<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Three D Departments, Inc.
(Exact name of registrant as specified in its charter)
Date of Report: August 10, 1998
---------------
Delaware 1-5967 06-0733200
- ------------------------- ------------------ ---------------------------
(State or other (Commission (IRS Employer
jurisdiction of incorporation) File Number) Identification (No.)
3535 Hyland Avenue, Suite 200 92626
- ---------------------------------------- -----------------
(Address of principal executive offices)
Registrant's telephone number, including area code 714 662-0818
------------
N/A
- --------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
Item 4. Other Events
------------
Item 3. BANKRUPTCY OR RECEIVERSHIP.
On July 30, 1998, Three D Departments, Inc. (the Company), a Delaware
corporation filed a voluntary petition for relief under Chapter 11, Title 11 of
the United States Code (the "Bankruptcy Code") with the United States Bankruptcy
Court for the Central District of California (the "Court"). Pursuant to Sections
1107 and 1108 of the Bankruptcy Code, the Company, as debtor and
debtor-in-possession, will continue to manage and operate its assets and
business in the ordinary course of business, pending the confirmation of the
plan of reorganization and subject to the supervision and orders of the Court.
By operating as debtor-in-possession under Chapter 11 of the Bankruptcy Code,
the existing directors and officers of the Company will continue to manage the
operations of the Company subject to the supervision and orders of the Court.
On July 30, 1998 the Company entered into a credit agreement (the
"Credit Agreement") with Foothill Capital Corporation (Foothill), pursuant to
which, among other things, Foothill has agreed to provide the Company with a
financing facility in an aggregate principal amount not to exceed $10 million
(the "Facility"). Advances under the Facility are subject to certain conditions,
including the execution of definitive loan documents in form and substance
acceptable to Foothill. The Court approved the Facility on an interim basis on
August 6, 1998, thus allowing the Company to borrow up to $1 million under the
Facility over and above the Company's existing liabilities under a prepetition
credit agreement that provided for loans to the Company in an aggregate
principal amount of $5 million. A final hearing on the full $10 million Facility
is scheduled for August 21, 1998.
<PAGE>
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) EXHIBITS:
99.1 $10,000,000 Post-petition Credit Agreement Commitment Letter
between Three D Departments, Inc. and Foothill Capital
Corporation, dated as of July 30, 1998.
99.2 Interim Order (I) Authorizing a Secured Post-Petition
Financing on a Super Priority Basis Pursuant to 11 U.S.C. ss.
363 and 364, (II) Granting of Adequate Protection Pursuant to
11 U.S.C. ss. 364 and (III) scheduling A Final Hearing
pursuant to Bankruptcy Rule 4001(C) approved on August 6,
1998.
99.5 Press release issued by Three D Departments, Inc., on July 30,
1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THREE D DEPARTMENTS, INC.
By: /s/ Steven R. Kerkstra
--------------------------------
Steven R. Kerkstra
Chief Financial Officer
Date: August 10, 1998
EXHIBIT 99.1 Post-petition Credit Agreement Commitment Letter
July 30, 1998
THREE D DEPARTMENTS, INC.
3535 Hyland Avenue
Costa Mesa, CA 92626
Attn.: Mr. Donald L. Abrams
Re: DEBTOR-IN-POSSESSION FINANCING
------------------------------
Dear Don,
In accordance with our recent discussions, FOOTHILL CAPITAL
CORPORATION ("Lender") is pleased to issue this financing commitment for
debtor-in-possession financing to THREE D DEPARTMENTS, INC. ("Borrower").
Subject to the satisfactory completion of each of the conditions contained
herein, the financing would be as follows:
1. REVOLVING LINE OF CREDIT (the "Line"):
--------------------------------------
a. MAXIMUM CREDIT LINE: $10,000,000.
b. REVOLVING INVENTORY LINE: Lender would extend credit to
Borrower under the Line up to the lesser of (i) the Maximum
Credit Line, and (ii) the Borrowing Base. For purposes of the
foregoing, the Borrowing Base shall mean:
(x) an amount equal to the lesser of
(1) 50% of the orderly liquidation value of
Borrower's owned and leased real property
that is subject to a first priority lien in
favor of Lender, and
(2) an amount equal to
(A) $2,500,000 for the period from
the Closing Date (as herein defined)
up to and including August 31, 1998,
(B) $2,357,000 for the period from
and after September 1, 1998 up to
and including September 30, 1998,
(C) $2,214,000 for the period from
and after October 1, 1998 up to and
including October 31, 1998,
<PAGE>
(D) $2,071,000 for the period from
and after November 1, 1998 up to and
including November 30, 1998, and
(E) $2,000,000 on and after December
1, 1998; PLUS
(y) the lesser of:
(1) 60% of the value of Borrower's
inventory, such value to be calculated at
the lower of cost or market after
subtracting the sum of
(A) as to inventory of Borrower in
existence on the Closing Date, a
general reserve in an amount equal
to
(i) $700,000 for the period
from and after the Closing
Date up to and including
August 31, 1998,
(ii) $500,000 for the
period from and after
September 1, 1998 up to and
including September 30,
1998,
(iii) $300,000 for the
period from and after
October 1, 1998 up to and
including October 31, 1998,
(iv) $100,000 for the
period from and after
November 1, 1998 up to and
including November 30,
1998, and
(v) zero, on and after
December 1, 1998, and
(B) as to inventory of Borrower
acquired after the Closing Date,
such reserves for mark-downs,
shrinkage, and other items affecting
the value of Borrower's inventory as
Foothill may require from time to
time in the good faith exercise of
its discretion, together with a
reserve for any delinquent monetary
obligations of Borrower with respect
to any parcel of real property that
is included in the calculation of
availability under clause (x)(1)
above, in each case, as determined
by Lender in the exercise of its
reasonable (from the perspective of
a secured lender) judgment; and
<PAGE>
(2) 85% of the so-called
"going-out-of-business" value of Borrower's
inventory as determined by a third party
appraiser acceptable to Lender; MINUS
(z) a $200,000 reserve relating to professional fees
and disbursements and other administrative fees that
are "Carve-Out Expenses" as defined below.
c. LETTER OF CREDIT FACILITY: Under the Line, Borrower would be
entitled to request that Lender issue letters of credit for
the account of Borrower ("L/Cs") or issue guarantees ("L/C
Guarantees") of payment with respect to letters of credit
issued by one or more issuing banks in an aggregate undrawn
amount not to exceed $1,000,000. The aggregate undrawn amount
of outstanding L/Cs and L/C Guarantees would be reserved, on a
dollar-for-dollar basis, against the credit availability
created under clause (b) above.
