In re:

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE
) Chapter 11
)
MERVYN'S HOLDINGS, LLC, et al./ ) Case No. 08- (_)
)
Debtors. ) Jointly Administered
DEBTORS' MOTION FOR INTERIM AND FINAL ORDERS (A) AUTHORIZING
DEBTORS TO OBTAIN POSTPETITION FINANCING AND GRANT SECURITY
INTERESTS AND SUPERPRIORITY ADMINISTRATIVE EXPENSE STATUS
PURSUANT TO 11 U.S.C. 105 AND 364(c); (B) MODIFYING THE AUTOMATIC
STAY PURSUANT TO 11 U.S.C. 362; (C) AUTHORIZING DEBTORS TO ENTER
INTO AGREEMENTS WITH WACHOVIA CAPITAL FINANCE CORPORATION
(WESTERN), IN ITS CAPACITY AS ADMINISTRATIVE AND COLLATERAL AGENT
FOR ll;SELF AND CERTAIN OTHER LENDERS; (D) AUTHORIZING DEBTORS TO
USE COLLATERAL SUBJECT TO LIENS AND SECURITY INTERESTS INCLUDING
CASH COLLATERAL AND GRANTING ADEQUATE PROTECTION IN RESPECT
THEREOF AND (E) SCHEDULING INTERIM AND FINAL HEARINGS PURSUANT
TO BANKRUPTCY RULE 4001
The above-captioned debtors and debtors in possession (collectively, the
"Debtors") hereby move for entry of an interim order, substantially in the form annexed as
Exhibit A hereto (the "Interim Order"), and a final order (the "Final Order" and, together with
the Interim Order, the "Orders"), under Sections 105(a), 361, 362, 363, 364 and 507 of title 11 of
the United States Code (the "Bankruptcy Code"), Rules 2002, 4001 and 9014 of the Federal
Rules of Bankruptcy Procedure (the "Bankruptcy Rules"), and Del. Bankr. L. R. 4001-2, (A)
authorizing the Debtors to enter into a financing arrangement (as amended, modified and in
effect from time to time, the "DIP Credit Facility") as provided for in that certain Ratification
and Amendment Agreement, substantially in the form attached to the Interim Order (as amended,
modified and in effect from time to time, and together with any and all other related documents
and agreements entered into in connection with or related to the DIP Credit Facility, including,
1
The Debtors in these cases (the "Cases"), along with the last four digits of the federal tax identification
number for each of the Debtors, are Mervyn's Holdings, LLC (7931), Mervyn's LLC (4456) and Mervyn's Brands,
LLC (8850).
RLFI-3307040-1
0q/v('=-0
0811586080729000000000013
without limitation, any fee letters, the "Ratification Agreement"i and to grant security interests
and superpriority administrative expense status; (B) modifying the automatic stay; (C)
authorizing Debtors to enter into agreements with Wachovia Capital Finance Corporation
(Western) ("Wachovia"), in its capacity as administrative and collateral agent for itself and
certain other lenders; (D) authorizing Debtors to use Collateral (defined below) subject to liens
and security interests including Cash Collateral (as defined in the Interim Order) and granting
adequate protection in respect thereof and (E) scheduling interim and final hearings pursuant to
Bankruptcy Rule 4001 with respect to the relief requested herein (the "Motion"). In support of
the Motion, the Debtors rely upon and incorporate by reference the Affidavit of Charles R. Kurth,
Executive Vice President and Chief Financial and Administrative Officer of the Debtors, in
Support of the First Day Motions (the "First Day Affidavit"),
3
filed concurrently herewith. In
further support of the Motion, the Debtors, by and through their undersigned proposed counsel,
respectfully represent:
JURJSDICTION
1. This Court has jurisdiction to consider this Motion under 28 U.S. C. 157 and
1334. This is a core proceeding under 28 U.S.C. 157(b). Venue of these Cases and this
Motion in this district is proper under 28 U.S.C. 1408 and 1409. The statutory bases for the
relief requested herein are Bankruptcy Code Sections 105(a), 361,362, 363, 364, and 507.
2
A copy of the Ratification Agreement is annexed to the proposed form oflnterim Order, attached hereto
as Exhibit A.
3
Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Interim
Order or the Ratification Agreement, as appropriate. To the extent that there is any conflict between this Motion and
the Interim Order, the Interim Order shall control.
2
RLFI-3307040-1
BACKGROUND
A. Introduction
2. On July 29, 2008 (the "Petition Date"), each of the Debtors filed a voluntary
petition for relief under Chapter 11 of the Banlauptcy Code.
3. The Debtors continue to operate their business and manage their properties as
debtors in possession pursuant to Bankruptcy Code II 07(a) and II 08. No trustee, examiner
or official committee of unsecured creditors has been appointed in the Debtors' cases.
B. Overview of the Debtors' Corporate Structure and Business
4. Mervyn's LLC ("Mervyn's") traces its roots to a mid-range department store
opened by Mervin Morris in San Lorenzo, California in 1949 and has grown over the last 60
years into a 177-store chain of family friendly, promotional department stores. Mervyn's was
incorporated in 1954 and, in 1978, became a wholly-owned subsidiary of Dayton Hudson
Corporation (now The Target Corporation). In late August, 2004, Mervyn's converted into a
California limited liability company in conjunction with its acquisition by Mervyn's Holdings,
LLC ("Mervyn's Holdings"), a Delaware limited liability company formed by affiliates of Sun
Capital Partners, Inc. ("Sun"), Cerberus Capital Management, L.P. ("Cerberus"), Lubeti-Adler
and Klaff Partners, L.P. ("KLA")
4
Mervyn's Brands, LLC ("Mervyn's Brands") is a wholly-
owned subsidiary of Mervyn's and a Minnesota limited liability company which owns all or
substantially all of Mervyn's intellectual property.
4
The 2004 transaction divided the former Mervyn's Inc.'s retail business from substantially all of its real
estate assets, consisting of 262 properties previously owned or leased by Mervyn's. The remaining real estate
assets, consisting of certain leases that were not assignable (the "Restricted Leases") remained with Mervyn's. The
real estate entities, including MDS Realty Holdings I, LLC, MDS Realty Holdings II, LLC, MDS Realty I, LLC,
MDS Realty II, LLC, MDS Realty III, LLC, MDS Realty IV, LLC, MDS I Texas Realty, LP and MDS II Texas
Realty, LP (collectively, the "MDS Entities"), each of which is directly or indirectly owned by KLA, Sun and
Cerberus, did not file Chapter II petitions on the filing date. Such entities have lending arrangements separate from
the prepetition lending arrangements of the Debtors.
3
RLFI-3307040-1
5. As of the Petition Date, Mervyn's employed more than 18,000 people and
operated 177 retail stores in California and six states in the southwestern United States.
Mervyn's retail stores average 80,000 retail square feet and are located primarily in community
shopping centers, regional malls and freestanding locations. Through these retail stores,
Mervyn's sells its extensive selection of national brands and private-label apparel and
housewares.
6. All of the retail stores are subject to leases with aggregate mmual rent expense in
excess of $172 million. In addition to the retail stores, Mervyn's also leases two distribution
centers and its headquarters facility located in Hayward, California.
7. For the fiscal year ended February 2, 2008, Mervyn's recorded net sales of
approximately $2.5 billion and incurred a net loss of approximately $64 million.
C. The Debtors' Debt Structure
8. Mervyn's and Mervyn's Brands are party to that certain Loan and Security
Agreement, dated September 2, 2004, by and among Mervyn's, as borrower, Mervyn's Brands as
guarantor, Wachovia (as successor to Congress Financial Corporation (Western)), as
administrative agent and collateral agent (in such capacity, the "Prepetition Agent"), the lenders
party thereto from time to time (the "Prepetition First Lien Lenders") and other parties thereto,
under which the Prepetition First Lien Lenders provided a loan facility of up to $600 million to
Mervyn's (the "Prepetition Senior Loan Facility") consisting of a $550 million revolving loan A
facility and a $50 million revolving loan B facility, each of which is subject to a borrowing base.
9. Amounts outstanding under the Prepetition Senior Loan Facility are secured by a
first priority security interest in all or substantially all of Mervyn's and Mervyn's Brands'
accounts, general intangibles (including, without limitation, intellectual property), goods
4
RLFI-3307040-1
(including, without limitation, inventory and equipment), commercial tort claims, receivables,
real property
5
and fixtures, chattel paper, instruments, documents and credit card sales drafts,
credit card sales slips, charge slips or receipts and other forms of store receipts, deposit accounts,
letters of credit, bankers acceptances and similar instruments (including letter of credit rights,
supporting obligations and present and future liens, security interests, rights, remedies, title and
interest in, to and in respect of receivables and other collateral), investment property, monies,
credit balances and other similar property, records, all products and proceeds of the foregoing,
and Mervyn's membership interests in Mervyn's Brands (the "Prepetition Collateral"). As of the
Petition Date, an aggregate amount of approximately $329,381,571.02, plus interest, costs and
expenses, was outstanding under the Prepetition Senior Loan Facility.
10. In addition to the Prepetition Senior Loan Facility, Mervyn's is party to that
certain Subordinated Promissory Note in the aggregate principal amount of $30 million, dated as
of November 27, 2007 (the "SCSF Note"), by and among Mervyn's, as borrower, and SCSF
Mervyn's (Offshore), Inc. and SCSF Mervyn's (US), LLC,
6
as lenders (the "Prepetition Second
Lien Lenders," and, together with the Prepetition First Lien Lenders, the "Prepetition Secured
Parties"). The SCSF Note is guaranteed by Mervyn's Brands, and the obligations of Mervyn's
and Mervyn's Brands thereunder are secured by a second lien in the Prepetition Collateral.
5
No mortgages were filed in respect of the Debtors' real estate interests, including leaseholds, by the
Prepetition Agent, the Prepetition First Lien Lenders, or the Prepetition Second Lien Lenders.
6
SCSF Mervyn's (Offshore), Inc. and SCSF Mervyn's (US), LLC are affiliates of Sun, and also hold
39.59598% and 15.94846%, respectively, of the Retail Investor Percentage Interest membership interests in the
Retail Series of Mervyn's Holdings (series relating to the operation of the retail business), 20. 17961% and
8.64765%, respectively, of the common membership interests in the Restricted Leases Series of Mervyn's Holdings
(series relating to the Restricted Leases), and 20.40651% and 8.74349%, respectively, of the preferred membership
interests in the Restricted Leases Series of Mervyn's Holdings.
5
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D. Events Leading to the Bankruptcy Filing
II. During the first quarter of 2008, Mervyn's instituted a long-term turnaround plan
designed to differentiate itself from its competitors, grow sales, and improve store productivity,
and thereby improve profitability and cash flow. However, rollout of the plan coincided with a
variety of external economic factors which have led to a precipitous decline in the Debtors'
profitability and liquidity.
12. Chief among those external factors are the decline in the housing market and the
tightening of the credit markets which have led, respectively, to a decline in consumer
discretionary spending, including in the apparel and home decor sectors, and to a tightening of
credit terms by Mervyn's suppliers and their factors. These negative external factors have
worsened in recent months. As a result of the foregoing, the ability of Mervyn's to pay its
suppliers, maintain an uninterrupted flow of merchandise into the stores and service its debt has
been severely negatively impacted. As economic conditions continued to deteriorate and
liquidity continued to tighten, the commencement of these cases became necessary to rationalize
Mervyn's finances and operations, with the objective of reorganizing the Debtors as profitable
entities.
RELIEF REQUESTED
13. By this Motion, the Debtors seek entry of the Interim and Final Orders, inter alia:
(a) under Bankruptcy Code Sections 364(c), (d) and (e), authorizing
the Debtors to obtain postpetition financing consisting of a revolving credit and letter of credit
facility and a term loan from Wachovia and the other lenders from time to time party to the
Ratification Agreement (collectively, the "DIP Lenders"), with funds thereunder available for
use in accordance with the terms set forth in the Ratification Agreement;
(b) authorizing Debtors to enter into the Ratification Agreement,
which ratifies, extends, adopts and amends the Existing Loan Agreement (as defined in the
Interim Order);
6
RLF 1-3307040-1
(c) under Bankruptcy Code Section 364(c)(l), and subject to the Carve
Out, granting superpriority claim status to the claims of the DIP Lenders under the Ratification
Agreement;
(d) under Bankruptcy Code Sections 364(c)(2), (c)(3) and (d), as
security for the repayment of the borrowings and other obligations arising under the Ratification
Agreement, authorizing the Debtors to grant to Wachovia, as administrative and collateral agent
for the DIP Lenders under the Ratification Agreement (in such capacity, the "Administrative
Agent"), security interests in and liens upon the Collateral, subject to the Carve Out and
specified priority liens;
(e) under Bankruptcy Code Sections 361, 363(c)(2) and 363(e),
authorizing the Debtors to use Prepetition Collateral, including the Cash Collateral, and to
provide adequate protection with respect to any diminution in the value of the Prepetition
Collateral;
(f) under Banlauptcy Code Sections 363 and 364, authorizing the
Debtors to use the proceeds of the DIP Credit Facility for, among other things, the repayment of
the obligations under the Prepetition Senior Loan Facility, working capital and general corporate
purposes, payment of costs of administration of the Cases and payment of prepetition expenses,
in each case, as contemplated in the Ratification Agreement and as approved by the Court;
(g) under Bankruptcy Code Section 362, modifying the automatic stay
to the extent set forth in the Ratification Agreement;
(h) pursuant to Bankruptcy Rule 4001, scheduling a preliminary
hearing on this Motion and authorizing the Debtors from the entry of the Interim Order until the
final hearing (the "Final Hearing") to obtain credit under the terms contained in the Ratification
Agreement and to utilize Collateral, including Cash Collateral, on the terms set forth in the
Interim Order; and
(i) pursuant to Bankruptcy Rule 4001, scheduling a Final Hearing on
this Motion and establishing notice procedures in respect of the Final Hearing by this Court to
consider entry of the Final Order authorizing the Debtors to borrow the balance of the DIP Credit
Facility on a final basis.
BASIS FOR RELIEF
A. The Debtors' Immediate Need For Liquidity
14. As set forth above, Mervyn's prepetition secured debt consists of (i) obligations
under the Prepetition Senior Loan Facility, which are guaranteed by Mervyn's Brands and are
secured by a first priority security interest in the Prepetition Collateral, and (ii) obligations under
7
RLF 1-3307040-1
the SCSF Note, which are guaranteed by Mervyn's Brands and are secured by a second priority
security interest in the Prepetition Collateral.
7
See First Day Affidavit a t ~ 116.
15. As a result of external economic factors described above, the ability of Mervyn's
to pay its suppliers, maintain an uninterrupted flow of merchandise into the stores, and service its
debt has been severely, negatively impacted in recent months, and, as a consequence, Mervyn's
faced a precipitous decline in its liquidity. See First Day Affidavit at ~ 117. Specifically, a
number of Mervyn's primary suppliers eliminated or sharply curtailed trade terms which resulted
in unsustainable pressure on Mervyn's liquidity. See First Day Affidavit at ~ 117. These
circumstances, together with press reports addressing Mervyn's troubled financial condition,
have created considerable uncertainty among Mervyn's vendors, customers and employees. See
First Day Affidavit a t ~ 117.
16. The Debtors' reorganization depends in large measure on restoring vendor,
customer and employee confidence and maintaining the operation of their business as they
restructure. See First Day Affidavit a t ~ 118. Accordingly, the Debtors have an immediate need
to access the DIP Credit Facility and to use Prepetition Collateral, including any Cash Collateral,
in order to, among other things, permit the orderly operation of their business by securing goods
and paying employees, preserve the going concern value of their estates, fund their
reorganization and thereby maximize recoveries for the Debtors' stakeholders. See First Day
Affidavit at ~ 118. The Debtors believe that such financing and use of Cash Collateral will
7
The Prepetition Secured Parties are party to that certain Jnterereditor Agreement, dated as of November
27, 2007 (the "Intercreditor Agreement"), by and among the Prepetition Agent, the Prepetition First Lien Lenders,
SCSF Mervyn's (US), LLC, in its capacity as collateral agent, and each of SCSF Mervyn's (US), LLC and SCSF
Mervyn's (Offshore), Inc., as investors. A copy of the lntercreditor Agreement is annexed to the proposed form of
Interim Order (attached hereto) as Exhibit B. The Prepetition Agent is also a party to that certain Intercreditor
Agreement by and among Greenwich Capital Financial Products, Inc., Goldman Sachs Commercial Mortgage
Capital, L.P. and Citigroup Global Markets Realty Corp, collectively, as mortgage lenders, and the Prepetition
Agent, dated as of December 22, 2005 (the "MDS Entities Jntercreditor Agreement"). A copy of the MDS Entities
lntercreditor Agreement is is annexed to the proposed form oflnterim Order (attached hereto) as Exhibit C.
8
RLFI-3307040-1
enable them to stabilize operations and ultimately, in conjunction with a reorganization, restore
their profitability. See First Day Affidavit at, 118.
17. Moreover, access to such financing and use of Cash Collateral on an interim basis
is necessary to enable the Debtors to immediately obtain sufficient merchandise for "back-to-
school" sales (which have already commenced and will last through the end of August), and
otherwise to avoid immediate and irreparable harm to the Debtors pending the Final Hearing.
See First Day Affidavit at, 119.
B. The Debtors' Decision To Enter Into The Ratification Agreement
18. During the weeks preceding the Petition Date, the Debtors and their advisors
examined a variety of options for resolving their liquidity issues without resorting to a Chapter
11 filing. In that regard, the Debtors shared information and engaged in discussions with
Wachovia, Sun, and numerous suppliers and their factors, among others. See First Day Affidavit
at , 120. Despite these efforts, no feasible alternatives to Chapter 11 were available, and the
Debtors' liquidity position continued to deteriorate. See First Day Affidavit at, 120.
19. As a bankruptcy filing became unavoidable, the Debtors and their advisors sought
postpetition financing from sources other than the DIP Lenders. See First Day Affidavit at ,
121. Specifically, the Debtors entered into confidentiality agreements with, provided
information to and engaged in discussions with, Bank of America, N.A., JPMorgan Chase Bank,
N.A., General Electric Capital Corporation, Credit Suisse, Wells Fargo Bank, N.A., Sun, Kimco
Realty Corporation, Gordon Brothers Group LLC, and Crystal Capital Fund, L.P. See First Day
Affidavit at , 121. Each of the financial institutions and entities contacted is a sophisticated
commercial entity with more than adequate financial resources to make debtor in possession
financing available to the Debtors. See First Day Affidavit at, 121. However, although certain
9
RLFI-3307040-1
other financing term sheets were provided, given the magnitude of the financing required, the
complexity of the Debtors' businesses, the immediacy of the Debtors' financing needs and the
liens attaching to the Debtors' prepetition assets, none of the institutions contacted were in a
position to provide debtor in possession financing that satisfied the Debtors' needs on as
comprehensive and beneficial a basis as that proposed by the DIP Lenders pursuant to the
Ratification Agreement. See First Day Affidavit a t ~ 121. Thus, the Debtors were unable to
obtain alternative postpetition financing proposals from other lenders through credit allowable as
an administrative expense, credit secured by liens on the Debtors' assets junior to the liens of the
Prepetition Secured Parties or on better terms than those provided by the DIP Lenders. See First
Day Affidavit at ~ 121.
20. In addition, in determining to enter into the Ratification Agreement, the Debtors
considered a number of factors, including that as Wachovia is the Prepetition Agent and the DIP
Lenders are the lenders under the Prepetition Senior Loan Facility, they have a substantial base
of knowledge with respect to the Debtors' capital structure, the Collateral and the Debtors'
business, all of which enabled them to act with the speed necessitated by the Debtors' liquidity
requirements. See First Day Affidavit a t ~ 122.
21. Finally, the Debtors conducted arm's-length, good-faith negotiations with the DIP
Lenders, during which the DIP Lenders agreed to various accommodations and changes to their
proposal at the Debtors' request. The Debtors ultimately decided that the proposal for debtor in
possession financing advanced by the DIP Lenders was the most favorable under the
circumstances, could be documented and accessed quickly and adequately addressed the
Debtors' reasonably foreseeable liquidity needs, while maintaining the going concern value of
the Debtors' business. See First Day Affidavit a t ~ 123. Further, the various fees and charges
10
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required by the DIP Lenders under the DIP Credit Facility are reasonable and appropriate under
the circumstances. See First Day Affidavit a t ~ 123. For the foregoing reasons, the Debtors
respectfully submit that entry into the Ratification Agreement is in the best interests of their
estates, creditors and other parties in interest.
C. Terms of the Ratification Agreement
22. The principal terms of the Ratification Agreement are as follows:
8
Administrative Agent:
DIP Lenders:
Letter of Credit Issuer:
Borrower:
Guarantor
Wachovia
Wachovia and other financial institutions selected by the
Administrative Agent
Wachovia (the "LC Issuer") or any DIP Lender at the
request ofWachovia
Mervyn's
Mervyn's Brands
8
This summary is qualified in its entirety by the provisions of the Ratification Agreement and the Interim
Order.
11
RLF l-3307040-l
DIP Credit Facility:
Revolver Maturity Date:
RLFI-3307040-1
$465,000,000 (the "Maximum Credit") consisting of (i)
revolving loans ("Revolving Loans''), subject to the
Borrowing Base and other terms described below (the
"Revolving Credit Facility"), with a portion of the
Revolving Credit Facility available for letters of credit
provided or arranged for by the LC Issuer ("LCs") with a
sublimit on LCs outstanding at any time of$125,000,000;
and (ii) Leasehold Term Loans (as defined below).
Revolving Loans may be drawn, repaid and reborrowed
subject to the terms of the Loan Agreement (as defined in
the Ratification Agreement).
Notwithstanding anything to the contrary set forth in the
Loan Agreement, the aggregate principal amount of the
outstanding Obligations in respect of Letter of Credit
Accommodations consisting of documentary letters of
credit shall not exceed $35,000,000 and the aggregate
principal amount of the outstanding Obligations in respect
of Letter of Credit Accommodations consisting of standby
letters of credit shall not exceed $90,000,000, as such
amounts may be adjusted (without exceeding the
aggregate $125,000,000 sublimit referred to above) at the
request of Mervyn's.
The Revolving Credit Facility shall be for a term ending
on the earliest of: (a) December 31, 2009; (b) the effective
date of a plan of reorganization or liquidation for
Mervyn's or Mervyn's Brands in the Chapter 11 Cases; or
(c) the last termination date set forth in the Interim Order,
unless the Final Order has been entered prior to such date,
and in such event, then the last termination date set forth
in the Final Order.
12
Borrowing Base:
RLF!-3307040-1
Revolving Loans and LCs may be provided subject to
availability under Borrowing Base A, which will be
calculated as follows:
(a) the lesser of:
(i) the amount equal to (A) eighty-five (85%)
percent of the amount of Eligible Credit Card
Receivables, plus (B) the lowest of (1) ninety
(90%) percent multiplied by the Value of the
Eligible Inventory or (2) ninety (90%) percent
of the Net Recovery Percentage multiplied by
the Value of such Eligible Inventory or (3) one
hundred percent (100%) of Mervyn's cost of
such Inventory; provided, that, on and after the
due date for the repayment of the Leasehold
Term Loans as hereinafter provided, the
foregoing percentage with respect to Eligible
Inventory shall be reduced from ninety (90%)
percent to eighty-five (85%) percent, or
(ii) $440,000,000 minus the amount of the then
outstanding Obligations under or in respect of
Borrowing Base B
minus
(b) Reserves (it being agreed that the Administrative
Agent may establish Reserves in accordance with the
terms of the Loan Agreement, without duplication, against
Borrowing Base A or Borrowing Base B).
"Borrowing Base B" shall mean an amount equal to zero.
The Net Recovery Percentage set forth above with respect
to Eligible Inventory is deemed to be modified to be
determined with reference to the reports referred to in
Section 5.8 of the Ratification Agreement and the
appraisal delivered to the Administrative Agent pursuant
to Section 7.3 of the Loan Agreement and such Net
Recovery Percentage may be increased or decreased by
the Administrative Agent, as it may determine, in
accordance with the definition of Net Recovery
Percentage, to account for the effect of the foregoing.
On and after the Petition Date, Mervyn's shall not request,
and the Administrative Agent and the DIP Lenders shall
not be required to provide or make, any Revolving Loans
B or any Loans or Letter of Credit Accommodations or
other de1:iit or financial accommodations of any kind
whatsoever, based upon Borrowing Base B.
Eligibility:
Budget:
Reserves:
RLFl3307040-l
Criteria for determining Eligible Credit Card Receivables
and Eligible Inventory will be in accordance with the
tem1s ofthe Loan Agreement.
Use of Loans shall be limited in accordance with the
Budget (subject to permitted variances set forth in the
Ratification Agreement), which shall set forth, on a
monthly basis, projected sales, projected EBITDAR and
projected operating cash flow.
For purposes hereof, "EBITDAR" shall mean "EBITDA"
as defined in the Loan Agreement plus rent and
restructuring expenses (other than legal expenses of the
DIP Lenders other than the Administrative Agent and
restructuring expenses to the extent that they exceed
$2,000,000 in any month).
In addition to the reserves set forth in the Loan
Agreement, at the Administrative Agent's sole discretion,
the Administrative Agent may, at any time and in any
increment (A) establish Reserves in respect of (i) the
Carve Out Expenses, (ii) the amount of any senior liens or
claims in or against the Collateral (defined below) that, in
the Administrative Agent's determination, have priority
over the liens and claims of the Administrative Agent and
the DIP Lenders or (iii) the amount of priority or
administrative expense claims that, in the Administrative
Agent's determination, may be required to be paid by
Debtors or their estates at any time during the Chapter 11
Cases to the extent such claims are not included in the
Budget then in effect and exceed $500,000 in the
aggregate; (B) establish Reserves to reflect that the fair
market value of Eligible Real Property Leases as set forth
in the most recent acceptable appraisals received by the
Administrative Agent with respect thereto has declined so
that the then outstanding principal amount of the
Leasehold Term Loans is greater than such percentage
with respect to such appraised values as the
Administrative Agent used in establishing the original
principal amount of the Leasehold Term Loans multiplied
by such appraised values; (C) establish Reserves to reflect
the value of Inventory at leased locations with respect to
which the lease therefor has not been assumed
commencing on the date that is ten (1 0) weeks prior to the
end of the one hundred twenty (120) day lease
rejection/assumption period, as such period may be
14
Leasehold Term Loans:
RLFI-3307040-1
extended by the Bankruptcy Court or shortened by the
Bankruptcy Court; (D) establish Reserves against the
value of Inventory held at any leased location as to which
there has been filed a landlord's motion to compel the
assumption and rejection of the lease, in an amount
reasonably determined by the Administrative Agent (after
consultation with the Debtors) and considering the
likelihood or unlikelihood of the success of such motion
on its merits in the reasonable judgment of the
Administrative Agent; or (E) establish Reserves in respect
of locations as to which "going out of business" sales are
anticipated to be conducted but for which locations the
applicable Real Property Leases do not permit the conduct
of such sales.
Reserves for LCs shall be established on the same basis as
provided in the Loan Agreement.
(a) Leasehold term loans (the "Leasehold Term Loans")
in the principal amount equal to the lesser of (i)
$25,000,000 or (ii) in the event that the Valuation Letter
attributes a value of less than $50,000,000 to the Eligible
Real Property Leases, fifty (50%) percent of such lesser
value.
(b) The proceeds of any disposition of Eligible Real
Property Leases shall be applied to the repayment of
Obligations in respect in respect of the Leasehold Term
Loans, as if such leasehold Term Loans were Revolving
Loans A under item "fifth" in Section 7.8 of the
Ratification Agreement.
(c) The Leasehold Term Loans will be drawn in a single
advance at closing. Revolving Loans and the Term Loans
are referred to herein as the "Loans."
"Eligible Real Property Leases" shall mean the real
property leases of Mervyn's under which it is a lessee,
from time to time in effect, as the same may not exist or
may hereafter be amended or modified from time to time,
to which a positive value is attributed under the Valuation
Letter.
"Valuation Letter" shall mean a letter from an appraiser of
the Eligible Real Property Leases acceptable to the
Administrative Agent, in fonn and substance satisfactory
15
Term Loan Repayment:
Minimum DIP Excess Availability:
RLF 1-3307040-1
to the Administrative Agent, specifying such appraiser's
preliminary determination of the minimum fair market
value that may reasonably be ascribed to the Eligible Real
Property Leases.
Principal, interest and other amounts due in respect of
Leasehold Term Loans will be repaid on the earlier of (a)
November 15, 2008 or (b) the termination of the Loan
Agreement.
From and after (a) the Petition Date through and including
November 29, 2008, Mervyn's shall at all times maintain
Excess Availability under Borrowing Base A of not less
than $40,000,000, (b) November 30, 2008 through and
including December 14, 2008, Mervyn's shall at all times
maintain Excess Availability under Borrowing Base A of
not less than $45,000,000 and (c) December 15,2008,
Borrower shall at all times maintain Excess Availability
under Borrowing Base A of not less than $50,000,000, it
being understood that Mervyn's shall not request and the
DIP Lenders shall not advance the foregoing minimum
Excess Availability amounts. Notwithstanding anything
to the contrary set forth in the Loan Agreement or any of
the other Financing Agreements, none of the foregoing
amounts may be reduced without the prior written consent
of the Required Supermajority Lenders.
16
Use and Application of Proceeds:
RLFI -3307040-1
All Loans and Letter of Credit Accommodations provided
by the Administrative Agent or any DIP Lender to
Mervyn's pursuant to the Financing Orders, the Loan
Agreement or otherwise, shall be used by Mervyn's for
general operating and working capital purposes in the
ordinary course of business of Mervyn's in accordance
with the Budget. Unless authorized by the Bankruptcy
Court and approved by the Administrative Agent in
writing, no portion of any administrative expense claim or
other claim relating to the Chapter 11 Cases shall be paid
with the proceeds of such Loans or Letter of Credit
Accommodations provided by the Administrative Agent
and DIP Lenders to Mervyn's, other than those
administrative expense claims and other claims relating to
the Chapter 11 Cases directly attributable to the operation
of the business of Mervyn's or Mervyn's Brands in the
ordinary course of such business in accordance with the
Financing Agreements. All collections from Collateral
and any other payments received in respect of the
obligations owing by Mervyn's to the Administrative
Agent and DIP Lenders shall be applied or deemed to be
applied by the Administrative Agent and the DIP Lenders
first to all ?repetition Obligations owing to the
Administrative Agent and the DIP Lenders and thereafter
to all postpetition obligations. Notwithstanding the
foregoing, proceeds shall not be used by the Debtors to
affirmatively commence or support, or to pay any
professional fees incurred in connection with
commencing or supporting any adversary proceeding,
motion or other action that seeks to challenge, contest or
otherwise seek to impair or object to the validity, extent,
enforceability or priority of the Administrative Agent's
and the DIP Lenders' prepetition and/or postpetition liens,
claims and rights.
17
Interest Rates:
Default Rate:
DIP Facility Fee:
Letter of Credit Fee:
Servicing Fee
RLFI-3307040-1
Mervyn's may elect that the Revolving Loans A bear
interest at a rate per annum equal to (i) three and one-half
(3.5%) percent per mmum in excess of the Adjusted
Eurodollar Rate or (ii) two (2%) percent per annum in
excess of the Prime Rate.
The Revolving Loan B shall bear interest at a rate per
annum equal to four and one-half (4.5%) percent per
annum in excess of the Adjusted Eurodollar Rate.
The Leasehold Term Loans shall bear interest at a rate per
annum equal to four and one-half (4.5%) percent per
annum in excess of the Adjusted Eurodollar Rate.
After an event of default under the DIP Credit Facility,
the applicable rates of interest set forth above and rate for
LC fees set forth below shall be increased by 2% per
annum above the aforementioned rates. Such increased
rate shall also be applicable to Revolving Loans and LCs
outstm1ding in excess of the loan availability or any
applicable limits, whether or not such excess( es) are made
with or without the Administrative Agent's or any DIP
Lender's knowledge or consent and whether made before
or after an Event of Default.
Mervyn's shall pay to the Administrative Agent, for the
account of the DIP Lenders (to the extent and in
accordance with the arrangements by and among the
Administrative Agent and the DIP Lenders), the amount
of $9,300,000, as a debtor in possession financing facility
fee, which fee shall be fully ea111ed as of the closing date,
of which $4,000,000 shall be due and payable on the
closing date, $1,000,000 of which shall be due and
payable on October I, 2008, $1,000,000 shall be due and
payable on November I, 2008 and $3,300,000 shall be
due and payable on December 15, 2008. All of the
aforementioned amounts, to the extent not then paid, shall
be immediately due and payable upon any termination of
this Agreement pursuant to the terms of the Ratification
Agreement.
As provided for in the Loan Agreement.
Mervyn's shall pay to the Administrative Agent, for its
own account, monthly a servicing fee in an amount equal
to $20,000 in respect of the services of the Administrative
18
Unused Line Fee:
DIP Credit Facility Claims
and Liens:
RLF 1-3307040-1
Agent for each month (or part thereof) while the DIP
Credit Facility remains in effect and for so long thereafter
as any of the Obligations are outstanding.
Mervyn's shall pay to the Administrative Agent, for the
account of the DIP Lenders, payable on the first day of
each month in arrears while this Ratification Agreement is
in effect and for so long thereafter as any of the
Obligations are outstanding, an unused line fee at a rate
equal to one-half of one (.5%) percent per mmum
calculated upon the amount by which the Maximum
Credit exceeds the average daily principal balance of the
outstanding Loans and LCs during the immediately
preceding month, or part thereof.
Subject to the Carve Out (as defined below), (i) the DIP
Credit Facility and (ii) all obligations of Mervyn's and
Mervyn's Brands under or in respect of the DIP Credit
Facility will be entitled to (a) super priority administrative
claim status pursuant to Section 364( c )(I) of the
Bankruptcy Code, and (b) will be secured by properly
perfected postpetition security interests and liens pursuant
to Section 364( c )(2) and ( c )(3) and Section 364( d) of the
Bankruptcy Code (the "DIP Liens") on all of the assets,
whether now existing or hereafter arising, of each of
Mervyn's and Mervyn's Brm1ds and their estates (the
"Collateral"), including: all Prepetition Collateral, all
accounts, general intangibles (including without
limitation, choses in action and other claims, recoveries
and any actions maintained or taken pursuant to Sections
544, 545, 547, 548, 549 or 550 of the Banlauptcy Code,
subject to the entry of the Final Order), chattel paper,
documents, instruments, supporting obligations, letters of
credit, letter-of-credit rights, deposit accounts, investment
property, inventory, equipment, fixtures and real property,
and all products and proceeds thereof. The obligations
secured by the Collateral may include hedging and bank
product obligations of Mervyn's and Mervyn's Brands to
the DIP Lenders.
The security interests and liens of the Administrative
Agent may be subject to (i) valid, enforceable and
unavoidable liens of record as of the date of the
commencement of the Chapter II Cases that are
permitted under the Loan Agreement (the "Permitted
Prior Liens"), and (ii) the Carve Out.
19
Adequate Protection Claims and
Liens of Prepetition First Lien
Lenders:
Adequate Protection Claims and
Liens of Prepetition Second Lien
Lenders:
RLFI-3307040-1
Subject to the Carve Out, as adequate protection for any
diminution in the interests of the Prepetition First Lien
Lenders in the Collateral, they will receive (i) replacement
liens on the Collateral (the "A/L Replacement Lien"),
which shall be junior only to the liens granted to the
Administrative Agent and the DIP Lenders in the
Collateral securing the Postpetition Obligations, (ii) a
superpriority administrative expense claim pursuant to
Bankruptcy Code Section 507(b) (the "NL Adequate
Protection Supemriority Claim") and (iii) ongoing
payment of fees, costs and expenses, including, without
limitation, reasonable legal and other professionals' fees
and expenses, of the Administrative Agent and the DIP
Lenders as required under the Prepetition Senior Loan
Facility.
Subject to the Carve Out, as adequate protection for any
diminution in the interests of the Prepetition Second Lien
Lenders in the Collateral, they will receive (i) replacement
liens on the Collateral, which will not attach to the
Avoiding Actions (defined below) and shall be junior to
the right of payment of all Obligations owing to the
Administrative Agent and the DIP Lenders and the liens
and security interests granted to the Administrative Agent,
for the benefit of all Secured Parties (as defined in the
Interim Order) pursuant to the Interim Order, including,
without limitation, the A/L Replacement Lien, (ii) an
allowed superpriority administrative expense claim
pursuant to Bankruptcy Code Section 507 (b) that shall
not attach, extend to, or be repaid from proceeds of any
Avoiding Actions and shall be junior to the right of
payment of all Obligations owing to the Administrative
Agent and the DIP Lenders and the superpriority claim
and the A/L Adequate Protection Superpriority Claim
granted in favor of the Administrative Agent for the
ratable benefit of the DIP Lenders; and (iii) subject to the
rights of the Debtors, any statutory committee (the
"Committee(s)") and other parties in interest under
Bankruptcy Code Section 506(b) to later assert that such
payments should be allocated to a reduction of the
principal amount of the SCSF Note, payments of legal
and other professional fees and expenses solely with
respect to actions taken and expenses incurred in their
capacities as Subordinated Note Agent and Subordinated
Noteholders, not to exceed $75,000 in the aggregate in
any month during these Chapter 11 Cases.
20
Carve Out:
Representations and Warranties:
Financial Covenants:
Affirmative and Negative
Covenants:
RLFI-3307040-1
Following the declaration by the Administrative Agent of
an Event of Default, the payment of allowed and unpaid
professional fees and disbursements incurred by Mervyn's
and the Committees in an aggregate amount not in excess
of $4,000,000, plus unpaid fees pursuant to Section 1930
of the Banlauptcy Code and to the Clerk of the
Bankruptcy Court (all of the foregoing, the "Carve Out").
As provided in the Loan Agreement, subject to such
additional representations and warranties as may be
appropriate or desirable with respect to the Chapter II
Cases.
In addition to the Excess Availability requirement noted
above, as provided in the Ratification Agreement,
including (i) Mervyn's shall achieve not less than ninety
(90%) percent of its projected sales for each calendar
month as set forth in the Budget with respect to such
month; and (ii) Mervyn's shall not utilize more than one
hundred ten (110%) percent of its projected utilization of
Revolving Loans with respect to any calendar month as
set forth in the Budget with respect to such month.
Affirmative and negative covenants will be in accordance
with the terms of the Loan Agreement.
Not later than seven (7) days after the Petition Date,
Mervyn's shall cause to be delivered to the
Administrative Agent a report with respect to Mervyn's
Inventory, by type, location and SKU, prepared by a
nationally recognized appraiser acceptable to the
Administrative Agent, and in form and substance
satisfactory to the Administrative Agent, which report
shall be updated by such appraiser in a manner
satisfactory the Administrative Agent every fourteen (14)
days thereafter. In addition, not later than Friday of each
week, Mervyn's shall deliver to the Administrative Agent,
a rolling thirteen-week projection of cash flow, in form
and substance satisfactory to the Administrative Agent.
Not more than fourteen (14) days after the Closing Date,
Mervyn's shall deliver to the DIP Lenders a list of not less
than fifteen (15) retail locations of Mervyn's with respect
to which Mervyn's shall file a motion in support of
obtaining approval of the Bankruptcy Court to conduct
"going out of business" sales of all Inventory at such
21
Events of Default:
Remedies on Event of
Default:
Waivers:
RLF 1-3307040-1
locations as soon as possible and shall commence such
sales not later than forty-five ( 45) days following the
filing of such motion and shall complete such sales in a
commercially reasonable manner. Promptly following the
completion of the foregoing sales, Mervyn's shall market,
in accordance with its reasonable business judgment, for
assignment and sale, the Real Property Leases having a
positive value at such retail locations and effect the
disposition thereof as soon as commercially reasonable.
Events of Default as provided in the Loan Agreement.
In addition to other customary remedies, upon the
occurrence and continuance of an Event of Default and
after providing five (5) business days' prior written notice
to counsel for the Debtors, counsel for the Committees (if
appointed) and the U.S. Trustee, the Administrative
Agent, acting on behalf of itself and the other DIP
Lenders, shall be entitled to take any action and exercise
all rights and remedies provided to it by the Interim Order,
the Financing Agreements or applicable law as the
Administrative Agent may deem appropriate in its sole
discretion to, among other things, proceed against and
realize upon the Collateral or any other assets or properties
of the Debtors' estates upon which the Administrative
Agent, for the benefit of itself and the other DIP Lenders,
has been or may hereafter be granted liens or security
interests.
As provided in the Loan Agreement and the Interim Order
or the Final Order, including, without limitation, waiving
any right that the Debtors may have to seek authority (i) to
use cash collateral ofthe Administrative Agent and the
DIP Lenders, (ii) to obtain postpetition loans or other
financial accommodations other than from the
Administrative Agent and the DIP Lenders or as may be
otherwise expressly permitted pursuant to the Loan
Agreement, (iii) to challenge the application of any
payments received by the Administrative Agent or the DIP
Lenders pursuant to Section 506(b) of the Bankruptcy
Code, or to assert that the value of the Prepetition
Collateral is less than the Prepetition Obligations, (iv) to
propose, support or have a plan of reorganization that does
not provide for the indefeasible payment in cash in full
and satisfaction of all Obligations on the effective date of
such plan, (v) subject to the entry of the Final Order, to
22
Release:
surcharge the Collateral pursuant to Section 506( c) of the
Bankruptcy Code (with a waiver of a right to surcharge
under Section 506( c) being granted in the Interim Order
for costs incurred during the period between the Interim
Order and the Final Order), or (vi) to seek relief under the
Bankruptcy Code, including without limitation, under
Section 105, to the extent any such relief would in any
way restrict or impair the rights and remedies of the
Administrative Agent or any DIP Lender as provided in
the Interim Order or the Financing Agreements; provided,
however, that the Administrative Agent may otherwise
consent to various of the foregoing relief, but no such
consent shall be implied from any other action, inaction or
acquiescence by the Administrative Agent or any DIP
Lender.
In consideration of the Administrative Agent and the DIP
Lenders providing the DIP Credit Facility, each Debtor,
on behalf of itself and its successors and assigns
(collectively, the "Releasors") shall forever release the
Administrative Agent, each DIP Lender and their
respective participants, officers, directors, agents,
attorneys and predecessors-in-interest (collectively, the
"Releasees") of and from any and all claims, demands,
liabilities, responsibilities, disputes, remedies, causes of
action, indebtedness and obligations, of every kind, nature
and description, including, without limitation, any so-
called "lender liability" claims or defenses, in respect of
events that occurred on or prior to the date of the entry of
the Interim Order. In addition, upon the repayment of all
Obligations owed to the Administrative Agent and the
DIP Lenders by the Debtors and termination of the rights
and obligations arising under the Financing Agreement
and either a Final Order or extended Interim Order, as the
case may be (which payment and termination shall be on
terms and conditions acceptable to the Administrative
Agent), the Administrative Agent and the DIP Lenders
shall be released from any and all obligations, liabilities,
actions, duties, responsibilities and causes of action
arising or occurring in connection with or related to the
Financing Agreements or the applicable Financing Order.
D. Provisions that Potentially Implicate Local Rule 4001-2
23. Rule 4001-2 of the Local Rules of Bankruptcy Practice and Procedure of the
United States Bankruptcy Court for the District of Delaware (the "Local Rules") requires that
23
RLFI-3307040-1
certain provisions contained in the Ratification Agreement and the Interim Order be highlighted
and that the Debtors provide justification for the inclusion of such highlighted provision(s).
