business Essential (IT & SG&A) (1.2) - (0.2) (1.4) 10.) Total Mandatory Disbursements (13.8) (0.2) (1.3) (15.3) Non-Operating Costs 11.) Professional Fee Escrow - - (3.1) (3.1) 12.) GOB Liquidation Expenses - (0.0) - (0.0) 13.) CARES Act Deferred Social Security Payment - - (0.6) (0.6) 14.) Other Non-Operating Costs (3.8) - (0.8) (4.5) 15.) Total Non-Operating Costs (3.8) (0.0) (4.5) (8.3) Restructuring Costs 16.) Healthcare & Insurance (0.6) - - (0.6) 17.) 503(b)(9) Claims (2.3) - - (2.3) 18.) Vacation / PTO / Severence (1.4) - - (1.4) 19.) Other - - (1.0) (1.0) 20.) US Trustee Fees - - (0.5) (0.5) 21.) Total Restructuring Costs (4.4) - (1.5) (5.9) 22.) Total Post-Close Disbursements (22.0) (0.2) (7.3) (29.5) II. Cash on Hand & Transaction Costs 23.) Cash On Hand (0.9) 24.) Future GOB and FF&E Proceeds 0.3 25.) Pro Fees / Transaction Fees (2.9) 26.) Subtotal: Cash & Transaction Costs (3.6) 27.) Subtotal: Wind Down Amount (33.0) Case 20-11768-CSS Doc 14 Filed 07/03/20 Page 173 of 185
Exhibit B
DIP Declaration
26731835.1
US-DOCS\115542578 Case 20-11768-CSS Doc 14 Filed 07/03/20 Page 174 of 185
IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE
------x : In re: : Chapter 11 : Lucky Brand Dungarees, LLC, et al., 1 Case No. 20-11768 (_____) :
: Debtors. : (Joint Administration Requested) : ------x
DECLARATION OF ERIC WINTHROP IN SUPPORT OF MOTION OF DEBTORS FOR ENTRY OF INTERIM AND FINAL ORDERS (I) AUTHORIZING DEBTORS TO (A) OBTAIN POSTPETITION FINANCING AND (B) USE CASH COLLATERAL, (II) GRANTING ADEQUATE PROTECTION TO THE PREPETITION LENDERS, (III) GRANTING LIENS AND SUPERPRIORITY CLAIMS, (IV) MODIFYING THE AUTOMATIC STAY, (V) SCHEDULING A FINAL HEARING AND (VI) GRANTING RELATED RELIEF
I, Eric Winthrop, pursuant to 28 U.S.C. § 1764, hereby declare and state:
1. I am a Managing Director at Houlihan Lokey Capital, Inc. (“Houlihan”). Together
with my team from Houlihan, I have served as financial advisor and investment banker to LBD
Parent Holdings, LLC, Lucky Brand Dungarees, LLC, Lucky Brand Dungarees Stores, LLC,
Lucky PR, LLC, and LBD Intermediate Holdings, LLC (collectively, the “Debtors” or the
“Company”) in the chapter 11 cases (the “Chapter 11 Cases”), commenced on July 3, 2020 (the
“Petition Date”). I submit this Declaration in support of the Motion of Debtors for Entry of Interim
and Final Orders (I) Authorizing Debtors to (A) Obtain Postpetition Financing and (B) Use Cash
Collateral, (II) Granting Adequate Protection to the Prepetition Lenders, (III) Granting Liens and
1 The Debtors in these cases, along with the last four digits of each Debtor’s federal tax identification number, are: Lucky Brand Dungarees, LLC (3823), LBD Parent Holdings, LLC (4563), Lucky Brand Dungarees Stores, LLC (7295), Lucky PR, LLC (9578), and LBD Intermediate Holdings, LLC (7702). The Debtors’ address is 540 S Santa Fe Avenue, Los Angeles, California 90013.
26731839.1
Case 20-11768-CSS Doc 14 Filed 07/03/20 Page 175 of 185
Superpriority Claims, (IV) Modifying the Automatic Stay, (V) Scheduling a Final Hearing and (VI)
Granting Related Relief (the “DIP Motion”).2
2. Houlihan is an internationally recognized investment banking and financial
advisory firm, with 22 offices worldwide and more than 1,050 financial professionals. Houlihan’s
Financial Restructuring Group, which has more than 225 professionals, is one of the leading
advisors and investment bankers to unsecured and secured creditors, debtors, acquirers, and other
parties-in-interest involved with financially troubled companies both in and outside of bankruptcy.