Lender understands that Borrower may not be permitted to utilize the
full amount of the Line until Borrower's motion to obtain credit has
been approved by the United States Bankruptcy Court (the "Bankruptcy
Court") following a final hearing on at least 15 days notice after
service of the motion to parties entitled to notice. In the interim,
Borrower may seek authority to obtain financing under the Line for such
amount as the Bankruptcy Court may approve, on an emergency basis, on
the terms and conditions of the Bankruptcy Court order required hereby.
Lender is willing to advance based on an appropriate interim order,
pending a final hearing and entry of a final order, so long as Lender
has the liens, priorities, and other protections contemplated herein,
and provided that the initial draw shall be at least sufficient to
repay in full the outstanding pre-petition obligations due Foothill.
2. INTEREST RATE:
--------------
The rate of interest charged with respect to all obligations would be
two percentage points (2.00%) above the reference rate publicly
announced by Norwest Bank Minnesota, N.A. Borrower would be charged a
letter of credit fee of two percent (2.0%) per annum times the undrawn
and unreimbursed amounts of L/Cs and L/C Guarantees. If L/C Guarantees
are used to induce a commercial bank to issue letters of credit,
Borrower also would be responsible for all related bank charges for the
underlying letter of credit. Interest and letter of credit fees would
be calculated on the basis of a three hundred sixty (360) day year and
actual days elapsed and would be payable monthly in arrears. In no
event would the rate of interest charged be less than eight (8.00%)
percent per annum.
<PAGE>
3. COLLECTION:
-----------
As a condition to the Closing Date, Borrower and Lender would establish
one or more depository accounts at financial institutions reasonably
acceptable to Lender. Borrower would direct all collections or other
proceeds of collateral to the depository accounts, to be applied to
reduce the balance of Borrower's loan account, which could then be
reborrowed subject to availability and satisfaction of applicable
conditions to borrowing. All collections received in such depository
accounts would be subject to a 2 business day clearance charge. The
terms and conditions of the agreements relative to such depository
accounts would need to be reasonably acceptable to Lender and would
need to provide Lender with dominion and control over any funds
deposited into such deposit accounts.
4. FEES AND EXPENSES:
------------------
a. COMMITMENT FEE: In consideration of Lender's issuance of this
commitment letter, Borrower shall pay to Lender a fee (the
"Commitment Fee") in the amount of $25,000. The Commitment Fee
shall be fully earned and non-refundable by Lender upon entry
by the Bankruptcy Court of its interim order approving initial
advances under the Line (the "Order Date") and payable on the
Closing Date. Borrower agrees that following its execution of
this letter it will present this letter to the Bankruptcy
Court for approval as soon as practicable.
b. FACILITY FEE: Borrower agrees to pay Lender the following
facility fees on the following dates (i) $25,000 on September
15, 1998, (ii) $25,000 on November 15, 1998, (iii) $25,000 on
January 15, 1999, and (iv) $25,000 on March 15, 1999;
PROVIDED, HOWEVER, that, if the credit facility contemplated
hereby is terminated and all of the obligations owed to Lender
are paid in full in cash, in each case prior to any of the
foregoing dates, then the facility fee due on each date
subsequent to the payoff date shall not become due or payable
and such amount shall not be included in the payoff amount
owed to Lender at the time of such repayment in full in cash.
c. SERVICING FEE: Borrower would be obligated to pay to Lender a
fee (the "Servicing Fee") of $1,250 per month for each month
of during which the credit facility remains outstanding or any
obligations remain unpaid to Lender thereunder.
d. FOOTHILL EXPENSES: Borrower agrees to reimburse Lender for all
of Lender's reasonable out-of-pocket costs and expenses
relating to this financing transaction, including, but not
limited to, filing and recording fees and attorneys fees and
expenses (collectively, "Foothill Expenses").
5. LOAN MATURITY AND PREPAYMENT:
-----------------------------
The loan would mature upon the earlier of (i) Borrower's emergence from
Chapter 11, (ii) conversion of the case into a Chapter 7, and (iii) 12
months after the Order Date. Borrower would have the right to terminate
the Line and prepay all of the obligations in full in cash at any time,
upon prior written notice, without penalty or premium.
<PAGE>
6. PURPOSE:
--------
The purpose of this financing would be to refinance certain
pre-petition debt owed to Lender, to provide for the ongoing working
capital needs of Borrower, and to fund the payment of certain fees and
expenses associated with the financing proposal herein.
7. FINANCIAL EXAMINATION AND APPRAISAL FEES:
-----------------------------------------
Borrower would be obligated to pay to Lender a fee of $650 per day per
examiner for financial audits and examinations and $1,500 per day per
appraiser for collateral appraisals, plus out-of-pocket expenses for
each such audit, examination, and appraisal performed by third persons
for Lender (provided that, so long as no default has occurred and is
continuing, Borrower's obligation with respect to fees in connection
with audit and examinations shall not exceed (a) $5,000 for Lender's
initial audit and examination, and (b) $2,500 for each audit and
examination performed thereafter (with a maximum of 4 audits per
annum), Borrower's obligation with respect to fees in connection with
appraisals of Borrower's inventory shall not exceed (i) $5,000 for
Lender's initial such appraisal, and (ii) $2,500 for each such
appraisal performed thereafter (with a maximum of 6 such appraisals per
annum), and Borrower's obligation with respect to fees in connection
with appraisals of Borrower's real property shall not arise unless
there are amounts outstanding under the Line as of September 15, 1998
and, in such case, shall not exceed (y) $2,500 for Lender's appraisal
of Borrower's leasehold and owned building located in Phoenix, Arizona,
and (z) $1,000 for each appraisal of the 15 store leaseholds Borrower
intends to retain and $1,000 for each appraisal of any of the 8 stores
Borrower intends to close and reject that are not so closed and
rejected by November 30, 1998.
8. COLLATERAL AND PRIORITY:
------------------------
All obligations of the Borrower to Lender shall be: (a) entitled to
superpriority administrative expense claim status pursuant to 11 U.S.C.
section 364(c)(1), subject only to (i) in the event that an Event of
Default has occurred and is continuing, the payment of allowed
professional fees and disbursements incurred by Borrower and its
Committee of Unsecured Creditors, in an aggregate amount not in excess
of $200,000 (the "Expense Cap"); and (ii) the payment of fees pursuant
to 28 U.S.C. section 1930 (collectively, the "Carve-Out Expenses"); and
(b) secured pursuant to 11 U.S.C. sections 364(c)(2), (c)(3), and
(d)(1) by a first priority (subject only to permitted priority liens as
agreed to by Lender in its sole and absolute discretion) security
interest in and lien on all now owned or hereafter acquired assets and
<PAGE>
property of the estate (as defined in the Bankruptcy Code), real and
personal, of Borrower, including inventory, accounts, chattel paper,
contract rights, documents, equipment, fixtures, general intangibles
(including, without limitation, all copyrights, deposit accounts,
licensing agreements, patents, trademarks, and trade names),
instruments, real property (including fee and leasehold estates),
securities, avoiding power causes of action and recoveries and the
proceeds of all of the foregoing, wherever located. The foregoing is
collectively referred to as the "Collateral." Borrower shall be
permitted to pay, as or after the same may become due and payable: (i)
administrative expenses of the kind specified in 11 U.S.C. section
503(b) incurred in the ordinary course of business, including any
previously deferred administrative expenses permitted to be paid as a
permitted purpose referenced above (the "Ordinary Administrative
Expense Exception"); (ii) compensation and reimbursement of expenses to
professionals allowed and payable under 11 U.S.C. sections 330 and 331;
and (iii) amounts payable to the United States Trustee pursuant to 28
U.S.C. section 1930(a)(6); and, in the absence of the occurrence and
continuance of an event of default, the payment of such compensation
and reimbursement of expenses to professionals shall not reduce the
Expense Cap; and provided further that the Ordinary Administrative
Expense Exception shall not be paid after the occurrence and
continuance of an event of default.
