THIS IS NOT A SOLICITATION OF ACCEPTANCE OR REJECTION...

UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE

------------------------------------------------------------ x In re : Chapter 11 : CLAIRE’S STORES, INC., et al., : Case No. 18–10584 (MFW) : : Debtors.1 : (Jointly Administered) ------------------------------------------------------------ x

PROPOSED DISCLOSURE STATEMENT FOR FIRST AMENDED JOINT CHAPTER 11 PLAN OF

REORGANIZATION OF CLAIRE’S STORES, INC. AND ITS DEBTOR AFFILIATES

WEIL, GOTSHAL & MANGES LLP Ray C. Schrock, P.C. (pro hac vice) Matthew S. Barr (pro hac vice) Ryan Preston Dahl (pro hac vice) Alexander W. Welch (pro hac vice) 767 Fifth Avenue New York, New York 10153 Telephone: (212) 310-8000 Facsimile: (212) 310-8007 Attorneys for Debtors and Debtors in Possession

RICHARDS, LAYTON & FINGER, PA Daniel J. DeFranceschi (No. 2732) Zachary I. Shapiro (No. 5103) Brendan J. Schlauch (No. 6115) Brett M. Haywood (No. 6166) One Rodney Square 920 North King Street Wilmington, Delaware 19801 Telephone: (302) 651-7700 Facsimile: (302) 651-7701

Dated: July 7, 2018 Wilmington, Delaware

1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification

number, as applicable, are Claire’s Inc. (6919); Claire’s Stores, Inc. (0416); BMS Distributing Corp. (4117); CBI Distributing Corp. (5574); Claire’s Boutiques, Inc. (5307); Claire’s Canada Corp. (7936); Claire’s Puerto Rico Corp. (6113); and CSI Canada LLC. The Debtors’ corporate headquarters and service address is 2400 West Central Road, Hoffman Estates, Illinois 60192.

THIS IS NOT A SOLICITATION OF ACCEPTANCE OR REJECTION OF THE PLAN. ACCEPTANCES OR REJECTIONS MAY NOT BE SOLICITED UNTIL A DISCLOSURE STATEMENT HAS BEEN APPROVED BY THE BANKRUPTCY COURT. THE DISCLOSURE STATEMENT IS BEING SUBMITTED FOR APPROVAL BUT HAS NOT BEEN APPROVED BY THE BANKRUPTCY COURT TO DATE.

Case 18-10584-MFW Doc 586 Filed 07/08/18 of 143

Table of Contents

Page

i

I. INTRODUCTION ..................................................................................................................................... 1

A. Definitions and Exhibits ..................................................................................................... 1

1. Definitions ............................................................................................................. 1

2. Exhibits .................................................................................................................. 1

B. Notice to Creditors .............................................................................................................. 1

C. Background and Overview of the Plan ............................................................................... 5

D. Restructuring Support Agreement .................................................................................... 12

E. New Money Backstop Commitment Agreement .............................................................. 13

F. Disclosure Statement Enclosures ...................................................................................... 14

G. Inquiries ............................................................................................................................ 15

II. OVERVIEW OF THE DEBTORS’ OPERATIONS ............................................................................. 15

A. The Debtors’ Business Operations .................................................................................... 15

B. The Debtors’ Corporate Structure ..................................................................................... 17

C. Prepetition Capital Structure ............................................................................................. 18

1. Indebtedness ........................................................................................................ 18

2. Non-Debtor Affiliates’ Funded Debt Obligations ............................................... 23

3. Trade Payables ..................................................................................................... 27

D. Events Leading to Commencement of the Chapter 11 Cases ........................................... 27

1. The Debtors Operate in a Highly Competitive Market ........................................ 27

2. The Debtors Are Highly Levered ........................................................................ 27

3. Prepetition Restructuring Efforts ......................................................................... 28

III. OVERVIEW OF THE CHAPTER 11 CASES ..................................................................................... 31

A. Commencement of Chapter 11 Cases ............................................................................... 31

B. First Day Motions ............................................................................................................. 31

C. Procedural Motions ........................................................................................................... 32

D. Retention of Chapter 11 Professionals .............................................................................. 32

E. Appointment of Creditors’ Committee ............................................................................. 32

F. Execution of the New Money Backstop Commitment Agreement ................................... 32

G. Statements and Schedules, Rule 2015.3 Financial Reports, and Claims Bar Dates ......... 33

H. Exclusivity ........................................................................................................................ 33

I. Executory Contracts and Unexpired Leases ..................................................................... 33

J. Key Employee Incentive and Retention Programs ........................................................... 34

K. Initial Marketing Process .................................................................................................. 35

L. Oaktree’s Motion to Modify the Debtors’ Marketing Process ......................................... 35

M. The Debtors’ Continued Marketing Process ..................................................................... 36


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IV. SUMMARY OF THE PLAN ............................................................................................................... 36

A. General .............................................................................................................................. 36

B. Administrative Claims and Priority Claims ...................................................................... 37

1. Administrative Claims ......................................................................................... 37

2. DIP Claims ........................................................................................................... 38

3. Professional Fee Claims ....................................................................................... 38

4. Priority Tax Claims .............................................................................................. 40

5. Reclamation Claims ............................................................................................. 40

C. Classification of Claims and Interests ............................................................................... 40

1. Classification in General ...................................................................................... 40

2. Summary of Classification ................................................................................... 40

3. Class Identification .............................................................................................. 41

D. Treatment of Claims and Interests .................................................................................... 42

1. Class 1 – Other Priority Claims ........................................................................... 42

2. Class 2 – Other Secured Claims .......................................................................... 42

3. Class 3 – Prepetition ABL Claims Against Any Debtor Other than Claire’s Parent ..................................................................................................... 42

4. Class 4 – Prepetition LC Facility Claims ............................................................. 43

5. Class 5 – Prepetition ABL Claims Against Claire’s Parent ................................. 43

6. Class 6 – Prepetition RCF Claims Against Claire’s Parent ................................. 43

7. Class 7 – First Lien Debt Secured Claims Against Any Debtor Other than Claire’s Parent ..................................................................................................... 44

8. Class 8 – Unsecured Claims Against Claire’s Parent .......................................... 44

9. Class 9 – Unsecured Claims Against any Debtor Other than Claire’s Parent ................................................................................................................... 44

10. Class 10 – General Unsecured Elective Claims Against any Debtor Other than Claire’s Parent .............................................................................................. 45

11. Class 11 – Prepetition Intercompany Claims ....................................................... 45

12. Class 12 – Section 510(b) Claims ........................................................................ 46

13. Class 13 – Intercompany Interests ....................................................................... 46

14. Class 14 – Existing Claire’s Parent Equity Interests............................................ 46

E. Special Provision Governing Unimpaired Claims ............................................................ 47

F. Special Provision Regarding Prepetition Intercompany Claims ....................................... 47

G. Confirmation Pursuant to Sections 1129(a)(10) and 1129(b) of the Bankruptcy Code .................................................................................................................................. 47

H. Elimination of Vacant Classes .......................................................................................... 47

I. Voting Classes; Presumed Acceptance by Non-Voting Classes ....................................... 47

J. Controversy Concerning Impairment ............................................................................... 48

K. Means for Implementation of the Plan .............................................................................. 48

1. No Substantive Consolidation ............................................................................. 48


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2. Sources of Consideration for Plan Distributions ................................................. 48

3. Issuance and Distribution of Reorganized Claire’s Parent Interests .................... 48

4. New Reorganized Debt ........................................................................................ 49

5. CLSIP Term Loan Obligations and Gibraltar Obligations .................................. 49

6. Allowed Unsecured and General Unsecured Elective Claim Recoveries ............ 50

7. Corporate Existence ............................................................................................. 50

8. Vesting of Assets in the Reorganized Debtors .................................................... 51

9. Cancellation of Existing Securities ...................................................................... 51

10. Corporate Action.................................................................................................. 53

11. Restructuring Transactions .................................................................................. 54

12. New Money Investment ....................................................................................... 54

13. Reorganized Debtors’ Organizational Documents .............................................. 57

14. Exemption from Certain Taxes and Fees ............................................................. 58

15. Preservation of Causes of Action ......................................................................... 58

16. Insurance Policies ................................................................................................ 58

17. Management Equity Incentive Plan ..................................................................... 59

18. Comfort Letters .................................................................................................... 59

19. Workers’ Compensation Programs ...................................................................... 59

L. Treatment of Executory Contracts and Unexpired Leases ................................................ 60

1. Assumption and Rejection of Executory Contracts and Unexpired Leases ......... 60

2. Claims Based on Rejection of Executory Contracts or Unexpired Leases .......... 61

3. Cure of Defaults for Assumed Executory Contracts and Unexpired Leases .................................................................................................................. 61

4. Dispute Resolution ............................................................................................... 62

5. Indemnification Obligations ................................................................................ 62

6. Modifications, Amendments, Supplements, Restatements, or Other Agreements .......................................................................................................... 62

7. Reservation of Rights ........................................................................................... 63

8. Nonoccurrence of Effective Date; Bankruptcy Code Section 365(d)(4) ............. 63

M. Provisions Governing Distributions .................................................................................. 63

1. Timing and Calculation of Amounts to Be Distributed ....................................... 63

2. Partial Distributions on Account of Allowed Unsecured Claims ........................ 64

3. Rights and Powers of Distribution Agent ............................................................ 64

4. Special Rules for Distributions to Holders of Disputed Claims and Interests ................................................................................................................ 64

5. Delivery of Distributions and Undeliverable or Unclaimed Distributions .......... 64

6. Securities Registration Exemption ....................................................................... 68

7. Compliance with Tax Requirements .................................................................... 70

8. Allocations ........................................................................................................... 70

9. No Postpetition Interest on Claims ...................................................................... 70

10. Setoffs and Recoupment ...................................................................................... 70


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11. Claims Paid or Payable by Third Parties ............................................................. 71

N. Procedures for Resolving Contingent, Unliquidated, and Disputed Claims ..................... 71

1. Allowance of Claims ........................................................................................... 71

2. Claims and Interests Administration Responsibilities ......................................... 72

3. Estimation of Claims ........................................................................................... 72

4. Adjustment to Claims Register Without Objection ............................................. 72

5. Time to File Objections to Claims ....................................................................... 73

6. Disallowance of Claims ....................................................................................... 73

7. Amendments to Claims ........................................................................................ 73

8. Distributions After Allowance ............................................................................. 73

9. Single Satisfaction of Claims ............................................................................... 73

O. Settlement, Release, Injunction, and Related Provisions .................................................. 73

1. Compromise and Settlement of Claims, Interests, and Controversies ................. 73

2. Discharge of Claims and Termination of Interests .............................................. 74

3. Releases by the Debtors ....................................................................................... 74

4. Releases by Holders of Claims and Interests ....................................................... 75

5. Exculpation .......................................................................................................... 76

6. Injunction ............................................................................................................. 76

7. Subordination Rights ........................................................................................... 78

8. Release of Liens ................................................................................................... 78

P. Conditions Precedent to Consummation of the Plan ........................................................ 79

1. Conditions Precedent to the Effective Date ......................................................... 79

2. Waiver of Conditions ........................................................................................... 81

3. Substantial Consummation .................................................................................. 81

4. Effect of Non-Occurrence of Conditions to the Effective Date ........................... 81

Q. Modification, Revocation, or Withdrawal of the Plan ...................................................... 81

1. Modification and Amendments ........................................................................... 81

2. Effect of Confirmation on Modifications ............................................................ 82

3. Revocation or Withdrawal of the Plan ................................................................. 82

R. Retention of Jurisdiction ................................................................................................... 82

S. Miscellaneous Provisions ................................................................................................. 85

1. Immediate Binding Effect .................................................................................... 85

2. Additional Documents ......................................................................................... 85

3. Payment of Statutory Fees ................................................................................... 85

4. Reservation of Rights ........................................................................................... 85

5. Successors and Assigns ....................................................................................... 86

6. Service of Documents .......................................................................................... 86

7. Term of Injunctions or Stays ............................................................................... 88

8. Entire Agreement ................................................................................................. 88

9. Nonseverability of Plan Provisions ...................................................................... 88


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10. Dissolution of Committee .................................................................................... 89

11. Expedited Tax Determination .............................................................................. 89

V. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN ...................... 89

A. Continuation of the Chapter 11 Cases .............................................................................. 89

B. Liquidation under Chapter 7 ............................................................................................. 90

VI. TRANSFER RESTRICTIONS AND CONSEQUENCES UNDER FEDERAL SECURITIES LAW .............................................................................................................................................. 90

A. Section 1145 Securities ..................................................................................................... 90

B. Private Placement ............................................................................................................. 91

VII. CERTAIN TAX CONSEQUENCES OF THE PLAN ........................................................................ 93

A. Consequences to the Debtors ............................................................................................ 94

1. Cancellation of Debt ............................................................................................ 95

2. Potential Application of AHYDO Provisions ...................................................... 95

3. Limitation of NOL Carryforwards and Other Tax Attributes .............................. 96

B. Consequences to Holders of Certain Claims..................................................................... 97

1. Holders of Class 7 First Lien Debt Secured Claims ............................................ 98

2. Holders of Class 9 Unsecured Claims and Class 10 General Unsecured Elective Claims .................................................................................................. 102

3. Character of Gain or Loss .................................................................................. 103

4. Distributions in Discharge of Accrued Interest or OID ..................................... 103

5. New Money Investment ..................................................................................... 104

6. Information Reporting and Backup Withholding .............................................. 112

VIII. VOTING PROCEDURES AND REQUIREMENTS ...................................................................... 113

A. Voting Deadline .............................................................................................................. 113

B. Voting Procedures ........................................................................................................... 114

C. Parties Entitled to Vote ................................................................................................... 115

1. Voting Creditors (Who Are Not Beneficial Holders) ........................................ 116

2. Beneficial Holders ............................................................................................. 116

3. Nominees ........................................................................................................... 117

4. Miscellaneous .................................................................................................... 118

5. Fiduciaries and Other Representatives ............................................................... 118

6. Agreements upon Furnishing Ballots................................................................. 119

7. Change of Vote .................................................................................................. 119

8. Requirement to File a Proof of Claim ................................................................ 119

D. Waivers of Defects, Irregularities, etc. ........................................................................... 119

E. Further Information, Additional Copies ......................................................................... 120

IX. FACTORS TO CONSIDER BEFORE VOTING ............................................................................... 120


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A. Risks Relating to the Debtors’ Business Operations and Financial Condition ............... 120

1. Competition ....................................................................................................... 120

2. Supplier Relationships ....................................................................................... 120

3. Right-Sizing Real Estate Portfolio ..................................................................... 121

4. Shopping Mall Traffic ....................................................................................... 121

5. Concessions Partner Relationships .................................................................... 121

6. Customer Preferences ........................................................................................ 121

7. Asbestos Allegations .......................................................................................... 121

8. Pending and Future Litigation ........................................................................... 122

B. Certain Bankruptcy Law Considerations ........................................................................ 122

1. Risk of Non-Confirmation of the Plan ............................................................... 122

2. Non-Consensual Confirmation .......................................................................... 122

3. Financial Projections .......................................................................................... 122

4. Allowed Claims Could Exceed Estimates ......................................................... 123

5. U.S. Federal Income Tax Risks ......................................................................... 123

6. Risk of Non-Occurrence of the Effective Date .................................................. 123

7. Conversion into Chapter 7 Cases ....................................................................... 123

C. Factors Relating to Securities to Be Issued ..................................................................... 124

1. Implied Valuation of Securities ......................................................................... 124

2. Potential Dilution ............................................................................................... 125

3. Significant Holders of Reorganized Claire’s Parent Interests ........................... 125

4. Interests Subordinated to the Reorganized Debtors’ Indebtedness .................... 125

5. Make-Whole Premiums ..................................................................................... 126

6. Voluntary or Involuntary Liquidation of the Reorganized Debtors’ ................. 126

7. Dividends ........................................................................................................... 126

8. Restrictions on Ability to Resell Reorganized Claire’s Parent Interests and New Preferred Equity Interests ................................................................... 126

9. Preferred Redemption Premiums ....................................................................... 127

10. Conversion Rate of New Preferred Equity Interests .......................................... 127

D. Factors Relating to the First Lien Rights Offering and the Shareholder Rights Offering ........................................................................................................................... 127

1. Debtors Could Modify the Rights Offering Procedures .................................... 127

2. The New Money Backstop Commitment Agreement Could Be Terminated ......................................................................................................... 127

E. Additional Factors ........................................................................................................... 128

1. Debtors Could Withdraw the Plan ..................................................................... 128

2. Debtors Have No Duty to Update ...................................................................... 128

3. No Representations Outside this Disclosure Statement Are Authorized ........... 128

4. No Legal or Tax Advice Is Provided by this Disclosure Statement .................. 128

5. No Admission Made .......................................................................................... 128


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X. CONFIRMATION OF THE PLAN ..................................................................................................... 129

A. Acceptance of the Plan ................................................................................................... 129

B. Best Interests Test ........................................................................................................... 130

C. Feasibility........................................................................................................................ 130

D. Notices and Confirmation Hearing ................................................................................. 130

XI. CONCLUSION AND RECOMMENDATION .................................................................................. 135

EXHIBIT A: Plan

EXHIBIT B: New Money Backstop Commitment Agreement

EXHIBIT C: Restructuring Support Agreement

EXHIBIT D: Marketing Procedures

EXHIBIT E-1: First Lien Rights Offering Procedures

EXHIBIT E-2: Shareholder Rights Offering Procedures

EXHIBIT F: Debtors’ Organizational Structure

EXHIBIT G: Financial Projections

EXHIBIT H: Liquidation Analysis

EXHIBIT I: Valuation Analysis


1

I. INTRODUCTION

This is the disclosure statement (the “Disclosure Statement”) of Claire’s Inc. (“Claire’s Parent”); Claire’s Stores, Inc. (“Claire’s Stores”); Claire’s Puerto Rico Corp.; CBI Distributing Corp.; Claire’s Boutiques, Inc.; Claire’s Canada Corp.; BMS Distributing Corp.; and CSI Canada LLC (collectively, the “Debtors” and, together with their non-Debtor affiliates, the “Company” or the “Claire’s Group”), in the above-captioned chapter 11 cases (collectively, the “Chapter 11 Cases”) pending in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”), filed pursuant to section 1125 of title 11 of the United States Code (the “Bankruptcy Code”) and in connection with the First Amended Joint Chapter 11 Plan of Reorganization of Claire’s Stores, Inc. and Its Debtor Affiliates dated April 12, 2018 (the “Plan”), a copy of which is annexed to this Disclosure Statement as Exhibit A. The Plan constitutes a separate chapter 11 plan for each Debtor.

A. Definitions and Exhibits

1. Definitions

Unless otherwise defined herein, capitalized terms used in this Disclosure Statement shall have the meanings ascribed to such terms in the Plan or as the context otherwise requires.

2. Exhibits

The following exhibits to this Disclosure Statement are incorporated as if fully set forth herein and part of this Disclosure Statement:

Exhibit A – Plan

Exhibit B – New Money Backstop Commitment Agreement

Exhibit C – Restructuring Support Agreement

Exhibit D – Marketing Procedures

Exhibit E-1 – First Lien Rights Offering Procedures

Exhibit E-2 – Shareholder Rights Offering Procedures

Exhibit F – Debtors’ Organizational Structure

Exhibit G – Financial Projections

Exhibit H – Liquidation Analysis

Exhibit I – Valuation Analysis

B. Notice to Creditors

The purpose of this Disclosure Statement is to set forth information that (1) summarizes the Plan, (2) advises holders of Claims and Interests of their rights under the Plan, (3) assists parties entitled to vote on the Plan in making informed decisions as to whether they should vote to


2

accept or reject the Plan, and (4) assists the Bankruptcy Court in determining whether the Plan complies with the provisions of chapter 11 of the Bankruptcy Code and should be confirmed.

By Order dated [_________], 2018 (the “Disclosure Statement Approval Order”), the Bankruptcy Court approved this Disclosure Statement, finding that it contains “adequate information,” as that term is used in section 1125(a)(1) of the Bankruptcy Code. The Bankruptcy Court’s approval of this Disclosure Statement is not an endorsement of the Plan.

IT IS THE DEBTORS’ OPINION THAT CONFIRMATION AND IMPLEMENTATION OF THE PLAN IS IN THE BEST INTERESTS OF THE DEBTORS’ ESTATES, CREDITORS, AND EQUITY INTEREST HOLDERS. THEREFORE, THE DEBTORS RECOMMEND THAT CREDITORS AND INTEREST HOLDERS VOTE TO ACCEPT THE PLAN.

BALLOTS FOR VOTING TO ACCEPT OR REJECT THE PLAN MUST BE RECEIVED BY AUGUST 31, 2018, AT 5:00 P.M. (EASTERN TIME) (THE “VOTING DEADLINE”).

THE RECORD DATE FOR DETERMINING WHICH HOLDERS OF CLAIMS OR INTERESTS MAY VOTE ON THE PLAN IS THE FIRST DATE OF THE HEARING TO APPROVE THE DISCLOSURE STATEMENT, WHICH WAS JULY 17, 2018 (THE “RECORD DATE”).

A HEARING TO CONSIDER CONFIRMATION OF THE PLAN (THE “CONFIRMATION HEARING”) WILL BE HELD BEFORE THE HONORABLE MARY F. WALRATH, UNITED STATES BANKRUPTCY JUDGE, IN COURTROOM 4 OF THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE, 824 NORTH MARKET STREET, 5TH FLOOR, WILMINGTON, DELAWARE 19801, ON SEPTEMBER [●], 2018, AT 10:30 A.M. (EASTERN TIME), OR AS SOON THEREAFTER AS COUNSEL MAY BE HEARD. THE BANKRUPTCY COURT HAS DIRECTED THAT ANY OBJECTIONS TO CONFIRMATION OF THE PLAN BE SERVED AND FILED ON OR BEFORE AUGUST 31, 2018, AT 4:00 P.M. (EASTERN TIME).

