UNITED STATES BANKRUPTCY COURT DISTRICT OF NORTH DAKOTA

Document Page 1 of 40 UNITED STATES BANKRUPTCY COURT DISTRICT OF NORTH DAKOTA In Re: Vanity Shop of Grand Forks, Inc., Case No.: 17-30112 Chapter 11 Debtor. DEBTOR S MOTION FOR INTERIM AND FINAL ORDERS (I) AUTHORIZING THE DEBTOR TO USE CASH COLLATERAL PURSUANT TO 11 U.S.C. 363, (II) GRANTING ADEQUATE PROTECTION TO WELLS FARGO PURSUANT TO 11 U.S.C. 105, 361, 362, 363, 503, 507, AND 552, (III) MODIFYING THE AUTOMATIC STAY, AND (IV) GRANTING RELATED RELIEF Vanity Shop of Grand Forks, Inc., as debtor in possession ( Debtor ) in the abovecaptioned Chapter 11 case submits this Motion (this Motion ), pursuant to sections 105, 361, 362, 363, 503, 507, and 552 of title 11 of the United States Code (the Bankruptcy Code ), Rules 2002, 4001, 6003, 6004 and 9014 of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules ), for entry of an interim order (the Interim Order ) and a final order (the Final Order ): (i) authorizing the Debtor to use cash collateral (as defined in section 363(a) of the Bankruptcy Code) ( Cash Collateral ), (ii) granting adequate protection to Wells Fargo, (iii) modifying the automatic stay imposed by section 362 of the Bankruptcy Code to the extent necessary to implement and effectuate the terms of the Orders, and (iv) granting related relief, including scheduling a hearing to consider approval of this Motion on a final basis (the Final Hearing ). The facts and circumstances supporting this Motion are set forth in the Declaration of Jill Motschenbacher in Support of Chapter 11 Petition and Request for First Motions (the First Day Declaration ), which was 2817735.1

Document Page 2 of 40 filed contemporaneously herewith and is incorporated herein by reference. In further support of this Motion, the Debtor respectfully states as follows: JURISDICTION AND VENUE 1. The Court has jurisdiction over this matter pursuant to 28 U.S.C. 157 and 1334, and Rule 5005 of the Bankruptcy Rules. This is a core proceeding pursuant to 28 U.S.C. 157(b)(2). Venue of the Debtor s Chapter 11 Case is proper pursuant to 28 U.S.C. 1408 and 1409. The petition commencing this Chapter 11 case was filed on March 1, 2017 (the Petition Date ). The case is currently pending in this Court. 2. The statutory and other bases for the relief requested in this Motion are sections 105, 361, 362, 363, 503, 507, and 552 of the Bankruptcy Code and Bankruptcy Rules 2002, 4001, 6003, 6004 and 9014. BACKGROUND INFORMATION 3. On the Petition Date, the Debtor commenced a voluntary case under Chapter 11 of the Bankruptcy Code. The Debtor is authorized to continue to operate its business and manage its property as debtor in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. To date, no trustee, examiner or statutory committee has been appointed in this Chapter 11 case. Additional factual background relating to the Debtor s business, capital structure, and the commencement of this Chapter 11 case is set forth in detail in the First Day Declaration. 4. Prior to the Petition Date, the Debtor commenced going-out-of-business sales (collectively, the Store Closing Sales ) at all of its retail locations, as further detailed in the First Day Declaration. Simultaneously herewith, the Debtor has requested authority to 2817735.1 2

Document Page 3 of 40 continue the Store Closing Sales and implement other wind-down initiatives in relation thereto. RULE 4001 STATEMENT 5. Rule 4001 of the Bankruptcy Rules mandates that a motion for authority to use cash collateral include a concise statement of the relief requested summarizing: (i) the name of each entity with an interest in the cash collateral; (ii) the purpose for the use of the cash collateral; (iii) the material terms, including duration, of the use of the cash collateral; and (iv) any liens, cash payments, or other adequate protection that will be provided to each entity with an interest in the cash collateral or, if no additional adequate protection is proposed, an explanation of why each entity s interest is deemed adequately protected. DEBTOR S PREPETITION SECURED DEBT A. Wells Fargo Secured Debt. 6. On February 10, 2012, Debtor as Lead Borrower and Wells Fargo Bank, N.A. as Lender entered into an Amended and Restated Credit Agreement, as amended from time to time (the Wells Fargo Agreement ). The Wells Fargo Agreement consists of a Committed Loan and Letters of Credit, not to exceed $12,500,000.00, as such amount may be adjusted from time to time. 7. As of the Petition Date, the Debtor has secured obligations owing to Wells Fargo Bank, N.A. in the aggregate principal amount of approximately $4,307,000 plus accrued and unpaid interest with respect thereto, fees, costs, and other expenses (the Wells Fargo Secured Debt ). There are no outstanding letters of credit. The Debtor has granted security interests in, and liens on, all or substantially all of its assets to secure its obligations 2817735.1 3

