Case 15-12097-LSS Doc 14 Filed 10/08/15 Page 1 of 34 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: Chapter 11 Wire Company Holdings, Inc., et al., 1 Case No. 15-_____ (____) Debtors. (Joint Administration Requested) MOTION OF THE DEBTORS FOR ORDERS (I) AUTHORIZING THE DEBTORS TO OBTAIN POSTPETITION FINANCING, (II) AUTHORIZING THE DEBTORS TO USE CASH COLLATERAL, (III) GRANTING ADEQUATE PROTECTION TO PREPETITION SECURED LENDER, (IV) GRANTING LIENS AND SUPERPRIORITY CLAIMS, (V) MODIFYING THE AUTOMATIC STAY, AND (VI) SCHEDULING A FINAL HEARING The above-captioned debtors-in-possession (collectively, the “Debtors”), by and through their proposed counsel, submit this motion (the “Motion”) pursuant to sections 105(a), 361, 362, 363, 364, and 507 of title 11 of the United States Code, 11 U.S.C. §§ 101 et seq. (the “Bankruptcy Code”), Rules 2002, 4001, 6003, 6004, and 9014 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), and Rule 4001-2 of the Local Rules of Bankruptcy Practice and Procedure of the United States Bankruptcy Court for the District of Delaware (the “Local Rules”), for entry of interim and final orders (a) authorizing the Debtors to obtain financing (the “DIP Financing”) pursuant to that certain Amended and Restated Senior Secured, Superpriority Debtor-In-Possession Credit Agreement, substantially in the form 1 The Debtors in the Chapter 11 Cases, along with the last four digits of each Debtor’s federal tax identification number, are: Wire Company Holdings, Inc. (6535), a Delaware corporation, (“WCHI”) and Wire Property Holdings, LLC (7827), a Delaware limited liability company (“Wire Property”). The location of the Debtors’ corporate headquarters is 500 East Middle Street. Hanover, Pennsylvania 17331. 29778/7 10/08/2015 39956434.6 Case 15-12097-LSS Doc 14 Filed 10/08/15 Page 2 of 34 attached hereto as Exhibit B (as may be amended from time to time, the “DIP Agreement”);2 (b) authorizing the Debtors to utilize Cash Collateral (as defined below); (c) granting liens and providing superpriority administrative expense status to the DIP Lender (as defined below); (d) granting adequate protection to the Prepetition Secured Lender (as defined below); (e) modifying the automatic stay; (f) scheduling a final hearing; and (g) granting related relief. In support of this Motion, the Debtors incorporate the statements contained in the Declaration in Support of Chapter 11 Petitions and First Day Pleadings (the “First Day Declaration”) filed contemporaneously herewith and further respectfully state as follows: JURISDICTION AND VENUE 1. The Court has jurisdiction over these cases (the “Chapter 11 Cases”) under 28 U.S.C. §§ 157 and 1334 and the Amended Standing Order of Reference from the United States District Court for the District of Delaware dated as of February 29, 2012. This is a core proceeding under 28 U.S.C. § 157(b). Venue is proper in this district under 28 U.S.C. §§ 1408 and 1409. The Debtors consent to the entry of a final order on this Motion if it is determined that the Court, absent consent of the parties, cannot enter final orders or judgments consistent with Article III of the United States Constitution. BACKGROUND Company Background 2. On October 8, 2015 (the “Petition Date”), each of the Debtors filed with this Court voluntary petitions for relief under the Bankruptcy Code. 3. The Debtors continue to operate their businesses and manage their properties as debtors-in-possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. 2 No Capitalized terms used in this Motion but not defined herein shall have the meanings ascribed to such terms in the DIP Agreement. -2- Case 15-12097-LSS Doc 14 Filed 10/08/15 Page 3 of 34 trustee, examiner, or official committee of unsecured creditors has been appointed in the Chapter 11 Cases. 4. The Debtors and their non-debtor affiliate companies (collectively, “Wire Company” or the “Company”) design, manufacture, and market wire mesh and wire products which are used in the manufacture of other products. The wire mesh products are manufactured from various materials including aluminum, bronze, and stainless steel. 5. In 2012, the Debtors opened a manufacturing facility in China (the “China Facility”). The China Facility experienced long and expensive start-up issues, including high turnover in the general manager position as well as production delays and other problems. The Debtors incurred losses brought about by the opening and the operating of the China Facility. These losses as well as the cost of increased inventory controls necessitated by the China Facility triggered defaults under the Debtors’ secured lending facilities with First Niagara Bank, N.A. (the “Prepetition Secured Lender”) as detailed herein. 6. As a result of numerous defaults that occurred and existed under the Debtors’ prepetition secured lending facilities (the “Prepetition Credit Facilities”), prior to the Petition Date, the Debtors and the Prepetition Secured Lender entered into several amendment and forbearance agreements, most recently the Forbearance and Seventh Amendment Agreement dated as of September 9, 2015 (the “Current Forbearance Agreement”). Under the Current Forbearance Agreement, the Debtors agreed to embark on a mission to market its assets and towards that end, it agreed to retain an investment banker acceptable to the Prepetition Secured Lender to actively market for sale substantially all of the assets of the Debtors. The Debtors ultimately retained Lorie Beers (formerly of StoneHarbour Securities) as its investment banker. -3- Case 15-12097-LSS Doc 14 Filed 10/08/15 Page 4 of 34 Ms. Beers joined the firm of Cowen & Company as of September 1, 2015 and Cowen & Company is acting as the Debtors’ investment banker (the “Investment Banker”). 7. Several months prior to filing the Chapter 11 Cases, the Debtors also retained a Chief Restructuring Officer. The CRO is Sandeep Gupta of Novo Advisors, who has been acting as the Debtors’ chief restructuring officer since July 2015. 8. Since being retained, the Investment Banker (and prior to September 1, 2015, its predecessor) has engaged in a focused marketing process to explore a broad range of strategic financing and sale options for the Debtors. After careful evaluation and further negotiation with the Debtors’ stakeholders, including the Prepetition Secured Lender, it was determined that the most practical and viable solution to the Debtors’ financial challenges was for it to secure debtorin-possession financing (“DIP Financing”) provided by the Prepetition Secured Lender (in its capacity as postpetition lender under the DIP Financing, the “DIP Lender”) and conduct a sale process under Section 363 of the Bankruptcy Code and subsequently consummate a sale transaction. As a result of the Debtors’ efforts, the Debtors have filed a motion to, among other things, approve certain bid procedures related to a sale under section 363 of the Bankruptcy Code to sell substantially all of the Debtors’ assets and approve NYW Acquisition, LLC as the stalking horse purchaser for such assets. A reasonably prompt sale of the Debtors’ businesses (as well as the stock of non-debtor affiliates of the Debtors owned by the Debtors) is essential to not only preserve the underlying value of their operations by providing customers and employees with a clear path forward, but also to maximize the value of the Debtors’ assets for the benefit of the Debtors’ creditors. Debtors’ Prepetition Financing 9. The Debtors are parties to or guarantors under that certain Credit Agreement dated as of September 2, 2011, as amended by that certain Limited Consent and Amendment No. -4- Case 15-12097-LSS Doc 14 Filed 10/08/15 Page 5 of 34 1 to Credit Agreement and Security Agreement dated as of November 20, 2012, that certain Amendment to Loan Documents dated April 29, 2013, that certain Forbearance and Third Amendment Agreement dated as of May 1, 2015, that certain Forbearance and Fourth Amendment Agreement dated as of June 8, 2015, that certain Forbearance and Fifth Amendment Agreement dated as of July 1, 2015, that certain Forbearance and Sixth Amendment Agreement dated as of August 5, 2015 and that certain Forbearance and Seventh Amendment Agreement dated as of September 9, 2015 (as further amended from time to time through the Petition Date, the “Prepetition Credit Agreement”) as well as certain Loan Documents executed in connection therewith, pursuant to which the Prepetition Secured Lender made available to the Borrowers (as defined in the Prepetition Credit Agreement), certain credit facilities and extensions of credit, including (i) a line of credit (the “Prepetition Revolver”) in the maximum principal amount of $8,850,000, which is evidenced by a Revolving Credit Note dated September 2, 2011, as amended and restated in its entirety by a certain Amended and Restated Revolving Credit Note dated November 20, 2012, as amended by an Allonge to Amended and Restated Revolving Credit Note dated July 1, 2015, (ii) a term loan in the original principal amount of $4,000,000, which is evidenced by a certain Term Loan Note dated September 2, 2011, as amended and restated in its entirety by a certain Amended and Restated Term Loan Note (“Term Loan A”) dated November 20, 2012, (iii) a term loan in the original principal amount of $1,000,000, which is evidenced by a certain Term Loan Note (“Term Loan B”) dated November 20, 2012 and which was subsequently amended under the Amendment to Loan Documents dated April 29, 2013 and increased to the principal amount of $1,500,000, and (iv) a term loan in the original principal amount of $500,000, which is evidenced by a certain Multiple Draw Term Note (Nonrevolving) (“Term Loan C”) dated June 8, 2015. In connection with the Credit Agreement -5- Case 15-12097-LSS Doc 14 Filed 10/08/15 Page 6 of 34 and the Prepetition Loans, Wire Mesh Holdings, Inc., a Caymen Islands corporation (“Wire Mesh” or “Guarantor”) executed that certain Guaranty and Suretyship Agreement dated as of September 2, 2011 in favor of the Prepetition Secured Lender and AP Wire Hong Kong Holding Limited, a Hong Kong corporation (“AP Wire”) and Suzhou New York Wire Precision, Inc., a People’s Republic of China corporation (“Suzhou”; and together with AP Wire , the “Pledgors”; Borrowers, Guarantor and Pledgors are collectively referred to as “Credit Parties”) executed, inter alia, that certain Negative Pledge Agreement dated November 20, 2012 in favor of the Prepetition Secured Lender. 