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Debra A. Dandeneau WEIL, GOTSHAL & MANGES LLP 767 Fifth Avenue New York, New York 10153 Telephone: (212) 310-8000 Facsimile: (212) 310-8007 Proposed Attorneys for Debtor and Debtor in Possession UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ----------------------------------------------------------------x : In re : : DAFFYS, INC., : : Debtor. : : ----------------------------------------------------------------x
Chapter 11 Case No. 12-_____ (__)
DEBTORS MOTION FOR AN ORDER (I) AUTHORIZING POSTPETITION FINANCING, (II) GRANTING LIENS AND PROVIDING SUPERPRIORITY ADMINISTRATIVE EXPENSE PRIORITY, (III) AUTHORIZING USE OF CASH COLLATERAL AND PROVIDING FOR ADEQUATE PROTECTION, (IV) MODIFYING THE AUTOMATIC STAY, AND (V) SCHEDULING A FINAL HEARING PURSUANT TO SECTIONS 105, 361, 362, 363 AND 364 OF THE BANKRUPTCY CODE AND BANKRUPTCY RULES 2002, 4001, AND 9014 TO THE HONORABLE UNITED STATES BANKRUPTCY JUDGE: Daffys, Inc., as debtor and debtor in possession (the Debtor), hereby moves (the Motion) for entry of an order (I) authorizing postpetition financing, (II) granting liens and providing superpriority administrative expense priority, (III) authorizing use of cash collateral and providing for adequate protection, (IV) modifying the automatic stay, and (V) scheduling a final hearing. In support of the Motion, the Debtor submits the Declaration of Richard F. Kramer in Support of Daffys Chapter 11 Petition and Request for First Day Relief (the Kramer Declaration), filed contemporaneously herewith, and respectfully represents as follows:
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Summary of Relief Requested 1 1. By this Motion, the Debtor requests entry of an order granting it, pursuant
to sections 105, 361, 362, 363 and 364 of title 11 of the United States Code (the Bankruptcy Code) and in accordance with Rule 4001 of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules) and Local Rule 4001-2 of the Local Bankruptcy Rules for the Southern District of New York (the Local Rules), the following: (A) Interim DIP Financing (i) Authority to obtain $10 million in postpetition financing pursuant to that certain Senior Secured, Super-Priority Debtor-inPossession Loan and Security Agreement (as may be amended, modified, or supplemented, the DIP Credit Agreement) among the Debtor, as borrower; Vim-3, L.L.C., Vimwilco, L.P., and Marcia Wilson, as successor to Vim Associates, as guarantors; and Wells Fargo, National Association, as lender and as secured party (the DIP Lender), which generally provides for the following: (a) (b) funding the Debtors day-to-day operations and working capital needs; roll-up of all outstanding prepetition amounts under the Daffys Prepetition Revolving Credit Loan Agreement (as defined below); roll-up of all outstanding prepetition amounts under the Swap Agreement; and conversion of all existing letters of credit under the Daffys Prepetition Revolving Credit Loan Agreements into postpetition obligations under the DIP Financing Agreements.
(c) (d)
(ii) (iii)
Approval of the DIP Credit Agreement and all related documentation (collectively, the DIP Financing Agreements). Granting the DIP Lender a consensual first priority priming lien, subject to a carve out, in substantial portions of the Debtors assets
Capitalized terms used in this Motion but not otherwise defined shall have the meanings ascribed to them in the DIP Credit Agreement.
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and a superpriority administrative expense for all obligations under the DIP Financing Agreements. (B) Interim Use of Cash Collateral (i) Authorization for consensual use of cash collateral, as such term is defined in section 363 of the Bankruptcy Code, in which the Prepetition Term Lender (as defined below) has an interest (Cash Collateral). Granting the Prepetition Term Lender certain adequate protection, including, among other things, replacement liens, a superpriority administrative expense, certain adequate protection payments, and other relief.
(ii)
(C)
Modification of the Automatic Stay. 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 Financing Agreements. Final Hearing. Scheduling a final hearing (the Final Hearing) to consider entry of an order (the Final DIP Order) granting the relief requested herein on a final basis and approving the form of notice with respect to the Final Hearing. A proposed form of interim order is attached hereto as Exhibit A (the
(D)
2.
Interim DIP Order). The form of the DIP Credit Agreement is attached as Exhibit 1 to the Interim DIP Order. Bankruptcy Rule 4001 and Local Rule 4001-2 Concise Statement 2 3. In accordance with Bankruptcy Rule 4001 and Local Rule 4001-2, below
is a summary of the terms of the proposed debtor-in-possession financing (the DIP Facility) and for the use of Cash Collateral.
The summaries and descriptions of the terms and conditions of the DIP Credit Agreement and the Interim Order set forth in this Motion are intended solely for informational purposes. The summaries and descriptions are qualified in their entirety by the DIP Credit Agreement and the Interim Order. In the event there is a conflict between this Motion and DIP Credit Agreement or the Interim Order, the DIP Credit Agreement or the Interim Order, as applicable, shall control in all respects.
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A.
Parties to the DIP Facility:
(1) (2) (3) B.
Borrower: Daffys, Inc. 3 DIP Lender: Wells Fargo Bank, National Association. 4 Guarantors: VIM-3, L.L.C., Vimwilco, L.P., and Marcia Wilson, as successor to VIM Associates (collectively, the VIM Entities or the Guarantors). 5
Financial Terms:
(1)
Amount:
(i) (ii)
New Money Borrowings Approximately $2.5 million on a revolving basis, subject to a borrowing base. 6 Roll-Up of Prepetition Indebtedness The DIP Facility will be used to repay approximately $6.2 million of existing prepetition indebtedness under that certain Revolving Credit Loan Agreement (as defined below), including, among other things, any outstanding obligations related to letters of credit issued thereunder, and approximately $600,000 under the Swap Agreement. 7 Total Amount Approximately $10 million.
(iii) (2)
Borrowing Limits/Conditions to Borrowing: Borrowings under the DIP Facility will be subject to a borrowing basis comprised of (i) eighty five percent (85%) of the Eligible Credit Card Sale Accounts, plus (ii) ninety percent (90%) of the Net Recovery Percentage multiplied by the Value of all Eligible Inventory, plus (iii) for so long as the Collateral includes the Eligible L/C Rights, $3,000,000 plus (iv) the Professional Expense Carve Out Reserve, minus Reserves including, but not limited to, the Gift Certificate Reserve, the Customer Deposits Reserve and the Professional Expense Carve Out Reserve. 8 Borrowings are also subject to typical conditions precedent found in other similar facilities. 9 Interest Rate: Prime Rate plus 1.50%. 10
(3)
3 4 5 6
Bankruptcy Rule 4001(c)(1)(B); Interim DIP Order Recital I.A; DIP Credit Agreement Recitals. Bankruptcy Rule 4001(c)(1)(B); Interim DIP Order Recital I.A; DIP Credit Agreement Recitals. Bankruptcy Rule 4001(c)(1)(B); Interim DIP Order Recital I.A; DIP Credit Agreement Recitals.
Bankruptcy Rule 4001(c)(1)(B); Interim DIP Order Recital I.A, 3; DIP Credit Agreement 1 (Definition of Revolving Loan Limit); 2.2(b). Local Rule 4001-2(a)(7); Interim DIP Order Recital I.A, 3, 4(c); DIP Credit Agreement 1 (Definition of DIP Roll-up Amount), 2.1(a). Local Rule 4001-2(a)(2); Interim DIP Order 3; DIP Credit Agreement 1 (Definition of Borrowing Base), 2.1(a). Local Rule 4001-2(a)(2); Interim DIP Order 3, 6; DIP Credit Agreement 4.1, 4.2. Bankruptcy Rule 4001(c)(1)(B); DIP Credit Agreement 1 (Definition of Interest Rates), 3.1(a).
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(4) (5)
Maturity: December 31, 2012. 11 Fees:
(i) (ii) (iii)
Deferred Closing Fee: $300,000 to $400,000. 12 Monthly Service Fee: $5,000 per month. 13 Unused Line Fee: 0.375% per annum calculated upon the amount by which the Revolving Loan Limit exceeds the average daily principal balance of the outstanding Revolving Loans during the immediately preceding month (or part thereof), payable monthly. 14 Letter of Credit Fees: 1.50% per annum on the average daily maximum amount available to be drawn under all Letters of Credit for the immediately preceding month (or part thereof).15 DIP Lender Professional Fee: The Debtor shall reimburse the DIP Lender for reasonable professional fees. 16
(iv)
(v) C.
Use of DIP Proceeds: The proceeds of the DIP Facility may be used solely (1) to pay costs, expenses and fees in connection with the preparation, negotiation, execution and delivery of the DIP Credit Agreement and the DIP Financing Agreements and (2) for general operating and working capital purposes, for the payment of transaction expenses, for the payment of fees, expenses and costs incurred in connection with the Debtors chapter 11 case, and other proper corporate purposes of the Debtor not otherwise prohibited by the terms of the DIP Credit Agreement. 17 Liens, Collateral, and Super Priority Administrative Expenses:
D.
(1)
DIP Liens
(i)
Liens: The DIP Lender will receive, subject to the Carve Out (as defined below) and certain Permitted Prior Liens (as defined below), priming first priority, continuing, valid, binding, enforceable, non-avoidable, and automatically
11
Bankruptcy Rule 4001(c)(1)(B); Interim DIP Order 30(a); DIP Credit Agreement 1 (Definition of Termination Date), 2.1(b). Local Rule 4001-2 (a)(3); DIP Credit Agreement 1 (Definition of Deferred Closing Fee), 3.2. Local Rule 4001-2 (a)(3); DIP Credit Agreement 3.4. Local Rule 4001-2 (a)(3); DIP Credit Agreement 3.5. Local Rule 4001-2 (a)(3); DIP Credit Agreement 3.6. Local Rule 4001-2 (a)(3); Interim DIP Order 46; DIP Credit Agreement 11.5. Bankruptcy Rule 4001(c)(1)(B); Interim DIP Order 4; DIP Credit Agreement 6.6.
12 13 14 15 16 17
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perfected postpetition security interests and Liens (collectively, the DIP Liens) in in the DIP Collateral (as defined below). 18
(ii)
Determination of Validity of Prepetition Liens: In the Interim DIP Order, subject to the right of certain parties to challenge the validity of the Prepetition Liens (as defined below), the Debtor stipulates that the Prepetition Liens are valid. 19 Waiver or Modification of Applicability of Non-Bankruptcy Law Relating to Perfection of Liens: The Interim DIP Order provides that the DIP Liens are automatically perfected without further action by the DIP Lender.20
(iii)
(2)
Superpriority Administrative Expenses: Subject to the Carve Out, the DIP Lender shall receive an allowed superpriority administrative expense, pursuant to sections 364(c)(1), 503(b), and 507(b) of the Bankruptcy Code, for all obligations arising under the DIP Credit Agreement (the DIP Superpriority Claim). 21 Carve Out: As discussed below in greater detail, DIP Liens, DIP Superpriority Claim, and Prepetition Liens are subordinate to a carve-out for professional fees (the Carve Out), which include (i) allowed administrative expenses pursuant to section 1930(a)(6) of title 28 of the U.S. Code for fees payable to the Clerk of the Court and the Office of the United States Trustee and (ii) professional fees incurred by professionals retained by the Debtor or any official committee(s), subject to certain limitations, including a cap of $250,000.00 after delivery of a notice indicating an event of default has occurred. 22
(3)
E.
Events of Default and Termination Events:
(1)
Events of Default: The DIP Credit Agreement contains typical events of default as other similar agreements. Events of default particular to the DIP Facility or otherwise required to be disclosed by Local Rule 4001-2(a)(10) include the following: (i) a cross-default related to certain forbearance agreements with the non-debtor Guarantors; (ii) a credit card issuer or processor sends a written notice indicating that it is to cease making payments to the Debtor or otherwise terminating its relationship with the Debtor; and (iii) and a change of control. 23 Termination Provisions: The DIP Credit Agreement will terminate on the earliest of (i) December 31, 2012, (ii) the closing of the Asset Purchase Agreements (e.g., the agreements by which the Debtor will sell its leasehold interests), (iii) dismissal or
(2)
Bankruptcy Rule 4001(c)(1)(B)(i); Local Rule 4001-2(a)(7); Interim DIP Order 7-8; DIP Credit Agreement 5.1.
19 20 21 22
18
Bankruptcy Rule 4001(c)(1)(B)(iii); Interim DIP Order E, 24. Bankruptcy Rule 4001(c)(1)(B)(vii); Interim DIP Order 17-22. Bankruptcy Rule 4001(c)(1)(B)(i); Interim DIP Order 11-12.
Local Rule 4001-2(a)(5); Interim DIP Order 26-29; DIP Credit Agreement 1 (Definition of Professional Expense Carve Out).
Bankruptcy Rule 4001(c)(1)(B); Local Rule 4001-2(a)(10); Interim DIP Order 31; DIP Credit Agreement 10.1.
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conversion of the Debtors chapter 11 case, (iv) failure to obtain a Final Order within 45 days after the Commencement Date, and (iv) an event of default occurs and is continuing. 24
F.
Conditions to Closing and Borrowings:
(1)
Budget: As a condition precedent to any borrowings, the Debtor must comply with the Approved Budget with a permissible variance not to exceed 10% as to any line item, including disbursements and revenues. 25 Case Milestones: The DIP Credit Agreement requires the Debtor file its chapter 11 plan within 60 days after the Commencement Date.26 The Debtor must also obtain approval of the Sale Closing Program Motion and the Leasehold Sale Motion within 35 days after the Commencement Date.27 As discussed above, the DIP Facility will terminate if the Final Order is not entered within 45 days after the Commencement Date.28
(2)
G.
Modification of Automatic Stay: The Interim DIP Order provides that the automatic stay is modified such that, upon an event of default and such default continuing, the DIP Lender may exercise its rights and remedies after seven days notice to the Debtor, counsel to the Debtor, counsel to any official committee or the 30 largest unsecured creditors (if no committee is or has been appointed), and the U.S. Trustee.29 Releases and Indemnification:
H.
(1) (2)
Waiver of Claims: The Debtor waives any claim against the DIP Lender arising out of the DIP Credit Agreement for special, indirect, consequential or punitive damages. 30 Indemnification: The Debtor will indemnify and hold the DIP Lender and various of its affiliates harmless from and against various losses and claims, including professional fees and expenses. 31 Waiver of Section 506(c) of the Bankruptcy Code: Upon entry of the Final DIP Order, the Debtor has agreed to waive its rights under section 506(c) of the Bankruptcy Code to surcharge the Prepetition Collateral and DIP Collateral (both as defined below).32
(3)
Local Rule 4001-2(a)(10); Interim DIP Order 30; DIP Credit Agreement 1 (Definition of Termination Date), 10.2.
25 26 27 28 29 30 31 32
24
Local Rule 4001-2(a)(2); Interim DIP Order 3; DIP Credit Agreement 9.18. Bankruptcy Rule 4001(c)(1)(B)(vi); DIP Credit Agreement 9.27(d). Local Rule 4001-2(a)(2); DIP Credit Agreement 9.27(a) and (b). Local Rule 4001-2(a)(2); Interim DIP Order 30(c). Bankruptcy Rule 4001(c)(1)(B)(v); Interim DIP Order 35. Bankruptcy Rule 4001(c)(1)(B)(viii); DIP Credit Agreement 11.5. Bankruptcy Rule 4001(c)(1)(B)(xi); DIP Credit Agreement 11.5. Bankruptcy Rule 4001(c)(1)(B)(x); Interim DIP Order 39-40.
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I.
Use of Cash Collateral
(1) (2)
Name of Each Entity with an Interest in the Cash Collateral: Wells Fargo Bank, National Association, as Prepetition Term Lender.33 Amount and Purposes for the Use of Cash Collateral: The Debtor may use Cash Collateral (as defined below) in the ordinary course of business subject to the Approved Budget. 34 Material Terms, Including Duration, of the Use of Cash Collateral: The Debtor may use Cash Collateral until an event of default occurs under the DIP Facility or the DIP Facility terminates.35 Adequate Protection: The Prepetition Term Lender will receive the following adequate protection: 36
(3)
(4)
(i) (ii)
Prepetition Replacement Liens: The Prepetition Term Lender will receive postpetition replacement liens in the DIP Collateral. Prepetition Superpriority Claim: Solely to the extent of the diminution in the value of the interests of the Prepetition Term Lender in the Prepetition Collateral, the Prepetition Term Lender will receive a superpriority administrative expense (the Prepetition Superpriority Claim). Adequate Protection Payments: The Prepetition Term Lender will also receive reimbursement of reasonable professional fees and expenses as well as postpetition interest payments at the non-default rate in accordance with the Prepetition Term Financing Agreements. Adequate Protection Upon Approval of the Store Closing Program and the Closing of the Leasehold Sale: Upon the disposition of Prepetition Collateral (as defined below) under the Asset Purchase Agreements, the Prepetition Liens will attach to the proceeds of such collateral in the order and priority set forth in the Interim DIP Order.
(iii)
(iv)
33 34 35 36
Bankruptcy Rule 4001(b)(1)(B)(i); Interim DIP Order Recital II. Bankruptcy Rule 4001(b)(1)(B)(ii); Local Rule 4001-2(a)(1)-(2); Interim DIP Order 13-14. Bankruptcy Rule 4001(b)(1)(B)(iii); Interim DIP Order 13. Bankruptcy Rule 4001(b)(1)(B)(iv); Local Rule 4001-2(a)(4), (6); Interim DIP Order 15.
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Background 4. On the date hereof (the Commencement Date), the Debtor commenced
with this Court a voluntary case under chapter 11 of the Bankruptcy Code. The Debtor is authorized to continue to operate its business and manage its properties as debtor in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. 5. The Debtor is an off-price retailer of designer fashions for women, men,
children, and the home, located in the New York metropolitan area and Philadelphia. For additional background on the Debtors business, see the Kramer Declaration. Jurisdiction 6. This Court has subject matter jurisdiction to consider and determine this
matter pursuant to 28 U.S.C. 1334. This is a core proceeding pursuant to 28 U.S.C. 157(b). Venue is proper pursuant to 28 U.S.C. 1408 and 1409. Prepetition Funding of the Debtors Operations 7. The Debtors primary prepetition funding consisted mainly of the Daffys
Revolving Credit Loan Agreement and the Daffys Term Loan Credit Agreement, as described further below. A. Daffys Revolving Credit Loan Agreement. 8. Prior to the Commencement Date, the Debtor and the Guarantors were
parties to that certain Loan and Security Agreement, dated January 30, 2009 (as amended and in effect, the Daffys Revolving Credit Loan Agreement) with Wells Fargo Bank, National Association, as lender and as secured party (the Prepetition Revolver Lender), whereby the Prepetition Revolver Lender provided letters of credit and other financial accommodations to the Debtor. As of the date hereof, approximately $6.2 million of principal and interest was outstanding under the Daffys Revolving Credit Loan Agreement. 9
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B.
Daffys Term Loan Credit Agreement. 9. Prior to the Commencement Date, the Debtor and the Guarantors were
parties to that certain Loan and Security Agreement, dated January 30, 2009 (as amended and in effect, the Daffys Term Loan Credit Agreement) with Wells Fargo Bank, National Association, as lender and as secured party (the Prepetition Term Lender and together with the Prepetition Revolver Lender, collectively, the Prepetition Lender), whereby the Prepetition Term Lender provided letters of credit and other financial accommodations to the Debtor. As of the date hereof, approximately $10.2 million of principal and interest, inclusive of letters of credit, was outstanding under the Term Loan Credit Loan Agreement. C. Prepetition Collateral. 10. To secure the Debtors obligations under the Daffys Term Loan Credit
Agreement and the Daffys Revolving Credit Loan Agreement, the Debtor granted security interests in and Liens on (collectively, the Prepetition Liens) substantially all of its personal property, including items defined as Collateral in the Daffys Term Loan Credit Agreement (collectively, the Prepetition Collateral). 11. The Liens of the Prepetition Lender have priority over all other Liens
except any Liens that are valid, properly perfected, unavoidable, and senior to the Prepetition Liens or set forth in Section 9.8 of the DIP Credit Agreement (collectively, the Permitted Prior Liens). Debtors Proposed DIP Facility A. Need for Postpetition Financing 12. As described more fully in the Kramer Declaration, without the requested
DIP Facility, the Debtor lacks sufficient unencumbered funds with which to operate its business, liquidate its inventory pursuant to the terms of that certain Agency Agreement, dated July 31, 10
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2012, among the Debtor, Gordon Brothers Retail Partners, LLC, and Hilco Merchant Resources, LLC (the Agency Agreement), and proceed to confirm and consummate the Debtors chapter 11 plan (the Plan). 37 The Debtor, therefore, has an urgent and immediate need for postpetition financing for, among other things, working capital, other general corporate purposes of the Debtor, and the costs of administration of this chapter 11 case. 13. Absent authorization from the Court to enter into the DIP Facility, the
Debtor will be immediately and irreparably harmed. The Debtors ability to meet payroll and other operating expenses (including postpetition obligations to its landlords) is essential to the Debtors ability to conduct an orderly liquidation and pay all creditors in full, with interest, as is currently contemplated under the Plan. Without access to postpetition financing, the Debtor may be forced to cease business operations, terminate substantially all of its employees, and be unable to wind down its operations in an orderly manner that preserves and maximizes value and recoveries for creditors and equity holders, which could otherwise be unavailable. B. Background of the DIP Facility 14. Prior to the Commencement Date, the Debtor surveyed various sources of
postpetition financing to fund the Debtors operations and to fund the chapter 11 process, including financing from the Prepetition Lender and unrelated third parties. In exploring those options, the Debtor recognized that the obligations owed to the Prepetition Lender are secured by substantially all of the Debtors personal property, such that either (i) the liens of the Prepetition Lender would have to be primed to obtain postpetition financing, or (ii) the Debtor would have to find a postpetition lender willing to extend credit that would be junior to the liens of the Prepetition Lender. Borrowing from another postpetition lender or lending group that required
37
Debtors Plan Under Chapter 11 of the Bankruptcy Code, dated August 1, 2012, filed contemporaneously herewith.
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security interests senior to the Prepetition Lender likely could only be accomplished through a contested hearing on whether the requirements of section 364(d) of the Bankruptcy Code would be satisfied. Moreover, given the general economic conditions, the Debtor determined after diligence that sources of new capital were more expensive than obtaining postpetition financing from the DIP Lender. The Debtor found that the principal amount, pricing, fee structure and certainty of closing of any alternative proposal would be, in the aggregate, less favorable than that offered by the DIP Lender. 15. In view of these circumstances, the DIP Lender, who is the same entity as
the Prepetition Lender, was willing to extend postpetition financing on the terms and conditions described herein. Ultimately, the Debtor concluded that the DIP Facility proposed by the DIP Lender is desirable because, among other things, the DIP Facility permits the Debtor to secure the postpetition financing required for its chapter 11 process without having to prime the Prepetition Lender through a contested hearing with an uncertain result on whether the requirements of section 364(d) of the Bankruptcy Code have been satisfied. 16. Consequently, the Debtor has determined that entering into the DIP Credit
Agreement with the DIP Lender is appropriate and is necessary under the circumstances, addresses the Debtors liquidity needs, and should be approved. C. Implementation of the DIP Facility 17. The Debtor and the DIP Lender have engaged in extensive, good faith,
arms length negotiations with respect to the terms and conditions of the proposed DIP Facility. These negotiations culminated in agreement upon the proposed financing, including the DIP Facility. Significantly, the DIP Facility allows the Debtor to draw approximately $2.5 million in
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new financing through a revolver, subject to a borrowing base. This commitment should allow the Debtor to meet all of its administrative obligations during this chapter 11 case. 18. The Debtor and the DIP Lender have agreed upon an initial budget (the
Approved Budget), as described below in more detail. The Debtor believes that the Approved Budget is achievable and will allow the Debtor to operate without the accrual of unpaid administrative expenses. D. Liens and Claims 19. Pursuant to the Interim DIP Order, and upon entry of the Final Order, all
loans and obligations under the DIP Facility shall receive the following treatment: (A) pursuant to sections 361, 362, 364(c)(2), 364(c)(3), and 364(d) of the Bankruptcy Code, be secured by the DIP Liens with priority over all other secured and unsecured creditors of the Debtors estate except as otherwise provided in the Interim DIP Order, upon and to all Collateral (the DIP Collateral) and constitute claims entitled to superpriority administrative status (the DIP Superpriority Claim), with priority in payment over any and all other administrative expenses and unsecured claims against the Debtor and its estate now existing or hereafter arising, of any kind or nature whatsoever.
(B)
Notwithstanding the foregoing, the liens and security interests and the superpriority claims of the DIP Lender shall be subject to the Carve Out. E. The Roll-Up 20. Upon the closing and funding of the DIP Facility under the Interim DIP
Order, certain proceeds from the DIP Facility will be tendered to the DIP Lender for the benefit of the Prepetition Lender and applied against the obligations arising under and in connection with the Daffys Revolving Credit Loan Agreement (the Roll-Up). Specifically, under the proposed Roll-Up, all amounts outstanding under the Daffys Revolving Credit Loan Agreement will be paid off with proceeds from the DIP Facility.
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21.
The Roll-Up, as a condition to approval of the DIP Facility, comports with
the expectations held by the Debtor and the Prepetition Lender prior to the Commencement Date and is necessary to effectuate what is essentially a prepackaged chapter 11 case. The DIP Lender would not have agreed to provide the DIP Facility without the Roll-Up and refinancing of the obligations due and owing to the Prepetition Lender. Additionally, as set forth in Kramer Declaration, the Prepetition Lender is oversecured as of the Commencement Date. 22. Moreover, the Roll-Up is beneficial to the Debtors estate. The interest
rate accruing on the Daffys Revolving Credit Loan Agreement, which is accruing at a default rate, is higher than the interest rate on the proposed DIP Financing Agreements. Further, no party is harmed by the proposed Roll-Up because (i) the only party that will be primed under the DIP Financing Agreement is the DIP Lender, who has consented to the priming, and (ii) under the Plan, all creditors are being paid in full, with interest. F. Provisions to Be Highlighted Pursuant to Bankruptcy Rules 4001(b) and (c) and 4001-2 of the Local Bankruptcy Rules for the Southern District of New York 23. The Debtor believes that the material provisions of the DIP Credit
Agreement identified above and in the description below summarize the salient terms of the DIP Facility as required by the Local Rules: (A) Material Conditions to Closing and Borrowing. Customary borrowing conditions, including the following: (i) entry of the Interim DIP Order and compliance therewith, (ii) delivery of all documents comprising the DIP Facility, and (iii) the Lenders receipt of the Approved Budget (Local Rule 4001-2(a)(2); DIP Credit Agreement 4). Budget. Debtor to provide to the DIP Lender an Approved Budget, whereby the Debtor will achieve revenues of at least 90% of those projected in the Approved Budget and not permit disbursements to exceed 110% of budgeted amounts, subject to certain exceptions. Compliance will be tested as of the close of business on Sunday of each week (x) on a cumulative basis from the Petition Date through the end of such week and (y) on a weekly basis through the end of such week, in each case, based on the actual financials results for such week reported by 5:00 pm on the 14
(B)
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second Business Day following such week . (Local Rule 4001-2(a)(2); DIP Credit Agreement 9.18). (C) Fees. The Debtor will pay to the DIP Lender the following fees: (i) a deferred closing fee, not to exceed $400,000.00, which fee shall be fully earned on the Closing Date, (ii) a servicing fee of $5000.00, payable monthly, which fee shall be fully earned and payable in full on the Closing Date, (iii) an unused line fee equal to 0.375% per annum calculated upon the amount by which the Revolving Loan Limit exceeds the average daily principal balance of the outstanding Revolving Loans during the immediately preceding month (or part thereof), payable monthly, and (iv) 1.50% per annum on the average daily maximum amount available to be drawn under all Letters of Credit for the immediately preceding month (or part thereof) (Local Rule 4001-2(a)(3); DIP Credit Agreement 3). (D) Reimbursement of Expenses. The Debtor is directed to reimburse reasonable fees and expenses of the DIP Lender on a current basis. Such reimbursements are guaranteed by the Debtor under the DIP Facility and elevated to superpriority administrative expense status by operation of the DIP Lenders DIP Superpriority Claim for all obligations under the DIP Facility (Local Rule 4001-2(a)(3); Interim DIP Order 46; DIP Credit Agreement 9.23). Carve Out. The Carve Out includes the payment of the following: (i) fees pursuant to 28 U.S.C. 1930 and any fees payable to the clerk of the Bankruptcy Court and to the Office of the United States Trustee (collectively, the U.S. Trustee Fees); (ii) professional fees of, and costs and expenses incurred by, Case Professionals (a) to the extent incurred by the Case Professionals prior to the delivery of the Carve Out Trigger Notice and (b) to the extent incurred by the Case Professionals after the delivery of the Carve Out Trigger Notice in an aggregate amount not to exceed the sum of $200,000.00 (exclusive of Reported Fee Accruals but inclusive of a sublimit for chapter 7 wind down expenses of $25,000.00), plus (x) Reported Fee Accruals, (y) any additional fees, costs, and expenses accrued or incurred by a Case Professional from the last day included in the prior Reported Fee Accrual report of such Case Professional through the date on which the Carve Out Trigger Notice shall have been 15
(E)
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delivered, less, in each case, any amounts actually paid on account thereof, and (z) $100,000.00, less, in each case, any amounts actually paid on account thereof and in each case in accordance with and as may be limited by the Approved Budget; provided, however, the Post Notice Carve Out Cap shall not apply to U.S. Trustee Fees (Local Rule 4001-2(a)(5); Interim DIP Order 26; DIP Credit Agreement Definitions). (F) Section 506(c) Waiver. Except as provided in the Carve Out, and subject to entry of the Final Order, no costs or expenses will be charged against the DIP Lender, the Prepetition Lender, or any of their respective claims or the DIP Collateral or Prepetition Collateral or their property pursuant to section 506(c) of the Bankruptcy Code (Interim DIP Order 39-40). Roll-Up. As described further above, the Roll-Up will result in application of the proceeds of postpetition financing to pay, in full, the obligations arising under the Daffys Revolving Credit Loan Agreement (Local Rule 4001-2(a)(7); Interim DIP Order 4).
(G)
As set forth herein, these provisions were thoroughly negotiated and are necessary for the Debtor to effectuate the DIP Facility and procure the financing made available under the DIP Facility in a sufficient amount and on a timely basis. G. Use of Cash Collateral and Proposed Adequate Protection 24. In order to finance its postpetition operations and effectuate its Plan, the
Debtor also requires the use of the Cash Collateral in which the Prepetition Lender has an interest. The use of Cash Collateral will provide the Debtor with the additional necessary capital to operate its business, pay its employees and maximize value. As discussed in the Kramer Declaration, the use of Cash Collateral also will allow the Debtor to dispose of its principal assets, which are expected to generate more than sufficient cash to pay all the Debtors' creditors in full. 25. The Prepetition Lender has consented to the Debtors use of Cash
Collateral in the ordinary course of business in accordance with the Approved Budget, subject to
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the adequate protection liens and payments discussed below and the other terms and conditions set forth in the Interim DIP Order. 26. As adequate protection for the interest of the Prepetition Lender in the
Prepetition Collateral (including Cash Collateral) on account of the granting of the DIP Liens, subordination to the Carve Out, the Debtors use of Cash Collateral, and other decline in value arising out of the automatic stay or the Debtors use, sale, depreciation, or disposition of the Prepetition Collateral, including the disposition of assets as contemplated in the Store Closing Program Motion and the Leasehold Sale Motion (as such terms are defined in the Interim DIP Order), the Prepetition Lender shall receive adequate protection as follows (collectively, Adequate Protection): (a) Prepetition Replacement Liens. Solely to the extent of the diminution in the value of the interest of the Prepetition Term Lender in the Prepetition Collateral, the Prepetition Term Lender will have, subject to the terms and conditions set forth in the Interim DIP Order, pursuant to sections 361, 363(e), and 364(d) of the Bankruptcy Code additional and replacement security interests and Liens in the DIP Collateral (the Prepetition Replacement Liens), which shall be junior only to the Carve Out, the DIP Liens securing the DIP Facility, and Permitted Prior Liens. Prepetition Superpriority Claim. Solely to the extent of the diminution in the value of the interests of the Prepetition Term Lender in the Prepetition Collateral, the Prepetition Term Lender shall receive the Prepetition Superpriority Claim, which shall have priority (except with respect to (i) the DIP Liens, (ii) the DIP Superpriority Claim, and (iii) the Carve Out), in this chapter 11 case under sections 364(c)(1), 503(b), and 507(b) of the Bankruptcy Code and otherwise over all administrative expenses and unsecured claims against the Debtor and its estate, now existing or hereafter arising, of any kind or nature whatsoever, including, without limitation, administrative expenses of the kinds specified in or ordered pursuant to sections 105, 326, 328, 330, 331, 503(a), 503(b), 507(a), 507(b), 546(c), 546(d), 552, 726, 1113, and 1114 of the Bankruptcy Code, and, upon entry of the Final Order, section 506(c) of the Bankruptcy Code, whether or not such expenses or claims may become secured by a judgment Lien or other non-consensual Lien, levy, or attachment. 17
(b)
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Other than the DIP Liens, the DIP Superpriority Claim, and the Carve Out, no costs or expenses of administration, including, without limitation, professional fees allowed and payable under sections 328, 330, and 331 of the Bankruptcy Code, or otherwise, that have been or may be incurred in the chapter 11 case, or in any Successor Case (as such term is defined in the Interim DIP Order), will be senior to, prior to, or on parity with the Prepetition Superpriority Claim. (c) Adequate Protection Payments. The Prepetition Term Lender will receive adequate protection in the form of the following: (i) the current payment of the reasonable documented out-ofpocket costs and expenses of its financial advisors and attorneys and on the first day of each calendar month, commencing September 1, 2012, cash interest at the non-default rate as provided in the Prepetition Term Financing Agreements (as such term is defined in the Interim DIP Order).
(ii)
(d)
Adequate Protection Upon Approval of Store Closing Program. Upon the disposition of Prepetition Collateral or PostPetition Collateral as contemplated by the Store Closing Program Motion, including, without limitation, the assumption of the Agency Agreement and payment by the Agent (as defined in the Agency Agreement) of the Guaranteed Amount (as defined in the Agency Agreement), any such Prepetition Collateral and PostPetition Collateral shall be sold free and clear of the Prepetition Liens, the Prepetition Replacement Liens, and the DIP Liens; provided, however, that such Prepetition Liens, Prepetition Replacement Liens, and DIP Liens shall attach to the proceeds of any such sale in the order and priority as set forth in this Interim DIP Order. Adequate Protection Upon Closing of Leasehold Sale. Upon the disposition of Prepetition Collateral as contemplated in the Leasehold Sale Motion, including, without limitation, the sale of the Herald Square Lease and closing of the Asset Purchase Agreements, any such Prepetition Collateral shall be sold free and clear of the Prepetition Liens, the Prepetition Replacement Liens, and the DIP Liens; provided, however, that such Prepetition Liens, Prepetition Replacement Liens, and DIP Liens shall attach to the proceeds of any such sale in the order and priority as set forth in this Interim DIP Order.
(e)
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The DIP Facility Should Be Authorized 27. Approval of the DIP Facility will provide the Debtor with immediate and
ongoing access to borrowing availability to pay its current and ongoing operating expenses, including postpetition wages and salaries, obligations to landlords under the Debtors real property leases, and other winddown expenses. Unless these expenditures are made, the Debtor could be forced to cease operation, which could result in irreparable harm to its stakeholders and substantial value being destroyed. The credit provided under the DIP Facility and the use of Cash Collateral will enable the Debtor to continue to pay its employees and otherwise operate its business until the end of the contemplated liquidation, thereby preserving and enhancing the value of its estate for the benefit of all parties in interest. Accordingly, the timely approval of the relief requested herein is imperative. 28. Section 364(c) of the Bankruptcy Code provides, among other things, that
if a debtor is unable to obtain unsecured credit allowable as an administrative expense under section 503(b)(1) of the Bankruptcy Code, the court may authorize the debtor to obtain credit or incur debt (a) with priority over any and all administrative expenses as specified in section 503(b) or 507(b) of the Bankruptcy Code, (b) secured by a lien on property of the estate that is not otherwise subject to a lien, or (c) secured by a junior lien on property of the estate that is subject to a lien. Section 364(d) of the Bankruptcy Code allows a debtor to obtain credit secured by a senior or equal lien on property of the estate that is subject to a lien, provided that (i) the debtor is unable to obtain such credit otherwise, and (ii) 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. The Debtor proposes to obtain the financing set forth in the DIP Credit Agreement by providing, inter alia, superpriority claims, security interests, and liens pursuant to sections 364(c)(1) (3) and 364(d) of the Bankruptcy Code. 19
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29.
The Debtors liquidity needs can be satisfied only if the Debtor is
immediately authorized to borrow upon additional funds on an interim basis under the DIP Facility and to use such proceeds to fund its liquidation and associated costs. Despite its best efforts, the Debtor has been unable to procure sufficient financing (i) in the form of unsecured credit allowable under section 503(b)(1), (ii) as an administrative expense under section 364(a) or (b), (iii) in exchange for the grant of a superpriority administrative expense pursuant to section 364(c)(1), or (iv) without granting priming liens pursuant to section 364(d). The Debtor has not been able to obtain postpetition financing or other financial accommodations from any alternative prospective lender or group of lenders on more favorable terms and conditions than those for which approval is sought herein. 30. Having determined that financing is available only under sections 364(c)
and (d) of the Bankruptcy Code, the Debtor negotiated with the DIP Lender extensively, in good faith, and at arms length. Provided that a debtors business judgment does not run afoul of the provisions of, and policies underlying, the Bankruptcy Code, courts grant a debtor considerable deference in acting in accordance therewith. See, e.g., In re Ames Dept Stores, Inc., 115 B.R. 34, 40 (Bankr. S.D.N.Y. 1990) ([C]ases consistently reflect that the courts discretion under section 364 is to be utilized on grounds that permit 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 parties in interest); Bray v. Shenandoah Fed. Sav. & Loan Assn (In re Snowshoe Co.), 789 F.2d 1085, 1088 (4th Cir. 1986); see also In re Curlew Valley Assocs., 14 B.R. 506, 513-14 (Bankr. D. Utah 1981); In re Simasko Prod. Co., 47 B.R. 444, 449 (D. Colo. 1985).
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31.
Furthermore, section 364(d) does not require that a debtor seek alternative
financing from every possible lender; rather, the debtor simply must demonstrate sufficient efforts to obtain financing without the need to grant a senior lien. In re Snowshoe Co., 789 F.2d at 1088 (demonstrating that credit was unavailable absent the senior lien by establishment of unsuccessful contact with other financial institutions in the geographic area); In re 495 Central Park Ave. Corp., 136 B.R. 626, 631 (Bankr. S.D.N.Y. 1992) (debtor testified to numerous failed attempts to procure financing from various sources, explaining that most lend money only in return for a senior secured position). 32. Substantially all of the Debtors assets are encumbered, and the Debtor has
been unable to procure the required funding absent the proposed superpriority claims and liens. The Debtor submits that the circumstances of this case require the Debtor to obtain financing under sections 364(c) and (d) of the Bankruptcy Code, and accordingly, the DIP Facility reflects the exercise of its sound business judgment. 33. The terms and conditions of the DIP Facility are fair and reasonable and
were negotiated extensively by well-represented, independent parties in good faith and at arms length. Accordingly, the DIP Lender and all obligations incurred under the DIP Facility should be accorded the benefits of section 364(e) of the Bankruptcy Code. The Use of Cash Collateral Should Be Approved 34. Under section 363(c)(2) of the Bankruptcy Code, a debtor may not use
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 in accordance with the provisions of this section. The Debtor requires the use of the Cash Collateral to fund its day-to-day operations. Indeed, absent such relief, the Debtors business (and its intended disposition of its principal assets) could be brought to an immediate halt, with damaging consequences for the 21
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Debtor and its estate. The interests of the Prepetition Lender in the Cash Collateral will be protected by the adequate protection set forth above. The Prepetition Lender has consented to the use of the Cash Collateral on the terms set forth herein and in the Interim DIP Order. Accordingly, this Court should approve the Debtors request to use Cash Collateral in the operation of its business and administration of its chapter 11 case. The Proposed Adequate Protection Should Be Authorized 35. Section 363(e) of the Bankruptcy Code provides that, on request of an
entity that has an interest in property used . . . or proposed to be used by a debtor in possession, the court . . . shall prohibit or condition such use . . . as is necessary to provide adequate protection of such interest. Section 361 of the Bankruptcy Code delineates the permissible forms of adequate protection, which include periodic cash payments, additional liens, replacement liens and other forms of relief. What constitutes adequate protection must be decided on a case-by-case basis. See In re OConnor, 808 F.2d 1393, 1396 (10th Cir. 1987); In re Martin, 761 F.2d 472 (8th Cir. 1985). The focus of the requirement is to protect a secured creditor from diminution in the value of its interest in the particular collateral during the period of use. See In re Ledgemere Land Corp., 116 B.R. 338, 343 (Bankr. D. Mass. 1990); Delbridge v. Production Credit Assoc. and Federal Land Bank, 104 B.R. 824 (E.D. Mich. 1989); In re Kain, 86 B.R. 506, 513 (Bankr. W.D. Mich. 1988). 36. The Prepetition Lender has agreed to the Debtors use of Cash Collateral
and the Debtors entry into the DIP Credit Agreement in consideration for the adequate protection provided under the Interim DIP Order. Moreover, the replacement liens, the payment of reasonable fees and expenses of the Prepetition Lenders professionals, and other protections offered to the Prepetition Lender will sufficiently protect its interest in any collateral taken as security under the DIP Facility. Accordingly, the adequate protection proposed here is fair and 22
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reasonable and sufficient to satisfy the requirements of Bankruptcy Code sections 363(c)(2) and (e). The Automatic Stay Should Be Modified on a Limited Basis 37. The relief requested herein contemplates a modification of the automatic
stay (to the extent applicable) to permit the Debtor to (i) grant the security interests, liens, and superpriority claims described above with respect to the Prepetition Lender and to perform such acts as may be requested to assure the perfection and priority of such security interests and liens, (ii) permit the DIP Lender to exercise, upon the occurrence and during the continuance of an Event of Default and after seven days notice thereof, all rights and remedies under the DIP Credit Agreement, and (iii) implement the terms of the proposed DIP Orders. 38. Stay modifications of this kind are ordinary and standard features of
postpetition debtor financing facilities and, in the Debtors business judgment, are reasonable and fair under the present circumstances. Notice 39. No trustee or examiner has been appointed in this chapter 11 case. Notice
of this Motion has been provided to the following: (a) the United States Trustee for Region 2; (b) those creditors holding the thirty largest unsecured claims against the Debtors estate; (c) Wells Fargo Bank, National Association, as the Debtors prepetition and postpetition lender; (d) the attorneys for Wells Fargo Bank, National Association; (e) Jericho Acquisitions I LLC; (f) the attorneys for Jericho Acquisition I LLC; (g) Gordon Brothers Retail Partners, LLC, and Hilco Merchant Resources, LLC; (h) the attorneys for Gordon Brothers Retail Partners, LLC, and Hilco Merchant Resources, LLC; (i) the attorneys general for the States of New York and New Jersey and the Commonwealth of Pennsylvania; and (j) all scheduled secured parties
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(collectively, the Notice Parties). The Debtor submits that no other or further notice need be provided. 40. No previous request for the relief sought herein has been made by the
Debtor to this or any other court. WHEREFORE the Debtor respectfully requests entry of an order, substantially similar to the proposed form of order attached hereto as Exhibit A, granting the relief requested herein and such other and further relief as the Court may deem just and appropriate. Dated: August 1, 2012 New York, New York /s/ Debra A. Dandeneau Debra A. Dandeneau WEIL, GOTSHAL & MANGES LLP 767 Fifth Avenue New York, New York 10153 Telephone: (212) 310-8000 Facsimile: (212) 310-8007 Proposed Attorneys for Debtor and Debtor in Possession
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EXHIBIT A Interim DIP Order
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UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ----------------------------------------------------------: In re: : : DAFFYS, INC., : : Debtor : ----------------------------------------------------------:
Chapter 11 Case No. ________
INTERIM ORDER (1) AUTHORIZING POSTPETITION FINANCING, (2) GRANTING LIENS AND PROVIDING SUPER PRIORITY ADMINISTRATIVE EXPENSE PRIORITY, (3) AUTHORIZING USE OF CASH COLLATERAL AND PROVIDING FOR ADEQUATE PROTECTION, (4) MODIFYING THE AUTOMATIC STAY AND (5) SCHEDULING A FINAL HEARING, PURSUANT TO SECTIONS 105, 361, 362, 363 AND 364 OF THE BANKRUPTCY CODE AND BANKRUPTCY RULES 2002, 4001 AND 9014 Upon the motion (the Motion), 1 dated August 1, 2012 [Docket No. __], of Daffys, Inc., as debtor and debtor-in-possession (the Debtor), pursuant to sections 105, 361, 362, and 364 of title 11 of the United States Code (the Bankruptcy Code) and in accordance with Rule 4001 of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules) and Rule 4001-2 of the Local Bankruptcy Rules for the Southern District of New York (the Local Rules), in the above captioned chapter 11 case (collectively, the Chapter 11 Case), for entry of an interim order (this Interim Order), granting the following relief on an interim basis: (I) Interim DIP Financing (A) Authorizing the Debtor to obtain 10,000,000.00 in postpetition financing, pursuant to that certain Senior Secured, Super-Priority Debtor-inPossession Loan and Security Agreement (as may be amended, modified, or supplemented, the DIP Credit Agreement), substantially in the form attached here to as Exhibit 1, by and among the Debtor, as borrower; Vim-3, L.L.C. (Vim-3), Vimwilco, L.P. (Vimwilco), and Marcia Wilson, as successor to Vim Associates (Vim), collectively, as guarantors (the Guarantors); and Wells Fargo Bank, National
Capitalized terms used in this Interim Order but not defined herein shall have the meanings ascribed to such terms in the DIP Financing Agreements (as defined below).
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Association, as lender and as secured party (the DIP Lender), which may be used for the following: (i) (ii) Funding the Debtors day-to-day operations and working capital needs; Roll-up of all outstanding prepetition amounts under the Prepetition Revolving Credit Loan Agreement (collectively, the Revolver Roll-Up Amount); Roll-up of all outstanding prepetition amounts under the Swap Agreement (collectively, the Swap Roll-Up Amount and together with the Revolver Roll-Up Amount, the Roll-Up Amount); and Conversion of all existing Letters of Credit under the Daffys Prepetition Revolving Credit Loan Agreement (as defined below) (Existing Letters of Credit) into postpetition obligations under DIP Financing Agreements (as defined below).
(iii)
(iv)
(B)
Approval of the DIP Credit Agreement and all other agreements, documents, notes, certificates, and instruments executed and/or delivered with, to, or in favor of the DIP Lender, including, without limitation, security agreements, pledge agreements, notes, guaranties, mortgages, and Uniform Commercial Code (UCC) financing statements, and all other related agreements, documents, notes, certificates, and instruments executed and/or delivered in connection therewith or related thereto (collectively, as may be amended, modified, or supplemented and in effect from time to time, the DIP Financing Agreements); Granting the DIP Lender the following Liens (as defined in section 101(37) of the Bankruptcy Code) and claims: (i) A first priority priming, valid, perfected, and enforceable Liens (as defined below), subject only to the Carve Out (as defined below) and the Permitted Prior Liens (as defined below), upon substantially all of the Debtors real and personal property as provided in and as contemplated by this Interim Order and the DIP Financing Agreements; A superpriority administrative claim status in respect of all obligations under the DIP Financing Agreements (collectively, the DIP Obligations), subject to the Carve Out as provided herein;
(C)
(ii)
(II)
Interim Use of Cash Collateral (A) Authorizing the Debtor the use of cash collateral, as such term is defined in section 363 of the Bankruptcy Code (Cash Collateral), in 2
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which the Prepetition Term Lender (as defined below) has an interest; (B) Granting the Prepetition Term Lender (as defined below) certain adequate protection, including, among other things, Prepetition Term Replacement Liens and Prepetition Term Superpriority Claims (each as defined below) and certain other adequate protection as described in this Interim Order, to the extent of any diminution in the value of the Prepetition Term Lenders interest in the Prepetition Collateral having the priority set forth in this Interim Order, as adequate protection for the granting of the DIP Liens to the DIP Lender, the use of Cash Collateral, and for the imposition of the automatic stay;
(III)
Modifying the Automatic Stay 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 Financing Agreements and this Interim Order; Final Hearing Scheduling a final hearing (the Final Hearing) to consider entry of an order (the Final Order) granting the relief requested in the DIP Motion on a final basis and approve the form of notice with respect to the Final Hearing;
(IV)
and upon consideration of the Declaration of Richard F. Kramer in Support of the Companys Chapter 11 Petition and Requests for First Day Relief, dated August 1, 2012 (the Kramer Declaration), and the Court having reviewed the Motion and held a hearing with respect to the Motion on August 2, 2012 (the Interim Hearing); upon the Motion, the Kramer Affidavit, and the record of the Interim Hearing and after due deliberation and all objections, if any, to the entry of this Interim Order having been withdrawn, resolved, or overruled by this Court; and after due deliberation and consideration, and for good and sufficient cause appearing therefor: THE COURT HEREBY MAKES THE FOLLOWING FINDINGS OF FACT AND CONCLUSIONS OF LAW: I. Procedural Findings of Fact A. Petition Date. On August 1, 2012 (the Petition Date), the Debtor filed
a voluntary petition for relief under chapter 11 of the Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York (the Court). The Debtor has
3
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continued in the management and operation of its business and property as debtor-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy Code. No trustee or examiner has been appointed in the Chapter 11 Case. B. Jurisdiction and Venue. This Court has jurisdiction over these
proceedings, pursuant to 28 U.S.C. 157(b) and 1334, and over the persons and property affected hereby. Consideration of the Motion constitutes a core proceeding under 28 U.S.C. 157(b)(2). Venue for the Chapter 11 Case and proceedings on the Motion is proper in this district pursuant to 28 U.S.C. 1408 and 1409. C. Committee Formation. No official committee (a Committee) of
unsecured creditors, equity interest holders, or other parties in interests has been appointed in the Chapter 11 Case. D. Notice. The Interim Hearing is being held pursuant to the authorization of
Bankruptcy Rule 2002, 4001(b), (c), and (d) and Rule 9014, and the Local Rules. Notice of the Interim Hearing and the emergency relief requested in the Motion has been provided by the Debtor, to certain parties in interest, including: (i) the United States Trustee for Region 2; (ii) those creditors holding the thirty largest unsecured claims against the Debtors estate; (iii) Wells Fargo Bank, National Association, as the Debtors Prepetition Lender and DIP Lender (each as defined below); (iv) the attorneys for Wells Fargo Bank, National Association; (v) Jericho Acquisitions I LLC; (vi) the attorneys for Jericho Acquisition I LLC; (vii) Gordon Brothers Retail Partners, LLC, and Hilco Merchant Resources, LLC; (viii) the attorneys for Gordon Brothers Retail Partners, LLC, and Hilco Merchant Resources, LLC; and (xi) all secured creditors of record. Under the circumstances, such notice of the Interim Hearing and the relief
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requested in the Motion is due, proper, and sufficient notice and complies with Bankruptcy Rules 2002 and 4001 and the Local Rule 4001-2. II. Debtors Acknowledgements and Agreements E. Without prejudice to the rights of parties in interest as set forth in
Paragraphs 23-25 below, the Debtor admits, stipulates, acknowledges, and agrees that (collectively, Paragraphs E (1) through E (6) hereof shall be referred to herein as the Debtors Stipulations): (1) Prepetition Revolver Agreements. Prior to the commencement of the Chapter 11 Case, the Debtor and the Guarantors were parties to the following agreements: (a) that certain Loan and Security Agreement, dated January 30, 2009 (as amended and in effect, the Daffys Revolving Credit Loan Agreement) with Wells Fargo Bank, National Association, as lender and as secured party (the Prepetition Revolver Lender), that certain Revolving Credit Note, dated January 30, 2009 made by the Debtor payable to the Prepetition Revolver Lender in the original maximum principal amount of $17,500,000.00, the Unconditional Guaranties from the Guarantors, dated January 30, 2009, those certain Mortgages, dated January 30, 2009 granted by the Guarantors in favor of the Prepetition Revolver Lender, and all other agreements, documents, notes, certificates, and instruments executed and/or delivered with, to, or in favor of Prepetition Revolver Lender, including, without limitation, security agreements, guaranties, and UCC financing statements and all other related agreements, documents, notes, certificates, and instruments executed and/or delivered in connection therewith or related thereto
(b)
(c) (d) (e)
(collectively, as amended, modified or supplemented and in effect, collectively, the Prepetition Revolver Financing Agreements).
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(2)
Prepetition Term Agreements. Prior to the commencement of the Case, the Debtor and the Guarantors were parties to the following agreements: (a) that certain Loan and Security Agreement, dated January 30, 2009 (as amended and in effect, the Daffys Term Loan Credit Agreement) with Wells Fargo Bank, National Association, as lender and as secured party (the Prepetition Term Lender and together with the Prepetition Revolver Lender, collectively, the Prepetition Lender), that certain Term Note, dated January 30, 2009 made by the Debtor payable to the Prepetition Term Lender in the original principal amount of $13,000,000.00, that certain Amended and Restated Loan and Security Agreement, dated January 30, 2009 (as amended and in effect, the Vim3/Vimwilco Term Credit Agreement and together with the Daffys Term Credit Agreement, collectively, the Prepetition Term Credit Agreements) with the Prepetition Term Lender, that certain Amended and Restated North Bergen Mortgage Note, dated January 30, 2009 made by Vim-3 payable to the Prepetition Term Lender in the original principal amount of $2,760,000.00, that certain Term Note, dated January 30, 2009 made jointly and severally by Vim-3 and Vimwilco payable to the Prepetition Term Lender in the original principal amount of $8,500,000.00, the Unconditional Guaranties from the Debtor and the Guarantors, dated January 30, 2009, those certain Mortgages, dated January 30, 2009 granted by the Guarantors in favor of the Prepetition Term Lender, and all other agreements, documents, notes, certificates, and instruments executed and/or delivered with, to, or in favor of Prepetition Term Lender, including, without limitation, security agreements, guaranties, and UCC financing statements and all other related agreements, documents, notes, certificates, and instruments executed and/or delivered in connection therewith or related thereto
(b)
(c)
(d)
(e)
(f) (g) (h)
(collectively, as amended, modified or supplemented and in effect, collectively, the Prepetition Term Financing Agreements). (3) Prepetition Swap Agreements: Prior to the commencement of the Case, the Debtor was party to certain an interest rate swap agreement, with Wells Fargo, National Association, as successor to Wachovia, N.A. 6
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(together will all other related agreements, documents, notes, certificates, and instruments, the Swap Agreement and together with the Prepetition Revolver Financing Agreements and Prepetition Financing Term Agreements, collectively, the Prepetition Financing Agreements). (4) Prepetition Debt Amounts. As of the Petition Date, the Debtor was indebted to the Prepetition Lender for the following amounts: (a) under the Prepetition Revolver Financing Agreements, on account of extensions of credit in the approximate principal amount of $4,666,227.37, plus letters of credit in the approximate stated amount of not less than $1,915,643.97, plus interest accrued and accruing (at the rates (including, to the extent allowed, the default rate) set forth in the Prepetition Revolver Financing Agreements), costs, expenses, fees (including attorneys fees and legal expenses) other charges and other obligations, including, without limitation, on account of cash management, credit card, depository, investment, hedging and other banking or financial services, and other obligations, including, without limitation, on account of cash management, credit card, depository, investment, hedging and other banking or financial services secured by the Prepetition Revolver Financing Agreements (collectively the Prepetition Revolver Debt), and under the Prepetition Term Financing Agreements on account of the Daffys Term Loan Credit Agreement in the approximate principal amount of $10,180,629.88; the Swap Agreement in the approximate amount of $610,112.00; and the Unconditional Guaranty of the Vim-3/Vimwilco Term Credit Agreement in the approximate principal amount of $8,402,999.64, plus interest accrued and accruing (at the rates (including, to the extent allowed, the default rate) set forth in the Prepetition Term Financing Agreements), costs, expenses, fees (including attorneys fees and legal expenses) other charges and other obligations, if any, secured by the Prepetition Term Financing Agreements (collectively the Prepetition Term Debt and together with the Prepetition Revolver Debt, the Prepetition Debt).
(b)
(5)
Prepetition Collateral. To secure the Prepetition Debt, the Debtor granted security interests and Liens (collectively, the Prepetition Liens) to the Prepetition Lender upon substantially all of its personal property, including items defined as Collateral in the Prepetition Term Credit Agreements (collectively, the Prepetition Collateral). 2 The Liens of the
The acknowledgment and agreement by the Debtors of the Prepetition Debt and the related liens, rights priorities and protections granted to or in favor of the Prepetition Lender, as set forth herein and in the Prepetition Financing
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Prepetition Lender have priority over all other Liens except any Liens which are valid, properly perfected, unavoidable, and senior to the Prepetition Liens or set forth in Section 9.8 of the DIP Credit Agreement (collectively, the Permitted Prior Liens). (6) Prepetition Liens. (a) As of the Petition Date, the Debtor believes the following: (i) the Prepetition Liens are valid, binding, enforceable, and perfected first-priority Liens, subject only to any Permitted Prior Liens, and are not subject to avoidance, recharacterization, or subordination pursuant to the Bankruptcy Code or applicable non-bankruptcy law, the Prepetition Debt constitutes legal, valid, and binding obligations of the Debtor, enforceable in accordance with the terms of the Prepetition Financing Agreements (other than in respect of the stay of enforcement arising from section 362 of the Bankruptcy Code), no offsets, defenses, or counterclaims to any of the Prepetition Debt exists, no portion of the Prepetition Debt is subject to avoidance, recharacterization, or subordination pursuant to the Bankruptcy Code or applicable non-bankruptcy law, and the Prepetition Debt constitutes allowable secured claims, and
(ii)
(iii) (iv)
(v) (b)
On the date that this Interim Order is entered, the Debtor has waived, discharged, and released the Prepetition Lender, together with their affiliates, agents, attorneys, officers, directors, and employees, of any right the Debtor may have (i) (ii) (iii) to challenge or object to any of the Prepetition Debt, to challenge or object to the security for the Prepetition Debt, and to bring or pursue any and all claims, objections, challenges, causes of action, and/or choses in action arising
Agreements, shall constitute a proof of claim on behalf of the Prepetition Lender in this Case in respect of the Prepetition Debt.
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out of, based upon, or related to the Prepetition Financing Agreements or otherwise. (c) The Debtor does not possess and will not assert any claim, counterclaim, setoff, or defense of any kind, nature, or description which would in any way affect the validity, enforceability, and non-avoidability of any of the Prepetition Financing Agreements or the Prepetition Liens, or any claim of the Prepetition Lender pursuant to the Prepetition Financing Agreements or otherwise.
(7)
Cash Collateral. The Prepetition Lender has a security interest in and Lien on certain Cash Collateral, including all amounts on deposit in the Debtors banking, checking, or other deposit accounts and all proceeds of the Prepetition Collateral, to secure the Prepetition Debt and, respectively, to the same extent and order of priority as that which was held by such party prepetition. Priming of DIP Facility. In entering into the DIP Financing Agreements, and as consideration therefor, the Debtor hereby agrees that until such time as all DIP Obligations have been irrevocably paid in full in cash (or other arrangements for payment of the DIP Obligations satisfactory to the DIP Lender in its sole and exclusive discretion have been made) and the DIP Financing Agreements have been terminated in accordance with the terms thereof, the Debtor shall not in any way prime or seek to prime the security interests and DIP Liens provided to the DIP Lender under this Interim Order by offering a subsequent lender or a party-in-interest a superior or pari passu Lien or claim pursuant to section 364(d) of the Bankruptcy Code or otherwise.
(8)
III.
Findings Regarding the Postpetition Financing. F. Need for Post-Petition Financing. An immediate need exists for the
Debtor to obtain funds from the DIP Facility in order to continue operations and to administer and preserve the value of its estate. The ability of the Debtor to finance its operations, to preserve and maintain the value of the Debtors assets, and to maximize a return for all creditors requires the availability of working capital from the DIP Facility, the absence of which would immediately and irreparably harm the Debtor, its estate, its creditors, its equity holders, and the possibility for a successful reorganization or sale of the Debtors assets.
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G.
No Credit Available on More Favorable Terms. The Debtor has been
unable to obtain any of the following: (1) (2) unsecured credit allowable under section 503(b)(1) of the Bankruptcy Code as an administrative expense, credit for money borrowed with priority over any or all administrative expenses of the kind specified in sections 503(b) or 507(b) of the Bankruptcy Code, credit for money borrowed secured solely by a Lien on property of the estate that is not otherwise subject to a Lien, or credit for money borrowed secured by a junior Lien on property of the estate which is subject to a Lien, in each case, on more favorable terms and conditions than those provided in the DIP Credit Agreement and this Interim Order.
(3) (4)
The Debtor is unable to obtain credit for borrowed money without granting to the DIP Lender the DIP Protections (as defined below). H. Prior Liens. Nothing herein shall constitute a finding or ruling by this
Court that any Permitted Prior Liens or Prepetition Liens are valid, senior, perfected, or unavoidable. Moreover, nothing shall prejudice the following: (1) the rights of any party-in-interest, including, but not limited to, the Debtor, the DIP Lender, and any Committee appointed pursuant to section 1102 of the Bankruptcy Code, to challenge the validity, priority, perfection, and extent of any such Permitted Prior Liens, or the rights of any Committee appointed pursuant to section 1102 of the Bankruptcy Code to challenge the validity, priority, perfection, and extent of the Prepetition Liens as set forth in this Order. Adequate Protection for Prepetition Lender. As a result of the grant of
(2)
I.
the DIP Liens, subordination to the Carve Out, the use of Cash Collateral authorized herein, and the imposition of the automatic stay, the Prepetition Lender are entitled to receive adequate protection pursuant to sections 361, 362, 363, and 364 of the Bankruptcy Code for any decrease in the value of their respective interests in the Prepetition Collateral (including Cash Collateral) 10
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resulting from the automatic stay or the Debtors use, sale, or lease of the Prepetition Collateral (including Cash Collateral) during this Chapter 11 Case. As adequate protection, the Prepetition Lender will receive the Adequate Protection (as defined below) described in Paragraph 4 of this Interim Order. In light of such Adequate Protection, the Prepetition Lender has consented to (1) the Debtors use of Cash Collateral, on the terms setforth in this Interim Order, (2) such Adequate Protection adequately protects the Prepetition Lender, and (3) no further adequate protection is necessary. J. Prepetition Lenders Consent to Priming. The Prepetition Lender has
consented to the priming of the Prepetition Liens by the DIP Liens. K. Adequacy of the Budget. The Budget (as defined below), attached hereto
as Exhibit 2, is adequate, considering all the available assets, to pay the administrative expenses due and accruing during the period covered by this Interim Order. L. Section 552 of the Bankruptcy Code. In light of their agreement to
subordinate their Liens and superpriority claims (1) to the Carve Out, in the case of the DIP Lender, and (2) to the Carve Out and the DIP Liens, in the case of the Prepetition Lender, the DIP Lender and the Prepetition Lender are each entitled to all rights and benefits of section 552(b) of the Bankruptcy Code and the equities of the case exception shall not apply. M. Conditions Precedent to DIP Lenders Extension of Financing. The
DIP Lender has indicated a willingness to provide financing to the Debtor in accordance with the DIP Credit Agreement and the other DIP Financing Agreements and subject to the following: (1) (2) the entry of this Interim Order and the Final Order, and findings by this Court that such financing is essential to the Debtors estate, that the DIP Lender is a good faith financier, and that the DIP Lenders claims, superpriority claims, security interests, and Liens and other protections granted pursuant to this Interim Order (and the Final Order) and the DIP Facility will not be affected by any subsequent 11
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reversal, modification, vacation, or amendment of this Interim Order or the Final Order or any other order, as provided in section 364(e) of the Bankruptcy Code. N. Business Judgment and Good Faith Pursuant to Section 364(e) of the
Bankruptcy Code. The terms and conditions of the DIP Facility, the DIP Credit Agreement, and the other DIP Financing Agreements, and the fees paid and to be paid thereunder (i) are fair, reasonable, and the best available under the circumstances, (ii) reflect the Debtors exercise of prudent business judgment consistent with its fiduciary duties, and (iii) are supported by reasonably equivalent value and consideration. The DIP Facility was negotiated in good faith and at arms length between the Debtor and the DIP Lender, and use of the proceeds to be extended under the DIP Facility will be so extended in good faith, and for valid business purposes and uses, as a consequence of which the DIP Lender is entitled to the protection and benefits of section 364(e) of the Bankruptcy Code. O. Relief Essential; Best Interest. The relief requested in the Motion (and
as provided in this Interim Order) is necessary, essential, and appropriate for the continued operation of the Debtors business and the management and preservation of the Debtors assets and personal property. It is in the best interest of Debtors estate that the Debtor be allowed to establish the DIP Facility contemplated by the DIP Credit Agreement and the other DIP Financing Agreements. The Debtor has demonstrated good and sufficient cause for the relief granted herein.
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NOW, THEREFORE, IT IS HEREBY ORDERED AS FOLLOWS: 1. The DIP Motion is granted in accordance with the terms and conditions set
forth in this Interim Order, the DIP Credit Agreement, and the other DIP Financing Agreements. I. DIP FINANCING. A. Approval of Entry into the DIP Financing Agreements. 2. The Debtor is expressly and immediately authorized, empowered, and
directed to execute and deliver the DIP Financing Agreements and to incur and to perform the DIP Obligations in accordance with, and subject to, the terms of this Interim Order and the DIP Financing Agreements, and to execute and deliver all instruments, certificates, agreements, and documents which may be required or necessary for the performance by the Debtor under the DIP Facility and the creation and perfection of the DIP Liens described in and provided for by this Interim Order and the DIP Financing Agreements. The Debtor is hereby authorized and directed to do and perform all acts, pay the principal, interest, fees, expenses, and other amounts described in the DIP Credit Agreement and all other DIP Financing Agreements as such become due, including, without limitation, the Deferred Closing Fee, administrative fees, commitment fees, letter of credit fees, and reasonable attorneys, financial advisors and accountants fees and disbursements as provided for in the DIP Credit Agreement which amounts shall not otherwise be subject to approval of this Court. Upon execution and delivery, the DIP Financing Agreements shall represent valid and binding obligations of the Debtor enforceable against the Debtor in accordance with their terms. B. Authorization to Borrow. 3. In order to enable them to continue to operate their business, during the
Interim Period and subject to the terms and conditions of this Interim Order, the DIP Credit Agreement, the other DIP Financing Agreements, and the Budget (subject to any variances 13
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thereto permitted under the terms and conditions of the DIP Credit Agreement), the Debtor is hereby authorized under the DIP Facility to borrow up to a total committed amount of $10,000,000.00 (including the issuance of Letters of Credit) in accordance with the terms and conditions of the DIP Credit Agreement. C. Application of DIP Proceeds. 4. The proceeds of the DIP Facility (net of any amounts used to pay fees,
costs, and expenses under the DIP Credit Agreement) shall be used, in each case in a manner consistent with the terms and conditions of the DIP Financing Agreements, and in accordance with and as may be limited by the Budget (as defined below) (subject to any variances thereto permitted under the terms and conditions of the DIP Credit Agreement), solely as follows: (a) to pay costs, expenses and fees in connection with the preparation, negotiation, execution and delivery of this Agreement and the other Financing Agreements; for general operating and working capital purposes, for the payment of transaction expenses, for the payment of fees, expenses and costs incurred in connection with the Chapter 11 Case, and other proper corporate purposes of Borrower not otherwise prohibited by the terms hereof for working capital, capital expenditures, and other lawful corporate purposes of the Debtor; to refinance the Roll-Up Amounts; and conversion of all Existing Letters of Credit into postpetition New Letters of Credit. Promptly following the entry of this Interim Order, if requested by the
(b)
(c) (d) 5.
Debtor, the Prepetition Revolver Lender shall provide the Debtor and the DIP Lender with a payoff letter, which sets forth the outstanding Prepetition Revolver Debt as of the date of such payoff letter (and which may be updated by the Prepetition Revolver Lender at any time prior to the initiation of the funding of the payoff amount as provided such payoff letter). At such time as the conditions precedent to the DIP Credit Agreement have been satisfied and the Debtor and 14
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the Prepetition Revolver Lender has reached agreement concerning the amounts set forth in the payoff letter, the Debtor shall utilize the proceeds of the first borrowing under the DIP Credit Agreement to retire the Debtors obligations to the Prepetition Revolver Lender (except for certain letters of credit as set forth in Paragraph 4(d) hereof). D. Conditions Precedent. 6. The DIP Lender shall have no obligation to make any loan or advance
under the DIP Credit Agreement during the Interim Period unless the conditions precedent to make such loan under the DIP Credit Agreement have been satisfied in full or waived, as determined by the DIP Lender in its reasonable discretion, in accordance with the DIP Credit Agreement. E. The DIP Liens. 7. Effective immediately upon the entry of this Interim Order, the DIP
Lender is hereby granted pursuant to sections 361, 362, 364(c)(2), 364(c)(3), and 364(d) of the Bankruptcy Code, priming first priority, continuing, valid, binding, enforceable, non-avoidable, and automatically perfected postpetition security interests and Liens (collectively, the DIP Liens) senior and superior in priority to all other secured and unsecured creditors of the Debtors estates except as otherwise provided in this Interim Order, upon and to all Collateral (as defined in the Credit Agreement) (the DIP Collateral). F. DIP Lien Priority. 8. herein, are as follows: (a) (b) created pursuant to sections 364(c)(2), 364(c)(3), and 364(d) of the Bankruptcy Code, first, valid, prior, perfected, unavoidable, and superior to any security, mortgage, or collateral interest or Lien or claim to the DIP Collateral, and 15
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The DIP Liens to be created and granted to the DIP Lender, as provided
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(c)
subject only to (i) the Carve Out, and (ii) the Permitted Prior Liens.
The DIP Liens shall secure all DIP Obligations and the proceeds of the DIP Collateral shall be applied in the same order and priority set forth in the DIP Credit Agreement. The DIP Liens shall not be made subject to or pari passu with any Lien or security interest by any court order heretofore or hereafter entered in the Chapter 11 Case and shall be valid and enforceable against any trustee appointed in the Chapter 11 Case, upon the conversion of the Chapter 11 Case to a case under chapter 7 of the Bankruptcy Code, or in any other proceedings related to any of the foregoing (each a Successor Case), and/or upon the dismissal of the Chapter 11 Case. The DIP Liens shall not be subject to sections 510, 549, 550, or 551 of the Bankruptcy Code or the equities of the case exception of section 552 of the Bankruptcy Code, and, upon entry of the Final Order, shall not be subject to section 506(c) of the Bankruptcy Code. G. Enforceable Obligations. 9. The DIP Financing Agreements shall constitute and evidence the valid and
binding obligations of the Debtor, and shall be enforceable against the Debtor, its estate, and any successors thereto, and their creditors in accordance with their terms. H. Protection of the DIP Lender and Other Rights. 10. From and after the Petition Date, the Debtor shall use the proceeds of the
extensions of credit under the DIP Facility only for the purposes specifically set forth in the DIP Financing Agreements and this Interim Order and in compliance with the Budget (as defined below) (subject to any variances thereto permitted under the terms and conditions of the DIP Credit Agreement). I. Superpriority Administrative Claim Status. 11. Subject to the Carve Out, all DIP Obligations shall be an allowed
superpriority administrative expense claim (the DIP Superpriority Claim and, together with 16
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the DIP Liens, collectively, the DIP Protections) with priority in the Chapter 11 Case under sections 364(c)(1), 503(b), and 507(b) of the Bankruptcy Code and otherwise over all administrative expense claims and unsecured claims against the Debtor and its estate, now existing or hereafter arising, of any kind or nature whatsoever including, without limitation, administrative expenses of the kinds specified in, arising, or ordered pursuant to sections 105, 326, 328, 330, 331, 503(a), 503(b), 507(a), 507(b), 546(c), 546(d), 552(b), 726, 1113, and 1114 of the Bankruptcy Code, and, upon entry of the Final Order, section 506(c) of the Bankruptcy Code, whether or not such expenses or claims may become secured by a judgment Lien or other non-consensual Lien, levy, or attachment. 12. Other than the Carve Out, no costs or expenses of administration,
including, without limitation, professional fees allowed and payable under sections 328, 330, and 331 of the Bankruptcy Code, or otherwise, that have been or may be incurred in the Chapter 11 Case, or in any Successor Case, and no priority claims are, or will be, senior to, prior to, or on a parity with the DIP Protections or the DIP Obligations, or with any other claims of the DIP Lender arising hereunder. II. USE OF CASH COLLATERAL. A. Authorization to Use Cash Collateral. 13. Pursuant to the terms and conditions of this Interim Order, the DIP
Facility, the DIP Credit Agreement, and the other DIP Financing Agreements, and in accordance with and as may be limited by the budget (as the same may be modified, supplemented, or updated from time to time consistent with the terms of the DIP Credit Agreement, the Budget), the Debtor is authorized to use Cash Collateral and to use the advances under the DIP Facility during the period commencing immediately after the entry of the Interim Order and terminating upon notice being provided by the DIP Lender to the Debtor that (i) a DIP Order Event of 17
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Default (as defined below) has occurred and is continuing, and (ii) the termination of the DIP Credit Facility. 14. Nothing in this Interim Order shall authorize the disposition of any assets
of the Debtor or its estate outside the ordinary course of business or other proceeds resulting therefrom, except (x) with respect to the sale of assets as contemplated in the Store Closing Program Motion and the assumption and assignment of leases as contemplated in the Leasehold Sale Motion (as each of those terms is defined in the DIP Credit Agreement), and (y) as otherwise permitted in the DIP Facility under the DIP Credit Agreement and the other DIP Financing Agreements and in accordance with and as may be limited by the Budget (subject to any variances thereto permitted under the terms and conditions of the DIP Credit Agreement). B. Adequate Protection for Prepetition Lender. 15. As adequate protection for the interest of the Prepetition Lender in the
Prepetition Collateral (including Cash Collateral) on account of the granting of the DIP Liens, subordination to the Carve Out, the Debtors use of Cash Collateral, and other decline in value arising out of the automatic stay or the Debtors use, sale, depreciation, or disposition of the Prepetition Collateral, including the disposition of assets as contemplated in the Store Closing Program Motion and the Leasehold Sale Motion, the Prepetition Lender shall receive adequate protection as follows (collectively, Adequate Protection): (a) Prepetition Replacement Liens. Solely to the extent of the diminution in the value of the interest of the Prepetition Term Lender in the Prepetition Collateral, the Prepetition Term Lender shall have, subject to the terms and conditions set forth below, pursuant to sections 361, 363(e), and 364(d) of the Bankruptcy Code additional and replacement security interests and Liens in the DIP Collateral (the Prepetition Replacement Liens) which shall be junior only to the Carve Out, the DIP Liens securing the DIP Facility, and Permitted Prior Liens. Prepetition Superpriority Claim. Solely to the extent of the diminution in the value of the interests of the Prepetition Term Lender in the 18
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(b)
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Prepetition Collateral, the Prepetition Term Lender shall have an allowed superpriority administrative expense claim (the Prepetition Superpriority Claims) which shall have priority (except with respect to (i) the DIP Liens, (ii) the DIP Superpriority Claim, and (iii) the Carve Out), in the Chapter 11 Case under sections 364(c)(1), 503(b), and 507(b) of the Bankruptcy Code and otherwise over all administrative expense claims and unsecured claims against the Debtor and its estate, now existing or hereafter arising, of any kind or nature whatsoever including, without limitation, administrative expenses of the kinds specified in or ordered pursuant to sections 105, 326, 328, 330, 331, 503(a), 503(b), 507(a), 507(b), 546(c), 546(d), 552, 726, 1113, and 1114 of the Bankruptcy Code, and, upon entry of the Final Order, section 506(c) of the Bankruptcy Code, whether or not such expenses or claims may become secured by a judgment Lien or other non-consensual Lien, levy, or attachment. Other than the DIP Liens, the DIP Superpriority Claim, and the Carve Out, no costs or expenses of administration, including, without limitation, professional fees allowed and payable under sections 328, 330, and 331 of the Bankruptcy Code, or otherwise, that have been or may be incurred in the Chapter 11 Case, or in any Successor Case, will be senior to, prior to, or on parity with the Prepetition Superpriority Claim. (c) Adequate Protection Payments. The Prepetition Term Lender shall receive adequate protection in the form of the following: (i) (ii) the current payment of the reasonable documented out-of-pocket costs and expenses of their financial advisors and attorneys, and on the first day of each calendar month, commencing September 1, 2012, cash interest at the non-default rate as provided in the Prepetition Term Financing Agreements.
(d)
Adequate Protection Upon Approval of Store Closing Program. Upon the disposition of Prepetition Collateral or Post-Petition Collateral as contemplated by the Store Closing Program Motion, including, including without limitation, the assumption of the Agency Agreement and payment by the Agent (as defined in the Agency Agreement) of the Guaranteed Amount (as defined in the Agency Agreement), any such Prepetition Collateral and Post-Petition Collateral shall be sold free and clear of the Prepetition Liens, the Prepetition Replacement Liens, and the DIP Liens, provided, however, that such Prepetition Liens, Prepetition Replacement Liens, and DIP Liens shall attach to the proceeds of any such sale in the order and priority as set forth in this Interim Order. Adequate Protection Upon Closing of Leashold Sale. Upon the disposition of Prepetition Collateral as contemplated in the Leasehold Sale Motion, including, without limitation, the sale of the Herald Square Lease 19
(e)
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(as defined in the Leasehold Sale Motion) and closing of the Asset Purchase Agreements, any such Prepetition Collateral shall be sold free and clear of the Prepetition Liens, the Prepetition Replacement Liens, and the DIP Liens, provided, however, that such Prepetition Liens, Prepetition Replacement Liens, and DIP Liens shall attach to the proceeds of any such sale in the order and priority as set forth in this Interim Order. C. Section 507(b) Reservation for the DIP Lender to Seek Further Adequate Protection. 16. Nothing herein shall impair or modify the Prepetition Lenders rights
under section 507(b) of the Bankruptcy Code in the event that the adequate protection provided to the Prepetition Lender hereunder is insufficient to compensate for the diminution in value of the interest of the Prepetition Lender in the Prepetition Collateral during the Chapter 11 Case or any Successor Case; provided, however, that any section 507(b) claim granted in the Chapter 11 Case to the Prepetition Lender shall be junior in right of payment to all DIP Obligations and subject to the Carve Out. III. POSTPETITION LIEN PERFECTION. 17. This Interim Order shall be sufficient and conclusive evidence of the
validity, perfection, and priority of the DIP Liens and the Prepetition Replacement Liens without the necessity of filing or recording any financing statement, deed of trust, mortgage, security agreement, notice of Lien, or other instrument or document which may otherwise be required under the law of any jurisdiction or the taking of any other action (including, for the avoidance of doubt, entering into any deposit account control agreement or securities account control agreement) to validate or perfect the DIP Liens and the Prepetition Replacement Liens or to entitle the DIP Liens and the Prepetition Replacement Liens to the priorities granted herein. 18. Notwithstanding the foregoing, the DIP Lender may, in its discretion, file
such financing statements, deeds of trust, mortgages, security agreements, notices of Liens, and other similar instruments and documents, and is hereby granted relief from the automatic stay of 20
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section 362 of the Bankruptcy Code in order to do so, and all such financing statements, deeds of trust, mortgages, security agreements, notices of Liens, and other similar instruments and documents shall be deemed to have been filed or recorded at the time and on the date of the commencement of the Chapter 11 Case. 19. The Debtor shall execute and deliver to the DIP Lender all such financing
statements, deeds of trust, mortgages, security agreements, notices of Liens, and other similar instruments and documents as the DIP Lender may reasonably request to evidence, confirm, validate, or perfect, or to ensure the contemplated priority of, the DIP Liens granted pursuant hereto. 20. The DIP Lender, in its discretion, may file a photocopy of this Interim
Order as a financing statement with any recording office designated to file financing statements or with any registry of deeds or similar office in any jurisdiction in which the Debtor has real or personal property, and in such event, the subject filing or recording office shall be authorized to file or record such copy of this Interim Order. 21. The DIP Lender shall, in addition to the rights granted to it under the DIP
Financing Agreements, be deemed to be the successor-in-interest to the Prepetition Revolver Lender with respect to all third party notifications in connection with the Prepetition Revolver Financing Agreements, all Prepetition Collateral access agreements, and all other agreements with third parties (including any agreement with a customs broker, freight forwarder, or credit card processor) relating to, or waiving claims against, any Prepetition Collateral, including without limitation, each collateral access agreement duly executed and delivered by any landlord of the Debtor and including, for the avoidance of doubt, all deposit account control agreements, securities account control agreements, and credit card agreements.
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22.
The automatic stay imposed under section 362(a) of the Bankruptcy Code
is hereby modified pursuant to the terms of the DIP Financing Agreements as necessary to (a) permit the Debtor to grant the Prepetition Replacement Liens and the DIP Liens and to incur all liabilities and obligations to the DIP Lender under the DIP Financing Agreements, the DIP Facility, and this Interim Order, and authorize the DIP Lender and the Prepetition Lender to retain and apply payments hereunder as provided by the DIP Financing Agreements and this Interim Order.
(b)
IV.
RESERVATION OF CERTAIN THIRD PARTY RIGHTS AND BAR OF CHALLENGES AND CLAIMS. 23. Nothing in this Interim Order or the DIP Credit Agreement shall prejudice
whatever rights any Committee(s) or any other party-in-interest with requisite standing (other than the Debtor) may have to the following: (a) to object to or challenge the Debtors Stipulations, including (i) the validity, extent, perfection, or priority of the security interests and Liens of the Prepetition Lender in and to the Prepetition Collateral, or (ii) the validity, allowability, priority, status, or amount of the Prepetition Debt, or to bring suit against any of the Prepetition Lender in connection with or related to the Prepetition Debt, or the actions or inactions of any of the Prepetition Lender arising out of or related to the Prepetition Debt;
(b)
provided, however, that unless any official Committee(s) or any other party-in-interest with requisite standing commences a contested matter or adversary proceeding raising such objection or challenge, including, without limitation, any claim against the Prepetition Lender in the nature of a setoff, counterclaim, or defense to the Prepetition Debt (including but not limited to, those under sections 506, 544, 547, 548, 549, 550, and/or 552 of the Bankruptcy Code or by way of suit against the Prepetition Lender), by the later of (x) sixty (60) days following the appointment of the first official Committee, or (y) if no official Committee is appointed, seventy-five (75) days following entry of the Final Order (collectively, (x) and (y) shall be referred to as the
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Challenge Period and the date that is the next calendar day after the termination of the Challenge Period, in the event that no objection or challenge is raised during the Challenge Period, shall be referred to as the Challenge Period Termination Date). 24. Upon the Challenge Period Termination Date, any and all such challenges
and objections by any party (including, without limitation, any official Committee(s), any chapter 11 or chapter 7 trustee appointed herein or in any Successor Case, and any other partyin-interest) shall be deemed to be forever waived and barred, and the Prepetition Debt shall be deemed to be allowed in full and shall be deemed to be allowed as a fully secured claim within the meaning of section 506 of the Bankruptcy Code for all purposes in connection with the Chapter 11 Case and the Debtors Stipulations shall be binding on all creditors, interest holders, and parties-in-interest. 25. To the extent any such objection or complaint is filed, the Prepetition
Lender shall be entitled to include the costs and expenses, including but not limited to reasonable attorneys fees and disbursements, incurred in defending the objection or complaint as part of the Prepetition Debt to the extent permitted pursuant to the relevant Prepetition Financing Agreement. V. CARVE OUT AND PAYMENT OF PROFESSIONALS. 26. Subject to the terms and conditions contained in this Paragraph 8, the DIP
Liens, DIP Superpriority Claim, the Prepetition Liens, the Prepetition Replacement Liens, and the Prepetition Superpriority Claims are subordinate only to the following (collectively, the Carve Out): (a) allowed administrative expenses pursuant to 28 U.S.C. Section 1930(a)(6) for fees required to be paid to the Clerk of the Court and to the Office of the United States Trustee (collectively, the U.S. Trustee Fees); and
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(b)
professional fees of, and costs and expenses incurred by, professionals or professional firms retained by the Debtor and of any Committee(s) always as provided in and as may be limited by the Budget and allowed by the Court (whether prior to or after delivery of the Carve Out Trigger Notice 3 (defined below)) (collectively, the Case Professionals) (i) (ii) to the extent incurred by the Case Professionals prior to the delivery of the Carve Out Trigger Notice, and to the extent incurred by the Case Professionals after the delivery of the Carve Out Trigger Notice in an aggregate amount not to exceed the sum of $250,000.00 (the Post Notice Carve Out Cap) (exclusive of Reported Fee Accruals 4 but inclusive of a sublimit for chapter 7 wind down expenses of $25,000.00), plus (x) Reported Fee Accruals, (y) any additional fees, costs, and expenses accrued or incurred by a Case Professional from the last day included in the prior Reported Fee Accrual report of such Case Professional through the date on which the Carve Out Trigger Notice shall have been delivered, less, in each case, any amounts actually paid on account thereof, and (z) $100,000.00, less, in each case, any amounts actually paid on account thereof and in each case in accordance with and as may be limited by the Budget; provided, however, the Post Notice Carve Out Cap shall not apply to U.S. Trustee Fees.
27.
Notwithstanding anything to the contrary contained herein, so long as a
Carve Out Trigger Notice shall not have been delivered, the Debtor shall be permitted to pay compensation and reimbursement of expenses allowed and payable under 11 U.S.C. 330 and 331, as the same may be due and payable and allowed by the Court, but always as provided in and as may be limited by the Budget and the same shall not reduce the Carve Out described in Paragraph 26(b) above.
3
As used herein, Carve Out Trigger Notice means written notice from the DIP Lender to the Debtor, its counsel, and lead counsel to any Committee following the occurrence and during the continuance of an DIP Order Event of Default stating that the Post Notice Carve Out Cap has been implemented.
As used herein, Reported Fee Accruals shall mean fees, costs, and expenses incurred or accrued by the Case Professionals in accordance with and as may be limited by the Budget through and including the date of the DIP Lenders delivery of a Carve Out Trigger Notice, which amounts shall be reported in arrears by the Debtor and any Committee(s) in accordance with interim fee application procedures approved by the Court, less any amounts actually paid on account thereof.
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28.
The Carve Out shall be funded through an advance under the DIP Facility
and paid by the DIP Lender into a segregated account for distribution in accordance with orders of the Court reasonably contemporaneously with the delivery of the Carve Out Trigger Notice. For the avoidance of doubt, the Carve Out shall be senior to the DIP Liens, the DIP Superpriority Claim, the Prepetition Replacement Liens, and the Prepetition Superpriority Claims, and any and all other forms of adequate protection, Liens, or claims securing the DIP Obligations and/or the Prepetition Debt granted or recognized as valid. Any unused portion of the Carve Out shall at all times remain Cash Collateral as provided herein. 29. Nothing herein, including the inclusion of line items in the Budget for
Case Professionals, shall be construed as consent to the allowance of any professional fees or expenses of the Debtor, of any Committee, or of any person or shall affect the right of the DIP Lender or the Prepetition Lender to object to the allowance and payment of such fees and expenses or to permit the Debtor to pay any such amounts not set forth in the Budget. VI. COMMITMENT TERMINATION DATE, DIP EVENT OF DEFAULT, A. Commitment Termination Date 30. All DIP Obligations shall be immediately due and payable and all
AND REMEDIES
authority to use the proceeds of the DIP Facility and to use Cash Collateral shall cease on the date that is the earliest to occur of any of the following (the Commitment Termination Date): (a) (b) December 31, 2012; the date on which the maturity of the DIP Obligations is accelerated and the commitments under the DIP Facility (the DIP Commitments) are irrevocably terminated as a result of the occurrence of an Event of Default (as defined in the DIP Credit Agreement) in accordance with the DIP Credit Agreement; the failure of the Debtor to obtain the Final Order on or before the date which is forty-five (45) days after the date this Interim Order is entered; or
(c)
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(d) B.
the effective date of a chapter 11 plan.
DIP Events of Default. 31. The occurrence of the Commitment Termination Date shall constitute a
DIP Order Event of Default. 32. Unless and until the DIP Obligations have been irrevocably repaid in full
in cash (or other arrangements for payment of the DIP Obligations satisfactory to the DIP Lender in its sole and exclusive discretion have been made) and all DIP Commitments have been irrevocably terminated, the protections afforded to Prepetition Lender and the DIP Lender pursuant to this Interim Order and under the DIP Financing Agreements, and any actions taken pursuant thereto, shall survive the entry of any order confirming a Plan or converting the Chapter 11 Case into a Successor Case, and the DIP Liens, the DIP Superpriority Claim, the Prepetition Replacement Liens, and the Prepetition Superpriority Claims shall continue in the Chapter 11 Case and in any Successor Case, and such DIP Liens, DIP Superpriority Claim, Prepetition Replacement Liens, and Prepetition Superpriority Claims shall maintain their respective priorities as provided by this Interim Order. C. Rights and Remedies Upon DIP Order Event of Default. 33. Any automatic stay otherwise applicable to the DIP Lender is hereby
modified so that (i) after the occurrence of any DIP Order Event of Default and (ii) at any time thereafter during the continuance of such DIP Order Event of Default, upon seven (7) days prior written notice of such occurrence, in each case given to each of the (w) Debtor, (x) counsel to the Debtor, (y) counsel for any Committee (if any) or the 30 largest unsecured creditors, and (z) the U.S. Trustee, the DIP Lender shall be entitled to exercise its rights and remedies in accordance with the DIP Financing Agreements.
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34.
After expiration of the seven (7) day notice period by the DIP Lender of
the occurrence of a DIP Order Event of Default and such DIP Order Event of Default still continuing: (a) the Debtor shall continue to deliver and cause the delivery of the proceeds of DIP Collateral to the DIP Lender as provided in the DIP Financing Agreements and this Interim Order; the DIP Lender shall continue to apply such proceeds in accordance with the provisions of the DIP Financing Agreements and this Interim Order; the Debtor shall have no right to use any of such proceeds, nor any other Cash Collateral, other than towards the satisfaction of the DIP Obligations and the Carve Out; and any obligation otherwise imposed on the DIP Lender to provide any loan or advance to the Debtor pursuant to the DIP Facility shall be suspended. Following the giving of written notice by the DIP Lender of the
(b) (c)
(d) 35.
occurrence of a DIP Order Event of Default, the Debtor and any Committee appointed in the Chapter 11 Case, if any, shall be entitled to an emergency hearing before this Court solely for the purpose of contesting whether a DIP Order Event of Default has occurred. If the Debtor or any such Committee do not contest the occurrence of a DIP Order Event of Default and therefore the right of the DIP Lender to exercise its remedies, or if the Debtor or any such Committee do timely contest the occurrence of a DIP Order Event of Default and the Court after notice and hearing declines to stay the enforcement thereof, the automatic stay, as to the DIP Lender, shall automatically terminate at the end of such seven (7) day notice period. 36. Subject to the provisions of Paragraphs 34, 35, and 36 above, upon the
occurrence of a DIP Order Event of Default, the DIP Lender is authorized to exercise its remedies and proceed under or pursuant to the DIP Financing Agreements. All proceeds realized from any of the foregoing shall be turned over to the DIP Lender for application to the Carve Out (if not previously funded as provided herein), the DIP Obligations and the Prepetition Term Debt 27
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under, and in accordance with the provisions of, the DIP Financing Agreements and this Interim Order. 37. Nothing included herein shall prejudice, impair, or otherwise affect the
Prepetition Lenders or the DIP Lenders rights to seek any other or supplemental relief in respect of the Debtor, nor the DIP Lenders rights, as provided in the DIP Credit Agreement, to suspend or terminate the making of loans and granting financial accommodations under the DIP Credit Agreement. D. No Waiver of Remedies. 38. The delay in or the failure of the Prepetition Lender or the DIP Lender to
seek relief or otherwise exercise their rights and remedies shall not constitute a waiver of any of the Prepetition Lenders and the DIP Lenders rights and remedies. 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 and remedies of the Prepetition Lender or the DIP Lender under the Bankruptcy Code or under non-bankruptcy law, including without limitation, the rights of the Prepetition Lender and the DIP Lender to (i) request conversion of the Chapter 11 Case to a case under chapter 7 of the Bankruptcy Code, dismissal of the Chapter 11 Case, or the appointment of a trustee in the Chapter 11 Case; (ii) propose, subject to the provisions of section 1121 of the Bankruptcy Code, a chapter 11 plan; or (iii) exercise any of the rights, claims, or privileges (whether legal, equitable, or otherwise) the DIP Lender or the Prepetition Lender may have. VII. CERTAIN LIMITING PROVISIONS A. Section 506(c) Claims and Waiver 39. Nothing contained in this Interim Order shall be deemed a consent by the
DIP Lender or the Prepetition Lender to any charge, Lien, assessment, or claim against the DIP 28
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Collateral, the DIP Liens, the Prepetition Collateral, or the Prepetition Replacement Liens under section 506(c) of the Bankruptcy Code or otherwise; provided, however, that during the Interim Period there shall be no waiver of section 506(c) of the Bankruptcy Code. 40. As a further condition of the DIP Facility and any obligation of the DIP
Lender to make credit extensions pursuant to the DIP Financing Agreements, the Debtor (and any successor thereto or any representative thereof, including any trustees appointed in the Chapter 11 Case or any Successor Case) shall be deemed to have waived any rights or benefits of section 506(c) of the Bankruptcy Code upon entry of the Final Order. B. Proceeds of Subsequent Financing 41. Without limiting the provisions and protections of Paragraph 42 below, if
at any time prior to the irrevocable repayment in full of all DIP Obligations and the termination of the DIP Lenders obligations to make loans and advances under the DIP Facility, including subsequent to the confirmation of any chapter 11 plan (the Plan) with respect to the Debtor, the Debtors estate, any trustee, any examiner with enlarged powers, or any responsible officer subsequently appointed, shall obtain credit or incur debt pursuant to sections 364(c)(1) or 364(d) of the Bankruptcy Code in violation of the DIP Financing Agreements, then all of the cash proceeds derived from such credit or debt and all Cash Collateral shall immediately be turned over to the DIP Lender and applied in reduction of the DIP Obligations. C. Prohibited Orders. 42. Unless the DIP Lender has provided its prior written consent or all DIP
Obligations have been irrevocably paid in full in cash (or will be irrevocably paid in full in cash upon entry of an order approving indebtedness described in Paragraph 41 above, or other arrangements for the payment of the DIP Obligations satisfactory to the DIP Lender in its sole and exclusive discretion have been made) and all DIP Commitments (as defined below) have 29
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terminated, there shall not be entered in the Chapter 11 Case, or in any Successor Case, any order which authorizes any of the following: (a) (b) Any modification, stay, vacation or amendment to the DIP Orders to which the DIP Lender has not consented; A priority claim or administrative expense or unsecured claim against the Borrower (now existing or hereafter arising or any kind or nature whatsoever, including, without limitation, any administrative expense of the kind specified in sections 105, 326, 328, 330, 331, 364(c), 503(a), 503(b), 506(c), 507(a), 507(b), 546(c), 546(d), 726 or 1114 of the Bankruptcy Code) equal or superior to the priority claim of the DIP Lender in respect of the Obligations, except with respect to the Professional Fee Carve Out; Any Lien on any DIP Collateral having a priority equal or superior to the Lien securing the DIP Obligations, except (a) with respect to the Carve Out, or (b) for the Permitted Prior Liens; Any order which authorizes the return of any of the Borrower's property pursuant to section 546(h) of the Bankruptcy Code; or Any order which authorizes the payment of any Indebtedness (other than those under the Existing Credit Facility, Indebtedness reflected in the Approved Budget, and other Indebtedness approved by the DIP Lender, in each case incurred prior to the Petition Date or the grant of adequate protection (whether payment in cash or transfer of property) with respect to any such Indebtedness which is secured by a Lien other than as set forth in the DIP Orders).
(c)
(d) (e)
D.
Restrictions on Disposition of Collateral. 43. (a) The Debtor shall not do the following: sell, transfer, lease, encumber, or otherwise dispose of any portion of the DIP Collateral without the prior written consent of the requisite DIP Lender required under the DIP Financing Agreements (and no such consent shall be implied from any other action, inaction, or acquiescence by the DIP Lender or an order of this Court), except for the following: (i) (ii) (iii) sales of the Debtors Inventory in the ordinary course of business, as part of the disposition of assets as contemplated in the Store Closing Program Motion and the Leasehold Sale Motion, or except as otherwise provided for in the DIP Financing Agreements and this Interim Order and approved by the Court, or 30
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(b)
assume, reject, or assign any Lease without the prior consultation with the DIP Lender, except as contemplated in the Leasehold Sale Motion, a Plan, or as otherwise provided for in the DIP Financing Agreements.
VIII. OTHER RIGHTS AND OBLIGATIONS A. Good Faith Under Section 364(e) of the Bankruptcy Code. No Modification or Stay of this Interim Order. 44. Based on the findings set forth in this Interim Order and in accordance
with section 364(e) of the Bankruptcy Code, which is applicable to the DIP Facility contemplated by this Interim Order, in the event any or all of the provisions of this Interim Order are hereafter modified, amended, or vacated by a subsequent order of this or any other court, the DIP Lender is entitled to the protections provided in section 364(e) of the Bankruptcy Code and, no such appeal, modification, amendment, or vacation shall affect the validity and enforceability of any advances made hereunder or the Liens or priority authorized or created hereby. 45. Notwithstanding any such modification, amendment, or vacation, any
claim granted to the DIP Lender hereunder arising prior to the effective date of such modification, amendment, or vacation of any DIP Protections granted to the DIP Lender shall be governed in all respects by the original provisions of this Interim Order, and the DIP Lender shall be entitled to all of the rights, remedies, privileges, and benefits, including the DIP Protections granted herein, with respect to any such claim. Since the loans made pursuant to the DIP Facility are made in reliance on this Interim Order, the obligations owed the DIP Lender prior to the effective date of any stay, modification, or vacation of this Interim Order shall not, as a result of any subsequent order in the Chapter 11 Case or in any Successor Case, be subordinated, lose their Lien priority or superpriority administrative expense claim status, or be deprived of the benefit of the status of the Liens and claims granted to the DIP Lender under this Interim Order and/or the DIP Financing Agreements.
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B.
DIP Lender Expenses. 46. As provided in the DIP Financing Agreements, all reasonable out-of-
pocket costs and expenses of the DIP Lender in connection with the DIP Financing Agreements, including, without limitation, reasonable legal, accounting, collateral examination, monitoring and appraisal fees and disbursements, financial advisory fees, fees and expenses of other consultants, indemnification and reimbursement of fees and expenses, and other out of pocket expenses will be paid by the Debtor, whether or not the transactions contemplated hereby are consummated. Payment of such fees shall not be subject to allowance by the Court; provided, however, the Debtor may seek a determination by the Court whether such fees and expenses are reasonable. Under no circumstances shall professionals for the DIP Lender or Prepetition Lender be required to comply with the U.S. Trustee fee guidelines; provided, however, the DIP Lender and Prepetition Lender shall provide to the Office of the United States Trustee for Region 2 a copy of any invoices for professional fees and expenses provided to the Debtor during the pendency of the Debtors Chapter 11 Case. C. Binding Effect. 47. The provisions of this Interim Order shall be binding upon and inure to the
benefit of the DIP Lender, the Prepetition Lender, the Debtor, and their respective successors and assigns (including any trustee or other fiduciary hereinafter appointed as a legal representative of the Debtor or with respect to the property of the estates of the Debtor), any Committee(s) (subject to the provisions of Paragraphs 23-25 above), whether in the Chapter 11 Case, in any Successor Case, or upon dismissal of any such chapter 11 or chapter 7 case.
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D.
No Third Party Rights. 48. Except as explicitly provided for herein, this Interim Order does not create
any rights for the benefit of any third party, creditor, equity holder, or any direct, indirect, or incidental beneficiary. E. No Marshaling. 49. Neither the DIP Lender nor the Prepetition Lender shall be subject to the
equitable doctrine of marshaling or any other similar doctrine with respect to any of the DIP Collateral or Prepetition Collateral, as applicable. F. Section 552(b) of the Bankruptcy Code. 50. The DIP Lender and the Prepetition Lender shall each be entitled to all of
the rights and benefits of section 552(b) of the Bankruptcy Code and the equities of the case exception under section 552(b) of the Bankruptcy Code shall not apply to the DIP Lender or the Prepetition Lender with respect to proceeds, product, offspring or profits of any of the Prepetition Collateral or the DIP Collateral. G. Amendments. 51. The Debtor and the DIP Lender may amend, modify, supplement, or