9. CERTAIN SPECIFIC COVENANTS:
---------------------------
Borrower would covenant to (a) achieve 85% of projected merchandise
sales and gross margin levels, as measured on a cumulative basis, such
covenant to be tested on a monthly basis commencing on October 1, 1998,
(b) achieve 85% of projected inventory levels (on a cost basis)
calculated on a monthly basis beginning with the month ended October,
1998, and (c) receive, by no later than December 31, 1998, net cash
proceeds, or binding contracts for sale, or any combination thereof,
that will produce not less than $850,000 net on account of the sale of
real property leaseholds relative to the eight stores of Borrower that
are to be discontinued and the 7,000 square feet of space at the
Woodland Hills store that Borrower intends to sublease.
10. CONDITIONS PRECEDENT:
---------------------
The following would be conditions precedent to Lender's obligation to
extend credit to Borrower:
a. Borrower would need to be a corporation in good standing in
the jurisdiction of its incorporation and qualified to do
business in any other jurisdiction where such qualification is
necessary or appropriate to its business.
b. The Line would need to be made pursuant to, and subject to,
the terms of loan agreements, notes, and other financing
documents (the "Loan Documents") executed and delivered by
Borrower on or prior to the Closing Date. The Loan Documents
would contain such representations, warranties, and covenants
(affirmative and negative, in additional to those specifically
described in paragraph 9 above) as are customary, in Lender's
experience, for a transaction of this type.
<PAGE>
c. Borrower would need to have executed and/or delivered, or
caused to be delivered, to Lender prior to the Closing Date,
such security agreements, financing statements, fixture
filings, deeds of trust, mortgages, and chattel mortgages,
title insurance policies and endorsements, depository account
agreements, copies of leases, landlord waivers, bailee
agreements, and other agreements affecting the Collateral,
insurance certificates and endorsements, and other
documentation relative to the liens and security interest in
the Collateral as Lender reasonably may request (the "Security
Documents"). Each of the Loan Documents and the Security
Documents (the "Documents") would need to be in form and
substance reasonably satisfactory to Lender and its counsel.
To the extent that it is not practicable to execute and
deliver certain of the collateral documentation prior to
closing, such as financing statements, fixture filings, deeds
of trust, mortgages, or title insurance policies, Lender will
defer satisfaction of such conditions for a reasonable period
of time post-closing so long as a satisfactory Bankruptcy
Court order is entered granting Lender a lien on the
Collateral, and so long as Borrower has executed and delivered
one or more security agreements with respect to the personal
property Collateral.
d. No material adverse change would have occurred in the value of
the Collateral.
e. Lender would need to have received such opinions of Borrower's
counsel and such advice of Lender's local counsel as Lender
would reasonably require, which opinions and/or advice would
need to be in form and substance reasonably satisfactory to
Lender and its counsel. Such opinions of Borrower's counsel
would include, but not be limited to, opinions as to
Borrower's corporate existence, Borrower's power and authority
to enter into the Documents, the validity, binding effect, and
enforceability of each of the Documents.
f. The Bankruptcy Court shall have entered its order, in form and
substance satisfactory to Lender, in its sole discretion
reasonably exercised, which order shall contain provisions
granting to Lender, and authorizing Borrower to grant to
Lender, the collateral, liens, lien priorities, and
administrative superpriority provided for in Section 8 of this
letter, which administrative superpriority shall be subject
only to the Carve-Out Expenses to the extent provided in
Section 8 of this letter. Without limiting the generality of
the foregoing, the order of the Bankruptcy Court shall provide
(1) that Borrower shall have no right, whether at the maturity
of the Line or, earlier, if the Line is terminated because of
an Event of Default, to use or seek to use Lender's cash
collateral and (2) that such provision of the order will not
be contravened by another order of the Court without the
written consent of Lender.
<PAGE>
11. BROKERS' FEES:
--------------
Any brokerage commission or finder's fees payable in connection with
the financing arrangement outlined herein would be payable by Borrower
and not by Lender. Borrower represents and warrants to Lender that it
has not incurred any obligation for a brokerage commission or a
finder's fee. Borrower agrees to indemnify, defend, and hold Lender
harmless from and against any claim of any broker or finder arising out
of the financing arrangement outlined herein.
12. CLOSING DATE:
-------------
If the initial advance with respect to the financing arrangement
contemplated by this letter is not consummated on or before August 7,
1998 then, without any requirement of notice or other formality, no
party hereto would have any obligation to pursue the financing
arrangement outlined in this letter; PROVIDED, HOWEVER, that prior
thereto Borrower and Lender agree to use their respective reasonable
best efforts to cause the financing to be consummated on or before such
date. The date on which the first advance (or L/C or L/C Guarantee) is
made under the Line would be deemed the "Closing Date." If and only if
the Closing Date occurs, Lender has agreed, to first become effective
on such Closing Date and not before, to waive any and all claims that
it has to charge an early termination fee under its existing credit
facility with Borrower (which amounts to $360,000 as of July 28, 1998)
or to impose an early termination fee under the credit facility to be
provided hereunder.
13. COMPLETE AGREEMENT; NO ORAL MODIFICATIONS.
------------------------------------------
This commitment letter embodies the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes
all prior proposals, negotiations, or agreements whether written or
oral, relating to the subject matter hereof. This letter may not be
modified, amended, supplemented, or otherwise changed, except by a
document in writing signed by the parties hereto.