Document Page 4 of 40 under the Wells Fargo Agreement (the Prepetition Collateral ). Wells Fargo perfected its security interest in the Prepetition Collateral by virtue of a UCC-1 financing statement filed with the North Dakota Secretary of State s Office January 24, 2012 as Document No. 96-000570856. B. TGC, L.P. Subordinated Debt 8. TGC, L.P., a Montana limited partnership, has loaned approximately $5,000,000.00 to Debtor since 2013 to inject additional cash and allow the Debtor to continue operating. The principals of TGC, L.P. are Teresa Bottrell, James Bennett and Marnie Kimbrough. These individuals are also part owners of Shazzam Inc., which owns stock in the Debtor. 9. In lending additional funds to Debtor, TGC, L.P. agreed to subordinate its debt and security interest in Debtor s assets to Wells Fargo pursuant to a Subordinated Credit and Intercreditor Agreement of date August 27, 2013, as amended (the TGC, L.P. Subordinated Agreement ). 10. TGC, L.P. recently perfected its security interest in Debtor s assets by virtue of a UCC-1 financing statement filed with the North Dakota Secretary of State s Office on February 1, 2017 as Document No. 17-000162439-7. 11. For purposes of this Motion, TGC, L.P. has consented to the Debtor s use of cash collateral in accord with the terms of the Debtor s agreement with Wells Fargo referenced in this Motion. 2817735.1 4

Document Page 5 of 40 THE DEBTOR S IMMEDIATE NEED TO USE CASH COLLATERAL 12. The Debtor does not have available sources of working capital and financing sufficient to carry on the operation of its business and conduct the Store Closing Sales without the use of Cash Collateral. The Debtor must be able to use Cash Collateral to fund payroll and other employee-related expenses, pay vendors, and make such other payments as are essential for the continued management and operation of the Debtor s business during the pending Store Closing Sales and subsequent wind down. Absent the authority to use Cash Collateral, even for a limited period of time, the continued operation of the Debtor s business and the Store Closing Sales would suffer, if not cease, causing immediate and irreparable harm to the Debtor and its estate and creditors. Accordingly, the Debtor s immediate access to Cash Collateral is critical to the Debtor s liquidation efforts and ability to maximize the value of the estate. 13. Recognizing the importance of its ability to use Cash Collateral, the Debtor approached Wells Fargo prior to the commencement of this Chapter 11 case to discuss the terms upon which it would consent to the Debtor s use of Cash Collateral. After extensive good-faith, arm s-length negotiations, the parties entered into a Stipulation Concerning Interim Use of Cash Collateral and Adequate Protection (the Stipulation ) a true and accurate copy of which is annexed hereto as Exhibit 1. The Stipulation will provide funding that will allow the Debtor to efficiently and effectively liquidate and wind down its operations during the Chapter 11 case. As a condition of such consensual usage, the Stipulation provides for adequate protection in the form of, among other things, additional and replacement liens, superpriority claims, and certain payments to Wells Fargo. 2817735.1 5

Document Page 6 of 40 RELIEF REQUESTED 14. By this Motion, the Debtor requests entry of the Interim Order, substantially in the form attached hereto as Exhibit 2: a. authorizing the Debtor to use Cash Collateral, subject to the terms and conditions set forth therein; b. authorizing the Debtor to provide adequate protection to Wells Fargo to the extent of any postpetition diminution in value of the Prepetition Collateral (including the Cash Collateral); c. approving certain stipulations by the Debtor with respect to the Wells Fargo Agreement and the obligations, liens and security interests arising therefrom, subject to certain limited challenge rights; d. waiving the Debtor s right to surcharge the Prepetition Collateral pursuant to Section 506(c) of the Bankruptcy Code; e. modifying the automatic stay imposed by section 362 of the Bankruptcy Code to the extent necessary to implement and effectuate the terms of the Orders; f. waiving any applicable stay (including under Bankruptcy Rule 6004) and providing for immediate effectiveness of the Interim Order, and, as applicable, the Final Order; and g. granting related relief, including scheduling the Final Hearing to be held as soon as practicable and no later than 30 days after the Petition Date for the Court to consider entry of the Final Order. SUMMARY OF MATERIAL TERMS 15. Pursuant to Bankruptcy Rule 4001, a summary of the material terms and conditions of the Stipulation and the requested Interim Order are summarized below. MATERIAL TERM Parties with Interest in Cash Collateral Bankruptcy Rule 4001(b)(1)(B)(i) SUMMARY Wells Fargo, N.A. TGC, L.P. (has consented to the Debtor s use of cash collateral). 2817735.1 6

