IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION ) ) ) ) ) ) Chapter 11

Transcription

1 Document Page 1 of 22 IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION In re: CANOPY FINANCIAL, INC., Debtor. ) ) ) ) ) ) Chapter 11 Case No Hon. Eugene R. Wedoff DECLARATION OF DAN STEVENSON IN SUPPORT OF CHAPTER 11 PETITION AND FIRST DAY PLEADINGS I, Dan Stevenson, hereby certify, pursuant to 28 U.S.C. 1746, as follows: 1. I am the General Counsel of Canopy Financial, Inc. ( Canopy or the Debtor ). Canopy is a corporation organized and existing under the laws of the State of Delaware. I am authorized by the Debtor to submit this Declaration on its behalf and have personal knowledge of the facts set forth herein. 2. As General Counsel of the Debtor, I am generally familiar with the Debtor s books and records and its operations. As a result of that familiarity and my first-hand experience, I have formed opinions regarding the necessity for the relief sought in the Debtor s first day motions and applications, especially to the extent that such relief will enable the Debtor to continue to operate efficiently and effectively as the Debtor evaluates a restructuring, sale or other business alternatives. 3. I therefore submit this Affidavit in support of the first day motions and applications, as well as other motions and applications, of the Debtor in the above-captioned chapter 11 case. Except as otherwise indicated, all statements set forth in this Declaration are based upon my personal knowledge, my review of relevant records and documents, information from the Debtor s employees, or my opinion based upon my experience and knowledge of the

2 Document Page 2 of 22 Debtor s operations and financial condition. If called upon to testify, I could and would testify competently to the facts set forth in this Declaration. 4. Based on my personal knowledge and the review discussed above, I believe that the relief sought by the Debtor is necessary to enable its estate to be administered effectively. Failure to grant such relief would have a serious, negative effect on the value of the Debtor s estate and the ability of the Debtor to explore a restructuring, sale, or other business alternatives. Part I of this Declaration describes provides general background information regarding the Debtor, its business, and the events leading up to the chapter 11 filing. Part II of this Declaration sets forth relevant facts in support of the various first day motions and applications filed by the Debtor concurrently with this Declaration. I. General Background. 5. On November 25, 2009 (the Petition Date ), the Debtor commenced this case by filing a voluntary petition for relief under chapter 11 of the Bankruptcy Code. No creditors committee has yet been appointed in this case by the United States Trustee. 6. As of the Petition Date, the Debtor operated as a provider of health insurancerelated online banking interfaces and processing services, supporting thousands of consumerdriven healthcare accounts and processing thousands of healthcare related payments annually. The Debtor s flagship products, HealthDirect and CareGain, are among the leading technology-enabled electronic payment, account management, and investment technology platforms for health savings accounts, flexible spending accounts, and health reimbursement arrangements. The Debtor s products incorporate plan design, expense tracking, integrated investment trading, online bill payment, ACH processing, card management systems, account management, customer service interfaces, and plan advisory capabilities -- all specifically for -2-

3 Document Page 3 of 22 healthcare. The Debtor maintains physical offices in Chicago, Illinois; San Francisco, California; and Plainsboro, New Jersey. 7. On October 31, 2007, the Debtor entered into a Loan and Security Agreement (the 2007 Loan Agreement ) with Venture Lending & Leasing IV, Inc. and Venture Lending & Leasing V, Inc. (collectively, the Prepetition Lenders ) and on May 28, 2009, the Debtor entered into a Loan and Security Agreement (together with the 2007 Loan Agreement, the Loan Agreements ) with Venture Lending & Leasing V, Inc. Pursuant to the Loan Agreements, the Prepetition Lenders agreed to make periodic term loans to the Debtor. As collateral for the loans, among other personal property and assets, the Debtor granted the Prepetition Lenders a security interest in certain of the Debtor s bank accounts (collectively, the Pledged Accounts ). The Debtor, the Prepetition Lenders, and the banks also executed Account Control Agreements. Pursuant to the Loan Agreements and the Account Control Agreements, upon the occurrence of certain events, the Prepetition Lenders are authorized, upon proper notice, to exercise exclusive control over the Pledged Accounts. 8. On July 15, 2009 and August 19, 2009, the Debtor raised an aggregate of $74,999, by issuing Series D Preferred Stock to entities affiliated with a group of private equity investors. Of that amount, $39,321, was used by the Debtor to repurchase shares of its Common Stock, Series A Preferred Stock and Series B Preferred Stock from certain existing stockholders of the Debtor, and the remaining funds were intended to be used by the Debtor for working capital and general corporate purposes. 9. Earlier this month, the Debtor discovered that financial statements provided to, inter alia, its investors and the Prepetition Lenders were fraudulent, and also uncovered other significant financial and accounting irregularities. Upon this discovery, the Debtor s board of -3-

