Reservation of rights

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The execution of the First Amendment was prompted by the Company’s receipt from GSSLG of a letter dated June 12, 2018 regarding Notice of Default and Reservation of Rights (the “Reservation of Rights Letter”). The Reservation of Rights Letter advised the Company and the Credit Companies that they are in default under provisions of the Credit Agreement relating to (i) payment of interest under Section 2.7(e) of the Credit Agreement, (ii) compliance with post-closing covenants under Section 5.15 of the Credit Agreement, (iii) failure of the Company and the Credit Companies to deliver financial statements for the month of March 2018 under Section 5.1(a), and (iv) failure to comply with certain requirements of Sections 5.15 and 6.7 of the Credit Agreement. Subject to entering into the First Amendment, the Reservation of Rights Letter also advised that GSSLG has not waived the events of default and reserves all rights and remedies as a result thereof. Those remedies include, under the Credit Agreement, the right to accelerate and declare due and immediately payable the principal and accrued interest on all loans outstanding under the Credit Agreement. In addition, as a result of the events of default, the Company and the Credit Companies are prohibited from (a) making any permitted acquisitions under the Credit Agreement, (b) requesting that any loan be continued as or converted into a LIBOR Rate Loan (as defined in the Credit Agreement), and (c) the outstanding principal amount of the loans under the Credit Agreement is accruing interest at the default rate from the date of the first event of default, subject to demand for payment of such interest at the default rate by GSSLG or the lenders.

In connection with the Credit Agreement, the Company and the Credit Companies and all of its subsidiaries entered into a security agreement with GSSLG, pursuant to which the Company and the Credit Companies encumbered substantially all their assets for the benefit of the secured parties, as collateral security for the payment and performance of their obligations under the Credit Agreement. The encumbered assets include substantially all tangible and intangible assets of the Company and the Credit Companies including, without limitation, substantially all accounts receivable, inventory, equipment, real estate and equity securities of the Company’s direct and indirect subsidiaries. In the Reservation of Rights Letter, GSSLG reserved its right to foreclose or otherwise realize on any or all of the collateral under the security agreement or as appropriate, set-off or apply to the payment of any or all of the obligations under the Credit Agreement, any or all of the collateral.

On October 7, 2016, Caesars Acquisition Company (“CAC”), Caesars Interactive Entertainment, LLC (formerly known as Caesars Interactive Entertainment, Inc.), an indirect subsidiary of CAC (“CIE”), Caesars Entertainment Corporation (“CEC”), and Caesars Entertainment Operating Company, Inc., a majority owned subsidiary of CEC (“CEOC”), entered into an amendment (the “CIE Proceeds Amendment”) to the CIE Proceeds and Reservation of Rights Agreement, dated as of September 9, 2016, by and among CAC, CIE, CEC, and CEOC (the “CIE Proceeds Agreement”).

THIS AMENDMENT NO. 1 TO CIE PROCEEDS AND RESERVATION OF RIGHTS AGREEMENT (this “Amendment”), dated as of October 7, 2016, is made by and among (i) Caesars Interactive Entertainment, LLC (formerly known as Caesars Interactive Entertainment, Inc.) (“CIE”), (ii) Caesars Acquisition Company, on behalf of itself and each of its direct and indirect Subsidiaries (collectively, “CAC”), (iii) Caesars Entertainment Corporation, on behalf of itself and each of its direct and indirect Subsidiaries, other than the Company (collectively, “CEC”), and (iv) Caesars Entertainment Operating Company, on behalf of itself and each of the debtors in the Chapter 11 Cases (collectively, the “Company” and together with CIE, CAC and CEC, the “Parties”).

On October 7, 2016, Caesars Entertainment Corporation (“CEC”), Caesars Acquisition Company (“CAC”), Caesars Interactive Entertainment, LLC (formerly known as Caesars Interactive Entertainment, Inc.), an indirect subsidiary of CAC (“CIE”), and Caesars Entertainment Operating Company, Inc., a majority owned subsidiary of CEC (“CEOC”), entered into an amendment (the “CIE Proceeds Amendment”) to the CIE Proceeds and Reservation of Rights Agreement, dated as of September 9, 2016, by and among CEC, CAC, CIE and CEOC (the “CIE Proceeds Agreement”).

