18-10509-shl Doc 249 Filed 06/27/18 Entered 06/27/18 13:49:41 Main Document Pg 1 of 2 JENNER & BLOCK LLP Marc Hankin Carl Wedoff 919 Third Avenue New York, New York 10022 (212) 891-1600 Angela Allen (admitted pro hac vice) 353 North Clark Street Chicago, Illinois 60654 (312) 222-9350 Proposed Counsel for the Chapter 11 Trustee UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re: FIRESTAR DIAMOND, INC., et al. Debtors. 1 Chapter 11 No. 18-10509 (SHL) (Jointly Administered) NOTICE OF PROPOSED SIXTH INTERIM CASH COLLATERAL ORDER Richard Levin, not individually but solely in his capacity as chapter 11 trustee (the Trustee ) for the above-captioned debtors (the Debtors ), provides notice that the Trustee is filing a proposed order granting the Debtors Motion to Approve Use of Cash Collateral (Dkt. 13) on a sixth interim basis ( Proposed Sixth Interim Order ). A copy of the Proposed Sixth Interim Order is attached as Exhibit A. A redlined copy of the Proposed Sixth Interim Order reflecting changes from the Court s Fifth Interim Order Approving Use of Cash Collateral (Dkt. 220) is attached as Exhibit B. 1 The Debtors in these jointly administered chapter 11 cases, along with each Debtor s respective chapter 11 case number and the last four digits of each Debtor s federal tax identification number are: (i) Firestar Diamond, Inc. (Case No. 18-10509) (2729); (ii) A. Jaffe, Inc. (Case No. 18-10510) (4756); and (iii) Fantasy, Inc. (Case No. 18-10511) (1673).
18-10509-shl Doc 249 Filed 06/27/18 Entered 06/27/18 13:49:41 Main Document Pg 2 of 2 Additional information on A. Jaffe, Inc. and its chapter 11 case is available at http://www.omnimgt.com/firestardiamond. Dated: June 27, 2018 New York, New York Respectfully Submitted, JENNER & BLOCK LLP By: /s/ Marc Hankin Marc Hankin Carl Wedoff 919 Third Avenue New York, New York 10022 (212) 891-1600 mhankin@jenner.com cwedoff@jenner.com Angela Allen (admitted pro hac vice) 353 North Clark Street Chicago, Illinois 60654 (312) 222-9350 aallen@jenner.com Proposed Counsel for the Chapter 11 Trustee 2
18-10509-shl Doc 249-1 Filed 06/27/18 Entered 06/27/18 13:49:41 Exhibit A - Clean Cash Collateral Order Pg 1 of 34 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ------------------------------------------------------------ In re: Firestar Diamond, Inc, et al. Debtors. ------------------------------------------------------------ x : : : : : : : x Chapter 11 Case No. 18-10509 (SHL) (Jointly Administered) Re: Docket Nos. 13, 30, 78, 132, 186 and 220 SIXTH INTERIM ORDER (I) AUTHORIZING DEBTORS FIRESTAR DIAMOND, INC. AND FANTASY, INC. S USE OF CASH COLLATERAL, (II) GRANTING ADEQUATE PROTECTION CLAIMS AND LIENS, (III) MODIFYING THE AUTOMATIC STAY, (IV) SCHEDULING A FINAL HEARING, AND (V) GRANTING RELATED RELIEF Upon the Motion [Doc. No. 13] (the Motion ), dated March 4, 2018 of Firestar Diamond, Inc. ( Firestar ) and Fantasy, Inc. ( Fantasy, and together with Firestar, collectively, the Debtors ), 1 as adopted by Richard Levin, as chapter 11 trustee of the Debtors (the Trustee ), solely for the purpose of obtaining entry of an interim order (i) authorizing the Debtors, pursuant to sections 105(a), 361, 362, 363, 364, 507 and 552 of title 11 of the United States Code, 11 U.S.C. 101, et seq. (the Bankruptcy Code ), Rules 2002, 4001(b), 6003, 6004 and 9014 of the Federal Rules of Bankruptcy Procedures (the Bankruptcy Rules ) and Rule 4001-2 of the Local Bankruptcy Rules for the Southern District of New York (the Local Rules ), interim use of Cash Collateral (as defined below) of Israel Discount Bank of New York ( IDB ) and HSBC Bank USA, National Association ( HSBC Bank and together with IDB, collectively, the Prepetition Lenders ) in accordance with the budget annexed hereto as Exhibit A (as may be modified, supplemented or updated from time to time with express written consent of the Prepetition Lenders) (the Budget ) and subject to the terms and conditions of this sixth interim order (this Sixth Interim Order ); (ii) providing adequate protection to the Prepetition Lenders with respect 1 For the avoidance of doubt, for the purposes of this Sixth Interim Order the defined term Debtors does not include the affiliated debtor and debtor-in-possession A. Jaffe, Inc. (Case No. 18-10510-SHL).