14. GOVERNING LAW; JURY WAIVER.
---------------------------
THIS LETTER SHALL BE DEEMED TO HAVE BEEN MADE IN THE STATE OF
CALIFORNIA AND THE VALIDITY OF THIS LETTER, AND THE CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES
HERETO RELATING TO ANY AND ALL CLAIMS OR CAUSES OF ACTION ARISING IN
CONNECTION HEREWITH OR RELATED HERETO SHALL BE DETERMINED UNDER,
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA. BORROWER AND LENDER HEREBY EXPRESSLY WAIVE ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION, CAUSE OF ACTION, OR
<PAGE>
PROCEEDING ARISING UNDER OR RESPECT TO THIS LETTER, OR IN ANY WAY
RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO WITH
RESPECT TO THIS LETTER, OR THE TRANSACTIONS CONTEMPLATED HEREBY, IN
EACH CASE WHETHER NOW OR HEREAFTER ARISING, IRRESPECTIVE OF WHETHER
SOUNDING IN CONTRACT, TORT, OR OTHERWISE. BORROWER AND LENDER HEREBY
AGREE THAT ANY SUCH CLAIM, DEMAND, ACTION, CAUSE OF ACTION, OR
PROCEEDING SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY AND THAT
ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE OTHER
PARTY HERETO TO WAIVE ITS RIGHT TO TRIAL BY JURY.
15. FOOTHILL EXPENSES:
------------------
In order for Lender to pursue the subject financing, it will be
necessary for Lender to make certain financial, legal, and collateral
investigations and determinations. In connection with making such
investigations and determinations, Lender will incur Foothill Expenses
relating to the subject financing transaction. Accordingly, Lender has
requested and Borrower has agreed that such Foothill Expenses will be
for the account of Borrower. Borrower will be obligated to reimburse
Lender on demand for such Lender Expenses irrespective of whether
definitive financing documents are ultimately entered into or whether
financing is ultimately approved by the Bankruptcy Court and Borrower
has agreed that all such amounts may be charged by Lender to the
outstanding balance of the existing loan account owed by Borrower to
Lender.
<PAGE>
If you wish to proceed on the basis outlined above, please execute this letter
in the space provided below and return it to the undersigned before the
commencement of your bankruptcy proceeding, but no later than 5:00 p.m.,
California time, on or before July 30, 1998. If you fail to do so before you
commence your bankruptcy proceeding and by such date and time, this letter shall
expire automatically. If you do sign and return this letter by such time, then,
as soon as practicable thereafter, Borrower shall present this letter to the
Bankruptcy Court for approval. This letter is being provided to Borrower and is
not for the benefit of, nor should it be relied upon by, any third party.
Very truly yours,
FOOTHILL CAPITAL CORPORATION,
By: /s/ Albert R. Joseph
------------------------
Title: Vice President
The foregoing terms and conditions of this letter are hereby accepted and agreed
to as of July 30, 1998.
THREE D DEPARTMENTS, INC.
By: /s/ Steven Kerkstra
------------------------
Title: Vice President, CFO
EXHIBIT 99.2 Interim Order Authorizing a Secured Post-Petition Financing
Chapter 11
Case No.
INTERIM ORDER, PURSUANT TO SECTIONS 364(C) AND (D) OF THE BANKRUPTCY CODE AND
FED. R. BANKR. P. 4001, (I) AUTHORIZING THREE D DEPARTMENTS, INC. TO OBTAIN
POST-PETITION FINANCING AND INCUR POST-PETITION INDEBTEDNESS WITH SUPERPRIORITY
OVER CERTAIN ADMINISTRATIVE EXPENSES, SECURED BY LIENS, AND (II) MODIFYING THE
AUTOMATIC STAY
Date: August 6, 1998
Time: 9:30 a.m.
Place: Courtroom 520
34 Civic Center Plaza
Santa Ana, CA
Three D Departments, Inc., debtor and debtor-in-possession in the
above-captioned chapter 11 case (the "Debtor"), having filed with this Court a
motion dated July __, 1998 (the "Motion"), pursuant to 11 U.S.C. sections 364(c)
and (d) and Fed. R. Bankr. P. 4001 for an Order, INTER ALIA:
(1) Authorizing the Debtor to borrow, on a revolving credit
basis, or obtain letters of credit, in an aggregate sum not to exceed
$10,000,000 at any one time outstanding, pursuant to the terms of (i) a
Loan and Security Agreement dated as of August 7, 1998, between the
Debtor, as borrower, and Foothill Capital Corporation ("Foothill"), as
lender (the "Loan Agreement"), and (ii) the Loan Documents (as defined
in the Loan Agreement) (the "Loan Documents"), which Loan Agreement is
substantially in the form annexed as Exhibit "A" to this Order (the
"Foothill Facility");
(2) Approving the terms and conditions of the Loan Documents
and authorizing the Debtor to execute and enter into the Loan
Documents;
(3) Authorizing the Debtor to use the proceeds of the initial
advances under the Loan Agreement to repay in full all of the
prepetition obligations of the Debtor owed to Foothill pursuant to that
certain Loan and Security Agreement dated as of July 27, 1994, between
Debtor as borrower and Foothill as lender (the "Prepetition Loan
Agreement");
<PAGE>
(4) Authorizing the Debtor to execute and deliver, from time
to time, all such other documents, instruments and agreements, and
perform such other acts, as may be required in connection with the Loan
Documents;
(5) Authorizing the Debtor, under 11 U.S.C. section 364(c) and
(d), to obtain post-petition financing and incur post-petition
indebtedness under the Foothill Facility with a superpriority over any
and all administrative expenses and secured by liens on and security
interests in all of the Debtor's now existing and after-acquired assets
and property, both real and personal, which indebtedness owing by the
Debtor to Foothill shall, (a) pursuant to 11 U.S.C. section 364(c)(l),
have priority over any and all administrative expenses of the kind
specified in 11 U.S.C. sections 503(b) and 507(b), subject and
subordinate only to the payment of, to the extent and only to the
extent permitted by decretal paragraph 12 of this Order: (i) the
Ordinary Administrative Expenses Exception (as defined below); (ii) the
"Professional Fees Exception (as defined below); and (iii) the United
States Trustee Fees (as defined below), and (b) pursuant to 11 U.S.C.
sections 364(c)(2) and (3) and 364(d), be secured by liens on and
security interests in all of the Debtor's now existing and hereafter
acquired assets and property, which liens and security interests shall
be subject and subordinate only to (i) the Professional Fees Exception,
(ii) the United States Trustee Fees, and (iii) Permitted Priority Liens
(as defined in the Loan Documents);
(6) Authorizing, after an interim hearing on the Motion, the
Debtor to obtain interim financing of up to $6,260,855 from Foothill on
an emergency basis, under the same terms and conditions as set forth in
the Loan Documents, pending a final hearing on the motion in accordance
with Bankruptcy Rule 4001(c); and
<PAGE>
(7) Granting the Debtor such other and further relief as the
Court deems necessary, appropriate, equitable and proper; and the
Debtor having requested in the Motion, pursuant to Bankruptcy Rule
4001(c), that the Court consider, on an expedited basis, the proposed
interim financing requested in the Motion; and pursuant to Fed. R.