waive any provision of the DIP Financing Agreements without further approval of the Court unless such amendment, modification, supplement, or waiver (i) increases the interest rate (other than as a result of the imposition of the Default Rate), (ii) increases the DIP Commitments, or (iii) changes the maturity date of the DIP Facility. Except as set forth above, all waivers, modifications, or amendments of any of the provisions hereof shall not be effective unless set forth in writing, signed by on behalf of the Debtor and the DIP Lender (after having obtained the approval of the DIP Lender as provided in the DIP Financing Agreements) and approved by the Court. 33
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H.
Survival of Interim Order. 52. The provisions of this Interim Order and any actions taken pursuant hereto
shall survive entry of any order which may be entered: (a) (b) (c) (d) (e) 53. confirming any chapter 11 plan in the Chapter 11 Case, converting the Chapter 11 Case to a case under chapter 7 of the Bankruptcy Code, to the extent authorized by applicable law, dismissing the Chapter 11 Case, withdrawing of the reference of the Chapter 11 Case from this Court, or providing for abstention from handling or retaining of jurisdiction of the Chapter 11 Case in this Court. The terms and provisions of this Interim Order including the DIP
Protections granted pursuant to this Interim Order and the DIP Financing Agreements and any protections granted the Prepetition Lender shall continue in full force and effect notwithstanding the entry of such order, and such DIP Protections and protections for the Prepetition Lender shall maintain their priority as provided by this Interim Order until all of the DIP Obligations of the Debtor to the DIP Lender pursuant to the DIP Financing Agreements and the Prepetition Debt has been irrevocably paid in full and discharged (such payment being without prejudice to any terms or provisions contained in the DIP Facility which survive such discharge by their terms). I. Inconsistency. 54. In the event of any inconsistency between the terms and conditions of the
DIP Financing Agreements and of this Interim Order, the provisions of this Interim Order shall govern and control.
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J.
Enforceability. 55. This Interim Order shall constitute findings of fact and conclusions of law
pursuant to the Bankruptcy Rule 7052 and shall take effect and be fully enforceable nunc pro tunc to the Petition Date immediately upon execution hereof. K. Objections Overruled. 56. are hereby overruled. L. Waiver of Any Applicable Stay. 57. Any applicable stay (including, without limitation, under Bankruptcy All objections to the DIP Motion to the extent not withdrawn or resolved,
Rule 6004(h)) is hereby waived and shall not apply to this Interim Order. M. Proofs of Claim. 58. The Prepetition Lender and the DIP Lender will not be required to file
proofs of claim in the Chapter 11 Case or in any Successor Case. N. Headings. 59. The headings in this Order are for purposes of reference only and shall not
limit or otherwise affect the meaning of this Order. O. Retention of Jurisdiction. 60. according to its terms. IX. FINAL HEARING. 61. The Final Hearing on the Motion shall be heard before this Court on The Court has and will retain jurisdiction to enforce this Interim Order
August [__], 2012 at ___:___ __.m. (Prevailing Eastern Time) at the United States Bankruptcy Court for the Southern District of New York, Courtroom [__], One Bowling Green, New York, NY 10004. 35
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62.
If no objections to the relief sought in the Final Hearing are filed and
served in accordance with this Interim Order, no Final Hearing may be held, and a separate Final Order may be presented by the Debtor and entered by this Court. 63. Any party in interest objecting to the relief sought in the Final Order shall
submit any such objection in writing and file same with the Court (with a courtesy copy to chambers) and serve (so as to be received) such objection no later than August [__], 2012 at 4:00 p.m. (Prevailing Eastern Time) on the following parties:
Debtor Daffys Inc. One Daffys Way Secaucus, New Jersey 07094 Attn: Richard F. Kramer, Esq. Counsel to the Debtor Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Attn: Debra A. Dandeneau, Esq. Counsel for the DIP Lender Riemer & Braunstein LLP Three Center Plaza, Boston, Massachusetts 02108 Attn: Donald E. Rothman, Esq. Fax: (617) 692-3556, and Seven Times Square, Suite 2506, New York, New York 10036 Attn.: Nathan C. Pagett, Esq., Fax: (617) 692-3489 Office of the U.S. Trustee Office of the U.S. Trustee for the S.D.N.Y. 33 Whitehall St., 21st Floor New York, New York 10004 Attn: Susan Golden, Esq. and Michael Driscoll, Esq. Counsel to Jericho Acquisitions I LLC Fried, Frank, Harris, Shriver & Jacobson LLP One New York Plaza New York, NY 10004 Attn: Brad E. Scheler, Esq.
Dated: August ___, 2012 New York, New York UNITED STATES BANKRUPTCY JUDGE
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Exhibit 1 DIP Credit Agreement
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EXECUTED COPY
SENIOR SECURED, SUPER-PRIORITY DEBTOR-IN-POSSESSION LOAN AND SECURITY AGREEMENT by and between WELLS FARGO BANK, NATIONAL ASSOCIATION, as Lender and DAFFYS, INC., as debtor and debtor-in-possession, as Borrower and VIM-3, L.L.C., VIMWILCO, L.P. and MARCIA WILSON, AS SUCCESSOR TO VIM ASSOCIATES, as Guarantor
Dated: August 1, 2012
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TABLE OF CONTENTS Page SECTION 1. DEFINITIONS.........................................................................................................1 SECTION 2. CREDIT FACILITIES ...........................................................................................24 2.1 2.2 Loans. 24 Letters of Credit. ....................................................................................................24
SECTION 3. INTEREST AND FEES.........................................................................................26 3.1 3.2 3.3 3.4 3.5 3.6 3.7 Interest....................................................................................................................26 [Reserved]. .............................................................................................................26 Deferred Closing Fee. ............................................................................................26 Servicing Fee. ........................................................................................................26 Unused Line Fee. ...................................................................................................27 Letter of Credit Fees. .............................................................................................27 Changes in Laws and Increased Costs of Loans. ...................................................27
SECTION 4. CONDITIONS PRECEDENT ...............................................................................28 4.1 4.2 Conditions Precedent to Initial Loans and Letters of Credit..................................28 Conditions Precedent to All Loans and Letters of Credit. .....................................29
SECTION 5. GRANT AND PERFECTION OF SECURITY INTEREST ................................30 5.1 5.2 Grant of Security Interest. ......................................................................................30 Perfection of Security Interests. .............................................................................32
SECTION 6. COLLECTION AND ADMINISTRATION .........................................................36 6.1 6.2 6.3 6.4 6.5 6.6 Borrower's Loan Account. .....................................................................................36 Statements. .............................................................................................................36 Collection of Accounts. .........................................................................................36 Payments. ...............................................................................................................38 Authorization to Make Loans. ...............................................................................39 Use of Proceeds......................................................................................................39
SECTION 7. COLLATERAL REPORTING AND COVENANTS ...........................................39 7.1 7.2 7.3 7.4 7.5 7.6 7.7 Collateral Reporting. ..............................................................................................39 [Reserved]. .............................................................................................................40 Inventory Covenants. .............................................................................................40 Equipment and Real Property Covenants. .............................................................41 Power of Attorney. .................................................................................................42 Right to Cure. .........................................................................................................42 Access to Premises. ................................................................................................43 i
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SECTION 8. REPRESENTATIONS AND WARRANTIES......................................................43 8.1 8.2 Corporate Existence; Power and Authority. ..........................................................43 Name; State of Organization; Chief Executive Office; Collateral Locations. ...............................................................................................................44 8.3 Financial Statements; No Material Adverse Change. ............................................44 8.4 Priority of Liens; Title to Properties. .....................................................................44 8.5 Tax Returns. ...........................................................................................................44 8.6 Litigation. ...............................................................................................................45 8.7 Compliance with Other Agreements and Applicable Laws. ..................................45 8.8 Environmental Compliance. ..................................................................................45 8.9 Employee Benefits. ................................................................................................46 8.10 Bank Accounts. ......................................................................................................47 8.11 Intellectual Property. ..............................................................................................47 8.12 Subsidiaries; Affiliates; Capitalization; Solvency. ................................................47 8.13 Labor Disputes. ......................................................................................................47 8.14 Restrictions on Subsidiaries. ..................................................................................48 8.16 [Reserved]. .............................................................................................................48 8.17 Accuracy and Completeness of Information..........................................................48 8.18 Survival of Warranties; Cumulative. .....................................................................48 8.19 Credit Card Agreements. ..........................................................................................48 SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS.............................................48 9.1 9.2 9.3 9.4 9.5 9.6 9.7 9.8 9.9 9.10 9.11 9.12 9.13 9.14 9.15 9.16 9.17 9.18 9.19 9.20 9.21 Maintenance of Existence. .....................................................................................48 [Reserved.] .............................................................................................................49 Compliance with Laws, Regulations, Etc. .............................................................49 Payment of Taxes and Claims................................................................................50 Insurance. ...............................................................................................................50 Financial Statements and Other Information. ........................................................51 Sale of Assets, Consolidation, Merger, Dissolution, Etc. ......................................53 Encumbrances. .......................................................................................................55 Indebtedness. ..........................................................................................................55 Loans, Investments, Etc. ........................................................................................56 Dividends and Redemptions. .................................................................................57 Transactions with Affiliates. ..................................................................................58 Compliance with ERISA........................................................................................58 End of Fiscal Years; Fiscal Quarters. ....................................................................58 [Reserved]. .............................................................................................................58 Limitation of Restrictions Affecting Subsidiaries. ................................................58 [Reserved.] .............................................................................................................59 Budgeted Expenses. .............................................................................................59 [Reserved]. .............................................................................................................59 [Reserved]. .............................................................................................................59 Foreign Assets Control Regulations, Etc. ..............................................................59 ii
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9.22 9.23 9.24 9.25 9.26 9.27
[Reserved]. .............................................................................................................60 Costs and Expenses. ...............................................................................................60 Further Assurances.................................................................................................60 [Reserved]. .............................................................................................................60 [Reserved]. .............................................................................................................61 Bankruptcy Related Covenants ..............................................................................61
SECTION 10. EVENTS OF DEFAULT AND REMEDIES ........................................................62 10.1 10.2 Events of Default. ..................................................................................................62 Remedies. ...............................................................................................................65
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW ..............................................................................................................68 11.1 11.2 11.3 11.4 11.5 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver. ...................................................................................................................68 Waiver of Notices. .................................................................................................69 Amendments and Waivers. ....................................................................................70 Waiver of Counterclaims. ......................................................................................70 Indemnification. .....................................................................................................70
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS .................................................70 12.1 12.2 12.3 12.4 12.5 12.6 12.7 12.8 12.9 12.10 Term. 70 Interpretative Provisions. .......................................................................................71 Notices. ..................................................................................................................73 Partial Invalidity.....................................................................................................74 Successors. .............................................................................................................74 USA Patriot Act. ....................................................................................................74 Entire Agreement. ..................................................................................................75 Counterparts, Etc....................................................................................................75 Limited Recourse to Marcia Wilson ......................................................................75 Relationship with DIP Orders ................................................................................75
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INDEX TO EXHIBITS AND SCHEDULES
Exhibit B Exhibit D Schedule 1.30 Schedule 1.62 Schedule 5.2(b) Schedule 5.2(d) Schedule 5.2(h) Schedule 8.2 Schedule 8.8 Schedule 8.12 Schedule 8.13 Schedule 8.19 Schedule 9.7 Schedule 9.14
Form of Compliance Certificate Form of Interim Borrowing Order Letters of Credit Permitted Holders Chattel Paper Deposit Accounts Collateral in Possession of Third Parties Chief Executive Office and Other Locations Environmental Matters Subsidiaries Labor Disputes Credit Card Agreements Guarantor Sale Properties Fiscal Quarter/Fiscal Year
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SENIOR SECURED SUPER-PRIORITY DEBTOR-IN-POSSESSION LOAN AND SECURITY AGREEMENT This Senior Secured Super-Priority Debtor-in-Possession Loan and Security Agreement dated August 1, 2012 (this Agreement) is entered into by and among Wells Fargo Bank, National Association, a national banking association (Lender as hereinafter further defined) and Daffys, Inc., a New Jersey corporation, as debtor and debtor-in-possession (Borrower as hereinafter further defined) and Vim-3, L.L.C., a New Jersey limited liability company (Vim-3 as hereinafter further defined), Vimwilco, L.P., a New Jersey limited partnership (Vimwilco as hereinafter further defined) and Marcia Wilson, as successor in interest to Vim Associates, a New Jersey partnership (Vim and collectively with Vim-3 and Vimwilco, the Guarantor as hereinafter further defined). W I T N E S S E T H: WHEREAS, on August 1, 2012 (the Petition Date), the Borrower commenced Chapter 11 Case No. 12-13312 (the Chapter 11 Case) by filing a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code, with the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court). The Borrower continues to operate its business and manage its properties as debtor and debtor-in-possession pursuant to Sections 1107(a) and 1108 of the Bankruptcy Code; and WHEREAS, the Borrower has requested that the Lender provide a senior secured, superpriority revolving credit facility to the Borrower, and that the Lender issue Letters of Credit for the account of the Borrower, all on the terms and conditions set forth herein; and WHEREAS, Lender is willing to make such loans and provide such financial accommodations on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINITIONS
For purposes of this Agreement, the following terms shall have the respective meanings given to them below: 152 Franklin Street, LLC shall mean 152 Franklin Street, LLC, a limited liability company of the State of Delaware. Accounts shall mean all present and future rights of Borrower to payment of a monetary obligation, whether or not earned by performance, which is not evidenced by chattel paper or an instrument, (a) for property that has been or is to be sold, leased, licensed, assigned, or otherwise disposed of, (b) for services rendered or to be rendered, (c) for a secondary obligation incurred or to be incurred, or (d) arising out of the use of a credit or charge card or
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information contained on or for use with the card. Adjusted Prime Rate shall mean the higher of (i) the Prime Rate and (ii) the Federal Funds Effective Rate in effect from time to time plus one half of one percent (0.50%). Affiliate shall mean, with respect to a specified Person, any other Person which directly or indirectly, through one or more intermediaries, controls or is controlled by or is under common control with such Person, and without limiting the generality of the foregoing, includes (a) any Person which beneficially owns or holds five (5%) percent or more of any class of Voting Stock of such Person or other equity interests in such Person, (b) any Person of which such Person beneficially owns or holds five (5%) percent or more of any class of Voting Stock or in which such Person beneficially owns or holds five (5%) percent or more of the equity interests and (c) any director or executive officer of such Person. For the purposes of this definition, the term control (including with correlative meanings, the terms controlled by and under common control with), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Stock, by agreement or otherwise. Agency Agreement shall mean the Agency Agreement, dated as of July 31, 2012, among Borrower, Gordon Brothers Retail Partners, LLC and Hilco Merchant Resources, LLC. Applicable Margin shall mean 1.50% per annum. Approved Budget has the meaning specified in Section 9.18. Asset Purchase Agreements shall mean (i) the Agreement for Sale of Real Estate, dated as of July 18, 2012, among Vim-3, L.L.L., Marcia Wilson, Vimwilco, L.P., Jericho Acquisitions II LLC and Morris Bailey, (ii) the Asset Purchase, Assignment and Support Agreement, dated July 18, 2012, among Daffys, Inc., Marcia Wilson, the Wilson 2003 Family Trust and Jericho Acquisitions I LLC and (iii) the Agency Agreement. Bank Products shall mean one or more of the following types or services or facilities provided to Borrower by Lender or any Affiliate of Lender: (a) credit cards or stored value cards; (b) cash management or related services, including, without limitation, (i) automated clearinghouse transfer of funds for the account of Borrower pursuant to agreement or overdraft for any accounts of Borrower maintained at Lender that are subject to the control of Lender, whether pursuant to any deposit account control agreement to which Lender is a party or by Lender or any of its Affiliates being the financial institution at which the accounts are maintained, and (ii) controlled disbursement services; (c) foreign exchange facilities; (d) if and to the extent permitted hereunder, Swap Agreements; and (e) Factored Receivables up to $1,000,000.00 in the aggregate. Bankruptcy Code means title 11, United States Code. Bankruptcy Court has the meaning specified in the recitals to this Agreement.
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Bankruptcy Recoveries means any claims and causes of action to which the Borrower may be entitled to assert by reason of any avoidance or other power vested in or on behalf of the Borrower or the estate of the Borrower under Chapter 5 of the Bankruptcy Code and any and all recoveries and settlements thereof. Blocked Accounts shall have the meaning set forth in Section 6.3 hereof. For the avoidance of doubt, the definition of Blocked Accounts shall not include the Italian Deposit Account. Borrower shall mean Daffys, Inc., a New Jersey corporation, and its successors and assigns. Borrowing Base shall mean, at any time, the amount equal to: (a) the amount equal to: (i) eighty five percent (85%) of the Eligible Credit Card Sale Accounts, plus (ii) ninety percent (90%) of the Net Recovery Percentage multiplied by the Value of all Eligible Inventory, plus (iii) for so long as the Collateral includes the Eligible L/C and the Eligible L/C Rights, an amount equal to $3,000,000 plus the Professional Expense Carve Out Reserve, minus (b) Reserves including, but not limited to, the Gift Certificate Reserve, the Customer Deposits Reserve and the Professional Expense Carve Out Reserve. Notwithstanding anything to the contrary herein, the aggregate amount of Revolving Loans made against Eligible Inventory that is subject to a Letter of Credit (ex. in-transit) shall not exceed the Eligible Inventory/Letter of Credit Sublimit at any time. The amounts of Eligible Inventory shall, at Lenders option, be determined based on the lesser of the amount of Inventory set forth in the general ledger of Borrower or the perpetual inventory record maintained by Borrower. Borrowing Base Certificate shall mean a certificate in form and substance acceptable to the Lender duly executed by the President, Chief Financial Officer or Controller of the Borrower and delivered to the Lender, appropriately completed, by which such officer shall certify to Lender the Borrowing Base calculation as of the date of such certificate. Business Day shall mean any day other than a Saturday, Sunday, or other day on which commercial banks are authorized or required to close under the laws of the State of New York or the State of North Carolina, and a day on which Lender is open for the transaction of business. Capital Leases shall mean, as applied to any Person, any lease of (or any agreement conveying the right to use) any property (whether real, personal or mixed) by such Person as lessee which in accordance with GAAP, is required to be reflected as a liability on the balance sheet of such Person. Capital Stock shall mean, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated) of such Person's capital stock or partnership, limited liability company or other equity interests at any time outstanding, and any 3
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and all rights, warrants or options exchangeable for or convertible into such capital stock or other interests (but excluding any debt security that is exchangeable for or convertible into such capital stock). Carve Out Trigger Notice means written notice from the Lender to the Borrower, its lead counsel and lead counsel to the Creditors Committee following the occurrence and during the continuance of an Event of Default stating that the Post Carve Out-Notice Cap has been invoked. Case Professionals means Persons or firms retained by the Borrower or the Creditors Committee or other statutory committee appointed in the Chapter 11 Case pursuant to Sections 327 and 1103 of the Bankruptcy Code. Cash Equivalents shall mean, at any time, (a) any evidence of Indebtedness with a maturity date of ninety (90) days or less issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof; provided, that, the full faith and credit of the United States of America is pledged in support thereof; (b) certificates of deposit or bankers' acceptances with a maturity of ninety (90) days or less of any financial institution that is a member of the Federal Reserve System having combined capital and surplus and undivided profits of not less than $1,000,000,000; (d) commercial paper (including variable rate demand notes) with a maturity of ninety (90) days or less issued by a corporation (except an Affiliate of Borrower) organized under the laws of any State of the United States of America or the District of Columbia and rated at least A-1 by Standard & Poor's Ratings Service, a division of The McGraw-Hill Companies, Inc. or at least P-1 by Moody's Investors Service, Inc.; (e) repurchase obligations with a term of not more than thirty (30) days for underlying securities of the types described in clause (a) above entered into with any financial institution having combined capital and surplus and undivided profits of not less than $1,000,000,000; (f) repurchase agreements and reverse repurchase agreements relating to marketable direct obligations issued or unconditionally guaranteed by the United States of America or issued by any governmental agency thereof and backed by the full faith and credit of the United States of America, in each case maturing within ninety (90) days or less from the date of acquisition; provided, that, the terms of such agreements comply with the guidelines set forth in the Federal Financial Agreements of Depository Institutions with Securities Dealers and Others, as adopted by the Comptroller of the Currency on October 31, 1985; and (g) investments in money market funds and mutual funds which invest substantially all of their assets in securities of the types described in clauses (a) through (f) above. Change of Control shall mean (a) the transfer (in one transaction or a series of transactions) of all or substantially all of the assets of Borrower or any Obligor to any Person or group (as such term is used in Section 13(d)(3) of the Exchange Act); (b) the liquidation or dissolution of Borrower or any Obligor or the adoption of a plan by the stockholders/members/partners/shareholders of Borrower or any Obligor relating to the dissolution or liquidation of Borrower or any Obligor; (c) the acquisition by any Person or group (as such term is used in Section 13(d)(3) of the Exchange Act), except for one or more Permitted Holders, of beneficial ownership, directly or indirectly, of a majority of the voting power of the 4
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total outstanding Voting Stock of Borrower or any Obligor or the Board of Directors of Borrower or any Obligor; (d) during any period of two (2) consecutive years, individuals who at the beginning of such period constituted the Board of Directors of Borrower or any Obligor (together with any new directors who have been appointed by any Permitted Holder, or whose nomination for election by the stockholders of Borrower or any Obligor, as the case may be, was approved by a vote of at least sixty-six and two-thirds (66 2/3%) percent of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of Borrower or any Obligor then still in office; or (e) the failure of the Permitted Holders to own directly or indirectly seventy five percent (75%) of the voting power of the total outstanding Voting Stock of Borrower or any Obligor. Chapter 11 Case has the meaning provided in the recitals to this Agreement. Chapter 11 Plan means a plan filed in the Chapter 11 Case pursuant to Chapter 11 of the Bankruptcy Code. Closing Date shall mean the date on which the conditions precedent in Section 4.1 have been satisfied or duly waived by Lender. Code shall mean the Internal Revenue Code of 1986, as the same now exists or may from time to time hereafter be amended, modified, recodified or supplemented, together with all rules, regulations and interpretations thereunder or related thereto. Collateral shall have the meaning set forth in Section 5 hereof. Collateral Access Agreement shall mean an agreement in writing, in form and substance satisfactory to Lender, from any lessor of premises to Borrower, or any other person to whom any Collateral is consigned or who has custody, control or possession of any such Collateral or is otherwise the owner or operator of any premises on which any of such Collateral is located, in favor of Lender with respect to the Collateral at such premises or otherwise in the custody, control or possession of such lessor, consignee or other person. Credit Card Acknowledgments shall mean, collectively, the agreements by Credit Card Issuers or Credit Card Processors who are parties to Credit Card Agreements in favor of Lender acknowledging Lenders first priority security interest in the monies due and to become due to Borrower (including, without limitation, credits and reserves) under the Credit Card Agreements, and agreeing to transfer all such amounts to the Blocked Accounts, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, sometimes being referred to herein individually as a Credit Card Acknowledgment. Credit Card Agreements shall mean, collectively, all agreements now or hereafter entered into by Borrower, in each case with any Credit Card Issuer or any Credit Card Processor, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, including, but not limited to, the agreements set forth on Schedule 8.19 hereto.
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Credit Card Issuer shall mean any person (other than Borrower) who issues or whose members issue credit cards, including, without limitation, MasterCard or VISA bank credit or debit cards or other bank credit or debit cards issued through MasterCard International, Inc., Visa, U.S.A., Inc. or Visa International and American Express, Discover, Diners Club, Carte Blanche and other non-bank credit or debit cards, including, without limitation, credit or debit cards issued by or through American Express Travel Related Services Company, Inc. and Novus Services, Inc. Credit Card Processor shall mean any servicing or processing agent or any factor or financial intermediary who facilitates, services, processes or manages the credit authorization, billing transfer and/or payment procedures with respect to Borrowers sales transactions involving credit card or debit card purchases by customers using credit cards or debit cards issued by any Credit Card Issuer. Credit Card Receivables shall mean, collectively, (a) all present and future rights of Borrower to payment from any Credit Card Issuer, Credit Card Processor or other third party arising from sales of goods or rendition of services to customers who have purchased such goods or services using a credit or debit card and (b) all present and future rights of Borrower to payment from any Credit Card Issuer, Credit Card Processor or other third party in connection with the sale or transfer of Accounts arising pursuant to the sale of goods or rendition of services to customers who have purchased such goods or services using a credit card or a debit card, including, but not limited to, all amounts at any time due or to become due from any Credit Card Issuer or Credit Card Processor under the Credit Card Agreements or otherwise. Creditors Committee means any official committee of creditors formed, appointed or approved in the Chapter 11 Case pursuant to the Bankruptcy Code. Customer Deposits Reserve shall mean a Reserve in an amount equal to fifty percent (50%) of the aggregate amount of customer deposits made by any Person and maintained with the Borrower, as such amount may change from time to time. Daffys Term Credit Facility shall mean that certain credit facility extended by the Lender in favor of the Borrower as evidenced by that certain Loan and Security Agreement by and among the Borrower, as borrower, the Guarantor, as guarantor, and the Lender dated the date hereof and that certain Term Note executed by the Borrower in favor of the Lender in the original principal amount of $13,000,000 dated the date hereof, as amended, restated, replaced and/or modified from time to time. Default shall mean an act, condition or event which with notice or passage of time or both would constitute an Event of Default. Default Rate shall mean a rate of interest equal to the applicable Interest Rate plus two percent (2.00%) per annum. Deferred Closing Fee shall mean a fee in the amount of $400,000.
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Deposit Account Control Agreement shall mean an agreement in writing, in form and substance satisfactory to Lender, by and among Lender, Borrower and any bank at which any deposit account of Borrower is at any time maintained which provides that such bank will comply with instructions originated by Lender directing disposition of the funds in the deposit account without further consent by Borrower and has such other terms and conditions as Lender may require. DIP Orders means and refers to the Interim Borrowing Order and the Final Borrowing Order. DIP Roll-up Amount means the sum of the aggregate amounts outstanding on the Petition Date of (i) Revolving Loans (as defined in the Existing Credit Agreement), (ii) Letter of Credit Obligations (as defined in the Existing Credit Agreement), (iii) all obligations in respect of Swap Agreements entered into between Borrower and Lender prior to the Petition Date and (iv) all other Obligations (as defined in the Existing Credit Agreement) other than in respect of the Daffys Term Credit Facility or the Vim-3/Vimwilco Credit Facility. DOC Inventory shall mean all Inventory that is included on the DOC report relating to warehouse inventory provided to the Lender by the Borrower from time to time. East Hanover Premises shall mean that certain Real Property located at 346 Route 10, East Hanover, New Jersey. EBITDA shall mean for any period the sum of (i) net income (or loss) of Borrower or Guarantor, as applicable, for such period (excluding extraordinary gains and losses), plus (ii) all interest expense of Borrower or Guarantor, as applicable, for such period, plus (iii) all charges against income of Borrower or Guarantor, as applicable, for such period for federal, state and local taxes due and payable, plus (iv) depreciation expenses of the Borrower or Guarantor, as applicable, for such period, plus (v) amortization expenses of the Borrower or Guarantor, as applicable, for such period. Effect of Bankruptcy means, with respect to any contractual obligation, contract or agreement to which the Borrower is a party, any default or other legal consequences arising on account of the commencement or the filing of the Chapter 11 Case (including the implementation of any stay), or the rejection of any such contractual obligation, contract or agreement with the approval of the Bankruptcy Court if required under any applicable Governmental Authority. Eligible Credit Card Receivables shall mean, as to Borrower, Credit Card Receivables of Borrower which are and continue to be acceptable to Lender based on the criteria set forth below. Credit Card Receivables shall be Eligible Credit Card Receivables if: (a) such Credit Card Receivables arise from the actual and bona fide sale and delivery of goods or rendition of services by Borrower in the ordinary course of the business of Borrower which transactions are completed in accordance with the terms and provisions contained in any agreements binding on Borrower or the other party or parties related thereto;
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(b) such Credit Card Receivables are not past due (beyond any stated applicable grace period, if any, therefor) pursuant to the terms set forth in the Credit Card Agreements with the Credit Card Issuer or Credit Card Processor of the credit card or debit card used in the purchase which give rise to such Credit Card Receivables; (c) such Credit Card Receivables are not unpaid more than five (5) Business Days after the date of the sale of Inventory giving rise to such Credit Card Receivables; (d) all material procedures required by the Credit Card Issuer or the Credit Card Processor of the credit card or debit card used in the purchase which gave rise to such Credit Card Receivables shall have been followed by Borrower and all documents required for the authorization and approval by such Credit Card Issuer or Credit Card Processor shall have been obtained in connection with the sale giving rise to such Credit Card Receivables; (e) the required authorization and approval by such Credit Card Issuer or Credit Card Processor shall have been obtained for the sale giving rise to such Credit Card Receivables; (f) Borrower shall have submitted all materials required by the Credit Card Issuer or Credit Card Processor obligated in respect of such Credit Card Receivables in order for Borrower to be entitled to payment in respect thereof; (g) the Credit Card Issuer or Credit Card Processor obligated in respect of such Credit Card Receivable has not failed to remit any monthly payment in respect of such Credit Card Receivable; (h) such Credit Card Receivables comply with the applicable terms and conditions contained in Section 7.2 of this Agreement; (i) the Credit Card Issuer or Credit Card Processor with respect to such Credit Card Receivables has not asserted a counterclaim, defense or dispute and does not have, and does not engage in transactions which may give rise to, any right of setoff against such Credit Card Receivables (other than setoffs to fees and chargebacks consistent with the practices of such Credit Card Issuer or Credit Card Processor with Borrower as of the date hereof or as such practices may change as a result of changes to the policies of such Credit Card Issuer or Credit Card Processor applicable to its customers generally and unrelated to the circumstance of Borrower), but the portion of the Credit Card Receivables owing by such Credit Card Issuer or Credit Card Processor in excess of the amount owing by Borrower to such Credit Card Issuer or Credit Card Processor pursuant to such fees and chargebacks may be deemed Eligible Credit Card Receivables; (j) the Credit Card Issuer or Credit Card Processor with respect to such Credit Card Receivables has not setoff against amounts otherwise payable by such Credit Card Issuer or Credit Card Processor to Borrower for the purpose of establishing a reserve or collateral for obligations of Borrower to such Credit Card Issuer or Credit Card Processor (notwithstanding that the Credit Card Issuer or Credit Card Processor may have setoffs for fees and chargebacks consistent with the practices of such Credit Card Issuer or Credit Card Processor with Borrower
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as of the date hereof or as such practices may hereafter change as a result of changes to the policies of such Credit Card Issuer or Credit Card Processor applicable to its customers generally and unrelated to the circumstances of Borrower); (k) there are no facts, events or occurrences which would impair the validity, enforceability or collectability of such Credit Card Receivables or reduce the amount payable or delay payment thereunder (other than for setoffs for fees and chargebacks consistent with the practices of such Credit Card Issuer or Credit Card Processor with Borrower as of the date hereof or as such practices may hereafter change as a result of changes to the policies of such Credit Card Issuer or Credit Card Processor applicable to its customers generally and unrelated to the circumstances of Borrower); (l) such Credit Card Receivables are subject to the first priority, valid and perfected security interest and lien of Lender as to such Credit Card Receivables of Borrower and any goods giving rise thereto are not, and were not at the time of the sale thereof, subject to any security interest or lien in favor of any person other than Lender except as otherwise permitted in this Agreement, in each case subject to and in accordance with the terms and conditions applicable hereunder to any such permitted security interest or lien; (m) there are no proceedings or actions which are pending or to the best of Borrowers knowledge threatened, against the Credit Card Issuers or Credit Card Processors with respect to such Credit Card Receivables which would reasonably be expected to result in any material adverse change in the financial condition of any such Credit Card Issuer or Credit Card Processor; (n) such Credit Card Receivables are owed by Credit Card Issuers or Credit Card Processors deemed creditworthy at all times by Lender in good faith; (o) no event of default has occurred under the Credit Card Agreement of Borrower with the Credit Card Issuer or Credit Card Processor who has issued the credit card or debit card or handles payments under the credit card or debit card used in the sale which gave rise to such Credit Card Receivables which event of default gives such Credit Card Issuer or Credit Card Processor the right to cease or suspend payments to Borrower and no event shall have occurred which gives such Credit Card Issuer or Credit Card Processor the right to setoff against amounts otherwise payable to Borrower (other than for then current fees and chargebacks consistent with the current practices of such Credit Card Issuer or Credit Card Processor as of the date hereof or as such practices may hereafter change as a result of changes to the policies of such Credit Card Issuer or Credit Card Processor applicable to its customers generally and unrelated to the circumstances of Borrower), except as may have been waived in writing on terms and conditions reasonably satisfactory to Lender pursuant to the Credit Card Acknowledgment by such Credit Card Issuer or Credit Card Processor) or the right to establish reserves or establish or demand collateral, and the Credit Card Issuer or Credit Card Processor has not sent any written notice of default and/or notice of its intention to cease or suspend payments to Borrower in respect of such Credit Card Receivables or to establish reserves or cash collateral for obligations of Borrower to such Credit Card Issuer or Credit Card Processor, and 9
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such Credit Card Agreements are otherwise in full force and effect and constitute the legal, valid, binding and enforceable obligations of the parties thereto; (p) the terms of the sale giving rise to such Credit Card Receivables and all practices of Borrower with respect to such Credit Card Receivables comply in all material respects with applicable Federal, State, and local laws and regulations; and (q) the customer using the credit card or debit card giving rise to such Credit Card Receivable shall not have returned the merchandise purchased giving rise to such Credit Card Receivable. General criteria for Eligible Credit Card Receivables may only be changed and any new criteria for Eligible Credit Card Receivables may only be established by Lender in good faith, upon notice to Borrower, based on an event, condition or other circumstance either (i) arising after the date hereof or (ii) existing on the date hereof to the extent Lender has no written notice thereof from Borrower prior to the date hereof, in either case under clause (i) or (ii) which adversely affects or could reasonably be expected to adversely affect the Credit Card Receivables in the good faith determination of Lender. Any Credit Card Receivables which are not Eligible Credit Card Receivables shall nevertheless be part of the Collateral. Eligible Inventory shall mean (x) Inventory consisting of finished goods held for resale in the ordinary course of the business of Borrower and raw materials for such finished goods, that in each case satisfy the criteria set forth below as determined by Lender and (y) all DOC Inventory which is also deemed Eligible Inventory by the Lender in its sole and absolute discretion. In general, Eligible Inventory shall not include (a) work-in-process; (b) components which are not part of finished goods; (c) spare parts for equipment; (d) packaging and shipping materials; (e) supplies used or consumed in Borrower's business; (f) Inventory at premises other than those owned or leased and controlled by Borrower; (g) Inventory subject to a security interest or lien in favor of any Person other than Lender except those permitted in this Agreement that are subject to an intercreditor agreement in form and substance satisfactory to Lender between the holder of such security interest or lien and Lender; (h) bill and hold goods; (i) unserviceable, obsolete or slow moving Inventory; (j) Inventory that is not subject to the first priority, valid and perfected security interest of Lender; (k) returned, damaged and/or defective Inventory; (l) Inventory purchased or sold on consignment and (m) Inventory located outside the United States of America. The criteria for Eligible Inventory set forth above may only be changed and any new criteria for Eligible Inventory may only be established by Lender in good faith based on either: (i) an event, condition or other circumstance arising after the date hereof, or (ii) an event, condition or other circumstance existing on the date hereof to the extent Lender has no written notice thereof from Borrower prior to the date hereof, in either case under clause (i) or (ii) which adversely affects or could reasonably be expected to adversely affect the Inventory in the good faith determination of Lender. Any Inventory that is not Eligible Inventory shall nevertheless be part of the Collateral. Eligible Inventory/Letter of Credit Sublimit shall mean $1,000,000. Eligible L/C means that letter of credit issued on July 25, 2012 by M and T Bank in the
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amount of $20,000,000 for the account of Jericho Acquisitions I LLC and for the benefit of the Borrower and Lender. Eligible L/C Rights means the rights of the beneficiaries under the Eligible L/C. Environmental Laws shall mean all foreign, Federal, State and local laws (including common law), legislation, rules, codes, licenses, permits (including any conditions imposed therein), authorizations, judicial or administrative decisions, injunctions or agreements between Borrower and any Governmental Authority, (a) relating to pollution and the protection, preservation or restoration of the environment (including air, water vapor, surface water, ground water, drinking water, drinking water supply, surface land, subsurface land, plant and animal life or any other natural resource), or to human health or safety, (b) relating to the exposure to, or the use, storage, recycling, treatment, generation, manufacture, processing, distribution, transportation, handling, labeling, production, release or disposal, or threatened release, of Hazardous Materials, or (c) relating to all laws with regard to recordkeeping, notification, disclosure and reporting requirements respecting Hazardous Materials. The term Environmental Laws includes (i) the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Federal Superfund Amendments and Reauthorization Act, the Federal Water Pollution Control Act of 1972, the Federal Clean Water Act, the Federal Clean Air Act, the Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act, and the Federal Safe Drinking Water Act of 1974, (ii) applicable state counterparts to such laws, and (iii) any common law or equitable doctrine that may impose liability or obligations for injuries or damages due to, or threatened as a result of, the presence of or exposure to any Hazardous Materials. Equipment shall mean all of Borrower's now owned and hereafter acquired equipment, wherever located, including machinery, data processing and computer equipment (whether owned or licensed and including embedded software) vehicles, tools, furniture, fixtures, all attachments, accessions and property now or hereafter affixed thereto or used in connection therewith, and substitutions and replacements thereof, wherever located. ERISA shall mean the Employee Retirement Income Security Act of 1974, together with all rules, regulations and interpretations thereunder or related thereto. ERISA Affiliate shall mean any person required to be aggregated with Borrower or any of its Subsidiaries under Sections 414(b), 414(c), 414(m) or 414(o) of the Code. ERISA Event shall mean (a) any reportable event, as defined in Section 4043(c) of ERISA or the regulations issued thereunder, with respect to a Pension Plan, other than events as to which the requirement of notice has been waived in regulations by the Pension Benefit Guaranty Corporation; (b) the adoption of any amendment to a Pension Plan that would require the provision of security pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA; (c) a complete or partial withdrawal by the Borrower or any ERISA Affiliate from a Multiemployer Plan or a cessation of operations which is treated as such a withdrawal or
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notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Pension Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the Pension Benefit Guaranty Corporation to terminate a Pension Plan; (e) an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan; (f) the imposition of any liability under Title IV of ERISA, other than the Pension Benefit Guaranty Corporation premiums due but not delinquent under Section 4007 of ERISA, upon Borrower or any ERISA Affiliate in excess of $50,000; and (g) any other event or condition with respect to a Plan, including any Pension Plan subject to Title IV of ERISA, maintained, or contributed to, by any ERISA Affiliate that could reasonably be expected to result in liability of Borrower in excess of $50,000. Event of Default shall mean the occurrence or existence of any event or condition described in Section 10.1 hereof. Excess Availability shall mean the amount, as determined by Lender, calculated at any date, equal to: (a) the lesser of: (i) the Borrowing Base and (ii) the Revolving Loan Limit (in each case under (i) and (ii) after giving effect to any Reserves other than any Reserves in respect of Letter of Credit Obligations), minus (b) the sum of: (i) the amount of all then outstanding and unpaid Obligations owing under any Financing Agreement (but not including for this purpose the then outstanding Letter of Credit Obligations), plus (ii) the amount of all Reserves then established in respect of Letter of Credit Obligations, plus (iii) the aggregate amount of all then outstanding and unpaid trade payables and other obligations of Borrower which are outstanding more than sixty (60) days past due as of the end of the immediately preceding month or at Lenders option, as of a more recent date based on such reports as Lender may from time to time specify (other than trade payables or other obligations being contested or disputed by Borrower in good faith), plus (iv) without duplication, the amount of checks issued by Borrower to pay trade payables and other obligations which are more than sixty (60) days past due as of the end of the immediately preceding month or at Lenders option, as of a more recent date based on such reports as Lender may from time to time specify (other than trade payables or other obligations being contested or disputed by Borrower in good faith), but not yet sent. Exchange Act shall mean the Securities Exchange Act of 1934, together with all rules, regulations and interpretations thereunder or related thereto. Existing Credit Facility means that certain credit facility extended by the Lender in favor of the Borrower as evidenced by that certain Loan and Security Agreement dated as of January 30, 2009 by and among the Borrower, as borrower, the Guarantor, as guarantor, and the Lender, and the Note, as amended, restated, replaced and/or modified from time to time. Factored Receivables means any Accounts originally owed or owing by a Borrower or Guarantor to another Person which have been purchased by or factored with Wells Fargo Bank, National Association or any of its Affiliates pursuant to a factoring arrangement or otherwise with the Person that sold the goods or rendered the services to the Borrower or Guarantor which gave rise to such Account. 12
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FASB 13 shall mean Financial Accounting Standards Board Statement No. 13, Accounting for Leases, as amended, restated and/or modified from time to time. Federal Funds Effective Rate for any day shall mean the rate per annum (based on a year of 360 days and actual days elapsed and rounded upward to the nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or any successor) on such day as being the weighted average of the rates on overnight federal funds transactions arranged by federal funds brokers on the previous trading day, as computed and announced by such Federal Reserve Bank (or any successor) in substantially the same manner as such Federal Reserve Bank computes and announces the weighted average it refers to as the Federal Funds Effective Rate as of the date of this Agreement; provided, if such Federal Reserve Bank (or its successor) does not announce such rate on any day, the "Federal Funds Effective Rate" for such day shall be the Federal Funds Effective Rate for the last day on which such rate was announced. Final Borrowing Order means an order of the Bankruptcy Court which order shall be in form, scope and substance reasonably acceptable to the Lender, which, among other matters but not by way of limitation, authorizes the Borrower to obtain credit, incur (or guaranty) Obligations, grant Liens under this Agreement, the other Loan Documents, and the DIP Orders, and provides for the super priority of the Lenders claims, which order is a Final Order. Final Order means an order or judgment of the Bankruptcy Court, as entered on the docket of the Clerk of the Bankruptcy Court, that has not been reversed, stayed, modified or amended (except as amended with the prior consent of Lender) and as to which the time to appeal or seek leave to appeal, petition for certiorari, reargue or seek rehearing has expired and no proceeding for certiorari, reargument or rehearing is pending or if an appeal, petition for certiorari, reargument, or rehearing has been sought, the order or judgment of the Bankruptcy Court has been affirmed by the highest court to which the order was appealed, from which the reargument or rehearing was sought, or certiorari has been denied and the time to take any further appeal or to seek certiorari or further reargument or rehearing has expired. Financing Agreements shall mean, collectively, this Agreement and all notes, guarantees, security agreements, deposit account control agreements, investment property control agreements, intercreditor agreements and all other agreements, documents and instruments now or at any time hereafter executed and/or delivered by Borrower or any Obligor in connection with this Agreement, but does not include Swap Agreements. Fixed Charge Coverage Ratio shall mean for any period (A) (i) EBITDA minus (ii) the aggregate amount of cash dividends and cash distributions made by Borrower during such period (excluding distributions made as a result of S-corporation distributions for taxes which are already included in the taxes paid by Borrower), plus (iii) the straight-line rent expenses of Borrower for such period, divided by (B) (i) all regularly scheduled principal payments of Indebtedness incurred, paid or assumed for borrowed money during such period, plus (ii) all interest expense of Borrower for such period plus (iii) all charges against income of Borrower or Guarantor, as applicable, for such period for federal, state and local taxes due and payable. Funding Bank shall have the meaning given to such term in Section 3.7 hereof.
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GAAP shall mean generally accepted accounting principles in the United States of America as in effect from time to time as set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and the statements and pronouncements of the Financial Accounting Standards Board which are applicable to the circumstances as of the date of determination consistently applied, except that, for purposes of Sections 9.17 and 9.18 hereof, GAAP shall be determined on the basis of such principles in effect on the date hereof and consistent with those used in the preparation of the most recent audited financial statements delivered to Lender prior to the date hereof. Gift Certificate Reserve shall mean a Reserve in an amount equal to fifty percent (50%) of the aggregate amount of any and all gift certificates sold by the Borrower to any Person which have not been redeemed, as such amount may change from time to time. Governmental Authority shall mean any nation or government, any state, province, or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. Guarantor shall mean, collectively, Vim-3, Vim and Vimwilco. Hazardous Materials shall mean any hazardous, toxic or dangerous substances, materials and wastes, including hydrocarbons (including naturally occurring or man-made petroleum and hydrocarbons), flammable explosives, asbestos, urea formaldehyde insulation, radioactive materials, biological substances, polychlorinated biphenyls, pesticides, herbicides and any other kind and/or type of pollutants or contaminants (including materials which include hazardous constituents), sewage, sludge, industrial slag, solvents and/or any other similar substances, materials, or wastes and including any other substances, materials or wastes that are or become regulated under any Environmental Law (including any that are or become classified as hazardous or toxic under any Environmental Law). Indebtedness shall mean, with respect to any Person, any liability, whether or not contingent, (a) in respect of borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof) or evidenced by bonds, notes, debentures or similar instruments; (b) representing the balance deferred and unpaid of the purchase price of any property or services (other than an account payable to a trade creditor (whether or not an Affiliate) incurred in the ordinary course of business of such Person and payable in accordance with customary trade practices); (c) all obligations as lessee under leases which have been, or should be, in accordance with GAAP recorded as Capital Leases; (d) any contractual obligation, contingent or otherwise, of such Person to pay or be liable for the payment of any indebtedness described in this definition of another Person, including, without limitation, any such indebtedness, directly or indirectly guaranteed, or any agreement to purchase, repurchase, or otherwise acquire such indebtedness, obligation or liability or any security therefor, or to provide funds for the payment or discharge thereof, or to maintain solvency, assets, level of income, or other financial condition; (e) all obligations with respect to redeemable stock and redemption or repurchase obligations under any Capital Stock or other equity securities issued by such Person; (f) all reimbursement obligations and other liabilities of
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such Person with respect to surety bonds (whether bid, performance or otherwise), letters of credit, banker's acceptances, drafts or similar documents or instruments issued for such Person's account; (g) all indebtedness of such Person in respect of indebtedness of another Person for borrowed money or indebtedness of another Person otherwise described in this definition which is secured by any consensual lien, security interest, collateral assignment, conditional sale, mortgage, deed of trust, or other encumbrance on any asset of such Person, whether or not such obligations, liabilities or indebtedness are assumed by or are a personal liability of such Person, all as of such time; (h) all obligations, liabilities and indebtedness of such Person (marked to market) arising under swap agreements, cap agreements and collar agreements and other agreements or arrangements designed to protect such person against fluctuations in interest rates or currency or commodity values; (i) all obligations owed by such Person under License Agreements with respect to non-refundable, advance or minimum guarantee royalty payments; (j) indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer to the extent such Person is liable therefor as a result of such Persons ownership interest in such entity, except to the extent that the terms of such indebtedness expressly provide that such Person is not liable therefor or such Person has no liability therefor as a matter of law and (k) the principal and interest portions of all rental obligations of such Person under any synthetic lease or similar off-balance sheet financing where such transaction is considered to be borrowed money for tax purposes but is classified as an operating lease in accordance with GAAP. Intellectual Property shall mean all of Borrower's now owned and hereafter arising or acquired: patents, patent rights, patent applications, copyrights, works which are the subject matter of copyrights, copyright applications, copyright registrations, trademarks, servicemarks, trade names, trade styles, trademark and service mark applications, and licenses and rights to use any of the foregoing and all applications, registrations and recordings relating to any of the foregoing as may be filed in the United States Copyright Office, the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof, any political subdivision thereof or in any other country or jurisdiction, together with all rights and privileges arising under applicable law with respect to Borrowers use of any of the foregoing; all extensions, renewals, reissues, divisions, continuations, and continuations-in-part of any of the foregoing; all rights to sue for past, present and future infringement of any of the foregoing; inventions, trade secrets, formulae, processes, compounds, drawings, designs, blueprints, surveys, reports, manuals, and operating standards; goodwill (including any goodwill associated with any trademark or servicemark or the license of any trademark or servicemark); customer and other lists in whatever form maintained; trade secret rights, copyright rights, rights in works of authorship, domain names and domain name registration; software and contract rights relating to computer software programs, in whatever form created or maintained. Interest Rate shall mean, as to Prime Rate Loans, a rate equal to the Applicable Margin per annum in excess of the Adjusted Prime Rate; provided, that, notwithstanding anything to the contrary contained herein, the Interest Rate shall mean the Default Rate as to Prime Rate Loans, at Lender's option, without notice, (a) either (i) for the period on and after the date of termination or non-renewal hereof until such time as all Obligations are indefeasibly paid and satisfied in full in immediately available funds, or (ii) for the period from and after the date of the occurrence of 15
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any Event of Default, and for so long as such Event of Default is continuing as determined by Lender and (b) on the Revolving Loans at any time outstanding in excess of the Borrowing Base or the Revolving Loan Limit (whether or not such excess(es) arise or are made with or without Lender's knowledge or consent and whether made before or after an Event of Default); provided that Obligations under Swap Agreements shall bear interest at the default interest rate determined in accordance with the terms of said Swap Agreements. Interim Borrowing Order means an order entered by the Bankruptcy Court, substantially in the form of, and containing the provisions set forth in, Exhibit D (or such other form and provisions as may be reasonable acceptable to the Lender), authorizing, on an interim basis, inter alia the Borrower to obtain credit and incur (or guaranty) Obligations, granting Liens to secure the Obligations, and providing for the super priority of the Lenders claims. Inventory shall mean all of Borrower's now owned and hereafter existing or acquired goods, wherever located, which (a) are leased by Borrower as lessor; (b) are held by Borrower for sale or lease or to be furnished under a contract of service; (c) are furnished by Borrower under a contract of service; or (d) consist of raw materials, work in process, finished goods or materials used or consumed in its business. Investment Property Control Agreement shall mean an agreement in writing, in form and substance satisfactory to Lender, by and among Lender, Borrower and any securities intermediary, commodity intermediary or other person who has custody, control or possession of any investment property of Borrower acknowledging that such securities intermediary, commodity intermediary or other person has custody, control or possession of such investment property on behalf of Lender, that it will comply with entitlement orders originated by Lender with respect to such investment property, or other instructions of Lender, and has such other terms and conditions as Lender may require. Italian Deposit Account shall mean that certain deposit account maintained at Banca Toscana having an account number of 73200.62. Leasehold Sale Motion means that certain motion filed by the Borrower in the Bankruptcy Case pursuant to which the Borrower seeks permission from the Bankruptcy Court to sell certain Real Property leased by the Borrower. Lender shall mean Wells Fargo Bank, National Association (as successor-in-interest by merger to Wachovia Bank, National Association), a national banking association, and its successors and assigns. Lender Payment Account shall mean Account No. 5000000030279 (ABA No. 053000219) of Lender at Lender or such other account of Lender as Lender may from time to time designate to Borrower as the Lender Payment Account for purposes of this Agreement. Letter of Credit Documents shall mean, with respect to any Letter of Credit, such Letter of Credit, any amendments thereto, any documents delivered in connection therewith, any application therefor, and any agreements, instruments, guarantees or other documents (whether
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general in application or applicable only to such Letter of Credit) governing or providing for (a) the rights and obligations of the parties concerned or at risk or (b) any collateral security for such obligations. Letter of Credit Obligations shall mean, at any time, the sum of (a) the aggregate undrawn amount of all Letters of Credit outstanding at such time, plus (b) the aggregate amount of all drawings under Letters of Credit for which Lender has not at such time been reimbursed.. Letters of Credit shall mean, collectively, the letters of credit issued for the account of Borrower or for which Borrower is otherwise liable listed on Schedule 1.30 hereto, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. License Agreements shall have the meaning set forth in Section 8.11 hereof. Lien means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. Loans shall mean, collectively, the DIP Roll-up Amount and the Revolving Loans. Material Adverse Effect shall mean a material adverse effect on (a) the financial condition, business, performance or operations of Borrower; (b) the legality, validity or enforceability of this Agreement or any of the other Financing Agreements; (c) the legality, validity, enforceability, perfection or priority of the security interests and liens of Lender upon the Collateral; (d) the Collateral or its value; (e) the ability of Borrower to repay the Obligations or of Borrower to perform its obligations under this Agreement or any of the other Financing Agreements as and when to be performed; or (f) the ability of Lender to enforce the Obligations or realize upon the Collateral or otherwise with respect to the rights and remedies of Lender under this Agreement or any of the other Financing Agreements, provided that a Material Adverse Effect shall not be deemed to exist as a result of the Effect of Bankruptcy or the events leading up to and resulting therefrom. Maximum Credit shall mean $10,000,000. Minimum Guaranteed Amount shall mean the Guaranteed Amount as defined in the Agency Agreement. Mortgage shall mean, individually and collectively, each of the following (as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced): (a) that certain Mortgage and Security Agreement dated of even date herewith executed by Vim-3 in favor of Lender with respect to the Real Property and related assets of Vim-3 located at the North Bergen Premises, (b) that certain Mortgage and Security Agreement
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dated of even date herewith executed by Vimwilco in favor of Lender with respect to the Real Property and related assets of Vimwilco located at the Philadelphia Premises, and (c) that certain Mortgage and Security Agreement dated of even date herewith executed by Vim in favor of Lender with respect to the Real Property and related assets of Vim located at the East Hanover Premises. Mortgaged Premises shall mean collectively the North Bergen Premises, the Philadelphia Premises and the East Hanover Premises. Multiemployer Plan shall mean a multi-employer plan as defined in Section 4001(a)(3) of ERISA which is or was at any time during the current year or the immediately preceding six (6) years contributed to by Borrower or any ERISA Affiliate or with respect to which Borrower, any Obligor or any ERISA Affiliate may incur any liability. Net Recovery Percentage shall mean the fraction, expressed as a percentage, (a) the numerator of which is the amount equal to the amount of the recovery in respect of the Inventory at such time on a net orderly liquidation value basis as set forth in the most recent acceptable appraisal of Inventory received by Lender in accordance with Section 7.3, net of operating expenses, liquidation expenses and commissions, and (b) the denominator of which is the applicable original cost of the aggregate amount of the Inventory subject to such appraisal. North Bergen Premises shall mean that certain Real Property located at 2701 Route 3, North Bergen, New Jersey. Note shall mean that certain Note executed by the Borrower in favor of the Lender dated the date hereof in the original principal amount of $10,000,000. Obligations shall mean (a) any and all Revolving Loans, Letter of Credit Obligations and all other obligations, liabilities and indebtedness of every kind, nature and description owing by Borrower to Lender and/or its Affiliates, including principal, interest, charges, fees, costs and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, arising under this Agreement or any of the other Financing Agreements or on account of any Letter of Credit and all other Letter of Credit Obligations or under the Daffys Term Credit Facility, and/or the Vim-3/Vimwilco Credit Facility, whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal term of this Agreement or after the commencement of any case with respect to Borrower under the United States Bankruptcy Code or any similar statute (including the payment of interest and other amounts which would accrue and become due but for the commencement of such case, whether or not such amounts are allowed or allowable in whole or in part in such case), whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, or secured or unsecured and (b) for purposes only of Section 5.1 hereof and subject to the priority in right of payment set forth in Section 6.4 hereof, all obligations, liabilities and indebtedness of every kind, nature and description owing by Borrower to Lender or any Affiliate of Lender arising under or pursuant to any Bank Products, whether now existing or hereafter arising (and in the case of any Affiliate of Lender, Lender shall be deemed to act as agent for such Affiliate for purposes of Section 5.1 hereof) including, but not limited to, any and all existing and future
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obligations under any Swap Agreements between Lender or any Affiliate of Lender and Borrower whenever executed. Obligor shall mean the Guarantor, endorser, acceptor, surety or other person liable on or with respect to the Obligations or who is the owner of any property which is security for the Obligations, other than Borrower. Pension Plan shall mean a pension plan (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA which Borrower sponsors, maintains, or to which Borrower or any ERISA Affiliate makes, is making, or is obligated to make contributions, other than a Multiemployer Plan. Permitted Holders shall mean the persons listed on Schedule 1.62 hereto. Person or person shall mean any individual, sole proprietorship, partnership, corporation (including any corporation which elects subchapter S status under the Code), limited liability company, limited liability partnership, business trust, unincorporated association, joint stock corporation, trust, joint venture or other entity or any government or any agency or instrumentality or political subdivision thereof. Philadelphia Premises shall mean that certain Real Property located at 1700 Chestnut Street, Philadelphia, Pennsylvania. Plan shall mean an employee benefit plan (as defined in Section 3(3) of ERISA) which Borrower sponsors, maintains, or to which it makes, is making, or is obligated to make contributions, or in the case of a Multiemployer Plan has made contributions at any time during the immediately preceding six (6) plan years or with respect to which Borrower may incur liability. Petition Date has the meaning provided in the recitals to this Agreement. Post Carve Out-Notice Cap means $250,000 (which cap shall be inclusive of Chapter 7 liquidation expenses, but exclusive of Reported Fee Accruals). Prime Rate shall mean the rate from time to time publicly announced by Lender, or its successors, as its prime rate, whether or not such announced rate is the best rate available. Prime Rate Loans shall mean any Loans or portion thereof on which interest is payable based on the Adjusted Prime Rate in accordance with the terms thereof. Professional Expense Carve Out shall mean a carve out for the following expenses: (a) allowed administrative expenses pursuant to 28 U.S.C. Section 1930(a)(6) for fees required to be paid to the Clerk of the Bankruptcy Court and to the Office of the United States Trustee, (b) professional fees of, and costs and expenses incurred by the Case Professionals and allowed (whether prior to or after delivery of the Carve Out Trigger Notice) by the Bankruptcy Court (i) to the extent incurred by the Case Professionals after the delivery of the Carve Out Trigger 19
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Notice in an amount not to exceed the Post Carve Out-Notice Cap, and (ii) to the extent incurred by the Case Professionals prior to the delivery of the Carve Out Trigger Notice, an amount equal to the sum of (A) Reported Fee Accruals, plus (B) any additional fees, costs and expenses accrued or incurred by a Case Professional from the last day included in the prior Reported Fee Accrual of such Case Professional through the date on which the Carve Out Trigger Notice shall have been delivered, less, in each case, any amounts actually paid on account thereof. Notwithstanding anything to the contrary contained herein, so long as a Carve Out Trigger Notice shall not have been delivered, the Borrower shall be permitted to pay compensation and reimbursement of expenses allowed and payable under 11 U.S.C. Sections 330 and 331, as the same may be due and payable and allowed by the Bankruptcy Court, and the same shall not reduce the Professional Expense Carve Out described in clause (i) above. Professional Expense Carve Out Reserve means a Reserve equal to the maximum possible amount of the Professional Expense Carve Out. Professional Fees and Expenses means, subject to any limitations contained in the DIP Orders, (a) allowed administrative expenses payable pursuant to 28 U.S.C. 1930(a)(6), and (b) professional fees of, and costs and expenses incurred by, Case Professionals. Real Property shall mean all now owned and hereafter acquired real property of Borrower, including leasehold interests, together with all buildings, structures, and other improvements located thereon and all licenses, easements and appurtenances relating thereto, wherever located, including with regard to the Mortgaged Premises. Receivables shall mean all of the following now owned or hereafter arising or acquired property of Borrower: (a) all Accounts; (b) all interest, fees, late charges, penalties, collection fees and other amounts due or to become due or otherwise payable in connection with any Account; (c) all payment intangibles of Borrower; (d) letters of credit, indemnities, guarantees, security or other deposits and proceeds thereof issued payable to Borrower or otherwise in favor of or delivered to Borrower in connection with any Account or any Credit Card Receivables; or (e) all other accounts, contract rights, chattel paper, instruments, notes, general intangibles and other forms of obligations owing to Borrower, whether from the sale and lease of goods or other property, licensing of any property (including Intellectual Property or other general intangibles), rendition of services or from loans or advances by Borrower or to or for the benefit of any third person (including loans or advances to any Affiliates or Subsidiaries of Borrower) or otherwise associated with any Accounts, Inventory or general intangibles of Borrower (including, without limitation, choses in action, causes of action, tax refunds, tax refund claims, any funds which may become payable to Borrower in connection with the termination of any Plan or other employee benefit plan and any other amounts payable to Borrower from any Plan or other employee benefit plan, rights and claims against carriers and shippers, rights to indemnification, business interruption insurance and proceeds thereof, casualty or any similar types of insurance and any proceeds thereof and proceeds of insurance covering the lives of employees on which Borrower is a beneficiary). Records shall mean all of Borrower's present and future books of account of every kind or nature, purchase and sale agreements, invoices, ledger cards, bills of lading and other shipping
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evidence, statements, correspondence, memoranda, credit files and other data relating to the Collateral or any account debtor, together with the tapes, disks, diskettes and other data and software storage media and devices, file cabinets or containers in or on which the foregoing are stored (including any rights of Borrower with respect to the foregoing maintained with or by any other person). Reported Fee Accruals shall mean fees, expenses and costs incurred or accrued by the Case Professionals through and including the date of the Lenders delivery of a Carve Out Trigger Notice, which amounts shall be reported in arrears by the Borrower to the Lender on a monthly basis less any amounts actually paid on account thereof. Reserves shall mean as of any date of determination, such amounts as Lender may from time to time establish and revise in good faith reducing the amount of Revolving Loans and Letters of Credit which would otherwise be available to Borrower under the lending formula(s) provided for herein: (a) to reflect events, conditions, contingencies or risks which, as determined by Lender in good faith, adversely affect, or would have a reasonable likelihood of adversely affecting, either (i) the Collateral (other than Eligible L/C Rights) or any other property which is security for the Obligations, its value or the amount that might be received by Lender from the sale or other disposition or realization upon such Collateral (other than Eligible L/C Rights), or (ii) the security interests and other rights of Lender in the Collateral (other than Eligible L/C Rights), including the enforceability, perfection and priority thereof, or (b) to reflect Lender's good faith belief that any collateral report or financial information furnished by or on behalf of Borrower or any Obligor to Lender is or may have been incomplete, inaccurate or misleading in any material respect or (c) to reflect outstanding Letters of Credit as provided in Section 2.2 hereof or (d) in respect of any state of facts which Lender determines in good faith constitutes a Default or an Event of Default or (e) to insure the availability of funds to make rent and/or lease payments with regard to lease obligations of the Borrower or (f) to reflect the amount of any priority or administrative expense claims that, in Lenders reasonable determination, require payment during the Chapter 11 Case in an amount not to exceed the Professional Expense CarveOut Reserve, or (g) to reflect the value of Inventory at leased locations with respect to which the lease therefor has not been assumed at least forty-five (45) days prior to the expiration of the applicable period to assume or reject the leases at such locations or as to which there has been filed a landlords motion to compel the assumption or rejection of the lease. Without limiting the generality of the foregoing, Reserves may, at Lenders option, be established to reflect any of the following: (i) dilution with respect to Credit Card Receivables (based on the ratio of the aggregate amount of non-cash reductions in Credit Card Receivables for any period to the aggregate dollar amount of the sales of Borrower giving rise to Credit Card Receivables for such period) as calculated by Lender for any period is or is reasonably anticipated to be greater than five percent (5.00%); (ii) inventory shrinkage, (iii) reserves in respect of markdowns and cost variances (pursuant to discrepancies between the purchase order price of Inventory and the actual cost thereof), (iv) amounts owing by Borrower to Credit Card Issuers or Credit Card Processors in connection with the Credit Card Agreements, (v) up to fifty (50%) percent of the aggregate amount of merchandise gift certificates and coupons, (vi) variances between the perpetual inventory records of Borrower and the results of the test counts of Inventory conducted by Lender with respect thereto in excess of the percentage acceptable to Lender, (vii) the aggregate 21
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amount of deposits, if any, received by Borrower from its retail customers in respect of unfilled orders for merchandise and the purchase price of layaway goods, (viii) that the orderly liquidation value of the Equipment or fair market value of any of the Real Property as set forth in the most recent acceptable appraisals received by Lender with respect thereto has declined so that the then outstanding principal amount of any term loan is greater than such percentage with respect to such appraised values as Lender used in establishing the original principal amount of such term loan multiplied by such appraised values; (ix) returns, discounts, claims, credits and allowances of any nature that are not paid pursuant to the reduction of Accounts; (x) sales, excise or similar taxes included in the amount of any Accounts reported to Lender; a change in the turnover, age or mix of the categories of Inventory that adversely affects the aggregate value of all Inventory; (xi) amounts due or to become due to owners and lessors of premises where any Collateral is located, other than for those locations where Lender has received a Collateral Access Agreement that Lender has accepted in writing and/or (xii) obligations, liabilities or indebtedness (contingent or otherwise) of Borrower or Guarantor to any Bank Product provider arising under or in connection with any Bank Products of Borrower or Guarantor with a Bank Product provider or as such Bank Product provider may otherwise require and Lender may agree in connection therewith to the extent that such obligation, liabilities or indebtedness constitute Obligations as such term is defined herein or otherwise receive the benefit of the security interest of Lender in any Collateral. The amount of any Reserve established by Lender shall have a reasonable relationship to the event, condition or other matter which is the basis for such reserve as determined by Lender in good faith. Notwithstanding the foregoing, Lender shall not establish any Reserves in respect of the Eligible L/C Rights. Revolving Loan Limit shall mean $10,000,000. Revolving Loans shall mean the loans now or hereafter made by Lender to or for the benefit of Borrower on a revolving basis (involving advances, repayments and readvances) as set forth in Section 2.1 hereof. Satisfactory Systems Implementation Event shall mean the implementation of warehouse and store inventory, monitoring, reporting and location systems with respect to DOC Inventory satisfactory to the Lender from time to time in its sole and absolute discretion. Store Accounts shall have the meaning set forth in Section 6.3 hereof. Store Closing Program Motion means that certain motion filed by the Borrower in the Bankruptcy Case pursuant to which the Borrower seeks permission from the Bankruptcy Court to close all of the Borrowers retail store locations and liquidate all of the Inventory located at those stores. Subsidiary or subsidiary shall mean, with respect to any Person, any corporation, limited liability company, limited liability partnership or other limited or general partnership, trust, association or other business entity of which an aggregate of at least a majority of the outstanding Capital Stock or other interests entitled to vote in the election of the board of directors of such corporation (irrespective of whether, at the time, Capital Stock of any other class or classes of such corporation shall have or might have voting power by reason of the
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happening of any contingency), managers, trustees or other controlling persons, or an equivalent controlling interest therein, of such Person is, at the time, directly or indirectly, owned by such Person and/or one or more subsidiaries of such Person. Swap Agreement shall mean a swap agreement as defined in 11 U.S.C. 101, as in effect from time to time, or any successor statute, and includes, without limitation, any rate swap agreement, forward rate agreement, commodity swap, commodity option, interest rate option, forward foreign exchange agreement, spot foreign exchange agreement, rate cap agreement, rate floor agreement, rate collar agreement, currency swap agreement, cross-currency rate swap agreement, currency option and any other similar agreement. Termination Date shall mean the earliest of (i) December 31, 2012, (ii) the date on which the Obligations become due and payable pursuant to Section __, (iii) a sale of all or substantially all of the assets of the Borrower pursuant to the provisions of the Bankruptcy Code under both of the Asset Purchase Agreements described in clauses (ii) and (iii) of the definition thereof or otherwise, or (iv) dismissal of the Chapter 11 Case, conversion of the Chapter 11 Case to a chapter 7 case or the effective date of a Chapter 11 Plan. UCC shall mean the Uniform Commercial Code as in effect in the State of New York, and any successor statute, as in effect from time to time (except that terms used herein which are defined in the Uniform Commercial Code as in effect in the State of New York on the date hereof shall continue to have the same meaning notwithstanding any replacement or amendment of such statute except as Lender may otherwise determine). Value shall mean, as determined by Lender in good faith, with respect to Inventory, the lower of (a) cost computed on a first-in first-out basis in accordance with GAAP or (b) market value provided, that, for purposes of the calculation of the Borrowing Base, (i) the Value of the Inventory shall not include: (A) the portion of the value of Inventory equal to the profit earned by any Affiliate on the sale thereof to Borrower or (B) write-ups or write-downs in value with respect to currency exchange rates and (ii) notwithstanding anything to the contrary contained herein, the cost of the Inventory shall be computed in the same manner and consistent with the most recent appraisal of the Inventory received and accepted by Lender prior to the date hereof, if any. Vim shall mean Marcia Wilson, as successor to Vim Associates, a partnership formed under the laws of the State of New Jersey. Vim-3 shall mean Vim-3, L.L.C., a limited liability company formed under the laws of the State of New Jersey. Vim-3/Vimwilco Credit Facility shall mean that certain credit facility extended by the Lender in favor of Vim-3 and Vimwilco as evidenced by that certain Amended and Restated Loan and Security Agreement by and among Vim-3 and Vimwilco, as borrowers, the Borrower and Vim, as guarantors, and the Lender dated the date hereof, that certain Term Note executed by Vim-3 and Vimwilco in favor of the Lender in the original principal amount of $8,500,000 dated the date hereof, that certain Amended and Restated North Bergen Mortgage Note executed
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by Vim-3 in favor of the Lender in the original principal amount of $2,760,000 dated the date hereof and that certain Second Amended and Restated Philadelphia Mortgage Note executed by Vimwilco in favor of the Lender in the original principal amount of $599,999.32 dated the date hereof, as amended, restated, replaced and/or modified from time to time. Vimwilco shall mean Vimwilco, L.P., a limited partnership formed under the laws of the State of New Jersey. Vim Forbearance Agreement shall mean that certain Forbearance Agreement dated August 1, 2012 entered into by and among the Lender, the Borrower, Vim, Vim-3, Vimwilco, and Marcia Wilson. Voting Stock shall mean with respect to any Person, (a) one (1) or more classes of Capital Stock of such Person having general voting powers to elect at least a majority of the board of directors, managers or trustees of such Person, irrespective of whether at the time Capital Stock of any other class or classes have or might have voting power by reason of the happening of any contingency, and (b) any Capital Stock of such Person convertible or exchangeable without restriction at the option of the holder thereof into Capital Stock of such Person described in clause (a) of this definition. SECTION 2. CREDIT FACILITIES 2.1 Loans. (a) Subject to and upon the terms and conditions contained herein, Lender agrees that the DIP Roll-up Amount shall be deemed to have been made as a loan to the Borrower hereunder on the Closing Date. Any amount of the DIP Roll-up Amount that is repaid or prepaid may not be reborrowed. (b) Subject to and upon the terms and conditions contained herein, Lender agrees to make Revolving Loans to Borrower from time to time in amounts requested by Borrower up to the amount equal to the lesser of: (i) the Borrowing Base minus the then outstanding DIP Rollup Amount and (ii) the Revolving Loan Limit. Revolving Loans may be repaid at any time and reborrowed until the Termination Date. (c) In the event that (i) the aggregate amount of the Loans and Letter of Credit Obligations outstanding at any time exceed the lesser of (x) the Maximum Credit and (y) the Borrowing Base, or (ii) except as otherwise provided herein, the aggregate principal amount of the Revolving Loans outstanding exceeds the lesser of (x) the Borrowing Base minus the then outstanding DIP Roll-up Amount and (y) the Revolving Loan Limit, such event shall not limit, waive or otherwise affect any rights of Lender in such circumstances or on any future occasions and Borrower shall, upon demand by Lender, which may be made at any time or from time to time, immediately repay to Lender the entire amount of any such excess(es) for which payment is demanded. 2.2 Letters of Credit.
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(a) All existing Letters of Credit shall be deemed to have been issued pursuant hereto, and from and after the Closing Date shall be subject to and governed by the terms and conditions hereof. (b) [Reserved]. (c) [Reserved]. (d) [Reserved]. (e) Borrower shall reimburse immediately Lender for any draw under any Letter of Credit and pay Lender the amount of all other charges and fees payable to Lender in connection with any Letter of Credit immediately when due, irrespective of any claim, setoff, defense or other right which Borrower may have at any time against Lender or any other Person. Each drawing under any Letter of Credit or other amount payable in connection therewith when due shall constitute a request by Borrower to Lender for a Prime Rate Loan in the amount of such drawing or other amount then due, and shall be made by Lender as a Revolving Loan. The date of such Loan shall be the date of the drawing or as to other amounts, the due date therefor. Any payment made to reimburse Lender in connection with any Letter of Credit shall constitute an additional Revolving Loan to Borrower pursuant to this Section 2. (f) Borrower shall indemnify and hold Lender harmless from and against any and all losses, claims, damages, liabilities, costs and expenses which Lender may suffer or incur in connection with any Letter of Credit and any documents, drafts or acceptances relating thereto. Borrower assumes all risks with respect to the acts or omissions of the drawer under or beneficiary of any Letter of Credit and for such purposes the drawer or beneficiary shall be deemed Borrower's agent. Borrower assumes all risks for, and agrees to pay, all foreign, Federal, State and local taxes, duties and levies relating to any goods subject to any Letter of Credit or any documents, drafts or acceptances thereunder. Borrower hereby releases and holds Lender harmless from and against any acts, waivers, errors, delays or omissions, with respect to or relating to any Letter of Credit, except for the gross negligence or willful misconduct of Lender as determined pursuant to a final, non-appealable order of a court of competent jurisdiction. The provisions of this Section 2.2(f) shall survive the payment of Obligations and the termination of this Agreement. (g) In connection with Inventory purchased pursuant to any Letter of Credit, Borrower shall, at Lenders request, instruct all suppliers, carriers, forwarders, customs brokers, warehouses or others receiving or holding cash, checks, Inventory, documents or instruments in which Lender holds a security interest that upon Lenders request, such items are to be delivered to Lender and/or subject to Lenders order, and if they shall come into Borrowers possession, to deliver them, upon Lender's request, to Lender in their original form. Except as otherwise provided herein, Lender shall not exercise such right to request such items so long as no Default or Event of Default shall exist or have occurred and be continuing. Except as Lender may otherwise specify, Borrower shall designate Lender as the consignee on all bills of lading and other negotiable and non-negotiable documents.
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(h) Borrower hereby irrevocably authorizes and directs Lender to name Borrower as the account party therein. Nothing contained herein shall be deemed or construed to grant Borrower any right or authority to pledge the credit of Lender in any manner. Borrower shall be bound by any reasonable interpretation made in good faith by Lender under or in connection with any Letter of Credit or any documents, drafts or acceptances thereunder, notwithstanding that such interpretation may be inconsistent with any instructions of Borrower. (i) The obligations of Borrower to pay Letter of Credit Obligations shall be absolute, unconditional and irrevocable and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever, notwithstanding the occurrence or continuance of any Default, Event of Default, the failure to satisfy any other condition set forth in Section 4 or any other event or circumstance. SECTION 3. INTEREST AND FEES 3.1 Interest. (a) All Loans hereunder shall be maintained as Prime Rate Loans. Borrower shall pay to Lender interest on the outstanding principal amount of the Loans at the Interest Rate. All interest accruing hereunder on and after the date of any Event of Default or termination hereof shall be payable on demand. (b) [Reserved]. (c) [Reserved]. (d) Interest shall be payable by Borrower to Lender monthly in arrears not later than the first day of each calendar month and shall be calculated on the basis of a 365/366 day year and actual days elapsed. The interest rate on non-contingent Obligations shall increase or decrease by an amount equal to each increase or decrease in the Prime Rate effective on the date of any change in such Prime Rate. In no event shall charges constituting interest payable by Borrower to Lender exceed the maximum amount or the rate permitted under any applicable law or regulation, and if any such part or provision of this Agreement is in contravention of any such law or regulation, such part or provision shall be deemed amended to conform thereto. 3.2 [Reserved].Deferred Closing Fee. Borrower shall pay to Lender the Deferred Closing Fee, which shall be fully earned on the Closing Date and due and payable on the earlier of (a) the Termination Date and (b) the date on which the Obligations are paid in full and all commitments hereunder are terminated. 3.4 Servicing Fee. Borrower shall pay to Lender monthly a servicing fee in an amount equal to $5,000 in respect of Lender's services for each month (or part thereof) while this Agreement remains in effect and for so long thereafter as any of the Loans are outstanding, which fee shall be fully earned as of and payable in advance on the Closing Date and on the first day of each month hereafter. 26
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3.5 Unused Line Fee. Borrower shall pay to Lender monthly an unused line fee at a rate equal to three eighths of one percent (0.375%) per annum calculated upon the amount by which the Revolving Loan Limit exceeds the average daily principal balance of the outstanding Revolving Loans during the immediately preceding month (or part thereof) while this Agreement is in effect and for so long thereafter as any of the Loans are outstanding, which fee shall be payable on the first day of each month in arrears. 3.6 Letter of Credit Fees.Borrower shall pay to Lender a fee at a rate equal to the Applicable Margin for Letters of Credit per annum, on the average daily maximum amount available to be drawn under all of such Letters of Credit for the immediately preceding month (or part thereof), payable in arrears as of the first day of each succeeding month, computed for each day from the date of issuance to the date of expiration; except that Borrower shall pay, at Lender's option, without notice, such fee at a rate two (2%) percent greater than the otherwise applicable rate on such average daily maximum amount for: (A) the period from and after the date of termination or non-renewal hereof until Lender has received full and final payment of all Letter of Credit Obligations (notwithstanding entry of a judgment against Borrower) and (B) the period from and after the date of the occurrence of an Event of Default for so long as such Event of Default is continuing as determined by Lender. Such letter of credit fees shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed and the obligation of Borrower to pay such fee shall survive the termination or non-renewal of this Agreement. In addition to the letter of credit fees provided above, Borrower shall pay to Lender the letter of credit fronting and negotiation fees agreed to by Borrower and Lender from time to time and the customary charges from time to time of Lender with respect to the issuance, amendment, transfer, administration, cancellation and conversion of, and drawings under, such Letters of Credit. 3.7 Changes in Laws and Increased Costs of Loans. (a) If after the date hereof, either (i) any change in, or in the interpretation of, any law or regulation is introduced, including, without limitation, with respect to reserve requirements, applicable to Lender or any banking or financial institution from whom Lender borrows funds or obtains credit (a Funding Bank), or (ii) a Funding Bank or Lender complies with any future guideline or request from any central bank or other Governmental Authority or (iii) a Funding Bank or Lender determines that the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof has or would have the effect described below, or a Funding Bank or Lender complies with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, and in the case of any event set forth in this clause (iii), such adoption, change or compliance has or would have the direct or indirect effect of reducing the rate of return on Lenders capital as a consequence of its obligations hereunder to a level below that which Lender could have achieved but for such adoption, change or compliance (taking into consideration the Funding Banks or Lenders policies with respect to capital adequacy) by an amount deemed by Lender to be material, and the result of any of the foregoing events described in clauses (i), (ii) or 27
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(iii) is or results in an increase in the cost to Lender of funding or maintaining the Loans or the Letters of Credit, then Borrower shall from time to time upon demand by Lender pay to Lender additional amounts sufficient to indemnify Lender against such increased cost on an after-tax basis (after taking into account applicable deductions and credits in respect of the amount indemnified). A certificate as to the amount of such increased cost shall be submitted to Borrower by Lender and shall be conclusive, absent manifest error. (b) [Reserved]. (c) [Reserved]. (d) [Reserved]. SECTION 4. CONDITIONS PRECEDENT 4.1 Conditions Precedent to Initial Loans and Letters of Credit. The obligation of Lender to make the initial Loans or to issue the initial Letters of Credit hereunder is subject to the satisfaction of, or waiver of, immediately prior to or concurrently with the making of such Loan or the issuance of such Letter of Credit of each of the following conditions precedent: (a) all requisite corporate action and proceedings (including, but not limited to, all secretarys certificates, incumbency certificates and resolutions) in connection with this Agreement and the other Financing Agreements shall be satisfactory in form and substance to Lender, and Lender shall have received all information and copies of all documents, including records of requisite corporate action and proceedings which Lender may have requested in connection therewith, such documents where requested by Lender or its counsel to be certified by appropriate corporate officers or Governmental Authority (and including a copy of the certificate of incorporation/formation of Borrower and Guarantor certified by the Secretary of State (or equivalent Governmental Authority) which shall set forth the same complete corporate name of Borrower and Guarantor as is set forth herein and such document as shall set forth the organizational identification number of Borrower and Guarantor, if one is issued in its jurisdiction of incorporation/formation); (b) Other than as a result of the Effects of Bankruptcy or the events leading up to and resulting from the commencement of the Chapter 11 Case, no material adverse change shall have occurred in the assets, business or prospects of Borrower since the date of Lender's latest field examination and no change or event shall have occurred which would impair the ability of Borrower or any Obligor to perform its obligations hereunder or under any of the other Financing Agreements to which it is a party or of Lender to enforce the Obligations or realize upon the Collateral; (c) Lender shall have received, in form and substance satisfactory to Lender, Deposit Account Control Agreements by and among Lender, Borrower and each bank where Borrower has a deposit account, in each case, duly authorized, executed and delivered by such bank and Borrower (or Lender shall be the banks customer with respect to such deposit account, as Lender may specify);
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(d) Lender shall have received evidence, in form and substance satisfactory to Lender, that, upon entry of the Interim Borrowing Order, the Lender has a valid perfected first priority security interest in all of the Collateral, and a super-priority administrative claim, in each case, as set forth in the Interim Borrowing Order; (e) Lender shall have received certificates of incorporation/formation and good standing certificates for Borrower and Guarantor dated not more than 30 days prior to the Closing Date, issued by the Secretary of State or other appropriate official of Borrowers and Guarantors jurisdiction of incorporation/formation and each jurisdiction where the conduct of Borrowers and Guarantors business activities or the ownership of its properties necessitates qualification; (f) Lender shall have received, in form and substance satisfactory to Lender, such opinion letters of counsel to Borrower with respect to the Financing Agreements and such other matters as Lender may reasonably request; (g) Lender shall have received copies of all Asset Purchase Agreements; (h) Lender shall have received the Approved Budget; (i) Lender shall have received (i) evidence that the Borrower has established and is maintaining demand depository accounts with the Lender and (ii) an interim order of the Bankruptcy Court approving and permitting the continuance of the Borrowers current cash management systems. (j) Lender shall have received current agings of receivables, current perpetual inventory records and/or rollforwards of accounts and inventory of the Borrower through the Closing Date or any earlier date acceptable to the Lender in form and substance satisfactory to the Lender; (k) an Interim Borrowing Order shall have been entered by the Bankruptcy Court authorizing the execution and delivery of all of the Financing Agreements on terms and conditions outlined herein and otherwise reasonably satisfactory to the Lender; (l) the other Financing Agreements and all instruments and documents hereunder and thereunder shall have been duly executed and delivered to Lender, in form and substance satisfactory to Lender; and (m) Lender shall have received the original issued copy of the Eligible L/C. 4.2 Conditions Precedent to All Loans and Letters of Credit. The obligation of Lender to make any of the Loans, including the initial Loans, or to issue any Letter of Credit, including the initial Letters of Credit, is subject to the further satisfaction of, or waiver of, immediately prior to or concurrently with the making of each such Loan or the issuance of such Letter of Credit of each of the following conditions precedent:
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(a) all representations and warranties contained herein and in the other Financing Agreements shall be true and correct with the same effect as though such representations and warranties had been made on and as of the date of the making of each such Loan or providing each such Letter of Credit and after giving effect thereto, except to the extent that such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties shall have been true and accurate on and as of such earlier date); (b) no law, regulation, order, judgment or decree of any Governmental Authority shall exist, and no action, suit, investigation, litigation or proceeding shall be pending or threatened in any court or before any arbitrator or Governmental Authority, which (i) purports to enjoin, prohibit, restrain or otherwise affect (A) the making of the Loans or providing the Letters of Credit, or (B) the consummation of the transactions contemplated pursuant to the terms hereof or the other Financing Agreements or (ii) has or has a reasonable likelihood of having a Material Adverse Effect; (c) no Default or Event of Default shall exist or have occurred and be continuing on and as of the date of the making of such Loan or providing each such Letter of Credit and after giving effect thereto; (d) there shall not be proceeding pending or threatened seeking to invalidate or avoid, or any order invalidating or avoiding, the pre-petition claims, security interests and liens securing the Existing Credit Facility or sustaining any other similar challenge under Chapter 5 of the Bankruptcy Code; and (e) after receipt by the Borrower of the Minimum Guaranteed Amount, the cash balance of the Borrowers Blocked Accounts shall be less than $100,000. SECTION 5. GRANT AND PERFECTION OF SECURITY INTEREST 5.1 Grant of Security Interest. To secure payment and performance of all Obligations, Borrower hereby grants to Lender a continuing security interest in, a lien upon, and a right of set off against, and hereby assigns to Lender as security, all personal and real property and fixtures and interests in property and fixtures of Borrower, whether now owned or hereafter acquired or existing, and wherever located, specifically, excluding, however, any and all membership interests in 152 Franklin Street, LLC (together with all other collateral security for the Obligations at any time granted to or held or acquired by Lender, collectively, the Collateral), including: (a) all Accounts; (b) all general intangibles, including, without limitation, all Intellectual Property; (c) all goods, including, without limitation, Inventory and Equipment; (d) all Real Property and fixtures;
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(e) all chattel paper, including, without limitation, all tangible and electronic chattel paper; (f) all instruments, including, without limitation, all promissory notes; (g) all documents; (h) all deposit accounts; (i) all letters of credit (including the Eligible L/C), bankers acceptances and similar instruments and including all letter-of-credit rights; (j) all supporting obligations and all present and future liens, security interests, rights, remedies, title and interest in, to and in respect of Receivables and other Collateral, including (i) rights and remedies under or relating to guaranties, contracts of suretyship, letters of credit and credit and other insurance related to the Collateral, (ii) rights of stoppage in transit, replevin, repossession, reclamation and other rights and remedies of an unpaid vendor, lienor or secured party, (iii) goods described in invoices, documents, contracts or instruments with respect to, or otherwise representing or evidencing, Receivables or other Collateral, including returned, repossessed and reclaimed goods, and (iv) deposits by and property of account debtors or other persons securing the obligations of account debtors; (k) all (i) investment property (including securities, whether certificated or uncertificated, securities accounts, security entitlements, commodity contracts or commodity accounts) and (ii) monies, credit balances, deposits and other property of Borrower now or hereafter held or received by or in transit to Lender or its Affiliates or at any other depository or other institution from or for the account of Borrower, whether for safekeeping, pledge, custody, transmission, collection or otherwise; (l) all commercial tort claims; (m) to the extent not otherwise described above, all Receivables, including, without limitation, those under the Asset Purchase Agreements; (n) all Records; and (o) all products and proceeds of the foregoing, in any form, including, without limitation, (i) insurance proceeds and all claims against third parties for loss or damage to or destruction of or other involuntary conversion of any kind or nature of any or all of the other Collateral, and (ii) proceeds under the Asset Purchase Agreements, including, without limitation all deposits required to be paid by Jericho Acquisitions I LLC thereunder, whether in the form of cash, letter(s) of credit (including all funds received from draws thereunder), or otherwise; provided, however, that the Collateral shall not include (i) any Bankruptcy Recoveries (except for the following, which shall be Collateral: (A) the full amount of any such recovery or settlement thereof to the extent arising under Section 549 of the Bankruptcy Code and (B) all 31