18-10509-shl Doc 249-1 Filed 06/27/18 Entered 06/27/18 13:49:41 Exhibit A - Clean Cash Collateral Order Pg 2 of 34 to any diminution in value of their interests in the Collateral (as defined below); (iii) modifying the automatic stay imposed by section 362 of the Bankruptcy to the extent necessary to implement and effectuate the terms and provisions of this Sixth Interim Order; (iv) scheduling a final hearing on the Motion (the Final Hearing ); and (v) granting related relief; and upon consideration of the Motion and (A) the order granting the Motion on an interim basis having been entered on March 12, 2018 [Doc. No. 30] (the First Interim Order ), (B) the order granting the Motion on a second interim basis having been entered on March 29, 2018 [Doc. No. 78] (the Second Interim Order ), (C) the order granting the Motion on a third interim basis having been entered on April 26, 2018 [Doc. No. 132] (the Third Interim Order ), (D) the order granting the Motion on a fourth interim basis having been entered on May 24, 2018 [Doc. No. 186] (the Fourth Interim Order ), and (E) the order granting the Motion on a fifth interim basis having been entered on June 11, 2018 [Doc. No. 220] (the Fifth Interim Order, and together with the First Interim Order, the Second Interim Order, the Third Interim Order, the Fourth Interim Order, and this Sixth Interim Order, collectively, the Interim Orders ); and due and proper notice of the Motion having been given, as set forth in the Motion; and the Court having reviewed the Motion, the materials submitted in support of the Motion, the arguments of counsel, and upon the record and following completion of the Interim Hearings (as defined below): THE COURT HEREBY FINDS: 2 A. Commencement of Case. On February 26, 2018 (the Petition Date ), each of the Debtors commenced chapter 11 cases (the Chapter 11 Cases ) by filing voluntary petitions under chapter 11 of title 11 of the United States Code (the Bankruptcy Code ) in the United States Bankruptcy Court for the Southern District of New York. Until the appointment of the Trustee, the Debtors were managing and operating their business and properties as debtors-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy Code. By order dated June 14, 2018, the Trustee was appointed the Chapter 11 Trustee of the Debtors. No Official Committee of 2 Capitalized terms used but not defined herein shall have the meaning ascribed to such terms in the applicable Prepetition Financing Documents (as defined below).
18-10509-shl Doc 249-1 Filed 06/27/18 Entered 06/27/18 13:49:41 Exhibit A - Clean Cash Collateral Order Pg 3 of 34 Unsecured Creditors (the Committee ) has been appointed by the Office of the United States Trustee for the Southern District of New York (the U.S. Trustee ) in these Chapter 11 Cases. B. Jurisdiction; Core Proceeding. This Court has jurisdiction over this matter and the Motion pursuant to 28 U.S.C. 157(b) and 1334. Consideration of the Motion constitutes a core proceeding as defined in 28 U.S.C. 157(b)(2). Venue is proper before this Court pursuant to 28 U.S.C. 1408 and 1409. C. Statutory Predicate. The statutory predicates for the relief sought in the Motion are sections 105(a), 361, 362, 363, 364, 507 and 552 of the Bankruptcy Code, Bankruptcy Rules 2002, 4001(b), 6003, 6004 and 9014 and Local Rule 4001-2. D. Stipulation of Debtors. Without prejudice to the rights, if any, of any other party, the Debtors acknowledge, admit, stipulate and agree that: (1) IDB Prepetition Financing Documents. Prior to the Petition Date, the Debtors, as borrowers, and Firestar International LTD., f/k/a Firestar International Private LTD., Firestar Group, Inc., and Nirav Modi, as guarantors (each an IDB Prepetition Loan Party and, collectively, the IDB Prepetition Loan Parties ), and IDB were parties to, as applicable, (1) that certain Line Letter for $12,000,000.00 Line of Credit, dated October 11, 2013 and effective as of September 30, 2013 (as amended, modified, or supplemented and in effect from time to time, the IDB Prepetition Credit Agreement ), (2) that certain Demand Promissory Note, dated October 8, 2013, and effective as of September 30, 2013 (as may be amended or modified from time to time, the "IDB Note"), (3) that certain General Security Agreement dated as of December 13, 2012 (as may be amended or modified from time to time) by and between IDB and Firestar (the IDB Firestar Security Agreement ), (4) that certain General Security Agreement dated as of December 13, 2012 (as may be amended or modified from time to time) by and between IDB and Fantasy (the
18-10509-shl Doc 249-1 Filed 06/27/18 Entered 06/27/18 13:49:41 Exhibit A - Clean Cash Collateral Order Pg 4 of 34 IDB Fantasy Security Agreement, and together with the IDB Firestar Security Agreement, the IDB Security Agreements ), and (5) all other agreements, documents, notes, certificates, and instruments executed and/or delivered with, to, or in favor of IDB, including, without limitation, control agreements, mortgages, security agreements, guaranties, and UCC financing statements and all other related agreements, documents, notes, certificates, and instruments executed and/or delivered in connection therewith or related thereto (as amended, modified or supplemented and in effect, collectively with the IDB Prepetition Credit Agreement, IDB Note, and IDB Security Agreements, the IDB Prepetition Financing Documents ). (2) IDB Prepetition Debt Amount. As of the Petition Date, the IDB Prepetition Loan Parties were indebted to IDB under the IDB Prepetition Financing Documents, on account of (a) Revolving Credit Line in the approximate principal amount of $8,600,000.00, plus (b) interest accrued and accruing at the applicable annual non-default contract rate under the IDB Prepetition Financing Documents, plus (c) costs, expenses, fees (including attorneys fees and legal expenses) and other charges and other amounts that would constitute Indebtedness under the IDB Prepetition Financing Documents (as that term is defined therein), including, without limitation, on account of cash management, credit card, depository, investment, hedging and other banking or financial services secured by the IDB Prepetition Financing Documents (all of the foregoing being collectively defined as the IDB Prepetition Debt ). (3) IDB Prepetition Collateral. To secure payment of the IDB Prepetition Debt, the Debtors granted continuing security interests and liens (collectively, the IDB Prepetition Liens ) to IDB upon all of the currently existing or hereafter acquired right,
18-10509-shl Doc 249-1 Filed 06/27/18 Entered 06/27/18 13:49:41 Exhibit A - Clean Cash Collateral Order Pg 5 of 34 title, and interest of the Debtors in and to the Collateral (as defined in the IDB Security Agreements) (herein, the IDB Prepetition Collateral ), including, but not limited to: i. all personal and fixture property of every kind and nature including, without limitation, all goods 3 (including inventory, equipment and any accessories thereto), instruments (including promissory notes), documents, accounts (including health-care-insurance receivables), chattel paper (whether tangible or electronic), deposit accounts (whether or not maintained at IDB), letter-of-credit rights (whether or not the letter of credit is evidenced by a writing), commercial tort claims, financial assets, securities and all other investment property, supporting obligations, any other contract rights or rights to the payment of money, insurance claims and proceeds, tort claims, and all general intangibles including, without limitation, all tax refunds, payment intangibles, patents, patent applications, trademarks, trademark applications, trade names, copyrights, copyright applications, software, engineering drawings, service marks, customer lists, goodwill, and all licenses, permits, agreements of any kind or nature pursuant to which the Debtors possess, use, or have authority to possess or use property (whether tangible or intangible) or others, or others possess, use or have authority to possess or use property (whether tangible or intangible) of the Debtors, and all recorded data of any kind or nature, regardless of the medium of recording, including, without limitation, all software, writings, plans, specifications, and schematics; and 3 For the avoidance of doubt, (i) jewelry returned to the Debtors by their customers, for repair, resizing or furbishing, and (ii) diamonds, jewelry or other goods delivered to the Debtors on memo, shall not be considered property of the Debtors and therefore are not included within the scope of Prepetition Collateral (as defined below).
