united states bankruptcy court for of no.omnimgt.com/cmsvol2/pub_47267/691229_48.pdf · 2018. 9....

Objection Deadline: September 26,2018 at 4:00 p.m. (EST)Hearing Date: October 3, 2018 at I l:00 a.m. (EST)

UNITED STATES BANKRUPTCY COURTFOR THE EASTERN DISTRICT OF NEW YORK

In re Chapter 11

Case No. 18-45284 (NHL)

(Jointly Administered)

Seasons Corporate, et al.,

Debtors.

OMNIBUS OBJECTION OF'SUPERSOL TO DEBTORS'MOTIONS TO (I) APPROVE ABOVE-MARKET INSIDER

POST.PETITION FINANCING' AND (II) ESTABLISH BIDDINGPROCEDURES AND BID PROTECTI ONS FOR PROPOSED SALE TO INSIDER2

Robert M. NovickMichele L. AngellKASOWITZ BENSON TORRES LLP1633 BroadwayNew York, New York 10019Telephone: (212) 506-17 00

Counselfor L&N Consulting Group, LLC andSuper Sol, LTD

I Debtors'EmergencyMotionPursuantto I1U.S.C. $$10t 361,362,363 and364forlnterimandFinalOrdersAuthorizing Debtors (i) to Obtain Post-Petition Financing and to Grant Superpriority Liens and Clqims Pursuant to

I t U.S.C. $6a@ and (d); (ii) to utilize Cqsh Collateral and Grant Adequate Protection to Prepetition Secure

Creditors; (iii) Modifying the Automatic Stay; (iv) Scheduling a Finql Hearing Pursuqnt to Bankruptcy Rules

4001 (b) and (c) and (v) Granting Related Relief' fDocket No. l0] (the "Financing Motion").

2 Debtors' Motionfor Orders Pursuant to Sections 105(A), 363, 365 and 503 of the Bankruptcy Code and

Bankruptcy Rules 2002, 6004 qnd 6006: (A)(i) Establishing Bidding Procedures and Bid Protections inConnection

with the Sale of Certain of the Assets of the Debtors, (ii) Approving the Form and Manner of Notices, (iii) Approving

the Asset Purchase Agreement Subject to Higher qnd Better Offers and (iv) Settling q Sale Hearing Date; and

(B)(i) Approving the Sale of Certain Assets of the Debtors Free and Clear of Liens, Claims qnd Encumbrances,

(ii) Authorizing the Assumption and Assignment of Executory Contracts; and (iii) Granting Related Relief [DocketNo. 12] (the "Bid Procedures Motion," and together with the Financing Motion, the "Motions").

Case 1-18-45284-nhl Doc 48 Filed 09/26/18 Entered 09/26/18 15:50:21

TABLE OF CONTENTS

Preliminary Statement..

Factual Background ..................

4. SKNY and the Debtors Are Not Entitled to Findings ConcemingNon-Insider Status, Business Judgment or Good Faith ..........'.'..'.

Paqe

1

J

JA. The Supersol Indebtedness.

B. The DIP Financing - a Cynical Device to Hand Seasons to SKNY......'..'...........'. 6

C. The Bid Procedures Motion........

D. At Least One Better Alternative Transaction Is Available.

E. The Mystery of SKNY

The Motions Should Be Denied

A. The Motions Are Subject to the Entire Fairness Standard... ...............12

B. The Bid Procedures Motion Should Be Denied - Under Any Standard............... 15

1. There Is a Higher and Better Offer. l5

2. SKNY is Not Entitled to the Breakup Fee and Expense

Reimbursement. ... t7

3. The Bid Procedures Motion Does Not Describe Adequate, or Any,Marketing or Diligence Processes ....20

4. Additional Objections to Bid Procedures Motion.."..

5. Reservation of Rights with Respect to Sale Order.....

22

25

C The DIP Motion Should Be Denied

1. Credit Is Available on More Favorable Terms. 26

2. The Unattainable DIP Budget Renders the DIP a Mere Ruse toDeliver the Debtors to SKNY 27

3. Continued DIP Financing Should Not Be Conditioned Upon a Sale

to SKNY.., 28

7

8

8

,.,.12

26

29


5

6

The Roll-Up Is an Undisclosed Bribe to Bloom.

The DIP Lenders' Fees and Expenses Should Be Limited and

Subject to Wider Review.

30

30

31Conclusion...

11


TABLE OF AIITHORITIES

Cases

Inre 495 Cent. ParkAve. CorP.,136 B.R.626 (Bankr. S.D.N.Y' 1992)......

In re Bidermann Indus. U.S.A.,

203 B.R. 547 (Bank'r. S.D.N.Y. 1997)

In re Duro Indus.,No. 02-16131-CJK,2004 Bankr. LEXIS 1235 (Bankr. D. Mass. Aug.26,

2004)......

In re Family Christian, LLC,533 B.R. 600 (Bankr. W.D. Mich. 2015).'.'........

In re Flour City Bagels, LLC,557 B.R. 53 (Bankr. W.D.N.Y. 2016)

Gey Assocs, Gen. P'ship v. 310 Assocs', L,P.,No.01-8-2798 (REG),2002U.S. Dist. LEXIS 20759 (S.D.N.Y. Oct.23,

2002)

In re Gulf Coast Oil CorP.,

404 B.R. 407 (Bankr. S.D. Tex' 2009)

In re Innkeepers USA Tr.,442 B.R. 227 (Bank.'r. S.D'N.Y. 20 1 0)

In re Integrated Res.,

147 B.R. 650 (S,D.N.Y. 1992).......,.

Jacobs v. D'Alessandro (In re Dewey & Leboeuf LLP),

Nos. 12-12321 (MG), 14-01919 (MG), 2014Bankr. LEXIS 4051 (Bankr.

S.D.N.Y. Sept. 23, 2014)

Knapp v. Seligson (In re Ira Haupt & Co'),361F.2d164 (2d Cir. 1966).

In re L.A. Dodgers LLC,457 B.R. 308 (Bankr. D. Del. 20lI)

Inre Med. Software So/s',

286 B.R. 431 (Bankr. D. Utah 2002)

Page(s)

.26

13,17,20

.20

.....t2, r5

..12, 14

17, 18

.20

12, 13,16,20

..........19

..t4

13

iii

passtm


Official Comm. of (lnsecured Creditors of Enron Corp. v. Enron Corp. (In re

Enron Corp.),33s B.R. 22 (S.D.N.Y. 200s)...........

Ricket & Assocs., Inc. v. Smith (In re Rickel & Assocs., Inc.),272 B,R. 7 4 (Bank'r. S.D.N.Y. 2002) .....

In re Tiara Motorcoach Corp.,212 B.R. 133 (Bankr. N.D. Ind' 1997).

Statutes

1 I U.s.C. $ 101(3lXBXiii)...............

11u.S.C. $ 101(31XCXv)

Other Authorities

Administrative Order No. 557 ........

CPLR $ 7s10

James R. Hagerty, Robert Klein Set Up Firm to Help Lenders Protect Homes

Going Through Foreclosure, Wall Street Journal (May 1 1, 2018)

,.,12

,.,.12

18,19

I4

........14

..,,.. passim

.4

........10

1V


L&N Consulting Group, LLC and Super Sol, LTD (together, 66SWrsQf"), as and for their

omnibus (1) further objection to the Financing Motion and (2) objection to the Bid Procedures

Motion (the "Objection"), represent as follows:

PRE,LIMIN STATEMENT3

The Motions must be denied because they are a scheme for insiders to retain control and

ownership of the Debtors' business, and confer millions of dollars of other undisclosed benefits

on themselves, all while paying legitimate creditors little or nothing.

The Debtors were authorized and directed to enter into the proposed borrowing and sale

transactions with "SKNY" by their President, Board of Managers member, and controlling

equity holder Zvi Bloom. Yet, the Debtors and SKNY have not seen fit to disclose that Bloom

will be relieved of over $3 million of personal liabilities to SKNY if the proposed loan from

SKNY (the "DIP Financing") receives final approval. Bloom is a co-obligor on SKNY's alleged

prepetition debt. The Debtors and SKNY propose to repay the prepetition debt with the DIP

Financing, thereby satisfying Bloom's personal obligations with post-petition liens and super-

priority claims against the Debtors. This explains why the Debtors refused all other offers of

financing, and it requires denying final approval of the Financing Motion.a

The Bid Procedures Motion, too, is infected by self-dealing. For years, the Debtors have

been paying rent on an unusable "shell" of a store in the Cleveland arca.5 The resulting cash

drain has deepened the Debtors' insolvency and drained assets from Debtors with operating

3 Capitalized terms used in this preliminary Statement and not otherwise defined shall have the meanings ascribed to

them in the body of this Objection.

a see In re L.A, Dodgers LLC,457 B.R. 308 (Bankr. D. Del. 2011), discussed infra.

s Transcript of First Day Hr'g, Sept. 17, 2018 ("Sept. 17 Tr."), ar46:72-20. The Sept. l7 Tr. is annexed hereto as

Exhibit A,


stores. The Debtors have placed the Cleveland store landlord, Cleveland Kosher Market, on

their list of their 30 largest non-insider creditors (#11), with nearly $300,000 owed under the

lease. SKNY proposes to cure and assume the lease as part of the asset sale. The landlord,

however, is not a non-insider, but a Bloom entity. The albatross of a lease was not an arm's-

length transaction - Bloom even executed the lease on behalf of the landlord entity. Assumption

of the lease as part of the proposed SKNY sale will provide another undisclosed windfall to

Bloom.

SKNY, too, is an insider that has not fully disclosed its connections to the Debtors and

Bloom. Indeed, at the First Day Hearing, the Debtors and SKNY affirmatively misrepresented

that SKNY's connections to the Debtors and Bloom consisted only of equity and debt

investments that began in February 2018. (See infra.) Documents reviewed by Supersol

demonstrate this is false. The operating agreement for Seasons Corporate (which, in turn,

controls the membership interests of all the other Debtors) shows that SKNY has had its 15%

equity interest since no later than December 2015. Moreover, it shows that SKNY is not a mere

minority equity owner; it owns 100% of Seasons Corporate's "Class B Units" which come with,

among other rights, membership on the Debtors' Board of Managers. (Consequently, SKNY

itself executed the corporate resolution authorizing Seasons to borrow money from SKNY.)

SKNY received millions of dollars of transfers from the Debtors in20l1. Furthermore, tax

records reflect that SKNY was paying substantial funds to one of Bloom's Seasons-related

entities in2016, if not earlier. The nature of those payments is still a mystery.

These cases cry out for a trustee.

On top of all the undisclosed self-dealing, the Motions are not in the best interests of the

Debtors and their estates. As a matter of law, no deference may be afforded to the Debtors'

2


business judgment amidst this nest of conflicts. The proposed DIP loan and asset sale are subject

to the entire fairness standard, and they clearly fail because thelz are not the best financing or sale

terms available to the Debtors. The Debtors continue to prosecute the Motions after receiving an

alternate offer that they conceded in open court was higher and better than SKNY's. The

Debtors also refused to so much as respond to a reorganizationproposal made by Supersol

months ago, instead letting their business devolve into its current dire state so as to manufacture

the perception of an immediate need to take insider financing. At the same time, the SKNY

proposal to purchase Seasons for $12 million provides essentially nothing to unsecured creditors.

Based upon the transactions before the Cout1, there does not appear to be any point to these cases

except to enrich Bloom and allow SKNY to hang on to Seasons' business, debt free.

Equally disturbing, as the Court heard in connection with the Debtors' first day motions,

the Motions are packed with terms designed to chill bidding for the Debtors' assets and thwart a

higher and better sale to third parties. As discussed at the initial hearing in these cases held on

September 17,2018 (the "First Day Hearing"), the proposed financing also is tied improperly to

the selection of SKNY as stalking horse bidder and pursuit of an asset sale to SKNY. Per its

terms, the DIP Financing goes into default if the Debtors pursue a higher and better transaction.

Although some of these provisions were struck from the interim financing ordero the Debtors are

still pursuing them on a final basis. The Motions therefore should be denied'

FACTUAL CKGROUND

A- The Sunersol Indebtedness.

1. Supersol holds an unsatisfied judgment (the "Judgment"), entered jointly and

severally against certain of the Debtors and others, by the Supreme Court of New York, New

york County (the "$Iate._Q,ou4"), on May 1, 2018, in the case captioned L&N Consulting Grp.,

LLC, et al, v. Bloom, et aL,Index No. 650632 12018 (the "State Court Case"). (State Court Case

aJ


Doc. No. 57.) The Judgment debtors are Debtors Blue Gold Equities LLC, Central Ave. Market

LLC, Lawrence Supermarket LLC, Amsterdam Ave. Market LLC, Upper West Side Market

LLC, and Scarsdale Supermarket LLC (the "supersol Debtors"), as well non-debtors Zvi Bloom

("Bloom") and Mayer Gold ("Gold"). Pursuant to CPLR $ 7510, the Judgment confirmed an

arbitration award issued by the Beth Din of America (the "Beth Din") on August2,20I7, as

modified on January 10, 2018, in favor of L&N Consulting Group, LLC in the amount of

$8,325,328 .96, and Super Sol, LTD in the amount of $31,578'95, excluding post-judgment

statutory interest (the "supersol Indebtedness").

Z. The Supersol Indebtedness arose from certain Debtors', and Bloom and Gold's,

purchase of four profitable6 and formerly Supersol-branded stores located in Manhattan,

Scarsdale, Queens and Lawrence, New York (the o'supersol Stores"), which the Debtors have

operated under the Seasons name. The Debtors used the profits generated by the Supersol

Stores, and used their credit to incur mountains of additional debt (sometimes in violation of

obligations to other creditors), to finance an inept expansion into other geographic areas, rather

than pay the purchase price for the Supersol Stores as it came due. There are thus, in effect, two

silos of Seasons stores: those purchased from Supersol, and those that may have been the

beneficiaries of fraudulent transfers from, or fraudulently incurred obligations by, the Debtors

that own the former Supersol Stores. No payments have been made by the Debtors in respect of

the Supersol Indebtedness since March 2016.7

6 Following the acquisition by Seasons, the Supersol stores were "throwing off . . . a nice amount of profit." Sept.

17 Tr. at 42:17 -18 (Debtors' counsel speaking)'

7 The Amendecl Declqration of Joel Getzler Pursuant to Local Bankruptcy Rule 1007-4 and in Support of Chapter

I I petitions qnd First Day lviotions [Docket No, 34] (the "Getzler Declaration"), fl 19, claims, in passive voice, that

the Supersol Creditors "were paid" $600,000 in 201 8. That payment was made by a non-Debtor third party in

exchange for a subordinate inierest in the Supersol Judgment, and has no relevance to the Debtors' or their cases,

It did not in any way exacerbate the Debtors' financial distress'

4


3. Paragraph 19 of the Getzler Declaration purports to provide some history to the

Supersol Indebtedness. The drafter of Mr. Getzler's declaration apparently did not review the

relevant documents, because all of the dates are materially incorrect. Pursuant to the sale

agreements for the Supersol Stores, a binding arbitration proceeding before the Beth Din was

instituted in or about October 2016, and a hearing was held on February 22,2017. The Beth Din

issued an award in favor of Supersol on Augus t 2, 2017 . On January 1 0, 20 1 8, the Beth Din

corrected and reduced the award as a result of a computational error made in the August 2,2017

decision. Both the original and corrected arbitration awards pre-dated the Debtors' alleged pre-

petition secured indebtedness to SKNY. That is, the Debtors began creating secured

indebtedness in favor of their shareholder only after they knew they were unable to pay their

debts as they came due.

4. Similarly, at the First Day Hearing, Debtors' counsel made some incorrect

remarks to suggest that the Supersol Indebtedness may have been refinanced and increased so as

to create an aura of possibly avoidable obligations. Pursuant to the Rooker-Feldman doctrine,

the Court does not have jurisdiction to review the Judgment. However, the issues to which the

Debtors alluded in Court were duplicative with arguments they raised successfully before the

Beth Din. The Beth Din awarded Supersol, and the Judgment reflects, only the unpaid principal

balance from the original 2010-11 asset sales. The Beth Din reduced Supersol's claim to unpaid

principal from the sale on the grounds that the restructurings violated Biblical prohibitions on

charging and paying de facto interest rather than avoidance concepts.s But the result is the same

- any potentially avoidable components of the contractual debt are already excluded from the

computation of the Judgment amount. Thus, the Debtors' attempts to cast aspersions on the

8 The Beth Din decisions are on file with the State Court and can be provided to this Court if a need arises

5


bonafi.des or enforceability of the Judgment are frivolous.

B. The DIP Financins - a cynical Device to Hand seasons to SKNY.

5. The Debtors commenced their bankruptcy cases and filed the Motions late on

Sunday, September 16,2018, the eve of a three-week period during which their business is

frequently closed, and many of their professionals are unavailable, due to Jewish holidays.

Although it is unclear from the Financing Motion papers, the Debtors clarified at the First Day

Hearing that they seek to borrow $9.3 million from SKNY, comprised of $6 million of new

borrowings (some of which will be periodically round-tripped to SKNY as interest and fees), and

a ,'roll-up'o of SKNY's $3.25 million of alleged prepetition secured debt (without waiving any

claims or defenses, the "Prepetition SKNY Debt"). Bloom is an obligor on the Prepetition

SKNY Debt but would not be an obligor for the DIP Financing.e Thus, by virtue of the roll-up,

Bloom will obtain at least $3.25 million of personal benefit from the DIP Financing. This alone

explains why other potential lenders were shown the door while SKNY, the only party that could

offer Bloom a roll-up, was selected.

6. The Financing Motion and the Bid Procedures Motion are tied together. The DIP

Financing is conditioned upon the sale of the Debtors' business to SKNY for $12 million before

adjustments pursuant to the Bid Procedures Motion. Failure to sell the Debtors' assets to SKNY'

or so much of them as SKNY chooses to take, is a DIP Financing default that allows SKNY to

shut down future funding of the cases, even if a clearly higher and better offer is available. (See

DIp Loan and Security Agreemenl [Docket No. 10-1] (the "DIP Agreement,'o cited &s "DA"),

gg 9.1(e), (0, (i), (m), (n).) Despite the existence of third parties who have expressed interest in

e See Amended qnd Restated promissory Note (the "Promissory Note"). The Promissory Note is annexed hereto as

Exhibit B.

6


financing the DIP andlor bidding for Seasons' business, the Debtors have designed a locked-up

chapter 11 process that is designed primarily for the benefit of SKNY and Bloom.

7. After repayment of the $9.3 million financing, plus additional exit fees and any

unpaid interest, and payment of such other priority claims and costs that may be required for a

plan to become effective, SKNY's bid will leave general unsecured creditors with pennies on the

dollar, if anything at all.

8. One of the shams of the DIP Financing is that it is predicated upon a budget that

the Debtors have no realistic chance of meeting. The Debtors' DIP budget fDocket No. 10-1]

(the "Budget") is based on assumptions that the Debtors' revenues from operations will increase

by almost 200%- to a level the)i had not attained even before their liquidity crisis - all while

suffering the negative consequences of their bankruptcy. Indeed, the Budget preposterously

projects that the Debtors' weekly revenues will rise from approximately $950,000 for weeks in

September in which Jewish holidays generate extra demand, to approximately $2 million just a

few weeks later. (See Budget.) More importantly, the Debtors will not have sufficient cash to

operate (according to the Budget) and will become administratively insolvent if their revenues

are off by as little as l0o/o from their farfetched projections. That means that SKNY will be able

to walk away with Seasons - whether by exercising rights to foreclose before a competitive sale

process has occurred, or by lending additional money to eliminate any possibility that anyone

other than SKNY will receive any sale proceeds.

C. The Bid Motion.

g. In the middle of the night prior to the First Day Hearing, the Debtors filed the Bid

Procedures Motion, incorrectly expecting the Court might hear it on less than24 hours' notice in

violation of Administrative Order No. 557 ("Order No. 557") $ 2(c). The Bid Procedures

Motion, as filed, seeks approval of bid procedures [Docket No. 12-1], Schedule 1, (the "Bid

7


Procedures" cited as "BP"), including payments of a Breakup Feel0 and Expense Reimbursement

to SKNY, and contemplates eventual entry of an order fDocket No. 12'2) (the ooSale Order")

approving a sale of substantially all the Debtors'assets to SKNY for $12 million [DocketNo.

12-31 (theooAPA").

10. The Bid Procedures Motion discloses nothing about SKNY, notwithstanding that

Order No. 557 mandates that an insider sale must be disclosed conspicuously in a separate

section of the sale motion as an o'Extraordinary Provision." See Order No. 557, $ 1(dxi).

D. At Least One Better Transaction Is Available.

11. At the First Day Hearing, the Debtors conceded on the record that they had

received a competing offer from DC Brothers II LLC ("DC Brothers") to provide cheaper DIP

financing, and to purchase the Debtors' assets for a higher price and with less expensive bid

protections. (Sept. 17 Tr. at 62:15-20 see also infra.) The Debtors further acknowledged that

their co-chief restructuring officers viewed DC Brothers' offer as o'in fact a better bid." (Sept. 17

Tr. at 63:8-9.)

E. The Mvsterv of SKNY.

lZ. Because the Debtors and SKNY seek findings from the Court that the DIP

Financing has been negotiated at arm's-length and in good faith (and even if they did not), full

disclosure of who is behind SKNY and such persons or entities' relationships to the Debtors is

obviously essential. Yet, the Debtors and SKNY are doing their utmost to hide the ball, even

when asked for disclosure directly by the Court:

THE COURT: Okay. All right. So February 2018, that's where we

began with SKNY, correct?

ro Capitalized terms used in this objection and not otherwise defined shall have the meanings ascribed to them in the

8

Bid Procedures Motion,


MR. SCHWED: Correct, Your Honor. So --

THE COURT: Okay. So who is SKNY LLC?

MR. SCHWED: I'm going to let Mr. Klestadt describe who his

client is.

MR. KLESTADT: Your Honor, SKNY is an investment vehicle for

initially a family office, and now there are several participants,

individuals.

THE COURT: A familY what did You saY?

MR. KLESTADT: Office. And now there are several participants

in the entitY.

THE COURT: Okay. And I need to know what relationship those

particiPants have to the debtors.

MR. KLESTADT: None, Your Honor, None to the insiders, ifthat's what you're asking. They have no -- there are no familial

relationships. SKNY had an equity interest in Seasons Corporate as

part of the initial -- of transaction back in February of 201 8.

THE COURT: So it was in February 2018 that they got the equity

interest?

MR. KLESTADT: Yes.

Sept. 17 Tr. at 50:19-51:15.

13. The Debtors and SKNY seriously misinformed the Court. Although the

prepetition SKNY Debt may not have been created until 2018 - after the Debtors and SKNY

knew that the Debtors were unable to pay their unsecured creditors - SKNY's equity-level

control and other financial ties to the Debtors and Bloom date back much further. The Operating

Agreement for Seasons Corporate shows that by December, 2015, SKNY controlled an entire

class of equity, which carried with it many rights, including the right to have membership on the

Debtors, Board of Managers. Bloom's tax records, obtained by Supersol in connection with the

State Court Case, reflect that one of his entities has been receiving substantial payments from

9


SKNY in relation to the Debtors since at least as far back as 2016.11 Supersol has sought, but not

yet received, discovery as to the fult history of financial ties between SKNY and its principals,

and Seasons and its principals, including millions of dollars paid to SKNY in20l6.

14. Second, the Debtors and SKNY have failed to identify who is behind the

anonymously initialed SKNY, beyond the unhelpful explanation that it is "a family office" with

ooseveral participants, individuals." Sept. 17 Tr. at 51 : l-2. II is Supersol's understanding that the

"family office" constitutes the family or estate of Robert'oMendy" Klein of Cleveland ("Mendy

Klein"). The membership authorization (the "Resolution") attached to the Debtors' chapter 11

petition (the "Petition") [Case No. 18-45280, Docket No. 1] is signed by Nathan Klein, Mendy

Klein's son ("Nathan Klein").12 Mendy Klein made a fortune profiting from the post-Lehmann

U.S. housing crisis by providing foreclosure support services.13 Upon further information and

belief, the "family office" investments are managed by an alumnus of Oaktree Capital and York

Capital, aggressive distressed debt investors.

15. Third, while the Debtors have disclosed that SKNY is'oonly" al5o/o equity

holder, SKNY controls an entire class of membership interests and likely has a blocking position

preventing the Debtors from accepting alternative financing proposals. (,See Resolution.)

presumably SKNY would not have executed a Resolution authorizing the Debtors obtaining

financing from itself unless its authorization was required.

16. Supersol does not know the identity of the o'several participants, individuals"

n The Supersol Creditors will be prepared to present this document at the October 3, 2018 hearing but have not filed

it to protect what may be sensitive financial information'

12 The Resolution is annexed hereto as Exhibit C.

13 James R. Hagerty, Robert Klein Set Up Firm to Help Lenders Protect Homes Going Through Foreclosure,Wall

Street Journal (Mav I I , 201 g), https://www.wsj.com/articles/robert-klein-set-up-firm-to-help-lenders-protect-homes-eoing-through-foreclosure- I 526049000'

10


(Sept. 17 Tr. at 5l:2) in SKNY, let alone what relevant relationship they may have. The Debtors

and SKNY have not disclosed them.

17. As noted above, Bloom, who appears to control the majority of the Debtors' Class

A Units, and upon information and belief is a member of the Debtors' Board of Managers, will

receive significant undisclosed personal financial benefits if the Motions are granted: relief from

$3.25 million of personal liability to SKNY, and payments in respect of his secret Cleveland

lease.

18. On September 18, 2018, Supersol transmitted letters (the "Informal Discovery

Letters',) to the Debtors and SKNY requesting narrowly targeted discovery aimed at assessing,

inter alia, SKNy's role and conduct with respect to the proposed DIP and sale transactions (the

.olnformal Discovery").to On Sunday, September 23,2018, approximately twenty minutes before

the 49-hour Sukkot holiday commenced at sundown,15 the Debtors provided Supersol with

limited documents which, broadly speaking, appear to consist of: (1) documents concerning

Bank United loans; (2) Cleveland store documents, including rent, contracts, and invoices;

(3) operating agreements; (4) leases; (5) loan documents concerning the 2018 Prepetition SKNY

Debt; and (6) a smattering of financial reports. The Debtors have not yet provided such critical

information as other offers they have received to provide financing or to purchase assets, the

history of financial ties to SKNY, their communications with SKNY and other potential lenders

and bidders, or substantiation for the farfetched revenue projections in the Budget. SKNY has

not yet produced any documents at all.

ra The Informal Discovery Letters are annexed hereto as Exhibits D and E.

15 The Debtors' conduct in this regard is par for the course. Everything they have provided to Supersol - even

simple notice of their 4:00 p.m. bint<ruptly hlings - has come either in the middle of the night or immediately prior

to the start of a holidaY.

11


THE MOTIONS SHOULD BE DENIED

A. The Motions Are Subiect to the Entire Fairness Standard.

D. The Debtors assert that the Motions should be approved under the business

judgment standard. (See, e.g.,Bid Procedures Motion l|fl 51-58.) They are incorrect.

"fT]ransactions that benefit insiders must withstand heightened scrutiny before they can be

approved under $ 363(b)." Official Comm. of (Insecured Creditors of Enron Corp. v. Enron

Corp. (In re Enron Corp.),335 B.R. 22,28 (S.D.N.Y. 2005) (collecting cases); see also L.A.

Dodgers,457 B.R. at 3 13 (rejecting business judgment and applying "entire faimess" standard to

a debtor's selection of a DIP where the DIP would relieve a shareholder of personal liability).

20. ooThis requires proof of fair dealing and fair price and terms." Id,; see In re Flour

City Bagels, LLC,557 B.R. 53, 78 (Bankr. W.D.N.Y. 2016) (applying heightened scrutiny and

rejecting sale of substantially all of debtor's assets to sole managing member); In re Family

Christian, LLC, S33 B.R. 600, 622 (Bankr. W.D. Mich. 2015) ("Where a proposed sale would

benefit an insider of a debtor, the court is required to give heightened scrutiny to the fairness of

the value provided by the sale and the good faith of the parties in executing the transaction'")

(citing Rickel & Assocs., Inc, v. Smith (In re Rickel & Assocs., Inc,),272 B'R. 74, 100 (Bankr.

S.D.N.y. 2002)); Inre Innkeepers U|ATr.,4428.R.227,231 (Bankr. S.D.N.Y. 2010) (refening

to the ,'heightened scrutiny/entire fairness standard" that "closely examines transactions

involving insiders"); Inre Med. Software So/s.,286 B.R. 43I,445 (Bankr. D. Utah 2002) (where

o,asset sale is to a purported insider, the purchaser has a heightened responsibility to show that

the sale is proposed in good faith and for fair value").16

16 In fact, even when the bidder is a non-insider and "pre-confirmation $ 363(b) sale is of all, or substantially all, of

the Debtor's property, and is proposed during the beginning stages of_the case, the sale transaction should be closely

scrutinized, and ihe p.opon.ni bears a heightined burden ofproving the elements necessary for authorization'"

Med. Software Sols.,286 B'R' at445'

t2


21. Indeed, "the conduct of bankruptcy proceedings not only should be right but must

seem right.o' In re Bidermann Indus. U.S.A., 203 B.R. 547,549 (Bankr. S.D.N.Y. 1997)

(rejecting insider transaction under heightened scrutiny) (quoting Knapp v. Seligson (In re Ira

Haupt & Co.),361 F .2d 164, 168 (2d Cir. 1966)) (Friendly, J.). The Court already has

acknowledged that prudent point. See Sept. 17 Tr. at 126:9-18 (THE COURT: "It should not be

a default if the Debtor decides that it wants to amend its . . . motion to change the stalking horse.

The appearance of it, otherwise, is tenible. Putting aside the fact that it doesn't make sense to

me and it's not the law, the appearance is terrible. The idea here is to maximizethe value of the

assets."). "The good faith inquiry is relevant to both the heightened scrutiny and business

judgment standards." Innkeepers,442 B.R. at 233 (rejecting insider transaction under either

heightened scrutiny or business judgment)

22. Here, the application of the entire fairness standard is not subject to reasonable

dispute, because there are multiple insider benefits and non-arm's-length aspects to the proposed

DIP Financing and Bid Procedures - putting aside the Debtors' calculated failure to make full

disclosure. Without even getting to SKNY, the benefits to Bloom - relief from over $3.25

million of personal liability and cure payments for a controversial non-arm's-length lease - are

enough by themselves:

The evidence shows that if Debtors, controlled by [debtors'principall, did not seek court approval for the fproposed DIP] Loan,

fdebtors' principat] would personally owe $5.25 million to

fproposed DIP lender]. Such potential personal liability clearlycompromised Debtors'/[principal's] independent judgment.

Therefore, Debtors' decision is not entitled to review using the

business judgment standard. Instead, the Court must reviewDebtors' decision to accept the fproposed DIP] Loan applying the

entire faimess standard. This requires proof of fair dealing and fairprice and terms. The Debtors did not establish that the terms of the

[proposed DIP] Loan are entirely fair, particularly given [competingDIP lender's] competing terms . . . .

13


Had Debtors negotiated with [competing DIP lender], a moreeconomically viable loan may have developed - but at a high cost tothe Debtors' decision-maker, [debtors' principal]. The Courttherefore concludes that Debtors' decision is not entitled todeference as a matter of business judgment. Consequently, Debtorshad to prove the entire faimess of the fproposed DIP] Loan -- faitdealing and fair price. fCompeting DIP lender's willingness toextend . . . credit on better terms and Debtors' refusal to negotiate

with [competing DIP lender] precludes a finding of entire fairness,

L.A. Dodgers,457 B.R. at 313-14 (citation omitted).

23. It should also not be subject to reasonable dispute that SKNY qualifies as an

insider. "Courts recognize two types of insiders-statutory and non-statutory." Jacobs v.

D'Alessandro (In re Dewey & Leboeuf LLP), Nos. 12-12321 (MG), 14-01919 (MG), 2014

Bankr. LEXIS 4051, at*16-17 (Bankr. S.D.N.Y. Sept. 23, 2014). Aooperson in control of the

debtor" is its statutory insider. 11 U.S.C. $$ 101(3lXBXiii), (CXv). "The inquiry is fact-

specific and can tum on a case-by-case basis from the totality of the circumstances." Dewey &

Leboeuf,2014 Bankr. LEXIS 405I, at*17 (quotation and ellipses omitted). Likewise, courts

generally determine non-statutory insider status by examining the closeness of the relationship

between the parties, the degree of control exerted over the debtor and whether transactions were

conducted at arm's length. Id. at*20 (quotation omitted).

24. As discussed above, SKNY controls an entire class of equity, and it (or its

designee) sits on the Debtors' Board of Managers. Mendy Klein's son, Nathan Klein, signed the

Resolution authorizing the Debtors' bankruptcy filings and borrowing from SKNY. That in and

of itsetf demonstrates insider status, because SKNY could not authorizethe Debtors'bankruptcy

filings without being ooin control" of the Debtors. See Flour City Bagels, 557 B.R. at 84 (secured

lender turned managing member was an insider where it "filed the bankruptcy in [the debtor's]

name"). (If there remains any doubt, the Court should at least postpone adjudication of the

t4


Motions until the Debtors and SKNY have provided fulsome disclosure, including making

witnesses available for deposition upon reasonable notice.)

25. The Motions can be denied out of hand because the Debtors, having erroneously

relied on the business judgment standard, have made no attempt to demonstrate either the

fairness of price or the good faith of dealings, behind the Motions. See Family Christian,533

B.R. at 628-29 ("The court will not find good faith simply because the Committee has

emphatically supported the transaction . . . . Instead, given the insider relationships in these

cases, the court would expect . . . evidence in support of the alleged good faith nature of the

proposed transaction."). Moreover, Order No. 557 provides that the following must be disclosed

in a sale motion as anooExtraordinary Provision": "If the motion proposes a sale to an insider, as

defined in the Bankruptcy Code, the motion must disclose what measures have been taken to

ensure the fairness of the sale process and the proposed transaction." Order No. 557, $ 1(dxi).

The Motions do not disclose any such o'msasures" because there have been none. The Debtors

have not carried their burden as to either of the Motions.

B. The Bid Motion Should Be Denied - Under Anv Standard.

1. There Is a Hieher and Better Offer.

26. SKNY cannot be approved to serve as the Debtors' stalking horse under any

standard, when the Debtors have conceded on the record in court that they received a higher and

better offer:

MR. SCHWED: I just want to point out that [DC Brothers' counsel]

is here together with his client. They've presented us . . . with a termsheet of terms under which they would provide the [DIP] facilityand under which they would buy the assets of the company . . . .

Regarding the bid protection, their bid protection fee is 2.5 percent

as opposed to SKNY which is 3 percent. Their outside date forclosing is January 15th as opposed to December 31. And the --perhaps the most significant difference is that their price for the

15


purchase agreement is 13 million as opposed to SKNY's price of 12

million. [* * *]

[I]t's hard to look at the DIP without looking at the asset purchase

agreement.