PLEASE READ THIS DISCLOSURE STATEMENT, INCLUDING THE PLAN, IN ITS ENTIRETY. A COPY OF THE PLAN IS ANNEXED HERETO AS EXHIBIT A. THIS DISCLOSURE STATEMENT SUMMARIZES THE TERMS OF THE PLAN, BUT SUCH SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE ACTUAL TERMS AND PROVISIONS OF THE PLAN. ACCORDINGLY, IF THERE ARE ANY INCONSISTENCIES BETWEEN THE PLAN AND THIS DISCLOSURE STATEMENT, THE TERMS OF THE PLAN SHALL CONTROL.

SECURITIES LAW NOTICES: THE ISSUANCE OF AND THE DISTRIBUTION UNDER THE PLAN OF REORGANIZED CLAIRE’S PARENT INTERESTS ISSUED PURSUANT TO ARTICLE IV.C OF THE PLAN WILL BE EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933 (AS AMENDED, THE “SECURITIES ACT”) AND ANY OTHER APPLICABLE SECURITIES LAWS TO THE FULLEST EXTENT PERMITTED BY SECTION 1145 OF THE BANKRUPTCY CODE.


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THESE SECURITIES MAY BE RESOLD WITHOUT REGISTRATION UNDER THE SECURITIES ACT OR OTHER FEDERAL SECURITIES LAWS PURSUANT TO THE EXEMPTION PROVIDED BY SECTION 4(A)(1) OF THE SECURITIES ACT, UNLESS THE HOLDER IS AN “UNDERWRITER” WITH RESPECT TO SUCH SECURITIES, AS THAT TERM IS DEFINED IN SECTION 1145(B) OF THE BANKRUPTCY CODE. IN ADDITION, SUCH SECTION 1145 EXEMPT SECURITIES GENERALLY MAY BE RESOLD WITHOUT REGISTRATION UNDER STATE SECURITIES LAWS PURSUANT TO VARIOUS EXEMPTIONS PROVIDED BY THE RESPECTIVE LAWS OF THE SEVERAL STATES. THE AVAILABILITY OF THE EXEMPTION UNDER SECTION 1145 OF THE BANKRUPTCY CODE OR ANY OTHER APPLICABLE SECURITIES LAWS WILL NOT BE A CONDITION TO THE OCCURRENCE OF THE EFFECTIVE DATE. THE FIRST LIEN RIGHTS OFFERING, THE SHAREHOLDER RIGHTS OFFERING, AND THE ISSUANCE AND SALE OF THE NEW PREFERRED EQUITY INTERESTS PURSUANT TO THE RIGHTS OFFERING AND TO THE ELIGIBLE FIRST LIEN HOLDERS UNDER THE NEW MONEY BACKSTOP COMMITMENT AGREEMENT (INCLUDING THE NEW PREFERRED EQUITY INTERESTS BACKSTOP PUT PREMIUM) ARE BEING MADE IN RELIANCE ON THE EXEMPTION FROM REGISTRATION SET FORTH IN SECTION 4(A)(2) OF THE SECURITIES ACT AND REGULATION D THEREUNDER. SUCH SECURITIES WILL BE CONSIDERED “RESTRICTED SECURITIES” AND MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR UNDER AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUCH AS, UNDER CERTAIN CONDITIONS, THE RESALE PROVISIONS OF RULE 144 OF THE SECURITIES ACT. THE SECURITIES ISSUED PURSUANT TO THE PLAN HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE “SEC”) OR BY ANY STATE SECURITIES COMMISSION OR SIMILAR PUBLIC, GOVERNMENTAL, OR REGULATORY AUTHORITY, AND NEITHER THE SEC NOR ANY SUCH STATE AUTHORITY HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT OR UPON THE MERITS OF THE PLAN. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. CERTAIN STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT, INCLUDING STATEMENTS INCORPORATED BY REFERENCE, PROJECTED FINANCIAL INFORMATION, AND OTHER FORWARD-LOOKING STATEMENTS, ARE BASED ON ESTIMATES AND ASSUMPTIONS. THERE CAN BE NO ASSURANCE THAT SUCH STATEMENTS WILL BE REFLECTIVE OF ACTUAL OUTCOMES. FORWARD-LOOKING STATEMENTS SHOULD BE EVALUATED IN THE CONTEXT OF THE ESTIMATES, ASSUMPTIONS, UNCERTAINTIES, AND RISKS DESCRIBED HEREIN.


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CERTAIN STATEMENTS CONTAINED IN THE DISCLOSURE STATEMENT, INCLUDING STATEMENTS INCORPORATED BY REFERENCE, PROJECTED FINANCIAL INFORMATION (SUCH AS THAT REFERRED TO IN THE PRECEDING PARAGRAPH AND UNDER THE CAPTION “FINANCIAL PROJECTIONS” ELSEWHERE IN THIS DISCLOSURE STATEMENT, INCLUDING EXHIBIT G HERETO) AND OTHER FORWARD-LOOKING STATEMENTS, ARE BASED ON ESTIMATES AND ASSUMPTIONS. THERE CAN BE NO ASSURANCE THAT SUCH STATEMENTS WILL BE REFLECTIVE OF ACTUAL OUTCOMES. FORWARD-LOOKING STATEMENTS SHOULD BE EVALUATED IN THE CONTEXT OF THE ESTIMATES, ASSUMPTIONS, UNCERTAINTIES, AND RISKS DESCRIBED HEREIN. FURTHERMORE, READERS ARE CAUTIONED THAT ANY FORWARD-LOOKING STATEMENTS HEREIN INCLUDING ANY PROJECTIONS, ARE SUBJECT TO A NUMBER OF ASSUMPTIONS, RISKS, AND UNCERTAINTIES, MANY OF WHICH ARE BEYOND THE CONTROL OF THE DEBTORS, INCLUDING THE IMPLEMENTATION OF THE PLAN. IMPORTANT ASSUMPTIONS AND OTHER IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY AND INCLUDE, BUT ARE NOT LIMITED TO, THOSE FACTORS, RISKS AND UNCERTAINTIES DESCRIBED IN MORE DETAIL IN THE COMPANY’S FILINGS WITH THE SEC AND UNDER THE HEADING “FACTORS TO BE CONSIDERED BEFORE VOTING” BELOW, AS WELL AS THE ABILITY OF MANAGEMENT TO EXECUTE ITS PLANS TO MEET ITS GOALS AND OTHER RISKS INHERENT IN THE DEBTORS’ BUSINESSES. PARTIES ARE CAUTIONED THAT THE FORWARD-LOOKING STATEMENTS SPEAK AS OF THE DATE MADE, ARE BASED ON THE DEBTORS’ CURRENT BELIEFS, INTENTIONS AND EXPECTATIONS, AND ARE NOT GUARANTEES OF FUTURE PERFORMANCE. ACTUAL RESULTS OR DEVELOPMENTS MAY DIFFER MATERIALLY FROM THE EXPECTATIONS EXPRESSED OR IMPLIED IN THE FORWARD-LOOKING STATEMENTS, AND THE DEBTORS UNDERTAKE NO OBLIGATION TO UPDATE ANY SUCH STATEMENTS. THE DEBTORS AND REORGANIZED DEBTORS, AS APPLICABLE, DO NOT INTEND AND UNDERTAKE NO OBLIGATION TO UPDATE OR OTHERWISE REVISE ANY FORWARDLOOKING STATEMENTS, INCLUDING ANY PROJECTIONS CONTAINED HEREIN, TO REFLECT EVENTS OR CIRCUMSTANCES EXISTING OR ARISING AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATEDEVENTS OR OTHERWISE, UNLESS INSTRUCTED TO DO SO BY THE BANKRUPTCY COURT. NO INDEPENDENT AUDITOR OR ACCOUNTANT HAS REVIEWED OR APPROVED THE FINANCIAL PROJECTIONS OR THE LIQUIDATION ANALYSIS HEREIN. THE DEBTORS HAVE NOT AUTHORIZED ANY PERSON TO GIVE ANY INFORMATION OR ADVICE, OR TO MAKE ANY REPRESENTATION, IN CONNECTION WITH THE PLAN OR THE DISCLOSURE STATEMENT. THE STATEMENTS CONTAINED IN THE DISCLOSURE STATEMENT ARE MADE AS OF THE DATE HEREOF UNLESS OTHERWISE SPECIFIED. THE TERMS OF


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THE PLAN GOVERN IN THE EVENT OF ANY INCONSISTENCY WITH THESUMMARIES IN THE DISCLOSURE STATEMENT. WHERE TO FIND ADDITIONAL INFORMATION: Claire’s Stores currently files annual reports with, and furnishes other information to, the SEC. Copies of any document filed with the SEC may be obtained by visiting the SEC website at http://www.sec.gov and performing a search under the “Company Filings” link. Each of the following filings is incorporated as if fully set forth herein and is a part of this Disclosure Statement (but later information filed with the SEC that updates information in the filings incorporated by reference will update and supersede that information):

Form 10-Q for the quarterly period ended May 5, 2018, filed with the SEC on June 15, 2018; and

Form 10-K for the fiscal year ended February 3, 2018, filed with the SEC on April 20, 2018, and amended on June 1, 2018.

C. Background and Overview of the Plan2

The Plan encompasses a comprehensive restructuring of the Debtors, which is the product of the Debtors’ arm’s-length negotiations and an agreement with certain holders of indebtedness arising under the (i) 6.125% First Lien Notes Documents, (ii) the 9.00% First Lien Notes Documents, (iii) the Prepetition First Lien Term Loan Documents, (iv) the Second Lien Notes Documents, and (v) the Unsecured Notes Documents (the “Ad Hoc First Lien Group”), as set forth in the Amended Verified Statement of Willkie Farr & Gallagher LLP and Morris Nichols Arsht & Tunnell LLP Pursuant to Bankruptcy Rule 2019 [Docket No. 503], as the same may be amended from time to time, and Apollo Management Holdings, L.P. (the “Sponsor”).

The following table provides a summary of the classification and treatment of Claims and Interests under the Plan and is qualified in its entirety by reference to the Plan:

2 This overview is qualified in its entirety by reference to the Plan. The treatment of Claims and Interests

under the Plan is not intended to, and will not, waive, compromise, or limit any rights, claims, or causes of action if the Plan is not confirmed. You should read the Plan in its entirety before voting to accept or reject the Plan.


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Class and Designation

Impairment and

Entitlement to Vote

Treatment under the Plan

Estimated Allowed Amount

and Approx.

Percentage Recovery

Estimated Recovery in Chapter 7

1 (Other Priority Claims)

Unimpaired

Not Entitled to

Vote (Presumed to Accept)

Each Holder of an Allowed Other Priority Claim shall receive payment in full, in Cash, of the unpaid portion of its Other Priority Claim on the Effective Date or as soon thereafter as reasonably practicable (or, if payment is not then due, shall be paid in accordance with its terms in the ordinary course).

Estimated Allowed Amount: $1,000,000.00 Estimated Percentage Recovery: 100.0%

Estimated Percentage Recovery: 0.0%

2 (Other

Secured Claims)

Unimpaired

Not Entitled to


Each Holder of an Allowed Other Secured Claim shall receive at the applicable Debtor’s, with the consent of the Requisite Consenting Creditors (which consent shall not be unreasonably withheld), or the applicable Reorganized Debtor’s, discretion: (i) payment in full in Cash of the unpaid portion of such Holder’s Allowed Other Secured Claim on the Effective Date or as soon thereafter as reasonably practicable (or if payment is not then due, payment shall be made in accordance with its terms in the ordinary course); (ii) reinstatement of such Holder’s Allowed Other Secured Claim; (iii) the applicable Debtor’s interest in the Collateral securing such Holder’s Other Secured Claim; or (iv) such other treatment rendering such Holder’s Allowed Other Secured Claim Unimpaired.

Estimated Allowed Amount: $0.00 Estimated Percentage Recovery: N/A

Estimated Percentage Recovery: N/A


7


Impairment and

Entitlement to Vote



and Approx.

Percentage Recovery


3 (Prepetition

ABL Claims)

(all Debtors other than Claire’s Parent)

Unimpaired

Not Entitled to


Each Holder of an Allowed Prepetition ABL Claim against any Debtor other than Claire’s Parent shall receive payment in full, in Cash, of the unpaid portion of its Prepetition ABL Claim on the Effective Date.



4 (Prepetition LC Facility

Claims)

Unimpaired

Not Entitled to


Each Holder of an Allowed Prepetition LC Facility Claim shall receive at the applicable Debtor’s, with the consent of the Requisite Consenting Creditors (which consent shall not be unreasonably withheld), or the applicable Reorganized Debtor’s, discretion, such treatment rendering such Holder’s Allowed Prepetition LC Facility Claim Unimpaired or causing the Prepetition LC Facility to be Reinstated.

Estimated Allowed Amount: $4,933,364.45 Estimated Percentage Recovery: 100.0%


5 (Prepetition

ABL Claims)

(Claire’s Parent)

Unimpaired

Not Entitled to


Each Holder of a Prepetition ABL Claim against Claire’s Parent shall receive a Cash recovery in an amount equal to the Allowed amount of such Claim against Claire’s Parent.




8


Impairment and

Entitlement to Vote



and Approx.

Percentage Recovery


6 (Prepetition

RCF Claims)

(Claire’s Parent)

Unimpaired

Not Entitled to


Each Holder of a Prepetition RCF Claim against Claire’s Parent shall receive a Cash recovery in an amount equal to the Allowed amount of such Claim against Claire’s Parent.



7 (First Lien

Debt Secured Claims)


Impaired

Entitled to Vote

Each Holder of an Allowed First Lien Debt Secured Claim against any Debtor other than Claire’s Parent, in each case without duplication among the Debtors, shall receive from Claire’s Stores its Pro Rata share of, as applicable: (i) 100% of the Reorganized Claire’s Parent Interests, subject to dilution by the New Preferred Equity Interests and the Management Equity Incentive Plan; (ii) with respect to Eligible First Lien Holders, the First Lien Subscription Rights; and (iii) with respect to each Ineligible First Lien Holders, Cash in the amount equal to the value of the First Lien Subscription Rights that would have been distributable to such Holder if such Holder was an Eligible First Lien Holder.

Estimated Allowed Amount: $1,137,612,367.85 Estimated Percentage Recovery:3 72.4%4

Estimated Percentage Recovery: 6.2%–15.6%5

3 Estimated recovery calculated as total distributable value at emergence less distributions on account of non-First

Lien Debt Secured Claims and applicable exit costs and fees. To the extent a Holder of First Lien Debt Claims backstops or subscribes to the New Money Investment, such Holder of First Lien Debt Claims shall fund the purchase of loans under the Exit Term Loan Facility and the New Preferred Equity Interests, the features of which, including the Make-Whole Premiums (as defined herein) and the Preferred Redemption Premiums (as defined herein), are described below in Section IV.K.12. For the avoidance of doubt, the value of these premiums are not included in the above estimated recovery calculations.

4 Reflects total estimated recovery with respect to all First Lien Debt Claims (including First Lien Debt Secured Claims and First Lien Debt Deficiency Claims).

5 Reflects total estimated recovery with respect to all First Lien Debt Claims (including First Lien Debt Secured Claims and First Lien Debt Deficiency Claims).


9


Impairment and

Entitlement to Vote



and Approx.

Percentage Recovery


8 (Unsecured

Claims)

(Claire’s Parent)

Unimpaired

Not Entitled to


Each Holder of an Allowed Unsecured Claim against Claire’s Parent shall receive a Cash distribution on a Pro Rata basis from the Claire’s Parent Assets.



9 (Unsecured

Claims)


Impaired

Entitled to Vote

Each Holder of an Allowed Unsecured Claim against any Debtor other than Claire’s Parent shall receive its Pro Rata share of the Unsecured Recovery Cash Pool.

Estimated Allowed Amount: $765,321,802.996 Estimated Percentage Recovery: 0.00%–0.53%7

Estimated Percentage Recovery: 0.0–0.0%

6 Reflects a First Lien Debt Deficiency Claim of approximately $288,287,776.49; Second Lien Notes Claims of

approximately $232,383,775.00; Unsecured Notes Claims of approximately $221,781,251.50; and estimated General Unsecured Claims of approximately $22,869,000.00. The Debtors have not completed the reconciliation of Claims filed against them in the Chapter 11 Cases as of the date hereof. General Unsecured Claims ultimately may exceed the estimation of such Claims contained herein, which may have a corresponding impact on recoveries.

7 Reflects total estimated recovery in the event that all General Unsecured Claims elect to receive treatment as General Unsecured Elective Claims.


10


Impairment and

Entitlement to Vote



and Approx.

Percentage Recovery


10 (General

Unsecured Elective Claims)


Impaired

Entitled to Vote

Each Holder of an Allowed General Unsecured Elective Claim against any Debtor other than Claire’s Parent shall receive on the Effective Date or as soon as practicable thereafter its Pro Rata share of the General Unsecured Elective Claim Recovery Cash Pool of $6,000,000. Holders of First Lien Secured Debt Claims shall be deemed to have consented to a carve-out of the proceeds from their Collateral to fund a distribution to Holders of Allowed General Unsecured Elective Claims. All distributions to Holders of Allowed General Unsecured Elective Claims are made exclusively from such carve-out.


Estimated Percentage Recovery: 0.0–0.0%

11 (Prepetition

Intercompany Claims)

Unimpaired

Not Entitled to


Each Holder of an Allowed Prepetition Intercompany Claim shall receive such treatment as to render such Holder Unimpaired.

Estimated Allowed Amount: N/A Estimated Percentage Recovery: N/A


12 (Section 510(b) Claims)

Impaired

Not Entitled to

Vote (Deemed to

Reject)

Section 510(b) Claims will be canceled, released, discharged, and extinguished as of the Effective Date, and will be of no further force or effect, and Holders of Section 510(b) Claims will not receive any distribution on account of such Claims.




11


Impairment and

Entitlement to Vote



and Approx.

Percentage Recovery


13 (Intercompany

Interests)

Unimpaired

Not Entitled to


Intercompany Interests shall be Reinstated so as to maintain the organizational structure of the Debtors as such structure exists on the Effective Date unless implementation of the Restructuring requires otherwise.



14 (Existing Claire’s

Parent Equity Interests)

Impaired

Entitled to Vote

Each Holder of an Existing Claire’s Parent Equity Interest shall receive its Pro Rata share of, as applicable: (i) with respect to Eligible Shareholders, the Shareholder Subscription Rights; (ii) with respect to Ineligible Shareholders, Cash in the amount equal to the value of the Shareholder Subscription Rights that would have been distributable to such Shareholder if such Shareholder was an Eligible Shareholder; and (iii) the Cash proceeds or other consideration, if any, available from the Claire’s Parent Assets after all Allowed Claims against Claire’s Parent are satisfied in full with the proceeds from the Claire’s Parent Assets; provided that the Sponsor, the Sponsor’s Affiliates, and the Sponsor’s or Sponsor’s Affiliates’ successors or subsidiaries, in each case that is a Holder of Existing Claire’s Parent Equity Interests, shall not, in any event, receive, solely in its capacity as such, Reorganized Claire’s Parent Interests in exchange for, or as a distribution with respect to, such Holder’s Existing Claire’s Parent Equity Interests.

Estimated Allowed Amount: N/A Estimated Recovery: Ratable distribution of approximately $14.85 million8


8 Reflects expected cash proceeds of Claire’s Parent Assets consisting of the applicable proceeds from the

Gibraltar Repayment and the CLSIP Repayment.


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D. Restructuring Support Agreement

In connection with negotiation of the Plan, the Debtors, the Sponsor, and the Ad Hoc First Lien Group entered into the Restructuring Support Agreement, dated as of March 19, 2018 (as amended from time to time, the “Restructuring Support Agreement”) [Docket No. 119-1]. Pursuant to the Terms of the Restructuring Support Agreement, certain additional creditors of the Company may from time to time execute joinders to become parties to the Restructuring Support Agreement (such joining creditors, together with the Ad Hoc First Lien Group, the “Consenting Creditors”). As of June 25, 2018, parties holding approximately 98.3% of the First Lien Claims were either Initial Consenting Creditors (as defined in the Restructuring Support Agreement) or executed joinders and have become Consenting Creditors. The Sponsor holds First Lien Debt Claims and, along with the Initial Consenting Creditors, negotiated for investment rights and related fees as part of the Restructuring Support Agreement negotiations.

The Restructuring Support Agreement provides that the Sponsor and the Consenting Creditors will support the Plan and the restructuring transactions contemplated thereby, subject to the terms and provisions of the Restructuring Support Agreement. In addition, pursuant to the Restructuring Support Agreement, the Debtors have agreed to move forward expeditiously with confirmation and consummation of the Plan and to be subject to certain milestones which, if not achieved, enable the Requisite Consenting Creditors to terminate the Restructuring Support Agreement. The relevant milestones to be achieved include (a) commencement of the Rights Offering (as defined herein) and the solicitation of votes in connection with the Plan no later than the first business day that is at least seven (7) days after entry of the Disclosure Statement Approval Order, (b) entry of the Confirmation Order by no later than seventy-five (75) days after entry of the Disclosure Statement Approval Order, and, pursuant to the Restructuring Support Agreement as originally executed, (c) the occurrence of the Effective Date under the Plan by no later than September 30, 2018.

The Restructuring Support Agreement also provides that the occurrence of the Effective Date shall be subject to certain conditions precedent, including (a) the continued effectiveness of the Restructuring Support Agreement; (b) the entry of the DIP Orders, the Disclosure Statement Approval Order, and the Confirmation Order by the Bankruptcy Court; (c) the nonoccurrence of a default under the DIP Facility resulting in the acceleration of indebtedness under the DIP Facility; (d) the entry into credit agreements governing the terms of the Exit ABL Revolver Facility and the Exit Term Loan by the Debtors; (e) the continued effectiveness of the New Money Backstop Commitment Agreement; (f) the establishment and funding of the Professional Fee Escrow; (g) the Debtors’, together with their non-debtor affiliates, generating consolidated annual Adjusted EBITDA of at least $185 million measured as of the last month for which internal financial statements are available, and adjusted for a 52-week year; (h) the Debtors’, together with their non-debtor affiliates, possessing minimum consolidated Cash on hand on the Effective Date of $75 million assuming no draw on the Exit ABL Revolver and pro forma for all uses of Cash associated with the Restructuring, after giving effect to emergence costs and funding the Professional Fee Escrow; and (i) the Debtors’ completion of the process of assuming, rejecting, and/or renegotiating their leases of nonresidential real property in a manner reasonably acceptable to the Requisite Consenting Creditors, as evaluated by reference to the Debtors’ store portfolio as a whole. Any condition precedent to the Effective Date may be waived with the consent of the Debtors and the Requisite Consenting Creditors.