18-10509-shl Doc 249-1 Filed 06/27/18 Entered 06/27/18 13:49:41 Exhibit A - Clean Cash Collateral Order Pg 6 of 34 ii. any and all monies, securities and any and all other property of the Debtors and the proceeds thereof, now or thereafter actually or constructively held or received by or in transit in any manner to or from IDB, its correspondents or agents from or for the Debtors, whether for safekeeping, custody, pledge, transmission, collection or for any other purpose (whether or not for the express purpose of being used by IDB as collateral security), or coming into the possession of IDB or its correspondents or agents in any way, or place in any safe deposit box leased by IDB to the Debtors. (4) HSBC Prepetition Financing Documents. Prior to the Petition Date, the Debtors, as borrowers, and Firestar International LTD., f/k/a Firestar International Private Ltd., Firestar Group, Inc., and Nirav Modi, as guarantors (each an HSBC Prepetition Loan Party and, collectively, the HSBC Prepetition Loan Parties, and together with the IDB Prepetition Loan Parties, collectively, the Prepetition Loan Parties ), and HSBC Bank were parties to, as applicable, (1) that certain Amended and Restated Loan Agreement, dated September 4, 2008 (as amended, modified, or supplemented and in effect from time to time, the HSBC Prepetition Loan Agreement ), (2) that certain Amended and Restated Secured Demand Note, dated September 4, 2008 (as amended or modified from time to time, the "HSBC Secured Demand Note"), (3) that certain Amended and Restated Security Agreement dated as of September 4, 2008 (as amended or modified from time to time) by and between HSBC Bank and Firestar (the HSBC Firestar Security Agreement ), (4) that certain Security Agreement dated as of December 6, 2012 (as may be amended or modified from time to time) by and between HSBC Bank and Fantasy (the HSBC Fantasy Security Agreement, and together with the HSBC Firestar Security Agreement, the HSBC
18-10509-shl Doc 249-1 Filed 06/27/18 Entered 06/27/18 13:49:41 Exhibit A - Clean Cash Collateral Order Pg 7 of 34 Security Agreements ), and (5) all other agreements, documents, notes, certificates, and instruments executed and/or delivered with, to, or in favor of HSBC Bank, including, without limitation, control agreements, mortgages, security agreements, guaranties, and UCC financing statements and all other related agreements, documents, notes, certificates, and instruments executed and/or delivered in connection therewith or related thereto (as amended, modified or supplemented and in effect, collectively with the HSBC Prepetition Loan Agreement, HSBC Secured Demand Note, and HSBC Security Agreements, the HSBC Prepetition Financing Documents ) (together with the IDB Prepetition Financing Documents, the Prepetition Financing Documents ) (5) HSBC Prepetition Debt Amount. As of the Petition Date, the HSBC Prepetition Loan Parties were indebted to HSBC Bank under the HSBC Prepetition Financing Documents (a) in the approximate principal amount of $11,400,000.00, plus (b) interest accrued and accruing at the applicable annual non-default contract rate under the HSBC Prepetition Financing Documents, plus (c) costs, expenses, fees (including attorneys fees and legal expenses) and other charges and other amounts that would constitute Obligations under the HSBC Prepetition Financing Documents, including, without limitation, any and all Indebtedness (as defined in the HSBC Prepetition Financing Documents), obligations and liabilities of the Debtors to HSBC Bank of every kind and description, direct or indirect, joint or several, absolute or contingent, due or to become due, whether for payment or performance, now existing or thereafter arising, regardless of how the same arose or by what instrument, agreement or book account they may be evidenced, or whether evidenced by any instrument, agreement or book account, including, without limitation, all indebtedness and obligations arising under the HSBC Prepetition
18-10509-shl Doc 249-1 Filed 06/27/18 Entered 06/27/18 13:49:41 Exhibit A - Clean Cash Collateral Order Pg 8 of 34 Financing Documents including, without limitation, all indebtedness and obligations of the Debtors under the Line of Credit (as defined in the HSBC Prepetition Financing Document), and all interest, taxes, fees, charges, expenses and attorneys fees chargeable to the Debtors or incurred by HSBC Bank thereunder, or any other document or instrument delivered pursuant to or as a supplement thereto (all of the foregoing being collectively defined as the HSBC Prepetition Debt ) (together with the IDB Prepetition Debt, the Prepetition Debt ) (6) HSBC Prepetition Collateral. To secure payment of the HSBC Prepetition Debt, the Debtors granted continuing security interests and liens (collectively, the HSBC Prepetition Liens, and together with IDB Prepetition Liens, collectively, the Prepetition Liens ) to HSBC Bank upon all of the currently existing or hereafter acquired right, title, and interest of the Debtors in and to the Collateral (as defined in the HSBC Security Agreements) (herein, the HSBC Prepetition Collateral ) (together with the IDB Prepetition Collateral, the Prepetition Collateral ), including, but not limited to: i. All fixtures and all tangible and intangible personal property of the Debtors, whether now owned or thereafter acquired by the Debtors, or in which the Debtors may now have or thereafter acquire an interest, including, without limitation, (a) all Equipment (as defined in the HSBC Security Agreements) (including all machinery, tools and furniture), Inventory (as defined in the HSBC Security Agreements) (including all merchandise, raw materials, work in process, finished goods and supplies), and Goods 4 (as defined in the HSBC Security 4 For the avoidance of doubt, (i) jewelry returned to the Debtors by their customers, for repair, resizing or furbishing, and (ii) diamonds, jewelry or other goods delivered to the Debtors on memo, shall not be considered property of the Debtors and therefore are not included within the scope of Prepetition Collateral.