Bankr. P. 4001(c)(l) and 2002, it appearing that any and all necessary
notice of the interim hearing and the relief requested in the Motion
has been duly provided; and upon the record of the interim hearing held
this day before this Court; and this Court having noted the appearances
of all parties in interest in the record of this Court; and it
appearing to this Court that the relief requested in the Motion is in
the best interests of the Debtor, its estate, and its creditors and is
essential for the continued operation of the Debtor's business; and it
further appearing that the Debtor is unable to obtain unsecured credit
for money borrowed allowable as an administrative expense under 11
U.S.C. section 503(b)(l); and due deliberation having been had; and
sufficient cause appearing therefor;
THE COURT HEREBY FINDS as follows:
A. Capitalized terms used in this Order and not otherwise
defined herein have the meanings ascribed to such terms in the Loan
Documents and exhibits thereto, the terms of which shall be, and they
hereby are, incorporated herein by reference as if fully set forth at
length.
B. On July 30, 1998, the Debtor filed with this Court a
voluntary petition for relief under chapter 11 of the Bankruptcy Code
and is continuing to manage its properties and operate its business as
a debtor-in-possession pursuant to 11 U.S.C. sections 1107 and 1108.
C. This Court has jurisdiction over this case and the parties
and property affected hereby pursuant to 28 U.S.C. sections 157(b) and
1334.
D. The Debtor has provided due and sufficient notice of the
hearing on the Motion and its request for the relief set forth in the
Motion, and no further notice of the request for relief granted in this
Order is required. Such notice is appropriate, adequate, and proper
under the circumstances of this case as set forth herein, in the Motion
and as presented to the Court.
<PAGE>
E. New borrowing facilities are not available to the Debtor
without the Debtor and this Court granting to Foothill, pursuant to 11
U.S.C. sections 364(c) and (d), a superpriority administrative expense
and security for such obligations through the granting of a security
interest and lien.
F. In order to continue the ordinary course operations of the
Debtor's business, it is necessary for the Debtor to borrow money and
otherwise obtain credit from Foothill to facilitate, among other
things, the purchase of post-petition merchandise. Without such
borrowings and credit, the Debtor will be unable to continue as a going
concern, resulting in the eventual liquidation of its business.
G. The Debtor is unable to obtain working capital financing
either (i) allowable under 11 U.S.C. section 503(b)(l) as an
administrative expense pursuant to 11 U.S.C. sections 364(a) or 364(b),
or (ii) secured by liens and in amounts and on as favorable terms as
are contemplated by the Loan Documents. After considering all
alternatives, the Debtor has concluded, in the exercise of its best and
reasonable business judgment, that the Foothill Facility represents the
best working capital financing available.
H. Good cause has been shown for the entry of this Order.
Among other things, the ability of the Debtor to continue to finance
its operations and the availability of financing pursuant to this Order
and the Loan Documents is vital to the Debtor, and the entry of this
Order will minimize the disruption to the Debtor's business that
otherwise would result from the termination of the Debtor's prepetition
financing. The preservation and maintenance of the going-concern value
of the Debtor is of the utmost significance and importance to maximize
value to creditors pursuant to the provisions of chapter 11 of the
Bankruptcy Code. The terms of the borrowings and issuance of Letters of
Credit authorized hereby are fair under the circumstances. Entry of
this Order will be in the best interests of the Debtor, its estate and
creditors.
<PAGE>
Accordingly, it is hereby FOUND, ORDERED, DETERMINED AND
DECREED, as follows:
1. The Debtor's Motion, as it relates to interim approval of
the Loan Agreement, shall be, and it hereby is, approved in all
respects.
2. Good and sufficient notice of the Motion's request for
interim approval of the Foothill Facility and the hearing thereon has
been provided and any requirement for other and further notice be, and
it hereby is, dispensed with and waived.
3. The relief granted by this Court pursuant to this Order is
necessary to avoid immediate and irreparable harm to the Debtor's
estate pending a final hearing on the Motion.
4. An immediate need exists for the Debtor to obtain cash
advances and Letters of Credit to continue the ordinary-course
operation of the Debtor's business.
5. The Debtor is unable to obtain cash advances and Letters of
Credit facilities as unsecured credit allowable under 11 U.S.C. section
503(b)(1). Without the availability of the Foothill Facility, it is
unlikely that the Debtor will be able to preserve the going-concern
value of its business. The preservation and maintenance of the
going-concern value of the Debtor is of utmost significance and
importance to maximizing value to creditors pursuant to the provisions
of chapter 11 of the Bankruptcy Code.
6. As set forth in the Motion, and based upon the record of
these proceedings, this Court finds that the terms of the interim
financing under the Foothill Facility requested in the Motion have been
negotiated in good faith and at arms length between the Debtor and
Foothill, and any credit extended by Foothill pursuant to the terms of
the Loan Documents and this Order shall be, and it hereby is, deemed to
have been extended in good faith (as that term is used in 11 U.S.C.
section 364(e)).
<PAGE>
7. The Debtor will receive, directly or indirectly,
post-petition loans and/or advances and credit and thereby will benefit
from the Foothill Facility authorized by this Order. In connection with
such loans and/or advances, the Debtor shall maintain such books and
records as are necessary to account for all funds borrowed.
8. The Debtor is authorized on an emergency interim basis to
borrow or obtain cash advances and Letters of Credit up to the
aggregate principal amount of $6,260,855 outstanding at any one time
pursuant to the terms of the Loan Documents, which authorization is
without prejudice to the Debtor's request for authorization at the
final hearing on the Motion to borrow funds and obtain Letters of
Credit in such amounts as are permissible under the Loan Documents,
which Loan Documents hereby are approved in all respects (including all
rights and remedies set forth or referred to in the Loan Documents).
9. The Debtor is authorized to use the proceeds of the
advances made and the Letters of Credit issued under the Loan Agreement
to satisfy fully all of the prepetition obligations of the Debtor owing
to Foothill pursuant to the Prepetition Loan Agreement in the
approximate amount of $5,260,855, subject to the provisions of
paragraph 16.
10. The Debtor is authorized to do and perform all acts, to
make, execute and deliver all instruments and documents (including,
without limitation, the execution of documents substantially in the
form and substance represented by the Loan Documents and Letter of
Credit applications and reimbursement agreements with third parties as
contemplated by the Loan Documents, all of which are hereby approved)
and to pay all fees and other amounts that may be required or necessary
for the Debtor's performance under the terms of this Order, the Loan
Documents, and the financing pursuant to the Foothill Facility hereby
approved.
<PAGE>
11. All of the Debtor's obligations to Foothill for
indebtedness arising in respect of this interim approval of the
Foothill Facility hereby are authorized and granted superpriority
administrative expense status, in accordance with 11 U.S.C. section
364(c)(1), over any and all administrative expenses of the Debtor,
whether heretofore or hereafter incurred, of the kind specified in 11
U.S.C. sections 503(b) or 507(b), but shall be subject and subordinate,
to the extent provided in decretal paragraph 12 of this Order, to the
Ordinary Administrative Claims Exception, the Professional Fees
Exception, and amounts payable to the United States Trustee pursuant to
28 U.S.C. section 1930(a)(6) (the "United States Trustee Fees"). No
other claim having a priority senior or PARI PASSU to that granted to
Foothill in this Order shall be granted while any portion of the
Foothill Facility or the commitment thereunder remains outstanding.