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On July 7, 2018, the Debtors and the Consenting Creditors agreed to amend the Restructuring Support Agreement and executed the First Amended Restructuring Support Agreement, dated as of July 7, 2018 [Docket No. 584-1], a copy of which is annexed hereto as Exhibit C. As amended, the Restructuring Support Agreement, among other things, (i) permits the Debtors to solicit, develop, and negotiate any and all plans of reorganization that contemplate a sale of some, all, or substantially all of the Debtors’ assets (each, an “Alternative Plan”)9 pursuant to the Marketing Process Order (as defined herein) and (ii) extends the milestone for the occurrence of the Effective Date under the Plan to September 30, 2018.

The Creditors’ Committee has asserted that the Sponsor’s entry-into the Restructuring Support Agreement results from the Sponsor’s control over the Debtors in violation of the absolute priority rule and the spirit of the Bankruptcy Code. The Debtors and the Sponsor disagree with the Creditors’ Committee’s assertions, and, to date, the Creditors’ Committee has not identified with specificity any basis for such assertions.

E. New Money Backstop Commitment Agreement

To provide commitments for the full amount of the New Money Investment supporting the Debtors’ emergence from bankruptcy, the members of the Ad Hoc First Lien Group and certain other holders of First Lien Debt Claims, including the Sponsor, (the “Backstop Parties”) and the Debtors entered into the New Money Backstop Commitment Agreement on March 31, 2018. The New Money Backstop Commitment Agreement generally provides as follows:

The Backstop Parties will backstop an investment in the Company of up to $575 million (the “New Money Investment”) comprised of (i) a $75 million new exit ABL revolver (the “New ABL Revolver”), (ii) $250 million of a new first lien exit term loan (the “New First Lien Term Loan”), and (iii) up to $250 million of preferred stock or equity interests of Reorganized Claire’s Parent (the “New Preferred Equity Interests”).

As part of the solicitation of acceptances for the Plan, the Debtors shall commence a rights offering (the “Rights Offering”) through which Eligible First Lien Holders will receive rights to participate, on a pro rata basis, in 50% of the New Money Investment.

The Backstop Parties will purchase any and all of the New Money Investment not subscribed in the Rights Offering.

9 Previously, the Restructuring Support Agreement limited the Debtors to the solicitation, development, and

negotiation of a “Payout Event Proposal,” which the Restructuring Support Agreement defined as a “good faith proposal, offer, or indication of interest from a Payout Event Sponsor to fund a transaction that contemplates a Payout Event on or prior to November 30, 2018.” The Restructuring Support Agreement defines “Payout Event Sponsor” as “a Person that the Company’s board of directors believes in good faith has expressed, or that may express, a legitimate interest in, and has the financial ability to consummate, a Payout Event.” Pursuant to the terms of the Restructuring Support Agreement, as amended, and in accordance with the Marketing Process Order (as defined herein), the Debtors are permitted to solicit, develop, and negotiate Alternative Plans and are in no way limited to soliciting, developing, or negotiating Payout Event Proposals.


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The New Preferred Equity Interests shall initially be convertible into 26.3% 10 of Reorganized Claire’s Parent Interests, at the holders’ option at any time.

The New Preferred Equity Interests will bear a 14% annual dividend on its liquidation preference (inclusive of all fees and additional New Preferred Equity Interests issued as part of the Restructuring), accrued quarterly.

The New Preferred Equity Interests, which shall have an aggregate investment amount equal to the greater of (x) $200 million and (y) the investment amount of New Preferred Equity Interests, not to exceed $250 million, such that the Company’s consolidated Cash on the Effective Date shall be not more than $100 million assuming no draw on the New ABL Revolver and pro forma for all uses of Cash associated with the Restructuring, will be offered at a 37.5% discount to Plan equity value, and shall have a maximum initial liquidation preference of $400 million excluding fees.

The New Preferred Equity Interests shall have an early redemption premium, subject to waiver by two-thirds supermajority of holders of the New Preferred Equity Interests, owed and payable upon a change of control, merger, sale of all or substantially all assets, acceleration, default, bankruptcy, insolvency, redemption, or prepayment, whether mandatory or at the Reorganized Debtors’ option.

In exchange for providing their respective Backstop Commitments and commitments to purchase their respective Initial Subscription Amounts, each Backstop Party will receive its allocation set forth in the New Money Backstop Commitment Agreement of the Backstop Put Premium and Commitment Premiums. The Backstop Put Premiums consists of $17,500,000 in New Preferred Equity Interests and $8,750,000 in Cash, and the Commitment Premiums consist of $8,750,000 in New Preferred Equity Interests and $3,750,000 in Cash. The Backstop Parties have agreed to pay (or cause to be paid) to each Supporting Party that is not a Backstop Party such Supporting Party’s Pro Rata share of the Commitment Premiums.

THE COMMENCEMENT OF THE RIGHTS OFFERING IS SUBJECT TO ENTRY BY THE BANKRUPTCY COURT OF AN ORDER (WHICH MAY BE THE DISCLOSURE STATEMENT ORDER) APPROVING THE RIGHTS OFFERING PROCEDURES.

F. Disclosure Statement Enclosures

The following three (3) enclosures accompany this Disclosure Statement:

1. Disclosure Statement Approval Order. A copy of the Disclosure Statement Approval Order (without exhibits), which, among other things, approves this Disclosure Statement, establishes procedures for voting on the Plan (the “Voting Procedures”), and schedules the Confirmation Hearing and the deadline for objecting to confirmation of the Plan.

10 Assumes (i) a $200 million Preferred Investment Amount, (ii) the Debtors holding an estimated $167 million of

Cash on the Effective Date (pro forma for all sources and uses of Cash associated with the Restructuring), and (iii) excludes any dilution from a potential Management Equity Incentive Plan. This amount is subject to change based on the final estimated Cash amount as of the Effective Date.


15

2. Confirmation Hearing Notice. A copy of the notice of the Voting Deadline, which sets out, among other things, notice of the date, time, and place of the Confirmation Hearing and the deadline for filing objections to confirmation of the Plan (the “Confirmation Hearing Notice”).

3. Ballots. One or more Ballots (and return envelopes) for voting to accept or reject the Plan (unless you are not entitled to vote because you are (a) not impaired under the Plan and are presumed to accept the Plan, (b) deemed to reject the Plan, or (c) a holder of a Claim subject to an objection filed by the Debtors, which Claim is temporarily disallowed for voting purposes). See Section VIII of this Disclosure Statement for an explanation of which parties are entitled to vote and a description of the Voting Procedures.

G. Inquiries

If you have any questions about the packet of materials you have received, please contact Prime Clerk LLC, the Debtors’ voting agent (the “Voting Agent”), at 1-844-276-3027 (domestic toll-free) or 1-917-962-8890 (international). Additional copies of this Disclosure Statement, the Plan, or the Plan Supplement (when filed) are available upon written request made to the Voting Agent at the following address:

Claire’s Stores Ballot Processing c/o Prime Clerk, LLC

830 Third Avenue, 3rd Floor New York, NY 10022

Copies of this Disclosure Statement, which includes the Plan and the Plan Supplement (when filed) are also available on the Voting Agent’s website, https://cases.primeclerk.com/claires. PLEASE DO NOT DIRECT INQUIRIES TO THE BANKRUPTCY COURT.

II. OVERVIEW OF THE DEBTORS’ OPERATIONS

A. The Debtors’ Business Operations

The Claire’s Group is one of the world’s leading specialty retailers of fun, affordable, fashionable jewelry, accessories, and beauty products for young women, teens, “tweens,” and kids. The Debtors also believe that the Claire’s Group is the world’s leading ear piercer, having pierced over 100,000,000 ears since it began offering the service in 1978. The Claire’s Group operates its retail stores under two distinct brands: (i) the Claire’s® brand, which is the Debtors’ primary global brand, and (ii) the Icing® brand, which is dedicated to serving a more mature customer base. From an organizational perspective, the Claire’s Group’s operations are organized by geography between two divisions: (i) the North American division, which encompasses the Debtors’ operations in the United States, Puerto Rico, and the U.S. Virgin Islands, along with Canadian operations undertaken by non-Debtor Claire’s Stores Canada Corp, and (ii) the European division, which encompasses the Claire’s Group’s operations outside of North America.


16

The Company operates Claire’s® through a combination of Company-operated stores, franchised stores, and concessions stores in 45 countries across the globe. The Claire’s® mission is to be a “girl’s best friend” and a favorite shopping destination for teens, tweens, and kids. The target Claire’s® customer is a girl between the ages of three and eighteen years old. As of the commencement of these Chapter 11 Cases, the Claire’s Group operated approximately 2,328 Claire’s® stores across North America and Europe, franchised 695 Claire’s® stores in 31 countries across the globe, and operated 4,484 Claire’s® concessions locations in twelve countries. As of the Commencement Date, a Claire’s® store was located in approximately 99% of major shopping malls throughout the United States.

Additionally, as of the Commencement Date, the Claire’s Group operated approximately 285 Icing®-branded stores, including 261 Company-operated locations and 24 franchised locations. The Icing® mission is to be a “say something” brand that caters to a more mature customer base, with the target Icing® customer being an independent, fashion-conscious young woman between the ages of eighteen and thirty-five years old. As with Claire’s®-branded stores, Icing®-branded stores are designed to create a “treasure hunt” experience that encourages customers to visit often and explore an ever-changing merchandise assortment. The differentiation between Claire’s® and Icing® allows the Company to operate multiple store locations within a single mall or in close proximity and to serve a wider demographic. Further, the Company aims to establish long-term, meaningful relationships with young Claire’s® customers who mature to become loyal Icing® customers.

The Claire’s Group maintains a diversified geographic footprint, with an established retail presence worldwide. As of the Commencement Date, the Debtors operated approximately 1,440 store locations in the United States, Puerto Rico, and the Virgin Islands. Each of the Debtors’ store locations are leased and are typically located in traditional shopping malls with, on average, approximately 1,000 square feet of selling space. Outside the United States, as of the Commencement Date, the Debtors’ non-Debtor affiliates operated approximately 1,150 Company-run stores and 563 concessions locations. As of the Commencement Date, the Claire’s Group franchised approximately 719 stores across Africa, Asia, Europe, Latin America, and the Middle East.

In addition to its Company-operated and franchised store locations, the Claire’s Group sells its merchandise through a “concessions” channel. The Claire’s Group operates its concessions business by partnering with prominent retailers to provide branded merchandise for sale within the partners’ own retail locations. The Company’s typical concessions partners are retailers with store locations benefitting from heavy daily foot traffic, such as pharmacies, supermarkets, and other specialty retail locations located outside of the traditional shopping mall format. Concessions partners, in turn, are paid a commission in connection with the sale of the Claire’s Group’s goods at those locations. By partnering with other retailers, the Claire’s Group is able to gain access to new sales channels without encroaching on its traditional mall-based operations. As of the Commencement Date, the Debtors operated approximately 3,921 concessions locations in the United States and Puerto Rico. Worldwide, as of the Commencement Date, the Claire’s Group operated approximately 4,484 concessions locations across 12 countries, including those Debtor-operated concessions locations. Due to the ongoing liquidation of Toys ‘R’ Us and the resultant loss of Toy ‘R’ Us as a concessions partner, the Debtors expected to cease operations at approximately 372 of their U.S. concessions locations by the end of June 2018.


17

B. The Debtors’ Corporate Structure

Debtor Claire’s Parent is the Company’s ultimate parent through its 100% ownership of Claire’s Stores. Claire’s Stores owns, directly or indirectly, each of the Debtors and each of the Debtors’ non-Debtor affiliates. The organizational structure of the Debtors and their non-Debtor affiliates as of the Commencement Date is annexed hereto as Exhibit F.

The substantial majority of the Claire’s Group’s international operations is undertaken by the direct and indirect subsidiaries of non-Debtor Claire’s (Gibraltar) Holdings Limited (“Gibraltar Holdings”), the holding company for the Company’s European division.11 None of Gibraltar Holdings’ subsidiaries are Debtors in these Chapter 11 Cases. Additionally, the Claire’s Group’s Canadian operations are undertaken by Claire’s Stores Canada Corp., a non-Debtor entity organized under Canadian law.12 In Fiscal 2017, the Claire’s Group’s international operations outside of North America accounted for approximately 37% of the Company’s total revenue.

The Claire’s Group’s corporate structure also includes non-Debtors CLSIP LLC (“CLSIP”) and CSLIP Holdings LLC (“CLSIP Holdings” and, together with CLSIP, the “CLSIP Entities”), each of which were formed in connection with the 2016 Exchange and the CLSIP Term Loan (each as defined below). Through this exchange transaction, Debtor CBI Distributing Corp. (“CBI”), the entity that holds the Claire’s Group’s intellectual property, contributed certain Transferred IP13 to CLSIP in exchange for, among other things, a six-year royalty licensing agreement, which gave Claire’s Stores the exclusive right, through CBI, to use the Transferred IP

11 As set forth on Exhibit E, the immediate parent of Gibraltar Holdings is Claire’s Swiss Holdings LLC

(“Claire’s Swiss Holdings”), a limited liability company organized under Delaware law. As noted above, Claire’s Swiss Holdings is neither a Debtor in these chapter 11 cases nor an obligor with respect to any of the Claire’s Group’s funded debt.

12 As set forth on Exhibit E, Claire’s Stores Canada Corp. is neither a Debtor in these chapter 11 cases nor an obligor with respect to any of the Claire’s Group’s funded debt. Claire’s Stores Canada Corp. is a direct subsidiary of Claire’s Canada Corp., which is a Debtor in these chapter 11 cases.

13 The “Transferred IP” consists of (i) an undivided 17.5% interest in all (a) trademark registrations and applications for trademark registration issued by or filed with any federal government authority in the United States related to the Claire’s® brand, (b) common law trademark rights in and to the Claire’s® brand in the United States, and (c) the associated goodwill of the assets described in clauses (a) and (b); in each case, whether in existence or later adopted, filed, or acquired (collectively, the “US Claire’s Marks”); (ii) all (a) trademark registrations and applications for trademark registration issued by or filed with any federal government authority in the United States related to the Icing® brand, (b) common law trademark rights in and to the Icing® brand in the United States, and (c) the associated goodwill of the assets described in the preceding clauses (a) and (b); in each case, whether in existence or later adopted, filed, or acquired (collectively, the “US Icing Marks”); (iii) certain internet domain names that incorporate, correspond with or are otherwise related to the Claire’s® and Icing® brands (the “Domain Names”); and (iv) a mobile application agreement pursuant to which the Claire’s® mobile application is licensed from a third party (the “Mobile Application Agreement”).


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(the “Transferred IP Agreement”).14 Pursuant to the CLSIP Term Loan, Claire’s Parent contributed $11.5 million of Cash to the capital of Claire’s Stores. Pursuant to the Transferred IP Agreement, Claire’s Stores agreed to pay CLSIP annual royalties of $12 million, (paid in two $6 million semi-annual payments), for six years, in exchange for the exclusive right to use the Transferred IP. CBI sublicenses the Transferred IP to certain affiliates in the Claire’s Group. As detailed below, the CLSIP Entities are obligors on the CLSIP Term Loan, the aggregate principal amount outstanding under which is approximately $105 million as of the Commencement Date. The CLSIP Entities are not obligors with respect to any of the Debtors’ funded debt.

As described in further detail below and depicted on Exhibit F, although the Debtors and their non-Debtor affiliates regularly engage in ordinary-course intercompany transactions, none of the Debtors are obligated on any of their non-Debtor affiliates’ funded debt (collectively, the “Non-Debtor Obligations”); conversely, none of the Debtors’ non-Debtor affiliates are obligated on any of the Debtors’ funded debt (collectively, the “Debtors’ Obligations”).

C. Prepetition Capital Structure

1. Indebtedness

As of the Commencement Date, the Claire’s Group’s prepetition capital structure includes approximately $2.1 billion in funded debt. The Debtors’ Obligations and the Non-Debtor Obligations are summarized below:

14 In connection with entry into the CLSIP Term Loan, CLSIP entered into that certain Intellectual Property

Agreement, dated as of September 20, 2016 (the “Transferred IP Agreement”) with Claire’s Stores, CBI, and certain other of Claire’s Stores’ domestic subsidiaries, pursuant to which Claire’s Stores and certain of its domestic subsidiaries agreed to pay CLSIP an annual fee of $12 million in exchange for (i) the exclusive right to use and exploit the US Icing Marks, the Domain Names and the Mobile Application Agreement; (ii) the exclusive right to use, exploit, register, enforce and defend the US Claire’s Marks; and (iii) CLSIP’s acknowledgment that it will not exercise any rights in or to the US Claire’s Marks, either directly or indirectly, during the term of the Transferred IP Agreement without CBI’s prior written consent; in each case, solely during the term of the Transferred IP Agreement and subject to the terms contained therein.


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As of Commencement Date: Debt Instrument (Aggregate Principal)

Funded Debt ($ millions)

Prepetition ABL Credit Facility15 $ 71.0 Prepetition Revolving Credit Facility -- Prepetition LC Facility 4.9 First Lien Term Loan 32.3 9.000% First Lien Notes 1,125.0 6.125% First Lien Notes 210.0

Total First Lien Debt $ 1,443.2 Second Lien Notes 222.3 Unsecured Notes 216.7

Total Debtor Funded Debt $ 1,882.2

Non-Debtor Obligations CLSIP Term Loan $ 105.0 Gibraltar Secured Term Loan 51.5 Gibraltar 2019 Unsecured Term Loan 40.0 Gibraltar 2021 Unsecured Term Loan 48.5

Total Non-Debtor Funded Debt $ 245.0 Total Claire’s Group Funded Debt $ 2,127.3

The below description of the Debtors’ prepetition indebtedness is for informational purposes only and is qualified in its entirety by reference to the specific agreements evidencing such indebtedness.

(a) Prepetition ABL Credit Facility

On August 12, 2016, certain of the Debtors entered into the Prepetition ABL Credit Agreement, effective as of September 20, 2016, by and among Claire’s Stores, as borrower, Claire’s Parent, as Holdings, the other guarantors party thereto (the “Subsidiary Guarantors”16 and, together with Claire’s Stores and Claire’s Parent, the “ABL Obligors”), Credit Suisse AG, Cayman Islands Branch (“Credit Suisse”), as administrative agent, and the lenders party thereto (collectively, the “ABL Lenders”), pursuant to which the ABL Lenders agreed to provide Claire’s Stores with revolving credit loans, subject to a borrowing base availability, in an amount up to $75 million (the “Prepetition ABL Credit Facility”) less any amounts outstanding under the Prepetition Revolving Credit Facility and issued letters of credit (as defined below).

The Debtors’ obligations under the Prepetition ABL Credit Facility are unconditionally guaranteed by Claire’s Parent and each of the Subsidiary Guarantors. All obligations under the Prepetition ABL Credit Facility, and the guarantees of those obligations, are secured, subject to certain exceptions and permitted liens, by (i) a first-priority security interest in the ABL Priority Collateral (as defined in the ABL Intercreditor Agreement (as defined below)), which includes,

15 The Debtors refinanced the Prepetition ABL Credit Facility with the proceeds of the DIP Facility on March 22,

2018.

16 The Subsidiary Guarantors include Debtors Claire’s Puerto Rico Corp., CBI Distributing Corp., Claire’s Boutiques, Inc., BMS Distributing Corp., Claire’s Canada Corp., and CSI Canada LLC.


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among other things, Cash, deposit accounts, accounts receivable, inventory, and chattel paper; and (ii) versus obligations outstanding under the First Lien Term Loan and the First Lien Notes (each as defined below), a second-priority security interest in the Notes Priority Collateral (as defined in the ABL Intercreditor Agreement), which generally includes all collateral other than the ABL Priority Collateral, including all real estate, equipment, intellectual property, and equity interests in subsidiaries.

The Prepetition ABL Credit Facility was scheduled to mature on February 4, 2019. As of the Commencement Date, the aggregate principal amount outstanding under the Prepetition ABL Credit Facility was approximately $71 million. Additionally, as of the Commencement Date, there were approximately $4 million in issued and outstanding letters of credit under the Prepetition ABL Credit Facility. The Debtors refinanced the Prepetition ABL Credit Facility with the proceeds of the DIP Facility on March 22, 2018.

(b) Prepetition Revolving Credit Facility

On August 12, 2016, certain of the Debtors entered into the Prepetition Revolving Credit Agreement, effective as of September 20, 2016, by and among Claire’s Stores, as borrower, Claire’s Parent, as Holdings, the Subsidiary Guarantors, as guarantors, Credit Suisse, as administrative agent, and the lenders party thereto (collectively, the “RCF Lenders”), pursuant to which the RCF Lenders agreed to provide Claire’s Stores with revolving credit loans in an amount up to $75 million less any amounts outstanding under the Prepetition ABL Credit Facility and issued letters of credit (the “Prepetition Revolving Credit Facility”).

The Debtors’ obligations under the Prepetition Revolving Credit Facility are unconditionally guaranteed by Claire’s Parent and each of the Subsidiary Guarantors. All obligations under the Prepetition Revolving Credit Facility, and the guarantees of those obligations, are secured, subject to certain exceptions and permitted liens, on a pari passu basis with the First Lien Term Loan (as defined below) and the First Lien Notes (as defined below) by (i) a first-priority lien on the Notes Priority Collateral, and (ii) a second-priority lien on the ABL Priority Collateral versus obligations outstanding under the Prepetition ABL Credit Facility.

The Prepetition Revolving Credit Facility matures on February 4, 2019. As of the Commencement Date, the aggregate principal amount outstanding under the Prepetition Revolving Credit Facility was $0.