And when you look at the two of them combined, because the asset

purchase agreement begins with the stalking horse bid of $13million, it is the view of Mr. Getzler or Mr. Henrich that that, as a

combined bid, is in fact a better bid.

We will say that we did commit to SKNY that we would present

their bid as a stalking horse bid, because they wete not willing to putthe last round of funding in unless we agreed to go forward withthem on a DIP loan and go forward with them on an asset purchase

agreement.

Sept. 17 Tr. at 60 Il-17,62:15-20,63:3-14. The Court agreed that the Debtors could withdraw

the Bid Procedures Motion. See id. at 116:24-25; lt9:6-7 ("I have had many experiences where

parties came in and they substituted one stalking horse for another because they made a better

deal . . . . [The Debtor] did it [filed the Bid Procedures Motion], and then it can withdraw it.").

Yet, the Debtors have not.

27. Given the foregoing, it is remarkable that the Debtors continue to prosecute the

Motions as filed, and demonstrates that SKNY is running the show. The Debtors' continued

pursuit of bid procedures with a stalking horse that is not the best bid cannot possibly be an

exercise of sound, or any, business judgment. See Innkeepers, 442 B.R. at 233 (finding it would

reject insider transaction even under business judgment standard: "While the Debtors state . . .

that they are aware of no potential alternative that would provide creditors with richer tecoveries,

it does not appear from the evidence presented that they have canvassed the possible altematives

at this point."). Here, the Debtors actually heve oocanvassed" at least one alternative, yet are

t6


pursuing what they considered and objectively is aworse bid.17

7 SKNY is Not E ed to the Breakun Fee and Exnense Reimbursement.

28. Breakup fees and other bid protections should be rejected by bankruptcy courts

where "(1) the relationship of the parties who negotiated the breakup fee is tainted by self-

dealing or manipulation; (2) the fee hampers, rather than encourages, bidding; or (3) the amount

of the fee is unreasonable relative to the proposed purchase pdce." Gey Assocs. Gen. P'ship v.

3I0 Assocs., L.P.,No. 01-8-2798 (REG) ,2002 U.S. Dist. LEXIS 20759, at *5 (S.D.N.Y. Oct'

23,2002) (citation omitted) (emphasis added); Bidermann, 203 B.R. at 552 (same).

29. Breakup fees are especially inappropriate where, as here, there are multiple

bidders present. For example, rn Gey Assocs, Gen. P'ship, where the debtor "had two buyers

drooling" to purchase its property, the district court affirmed the bankruptcy court's ruling that

"[t]hebreakup fee... didnotencouragebidding. Indeed... inthis context, abreakupfee...

was both unnecessary (as there were already multiple bidders) and inappropriate (in that it

hampered [debtor's] ability to sell the Property to [potential alternative purchaser])." 2002 U.S.

Dist. LEXIS 20759, at x5.

30. The proposed Breakup Fee and Expense Reimbursement fail under all three of the

tests (which are disjunctive). First, the relationship between the Debtors and SKNY is plainly

tainted by self-dealing and manipulation. In addition to the multiple undisclosed relationships,

insider control, and personal benefits discussed above, SKNY's argument at the First Day

Hearing demonstrated that it would pressure and threaten the Debtors into prosecuting the Bid

r? While the DC Brothers' bid is clearly higher and better, it may still suffer from some of the same issues as the

SKNY bid with respect to restricting the Debtors' ability to pursue better and higher offers. Supersol's objection

should not be taken as a whole-hearted endorsement of the DC Brothers' bid unless certain anticipated bid-chilling

provisions are removed.

t7


Procedures Motion, even if they withdrew it so as to pursue a better offer:

MR. SCHWED: [T]o the extent that [DC Brothers] or somebodyelse steps forward and presents an asset purchase agreement orstalking horse agreement which is materially, substantially better forthe estate, the Debtor will support it.

THE COURT: You'll amend your [Bid Procedures] motion?

MR. SCHWED: Correct, Your Honor.

MR. KLESTADT: Your Honot, no, that's where I take issue. TheDebtor has to proceed with the motion that's on file. That's theobligation that the Debtor has under my asset purchase agreement

[T]he Debtor is under contract, Your Honor, under the asset

purchase agreement, to present that motion . . . . [T]he Debtor has

the obligation to, at a minimum, present the motion . . . . [T]heDebtor has the contractual obligation to present the offer, to have

the bidding procedures approved. . . . The procedures provide formy client's offer to be the stalking horse offer . . . . [A]t a minimum,Your Honor, the Debtor must present the motion as it is. It cannotwithdraw the stalking horse motion.

MR. SCHWED: Your Honor, I don't disagree with anything MrKlestadtsaid....

MR. KLESTADT: Your Honor, the Debtor, in my view, is bound

to prosecute the motion to Your Honor . . . . [T]he remedy wouldbe an unsecured claim for breach of contract . . . . I may be entitledto whatever profits we may have obtained by operating the business,

or lost opportunity costs.

Sept. 17 Tr. at 113:15-25,114:5-115:3, 117:13-118:4. We thus have a transcribed record of the

insider's threats.

31. Second, because there already are multiple offers on the table, the Breakup Fee

and Expense Reimbursement hamper, rather than encourage, bidding. See Gey Assocs. Gen.

P'ship,2002U.S.Dist.LEXIS20759,at*5. InInreTiaraMotorcoachCorp.,2I2B.R.I33

(Bankr. N.D. Ind. 1997), as another example, the court reasoned that a oobreakup fee arrangement

would chill bidding" where competing entities that had requested bid packages "did so without

18


solicitation and without the approval of the proposed breakup fee." Id. at 138 (footnote omitted).

The court further explained that it "did not hear testimony or receive documentation as to the

time, effort, expense and risk that [stalking horse] contributed to the proposed sale," and that,

although the debtor would have ceased operations earlier without the stalking horse's letter of

intent to purchase the assets, o.without evidence conceming [stalking horse's] time, effort,

expense and risk, the court cannot determine whether the breakup fee is justified." Id.; see In re

Integrated Res., 147 B.R. 650, 660 (S.D.N.Y. 1992) ("[T]he court should consider whether the

proposed acquiror attracted other bidders or simply received a potential windfall."). SKNY's bid

did nothing to ooattract" DC Brothers. DC Brothers had been negotiating a transaction with the

Debtors well before the petition date, and put its offer on the record at the First Day Hearing half

aday after the Bid Procedures Motion was filed, having communicated it to the Debtors even

earlier. The Breakup Fee and Expense Reimbursement are therefore improper under this test as

well

32. Third, the proposed $360,000 Breakup Fee, plus $150,000 Expense

Reimbursement, are unreasonable. The Bid Procedures somewhat misleadingly state that the

Breakup Fee is "3.Tyo of the Purchase Price," and "$360,000.00 (or 3Yo of the Purchas Price)."

(Bid Procedures Motion fl 32(g); BP, $ D.) However, "Purchase Price" is defined as $12 million

which includes nearly $10 million that SKNY proposes to credit bid or roundtrip back to itself -

in effect a foreclosure (based mostly upon debt that did not even exist a month ago). (Bid

Procedures Motion tf 15; BP, $ D; APA, Art. II, $ 2.3(aXb).) The actual net value to the estate

from SKNY's bid will be less than $2.75 million - without even adjusting for the portions of the

DIP Financing proceeds earmarked for SKNY's interest and fees. SKNY's proposed Breakup

Fee of $360,000 actually represents l3Yo of the consideration to the estates, not3Yo. Adding the

19


additional $150,000 Expense Reimbursement to the "Breakup Fee" brings the total bid

protection fees to $510,000, which is some lgYo of the net value of the bid to the estate. That is

far above market and patently unreasonable in an arm's length transaction, let alone an insider

sale like this one. The Breakup Fee and Expense Reimbursements should only be calculated on

the basis of the value that the SKNY bid (if otherwise approved) provides to stakeholders other

than SKNY itself.

3. The Bid Procedures Motion Does Not DescribeAdequate. or Anv" Marketing or Diligence Processes.

33. The Bid Procedures Motion says nothing whatsoever about the Debtors'

marketing and diligence processes - prepetition or postpetition. "The principal justification for $

363(b) sales is that aggressive marketing in an active market assures that the estate will receive

maximumbenefit." Inre Gulf Coast Oil Corp.,404 B.R. 407,424 (Bankr. S.D. Tex.2009).

Thus, a sale process should follow'oan intensive effort to drum up the best price obtainable by

creditors." Bidermann, 203 B.R. at 552; see Innkeepers,442 B.R. at 232 ("The Debtors did not

run any marketing process . . . . U]t does not appear that Innkeepers has contacted any potential

investors outside the capital structure . . ."); Inre Duro Indus., No. 02-16131-CJK, 2004 Bankr.

LEXIS 1235,at*19 (Bankr. D. Mass. Aug.26,2004) ("There was simply no [marketing] effort

here . . . certainly no effort sufficient to dispel the notion that this case was not filed, and the sale

process was not designed, simply to wash the assets though bankruptcy for the benefit of the

Lender.").

34. The Bid Procedures Motion contains a section heading entitled "Pre-Petition

Marketing and Sale Process" - yet, the section fails to discuss marketing but for a single

sentence: "Prior to the Petition Date, the Debtors engaged in discussions with other possible

purchasers, including at least one who may present alternative bids at the Sale." (Bid Procedures

20


Motion \24; see also id. nn20-23.) Careful combing of all the Bid Procedures Motion

documents reveals only one (possible) act of possible marketing buried in the Bid Procedures:

the Debtors will provide notice of the auction and sale and the Bid Procedures by mail to o'all

parties identified by the Debtors as potentially having an interest in acquiring some or all of the

Acquired Assets." (BP, $ E (ix).)t8 This is required by Order No. 557, anyway. See Order No'

ss7, $ 2(b).

35. Beyond that, the burden is on interested parties to somehow learn that the

Debtors' assets are for sale and reach out to the Debtors themselves. (BP, $$ E-F.) The Bid

Procedures do not require the Debtors to take any meaningful steps to market their assets and

solicit additional bids. Such an omission is especially problematic in this case, where Supersol

and others have previously attempted to negotiate a transaction and were ignored - yet now the

Debtors have suddenly accepted an insider deal.

36. Likewise, the Bid Procedures Motion is void of disclosure as to how the diligence

materials will be made available. Supersol has found it exceedingly difficult to obtain diligence

materials from the Debtors. The Debtors propose only that "Potential Bidders" "shall be

permitted to conduct diligence with respect to the Acquired Assets." (BP, $ F.) There is no

disclosure as to how information will be exchanged - for example, whether the Debtors will

create an electronic data room - and what materials the Debtors commit to making available.

Any bid procedures should, at a minimum, expressly require the Debtors to provide bidders with

meaningful diligence materials concerning their operating performance and history.

rs The Bid procedures Motion provides that the Debtors would serve a copy of their Proposed order (defined herein)

on ,.all parties who have made an expression of interest in acquiring the Acquired Assets or the Business within

twelve itZ; months prior to the date of the Motion." (Bid Procedures Motion tf 48')

2l


4. Additional Obiections to Bid Procedures Motion.

37. Timeline. The Bid Procedures Motion does not set forth proposed dates for a bid

deadline, auction, objection deadline (presumably to the sale), or sale hearing. (BP, $ B; Order

(A) Approving Bidding Procedures for the Sale of Substantially all of the Debtors' Assets, (B)

Scheduling an Auction and a Sale Hearing Related thereto, (C) Approving the Form and Manner

of Notice of the Auction and the Sale Hearing, and (D) Approving Bidding Protections [Docket

No. 12-1] (the "Proposed Order") fl'1| 3, 6,8,74.) The only dates disclosed are that the APA

requires entry of the Proposed Order by October 9,2018, and the annexed Sale Order by

December 31, 2018. (Bid Procedures Motion fl 30(b).) Any sale process must be on a schedule

that maximizes participation by other prospective bidders. It is impossible to evaluate the

reasonableness of the process with blank dates. Given the proposed December 31, 2018 deadline

for entry ofa sale order, prospective bidders can be provided at least 60 days to conduct

diligence and submit initial bids.

38. Qualified Bidders Cannot be Determined in Debtors' Sole Discretion. While the

Bid Procedures provide, for the most part, that the Debtors must make key decisions'oin

consultation" with the official committee of unsecured creditors (the "UCC"), the Debtors

purport to determine in their sole discretion whether a bidder is a "Qualified Bidder." (BP,

$ G(i).) This is impermissible, especially where, as here, the stalking horse is an insider. The

UCC and other large creditors should be consulted and informed in advance of all decisions in

the sale process, including the determination of whether bid packages constitute "Qualified

Bids."

39. All Bids. The Bid Procedures provide: "For a Bid Package submitted by a

Potential Bidder to qualify as a Qualified Bid, the purchase price in that bid must provide for net

cash inan amount not less than $12,600,000 which represents the Purchase Price, the maximum

22


amount of the Bidding Protections anda $100,000 minimum overbid." (BP, $ G(iiD (emphasis

added),) With less than $2.75 million possibly available for creditors other than SKNY, setting

the next incremental bid $600,000 higher, all in cash, is unreasonable. The Debtors, in

consultation with the UCC, should be permitted to consider bids in all forms.

40 Discretion The Bid Procedures Motion

proposes that SKNY will have the sole discretion to elect to assume contracts, and the

responsibility to pay cure costs. (Bid Procedures Motion l|fl 38, 40.) This provides SKNY with

too much optionality in terms of what contracts and leases they cure or force the Debtors to

reject, and renders it impossible to evaluate the value and fairness of the proposed purchase

pnce.

4I. DIP Default Interest. Any bid procedures order should make abundantly clear

that SKNY is not entitled to collect default interest if another bidder is chosen. Otherwise,

SKNY would effectively get a "double dip" on its proposed Breakup Fee (to the extent it

otherwise may be approved), further stacking the deck against a competitive sale process.

42. Rebidding. Order No. 557 provides: "If a break-up or topping fee is requested,

the Sale Procedures Order should state whether the stalking horse will be deemed to waive the

break-up or topping fee by rebidding. In the absence of a waiver, the Sales Procedure Order

should state whether the stalking horse will receive a ocredit' equal to the break-up or topping fee

if the stalking horse is the successful bidder at a higher price than the stalking horse's initial bid."

Order No. 557, $ 1(bXiv)(3). The Proposed Order does not so specify.

43. Disclosure of Gold's Employment Agreement. Order No. 557 provides that "[i]f

the proposed buyer has discussed or entered into any agreements with management or key

employees regarding compensation or future employment, the motion must disclose the material

z)


terms of any such agreements, and what measures have been taken to ensure the fairness of the

sale and the proposed transaction in the light of any such agreements." Order No' 557, $ 1(dxii).

The Bid Procedures Motion contains exactly one sentence in this regard: ooPurchaset intends to

offer employment to Mayer Gold, who is an insider of the Debtors." (Bid Procedures Motion

flfl 28, 30(a).) The Debtors should disclose the terms of Gold's employment. Needless to say, the

offer of continuing employment to Gold, the third member of the Debtors' Board of Managers,

further taints the Motions.

44. Sale of Avoidance Actions. Order No. 557 also provides: "If the Debtor seeks to

sell its rights to pursue avoidance claims under chapter 5 of the Bankruptcy Code, the sale

motion must so state and provide an explonation of the basis therefor." Order No. 557, $ 1(dXx)

(emphasis added). The Bid Procedures Motion provides that SKNY is to acquire avoidance

actions, purportedly against non-insiders (Bid Procedures Motion fl 30(g)), but offers no

ooexplanation of the basis therefor." OrderNo. 557, $ 1(d)(x).

45. No Bids After Auction. Order No. 557 provides: "The Sale Procedures Order

should provide that the Court will not consider bids made after the auction has been closed,

unless a motion to reopen the auction is made and granted." Otder No. 557, $ 1(bXv)(s). The

proposed Order does not so specify.le Supersol recommends against the inclusion of such a

provision in these particular cases. While late bids can be an inconvenience, given the

complexity of evaluating the Debtors' assets, the under-disclosed insider influences on the sale

process, and most of all, the extremely scant value available for unsecured creditors, Supersol

does not believe that there should be any restrictions on the consideration of any bids.

ts The Bid procedures Motion does provide: "No bids shall be considered by the Debtors or the Bankruptcy Court

unless a party submitted a Competing bffer in accordance with the Bidding Procedures and participated in the

Auction." (Bid Procedures Motion U 32(k)')

24


46. Return of Deposits. The Bid Procedures provide that the deposits of Qualified

Bidders who are not determined to be the Successful Bidder or Backup Bidder will be returned

within five business days after entry of the Sale Order. (Bid Procedures Motion tT32(cXy).) To

encourage bidding, deposits of unsuccessful bidders should be returned within three business

days of the auction, not five days after eventual entry of the Sale Order.

Date. There is a conflict in the Bid Procedures Motion regarding the date47.

by which the sale must close. The Bid Procedures Motion and, at first glance, the APA, provide

that the sale must be consummated by December 3 1 , 20 1 8. (Bid Procedures Motion nn 27 ,

30(b); APA Art. II, $ 2.5.) Yet, the proposed APA also provides that SKNY may terminate the

APA if the closing has not occurred by December 15, 2018. (1d,, Att, VIII, $ 8.1(c), (e).) This

should be corrected.

5. Reservation of Rishts Resnect to Sale Order

48. Order No. 557 provides: "When an auction is contemplated in cases filed under

chapter 11 . . . the Debtor should ordinarily file a single motion seeking the entry of two orders to

be considered at two separate hearings. The first order (the oosale Procedures Order") will

approve procedures for the sale process, including any protections for an initial, or stalking horse

bidder ("stalking horse")o and the second order (the "Sale Order") will approve the sale to the

successful bidder at the auction." Order No. 557, $ 1(a). The Proposed Order here appears to

comply with that requirement, providing that nothing contained therein o'precludes any party in

interest from objecting to the Sale in accordance with the objection procedures set forth herein,

and no parly shall be deemed to have consented to the Sale by virtue of not having objected to

the Bidding Procedures requested in the Motion." (Proposed Order n22.)

49. Neverthelesso out of an abundance of caution, Supersol expressly reserves all

rights to object to the final sale order. This present Objection is not intended to comprise or

25


foreclose Supersol's potential objections to approval of the APA or any alternative asset

purchase agreement, or to entry of the Sale Order or any sale order. Supersol reserves all of its

rights to object to any of the foregoing on any grounds, whether or not raised herein, prior to and

at any sale hearing, in accordance with any deadlines the Court establishes.

C. The DIP Motion Be Denied.

50. In the interest of brevity, Supersol refers the Court to the discussions set forth

above regarding the insider-nature of the proposed DIP Financing, the lack of arm's-length

negotiations, the inapplicability of the business judgment standard, the Debtors' and SKNY's

material failures of disclosure, and the Debtors' failure to accept a higher and better offer of

financing. Supersol also incorporates by reference the arguments it made at the First Day

Hearing. In addition, Supersol objects to approval of the DIP for the following reasons.

l. Credit Is Available on More Favorable Terms.

51. The Debtors bear'othe burden of proving that: (1) ft]hey are unable to obtain

unsecured credit per 11 U.S.C. $ 364(b), i.e., by allowing a lender only an administrative claim

per 11 U.S.C. 503(b)(1XA); (2) [t]he credit transaction is necessary to preserve the assets of the

estate; and (3) [t]he terms of the transaction are fair, reasonable, and adequate, given the

circumstances of the debtor-borrower and the proposed lender." L,A, Dodgers, 457 B.R. at 3 12

(citations omitted). Likewise, "[t]he first prong of 11 U.S.C. $ 364(d) requires the debtor to

show that alternate financing is unavailable.'o In re 495 Cent. Park Ave. Corp., 136 B.R' 626,

630 (Bankr. S.D.N.Y. 1992).

52. The Debtors ask the Court to find, inter alia, that they: "are unable to obtain

financing from sources other than ISKNY] on terms more favorable"; oohave been unable to

obtain sufficient unsecured credit"; and oohave also been unable to obtain credit: (a) having

priority over administrative expenses of the kind specified in sections 503(b), 507(a) and 507(b)

26


of the Bankruptcy Code; (b) secured by a lien on property of the Debtors and their Estates that is

not otherwise subject to a lien; or (c) secured by a junior lien on property of the Debtors that is

subject to a lien that is on terms more favorable than the DIP Facility." (Proposed DIP Order !J

VI (b).) The Court should decline to do so.

53. As discussed above, the Debtors (to their credit) disclosed the existence of higher

and better funding at the First Day Hearing from DC Brothers. Moreover, Supersol sought to

develop and advance its own proposal for a DIP loan and a pre-negotiated chapter 11 plan

months ago, before the Debtors' business and need for funds had grown so dire, but the Debtors

refused to engage with Supersol. The Debtors have just begun to provide basic diligence

information to Supersol, and are providing the bare minimum at the latest possible time. Other

than the acknowledgement of the DC Brothers offer at the First Day Hearing - DC Brothers and

its counsel were in Court, leaving the Debtors no option - the Debtors have not provided

disclosure of what other offers were potentially available and from whom, or what process they

undertook to seek financing.

54. Accordingly, the Court cannot enter the section 364 findings requested by the

Debtors. In fact, the Court should not approve the SKNY DIP Financing at all. See L'4.

Dodgers,457 B.R. at3l4 (rejecting DIP proposal where: "Had Debtors negotiated with

falternate potential lender], a more economically viable loan may have developed.").

2. The Unattainable DIP Budget Renders the DIPa Mere Ruse to Deliver the Debto rs to SKNY.

55. The DIP Financing should not be approved because it is all but guaranteed to go

into default as a result of the ridiculous revenue projections in the Budget, leaving the Debtors

administratively insolvent and in the hands of SKNY before a sale and marketing process can be

completed. Even during better times, the Debtorso average weekly revenues in the winter

27


months between the Jewish holiday selling seasons were not at the levels assumed by the Budget.

It is impossible to credit that they will rise from the approximately $950,000-per-week range to

approximately $2 million per week over the course ofjust a few weeks while the Debtors are

suffering the consequences of their bankruptcy, and the loss of goodwill from customers and

vendors alike precipitated by their dilatory decision to file.

56. The DIP Financing Budget provides the Debtors with only a $300,000 cash

cushion above Budget. If the Debtors miss their absurd projections by 10%, they will be out of

cash in a few weeks. If the Debtors increase sales by 50% - a tremendously positive result - in a

week they project increasing sales by l00oA, their cash could be exhausted in a matter of days.

The results could be a DIP default, administrative insolvency and possibly dark stores. But

unlike if the Court were to deny approval of the Financing Motion, the Debtors would become

administratively insolvent with millions of dollars of additional obligations to SKNY ahead of

non-insider creditors. A default should not be a foregone conclusion before the financing is

approved, but the Debtors' absurd revenue projections all but guaranty a default. With a built-in

default, the DIP Financing is only a mechanism to deliver Seasons into the hands of SI(NY - and

provide millions of dollars of benefits to Bloom in the process.

3 Continued DIP Financins Should Not Be Conditioned U on a Sale to SKNY

57. Supersol reiterates its interim objections to the DIP Financing insofar as it

requires a sale to SKNY upon penalty of default. (Supersol would likewise object to such

provisions in a competing DIP-sale package.) As discussed on the record at the First Day

Hearing, section 9 of the DIP Agreement constitutes an impermissible attempt to lock the

Debtors into selling their assets to SKNY, and all but dooms an open and competitive bidding

28


process. (See DA gg 9.1(e), (0, (i), (m), (tr).)20 The DIP Agreement continues to provide that

terminating the APA with SKNY to sell to a higher bidder, would constitute a DIP default,

entitling SKNY to stop funding the cases so that the Debtors are unable to proceed to close on

the higher offer. SKNY would also be entitled to collect default interest, effectively giving it a

"double dip" on break-up fees if another bidder were chosen. (See id., e.g., $ 9.1(0, (i).) The

DIP Agreement also cross-defaults with defaults under the APA, even though the APA has not

received Court approval and will not for many months if ever. SKNY is transparently using the

DIP to provide it with a veto of any sale other than a sale to itself - even one that pays SKNY in

fult. The interim financing order entered on September 28,2018 fDocket No. 14] (the "Interim

DIP Order"), removed these provisions. The final DIP Order should do so as well'

4. SKNY and the Debtors Are Not Entitled to Findings ConcerningNon- Status. .fudsment or Faith.

58. As discussed above, no deference to the Debtors' business judgment in selecting

the DIP Financing is appropriate here, because the Debtors' independent judgment has been

compromis ed, See, e.g., L.A. Dodgers,457 B.R. at313 (applying "entire faimess" standard to

selection of a DIp because the DIP would relieve a principal of personal liability). The Debtors

have not, and cannot, make the necessary evidentiary showings to demonstrate SKNY is not an

20 The DIp Agreement as filed (notwithstanding the Interim DIP Order) impermissibly provides, in relevant part:

In addition to the Events of Default under the Interim DIP order and/or Final DIP order, the following shall

constitute a Default:(e) An Event of Default (as defined in the APA) has occurred and is continuing under the APA; or

ifj fn. filing of a Chapter 11 PIan for the Debtors does not provide for the consummation of the

transactions contemplated by the APA or the payment in cash in full of the DIP Obligations on or

before the MaturitY Date; or ' ' , .

(i) The APA is terminated for any reason other than a default of the Lender under the APA; or ' ' ' '

im) The Bidding Procedures Order (as defined in the APA), which authorizethe Lender to credit

Uid tne Prepetition Indebtedness and the DIP Obligations pursuant to Sections 363(0 and 363(k)'

shall not have been entered by the Bankruptcy Court on or prior to October 9,2018; or

(n) The Sale Order approving the Sale to Lender shall not have been entered by the Bankruptcy

Court on or prior to December 15, 2018 ' ' . .

29


insider, that the DIP Financing was negotiated at arm's-length, and "proof of fair dealing and fair

price and terms." 1d. "Business judgment" is off the table as a matter of law. The Court should

deny such findings, as it did with respect to the Interim DIP Order.

5. The Roll-Up Is an Undisclosed Bribe to Bloom.

59. Supersol objects to the o'roll-up" as an undisclosed payoff to Bloom. See supra.

Moreover, the Debtors have not demonstrated any justification for converting the Prepetition

SKNY Debt into postpetition super-priority debt.

6. The DIP Lenders' Fees and Expenses Should Be Limitedand Subiect to Wider Review.

60. The Debtors' DIP order as proposed, fl 3, provides for payment of fees and

expenses, including attorneys' fees, of SKNY. SKNY is wearing at least four hats - bidder for

the Debtors' assets, prepetition creditor, managing member, and prepetition equity holder. To

the extent the Financing Motion is approved, the approval order should provide that SKNY may

only charge the estates for fees incurred in its role of DIP lender, and must provide sufficiently

detailed invoices for parties to determine whether it is in compliance and whether its fees are

reasonable. It would be inappropriate for one bidder to be advantaged over others by receiving

reimbursement of its legal fees from the estates, in addition to whatever expense reimbursements

may eventually be authorized under a bid procedures order. That is especially true when the

bidder is an insider with undue influence over the Debtors and their cases.

30


CONCLUSION

For the foregoing reasons, Supersol requests that the Court deny the Motions, or in the

alternative, delay consideration of the Motions until a UCC has been appointed and, along with

other interested parties, has had adequate discovery of the matters pertinent to the Motions. To

the extent the Court is otherwise inclined to grant the Motions, Supersol requests that the Court

condition such approval on modification of the Motions to address the matters raised above.

Dated: September 26, 2018New York, New York

KASOWITZ BENSON TORRES LLP

By : /s/ Robert M.Robert M. Novick ([email protected])Michele L. Angell ([email protected])1633 BroadwayNew York, New York 10019Telephone: (212) 506-17 00

Counsel.for L&N ConsultingGroup, LLC and Super Sol, LTD

31


EXHIBIT A

Case 1-18-45284-nhl Doc 48-1 Filed 09/26/18 Entered 09/26/18 15:50:21

1 UNITED STATES BANKRUPTCY COURT

2 EASTERN DISTRICT OF NEW YORK

3 Case No. 1-18-45280-nhl

4 - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

5 In the Matter of:

6

7 BLUE GOLD EQUITIES LLC,

8 Debtor.

9 - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

10 Case No. 1-18-45281-nhl

11 - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

12 In the matter of:

13

14 AMSTERDAM AVENUE MARKET LLC,

15 Debtor.

16 - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

17 Case No. 1-18-45282-nhl

18 - - - - - - - - - - - - - - - - - - - - - - - - - - - - x


20

21 LAWRENCE SUPERMARKET LLC,

22 Debtor.

23 - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

24

25

Page 1

Veritext Legal Solutions212-267-6868 www.veritext.com 516-608-2400


1 Case No. 1-18-45283-nhl

2 - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

3 In the matter of:

4

5 SEASONS CLEVELAND LLC,

6 Debtor.

7 - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

8 Case No. 1-18-45284-nhl

9 - - - - - - - - - - - - - - - - - - - - - - - - - - - - x


11

12 SEASONS CORPORATE,

13 Debtor.

14 - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

15 Case No. 1-18-45285-nhl

16 - - - - - - - - - - - - - - - - - - - - - - - - - - - - x


18

19 WILMONT ROAD MARKET LLC,

20 Debtor.

21 - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

22

23

24

25

Page 2



1 Case No. 1-18-45286-nhl

2 - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

3 In the matter of:

4

5 SEASONS LAKEWOOD LLC,

6 Debtor.

7 - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

8 Case No. 1-18-45287-nhl

9 - - - - - - - - - - - - - - - - - - - - - - - - - - - - x


11

12 CENTRAL AVENUE MARKET LLC,

13 Debtor.

14 - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

15 Case No. 1-18-45288-nhl

16 - - - - - - - - - - - - - - - - - - - - - - - - - - - - x


18

19 SEASONS CLIFTON LLC,

20 Debtor.

21 - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

22

23

24

25

Page 3



1 Case No. 1-18-45289-nhl

2 - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

3 In the matter of:

4

5 UPPER WEST SIDE SUPERMARKET LLC,

6 Debtor.

7 - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

8 Case No. 1-18-45290-nhl

9 - - - - - - - - - - - - - - - - - - - - - - - - - - - - x


11

12 SEASONS EXPRESS INWOOD LLC,

13 Debtor.

14 - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

15 Case No. 1-18-45291-nhl

16 - - - - - - - - - - - - - - - - - - - - - - - - - - - - x


18

19 SEASONS MARYLAND LLC,

20 Debtor.

21 - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

22

23

24

25

Page 4



1 United States Bankruptcy Court2 271-C Cadman Plaza East3 Brooklyn, NY 1120145 September 17, 20186 2:16 PM789101112131415161718192021 B E F O R E :22 HON NANCY HERSHEY LORD23 U.S. BANKRUPTCY JUDGE2425 ECRO: D. CARTER

Page 5



1 HEARING re 1-18-45280-nhl [13] Order to Schedule Hearing on

2 First Day Motions. (RE: related document(s) [3] Motion for

3 Joint Administration filed by Debtor Blue Gold Equities LLC

4

5 HEARING re 1-18-45280-nhl [5] Application to Employ Omni

6 Management Group, Inc. as claims and Noticing agent for the

7 debtors with proposed order and retainer agreement

8

9 HEARING re 1-18-45280-nhl [6] Motion to Authorize/Direct

10 debtors to maintain current cash management system and

11 existing bank accounts for the pendency of the cases

12

13 HEARING re 1-18-45280-nhl [7] Motion to Authorize/Direct the

14 debtors to pay certain prepetition wages and compensation

15 and maintain and continue employee benefit programs in the

16 ordinary course and authorizing banks to honor and process

17 checks and transfers related to such employee obligations

18

19 HEARING re [8] Motion to Authorize/Direct debtors authority

20 to pay pre-petition sales tax and PACA vender claims

21

22

23

24

25

Page 6



1 HEARING re 1-18-45280-nhl [9] Motion to Prohibit/Enjoin/

2 Restrain (i) all utility providers from altering, refusing,

3 or discontinuing services to the debtors; (ii) directing all

4 utility providers to provide continued and uninterrupted

5 utility service to the debtors; (iii) approving the debtors

6 proposed adequate assurance of future payment in accordance

7 with section 366(c) of the Bankruptcy Code; and (iv)

8 granting related relief

9

10 HEARING re 1-18-45280-nhl [10] Emergency Motion to Use Cash

11 Collateral and motion pursuant to 11U.S.C. 105, 361, 362 363

12 and 364 for interim and final orders authorizing debtors to

13 obtain post petition financing and to grant superpriority

14 lians and claims and modifying the stay and scheduling a

15 final hearing pursuant to Bankruptcy Rule 4001(B) and (C)

16 and granting related relief

17

18 HEARING re 1-18-45280-nhl [11] Motion to Authorize/Direct

19 debtors to maintain and file a consolidated creditor matrix

20 and mailing matrix and authorizing the filing of a

21 consolidated list of the top 30 unsecured creditors; and

22 authorizing debtors to continue use of their prepetition

23 forms and extending the deadline for debtors filing of the

24 statements and schedules through sixty days from the

25 petition date

Page 7



1 HEARING re 1-18-45280-nhl [12] Motion for Sale of Property

2 under Sec. 363(b) / pursuant to 105, 363, 365 and 503 of

3 Title 11 of the United States Code and rules 2002, 6004, and

4 6006 of the Federal Rules of Bankruptcy Procedure and local

5 rules 6004-1, 6006-1 and 9006-1 for the sale of

6 substantially all of the Debtors assets free and clear of

7 all liens, claims and encumbrances, to the Purchaser for a

8 purchase price of approximately $12 million. The Sale

9 Transaction is subject to higher and better offers pursuant

10 to the Bidding Procedures

11

12 HEARING re 1-18-45281-nhl [2] Motion for Joint

13 Administration of Case 18-45280 with Case(s) 18-45281, 18-

14 45282, 18-45283, 18-45284, 18-45285, 18-45286, 18-45287, 18-

15 45288, 18-45289, 18-45290 and 18-45291 with proposed order

16 Filed by Nathan Schwed on behalf of Amsterdam Avenue Market

17 LLC.

18



21 45282, 18-45283, 18-45284, 18-45285, 18-45286, 18-45287, 18-


23 Filed by Nathan Schwed on behalf of Wilmont Road Market LLC.

24

25

Page 8





3 45282, 18-45283, 18-45284, 18-45285, 18-45286, 18-45287, 18-


5 Filed by Nathan Schwed on behalf of Seasons Cleveland LLC.

6



9 45282, 18-45283, 18-45284, 18-45285, 18-45286, 18-45287, 18-


11 Filed by Nathan Schwed on behalf of Seasons Corporate.

12



15 45282, 18-45283, 18-45284, 18-45285, 18-45286, 18-45287, 18-


17 Filed by Nathan Schwed on behalf of Wilmont Road Market LLC.

18



21 45282, 18-45283, 18-45284, 18-45285, 18-45286, 18-45287, 18-


23 Filed by Nathan Schwed on behalf of Seasons Lakewood LLC.

24

25

Page 9





3 45282, 18-45283, 18-45284, 18-45285, 18-45286, 18-45287, 18-


5 Filed by Nathan Schwed on behalf of Central Avenue Market

6 LLC.

7



10 45282, 18-45283, 18-45284, 18-45285, 18-45286, 18-45287, 18-


12 Filed by Nathan Schwed on behalf of Upper West Side

13 Supermarket LLC.

14



17 45282, 18-45283, 18-45284, 18-45285, 18-45286, 18-45287, 18-


19 Filed by Nathan Schwed on behalf of Seasons Express Inwood

20 LLC.

21

22

23

24

25

Page 10





3 45282, 18-45283, 18-45284, 18-45285, 18-45286, 18-45287, 18-


5 Filed by Nathan Schwed on behalf of Seasons Maryland LLC.

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25 Transcribed by: Sonya Ledanski Hyde

Page 11



1 A P P E A R A N C E S :23 LAMONICA HERBST & MANISCALCO LLP4 Attorneys for Mayer Gold, Interested Party5 3305 Jerusalem Avenue, Suite 2016 Wantagh, NY 1179378 BY: JORDAN PILEVSKY910 UNITED STATES DEPARTMENT OF JUSTICE11 Attorney for the U.S. Trustee12 U.S. Federal Office Building13 201 Varick Street, Suite 100614 New York, NY 100141516 BY: WILLIAM CURTIN17 RACHEL WEINBERGER1819 KASOWITZ BENSON TORRES LLP20 Attorneys for Super Sol, LTD, Creditor21 1633 Broadway22 New York, NY 100192324 BY: MICHELE ANGELL25 ROBERT M. NOVICK

Page 12



1 ZEICHNER ELLMAN & KRAUSE LLP2 Attorneys for the Debtors3 1211 Avenue of the Americas4 New York, NY 1003656 BY: NATHAN SCHWED78 KLESTADT WINTERS JURELLER SOUTHARD & STEVENS LLP9 Attorneys for SKNY LLC, Creditor10 200 West 41st Street, 17th Floor11 New York, NY 100361213 BY: TRACY L. KLESTADT14 BRENDAN M. SCOTT1516 NORTON ROSE FULBRIGHT US LLP17 Attorneys for DC Brothers II LLC, Creditor18 1301 Avenue of the Americas19 New York, NY 100192021 BY: SAMUEL S. KOHN22232425

Page 13



1 DUANE MORRIS2 Attorneys for Bank United3 30 South 17th Street4 Philadelphia, PA 1910356 BY: LAWRENCE J. KOTLER78 DEBELLO DONNELLAN WEINGARTGEN et al.9 Attorneys for Debello Donnellan et al.10 One North Lexington Avenue11 White Plains, NY 106011213 BY: DAWN KIRBY1415 JAMES A. COPELAND16 Interested Party17 666 Fifth Avenue18 New York, NY 101031920 SCHIFF HARDIN21 Attorneys for Scarsdale22 666 Fifth Avenue, 17th Floor23 New York, NY 101032425 BY: ALYSON M. FIEDLER

Page 14



1 P R O C E E D I N G S

2 CLERK: You may be seated. Matters 1 through 20

3 on today's calendar in the cases of Blue Gold Equities LLC,

4 Amsterdam Avenue Market LLC, Lawrence Supermarket LLC,

5 Seasons Cleveland LLC, Seasons Corporate, Wilmot Road Market

6 LLC, Seasons Lakewood LLC, Central Avenue Market LLC,

7 Seasons Clifton LLC, Upper West Side Market LLC, Seasons

8 Express Inwood LLC, and Seasons Maryland LLC first day

9 motions.