4 Document Page 4 of 22 directors formed a special committee of outside directors who, along with independent legal counsel and forensic accountants, have been conducting an investigation into this matter. The two officers of the Debtor implicated in the fraud were removed from management and placed on unpaid leave (one subsequently resigned and the other s employment was terminated by the Debtor), and they have had no involvement or participation in the Debtor s business since that time. The special committee also notified the appropriate authorities, and the Debtor has been fully cooperating with them. 10. The Debtor has notified the Prepetition Lenders and certain of its customers that it believes that the inaccuracy of financial statements and other significant financial and accounting irregularities constituted a material adverse change under the Loan Agreements and certain customer agreements. In response to this notice, on November 17, 2009, the Prepetition Lenders, purporting to act pursuant to an Account Control Agreement, exercised control over one of the Debtor s bank accounts that was a Pledged Account and transferred to themselves from that account $5,472,812.61, the then-outstanding indebtedness to the Prepetition Lenders. The Debtor also has received termination notices from certain of its customers. 11. On November 19, 2009, the Debtor reduced the number of its employees from 123 full-time employees to 31 full-time employees, and has also taken other measures to preserve its remaining assets and business. 12. The Debtor s board of directors has determined that a bankruptcy filing is necessary to preserve the value of the Debtor s business and assets so that it can explore a restructuring, sale or other business alternatives. In the interim, the Debtor continues to operate its business and to service all of its customers accounts. -4-

5 Document Page 5 of 22 II. Facts in Support of First Day Motions. 13. The Debtor respectfully requests that the motions discussed below (the First Day Motions ) be granted as critical elements in successfully administering their estates. The factual background in support of the First Day Motions is as follows: A. Debtor s Motion For Order Granting The Debtor Additional Time To File Schedules And Statements (the Schedules and SOFA Motion ). 14. In the Schedules and SOFA Motion, the Debtor seeks an extension of time to file schedules and statements. The fraud precipitating the Debtor s chapter 11 filing was discovered less than two weeks prior to the Petition Date. During this short time, the Debtor s attention was focused on notifying the appropriate authorities and investors of the fraud and otherwise taking immediate actions to preserve the value of the Debtor s estate. Accordingly, the Debtor had very little time to prepare for this bankruptcy. The Debtor did not have an opportunity to gather the information necessary to prepare and file its Schedules and Statement. 15. Although the Schedules and Statements were not filed with the Debtor s petition, annexed to the Debtor s petition is a list of the Debtor s twenty largest creditors. The Debtor also filed a list of all known creditors with the Court. 16. As set forth in the Schedules and SOFA Motion, the Debtor believes that the fifteen-day automatic extension of time to file schedules provided by Bankruptcy Rule 1007(c) will be insufficient to complete their Schedules and Statement. The Debtor estimates that an extension of at least 45 additional days (for a total of 60 days from the Petition Date), likely would provide sufficient time to prepare and file the Schedules and Statements. -5-