(c) First Lien Notes

Claire’s Stores, successor to Claire’s Escrow II Corporation (“Claire’s Escrow II”),17 as issuer, the Subsidiary Guarantors, as guarantors, and The Bank of New York Mellon Trust Company, N.A. (“Bank of New York”), as indenture trustee and collateral agent, are parties to the 9.00% First Lien Notes Indenture governing the 9.00% First Lien Notes. Interest is payable on the 9.00% First Lien Notes on March 15 and September 15 of each year prior to their maturity. 17 On March 2, 2012, Claire’s Escrow II merged with Claire’s Stores, with Claire’s Stores being the surviving

entity following the merger. In accordance with the 9.00% First Lien Notes Indenture and pursuant to that certain supplemental indenture, dated as of March 2, 2012, Claire’s assumed Claire’s Escrow II’s obligations with respect to the 9.00% First Lien Notes.


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The 9.00% First Lien Notes are unconditionally guaranteed, jointly and severally, by the Subsidiary Guarantors, and are secured, subject to certain exceptions and permitted liens, on a pari passu basis with the Prepetition Revolving Credit Facility, the First Lien Term Loan, and the 6.125% First Lien Notes by (i) a first-priority lien on the Notes Priority Collateral and (ii) a second-priority lien on the ABL Priority Collateral versus obligations outstanding under the Prepetition ABL Credit Facility. The 9.00% First Lien Notes mature on March 15, 2019. As of the Commencement Date, the aggregate principal amount outstanding under the 9.00% First Lien Notes was approximately $1.125 billion.

Claire’s Stores, as issuer, the Subsidiary Guarantors, as guarantors, and Bank of New York, as indenture trustee and collateral agent, are parties to the 6.125% First Lien Notes Indenture. Interest is payable on the 6.125% First Lien Notes on March 15 and September 15 of each year prior to their maturity.

The 6.125% First Lien Notes are unconditionally guaranteed, jointly and severally, by the Subsidiary Guarantors and are secured, subject to certain exceptions and permitted liens, on a pari passu basis with the Prepetition Revolving Credit Facility, the First Lien Term Loan, and the 9.00% First Lien Notes by (i) a first-priority lien on the Notes Priority Collateral, and (ii) a second-priority lien on the ABL Priority Collateral versus obligations outstanding under the Prepetition ABL Credit Facility. The 6.125% First Lien Notes mature on March 15, 2020. As of the Commencement Date, the aggregate principal amount outstanding under the 6.125% First Lien Notes was approximately $210 million.

(d) First Lien Term Loan

Claire’s Stores, as borrower, the Subsidiary Guarantors, as guarantors, Wilmington Trust, National Association (“Wilmington Trust”), as administrative and collateral agent, and the lenders party thereto (collectively, the “First Lien Term Loan Lenders”), entered into the First Lien Term Loan Credit Agreement, dated as of September 20, 2016, pursuant to which Claire’s Stores, as borrower, was deemed to have borrowed the First Lien Term Loan in aggregate principal amount of $40 million (the First Lien Term Loan, the Prepetition Revolving Credit Facility, and the First Lien Notes, collectively, the “Non-ABL First Lien Debt” and, together with the Prepetition ABL Credit Facility, the “First Lien Obligations”) from the First Lien Term Loan Lenders.

The First Lien Term Loan is secured on a pari passu basis with the Prepetition Revolving Credit Facility and the First Lien Notes by (i) a first-priority interest in the Notes Priority Collateral and (ii) a second-priority interest in the ABL Priority Collateral versus obligations outstanding under the Prepetition ABL Credit Facility. The First Lien Term Loan matures on September 20, 2021. As of the Commencement Date, the aggregate principal amount outstanding under the First Lien Term Loan is approximately $32.3 million.

(e) Prepetition LC Facility

On February 12, 2018, certain of the Debtors entered into the Prepetition LC Agreement, by and among Claire’s Stores, as applicant, Claire’s Parent, as holdings, and Credit Suisse, as issuer and collateral agent (in such capacity, the “Prepetition LC Issuer”), pursuant to which the


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Prepetition LC Issuer agreed to issue letters of credit in an aggregate maximum amount of up to approximately $4.9 million (the “Prepetition LC Facility”). All obligations under the Prepetition LC Facility are secured by a first priority security interest in amounts on deposit in a cash collateral account (the “Collateral Account”). The Prepetition LC Agreement requires Claire’s Stores to maintain a balance in the Collateral Account of at least 105% of the aggregate amount of letters of credit issued thereunder. The Prepetition LC Facility matures in February 2019 and, as of the Petition Date, three letters of credit with a face amount of approximately $4.9 million has been issued thereunder.

(f) Second Lien Notes

Claire’s Stores, as successor to Claire’s Escrow Corporation (“Claire’s Escrow”),18 as issuer, the Subsidiary Guarantors, as guarantors, and Bank of New York, as indenture trustee and collateral agent are parties to the Second Lien Notes Indenture, dated as of March 4, 2011, governing the Second Lien Notes. Interest is payable on the Second Lien Notes on March 15 and September 15 of each year prior to their maturity.

The Second Lien Notes are irrevocably and unconditionally guaranteed, jointly and severally by the Subsidiary Guarantors and are secured, subject to certain exceptions and permitted liens, by substantially the same collateral securing the First Lien Obligations. As discussed in further detail below, pursuant to the Second Lien Intercreditor Agreement (as defined below), such liens securing the Second Lien Notes are subordinated to the liens securing the First Lien Obligations. The Second Lien Notes mature on March 15, 2019. As of the Commencement Date, the aggregate principal amount outstanding under the Second Lien Notes was approximately $222.3 million.

(g) Unsecured Notes

Claire’s Stores, as issuer, the Subsidiary Guarantors, as guarantors, and BOKF, N.A., as successor indenture trustee and collateral agent, are parties to the Unsecured Notes Indenture, dated as of March 14, 2013, governing the Unsecured Notes. The Unsecured Notes mature on June 1, 2020. As of the Commencement Date, the aggregate principal amount outstanding under the Unsecured Notes was approximately $216.7 million.

(h) Intercreditor Agreements

(i) ABL Intercreditor Agreement

The relative contractual rights of the ABL Lenders, on the one hand, and the holders of the Non-ABL First Lien Debt, on the other hand, are governed by that certain Intercreditor Agreement, dated as of September 20, 2016 (as may be amended, restated, supplemented, or otherwise modified from time to time, the “ABL Intercreditor Agreement”). The ABL Intercreditor Agreement controls the rights and obligations of holders of the Debtors’ Obligations outstanding

18 On March 4, 2011, Claire’s Escrow merged with Claire’s Stores, with Claire’s Stores being the surviving entity

following the merger. In accordance with section 13.20 of the Second Lien Notes Indenture and pursuant to that certain Senior Secured Second Lien Notes Supplemental Indenture, dated as of March 4, 2011, Claire’s Stores assumed Claire’s Escrow’s obligations with respect to the Second Lien Notes


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under the Prepetition ABL Credit Facility and the Non-ABL First Lien Debt with respect to, among other things, priority, matters of debtor-in-possession financing, the use of cash collateral, and adequate protection.

(ii) Non-ABL First Lien Intercreditor Agreement

The relative contractual rights of the holders of each series of Non-ABL First Lien Debt, vís a vís one another, are governed by that certain Intercreditor Agreement, dated as of March 2, 2012 (as may be amended, restated, supplemented, or otherwise modified from time to time, the “Non-ABL First Lien Intercreditor Agreement”). The Non-ABL First Lien Intercreditor Agreement controls the rights and obligations of holders of the Debtors’ Obligations outstanding under the Non-ABL First Lien Debt with respect to, among other things, priority, matters of debtor-in-possession financing, the use of cash collateral, and adequate protection.

(iii) Second Lien Intercreditor Agreement

The relative contractual rights of the holders of the Non-ABL First Lien Debt, on the one hand, and the holders of the Second Lien Notes, on the other hand, are governed by that certain Intercreditor Agreement, dated as of March 4, 2011 (as may be amended, restated, supplemented, or otherwise modified from time to time, the “Second Lien Intercreditor Agreement”). The Second Lien Intercreditor Agreement controls the rights and obligations of holders of the Debtors’ Obligations outstanding under the Non-ABL First Lien Debt and the Second Lien Notes with respect to, among other things, priority, matters of debtor-in-possession financing, the use of cash collateral, and adequate protection. Pursuant to the Second Lien Intercreditor Agreement, liens securing the Second Lien Notes are subordinated to the liens securing the Non-ABL First Lien Debt. Additionally, each holder of the Second Lien Notes agreed that (i) it will not “not take or receive . . . any Common Collateral [(as defined herein)] or other collateral” unless and until First Lien Claims are paid in full, in cash, (Second Lien Intercreditor Agreement § 3.1(b)); (ii) it has waived “any marshalling, appraisal, valuation, or similar right that may otherwise be available under applicable law or any similar rights a junior secured creditor may have under applicable law,” (id. at § 2.5); and (iii) holders of First Lien Claims “shall have the exclusive right to enforce rights, and exercise remedies” with respect to collateral securing both the Non-ABL First Lien Debt and the Second Lien Notes (the “Common Collateral”), (id. § 3.1(a)).

2. Non-Debtor Affiliates’ Funded Debt Obligations

As set forth above, certain of the Debtors’ non-Debtor affiliates are party to certain secured and unsecured debt facilities. Although the Debtors are not obligated on any of the Non-Debtor Obligations, in certain instances, provisions in the debt instruments governing the Non-Debtor Obligations may, from time to time, impose restrictions on the Debtors’ liquidity. The Non-Debtor Obligations are described in further detail below.

(a) CLSIP Term Loan

CLSIP, as borrower, CLSIP Holdings, as holdings, Wilmington Trust, as administrative and collateral agent, and the lenders party thereto (collectively, the “CLSIP Term Loan Lenders”) entered into the CLSIP Term Loan Credit Agreement, dated as of September 20, 2016, pursuant


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to which CLSIP was deemed to have borrowed the CLSIP Term Loan in an aggregate principal amount of $130 million.

The CLSIP Term Loan is guaranteed by CLSIP Holdings and is secured by a first-priority lien on (i) substantially all assets of CLSIP, which consist of, among other things, CLSIP’s rights in the Transferred IP and CLSIP’s rights under the Transferred IP Agreement and (ii) substantially all assets of CLSIP Holdings, including all equity interests of CLSIP held by CLSIP Holdings (together with the Transferred IP, the “CLSIP Collateral”). The CLSIP Term Loan is structurally senior to the Debtors’ Obligations with respect to the CLSIP Collateral. The CLSIP Term Loan matures on September 20, 2021. As of the Commencement Date, the aggregate principal amount outstanding under the CLSIP Term Loan was approximately $105 million. None of the Debtors are obligated on the CLSIP Term Loan.

On April 19, 2018, CLSIP and CLSIP Holdings entered into an agreement (the “CLSIP Forbearance Agreement”) with the CLSIP Term Loan Lenders, pursuant to which the CLSIP Term Loan Lenders agreed to forbear from exercising their remedies under the CLSIP Term Loan Agreement with respect to certain events of default thereunder, including any event of default that may have arisen as a result of (i) the inclusion of a qualification in the financial statements of Claire’s Stores as to the status of CLSIP, CLSIP Holdings, or Claire’s Stores as a going concern; (ii) the Debtors’ commencement of the Chapter 11 Cases; and (iii) CLSIP’s failure to deliver notice of an event of default to the CLSIP Term Loan Lenders (collectively, the “Specified Events of Default”). The CLSIP Term Loan Lenders’ duties and obligations under the CLSIP Forbearance Agreement may terminate at any time after the occurrence of any of the following: (i) the conversion of any of the Chapter 11 Cases to a case under chapter 7 of the Bankruptcy Code, (ii) the appointment of a chapter 11 trustee or an examiner with expanded powers in any Chapter 11 Case, (iii) the substantial consummation of a plan of reorganization in any of the Chapter 11 Cases, (iv) the consummation of a sale of all or substantially all of the assets of the Debtors under section 363 of the Bankruptcy Code, (v) the commencement of a case under the Bankruptcy Code by CLSIP or CLSIP Holdings, (vi) the termination of the Restructuring Support Agreement, or (vii) the occurrence of an event of default under the CLSIP Term Loan Agreement other than a Specified Event of Default.

(b) Gibraltar Secured Term Loan

Claire’s (Gibraltar) Intermediate Holdings Limited (“Gibraltar Intermediate” and, together with Gibraltar Holdings, the “Gibraltar Entities”) and Claire’s Germany GMBH (“Claire’s Germany”), as borrowers, the guarantors party thereto, Botticelli LLC, as administrative agent, Cortland Capital Markets Services LLC, as collateral agent, and the lenders party thereto (the “Gibraltar Secured Term Loan Lenders”) entered into the Gibraltar Secured Term Loan Agreement, dated as of January 5, 2017, pursuant to which the Gibraltar Secured Term Loan Lenders agreed to provide Gibraltar Intermediate and Claire’s Germany with the Gibraltar Secured Term Loan in the aggregate principal amount of $50 million. The Gibraltar Secured Term Loan matures on January 31, 2019. As of the Commencement Date the aggregate principal amount outstanding under the Gibraltar Secured Term Loan was approximately $51.5 million.


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All obligations under the Gibraltar Secured Term Loan have been guaranteed by certain of Gibraltar Intermediate’s direct and indirect wholly-owned subsidiaries (collectively, the “Gibraltar Guarantors”), none of which are Debtors in these Chapter 11 Cases. The obligations under the Gibraltar Secured Term Loan are secured by liens on the assets of Gibraltar Intermediate, Claire’s Germany, and the Gibraltar Guarantors. None of the Debtors are obligated on Gibraltar Secured Term Loan; however, a provision in the Gibraltar Secured Term Loan Agreement restricts Cash transfers from the Gibraltar Entities to the Claire’s Group’s domestic entities, including the Debtors, if an event of default exists under any of the Debtors’ Obligations or under the CLSIP Term Loan.

Prior to the Commencement Date, the Debtors entered into a commitment for an amendment to the Gibraltar Secured Term Loan (the “CGIH Commitment”), to facilitate the operations of the Debtors during the Chapter 11 Cases, including the transfer of funds from European subsidiaries to the Debtors, subject to certain restrictions. Among other things, the Debtors agreed that so long as any amounts remain outstanding under the Gibraltar Secured Term Loan, all postpetition Cash transfers as “Permitted Foreign Cash Transfers” from any “Credit Party” (as each is defined in the CGIH Commitment) to a Debtor in the Chapter 11 Cases (“Permitted Postpetition Intercompany Transfers”) shall result in such Credit Party having a claim against such Debtor, which claim shall be accorded administrative expense priority status in such cases. In addition, the CGIH Commitment provides that so long as any amounts remain outstanding under the Gibraltar Secured Term Loan, it shall be an event of default thereunder if the Debtors propose any treatment, modification, or settlement of such claim(s) that would result in anything other than payment in full in Cash.

The Debtors had the option to exercise their rights under the CGIH Commitment at any time on or before April 20, 2018, but the Debtors determined that they had sufficient liquidity to support their operations during the Chapter 11 Cases without incurring the costs associated with exercising such rights.

(c) Gibraltar 2019 Unsecured Term Loan

Gibraltar Holdings, as borrower, Credit Suisse, as administrative agent, and the lenders party thereto (the “Gibraltar 2019 Unsecured Term Loan Lenders”) entered into the Gibraltar 2019 Unsecured Term Loan Agreement, dated as of August 12, 2016, effective as of September 20, 2016, pursuant to which Gibraltar Holdings, as borrower, was deemed to have borrowed the Gibraltar 2019 Unsecured Term Loan in an aggregate principal amount of $40 million for the purpose of paying down outstanding indebtedness under the Prepetition Revolving Credit Facility in connection with the 2016 Exchange (as described in further detail below). The Gibraltar 2019 Unsecured Term Loan matures on February 4, 2019. As of the Commencement Date, the aggregate principal amount outstanding under the Gibraltar 2019 Unsecured Term Loan was approximately $40 million.

None of the Debtors are obligated on the Gibraltar 2019 Unsecured Term Loan; however, the Gibraltar 2019 Term Unsecured Term Loan Agreement contains a cash sweep provision that requires that aggregate Cash on hand at the Claire’s Group’s domestic entities, including the Debtors, in excess of $30 million for thirty (30) consecutive days be transferred to Gibraltar


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Holdings (the “Gibraltar Cash Sweep Provision”). Failure to comply with the Gibraltar Cash Sweep Provision triggers an event of default under the Gibraltar 2019 Unsecured Term Loan.

(d) Gibraltar 2021 Unsecured Term Loan

Gibraltar Holdings, as borrower, and Wilmington Trust, as administrative agent, and the lenders party thereto (the “Gibraltar 2021 Unsecured Term Loan Lenders”) entered into the Gibraltar 2021 Unsecured Term Loan Credit Agreement, dated as of September 20, 2016, pursuant to which Gibraltar Holdings, as borrower, was deemed to have borrowed the Gibraltar 2021 Unsecured Term Loan (together with the Gibraltar Secured Term Loan and the Gibraltar 2021 Unsecured Term Loan, the “Gibraltar Loans”) in an aggregate principal amount of $60 million. The Gibraltar 2021 Unsecured Term Loan matures on September 20, 2021. As of the Commencement Date, the aggregate principal amount outstanding under the Gibraltar 2021 Unsecured Term Loan was approximately $48.5 million. None of the Debtors are obligated on the Gibraltar 2021 Unsecured Term Loan.

(e) Intercompany Transactions

As is customary for a global company of the Claire’s Group’s size and scale, the Debtors are party to a series of ordinary-course formal and informal relationships with each other and with certain of their non-Debtor affiliates. Certain of the Company’s intercompany transactions result in various intercompany balances, claims, and obligations. Such intercompany transactions include, among others, (i) entering into and performing under IP licensing arrangements, such as the Transferred IP Agreement; (ii) consolidated product sourcing and distribution on behalf of the Claire’s Group; (iii) entering into and performing under administrative support services arrangements; (iv) ordinary-course payments, such as payments related to insurance and taxes, made by one entity on behalf of other entities in the Claire’s Group; and (v) equity contributions to address local law insolvency requirements of the Debtors’ European subsidiaries. These intercompany transactions are booked in a number of different ways, including as accounts receivable/payable entries on Claire’s Group entity-level balance sheets and through contractual obligations and intercompany loans.

In particular, the Debtors’ books and records include an intercompany obligation due to Claire’s Canada Corp. from non-debtor Claire’s Stores Canada Corp. totaling approximately $50.7 million (the “Claire’s Canada Intercompany Note”). The instrument documenting the Claire’s Canada Intercompany Note is styled as a “promissory note,” has a fixed maturity date, and bears a fixed rate of interest. It could be argued, however, that some or all of the obligations under the Claire’s Canada Intercompany Note should be recharacterized as equity due to, among other reasons, the existence of a subscription agreement between CSI Canada LLC and Claire’s Stores Canada Corp. and a capital support agreement between Claire’s Canada Corp. and CSI Canada LLC, pursuant to which CSI Canada LLC or Claire’s Canada Corp. may be the ultimate source of the funds used to repay the obligations under the Claire’s Canada Intercompany Note. See Friedman’s Liquidating Trust v. Goldman Sachs Credit Partners, L.P. (In re Friedman’s Inc.), 452 B.R. 512, 519 (Bankr. D. Del. 2011) (discussing the doctrine of recharacterization). To the extent that obligations under the Claire’s Canada Intercompany Note are treated as valid claims in favor of Claire’s Canada Corp. against its non-debtor subsidiary Claire’s Stores Canada Corp., the effect of such treatment would be to decrease the unencumbered value of the Debtors.


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3. Trade Payables

In the ordinary course of their business, the Debtors incur trade debt with numerous vendors in connection with their operations.

D. Events Leading to Commencement of the Chapter 11 Cases

As of the Commencement Date, the Debtors’ core business remained strong. The Claire’s® and Icing® experiential retail offering and “treasure hunt” shopping atmosphere simply cannot be replicated online. The Debtors also continue to benefit from healthy margins across their store footprint as a whole. The overall retail landscape remains challenging, however, and especially so for an over-levered retailer like the Debtors. For Fiscal 2017, the Claire’s Group reported approximately $212 million of adjusted EBITDA (on a consolidated 52-week basis) versus approximately $2.1 billion of total debt—implying leverage of approximately 10x EBITDA. Further, approximately $1.4 billion of the Claire’s Group’s funded debt was scheduled to mature in the first calendar quarter of 2019.

1. The Debtors Operate in a Highly Competitive Market

The retail industry as a whole has been challenged by shifts in consumer purchasing preferences and habits. Recent data has indicated that year-over-year mall traffic has declined by approximately eight percent (8%). 19 This decline may be attributable to several factors, including competition from big box retailers, large tenant closures (leaving malls without an “anchor” tenant to drive foot traffic), and the increased popularity of online shopping. And, while the Debtors believe their business model and product offerings remain a compelling proposition over the long term, the Debtors have not been immune from these broader trends. Consolidated revenue for the Claire’s Group has declined from approximately $1.5 billion in Fiscal 201420 to approximately $1.3 billion in Fiscal 2017.

2. The Debtors Are Highly Levered

As noted above, the Claire’s Group was levered approximately 10x as of the end of Fiscal 2017. The Debtors do not believe that their current balance sheet is sustainable over the long term. Indeed, the Debtors had approximately $1.4 billion in funded debt that, as of the Commencement Date, would mature in approximately one year or less. The Debtors’ levered balance sheet has had a corresponding impact on the Debtors’ liquidity and growth. Over the last three years, the Debtors’ cash interest expense has averaged approximately $183 million per year. The costs of such debt service has, of course, impacted the Debtors’ ability to refresh store locations, drive product and growth initiatives, and further enhance their customer experience.

19 This data represents mall traffic year-over-year decline in June 2017 and is based on public data made available

by Cowen & Company, National Traffic Devices.

20 “Fiscal 2014” refers to the Debtors’ fiscal year ended February 1, 2015.