10. Prior to the Petition Date, numerous Events of Default (as defined in the Prepetition Credit Agreement) occurred under the Prepetition Credit Agreement. These Events of Default included the following: (i) the Prepetition Revolver (and after it was put in place, Term Loan C) were tied to a Borrowing Base (as defined in the Prepetition Credit Agreement); however, the outstandings under the Prepetition Revolver (hereinafter defined) exceeded the Borrowing Base for the periods ending August 31, 2014 and for each month thereafter through the Petition Date; (ii) the Borrowers failed to comply with the financial covenant contained in Section 6.4(b) of the Prepetition Credit Agreement for the fiscal quarter ending September 30, 2013 and each fiscal quarter thereafter through and including the fiscal quarter ending June 30, 2015 and (iii) the Borrowers failed to comply with the financial covenant contained in Section 6.4(c) of the Prepetition Credit Agreement for the fiscal quarter ending September 30, 2013 and each fiscal quarter thereafter through and including the fiscal quarter ending September 30, 2015. The Debtors acknowledge that the aforesaid Events of Default exist under the Prepetition Credit Agreement and that but for the Prepetition Secured Lender’s agreement to forbear from exercising its rights and remedies and the initiation of the Chapter 11 Cases, the Prepetition -6- Case 15-12097-LSS Doc 14 Filed 10/08/15 Page 7 of 34 Secured Lender would have had the right to enforce all remedies available to it under the Prepetition Credit Agreement, the other Loan Documents and applicable law and that Credit Parties would have no defenses, rights of offset or counterclaims with regard to the Prepetition Secured Lender’s enforcement of such rights and remedies. 11. Due to the various Events of Default and the Borrowers’ deteriorating financial condition, the Credit Parties requested that the Prepetition Secured Lender forbear in the exercise of remedies under the Loan Documents and that it grant various other concessions under the Prepetition Credit Agreement. The Prepetition Secured Lender and the Credit Parties negotiated and entered into various amendments to the Prepetition Credit Agreement included conditions under which the Prepetition Secured Lender would continue to make advances to the Borrowers under the Revolver and Term Loan C and forbear from exercising remedies. These amendments to the Prepetition Credit Agreement (collectively, the “Forbearance Agreement”) permitted the Debtors to continue to borrow under the Prepetition Credit Facilities, increased the loan amount under the Prepetition Revolver, made available to the Borrowers Term Loan C, and enabled the Debtors to accrue rather than pay the Prepetition Secured Lender’s interest and fees, thus providing the Debtors the wherewithal to pay other obligations as they became due. As of the Petition Date, the principal amounts outstanding under the Prepetition Credit Facilities are as follows: (i) the principal balance outstanding under the Prepetition Revolver is $8,429,375.70; (ii) the principal balance outstanding under Term Loan A is $2,222,528.00; (iii) the principal amount outstanding under Term Loan B is $1,055,548.32; and (iv) the principal balance outstanding under Term Loan C is $500,000. The aforesaid loan balances do not include accrued and unpaid interest, fees, costs, and expenses, including the Prepetition Secured Lender’s -7- Case 15-12097-LSS Doc 14 Filed 10/08/15 Page 8 of 34 attorneys’ fees and costs and all other amounts owed to, chargeable by, or otherwise recoverable by the Prepetition Secured Lender under the Loan Documents. 12. Prior to filing the Chapter 11 Cases, the Debtors retained the Investment Banker to explore a broad range of strategic financing and sale options for the Debtors and their nondebtor affiliates. Prior to employing the Investment Banker, the Debtors explored raising additional capital either by way of additional equity or subordinated debt, but neither of these efforts yielded positive results. The Investment Banker was charged with exploring the sale of the Debtors and the non-debtor affiliates, either in their entirety as a going-concern or in parts. As this process unfolded, it became clear that, owing to liquidity constraints and to the desired structure of prospective purchasers, the Debtors could not effectuate a sale of their business, in whole or in part, outside of chapter 11. 13. After careful evaluation and further negotiation with the Debtors’ stakeholders, including the Prepetition Secured Lender, it was determined that the optimal way to both preserve and realize value for Debtors’ creditors was to conduct a sale of the Debtors’ assets in a Chapter 11 proceeding and to obtain debtor-in-possession financing provided by the Prepetition Secured Lender. 14. As of the Petition Date, the Borrowers were indebted to the Prepetition Secured Lender, without defense, counterclaim or offset of any kind, in the aggregate principal amount of not less than $12,207,451.02 in respect of the Prepetition Loans made pursuant to the Prepetition Credit Agreement and other Loan Documents (as defined in the Prepetition Credit Agreement, and referenced herein as the “Prepetition Documents”), plus accrued and unpaid interest thereon and all fees accrued thereunder and all other fees and expenses (including fees and expenses of -8- Case 15-12097-LSS Doc 14 Filed 10/08/15 Page 9 of 34 attorneys and advisors) as provided in the Prepetition Documents (collectively with the other obligations under the Prepetition Documents, the “Prepetition Obligations”). 15. To secure the Prepetition Obligations, the Borrowers granted security interests and liens (the “Prepetition Liens”) to the Prepetition Secured Lender, including liens on and security interests in the personal property and real property interests of Borrowers constituting “Collateral” under, and as defined in, the Prepetition Credit Agreement (together with the Cash Collateral, which is defined below, the “Prepetition Collateral”). 16. As of the Petition Date, the Debtors believe that (i) the Prepetition Liens are valid, binding, perfected, enforceable first-priority liens (subject to permitted exceptions under the Prepetition Credit Agreement) and are not subject to avoidance, recharacterization or subordination pursuant to the Bankruptcy Code or applicable non-bankruptcy law, (ii) the Prepetition Obligations constitute legal, valid and binding obligations, enforceable in accordance with the terms of the Prepetition Documents (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 Obligations exist and no portion of the Prepetition Obligations are subject to avoidance, recharacterization or subordination pursuant to the Bankruptcy Code or applicable non-bankruptcy law, and (iii) the Prepetition Obligations constitute allowable secured claims. 17. The Prepetition Secured Lender has a security interest in the Cash Collateral (as defined below), including all amounts on deposit in the Debtors’ banking, checking, or other deposit accounts and all proceeds of Prepetition Collateral realized prepetition or postpetition, to secure the Prepetition Obligations and, respectively, to the same extent and order of priority as that which was held by such party prepetition. Relief Requested 18. By this Motion, the Debtors seek, among other things: -9- Case 15-12097-LSS Doc 14 Filed 10/08/15 Page 10 of 34 (a) authorization for (a) the Debtors to obtain postpetition financing as follows: (i) up to the principal amount of $750,000.00 on an interim basis upon entry of an Interim DIP Order, and (ii) subject to entry of the Final Order (as defined below), $3,691,554.78 of aggregate postpetition financing, consisting of (1) a Roll-Up Loan in the aggregate principal amount of $2,291,554.78, and (2) a DIP Revolver Facility in the maximum principal amount of $1,400,000.00 (inclusive of the $750,000.00 loaned in connection with the Interim DIP Order) (the “DIP Revolver Facility” and collectively with the Roll-Up Loan, the “DIP Loans”), which shall be secured by the liens and claims set forth herein, on the terms and conditions set forth in an interim order (the “Interim Order”), a proposed copy of which is attached hereto as Exhibit A, and the DIP Documents among Wire Company Holdings, Inc., a Delaware corporation, and Wire Property Holdings, LLC, a Delaware limited liability company, as borrowers (sometimes collectively referred to as the “Borrowers”), Guarantor; Wire Mesh Holdings, Inc., a Cayman Islands corporation, as guarantor; and Suzhou and AP Wire as negative pledgers, and First Niagara Bank, N.A. as lender (in such capacity, the “DIP Lender); (b) authorization for the Debtors to execute and deliver the DIP Agreement and the other DIP Documents and to perform such other and further acts as may be necessary or appropriate in connection therewith; (c) authorization for the Debtors to (i) use the Cash Collateral (as defined below) pursuant to section 363 of the Bankruptcy Code, and all other Prepetition Collateral, and (ii) provide adequate protection to the Prepetition Secured Lender under the Prepetition Documents; (d) authorization for the DIP Lender to exercise remedies under the DIP Documents upon the occurrence and during the continuance of an Event of Default; (e) subject to entry of the Final Order, authorization to grant liens to the DIP Lender and the Prepetition Secured Lender on the proceeds of the Debtors’ claims and causes of action (but not on the actual claims and causes of action) arising under sections 544, 545, 547, 