24. Local Rule 4001-2(a)(i) provides:
RLFI-3307040-1
Provisions to be Highlighted. All Financing Motions must
(a) recite whether the proposed form of order and/or underlying
cash collateral stipulation or loan agreement contains any provision
of the type indicated below, (b) identify the location of any such
provision in the proposed form of order, cash collateral stipulation
and/or loan agreement and (c) justify the inclusion of such
provision:
(A) Provisions that grant cross-collateralization
protection (other than replacement liens or other adequate
protection) to the prepetition secured creditors (i.e., clauses that
secure prepetition debt by postpetition assets in which the secured
creditor would not otherwise have a security interest by virtue of
its prepetition security agreement or applicable law);
(B) Provisions or findings of fact that bind the estate or
other parties in interest with respect to the validity, perfection or
amount of the secured creditor's prepetition lien or the waiver of
claims against the secured creditor without first giving parties in
interest at least seventy-five (75) days from the entry of the order
and the creditors' committee, if formed, at least sixty (60) days
from the date of its formation to investigate such matters;
(C) Provisions that seek to waive, without notice,
whatever rights the estate may have under 11 U.S.C. 506(c);
(D) Provisions that immediately grant to the prepetition
secured creditor liens on the debtor's claims and causes of action
arising under 11 U.S.C. 544, 545, 547, 548 and 549;
(E) Provisions that deem prepetition secured debt to be
postpetition debt or that use postpetition loans from a prepetition
secured creditor to pay part or all of that secured creditor's
prepetition debt, other than as provided in II U.S.C. 552(b);
(F) Provisions that provide disparate treatment for the
professionals retained by a creditors' committee from those
professionals retained by the debtor with respect to a professional
fee carve-out; and
(G) Provisions that prime any secured lien without the
consent of that lienor.
24
25. The Debtors believe that the following provisions of the Ratification Agreement
are required to be identified in accordance with Local Rule 4001-2 and that such provisions are
justified and necessary in the context and circumstances of these cases.
(i) Local Rule 4001-2(a)(i)(A)
26. Local Rule 4001-2(a)(i)(A) requires a movant to identify provisions that grant
cross-collateralization protection (other than replacement liens or other adequate protection) to
the prepetition secured creditors. The Interim Order provides that the Administrative Agent and
the DIP Lenders shall be granted first priority perfected security interests in and liens upon the
Collateral, which shall secure all prepetition and postpetition obligations of Mervyn's and
Mervyn's Brands owing to such entities. See Interim O r d e r ~ 2.1.1.
27. The Debtors submit that that the postpetition financing proposal submitted by the
DIP Lenders is the best available under the circumstances. Substantially all of the Debtors'
assets are already encumbered by liens and security interests securing the Debtors' obligations
under the Prepetition Senior Loan Facility and the SCSF Note. In addition, the funds lent
pursuant to the DIP Credit Facility and used by the Debtors to maintain their operations
postpetition will, over time, generate collections that, in turn, will repay the Prepetition
Obligations owing to the Administrative Agent and the DIP Lenders. Thus, the impact of cross-
collateralization on the estate will be reduced. The Debtors therefore respectfully submit that
this requirement is reasonable under the circumstances.
(ii) Local Rule 4001-2(a)(i)(B)
28. Local Rule 4001-2(a)(i)(B) requires a movant to identify provisions that bind the
estates or other parties in interest with respect to the validity, perfection or amount of the secured
creditor's prepetition lien or the waiver of claims against the secured creditor without first giving
25
RLFI-3307040-1
parties in interest at least 75 days from the entry of the order and the creditors' committee, if
formed, at least 60 days from the date of its formation to investigate such matters. See Del.
Bankr. L.R. 4001- 2(a)(i)(B).
29. The Interim Order provides that (a) any Committee, and no other party, will have
60 days from the date of its appointment by the United States Trustee, and (b) in the event no
Committee is appointed within thirty (30) days following the Petition Date, any party in interest
with requisite standing will have seventy-five (75) calendar days from the entry of the Interim
Order, to investigate (i) the existence, validity or amount of the Prepetition Obligations, (ii) the
extent, legality, validity, perfection or enforceability of the Administrative Agent's and the DIP
Lenders' prepetition liens and security interests in the Prepetition Collateral, as acknowledged
and agreed by the Debtors in the Interim Order, or (iii) the Administrative Agent's and the DIP
Lenders' right to apply proceeds of postpetition collateral against Prepetition Obligations in
satisfaction of the Administrative Agent's and the DIP Lenders' prepetition liens as provided for
in this Interim Order; provided that the only grounds for such an objection is that the Prepetition
Obligations were not fully secured by the Prepetition Collateral as of the Petition Date and such
application unduly advantaged the Administrative Agent and the DIP Lenders as against other
similarly situated creditors of the Debtors' Estates. Interim Order at , 4.1. As this provision
affords parties in interest the requisite investigation period, the Debtors respectfully submit that it
complies with the Local Rules.
(iii) Local Rule 4001-2(a)(i)(C)
30. Local Rule 4001-2(a)(i)(C) requires explicit disclosure of provisions that
constitute a waiver, without notice, of the estates' rights under Bankruptcy Code Section 506(c).
The Interim Order contains such a provision, as described above. See Interim Order , 4.3.
26
RLFI-3307040-1
While parties in interest will not have an opportunity to be heard with respect to the waiver as it
applies to the Interim Financing Period, the costs and expenses of administration accruing during
such period should be limited. In addition, all parties in interest will have an opportunity to be
heard with respect to the effectiveness of such waiver going forward in the Cases at the hearing
on the Final Order.
(iv) Local Rule 4001-2(a)(i)(D)
31. Local Rule 4001-2(a)(i)(D) requires disclosure of provisions under which the
Debtors grant liens on the Debtors' claims or causes of action under 11 U.S.C. 544, 545, 547,
548 and 549 (the "Avoiding Actions"). The Interim Order provides the DIP Lenders with a lien
on the Avoiding Actions, subject to the entry of the Final Order approving such relief. See
Interim Order ~ 2.1.1. As set forth herein, the Debtors have an immediate need to access the
DIP Credit Facility and have determined that the terms of the DIP Credit Facility are the best
available under the circumstances. The Debtors respectfully submit that the proposed lien is
therefore reasonable under the circumstances, especially as its grant is subject to the hearing on
the Final Order.
(v) Local Rule 4001-2(a)(i)(E)
32. Local Rule 4001-2(a)(i)(E) reqmres a description of provisions which
contemplate the use of postpetition loans from a prepetition secured creditor to pay part or all of
that secured creditor's prepetition debt. See Del. Bankr. L. R. 4001-2(a)(i)(E). The Debtors
propose to use all collections from Collateral to repay the Prepetition Obligations owing to the
Administrative Agent and the DIP Lenders. See Interim O r d e r ~ 1.5.
33. The Debtors submit that the postpetition financing proposal submitted by the DIP
Lenders is the best available under the circumstances and that entry into the Ratification
Agreement is in the best interests of the Debtors and their estates. Substantially all of the
27
RLFI-3307040-1
Debtors' assets are encumbered by the liens and security interests securmg the Debtors'
obligations under the Prepetition Senior Loan Facility and the SCSF Note. None of the potential
lenders approached by the Debtors was willing to extend credit on a junior priority basis. Thus,
absent payment in full of the obligations owed under the Prepetition Senior Loan Facility, the
Debtors would be required to attempt to "prime" the liens of the Prepetition First Lien Lenders.
Even if the Debtors had been able to locate a debtor in possession lender willing to provide such
a priming facility, the Debtors would have risked further harm to their business had they chosen
to engage in such expensive, time-consuming and uncertain litigation.
34. Moreover, as set forth above, the Debtors considered a number of factors and
engaged in good-faith negotiations with the DIP Lenders prior to determining to enter into the
Ratification Agreement. Given the Debtors' immediate liquidity needs, the DIP Lenders' ability
to act quickly was a very significant factor in the Debtors' determination. The elimination of the
need to pay interest and fees to the Prepetition First Lien Lenders upon the repayment of the
prepetition debt was also important to the Debtors' determination, as was the reasonableness,
under the circumstances, of the various fees and charges required by the DIP Lenders under the
DIP Credit Facility.
35. Finally, repayment of the debt owed to the Prepetition Lenders will not prejudice
other creditors because the Interim Order provides that the approval of the DIP Credit Facility is
without prejudice to the right of the Committee(s) (or, if none, parties in interest) to contest or
challenge the validity of the Prepetition First Lien Lenders' liens. See Interim O r d e r ~ 4.1. For
the foregoing reasons, the Debtors respectfully submit that the repayment of the obligations
under the Prepetition Senior Loan Facility is appropriate in light of the circumstances of these
Cases.
28
RLFI-3307040-l
36. Courts have approved debtor in possession financing facilities that provided for
the repayment of prepetition indebtedness owed pursuant to secured prepetition credit facilities.
See, l0b, In re Hoop Holdings, Inc., 08-10544 (BLS) (March 28, 2008); In re Hancock Fabrics,
Inc., 07-10353 (BLS) (March 22, 2007).
(v) Local Rule 4001-2(a)(i)(G)
37. Pursuant to Local Rule 4001-2(a)(i)(G), a movant must describe provisions of the
proposed debtor in possession facility which contemplate a priming of any secured lien without
the consent of that lienor. See Del. Bankr. L.R. 4001-2(a)(i)(G).
38. The DIP Credit Facility is a "priming" facility inasmuch as the liens being granted
to the DIP Lenders will be senior to the existing liens of the ?repetition Secured Parties on the
?repetition Collateral. The ?repetition First Lien Lenders have consented to the terms of the DIP
Credit Facility and the Interim and Final Orders, including the priming of those liens securing
?repetition Senior Loan Facility obligations.
39. The ?repetition Second Lien Lenders have also consented to the terms of the DIP
Credit Facility and the Interim and Final Orders, including the priming of those liens securing the
SCSF Note obligations. In addition, the Ratification Agreement leaves intact the priorities of the
liens granted under the ?repetition Senior Loan Facility as they existed prior to the
commencement of this proceeding and is therefore consistent with the Intercreditor Agreement
9
9
Section 5.4 of the Intercreditor Agreement provides: "If any Debtor shall become subject to a proceeding
under the U.S. Bankruptcy Code and if [the !'repetition Agent] and [the !'repetition First Lien Lenders] desire to
pennit the use of cash collateral or to provide financing to Debtors under either Section 363 or Section 364 of the
U.S. Bankruptcy Code, [the !'repetition Second Lien Lenders] agree as follows: (a) adequate notice to [the
Prepetition Second Lien Lenders] shall have been provided for such financing or use of cash collateral if [the
!'repetition Second Lien Lenders] receive notice two (2) business days prior to the entry of the order approving such
financing or use of cash collateral and (b) no objection will be raised by [the !'repetition Second Lien Lenders) to
any such financing or use of cash collateral on the ground of a failure to provide 'adequate protection' for [the
!'repetition Second Lien Lenders'] Liens on the Collateral or any other grounds, provided [the !'repetition Second
Lien Lenders) retain a Lien on the post-petition Collateral with the same priority as existed prior to the
commencement of the proceeding under the U.S. Bankruptcy Code. For purposes of this Section, notice of a
29
RLFI-3307040-l
40. As set forth above, the Debtors were unable to obtain financing on more favorable
terms from sources other than the DIP Lenders. The Debtors have an immediate need to obtain
financing and use the Prepetition Collateral in order to ensure, inter alia, that the Debtors have
sufficient working capital and liquidity to operate and maintain the going concern value of their
estates during their reorganization. Accordingly, the Debtors respectfully submit that the
aforementioned circumstances demonstrate that the above-described provisions are necessary
and appropriate and should be authorized and approved by this Court.
APPLICABLE AUTHORITY
41. Bankruptcy Code Section 364( c) provides:
If the [debtor in possession] is unable to obtain unsecured credit allowable under
section 503(b )(1) of this title as an administrative expense, the court, after notice
and a hearing, may authorize the obtaining of credit or the incurring of debt-
(1) with priority over any or all administrative expenses of the kind specified in
section 503(b) or 507(b) of this title;
(2) secured by a lien on property of the estate that is not otherwise subject to a
lien; or
(3) secured by a junior lien on property of the estate that is subject to a lien.
II U.S.C. 364(c).
Bankruptcy Code Section 364( d)(!) provides:
The court, after notice and a hearing, may authorize the obtaining of credit or the
incurring of debt secured by a senior or equal lien on property of the estate that is
subject to a lien only if-
(A) the [debtor in possession] is unable to obtain such credit otherwise; and
(B) there is adequate protection of the interest of the holder of the lien on the
property of the estate on which such senior or equal lien is proposed to be granted.
II U.S.C. 364(d).
proposed financing or use of cash collateral shall be deemed given when given, in the manner prescribed by Section
5.5 hereof, to [the Prepetition Second Lien Lenders]."
30
RLFI-3307040-1
42. Bankruptcy Rule 4001(c)(2) provides, in relevant pmt:
The court may commence a final hearing on a motion for authority to obtain
credit no earlier than 15 days after service of the motion. If the motion so
requests, the court may conduct a hearing before such 15 day period expires, but
the court may authorize the obtaining of credit only to the extent necessary to
avoid immediate and irreparable harm to the estate pending a final hearing.
Fed. R. Bankr. P. 4001(c)(2).
4 3. Bm1kruptcy Rule 4001 (d) provides, in relevant part, that (i) a motion for approval
to modify or terminate the automatic stay shall be served on any committee appointed pursuant
to Bankruptcy Code Section II 02, on the creditors included on the list filed under Bankruptcy
Rule I 007( d), and on such other entities as the court may direct, and (ii) objections may be filed
within 15 days of the mailing of the notice of the motion and the time for filing objections
thereto. See Fed. R. Bania. P. 4001(d)(1)- (2).
A. The DIP Credit Facility
44. As set forth above, based on discussions with potential lenders other than the DIP
Lenders, the Debtors were unable to obtain postpetition financing on an unsecured basis or on a
junior priority basis to the Prepetition Secured Parties in an amount, and within the timeframe,
that the Debtors' current liquidity situation mandated.
45. The Debtors negotiated the Ratification Agreement at arm's-length and have
determined, in the exercise of their business judgment, that it is the best proposal under the
circumstances. Provided that this judgment does not run afoul of the provisions of, and policies
underlying, the Bankruptcy Code, courts grant a debtor considerable deference in acting in
accordance with its business judgment. See, ~ . In re Ames Dept. Stores, Inc., 115 B.R. 34, 40
(Ba!1la. S.D.N.Y. 1990) (courts have discretion under Bankruptcy Code 364 to permit debtors
to exercise reasonable business judgment so long as (i) the terms of the financing agreement do
31
RLFI-3307040-1
not "leverage the bankruptcy process and powers" and (ii) the financing agreement's purpose is
primarily to benefit the estate, and not a party in interest).
46. The financing under the DIP Credit Facility provides additional liquidity to the
Debtors sufficient to enable them, inter alia, to (a) minimize disruption to their business and
operations, (b) preserve and maximize the value of their estates for the benefit of all creditors,
and (c) avoid immediate and irreparable harm to their businesses, their creditors, their
employees, and their assets. Without the financing provided for in the Ratification Agreement,
the Debtors will not be able to meet their direct operating expenses and will suffer irreparable
hann, and their entire reorganization effort will be jeopardized.
4 7. The Debtors believe that the terms and conditions of the Ratification Agreement,
including the fee structure set forth in the Ratification Agreement, are fair and reasonable under
the circumstances. Accordingly, the Debtors request that the DIP Lenders be afforded the
benefits of Bankruptcy Code Section 364( e) in respect of the Ratification Agreement.
48. Finally, the Prepetition First Lien Lenders and the Prepetition Second Lien
Lenders have consented to the entry of the Interim Order. Based upon the foregoing, the Debtors
respectfully request that the Court approve the DIP Credit Facility in accordance with the terms
set forth in the Interim Order and the Ratification Agreement.
B. Use of Cash Collateral
49. In addition to the need for debtor in possession financing, the Debtors require
immediate use of the Cash Collateral pending a final hearing on this Motion. The Debtors
require use of Cash Collateral to be able to pay operating expenses, including payroll, and to pay
vendors to restore and ensure a continued supply of goods essential to the Debtors' continued
viability.
32
RLFI-33070401
50. Bankruptcy Code Section 363(c)(2) provides that the Debtors may not use, sell, or
lease cash collateral unless "(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 this section." 11 U.S.C. 363(c)(2). The Prepetition First Lien Lenders and
the Prepetition Second Lien Lenders have consented to the Debtors' use of Cash Collateral on
the terms and conditions set forth in the Interim Order.
51. Based upon the foregoing, the Debtors respectfully request that the Court
authorize the Debtors to use the Cash Collateral in accordance with the terms set forth in the
Interim Order and the Ratification Agreement.
C. Adequate Protection
52. In exchange for the Debtors' use of the Prepetition Collateral, the Debtors have
agreed to provide certain adequate protection to the Prepetition Secured Parties.
10
To that end,
the Debtors and the Prepetition Secured Parties have negotiated, and the Debtors request that the
Court approve, as of the Petition Date, certain protections of the Prepetition Secured Parties'
interests in the Collateral from any diminution in value, including from the incurrence of the DIP
Credit Facility and the imposition of the automatic stay pursuant to Bankruptcy Code Section
362.
53. Such protections include, among other things, granting the Prepetition First Lien
Lenders (i) replacement liens in all Collateral (subject to certain interests and the Carve Out, as
set forth in the Interim Order), (ii) a superpriority claim under Section 507(b) (subject to the
Carve-Out) and (iii) ongoing payment of fees, costs and expenses, including, without limitation,
reasonable legal and other professionals' fees and expenses, due under the Prepetition Senior
10
Bankruptcy Code Section 364( d) requires that adequate protection be provided where the liens of
secured creditors are being primed to secure the obligations under a debtor in possession financing facility. See 11
u.s.c. 364(d).
33
RLF I -3307040- I
Loan Facility. Such protections also include granting to the Prepetition Second Lien Lenders (i)
a replacement lien upon all assets of the Debtors, other than Avoiding Actions (subject to the
Carve Out), (ii) a superpriority claim under Section 507(b) (subject to the Carve Out) and (iii)
subject to the rights of the Debtors, any Committee and other parties in interest under
Bankruptcy Code Section 506(b) to later assert that such payments should be allocated to a
reduction of the principal amount of the SCSF Note, payments of legal and other professional
fees and expenses solely with respect to actions taken and expenses incurred in their capacities as
Subordinated Note Agent and Subordinated Noteholders, not to exceed $75,000 in the aggregate
in any month during these Chapter 11 Cases.
54. The proposed adequate protection is intended to protect the Prepetition Secured
Parties from diminution in the value of their interest in the Prepetition Collateral during the
period it is used by the Debtors. See, M., In re Kain, 86 B.R. 506, 513 (Bankr. W.D. Mich.
1988); In re Beker Indus. Corp., 58 B.R. 725, 736 (Bania. S.D.N.Y. 1986). The Debtors believe
that the proposed adequate protection is fair and reasonable and in accord with Bankruptcy Code
Section 361.
55. The Prepetition First Lien Lenders and the Prepetition Second Lien Lenders have
agreed that the adequate protection described above is sufficient to allow the Debtors to use the
Cash Collateral as the Debtors reorganize. Based upon the foregoing, the Debtors respectfully
request that the Court authorize the Debtors to access the Prepetition Collateral, including,
without limitation, the Cash Collateral, and to provide adequate protection in accordance with
the terms set forth in the Interim Order and the Ratification Agreement.
D. Modification of the Automatic Stay
56. Bankruptcy Code Section 362 provides for an automatic stay upon the filing of a
bankruptcy petition. The proposed DIP Credit Facility contemplates the modification of the
34
RLFJ-33070401
automatic stay (to the extent applicable) to the extent necessary to permit the Administrative
Agent and/or the DIP Lenders to perform any act authorized or permitted under, or by virtue of,
the Interim Order or the Ratification Agreement.
57. Stay modification provisions of this type are standard features of postpetition
debtor in possession financing facilities and, in the Debtors' business judgment, are reasonable
under the present circumstances. Accordingly, the Debtors respectfully request that the Court
authorize the modification of the automatic stay in accordance with the terms set forth in the
Interim Order and Ratification Agreement.
E. Interim Approval of the DIP Credit Facility
58. As set forth above, Bankruptcy Rules 400 I (b) and (c) provide that a final hearing
on a motion to use cash collateral pursuant to Banlauptcy Code Section 363 or to obtain credit
under Banlauptcy Code Section 364 may not be commenced earlier than 15 days after the
service of such motion. Upon request, however, the Court is empowered to conduct a
preliminary expedited hearing on the motion and to authorize the use of cash collateral and the
obtaining of credit to the extent necessary to avoid immediate and irreparable harm to a debtor's
estate.
59. The Debtors respectfully request that the Court schedule and conduct a
preliminary hearing on the Motion and authorize the Debtors from the entry of the Interim Order
until the Final Hearing to obtain credit under the terms contained in the Ratification Agreement
and to utilize Cash Collateral.
F. Establishing Notice Procedures and Scheduling Final Hearing
60. Notice of this Motion will be given to: (i) the United States Trustee for the
District of Delaware; (ii) counsel to the proposed DIP Lenders; (iii) counsel to the Prepetition
First Lien Lenders, (iv) counsel to the Prepetition Second Lien Lenders; (v) counsel for Lubert-
35
RLFJ.JJ070401
Adler Real Estate Fund IV, L.P., Lubert-Adler Real Estate Parallel Fund IV, L.P. and Lubert-
Adler Capital Real Estate Fund IV, L.P., (vi) counsel for Cerberus Capital Management, L.P. and
Cerberus Mervyn's Investors, LLC, (vii) SCSF Mervyn's (US), LLC and SCSF Mervyn's
(Offshore), Inc., (viii) counsel to the MDS Entities; (ix) the parties included on the Debtors' list
of thirty (30) largest unsecured creditors; and (x) any known holders of prepetition liens
(collectively, the "Initial Notice Parties"). The Debtors submit that, under the circumstances, no
further notice of the hearing on the interim financing is necessary and request that any further
notice be dispensed with and waived.
61. The Debtors further respectfully request that the Court schedule the Final Hearing
and authorize them to mail copies of the signed Interim Order, which fixes the time, date and
manner for the filing of objections, to the Initial Notice Parties and (i) any party that has filed
prior to such date a request for notices with this Conrt; (ii) counsel for any official committee(s);
(iii) the Securities and Exchange Commission; and (iv) the Internal Revenue Service. The
Debtors request that the Court consider such notice of the Final Hearing, including without
limitation, notice that the Debtors will seek approval at the Final Hearing of (x) a waiver of
rights under Bankruptcy Code Section 506( c) and (y) the granting of liens on proceeds of
A voiding Actions to the DIP Agent and the DIP Lenders, to be sufficient notice under
Banlauptcy Rule 400 I and Local Rule 2002-1.
11
62. No previous request for the relief sought herein has been made to this Court or
any other court.
11
Local Rule 2002-l(b) provides that "[i]n chapter II cases, all motions ... shall be served only upon
counsel for the debtor, the United States Trustee, counsel for all official committees, all parties who file a request for
service of notices under Fed. R. Bankr. P. 2002(i) and all parties whose rights are affected by the motion. If an
official unsecured creditors' committee has not been appointed, service shall be made on the twenty (20) largest
unsecured creditors in the case in lieu of the creditors' committee."
36
RLF 13307040-l
CONCLUSION
WHEREFORE the Debtors respectfully request that the Court (i) enter an order
substantially in the form of the proposed Interim Order; (ii) after the Final Hearing, enter the
Final Order substantially in the form that shall be filed with the Court; and (iii) such other and
further relief as this Court may deem just and proper.
Dated: July 29, 2008
Wilmington, Delaware
RLF 1-3307040-1
Respectfully submitted,
Mark D. Collins (No. 2981)
Daniel J. DeFranceschi (No. 2732)
Christopher M. Samis (No. 4909)
L. Katherine Good (No. 51 01)
RICHARDS, LAYTON & FINGER, P.A.
One Rodney Square
920 North King Street
Wilmington, Delaware 1980 I
Telephone: (302) 651-7700
Facsimile: (302) 651-7701
Email: collins@rlf.com
and
defranceschi@rlf.com
samis@rlf.com
good@rlf.com
Howard S. Beltzer
Wendy S. Walker
MORGAN LEWIS & BOCKIUS LLP
1 0 1 Park A venue
New York, New York 10178-0060
Telephone: (212) 309-6000
Facsimile: (212) 309-6001
Email: hebeltzer@morganlewis.com
wwalker@morganlewis.com
Proposed Attorneys for the Debtors and
Debtors in Possession
37
EXHIBIT A
RLF 1-3307040-1
In re:
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
Chapter II
MERVYN'S HOLDINGS, LLC, ET AL
)
)
)
)
)
)
Case No. 08-____ (
Debtors.
ORDER (A) AUTHORIZING DEBTORS TO OBTAIN INTERIM POST-PETITION
FINANCING AND GRANT SECURITY INTERESTS AND SUPERPRIORITY
ADMINISTRATIVE EXPENSE STATUS PURSUANT TO 11 U.S.C. 105 AND 364(c);
(B) MODIFYING THE AUTOMATIC STAY PURSUANT TO 11 U.S.C. 362; (C)
AUTHORIZING DEBTORS TO ENTER INTO AGREEMENTS WITH W ACHOVIA
cAJ>ffAk.l!JNANcJ<: CQRJ>.O.MTIQN.(WJ<:SJ'J<:RN},Ii'l .rrs .. cAJ>ACITY AS
ADMINISTRATIVE AND COLLATERAL AGENT FOR ITSELF AND CERTAIN
OTHER LENDERS; (D) AUTHORIZING DEBTORS TO USE COLLATERAL
SUBJECT TO LIENS AND SECURITY INTERESTS INCLUDING CASH
COLLATERAL AND GRANTING ADEQUATE PROTECTION IN RESPECT
THEREOF AND (E) SCHEDULING A FINAL HEARING PURSUANT TO
BANKRUPTCY RULE 4001
Upon the motion (the "Motion"), dated ___ _ , 200_, of Mervyn's Holdings, LLC
("Holdings") Mervyn's LLC ("Borrower") and Mervyn's Brands, LLC ("Guarantor" and
together with Holdings and Borrower, each individually, a "Debtor" and collectively, the
"Debtors"), each as a Debtor and Debtor-in-Possession in the above-captioned Chapter II cases
(collectively, the "Cases"), pursuant to Sections !05, 361, 362, 363, 364(c)(l), 364(c)(2),
364(c)(3) and 507 of Title II of the United States Code, II U.S.C 10I, et seq. (the
"Bankruptcy Code") and Rules 2002, 400I(c), and 9014 of the Federal Rules of Bankruptcy
Procedure (the "Bankruptcy Rules"), and DeL Bankr. LR. 400 I-2, seeking, among other things:
(I) authorization for Borrower to obtain post-petition loans, advances
and other financial accommodations on an interim basis for a period through and including the
date of the Final Hearing (as defined below) from Wachovia Capital Finance Corporation
(Western), in its capacity as agent (in such capacity, "Agent") for itself and the other financial
!074707.7
institutions from time to time party to the Existing Loan Agreement (as defined below) as
lenders (collectively with Agent, the "Lenders") in accordance with all of the lending formulae,
sub limits, tenns and conditions set forth in the Existing Loan Agreement, as amended and
ratified by the Ratification Agreement (as defined below), and in accordance with this Order,
secured by security interests in and liens upon all of the Collateral (as defined below) pursuant to
Sections 364( c )(2) and 364( c )(3) of the Bankruptcy Code;
(2) authorization for Debtors to enter into the Ratification and
Amendment Agreement, dated of even date herewith, by and among Debtors, Agent and Lenders
(the "Ratification Agreement," a copy of which is annexed hereto as Exhibit A and is
incorporated herein), which ratifies, extends, adopts and amends the Existing Loan Agreement
..... JlJ!.c:l. the (eacp as belo>y);
(3) modification of the automatic stay to the extent hereinafter set
forth;
( 4) the grant to the Agent, for the benefit of itself and the other
Lenders, of automatically perfected security interest in and liens on the Collateral;
(5) the grant to Agent, for the benetlt of itself and the other Lenders,
of superpriority administrative claim status pursuant to Section 364( c)(!) of the Bankruptcy
Code in respect of all Post-Petition Obligations (as defined in the Ratification Agreement);
(6) authorizing Debtors to use the assets subject to the existing liens
and security interests of Agent, Lenders, and SCSF Mervyn's (US), LLC, in its capacity as
collateral agent (in such capacity "Subordinated Note Agent") for the Investors (as dell ned in the
lnlercreditor Agreement referred to below and hereinafter referred to as the "Subordinated
Noteholders"), and to provide adequate protection to the Agent, Lenders, Subordinated Note
Agent and Subordinated Noteholders in the fmm of (i) replacement liens, (ii) payment of
specitled professional fees and (iii) a claim under Section 507(b) of the Bankruptcy Code as
more fully set forth herein;
1074707.7
2
(7) authorizing Debtors to use cash collateral (as defined in Section
363 of the Bankruptcy Code) of Agent, Lenders, Subordinated Note Agent, and Subordinated
N oteholders (the "Cash Collateral") as set forth in this Order; and
(8) the setting of a final hearing on the Motion.
The initial hearing on the Motion having been held by this Court on July , 2008 (the
"Interim Hearing").
It appearing that due and appropriate notice of the Motion, the relief requested therein,
and the Interim Hearing (the "Notice") having been served by the Debtors in accordance with
Rule 400l(c) on (i) Agent, (ii) Lenders, (iii) the United States Trustee for the District of
Delaware (the "U.S. Trustee"), (iv) the holders of the twenty (20) largest unsecured claims
[tgainstthe estates (the "20 C:reditqrs"),(v) cmmsel for Lui:Jertc .
Adler Real Estate Fund IV, L.P., Lubert-Adler Real Estate Parallel Fund IV, L.P., and Lubert-
Adler Capital Real Estate Fund IV, L.P., (vi) counsel for Cerberus Capital Management, L.P. and
Cerberus Mervyn's Investors, LLC, (vii) SCSF Mervyn's (US), LLC, and SCSF Mervyn's
(Offshore), Inc., (viii) Subordinated Note Agent, (ix) Subordinated Noteholders, (x) the Internal
Revenue Service, (xi) Wachovia Bank, National Association ("Wachovia"), (xii) US Bank,
National Association ("USB"), (xiii) Hibernia Bank National Association ("Hibernia"), (xiv)
Fifth Third Bank Central Ohio ("Fifth Third"), (xv) JP Morgan Chase Bank, N.A. ("JP
Morga11"), (xvi) Bank of America, N.A. ("BojA" and together with Wachovia, USB, Hibernia,
Fifth Third and JP Morgan, each individually a "Blocked Account Bank" and collectively, the
"Blocked Accou11t Ba11ks"), (xvii) all appropriate state taxing authorities, (xviii) all landlords,
owners, and/or operators of premises at which any of the Debtors' inventory and/or equipment is
located,(xix) counsel for MDS Realty I, LLC, MDS Realty II, LLC, MDS Texas Realty I, LP and
MDS Texas Realty II, LP, and (xx) certain other parties identified in the certificate of service
filed with the Comi, including, without limitation, all creditors who have filed or recorded pre-
petition liens or security interests against any of the Debtors' assets (collectively, the "Noticed
Parties").
1074707.7
3
Upon the record made by the Debtors at the Interim Hearing, including the Motion, and
the filings and pleadings in the Cases, and good and sufficient cause appearing therefor;
THE COURT HEREBY MAKES THE FOLLOWING FINDINGS OF FACT
AND CONCLUSIONS OF LAW:
A. Petition. On July_, 2008 (the "Petition Date"), each Debtor filed a
voluntary petition (the "Petition") under Chapter 11 of the Bankruptcy Code. The Debtors
continue to operate their businesses and manage their properties as debtors-in-possession
pursuant to Sections 1107(a) and 1108 of the Bankruptcy Code.
B. Jurisdiction and Venue. The Court has jurisdiction of this proceeding and
the parties and property affected hereby pursuant to 28 U.S.C. 157(b) and 1334. The Motion
is .. a "core" proceeding as defined in 28 U.S.C. l57(b)(2)(A), (D) and (M). Venue of the Cases
and the Motion in this Court is proper pursuant to 28 U.S. C. 1408 and 1409.
C. Notice. Under the circumstances, the Notice given by the Debtors of the
Motion, the Interim Hearing and the relief granted under this Order constitutes due and sufficient
notice thereof and complies with Bankruptcy Rule 400l(c).
D. Debtors' Acknowledgments and Agreements. The Debtors admit,
stipulate, acknowledge and agree that:
(i) Pre-Petition Financing Agreements. Prior to the commencement
of the Cases, Agent and Lenders made loans, advances and provided other financial
accommodations to Borrower pursuant to the tem1s and conditions set forth in: (I) the Loan and
Security Agreement, dated September 2, 2004, by and among Agent, Lenders and Debtors, as
amended by Amendment No. I to Loan and Security Agreement, dated October 25, 2004,
Amendment No.2 to Loan and Security Agreement, dated December 22, 2005, Amendment No.
3 to Loan and Security Agreement, dated June 8, 2006, Amendment No. 4 to Loan and Security
Agreement, dated March 14, 2007, and Amendment No.5 to Loan and Security Agreement,
dated November 27, 2007 (as the same has heretofore been amended, supplemented, modified,
extended, renewed, restated and/or replaced at any time prior to the Petition Date, the "Existing
1074707.7
4
Loan Agreement," a copy of which is included with the Exhibit Supplement defined below) and
(2) all other agreements, documents and instruments executed in connection with or related to
the Existing Loan Agreement and/or delivered with, to, or in favor of Agent or any Lender,
including, without limitation, all security agreements, notes, guarantees, mortgages, Uniform
Commercial Code financing statements and all other related agreements, documents and
instruments executed and/or delivered in connection therewith or related thereto (all of the
foregoing, together with the Existing Loan Agreement, as all of the same have heretofore been
amended, supplemented, modified, extended, renewed, restated and/or replaced at any time prior
to the Petition Date, collectively, the "Pre-Petition Financing Agreements"). Copies of the
operative Pre-Petition Financing Agreements are contained in the Exhibit Supplement to the
.Mot.ion. (t'rw"E::rhibit Supplqmeltt").
(ii) Pre-Petition Obligations Amount. As of the Petition Date, the
aggregate amount of all Loans,
1
Letter of Credit Accommodations and other Pre-Petition
Obligations owing by Borrower to Agents and Lenders under and in connection with the Pre-
Petition Financing Agreements was not less than$ ______ , plus interest accrued and
accruing thereon, together with all costs, fees, expenses (including attorneys' fees and legal
expenses) and other charges accrued, accruing or chargeable with respect thereto (collectively,
and as such term is more fully defined in the Ratification Agreement, the "Pre-Petition
Obligations"). The Pre-Petition Obligations constitute allowed, legal, valid, binding, enforceable
and non-avoidable obligations of Debtors, and are not subject to any offset, defense,
counterclaim, avoidance, recharacterization or subordination pursuant to the Bankmptcy Code or
any other applicable law, and Debtors do not possess, hereby waive, discharge and release any
right to challenge or assert, and shall not assert any claim, counterclaim, setoff or defense of any
Capitalized terms used but not othetwise defined in this Order shall have the respective
meanings ascribed thereto in the Existing Loan Agreement, as amended and ratified by the
Ratification Agreement.
1074707.7
5
kind, nature or description against the Agent, Lenders, andior any of their respective affiliates,
agents, attomeys, advisors, professionals, officers, directors and employees, or which would in
any way affect the validity, enforceability and non-avoidability of any of the Pre-Petition
Obligations.
(iii) Pre-Petition Collateral. As of the Petition Date, the Pre-Petition
Obligations were fully secured pursuant to the Pre-Petition Financing Agreements by valid,
perfected, enforceable and non-avoidable first priority security interests and liens granted by
Debtors to Agent, for the benefit of itself and the other Lenders, upon all or substantially all of
the Pre-Petition Collateral (other than Borrower's real property leasehold interests to the extent
that Agent was required to file a leasehold mortgage to perfect its pre-petition lien in such real
propertyJeasehold.interest),.subject only to the liens. specifically listed on Sche.d.ule 8.4 of the
Information Certificate (as defined in Existing Loan Agreement) or permitted under Section 9.8
of the Existing Loan Agreement to the extent that such security interests, liens or encumbrances
are (a) valid, perfected and non-avoidable security interests, liens or encumbrances existing as of
the Petition Date, and (b) senior to and have not been or are subject to being subordinated to
Agent's and Lenders' liens on and security interests in the Pre-Petition Collateral or otherwise
avoided, and, in each instance, only for so long as and to the extent that such encumbrances are
and remain senior and outstanding (hereinafter refen-ed to as the "Permitted Encumbrances").
The Debtors do not possess, hereby waive, discharge and release any right to challenge or assert,
and will not assert any claim, counterclaim, setoff or defense of any kind, nature or description
which would in any way affect the validity, enforceability and non-avoidability of any of Agent's
and Lenders' liens, claims or security interests in the Pre-Petition Collateral. As of the Petition
Date, the value of the Pre-Petition Collateral securing the Pre-Petition Obligations exceeded the
amount of such Pre-Petition Obligations and, accordingly, (x) the Pre-Petition Obligations are
allowed secured claims within the meaning of Section 506 of the Bankruptcy Code and (y) any
payments made on account of the Pre-Petition Obligations to or for the benefit of Agent or
Lenders prior to the Petition Date were on account of amounts in respect of which Agent and
1074707.7
6
Lenders wereoversecured, were payments out of the Agent's and Lenders' Pre-Petition
Collateral and such payments did not diminish any property otherwise available for distribution
to unsecured creditors.
(iv) Subordinated Note/wider Claim. As of the Petition Date,
$30,000,000 is due and owing by Borrower to the Subordinated Note Agent and the
Subordinated Noteholders, plus interest accrued and accruing thereon, together with all costs,
fees, expenses (including attomeys' fees and legal expenses) and other charges accrued, accruing
or chargeable with respect thereto (the "Subordinated Note!tolder Debt") pursuant to the
Subordinated Promissory Note, dated November 27,2007, by and among Mervyn's LLC,
Subordinated Note Agent and SCSF Mervyn's (Offshore), Inc. (the "Subordinated Note
. . ..... .. t!!!t''); .t]:)(l T:'()vem]:)yt:2:7,.2007, .by a11<1. Meryyn' s. LLQ, .... .
Mervyn's Brands, LLC, Subordinated Note Agent and SCSF Mervyn's (Offshore), Inc., and
related Guaranty, dated November 27,2007, executed by Mervyn's Brands, LLC; and all other
agreements, documents and instruments executed in connection with or related to the
Subordinated Note Agreement and/or delivered with, to, or in favor of Subordinated Note Agent
or any Subordinated Noteholders, including, without limitation, all security agreements, notes,
guarantees, mortgages, Uniform Commercial Code financing statements and all other related
agreements, documents and instruments executed and/or delivered in connection therewith or
related thereto (the "Subordinated Noteltolder Documents"). The Subordinated Noteholder
Debt constitutes an allowed, legal, valid, binding, enforceable and non-avoidable obligation of
Debtors, and is not subject to any offset, defense, counterclaim, avoidance, recharacterization or
subordination pursuant to the Bankruptcy Code or any other applicable law, and Debtors do not
possess and shall not assert any claim, counterclaim, setoff or defense of any kind, nature or
description which would in any way affect the validity, enforceability and non-avoidability of
any of the Subordinated Noteholder Debt.
(v) Proof'o.fC/aim. The acknowledgment by Debtors of(a) the Pre-
Petition Obligations and the liens. rights, priorities and protections granted to or in /ilY(Jr of
1074707.7
7
Agent and Lenders as set forth herein and in the Pre-Petition Financing Agreements, and (b)
Subordinated Noteholder Debt and the liens, rights, priorities and protections granted to or in
favor of the Subordinated Note Agent and the Subordinated Noteholders shall, in the case of
clauses (a) and (b) above, be deemed a timely filed proof of claim on behalf of Agent and
Lenders in each of the Cases and any Successor Cases (as de!lned below) with respect to the Pre-
Petition Obligations and the Subordinated Note Agent and the Subordinated Noteholders with
respect to the Subordinated Noteholder Debt in these Cases.
(vi) Intercreditor and Subordination Agreement. Agent and
Subordinated Note Agent entered into the lntercreditor and Subordination Agreement, dated as
of November 27,2007 (as amended, the "lntercreditor Agreement"), which sets forth, inter alia,
.. tlw respective rights, obligations and priorities of the claims and interests of Agent and Lenders,
on the one hand, and Subordinated Note Agent and Subordinated Noteholders, on the other hand,
in the Collateral (each as de!lned in the Intercreditor Agreement) and with respect to the
obligations of Debtors due each of Agent and Lenders, on the one hand, and Subordinated Note
Agent and Subordinated Noteholders, on the other hand.
E. Findings Regarding the Postpetition Financing.
(i) Postpetition Financing. The Debtors have requested from Agent
and Lenders, and Agent and Lenders are willing to extend, certain loans, advances and other
financial accommodations on the tem1s and conditions set forth, in this Order and the Financing
Agreements (as de!lned below).
(ii) Need for Post-Petition Financing. The Debtors do not have
sufficient available sources of working capital, including cash collateral, to operate their
businesses in the ordinary course of their business without the !lnancing requested under the
Motion. The Debtors' ability to maintain business relationships with their vendors, suppliers and
customers, to pay their employees, and to otherwise fund their operations is essential to the
Debtors' continued viability as the Debtors seek to maximize the value of the assets of the
Estates (as defined below) for the benefit of all creditors of the Debtors. The ability of the
1074707.7
8
Debtors to obtain sufficient working capital and liquidity through the proposed post-petition
financing arrangements with Agent and Lenders as set forth in this Order and the Financing
Agreements is vital to the preservation and maintenance of the going concern values of the
Debtors. Accordingly, the Debtors have an immediate need to obtain the post-petition financing
in order to, among other things, permit the orderly continuation of the operation of their
businesses, minimize the disruption of their business operations, and preserve and maximize the
value of the assets of the Debtors' bankruptcy estates (as defined under Section 54! of the
Bankruptcy Code, the "Estates") for the benefit of all creditors of the Estates.
(iii) No Credit Available on More Favorable Terms. The Debtors are
unable to procure financing in the form of unsecured credit allowable under Section 503(b )( 1) of
. tlw Bankruptcy Code, as an administrative expense tmc,ler Section 364(a) or (b) of the
Bankruptcy Code, or in exchange for the grant of an administrative expense priority pursuant to
Section 364(c)(l) of the Bankruptcy Code, or secured by a junior lien on property of the Debtors
and the Estates that is subject to a prior lien, without the grant of liens on assets. The Debtors
have been unable to procure the necessary financing on terms more favorable than the financing
offered by Agent and Lenders pursuant to the Financing Agreements. Financing on a post-
petition basis is not otherwise available without granting the Agent, for the benefit of itself and
the Lenders, perfected security interests in and liens upon the Collateral, superpriority claims and
liens and other protections set forth in this Interim Order and the Financing Agreements.
(iv) Budget. The Debtors have prepared and delivered to Agent and
Lenders an initial Budget (as defined in the Ratification Agreement). Such Budget has been
thoroughly reviewed by the Debtors and their management and sets forth, among other things,
the Projected Information for the periods covered thereby. The Debtors represent that the
Budget is achievable in accordance with the terms of the Financing Agreements and this Order.
The Debtors reasonably anticipate that at all times during these Cases the Debtors will be able to
operate without the accrual of unpaid administrative expenses. Agent and Lenders are relying
upon the Debtors' compliance with the Budget in accordance with Section 5.3 of the Ratification
9
Agreement, the other Financing Agreements and this Order in determining to enter into the post-
petition financing arrangements provided for herein.
(v) Business Judgment and Good Faith Pursuant to Section 364(e).