6 Document Page 6 of 22 B. Debtor s Motion For The Entry Of An Order (I) Authorizing Payment Of Prepetition Employee Obligations And Related Withholding Taxes; (II) Authorizing The Payment Of Prepetition Employee Benefits And Continuation Of Employee Benefit Plans; And (III) Directing All Banks To Honor Prepetition Checks For Payment Of Prepetition Employee Obligations ( Employee Wage Motion ) 17. In the Employee Wage Motion, the Debtor seeks the entry of an order: (1) authorizing the Debtor to pay to (a) the Employees the Prepetition Employee Obligations and (b) the Taxing Authorities the Employment and Withholding Taxes; and (2) authorizing the continuation of Employee Benefits; and (3) directing all banks to honor prepetition checks or wire transfers with respect to payments authorized by an Order granting this Motion. 18. Prepetition Employee Obligations: As of the Petition Date, the Debtor s workforce consists of approximately 31 Employees, all of which are salaried employees. 1 The Employees are paid wages and salaries every two weeks. 19. As of the Petition Date, the Debtor estimates that the aggregate amount owed in the form of accrued but unpaid salary and wages is approximately $109, In addition, the Debtor estimates that, as of the Petition Date, the Debtor owes approximately $420, in severance and accrued vacation pay to the terminated employees. The Debtor is not seeking authority to pay these amounts at this time. 20. The Debtor also reimburses certain Employees for their out-of-pocket costs, including the payment of or reimbursement for business expenses incurred on behalf of Canopy (the Reimbursement Obligations ). The Debtor estimates that approximately $7,500 of Reimbursement Obligations were outstanding as of the Petition Date. By the Employee Wage Motion, the Debtor seeks authority to pay the Reimbursement Obligations. 1 As noted above, prior to November 19, 2009, the Debtor employed approximately 123 fulltime employees but made significant staff reductions in anticipation of this restructuring. -6-

7 Document Page 7 of In each of the various jurisdictions in which the Debtor operates, it is required by state law to provide workers compensation insurance. The Debtor provides workers compensation insurance through State Farm Insurance ( State Farm Workers Compensation Programs ). 22. It is critical that the Debtor be permitted to continue the State Farm Workers Compensation Programs because alternative arrangements for workers compensation coverage would most certainly be more costly and the failure to provide coverage may subject the Debtor and/or its officers to severe penalties. In addition, failure to pay workers compensation claims may result in Employee attempts to compel payment through litigation or similar means. Premiums for the Workers Compensation Programs are generally paid by the Debtor on either a quarterly or annual basis. 23. As of the Petition Date, $5, is outstanding in workers compensation premium payments due. The Debtor seeks authority to continue its Workers Compensation Programs and pay amount due under Workers Compensation Programs existing prior to the Petition Date (the Workers Compensation Obligations ). 24. Employee Benefits: The Debtor offers Employees many standard employee benefits under their employee benefit plans and programs. Specifically, the Debtor provides its Employees with (1) medical insurance through UniCare Health Insurance 2, (2) dental insurance through Lincoln Financial Group, (3) a 401(k) Plan through Paychek Payroll Solutions (the Debtor does not match contributions to the 401k Plan), and (4) for one Employee, the Debtor reimburses his premium payments for health insurance coverage he receives through the State of Illinois (collectively, the Employee Benefit Plans and Programs ). By the Employee Wage 2 As of the Petition Date, the Debtor was in the process of converting its health insurance coverage to Blue Cross Blue Shield of Illinois. -7-