548, and 550 of the Bankruptcy Code (collectively, the “Avoidance Actions”); (f) subject to entry of the Final Order, the waiver by the Debtors of any right to seek to surcharge against the DIP Collateral (as defined below) or the Prepetition Collateral pursuant to section 506(c) of the Bankruptcy Code; (g) at an interim hearing (the “Interim Hearing”) on this Motion, pursuant to Bankruptcy Rule 4001, entry of an Interim Order (a) authorizing the Borrowers to borrow and be obligated under the DIP Agreement in an aggregate principal amount not to exceed $750,000.00 plus any fees and expenses of the advisors to the DIP Lender prior to the entry of the Final Order, (b) authorizing the Debtors to use the Cash Collateral and the other Prepetition Collateral, and (c) granting adequate protection to the Prepetition Secured Lender; and -10- Case 15-12097-LSS (h) Doc 14 Filed 10/08/15 Page 11 of 34 to schedule, pursuant to Bankruptcy Rule 4001, a final hearing (the “Final Hearing”) for this Court to consider entry of a final order in form and substance reasonably satisfactory to the DIP Lender (the “Final Order”) authorizing and approving on a final basis the relief requested in the Motion, including without limitation, for the Borrowers on a final basis to utilize and be obligated for all amounts under the DIP Documents, including without limitation, with respect to the Priority Loans, and for the Debtors to continue to use the Cash Collateral and the other Prepetition Collateral subject to the terms of the DIP Documents and the Final Order. DIP FINANCING AND CASH COLLATERAL 19. All of the Debtors’ assets, both real and personal, are secured by first-priority liens and security interests in favor of the Prepetition Secured Lender to secured the Prepetition Obligations. Those assets, and the proceeds thereof now owned or hereafter acquired by the Debtors, constitute the Prepetition Collateral. Substantially all of the Debtors’ cash, including, without limitation, all cash and other amounts on deposit or maintained by the Debtors in any bank accounts, as well as any cash proceeds derived from the disposition of any Prepetition Collateral, constitute proceeds of the Prepetition Collateral and, therefore, are cash collateral of the Prepetition Secured Lender within the meaning of section 363(a) of the Bankruptcy Code (the “Cash Collateral”). 20. The Debtors intend to finance their business operations through the continued use of Cash Collateral and additional financing by obtaining credit and incurring debt, pursuant to sections 363, 364(c) and 364(d) of the Bankruptcy Code, up to the principal amount of $3,691,554.78 of postpetition financing, plus interest and fees. The postpetition financing is comprised of (a) an interim loan in the amount of $750,000.00 available upon entry of the Interim DIP Order, and (b) subject to entry of the Final Order, $2,941,554.78 of additional postpetition financing, consisting of (i) Roll-Up Loans in the aggregate principal amount of $2,291,554.78, and (ii) the DIP Revolver Facility in the aggregate amount of $1,400,000 (the Roll-Up Loans and DIP Revolver Facility are collectively, the “DIP Loans”). The DIP Loans -11- Case 15-12097-LSS Doc 14 Filed 10/08/15 Page 12 of 34 shall be secured by first-priority, valid, priming, perfected, and enforceable liens (as defined in section 101(37) of the Bankruptcy Code) on all property of the Debtors’ estates pursuant to sections 364(c)(2), 364(c)(3), and 364(d) of the Bankruptcy Code, and with priority, as to administrative expenses, as provided in section 364(c)(1) of the Bankruptcy Code, subject to the terms and conditions contained herein. Notwithstanding the foregoing, until entry of the Final Order, the postpetition loans made available to the Debtors pursuant to the Interim DIP Order shall not be secured by proceeds and products of the Avoidance Actions; however, following the entry of the Final Order, the proceeds and products of Avoidance Actions shall be part of the Postpetition Collateral (hereinafter defined). 21. The Debtors believe that this arrangement will meet the Debtors’ financing needs during the Chapter 11 Cases. Specifically, the DIP Financing will provide the Debtors with much-needed liquidity, in order to permit, among other things, the orderly continuation of the operation of the business, as well as the implementation and consummation of the orderly sale of substantially all of the Debtors’ assets. CONCISE STATEMENT AND HIGHLIGHTED PROVISIONS 22. Consistent with Bankruptcy Rule 4001(c)(1) and Local Rule 4001-2, the following is a concise statement and summary of the proposed material terms for the Debtors’ request for the use of Cash Collateral and the DIP Financing.3 As discussed herein, the Debtors believe these provisions are reasonable in light of the facts and circumstances of the Chapter 11 Cases and should be approved. 3 The complete statement of the terms of the use of Cash Collateral and DIP Financing is set forth in the DIP Agreement and this summary is qualified by reference to the DIP Agreement. -12- Case 15-12097-LSS Doc 14 Filed 10/08/15 Page 13 of 34 CONCISE STATEMENT First Niagara Bank, N.A. The DIP Lender together with its successors and assigns (collectively, the “DIP Secured Parties”). Wire Company Holdings, Inc., a Delaware corporation and Wire Borrowers Property Holdings, LLC, a Delaware limited liability company Wire Mesh Holdings, Inc., a Cayman islands corporation and a Guarantor nondebtor $3,691,554.78 of postpetition financing, consisting of (i) Roll-Up Loans DIP Loans DIP Agreement Recitals; pp. in the aggregate principal amount of $2,291,554.78, and (ii) the DIP Revolver Facility in the amount of $1,400,000 (collectively, the “DIP 14, 15 Loans”), of which $750,000 is available upon entry of the Interim DIP Order; (b) interest to accrue at the per annum rate of seven percent (7%) payable monthly of the outstanding principal balance of the DIP Loans; and (b) fees in an amount equal to 2% of the DIP Loans. With respect to Loans and Commitments, “Maturity Date” means the Maturity Date earliest of: (1) the stated maturity date, which shall be December 28, DIP Agreement p.16 2015 (ii) the effective date of a chapter 11 plan or, if sooner, the date on which the sale of the Credit Parties’ assets shall have been consummated (or any portion thereof); (iii) October 28, 2015, unless on or before such day the Bankruptcy Court shall have entered the Final Order; and (iv) the acceleration of the Loans or termination of the commitments under this Agreement, including, without limitation, as a result of the occurrence of an Event of Default. The proceeds of the DIP Loans shall be used to (A) provide for the Use of Proceeds ongoing working capital and general corporate and operating purposes Interim DIP Order ¶ 10(a) of the Borrowers’ business during the pendency of the Chapter 11 Cases in accordance with, and subject to, the Budget and solely to the extent of the businesses conducted by the Debtors immediately prior to the Petition Date, (B) repay a portion of the Prepetition Obligations in an amount up to $2,291,554.78; (C) pay fees, interest and expenses of the DIP Lender’s counsel, and (C) pay the fees and expenses of counsel to the Debtors’ and if applicable, an official creditors committee (the “Committee”) in amounts not greater than those shown on the Budget and following an Event of Default, in an amount not in excess of the Carve-Out, as well as the fees of the U.S. Trustee’s office, in each case, in accordance with the Budget. The Borrowers shall report weekly to the DIP Lender regarding the use DIP Budget Reconciliation of the DIP Loans and shall provide a weekly comparison of the receipts and disbursements of the Borrowers as compared to the projected receipts and disbursements set forth in the Budget. Initial Approved Budget and Except as otherwise provided herein, the use of proceeds of DIP Revolver Facility Loan shall be limited solely to payment of obligations Subsequent Budgets and expenses specified in the Budget. Annexed to the Motion is a Interim DIP Order ¶ 10(c) thirteen (13) week cash flow budget for the period ending on December 31, 2015 (the “Initial Approved Budget”) that reflects on a line-item basis the Debtors’ (i) weekly projected cash receipts, (ii) weekly projected disbursements, (iii) the sum of weekly unused availability under the DIP Revolver Facility, plus unrestricted cash on hand DIP Lender DIP Secured Parties -13- Case 15-12097-LSS Re-Evaluation Event Interest Rates DIP Agreement Section 2.7(a) Interest on Late Payments DIP Agreement Section 2.8. Doc 14 Filed 10/08/15 Page 14 of 34 (collectively, “Aggregate Liquidity”), (iv) the weekly outstanding principal balance of the DIP Loans, the Prepetition Revolver, the Term Loan A, Term Loan B and Term Loan C, and (v) the weekly Borrowing Base (as defined in the DIP Agreement). On or before the date that is two weeks prior to the first day of the last week reflected in the Initial Approved Budget or any Supplemental Approved Budget (as defined below), the Debtors shall prepare and deliver simultaneously to the DIP Lender and the Prepetition Secured Lender an updated cash flow budget (a “Proposed Supplemental Budget”) for the thirteen (13) week period following the last week reflected in such Initial Approved Budget or Supplemental Approved Budget, which, once approved in writing by each of the DIP Lender and the Prepetition Secured Lender in their respective sole discretion, shall supplement and replace the Initial Approved Budget or Supplemental Approved Budget, as applicable, then in effect (each such updated budget that has been approved in writing by each of the DIP Lender and the Prepetition Secured Lender, a “Supplemental Approved Budget”) without further notice, motion, or application to, order of, or hearing before, this Court; provided, however, that unless and until each of the DIP Lender and the Prepetition Secured Lender have approved in writing any Proposed Supplemental Budget or any other proposed