The terms of the Financing Agreements and this Order are fair, just and reasonable under the
circumstances, are ordinary and appropriate for secured financing to debtors-in-possession,
reflect the Debtors' exercise of their prudent business judgment consistent with their fiduciary
duties, and are supported by reasonably equivalent value and fair consideration. The terms and
conditions of the Financing Agreements and this Order have been negotiated in good faith and at
arms' length by and among the Debtors, on one hand, and Agent and Lenders, on the other hand,
with all patties being represented by counsel. Any credit extended under the terms of this Order
.. shiilll:>e deet:lWd.to have lleen.ex.leuded .in.goodJaith by.Agent .ilnd L.ende.rs ... as .. tha.tterrn.i.s .. \.lsed
in Section 364(e) of the Bankruptcy Code and the Agent's and Lenders' claims, superpriority
claims, security interest, liens and other protections granted herein and in the Financing
Agreements will have the protections provided in Section 364(e) of the Bankruptcy Code and
will not be affected by any subsequent reversal, modification, vacatur, amendment, reargument
or reconsideration of this Interim Order or any other order.
(vi) Good Cause. The relief requested in the Motion is necessary,
essential and appropriate, and is in the best interest of and will benefit the Debtors, their creditors
and their Estates, as its implementation will, among other things, provide the Debtors with the
necessary liquidity to (a) minimize disruption to the Debtors' businesses and on-going
operations, (b) preserve and maximize the value of the Debtors' Estates for the benefit of all the
Debtors' creditors, and (c) avoid immediate and irreparable harm to the Debtors, the Estates, their
creditors, their businesses, their employees, and their assets.
(vii) Immediate Entry. Sufficient cause exists for immediate entry of
this Order pursuant to Bankruptcy Rule 400J(c)(2). No party appearing in the Cases has tiled or
made an objection to the relief sought in the Motion or the entry of this Order, or any objections
that were made (to the extent such objections have not been withdrawn) are hereby overruled.
1074707.7
10
F. Adequate Protection. The Agent, for the benefit of itself and the Lenders,
and the Subordinated Note Agent, for the benefit of itself and the Subordinated Noteholders, are
each entitled to receive adequate protection to the extent of any diminution in value of their
respective interests in the Pre-Petition Collateral (including Cash Collateral). Pursuant to
Sections 361, 363 and 507(b) of the Bankruptcy Code, (i) the Agent, for the benefit of itself and
the Lenders, will receive, (a) replacement liens and superpriority claims, as more fully set forth
herein, (b) current payments of interest, fees, and other amounts due under the Pre-Petition
Financing Agreements, (c) ongoing payment of the fees, costs and expenses, including, without
limitation, reasonable legal and other professionals' fees and expenses, of the Agent and Lenders
under the Pre-Petition Financing Agreements; and (ii) the Subordinated Note Agent, on behalf of
..... itelfand r.eceive ..a11dsuperp[iority claiws ..
and payment of specified professional fees as more fully set forth herein.
Based upon the foregoing, and after due consideration and good cause appearing
therefor;
IT IS HEREBY ORDERED, ADJUDGED AND DECREED, that:
Section 1. Authorization and Conditions to Financing.
1.1 Motion Granted. The Motion is granted in accordance with Banhuptcy
Rule 4001 ( c )(2) to the extent provided in this Order. This Order shall hereinafter be referred to
as the "Interim Order".
1.2 ;'\.uthorization to Borrow and Use Loan Proceeds. Borrower is hereby
authorized and empowered to immediately botTow and obtain Loans and Letter of Credit
Accommodations and to incur Obligations (as defined in the Ratification Agreement) pursuant to
the terms and conditions of this Interim Order, the Existing Loan Agreement, as ratified and
amended by the Ratification Agreement (the "Loan Agreement," as such term is more fully
defined in the Ratification Agreement), and the other Financing Agreements, as ratified and
amended by the Ratification Agreement (the "Financing Agreements," as such term is more
fully defined in the Ratification Agreement), during the period commencing on the date of this
!074707. 7
ll
Interim Order through and including the date of the Final Hearing as set forth in Section 6 of this
Interim Order (the "lltterim Financing Period"), in such amounts as may be made available to
Bonower by Agent and Lenders in accordance with all of the lending formulae, sub limits, terms
and conditions set forth in the Loan Agreement, the other Financing Agreements and this Interim
Order, and in accordance with the Budget Subject to the terms and conditions contained in this
lntelim Order and the Financing Agreements, Borrower shall use the proceeds of the Loans and
any other credit accommodations provided to Borrower pursuant to this Interim Order, the Loan
Agreement or the other Financing Agreements for the payment of employee salaries, payroll,
taxes, and all other expenses identified in the Budget and for other operating and working capital
purposes in the ordinary course of Borrower's business in accordance with the Budget and the
. figloj!)Ci!lg
1.3 Financing Agreements
1.3.1 Authorization. Debtors are hereby authorized and directed to enter
into, execute, deliver, perform, and comply with all of the terms, conditions and covenants of the
Loan Agreement, the other Financing Agreements and all other agreements, documents and
instmments executed or delivered in connection with or related to the Loan Agreement, the other
Financing Agreements or this Interim Order, including, without limitation, the Ratification
Agreement, pursuant to which, inter alia, each Debtor ratifies, reaffirms, extends, assumes and
adopts the Existing Loan Agreement and the other Pre-Petition Financing Agreements, as
amended and restated pursuant to the Ratification Agreement and this Interim Order, to which it
is a party, including, without limitation, the Deposit Account Control Agreement, dated
September 2, 2004, by and among Wachovia, BorTower, and Agent (the "Wachovia Control
Agreement"), Deposit Account Control Agreement, dated April 29, 2005, by and among USB,
Borrower, and Agent (the "USB Control Agreement"), Deposit Account Control Agreement,
dated April 29, 2005, by and among Hibernia, Borrower, and Agent (the "Hibernia Comrol
Agreeme11t"), Deposit Account Control Agreement, dated April 29, 2005, by and among Fifth
Third, Borrower, and Agent (the "Fifth Third Control Agreement"), Deposit Account Control
!074707. 7
12
Agreement, dated October 26, 2005, by and among JPMorgan, Borrower, and Agent (the "JP
Morgan Colltrol Agreement"), Deposit Account Control Agreement, dated June 5, 2008, by and
among Borrower, Agent and BofA (the "BofA Control Agreemeltt" and together with the
W achovia Control Agreement, the USB Control Agreement, the Hibernia Control Agreement,
the Fifth Third Control Agreement and the JP Morgan Control Agreement, collectively, the
"Blocked Account Agreement").
1.3 .2 Approval. The Financing Agreements (including, without
limitation, the Loan Agreement) and each term set forth therein are approved to the extent
necessary to implement the terms and provisions of this Interim Order. All of such terms,
conditions and covenants shall be sufficient and conclusive evidence of the bon'owing
J\rrangemt;nt py and. among Debtors, Agenta11d Lenders, and of each Debtor's assumption and
adoption of all of the terms, conditions, and covenants of the Loan Agreement and the other
Financing Agreements for all purposes, including, without limitation, the payment of all
Obligations arising thereunder, including, without limitation, all p1incipal, interest, commissions,
letter of credit fees, servicing fees, unused line fees, DIP facility fee, early termination fees, and
other fees and expenses, including, without limitation, all of Agent's and Lenders' consultant
fees, professional fees, attorney fees and legal expenses, as more fully set forth and to the extent
provided in the Financing Agreements.
1.3.3 Amendment. Subject to the terms and conditions of the Loan
Agreement and the other Financing Agreements, Debtors, Agent and Lenders may amend,
modify, supplement or waive any provision of the Financing Agreements (an "Amendment")
without further approval or order of the Court so long as (i) such Amendment is not material (for
purposes hereof; a "material" Amendment shall mean, any Amendment that operates to increase
the interest rate other than as currently provided in the Financing Agreements, increase the
Maximum Credit (as defined in the Loan Agreement), add specific new events of default or
enlarge the nature and extent of default remedies available to the Agent and Lenders following
an event of default, or otherwise modify any terms and conditions in any Financing Agreement
1074707,7
13
in a manner materially Jess favorable to Debtors) and is undertaken in good faith by Agent,
Lenders and Debtors; (ii) the Debtors provide prior written notice of the Amendment (the
"Amendmellt Notice") to (x) the U.S. Tmstee and (y) counsel to any official committee
appointed in the Cases under Section 1102 of the Bankruptcy Code (collectively, the
"Committee(s)"), or in the event no such Committee is appointed at the time of such
Amendment, the 20 Largest Unsecured Creditors; (iii) the Debtors file the Amendment Notice
with the Court; and (iv) no objection to the Amendment is filed with the Court within two (2)
business days from the later of the date the Amendment Notice is served or the date the
Amendment Notice is filed with the Court in accordance with this Section. Any material
Amendment to the Financing Agreements must be approved by the Court to be effective.
1.4 ....... ... ... to .pay .. .
and Lenders in respect of all Pre-Petition Obligations in accordance with the Financing
Agreements and Sections 1.5 and 1.6 of this Interim Order.
1.5 Payments and Application of Payments. The Debtors arc authorized and
directed to make all payments and transfers of Estate property to Agent and Lenders as provided,
permitted and/or required under the Loan Agreement and the other Financing Agreements, which
payments and transfers, subject to Section 4.1 herein, shall not be avoidable or recoverable from
Lender under Section 547, 548, 550, 553 or any other Section of the Bankruptcy Code, or any
other claim, charge, assessment, or other liability, whether by application of the Bankruptcy
Code, other law or otherwise. All proceeds of the Collateral received by Agent or Lenders, and
any other amounts or payments received by Agent or Lenders in respect of the Obligations, shall
be applied or deemed to be applied by Agent and Lenders in accordance with the Loan
Agreement, the other Financing Agreements and this Interim Order first to the Pre-Petition
Obligations, until such Pre-Petition Obligations are indefeasibly paid in full and completely
satisfied, and then to the Post-Petition Obligations. Without limiting the generality of the
foregoing, the Debtors are authorized and directed, without further order of this Court, to pay or
reimburse Agent and Lenders for all present and future costs and expenses, including, without
1074707.7
14
limitation, all professional fees, consultant fees and legal fees and expenses paid or incurred by
Agent and Lenders in connection with the financing transactions as provided in this Interim
Order and the Financing Agreements, all of which shall be and are included as pal1 of the
principal amount of the Obligations and secured by the Collateral.
1.6 Continuation of Prepetition Procedures. All pre-petition practices and
procedures for the payment and collection of proceeds of the Collateral, the turnover of cash, the
delivery of property to Agent and Lenders and the funding pursuant to the Financing
Agreements, including the Blocked Account Agreements and any other similar lockbox or
blocked depository bank account arrangements, are hereby approved and shall continue without
intetTuption after the commencement of the Cases.
Section 2. Cross-Collateralization; Su11emriority Administrative Claim Status.
2.1 Cross-Collateralization.
2.1.1 Lien Grant. To secure the prompt payment and performance of
any and all Post-Petition Obligations (and upon entry of the Permanent Financing Order, any and
all Obligations), Agent, for the benefit of itself and the other Secured Parties, shall have and is
hereby granted, effective on and after the Petition Date, valid and perfected first priority security
interests and liens, superior to all other liens, claims or security interests that any creditor of the
Debtors' Estates may have (but subject to certain claims entitled to priority, including the
Permitted Liens and Claims (as defined below), as and to the extent expressly provided in
Section 2.1.2 below), in and upon all of the Pre-Petition Collateral and the Post-Petition
Collateral (as defined in the Ratification Agreement). The Pre-Petition Collateral and the Post-
Petition Collateral are collectively referred to herein as the "Collateral." Notwithstanding the
foregoing or anything to the contrary contained in the Loan Agreement, the granting to Agent of
liens on and security interests in avoidance actions brought under Sections 542, 545, 547, 548, or
550 of the Bankruptcy Code (the "Avoidance Actions") to secure the Obligations shall be subject
to the entry of a Permanent Financing Order approving such relief. In accordance with Sections
552(b) and 361 of the Bankruptcy Code, the value, if any, of any of the Collateral, in excess of
1074707.7
15
the amount of Obligations secured by such Collateral after satisfaction of the Post-Petition
Obligations of Debtors to Agent and Lenders, shall constitute additional security for the
repayment of the Pre-Petition Obligations and adequate protection for the use by Debtors, and
the diminution in the value, of the Collateral existing on the Petition Date. The Agent's and
Lenders' pre-petition liens on and security interests in the Pre-Petition Collateral shall continue,
shall inure to the benefit of Agent and Lenders, shall secure the Post-Petition Obligations and
shall be included in the Agent's and Lender's post-petition liens on and security interests in the
Collateral.
2. 1.2 Lien Priority. The pre-petition and post-petition liens and security
interests of Agent and Lenders granted under the Financing Agreements and this Interim Order
... in the .ancl sl!all9Qntin11e to be fir:,tanq senior in. priority tq qll otl1er intqrcest$
and liens of every kind, nature and description, whether created consensually, by an order of the
Court or otherwise, including, without limitation, liens or interests granted in favor of third
parties in conjunction with Section 363, 364 or any other Section of the Bankruptcy Code or
other applicable law; provided, however, that (i) Agent's and Lenders' liens on and security
interests in the Pre-Petition Collateral shall be subject only to the Petmitted Encumbrances and
(ii) Agent's and Lenders' liens on and security interests in all of the Collateral shall be subject
only to the Carve Out Expenses (as defined below) solely to the extent provided for in Sections
2.3, 2.4 and 2.5 of this Interim Order (the Permitted Encumbrances and the Carve-Out Expenses
referred to in the foregoing clauses (i) and (ii), respectively, arc collectively referred to herein as
the "Permitted Liens and Claims"). In no event shall (a) any lien or security interest granted to
Agent and Lenders in the Collateral be subject to Section 510, 549 (to the extent a successful
action is brought against the Lenders) or 550 of the Bankruptcy Code, or (b) any lien or security
interest granted to Agent, Lenders or any of the Secured Parties pursuant to the Financing
Agreements or this Interim Order be subject to, or made pari passu with, any lien or security
interest that is avoided and preserved for the benefit of the Debtors' estates under Section 551 of
the Bankruptcy Code; and (b) any person or entity who pays (or through the extension of credit
!074707. 7
16
to any Debtor, causes to be paid) any of the Obligations be subrogated, in whole or in part, to any
rights, remedies, claims, privileges, liens or security interests granted in favor of, or conferred
upon, Agent or any Lender by the terms of the Financing Agreements or this Interim Order, until
such time as all of the Obligations are indefeasibly paid in full in accordance with the Financing
Agreements and this Interim Order.
2.1.3 Post-Petition Lien Perfection. This Interim Order shall be
sufficient and conclusive evidence of the priority, perfection and validity of the post-petition
liens and security interests granted herein, effective as of the Petition Date, without any further
act and without regard to any other federal, state or local requirements or law requiring notice,
filing, registration, recording or possession of the Collateral, or other act to validate or perfect
such security interest or lien, including without limitation, control agreements with the Blocked
Account Bank or with any other financial institution(s) holding a Blocked Account or other
depository account consisting of Collateral (a "Perfection Act"). Notwithstanding the foregoing,
if Agent shall, in its sole discretion, elect for any reason to file, record or otherwise effectuate
any Perfection Act, Agent is authorized to perfonn such act, and the Debtors are authorized and
directed to perform such act to the extent required by Agent, which act or acts shall be deemed to
have been accomplished as of the date and time of entry of this Interim Order notwithstanding
the date and time actually accomplished, and in such event, the subject filing or recording ofnce
is authorized to accept, file or record any document in regard to such act in accordance with
applicable law. Agent and Lenders may choose to file, record or present a certified copy of this
Interim Order in the same manner as a Perfection Act, which shall be tantamount to a Perfection
Act, and, in such event, the subject filing or recording office is authorized to accept, file or
record such certified copy of this Interim Order in accordance with applicable law. Should
Agent so choose and attempt to file, record or perform a Perfection Act, no defect or failure in
connection with such attempt shall in any way limit, waive or alter the validity, enforceability,
attachment, or perfection of the post-petition liens and security interests granted herein by virtue
of the entry of this Interim Order.
!074707,7
17
2.1.4 Eliminating Pre-Petition Restrictions to Post-Petition Financing.
Notwithstanding anything to the contrary contained in any pre-petition agreement, contract,
lease, document, note or instrument to which any Debtor is a party or under which any Debtor is
obligated, except as otherwise permitted under the Financing Agreements, any provision that
restricts, limits or impairs in any way any Debtor from granting Agent and Lenders security
interests in or liens upon any of the Debtors' assets or properties (including, among other things,
any anti-lien granting or anti-assignment clauses in any leases or other contractual arrangements
to which any Debtor is a party) under the Loan Agreement, the other Financing Agreements or
this Interim Order, or otherwise entering into and complying with all of the terms, conditions and
provisions hereof or the Financing Agreements shall not (i) be effective and/or enforceable
against any such Debtor(s), Agent and Lenders, or (ii) adversely affect the validity, priority or
enforceability of the liens, security interests, claims, rights, priorities and/or protections granted
to Agent and Lenders pursuant to this Interim Order or the Financing Agreements to the
maximum extent permitted under the Bankruptcy Code and other applicable law.
2.1.5 Enforceability of Post-Petition Obligations. The Loan Agreement,
the other Financing Agreements and this Interim Order evidence the validity and binding effect
of the Post-Petition Obligations, which Post-Petition Obligations shall be enforceable against the
Debtors, their Estates, any successors thereto, including, without limitation, any trustee
appointed in the Cases, or any case under Chapter 7 of the Bankruptcy Code upon the conversion
of any of the Cases, or in any other proceeding, superseding or related to any of the foregoing
(collectively, the "Successor Cases").
2.2 Superpriority Administrative Expense. For all Post-Petition Obligations
(and, upon entry of a Permanent Financing Order, for all other Obligations) now existing or
hereafter arising pursuant to this Interim Order, the Financing Agreements or otherwise, Agent,
for the benefit of itself and the other Lenders, is granted an allowed superpriority administrative
claim in each of the Cases and any Successor Cases pursuant to Section 364(c)(l) of the
Bankruptcy Code, having priority in right of payment over any and all other obligations,
!074707.7
18
liabilities and indebtedness of Debtors, whether now in existence or hereafter incurred by
Debtors, and over any and all administrative expenses or priority claims of the kind specified in,
or ordered pursuant to, inter alia Sections 105, 326, 328, 330, 331, 503(b), 506(c), 507(a),
507(b), 364(c)(l), 546(c), 726 or 1114 of the Bankruptcy Code (the "Superpriority Claim"),
provided, however, the Superpriority Claim shall be subject only to the Permitted Liens and
Claims as and to the extent expressly set forth in Section 2.1.2 of this Interim Order.
2.3 Carve Out Expenses.
2.3.1 Carve Out Expenses. Upon the declaration by Agent of the
occurrence of an Event of Default, Agent's and Lenders' liens, claims and security interests in the
Collateral and their Superpriority Claim shall be subject only to the right of payment of the
......... folloy:i!)g (the ..
a. statut01y fees payable to the U.S. Trustee pursuant to
28 U.S.C. 1930(a)(6);
b. fees payable to the Clerk of this Court; and
c. subject to the terms and conditions of this Interim Order,
the unpaid and outstanding fees and expenses actually incuned on or after the Petition
Date and approved by a final order of the Court pursuant to Sections 328, 330, or 331 of
the Bankruptcy Code (collectively, the "Allowed Professional Fees"), by attorneys,
accountants and other professionals retained by the Debtors and any Committee( s) under
Section 327 or 1103(a) of the Bankruptcy Code (collectively, the "Professionals"), less
the amount of any retainers, if any, then held by such Professionals, in a cumulative,
aggregate sum not to exceed $4,000,000 (the "Professional Fee Carve Out").
2.3.2 Excluded Professional Fees. Notwithstanding anything to the
contrary in this Interim Order, neither the Professional Fee Carve Out nor the proceeds of any
Loans, Letter of Credit Accommodations or Collateral shall be used to pay any Allowed
Professional Fees or any other fees or expenses incuned by any Professional in connection with
any of the following: (a) assertion, prosecution, or support of, or joinder in (but excluding any
1074707.7
19
investigation into) any claim, counter-claim, action, proceeding, application, motion, objection,
defense or other contested matter or action seeking any order, judgment, determination or similar
relief: (i) challenging the legality, amount, validity, priority, perfection, or enforceability of the
Obligations or Agent's and Lenders' liens on and security interests in the Collateral, (ii)
invalidating, setting aside, avoiding or subordinating, in whole or in part, the Obligations or
Agent's and Lenders' liens on and security interests in the Collateral, or (iii) preventing,
hindering or delaying Agent's or Lenders' asse1iion or enforcement of any lien, claim, right or
security interest or realization upon any Collateral in accordance with the terms and conditions of
this Interim Order, (b) a request to use the Cash Collateral (as such term is defined in Section
363 of the Bankruptcy Code) without the prior written consent of Agent, (c) a request for
.. t() g[)t!li!l ()L Other. fi!l!\11(;!'!]. ::t99Wmo(iati()!ls
pursuant to Section 364( c) or Section 364(d) of the Bankruptcy Code, other than from Agent or
Lenders, without the prior written consent of Agent, (d) the commencement or prosecution of
any action or proceeding of any claims, causes of action or defenses against Agent, any Lender
or any of their respective officers, directors, employees, agents, attorneys, affiliates, successors
or assigns, including, without limitation, any attempt to recover or avoid any claim or interest
from Agent or any Lender under Chapter 5 of the Bankruptcy Code, or (e) any act which has or
could have the effect of materially and adversely modifying or compromising the rights and
remedies of Agent or any Lender, or which is contrary, in a manner that is material and adverse
to Agent or any Lender, to any term or condition set forth in or acknowledged by the Financing
Agreements or this Interim Order and which results in the occurrence of an Event of Default
under the Financing Agreements or this Interim Order.
2.4 Carv..9ut .B.eserve. At Agent's sole discretion, Agent may, at any time
and in any increment up to the amounts of the Professional Fee Carve Out and the other Carve
Out Expenses in accordance with the Loan Agreement, establish a Reserve against the amount of
Loans or other credit accommodations that would otherwise be made available to Debtors
!074707.7
20
pursuant to the lending formulae contained in the Loan Agreement in respect of the Professional
Fee Carve Out and the other Carve Out Expenses.
2.5 Payment of Carve Out Expenses.
2.5. I Prior to the occurrence of an Event of Default, Debtors shall be
permitted to pay Allowed Professional Fees of the Professionals in accordance with the Budget
and any such amounts paid prior to the occurrence of an Event of Default shall not reduce the
Professional Fee Carve-Out.
2.5.2 Any payment or reimbursement made either directly by Agent or
any Lender at any time, or by or on behalf of the Debtors on or after the occurrence of an Event
of Default, in respect of any Allowed Professional Fees or any other Carve Out Expenses
(exclusive of the application of any retainers by any of the Professionals) shall, in either case,
permanently reduce the Professional Fee Carve Out on a dollar-for-dollar basis. In the event
that, contrary to the terms of this Interim Order, Agent and Lenders are required by the Court or
otherwise to fund or otherwise pay all or any portion of the Professional Fee Carve Out and/or
the other Carve Out Expenses, such amounts so paid shall be added to and made a part of the
Obligations, secured by the Collateral, and entitle Agent and Lenders to all of the rights, claims,
liens, priorities and protections under this Interim Order, the Financing Agreements, the
Bankruptcy Code or applicable law. Payment of any Carve Out Expenses, whether by or on
behalf of Agent or any Lender, shall not and shall not be deemed to reduce the Obligations, and
shall not and shall not be deemed to subordinate any of Agent's and Lenders' liens and security
interests in the Collateral or their Superpriority Claim to any junior pre- or post-petition lien,
interest or claim in favor of any other party. Except as otherwise provided herein with respect to
the Professional Fee Carve Out and the other Carve Out Expenses, Agent and Lenders shall not,
under any circumstance, be responsible for the direct payment or reimbursement of any fees or
disbursements of any Professionals incmTed in connection with the Case under any chapter of the
Bankruptcy Code, and nothing in this Interim Order shall be construed to obligate Agent or any
I 074707,7
21
Lender in any way, to pay compensation to or to reimburse expenses of any Professional, or to
ensure that the Debtors have sufficient funds to pay such compensation or reimbursement.
2.6 Use of Cash Collateral; Adequate Protection.
2.6.1 Authorization to Use Cash Collateral. Subject to the terms and
conditions of this Interim Order, the Loan Agreement and the other Financing Agreements, and
in accordance with the Budget, Debtors shall be and are hereby authorized to use the Cash
Collateral subject to the pre-petition liens and security interests granted to the Agent, Lenders,
Subordinated Note Agent and Subordinated Noteholders until the expiration of Agent's and
Lenders' commitment to lend under the Loan Agreement and the other Financing Agreements.
Nothing in this Interim Order shall authorize the disposition of any assets of the Debtors or their
Estates outside the ordinary course of business, or any Debtor's use of Cash Collateral or other
proceeds resulting therefrom, except as permitted in this Interim Order, the Loan Agreement, the
other Financing Agreements and in accordance with the Budget.
2.6.2 Replacement Liens. As adequate protection for the diminution in
value of their interests in the Pre-Petition Collateral (including Cash Collateral) on account of the
Debtors' use of such Pre-Petition Collateral (including Cash Collateral), the imposition of the
automatic stay and the subordination to the Carve Out-Expenses, the Agent, for the benefit of
itself and Lenders, is hereby granted pursuant to Sections 361 and 363 of the Bankruptcy Code,
valid, binding, enforceable and perfected replacement liens upon and security interests in all
Collateral (the "AIL Replacement Lien"). As adequate protection for the Debtors' use of such
Collateral, to the extent of any diminution in the value of its interest in the Collateral existing as
of the Petition Date, the Subordinated Note Agent, for the ratable benefit of the Subordinated
Noteholders, is hereby granted, pursuant to Section 361 of the Bankruptcy Code and subject to
the terms and conditions of this Section 2.7.1 and the other terms of this Interim Order, a
replacement lien on and security interest in all Collateral (the "Notes Replacement Lien" and
together with the AIL Replacement Lien, the "Replacement Liens"). Notwithstanding anything
to the contrary contained herein or otherwise, the Replacement Liens shall not attach to the
1074707.7
22
Avoidance Actions. The (a) A/L Replacement Lien shall be junior and subordinate only to the
Carve-Out Expenses and the liens and security interests granted to Agent and Lenders in the
Collateral securing the Post-Petition Obligations, (b) Notes Replacement Lien shall be junior and
subordinate in all respects to (i) the right of payment of all Obligations owing to Agents and
Lenders, (ii) the liens and security interests granted to Agent, for the benefit of all Secured
Parties, pursuant to this Interim Order, including, without limitation, the AIL Replacement Lien,
and (iii) all Carve Out Expenses, and (c) subject to the foregoing subsections (a) and (b), the
Replacement Liens shall otherwise be senior to all other security interests in, liens on, or claims
against any of the Collateral. Neither the Subordinated Note Agent nor the Subordinated
Noteholders shall have any right to seek or exercise any rights or remedies in respect of the
. Notes (y.'hetherjn these Chapter 11 (;ases or any subsequently converted ..
case(s)) until all Obligations owing to Agents and Lenders have been indefeasibly paid and
satisfied in full in accordance with the Financing Agreements and this Interim Order.
2.6.3 Section 507(b) Priority Claim. As adequate protection for the
diminution in value of their interests in the Pre-Petition Collateral (including Cash Collateral) on
account of the Debtors' use of such Pre-Petition Collateral (including Cash Collateral), the
imposition of the automatic stay and the subordination to the Carve-Out-Expenses, the Agent, for
the benefit of itself and Lenders, is hereby granted as and to the extent provided by Section
507(b) of the Bankmptcy Code an allowed superpriority administrative expense claim in each of
the Cases and any Successor Cases (the "AIL Adequate Protection Superpriority Claim"). To
the extent the Replacement Lien is insufficient to adequately protect against the diminution of
the Subordinated Note Agent's interest in the Collateral existing as of the Petition Date, then the
Subordinated Note Agent, for itself and the ratable benefit of the Subordinated Noteholders. shall
also have, subject to the terms and conditions of this section 2.7.2 and the other terms of this
Interim Order, the priority in payment afforded by Bankruptcy Code section 507(b) in an amount
equal to the amount by which such diminution exceeds the value of the Replacement Lien (the
"Subordinated Noteholder 507(b) Adequate Protection Claim" and together with the AIL
!074707.7
23
Adequate Protection Superpriority Claim, the "Adequate Protection Claims"). Notwithstanding
anything to the contrary contained herein or otherwise, the Adequate Protection Claims shall not
attach or extend to, or be repaid from, the proceeds of any Avoidance Actions. The (a) A/L
Adequate Protection Superpriority Claim shall be junior only to the Carve-Out Expenses, (b)
Subordinated Noteholder 507(b) Adequate Protection Claim shall be junior and subordinate in all
respects to (i) the right of payment of all Obligations owing to Agents and Lenders, (ii) the
Superpriority Claim and the AIL Adequate Protection Superpriority Claim granted in favor of
Agent, for the ratable benefit of the Lenders, pursuant to this Interim Order and (iii) all Carve-
Out Expenses, and (c) subject to the foregoing subsections (a) and (b), the Adequate Protection
Claims shall otherwise have priority over all administrative expense claims and unsecured claims
....... .. !tl1Cl. tlreir ... .. c.lf anY .. or n,.a,.t,u ... :r:.e:.. ................ .
whatsoever. In addition, the Subordinated Note Agent and the Subordinated Noteholders shall
have no right to seek or exercise any rights or remedies in respect of the Subordinated
Noteholder 507(b) Adequate Protection Claim (whether in these Chapter ll Cases or any
Successor Cases until all Obligations owing to Agents and Lenders have been indefeasibly paid
and satisfied in full in accordance with the Financing Agreements and this Interim Order.
2.6.4 Other Adequate Protection. As further adequate protection,
Debtors are hereby authorized to provide adequate protection to Agent and Lenders in the form
of: (a) payment of interest, fees and other amounts due under the Pre-Petition Financing
Agreements, at the times specified therein, to the Agent on behalf of Lenders, and (b) ongoing
payment of the fees, costs and expenses, including, without limitation, reasonable legal and other
professionals' fees and expenses, of the Agent and Lenders as required under the Pre-Petition
Financing Agreements. Additionally, as fmiher adequate protection, the Subordinated Note
Agent and Subordinated Noteholders (in all events, solely with respect to actions taken and
expenses incurred in their capacities as Subordinated Note Agent and Subordinated Noteholders)
shall be paid or reimbursed by the Debtors for all present and future legal and other professional
fees paid or incuJTed by them in connection with the Chapter ll Cases as and to the extent such
1074707.7
24
reimbursement or payment is provided for under the Subordinated Noteholder Documents;
provided, however, that (i) the amount that the Debtors are permitted to pay or reimburse to the
Subordinated Note Agent and the Subordinated Noteholders in respect of such legal and
professional fees in accordance with this section 2.7.3 shall not exceed $75,000 in the aggregate
in any month during these Chapter 11 Cases, and (ii) payment or reimbursement of such fees is
subject to the right of the Debtors, the Committee(s) and other parties in interest to later assert
that such payments should be allocated and applied to a reduction of the principal amount of the
indebtedness owing to Subordinated Note Agent and Subordinated Noteholders, pursuant to
Section 506(b) of the Bankruptcy Code.
Section 3. Default; Rights and Remedies; Relief from Stay.
}, 1 Events of Default. The occurrence of any of the foil owing events shall
constitute an "Event of Default" under this Interim Order:
a. Any Debtor's failure to perform, in any respect, any of the terms,
conditions or covenants or their obligations under this Interim Order; or
b. An "Event of Default" under the Loan Agreement or any of the
other Financing Agreements.
3.2 Rights and Remedies Upon Event of Default. Upon the occmTence of and
during the continuance of an Event of Default, (i) the Debtors shall be bound by all restrictions,
prohibitions and other terms as provided in this Interim Order, the Loan Agreement and the other
Financing Agreements, and (ii) Agent shall be entitled to take any act or exercise any right or
remedy (subject to Section 3.4 below) as provided in this Interim Order or any Financing
Agreement, including, without limitation, declaring all Obligations immediately due and
payable, accelerating the Obligations, ceasing to extend Loans or provide or arrange for Letter of
Credit Accommodations on behalf of Debtors, setting off any Obligations with Collateral or
proceeds in Agent's possession, tem1inating, reducing or restricting the ability of the Debtors to
use any Cash Collateral, and enforcing any and all rights with respect to the Collateral. Agent
and Lenders shall have no obligation to lend or advance any additional funds to or on behalf of
!074707.7
25
Debtors, or provide any other financial accommodations to Debtors, immediately upon or after
the occurrence of an Event of Default or upon the occurrence and continuance of any act, event,
or condition that, with the giving of notice or the passage of time, or both, would constitute an
Event of Default.
3.3 Expiration of Commitment. Upon the expiration of Borrower's authority
to bo!TOW and obtain other credit accommodations from Agent and Lenders pursuant to the terms
of this Interim Order and the Financing Agreements (except if such authority shall be extended
with the prior written consent of Agent, which consent shall not be implied or construed from
any action, inaction or acquiescence by Agent or any Lender), unless an Event of Default set
forth in Section 3.1 above occurs sooner, all of the Obligations shall immediately become due
Sl!19 payai:Jle f!\lQ, Mi:Jjec( to SeqtionJ,4 l:Jelo;y, Agept and L,e11ders sh.all!Je and ...
completely relieved from the effect of any stay under Sections 362 or 105 of the Bankmptcy
Code, any other restriction on the enforcement of its liens upon and security interests in the
Collateral or any other rights granted to Agent and Lenders pursuant to the terms and conditions
of the Financing Agreements or this Interim Order, and, subject to Section 3.4 below, Agent,
acting on behalf of itself and the other Lenders, shall be and is hereby authorized, in its sole
discretion, to take any and all actions and remedies provided to it in this Interim Order,. the
Financing Agreements or applicable law which Agent may deem appropriate and to proceed
against and realize upon the Collateral or any other property of the Debtors' Estates.
3.4 Relief from Automatic Stay. The automatic stay provisions of
Section 362 of the Bankruptcy Code and any other restriction imposed by an order of the Court
or applicable law are hereby modified and vacated without further notice, application or order of
the Court to the extent necessary to permit Agent and Lenders to perform any act authorized or
permitted under or by virtue of this Interim Order or the Financing Agreements, including,
without limitation, (a) to implement the post-petition financing arrangements auth01ized by this
Interim Order and pursuant to the terms of the Financing Agreements, (b) to take any act to
create, validate, evidence, attach or perfect any lien, security interest, right or claim in the
1074707.7
26
Collateral, and (c) to assess, charge, collect, advance, deduct and receive payments with respect
to the Obligations, including, without limitation, all interests, fees, costs and expenses permitted
under the Financing Agreements, and apply such payments to the Obligations pursuant to the
Financing Agreements and this Interim Order. In addition, and without limiting the foregoing,
upon the occurrence of an Event of Default and after providing five (5) business days prior
written notice (the "Enforcement Notice") to counsel for the Debtors, counsel for the Committee
(if appointed), and the U.S. Trustee, Agent, acting on behalfofitselfand the other Lenders, shall
be entitled to take any action and exercise all rights and remedies provided to it by this Interim
Order, the Financing Agreements or applicable law as Agent may deem appropriate in its sole
discretion to, among other things, proceed against and realize upon the Collateral or any other
. j\gent,for the benefit of itselfandtheo.ther........
Lenders, has been or may hereafter be granted liens or security interests to obtain the full and
indefeasible repayment of all Obligations. Nothing contained in this Interim Order or otherwise
shall be construed to obligate Agent or any Lender in any way to lend or advance any additional
funds to Debtors, or provide other financial or credit accommodations to Debtors or consent to
the use of Cash Collateral upon or after the occurrence of an Event of Default.
Section 4. Representations; Covenants; and Waivers.
4.1 Objections to Pre-Petition Obligations. Any action, claim or defense
(hereinafter, an "Objection") that seeks to object to, challenge, contest or otherwise invalidate or
reduce, whether by setoff, recoupment, counterclaim, deduction, disgorgement or claim of any
kind: (a) the existence, validity or amount of the Pre-Petition Obligations, (b) the extent, legality,
validity, perfection or enforceability of Agent's and Lenders' pre-petition liens and security
interests in all or substantially all of the Pre-Petition Collateral as acknowledged and agreed by
Debtors herein, or (c) Agent's and Lenders' right to apply proceeds of Post-Petition Collateral
against Pre-Petition Obligations in satisfaction of Agent's and Lenders' pre-petition liens as
provided for in this Interim Order (provided however, that the only grounds for such Objection is
!074707,7
27
that the Pre-Petition Obligations were not fully secured by the Pre-Petition Collateral as of the
Petition Date and such application unduly advantaged Agent and Lenders as against other
similarly situated creditors of the Debtors' Estates), shall be tiled with the Court (x) by any
Committee, and no other party, within sixty (60) calendar days from the date of appointment of
the Committee by the U.S. Trustee, or (y) in the event no Committee is appointed within the
thirty (30) days following the Petition Date, by any party in interest with requisite standing
within seventy-five (75) calendar days from the date of entry of this Interim Order. If any such
Objection is timely filed and successfully pursued, nothing in this Interim Order shall prevent the
Comt from granting appropriate relief with respect to the Pre-Petition Obligations or Agent's and
Lenders' liens on the Pre-Petition Collateral. If no Objection is timely filed, or if an Objection is
.............. f!Jecl . ... '! . .
secured claims for all purposes within these Cases and any Successor Cases, shall not be subject
to any setoff, recoupment, counterclaim, deduction or claim of any kind, and shall not be subject
to any further objection or challenge by any party at any time, and Agent's and Lenders' pre-
petition liens on and security interest in all or substantially all of the Pre-Petition Collateral shall
be deemed legal, binding, valid, perfected, enforceable, and non-avoidable for all purposes and
of first and senior priority, subject to only the Permitted Liens and Claims, and (b) Agent,
Lenders and each of their respective participants, agents, officers, directors, employees,
attorneys, professionals, successors, and assigns shall be deemed released and discharged fiom
any and all claims and causes of action related to or arising out of the Pre-Petition Financing
Agreements and shall not be subject to any further objection or challenge by any party at any
time. Nothing contained in this Section 4.1 or otherwise shall or shall be deemed or construed to
impair, prejudice or waive any rights, claims or protections afforded to Agent and Lenders in this
Interim Order, the Loan Agreement, the other Financing Agreements or the Bankruptcy Code in
connection with all post-petition Loans and Letter of Credit Accommodations and other financial
and credit accommodations provided by Agent and Lenders to Debtors in reliance on Section
1074707.7
28
364(e) of the Bankruptcy Code and in accordance with the terms and provisions of this Interim
Order and the Financing Agreements.
4.2 Debtors' Waivers. At all times during the Cases, and whether or not an
Event of Default has occurred, the Debtors irrevocably waive any right that they may have to (i)
seek authority to use Cash Collateral of Agent and Lenders under Section 363 of the Bankruptcy
Code, (ii) seek authority to obtain post-petition loans or other financial accommodations
pursuant to Section 364( c) or 364( d) of the Bankruptcy Code, other than from Agent and Lenders
or as may be otherwise expressly permitted pursuant to the Loan Agreement, (iii) challenge the
application of any payments authorized by this Interim Order as pursuant to Section 506(b) of
the Bankruptcy Code, or to assert that the value of the Pre-Petition Collateral is less than the Pre-
.. .. ....... ... . . Pe.tition.Obligati.ons,.(i.v)..propo:>e, .s.\!PPorLOLh<!Yg a ()rliql!i1atig!1, gr a .
sale of all or substantially all of the Debtors' assets, that does not provide for the indefeasible
payment in cash in full and satisfaction of all Obligations on the effective date of such plan in
accordance with the terms and conditions set forth in the Ratification Agreement, the Loan
Agreement and the other Financing Agreements, or (v) seek relief under the Bankruptcy Code,
including without limitation, under Section I 05 of the Bankruptcy Code, to the extent any such
relief would in any way restrict or impair the rights and remedies of Agent and Lenders as
provided in this Interim Order and the Financing Agreements or Agent's and Lenders' exercise of
such rights or remedies; provided, however, that Agent may otherwise consent in writing to any
of the relief outlined in clauses (i) through and including (v) above, but no such consent shall be
implied from any other action, inaction, or acquiescence by Agent or any Lender. Further, the
Post-Petition Obligations and the Pre-Petition Obligations shall not be discharged by the entry of
any order confirming a plan of reorganization, notwithstanding the provisions of Section 1141 (d)
of the Bankruptcy Code, unless the Obligations have been indefeasibly paid in full in cash, on
terms and conditions acceptable to Agent, on or before the effective date of a confirmed plan of
reorganization.
!()74707. 7
29
4.3 Section 506(c) Claims. No costs or expenses of administratiOJ1 which
have or may be incurred in the Cases at any time during the Interim Financing Period (and
subject to the entry of a Permanent Financing Order, any time after the expiration of the Interim
Financing Period) shall be charged against Agent or any Lender, their respective claims or the
Collateral pursuant to Section 506(c) of the Bankruptcy Code without the prior written consent
of Agent, and no such consent shall be implied from any other action, inaction or acquiescence
by Agent or any Lender.
4.4 Collateral Rights.
4.4.1 Until all of the Obligations shall have been indefeasibly paid and
satisfied in full in accordance with the terms of the Loan Agreement and this Interim Order, no
.. other partY sh11llti:lxe9lose or seekto enforce any junior lien or claim in any Collateral.
4.4.2 Upon and after the occurrence of an Event of Default, and subject
to Agent obtaining relief from the automatic stay as provided for herein, in connection with a
liquidation of any of the Collateral, Agent (or any of its employees, agents, consultants,
contractors or other professionals) shall have the right, at the sole cost and expense of Debtors,
to: (i) enter upon, occupy and use any real or personal property, fixtures, equipment, leasehold
interests or warehouse arrangements owned or leased by Debtors and (ii) use any and all
trademarks, tradenames, copyrights, licenses, patents or any other similar assets of Debtors,
which are owned by or subject to a lien of any third party and which are used by Debtors in their
businesses. Agent and Lenders will be responsible for the payment of any applicable fees,
rentals, royalties or other amounts due such lessor, licensor or owner of such property for the
period of time that Agent actually uses the equipment or the intellectual property (but in no event
for any accrued and unpaid fees, rentals or other amounts due for any period prior to the date that
Agent actually occupies or uses such assets or properties).
4.4.3 Without limiting any of the rights or remedies of Agent or any
Lender (including, without limitation, all rights atlorded under applicable state law) provided for
in this Interim Order, the Financing Agreements or otherwise, upon or after the occurrence of an
!074707.7
30
Event of Default, and following the issuance of an Enforcement Notice as set forth herein, Agent
shall have the right, in its discretion, to file and pursue (on behalf of any Debtor or as the secured
party with respect to any real property leasehold interest of the Debtors) or direct and require any
Debtor to immediately file and diligently pursue, and prosecute any motion or other appropriate
pleading with this Court seeking the assumption, assignment or rejection of such of the real
property leases of the Debtors as Agent shall specify and, in the case of the assignment thereof,
assigned to such person or other entity as Agent shall specify and any such assignment shall be
on terms and conditions as are acceptable to Agent and subject to (i) higher and better offers to
the extent required under Section 363 of the Bankruptcy Code and (ii) the affected lessor's rights
under the applicable lease(s) (to the extent such rights are enforceable or effective under Section
.. 39.5 .ofthe.f!ankmptcy Corle) !ln9Jhe. J:l\\nl\mPtcy.c.orle .. J)ebtors .are.aut\J.oriz:e9anc!directedtq ...
execute and deliver such agreements, documents and instruments as Agent may request to
effectuate the foregoing, but no such agreements, documents or instruments shall be required for
such purpose.
