Case Doc 15 Filed 02/14/14 Page 1 of 8 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE. Chapter 11

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1 Case Doc 15 Filed 02/14/14 Page 1 of 8 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re Event Rentals, Inc., et al., 1 Debtors. Chapter 11 Case No ( ) Joint Administration Requested DECLARATION OF RICHARD KLEIN IN SUPPORT OF MOTION OF EVENT RENTALS, INC. AND ITS AFFILIATED DEBTORS FOR INTERIM AND FINAL ORDERS (I) AUTHORIZING DEBTORS TO OBTAIN POSTPETITION FINANCING PURSUANT TO SECTION 364 OF THE BANKRUPTCY CODE (II) AUTHORIZING THE USE OF CASH COLLATERAL PURSUANT TO SECTION 363 OF THE BANKRUPTCY CODE; (III) GRANTING ADEQUATE PROTECTION TO THE PREPETITION SECURED PARTIES PURSUANT TO SECTIONS 361, 362, 363, AND 364 OF THE BANKRUPTCY CODE; (IV) GRANTING LIENS AND SUPERPRIORITY CLAIMS; (V) MODIFYING THE AUTOMATIC STAY; (VI) SCHEDULING A FINAL HEARING; AND GRANTING RELATED RELIEF I, Richard Klein, pursuant to section 1746 of title 28 of the United States Code, hereby declare that the following is true and correct to the best of my knowledge: 1. I am a Managing Director of Jefferies LLC ( Jefferies ), an investment banking firm with its principal offices located at 520 Madison Avenue, New York, New York, 10022, and other offices located worldwide. 2. I have provided financial advisory services to debtors and creditors through in-court and out-of-court reorganizations in a number of industries for over 17 years. These matters include distressed sale, buyside, and other restructuring advisory mandates, including bankruptcy planning and management, valuation, and other analysis as well as 1 The Debtors and the last four digits of their respective taxpayer identification numbers are: Classic Midwest, Inc. (9934); Classic Northeast, Inc. (9871); Classic Panache, Inc. (1237); Classic Party Rentals, Inc. (3911); Classic Party Rentals LP (0583); Classic/Prime, Inc. (7149); Classic Southeast, Inc. (0700); DBO Acquisition Corp. (1923); DUBO Acquisition Corp. (8795); Event Rentals, Inc. (9443); Grand Events & Party Rentals, Inc. (7940); Special Event Holding, Inc. (5659); and Unique Tabletop Rentals, Inc. (4327). The list of the Debtors alternate names is located on the docket for Case No [D.I. 3] and is also available at

2 Case Doc 15 Filed 02/14/14 Page 2 of 8 securing debtor in possession ( DIP ) financing and/or exit financing. My distressed sale and restructuring experience, which includes numerous transactions involving DIP financing, includes Borders, Adelphia, Apex Silver, Anthony Crane Rentals, Arthur D. Little, Buffet Holdings, Circuit City, Friedman s Jewelers, Robotic Vision Systems, Inc., Tony Roma s, Uno s Restaurant Holdings, OnCure Medical Corp., Velti plc, Reliant Building Products, and AmeriServe. Prior to joining Jefferies, I spent 12 years at Houlihan Lokey Howard & Zukin, where I advised companies and various creditor constituencies on a variety of recapitalization, restructuring, and sale transactions. Prior to joining Houlihan Lokey in 1996, I worked in commercial finance for the CIT Group. I received a B.S. in Business Administration with a concentration in finance from the State University of New York at Albany. 3. Jefferies is the proposed investment banker for Event Rentals, Inc. ( Event Rentals ) and its affiliated debtors and debtors in possession (collectively, the Debtors ) in the above-captioned cases (the Chapter 11 Cases ) under chapter 11 of title 11 of the United States Code (the Bankruptcy Code ). 4. The Debtors will shortly be filing an application for authorization to employ and retain Jefferies to serve as investment banker to the Debtors in these Chapter 11 Cases. Prior to the date the Debtors commenced such cases, Jefferies served as investment banker to the Debtors and, in my current capacity, I am familiar with the negotiation process and other facts culminating in the Motion of Event Rentals, Inc. and its Affiliated Debtors for Interim and Final Orders (I) Authorizing Debtors to Obtain Postpetition Financing Pursuant to Section 364 of the Bankruptcy Code; (II) Authorizing the Use of Cash Collateral Pursuant to Section 363 of the Bankruptcy Code; (III) Granting Adequate Protection to the Prepetition Secured Parties Pursuant to Sections 361, 362, 363, and 364 of the Bankruptcy Code; (IV) Granting Liens and 2