Document Page 7 of 40 Purpose for Use of Cash Collateral Bankruptcy Rule 4001(b)(1)(B)(ii) Authorized Amount and Budget Bankruptcy Rule 4001(b)(1)(B)(iii) Events of Default Bankruptcy Rule 4001(b)(1)(B)(iii) Proposed Adequate Protection Bankruptcy Rule 4001(b)(1)(B)(iv) An immediate and critical need exists for Debtor to use Cash Collateral, in accordance with the Interim Order and Stipulation for: (i) working capital purposes, (ii) other general corporate purposes of the Debtor; and (iii) satisfaction of the costs and expenses of administering this Chapter 11 case. The Debtor shall be authorized to use Cash Collateral up to the amounts set forth in the budget (the Budget ), subject to the permitted variances. The Budget is attached as Exhibit A to the Stipulation and Interim Order. The occurrence of certain events, unless waived by Wells Fargo, will constitute an event of default. Those events include the Debtor s breach of the terms of the Stipulation and the Debtor s failure to timely obtain Court approval of Debtor s retention of a sales consultant. The adequate protection provided to Wells Fargo includes additional and replacement and automatically perfected security interests in all of the Debtor s assets. 16. The Debtor submits that the terms of the Stipulation and the proposed Interim Order are justified under the circumstances of this Chapter 11 case because Wells Fargo would not have consented to use of Cash Collateral without the inclusion of said terms. BASIS FOR RELIEF REQUESTED I. The Court Should Authorize the Debtor to Use Cash Collateral and Provide Adequate Protection. A. The Proposed Use of Cash Collateral is Appropriate. 17. A debtor s use of property of the estate, including cash collateral, is governed by section 363 of the Bankruptcy Code. Pursuant to section 363(c)(2) of the Bankruptcy Code, a debtor may use cash collateral if (A) each entity that has an interest in such cash collateral consents; or (B) the court, after notice and a hearing, authorizes such use, sale, or lease in accordance with the provisions of [section 363]. 11 U.S.C. 363(c)(2). 2817735.1 7

Document Page 8 of 40 18. As discussed above, absent the use Cash Collateral, the Debtor would not have sufficient working capital to (i) make payments to employees, vendors, or suppliers, (ii) satisfy ordinary operating costs, or (iii) fund the administrative costs of this Chapter 11 case. Moreover, if the Debtor is unable to use Cash Collateral, it is unlikely the Store Closing Sales could continue, thereby preventing the Debtor from liquidating and winding down its operations in a value-maximizing manner. 19. The Debtor formulated the Budget, which sets forth all projected cash receipts and cash disbursements on a weekly basis. Wells Fargo has approved the Budget in form and substance. The Budget includes all reasonable, necessary, and foreseeable expenses to be incurred in connection with the operation of the Debtor for the applicable period, and is designed to provide the Debtor with adequate liquidity over such period. 20. Considering the fundamental need to operate and the Debtor s current and projected cash position, the Debtor submits that its request to use Cash Collateral in accordance with the Budget and pursuant to the terms set forth in the Stipulation is necessary to avoid immediate and irreparable harm and relief should be granted immediately pursuant to the proposed Interim Order, and that the Final Order should be entered after the Final Hearing. B. The Proposed Adequate Protection is Appropriate. 21. Section 363(e) of the Bankruptcy Code further provides that on request of an entity that has an interest in property... to be used, sold or leased, by the trustee, the court... shall prohibit or condition such use, sale or lease as is necessary to provide adequate protection of such interest. 11 U.S.C. 363(e). Although the Bankruptcy Code does not 2817735.1 8

Document Page 9 of 40 expressly define adequate protection, section 361 of the Bankruptcy Code provides a nonexhaustive list of examples of adequate protection including: (i) a lump sum or periodic cash payments; (ii) replacement liens; and (iii) administrative priority claims. See 11 U.S.C. 361. 22. As the Eighth Circuit has stated: In any given case, the bankruptcy court must necessarily (1) establish the value of the secured creditor s interest, (2) identify the risk to the secured creditor s value resulting from the debtor s request for the use of cash collateral, and (3) determine whether the debtor s adequate protection proposal protects values as nearly as possible against the risk to that value consistent with the concept of indubitable equivalence. In re Martin, 761 F.2d 472, 476-77 (8th Cir. 1985). 23. The adequate protection proposed consists primarily of typical protections, including the Adequate Protection Liens, the Adequate Protection Superpriority Claim, and Wells Fargo Adequate Protection Payments. These protections were heavily-negotiated requirements of Wells Fargo and it has consented to the adequate protection as set forth in the Stipulation and proposed Interim Order. Without these additional protections, the Debtor would not have been able to achieve consensus on the relief requested herein, and would face potential litigation regarding cash collateral usage imperiling its business and liquidation efforts. 24. The terms and conditions on which the Debtor may use Cash Collateral have been carefully designed to meet the dual goals of sections 361 and 363 of the Bankruptcy Code and the adequate protection package set forth in the Stipulation is reasonable and appropriate given the circumstances of this Chapter 11 case. The provisions of the proposed 2817735.1 9