4.4.4 On and after the occurrence of an Event of Default, Agent shall
have the right to seek Court approval, or direct and require any Debtor to seek, Court approval to
conduct "going-out-of-business sales" or other sales at any leased location of the Debtors outside
the ordinary course of Debtors' businesses conducted at such location, subject to the tem1s and
guidelines approved by the Court and the rights of any lessor of such leased location under their
respective leases with the applicable Debtor and Section 365 of the Bankruptcy Code, and
nothing contained herein shall be deemed to prejudice the rights of such real prope1ty lessor to
object to such relief.
4.5 Release. Upon the earlier of (a) the entry of a Permanent Financing Order
approvmg the Motion or (b) the entry of an Order extending the Interim Financing Period
beyond thirty (30) calendar days after the date of this Interim Order, and in each instance, subject
to Section 4.1 above, in consideration of Agent and Lenders making post-petition loans,
advances and providing other credit and financial accommodations to the Debtors pursuant to the
I 074 707.7
31
provisions of the Financing Agreements and this Interim Order, each Debtor, on behalf of itself
and its successors and assigns, (collectively, the "Releasors"), shall, forever release, discharge
and acquit Agent, each Lender and their respective participants, officers, directors, agents,
attorneys and predecessors-in-interest (collectively, the "Releasees") of and from any and all
claims, demands, liabilities, responsibilities, disputes, remedies, causes of action, indebtedness
and obligations, of every kind, nature and description, including, without limitation, any so-
called "lender liability" claims or defenses, that Releasors had, have or hereafter can or may have
against Releasees as of the date hereof, in respect of events that occuncd on or prior to the date
hereof with respect to the Debtors, the Pre-Petition Obligations, the Financing Agreements and
any Loans, Letter of Credit Accommodations or other financial accommodations made by Agent
....... and Lend.ers .. to Debtors. pursuant tPJhe Fina!lci!1gAgreqments. In additio11, J.!p()n therepayme!1t
of all ObligatiPns owed to Agent and Lenders by Debtms and termination of the rights and
obligations arising under the Financing Agreements and either a Permanent Financing Order or
extended Interim Order, as the case may be (which payment and termination shall be on terms
and conditions acceptable to Agent), Agent and Lenders shall be released from any and all
obligations, liabilities, actions, duties, responsibilities and causes of action arising or occurring in
connection with or related to the Financing Agreements or the applicable Financing Order
(including without limitation any obligation or responsibility (whether direct or indirect, absolute
or contingent, due or not due, primary or secondary, liquidated or unliquidated) to pay or
otherwise fund the Carve-Out Expenses), on tenns and conditions acceptable to Agent.
Section 5. Other Rights and Obligations.
5.1 No Modification or Stay of This Interim Order. Notwithstanding (i) any
stay, modification, amendment, supplement, vacating, revocation or reversal of this Interim
Order, the Financing Agreements or any term hereunder or thereunder, (ii) the f ~ l i l u r e to obtain a
Permanent Pinancing Order pursuant to Bankruptcy Rule 400l(c)(2), or (iii) the dismissal or
conversion of one or more of the Cases (each, a "Subject Event"), (x) the acts taken by Agent
and Lenders in accordance with this Interim Order, and (y) the Post-Petition Obligations incurred
1074707.7
32
or arising prior to Agent's actual receipt of written notice from Debtors expressly describing the
occurrence of such Subject Event shall, in each instance, be governed in all respects by the
original provisions of this Interim Order, and the acts taken by Agent and Lenders in accordance
with this Interim Order, and the liens, claims and other protections granted to Agent and Lenders
pursuant to this Interim Order, and all other rights, remedies, privileges, and benefits in favor of
Agent and Lenders pursuant to this Interim Order and the Financing Agreements shall remain
valid and in full force and effect pursuant to Section 364(e) of the Bankruptcy Code. For
purposes of this Interim Order, the tenn "appeal", as used in Section 364(e) of the Bankruptcy
Code, shall be construed to mean any proceeding for reconsideration, amending, rehearing, or re-
evaluating this lntelim Order by this Court or any other tribunaL
.5 ... 2 ..... Power to Waive Rights; Duties to Third Parties. Agentanq .ken \fer sh'!ll ..
have the right to waive any of the tenns, rights and remedies provided or acknowledged in this
Interim Order in respect of Agent and Lenders (the "Lender Rights"), and shall have no
obligation or duty to any other party with respect to the exercise or enforcement, or failure to
exercise or enforce, any Lender Right(s). Any waiver by Agent or any Lender of any Lender
Rights shall not be or constitute a continuing waiver unless expressly so stated in writing therein.
Any delay in or failure to exercise or enforce any Lender Right shall neither constitute a waiver
of such Lender Right, subject Agent or any Lender to any liability to any other party, nor cause
or enable any other party to rely upon or in any way seck to asse11 as a defense to any obligation
owed by the Debtors to Agent or any Lender.
5.3 Disposition of Collateral. Debtors shall not sell, transfer, lease, encumber
or otherwise dispose of any portion of the Collateral or assume, reject or assign any real property
leasehold interest of the Debtors without the prior written consent of Agent (and no such consent
shall be implied, from any other action, inaction or acquiescence by Agent or any Lender) and an
order of this Court, except for sales of Debtors' Inventory in the ordinary course of their business
and other Collateral expressly permitted pursuant to the terms and conditions of the Loan
Agreement. Debtors shall remit to Agent, or cause to be remitted to Agent, all proceeds of the
1074707.7
33
Collateral for application by Agent to the Obligations, in such order and manner as Agent may
determine in its discretion, in accordance with the terms of this Interim Order, the Loan
Agreement and the other Financing Agreements.
5.4 Inventory. Debtors shall not, without the consent of Agent, (a) enter into
any agreement to return any inventory to any of their creditors for application against any pre-
petition indebtedness under any applicable provision of Section 546 of the Bankruptcy Code, or
(b) consent to any creditor taking any setoff against any of its pre-petition indebtedness based
upon any such return pursuant to Section 553(b )(1) of the Bankruptcy Code or otherwise.
5.5 Reservation of Rights. The terms, conditions and provisions of this
Interim Order are in addition to and without prejudice to the rights of Agent and Lenders to
pyrsue anY and allrigh(;; and reme<!ies Ullder the Bankruptcy Code, the Financing Agreements or
any other applicable agreement or law, including, without limitation, rights to seek adequate
protection and/or additional or different adequate protection, to seek relief from the automatic
stay, to seek an injunction, to oppose any request for use of cash collateral or granting of any
interest in the Collateral or priority in favor of any other party, to object to any sale of assets, and
to object to applications for allowance and/or payment of compensation of Professionals or other
parties seeking compensation or reimbursement from the Estate.
5.6 Binding Effect.
5.6.1 The provisions of this Interim Order and the Financing
Agreements, the Post-Petition Obligations, Superpriority Claim and any and all rights, remedies,
privileges and benefits in favor of Agent and Lenders provided or acknowledged in this Interim
Order, and any actions taken pursuant thereto, shall be effective immediately upon entry of this
Interim Order pursuant to Bankruptcy Rules 6004(h) and 7062, shall continue in full force and
effect in the Cases and any Successor Cases, and shall survive entry of any such other order,
including without limitation any order which may be entered confirming any plan of
reorganization, converting one or more of the Cases to any other chapter under the Bankruptcy
Code, or dismissing one or more of the Cases.
1074707.7
34
5.6.2 Any order converting or dismissing one or more of the Cases or
any Successor Case under Section 1112 or otherwise shall be deemed to provide (in accordance
with Sections 105 and 349 of the Bankmptcy Code) that (a) the Superpriority Claim, A/L
Adequate Protection Superpriority Claim and Agent's and Lenders' liens on and security interests
in the Collateral (including, without limitation, the AIL Replacement Liens) shall continue in full
force and effect notwithstanding such dismissal until the Obligations are indefeasibly paid and
satisfied in full, and (b) this Court shall retain jurisdiction, notwithstanding such dismissal, for
the purposes of enforcing the Superpriority Claim and liens in the Collateral.
5.6.3 In the event this Colll1 modifies any of the provisions of this
Interim Order or the Financing Agreements following a Final Hearing, (a) such modifications
.. 9lf!llJ.I1()\<lffecttlJy.[igptsor pri(lri!jes ofi\gY!J(ai1Q J&!)QCrS.Pl!fSUa!1t. to t.hisJ!]terimQrder .\Vit.h ...
respect to the Collateral or any portion of the Obligations which arises or is incmTed or is
advanced prior to such modifications, and (b) this Interim Order shall remain in full force and
effect except as specifically amended or modified at such Final Hearing.
5.6.4 This Interim Order shall be binding upon Debtors, all parties m
interest in the Cases and their respective successors and assigns, including any trustee or other
fiduciary appointed in the Cases or any subsequently convened bankruptcy case(s) of any
Debtor. This Interim Order shall also inure to the benefit of Agent, Lenders, Debtors and their
respective successors and assigns.
5.7 Restrictions on Cash Collateral Use, Additional Financing, Plan
Treatment. All post-petition advances and other financial accommodations under the Loan
Agreement and the other Financing Agreements are made in reliance on this Interim Order and
there shall not at any time be entered in the Cases, or in any Successor Cases, any order (other
than the Permanent Financing Order) which (a) authorizes the use of cash collateral of Debtors in
which Agent or Lenders have an interest, or the sale, lease, or other disposition of property of
any Debtor's Estate in which Agent or Lenders have a lien or security interest, except as
expressly permitted hereunder or in the Financing Agreements, or (b) authorizes under Section
I 074707.7
35
364 of the Bankruptcy Code the obtaining of credit or the incurring of indebtedness secured by a
lien or security interest which is equal or senior to a lien or security interest in proper1y in which
Agent or Lenders hold a lien or security interest, or which is entitled to priority administrative
claim status which is equal or superior to that granted to Agent and Lenders herein; unless, in
each instance (i) Agent shall have given its express prior written consent with respect thereto, no
such consent being implied from any other action, inaction or acquiescence by Agent or any
Lender, or (ii) such other order requires that all Obligations shall first be indefeasibly paid and
satisfied in full in accordance with the terms of the Loan Agreement and the other Financing
Agreements, including, without limitation, all debts and obligations of Debtors to Agent and
Lenders which arise or result from the obligations, loans, security interests and liens authorized
on ten11s and to A_gent '[he and liens granted to
or for the benefit of Agent and Lenders hereunder and the rights of Agent and Lenders pursuant
to this Interim Order and the Financing Agreements with respect to the Obligations and the
Collateral are cumulative and shall not be altered, modified, extended, impaired, or affected by
any plan of reorganization or liquidation of Debtors and, if Agent shall expressly consent in
writing that the Obligations shall not be repaid in full upon confinnation thereof, shall continue
after confirmation and consummation of any such plan.
5.8 No Owner/Operator Liability. In determining to make any loan under the
Loan Agreement, the other Financing Agreements or any Financing Order, or in exercising any
rights or remedies as and when permitted pursuant to the Financing Agreements or any
Financing Order, Agent and Lenders shall not be deemed to be in control of the operations of the
Debtors or to be acting as a "responsible person" or "owner or operator" with respect to the
operation or management of the Debtors (as such terms, or any similar terms, are used in the
United States Comprehensive Environmental Response, Compensation and Liability Act, 29
U.S. C. 9601 etseq., as amended, or any similar federal or state statute).
5.9 Marshalling; Section 552(b). In no event shall Agent or any Lender be
subject to the equitable doctrine of "marshalling" or any similar doctrine with respect to the
!074707 7
36
Collateral. The Agent and Lenders shall be entitled to all of the rights and benefits of Section
5 52(b) of the Bankruptcy Code, and the "equities of the case" exception under Section 552(b) of
the Bankruptcy Code shall not apply to Agent and Lenders with respect to proceeds, products,
offspring or profits of any of the Collateral.
5.10 JPMorgan. The Debtors are authorized and empowered to incur
obligations and to make payments pursuant to the terms and conditions of that ce11ain Participant
Commercial Card Agreement (Individual Liability), between the Borrower and JPMorgan Chase
Bank, N.A. ("JPMC"), dated as of March 26, 2007 (as amended), and any coin and currency
facility between JPMC and any of the Debtors (the "JPMC Commercial Card/Coin & Currency
Facilities"). The Debtors hereby also are authorized and directed to perform and comply with all
of the terms conditions and covenants of the JPMC Commercial Card/Coin & Currency
'' -- ..... _ ... .,, .. , ......... ,.,, ..... , .... t. .... ,._....... ,.,. ... _. ..... ' - - ................................ -.--- . . ..................... _ ..... ' ,,,,, ........ , --- " ..... --- .
Facilities. Each Debtor hereby ratifies, reaffirms, extends, assumes & adopts the JPMC
Commercial Card/Coin & Currency Facilities to which it is a pmiy.
5. II Tetm; Termination. Notwithstanding any provision of this Interim Order
to the contrary, the tetm of the financing arrm1gements among Debtors, Agent and Lenders
authorized by this Interim Order may be terminated pursuant to the terms of the Loan
Agreement.
5.12 Limited Effect. Unless the Interim Order specifically provides otherwise,
in the event of a conflict between the tetms and provisions of any of the Financing Agreements
and this Interim Order, the terms and provisions of this Interim Order shall govern, interpreted as
most consistent with the tenns and provisions of the Financing Agreements.
5. I 3 Objections Ovenuled. All objections to the entry of this Interim Order
are, to the extent not withdrawn, hereby overruled.
Section 6. Final Hearing and Response Dates. The Final Hearing on the Motion pursuant to
Bankruptcy Rule 400I(c)(2) is scheduled for , __ , at before this Cowi.
The Debtors shall promptly mail copies of this Interim Order to the Noticed Parties, and to any
other party that hasfiled a request/or notices with this Court and to any Creditors' Commitlee
!074707. 7
37
afier same has been appointed, or Creditors' Committee counsel, if same shall have .filed a
request/or notice. Any party in interest objecting to the r e l i ~ f sought at the Final Hearing shall
serve and file written objections, which objections shall be served upon (a) counsel.fbr the
Debtors, Morgan, Lewis & Brockius, LLP, !Of Park Avenue, New York, NY 10178, Attn:
HowardS. Beltzer, Esq., Fax: (212) 309-6001; Richards, Layton & Finger, P.A., One Rodney
Square, 920 North King Street, Wilmington, Delaware 19801, Attn: Mark Collins, Esq., Fax:
(302) 651-7701: (b) counsel for the Agent, Otterbourg, Steindler, Houston & Rosen, P.C., 230
Park Avenue, New York, New York 10169-0075; Attn: Jonathan N. Heif'cll, Esq. and Daniel F.
Fiorillo, Esq. Fax: (212)-682-6104; (c) counsel to the Subordinated Note Agent, Kirkland &
Ellis LLP, !53 East 53rd St., New York, New York 10022; Attn: Paul M. Basta, Esq. and Joshua
;1. S.ussberg, Esq.; (cl) coun.welto !fnY Committee: and (d) the [),S. Tn1stee:. anclhallbe.fi/ed with
the Clerk (){the United States Bankruptcy Court .fbr the District of Delaware, in each case, to
allow actual receipt of the foregoing no later than _____ , prevailing Eastern time.
Dated: July_, 2008
Wilmington, Delaware
1074707.7
UNITED STATES BANKRUPTCY JUDGE
38
EXHIBIT A
Ratification and Amendment Agreement
!074707.7
39
RATIFICATION AND AMENDMENT AGREEMENT
This RATIFICATION AND AMENDMENT AGREEMENT (the "Ratification
Agreement") dated as of July_, 2008 is by and among Wachovia Capital Finance Corporation
(Western), as successor to Congress Financial Corporation (Western), in its capacity as
administrative and collateral agent (in such capacity, "Agent") acting for and on behalf of the
financial institutions from time to time party to the Loan Agreement (as defined below) as
lenders (collectively with Agent, the "Lenders"), Lenders, Mervyn's LLC, a California limited
liability company, as Debtor and Debtor-in-Possession ("Borrower"), and Mervyn's Brands,
LLC, a Minnesota limited liability company, as Debtor and Debtor-in-Possession ("Guarantor").
WHEREAS, Borrower and Guarantor have each commenced a case under Chapter II of
Title II of the United States Code in the United States Banlauptcy Court for the District of
Delaware, and Borrower and Guarantor have retained possession of their assets and are
authorized under the Bankruptcy Code to continue the operation of their businesses as a debtor-
in-possession;
WHEREAS, prior to the commencement of the Chapter II Cases (as defined below),
Agent and Lenders made loans and advances and provided other financial or credit
accommodations to Borrower secured by substantially all assets and properties of Borrower and
Guarantor as set forth in the Existing Financing Agreements (as defined below) and the Existing
Guarantor Documents (as defined below);
WHEREAS, the Bankruptcy Court (as defined below) has entered a Financing Order
(defined below) pursuant to which Agent and Lenders may make post-petition loans and
advances, and provide other financial accommodations, to Borrower secured by substantially all
the assets and properties of Borrower and Guarantor as set forth in the Financing Order and the
Financing Agreements (as defined below);
WHEREAS, the Financing Order provides that as a condition to the making of such post-
petition loans, advances and other financial accommodations, Borrower and Guarantor shall
execute and deliver this Ratification Agreement;
WHEREAS, Borrower and Guarantor desire to reaffirm their obligations to Agent and
Lenders pursuant to the Existing Financing Agreements and acknowledge their continuing
liabilities to Agent and Lenders thereunder in order to induce Agent and Lenders to malce such
post-petition loans and advances, and provide such other financial accommodations, to
Borrower; and
WHEREAS, Borrower and Guarantor have requested that Agent and Lenders make post-
petition loans and advances and provide other financial or credit accommodations to Borrower
and make certain amendments to the Loan Agreement (as defined below), and Agent and
Lenders are willing to do so, subject to the terms and conditions contained herein.
1074514.12
RLF 1-3307046-1
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and
agreements contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Agent, Lenders, Borrower and Guarantor
mutually covenant, warrant and agree as follows:
1. DEFINITIONS.
1.1 Additional Definitions. As used herein, the following terms shall have the
respective meanings given to them below and the Loan Agreement and the other Financing
Agreements shall be deemed and are hereby amended to include, in addition and not in
limitation, each of the following definitions:
(a) "Bankruptcy Court" shall mean the United States Bankruptcy
Court or the United States District Court for the District of Delaware.
(b) "Chapter 11 Cases" shall mean the Chapter 11 cases of Borrower
and Guarantor which are being jointly administered under the Bankruptcy Code and are
pending in the Bankruptcy Court.
(c) "Bankruptcy Code" shall mean the United States Bankruptcy
Code, being Title 11 of the United States Code as enacted in 1978, as the same has heretofore
been or may hereafter be amended, recodified, modified or supplemented, together with all
rules, regulations and interpretations thereunder or related thereto.
(d) "Budget" shall mean the initial budget to be delivered to Agent
and Lenders in accordance with Section 5.3(a) of the Ratification Agreement, in form and
substance satisfactory to Agent, setting forth the Projected Information (as defined in the
Ratification Agreement) for the periods covered thereby, together with any subsequent or
amended budget(s) thereto delivered to Agent and Lenders, in form and substance satisfactory
to Agent, in accordance with the terms and conditions hereof.
(e) "Debtors" shall mean, collectively, Borrower, as Debtor and
Debtor-in-Possession in the Chapter 11 Cases, and Guarantor, as Debtor and Debtor-in-
Possession in the Chapter 11 Cases.
(f) "Eligible Real Property Leases" shall mean the Real Property
Leases to which a positive value is attributed under the Valuation Letter.
(g) "Existing Financing Agreements" shall mean the Financing
Agreements (as defined in the Existing Loan Agreement), including, without limitation, the
Existing Guarantor Documents (as defined below), in each instance, as in effect immediately
prior to the Petition Date.
(h) "Existing Guarantor Documents" shall mean, collectively, (i)
Guarantee, dated September 2, 2004, by Guarantor in favor of Agent, (ii) Trademark Collateral
Assigmnent and Security Agreement, dated September 2, 2004, by and between Guarantor and
Agent, (iii) Patent Collateral Assigmnent and Security Agreement, dated September 2, 2004, by
and between Guarantor and Agent and (iv) Copyright Collateral Assigmnent and Security
1074514.12 2
RLF 1-3307046-1
Agreement, dated September 2, 2004, by and between Guarantor and Agent, in each instance,
as in effect immediately prior to the Petition Date.
(i) "Existing Loan Agreement" shall mean the Loan and Security
Agreement, dated September 2, 2004, by and among Agent, Lenders, Borrower and Guarantor,
as amended by Amendment No. I to Loan and Security Agreement, dated October 25, 2004 by
and among Agent, Lenders, Borrower and Guarantor, Amendment No. 2 to Loan and Security
Agreement, dated December 22, 2005, by and among Agent, Lenders, Borrower and Guarantor,
Amendment No. 3 to Loan and Security Agreement, dated June 8, 2006, by and among Agent,
Lenders, Borrower and Guarantor, Amendment No. 4 to Loan and Security Agreement, dated
March 14, 2007 and Amendment No.5 to Loan and Security Agreement, dated November 27,
2007, by and among Borrower, Guarantor, Agent and Lenders, and otherwise as in effect
immediately prior to the Petition Date.
(j) "Financing Order" shall mean the Interim Financing Order, the
Permanent Financing Order and such other orders relating thereto or authorizing the granting of
credit by Agent and Lenders to Borrower on an emergency, interim or permanent basis pursuant
to Section 364 of the Bankruptcy Code as may be issued or entered by the Bankruptcy Court in
the Chapter II Cases.
(k) "Guarantor Documents" shall mean, collectively, the Existing
Guarantor Documents, as amended by the Ratification Agreement, in each instance, as the same
now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced.
(I) "Interim Financing Order" shall have the meaning set forth in
Section 9.8 of the Ratification Agreement.
(m) "Material Budget Deviation" shall have the meaning set forth in
Section 5.3(c) of the Ratification Agreement.
(n) "Permanent Financing Order" shall have the meaning set forth in
Section 9.9 of the Ratification Agreement.
(o) "Petition Date" shall mean the date of the commencement of the
Chapter II Cases.
(p) "Post-Petition Collateral" shall mean, collectively, all now
existing and hereafter acquired real and personal property of each Debtor's estate, wherever
located, of any kind, nature or description, including any such property in which a lien is
granted to Agent and Lenders pursuant to the Financing Agreements, the Financing Order or
any other order entered or issued by the Bankruptcy Court, and s)lall include, without
limitation:
1074514,12
RLFI-3307046-1
(i)
(ii)
all of the Pre-Petition Collateral;
all Accounts;
3
(iii) all general intangibles, including, without limitation, all
Intellectual Property;
(iv) all goods, including, without limitation, all Inventory and
all Equipment;
(v) all Real Property and fixtures;
(vi) all chattel paper, including, without limitation, all tangible
and electronic chattel paper;
(vii) all instruments, including, without limitation, all
promissory notes;
(viii) all documents and all credit card sales drafts, credit card
sales slips or charge slips or receipts and other forms of store receipts;
(ix) all deposit accounts;
(x) all letters of credit, banker's acceptances and similar
instruments and including all letter-of-credit rights;
(xi) all supporting obligations and all present and future liens,
security interests, rights, remedies, title and interest in, to and in respect of Receivables and other
Collateral, including, without limitation, (A) rights and remedies under or relating to guaranties,
contracts of suretyship, letters of credit and credit and other insurance related to the Collateral,
(B) rights of stoppage in transit, replevin, repossession, reclamation and other rights and
remedies of an unpaid vendor, lienor or secured party, (C) goods described in invoices,
documents, contracts or instruments with respect to, or otherwise representing or evidencing,
Receivables or other Collateral, including returned, repossessed and reclaimed goods, and (D)
deposits by and property of account debtors or other persons securing the obligations of account
debtors;
(xii) all (A) investment property (including securities, whether
certificated or uncertificated, securities accounts, security entitlements, commodity contracts or
commodity accounts) and (B) monies, credit balances, deposits and other property of Borrower
and Guarantor now or hereafter held or received by or in transit to Agent, any Lender or their
respective Affiliates or at any other depository or other institution from or for the account of
Borrower or Guarantor, whether for safekeeping, pledge, custody, transmission, collection or
otherwise;
(xiii) all commercial tort claims, including, without limitation,
those identified in the Information Certificate;
(xiv) to the extent not otherwise described above, all
Receivables;
1074514.12
4
RLFI-3307046-1
(xv) all claims, rights, interests, assets and properties (recovered
by or on behalf of each Borrower and Guarantor or any trustee of such Borrower or Guarantor
(whether in the Chapter II Cases or any subsequent case to which any of the Chapter 11 Cases is
converted), including, without limitation, all property recovered as a result of transfers or
obligations avoided or actions maintained or taken pursuant to Sections 544, 545, 547, 548, 549,
550,551 and 553 of the Bankruptcy Code;
(xvi) all Records; and
(xvii) all products and proceeds of the foregoing, in any form,
including insurance proceeds and all claims against third parties for loss or damage to or
destruction of or other involuntary conversion of any kind or nature of any or all of the other
Collateral.
Notwithstanding anything to the contrary contained in any provision of the Loan Agreement or
any of the other Financing Agreements (but without limitation upon Section 5.3(a) of the Loan
Agreement), nothing contained herein or in the Loan Agreement or any of the other Financing
Agreements shall limit or be deemed to limit any rights or interest of Agent or any Lender in any
lease, contract, license or license agreement covering personal or real property of Borrower or
Guarantor, including, without limitation, any Restricted Leases, any Restricted Lease Proceeds,
any Restricted Lease Fixtures, or any Restricted Lease Proceeds Accounts.
(q) "Post-Petition Obligations" shall mean all Obligations (as defined
in the Existing Loan Agreement as in effect immediately prior to the Petition Date) arising on
and after the Petition Date and whether arising on or after the conversion or dismissal of the
Chapter 11 Cases, or before, during and after the confirmation of any plan of reorganization in
the Chapter 11 Cases, and whether arising under or related to the Ratification Agreement, the
Loan Agreement, the Guarantor Documents, the other Financing Agreements, a Financing
Order, by operation of law or otherwise, and whether incurred by such Borrower or Guarantor
as principal, surety, endorser, guarantor or otherwise and including, without limitation, all
principal, interest, financing charges, letter of credit fees, unused line fees, servicing fees, line
increase fees, debtor-in-possession facility fees, early termination fees, other fees, commissions,
costs, expenses and attorneys', accountants' and consultants' fees and expenses incurred in
connection with any of the foregoing.
(r) "Pre-Petition Collateral" shall mean, collectively, (i) all
"Collateral" as such term is defined in the Existing Loan Agreement as in effect immediately
prior to the Petition Date, (ii) all "Collateral" as such term is defined in each of the Existing
Guarantor Documents as in effect immediately prior to the Petition Date, and (iii) all other
security for the Pre-Petition Obligations as provided in the Existing Loan Agreement, the
Existing Guarantor Documents and the other Existing Financing Agreements immediately prior
to the Petition Date.
(s) "Pre-Petition Obligations" shall mean all Obligations (as defined
in the Existing Loan Agreement as in effect immediately prior to the Petition Date) arising
before the Petition Date, whether under or related to the Existing Loan Agreement, the Existing
Guarantor Documents, the other Existing Financing Agreements, by operation of law or
1074514.12
5
RLF1-3307046-1
otherwise, and whether incurred by such Borrower or Guarantor as principal, surety, endorser,
guarantor or otherwise and including, without limitation, all principal, interest, financing
charges, letter of credit fees, unused line fees, servicing fees, line increase fees, early
termination fees, other fees, commissions, costs, expenses and attorneys', accountants' and
consultants' fees and expenses incurred in connection with any of the foregoing.
(t) "Ratification Agreement" shall mean the Ratification and
Amendment Agreement by and among Borrower, Guarantor, Agent and Lenders, as the same
now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced.
(u) "Ratification Agreement Effective Date" shall mean the later to
occur of (i) the receipt by Agent of the Ratification Agreement duly authorized, executed and
delivered by Agent, Lenders, Borrower and Guarantor and (ii) the entry of the Interim
Financing Order.
(v) "Real Property Leases" shall mean the real property leases of
Borrower under which it is a lessee, from time to time in effect, as the same now exist or may
hereafter be amended or modified from time to time.
(w) "Required Term Loan Lenders" shall mean, at any time, those
Term Loan Lenders whose Pro Rata Shares aggregate more than fifty (50%) percent of the
aggregate Term Loan Commitments of all Term Loan Lenders, or if the Term Loan
Commitments have been terminated, Term Loan Lenders to whom more than fifty (50%)
percent of the then outstanding Obligations arising from or in connection with the Term Loan
are owing.
(x) "Required Super-Majority Term Loan Lenders" shall mean, at
any time, those Term Loan Lenders whose Pro Rata Shares aggregate eighty (80%) percent or
more of the aggregate Term Loan Commitments of all Term Loan Lenders, or if the Term Loan
Commitments have been terminated, Term Loan Lenders to whom eighty (80%) percent or
more of the then outstanding Obligations arising from or in connection with the Term Loan are
owing.
(y) "Term Loan" shall mean the term loan made by Term Loan
Lenders, or Agent on behalf of Term Loan Lenders, to Borrower pursuant to Section 2.5 of this
Agreement.
(z) "Term Loan Commitment" shall mean, at any time, as to any
Lender, the principal amount set forth opposite such Lender's name on Schedule I to the
Ratification Agreement designated as such Lender's Term Loan Commitment or on Schedule I
to an Assignment and Acceptance Agreement pursuant to which such Lender became a Lender
hereunder in accordance with the provisions of Section 13.7 hereof, as the same may be
adjusted from time to time in accordance with the terms hereof; sometimes being collectively
(as to all Term Loan Lenders) referred to herein as the "Term Loan Commitments".
1074514.12
6
RLF 1-3307046-1
(aa) "Term Loan Lenders" shall mean, at any time, Lenders having a
Term Loan Commitment or a Term Loan (or portion thereof) owing to it at such time; each
sometimes referred to herein individually as a "Term Loan Lender".
(bb) "Term Loan Maturity Date" shall mean the earlier to occur of (i)
November 15, 2008, or (ii) termination of this Agreement pursuant to the terms hereof.
( cc) "Valuation Letter" shall mean a letter from an appraiser of the
Eligible Real Property Leases acceptable to Agent, in form and substance satisfactory to Agent,
specifying such appraiser's preliminary determination of the minimum fair market value that
may reasonably be ascribed to the Eligible Real Property Leases.
1.2 Amendments to Definitions.
(a) Borrowing Base A. The definition of Borrowing Base A in the
Loan Agreement is hereby deleted in its entirety and the following substituted therefor:
" "Borrowing Base A" shall mean, at any time, the amount equal to:
(a) the lesser of:
(i) the amount equal to (A) eighty-five (85%) percent of the
amount of Eligible Credit Card Receivables, plus (B) the lowest of(!)
ninety (90%) percent multiplied by the Value of the Eligible Inventory or
(2) ninety (90%) percent of the Net Recovery Percentage multiplied by the
Value of such Eligible Inventory or (3) one hundred percent (I 00%) of
Borrower's Cost of such Inventory; provided, that, on and after the Term
Loan Maturity Date, the foregoing percentage with respect to Eligible
Inventory shall be reduced from ninety (90%) percent to eighty-five (85%)
percent, or
(ii) the Revolving Loan A Limit,
(b) Reserves (it being agreed that Agent may establish Reserves in
accordance with the terms of the Loan Agreement, without duplication,
against Borrowing Base A or Borrowing Base B)."
The Net Recovery Percentage set forth above with respect to Eligible Inventory is deemed to be
modified to be determined with reference to the reports referred to in Section 5.8 of the
Ratification Agreement and the appraisal delivered to Agent pursuant to Section 7.3 of the Loan
Agreement and such Net Recovery Percentage may be increased or decreased by Agent, as it
may determine, in accordance with the definition of Net Recovery Percentage, to account for the
effect of the foregoing.
(b) Borrowing Base B. The definition of "Borrowing Base B" in the
Loan Agreement is hereby deleted in its entirety and the following substituted therefor:
1074514.12
7
RLF1-3307046-1
" "Borrowing Base B" shall mean an amount equal to zero."
(c) Collateral. All references to the term "Collateral" in the Loan
Agreement or the other Financing Agreements, or any other term referring to the security for
the Pre-Petition Obligations, shall be deemed, and each such reference is hereby amended to
mean, collectively, the Pre-Petition Collateral and the Post-Petition Collateral.
(d) Commitment. Section 1.27 of the Loan Agreement is hereby
deleted in its entirety and the following substituted therefor:
"1.27 "Commitment" shall mean, at any time, as to each Lender, the
aggregate of such Lender's Revolving Loan A Commitment, Revolving Loan B
Commitment and Term Loan Commitment; sometimes being collectively referred
to herein as "Commitments".
(e) Debtors. All references to Debtors, including, without limitation,
to the terms "Borrower" or "Guarantor" in the Loan Agreement or the other Financing
Agreements shall be deemed, and each such reference is hereby amended, to mean and include
the Debtors as defined herein, and their successors and assigns (including any trustee or other
fiduciary hereafter appointed as its legal representative or with respect to the property of the
estate of such corporation whether under Chapter 11 of the Bankruptcy Code or any subsequent
Chapter 7 case and its successor upon conclusion of the Chapter 11 Case of such corporation).
(f) Financing Agreements. All references to the term "Financing
Agreements" in the Loan Agreement or the other Financing Agreements shall be deemed, and
each such reference is hereby amended, to include, in addition and not in limitation, this
Ratification Agreement and all of the Existing Financing Agreements, as ratified, assumed and
adopted by each Borrower and Guarantor pursuant to the terms hereof, as amended and
supplemented hereby, and the Financing Order, as each of the same now exists or may hereafter
be amended, modified, supplemented, extended, renewed, restated or replaced.
(g) Interest Rate. Section 1. 7 5 of the Loan Agreement is hereby
deleted in its entirety and the following substituted therefor:
1074514.12
RLFI-3307046-1
"1. 7 5 "Interest Rate" shall mean,
(a) Subject to clause (b) of this definition below:
(i) as to Revolving Loans A that are Prime Rate Loans, a rate
equal to two (2%) percent per annum in excess of the Prime Rate,
(ii) as to Revolving Loans A that are Eurodollar Rate Loans, a rate
equal to three and one half (3.50%) percent per annum in excess of the
Adjusted Eurodollar Rate (in each case, based on the London
Interbank Offered Rate applicable for the Interest Period selected by
Borrower, as in effect three (3) Business Days prior to the
commencement of the Interest Period, whether such rate is higher or
lower than any rate previously quoted to Borrower or Guarantor),
8
(iv) as to Revolving Loans B that are Eurodollar Rate Loans, a
rate equal to four and one-half(4.5%) percent per annum in excess of
the Adjusted Eurodollar Rate (in each case, based on the London
Interbank Offered Rate applicable for the Interest Period selected by a
Borrower, or by Administrative Borrower on behalf of such Borrower,
as in effect three (3) Business Days prior to the commencement of the
Interest Period, whether such rate is higher or lower than any rate
previously quoted to Borrower or Guarantor).
(v) as to Term Loans, a rate equal to four and one-half (4.5%)
percent per annum in excess of the Adjusted Eurodollar Rate (in each
case, based on the London Interbank Offered Rate applicable for the
Interest Period selected by a Borrower, or by Administrative Borrower
on behalf of such Borrower, as in effect three (3) Business Days prior
to the commencement of the Interest Period, whether such rate is
higher or lower than any rate previously quoted to Borrower or
Guarantor).
(b) Notwithstanding anything to the contrary contained in clause (a) of
this definition, the Interest Rate shall mean the per annum rates set forth
above plus (in each case) two (2%) percent per annum, at Agent's option
or upon the written request of Required Revolving Lenders A (in the case
of Revolving Loans A), Required Revolving Lenders B (in the case of
Revolving Loans B), Required Term Loan Lenders (in the case of the
Term Loan) without notice, (i) either (A) for the period on and after the
date of termination or non-renewal hereof Ulltil such time as all of the
Obligations are paid and satisfied in full in immediately available funds, or
(B) from and after the date of the occurrence of any Event of Default, and
for so long as such Event of Default is continuing as determined by Agent
in good faith, and (ii) on the Revolving Loans A at any time outstanding
in excess of the Borrowing Base A (whether or not such excess( es) are
made with or without Agent's or any Lender's knowledge or consent and
whether made before or after an Event of Default). Agent shall promptly
notify Borrower in writing if the Interest Rate specified in this clause (b) is
in effect."
(h) Loan Agreement. All references to the term "Loan Agreement"
or "this Agreement" in the Loan Agreement or the other Financing Agreements shall be
deemed, and each such reference is hereby amended, to mean the Existing Loan Agreement, as
amended by this Ratification Agreement and as ratified, assumed and adopted by each
Borrower and Guarantor pursuant to the terms hereof and the Financing Order, as the same now
exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
(i) Loans. Section 1.83 of the Loan Agreement is hereby deleted in
its entirety and the following substituted therefor:
1074514.12
9
RLF1-3307046-1
"1.83 "Loans" shall mean, collectively, the Revolving Loans and
the Term Loan."
(j) Material Adverse Effect. All references to the term "Material
Adverse Effect," "material adverse effect" or "material adverse change" in the Loan
Agreement, this Ratification Agreement or the other Financing Agreements shall be deemed,
and each such reference is hereby amended, to add at the end thereof: "provided, that, the
commencement of the Chapter II Cases shall not constitute a material adverse effect" and
provided, further, that any determination of the occurrence of a material adverse effect standard
shall be made from and after the Petition Date with reference to the financial condition,
business, performance or operations of the Borrower and Guarantor as of the Petition Date.
(k) Maximum Credit. Section 1.87 of the Loan Agreement is hereby
deleted in its entirety and the following substituted therefor:
"1.87 "Maximum Credit" shall mean the amount of
$465,000,000."
(l) Obligations. All references to the term "Obligations" in the Loan
Agreement, this Ratification Agreement or the other Financing Agreements shall be deemed,
and each such reference is hereby amended, to mean both the Pre-Petition Obligations and the
Post-Petition Obligations.
(m) Pro Rata Share. Section 1.122 of the Loan Agreement is hereby
deleted in its entirety and the following substituted therefor:
1074514.12
RLFI-3307046-1
"1.122 "Pro Rata Share" shall mean as to any Lender, (a) with respect to
matters related to the Revolving Loan A Commitment of a Lender (including,
without limitation, Letters of Credit and the making or repayment of Revolving
Loans A), the fraction (expressed as a percentage) obtained by dividing (i) such
Lender's Revolving Loan A Commitment by (ii) the aggregate Revolving Loan A
Commitments of all Lenders; provided, that, if the Revolving Loan A
Commitments have been terminated, the numerator of such fraction shall be the
outstanding amount of such Lender's Revolving Loans A and interest in the Letter
of Credit Accommodations and the denominator of such fraction shall be the
aggregate amount of all outstanding Revolving Loans A and Letter of Credit
Accommodations; (b) with respect to matters relating to the Revolving Loan B
Commitments of a Lender (including, without limitation, the making or
repayment of Revolving Loans B), the fraction (expressed as a percentage)
obtained by dividing (i) such Lender's Revolving Loan B Commitment by (ii) the
aggregate Revolving Loan B Commitments of all Lenders; provided, that, if the
Revolving Loan B Commitments have been terminated, the numerator of such
fraction shall be the outstanding amount of such Lender's Revolving Loans B and
the denominator of such fraction shall be the aggregate amount of all outstanding
Revolving Loans B; (c) with respect to matters relating to the Term Loan
Commitments of a Lender (including, without limitation, the making or
repayment of the Term Loan), the fraction (expressed as a percentage) obtained
10
by dividing (i) such Lender's Term Loan Commitment by (ii) the aggregate Term
Loan Commitments of all Lenders; provided, that, ifthe Term Loan
Commitments have been terminated, the numerator of such fraction shall be the
outstanding amount of such Lender's Term Loan and the denominator of such
fraction shall be the aggregate outstanding an1ount of the Term Loan; and (d) with
respect to all other matters, the fraction (expressed as a percentage) obtained by
dividing (i) such Lender's Commitment by (ii) the aggregate Commitments of all
Lenders; provided, that, if the Commitments have been terminated, the numerator
of such fraction shall be the outstanding amount of such Lender's Loans and
interest in the Letter of Credit Accommodations and the denominator of such
fraction shall be the aggregate amount of all outstanding Loans and Letter of
Credit Accommodations, in each case as the Commitments may be adjusted from
time to time in accordance with the provisions of 13.7 hereof."
(n) Reserves. Section 1.137(a) of the Loan Agreement is hereby
amended to add the following at the end of the first sentence thereof:
"or (v) to establish Reserves in respect of(A) the Carve-Out Expenses (as
defined in the Financing Order), (B) the amount of any senior liens or claims in or
against the Collateral that, in Agent's determination, have priority over the liens
and claims of Agent and Lenders or (C) the amount of priority or administrative
expense claims that, in Agent's determination, may be required to be paid by
Debtors or their estates at any time during the Chapter 11 Cases to the extent such
claims are not included in the Budget then in effect and exceed $500,000 in the
aggregate or (vii) to establish Reserves to reflect that the fair market value of the
Eligible Real Property Leases as set forth in the most recent acceptable appraisals
received by Agent with respect thereto has declined so that the then outstanding
principal amount of the Leasehold Term Loans is greater than such percentage
with respect to such appraised values as Agent used in establishing the original
principal amount of the Leasehold Term Loans multiplied by such appraised
values, or (viii) to establish Reserves to reflect the value oflnventory at leased
locations with respect to which the lease therefor has not been assumed
commencing on the date that is ten (10) weeks prior to the end of the one hundred
twenty (120) day lease rejection/assumption period, as such period may be
extended by the Bankruptcy Court or shortened by the Bankruptcy Court, or (ix)
to establish Reserves against the value of Inventory held at any leased location as
to which there has been filed a landlord's motion to compel the assumption or
rejection of the lease, in an amount reasonably determined by Agent (after
consultation with the Debtors) and considering the likelihood or unlikelihood of
the success of such motion on its merits in the reasonable judgment of Agent or
(x) to establish Reserves in respect oflocations as to which "going out of
business" sales are anticipated to be conducted but for which locations the
applicable Real Property Leases do not permit the conduct of such sales."
( o) Revolving Loan A Limit. The definition of "Revolving Loan A
Limit" in the Loan Agreement is hereby deleted in its entirety and the following substituted
therefor:
1074514.12
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RLFI-3307046- I
"Revolving Loan A Limit" shall mean, at any time, $440,000,000 minus
the amount of the then outstanding Obligations under or in respect of Borrowing
Base B."
1.3 Interpretation.
(a) For purposes of this Ratification Agreement, unless otherwise
defined or amended herein, including, but not limited to, those terms used or defined in the
recitals hereto, all terms used herein shall have the respective meanings assigned to such terms
in the Loan Agreement.
(b) All references to the term "Agent," "Lender," "Borrower,"
"Guarantor," "Debtor" or any other person pursuant to the definitions in the recitals hereto or
otherwise shall include its respective successors and assigns.
(c) All references to any term in the singular shall include the plural
and all references to any term in the plural shall include the singular unless the context of such
usage requires otherwise.
(d) All terms not specifically defined herein which are defined in the
Uniform Commercial Code, as in effect in the State of New York as of the date hereof, shall
have the meaning set forth therein, except that the term "Lien" or "lien" shall have the meaning
set forth in 101 (3 7) of the Bankruptcy Code.