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amounts necessary to reimburse the Lender for the amount of the Carve Out, if any, used to finance the pursuit of such recovery or settlement with respect to all Bankruptcy Recoveries), (ii) the Borrowers interests in leaseholds, except for proceeds of all leases, whether or not so perfected prior to the Petition Date, (iii) except as may otherwise be permitted under the Bankruptcy Code or other applicable law, any lease, license, contract, property rights or agreement to which the Borrower is a party or any of its rights or interest thereunder if and for so long as the grant of such Lien shall constitute or result in (A) the abandonment, invalidation or unenforceability of any right, title or interest of the Borrower therein, or (B) in a breach or termination pursuant to the terms of, or a default under, any such lease, license, contract, property rights or agreement (other than to the extent that any such term would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code (or a successor provision or provisions) of any relevant jurisdiction or any other applicable law or principles of equity), provided that the proceeds realized from any of the foregoing shall not be deemed excluded from the grant of a Lien, and provided further that to the extent such security interest at any time hereafter shall no longer be prohibited, the Borrower shall be deemed to have granted automatically and without any further action a Lien in, such right as if such restriction had never existed, (iv) any United States intent-to-use trademark or service mark application to the extent that solely during the period in which the grant of security interest therein would impair the validity or enforceability of such intent-to-use application under applicable federal law, or (v) any governmental permit or franchise that prohibits Liens on or collateral assignments of such permit or franchise (other than to the extent that any restriction on such assignment would be rendered ineffective pursuant to the Bankruptcy Code or Sections 9406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code (or any successor provision or provisions) of any relevant jurisdiction or any other applicable law or principles of equity). 5.2 Perfection of Security Interests. (a) Borrower irrevocably and unconditionally authorizes Lender (or its agent) to file at any time and from time to time such financing statements with respect to the Collateral naming Lender or its designee as the secured party and Borrower as debtor, as Lender may require, and including any other information with respect to Borrower or otherwise required by part 5 of Article 9 of the Uniform Commercial Code of such jurisdiction as Lender may determine, together with any amendment and continuations with respect thereto, which authorization shall apply to all financing statements filed on, prior to or after the date hereof. Borrower hereby ratifies and approves all financing statements naming Lender or its designee as secured party and Borrower as debtor with respect to the Collateral (and any amendments with respect to such financing statements) filed by or on behalf of Lender prior to the date hereof and ratifies and confirms the authorization of Lender to file such financing statements (and amendments, if any). Borrower hereby authorizes Lender to adopt on behalf of Borrower any symbol required for authenticating any electronic filing. In the event that the description of the collateral in any financing statement naming Lender or its designee as the secured party and Borrower as debtor includes assets and properties of Borrower that do not at any time constitute Collateral, whether hereunder, under any of the other Financing Agreements or otherwise, the filing of such financing statement shall nonetheless be deemed authorized by Borrower to the extent of the Collateral included in such description and it shall not render the financing 32
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statement ineffective as to any of the Collateral or otherwise affect the financing statement as it applies to any of the Collateral. In no event shall Borrower at any time file, or permit or cause to be filed, any correction statement or termination statement with respect to any financing statement (or amendment or continuation with respect thereto) naming Lender or its designee as secured party and Borrower as debtor without Lenders prior written consent. (b) Borrower does not have any chattel paper (whether tangible or electronic) or instruments as of the date hereof, except as set forth in Schedule 5.2(b). In the event that Borrower shall be entitled to or shall receive any chattel paper or instrument after the date hereof, Borrower shall promptly notify Lender thereof in writing. Promptly upon the receipt thereof by or on behalf of Borrower (including by any agent or representative), Borrower shall deliver, or cause to be delivered to Lender, all tangible chattel paper and instruments that Borrower or may at any time acquire, accompanied by such instruments of transfer or assignment duly executed in blank as Lender may from time to time specify, in each case except as Lender may otherwise agree. At Lenders option, Borrower shall, or Lender may at any time on behalf of Borrower, cause the original of any such instrument or chattel paper to be conspicuously marked in a form and manner acceptable to Lender with the following legend referring to chattel paper or instruments as applicable: This chattel paper or instrument is subject to the security interest of Wells Fargo Bank, National Association (as successor-ininterest by merger to Wachovia Bank, National Association) and any sale, transfer, assignment or encumbrance of this chattel paper or instrument violates the rights of such secured party. (c) In the event that Borrower shall at any time hold or acquire an interest in any electronic chattel paper or any transferable record (as such term is defined in Section 201 of the Federal Electronic Signatures in Global and National Commerce Act or in Section 16 of the Uniform Electronic Transactions Act as in effect in any relevant jurisdiction), Borrower shall promptly notify Lender thereof in writing. Promptly upon Lenders request, Borrower shall take, or cause to be taken, such actions as Lender may request to give Lender control of such electronic chattel paper under Section 9-105 of the UCC and control of such transferable record under Section 201 of the Federal Electronic Signatures in Global and National Commerce Act or, as the case may be, Section 16 of the Uniform Electronic Transactions Act, as in effect in such jurisdiction. (d) Borrower does not have any deposit accounts as of the date hereof, except as set forth in Schedule 5.2(d). Borrower shall not, directly or indirectly, after the date hereof open, establish or maintain any deposit account (other than the Italian Deposit Account) with any Person other than the Lender unless each of the following conditions is satisfied: (i) Lender shall have received not less than five (5) Business Days prior written notice of the intention of Borrower to open or establish such account which notice shall specify in reasonable detail and specificity acceptable to Lender the name of the account, the owner of the account, the name and address of the bank at which such account is to be opened or established, the individual at such bank with whom Borrower is dealing and the purpose of the account, (ii) the bank where such account is opened or maintained shall be acceptable to Lender, and (iii) on or before the opening of such deposit account, Borrower shall as Lender may specify either (A) deliver to Lender a Deposit Account Control Agreement with respect to such deposit account duly authorized, 33
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executed and delivered by Borrower and the bank at which such deposit account is opened and maintained or (B) arrange for Lender to become the customer of the bank with respect to the deposit account on terms and conditions acceptable to Lender. The terms of this subsection (d) shall not apply to deposit accounts specifically and exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of Borrowers salaried employees. (e) Borrower does not own or hold, directly or indirectly, beneficially or as record owner or both, any investment property, as of the date hereof, or have any investment account, securities account, commodity account or other similar account with any bank or other financial institution or other securities intermediary or commodity intermediary as of the date hereof, in each case except as set forth in Schedule 5.2(d). (i) In the event that Borrower shall be entitled to or shall at any time after the date hereof hold or acquire any certificated securities, Borrower shall promptly endorse, assign and deliver the same to Lender, accompanied by such instruments of transfer or assignment duly executed in blank as Lender may from time to time specify. If any securities, now or hereafter acquired by Borrower are uncertificated and are issued to Borrower or its nominee directly by the issuer thereof, Borrower shall immediately notify Lender thereof and shall as Lender may specify, either (A)cause the issuer to agree to comply with instructions from Lender as to such securities, without further consent of Borrower or such nominee, or (B)arrange for Lender to become the registered owner of the securities. (ii) Borrower shall not, directly or indirectly, after the date hereof open, establish or maintain any investment account, securities account, commodity account or any other similar account (other than a deposit account) with any securities intermediary or commodity intermediary other than Lender unless each of the following conditions is satisfied: (A) Lender shall have received not less than five (5) Business Days prior written notice of the intention of Borrower to open or establish such account which notice shall specify in reasonable detail and specificity acceptable to Lender the name of the account, the owner of the account, the name and address of the securities intermediary or commodity intermediary at which such account is to be opened or established, the individual at such intermediary with whom Borrower is dealing and the purpose of the account, (B) the securities intermediary or commodity intermediary (as the case may be) where such account is opened or maintained shall be acceptable to Lender, and (C) on or before the opening of such investment account, securities account or other similar account with a securities intermediary or commodity intermediary, Borrower shall as Lender may specify either (i) execute and deliver, and cause to be executed and delivered to Lender, an Investment Property Control Agreement with respect thereto duly authorized, executed and delivered by Borrower and such securities intermediary or commodity intermediary or (ii) arrange for Lender to become the entitlement holder with respect to such investment property on terms and conditions acceptable to Lender. (f) Borrower is not the beneficiary or otherwise entitled to any right to payment under any letter of credit, bankers acceptance or similar instrument as of the date hereof, except for the Eligible L/C. In the event that Borrower shall be entitled to or shall receive any right to 34
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payment under any letter of credit, bankers acceptance or any similar instrument, whether as beneficiary thereof or otherwise after the date hereof, Borrower shall promptly notify Lender thereof in writing. Borrower shall immediately, as Lender may specify, either (i) deliver, or cause to be delivered to Lender, with respect to any such letter of credit, bankers acceptance or similar instrument, the written agreement of any nominated person obligated to make any payment in respect thereof (including any confirming or negotiating bank), in form and substance satisfactory to Lender, consenting to the assignment of the proceeds of the letter of credit to Lender by Borrower and agreeing to make all payments thereon directly to Lender or as Lender may otherwise direct or (ii) cause Lender to become, at Borrowers expense, the transferee beneficiary of the letter of credit, bankers acceptance or similar instrument (as the case may be). (g) Borrower has no commercial tort claims as of the date hereof. In the event that Borrower shall at any time after the date hereof have any commercial tort claims, Borrower shall promptly notify Lender thereof in writing, which notice shall (i) set forth in reasonable detail the basis for and nature of such commercial tort claim and (ii) include the express grant by Borrower to Lender of a security interest in such commercial tort claim (and the proceeds thereof). In the event that such notice does not include such grant of a security interest, the sending thereof by Borrower to Lender shall be deemed to constitute such grant to Lender. Upon the sending of such notice, any commercial tort claim described therein shall constitute part of the Collateral and shall be deemed included therein. Without limiting the authorization of Lender provided in Section 5.2(a) hereof or otherwise arising by the execution by Borrower of this Agreement or any of the other Financing Agreements, Lender is hereby irrevocably authorized from time to time and at any time to file such financing statements naming Lender or its designee as secured party and Borrower as debtor, or any amendments to any financing statements, covering any such commercial tort claim as Collateral. In addition, Borrower shall promptly upon Lenders request, execute and deliver, or cause to be executed and delivered, to Lender such other agreements, documents and instruments as Lender may require in connection with such commercial tort claim. (h) Borrower does not have any goods, documents of title or other Collateral in the custody, control or possession of a third party as of the date hereof, except as set forth in Schedule 5.2(h) and except for goods located in the United States in transit to a location of Borrower permitted herein in the ordinary course of business of Borrower in the possession of the carrier transporting such goods. In the event that any goods, documents of title or other Collateral are at any time after the date hereof in the custody, control or possession of any other person not referred to in Schedule 5.2(h) or such carriers, Borrower shall promptly notify Lender thereof in writing. Promptly upon Lenders request, Borrower shall use its best efforts to deliver to Lender a Collateral Access Agreement duly authorized, executed and delivered by such person and Borrower, provided, however, if the Borrower is not able and/or willing to use its best efforts to deliver such Collateral Access Agreement, then a Default shall not exist hereunder, however, the Lender may institute Reserves with regard to the Collateral located at each such location in amounts determined by the Lender in its sole, reasonable discretion until such Collateral Access Agreement is provided to the Lender.
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(i) Borrower shall take any other actions reasonably requested by Lender from time to time to cause the attachment, perfection and first priority of, and the ability of Lender to enforce, the security interest of Lender in any and all of the Collateral, including, without limitation, (i) executing, delivering and, where appropriate, filing financing statements and amendments relating thereto under the UCC or other applicable law, to the extent, if any, that Borrower's signature thereon is required therefor, (ii) causing Lender's name to be noted as secured party on any certificate of title for a titled good if such notation is a condition to attachment, perfection or priority of, or ability of Lender to enforce, the security interest of Lender in such Collateral, (iii) complying with any provision of any statute, regulation or treaty of the United States as to any Collateral if compliance with such provision is a condition to attachment, perfection or priority of, or ability of Lender to enforce, the security interest of Lender in such Collateral, (iv) obtaining the consents and approvals of any Governmental Authority or third party, including, without limitation, any consent of any licensor, lessor or other person obligated on Collateral, and taking all actions required by any earlier versions of the UCC or by other law, as applicable in any relevant jurisdiction. SECTION 6. COLLECTION AND ADMINISTRATION 6.1 Borrower's Loan Account. Lender shall maintain one or more loan account(s) on its books in which shall be recorded (a) all Loans, Letters of Credit and other Obligations and the Collateral, (b) all payments made by or on behalf of Borrower and (c) all other appropriate debits and credits as provided in this Agreement, including fees, charges, costs, expenses and interest. All entries in the loan account(s) shall be made in accordance with Lender's customary practices as in effect from time to time. 6.2 Statements. Lender shall render to Borrower each month a statement setting forth the balance in the Borrower's loan account(s) maintained by Lender for Borrower pursuant to the provisions of this Agreement, including principal, interest, fees, costs and expenses. Each such statement shall be subject to subsequent adjustment by Lender but shall, absent manifest errors or omissions, be considered correct and deemed accepted by Borrower and conclusively binding upon Borrower as an account stated except to the extent that Lender receives a written notice from Borrower of any specific exceptions of Borrower thereto within thirty (30) days after the date such statement has been mailed by Lender. Until such time as Lender shall have rendered to Borrower a written statement as provided above, the balance in Borrower's loan account(s) shall be presumptive evidence of the amounts due and owing to Lender by Borrower. 6.3 Collection of Accounts. (a) Borrower shall establish and maintain, at its expense, deposit account arrangements and merchant payment arrangements with the banks set forth on Schedule 5.2(d) and subject to Section 5.2(d) hereof such other banks as Borrower may hereafter select. The banks set forth on Schedule 5.2(d) constitute all of the banks with which Borrower have deposit account arrangements and merchant payment arrangements as of the date hereof and identifies each of the deposit accounts at such banks that are used by Borrower solely for receiving store receipts from a retail store location of Borrower (together with any other deposit accounts at any time established or used by Borrower for receiving such store receipts from any retail store
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location, collectively, the Store Accounts and each individually, a Store Account) or otherwise describes the nature of the use of such deposit account by Borrower. (i) Borrower shall deposit all proceeds from sales of Inventory in every form, including, without limitation, cash, checks, credit card sales drafts, credit card sales or charge slips or receipts and other forms of daily store receipts, from each retail store location of Borrower into the Store Account of Borrower used solely for such purpose in accordance with the current practices of Borrower as of the date hereof, but in any event no less frequently than once every three (3) Business Days; provided, that, each retail store of a Borrower may retain in such store funds of up to $25,000 immediately after each deposit of funds from such store into the applicable Store Account. All such funds deposited into the Store Accounts shall be sent by wire transfer or other electronic funds transfer on each Business Day to the Blocked Accounts as provided in Section 6.3(a)(ii) below, except nominal amounts which are required to be maintained in such Store Accounts under the terms of Borrowers arrangements with the bank at which such Store Accounts are maintained (which amounts in such Store Accounts, together with all amounts held by Borrower at the retail store locations and not yet deposited in the Store Accounts, shall not in the aggregate exceed $25,000 at any one time, except to the extent from time to time additional amounts may be held in the retail stores or the Store Accounts on Saturday, Sunday or other days where the applicable depository bank is closed, which additional amounts are to be, and shall be, transferred on the next Business Day to the Blocked Accounts) and except as Lender may otherwise agree. Borrower shall deposit the Minimum Guaranteed Amount and all proceeds of the Asset Purchase Agreements in Blocked Accounts as provided in Section 6.3(a)(ii) below (ii) Borrower shall establish and maintain, at its expense, deposit accounts with Lender and with other banks as are reasonably acceptable to Lender (the Blocked Accounts) into which Borrower shall promptly either cause all amounts on deposit in the Store Accounts of Borrower to be sent as provided in Section 6.3(a)(i) above or shall itself deposit or cause to be deposited all proceeds from sales of Inventory, all amounts payable to Borrower from Credit Card Issuers and Credit Card Processors, the Minimum Guaranteed Amount, all proceeds of the Asset Purchase Agreements and all other proceeds of Collateral. Borrower shall deliver, or cause to be delivered to Lender a Deposit Account Control Agreement duly authorized, executed and delivered by each bank where a Blocked Account is maintained as provided in Section 5.2 hereof or at any time and from time to time Lender may become the banks customer with respect to any of the Blocked Accounts and promptly upon Lenders request, Borrower shall execute and deliver such agreements and documents as Lender may reasonably require in connection therewith. Borrower agrees that all payments made to such Blocked Accounts or other funds received and collected by Lender or any Lender, whether in respect of the Receivables, as proceeds of Inventory or other Collateral or otherwise shall be treated as payments to Lender in respect of the Obligations to be applied in accordance with Section 6.4 and therefore shall constitute the property of Lender to the extent of the then outstanding Obligations. (b) For purposes of calculating the amount of the Loans available to Borrower and for purposes of calculating interest on the Obligations, such payments will be applied (conditional 37
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upon final collection) to the Obligations on the Business Day of receipt by Lender of immediately available funds in the Lender Payment Account provided such payments and notice thereof are received in accordance with Lender's usual and customary practices as in effect from time to time and within sufficient time to credit Borrower's loan account on such day, and if not, then on the next Business Day. (c) Borrower and its shareholders, directors, employees, agents, Affiliates and Subsidiaries shall, acting as trustee for Lender, receive, as the property of Lender, any monies, checks, notes, drafts or any other payment relating to and/or proceeds of Receivables or other Collateral which come into their possession or under their control and immediately upon receipt thereof, shall deposit or cause the same to be deposited in the Blocked Accounts, or remit the same or cause the same to be remitted, in kind, to Lender. In no event shall the same be commingled with Borrower's own funds. Borrower agrees to reimburse Lender on demand for any amounts owed or paid to any bank or other financial institution at which a Blocked Account or any other deposit account or investment account is established or any other bank, financial institution or other person involved in the transfer of funds to or from the Blocked Accounts arising out of Lender's payments to or indemnification of such bank, financial institution or other person in connection with such Blocked Account or any amounts received therein or transferred therefrom. The obligation of Borrower to reimburse Lender for such amounts pursuant to this Section 6.3 shall survive the termination or non-renewal of this Agreement. 6.4 Payments. (a) All Obligations shall be payable to the Lender Payment Account as provided in Section 6.3 or such other place as Lender may designate from time to time. Subject to the other terms and conditions contained herein, Lender shall apply payments received or collected from Borrower or for the account of Borrower (including the monetary proceeds of collections or of realization upon any Collateral) as follows: (i) prior to the Termination Date, first, to pay any fees, indemnities or expense reimbursements then due to Lender from Borrower; second, to pay interest due in respect of any Loans or Letter of Credit Obligations; third, to pay Obligations due to Lender in respect of drawn and unreimbursed amounts under Letters of Credit; fourth, to pay or prepay principal in respect of the Loans (but, for the avoidance of doubt, not in respect of Obligations under Swap Agreements); and then any excess amounts shall be returned to a Blocked Account of the Borrower to be used by the Borrower in accordance with the Approved Budget; and (ii) on and after the Termination Date, to pay the Obligations as set forth in first through fourth above; fifth, to provide cash collateral for the aggregate undrawn amount of all outstanding Letters of Credit and; sixth, to pay any and all Obligations and Reserves with regard to any and all Swap Agreements then due; seventh, to pay or prepay any other Obligations whether or not then due, in such order and manner as Lender determines.
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(b) At Lender's option, all principal, interest, fees, costs, expenses and other charges provided for in this Agreement or the other Financing Agreements may be charged directly to the loan account(s) of Borrower. Borrower shall make all payments to Lender on the Obligations free and clear of, and without deduction or withholding for or on account of, any setoff, counterclaim, defense, duties, taxes, levies, imposts, fees, deductions, withholding, restrictions or conditions of any kind. If after receipt of any payment of, or proceeds of Collateral applied to the payment of, any of the Obligations, Lender is required to surrender or return such payment or proceeds to any Person for any reason, then the Obligations intended to be satisfied by such payment or proceeds shall be reinstated and continue and this Agreement shall continue in full force and effect as if such payment or proceeds had not been received by Lender. Borrower shall be liable to pay to Lender, and does hereby indemnify and hold Lender harmless for the amount of any payments or proceeds surrendered or returned. This Section 6.4 shall remain effective notwithstanding any contrary action which may be taken by Lender in reliance upon such payment or proceeds. This Section 6.4(b) shall survive the payment of the Obligations and the termination of this Agreement. 6.5 Authorization to Make Loans. Lender is authorized to make the Loans based upon telephonic or other instructions received from anyone purporting to be an officer of Borrower or other authorized person or, at the discretion of Lender, if such Loans are necessary to satisfy any Obligations. All requests for Loans or Letters of Credit hereunder shall specify the date on which the requested advance is to be made (which day shall be a Business Day) and the amount of the requested Loan. Requests received after 2:00 p.m. New York time on any day shall be deemed to have been made as of the opening of business on the immediately following Business Day. All Loans and Letters of Credit under this Agreement shall be conclusively presumed to have been made to, and at the request of and for the benefit of, Borrower when deposited to the credit of Borrower or otherwise disbursed or established in accordance with the instructions of Borrower or in accordance with the terms and conditions of this Agreement. 6.6 Use of Proceeds.Borrower shall use the proceeds of the Revolving Loans and the Letters of Credit hereunder, subject to and in accordance with the Approved Budget with any variances permitted under Section 9.18, only: (a) to pay costs, expenses and fees in connection with the preparation, negotiation, execution and delivery of this Agreement and the other Financing Agreements, and (b) for general operating and working capital purposes, for the payment of transaction expenses, for the payment of fees, expenses and costs incurred in connection with the Chapter 11 Case, and other proper corporate purposes of Borrower not otherwise prohibited by the terms hereof. None of the proceeds will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security or for the purposes of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the Loans to be considered a purpose credit within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, as amended. SECTION 7. COLLATERAL REPORTING AND COVENANTS 7.1 Collateral Reporting. 39
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(a) Borrower shall provide Lender with the following documents in a form satisfactory to Lender: (i) on a regular basis as required by Lender, schedules of sales made, credits issued and cash received; (ii) On Tuesday of each week as and for the immediately preceding week, (A) perpetual inventory reports, (B) inventory reports by location and category (and including the amounts of Inventory and the value thereof at any leased locations and at premises of warehouses, processors or other third parties), (C) aging of accounts receivable, including an aging of Credit Card Receivables identifying those outstanding more than five (5) Business Days since the sale date giving rise thereto, (D) agings of accounts payable (and including information indicating the amounts owing to owners and lessors of leased premises, warehouses, processors and other third parties from time to time in possession of any Collateral) and (E) a Borrowing Base Certificate in form and substance satisfactory to the Lender (which shall be calculated as of the last day of the prior week or month, as applicable, and which shall not be binding upon Lender or restrictive of Lenders rights under this Agreement); (iii) upon Lender's request, (A) copies of customer statements, purchase orders, sales invoices, credit memos, remittance advices and reports, and copies of deposit slips and bank statements, (B) copies of shipping and delivery documents, and (C) copies of purchase orders, invoices and delivery documents for Inventory and Equipment acquired by Borrower; (iv) time (v) upon Lenders request, the monthly statements received by Borrower or any of its Affiliates from any Credit Card Issuers or Credit Card Processors, together with such additional information with respect thereto as shall be sufficient to enable Lender to monitor the transactions pursuant to the Credit Card Agreements; and (b) If any of Borrower's records or reports of the Collateral are prepared or maintained by an accounting service, contractor, shipper or other agent, Borrower hereby irrevocably authorizes such service, contractor, shipper or agent to deliver such records, reports, and related documents to Lender and to follow Lender's instructions with respect to further services at any time that an Event of Default exists or has occurred and is continuing. 7.2 [Reserved]. 7.3 Inventory Covenants. With respect to the Inventory: (a) Borrower shall at all times maintain inventory records reasonably satisfactory to Lender, keeping correct and accurate records itemizing and describing the kind, type, quality and quantity of Inventory, Borrower's cost therefor and daily withdrawals therefrom and additions thereto; (b) Borrower shall conduct a physical count of the Inventory either through periodic cycle counts or wall to wall counts, so that all Inventory is subject to such counts at least once each year, but at any time or times as Lender may request on or after an Event of Default, and promptly following such physical
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inventory (whether through periodic cycle counts or wall to wall counts) shall supply Lender with a report in the form and with such specificity as may be satisfactory to Lender concerning such physical count; (c) Borrower shall not remove any Inventory from the locations set forth or permitted herein, without the prior written consent of Lender, except for sales of Inventory in the ordinary course of Borrower's business and except to move Inventory directly from one location set forth or permitted herein to another such location and except for Inventory shipped from the manufacturer thereof to Borrower which is in transit to the locations set forth or permitted herein; (d) upon Lender's request, Borrower shall, at its expense, deliver or cause to be delivered to Lender written appraisals as to the Inventory in form, scope and methodology acceptable to Lender and by an appraiser acceptable to Lender, addressed to Lender and upon which Lender is expressly permitted to rely; (e) Borrower shall produce, use, store and maintain the Inventory with all reasonable care and caution and in accordance with applicable standards of any insurance and in conformity with applicable laws (including the requirements of the Federal Fair Labor Standards Act of 1938, as amended and all rules, regulations and orders related thereto); (f) none of the Inventory or other Collateral constitutes farm products or the proceeds thereof; (g) Borrower assumes all responsibility and liability arising from or relating to the production, use, sale or other disposition of the Inventory; (h) Borrower shall not sell Inventory to any customer on approval, or any other basis which entitles the customer to return or may obligate Borrower to repurchase such Inventory; (i) Borrower shall keep the Inventory in good and marketable condition; and (j) Borrower shall not, without prior written notice to Lender or the specific identification of such Inventory in a report with respect thereto provided by Borrower to Lender pursuant to Section 7.1(a) hereof, acquire or accept any Inventory on consignment or approval. 7.4 Equipment and Real Property Covenants. With respect to the Real Property: (a) upon Lender's request, Borrower shall, at its expense, no more than two (2) times in any twelve (12) month period, but at any time or times as Lender may request on or after an Event of Default, deliver or cause to be delivered to Lender written appraisals as to the Real Property in form, scope and methodology acceptable to Lender and by an appraiser acceptable to Lender, addressed to Lender and upon which Lender is expressly permitted to rely; (b) Borrower shall use the Real Property with all reasonable care and caution and in accordance with applicable standards of any insurance and in conformity with all applicable laws; (c) the Equipment is and shall be used in Borrower's business and not for personal, family, household or farming use; (d) the Equipment is now and shall remain personal property and Borrower shall not permit any of the Equipment to be or become a part of or affixed to real property; (e) Borrower assumes all responsibility and liability arising from the use of the Real Property; and (h) upon Lenders request, Borrower shall, at their expense, conduct through an inventory counting service specialist acceptable to the Lender in its sole and absolute discretion, a physical count of the Inventory in form, scope and methodology acceptable to Lender no more than two (2) times in any twelve (12) month period, but at any time or times as Lender may request at any time an Event of Default exists or has occurred and is continuing or at any time or times as Lender may request in the event of test count variances in excess of the shrinkage reserve established by Borrower, the results of which shall be reported directly by such inventory counting service to Lender and Borrower shall promptly deliver confirmation in a form satisfactory to Lender that appropriate adjustments have been made to the inventory records of Borrower to reconcile the inventory count to Borrowers inventory records.
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7.5 Power of Attorney. Borrower hereby irrevocably designates and appoints Lender (and all persons designated by Lender) as Borrower's true and lawful attorney-in-fact, and authorizes Lender, in Borrower's or Lender's name, to: (a) at any time an Event of Default exists or has occurred and is continuing (i) demand payment on Receivables or other Collateral, (ii) enforce payment of Receivables by legal proceedings or otherwise, (iii) exercise all of Borrower's rights and remedies to collect any Receivable or other Collateral, (iv) sell or assign any Receivable upon such terms, for such amount and at such time or times as the Lender deems advisable, (v) settle, adjust, compromise, extend or renew an Account, (vi) discharge and release any Receivable, (vii) prepare, file and sign Borrower's name on any proof of claim in bankruptcy or other similar document against an account debtor or other obligor in respect of any Receivables or other Collateral, (viii) notify the post office authorities to change the address for delivery of remittances from account debtors or other obligors in respect of Receivables or other proceeds of Collateral to an address designated by Lender, and open and dispose of all mail addressed to Borrower and handle and store all mail relating to the Collateral; (ix) do all acts and things which are necessary, in Lender's determination, to fulfill Borrower's obligations under this Agreement and the other Financing Agreements, (x) take control in any manner of any item of payment in respect of Receivables or constituting Collateral or otherwise received in or for deposit in the Blocked Accounts or otherwise received by Lender, (xi) endorse Borrower's name upon any items of payment in respect of Receivables or constituting Collateral or otherwise received by Lender and deposit the same in Lender's account for application to the Obligations, (xii) endorse Borrower's name upon any chattel paper, document, instrument, invoice, or similar document or agreement relating to any Receivable or any goods pertaining thereto or any other Collateral, including any warehouse or other receipts, or bills of lading and other negotiable or non-negotiable documents, (xiii) clear Inventory the purchase of which was financed with a Letter of Credit through U.S. Customs or foreign export control authorities in Borrowers name, Lenders name or the name of Lenders designee, and to sign and deliver to customs officials powers of attorney in Borrowers name for such purpose, and to complete in Borrowers or Lenders name, any order, sale or transaction, obtain the necessary documents in connection therewith and collect the proceeds thereof, and (xiv) sign Borrower's name on any verification of Receivables and notices thereof to account debtors or any secondary obligors or other obligors in respect thereof. Borrower hereby releases Lender and its officers, employees and designees from any liabilities arising from any act or acts under this power of attorney and in furtherance thereof, whether of omission or commission, except as a result of Lender's own gross negligence or willful misconduct as determined pursuant to a final non-appealable order of a court of competent jurisdiction and (b) at any time, have access to any lockbox or postal box into which remittances from account debtors or other obligors in respect of Receivables or other proceeds of Collateral are sent or received. 7.6 Right to Cure. Lender may, at its option, (a) upon notice to Borrower, cure any default by Borrower under any material agreement with a third party that affects the Collateral, its value or the ability of Lender to collect, sell or otherwise dispose of the Collateral or the rights and remedies of Lender therein or the ability of Borrower to perform its obligations hereunder or under the other Financing Agreements, (b) pay or bond on appeal any judgment entered against Borrower, (c) discharge taxes, liens, security interests or other encumbrances at any time levied on or existing with respect to the Collateral and (d) pay any amount, incur any
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expense or perform any act which, in Lender's judgment, is necessary or appropriate to preserve, protect, insure or maintain the Collateral and the rights of Lender with respect thereto. Lender may add any amounts so expended to the Obligations and charge Borrower's account therefor, such amounts to be repayable by Borrower on demand. Lender shall be under no obligation to effect such cure, payment or bonding and shall not, by doing so, be deemed to have assumed any obligation or liability of Borrower. Any payment made or other action taken by Lender under this Section shall be without prejudice to any right to assert an Event of Default hereunder and to proceed accordingly. 7.7 Access to Premises. From time to time as requested by Lender, at the cost and expense of Borrower, (a) Lender or its designee shall have complete access to all of Borrower's premises during normal business hours and after twenty four (24) hours notice to Borrower, or at any time and without notice to Borrower if an Event of Default exists or has occurred and is continuing, for the purposes of inspecting, verifying and auditing the Collateral and all of Borrower's books and records, including the Records, provided that the foregoing shall be subject to the Borrowers rights under any lease executed by the Borrower with regard to any such premises, and (b) Borrower shall promptly furnish to Lender such copies of such books and records or extracts therefrom as Lender may request, and (c) Lender or its designee may use during normal business hours such of Borrower's personnel, equipment, supplies and premises as may be reasonably necessary for the foregoing and if an Event of Default exists or has occurred and is continuing for the collection of Receivables and realization of other Collateral. . SECTION 8. REPRESENTATIONS AND WARRANTIES Borrower hereby represents and warrants to Lender the following (which shall survive the execution and delivery of this Agreement): 8.1 Corporate Existence; Power and Authority. Borrower is a corporation duly organized and in good standing under the laws of its jurisdiction of organization and is duly qualified as a foreign corporation and in good standing in all states or other jurisdictions where the nature and extent of the business transacted by it or the ownership of assets makes such qualification necessary, except for those jurisdictions in which the failure to so qualify would not have a material adverse effect on Borrower's financial condition, results of operation or business or the rights of Lender in or to any of the Collateral. The execution, delivery and performance of this Agreement, the other Financing Agreements and the transactions contemplated hereunder and thereunder (a) subject to the entry of the DIP Orders, are all within Borrower's corporate powers, (b) have been duly authorized, (c) are not in contravention of law or the terms of Borrower's certificate of incorporation, by-laws, or other organizational documentation, or any indenture, agreement or undertaking to which Borrower is a party or by which Borrower or its property are bound (except as an Effect of Bankruptcy), and (d) will not result in the creation or imposition of, or require or give rise to any obligation to grant, any lien, security interest, charge or other encumbrance upon any property of Borrower other than as provided in the DIP Orders. Upon the entry of the DIP Orders, this Agreement and the other Financing Agreements constitute legal, valid and binding obligations of Borrower enforceable in accordance with their respective terms.
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8.2 Name; State of Organization; Chief Executive Office; Collateral Locations. (a) The exact legal name of Borrower is as set forth on the signature page of this Agreement. Borrower has not, during the five years prior to the date of this Agreement, been known by or used any other corporate or fictitious name or been a party to any merger or consolidation, or acquired all or substantially all of the assets of any Person, or acquired any of its property or assets out of the ordinary course of business. (b) Borrower is a New Jersey Corporation, whose organizational identification number is 3386751000 and whose federal employer identification number is 22-1671723. (c) As of the Closing Date, the chief executive office and mailing address of Borrower and Borrower's Records concerning Accounts are located only at the address identified as such in Schedule 8.2 and its only other places of business and the only other locations of Collateral, if any, are the addresses set forth in Schedule 8.2. Schedule 8.2 correctly identifies any of such locations which are not owned by Borrower and sets forth the owners and/or operators thereof as of the Closing Date. 8.3 Financial Statements; No Material Adverse Change. All financial statements relating to Borrower which have been or may hereafter be delivered by Borrower to Lender have been prepared in accordance with GAAP (except as to any interim financial statements, to the extent such statements are subject to normal year-end adjustments and do not include any notes) and fairly present in all material respects the financial condition and the results of operation of Borrower as at the dates and for the periods set forth therein. Except as disclosed in any interim financial statements furnished by Borrower to Lender prior to the date of this Agreement or the Effect of Bankruptcy, there has been no act, condition or event which has had or is reasonably likely to have a Material Adverse Effect since the date of the most recent audited financial statements furnished by Borrower to Lender prior to the date of this Agreement. 8.4 Priority of Liens; Title to Properties. Subject to entry of the DIP Orders, the security interests and liens granted to Lender under this Agreement and the other Financing Agreements constitute valid and perfected first priority liens and security interests in and upon the Collateral subject only to the liens permitted under Section 9.8 hereof. Borrower has good and marketable fee simple title to or valid leasehold interests in all of its Real Property and good, valid and merchantable title to all of its other properties and assets subject to no liens, mortgages, pledges, security interests, encumbrances or charges of any kind, except those granted to Lender and such others as are permitted under Section 9.8 hereof. 8.5 Tax Returns. Borrower has filed, or caused to be filed, in a timely manner all tax returns, reports and declarations which are required to be filed by it. All information in such tax returns, reports and declarations is complete and accurate in all material respects. Borrower has paid or caused to be paid all taxes due and payable or claimed due and payable in any assessment received by it, except material taxes the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower and with respect to which adequate reserves have been set aside on its books. Adequate provision has been made for the
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payment of all material amounts of accrued and unpaid Federal, State, county, local, foreign and other taxes whether or not yet due and payable and whether or not disputed. 8.6 Litigation. Except for the Chapter 11 Case, there is no investigation by any Governmental Authority pending, or to the best of Borrower's knowledge threatened, against or affecting Borrower, its assets or business and there is no action, suit, proceeding or claim by any Person pending, or to the best of Borrower's knowledge threatened, against Borrower or its assets or goodwill, or against or affecting any transactions contemplated by this Agreement, in each case which if adversely determined against Borrower has or could reasonably be expected to have a Material Adverse Effect. 8.7 Compliance with Other Agreements and Applicable Laws.Borrower is not in default in any respect under, or in violation in any respect of the terms of, any material agreement, contract, instrument, lease or other commitment to which it is a party or by which it or any of its assets are bound and Borrower is in compliance with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority relating to its business, including, without limitation, those set forth in or promulgated pursuant to the Occupational Safety and Health Act of 1970, as amended, the Fair Labor Standards Act of 1938, as amended, ERISA, the Code, as amended, and the rules and regulations thereunder, all Federal, State and local statutes, regulations, rules and orders relating to consumer credit (including, without limitation, as each has been amended, the Truth-in-Lending Act, the Fair Credit Billing Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act, and regulations, rules and orders promulgated thereunder), all Federal, State and local states, regulations, rules and orders pertaining to sales of consumer goods (including, without limitation, the Consumer Products Safety Act of 1972, as amended, and the Federal Trade Commission Act of 1914, as amended, and all regulations, rules and orders promulgated thereunder) and all Environmental Laws. (b) Borrower has obtained all material permits, licenses, approvals, consents, certificates, orders or authorizations of any Governmental Authority required for the lawful conduct of its business (the Permits). All of the Permits are valid and subsisting and in full force and effect. There are no actions, claims or proceedings pending or to the best of Borrowers knowledge, threatened that seek the revocation, cancellation, suspension or modification of any of the Permits. 8.8 Environmental Compliance. (a) Except as set forth on Schedule 8.8, Borrower and any Subsidiary have not generated, used, stored, treated, transported, manufactured, handled, produced or disposed of any Hazardous Materials, on or off its premises (whether or not owned by it) in any manner which at any time violates in any material respect any applicable Environmental Law or Permit, and the operations of Borrower and any Subsidiary complies in all material respects with all Environmental Laws and all Permits. (b) Except as set forth on Schedule 8.8, there has been no investigation by any Governmental Authority or any proceeding, complaint, order, directive, claim, citation or notice by any Governmental Authority or any other person nor is any pending or to the best of
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Borrower's knowledge threatened, with respect to any non-compliance with or violation of the requirements of any Environmental Law by Borrower and any Subsidiary or the release, spill or discharge, threatened or actual, of any Hazardous Material or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials or any other environmental, health or safety matter, which adversely affects or could reasonably be expected to adversely affect in any material respect Borrower or its business, operations or assets or any properties at which Borrower has transported, stored or disposed of any Hazardous Materials. (c) Except as set forth on Schedule 8.8, Borrower and its Subsidiaries have no material liability (contingent or otherwise) in connection with a release, spill or discharge, threatened or actual, of any Hazardous Materials or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials. (d) Borrower and its Subsidiaries have all Permits required to be obtained or filed in connection with the operations of Borrower under any Environmental Law and all of such licenses, certificates, approvals or similar authorizations and other Permits are valid and in full force and effect. 8.9 Employee Benefits. (a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other Federal or State law. Each Plan which is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service and to the best of Borrower's knowledge, nothing has occurred which would cause the loss of such qualification. Borrower and its ERISA Affiliates have made all required contributions to any Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan. (b) There are no pending or to the best of Borrower's knowledge, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan. (c) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) based on the latest valuation of each Pension Plan and on the actuarial methods and assumptions employed for such valuation (determined in accordance with the assumptions used for funding such Pension Plan pursuant to Section 412 of the Code) the aggregate current value of accumulated benefit liabilities of such Pension Plan under Section 4001(a)(16) of ERISA does not exceed the aggregate current value of the assets of such Pension Plan; (iii) Borrower and its ERISA Affiliates have not incurred and do not reasonably expect to incur, any liability under Title IV of ERISA with respect to any Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) Borrower and its ERISA Affiliates have not incurred and do not reasonably expect to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243
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of ERISA with respect to a Multiemployer Plan; and (v) Borrower and its ERISA Affiliates have not engaged in a transaction that would be subject to Section 4069 or 4212(c) of ERISA. 8.10 Bank Accounts. All of the deposit accounts, investment accounts or other accounts in the name of or used by Borrower maintained at any bank or other financial institution are set forth on Schedule 5.2(d), subject to the right of Borrower to establish new accounts in accordance with Section 5.2 hereof. 8.11 Intellectual Property. Borrower owns or licenses or otherwise has the right to use all Intellectual Property necessary for the operation of its business as presently conducted or proposed to be conducted. 8.12 Subsidiaries; Affiliates; Capitalization; Solvency. (a) Borrower does not have any direct or indirect Subsidiaries or Affiliates and is not engaged in any joint venture or partnership except as set forth in Schedule 8.12. (b) Borrower is the record and beneficial owner of all of the issued and outstanding shares of Capital Stock of each of the Subsidiaries listed on Schedule 8.12 as being owned by Borrower and there are no proxies, irrevocable or otherwise, with respect to such shares and no equity securities of any of the Subsidiaries are or may become required to be issued by reason of any options, warrants, rights to subscribe to, calls or commitments of any kind or nature and there are no contracts, commitments, understandings or arrangements by which any Subsidiary is or may become bound to issue additional shares of its Capital Stock or securities convertible into or exchangeable for such shares. (c) The issued and outstanding shares of Capital Stock of Borrower are directly and beneficially owned and held by the persons indicated in in Schedule 8.12, and in each case all of such shares have been duly authorized and are fully paid and non-assessable, free and clear of all claims, liens, pledges and encumbrances of any kind, except as disclosed in writing to Lender prior to the date hereof. 8.13 Labor Disputes. (a) Set forth on Schedule 8.13 is a list (including dates of termination) of all collective bargaining or similar agreements between or applicable to Borrower and any union, labor organization or other bargaining agent in respect of the employees of Borrower on the date hereof. (b) There is (i) no significant unfair labor practice complaint pending against Borrower or, to the best of Borrower's knowledge, threatened against it, before the National Labor Relations Board, and no significant grievance or significant arbitration proceeding arising out of or under any collective bargaining agreement is pending on the date hereof against Borrower or, to best of Borrower's knowledge, threatened against it, and (ii) no significant strike, labor dispute, slowdown or stoppage is pending against Borrower or, to the best of Borrower's knowledge, threatened against Borrower.
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8.14 Restrictions on Subsidiaries. Except for restrictions contained in this Agreement or any other agreement with respect to Indebtedness of Borrower permitted hereunder as in effect on the date hereof, there are no contractual or consensual restrictions on Borrower or any of its Subsidiaries which prohibit or otherwise restrict (a) the transfer of cash or other assets (i) between Borrower and any of its Subsidiaries or (ii) between any Subsidiaries of Borrower or (b) the ability of Borrower or any of its Subsidiaries to incur Indebtedness or grant security interests to Lender in the Collateral. 8.15 [Reserved].[Reserved].Accuracy and Completeness of Information. All information furnished by or on behalf of Borrower in writing to Lender in connection with this Agreement or any of the other Financing Agreements or any transaction contemplated hereby or thereby, is true and correct in all material respects on the date as of which such information is dated or certified and does not omit any material fact necessary in order to make such information not misleading. No event or circumstance has occurred which has had or could reasonably be expected to have a Material Adverse Effect, which has not been fully and accurately disclosed to Lender in writing prior to the date hereof. 8.18 Survival of Warranties; Cumulative. All representations and warranties contained in this Agreement or any of the other Financing Agreements shall survive the execution and delivery of this Agreement and shall be deemed to have been made again to Lender on the date of each additional borrowing or other credit accommodation hereunder and shall be conclusively presumed to have been relied on by Lender regardless of any investigation made or information possessed by Lender. The representations and warranties set forth herein shall be cumulative and in addition to any other representations or warranties which Borrower shall now or hereafter give, or cause to be given, to Lender. 8.19 Credit Card Agreements. Set forth in Schedule 8.19 hereto is a correct and complete list of all of the Credit Card Agreements and all other agreements, documents and instruments existing as of the date hereof between or among Borrower, any of its Subsidiaries, the Credit Card Issuers, the Credit Card Processors and any of their Affiliates. SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS 9.1 Maintenance of Existence. (a) Borrower shall at all times preserve, renew and keep in full force and effect its corporate existence and rights and franchises with respect thereto and maintain in full force and effect all permits, licenses, trademarks, tradenames, approvals, authorizations, leases and contracts necessary to carry on the business as presently or proposed to be conducted. (b) Borrower shall not change its name unless each of the following conditions is satisfied: (i) Lender shall have received not less than thirty (30) days prior written notice from Borrower of such proposed change in its corporate name, which notice shall accurately set forth the new name; and (ii) Lender shall have received a copy of the amendment to the Certificate of Incorporation of Borrower providing for the name change certified by the Secretary of State of the jurisdiction of incorporation or organization of Borrower as soon as it is available.
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(c) Borrower shall not change its chief executive office or its mailing address or organizational identification number (or if it does not have one, shall not acquire one) unless Lender shall have received not less than thirty (30) days prior written notice from Borrower of such proposed change, which notice shall set forth such information with respect thereto as Lender may require and Lender shall have received such agreements as Lender may reasonably require in connection therewith. Borrower shall not change its type of organization, jurisdiction of organization or other legal structure. 9.2 [Reserved.] 9.3 Compliance with Laws, Regulations, Etc. (a) Borrower shall, and shall cause any Subsidiary to, at all times, comply in all material respects with all laws, rules, regulations, licenses, approvals, orders and other Permits applicable to it and duly observe all requirements of any foreign, Federal, State or local Governmental Authority, including ERISA, the Code, the Occupational Safety and Health Act of 1970, as amended, the Fair Labor Standards Act of 1938, as amended, all Federal, State and local statutes, regulations, rules and orders relating to consumer credit (including, without limitation, as each has been amended, the Truth-in-Lending Act, the Fair Credit Billing Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act, and regulations, rules and orders promulgated thereunder), all Federal, State and local statutes, regulations, rules and orders pertaining to sales of consumer goods (including, without limitation, the Consumer Products Safety Act of 1972, as amended, and the Federal Trade Commission Act of 1914, as amended, and all regulations, rules and orders promulgated thereunder) and all applicable Environmental Laws. (b) Borrower shall give written notice to Lender immediately upon Borrower's receipt of any notice of, or Borrower's otherwise obtaining knowledge of, (i) the occurrence of any event involving the release, spill or discharge, threatened or actual, of any Hazardous Material or (ii) any investigation, proceeding, complaint, order, directive, claims, citation or notice with respect to: (A) any non-compliance with or violation of any Environmental Law by Borrower or (B) the release, spill or discharge, threatened or actual, of any Hazardous Material other than in the ordinary course of business and other than as permitted under any applicable Environmental Law. Copies of all environmental surveys, audits, assessments, feasibility studies and results of remedial investigations shall be promptly furnished, or caused to be furnished, by Borrower to Lender. Borrower shall take prompt action to respond to any material non-compliance with any of the Environmental Laws and shall regularly report to Lender on such response. (c) Without limiting the generality of the foregoing, whenever Lender reasonably determines that there is non-compliance, or any condition which requires any action by or on behalf of Borrower in order to avoid any non-compliance, with any Environmental Law, Borrower shall, at Lender's request and Borrower's expense: (i) cause an independent environmental engineer reasonably acceptable to Lender to conduct such tests of the site where Borrower's non-compliance or alleged non-compliance with such Environmental Laws has occurred as to such non-compliance and prepare and deliver to Lender a report as to such noncompliance setting forth the results of such tests, a proposed plan for responding to any
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environmental problems described therein, and an estimate of the costs thereof and (ii) provide to Lender a supplemental report of such engineer whenever the scope of such non-compliance, or Borrower's response thereto or the estimated costs thereof, shall change in any material respect. (d) Borrower shall indemnify and hold harmless Lender, its directors, officers, employees, agents, invitees, representatives, successors and assigns, from and against any and all losses, claims, damages, liabilities, costs, and expenses (including reasonable attorneys' fees and expenses) directly or indirectly arising out of or attributable to the use, generation, manufacture, reproduction, storage, release, threatened release, spill, discharge, disposal or presence of a Hazardous Material, including the costs of any required or necessary repair, cleanup or other remedial work with respect to any property of Borrower and the preparation and implementation of any closure, remedial or other required plans. All representations, warranties, covenants and indemnifications in this Section 9.3 shall survive the payment of the Obligations and the termination of this Agreement. 9.4 Payment of Taxes and Claims. Borrower shall, and shall cause any Subsidiary to, duly pay and discharge all taxes, assessments, contributions and governmental charges upon or against it or its properties or assets, except for taxes arising prior to the Petition Date and taxes the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or such Subsidiary, as the case may be, and with respect to which adequate reserves have been set aside on its books. Borrower shall be liable for any tax or penalties imposed on Lender as a result of the financing arrangements provided for herein and Borrower agrees to indemnify and hold Lender harmless with respect to the foregoing, and to repay to Lender on demand the amount thereof, and until paid by Borrower such amount shall be added and deemed part of the Loans, provided, that, nothing contained herein shall be construed to require Borrower to pay any income or franchise taxes attributable to the income of Lender from any amounts charged or paid hereunder to Lender. The foregoing indemnity shall survive the payment of the Obligations and the termination or non-renewal of this Agreement. 9.5 Insurance. Borrower shall, and shall cause any Subsidiary to, at all times, maintain with financially sound and reputable insurers insurance with respect to the Collateral against loss or damage and all other insurance of the kinds and in the amounts customarily insured against or carried by corporations of established reputation engaged in the same or similar businesses and similarly situated. Said policies of insurance shall be reasonably satisfactory to Lender as to form, amount and insurer. Borrower shall furnish certificates, policies or endorsements to Lender as Lender shall require as proof of such insurance, and, if Borrower fails to do so, Lender is authorized, but not required, to obtain such insurance at the expense of Borrower. Borrower shall cause Lender to be named as a lender loss payee. mortgagee and an additional insured (but without any liability for any premiums) under such insurance policies and Borrower shall obtain non-contributory lender's loss payable endorsements to all insurance policies in form and substance satisfactory to Lender. Such lender's loss payable endorsements shall specify that the proceeds of such insurance shall be payable to Lender as its interests may appear and further specify that Lender shall be paid regardless of any act or omission by Borrower or any of its Affiliates. Without limiting any other rights of Lender, any insurance proceeds received by Lender at any time may be applied to payment of the Obligations, whether or not then due, in 50
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any order and in such manner as Lender may determine. Subject to the terms and conditions of the Mortgage, any and all insurance proceeds with regard to a casualty or loss to any Mortgaged Premises shall be used to repay the Obligations with regard to the Daffys Term Credit Facility and/or the Vim-3/Vimwilco Credit Facility. Upon application of such proceeds to the Revolving Loans, Revolving Loans may be available subject and pursuant to the terms hereof to be used for the costs of repair or replacement of the Collateral lost or damages resulting in the payment of such insurance proceeds. Notwithstanding anything to the contrary herein, if (i) there has been a casualty or loss to or of any of the Mortgaged Premises (or any portion thereof) having an aggregate value of twenty percent (20%) or less of the insurable value of such Mortgaged Premises, (ii) there has been, and so long as there continues to be, no Event of Default and (iii) the owner of such Mortgaged Premises demonstrates to Lenders satisfaction that the owner of such Mortgaged Premises has sufficient available economic resources to restore the Mortgaged Premises and profitably operate its business, and has deposited with Lender the amount by which the insurance proceeds will be insufficient to restore the Mortgaged Premises, then at such owners written request, made within 60 days of the casualty or loss, the insurance proceeds will be released by Lender to such owner as necessary to restore or replace the damaged or lost property in accordance with customary construction financing procedures and policies, with customary reserves, as determined by the Lender. 9.6 Financial Statements and Other Information. (a) Borrower shall, and shall cause any Subsidiary to, keep proper books and records in which true and complete entries shall be made of all dealings or transactions of or in relation to the Collateral and the business of Borrower and its Subsidiaries in accordance with GAAP. Borrower shall promptly furnish to Lender all such financial and other information as Lender shall reasonably request relating to the Collateral and the assets, business and operations of Borrower, and shall notify the auditors and accountants of Borrower that Lender is authorized to obtain such information directly from them. Without limiting the foregoing, Borrower shall furnish or cause to be furnished to Lender, the following: (i) within twenty (20) days after the end of each month, monthly unaudited, management-prepared consolidated financial statements (including in each case balance sheets, statements of income and loss and statements of cash flow), all in reasonable detail, fairly presenting in all material respects the financial position and the results of the operations of Borrower and its Subsidiaries as of the end of and through such month, certified to be correct by the chief financial officer of Borrower, subject to normal year-end adjustments and accompanied by a compliance certificate substantially in the form of Exhibit B hereto, along with a schedule in form reasonably satisfactory to Lender of the calculations used in determining, as of the end of such month, whether Borrower was in compliance with the covenants set forth in Section 9.17 of this Agreement for such month (the Compliance Certificate), provided, however, that the Borrower does not have to calculate the covenants set forth in Section 9.17 of this Agreement in any Compliance Certificate provided with any monthly financial statements;
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(ii) within thirty (30) days after the end of each fiscal quarter, quarterly unaudited, management-prepared consolidated financial statements (including in each case balance sheets, statements of income and loss and statements of cash flow), all in reasonable detail, fairly presenting in all material respects the financial position and the results of the operations of Borrower and its Subsidiaries as of the end of and through such fiscal quarter, certified to be correct by the chief financial officer of Borrower, subject to normal year-end adjustments and accompanied by a Compliance Certificate; (iii) within one hundred twenty (120) days after the end of each fiscal year, audited consolidated financial statements of Borrower and its Subsidiaries (including in each case balance sheets, statements of income and loss and statements of cash flow), and the accompanying notes thereto, all in reasonable detail, fairly presenting in all material respects the financial position and the results of the operations of Borrower and its Subsidiaries as of the end of and for such fiscal year, together with the unqualified opinion of independent certified public accountants with respect to the audited consolidated financial statements, which accountants shall be an independent accounting firm selected by Borrower and acceptable to Lender, that such financial statements have been prepared in accordance with GAAP, and present fairly in all material respects the results of operations and financial condition of Borrower and its Subsidiaries as of the end of and for the fiscal year then ended, and accompanied by a Compliance Certificate prepared as of the end of and for the fiscal year then ended; (iv) within thirty (30) days of filing, complete copies of the federal and state income tax returns of the Borrower and Guarantor, each of which shall be signed and certified by the Borrower or Guarantor, as applicable, to be true and complete copies of such returns, provided, further, however, in the event that an extension is filed with regard to any such income tax returns, the Borrower or Guarantor, as applicable, shall provide to the Lender a copy of such extension within thirty (30) days of the filing thereof; (v) Prior to the Petition Date, a month by month projected operating budget and cash flow of Borrower for the pendency of the Case (including an income statement for each month and a balance sheet as at the end of the last month in each fiscal quarter), such projections to be accompanied by a certificate signed by the President or Chief Financial Officer of Borrower to the effect that such projections have been prepared on the basis of sound financial planning practice consistent with past budgets and financial statements and that such officer has no reason to question the reasonableness of any material assumptions on which such projections were prepared; (vi) at least two (2) Business Days prior to the furnishing or filing thereof (or, if impracticable, then promptly after the furnishing or filing thereof), copies of any statement, report or pleading directly related to the Financing Agreements or any Chapter 11 Plan proposed to be furnished to or filed with the Bankruptcy Court or the Creditors Committee in connection with the Chapter 11 Cases; and (vii) as soon as possible at the end of each calendar week (but no later than the Friday of each week), a rolling 13-week cash flow forecast for the Borrower and its Subsidiaries, reflecting actual results from the prior period compared to budget and projected results for the
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subsequent 13 week period, and otherwise in form and substance reasonably acceptable to the Lender. (b) Borrower shall promptly notify Lender in writing of the details of (i) any loss, damage, investigation, action, suit, proceeding or claim arising after the Petition Date relating to Collateral having a value of more than $250,000 or which if adversely determined would result in any material adverse change in Borrower's business, properties, assets, goodwill or condition, financial or otherwise, (ii) any Asset Purchase Agreement of Borrower being terminated or amended, (iii) any order, judgment or decree in excess of $250,000 shall have been entered against Borrower or any of its properties or assets, (iv) any notification of a material violation of laws or regulations received by Borrower, (v) any ERISA Event, and (vi) the occurrence of any Default or Event of Default. (c) Promptly after the sending or filing thereof, Borrower shall send to Lender copies of (i) all reports which Borrower sends to its security holders generally (ii) all reports and registration statements which Borrower files with the Securities Exchange Commission, any national or foreign securities exchange or the National Association of Securities Dealers, Inc. and such other reports as Lender may hereafter specifically identify to Borrower that Lender will require be provided to Lender, (iii) all press releases and (iv) all other statements concerning material changes or developments in the business of Borrower made available by Borrower to the public. (d) Borrower shall furnish or cause to be furnished to Lender such budgets, forecasts, projections and other information respecting the Collateral and the business of Borrower, as Lender may, from time to time, reasonably request. Lender is hereby authorized to deliver a copy of any financial statement or any other information relating to the business of Borrower to any court or other Governmental Authority, to any Affiliate of Lender or to any participant or assignee or prospective participant or assignee. Borrower hereby irrevocably authorizes and directs all accountants or auditors to deliver to Lender, at Borrower's expense, copies of the financial statements of Borrower and any reports or management letters prepared by such accountants or auditors on behalf of Borrower and to disclose to Lender such information as they may have regarding the business of Borrower. Any documents, schedules, invoices or other papers delivered to Lender may be destroyed or otherwise disposed of by Lender one (1) year after the same are delivered to Lender, except as otherwise designated by Borrower to Lender in writing. 9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Except (i) as set provided in the Store Closing Program Motion, the Leasehold Sale Motion or the Chapter 11 Plan and (ii) for the transactions contemplated by the Asset Purchase Agreements, neither the Borrower nor any Obligor shall, and shall not permit any Subsidiary to, directly or indirectly: (a) merge into or with or consolidate with any other Person or permit any other Person to merge into or with or consolidate with it; or (b) sell, issue, assign, lease, license, transfer, abandon or otherwise dispose of any Capital Stock or Indebtedness to any other Person or any of its assets to any other Person, except
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for (i) sales of Inventory in the ordinary course of business, (ii) sales or other dispositions by Borrower or any Obligor of assets in connection with the closing or sale of a retail store location of Borrower or any Obligor in the ordinary course of Borrowers or any Obligors business which consist of leasehold interests in the premises of such store, the Inventory, Equipment and fixtures located at such premises and the books and records relating exclusively and directly to the operations of such store; provided, that, as to each and all such sales and closings, (A) on the date of, and after giving effect to, any such closing or sale, the aggregate number of retail store locations operated by Borrower or any Obligor closed or sold by Borrower or any Obligor in any fiscal year minus the number of retail stores operated by Borrower or any Obligor opened by Borrower or any Obligor in such fiscal year, shall not exceed the amount equal to twenty (20%) percent of the number of retail store locations of Borrower or any Obligor operated by Borrower or any Obligor, as of the end of the immediately preceding fiscal year, (B) Lender shall have received not less than ten (10) Business Days prior written notice of such sale or closing, which notice shall set forth in reasonable detail satisfactory to Lender, the parties to such sale or other disposition, the assets to be sold or otherwise disposed of, the purchase price and the manner of payment thereof and such other information with respect thereto as Lender may request, (C) after giving effect thereto, no Default or Event of Default shall exist or have occurred and be continuing, (D) such sale shall be on commercially reasonable prices and terms in a bona fide arms length transaction, and (E) any and all proceeds payable or delivered to Borrower or any Obligor in respect of such sale or other disposition shall be paid or delivered, or caused to be paid or delivered, to Lender in accordance with the terms of this Agreement (except to the extent such proceeds reflect payment in respect of Indebtedness secured by a properly perfected first priority security interest in the assets sold, in which case, such proceeds shall be applied to such indebtedness secured thereby), and (iii) the issuance and sale by Borrower or any Obligor of Capital Stock of Borrower or any Obligor after the date hereof; provided, that, (A) Lender shall have received not less than ten (10) Business Days prior written notice of such issuance and sale by Borrower or any Obligor, which notice shall specify the parties to whom such shares are to be sold, the terms of such sale, the total amount which it is anticipated will be realized from the issuance and sale of such stock and the net cash proceeds which it is anticipated will be received by Borrower or any Obligor from such sale, (B) Borrower or any Obligor shall not be required to pay any cash dividends or repurchase or redeem such Capital Stock or make any other payments in respect thereof, except as otherwise permitted in Section 9.11 hereof, (C) the terms of such Capital Stock, and the terms and conditions of the purchase and sale thereof, shall not include any terms that include any limitation on the right of Borrower or any Obligor to request or receive Loans or Letters of Credit or the right of Borrower or any Obligor to amend or modify any of the terms and conditions of this Agreement or any of the other Financing Agreements or otherwise in any way relate to or affect the arrangements of Borrower or any Obligor with Lender or are more restrictive or burdensome to Borrower or any Obligor than the terms of any Capital Stock in effect on the date hereof, (D) except as Lender may otherwise agree in writing, all of the proceeds from such sale and issuance shall be paid to Lender for application to the Obligations in such order and manner as Lender may determine or at Lenders option, to be held as Cash Collateral for the Obligations, and (E) as of the date of such issuance and sale and after giving effect thereto, no Default or Event of Default shall exist or have occurred; (c) wind up, liquidate or dissolve; or
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(d) agree to do any of the foregoing. 9.8 Encumbrances. Except (i) as set provided in the Store Closing Program Motion, the Leasehold Sale Motion or the Chapter 11 Plan and (ii) for the transactions contemplated by the Asset Purchase Agreements, neither Borrower nor any Obligor shall, and shall not permit any Subsidiary to, create, incur, assume, suffer or permit to exist any security interest, mortgage, pledge, lien, charge or other encumbrance of any nature whatsoever on any of its assets or properties, including the Collateral, or file or permit the filing of, or permit to remain in effect, any financing statement or other similar notice of any security interest or lien with respect to any such assets or properties, except: (a) the security interests and liens of Lender; (b) liens securing the payment of taxes, either not yet overdue or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or any Obligor or such Subsidiary, as the case may be and with respect to which adequate reserves have been set aside on its books in accordance with GAAP; (c) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's or any Obligors or such Subsidiary's business to the extent: (i) such liens secure Indebtedness which is not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or any Obligor or such Subsidiary, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) zoning restrictions, easements, licenses, covenants and other restrictions affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the business of Borrower or any Obligor or such Subsidiary as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (e) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on Real Property to secure Indebtedness permitted under Section 9.9(b) hereof; (f) security interests and liens that arose or attached prior to the Petition Date; (g) any interest or title of a lessor under any lease entered into by Borrower or any Obligor or any Subsidiary in the ordinary course of its business and covering only the assets so leased, (h) liens arising from precautionary Uniform Commercial Code financing statements regarding operating leases, (i) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation and deposits securing liability to insurance carriers under insurance or self-insurance arrangements so long as the aggregate amount of such pledges and deposits does not exceed $100,000 at any time, and (j) judgment liens which do not result in an Event of Default. 9.9 Indebtedness. Except (i) as set provided in the Store Closing Program Motion, the Leasehold Sale Motion or the Chapter 11 Plan and (ii) for the transactions contemplated by the Asset Purchase Agreements, neither Borrower nor any Obligor shall, and shall not permit any Subsidiary to, incur, create, assume, become or be liable in any manner with respect to, or permit to exist, any Indebtedness, or guarantee, assume, endorse, or otherwise become responsible for (directly or indirectly), the Indebtedness, performance, obligations or dividends of any other Person, except:
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(a) the Obligations; (b) the guaranty of certain loans extended by the Lender to the Guarantor; (c) purchase money Indebtedness (including Capital Leases) arising after the date hereof to the extent secured by purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on Real Property not to exceed $200,000 in the aggregate at any time outstanding so long as such security interests and mortgages do not apply to any property of Borrower or any Obligor or any Subsidiary other than the Equipment or Real Property so acquired, and the Indebtedness secured thereby does not exceed the cost of the Equipment or Real Property so acquired, as the case may be; (d) any Indebtedness incurred under any Swap Agreements with Lender (or with any of its Affiliates) and in connection with this Agreement; (e) guarantees by any Subsidiaries of Borrower or any Obligor of the Obligations in favor of Lender; (f) Indebtedness incurred prior to the Petition Date. 9.10 Loans, Investments, Etc. Except (i) as set provided in the Store Closing Program Motion, the Leasehold Sale Motion or the Chapter 11 Plan and (ii) for the transactions contemplated by the Asset Purchase Agreements, neither Borrower nor any Obligor shall, and shall not permit any Subsidiary to, directly or indirectly, make any loans or advance money or property to any person, or invest in (by capital contribution, dividend or otherwise) or purchase or repurchase the Capital Stock or Indebtedness or all or a substantial part of the assets or property of any person, or form or acquire any Subsidiaries, or agree to do any of the foregoing, except: (a) the endorsement of instruments for collection or deposit in the ordinary course of business; (b) investments in the Italian Deposit Account as permitted herein; (c) the existing equity investments of Borrower or any Obligor as of the date hereof in its Subsidiaries, provided, that, Borrower or any Obligor shall not have any further obligations or liabilities to make any capital contributions or other additional investments or other payments to or in or for the benefit of, any of such Subsidiaries; (d) stock or obligations issued to Borrower or any Obligor by any Person (or the representative of such Person) in respect of Indebtedness of such Person owing to Borrower or any Obligor in connection with the insolvency, bankruptcy, receivership or reorganization of such Person or a composition or readjustment of the debts of such Person; provided, that, the original of any such stock or instrument evidencing such obligations shall be promptly delivered to Lender, upon Lender's request, together with such stock power, assignment or endorsement by Borrower or any Obligor as Lender may request;
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(e) obligations of account debtors to Borrower or any Obligor arising from Accounts which are past due evidenced by a promissory note made by such account debtor payable to Borrower or any Obligor; provided, that, promptly upon the receipt of the original of any such promissory note by Borrower or any Obligor, such promissory note shall be endorsed to the order of Lender by Borrower or any Obligor and promptly delivered to Lender as so endorsed;
(f) any Swap Agreements with Lender (or with any of its Affiliates); and
(g)
the loans and advances made prior to the Petition Date.
9.11 Dividends and Redemptions. Neither Borrower nor any Obligor shall, and shall not permit any Subsidiary to, directly or indirectly, declare or pay any dividends on account of any shares of class of Capital Stock of Borrower or any Obligor or such Subsidiary now or hereafter outstanding, or set aside or otherwise deposit or invest any sums for such purpose, or redeem, retire, defease, purchase or otherwise acquire any shares of any class of Capital Stock (or set aside or otherwise deposit or invest any sums for such purpose) for any consideration or apply or set apart any sum, or make any other distribution (by reduction of capital or otherwise) in respect of any such shares or agree to do any of the foregoing, except (a) in any case in the form of shares of Capital Stock consisting of common stock, (b) any Subsidiary of Borrower or any Obligor may pay any dividends to Borrower or any Obligor, (c) dividends or distributions made to shareholders, partners and/or members of the Borrower and/or any Guarantor, as the case may be, in an amount not to exceed the income tax liabilities of such shareholders, partners and/or members attributable to their respective ownership in the Borrower and/or such Guarantor, (d) certain dividends and distributions made to shareholders, partners and/or members of the Borrower and/or any Guarantor, as the case may be, in an aggregate amount not to exceed $2,000,000 in any fiscal year, provided, however, (i) the average Excess Availability on a pro forma basis for the immediately preceding ninety (90) day period and after giving effect to each such dividend and/or distribution is equal to or greater than $5,000,000, (ii) the calculation of the Fixed Charge Coverage Ratio on a pro forma basis is greater than 1.10 to 1.00 after giving effect to each such dividend and/or distribution and (iii) at the time of and after giving effect to each such dividend and/or distribution no event or condition which constitutes or which, with notice or the lapse of time, or both, would constitute a Default or an Event of Default shall have occurred and be continuing or be caused by any such dividend and/or distribution, (e) certain dividends and distributions made to shareholders of the Borrower in the form of membership interests in 152 Franklin Street, LLC and (f) the repurchase of Capital Stock (i) funded from insurance proceeds, (ii) with regard to the 2008 Stock Repurchase and/or (iii) from employees, officers and/or directors of the Borrower in an aggregate amount not to exceed $2,000,000 in any fiscal year so long as (A) no Default and/or Event of Default has occurred and is continuing or would be caused by such repurchase, (B) the calculation of the Fixed Charge Coverage Ratio on a pro forma basis is greater than 1.10 to 1.00 after giving effect to each such repurchase and (C) the Borrowers Excess Availability before any such repurchase and after giving effect to such repurchase is not less than $5,000,000. 57
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9.12 Transactions with Affiliates. Borrower shall not, directly or indirectly, (a) purchase, acquire or lease any property from, or sell, transfer or lease any property to, any officer, director, agent or other person affiliated with Borrower, except in the ordinary course of and pursuant to the reasonable requirements of Borrower's business and upon fair and reasonable terms no less favorable to the Borrower than Borrower would obtain in a comparable arm's length transaction with an unaffiliated person except with regard to the 2008 Stock Repurchase or (b) make any payments of management, consulting or other fees for management or similar services, or of any Indebtedness owing to any officer, employee, shareholder, director or other Affiliate of Borrower except reasonable compensation to officers, employees and directors for services rendered to Borrower in the ordinary course of business. 9.13 Compliance with ERISA. Borrower shall, and shall cause each of its ERISA Affiliates to: (a) maintain each Plan in compliance in all material respects with the applicable provisions of ERISA, the Code and other Federal and State law; (b) cause each Plan which is qualified under Section 401(a) of the Code to maintain such qualification; (c) not terminate any Pension Plan so as to incur any material liability to the Pension Benefit Guaranty Corporation; (d) not allow or suffer to exist any prohibited transaction involving any Plan or any trust created thereunder which would subject Borrower or such ERISA Affiliate to a material tax or other liability on prohibited transactions imposed under Section 4975 of the Code or ERISA; (e) make all required contributions to any Plan which it is obligated to pay under Section 302 of ERISA, Section 412 of the Code or the terms of such Plan; (f) not allow or suffer to exist any accumulated funding deficiency, whether or not waived, with respect to any such Pension Plan; (g) not engage in a transaction that could be subject to Section 4069 or 4212(c) of ERISA; or (h) not allow or suffer to exist any occurrence of a reportable event or any other event or condition which presents a material risk of termination by the Pension Benefit Guaranty Corporation of any Plan that is a single employer plan, which termination could result in any material liability to the Pension Benefit Guaranty Corporation. 9.14 End of Fiscal Years; Fiscal Quarters. Borrower shall, for financial reporting purposes, cause its, and each of its Subsidiaries (a) fiscal years to end on the dates indicated on Schedule 9.14 hereto and (b) fiscal quarters to end on the dates indicated on Schedule 9.14 hereto. 9.15 [Reserved].Limitation of Restrictions Affecting Subsidiaries. Borrower shall not, directly, or indirectly, create or otherwise cause or suffer to exist any encumbrance or restriction which prohibits or limits the ability of any Subsidiary of Borrower to (a) pay dividends or make other distributions or pay any Indebtedness owed to Borrower or any Subsidiary of Borrower; (b) make loans or advances to Borrower or any Subsidiary of Borrower, (c) transfer any of its properties or assets to Borrower or any Subsidiary of Borrower; or (d) create, incur, assume or suffer to exist any lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, other than encumbrances and restrictions arising under (i) applicable law, (ii) this Agreement, (iii) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of Borrower or any of its Subsidiaries, (iv) customary restrictions on dispositions of real property interests found in reciprocal easement agreements of Borrower or its Subsidiary, (v) any agreement relating to permitted Indebtedness incurred by a Subsidiary of 58
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Borrower prior to the date on which such Subsidiary was acquired by Borrower and outstanding on such acquisition date, and (vi) the extension or continuation of contractual obligations in existence on the date hereof; provided, that, any such encumbrances or restrictions contained in such extension or continuation are no less favorable to Lender than those encumbrances and restrictions under or pursuant to the contractual obligations so extended or continued. 9.17 [Reserved.]
9.18 Budgeted Expenses. The Borrower and its Subsidiaries shall not pay any expenses other than those set forth in the budget approved by the Lender prior to the Closing Date (together with any subsequent budget which the Lender may, in its discretion, approve, the Approved Budget), which Approved Budget shall provide for amounts to be expended by other parties and reimbursed by the Borrower pursuant to the Asset Purchase Agreements. Further, the Borrower and its Subsidiaries shall not use funds allocated to a particular line item in the Approved Budget (including line items denominated Miscellaneous or Other, or words of similar import) to pay any expenses under any other line item(s) in the Approved Budget without the prior express written consent of the Lender, which consent may be conditioned, withheld, or delayed in the Lenders sole and exclusive discretion. The Borrower and its Subsidiaries shall (a) achieve revenues of at least 90% of those projected in the Approved Budget, and (b) not permit their disbursements to exceed 110% of budgeted amounts either by line item or in the aggregate, all of which payables shall be paid in accordance with their terms. Compliance with the covenants set forth in this Section 9.18 shall be tested as of the close of business on Sunday of each fiscal week (x) on a cumulative basis from the Petition Date through the end of such fiscal week and (y) on a weekly basis through the end of such fiscal week, in each case, based on the actual financials results for such fiscal week reported by 5:00 pm on the second Business Day following such fiscal week. 9.19 [Reserved]. 9.20 [Reserved].
9.21 Foreign Assets Control Regulations, Etc. None of the requesting or borrowing of the Loans or the requesting or issuance, extension or renewal of any Letter of Credit or the use of the proceeds of any thereof will violate the Trading With the Enemy Act (50 USC 1 et seq., as amended) (the Trading With the Enemy Act) or any of the foreign assets control regulations of the United States Treasury Department (31 C.F.R., Subtitle B, Chapter V, as amended) (the Foreign Assets Control Regulations) or any enabling legislation or executive order relating thereto (including, but not limited to (a) Executive order 13224 of September 21, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)) (the Executive Order) and (b) the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56). Neither Borrower nor any of its Subsidiaries or other Affiliates is or will become a blocked person as described in the Executive Order, the Trading with the Enemy Act or the Foreign Assets Control Regulations or engages or will
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engage in any dealings or transactions, or be otherwise associated, with any such blocked person. 9.22 [Reserved].Costs and Expenses. Borrower shall pay to Lender on demand all costs, expenses, filing fees and taxes paid or payable in connection with the preparation, negotiation, execution, delivery, recording, administration, collection, liquidation, enforcement and defense of the Obligations, Lender's rights in the Collateral, this Agreement, the other Financing Agreements and all other documents related hereto or thereto, including any amendments, supplements or consents which may hereafter be contemplated (whether or not executed) or entered into in respect hereof and thereof, including: (a) all costs and expenses of filing or recording (including Uniform Commercial Code financing statement filing taxes and fees, documentary taxes, intangibles taxes and mortgage recording taxes and fees, if applicable); (b) costs and expenses and fees for insurance premiums, environmental audits, title insurance premiums, surveys, assessments, engineering reports and inspections, appraisal fees and search fees, background checks, costs and expenses of remitting loan proceeds, collecting checks and other items of payment, and establishing and maintaining the Blocked Accounts, together with Lender's customary charges and fees with respect thereto; (c) charges, fees or expenses charged by Lender or any other bank in connection with any Letter of Credit; (d) costs and expenses of preserving and protecting the Collateral; (e) costs and expenses paid or incurred in connection with obtaining payment of the Obligations, enforcing the security interests and liens of Lender, selling or otherwise realizing upon the Collateral, and otherwise enforcing the provisions of this Agreement and the other Financing Agreements or defending any claims made or threatened against Lender arising out of the transactions contemplated hereby and thereby (including preparations for and consultations concerning any such matters); (f) all out-of-pocket expenses and costs heretofore and from time to time hereafter incurred by Lender during the course of periodic field examinations of the Collateral and Borrower's operations, plus a per diem charge at the then standard rate for Lender's examiners in the field and office; and (g) the fees and disbursements of counsel (including legal assistants) to Lender in connection with any of the foregoing. 9.24 Further Assurances. At the reasonable request of Lender at any time and from time to time, Borrower shall, at its expense, duly execute and deliver, or cause to be duly executed and delivered, such further agreements, documents and instruments, and do or cause to be done such further acts as may be necessary or proper to evidence, perfect, maintain and enforce the security interests and the priority thereof in the Collateral and to otherwise effectuate the provisions or purposes of this Agreement or any of the other Financing Agreements. Lender may at any time and from time to time request a certificate from an officer of Borrower representing that all conditions precedent to the making of Loans and providing Letters of Credit contained herein are satisfied. In the event of such request by Lender, Lender may, at its option, cease to make any further Loans or provide any further Letters of Credit until Lender has received such certificate and, in addition, Lender has determined that such conditions are satisfied. 9.25 [Reserved].
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9.26 9.27
[Reserved]. Bankruptcy Related Covenants
(a) Within thirty-five (35) days after the Petition Date, the Borrower shall have obtained an order of the Bankruptcy Court granting the Store Closing Program Motion and authorizing the immediate commencement of the store closing program as contemplated therein. (b) Within thirty-five (35) days after the Petition Date, the Borrower shall have obtained an order of the Bankruptcy Court granting the Leasehold Sale Motion and authorizing the assumption and assignment of the Borrowers leases as contemplated therein. (c) Within sixty (60) days after the Petition Date, the Borrower shall have obtained an order of the Bankruptcy Court extending the time period of the Borrower to assume or reject leases to not less than two hundred ten (210) days from the Petition Date. (d) Within three (3) days after the Petition Date, the Borrower shall file a Chapter 11 Plan, which Chapter 11 Plan shall provide for payment in full of the Obligations on the consummation of the Chapter 11 Plan. The Chapter 11 Plan shall become effective no later than seven (7) days prior to the Termination Date. (e) Except as provided for in a Chapter 11 Plan or contemplated by the Asset Purchase Agreements, the Borrower will not consent to or permit to exist any of the following: (i) Any order which authorizes the rejection or assumption of any Leases of the Borrower without the Lenders prior written consent, whose consent shall not be unreasonably withheld; (ii) Any modification, stay, vacation or amendment to the DIP Orders to which the Lender has not consented; (iii) A priority claim or administrative expense or unsecured claim against the Borrower (now existing or hereafter arising or any kind or nature whatsoever, including, without limitation, any administrative expense of the kind specified in Sections 105, 326, 328, 330, 331, 364(c), 503(a), 503(b), 506(c), 507(a), 507(b), 546(c), 546(d), 726 or 1114 of the Bankruptcy Code) equal or superior to the priority claim of the Lender in respect of the Obligations, except with respect to the Professional Fee Carve Out; (iv) Any Lien on any Collateral having a priority equal or superior to the Lien securing the Obligations, except (a) with respect to the Professional Fee Carve Out (b) for Liens permitted under Section 9.8; (v) Any order which authorizes the return of any of the Borrowers property pursuant to Section 546(h) of the Bankruptcy Code; or (vi) Any order which authorizes the payment of any Indebtedness (other than those under the Existing Credit Facility, Indebtedness reflected in the Approved Budget, and
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other Indebtedness approved by the Lender, in each case incurred prior to the Petition Date or the grant of adequate protection (whether payment in cash or transfer of property) with respect to any such Indebtedness which is secured by a Lien other than as set forth in the DIP Orders). SECTION 10. EVENTS OF DEFAULT AND REMEDIES 10.1 Events of Default. The occurrence or existence of any one or more of the following events are referred to herein individually as an Event of Default, and collectively as Events of Default: (a) (i) Borrower fails to pay any of the Obligations under this Agreement when due or (ii) Borrower fails to perform any of the covenants contained in Sections 9.3, 9.4, 9.13, 9.14, 9.15, and 9.16 of this Agreement and such failure shall continue for ten (10) days; provided, that, such ten (10) day period shall not apply in the case of any failure to observe any such covenant which is not capable of being cured at all or within such ten (10) day period or (iii) Borrower fails to perform any of the terms, covenants, conditions or provisions contained in this Agreement or any of the other Financing Agreements other than those described in Sections 10.1(a)(i) and 10.1(a)(ii) above and such failure shall continue for thirty (30) days; provided, that, such thirty (30) day period shall not apply in the case of any failure to observe any such covenant which is not capable of being cured at all or within such thirty (30) day period; (b) any representation, warranty or statement of fact made by Borrower or any Obligor to Lender in this Agreement, the other Financing Agreements or any other written agreement, schedule, confirmatory assignment or otherwise shall when made or deemed made be false or misleading in any material respect; (c) any Obligor revokes or terminates, or purports to revoke or terminate, or fails to perform any of the terms, covenants, conditions or provisions of any guarantee of the Obligations under this Agreement by such party in favor of Lender; (d) any judgment for the payment of money is rendered against Borrower or any Obligor in excess of $250,000 in any one case or in excess of $500,000 in the aggregate (to the extent not covered by insurance where the insurer has assumed responsibility in writing for such judgment) and shall remain undischarged or unvacated for a period in excess of thirty (30) days or execution shall at any time not be effectively stayed, or any judgment other than for the payment of money, or injunction, attachment, garnishment or execution is rendered against Borrower or any Obligor or any of the Collateral having a value in excess of $100,000; (e) any Obligor (being a natural person or a general partner of an Obligor which is a partnership) dies or Borrower or any Obligor, which is a partnership, limited liability company, limited liability partnership or a corporation, dissolves or suspends or discontinues doing business; (f) any default in respect of any Indebtedness of Borrower or any Obligor incurred after the Petition Date under any agreement, document or instrument relating to any Indebtedness incurred after the Petition Date owing to any person other than Lender, or any capitalized lease
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obligations, contingent indebtedness in connection with any guarantee, letter of credit, indemnity or similar type of instrument in favor of any person other than Lenders, in any case in an amount in excess of $100,000, which default continues for more than the applicable cure period, if any, with respect thereto or any default by Borrower or any Obligor under any Asset Purchase Agreement, which default continues for more than the applicable cure period, if any, with respect thereto and/or is not waived in writing by the other parties thereto; (g) any material provision hereof or of any of the other Financing Agreements shall for any reason cease to be valid, binding and enforceable with respect to any party hereto or thereto (other than Lender) in accordance with its terms, or any such party shall challenge the enforceability hereof or thereof, or shall assert in writing, or take any action or fail to take any action based on the assertion that any provision hereof or of any of the other Financing Agreements has ceased to be or is otherwise not valid, binding or enforceable in accordance with its terms, or any security interest provided for herein or in any of the other Financing Agreements shall cease to be a valid and perfected first priority security interest in any of the Collateral purported to be subject thereto (except as otherwise permitted herein or therein); (h) an ERISA Event shall occur which results in or could reasonably be expected to result in liability of Borrower in an aggregate amount in excess of $100,000; (i) any Change of Control; (j) the indictment by any Governmental Authority, or as Lender may reasonably and in good faith determine, the threatened indictment by any Governmental Authority of Borrower or any Obligor of which Borrower, any Obligor or Lender receives notice, in either case, as to which there is a reasonable possibility of an adverse determination, in the good faith determination of Lender, under any criminal statute, or commencement or threatened commencement of criminal or civil proceedings against Borrower pursuant to which statute or proceedings the penalties or remedies sought or available include forfeiture of (i) any of the Collateral having a value in excess of $100,000 or (ii) any other property of Borrower which is necessary or material to the conduct of its business; (k) [Reserved]. (l) there shall occur a Termination Event (as defined in the Vim Forbearance Agreement) under the Vim Forbearance Agreement; (m) any Credit Card Issuer or Credit Card Processor shall send written notice to Borrower that it is ceasing to make or suspending payments to Borrower of amounts due or to become due to Borrower or shall cease or suspend such payments, or shall send written notice to Borrower that it is terminating its arrangements with Borrower or such arrangements shall terminate as a result of any event of default under such arrangements, which continues for more than the applicable cure period, if any, with respect thereto, unless Borrower shall have entered into arrangements with another Credit Card Issuer or Credit Card Processor, as the case may be, within sixty (60) days after the date of any such notice;
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(n) the entry of an order in the Chapter 11 Case which stays, modifies or reverses any DIP Order or which otherwise materially adversely affects the effectiveness of any DIP Order without the express written consent of the Lender; (o) either (i) the appointment in the Chapter 11 Case of a trustee or of any examiner having expanded powers to operate all or any part of the Borrowers business, or (ii) the conversion of the Chapter 11 Case to a case under Chapter 7 of the Bankruptcy Code; (p) the failure of the Bankruptcy Court to enter a Final Borrowing Order, in form and substance reasonably satisfactory to the Lender, within forty five (45) days after the Petition Date; (q) the entry of any order without the prior written consent of the Lender which provides relief from the automatic stay otherwise imposed pursuant to Section 362 of the Bankruptcy Code which permits any creditor to realize upon, or to exercise any right or remedy with respect to, any asset of the Borrower or to terminate any license, franchise, or similar agreement, where the exercise of such right or remedy or such realization or termination would reasonably be likely to have a Material Adverse Effect; (r) the filing of any application by the Borrower without the express prior written consent of the Lender for the approval of any super-priority claim in the Chapter 11 Case which is pari passu with or senior to the priority of the claims of the Lender for the Obligations, or there shall arise any such super-priority claim under the Bankruptcy Code (other than the Professional Fee Carve Out); (s) the payment or other discharge by the Borrower of any Indebtedness incurred prior to the Petition Date, except as expressly permitted hereunder, in the Approved Budget or by order in the Chapter 11 Case to which order the Lender has provided its written consent; (t) the entry of any order in the Chapter 11 Case which provides adequate protection (other than on account of Liens held under the Existing Credit Facility), or the granting by the Borrower of similar relief in favor of any one or more of their pre-petition creditors, contrary to the terms and conditions of any DIP Order; (u) the failure of the Borrower (i) to comply with each and all of the terms and conditions of any DIP Order, or (ii) to materially comply with any other order entered in the Chapter 11 Case if such failure would reasonably likely result in a Material Adverse Effect; (v) the filing of any motion by the Borrower or the entry of any order in the Chapter 11 Case: (i) (A) permitting working capital or other financing (other than ordinary course trade credit or unsecured debt) for the Borrower from any Person other than the Lender (unless the proceeds of such financing are used to pay in full of all Obligations, cash collateralization of all Letters of Credit, and all Obligations then due and owing in connection with any Swap Agreement, cash management, depository or similar Bank Products (collectively, the Unliquidated Claims), and the establishment of a reserve account for all indemnification obligations hereunder), (B) granting a Lien on, or security interest in any of the Collateral, other
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than with respect to this Agreement or as otherwise permitted herein (unless such Liens are granted in connection with a financing, the proceeds of which are applied to the payment in full of all Obligations and the cash collateralization of all Letters of Credit, other Unliquidated Claims and indemnification obligations hereunder), (C) except as permitted by this Agreement, permitting the use of any of the Collateral pursuant to Section 363(c) of the Bankruptcy Code without the prior written consent of the Lender, (D) permitting recovery from any portion of the Collateral any costs or expenses of preserving or disposing of such Collateral under Section 506(c) of the Bankruptcy Code, or (E) dismissing any of the Chapter 11 Case or (ii) the filing of any motion by the Borrower or any Obligor (or by any party in interest or any Creditors Committee appointed in the Chapter 11 Case) seeking any of the matters specified in the foregoing clause (i) that is not dismissed or denied within forty five (45) days of the date of the filing of such motion (or such later date agreed to in writing by the Lender); or (w) the filing of a motion by the Borrower seeking approval of a disclosure statement and a Chapter 11 Plan, or the entry of an order confirming a Chapter 11 Plan, that does not require repayment in full in cash of all Obligations on the effective date of such Chapter 11 Plan. 10.2 Remedies. (a) At any time an Event of Default exists or has occurred and is continuing, subject to the terms of the DIP Orders, Lender shall have all rights and remedies provided in this Agreement, the other Financing Agreements, the UCC and other applicable law, all of which rights and remedies may be exercised without notice to or consent by Borrower or any Obligor, except as such notice or consent is expressly provided for hereunder or required by applicable law. All rights, remedies and powers granted to Lender hereunder, under any of the other Financing Agreements, the UCC or other applicable law, are cumulative, not exclusive and enforceable, in Lenders discretion, alternatively, successively, or concurrently on any one or more occasions, and shall include, without limitation, the right to apply to a court of equity for an injunction to restrain a breach or threatened breach by Borrower of this Agreement or any of the other Financing Agreements. Lender may, at any time or times, proceed directly against Borrower or any Obligor to collect the Obligations without prior recourse to any Obligor or any of the Collateral. (b) Without limiting the generality of the foregoing, at any time an Event of Default exists or has occurred and is continuing, subject to the terms of the DIP Orders, Lender may upon notice to Borrower, accelerate the payment of all Obligations (other than Obligations under any Swap Agreements, between Borrower and Lender or any Affiliate of Lender, which shall be due in accordance with and governed by the provisions of said Swap Agreements) and demand immediate payment thereof to Lender. (c) Without limiting the foregoing, at any time an Event of Default exists or has occurred and is continuing, subject to the terms of the DIP Orders, Lender may, in its discretion (i) with or without judicial process or the aid or assistance of others, enter upon any premises on or in which any of the Collateral may be located and take possession of the Collateral or complete processing, manufacturing and repair of all or any portion of the Collateral, (ii) require Borrower, at Borrower's expense, to assemble and make available to Lender any part or all of the