12. The Debtor shall be permitted to pay, as the same may
become due and payable (i) the United States Trustee Fees, and (ii)
except as limited by the provisos below, (y) administrative expenses of
the kind specified in 11 U.S.C. section 503(b) incurred in the ordinary
course of the Debtor's business, other than those covered by clause (z)
below (the "Ordinary Administrative Expenses Exception") and (z)
compensation and reimbursement of expenses to professionals allowed and
payable under 11 U.S.C. sections 330 and 331 (including professionals
of the Debtor and of the Official Creditors Committee ("Creditors
Committee")) (the "Professional Fees Exception"); PROVIDED that,
subject to the next following proviso, the foregoing clause (ii) shall
be inapplicable following written notice from Foothill to counsel for
the Debtor and Creditors Committee if (A) an Event of Default (as
defined in the Loan Agreement) has occurred and is continuing and
Foothill has accelerated the maturity of the obligations of the Debtor
under the Loan Documents (or such obligations have matured in
accordance with their terms) and has ceased funding under the Loan
Documents (except that Foothill may continue to make protective
advances permitted by the Loan Documents) and Foothill has commenced
the exercise of, and is diligently exercising, all or some of its
default remedies with respect to all or a material part of the
Collateral (as defined below), (B) the chapter 11 case of the Debtor is
converted to a chapter 7 case, or (C) a trustee is appointed in the
Debtor's case and the Debtor ceases to be a debtor-in-possession; and
PROVIDED, FURTHER, that, the foregoing proviso notwithstanding, up to
but not more than $200,000 in the aggregate may be paid pursuant to the
Professional Fees Exception following the occurrence of an event
described in the foregoing proviso. If and to the extent that the
Debtor makes any payment of administrative expenses in accordance with
the foregoing, such payment shall be made free and clear of the lien
and security interest of Foothill with respect to the amounts so paid.
13. As security for the full and timely payment and
performance of each of the obligations of the Debtor under and pursuant
to the Loan Documents and the Foothill Facility authorized hereby,
Foothill hereby is granted pursuant to 11 U.S.C. sections 364(c)(2) and
(3) and 364(d), liens on and security interests in, all of the Debtor's
assets and properties of the Debtor's estate (within the meaning of the
Bankruptcy Code), real (including leasehold interests and estates, the
"Real Property Collateral") and personal, and all proceeds, rents,
products, and profits of any of the foregoing, whether now owned or
hereafter acquired (collectively, the "Collateral").
14. The liens on and security interests granted to Foothill in
the Collateral shall, except with respect to Permitted Priority Liens,
be first priority liens and security interests, senior to all other
liens and security interests, if any, subject only to the Professional
Fees Exception and the United States Trustee Fees.
15. The liens and security interests granted to Foothill
hereunder shall not be (i) subject to any lien or security interest
that is avoided and preserved for the benefit of the Debtor's estate
under 11 U.S.C. section 551, (ii) surcharged under 11 U.S.C. section
506(c), or (iii) subordinated to or PARI PASSU with any other lien or
security interest under 11 U.S.C. section 364(d) or otherwise;
PROVIDED, HOWEVER, that such liens and security interests granted
Foothill, shall be subject and subordinate only to (x) Permitted
Priority Liens, and (y) the Professional Fees Exception and the United
States Trustee Fees.
<PAGE>
16. Foothill claims and the Debtor admits that Foothill has a
prepetition security interest in or lien on all of the Collateral
(other than the Real Property Collateral) that secures the prepetition
claims of Foothill that are being repaid from the initial proceeds of
the Foothill Facility, and that Foothill's pre-petition claim is fully
secured and allowable. This Court has not made, and does not hereby
make, any finding as to the validity, perfection, fully secured status,
or non-avoidability of the prepetition claims, security interests, or
liens of Foothill, and, except as provided below in this paragraph, the
provisions of this Order do not bar the subsequent assertion, if and as
appropriate, of any avoiding powers of the Debtor or any trustee
appointed in this Chapter 11 Case with respect to any prepetition
claims of Foothill or any transfers (pre or post petition) by the
Debtor on account thereof. The Creditors Committee or any trustee
appointed between entry of this Order and ninety (90) days thereafter
shall have a period of up to ninety (90) days from and after the date
of entry of this order within which to assert any challenge to the
validity, perfection, fully secured status, or non-avoidability of the
prepetition claims, security interests, or liens of Foothill, or any
transfers (pre or post petition) to Foothill with respect thereto, and,
unless an appropriate motion or adversary proceeding challenging any of
same has been filed by the Creditors Committee or ant trustee appointed
between entry of this Order and ninety (90) days thereafter with this
Court and served on Debtor, Foothill and their counsel within such
ninety (90) day period, no person thereafter shall be entitled to
assert or allege any such challenge.
17. Foothill is not willing to provide the Financing unless
Foothill has a first priority security interest in and lien on the
Collateral (subject only to certain Permitted Priority Liens and
administrative claims as provided hereinabove). Pursuant to Section
364(d)(1)(A) of the Bankruptcy Code, this Court finds that the Debtor
is not able to obtain the postpetition credit it needs without granting
Foothill such senior security interests in and liens on the Collateral
as described herein. In order to grant Foothill such senior security
interests and liens, this Court must find that the interest of any
<PAGE>
creditor with a prepetition lien that is not a Permitted Priority Lien
(if any such creditor exists) is adequately protected. This Court finds
that the interest of any such prepetition lien creditor whose lien is
not a Permitted Priority Lien is adequately protected because Foothill
is providing replacement financing for the secured prepetition
financing extended to Debtor by Foothill under the Prepetition Loan
Agreement, and is providing additional much-needed working capital to
the Debtor under the Loan Agreement and the other Loan Documents which
will benefit all creditors by preserving the going concern value of the
Debtor and providing new value to the Debtor.
