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Hearing Date: June 23, 2008 11:00 a.m. O’MELVENY & MYERS LLP Shannon Lowry Nagle Evan M.

Jones (Admitted pro hac vice) Laine Mervis (Admitted pro hac vice) 7 Times Square New York, NY 10036 Telephone: 212-408-2452 Facsimile: 212-326-2061 Attorneys for Bernard National Loan Investors Ltd., Agent for Lenders UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re: TEEVEE TOONS, INC. d/b/a TVT RECORDS, Debtor. AGENT’S REPLY TO OBJECTION OF THE OFFICIAL UNSECURED CREDITORS’ COMMITTEE TO MOTION TO APPROVE SALE OF ASSETS Bernard National Loan Investors Ltd., agent for pre-petition and post-petition secured lenders (“Agent”), respectfully files this reply to the objection (“Objection”) of the Official Unsecured Creditors’ Committee (“Committee”), filed June 19, 2008, to the sale of substantially all the assets of TeeVee Toons, Inc. (“Debtor”). 1. REPLY Shortly after the Debtor commenced this case, it filed the Bid Procedure Motion1 Chapter 11 Case No. 08-10562 (ALG)

to establish a process for the marketing and sale of its assets to a buyer who could fund the business going forward. The Court heard from all of the major constituencies in this case on this issue, including the Committee, recording artists and others. The Court approved the Bid Procedures Motion, authorized post-petition financing to fund the sale process, and established a sale timeline and benchmarks. An investment banker was chosen by the Debtor with the Capitalized but undefined terms used herein shall have the meaning ascribed to them in the Order Approving Bid Procedures for the Debtor’s Assets, dated May 1, 2008.

approval of the Committee and Agent. In accordance with the various orders, the Debtor and its professionals embarked on a two-month marketing process. The Agent consented to a continuation of the auction at the request of the Debtor after two potential bidders asked for more time. When no one asked for further extensions, the Debtor held an auction amongst three qualified bidders. The Committee now objects for several reasons. 2. The Committee objects that Agent should be denied “credit bid” rights to which it

is entitled under section 363(k) of the Bankruptcy Code. The Committee contends it has “determined that there are viable claims” against Agent’s pre-petition secured liens, and follows with several pages of scurrilous attacks on the Debtor and Agent. Committee Objection, paras. 11-18. Unfortunately for the Committee, it previously raised exactly these same arguments to the Court. Both the Committee and Agent submitted briefs on the issue of credit bid rights in conjunction with the DIP Order. The Court considered arguments, ordered that Agent has the right to credit bid up to $6.725 million in principal (plus interest and fees) owing under the prepetition credit agreement. Final DIP Order, para. 15 and post-petition financing agreement, section 4.18. No new facts or evidence has been presented by the Committee to justify reconsideration of the Final DIP Order. 3. In short, the Committee has already asserted these same objections, and the Court

has already determined these issues. While a number of the constituencies orked productively towards a sale that preserved going concern value, the Committee has spent three months and incurred hundreds of thousands of dollars in fees investigating and making incendiary remarks. Even if the Committee had filed a complaint, the Court has already ruled the credit bid may proceed.



The Committee argues the assets here “have not been tested by the market” and

that the sale price is “grossly inadequate.” Committee Objection, para. 16. The Committee offers no basis for this conclusory statement. Two months into a sale process involving rounds of marketing to prospective purchasers and an auction amongst three bidders, the present efforts meet the very definition of “exposing” assets to the “market.” This process was spear-headed by the Debtor’s investment bankers and financial advisors (Getzler Henrich & Associates LLC) and bankruptcy counsel (Stevens & Lee, P.C.), in consultation with representatives of the Committee, Agent and others. Agent is informed Getzler will testify that the marketing was full, detailed and sufficient. The simple fact is that the market has spoken and the Committee does not like the result. In this respect, it is worth noting the result was not what the Committee had loudly predicted – a winning credit bid by Agent. In order to facilitate bidding, and at the request of the Debtor and Committee, Agent actually apportioned its bid at the auction between record assets, which other bidders wanted, and the equity interest in TVT Music, Inc., which no other bidder sought. At the end of the auction, the Committee’s specter proved untrue – Agent did not win the contest. This further buttresses the integrity of the process. The Committee also asserts that the Debtor did not adequately market the Debtor’s equity interest in TVT Music, Inc. To the contrary, the Court’s sale procedures explicitly state that bidders could submit bids “for the assets as a whole or for portions of Assets.” Bid Procedures, para. 2, attached to the Bid Procedures Order. 5. In accordance with those procedures, the Debtor provided parties with the

opportunity to submit bids for these equity interests, either on a stand-alone basis or together with all other assets. The Confidential Information Memorandum (the marketing “book” provided to bidders) includes detailed information on the equity interest and the subsidiary. The Debtor also encouraged bidders to contact Agent with any questions regarding its equity position 3

or put rights with respect to non-debtors. Full information was provided and the Committee received weekly briefing from Getzler. At no time – until after the auction – did the Committee object. Further, at the auction held on Thursday June 19, 2008, bidders were provided with an additional opportunity to submit bids on the subsidiary equity interests alone. No bidders expressed any interest in doing so. Having fully participated in the marketing process the Committee simply rejects the market value placed by open and fair auction. There is no basis for this complaint.2 6. The Committee again re-visits the arguments made in conjunction with the Final

DIP Order, this time its provisions that, in the event the Committee files an objection to Agent’s claims or liens, then proceeds not otherwise paid to Agent by Court order “will be escrowed until such objection is resolved.” DIP Credit Agreement, para. 5.13 (approved by Final DIP Order). The Committee argues sale proceeds should be escrowed in the absence of any objection -presumably on the basis that it intends to finalize and file a complaint following the closing of the sale. Committee Objection, para. 19. In the interest of avoiding unnecessary litigation and the incurrence of further fees in this case, Agent does not object to the escrowing of excess sale proceeds, after repayment of the DIP Loan, pending further Court order. The Agent specifically

At the auction, Sony Music BMG – one of the most sophisticated participants in the industry – complained it “didn’t know” it could bid on less than all assets. The Court’s order is clear. See Bid Procedures, para. 2 of the Bid Procedures Order (“Debtor…will entertain bids for the Assets as a whole or for portions of the Assets”). The marketing book is clear “Bidders may offer to buy TVT as a going concern, or alternatively, may bid on certain assets. The following is a listing of the categories of assets…” and TVT’s equity interest in TVT Music Enterprises is listed. Indeed, Sony clearly understood this as it submitted a bid for less than all assets. This bid was confirmed by the Debtor as a qualified bid with no objection. For Sony to say it didn’t know it could do precisely what it did do is the height of cupidity by a losing bidder. 4


reserves the right to revisit this issue and request release of the excess sale proceeds in the event the Agent believes discussions with the Committee are no longer productive or the Committee pursues specious litigation.

Dated: June 20, 2008

Respectfully submitted, /s/ Shannon Lowry Nagle O’MELVENY & MYERS LLP Shannon Lowry Nagle Evan M. Jones (Admitted pro hac vice) Laine Mervis (Admitted pro hac vice) 7 Times Square New York, NY 10036 Telephone: 212-408-2452 Facsimile: 212-326-2061 Attorneys for Bernard National Loan Investors Ltd., as Agent for Lenders