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Collateral at any place and time designated by Lender, (iii) collect, foreclose, receive, appropriate, setoff and realize upon any and all Collateral, (iv) remove any or all of the Collateral from any premises on or in which the same may be located for the purpose of effecting the sale, foreclosure or other disposition thereof or for any other purpose, (v) sell, lease, transfer, assign, deliver or otherwise dispose of any and all Collateral (including entering into contracts with respect thereto, public or private sales at any exchange, broker's board, at any office of Lender or elsewhere) at such prices or terms as Lender may deem reasonable, for cash, upon credit or for future delivery, with the Lender having the right to purchase the whole or any part of the Collateral at any such public sale, all of the foregoing being free from any right or equity of redemption of Borrower, which right or equity of redemption is hereby expressly waived and released by Borrower and/or (vi) terminate this Agreement. If any of the Collateral is sold or leased by Lender upon credit terms or for future delivery, the Obligations shall not be reduced as a result thereof until payment therefor is finally collected by Lender. If notice of disposition of Collateral is required by law, ten (10) days prior notice by Lender to Borrower designating the time and place of any public sale or the time after which any private sale or other intended disposition of Collateral is to be made, shall be deemed to be reasonable notice thereof and Borrower waives any other notice. In the event Lender institutes an action to recover any Collateral or seeks recovery of any Collateral by way of prejudgment remedy, Borrower waives the posting of any bond which might otherwise be required. (d) Subject to the terms of the DIP Orders, Lender may, at any time or times that an Event of Default exists or has occurred and is continuing, enforce Borrowers rights against any account debtor, secondary obligor or other obligor in respect of any of the Accounts or other Receivables. Without limiting the generality of the foregoing, Lender may at such time or times (i) notify any or all account debtors, secondary obligors or other obligors in respect thereof that the Receivables have been assigned to Lender and that Lender has a security interest therein and Lender may direct any or all account debtors, secondary obligors and other obligors to make payment of Receivables directly to Lender, (ii) extend the time of payment of, compromise, settle or adjust for cash, credit, return of merchandise or otherwise, and upon any terms or conditions, any and all Receivables or other obligations included in the Collateral and thereby discharge or release the account debtor or any secondary obligors or other obligors in respect thereof without affecting any of the Obligations, (iii) demand, collect or enforce payment of any Receivables or such other obligations, but without any duty to do so, and Lender shall not be liable for its failure to collect or enforce the payment thereof nor for the negligence of its agents or attorneys with respect thereto and (iv) take whatever other action Lender may deem necessary or desirable for the protection of its interests. At any time that an Event of Default exists or has occurred and is continuing, at Lenders request, all invoices and statements sent to any account debtor shall state that the Accounts and such other obligations have been assigned to Lender and are payable directly and only to Lender and Borrower shall deliver to Lender such originals of documents evidencing the sale and delivery of goods or the performance of services giving rise to any Accounts as Lender may require. In the event any account debtor returns Inventory when an Event of Default exists or has occurred and is continuing, Borrower shall, upon Lenders request, hold the returned Inventory in trust for Lender, segregate all returned Inventory from all of its other property, dispose of the returned Inventory solely according to Lenders instructions,
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and not issue any credits, discounts or allowances with respect thereto without Lenders prior written consent. (e) To the extent that applicable law imposes duties on Lender to exercise remedies in a commercially reasonable manner (which duties cannot be waived under such law), Borrower acknowledges and agrees that it is not commercially unreasonable for Lender (i) to fail to incur expenses reasonably deemed significant by Lender to prepare Collateral for disposition or otherwise to complete raw material or work in process into finished goods or other finished products for disposition, (ii) to fail to obtain third party consents for access to Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain consents of any Governmental Authority or other third party for the collection or disposition of Collateral to be collected or disposed of, (iii) to fail to exercise collection remedies against account debtors, secondary obligors or other persons obligated on Collateral or to remove liens or encumbrances on or any adverse claims against Collateral, (iv) to exercise collection remedies against account debtors and other persons obligated on Collateral directly or through the use of collection agencies and other collection specialists, (v) to advertise dispositions of Collateral through publications or media of general circulation, whether or not the Collateral is of a specialized nature, (vi) to contact other persons, whether or not in the same business as Borrower for expressions of interest in acquiring all or any portion of the Collateral, (vii) to hire one or more professional auctioneers to assist in the disposition of Collateral, whether or not the collateral is of a specialized nature, (viii) to dispose of Collateral by utilizing Internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capability of doing so, or that match buyers and sellers of assets, (ix) to dispose of assets in wholesale rather than retail markets, (x) to disclaim disposition warranties, (xi) to purchase insurance or credit enhancements to insure Lender against risks of loss, collection or disposition of Collateral or to provide to Lender a guaranteed return from the collection or disposition of Collateral, or (xii) to the extent deemed appropriate by Lender, to obtain the services of other brokers, investment bankers, consultants and other professionals to assist Lender in the collection or disposition of any of the Collateral. Borrower acknowledges that the purpose of this Section is to provide non-exhaustive indications of what actions or omissions by Lender would not be commercially unreasonable in Lender's exercise of remedies against the Collateral and that other actions or omissions by Lender shall not be deemed commercially unreasonable solely on account of not being indicated in this Section. Without limitation of the foregoing, nothing contained in this Section shall be construed to grant any rights to Borrower or to impose any duties on Lender that would not have been granted or imposed by this Agreement or by applicable law in the absence of this Section. (f) For the purpose of enabling Lender to exercise the rights and remedies hereunder, Borrower hereby grants to Lender, to the extent assignable, an irrevocable, non-exclusive license (exercisable at any time an Event of Default shall exist or have occurred and for so long as the same is continuing without payment of royalty or other compensation to Borrower) to use, assign, license or sublicense any of the trademarks, service-marks, trade names, business names, trade styles, designs, logos and other source of business identifiers and other Intellectual Property and general intangibles now owned or hereafter acquired by Borrower, wherever the same maybe located, including in such license reasonable access to all media in which any of the 67
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licensed items may be recorded or stored and to all computer programs used for the compilation or printout thereof. (g) At any time an Event of Default exists or has occurred and is continuing, subject to the terms of the DIP Orders, Lender may apply the cash proceeds of Collateral actually received by Lender from any sale, lease, foreclosure or other disposition of the Collateral to payment of the Obligations, in whole or in part and in accordance with the terms hereof, whether or not then due or may hold such proceeds as cash collateral for the Obligations. Borrower shall remain liable to Lender for the payment of any deficiency with interest at the highest rate provided for herein and all costs and expenses of collection or enforcement, including attorneys' fees and legal expenses. (h) Without limiting the foregoing, upon the occurrence of a Default or Event of Default, Lender may, at its option, without notice, (i) cease making Loans or arranging for Letters of Credit or reduce the lending formulas or amounts of Revolving Loans and Letters of Credit available to Borrower, (ii) terminate any provision of this Agreement providing for any future Loans or Letters of Credit to be made by Lender to Borrower and/or (iii) establish such Reserves as Lender determines without limitation or restriction, notwithstanding anything to the contrary contained herein. SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver. (a) The validity, interpretation and enforcement of this Agreement and the other Financing Agreements (except as otherwise provided therein) and any dispute arising out of the relationship between the parties hereto, whether in contract, tort, equity or otherwise, shall be governed by the Bankruptcy Code and the internal laws of the State of New York but excluding any principles of conflicts of law or other rule of law that would cause the application of the law of any jurisdiction other than the laws of the State of New York. (b) Borrower and Lender irrevocably consent and submit to the non-exclusive jurisdiction of the United States Bankruptcy Court for the Southern District of New York or the Supreme Court of New York and the United States District Court for the Southern District of New York, whichever Lender may elect, and waive any objection based on venue or forum non conveniens with respect to any action instituted therein arising under this Agreement or any of the other Financing Agreements or in any way connected with or related or incidental to the dealings of the parties hereto in respect of this Agreement or any of the other Financing Agreements or the transactions related hereto or thereto, in each case whether now existing or hereafter arising, and whether in contract, tort, equity or otherwise, and agree that any dispute with respect to any such matters shall be heard only in the courts described above (except that Lender shall have the right to bring any action or proceeding against Borrower or its property in the courts of any other jurisdiction which Lender deems necessary or appropriate in order to realize on the Collateral or to otherwise enforce its rights against Borrower or its property).
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(c) Borrower hereby waives personal service of any and all process upon it and consents that all such service of process may be made by certified mail (return receipt requested) directed to its address set forth herein and service so made shall be deemed to be completed five (5) days after the same shall have been so deposited in the U.S. mails, or, at Lender's option, by service upon Borrower in any other manner provided under the rules of any such courts. Within thirty (30) days after such service, Borrower shall appear in answer to such process, failing which Borrower shall be deemed in default and judgment may be entered by Lender against Borrower for the amount of the claim and other relief requested. (d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER AND LENDER EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT BORROWER OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. (e) Lender shall not have any liability to Borrower (whether in tort, contract, equity or otherwise) for losses suffered by Borrower in connection with, arising out of, or in any way related to the transactions or relationships contemplated by this Agreement, or any act, omission or event occurring in connection herewith, unless it is determined by a final and non-appealable judgment or court order binding on Lender, that the losses were the result of acts or omissions constituting gross negligence or willful misconduct of Lender. In any such litigation, Lender shall be entitled to the benefit of the rebuttable presumption that it acted in good faith and with the exercise of ordinary care in the performance by it of the terms of this Agreement. Borrower: (i) certifies that neither Lender, nor any representative, agent or attorney acting for or on behalf of Lender has represented, expressly or otherwise, that Lender would not, in the event of litigation, seek to enforce any of the waivers provided for in this Agreement or any of the other Financing Agreements and (ii) acknowledges that in entering into this Agreement and the other Financing Agreements, Lender is relying upon, among other things, the waivers and certifications set forth in this Section 11.1 and elsewhere herein and therein. 11.2 Waiver of Notices. Borrower hereby expressly waives demand, presentment, protest and notice of protest and notice of dishonor with respect to any and all instruments and chattel paper, included in or evidencing any of the Obligations or the Collateral, and any and all other demands and notices of any kind or nature whatsoever with respect to the Obligations, the Collateral and this Agreement, except such as are expressly provided for herein. No notice to or
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demand on Borrower which Lender may elect to give shall entitle Borrower to any other or further notice or demand in the same, similar or other circumstances. 11.3 Amendments and Waivers. Neither this Agreement nor any provision hereof shall be amended, modified, waived or discharged orally or by course of conduct, but only by a written agreement signed by an authorized officer of Lender, and as to amendments, as also signed by an authorized officer of Borrower. Lender shall not, by any act, delay, omission or otherwise be deemed to have expressly or impliedly waived any of its rights, powers and/or remedies unless such waiver shall be in writing and signed by an authorized officer of Lender. Any such waiver shall be enforceable only to the extent specifically set forth therein. A waiver by Lender of any right, power and/or remedy on any one occasion shall not be construed as a bar to or waiver of any such right, power and/or remedy which Lender would otherwise have on any future occasion, whether similar in kind or otherwise. 11.4 Waiver of Counterclaims. Borrower waives all rights to interpose any claims, deductions, setoffs or counterclaims of any nature (other than compulsory counterclaims) in any action or proceeding with respect to this Agreement, the Obligations, the Collateral or any matter arising therefrom or relating hereto or thereto. 11.5 Indemnification. Borrower shall indemnify and hold Lender, and its directors, agents, employees and counsel, harmless from and against any and all losses, claims, damages, liabilities, costs or expenses (including attorneys fees and legal expenses) imposed on, incurred by or asserted against any of them in connection with any litigation, investigation, claim or proceeding commenced or threatened related to the negotiation, preparation, execution, delivery, enforcement, performance or administration of this Agreement, any other Financing Agreements, or any undertaking or proceeding related to any of the transactions contemplated hereby or any act, omission, event or transaction related or attendant thereto, including amounts paid in settlement, court costs, and the fees and expenses of counsel. To the extent that the undertaking to indemnify, pay and hold harmless set forth in this Section may be unenforceable because it violates any law or public policy, Borrower shall pay the maximum portion which it is permitted to pay under applicable law to Lender in satisfaction of indemnified matters under this Section. To the extent permitted by applicable law, Borrower shall not assert, and Borrower hereby waives, any claim against Lender, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any of the other Financing Agreements or any undertaking or transaction contemplated hereby. No indemnitee referred to above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or any of the other Financing Agreements or the transaction contemplated hereby or thereby. All amounts due under this Section shall be payable upon demand. The foregoing indemnity shall survive the payment of the Obligations and the termination or non-renewal of this Agreement. SECTION 12. 12.1 Term.
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(a) This Agreement and the other Financing Agreements shall become effective as of the date set forth on the first page hereof and shall continue in full force and effect for a term ending on the Termination Date. In addition, (i) Borrower may terminate this Agreement at any time upon ten (10) days prior written notice to Lender (which notice shall be irrevocable) and (ii) Lender may terminate this Agreement or reduce the Lenders commitment hereunder at any time on or after an Event of Default. Upon the Termination Date, Borrower shall pay to Lender all outstanding and unpaid Obligations and shall furnish cash collateral to Lender (or at Lenders option, a letter of credit issued for the account of Borrower and at Borrowers expense, in form and substance satisfactory to Lender, by an issuer acceptable to Lender and payable to Lender as beneficiary) in such amounts as Lender determines are reasonably necessary to secure Lender from loss, cost, damage or expense, including attorneys' fees and legal expenses, in connection with any contingent Obligations, including the Borrowers indemnification obligations contained in Section 11.5 as well as any issued and outstanding Letter of Credit Obligations and checks or other payments provisionally credited to the Obligations and/or as to which Lender has not yet received final and indefeasible payment and any continuing obligations of Lender under or pursuant to any Deposit Account Control Agreement. The amount of such cash collateral (or letter of credit, as Lender may determine) as to any Letter of Credit Obligations shall be in the amount equal to one hundred ten (110%) percent of the amount of the Letter of Credit Obligations plus the amount of any fees and expenses payable in connection therewith through the end of the latest expiration date of the Letters of Credit giving rise to such Letter of Credit Obligations. Such payments in respect of the Obligations and cash collateral shall be remitted by wire transfer in Federal funds to the Lender Payment Account or such other bank account of Lender, as Lender may, in its discretion, designate in writing to Borrower for such purpose. Interest shall be due until and including the next business day, if the amounts so paid by Borrower to the Lender Payment Account or other bank account designated by Lender are received in such bank account later than 12:00 noon, New York time. (b) No termination of this Agreement or any of the other Financing Agreements shall relieve or discharge Borrower of its respective duties, obligations and covenants under this Agreement or any of the other Financing Agreements until all Obligations have been fully and finally discharged and paid, and Lender's continuing security interest in the Collateral and the rights and remedies of Lender hereunder, under the other Financing Agreements and applicable law, shall remain in effect until all such Obligations have been fully and finally discharged and paid. Accordingly, Borrower waives any rights it may have under the UCC to demand the filing of termination statements with respect to the Collateral, and Lender shall not be required to send such termination statements to Borrower, or to file them with any filing office, unless and until this Agreement shall have been terminated in accordance with its terms and all Obligations paid and satisfied in full in immediately available funds. 12.2 Interpretative Provisions. (a) All terms used herein which are defined in Article 1, Article 8 or Article 9 of the UCC shall have the meanings given therein unless otherwise defined in this Agreement.
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(b) All references to the plural herein shall also mean the singular and to the singular shall also mean the plural unless the context otherwise requires. (c) All references to Borrower and Lender pursuant to the definitions set forth in the recitals hereto, or to any other person herein, shall include their respective successors and assigns. (d) The words hereof, herein, hereunder, this Agreement and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not any particular provision of this Agreement and as this Agreement now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. (e) The word including when used in this Agreement shall mean including, without limitation and the word will when used in this Agreement shall be construed to have the same meaning and effect as the word shall. (f) An Event of Default shall exist or continue or be continuing until such Event of Default is waived in accordance with Section 11.3 or is cured in a manner satisfactory to Lender, if such Event of Default is capable of being cured as determined by Lender. (g) All references to the term good faith used herein when applicable to Lender shall mean, notwithstanding anything to the contrary contained herein or in the UCC, honesty in fact in the conduct or transaction concerned. Borrower shall have the burden of proving any lack of good faith on the part of Lender alleged by Borrower at any time. (h) An Event of Default shall exist or continue or be continuing until such Event of Default is waived in accordance with Section 11.3 or is cured in a manner satisfactory to Lender, if such Event of Default is capable of being cured as determined by Lender. (i) Any accounting term used in this Agreement shall have, unless otherwise specifically provided herein, the meaning customarily given in accordance with GAAP, and all financial computations hereunder shall be computed unless otherwise specifically provided herein, in accordance with GAAP as consistently applied and using the same method for inventory valuation as used in the preparation of the financial statements of Borrower most recently received by Lender prior to the date hereof. Notwithstanding anything to the contrary contained in GAAP or any interpretations or other pronouncements by the Financial Accounting Standards Board or otherwise, the term unqualified opinion as used herein to refer to opinions or reports provided by accountants shall mean an opinion or report that is unqualified and also does not include any explanation, supplemental comment or other comment concerning the ability of the applicable person to continue as a going concern or the scope of the audit. (j) In the computation of periods of time from a specified date to a later specified date, the word from means from and including, the words to and until each mean to but excluding and the word through means to and including.
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(k) Unless otherwise expressly provided herein, (i) references herein to any agreement, document or instrument shall be deemed to include all subsequent amendments, modifications, supplements, extensions, renewals, restatements or replacements with respect thereto, but only to the extent the same are not prohibited by the terms hereof or of any other Financing Agreement, and (ii) references to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending, replacing, recodifying, supplementing or interpreting the statute or regulation. (l) The captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement. (m) This Agreement and other Financing Agreements may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are cumulative and shall each be performed in accordance with their terms. (n) This Agreement and the other Financing Agreements are the result of negotiations among and have been reviewed by counsel to Lender and the other parties, and are the products of all parties. Accordingly, this Agreement and the other Financing Agreements shall not be construed against Lender merely because of Lender's involvement in their preparation. 12.3 Notices.All notices, requests and demands hereunder shall be in writing and deemed to have been given or made: if delivered in person, immediately upon delivery; if by telex, telegram or facsimile transmission, immediately upon sending and upon confirmation of receipt; if by nationally recognized overnight courier service with instructions to deliver the next Business Day, one (1) Business Day after sending; and if by certified mail, return receipt requested, five (5) days after mailing. Notices delivered through electronic communications shall be effective to the extent set forth in Section 12.3(b) below. All notices, requests and demands upon the parties are to be given to the following addresses (or to such other address as any party may designate by notice in accordance with this Section): If to Borrower: Daffys, Inc. Daffys Way Secaucus, New Jersey 07094 Attention: Sid Taubman, CFO Facsimile No.: (201) 863-5221 Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Attention: Andrea Bernstein, Esq. Facsimile No.: (212) 310-8007 Wells Fargo Bank, National Association One Boston Place, 18th Floor 73
with a copy to:
If to Lender:
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Boston, Massachusetts 02108 Attention: Brent E. Shay (Daffys, Inc.) Facsimile No.: 866-328-8544 with a copy to: Riemer & Braunstein LLP Three Center Plaza, 6th Floor Boston, Massachusetts 02108 Attention: Donald E. Rothman, Esq. Facsimile No.: (617) 692-3556
(b) Notices and other communications to Lender hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by Lender or as otherwise determined by Lender. Unless Lender otherwise requires, (i) notices and other communications sent to an e-mail address shall be deemed received upon the senders receipt of an acknowledgement from the intended recipient (such as by the return receipt requested function, as available, return e-mail or other written acknowledgement), provided, that, if such notice or other communication is not given during the normal business hours of the recipient, such notice shall be deemed to have been sent at the opening of business on the next Business Day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communications is available and identifying the website address therefor. 12.4 Partial Invalidity. If any provision of this Agreement is held to be invalid or unenforceable, such invalidity or unenforceability shall not invalidate this Agreement as a whole, but this Agreement shall be construed as though it did not contain the particular provision held to be invalid or unenforceable and the rights and obligations of the parties shall be construed and enforced only to such extent as shall be permitted by applicable law. 12.5 Successors. This Agreement, the other Financing Agreements and any other document referred to herein or therein shall be binding upon and inure to the benefit of and be enforceable by Lender, Borrower and their respective successors and assigns, except that Borrower may not assign its rights under this Agreement, the other Financing Agreements and any other document referred to herein or therein without the prior written consent of Lender. Lender may, after notice to Borrower, assign its rights and delegate its obligations under this Agreement and the other Financing Agreements and further may assign, or sell participations in, all or any part of the Loans, the Letters of Credit or any other interest herein to another financial institution or other person on terms and conditions acceptable to Lender. 12.6 USA Patriot Act. Lender hereby notifies Borrower that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub.L. 107-56 (signed into law October 26, 2001) (the Act), it is required to obtain, verify and record information that identifies each person or corporation who opens an account and/or enters into a business relationship with it, which information includes the name and address of Borrower and other information that will 74
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allow Lender to identify Borrower in accordance with the Act and any other applicable law. Borrower is hereby advised that any Loans or Letters of Credit hereunder are subject to satisfactory results of such verification. 12.7 Entire Agreement. This Agreement, the other Financing Agreements, any supplements hereto or thereto, and any instruments or documents delivered or to be delivered in connection herewith or therewith represents the entire agreement and understanding concerning the subject matter hereof and thereof between the parties hereto, and supersede all other prior agreements, understandings, negotiations and discussions, representations, warranties, commitments, proposals, offers and contracts concerning the subject matter hereof, whether oral or written. In the event of any inconsistency between the terms of this Agreement and any schedule or exhibit hereto, the terms of this Agreement shall govern. 12.8 Counterparts, Etc. This Agreement or any of the other Financing Agreements may be executed in any number of counterparts, each of which shall be an original, but all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of this Agreement or any of the other Financing Agreements by telefacsimile or other electronic method of transmission shall have the same force and effect as the delivery of an original executed counterpart of this Agreement or any of such other Financing Agreements. Any party delivering an executed counterpart of any such agreement by telefacsimile or other electronic method of transmission shall also deliver an original executed counterpart, but the failure to do so shall not affect the validity, enforceability or binding effect of such agreement. 12.9 Limited Recourse to Marcia Wilson
The Obligations shall be non-recourse to Marcia Wilson; provided, that, with respect to Obligations relating to the East Hanover Premises only, Marcia Wilson, as successor to Vim Associates, shall be liable solely to the extent of her rights in the East Hanover Premises as successor to Vim Associates. 12.10 Relationship with DIP Orders
In the event of any inconsistency between the terms of the DIP Orders and the Financing Agreements, the terms of the DIP Orders shall control and the representations, warranties, covenants, agreements or events of default made herein and in the other Financing Agreements shall be subject to the terms of the DIP Orders.
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EXHIBIT B TO LOAN AND SECURITY AGREEMENT Compliance Certificate
To:
Wells Fargo Bank, National Association One Boston Place, 18th Floor Boston, Massachusetts 02108 Attn: Brent E. Shay (Daffys, Inc.)
Ladies and Gentlemen: I hereby certify to you pursuant to Section 9.6 of the Loan Agreement (as defined below) as follows: 1. I am the duly elected Chief Financial Officer of Daffys, Inc., a New Jersey corporation (Borrower). Capitalized terms used herein without definition shall have the meanings given to such terms in the Senior Secured Super-Priority Debtor-in-Possession Loan and Security Agreement, dated August __, 2012, by and among Wells Fargo Bank, National Association (Lender) and Borrower and the Guarantor (as such Senior Secured Super-Priority Debtor-in-Possession Loan and Security Agreement is amended, modified or supplemented, from time to time, the Loan Agreement). 2. I have reviewed the terms of the Loan Agreement, and have made, or have caused to be made under my supervision, a review in reasonable detail of the transactions and the financial condition of Borrower, the Obligors and each of their respective Subsidiaries, during the immediately preceding fiscal [month][year]. 3. The review described in Section 2 above did not disclose the existence during or at the end of such fiscal [month][year], and I have no knowledge of the existence and continuance on the date hereof, of any condition or event which constitutes a Default or an Event of Default, except as set forth on Schedule I attached hereto. Described on Schedule I attached hereto are the exceptions, if any, to this Section 3 listing, in detail, the nature of the condition or event, the period during which it has existed and the action which Borrower or any Obligor has taken, is taking, or proposes to take with respect to such condition or event. 4. I further certify that, based on the review described in Section 2 above, neither the Borrower nor any of the Obligors has at any time during or at the end of such fiscal month, except as specifically described on Schedule II attached hereto or as permitted by the Loan Agreement, done any of the following: (a) Changed its corporate/company name, or transacted business under any trade name, style, or fictitious name, other than those previously described to you and set forth in the Financing Agreements. (b) Changed the location of its chief executive office, changed its jurisdiction of
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incorporation/formation, changed its type of organization or changed the location of or disposed of any of its properties or assets (other than pursuant to the sale of Inventory in the ordinary course of its business or as otherwise permitted by Section 9.7 of the Loan Agreement), or established any new asset locations. (c) Materially changed the terms upon which it sells goods (including sales on consignment) or provides services, nor has any vendor or trade supplier to Borrower or any Obligor during or at the end of such period materially adversely changed the terms upon which it supplies goods to Borrower or such Obligor. (d) Permitted or suffered to exist any security interest in or liens on any of its properties, whether real or personal, other than as specifically permitted in the Financing Agreements. (e) Received any notice of, or obtained knowledge of any of the following not previously disclosed to Lender: (i) the occurrence of any event involving the release, spill or discharge of any Hazardous Material in violation of applicable Environmental Law in a material respect or (ii) any investigation, proceeding, complaint, order, directive, claims, citation or notice with respect to: (A) any non-compliance with or violation of any applicable Environmental Law by Borrower or any Obligor in any material respect or (B) the release, spill or discharge of any Hazardous Material in violation of applicable Environmental Law in a material respect or (C) the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials in violation of applicable Environmental Laws in a material respect or (D) any other environmental, health or safety matter, which has a material adverse effect on Borrower or any Obligor or its business, operations or assets or any properties at which Borrower or such Obligor transported, stored or disposed of any Hazardous Materials. (f) Become aware of, obtained knowledge of, or received notification of, any breach or violation of any material covenant contained in any instrument or agreement in respect of Indebtedness for money borrowed by Borrower or any Obligor. 5. Attached hereto as Schedule III are the calculations used in determining, as of the end of such fiscal month whether Borrower is in compliance with the covenant set forth in Section 9.17 of the Loan Agreement for such fiscal [month][year]. The foregoing certifications are made and delivered this day of _________ __, 20__. Very truly yours, __________________________ By: Title: Chief Financial Officer
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EXHIBIT D TO LOAN AND SECURITY AGREEMENT Interim Borrowing Order
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UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ----------------------------------------------------------: In re: : : DAFFYS, INC., : : Debtor : ----------------------------------------------------------:
Chapter 11 Case No. ________
INTERIM ORDER (1) AUTHORIZING POSTPETITION FINANCING, (2) GRANTING LIENS AND PROVIDING SUPER PRIORITY ADMINISTRATIVE EXPENSE PRIORITY, (3) AUTHORIZING USE OF CASH COLLATERAL AND PROVIDING FOR ADEQUATE PROTECTION, (4) MODIFYING THE AUTOMATIC STAY AND (5) SCHEDULING A FINAL HEARING, PURSUANT TO SECTIONS 105, 361, 362, 363 AND 364 OF THE BANKRUPTCY CODE AND BANKRUPTCY RULES 2002, 4001 AND 9014 Upon the motion (the Motion),1 dated August 1, 2012 [Docket No. __], of Daffys, Inc., as debtor and debtor-in-possession (the Debtor), pursuant to sections 105, 361, 362, and 364 of title 11 of the United States Code (the Bankruptcy Code) and in accordance with Rule 4001 of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules) and Rule 4001-2 of the Local Bankruptcy Rules for the Southern District of New York (the Local Rules), in the above captioned chapter 11 case (collectively, the Chapter 11 Case), for entry of an interim order (this Interim Order), granting the following relief on an interim basis: (I) Interim DIP Financing (A) Authorizing the Debtor to obtain 10,000,000.00 in postpetition financing, pursuant to that certain Senior Secured, Super-Priority Debtor-inPossession Loan and Security Agreement (as may be amended, modified, or supplemented, the DIP Credit Agreement), substantially in the form attached here to as Exhibit 1, by and among the Debtor, as borrower; Vim-3, L.L.C. (Vim-3), Vimwilco, L.P. (Vimwilco), and Marcia Wilson, as successor to Vim Associates (Vim), collectively, as guarantors (the Guarantors); and Wells Fargo Bank, National
Capitalized terms used in this Interim Order but not defined herein shall have the meanings ascribed to such terms in the DIP Financing Agreements (as defined below).
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Association, as lender and as secured party (the DIP Lender), which may be used for the following: (i) (ii) Funding the Debtors day-to-day operations and working capital needs; Roll-up of all outstanding prepetition amounts under the Prepetition Revolving Credit Loan Agreement (collectively, the Revolver Roll-Up Amount); Roll-up of all outstanding prepetition amounts under the Swap Agreement (collectively, the Swap Roll-Up Amount and together with the Revolver Roll-Up Amount, the Roll-Up Amount); and Conversion of all existing Letters of Credit under the Daffys Prepetition Revolving Credit Loan Agreement (as defined below) (Existing Letters of Credit) into postpetition obligations under DIP Financing Agreements (as defined below).
(iii)
(iv)
(B)
Approval of the DIP Credit Agreement and all other agreements, documents, notes, certificates, and instruments executed and/or delivered with, to, or in favor of the DIP Lender, including, without limitation, security agreements, pledge agreements, notes, guaranties, mortgages, and Uniform Commercial Code (UCC) financing statements, and all other related agreements, documents, notes, certificates, and instruments executed and/or delivered in connection therewith or related thereto (collectively, as may be amended, modified, or supplemented and in effect from time to time, the DIP Financing Agreements); Granting the DIP Lender the following Liens (as defined in section 101(37) of the Bankruptcy Code) and claims: (i) A first priority priming, valid, perfected, and enforceable Liens (as defined below), subject only to the Carve Out (as defined below) and the Permitted Prior Liens (as defined below), upon substantially all of the Debtors real and personal property as provided in and as contemplated by this Interim Order and the DIP Financing Agreements; A superpriority administrative claim status in respect of all obligations under the DIP Financing Agreements (collectively, the DIP Obligations), subject to the Carve Out as provided herein;
(C)
(ii)
(II)
Interim Use of Cash Collateral (A) Authorizing the Debtor the use of cash collateral, as such term is defined in section 363 of the Bankruptcy Code (Cash Collateral), in 2
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which the Prepetition Term Lender (as defined below) has an interest; (B) Granting the Prepetition Term Lender (as defined below) certain adequate protection, including, among other things, Prepetition Term Replacement Liens and Prepetition Term Superpriority Claims (each as defined below) and certain other adequate protection as described in this Interim Order, to the extent of any diminution in the value of the Prepetition Term Lenders interest in the Prepetition Collateral having the priority set forth in this Interim Order, as adequate protection for the granting of the DIP Liens to the DIP Lender, the use of Cash Collateral, and for the imposition of the automatic stay;
(III)
Modifying the Automatic Stay 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 Financing Agreements and this Interim Order; Final Hearing Scheduling a final hearing (the Final Hearing) to consider entry of an order (the Final Order) granting the relief requested in the DIP Motion on a final basis and approve the form of notice with respect to the Final Hearing;
(IV)
and upon consideration of the Declaration of Richard F. Kramer in Support of the Companys Chapter 11 Petition and Requests for First Day Relief, dated August 1, 2012 (the Kramer Declaration), and the Court having reviewed the Motion and held a hearing with respect to the Motion on August 2, 2012 (the Interim Hearing); upon the Motion, the Kramer Affidavit, and the record of the Interim Hearing and after due deliberation and all objections, if any, to the entry of this Interim Order having been withdrawn, resolved, or overruled by this Court; and after due deliberation and consideration, and for good and sufficient cause appearing therefor: THE COURT HEREBY MAKES THE FOLLOWING FINDINGS OF FACT AND CONCLUSIONS OF LAW: I. Procedural Findings of Fact A. Petition Date. On August 1, 2012 (the Petition Date), the Debtor filed
a voluntary petition for relief under chapter 11 of the Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York (the Court). The Debtor has
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continued in the management and operation of its business and property as debtor-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy Code. No trustee or examiner has been appointed in the Chapter 11 Case. B. Jurisdiction and Venue. This Court has jurisdiction over these
proceedings, pursuant to 28 U.S.C. 157(b) and 1334, and over the persons and property affected hereby. Consideration of the Motion constitutes a core proceeding under 28 U.S.C. 157(b)(2). Venue for the Chapter 11 Case and proceedings on the Motion is proper in this district pursuant to 28 U.S.C. 1408 and 1409. C. Committee Formation. No official committee (a Committee) of
unsecured creditors, equity interest holders, or other parties in interests has been appointed in the Chapter 11 Case. D. Notice. The Interim Hearing is being held pursuant to the authorization of
Bankruptcy Rule 2002, 4001(b), (c), and (d) and Rule 9014, and the Local Rules. Notice of the Interim Hearing and the emergency relief requested in the Motion has been provided by the Debtor, to certain parties in interest, including: (i) the United States Trustee for Region 2; (ii) those creditors holding the thirty largest unsecured claims against the Debtors estate; (iii) Wells Fargo Bank, National Association, as the Debtors Prepetition Lender and DIP Lender (each as defined below); (iv) the attorneys for Wells Fargo Bank, National Association; (v) Jericho Acquisitions I LLC; (vi) the attorneys for Jericho Acquisition I LLC; (vii) Gordon Brothers Retail Partners, LLC, and Hilco Merchant Resources, LLC; (viii) the attorneys for Gordon Brothers Retail Partners, LLC, and Hilco Merchant Resources, LLC; and (xi) all secured creditors of record. Under the circumstances, such notice of the Interim Hearing and the relief
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requested in the Motion is due, proper, and sufficient notice and complies with Bankruptcy Rules 2002 and 4001 and the Local Rule 4001-2. II. Debtors Acknowledgements and Agreements E. Without prejudice to the rights of parties in interest as set forth in
Paragraphs 23-25 below, the Debtor admits, stipulates, acknowledges, and agrees that (collectively, Paragraphs E (1) through E (6) hereof shall be referred to herein as the Debtors Stipulations): (1) Prepetition Revolver Agreements. Prior to the commencement of the Chapter 11 Case, the Debtor and the Guarantors were parties to the following agreements: (a) that certain Loan and Security Agreement, dated January 30, 2009 (as amended and in effect, the Daffys Revolving Credit Loan Agreement) with Wells Fargo Bank, National Association, as lender and as secured party (the Prepetition Revolver Lender), that certain Revolving Credit Note, dated January 30, 2009 made by the Debtor payable to the Prepetition Revolver Lender in the original maximum principal amount of $17,500,000.00, the Unconditional Guaranties from the Guarantors, dated January 30, 2009, those certain Mortgages, dated January 30, 2009 granted by the Guarantors in favor of the Prepetition Revolver Lender, and all other agreements, documents, notes, certificates, and instruments executed and/or delivered with, to, or in favor of Prepetition Revolver Lender, including, without limitation, security agreements, guaranties, and UCC financing statements and all other related agreements, documents, notes, certificates, and instruments executed and/or delivered in connection therewith or related thereto
(b)
(c) (d) (e)
(collectively, as amended, modified or supplemented and in effect, collectively, the Prepetition Revolver Financing Agreements).
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(2)
Prepetition Term Agreements. Prior to the commencement of the Case, the Debtor and the Guarantors were parties to the following agreements: (a) that certain Loan and Security Agreement, dated January 30, 2009 (as amended and in effect, the Daffys Term Loan Credit Agreement) with Wells Fargo Bank, National Association, as lender and as secured party (the Prepetition Term Lender and together with the Prepetition Revolver Lender, collectively, the Prepetition Lender), that certain Term Note, dated January 30, 2009 made by the Debtor payable to the Prepetition Term Lender in the original principal amount of $13,000,000.00, that certain Amended and Restated Loan and Security Agreement, dated January 30, 2009 (as amended and in effect, the Vim3/Vimwilco Term Credit Agreement and together with the Daffys Term Credit Agreement, collectively, the Prepetition Term Credit Agreements) with the Prepetition Term Lender, that certain Amended and Restated North Bergen Mortgage Note, dated January 30, 2009 made by Vim-3 payable to the Prepetition Term Lender in the original principal amount of $2,760,000.00, that certain Term Note, dated January 30, 2009 made jointly and severally by Vim-3 and Vimwilco payable to the Prepetition Term Lender in the original principal amount of $8,500,000.00, the Unconditional Guaranties from the Debtor and the Guarantors, dated January 30, 2009, those certain Mortgages, dated January 30, 2009 granted by the Guarantors in favor of the Prepetition Term Lender, and all other agreements, documents, notes, certificates, and instruments executed and/or delivered with, to, or in favor of Prepetition Term Lender, including, without limitation, security agreements, guaranties, and UCC financing statements and all other related agreements, documents, notes, certificates, and instruments executed and/or delivered in connection therewith or related thereto
(b)
(c)
(d)
(e)
(f) (g) (h)
(collectively, as amended, modified or supplemented and in effect, collectively, the Prepetition Term Financing Agreements). (3) Prepetition Swap Agreements: Prior to the commencement of the Case, the Debtor was party to certain an interest rate swap agreement, with Wells Fargo, National Association, as successor to Wachovia, N.A. 6
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(together will all other related agreements, documents, notes, certificates, and instruments, the Swap Agreement and together with the Prepetition Revolver Financing Agreements and Prepetition Financing Term Agreements, collectively, the Prepetition Financing Agreements). (4) Prepetition Debt Amounts. As of the Petition Date, the Debtor was indebted to the Prepetition Lender for the following amounts: (a) under the Prepetition Revolver Financing Agreements, on account of extensions of credit in the approximate principal amount of $4,666,227.37, plus letters of credit in the approximate stated amount of not less than $1,915,643.97, plus interest accrued and accruing (at the rates (including, to the extent allowed, the default rate) set forth in the Prepetition Revolver Financing Agreements), costs, expenses, fees (including attorneys fees and legal expenses) other charges and other obligations, including, without limitation, on account of cash management, credit card, depository, investment, hedging and other banking or financial services, and other obligations, including, without limitation, on account of cash management, credit card, depository, investment, hedging and other banking or financial services secured by the Prepetition Revolver Financing Agreements (collectively the Prepetition Revolver Debt), and under the Prepetition Term Financing Agreements on account of the Daffys Term Loan Credit Agreement in the approximate principal amount of $10,180,629.88; the Swap Agreement in the approximate amount of $610,112.00; and the Unconditional Guaranty of the Vim-3/Vimwilco Term Credit Agreement in the approximate principal amount of $8,402,999.64, plus interest accrued and accruing (at the rates (including, to the extent allowed, the default rate) set forth in the Prepetition Term Financing Agreements), costs, expenses, fees (including attorneys fees and legal expenses) other charges and other obligations, if any, secured by the Prepetition Term Financing Agreements (collectively the Prepetition Term Debt and together with the Prepetition Revolver Debt, the Prepetition Debt).
(b)
(5)
Prepetition Collateral. To secure the Prepetition Debt, the Debtor granted security interests and Liens (collectively, the Prepetition Liens) to the Prepetition Lender upon substantially all of its personal property, including items defined as Collateral in the Prepetition Term Credit Agreements (collectively, the Prepetition Collateral).2 The Liens of the
The acknowledgment and agreement by the Debtors of the Prepetition Debt and the related liens, rights priorities and protections granted to or in favor of the Prepetition Lender, as set forth herein and in the Prepetition Financing
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Prepetition Lender have priority over all other Liens except any Liens which are valid, properly perfected, unavoidable, and senior to the Prepetition Liens or set forth in Section 9.8 of the DIP Credit Agreement (collectively, the Permitted Prior Liens). (6) Prepetition Liens. (a) As of the Petition Date, the Debtor believes the following: (i) the Prepetition Liens are valid, binding, enforceable, and perfected first-priority Liens, subject only to any Permitted Prior Liens, and are not subject to avoidance, recharacterization, or subordination pursuant to the Bankruptcy Code or applicable non-bankruptcy law, the Prepetition Debt constitutes legal, valid, and binding obligations of the Debtor, enforceable in accordance with the terms of the Prepetition Financing Agreements (other than in respect of the stay of enforcement arising from section 362 of the Bankruptcy Code), no offsets, defenses, or counterclaims to any of the Prepetition Debt exists, no portion of the Prepetition Debt is subject to avoidance, recharacterization, or subordination pursuant to the Bankruptcy Code or applicable non-bankruptcy law, and the Prepetition Debt constitutes allowable secured claims, and
(ii)
(iii) (iv)
(v) (b)
On the date that this Interim Order is entered, the Debtor has waived, discharged, and released the Prepetition Lender, together with their affiliates, agents, attorneys, officers, directors, and employees, of any right the Debtor may have (i) (ii) (iii) to challenge or object to any of the Prepetition Debt, to challenge or object to the security for the Prepetition Debt, and to bring or pursue any and all claims, objections, challenges, causes of action, and/or choses in action arising
Agreements, shall constitute a proof of claim on behalf of the Prepetition Lender in this Case in respect of the Prepetition Debt.
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out of, based upon, or related to the Prepetition Financing Agreements or otherwise. (c) The Debtor does not possess and will not assert any claim, counterclaim, setoff, or defense of any kind, nature, or description which would in any way affect the validity, enforceability, and non-avoidability of any of the Prepetition Financing Agreements or the Prepetition Liens, or any claim of the Prepetition Lender pursuant to the Prepetition Financing Agreements or otherwise.
(7)
Cash Collateral. The Prepetition Lender has a security interest in and Lien on certain Cash Collateral, including all amounts on deposit in the Debtors banking, checking, or other deposit accounts and all proceeds of the Prepetition Collateral, to secure the Prepetition Debt and, respectively, to the same extent and order of priority as that which was held by such party prepetition. Priming of DIP Facility. In entering into the DIP Financing Agreements, and as consideration therefor, the Debtor hereby agrees that until such time as all DIP Obligations have been irrevocably paid in full in cash (or other arrangements for payment of the DIP Obligations satisfactory to the DIP Lender in its sole and exclusive discretion have been made) and the DIP Financing Agreements have been terminated in accordance with the terms thereof, the Debtor shall not in any way prime or seek to prime the security interests and DIP Liens provided to the DIP Lender under this Interim Order by offering a subsequent lender or a party-in-interest a superior or pari passu Lien or claim pursuant to section 364(d) of the Bankruptcy Code or otherwise.
(8)
III.
Findings Regarding the Postpetition Financing. F. Need for Post-Petition Financing. An immediate need exists for the
Debtor to obtain funds from the DIP Facility in order to continue operations and to administer and preserve the value of its estate. The ability of the Debtor to finance its operations, to preserve and maintain the value of the Debtors assets, and to maximize a return for all creditors requires the availability of working capital from the DIP Facility, the absence of which would immediately and irreparably harm the Debtor, its estate, its creditors, its equity holders, and the possibility for a successful reorganization or sale of the Debtors assets.
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G.
No Credit Available on More Favorable Terms. The Debtor has been
unable to obtain any of the following: (1) (2) unsecured credit allowable under section 503(b)(1) of the Bankruptcy Code as an administrative expense, credit for money borrowed with priority over any or all administrative expenses of the kind specified in sections 503(b) or 507(b) of the Bankruptcy Code, credit for money borrowed secured solely by a Lien on property of the estate that is not otherwise subject to a Lien, or credit for money borrowed secured by a junior Lien on property of the estate which is subject to a Lien, in each case, on more favorable terms and conditions than those provided in the DIP Credit Agreement and this Interim Order.
(3) (4)
The Debtor is unable to obtain credit for borrowed money without granting to the DIP Lender the DIP Protections (as defined below). H. Prior Liens. Nothing herein shall constitute a finding or ruling by this
Court that any Permitted Prior Liens or Prepetition Liens are valid, senior, perfected, or unavoidable. Moreover, nothing shall prejudice the following: (1) the rights of any party-in-interest, including, but not limited to, the Debtor, the DIP Lender, and any Committee appointed pursuant to section 1102 of the Bankruptcy Code, to challenge the validity, priority, perfection, and extent of any such Permitted Prior Liens, or the rights of any Committee appointed pursuant to section 1102 of the Bankruptcy Code to challenge the validity, priority, perfection, and extent of the Prepetition Liens as set forth in this Order. Adequate Protection for Prepetition Lender. As a result of the grant of
(2)
I.
the DIP Liens, subordination to the Carve Out, the use of Cash Collateral authorized herein, and the imposition of the automatic stay, the Prepetition Lender are entitled to receive adequate protection pursuant to sections 361, 362, 363, and 364 of the Bankruptcy Code for any decrease in the value of their respective interests in the Prepetition Collateral (including Cash Collateral) 10
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resulting from the automatic stay or the Debtors use, sale, or lease of the Prepetition Collateral (including Cash Collateral) during this Chapter 11 Case. As adequate protection, the Prepetition Lender will receive the Adequate Protection (as defined below) described in Paragraph 4 of this Interim Order. In light of such Adequate Protection, the Prepetition Lender has consented to (1) the Debtors use of Cash Collateral, on the terms setforth in this Interim Order, (2) such Adequate Protection adequately protects the Prepetition Lender, and (3) no further adequate protection is necessary. J. Prepetition Lenders Consent to Priming. The Prepetition Lender has
consented to the priming of the Prepetition Liens by the DIP Liens. K. Adequacy of the Budget. The Budget (as defined below), attached hereto
as Exhibit 2, is adequate, considering all the available assets, to pay the administrative expenses due and accruing during the period covered by this Interim Order. L. Section 552 of the Bankruptcy Code. In light of their agreement to
subordinate their Liens and superpriority claims (1) to the Carve Out, in the case of the DIP Lender, and (2) to the Carve Out and the DIP Liens, in the case of the Prepetition Lender, the DIP Lender and the Prepetition Lender are each entitled to all rights and benefits of section 552(b) of the Bankruptcy Code and the equities of the case exception shall not apply. M. Conditions Precedent to DIP Lenders Extension of Financing. The
DIP Lender has indicated a willingness to provide financing to the Debtor in accordance with the DIP Credit Agreement and the other DIP Financing Agreements and subject to the following: (1) (2) the entry of this Interim Order and the Final Order, and findings by this Court that such financing is essential to the Debtors estate, that the DIP Lender is a good faith financier, and that the DIP Lenders claims, superpriority claims, security interests, and Liens and other protections granted pursuant to this Interim Order (and the Final Order) and the DIP Facility will not be affected by any subsequent 11
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reversal, modification, vacation, or amendment of this Interim Order or the Final Order or any other order, as provided in section 364(e) of the Bankruptcy Code. N. Business Judgment and Good Faith Pursuant to Section 364(e) of the
Bankruptcy Code. The terms and conditions of the DIP Facility, the DIP Credit Agreement, and the other DIP Financing Agreements, and the fees paid and to be paid thereunder (i) are fair, reasonable, and the best available under the circumstances, (ii) reflect the Debtors exercise of prudent business judgment consistent with its fiduciary duties, and (iii) are supported by reasonably equivalent value and consideration. The DIP Facility was negotiated in good faith and at arms length between the Debtor and the DIP Lender, and use of the proceeds to be extended under the DIP Facility will be so extended in good faith, and for valid business purposes and uses, as a consequence of which the DIP Lender is entitled to the protection and benefits of section 364(e) of the Bankruptcy Code. O. Relief Essential; Best Interest. The relief requested in the Motion (and
as provided in this Interim Order) is necessary, essential, and appropriate for the continued operation of the Debtors business and the management and preservation of the Debtors assets and personal property. It is in the best interest of Debtors estate that the Debtor be allowed to establish the DIP Facility contemplated by the DIP Credit Agreement and the other DIP Financing Agreements. The Debtor has demonstrated good and sufficient cause for the relief granted herein.
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NOW, THEREFORE, IT IS HEREBY ORDERED AS FOLLOWS: 1. The DIP Motion is granted in accordance with the terms and conditions set
forth in this Interim Order, the DIP Credit Agreement, and the other DIP Financing Agreements. I. DIP FINANCING. A. Approval of Entry into the DIP Financing Agreements. 2. The Debtor is expressly and immediately authorized, empowered, and
directed to execute and deliver the DIP Financing Agreements and to incur and to perform the DIP Obligations in accordance with, and subject to, the terms of this Interim Order and the DIP Financing Agreements, and to execute and deliver all instruments, certificates, agreements, and documents which may be required or necessary for the performance by the Debtor under the DIP Facility and the creation and perfection of the DIP Liens described in and provided for by this Interim Order and the DIP Financing Agreements. The Debtor is hereby authorized and directed to do and perform all acts, pay the principal, interest, fees, expenses, and other amounts described in the DIP Credit Agreement and all other DIP Financing Agreements as such become due, including, without limitation, the Deferred Closing Fee, administrative fees, commitment fees, letter of credit fees, and reasonable attorneys, financial advisors and accountants fees and disbursements as provided for in the DIP Credit Agreement which amounts shall not otherwise be subject to approval of this Court. Upon execution and delivery, the DIP Financing Agreements shall represent valid and binding obligations of the Debtor enforceable against the Debtor in accordance with their terms. B. Authorization to Borrow. 3. In order to enable them to continue to operate their business, during the
Interim Period and subject to the terms and conditions of this Interim Order, the DIP Credit Agreement, the other DIP Financing Agreements, and the Budget (subject to any variances 13
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thereto permitted under the terms and conditions of the DIP Credit Agreement), the Debtor is hereby authorized under the DIP Facility to borrow up to a total committed amount of $10,000,000.00 (including the issuance of Letters of Credit) in accordance with the terms and conditions of the DIP Credit Agreement. C. Application of DIP Proceeds. 4. The proceeds of the DIP Facility (net of any amounts used to pay fees,
costs, and expenses under the DIP Credit Agreement) shall be used, in each case in a manner consistent with the terms and conditions of the DIP Financing Agreements, and in accordance with and as may be limited by the Budget (as defined below) (subject to any variances thereto permitted under the terms and conditions of the DIP Credit Agreement), solely as follows: (a) to pay costs, expenses and fees in connection with the preparation, negotiation, execution and delivery of this Agreement and the other Financing Agreements; for general operating and working capital purposes, for the payment of transaction expenses, for the payment of fees, expenses and costs incurred in connection with the Chapter 11 Case, and other proper corporate purposes of Borrower not otherwise prohibited by the terms hereof for working capital, capital expenditures, and other lawful corporate purposes of the Debtor; to refinance the Roll-Up Amounts; and conversion of all Existing Letters of Credit into postpetition New Letters of Credit. Promptly following the entry of this Interim Order, if requested by the
(b)
(c) (d) 5.
Debtor, the Prepetition Revolver Lender shall provide the Debtor and the DIP Lender with a payoff letter, which sets forth the outstanding Prepetition Revolver Debt as of the date of such payoff letter (and which may be updated by the Prepetition Revolver Lender at any time prior to the initiation of the funding of the payoff amount as provided such payoff letter). At such time as the conditions precedent to the DIP Credit Agreement have been satisfied and the Debtor and 14
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the Prepetition Revolver Lender has reached agreement concerning the amounts set forth in the payoff letter, the Debtor shall utilize the proceeds of the first borrowing under the DIP Credit Agreement to retire the Debtors obligations to the Prepetition Revolver Lender (except for certain letters of credit as set forth in Paragraph 4(d) hereof). D. Conditions Precedent. 6. The DIP Lender shall have no obligation to make any loan or advance
under the DIP Credit Agreement during the Interim Period unless the conditions precedent to make such loan under the DIP Credit Agreement have been satisfied in full or waived, as determined by the DIP Lender in its reasonable discretion, in accordance with the DIP Credit Agreement. E. The DIP Liens. 7. Effective immediately upon the entry of this Interim Order, the DIP
Lender is hereby granted pursuant to sections 361, 362, 364(c)(2), 364(c)(3), and 364(d) of the Bankruptcy Code, priming first priority, continuing, valid, binding, enforceable, non-avoidable, and automatically perfected postpetition security interests and Liens (collectively, the DIP Liens) senior and superior in priority to all other secured and unsecured creditors of the Debtors estates except as otherwise provided in this Interim Order, upon and to all Collateral (as defined in the Credit Agreement) (the DIP Collateral). F. DIP Lien Priority. 8. herein, are as follows: (a) (b) created pursuant to sections 364(c)(2), 364(c)(3), and 364(d) of the Bankruptcy Code, first, valid, prior, perfected, unavoidable, and superior to any security, mortgage, or collateral interest or Lien or claim to the DIP Collateral, and 15
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The DIP Liens to be created and granted to the DIP Lender, as provided
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(c)
subject only to (i) the Carve Out, and (ii) the Permitted Prior Liens.
The DIP Liens shall secure all DIP Obligations and the proceeds of the DIP Collateral shall be applied in the same order and priority set forth in the DIP Credit Agreement. The DIP Liens shall not be made subject to or pari passu with any Lien or security interest by any court order heretofore or hereafter entered in the Chapter 11 Case and shall be valid and enforceable against any trustee appointed in the Chapter 11 Case, upon the conversion of the Chapter 11 Case to a case under chapter 7 of the Bankruptcy Code, or in any other proceedings related to any of the foregoing (each a Successor Case), and/or upon the dismissal of the Chapter 11 Case. The DIP Liens shall not be subject to sections 510, 549, 550, or 551 of the Bankruptcy Code or the equities of the case exception of section 552 of the Bankruptcy Code, and, upon entry of the Final Order, shall not be subject to section 506(c) of the Bankruptcy Code. G. Enforceable Obligations. 9. The DIP Financing Agreements shall constitute and evidence the valid and
binding obligations of the Debtor, and shall be enforceable against the Debtor, its estate, and any successors thereto, and their creditors in accordance with their terms. H. Protection of the DIP Lender and Other Rights. 10. From and after the Petition Date, the Debtor shall use the proceeds of the
extensions of credit under the DIP Facility only for the purposes specifically set forth in the DIP Financing Agreements and this Interim Order and in compliance with the Budget (as defined below) (subject to any variances thereto permitted under the terms and conditions of the DIP Credit Agreement). I. Superpriority Administrative Claim Status. 11. Subject to the Carve Out, all DIP Obligations shall be an allowed
superpriority administrative expense claim (the DIP Superpriority Claim and, together with 16
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the DIP Liens, collectively, the DIP Protections) with priority in the Chapter 11 Case under sections 364(c)(1), 503(b), and 507(b) of the Bankruptcy Code and otherwise over all administrative expense claims and unsecured claims against the Debtor and its estate, now existing or hereafter arising, of any kind or nature whatsoever including, without limitation, administrative expenses of the kinds specified in, arising, or ordered pursuant to sections 105, 326, 328, 330, 331, 503(a), 503(b), 507(a), 507(b), 546(c), 546(d), 552(b), 726, 1113, and 1114 of the Bankruptcy Code, and, upon entry of the Final Order, section 506(c) of the Bankruptcy Code, whether or not such expenses or claims may become secured by a judgment Lien or other non-consensual Lien, levy, or attachment. 12. Other than the Carve Out, no costs or expenses of administration,
including, without limitation, professional fees allowed and payable under sections 328, 330, and 331 of the Bankruptcy Code, or otherwise, that have been or may be incurred in the Chapter 11 Case, or in any Successor Case, and no priority claims are, or will be, senior to, prior to, or on a parity with the DIP Protections or the DIP Obligations, or with any other claims of the DIP Lender arising hereunder. II. USE OF CASH COLLATERAL. A. Authorization to Use Cash Collateral. 13. Pursuant to the terms and conditions of this Interim Order, the DIP
Facility, the DIP Credit Agreement, and the other DIP Financing Agreements, and in accordance with and as may be limited by the budget (as the same may be modified, supplemented, or updated from time to time consistent with the terms of the DIP Credit Agreement, the Budget), the Debtor is authorized to use Cash Collateral and to use the advances under the DIP Facility during the period commencing immediately after the entry of the Interim Order and terminating upon notice being provided by the DIP Lender to the Debtor that (i) a DIP Order Event of 17
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Default (as defined below) has occurred and is continuing, and (ii) the termination of the DIP Credit Facility. 14. Nothing in this Interim Order shall authorize the disposition of any assets
of the Debtor or its estate outside the ordinary course of business or other proceeds resulting therefrom, except (x) with respect to the sale of assets as contemplated in the Store Closing Program Motion and the assumption and assignment of leases as contemplated in the Leasehold Sale Motion (as each of those terms is defined in the DIP Credit Agreement), and (y) as otherwise permitted in the DIP Facility under the DIP Credit Agreement and the other DIP Financing Agreements and in accordance with and as may be limited by the Budget (subject to any variances thereto permitted under the terms and conditions of the DIP Credit Agreement). B. Adequate Protection for Prepetition Lender. 15. As adequate protection for the interest of the Prepetition Lender in the
Prepetition Collateral (including Cash Collateral) on account of the granting of the DIP Liens, subordination to the Carve Out, the Debtors use of Cash Collateral, and other decline in value arising out of the automatic stay or the Debtors use, sale, depreciation, or disposition of the Prepetition Collateral, including the disposition of assets as contemplated in the Store Closing Program Motion and the Leasehold Sale Motion, the Prepetition Lender shall receive adequate protection as follows (collectively, Adequate Protection): (a) Prepetition Replacement Liens. Solely to the extent of the diminution in the value of the interest of the Prepetition Term Lender in the Prepetition Collateral, the Prepetition Term Lender shall have, subject to the terms and conditions set forth below, pursuant to sections 361, 363(e), and 364(d) of the Bankruptcy Code additional and replacement security interests and Liens in the DIP Collateral (the Prepetition Replacement Liens) which shall be junior only to the Carve Out, the DIP Liens securing the DIP Facility, and Permitted Prior Liens. Prepetition Superpriority Claim. Solely to the extent of the diminution in the value of the interests of the Prepetition Term Lender in the 18
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(b)
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Prepetition Collateral, the Prepetition Term Lender shall have an allowed superpriority administrative expense claim (the Prepetition Superpriority Claims) which shall have priority (except with respect to (i) the DIP Liens, (ii) the DIP Superpriority Claim, and (iii) the Carve Out), in the Chapter 11 Case under sections 364(c)(1), 503(b), and 507(b) of the Bankruptcy Code and otherwise over all administrative expense claims and unsecured claims against the Debtor and its estate, now existing or hereafter arising, of any kind or nature whatsoever including, without limitation, administrative expenses of the kinds specified in or ordered pursuant to sections 105, 326, 328, 330, 331, 503(a), 503(b), 507(a), 507(b), 546(c), 546(d), 552, 726, 1113, and 1114 of the Bankruptcy Code, and, upon entry of the Final Order, section 506(c) of the Bankruptcy Code, whether or not such expenses or claims may become secured by a judgment Lien or other non-consensual Lien, levy, or attachment. Other than the DIP Liens, the DIP Superpriority Claim, and the Carve Out, no costs or expenses of administration, including, without limitation, professional fees allowed and payable under sections 328, 330, and 331 of the Bankruptcy Code, or otherwise, that have been or may be incurred in the Chapter 11 Case, or in any Successor Case, will be senior to, prior to, or on parity with the Prepetition Superpriority Claim. (c) Adequate Protection Payments. The Prepetition Term Lender shall receive adequate protection in the form of the following: (i) (ii) the current payment of the reasonable documented out-of-pocket costs and expenses of their financial advisors and attorneys, and on the first day of each calendar month, commencing September 1, 2012, cash interest at the non-default rate as provided in the Prepetition Term Financing Agreements.
(d)
Adequate Protection Upon Approval of Store Closing Program. Upon the disposition of Prepetition Collateral or Post-Petition Collateral as contemplated by the Store Closing Program Motion, including, including without limitation, the assumption of the Agency Agreement and payment by the Agent (as defined in the Agency Agreement) of the Guaranteed Amount (as defined in the Agency Agreement), any such Prepetition Collateral and Post-Petition Collateral shall be sold free and clear of the Prepetition Liens, the Prepetition Replacement Liens, and the DIP Liens, provided, however, that such Prepetition Liens, Prepetition Replacement Liens, and DIP Liens shall attach to the proceeds of any such sale in the order and priority as set forth in this Interim Order. Adequate Protection Upon Closing of Leashold Sale. Upon the disposition of Prepetition Collateral as contemplated in the Leasehold Sale Motion, including, without limitation, the sale of the Herald Square Lease 19
(e)
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(as defined in the Leasehold Sale Motion) and closing of the Asset Purchase Agreements, any such Prepetition Collateral shall be sold free and clear of the Prepetition Liens, the Prepetition Replacement Liens, and the DIP Liens, provided, however, that such Prepetition Liens, Prepetition Replacement Liens, and DIP Liens shall attach to the proceeds of any such sale in the order and priority as set forth in this Interim Order. C. Section 507(b) Reservation for the DIP Lender to Seek Further Adequate Protection. 16. Nothing herein shall impair or modify the Prepetition Lenders rights
under section 507(b) of the Bankruptcy Code in the event that the adequate protection provided to the Prepetition Lender hereunder is insufficient to compensate for the diminution in value of the interest of the Prepetition Lender in the Prepetition Collateral during the Chapter 11 Case or any Successor Case; provided, however, that any section 507(b) claim granted in the Chapter 11 Case to the Prepetition Lender shall be junior in right of payment to all DIP Obligations and subject to the Carve Out. III. POSTPETITION LIEN PERFECTION. 17. This Interim Order shall be sufficient and conclusive evidence of the
validity, perfection, and priority of the DIP Liens and the Prepetition Replacement Liens without the necessity of filing or recording any financing statement, deed of trust, mortgage, security agreement, notice of Lien, or other instrument or document which may otherwise be required under the law of any jurisdiction or the taking of any other action (including, for the avoidance of doubt, entering into any deposit account control agreement or securities account control agreement) to validate or perfect the DIP Liens and the Prepetition Replacement Liens or to entitle the DIP Liens and the Prepetition Replacement Liens to the priorities granted herein. 18. Notwithstanding the foregoing, the DIP Lender may, in its discretion, file
such financing statements, deeds of trust, mortgages, security agreements, notices of Liens, and other similar instruments and documents, and is hereby granted relief from the automatic stay of 20
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section 362 of the Bankruptcy Code in order to do so, and all such financing statements, deeds of trust, mortgages, security agreements, notices of Liens, and other similar instruments and documents shall be deemed to have been filed or recorded at the time and on the date of the commencement of the Chapter 11 Case. 19. The Debtor shall execute and deliver to the DIP Lender all such financing
statements, deeds of trust, mortgages, security agreements, notices of Liens, and other similar instruments and documents as the DIP Lender may reasonably request to evidence, confirm, validate, or perfect, or to ensure the contemplated priority of, the DIP Liens granted pursuant hereto. 20. The DIP Lender, in its discretion, may file a photocopy of this Interim
Order as a financing statement with any recording office designated to file financing statements or with any registry of deeds or similar office in any jurisdiction in which the Debtor has real or personal property, and in such event, the subject filing or recording office shall be authorized to file or record such copy of this Interim Order. 21. The DIP Lender shall, in addition to the rights granted to it under the DIP
Financing Agreements, be deemed to be the successor-in-interest to the Prepetition Revolver Lender with respect to all third party notifications in connection with the Prepetition Revolver Financing Agreements, all Prepetition Collateral access agreements, and all other agreements with third parties (including any agreement with a customs broker, freight forwarder, or credit card processor) relating to, or waiving claims against, any Prepetition Collateral, including without limitation, each collateral access agreement duly executed and delivered by any landlord of the Debtor and including, for the avoidance of doubt, all deposit account control agreements, securities account control agreements, and credit card agreements.
21
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22.
The automatic stay imposed under section 362(a) of the Bankruptcy Code
is hereby modified pursuant to the terms of the DIP Financing Agreements as necessary to (a) permit the Debtor to grant the Prepetition Replacement Liens and the DIP Liens and to incur all liabilities and obligations to the DIP Lender under the DIP Financing Agreements, the DIP Facility, and this Interim Order, and authorize the DIP Lender and the Prepetition Lender to retain and apply payments hereunder as provided by the DIP Financing Agreements and this Interim Order.
(b)
IV.
RESERVATION OF CERTAIN THIRD PARTY RIGHTS AND BAR OF CHALLENGES AND CLAIMS. 23. Nothing in this Interim Order or the DIP Credit Agreement shall prejudice
whatever rights any Committee(s) or any other party-in-interest with requisite standing (other than the Debtor) may have to the following: (a) to object to or challenge the Debtors Stipulations, including (i) the validity, extent, perfection, or priority of the security interests and Liens of the Prepetition Lender in and to the Prepetition Collateral, or (ii) the validity, allowability, priority, status, or amount of the Prepetition Debt, or to bring suit against any of the Prepetition Lender in connection with or related to the Prepetition Debt, or the actions or inactions of any of the Prepetition Lender arising out of or related to the Prepetition Debt;
(b)
provided, however, that unless any official Committee(s) or any other party-in-interest with requisite standing commences a contested matter or adversary proceeding raising such objection or challenge, including, without limitation, any claim against the Prepetition Lender in the nature of a setoff, counterclaim, or defense to the Prepetition Debt (including but not limited to, those under sections 506, 544, 547, 548, 549, 550, and/or 552 of the Bankruptcy Code or by way of suit against the Prepetition Lender), by the later of (x) sixty (60) days following the appointment of the first official Committee, or (y) if no official Committee is appointed, seventy-five (75) days following entry of the Final Order (collectively, (x) and (y) shall be referred to as the
22
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Challenge Period and the date that is the next calendar day after the termination of the Challenge Period, in the event that no objection or challenge is raised during the Challenge Period, shall be referred to as the Challenge Period Termination Date). 24. Upon the Challenge Period Termination Date, any and all such challenges
and objections by any party (including, without limitation, any official Committee(s), any chapter 11 or chapter 7 trustee appointed herein or in any Successor Case, and any other partyin-interest) shall be deemed to be forever waived and barred, and the Prepetition Debt shall be deemed to be allowed in full and shall be deemed to be allowed as a fully secured claim within the meaning of section 506 of the Bankruptcy Code for all purposes in connection with the Chapter 11 Case and the Debtors Stipulations shall be binding on all creditors, interest holders, and parties-in-interest. 25. To the extent any such objection or complaint is filed, the Prepetition
Lender shall be entitled to include the costs and expenses, including but not limited to reasonable attorneys fees and disbursements, incurred in defending the objection or complaint as part of the Prepetition Debt to the extent permitted pursuant to the relevant Prepetition Financing Agreement. V. CARVE OUT AND PAYMENT OF PROFESSIONALS. 26. Subject to the terms and conditions contained in this Paragraph 8, the DIP
Liens, DIP Superpriority Claim, the Prepetition Liens, the Prepetition Replacement Liens, and the Prepetition Superpriority Claims are subordinate only to the following (collectively, the Carve Out): (a) allowed administrative expenses pursuant to 28 U.S.C. Section 1930(a)(6) for fees required to be paid to the Clerk of the Court and to the Office of the United States Trustee (collectively, the U.S. Trustee Fees); and
23
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(b)
professional fees of, and costs and expenses incurred by, professionals or professional firms retained by the Debtor and of any Committee(s) always as provided in and as may be limited by the Budget and allowed by the Court (whether prior to or after delivery of the Carve Out Trigger Notice3 (defined below)) (collectively, the Case Professionals) (i) (ii) to the extent incurred by the Case Professionals prior to the delivery of the Carve Out Trigger Notice, and to the extent incurred by the Case Professionals after the delivery of the Carve Out Trigger Notice in an aggregate amount not to exceed the sum of $250,000.00 (the Post Notice Carve Out Cap) (exclusive of Reported Fee Accruals4 but inclusive of a sublimit for chapter 7 wind down expenses of $25,000.00), plus (x) Reported Fee Accruals, (y) any additional fees, costs, and expenses accrued or incurred by a Case Professional from the last day included in the prior Reported Fee Accrual report of such Case Professional through the date on which the Carve Out Trigger Notice shall have been delivered, less, in each case, any amounts actually paid on account thereof, and (z) $100,000.00, less, in each case, any amounts actually paid on account thereof and in each case in accordance with and as may be limited by the Budget; provided, however, the Post Notice Carve Out Cap shall not apply to U.S. Trustee Fees.
27.
Notwithstanding anything to the contrary contained herein, so long as a
Carve Out Trigger Notice shall not have been delivered, the Debtor shall be permitted to pay compensation and reimbursement of expenses allowed and payable under 11 U.S.C. 330 and 331, as the same may be due and payable and allowed by the Court, but always as provided in and as may be limited by the Budget and the same shall not reduce the Carve Out described in Paragraph 26(b) above.
3
As used herein, Carve Out Trigger Notice means written notice from the DIP Lender to the Debtor, its counsel, and lead counsel to any Committee following the occurrence and during the continuance of an DIP Order Event of Default stating that the Post Notice Carve Out Cap has been implemented. As used herein, Reported Fee Accruals shall mean fees, costs, and expenses incurred or accrued by the Case Professionals in accordance with and as may be limited by the Budget through and including the date of the DIP Lenders delivery of a Carve Out Trigger Notice, which amounts shall be reported in arrears by the Debtor and any Committee(s) in accordance with interim fee application procedures approved by the Court, less any amounts actually paid on account thereof.
4
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28.
The Carve Out shall be funded through an advance under the DIP Facility
and paid by the DIP Lender into a segregated account for distribution in accordance with orders of the Court reasonably contemporaneously with the delivery of the Carve Out Trigger Notice. For the avoidance of doubt, the Carve Out shall be senior to the DIP Liens, the DIP Superpriority Claim, the Prepetition Replacement Liens, and the Prepetition Superpriority Claims, and any and all other forms of adequate protection, Liens, or claims securing the DIP Obligations and/or the Prepetition Debt granted or recognized as valid. Any unused portion of the Carve Out shall at all times remain Cash Collateral as provided herein. 29. Nothing herein, including the inclusion of line items in the Budget for
Case Professionals, shall be construed as consent to the allowance of any professional fees or expenses of the Debtor, of any Committee, or of any person or shall affect the right of the DIP Lender or the Prepetition Lender to object to the allowance and payment of such fees and expenses or to permit the Debtor to pay any such amounts not set forth in the Budget. VI. COMMITMENT TERMINATION DATE, DIP EVENT OF DEFAULT, A. Commitment Termination Date 30. All DIP Obligations shall be immediately due and payable and all
AND REMEDIES
authority to use the proceeds of the DIP Facility and to use Cash Collateral shall cease on the date that is the earliest to occur of any of the following (the Commitment Termination Date): (a) (b) December 31, 2012; the date on which the maturity of the DIP Obligations is accelerated and the commitments under the DIP Facility (the DIP Commitments) are irrevocably terminated as a result of the occurrence of an Event of Default (as defined in the DIP Credit Agreement) in accordance with the DIP Credit Agreement; the failure of the Debtor to obtain the Final Order on or before the date which is forty-five (45) days after the date this Interim Order is entered; or
(c)
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(d) B.
the effective date of a chapter 11 plan.
DIP Events of Default. 31. The occurrence of the Commitment Termination Date shall constitute a
DIP Order Event of Default. 32. Unless and until the DIP Obligations have been irrevocably repaid in full
in cash (or other arrangements for payment of the DIP Obligations satisfactory to the DIP Lender in its sole and exclusive discretion have been made) and all DIP Commitments have been irrevocably terminated, the protections afforded to Prepetition Lender and the DIP Lender pursuant to this Interim Order and under the DIP Financing Agreements, and any actions taken pursuant thereto, shall survive the entry of any order confirming a Plan or converting the Chapter 11 Case into a Successor Case, and the DIP Liens, the DIP Superpriority Claim, the Prepetition Replacement Liens, and the Prepetition Superpriority Claims shall continue in the Chapter 11 Case and in any Successor Case, and such DIP Liens, DIP Superpriority Claim, Prepetition Replacement Liens, and Prepetition Superpriority Claims shall maintain their respective priorities as provided by this Interim Order. C. Rights and Remedies Upon DIP Order Event of Default. 33. Any automatic stay otherwise applicable to the DIP Lender is hereby
modified so that (i) after the occurrence of any DIP Order Event of Default and (ii) at any time thereafter during the continuance of such DIP Order Event of Default, upon seven (7) days prior written notice of such occurrence, in each case given to each of the (w) Debtor, (x) counsel to the Debtor, (y) counsel for any Committee (if any) or the 30 largest unsecured creditors, and (z) the U.S. Trustee, the DIP Lender shall be entitled to exercise its rights and remedies in accordance with the DIP Financing Agreements.
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34.
After expiration of the seven (7) day notice period by the DIP Lender of
the occurrence of a DIP Order Event of Default and such DIP Order Event of Default still continuing: (a) the Debtor shall continue to deliver and cause the delivery of the proceeds of DIP Collateral to the DIP Lender as provided in the DIP Financing Agreements and this Interim Order; the DIP Lender shall continue to apply such proceeds in accordance with the provisions of the DIP Financing Agreements and this Interim Order; the Debtor shall have no right to use any of such proceeds, nor any other Cash Collateral, other than towards the satisfaction of the DIP Obligations and the Carve Out; and any obligation otherwise imposed on the DIP Lender to provide any loan or advance to the Debtor pursuant to the DIP Facility shall be suspended. Following the giving of written notice by the DIP Lender of the
(b) (c)
(d) 35.
occurrence of a DIP Order Event of Default, the Debtor and any Committee appointed in the Chapter 11 Case, if any, shall be entitled to an emergency hearing before this Court solely for the purpose of contesting whether a DIP Order Event of Default has occurred. If the Debtor or any such Committee do not contest the occurrence of a DIP Order Event of Default and therefore the right of the DIP Lender to exercise its remedies, or if the Debtor or any such Committee do timely contest the occurrence of a DIP Order Event of Default and the Court after notice and hearing declines to stay the enforcement thereof, the automatic stay, as to the DIP Lender, shall automatically terminate at the end of such seven (7) day notice period. 36. Subject to the provisions of Paragraphs 34, 35, and 36 above, upon the
occurrence of a DIP Order Event of Default, the DIP Lender is authorized to exercise its remedies and proceed under or pursuant to the DIP Financing Agreements. All proceeds realized from any of the foregoing shall be turned over to the DIP Lender for application to the Carve Out (if not previously funded as provided herein), the DIP Obligations and the Prepetition Term Debt 27
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under, and in accordance with the provisions of, the DIP Financing Agreements and this Interim Order. 37. Nothing included herein shall prejudice, impair, or otherwise affect the
Prepetition Lenders or the DIP Lenders rights to seek any other or supplemental relief in respect of the Debtor, nor the DIP Lenders rights, as provided in the DIP Credit Agreement, to suspend or terminate the making of loans and granting financial accommodations under the DIP Credit Agreement. D. No Waiver of Remedies. 38. The delay in or the failure of the Prepetition Lender or the DIP Lender to
seek relief or otherwise exercise their rights and remedies shall not constitute a waiver of any of the Prepetition Lenders and the DIP Lenders rights and remedies. 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 and remedies of the Prepetition Lender or the DIP Lender under the Bankruptcy Code or under non-bankruptcy law, including without limitation, the rights of the Prepetition Lender and the DIP Lender to (i) request conversion of the Chapter 11 Case to a case under chapter 7 of the Bankruptcy Code, dismissal of the Chapter 11 Case, or the appointment of a trustee in the Chapter 11 Case; (ii) propose, subject to the provisions of section 1121 of the Bankruptcy Code, a chapter 11 plan; or (iii) exercise any of the rights, claims, or privileges (whether legal, equitable, or otherwise) the DIP Lender or the Prepetition Lender may have. VII. CERTAIN LIMITING PROVISIONS A. Section 506(c) Claims and Waiver 39. Nothing contained in this Interim Order shall be deemed a consent by the
DIP Lender or the Prepetition Lender to any charge, Lien, assessment, or claim against the DIP 28
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Collateral, the DIP Liens, the Prepetition Collateral, or the Prepetition Replacement Liens under section 506(c) of the Bankruptcy Code or otherwise; provided, however, that during the Interim Period there shall be no waiver of section 506(c) of the Bankruptcy Code. 40. As a further condition of the DIP Facility and any obligation of the DIP
Lender to make credit extensions pursuant to the DIP Financing Agreements, the Debtor (and any successor thereto or any representative thereof, including any trustees appointed in the Chapter 11 Case or any Successor Case) shall be deemed to have waived any rights or benefits of section 506(c) of the Bankruptcy Code upon entry of the Final Order. B. Proceeds of Subsequent Financing 41. Without limiting the provisions and protections of Paragraph 42 below, if
at any time prior to the irrevocable repayment in full of all DIP Obligations and the termination of the DIP Lenders obligations to make loans and advances under the DIP Facility, including subsequent to the confirmation of any chapter 11 plan (the Plan) with respect to the Debtor, the Debtors estate, any trustee, any examiner with enlarged powers, or any responsible officer subsequently appointed, shall obtain credit or incur debt pursuant to sections 364(c)(1) or 364(d) of the Bankruptcy Code in violation of the DIP Financing Agreements, then all of the cash proceeds derived from such credit or debt and all Cash Collateral shall immediately be turned over to the DIP Lender and applied in reduction of the DIP Obligations. C. Prohibited Orders. 42. Unless the DIP Lender has provided its prior written consent or all DIP
Obligations have been irrevocably paid in full in cash (or will be irrevocably paid in full in cash upon entry of an order approving indebtedness described in Paragraph 41 above, or other arrangements for the payment of the DIP Obligations satisfactory to the DIP Lender in its sole and exclusive discretion have been made) and all DIP Commitments (as defined below) have 29
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terminated, there shall not be entered in the Chapter 11 Case, or in any Successor Case, any order which authorizes any of the following: (a) (b) Any modification, stay, vacation or amendment to the DIP Orders to which the DIP Lender has not consented; A priority claim or administrative expense or unsecured claim against the Borrower (now existing or hereafter arising or any kind or nature whatsoever, including, without limitation, any administrative expense of the kind specified in sections 105, 326, 328, 330, 331, 364(c), 503(a), 503(b), 506(c), 507(a), 507(b), 546(c), 546(d), 726 or 1114 of the Bankruptcy Code) equal or superior to the priority claim of the DIP Lender in respect of the Obligations, except with respect to the Professional Fee Carve Out; Any Lien on any DIP Collateral having a priority equal or superior to the Lien securing the DIP Obligations, except (a) with respect to the Carve Out, or (b) for the Permitted Prior Liens; Any order which authorizes the return of any of the Borrower's property pursuant to section 546(h) of the Bankruptcy Code; or Any order which authorizes the payment of any Indebtedness (other than those under the Existing Credit Facility, Indebtedness reflected in the Approved Budget, and other Indebtedness approved by the DIP Lender, in each case incurred prior to the Petition Date or the grant of adequate protection (whether payment in cash or transfer of property) with respect to any such Indebtedness which is secured by a Lien other than as set forth in the DIP Orders).
(c)
(d) (e)
D.
Restrictions on Disposition of Collateral. 43. (a) The Debtor shall not do the following: sell, transfer, lease, encumber, or otherwise dispose of any portion of the DIP Collateral without the prior written consent of the requisite DIP Lender required under the DIP Financing Agreements (and no such consent shall be implied from any other action, inaction, or acquiescence by the DIP Lender or an order of this Court), except for the following: (i) (ii) (iii) sales of the Debtors Inventory in the ordinary course of business, as part of the disposition of assets as contemplated in the Store Closing Program Motion and the Leasehold Sale Motion, or except as otherwise provided for in the DIP Financing Agreements and this Interim Order and approved by the Court, or 30
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(b)
assume, reject, or assign any Lease without the prior consultation with the DIP Lender, except as contemplated in the Leasehold Sale Motion, a Plan, or as otherwise provided for in the DIP Financing Agreements.
VIII. OTHER RIGHTS AND OBLIGATIONS A. Good Faith Under Section 364(e) of the Bankruptcy Code. No Modification or Stay of this Interim Order. 44. Based on the findings set forth in this Interim Order and in accordance
with section 364(e) of the Bankruptcy Code, which is applicable to the DIP Facility contemplated by this Interim Order, in the event any or all of the provisions of this Interim Order are hereafter modified, amended, or vacated by a subsequent order of this or any other court, the DIP Lender is entitled to the protections provided in section 364(e) of the Bankruptcy Code and, no such appeal, modification, amendment, or vacation shall affect the validity and enforceability of any advances made hereunder or the Liens or priority authorized or created hereby. 45. Notwithstanding any such modification, amendment, or vacation, any
claim granted to the DIP Lender hereunder arising prior to the effective date of such modification, amendment, or vacation of any DIP Protections granted to the DIP Lender shall be governed in all respects by the original provisions of this Interim Order, and the DIP Lender shall be entitled to all of the rights, remedies, privileges, and benefits, including the DIP Protections granted herein, with respect to any such claim. Since the loans made pursuant to the DIP Facility are made in reliance on this Interim Order, the obligations owed the DIP Lender prior to the effective date of any stay, modification, or vacation of this Interim Order shall not, as a result of any subsequent order in the Chapter 11 Case or in any Successor Case, be subordinated, lose their Lien priority or superpriority administrative expense claim status, or be deprived of the benefit of the status of the Liens and claims granted to the DIP Lender under this Interim Order and/or the DIP Financing Agreements.
31
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B.
DIP Lender Expenses. 46. As provided in the DIP Financing Agreements, all reasonable out-of-
pocket costs and expenses of the DIP Lender in connection with the DIP Financing Agreements, including, without limitation, reasonable legal, accounting, collateral examination, monitoring and appraisal fees and disbursements, financial advisory fees, fees and expenses of other consultants, indemnification and reimbursement of fees and expenses, and other out of pocket expenses will be paid by the Debtor, whether or not the transactions contemplated hereby are consummated. Payment of such fees shall not be subject to allowance by the Court; provided, however, the Debtor may seek a determination by the Court whether such fees and expenses are reasonable. Under no circumstances shall professionals for the DIP Lender or Prepetition Lender be required to comply with the U.S. Trustee fee guidelines; provided, however, the DIP Lender and Prepetition Lender shall provide to the Office of the United States Trustee for Region 2 a copy of any invoices for professional fees and expenses provided to the Debtor during the pendency of the Debtors Chapter 11 Case. C. Binding Effect. 47. The provisions of this Interim Order shall be binding upon and inure to the
benefit of the DIP Lender, the Prepetition Lender, the Debtor, and their respective successors and assigns (including any trustee or other fiduciary hereinafter appointed as a legal representative of the Debtor or with respect to the property of the estates of the Debtor), any Committee(s) (subject to the provisions of Paragraphs 23-25 above), whether in the Chapter 11 Case, in any Successor Case, or upon dismissal of any such chapter 11 or chapter 7 case.
32
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D.
No Third Party Rights. 48. Except as explicitly provided for herein, this Interim Order does not create
any rights for the benefit of any third party, creditor, equity holder, or any direct, indirect, or incidental beneficiary. E. No Marshaling. 49. Neither the DIP Lender nor the Prepetition Lender shall be subject to the
equitable doctrine of marshaling or any other similar doctrine with respect to any of the DIP Collateral or Prepetition Collateral, as applicable. F. Section 552(b) of the Bankruptcy Code. 50. The DIP Lender and the Prepetition Lender shall each be entitled to all of
the rights and benefits of section 552(b) of the Bankruptcy Code and the equities of the case exception under section 552(b) of the Bankruptcy Code shall not apply to the DIP Lender or the Prepetition Lender with respect to proceeds, product, offspring or profits of any of the Prepetition Collateral or the DIP Collateral. G. Amendments. 51. The Debtor and the DIP Lender may amend, modify, supplement, or
waive any provision of the DIP Financing Agreements without further approval of the Court unless such amendment, modification, supplement, or waiver (i) increases the interest rate (other than as a result of the imposition of the Default Rate), (ii) increases the DIP Commitments, or (iii) changes the maturity date of the DIP Facility. Except as set forth above, all waivers, modifications, or amendments of any of the provisions hereof shall not be effective unless set forth in writing, signed by on behalf of the Debtor and the DIP Lender (after having obtained the approval of the DIP Lender as provided in the DIP Financing Agreements) and approved by the Court. 33
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H.
Survival of Interim Order. 52. The provisions of this Interim Order and any actions taken pursuant hereto
shall survive entry of any order which may be entered: (a) (b) (c) (d) (e) 53. confirming any chapter 11 plan in the Chapter 11 Case, converting the Chapter 11 Case to a case under chapter 7 of the Bankruptcy Code, to the extent authorized by applicable law, dismissing the Chapter 11 Case, withdrawing of the reference of the Chapter 11 Case from this Court, or providing for abstention from handling or retaining of jurisdiction of the Chapter 11 Case in this Court. The terms and provisions of this Interim Order including the DIP
Protections granted pursuant to this Interim Order and the DIP Financing Agreements and any protections granted the Prepetition Lender shall continue in full force and effect notwithstanding the entry of such order, and such DIP Protections and protections for the Prepetition Lender shall maintain their priority as provided by this Interim Order until all of the DIP Obligations of the Debtor to the DIP Lender pursuant to the DIP Financing Agreements and the Prepetition Debt has been irrevocably paid in full and discharged (such payment being without prejudice to any terms or provisions contained in the DIP Facility which survive such discharge by their terms). I. Inconsistency. 54. In the event of any inconsistency between the terms and conditions of the
DIP Financing Agreements and of this Interim Order, the provisions of this Interim Order shall govern and control.
34
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J.
Enforceability. 55. This Interim Order shall constitute findings of fact and conclusions of law
pursuant to the Bankruptcy Rule 7052 and shall take effect and be fully enforceable nunc pro tunc to the Petition Date immediately upon execution hereof. K. Objections Overruled. 56. are hereby overruled. L. Waiver of Any Applicable Stay. 57. Any applicable stay (including, without limitation, under Bankruptcy All objections to the DIP Motion to the extent not withdrawn or resolved,
Rule 6004(h)) is hereby waived and shall not apply to this Interim Order. M. Proofs of Claim. 58. The Prepetition Lender and the DIP Lender will not be required to file
proofs of claim in the Chapter 11 Case or in any Successor Case. N. Headings. 59. The headings in this Order are for purposes of reference only and shall not
limit or otherwise affect the meaning of this Order. O. Retention of Jurisdiction. 60. according to its terms. IX. FINAL HEARING. 61. The Final Hearing on the Motion shall be heard before this Court on The Court has and will retain jurisdiction to enforce this Interim Order
August [__], 2012 at ___:___ __.m. (Prevailing Eastern Time) at the United States Bankruptcy Court for the Southern District of New York, Courtroom [__], One Bowling Green, New York, NY 10004. 35
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62.
If no objections to the relief sought in the Final Hearing are filed and
served in accordance with this Interim Order, no Final Hearing may be held, and a separate Final Order may be presented by the Debtor and entered by this Court. 63. Any party in interest objecting to the relief sought in the Final Order shall
submit any such objection in writing and file same with the Court (with a courtesy copy to chambers) and serve (so as to be received) such objection no later than August [__], 2012 at 4:00 p.m. (Prevailing Eastern Time) on the following parties:
Debtor Daffys Inc. One Daffys Way Secaucus, New Jersey 07094 Attn: Richard F. Kramer, Esq. Counsel to the Debtor Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Attn: Debra A. Dandeneau, Esq. Counsel for the DIP Lender Riemer & Braunstein LLP Three Center Plaza, Boston, Massachusetts 02108 Attn: Donald E. Rothman, Esq. Fax: (617) 692-3556, and Seven Times Square, Suite 2506, New York, New York 10036 Attn.: Nathan C. Pagett, Esq., Fax: (617) 692-3489 Office of the U.S. Trustee Office of the U.S. Trustee for the S.D.N.Y. 33 Whitehall St., 21st Floor New York, New York 10004 Attn: Susan Golden, Esq. and Michael Driscoll, Esq. Counsel to Jericho Acquisitions I LLC Fried, Frank, Harris, Shriver & Jacobson LLP One New York Plaza New York, NY 10004 Attn: Brad E. Scheler, Esq.
Dated: August ___, 2012 New York, New York UNITED STATES BANKRUPTCY JUDGE
36
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Exhibits Not Included
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SCHEDULE 1.30 TO LOAN AND SECURITY AGREEMENT Letters of Credit
L/C ID IS0007758 W597085 WSM222231 WSM238377W IC0030571UA
L/C Amount $1,000,000 $93,750 $200,000 $201,000 $420,893.97
Beneficiary The CIT Group/Commercial Services, Inc. Builtland Partners BJW Realty LLC A1 229 West 43rd Property Owner, LLC Golden Eagle Cashmere LLC
Type Standby Standby Standby Standby Documentary
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SCHEDULE 1.62 TO LOAN AND SECURITY AGREEMENT Permitted Holders
Permitted Holders shall include Marcia S. Wilson, Wilson 2003 Family Trust, Chris Friedlander, 1997 Damon Wilson Trust, 1997 Evan Wilson Trust, 1997 Gabriel Wilson Trust, 1997 Joshua Wilson Trust, Marcia S. Wilson Revocable Trust, Irving J. Shulman, Richard Kramer, Allen Gross, any officer, director or employee of Daffys, Inc., any member of Marcia S. Wilsons Immediate Family, the estate of any of the foregoing and any trust, the beneficiary of which is Marcia S. Wilson or any member of her Immediate Family. For purposes of this Schedule 1.62, Immediate Family shall mean an individuals parents, spouse, siblings, issue and issue of his or her siblings.
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SCHEDULE 5.2(b) TO LOAN AND SECURITY AGREEMENT Chattel Paper
None.
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SCHEDULE 5.2(d) TO LOAN AND SECURITY AGREEMENT Deposit Accounts
Name of Bank Wells Fargo Bank, National Association Wells Fargo Bank, National Association Wells Fargo Bank, National Association Wells Fargo Bank, National Association Wells Fargo Bank, National Association Wells Fargo Bank, National Association Wells Fargo Bank, National Association Banca Toscana AG. 7 - 217 Florence, Italy
Account No.
Purpose Debit Card Test Account
Disbursement Account - Accounts Payable Disbursement Account - Payroll
Store Deposit Account
Concentration Account
Funding Account
FSA Account
Euro Denominated Disbursement Account
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SCHEDULE 5.2(h) TO LOAN AND SECURITY AGREEMENT Collateral in Possession of Third Parties
None.
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SCHEDULE 8.2 TO LOAN AND SECURITY AGREEMENT Chief Executive Office and Other Locations
Chief Executive Office, Mailing Address and Location of Books and Records Daffys, Inc. Daffys Way Secaucus, NJ 07094 Other Places of Business and Locations of Collateral
Address
Owned/Leased/Third Party Leased
Name/Address of Lessor or Third Party, as Applicable Elizabeth MetroMall LLC 20 South Third St Columbus, OH 43215 Vim Associates 2701 Route 3 North Bergen, NJ 07094 (a.k.a., Daffys Way Secaucus, NJ 07094) Levin Properties LP 893 US Highway 22 North Plainfield, NJ 07061 Elizabeth Healthcare Foundation 925 East Jersey St Elizabeth, NJ 07201 Vim-3 LLC 2701 Route 3 North Bergen, NJ 07094 (a.k.a., Daffys Way Secaucus, NJ 07094) Abill Realty Corp 255 Route 46 West Totowa, NJ 07512 Builtland Partners
Jersey Gardens Mall 651 Kapkowski Road Elizabeth, NJ 07201 346 Route 10 East Hanover, NJ 07936
Leased
165 Route 10 West Paramus, NJ 07652 Route 1 & 9 North 111-117 Spring Street Elizabeth, NJ 07201 2701 Route 3 North Bergen, NJ 07094 (a.k.a., Daffys Way Secaucus, NJ 07094) 215 Route 46 West Totowa, NJ 07512 335 Madison Ave
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Leased
Leased
Leased
Leased
Leased
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New York, NY 10017 1900 Northern Blvd Manhasset, NY 11030 1311 Broadway New York, NY 10001 135 East 57th St New York, NY 10022 462 Broadway New York, NY 10013 Leased
Leased
Leased
Leased
88-01 Queens Blvd Elmhurst, NY 11373
Leased
Atlantic Terminal 139 Flatbush Ave Brooklyn, NY 11217 1775 Broadway New York, NY 10019 50 Broadway New York, NY 10004 60 South Broadway White Plains, NY 10601 3 East 18th St New York, NY 10003 1700 Chestnut St Philadelphia, PA 19103
Leased
Leased
Leased
Leased
Leased
Leased
210 Paterson Plank Road Union City, NJ 07087 218 West 44th Street New York, NY 10036 2120 Bartow Ave.
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Leased
1271 Avenue of the Americas New York, NY 10020 KSS Shopping Center Corp 1700 East Putnam Ave Old Greenwich, CT 06870 Herald Center Department Store Seven Penn Plaza New York, NY 10001 Cohen Brothers Realty 750 Lexington Ave New York, NY 10020 464 Broadway Associates LLC 30 West 26th St New York, NY 10010 FC Queens Place Associates LLC One MetroTech Center No Brooklyn, NY 11201 FC Hanson Associates LLC One MetroTech Center No Brooklyn, NY 11201 Devash LLC 125 Park Ave New York, NY 10017 50 Broadway Realty Corp 52 Broadway New York, NY 10004 Urstadt Biddle Properties Inc 321 Railroad Ave Greenwich, CT 06830 BJW Realty LLC 730 Fifth Ave New York, NY 10019 Vimwilco LP 2701 Route 3 North Bergen, NJ 07094 (a.k.a., Daffys Way Secaucus, NJ 07094) DMP Estates 214 Blauvelt Ave Ho-Ho-Kus, NJ 07423
Leased
Leased
Bay Plaza Community Center,
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Bronx, NY 10475 Viale Europa 101, 5th floor Florence, Italy Leased
LLC Battaglini Giovannii & C. S.n.c Viale Europa 101, P.IVA 00385470489 Florence, Italy
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SCHEDULE 8.8 TO LOAN AND SECURITY AGREEMENT Environmental Matters
None.
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SCHEDULE 8.12 TO LOAN AND SECURITY AGREEMENT Subsidiaries
A. None. B.
Subsidiaries
Affiliates (Subject to common ownership with Borrower) Jurisdiction of Incorporation/ Organization New Jersey
Name Vim-3, L.L.C.
Under Common Control of Marcia Wilson
Vimwilco, L.P.
New Jersey
Marcia Wilson
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SCHEDULE 8.13 TO LOAN AND SECURITY AGREEMENT Labor Disputes
None.
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SCHEDULE 8.19 TO LOAN AND SECURITY AGREEMENT Credit Card Agreements
1. American Express Card Acceptance Agreement, dated August 5, 1998, as amended from time to time, between American Express Travel Related Services Company, Inc. and Daffys, Inc. 2. Merchant Card Agreement, dated September 25, 1996, as amended from time to time, between Paymentech, LLC (as successor in interest to First USA Merchant Services, Inc.) and Daffys, Inc. 3. Merchant Services Agreement, dated October 12, 2007, as amended from time to time, between DFS Services LLC and Daffys, Inc.
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SCHEDULE 9.7 TO LOAN AND SECURITY AGREEMENT Guarantor Sale Properties
1.
North Bergen, New Jersey and Secaucus, New Jersey a. b. a. b. Property Address: Current Owner: Property Address: Current Owner: 2701 Route 3, North Bergen, New Jersey Vim-3, L.L.C. Daffys Way, Secaucus, New Jersey Vim-3, L.L.C.
2.
East Hanover, New Jersey a. b. Property Address: Current Owner: 346 Route 10, East Hanover, New Jersey Marcia Wilson, as successor to Vim Associates
3.
Philadelphia, Pennsylvania a. b. Property Address: Current Owner: 1700 Chestnut Street, Philadelphia, Pennsylvania Vimwilco, L.P.
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SCHEDULE 9.14 TO LOAN AND SECURITY AGREEMENT Fiscal Quarter/Fiscal Year
Borrowers fiscal quarter and fiscal year end dates:
1st Qtr 2012 2013 04/01/12 03/31/13
2nd Qtr 07/01/12 06/30/13
3rd Qtr 09/30/12
Year End 12/30/12
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Exhibit 2 Budget
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pre sales/mark 5,400 45,985 Inv 40,585 16,705 17046 15034 1670
Main Document
2,579
2,586
2,626
July
PreActual
W/E Date Sales - Owned Liquidation Proceeds Leased Sales Total Sales Sales Flow Sales Taxes Total Sales Receipts Other Recipts / Sale Proceeds Adjustment for Actual/re-forecast Receipts Disbursements Acc'ts Payable- Merchandise Acct's Payable - Wires Acct's Payable - Letter of Credit New Orders - OTB / Pr. Mos.Purchases
August
Post
8/2
September
8/26
Aug
October
10/7
Oct
7/8
July
Actual 7/15
July
Actual 7/22
July
Actual 7/29
July
7/30
7/31
8/1
Filing
8/3
Filing
pre Liq
8/5
Aug 2days
pre Liq
8/6-8/11
6 days
Liq 1 day 8/12

