Item 1.03. Bankruptcy or Receivership.
On May 14, 2017 (the Petition Date), Katy Industries, Inc. (the Company) and certain of its wholly-owned direct and indirect domestic subsidiaries (collectively with the Company, the Debtors) filed voluntary petitions in the United States Bankruptcy Court for the District of Delaware (the Bankruptcy Court) seeking relief under Chapter 11 of Title 11 of the United States Code (the Bankruptcy Code). These cases (the Chapter 11 Cases) are being jointly administered under the caption In re Katy Industries, Inc.,
et al.
, Case No. 17-11101. The Debtors continue to operate their businesses as debtors-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.
In connection with the Chapter 11 Cases, the Debtors filed various first day motions seeking Bankruptcy Court approval, including, without limitation, approval of debtor-in-possession financing on the terms set forth in that certain Debtor-in-Possession Credit and Security Agreement, dated as of May 17, 2017 (the DIP Financing Agreement), by and among the Company, Continental Commercial Products, LLC, FTW Holdings, Inc., Fort Wayne Plastics, Inc., 2155735 Ontario Inc. and CCP Canada Inc., as borrowers (collectively, the Borrowers), and Jansan Acquisition, LLC as lender (Lender). The DIP Financing Agreement provides for a junior secured debtor-in-possession term loan financing facility (the DIP Financing) in an aggregate amount of up to $7.5 million. The DIP Financing will become available upon the satisfaction of customary conditions precedent thereto, including the entry of an order of the Bankruptcy Court approving the DIP Financing on an interim basis, which such interim approval was sought and granted by entry of an interim order dated as of May 16, 2017.
The proceeds of the DIP Financing will be used by the Company for (i) general working capital and operational expenses; (ii) administration of the Chapter 11 Cases; and (iii) costs, expenses, and all other payment amounts contemplated in the DIP Financing Agreement), in any such case, in accordance with a 13-week cash flow and operating forecast in form and substance approved by the Lender (subject to any variances permitted by the DIP Financing Agreement).
The maturity date of the loans made under the DIP Financing is the earliest to occur of: (i) 150 days following the Petition Date, (ii) the date of the closing of the Asset Sale (as defined below), (iii) 45 days following the Petition Date if final cash collateral order and the final financing order have not been entered by the Bankruptcy Court, (iv) the acceleration of any portion of the loans made under the DIP Financing Agreement and the termination of the Lenders commitment to make such loans upon the occurrence of an event of default under the DIP Financing Agreement and (v) the effective date of any plan of reorganization that is filed in the Chapter 11 Cases and confirmed pursuant to an order entered by the Bankruptcy Court. The outstanding principal on the loans under the DIP Financing will bear interest at a rate of 15% per annum payable monthly in cash in arrears.
Pursuant to the terms of the DIP Financing Agreement, the subsidiaries of the Borrowers (the Guarantors, and, together with the Borrowers, the Credit Parties) other than certain Inactive Subsidiaries (as defined in the DIP Financing Agreement) will guarantee the obligations of the Borrowers under the DIP Financing. Subject to certain exceptions, the DIP Financing will be secured by a second priority perfected priming security interest in all of the assets of each Credit Party. The security interests and liens are subject only to certain carve-outs and certain permitted liens (including the liens in favor of Encina Business Credit SPV, LLC, in its capacity as first lien agent (together with its successors and assigns, the Prepetition First Lien Agent) under that certain credit and security agreement, dated as of November 16, 2016 (as amended, restated, supplemented or otherwise modified from time to time, the Prepetition First Lien Credit Agreement), among the Borrowers, the lenders party to such agreement, and the Prepetition First Lien Agent), as set forth in the DIP Financing Agreement.
The DIP Financing is subject to certain customary covenants and events of default as set forth in the DIP Financing Agreement.
The foregoing description of the DIP Financing Agreement does not purport to be complete and is qualified in its entirety by reference to the DIP Financing Agreement filed hereto as Exhibit 10.1.
On the Petition Date, the Company and certain of its subsidiaries (together, the Sellers) entered into a stalking horse Asset Purchase Agreement (the Asset Purchase Agreement) with Jansan Acquisition, LLC (in such capacity, the Purchaser) pursuant to which the Purchaser agreed to purchase substantially all of the assets of the Company (such assets, the Assets, and such transaction, the Asset Sale). The Sellers have sought the Bankruptcy Courts approval of the Purchaser as the stalking horse bidder in an auction of the Assets under Section 363 of the Bankruptcy Code. If approved by the Bankruptcy Court as the
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