2. ACKNOWLEDGMENT.
2.1 Pre-Petition Obligations. Each Borrower and Guarantor hereby
acknowledges, confirms and agrees that, as of July_, 2008, Borrower is indebted to Agent and
Lenders in respect of all Pre-Petition Obligations in the aggregate principal amount of not Jess
than$ , consisting of (a) Revolving Loans A made pursuant to the Existing Financing
Agreements in the aggregate principal amount of not Jess than $ , together with
interest accrued and accruing thereon, (b) Revolving Loans B made pursuant to the Existing
Financing Agreements in the aggregate principal amount of not Jess than $ ,
together with interest accrued and accruing thereon, and (c) Letter of Credit Accommodations in
the amount of not Jess than $ , together with interest accrued and accruing
thereon, and all costs, expenses, fees (including attorneys' fees and legal expenses) and (c) other
charges now or hereafter owed by Borrower to Agent and Lenders, all of which are
unconditionally owing by Borrower to Agent and Lenders, without offset, defense or
counterclaim of any kind, nature and description whatsoever.
2.2 Guaranteed Obligations. Guarantor hereby acknowledges, confirms and
agrees that:
(a) all obligations of Guarantor under the Guarantor Documents are
unconditionally owing by Guarantor to Agent and Lenders without offset, defense or
counterclaim of any kind, nature and description whatsoever, and
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RLF1-3307046-1
(b) the absolute and unconditional guarantee of the payment of the
Pre-Petition Obligations by Guarantor pursuant to the Guarantor Documents and the other
Financing Agreements to which Guarantor is a party extends to all Post-Petition Obligations,
subject only to the limitations set forth in the Guarantor Documents.
2.3 Acknowledgment of Security Interests. Each of Borrower and Guarantor
hereby acknowledges, confirms and agrees that Agent, for the benefit of itself and the other
Lenders, has and shall continue to have valid, enforceable and perfected first priority and senior
security interests in and liens upon all Pre-Petition Collateral (except, that, as to perfection only,
the security interests of Agent in the real property leases of Borrower and Guarantor are being
perfected concurrently herewith) heretofore granted to Agent and Lenders pursuant to the
Existing Financing Agreements as in effect immediately prior to the Petition Date to secure all of
the Obligations, as well as valid and enforceable first priority and senior security interests in and
liens upon all Post-Petition Collateral granted to Agent, for the benefit of itself and the other
Lenders, under the Financing Order or hereunder or under any of the other Financing
Agreements or otherwise granted to or held by Agent and Lenders, in each case, subject only to
liens or encumbrances expressly permitted by the Loan Agreement and any other liens or
encumbrances expressly permitted by the Financing Order that may have priority over the liens
in favor of Agent and Lenders.
2.4 Binding Effect of Documents. Each of Borrower and Guarantor hereby
acknowledges, confirms and agrees that: (a) each of the Existing Financing Agreements to which
it is a party was duly executed and delivered to Agent and Lenders by such Borrower or
Guarantor and each is in full force and effect as of the date hereof, (b) the agreements and
obligations of such Borrower or Guarantor contained in the Existing Financing Agreements
constitute the legal, valid and binding obligations of such Borrower or Guarantor enforceable
against it in accordance with the terms thereof, and such Borrower or Guarantor has no valid
defense, offset or counterclaim to the enforcement of such obligations, and (c) Agent and
Lenders are and shall be entitled to all of the rights, remedies and benefits provided for in the
Financing Agreements and the Financing Order.
3. ADOPTION AND RATIFICATION
Each of Borrower and Guarantor hereby (a) ratifies, assumes, adopts and agrees to be
bound by all of the Existing Financing Agreements to which it is a party and (b) agrees to pay all
of the Pre-Petition Obligations in accordance with the terms of such Existing Financing
Agreements, as amended by this Ratification Agreement, and in accordance with the Financing
Order. All of the Existing Financing Agreements are hereby incorporated herein by reference
and hereby are and shall be deemed adopted and assumed in full by BoJTower and Guarantor,
each as Debtor and Debtor-in-Possession, and considered as agreements between such BoJTower
or Guarantor, on the one hand, and Agent and Lenders, on the other hand. Each of Borrower and
Guarantor hereby ratifies, restates, affirms and confirms all of the terms and conditions of the
Existing Financing Agreements, as amended and supplemented pursuant hereto and the
Financing Order, and each BoJTower and Guarantor agrees to be fully bound, as Debtor and
Debtor-in-Possession, by the terms of the Financing Agreements to which such Borrower or
Guarantor is a party.
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RLF 1-3307046-1
4. GRANT OF SECURITY INTEREST.
As collateral security for the prompt performance, observance and payment in full of all
of the Obligations (including the Pre-Petition Obligations and the Post-Petition Obligations),
Borrower and Guarantor, each as Debtor and Debtor-in-Possession, hereby grant, pledge and
assign to Agent, for the benefit of itself and the other Lenders, and also confirm, reaffirm and
restate the prior grant to Agent and Lenders of, continuing security interests in and liens upon,
and rights of setoff against, all of the Collateral.
5. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS.
In addition to the continuing representations, warranties and covenants heretofore and
hereafter made by Borrower and Guarantor to Agent and Lenders, whether pursuant to the
Financing Agreements or otherwise, and not in limitation thereof, each Borrower and Guarantor
hereby represents, warrants and covenants to Agent and Lenders the following (which shall
survive the execution and delivery of this Ratification Agreement), the truth and accuracy of
which, or compliance with, to the extent such compliance does not violate the terms and
provisions of the Bankruptcy Code, shall be a continuing condition of the making of Loans by
Agent and Lenders:
5.1 Financing Order. The Interim Financing Order (and, following the
expiration of the Interim Financing Period defined therein, the Permanent Financing Order) has
been duly entered, is valid, subsisting and continuing and has not been vacated, modified,
reversed on appeal, or vacated or modified by any order of the Banlauptcy Court (other than as
consented to by Agent) and is not subject to any pending appeal or stay.
5.2 Use of Proceeds. All Loans and Letter of Credit Accommodations
provided by Agent or any Lender to Borrower pursuant to the Financing Orders, the Loan
Agreement or otherwise, shall be used by Borrower for general operating and working capital
purposes in the ordinary course of business of Borrower in accordance with the Budget pursuant
to Section 5.3 of this Ratification Agreement. Unless authorized by the Bankruptcy Court and
approved by Agent in writing, no portion of any administrative expense claim or other claim
relating to the Chapter 11 Cases shall be paid with the proceeds of such Loans or Letter of Credit
Accommodations provided by Agent and Lenders to Borrower, other than those administrative
expense claims and other claims relating to the Chapter 11 Cases directly attributable to the
operation of the business of Borrower or Guarantor in the ordinary course of such business in
accordance with the Financing Agreements.
5 .3 Financial Budget.
(a) Borrower has prepared and delivered to Agent a Budget covering
the period from the Petition Date through and including December 31, 2009, including an
income statement, balance sheet, statement of cash flow and a schedule of projected
outstanding Loans and Letter of Credit Accommodations. The Budget has been thoroughly
reviewed by the Borrower and its management and sets forth for each month during the period
covered thereby: (i) projected sales for such period, and (ii) projected EBITDAR (iii) and
projected operating cash flow (collectively, the "Projected Information"). For purposes hereof,
1074514.12
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RLFI-3307046-1
projected operating cash flow shall be determined in accordance with GAAP using the same
formulas and methodology identified in and employed in determining operating cash flow
under the budget identified heretofore delivered by Borrower to Agent and identified as
"Revised 2008-2009 DIP Budget/Material Prepared for DIP Lender, dated July 26, 2008".
Prospectively, Borrower shall furnish to Agent, in form and substance reasonably satisfactory to
Agent, a report that sets forth for the immediately preceding month a comparison of actual
performance to the Projected Information for such preceding month, together with a
certification from the chief financial officer of the Borrower that no Material Budget Deviation
has occurred and a written explanation as to any material discrepancies. For purposes hereof,
"EBITDAR" shall mean "EBITDA" as defined in the Loan Agreement plus rent and
restructuring expenses (other than legal expenses of Lenders other than Agent and restructuring
expenses to the extent that they exceed $2,000,000 in any month).
(b) Borrower acknowledges, confirms and agrees that, beginning
with the month of August 2008: (i) the actual sales of Borrower for each month indicated on
Schedule 5.3(b) hereto shall not be less than the Minimum Sales indicated on such schedule for
such month; for each month indicated on Schedule 5 .3(b) hereto shall not be less than the
Minimum Sales indicated on such schedule for such month; provided, that, the Minimmn Sales
requirement set forth on Schedule 5.3(b) hereto shall be adjusted for each month by an amount
equal to (Ax B) x C, where A= the amount of actual sales for the same month in the
immediately preceding fiscal year for each store as to which a "going out of business" sale shall
have been completed during or prior to such month (but subsequent to the Petition Date), to the
extent that each such store was included in a store-sale schedule used in developing the Budget,
which schedule, inform substance satisfactory to Agent, shall have been delivered to Agent not
later than three (3) days after the Petition Date, B= one hundred (I 00%) percent minus (y) the
percentage of sales declination indicated in the Budget with respect to such month C=.90, and
(ii) as of the last day of each month indicated on Schedule 5.3 (b) hereto, the actual EBITDAR
of Borrower for the immediately preceding twelve ( 12) consecutive month period or such
lesser period of months as may have elapsed since August, 2008, shall be not less than the
Minimum EBITDAR for the period ending in such month indicated on such schedule, and (iii)
as of the last day of each month indicated on Schedule 5.3 (b) hereto, the actual operating cash
flow of Borrower for the immediately preceding twelve (12) consecutive month period or such
lesser period of months as may have elapsed since August, 2008 shall not be less than the
amount of the Minimum Operating Cash Flow for the period ending in such month indicated on
such schedule.
(c) Each of Borrower and Guarantor hereby confirms, acknowledges
and agrees that (i) a failure to meet or exceed the Minimum Sales, Minimum EBITDAR or
Minimum Operating Cash Flow targets as set forth in Section 5.3(b) hereof shall constitute a
material deviation from the Budget and an Event of Default (each, a "Material Budget
Deviation") and (ii) the failure to deliver any Budget or the reports with respect to any Budget
as provided in Section 5.3(a) hereof, in form and substance satisfactory to Agent, shall
constitute an Event of Default. Notwithstanding any approval by Agent or any Lender of the
initial Budget or any subsequent or amended Budget(s), Agent and Lenders will not, and shall
not be required to, provide any Loans or Letter of Credit Accommodations to Borrower
pursuant to the Budget, but shall only provide Loans and Letters of Credit in accordance with
1074514.12
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RLF13307046-1
the terms and conditions set forth in the Loan Agreement as amended by this Ratification
Agreement, the other Financing Agreements and the Financing Order.
5.4 Ratification of Blocked Account Agreement. To the extent Agent deems
it necessary in its discretion and upon Agent's request, Borrower and Guarantor shall promptly
provide Agent with evidence, in form and substance satisfactory to Agent, that the Blocked
Account Agreement (as defined in the Financing Order) and other deposit account arrangements
provided for under Section 6.3 of the Loan Agreement have been ratified and amended by the
parties thereto, or their respective successors in interest, in form and substance satisfactory to
Agent, to reflect the commencement of the Chapter 11 Cases, that each Borrower and Guarantor,
as Debtor and Debtor-in-Possession, is the successor in interest to such Borrower or Guarantor,
that the Obligations include both the Pre-Petition Obligations and the Post-Petition Obligations,
that the Collateral includes both the Pre-Petition Collateral and the Post-Petition Collateral as
provided for.
5.5 Excess Availability. From and after (a) the Petition Date through and
including November 29,2008, Borrower shall at all times maintain Excess Availability under
Borrowing Base A of not less than $40,000,000, (b) November 30,2008 through and including
December 14, 2008, Borrower shall at all times maintain Excess Availability under Borrowing
Base A of not less than $45,000,000, and (c) December 15,2008, Borrower shall at all times
maintain Excess Availability under Borrowing Base A of not less than $50,000,000, it being
understood that Borrower shall not request and Lenders shall not advance the foregoing
minimum Excess Availability amounts. Notwithstanding anything to contrary set forth in the
Loan Agreement or any of the other Financing Agreements, none of the amounts specified in this
Section 5.5 of the Ratification may be reduced without the prior written consent of the Required
Supermajority Lenders.
5.6 Dividends and Other Payments. Notwithstanding any provision of the
Loan Agreement or any of the other Financing Agreements to the contrary, from and after the
Petition Date, Borrower and Guarantor shall not make any payments to Sun, Sun Capital, Sun
Subordinated Agent, Sun Subordinated Lenders, or any of their affiliates, in the form of
dividends, repayment of debt, management or service fees, or otherwise, prior to the indefeasible
payment and satisfaction in full of all of the Obligations and the termination of the Financing
Agreements in accordance with their terms.
5.7 GOB Sales. Not more than fourteen (14) days after the date hereof,
Borrower shall deliver to Lender a list of not less than fifteen ( 15) retail locations of Borrower
with respect to which Borrower shall file a motion in support of obtaining approval of the
Banhuptcy Court to conduct "going out of business" sales of all Inventory at such locations as
soon as possible and shall commence such sales not later than forty-five (45) days following the
filing of such motion and shall complete such sales in a commercially reasonable manner.
Promptly following the completion of the foregoing sales, Borrower shall market, in accordance
with its reasonable business judgment, for assignment and sale, the Real Property Leases having
a positive value at such retail locations and effect the disposition thereof as soon as commercially
practicable.
1074514.!2
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RLF13307046-1
5.8 Certain Reporting. Not later than seven (7) days after the Petition Date,
Borrower shall cause to be delivered to Agent a report with respect to Borrower's Inventory, by
type, location and SKU, prepared a nationally recognized appraiser acceptable to Agent, and in
form and substance satisfactory to Agent, which report shall be updated by such appraiser in a
manner satisfactory to Agent every fourteen (14) days thereafter. In addition, not later than
Friday of each week, Borrower shall deliver to Agent, a rolling thirteen-week projection of cash
flow, in form and substance satisfactory to Agent.
5.9 Restricted Lease Dividends. Any obligation of Borrower or Guarantor to
pay The Monthly Restricted Lease Dividends is separate and distinct from any obligations of
Borrower or Guarantor under any Real Property Lease.
5.10 Real Property Lease Appraisal. Not later than thirty (30) days after the
Petition Date, Agent shall have received a comprehensive appraisal and valuation of the fair
market value of the Eligible Real Property Leases, by an appraiser acceptable to Agent and in
form and substance satisfactory to Agent, it being acknowledged and agreed that DJM Realty is
an appraiser acceptable to Agent.
5 .II ERISA. Each Borrower and Guarantor hereby represents and warrants
with, to and in favor of Agent and Lenders that (a) there are no liens, security interests or
encumbrances upon, in or against any assets or properties of any Borrower or Guarantor arising
under ERISA, whether held by the Pension Benefit Guaranty Corporation (the "PBGC") or the
contributing sponsor of, or a member of the controlled group thereof, any pension benefit plan of
any Borrower or Guarantor and (b) no notice of lien has been filed by the PBGC (or any other
Person) pursuant to ERISA against any assets or properties of any Borrower or Guarantor.
5.12 Repayment of Leasehold Term Loans. Notwithstanding any provision of
the Loan Agreement or any of the other Financing Agreement to the contrary, in no event shall
the proceeds of Revolving Loans A be applied to any refinancing or replacement of the
Obligations in respect of the Leasehold Term Loans, it being acknowledged and agreed that
Agent shall not release its security interest in the Real Property Leases, for and on behalf of
Lenders, unless (a) Agent shall have approved ofthe terms of such refinancing or replacement of
the Obligations in respect of the Leasehold Term Loans and received full and final payment and
satisfaction thereof, in immediately available funds, pursuant to such refinancing or replacement
thereof and (b) no Default or Event of Default not existing as of the Petition Date shall exist or
have occurred and be continuing after giving effect thereto. In the event that Borrower shall
indefeasibly pay in cash and satisfy in full all Obligations in respect of the Leasehold Term
Loans, Agent agrees that it shall, with the prior written consent of the Required Lenders (which
consent of the Required Lenders shall not be unreasonably withheld, conditioned or delayed),
subordinate its security interest in the Real Property Leases, for itself and the benefit of Lenders,
to a security interest therein of a third-party lender to Borrower refinancing the Leasehold Term
Loans, and permit a junior and subordinate security interest in other Collateral in favor of such
lender, in each case subject to a subordination agreement or intercreditor and subordination
agreement with such lender, in form and substance satisfactory to Agent in its sole discretion.
I 074514.12
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RLFI-3307046-1
6. DIP FACILITY FEE.
Borrower shall pay to Agent, for the account of Revolving Loan A Lenders and Term
Loan Lenders (on a Pro Rata basis according to their respective Commitments), a debtor-in-
possession financing facility fee, in the amount of $9,300,000, on account of the financing
provided by Agent and Lenders to Borrower in the Chapter 11 Cases, which fee shall be fully
earned on the date hereof, of which $4,000,000 shall be due and payable on the date hereof,
$1,000,000 of which shall be due and payable on October 1, 2008, $1,000,000 shall be due and
payable on November 1, 2008, and $3,300,000 shall be due and payable on December 15, 2008,
each installment of which may be charged directly to the loan account of Borrower maintained
by Agent and all of which amounts to the extent not then paid shall be immediately due and
payable upon any termination of this Agreement pursuant to the terms hereof.
7. AMENDMENTS.
7.1 Borrowing Base. As of the Petition Date, the outstanding Obligations in
respect of Borrowing Base Bare equal to $39,667,466.27. On and after the Petition Date,
Borrower shall not request, and Agent and Lenders shall not be required to provide or make, any
Revolving Loans B or any Loans or Letter of Credit Accommodations or other credit or financial
accommodations of any kind whatsoever, based upon Borrowing Base B. Notwithstanding
Section 2.1 ( d)(iii) or any other provision of the Loan Agreement to the contrary, payments of
principal and interest with respect to outstanding Obligations under Borrowing Base B shall be
payable under and in accordance with Section 6.4 of the Loan Agreement as modified by the
Ratification Agreement.
7.2 Letter of Credit Sublimit. Section 2.2( e) of the Loan Agreement is hereby
amended to delete the reference to "$275,000,000" and substitute "$125,000,000" therefor.
Notwithstanding anything to contrary set forth in the Loan Agreement, the aggregate principal
amount of the outstanding Obligations in respect of Letter of Credit Accommodations consisting
of documentary letters of credit shall not exceed $35,000,000 and the aggregate principal amount
of the outstanding Obligations in respect of Letter of Credit Accommodations consisting of
standby letters of credit shall not exceed $90,000,000, as such amounts may be adjusted (without
exceeding the aggregate $125,000,000 sublimit referred to above) at the request of Borrower.
7.3 Term Loan. Section 2 of the Loan Agreement is hereby amended to add
the following new Section 2.5 at the end thereof
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"2.5 Term Loan.
(a) In addition to the Revolving Loans and Letter of Credit
Accommodations which may be made by Lender to Borrower
pursuant to Sections 2.1 and 2.2 of this Agreement, subject to the
terms and conditions contained herein, in the Loan Agreement and
in the other Financing Agreements, Tenn Loan Lenders, or Agent
on behalf of Term Loan Lenders, agree to make to Borrower, on
the Ratification Agreement Effective Date, the Term Loan in the
principal amount equal to the lesser of (i) $25,000,000, or (ii) in
18
the event that the Valuation Letter attributes a value of less than
$50,000,000 to the Eligible Real Property Leases, fifty (50%)
percent of such lesser value."
(b) The Term Loan shall be secured by all Collateral.
Notwithstanding anything to the contrary herein or the other
Financing Agreements, unless sooner demanded by Agent in
accordance with the terms herein or the other Financing
Agreements, all outstanding and unpaid Obligations arising
pursuant to or evidenced by the Term Loan (including without
limitation, principal, interest, fees, costs, expenses and other
charges in respect thereof payable by Borrower to Agent and
Lenders) shall automatically, without notice or demand be
absolutely and unconditionally due and payable and Borrower shall
pay to Agent, for the benefit of Term Loan Lenders, in
immediately available funds all such Obligations on the Term
Loan Maturity Date.
(c) Borrower acknowledges and agrees that,
notwithstanding anything to the contrary contained herein or the
Financing Agreements, the failure of Borrower to repay the Term
Loan on or before the Term Loan Maturity Date or sooner pursuant
to the terms of the Loan Agreement, shall constitute an Event of
Default."
7.4 Unused Line Fee. Section 3.2(a) of the Loan Agreement is hereby
amended by deleting the reference to "three-eighths of one(%%) percent" and substituting "one-
half of one (.5%) percent" therefor.
7.5 Servicing Fees. The Fee Letter is hereby amended to delete the reference
therein to a "$15,000" monthly servicing fee and substitute "$20,000" therefor.
7.6 Limits and Sublimits. Section 3 of the Loan Agreement is hereby
amended by adding the following new Section 3.4 at the end of such Section:
"3.4 All limits and sublimits set forth in this Agreement,
and any formula or other provision to which a limit or sub limit
may apply, shall be determined on an aggregate basis considering
together both the Pre-Petition Obligations and the Post-Petition
Obligations."
7.7 Special Provisions Regarding Collateral. Section5.3(b) of the Loan
Agreement is hereby deleted in its entirety and the following substituted therefor:
"(b) Intentionally omitted."
7.8 Payments. Section 6.4 ofthe Loan Agreement is hereby deleted in its
entirety and the following substituted therefor:
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1074514.12
RLF1-3307046-1
"(a) All Obligations shall be payable to the Agent Payment
Account as provided in Section 6.3 or such other place as Agent
may designate in writing to Borrower from time to time. All
collections and proceeds of Collateral (subject to Section 6.4( d)( iii)
hereof) shall be applied in the following order:
(i) first, to the payment of all fees, indemnities or expense
reimbursements payable by Borrowers to Agent under the Financing
Agreements, until paid in full;
(ii) second, to the payment of all fees, indemnities and expense
reimbursements payable by Borrower to Revolving Loan A Lenders under
the Financing Agreements, until paid in full;
(iii) third, ratably, to the payment in full of interest then due in respect
of any Revolving Loans A (including any Special Agent Advances),
Revolving Loans Band Leasehold Term Loans;
(iv) fourth, to the payment or prepayment in full of principal in
respect of Special Agent Advances;
(v) fifth, ratably, to the payment or prepayment in full of principal in
respect of the Revolving Loans A and to the payment or prepayment in
full of Obligations arising under or pursuant to any Hedging Transactions
of Borrower or Guarantor with any Bank Product Provider (up to the
amount of any then effective Reserve established in respect of such
Obligations);
(vi) sixth, to pay or prepay in full any other Obligations whether or
not then due (but not including for this purpose any Obligations arising
from or in connection with the Revolving Loans B, Leasehold Term Loans
or any Bank Products), in such order and manner as Agent determines and
to be held as cash collateral in the amount equal to one hundred five
(105%) percent of the amount of the Letter of Credit Accommodations;
(vii) seventh, to the payment or prepayment in full of principal in
respect of the Leasehold Term Loans;
(viii) eighth, to the payment or prepayment in full of principal in
respect of the Revolving Loans B;
(ix) ninth, to the payment of all fees, indemnities, or expense
reimbursements payable by Borrowers to Term Loan Lenders under the
Financing Agreements, until paid in full;
(x) tenth, to the payment of all fees, indemnities, or expense
reimbursements payable by Borrowers to Revolving Loan B Lenders
under the Financing Agreements, until paid in full;
20
(xi) eleventh, to the payment or prepayment in full of any other
Obligations whether or not then due (excluding Obligations owing to any
Bank Product arising under or pursuant to any Bank Products), in such
order and manner as Agent may determine; and
(xii) twelfth, to pay any Obligations then due to any Bank Product
Provider (other than to the extent provided for in clause (v) above) arising
under or pursuant to any Bank Products.
Notwithstanding the foregoing, the proceeds of any disposition of any of the Real
Property Leases shall be applied to the repayment of Obligations in respect of the Leasehold
Term Loans after the "fourth" and before the "fifth" categories above.
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(b) For purposes of this Section 6.4, "paid in full" and
"payment in full" means payment of all amounts owing under the
Financing Agreements according to the terms thereof, including
Joan fees, service fees, professional fees, interest (and specifically
including interest accrued after the commencement of any case
under the U.S. Bankruptcy Code or any similar statute), default
interest, interest on interest, and expense reimbursements, whether
or not the same would be or is allowed or disallowed in whole or in
part in any case under the U.S. Bankruptcy Code or any similar
statute, but excluding (A) interest to the extent paid in excess of
amounts based on the pre-default rates (but not any other interest)
and (B) fees paid in respect of the waiver of an Event of Default, in
each case as to amounts under clause (A) and (B) only to the extent
that such amounts are disallowed in any case under the U.S.
Bankruptcy Code or any similar statute.
(c) At Agent's option, all principal, interest, fees, costs,
expenses and other charges provided for in this Agreement or the
other Financing Agreements may be charged directly to the Joan
account(s) of Borrower maintained by Agent. If after receipt of
any payment of, or proceeds of Collateral applied to the payment
of, any of the Obligations, any Agent or any Lender is required to
surrender or return such payment or proceeds to any Person for any
reason, then the Obligations intended to be satisfied by such
payment or proceeds shall be reinstated and continue and this
Agreement shall continue in full force and effect as if such
payment or proceeds had not been received by such Agent or such
Lender. Borrower and Guarantor shall be liable to pay to Agent,
and do hereby indemnify and hold Agents and Lenders harmless
for the amount of any payments or proceeds surrendered or
returned. This Section 6.4( c) shall remain effective
notwithstanding any contrary action which may be taken by Agent
or any Lender in reliance upon such payment or proceeds. This
Section 6.4 shall survive the payment of the Obligations and the
21
termination of this Agreement. Without limiting the generality of
any of the provisions of this Section 6.4, any payments or proceeds
referred to above shall be deemed to be applied first to the Pre-
Petition Obligations until such Pre-Petition Obligations are paid
and satisfied in full."
7.9 Collateral Reporting. Section 7.!(a)(i) of the Loan Agreement is hereby
amended by deleting such section in its entirety and substituting the following therefor:
"(i) not later than 10:00 a.m. New York City time on the third (3rd)
Business Day of each week, for the immediately preceding week, an
aggregate inventory roll-forward, in form and substance satisfactory to
Agent, through and including the immediately preceding Saturday, which
shall, in the case of every other such roll-forward, be reconciled to the
perpetual inventory records of Borrower. In addition, each roll-forward
shall include: (A) reports of sales ofinventory, indicating gross sales,
returns, allowances and net sales, and reports of aggregate Inventory
purchases (including all costs related thereto, such as freight, duty and
taxes) during the immediately preceding week, (B) a report of cash and
credit card sales during the immediately preceding week, including the
amount of the chargebacks and credits with respect thereto, (C) a
borrowing base certificate in form acceptable to Agent in all respects, and
(D) such other reports and information, in each case in form and substance
satisfactory to Agent, as Agent may require from time to time."
7.10 Additional Financial Reporting Requirements. Section 9.6 of the Loan
Agreement is hereby amended by adding the following new Section 9.6(f):
"(f) Each Bonower and Guarantor shall also provide
Agent and Lenders with copies of all financial reports, schedules
and other materials and information at any time furnished by or on
behalf of any Borrower or Guarantor to the Bankruptcy Court, or
the U.S. Trustee or to any creditors' committee or such Borrower's
or Guarantor's shareholders, concurrently with the delivery thereof
to the Bankruptcy Court, creditors' committee, U.S. Trustee or
shareholders, as the case may be."
7.11 Sale of Assets, Consolidation, Merger, Disabilities, Etc. Without
limitation upon the rights of Borrower pursuant to Section 5.7 of this Ratification Agreement,
Borrower and Guarantor shall not directly or indirectly sell, transfer, lease, encumber, return or
otherwise dispose of any portion of the Collateral or any other assets of Borrower and Guarantor,
including, without limitation, assume, reject or assign any leasehold interest or enter into any
agreement to return Inventory to vendor, whether pursuant to section 546 of the Bankruptcy
Code or otherwise, without the prior written consent of Agent and, in the case of any of the
foregoing in an amount in excess of $1,000,000 in any particular case, the prior written consent
of Agent and Required Lenders (and no such consent shall be implied, from any other action,
inaction or acquiescence by Agent or any Lender) except for sales of Borrower's and
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Guarantor's Inventory in the ordinary course of their business and as permitted in Sections 9.7
(b)(i) and 9.7(b)(ii) of the Loan Agreement.
7.12 Certain Representations and Warranties. On and after the Petition Date (a)
Section 8.12(d) of the Loan Agreement shall be of no further force and effect and (b) any
determination of a breach of a Material Contract in the second sentence of Section 8.15 shall be
limited, prior to the Petition Date, to any such breach as may have caused the termination or
cancellation thereof, and (c) references in Section 8.16 to "material default" or "material event of
default" under Credit Card Agreements shall be limited shall be limited, prior to the Petition
Date, to any such default as may have caused the termination or cancellation thereof, (d) Section
8.7 of the Loan Agreement is hereby amended by deleting the period"." at the end thereof and
substituting "except in connection with the filing of the Chapter II Cases in the period
immediately preceding the commencement thereof." therefor.
7.13 Access to Premises/Appraisals. Notwithstanding anything to the contrary
in the Loan Agreement and without limitation upon any rights or remedies of Agent or any
Lender under any of the Financing Agreements:
(a) Agent may conduct or cause to be conducted one (I) field
examination of the Collateral and of the operations of Borrower and Guarantor in each calendar
quarter (or with such other frequency as Agent may determine in its sole discretion on or after
the occurrence of an Event of Default), in each case at the expense of Borrower and Guarantor.
(b) Agent may conduct or cause to be conducted one (I) full
appraisal of the Inventory of Borrower in each calendar quatter (or with such other frequency as
Agent may determine in its sole discretion on or after the occurrence of an Event of Default)
and one (I) desktop appraisal of such Inventory in each calendar month (or with such other
frequency as Agent may determine in its sole discretion on or after the occurrence of an Event
of Default), in each case at the expense of Borrower and Guarantor.
(c) Agent may conduct or cause to be conducted such other and
further analysis of Collateral as Agent may require from time to time, in each case at the
expense of Borrower and Guarantor.
7.14 Certain Negative Covenants.
(a) From and after the Petition Date, the following Sections of the
Loan Agreement shall be deleted in their entirety and without force and effect: Section 9.ll(a)
through and including 9.11 (g), Section 9.!2(b )(ii), Section 9.12(b )(iii), Section 9.12(b )(v),
Section 9.18 and the proviso to Section 9.22(a)(iii).
(b) From and after the Petition Date, any determination of the
compliance of Borrower and Guarantor with the covenant set forth in Section 9.13 and 9.19 of
the Loan Agreement shall be made without reference to any defaults by any Borrower or
Guarantor under any of the Credit Card Agreements or License Agreements, as the case may
be, through, but not including, the Petition Date, that did not result in a party thereto other than
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Borrower or Guarantor terminating or canceling such Credit Card Agreement or License
Agreement, as the case may be.
7.15 Events of Default. Section 10.1 of the Loan Agreement is hereby
amended as follows:
(a) Sections 10.1(g) and (h) of the Loan Agreement are hereby
amended to delete all references to "Borrower or Obligor" and substitute "any Obligor (other
than Debtors)" therefor.
(b) Section 10.1 of the Loan Agreement is hereby amended by (i)
deleting the reference to the word "or" at the end of Section 10.1 ( q), (ii) replacing the period
appearing at the end of Section 10.l(r) with a semicolon, and (iii) adding the following:
1074514.12
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"( s) the occurrence of any condition or event which
permits Agent and Lenders to exercise any of the remedies set
forth in the Financing Order, including, without limitation, any
"Event of Default" (as defined in the Financing Order);
(t) the termination or non-renewal of the Financing
Agreements as provided for in the Financing Order;
(u) any Borrower or Guarantor suspends or discontinues or
is enjoined by any court or governmental agency from continuing
to conduct all or any material part of its business, or a trustee,
receiver or custodian is appointed for any Borrower or Guarantor,
or any of their respective properties;
(v) any act, condition or event occurring after the Petition
Date that has or would reasonably expect to have a Material
Adverse Effect upon the assets of any Borrower or Guarantor, or
the Collateral or the rights and remedies of Agent and Lenders
under the Loan Agreement or any other Financing Agreements or
the Financing Order;
(w) conversion of any Chapter 11 Case to a Chapter 7 case
under the Bankruptcy Code;
(x) dismissal of any Chapter 11 Case or any subsequent
Chapter 7 case either voluntarily or involuntarily;
(y) the grant of a lien on or other interest in any property of
any Borrower or Guarantor other than a lien or encumbrance
permitted by Section 9.8 hereof or by the Financing Order or an
administrative expense claim other than such administrative
expense claim permitted by the Financing Order or this
Ratification Agreement by the grant of or allowance by the
Bankruptcy Court which is superior to or ranks in parity with
24
Agent's and Lenders' security interest in or lien upon the
Collateral or their Superpriority Claim (as defined in the Financing
Order);
(z) the Financing Order shall be modified, reversed,
revoked, remanded, stayed, rescinded, vacated or amended on
appeal or by the Bankruptcy Court without the prior written
consent of Agent (and no such consent shall be implied from any
other authorization or acquiescence by Agent or any Lender);
(aa) the appointment of a trustee pursuant to Sections
1104(a)(l) or 1104(a)(2) of the Bankruptcy Code;
(bb) the appointment of an examiner with special powers
pursuant to Section 1104(a) of the Bankruptcy Code;
( cc) the filing of a plan of reorganization or liquidation by
or on behalf of any Borrower or Guarantor, to which Agent has not
consented in writing, which does not provide for payment in full of
all Obligations on the effective date thereof in accordance with the
terms and conditions contained herein; or
(dd) the confirmation of any plan of reorganization or
liquidation in the Chapter 11 Case of any Borrower or Guarantor,
to which Agent has not consented to in writing, which does not
provide for payment in full of all Obligations on the effective date
thereof in accordance with the terms and conditions contained
herein."
7.16 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver.
Section 11.l(a) of the Loan Agreement is hereby amended by adding the following at the end
thereof; "except to the extent that the provisions of the Bankruptcy Code are applicable and
specifically conflict with the foregoing."
7.17 Amendments and Waivers. Any amendment, modification, change,
waiver, discharge or termination with respect to the following shall require the consent of Agent
and each Term Loan Lender directly affected thereby: (a) a reduction in the interest rate or any
fees or extension of time of payment of principal, interest or any fees or reduction in the
principal amount of any of the Leasehold Term Loans (other than as a result of waiving a Default
or Event of Default), or (b) an increase in the Term Loan Commitment of such Term Loan
Lender over the amount thereof then in effect; in all other respects, for purposes only of Section
11.3 of the Loan Agreement, Term Loan Lenders shall be deemed to be Revolving Loan A
Lenders and Leasehold Term Loans shall be deemed to be Revolving Loans A
7.18 Additional Loans; Collateral Matters. References in each of Sections 12.8
and 12.11 to "$40,000,000" are hereby deleted and "$1 0,000,000" substituted therefor.
Notwithstanding any provision of the Loan Agreement or any of the other Financing Agreements
1074514.12
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RLFl-3307046-l
to the contrary, the advances contemplated by Sections 12.8 and 12.11 of the Loan Agreement
shall in each case be due and payable not later that thirty (30) days after the making thereof, and
not more than two (2) such advances shall be made in any period of twelve (12) consecutive
calendar months without the prior written consent of Required Lenders.
7.19 Term. The first three sentences of Section 13.l(a) of the Loan Agreement
are hereby deleted in their entirety and the following substituted therefor:
"This Agreement and the other Financing Agreements shall
become effective as of the date set forth on the first page hereof
and, unless sooner terminated pursuant to the terms hereof, shall
continue in full force and effect for a term ending on the earlier to
occur of (i) December 31, 2009, (ii) the effective date of a plan of
reorganization or liquidation for any Borrower or Guarantor in the
Chapter 11 Cases, or (iii) the last termination date set forth in the
Interim Financing Order, unless the Permanent Financing Order
has been entered prior to such date, and in such event, then the last
termination date set forth in the Permanent Financing Order (the
earlier to occur of clauses (i), (ii) and (iii) referred to herein as the
"Maturity Date"); provided, that, this Agreement and all other
Financing Agreements must be terminated simultaneously."
7.20 Notices.
(a) Section 13.3 of the Loan Agreement is hereby amended by
adding that any notices, requests and demands upon Borrower or Guarantor also be sent to
Morgan, Lewis LLP, 101 Park Avenue, New York, New York 10178, Fax No. 212-309-6001,
Attention: HowardS. Beltzer, Esq.
(b) Section 13 .3 of the Loan Agreement is hereby amended by
adding that any notices, requests and demands upon Agent also be sent to Otterbourg, Steindler,
Houston & Rosen, P.C., 230 Park Avenue, New York, New York 10169, Fax No.
212.682.6104, Attn: Jonathan N. Helfat, Esq.
8. RELEASE.
8.1 Release of Pre-Petition Claims.
(a) Upon the earlier of(i) the entry of the Permanent Financing Order
or (ii) the entry of an Order extending the term of the Interim Financing Order beyond thirty
(30) calendar days after the date of the Interim Financing Order, in consideration of the
agreements of Agent and Lenders contained herein and the making of any Loans by Agent and
Lenders, each Borrower and Guarantor, pursuant to the Loan Agreement, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, on
behalf of itself and its respective successors, assigns, and other legal representatives, hereby
absolutely, unconditionally and irrevocably releases, remises and forever discharges Agent,
each Lender and their respective successors and assigns, and their present and former
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RLF 1-3307046-1
shareholders, affiliates, subsidiaries, divisions, predecessors, directors, officers, attorneys,
employees and other representatives (Agent, each Lender and all such other parties being
hereinafter referred to collectively as the "Releasees" and individually as a "Releasee"), of and
from all demands, actions, causes of action, suits, covenants, contracts, controversies,
agreements, promises, sums of money, accounts, bills, reckonings, damages and any and all
other claims, counterclaims, defenses, rights of set-off, demands and liabilities whatsoever
(individually, a "Pre-Petition Released Claim" and collectively, "Pre-Petition Released
Claims") of every name and nature, known or unknown, suspected or unsuspected, both at law
and in equity, which any Borrower or Guarantor, or any of their respective successors, assigns,
or other legal representatives may now or hereafter own, hold, have or claim to have against the
Releasees or any of them for, upon, or by reason of any nature, cause or thing whatsoever
which arises at any time on or prior to the day and date of this Agreement, including, without
limitation, for or on account of, or in relation to, or in any way in connection with the Loan
Agreement, as amended and supplemented through the date hereof, and the other Financing
Agreements.
(b) Upon the earlier of (i) the entry of the Permanent Financing Order
or (ii) the entry of an Order extending the term of the Interim Financing Order beyond thirty
(30) calendar days after the date of the Interim Financing Order, each Borrower and Guarantor,
on behalf of itself and its successors, assigns, and other legal representatives, hereby absolutely,
unconditionally and irrevocably, covenants and agrees with each Releasee that it will not sue (at
law, in equity, in any regulatory proceeding or otherwise) any Releasee on the basis of any Pre-
Petition Released Claim released, remised and discharged by each Borrower and Guarantor
pursuant to this Section 8.1. If any Borrower or Guarantor violates the foregoing covenant,
Borrower and Guarantor agree to pay, in addition to such other damages as any Releasee may
sustain as a result of such violation, all attorneys' fees and costs incurred by any Releasee as a
result of such violation.
8.2 Release of Post-Petition Claims. Upon (a) the receipt by Agent, on behalf
of itself and the other Lenders, of payment in full of all Obligations in cash or other immediately
available funds, plus cash collateral or other collateral security acceptable to Agent to secure any
Obligations that survive or continue beyond the termination of the Financing Agreements, and
(b) the termination of the Financing Agreements (the "Payment Date"), in consideration of the
agreements of Agent and Lenders contained herein and the making of any Loans by Agent and
Lenders, each Borrower and Guarantor hereby covenants and agrees to execute and deliver in
favor of Agent and Lenders a valid and binding termination and release agreement, in form and
substance satisfactory to Agent. If any Borrower or Guarantor violates such covenant, Borrower
and Guarantor agree to pay, in addition to such other damages as any Releasee may sustain as a
result of such violation, all attorneys' fees and costs incurred by any Releasee as a result of such
violation.
8.3 Releases Generally.
(a) Each Borrower and Guarantor understands, acknowledges and
agrees that the releases set forth above in Sections 8.1 and 8.2 hereof may be pleaded as a full
and complete defense and may be used as a basis for an injunction against any action, suit or
1074514.12
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RLF1-3307046-1
other proceeding which may be instituted, prosecuted or attempted in breach of the provisions
of such releases.
(b) Each Borrower and Guarantor agrees that no fact, event,
circumstance, evidence or transaction which could now be asserted or which may hereafter be
discovered shall affect in any manner the final and unconditional nature of the releases set forth
in Section 8.1 hereof and, when made, Section 8.2 hereof.
9. CONDITIONS PRECEDENT.
In addition to any other conditions contained herein or the Loan Agreement, as in effect
immediately prior to the Petition Date, with respect to the Loans and other financial
accommodations available to Borrower (all of which conditions, except as modified or made
pursuant to this Ratification Agreement shall remain applicable to the Loans and be applicable to
other financial accommodations available to Borrower), the following are conditions to Agent's
and Lenders' obligation to extend further loans, advances or other financial accommodations to
Borrower pursuant to the Loan Agreement:
9 .I Borrower and Guarantor shall furnish to Agent and Lenders all financial
information, projections, budgets, business plans, cash flows and such other information as
Agent and Lenders shall reasonably request from time to time, including (a) projected monthly
balance sheets, store closing statements, income statements, statements of cash flows and
availability of Borrower and Guarantor through the end of the fiscal year ended January 31,
2009, in each case as to the projections described in this clause (a), with the results and
assumptions set forth in all of such projections in form and substance satisfactory to Agent, and
an opening pro forma balance sheet for Borrower and Guarantor in form and substance
satisfactory to Agent and (b) any updates or modifications to the projected financial statements
of Borrower and Guarantor previously received by Agent, in each case in form and substance
satisfactory to Agent;
9.2 as of the Petition Date, the Existing Financing Agreements shall not have
been terminated;
9.3 not later than noon New York City time on the day after the Petition Date,
Agent shall have received from Borrower a borrowing base in form and substance satisfactory to
Agent;
9.4 no trustee, examiner or receiver or the like shall have been appointed or
designated with respect to any Borrower or Guarantor, as Debtor and Debtor-in-Possession, or its
respective business, properties and assets and no motion or proceeding shall be pending seeking
such relief;
9.5 the execution and delivery of this Ratification Agreement and all other
Financing Agreements to be delivered in connection herewith by Borrower and Guarantor in
form and substance satisfactory to Agent;
9.6 the Interim Financing Order or other Order(s) of the Bankruptcy Court
shall ratify and amend the Blocked Account Agreement and deposit account arrangements of
1074514.12 28
RLF1-3307046-1
Borrower and Guarantor to reflect the commencement of the Chapter 11 Cases, that each Debtor,
as Debtor and Debtor-in-Possession, is the successor in interest to such Borrower or Guarantor,
as the case may be, that the Obligations include both the Pre-Petition Obligations and the Post-
Petition Obligations, that the Collateral includes both the Pre-Petition Collateral and the Post-
Petition Collateral as provided for in this Ratification Agreement;
9.7 the execution or delivery to Agent and Lenders of all other Financing
Agreements, and other agreements, documents and instruments which, in the good faith
judgment, of Agent are necessary or appropriate. The implementation of the terms of this
Ratification Agreement and the other Financing Agreements, as modified pursuant to this
Ratification Agreement, all of which contains provisions, representations, warranties, covenants
and Events of Default, as are satisfactory to Agent and its counsel;
9.8 satisfactory review by counsel for Agent oflegal issues attendant to the
post-petition financing transactions contemplated hereunder;
9.9 Each Borrower and Guarantor shall comply in full with the notice and
other requirements of the Bankruptcy Code and the applicable Bankruptcy Rules with respect to
any relevant Financing Order in a marmer acceptable to Agent and its counsel, and an Interim
Financing Order shall have been entered by the Bankruptcy Court (the "Interim Financing
Order") authorizing the secured financing under the Financing Agreements as ratified and
amended hereunder on the terms and conditions set forth in this Ratification Agreement and,
among other things, modifying the automatic stay, authorizing and granting the senior security
interest and liens in favor of Agent and Lenders described in this Ratification Agreement and in
the Financing Order, and granting super-priority expense claims to Agent and Lenders with
respect to all obligations due Agent and Lenders. The Interim Financing Order shall authorize
post-petition financing under the terms set forth in this Ratification Agreement in an amount
acceptable to Agent and Lenders, in their sole discretion, and it shall contain such other terms or
provisions as Agent and its counsel shall require;
9.10 with respect to further credit after expiration of the Interim Financing
Order, on or before the expiration of the Interim Financing Order, the Bankruptcy Court shall
have entered a Permanent Financing Order authorizing the secured financing on the terms and
conditions set forth in this Ratification Agreement, granting to Agent and Lenders the senior
security interests and liens described above and super-priority administrative expense claims
described above (except as otherwise specifically provided in the Interim Financing Order), and
modifying the automatic stay and other provisions required by Agent and its counsel
("Permanent Financing Order"). Neither Agent nor any Lender shall provide any Loans (or
other financial accommodations) other than those authorized under the Interim Financing Order
unless, on or before the expiration of the Interim Financing Order, the Permanent Financing
Order shall have been entered, and there shall be no appeal or other contest with respect to either
the Interim Financing Order or the Permanent Financing Order and the time to appeal to contest
such order shall have expired;
9.11 other than the voluntary commencement of the Chapter 11 Cases, no
material impairment of the priority of Agent's and Lenders' security interests in the Collateral
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RLFI-3307046-1
shall have occurred from the date of the latest field examinations of Agent and Lenders to the
Petition Date; and
9.12 no Event of Default shall have occurred or be existing under any of the
Existing Financing Agreements, as modified pursuant hereto, and assumed by Borrower and
Guarantor.