3 Case Doc 15 Filed 02/14/14 Page 3 of 8 Superpriority Claims; (V) Modifying the Automatic Stay; (VI) Scheduling a Final Hearing; and Granting Related Relief (the DIP Motion ), including the exhibits thereto Unless otherwise stated in this Declaration, I have personal knowledge of the facts set forth herein and, if called as a witness, I would testify thereto. Certain of the disclosures set forth herein relate to matters within the knowledge of other employees of Jefferies and are based on information provided by them. The DIP Negotiations 6. As set forth in the Declaration of Jeffrey M. Black in Support of First Day Motions and Applications (the CEO Declaration ), prior to the commencement of these Chapter 11 Cases, the Debtors operations were funded, in large part, with the proceeds of that certain credit facility dated as of December 20, 2006 (as amended, the Prepetition Secured Credit Agreement ), and by and among the entities and institutions from time to time party thereto (the Credit Agreement Parties ). As of the Petition Date, the Credit Agreement Parties consist of Event Rentals, as borrower, Event Rentals affiliated debtors and debtors in possession, as guarantors, Ableco Finance LLC, as administrative agent (in such capacity, the Prepetition Secured Agent ), and various financial institutions, as lenders (in such capacity, the Prepetition Secured Lenders and, together with the Prepetition Secured Agent and any other party to which Prepetition Secured Obligations (as defined below) are owed, the Prepetition Secured Parties ). I am informed, moreover, that the indebtedness of the Debtors under the Prepetition Secured Credit Agreement (the Prepetition Secured Obligations ) is secured by a first priority security 2 Where the context requires, each capitalized term used but not otherwise defined herein shall have the meaning ascribed to such term in the DIP Motion. 3

4 Case Doc 15 Filed 02/14/14 Page 4 of 8 interest in and continuing lien (the Prepetition Liens ) on substantially all of the Debtors assets (the Prepetition Collateral ). 7. As set forth in the CEO Declaration, the global financial crisis that began in fiscal year 2009 had a pronounced negative impact on the Debtors profitability. As a result, the Debtors were unable to service their significant obligations under, among other things, the Prepetition Credit Facility, while also meeting the capital intensive requirements of the Debtors businesses that are vital to remaining competitive in their market. From 2009 through 2013, the Debtors used a variety of measures to maintain short-term financial stability, including multiple investments by the Debtors sponsors and an out-of-court financial restructuring in November However, by August 2013, the Debtors had concluded that it was clear that the survival of their businesses depended upon a refinancing of the Prepetition Secured Obligations or an alternative transaction. 8. As the Debtors and their advisors worked towards such a restructuring or alternative transaction, it became clear to the Debtors by December 2013 that the Debtors would run out of liquidity before such a restructuring or transaction could be achieved. Accordingly, the Debtors and their advisors engaged in extensive, arms length negotiations with the Prepetition Secured Parties regarding additional financing to provide the liquidity necessary for the Debtors to continue operating, as well as their restructuring and marketing efforts, leading up to the commencement of these Chapter 11 Cases. As a result of these negotiations, in January 2014 and February 2014 the Prepetition Secured Agent agreed to fund and provide, pursuant to the terms of the Prepetition Secured Credit Agreement, approximately $6.5 million in administrative agent advances (the Administrative Agent Advances ), which Administrative Agent Advances were essential to the Debtors preparations for these Chapter 11 Cases. 4

5 Case Doc 15 Filed 02/14/14 Page 5 of 8 9. Also as set forth in the CEO Declaration, the Debtors are currently in advanced discussions with their lenders for the sale of substantially all of the Debtors assets (the Sale ) as a going concern pursuant to a transaction under section 363 of the Bankruptcy Code, subject to an overbid process. Assuming the Court approves such Sale on the schedule proposed by the Debtors, the Debtors expect to consummate the Sale within no more than 105 days after the Petition Date. 10. During that time, the Debtors require the use of cash, which comprises the cash collateral of the Prepetition Secured Parties securing the Prepetition Secured Obligations within the meaning of section 363(a) of the Bankruptcy Code (the Cash Collateral ), and the proceeds of the proposed DIP facility (the DIP Facility ), mainly to fund day-to-day operations, fund the fees and expenses associated with these Chapter 11 Cases, and maintain and preserve the value of the Debtors businesses (including the Prepetition Collateral), pending the Sale of the Debtors assets. The availability to the Debtors of sufficient working capital and liquidity to finance their operations is vital to their ability to maintain such operations and is necessary for the preservation of the value of their estates as a whole, pending the contemplated Sale of the Debtors assets. 11. In that regard, certain of the Prepetition Secured Parties (the DIP Lenders ) provided the Debtors with a proposal (the Lender Proposal ) for DIP financing that contemplated the $20 million DIP Facility that would be used to repay the Administrative Agent Advances and provide incremental liquidity to fund the Chapter 11 Cases. 12. The Debtors also directed Jefferies to contact and obtain alternate proposals from various sources of potential DIP financing. Jefferies contacted and communicated with 10 potential DIP lenders (in addition to certain of the individual Prepetition 5