Effective May 27, 2014: (i) Serta, Inc. (“Serta”) terminated the Trademark License Agreement between Serta and the Company’s LaJobi subsidiary, and demanded outstanding minimum guaranteed royalties in the amount of approximately $140,000; and (ii) Disney Consumer Products, Inc. (“Disney”) terminated the license agreements between Disney and each of the Company’s Kids Line subsidiary and its Sassy subsidiary. These terminations constitute additional failures of conditions to lending and events of default under the Company’s credit agreement (the “Credit Agreement”) with Salus Capital Partners, LLC, as Agent and lender, and the other lenders from time to time party thereto, and the Agent has been informed of these terminations. As has been previously disclosed, on May 19, 2014, the Company received a notice of default and reservation of rights letter (the “Reservation of Rights Letter”) from the Agent with respect to other specified failures of conditions to lending and events of default existing under the Credit Agreement (including a notice of breach and amendment from The William Carter Company regarding its license agreement with the Company’s Sassy subsidiary), pursuant to which the Agent and the lenders expressly reserved all rights and remedies available thereunder, in law or in equity. The Reservation of Rights Letter states that the lenders are not obligated to make additional loans or otherwise extend credit to the Company. For a further discussion of the terms of the Reservation of Rights Letter, see the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2014.

On December 21, 2012, the Company, specified domestic subsidiaries consisting of Kids Line, LLC, Sassy, Inc., LaJobi, Inc., CoCaLo, Inc., I&J Holdco, Inc., and RB Trademark Holdco, LLC (such entities collectively with the Company, the “Borrowers”), executed a Credit Agreement (the “Credit Agreement”) with Salus Capital Partners, LLC, as Lender, Administrative Agent and Collateral Agent (the “Agent”), and the other lenders from time to time party thereto (the “Lenders”). The obligations of the Borrowers under the Credit Agreement are joint and several. All of the Company’s indebtedness for borrowed money under the Credit Agreement is classified as short term debt. The Credit Agreement was amended on each of April 16, 2013, May 16, 2013, August 13, 2013, November 14, 2013, April 8, 2014, and May 14, 2014. The current provisions of the Credit Agreement (as amended) are provided immediately below (but are subject to, and are in all cases qualified by, the provisions of the reservation of rights letter described in “Post-Amendment No. 5 Events”). Each amendment to the Credit Agreement (including the reasons therefor) is described in detail in the following section captioned “Prior Financial Covenants and Amendments to Credit Agreement”.

Based on our current operational expectations, the existence of failures of conditions to lending and events of default under the Credit Agreement, the receipt of the Reservation of Rights Letter, the current limited availability anticipated under the Credit Agreement even if borrowing continues to be permitted thereunder, the Company’s current inability to meet its payment obligations to certain of its suppliers/manufacturers and service providers and consequently, the demands of certain of its customers (and anticipated decreased sales resulting therefrom), we are currently unable to satisfy our ordinary course working capital requirements. In addition to these near-term liquidity issues, as a result of the uncertainty of the amount and timing of any payments that we will be required to make to U.S. Customs and/or other governmental authorities in respect of pending Customs duty matters, to satisfy any obligations resulting from the arbitration with Mr. Bivona, and/or to the CPSC in respect of its pending investigation (collectively, the “Pending Obligations”), in each case when such matters are finalized, there can be no assurance that we will be in compliance with the financial covenants or will be able to borrow under our Credit Agreement when such obligations become payable, or whether any such payment obligations will result in a further default under such Credit Agreement. As a result of all of the foregoing, there can be no assurance that we will continue to be permitted to borrow under our Credit Agreement or that our senior lenders will not exercise their rights and remedies under the Credit Agreement or otherwise, and there continues to be substantial doubt about our ability to continue as a going concern (our independent registered public accounting firm issued a report including an explanatory paragraph to that effect with respect to the Company’s financial statements included in the Company’s 2013 10-K). The accompanying unaudited financial statements do not include any adjustments that would be necessary should the Company be unable to continue as a going concern and, therefore, be required to liquidate its assets and discharge its liabilities in other than the normal course of business and at amounts that may differ from those reflected in the accompanying consolidated financial statements.