modification to the Initial Approved Budget or any Supplemental Approved Budget, as applicable, then in effect, the Debtors shall still be subject to and be governed by the terms of such Initial Approved Budget or Supplemental Approved Budget, then in effect and the DIP Lender and the Prepetition Secured Lender shall, as applicable, have no obligation to fund under any such Proposed Supplemental Budget or otherwise fund any amounts not otherwise provided for in the Initial Approved Budget or Supplemental Approved Budget, as applicable, or permit the use of Cash Collateral with respect thereto. Notwithstanding the foregoing, or anything to the contrary contained herein, no later than the tenth (10th) Business Day prior to the scheduled closing of any disposition of a significant portion of assets by the Debtors (such closing, a “Re-Evaluation Event”), the Debtors shall prepare and provide to the DIP Lender and the Prepetition Secured Lender for their consideration a Proposed Supplemental Budget reflecting the reduced level of projected disbursements and the projected receipts for the thirteen (13) week period following such ReEvaluation Event. Promptly after the delivery of such Proposed Supplemental Budget through and including the date of the ReEvaluation Event, the Debtors, the DIP Lender and the Prepetition Secured Lender shall negotiate in good faith the terms of a Supplemental Approved Budget covering such thirteen (13) week period. In the event that on or prior to December 4, 2015, there is no binding offer to purchase a significant portion of the Debtors’ assets on or prior to December 15, 2015, then there shall be deemed to have occurred a Re-Evaluation Event on December 5, 2015. The DIP Loans shall bear interest at the per annum simple interest rate of seven percent (7%). If an Event of Default has occurred and is continuing, interest on the DIP Loans shall increase to ten percent (10%) per annum for so long as -14- Case 15-12097-LSS Doc 14 Filed 10/08/15 Page 15 of 34 such amounts remain outstanding. On the date that the Interim Order goes into effect, the Borrowers shall pay the DIP Lender a fee equal to 200 basis points of the full DIP Loan commitment or $73,831.10. All Obligations under the DIP Agreement and the other DIP Documents Security DIP Agreement Section 2.10; shall constitute an allowed superpriority administrative expense claim against the Borrowers with priority in the Chapter 11 Cases over any Interim Order ¶ 13. and all administrative expense claims and unsecured claims against the Borrowers and their estates, now existing or hereafter arising, of any kind or nature whatsoever, including, without limitation, administrative expenses of the kinds specified in, arising under, or ordered pursuant to sections 105, 326, 328, 330, 331, 503(b), 506, 507(a), 507(b), 546(c), 546(d), 726(b), 1113 or 1114 respectively, of the Bankruptcy Code, subject only to the Carve-Out and Prior Liens. As security for the DIP Obligations, effective and perfected upon the date of the DIP Orders, the following security interests and liens are granted by the Debtors to the DIP Lender (all property of the Debtors identified below being collectively referred to as the “DIP Collateral”), subject and subordinate only to the Carve-Out (all such liens and security interests granted to the DIP Lender pursuant to the DIP Orders, the “DIP Liens”): DIP Agreement Article 3; Interim Order ¶ 12.  a valid, binding, continuing, enforceable, fully perfected firstpriority lien on, and security interest in, all tangible and intangible prepetition and postpetition property of the Debtors, that is not subject to either (a) valid, perfected and non-avoidable liens in existence at the time of the commencement of the Chapter 11 Cases (the “Prior Liens”) or (b) valid liens in existence at the time of such commencement that are perfected subsequent to such commencement as permitted by section 546(b) of the Bankruptcy Code (together with the Prior Liens, the “Unencumbered Property”); provided that the DIP Liens shall not apply to Avoidance Actions or the proceeds therefrom until the entry of the Final Order, at which time the DIP Liens shall apply and attach to any and all proceeds or property recovered in respect of any Avoidance Actions. Interim Order ¶ 12(b)(1). DIP Loan Fee  a valid, binding, continuing, enforceable, fully-perfected junior lien on, and security interest in all tangible and intangible prepetition and postpetition property of the Debtors, that is subject to valid, perfected and unavoidable liens in existence immediately prior to the Petition Date or to valid and unavoidable liens in existence immediately prior to the Petition Date that are perfected after the Petition Date as permitted by section 546(b) of the Bankruptcy Code (collectively, the “Non-Primed Liens”), which security interests and liens in favor of the DIP Lender, shall be junior to the Non-Primed Liens. Interim Order ¶ 12(b)(ii).  a valid, binding, continuing, enforceable, fully perfected firstpriority, senior priming lien on, and security interest in, all of the Debtors’ Prepetition Collateral and a valid, binding, fully-perfected senior lien upon all Prepetition Collateral that is subject to any other -15- Case 15-12097-LSS Doc 14 Filed 10/08/15 Page 16 of 34 Lien or obligation on a junior basis to the Prepetition Liens, but junior to any Non-Primed Liens on the Collateral. The DIP Liens on the Debtors’ Prepetition Collateral shall be senior in all respects to the Prepetition Liens on the Debtors’ Prepetition Collateral, but shall be junior to any Non-Primed Liens on the Debtors’ Prepetition Collateral. Interim Order ¶ 12(b)(iii). Adequate Protection Expenses DIP Agreement Section 2.9. The DIP Liens and the Adequate Protection Liens shall not be (a) subject or subordinate to (i) any lien or security interest that is avoided and preserved for the benefit of the Debtors and their estates under section 551 of the Bankruptcy Code, (ii) any liens arising after the Petition Date, or (iii) any lien of the Prepetition Secured Lender securing the Prepetition Obligations or (b) subordinated to or made pari passu with any other lien or security interest under sections 363 or 364 of the Bankruptcy Code or otherwise. Interim Order ¶ 18(e). The Prepetition Secured Lender is entitled, pursuant to sections 361, 363(c)(2), 363(e) and 364(d)(1) of the Bankruptcy Code, to adequate protection of their interests in the Prepetition Collateral, in an amount equal to the aggregate diminution in value of their interests in the Prepetition Collateral (such diminution in value, the “Adequate Protection Obligations”). As adequate protection, the Prepetition Secured Lender are granted the following:  Adequate Protection Liens. As security for the payment of the Adequate Protection Obligations, (effective upon the date of the Interim Order) a valid, perfected replacement security interest in and lien on all of the DIP Collateral (the “Adequate Protection Liens”), subject and subordinate only to (i) the DIP Liens, (ii) the Carve-Out and (iii) the Non-Primed Liens. Interim Order ¶ 16.  Section 507(b) Claims. The Adequate Protection Obligations shall constitute superpriority claims as provided in section 507(b) of the Bankruptcy Code (the “507(b) Claims”), with priority in payment over any and all administrative expenses of the kinds specified or ordered pursuant to any provision of the Bankruptcy Code, subject and subordinate only to (a) the Carve-Out and (b) the Superpriority Claims granted to the DIP Lender in respect of the DIP Obligations. Except to the extent expressly set forth in the DIP Orders, the Prepetition Secured Lender shall not receive or retain any payments or property in respect of the 507(b) Claims until all DIP Obligations shall have indefeasibly been paid in full. Interim Order ¶ 16(ii).  Information and Other Covenants. The Debtors shall comply with the reporting requirements set forth in the DIP Agreement, together with such additional information as the DIP Lender may reasonably request from time to time. DIP Agreement Section 2.10.  Credit Bidding. No plan of reorganization or liquidation, nor any order entered in connection with a sale of assets under section 363 of the Bankruptcy Code or otherwise, shall limit or otherwise restrict the right of the DIP Lender, or the Prepetition Secured Lender to submit a credit bid for all or any part of the DIP Collateral. Interim Order ¶ 18(d) From time to time upon demand, the Borrowers shall reimburse the DIP Lender for its costs and expenses, including reasonable attorneys’ fees -16- Case 15-12097-LSS Carve-Out Interim Order ¶ 17(b). Milestones Doc 14 Filed 10/08/15 Page 17 of 34 in connection with the representation of the DIP Lender and the Prepetition Secured Lender in the Case, or pertaining to the DIP Agreement, the other DIP Documents and the administration, enforcement, compliance or otherwise relating thereto. The “Carve-Out” shall mean (i) all fees required to be paid to the Clerk of the Court; (ii) all fees of the United States Trustee pursuant to 28 U.S.C. § 1930 and payment of interest, if any, pursuant to 31 U.S.C. § 3717; (iii) fees and disbursements incurred by a chapter 7 trustee (if any) under § 726(b) of the Bankruptcy Code in an amount not to exceed $50,000 out of the DIP Collateral; and (iv) all unpaid, accrued Professional Expenses incurred by Professional Persons at any time, to the extent allowed at any time, whether by this Interim Order, procedural order, or otherwise, but only to the extent all such Professional Expenses set forth in this clause (iv) do not exceed the aggregate amount permitted through such time for such expenses in the Budget as then applicable (the “Carve-Out Professional Expenses”); provided, however, that from and after the date of delivery by the DIP Lender to the Debtors of a written notice (a “Carve-Out Trigger Notice”) that an Event of Default has occurred and that the DIP Lender has deemed the Carve-Out to have been triggered (such delivery, a “Carve-Out Trigger Event”), the Carve-Out payable in respect of Professional Expenses shall not exceed the sum of (x) the aggregate amount of Carve-Out Professional Expenses incurred but unpaid prior to delivery of the Carve-Out Trigger Notice, regardless of whether such Carve-Out Professional Expenses are allowed before or after delivery of the Carve-Out Trigger Notice (provided that Carve-Out funds in respect of such Carve-Out Professional Expenses shall only be released to the applicable Professionals once allowed by order of the Court) and (y) up to $50,000 of Professional Expenses incurred after delivery of the Carve-Out Trigger Notice (provided that Carve-Out funds in respect of such Professional Expenses shall only be released to the applicable Professionals once allowed by order of the Court); provided, further, that nothing herein shall be construed to impair the ability of any interested party to object to any Professional Expenses sought by any Professional Person. Except as set forth in the DIP Order, neither the DIP Lender nor the Prepetition Lender shall be responsible for payment or reimbursement of any Professional Expenses incurred by Professional Persons prior to the occurrence of a Carve-Out Trigger Event. The Debtors shall meet the following milestones on or prior to the dates indicated:  On the Petition Date, the Debtors shall file and properly serve a motion, in form and substance satisfactory to the DIP Lender and the Prepetition Secured Lender (the “Sale/Bidding Procedures Motion”), seeking this Court’s approval of (1) the sale of all or substantially all of the Debtors’ assets, pursuant to the stalking horse bid evidenced by that certain Asset Purchase Agreement dated as of October 8, 2015, by and between NYW Acquisition, LLC and the Debtors (the “Stalking Horse APA”), or any higher or otherwise better bid approved by the Court and (2) bidding -17- Case 15-12097-LSS Doc 14 Filed 10/08/15 Page 18 of 34 procedures acceptable to the DIP Lender and the Prepetition Secured Lender in their respective sole discretion for the sale of all or substantially all of the Debtors’ assets, pursuant to § 363 and § 365 of the Bankruptcy Code. The terms of such sale transaction shall be acceptable to the DIP Lender and the Prepetition Secured Lender in their respective sole discretion.  On or before October 28, 2015, unless the DIP Lender and the Prepetition Secured Lender agree otherwise in writing this Court shall have entered a sales procedures order (the “Bidding Procedures Order”) approving the bidding procedures contained in the Sale/Bidding Procedures Motion, which Bidding Procedures Order (including the bidding procedures approved therein) shall be acceptable to the DIP Lender and the Prepetition Secured Lender in their respective sole discretion and shall not be amended, modified, supplemented or waived by the Debtors without the written consent of the DIP Lender and Prepetition Secured Lender.  On or before November 30, 2015, unless the DIP Lender and the Prepetition Secured Lender agree otherwise, all qualified bids (which bids, among other things, shall not contain any financing or diligence conditions) shall be due.  On or prior to December 3, 2015, unless the DIP Lender and the Prepetition Secured Lender agree otherwise, the Debtors shall have held and completed an auction in accordance with the provisions of the Bidding Procedures Order and shall have selected for approval by this Court, at a sale hearing to be held on or prior to December 8, 2015, the highest and otherwise best bid(s) for the applicable assets made by any bidder(s) at the auction, (each such highest and otherwise best bid, a “Winning Bid”). No bid that fails to provide for irrevocable payment in full in cash of all Prepetition Secured Obligations and DIP Obligations at the closing of such bid shall constitute, or be eligible to constitute, a Winning Bid unless such bid is acceptable to the DIP Lender and the Prepetition Secured Lender in their respective sole discretion.  On or prior to December 8, 2015, unless the DIP Lender and the Prepetition Secured Lender agree otherwise, this Court shall have entered one or more orders (the “Sale Approval Order”) approving the Winning Bid(s), the transaction or transactions contemplated by the Winning Bid(s) (each, an “Approved Transaction,” and the terms and conditions of the Approved Transaction and the documents evidencing or otherwise relating to each Approved Transaction, the “Approved Transaction Documents”), which Sale Approval Order, Approved Transaction(s), and Approved Transaction Documents shall be in form and substance acceptable to the DIP Lender and the Prepetition Secured Lender in their respective sole discretion.  Unless the DIP Lender and Prepetition Secured Lender agree otherwise, on or prior to December 15, 2015 or within ten (10) days following the entry of the Sale Approval Order, whichever is -18- Case 15-12097-LSS Doc 14 Filed 10/08/15 Page 19 of 34 earlier, the Debtors and the Winning Bidders) shall have executed all Approved Transaction Documents and the Approved Transaction(s) shall have been consummated.  With respect to any assets of the Debtors that are not sold pursuant to any Approved Transaction, unless the DIP Lender and the Prepetition Secured Lender agree otherwise, the Debtors shall (1) use commercially reasonable efforts to sell, liquidate or otherwise dispose of such assets on terms and conditions and pursuant to a timeline acceptable to the DIP Secured Lender and the Prepetition Secured Lender in their respective sole discretion; and (2) shall have consummated such a sale, liquidation or other disposition of such assets on or before December 23, 2015.  Until such time as the earlier of (i) Payment in Full of the DIP Obligations and the Prepetition Secured Obligations or (ii) confirmation of a Plan of Reorganization acceptable to the DIP Lender and the Prepetition Secured Lender, the Debtors shall employ an individual acceptable to the DIP Lender and Prepetition Secured Lender as their Chief Restructuring Officer (“CRO”) in accordance with an engagement letter that is acceptable to the DIP Lender and Prepetition Secured Lender and that has been approved by the Bankruptcy Court, it being understood that Sandeep Gupta of Novo Advisors is a person who is acceptable to the DIP Lender and the Prepetition Secured Lender. Such CRO shall meet with the DIP Lender and the Prepetition Secured Lender on a regular basis (1) to review the Debtors’ financial condition and operations, information and developments in connection with the efforts of the Debtors and/or the Investment Bankers to market and sell the DIP Collateral and the Prepetition Collateral; and (2) to regularly consult with, and promptly respond to the inquiries of, the DIP Lender or the Prepetition Secured Lender and their respective advisors in connection with the finances of the Debtors, any sale transaction, the marketing and sale process relating thereto, and any and all other matters relating to the affairs, finances and business of the Debtors and their subsidiaries, the assets and capital stock of the Debtors or their affiliates and subsidiaries  At the request of the DIP Lender or the Prepetition Secured Lender on not more than a weekly basis from and after the date hereof, management of the Debtors including the CRO and the Investment Banker (as defined below) shall conduct a telephonic meeting to be attended by the respective management representatives of the Debtors, the DIP Lender, the Prepetition Secured Lender and their respective representatives, and Investment Banker, at which telephonic meeting the Debtors and Investment Banker shall present an update on the sale process (including an assessment of any proposed sale transaction or any indication of interest or other offer from any prospective purchaser).  Until such time as the Full Payment of the DIP Obligations and the Prepetition Secured Obligations, the Debtors shall retain one or -19- Case 15-12097-LSS Doc 14 Filed 10/08/15 Page 20 of 34 more investment bankers reasonably acceptable to the DIP Lender and the Prepetition Secured Lender (collectively, the “Investment Bankers”) on terms and conditions acceptable to the DIP Lender and the Prepetition Secured Lender in their respective sole discretion, to assist the Debtors to sell their respective assets and businesses, and no proceeds of DIP Collateral, Prepetition Collateral or DIP Loans may be used to pay, and the Carve-Out shall not include, any fees and expenses of any Investment Banker retained by any Debtor unless the DIP Lender and the Prepetition Secured Lender have consented to the terms and conditions of such retention. Additionally, the Debtors shall authorize and direct the Investment Bankers, upon the request of the DIP Lender or the Prepetition Secured Lender: (1) to disclose fully and promptly to the DIP Lender or the Prepetition Secured Lender and their respective advisors all material documents, information and developments in connection with the efforts of the Debtors and/or the Investment Bankers to market and sell the DIP Collateral and the Prepetition Collateral; and (2) to regularly consult with, and promptly respond to the inquiries of, the DIP Lender or the Prepetition Secured Lender and their respective advisors in connection with any sale transaction, the marketing and sale process relating thereto, and any and all other matters relating to the affairs, finances and business of the Debtors and their subsidiaries, the assets and capital stock of the Debtors or their affiliates and subsidiaries and the Investment Bankers’ activities related to any and all of the foregoing. Customary events of default, including, among other things, failure to make required payments, default under other debt agreements, and breach of covenants, representations and warranties including, without limitation, breach of milestones or failure to retain CRO or Investment Banker in accordance with DIP Agreement. Remedies on Default and Upon or after the occurrence