6 Case Doc 15 Filed 02/14/14 Page 6 of 8 Secured Parties) to inquire whether such lenders would provide the Debtors with DIP financing. Ultimately, none of these potential DIP lenders were willing to make a proposal to provide the Debtors with DIP financing because the Prepetition Secured Parties would not allow for a priming DIP facility and (i) none of the potential DIP lenders were willing to repay the Prepetition Secured Obligations in full, and (ii) nor were any of the potential DIP lenders prepared to engage in litigation over a priming DIP facility. 13. The Debtors, with the assistance of Jefferies and their other advisors, carefully reviewed the Lender Proposal and, after extensive negotiations as described below, ultimately determined that the Lender Proposal was in the best interests of the Debtors and their estates, customers, employees, and creditors. 14. The terms and conditions of the DIP facility and the Debtors use of Cash Collateral, each as described in the DIP Motion, are commercially reasonable. Such terms and conditions were negotiated extensively and at arms length by well represented, independent parties in good faith. The Debtors, through Jefferies and their other advisors, have negotiated the best terms available to obtain the funding needed to maintain sufficient liquidity and preserve the Debtors assets over the course of the Chapter 11 Cases. Moreover, based on my experience, the terms of the DIP Facility and the Debtors use of Cash Collateral are consistent with the terms generally provided to debtors in other similar chapter 11 cases. 15. I also note that, as a condition to closing the DIP Facility, the Debtors are required to repay the Administrative Agent Advances in full with the proceeds of the initial borrowing under the DIP Facility. Without this condition, the Debtors would have been unable to secure the DIP financing needed to preserve the value of their estates during these Chapter 11 Cases. Also, as mentioned above, the Prepetition Secured Agent provided the Administrative 6

7 Case Doc 15 Filed 02/14/14 Page 7 of 8 Agent Advances to the Debtors just a month prior to the Petition Date as an accommodation to provide the Debtors with sufficient liquidity to, among other things, (i) permit the Debtors to continue operating their businesses, including making necessary payments to their employees and vendors, (ii) continue the Debtors prepetition marketing process, and (iii) otherwise permit the Debtors to prepare for and enter chapter 11 in as smooth and orderly a fashion as possible under the circumstances. The Administrative Agent Advances thus gave the Debtors the liquidity they needed to enter chapter 11 with a clear trajectory rather than under a valuedestroying free-fall scenario. Further, the Administrative Agent Advances are senior to the other obligations under the Prepetition Secured Credit Agreement, which are secured by the Prepetition Liens on substantially all of the Debtors assets. I also note that the rights of parties in interest to challenge the Prepetition Liens securing the Administrative Agent Advances are not eliminated by the repayment because, as I understand it, the Interim Order preserves the rights of certain parties to object, challenge, and pursue investigations in connection with or related to the validity or extent of Prepetition Secured Obligations or the Prepetition Liens, or the actions or inactions of any of the Prepetition Secured Parties arising out of or related to the Prepetition Secured Obligations or the Prepetition Liens. Conclusion 16. The DIP Facility and the Debtors use of Cash Collateral are the product of hard fought, good faith negotiations. I believe that the relief requested in the DIP Motion is necessary and essential under these circumstances to keep the Debtors operating, and should provide the Debtors with sufficient liquidity to pay their current and ongoing operating expenses, including, among other things, postpetition wages and salaries, vendor obligations, and other operational costs (such as rent and utilities) for approximately four months. The Debtors were 7

8 Case Doc 15 Filed 02/14/14 Page 8 of 8 unable to obtain financing on more favorable terms from sources other than the DIP Lenders, and without such financing the Debtors ability to consummate the Sale of their assets will be jeopardized, materially harming the value of the Debtors estates and all of the parties with an interest in the Debtors estates and/or the continuity of the Debtors business. I declare under penalty of perjury under the laws of the United States of America that the forgoing is true and correct. Executed on February 13, Richard Klein 8