18-10509-shl Doc 249-1 Filed 06/27/18 Entered 06/27/18 13:49:41 Exhibit A - Clean Cash Collateral Order Pg 9 of 34 Agreements), whether now owned or thereafter acquired by the Debtors, or in which the Debtors may now have or thereafter acquire an interest; (b) all Accounts (as defined in the HSBC Security Agreements), accounts receivable, other receivables, contract rights, Chattel Paper (as defined in the HSBC Security Agreements), and General Intangibles (as defined in the HSBC Security Agreements) of the Debtors (including, without limitation, goodwill, patents, trademarks, tradenames, blueprints, designs, product lines and research and development), whether now owned or thereafter acquired by the Debtors, or in which the Debtors may now have or thereafter acquire an interest; (c) all Instruments, documents of title, policies and certificates of insurance, securities, bank deposits, Deposit Accounts (as defined in the HSBC Security Agreements), checking accounts and cash now or thereafter owned by the Debtors, or in which the Debtors may now have or thereafter acquire an interest; (d) all the Debtors rights under consignment agreements with vendors of the Debtors memo programs and all security therefor, (e) Commercial Tort Claims, Documents, Fixtures, Investment Property and Letter-of-Credit Rights (each as defined in the HSBC Security Agreements) presently owned or thereinafter acquired by the Debtors, including, without limitation, books and records; supporting obligations; contract rights or rights to the payment of money, trademarks, service marks, tradenames, copyrights and trade secrets; policies and certificates of insurance and all amounts payable to the Debtors or rights of the Debtors under or with respect to any such insurance, including, without limitation, all proceeds, refunds and premium rebates, whether any such proceeds, refunds and premium rebates, arise out of any of the foregoing, or otherwise; money, cash or
18-10509-shl Doc 249-1 Filed 06/27/18 Entered 06/27/18 13:49:41 Exhibit A - Clean Cash Collateral Order Pg 10 of 34 other property; federal, state and local tax refunds and/or abatements to which the Debtors is, or shall become, entitled, no matter how or when arising, including, but not limited to, any carryback tax refunds; all liens, guarantees, rights, remedies and privileges pertaining to any of the foregoing, including the right of stoppage in transit; (f) all accessions, additions or improvements, to all replacements, substitutions and parts for, and all proceeds and products to all of the foregoing; and (g) all books, records and documents relating to all of the foregoing. (7) Intercreditor Agreement. As a result of the Debtors commencement of these Chapter 11 Cases, the Acceleration Date (as defined in the Intercreditor Agreement) occurred on the Petition Date. (8) Acknowledgement of Cash Collateral. The Debtors have acknowledged and stipulated that their cash on hand and cash equivalents as of the Petition Date constitute proceeds, products and profits of the Prepetition Collateral, and whether existing before, on, or after the Petition Date, is cash collateral of the Prepetition Lenders within the meaning of section 363(a) of the Bankruptcy Code ( Cash Collateral ). (9) Prepetition Liens. The Debtors have acknowledged and stipulated that: (i) the Prepetition Liens are valid, binding, enforceable, and perfected first priority Liens, and are not subject to avoidance, recharacterization, or subordination pursuant to the Bankruptcy Code or applicable non-bankruptcy law; (ii) the Prepetition Debt constitutes a legal, valid, and binding obligation of the Prepetition Loan Parties, enforceable in accordance with the terms of the Prepetition Financing Documents (other than in respect of the stay of enforcement arising from section 362 of the Bankruptcy Code), (iii) no offsets, defenses, or counterclaims to any of the Prepetition Debt exists, (iv) no portion of
18-10509-shl Doc 249-1 Filed 06/27/18 Entered 06/27/18 13:49:41 Exhibit A - Clean Cash Collateral Order Pg 11 of 34 the Prepetition Debt is subject to avoidance, recharacterization, or subordination pursuant to the Bankruptcy Code or applicable non-bankruptcy law, (v) neither the Prepetition Loan Parties nor the Debtors have any valid claims (as such term is defined in section 101(5) of the Bankruptcy Code) or causes of action against the Prepetition Lenders with respect to the Prepetition Financing Documents or otherwise, whether arising at law or at equity, including, without limitation, any recharacterization, subordination, disallowance, avoidance or other claims arising under or pursuant to sections 105, 510, 541 or 542 through 553, inclusive, of the Bankruptcy Code, (vi) the Prepetition Debt constitutes allowed secured claims, and (vii) neither the Prepetition Loan Parties nor the Debtors have any valid claims (as such term is defined in section 101(5) of the Bankruptcy Code) or causes of action against the Prepetition Lenders pertaining to the conduct of the Prepetition Lenders and their directors, officers, employees, agents, attorneys and other professionals (collectively, the Prepetition Lender Parties ) in administering the business relationship among the Debtors and the Prepetition Lenders, including, without limitation, equitable subordination, lender liability and/or deepening insolvency claims or causes of action. E. No Control of Debtors. None of the Prepetition Lenders control the Debtors or their properties or operations, have authority to determine the manner in which any Debtors operations are conducted or are control persons or insiders of the Debtors by virtue of any of the actions taken with respect to, in connection with, relating to or arising from the Prepetition Financing Documents. F. No Claims Against Prepetition Lenders. The Debtors have acknowledged and stipulated that no claims or causes of action exist against, or with respect to, the Prepetition Lenders under the Prepetition Financing Documents.