Aug
8/19
Aug
9/2
Aug
9/9
Sep
9/16
Sep
9/23
Sep
9/30
Sep
10/14
Oct
10/21
Oct
10/28
Oct
11/4
Nov
11/11
Nov
2,200 55 2,255 2,442 56 2,498 42 63 2,603
2,324 50 2,374 2,302 53 2,355 (50) 85 2,390
2,393 50 2,443 2,401 55 2,456 (50) 405 2,811
2,950 50 3,000 2,666 61 2,727 (50) 232 2,909
800
2,200 15,034 1,670 1,670 1,670 39 1,709 42 1,751 42 42 -
800 800 800
2,200 2,920 67 2,987 347 3,334
15,034 15,834 30 15,865
466
1,060
383
1,909
356
481
837
15,865
0 0 0 0 0 0 51 0 0 0 0 0 0 0 51 0 0 0 408 1 0 0 170 0 0 0 0 76 117 0 0 0 0 0 0 0 0 0 40 0 0 0 0 0 100 0 0 0 0 0 436 0 6 0 0 147 7 133
0 29 421 450
Subtotal Merchandise
Expense - Rent - VIM Partnerships Expense - Rent - Herald Center Expense - Rent - all other Expense - RE /Occ'pcy Tax - VIM Part. Expense - RE /Occ'pcy Tax - Herald Ctr Expense - RE /Occ'pcy Tax - All Other Payroll Accrued Vacation Warehouse Warn Layoffs Payroll Taxes (EE & ER) Other P/R Related Open Dock Payroll Taxes - Daffy's Bank Fees - Non-Credit Card Health Benefits - Regular Interest Revolver/ Term/SWAP Credit Card Fees & Processing/Auth. Supplies Insurance Professional Fees Utilities & Telephone CAM Store Maintenance Security Transportation & Trucking Other Merchandising IT Costs Fees - Weil Re-structuring Fees - Daffy's Fees- Wells Retainers Prepayments - taxes/d+o CIGNA Windown Deposits - Con Ed and Credit Cards Breakup fee Expense - Other
0 0 45 0
0 0
0 0
0 29 421 0 450 147 0 7 133 0 0 74 0 0 0 0 0 0 0 0 0 0 183 0 21 0 21 18 148 37 25 27 10 0 14 0 0 0 22 0 104 0 166 0 0 0 0
0 0
1,000 31 1,031 0
0 0
2 2 147 7
0 0
0 0
0 0
0 0
0 269 214 0
0 0
0 0
0 0
0 269 249 1,415 153 0 113 35 0 831 249 1,643 323 28 262 1,193 650 520 455 8 502 201 277 60 369 18 239 37 61 53 54 196 1,881 286 104 1,055 166 225 -
0 311 133 407 166 406
0 28 111 38 65 25 37 38 65 25
37
428
410
408 1
24
50
423 65 170
89 65 34
89 65 34
89 65 34
89 65 34
89 65 34
35 250
35
35
35 400
158 0 0 0 66 98 0 90 0 25 120 0 30 91 25 6 5 31 161 14 50
158 49
157 15
153 21
170 0
13
13
13
13
13
9 68
126
78
76 117
183 21 21 18 148 37 25 27 10 14
8 38 0 9 3 21 7 30 2 11 14
0 48 0 9 3 21 7
0 138 0 9 3 21 7 1 2 10 14
0 52 0 9 3 19 7
0 32 67
0 25 0 9 3 19 7 1 2 1 14
0 22 0 9 3 19 7
0 18 0 9 3 19 7 1 2
0 32 67
0 25 0 9 3 23 7 1 2
0 22 0 9 3 23 7
0 18 0 9 3 23 7 1 2
0 32 67
45 69 4 16 78 77 14 12 21 504
11 129 5 44 81 55 32 4 2 14 380 29 20 18 30
13 57 4 29 5 55 9 8 23 440 119 10
3 19 7
3 23 7
3 100 7 1 2 1 14
0 0 0 0
40
2 10 14
2 10 14
2 1 14
14
14
14
14
14
14
26
15 511 98
53 0
21
22 104 166
38 22
22
75 22
0 22
22
22
22
765 22
22
22
22
815 22
188
80
80
80
80
80
75
80
500
436 50 6 (0) 136 0 45 (0) 40 6
25 -
25 -
25 -
15 -
15 -
15 -
15 -
15 -
15 -
15 -
15 -
15 -
15
Freight
12-13312-mg
Doc 13