10 THE COURT: Okay. I will take appearances first

11 in the courtroom and then on the phone to the extent that

12 people are hearing and not just listening. Okay.

13 MR. SCHWED: Good afternoon, Your Honor. Nathan

14 Schwed, Zeichner Ellman & Krause, proposed counsel to the

15 debtors.

16 MR. JANOVSKY: Peter Janovsky, Zeichner Ellman &

17 Krause also proposed counsel for the debtors.

18 MR. GUTTMANN: Good afternoon, Your Honor. Robert

19 Guttmann, Zeichner Ellman & Krause, proposed counsel for the

20 debtors.

21 MR. KLESTADT: Good afternoon, Your Honor. Tracy

22 Klestadt, Klestadt Winters Jureller Southard & Stevens with

23 my partner, Brendan Scott. We represent SKNY LLC pre-

24 petition secured creditor and proposed DIP lender.

25 MR. CURTIN: William Curtin and Rachel Weinberger

Page 15



1 for the United States Trustee, Your Honor.

2 MR. KOHN: Your Honor, Samuel Kohn of Norton Rose

3 Fulbright on behalf of DC Brothers to the proposed competing

4 DIP lender.

5 THE COURT: Proposed competing?

6 MR. KOHN: DIP lender.

7 THE COURT: Oh, okay.

8 MR. KOHN: Thank you.

9 THE COURT: And there's somebody --

10 MS. KIRBY: Your Honor, this is --

11 THE COURT: -- on the phone listening.

12 MAN 1: Well, there's some --

13 MS. KIRBY: This is Dawn Kirby of Debello

14 Donnellan.

15 THE COURT: I'm not -- I'm not ready.

16 MS. KIRBY: I have been contact --

17 THE COURT: Kirby, I'm not ready.

18 MS. KIRBY: Oh, I'm so sorry.

19 THE COURT: Thank you. I'm not ready. Just give

20 me a minute. I just wanted to make it clear I think that

21 you've got -- there is somebody on listen only, or was that

22 going to, be you?

23 MR. KOHN: Your Honor, yes, there's somebody on

24 listen only from Norton Rose.

25 THE COURT: Okay. Got it.

Page 16



1 MR. KOHN: Thank you.

2 THE COURT: Okay.

3 MR. NOVICK: Your Honor, Robert Novick, Kasowitz

4 Benson Torres for L&N Consulting Group and Super Sol LTD who

5 we may refer to collectively as Super Sol. Thank you.

6 THE COURT: Thank you.

7 MR. KOTLER: Good afternoon, Your Honor. Larry

8 Kotler of Duane Morris. I'm here on behalf of Bank United.

9 THE COURT: Who else in the courtroom that wants

10 to be identified? Okay, now, Ms. Kirby, go ahead.

11 MS. KIRBY: Thank you, Your Honor. Dawn Kirby,

12 Debello Donnellan. I've been contacted by a group of

13 interested parties but not yet retained, so I'll just be

14 listening today.

15 THE COURT: And I have somebody else.

16 MR. PILEVSKY: Jordan Pilevsky, LaMonica Herbst &

17 Maniscalco on behalf of Mayer Gold.

18 THE COURT: Okay. Can we take up motion for joint

19 administration so that we make our dockets legitimate

20 because right now they're not? We only -- we only docketed

21 in one place, so let's do that, and then we'll figure out

22 what we do next.

23 MR. SCHWED: Thank you, Your Honor. Good

24 afternoon.

25 THE COURT: Good afternoon.

Page 17



1 MR. SCHWED: Your Honor, the motion for joint

2 administration is to jointly administer the 12 cases that

3 have been filed. The lead case is Blue Gold Equities LLC,

4 and all the other cases are either affiliates. There's one

5 entity that is a parent, the Seasons Corporate LLC is

6 actually the parent of all these entities. It is the 100

7 percent member of all the other debtors. And for

8 administration purposes, we seek to consolidate the case.

9 THE COURT: Very well. Seasons Corporate's a

10 debtor?

11 MR. SCHWED: Yes, it is.

12 THE COURT: Okay. Thank you. Okay. But

13 notwithstanding, that's going to be -- it's all going to be

14 under --

15 MR. SCHWED: The Blue Gold.

16 THE COURT: Okay.

17 MR. SCHWED: Yeah.

18 THE COURT: Does anybody want to be heard on the

19 joint administration motion? I don't think it implicates

20 anything else, but --

21 MR. NOVICK: No. Thank you, Your Honor. So very,

22 very briefly, not to waste time on this, is just a limited

23 objection. We think it would make a lot more sense if the

24 caption was Seasons Corporate, being not only the parent but

25 the way that creditors can find and identify the company in

Page 18



1 bankruptcy. Nobody's heard of Blue Gold Equities, which is

2 apparently just one of the stores.

3 And a reservation, as we mentioned and you

4 probably saw in the filings, there's atoner case pending in

5 the Southern District, and we don't have any objection with

6 a joint administration, but I haven't ever seen joint

7 administration across multiple districts before, and to the

8 extent a motion to transfer venue might come to move the

9 case -- move the cases where the first filed case was, we

10 don't think joint administration should prejudice that.

11 THE COURT: I was welcoming you all here.

12 MR. NOVICK: I feel welcome. Thank you.

13 THE COURT: Good. Maybe I didn't do it well

14 enough. Welcome, everybody.

15 Okay. Well, let's -- I mean, it's a fair

16 question. Is there a reason why the Seasons Corporate,

17 which is the parent of all of these companies, is not the

18 main case?

19 MR. SCHWED: We don't have a problem if the

20 caption, if the lead caption will now be changed to Seasons

21 Corporate, Your Honor.

22 THE COURT: Do we have a problem with that?

23 CLERK: (Indiscernible).

24 THE COURT: Seasons Corporate will be the main

25 case. Does anyone have a problem to that? Okay. And you

Page 19



1 don't object to that.

2 MR. SCHWED: NO, we do not object, Your Honor.

3 MR. CURTIN: No objection, Your Honor.

4 THE COURT: Okay. Let's do that. That seems --

5 that makes more sense. Okay. So you can -- you're going to

6 -- you're basically amending your motion.

7 MR. SCHWED: Yes.

8 THE COURT: So that --

9 MR. SCHWED: I did.

10 THE COURT: -- Seasons Corporate will be the lead

11 case, and everything will be docketed under that, and we'll

12 change the caption. So when you upload that order, you'll

13 upload it with that amendment for the --

14 MR. SCHWED: Correct, Your Honor. We'll do that.

15 Yes.

16 MR. CURTIN: And, Your Honor, I'd just like to see

17 that order before it gets the amended orders --

18 THE COURT: Yes.

19 MR. CURTIN: Before it gets uploaded, please.

20 THE COURT: Okay. Did you have any preference?

21 MR. SCHWED: If we could just get out of the way

22 some of the things that the US Trustee has no issue with,

23 and I assume nobody else will have any issues with either,

24 such as the order for the -- regarding the claim's agent.

25 THE COURT: We have a couple -- the clerk has a

Page 20



1 couple of things, but we can take that out. We don't have

2 to waste time. Just a second.

3 There were a couple of minor items. They weren't

4 in the application. I mean, the -- the most significant of

5 them is that on page 4, Section 9, Item H, we're missing a

6 statement that they will maintain an electronic platform for

7 purposes of filing proofs of claim. Assuming that's not a

8 problem.

9 MR. SCHWED: Your Honor, that's paragraph 5, Item

10 H?

11 THE COURT: Page 4, Section 9, Item H. I'm being

12 told something is missing. Let me get to it.

13 MR. SCHWED: I'm not seeing --

14 THE COURT: Let me find it because I'm working off

15 of an email. We're talking about the application.

16 MR. SCHWED: It's on page 5, there is H. Maintain

17 --

18 THE COURT: Page -- yeah. Page 4 has a listening.

19 MR. SCHWED: Right, and it spills over --

20 THE COURT: Section -- page 4, Section 9, right?

21 So maintain an electric platform for purposes of filing

22 proofs of claim. So there it is.

23 MR. SCHWED: Right.

24 MR. CURTIN: Yeah. It's there, Your Honor.

25 MR. SCHWED: Exactly, Your Honor. That's --

Page 21



1 THE COURT: I apologize.

2 MR. SCHWED: No problem. Okay.

3 THE COURT: Okay. The other things I think are

4 minor, and the only other thing they wanted was in the order

5 on page 5 in the last (indiscernible) paragraph, fourth line

6 down. They say you omitted after holding and maintaining

7 such records for a period of blank years following the

8 closing of the case.

9 Again, the other -- the other issues are minor.

10 They compared it to what's on the website, but that one they

11 say they -- you need a paragraph that says that.

12 MR. SCHWED: Okay.

13 THE COURT: Okay. Okay. Anybody -- with that

14 being said, anybody have any objection to the entry of that

15 order as a first day order?

16 MR. CURTIN: No, Your Honor.

17 THE COURT: And a final order? Okay. So that

18 motion is granted, as is the joint administration motion, if

19 I didn't make that clear, as amended.

20 Okay. Go ahead.

21 MR. SCHWED: Your Honor, just to clarify with

22 respect to the (indiscernible) motion, the United States

23 Trustee has requested that we do not go forward with that

24 today, and we agreed to that.

25 THE COURT: Okay. We'll pick a new date.

Page 22



1 MR. SCHWED: Okay. Now, with respect to this sale

2 motion, US Trustee has again requested that we not go

3 forward, and we do not plan to go forward today, but if

4 possible, we would like to get just a hearing date for

5 bidding procedures.

6 THE COURT: Yes. Yeah. There is no way the it

7 was going to take up -- just so every -- I was going to say

8 that at the beginning so that everybody would get less

9 nervous. That wasn't happening today, not as a first day

10 and not in this case scenario.

11 MR. SCHWED: Understood, Your Honor. So, if

12 possible, we would like to request September 4 -- October

13 4th, if that is a possibility.

14 THE COURT: 10:00 a.m.?

15 MR. SCHWED: 10:00 a.m.? Sure.

16 THE COURT: That all right with everybody?

17 MR. CURTIN: Yes, Your Honor.

18 MAN 2: Yes, Your Honor.

19 MR. SCHWED: And, Your Honor, if we can put

20 utilities on the same day?

21 THE COURT: If you can wait that long, yeah.

22 MR. CURTIN: They have 30 days, Your Honor. It

23 can wait. We have till October 17th before you need the

24 order.

25 THE COURT: Okay. We may have to move a few

Page 23



1 things. Okay.

2 MR. SCHWED: With respect to the creditor matrix

3 motion, the US Trustee has proposed some matters. We got

4 them shortly before we left our offices, and we don't -- we

5 don't really have any problem with the US Trustee's comments

6 to the order, so we would be willing to agree to go along

7 with this.

8 MR. CURTIN: Do you want me to put them on the

9 record quickly, Your Honor?

10 THE COURT: Quickly.

11 MR. CURTIN: Okay. They're going to include that

12 we got rid of the omission of the claims amount from the

13 creditors' matrix so that they will include the claims

14 amount. The check and existing business form language was

15 modified to the standard print -- stamp what you have, and

16 then once you print new ones, print debtor in possession on

17 that. We reduced the extension of time -- the first

18 extension of time -- on the schedule from 60 days to 30

19 days, which takes it to before the 341 meeting. And that's

20 it.

21 THE COURT: Anybody else want to be heard? Okay.

22 With those changes, I'm going to grant that motion.

23 MR. SCHWED: Thank you, Your Honor. Next, if we

24 can deal with the sales tax and PACA motion.

25 THE COURT: Go ahead.

Page 24



1 MR. SCHWED: US Trustee has made some edits to and

2 comments to the motion. We are fine with their comments.

3 THE COURT: Mr. Curtin.

4 MR. CURTIN: Your Honor, the substantive comment

5 is we want, before anything gets paid on either pre-petition

6 taxes or PACA, we want documentation that all of -- those

7 are all current -- current due claims. And then in the

8 order, the second order paragraph is drafted as for

9 approximately 125,000 in taxes and 470 and PACA claims. We

10 added that to an amount not to exceed on both. And that is

11 it.

12 THE COURT: Counsel, Mr. Novick?

13 MR. NOVICK: Thank you. I have a limited

14 objection on sales tax, and this would probably apply for

15 the employee withholdings as well.

16 As we read the filings, the debtors have only

17 $50,000 of cash on hand and are claiming $125,000 of sales

18 tax collected. So what that suggests is that they were

19 collecting sales tax as well as employee withholding, and

20 the funds were not kept in trust but were misappropriated

21 someplace.

22 As such, we have a situation where the taxing

23 authorities have pre-petition claims, and they're entitled

24 to a priority eventually, but they're not using funds that

25 are currently held in trust for them, at least not

Page 25



1 completely. And they're instead borrowing DIP money post-

2 petition to pay pre-petition claims.

3 THE COURT: Not yet.

4 NOVICK: Well, they aspire to.

5 THE COURT: Right.

6 NOVICK: So there seems to have been a substantial

7 amount of money that was collected from customers, withheld

8 from employees, and was not saved by the company unless they

9 can advise us that we're not reading the DIP budgets

10 correctly where it showed how much cash was on hand.

11 And if they're holding trust funds that go to

12 sales tax, they should pay them. If they're holding trust

13 funds deducted from employee wages, those should go where

14 they're supposed to be going. But they should not be

15 borrowing post-petition money to pay funds that --

16 obligations for funds that aren't in the estate.

17 And the extra wrinkle on this is that these are

18 taxes where typically management -- where ownership can be

19 held liable for them.

20 THE COURT: All right. Well, let's put aside

21 withholding for a moment because I understood that

22 withholding is outsourced, that the -- that employee -- we

23 can talk about that. The employee payments -- the payments

24 with respect to the employees and employee withholding is

25 outsourced.

Page 26



1 MR. SCHWED: Correct, Your Honor. There's a

2 company called StaffPro, which advised --

3 THE COURT: Right. We'll get to that, but let's

4 pick up the point about the sales tax, which is 125,000

5 versus the total amount of 50,000, and we don't know how

6 much of that is supposed to be in trust. Was any of that,

7 or was there separate monies?

8 MR. SCHWED: Your Honor, it's my understanding

9 that the monies were generally comingled.

10 THE COURT: So Mr. Novick is correct?

11 MR. SCHWED: Mr. Novick's correct, at least to a

12 degree. Sales taxes were comingled with general -- general

13 funds. Correct. Yes, Your Honor. At least, that was the

14 case before we had a CRO in place. Management -- the former

15 CEO of the company has not been involved since Mr. Getzler

16 and Mr. Henrich have been involved. They've taken over

17 management of the company. And obviously, the kind of

18 comingling that may have happened before is not happening

19 going forward.

20 But right now, we are dealing with an issue. And

21 the issue is that sales taxes have to be paid. These are

22 pre-petition obligations that we believe, under the

23 circumstances, should be paid.

24 THE COURT: Well, if -- you have to be paid if you

25 have the money to pay them

Page 27



1 MR. SCHWED: Well, again, as part of the DIP

2 financing that we believe will hopefully come in --

3 THE COURT: That was me. We didn't need it to be

4 more romantic. Sorry. Go ahead.

5 MR. SCHWED: Yeah. There's no question that

6 unless we have the financing, it's going to be hard to pay.

7 There is money coming in on a regular basis. So, for

8 instance, even now there are some limited sales. The sales

9 are down dramatically. The shelves in the stores are close

10 to empty and getting emptier every day. So every day -- but

11 there still is money coming in on a regular basis. There

12 would be money coming in that probably could pay that if we

13 didn't have DIP funding, but then we wouldn't be able to pay

14 other -- other type of expenses. So --

15 THE COURT: And the -- what about -- how much is

16 PACA?

17 MR. SCHWED: PACA is, I believe four -- about

18 $470,000. And again, that's -- that's not necessarily items

19 that are past due. That's simply items that have been --

20 that have been sold, and it doesn't mean that this -- the

21 (indiscernible) doesn't mean there's any problem regarding

22 because the company does have money. It, you know, and it

23 has money coming on a regular basis. PACA funds are not

24 segregated.

25 THE COURT: Wait. Two different issues. As

Page 28



1 monies are coming in on a regular basis, the sales tax

2 portion should be, again segregated and paid.

3 MR. SCHWED: Absolutely.

4 THE COURT: That you're telling me --


6 THE COURT: -- is now going to happen.

7 MR. SCHWED: That's going to happen.

8 THE COURT: Okay. I don't think that -- I don't

9 think that's the nature of the objection. So we can hold it

10 off, decide if we can handle it later today, or decide if it

11 should be put on a different day.

12 MR. SCHWED: Well, frankly, if we put it off for a

13 short amount of time, I don't think's going to be a huge

14 problem. I don't think -- if we don't pay the sales taxes

15 tomorrow, I don't think there's going to be immediate

16 repercussions. There may be somewhere down the road, but

17 right -- not right now.

18 With PACA, maybe a little different. It may be a

19 problem to get some of them to deliver. That may complicate

20 the debtor's ability --

21 THE COURT: Well, how much were you seeking to pay

22 PACA under this motion? Were there --

23 MR. SCHWED: There -- it's $470,000. We've seen

24 authorization to pay up to that amount. Obviously, it'll be

25 based on the actual bills that are reviewed and determined

Page 29



1 to have to be -- that have to be paid.

2 THE COURT: Mr. Curtin.

3 MR. CURTIN: Well, that was the point that I

4 started with is that we don't have any information as to

5 what exactly they're proposing to pay, so we'd need that

6 prior. So maybe an idea would be if we could put this off

7 --

8 THE COURT: We move that also?

9 MR. CURTIN: Very short among of time.

10 THE COURT: Right.

11 MR. CURTIN: So that the debtor has some time to

12 --

13 THE COURT: Well, I mean --

14 MR. CURTIN: I mean I --

15 THE COURT: I think we're going to be back here in

16 a shorter month of time than October 4th.

17 MR. CURTIN: Right.

18 THE COURT: So --

19 MR. CURTIN: So if we can --

20 THE COURT: Why don't we put that --

21 MR. CURTIN: Wherever our interim day ends up,

22 maybe we can do that.

23 THE COURT: Why don't we put that on, and I'll

24 just -- we'll get -- we'll work on a date in a little while.

25 MR. CURTIN: And of course, a lot of this is

Page 30



1 contingent on what happens with the DIP, so...

2 THE COURT: Right. Okay. So are we going to have

3 similar issues with respect to wage -- the wage claim? You

4 didn't talk about the wage claim yet, did you? You did not.

5 MR. CURTIN: We do have similar issues because,

6 Your Honor, price on the motion, it just forecloses a lump

7 sum amount. It doesn't break it down by employee. It

8 doesn't give us --

9 THE COURT: Right.

10 MR. CURTIN: -- any information on --

11 THE COURT: The --

12 MR. CURTIN: So I can't speak to the urgency of

13 the timing as far as that, but we did have similar issues.

14 THE COURT: How much of that -- how much of the

15 information is available to the debtor that that StaffPro

16 has? I assume all of it, no?

17 MR. SCHWED: Yeah. I've actually -- upon

18 receiving Mr. Curtin's comments, I reached out to StaffPro.

19 They are compiling the list that Mr. Curtin is asking for.

20 THE COURT: Okay.

21 MR. SCHWED: Which is a detailed list. There are

22 over -- about 400 employees, but they're preparing a

23 detailed list for every employee, the amount that is due to

24 that employee both in terms of payroll and in terms of

25 medical insurance, medical coverage.

Page 31



1 THE COURT: Right. And as I read it, it was not

2 so much -- at least a piece of -- a big piece of this was

3 not so much that it fell in the middle but that it read like

4 you failed to make pre-petition payroll.

5 MR. SCHWED: Yeah, so --

6 THE COURT: Because there was a footnote that

7 seemed to indicate that.

8 MR. SCHWED: So let me clarify because there is a

9 typo in terms of the dates. Mr. Curtin actually raised it,

10 and we intended to raise it anyway. The papers say that the

11 wages that are due are for the week of -- from 9/2 to 9/7.

12 In fact --

13 THE COURT: Payable on the 12th.

14 MR. SCHWED: -- what is due is the following week.

15 It's the week of 9/9 to 9/14, which is due to be paid.

16 Normally it would be paid this Wednesday. Because this

17 Wednesday's Yom Kippur, it'll be paid Thursday. But that's

18 what we're talking about. So it's -- it's essentially the

19 wages that were accrued pre-petition, which are due -- this

20 week, will be due Thursday. And we need the authorization

21 to pay because it was incurred pre-petition.

22 THE COURT: So if we don't -- if we do -- don't do

23 that today, with that additional information, we could be

24 talking about needing to do it on Thursday, correct?

25 MR. SCHWED: Yes, Your Honor. I mean, if we don't

Page 32



1 give them money on Thursday, especially in light of the fact

2 that we've had a couple of weeks now -- our payroll was

3 delayed and people left -- there's that risk that more

4 people who now will say -- post-bankruptcy it happened

5 again. Forget it. This place is not for me.

6 So there's a risk of losing employees. We cannot

7 take that risk because we think the company will be damaged

8 severely if it loses its well-trained employees.

9 THE COURT: I don't think -- again, it seems to

10 me, though, that between now and -- you're not going to have

11 a lot of time between now and -- you have part of tomorrow

12 -- but between now and Thursday to compile that information

13 for Mr. Curtin, so we're probably looking at Thursday

14 anyway, right?

15 MR. SCHWED: I believe it might -- I might even

16 have an email.

17 THE COURT: Okay.

18 MR. SCHWED: I know that he told me he was working

19 on it and trying to get it to me as soon as possible.

20 THE COURT: All right. well, why don't we -- why

21 don't we basically put that motion on for second call. And

22 if we can get that information together, we'll do it today.

23 Otherwise, I'm prepared to see you all back here Thursday.

24 MR. CURTIN: We had some other issues on that

25 motion though, Your Honor, but we'll -- we can talk about it

Page 33



1 later.

2 THE COURT: No, you can put them on the record.

3 MR. CURTIN: We want to disclose -- and it's kind

4 of part and parcel, but there's no disclosure as the

5 insider, so we would want to know which employees, if any,

6 are insiders. And we would request that those be put onto

7 the final.

8 We also made an interim, by the way. We made this

9 an interim order, and then if we get a committee, committee

10 can look at it, and we can have it on for final maybe on

11 that October 4th day.

12 MR. SCHWED: Your Honor, as far as insiders, so

13 let me clarify. The only insider that is actually -- for

14 any wages -- is Mr. Mayer Gold, who actually is in the

15 courtroom. Mr. Mayer -- Mayer Gold has a small percentage

16 of ownership in the corporate parent. He helped start this

17 business 20 years ago. He was in the grocery business for

18 many years. He is not a financial person. He is a grocery

19 person, and he does -- everybody -- anybody who's dealt with

20 him has unanimously said that he's an important cog in this

21 wheel, and without him, this business would have a really

22 hard time running.

23 THE COURT: But he -- they -- he wants to know how

24 much, and --

25 MR. SCHWED: No, understood.

Page 34



1 MR. CURTIN: But again, because we just had that

2 one number, so we don't know whether --

3 MR. SCHWED: I just want to clarify that there is

4 one insider.

5 THE COURT: Okay.

6 MR. SCHWED: That is an employee, and its Mayer

7 Gold, and that's it. So -- and again, we will get him that

8 information, but we think it's important that he be paid

9 immediately, or as soon as possible.

10 MR. CURTIN: then the rest of them are edits to

11 the order. Should I go through those now?

12 THE COURT: You don't have to.

13 MR. CURTIN: Okay. There -- I --

14 THE COURT: Well, go ahead.

15 MR. CURTIN: I just want to see if there are any

16 highlights.

17 THE COURT: All right.

18 MR. CURTIN: No, we've kind of hit the highlights.

19 I can do it either later or if we come back on Thursday.

20 THE COURT: Mr. Novick, you want to add something

21 about the wage order?

22 MR. NOVICK: Yes. Thank you. We have no

23 objection to the employees getting paid wages post-petition

24 or pre-petition, other than possibly the insider subject to

25 more information. Most of them are lower-paid wage earners,

Page 35



1 and they're important to the business.

2 We just reiterate our objection that it seemed

3 from the motion that a portion of the money sought to be

4 approved here was going to pay trust funds that were

5 supposed to have been withheld and seemed to have been

6 comingled and used. There seems to be some ambiguity as to

7 whether that's the case with the payroll firm, but to the

8 extent that it is, we object to post-petition funds being

9 used to pay. Monies management -- senior management didn't

10 segregate and now is facing personally liability for it.

11 THE COURT: So if I understand the other footnote,

12 with the -- in that -- where -- was a StaffPro, that

13 StaffPro earlier in the year did make payments. You just

14 haven't paid them.

15 MR. SCHWED: Correct. And now -- and because of

16 that, they no longer will advance anything unless we

17 actually pay them in advance.

18 THE COURT: So I'm -- I don't know -- it's not --

19 it was -- it was not clear to me that with -- that they --

20 you owe withholding. Is that -- do you know whether you owe

21 any withholding?

22 MR. SCHWED: On that $500,000? No, we don't.

23 They paid it all. StaffPro paid it.

24 THE COURT: Okay.

25 nacho: That's why they have --

Page 36



1 THE COURT: All right. So any --

2 MR. SCHWED: -- they have a claim.

3 THE COURT: Any withholding you owe is current.

4 MR. SCHWED: Is current, as far as I'm -- that's

5 my understanding this whole time. Yes.

6 THE COURT: Okay.

7 MR. CURTIN: And the schedule that we're asking

8 for will presumably show that.

9 THE COURT: Right. Okay.

10 MR. SCHWED: Your Honor, the next motion I'd like

11 to deal with is the cash management motion. We've -- the

12 debtors each have multiple accounts. Those accounts

13 traditionally get swept on a daily basis up to the parent.

14 And the parent then -- there's a process under which it

15 distributes money in order to pay necessary expenses on a

16 daily basis.

17 Just to -- I'll get to, you know, some of the

18 history soon, but just to give a general idea regarding the

19 business itself, it's a very lean and perhaps understaffed

20 management team. It's Mr. Gold. He has an assistant in the

21 office, and this business is too large for the two of them,

22 which is one of the reasons why Mr. Getzler and Mr. Henrich

23 and people from their office are actively involved in taking

24 over management, and making sure that going forward these

25 businesses are managed the way a business of this size

Page 37



1 should be managed.

2 But because of that, the US Trustees insistence

3 that we not continue the accounts that we have, it's just

4 going to add a layer of complication on the difficulty that

5 we're having administratively as it is.

6 And for that reason, we request -- wherein, you

7 know, banks that a -- are not objectionable -- we're talking

8 about Wells Fargo and Chase. You know, they cannot be

9 objectionable. We certainly understand the requirement that

10 we have to stamp every check with debtor in possession, and

11 we're certainly prepared to do that. But we request that we

12 be authorized to maintain the current management systems and

13 not be required to actually open brand-new accounts for the

14 debtor in possession.

15 MR. CURTIN: Your Honor, I think you've heard a

16 little bit already about some concerns that are starting to

17 come up with the debtor's existing cash management system.

18 So we object to this motion at this point. We object to the

19 -- to Your Honor approving it.

20 THE COURT: Well, the objections are not -- are

21 not aimed at the depositories.

22 MR. CURTIN: No, but they're aimed at the system.

23 There are some questions. And I don't -- I'm not -- I don't

24 know. I've had, you know, just a few hours with the papers,

25 so --

Page 38



1 THE COURT: Me too.

2 MR. CURTIN: But there are some questions that

3 need -- that we need to work through with the debtors

4 regarding the system and whether they -- whether -- first of

5 all, whether there are any issues that need to be corrected

6 from the pre-petition practices, which I think the answer to

7 that we're all kind of on the same page. There are. But

8 are those systems issues? Are they the people that were

9 running the systems? I just don't know at this point.

10 And then just more generally, we -- we do object

11 to the 345 waiver, as traditionally we do. You know, if

12 Your Honor were to waive the requirements in 345, we're

13 allowed to keep them -- allow them to keep their funds in

14 non-debtor in possession bank accounts, the court and

15 everyone else loses the protection of our office monitoring

16 those accounts because if they're not debtor in possession

17 accounts, we don't have the ability to monitor like we do

18 with debtor in possession accounts.

19 One suggestion I made to the debtors very

20 preliminarily -- again they -- we haven't had a chance to

21 really work through this -- is short term opening some type

22 of debtor in possession sweep account in the corporate case

23 so that the sweep that they're doing anyway on a daily basis

24 sweeps whatever funds are coming in to that account.

25 These are all things we just need to work through,

Page 39



1 so at this point we're -- we object to entry of an order on

2 this motion. Maybe if we do, do a short interim -- another

3 hearing before the 4th, a couple days will give us some time

4 to work through that, but usually we just have

5 (indiscernible) --

6 THE COURT: Well, obviously in the interim they're

7 going to continue to maintain it the way they've been

8 maintaining it until we --

9 MR. CURTIN: Right. I can't consent to that, but

10 I understand.

11 THE COURT: Well, I'm not shutting them down on

12 that. I'm not shutting the business down on that motion.

13 MR. CURTIN: Understood. But I'm, again,

14 proposing a short-term kind of gradual progression. But

15 those are -- those are the concerns.

16 That's a good point. Ms. Weinberger just reminded

17 me that we are above FDIC limit, so we don't have -- it's

18 not a situation -- potentially above FDIC limits, so we

19 don't have that protection either. So if we are going to

20 keep this account, we may be talking about bonding.

21 THE COURT: Well, I thought that's what you were

22 going to say, but okay. All right.

23 Okay, well, let's decide if that's a Thursday

24 issue. Right now it'll be for Thursday. Okay.

25 MR. SCHWED: Your Honor, so you're going to

Page 40



1 schedule another hearing for that?

2 THE COURT: We'll either do -- we'll either look

3 at it for Thursday, or we'll look at it for the 4th. We'll

4 get back to that at the end of the hearing.

5 MR. SCHWED: Okay. Your Honor, that leaves us

6 with the debtor in possession financing motion.

7 THE COURT: Okay. So --

8 MR. SCHWED: We -- I'd like --

9 THE COURT: I got it. I got it. Just it's such

10 an obvious question. Could you have picked a worst time to

11 call this case? I mean, if you had to pick -- I mean, maybe

12 today would've been worse than last night.

13 MR. CURTIN: Your Honor, when Mr. Klestadt first

14 told me -- told me about that the case was coming, he said

15 -- told me of the timing, I said, "What's the nature of the

16 business?" When he told me, I said, "Really?"

17 THE COURT: Well, it just sort of occurred to me.

18 I guess I didn't -- I mean, it seemed -- it seemed after I

19 read the papers that there was some planning maybe involved

20 in this, or at least some planning. And that -- it just

21 seemed to me that this maybe should've been filed a few

22 weeks before maybe Rosh Hashanah so you would've had full --

23 I mean, I just -- I -- I'm really curious about that.

24 MR. SCHWED: Sure. Sure.

25 THE COURT: Maye it's none of my business.

Page 41



1 MR. SCHWED: Absolutely, Your Honor.

2 THE COURT: But --

3 MR. SCHWED: I -- I'd like to talk a little about

4 the history of this case and how we got here.

5 THE COURT: Okay.

6 MR. SCHWED: Okay. So the core -- the original

7 stores that are Seasons were initially stores that were run

8 as Super Sols. There were four stores, okay, one in Queens,

9 one in Lawrence, one in Manhattan, and one in Scarsdale.

10 THE COURT: And the first purchase was just the

11 one Queens store.

12 MR. SCHWED: The first purchase was the one Queens

13 store, and a few month later there was the other three

14 stores. And, you know, there were issues regarding -- with

15 the purchase and so on. I'm not going to get into any of

16 that right now. But those stores, after a couple of years,

17 became profitable, and it was throwing off a nice -- a nice

18 amount of profit. And then they began to expand and open up

19 other stores. And on an operational basis, they were

20 generally profitable. Most of the stores were contributing

21 nice amounts of money to the bottom line.

22 The -- the problem with this business is that as a

23 result of the purchase of the Super Sol stores, the debt

24 that was undertaken in connection with that purchase was

25 enormous. And no -- despite --

Page 42



1 THE COURT: What was it initially?

2 MR. SCHWED: So the initial debt was approximately

3 $15 million.

4 THE COURT: What was the -- what was -- we're

5 talking about for the first four?

6 MR. SCHWED: For the first four in total, yes.

7 THE COURT: What was -- what was the purchase

8 price; do you know?

9 MR. SCHWED: Approximately $15 million.


11 MR. SCHWED: Yeah. $15 million was the -- was the

12 approximate purchase price.

13 THE COURT: Okay. And the debt was also $15

14 million?

15 MR. SCHWED: No, I'm sorry. The debt --

16 THE COURT: You said $15 million in debt. I asked

17 you what the purchase price was.

18 MR. SCHWED: Oh, I'm sorry. I misspoke. The

19 purchase price was $15 million. I did not mean to refer to

20 debt.

21 THE COURT: Okay.

22 MR. SCHWED: Okay. What I want was the debtors --

23 the obligations on that loan because the $15 million was not

24 paid in cash. Obviously at that time, there were some small

25 payments that were made in the first couple of years. But

Page 43



1 ultimately, the majority of those payments were to be paid

2 over a period of several years. And that was, I believe, in

3 20 -- it began in 2011, I believe.

4 THE COURT: And that was unsecured indebtedness

5 initially?

6 MR. SCHWED: Yeah, yeah, yeah. I mean, the sale

7 -- the sale of Queens was to an entity called Blue Gold,

8 Blue Gold Entities. The sale of the three other stores was

9 to Steve Bloom and Mayer Gold, individually. So there was

10 no security interest in connection with that sale initially,

11 not that I know of. I haven't -- I haven't seen anything.

12 Subsequently, a couple years later, that loan --

13 that debt was restricted, and instead of straightforward

14 promissory notes for that amount, the debt was restricted to

15 be paid over a long period of time with total debt of

16 approximately $18 million. And the four operating entities

17 which --

18 THE COURT: 18 -- 18 million, you said?

19 MR. SCHWED: 18 million.

20 THE COURT: Okay.

21 MR. SCHWED: It was increased because of the

22 longer term. And the --

23 THE COURT: And remained unsecured.

24 MR. SCHWED: Yeah. And was done as a consulting

25 agreement. So it was payments under consulting agreement to

Page 44



1 the former owners of Super Sol.

2 The payments that were required under that consult

3 --

4 THE COURT: But they weren't providing consulting

5 services.

6 MR. SCHWED: That's correct, Your Honor.

7 THE COURT: As far as we know.

8 MR. SCHWED: That's what I've been told.

9 THE COURT: Okay.

10 MR. SCHWED: I've been told they did not provide

11 any consulting services. The payments that they received --

12 they were supposed to receive under that agreement -- began

13 slightly less than 2 million and kept on increasing over

14 each year I believe. And they got to the point of 2.2, 2.3

15 million.

16 The company began experiencing problems because

17 even though it was profitable, in addition to paying large

18 amounts of money to the prior owners, the -- they began to

19 open new stores, and then they began to do construction in

20 new stores. They did construction in the stores -- the

21 brand-new store in Scarsdale, which is actually completed,

22 and it's -- was ready to be opened. Had to be money to --

23 THE COURT: They already have a Scarsdale stores,

24 right?

25 MR. SCHWED: There's a small one, and in the same

Page 45



1 shopping center --

2 THE COURT: Oh, so this is the large one.

3 MR. SCHWED: This is the large one.

4 THE COURT: That you referred to as a small and a

5 large.

6 MR. SCHWED: Everything right. Right. So the

7 small one was -- as it is small, it was too small. And the

8 potential was there for a much larger one. They built it,

9 and it was completed, ready to open.

10 They also did construction of a store in

11 Baltimore, which is operating. But again, all the -- all

12 this construction drained cashflow tremendously. They also

13 did construction in Cleveland. That store was stopped --

14 construction was stopped dead in its tracks. The shell is

15 there, but the inside has not really been constructed to the

16 point where it can be -- where it can be turned into a

17 store.

18 What happens over time as a result of the payments

19 to the prior owners and the expenses incurred in connection

20 with all this construction, the cashflow was drained

21 dramatically. And over time, there was less money. They

22 began -- they defaulted on the payments to the prior owner,

23 which led over a period of a couple years, to first a

24 proceeding in (indiscernible). And then ultimately an award

25 in favor of the prior owner and the judgment issued

Page 46



1 confirming that award.

2 And then the entity L&N begin enforcing

3 proceedings where they froze the account, and that was close

4 to the nail on the coffin, but it wasn't yet because there

5 was still a decent amount of sales in the stores, and they

6 were still generating cashflow. And this was -- this was in

7 the spring of 2018.

8 Over the past few months, as a result of that and

9 as a result of the fact that Bank United also seized

10 $600,000 from the debtor's account. Those two events

11 together totally destroyed the debtor's cashflow and made

12 restocking of the stores very difficult.

13 And gradually over the past few months, the store

14 shelves have been emptying out, some stores more than other

15 depending on traffic and depending how management believed

16 was the best use of whatever money it had to stop which

17 stores it might generate the most profit from and the most

18 cashflow.

19 There were -- at one point in time, there was a

20 CFO brought in to the company that did not work out, and I

21 think he left the company a couple months ago. There have

22 been attempts by the former CEO. He reached out to many

23 different parties trying to come up with some kind of

24 structure where the companies could be funded, and they

25 would be able to go forward and remain in business. And

Page 47



1 those -- those efforts lasted over a period of several

2 months, into the summer.

3 It became clear in the past month or so that those

4 efforts were not going to come to fruition, and it was -- a

5 determination was made that at a minimum, we needed to have

6 proper management in here, so one of the things -- and there

7 was the possibility of a bankruptcy filing.

8 My firm was retained. Shortly thereafter, the

9 Getzler Henrich firm was retained to come in as consultants

10 and help try to see what they can do and see what the value

11 is. There was an initial thought that maybe there might

12 even be the ability to fund outside of bankruptcy, just get

13 new investors who will take over the equity, fund the

14 business, and get the stores stocked so that it can actually

15 generate profit because the belief among everybody who's

16 seen these stores is that these stores have the potential to

17 generate profit. That's a universal belief.

18 There are some stores that are not as profitable

19 and perhaps will be -- will be closed at some time in the

20 future because they don't contribute much, but there

21 certainly are at least several stores that do contribute to

22 the bottom line when the traffic is at its peak, when

23 they're fully stocked.

24 So we got to the point in the past few weeks --

25 THE COURT: Can you tell me a little bit about

Page 48



1 Bank United?

2 MR. SCHWED: Sure. Bank United --

3 THE COURT: They're here too. Okay.

4 MR. SCHWED: So, yeah. Bank United extended a

5 loan to Seasons Corporate. The loan was, I believe,

6 approximately $10 million. That loan was secured by the

7 assets of Seasons Corporate, which as a practical matter

8 were -- is its membership -- 100 percent membership interest

9 in each of the operating entities.

10 The operating entities guaranteed that loan but

11 did not pledge a collateral to support that loan. So as a

12 practical matter, Bank United is secured only by membership

13 interest in operating entities that are now all in

14 bankruptcy.

15 THE COURT: So the debtor had no secured

16 creditors.

17 MR. SCHWED: The debt -- the --

18 THE COURT: Debtors had no secured creditors

19 before you came along.

20 MR. SCHWED: Actually, yeah. Correct, Your Honor.

21 SKNY --

22 THE COURT: No, I know. But before that?

23 MR. SCHWED: Before that? Before that, other than

24 -- as I described Bank United for -- just for the share, so

25 the membership interest, there were no secured creditors.

Page 49



1 THE COURT: Right, and other than maybe some

2 other, you know, equipment leasing or whatever.

3 MR. SCHWED: Right. There's -- there was actually

4 a fair among of loans. The Cleveland alone I believe has

5 about, I think, $1.5 million that has been drawn down on

6 equipment loans, and there are other substantial equipment

7 loans out there.

8 But other than those, which are secured by their

9 own equipment, there are no other secured lenders.

10 THE COURT: Okay. And before you -- before you

11 get to 2018 and SKNY, I noticed that you have quite a number

12 of evictions pending. What is the situation with the

13 leases?

14 MR. SCHWED: So they're all still -- they're still

15 in effect. There have been no cancelations, no

16 terminations. There are, you know, there are several of

17 them at different stages, but they're all still at early

18 stages. There has been no warrant of eviction issued.

19 THE COURT: Okay. All right. so February 2018,

20 that's where we began with SKNY, correct?

21 MR. SCHWED: Correct, Your Honor. So --

22 THE COURT: Okay. So who is SKNY LLC?

23 MR. SCHWED: I'm going to let Mr. Klestadt

24 describe who his client is.

25 MR. KLESTADT: Your Honor, SKNY is an investment

Page 50



1 vehicle for initially a family office, and now there are

2 several participants, individuals.

3 THE COURT: A family what did you say?

4 MR. KLESTADT: Office. And now there are several

5 participants in the entity.

6 THE COURT: Okay. And I need to know what

7 relationship those participants have to the debtors.

8 MR. KLESTADT: None, Your Honor. None to the

9 insiders, if that's what you're asking. They have no --

10 there are no familial relationships. SKNY had an equity

11 interest in Seasons Corporate as part of the initial -- of

12 transaction back in February of 2018.

13 THE COURT: So it was in February 2018 that they

14 got the equity interest?

15 MR. KLESTADT: Yes.

16 THE COURT: Okay. So why don't you describe what

17 they got in February 2018. They got a blanket lien and an

18 equity interest?

19 MR. KLESTADT: Yes. There was a $5 million equity

20 investment and a two -- initially a $1 million, then

21 increased to $2 million secured loan.

22 THE COURT: All right. Well, a $2 million secured

23 loan, okay, until we get to September.

24 MR. KLESTADT: Until we get to recent events, yes.

25 THE COURT: Right. Okay.

Page 51



1 MR. KLESTADT: Then it was increased.

2 THE COURT: February and then March.


4 THE COURT: Okay. Go ahead.

5 MR. SCHWED: Your Honor, by the end of August,

6 cashflow was completely -- or severely depleted, and there

7 was a real issue regarding paying payroll. And unless there

8 was going to be immediate funding, the debtors were going to

9 have to shut down their operations. SK --

10 THE COURT: Or file, right?

11 MR. SCHWED: Or file. Or file. Correct.

12 THE COURT: Yeah. That's the part I didn't get.

13 Okay.

14 MR. SCHWED: Correct.

15 THE COURT: Why they didn't -- okay.

16 MR. SCHWED: Okay. There was -- there was still

17 the belief that we could do this outside of bankruptcy.

18 That was the belief. The belief was that bankruptcy would

19 mean a very expensive process, and if it could be avoided,

20 it was worth avoiding. And there was the hope that there

21 were people out there that were willing to invest in this

22 business that we could create that type of investment, which

23 would keep the businesses alive and avoid a bankruptcy if

24 possible.

25 So because of the payroll issue, because of the

Page 52



1 ultimately the need to retain professionals, SKNY agreed to

2 amend their pre-petition -- their loan -- and increase it by

3 $1 million -- up to $1 million. So they made -- it was a

4 potential availability.

5 THE COURT: How much of that was drawn down?

6 MR. SCHWED: So initially, they drew down about

7 650,000 in change. The payroll was about -- I think it was

8 about 251 or 256, so -- plus 400 to the professionals, so it

9 was about 650 in change.

10 THE COURT: Together 650.

11 MR. SCHWED: Together. Then there was an

12 additional crisis occurred because there were cancelations

13 of the debtor's insurance policies that were going to kick

14 in early last week. And the decision was made for them to

15 fund an additional $100,000 to pay that, to pay the

16 insurance to keep the insurance from lapsing. Because had

17 the insurance lapsed, the stores wouldn't -- would not have

18 opened the next day. They were going to lapse last week

19 Monday on the first day of Rosh Hashanah.

20 So it was on Friday -- literally Friday before

21 Rosh Hashanah SKNY agreed to fund the additional funds so

22 that on Rosh Hashanah they don't lapse, and before the day

23 after Rosh Hashanah was over -- open -- over, the stores

24 could still open.

25 In the meantime, we began working on petitions.

Page 53



1 We began working on DIP funding because without the DIP

2 funding, bankruptcy wasn't really going to do much good. We

3 would've -- we would've been out of business. We would've

4 lost our employees, and -- and we still face that

5 possibility if we don't have DIP funding.

6 So we engaged in negotiations. SKNY expressed the

7 willingness to provide DIP funding. Then ultimately that

8 turned into a DIP loan that was combined with an agreement

9 to purchase the assets. And that's what's been presented to

10 the court, which is a DIP loan which is contingent on them

11 being the stalking horse for an asset purchase agreement.

12 THE COURT: So it was 2 million. I'm trying to

13 get to the three. So the six -- the 650 was of the 1

14 million.

15 MR. SCHWED: Yes. And the way you get to the --

16 I'll tell you how to get to the number because --

17 THE COURT: Because you've got the three two --

18 MR. SCHWED: Yeah. I'll get you that number, Your

19 Honor.

20 THE COURT: Either was 3 million 650 or 2 million

21 650. But it wasn't 3 million 250.

22 MR. SCHWED: I'll tell you how to get to 3 million

23 250. It was 2 million principle, but by the time they were

24 doing these loans, there were additional -- there was

25 interest and other -- there was default interest and other

Page 54



1 expense that had been incurred. It was approximately 2

2 million 350. And then they advanced a total of 750 above

3 that. That gets us to 3 million one. And they've incurred

4 a large amount of expenses, and so they have advised that

5 their total debt right now is in -- is in the approximate

6 sum of 3 million 250. Again, that's a round number. It may

7 be a couple dollars less than that, but in a round number,

8 that's the correct number.

9 THE COURT: Okay. So I'm going to hear from

10 everybody. Before I heard -- before I heard from anybody,

11 there's no way I'm going to approve a rollup as a first day

12 order. I'm not going to do it. Now that's the end of the

13 game. Somebody better gets up and say so because I'm not

14 approving a rollup today.

15 MR. KLESTADT: Your Honor, we're aware of that.

16 It's requested --

17 THE COURT: You -- how are you aware of it? I

18 just said it.

19 MR. KLESTADT: No, it -- we anticipated, I should

20 say.


22 MR. KLESTADT: It's -- for the final hearing, we

23 will be requesting it.

24 THE COURT: Okay. So we're taking it out of the

25 interim all together.

Page 55




2 THE COURT: It's not my only issue before. I

3 heard it from other people, or actually just from one entity

4 so far.

5 So the way you married the DIP loan with the sale

6 process, I understood some of it, but some of it was unique,

7 and the unique stuff is what's troubling me.

8 Now, I thought I read in the application, but then

9 I didn't see it in the -- in the agreement, the APA, and I

10 didn't see it in the order, but let's just be clear about

11 this. I thought I read in the application the typical

12 provision that the debtor can't use the DIP money to sue

13 you, to challenge you, to do all the things that they do.

14 And then there was an and. And they can't use it

15 in order to basically market the property for a higher and

16 better offer.

17 MR. KLESTADT: That's --

18 THE COURT: You didn't really mean that, right?

19 MR. KLESTADT: No. No, Your Honor.

20 THE COURT: It's in that application.

21 MR. KLESTADT: No, no. That's not -- if that's

22 there, we'll correct it.

23 THE COURT: Because you can't do that.

24 MR. KLESTADT: Right.

25 THE COURT: Good. I don't know he -- that was --

Page 56



1 somebody else caught that. Okay. So, okay. I thought, nah,

2 he didn't mean that. So, okay. So that -- the concept

3 here, assuming you are the DIP lender is that you also are

4 interested in purchasing it, and so you want to be the

5 stalking horse.

6 MR. KLESTADT: Correct.

7 THE COURT: Okay. And for that, you would want to

8 get certain typical stalking horse situations.


10 THE COURT: You also want to be able to credit bid

11 on the other side of it.


13 THE COURT: But let's be clear that this is going

14 to have to be a sale that is marketed so that we make sure

15 that we get the highest and best offer for the assets.

16 MR. KLESTADT: Your Honor, I understanding that

17 there is -- my understanding is there are interested parties

18 already swirling about who've expressed interest, which is

19 fine. We're prepared to have ether assets go to auction and

20 have a fully, you know, robust process. The Getzler Henrich

21 firm has been retained. We're papered to go on with the

22 process.

23 THE COURT: Okay. So the other things that Mr.

24 Novick mentioned in his objection, where he actually pulled

25 some of these threads together -- and again, maybe some of

Page 57



1 it was not intentional, and that is that you sort of had an

2 event of -- seemed to have an event of default, you tie --

3 it'll be tied together whether or not you were going to be

4 the highest invest offer. I mean, I -- you're going to need

5 to divorce those.

6 MR. KLESTADT: Your Honor, I think the intention

7 was that if there's going to be an alternative transaction,

8 we don't want -- we don't want to have to have then further

9 led at that point. But it's not intended for there to be --

10 THE COURT: But it shouldn't be an event of

11 default.

12 MR. KLESTADT: Well, it's not intended to be an

13 event of default such that the loan becomes due and payable

14 that moment. If that was unclear from the drafting, we will

15 -- we will correct that.

16 THE COURT: It was. Okay. So what's also unclear

17 is -- I know we're not talking about the rollup today -- but

18 was unclear is, to me, as to how much new money are we

19 talking about?

20 MR. KLESTADT: The answer is, Your Honor, as of

21 the filing, $5.7 million of new money. We're now prepared.

22 THE COURT: So it's all -- it would -- we're

23 talking about all new money.


25 THE COURT: in the DIP loan.

Page 58



1 MR. KLESTADT: Yes. Yes.

2 THE COURT: None of that being used to pay off --


4 THE COURT: -- so that they've got a net amount.


6 THE COURT: They've got $5.7 million, and we can

7 talk about why you think we need that. But okay.

8 MR. KLESTADT: Correct. And --

9 THE COURT: So that's all new money.

10 MR. KLESTADT: And the $5.7 million number?

11 THE COURT: There's 4 million on an interim and

12 1.7 million on a final.

13 MR. KLESTADT: Yes, And, Your Honor, my client's

14 prepared to fund up to 6 million in total. The $5.7

15 million-dollar number came from the budget that was provided

16 to us yesterday by the (indiscernible) firm.

17 THE COURT: So I'm going to want you to think --

18 I'm going to hear from everybody, but I want you to think

19 about -- because there were other people in the room who've

20 expressed interest to fund. I want to know between now and

21 Sukkot or Simchat Torah, I mean, between now and the end of

22 the month, which is when the end of the holidays sort of

23 coincide with the end of the month, I think, what you need

24 as a minimum in order to operate and put stuff on the

25 shelves. So that's -- we're talking about two weeks

Page 59



1 basically. And I'm going to be looking for a plain vanilla

2 DIP loan for those two weeks, without prejudice to anybody's

3 position after that. So that's where I'm going today. I'm

4 not going with $4 million. At least, that's my thinking,

5 but I want to hear from everybody else, including you.

6 MR. SCHWED: Your Honor, before I get there, I

7 just want to --

8 THE COURT: Well, I want to hear from everybody,

9 and then you're going to have to, I think, probably have to

10 talk amongst yourselves.

11 MR. SCHWED: Before we -- before I go there, Your

12 Honor, I just want to point out that Mr. Kohn is here

13 together with his client. They've presented us right before

14 -- this afternoon, right before the hearing, they presented

15 us with a term sheet of terms under which they would provide

16 the facility and under which they would buy the assets of

17 the company.

18 So it is in some ways similar to the SKNY

19 proposal. They're, again, linked. The DIP loan --

20 THE COURT: Well, there's a lot about that

21 proposal, as I said, that's problematic. And it looks like

22 that is going to be problematic over there too.

23 MR. SCHWED: Understood. Again, I just want to

24 lay it out so you can see -- know what's going on.

25 Now, there are differences. I just want to point

Page 60



1 out some of the differences, and I'll allow Mr. Kohn, to

2 present anything else he wants to add.

3 Mr. Kohn's client, it's DC Brothers II LLC, and

4 under the DC Brothers' proposal, they have proposed a DIP

5 loan commitment of $6 million. The interest rate is the

6 same as the SKNY interest rate, at least the base interest

7 rate. It's at 6 percent.

8 The default rate that they -- propose is 10

9 percent --

10 THE COURT: Instead of 12.

11 MR. SCHWED: As opposed to SKNY, which is 12,

12 correct. The maturity date is January 15th, 2019, which is

13 30 days later than SKNY's maturity date. It -- obviously

14 there's no rollup in there. There is no -- they don't -

15 obviously don't have any interest payments on any of the --

16 any type of loan because they don't have the pre-petition

17 lender. Again, it's just lining up how the two types of

18 proposals compare.

19 The exit fee for DC Brothers is estimated at

20 $120,000 whereas the exit fee for SKNY is $180,000.

21 Regarding the other provisions, they're generally quite

22 similar. They don't -- they change very little.

23 Regarding avoidance actions, the -- they're not

24 interested in any course of auction or any avoidance actions

25 other than against vendors because --

Page 61



1 THE COURT: Wait a minute. Let's distinguish.

2 They're not getting those in any event as security for a DIP

3 because they're not (indiscernible) but they're talking

4 about as a purchase.

5 MR. SCHWED: Purchase, correct.

6 THE COURT: Because part of your purchase was

7 avoidance actions, and you are not interested in avoidance

8 actions except as to vendors?

9 MR. KOHN: Yes. That's correct, Your Honor.

10 MR. SCHWED: Yeah, that's all they were -- and

11 they're not interested in any other potential course of

12 actions, not that we at this point know of any other than --

13 other than possible avoidance actions that are, you know,

14 mentioned in our papers regarding the prior owner.

15 Regarding the bid protection, their bid protection

16 fee is 2.5 percent as opposed to SKNY which is 3 percent.

17 Their outside date for closing is January 15th as opposed to

18 December 31. And the -- perhaps the most significant

19 difference is that their price for the purchase agreement is

20 13 million as opposed to SKNY's price of 12 million.

21 Now, it's -- it's that last item that obviously is

22 a significant item. Frankly, to be perfectly honest,

23 regarding the DIP loan, we don't see -- and (indiscernible)

24 Mr. Getzler and Mr. Henrich, see a significant difference

25 between the two, but when you get to the asset purchase

Page 62



1 agreement, the problem is because, again, they're linked. I

2 understand, Your Honor we'll deal with that, but at least as

3 they're presented, based on the linkage, it's hard to look

4 at the DIP without looking at the asset purchase agreement.

5 And when you look at the two of them combined,

6 because the asset purchase agreement begins with the

7 stalking horse bid of $13 million, it is the view of Mr.

8 Getzler or Mr. Henrich that that, as a combined bid, is in

9 fact a better bid.

10 We will say that we did commit to SKNY that we

11 would present their bid as a stalking horse bid, because

12 they were not willing to put the last round of funding in

13 unless we agreed to go forward with them on a DIP loan and

14 go forward with them on an asset purchase agreement.

15 THE COURT: Well, I think you made that

16 commitment. You filed it on the docket, it's right there,

17 it's on the calendar.

18 MR. SCHWED: Again, I'm putting everything,

19 everything that's been agreed to on the record so this way,

20 everybody understands exactly what's transpired and where we

21 are. So that's what's on the table right now, is a note --

22 THE COURT: Right. So you have a lot, you have --

23 I mean, you have -- and there looked like there were maybe a

24 couple of other people -- I don't know, the interests on the

25 phone. I will tell you that it's very important to me that

Page 63



1 we do everything we can quickly to get a committee. Do we

2 think in this case we're likely to get a committee?

3 MR. CURTIN: I would think so, Your Honor.

4 THE COURT: Every time I ask that question, I get

5 poked. Now that I think in this case --

6 MR. CURTIN: I can never totally predict, but

7 we'll -- I mean, hopefully, the time doesn't impact that too

8 much, but we'll do our best to. Obviously, we haven't done

9 it yet.


11 MR. CURTIN: We've been doing this in the last

12 three hours. But probably tomorrow, we'll get the --

13 everything scheduled.

14 THE COURT: Because the committee would be, you

15 know --

16 MR. CURTIN: Right, in terms of evaluating.

17 THE COURT: -- would want to be able to weigh in

18 and evaluate, as well as others certain --

19 MR. CURTIN: We'll, of course, make every effort

20 to. This case is begging for a committee, certainly.

21 THE COURT: Then there was -- and then, I guess, I

22 don't know if you want to deal with the person you bought

23 from, but apparently, Mr. Novick also is indicating he's got

24 -- ready to do some DIP financing. So it sounds like

25 there's a lot of interest in the room.

Page 64



1 MR. SCHWED: Yeah.

2 THE COURT: And maybe some on the phone.

3 MR. SCHWED: I've had multiple conversations with

4 Mr. Novick for the past few weeks. Initially, he indicated

5 that if I provided him with the information as it was

6 developing, he might come today and actually present a

7 counter-proposal. He decided not to; that's fine.

8 THE COURT: Well, he's looking for information, he

9 says.

10 MR. SCHWED: No, and that's understood. I mean,

11 the truth be told, SKNY might have a little more information

12 than him, but it's not like they have a lot. If there's a

13 problem in this case that the information has been hard to

14 get, which is one of the other reasons why, when you asked

15 before, why did we not file this quicker. Getting a budget

16 in this case was an incredible task. Everything takes very

17 long because the financial information is hard to pull out

18 of the records.

19 THE COURT: So we start with a premise that

20 concerns us.

21 MR. SCHWED: No, and that's why it was so

22 important --

23 MR. CURTIN: And the budget we have, Your Honor,

24 has -- we'll get to it later, but the budget is not great.

25 THE COURT: Yeah.

Page 65



1 MR. SCHWED: Your Honor, and that was -- and that

2 concerned us from the moment we got involved, and that's why

3 we felt it was critical to immediately get professionals in

4 and we think we got two excellent professionals in the

5 Getzler Henrich firm. So we believe that going forward,

6 that problem will be resolved.

7 But it doesn't change the fact that in terms of

8 providing information to anybody, it took a long time. We

9 did the best we could. We provided information to Mr. Kohn.

10 We only began speaking, I think, maybe a week ago? And in

11 the past week, he asked for information. I provided

12 everything he asked for, and he's provided a proposal. So

13 it's not like it's impossible. He did it. Mr. Novick's

14 client decided not to do and that's fine. I have no problem

15 with that.

16 But the important thing is, I think, for the

17 estate, and including Mr. Curtin's concerns when we first

18 talked about the case, is that, you know, there is this

19 issue about some initial lender, and maybe that is an

20 insider who's been bidding, but there's a third party also.

21 So at least we get fresh blood involved on something that's

22 not an insider, that's actually at the table. So we know

23 they're going to end up with, hopefully, a sale that's going

24 to be a fair arms' length sale.

25 THE COURT: I want to hear from everybody, and

Page 66



1 then I want to understand whether you really need some money

2 between now and these holidays. Is it going to make a big

3 difference? And how can we do that and not jeopardize the

4 competition in the room? But let's think about that for a

5 minute.

6 MR. SCHWED: Sure.

7 THE COURT: Let me hear from Mr. Klestadt.

8 MR. KLESTADT: Your Honor, on that subject, our

9 understanding, and perhaps we should Mr. Getzler on the

10 stand, is that there is an emergent need for the $4 million

11 in order to restock the stores properly for the upcoming

12 holiday season. And, you know, part and parcel of that --

13 THE COURT: Again, the upcoming holiday season,

14 half of which is behind us.

15 MR. KLESTADT: Half of which, Your Honor. But as

16 I understand it, if Your Honor were to approve the interim

17 $4 million today, we would be able to fund that tomorrow.

18 And by the way, Your Honor, the money is sitting in my

19 escrow account. We have signed, signed loan agreement.

20 We're ready to go, Your Honor. We've invested a lot of time

21 in this, and there's no issue, Your Honor, with regard to

22 financial wherewithal. The money is in my escrow account.

23 If Your Honor were to sign an interim order, the

24 $4 million would be funded. As I understand it, that

25 money's going to be used substantially to buy product to

Page 67



1 stock the stores for the upcoming two-week period

2 representing the holidays.

3 And that is an important period, Your Honor, for

4 the Debtors; that's what we were led to believe, and that's

5 why my clients agreed to step up to the plate.

6 MR. SCHWED: Your Honor, and there's a related

7 point to that. Number one, you know, while it is later than

8 we'd like, there still is a fair amount of days which will

9 generate a substantial amount of sales if the stores are

10 stocked, and that's the clear belief of everybody involved.

11 In addition --

12 THE COURT: That's why I got on a train before

13 dawn this morning from Upstate New York to be here because I

14 understand that need. But I also want to -- I also don't

15 want us to do anything on the first day that is going to

16 basically, you know, guarantee everything else that's going

17 to happen the rest of the -- I mean, I'm not going to --

18 we're not going finish the case today.

19 MR. SCHWED: There's one other point related to

20 that, which is that there are concession vendors. These

21 stores, each of them, have multiple concession vendors.

22 They sell their own product. And they're in there because

23 of the traffic generated in these stores. The fact that the

24 stores are now close to empty has resulted in, I think, one

25 or maybe more actually having left, and quite a few of them

Page 68



1 have one foot out the door.

2 So if we go another couple of weeks with empty

3 stores -- and we've been telling them, don't worry, we're

4 going to be in bankruptcy soon, we're going to have DIP

5 funding, and you're going to see the traffic's going to be

6 back in there. And if we now go another few weeks until

7 after (indiscernible) and we wait until then to stock the

8 stores, many of them may be gone.

9 And so, that's another factor we could consider

10 besides for, you know, just losing the sales, maybe more

11 important is losing the concessions.

12 THE COURT: Okay. So I think you need to, if

13 we're going to do this today, I think we're going to need to

14 -- after I hear from more people, take a second call. And I

15 am looking for the most plain vanilla interim DIP order I

16 can get. As much as I -- again, I don't, you know, whether

17 somebody's a stalking horse, not a stalking horse, that's

18 okay. As long as they don't have crossover, you know,

19 built-in advantages, is I guess what was I think I found

20 problematic and so did others.

21 MR. KLESTADT: Your Honor, I apologize. I don't

22 understand what the crossover problems are, because there's

23 still -- there's still going to be a bidding procedures

24 hearing, there's still going to be an auction, subject to

25 higher and better offers.

Page 69



1 THE COURT: Well, you just have to go, maybe you

2 have to take a closer look at the documents because there

3 were, both in the application and the proposed order. And

4 then again, there are a lot of findings that, you know me by

5 now, I only make findings once I make findings.

6 If you want -- if you and the Debtor, you and the

7 Debtor have stipulations -- well, you wouldn't have that

8 situation. But if you have stipulations you want to enter

9 into about your prepetition indebtedness, you can do that.

10 I'm not going to make them as findings today.

11 MR. KLESTADT: That's fine, Your Honor.

12 THE COURT: So you have to move those to a

13 different part of the order, you know that.

14 MR. KLESTADT: That's acceptable; that's not a

15 problem.

16 THE COURT: But I think that, I think that the

17 Debtor needs a little time with the Debtor's professionals

18 to figure out -- if they want to walk out of here today

19 with, you know, DIP financing, they need to figure out, you

20 know, who they're asking to the prom.

21 MR. KLESTADT: Well, Your Honor, from my client's

22 position, we're the one that's been asked to the prom.

23 THE COURT: You've already been asked.

24 MR. KLESTADT: Yes, and we have a signed document

25 already to that effect. I mean, unless Your Honor is

Page 70



1 preparing --

2 THE COURT: Well, when you say a signed -- wait a

3 minute.

4 MR. KLESTADT: Pardon?

5 THE COURT: When you have a signed document.

6 MR. KLESTADT: We have a loan agreement that has

7 been signed, subject to Court approval.

8 THE COURT: Good, good.

9 MR. KLESTADT: Yes. My point, Your Honor -- you

10 know, the question, Your Honor, is, are you opening this up,

11 the debtor-in-possession financing, in essence to a

12 competitive auction for the DIP? I mean, we would be

13 opposed to that. But, obviously, that's within Your Honor's

14 purview. And that's really the question because, otherwise,

15 there's one DIP facility.

16 THE COURT: $4 million on an interim order is a

17 lot of money.


19 THE COURT: I've been told things are so, I guess,

20 the shelves are so naked that that's what it's going to take

21 for the next couple of weeks between now and the end of the

22 month. I mean, is that really what it's going to take if

23 you're telling me that's really the number? I asked you

24 what you really thought the number was going to be. You

25 have experts in the room.

Page 71



1 MR. SCHWED: In response, I have somebody -- I'd

2 rather have somebody who's an expert who can speak to this.

3 THE COURT: Right. So I think that I would like

4 you to -- you know, you can take different rooms to caucus.

5 I can give you more rooms if you need it. But I think,

6 again, it's not -- my job here today is to do absolutely

7 what is necessary and no more.

8 I'm operating without a committee. I have to be

9 that voice in the room until there's a committee. I don't -

10 - I'm trying to -- I don't know, nobody really estimated for

11 me on your deal versus your deal, which I just heard about

12 now. What is going to be left at the end of the day for

13 creditors? I have no idea what that is.

14 MR. KLESTADT: You mean the asset sale, Your

15 Honor?

16 THE COURT: Yeah, after you're paid.

17 MR. KLESTADT: I don't think anyone knows that

18 until schedules are filed and you have a better idea of what

19 the landscape's going to be. But, Your Honor, understand,

20 please --

21 THE COURT: I don't -- because I don't want to --

22 I don't -- go ahead.

23 MR. KLESTADT: Your Honor, my client is not

24 seeking to force itself on the Debtor. You know, my clients

25 are lending money because we have been told it is necessary

Page 72



1 in order to preserve value.

2 My suggestion to Your Honor is that we put Mr.

3 Getzler on the stand. He can tell the story firsthand

4 because he's told the story to my clients, and Your Honor

5 will have the benefit of that information directly.

6 THE COURT: Well, as far as that premise, that the

7 money is necessary?


9 THE COURT: For purposes of this conversation now,

10 I'll accept that premise. The question is, how much and

11 under what terms? Mr. Kohn?

12 MR. KOHN: Yes, thank you, Your Honor, for giving

13 me the opportunity to let you know a little bit about and to

14 respond to the things that you're going to be -- that was

15 said before.

16 I was hoping that you'd beat me up instead of Mr.

17 Klestadt about these, about these documents. Because as far

18 as we were concerned, we understood -- and I hope that's

19 still the case -- that the Debtor has chosen us this morning

20 over Mr. Klestadt's client.

21 And the reason I think they chose us is because of

22 Your Honor's very critical questions. The last question

23 about a minute or two ago is, what's left for unsecureds?

24 One thing we know is that based on our DIP, there'll be a

25 million dollars left more than unsecured than under Mr.

Page 73



1 Klestadt's DIP. That's absolutely, and I think absolutely--

2 THE COURT: Well, you mean 12 versus 13.

3 MR. KOHN: Yes.

4 THE COURT: Well, a million dollars, we still

5 don't know the bottom line.

6 MR. KOHN: Right.

7 THE COURT: Okay.

8 MR. KOHN: But there's definitely on the -- yes,

9 on the numerator, the numerator will be --

10 THE COURT: And you're going to bid against each

11 other.

12 MR. KOHN: That's right. But as soon as --

13 THE COURT: I mean, I hope.

14 MR. KOHN: But as soon as we come in, the bar is a

15 million dollars higher. It's immediate value. There's no

16 stipulations at all, there are no stipulations. There's no

17 concerns of SKNY being on both sides of the loan

18 transactions, because they controlled corporate, which

19 controlled the operating entities, which entered into these

20 agreements with SKNY.

21 THE COURT: Well, they have a minority share.

22 MR. KOHN: I --

23 THE COURT: I mean, I know that they're audacious,

24 that they've been very much involved and maybe they think in

25 more control than we know, and then people want discovery

Page 74



1 about that. But it's a minority interest, right?

2 MR. SCHWED: Yes.

3 THE COURT: Okay, on paper.

4 MR. KOHN: Okay, right. We really have to look at

5 the LLC agreement to really see whether that minority

6 interest had more power than others.

7 THE COURT: Correct.

8 MR. KOHN: Okay. First of all --

9 THE COURT: And Mr. Novick is interested in

10 looking at that too, right?

11 MR. KOHN: And DC -- that's the point, that's the

12 point. Because our bid won't have anything related to the

13 prepetition lenders. We'll give them some adequate

14 protections, some replacement liens; we'll be priming them.

15 Because nobody knows sitting here today whether their liens

16 and claims are valid, particularly because they were on both

17 sides of the transaction to some extent.

18 THE COURT: Well, and they're recent. We don't

19 know if they've properly perfected, although they did put in

20 that they'll give the committee some amount of time,

21 although not a lot of time.

22 MR. KOHN: And whether some also give to avoidance

23 issues. Yes, absolutely, Your Honor. Just to say a little

24 bit about DC Brothers. One of the principals of DC Brothers

25 has been in the food business for over 30 years. This is

Page 75



1 Mr. Joseph (indiscernible), who is the courtroom in the back

2 room. And he is -- this is a strategic independent third-

3 party issue to purchase the business through the DIP loan.

4 And so, they are experts in the food business,

5 very prominent in the community and everybody knows them.

6 So, you know, Mr. Klestadt said --

7 THE COURT: You're talking about the Jew- -- which

8 community?

9 MR. KOHN: Yes, the Jewish community.

10 THE COURT: Geographically.

11 MR. KOHN: The customer base, the employee base.

12 THE COURT: But geographically, we're talking

13 about?

14 MR. KOHN: The creditor base, the creditor base,

15 anybody that's involved in this Seasons bankruptcy. And to

16 get a named description, they know that they're able to --

17 they will have the wherewithal and they have the wherewithal

18 to fund today, this afternoon -- not tomorrow morning. As

19 soon as Your Honor enters the order, even this afternoon.

20 THE COURT: Well, he'll fund this afternoon too.

21 MR. KOHN: Yes.

22 THE COURT: He's got it in his escrow, he told me.

23 MR. KOHN: Exactly, but I'm just saying that we

24 will as well, okay? So I could actually hand up Your Honor

25 what was -- what Mr. Schwed was --

Page 76



1 THE COURT: Well, no, I don't want --

2 MR. KOHN: Oh, you don't want to have anything on

3 it? Okay.

4 THE COURT: Again, I'm going to give --

5 MR. KOHN: Okay. So I'm not going to say anything

6 more than that.

7 THE COURT: All right.

8 MR. KOHN: But, other than there is substantial.

9 And we didn't, like, sabotage the case. We've been talking

10 for a while. Mr. (indiscernible) was actually, even before

11 I got involved, was talking to some people about purchasing

12 the assets of Seasons way back when. And we didn't, like,

13 sabotage and come and say, here, we filed. We were

14 negotiating days --

15 THE COURT: Okay. I mean, yeah, okay. All right.

16 And the other thing I want to just say before Mr. Klestadt

17 gets up again, is that they -- while I've said that we don't

18 have an unsecured creditors' committee, we at least have in

19 the courtroom the two the largest unsecured creditors in the

20 case. So that's -- I'm going to want to hear from them.

21 Again, they may have -- you may have said that, let me just

22 say that. Are there are any others? You can have a seat.

23 Are there any others?

24 MR. KOHN: There's just one last thing I'd like to

25 say, Your Honor.

Page 77



1 THE COURT: Yeah, go ahead.

2 MR. KOHN: If you don't mind.

3 THE COURT: Yes, go ahead.

4 MR. KOHN: So Mr. Klestadt says that it's sort of

5 like a DIP auction, and we -- this is a surprise to us. I

6 mean, I would like the Debtor's witness to get up and go on

7 the stand and say, based on their best -- better business

8 judgment which DIP is better, and they could do that

9 immediately.

10 THE COURT: Well, but -- no, no. Right now, the

11 Debtors have made a motion put before me that DIP loan,

12 okay. They have to withdraw that motion and put another

13 motion before me or whatever they have to do. Because right

14 now, the motion that's on is the motion for them to do the

15 DIP loan. You may have made a deal -- not a deal, but a

16 discussion this morning. But that's right now what's on my

17 calendar. I mean, that's --

18 MR. KOHN: Right, so we have to hear from the

19 Debtor their position on that.

20 THE COURT: Yes, and we have to hear creditors.

21 MR. KLESTADT: Thank you, Your Honor.

22 THE COURT: Yeah, come on up. You didn't note

23 your appearance. Who are you?

24 MS. FIEDLER: I wasn't prepared to talk today, but

25 I will now. Alyson Fiedler with Schiff Hardin, appearing on

Page 78



1 behalf of one of the landlords, the Scarsdale one, in

2 particular.

3 THE COURT: Oh, the landlord, okay. You're an

4 attorney?

5 MS. FIEDLER: I am.


7 MS. FIEDLER: And I appreciate you being cautious,

8 and we're concerned too. We're reviewing the papers that we

9 just received as well. And any limitations you can include

10 in the order and reservations of rights for the landlord,

11 Scarsdale, and other unsecured creditors, I appreciate.

12 THE COURT: Okay.

13 MR. KOTLER: Good afternoon, Your Honor. Larry

14 Kotler of Duane Morris, here on behalf of Bank United. One

15 consensus with my client is we're a very large creditor in

16 this case, okay. Maybe we're unsecured, maybe we're

17 partially secured, but we're a very significant creditor.

18 Your Honor, I had absolutely no notice of any of

19 this until the 12th -- I'm sorry, 11:55 today. Thankfully--

20 THE COURT: Well, you were supposed to have a

21 notice by 11:00.

22 MR. KOTLER: Well, I didn't get notice from the

23 Debtor. I actually got notice from Mr. Novick.

24 THE COURT: Okay.

25 MR. KOTLER: And the reason why Mr. Novick knew to

Page 79



1 give me notice is because I entered my appearance in the

2 involuntary that he filed in the Southern District. So I'm

3 not an unknown commodity. I was, there's only nine docket

4 entries in that case, and I'm one of them. I'm also known

5 to Mr. Getzler very -- and Mr. Henrich. I'm also known to

6 Mr. Klestadt, so it's --

7 THE COURT: Well, I'm glad you're here.

8 MR. KOTLER: Okay. I have literally had

9 absolutely no ability to speak to my client, other than on a

10 very perfunctory basis while I was on route from my office

11 to the subway. We would appreciate the most vanilla order

12 with a full restoration of rights. And if there's going to

13 be a competing bid, then I think we have to have notice to

14 all parties.

15 And I think I would urge the U.S. Trustee to form

16 a committee as quickly as possible, because somebody really

17 needs to kick the tires here and determine which is the

18 better DIP and which may be the better APA.

19 THE COURT: Right. But the question is, we don't

20 -- you know, withering on the vine. The question is,

21 they're telling me I got to approve some money because,

22 otherwise, you won't have anything to sell, Judge.

23 MR. KOTLER: But, you know, Your Honor, I hear

24 you.

25 THE COURT: I know, and I have to find the

Page 80



1 balance. Okay? And that's why I said I really want to know

2 the minimum amount of money that you need in order to make a

3 reasonable looking, a store look reasonable between now and

4 the end of the month and so that, right. I mean, that's the

5 balance.

6 MR. KOTLER: Right, you're absolutely right, Your

7 Honor. And I don't think anybody in this room would argue

8 that, you know, an empty store is going to preserve value.

9 THE COURT: Yeah. What aggravates me and I'm sure

10 it aggravates -- I'll bet it aggravates counsel for the

11 Debtor, is that we -- is that it became so empty before we

12 got here.

13 MR. KOTLER: Right.

14 THE COURT: It's very frustrating to me. In this

15 half of season and we'll have this month and it sounds like

16 it's really stark.

17 MR. KOTLER: And that's, but Your Honor hit the

18 nail on the head. Why did they file now?

19 THE COURT: I know, but we can't change that.

20 MR. KOTLER: And they've created this emergency,

21 Your Honor, they really have. And the other thing that I

22 would argue is that between now and the end of the month,

23 how many days, how many days are these stores really going

24 to be open, knowing they're closing?

25 THE COURT: Well, it's not that. It's Sukkot and

Page 81



1 it's all the meals in this. I mean, I know a little bit

2 about the religion. It's that it's Sukkot Torah. I mean,

3 again, they've lost a bit of it, but they've got -- they've

4 got to -- you know, basically, it's holiday between now and

5 the end of the month.

6 MR. KOTLER: Simchat Torah is actually next month,

7 Your Honor.

8 THE COURT: No, no, it ends -- it all begins with

9 one and ends with the other. And I know this because I have

10 to keep that calendar.

11 MR. KOTLER: I thought it was --

12 THE COURT: And so, I think we're over by the very

13 beginning of October.

14 MR. KOTLER: Yeah, I think the 2nd of October.

15 THE COURT: I think October 1 or September 31.

16 Right, right, it's all together.

17 MR. KOTLER: Again, Your Honor, I think it's very

18 unfair to the creditor constituency to have something rammed

19 down their throats on an emergent basis; when, frankly, this

20 was not an unknown issue. They knew about this. They could

21 have filed, you know, in August; they could have filed in

22 July. There was a lot that they could have done. And now

23 that they've, you know, essentially, you know, thrown

24 gasoline all over the place and now, they're arguing --

25 THE COURT: Well, again, and I'm not -- again, I

Page 82



1 said they really have to be divorced in the sense that since

2 I'm not taking up bidding procedures today, I'm not taking

3 up a stalking horse. So if somebody wants, feels that

4 they're better positioned if they're the DIP lender, so be

5 it. But I am not -- I'm going to divorce those two

6 concepts.

7 MR. KOTLER: But even if we, even if -- what I'm

8 saying, though, Judge, is if there's -- if a competitor --

9 if a competitor's bid, other than SKNY, is decided upon

10 today, how are creditors going to know what --

11 THE COURT: It's not a bid that's -- now, we're

12 talking about just some DIP -- we're talking about some DIP

13 money. Okay?

14 MR. KOTLER: But it's still -- but they're

15 connected. I don't think -- maybe I misheard, but it was my

16 understanding that the whole reason why there's a

17 competitive bid is so that they could be the first.

18 THE COURT: Right. They're interested in

19 purchasing.

20 MR. KOTLER: Right.


22 MR. KOTLER: I don't know if you uncouple both,

23 whether you still have a competitive --

24 THE COURT: Well, no, but they're entitled to

25 credit bid the amount of their obligation.

Page 83



1 MR. KOTLER: Well, I think the only party who

2 could do that is Mr. Klestadt's client, and I think there's

3 issues concerning Mr. Klestadt's. There's no other secured

4 creditor besides Mr. Klestadt.

5 THE COURT: Right, that's right. No, you're

6 correct.

7 MR. KOTLER: And then I think there's some issues

8 there. And that's another reason why I think they should be

9 in because I think there could be recharacterization issues

10 with Mr. Klestadt's clients. But, ultimately, all I'm --

11 THE COURT: So do you want to lend?

12 MR. KOTLER: That's the one thing I do know, is

13 that my client does not want to.

14 THE COURT: Okay. So the question is, who's going

15 to lend with the most plain vanilla order where everybody's

16 rights are preserved and I do as little damage as possible,

17 do no harm.

18 MR. KOTLER: That is what we would like, Your

19 Honor.

20 THE COURT: Me too.

21 MR. KOTLER: Thank you.

22 MR. KLESTADT: Your Honor, we're prepared to give

23 as plain vanilla order as possible. We'll go through it

24 with Mr. Curtin, with the Debtor, anyone else who wants to

25 go through the order.

Page 84



1 THE COURT: I think that we have a debtor-in-

2 possession that has to decide, again, which motion they want

3 to proceed. Do they want to substitute a new motion for the

4 one that I've got before me? The one that I've got before

5 me, I will tell you, I'm not signing in the form I have it

6 in. It's got to look -- it's got to become a plain vanilla.

7 MR. KLESTADT: One point, Your Honor. If the

8 Debtors were to withdraw this motion and try and substitute

9 another motion that sought to prime my client's existing

10 secured debt, we would object to that. So it's one, Your

11 Honor, for my client to prime itself; it's quite another for

12 another party to come in. And I don't see how that would

13 lead to any financing happening any time soon; certainly,

14 not in the next 24 hours.

15 I think, Your Honor, what I would ask Your Honor

16 to do is to entertain testimony from Mr. Getzler with regard

17 to the need and the amount, because that's -- I think what

18 we're focused on is the 4 million. If we get over that

19 hurdle, then it's a question of working through the form of

20 the order.

21 THE COURT: I'm not saying that's not going to

22 happen, but, first, we have to figure this out. Mr. Novick.

23 You also want to lend, right?

24 MR. NOVICK: We don't especially want to lend. We

25 offered to lend because we would rather put some money into

Page 85



1 the case, rather than have a locked-up process that affects

2 value for the rest of the Chapter 11. And in that regard,

3 we even set forth in our papers, that if the Debtor needed a

4 modest amount of money as sort of a bridge DIP to get

5 through these sort of issues they're having now, we'd be

6 willing to put it in. We offered up to $2 million.

7 THE COURT: So you said 2.

8 MR. NOVICK: We said 2.

9 THE COURT: They think they need twice that.

10 MR. NOVICK: Okay. Well, I'm pretty sure they

11 don't need twice that. And this is just a few points I'm

12 going to put for the record, because I realize the Court

13 understood most of our arguments; maybe not in all their

14 details, but has generally accepted our Complaint, which is

15 about (indiscernible).

16 THE COURT: Well, no, what happened is I had a lot

17 of the same concerns you had before I got your papers a few

18 minutes before the hearing.

19 MR. NOVICK: Okay. I don't need to take credit

20 for it. I just want to put a couple of things onto the

21 record: number one is, I don't know whose home at the Debtor

22 that's negotiating with SKNY. And I say that of a couple of

23 pieces of information I have in the papers: number one, in

24 the petitions, there are board resolutions authorizing the

25 Debtor, consent of sole member to enter into the DIP loan

Page 86



1 with SKNY.

2 They're signed by three people: Mr. Gold, who you

3 heard about; Mr. Bloom, who is a large equity holder and I

4 believe is still a director or manager but is not the CEO;

5 and the third is SKNY, LLC, Class B member name is Mr. Klein

6 and manager. So they actually signed the board resolutions

7 authorizing them to borrow from them since.

8 At the same time, we've had a lot of documents

9 signed by Mr. Getzler as CRO. But if you look carefully

10 through his declaration, it says that he will not become CRO

11 and will not assume the role until the Debtors acquire D&O

12 insurance for him. So unless there was an error in the

13 papers, I think he's just an outside consultant now and not

14 an officer or the directors, unless they want to correct

15 that.

16 So we have an arm's length issue on the face of

17 the papers, that we have nobody else home apparently, except

18 SKNY.

19 And at the same time, we have another party here

20 saying we have higher and better money available. And I

21 think in order to get priming liens in order to get super-

22 priority administrative treatment, the Court has to make a

23 finding based on evidence that the DIP loan the Debtors

24 takes is the highest and best available funding. They

25 couldn't get funding on any better terms.

Page 87



1 And here you have on the record right from the

2 Debtor, as well as the lender, that higher and better firms

3 are available staring the Debtor in the face. So I don't

4 know how that can get approved. It's not that the Court may

5 or may not have authority to authorize a DIP auction; it's

6 that the Debtor has to make a showing that they're taking

7 the highest and best money, and they've made the opposite

8 showing.

9 THE COURT: Correct.

10 MR. NOVICK: So they've -- I applaud them for

11 seeking highest and best value for the creditors; this is

12 what we want them to do. And with a competitive process,

13 we're that much less likely to step in and try to loan money

14 because that was all we were interested in ensuring.

15 Now, the $4 million question, I'd also like to

16 just note a few items about that. And they are the items is

17 the --

18 THE COURT: On the budget.

19 MR. NOVICK: On the budget.

20 THE COURT: You probably should put that on -- you

21 can put that on the record, and then I want to hear from Mr.

22 Curtin. It only makes sense to discuss this before we break

23 for discussion.

24 MR. NOVICK: Maybe it does, but I'll just --

25 THE COURT: No, I think it does make sense. Go

Page 88



1 ahead.

2 MR. NOVICK: I'd like to just note a couple of the

3 lines. Number one, the Court heard over and over again how

4 important it is for the Debtor to get stocked for the

5 holiday season. Sukkot starts Sunday night, in the middle

6 is Wednesday -- Tuesday and Wednesday is Rosh Hashanah,

7 Friday and Saturday is the Sabbath.

8 There's one and a half business days for the

9 Debtor to get the financing, call up their suppliers, have

10 trucks ship everything to all these stores, put it out on

11 shelves and sell it. It doesn't seem like they're going to

12 make a lot of money between now and the beginning of next

13 week.

14 THE COURT: It's why I asked that question.

15 MR. NOVICK: Okay. The other very interesting

16 thing is cash from sales and the DIP budget. Next three

17 weeks through October 11th have annual cash from sales of

18 963,000, 931,000, 914,000. And then after October 12th, it

19 goes 1.3 million, 1.6 million, 1.8 million, 2 million and on

20 and on increasingly upward.

21 So the DIP budget itself says that these next

22 couple of weeks are not the most material or important weeks

23 for the business. They are actually selling at half the

24 rate that they will be on ordinary weeks when there's no

25 holidays.

Page 89



1 The other interesting line I want to put out is

2 the orders of grocery.

3 THE COURT: I'm sorry, what did you say?

4 MR. NOVICK: The inventory restocking.

5 MR. CURTIN: Inventory restocking.


7 MR. NOVICK: They've got themselves buying $1.6

8 million of inventory immediately, another million dollars

9 the next week, and a small amount, 60,000, the week after

10 that, and then that's it for the rest of the case. They're

11 spending -- the math at one point, I don't think the math

12 adds up, but it looks like --

13 MR. CURTIN: The math doesn't add up.

14 MR. NOVICK: It's looks like up to $4 million;

15 $2.5 million is buying food that's supposed to last for the

16 entire budget through the end of the case. And I don't know

17 how they do that, because I would think a lot of it spoils.

18 But they certainly don't need interim financing to put 13 or

19 however many weeks of budget line items are in this, on the

20 shelves in the first week of the case when they're only

21 planning the smallest amount of sales of all the days in the

22 cases.

23 So I think you could look at that, and I'm sure

24 there'll be explanations offered. But the DIP budget itself

25 suggests that actually, the revenues during the next week or

Page 90



1 two or three are going to be at their lowest point, and that

2 there's really no reason to be buying all this food at the

3 interim financing hearing. And, in fact, the interim loan

4 can be considerably less than $4 million.

5 MR. CURTIN: Your Honor, I think most of our

6 points have been covered. The inventory restocking is the

7 obvious one. And, again, as everyone can see, there's

8 literally nothing for the next six weeks. It doesn't make

9 any sense.

10 But one issue that hasn't come up, if you go a

11 little bit down from that, there's a line item for total

12 other payments of almost a million dollars. It's not broken

13 down; it's just added onto the first week of borrowing.

14 Which, again, as was point out, is really a day and a half

15 week of business.

16 So there seems to be substantial fat here that can

17 be trimmed. So, I mean, just those numbers alone are 2.5,

18 plus another million, 3.5; that's a good chunk of the 4

19 million. So when I hear that -- and I didn't know anything

20 about the competing offer until Your Honor heard it as well.

21 So when I hear that that number is 2 million, even that,

22 quite frankly, seems to high. But the 4 million is kind of

23 -- seems to me to be (indiscernible).

24 THE COURT: No, they're also --

25 MR. CURTIN: I think they're at 2 million, right?

Page 91



1 THE COURT: No. Novick, no, no, no, the SuperSol

2 was talking 2 million in their papers. You're still --

3 they're at 4 million also. They don't have to lend so much.

4 Again, we can talk about a two-week order, not a -- because

5 this order was going to be much longer than that. You just

6 tell me what you need for, like, a one-week order.

7 MR. KLESTADT: No, Your Honor, the intention was

8 two weeks.

9 MR. CURTIN: No, that's a two-week order. That's

10 what they intended. It was two weeks because remember, they

11 want the final -- they haven't yet, but they're going to and

12 we're going to ask you for the final DIP hearing on that

13 same October 4th date or whatever, so we're really talking

14 about a two-week period. That 4 million was the two weeks.

15 THE COURT: Oh, okay. Well, that's some- --

16 again, points taken.

17 MR. CURTIN: Obviously, we have given some

18 comments on the order and vanilla'd it up, probably not as

19 much as Your Honor wanted, but some of it. So it doesn't

20 make sense to go through any of those now because we don't

21 know where we're going, but we took out some provisions.

22 THE COURT: Okay.

23 MR. CURTIN: So anyway, we don't have an agreement

24 on any of those yet. That was just something to get

25 started.

Page 92



1 THE COURT: I have a feeling that more than one

2 little room -- I mean, this is a room too -- is going to be

3 -- do we have any more rooms? Okay. So Judge Craig's

4 courtroom will be available. This courtroom, that room, and

5 if Judge Craig has a room, we'll get a room I think.

6 There's at least four places, including plus the hallway.

7 I don't want to leave you open ended. So I don't

8 want to leave the time that I come back here open ended.

9 Let's come back at 4:30 and see where we are. Okay? Thank

10 you. Okay, so you've got everyone on the floor, you can go.

11 (BREAK)

12 THE COURT: Okay. Mr. Schwed.

13 MR. SCHWED: Okay, Your Honor. So we've caucused

14 and this is what we've come up with, subject to Mr. Curtin's

15 approval. But we had an opportunity to lay out all the

16 possible relief.

17 [CROSSTALK/LAUGHTER]

18 MR. SCHWED: It's late in the day, Judge. So the

19 amount that we need, in terms of replenishing and basic

20 items that have to be paid, is $3.2 million. That's for

21 going forward, replenishment, and the various items that we

22 need to actually spend.

23 THE COURT: Hello? Hello? 3.2 million, go ahead.

24 MR. SCHWED: Okay. In addition, something that I

25 didn't know before.

Page 93



1 THE COURT: You said 4, and then we got 4 --

2 MR. SCHWED: 3.2, which is replenishment of the

3 stores; that's primarily what that is.

4 THE COURT: Okay.

5 MR. SCHWED: And there are a couple of other

6 items, and Mr. Weil -- I'm sorry, Mr. Henrich will explain

7 some of the detail if you have further questions.

8 In addition, what I learned today is that PACA

9 suppliers all did not ship today. They essentially, their

10 counsel -- and, apparently, they're all represented by one

11 counsel -- advised that unless PACA payments are made,

12 there's going to be no shipments going forward, which means

13 that no produce is coming to the stores; that's a problem.

14 THE COURT: Unless their --

15 MR. SCHWED: Their number if 470.

16 THE COURT: That's the prepetition amount.

17 MR. SCHWED: That's the prepetition number.

18 THE COURT: So that's the critic- -- that would be

19 in the critical vendor category, right?

20 MR. SCHWED: Correct, Your Honor. And that was a

21 motion that we had, which we addressed before our bid; that

22 was with the sales tax, and we decided to defer sale taxes.

23 I thought we could defer PACA, but based on what happened

24 today, we cannot defer PACA.

25 THE COURT: And they're not -- did anyone give

Page 94



1 them notice of today? You said they were represented by

2 somebody.

3 MR. SCHWED: Yeah, no, I was not aware of that.

4 We did give notice to the 30 largest creditors, which I

5 think included several PACA vendors, and I think there were

6 also conversations. Mr. Getzler and Mr. Henrich had

7 conversations with counsel for PACA, and maybe they can

8 speak to it a little more regarding those conversations.

9 But that is, you know, that's a problem. And if we don't

10 address it, then that could impact everything else behind

11 it.

12 So that's our number, Your Honor. In terms of the

13 details, I'm going to allow somebody from Getzler Henrich to

14 address it.

15 THE COURT: That's your number. But did you

16 figure out who you favor to give it to you? Wasn't that

17 part of what we --

18 MR. SCHWED: Yes, Your Honor, that is. And the

19 way, where we stand right now is that the Debtor recommends

20 -- based on conversations with Mr. Klestadt, who has now

21 advised me that he is prepared to delink the DIP loan and

22 the asset purchase agreement, which basically means that he

23 would like to go forward as a DIP lender.

24 He would like the motion for the asset purchase

25 agreement to be scheduled for a hearing, his motion for his

Page 95



1 agreement. However, he understands that if there is a

2 competing bid for a stalking horse lender, the Court may

3 consider that, and at that time, make a decision as to who

4 was going to be the stalking horse bidder.

5 THE COURT: Okay.

6 MR. SCHWED: And the point is that if SKNY is not

7 the stalking horse bidder, that will not trigger default

8 under the DIP facility.

9 THE COURT: All right. I mean, okay. Where there

10 -- I thought you had other -- there were other criteria.

11 MR. SCHWED: I'm sorry?

12 THE COURT: I thought there were other criteria as

13 well. But we can -- why don't we, we'll come back to this,

14 it sounds like. Why don't we -- you want to put somebody on

15 the stand?

16 MR. SCHWED: If you like, Your Honor, or I can

17 just have Mr. Henrich just go through the number with you.

18 Whatever you like, either way.

19 THE COURT: What's -- why don't we put him on the

20 stand, you can ask him questions.

21 MR. SCHWED: Sure.

22 THE COURT: And anybody else can follow up by way

23 of what's necessary. And then, again, we have to figure out

24 who was -- we have to compare the terms. Who's coming up?

25 (WITNESS WILLIAM HENRICH SWORN IN)

Page 96



1 CLERK: Please raise your right hand. Do you

2 affirm that the testimony you're about to give is the truth

3 and nothing but the truth?

4 MR. HENRICH: I do.

5 CLERK: Please have a seat. Say and spell your

6 name for the record.

7 MR. HENRICH: It's William Henrich, H-E-N-R-I-C-

8 H. Thank you.

9 THE COURT: I'm sorry, what's your first name?

10 MR. HENRICH: Sure, Bill or William. Thank you.

11 DIRECT EXAMINATION OF WILLIAM HENRICH

12 BY MR. SCHWED:

13 Q Good afternoon, Mr. Henrich. You've heard the

14 proceedings that went on today. Tell the Court, first of

15 all, what is your connection to the Debtor?

16 A I am one of the two co-chief restructuring officers.

17 Q And how long have you been in that position?

18 A Engagement letter is dated August 29th. I believe it

19 was signed August 30th. But as of the petition date, we

20 became CROs.

21 Q Okay. And since the time you became the CRO, have you

22 gained information to enable you to determine the needs of

23 the Debtor over the next couple of weeks?

24 A Yes.

25 Q In connection with the debtor-in-possession financing

Page 97



1 that's been presented to the Court, were you involved in the

2 preparation of the budget that's been presented to the

3 Court?

4 A Yes.

5 MR. SCHWED: Your Honor, I'd like to hand the

6 witness a copy of the budget.

7 MR. HENRICH: Thank you.

8 Q After the Court adjourned last, did you have an

9 opportunity to make a determination in what is critical and

10 essential for the next two weeks?

11 A Yes.

12 Q Okay. And could you tell the Court what items you

13 believe are critical and essential and what is the total

14 amount that is needed to go forward for the next two weeks?

15 A Sure. Well, the critical amount -- and let me rephrase

16 it this way. We started with $4 million, which is the need

17 that's depicted on the bottom of Page 2 of 2 in the second

18 column, the column entitled September 28th, and you see the

19 number $3,892,052, so that was the basis of the original $4

20 million. That involves -- that includes monies being spent

21 for inventory restocking.

22 In those two weeks -- and, again, this is about

23 the fourth line of numbers on Page 2 of 2. In the two

24 weeks, September 21st and September 28th, 1.6 million in the

25 first week, and 1.040 million in the second week.

Page 98



1 We're prepared to adjust that, and I do want to

2 make one clarification, which we shared with the U.S.

3 Trustee, which was mentioned before we broke. This

4 inventory restocking line is not the entire purchases of

5 groceries for the 13-week period of the DIP.

6 If you look on Page 1 of 1, about a third of the

7 way down, there's a section entitled CGS, which is cost of

8 goods sold, and there are lines underneath it, concessions,

9 groceries, and produce, total groceries and concessions. So

10 the inventory restocking, because the shelves are in many

11 cases bare in the stores today, is a one-time replenishment

12 of the stores. And the routine purchases of product is

13 depicted on this first page on total groceries and

14 concessions. So I just wanted to clarify the misnomer that

15 was made to the Court earlier.

16 In the inventory restocking line, we're prepared

17 to reduce that by 300,000. And we get that, we get that by

18 deferring the restocking of the Manhattan store, which we

19 feel we can do because there's only one concession vendor in

20 that store, and we're very concerned about replenishing

21 traffic through the stores to maintain our concession

22 relationships. But with only one concession vendor in that

23 particular store, we're prepared to defer the restocking of

24 Manhattan.

25 In addition, included in here, is the

Page 99



1 stocking of the new Scarsdale store. So there are Scarsdale

2 stores, Your Honor; there's a little Scarsdale and a big

3 Scarsdale. The existing store is the little Scarsdale. We

4 weren't seeking to replenish that store. We were seeking to

5 close that and open up new Scarsdale. But for purposes of

6 this exercise, we would look to defer, after the two-week

7 timeframe, to do the inventory stocking of big Scarsdale,

8 and that's about a quarter million dollars for that store.

9 In addition, when you -- and let's proceed

10 down the lines right underneath the inventory restocking.

11 We had contemplated paying the prepet- -- the sales tax

12 pursuant to the motion, the prepetition sales tax, because

13 that typically is due on the 20th of the month, which was

14 this week and that's why it was scheduled for this week.

15 But we will defer that and willing incur whatever penalty

16 might be levied on that.

17 The other line item that we're contemplating

18 deferring, but there's a real risk based on what you heard

19 Mr. Schwed say before, is deferring the PACA amount, the

20 470,000. And as I shared with the U.S. Trustee, there's a

21 detailed list of the vendors and the amounts owed to those

22 vendors, so there's detail behind -- considerable detail

23 behind these two summary pages in the development of the

24 DIP. So, you know, we would push that out to the October

25 5th week, but there's a real risk in attempting to get the

Page 100



1 vendors to ship the produce to the stores, so we would have

2 to talk to them.

3 So that would bring it down to potentially 3.2

4 million, depending on whether or not -- yeah, obviously,

5 there's a preference to try to fund the PACA at 3.7, if the

6 Court would allow; or we would incur the risk of not paying

7 the PACA and trying to defer it and still try to solicit the

8 vendors' support, which may be very challenging.

9 THE COURT: Do you think there's a middle ground?

10 MR. HENRICH: It's difficult to do a middle

11 ground across stores. It's more about servicing individual

12 stores. Again, part --

13 THE COURT: No, I don't -- I mean, I know around

14 about PACA.

15 MR. HENRICH: No, I understand, and that's what

16 I'm -- that's hard to say. I've been involved in cases with

17 PACA before, the PACA Trade Council and there's counsel that

18 typically represents PACA. They're pretty vigorous in their

19 pursuit of getting PACA claims paid out of the gate, and

20 they advise their clients accordingly to leverage the

21 Debtors to be able to pay PACA. I'm skeptical whether

22 there's a middle ground possibly, and I've been in several

23 cases that have had PACA representation before.

24 I think that answers the question, and I'm happy

25 to answer, you know, Your Honor's questions about other

Page 101



1 aspects of the budget. What we didn't, what we couldn't do

2 in a very quick fashion, is clearly the sales or represented

3 by the cash collections, total cash received, obviously

4 contemplate sale of produce, PACA. If we don't have produce

5 to sell, that would be reduced; that obviously impacts the

6 budget. But in the half-hour break, we're unable to do it.

7 But the real focus here was, especially given that

8 this has gone on, our understanding, well before our

9 involvement, that the shelves have been bare for weeks. But

10 there is a captive audience, there is a core customer base

11 that continues to come to purchase what they can, whatever

12 is on -- what is on the shelves.

13 In conjunction with filing Chapter 11, we want to

14 be able to send the message back, and starting with the

15 circulars that we're going to go out with, that we're back.

16 We're in bankruptcy, but we have funding, and the stores

17 will be stocked again. And that -- and while we may not

18 have all the shipments of goods sufficient to capture all

19 the Sukkot sales, that's understood. I mean, Your Honor's

20 calculation was appropriate.

21 But it's about ramping up the stores, getting the

22 product in at first chance, getting the message out to the

23 community that the stores are back in business in full force

24 and bringing the customer base back up. And that's why you

25 see the ramping up of the collections, which is representing

Page 102



1 the sales, over time. Right now, the company has been

2 generating, even at its -- in its depressed cash constraint

3 state, about a million dollars a week, or subbed a million

4 dollars a week, so that's we're here.

5 And we figure once we -- if we order the goods now

6 and get those goods in, we'll start seeing that ramp up over

7 time. We'll bring the customer base back. But we need to

8 get that message out to be able to rehabilitate the value of

9 the company; that we do have parties of interest in the

10 courtroom that are willing to pay value for this, but we're

11 trying to rehabilitate the stores to realize that value.

12 Q So is it your view that the lowest amount that would

13 accomplish what you're trying to accomplish for the next --

14 going forward, and certainly the next two weeks, is $3.2

15 million is what would be necessary in terms of the stores

16 and, in addition, the PACA payment as well.

17 A The 3.7 is preferred; the 3.2 has a risk with respect

18 to the PACA.

19 THE COURT: All right, so I guess that's 3.6. We

20 went from 3.892 to 3.67; is that right, assuming PACA has to

21 get paid in full?

22 MR. HENRICH: If we wait about 300,000, yes, or

23 3.59, so it's about 3.7.

24 THE COURT: Just for the record, I would like you

25 to ask the witness what happens if you don't get the amount

Page 103



1 of money.

2 Q Examiner, could you tell the Court, please, what would

3 happen if you don't get the amount of money that you've just

4 described as being necessary?

5 A You know, from our experience, understanding of the

6 community, and also in discussions with Mayer Gold as well,

7 I think that it could be devastating between filing Chapter

8 11 and continuing for an extended period of time of not

9 having goods in the stores to satisfy the customer base.

10 But equally important is, you know, the

11 concessions are skittish to begin with about what our status

12 is, other vendors are skittish, and we need to be able to

13 bring that customer base back, bring the traffic back to the

14 stores to be able to maintain those concessions and vendors

15 supporting the store, and that's done by bring the traffic

16 back.

17 Q Thank you.

18 THE COURT: I have a question about, what is --

19 under, on the second page, under other vendors. What is

20 concession vendors advance?

21 MR. HENRICH: Right. So a number of these

22 concessions vendors have gone weeks without payment, and

23 some of them are cash strapped, right? So they've indicated

24 to us that they need some funding in advance to be able to -

25 - for them to make the purchases of their product to bring

Page 104



1 to the stores. So that's about a half-weeks in dollars;

2 that's maybe a little more than a half-a-weeks of actual

3 concession purchases or something of that nature.

4 But it's giving us the opportunity to sprinkle to

5 some of the concession vendors some cash in advance towards

6 their purchases. Basically, all these vendors have said

7 they'll support us on CIA or COD, and this gives us some

8 money for basically the CIA.

9 THE COURT: Okay, so that's in -- that's on top of

10 the concession expenditures on the first page.

11 MR. HENRICH: Yes.

12 THE COURT: Okay.

13 MR. HENRICH: Yes. And as I explained to the

14 U.S. Trustee, is that we recapture that advance in our

15 calculation of post-sale accrued administrative expenses.

16 It's not depicted here.

17 THE COURT: Okay.

18 MR. HENRICH: Right, but I shared the schedule

19 and showed them that that was our methodology.

20 THE COURT: Do you have anything else?

21 MR. SCHWED: No.

22 THE COURT: Okay.

23 MR. SCHWED: Thank you, Your Honor.

24 THE COURT: Does anybody else want to question the

25 witness? No? Okay, you may step down.

Page 105



1 MR. HENRICH: Thank you, Your Honor.

2 THE COURT: Okay. So let's go over what we're

3 looking at then.

4 MR. SCHWED: Just to remind the Court that we had

5 previously deferred the wages motion to second call as well.

6 THE COURT: Okay. Well, let's first do the -- I

7 guess it makes sense now to do the DIP first.

8 MR. SCHWED: Okay.

9 THE COURT: So what are we looking at in -- do I

10 have a plain vanilla proposal yet?

11 MR. SCHWED: I think it is, Your Honor.

12 MR. KLESTADT: Your Honor, Tracy Klestadt for

13 SKNY. Your Honor, Mr. Curtin and my partner, Mr. Scott, who

14 had to leave unfortunately, have gone through Mr. Curtin's

15 comments. We've accepted I think substantially all of them

16 to make this as plain vanilla as possible.

17 I think Your Honor expressed some concerns about

18 the linkage between our DIP agreement and the asset purchase

19 agreement. I think, Your Honor, that can be eliminated by

20 deleting -- and we'll include the paragraph in the order --

21 the loan agreement, Section 9.1.

22 THE COURT: Well, let me get to the -- what

23 document is this now?

24 MR. KLESTADT: The asset purchase -- the loan

25 agreement, Your Honor.

Page 106



1 THE COURT: I know. What number?

2 MR. KLESTADT: The loan and security agreement

3 that's attached.

4 THE COURT: Just give me a number.

5 MR. KLESTADT: Pardon me?

6 THE COURT: Just what number in the book.

7 MR. KLESTADT: It's docket no. 10.

8 THE COURT: That's not what I'm asking. Hold on.

9 The DIP is -- 20? Okay. I have a lot of little, a lot of

10 comments myself, so I want to be sure and see what I can

11 capture. Go ahead, what were you going to say?

12 MR. KLESTADT: I was going to show Your Honor

13 what's the -- in the agreement, Section 9 in the events of

14 default, and 9.1(I). I think if we delete that, it takes

15 care of the problem. And that one sentence, Your Honor,

16 means the APA is terminated for any reasons other than the

17 default of the lender under the APA. That's removed as an

18 event of default. I think that de-links the DIP agreement

19 from the APA sufficiently.

20 Your Honor, it's Page 19 and 20 of the DIP loan

21 agreement.

22 THE COURT: Right now, I see it. I'm just trying

23 to -- what subsection were you just reading?

24 MR. KLESTADT: 9.1(I).

25 THE COURT: Okay. So all references to rollup are

Page 107



1 gone.

2 MR. KLESTADT: For the interim order, Your Honor.

3 THE COURT: Yes, that's what -- I'm going to talk

4 about the interim order.

5 MR. KLESTADT: And we're preserving all rights of

6 the committee, if appointed, to investigate and to object,

7 et cetera, et cetera.

8 THE COURT: What period?

9 MR. CURTIN: Extending the challenge period to

10 what's in the local rule, Your Honor: 60 if the committee's

11 appointed, 60 past retention of counsel; if no committee's

12 appointed, then 75 past the final order.

13 THE COURT: Okay. Are you still at December 31?

14 MR. KLESTADT: Yes, Your Honor, although I can

15 extend that. But it was thought that would be, from an

16 accounting standpoint, from an operation's standpoint, to

17 use that as the break point for transaction.

18 THE COURT: Okay. So we are now talking about an

19 interim amount of --

20 MR. KLESTADT: 3.7 million, Your Honor, I believe.

21 THE COURT: Right, and change. I just had it.

22 That's why -- $3,670,000, right? Plus, we -- yeah, thank

23 you. Okay, we're going to take out all of the -- we're

24 going to move all of these findings --

25 MR. KLESTADT: Yes, they'll become stipulations --

Page 108



1 THE COURT: -- for various causes.

2 MR. KLESTADT: They'll become stipulations, Your

3 Honor --

4 THE COURT: Okay.

5 MR. KLESTADT: -- obviously subject to further

6 finding in a final order.

7 MR. CURTIN: Everything with respect to 506(c) is

8 out also, for the interim order.

9 THE COURT: So the lien situation is replacement

10 liens, correct?

11 MR. KLESTADT: For cash collateral?

12 THE COURT: Yes.


14 THE COURT: Okay.

15 MR. KLESTADT: But for the new money coming in,

16 Your Honor, it's prime liens.

17 THE COURT: I understand that.

18 MR. CURTIN: Neither the priming lien nor the

19 replacement liens are attaching to Chapter 5 cause of

20 action.


22 MR. KLESTADT: That's fine.

23 THE COURT: Right. I don't think they did before.

24 MR. KLESTADT: No, they didn't, Your Honor.

25 THE COURT: They are going to -- the offer,

Page 109



1 though, does. Okay.

2 MR. KLESTADT: The offer --

3 THE COURT: We're not there doing that, right.

4 Now what is the carve-out now?

5 MR. CURTIN: The modifications we made to the --

6 proposed modifications to the carve-out, we slightly

7 increased the Chapter 7 burial expenses, and we also equaled

8 out the professional carve-out so it's -- to comply with the

9 local rules, so it's an aggregate amount to be split however

10 it's split between Debtors' Counsel and Committee Counsel

11 (indiscernible) 1525. Other than that, it's got the court

12 fees, it's got the US Trustee fees, pretty standard carve-

13 out.

14 MR. KLESTADT: That's fine, Your Honor.

15 THE COURT: Okay, there were some concerns about

16 my making findings in connection with the lender, other

17 than, again, the plain vanilla findings.

18 MR. CURTIN: I think we've pulled all those into

19 stipulations, so that's just (indiscernible).

20 THE COURT: Okay, good.

21 MR. CURTIN: The caveat here, of course, I was

22 doing this on the fly.

23 THE COURT: No, I understand.

24 MR. CURTIN: When we get done, we're going to go

25 back and look, but I think we --

Page 110



1 THE COURT: And I'll read it, once I get it.

2 MR. CURTIN: We've also one kind of general

3 comment. In several places throughout the order, we've made

4 it very clear that -- and all this is only with respect to

5 money that's actually lent, pursuant to this interim order.

6 So there's a couple places where, when I was reading it, I

7 thought it was a little confusing, so you'll see in probably

8 10 or 12 different locations, we've added the clarification

9 that anything that's being granted it only subject to what's

10 actually lent.

11 MR. KLESTADT: That's acceptable, Your Honor.

12 THE COURT: Okay. And I guess, it seems to me, as

13 I said, we're probably going to add notice of -- I didn't

14 put it in my order, because (indiscernible), you have the

15 United States Attorney here. That probably should happen,

16 as well as, as you said, if you know who (indiscernible)

17 counsel is.

18 Just a funny -- you have a footnote that I was --

19 thought was -- I had a question about on Page 14. You say

20 DIP collateral shall include collateral provided by non-

21 Debtor entities in the proceeds thereof to the fullest

22 extent possible under applicable law, provided, however --

23 I'm not going to -- you know, I can't expand my jurisdiction

24 over that. Is there, in this agreement, collateral being

25 provided by non-Debtor entities? Footnote 4 on Page 14.

Page 111



1 MR. CURTIN: I think we can delete that, Your

2 Honor.

3 THE COURT: Okay.

4 MR. CURTIN: I can't say with 100 percent

5 certainty (indiscernible) the loan documents I don't think

6 there's --

7 THE COURT: I don't know what that was referencing

8 because I didn't see anything in there.

9 MR. CURTIN: I'll look again, but --

10 MR. KLESTADT: We'll delete that, Your Honor.

11 THE COURT: All right, so now we've got to get --

12 just to clarify for the record, because it certainly is not

13 clear as we stand now, and that is finding with respect to

14 the fact that this was the -- this particular proposal is in

15 the best interest of the estate and that you cannot get this

16 credit on more favorable terms, since there was plenty of

17 discussion before that you could. So understanding the --

18 taking into account the agreed upon modifications, I need

19 something for the record to clarify that. Anybody want to

20 be heard? Oh, that worked for Mr. Schwed, then. Sure.

21 MR. SCHWED: Your Honor, regarding other offers

22 that have been presented today, at this point, for a DIP

23 loan, that offer, we -- the Debtor considers that offer to

24 be relatively comparable and not something that is

25 substantially significantly better for the estate. And

Page 112



1 therefore, the Debtor is -- believes that we should go

2 forward with the DIP loan that is presented by Mr.

3 Klestadt's client.

4 THE COURT: Okay, and just one point of

5 clarification. It is not -- is it, or is it -- did we untie

6 it to the point that they are not necessarily the stalking

7 horse and you're going to be looking at that motion as to

8 who the stalking horse is, or no?

9 MR. SCHWED: Yes, but I want to clarify it, I

10 mean, with a caveat. I think what Mr. Klestadt is going to

11 -- got up to tell you is that the Debtor will -- has

12 presented a motion to proceed with an asset purchase

13 agreement by Mr. Klestadt's client as the stalking horse.

14 We ask that Your Honor schedule a hearing in connection with

15 that, and to the extent that Mr. Kohn's client or somebody

16 else steps forward and presents an asset purchase agreement

17 or stalking horse agreement which is materially,

18 substantially better for the estate, the Debtor will support

19 it.

20 THE COURT: You'll amend your motion?

21 MR. SCHWED: Correct, Your Honor.

22 MR. KLESTADT: Your Honor, no, that's where I take

23 issue. The Debtor has to proceed with the motion that's on

24 file. That's the obligation that the Debtor has under my

25 asset purchase agreement. If someone wants to come along

Page 113



1 and file an objection and say I have another stalking horse

2 offer, that's fine. Then we can come to a hearing and Your

3 Honor can make the determination whether or not a --

4 THE COURT: Why does the Debtor have to do that?

5 MR. KLESTADT: Because the Debtor is under

6 contract, Your Honor, under the asset purchase agreement, to

7 present that motion. It's subject -- the motion --

8 THE COURT: Having nothing to do with the fact

9 that you're the interim DIP lender.

10 MR. KLESTADT: Correct. Correct, we have untied

11 those by virtue of that removal event of default that I

12 mentioned earlier. But now, Your Honor, the Debtor has the

13 obligation to, at a minimum, present the motion. Someone

14 else comes along and says Your Honor, I have a better

15 stalking horse offer, then it's up to Your Honor whether to

16 not to entertain another stalking horse offer.

17 But at this point, Your Honor, the Debtor has the

18 contractual obligation to present the offer, to have the

19 bidding procedures approved, and it's up to Your Honor

20 whether or not to approve them. The procedures provide for

21 my client's offer to be the stalking horse offer, again,

22 subject to court approval. If Your Honor says no, there's

23 another stalking horse offer and we're going to substitute

24 that in, that's fine. But at a minimum, Your Honor, the

25 Debtor must present the motion as is. It cannot withdraw

Page 114



1 the stalking horse motion.

2 MR. SCHWED: Your Honor, I don't disagree with

3 anything Mr. Klestadt said.

4 THE COURT: Okay.

5 MR. HENRICH: Your Honor, I'm not understanding

6 what under contract means. Under contract, what Mr.

7 Klestadt is referring to, is the APA that was filed last

8 night, which is a pre-petition contract that is subject

9 totally, in toto, to Your Honor's approval. And therefore,

10 it's sort of -- it can be, if Your Honor wanted it to be and

11 if the Debtor would withdraw it, to be void ab initio,

12 because there's no such -- there's no binding contract,

13 which its condition was to be approved by Your Honor.

14 So, in all of bankruptcy, I've never heard of a

15 binding contract, pre-petition, being (indiscernible) on

16 Your Honor or the Debtor to go forward with that motion.

17 Debtor always needs to be able to obtain higher and better

18 offers as a stalking horse bidder. As a matter of fact, we

19 were told this by the Debtor, Mr. Schwed, a few minutes ago,

20 that the purpose of the (indiscernible) of the APA was that

21 we can come in as a stalking horse bidder without any

22 approval -- without any consequences to the estates.

23 Now, I'm not sure the US Trustee focused on this,

24 but there is -- there are other provisions in the DIP that

25 relate to the APA, other than the events of the call, such

Page 115



1 as the exit fee. The exit fee goes into play when -- is

2 triggered when there -- eventually, down the road, there's

3 an alternative transaction and SKNY does not (indiscernible)

4 assets. So that is -- it's not totally (indiscernible) yet.

5 There are other provisions and stipulations that have to do

6 with the APA. You would have to take a look at it carefully

7 to see that it was totally (indiscernible).

8 But the point was, I mean, we're told by Mr.

9 Schwed a few minutes ago that we would be able to come in

10 and present a stalking horse bid without any penalty to the

11 estate whatsoever, without any penalty on the DIP, without

12 any defaults, or without any cost to the Debtors at all.

13 And as a matter of mechanics of whether the Debtor withdraws

14 the motion or not, or -- I don't think we're going to object

15 to a motion. I think we can object. I think the Debtor has

16 to be able to present to Your Honor the best stalking horse

17 bid, and I think that's what we were told was going to

18 happen.

19 MR. KLESTADT: Your Honor, I respectfully

20 disagree.

21 THE COURT: Well, I'll tell you that before I

22 approve a stalking horse, subject to better and higher

23 offers, I have had many experiences where parties came in

24 and they substituted one stalking horse for another because

25 they made a better deal. So, it's also news to me. I'm not

Page 116



1 sure what -- you know, is a pre-petition agreement, I don't

2 think I agree with you.

3 I think that, again, it's not as if I approve the

4 stalking horse so that the stalking -- or whether it's with

5 break-up fees or any other thing. I haven't done that yet.

6 MR. KLESTADT: No, you haven’t, Your Honor.

7 THE COURT: The case was filed last night.

8 MR. KLESTADT: I understand that, Your Honor.

9 However --

10 THE COURT: People here -- $8 million unsecured

11 creditors got an hour-and-a-half notice, so the idea that --

12 the idea that folks are bound, I don't think so.

13 MR. KLESTADT: Your Honor, the Debtor, in my view,

14 is bound to prosecute the motion to Your Honor. Now, at

15 that point --

16 THE COURT: Or what?

17 MR. KLESTADT: Your Honor, I believe --

18 THE COURT: Or what? What is your -- or what?

19 What is your remedy?

20 MR. KLESTADT: Your Honor, the remedy would be an

21 unsecured claim for breach of contract.

22 THE COURT: Isn't it -- they'll reject the

23 contract.

24 MR. KLESTADT: They could reject the contract.

25 THE COURT: What are your damages?

Page 117



1 MR. KLESTADT: At this point, standing here, Your

2 Honor, I don't know. It may be -- I may be entitled to

3 whatever profits we may have obtained by operating the

4 business, or lost opportunity costs. I haven't even begun

5 to think about that, Your Honor, all right? But from my

6 standpoint --

7 THE COURT: In New York?

8 MR. KLESTADT: Pardon me?

9 THE COURT: In New York?


11 THE COURT: Under New York law?

12 MR. KLESTADT: Yes. But at this point, Your

13 Honor, all right, the Debtor has a contract and an

14 obligation to present the stalking horse offer to Your

15 Honor. Parties can come in and object and say no, I've got

16 a better stalking horse offer, and Your Honor can then say

17 to the don't --

18 THE COURT: I know, because I think what you're

19 doing is you're undermining the Debtor's business judgment.

20 MR. KLESTADT: No, Your Honor.

21 THE COURT: Because the Debtor -- as the debtor in

22 possession, I'm supposed to give some deference to the

23 business judgment of the Trustee or the debtor in

24 possession.

25 MR. KLESTADT: And right now, Your Honor, it's the

Page 118



1 Debtor's business judgment to have signed the motion --

2 excuse me, sign the asset purchase agreement, subject to

3 Bankruptcy Court approval, and entered into a contract which

4 obligates it to present the motion to Your Honor for

5 approval.

6 THE COURT: It did it, and then it can withdraw

7 it. It filed it again, but I'm not hearing it today, and

8 there hasn't been enough notice of it, so I disagree.

9 MR. KLESTADT: You're entitled, Your Honor.

10 MS. KIRBY: Your Honor, this is Dawn Kirby. May I

11 speak?

12 THE COURT: Yes.

13 MS. KIRBY: Oh, good. There was a problem with

14 the phone line for the last bit. I have been contacted and

15 am in the process of being retained by a number of the

16 concessioners, and to the extent that however the order

17 turns out, I wanted to advise The Court that the

18 concessioners may be taking the position that the monies

19 that were collected on behalf of their sales were to be held

20 by the Debtor in trust, with the Debtor allowed to keep a

21 part of the funds as a commission. However, the funds

22 themselves belong to the concessioners, who sold their own

23 goods to customers. So, to the extent that there is any

24 carve-out and language concerning potential claims for trust

25 funds for monies that are not property of the Debtor, I just

Page 119



1 wanted to raise this issue and alert you to it, and not

2 have it as a surprise for everyone down the line.

3 THE COURT: Well, nice that you let us know,

4 because there's been no discussion about that other than,

5 again, talking about --

6 MS. KIRBY: I have -- during -- I also only had

7 about an hour's notice of this hearing, and during this time

8 period that I've been on the phone, at least two of the

9 concessioners have sent me copies of their contracts, and I

10 think they have -- they may have an argument, a strong

11 argument, along those lines. But it would be something that

12 would have to be, obviously, presented before The Court for

13 a decision.

14 THE COURT: Thank you --

15 MS. KIRBY: This is all happening so fast, there

16 may be trust fund issues.

17 THE COURT: Thank you for previewing that. A lot

18 of people have stood.

19 MR. NOVIC: Thank you.

20 THE COURT: State your name again for the record.

21 MR. NOVIC: Sorry, Rob Novic, Kasowitz, for the

22 Super Sol Creditors. Just to conclude the last little

23 divergence, I don't think there can be any breach of a

24 contract or a condition precedent to the contract is that

25 The Court approves the contract. I don't think it's any

Page 120



1 more complicated than that.

2 I just -- I know the hour is growing late and --

3 THE COURT: Yeah, I thought we'd be here much

4 longer, so we're okay.

5 MR. NOVIC: Oh, okay. And we've gotten an awful

6 lot of what Super Sol had hoped to get out of the hearing,

7 but we do have one issue we want to harp on, which is the

8 untying of the two agreements. If I could ask Your Honor to

9 look again at Filing 10-1, which is the -- at Page 20 and

10 21, which is the list of defaults under the loan agreement.

11 There were --

12 THE COURT: We're talking about now the --

13 MR. NOVIC: The DIP.

14 THE COURT: The DIP?

15 MR. NOVIC: Yeah.

16 THE COURT: We're in -- well, you're looking at

17 what would be the order?

18 MR. NOVIC: No, the loan agreement.

19 THE COURT: Oh, the agreement?

20 MR. NOVIC: Yes.

21 THE COURT: Okay, hold on. I got it. Now give me

22 the page again

23 MR. NOVIC: They removed one of the connections --

24 THE COURT: Give me the page again.

25 MR. NOVIC: Page 20.

Page 121



1 THE COURT: Yeah.

2 MR. NOVIC: Which starts on Page 19, that section.

3 THE COURT: Yes.

4 MR. NOVIC: They removed one of the connections

5 that ties the two motions together, but there were five or

6 six in here, and the others are still there. So I'd like to

7 point out the following that I think all have to come out in

8 order to effectuate Your Honor's -- I don't know if it was

9 advice or a ruling. E, in event of default as defined in

10 the APA has occurred and is continuing under the APA. An

11 APA fault should not be a DIP default, especially before the

12 APA has been the winning bid.

13 F, the filing of a Chapter 11 plan for the Debtors

14 that does not provide for the consummation of the

15 transactions contemplated by the APA or payment in cash in

16 full of the DIP obligations. That's only the first part --

17 okay, maybe that one's all right because of the second half,

18 but not too clearly.

19 M, the bidding procedures order, as defined in the

20 APA, which authorize --

21 THE COURT: So F is okay because of the "or,"

22 correct?

23 MR. NOVIC: F is okay because of the "or." I'll

24 take that one back. M, the bidding procedures order, as

25 defined in the APA, which authorizes the lender to credit

Page 122



1 bid the pre-petition indebtedness and the DIP obligations,

2 pursuant to section 363(f) and 363(k), shall not have been

3 entered by The Court on or prior to October 9, 2018. Again,

4 we have a DIP default tied to entry of approval of the APA.

5 THE COURT: Well, particularly since we're having

6 this other conversation now about --

7 MR. NOVIC: Yes. Yes.

8 THE COURT: One second.

9 MR. NOVIC: And O, the Bankruptcy Court authorized

10 or approves an alternative transaction, as defined in the

11 APA, or the Debtors withdraw or seek authority to withdraw

12 their motion seeking approval of the transactions

13 contemplated by the APA.

14 THE COURT: Exactly what we're talking about now.

15 MR. NOVIC: Now, yeah.

16 THE COURT: So in other words, your position would

17 be that if they withdraw their motion to approve your client

18 as the stalking horse, that would be a default under the

19 DIP?

20 MR. KLESTADT: I'd be glad to waive that, Your

21 Honor.

22 THE COURT: You would?

23 MR. KLESTADT: But, Your Honor, I'm not prepared

24 to waive M. That's a typical requirement in DIP loans of

25 any type, the timing for a bidding procedures order, so that

Page 123



1 the case doesn't drag on and that there are benchmarks for

2 progress in the case.

3 THE COURT: Well the problem -- well, let's go

4 back. The problem with a lot of this is the way DIP

5 obligations is defined. DIP obligations is defined -- DIP

6 obligations includes everything, includes the roll-up,

7 includes -- I mean, the DIP obligations has a massive, you

8 know, all-inclusive definition here. So you're going to

9 have to fix -- that's the problem with the interim order.

10 That's why it really can't -- it shouldn't -- you want to

11 talk about it in the final order, maybe. But in the interim

12 order, when we're not talking about a roll-up, gives you an

13 amount that you're bidding.

14 MR. KLESTADT: That's actually a problem I didn't

15 even contemplate.

16 THE COURT: Well, yes, DIP obligations is defined

17 to include everything, including the roll-up, which I'm not

18 considering today.

19 MR. NOVIC: The concern is not that there are

20 milestones for a sale process, which --

21 THE COURT: No, not at all.

22 MR. NOVIC: -- which is as -- which is common.

23 The problem is that there are milestones for approval of

24 this APA and this set of bidding procedures. If it just

25 said a bidding procedures order, then that would not be

Page 124



1 objection.

2 MR. KLESTADT: I can agree to that, Your Honor. A

3 bidding procedures order is entered by October 9th.

4 MR. NOVIC: With lower-case B, P, and O.

5 THE COURT: I mean, so this has to be gone through

6 fairly closely.

7 MR. NOVIC: Yes.

8 THE COURT: I assume by tomorrow morning, right?

9 MR. KLESTADT: Well, Your Honor, yes. I haven't

10 said that, Your Honor. I assume Mr. Schwed is going to ask

11 you to (indiscernible) the record, because the Debtor is

12 going to be looking for us to wire funds tomorrow.

13 THE COURT: No. Work tonight. Work tomorrow. My

14 computer goes wherever I go. You'll circulate the order and

15 circulate the agreement, and hopefully, you will have caught

16 all of this. But just so we're clear, I'm still troubled

17 with where we just were a few minutes ago, and that is I --

18 you want to come up?

19 MR. HENRICH: Yeah, just looking at, just to

20 supplement the record --

21 THE COURT: Go ahead.

22 MR. HENRICH: -- because Your Honor should look at

23 Section 2.9 as well, which references alternate transaction

24 and APA. There's a 2 percent exit fee.

25 MR. KLESTADT: Your Honor, that we require.

Page 125



1 MR. HENRICH: We're prepared to do it without it.

2 MR. KLESTADT: Well, he wasn't earlier, Your

3 Honor, and that's part of the pricing of the transaction.

4 This does not link the two transactions. There's just a

5 patch for the purpose -- it's part of the pricing.

6 THE COURT: No, I can't do anything about that as

7 long as they're continuing to go with it. But again, I

8 don't agree with you. Just so we're clear here, I do not

9 believe -- I would not call it a default. It should not be

10 a default if the Debtor decides that it wants to amend its

11 order to do a stalking horse. I mean --

12 MR. KLESTADT: Amend its motion.

13 THE COURT: Amend its motion, I'm sorry, amend its

14 motion to change the stalking horse. The appearance of it,

15 otherwise, is terrible. Putting aside the fact that it

16 doesn't make sense to me and it's not the law, the

17 appearance is terrible. The idea here is to maximize the

18 value of the assets.

19 MR. KLESTADT: Which it still can do, Your Honor.

20 There's no prohibition on the Debtor marketing the assets.

21 THE COURT: Why do you care so much?

22 MR. KLESTADT: Your Honor, my client is the one

23 that's stepped up here. We invested the time, the effort,

24 the fees --

25 THE COURT: Well your client stepped up because it

Page 126



1 was in the position to step up. I doubt, you know, people

2 want to get into that. But other people apparently are

3 willing to step up, too.

4 MR. KLESTADT: Well, they didn't, Your Honor.

5 With all due respect to the people showing up as Johnny-

6 come-latelies, they weren't here when the emergency funds

7 were needed pre-petition, for -- to retain the professionals

8 --

9 THE COURT: The Johnny-come-lately here has to do

10 with the timing of this filing, and you were around to help

11 figure that out, I assume, or your client.

12 MR. KLESTADT: Absolutely, Your Honor. We were

13 pushing and pushing and pushing. There's no question about

14 that.

15 THE COURT: Okay, so I am telling you, and so

16 let's make it clear, because I'll strike it if it's there,

17 that it is not any event of default, under this or any other

18 agreement, if the Debtor decides to amend its motion for

19 bidding procedures in approval of a stalking horse.

20 MR. KLESTADT: Very well, Your Honor.

21 THE COURT: Want me to so order that on the

22 record?

23 MR. KLESTADT: Very well, Your Honor.

24 THE COURT: I couldn't be clearer, right?

25 MR. KLESTADT: You cannot be clearer.

Page 127



1 THE COURT: Anybody else? Okay, I am -- the

2 reason I'm not so ordering the record is because, again, I

3 think everyone should go home -- I'm getting you out of here

4 early -- get on conference calls, read this document

5 closely, and for purposes of the interim order, for purposes

6 of the interim order, you can put in the provisions of the

7 order that says that all of these provisions don't apply for

8 purposes of the interim order that are just leaking that

9 they may want to have in the final order. But certainly,

10 I'm not going to -- I'm not approving it otherwise, because

11 otherwise, I don't think they're divorced. So, is that

12 clear? All right, and you're going to be taking a look as

13 well, correct?

14 MR. CURTIN: Yes, Your Honor, absolutely.

15 THE COURT: Okay. So the way to do this is to --

16 now, let's go back, because we want to not leave any -- we

17 want to figure out when we're coming back. The wage packet

18 is with sales tax and the wages are different, so we've got

19 two to deal with.

20 MR. SCHWED: Yes, Your Honor.

21 THE COURT: Okay, I mean, with respect to PACA, I

22 would like to see if you couldn't negotiate it with the

23 understanding that the Debtor will use best efforts to see

24 if it can get them to shift with some number less than what

25 you're -- a ceiling. But, subject to hearing from anybody

Page 128



1 else before I rule, I would prepare to allow them to go up

2 to the $470, if that's what it's going to require. Does

3 anybody else want to state an objection before I state that?

4 Okay. I would like the --

5 MR. CURTIN: Your Honor, one of the -- sorry.

6 They did provide -- I don't have it yet, but I saw it.

7 There is a breakdown of exactly who the PACA Creditors, so

8 they'll be able to provide that, and that was the other part

9 of what I'd asked for. So that's why I'm not objecting.

10 THE COURT: Okay, and that -- so it's, again, the

11 nature of a critical vendors.

12 MR. CURTIN: No.

13 THE COURT: No, it's not.

14 MR. CURTIN: I don't believe.

15 THE COURT: It's in the nature of --

16 MR. CURTIN: Because it's not -- it did not say

17 funds. It's the PACA funds, so they're technically not --

18 THE COURT: Okay.

19 MR. CURTIN: Right. So I don't think it's

20 critical that it is.

21 THE COURT: Okay.

22 MR. CURTIN: They're borrowing for it, but it's

23 not a critical vendor.

24 THE COURT: Right, okay. Okay. All right, so up

25 to that amount in the borrowing for that purpose, and see if

Page 129



1 you can, again, negotiate something south of that. That

2 would be good.

3 So that portion of the motion is approved, and the

4 portion relating to sales tax we're going to put over until

5 the fourth? Is that what --


7 THE COURT: Okay. Now, on payroll --

8 CLERK: Circulate and submit all (indiscernible)?

9 THE COURT: They're going to circulate and submit

10 it, yeah. With respect to wages, there's more information

11 that you--

12 MR. CURTIN: Yes, Your Honor, I thought I'd made

13 it clear before, we don't have an issue with the concept of

14 paying employees, clearly. We sent our edits to the order.

15 I don't know how much time they've had to look at them. I

16 don't think they're especially controversial. But the --

17 THE COURT: But you're also looking for exhibits.

18 MR. CURTIN: -- again, the substantive piece is

19 the breakdown, yeah, which that I have not seen yet. I saw

20 the PACA; I have not seen the employees. So, I mean, the

21 ways we've done it in the past is, actually, you've approved

22 -- I don't know whether you, but somebody has -- one judge

23 has approved it, subject to that being provided. And then,

24 once it has been provided, then the order is uploaded so

25 that it obviates the need to come back just for that. And

Page 130



1 then, that way, if anyone thinks there's an issue, we can --

2 THE COURT: Okay, well why don't you do --

3 MR. CURTIN: It's also not something that's

4 typically filed because they don't -- but that's the way

5 we've done it in the past. I don't know if that's the way

6 you want to proceed. I'm happy to come back on Thursday if

7 --

8 THE COURT: No, no, if that's the only thing we're

9 coming back for…

10 MR. CURTIN: Yeah, I don't think we need --

11 MR. SCHWED: That would certainly be my preference

12 as well, Your Honor.

13 THE COURT: All right, well --

14 MR. CURTIN: For cash management, too, Ms.

15 Weinberger just reminded me. We still have that open issue.

16 So, I mean, I --

17 MR. SCHWED: Your Honor, if possible, it would

18 certainly be my hope that we could continue the current cash

19 management at least until October 4, and by then we'll

20 hopefully get you the confirmation --

21 MR. CURTIN: I can't consent to it.

22 THE COURT: He can't consent to it. Well, you

23 know what?

24 MR. CURTIN: And again, if Your Honor is

25 considering some type of interim -- again, making it clear

Page 131



1 that we don't consent to any -- but if you're considering

2 that, we would request that any interim order direct that

3 the Debtors begin now to open those debtor-in-possession

4 accounts and start instituting a sweep to those accounts

5 instead of the other accounts, which shouldn't interfere as

6 much as collections and so on.

7 THE COURT: So you're suggesting that they --

8 you're not suggesting, but you're saying that if I were to

9 allow them to continue the current cash management, that

10 they --

11 MR. CURTIN: Just through October 4.

12 THE COURT: -- you want them to sweep into an

13 approved depository.

14 MR. CURTIN: Yes.

15 MR. SCHWED: Your Honor, if I can have one second.

16 Your Honor, we can certainly do that, and we can open a DIP

17 account for corporate and sweep money to the account. To be

18 clear, corporate, once it receives the money, actually then

19 distributes that money. Like I said, it gets it on a daily

20 basis and uses that money to fund expenses of the DIP

21 (indiscernible). So it will actually often send the money

22 right back to the non-DIP account. I just want to be clear

23 on the record that that's the way it's going to work, at

24 least on an interim basis.

25 MR. CURTIN: The idea is whatever -- and it may be

Page 132



1 a non-issue, but whatever access there is will remain in the

2 debtor-in-possession account. And then the argument that

3 we're going to make is this is the first step towards -- you

4 know, usually the way it works is you start at the sweep,

5 and then the payment accounts are easier to switch over than

6 your collections account. I don't know whether it's that

7 way with this type of business. So that's what we'll be

8 arguing for, but again, not consenting to any of it. Just,

9 if you're going to go that route, Your Honor, we would

10 request that you at least direct them to get started with --

11 in that -- with that said.

12 THE COURT: I will allow you to continue the way

13 you're doing it with that proviso that you're going to open

14 a DIP account and the excess will get swept into that,

15 without prejudice to the right of the US Trustee and anyone

16 else to object on the adjourn date of what would be an

17 interim order. In other words --

18 MR. CURTIN: Right, and assuming that we don't

19 come to an agreement on it, we'll file it -- we'll file an

20 objection to that motion for the (indiscernible).

21 THE COURT: Okay, so is that okay to go to the

22 fourth, then? Or you want to go -- I mean, I have --

23 there's another week. No, there's a holiday, right? Hold

24 on.

25 MR. CURTIN: The fourth.

Page 133



1 THE COURT: The fourth? Okay, the fourth. So

2 with respect to cash management, I will so order the record

3 to the following effect: That you can continue proceeding

4 in the manner you're proceeding, providing that you, as soon

5 as possible, open up a DIP account at approved depository,

6 and that the excess, after you've done whatever else you do,

7 gets swept into that account without prejudice to the rights

8 of the Office of the US Trustee or anybody else to object at

9 an adjourned hearing on an interim order, which we'll have

10 on October 4. I'm not going to enter order, just so order

11 the record.

12 MAN 1: That's fine.

13 THE COURT: And we'll have a hearing on the

14 interim order, subject to any objections you'd want to file

15 before that.

16 MR. CURTIN: Thank you, Your Honor.

17 MAN 1: Thank you.

18 THE COURT: Payroll. So let's just go back

19 because we skipped. So, subject to you -- I mean, we could

20 --

21 MR. CURTIN: Right, let's just --

22 THE COURT: -- settle it on two days' notice.

23 MR. CURTIN: I don't know if we have time, Your

24 Honor.

25 MR. SCHWED: I might be able -- again, I believe I

Page 134



1 may actually have it or I'll be getting it momentarily. I

2 haven't had a chance to find it.

3 MR. CURTIN: I understand.

4 MR. SCHWED: I think I have no problem getting it

5 to you by tomorrow.

6 THE COURT: Okay, well if you can -- all right,

7 satisfy the Office of the United States Trustee on this one,

8 it would be nice if we can have just either a sing-off or

9 letting me know that --

10 MR. CURTIN: That's fine. We will -- I have no

11 problem signing off on that, Your Honor. That's fine.

12 THE COURT: Okay, fine, so you --

13 MR. CURTIN: Well, I have no problem signing off

14 on that assuming I have no objections, but the concept --

15 THE COURT: Assuming -- yes, if you don't sign off

16 on it, let me know and we'll have to do some kind of

17 telephonic hearing.

18 MR. CURTIN: Schedule something on Thursday maybe?

19 Okay.

20 THE COURT: In lieu of you coming in on -- anybody

21 coming in on the 20th, we can do something by telephone if

22 we have to.

23 MR. CURTIN: Yeah, that makes sense, especially if

24 it's just wages. That makes sense. Thank you.

25 THE COURT: Well, it's just wages.

Page 135



1 MR. CURTIN: It is just wages, right.

2 THE COURT: To somebody (indiscernible), it's very

3 important.

4 MR. CURTIN: I meant just as -- not just --

5 THE COURT: I know. I know what you meant. Okay,

6 but that as an interim?

7 MR. CURTIN: Yes, Your Honor, absolutely. Yes,

8 Your Honor.

9 THE COURT: Okay, with the hearing on the final --

10 MR. CURTIN: The final can be on the fourth.

11 THE COURT: On the fourth?

12 MR. CURTIN: Yes, please, Your Honor. Subject to

13 anybody requesting that it -- but you know, for now, we can

14 schedule it for the fourth.

15 THE COURT: And you're looking to have a hearing

16 on a final DIP on the fourth, or are we going later than

17 that?

18 MR. SCHWED: Yes. Yes, we are, Your Honor.

19 THE COURT: You are? You're looking to have a

20 hearing on a final DIP on the fourth?

21 MR. SCHWED: Yes. Yes, along with the bidding

22 procedures on the sale motion.

23 THE COURT: That's up to the Debtor.

24 MR. SCHWED: Yes, Your Honor, we had mentioned

25 that before, also, but yeah. Yeah.

Page 136



1 THE COURT: Well, it's up to the Debtor as to

2 whether -- what it's going to do with its motion, because I

3 made clear --

4 MR. SCHWED: Well, I mean, at this point we do

5 want to have a hearing on the fourth for bidding procedures.

6 I mean, obviously, you know, if we receive something in

7 between that we believe is in the best interest of the

8 estate to proceed with a different stalking horse bid, then

9 we'll go with that.

10 MR. CURTIN: My understanding of the agreement,

11 though, I think where we ended up though is there's going to

12 be a hearing on bidding procedures, small B, small P, on

13 that date.


15 MR. CURTIN: Right? Whether it's capital or lower

16 case, we'll --

17 THE COURT: Okay, got it.

18 MR. KOTLER: Your Honor, with respect to the

19 hearing on the final DIP, is there any way --

20 THE COURT: The final DIP.

21 MR. KOTLER: The final DIP. Is there any way we

22 can -- I'm sorry. For the record, Larry Kotler, Duane

23 Morris, on behalf of Bank United. Is there any way we can

24 tie that from the formation of a committee and potential --

25 THE COURT: I may not approve what -- is there a

Page 137



1 provision I have to -- is there a provision for default if I

2 don't approve a final?

3 MR. CURTIN: No. And the committee, we're going

4 to endeavor to do that next week, so --

5 MR. KLESTADT: Your Honor, we would potentially

6 entertain a second interim --

7 THE COURT: Okay, understand that that's my

8 intention. I want a committee to look at this.

9 MR. KLESTADT: I understand, Your Honor, it's

10 important for a committee to be formed, if a committee is

11 formed.

12 THE COURT: With all the holidays --

13 MR. KLESTADT: Right, that's why I'm hedging a

14 little bit, because it's going to be a little bit more

15 difficult than usual.


17 MR. KLESTADT: But the goal would be to get it

18 done next week.

19 THE COURT: Okay, we may be looking at a second

20 interim on the fourth.

21 MR. KOTLER: Okay, thank you, uh.

22 MR. SCHWED: Your Honor, unfortunately, the

23 calendar doesn't work for us the way we laid out the dates.

24 The problem is that our two weeks are up the week before

25 October 4th. October 4th is Thursday, and two weeks from

Page 138



1 today is not going to take us to October 4th.

2 THE COURT: It takes you to October 3rd. October

3 2nd? What's two weeks? Today is --

4 MR. SCHWED: It takes us to October 1st, which is

5 actually --

6 THE COURT: I'm sorry, today is the 17th.


8 THE COURT: I'm sorry.

9 MR. SCHWED: So it takes us through the 30th, but

10 the problem is, we're not going to have a hearing until the

11 fourth, which means we're not going to be in a position to

12 make expenditures that we need to do on the third and the

13 fourth.

14 THE COURT: Well what are you going to do about

15 the fact that it's a Jewish holiday?

16 MR. SCHWED: The first and the second is. Of

17 course, right.

18 THE COURT: Yes.

19 MR. KLESTADT: So you're closed.

20 MR. SCHWED: Our concern is only the third and the

21 fourth. I mean, there's a budget -- there are budget items

22 that have to be spent that week.

23 THE COURT: So when do you want to come back?

24 MR. SCHWED: I mean, the only possibility is some

25 day the week before, either the 27th or the 28th, I suppose.

Page 139



1 Much as I don't want to come that -- believe me, Your Honor,

2 it's the middle of Sukkot. I certainly don't want to be

3 here on the in-between days. But if we have no choice --

4 MR. KLESTADT: Your Honor, that doesn't work for

5 me or my client.

6 MR. CURTIN: Were we talking about some type of

7 bridge to --

8 THE COURT: Why doesn't the interim --

9 MR. CURTIN: Why don't we make the interim just go

10 to that date?

11 THE COURT: Yeah.

12 MR. SCHWED: The problem is, again, based on the

13 budget, it doesn't work.

14 MR. CURTIN: I understand.

15 MR. SCHWED: That week, there's a significant

16 expenditure.

17 THE COURT: Which is?

18 MR. CURTIN: That day? It's not a week; it's a

19 day.

20 THE COURT: Which is?

21 MR. SCHWED: I mean, there's going to be payroll

22 for the week before, which is $250,000 or $260,000 right

23 away that has to be paid that week, Wednesday, on the third.

24 And then there are other items. I mean, I don't have the

25 exact --

Page 140



1 THE COURT: Well, I think you need to spend a few

2 minutes looking at this, because normally, I would just say

3 -- again, maybe that's why you got to make a deal on PACA.

4 I don't know what else to tell you. You're telling me that

5 you need more -- you're telling me you need more money.

6 MR. CURTIN: Well, can we leave it as is for now

7 and then you figure out -- I mean, you still have a week now

8 to figure that out and crunch the numbers.

9 MR. SCHWED: Figure out what? I mean, if I have

10 no more use of money, then there's nothing to figure out.

11 MR. CURTIN: I don't know. I didn't pick the

12 dates. But, I mean, you're talking about changing

13 everything.

14 MR. SCHWED: I'm sorry?

15 MR. CURTIN: I said you're talking about changing

16 everything that we just went through, so --

17 MR. SCHWED: I'm just saying, not for the first

18 two weeks, but changing -- just giving us something in the

19 third week. That's what I'm saying.

20 MR. CURTIN: You're increasing the interim, so I'm

21 not --

22 MR. SCHWED: I mean, let's be realistic. We are

23 incurring the payroll for the week before, so we certainly

24 have that expense, which is going to have to take -- they

25 have to deal with.

Page 141



1 THE COURT: Well, does the third help you?

2 MR. CURTIN: Which is how much?

3 MR. SCHWED: It's about $250,000.

4 THE COURT: Does the third help you?

5 MR. SCHWED: It's better than the 4th, but it's

6 not much of a difference.

7 THE COURT: When is payroll?

8 MR. SCHWED: Payroll is due on the third for the

9 week before.

10 THE COURT: Okay, so what about having the hearing

11 on the third, before you make payroll? (indiscernible)

12 picked a bad time to file this case.

13 MR. SCHWED: Your Honor, is the afternoon of the

14 third available?

15 THE COURT: Yeah, but morning certainly would be

16 better.

17 CLERK: Actually, (indiscernible).

18 THE COURT: Which ones?

19 CLERK: (indiscernible).

20 THE COURT: Where are you?

21 CLERK: You're looking at the 3rd of October.

22 THE COURT: Yeah.


24 THE COURT: Oh, at the end of the day.

25 CLERK: Yeah, so we had proposed -- we had blocked

Page 142



1 off (indiscernible).

2 THE COURT: Yeah, but I don't want them to sit

3 through this whole --

4 CLERK: Yeah. I think the morning would be

5 better, if you did it before (indiscernible).

6 THE COURT: We could do it at 1:00, right?

7 CLERK: Well, (indiscernible) day? I mean, I

8 don't know if --

9 THE COURT: I don't know if they're even going

10 forward. But we could break from whatever they're doing and

11 then do it at 1:00, if we had to.

12 MR. SCHWED: And there's a chance that we find

13 ourselves in the position, then, that we're just doing

14 another interim. And if we do that, then we can have that -

15 - it shouldn't be a lengthy hearing.


17 MR. SCHWED: It's either going to be -- I don't

18 think it would be lengthy either way, right? Because if a

19 committee comes in and there is some objection to going

20 forward with the final, then it's going to be an interim and

21 there will be some type of agreement on the interim, or

22 there will be an agreement on the fine. So, 1:00 should be

23 fine.

24 THE COURT: How much more money are we talking

25 about for the next period? Aren't they producing cash here

Page 143



1 for this? I mean, we -- weren't you just trying to convince

2 me that you're going to produce more cash by filling up

3 these shelves?

4 MR. SCHWED: The problem is that, as explained to

5 me by Mr. Gold, right after the holiday is over, right after

6 yontif, if the stores are not properly stocked, you've just

7 destroyed the whole good will. There are people who travel

8 away for the holiday, they come back, you know, it's just a

9 -- it's an important time. So, not to stock and have empty

10 shelves, because during the holiday the shelves will empty

11 out, or at least somewhat, you need to be able to restock

12 them and have it restocked after the holiday. And that's

13 why I asked him whether it was possible to push the

14 restocking that was scheduled for that week, and he says

15 that's going to hurt the company -- it's going to have a

16 dramatic impact on the company; that's what he said.

17 MR. CURTIN: That's only $60,000.

18 MR. SCHWED: Restocking for that -- no. For that

19 week, it's $560,000.

20 THE COURT: And payroll is?

21 MR. SCHWED: Payroll is about $250,000.

22 MR. CURTIN: I'm not in a position to consent to

23 that at this point, Your Honor. Then we're over the $4

24 million. It would kind of negate everything that we've

25 done.

Page 144



1 THE COURT: No, right.

2 MR. CURTIN: So I want that put over until we get

3 -- until we either have a committee or we don't. I think

4 the number where we are is good. And if they need to figure

5 out a way to get a hearing next week, after we have a

6 committee, or early, so be it, but I'm not amenable to

7 increasing that number.

8 THE COURT: I can give you the third.

9 MR. SCHWED: What time, Your Honor?

10 THE COURT: One o'clock -- you said the afternoon.

11 Is 1:00 okay, or you need later?

12 MR. SCHWED: Yes. Yeah, 1:00 is fine.

13 THE COURT: All right, I'm going to stick you in

14 before a whole bunch of consumer cases because I don't want

15 all you sitting around through consumer cases.

16 MR. SCHWED: Your Honor, just to be clear, at that

17 time we're doing just the wages, or we're doing the other

18 things that were scheduled for the fourth? I mean, I'd like

19 to do everything. We have bidding procedures, we have the

20 final DIP, although, I mean, that would be --

21 MR. CURTIN: I think we should do both days.

22 THE COURT: I mean --

23 MR. CURTIN: I mean, unless Your Honor is saying -

24 - because there's no way we're going to get that done if

25 we're putting before a calendar. I mean, this is just

Page 145



1 another self-created scheduling issue.

2 THE COURT: Unless -- unless -- do we know that

3 this thing is going forward in the morning? I may have the

4 whole morning.

5 MR. CURTIN: So let's do the morning.

6 THE COURT: But I need to check. You said the

7 morning was no good?

8 MR. CURTIN: But not 1:00 before a 2:00 calendar.

9 MR. SCHWED: It's not ideal, but if we have to,

10 we'll do the morning.


12 THE COURT: Why don't we just move it?

13 CLERK: Yeah, that's what (indiscernible) said,

14 why don't we --

15 THE COURT: We're going to adjourn something for

16 you folks.

17 CLERK: So we can do 10:30.

18 THE COURT: I have the whole morning for you. I

19 have until 3:00. I have the whole day (indiscernible) 3:00.

20 MR. SCHWED: Your Honor, my preference would be to

21 start a little later, because I'm out a couple days before

22 that, and I may need to, you know, just have a little

23 opportunity to get ready for this.

24 THE COURT: Okay, 11:00?

25 MR. SCHWED: It'll do.

Page 146



1 THE COURT: Is that okay? Somebody else sighed.

2 MR. CURTIN: No, Your Honor. I (indiscernible).

3 I apologize. Eleven's great.

4 THE COURT: Okay, in which case I'm hoping you

5 don't have to come back. So, wait a minute. I guess the

6 point is we've got, like, objections to deal with, too, if

7 you want to file objections.

8 MR. CURTIN: Right. I think that the two hours

9 makes a -- I was talking about trying to stick it all into

10 an hour. It just -- it wasn't going to happen. Now we have

11 three hours.

12 THE COURT: All right, so let's have the third

13 instead of the fourth, and if we don't finish on the third -

14 -

15 MR. CURTIN: Then we've got (indiscernible).

16 THE COURT: -- we'll use the fourth, but we're

17 going to adjourn these things to the third, not the fourth.

18 And so, I guess objections should be -- in this case, gives

19 you enough time to do it a week before, so objections by the

20 26th.

21 MR. CURTIN: How about the --

22 THE COURT: What, the 28th?

23 MR. CURTIN: It's -- those holidays kill me,

24 because then -- I mean, if --

25 THE COURT: Well, no, I'm not including the

Page 147



1 committee. The committee can come in and object until the

2 hearing.

3 MR. CURTIN: Okay. Okay, okay.

4 THE COURT: I mean, I'm not -- I'm talking about

5 everyone else.

6 MR. CURTIN: Okay, that was only my reaction.

7 MR. SCHWED: Your Honor, so you're saying

8 objections by the 26th?

9 THE COURT: Objections by the 26th. I'm not

10 including the committee in that, because I don't have a

11 committee. If I have a committee, different story. But the

12 committee can -- I want to hear from the committee,

13 regardless of whether they file an objection a week before.

14 MR. CURTIN: Okay.

15 THE COURT: So take off the fourth. Erase the

16 fourth, put down the third, and we'll push something else.

17 Sure.

18 MR. NOVIC: Yes, thank you. Hopefully, this is a

19 prophylactic comment. We pushed off a lot of the findings

20 that were in the interim order for the final order on the

21 DIP in order to allow people to test them and develop a

22 factual record to support them -- arms-length bargaining, no

23 relationships, et cetera.

24 THE COURT: Right, and (indiscernible) people who

25 appear before me all the time, no, I just don't stick

Page 148



1 findings in them. I mean, I have to make findings.

2 MR. NOVIC: And then, I think that was completely

3 correct and something we were asking for.

4 THE COURT: Then that's where I am.

5 MR. NOVIC: But I mean, as we've noted, we would

6 like to have an opportunity to conduct limited discovery

7 before the final hearing.

8 THE COURT: Well, I don't --

9 MR. NOVIC: I think we can do that in the time we

10 have available, but it will require cooperation from people.

11 And we'll be happy to get our list out tonight of people

12 we'd like to --

13 THE COURT: There are a lot of holidays.

14 MR. NOVIC: There are. It's going to be

15 difficult, but what are we supposed to do?

16 THE COURT: Including for those who celebrate

17 Columbus Day, in addition to everything else, which is --

18 oh, that’s a week later. I'm sorry, that's a week later.

19 MR. NOVIC: But, you know, the nature of the

20 objection was that there wasn't enough notice and

21 opportunity to test out some rather hard-to-believe findings

22 about the relationships (indiscernible) the party, the lack

23 of availability of other financing, and it would really

24 defeat the purpose of moving those to the final order if

25 nobody is going to get any discovery in the meantime.

Page 149



1 THE COURT: Well, there was availability of other

2 financing, apparently, but at this point, they went with the

3 Movants (indiscernible).

4 MR. NOVIC: Right. I mean, we think there's

5 perhaps more. And if there's none, there's none. There's

6 very little to do on it.

7 THE COURT: So what do you want me -- you want to

8 do informal discovery?

9 MR. NOVIC: I think we can do informal discovery.

10 I think we can make a letter request. I just want to assure

11 that we'll have parties' cooperation, and I want to sort of

12 lay down the --

13 THE COURT: I think we're asking a lot in the time

14 table, I guess is what I'm saying. If I have a contested

15 motion, though, I then will give you discovery.

16 MR. NOVIC: Following the fourth?

17 THE COURT: No, no, a week before. In other

18 words, if you file objections to either the continued

19 interim or the final, you file those objections by the 26th.

20 That's what I said as to anybody who's here, but not

21 necessarily the committee.

22 MR. NOVIC: Okay.

23 THE COURT: So you file objections the 26th. If

24 you haven't had informal discovery then and we have a fight

25 on our hands, then there will be discovery. I'll do a

Page 150



1 contested matter scheduling order with respect to the final

2 DIP financing. The interim will continue, though.

3 MR. NOVIC: Okay, perfect. Thank you.

4 THE COURT: I'm not encouraging it.

5 MR. SCHWED: Thank you, Your Honor. So just to be

6 clear, if that happens, then the fourth is going to be --

7 third is going to be just a hearing on the interim, and then

8 we'll have --

9 THE COURT: That, plus it depends upon also the

10 formation of the committee. I'm not inclined to move ahead

11 on final. Plus, I still got this -- got an issue -- I mean,

12 isn't there become a more significant difference between

13 funding if you abandon the rollup?

14 MR. KLESTADT: No, Your Honor.

15 THE COURT: Okay, so…

16 MR. SCHWED: Your Honor, I think it's fair to

17 point out that the rollup for the Debtor in some ways has a

18 disadvantage, but it actually has an advantage in the sense

19 that right now, the interest rate on the pre-petition

20 financing is at 12 percent. Under the rollup, it goes down

21 to 6 percent. I just want to point that out.

22 THE COURT: All right, we can take it up, the

23 issue, as long as everyone has an opportunity to know that

24 that's what's being proposed. Whatever was proposed

25 originally, except for continuing to keep the two items

Page 151



1 divorced, so to speak, all other aspects of what you're

2 seeking, you continue to seek, correct?


4 THE COURT: Okay. So if anybody wants to file

5 objections, they should do so a week before, except for a

6 newly formed committee, who I will hear up to the hearing.

7 Did we leave anything out now? Just to recap, can we recap?

8 MR. CURTIN: I think we're good.

9 THE COURT: We need to recap.


11 THE COURT: Yes, they are going to be circulating

12 one that they wanted me to so order, but I'm not doing that,

13 but I'll sign it in the morning if you work on it tonight,

14 right? The interim DIP and cash collateral, that's going to

15 be circulated tonight or tomorrow morning.

16 When were you planning to get these shelves

17 stocked? I mean, originally, you know, there was some

18 discussion about a hearing tomorrow morning, which Mr.

19 Curtin and other people had asked for, and I said no, it had

20 to be today.

21 MR. SCHWED: So the plan is that we would get

22 financing tomorrow. Orders would be placed tomorrow, and

23 hopefully, deliveries would happen Thursday morning and the

24 stores would get stocked for Thursday. They'd have sales on

25 Thursday, minimal, but certainly Friday and Sunday. Sunday

Page 152



1 is an important day. It's the day right before the holiday.

2 THE COURT: Okay.

3 MR. SCHWED: And then you have the in-between

4 days, after (indiscernible), you know, Wednesday, Thursday,

5 and Friday, which are substantial shopping days because they

6 follow with a Shabbos and a (indiscernible).

7 THE COURT: Okay, so you need to have -- folks,

8 you need to work tonight on this, because I need to have an

9 order in shape tomorrow. Or, if you need a -- hopefully,

10 you won't need a call, but…

11 MR. SCHWED: And, Your Honor, just for logistical

12 purposes, I said the money is in my escrow account, but in

13 order for me to send the wire out to the Debtor, I'd have to

14 have the order before 4:00, entered by Your Honor.

15 THE COURT: I'm assuming people are going home by

16 then, too.

17 MR. SCHWED: Yes.

18 THE COURT: Okay.

19 MR. SCHWED: Well do the best we can to get it

20 turned around tonight.

21 THE COURT: I think you got to turn it around

22 tonight. I'm traveling in the morning, but my computer is

23 always with me, subject to internet connection. I always

24 have my hot spot.

25 I just want to recap what we're doing

Page 153



1 (indiscernible), because this is important. So, we are

2 doing a hearing on final cash collateral and DIP or

3 continued interim on the third. We're adjourning that

4 portion of the motion regarding sales tax to the third.

5 We're having a hearing on small-B, small-P bidding

6 procedures on the third. I'm leaving something out.

7 CLERK: The cash management.

8 THE COURT: Cash management hearing on interim on

9 the third.

10 MR. SCHWED: And utilities, Your Honor.

11 THE COURT: And utilities. Is that it? All you

12 lawyers, somebody should be checking us. Wages, we've

13 handled.

14 MR. CURTIN: And the other orders. The other

15 motions that you granted at the beginning, the Debtor is

16 going to circulate the proposed -- the amended proposed

17 orders on those. The joint -- we changed the joint admin.

18 THE COURT: Yeah, joint administration. Did we

19 leave anything out?

20 CLERK: I think (indiscernible).

21 THE COURT: Oh, we have a -- okay, you're going to

22 make a couple of changes on that, on the omni thing, right?


24 THE COURT: Okay. Cash management, pre-petition

25 wages, utilities --

Page 154



1 MR. CURTIN: When I said the other motions, I was

2 referring to the omni and also the claims matrix/other

3 administrative issues, the extension of time on the schedule

4 that --

5 THE COURT: Right, those you're circulating and

6 you'll upload.

7 MR. CURTIN: Yeah. I think they're just accepting

8 my changes on that one, but we'll --

9 MR. SCHWED: So you'll circulate a --

10 MR. CURTIN: No, I already did, so you'll just

11 need to accept my changes or not.

12 MR. SCHWED: You sent it in Word?

13 MR. CURTIN: Yep.

14 THE COURT: Okay. And --

15 MR. CURTIN: I can send it again, Your Honor.

16 (indiscernible) so I can send it again.

17 THE COURT: Okay, and 30 days on the extension

18 instead of 60.

19 MR. CURTIN: Right.

20 CLERK: And just so we're clear, because now

21 there's going to be a different (indiscernible) case,

22 (indiscernible).

23 THE COURT: Yeah, so you've got to change your --

24 sorry, got to change the caption. Can we move the motion

25 for joint administration (indiscernible)? Well, we put the

Page 155



1 motion every case.

2 CLERK: Well, I'll put the motion to where it's

3 going to be on the lead case (indiscernible).

4 THE COURT: Right, but the motion for joint

5 administration could be in all the cases, but --

6 CLERK: It is already.

7 THE COURT: All right, and it was amended -- being

8 amended on the record, and the orders now have to show it as

9 (indiscernible). We all clear about that?

10 MAN 3: Meaning the motions don't have to be re-

11 filed on the new main case, the first two motions.

12 CLERK: I was going to do the ones that are being

13 carried.

14 THE COURT: Yeah, but anything else you file,

15 including all of these orders, use the (indiscernible)

16 caption.

17 MAN 3: Right, and when the joint admin order gets

18 entered tomorrow, presumably --

19 THE COURT: It's going to say that.

20 MAN 3: -- then everybody will kick over to the

21 new (indiscernible).

22 THE COURT: Right, got it. Okay, anything else?

23 MR. SCHWED: Thank you, Your Honor.

24 MR. KLESTADT: Thank you, Your Honor.

25 THE COURT: Take care, everybody. Safe travels.

Page 156



1 (Whereupon these proceedings were concluded at

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1 I N D E X

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3 RULINGS

4 Page Line

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6 Order to maintain electronic 22 18

7 platform granted

8 Joint administration motion granted 22 18

9 Motion to include claims amount 24 22

10 in creditors' matrix

11 Critical vendors motion approved 130 3

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Page 158



1 C E R T I F I C A T I O N

2

3 I, Sonya Ledanski Hyde, certified that the foregoing

4 transcript is a true and accurate record of the proceedings.

5

6

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8 Sonya Ledanski Hyde

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20 Veritext Legal Solutions

21 330 Old Country Road

22 Suite 300

23 Mineola, NY 11501

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25 Date:

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[& - 256] Page 1



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[260,000 - accounts] Page 2



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amounts 42:2145:18 100:21

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angell 12:24annual 89:17answer 39:6 58:20

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[accrued - apa] Page 3



apologize 22:169:21 147:3

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appear 148:25appearance 78:23

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approved 36:488:4 114:19115:13 130:3,21130:23 132:13134:5 158:11

approves 120:25123:10

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aspects 102:1152:1

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assets 8:6 49:754:9 57:15,1960:16 77:12 116:4126:18,20

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audacious 74:23audience 102:10august 52:5 82:21

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bad 142:12balance 81:1,5baltimore 46:11bank 6:11 14:2

17:8 39:14 47:949:1,2,4,12,2479:14 137:23

bankruptcy 1:15:1,23 7:7,15 8:419:1 33:4 48:7,1249:14 52:17,18,2354:2 69:4 76:15102:16 115:14119:3 123:9

[apologize - bankruptcy] Page 4



banks 6:16 38:7bar 74:14bare 99:11 102:9bargaining

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basis 28:7,11,2329:1 37:13,1639:23 42:19 80:1082:19 98:19132:20,24

beat 73:16began 42:18 44:3

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begging 64:20beginning 23:8

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begins 63:6 82:8begun 118:4behalf 8:16,23 9:5

9:11,17,23 10:510:12,19 11:516:3 17:8,17 79:179:14 119:19137:23

belief 48:15,1752:17,18,18 68:10

believe 27:22 28:228:17 33:15 44:244:3 45:14 49:550:4 66:5 68:487:4 97:18 98:13108:20 117:17126:9 129:14134:25 137:7140:1 149:21

believed 47:15believes 113:1belong 119:22benchmarks

124:1benefit 6:15 73:5benson 12:19 17:4best 47:16 57:15

64:8 66:9 78:787:24 88:7,11112:15 116:16128:23 137:7153:19

bet 81:10better 8:9 55:13

56:16 63:9 69:2572:18 78:7,880:18,18 83:487:20,25 88:2112:25 113:18114:14 115:17116:22,25 118:16142:5,16 143:5

bid 57:10 62:1562:15 63:7,8,9,1163:11 74:10 75:1280:13 83:9,11,1783:25 94:21 96:2116:10,17 122:12123:1 137:8

bidder 96:4,7115:18,21

bidding 8:10 23:566:20 69:23 83:2

114:19 122:19,24123:25 124:13,24124:25 125:3127:19 136:21137:5,12 145:19154:5

big 32:2 67:2100:2,7

bill 97:10bills 29:25binding 115:12,15bit 38:16 48:25

73:13 75:24 82:182:3 91:11 119:14138:14,14

blank 22:7blanket 51:17blocked 142:25blood 66:21bloom 44:9 87:3blue 1:7 6:3 15:3

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26:15 91:13129:22,25

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bought 64:22bound 117:12,14brand 38:13

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104:13,13,15,25bringing 102:24broadway 12:21broke 99:3broken 91:12brooklyn 5:3brothers 13:17

16:3 61:3,4,1975:24,24

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budgets 26:9building 12:12built 46:8 69:19bunch 145:14burial 110:7business 24:14

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businesses 37:2552:23

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[banks - buying] Page 5



c

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call 33:21 41:1169:14 89:9 106:5115:25 126:9153:10

called 27:2 44:7calls 128:4cancelations

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19:20,20 20:12155:24 156:16

captive 102:10capture 102:18

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126:21 156:25carefully 87:9

116:6carried 156:13carter 5:25carve 110:4,6,8,12

119:24case 1:3,10,17 2:1

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27:14 36:7 39:2241:11,14 42:464:2,5,20 65:1365:16 66:18 68:1873:19 77:9,2079:16 80:4 86:190:10,16,20 117:7124:1,2 125:4137:16 142:12147:4,18 155:21156:1,3,11

cases 6:11 15:318:2,4 19:9 90:2299:11 101:16,23145:14,15 156:5

cash 6:10 7:1025:17 26:10 37:1138:17 43:24 89:1689:17 102:3,3103:2 104:23105:5 109:11122:15 131:14,18132:9 134:2143:25 144:2152:14 154:2,7,8154:24

cashflow 46:12,2047:6,11,18 52:6

category 94:19caucus 72:4caucused 93:13caught 57:1

125:15cause 109:19causes 109:1cautious 79:7caveat 110:21

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certainty 112:5certified 159:3cetera 108:7,7

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changed 19:20154:17

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changing 141:12141:15,18

chapter 86:2102:13 104:7109:19 110:7122:13

chase 38:8check 24:14 38:10

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chief 97:16choice 140:3chose 73:21chosen 73:19chunk 91:18cia 105:7,8circulars 102:15circulate 125:14

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clarification 99:2111:8 113:5

clarify 22:21 32:834:13 35:3 99:14112:12,19 113:9

class 87:5clear 8:6 16:20

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[c - clearer] Page 6



clearly 102:2122:18 130:14

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cleveland 2:5 9:515:5 46:13 50:4

client 50:24 60:1361:3 66:14 72:2373:20 79:15 80:984:2,13 85:11113:3,13,15123:17 126:22,25127:11 140:5

client's 59:1370:21 85:9 114:21

clients 68:5 72:2473:4 84:10 101:20

clifton 3:19 15:7close 28:9 47:3

68:24 100:5closed 48:19

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81:24cod 105:7code 7:7 8:3coffin 47:4cog 34:20coincide 59:23collateral 7:11

49:11 109:11111:20,20,24152:14 154:2

collected 25:1826:7 119:19

collecting 25:19collections 102:3

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collectively 17:5columbus 149:17column 98:18,18combined 54:8

63:5,8come 19:8 28:2

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comes 114:14143:19

coming 28:7,11,1228:23 29:1 39:2441:14 94:13 96:24109:15 128:17131:9 135:20,21

comingled 27:927:12 36:6

comingling 27:18comment 25:4

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committee's108:10,11

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concessions 69:1199:8,9,14 104:11104:14,22

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[clearly - confirmation] Page 7



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contracts 120:9contractual

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9:11 15:5 18:5,2419:16,21,24 20:1034:16 39:22 49:549:7 51:11 74:18132:17,18

corporate's 18:9correct 20:14 27:1

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course 6:16 30:2561:24 62:11 64:19110:21 139:17

court 1:1 5:115:10 16:5,7,9,1116:15,17,19,2517:2,6,9,15,18,2518:9,12,16,1819:11,13,22,2420:4,8,10,18,2020:25 21:11,14,1821:20 22:1,3,1322:17,25 23:6,1423:16,21,25 24:1024:21,25 25:3,1226:3,5,20 27:3,1027:24 28:3,15,2529:4,6,8,21 30:2,830:10,13,15,18,2030:23 31:2,9,1131:14,20 32:1,632:13,22 33:9,1733:20 34:2,2335:5,12,14,17,2036:11,18,24 37:137:3,6,9 38:2039:1,14 40:6,1140:21 41:2,7,9,1741:25 42:2,5,1043:1,4,7,10,13,1643:21 44:4,18,2044:23 45:4,7,9,23

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filed 6:3 8:16,239:5,11,17,23 10:510:12,19 11:518:3 19:9 41:2163:16 72:18 77:13

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financing 7:1328:2,6 41:6 64:2470:19 71:11 85:1389:9 90:18 91:397:25 149:23150:2 151:2,20152:22

find 18:25 21:1480:25 135:2143:12

finding 87:23109:6 112:13

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fine 25:2 57:1965:7 66:14 70:11109:22 110:14

114:2,24 134:12135:10,11,12143:22,23 145:12

finish 68:18147:13

firm 36:7 48:8,957:21 59:16 66:5

firms 88:2first 6:2 15:8,10

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32:14 122:7 134:3150:16

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funds 25:20,2426:11,13,15,1627:13 28:23 36:436:8 39:13,2453:21 119:21,21119:25 125:12127:6 129:17,17

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give 16:19 31:833:1 37:18 40:372:5 75:13,20,2277:4 80:1 84:2294:25 95:4,1697:2 107:4 118:22121:21,24 145:8150:15

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it'll 29:24 32:1740:24 58:3 146:25

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llp 12:3,19 13:1,813:16

loan 43:23 44:1249:5,5,6,10,1151:21,23 53:254:8,10 56:558:13,25 60:2,1961:5,16 62:2363:13 67:19 71:674:17 76:3 78:1178:15 86:25 87:2388:13 91:3 95:21106:21,24 107:2107:20 112:5,23113:2 121:10,18

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nacho 36:25nah 57:1nail 47:4 81:18naked 71:20name 87:5 97:6,9