8 Document Page 8 of 22 Motion, the Debtor requests authority to continue all of these Employee Benefit Plans and Programs during the Debtor s bankruptcy case and pay certain prepetition obligations with respect to such programs. 25. Employment and Withholding Taxes: The Debtor routinely withholds from Employee paychecks amounts that the Debtor is required to remit to third parties. Examples of such withholding include Social Security taxes, federal, state and local income taxes, wage garnishments and other court-ordered deductions. These taxes and other deduction obligations are usually calculated based on statutorily-mandated percentages of earned wages. Historically, the Debtor has timely paid all federal, state and local income taxes, wage garnishments and other court-ordered deductions. Accordingly, in the event the Court authorizes the Debtor to pay the Employee Obligations, the Debtor seeks authority to continue to timely pay the Employment and Withholding Taxes with respect thereto. 26. Bank Accounts: Finally, the Debtor requests the entry of an order authorizing all banks to receive, process, honor and pay any and all checks or electronic transfers drawn on the Debtor s payroll and general accounts related to the Prepetition Employee Obligations and Employee Benefits, whether presented before or after the Petition Date, upon receipt by each bank and institution of notice of such authorization, provided that sufficient funds are on deposit in the applicable accounts to cover such payments. The Debtor further requests entry of an order prohibiting the Debtor s banks from placing any holds on, or attempting to reverse, any automatic transfers to any account of an Employee or other party on account of any Prepetition Employee Obligations. The Debtor also seeks an order authorizing it to issue new postpetition checks or effect new postpetition fund transfers on account of the Prepetition -8-

9 Document Page 9 of 22 Employee Obligations to replace any prepetition checks or fund transfer requests that may be dishonored or rejected. 27. In sum, pursuant to the Employee Wage Motion, the Debtor seeks to pay to, or for the benefit of, its Employees the Prepetition Employee Obligations and Employee Benefits and to continue the Employee Benefit Plans and Programs in effect immediately prior to the filing of this case. If the Debtor fails to pay or honor the Employees prepetition compensation, reimbursement procedures and Employee benefits, the Employees will suffer extreme personal hardship and in many cases will be unable to pay their basic living expenses. Moreover, it is important that Employee morale remain high during this critical stage of the Debtor s bankruptcy case, during which the Debtor is exploring various options to preserve the value of its estate for the benefit of its creditors, including a restructuring, sale or other business alternatives. C. Debtor s Motion For Entry Of Order Authorizing The Debtor To Pay Prepetition Sales, Use, And Other Tax Obligations ( Taxes Motion ). 28. In the Taxes Motion, the Debtor seeks entry of an Order authorizing the Debtor to pay, in its sole discretion, any obligations arising from undisputed prepetition Taxes to the respective Taxing Authorities in the ordinary course of the Debtor s business, without prejudice to the Debtor s rights to contest the amounts of any Taxes on any grounds they deem appropriate. 29. The Debtor, in the ordinary course of business, is required to collect certain Taxes in connection with the operation of their business and must remit these Taxes and to the Taxing Authorities of the jurisdictions in which the Debtor conducts its business. Prior to the Petition Date, the Debtor incurred obligations to federal, state, and local governments and other governmental agencies. As of the Petition Date, certain Taxes were outstanding and/or had -9-

10 Document Page 10 of 22 accrued but were not yet due. The Debtor estimates that no more than $20,000 in Taxes are outstanding. 30. The process by which the Debtor remits such Taxes varies depending on the Taxing Authority to which the relevant tax is paid. Sales and Use Taxes accrue daily in the ordinary course of the Debtor s business, and are calculated based upon statutorily mandated percentages of the Debtor s sales. In some cases, Sales and Use Taxes are paid in arrears, once they are collected by the Debtor. In other cases, the Debtor is required to remit estimated Sales and Use Taxes on a periodic basis. The Debtor then generally files a sales and use tax return with the relevant taxing authority reporting the actual sales and use tax due, and paying any further amounts owed for the period. 31. Payment of the Taxes when they become due will relieve the Debtor and its estate from significant administrative burdens. If the Debtor fails to timely pay the Taxes, or withholds payment of the Taxes as a precaution, the Taxing Authorities could attempt to take precipitous actions, such as seeking to impose liens on the Debtor s assets. The Debtor may also experience a marked increase in audits from the Taxing Authorities. Such actions would unnecessarily divert the Debtor s attention from the bankruptcy process and waste valuable estate resources. An improper lien or the failure to pay certain taxes might also affect the Debtor s good standing in certain states, which may hinder the Debtor s ability to engage in certain transactions. 32. Moreover, the federal government and the states in which the Debtor engages in business have laws providing that the Debtor s officers or directors or other responsible employees could, under certain circumstances, be held personally liable for the payment of trust fund taxes. To the extent any accrued Taxes of the Debtor were unpaid as of the -10-