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3. Prepetition Restructuring Efforts

(a) Operational Initiatives

The Claire’s Group has undertaken a number of steps to improve its operational performance and drive organic growth. This process has involved installing a new and highly experienced management team, with the Debtors engaging a new Chief Executive Officer, Chief Financial Officer, and heads of merchandising and supply chain management in 2016. With new leadership, the Debtors have actively pursued growth opportunities. For example, in 2017, the new management team secured major concessions partnerships with a national pharmacy and regional grocery chain. These partnerships have expanded the Debtors’ concessions business by approximately 4,000 concessions stores, and are projected to grow the business even further in 2018. The Debtors’ management team also has worked to decrease the Debtors’ occupancy costs by negotiating concessions with landlords and developing a plan for closing underperforming stores. These efforts have had a corresponding positive impact on cash flow. In Fiscal 2017, the Claire’s Group reported an adjusted EBITDA margin of 16.1% (on a consolidated 52-week basis), an improvement of approximately 170 basis points from Fiscal 2016.21

(b) 2016 Exchange

The Claire’s Group further sought to reduce its overall leverage and cash interest expense through a debt-for-debt exchange in September 2016 (the “2016 Exchange”). Through the 2016 Exchange, participating holders of the Company’s (i) Second Lien Notes, (ii) Unsecured Notes, (iii) then-outstanding 10.50% senior subordinated notes due 2017, 22 and (iv) then-outstanding 10.50% PIK senior subordinated notes due 201723 agreed to exchange their respective debt (the “Exchanged Debt”) for new issuances of indebtedness under the First Lien Term Loan, the CLSIP Term Loan, and the Gibraltar 2021 Unsecured Term Loan.

The 2016 Exchange occurred in two parts. The initial phase began with a preliminary public offer to third-party holders of the Exchanged Debt to participate in the 2016 Exchange (the “Non-Affiliate Exchange Offer”). The second phase included a conditional offer to Apollo and Claire’s Parent to participate in the 2016 Exchange if the Non-Affiliate Exchange Offer did not result in a minimum subscription of $400 million (the “Affiliate Exchange Offer”). Pursuant to the Non-Affiliate Exchange Offer, unaffiliated holders tendered approximately $332 million aggregate principal amount of Exchanged Debt. Accordingly, Apollo and Claire’s Parent then participated in the 2016 Exchange on the same terms as those offered to unaffiliated holders under the Non-Affiliate Exchange Offer. Pursuant to the Affiliate Exchange Offer, Apollo exchanged approximately $183.6 million in then-outstanding 10.50% PIK senior subordinated notes, and Claire’s Parent exchanged approximately $58.7 million in then-outstanding 10.50% senior subordinated notes for approximately (i) $10.5 million of First Lien Term Loans, (ii)

21 “Fiscal 2016” refers to the Company’s fiscal year ended January 28, 2017.

22 In 2017, the Company discharged its remaining obligations with respect to these 10.5% senior subordinated notes due 2017.

23 100% of these 10.5% PIK senior subordinated notes due 2017 were exchanged in the 2016 Exchange.


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$34.2 million of CLSIP Term Loans, and (iii) $15.8 million of Gibraltar 2021 Unsecured Term Loans.24

To effectuate the 2016 Exchange and to help manage its maturity profile and near-term debt service obligations, the Claire’s Group also (i) entered into the Prepetition ABL Credit Facility; (ii) extended the maturity date under the Prepetition Revolving Credit Facility from September 2017 to February 2019 in exchange for (x) a $40 million paydown with the proceeds of the Gibraltar 2019 Unsecured Loan, and (y) a reduction of borrowing availability to $75 million; (iii) amended its European asset-based lending credit facility to allow debt to be issued at Gibraltar Holdings and to permit Cash transfers from Gibraltar Holdings to Claire’s Stores; and (iv) transferred the Transferred IP to CLSIP pursuant to the Transferred IP Agreement.25

The 2016 Exchange reduced the Debtors’ overall indebtedness by approximately $400 million, extended the maturity of the Prepetition Revolving Credit Facility from September 2017 to February 2019, and realized annual cash interest savings of approximately $24 million (not including conversion of certain subordinated notes to PIK interest).

(c) Stakeholder Engagement

Prior to the commencement of these Chapter 11 Cases, the Claire’s Group, with the assistance of its restructuring advisors, engaged with its creditor groups with the goal of building a consensus around a deleveraging transaction. These stakeholder constituencies include the Ad Hoc First Lien Group, the Sponsor, and Oaktree (as defined herein). Engagement with these creditor groups involved, among other things, (i) the provision of a substantial amount of diligence to those entities and their advisors; (ii) ongoing communication regarding the Claire’s Group, its operations, and prospects; (iii) in-person meetings to discuss the Debtors’ restructuring path; and (iv) the Debtors’ undertaking to pay fees and expenses incurred by such stakeholders in connection with the Debtors’ restructuring process prior to the Commencement Date.

Following the formation of an independent committee led by an independent member of Claire’s Stores’ board of directors and charged with overseeing the Debtors’ restructuring process, the Debtors requested that large holders of First Lien Claims (which subsequently formed the Ad Hoc First Lien Group) and Oaktree hire professionals and, as applicable, organize. The Debtors made these requests of both the Ad Hoc First Lien Group and Oaktree at the same time in mid-January 2018. Those stakeholders’ professionals executed non-disclosure agreements with the Debtors and were provided with access to the same information at the same time. Both the Ad Hoc First Lien Group and Oaktree were presented with the Debtors’ business plan and received substantial diligence from the Debtors. Both before and after those initial meetings, this process involved substantial diligence and arm’s-length discussions among the Debtors, the Debtors’

24 As of the Commencement Date, the Debtors understand that Apollo beneficially owns or controls approximately

(i) $9 million in First Lien Term Loans, (ii) $29 million of CLSIP Term Loans, and (iii) $14 million in Gibraltar 2021 Unsecured Term Loans. As of the Commencement Date, the Debtors understand Claire’s Parent further owns approximately (i) $3 million of First Lien Term Loans, (ii) $9 million of CLSIP Term Loans, and (iii) $4 million of Gibraltar 2021 Unsecured Term Loans.

25 Shortly after the 2016 Exchange, the Claire’s Group refinanced its European asset-based lending credit facility with the Gibraltar Secured Term Loan.


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stakeholders, and each of their respective advisors, whose fees and expenses were paid by the Debtors prior to the Commencement Date. Both the Ad Hoc First Lien Group and Oaktree also were involved in the Debtors’ competitive process to secure postpetition financing.

The Debtors’ engagement with these stakeholders increased ahead of March 15, 2018, the due date for an approximately $67 million coupon payment with respect to the Debtors’ First Lien Notes and Second Lien Notes (the “March 15 Coupon Payment”). The Debtors did not make the March 15 Coupon Payment and, instead, elected to continue restructuring negotiations. The Debtors subsequently completed the negotiations of the Restructuring Support Agreement, including with respect to the plan term sheet attached to the Restructuring Support Agreement (the “Plan Term Sheet”). The Debtors, the Sponsor, and the members of the Ad Hoc First Lien Group subsequently executed the Restructuring Support Agreement attached hereto, as amended, as Exhibit C.

(d) DIP Financing

Prior to the Commencement Date, the Debtors and their advisors worked to ensure that the Debtors would have ample liquidity available should the Debtors be obliged to commence these cases. The process for raising the Debtors’ postpetition financing (the “DIP Financing”) involved extensive marketing efforts undertaken by Lazard. Lazard engaged both third-party lenders and the Debtors’ existing stakeholders to obtain financing on the most competitive terms possible. The DIP Facility refinanced the Debtors’ Prepetition ABL Credit Facility and the Prepetition Revolving Credit Facility, in addition to providing the Debtors with liquidity.

On April 24, 2018, the Bankruptcy Court approved the DIP Facility on a final basis (the “DIP Order”) [Docket No. 318].

The DIP Facility includes certain milestones with respect to the Chapter 11 Cases, such as (i) a deadline of June 17, 2018, to file a motion requesting entry of an order extending the date by which the Debtors must assume or reject leases of nonresidential real property pursuant to section 365(d)(4)(B) of the Bankruptcy Code; (ii) a deadline of August 11, 2018, to obtain entry of an order in connection with such a motion; and (iii) a deadline of September 15, 2018, to commence solicitation of votes on a plan of reorganization for each Debtor that provides for (a) the termination of the unused commitments under the DIP Facility, (b) the payment in Cash and in full of the obligations under the DIP Facility on the effective date of such plan of reorganization, and (c) customary releases.

Pursuant to paragraph 20(f) of the DIP Order, Holders of DIP Claims shall not be subject to the equitable doctrine of “marshaling” (the “DIP Marshaling Waiver”). “Marshaling” refers to the legal doctrine by which, in certain circumstances, a secured lender may be compelled to recover by asserting remedies against certain collateral so as not to prejudice recoveries otherwise available to junior creditors. In re Glob. Serv. Grp., LLC, 316 B.R. 451, 463 (Bankr. S.D.N.Y. 2004) (“Marshaling is an equitable principle designed to protect the rights of a junior creditor by compelling a senior creditor to attempt to collect its claim first from another source unavailable to the junior creditor.”).


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As a result of this waiver, junior creditors cannot compel holders of DIP Financing Claims to recover value from collateral securing the Debtors’ prepetition indebtedness without the consent of such holders. Additionally, holders of DIP Financing Claims can demand that such claims will be satisfied first from proceeds available from assets that were otherwise encumbered as of the Commencement Date as a result of the DIP Marshaling waiver, and junior creditors cannot compel DIP Financing Claims from being satisfied by recourse to any particular asset pool.

III. OVERVIEW OF THE CHAPTER 11 CASES

A. Commencement of Chapter 11 Cases

On March 19, 2018, the Debtors commenced the Chapter 11 Cases. The Debtors continue managing their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code.

B. First Day Motions

On the Commencement Date, the Debtors filed multiple motions seeking various relief from the Bankruptcy Court to enable the Debtors to facilitate a smooth transition into chapter 11 (the “First Day Motions”). The Bankruptcy Court granted substantially all of the relief requested in the First Day Motions and entered various orders authorizing the Debtors to, among other things:

Continue paying employee wages and benefits [Docket No. 278];

Continue the use of the Debtors’ cash management system, bank accounts, and business forms [Docket No. 277];

Continue insurance programs and the processing of workers’ compensation Claims [Docket No. 283];

Continue the Debtors’ customer programs and promotions [Docket No. 104];

Pay certain prepetition taxes and assessments [Docket No. 281];

Pay certain prepetition obligations for critical and foreign vendors [Docket Nos. 279, 280];

Pay certain shipping charges and other amounts owed to lien holders [Docket No. 96];

Restrict certain transfers of equity interests in the Debtors [Docket No. 284];

Establish procedures for utility companies to request adequate assurance of payment and to prohibit utility companies from altering or discontinuing service [Docket No. 282]; and

Obtain postpetition financing and use cash collateral [Docket No. 318].


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C. Procedural Motions

The Debtors have filed various motions regarding procedural issues common to chapter 11 cases of similar size and complexity. The Bankruptcy Court granted substantially all of the relief requested in such motions and entered various orders authorizing the Debtors to, among other things:

Establish procedures for the interim compensation and reimbursement of expenses of chapter 11 professionals [Docket No. 292]; and

Employ professionals utilized by the Debtors in the ordinary course of business [Docket No. 418].

D. Retention of Chapter 11 Professionals

The Debtors also filed several applications and obtained authority to retain various professionals to assist the Debtors in carrying out their duties under the Bankruptcy Code during the Chapter 11 Cases. These professionals include (i) FTI Consulting, Inc. as financial advisor; (ii) Lazard Frères & Co. LLC as investment banker; (iii) Hilco Real Estate, LLC as real estate advisor; (iv) Weil, Gotshal & Manges LLP as counsel to the Debtors; (v) Richards, Layton & Finger, P.A. as co-counsel to the Debtors; (vi) Prime Clerk LLC as claims and noticing agent and administrative advisor; (vii) Deloitte Tax LLP as tax services provider; and (viii) Grant Thornton LLP as auditor.

E. Appointment of Creditors’ Committee

On March 27, 2018, the Official Committee of Unsecured Creditors (the “Creditors’ Committee”) was appointed by the Office of the United States Trustee for the District of Delaware (the “U.S. Trustee”) pursuant to section 1102 of the Bankruptcy Code to represent the interests of unsecured creditors in the Chapter 11 Cases [Docket No. 176]. The members of the Creditors’ Committee are: (a) BOKF, N.A., indenture trustee for the Unsecured Notes; (b) Studex Corporation; (c) PopSockets, LLC; (d) Simon Property Group, L.P.; (e) GGP Limited Partnership; (f) Washington Prime Group, Inc.; and (g) AT&T Corp and Affiliates.

The Creditors’ Committee has retained Cooley LLP and Bayard, P.A. as counsel and Province, Inc. as its financial advisor. Additionally, the Creditors’ Committee intends to seek authority to retain Jefferies LLC as its investment banker.

F. Execution of the New Money Backstop Commitment Agreement

On March 31, 2018, the Debtors entered into the New Money Backstop Commitment Agreement, pursuant to which the Backstop Parties agreed to purchase all of the New Money Investment not subscribed through the First Lien Rights Offering and the Shareholder Rights Offering. The Debtors will seek approval of the New Money Backstop Commitment Agreement at the Confirmation Hearing. The New Money Backstop Commitment Agreement is described further in Section I.F herein.


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G. Statements and Schedules, Rule 2015.3 Financial Reports, and Claims Bar Dates

On May 7, 2018, the Debtors filed their schedules of assets and liabilities and statements of financial affairs (collectively, the “Schedules”) [Docket Nos. 359–374].

On May 10, 2018, the Bankruptcy Court entered an order extending the deadline by which the Debtors must file the financial reports required under Bankruptcy Rule 2015.3 to July 9, 2018, the date that is twenty-one days prior to the voting deadline under the Plan.

On May 22, 2018, the Bankruptcy Court entered an order approving (i) July 6, 2018, at 5:00 p.m., prevailing Eastern Time, as the deadline for all non-governmental units (as defined in section 101(27) of the Bankruptcy Code) to file proofs of claim in the Chapter 11 Cases (the “General Bar Date”); (ii) September 17, 2018, at 5:00 p.m., prevailing Eastern Time, as the deadline for all governmental units (as defined in section 101(27) of the Bankruptcy Code) to file proofs of claim in the Chapter 11 Cases (the “Governmental Bar Date”); (iii) July 6, 2018, at 5:00 p.m., prevailing Eastern Time, as the deadline for all persons or entities to file proofs of claim with respect to Administrative Claims arising between the Commencement Date and June 1, 2018, in the Chapter 11 Cases; (iv) the later of (x) the General Bar Date or the Governmental Bar Date, as applicable, and (y) 5:00 p.m., prevailing Eastern Time, on the date that is thirty (30) days from the date on which the Debtors provide notice of a previously unfiled Schedule as the deadline by which persons or entities affected by such filing, amendment, or supplement must file proofs of claim in the Chapter 11 Cases; and (v) the later of (x) the General Bar Date or the Governmental Bar Date, as applicable, and (y) 5:00 p.m., prevailing Eastern Time, on the date that is thirty (30) days following service of an order approving rejection of any executory contract or unexpired lease of the Debtors as the deadline by which persons or entities asserting claims resulting from such rejection must file proofs of claim in the Chapter 11 Cases.

H. Exclusivity

Section 1121(b) of the Bankruptcy Code provides for a period of 120 days after the commencement of a chapter 11 case during which time a debtor has the exclusive right to file a plan of reorganization (the “Exclusive Plan Period”). In addition, section 1121(c)(3) of the Bankruptcy Code provides that if a debtor files a plan within the Exclusive Plan Period, it has a period of 180 days after commencement of the chapter 11 case to obtain acceptances of such plan (the “Exclusive Solicitation Period,” and together with the Exclusive Plan Period, the “Exclusive Periods”). Pursuant to section 1121(d) of the Bankruptcy Code, the Bankruptcy Court may, upon a showing of cause, extend the Exclusive Periods.

The Exclusive Periods currently remain in effect. The Exclusive Plan Period and the Exclusive Solicitation Period may be further extended by the Bankruptcy Court through no later than September 19, 2019, and November 19, 2019, respectively.

I. Executory Contracts and Unexpired Leases

As of the Commencement Date, the Debtors were parties to approximately 1,400 unexpired leases of nonresidential real property (the “Leases”). Section 365(d)(4)(A) of the Bankruptcy


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Code provides that a debtor has a period of 120 days after the commencement of the chapter 11 case to assume, assign, or reject unexpired leases of nonresidential real property (the “Lease Assumption Period”). Pursuant to section 365(d)(4)(B), the Bankruptcy Court may, upon a showing of cause, extend the Lease Assumption Period an additional ninety (90) days.

On the Commencement Date, the Debtors filed a motion to reject ninety-five (95) Leases (the “Omnibus Lease Rejection Motion”) [Docket No. 23]. On April 17, 2018, the Bankruptcy Court entered an order granting the Omnibus Lease Rejection Motion [Docket No. 286].

Additionally, the Debtors filed a motion to implement certain procedures to govern the rejection of Leases and the abandonment of certain surplus, burdensome, or non-core assets in connection therewith (the “Lease Rejection Procedures Motion”) [Docket No. 22]. On April 17, 2018, the Bankruptcy Court entered an order (the “Lease Rejection Procedures Order”) granting the Lease Rejection Procedures Motion [Docket No. 285]. The Debtors filed three separate notices of rejection of certain Leases pursuant to the Lease Rejection Procedures Order (the “First Rejection Notice,” the “Second Rejection Notice,” and the “Third Rejection Notice,” respectively). The Debtors filed the First Rejection Notice on May 10, 2018, which identified forty-two (42) Leases (collectively, the “First Notice Leases”) for rejection [Docket No. 394]. No parties objected to the First Rejection Notice, and on May 29, 2018, the Bankruptcy Court entered an order authorizing the Debtors to reject thirty-seven (37) of the First Notice Leases [Docket No. 429]. The Debtors filed the Second Rejection Notice on May 17, 2018, which identified one (1) Lease for rejection [Docket No. 405]. On June 4, 2018, the Bankruptcy Court entered an order authorizing the Debtors to reject the lease identified in the Second Rejection Notice [Docket No. 457]. The Debtors filed the Third Rejection Notice on May 25, 2018, which identified five (5) of the First Notice Leases for rejection as a result of the Debtors’ having cause to reject such Leases on a date later than that listed in the First Rejection Notice [Docket No. 426].

The Lease Assumption Period will expire on July 17, 2018. Upon a showing of cause, the Bankruptcy Court may extend the Lease Assumption Period without the consent of the applicable non-debtor counterparties through no later than October 15, 2018. On June 15, 2018, the Debtors filed a motion to extend the Lease Assumption Period to the earlier of (i) October 15, 2018, and (b) the date on which the Confirmation Order is entered by the Bankruptcy Court [Docket No. 511].

J. Key Employee Incentive and Retention Programs

On May 9, 2018, the Debtors filed with the Bankruptcy Court a motion (the “KEIP/KERP Motion”) seeking authority to implement a key employee incentive program (the “Proposed KEIP”) and a key employee retention program (the “Proposed KERP”) [Docket No. 385]. Under the Proposed KEIP, seven (7) members of the Debtors’ senior management team would be eligible to receive awards upon the Company’s achievement of performance targets based on certain levels of EBITDA during the second, third, and fourth quarters of Fiscal 2018. The aggregate maximum awards under the Proposed KEIP total approximately $1.9 million on a quarterly basis. Under the Proposed KERP, twenty-nine (29) of the Debtors’ non-executive employees would be eligible to receive awards of 10% to 25% of such employees’ annual salaries if the eligible employees remain in the Debtors’ employ on the date that is sixty (60)


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days after the Effective Date. The aggregate awards under the Proposed KERP total approximately $1.5 million, inclusive of a $500,000 discretionary pool that provides the Debtors with the ability to disburse awards to certain non-senior-management employees who are important to the Debtors’ reorganization efforts, but who initially were not identified to participate in the Proposed KERP.

Prior to the hearing with respect to the KEIP/KERP Motion, the Debtors resolved an informal objection from the First Lien Ad Hoc Group by agreeing to reduce the value of each of the award opportunities under the Proposed KEIP by 17.5%. On June 13, 2018, the Bankruptcy Court entered an order granting the relief requested in the KEIP/KERP Motion, which order reflected, among other things, the 17.5% award reduction [Docket No. 499].

K. Initial Marketing Process

Pursuant to the terms of the Restructuring Support Agreement as originally executed, the Debtors were authorized by the Consenting Creditors to solicit, develop, and negotiate Payout Event Proposals with respect to one or more plans of reorganization, other than the Plan, that provide for a “Payout Event” (as defined in the Restructuring Support Agreement), including (i) the indefeasible payment in Cash, including any accrued but unpaid interest, of all First Lien Debt Claims, CLSIP Term Loan Obligations, and Gibraltar Obligations and (ii) the treatment of all other Claims and Interests on terms that are no less favorable than as provided in the Plan. The Debtors’ investment banker, Lazard Frères & Co., LLC (“Lazard”), solicited Payout Event Proposals from more than fifty (50) entities (collectively, the “Initial Solicited Entities”). None of the Initial Solicited Entities ultimately submitted a proposal for a Payout Event.

L. Oaktree’s Motion to Modify the Debtors’ Marketing Process

On April 27, 2018, Oaktree Capital Management (“Oaktree”) filed with the Bankruptcy Court a motion (the “Marketing Process Motion”) [Docket No. 325] seeking, among other things, entry of an order requiring the Debtors to (i) suspend their ongoing marketing efforts; (ii) constitute a independent committee on terms reasonably satisfactory to the Committee and to Oaktree, and (iii) solicit any or all proposals providing more than $1.4 billion in total consideration for the Debtors’ Estates.

The Marketing Process Motion was opposed by the Debtors and the Ad Hoc First Lien Group, and a hearing to consider the Marketing Process Motion was held before the Bankruptcy Court on June 13, 2018. At that hearing, the Bankruptcy Court granted the Marketing Process Motion in part pursuant to an oral ruling, and directed the parties to settle a form of order reflecting the Bankruptcy Court’s ruling.