Main Document
2,579
2,586
2,626
July
PreExpense Wires CLAIM PAYMENTS Sales Tax Lease Dept. Reimbursement Term Loan Principal Payment Daffy's Italia F/X Charges Other Cap. Exp Liq. Cash Flow FF&E Sales Total Disb. Opening Unreleased New Disbursements Released Closing Unreleased Net Released Cash Flow Ch;g in Cash Balance Debt Payoff Opening Debt
Closing Debt(Net)
August
Post 0 0 0 80 23 0 0 0 0 1,898 0 3,608 0 0 0 0 90 0 0 77 0 0 1,056 77 0 0 0 0 0 0 0 0 50 472 1,982 0 0 0 0 90 0 0 (440) 246 0 0 240 0 0 0 0 1,370 2,188 0 0 0 15 82 0 0 0 (406) 140 0 0 0 0 0 0 (419) (37) 0 0 0 0 144 0 0 0 0 0 138 0 0 0 0 0 1,543
September
0 0 0 0 0 0 0 (322) 139 0 0 0 0 0 0 (319) 722 0 0 0 15 0 0 0 0 931 1,911 0 0 0 0 0 0 (285) (116) 0 0 0 0
October
0 0 0 0 0 0 0 (285) 381 0 0 0 0 0 0 (288) 1,127 0 0 0 15 0 0 0 0 (667) 2,025 0 0 240 80 68 262 50 1,318 15,447 (4,721) 23,607 14,164 -
0 0 21 0 0 0
49.5 65 9
80 23
138
14
16 0
1,898 2,209 1,399
1,518 0 523 (523) 0 0 1,085 (271) 5,902 6,690
2,380 0 514 (514) 0 0 11 40 6,690 7,049
2,110 0 695 (695) 0 0 702 (182) 7,049 6,332
1,779 0 403 (403) 0 0 1,130 314 6,332 5,188
286
682
575
0 0 180 378 (192) 101 4,630 4,721 366 101 5,188 4,721 4,721 4,721 (1,853) 300 47 (253) 4,721 4,721 (918) 47 29 (18) 4,721 4,721 (2,771) 300 29 (271)
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0 4,721 4,721 (2,771) 29 29 4,721 4,721 2,278 29 57 28 0 4,721 4,721 (77) 57 80 23 0 (4,721) 4,721 0 13,882 80 8,891 8,811 0 0 0 (246) 8,891 8,645 (246) 0 0 0 (2,188) 8,645 6,457 (2,188) 0 0 0 1,612 6,457 8,069 1,612 0 0 0 37 8,069 8,106 37 0 0 0 (139) 8,106 7,967 (139) 0 0 0 (722) 7,967 7,246 (722) 0 0 0 (1,869) 7,246 5,377 (1,869) 0 0 0 116 5,377 5,493 116 0 0 0 (381) 5,493 5,112 (381) 0 0 0 (1,127) 5,112 3,986 (1,127) 0 0 0 (2,025) 3,986 1,960 (2,025)
5,188 5,008
5,008 4,630
Post Filing Cash Flow
Opening Cash Closing Cash Change in Cash Balance
DIP Financing opening Dip Closing DiP Diff
0 1,600 1,600
1,600 2,500 900
0 2,500 2,500
0 2,500 2,500
2,500 250 (2,250)
250 350 100
350 0 (350)
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
Borrowing Base - Rev L'trs of Credit Minimum Excess Excess Availability
13,635 1,495 3,000 2,450
13,328 1,495 4,784
13,328 1,495 5,501
13,328 1,495 6,645
1,495 (6,216)
1,495 (6,216)
495 (495)
495 (495)
495 (495)
495 (495)
495 (495)
495 (495)
495 (495)
495 (495)
495 (495)
495 (495)
495 (495)
495 (495)
8,930 (18,373) 8,144 6,362 1,783 2,150
Expense Act/Bud - Total Exp Budget - Detailed Exp Budget - Other
1,119 1,119 0
1,532 1,532 (0)
1,903 1,903 0
1,466 1,467 (0)
1,452 0 1,452
331 0 331
303 303 0
394 394 0
458 458 (0)
264 265 (0)
270 269 0
344 343 0
238 239 (0)
861 861 0
132 132 (0)
129 129 (0)
562 562 (0)
2,407 2,407 0
0 0 0
Checks Releases - Above
522.7
656.8
694.5
402.9
0.0
25.0
1,075.0
25.0
161.8
15.0
15.0
15.0
15.0
283.8
15.0
15.0
52.4
436.5
0.0
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Doc 13