18. (a) The liens and security interests granted in favor of
Foothill described herein and in the Loan Documents shall be deemed
valid, binding, enforceable and perfected upon entry of this Order;
(b) Foothill shall not be required to file any financing
statements, mortgages, notice of lien or similar instruments in any
jurisdiction or filing office, or to take possession of any item of
Collateral securing the indebtedness hereby approved, or to take any
other action in order to validate or perfect the liens and security
interests granted by or pursuant to this Order or pursuant to the Loan
Documents;
(c) To the extent that any applicable non-bankruptcy law
otherwise would restrict the granting, scope, enforceability,
attachment, or perfection of the security interests and liens
authorized or created hereby, or otherwise would impose filing or
registration requirements with respect thereto, such law hereby is
preempted to the maximum extent permitted by the United States
Constitution, the Bankruptcy Code, otherwise applicable federal law,
and the judicial power of the Bankruptcy Court;
(d) Should Foothill, in its sole discretion, from time to
time, choose to file such financing statements, mortgages, notices of
lien or similar instruments, take possession of any item of Collateral
securing the indebtedness hereby authorized, or take any other action
to validate or perfect any such security interest or liens, the Debtor
is authorized and directed to execute and deliver same, and all such
documents shall be deemed to have been filed or recorded at the time
and on the date of entry of this Order; and
<PAGE>
(e) A certified photocopy of this Order may, in the
discretion of Foothill, be filed with or recorded in filing or
recording offices in addition to or in lieu of such financing
statements, mortgages, notices of lien or similar instruments, and all
filing offices are hereby directed to accept such certified copy of
this Order for filing and recording.
19. In making decisions to make advances to or issue Letters
of Credit under the Loan Documents or to collect the indebtedness and
obligations of the Debtor, Foothill shall not be deemed to be in
control of the operations of the Debtor or to be acting as a
"responsible person" or "owner or operator" with respect to the
operation or management of the Debtor (as such terms, or any similar
terms, are used in the United States Comprehensive, Environmental
Response, Compensation and Liability Act, as amended, or any similar
Federal or state statute).
20. The provisions of this Order shall be binding upon and
inure to the benefit of Foothill and the Debtor and its respective
successors and assigns (including, without limitation, any chapter 11
or chapter 7 trustee or other fiduciary hereafter appointed for the
estate of the Debtor or with respect to the Debtor's properties or
assets and any purchaser of an assignment of all or a portion of
Foothill's interest in the Foothill Facility);
21. The Debtor promptly shall mail copies of this Order to (a)
counsel for the Official Unsecured Creditors' Committee appointed in
this case, (b) The United States Trustee for the Central District of
California, (c) counsel to Foothill, and (d) any party that has
requested special notice as of the date of this order. Any other
further obligation to provide notice of the relief granted herein shall
be, and hereby is, dispensed with and waived.
<PAGE>
22. (a) If an Event of Default has occurred and is continuing
under the Loan Documents, Foothill, any purchaser of Collateral at a
foreclosure sale from Foothill, any purchaser of Collateral at a sale
pursuant to 11 U.S.C. section 363, and any other similar person shall
have all of the rights of the Debtor to apply to the Court to cause all
rights and obligations of the Debtor under or in respect of all
executory contracts, leases and agreements to which the Debtor is a
party to be assumed or rejected pursuant to 11 U.S.C. section 365(a) as
Foothill or such person may direct (except to the extent that such
executed contracts, leases or agreements were theretofore duly assumed
or rejected by the Debtor), and to seek to cause such rights or
obligations to be assigned to Foothill or to such person (assuming that
adequate assurance of future performance is provided) pursuant to 11
U.S.C. section 365(f);
(b) If an Event of Default has occurred and is continuing
under the Loan Documents, Foothill and such other persons referred to
in this decretal paragraph 22 shall have the right to apply to the
Court to effect such assumption, rejection or assignment, and such
foreclosure or other sale, all as Foothill or such persons may direct,
without further action by the Debtor; and
(c) If an Event of Default has occurred and is continuing
under the Loan Documents, without limiting its other rights, Foothill
and such other persons referred to in this decretal paragraph 22 may
apply to this Court for judicial foreclosure of its liens on the
Collateral or any part of it, and this Court reserves jurisdiction to
conduct such a foreclosure and will not abstain from exercising such
jurisdiction.
23. Except as otherwise provided for in the Loan Documents, no
order confirming a plan of reorganization or dismissing the chapter 11
case of the Debtor under 11 U.S.C. sections 303, 305 or 1112 or
otherwise shall be entered unless prior to the entry thereof all
obligations and indebtedness owing to Foothill under the Loan Documents
shall have been paid in full and all outstanding Letters of Credit
shall have been terminated or cash collateralized in accordance with
the provisions of the Loan Documents.
<PAGE>
24. The provisions of this Order shall be immediately
effective upon entry of this Order by the Court and any actions taken
pursuant hereto shall survive entry of, and shall govern with respect
to any conflict with, any Order which may be entered confirming any
plan of reorganization or which may be entered converting the chapter
11 case of the Debtor from chapter 11 to chapter 7. The terms and
provisions of this Order as well as the claims, liens and security
interests, and all rights of Foothill and obligations of the Debtor
created or arising pursuant hereto, shall continue in the chapter 11
case of the Debtor and in any superseding cases under the Bankruptcy
Code, and such claims, liens and security interests shall maintain
their priority as provided by this Order until satisfied and discharged
in accordance with the terms of the Loan Documents.
25. Consistent with 11 U.S.C. section 364(e), if any or all of
the provisions of this Order are hereafter modified, vacated or stayed:
(a) such stay, modification or vacation shall not affect
the validity of any obligation, indebtedness, liability, security
interest or lien granted or incurred by the Debtor to Foothill prior to
the effective date of such stay, modification or vacation, or the
validity and enforceability of any security interest, lien, priority or
right authorized or created hereby pursuant to the documents; and
<PAGE>
(b) any indebtedness, obligation or liability incurred by the
Debtor to Foothill or any trustee under any Loan Document prior to the
effective date of such stay, modification or vacation shall be governed
in all respects by the original provisions of this Order, and Foothill
and any trustee under any Loan Document shall be entitled to all the
rights, remedies, privileges and benefits, including the security
interests, liens and priorities granted herein and pursuant to the Loan
Documents, with respect to any such indebtedness, obligation or
liability. All advances under the Loan Documents (including issuance of
Letters of Credit by Foothill or other letter of credit issuers) are
made in reliance upon this Order, and, therefore, the indebtedness
evidenced by such advances (and reimbursement obligations relating to
Letters of Credit) prior to the effective date of any stay,
modification or vacation of this Order cannot (i) be subordinated
(except as otherwise expressly provided in this Order as to the payment
of the Professional Fees Exception and the United States Trustee Fees
under 28 U.S.C. section 1930(a)(6)), (ii) lose its priority lien or
superpriority administrative expense claim status, or (iii) be deprived
of the benefit of the status of the liens, security interests and
claims granted to Foothill under this Order or the Loan Documents, as a
result of any subsequent order in the chapter 11 case, or any
superseding cases, of the Debtor.
26. Except as otherwise provided in the Loan Documents, so
long as Foothill's commitment or any obligation, liability or
indebtedness under the Loan Documents and this Order shall remain
outstanding, the Debtor shall not, directly or indirectly, create,
incur, assume or permit to exist any security interest, encumbrance,
lien or other security arrangement of any kind, on or with respect to
the Collateral (other than Permitted Priority Liens) or take or fail to
take any action which would grant or create a lien or security interest
in favor of any person (other than Foothill) in the Collateral (other
than Permitted Priority Liens).