On June 22, 2018, the Bankruptcy Court entered the Order Granting in Part Motion of Oaktree Capital Management for Entry of an Order Pursuant to Sections 105, 363 and 1107 of the Bankruptcy Code Directing the Debtors to Modify their Marketing Process [Docket No. 543] (the “Marketing Process Order”) [Docket No. 543]. The Marketing Process Order required the Debtors to affirmatively solicit any and all bids for their assets, or the sponsorship of an alternative chapter 11 plan, and approved certain procedures annexed to the notice attached as


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Exhbit 1 to the Marketing Process Order (collectively, the “Marketing Procedures”). A copy the Marketing Procedures are annexed hereto as Exhibit D.

M. The Debtors’ Continued Marketing Process

Pursuant to the Marketing Process Order, the Debtors caused that certain notice Notice of Order (I) Requiring Debtors’ Resolicitation of Bids and (II) Establishing Related Deadlines and Procedures to be filed with the Bankruptcy Court on June 22, 2018 [Docket No. 543] (the “Marketing Notice”) and served on Initial Participants (as defined in the Marketing Process Order) on June 26, 2018. Additionally, the Debtors, in consultation with the Committee, caused the Marketing Notice to be served on additional parties that may be interested in submitting a Bid (as defined in the Marketing Procedures) to be served on additional parties, and subsequently delivered additional marketing materials in consultation with the Committee to such entities on June 29, 2018.

Pursuant to the Marketing Procedures, the Debtors are affirmatively soliciting bids for some, all, or substantially all the Debtors assets and/or the sponsorship of an alternative chapter 11 plan. Bids may provide for the payment of cash, the assumption of liabilities, and/or the issuance of “cramup” debt securities pursuant to section 1129(b)(2)(A) of the Bankruptcy Code.

IV. SUMMARY OF THE PLAN

A. General

This section of the Disclosure Statement summarizes the Plan, a copy of which is annexed hereto as Exhibit A. This summary is qualified in its entirety by reference to the Plan. YOU SHOULD READ THE PLAN IN ITS ENTIRETY BEFORE VOTING TO ACCEPT OR REJECT THE PLAN.

In general, a chapter 11 plan (1) divides claims and equity interests into separate classes, (2) specifies the consideration that each class is to receive under the plan and (3) contains other provisions necessary to implement the plan. Under the Bankruptcy Code, “claims” and “equity interests,” rather than “creditors” and “shareholders,” are classified because creditors and shareholders may hold claims and equity interests in more than one class. Under section 1124 of the Bankruptcy Code, a class of claims is “impaired” under a plan unless the plan (1) leaves unaltered the legal, equitable, and contractual rights of each holder of a claim in such class or (2) provides, among other things, for the cure of certain existing defaults and reinstatement of the maturity of claims in such class. Under the Plan, Classes 7, 9, 10, 12, and 14 are impaired, and holders of Claims or Interests in such Classes are entitled to vote to accept or reject the Plan unless such Classes of Claims or Interests are deemed to reject the Plan (e.g., Class 12) or subject to an objection filed by the Debtors. Ballots are being furnished herewith to all holders of Claims in Classes 7, 9, 10, and 14 that are entitled to vote to facilitate their voting to accept or reject the Plan. Class 11 is deemed to reject the Plan, and, therefore, holders of Claims or Interests in such Class will not vote on the Plan.


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B. Administrative Claims and Priority Claims

To confirm the Plan, Allowed Administrative Expenses must be paid in full or in a manner otherwise agreeable to the holders of such Claims. Administrative Expenses are the actual and necessary costs and expenses of the Chapter 11 Cases. Those expenses include compensation for individuals working on behalf of the Debtors, amounts owed to vendors providing goods and services during the Chapter 11 Cases, tax obligations incurred after the Petition Date, 503(b)(9) Claims, management costs, and certain statutory fees and expenses. Other Administrative Expenses include the actual, reasonable, necessary, and unpaid fees and expenses of the professionals retained by the Debtors, the Creditors’ Committee, and the Equity Committee.

In accordance with section 1123(a)(1) of the Bankruptcy Code, Administrative Claims, including DIP Claims, Professional Fee Claims, Priority Tax Claims, and postpetition Intercompany Claims have not been classified and, thus, are excluded from the classification of Claims and Interests set forth in Article III of the Plan.

1. Administrative Claims

Except with respect to Professional Fee Claims and DIP Claims, and except to the extent that an Administrative Claim has already been paid during the Chapter 11 Cases or a Holder of an Allowed Administrative Claim and the applicable Debtor, or after the Effective Date, such Holder and the applicable Reorganized Debtor agree to less favorable treatment, each Holder of an Allowed Administrative Claim shall be paid in full in Cash (i) if such Administrative Claim is Allowed as of the Effective Date, not later than the Effective Date; or (ii) if such Administrative Claim is not Allowed as of the Effective Date, upon entry of an order of the Bankruptcy Court Allowing such Claim, or as soon as reasonably practicable thereafter; provided that if an Allowed Administrative Claim arises from liabilities incurred by the Debtors’ Estates in the ordinary course of business after the Commencement Date, such Claim shall be paid in accordance with the terms and conditions of the particular transaction giving rise to such Claim in the ordinary course.

Except as otherwise provided in Article II.A of the Plan or the Claims Bar Date Order, and except with respect to Administrative Claims that are Professional Fee Claims or DIP Claims, requests for payment of Allowed Administrative Claims must be Filed and served on the Reorganized Debtors pursuant to the procedures specified in the Confirmation Order and the notice of entry of the Confirmation Order no later than the Administrative Claims Bar Date; provided, that the Administrative Claims Bar Date does not apply to Professional Fee Claims or Administrative Claims arising in the ordinary course of business.

Objections to requests for payment of Administrative Claims that are Filed with the Bankruptcy Court (other than Professional Fee Claims and DIP Claims) must be Filed and served on the requesting party by the Administrative Claims Objection Bar Date.

For the avoidance of doubt, all fees and expenses of the DIP Agent, including, without limitation, DIP Agent Professional Fees, shall be paid in full, in Cash, on the Effective Date (to the extent not previously paid during the course of the Chapter 11 Cases), by the Debtors or the


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Reorganized Debtors, without the requirement to file a fee application with the Bankruptcy Court or a formal request for payment by the Administrative Claims Bar Date.

HOLDERS OF ADMINISTRATIVE CLAIMS THAT ARE REQUIRED TO, BUT DO NOT, FILE AND SERVE A REQUEST FOR PAYMENT OF SUCH ADMINISTRATIVE CLAIMS BY THE ADMINISTRATIVE CLAIMS BAR DATE SHALL BE FOREVER BARRED, ESTOPPED, AND ENJOINED FROM ASSERTING SUCH ADMINISTRATIVE CLAIMS AGAINST THE DEBTORS OR THEIR PROPERTY, AND SUCH ADMINISTRATIVE CLAIMS SHALL BE DEEMED DISCHARGED AS OF THE EFFECTIVE DATE.

2. DIP Claims

All DIP Claims shall be deemed Allowed as of the Effective Date in an amount equal to the aggregate amount of the DIP Obligations (as defined in the DIP Order), including (i) the principal amount outstanding under the DIP Financing on such date; (ii) the face amount of all outstanding letters of credit; (iii) all interest accrued and unpaid thereon through and including the date of payment; and (iv) all accrued and unpaid fees, expenses and indemnification obligations payable under the DIP Documents. Except to the extent that a Holder of an Allowed DIP Claim agrees to a less favorable treatment, in full and final satisfaction, settlement, release, and discharge of, and in exchange for, each Allowed DIP Claim, each such Allowed DIP Claim shall be indefeasibly paid in full, in Cash (or in the case of outstanding letters of credit or contingent DIP Claims, shall be terminated (only in the case of outstanding letters of credit), cash collateralized (in an amount and manner satisfactory to the DIP Agent) or fully supported through the issuance of backstop letters of credit, in each case in accordance with the terms of the DIP Documents) by the Debtors on the Effective Date. Contemporaneously with the foregoing payment, the DIP Financing facility and the “Loan Documents” referred to therein shall be deemed canceled, all commitments under the DIP Documents shall be deemed terminated, all Liens on property of the Debtors and the Reorganized Debtors arising out of or related to the DIP Financing shall automatically terminate, and all Collateral subject to such Liens shall be automatically released, in each case without further action by the DIP Agent or the DIP Lenders and all guarantees of the Debtors and Reorganized Debtors arising out of or related to the DIP Claims shall be automatically discharged and released, in each case without further action by the DIP Agent or the DIP Lenders. The DIP Agent and the DIP Lenders shall take all actions to effectuate and confirm such termination, release and discharge as reasonably requested by the Debtors or the Reorganized Debtors; provided that any provisions of the “Loan Documents” governing the DIP Financing facility that by their terms survive the payoff and termination of such facility shall survive in accordance with the terms of such Loan Documents.

3. Professional Fee Claims

(a) Final Fee Applications

All final requests for payment of Professional Fee Claims must be Filed with the Bankruptcy Court no later than the first Business Day that is sixty (60) days after the Effective Date unless otherwise ordered by the Bankruptcy Court.


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(b) Professional Fee Escrow

If the Professional Fee Claims Estimate is greater than zero, as soon as reasonably practicable after the Confirmation Date and no later than the Effective Date, the Debtors shall establish and fund the Professional Fee Escrow with Cash equal to the Professional Fee Claims Estimate, and no Liens, Claims, or interests shall encumber the Professional Fee Escrow in any way (whether on account of the New Reorganized Debt, or otherwise). The Professional Fee Escrow (including funds held in the Professional Fee Escrow) (i) shall not be and shall not be deemed property of the Debtors or the Reorganized Debtors and (ii) shall be held in trust for the Professionals; provided that funds remaining in the Professional Fee Escrow after all Allowed Professional Fee Claims have been irrevocably paid in full shall revert to the Reorganized Debtors. Allowed Professional Fee Claims shall be paid in Cash to such Professionals from funds held in the Professional Fee Escrow when such Claims are Allowed by an order of the Bankruptcy Court; provided that the Debtors’ obligations with respect to Professional Fee Claims shall not be limited nor deemed to be limited in any way to the balance of funds held in the Professional Fee Escrow.

If the amount of funds in the Professional Fee Escrow is insufficient to fund payment in full of all Allowed Professional Fee Claims and any other Allowed amounts owed to Professionals, the deficiency shall be promptly funded to the Professional Fee Escrow from the Debtors’ Estates without any further action or order of the Bankruptcy Court.

(c) Professional Fee Claims Estimate

Professionals shall estimate in good faith their unpaid Professional Fee Claims and other unpaid fees and expenses incurred in rendering services to the Debtors before and as of the Effective Date and shall deliver such reasonable, good faith estimate to the Debtors no later than five (5) Business Days prior to the Effective Date; provided, that such estimate shall not be deemed to limit the amount of the fees and expenses that are the subject of the Professional’s final request for payment of Filed Professional Fee Claims. If a Professional does not provide an estimate, the Debtors, in consultation with the First Lien Professionals, shall estimate in good faith the unpaid and unbilled fees and expenses of such Professional.

(d) Post-Effective Date Fees and Expenses

Except as otherwise specifically provided in the Plan, on and after the Effective Date, the Debtors or the Reorganized Debtors, as applicable, shall, in the ordinary course of business and without any further notice to or action, order, or approval of the Bankruptcy Court, pay in Cash the reasonable legal, professional, or other fees and expenses related to implementation of the Plan and Consummation incurred by the Debtors and the Reorganized Debtors, as applicable. Upon the Effective Date, any requirement that Professionals comply with sections 327 through 331, 363, and 1103 of the Bankruptcy Code in seeking retention for services rendered after such date shall terminate, and the Debtors or the Reorganized Debtors, as applicable, may employ any Professional in the ordinary course of business without any further notice to or action, order, or approval of the Bankruptcy Court.


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4. Priority Tax Claims

Except to the extent that a Holder of an Allowed Priority Tax Claim and the applicable Debtor with the reasonable consent of the Requisite Consenting Creditors (which consent shall not be unreasonably withheld or delayed) prior to the Effective Date, or after the Effective Date, such Holder and the applicable Reorganized Debtor agree to a less favorable treatment, in full and final satisfaction, settlement, release, and discharge of and in exchange for each Allowed Priority Tax Claim, each Holder of such Allowed Priority Tax Claim shall be treated in accordance with the terms set forth in section 1129(a)(9)(C) of the Bankruptcy Code and, for the avoidance of doubt, Holders of Allowed Priority Tax Claims will receive interest on such Allowed Priority Tax Claims after the Effective Date in accordance with sections 511 and 1129(a)(9)(C) of the Bankruptcy Code.

5. Reclamation Claims

Pursuant to section 546(c) of the Bankruptcy Code, a seller of goods that sold goods to a debtor in the ordinary course of such seller’s business may reclaim such goods if the debtor received the goods while insolvent and within forty-five (45) days of commencement of a bankruptcy case (each such claim, a “Reclamation Claim”). Section 546(c) of the Bankruptcy Code requires that the seller demand, in writing, reclamation of such goods not later than forty-five (45) days after the date of receipt of such goods by the debtor or not later than twenty (20) days after the date of commencement of the case, if the forty-five (45) day period expires after the commencement of a case. The Plan does not include any recovery for Reclamation Claims. Rather, pursuant to section 546(c) of the Bankruptcy Code, Reclamation Claims are subject to the prior perfected liens held by other parties on the Debtors’ inventory. Accordingly, the Debtors do not believe that any valid Reclamation Claims exist, and any losses on account of such claims would be a General Unsecured Claim.

C. Classification of Claims and Interests

1. Classification in General

A Claim or Interest is placed in a particular Class for all purposes, including voting, confirmation, and distribution under the Plan and under sections 1122 and 1123(a)(1) of the Bankruptcy Code; provided, that a Claim is placed in a particular Class for the purpose of receiving distributions pursuant to the Plan only if such Claim is an Allowed Claim in that Class and such Claim has not been satisfied, released, or otherwise settled before the Effective Date.

2. Summary of Classification

Claims and Interests, except for Prepetition RCF Claims, and Administrative Claims, including DIP Claims, Professional Fee Claims, Priority Tax Claims, and postpetition Intercompany Claims are classified in the Classes set forth in Article III of the Plan. A Claim or Interest is classified in a particular Class only to the extent that the Claim or Interest qualifies within the description of that Class and is classified in other Classes to the extent that any portion of the Claim or Interest qualifies within the description of such other Classes. A Claim or Interest also is classified in a particular Class for the purpose of receiving distributions pursuant to the Plan


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only to the extent that such Claim is an Allowed Claim in that Class and has not been paid, released, or otherwise satisfied prior to the Effective Date.

The classification of Claims and Interests against each Debtor pursuant to the Plan is as set forth below. The Plan shall apply as a separate Plan for each of the Debtors, and the classification of Claims and Interests set forth herein shall apply separately to each of the Debtors. All of the potential Classes for the Debtors are set forth herein. Certain of the Debtors may not have Holders of Claims or Interests in a particular Class or Classes, and such Claims shall be treated as set forth in Article III.F of the Plan.

A summary of the liabilities of, and Claims against, each Debtor can be found in the Debtors’ Schedules [Docket Nos. 359–374].

3. Class Identification

Class Designation Impairment Entitled to Vote

1 Other Priority Claims Unimpaired No (presumed to accept)

2 Other Secured Claims Unimpaired No (presumed to accept)

3 Prepetition ABL Claims (all Debtors other than Claire’s Parent)

Unimpaired No (presumed to accept)

4 Prepetition LC Facility Claims Unimpaired No (presumed to accept)

5 Prepetition ABL Claims (Claire’s Parent)


6 Prepetition RCF Claims (Claire’s Parent)


7 First Lien Debt Secured Claims (all Debtors other than Claire’s Parent)

Impaired Yes

8 Unsecured Claims (Claire’s Parent)


9 Unsecured Claims (all Debtors other than Claire’s Parent)

Impaired Yes

10 General Unsecured Elective Claims (all Debtors other than Claire’s Parent)

Impaired Yes

11 Prepetition Intercompany Claims Unimpaired No (presumed to accept)

12 Section 510(b) Claims Impaired No (presumed to reject)

13 Intercompany Interests Unimpaired No (presumed to accept)

14 Existing Claire’s Parent Equity Interests Impaired Yes


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D. Treatment of Claims and Interests

1. Class 1 – Other Priority Claims

Class 1 consists of Claims against any Debtor entitled to priority in right of payment under section 507(a) of the Bankruptcy Code, other than an (i) Administrative Claim, (ii) Priority Tax Claim, (iii) DIP claim, and (iv) Professional Fee Claim (collectively, the “Other Priority Claims”).

Except to the extent that a Holder of an Allowed Other Priority Claim and the applicable Debtor prior to the Effective Date, with the consent of the Requisite Consenting Creditors (which consent shall not be unreasonably withheld), or after the Effective Date, such Holder and the applicable Reorganized Debtor agree to a less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for such Other Priority Claim, each such Holder shall receive payment in full, in Cash, of the unpaid portion of its Other Priority Claim on the Effective Date or as soon thereafter as reasonably practicable (or, if payment is not then due, shall be paid in accordance with its terms in the ordinary course).

2. Class 2 – Other Secured Claims

Class 2 consists of Secured Claims against any Debtor, including any Secured Tax Claims, other than (i) Prepetition ABL Claims, (ii) Prepetition RCF Claims, (iii) First Lien Secured Claims, and (iv) DIP Claims (collectively, the “Other Secured Claims”). For the avoidance of doubt, unless otherwise classified in Article III.B of the Plan, “Other Secured Claims” includes any Claim arising under, derived from, or based upon any letter of credit issued in favor of one or more Debtors, the reimbursement obligation for which is either secured by a Lien on collateral or is subject to a valid right of setoff pursuant to section 553 of the Bankruptcy Code.

Except to the extent that a Holder of an Allowed Other Secured Claim and the applicable Debtor prior to the Effective Date, with the consent of the Requisite Consenting Creditors (which consent shall not be unreasonably withheld), or after the Effective Date, such Holder and the applicable Reorganized Debtor agree to a less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for such Other Secured Claim, each such Holder shall receive at the applicable Debtor’s, with the consent of the Requisite Consenting Creditors (which consent shall not be unreasonably withheld), or the applicable Reorganized Debtor’s, discretion: (i) payment in full in Cash of the unpaid portion of such Holder’s Allowed Other Secured Claim on the Effective Date or as soon thereafter as reasonably practicable (or if payment is not then due, payment shall be made in accordance with its terms in the ordinary course); (ii) reinstatement of such Holder’s Allowed Other Secured Claim; (iii) the applicable Debtor’s interest in the collateral securing such Holder’s Other Secured Claim; or (iv) such other treatment rendering such Holder’s Allowed Other Secured Claim Unimpaired.

3. Class 3 – Prepetition ABL Claims Against Any Debtor Other than Claire’s Parent

Class 3 consists of Claims against any Debtor other than Claire’s Parent arising from or based upon the Prepetition ABL Credit Agreement or any of the other Prepetition ABL Credit


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Documents, including accrued but unpaid interest, costs, fees, and indemnities (collectively, the “Prepetition ABL Claims”).

Except to the extent that a Holder of an Allowed Prepetition ABL Claim against any Debtor other than Claire’s Parent and the applicable Debtor (other than Claire’s Parent) prior to the Effective Date, with the consent of the Requisite Consenting Creditors (which consent shall not be unreasonably withheld), or after the Effective Date, such Holder and the applicable Reorganized Debtor agree to a less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for such Prepetition ABL Claim, each such Holder shall receive payment in full, in Cash, of the unpaid portion of its Prepetition ABL Claim on the Effective Date.

4. Class 4 – Prepetition LC Facility Claims

Class 4 consists of Claims against any Debtor arising from or based upon the Prepetition LC Agreement or any other Prepetition LC Facility Documents, including accrued but unpaid costs, fees, and indemnities, which face amount outstanding as of the Commencement Date was $4,933,364.45 (collectively, the “Prepetition LC Facility Claims”).

Except to the extent that a Holder of an Allowed Prepetition LC Facility Claim and the applicable Debtor prior to the Effective Date, with the consent of the Requisite Consenting Creditors (which consent shall not be unreasonably withheld), or after the Effective Date, such Holder and the applicable Reorganized Debtor agree to a less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for such Prepetition LC Facility Claim, each such Holder shall receive at the applicable Debtor’s, with the consent of the Requisite Consenting Creditors (which consent shall not be unreasonably withheld), or the applicable Reorganized Debtor’s, discretion, such treatment rendering such Holder’s Allowed Prepetition LC Facility Claim Unimpaired or causing the Prepetition LC Facility to be Reinstated.

5. Class 5 – Prepetition ABL Claims Against Claire’s Parent

Class 5 consists of Claims against Claire’s Parent arising from or based upon the Prepetition ABL Credit Agreement or any of the other Prepetition ABL Credit Documents, including accrued but unpaid interest, costs, fees, and indemnities (the “Prepetition ABL Claims”).

On the Effective Date, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for such Claims, each Holder of a Prepetition ABL Claim against Claire’s Parent shall receive a Cash recovery in an amount equal to the Allowed amount of such Claim against Claire’s Parent.

6. Class 6 – Prepetition RCF Claims Against Claire’s Parent

Class 6 consists of Claims against Claire’s Parent arising from or based upon the Prepetition RCF Agreement or any other Prepetition RCF Document, including all accrued but unpaid interest, costs, fees, and indemnities (the “Prepetition RCF Claims”).


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On the Effective Date, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for such Claims, each Holder of a Prepetition RCF Claim against Claire’s Parent shall receive a Cash recovery in an amount equal to the Allowed amount of such Claim against Claire’s Parent.

7. Class 7 – First Lien Debt Secured Claims Against Any Debtor Other than Claire’s Parent

Class 7 consists of First Lien Debt Secured Claims against any Debtor other than Claire’s Parent.

On the Effective Date, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for such Claims, each Holder of a First Lien Debt Secured Claim against any Debtor other than Claire’s Parent, in each case without duplication among the Debtors, shall receive from Claire’s Stores its Pro Rata share of, as applicable: (i) 100% of the Reorganized Claire’s Parent Interests, subject to dilution by the New Preferred Equity Interests and the Management Equity Incentive Plan; (ii) with respect to Eligible First Lien Holders, the First Lien Subscription Rights; and (iii) with respect to Ineligible First Lien Holders, Cash in the amount equal to the value of the First Lien Subscription Rights that would have been distributable to such Holder if such Holder was an Eligible First Lien Holder.