Document Page 10 of 40 Interim Order are intended to protect Wells Fargo only from any diminution in value of its interests in the Prepetition Collateral during the pendency of this Chapter 11 case, and Wells Fargo has consented to the proposed use of Cash Collateral conditioned upon the proposed protections. The Debtor further submits that the terms of the proposed Stipulation and the Interim Order were negotiated at arm s length and in good faith by the Debtor and Wells Fargo, and are fair and reasonable and consistent with the Debtor s fiduciary duties. Moreover, the Debtor submits that the Wells Fargo Adequate Protection Payments are reasonable and in the best interest of the estate because, among other things, it will reduce the amount of prepetition debt owed to Wells Fargo and the payments will be made from the proceeds of the Wells Fargo s collateral 25. Accordingly, the Debtor submits that the adequate protection provided for in the Stipulation and proposed Interim Order is fair and reasonable under the circumstances, satisfies the requirements of sections 363(c)(2) and 363(e) of the Bankruptcy Code, and should be approved. II. The Automatic Stay Should Be Modified on a Limited Basis. 26. Section 362(a) of the Bankruptcy Code operates to stay: the commencement or continuation, including the issuance or employment of process of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title.... 11 U.S.C. 362(a)(1). Section 362(d)(1) of the Bankruptcy Code, however, permits a debtor or other parties in interest to request modification or termination of the automatic stay for cause. 11 U.S.C. 362(d)(1). 2817735.1 10

Document Page 11 of 40 27. Here, certain provisions in the Stipulation and proposed Interim Order contemplate a modification of the automatic stay to: (i) permit the automatic attachment and perfection of the Adequate Protection Liens and the allowance of the Adequate Protection Superpriority Claim; (ii) permit the Debtor to perform such acts as Wells Fargo may request in its sole discretion to assure the perfection and priority of the liens granted; (iii) permit the Debtor to incur all liabilities and obligations to Wells Fargo; and (iv) authorize the Debtor to pay, and Wells Fargo to retain and, in accordance with the Wells Fargo Agreement, apply, payments made pursuant to the terms of the Stipulation and proposed Interim Order. Stay modifications of this type are standard features for orders governing the use of cash collateral and, in the Debtor s business judgment, are reasonable under the circumstances. Further, modification of the automatic stay is a necessary component of the overall adequate protection package the Debtor has agreed to provide Wells Fargo as a condition of the Wells Fargo s consent to the Debtor s use of Cash Collateral. Accordingly, the Debtor requests that the Court authorize the modification of the automatic stay as set forth in the Stipulation and proposed Interim Order. IMMEDIATE RELIEF IS WARRANTED UNDER BANKRUPTCY RULES 4001 AND 6003 28. Bankruptcy Rule 4001(b) provides that a final hearing on a motion for authorization to use cash collateral may not be commenced earlier than fourteen (14) days after the service of such motion. If the motion so requests, however, a bankruptcy court is empowered to conduct a preliminary expedited hearing on the motion and authorize the use of cash collateral to the extent necessary to avoid immediate and irreparable harm to the Debtor s estate. See Fed. R. Bankr. P. 4001(c)(2). Bankruptcy Rule 6003 similarly 2817735.1 11

Document Page 12 of 40 empowers a court to grant relief within the first twenty-one (21) days after the petition date to the extent that relief is necessary to avoid immediate or irreparable harm. Fed. R. Bankr. P. 6003. 29. For the reasons discussed above, entry of the proposed Interim Order authorizing the Debtor to immediately use Cash Collateral up to the amounts set forth in the Budget (subject to the Permitted Variances) and granting the other relief requested herein is necessary to avoid a severe disruption in the Debtor s operations at this critical juncture and maximize the value of the Debtor s estate for the benefit of all stakeholders. Accordingly, the Debtor submits that it has satisfied the immediate and irreparable harm standard of Bankruptcy Rules 4001 and 6003 and Local Rule 4001-2(b) to support granting the relief requested herein. WAIVER OF STAY AND RELATED REQUIREMENTS UNDER BANKRUPTCY RULES 4001(A)(3), 6004(A) AND 6004(H) 30. In addition, by this Motion, the Debtor seeks a waiver of any stay of the effectiveness of the order approving this Motion under Bankruptcy Rules 4001(a)(3) and 6004(h). Bankruptcy Rule 4001(a)(3) provides, [a]n order granting a motion for relief from an automatic stay made in accordance with Rule 4001(a)(1) is stayed until the expiration of 14 days after entry of the order, unless the court orders otherwise. Additionally, pursuant to Bankruptcy Rule 6004(h), [a]n order authorizing the use, sale, or lease of property other than cash collateral is stayed until the expiration of 14 days after entry of the order, unless the court orders otherwise. As described above, the immediate use of Cash Collateral up to the amounts set forth in the Budget and subject to the permitted variances is essential to support continuing business operations and prevent irreparable damage to the Debtor s 2817735.1 12