11 Document Page 11 of 22 Petition Date in those jurisdictions, the Debtor s officers and directors could be subject to lawsuits during the pendency of this bankruptcy case. Although such actions would ultimately have no merit, they would nevertheless be extremely distracting for the Debtor s remaining directors and officers, whose full-time focus must on maintaining the value of the Debtor s business and operating efficiently and effectively as the Debtor evaluates a restructuring, sale or other business alternative. Consistent with the policy of the Bankruptcy Code, the Debtor submits that it is in its best interests, as well as the best interests of its creditors, to eliminate the possibility of such time consuming and potentially damaging distractions. Prompt and regular payment of the Taxes would avoid any such unwarranted governmental action and the associated administrative burden on the Debtor s estate. D. Debtor s Motion for an Order Authorizing The Debtor To Continue To Use Its Bank Accounts And Business Forms And Granting Related Relief ( the Bank Account And Business Form Motion ). 33. In the Bank Account and Business Form Motion, the Debtor seeks entry of an order (a) authorizing continued use of and maintenance of its existing bank accounts; (b) authorizing continued use of its existing business forms; (c) to the extent necessary, waiving investment and deposit requirements; and (d) granting related relief. 34. Prior to its Petition Date, in the ordinary course of its business the Debtor maintained 17 bank accounts (the Bank Accounts ). 3 A schedule of the Bank Accounts, including the names of the institutions, the purposes of the Bank Accounts, and the last four digits of the Bank Account numbers, is attached as Exhibit 1 to the proposed order attached to the Bank Account and Business Form Motion as Exhibit A. 3 The Debtor also maintains or has access to a number of custodial accounts in which customer funds are held. The Debtor does not believe that those funds are property of the Debtor s estate, and are not the subject of this Motion. The Debtor intends to maintain the custodial accounts in accordance with the Debtor s obligations to its customers. -11-

12 Document Page 12 of The continuation of the Debtor s existing Bank Accounts is critical at this stage in the Debtor s bankruptcy case, where the Debtor is seeking to preserve the value of its business and assets while it explores a restructuring, sale or other business alternatives. Opening new bank accounts would be expensive, would create unnecessary administrative burdens, and would be disruptive to the Debtor s focus on its bankruptcy case. Therefore, the Debtor requests that banks that maintain the Bank Accounts be authorized, until the earlier of a sale of substantially all of the Debtor s assets, the dismissal of the Debtor s case or the conversion thereof to a case under chapter 7 of the Bankruptcy Code, to continue to administer the Bank Accounts the Debtor maintained prepetition, without interruption and in the ordinary course, and to pay any and all checks, drafts, wires or ACH transfers issued on the Bank Accounts on account of any claims arising after the Petition Date so long as sufficient available funds are in the Bank Accounts In the Bank Account and Business Form Motion, the Debtor also requests that it be authorized to continue to use checks existing immediately before the Petition Date as well as correspondence and business forms without reference to the Debtor s status as a debtor-inpossession. Although the Debtor is exploring a restructuring, sale or other business alternatives, there will still be occasions where it is necessary for the Debtor to use checks, letterhead, and other business forms. Parties communicating and engaging in business with the Debtor will undoubtedly be aware of its status as debtor-in-possession as a result of the notice of these cases provided to virtually all of the Debtor s creditors. Moreover, the Debtor s 4 The Debtor is also requesting to pay certain prepetition employee related obligations ( Prepetition Employee Obligations ) in connection with this chapter 11 case. Accordingly, the Debtor requests that the banks that maintain the Bank Accounts be authorized to pay any and all checks, drafts, wires or ACH transfers issued on the Bank Accounts on account of any Prepetition Employee Obligations. -12-