Houlihan has been, and is, involved in some of the largest restructuring cases in the United States,
including representing official committees in Lehman Brothers Holdings Inc., Arcapita Bank
B.S.C(c)., Enron Corp., WorldCom, Inc., Delta Air Lines, Inc., General Growth Properties,
Capmark, and representing debtors in Murphy Energy Corporation (a global oil and gas production
company), Mark IV Industries, Buffets Holdings, Inc., Bally Total Fitness Holding Corp., XO
Communications, Inc., Six Flags, Inc., Granite Broadcasting Corp., and MS Resorts.
3. I have been employed by Houlihan for 22 years. During the course of my career, I
have advised both debtors and creditors in financial restructuring and distressed mergers and
acquisitions, raised capital for troubled businesses, and represented debtors and creditor
constituencies in bankruptcy proceedings. I have also advised companies and creditor groups in
connection with a variety of financing-related issues, including assisting chapter 11 debtors in
obtaining and negotiating the terms of debtor-in-possession loans. My restructuring experience
includes the following: Intelsat S.A., Bumblebee Parent, Inc., Windstream Holdings, Gibson
Brands, Nextel Communications, Cengage Learning, GateHouse Media, Dex One (f.k.a. RH
Donnelley), Freedom Communications, American Restaurant Group, Silicon Graphics, Bi-Lo,
2 Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the DIP Motion. 26731839.1 2 Case 20-11768-CSS Doc 14 Filed 07/03/20 Page 176 of 185
Charter Communications, Scotia Pacific Company, Northwest Airlines, Atlas Air Worldwide,
Pacific Lumber Company, Malden Mills Industries, Atlas Air Worldwide, DDi Corp., SpectraSite
Communications, Guitar Center, Affinion Group, Getty Images, Travelport Worldwide, Education
Media and Publishing Group International (a.k.a. Houghton Mifflin Harcourt), and Huntsman
International, among others.
4. Before joining Houlihan, I was a member of the corporate finance, restructuring,
and disputes group of PricewaterhouseCoopers. During my time there, I specialized in operational
consulting for financially distressed companies as well as in valuations and litigation consulting-
related projects.
5. I have authored or co-authored materials and/or spoken on a number of topics,
including: “Trends and Opportunities in U.S. Restructurings”; “Financial Restructuring Issues
Impacting Trade Creditors”; “Buying & Selling the Troubled Company”; and “Investing in
Distressed Securities: An Overview of an Expanding Asset Class”. I hold a B.A. in Business
Economics, with honors, from the University of California, Santa Barbara and am a member of
the Turnaround Management Association and the American Bankruptcy Institute.
6. Except as otherwise indicated, all statements set forth in this declaration (the
“Declaration”) are based upon my personal knowledge of the Debtors’ operations and finances,
information learned from my review of relevant documents, information supplied by members of
the Debtors’ management, other members of Houlihan’s engagement team or the Debtors’ other
advisors, my personal knowledge gleaned during the course of my engagement with the Debtors,
or my opinion informed by my experience, knowledge, and information concerning the Debtors’
operations and financial affairs. If called upon to testify, I could and would testify competently to
the facts set forth herein on that basis.
26731839.1 3 Case 20-11768-CSS Doc 14 Filed 07/03/20 Page 177 of 185
The Debtors’ Capital Structure
7. As described in the Declaration of Mark A. Renzi, Chief Restructuring Officer of
the Debtors, in Support of Debtors’ Chapter 11 Petitions and First Day Relief (the “First Day
Declaration”) the Debtors have a highly levered capital structure and faced significant liquidity
challenges leading to the commencement of the Chapter 11 Cases. The Debtors’ capital structure
consists of both first and second lien secured debt with outstanding funded debt obligations
consisting of approximately $181.97 million as of the Petition Date.
Background to the Proposed Postpetition Financing
8. Houlihan has worked closely with the Debtors’ management and other
professionals retained by the Debtors and has become well-acquainted with its capital structure,
liquidity needs, and business operations. Contemporaneously with the Company’s consideration
of a potential chapter 11 filing, Houlihan worked closely with the Debtors’ management to
evaluate chapter 11 financing needs and alternatives currently available to the Debtors.