8. Class 8 – Unsecured Claims Against Claire’s Parent

Class 8 consists of all Unsecured Claims against Claire’s Parent.

On the Effective Date or as soon as reasonably practicable thereafter, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for such Claims, each Holder of an Allowed Unsecured Claim against Claire’s Parent shall receive a Cash distribution on a Pro Rata basis from the Claire’s Parent Assets.

Pursuant to the DIP Marshaling Waiver, parties in interest cannot compel holders of DIP Facility Claims to recover against any particular pool of assets. Consequently, parties in interest cannot compel Holders of DIP Facility Claims to satisfy such claims from the Claire’s Parent Assets and, pursuant to the Plan, holders of DIP Facility Claims have elected not to recover on account of their claims from the Claire’s Parent Assets.

9. Class 9 – Unsecured Claims Against any Debtor Other than Claire’s Parent

Class 9 shall consist of Claims arising from or based upon (i) First Lien Debt Deficiency Claims; (ii) the Second Lien Notes, including accrued but unpaid interest, costs, fees, and indemnities, outstanding as of the Commencement Date in the aggregate amount equal to $232,383,775.00; (iii) the Unsecured Notes, including accrued but unpaid interest, costs, fees, and indemnities outstanding as of the Commencement Date in the aggregate amount equal to $221,781,251.50; and (iv) any General Unsecured Claim against any Debtor other than Claire’s Parent.

Except to the extent that a Holder of an Allowed Unsecured Claim agrees to less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for such Claims, each Holder of an Allowed Unsecured Claim against any Debtor


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other than Claire’s Parent shall receive on the Effective Date or as soon as practicable thereafter its Pro Rata share of the Unsecured Recovery Cash Pool.

The Schedules and Statements identify the assets and liabilities for each Debtor and are publicly available on the docket maintained in these chapter 11 cases.

10. Class 10 – General Unsecured Elective Claims Against any Debtor Other than Claire’s Parent

Class 10 consists of Claims that would otherwise be Allowed General Unsecured Claim that (A) are either (i) Allowed in amounts of $450,000 or less, or (ii) Allowed in amounts greater than $450,000, but which are reduced to $450,000 and treated as General Unsecured Elective Claims for purposes of the Plan in full and final satisfaction of such Claims by irrevocable written elections of the Holders of such Claims made on timely and properly delivered and completed Ballots; and (B) the Holders of which make irrevocable written elections to be treated as General Unsecured Elective Claims on timely and properly delivered and completed Ballots; provided, however, that any General Unsecured Claim that was originally Allowed in excess of $450,000 may not be subdivided into multiple General Unsecured Claims of $450,000 or less for purposes of receiving treatment as a General Unsecured Elective Claim.

Except to the extent that a Holder of a General Unsecured Elective Claim agrees to less favorable treatment for such holder in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for such Claims, each Holder of an Allowed General Unsecured Elective Claim against any Debtor other than Claire’s Parent shall receive on the Effective Date or as soon as practicable thereafter its Pro Rata share of the General Unsecured Elective Claim Recovery Cash Pool of $6,000,000.

Holders of First Lien Secured Debt Claims shall be deemed to have consented to a carve-out of the proceeds from their Collateral to fund a distribution to Holders of General Unsecured Elective Claims. All distributions to Holders of General Unsecured Elective Claims are made exclusively from such carve-out.

11. Class 11 – Prepetition Intercompany Claims

Class 11 consists of Claims either (i) held by a Debtor against any Debtor, but excluding all (i) Prepetition First Lien Term Loan Claims, (ii) CLSIP Term Loan Obligations, and (iii) Gibraltar 2021 Unsecured Term Loan Obligations, held by Claire’s Parent or (ii) held by a non-Debtor subsidiary of Claire’s Parent against any Debtor (collectively, the “Prepetition Intercompany Claims”).

Except to the extent that a Holder of a prepetition Intercompany Claim agrees to a less favorable treatment, in full and final satisfaction, settlement, compromise, release, and discharge of and in exchange for each prepetition Intercompany Claim, each Holder of such prepetition Intercompany Claim shall receive such treatment as to render such Holder Unimpaired.

Prepetition Intercompany Claims are classified separately from General Unsecured Claims. This separate classification reflects, among other things, the fact that Intercompany Claims are being reinstated for administrative purposes only and are not enhancing recoveries available to any


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third party creditor. Additionally, Intercompany Claims would constitute collateral securing the Debtors’ prepetition indebtedness. Any separate distributions made on account of Intercompany Claims would, therefore, not improve recoveries for junior stakeholders.

12. Class 12 – Section 510(b) Claims

Class 12 shall consist of claims subject to subordination under section 510(b) of the Bankruptcy Code (collectively, the “Section 510(b) Claims”).

Section 510(b) Claims will be canceled, released, discharged, and extinguished as of the Effective Date, and will be of no further force or effect, and Holders of Section 510(b) Claims will not receive any distribution on account of such Claims.

13. Class 13 – Intercompany Interests

Class 13 shall consist of Interests held by a Debtor in another Debtor or non-Debtor subsidiary (collectively, the “Intercompany Interests”).

Intercompany Interests shall be Reinstated so as to maintain the organizational structure of the Debtors as such structure exists on the Effective Date unless implementation of the Restructuring requires otherwise.

14. Class 14 – Existing Claire’s Parent Equity Interests

Class 14 consists of all Interests in Claire’s Parent (collectively, the “Existing Claire’s Parent Equity Interests”).

On the Effective Date, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for such Interests, each Holder of an Existing Claire’s Parent Equity Interest shall receive its Pro Rata share of, as applicable: (i) with respect to Eligible Shareholders, the Shareholder Subscription Rights; (ii) with respect to Ineligible Shareholders, Cash in the amount equal to the value of the Shareholder Subscription Rights that would have been distributable to such Shareholder if such Shareholder was an Eligible Shareholder; and (iii) the Cash proceeds or other consideration, if any, available from the Claire’s Parent Assets after all Allowed Claims against Claire’s Parent are satisfied in full with the proceeds from the Claire’s Parent Assets; provided that the Sponsor, the Sponsor’s Affiliates, and the Sponsor’s or Sponsor’s Affiliates’ successors or subsidiaries, in each case that is a Holder of Existing Claire’s Parent Equity Interests, shall not, in any event, receive, solely in its capacity as such, Reorganized Claire’s Parent Interests in exchange for, or as a distribution with respect to, such Holder’s Existing Claire’s Parent Equity Interests.

Recovery on account of Existing Claire’s Parent Equity Interests reflects the DIP Marshaling Waiver, pursuant to which Holders of DIP Claims have waived a recovery from the particular assets of Claire’s Parent.


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E. Special Provision Governing Unimpaired Claims

Except as otherwise specifically provided in the Plan, nothing herein shall be deemed to affect, diminish, or impair the Debtors’ or the Reorganized Debtors’ rights and defenses, both legal and equitable, with respect to any Reinstated Claim or Unimpaired Claim, including legal and equitable defenses to setoffs or recoupment against Reinstated Claims or Unimpaired Claims; and, except as otherwise specifically provided in the Plan, nothing herein shall be deemed to be a waiver or relinquishment of any Claim, Cause of Action, right of setoff, or other legal or equitable defense that the Debtors had immediately prior to the Commencement Date, against or with respect to any Claim that is Unimpaired by the Plan. Except as otherwise specifically provided in the Plan, the Reorganized Debtors shall have, retain, reserve, and be entitled to assert all such Claims, Causes of Action, rights of setoff, and other legal or equitable defenses that the Debtors had immediately prior to the Commencement Date fully as if the Chapter 11 Cases had not been commenced, and all of the Reorganized Debtors’ legal and equitable rights with respect to any Reinstated Claim or Claim that is Unimpaired by the Plan may be asserted after the Confirmation Date and the Effective Date to the same extent as if the Chapter 11 Cases had not been commenced.

F. Special Provision Regarding Prepetition Intercompany Claims

Prepetition Intercompany Claims may be deemed settled, Reinstated or otherwise Unimpaired, in whole or in part, as of the Effective Date, in each case, at the discretion of the Debtors or the Reorganized Debtors, as applicable, in each case, with the consent of the Requisite Consenting Creditors (such consent not to be unreasonably withheld); provided that, in all instances, the Debtors shall assume their obligations under the Comfort Letters as of the Effective Date.

G. Confirmation Pursuant to Sections 1129(a)(10) and 1129(b) of the Bankruptcy Code

Section 1129(a)(10) of the Bankruptcy Code shall be satisfied for purposes of Confirmation by acceptance of the Plan by an Impaired Class of Claims. The Debtors shall seek Confirmation of the Plan pursuant to section 1129(b) of the Bankruptcy Code with respect to any rejecting Class of Claims or Interests.

H. Elimination of Vacant Classes

Any Class of Claims or Interests that does not have a Holder of an Allowed Claim or Allowed Interest or a Claim or Interest temporarily Allowed by the Bankruptcy Court as of the date of the Confirmation Hearing shall be deemed eliminated from the Plan for purposes of voting to accept or reject the Plan and for purposes of determining acceptance or rejection of the Plan by such Class pursuant to section 1129(a)(8) of the Bankruptcy Code.

I. Voting Classes; Presumed Acceptance by Non-Voting Classes

If a Class contains Claims or Interests eligible to vote and no Holders of Claims or Interests eligible to vote in such Class vote to accept or reject the Plan, the Plan shall be presumed accepted by the Holders of such Claims or Interests in such Class.


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J. Controversy Concerning Impairment

If a controversy arises as to whether any Claims or Interests, or any Class of Claims or Interests, are Impaired, the Bankruptcy Court shall, after notice and a hearing, determine such controversy on or before the Confirmation Date.

K. Means for Implementation of the Plan

1. No Substantive Consolidation

The Plan is being proposed as a joint plan of reorganization of the Debtors for administrative purposes only and constitutes a separate chapter 11 plan of reorganization for each Debtor. The Plan is not premised upon the substantive consolidation of the Debtors with respect to the Classes of Claims or Interests set forth in the Plan.

2. Sources of Consideration for Plan Distributions

The Reorganized Debtors shall fund distributions under the Plan with (i) Cash on hand; (ii) Cash proceeds from the New Money Investment; and (iii) the issuance of Reorganized Claire’s Parent Interests. The Confirmation Order shall be deemed to authorize, among other things, the Restructuring Transactions.

3. Issuance and Distribution of Reorganized Claire’s Parent Interests

The issuance of the Reorganized Claire’s Parent Interests shall be authorized without the need for any further corporate action and without any further action by the Holders of Claims or Interests.

On the Effective Date, shares of Reorganized Claire’s Parent Interests and the First Lien Subscription Rights will be contributed to Claire’s Stores (either as a capital contribution or in exchange, in whole or in part, for an intercompany note issued by Claire’s Stores, as determined by the Debtors with the consent of the Requisite Consenting Creditors, which consent shall not be unreasonably withheld) and, immediately thereafter, Holders of First Lien Debt Secured Claims shall receive from Claire’s Stores such shares of Reorganized Claire’s Parent Interests and First Lien Subscription Rights, as applicable, in exchange for their First Lien Debt Secured Claims pursuant to Article III.B.7 of the Plan.

It shall be a condition to the receipt of any Reorganized Claire’s Parent Interests that, prior to such receipt, each such recipient duly executes and delivers to the Debtors and counsel to the Requisite Consenting Creditors counter-signature pages to the Shareholders Agreement. For the avoidance of doubt, any claimant’s acceptance of Reorganized Claire’s Parent Interests shall be deemed as its agreement to be bound by the Shareholders Agreement and the Reorganized Debtors Organizational Documents, as the same may be amended or modified from time to time following the Effective Date in accordance with their terms. The Shareholders Agreement and Reorganized Debtors Organizational Documents, as applicable, shall be binding on all Entities receiving, and all holders of, the Reorganized Claire’s Parent Interests (and their respective successors and assigns), whether any such Reorganized Claire’s Parent Interests is received or to be received on or after the Effective Date, in each case, pursuant to the Plan and regardless of


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whether such Person executes or delivers a signature page to the Shareholders Agreement and the Reorganized Debtors Organizational Documents.

All of the shares of Reorganized Claire’s Parent Interests issued pursuant to the Plan shall be duly authorized, validly issued, fully paid, and non-assessable. Each distribution and issuance of the Reorganized Claire’s Parent Interests under the Plan shall be governed by the terms and conditions set forth in the Plan applicable to such distribution or issuance and by the terms and conditions of the instruments evidencing or relating to such distribution or issuance, which terms and conditions shall bind each Entity receiving such distribution or issuance.

4. New Reorganized Debt

The Reorganized Debtors shall issue the New Reorganized Debt and provide any related guarantees, and the New Reorganized Debt will be made available to the Reorganized Debtors, pursuant to and subject to the terms and conditions set forth in the New Reorganized Debt Documents.

Confirmation shall be deemed approval of the issuance and incurrence of the New Reorganized Debt (including the transactions contemplated thereby, and all actions to be taken, undertakings to be made, and obligations and guarantees to be incurred and fees paid in connection therewith), and to the extent not approved by the Court previously, the Reorganized Debtors shall be authorized to execute and deliver those documents necessary or appropriate to issue and incur the New Reorganized Debt and related guarantees, including the New Reorganized Debt Documents, without further notice to or order of the Court, act or action under applicable law, regulation, order or rule or vote, consent, authorization, or approval of any Person, subject to such modifications as the Debtors (with the consent of the Requisite Consenting Creditors) or Reorganized Debtors may deem to be necessary to consummate the New Reorganized Debt.

5. CLSIP Term Loan Obligations and Gibraltar Obligations

(a) CLSIP Repayment

On or prior to the Effective Date, Claire’s Stores shall cause CLSIP to repay in full in Cash the then-outstanding balance of CLSIP Term Loan Obligations with proceeds from the New Money Investment on terms reasonably acceptable to the Debtors, CLSIP, CLSIP Holdings, and the Requisite Consenting Creditors (the “CLSIP Repayment”).

(b) Gibraltar Repayment

On or prior to the Effective Date, Claire’s Stores shall cause Gibraltar Holdings and Gibraltar Intermediate, as applicable, to repay in full in Cash the then-outstanding balance of Gibraltar Obligations with proceeds from the New Money Investment on terms reasonably acceptable to the Debtors, Gibraltar Holdings, Gibraltar Intermediate, and the Requisite Consenting Creditors (the “Gibraltar Repayment”).


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6. Allowed Unsecured and General Unsecured Elective Claim Recoveries

On the Effective Date, the Debtors shall establish and fund the Unsecured Recovery Cash Pool Account and the General Unsecured Elective Claim Recovery Cash Pool Account with Cash in an amount equal to the Unsecured Recovery Cash Pool and the General Unsecured Elective Claim Recovery Cash Pool, respectively, which shall each be held in trust for Pro Rata distributions on account of Allowed Unsecured Claims and Allowed General Unsecured Elective Claims, as applicable, against Debtors other than Claire’s Parent as provided herein.

The Unsecured Recovery Cash Pool Account and the General Unsecured Elective Claim Recovery Cash Pool Account each (i) shall not be and shall not be deemed property of the Debtors or the Reorganized Debtors; (ii) shall be held in trust to fund distributions on account of Allowed Unsecured Claims and General Unsecured Elective Claims, as applicable and provided herein; and (iii) and no Liens, Claims, or Interests shall encumber the Unsecured Recovery Cash Pool Account or the General Unsecured Elective Claim Recovery Cash Pool Account in any way (whether on account of the New Reorganized Debt or otherwise).

All parties to the Plan shall (i) treat the Unsecured Recovery Cash Pool and the General Unsecured Elective Claim Recovery Cash Pool Account each as a “disputed ownership fund” for U.S. federal income tax purposes, and (ii) to the extent permitted by applicable law, report consistently with the foregoing for state and local income tax purposes. All taxes imposed on assets or income of the Unsecured Recovery Cash Pool or the General Unsecured Elective Claim Recovery Cash Pool Account, respectively, will be payable from the assets of the Unsecured Recovery Cash Pool or the General Unsecured Elective Claim Recovery Cash Pool Account, as applicable.

7. Corporate Existence

Except as otherwise provided in the Plan (including with respect to any Restructuring Transaction undertaken pursuant to the Plan), the Reorganized Debtors Organizational Documents, or any agreement, instrument, or other document incorporated in the Plan or the Plan Supplement, on and after the Effective Date, each Debtor shall continue to exist as a Reorganized Debtor and as a separate corporation, limited liability company, partnership, or other form of entity, as the case may be, with all the powers of a corporation, limited liability company, partnership, or other form of entity, as the case may be, pursuant to the applicable law in the jurisdiction in which each applicable Debtor is incorporated or formed and pursuant to the respective certificate of incorporation and bylaws (or other analogous formation documents) in effect before the Effective Date, except to the extent such certificate of incorporation and bylaws (or other analogous formation documents) are amended by the Plan or otherwise, and to the extent such documents are amended, such documents are deemed to be amended pursuant to the Plan and require no further action or approval (other than any requisite filings required under applicable state, provincial, or federal law); provided that such modifications shall be implemented in accordance with the Restructuring Support Agreement or otherwise be in form and substance acceptable to the Requisite Consenting Creditors.


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8. Vesting of Assets in the Reorganized Debtors

Except as otherwise provided in the Plan or any agreement, instrument, or other document incorporated in the Plan or the Plan Supplement, on the Effective Date, all property in each Estate, all Causes of Action, all Executory Contracts and Unexpired Leases assumed by any of the Debtors, and any property acquired by any of the Debtors, including Interests held by the Debtors in non-Debtor subsidiaries, pursuant to the Plan shall vest in each respective Reorganized Debtor, free and clear of all Liens, Claims, charges, or other encumbrances unless expressly provided otherwise by the Plan or Confirmation Order. On and after the Effective Date, each Reorganized Debtor may operate its business and may use, acquire, or dispose of property, and compromise or settle any Claims, Interests, or Causes of Action without supervision or approval by the Bankruptcy Court and free of any restrictions of the Bankruptcy Code or Bankruptcy Rules.

9. Cancellation of Existing Securities

Except as otherwise provided in the Plan or any agreement, instrument, or other document incorporated in the Plan or the Plan Supplement, on the Effective Date (i) the Prepetition ABL Credit Agreement, the Prepetition RCF Agreement, the 6.125% First Lien Notes Indenture, the 9.00% First Lien Notes Indenture, the Prepetition First Lien Term Loan Agreement, the Second Lien Notes Indenture, and the Unsecured Notes Indenture and any other certificate, share, note, bond, indenture, purchase right, option, warrant, or other instrument or document, directly or indirectly, evidencing or creating any indebtedness or obligation of or ownership interest in the Debtors giving rise to any Claim or Interest (except such certificates, notes, or other instruments or documents evidencing indebtedness or obligations of the Debtors that are specifically Reinstated pursuant to the Plan) shall be deemed canceled, discharged and of no force or effect, except, with respect to the Prepetition ABL Credit Agreement, the Prepetition RCF Agreement, the 6.125% First Lien Notes Indenture, the 9.00% First Lien Notes Indenture, the Prepetition First Lien Term Loan Agreement, the Second Lien Notes Indenture, and the Unsecured Notes Indenture, as applicable, as necessary to (a) enforce the rights, Claims and interests of the Prepetition ABL Agent, the Prepetition RCF Agent, the 6.125% First Lien Notes Trustee, the 9.00% First Lien Notes Trustee, the Prepetition First Lien Term Loan Agent, the Second Lien Notes Trustee, or the Unsecured Notes Trustee, as applicable, and any predecessor thereof vis-a-vis parties other than the Released Parties, (b) allow the receipt of and to make distributions under the Plan and the subsequent distribution of such amounts in accordance with the terms of the Prepetition ABL Credit Agreement, the Prepetition RCF Agreement, the 6.125% First Lien Notes Indenture, the 9.00% First Lien Notes Indenture, the Prepetition First Lien Term Loan Agreement, the Second Lien Notes Indenture, or the Unsecured Notes Indenture, as applicable, and (c) preserve any rights of (1) the Prepetition ABL Agent and any predecessor thereof as against any money or property distributable to Holders of Prepetition ABL Claims, including any priority in respect of payment and the right to exercise any Prepetition ABL Agent Charging Lien, (2) the Prepetition RCF Agent and any predecessor thereof as against any money or property distributable to Holders of Prepetition RCF Claims, including any priority in respect of payment and the right to exercise any Prepetition RCF Agent Charging Lien, (3) the 6.125% First Lien Notes Trustee and any predecessor thereof as against any money or property distributable to Holders of 6.125% First Lien Notes Claims, including any priority in respect of payment and the right to exercise any 6.125% First Lien Notes Agent Charging Lien, (4) the 9.00%


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First Lien Notes Trustee and any predecessor thereof as against any money or property distributable to Holders of 9.00% First Lien Notes Claims, including any priority in respect of payment and the right to exercise any 9.00% First Lien Notes Agent Charging Lien, (5) the Prepetition First Lien Term Loan Agent and any predecessor thereof as against any money or property distributable to Holders of Prepetition First Lien Term Loan Claims, including any priority in respect of payment, (6) the Second Lien Notes Trustee and any predecessor thereof as against any money or property distributable to Holders of Second Lien Notes Claims, including any priority in respect of payment and the right to exercise any Second Lien Notes Trustee Charging Lien, and (7) the Unsecured Notes Trustee and any predecessor thereof as against any money or property distributable to Holders of Unsecured Notes Claims, including any priority in respect of payment and the right to exercise any Unsecured Notes Trustee Charging Lien; and (ii) the obligations of the Debtors pursuant, relating, or pertaining to any agreements, indentures, certificates of designation, bylaws, or certificate or articles of incorporation or similar documents governing the shares, certificates, notes, bonds, purchase rights, options, warrants, or other instruments or documents evidencing or creating any indebtedness or obligation of the Debtors (except such agreements, certificates, notes, or other instruments evidencing indebtedness or obligations of the Debtors that are specifically Reinstated pursuant to the Plan) shall be released and discharged; provided that notwithstanding Confirmation or the occurrence of the Effective Date, any such indenture or agreement that governs the rights of the Holder of a Claim or Interest shall also continue in effect to allow each of the Prepetition ABL Agent, the Prepetition RCF Agent, the 6.125% First Lien Notes Trustee, the 9.00% First Lien Notes Trustee, the Prepetition First Lien Term Loan Agent, the Second Lien Notes Trustee, and the Unsecured Notes Trustee to appear and be heard in the Chapter 11 Cases or in any proceeding in the Bankruptcy Court or any other court, including, without limitation, to enforce the respective obligations owed to such parties under the Plan.