of any Event of Default under the DIP Agreement or other DIP Documents or under the Interim Order or Final Lifting of Automatic Stay Order, the DIP Lender shall be fully authorized, in its sole discretion, to DIP Agreement Section 6.1. exercise all remedies available to it under the DIP Documents and applicable law, including the right to (i) declare all DIP Loans to be immediately due and payable, (ii) declare the termination, reduction, or restriction of any further commitment to extend credit to the Debtors, to the extent any such commitment remains, (iii) terminate the DIP Revolver Facility and any other DIP Documents as to any future liability or obligation of the DIP Lender, but without affecting any of the DIP Obligations or the DIP Liens securing the DIP Obligations; and/or (iv) declare a termination, reduction or restriction on the ability of the Debtors to use any Cash Collateral; provided that the DIP Lender shall provide five (5) days’ notice to the Debtors (with a copy to counsel to the Committee, if any, and the United States Trustee) prior to the enforcement of the DIP Liens or exercise of any other rights or remedies against the DIP Collateral and prior to the termination of the Debtors’ right to use Cash Collateral in accordance with the Budget. Events of Default DIP Agreement Section 6.1. -20- Case 15-12097-LSS Indemnification DIP Agreement Section 7.11. Doc 14 Filed 10/08/15 Page 21 of 34 The foregoing notice provisions are without prejudice to the rights of the DIP Lender to seek earlier relief from the Court upon appropriate notice and hearing pursuant to the Bankruptcy Code and Bankruptcy Rules. In any hearing regarding the exercise of remedies, the sole and exclusive issue shall be whether or not an Event of Default has occurred and is continuing under any of the DIP Documents. Upon or after the occurrence of an Event of Default, and notwithstanding the notice periods referred to above, the DIP Lender shall not be obligated to make any extensions of credit to any of the Debtors. The automatic stay provisions of § 362 of the Bankruptcy Code shall be modified to the extent necessary to enable the DIP Lender to implement the provisions of this paragraph. The Prepetition Secured Lender shall have relief from the automatic stay to the same extent as the DIP Lender. The Borrowers shall, at all times, indemnify and hold harmless (the “Indemnity”) the DIP Lender and its directors, partners, officers, employees, agents, counsel and advisors (each, a “Lender Indemnified Person”) from any losses, claims (including the cost of defending against such claims), damages, liabilities, penalties, or other expenses (each a “Loss”) which a Lender Indemnified Person may incur or to which a Lender Indemnified Person may become subject to the extent such Loss arises out of a breach of any representation, warranty or covenant of the Borrowers in any of the DIP Documents, or the extension of credit hereunder or the DIP Loan or the use or intended use of the DIP Loan. The DIP Lender shall, severally and not jointly, indemnify and hold harmless the Borrowers and each of its directors, partners, officers, employees, agents, counsel and advisors (each, a “Borrower Indemnified Person”) from any Losses which a Borrower Indemnified Person may incur or to which a Borrower Indemnified Person may become subject to the extent such Losses arise out of a breach of any representation, warranty or covenant of such Lender in any of the DIP Transaction Documents. HIGHLIGHTED PROVISIONS 23. Local Rule 4001-2 requires the Debtors to highlight certain provisions included in the DIP Agreement and the DIP Orders. As discussed herein, the Debtors believe these provisions are reasonable in light of the facts and circumstances of the Chapter 11 Cases and should be approved. Indeed, the circumstances of the Chapter 11 Cases virtually precluded any other lender from providing financing that would have alleviated the need for these provisions. The provisions under Rule 4001-2(a)(i) of the Local Rules included in the DIP Orders and DIP Agreement are as follows: -21- Case 15-12097-LSS Doc 14 Filed 10/08/15 Page 22 of 34 Local Rule 4001-2(a)(i)(B). The Debtors are agreeing to the validity, amount, enforceability, unavoidability and perfection of the Prepetition Liens. The Interim Order provides for a challenge period, including to the extent that a committee were to obtain standing, a committee could challenge the prepetition claims and liens. Interim Order ¶ 24. Local Rule 4001-2(a)(i)(C). Subject to entry of the Final Order, except to the extent of the Carve-Out, no expenses of administration of the Chapter 11 Cases or any future proceeding that may result therefrom, including liquidation in bankruptcy or other proceedings under the Bankruptcy Code, shall be charged against or recovered from the DIP Collateral or the Prepetition Collateral, as the case may be, pursuant to section 506(c) of the Bankruptcy Code or any similar principle of law. Interim Order ¶ 13(b). Local Rule 4001-2(a)(i)(D). Upon entry of the Final Order, to the extent approved by the Bankruptcy Court, the DIP Liens shall attach to any proceeds of claims and causes of action brought under sections 502(d), 544, 545, 547, 548 and 550 of the Bankruptcy Code. Interim Order ¶ 11(a). Local Rule 4001-2(a)(i)(E). Subject to entry of the Final Order, $2,291,554.78 of the aggregate principal amount of loans outstanding under the Prepetition Credit Agreement constitute the Roll-Up Loan and as such are receiving liens and priority granted under the DIP Agreement and are being “rolled up” and converted into the DIP Loans. DIP Agreement Section 2.1. Local Rule 4001-2(a)(i)(H). Subject to entry of the Final Order, no costs or expenses of administration shall be imposed upon the DIP Lender under the equities of the case provisions of Section 552(b) of the Bankruptcy Code. Interim Order ¶ 13(b). BASIS FOR RELIEF REQUESTED I. The DIP Financing Should Be Approved 24. The DIP Agreement has been negotiated in good faith and at arm’s length by and among the Debtors and the DIP Lender. The Debtors submit that the terms of the DIP Agreement, the use of Cash Collateral, and all other financial accommodations provided under the DIP Agreement and the DIP Orders are fair and reasonable and reflect the Debtors’ exercise of prudent business judgment consistent with their fiduciary duties. The Debtors have, in their business judgment, determined that entering into the DIP Agreement will give the Debtors the financing needed to operate their business with minimum interruption or disruption to their operations and thus preserve the going-concern value of the Debtors’ estates. In addition, the -22- Case 15-12097-LSS Doc 14 Filed 10/08/15 Page 23 of 34 Debtors have, in their business judgment, determined that the DIP Financing provides the Debtors with the greatest degree of flexibility to implement their chapter 11 strategy. 25. As described above, the Debtors’ chapter 11 efforts hinge upon use of Cash Collateral and obtaining access to postpetition financing. Section 364 of the Bankruptcy Code distinguishes among (a) obtaining unsecured credit in the ordinary course of business, (b) obtaining unsecured credit outside the ordinary course of business, and (c) obtaining credit with specialized priority or on a secured basis. If a debtor-in-possession cannot obtain postpetition credit on an unsecured basis pursuant to section 364(c), the court may authorize such debtor to obtain credit or incur debt that is entitled to superpriority administrative expense status and/or secured by a senior lien on unencumbered property, a junior lien on encumbered property, or a combination of the foregoing. In addition, pursuant to section 364(d), absent consent from affected secured parties, a court may authorize a debtor to postpetition credit secured by a senior or equal lien on encumbered property (i.e., a “priming” lien) when a debtor cannot obtain credit elsewhere and the interests of existing lienholders are adequately protected. A. Incurrence of Secured Superpriority Debt Under Bankruptcy Code Sections 364(c) and 364(d) 26. Section 364(c) of the Bankruptcy Code requires a finding, made after notice and a hearing, that a debtor- in-possession cannot “obtain unsecured credit allowable under Bankruptcy Code § 503(b)(1) as an administrative expense.” See Pearl-Phil GMT (Far East) Ltd. v. Caldor Corp., 266 B.R. 575, 584 (S.D.N.Y. 2001) (superpriority administrative expenses authorized where debtor could not obtain credit as an administrative expense); In re Klein Sleep Prods., Inc., 173 B.R. 296, 297-98 (S.D.N.Y. 1994) (same); In re Ames Dept. Stores, Inc., 115 B.R. 34, 37-39 (Bankr. S.D.N.Y. 1990) (debtor must show that it made reasonable efforts to seek other sources of financing under §§ 364(a) and (b)); In re Garland Corp., 6 B.R. 456, 461 (1st Cir. -23- Case 15-12097-LSS Doc 14 Filed 10/08/15 Page 24 of 34 BAP 1980) (secured credit under § 364(c)(2) authorized, after notice and a hearing, upon showing that unsecured credit unobtainable); In re Crouse Group, Inc., 71 B.R. 544, 549 (Bankr. E.D. Pa. 1987) (debtor seeking unsecured credit under § 364(c) of the Bankruptcy Code must prove that it cannot obtain unsecured credit pursuant to § 364(b)). 27. As described above, the Debtors request that the Court approve, subject to entry of the Final Order, the roll-up of $2,291,554.78 of aggregate principal amount of loans outstanding under the Prepetition Credit Agreement into postpetition loans under the DIP Financing. This treatment of the obligations under the Prepetition Credit Agreement is an essential element of the overall DIP Financing and should be approved because the DIP Lender would not have agreed to provide the DIP Financing without such a provision. Further, the Debtors were not able to find debtor-in-possession financing from another party on other terms, let alone terms that did not include a roll-up of the Debtors’ obligations under the Prepetition Credit Agreement. This Court has previously approved similar debtor-in-possession financing agreements where the debtor was not able to obtain debtor -in-possession financing under other conditions.4 See, e.g., In re Imris, Inc., et al., Case No. 15-11133 (Bankr. D. Del. May 25, 2015); In re Cal Dive Int’l, Inc., et al., Case No. 15-10458 (Bankr. D. Del. April 20, 2015); In re Digital Domain Media Group, Inc., et al., Case No. 12-12568 (BLS) (Bankr. D. Del. Nov. 7, 2012); In re Real Mex Restaurants, Inc. et al., Case No. 11-13122 (BLS) (Bankr. D. Del. Nov. 9, 2011); In re Landsource Communities Development LLC, et al., Case No. 08-11111 (KJC) (Bankr. D. Del. July 21, 2008). 