9. As described in greater detail in the First Day Declaration, Houlihan was initially
engaged by the Company in 2019 to explore options for a going concern sale transaction and/or
financing transaction (the “2019 Marketing Process”). As part of the 2019 Marketing Process,
Houlihan reached out to twenty-four parties that it believed could be potential bidders for the
Company’s assets. Based on the results of the 2019 Marketing Process, the Company determined
that the November 2019 Refinancing (as defined in the First Day Declaration) was the best
available option for the Company and its stakeholders. Nevertheless, Houlihan remained in
contact with select interested parties to gauge interest in potential future transactions, including
both strategic and financial investors.
10. In May 2020, Houlihan was again engaged as investment banker and financial
advisor to assist and advise the Debtors with the analysis, evaluation, pursuit and effectuation of, 26731839.1 4 Case 20-11768-CSS Doc 14 Filed 07/03/20 Page 178 of 185
among other things, a going concern sale transaction and/or financing transaction, including a
potential sale transaction under section 363 of the Bankruptcy Code.
11. In order to fund operations and these Chapter 11 Cases during the ongoing sale
process, and as described more fully below, the Debtors and their advisors commenced a targeted
marketing process with potential financing providers to determine whether the Debtors could
obtain financing to fund the Chapter 11 Cases. It is within this context that the Debtors and its
advisors seek the proposed postpetition debtor-in-possession financing (the “DIP Financing”).
12. Concurrently with the DIP Financing marketing process, the Debtors and Houlihan
engaged in a marketing process to solicit bids for the Debtors’ business as a going-concern. After
a targeted prepetition marketing process, on July 3, 2020, the Debtors entered into a stalking horse
purchase agreement (the “All Assets Purchase Agreement”) with SPARC Group LLC
(“SPARC”) for the sale of substantially all of the Company’s assets, and pursuant to the All Assets
Purchase Agreement, SPARC has agreed to designate certain assets to the following parties (or
their respective designees), in exchange for payment of a portion of the purchase price thereunder:
(i) Authentic Brands Group, LLC, (ii) each of the DIP lenders (as defined in the DIP Motion) and
(iii) each of the Second Lien Lenders (as defined in the DIP Motion).
13. Concurrently with the execution of the All Assets Purchase Agreement, the Debtors
entered into an additional asset purchase agreement (the “IP Purchase Agreement” and together
with the All Assets Purchase Agreement, collectively, the “Stalking Horse Purchase
Agreements” and each a “Stalking Horse Purchase Agreement”) with ABG-Lucky, LLC for
the sale of the Debtors’ intellectual property and certain other assets in the event that the Toggle
(as defined and described in the First Day Declaration) occurs and the All Assets Purchase
Agreement is terminated.
26731839.1 5 Case 20-11768-CSS Doc 14 Filed 07/03/20 Page 179 of 185
The Debtors’ Need for DIP Financing and Use of Cash Collateral
14. The Debtors require immediate access to DIP Financing so that the Debtors can
stabilize their business, fund the administrative cost of these Chapter 11 Cases, and provide
sufficient runway for a value-maximizing sale to the benefit of all stakeholders. The Debtors are
entering chapter 11 with limited cash on hand, and the Prepetition Lenders’ (in particular the First
Lien Lenders’) consent to the use of cash collateral is conditioned upon the DIP Financing and the
transactions contemplated in the Stalking Horse Purchase Agreements. Without access to the DIP
Financing, and the associated use of the Prepetition Lenders’ cash collateral, I believe that the
Debtors would not be able to fund costs associated with the Chapter 11 Cases and effectuate a
going-concern sale transaction.
15. The Debtors, with the assistance of their advisors, evaluated their cash flow and
liquidity needs in a chapter 11 scenario to determine how much DIP Financing the Debtors would
reasonably need to operate their businesses and pay the expenses of a chapter 11 process while
effectuating a going concern sale transaction. The DIP Financing and cash collateral forecast
reflects the Debtors’ assumptions as to the liquidity needed to operate the Debtors and fund
administrative costs of the Chapter 11 Cases.