10. MISCELLANEOUS.
10.1 Amendments and Waivers. Neither this Ratification Agreement nor any
other instrument or document referred to herein or therein may be changed, waived, discharged
or terminated orally, but only by an instrument in writing signed by the party against whom
enforcement of the change, waiver, discharge or termination is sought.
10.2 Further Assurances. Each Borrower and Guarantor shall, at its expense, at
any time or times duly execute and deliver, or shall use its best efforts to cause to be duly
executed and delivered, such further agreements, instruments and documents, including, without
limitation, additional security agreements, collateral assignments, UCC financing statements or
amendments or continuations thereof, landlord's or mortgagee's waivers of liens and consents to
the exercise by Agent and Lenders of all the rights and remedies hereunder, under any of the
other Financing Agreements, any Financing Order or applicable law with respect to the
Collateral, and do or use its best efforts to cause to be done such further acts as may be
reasonably necessary or proper in Agent's opinion to evidence, perfect, maintain and enforce the
security interests of Agent and Lenders, and the priority thereof, in the Collateral and to
otherwise effectuate the provisions or purposes of this Ratification Agreement, any of the other
Financing Agreements or the Financing Order. Upon the request of Agent, at any time and from
time to time, each Borrower and Guarantor shall, at its cost and expense, do, make, execute,
deliver and record, register or file updates to the filings of Agent and Lenders with respect to the
Intellectual Property with the United States Patent and Trademark Office, the financing
statements, mortgages, deeds of trust, deeds to secure debt, and other instruments, acts, pledges,
assignments and transfers (or use its best efforts to cause the same to be done) and will deliver to
Agent and Lenders such instruments evidencing items of Collateral as may be requested by
Agent.
10.3 Advisor or Consultant. Agent and Lenders may retain, at the expense of
Borrower and Guarantor, an advisor or consultant ("Lenders' Consultant") to, among other
things, advise in connection with the operations of Borrower and Guarantor. Borrower and
Guarantor hereby agree to cooperate fully with Lenders' Consultant and shall share with
Lenders' Consultant, in addition to Agent and Lenders, all budgets, records, projections,
financial information, reports and other information relating to the Collateral, or the financial
condition or operations of Borrower's business. Borrower and Guarantor agree to Lenders'
Consultant with complete access to any of their respective books and records, all of their
respective premises and to their respective members of management, as and when deemed
necessary by Agent and Lenders and/or the Lenders' Consultant.
10.4 Headings. The headings used herein are for convenience only and do not
constitute matters to be considered in interpreting this Ratification Agreement.
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I 0.5 Counterparts. This Ratification Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, but all of which shall
together constitute one and the same agreement. In making proof of this Ratification Agreement,
it shall not be necessary to produce or account for more than one counterpart thereof signed by
each of the parties hereto. Delivery of an executed counterpart of this Ratification Agreement by
telefacsimile shall have the same force and effect as delivery of an original executed counterpart
of this Ratification Agreement. Any party delivering an executed counterpart of this Ratification
Agreement by telefacsimile also shall deliver an original executed counterpart of this Ratification
Agreement, but the failure to deliver an original executed counterpart shall not affect the validity,
enforceability, and binding effect of this Ratification Agreement as to such party or any other
party.
10.6 Additional Events of Default. The parties hereto acknowledge, confirm
and agree that the failure of any Borrower or Guarantor to comply with any of the covenants,
conditions and agreements contained herein or in any other agreement, document or instrument
at any time executed by such Borrower or Guarantor in connection herewith shall constitute an
Event of Default under the Financing Agreements.
I 0.7 Costs and Expenses. Borrower shall pay to Agent and Lenders on demand
all costs and expenses that Agent or Lenders pay or incurs in connection with the negotiation,
preparation, consummation, administration, enforcement, and termination of this Ratification
Agreement and the other Financing Agreements and the Financing Order, including, without
limitation: (a) reasonable attorneys' and paralegals' fees and disbursements of counsel to, and
reasonable fees and expenses of consultants, accountants and other professionals retained by,
Agent and Lenders; (b) costs and expenses (including reasonable attorneys' and paralegals' fees
and disbursements) for any amendment, supplement, waiver, consent, or subsequent closing in
connection with this Ratification Agreement, the other Financing Agreements, the Financing
Order and the transactions contemplated thereby; (c) taxes, fees and other charges for recording
any agreements or documents with any governmental authority, and the filing ofUCC financing
statements and continuations, and other actions to perfect, protect, and continue the security
interests and liens of Agent and Lenders in the Collateral; (d) sums paid or incurred to pay any
amount or take any action required of Borrower and Guarantor under the Financing Agreements
or the Financing Order that Borrower and Guarantor fail to pay or take; (e) costs of appraisals,
inspections and verifications of the Collateral and including travel, lodging, and meals for
inspections of the Collateral and the Debtors' operations by Agent or its agent and to attend court
hearings or otherwise in connection with the Chapter II Cases; (f) costs and expenses of
preserving and protecting the Collateral; (g) all out-of-pocket expenses and costs heretofore and
from time to time hereafter incurred by Agent during the course of periodic field examinations of
the Collateral and Debtors' operations, plus a per diem charge at the rate of $850 per person per
day for Agent's examiners in the field and office; and (h) costs and expenses (including
attorneys' and paralegals' fees and disbursements) paid or incurred to obtain payment of the
Obligations, enforce the security interests and liens of Agent and Lenders, sell or otherwise
realize upon the Collateral, and otherwise enforce the provisions of this Ratification Agreement,
the other Financing Agreements and the Financing Order, or to defend any claims made or
threatened against Agent or any Lender arising out of the transactions contemplated hereby
(including, without limitation, preparations for and consultations concerning any such matters).
The foregoing shall not be construed to limit any other provisions of the Financing Agreements
1074514.12 31
RLFI-3307046-1
regarding costs and expenses to be paid by Borrower. All sums provided for in this Section I 0.6
shall be part ofthe Obligations, shall be payable on demand, and shall accrue interest after
demand for payment thereof at the highest rate of interest then payable under the Financing
Agreements. Agent is hereby irrevocably authorized to charge any amounts payable hereunder
directly to any of the account(s) maintained by Agent with respect to any Borrower or Guarantor.
I 0.8 Effectiveness. This Ratification Agreement shall become effective upon
the Ratification Agreement Effective Date.
1074514.12
32
RLF 1-3307046-1
IN WITNESS WHEREOF, the parties hereto have caused this Ratification Agreement to
be duly executed as of the day and year first above written.
AGENT
WACHOVIA CAPITAL FINANCE
CORPORATION (WESTERN),
as Agent and Lender
By:
Title:
LENDERS
BORROWER
MERVYN'S LLC
as Debtor and Debtor-in-Possession
By:
Title:
GUARANTOR
SIEMENS FINANCIAL SERVICES, INC. MERVYN'S BRANDS, LLC
By:
Title:
GENERAL ELECTRIC CAPITAL
CORPORATION
By:
Title:
as Debtor and Debtor-in-Possession
By:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
RLF 1-33070461
Signature Page
Ratification Agreement
(Mervyn's)
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
JPMORGAN CHASE BANK, N.A.
By:
Title:
WELLS FARGO FOOTHILL, LLC
By:
Title:
CF BLACKBURN LLC
By: GMAC Commercial Finance LLC
(Servicer)
By:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
RLFI-3307046-1
Signature Page
Ratification Agreement
(Mervyn's)
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
BANK OF AMERICA, N.A.
By:
Title:
LANDSBANKI COMMERCIAL FINANCE,
A DIVISION OF LANDSBANKI ISLANDS
HF
By:
Title:
RLFI -3307046-1
Signature Page
Ratification Agreement
(Mervyn's)
08-0ct
08-Nov
08-Dec
09-Jan
09-Feb
09-Mar

09-Iv'lay
09-Jun
09-0ct
09-Nov
09-Dec
10-Jan
SCHEDULE 5.3(b)
TO
RATIFICATION AND AMENDMENT AGREEMENT
Minimum Sales
132.5
139.5
130.5
177.3
Minimum
EBITDAR
29
I 08.9 33
117.9 46
127.8 53
151.2 63
129.6 66
Minimum
Operating Cash
Flow
0
J58.4 +7 CC5 ...................................., ................... .\ ..: ..:C.L ..................................... .
143.1 80
126 86
172.8 101
324 100
108 112
Amounts above are in millions (x$1 ,000,000). Parentheticals above denote negative
numbers.
1074514.12
RLF1-3307046-1
EXHIBITB
RLFI-3307040-1
Execution
INTERCREDITOR AND SUBORDINATION AGREEMENT
THIS INTERCREDITOR AND SUBORDINATION AGREEMENT ("Intercreditor
Agreement") dated as ofNovember 27,2007 is by and among Wachovia Capital Finance
Corporation (Western), as successor to Congress Financial Corporation (Western), a California
corporation, in its capacity as agent pursuant to the Senior Loan Agreement (as hereinafter
defined) acting for and on behalf of the financial institutions from time to time party thereto as
lenders (in such capacity, "Senior Creditor Agent" as hereinafter further defined), the financial
institutions from time to time party to the Senior Loan Agreement as lenders ("Lenders" as
hereinafter further defined), SCSF Mervyn's (US), LLC, a Delaware limited liability company,
in its capacity as collateral agent pursuant to the Note Purchase Agreement (as hereafter defined)
acting for and on behalf of Investors ("Junior Creditor Agent" as hereinafter further defined) and
each ofSCSF Mervyn's (US), LLC, a Delaware limited liability company and SCSF Mervyn's
(Offshore), Inc., a Delaware corporation, in its individual capacity as an Investor.
WHEREAS, Junior Creditor Agent and Investors have entered or may enter into
financing arrangements with Mervyn's LLC, a California limited liability company
("Mervyn's") and Mervin's Brands, LLC, a Minnesota limited liability company ("Brands" and
together with Mervyn's, individually each, a "Debtor" and collectively, "Debtors" as hereinafter
further defined) and certain of its affiliates pursuant to which Investors have made or may make
loans and have provided or may provide other financial accommodations to or for the benefit of
Debtors, which loans are secured by certain assets and properties of Debtors;
WHEREAS, Senior Creditor Agent and Lenders have entered into financing
arrangements with Debtors pursuant to which Lenders (or Senior Creditor Agent on behalf of
Lenders) have made loans and provided other financial accommodations to for the benefit of
Debtors secured by all or substantially all of the assets and properties of Debtors; and
WHEREAS, Creditors desire to enter into this Intercreditor Agreement to (i) establish the
relative priority of the security interests of each Creditor in the assets and properties of Debtors,
(ii) provide for the orderly sharing among Creditors, in accordance with such priorities, of
proceeds of such assets and properties upon any foreclosure thereon or other disposition thereof,
and (iii) agree upon the terms of the subordination of the obligations of Debtors to Junior
Creditor Agent and related matters.
NOW, THEREFORE, in consideration of the mutual benefits accruing to Creditors
hereunder and other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto do hereby agree as follows:
!. DEFINITIONS
As used above and in this Intercreditor Agreement, the following terms shall have the
meanings ascribed to them below, and capitalized terms used herein and not otherwise defined
herein shall have the meanings assigned to them in the Senior Loan Agreement:
886797 6
1.1. "Agreements" shall mean, collectively, the Senior Creditor Agreements and the
Junior Creditor Agreements.
1.2. "Collateral" shall mean all of the property and interests in property, real or personal,
tangible or intangible, now owned or hereafter acquired by Debtors in or upon which Senior
Creditor Agent or Junior Creditor Agent at any time has a Lien, including without limitation, all
proceeds of all of the foregoing property and interests in property.
1.3. "Creditors" shall mean, collectively, Senior Creditor Agent, Lenders, Junior
Creditor Agent and their respective successors and assigns.
1.4. "Debtors" shall mean Mervyn's LLC, a California limited liability company and
Mervin's Brands, LLC, a Minnesota limited liability company, and their respective successors
and assigns, including, without limitation, a receiver, trustee or debtor-in-possession on behalf of
any such person or on behalf of any such successor or assign.
1.5. "Insolvency Proceeding" shall mean, as to any Person, any of the following: (a) any
case or proceeding with respect to such Person under the U.S. Bankruptcy Code, any other
Federal or State bankruptcy, insolvency, reorganization or other law affecting creditors' rights
generally or any other or similar proceedings of any other jurisdiction or otherwise seeking to
adjudicate it bankrupt or insolvent or seeking any stay, reorganization, arrangement, composition
or readjustment of the obligations and indebtedness of such Person or (b) any proceeding seeking
the appointment of any receiver, administrative receiver, receiver and manager, examiner,
judicial custodian, trustee, liquidator, official manager, administrator or similar official for any
such Person or any material part of its properties or (c) any proceedings for liquidation,
dissolution or other winding up of the business of such Person or (d) any assignment for the
benefit of creditors or any marshaling of assets of such Person.
1.6. "Investors" shall mean SCSF Mervyn's (US), LLC, a Delaware limited liability
company (in its individual capacity and not as an agent) and SCSF Mervyn's (Offshore), Inc., a
Delaware corporation, and any other holder of any Subordinated Note, and their respective
successors and assigns.
1. 7. "Junior Creditor Agent" shall mean SCSF Mervyn's (US), LLC, a Delaware limited
liability company, in its capacity as agent on behalf of Inventors pursuant to the Note Purchase
Agreement (and not in its individual capacity), and any successor or replacement agent for and
on behalf of Investors under the Note Purchase Agreement.
1.8. "Junior Creditor Agreements" shall mean, collectively, (i) the Junior Security
Agreement, (ii) the Subordinated Notes, (iii) the Note Purchase Agreement, and (iv) all
agreements, documents and instruments at any time executed and/or delivered to, with or in
favor of Junior Creditor Agent or any Investor in connection therewith or related thereto, as the
same now exist or may hereafter be amended, modified, supplemented, extended, renewed,
restated or rep laced.
1.9. "Junior Debt" shall mean all obligations, liabilities and indebtedness of every kind,
nature and description owing by any Debtor to Junior Creditor Agent and Investors, including
principal, interest, charges, fees, premiums, indenmities and expenses, however evidenced,
whether as principal, surety, endorser, guarantor or otherwise, arising under the Junior Creditor
886797.6
2
Agreements, whether now existing or hereafter arising, whether arising before, during or after
the initial or any renewal term of the Junior Creditor Agreements or after the commencement of
any case with respect to any Debtor under the U.S. Bankruptcy Code or any similar statute (and
including, without limitation, any principal, interest, fees, costs, expenses and other amounts,
whether or not such amounts are allowable in whole or in part, in any such case or similar
proceeding), whether direct or indirect, absolute or contingent, joint or several, due or not due,
primary or secondary, liquidated or unliquidated, secured or unsecured, and whether arising
directly or howsoever acquired by Junior Creditor Agent and Investors.
1.10. "Junior Security Agreement" shall mean the Security Agreement, dated as of the
date hereof, by and among Junior Creditor Agent and Debtors, as the same now exists or may
hereafter be amended, modified, supplemented, extended, renewed, restated or replaced.
1.11. "Lenders" shall mean Wachovia Capital Finance Corporation (Western), as
successor to Congress Financial Corporation (Western), a California corporation, in its
individual capacity (and not as an agent) and any other party to the Senior Loan Agreement or
any of the other Senior Creditor Agreements as a lender, and their respective successors and
assigns.
1.12. "Lien" shall mean any mortgage, deed of trust, pledge, hypothecation, assignment,
deposit arrangement, security interest, encumbrance (including, but not limited to, easements,
rights of way and the like), lien (statutory or other), security agreement or transfer intended as
security, including without limitation, any conditional sale or other title retention agreement, the
interest of a lessor under a capital lease or any financing lease having substantially the same
economic effect as any of the foregoing.
1.13. "Note Purchase Agreement" shall mean the Note Purchase Agreement, dated as of
the date hereof, by and among Junior Creditor Agent, Investors and Debtors, as the same may be
amended, modified, supplemented, extended, renewed, restated or replaced.
1.14. "Obligors" shall mean, collectively, any Person (other than Debtors) liable on or in
respect of the Senior Debt, and its successors and assigns, including, without limitation, a
receiver, trustee or debtor in possession on behalf of such Person or on behalf of such successor
or assign.
1.15. "Person" or "person" shall mean any individual, sole proprietorship, partnership,
corporation (including, without imitation, any corporation which elects subchapter S status under
the Internal Revenue Code of 1986, as amended), limited liability company, limited liability
partnership, business trust, unincorporated association, joint stock company, trust, joint venture,
or other entity or any government or any agency or instrumentality or political snbdivision
thereof.
1.16. "Senior Creditor Agent" shall mean Wachovia Capital Finance Corporation
(Western), as successor to Congress Financial Corporation (Western), a California corporation,
in its capacity as agent on behalf of Lenders pursuant to the Senior Loan Agreement (and not in
its individual capacity), and any successor or replacement agent for and on behalf of Lenders
under the Senior Loan Agreement (and including any other lender or group oflenders that at any
time refinances, replaces or succeeds to all or any portion of the Senior Debt or is otherwise
party to the Senior Creditor Agreements).
886797.6
3
1.17. "Senior Creditor Agreements" shall mean, collectively, the Senior Loan Agreement
and all agreements, documents and instruments at any time executed and/or delivered by any
Debtor or any other person to, with or in favor of Senior Creditor Agent or any Lender in
connection therewith or related thereto, as all of the foregoing now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated, refinanced, replaced or
restructured (in whole or in part and including any agreements with, to or in favor of any other
lender or group oflenders that at any time refinances, replaces or succeeds to all or any portion
of the Senior Debt).
1.18. "Senior Debt" shall mean any and all obligations, liabilities and indebtedness of
every kind, nature and description owing by any Debtor or any Obligor to Senior Creditor Agent
or any Lender and/or its affiliates or participants, including principal, interest, charges, fees,
premiums, indemnities and expenses, however evidenced, whether as principal, surety, endorser,
guarantor or otherwise, whether arising nnder Senior Creditor Agreements or otherwise, whether
now existing or hereafter arising, whether arising before, during or after the initial or any
renewal term of the Senior Creditor Agreements or after the commencement of any case with
respect to any Debtor or any Obligor under the U.S. Bankruptcy Code or any state insolvency
law or similar statute (and including, without limitation, any principal, interest, fees, costs,
expenses and other amounts, which would accrue and become due but for the commencement of
such case, whether or not such amounts are allowed or allowable in whole or in part in any such
case), whether direct or indirect, absolute or contingent, joint or several, due or not due, primary
or secondary, liquidated or unliquidated, secured or unsecured.
1.19. "Senior Loan Agreement" shall mean the Loan and Security Agreement, dated
September 2, 2004, by and among Agent, Lenders and Debtors, as amended by Amendment No.
1 to Loan and Security Agreement, dated October 25, 2004 by and among Agent, Lenders and
Debtors, Amendment No. 2 to Loan and Security Agreement, dated December 22, 2005, by and
among Agent, Lenders and Debtors, Amendment No. 3 to Loan and Security Agreement, dated
June 8, 2006, by and among Agent, Lenders and Debtors, Amendment No. 4 to Loan and
Security Agreement, dated March 14, 2007, by and among Agent, Lenders and Debtors and
Amendment No. 5 to Loan and Security agreement, dated on or about the date hereof, by and
among Agent, Lenders and Debtors and the other agreements, documents and instruments
referred to therein or at any time executed and/or delivered in connection therewith or related
thereto, as the same may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.
1.20. "Subordinated Notes" shall mean the Subordinated Promissory Note, dated as of
the date hereof and each subsequent issue date, issued by Mervyn's payable to Investors, and any
other Subordinated Promissory Note issued by Mervyn's pursuant to the Note Purchase
Agreement, in the aggregate original principal amount of $50,000,000, as the same may hereafter
be amended, modified, supplemented, extended, renewed, restated or replaced.
1.21. "Subordinated Reorganization Securities" shall have the meaning set forth in
Section 3.3(a) hereof.
1.22. All terms defined in the Unifom1 Commercial Code as in effect in the State of
New York, unless otherwise defined herein, shall have the meanings set forth therein. All
references to any term in the plural shall include the singular and all references to any term in the
singular shall include the plural.
886797.6
4
2. SECURITY INTERESTS; PRIORITIES; REMEDIES
2.1. Acknowledgement of Liens.
(a) Junior Creditor Agent hereby acknowledges that Senior Creditor Agent,
on behalf of itself and Lenders, has been granted a first priority Lien on the Collateral to secure
the Senior Debt.
(b) Senior Creditor Agent and Lenders hereby acknowledge that Junior
Creditor Agent, on behalf of itself and Investors, has been granted a second priority Lien upon
the Collateral to secure the Junior Debt.
(c) Junior Creditor Agent hereby represents, warrants and covenants that it
does not and will not hold, acquire or claim any Lien on any assets or properties of any Debtor or
any Obligor other than to the extent the Junior Creditor Agent has been granted a lien under the
Junior Creditor Agreements.
2.2. Priority of Liens. Notwithstanding the order or time of attachment, or the order,
time or manner of perfection, or the order or time of filing or recordation of any document or
instrument, or other method of perfecting a security interest in favor of each Creditor in any
Collateral, and notwithstanding any conflicting terms or conditions which may be contained in
any of the Agreements, the Liens upon the Collateral of Senior Creditor Agent, on behalf of itself
and Lenders, have and shall have priority over the Liens upon the Collateral of Junior Creditor
Agent, and such Liens of Junior Creditor Agent are and shall be, in all respects, subject and
subordinate to the Liens of Senior Creditor Agent therein to the full extent of the Senior Debt.
The proceeds of any sale, distribution or other realization upon all or any Collateral shall be
applied in the following order or priorities:
(a) first, to the final payment and satisfaction in full in immediately available
funds of all of the Senior Debt in such order and mauner as Senior Creditor Agent may elect (and
including to hold as cash collateral for any Senior Debt which is contingent in an amount not in
excess of I 05% of the amount of such contingent Senior Debt); and
(b) second, to the final payment and satisfaction in full in immediately
available funds of all of the Junior Debt in such order and manner as Junior Creditor Agent may
elect.
Any proceeds of Collateral received by Senior Creditor Agent or any Lender which are to
be applied to the Junior Debt in accordance with the terms hereof shall be remitted by Senior
Creditor Agent or such Lender to Junior Creditor Agent. Notwithstanding any instruction, notice
or claim to the contrary at any time received by Senior Creditor Agent or Lenders, Senior
Creditor Agent and Lenders shall have no obligation, liability or responsibility with respect to
the distribution, delivery or remittance of any proceeds of Collateral to Junior Creditor Agent,
except as provided in the immediately preceding sentence.
2.3. Priorities Unaffected by Action or Inaction. The lien priorities provided in Section
2.2 shall not be altered or otherwise affected by any amendment, modification, supplement,
extension, renewal, restatement or refinancing of either the Senior Debt or the Junior Debt, nor
by any action or inaction which any Creditor may take or fail to take in respect of the Collateral.
886797.6
5
2.4. Rights of Third Parties; No Contest of Lien. Each Creditor shall be solely
responsible for perfecting and maintaining the perfection of its Lien in and to each item
constituting the Collateral in which such Creditor has been granted a Lien. The foregoing
provisions of this Agreement are intended solely to govern the respective lien priorities as
between the Creditors and shall not impose on Senior Creditor Agent or Lenders any obligations
in respect of the disposition of proceeds of foreclosure on any Collateral which would conflict
with prior perfected claims therein in favor of any other person or any order or decree of any
court or other governmental authority or any applicable law. Junior Creditor Agent agrees that it
will not contest the validity, perfection, priority or enforceability of the Liens upon the Collateral
of Senior Creditor Agent and Lenders and Senior Creditor Agent and each Lender agrees that it
will not contest the validity, perfection or enforceability of the Liens upon the Collateral of
Junior Creditor Agent and Investors. As among Senior Creditor Agent, Lenders and Junior
Creditor Agent, the terms of this lntercreditor Agreement shall govern even if part or all of the
Senior Debt or the Liens securing payment and performance thereof are not perfected or are
avoided, disallowed, set aside or otherwise invalidated in any judicial proceeding or otherwise.
2.5. Right to Enforce Agreement. Senior Creditor Agent shall have the exclusive right to
manage, perform and enforce the terms of the Senior Creditor Agreements with respect to the
Collateral, to exercise and enforce all privileges and rights thereunder according to its discretion
and the exercise of its business judgment, including, without limitation, the exclusive right to
take or retake control or possession of such Collateral and to hold, prepare for sale, process, sell,
lease, dispose of, or liquidate such Collateral. Junior Creditor Agent and Investors shall not have
any right to direct Senior Creditor Agent to exercise any right, remedy or power with respect to
the Collateral and Junior Creditor Agent and Investors consent to the exercise by Senior Creditor
Agent of any such right, remedy or power. Junior Creditor Agent and Investors shall not
institute any suit or assert in any suit, bankruptcy, insolvency or other proceeding any claim
against Senior Creditor Agent or Lenders seeking damages from or other relief by way of
specific performance, instructions or otherwise, with respect to, and Senior Creditor Agent and
Lenders shall not be liable for, any action taken or omitted to be taken by Senior Creditor Agent
with respect to the Collateral.
2.6. Bankruptcy Voting Rights. Junior Creditor Agent and Investors shall be entitled to
vote their claims in any Insolvency Proceeding so long as Junior Creditor Agent and Investors do
not (a) challenge any liens of Senior Creditor Agent, (b) challenge or dispute the validity or
priority of any Senior Debt, and (c) vote their claims in any manner which would be inconsistent
with the provisions of this Jntercreditor Agreement.
2.7. Sale and Release of Collateral. Notwithstanding anything to the contrary contained
in any of the Agreements, only Senior Creditor Agent shall have the right to restrict or permit, or
approve or disapprove, the sale, transfer or other disposition of Collateral. Junior Creditor Agent
and Investors shall (a) be deemed to have automatically and without further action released and
terminated any Liens it may have on the Collateral to the extent such Collateral is sold or
otherwise disposed of either by Senior Creditor Agent or any agent of Senior Creditor Agent, or
Debtors with the consent of Senior Creditor Agent, (b) be deemed to have authorized Senior
Creditor Agent to file UCC amendments and terminations covering the Collateral so sold or
otherwise disposed of as to UCC financing statements between each Debtor and Junior Creditor
Agent to evidence such release and termination, (c) promptly upon the request of Senior Creditor
Agent execute and deliver such other release documents and confirmations of the authorization
to file UCC amendments and terminations provided for herein, in each case as Senior Creditor
886797.6 6
Agent may require in connection with such sale or other disposition by Senior Creditor Agent or
Senior Creditor Agent's agents, or Debtors with the consent of Senior Creditor Agent to
evidence and effectuate such termination and release and (d) be deemed to have consented under
the Junior Creditor Agreements to such sale or other disposition, provided, that, any such release
or UCC amendment or termination by Junior Creditor Agent shall not extend to or otherwise
affect any of the rights, if any, of Junior Creditor Agent and Investors to the proceeds from any
such sale or other disposition of Collateral. In the event that for any reason Junior Creditor
Agent shall fail to immediately execute and deliver to Senior Creditor Agent any such release
documents, Senior Creditor Agent is hereby irrevocably authorized to execute and deliver such
release documents on behalf of Junior Creditor Agent as its attorney-in-fact.
2.8. Limitation or Remedies. Notwithstanding any rights or remedies available to a
Creditor under any of the Agreements, applicable law or otherwise, Junior Creditor Agent and
Investors shall not, directly or indirectly, (a) seek to collect from any Debtor (including, without
limitation, from or by way of any Collateral) any of the Junior Debt or exercise any of their
rights or remedies upon a default or event of default by any Debtor under the Junior Creditor
Agreements or otherwise, or (b) seek to foreclose or realize upon (judicially or non-judicially) its
Lien on any Collateral or assert any claims or interests therein (including, without limitation, by
setoff or notification of account debtor), or (c) commence any action or proceeding against any
Debtor or its properties under the U.S. Bankruptcy Code or any state insolvency law or similar
present or future statute, law or regulation or any proceedings for voluntary liquidation,
dissolution or other winding up of any Debtor's business, or the appointment of any trustee,
receiver or liquidator for any Debtor or any part of its properties or any assigrunent for the
benefit of creditors or any marshalling of assets of any Debtor, or (d) take any other action
against any Debtor or any Collateral. The foregoing shall not in any way limit or impair the right
of Junior Creditor Agent or any Investor from bidding for and purchasing any Collateral at any
private or judicial foreclosure upon such Collateral initiated by Senior Creditor Agent.
3. SUBORDINATION OF JUNIOR DEBT
3.1. Subordination. Except as specifically set forth in Section 3.2 below, Junior Creditor
Agent and Investors hereby subordinate their right to payment and satisfaction of the Junior Debt
and the payment thereof, directly or indirectly, by any means whatsoever, is deferred, to the
indefeasible payment and satisfaction in full of all Senior Debt.
3.2. Permitted Pavments. Senior Creditor Agent and Lenders hereby agree that,
notwithstanding anything to the contrary contained in Section 3 .I, Debtors may make or issue
and Junior Creditor Agent and Investors may receive and retain (a) regularly scheduled non-cash
payments of interest in respect of the Junior Debt in accordance with the terms of the
Subordinated Notes as in effect on the date hereof, in the form of additional Junior Debt having
the same terms as the existing indebtedness under Subordinated Notes, (b) on and after the first
anniversary of the date hereof, payment of all accrued and unpaid interest, including any interest
and interest thereon in respect of the Junior Debt paid pursuant to clause (a), in each case,
together with interest thereon compounded quarterly, and thereafter, regularly scheduled cash
interest payments in respect of the Junior Debt in accordance with the terms of the Subordinated
Notes as in effect on the date hereof, provided, tha!, as to any such payments pursuant to clause
(b) herein, no Default or Event of Default (as such terms as defined in the Senior Loan
Agreement) shall exist or have occurred and be continuing, (c) on and after the first anniversary
of the date hereof, cash payments of any and all principal amounts under the Subordinated Notes
886797.6 7
as in effect on the date hereof; provided, that, as to any such payments pursuant to this clause (c):
(i) no Default or Event of Default (as such tenns as defined in the Senior Loan Agreement) shall
exist or have occurred and be continuing and (ii) as of the date of any such payment and after
giving effect thereto, aggregate Excess Availability (as defined in the Senior Loan Agreement)
shall equal or exceed the lesser of (A) $50,000,000 or (B) the Minimum Amount (as defined in
the Senior Loan Agreement) and (d) any Subordinated Reorganization Securities received by
Junior Creditor Agent or any Investor in an Insolvency Proceeding of any Debtor. Without
limitation upon the foregoing, no Debtor shall have the right at any time to repay the obligations
under the Subordinated Notes in whole or in part with proceeds of any equity contribution or
subordinated loan proceeds subject to the terms of this Intercreditor Agreement on the same basis
as the Junior Debt, received by any Debtor pursuant to and in accordance with the tenns of the
Loan Agreement.
3.3. Distributions.
(a) In the event of any distribution, division, or application, partial or
complete, voluntary or involuntary, by operation oflaw or otherwise, of all or any part of the
assets of any Debtor or the proceeds thereof to the creditors of any Debtor or readjustment of the
obligations and indebtedness of any Debtor, whether by reason of liquidation, bankruptcy,
arrangement, receivership, assignment for the benefit of creditors, marshalling of assets of any
Debtor or any other action or proceeding involving the readjustment of all or any part of the
indebtedness or other obligations of any Debtor or the application of the assets of any Debtor to
the payment or liquidation thereof, or upon the dissolution or other winding up of any Debtor's
business, or upon the sale of all or substantially all of any Debtor's assets, then, and in any such
event, (i) Senior Creditor Agent and Lenders shall first receive indefeasible payment in full in
cash of all of the Senior Debt prior to the payment of all or any part of the Junior Debt (other
than a payment to Junior Creditor Agent and Investors of securities issued by any Debtor which
are subordinate and junior to the Senior Debt at least to the same extent that the Junior Debt is
subordinated to the Senior Debt (such securities being referred to herein as "Subordinated
Reorganization Securities")), and (ii) unless and until Senior Creditor Agent and Lenders shall
have received indefeasible payment in full in cash of all of the Senior Debt, Senior Creditor
Agent and Lenders shall be entitled to receive any payment or distribution of any kind or
character, whether in cash, securities or other property, which shall be payable or deliverable in
respect of any or all of the Junior Debt (other than the Subordinated Reorganization Securities).
(b) In order to enable Senior Creditor Agent (on behalf of itself and Lenders)
to enforce its rights under Section 3.3(a) above, Senior Creditor Agent is hereby irrevocably
authorized and empowered (in its own name or in the name of Junior Creditor Agent or any
Investor or otherwise), but shall have no obligation to, enforce claims comprising any of the
Junior Debt by proof of debt, proof of claim, suit or otherwise and take generally any action
which Junior Creditor Agent or any Investor might otherwise be entitled to take, as Senior
Creditor Agent may deem necessary or advisable for the enforcement of its rights or interests
hereunder, except that Senior Creditor Agent shall not file any proof of claim on behalf of Junior
Creditor Agent or any Investor so long as Junior Creditor Agent or such Investor has properly
filed such proof of claim at least ten (1 0) days prior to the last date for which such proof of claim
may be filed.
(c) To the extent necessary for Senior Creditor Agent and Lenders to realize
the benefits of the subordination of the Junior Debt provided for herein (including the right to
886797.6 8
receive any payment and distributions which might otherwise be payable or deliverable in
respect of the Junior Debt in any proceeding described in Section 3.3(a) or otherwise), Junior
Creditor Agent and Investors shall execute and deliver to Senior Creditor Agent such instruments
or documents (together with such assignments or endorsements as Senior Creditor Agent shall
deem necessary), as may be requested by Senior Creditor Agent.
3.4. Pavments Received by Junior Creditor Agent. Except for payments received by
. Junior Creditor Agent and Investors as provided in Section 3.2 above, should any payment or
distribution or security or instrument or proceeds thereof be received by Junior Creditor Agent or
any Investor in respect of the Junior Debt, Junior Creditor Agent or such Investor shall receive
and hold the same in trust, as trustee, for the benefit of Senior Creditor Agent and Lenders,
segregated from other funds and property of Junior Creditor Agent or such Investor and shall
forthwith deliver the same to Senior Creditor Agent (together with any endorsement or
assignment of Junior Creditor Agent or such Investor where necessary), for application to any of
the Senior Debt. In the event of the failure of Junior Creditor Agent or such Investor to make
any such endorsement or assignment to Senior Creditor Agent, Senior Creditor Agent, or any of
its officers or employees, are hereby irrevocably authorized on behalf of Junior Creditor Agent to
make the same at any time prior to the indefeasible payment in full in cash of all the Senior Debt.
3.5. Instrument Legend and Notation. Any instrument at any time evidencing the Junior
Debt, or any portion thereof, shall be permanently marked on its face with a legend
conspicuously indicating that payment thereof is subordinate in right of payment to the Senior
Debt and subject to the terms and conditions of this Intercreditor Agreement, and after being so
marked true and correct copies thereof shall be delivered to Senior Creditor Agent. In the event
any legend or endorsement is omitted, Senior Creditor Agent or any of its officers or employees,
are hereby irrevocably authorized on behalf of Junior Creditor Agent and Investors to make the
same. No specific legend, further assignment or endorsement or delivery of notes, guarantees or
instruments shall be necessary to subject any Junior Debt to the subordination thereof contained
in this Agreement.
4. COVENANTS, REPRESENTATIONS AND WARRANTIES
4.1. Additional Covenants. Junior Creditor Agent, Investors and Debtors agree in favor
of Senior Creditor Agent and Lenders:
(a) except as specifically set forth in Section 3.2 above, no Debtor shall,
directly or indirectly, make and Junior Creditor Agent and Investors shall not, directly or
indirectly, accept or receive any payment of principal or interest or any prepayment or non-
mandatory payment or any payment pursuant to acceleration or claims of breach or any payment
to acquire Junior Debt or otherwise in respect of any Junior Debt;
(b) Junior Creditor Agent, Investors and Debtors shall not amend, modifY,
alter or change in any material respect the terms of any of the Junior Creditor Agreements or any
other arrangements related to the Junior Debt in a marmer adverse to the Senior Creditor Agent
or Lenders, without the prior written consent of Senior Creditor Agent; provided, however, that
Junior Creditor Agent, Investors and Debtors may amend the Junior Creditor Agreements to (i)
the increase the rate of interest due under the Subordinated Notes by no more than two (2%)
percent above the rate of interest provided for therein as of the date hereof or (ii) extend the term
of the Subordinated Notes;
886797.6
9
(c) Junior Creditor Agent shall not sell, assign, pledge, encumber or otherwise
dispose of any of the Junior Debt, liens securing Junior Debt and guarantees, if any or
subordinate any of the Junior Debt to any indebtedness of Debtors other than the Senior Debt,
except, that, Junior Creditor Agent may sell, assign, pledge, encumber or otherwise dispose of
the Junior Debt (and the liens securing the same) in whole or in part to any shareholder of any
Investor, so long as Senior Creditor Agent shall have received from such person a written
acknowledgment of receipt of a copy ofthis Intercreditor Agreement together with the written
agreement of such person, in form and substance reasonably satisfactory to Senior Creditor
Agent, to be bound by the terms and conditions of this Intercreditor Agreement;
(d) Junior Creditor Agent and Debtors shall, at any time or times upon the
reasonable request of Senior Creditor Agent, promptly furnish to Senior Creditor Agent a
statement of the outstanding Junior Debt; and
(e) Junior Creditor Agent and Debtors shall execute and deliver to Senior
Creditor Agent such additional agreements, documents and instruments and take such further
actions as may be necessary or reasonably desirable in the opinion of Senior Creditor Agent to
effectuate the provisions and purposes of this Intercreditor Agreement.
4.2. Additional Representations and Warranties. Junior Creditor Agent, Investors and
Debtors represent and warrant to Senior Creditor Agent that:
(a) as of the date hereof, the total outstanding principal amount of the Junior
Debt is $30,000,000;
(b) as of the date hereof, no default or event of default, or event which with
notice or passage of time or both would constitute an event of default exists or has occurred
under the Junior Creditor Agreements;
(c) Junior Creditor Agent and Investors are the exclusive legal and beneficial
owners of all of the Junior Debt;
(d) none of the Junior Debt is subject to any lien, security interest, financing
statements, subordination, assignment or other claim, except for the subordination in favor of
Senior Creditor Agent and the Liens expressly contemplated in Section 2.1 hereof; and
(e) this Intercreditor Agreement constitutes the legal, valid and binding
obligations of Junior Creditor Agent and Investors, enforceable in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency, moratorium or similar
laws limiting creditors' rights generally and by general equitable principles
4.3. Waivers. Notice of acceptance hereof, the making of loans, advances and
extensions of credit or other financial accommodations to, and the incurring of any expenses by
or in respect of, Debtors by Senior Creditor Agent and Lenders, and presentment, demand,
protest, notice of protest, notice of nonpayment or default and all other notices to which Junior
Creditor Agent, Lenders and Debtors are or may be entitled are hereby waived (except as
expressly provided for herein or as to Debtors, in the Senior Creditor Agreements). Junior
Creditor Agent and Investors also waive notice of, and hereby consent to, (a) any amendment,
modification, supplement, renewal, restatement or extensions of time of payment of or increase
886797 6
10
or decrease in the amount of any of the Senior Debt or to the Senior Creditor Agreements or any
Collateral, (b) the taking, exchange, surrender and releasing of Collateral or guarantees now or at
any time held by or available to Senior Creditor Agent or any Lender for the Senior Debt or any
other person at any time liable for or in respect of the Senior Debt, (c) the exercise of, or
refraining from the exercise of, any rights against Debtors or any other obligor or any Collateral,
(d) the settlement, compromise or release of, or the waiver of any default with respect to, any of
the Senior Debt, and/or (e) Senior Creditor Agent's election, in any proceeding instituted under
the U.S. Bankruptcy Code, of the application of Section llll(b )(2) of the U.S. Bankruptcy
Code. Any of the foregoing shall not, in any manner, affect the terms hereof or impair the
obligations of Junior Creditor Agent and Investors hereunder. All of the Senior Debt shall be
deemed to have been made or incurred in reliance upon this Intercreditor Agreement.
4.4. Subrogation; Marshalling. Junior Creditor Agent and Lenders shall not be
subrogated to, or be entitled to, any assigmnent of any Senior Debt or of any Collateral or
guarantees or evidence of any thereof until all of the Senior Debt is indefeasibly paid and
satisfied in full in immediately available funds. Junior Creditor Agent and Lenders hereby waive
any and all rights to have any Collateral or any part thereof granted to Senior Creditor Agent
marshalled upon any foreclosure or other disposition of such Collateral by Senior Creditor Agent
or Debtors.
4.5. No Offset. In the event Junior Creditor Agent or any Investor at any time incurs any
obligation to pay money to any Debtor, so long as any Senior Debt is outstanding Junior Creditor
Agent and Investors hereby irrevocably agrees that it shall pay such obligation in cash in
accordance with the terms of the contract governing such obligation and shall not deduct from or
setoff against any amounts owed by Junior Creditor Agent or any Investor to any Debtor in
connection with any such transaction any amounts Junior Creditor Agent or such Investor claims
are due to it with respect to the Junior Debt.
5. MISCELLANEOUS
5.1. Amendments. Any waiver, permit, consent or approval by any Creditor of or under
any provision, condition or covenant to this Intercreditor Agreement must be in writing and shall
be effective only to the extent it is set forth in writing and as to the specific facts or
circumstances covered thereby. Any amendment of this Intercreditor Agreement must be in
writing and signed by each of the parties to be bound thereby.
5.2. Successors and Assigns.
(a) This Intercreditor Agreement shall be binding upon the parties hereto and
their respective successors and assigns and shall inure to the benefit of each of Creditors and its
respective successors, participants and assigns.