Document Page 13 of 40 estate. Accordingly, ample cause exists to justify the waiver of the fourteen-day stay imposed by Bankruptcy Rule 4001(a)(3) or Bankruptcy Rule 6004(h), to the extent either such stay applies. 31. Similarly, for the reasons stated above, the Debtor respectfully requests a waiver of the notice requirements under Bankruptcy Rule 6004(a) to the extent they are deemed applicable. NOTICE 32. Notice of this Motion will be given to (i) the U. S. Trustee; (ii) counsel to Wells Fargo; (iii) holders of the twenty (20) largest unsecured claims on a consolidated basis against the Debtor; (iv) counsel to any committee appointed in this case; and (v) all parties who have filed a notice of appearance and request for service of papers pursuant to Bankruptcy Rule 2002. As this Motion is seeking first day relief, within two business days of the hearing on this Motion, the Debtor will serve copies of this Motion and any order entered in respect to this Motion. In light of the nature of the relief requested herein, the Debtor submits that no other or further notice is necessary. CONCLUSION 33. WHEREFORE, the Debtor respectfully requests that the Court (i) enter the Interim Order, substantially in the form attached hereto as Exhibit 2, (ii) following the Final Hearing (if necessary), enter the Final Order, and (iii) grant such other and further relief as is just and proper. 2817735.1 13

Document Page 14 of 40 Dated this 1st day of March, 2017 VOGEL LAW FIRM 2817735.1 BY: /s/ Jon R. Brakke Jon R. Brakke (#03554) jbrakke@vogellaw.com Caren W. Stanley (#06100) cstanley@vogellaw.com 218 NP Avenue PO Box 1389 Fargo, ND 58107-1389 Telephone: 701.237.6983 PROPOSED ATTORNEYS FOR DEBTOR 2817735.1 14

Document Page 15 of 40 EXHIBIT 1 (Stipulation Concerning Interim Use of Cash Collateral and Adequate Protection)

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Document Page 28 of 40 EXHIBIT A

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Document Page 30 of 40 EXHIBIT 2 (Proposed Interim Order)

Document Page 31 of 40 UNITED STATES BANKRUPTCY COURT DISTRICT OF NORTH DAKOTA In Re: Vanity Shop of Grand Forks, Inc., Case No.: 17-30112 Chapter 11 Debtor. ORDER ON DEBTOR S MOTION FOR INTERIM USE OF CASH COLLATERAL AND ADEQUATE PROTECTION In the above-entitled Chapter 11 case, the Debtor filed a Motion for Interim and Final Orders (I) Authorizing the Debtor to Use Cash Collateral Pursuant to 11 U.S.C. 363, (II) Granting Adequate Protection to Wells Fargo Pursuant to 11 U.S.C. 105, 361, 362, 363, 503, 507, and 552, and (III) Modifying the Automatic Stay, and (IV) Granting Related Relief ( Motion ). A hearing was held on the Debtor s request for interim use of cash collateral and adequate protection on March _, 2017 at.m., in the United States Bankruptcy Court, Quentin N. Burdick Courthouse, 655 1 st Avenue North, Suite 210, Fargo, ND 58102. Based on all the files and pleadings herein and the evidence presented during the course of the hearing, this Court believes that good cause exists to grant relief to the Debtor on its motion for interim use of cash collateral and adequate protection. Therefore, it is the order of this Court as follows: 1. For the period from the date of this order to the date of any final order entered by this Court on the Motion, the Stipulation between the Debtor and Wells Fargo Bank National Association (the Lender ) concerning Interim Use of Cash Collateral and

Document Page 32 of 40 Adequate Protection (the Stipulation ), which is Exhibit 1 to the Motion, is approved in all respects and the terms of the same incorporated herein by reference. 2. In accord with the terms of the Stipulation, the Debtor has no offsets, defenses, claims or counterclaims against Lender or Lender s officers, directors, employees, attorneys, representatives, parent affiliates, predecessors, successors or assigns with respect to the prepetition indebtedness owed by Debtor to Lender or otherwise and/or any such offsets, defenses, claims or counterclaims are waived and released by Debtor. Subject to paragraph 3 below, any challenges by the Debtor to the validity, sufficiency, priority or amount of Lender s claim, the perfection of Lender s security interests in liens in its collateral and any transfers received by Lender pre-petition, are barred. 3. Notwithstanding the provisions of Paragraph 2, above, any subsequently appointed Creditors Committee or Trustee, may file an objection to the amount of the Lender s claim or file (or seek authority to file, as the case may be) a complaint on behalf of the estate under 506(c), 544, 547, 548, 549, 550 or 553 of the Bankruptcy Code challenging the validity, priority, or extent of the Lender s security interest in the collateral or otherwise seeking to avoid or recover any transfers received by the Lender. Any such objection or complaint (as is applicable) shall set forth the basis for the objection or complaint, and the reason why the claim should not be allowed in full. If no such objection or complaint (as is applicable) is filed: (a) by the Creditors Committee on or before sixty (60) days after Bankruptcy Court approval of the retention of counsel to the Creditors Committee, or if no such Committee has been formed then (b) by a Trustee on or before sixty (60) days after the appointment of a Trustee, any and all challenges by any party to the claim, the Lender s security interest or liens against the collateral or transfers received by the 2