16. I believe that, absent authority to enter into and access the DIP Financing (and the
associated use of the Prepetition Lenders’ cash collateral), even for a limited period of time, the
Debtors would be unable to continue operating their business, resulting in a deterioration of value
and immediate and irreparable harm to the Debtors’ estates and a corresponding inability to
effectuate a going concern sale transaction. Based on the Debtors’ current financial condition and
the costs associated with the Chapter 11 Cases and their ongoing business operations, I believe
that the Debtors’ liquidity needs will be satisfied if the Debtors are authorized to borrow under the
DIP Financing. 26731839.1 6 Case 20-11768-CSS Doc 14 Filed 07/03/20 Page 180 of 185
Marketing and Negotiation of the DIP Financing
17. Leading up to the Petition Date, the Debtors, with the assistance of Houlihan and
BRG, engaged in a thorough and competitive marketing process to obtain postpetition DIP
Financing on the best available terms. The Debtors and their advisors worked diligently to evaluate
options for financing from the First Lien Lenders, Second Lien Lenders, and potential third-party
lenders.
18. As discussed in greater detail in the First Day Declaration, I understand that the
Debtors and certain other of their advisors began engaging in discussions with the Second Lien
Lenders concerning potential DIP Financing arrangements even prior to Houlihan’s engagement
in May 2020. On June 4, 2020, the Second Lien Lenders ultimately proposed, as an integrated
package deal with the Stalking Horse Purchase Agreements, a term sheet for DIP Financing. The
proposed DIP Financing proposal provides for a $15,600,000 super priority junior secured debtor-
in-possession term loan facility, which allows for the use of cash collateral pursuant to an approved
budget, established certain fees and expenses, and set the interest rate equivalent to that of the
prepetition Second Lien Credit Facility including default interest. The proposed DIP Financing
also provides adequate protection for the First Lien Secured Parties and Second Lien Secured
Parties in the form of cash payments and replacement liens.
19. The Debtors, with the assistance of Houlihan, evaluated the Second Lien Lenders’
proposal, considering the terms and conditions in light of the Company’s needs. In evaluating the
proposal, the Debtors considered the Second Lien Lenders’ indicative proposed economics,
perceived ability to fully commit and underwrite the facility, the proposed financing structure,
perceived deal risk, and proposed covenants, among other factors.
20. Upon receipt of the Second Lien Lenders’ proposal, the Debtors and their
professionals sought to negotiate the best possible DIP Financing from the Second Lien Lenders. 26731839.1 7 Case 20-11768-CSS Doc 14 Filed 07/03/20 Page 181 of 185
All negotiations between the Debtors and the Second Lien Lenders regarding the provision of the
DIP Financing were conducted in good faith and on an arms’-length basis, and included
negotiations with the First Lien Lenders regarding consensual use of cash collateral. For nearly
two weeks, the Debtors and their advisors engaged in extensive negotiations with the First Lien
Lenders and Second Lien Lenders in an effort to obtain the best possible deal for the Debtors. As
negotiations progressed, the Debtors actively sought out a deal that would offer the most liquidity
to fund these Chapter 11 Cases while simultaneously providing flexibility to run an efficient and
fulsome, yet expedited, postpetition sale process, especially with respect to the case milestones
required by the Second Lien Lenders and Stalking Horse Bidder (as defined in the First Day
Declaration).
21. Concurrently with negotiations with the Second Lien Lenders, beginning on June
2, 2020, the Debtors and Houlihan conducted a marketing process to determine if any third-party
lenders would be willing to provide DIP financing on more favorable terms than those negotiated
with the Second Lien Lenders. The Debtors’ advisors contacted 30 financial institutions to solicit
offers to provide the Debtors with DIP financing on a junior lien basis, a priming basis, and/or
collateralized only by unencumbered assets. The Debtors’ advisors also made it clear to the
potential third-party financing sources that the Debtors were willing and open to evaluate any
financing structures within the art of the possible, provided such financing structure would meet
the required liquidity need to fund the Chapter 11 Cases and the ongoing operations of the Debtors.
The Debtors’ advisors sent non-disclosure agreements (“NDA”) to nine potential lenders and
ultimately executed NDAs with six of those potential lenders. Each party that executed an NDA
received comprehensive diligence files including detailed information regarding the Debtors as
well as a company and process overview presentation to guide their decision-making processes.
26731839.1 8 Case 20-11768-CSS Doc 14 Filed 07/03/20 Page 182 of 185
In spite of these efforts and multiple rounds of telephonic conversations with each of the potential
lenders who executed NDAs and with each of the potential purchasers who executed NDAs in
connection with the sale process, none of the third parties ultimately was able to submit a viable
alternative proposal for DIP financing.