The Credit Agreement contains customary events of default (including any failure to remain in compliance with the New Financial Covenants). See the section captioned “Post-Amendment No. 5 Events” below for a description of certain circumstances which constitute failures of conditions to lending and/or events of default which have not been waived as of the date of filing of this Quarterly Report on Form 10-Q, and a reservation of rights letter received by the Company from its senior lenders in connection therewith. While an event of default occurs and is continuing (in addition to default interest as described above and other remedies available to the Lenders), the Agent may, in its discretion, declare the commitments under the Credit Agreement to be terminated and/or refuse to permit further borrowings thereunder, declare outstanding obligations thereunder to be due and payable, demand cash collateralization of letters of credit, capitalize any accrued and unpaid interest by adding such amount to the outstanding principal balance (provided that upon events of bankruptcy, the commitments will be immediately due and payable, and the Borrowers will be required to cash collateralize letters of credit, without any action of the Agent or any Lender), and/or seize collateral or take other actions of secured creditors. In addition, an event of default under the Credit Agreement constitutes a cross-default under certain license agreements that the Company maintains.

Based on our current operational expectations, the existence of failures of conditions to lending and events of default under the Credit Agreement, the receipt of the Reservation of Rights Letter (defined and described under “Credit Agreement Amendments” below), the current limited availability anticipated under the Credit Agreement even if borrowing continues to be permitted thereunder, the Company’s current inability to meet its payment obligations to certain of its suppliers/manufacturers and service providers and consequently, the demands of certain of its customers (and anticipated decreased sales resulting therefrom), we are currently unable to satisfy our ordinary course working capital requirements. In addition to these near-term liquidity issues, as a result of the uncertainty of the amount and timing of any payments that we will be required to make to U.S. Customs and/or other governmental authorities in respect of pending Customs duty matters, to satisfy any obligations resulting from the arbitration with Mr. Bivona, and/or to the CPSC in respect of its pending investigation, in each case when such matters are finalized, there can be no assurance that we will be in compliance with the covenants or will be able to borrow under our Credit Agreement when such obligations become payable, or whether any such payment obligations will result in a further default under such Credit Agreement. As a result of all of the foregoing, there can be no assurance that we will continue to be permitted to borrow under our Credit Agreement, or that our senior lenders will not exercise their rights and remedies under the Credit Agreement or otherwise, and there continues to be substantial doubt about our ability to continue as a going concern (our independent registered public accounting firm issued a report including an explanatory paragraph to that effect with respect to the Company’s financial statements included in the Company’s 2013 10-K). See “Capital Resources, Liquidity Assessment, and Our Ability to Continue as a Going Concern” below.

See Note 5 for a description of the Company’s Credit Agreement, including a discussion of restrictions on the Company’s ability to pay Customs duties and any LaJobi earnout payment requirements, the financial and other covenants applicable to the Company, and the Reservation of Rights Letter received from the Agent. Also see Part I Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations under the caption “Liquidity and Capital Resources”, and Item 1A — Risk Factors, including—“Inability to maintain compliance with the bank covenants”, “We are party to litigation and other matters that have and continue to be costly to defend and distracting to management, and if decided against us, are likely to have a material adverse effect on our business”, and “There can be no assurance that we will have sufficient liquidity to satisfy our cash obligations when required” of the 2013 10-K.