13 Document Page 13 of 22 business forms are not subject to misuse or abuse, given that the individuals believed to have been involved in fraud have been removed from the Debtor s management. Further, a requirement that the Debtor change its business forms would be expensive, burdensome, and inefficient, particularly given the Debtor s intention to restructure, sell or pursue other business alternatives. 37. Finally, the Debtor requests a waiver, to the extent necessary, from strict compliance with section 345 of the Bankruptcy Code. The Debtor believes the Bank Accounts substantially conform to the approved investment practices identified in Bankruptcy Code section 345. Nonetheless, out of an abundance of caution, to the extent the Debtor s use of the Bank Accounts does not conform with the approved investment practices identified in Section 345 of the Bankruptcy Code, the Debtor seeks a waiver of such requirements. -13-

14 Document Page 14 of 22 E. Debtor s Motion for Order Under 11 U.S.C. 105(a) and 366 (I) Prohibiting Utility Companies from Altering or Discontinuing Service on Account of Prepetition Invoices, (II) Approving Deposit as Adequate Assurance of Payment, and (III) Establishing Procedures for Resolving Requests by Utility Companies for Additional Assurance of Payment (the Utilities Motion ). 38. In connection with the operation of its business and management of its properties, the Debtor obtains services ( Utility Services ) from various providers of Utility Services (each a Utility Company and, collectively, the Utility Companies ). The Utility Companies are identified on Exhibit 1 to Exhibit A to the Utilities Motion. On average, prior to the Petition Date, the Debtor spent approximately $10,025 each month on utility costs. Although the Debtor generally timely pays its utility bills, due to the timing of the filings in relationship to the Utility Companies billing cycles, some utility costs may have been invoiced to the Debtor for which payment is not yet due, and there may also be some outstanding invoices that have not been paid. In addition, the Debtor has incurred utility costs for services provided since the end of the last billing cycle that have not been invoiced to the Debtor. 39. The Debtor intends to pay all postpetition obligations owed to the Utility Companies in a timely manner. Nevertheless, to provide additional assurance of payment for future services to the Utility Companies, the Debtor will deposit $12,225, approximately equal to the Debtor s estimated cost of its monthly Utility Services, into a newly created, segregated, interest-bearing account, within twenty (20) business days after the Petition Date (the Adequate Assurance Deposit ). The Adequate Assurance Deposit shall be maintained with a minimum balance equal to the Debtor s estimated monthly cost of Utility Services, which may be adjusted by the Debtor to account for the termination of Utility Services by the Debtor or other arrangements with respect to adequate assurance of payment reached with a Utility Company. -14-

15 Document Page 15 of The continued services provided by the Utility Companies are necessary to preserve the value of the Debtor s business, particularly, where as here, the Debtor is exploring a restructuring, sale or other business alternatives. By the Utilities Motion, the Debtor preserves the protections that the Utility Companies have under the Bankruptcy Code, while affording the Debtor an opportunity to provide and negotiate adequate protection without facing the threat of imminent termination of Utility Services. In particular, the Debtor requests approval of certain procedures that balance the protections afforded the Utility Companies under Bankruptcy Code section 366 and the Debtor s need for continuous and uninterrupted Utility Services. F. Debtor s Motion For Entry Of Interim And Final Orders (A) Authorizing The Use Of Cash Under 11 U.S.C. 363, (B) Granting Adequate Protection Under 11 U.S.C. 361 and 363, and (C) Scheduling A Final Hearing Pursuant To Bankruptcy Rule 4001(B) (the Cash Collateral Motion ). 41. As of the Petition Date, the Debtor held approximately $2.1 million in cash (the Cash ) in one or more accounts that may be subject to the Prepetition Lenders security interests. In the Cash Collateral Motion, the Debtor seeks entry of an order (a) authorizing the Debtor to use the Cash; (b) granting adequate protection to the Prepetition Lenders pursuant to sections 361(a) and 363(c) of the Bankruptcy Code; (c) scheduling a final hearing on the Motion to consider entry of the Final Order authorizing and granting the relief requested in the Motion; and (d) granting related relief and such other and further relief as this Court deems just and proper. 42. The Debtor believes that, as a result of the Prepetition Lenders prepetition sweep of cash in an amount equal to the Debtor s indebtedness, the Prepetition Lenders have been substantially adequately protected, and indeed are far oversecured. Nonetheless, to adequately protect the Lender s interest (if any) in the remaining Cash, the Debtor proposes the following forms of adequate protection in the Cash Collateral Motion: (a) upon approval at a -15-