22. The Debtors and their advisors determined, and I believe, that none of the potential
third-party lenders contacted was able to offer DIP financing that was on better terms than the DIP
Financing negotiated with the Second Lien Lenders, particularly in light of the fact that the vast
majority of the Debtors’ assets are encumbered by liens granted to the First Lien Lenders and
Second Lien Lenders, such that any potential third-party financing would have to be all or partially
unsecured, be on a junior basis, “prime” the Debtors’ existing secured lenders’ prepetition liens,
or be secured by the Debtors’ limited unencumbered assets.
23. Given these facts, even if a lender offered debtor in possession financing on terms
ostensibly better than those offered by the Second Lien Lenders, I believe that a third-party DIP
loan would have resulted in a long, costly, and risky priming fight with the Prepetition Lenders.
Equally important, I believe that any attempt by the Debtors to compel a nonconsensual priming
would undermine the global deal surrounding the Stalking Horse Purchase Agreements and
corresponding DIP Financing, and harm the Debtors’ ability to maximize value, all to the
significant detriment of the Debtors’ estates. Therefore, I believe that the DIP Financing offered
by the Second Lien Lenders reflects the most favorable and best postpetition financing available
to the Debtors, and the terms are fair and reasonable under the circumstances of these Chapter 11
Cases.
Overview of the DIP Financing
24. The DIP Financing consists of $15,600,000 in postpetition secured financing,
which includes a $4,100,000 sublimit solely for the issuance of letters of credit, and an initial draw 26731839.1 9 Case 20-11768-CSS Doc 14 Filed 07/03/20 Page 183 of 185
of $6,500,000 (plus the $4,100,000 letter of credit sublimit) that will be available upon entry of
the Interim DIP Order. The DIP Loans allow for the use of the DIP Loan proceeds and Cash
Collateral for working capital, other general corporate purposes of the Debtors, and permitted
payments of the costs of administration of the Chapter 11 Cases.
25. The DIP Facility Documents contain milestones that the Debtors must meet
throughout the Chapter 11 Cases, including sale-related milestones. The milestones were
negotiated by the DIP Lender Representative and the DIP Lenders as a condition to providing the
DIP Financing. Given the financial and operating condition of the Debtors and the prior
negotiations with the potential DIP lenders, I believe these milestones are the best executable terms
available to the Debtors as of the Petition Date and are therefore reasonable under the
circumstances.
26. Accordingly, based upon the marketing process conducted, and due to the DIP
Financing’s role in the overall sale process, I believe the proposed DIP Financing is the financing
option that best suits the needs of the Company.
The Fees in Connection with the DIP Financing Are Reasonable
27. Based on my experience as a restructuring professional and my understanding of
the Debtors’ capital structure and need for postpetition financing, I believe the interest rate and
fees under the DIP Financing are reasonable under the circumstances and current industry
environment. The fees are an integral component of the overall terms of the DIP Financing, and
were required by the Second Lien Lenders as consideration for the extension of postpetition
financing. The contemplated fees and other economic terms of the DIP Financing were the subject
of arm’s length and good faith negotiations and are, in the aggregate, generally consistent with the
cost of debtor-in-possession financings in comparable circumstances in today’s market for
similarly situated businesses. 26731839.1 10 Case 20-11768-CSS Doc 14 Filed 07/03/20 Page 184 of 185
The DIP Financing Should Be Approved
28. The proposed DIP Financing, together with the Stalking Horse Purchase
Agreement, provide the Debtors a path to an expeditious chapter 11 sale process and ensure the
Debtors will have access to the liquidity projected by management and the Debtors’ advisors to be
necessary to continue to operate the business and implement a sale for the benefit of the Debtors’
estates and key stakeholders.
29. It is my opinion that the Debtors have evaluated all of their reasonably available
options for postpetition financing within the available timeframe and that the DIP Financing
represent the best currently available option for meeting the Debtors’ financing needs and chapter
11 goals.
30. Accordingly, I believe that the proposed DIP Financing should be approved on the
terms and conditions described in the DIP Facility Documents and the Interim DIP Order, and
entry into the DIP Financing reflects a sound exercise of the Debtors’ business judgment.
[Remainder of page left intentionally blank]
26731839.1 11 Case 20-11768-CSS Doc 14 Filed 07/03/20 Page 185 of 185
Pursuant to 28 U.S.C. § 1746, I declare under penalty of perjury that the foregoing
is true and correct to the best of my knowledge and belief.
Dated: July 3, 2020
/s/ Eric Winthrop Eric Winthrop Managing Director Houlihan Lokey Capital, Inc.
26731839.1