<PAGE>
27. Subject only to the provisions of the Loan Documents, the
automatic stay provisions of 11 U.S.C. section 362 are vacated and
modified to the extent necessary to permit Foothill, upon the
occurrence and continuance of any Event of Default as defined in the
Loan Documents (collectively, "Events of Default"), upon five Business
Days hand delivered notice in writing to Debtor's counsel, counsel for
any official creditors committee, and the Court (except as otherwise
provided below), to exercise all rights and remedies provided for in
the Loan Documents, without filing further pleadings or application to
or order of this Court; PROVIDED, HOWEVER, in the event that Foothill
reasonably has determined in good faith that truly exigent
circumstances exist (such as material fraud, concealment, conversion or
abscondment) such that Foothill's ability to be repaid the obligations
of Debtor due to Foothill under the Loan Agreement, or the realizable
value of Foothill's interest in the Collateral, would be materially
impaired or jeopardized as a consequence of the delay occasioned by the
giving of such prior written notice, only in such circumstances
Foothill shall not be required to give such notice prior to acting but,
in such event, Foothill promptly shall give written notice to Debtor's
counsel, counsel for any official creditors' committee, and the Court
of the exercise of such remedies concurrent with or promptly following
the exercise of such remedies. The foregoing notice requirement shall
not be applicable to actions taken by Foothill in accordance with the
terms of the Loan Documents that are not premised upon the existence of
an Event of Default, such as, by way of illustration and not by way of
limitation, application of payments received by Foothill from Debtor to
the reduction of the obligations of Debtor due to Foothill under the
Loan Agreement. Upon the occurrence of any Event of Default, Foothill
shall be relieved of any and all obligations to make additional
advances or to issue additional Letters of Credit. Subject to the
giving of the five Business Days notice by Foothill, to the extent
required as set forth above, Foothill shall be and hereby is
authorized, in its discretion, to take any and all actions and remedies
that Foothill may deem appropriate to proceed against and realize upon
the Collateral including, without limitation, (x) application of any
cash collateral to the payment of all or a portion of the outstanding
<PAGE>
indebtedness, liabilities and obligations of the Debtor, and (y) resort
to the Collateral and the application of the proceeds thereof to such
indebtedness, liabilities and obligations; and the Debtor hereby is
directed to cooperate with Foothill in the exercise of such rights.
Without limiting the foregoing, the Debtor shall have no right, whether
at the maturity of the Foothill Facility or, earlier, if the Foothill
Facility is terminated because of the occurrence of an Event of
Default, to use or seek to use Foothill's cash collateral (as that term
is defined in 11 U.S.C. section 363(a)) in which Foothill has an
interest.
28. To the extent any of the terms and conditions of the Loan
Documents are in conflict with the terms and conditions of this Order,
the provisions and intent of this Order shall control. The provisions
of this Order shall not be modified without Foothill's consent.
29. Nothing in this Order shall (i) constitute a determination
of the validity, binding effect, perfection enforceability of any liens
or security interests granted any person or entity prior to the date
the above-captioned cases were filed, or (ii) prohibit or otherwise
limit the right of Debtor, any official unsecured creditors' committee
or any bankruptcy trustee for the Debtor from seeking to avoid or
otherwise challenging the validity, binding effect, extent, value,
priority, enforceability and/or perfection of any such pre-petition
liens or security interests, other than as limited by paragraph 16
above. Except with respect to rights specifically addressed herein, the
terms of this Order are without prejudice to any rights of any parties
in interest in the cases.
30. The final hearing on this Motion, pursuant to Bankruptcy
Rule 4001, shall be held by the Court on August 21, 1998 at 9:00 AM in
Courtroom 520, United States Bankruptcy Court for the Central District
of California, 34 Civic Center Plaza, Santa Ana, California 92712.
31. Service of this Order, the Motion and upon request, the
exhibits attached to this Order, by the Debtor upon (i) counsel for the
Official Unsecured Creditors' Committee appointed in this case, (ii)
counsel to Foothill, (iii) the United States Trustee for the Central
District of California, and (iv) each party requesting special notice,
by first class mail on or before August 7, 1998 shall constitute good
and sufficient notice of the final hearing on the Motion.
<PAGE>
32. Objections, if any, to the relief sought in the Motion,
shall (i) state the basis for the objection, (ii) be in writing, (iii)
be filed with the Clerk of the Bankruptcy Court, and (iv) be served
upon (a) counsel for the Debtor, Winthrop Couchot, 3 Civic Plaza, Suite
280, Newport Beach, California 92660 (Attn: Marc Winthrop and Sean
O'Keefe), (b) counsel for the Creditors' Committee, "Russ Miliband et
al and Kirkpatrick & Stockton and (c) counsel for Foothill, Brobeck,
Phleger & Harrison LLP, 550 South Hope Street, Los Angeles, California
90071-2604 (Attn: Susan B. Hall, Esq.), together with proof of service
thereof, so that they will be received no later than 4:00PM August 18,
1998, with a courtesy copy to Chambers 521.
33. The Clerk of Court is hereby directed to forthwith enter
this order on the docket of this Court maintained with regard to these
cases.
Dated: August 6, 1998 ------------------------------------------
United States Bankruptcy Judge
EXHIBIT 99.5 Press Release dated August 6, 1998
PRESS RELEASE
-------------
July 30, 1998
Costa Mesa, CA
Three D Departments, Inc. reported today that it has filed a Petition for
Reorganization under Chapter 11 of the U.S. Bankruptcy Code. During its current
fiscal year, which ends on August 1,1998, the Company achieved approximately
$38,000,000 in sales in its stores located in Connecticut, Arizona, and Southern
California. The Company employs over 300 people in its 21 home textile and
accessory specialty stores and its corporate offices.
Commenting on the filing, President and CEO, Donald L. Abrams stated:
"The Company experienced a tightening of credit beginning in February,
1998, which resulted in falling inventories, sales, and earnings in the
recent spring and summer months. The filing is necessary at this time
to permit the Company to reorganize its finances and business plans,
while maintaining the assets of the estate. We have entered into an
agreement with Foothill Capital Corporation, which is subject to the
approval of the Bankruptcy Court, to obtain a $10,000,000 line of
credit. This financing will permit the Company to bring fresh new
merchandise into the stores for the upcoming fall and holiday season
and enable it to meet its financial obligations on a timely basis.
In recent months, the Company has concentrated its efforts on its core bed,
bath, and home accessory categories and those unique special merchandise
categories for which we have become known. In addition, we have reduced our
corporate overhead to a level which can sustain our growth, while improving
profitability. We will of course continue to offer our customers the best
service in the industry and we intend to emerge from Chapter 11 in 1999 as a
healthy and profitable Company."