(b) Senior Creditor Agent reserves the right to grant participations in, or
otherwise sell, assign, transfer or negotiate all or any part of, or any interest in, the Senior Debt
and the Collateral securing same; provided, that, Junior Creditor Agent and Investors shall not be
obligated to give any notices to or otherwise in any manner deal directly with any participant in
the Senior Debt and no participant shall be entitled to any rights or benefits under this
Intercreditor Agreement except through Senior Creditor Agent and Lenders. In connection with
any participation or other transfer or assignment, Senior Creditor Agent and Lenders (i) may
886797 6
11
disclose to such assiguee, participant or other transferee or assiguee all documents and
information which Senior Creditor Agent and Lenders now or hereafter may have relating to the
Senior Debt or the Collateral and (ii) shall disclose to such participant or other transferee or
assiguee the existence and terms and conditions of this Intercreditor Agreement.
(c) Junior Creditor Agent and Investors reserve the right to grant
participations in, or otherwise sell, assigu, transfer or negotiate all or any part of, or any interest
in, the Junior Debt aud the Collateral securing same in accordance with Section 4.1( c) hereof;
provided, that, Senior Creditor Agent shall not be obligated to give any notices to or otherwise in
any mmmer deal directly with any participant in the Junior Debt and no participant shall be
entitled to any rights or benefits under this Intercreditor Agreement except through Junior
Creditor Agent. In connection with any participation or other transfer or assigument by Junior
Creditor Agent or any Investor, Junior Creditor Agent or such Investor (i) may disclose to such
assiguee, participant or other transferee or assiguee all documents and information which Junior
Creditor Agent or such Investor now or hereafter may have relating to the Junior Debt or the
Collateral and (ii) shall disclose to such participant or other transferee or assiguee the existence
and terms and conditions of this Intercreditor Agreement.
(d) In connection with any assigument or transfer of any or all of the Senior
Debt, or any or all rights of Senior Creditor Agent in the property of Debtors (other than pursuant
to a participation), Junior Creditor Agent and Investors agree to execute and deliver au
agreement containing terms substantially identical to those contained herein in favor of any such
assiguee or transferee and, in addition, will execute and deliver au agreement containing terms
substantially identical to those contained herein in favor of any third person who refinances or
succeeds to or replaces any or all of Senior Creditor Agent's and Lenders' financing of Debtors,
whether such successor financing or replacement occurs by transfer, assigument, "takeout" or
any other means or vehicle.
5.3. Insolvency. This Intercreditor Agreement shall be applicable both before and after
the filing of any petition by or against mw Debtor under the U.S. Bankruptcy Code and all
converted or succeeding cases in respect thereof, and all references herein to Debtors shall be
deemed to apply to a trustee for any Debtor and any Debtor as debtor-in-possession. The relative
rights of Senior Creditor Agent, Lenders, Junior Creditor Agent and Investors to repayment of
the Senior Debt and the Junior Debt, respectively, and in or to any distributions from or in
respect of Debtors or any Collateral or proceeds of Collateral, shall continue after the filing
thereof on the smne basis as prior to the date of the petition, subject to any court order approving
the financing of, or use of cash collateral by, any Debtor as debtor-in-possession.
5.4. Bankruptcy Financing. If any Debtor shall become subject to a proceeding under
the U.S. Bankruptcy Code and if Senior Creditor Agent and Lenders desire to permit the use of
cash collateral or to provide financing to Debtors under either Section 363 or Section 364 of the
U.S. Bankruptcy Code, Junior Creditor Agent and Investors agree as follows: (a) adequate
notice to Junior Creditor Agent and Investors shall have been provided for such financing or use
of cash collateral if Junior Creditor Agent and Investors receive notice two (2) business days
prior to the entry of the order approving such financing or use of cash collateral and (b) no
objection will be raised by Junior Creditor Agent and Investors to any such financing or use of
cash collateral on the ground of a failure to provide "adequate protection" for Junior Creditor
Agent's and Investors' junior Liens on the Collateral or any other grounds, provided Junior
Creditor Agent and Investors retain a Lien on the post-petition Collateral with the same priority
886797.6 12
as existed prior to the commencement of the proceeding under the U.S. Bankruptcy Code. For
purposes ofthis Section, notice of a proposed financing or use of cash collateral shall be deemed
given when given, in the manner prescribed by Section 5.5 hereof, to Jnnior Creditor Agent and
Investors.
5.5. Notices. All notices, requests and demands to or upon the respective parties hereto
shall be in writing and shall be deemed duly given, made or received: if delivered in person,
immediately upon delivery; if by telex, telegram or facsimile transmission, immediately upon
sending and upon confirmation of receipt; if by nationally recognized overnight courier service
with instructions to deliver the next business day, one (1) business day after sending; and if
mailed by certified mail, return receipt requested, five (5) days after mailing to the parties at their
addresses set forth below (or to such other addresses as the parties may designate in accordance
with the provisions of this Section):
886797.6
To Senior Creditor Agent:
or any Lender
with a copy to:
To Junior Creditor Agent or any
Investor:
with a copy to:
Wachovia Capital Finance Corporation
(Western)
251 South Lake A venue, Suite 900
Pasadena, California 91101
Attention: Portfolio Manager
Telephone No.: 626-304-4900
Telecopy No.: 626-304-4949
Otterbourg, Steindler, Houston & Rosen, P.C.
230 Park A venue
New York, New York 10169
Attention: Valerie S. Mason, Esq.
Telephone No.: (212) 661-9100
TelecopyNo.: (212) 682-6104
SCSF Mervyn's (US), LLC
c/o Sun Capital Partners, Inc.
5200 Town Center Circle, Snite 470
Boca Raton, Florida 33486
Attention: Christopher Thomas, Jason Leach
and C. Deryl Couch, Esq.
Telephone No.: 561-394-0550
TelecopyNo.: 561-394-0540
Kirkland & Ellis LLP
Aon Center
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Douglas C. Gessner, P.C.
Telephone No.: 312-861-2000
TelecopyNo.: 312-861-2200
13
Any Creditor may change the address(es) to which all notices, requests and other
communications are to be sent by giving written notice of such address change to the other
Creditors in conformity with this Section 5.5, but such change shall not be effective until notice
of such change has been received by the other Creditors.
5.6. Counterparts. This Intercreditor Agreement may be executed in any nmnber of
counterparts, each of which shall be an original with the same force and effect as if the signatures
thereto and hereto were upon the same instrument. This Intercreditor Agreement may be
delivered by telecopier with the same force and effect if it were a manually executed and
delivered counterpart.
5.7. Governing Law. The validity, interpretation and enforcement of this Intercreditor
Agreement and any dispute arising out ofthe relationship among the parties hereto, whether in
contract, tort, equity or otherwise shall be governed by the internal laws of the State of
New York, without regard to principles of conflicts of!aw, but excluding any rule of law that
would cause the application of the law of any jurisdiction other than the laws of the State of
New York.
5.8. Consent to Jurisdiction; Waiver of Jury Trial. Each of the parties hereto hereby
irrevocably consents to the non-exclusive jurisdiction of Supreme Court of the State of
New York for New York County and the United States District Court for the Southern District of
New York, whichever Senior Creditor Agent may elect, and waives trial by jury in any action or
proceeding with respect to this Intercreditor Agreement.
5.9. Complete Agreement. This written Intercreditor Agreement is intended by the
parties as a final expression of their agreement and is intended as a complete statement of the
terms and conditions of their agreement.
5.10. No Third Parties Benefitted. Except as expressly provided in Section 5.2, this
Intercreditor Agreement is solely for the benefit of the Creditors and their respective successors,
participants and assigns, and no other person shall have any right, benefit, priority or interest
under, or because of the existence of, this Intercreditor Agreement.
5.11. Disclosures; Non-Reliance. Each Creditor has the means to, and shall in the future
remain, fully infonned as to the financial condition and other affairs of Debtors and no Creditor
shall have any obligation or duty to disclose any such information to any other Creditor. Except
as expressly set forth in this Intercreditor Agreement, the parties hereto have not otherwise made
to each other nor do they hereby make to each other any warranties, express or implied, nor do
they assume any liability to each other with respect to: (a) the enforceability, validity, value or
collectability of any of the Junior Debt or Senior Debt or any guarantee or security which may
have been granted to any of them in connection therewith, (b) Debtors' title to or right to transfer
any of the Collateral, or (c) any other matter except as expressly set forth in this Intercreditor
Agreement.
5.12. Term. This Intercreditor Agreement is a continuing agreement and shall remain in
full force and effect until the indefeasible satisfaction in full of all Senior Debt and the
termination of the financing arrangements between Senior Creditor Agent, Lenders and Debtors.
886797.6
14
5.13. Each Agent as Bailee.
(a) With respect to any Collateral that can be perfected by the possession or
control of such Collateral or any deposit or securities account in which such Collateral is held, if
such Collateral or any such account is in fact in the possession or under the control of Senior
Creditor Agent, Junior Creditor Agent or of agents or bailees of Senior Creditor Agent or Junior
Creditor Agent (such Collateral and accounts being referred to herein as the "Pledged
Collateral''), then Senior Creditor Agent or Junior Creditor Agent, as the case may be, agrees to
hold such Pledged Collateral as bailee and agent for and on behalf of the other solely for the
purpose of perfecting the security interest granted to the other in such Pledged Collateral
pursuant to the Senior Creditor Agreements or J1mior Security Agreement, as applicable, subject
to the terms and conditions of this Section 5.13.
(b) Until the indefeasible payment and satisfaction in full of all Obligations
under the Senior Creditor Agreements (as defined therein) and the termination of the Senior
Creditor Agreements in accordance with their terms ("Discharge of First Lien Obligations"),
Senior Creditor Agent shall be entitled to deal with the Pledged Collateral in accordance with the
terms of the Senior Creditor Agreements as ifthe Liens of Junior Creditor Agent and Investors
under the Junior Creditor Agreements did not exist. The rights of the Junior Creditor Agent and
Investors shall at all times be subject to the terms of this Agreement and to Senior Creditor
Agent's rights under the Senior Creditor Agreements.
(c) Neither party hereto shall have any obligation whatsoever to the other or
any other Person to assure that the Pledged Collateral is genuine or owned by a Debtor or to
preserve rights or benefits of any Person except as expressly set forth in this Section 5.13. The
duties or responsibilities of each party hereto under this Section 5.13 shall be limited solely to
holding the Pledged Collateral as bailee and agent for and on behalf of the other for purposes of
perfecting the Lien held by the other.
(d) Neither party hereto shall have by reason of the Senior Creditor
Agreements, the Junior Creditor Agreements or this Agreement or any other document a
fiduciary relationship in respect of the other or any other Person and shall not have any liability
to the other or any other Person in connection with its holding the Pledged Collateral.
(e) Upon the Discharge of First Lien Obligations, to the extent permitted
under applicable Jaw, upon the request of Junior Creditor Agent, Senior Creditor Agent shall,
without recourse or warranty, transfer the possession and control of the Pledged Collateral, if
any, then in its possession or control to Jnnior Creditor Agent, except in the event and to the
extent (i) Senior Creditor Agent or any other Lender has retained or otherwise acquired such
Collateral in full or partial satisfaction of any of the Obligations nuder the Senior Creditor
Agreements, (ii) such Collateral is sold or otherwise disposed of by Senior Creditor Agent or any
Lender or (iii) it is otherwise required by any order of any court or other governmental authority
or applicable law or would result in the risk of liability of Senior Creditor Agent or any Lender to
any third party. The foregoing provision shall not impose on Senior Creditor Agent or any
Lender any obligations which would conflict with prior perfected claims therein in favor of any
other person or any order or decree of any court or other govermnental authority or any
applicable Jaw. In connection with any transfer described in this Section 5.13 to Junior Creditor
Agent, Senior Creditor Agent agrees to take reasonable actions in its power (with all reasonable
costs and expenses in connection therewith to be for the account of the Junior Creditor Agent and
886797.6 15
to be paid by Debtors) as shall be reasonably requested by Junior Creditor Agent to permit Junior
Creditor Agent to obtain a first priority security interest in the Pledged Collateral.
5.14. Waiver and Amendments to Negative Covenants. Upon any waiver, amendment,
consent or other modification by Senior Creditor Agent or Lenders of any of the provisions of
the Senior Loan Agreement with respect to covenants and/or representations and warranties
thereunder, Junior Creditor Agent and Investors shall be deemed, automatically and without any
further action, to have waived, amended, consented to or otherwise modified any similar or
corresponding provisions of the Junior Creditor Agreements. Debtors hereby consents to the
terms of this Section 5.14.
[REMAINDER OF PAGE lNTENTIONALL Y LEFT BLANK]
886797.6
16
IN WITNESS WHEREOF, the parties have caused this Intercreditor Agreement to be
duly executed as of the day and year first above written.
SCSF MERVYN'S (US), LLC,
as Junior Creditor Agent and an Investor

Title: R.. K.f!c;usE
pV2GG-.J D5NT
WACHOVIA CAPITAL FINANCE
CORPORATION STERN), as Senior Creditor


Each of the undersigned hereby acknowledges and agrees to the foregoing terms and
provisions. By their signature below, each the undersigned agrees that it will, together with its
successors and assigns, be bound by the provisions hereof.
Each of the undersigned agrees that any Creditor holding Collateral does so as bailee
(under the Uniform Commercial Code) for the others and is hereby authorized to and may turn
over to such other Creditors, upon request therefor, any such Collateral, after all obligations and
indebtedness of the undersigned to the bailee Creditor have been fully paid and performed.
Each of the undersigned acknowledges and agrees that: (i) although it may sign this
Intercreditor Agreement it is not a party hereto and does not and will not receive any right,
benefit, priority or interest under or because of the existence of the foregoing Intercreditor
Agreement, (ii) in the event of a breach by any of the undersigned, Junior Creditor Agent or any
Investor of any of the terms and provisions contained in the foregoing Intercreditor Agreement,
such a breach shall constitute an "Event of Default" as defined in and under the Senior Creditor
Agreements and (iii) it will execute and deliver such additional documents and take such
additional action as may be necessary or desirable in the opinion of any Creditor to effectuate the
provisions and purposes of the foregoing Intercreditor Agreement.
DEBTORS
MERVYN'S LLC

Title: SV f' / cFo
'
MERVYN'S BRANDS, LLC
By:
Title: <$NP / tf.o
I
EXHIBITC
RLFI-3307040-1
3/190866.DOC
INTERCREDITOR AGREEMENT
by and among
GREENWICH CAPITAL FINANCIAL PRODUCTS, INC.
GOLDMAN SACHS COMMERCIAL MORTGAGE CAPITAL, L.P.
and
CITIGROUP GLOBAL MARKETS REALTY CORP.
collectively, as Mortgage Lender
and
WACHOVIA CAPITAL FINANCE CORPORATION (WESTERN)
as Agent for Mervyn's Loan Lenders
Dated as of December 22, 2005
INTER CREDITOR AGREEMENT
THIS INTERCREDITOR AGREEMENT (this "Agreement"), dated as of
December 22, 2005 by and among GREENWICH CAPITAL FINANCIAL PRODUCTS, INC.,
a Delaware corporation, GOLDMAN SACHS COMMERCIAL MORTGAGE CAPITAL, L.P., a
Delaware limited partnership and CIT! GROUP GLOBAL MARKETS REALTY CORP., a New
York corporation (collectively, "Mortgage Lender"), and W ACHOVIA CAPITAL FINANCE
CORPORATION (WESTERN), a California corporation previously knows as Congress
Financial Corporation (Western), as Agent for the holders of the Mervyn's Loan (defined
below), ("Mervyn's Loan Agent") and with respect to Section 28 hereof only, MERVYN'S LLC,
a California limited liability company.
RECITALS
WHEREAS, pursuant to the terms, provisions and conditions set forth in that
certain Loan Agreement, dated as of December 22, 2005, by and among MDS Realty I, LLC, a
Delaware limited liability company, MDS Realty II, LLC, a Delaware limited liability company,
MDS Texas Realty I, L.P., a Texas limited partnership, and MDS Texas Realty II, L.P., a Texas
and .. MortgageLender ..
Loan Agreement''), Mortgage Lender has agreed to make a loan to Property Borrower in the
original principal amount of $57 5,000,000 (as the same may be increased or otherwise modified
from time to time, the "Mortgage Loan''), which Mortgage Loan is evidenced by multiple
Promissory Notes, each dated as of December 22, 2005, made by Property Borrower to the
entities constituting Mortgage Lender in the aggregate amount of the Mortgage Loan
(collectively, the "Mortgage Note"), and secured by, among other things, various fee or
leasehold mortgages/deeds of trust, made by Property Borrower for the benefit of Mortgage
Lender (collectively, the "Mortgages"), which Mortgages encumber Property Borrower's fee and
leasehold interests in the real property described on Exhibit A attached hereto and made a part
hereof, and all improvements thereon and appurtenances thereto, together with any additional
premises that may hereafter become subject to the Unitary Lease (collectively, the "Premises");
and
WHEREAS, pursuant to the terms, provisions and conditions set forth in that
certain Loan and Security Agreement, dated as of September 2, 2004, by and among Mervyn's
LLC, a California limited liability company ("Mervyn's"), Mervyn's Brands LLC ("Brands"),
certain lenders now or hereafter a party thereto (collectively, the "Mervyn's Loan Lenders"),
Mervyn's Loan Agent (as administrative agent and collateral agent for the Mervyn's Loan
Lenders), Goldman Sachs Credit Partners, L.P., General Electric Capital Corporation and The
CIT Group/Business Credit, Inc. (as amended by that certain Amendment No. 1 to Loan and
Security Agreement dated December 22, 2005 and that certain Amendment No.2 to Loan and
Security Agreement dated December 22, 2005, the "Mervyn's Loan Agreement"), the Mervyn's
Loan Agent and the Mervyn's Loan Lenders have agreed to enter into certain financing
arrangements with Mervyn's and to provide loans and letter of credit accommodations to
Mervyn's in the maximum amount of up to $550,000,000 (collectively, and as the same may be
increased or otherwise modified from time to time, the "Mervyn's Loan"), which Mervyn's Loan
is secured by, among other things, a security interest in, and a lien upon the Mervyn's Loan
3//90866.DOC 2
Collateral (hereinafter defined), as more particularly described in Section 5.1 of the Mervyn's
Loan Agreement; and
WHEREAS, pursuant to the terms, provisions and conditions set forth in that
certain Mezzanine Loan Agreement (the "Mezzanine Loan Agreement"), dated as of December
22, 2005, between MDS Realty Holdings II, LLC, a Delaware limited liability company, and
MDS Realty Holdings I, LLC, a Delaware limited liability company, MDS Texas Properties I,
LLC, a Delaware limited liability company, and MDS Texas Properties II, LLC, a Delaware
limited liability company (collectively, "Mezzanine Borrower") and Greenwich Capital Financial
Products, Inc., Goldman Sachs Mortgage Company and Citigroup Global Markets Realty Corp.
(collectively, together with their respective successor and assigns, ("Mezzanine Lender"),
Mezzanine Lender is the owner and holder of a loan to Mezzanine Borrower in the original
principal amount of$375,000,000 (as the same may be increased or otherwise modified from
time to time, the "Mezzanine Loan"), which Mezzanine Loan is evidenced by multiple
Promissory Notes, each dated as of December 22, 2005, made by Mezzanine Borrower in favor
of the entities constituting Mezzanine Lender in the aggregate amount ofthe Mezzanine Loan
(collectively, the "Mezzanine Note"), and secured by, among other things, certain Pledge and
Security Agreements, dated as of December 22, 2005, from Mezzanine Borrower pursuant to
which Mezzanine Lender is granted a first priority security interest in all of Mezzanine

WHEREAS, pursuant to the Unitary Lease (hereinafter defined), Property
Borrower and its subsidiaries has leased (or subleased, as applicable) certain properties to
Mervyn's (as tenant under the Unitary Lease);
WHEREAS, Mervyn's holds leasehold title to the Restricted Leases (hereinafter
defined); and
WHEREAS, Mortgage Lender and Mervyn's Loan Agent desire to enter into this
Agreement to evidence their agreement to the matters set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and for other
good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged,
Mortgage Lender and Mervyn's Loan Agent hereby agree as follows:
Section 1. Certain Definitions; Rules of Construction.
(a) As used in this Agreement, the following capitalized terms shall have the
following meanings:
"Agreement" means this Agreement, as the same may be amended, modified and
in effect from time to time, pursuant to the terms hereof.
"Bankruptcy Code" means Title ll of the United States C6de and, as applicable,
any foreign laws relating to insolvency or bankruptcy.
"Brands" has the meaning provided in the Recitals hereto.
31190866.DOC
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"Business Day" the meaning given such term in the Mortgage Loan
Agreement.
"Enforcement Action" means any judicial or non-judicial foreclosure proceeding,
the exercise of any power of sale, the taking of a deed or assignment in lieu of foreclosure, the
obtaining of a receiver or the taking of any other enforcement action taken by Mortgage Lender
against the Premises or Property Borrower, including, without limitation, the taking of
possession or control of the Premises.
"Equity Holder" means Mervyn's Holdings, LLC, a Delaware limited liability
company, the sole member of Mervyn's.
"Equity Purchase Agreement" means that certain Equity Purchase Agreement,
dated as of July 29, 2004 by and between Equity Holder and Target Corporation (as the same
now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced),together with the other agreements, documents and instruments referred to therein or
at any time executed and/or delivered in connection therewith, or related thereto.
"Event of Default" as used herein means (i) with respect to the Mortgage Loan
and LoanDocuments,anyEvent of Default thereunder which has occurred and is
continuing (i.e., haS notbeel1 cured by PropertyBori:ower) and (ii) with respect to theMervYn;S
Loan and the Mervyn's Loan Documents, any Event of Default thereunder which has occurred
and is continuing (i.e., has not been cured by Mervyn's).
"Lien" means any mortgage, deed of trust, lien (statutory or otherwise), pledge,
hypothecation, security interest or any other encumbrance or charge.
"Mervyn's" has the meaning provided in the Recitals hereto.
"Mervyn's Loan" has the meaning provided in the Recitals hereto.
"Mervvn' s Loan Agent" has the meaning provided in the first paragraph of this
Agreement.
"Mervyn's Loan Agreement" has the meaning provided in the Recitals hereto.
"Mervyn's Loan Collateral" means all now owned or hereafter acquired property
(both real and personal) of Mervyn's and Brands, including, without limitation, all accounts,
contract rights, inventory, equipment, trade fixtures, general intangibles, documents and
instruments of Mervyn's and the proceeds and products thereof, exclusive of the Restricted
Lease Proceeds, the Restricted Lease Proceeds Account (and the funds therein) and the
Restricted Lease Proceeds Fixtures, and the proceeds and products of each of the foregoing.
"Mervyn's Loan Documents" means the Mervyn's Loan Agreement, and any and
all other documents and instruments set forth on Exhibit D hereto, as any of the foregoing may
be modified, amended, extended, supplemented, restated or replaced from time to time.
"Mervyn's Loan Lenders" has the meaning provided in the Recitals hereto.
31 190866.DOC
-4-
"Mervyn's Loan Parties" means Mervyn's Loan Agent, Mervyn's Loan Lenders,
the "Bank Product Providers" (as such term is defined in the Mervyn's Loan Agreement), and
each other party to the Mervyn's Loan Agreement (other than Mervyn's).
"Mezzanine Lender" has the meaning provided in the Recitals hereto.
"Monthly Restricted Lease Dividend" has the meaning given in the Mervyn's
Loan Agreement.
"Mortgage Lender" has the meaning provided in the Recitals hereto.
"Mortgage Loan" has the meaning provided in the Recitals hereto.
"Mortgage Loan Agreement" has the meaning provided in the Recitals hereto.
"Mortgage Loan Documents" means the Mortgage Loan Agreement, the
Mortgage Note and the Mortgages, together with the instruments and documents set forth on
Exhibit C hereto, as any of the foregoing may be modified, amended, extended, supplemented,
restated or replaced from time to time.
''Person'; means any
partnership, limited partnership, limited liability company or partnership, joint venture,
association, joint stock company, bank, trust, estate unincorporated organization, any federal,
state, county or municipal government (or any agency or political subdivision thereof)
endowment fund or any other form of entity.
"Premises" has the meaning provided in the Recitals hereto.
"Proceeding" means, as to any Person, any of the following: (a) any case or
proceeding with respect to such person under the Bankruptcy Code or any other Federal or State
bankruptcy, insolvency, reorganization or other law of any jurisdiction affecting creditors' rights
or any other or similar proceedings seeking any stay, reorganization, arrangement, composition
or readjustment of the obligations and indebtedness of such Person or (b) any proceeding seeking
the appointment of any trustee, receiver, liquidator, custodian or other insolvency official with
similar powers with respect to such Person or any of its assets or (c) any proceeding for
liquidation, dissolution or other winding up of the business of such Person or (d) any assignment
for the benefit of creditors or any marshaling of assets of such Person.
"Property Agreement" means, as to any portion of the Premises, any reciprocal
easement and/or operating agreement or similar agreement or any ground lease or other
underlying lease encumbering such Premises or any portion thereof.
"Property Borrower" has the meaning provided in the Recitals hereto.
"Restricted Leases" means the leases by and between Mervyn's, as lessee and a
third party, as lessor, with respect to retail store locations as more particularly identified on
Exhibit B hereto.
31 !90866.DOC
- 5-
"Restricted Lease Fixtures" shall mean heating, ventilating, air conditioning
equipment, boilers, generators, plumbing, elevator and electrical equipment, wall and floor
coverings, walls and ceilings and other similar equipment installed in and affixed to the real
property subject to the Restricted Leases the primary use of which relates to the "Ownership of
the Premises" subject to the Restricted Lease or the construction of any improvements thereon or
located on or affixed to such premises related to the Ownership of the Premises. For purposes
hereof, the term "Ownership of the Premises" shall mean the title, rights and privileges relating
primarily to the state of being an owner or lessee of the premises which is subject to the
Restricted Lease, including, without limitation, rights to occupy, develop, lease and exercise
dominion and control over the Premises, provided, that, such term shall not include any title,
rights or privileges relating primarily to the operation of the business by Borrower being
conducted at the Real Property subject to the Restricted Leases. The term "Restricted Lease
Fixtures" shall in any event not include any trade fixtures of Mervyn's or Brands.
Notwithstanding anything to the contrary contained in this definition, any fixtures (other than
trade fixtures) that are affixed or annexed to the real property that is the subject of a Restricted
Lease, and which under the laws of the jurisdiction in which such real property is located, are
regarded as part of such real property shall be deemed to be Restricted Lease Fixtures.
"Restricted Lease Proceeds" means any income or proceeds generated by any

(i) any sublease rental income, to the extent such sublease rental income exceeds
the stated rent payable by Mervyn's under such Restricted Lease (or in the case of a sublease of a
portion of the premises demised under a Restricted Lease, the fairly allocable portion of the rent
attributable to such portion of the applicable demised premises); provided that the foregoing
limitation shall not apply to a triple net sublease (where the subtenant is responsible for payment
of all rental payments under the prime lease), in which case (for the purposes of this clause (i))
Restricted Lease Proceeds shall mean all sublease rental income payable to Mervyn's under such
sublease, or
(ii) any amounts received by or on behalf of Mervyn's in respect of its rights as a
lessee in respect of a Restricted Lease (or with respect to the leasehold or Restricted Lease
Fixtures demised under such Restricted Lease or owned by Mervyn's) as a result of:
(x) any casualty or condemnation affecting such Restricted Lease or
Restricted Lease Fixtures or the real property and improvements demised under such
Restricted Lease, to the extent that Mervyn's has not utilized such proceeds towards
payment (or reimbursement, including reimbursement of its own funds utilized for such
restoration costs or funds provided as a borrowing under the Mervyn's Loan Documents
for the same) of restoration costs for the affected premises (but exclusive of any casualty
insurance proceeds or condemnation awards paid in respect of Mervyn's Loan
Collateral), or
(y) any sale or other disposition or encumbrance by Mervyn's of its
interest in any Restricted Lease (including any termination or surrender of any Restricted
Lease) or Restricted Lease Fixtures, or the creation by Mervyn's of any encumbrance on
its interest in any Restricted Lease or Restricted Lease Fixtures which encumbrance is
31 J90866.DOC
- 6 -
permitted under Section 9.8(r) of the Mervyn's Loan Agreement (as in effect on the date
hereof) or is otherwise permitted by Mervyn's Loan Agent.
"Restricted Lease Proceeds Account" has the meaning provided in the Mervyn's
Loan Agreement (as in effect on the date hereof).
"Restricted Lease Property" has the meaning provided in Section 4(a) hereof.
"Total Rent Cap Limitation" means the "Total Rent Cap" limitation set forth in
the second proviso in Section 9.ll(f)(i) of the Mervyn's Loan Agreement as in effect on the date
hereof.
"Unitary Lease(s)" shall have the meaning provided in the Mervyn's Loan
Agreement (as in effect on the date hereof).
(b) For all purposes ofthis Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
(i) all capitalized terms defined in the recitals to this Agreement shall
...... .. .. .. A,gr>?!"Ill!<l!tJW4. th!;.te!Pls ..
defined in this Agreement have the meanings assigned to them in this Agreement, and the
use of any gender herein shall be deemed to include the other genders;
(ii) all references in this Agreement to designated Sections,
Subsections, Paragraphs, Articles, Exhibits, Schedules and other subdivisions or addenda
without reference to a document are to the designated sections, subsections, paragraphs
and articles and all other subdivisions of and exhibits, schedules and all other addenda to
this Agreement, unless otherwise specified;
(iii) a reference to a Subsection without further reference to a Section is
a reference to such Subsection as contained in the same Section in which the reference
appears, and this rule shall apply to Paragraphs and other subdivisions;
(iv) the terms "includes" or "including" shall mean without limitation
by reason of enumeration;
(v) the words "herein", "hereof', "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular provision.
Section 2. Intentionally Omitted.
Section 3. Representations and Warranties.
(a) Mervyn's Loan Agent hereby represents and warrants as follows:
(i) Mervyn's Loan Agent is duly organized and is validly existing
under the laws of the jurisdiction under which it was organized with full power to
31190866.DOC
- 7-
execute, deliver, and perform this Agreement and consummate the transactions
contemplated hereby on behalf of itself and on behalf of the Mervyn's Loan Parties.
(ii) All actions necessary to authorize the execution, delivery, and
performance of this Agreement on behalf of Mervyn's Loan Agent (on behalf of itself
and on behalf of the Mervyn's Loan Parties) have been duly taken, and all such actions
continue in full force and effect as of the date hereof.
(iii) Mervyn's Loan Agent has duly executed and delivered this
Agreement and this Agreement constitutes the legal, valid, and binding agreement of
Mervyn's Loan Agent enforceable against Mervyn's Loan Agent (on behalf of itself and
on behalf of the Mervyn's Loan Parties) in accordance with its terms subject to (x)
applicable bankruptcy, reorganization, insolvency and moratorium laws, and (y) general
principles of equity which may apply regardless of whether a proceeding is brought in
law or in equity.
(b) Mortgage Lender hereby represents and warrants as follows:
(i) Each Person constituting Mortgage Lender is duly organized and is
validly existing under the laws of the jurisdiction under which it was organized with full
poweiio.execuie;aarver;a.naiJertoiillihlsXiiieementa.nac;:;tisiimmaieihetiansaciloiis
contemplated hereby.
(ii) All actions necessary to authorize the execution, delivery, and
performance of this Agreement on behalf of Mortgage Lender have been duly taken, and
all such actions continue in full force and effect as of the date hereof.
(iii) Each Person constituting Mortgage Lender has duly executed and
delivered this Agreement and this Agreement constitutes the legal, valid, and binding
agreement of Mortgage Lender enforceable against Mortgage Lender in accordance with
its terms subject to (x) applicable bankruptcy, reorganization, insolvency and moratorium
laws and (y) general principles of equity which may apply regardless of whether a
proceeding is brought in Jaw or in equity.
Section 4. Certain Agreements of Mervyn's Loan Agent.
(a) Mervyn's Loan Agent hereby confirms and agrees that it does not now
have, nor will it hereafter obtain at any time, any Lien upon any of the following (collectively,
the "Restricted Lease Property'') (unless the same has been deposited into a "Blocked Account"
or "Agent Payment Account" (as such terms are defined in the Mervyn's Loan Agreement): (i)
Mervyn's interest in any Restricted Lease, (ii) any Restricted Lease Proceeds, (iii) any Restricted
Lease Proceeds Account (or any funds contained therein), (iv) any Restricted Lease Fixtures or
(v) any rights of the purchaser under the Equity Purchase Agreement (including rights to receive
moneys, rights of indemnification and claims for damages, and rights to exercise remedies and
require performance thereunder) to the extent relating solely to the Restricted Lease Property
described in clauses (i) and (ii) above (and none of the foregoing shall constitute Mervyn's Loan
Collateral or be applied by Mervyn's Loan Agent to any portion of the obligations owing under
the Mervyn's Loan Documents, whether or not an Event of Default exists thereunder). Without
3/!90866.DOC
- 8 -
limiting the foregoing, Mervyn's Loan Agent acknowledges and agrees that in the event that any
of Mortgage Lender, Property Borrower or any parent, subsidiary or affiliate of Property
Borrower or of Mervyn's, is deemed (by a bankruptcy court havingjurisdiction over such
Proceeding) to be a creditor of Mervyn's in any Proceeding, then the provisions contained in this
Section 4 shall govern the rights of the parties hereto with respect to the Restricted Lease
Property during the pendency of such Proceeding (unless otherwise determined by a bankruptcy
conrt order issued in connection with such Proceeding).
(b) It is the intention of the parties hereto that, as between Mortgage Lender
and Mervyn's Loan Agent, Mortgage Lender's and Mervyn's Loan Agent's respective rights in
and to the Restricted Lease Property shall be the same as would have been the case had, on the
date hereof: (i) MerVyn's conveyed its interest in the Restricted Leases to Property Borrower and
Property Borrower subleased back to Mervyn's the premises demised thereunder for an annual
rent equal to the Monthly Restricted Lease Dividend and otherwise on a "triple net" basis (the
"Sublease"), (ii) Property Borrower had immediately granted to Mortgage Lender a perfected
first priority leasehold mortgage or deed of trust (as applicable) on the Restricted Leases and
Property Borrower's interest as lessor under the Sublease and the rent payable thereunder, (iii)
Mervyn's Loan Lenders were not a creditor of, nor had any lien on or rights to, the Property
Borrower or any of its assets, including the Restricted Leases, and (iv) Mervyn's granted to
.. Mervyn'stoan t<etfdets ill5etft:ctedfitsrpriofitY1lenon theMefV)iii's.ToaiiCoiiiiteralIoca!edin
the premises demised under the Sublease. The fact that one or more general unsecured creditors
of Mervyn's may become entitled to assert rights against the Restricted Lease Property shall not
alter or affect the agreements of Mervyn's Loan Agent hereunder (unless otherwise determined
by a bankruptcy court order issued in connection with such Proceeding).
(c) Mervyn's Loan Agent hereby agrees that, subject to Section 9 below,
notwithstanding anything to the contrary contained in the Mervyn's Loan Documents, and
whether or not an Event of Default exists under the Mervyn's Loan Documents, and
notwithstanding the pendency of any Proceeding (except to the extent Mervyn's Loan Agent
must act otherwise pursuant to an order or decree of any court or other governmental authority)
in which Mervyn's is a debtor:
(i) Subject to the Total Rent Cap Limitation, Mervyn's Loan Agent
shall not prohibit or seek to prevent Restricted Lease Proceeds from being deposited into
the Restricted Lease Proceeds Account or any other account established or designated by
Mervyn's or Mortgage Lender (and Mervyn's Loan Agent agrees that no such account
shall be subject to any Lien in favor of Mervyn's Loan Lenders) in accordance with
Sections 5.2(d) and 6.3(a)(iii) of the Mervyn's Loan Agreement (as in effect on the date
hereof);
(ii) Mervyn's Loan Agent shall not require any Restricted Lease
Proceeds to be deposited into any "Blocked Account" or "Agent Payment Account" (as
such terms are defined in the Mervyn's Loan Agreement) or any other account controlled
by Mervyn's Loan Agent or in which Mervyn's Loan Agent has a security interest, and
Mervyn's Loan Lenders shall have no rights whatsoever with respect to any Restricted
Lease Proceeds (and Mervyn's Loan Agent shall not object to all such Restricted Lease
Proceeds being distributed to Equity Holder); and
3/190866.DOC
-9-
(iii) Mervyn's Loan Agent shall not prohibit or seek to prevent
Mervyn's from declaring and distributing Monthly Restricted Lease Dividends from
legally available funds therefor (except to the extent that the same is prohibited by
applicable law), and Mervyn's Loan Agent shall not take any action to prohibit or prevent
such distributions; provided, however, to the extent that Mervyn's is required to borrow
funds under the Mervyn's Loan Agreement in order to enable it to declare and pay such
Monthly Restricted Lease Dividends, then such borrowing(s) shall be subject to the
conditions set forth in the Mervyn's Loan Agreement with respect to all other borrowings
thereunder.
(d) Mervyn's Loan Agent hereby acknowledges that Mervyn's shall have the
unrestricted right (whether or not an Event of Default has occurred under the Mervyn's Loan
Documents)to assign its rights under the Restricted Leases to Property Borrower or its
subsidiary, subject only to the following conditions: (i) Mervyn's Loan Agent shall have
received not less than ten (1 0) Business Days prior written notice of such assignment, which
notice shall set forth in reasonable detail satisfactory to Mervyn's Loan Agent, the Restricted
Lease to be assigned, and to which Unitary Lease it shall be subject and such other information
with respect thereto as Mervyn's Loan Agent may request, (ii) Mervyn's Loan Agent shall have
received a true, correct and complete copy of the assignment agreement between Mervyn's and a
Property.Borrower{or itssubsidiary}(as.applicable). and.a copy .. of.thearnendment.to ..the ..... .
applicable Unitary Lease to include such Restricted Lease, (iii) the annual Basic Rent to be paid
by Borrower under the Unitary Leases as provided for in Section 3.01 of the Unitary Leases (as
in effect on the date hereof) and the annual amount of the Monthly Restricted Lease Dividend
does not exceed $105,000,000.00, which amount maybe adjusted (upward or downward) based
upon required adjustments to the amount of Basic Rent to be paid by Borrower under the Unitary
Leases as provided for in Section 3.01 of the Unitary Leases (as in effect on the date hereof);
except that such cap on annual rental payment shall be permanently reduced when a leased site is
removed from the Unitary Leases by an amount equal to the aggregate first year's fixed rent
payable by Borrower to a new third-party landlord with respect to such site.
(e) Mervyn's Loan Agent hereby confirms and agrees that it does not now
have, nor will it hereafter obtain at any time, any Lien upon any direct or indirect ownership
interest in Mervyn's.
(f) Mortgage Lender hereby confirms and agrees that it does not now have
nor will it hereafter obtain at any time (so long as the Mervyn's Loan is outstanding), any Lien
upon any of the Mervyn's Loan Collateral.
Section 5. Access Agreement.
(a) In the event that Mortgage Lender shall acquire possession or control of
any or all of the Premises, including as a result of an Enforcement Action following an Event of
Default under the Mortgage Loan, and Mervyn's Loan Agent is or thereafter becomes entitled to
possession of the Mervyn's Loan Collateral, Mortgage Lender agrees that (i) Mortgage Lender
will not hinder, delay or otherwise prevent Mervyn's Loan Agent from taking any and all action
to the extent permitted under applicable law and any Property Agreement to which the applicable
Premises is subject (except to the extent that the applicable provisions in such Property
3!!90866.DOC
- 10-
Agreement are modified by a court order issued by a bankruptcy court having jurisdiction in a
Proceeding in which Mervyn's is a debtor), which Mervyn's Loan Agent deems necessary to
enforce its security interests rind liens on the Mervyn's Loan Collateral located at the Premises
and to realize thereon, (ii) Mervyn's Loan Agent (or its agents, employees or representatives,
including any liquidator retained by Mervyn's Loan Agent) may, at its option, upon not less than
five (5) days prior written notice to Mortgage Lender (or such shorter period as may be required
if in the good faith determination of Mervyn's Loan Agent it is necessary to act sooner to
preserve the Mervyn's Loan Collateral located at the Premises, its value or the rights of
Mervyn's Loan Agent therein), enter and use the subject Premises for the purpose of
repossessing, removing, selling or otherwise dealing with the Mervyn's Loan Collateral located
at the Premises, such right to include, subject to the limitations set forth in subsection (e) below,
the right to conduct one or more going out of business sales, final liquidation sales or similar
sales.
(b) The license granted to Mervyn's Loan Agent pursuant to Section S(a)(ii)
above shall be irrevocable and shall continue until the earliest to occur of (i) one hundred twenty
(120) days from the date that Mervyn's Loan Agent enters the Premises, (ii) one hundred twenty
(120) days from the date Mortgage Lender delivers notice to Mervyn's Loan Agent of its
commencement of an Enforcement Action, as set forth below, or (iii) the date on Which the
subjecfPfemisesis fransfeif&rro;n!Urd patty(iliiaffitiatedWithMortgageLendet)subsequenno
the commencement of the subject Enforcement Action taken by Mortgage Lender with respect to
such Premises; provided, however, in the event Mortgage Lender or its affiliates first take title to
the subject Premises in connection with such Enforcement Action, and subsequently enters into
an agreement with a third party to convey such Premises to such third party, then Mortgage
Lender agrees that the occupancy period afforded to Mervyn's Loan Agent hereunder shall
continue for the greater of(x) forty five (45) days from the date that Mortgage Lender notifies
Mervyn's Loan Agent that it has entered into such agreement or (y) the date which is five (5)
days before the date of actual transfer of the applicable Premises to such third party.
Notwithstanding anything to the contrary contained herein, the time periods set forth herein shall
be tolled during the pendency of any Proceeding of Mervyn's or Property Borrower or other
proceedings pursuant to which Mervyn's Loan Agent is effectively stayed from enforcing its
rights against the Mervyn's Loan Collateral (and is thus precluded from entering onto the
Premises to exercise its rights granted under this Section 5).
(c) For each day that Mervyn's Loan Agent occupies the Premises pursuant to
the rights granted under this Section 5, Mervyn's Loan Agent shall pay to Mortgage Lender an
occupancy fee equal to the "Lender Allocated Mervyn's Basic Rent" (as such term is defined in
the Mortgage Loan Agreement), together with any additional rent payable thereunder, with
respect to such occupied Premises, prorated on a per diem basis to be determined on a thirty (30)
day month, without thereby assuming the Unitary Lease or incurring any other obligations of
Property Borrower.
(d) All physical damage to the Premises caused by the removal of the
Mervyn's Loan Collateral shall be promptly repaired by Mervyn's Loan Agent at its sole
expense, failing which Mortgage Lender may repair such damage and Mervyn's Loan Agent
shall promptly reimburse Mortgage Lender for the same.
3/ /90866.DOC
-II -
(e) In the event Mervyn's Loan Agent enters the Premises pursuant to the
rights granted under this Section 5, Mervyn's Loan Agent shall be subject to the terms of the
Unitary Lease, and if applicable, any Property Agreement, governing the use ofthe subject
Premises (except to the extent ):hat the applicable provisions in such Property Agreement are
modified by a court order issued by a bankruptcy <;ourt having jurisdiction in il Proceeding in
which Mervyn's is a debtor).