16 Document Page 16 of 22 Final Hearing, the Debtor will provide the Prepetition Lenders, subject to the Carve-Out, 5 replacement security interests in all of its assets, with the exception of the proceeds from any avoidance actions under sections 544, 547, 548, and 550 of the Bankruptcy Code (the Replacement Security ); and (b) the Debtor will pay the Prepetition Lenders any interest due and owing (after application to the loan balance of the cash over which the Prepetition Lenders exerted control pre-petition) at the non-default contract rate as provided under the Loan Agreement ( a and b collectively, the Adequate Assurance Obligations ). 43. The Court should grant the Debtor s request for immediate authority to use the Cash to prevent immediate and irreparable harm to the Debtor s estate pending a final hearing on the Motion pursuant to Bankruptcy Rule 4001(c). Without use of the Cash, the Debtor will not be able to pay the expenses necessary to operate its business as the Debtor explores a restructuring, sale or other business alternative. 5 For purposes hereof, the Carve-Out shall mean (i) all fees required to be paid to the Clerk of the Bankruptcy Court and to the Office of the United States Trustee under section 1930(a) of title 28 of the United States Code plus interest at the statutory rate; and (ii) to the extent allowed at any time, whether by interim order, procedural order or otherwise, all unpaid fees and expenses (the Professional Fees ) incurred or accrued by professionals or professional firms retained by the Debtor pursuant to section 327, 363 or 1103 of the Bankruptcy Code (the Professional Persons ) up to $250,000; provided, however, that the Carve-Out shall not include, apply to or be available for any fees and expenses incurred by any party, including the Debtor or any Committee, or its professionals, including the Professional Persons, in connection with the initiation or prosecution of any claims, causes of action, adversary proceedings or other litigation against the Lender. For the avoidance of doubt and notwithstanding anything to the contrary herein or in any related loan document, the Carve-Out shall be senior to all liens securing the Adequate Protection Obligations, priority claims, and any and all other forms of adequate protection, liens or claims securing the Adequate Protection Obligations. -16-

17 Document Page 17 of 22 G. Application Of Debtor And Debtor-In-Possession For Order Authorizing Employment And Retention Of Jenner & Block LLP As Attorneys For Debtor Pursuant To Section 327(a) Of The Bankruptcy Code And Rule 2014 Of The Federal Rules Of Bankruptcy Procedure (the Jenner Application ). 44. By the Jenner Application, the Debtor seeks to retain Jenner & Block LLP under a general retainer, as their attorneys to perform the extensive legal services that will be necessary during the chapter 11 case. 45. The Debtor requests the employment and retention of Jenner & Block because Jenner & Block has extensive experience and knowledge in the field of debtors and creditors rights and business reorganizations under chapter 11 of the Bankruptcy Code. Jenner & Block has the resources necessary to handle chapter 11 cases of this size and scope. Additionally, the Debtors selected Jenner & Block in recognition of its broad-based practice, including its expertise in the areas of commercial finance, real estate, securities, labor and tax law. Accordingly, Jenner & Block possesses the requisite expertise on matters which are likely to arise in these chapter 11 cases. 46. After due consideration and deliberation, the Debtor has concluded that its interests and the interests of its bankruptcy estate and creditors would be served best by the retention of Jenner & Block, under a general retainer, as counsel to the Debtor, to render such legal services as are necessary and appropriate in connection with the matters set forth above and to render such additional legal services as may be required from time to time during the pendency of the chapter 11 case. -17-