Main Document
2,579
2,586
2,626
July
PreActual Clearings/Fundings Est. Change in Float
August
Post 0.0 25.0 1,075.0 25.0 161.8 15.0 15.0 703.3 (300)
September
15.0 15.0 283.8 15.0 -
October
15.0 52.4 436.5 0.0 2,150 -
2,124.0 (1,601)
1,066.3 (410)
496.6 198
Opening Cash Closing Cash Diff
663.5 934.4 (270.9)
934.4 894.9 39.5
894.9 1077.3 (182.4)
1,077.9 763.8 314.1
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Doc 13
Main Document
Inv
August
post
W/E Date Liquidators Sales Sales Taxes Disbursements Expense - Rent - VIM Partnerships Expense - Rent - Herald Center Expense - Rent - all other Expense - RE /Occ'pcy Tax - VIM Part. Expense - RE /Occ'pcy Tax - Herald Ctr Expense - RE /Occ'pcy Tax - All Other Payroll Payroll Taxes (EE & ER) Other P/R Related Bank Fees - Non-Credit Card Health Benefits Credit Card Fees & Processing/Auth. Supplies Insurance - GL, Prop, WC Utilities & Telephone Store Maintenance Security DC Trucking to stores - Non payroll Warehouse Payroll
September
8/26
Aug
October
10/7
Oct
8/5
Aug
Start Liq 1day 8/12