18-10509-shl Doc 249-1 Filed 06/27/18 Entered 06/27/18 13:49:41 Exhibit A - Clean Cash Collateral Order Pg 12 of 34 G. Intercreditor Agreement. Prior to the Petition Date, IDB and HSBC Bank entered into that certain Amended and Restated Intercreditor Agreement, dated as of March 22, 2013 by and among IDB, HSBC Bank, and Standard Chartered Bank, as amended by that certain First Amendment to Amended and Restated Intercreditor Agreement dated as of October 17, 2013 by and between HSBC Bank and IDB (as may be amended or modified from time to time, collectively, the Intercreditor Agreement ) in order to memorialize an agreement on certain rights, priorities and interests as between themselves with respect to the Prepetition Debt. The Intercreditor Agreement provides, among other things, that regardless of anything contained in the Prepetition Financing Documents or the time or order of attachment, or the time, order, or manner of perfection of the security interest or liens granted thereby, or the time or order of filing of financing statements, or otherwise, to the extent valid and perfected, the liens and security interests granted to the Debtors in the Collateral (as defined in the Intercreditor Agreement) shall be equal in priority to secure the IDB Prepetition Debt and the HSBC Prepetition Debt. The Prepetition Lenders agreed under the Intercreditor Agreement that any realizations on Collateral (as defined in the Intercreditor Agreement) received by either Prepetition Lender after the Acceleration Date (as defined in the Intercreditor Agreement) shall be distributed first to the Prepetition Lenders according to their Pro-Rata Share (as defined in the Intercreditor Agreement). H. The Motion and Interim Hearings. On March 4, 2018, the Debtors filed the Motion. Based on the Motion, the materials submitted in support of the Motion, and the record presented at the interim hearings held on March 6, 2018, March 12, 2018, March 28, 2018, April 18, 2018, May 15, 2018, May 23, 2018, and June 11, 2018 (the Interim Hearings ), the terms of use of the Cash Collateral, including the adequate protection granted herein, are fair and reasonable, and reflect the Debtors prudent exercise of their business judgment. I. Good Cause. Good and sufficient cause has been shown for the entry of this Sixth Interim Order. The use of Cash Collateral for the Debtors operations is necessary and appropriate to prevent irreparable harm to the Debtors estates.
18-10509-shl Doc 249-1 Filed 06/27/18 Entered 06/27/18 13:49:41 Exhibit A - Clean Cash Collateral Order Pg 13 of 34 J. Consent. The Prepetition Lenders are willing to consent to the Trustee s use of the Prepetition Collateral and Cash Collateral only upon the conditions contained in this Sixth Interim Order. K. Good Faith. Pursuant to sections 105, 361 and 363 of the Bankruptcy Code, the Prepetition Lenders and the Trustee are hereby found to have acted in good faith in connection with the negotiation and entry of this Sixth Interim Order, and the Prepetition Lenders are entitled to the protection provided under section 363(m) of the Bankruptcy Code. The Trustee, reasonably and in good faith based on the due diligence conducted to date, believes that the Budget is sufficient to fund all projected legitimate and allowable expenses of the Chapter 11 Cases from the Petition Date through the expiration of the interim period set forth in Paragraph 5 of this Sixth Interim Order. L. Notice. Notice of the interim relief sought by the Motion and the Interim Hearings has been provided by the Debtors to certain parties in interest, including: (i) the U.S. Trustee; (ii) the Prepetition Lenders; (iii) those creditors listed on each of the Debtors lists of the twenty (20) largest creditors filed by the Debtors in these Chapter 11 Cases; (iv) all required governmental entities; and (v) such other parties entitled to notice under Local Rule 9013-1(b). Given the exigencies and relevant circumstances of these Chapter 11 Cases, such notice of the Motion, the relief requested therein and the Interim Hearing complies with Bankruptcy Rule 4001(b) and (d) and the Local Rules. M. Immediate Entry of Sixth Interim Order. The Trustee has requested immediate entry of this Sixth Interim Order pursuant to Rule 4001(b)(2). The Court concludes that entry of this Sixth Interim Order is in the best interests of the Debtors estates and all creditors and is necessary to avoid immediate and irreparable harm to the Debtors and their estates. Based upon the foregoing findings and conclusions, and upon the record made before this Court at the Interim Hearings, and good and sufficient cause appearing therefor:
18-10509-shl Doc 249-1 Filed 06/27/18 Entered 06/27/18 13:49:41 Exhibit A - Clean Cash Collateral Order Pg 14 of 34 IT IS HEREBY ORDERED that: 1. Disposition. The Motion is granted on an interim basis to the extent set forth herein. Any objections to the Motion to the extent not withdrawn are hereby denied and overruled. 2. Effect. As of the date of entry of this Sixth Interim Order by the Court the Trustee shall have interim authorization to use the Cash Collateral (as defined below) and to provide adequate protection to the Prepetition Lenders in respect thereof, on the terms and subject to the conditions set forth herein. Except as otherwise provided herein, the terms of this Sixth Interim Order shall be valid and binding upon the Trustee, the Debtors, all successors-in-interest to the Debtors, all creditors of the Debtors, equity holders, any statutory committee appointed in these Chapter 11 Cases, any subsequent trustee appointed in this or any superseding chapter 7 bankruptcy case, and all other parties-in-interest from and after the Petition Date. Subject to Paragraph 3 hereof, the Debtors acknowledgements and stipulations shall be binding on the Debtors and their respective representatives, successors and assigns, and, on each of the Debtors estates, all creditors thereof and each of their respective representatives, successors and assigns, including, without limitation, any subsequent trustee or other representative appointed in these Chapter 11 Cases, whether any such trustee or representative is appointed under chapter 7 or chapter 11 of the Bankruptcy Code. 3. Challenge Period. Notwithstanding that the Fifth Interim Order provided that any adversary proceeding or other action filed for the purposes of challenging the stipulations contained in Paragraph D (a Challenge ) had to have been filed no later than June 12, 2018, and that no Challenge was filed by that date, the Trustee shall have until July 13, 2018 (the Trustee Challenge Period ) to file an adversary proceeding or other action for the purpose of challenging the stipulations contained in Paragraphs D or F (a Trustee Challenge ). If a Trustee Challenge is not commenced prior to the expiration of the Trustee Challenge Period, or such later date as agreed to in writing by the Prepetition Lenders: (i) the claims, liens, and security interests of the Prepetition Lenders shall be deemed allowed for all purposes in these Chapter 11 Cases or any subsequent proceeding under the Bankruptcy Code; (ii) the Trustee fully and irrevocably stipulates
18-10509-shl Doc 249-1 Filed 06/27/18 Entered 06/27/18 13:49:41 Exhibit A - Clean Cash Collateral Order Pg 15 of 34 to the validity, perfection, first priority, enforceability and non-avoidability of the Prepetition Debt and the security interest in and against the Prepetition Collateral; and (iii) the stipulations contained in Paragraphs D and F above shall be deemed final and binding on the Trustee without further notice or action by any party or this Court in these Chapter 11 Cases or in any subsequent proceeding under the Bankruptcy Code and the foregoing shall be forever barred from commencing a Challenge. For the avoidance of doubt, other than with the respect to the Trustee, the stipulations contained in Paragraphs D and F above shall be deemed final and binding on the Debtors, any statutory committee appointed herein, all creditors, equity holders, and all parties in interest. The foregoing is without prejudice to any and all of the Prepetition Lender Parties legal and equitable claims, counterclaims, defenses and/or rights of offset and setoff in response to any Trustee Challenge, all of which are reserved, and the foregoing shall in no event revive, renew or reinstate any applicable statute of limitations which may have expired prior to the date of initiation of such Trustee Challenge. The Prepetition Lenders and the Trustee may enter into one or more stipulations and agreed orders ( Challenge Orders ) in order to resolve a Trustee Challenge or potential Trustee Challenge and submit such Challenge Order to the Court for consideration on presentment, and upon entry by the Court, such Challenge Orders shall be deemed to supersede the relevant provisions of this Sixth Interim Order. 4. Cash Collateral Need. The Trustee alleges that the Debtors would not have sufficient available resources of working capital and financing to operate their business and maintain their property without the use of Cash Collateral. Without access to the Cash Collateral, the Trustee alleges that his ability to manage, administer and preserve the Debtors estates would be immediately and irreparably harmed, thereby materially impairing their estates and creditors, and the possibility for a successful outcome in these Chapter 11 Cases. Based on the Trustee s allegations, the relief requested in the Motion is, therefore, necessary, essential, and appropriate for the management and preservation of the Debtors estates. The terms of this Sixth Interim Order are fair and reasonable, reflect the Trustee s exercise of prudent business judgment consistent with his fiduciary duties, and are supported by reasonably equivalent value and fair consideration.