18 Document Page 18 of 22 CONCLUSION 47. Accordingly, for the reasons stated herein and in each of the motion and applications set forth above, the Debtor requests that the Court approve the corresponding orders submitted with each such motion or application. I declare under penalty of perjury that the foregoing information is true and correct to the best of my knowledge, information and belief. Dated: November 27, 2009 Chicago, Illinois /s/ Dan Stevenson Dan Stevenson General Counsel, Canopy Financial, Inc. -18-

19 Document Page 19 of 22 CERTIFICATE OF SERVICE I, Vincent E. Lazar, certify that I caused a copy of the foregoing Declaration of Dan Stevenson in Support of Chapter 11 Petition and First Day Motions to be served upon the attached Service List via facsimile or as otherwise indicated on November 27, /s/ Vincent E. Lazar

20 Document Page 20 of 22 SERVICE LIST United States Trustee 219 S. Dearborn St., Room 819 Chicago, IL Telephone: Facsimile: Manish S. Shah Assistant United States Attorney U.S. Department of Justice 219 S. Dearborn St., 5th Floor Chicago, IL Phone: Facsimile: Amy Stahl Cottter Securities and Exchange Comm n 175 W. Jackson, Ste. 900 Chicago, IL Telephone: Facsimile: Venture Lending & Leasing VI, Inc. Venture Lending & Leasing V, Inc N. 1st. St., Ste. 310 San Jose, CA Telephone: Facsimile: VIA US MAIL Internal Revenue Service Centralized Insolvency Operations P.O. Box Philadelphia, PA Internal Revenue Service 230 S. Dearborn St. Room 2400, Stop 6604-CHI Chicago, IL 60604

21 Document Page 21 of 22 CANOPY FINANCIAL, INC. SERVICE LIST FOR 20 LARGEST CREDITORS A-1 Technology 115 Broadway, Ste New York, NY Telephone: Facsimile: CDW Direct LLC 200 N. Milwaukee Ave. Vernon Hills, IL Telephone: Facsimile: CMC 20 NW 1st St. Evansville, IN Telephone: Facsimile: Deccan I Servs. Pvt. Ltd. ienergizer Plot No. 12C/1, South Phase Thiru-Vi-Ka Industrial Estate Grundy, Chennai INDIA Telephone: Facsimile: U.S. Contact 1120 Avenue of the Americas New York, NY Telephone: Facsimile: Dell Financial Services, LLC N. IH 35, Building B Austin, TX Telephone: Facsimile: Enterprise Wizard 654 Bair Island Rd., Ste. 300 Redwood City, CA Telephone: Facsimile: Equinix 301 Velocity Way, 5th Floor Foster City, CA Telephone: Facsimile: Impact Networking 953 Northpoint Blvd. Waukegan, IL Telephone: Facsimile: Integrated Data Storage 70 W. Madison St., Ste Chicago, IL Telephone: Facsimile: Ipswitch, Inc. 10 Maguire Rd., Ste. 220 Lexington, MA Telephone: Facsimile: KPMG Suite N. Harwood St. Dallas, TX Telephone: Facsimile: Morningstar, Inc. 22 W. Washington St. Chicago, IL Telephone: Facsimile:

22 Document Page 22 of 22 Olenick & Associates, Inc. 205 W. Wacker Dr., Ste Chicago, IL Telephone: Facsimile: Qwest Communications Business Services P.O. Box Louisville, KY Telephone: Facsimile: Splice Communications 1900 S. Norfolk St., Ste. 350 San Mateo, CA Telephone: Facsimile: Statim LLC 820 W. Greenwood Ave., #100 Waukegan, IL Telephone: Facsimile: Thoughtworks 200 E. Randolph St., 25th Floor Chicago, IL Telephone: Facsimile: Top Layer Security 2400 Computer Dr. Westborough, MA Telephone: Facsimile: Unicare 440 E. Middlefield Rd. Mountain View, CA Telephone: p Facsimile: