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Flat out crazy first day decl

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  • 1. UNITED STATES BANKRUPTCY COURTSOUTHERN DISTRICT OF NEW YORKIn re: Chapter 11 1Flat Out Crazy, LLC, et al. , Case No. 13-22094 (RDD Debtors. Joint Administration Requested AFFIDAVIT OF STEVE DELONG IN SUPPORT OF FIRST-DAY PLEADINGS AND IN ACCORDANCE WITH LOCAL BANKRUPTCY RULE 1007-2 STATE OF ILLINOIS ) ) ss. COUNTY OF COOK )I, Steve DeLong, being duly sworn, hereby depose and say: 1. I am the Interim Chief Financial Officer (“CFO”) of Flat Out Crazy, LLC(“FOC”) and of each of the above-captioned affiliated debtors (collectively, the “Debtors”),debtors and debtors in possession in these bankruptcy cases (the “Cases”). As an officer of theDebtors, I am generally familiar with their day-to-day operations, businesses and financialaffairs.2 2. Debtor Stir Crazy Café West Nyack, LLC (“Stir Crazy West Nyack”) is a limitedliability company organized under the laws of the state of New York and has been so organizedfor more than 180 days prior to the date on which these Cases commenced. Stir Crazy West1 The Debtors in these cases and the last four digits of their Employer Identification Numbers are: Stir Crazy CaféWest Nyack, LLC (5828); Flat Out Crazy, LLC (0160); SCR Operations, LLC (9375); SCR Hospitality, LLC(4309); SCR Concessions, LLC (6669); Stir Crazy Restaurants, LLC (2289); Stir Crazy Café Oakbrook, LLC(2976); Stir Crazy Café Northbrook, LLC (7070); Stir Crazy Café Woodfield, LLC (1104); Stir Crazy Café GreatLakes, LLC (9634); Stir Crazy Café Boca Raton, LLC (9942); Stir Crazy Café Creve Coeur, LLC (0003); Stir CrazyCafé Legacy Village, LLC (8744); Stir Crazy Café Cantera, LLC (4842); and Stir Crazy Operations, LLC (8114).2 I have been the Interim CFO at FOC since July, 2012. Until January 2013, I was an independent contractor forClark Schaefer Consulting (“Clark Schaefer”), who provided my services to the Debtors on a contract basis. DuringJanuary, 2013, the Debtors hired me as a full-time employee and terminated the service agreement with ClarkSchaefer.CINCINNATI/97646.3
  • 2. Nyack operates a Stir Crazy restaurant located at 4422 Palisades Center Drive, West Nyack, NY10994. Debtor Stir Crazy Restaurants, LLC (“Stir Crazy Restaurants”) is the 100% owner of StirCrazy West Nyack. Debtor FOC is the 100% owner of Stir Crazy Restaurants. All of the otherDebtors are 100% owned, either directly or indirectly, by FOC, Stir Crazy Restaurants, or bothFOC and Stir Crazy Restaurants.3 3. On January 25, 2013 (the “Petition Date”), Stir Crazy West Nyack, Stir CrazyRestaurants, FOC and all of the other Debtors filed voluntary petitions for relief (the “Petitions”)under chapter 11 of title 11 of the United States Code, 11 U.S.C. §§ 101 et seq. (the “BankruptcyCode”) in the United States Bankruptcy Court for the Southern District of New York, WhitePlains Division (the “Bankruptcy Court”). 4. In order to minimize disruption to the Debtors’ businesses as a result of the Cases,maintain and maximize the value of the Debtors’ estates, and establish procedures for theadministration of the Cases, the Debtors have, contemporaneously herewith, requested certain“first-day” relief by filing various motions and applications with the Bankruptcy Court(collectively, the “First-Day Pleadings”). 5. I submit this affidavit (this “Affidavit”) (a) in support of (i) the Petitions and(ii) the First-Day Pleadings; and (b) to assist the Bankruptcy Court and other interested parties inunderstanding the circumstances that resulted in the commencement of the Cases. All facts setforth in this Affidavit are based upon my personal knowledge, my discussions with othermembers of the Debtors’ officers and current senior management, my review of relevantdocuments, or my opinion based upon experience, knowledge, and information concerning theoperation of the Debtors and the industry in which they operate. While I have made every3 An organization chart depicting the ownership structure of all of the Debtors is attached hereto as Exhibit A.CINCINNATI/97646.3 2
  • 3. reasonable effort to ensure that the information contained herein is accurate and complete basedupon information that was available at the time of preparation, the subsequent receipt ofinformation may result in material changes to financial data and other information containedherein. If called to testify, I would testify competently to the facts set forth in this Affidavit. Iam authorized to submit this Affidavit on behalf of the Debtors. BACKGROUND AND HISTORYThe Business of the Debtors 6. As of the Petition Date, the Debtors operate 26 restaurants, split among twoAsian-inspired chains: (i) Flat Top Grill (“Flat Top”), which currently has 15 locations; (ii) StirCrazy Fresh Asian Grill (“Stir Crazy” and, together with Flat Top, the “Restaurants”), whichcurrently has 11 locations.4 As of the end of their last payroll period on January 16, 2013, theDebtors employed approximately 1,200 people, the majority of whom were employees in theRestaurants or in Director of Operations positions and 14 of whom were located at the Debtors’corporate headquarters in downtown Chicago. During January, 2013, immediately prior to thePetition Date, the Debtors closed (a) 3 Stir Crazy restaurants located in Greenwood, Indiana;Indianapolis, Indiana; and Warrenville, Illinois; (b) 3 Flat Top restaurants located inBirmingham, Alabama; Rochester Hills, Michigan; and Wauwatosa, Wisconsin; and (c) the soldSC Asian restaurant located in San Francisco, California. 7. Flat Top is a full-service fast-casual create-your-own stir-fry concept thatcombines the comforts of a full-service restaurant with an interactive dining experience. Thefirst Flat Top opened in Chicago in 1995 with a vision to bring fresh, Asian-style cooking to the4 The Debtors also operated a single-location Asian fast-casual restaurant (“SC Asian”), which the Debtors closedimmediately prior to the Petition Date.CINCINNATI/97646.3 3
  • 4. United States. Diners at Flat Top pay a value-oriented price, entitling them to take a trip through“The Fresh Food Line” to create a unique dish. 8. Stir Crazy is a full-service casual Asian restaurant offering the flavors of Chinese,Japanese, Thai and Vietnamese food. Like Flat Top, the first Stir Crazy also opened in suburbanChicago in 1995. Stir Crazy prepares everything from scratch daily. The focal point of each StirCrazy is an open-kitchen that allows diners to watch skilled chefs use woks to prepareingredients chosen by diners selecting the “Market Bar” menu option. Its menu also offers morethan 50 other dishes ranging from traditional Chinese favorites to innovative specialties fromacross Asia. 9. SC Asian was a single-location, full-service fast-casual restaurant where guestsorder and pay for Asian cuisine at the counter and then sit down to be served food and drinks byservice staff who take additional orders tableside. SC Asian opened its first and only location inNovember 2011 inside Macy’s flagship department store in San Francisco, California.5 10. By 1999, Stir Crazy had grown into a four-restaurant chain, with 3 locations insuburban Chicago and one location in suburban Detroit. Over the next 5 years, Stir Crazy morethan doubled its number of locations, opening stores in south Florida; suburban Chicago;suburban St. Louis, Missouri; the outskirts of New York City; and suburban Cleveland, Ohio.Most of these Restaurants were located in regional malls or lifestyle centers, with the otherslocated in free-standing buildings. 11. In 2006, The Walnut Group (“Walnut Group”), a private equity firm located inCincinnati, Ohio, and certain of its affiliates formed Stir Crazy Partners, LLC, which thenacquired Stir Crazy Restaurants and all of its subsidiaries (the “Stir Crazy Acquisition”). At the5 As noted above, this location was closed in January 2013.CINCINNATI/97646.3 4
  • 5. time of the Stir Crazy Acquisition, Stir Crazy operated 9 locations. During 2007 and 2008, StirCrazy opened 5 new locations, bringing the total Stir Crazy locations to 14 by the end of 2008. 12. FOC was formed in 2009 to acquire the Flat Top chain and merge it with StirCrazy. On August 19, 2009, FOC acquired a 100% interest in Stir Crazy Restaurants and itssubsidiaries from Stir Crazy Partners, LLC. On the same day, FOC also acquired certain assetsand liabilities of Happy Valley Corporation, formerly the owner of Flat Top (collectively, thesetransactions are referred to herein as the “Flat Top Acquisition”). At the time of the Flat TopAcquisition, Flat Top operated 13 Restaurants. Following the Flat Top Acquisition, there were27 total Restaurants under the control of FOC and its subsidiaries.Financial Results and Distress 13. Subsequent to the Flat Top Acquisition, the Debtors continued to grow by addingnew Restaurants. At their peak in early 2012, the Debtors operated 37 total Restaurants – 18 StirCrazy locations, 18 Flat Top locations and the SC Asian location. During 2012, the Debtors’ netsales peaked at approximately $59.0 million, representing an increase of approximately $2.4million over 2011 net sales and approximately $6.7 million over 2010 net sales. Despite thegrowth trend in Restaurant sales, the company as a whole was not profitable. 14. The extended lull in the U.S. economy, unsuccessful new Restaurant openingsand unprofitable menu changes led to poorer-than-expected results, particularly in 2011 and2012. During 2012, the Debtors sustained a preliminary unaudited net loss of approximately$11.5 million. The Debtors also sustained net losses of approximately $12.2 million in 2011 and$3.6 million in 2010. 15. The mounting losses have put a significant strain on the Debtors’ cash flow,which in turn has stressed their relationships with lenders, landlords, vendors and other parties inCINCINNATI/97646.3 5
  • 6. interest. Over the past several months, the Debtors have explored numerous restructuringalternatives, including but not limited to, Restaurant performance improvements, capital raises,asset transactions, closing unprofitable Restaurants, and others. Members of the board ofdirectors of FOC (the “Board”) and senior management of the Debtors have been in constantcontact regarding these efforts and they have regularly met to develop a business plan that willhelp ensure the long-term viability of the Debtors. Pursuant to these efforts, the Board replacedseveral members of the Debtors’ senior management team during 2012, bringing in William VanEpps as CEO and myself to replace the prior CFO who resigned. Mr. Van Epps has more than40 years of foodservice experience. Mr. Van Epps was previously President, USA, Papa John’sInternational, Inc., responsible for the company’s domestic franchise and company restaurantoperations, restaurant development, franchising, marketing, R&D, and quality management.Prior to joining Papa John’s, Van Epps served for two years as President of the InternationalDivision of Yorkshire Global Restaurants (Long John Silver’s and A&W Restaurants); six yearswith AFC Enterprises, including President of its International Division (Churchs, Popeye’s,Cinnabon and Seattle Coffee Co.) and seven years with PepsiCo International (Pizza Hut). I ama certified public accountant in the state of Ohio and I have more than 30 years of financialmanagement experience in industry with both public and private companies. I began my careerin the Dayton, Ohio offices of Deloitte. Until January 2013, I was an independent contractor ofthe Debtors through the firm of Clark Schaefer Consulting, who provided my services to theDebtors on a contract basis. During January, 2013, the Debtors hired me as a full-time employeeand terminated the service agreement with Clark Schaefer. 16. Additionally, as described below, among their First-Day Pleadings, the Debtorsare seeking to retain William H. Henrich and Mark Samson from the advisory firm of GetzlerCINCINNATI/97646.3 6
  • 7. Henrich & Associates LLC (“Getzler Henrich”) as their Co-Chief Restructuring Officers in theCases. Messrs. Henrich and Samson and Getzler Henrich have been working with the Debtorssince December to provide advice and analysis in connection with a restructuring. 17. The Debtors believe that they have the right management team to fix thebusinesses, provide necessary leadership to guide them through the Cases, and emerge from theCases as stronger entities with a viable long-term future.The Debtors’ Capital Structure: Long-Term Debt 18. Debtor FOC, as Borrower (the “Borrower”), and U.S. Bank National Association(“U.S. Bank”), as Lender, are parties to that certain Loan Agreement dated as of April 21, 2010(as amended from time to time, the “Senior Prepetition Loan Agreement”), pursuant to whichFOC entered into a 3-year revolving credit facility (the “Senior Prepetition Facility”) with theability to borrow funds and issue letters of credit in an aggregate amount of up to $3 million.The loan is evidenced by that certain Revolving Credit Note in the face amount of $3,000,000dated as of April 21, 2010 (the “Senior Prepetition Note”). The Senior Prepetition LoanAgreement, the Senior Prepetition Note, and all agreements and documents entered into and/orexecuted in connection therewith (including, without limitation, a Guaranty, a SecurityAgreement by the Borrower, a Security Agreement by the Guarantors, and a Patent, Trademarkand License Security Agreement), each dated as of April 21, 2010, are referred to herein as the“Senior Prepetition Loan Documents.” 19. The Borrower’s obligations under the Senior Prepetition Facility (the “SeniorPrepetition Obligations”) are guaranteed by each of the other Debtors (the “PrepetitionGuarantors”) and are secured by first priority senior liens on and security interests insubstantially all of the assets of the Debtors (the “Prepetition Senior Collateral”), subject toCINCINNATI/97646.3 7
  • 8. certain exceptions.6 The Pre-Petition Senior Collateral does not include certain specifiedequipment (the “Vogen Equipment”) that is the subject of separate financing provided by VogenFunding, L.P. (“Vogen”) (an affiliate of CapX Partners) pursuant to that certain Master LeaseAgreement dated as of December 14, 2007 and various subsequent lease supplements(collectively, the “Vogen Equipment Financing Agreement”). 20. The Debtors and U.S. Bank have amended the Senior Prepetition LoanDocuments from time to time. The Third Amendment to the Senior Prepetition Loan Agreement(the “Third Amendment”), executed on June 28, 2011, increased the maximum borrowings underthe facility to $6 million and removed many financial covenants, leaving only a fixed chargecoverage ratio and a maximum consolidated total leverage ratio. Pursuant to the ThirdAmendment, the maturity date of the Senior Prepetition Facility was also extended to June 28,2014. 21. Payments on the Senior Prepetition Facility are interest only, due monthly inarrears, and based on LIBOR plus 2.00% plus the applicable LIBOR margin. As of January 18,2013, the outstanding principal amount of loans under the Senior Prepetition Facility totaledapproximately $5.9 million. As discussed below, on January 18, 2013 U.S. Bank sold andassigned all of its rights, title, and interest with respect to the Senior Prepetition Facility (the“HillStreet Assignment”) to the Debtors’ second lien lender, The HillStreet Fund IV, L.P.(“HillStreet”), and HillStreet agreed to reduce the principal amount of the Senior PrepetitionFacility.6 Nothing contained herein is intended to admit, or waive any right to contest, the validity, enforceability, perfectionor other attributes concerning any liens, claims, interests or rights of any party. The Debtors and their estatesreserve the right to contest the validity, enforceability, perfection and any other attributes of any such liens, claims,interests or rights..CINCINNATI/97646.3 8
  • 9. 22. The Debtors also have outstanding under the Senior Prepetition Facility anIrrevocable, Unconditional Standby Letter of Credit No. SLCLSTL07512 (the “Letter of Credit”)which was issued by U.S. Bank in favor of 315 W. North Ave., L.P., one of the Debtors’landlords, which, to the best of the Debtors’ knowledge, was undrawn as of the Petition Date.The Letter of Credit was originally issued in the amount of $75,000 (the “L/C Amount”).According to its terms, the L/C Amount would automatically decrease in increments of $25,000on each of January 1, 2012, April 1, 2012, and June 30, 2012. On June 28, 2012, two daysbefore the L/C Amount (which was then in the reduced amount of $25,000 due to priorautomatic reductions) was scheduled to reduce to zero dollars, the Letter of Credit was amendedto provide: (1) the expiration date was extended from June 30, 2012 to June 30, 2013, and (2) thethen available L/C Amount was increased by $20,000 to a new balance of $45,000. Theamendment did not alter the automatic reduction schedule and, thus, on June 30, 2012, the L/CAmount was automatically reduced to $20,000. 23. Concurrently with entering into the Senior Prepetition Facility with U.S. Bank,the Borrower entered into a certain Loan and Security Agreement dated as of April 21, 2010 withHillStreet (the “Junior Prepetition Loan Agreement”), pursuant to which the Borrower obtained a$5 million seven-year term loan (the “Junior Prepetition Term Loan”) maturing on April 21,2017. The loan is evidenced by a promissory note in the face amount of $5,000,000 dated as ofApril 21, 2010 (the “Junior Prepetition Note”). The Junior Prepetition Loan Agreement, theJunior Prepetition Note, and all agreements and documents entered into and/or executed inconnection therewith are referred to herein as the “Junior Prepetition Loan Documents.” 24. The Borrower’s obligations under the Junior Prepetition Term Loan (the “JuniorPrepetition Obligations”) are guaranteed by each of the Prepetition Guarantors and are securedCINCINNATI/97646.3 9
  • 10. by second priority liens on and security interests in substantially all of the assets of the Debtors(the “Prepetition Junior Collateral” and together with the Prepetition Senior Collateral, the“Prepetition Collateral”), subject to certain exceptions. The Pre-Petition Junior Collateral doesnot include the Vogen Equipment. 25. The Junior Prepetition Term Loan accrues interest at 16%, of which 12% ispayable monthly, in arrears, and 4% is deferred and payable on the maturity date of the loan. Theprincipal of the Junior Prepetition Term Loan is payable in full on April 21, 2017. AmendmentNo. 1 to the Junior Prepetition Term Loan was executed concurrently with the Third Amendmentto the Senior Prepetition Loan Agreement on June 28, 2011. Amendment No. 1 was issued tomatch the new covenants on the Senior Prepetition Facility. The Junior Prepetition Term Loanwas amended two other times, on February 21, 2012 in connection with the Debtors’ entry intothe First Bridge Loan (as defined below) and on August 31, 2012 in connection with theDebtors’ entry into the Second Bridge Loan (as defined below). The Junior Prepetition TermLoan is contractually subordinated to the Senior Prepetition Facility. There are varioussubordination agreements among the Debtors, U.S. Bank and HillStreet that govern the relativerights and interests of the parties. 26. The interest rate on the Junior Prepetition Term Loan was amended by aforbearance agreement entered into in September 2012, which expired on January 15, 2013. Anextra 3% was added to the annual interest rate by this agreement. Also, additional interest of0.5% per month was added. As of the Petition Date, the outstanding balance of the JuniorPrepetition Term Loan, including principal and accrued interest was approximately $6 million. 27. In order to address cash shortfalls, on February 21, 2012, the Debtors borrowed$1.36 million on a junior, unsecured basis from a group of lenders (the “First Bridge Lenders”),CINCINNATI/97646.3 10
  • 11. pursuant to a Bridge Loan Agreement (the “First Bridge Loan”). The First Bridge Loan wasevidenced by a series of 15.0% promissory notes executed by FOC in favor of the First BridgeLenders. The First Bridge Loan was fully drawn. These notes became due and payable upondemand six months after the date of their execution. The First Bridge Lenders are primarilyinvestors in Walnut Group. 28. On August 31, 2012, again in order to attempt to stem cash shortfalls, the Debtorsborrowed $1.705 million on a junior, unsecured basis from a group of lenders (the “SecondBridge Lenders”), pursuant to a Bridge Loan Agreement dated August 31, 2012 and an Amendedand Restated Bridge Loan Agreement dated August 31, 2012 (collectively, the “Second BridgeLoan” and, together with the First Bridge Loan, the “Bridge Loans”). The Second Bridge Loanwas evidenced by a series of 15.0% promissory notes executed by FOC in favor of the SecondBridge Lenders. The Second Bridge Loan was fully drawn. The Second Bridge Lenders areprimarily investors in Walnut Group, and there is substantial overlap between the members ofthe First Bridge Lenders and the Second Bridge Lenders. These notes are due and payable upondemand any time after December 31, 2013. As of the Petition Date, the total principal amount ofthe Bridge Loans was $3.065 million. 29. The Bridge Loans are contractually subordinated in priority to the SeniorPrepetition Facility and the Junior Prepetition Term Loan. 30. As a result of continuing operating losses, the Debtors have been unable to remainin compliance with the financial covenants arising under substantially all of their debtagreements. The Debtors’ are in default of the Senior Prepetition Loan Documents and theJunior Prepetition Loan Documents. Since fiscal 2011, a total of approximately $10.9 million oflong-term debt was subject to accelerated maturity as a result of covenant defaults. As a result,CINCINNATI/97646.3 11
  • 12. the total amount of the long-term debt has been classified as a current liability in the Debtors’consolidated balance sheets as long-term debt in default since the consolidated balance sheetdated December 28, 2011. Despite the covenant defaults, the Debtors have continued to makescheduled payments of interest on the Senior Prepetition Facility. The Debtors stopped makinginterest payments on the Junior Prepetition Term Loan on or about July 1, 2012. 31. On January 18, 2013, U.S. Bank sold and assigned all of its right and interest inthe Senior Prepetition Facility and the related loan documents to HillStreet (the “Assignment”).Also on January 18, 2013, immediately upon closing of the Assignment, HillStreet and FOCentered into that certain Sixth Amendment to Loan Agreement (the “Sixth Amendment”) bywhich, among other things, HillStreet agreed to reduce the maximum principal amount of loansunder the Senior Prepetition Loan Agreement to $1,250,000 and HillStreet committed to extendadditional loans under the Senior Prepetition Facility up to $250,000. Thus, as of the PetitionDate, HillStreet holds all of the secured debt of the Debtors which totaled approximately $6.25million in principal amount, after the agreed upon principal reduction under the SixthAmendment.The Debtors’ Capital Structure: Equity 32. FOC is a Delaware limited liability company that is privately held by investorsholding common and preferred equity securities in several classes. None of the equity securitiesof any of the Debtors is publicly traded. 33. FOC facilitated its merger with Flat Top and provided working capital for growthwith the issuance of Series C Participating Preferred Membership Units (“Preferred Units”).During Fiscal 2009, FOC issued 385,044 shares of Preferred Units for proceeds of approximately$3.9 million. The Preferred Units were offered with a 7% distribution rate and additionalCINCINNATI/97646.3 12
  • 13. warrants. The warrants may be exercised at the earlier of one (1) year from the date of issuanceor ten (10) days prior to an Initial Public Offering at an exercise price of $0.01 per share. As ofthe Petition Date, the warrants have not been exercised. 34. Series A Preferred Units were issued to Happy Valley Corporation and Series ACommon Units were issued to the shareholders of Happy Valley Corporation in exchange forsubstantially all of the assets and liabilities that became FOC. In 2010, certain Happy ValleyCorporation shareholders exchanged their interest in Happy Valley Corporation for a directinterest in FOC by exchanging stock in Happy Valley Corporation for 302,214 shares of Series APreferred Units and 302,214 shares of Series A Common Units, held by Happy ValleyCorporation. As of the Petition Date, 801,166 Series A Preferred Units and 801,166 Series ACommon Units were issued and outstanding, respectively. The Series A Common Units do nothave a par value. 35. Series B Preferred Units and Series B Common Units were issued to Stir CrazyPartners, LLC in exchange for a 100% interest in Stir Crazy Restaurants, LLC. As of the PetitionDate, 1,599,239 Series B Preferred Units and 1,599,239 Series B Common Units were issued andoutstanding, respectively. The Series B Common Units do not have a par value. 36. Common Units entitle the holder to vote equal to its Percentage Interest held.Series A and B Common Units have an Interest in Profits only, whereas the Series C CommonUnits have an interest in Capital and Profits. The Common Units do not have a stated value. Asof the Petition Date, there were 2,400,405 Common Units outstanding, excluding Series Ccommon warrants. 37. Additionally, in connection with the Junior Prepetition Term Loan, FOC issued293,000 Series D Preferred Unit detachable warrants to HillStreet. The warrants entitleCINCINNATI/97646.3 13
  • 14. HillStreet to purchase Series D Preferred Units equal to 5% of FOC at an exercise price of$0.0001 per unit. The warrants have a ten-year expiration. The warrants are exercisable at anytime during the ten year period. The warrants have a put option in year 7, or upon sale or mergerthat entitle HillStreet to redeem the warrants for cash for an amount as defined in the JuniorPrepetition Loan Documents.Trade Debt 38. The Debtors’ trade debt consists of, among other things, amounts owed tomaintenance vendors who repair and maintain HVAC, grease traps, range hoods, andrefrigeration units in the Restaurants, food suppliers, utilities, and suppliers of uniforms, plates,silverware, napkins and other nonperishables used in the Debtors’ Restaurants. The majority ofthe Debtors’ vendors are paid on negotiated terms, which have historically ranged from 30 to 60days from the date of delivery. Currently, many of the Debtors’ vendors have stated terms of 30days or less or COD, but the Debtors have stretched many vendors well-beyond 30 days becauseof their cash situation. As of the Petition Date, the Debtors estimate that approximately $5million is outstanding to their vendors, much of which relates to goods and services provided tothe Debtors in the 20 days prior to the Petition Date.Lease Obligations 39. All of the Restaurants are located on leased properties. The Debtors estimate thatthey will have spent approximately $6.0 million on real property lease expenses during the 2012fiscal year and that as of the Petition Date, their aggregate total outstanding real property leaseobligations are nearly $1.5 million. The Debtors are in default under many of their leases due tolate or non-payment and certain landlords have commenced remedial action to enforce the leases.CINCINNATI/97646.3 14
  • 15. None of these landlord actions has resulted in the termination of leases under which the Debtorsare operating Restaurants as of the Petition Date. 40. In the ordinary course of business, the Debtors also finance the majority of theequipment in their Restaurants in accordance with the terms of the Vogen Equipment FinancingAgreement with Vogen. As of the Petition Date, the aggregate total amount outstanding underthe Vogen Equipment Financing Agreement was approximately $3.9 million. The Debtors haveundertaken an analysis of the Vogen Equipment Financing Agreement and have reached apreliminary conclusion that the obligations are in the nature of a secured financing and not in thenature of a true lease. The Debtors reserve their rights with respect to this issue.Restructuring Efforts and Events Leading to Bankruptcy 41. In the weeks and months leading up to the Petition Date, due to poor operatingresults and to improve cash flow, the Debtors closed 7 Stir Crazy locations and 3 Flat Toplocations.7 As of the Petition Date, the Debtors operated 27 total Restaurants. 42. Most of the Flat Top restaurants are located in and around Chicago, with severallocated elsewhere in Illinois, Indiana, Michigan, and Wisconsin. In the weeks leading up to thePetition Date, the Debtors closed 3 Flat Top restaurants located in Alabama, Michigan, andWisconsin due to poor operating results. 43. Stir Crazy restaurants are located in Florida, Illinois, Michigan, Missouri, NewYork, Ohio, and Wisconsin. In the weeks leading up to the Petition Date, the Debtors closed 3Stir Crazy sites located in Illinois and Indiana due to poor operating results. During 2012, theDebtors closed 4 other Stir Crazy restaurants located in Georgia, Minnesota, and Texas.7 The 7 closed Stir Crazy restaurants were located in Atlanta, Georgia; Greenwood, Indiana; Indianapolis, Indiana;Warrenville, Illinois; Bloomington, Minnesota; The Woodlands, Texas; and Southlake, Texas. The 3 closed FlatTop restaurants were located in Birmingham, Alabama; Rochester Hills, Michigan; and Wauwatosa, Wisconsin.CINCINNATI/97646.3 15
  • 16. 44. Throughout 2012, the Debtors engaged in various efforts to restructure theiroperations and debt, as well as pursue a variety of sale and financing transactions. In that regard,the Debtors hired various brokers and investment bankers to pursue these transactions. None ofthese efforts resulted in a transaction. Among the investment bankers retained by the Debtors in2012 was J.H. Chapman Group, LLC (“Chapman”), a Chicago based investment banking firm.Chapman has substantial restaurant and foodservice expertise and has made substantial efforts toidentify a potential buyer for the Flat Top restaurant business. As described in greater detailbelow, the Debtors intend to seek approval of the Bankruptcy Court to conduct a sale processand auction for the Flat Top restaurant business and related assets. 45. In the fourth quarter of 2012, the Debtors hired Squire Sanders (US) LLP as theirrestructuring attorneys and Getzler Henrich as their financial advisors. As described in greaterdetail below, both firms are highly-qualified advisors of distressed entities, who possessrestructuring skills and experience that is appropriate and needed during the Cases. Since earlyDecember 2012, the Debtors attorneys and financial advisors have been generally advising theDebtors in connection with their distressed situation; negotiating with lenders, other creditorsand parties in interest; developing budgets and financial projections necessary to obtainadditional financing; preparing the filings necessary to commence the Cases; and performingother tasks at the Debtors’ request. 46. The Debtors are facing a severe liquidity shortfall and were not able to obtaindebtor in possession financing on reasonable terms prior the Petition Date. The inability of theDebtors to obtain DIP financing prior to the Petition Date is due in large part to the actions ofHillStreet. As described above, HillStreet is the holder of the first and second lien debt to theDebtors. HillStreet, who provided second lien financing to the Debtors in April, 2010, acquiredCINCINNATI/97646.3 16
  • 17. the first lien debt from U.S. Bank pursuant to the HillStreet Assignment on January 18, 2013 andimmediately entered into a loan amendment under which the principal amount of the first liendebt was reduced from approximately $6 million to $1.25 million. 47. In connection with the Debtors’ acknowledgment of the HillStreet Assignment,which was required by U.S. Bank as a condition to closing, HillStreet provided specific oralassurances to the Debtors on January 17, 2013 that it would agree (1) to write down the principalamount of the first lien debt to $1.25 million, (2) to advance an additional $250,000 to theDebtors pre-petition and (3) to provide adequate debtor in possession financing for a consensualchapter 11 filing on certain terms specifically discussed by the parties. On the basis of suchassurances, the Debtors ceased their efforts to seek alternative financing and focused all of theirattention and resources on documenting debtor in possession financing with HillStreet. 48. Unfortunately, while HillStreet agreed to write down the first lien debt and fundthe additional pre-petition loan, HillStreet failed to live up to its assurances on providing debtorin possession financing on the agreed terms. For example, after committing to provide $1.75million in financing ($250,000 pre-petition and $1.5 million in debtor in possession financing),HillStreet reneged and demanded a loan amount reduction of $600,000. Similarly, aftercommitting to provide financing both before and after the completion of a section 363 saleprocess, HillStreet reneged and refused to provide any financing post-sale. 49. Despite herculean efforts over the course of the last week by the Debtors toovercome numerous new and unreasonable conditions to financing imposed by HillStreet, theDebtors have not been able to reach an agreement with HillStreet on reasonable terms that wouldallow the Debtors to operate in chapter 11 and pursue its reorganization. The timing ofCINCINNATI/97646.3 17
  • 18. HillStreet’s actions8, coupled with the severe liquidity crisis facing the Debtors, has necessitatedthat the Debtors commence these Cases without debtor in possession financing. However, theDebtors are able to operate for the initial five week period of the Cases on use of cash collateraland without new financing. 50. The Debtors require relief in the form of a “breathing spell” from their obligationsto creditors and an opportunity to reorganize. Accordingly, the Debtors filed the Cases on thePetition Date in an attempt to achieve such relief. Another reason for filing the Cases was tofacilitate the sale of certain assets to potential purchasers whom the Debtors expect will requirethe protections of the Bankruptcy Code in order to enter into transactions with the Debtors.Additionally, the Debtors view the Cases as an opportunity to achieve a capital structure that willbe more easily supported by the Debtors’ now-smaller enterprise. These are the primary reasonsthat the Debtors commenced the Cases. FACTS IN SUPPORT OF FIRST-DAY PLEADINGS 51. Concurrently with the filing of the Petitions initiating the Case, the Debtors alsofiled a number of First-Day Pleadings. The Debtors anticipate that the Bankruptcy Court willconduct a hearing soon after the commencement of the Case (the “First-Day Hearing”) at whichthe Court will hear and consider the First-Day Pleadings. The Debtor also anticipates that theBankruptcy Court may consider the remainder of the First-Day Pleadings at a later time. Those8 Until mid-December 2012, HillStreet continually had a designated director on the board of Debtor Flat Out Crazy,LLC and, thus, has had intimate knowledge of and involvement with virtually all the Debtors’ restructuring efforts.The HillStreet Director resigned on or about December 17, 2012. Subsequently, on January 12, 2013, HillStreetdesignated its principal, Christian Meininger, as the replacement HillStreet Director. Mr. Meininger was theprimary HillStreet representative negotiating with the Debtors concerning providing debtor in possession financing.While he was a director, Mr. Meininger specifically provided the assurances of HillStreet that are described above ata meeting on January 17, 2013 and on which the Debtors relied. Later on January 17, 2013, Mr. Meininger resignedfrom the Board presumably because of the conflict represented by HillStreet’s agreement to provide debtor inpossession financing.CINCINNATI/97646.3 18
  • 19. First-Day Pleadings that the Debtor anticipates will be heard at the First-Day Hearing aredescribed below.9 52. The relief sought in the First-Day Pleadings is intended to: (a) allow the Debtorsto minimize disruption to its business to the extent necessary and appropriate to maximize thevalue of the Debtors’ estates and (b) minimize potential adverse consequences that mightotherwise result from the commencement of the Case. More specifically, the First-DayPleadings seek relief allowing the Debtors to (i) obtain post-petition financing; (ii) facilitate apossible sale of the Flat Top restaurants to an outside party; (iii) rebuild the trust of vendors,landlords and other creditors in order to allow the Debtors to operate their businesses with aslittle interruption as possible; and (iv) begin certain procedures that will provide for the efficientadministration of the Cases. 53. I have reviewed each of the First-Day Pleadings, including the exhibits thereto,and I believe that the relief sought in each of the First-Day Pleadings is tailored to meet the goalsdescribed above and, ultimately, will be integral to the Debtors’ collective ability to preserve andmaximize the value of their estates. 54. I also believe that it is critical for the First-Day Pleadings to be heard as soon aspossible. If the First-Day Pleadings are not heard on an expedited basis, the Debtors may beunable to fulfill their obligations to its creditors, regulators, the Non-Debtor Subsidiaries, andother constituents. Under such circumstances, I believe that the Debtor will not be able tooperate. Such a stoppage could negatively impact the Debtor and the Non-Debtor Subsidiaries,specifically including the Bank, which could create widespread injury to the Debtor’s estate, itscreditors and the Non-Debtor Subsidiaries. Accordingly, the expedited review of the First-Day9 Capitalized terms used in the descriptions of the First-Day Pleadings and not otherwise defined herein have themeanings given in the applicable First-Day Pleadings.CINCINNATI/97646.3 19
  • 20. Pleadings is important to the continuing viability of the Debtor and the Non-Debtor Subsidiariesand therefore I believe it to be in the best interests of all interested parties. 55. Several of the First-Day Pleadings request authority to pay certain prepetitionclaims of the Debtors. Rule 6003 of the Federal Rules of Bankruptcy Procedure (the“Bankruptcy Rules”) provides that, “[e]xcept to the extent that relief is necessary to avoidimmediate and irreparable harm, the court shall not, within 21 days after filing of the petition,issue an order…” authorizing the payment of prepetition claims. In respect of this rule, theDebtors have narrowly-tailored all First-Day Pleadings so that they are only seeking to payprepetition claims in instances where the failure to pay such claims would result in immediateand irreparable harm.Use of Cash Collateral and Case Administration Motions a. Use of Cash Collateral 56. The Debtors filed a motion seeking authority to use cash collateral undersection 363(b) of the Bankruptcy Code (the “Cash Collateral Motion”) for a period of five weeksthrough the week ending March 3, 2013 (the “Interim Period”). Absent granting the Debtors useof cash collateral on the terms provided herein, the Debtors are unable to operate their businessesand likely have no other reasonable alternative but to liquidate. It is beyond dispute that the bestway to maximize the value of the Debtors’ estates for the benefit of all stakeholders is tocontinue to operate their restaurants on a “business as usual” basis. If the Debtors are notpermitted to continue to operate in chapter 11, there would be a resulting loss of employment forthe Debtors’ approximately 1,200 employees and the likely inability to provide any meaningfulrecovery to their creditors.1010 The Debtors’ assets consist principally of equipment (most of which is leased), real estate leases, food and otherinventory. If the Debtors are forced to liquidate, the value of their assets is estimated to be less than $750,000.CINCINNATI/97646.3 20
  • 21. 57. Based on the Debtors’ cash collateral budget (a copy of which is attached to theDebtors’ Cash Collateral Motion), the Debtors will have sufficient cash available from ordinaryoperations to conduct their business and pay their operating expenses for five weeks. During thisperiod the Debtors have a reasonable expectation of signing an asset purchase agreement with astalking horse bidder to acquire the Flat Top Grill restaurant assets11 and obtaining debtor inpossession financing in an amount and on terms sufficient to complete a section 363 auctionprocess, subject to the approval of the Court, and a reorganization of the remaining business.Pursuing this plan will maximize the value of the Debtors’ estates. 58. As stated above, the Debtors were unable to obtain debtor in possession financingprior to the Petition Date due the actions of HillStreet, who after agreeing to provide suchfinancing reneged on such agreement just days before the intended commencement of the Cases.The Debtors’ cash collateral budget demonstrates their ability to operate without any financingduring the first five weeks of the Cases. During this period, the Debtors expect that they willhave generated cash receipts totaling approximately $5.0 million and will pay expenses in theamount of approximately $5.0 million. Additional details of the cash budget are contained in theCash Collateral Motion. 59. Ample cause exists to authorize the Debtors to use cash collateral in accordancewith their cash collateral budget and on the terms requested herein. The Debtors will provideadequate protection to HillStreet by granting HillStreet replacement liens on all of the Debtors’11 On January 19, 2013, the Debtors signed a non-binding letter of intent with a potential buyer for the Flat Top Grillrestaurant assets for a purchase price that exceeds the amount of the Debtor’s secured obligations to HillStreet. Thebuyer is fully engaged in conducting due diligence and the parties expect to begin negotiating the terms of an assetpurchase agreement shortly with the expectation that an agreement can be reached within a few weeks. Theagreement would provide for the buyer to serve as a stalking horse in a customary, albeit expedited, section 363 saleprocess. The Debtors intend to file a motion for authority to conduct such a sale process on or about January 31,2013 and intend to establish a timeline for sale procedures that will accommodate the anticipated timing by whichthe Debtors hope to execute an agreement with the buyer to serve as a stalking horse, subject to the approval of theCourt.CINCINNATI/97646.3 21
  • 22. property against which HillStreet has a valid, perfected, enforceable lien and security interest asof the Petition Date. Moreover, the Debtors do not expect the value of their assets or thebusiness to decline in value during the period in which the Debtors are authorized to use cashcollateral. The Debtors submit that HillStreet will not be prejudiced by the relief requestedherein. To the contrary, as the Debtors’ senior secured creditor, HillStreet will benefit the mostfrom the Debtors’ efforts to maintain and enhance the value of their assets. This is even more soonce the Debtors are able to reach an agreement on an asset purchase agreement for the sale ofthe Flat Top Grill assets. 60. In sum, the Debtors believe that, with the opportunity to continue their businessoperating normally in chapter 11, they will be able to obtain adequate financing to complete asection 363 auction process and a reorganization of the remaining business. Without thisopportunity, which hinges on the Court’s authorization to use cash collateral, the Debtors will beunable to maximize the value of their assets and provide recoveries to their stakeholders. b. Expedited Hearings on the First-Day Pleadings 61. Given the importance of the relief sought in the First-Day Pleadings to theDebtors’ ability to preserve the value of their estates as they seek to reorganize, the Debtors havefiled a motion seeking entry of an order scheduling an expedited hearing on the First-DayPleadings. c. Joint Administration 62. There are fifteen affiliated Debtors in the Cases. To ease the administrativeburden on the Debtors and their professionals and to prevent unnecessary duplication of workrelated to matters that apply to the Debtors collectively, the Debtors have requested that theBankruptcy Court enter an order authorizing and directing (a) the consolidation and jointadministration of the Cases for procedural purposes only pursuant to Bankruptcy Rule 1015(b);CINCINNATI/97646.3 22
  • 23. (b) the use of single case docket and Bankruptcy Rule 2002 notice list in the Cases; (c) the use ofa consolidated case caption; and (d) that the Debtors be allowed to file Monthly OperatingReports on a consolidated basis. I believe that joint administration will greatly benefit theDebtors, the Bankruptcy Court, the Office of the Clerk, the U.S. Trustee and all other interestedparties in the Cases. Joint administration will simplify all aspects of the administration of theCases and result in substantial cost savings to the Debtors and other parties in interest. d. Continuance of Gift Card Program 63. Prior to the Petition Date, the Debtors sold, in the ordinary course of business,pre-paid gift cards (the “Gift Cards”) for use at any of the Restaurants. The Gift Cards are animportant tool used by the Debtors to generate revenue and build customer loyalty. Whencustomers purchased the Gift Cards, they had every expectation that the Gift Cards would beredeemable. Customers typically redeem approximately $10,000 worth of Gift Cards each week.To avoid alienating existing customers and irreparably damaging the Debtors’ reputation in thecompetitive restaurant market, it is essential that the Debtors be authorized to continue to honorGift Cards, including those sold before the Petition Date, without interruption. Accordingly, theDebtors have filed a motion seeking authority to continue their Gift Card program in the ordinarycourse of business. e. Wages and Benefits 64. In aggregate, the Debtors employed approximately 1,200 people as of the end oftheir last payroll period on January 16, 2013 (the “Employees”), all of whom are non-unionemployees. The Employees assist in critical aspects of running the business. At the Debtors’restaurants, the Employees include chefs and other food preparers, servers, bartenders, hosts andhostesses, dishwashers and store managers. The Employees also include area managers andexecutives and staff located at the Debtors’ corporate headquarters in Chicago. The Employees’CINCINNATI/97646.3 23
  • 24. knowledge, expertise, and experience are essential to maintaining the Debtors’ businesses as agoing concern during these Cases. 65. Employees are the lifeblood of any restaurant business and the Debtors’Employees in the field perform a variety of critical tasks, including preparing and serving food,interacting with customers, ordering food and supplies, cleaning dishes and the restaurantpremises, supervising other employees and other tasks. In addition, the Debtors employ aheadquarters staff of approximately 14 persons who provide corporate functions such asaccounting and finance, marketing, human resources and other tasks. The Employees’ skills andtheir knowledge and understanding of the Debtors’ operations are essential to the effectiveoperation and restructuring of the Debtors’ businesses. Without the continued services of theEmployees, an effective restructuring of the Debtors will not be possible. 66. The Debtors have filed a motion seeking authority, on an expedited basis, to paycertain prepetition wages, benefits, reimbursement amounts, payroll taxes, and related costs andto transfer certain amounts related to the same (the “Wage and Benefit Motion”). If prepetitionwage, compensation, benefit and reimbursement amounts are not received by the Employees inthe ordinary course, they will suffer extreme personal hardship and in many cases will be unableto pay their basic living expenses. Such a result obviously would destroy Employee morale andresult in unmanageable Employee turnover, causing immediate and pervasive damage to theDebtors’ ongoing business operations. Any significant deterioration in Employee morale at thistime will substantially and adversely affect the Debtors and their ability to reorganize, therebyresulting in immediate and irreparable harm to the Debtors and their estates. 67. Accordingly, by the Wage and Benefit Motion, the Debtors are seeking an orderauthorizing them, in their sole discretion, to pay (a) prepetition employee wages, salaries,CINCINNATI/97646.3 24
  • 25. overtime, vacation pay, incentive compensation, and related items (the “Prepetition EmployeeCompensation”); (b) prepetition reimbursable business expenses incurred by employees;(c) prepetition employee payroll deductions and withholdings; (d) prepetition payroll taxes;(e) prepetition contributions to, and benefits under, employee benefit plans (the “EmployeeBenefits”); (f) all costs and expenses incident to the foregoing; and (g) granting certain relatedrelief. This relief is essential to maintain employee morale and productivity, thereby preventingunnecessary and harmful disruption in the operation of the Debtors’ business as they endeavor topursue successful reorganization in chapter 11. 68. With one exception, the Debtors do not believe that the amount of PrepetitionEmployee Compensation plus Employee Benefits to be paid to or on account of any particularEmployee will exceed the sum of $11,725 allowable as a priority claim under sections 507(a)(4)or 507(a)(5) of the Bankruptcy Code.12 69. Prior to the Petition Date, in the ordinary course of business, the Debtors’reimbursed the Employees for certain expenses incurred within the scope of their employmentand on behalf of the Debtors, including auto mileage, travel, lodging, meals or other necessaryand appropriate expenses (the “Prepetition Reimbursable Expenses”). Most of the PrepetitionReimbursable Expenses are incurred by employees on corporate credit cards issued by AmericanExpress. While the Debtors normally pay any Prepetition Reimbursable Expenses incurred onthe corporate cards directly to American Express, unpaid balances will result in personal liabilityfor the individual Employees. Because the Debtors filed the Petitions in the middle of anAmerican Express billing cycle, certain of the Employees have not yet been reimbursed for12 As discussed in greater detail in the Wage and Benefit Motion, the Debtors have identified one non-executivemanagement employee who is owed compensation plus benefits of approximately $20,800, which exceeds theallowed priority claim amount of $11,725 imposed under section 507(a). In connection with the other relief soughtin the Wage and Benefit Motion, the Debtors are seeking authority to pay this employee the full prepetition amountthat he is owed.CINCINNATI/97646.3 25
  • 26. Prepetition Reimbursable Expenses previously advanced on behalf of the Debtors and noAmerican Express balances have been paid by the Debtors for the most recent monthly billingcycle. These expenses were incurred by the Employees in the performance of their duties andshould be reimbursed to them. The Debtors pay, on average, approximately $80,000 in respectof Prepetition Reimbursable Expenses per month. 70. The Debtors estimate that the amount of untransferred prepetition employeeobligations including Prepetition Employee Compensation (i.e., the gross payroll amount beforededucting withholdings) as of the Petition Date is approximately $425,000. The Debtors seekauthority to pay and transfer this full amount. 71. The Debtors also seek to pay in the ordinary course any outstanding prepetitionamounts that are owed to their payroll processor, Automatic Data Processing, Inc. (“ADP”) inorder to avoid any disruption to the critical payroll function. As of the Petition Date, ADP wasowed less than $3,000 on account of prepetition services. 72. I believe that if the Bankruptcy Court does not approve on an expedited basis anyof the relief sought by the Debtors in connection with the Wage and Benefit Motion, theDebtors’ and their estates will suffer immediate and irreparable harm. f. Cash Management System 73. The Debtors have established a series of bank accounts comprising an integratedand centralized cash management system (the “Cash Management System”) through which theDebtors’ funds are collected, managed, and disbursed in the ordinary course of business. Ibelieve that continuance of the Cash Management System without interruption is essential to theDebtors’ efforts to reorganize in the Cases. Accordingly, the Debtors have filed a motionseeking authority, on an expedited basis, to continue utilizing the Cash Management System inthe ordinary course of business and seeking related relief (the “Cash Management Motion”).CINCINNATI/97646.3 26
  • 27. 74. The Cash Management System utilizes fifteen bank accounts (the “BankAccounts”), twelve of which are with U.S. Bank, the Debtors’ former13 senior secured lender(the “U.S. Bank Accounts”). Where U.S. Bank does not maintain branches in close proximity tothe Debtors’ restaurant locations, the Debtors established accounts at other banks. Two suchaccounts were established with JPMorgan Chase and one with Bank of America. 75. The cornerstone of the Cash Management System is the Debtors’ concentrationaccount at U.S. Bank (the “Concentration Account”), through which all of the Debtors’collective funds flow. Virtually all deposits that are made into the Cash Management System aredaily deposits of cash and credit card revenue generated from each of the Debtors’ variousrestaurant locations. Most of a Restaurant’s cash deposits are held in the Restaurant’s safe untilpicked up by armored car service, typically weekly. Cash is deposited into the ConcentrationAccount the day following armored car pick up. Other cash deposits are made into theJPMorgan and BofA Accounts and then transferred (usually on a weekly basis) by ACH into theConcentration Account. 76. The Debtors’ credit card revenue deposits are made separately from the cashdeposits into three separate deposit accounts at U.S. Bank. Each of these accounts is a zerobalance account which funds are swept daily into the Concentration Account. 77. Although the Debtors are separate legal entities, their businesses and affairs havehistorically been operated and managed as a single business operation through FOC.14 Indeed,while profit and loss statements are able to be generated for individual store locations, theDebtors keep a single set of books and records for the business operation as a whole. As such,13 As indicated above, prior to the Petition Date, U.S. Bank’s note pursuant to the Senior Prepetition Facility wasacquired by HillStreet on January 18, 2013.14 The Debtors reserve all rights with respect to the potential substantive consolidation of the Debtors’ estates, andnothing herein is intended to be an admission or waiver of any rights or arguments with respect to the same.CINCINNATI/97646.3 27
  • 28. the funds received from each restaurant location are deposited into the Concentration Accountwithout accounting for the particular Debtor entity that generated the funds and withoutrecording intercompany credits and balances. In the same vein, the Debtors do not recordintercompany loans or transfers. 78. Similarly, most disbursements and expense payments are made by FOC from theConcentration Account without regard to the particular restaurant for which an expense wasincurred. Such disbursements include loan and lease payments, payroll wires to Automatic DataProcessing (“ADP”) (the Debtors’ third party payroll provider), and various ACH transfers(including for 401(k) payments and various tax payments). 79. In the ordinary course of its business, the Debtors use certain checks and otherbusiness forms. The alteration of the Debtors’ checks and business forms would be unnecessaryand unduly burdensome. To avoid disruption of the Cash Management System and unnecessaryexpense, the Debtors also request that they not be required to include the legend “D.I.P.” and thecorresponding bankruptcy case number on any business forms or checks. Otherwise, the estateswill be required to bear an expense, which the Debtors respectfully submit is unwarranted. 80. I believe that, under the circumstances, the maintenance of the Cash ManagementSystem in substantially the same form as it existed prior to the Petition Date is in the bestinterests of the Debtors’ estates and their creditors. g. Extension of Time to File Statements and Schedules 81. The Debtors were compelled to file these Cases under exigent circumstances andwhile under significant liquidity constraints. Leading up to the commencement of the Cases, theDebtors’ first priority was to ensure a smooth transition into chapter 11 with minimal disruptionto their business operations. To this end, the Debtors dedicated their limited staff and resourcesto negotiating with lenders, evaluating restructuring alternatives, developing strategies toCINCINNATI/97646.3 28
  • 29. maximize value and successfully reorganize its business, and assisting with the preparation ofcritical first day motions. 82. Additionally, the Debtors’ operations are complex, encompassing fifteen separatelegal entities. Completing the Schedules and Statements for each Debtor will require thecollection, review and assembly of information from books, records, and documents relating tomyriad claims, assets, and contracts. This information is voluminous and located in numerouslocations. Although the Debtors have sufficient staff on hand to maintain their ordinary businessoperations under normal circumstances, they are understaffed for purposes of having theirofficers and management divert their attention and efforts away from ordinary businessoperations and transitioning into chapter 11 with minimal disruption to focus on compiling theirrespective schedules of assets and liabilities and statements of financial affairs (the “Schedulesand Statements”). 83. The Debtors will endeavor to complete the Schedules and Statements asexpeditiously as possible under the circumstances. However, they anticipate that they will not beable to do so within 14 days of the Petition Date, as required under the Bankruptcy Code.Accordingly, the Debtors filed a motion asking that they be granted an additional 30 days to doso (for a total of 44 days from the Petition Date), while reserving their rights to request furtherextensions if necessary or appropriate under the circumstances. I believe that the size, scope andcomplexity of the Cases and the volume of material that must be compiled and reviewed by theDebtors’ limited staff to complete the Schedules and Statements for each of the Debtors duringthe hectic early days of these Cases provide ample “cause” justifying the requested extension.CINCINNATI/97646.3 29
  • 30. Vendor Matters h. PACA Claims 84. The Debtors use a significant amount of fresh produce in the operation of theRestaurants. The Debtors have examined their vendor records and determined that a certainportion of the goods the Debtors purchased before the Petition Date, but had not yet paid for mayqualify as “perishable agricultural commodity[ies]” under the Perishable AgriculturalCommodities Act of 1930 (“PACA”). PACA provides various protections to fresh fruit andvegetable sellers, including establishing a statutory constructive trust consisting of a buyer’sentire inventory of food or other derivatives of perishable agricultural commodities, the productsderived therefrom and the proceeds related to any sale of the commodities or products. It is myunderstanding that any such funds related to a trust created pursuant to PACA are preserved as anon-segregated floating trust (the “PACA Trust”) that may be commingled with non-trust assetsand that such funds are not property of the Debtors’ estates. 85. The Debtors have identified at least 20 potential parties (the “PACA Claimants”),who have provided the Debtors with written notice of their intent to preserve the benefits of thePACA Trust. These PACA Claimants were owed approximately $395,000 in pre-petition claimspotentially subject to PACA (the “PACA Claims”) on account of produce delivered to theDebtors prior to the Petition Date. As a result, the Debtors believe that certain vendors are likelyto file notices under PACA based on the filing of these Cases. 86. Accordingly, the Debtors have filed a motion (the “PACA Motion”) seekingauthority to: (a) establish procedures for the reconciliation and disposition of PACA Claims and(b) satisfy valid PACA claims, recognizing that, absent such relief, such claims would besatisfied in any event through a more costly and contentious process. Because the funds heldpursuant to PACA are not property of the Debtors’ estate until suppliers of goods covered byCINCINNATI/97646.3 30
  • 31. PACA are paid, payments to the PACA Claimants in respect of the PACA Claims will notreduce estate assets. I believe that the relief sought in the PACA Motion is necessary to theDebtors’ efforts to operate their businesses in chapter 11, and that payments made on account ofvalid PACA Claims will benefit the Debtors and all parties in interest in the Cases by(i) allowing the Debtors to continue purchasing and receiving fresh produce and other productsfor use in the Restaurants; and (ii) avoiding potential disruption to the Debtors’ businessoperations. i. Adequate Assurance of Utility Payments 87. In the normal course of their business, the Debtors use electricity, gas, water,sewer, telephone and other utility services for which they pay directly and which is provided byapproximately 50 utility companies. Continued and uninterrupted utility service is essential tothe Debtors’ ability to sustain their food service operations during these Cases, and anyinterruption of utility service would severely disrupt the Debtors’ business operations and theirrestructuring efforts, and jeopardize the Debtors’ ability to preserve the value of the estates. 88. I believe that the Debtors’ ability to preserve the value of the estates will beirreparably damaged if the utility companies currently providing services, or that will provideservices during the Cases (collectively, the “Utility Companies”) do not continue to providethese services. 89. Historically the Debtors have made prompt and complete payments with respectto the Utility Companies before the Petition Date. Several Utility Companies are holding pre-petition security deposits. 90. Even though some outstanding arrearages may exist with respect to some of theUtility Companies, I have been advised that any Utility Company seeking a security deposit (oran additional security deposit) or seeking to terminate services would be doing so as anCINCINNATI/97646.3 31
  • 32. automatic reaction to a filing for relief under the Bankruptcy Code. The Debtors have and willcontinue to have sufficient funds to make timely payments to the Utility Companies for all post-petition utility service. 91. Additionally, in order to avoid the irreparable harm to the Debtors’ estates thatwould result from Utility Companies discontinuing their services, the Debtors have filed amotion (the “Utility Motion”) seeking immediate entry of an interim order: (a) prohibiting UtilityCompanies from altering, refusing, or discontinuing services to the Debtors on account of thefiling of the Cases, any pre-petition amounts outstanding, or on account of any perceivedinadequacy of the Debtors’ proposed adequate assurance, pending entry of the final order (the“Final Order”) granting the relief sought in the Utility Motion on a final basis; (b) determiningthat the Utility Companies have received adequate assurance of payment for future utilityservices on the terms provided in the Utility Motion, under which Utility Companies may requestadditional or different adequate assurance; (c) establishing procedures for Utility Companies thatseek to opt out of the Debtors’ proposed adequate assurance procedures; (d) determining that theDebtors are not required to provide any additional adequate assurance, beyond what is proposedin the Utility Motion, pending entry of the Final Order; and (e) setting a final hearing regardingthe Utility Motion for the entry of the Final Order. j. Trust Fund and Other Taxes 92. In the ordinary course of operating their businesses, the Debtors collect and/orincur income taxes, sales taxes, use taxes, franchise taxes and fees, personal property taxes andother taxes, assessments, fees and similar charges (collectively, the “Taxes and Fees”). TheDebtors remit the Taxes and Fees to various federal, state and local taxing, licensing and othergovernmental authorities (collectively, the “Authorities”). The Debtors pay the Taxes and FeesCINCINNATI/97646.3 32
  • 33. weekly, monthly, quarterly, annually or biennially to the respective Authorities, in accordancewith any applicable laws and regulations. 93. The Debtors believe that many of the Taxes and Fees collected prepetition are notproperty of the Debtors’ estates as they constitute “trust fund” taxes, and must for that reason beturned over to the Authorities. The failure to pay the Taxes and Fees could also result inAuthorities bringing personal liability actions against directors, officers and other employees ortaking actions that might interfere with the Debtors’ successful reorganization. Any such actionswould certainly distract key personnel from the Debtors’ reorganization efforts at a critical time inthe process and negatively impact these Cases. In any event, even if certain Taxes and Fees arenot actually the property of the Authorities, they may give rise to priority claims. 94. Accordingly, the Debtors have filed a motion for entry of an order authorizing,but not directing, them to pay certain Taxes and Fees to the Authorities, and authorizing, but notdirecting, financial institutions to receive, process, honor, and pay all related checks andelectronic payment requests, to the extent the Debtors have sufficient funds with such financialinstitutions. k. Lease Rejection Motion 95. In an effort to improve profitability and maximize the value of their estates, theDebtors have undertaken an extensive analysis of their businesses and closed a number ofRestaurants prior to the Petition Date. Accordingly, the Debtors have filed a motion (the “LeaseRejection Motion”) seeking authority to reject certain of their unexpired real property leases,effective as of the Petition Date. 96. Using their business judgment, and upon careful evaluation of all of theirRestaurants, the Debtors have determined that none of the leases identified in the LeaseRejection Motion are necessary or valuable to the Debtors’ estates. I am advised that each of theCINCINNATI/97646.3 33
  • 34. leases identified in the Lease Rejection Motion is an “unexpired lease” within the meaning ofsection 365 of the Bankruptcy Code, capable of being rejected by the Debtors. However, to theextent that any of these leases already has expired or been terminated, it is included in the LeaseRejection Motion out of an abundance of caution and the Debtors reserve all of their rights toobject to any rejection damage claims related to such lease on any grounds, including but notlimited to a party’s failure to mitigate damages.Motions and Applications Relating to Professionals l. Appointment of Kurtzman Carson Consultants, LLC as Claims, Noticing and Administrative Agent 97. The Debtors recognize that the large number of creditors and other parties ininterest involved in their chapter 11 cases may impose heavy administrative and other burdensupon the Court and the Clerk’s Office. To relieve the Court and the Clerk’s Office of theseburdens, and in accordance with the Local Bankruptcy Rules, the Debtors will seek the entry ofseparate orders appointing KCC as (a) the Debtors’ claims and noticing agent in the Cases and(b) the Debtors’ administrative agent in these Cases. KCC may, among other things: (a) prepareand serve all notices required in the Cases, including notice of the commencement of the Casesand the initial meeting of creditors under section 341 of the Bankruptcy Code; (b) receive allclaims and maintain the official claims register; (c) assist in preparing, filing, and maintainingthe Debtors’ official Schedules and Statements; (d) assist with the mailing and tabulation ofballots in connection with any vote to accept or reject any plan or plans proposed in the Cases.The Debtors obtained and reviewed engagement proposals from three court approved notice andclaims agents, and selected KCC based on their capability and experience and the cost of theirproposal, and have otherwise complied with the Bankruptcy Court’s Protocol for theEmployment of Claims and Noticing Agents under 28 U.S.C. § 156(c). I believe that theCINCINNATI/97646.3 34
  • 35. appointment of KCC to perform the functions above will facilitate the efficient administration ofthe Case. m. Other Professional Retention Applications 98. The retention of certain chapter 11 professionals is essential to the Debtors’efforts in the Cases to preserve value for its estate. Accordingly, the Debtors have sought or willseek to retain various professionals in the Cases. These professionals include: (a) Squire Sanders(US) LLP (“Squire Sanders”), as their bankruptcy counsel; (b) Getzler Henrich as their financialadvisor and William H. Henrich and Mark Samson from Getzler Henrich as their Co-ChiefRestructuring Officers in the Cases; and (c) J.H. Chapman Group, L.L.C, as their investmentbankers. I believe that (i) the foregoing professionals are well qualified to provide the servicescontemplated by their various retention applications, (ii) the services to be provided by theforegoing professionals are necessary for the success of the Cases, and (iii) the foregoingprofessionals will coordinate their services to avoid any duplication of effort. The Debtors mayfind it necessary to seek to retain additional professionals as the Cases progress. INFORMATION REQUIRED BY LOCAL BANKRUPTCY RULE 1007-2 99. I am informed that Local Bankruptcy Rule 1007-2 requires that certaininformation about the Debtors be provided in this Affidavit. Various information satisfying thisrule, including Local Bankruptcy Rule-1007-2(a)(1), is set forth in the text above. Theremaining required information is provided in the attached schedules, as follows: Schedule 1 The holders of the Debtors’ 30 largest unsecured claims, excluding claims of insiders and information regarding such claims Schedule 2 The holders of the Debtors’ three largest secured claims and information regarding such claims Schedule 3 A summary of the Debtors’ assets and liabilities, in unaudited consolidated balance sheet format, as of November 28, 2012.CINCINNATI/97646.3 35
  • 36. Schedule 4 All of the Debtors’ property in the possession or custody of any custodian, public officer, mortgagee, pledgee, assignee of rents or secured creditor, or agent for any such entity. Schedule 5 A list of the premises owned, leased or held under other arrangement from which the Debtors operate their businesses. Schedule 6 The location of the Debtors’ substantial assets; the location of their books and records and the nature, location and value of any assets held by the Debtors outside the territorial limits of the United States. Schedule 7 A list of the actions or proceedings that are pending or threatened, against the Debtors or their property where a judgment against the Debtors or a seizure of their property is imminent. Schedule 8 A list of the names of the individuals who comprise the Debtors’ existing senior management team, their tenure with the Debtors and a brief summary of their relevant responsibilities and experience. Schedule 9 Additional information required by Local Bankruptcy Rule 1007- 2(b). CONCLUSION 100. I respectfully request that all of the relief requested in the First-Day Pleadings begranted along with such other and further relief as is just.CINCINNATI/97646.3 36
  • 37. Exhibit A Organization Chart Flat Out Crazy Restaurant Group Ownership Structure The Hillstreet Fund IV, L.P. Happy Valley Corporation Stir Crazy Partners, LLC & Series C Investors Shareholders 5% 26.74% 53.37% 14.89% Flat Out Crazy, LLC SCR Operations, LLC 100% 100% 100% SCR Hospitality, LLC Stir Crazy Restaurants, LLC 100% SCR Concessions, LLC Stir Crazy Café Stir Crazy Café Oakbrook, LLC 100% 100% Northbrook, LLC Stir Crazy Café Stir Crazy Café Woodfield, LLC 100% 100% Great Lakes, LLC Stir Crazy Café Stir Crazy Café Boca Raton, LLC 100% 100% West Nyack, LLC Stir Crazy Café Stir Crazy Café Creve Coeur, LLC 100% 100% Legacy Village, LLC Stir Crazy Café Cantera, LLC 100% 100% Stir Crazy Operations, LLC ** * Percentages vary based on preferences and distribution waterfall as detailed in the Operating Agreement. ** Current and new Stir Crazy stores since Walnuts acquisition of Stir Crazy Partners, LLCCINCINNATI/97646.3
  • 38. Schedule 1 30 Largest Unsecured Creditors Pursuant to Local Bankruptcy Rule 1007-2(a)(4), the list below contains information with respect to each of the holders of the Debtors’ 30 largest unsecured claims, excluding insiders, on a consolidated basis. (1) (2) (3) (4) (5)Name of creditor and complete mailing Name, telephone number and complete Nature of claim (trade Indicate if claim is Amount of claimaddress including zip code mailing address, including zip code, of debt, bank loan, contingent, [if secured, also employee, agent, or department of government contract, unliquidated, state value of creditor familiar with claim who may etc.) disputed, or security] be contacted subject to setoff Landlord 72,688.70AD Pembroke Gardens AD Pembroke GardensAttn: PBPEM01B Attn: PBPEM01BP.O. Box 11407 P.O. Box 11407Birmingham, AL 35246-1730 Birmingham, AL 35246-1730 Trade Vendor 76,278.88ALSCO ALSCO2641 S Leavitt 2641 S LeavittChicago, IL 60608 Chicago, IL 60608B In It, LLC B In It, LLC Bridge Lender 500,000.00Dave Blumenfeld Dave Blumenfeld300 Robbins Lane 300 Robbins LaneSyosett, NY 11791 Syosett, NY 11791Bernard F. Master Bernard F. Master Bridge Lender 100,000.00340 Tucker Drive 340 Tucker DriveWorthington, OH 43085 Worthington, OH 43085C & H Trading Co. C & H Trading Co. Trade Vendor 99,461.60315 Hubbard Circle 315 Hubbard CirclePlano, IL 60545 Plano, IL 60545 Landlord 72,993.28Coconut Point Town Center Coconut Point Town CenterP.O. Box 643902 P.O. Box 643902Pittsburgh, PA 15264-3902 Pittsburgh, PA 15264-3902Cornerstone Retail Fund Cornerstone Retail Fund Landlord 84,909.29C/O Altus Properties C/O Altus Properties10560 Old Olive St. Rd. 10560 Old Olive St. Rd.Saint Louis, MO 63141 Saint Louis, MO 63141Ecolab Food Safety Specialties Ecolab Food Safety Specialties Trade Vendor 116,629.7924198 Network Place 24198 Network PlaceChicago, IL 60673-1241 Chicago, IL 60673-1241Edward Don & Company Edward Don & Company Trade Vendor 319,324.82Gerri McCaskill--Credit Repres Gerri McCaskill--Credit Repres2500 S. Harlem 2500 S. HarlemNorth Riverside, IL 60546 North Riverside, IL 60546 Trade Vendor 63,346.57EKLECCO NEWCO LLC EKLECCO NEWCO LLCM&T Bank M&T BankP.O. Box 8000 Dept 535 P.O. Box 8000 Dept 535Buffalo, NY 14267 Buffalo, NY 14267Get Fresh Produce Get Fresh Produce Trade Vendor 165,426.071441 Brewster Creek Blvd. 1441 Brewster Creek Blvd.Bartlett, IL 60103 Bartlett, IL 60103 CINCINNATI/97646.3
  • 39. (1) (2) (3) (4) (5)Name of creditor and complete mailing Name, telephone number and complete Nature of claim (trade Indicate if claim is Amount of claimaddress including zip code mailing address, including zip code, of debt, bank loan, contingent, [if secured, also employee, agent, or department of government contract, unliquidated, state value of creditor familiar with claim who may etc.) disputed, or security] be contacted subject to setoffGreenwood Park Mall Greenwood Park Mall (Simon Landlord 117,963.777695 Reliable Parkway Properties)Chicago, IL 60686-0076 7695 Reliable Parkway Chicago, IL 60686-0076Jerry L. Ruyan Jerry L. Ruyan Bridge Lender 300,000.009468 Montgomery Rd. 9468 Montgomery Rd.Cincinnati, OH 45242 Cincinnati, OH 45242JLA Equipment Distributors JLA Equipment Distributors Trade Vendor 100,000.00990 Harbor Lake Dr. 990 Harbor Lake Dr.Safety Harbor, FL 34695 Safety Harbor, FL 34695 Trade Vendor 56,462.55Keating Muething & Klekamp Pll Keating Muething & Klekamp PllOne East Fourth Street One East Fourth StreetSuite 1400 Suite 1400Cincinnati, OH 45202-3752 Cincinnati, OH 45202-3752 Landlord 72,892.98Legacy Village Investors Legacy Village Investors25333 Cedar Road Suite 303 25333 Cedar Road Suite 303Cleveland, OH 44124 Cleveland, OH 44124Macys Retail Holdings Inc Macys Retail Holdings Inc Trade Vendor 118,097.717 West 7th Street 17th Floor 7 West 7th Street 17th FloorCincinnati, OH 45202 Cincinnati, OH 45202Marc Salkovitz Marc Salkovitz Bridge Lender 100,000.0011 Twillingate lane 11 Twillingate laneSudbury, MA 01776 Sudbury, MA 01776 Landlord 69,156.78Megaplex Four Megaplex FourC/O Entertainment Properties C/O Entertainment PropertiesP.O. Box 870631 P.O. Box 870631Kansas City, MO 64187-0631 Kansas City, MO 64187-0631Michael Chasnoff Michael Chasnoff Bridge Lender 100,000.004901 Hunt Rd., #200 4901 Hunt Rd., #200Cincinnati, OH 45242 Cincinnati, OH 45242Mission Press, Inc. Mission Press, Inc. Trade Vendor 123,777.34P.O. Box 16741 P.O. Box 16741Chicago, IL 60616-0741 Chicago, IL 60616-0741 Trade Vendor 77,336.23National Chef Supply National Chef Supply3601 N. Dixie Highway, Bay #20 3601 N. Dixie Highway, Bay #20Boca Raton, FL 33431 Boca Raton, FL 33431Rachel Rose Rachel Rose Bridge Lender 100,000.00Trust 33 Katonah Ave. Trust 33 Katonah Ave.Katonah, NY 10536 Katonah, NY 10536Simon Property Group Simon Property Group Landlord 116,728.15Castleton Square LLC Castleton Square LLC1359 Momentum Place 1359 Momentum PlaceChicago, IL 60689-5311 Chicago, IL 60689-5311Swanson, Martin & Bell, LLP Swanson, Martin & Bell, LLP Trade Vendor 85,941.71330 N. Wabash #3300 330 N. Wabash #3300Chicago, IL 60611 Chicago, IL 60611Sysco Sysco Trade Vendor 1,274,448.60Attn Jim Beck Attn Jim Beck1390 Enclave Pkwy A306 1390 Enclave Pkwy A306Houston, TX 77077 Houston, TX 77077 CINCINNATI/97646.3
  • 40. (1) (2) (3) (4) (5)Name of creditor and complete mailing Name, telephone number and complete Nature of claim (trade Indicate if claim is Amount of claimaddress including zip code mailing address, including zip code, of debt, bank loan, contingent, [if secured, also employee, agent, or department of government contract, unliquidated, state value of creditor familiar with claim who may etc.) disputed, or security] be contacted subject to setoffThe Lawrence Blaustein Trust The Lawrence Blaustein Trust Bridge Lender 100,000.00603 N. Main St. 603 N. Main St.Chargrin Falls, OH 44022 Chargrin Falls, OH 44022 Landlord 75,150.88Towne Center at Boca Raton Towne Center at Boca RatonNewark Post Office Newark Post OfficeP.O. Box 35470 P.O. Box 35470Newark, NJ 07193 Newark, NJ 07193Westcoast Estates Westcoast Estates Landlord 164,845.79Northbrook Court Northbrook Court4015 Paysphere Circle 4015 Paysphere CircleChicago, IL 60674 Chicago, IL 60674 Landlord 74,863.56Woodfield Associates Woodfield AssociatesDepartment 55401 Department 55401P.O. Box 67000 P.O. Box 67000Detroit, MI 48267-0554 Detroit, MI 48267-0554 CINCINNATI/97646.3
  • 41. Schedule 2 Largest Secured Creditors Pursuant to Local Bankruptcy Rule 1007-2(a)(5), the list below contains information with respect to each of the holders of the Debtors’ 3 largest secured claims on a consolidated basis. Principal Amount of Creditor Address Claim Type of Collateral Disputed15The HillStreet Fund 807 Elm St. $1,250,000 Purported first priority lien on YesIV, L.P., Cincinnati, OH substantially all of the Debtors’ 45202 assets, other than certain specified equipment that is the subject of separate financing by Vogen Funding, L.P.The HillStreet Fund 807 Elm St. $5,000,000 Purported second priority lien on YesIV, L.P. Cincinnati, OH substantially all of the Debtors’ 45202 assets, other than certain specified equipment that is the subject of separate financing by Vogen Funding, L.P. Purported first priority lien onVogen Funding, L.P. 10 S. Wacker Dr., unknown Yes Suite 1840 certain specified equipment. Chicago, IL 60606 15 The Debtors reserve all rights to dispute the amounts owed to any secured creditors, and the validity, perfection, enforceability and priority of the liens and security interests securing the claims of such creditors. CINCINNATI/97646.3
  • 42. Schedule 3 Summary of Assets and Liabilities Pursuant to Local Bankruptcy Rule 1007-2(a)(6), attached hereto is a summary of theDebtors’ assets and liabilities in the form of an unaudited consolidated balance sheet as ofNovember 28, 2012.16 FLAT OUT CRAZY, LLC CONSOLIDATED BALANCE SHEET (IN THOUSANDS) Unaudited November 28, December 28, 2012 2011 ASSETS Current assets: Cash and cash equivalents $ 142 $ 2,393 Receivables 1,013 1,249 Inventory 466 503 Prepaid expenses 555 448 Deferred tax asset - - Total current assets 2,176 4,593 Property and equipment: Furniture, fixtures and equipment 10,110 9,854 Leasehold improvements 27,203 27,077 Construction in progress 87 51 Total property and equipment 37,400 36,982 Less accumulated depreciation 15,482 10,910 Property and equipment, net 21,918 26,072 Other assets: Other assets 468 435 Def. Financing Fees 1,156 1,535 Deposits 374 420 Tradename 1,937 2,002 Goodwill and other intangibles - - Total other assets 3,935 4,392 Total assets $ 28,029 $ 35,057 LIABILITIES AND MEMBERS CAPITAL Current liabilities Accounts payable $ 4,410 $ 5,006 Accrued payroll and related 667 745 Short-term debt 10,915 10,885 Interest in kind 449 193 Other accrued expenses 3,248 2,666 Short term loan 3,015 - Capital leases 3,589 3,095 Total current liabilities 26,293 22,590 Deferred rent 8,765 8,880 Leasehold Interest 1,520 2,067 Warrants Liability 145 145 Other Liabilities 771 181 Total liabilities 37,494 33,863 Members Capital Series A Preferred Units 8,758 8,758 Series B Preferred Units 4,296 4,296 Series C Preferred Units 5,372 5,219 Retained earnings (deficit) (27,891) (17,079) Total members capital (9,465) 1,194 Total liabilities and stockholders equity $ 28,029 $ 35,05716 Due to the timing of the filing of the Cases, the next most recent balance sheet, dated January 2, 2013, was notavailable as of the Petition Date.CINCINNATI/97646.3
  • 43. Schedule 4 Debtors’ Property in the Possession of Others Pursuant to Local Bankruptcy Rule 1007-2(a)(8), the Debtors disclose below the locationof any of the Debtors’ property in the possession or custody of any custodian, public officer,mortgagee, pledgee, assignee of rents, or secured creditor, or agent for any such entity. The Debtors have personal property and/or restaurant equipment in all of their leasedlocations listed on Schedule 5 below. In addition to property located at leased locations, theDebtors have some property located at closed Restaurant locations, particularly including theMall of America, 306 South Ave., Bloomington, Minnesota 55425. Additionally, the Debtorshave some Restaurant equipment warehoused in a facility owned by Johnson-Lancaster andAssociates.CINCINNATI/97646.3
  • 44. Schedule 5 Premises Where the Debtors Operate Their Businesses Pursuant to Local Bankruptcy Rule 1007-2(a)(9), below is a list of the premises owned,leased, or held under other arrangement from which the Debtors operate their businesses.Name Address Type of Interest Description of UseHeadquarters 303 West Erie, 6th Fl Leased Corporate Chicago, IL 60654Oakbrook Court 105 Oakbrook Center Leased Stir Crazy Oakbrook, IL 60523Northbrook Court 1186 Northbrook Court Leased Stir Crazy Northbrook, IL 60062Woodfield Mall 5 Woodfield Mall Leased Stir Crazy Schaumburg, IL 60173Great Lakes Crossing 4248 Baldwin Road Leased Stir Crazy #615 Auburn Hills, MI 48326Boca Raton 6000 Glades Road Leased Stir Crazy #1015 Boca Raton, FL 33431Palisades Center 4422 Palisades Center Drive Leased Stir Crazy West Nyack, NY 10994Creve Coeur 10598 Old Olive St. Rd. Leased Stir Crazy Creve Coeur, MO 63141Legacy Village 25385 Cedar Road Leased Stir Crazy Lyndhurst, OH 44124Cantera 28252 Diehl Road Leased Stir Crazy Warrenville, IL 60555Pembroke Gardens 14571 SW 5th Street Leased Stir Crazy Pembroke Pines, FL 33027Greenwood Park 1251 US Highway 31 North Leased Stir Crazy Suite p-210 Greenwood, IN 46142Castleton Square 6020 East 82nd Street Leased Stir Crazy Indianapolis, IN 46250Coconut Point 23106 Fashion Drive Leased Stir Crazy Estero, FL 33928Brookfield Square 15795 W. Bluemound Leased Stir Crazy Brookfield, WI 53005Macy’s Union Square 170 O’Farrell Street Leased SC Asian San Francisco, CA 94102North Avenue 319 W. North Avenue Leased Flat Top Grill Chicago, IL 60610CINCINNATI/97646.3