18-10509-shl Doc 249-1 Filed 06/27/18 Entered 06/27/18 13:49:41 Exhibit A - Clean Cash Collateral Order Pg 16 of 34 5. Interim Use of Cash Collateral. Subject to the terms and conditions of this Sixth Interim Order, from June 29, 2018 until the earlier of (i) August 31, 2018 at 4:00 PM (Eastern Standard Time) (or such extension date as may be agreed upon by the Prepetition Lenders or ordered by the Court) or (ii) a Termination Event (as defined below), the Prepetition Lenders consent to the Trustee s continued use of Cash Collateral solely for payment of such items as expressly set forth in the Budget, with allowance for a fifteen percent (15%) aggregate variance on a rolling basis during the period covered by the Interim Orders with respect to each of the Budget line items entitled Total Sales, Total Collections, Total Disbursements and Net Availability, and provided that such use shall not be in excess of cash on hand. For the avoidance of doubt, positive variances shall be permissible for any of the foregoing line items other than Total Disbursements. The Trustee asserts that the Budget includes all reasonable, necessary and foreseeable expenses to be incurred in the ordinary course of business of the Debtors in connection with the operation of their businesses for the period set forth in the Budget; provided that notwithstanding anything to the contrary contained herein, the Trustee shall be permitted to use Cash Collateral in amounts that exceed the amounts set forth for Purchases in line 17 of the Budget in order for the Trustee to fulfill purchase orders received and provided that the Trustee obtains the written consent of the Prepetition Lenders; and provided further that the Trustee shall be permitted to use Cash Collateral in the amounts set forth for Stay Bonuses in line 29 of the Budget for the purpose of making such payments to employees provided that the Trustee receives the written consent of the Prepetition Lenders, with such consent not to be unreasonably withheld. 6. Limitations on Use of Cash Collateral. (a) No Cash Collateral may be used by the Trustee or any other party in connection with, directly or indirectly, (i) the modification, stay, or amendment of the Interim Orders without the consent of the Prepetition Lenders, (ii) a violation, breach or default of the Interim Orders, or (iii) any claim or action the purpose of which is to seek or the result of which would be to obtain any relief (a) invalidating, setting aside, avoiding, or subordinating, in whole or in part, the Prepetition Debt or
18-10509-shl Doc 249-1 Filed 06/27/18 Entered 06/27/18 13:49:41 Exhibit A - Clean Cash Collateral Order Pg 17 of 34 the Prepetition Lenders liens or security interests in the Prepetition Collateral or (b) preventing, hindering, or otherwise delaying, whether directly or indirectly, the Prepetition Lenders assertion, enforcement, or realization upon any Prepetition Collateral as permitted by the Interim Orders or the Prepetition Financing Documents. Notwithstanding the foregoing, the Prepetition Lenders consent to the use of Cash Collateral in an amount not to exceed $10,000 (subject to further consideration in relation to a Final Order) with respect to fees and expenses reasonably incurred by the Trustee s investigation of the Prepetition Liens of the Prepetition Lenders. (b) The Trustee s authority to use Cash Collateral is expressly conditioned on and subject to the Trustee s available cash on hand and the Cash Collateral available to the Trustee under the Budget shall be expressly limited to the expenses specifically set forth in the Budget, subject to the fifteen percent (15%) variance set forth in Paragraph 5 above. 7. Adequate Protection Liens. In consideration of the Trustee s continued use of Cash Collateral in accordance with the Budget and/or the estates use, sale, depreciation, or disposition of the Prepetition Collateral, and the Prepetition Lenders agreement to subordinate to the Carveout (defined below) as provided herein, the Prepetition Lenders shall be and are hereby granted solely to the extent of any diminution in value of the Prepetition Collateral, including the Cash Collateral (effective and perfected as of March 6, 2018 and without the necessity of the execution of any mortgages, security agreements, pledge agreements, financing statements or other agreements) (all such liens and security interests, the Adequate Protection Liens ): (i) valid, binding, continuing, enforceable, non-avoidable and fully-perfected, first-priority postpetition security interests in and liens on all of the estates rights in tangible and intangible assets, including, without limitation, the Prepetition Collateral (including Cash Collateral) and all other prepetition and postpetition
18-10509-shl Doc 249-1 Filed 06/27/18 Entered 06/27/18 13:49:41 Exhibit A - Clean Cash Collateral Order Pg 18 of 34 property of the Debtors estates and all proceeds, rents, and profits thereof 5, (collectively, the Postpetition Collateral and, together with the Prepetition Collateral, collectively, the Collateral ), whether existing on or as of the Petition Date or thereafter acquired, that is not subject to (A) valid, perfected, non-avoidable and enforceable liens in existence on or as of the Petition Date or (B) valid and unavoidable liens in existence immediately prior to the Petition Date that are perfected after the Petition Date as permitted by section 546(b) of the Bankruptcy Code (collectively, the Unencumbered Property, and together with the Collateral, the Property ), including, without limitation, any and all unencumbered cash, accounts receivable, other rights to payment, inventory, general intangibles, contracts, servicing rights, servicing receivables, securities, chattel paper, owned real estate, real property leaseholds, fixtures, machinery, equipment, deposit accounts, patents, copyrights, trademarks, tradenames, rights under license agreements and other intellectual property, claims and causes of action, and the proceeds of all of the foregoing; provided, that the Unencumbered Property shall not include causes of action under sections 544, 545, 547, 548 or 550 of the Bankruptcy Code (collectively, the Avoidance Actions ) or proceeds thereof; provided, further, that such security interests and liens shall not prime (Y) any valid, perfected and unavoidable liens and security interests in existence immediately prior to the Petition Date that are held by or granted to any person other than the Prepetition Lenders or (Z) valid and unavoidable liens and security interests in existence immediately prior to the Petition Date that are perfected after the Petition Date as permitted by section 546(b) of the Bankruptcy Code and that are held by or granted to any person other than the Prepetition Lenders ((Y) and (Z) collectively, the Permitted Prior Liens ); and (ii) valid, binding continuing, enforceable, nonavoidable and fully-perfected, junior priority security interests in and postpetition liens on all tangible and intangible assets, including, without limitation, all prepetition and postpetition property of the Debtors estates, and all products and proceeds thereof, whether now existing or hereafter 5 For the avoidance of doubt, (i) jewelry returned to the Debtors by their customers, for repair, resizing or furbishing, and (ii) diamonds, jewelry or other goods delivered to the Debtors on memo, shall not be considered property of the estates and therefore are not included within the scope of Postpetition Collateral.