Document Page 33 of 40 Lender including, but not limited to, those under 506(c), 544, 547, 548, 549, 550 and 553 of the Bankruptcy Code shall be forever barred. 4. Until the date this Court enters a final order on the Motion, the Debtor, subject to the terms of the Stipulation, may use the Lender s cash and non-cash collateral solely to pay its ordinary and necessary business expenses as well as costs and expenses to be incurred in connection with the Debtor s liquidation and going-out-of-business sales, in accord with the Budget annexed hereto as Exhibit A (the Budget ). 5. The Debtor shall not use any of the Lender s Cash Collateral to pay items: (i) (ii) (iii) not contained in the Budget, except as approved by this Court after written notice to the Lender and a hearing or after written request to the Lender and the Lender s written consent; in excess of one hundred ten percent (110%) of the amount set forth in the Budget, whether by line item, category, or in the aggregate from the Petition Date; and in advance of the week in which such expense is scheduled to be paid under the Budget. 6. The Debtor will not knowingly or intentionally incur any administrative expenses other than as set forth in the Budget, exclusive of professional fees approved by this Court pursuant to 11 U.S.C. 330, 331, or 503(b) and fees payable pursuant to 28 U.S.C. 1930, without the prior written consent of the Lender or approval by this Court after notice to the Lender and a hearing. 7. The Debtor s existing cash management system shall remain in place. Notwithstanding the foregoing, and the payment procedures for certain credit cards (as detailed below), on Tuesday of each week (or on a different day of such week mutually agreeable to the Lender, the Debtor, and for any week during which the Debtor has received 3

Document Page 34 of 40 proceeds of Additional Merchandise (as defined in the Consulting Agreement between the Debtor and Tiger Capital Group, LLC (the Sale Consultant )), the Debtor is authorized, until the occurrence of a Termination Event (as defined below), (i) to transfer from the Debtor s concentration account maintained at the Lender ending in 4458 (the Concentration Account ) to the Debtor s operating account at the Lender ending in 0258 an amount equal to the sum of (A) the amount for such week set forth in the Budget for such week or otherwise approved by the Lender in its reasonable discretion less any surplus funds in the Debtor s operating account ( Weekly Budget Payments ), plus (B) amounts due to the Sale Consultant pursuant to the most recent weekly reconciliation in accordance with the Consulting Agreement (the Consulting Agreement ) by and between the Debtor and the Sale Consultant dated as of February 28, 2017 ( Weekly Sale Consultant Payments ), plus (C) an amount necessary to maintain up to $2,500.00 after giving effect to any checks issued in accordance with the Budget for prior weeks which have yet to clear ( Weekly Transfers ) and (ii) to transfer all amounts remaining in the Concentration Account in excess of the aggregate of the Weekly Budget Payments, Weekly Sale Consultant Payments and Weekly Transfers (the Excess Proceeds ) to the Lender to be applied to the pre-petition indebtedness of Debtor to Lender; provided that, with respect to such transfer occurring during the week immediately preceding the Sale Termination Date (as defined in the Consulting Agreement), as such Sale Termination Date may be changed in accordance with the Consulting Agreement, the Debtor shall retain an amount equal to an estimate (as agreed by the Debtor, the Lender and the Sale Consultant) of the amount that will be due to the Sale Consultant under the immediately following weekly reconciliation. Upon occurrence of a Termination Event, all amounts constituting proceeds of the Lender s prepetition collateral 4

Document Page 35 of 40 and post-petition collateral (as defined below) in the Concentration Account shall be transferred to the Lender. The Lender may, at any time, send notice to the Debtor s other banks to authorize and direct such banks to direct all available funds to whichever account and at such times as the Lender may direct in writing to such banks. The Debtor s other banks are hereby authorized and directed to comply with any and all orders, notices, requests and other instructions originated by the Lender directing disposition of the funds in accordance with the Budget, the loan documents between the Debtor and Lender (the Loan Documents ) and the Stipulation. 8. Upon the repayment in full in cash of all obligations under the Loan Documents and the Lender s receipt of the Indemnification Reserve Funds (as defined below), the Lender s liens and security interests on the Collateral shall be automatically terminated, provided, however, that (i) any terms under the Loan Documents which expressly survive the repayment in full of the obligations shall continue to be in full force and effect, including without limitation, the Debtor s indemnification obligations under the Loan Documents, and (ii) the Lender s lien and security interest on the Indemnification Reserve Funds shall continue in full force and effect until the Lender releases such funds to the Debtor in accordance with the Stipulation. 9. In consideration of and as adequate protection for any diminution in the value of the Lender s cash and non-cash collateral: (a) The Lender is hereby granted a security interest to the extent of any diminution in the value of the Lender s cash and non-cash Collateral in all of the Debtor s post-petition assets, including, but not limited to, accounts, inventory, equipment, general intangibles, and goods, motor vehicles, real estate, leases, and leasehold interests as well as all products and proceeds thereof (collectively, the Post-Petition Collateral ). The lien granted to the Lender herein may not be primed by any other lien or encumbrance, whether 5