(f) In the event Mervyn's Loan Agent enters the Premises pursuant to the
rights granted under this Section 5, Mervyn's Loan Agent agrees to indemnify, hold hannless
and defend Mortgage Lender from and against any and all claims, damages, losses, liabilities and
expenses (including reasonable attorneys' fees) suffered or incurred by Mortgage Lender as a
result of any third party claims arising from (i) any actions taken by or omissions of Mervyn's
Loan Agent, or its agents, employees, contractors or representatives with respect to the subject
Premises during its occupancy of the subject Premises, or (ii) any action or occurrence on or in
respect of the subject Premises during such period of occupancy, in each case, to the extent not
caused by or resulting from the acts or omissions of Mortgage Lender. In no event shall
Mervyn's Loan Agent have any liability under this Section S(f) or otherwise as a result of any
condition on or with respect to the subject Premises existing prior to the date of Mervyn's Loan
Agent's exercise of its rights of access under this Section 5 and Mervyn's Loan Agent shall have
,no duty.or-liabilit)'to maintain.the subject,Premises.in.a.oonditiouormanner .better ...than which. it
was maintained prior to the access and/or nse thereof by Mervyn's Loan Agent.
(g) The parties hereto expressly acknowledge that the provisions contained in
Section 4 above and the provisions contained in this Section 5 are intended to be distinct and
apart, and the provisions set forth in Section 4 above are not intended in any way to limit or
restrict the rights granted to Mervyn's Loan Agent pursuant to this Section 5.
(h) The parties hereto expressly acknowledge and agree that, notwithstanding
anything to the contrary contained in any other Landlord Agreement (defined below), in the
event that Mortgage Lender acquires possession or control of any or all of the Premises, the
provisions contained in Section 5 shall govern, and Mortgage Lender shall not be bound by the
provisions of any such Landlord Agreement. As used herein, "Landlord Agreement" means any
landlord agreement executed by Property Borrower or any other landlord for the benefit of
Mervyn's Loan Agent, which grants a license to Mervyn's Loan Agent to enter onto the
Premises for the purposes set forth in this Section 5.
Section 6. Collateral Assignment of Equity Purchase Agreement. Prior to the
execution and delivery of this Agreement, (i) Equity Holder has assigned all of its right, title and
interest in and to the Equity Purchase Agreement to Mervyn's, and (ii} Mervyn's has assigned
such rights, in so far as they relate exclusively to the Premises, to Property Borrower. In
connection with the Mervyn's Loan, Mervyn's has executed a Collateral Assignment of
Acquisition Agreements (the "Meryyn's Collateral Assignment"), pursuant to which Mervyn's
has collaterally assigned to Mervyn's Agent its rights under the Equity Purchase Agreement, in
so far as they relate to the Mervyn's Loan Collater-al, and has granted to Mervyn's Loan Agent a
security interest therein. In connection with the Mortgage Loan, Property Borrower has executed
an Assignment of Agreements, Licenses, Permits and Contracts (the "Mortgage Loan Collateral
Assignment"), pursuant to which Property Borrower has collaterally assigned to Mortgage
31 !90866.DOC
- 12 -
Lender its rights under the Equity Purchase Agreement (as assigned from Mervyo's to Property
Borrower with respect to the Premises) and has granted to Mortgage Lender a security interest
therein. The parties hereto acknowledge and agree that (i) Mortgage Lender shall have no right
to proceed under the Mortgage Loan Collateral Assignment with respect to any property or rights
pertaining solely to the Mervyo's Loan Collateral and (ii) Mervyo's Loan Agent shall have no
right to proceed under the Mervyo's Collateral Assignment with respect to any property or rights
pertaining solely to either the Premises or the Restricted Lease Property so long as the Mortgage
Loan or Mezzanine Loan is outstanding.
Section 7. Dividend/Distribution. Mortgage Lender acknowledges that it has
reviewed and approved the provisions set forth in Section 9.11 and 9.12 of the Mervyo's Loan
Agreement relating to restrictions on Mervyo's payment of dividends and distributions (the
"Dividend/Distribution Provisions"). Mervyo's Loan Agent agrees that it will not amend or
waive any of the Dividend/Distribution Provisions. without first obtaining Mortgage Lender's
prior written consent, which may be withheld in Mortgage Lender's sole and absolute discretion.
Section 8. Insurance Policies.
(a) Restricted Lease Properties. The parties hereto acknowledge that
withrespecttothe Restricted Leases; Mervyo' s has obtained separate property insurance policies
covering (i) the improvements, Restricted Lease Fixtures and other real property demised under
the Restricted Leases, under which Mervyo' s is the named insured and the "loss payee"
thereunder, and (ii) the Mervyo's Loan Collateral constituting tangible personal property located
at the premises demised under the Restricted Leases, under which Mervyo's Loan Agent is
named as the "loss payee" thereunder. In no event shall Mortgage Lender be named as a "loss
payee" or "additional insured" under the insurance policies described in clause (ii) above, and in
no event shall Mervyo's Loan Agent be named as a "loss payee" or "additional insured" under
the insurance policies described in clause (i) above, except that to the extent that Mervyo's has
utilized the proceeds ofloans made under the Mervyo's Loan Agreement for the payment of or
reimbursement of restoration or replacement costs in respect of such Restricted Lease(s),
Mortgage Lender agrees that such insurance proceeds are not Restricted Lease Proceeds and any
payment under such insurance policy received or to be received by Mervyn's in respect thereof
may by directed byMervyo's to be made to Mervyo's Loan Agent.
(b) Unitary Lease Properties/Business Interruption Insurance. The
parties hereto acknowledge that (i) pursuant to Section 5.01(a) of the Unitary Lease, Mervyn's
has obtained property insurance for the Premises demised under the Unitary Lease, covering
among other things the improvements and real property demised under the Unitary Lease (the
"Section 5.0l(a) Insurance Policies") and (ii) pursuant to Section 5.01(b) of the Unitary Lease,
Mervyn's has obtained property insurance for the premises demised under the Unitary Lease,
covering among other things Mervyo's personal property and trade fixtures (the "Section 5.0l(b)
Insurance Policies"). In no event shall Mortgage Lender be named as a "loss payee" or
"additional insured" under the insurance policies described in clause (ii) above (except with
respect to the Bl Rental Insurance, as set forth below), and in no event shall Mervyn's Loan
Agent be named as a "loss payee" or "additional insured" mider the insurance policies described
in clause (i) above. Additionally, pursuant to Section 5.01(b) of the Unitary Lease, Mervyo's has
obtained business interruption insurance, with a portion thereof specifically allocable to the rent
3/190866.DOC
- \3 ~
payable under the Unitary Lease (such portion, as defined in the Unitary Lease, the "BI Rental
Insurance"). In no event shall Mervyn's Loan Agent be named as a "loss payee" with respect to
the BI Rental Insurance, and in no event will Mortgage Lender be named as a "loss payee" with
respect to the remainder of such business interruption insurance.
Section 9. No Liability.
(a) Mervyn's Loan Ageat and Mervyn's Loan Leaders shall not have
any liability whatsoever to the Mortgage Lender or any person claiming by, through or under
Mortgage Leader, as a result of Mervyn's Loan Agent's failure to honor a request by Mervyn's
for a loan, advance or other financial accommodation under the Mervyn's Loan Agreement
whether or not Mervyn's Loan Agent has knowledge that the denial of such request would result
in the inability of Mervyn's to (i) declare and pay any Restricted Lease Proceeds Dividend or
Monthly Restricted Lease Dividend or (ii) make a required payment under the Unitary Lease,
and without limiting the generality of the foregoing, Mortgage Lender agrees that Mervyn's
Loan Agent shall not have any liability for tortious interference with contractual relations or for
inducement to breach any contract of Mortgage Lender, Mezzanine Lender or Property Borrower
as a result thereof.
"'"' ''"' '".'.'W.'''""
(b) In no event will Mortgage Lender assert against Mervyn's Loan
Agent or any Mervyn's Loan Lender, as the assignee of, or secured party in respect of the
Mervyn's Loan Collateral or otherwise, any claim of breach, or other claim, counterclaim,
recoupment, or credit of any kind that Mortgage Lender, may have or claim to have against or
with respect to Mervyn's, or any Restricted Lease Property, Restricted Lease Proceeds Dividend
or Monthly Restricted Dividend, or for any amounts that may now or hereafter be owed by
Mervyn's for any reason to Mortgage Lender, Property Borrower, Equity Holder or any other
person, except in so far as Mervyn's Loan Agent has, in contravention of Section 4(c)(ii) hereof,
directed Mervyn's to deposit Restricted Lease Proceeds into the Blocked Account or the Agent
Payment Account
(c) Mortgage Lender acknowledges and agrees that this Agreement
shall not impose on Mervyn's Loan Agent any obligations in respect of (i) the disbursement
and/or payment directions ofloan proceeds under the Mervyn's Loan Agreement or (ii) the
disposition of proceeds of foreclosure on any Mervyn's Loan Collateral or any other proceeds of
assets of Mervyn's, whether as a result of prior perfected claims therein in favor of any other
person, any order or decree of any court or other governmental authority, any applicable Jaw or
otherwise.
Section 10. Notices. All notices, demands, requests, consents, approvals or other
communications required, permitted, or desired to be given hereunder shall be in writing sent by
facsimile (with answer back acknowledged) or by registered or certified mail, postage prepaid,
return receipt requested, or delivered by hand or reputable overnight conrier addressed to the
party to be so notified at its address hereinafter set forth, or to such other address as such party
may hereafter specify in accordance with the provisions of this Section 10. Any such notice,
demand, request, consent, approval or other commnnication shall be deemed to have been
received: (a) three (3) Business Days after the date mailed, (b) on the date of sending by
31190866.DOC
- !4-
facsimile if sent during business hours on a Business Day (otherwise on the next Business Day),
(c) on the date of delivery by hand if delivered during business hours on a Business Day
(otherwise on the next Business Day) and (d) on the next Business Day if sent by an overnight
commercial courier, in each case addressed to the parties as follows:
31190866.DOC
To Mortgage Lender:
Greenwich Capital Financial Products, Inc.
600 Steamboat Road
Greenwich, Connecticut 06830
Attention: Mortgage Loan Department
Telecopier (203) 618-2052
With a copy to:
Kaye Scholer LLP
425 Park Avenue
New York, New York I 0022
Attention: Stephen Gliatta, Esq.
Tetecop!er: (2I2J836:8689
and to
Goldman Sachs Commercial Mortgage Capital, L.P.
600 East Las Colinas Boulevard, Suite 400
Irving, Texas 75039
Attention: Michael Forbes
Telecopier: (972) 831-2268
With a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza, New York, New York I 0006
Attention: Michael Weinberger, Esq.
Telecopier: (212) 225-3999
and to
Citigroup Global Markets Realty Corp.
3 88 Greenwich Street
New York, New York 10013
Attention: Paul Staples
Telecopier: (212) 816-8307
With a copy to:
- 15-
Sidley Austin Brown & Wood, LLP,
787 i" A venue,
New York, New York 10019,
Attention: Brian Krisberg, Esq.
Te1ecopier: (212) 839-5599
To Mervyn's Loan Agent:
Wachovia Capital Finance Corporation
(Western)
251 South Lake Avenue, Suite 900
Pasadena, California 91101
Attention: Portfolio Manager
Telecopier: (626)-304-4949
With a copy to:
. . .. Otterbourg,.Steindler,Houston&Rosen, .. P.C ..
230 Park Avenue
3/190866.DOC
NY, NY 10169
Attention: Valerie S. Mason, Esq.
Telecopier: 212-682-6104
To Mezzanine Lender:
Greenwich Capital Financial Products, Inc.
600 Steamboat Road
Greenwich, Connecticut 06830
Attention: Mortgage Loan Department
Telecopier (203) 618-2052
With a copy to:
Kaye Scholer LLP
425 Park Avenue
New York, New York 10022
Attention: Stephen Gliatta, Esq.
Telecopier: (212) 836-8689
and to
Goldman Sachs Mortgage Company
85 Broad Street
New York, New York I 0004
- 16-
3/190866.DOC
Attention: Jeffrey Fastov
Telecopier: (212) 346-3594
With a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza, New York, New York 10006
Attention: Michael Weinberger, Esq.
Telecopier: (212) 225-3999
and to
Citigroup Global Markets Realty Corp.
388 Greenwich Street
New York, New York 10013
Attention: Paul Staples
Telecopier: (212) 816-8307
With a copy to:
Sidley Austin Brown & Wood, LLP,
787 7tll Avenue,
New York, New York 10019,
Attention: Brian Krisberg, Esq.
Telecopier: (212) 839-5599
- 17 -
Section 11. Estoppel.
(a) Mervyn's Loan Agent shall, within ten (10) days following a request from
Mortgage Lender (which request shall not be made more than twice in any twelve month period),
provide Mortgage Lender with a written statement stating whether Mervyn's Loan Agent has
delivered any notice of default or Event of Default under the Mervyn's Loan, which remains
uncured.
(b) Mortgage Lender shall, within ten (10) days following a request from
Mervyn's Loan Agent (which request shall not be made more than twice in any twelve month
period), provide Mervyn's Loan Agent with a written statement stating whether Mortgage
Lender has delivered any notice of default or Event of Default under the Mortgage Loan, which
remains uncured.
(c) The parties hereto expressly acknowledge and agree that the estoppels
delivered pursuant to the foregoing subsections (a) and (b) will not run to the benefit of Property
Borrower or Mervyn's, and neither Property Borrower nor Mervyn's shall have any right
whatsoever to rely on, benefit from or use for any purpose, any statement or certification
contained therein.
s;;c:Hofili: Notrees ofbef'alili:.Fiac.hoflV!ortgage Giiicter a.na M:eiVYil'sLoanA:ieiii
shall endeavor to give the other reasonably prompt notice of any Event of Default under the
Mortgage Loan or the Mervyn's Loan (as applicable); provided that the failure to give such
notice shall not constitute a default hereunder or a breach of such party's obligations hereunder.
Section 13. Further Assurances. So long as all or any portion of the Mortgage Loan
and the Mervyn's Loan remains unpaid, Mervyn's Loan Agent and Mortgage Lender will each
execute, acknowledge and deliver in recordable form and upon demand of the other, any other
instruments or agreements reasonably required in order to carry out the provisions of Section 4
or Section 5 of this Agreement.
Section 14. No Third Party Beneficiaries; No Modification; Merger Clause.
(a) Subject to subsection (b) below, the parties hereto do not intend the
benefits of this Agreement to inure to Property Borrower, Mervyn's or any other Person. This
Agreement may not be changed or terminated orally, but only by an agreement in writing signed
by the party against whom enforcement of any change is sought.
(b) Notwithstanding the provisions of subsection (a) above, the parties hereto
acknowledge and agree that the benefits, rights and remedies afforded to Mortgage Lender
hereunder, shall run to the benefit of Mezzanine Lender, and Mezzanine Lender is expressly
made a third party beneficiary of all such provisions, and hereby agrees to the provisions of
Section 9 and Section 15 hereof.
(c) This Agreement represents the entire agreement of the parties hereto with
respect to the subject matter hereof and supercedes all prior oral or written agreements, including
the lntercreditor Agreement dated as of September 2, 2004.
3//90866.DOC
- 18-
Section 15. Bankruptcy Financing.
(a) If Mervyn's shall become subject to a Proceeding under the Bankruptcy
Code and if Mervyn's Loan Agent desires to permit the use of cash collateral or to provide
financing to Mervyn's under either Section 363 or Section 364 of the Bankruptcy Code, no
objection will be raised by M01tgage Lender to any such fmancing or use of cash collateral on
the ground of a failure to provide "adequate protection" or any other grounds; provided,
however, that (i) the foregoing is expressly limited to Mervyn's Loan Collateral and proceeds
thereof and (ii) it is expressly understood and agreed that the foregoing is not intended in any
way to supercede, negate, waive or modify any other provisions of this Agreement, including the
provisions contained in Section 4 above.
(b) In addition to the agreements of Mortgage Lender set forth in Section
IS( a) above, if in com1ection with a Proceeding in which Mervyn's is or proposes to be a debtor,
Mervyn's receives a written funding proposal made in good faith from a lender (or group of
lenders) other than Mervyn's Loan Agent to provide DIP financing to Mervyn's under Section
364 of the Bankruptcy Code (as evidenced by a signed proposal from such lender or other similar
docUll1ent containing terms which are customarily set forth in a term sheet in respect of a
financing of this type), a copy of which has been provided to Mortgage Lender and Mervyn's
-LoanAg.ent(a'Cfhi.rd-PartyDIPFinancingProposal'');whichhasasitsobjecttheuseofcaslr
collateral consisting of Mervyn's Loan Collateral and Restricted Lease Property or post-petition
financing secured by a lien senior to or on parity with the liens of Mervyn's Loan Agent and
Mervyn's Lenders on the Mervyn's Loan Collateral and/or sec1.1red by the Restricted Lease
Property, then no objection will be raised by Mortgage Lender, and this Agreement shall not be
deemed violated by Mervyn's Loan Agent, ifMervyn's Loan Agent proposes to provide DIP
financing to Mervyn's, secured by a lien senior to or on parity with the liens of Mervyn's Loan
Agent and Mervyn's Lenders on the Mervyn's Loan Collateral and secured by the Restricted
Lease Property on terms substantially similar to or better than the Third Party DIP Proposal.
Section 16. Successors and Assigns. This Agreement shall bind all successors and
assigns of Mervyn's Loan Agent (and Mervyn's Loan Parties) and Mortgage Lender, and shall
inure to the benefit of all successors and assigns of Mortgage Lender and Mervyn's Loan Agent
(and Mervyn's Loan Lenders).
Section 17. Agreements by or for the benefit ofMervvn's Loan Agent. All
agreements, representations, warranties and covenants made by Mervyn's Loan Agent hereunder
shall be deemed to be made on behalfofitselfand on behalf of each Mervyn's Loan Parties.
Similarly, all agreements, representations, warranties and covenants made by Mortgage Lender
hereunder shall be deemed to be made for the benefit of Mervyn's Loan Agent and each
Mervyn's Loan Party.
Section 18. Counterpart Originals. This Agreement may be executed in counterpart
originals, each of which shall constitute an original, and all of which together shall constitute one
and the same agreement. An executed facsimile of this Agreement may be relied upon as
having, and shall be deemed to have, the same force and effect as an original.
31190866.DOC
- 19 -
Section 19. Legal Construction. In all respects, including, without limitation, matters
of construction and performance of this Agreement and the obligations arising hereunder, this
Agreement shall be governed by, and construed in accordance with, the internal laws of the State
ofNew York applicable to agreements intended to be wholly performed within the State of
New York.
Section 20. Captions. The captions in this Agreement are inserted only as a matter of
convenience and for reference, and are not and shall not be deemed to be a part hereof.
Section 21. Conflicts. In the event of any conflict, ambiguity or inconsistency
between the terms and conditions of this Agreement and the terms and conditions of any of the
Mortgage Loan Documents or the Mervyn's Loan Documents, the terms and conditions of this
Agreement shall control.
Section 22. Continuing Agreement. This Agreement is a continuing agreement and
shall remain in full force and effect until the later to occur of payment in full of the Mortgage
Loan or payment in full of the Mezzanine Loan; provided, however, that any rights or remedies
of either party hereto arising out of any breach of any provision hereof occurring prior to such
date of termination shall survive such termination.
section 2i .. se:Yerabilliv: Iil !he eveiitiliaianf J)iovlsioii otihis Agreeriieiifoi'i:he
application hereof to any party hereto shall, to any extent, be invalid or unenforceable under any
applicable statute, regulation, or rule oflaw, then such provision shall be deemed inoperative to
the extent that it may conflict therewith and shall be deemed modified to conform to such statute,
regulation or rule of law, and the remainder of this Agreement and the application of any such
invalid or unenforceable provisions to parties, jurisdictions or circumstances other than to whom
or to which it is held invalid or unenforceable, shall not be affected thereby nor shall same affect
the validity or enforceability of any other provision of this Agreement.
Section 24. Expenses. In the event any action or proceeding is brought by either party
hereto to enforce the provisions hereof, the non-prevailing party in such action or proceeding
shall pay upon demand to the prevailing party the amount of any and all reasonable expenses
(including the reasonable fees and expenses of such prevailing party's counsel), which the
prevailing party has incurred in cormection therewith.
Section 25. Injunction. Mortgage Lender and Mervyn's Loan Agent each
acknowledge (and waive any defense based on a claim) that monetary damages are not an
adequate remedy to redress a breach by the other hereunder and that a breach by either Mortgage
Lender or Mervyn's Loan Agent hereunder would cause irreparable harm to the other.
Accordingly, Mortgage Lender and Mervyn's Loan Agent agree that upon a breach of this
Agreement by the other, the remedies of injunction, declaratory judgment and specific
performance shall be available to such non-breaching party.
Section26. Venue. Any legal suit, action or proceeding against Mortgage Lender or
Mervyn's Loan Agent arising out of or relating to this Agreement shall be instituted in any
federal or state court in New York, and Mortgage Lender and Mervyn's Loan Agent waives any
objection which it may now or hereafter have to the laying of venue of any such suit, action or
3/190866.DOC
-20-
proceeding, and Senior Mortgage Lender and Senior Mervyn's Loan Agent hereby irrevocably
submits to the jurisdiction of any such court in any suit, action or proceeding.
Section 27.NO TRIAL BY JURY. EACH OF THE PARTIES HERETO, TO THE
FULLEST EXTENT THAT THEY MAY LAWFULLY DO SO, HEREBY WAIVES TRIAL
BY JURY IN ANY ACTION OR PROCEEDING BROUGHT BY ANY PARTY HERETO
WITH RESPECT TO THIS AGREEMENT OR THE MATTERS COVERED HEREBY.
Section 28. Meryyn's Refinancing. As between Mortgage Lender and Mervyn's,
Mervyn's agrees that it will not refinance or otherwise replace the Mervyn's Loan unless prior to
or simultaneously therewith Mervyn's causes the lender(s) under the new loan facility to execute
and deliver to Mortgage Lender an intercreditor agreement reasonably acceptable to Mortgage
Lender in form and substance, and providing to Mortgage Lender substantially the same rights
and protections as those provided to Mortgage Lender in Sections 4, 7 and 8 of this Agreement;
provided, however, that the provisions of this Section 28 shall not apply if at the time in question
Mervyn's no longer holds title to any Restricted Leases. Mervyn's Loan Agent shall have no
obligations or liabilities under or by reason of this Section 28, which is between Mervyn's and
Mortgage Lender only.
[NOFURTHERTEXTONTHIS PAGE]
31190866.DOC
~ 21
IN WITNESS WHEREOF, Mortgage Lender and Mervyn's Loan Agent have
executed this Agreement as of the date and year first set forth above.
3 /190866.DOC
MORTGAGE LENDER:
GREENWICH CAPITAL FINANCrAL
PRODUCTS, INC.,
a Delaware corporation
By:
John M. Burke
Managtno [)ir,rtor

,MOR1'GAGEGAP1TAL,L.P.,aDelaware.limited
partnership
By:
Name:
Title:
CITIGROUP GLOBAL MARKETS REALTY
CORP., a New York corporation
By:
Name:
Title:
INVENTORY AND RECEIVABLES LOAN
AGENT:
CAPITAL FINANCE
CORPORATION (WESTERN),
a California corporation
By:
Name:
Title:
IN WITNESS WHEREOF, Mortgage Lender and Mervyn's Loan Agent have
executed this Agreement as of the date and year first set forth above.
3 1190866.DOC
MORTGAGE LENDER:
GREENWICH CAPITAL FINANCIAL
PRODUCTS, INC.,
a Delaware corporation
By:
Name:
Title:
GOLDMAN SACHS COMMERCIAL
MORTGAGE CAPITAL, L.P., a Delaware limited
.. partnership.
By:
Name:
Title:
CITIGROUP GLOBAL MARKETS REALTY
CORP., a New York corporation
By:
Name:
Title:
INVENTORY AND RECEIVABLES LOAN
AGENT:
WACHOVIA CAPITAL FINANCE
CORPORATION (WESTERN),
a California corporation
By:
Name:
Title:
IN WITNESS WHEREOF, Mortgage Lender and Mervyn's Loan Agent have
executed this Agreement as of the date and year first set forth above.
31191!866.DOC
MORTGAGE LENDER;
GREENWICH CAPITAL FINANCIAL
PRODUCTS, INC.,
a Delaware corporation
By:
Name:
Title:
GOLDMAN SACHS COMMERCIAL
................
partnership
By:
Name:
Title:
CITIGROUP GLOBAL MARKETS REALTY
By:
Nam . VML S'ff'.f\.J
Title: 1'\V\\I0\2-:CIEi> P-Gb""\
INVENTORY AND RECEIVABLES LOAN
AGENT:
WACHOVIA CAPITAL FINANCE
CORPORATION (WESTERN),
a California corporation
By:
Name:
Title:
IN WITNESS WHEREOF, Mortgage Lender and Mervyn's Loan Agent have
executed this Agreement as of the date and year first set forth above.
31/90866.DOC
MORTGAGE LENDER:
GREENWICH CAPITAL FINANCIAL
PRODUCTS, INC.,
a Delaware corporation
By:
Name:
Title:
GOLDMAN SACHS COMMERCIAL
MORTGAGE CAPITAL; L.P.,anel[Wate limited
partnership
By:
Name:
Title:
CITIGROUP GLOBAL MARKETS REALTY
CORP., a New York corporation
By:
Name:
Title:
INVENTORY AND RECEIVABLES LOAN
AGENT:
WACHOVIA CAPITAL FINANCE
CORPORATION (WESTERN),

23
Name: Gary Whitaker
Title: Director
AS TO SECTION 28:
31190866.DOC - 23 -
RED3/197939 _Y/.RTF: OR/3//90866]/9.DOC: REV31190866_V24.DOC -/2121/05
Mezzanine Lender hereby acknowledges its consent to the terms of this Agreement and, without
limiting the foregoing, agrees to the provisions of Sections 9, 14 and 15 of this Agreement:
By:
John M. Burke
Managing Director
GOLDMAN SACHS MORTGAGE COMPANY, a New York limited partnership
By: Goldman Sachs Real Estate Funding Corp., its general partner
By:
Name:
Title:
CITIGROUP GLOBAL MARKETS REALTY CORP., A New York corporation
By:
Name:
Title:
3 /190866.DOC
Mezzanine Lender hereby acknowledges its consent to the terms of this Agreement and, without
limiting the foregoing, agrees to the provisions of Sections 9, 14 and 15 of this Agreement:
GREENWICH CAPITAL FINANCiAL PRODUCTS, INC., a Delaware corporation
By:
Name:
Title:
. GOLDMAN SACHS MORTGAGE COMPANY, a New York limited partnership
By: Goldman Sachs Real Estate Funding Corp., its general partner
By:
Name: ( Y l p J / ~ fiv,'<'l i) .
Title: (lllJ,i /11 "J '") 0 t r< ( h f
ciTIGROUP.GLOBALMARK:ETSREALTYCORP:;ANewYorkcorporation
By:
Name:
Title:
3/J90866.DOC
Mezzanine Lender hereby acknowledges its consent to the terms of this Agreement and, without
limiting the foregoing, agrees to the provisions ofSeetions 9, 14 and 15 of this Agreement:
GREENWICH CAPITAL FINANCIAL PRODUCTS, INC., a Delaware corporation
By:
Name:
Title:
GOLDMAN SACHS MORTGAGE COMPANY, a New York limited partnership
By: Goldman Sachs Real Estate Funding Corp., its general partner
By:
Name:
Title:
By:

Title: I'IG\0.._,\
31190866.DOC
Exhibit A
Store
# Street Address City State Zip
313 10000 Coors Byp Nw Albuquerque NM 87114
71 15602 E Whirwd Ln Whittier CA 90601
28 2701 Saviers Rd Oxnard CA 93033
298 285 N Moorpark Rd Thousand Oaks CA 91360
225 750 Sunland Park Dr Ste MO El Paso TX 79912
. ...... 4L, . . USS.W..Match.Ln ....
...
Stockton ..
""
CA ............ 95207 . ........
32 2010 El Camino Real Santa Clara CA 95050
67 1024 Layton Hills Mall Layton UT 84041
64 1154 Brickyard Rd Salt Lake City UT 84106
57 7537 W Thomas Rd Glendale AZ 85075
16 701 Sereno Dr Vallejo CA 94589
78 11051 Olson Dr Rancho Cordova CA 95670
166 14370 Bear Valley Rd Victorville CA 92392
157 3001 W Loop 250 N Midland TX 79705
69 4643 E Cactus Rd Phoenix AZ 85032
Stotc
# Street Address City State Zip
996 1015 Vintage Avenue Ontario CA 91761
143 4250 Cerrillos Rd Santa Fe NM 87507
282 7650 W Arrowhead Towne Ctr Glendale AZ 85308
83 504 W Huntington Dr Monrovia CA 91016
105 2424 Highway 6 & 50 Grand Junction co 81505
42 2801 Cochran St SimiVaUey CA 93065
10 :\89S CA. . .. .. 949.54
..
..
.
49 202DSt Marysville CA 95901
271 2020 South Expressway 83 Harlingen TX 78552
92 475 W32ND St Yuma AZ 85365
50 250 Walnut St Redwood City CA 94063
288 555 I St Chula Vista CA 91910
276 4500 Las Positas Rd Livermore CA 94550
294 10450 S State St Sandy UT 84070
81 749 E Calaveras Blvd Milpitas CA 95035
147 1800 MontebcUo Town Ctr MontebeUo CA 90640
Store
# Street Address City State Zip
47 233 S Mountain Ave Upland CA 91786
900 22301 Foothill Blvd Hayward CA 94541
997 48200 Fremont Blvd Fremont CA 94538
5 20730 Stevens Creek Blvd Cupertino CA 95014
30 10201 Valley View St Cypress CA 90630
40 18182 Irvine Blvd Tustin CA 92780
153 Fallbrook Mall West Hills CA 91303
..... . .
..... . ...
""'''
.. .. . . . . ..
!
....
I
37 4450 California Ave Bakersfield CA 93309
108 3520 Tyler St Riverside CA 92503
135 1799 Hawthorne Blvd Redondo Beach CA 90278
310 1316 W Sunset Rd Henderson NV 89014
206 3300 Broadway St Eureka CA 95501
8 1116 1st Ave Napa CA 94558
36 1855 41st Ave Capitola CA 95010
14 63 Serramonte Ctr Daly City CA 94015
4 1375 Blossom Hill Rd San Jose CA 95118
Store
# Street Address City State Zip
297 17601 NE Union Hill Rd Redmond WA 98052
126 150 EMainSt Alhambra CA 91801
188 450 Marion St NE Salem OR 97301
170 1730 Briargate Blvd Colorado Springs co 80920
200 250 1\' Telegraph Rd Pontiac MI 48341
197 16301 Ford Rd Dearborn MI 48126
134 8000 San Jacinto Mall
. ~ ~ X : ! : ? . ' : ' ?
TX 77521
. . ..
...

...

295
1201 Lake Woodlands Dr STE
Woodlands TX 77380
100
'
163 14002 E 21ST St Tulsa OK 74134
46 3450 College Ave San Diego CA 92115
172 1301 S Kenton Way Aurora co 80012
104 101 S Brand Blvd Glendale CA 91210
286 4300 E Alameda Ave Glendale co 80246
171 5483 W 88th Ave Westminster co 80031
202 35555 Warren Rd Westland MI 48185
91 7701 W Interstate 40 Amarillo TX 79121
Store
# Street Address City State Zip
122 1408 Baybrook Mall Friendswood TX 77546
117 20130 Highway 59 N Humble TX 77338
111 3663 W Camp Wisdom Rd Dallas TX 75237
227 235 East Foothills Pkwy Ft Collins co 80525
113 300 S Plano Rd Richardson TX 75081
132 831 N Central Expressway Plano TX 75075
156 4800 Texoma Pkwy Sherman TX 75090
....
. ............. .. .. .. .. .
.. . . ..
. ... .
186 5050 W Waco Dr Waco TX 76710
300 11200 Lakeline Mall Dr Austin TX 78613
223 6720 RingRd Portage MI 49024
182 4126 124TH Ave SE Bellevue WA 98006
112 1201 W Centerville Rd Garland TX 75041
221 1980 E Coounty Line RD Highlands Ranch co 80126
151 1401 W Esplande Ave Kenner LA 70065
207 3323 Diillion Dr Pueblo co 81008
209 3881 S Cooper St Arlington TX 76015
Store
# Street Address City State Zip
192 9389 Cortana PL Baton Rouge LA 70815
161 6612 S Memorial Dr Tulsa OK 74133
213 28498 Dequindre Rd Warren :rvrr 48092
215 40 Bellis Fair Pkwy Bellingham WA 98226
114 2625 Old Denton Rd Carrol ton TX 75007
116 8000 Research Blvd Austin TX 78758
259 4502 S Steele St, Ste 1200 Tacoma
WA .....
98409
.
I
'
229 32399 John R Rd Madison Heights MI 48071
60 8500 SE Sunnyside Rd Clackamas OR 97015
293 18085 NW Evergreen Pkwy Beaverton OR 97006
220 400 N Milwaukee St Boise ID 83704
311 16523 SW Freeway Sugarland TX 77478
164 3301 184TH Street SW Lynnwood WA 98037
110 3 7 51 Irving Mall Irving TX 75062
272 500 North Star Dr San Antonio TX 78216
169 1900 N Riverside Ave Medford OR 97501
Store
# Street Address City State Zip
201 13361 Hall Rd Utica MI 48315
173 10602 Melody Dr Northglenn co 80234
127 12990 Willowchase Dr Houston TX 77070
144 410 Airport Rd SE Albany OR 97321
218 3700 S Meridian Puyallup WA 98373
205 820 Citadel Drive E Colorado Springs co 80909
208 10315 Silverdale Way NW Silverdale WA 98383
. . .. .. . .. .....
. ,, ... ..
. ..
..
I
279 3285 S Linden Rd Flint MI 48507
247 4740 N Division St Spokane WA 99207
137 5201 S Hulen St Ft. Worth TX 76132
196 5858 S Padre Island Dr Corpus Christi TX 78412
152 150 Airport Rd Slidell LA 70460
2 303 Newpark Mall Newark CA 94560
59 10010 NE Halsey St Pordand OR 97220
115 4040 S Lamar Blvd Austin TX 78704
158 103 W Loop 281, Ste 1000 Longview TX 75605
Store
# Street Address City State Zip
190 1649 N Town East Blvd Mesquite TX 75150
139 1200 Green Oaks Rd Ft. Worth TX 76116
199 26100 Ingersol Dr Novi MI 48375
993 2455 South 3600 West Salt Lake City UT 84119
193 200 Los Cerritos Mall Cerritos CA 90703
174 8055 W Bowles Ave Littleton co 80123
160 3437 Masonic Dr Alexandria LA 71301
.
. ..
.. .. .
.
162 4103 S Yale Ave Tulsa OK 74135
148 2322 San Jacinto Blvd Denton TX 76205
121 1004 E Southmore Ave Pasadena TX 77502
180 197 Westbank Expressway Gretna LA 70053
986 1600 East Plano Parkway Plano TX 75074
159 4700 Miillhaven Rd Monroe LA 71203
Exhibit B
Store
# Street Address City State Zip
84 4510 N Oracle Rd Tucson AZ 85705
82 3000 Newgate Mall Odgen UT. 84405
1 54 5 Southland Mall Hayward CA 94545
74 601 E Uuniversity Pkwy Orem UT 84097
20 3231 S Mooney Blvd Visalia CA 93277
. .. 66 ... 3601 Constitution Blvd . W. Valley Gity UT I 84119
...
.
70 300 Stonewood St Downey Ci\ 90241
317 172 Lakewood Center Mall Lakewood CA 90712
125 1500 Del Monte Ctr Monterey CA 93940
17 6135 SanJuan Ave Citrus Heights CA 95610
38 4150 N Blackstone Ave Fresno CA 93726
109 5555 E Broadway Blvd Tucson AZ 85711
79 6001 Gateway Blvd, Ste 2 El Paso TX 79925
142 2310 SW Military Dr San Antonio TX 78224
45 800 E Southern Ave Tempe AZ 85282
Store
# Street Acldrc>$ City State Zip
44 1240 E Main St Mesa AZ 85203
12 2201 S Shore Ctr Alameda CA 94501
269 2675 Geary Blvd San Francisco CA 94118
13 950 W Hamilton Ave CampbeU CA 95008
23 350 Showers Dr Mountain View CA 94040
296 5300 San Dario, Ste 240C Laredo TX 78041
26 3204 Yorba Linda Blvd FuUerton
. .
CA
.94l.W ...
.. . .. . .
43 720N MainSt Corona CA 92880
267 24491 Alicia Pkwy Mission Viejo CA 92691
25 9811 Adams Ave Huntington Beach CA 92646
168 7777 Edinger Ave Huntington Beach CA 92647
39 500 N Euclid St Anaheim CA 92801
165 1242 E Gibson Rd Woodland CA 95776
3 2855 Story Rd San Jose CA 95127
131 17651 Colima Rd City of Industry CA 91748
107 3345 Sports Arena Blvd San Diego CA 92110
Store
# Street Address City State Zip
149 4101 E 42ND ST Odessa TX 79762
261 9109 E Indian Bend Rd Scottsdale AZ 85250
194 3960 Barranca Pkwy Irvine CA 92606
29 520 N McCaran Blvd Sparks NV 89431
150 6002 Slide Rd Lubbock TX 79414
123 22015 Hawthorne Blvd Torrance CA 90503
35 801 East Ave Chico CA 95926
.. ... " .
. ......... ....

i
72 1050 N Imperial Ave El Centro CA 92243
9 2801 McHenry Ave Modesto CA 95350
90 398 Hillsdale Mall San Mateo CA 94403
31 707 Contra Costa Blvd Pleasant Hill CA 94523
22 855 Broadway JY!illbrae CA 94030
167 8140 Mira Mesa Blvd San Diego CA 92126
24 300 Nottbridge Shopping Salinas CA 93906
7 7117 Regional St Dublin CA 94568
21 400 Merced Mall Merced CA 95348
Store
# Street Address City Stll!C Zip
248 8739 S Sepulveda Blvd Westchester CA 90045
102 205 Madonna Rd San Luis Obispo CA 93405
56 1869 E Camelback Rd Phoenix AZ 85016
52 6600 Menaul Blvd NE Albuquerque NM 87110
212 23000 Eureka Rd Taylor MI 48180
203 5780 W Saginaw Highway Lansing MI 48917
185 24235 Magic MountainPkwy Valencia CA. 91355
141 7900 N IH35 San Antonio TX 78218
146 5010 Northgate Mall San Rafael CA 94903
27 5505 Balboa Ave San Diego CA 92111
275 1100 Southcenter Mall Seattle WA 98188
129 651 Sleater Kinney Rd SE Lacey WA 98503
187 1402 SE Everett Mall Way Everett WA 98208
120 600 Memorial City Way Houston TX 77024
58 9400 SW Washington Sq Rd Portland OR 97223
198 29650 7 Mile Rd Livonia MI 48152
Stotl'
# Street Address City State Zip
287 50 S Main St, Ste 180 Salt Lake City UT 84144
204 1982 W Grand River Ave Okemos MI 48864
211 990 W Eisenhower Pkwy .Ann Arbor MI 48103
280 4090 E Court St Burton MI 48509
EXHffiiTC
Mortgage Loan Documents
1. Loan Agreement between Greenwich Capital Financial Products, Inc. ("Greenwich"),
Goldman Sachs Commercial Mortgage Capital, L.P. ("Goldman LP') and Citigroup Global
Markets Realty Corp., ("Citigroup") (collectively, "Senior Lender") and MDS Realty I, LLC
("MDS r), MDS Realty II, LLC ("MDS IF'), MDS Texas Realty I, LP ("Texas F') and
MDS Texas Realty II, LP ("Texas If") (collectively, "Senior Borrower");
2. $201,250,000 Promissory Note made by Senior Borrower in favor of Greenwich;
3. $201,250,000 Promissory Note made by Senior Borrower in favor of Goldman LP
("Goldman Note");
4. $172,500,000 Promissory Note made by Senior Borrower in favor of Citigroup ("Citigroup
Note");
5. Deeds of Trusts/Mortgages ([__j Properties);
6. Assignments of Leases and Rents ([__j Properties);
7. UCC Financing Statements ([__jCounty filings);
8. UCC Financing Statements ([__j Secretary of State filing);
9. Assignment of Agreements from Senior Borrower, MDS Realty III, LLC ("MDS IfF') and
MDS Realty IV, LLC ("MDS IV'') and Senior Lender;
10. Consent and Subordination of Manager executed by KLA/Mervyn's, L.L.C. ("Manager")
Senior Borrower, MDS III and MDS IV;
11. Consent and Subordination of Manager executed by Trammel Crow ("Trammel Manager")
Senior Borrower, MDS III and MDS IV;
12. Clearing Account Agreement among Bank One, Senior Borrower, MDS III, MDS IV and
Senior Lender and agreed to by Manager;
13. Deposit Account Agreement among Wachovia Bank, National Association, Senior Borrower,
MDS III, MDS IV and Senior Lender and agreed to by Manager;
14. Guaranty of Recourse Obligations made by Lubert-Adler Real Estate Fund IV, L.P., Lubert-
Adler Real Estate Parallel Fund IV, L.P. Lubert-Adler Capital Real Estate Fund IV, L.P., Sun
3/ /90866.DOC
Capital Securities Fund, LP ("Sun LP"), Sun Capital Securities Offshore Fund, Ltd. ("Sun
Ltd") and Cerberus Partners, L.P., (collectively, as "Guarantors") in favor of Senior Lender;
15. Mervyn's Letter regarding Properties from Mervyn's to Realcos;
16. Pledge and Security Agreement by MDS I;
17. Equity Interest Power in blank made by MDS I with its interest in MDS III;
18. Membership Certificate certifying MDS I as owner ofMDS III;
19. UCC Financing Statements to be filed with the Secretary of State of Delaware, naming MDS
I, as Debtor:
20. Acknowledgment of Pledge by MDS III;
21. Pledge and AgrsementbyMDS II;
22. Equity Interest Power in blank made by MDS II with its interest in MDS IV;
23. Membership Certificate certifying MDS II as owner ofMDS IV;
24. UCC Financing Statements to be filed with the Secretary of State of Delaware, naming MDS
II, as Debtor:
25. Acknowledgment of Pledge by MDS IV;
26. Guaranty of Payment made by MDS III and MDS IV in favor of Senior Lender;
27. Contribution Agreement made by and among Senior Borrowers for the benefit of Senior
Lender;
28. Side Letter made by Senior Lender and accepted by and agreed to by Senior Borrower
regarding Notional Rent;
3/ !90866.DOC
EXHI
31190866.DOC
EXH!BITD
Mervyn's Loan Documents
1. Loan and Security Agreement, dated September 2, 2004, by and among Mervyn's, Brands,
Mervyn's Loan Agent and Mervyn's Loan Lenders, as amended by
____________________________ .,
2. Pledge and Security Agreement, dated September 2, 2004, by and between Mervyn's and
Mervyn's Loan Agent with respect to the pledge of the membership interests of Mervyn's in
Brands;
3. Collateral Assigrnnent of Acquisition Agreements, dated September 2, 2004, by Mervyn's in
favor of Mervyn's Loan Agent and Mervyn's Loan Lenders with respect to the assigrnnent by
Mervyn's to Mervyn's Loan Agent of its rights under the Assignment of Certain Rights Under
Equity Purchase Agreement;
4, .Guarantee; datedSeptember2,2004, by Brands infavorofMervyn's Loan Agent;
5. Trademark Collateral Assigrnnent and Security Agreement, dated September 2, 2004, by and
between Brands and Mervyn's Loan Agent;
6. Patent Collateral Assignment and Security Agreement, dated September 2, 2004, by and
between Brands and Mervyn's Loan Agent;
7. Copyright Collateral Assignment and Security Agreement, dated September 2, 2004, by and
between Brands and Mervyn's Loan Agent; and
8. Deposit Account Control Agreement, dated September 2, 2004, by and among Mervyn's,
Mervyn's Loan Agent and Wachovia Bank, National Association.