  • 45. Name Address Type of Interest Description of UseChurch Street 707 Church Street Leased Flat Top Grill Evanston, IL 60201Washington Blvd 1000 W. Washington Blvd. Leased Flat Top Grill Chicago, IL 60607Southport Avenue 3200 N. Southport Avenue Leased Flat Top Grill Chicago, IL 60657Lake Street 726 W. Lake Street Leased Flat Top Grill Oak Park, IL 60301Jefferson Pointe 4150 W. Jefferson Blvd. Leased Flat Top Grill #K-1 Fort Wayne, IN 46804Grand Prairie 5201 W. War Memorial Drive Leased Flat Top Grill Suite 1200 Peoria, IL 61615College Hills 307 Veterans Parkway Leased Flat Top Grill Suite 500 Normal, IL 61761Hilldale Mall 538 N. Midvale Blvd. Leased Flat Top Grill Madison, WI 537056th Street 607 South 6th Street Leased Flat Top Grill Champaign, IL 61820Yorktown Center 305 Yorktown Center Leased Flat Top Grill Lombard, IL 60148Washington Street 218 South Washington Street Leased Flat Top Grill Naperville, IL 60540Sullivan Center 30 S. Wabash Leased Flat Top Grill Chicago, IL 60603Mayfair Place 2751 N. Mayfair Road Leased Flat Top Grill Wauwatosa, WI 53222Huron Village 3275 Washtenaw Avenue Leased Flat Top Grill Ann Arbor, MI 48104University Park 6501 N. Grape Road Leased Flat Top Grill Mishawaka, IN 46545The Summit 250 Summit Blvd. Leased Flat Top Grill Suite 100 Birmingham, AL 35243Rochester Hills 176 North Adams Road Leased Flat Top Grill Rochester Hills, MI 48309CINCINNATI/97646.3
  • 46. Schedule 6 Location of Substantial Assets Pursuant to Local Bankruptcy Rule 1007-2(a)(10), below describes the locations of theDebtors’ substantial assets, the location of their books and records, and the nature, location, andvalue of any assets held by the Debtors outside the territorial limits of the United States. Location of the Debtors’ Substantial Assets: The Debtors maintain 15 domestic bank accounts at various institutions, as describedabove. The Debtors domestic locations (including their headquarters and all Restaurantlocations) are identified in Schedule 5 above. The Debtors have assets in every location fromwhich they operate their businesses. Location of the Debtors’ Books and Records: The majority of the Debtors’ books and records are located at its corporate headquartersat 303 West Erie, 6th Floor, Chicago, Illinois 60654. Additional books and records are located atthe Restaurant locations listed in Schedule 5 above. The Debtors also utilize an outside vendorin the Chicago area, Iron Mountain, to store some archived books and records at 333 S Swift Rd.Addison, IL 60101.CINCINNATI/97646.3
  • 47. Schedule 7 Proceedings Against the Debtors In accordance with Local Bankruptcy Rule 1007-2(a)(11), the Debtors are aware of thefollowing actions or proceeding(s), pending or threatened, against the Debtors or their propertywhere a judgment against the Debtors or a seizure of its property may be imminent. Nondebtor Debtor Property Party StatusFlat Out Crazy E-176 N. Adams, VORH Assoc. Received summons for past Rochester Hills, MI due rent on 1/16/13. Hearing scheduled for 2/1/13.Flat Out Crazy Restaurant Johnson- Received notice for unpaid Equipment located Lancaster and warehouse costs on 1/15/13. in storage at Associates, Warehouse owner notified warehouse of Inc. Debtors of its intent to Nondebtor Party liquidate stored property if not paid by 1/29/13. In addition to the proceeding(s) identified above, the Debtors are parties to several activeactions or proceedings against them where a judgment or the seizure of property is not imminent.Those actions or proceedings are not described here. The Debtors have received numerous default notices threatening action, particularly fromtheir landlords. The table below describes notices the Debtors have received from landlordsthreatening action and the status of such threatened actions. Nondebtor Debtor Property Party StatusSCR Concessions The Summit Bayer Retail Received Notice of Default Shopping Center, Company Terminate possessionFOC as Guarantor Birmingham, AL Accelerate rent on 1/18/13.Stir Crazy Operations Castleton Square Simon Received 10 day notice to Mall Properties cure defaults on 1/14/13.Flat Out Crazy Hilldale Shopping Hilldale Received 30 day Notice to Center, Shopping Cure on 1/11/13. Madison, WI CenterFlat Out Crazy 607 S. 6th St., JSM Mgmt Received 10 Day Notice on Champaign, IL 1/22/13.CINCINNATI/97646.3
  • 48. Nondebtor Debtor Property Party StatusStir Crazy Operations Coconut Point, Coconut Received 10 Day Notice on 23106 Fashion Point Town 1/14/13. Drive, Room W19, Center Estero, FL Simon Prop.Flat Out Crazy E-176 N. Adams, VORH Received summons for past Rochester Hills, MI Assoc. due rent on 1/16/13. Hearing scheduled for 2/1/13.Flat Out Crazy 3200 N. Southport Jasper Received letter threatening Realty lawsuit for unpaid rent on 1/17/13.Stir Crazy Operations Greenwood Park Simon Received 10 Day Notice on Mall Properties 1/14/13.Flat Out Crazy Hamilton Town Simon Received 10 Day Notice on Center Properties 1/14/13.Flat Out Crazy Jefferson Pointe IMI Received Notice of Default Shopping Center Jefferson on 1/21/13. PointeStir Crazy Café – Legacy Village Legacy Received 3 Day Notice onLegacy Village LLC Shopping Center, Village 1/9/13. 35385 Cedar Rd., Investors Lyndhurst, OHStir Crazy Café – Legacy Village Legacy Received 10 day Notice toLegacy Village LLC Shopping Center, Village Cure on 1/11/13. 35385 Cedar Rd., Investors Lyndhurst, OHStir Crazy Café – Legacy Village Legacy Received 10 day Notice toLegacy Village LLC Shopping Center, Village Cure on 12/21/12. 35385 Cedar Rd., Investors Lyndhurst, OHFlat Out Crazy One Mayfair Place, Midland Received Notice of Default 2711-2767 N. Mgmt. on 1/4/13. Mayfair Rd, Wauwatosa, WIFlat Out Crazy 218 S. Washington Genco 3 Received Notice of Default St., Naperville, IL on 1/17/13.Stir Crazy Town Center at Simon Prop. Received 10 day Notice of Boca Raton Default on 12/15/12.CINCINNATI/97646.3
  • 49. Nondebtor Debtor Property Party StatusStir Crazy Greenwood Park Simon Prop. Received Notices of Default Mall on 11/15/12 (10 days) and 12/5/12 (30 days).Stir Crazy Castleton Square Castleton Received Notice of Default Square on 11/5/12. Simon Prop.Flat Out Crazy University Park University Received 10 Day Notice of Mall Park Mall Default on 1/24/13. Simon PropertiesFlat Out Crazy White Oaks Mall Mall at Received Notice to Cure White Oaks default (related to failure to submit tenant’s plans) on Simon 11/5/12.Flat Out Crazy Summit, Summit Received 10 day Notice of Birmingham, AL Default on 1/9/13. SimonStir Crazy Woodfield Woodfield Mall Woodfield Received 10 day Notice to Mall Vacate on 1/14/13. SimonStir Crazy Waukesha Platow Received 30 day Notice of Enterprise Construction Lien on 1/8/13.Flat Out Crazy (contractor) Bonstores Realty One (landlord)Flat Out Crazy Shops on YTC Received 5 day Notice of Butterfield, Butterfield Default on 1/17/13. Lombard, IL OwnerCINCINNATI/97646.3
  • 50. Schedule 8 Debtors’ Senior Management Team Pursuant to Local Bankruptcy Rule 1007-2(a)(12), below is a list of the names of theindividuals who comprise the debtors existing senior management, their tenure with the debtor,and a brief summary of their relevant responsibilities and experience. Name & Position Summary of Responsibilities and ExperienceFrederic Mayerson, As Chairman, Mr. Mayerson is responsible for the developmentChairman of Flat Out and oversight of the Debtors long-term strategic plans, overseesCrazy, LLC the capital needs of the business and regularly interfaces with Debtors’ management team, who run the day-to-day operations of the businesses. Mr. Mayerson has been Chairman of Flat Out Crazy since its inception in 2009 and has been Chairman of Stir Crazy Restaurants since 2006. In addition to his responsibilities as Chairman of the Debtors, Mr. Mayerson is also is the Chairman and Managing General Partner of The Walnut Group, a diversified private equity investment company that is a major equity owner of the Debtors. Mr. Mayerson’s previous restaurant experience includes involvement in the co-founding and development of Chi Chis Mexican Restaurants and Pinons, a fine dining establishment in Aspen, Colorado.William Van Epps, Chief Mr. Van Epps joined the Debtors as their CEO in June 2012. InExecutive Officer this role, he develops and executes the long-term business strategies of the Debtors, oversees the budgeting and planning necessary to support those strategies, and acts as the executive in charge of the day-to-day operations of the businesses. Prior to his tenure with the Debtors, Mr. Van Epps was Chief Executive Officer of Agile Pursuits Franchising Inc., a new division of Procter and Gamble, which included the creation, development and expansion of new retail service models utilizing P&G brands worldwide. He also previously worked as President, USA, Papa Johns International, Inc., with responsibilities for the companys domestic franchise and company restaurant operations, restaurant development, franchising, marketing, R&D, and quality management. Mr. Van Epps has also worked for Yorkshire Global Restaurants, AFC Enterprises, and PepsiCo International. In total, Mr. Van Epps has more than 40 years of foodservice experience, including 31 years in the international arena.CINCINNATI/97646.3
  • 51. Steve DeLong, Chief Mr. DeLong joined the Debtors in July 2012. As CFO, Mr.Financial Officer DeLong is primarily responsible for budgeting and financial planning, managing the Debtors’ capital structure, overseeing financial reporting functions and other duties related to the financial management of the Debtors. Mr. DeLong is a certified public accountant in the state of Ohio with more than 30 years of financial management experience in industry with both public and private companies. He began his career in the Dayton, Ohio offices of Deloitte. Until January 2013, Mr. DeLong was an independent contractor of Clark Schaefer, who provided his services to the Debtors on a contract basis. During January, 2013, the Debtors hired Mr. DeLong as a full-time employee and terminated the service agreement with Clark Schaefer.CINCINNATI/97646.3
  • 52. Schedule 9 Additional Information The Debtors intend to continue to operate their businesses. Accordingly, as required byLocal Bankruptcy Rule 1007-2(b)(1), the Debtors hereby estimate that the amount of theirweekly payroll to employees (exclusive of officers, directors, stockholders, and partners) for the5 week period following the filing of the chapter 11 petition will be approximately $1,845,500.17In accordance with Local Bankruptcy Rule 1007-2(b)(2), the Debtors hereby disclose that theyestimate the amount paid and proposed to be paid for services for the 5-week period followingthe filing of the chapter 11 petition to officers, stockholders, and directors will be approximately$176,900. The Debtors do not anticipate paying any amounts to financial or business consultantsretained in the Cases until after the first 5 weeks of the case because such advisors will berequired to have their fees and expenses reviewed by the United States Trustee and other partiesin interest. Furthermore, in accordance with Local Bankruptcy Rule 1007-2(b)(3), below is aschedule for the 5-week period following the filing of the chapter 11 petition, of estimated cashreceipts and disbursements, net cash gain or loss, obligations and receivables expected to accruebut remain unpaid, other than professional fees, and any other information relevant to anunderstanding of the foregoing. The amounts set forth below could change substantially if anyof the assumptions prove incorrect. For additional detail, please consult the exhibits to theDebtors motion to approve their use of cash collateral. Cash Receipts $5.0 million Cash Disbursements (Operating and Non- $5.0 million Operating Disbursements) Net Cash Gain (Loss) $0.0 million Estimated Unpaid Postpetition Obligations $400,000 Other Than Professional Fees18 Estimated Unpaid Postpetition Receivables N/A1917 The Debtors use 5-week numbers here instead of the 30 days stated in LBR 1007-2 in order to maintainconsistency with other estimates provided throughout the First-Day Pleadings, which utilize the 5-week budgetprovided in connection with the Cash Collateral Motion.18 Includes an estimate of $75,000 of trade payables, plus one week of wages and benefit expenses.19 The Debtors’ revenue is overwhelmingly generated in the form of cash or credit card payments. As a result, theDebtors generally have little to no accounts receivable.CINCINNATI/97646.3

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