Document Page 36 of 40 by order of this Court or the passage of time. The lien and security interest granted herein shall be deemed valid and perfected notwithstanding the requirements of non-bankruptcy law with respect to perfection, and although not required of the Lender, the automatic stay imposed by 362 of the Bankruptcy Code is hereby modified to the extent necessary for the Lender to perfect the security interest granted herein. The post-petition grant of the security interest shall be supplemental of, and in addition to, the security interest which the Lender possesses pursuant to the Loan Documents. Notwithstanding anything contained herein the Post-Petition Collateral shall not include any cause of action or proceeds thereof recovered pursuant to Chapter 5 of the Bankruptcy Code. (b) (c) (d) (e) (f) The lien and security interest created herein shall continue in full force and effect until the obligations to Lender have been paid in full, including all principal and, to the extent authorized by 506(b) of the Bankruptcy Code, such interest, fees, costs, and expenses, including reasonable attorneys fees, whether currently existing or hereafter accrued and incurred, as provided for by the Loan Documents. The lien and security interest granted and created herein and the priorities of same shall not be affected by the incurrence of indebtedness pursuant 364 of the Bankruptcy Code, or otherwise. No expenses of administration of the Debtor s estate shall be charged pursuant to 506(c) of the Bankruptcy Code, or otherwise, against the collateral or the Post-Petition Collateral. Nothing contained herein shall be deemed to be the consent by the Lender, whether express or implied, to any claims against the Collateral or the Post-Petition Collateral under 506(c) of the Bankruptcy Code. If and to the extent (i) the cash collateral used by the Debtor less (ii) the reduction in the pre-petition indebtedness exceeds the value of the Post- Petition Collateral (the Post-Petition Shortfall ), then the Lender shall have a claim under 503(b) of the Bankruptcy Code in the amount of the Post- Petition Shortfall which shall, pursuant to 507(b) of the Bankruptcy Code, have priority over all other claims entitled to priority under 507(a)(1), with the sole exception of quarterly fees due to the United States Trustee pursuant to 28 U.S.C. 1930. The Debtor shall maintain all necessary insurance, including, without limitation, life, fire, hazard, comprehensive, public liability, and workmen s compensation as may be currently in effect, and obtain such additional insurance in an amount as is appropriate for the business in which the Debtor is engaged, naming the Lender as loss payee with respect thereto. The Debtor shall provide the Lender, upon entry of this Order, with proof of all such 6

Document Page 37 of 40 coverage, as well as prompt notification of any change in such coverage which may hereafter occur. (g) (h) (i) (j) The Lender shall have the right to inspect the collateral as well as the Debtor s books and records during normal business hours. Effective as of the Petition Date, the Debtor has terminated all credit card and purchase card facilities with the Lender other than the purchase cards previously identified by the Debtor to the Lender in writing prior to the Petition Date that the Debtor intends to continue to use from and after the Petition Date (the Specified Cards ). The Debtor acknowledges and agrees that, from and after the Petition Date, neither the Debtor nor any of its employees shall have the ability to use any credit card or purchase card facilities with the Lender other than the Specified Cards, and the Lender shall have no obligation to honor any charges incurred from and after the Petition Date in connection with any such facilities other than with respect to the Specified Cards. All amounts outstanding in connection with the Specified Cards as of the end of each day shall be repaid by the Debtor in cash on the next business day. The failure to repay in the balances of the Specified Cards as set forth above shall be a Termination Event hereunder. On Monday of each week commencing on March 6, 2017, the Debtor shall pay to the Lender a fee in the amount of $2,500.00 each. The Debtor shall deposit with the Lender the sum of $25,000.00 (the Indemnification Reserve Funds ) on the date the Claim is otherwise being paid in full as cash collateral for any contingent obligations under the Credit Agreement between the Debtor and Lender, including without limitation, the Debtor s indemnification obligations. Within ten (10) business days following the expiration of all applicable challenge periods in Paragraph 3, the Lender shall return to the Debtor all remaining Indemnification Reserve Funds, if any. 10. The Debtor shall furnish to the Lender such financial and other information as the Lender shall reasonably request including, but not limited to, the following: (b) By Monday of each week, commencing March 6, 2017, (i) reconciliation report which sets forth in reasonable detail: (A) a comparison of the Debtor s actual performance with the Budget and the projections contained therein for the prior week and on a cumulative basis since the Petition Date in a form and substance acceptable to the Lender; and 7