18-10509-shl Doc 249-1 Filed 06/27/18 Entered 06/27/18 13:49:41 Exhibit A - Clean Cash Collateral Order Pg 19 of 34 acquired that is subject to Permitted Prior Liens. The Adequate Protection Liens shall be supplemental to and in addition to, the security interests and liens the Prepetition Lenders possess pursuant to Prepetition Financing Documents. The Adequate Protection Liens granted pursuant to the Interim Orders shall constitute valid and duly perfected security interests and liens, and the Prepetition Lenders shall not be required to file or serve financing statements, notices of lien or similar instruments which otherwise may be required under federal or state law in any jurisdiction, or take any action, including taking possession, to validate and perfect such security interests and liens; and the failure by the Debtors or the Trustee to execute any documentation relating to the Adequate Protection Liens shall in no way affect the validity, perfection or priority of such Adequate Protection Liens. If, however, the Prepetition Lenders, in their sole discretion, shall determine to file any such financing statements, notices of lien or similar instruments, or to otherwise confirm perfection of such Adequate Protection Liens, the Trustee is directed to cooperate with and assist in such process, the stay imposed by section 362(a) of the Bankruptcy Code hereby is lifted to allow the filing and recording of certified copies of Interim Orders, or any such financing statements, notices of lien or similar instructions, and all such documents shall be deemed to have been filed or recorded at the time and date of the First Interim Order. The Adequate Protection Liens and security interests created herein shall continue in full force and effect until the Prepetition Debt has been indefeasibly paid in full in cash, including all principal and, to the extent authorized by the Court pursuant to section 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 Prepetition Financing Documents. Except as otherwise provided herein, the liens and security interests granted and created herein, including, without limitation, the Adequate Protection Liens, and the priorities of same shall not be affected by the incurrence of indebtedness pursuant section 364 of the Bankruptcy Code, or otherwise. 8. Superpriority Claim. If, and to the extent that, (i) the Adequate Protection Liens described in Paragraph 7 above, and (ii) the Adequate Protection Payments described below are insufficient to provide adequate protection for the Prepetition Lenders, as additional adequate
18-10509-shl Doc 249-1 Filed 06/27/18 Entered 06/27/18 13:49:41 Exhibit A - Clean Cash Collateral Order Pg 20 of 34 protection the Prepetition Lenders are hereby granted allowed superpriority claims against the Debtors estates pursuant to section 507(b) of the Bankruptcy Code (the Superpriority Claim ), with priority in payment over any and all administrative expenses of the kinds specified or ordered pursuant to any provision of the Bankruptcy Code, which shall at all times be senior to the rights of the Debtors, the Trustee, and any successor trustee or any creditor in the Chapter 11 Cases or any subsequent proceedings under the Bankruptcy Code; provided, however, that the Superpriority Claim shall be subject and subordinate only to the Carveout; and provided further, that the Superpriority Claim may be satisfied from only 75% of the net proceeds of any Avoidance Actions, net after deducting all reasonable fees, costs, and expenses of the Avoidance Actions, with the remaining 25% of net proceeds to be made available to satisfy any remaining claims of the Prepetition Lenders on account of the Prepetition Debt and any holders of allowed administrative expense claims on a pari passu basis. Except as expressly provided herein, no cost or expense of administration asserted against the Debtors estates under the Bankruptcy Code shall be senior to, or pari passu with, the Superpriority Claim. 9. Adequate Protection Payments. In consideration of the (i) the Trustee s continued use of Cash Collateral in accordance with the Budget and/or the use, sale, depreciation, or disposition of the Prepetition Collateral and (ii) the Prepetition Lenders acknowledgment and waiver that no default interest will accrue on account of any defaults which have occurred and were known to the Prepetition Lenders prior to the entry of this Sixth Interim Order, the Prepetition Lenders shall receive (x) periodic payments sufficient to ensure that the Debtors estates are within formula under the applicable borrowing base calculation as set forth in the Excess/Deficit line item in the Budget promptly, but in no event later than two (2) business days, following the Trustee s delivery of any report or forecast required to be furnished under Paragraph 19 of this Sixth Interim Order that demonstrates the Debtors estates are not within formula under the applicable borrowing base calculation; provided, however, that before any payment(s) made hereunder shall exceed the aggregate amount of $500,000 during any two week period, the Trustee shall first be required to provide three (3) days notice to the United States Trustee and docket said
18-10509-shl Doc 249-1 Filed 06/27/18 Entered 06/27/18 13:49:41 Exhibit A - Clean Cash Collateral Order Pg 21 of 34 notice with the Court, and (y) all proceeds payable upon a sale or other disposition of Prepetition Collateral and/or Postpetition Collateral, net of fundings required to make payments in accordance with the Budget and such payments shall be applied by the Prepetition Lenders as a permanent reduction of the Prepetition Debt in accordance with the Prepetition Financing Documents (the Adequate Protection Payments and together with the Adequate Protection Liens and Superpriority Claim, collectively, the Adequate Protection Obligations ). 10. Modification of Automatic Stay. The automatic stay imposed under section 362(a) of the Bankruptcy Code shall be modified to the extent necessary to permit the Debtors, the Trustee and Prepetition Lenders to perform the transactions and take all actions contemplated or permitted by this Sixth Interim Order, including, without limitation, to allow the Trustee to fulfill his Adequate Protection Obligations. 11. License Agreements. To the extent the Trustee enters into any license agreements with a licensee, the Trustee shall (i) provide the Prepetition Lenders with any monthly or similar reports delivered under any such license agreement within two (2) business days of receipt of such report; (ii) consult with the Prepetition Lender in advance of determining to deliver a notice to any licensee to retain the services of a public accounting firm to examine the licensee s books of account and records, and all other documents and materials in the possession or control of licensee; (iii) provide the Prepetition Lenders with any audit reports, materials and/or books and records produced in connection with any audit of a licensee within two (2) business days of receipt of such documents; and (iv) and assign their interests to royalties payable to them under any license agreements to the Prepetition Lenders. 12. Carveout. Subject to the terms and conditions contained in this Paragraph 12, the Prepetition Liens, Adequate Protection Liens, and Superpriority Claim are all subordinate to the following (collectively, the Carveout ), 6 notwithstanding any provision to the contrary herein: 6 For the avoidance of doubt, the Carveout covers the First Interim Order, the Second Interim Order, the Third Interim Order, the Fourth Interim Order, the Fifth Interim Order and the Sixth Interim Order in the aggregate.