Based on our current operational expectations, the existence of failures of conditions to lending and events of default under the Credit Agreement, the receipt of the Reservation of Rights letter, the current limited availability anticipated under the Credit Agreement even if borrowing continues to be permitted thereunder, the Company’s current inability to meet its payment obligations to certain of its suppliers/manufacturers and service providers and consequently, the demands of certain of its customers (and anticipated decreased sales resulting therefrom), we are currently unable to satisfy our ordinary course working capital requirements. In addition to these near-term liquidity issues, as a result of the uncertainty of the amount and timing of any required payments in respect of the Pending Obligations when finalized, there can be no assurance that we will be in compliance with the financial covenants or will be able to borrow under our Credit Agreement when such obligations become payable, or whether any such payment obligations will result in a further default under such Credit Agreement (the consequences of which are described below). As a result of all of the foregoing, there can be no assurance that we will continue to be permitted to borrow under our Credit Agreement or that our senior lenders will not exercise their rights and remedies under the Credit Agreement or otherwise, and there continues to be substantial doubt about our ability to continue as a going concern (our independent registered public accounting firm issued a report including an explanatory paragraph to that effect with respect to the Company’s financial statements included in the Company’s 2013 Annual Report on Form 10-K).

The Loan Agreement relates to a $5,000,000 demand loan provided by RBI to the Registrant and certain affiliates in connection with its acquisition of Regional in July, 2007 (the “Loan”). The Loan was converted to a term loan in June 2009 in connection with the Sixth Amendment, Assumption of Obligations and Release Agreement between Regional, the Registrant and RBI (the “Sixth Amendment”), a copy of which was filed with the Form 8-K dated June 19, 2009. The Sixth Amendment provided for an increase in the principal amount of the note to $4,250,000 as the result of an “incremental loan” of $250,000, established a monthly amortization for the principal amount of the Loan, increased the annual interest rate to 8%, and extended the Maturity Date to April 30, 2012, among other terms and conditions. Regional assumed all obligations of the Registrant under the Loan and related collateral agreements upon execution of the Sixth Amendment. The Maturity Date of the Loan was extended to May 31, 2014 in connection with the Seventh Amendment to the Loan Agreement among the parties dated May 21, 2010, a copy of which was filed with the Form 8-K dated May 28, 2010. As previously reported by the Registrant on Form 8-K filed November 30, 2012, Regional and RBI entered into a “Limited Waiver and Ninth Amendment” (“Ninth Amendment”) to the Loan Agreement. The Ninth Amendment waived the defaults outstanding as set forth in the “Notice of Default, Demand for Payment and Reservation of Rights” delivered by RBI to Regional on October 4, 2012 (the “ Demand Notice ”), as previously reported by the Registrant on Form 8-K filed October 10, 2012 and additional defaults arising since the Demand Notice and the execution of the Ninth Amendment. The Ninth Amendment also amended certain other terms of the Loan Agreement.

On March 1, 2013, Regional Enterprises, Inc. (“Regional”), a wholly-owned subsidiary of Central Energy Partners LP (the “Registrant”), received a “Notice of Default, Demand for Payment and Reservation of Rights” (“March 1, 2013 Demand Notice”) from RB International Finance (USA) (“RBI”) in connection with the Loan Agreement dated as of July 26, 2007 (as amended, supplemented or otherwise modified from time to time, the “Loan Agreement ”) between Regional (as successor by assumption of obligations to the Registrant) and RBI.

The Demand Notice was delivered as the result of Regional’s failure to pay the monthly principal payment in the amount of $90,000 due and payable on October 1, 2012 and the continued default with respect to the non-payment of the interest payment for August 2012 in the amount of $10,619.65 due and payable on September 4, 2012 as set forth in the “Response and Notice of Default and Reservation of Rights” delivered by RBI to Regional on September 14, 2012 (the “Default Notice”), as previously reported by the Registrant on Form 8-K filed September 21, 2012. The Demand Notice declares all Obligations (as defined in the Loan Agreement) immediately due and payable and demands immediate payment in full of all Obligations, including fees, expenses and other costs of RBI. The Demand Notice also (1) contemplates the initiation of foreclosure proceedings in respect of the property owned by Regional and covered by that certain Mortgage, Deed of Trust and Security Agreement dated as of July 26, 2007, a copy of which is filed herewith, and (2) demands immediate payment of all rents due upon the property pursuant to the terms of the Assignment of Leases and Rents dated July 26, 2006, a copy of which is filed herewith.

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