Document Page 38 of 40 (B) a statement of the value at cost of all categories of the Debtor s inventory. (ii) Borrowing Base Certificate in such form and substance provided by the Debtor to the Lender pre-petition. (c) (d) (e) Any financial information and pleadings filed with this Court, shall be served upon the Lender and its counsel within one (1) business day after such information or pleading has been filed with this Court. All other financial information and reports prepared by the Debtor in the ordinary course of its business, including any financial information required by this Court or by the Operating Guidelines and Reporting Requirements of the United States Trustee s Office. All other reports and financial information required by the Loan Documents or historically provided to the Lender, and any additional reports as may be requested by the Lender from time to time, including, without limitation, the monthly statements received by Debtor or any of its affiliates from any acceptable credit card issuers (as defined in the Credit Agreement) or credit card processors or clearinghouses, together with such additional information with respect thereto as shall be sufficient to enable the Lender to monitor the Debtor s credit card transactions. 11. The Debtor s right to use its assets, sell its inventory, and use the Lender s cash and non-cash Collateral shall terminate ( Termination ) upon the earliest of: (i) March 31, 2017; (ii) (iii) The Debtor s failure to maintain all necessary insurance as required by paragraph 9(f) above, or At the Lender s option, upon the occurrence of any Termination Event, as set forth in Paragraph 12 below. (f) (g) The Debtor hereby stipulates and agrees that upon Termination, the Lender shall be entitled to a hearing on a Motion for Relief from the Automatic Stay upon an expedited basis. Upon Termination, the Debtor shall immediately cease using the Lender s cash collateral and noncash collateral, and the Debtor shall cause all funds received to be deposited in a segregated account provided, however, nothing herein shall be deemed a waiver of the Debtor s right to seek authority to use cash collateral in accordance with Sections 361 and 363 of the Bankruptcy Code. 8

Document Page 39 of 40 12. The occurrence of any one or more of the following shall constitute a termination event (a Termination Event ) under the Stipulation. (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) The material breach by the Debtor of any of the terms, conditions, or covenants of this Order, which is not cured to the reasonable satisfaction of the Lender within three (3) business days of receipt by the Debtor of written notice of such breach from the Lender; The filing of an objection to the Lender s Claim or the filing by the Debtor of a complaint against the Lender concerning the pre-petition indebtedness of the Debtor to Lender in this Court; The Debtor s failure to obtain an order in a form and substance acceptable to the Lender in all respects authorizing the Debtor to conduct chain wide going-out-of-business sales (the GOB Sales ) at all store locations within seven (7) days following the Petition Date; The Debtor s failure to obtain an order in a form and substance acceptable to the Lender in all respects authorizing the Debtor to employ Tiger Capital Group, LLC (the Sale Consultant ) as liquidator to conduct the GOB Sales within seven (7) days following the Petition Date; If, commencing the week ending March 10, 2017, the Debtor s actual sales on a cumulative basis are less than seventy-five percent (75%) of the projected weekly sales on a cumulative basis, as set forth in the Budget for such period; The return by the Debtor of more than $10,000.00 of the Debtor s inventory pursuant to 546(h) of the Bankruptcy Code without the prior written consent of the Lender; The appointment of a Trustee for the Debtor pursuant to 1104 of the Bankruptcy Code; The conversion of this Case to a case under Chapter 7 of the Bankruptcy Code; The dismissal of this Case; The appointment of an examiner with any of the powers of a Trustee for the Debtor; or 9

Document Page 40 of 40 (k) The allowance of a Motion for Relief from the Automatic Stay allowing a creditor of the Debtor to foreclose upon any material asset of the Debtor. 13. The Automatic Stay is hereby modified to permit the Lender and the Debtor to carry out the terms and conditions of the Stipulation and this Order, and the Debtor is hereby authorized to execute any additional agreements as may be deemed necessary to further effectuate and confirm the terms and conditions of the Stipulation and this Order. 14. The Lender and the Debtor may agree to nonmaterial modifications or amendments to the Stipulation without further order of this Court. Further, the Lender and the Debtor may modify the Budget, to take effect upon five (5) business days written notice to the Creditors Committee, if any, the United States Trustee, and this Court. 15. The Lender, in its sole and exclusive discretion, may extend the Stipulation without further Court hearing or further order of this Court. If the Lender determines to do so, it shall provide written notification of such extension to all parties-in-interest. Dated this day of March, 2017. 2826902.1 UNITED STATES BANKRUPTCY JUDGE 10