120:20named 76:16nancy 5:22nathan 8:16,23

9:5,11,17,23 10:510:12,19 11:513:6 15:13

nature 29:9 41:15105:3 129:11,15149:19

necessarily 28:18113:6 150:21

necessary 37:1572:7,25 73:796:23 103:15104:4

need 22:11 23:2328:3 30:5 32:2039:3,3,5,25 51:653:1 58:4 59:7,2367:1,10 68:1469:12,13 70:1972:5 81:2 85:1786:9,11,19 90:1892:6 93:19,2298:16 103:7104:12,24 112:18130:25 131:10139:12 141:1,5,5144:11 145:4,11146:6,22 152:9153:7,8,8,9,10155:11

needed 48:5 86:398:14 127:7

needing 32:24needs 70:17 80:17

97:22 115:17negate 144:24negotiate 128:22

130:1negotiating 77:14

86:22negotiations 54:6neither 109:18nervous 23:9net 59:4never 64:6 115:14new 1:2 12:14,22

13:4,11,19 14:1814:23 22:25 24:1638:13 45:19,20,2148:13 58:18,21,2359:9 68:13 85:3100:1,5 109:15

118:7,9,11 156:11156:21

newly 152:6news 116:25nhl 1:3,10,17 2:1

2:8,15 3:1,8,154:1,8,15 6:1,5,96:13 7:1,10,18 8:18:12,19 9:1,7,139:19 10:1,8,1511:1

nice 42:17,17,21120:3 135:8

night 41:12 89:5115:8 117:7

nine 80:3nobody's 19:1non 39:14 111:20

111:25 132:22133:1

normally 32:16141:2

north 14:10norton 13:16 16:2

16:24note 63:21 78:22

88:16 89:2noted 149:5notes 44:14notice 79:18,21,22

79:23 80:1,1395:1,4 111:13117:11 119:8120:7 134:22149:20

noticed 50:11noticing 6:6notwithstanding

18:13novic 120:19,21

120:21 121:5,13121:15,18,20,23121:25 122:2,4,23

[money - novic] Page 21



123:7,9,15 124:19124:22 125:4,7148:18 149:2,5,9149:14,19 150:4,9150:16,22 151:3

novick 12:25 17:317:3 18:21 19:1225:12,13 26:4,627:10 35:20,2257:24 64:23 65:475:9 79:23,2585:22,24 86:8,1086:19 88:10,19,2489:2,15 90:4,7,1492:1

novick's 27:1166:13

number 35:250:11 54:16,1855:6,7,8 59:10,1568:7 71:23,2486:21,23 89:391:21 94:15,1795:12,15 96:1798:19 104:21107:1,4,6 119:15128:24 145:4,7

numbers 91:1798:23 141:8

numerator 74:9,9ny 5:3 12:6,14,22

13:4,11,19 14:1114:18,23 159:23

o

o 5:21 15:1 123:9125:4 159:1

o'clock 145:10object 20:1,2 36:8

38:18,18 39:1040:1 85:10 108:6116:14,15 118:15133:16 134:8148:1

objecting 129:9objection 18:23

19:5 20:3 22:1425:14 29:9 35:2336:2 57:24 114:1125:1 129:3133:20 143:19148:13 149:20

objectionable38:7,9

objections 38:20134:14 135:14147:6,7,18,19148:8,9 150:18,19150:23 152:5

obligates 119:4obligation 83:25

113:24 114:13,18118:14

obligations 6:1726:16 27:22 43:23122:16 123:1124:5,5,6,7,16

obtain 7:13115:17

obtained 118:3obviates 130:25obvious 41:10

91:7obviously 27:17

29:24 40:6 43:2461:13,15 62:2164:8 71:13 92:17101:4 102:3,5109:5 120:12137:6

occurred 41:1753:12 122:10

october 23:12,2330:16 34:11 82:1382:14,15 89:17,1892:13 100:24123:3 125:3

131:19 132:11134:10 138:25,25139:1,2,2,4142:21

offer 56:16 57:1558:4 91:20 109:25110:2 112:23,23114:2,15,16,18,21114:21,23 118:14118:16

offered 85:25 86:690:24

offers 8:9 69:25112:21 115:18116:23

office 12:12 37:2137:23 39:15 51:151:4 80:10 134:8135:7

officer 87:14officers 97:16offices 24:4oh 16:7,18 43:10

43:18 46:2 55:2177:2 79:3,6 90:692:15 112:20119:13 121:5,19142:24 149:18154:21

okay 15:10,1216:7,25 17:2,1017:18 18:12,12,1619:15,25 20:4,520:20 22:2,3,1222:13,13,17,20,2523:1,25 24:1,1124:21 29:8 31:231:20 33:17 35:535:13 36:24 37:637:9 40:22,23,2441:5,7 42:5,6,843:10,13,21,2244:20 45:9 49:3

50:10,19,22 51:651:16,23,25 52:452:13,15,16 55:955:21,24 57:1,1,257:7,23 58:1659:7 69:12,1874:7 75:3,4,876:24 77:3,5,1577:15 78:12 79:379:6,12,16,2480:8 81:1 83:1384:14 86:10,1989:15 90:6 92:1592:22 93:3,9,1093:12,13,24 94:496:5,9 97:2198:12 105:9,12,17105:22,25 106:2,6106:8 107:9,25108:13,18,23109:4,14 110:1,15110:20 111:12112:3 113:4 115:4121:4,5,21 122:17122:21,23 127:15128:1,15,21 129:4129:10,18,21,24129:24 130:7131:2 133:21,21134:1 135:6,12,19136:5,9 137:17138:7,19,21142:10 145:11146:24 147:1,4148:3,3,3,6,14150:22 151:3,15152:4 153:2,7,18154:21,24 155:14155:17 156:22

old 159:21omission 24:12omitted 22:6

[novic - omitted] Page 22



omni 6:5 154:22155:2

once 24:16 70:5103:5 111:1130:24 132:18

one's 122:17ones 24:16 142:18

156:12open 38:13 42:18

45:19 46:9 53:2353:24 81:24 93:793:8 100:5 131:15132:3,16 133:13134:5

opened 45:2253:18

opening 39:2171:10

operate 59:24operating 44:16

46:11 49:9,10,1372:8 74:19 118:3

operation's108:16

operational 42:19operations 52:9opportunity

73:13 93:15 98:9105:4 118:4146:23 149:6,21151:23

opposed 61:1162:16,17,20 71:13

opposite 88:7order 6:1,7 8:15

8:22 9:4,10,16,2210:4,11,18 11:420:12,17,24 22:422:15,15,17 23:2424:6 25:8,8 34:935:11,21 37:1540:1 55:12 56:1056:15 59:24 67:11

67:23 69:15 70:370:13 71:16 73:176:19 79:10 80:1181:2 84:15,23,2585:20 87:21,2192:4,5,6,9,18103:5 106:20108:2,4,12 109:6109:8 111:3,5,14119:16 121:17122:8,19,24123:25 124:9,11124:12,25 125:3125:14 126:11127:21 128:5,6,7128:8,9 130:14,24132:2 133:17134:2,9,10,10,14148:20,20,21149:24 151:1152:12 153:9,13153:14 156:17158:6

ordering 128:2orders 7:12 20:17

90:2 152:22154:14,17 156:8156:15

ordinary 6:1689:24

original 42:698:19

originally 151:25152:17

outside 48:1252:17 62:17 87:13

outsourced 26:2226:25

owe 36:20,20 37:3owed 100:21owner 46:22,25

62:14

owners 45:1,1846:19

ownership 26:1834:16

p

p 12:1,1 15:1125:4 137:12154:5

pa 14:4paca 6:20 24:24

25:6,9 28:16,1728:23 29:18,2294:8,11,23,2495:5,7 100:19101:5,7,14,17,17101:18,19,21,23102:4 103:16,18103:20 128:21129:7,17 130:20141:3

packet 128:17page 21:5,11,16

21:18,18,20 22:539:7 98:17,2399:6,13 104:19105:10 107:20111:19,25 121:9121:22,24,25122:2 158:4

pages 100:23paid 25:5 27:21

27:23,24 29:230:1 32:15,16,1735:8,23,25 36:1436:23,23 43:2444:1,15 72:1693:20 101:19103:21 140:23

paper 75:3papered 57:21papers 32:10

38:24 41:19 62:1479:8 86:3,17,23

87:13,17 92:2paragraph 21:9

22:5,11 25:8106:20

parcel 34:4 67:12pardon 71:4

107:5 118:8parent 18:5,6,24

19:17 34:16 37:1337:14

part 28:1 33:1134:4 51:11 52:1262:6 67:12 70:1395:17 101:12119:21 122:16126:3,5 129:8

partially 79:17participants 51:2

51:5,7particular 79:2

99:23 112:14particularly

75:16 123:5parties 17:13

47:23 57:17 80:14103:9 116:23118:15 150:11

partner 15:23106:13

party 12:4 14:1666:20 76:3 84:185:12 87:19149:22

patch 126:5pay 6:14,20 26:2

26:12,15 27:2528:6,12,13 29:1429:21,24 30:532:21 36:4,9,1737:15 53:15,1559:2 101:21103:10

[omni - pay] Page 23



payable 32:1358:13

paying 45:17 52:7100:11 101:6130:14

payment 7:6103:16 104:22122:15 133:5

payments 26:2326:23 36:13 43:2544:1,25 45:2,1146:18,22 61:1591:12 94:11

payroll 31:24 32:433:2 36:7 52:7,2553:7 130:7 134:18140:21 141:23142:7,8,11 144:20144:21

peak 48:22penalty 100:15

116:10,11pendency 6:11pending 19:4

50:12people 15:12 33:3

33:4 37:23 39:852:21 56:3 59:1963:24 69:14 74:2577:11 87:2 117:10120:18 127:1,2,5144:7 148:21,24149:10,11 152:19153:15

percent 18:7 49:861:7,9 62:16,16112:4 125:24151:20,21

percentage 34:15perfect 151:3perfected 75:19perfectly 62:22

perfunctory80:10

period 22:7 44:244:15 46:23 48:168:1,3 92:14 99:5104:8 108:8,9120:8 143:25

person 34:18,1964:22

personally 36:10peter 15:16petition 6:20 7:13

7:25 15:24 25:525:23 26:2,2,1527:22 32:4,19,2135:23,24 36:839:6 53:2 61:1697:19 115:8,15117:1 123:1 127:7151:19 154:24

petitions 53:2586:24

philadelphia 14:4phone 15:11

16:11 63:25 65:2119:14 120:8

pick 22:25 27:441:11 141:11

picked 41:10142:12

piece 32:2,2130:18

pieces 86:23pilevsky 12:8

17:16,16place 17:21 27:14

33:5 82:24placed 152:22places 93:6 111:3

111:6plain 60:1 69:15

84:15,23 85:6106:10,16 110:17

plains 14:11plan 23:3 122:13

152:21planning 41:19,20

90:21 152:16plate 68:5platform 21:6,21

158:7play 116:1plaza 5:2please 20:19

72:20 97:1,5104:2 136:12

pledge 49:11plenty 112:16plus 53:8 91:18

93:6 108:22 151:9151:11

pm 5:6 157:2point 27:4 30:3

38:18 39:9 40:140:16 45:14 46:1647:19 48:24 58:960:12,25 62:1268:7,19 71:975:11,12 85:790:11 91:1,1496:6 108:17112:22 113:4,6114:17 116:8117:15 118:1,12122:7 137:4144:23 147:6150:2 151:17,21

points 86:11 91:692:16

poked 64:5policies 53:13portion 29:2 36:3

130:3,4 154:4position 60:3

70:22 78:19 97:17119:18 123:16

127:1 139:11143:13 144:22

positioned 83:4possession 24:16

38:10,14 39:14,1639:18,22 41:671:11 85:2 97:25118:22,24 132:3133:2

possibility 23:1348:7 54:5 139:24

possible 23:4,1233:19 35:9 52:2462:13 80:16 84:1684:23 93:16106:16 111:22131:17 134:5144:13

possibly 35:24101:22

post 7:13 26:1,1533:4 35:23 36:8105:15

potential 46:848:16 53:4 62:11119:24 137:24

potentially 40:18101:3 138:5

power 75:6practical 49:7,12practices 39:6pre 6:20 15:23

25:5,23 26:227:22 32:4,19,2135:24 39:6 53:261:16 115:8,15117:1 123:1 127:7151:19 154:24

precedent 120:24predict 64:6preference 20:20

101:5 131:11146:20

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preferred 103:17prejudice 19:10

60:2 133:15 134:7preliminarily

39:20premise 65:19

73:6,10preparation 98:2prepare 129:1prepared 33:23

38:11 57:19 58:2159:14 78:24 84:2295:21 99:1,16,23123:23 126:1

preparing 31:2271:1

prepet 100:11prepetition 6:14

7:22 70:9 75:1394:16,17 100:12

present 61:263:11 65:6 114:7114:13,18,25116:10,16 118:14119:4

presented 54:960:13,14 63:398:1,2 112:22113:2,12 120:12

presents 113:16preserve 73:1

81:8preserved 84:16preserving 108:5presumably 37:8

156:18pretty 86:10

101:18 110:12previewing

120:17previously 106:5price 8:8 31:6

43:8,12,17,19

62:19,20pricing 126:3,5primarily 94:3prime 85:9,11

109:16priming 75:14

87:21 109:18principals 75:24principle 54:23print 24:15,16,16prior 30:6 45:18

46:19,22,25 62:14123:3

priority 25:2487:22

probably 19:425:14 28:12 33:1360:9 64:12 88:2092:18 111:7,13,15

problem 19:19,2219:25 21:8 22:224:5 28:21 29:1429:19 42:22 63:165:13 66:6,1470:15 94:13 95:9107:15 119:13124:3,4,9,14,23135:4,11,13138:24 139:10140:12 144:4

problematic60:21,22 69:20

problems 45:1669:22

procedure 8:4procedures 8:10

23:5 69:23 83:2114:19,20 122:19122:24 123:25124:24,25 125:3127:19 136:22137:5,12 145:19154:6

proceed 85:3100:9 113:12,23131:6 137:8

proceeding 46:24134:3,4

proceedings 47:397:14 157:1 159:4

proceeds 111:21process 6:16

37:14 52:19 56:657:20,22 86:188:12 119:15124:20

produce 94:1399:9 101:1 102:4102:4 144:2

producing 143:25product 67:25

68:22 99:12102:22 104:25

professional110:8

professionals 53:153:8 66:3,4 70:17127:7

profit 42:18 47:1748:15,17

profitable 42:1742:20 45:17 48:18

profits 118:3programs 6:15progress 124:2progression 40:14prohibit 7:1prohibition

126:20prom 70:20,22prominent 76:5promissory 44:14proofs 21:7,22proper 48:6properly 67:11

75:19 144:6

property 8:156:15 119:25

prophylactic148:19

proposal 60:19,2161:4 65:7 66:12106:10 112:14

proposals 61:18propose 61:8proposed 6:7 7:6

8:15,22 9:4,10,169:22 10:4,11,1811:4 15:14,17,1915:24 16:3,5 24:361:4 70:3 110:6142:25 151:24,24154:16,16

proposing 30:540:14

prosecute 117:14protection 39:15

40:19 62:15,15protections 75:14provide 7:4 45:10

54:7 60:15 114:20122:14 129:6,8

provided 59:1565:5 66:9,11,12111:20,22,25130:23,24

providers 7:2,4providing 45:4

66:8 134:4provision 56:12

138:1,1provisions 61:21

92:21 115:24116:5 128:6,7

proviso 133:13pull 65:17pulled 57:24

110:18

[preferred - pulled] Page 25



purchase 8:842:10,12,15,23,2443:7,12,17,1954:9,11 62:4,5,662:19,25 63:4,663:14 76:3 95:2295:24 102:11106:18,24 113:12113:16,25 114:6119:2

purchaser 8:7purchases 99:4,12

104:25 105:3,6purchasing 57:4

77:11 83:19purpose 115:20

126:5 129:25149:24

purposes 18:821:7,21 73:9100:5 128:5,5,8153:12

pursuant 7:11,158:2,9 100:12111:5 123:2

pursuit 101:19purview 71:14push 100:24

144:13 148:16pushed 148:19pushing 127:13

127:13,13put 23:19 24:8

26:20 29:11,1230:6,20,23 33:2134:2,6 59:2463:12 73:2 75:1978:11,12 85:2586:6,12,20 88:2088:21 89:10 90:190:18 96:14,19111:14 128:6130:4 145:2

148:16 155:25156:2

putting 63:18126:15 145:25

q

quarter 100:8queens 42:8,11,12

44:7question 19:16

28:5 41:10 64:471:10,14 73:10,2280:19,20 84:1485:19 88:15 89:14101:24 104:18105:24 111:19127:13

questions 38:2339:2 73:22 94:796:20 101:25

quick 102:2quicker 65:15quickly 24:9,10

64:1 80:16quite 50:11 61:21

68:25 85:11 91:22

r

r 5:21 12:1 15:197:7 159:1

rachel 12:1715:25

raise 32:10 97:1120:1

raised 32:9rammed 82:18ramp 103:6ramping 102:21

102:25rate 61:5,6,7,8

89:24 151:19reached 31:18

47:22reaction 148:6

read 25:16 32:1,341:19 56:8,11111:1 128:4

reading 26:9107:23 111:6

ready 16:15,17,1945:22 46:9 64:2467:20 146:23

real 52:7 100:18100:25 102:7

realistic 141:22realize 86:12

103:11really 24:5 34:21

39:21 41:16,2346:15 54:2 56:1867:1 71:14,22,2371:24 72:10 75:475:5 80:16 81:181:16,21,23 83:191:2,14 92:13124:10 149:23

reason 19:16 38:673:21 79:25 83:1684:8 91:2 128:2

reasonable 81:3,3reasons 37:22

65:14 107:16recap 152:7,7,9

153:25recapture 105:14receive 45:12

137:6received 45:11

79:9 102:3receives 132:18receiving 31:18recharacterization

84:9recommends

95:19record 24:9 34:2

63:19 86:12,21

88:1,21 97:6103:24 112:12,19120:20 125:11,20127:22 128:2132:23 134:2,11137:22 148:22156:8 159:4

records 22:765:18

reduce 99:17reduced 24:17

102:5refer 17:5 43:19references 107:25

125:23referencing 112:7referred 46:4referring 115:7

155:2refusing 7:2regard 67:21

85:16 86:2regarding 20:24

28:21 37:18 39:442:14 52:7 61:2161:23 62:14,15,2395:8 112:21 154:4

regardless 148:13regular 28:7,11

28:23 29:1rehabilitate 103:8

103:11reiterate 36:2reject 117:22,24relate 115:25related 6:2,17 7:8

7:16 68:6,1975:12

relating 130:4relationship 51:7relationships

51:10 99:22148:23 149:22

[purchase - relationships] Page 26



relatively 112:24relief 7:8,16 93:16religion 82:2remain 47:25

133:1remained 44:23remedy 117:19,20remember 92:10remind 106:4reminded 40:16

131:15removal 114:11removed 107:17

121:23 122:4repercussions

29:16rephrase 98:15replacement

75:14 109:9,19replenish 100:4replenishing

93:19 99:20replenishment

93:21 94:2 99:11represent 15:23representation

101:23represented 94:10

95:1 102:2representing 68:2

102:25represents 101:18request 23:12

34:6 38:6,11132:2 133:10150:10

requested 22:2323:2 55:16

requesting 55:23136:13

require 125:25129:2 149:10

required 38:1345:2

requirement 38:9123:24

requirements39:12

reservation 19:3reservations

79:10resolutions 86:24

87:6resolved 66:6respect 22:22 23:1

24:2 26:24 31:3103:17 109:7111:4 112:13127:5 128:21130:10 134:2137:18 151:1

respectfully116:19

respond 73:14response 72:1rest 35:10 68:17

86:2 90:10restock 67:11

144:11restocked 144:12restocking 47:12

90:4,5 91:6 98:2199:4,10,16,18,23100:10 144:14,18

restoration 80:12restrain 7:2restricted 44:13

44:14restructuring

97:16result 42:23 46:18

47:8,9resulted 68:24retain 53:1 127:7

retained 17:1348:8,9 57:21119:15

retainer 6:7retention 108:11revenues 90:25reviewed 29:25reviewing 79:8rid 24:12right 17:20 21:19

21:20,23 23:1626:5,20 27:3,2029:5,17,17 30:1030:17 31:2,9 32:133:14,20 35:1737:1,9 40:9,22,2442:16 45:24 46:646:6 50:1,3,1951:22,25 52:1055:5 56:18,2460:13,14 63:16,2163:22 64:10,1672:3 74:6,12 75:175:4,10 77:7,1578:10,13,16,1880:19 81:4,6,6,1382:16,16 83:18,2083:21 84:5,585:23 88:1 91:2594:19 95:19 96:997:1 100:10 103:1103:19,20 104:21104:23 105:18107:22 108:21,22109:21,23 110:3112:11 118:5,13118:25 122:17125:8 127:24128:12 129:19,24129:24 131:13132:22 133:15,18133:23 134:21135:6 136:1

137:14,15 138:13138:16 139:7,17140:22 143:6,16143:18 144:5,5145:1,13 147:8,12148:24 150:4151:19,22 152:3152:14 153:1154:22 155:5,19156:4,7,17,22

rights 79:10 80:1284:16 108:5 134:7

risk 33:3,6,7100:18,25 101:6103:17

road 2:19 8:239:17 15:5 29:16116:2 159:21

rob 120:21robert 12:25

15:18 17:3robust 57:20role 87:11roll 124:6,12,17rollup 55:11,14

58:17 61:14107:25 151:13,17151:20

romantic 28:4room 59:19 64:25

67:4 71:25 72:976:2 81:7 93:2,2,493:5,5

rooms 72:4,5 93:3rose 13:16 16:2,24rosh 41:22 53:19

53:21,22,23 89:6round 55:6,7

63:12route 80:10 133:9routine 99:12rule 7:15 108:10

129:1

[relatively - rule] Page 27



rules 8:3,4,5110:9

ruling 122:9rulings 158:3run 42:7running 34:22

39:9

s

s 6:2 8:13,20 9:2,89:14,20 10:2,9,1611:2 12:1 13:2115:1

sabbath 89:7sabotage 77:9,13safe 156:25sale 8:1,5,8 23:1

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works 133:4worry 69:3worse 41:12worst 41:10worth 52:20would've 41:12,22

54:3,3,3wrinkle 26:17

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x 1:4,9,11,16,181:23 2:2,7,9,14,162:21 3:2,7,9,14,163:21 4:2,7,9,14,164:21 158:1

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year 36:13 45:14years 22:7 34:17

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EXHIBIT B


EXHIBIT C


Case 1-18-45280-nhl Doc 1 Filed 09/16/18 Entered 09/16/18 16:51:17Case 1-18-45284-nhl Doc 48-3 Filed 09/26/18 Entered 09/26/18 15:50:21

EXHIBIT D


K A S O W I T Z B E N S O N T O R R E S L L P

ROBERT M. NOVICK

DIRECT DIAL: (212) 506-1758DIRECT FAX: (212) 835-5058

[email protected]

1633 BROADWAY

NEW YORK, NEW YORK 10019

(212) 506-1700

FAX: (212) 506-1800

ATLANTAHOUSTON

LOS ANGELESMIAMI

NEWARK

SAN FRANCISCOSILICON VALLEYWASHINGTON DC

September 18, 2018

VIA EMAIL

Tracy KlestadtKlestadt Winters Jureller Southerd & Stevens LLP200 West 41st StreetNew York, New York [email protected]

Re: Discovery Requests

Dear Tracy,

On behalf of Super Sol Ltd. and L&N Consulting Group, LLC, and as a follow up to thediscussion on the record yesterday, we write to request that SKNY agree to engage in informaldiscovery on an expedited basis concerning issues raised by the Debtors’ post-petition financingand asset sale motions.

At this time, and reserving all rights, we request that SKNY produce the documents listedon the attached Document Request, and make Mitch Wolf and Nathan Klein available fordepositions in advance of the October 3, 2018 hearing.

Please get back to us as soon as possible. Given the schedule and the holidays, time is ofthe essence.

Very truly yours,

/s/ Robert M. Novick

Robert M. Novick

Enclosure

cc. Michele L. AngellNathan SchwedPeter JanovskyRobert GuttmanWilliam E. Curtin


DOCUMENT REQUESTS

1. All documents concerning the Proposed DIP.

2. All documents concerning efforts to obtain alternative financing to the Proposed DIP.

3. All documents concerning or supporting the revenue assumptions set forth in the Budget,and all drafts of the Budget and communications concerning the drafts.

4. All documents concerning any debt, equity, or other investment at any time by SKNY inthe Debtors.

5. All documents reflecting payments from the Debtors to SKNY, or any other entity youbelieve to be affiliated with Robert “Mendy” Klein or his estate and controlled entities.

6. All correspondence or agreements concerning the debtors between or among the Debtors,Zvi Bloom, Mayer Gold on one hand, and SKNY, Robert Mendy Klein, Nathan Kleinand Mitchel Wolf, on the other.

7. All correspondence or agreements concerning the Debtors between or among Getzler,Henrich & Associates (“Getzler”) and SKNY; and all correspondence or agreementsconcerning SKNY between Getzler and the Debtors.

8. All correspondence or agreements concerning the Debtors between or among the Debtorsand:

(a) Robert “Mendy” Klein;

(b) Mitch Wolf;

(c) Nathan Klein;

(d) Greg Zilberstein;

(e) Morris Wolfson;

(f) Joseph Bistritzky;

(g) Ari Chitrick;

(h) Abraham Fruchtlander.

9. All documents concerning the APA.

10. All documents since September 1, 2017 concerning efforts to market and sell orotherwise transfer all or substantially all of the Debtors’ assets either as a whole or inparts.

11. All proposals, offers or expressions of interest since September 1, 2017 to purchase all,substantially all or parts of the Debtors assets.


2

12. All documents since September 1, 2017 concerning any efforts or plans to recapitalize,restructure or refinance the Debtors.

13. All documents since January 1, 2018 concerning the Debtors’ value, financial conditionand performance, including but not limited to financial statements, valuations, andprojections.

14. All documents concerning the corporate governance of the Debtors.

15. All documents concerning the membership or other equity rights and powers of SKNYwith regard to the Debtors.

16. The identity of all parties participating or investing in the Proposed DIP through SKNY.

17. The identity of all parties participating in the proposed APA through SKNY.

DEFINITIONS AND INSTRUCTIONS

As used in this Document Request, the following words shall have the definitions listed

below. Terms not defined have the meanings assigned to them, if any, by sections 101 and 102

of the Bankruptcy Code, or other applicable law or rules.

a. Any/all, and/or, singular/plural, gender: The singular includes the plural and vice versa.The use of any gender includes the masculine and feminine genders. The use of thedisjunctive “or” includes the conjunctive “and” and vice versa. The use of the word “all”shall be construed as “any and all,” the word “any” shall be construed as “any and all,”and the word “each” shall be construed as “all and each.”

b. APA means the Asset Purchase Agreement by and among Debtors and SKNY LLC datedSeptember 14, 2018.

c. Budget means the Proposed DIP Budget annexed as Exhibit B to the Proposed DIP (ECFDoc. No. 10-1 in Case No. 18-45280-nhl).

d. Communication means and includes, without limitation, statements, discussions,negotiations, conversations, speeches, meetings, remarks, questions, answers, paneldiscussions, symposia, and every other manner of disclosure, transfer or exchange ofinformation, whether written or oral. The term includes communications and statementswhich are face-to-face and those which are transmitted by media such as intercom,telephone, television, radio, mail, modem or electronic mail.

e. Concerning means relating to, referring to, describing, evidencing, constituting,comprising, identifying, commenting on, reflecting, indicating, analyzing, sharing orpertaining to in any way.


3

f. Debtors means (collectively, singularly or in any combination) Blue Gold Equities LLC,Central Avenue Market LLC, Amsterdam Avenue Market LLC, Wilmot Road Market,LLC, Seasons Express Inwood LLC, Seasons Lakewood, LLC, Seasons Maryland LLC,Seasons Clifton LLC, Seasons Cleveland LLC, Lawrence Supermarket LLC, Upper WestSide Supermarket LLC, and Seasons Corporate LLC, whether before or after theybecame debtors in bankruptcy cases.

g. Document is defined to be synonymous in meaning and equal in scope to the usage of theterm “ documents or electronically stored information” in Fed. R. Civ. P. 34(a)(1)(A). Adraft or non-identical copy is a separate document within the meaning of this term.

h. Proposed DIP means debtor-in-possession financing offered by SKNY LLC to theDebtors, including the Debtor-In-Possession Loan and Guaranty Agreement among theDebtors and SKNY LLC filed in the E.D.N.Y. Bankruptcy Court on September 16, 2018.

i. SKNY means SKNY LLC, and any of its affiliates, subsidiaries, divisions, parentcorporations, controlling shareholders, or predecessors or successors in interest, and anyand all officers, directors, employees, consultants, advisors, attorneys, accountants,appraisers or other agents, and/or anyone acting or purporting to act on its behalf,including but not limited to Robert “Mendy” Klein and Nathan Klein.


EXHIBIT E


K A S O W I T Z B E N S O N T O R R E S L L P

ROBERT M. NOVICK

DIRECT DIAL: (212) 506-1758DIRECT FAX: (212) 835-5058

[email protected]

1633 BROADWAY

NEW YORK, NEW YORK 10019

(212) 506-1700

FAX: (212) 506-1800

ATLANTAHOUSTON

LOS ANGELESMIAMI

NEWARK

SAN FRANCISCOSILICON VALLEYWASHINGTON DC

September 18, 2018

VIA EMAIL

Nathan Schwed, Esq.Zeichner Ellman & Krause LLP1211 Avenue of the AmericasNew York, New York [email protected]

Re: Discovery Requests

Dear Nathan:

On behalf of Super Sol Ltd. and L&N Consulting Group, LLC, and as a follow up to thediscussion on the record yesterday, we write to request that the Debtors agree to engage ininformal discovery on an expedited basis concerning issues raised by the Debtors’ post-petitionfinancing and asset sale motions.

At this time, and reserving all rights, we request that the Debtors produce the documentslisted on the attached Document Request, and make a Rule 30(b)(6) witness available fordeposition in advance of the October 3, 2018 hearing.

Please get back to us as soon as possible. Given the schedule and the holidays, time isof the essence.

Very truly yours,

/s/ Robert M. Novick

Robert M. Novick

Enclosure

cc. Michele L. AngellPeter JanovskyRobert GuttmanTracy L. KlestadtWilliam E. Curtin


DOCUMENT REQUESTS

1. All documents concerning the Proposed DIP.

2. All documents concerning efforts to obtain alternative financing to the Proposed DIP.

3. All documents concerning or supporting the revenue assumptions set forth in the Budget,and all drafts of the Budget and communications concerning the drafts.

4. All documents concerning any debt, equity, or other investment at any time by SKNY inthe Debtors.

5. All documents reflecting payments from the Debtors to SKNY, or any other entity youbelieve to be affiliated with Robert “Mendy” Klein or his estate and controlled entities.

6. All correspondence or agreements concerning the debtors between or among the Debtors,Zvi Bloom, Mayer Gold on one hand, and SKNY, Robert “Mendy” Klein, Nathan Kleinand Mitchel Wolf, on the other.

7. All correspondence or agreements concerning the Debtors between or among Getzler,Henrich & Associates (“Getzler”) and SKNY; and all correspondence or agreementsconcerning SKNY between Getzler and the Debtors.

8. All correspondence or agreements concerning the Debtors between or among the Debtorsand:

(a) Robert “Mendy” Klein;

(b) Mitch Wolf;

(c) Nathan Klein;

(d) Greg Zilberstein;

(e) Morris Wolfson;

(f) Joseph Bistritzky;

(g) Ari Chitrick;

(h) Abraham Fruchtlander.

9. All documents concerning the APA.

10. All documents since September 1, 2017 concerning efforts to market and sell orotherwise transfer all or substantially all of the Debtors’ assets either as a whole or inparts.

11. All proposals, offers or expressions of interest since September 1, 2017 to purchase all,substantially all or parts of the Debtors assets.


2

12. All documents since September 1, 2017 concerning any efforts or plans to recapitalize,restructure or refinance the Debtors.

13. All documents since January 1, 2018 concerning the Debtors’ value, financial conditionand performance, including but not limited to financial statements, valuations, andprojections.

14. All documents concerning the corporate governance of the Debtors.

15. All documents concerning the membership or other equity rights and powers of SKNYwith regard to the Debtors.

16. The identity of all parties participating or investing in the Proposed DIP through SKNY.

17. The identity of all parties participating in the proposed APA through SKNY.

DEFINITIONS AND INSTRUCTIONS

As used in this Document Request, the following words shall have the definitions listed

below. Terms not defined have the meanings assigned to them, if any, by sections 101 and 102

of the Bankruptcy Code, or other applicable law or rules.

a. Any/all, and/or, singular/plural, gender: The singular includes the plural and vice versa.The use of any gender includes the masculine and feminine genders. The use of thedisjunctive “or” includes the conjunctive “and” and vice versa. The use of the word “all”shall be construed as “any and all,” the word “any” shall be construed as “any and all,”and the word “each” shall be construed as “all and each.”

b. APA means the Asset Purchase Agreement by and among Debtors and SKNY LLC datedSeptember 14, 2018.

c. Budget means the Proposed DIP Budget annexed as Exhibit B to the Proposed DIP (ECFDoc. No. 10-1 in Case No. 18-45280-nhl).

d. Communication means and includes, without limitation, statements, discussions,negotiations, conversations, speeches, meetings, remarks, questions, answers, paneldiscussions, symposia, and every other manner of disclosure, transfer or exchange ofinformation, whether written or oral. The term includes communications and statementswhich are face-to-face and those which are transmitted by media such as intercom,telephone, television, radio, mail, modem or electronic mail.

e. Concerning means relating to, referring to, describing, evidencing, constituting,comprising, identifying, commenting on, reflecting, indicating, analyzing, sharing orpertaining to in any way.


3

f. Debtors means (collectively, singularly or in any combination) Blue Gold Equities LLC,Central Avenue Market LLC, Amsterdam Avenue Market LLC, Wilmot Road Market,LLC, Seasons Express Inwood LLC, Seasons Lakewood, LLC, Seasons Maryland LLC,Seasons Clifton LLC, Seasons Cleveland LLC, Lawrence Supermarket LLC, Upper WestSide Supermarket LLC, and Seasons Corporate LLC, whether before or after theybecame debtors in bankruptcy cases.

g. Document is defined to be synonymous in meaning and equal in scope to the usage of theterm “documents or electronically stored information” in Fed. R. Civ. P. 34(a)(1)(A). Adraft or non-identical copy is a separate document within the meaning of this term.

h. Proposed DIP means debtor-in-possession financing offered by SKNY LLC to theDebtors, including the Debtor-In-Possession Loan and Guaranty Agreement among theDebtors and SKNY LLC filed in the E.D.N.Y. Bankruptcy Court on September 16, 2018.

i. SKNY means SKNY LLC, and any of its affiliates, subsidiaries, divisions, parentcorporations, controlling shareholders, or predecessors or successors in interest, and anyand all officers, directors, employees, consultants, advisors, attorneys, accountants,appraisers or other agents, and/or anyone acting or purporting to act on its behalf,including but not limited to Robert “Mendy” Klein and Nathan Klein.