4 The referenced orders are voluminous in nature and are not attached to this Motion; however, in light of the requirements of Local Rule 7007-2(a)(vii), undersigned counsel has retained copies of each order, and will make them available to the Court or to any party that requests them. -24- Case 15-12097-LSS 28. Doc 14 Filed 10/08/15 Page 25 of 34 In addition, section 364(d)(1), which governs the incurrence of postpetition debt secured by senior or “priming” liens, provides that the court may, after notice and a hearing: authorize the obtaining of credit or the incurring of debt secured by a senior or equal lien on property of the estate that is subject to a lien only if – (A) the trustee is unable to obtain credit otherwise; and (B) there is adequate protection of the interest of the holder of the lien on the property of the estate on which such senior or equal lien is proposed to be granted. 11 U.S.C. § 364(d)(1). 29. A debtor need only demonstrate “by a good faith effort that credit was not available” without the protections afforded to potential lenders by sections 364(c) or 364(d). Mosello, 195 B.R. at 289 (citing In re Snowshoe Co., 789 F.2d 1085, 1088 (4th Cir. 1986)). Thus, “[t]he statute imposes no duty to seek credit from every possible lender before concluding that such credit is unavailable.” Ames, 115 B.R. at 40 (holding that a debtor made reasonable effort to secure financing when it selected the least onerous financing option from the remaining two lenders). Moreover, where few lenders likely can or will extend the necessary credit to a debtor, “it would be unrealistic and unnecessary to require [the debtor] to conduct an exhaustive search for financing.” In re Sky Valley, Inc., 100 B.R. 107, 113 (Bankr. N.D. Ga. 1988), aff’d sub nom. Anchor Savings Bank FSB v. Sky Valley, Inc., 99 B.R. 117, 120 n.4 (N.D. Ga. 1989). 30. The Debtors selected the DIP Financing provided by the DIP Lender only after carefully examining all of their options. In the end, it was not feasible for the Debtors to obtain a loan on equal to or better terms that afforded the Debtors sufficient liquidity to operate their business absent the consent of the Prepetition Secured Lender, which would result in increased costs and risks to the Debtors. In addition, the Debtors were unable to obtain financing on an unsecured basis or obtain an equity investment from any potential strategic partner. -25- Case 15-12097-LSS 31. Doc 14 Filed 10/08/15 Page 26 of 34 In the end, the DIP Lender provided the only viable source of funding. Accordingly, the Debtors commenced arm’s length and good faith negotiations with the DIP Lender for the DIP Financing. 32. After fully considering their financing options, and whether other, more advantageous financing alternatives would be available to the Debtors, the Debtors, exercising their sound business judgment, decided to accept the DIP Financing offered by the DIP Lender. The DIP Financing provides significant advantages and favorable terms that the Debtors believe would be unavailable through other lenders. B. Adequate Protection Under Bankruptcy Code Sections 364(d) and 361 33. In connection with the DIP Financing, the Debtors propose to provide the Prepetition Secured Lenders with adequate protection in accordance with sections 364(d) and 361 of the Bankruptcy Code.5 To that end, the Debtors and the Prepetition Secured Lender have negotiated, and the Debtors request that the Court approve, as of the Petition Date, certain protections of the interests of the Prepetition Secured Lenders in the Prepetition Collateral from any diminution in value of each of their respective interests in the Prepetition Collateral resulting from the Debtors’ use, sale, or lease of such collateral and the imposition of the automatic stay. 34. Pursuant to section 363(c)(2) of the Bankruptcy Code, a debtor-in-possession may not use cash collateral without the consent of the secured party or court approval. Section 363(e) provides that, upon request of an entity that has an interest in property to be used by a debtor, the court shall prohibit or condition such use as necessary to provide adequate protection of such interest. Under section 364(d), a debtor may obtain credit secured by a senior or equal lien if an existing secured creditor’s interest in the collateral security is adequately protected. 5 Bankruptcy Code section 364(d) requires that adequate protection be provided where the liens of secured creditors are being primed to secure the obligations under a debtor-inpossession financing facility. See 11 U.S.C. § 364(d). -26- Case 15-12097-LSS 35. Doc 14 Filed 10/08/15 Page 27 of 34 What constitutes adequate protection is decided on a case-by-case basis. See In re Swedeland Dev. Group, Inc., 16 F.3d 552, 56 (3d Cir. 1994); In re Mosello, 195 B.R. 277, 289 (Bankr. S.D.N.Y. 1996); In re Realty Southwest Assocs., 140 B.R. 360 (Bankr. S.D.N.Y. 1992); In re Beker Indus. Corp., 58 B.R. 725 (Bankr. S.D.N.Y. 1986); see also In re O’Connor, 808 F.2d 1393, 1396 (10th Cir. 1987); In re Martin, 761 F.2d 472 (8th Cir. 1985). By adequate protection, the Bankruptcy Code seeks to shield a secured creditor from diminution in the value of its interest in the particular collateral during the period of use. See In re 495 Central Park Avenue Corp., 136 B.R. 626, 631 (Bankr. S.D.N.Y. 1992); In re Beker Indus. Corp., 58 B.R. at 736; In re Hubbard Power & Light, 202 B.R. 680 (Bankr. E.D.N.Y. 1996). When a debtor seeks to prime existing liens pursuant to section 364(d) of the Bankruptcy Code, courts also examine whether the prepetition secured creditors will receive adequate protection for the value of their liens. Beker, 58 B.R. at 737. Because all of these tests are satisfied here and the Debtors have met all of their obligations under section 364 of the Bankruptcy Code, the Motion should be granted and the DIP Agreement should be approved. 36. Section 361(2)-(3) of the Bankruptcy Code expressly describes replacement liens and administrative claim status as appropriate forms of adequate protection. Thus, the provision of these forms of adequate protection is appropriate. Further, payment of reasonable and documented out-of-pocket fees, costs, and expenses often serves as a form of adequate protection for secured creditors. Agreeing to pay a prepetition secured lender’s reasonable and documented out-of-pocket fees, costs, and expenses offers meaningful additional protection to any diminution in the value of the Prepetition Collateral. Accordingly, the Debtors believe that the adequate protection described above is fair, reasonable, and sufficient to protect the Prepetition Secured -27- Case 15-12097-LSS Doc 14 Filed 10/08/15 Page 28 of 34 Lender from any diminution in the value of its interests in the Prepetition Collateral during the period of the Debtors’ use thereof. C. The DIP Financing is Necessary to Preserve the Assets of the Debtors’ Estates 37. In order to preserve the value of the Debtors’ estates through the closing of the proposed sale, the Debtors must immediately instill their employees, vendors, service providers, customers, and potential bidders with confidence that the Chapter 11 Cases will not disrupt the conduct of the Debtors’ business in the ordinary course. The Debtors believe that they must provide their various constituents with confidence in their ability to seamlessly transition and operate their business in chapter 11, operate their business normally in that environment, and ultimately sell their business in a successful and expedient manner. The DIP Financing will provide the working capital necessary to allow the Debtors to, among other things, continue operating their business in the ordinary course of business, which in turn will help maintain value for the benefit of all creditors and parties in interest. 38. The success of the Chapter 11 Cases at the outset depends on the confidence of the Debtors’ constituents, which in turn depends upon the Debtors’ ability to minimize the disruption caused by the bankruptcy filings. Approval and implementation of the DIP Financing will ensure continued functioning of the Debtors and preserve the going concern value of their estates. D. The Terms of the DIP Financing are Fair, Reasonable, and Appropriate 39. After appropriate investigation and analysis, the Debtors’ management has concluded that the DIP Financing presents the best available option under the circumstances. Bankruptcy courts routinely defer to a debtor’s business judgment on most business decisions, including the decision to borrow money, unless such decision fails the arbitrary and capricious standard. See Ames 115 B.R. at 40 (courts should approve borrowings pursuant to 364(c) and (d) -28- Case 15-12097-LSS Doc 14 Filed 10/08/15 Page 29 of 34 where a debtor’s decision to borrow was an exercise of its business judgment); In re Mid-State Raceway, Inc., 323 B.R. 40, 58-59 (Bankr. N.D.N.Y. 2005) (same); In re Trans World Airlines, Inc., 163 B.R. 964, 974 (Bankr. D. Del. 1994) (noting that approval of interim loan, receivables facility, and asset-based facility “reflect[ed] sound and prudent business judgment... [was] reasonable under the circumstances and in the best interest of [the debtor] and its creditors”); cf. Group of Institutional Investors v. Chicago, Mil., St. P. & Pac. Ry., 318 U.S. 523, 550 (1943) (holding that decisions regarding assumption or rejection of leases are left to business judgment of the debtor); In re Simasko Prods. Co., 47 B.R. 444, 449 (D. Colo. 1985) (“[b]usiness judgments should be left to the board room and not to this Court”). Indeed, “more exacting scrutiny [of the debtor’s business decisions] would slow the administration of the Debtor’s estate and increase its cost, interfere with the Bankruptcy Code’s provision for private control of administration of the estate and threaten the court’s ability to control a case impartially.” Richmond Leasing Co. v. Capital Bank, N.A., 762 F.2d 1303, 1311 (5th Cir. 1985). 