Aug
8/19
Aug
9/2
Aug
9/9
Sep
9/16
Sep
9/23
Sep
9/30
Sep
10/14
Oct
10/21
Oct
10/28
Oct
11/4
Nov
Total
119 249 1,381 20 0 129
43 11 0 4 0 0 4 7 3 5
300 75 0 25 0 0 25 50 21 37 5
300 75 8 25 0 0 25 50 21 37 5
119 249 1,381 0 0 27 300 75 0 25 0 0 25 50 21 37 5
0 249 1,172
300 75 0 25 0 0 25 40 23 37 5
250 63 0 25 0 0 25 40 23 37 5
0 7 28 250 63 0 25 0 0 25 40 23 37 5
0 27 250 63 10 25 0 0 25 40 23 37 5 19 170 43 0 20 0 0 20 30 15 24 3
37
170 43 0 20 0 0 20 30 15 24
170 43 0 20 0 0 20 30 15 24
170 43 10 20 0 0 20 30 15 24
238 747 3,934 57 7 230 2,673 668 28 259 259 437 216 363 38 -
Inventory Taking Costs Sales Tax - payment based on Sales Total Disb. Liq. Reimbursement Gift Card Redemption Expense - Rent & Rent Related Expense - RE /Occupancy Tax Payroll Payroll Taxes (EE & ER) Other P/R Related Bank Fees - Non-Credit Card Health Benefits Credit Card Fees & Processing/Auth. Supplies
100 0 1,898 77 0 638 0 546 2,314 0 0 530 0 468 0 502 0 505 0 1,765 0 322 322 0 369
(50) 56 5 43 11 0 0 4 0 0
(50) 395 34 300 75 0 0 25 0 0
(50) 395 34 300 75 0 8 25 0 0
(50) 395 34 300 75 0 0 25 0 0
(50) 395 6 300 75 0 0 25 0 0
(50) 395 6 250 63 0 0 25 0 0
(50) 395 6 250 63 0 0 25 0 0
(50) 395 6 250 63 0 10 25 0 0
(50) 321 4 170 43 0 0 20 0 0
(50) 321 4 170 43 0 0 20 0 0
0 321 4 170 43 0 0 20 0 0
0 321 4 170 43 0 10 20 0 0
100 10,255 (500) 4,104 147 2,673 668 28 259 -
12-13312-mg
Doc 13
Main Document
Inv
August
Insurance - GL, Prop, WC Utilities & Telephone Store Maintenance Security DC Trucking to stores - Non payroll Warehouse Rent Central Office Reimbursement Purchase of store Petty Cash Inventory Taking Costs Sales Tax - payment based on Sales Total Reimb.
September
25 50 21 37 14 10 25 50 21 37 14 10 25 50 21 37 14 10 10 10 10 10 25 40 23 37 25 40 23 37 25 40 23 37 25 40 23 37 20 30 15 24 0 10
October
20 30 15 24 0 0 10 20 30 15 24 0 0 10 20 30 15 24 0 0 10 259 437 216 363 42 110 79 50 8,937 (1,318) -
4 7 3 5 0 0 79
50
167
986
944
936
886
824
824
834
607
607
657
667
Cash flow from Liq
(1,898)
(77)
(472)
440
(1,370)
406
419
322
319
(931)
285
285
288
667

Daffys 13

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12-13312-mg

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Chapter 11 Case No. 12-_____ (__)

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Parties to the DIP Facility:

(1) (2) (3) B.

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Maturity: December 31, 2012. 11 Fees:

(i) (ii) (iii)

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Events of Default and Termination Events:

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Conditions to Closing and Borrowings:

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Use of Cash Collateral

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The Roll-Up, as a condition to approval of the DIP Facility, comports with

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The Debtors liquidity needs can be satisfied only if the Debtor is

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EXHIBIT A Interim DIP Order

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Chapter 11 Case No. ________

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(c) (d) (e)

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(f) (g) (h)

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No Credit Available on More Favorable Terms. The Debtor has been

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Chapter 11 Case No. 12-___ ()