40. The terms and conditions of the DIP Financing are fair and reasonable and were negotiated by the parties in good faith and at arm’s length. The DIP Financing represents a reasonable exercise of the Debtors’ business judgment and is the best financing option available under the present circumstances. As discussed above, the Debtors, with the assistance of their advisors, assessed their financing needs and the DIP Financing proposal. After fully considering all of the Debtors’ realistic options, and whether other more advantageous financing alternatives were available to the Debtors, the Debtors decided to accept the DIP Financing from the DIP Lender. 41. Further, the proposed DIP Financing subjects the security interests and administrative expense claims of the DIP Lender to the Carve-Out, as described above, thereby -29- Case 15-12097-LSS Doc 14 Filed 10/08/15 Page 30 of 34 ensuring that in the event of a default under the DIP Agreements, the Debtors’ estates or other parties-in-interest are not directly or indirectly deprived of possible rights and powers by restricting the services for which professionals may be paid in the Chapter 11 Cases. In Ames Dept. Stores, the court found such carve-outs for professional fees not only reasonable but necessary to ensure that official committees and debtors’ estates could retain assistance from counsel. See Ames, 115 B.R. at 38, 40 (observing that courts insist on carve-outs for professionals representing parties-in-interest because “absent such protection, the collective rights and expectation of all parties-in-interest are sorely prejudiced”). II. Interim Approval Should Be Granted 42. The Debtors bring this Motion to obtain authorization to use Cash Collateral and borrow under the DIP Agreement on an expedited basis due to the immediate and irreparable harm that would be suffered by the Debtors’ estates if the Debtors did not obtain the financing needed to sustain the Debtors’ businesses as going concerns while the Debtors implemented and consummate the sale of substantially all of their assets. The Debtors have an immediate need to obtain the DIP Financing and use Cash Collateral to permit them, in addition to financing the administration of the Chapter 11 Cases, to (a) operate the Debtors’ business, (b) maintain business relationships with vendors, suppliers and customers, (c) pay employee wages in the ordinary course, (d) make necessary capital expenditures, (e) satisfy other working capital and operational needs, and (f) finance the sale process, all of which are necessary to preserve the Debtors’ going-concern value. 43. Without the use of Cash Collateral and the additional liquidity provided by the DIP Financing, the Debtors would not be able to meet their day-to-day operational cash needs. If unable to meet their day-to-day operational cash needs, the Debtors would have to halt their operations, which would drastically erode their overall value. -30- Further, the Debtors must Case 15-12097-LSS Doc 14 Filed 10/08/15 Page 31 of 34 demonstrate to their customers and vendors that the Debtors have sufficient capital to continue ongoing operations in the ordinary course, thereby assuaging any potential fears among the Debtors’ key constituents that the Chapter 11 Cases will negatively affect the Debtors’ operations. Therefore, the Debtors request approval of the DIP Financing on an expedited basis due to the immediate and irreparable harm that would be suffered by the Debtors’ estates were the Debtors unable to obtain the financing needed to sustain their business. 44. Rule 4001(c) of the Bankruptcy Rules permits a court to approve a debtor’s request for financing during the 14-day period following the filing of a motion requesting authorization to obtain postpetition financing “only to the extent necessary to avoid immediate and irreparable harm to the estate pending a final hearing.” In examining requests under this rule, courts apply the same business judgment standard as is applicable to other business decisions. See, e.g., Ames, 115 B.R. at 38. After the 14-day period, the rule does not limit the request to those amounts necessary to avoid immediate and irreparable harm, and a debtor can borrow those amounts it views as prudent to the operation of its business. Id. at 36. 45. The Debtors request that the Court conduct an expedited preliminary hearing on the Motion and authorize the Debtors from and after the entry of the Interim Orders until the Final Hearing to obtain credit under the DIP Agreement, which the Debtors shall use to, among other things, provide working capital for the Debtors and pay expenses for the Chapter 11 Cases. This authority will allow the Debtors to maintain ongoing operations and avoid immediate and irreparable harm and prejudice to their estates, and all parties-in-interest, pending the conclusion of the Final Hearing. III. Request for Final Hearing 46. Pursuant to Bankruptcy Rules 4001(b)(2) and 4001(c)(2), the Debtors request that the Court set a date for the Final Hearing that is as soon as practicable but in no event later than -31- Case 15-12097-LSS Doc 14 Filed 10/08/15 Page 32 of 34 twenty (20) days following the Petition Date. At the Final Hearing, the Debtors will request Court authority to obtain credit under the DIP Agreement on a final basis. 47. The Debtors request authorization to serve a copy of the signed Interim Order, which fixes the time and date for the filing of objections, if any, by first class mail upon the Notice Parties (defined below). The Debtors request that the Court consider such notice of the Final Hearing to be sufficient notice under Rule 4001 of the Bankruptcy Rules. MODIFICATION OF THE AUTOMATIC STAY 48. The DIP Agreement requires a modification of the automatic stay under section 362 of the Bankruptcy Code to implement the terms of the DIP Agreement. Stay modification provisions of this kind are ordinary and standard features of postpetition debtor-in-possession financing facilities and, in the Debtors’ business judgment, are reasonable under the present circumstances. As noted above, the Debtors are unable to obtain unsecured credit allowable as an administrative expense under section 503(b)(1) of the Bankruptcy Code in an amount sufficient and readily available to maintain ongoing operations. Nor have the Debtors been able to obtain debtor-in-possession financing on terms more favorable than those proposed herein. The terms and conditions of the DIP Financing, including the modification of the automatic stay described above, are fair and reasonable, and were negotiated extensively by well-represented parties in good faith and at an arm’s length. In these circumstances, and importantly, in light of the material benefits afforded to the Debtors by the DIP Financing, the modification of the automatic stay is more than warranted. REQUEST FOR WAIVER OF STAY 49. The Debtors further seek a waiver of any stay of the effectiveness of the orders approving this Motion. Pursuant to Rule 6004(h) of the Bankruptcy Rules, an order authorizing the use, sale, or lease of property other than cash collateral is stayed for fourteen days after entry -32- Case 15-12097-LSS Doc 14 Filed 10/08/15 Page 33 of 34 unless the court orders otherwise. As set forth above, the DIP Financing is essential to prevent potentially irreparable damage to the Debtors’ operations, value, and ability to reorganize. Accordingly, the Debtors submit that ample cause exists to justify a waiver of the fourteen-day stay imposed by Rule 6004(h) of the Bankruptcy Rules, to the extent it applies. NOTICE 50. Notice of this Motion shall be provided to (a) the Office of the United States Trustee for Region 3, (b) each of the Debtors’ twenty largest unsecured creditors as identified on their respective voluntary petitions, (c) counsel to the DIP Lender and the Prepetition Secured Lender, (d) the United States Attorney’s Office for the District of Delaware, (e) the Securities and Exchange Commission, and (f) the Internal Revenue Service. As this Motion is seeking first-day relief, notice of this Motion and any order entered hereon will be served on all parties required by Del. Bankr. L.R. 9013-1(m). Due to the urgency of the circumstances surrounding this Motion and the nature of the relief herein, the Debtors respectfully submit that no further notice of this Motion is required. NO PRIOR REQUEST 51. No prior Motion for the relief requested herein has been made to this Court or any other court. [Remainder of page intentionally left blank.] -33- Case 15-12097-LSS Doc 14 Filed 10/08/15 Page 34 of 34 WHEREFORE, the Debtors respectfully request entry of the Interim Order attached hereto as Exhibit A, and a Final Order, granting the relief requested herein and such other and further relief as is just and proper. Respectfully submitted, Dated: October 8, 2015 LOWENSTEIN SANDLER LLP Sharon L. Levine, Esq. Nicole Stefanelli, Esq. Andrew D. Behlmann, Esq. 65 Livingston Avenue Roseland, New Jersey 07068 Tel: (973) 597-2500 Fax: (973) 597-2400 slevine@lowenstein.com nstefanelli@lowenstein.com abehlmann@lowenstein.com - and – POLSINELLI PC /s/ Christopher A. Ward Christopher A. Ward (Del. Bar No. 3877) Justin K. Edelson (Del. Bar No. 5002) 222 Delaware Avenue, Suite 1101 Wilmington, Delaware 19801 Telephone: (302) 252-0920 Facsimile: (302) 252-0921 cward@polsinelli.com jedelson@polsinelli.com Proposed Counsel to the Debtors and Debtors-in-Possession -34-