Except for the foregoing, (i) the Prepetition ABL Agent and its respective agents shall be relieved of all further duties and responsibilities related to the Prepetition ABL Credit Documents and the Plan, except with respect to such other rights of the Prepetition ABL Agent that, pursuant to the Prepetition ABL Credit Documents, survive the termination of the Prepetition ABL Credit Documents. Subsequent to the performance by the Prepetition ABL Agent of its obligations pursuant to the Plan, the Prepetition ABL Agent and its agents shall be relieved of all further duties and responsibilities related to the Prepetition ABL Credit Documents; (ii) the Prepetition RCF Agent and its respective agents shall be relieved of all further duties and responsibilities related to the Prepetition RCF Documents and the Plan, except with respect to such other rights of the Prepetition RCF Agent that, pursuant to the Prepetition RCF Documents, survive the termination of the Prepetition RCF Documents. Subsequent to the performance by the Prepetition RCF Agent of its obligations pursuant to the Plan, the Prepetition RCF Agent and its agents shall be relieved of all further duties and responsibilities related to the Prepetition RCF Documents; (iii) the 6.125% First Lien Notes Trustee and its respective agents shall be relieved of all further duties and responsibilities related to the 6.125% First Lien Notes Documents and the Plan, except with respect to such other rights of the 6.125% First Lien Notes Trustee that, pursuant to the 6.125% First Lien Notes Documents, survive the termination of the 6.125% First Lien Notes Documents. Subsequent to the performance by the 6.125% First Lien Notes Trustee of its obligations pursuant to the Plan, the 6.125% First Lien Notes Trustee and its agents shall be relieved of all further duties and responsibilities related to the 6.125% First Lien Notes Documents; (iv) the 9.00% First Lien Notes Trustee and its respective agents shall be


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relieved of all further duties and responsibilities related to the 9.00% First Lien Notes Documents and the Plan, except with respect to such other rights of the 9.00% First Lien Notes Trustee that, pursuant to the 9.00% First Lien Notes Documents, survive the termination of the 9.00% First Lien Notes Documents. Subsequent to the performance by the 9.00% First Lien Notes Trustee of its obligations pursuant to the Plan, the 9.00% First Lien Notes Trustee and its agents shall be relieved of all further duties and responsibilities related to the 9.00% First Lien Notes Documents; (v) the Prepetition First Lien Term Loan Agent and its respective agents shall be relieved of all further duties and responsibilities related to the Prepetition First Lien Term Loan Documents and the Plan, except with respect to such other rights of the Prepetition First Lien Term Loan Agent that, pursuant to the Prepetition First Lien Term Loan Documents, survive the termination of the Prepetition First Lien Term Loan Documents. Subsequent to the performance by the Prepetition First Lien Term Loan Agent of its obligations pursuant to the Plan, the Prepetition First Lien Term Loan Agent and its agents shall be relieved of all further duties and responsibilities related to the Prepetition First Lien Term Loan Documents; (vi) the Second Lien Notes Trustee and its respective agents shall be relieved of all further duties and responsibilities related to the Second Lien Notes Documents and the Plan, except with respect to such other rights of the Second Lien Notes Trustee that, pursuant to the Second Lien Notes Documents, survive the termination of the Second Lien Notes Documents. Subsequent to the performance by the Second Lien Notes Trustee of its obligations pursuant to the Plan, the Second Lien Notes Trustee and its agents shall be relieved of all further duties and responsibilities related to the Second Lien Notes Documents; (vii) the Unsecured Notes Trustee and its respective agents shall be relieved of all further duties and responsibilities related to the Unsecured Notes Documents and the Plan, except with respect to such other rights of the Unsecured Notes Trustee that, pursuant to the Unsecured Notes Documents, survive the termination of the Unsecured Notes Documents. Subsequent to the performance by the Unsecured Notes Trustee of its obligations pursuant to the Plan, the Unsecured Notes Trustee and its agents shall be relieved of all further duties and responsibilities related to the Unsecured Notes Documents.

If the record Holder of any of the 6.125% First Lien Notes, 9.00% First Lien Notes, Second Lien Notes, or Unsecured Notes is the DTC or its nominee or another securities depository or custodian thereof, and such First Lien Notes, Second Lien Notes, or Unsecured Notes are represented by a global security held by or on behalf of the DTC or such other securities depository or custodian, then each such Holder of the 6.125% First Lien Notes, 9.00% First Lien Notes, Second Lien Notes, or Unsecured Notes shall be deemed to have surrendered such Holder’s note, debenture or other evidence of indebtedness upon surrender of such global security by the DTC or such other securities depository or custodian thereof.

10. Corporate Action

Upon the Effective Date, or as soon thereafter as is reasonably practicable, all actions contemplated by the Plan shall be deemed authorized and approved by the Bankruptcy Court in all respects, including, as applicable (i) the issuance of the Reorganized Claire’s Parent Interests and New Preferred Equity Interests; (ii) the selection of the directors and officers for Reorganized Claire’s Parent and the other Reorganized Debtors; (iii) implementation of the Restructuring Transactions; and (iv) all other actions contemplated by the Plan (whether to occur before, on, or after the Effective Date). Upon the Effective Date, all matters provided for in the


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Plan involving the corporate structure of Reorganized Claire’s Parent and the other Reorganized Debtors, and any corporate action required by the Debtors, Reorganized Claire’s Parent, or the other Reorganized Debtors in connection with the Plan shall be deemed to have occurred and shall be in effect, without any requirement of further action by the Security Holders, directors, or officers of the Debtors, Reorganized Claire’s Parent, or the other Reorganized Debtors. On or before the Effective Date, as applicable, the appropriate officers of the Debtors, Reorganized Claire’s Parent, or the Reorganized Debtors shall be authorized to issue, execute, and deliver the agreements, documents, securities, and instruments contemplated by the Plan (or necessary or desirable to effect the transactions contemplated by the Plan), in the name of and on behalf of Reorganized Claire’s Parent and the other Reorganized Debtors, to the extent not previously authorized by the Bankruptcy Court. The authorizations and approvals contemplated by Article IV.I of the Plan shall be effective notwithstanding any requirements under non-bankruptcy law.

11. Restructuring Transactions

Following the Confirmation Date or as soon as reasonably practicable thereafter, the Debtors, may take all actions as may be necessary or appropriate in the Debtors’ discretion, with the consent, not to be unreasonably withheld, conditioned, or delayed, of the Requisite Consenting Creditors, prior to the Effective Date and thereafter in the Reorganized Debtors’ discretion, to effectuate any transaction described in, approved by, contemplated by, or necessary to effectuate the Plan, including (i) the execution and delivery of appropriate agreements or other documents of merger, amalgamation, consolidation, restructuring, conversion, disposition, transfer, arrangement, continuance, dissolution, sale, purchase, or liquidation containing terms that are consistent with the terms of the Plan; (ii) the execution and delivery of appropriate instruments of transfer, assignment, assumption, or delegation of any asset, property, right, liability, debt, or obligation on terms consistent with the terms of the Plan; (iii) the filing of appropriate certificates or articles of incorporation, reincorporation, merger, consolidation, conversion, amalgamation, arrangement, continuance, or dissolution pursuant to applicable state or law; and (iv) all other actions that the Debtors determine to be necessary, including making filings or recordings that may be required by applicable law in connection with the Plan (collectively, the “Restructuring Transactions”). The Restructuring Transactions shall be subject to the consent, not to be unreasonably withheld, conditioned, or delayed, of the Requisite Consenting Creditors prior to the Effective Date, and thereafter, consummated in the Reorganized Debtors’ discretion, and shall be structured in a manner that takes into account the tax position of creditors and the Reorganized Debtors.

12. New Money Investment

(a) First Lien Rights Offering

Following approval by the Bankruptcy Court of this Disclosure Statement, and the Rights Offering Procedures, one or more of the Debtors shall conduct the First Lien Rights Offering. In accordance with the New Money Backstop Commitment Agreement and the First Lien Rights Offering Procedures annexed hereto as Exhibit E-1, each Eligible First Lien Holder that is not a natural person shall have First Lien Subscription Rights in the First Lien Rights Offering to purchase up to its Pro Rata allocation of the First Lien Rights Offering Amount, comprised of (i) commitments to the Exit ABL Facility, (ii) funding of the Exit Term Loan Facility, and (iii)


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purchases of New Preferred Equity Interests. Each Eligible First Lien Holder that is a natural person shall have First Lien Subscription Rights to purchase up to its Pro Rata allocation of the First Lien Rights Offering Amount, comprised solely of the purchase of New Preferred Equity Interests.

As defined in the Plan, an Eligible First Lien Holder is a Holder of Allowed First Lien Debt Secured Claims that is (i) an “accredited investor” within the meaning of Rule 501 Regulation D under the Securities Act or (ii) a “qualified institutional buyer” within the meaning of Rule 144A under the Securities Act that is also an “accredited investor.” Only Eligible First Lien Holders are eligible to participate in the First Lien Rights Offering. Ineligible First Lien Holders will receive Cash in the amount equal to the value of the First Lien Subscription Rights that would have been distributable to such Holder if such Holder was an Eligible First Lien Holder.

(b) Backstop

In accordance with the New Money Backstop Commitment Agreement and subject to the terms and conditions thereof:

(i) each of the Backstop Parties shall (a) exercise its First Lien Subscription Rights to purchase its Pro Rata allocation of the First Lien Rights Offering Amount in the First Lien Rights Offering, and (b) purchase its Backstop Amount and Initial Subscription Amount on or prior to the Effective Date;

(ii) in exchange for providing their respective Backstop Commitments and commitments to purchase their respective Initial Subscription Amounts, each Backstop Party will receive its respective allocation of the (a) Backstop Put Premium and (b) Commitment Premiums; and

(iii) each of the Backstop Parties shall pay, or at the request of the Requisite Backstop Parties, the Debtors shall pay, or cause to be paid, on behalf of the Backstop Parties, to each Supporting Party that is not a Backstop Party such Supporting Party’s Pro Rata allocation (for the avoidance of doubt calculated by dividing such Supporting Party’s Allowed First Lien Debt Claims by all Allowed First Lien Debt Claims) of the Commitment Premiums.

(c) Shareholder Rights Offering

Following approval by the Bankruptcy Court of the Disclosure Statement and the Rights Offering Procedures, Claire’s Parent shall conduct the Shareholder Rights Offering. In accordance with the Rights Offering Procedures annexed hereto as Exhibit E-2, each Eligible Shareholder that is not a natural person shall have Shareholder Subscription Rights in the Shareholder Rights Offering to purchase up to its Pro Rata allocation of Claire’s Parent’s New Investment Allocation, comprised of (i) commitments to the Exit ABL Facility, (ii) funding of the Exit Term Loan Facility, and (iii) purchases of New Preferred Equity Interests. Each Shareholder that is a natural person shall have Shareholder Subscription Rights to purchase up to its Pro Rata allocation of Claire’s Parent’s New Investment Allocation, comprised solely of the purchase of New Preferred Equity Interests. For the avoidance of doubt, each Eligible


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Shareholder who exercises its Shareholder Subscription Rights shall be a beneficiary of Claire’s Parent’s exercise of its rights as a Backstop Party under the New Money Backstop Commitment Agreement with respect to Claire’s Parent’s New Investment Allocation. As defined in the Plan, an Eligible Shareholder is a Holder of Existing Claire’s Parent Equity Interests that is (i) an “accredited investor” within the meaning of Rule 501 Regulation D under the Securities Act or (ii) a “qualified institutional buyer” within the meaning of Rule 144A under the Securities Act that is also an “accredited investor.” Only are Eligible Shareholders are eligible to participate in the Shareholder Rights Offering. Only Eligible Shareholders are eligible to participate in the First Lien Rights Offering. Ineligible Shareholders will receive Cash in the amount equal to the value of the Shareholder Subscription Rights that would have been distributable to such Shareholder if such Shareholder was an Eligible Shareholder. The consummation of the Shareholder Rights Offering is conditioned on (i) the occurrence of the Effective Date; (ii) any applicable condition specified in the New Money Backstop Commitment Agreement and the Rights Offering Procedures; and (iii) satisfaction of the Existing Claire’s Parent Equity Recovery Condition.

(d) Exit Term Loan Facility

The Exit Term Loan Facility will (i) mature 20 years from the Effective Date and (ii) bear interest at L+725 bps with a 1.5% LIBOR floor per annum, payable in cash quarterly. The full principal amount of the Exit Term Loan Facility will be due at maturity, and have no amortization.

The Exit Term Loan Facility will include a make-whole redemption provision (the “Make-Whole Premiums”), subject to waiver by two-thirds supermajority of holders of the Exit Term Loan Facility, which shall be owed and payable upon a change of control, merger, sale of all or substantially all assets, acceleration, default, bankruptcy, insolvency, redemption or prepayment whether mandatory or at the Reorganized Debtors’ option. Such Make-Whole Premiums shall be as of any date on which the Exit Term Loan Facility is repaid or prepaid, the greater of (i) 1.0% of the principal amount of the Exit Term Loan Facility and (ii) the excess of (A) the present value at such date of redemption of (1) the principal amount of the Exit Term Loan Facility, plus (2) all remaining required interest payments (assuming that the rate of interest will be equal to (x) the U.S. dollar interest rate swap rate with a duration most nearly equal to the then remaining term of Exit Term Loan Facility to the twentieth (20th) anniversary of the Effective Date (as quoted by Bloomberg) plus 7.25% per annum or (y) if such rate in clause (x) is not available, the rate of interest applicable to the Exit Term Loan Facility on the date that is two (2) business days prior to the date on which the notice of prepayment is delivered) due on the Exit Term Loan Facility through the twentieth (20th) anniversary of the Effective Date (excluding accrued but unpaid interest to the date of repayment or prepayment), computed using a discount rate equal to the applicable treasury rate plus 50 basis points, over (B) the principal amount of the Exit Term Loan Facility.


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(e) New Preferred Equity Interests

The New Preferred Equity Interests shall initially be convertible into 26.3%26 of Reorganized Claire’s Parent Interests, at the holders’ option at any time. The New Preferred Equity Interests will bear a 14% annual dividend on its liquidation preference (inclusive of all fees and additional New Preferred Equity Interests issued as part of the Restructuring) (the “Preferred Return”), payable in additional New Preferred Equity Interests; provided, however, that, with respect to any date on which such interest is to be paid (each, a “Payment Date”), a majority of the holders of New Preferred Equity Interests may, by providing written notice to the Reorganized Debtors at least 180 days prior to such Payment Date, elect for all holders of New Preferred Equity Interests to receive cash for all or some portion of the Preferred Return payable on such Payment Date in lieu of additional New Preferred Equity Interests.

The New Preferred Equity Interests shall have an early redemption premium (the “Preferred Redemption Premiums”), subject to waiver by a two-thirds supermajority of holders of the New Preferred Equity Interests, owed and payable upon a change of control, merger, sale of all or substantially all assets, acceleration, default, bankruptcy, insolvency, redemption, or prepayment, whether mandatory or at the Reorganized Debtors’ option. Such Preferred Redemption Premiums shall be, as of any time, the greater of (i) 1.0% of the liquidation preference of such New Preferred Equity Interests, and (ii) the amount by which (A) the present value as of such time of (1) such liquidation preference, plus (2) all remaining required dividends due on such New Preferred Equity Interests through the twentieth (20th) anniversary of the Effective Date, computed using a discount rate equal to the applicable treasury rate plus 50 basis points, exceeds (B) the liquidation preference. The New Preferred Equity Interests will be entitled to anti-dilution and certain other protections and, in addition to a separate class vote in respect of certain matters, vote together with the Reorganized Claire’s Parent Interests as a single class on as converted basis on all matters in respect of which the Reorganized Claire’s Parent Interests are entitled to vote.

13. Reorganized Debtors’ Organizational Documents

To the extent required under the Plan or applicable non-bankruptcy law, on the Effective Date, the Reorganized Debtors will file such Reorganized Debtors Organizational Documents as are required to be filed with the applicable Secretary of State and/or other applicable authorities in the state, province, or country of incorporation in accordance with the corporate laws of the respective state, province, or country of incorporation. Pursuant to section 1123(a)(6) of the Bankruptcy Code, the Reorganized Debtors Organizational Documents will prohibit the issuance of non-voting equity securities. After the Effective Date, the Reorganized Debtors may amend and restate their respective Reorganized Debtors Organizational Documents, and the Reorganized Debtors may file their respective certificates or articles of incorporation, bylaws, or such other applicable formation documents, and other constituent documents as permitted by the

26 Assumes (i) a $200 million Preferred Investment Amount, (ii) the Debtors holding an estimated $167 million of

Cash on the Effective Date (pro forma for all sources and uses of Cash associated with the Restructuring), and (iii) excludes any dilution from a potential Management Equity Incentive Plan. This amount is subject to change based on the final estimated Cash amount as of the Effective Date.


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laws of the respective states, provinces, or countries of incorporation and the Reorganized Debtors Organizational Documents. Additionally, on the Effective Date, each recipient of Reorganized Claire’s Parent Interests and/or New Preferred Equity Interests will be deemed to be a party to the Shareholders Agreement, which shall govern (among other things) the relative rights of Holders of Reorganized Claire’s Parent Interests and New Preferred Equity Interests and which shall be in form and substance acceptable to the Requisite Consenting Creditors in good faith, and the Reorganized Claire’s Parent Interests and New Preferred Equity Interests will be subject to the Reorganized Claire’s Parent Organizational Documents.

14. Exemption from Certain Taxes and Fees

To the maximum extent permitted pursuant to section 1146(a) of the Bankruptcy Code, any transfers of property pursuant to the Plan or the Plan Supplement shall not be subject to any document recording tax, stamp tax, conveyance fee, intangibles or similar tax, mortgage tax, stamp act, real estate transfer tax, sale or use tax, mortgage recording tax, or other similar tax or governmental assessment, and upon entry of the Confirmation Order, the appropriate state or local governmental officials or agents shall forgo the collection of any such tax or governmental assessment and accept for filing and recordation any of the foregoing instruments or other documents pursuant to such transfers of property without the payment of any such tax, recordation fee, or governmental assessment.

15. Preservation of Causes of Action

In accordance with section 1123(b) of the Bankruptcy Code, but subject in all respects to Article VIII of the Plan, the Reorganized Debtors shall retain and may enforce all rights to commence and pursue, as appropriate, any and all Causes of Action, whether arising before or after the Commencement Date, including any actions specifically enumerated in the Plan Supplement, and such rights to commence, prosecute, or settle such Causes of Action shall be preserved notwithstanding the occurrence of the Effective Date. The Debtors or the Reorganized Debtors, as applicable, expressly reserve all rights to prosecute any and all Causes of Action against any Entity not released pursuant to Article VIII of the Plan.

16. Insurance Policies

(a) Director and Officer Liability Insurance

All of the Debtors’ unexpired D&O Liability Insurance Policies and any agreements, documents, or instruments relating thereto, shall be treated as and deemed to be Executory Contracts under the Plan. On the Effective Date, the Reorganized Debtors shall be deemed to have assumed all unexpired D&O Liability Insurance Policies and any agreements, documents, or instruments relating thereto with respect to the Debtors’ directors, managers, officers, and employees serving on or prior to the Commencement Date pursuant to section 365 of the Bankruptcy Code and Article V of the Plan. Entry of the Confirmation Order will constitute the Bankruptcy Court’s approval of the Reorganized Debtors’ assumption of each of the unexpired D&O Liability Insurance Policies and any agreements, documents, or instruments relating thereto. Notwithstanding anything to the contrary contained in the Plan, Confirmation of the Plan shall not discharge, impair, or otherwise modify any indemnity obligations assumed by the foregoing


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assumption of the D&O Liability Insurance Policies and related documents, and each such indemnity obligation will be deemed and treated as an Executory Contract that has been assumed by the Reorganized Debtors under the Plan as to which no Proof of Claim need be Filed.

(b) Other Insurance Policies

From and after the Effective Date, each of the Debtors’ insurance policies in existence as of the Effective Date shall be reinstated and continued in accordance with their terms and, to the extent applicable, shall be deemed assumed by the applicable Reorganized Debtors pursuant to section 365 of the Bankruptcy Code and Article V of the Plan. Entry of the Confirmation Order will constitute the Bankruptcy Court’s approval of the Reorganized Debtors’ assumption of each of such unexpired insurance policies. Nothing in the Plan shall affect, impair or prejudice the rights of the insurance carriers, the insureds, or the Reorganized Debtors under the insurance policies in any manner, and such insurance carriers, the insureds, and Reorganized Debtors shall retain all rights and defenses under such insurance policies, and such insurance policies shall apply to, and be enforceable by and against, the insureds, and the Reorganized Debtors in the same manner and according to the same terms and practices applicable to the Debtors, as existed prior to the Effective Date.

17. Management Equity Incentive Plan

The Debtors and the Requisite Consenting Creditors shall use reasonable good faith efforts to reach agreement on the terms of the Management Equity Incentive Plan and to include any such agreed terms in the Plan Supplement. On the Effective Date, equity grants under the Management Equity Incentive Plan shall be reserved for certain of the directors, officers, and employees of the Reorganized Debtors on terms acceptable to the Reorganized Claire’s Parent Board and the Requisite Consenting Creditors, as disclosed pursuant to the Plan Supplement.

The Management Equity Incentive Plan remains subject to ongoing negotiation between the Debtors and the Consenting Creditors at this time.

18. Comfort Letters

As of the Effective Date, the Reorganized Debtors shall assume the Comfort Letters and honor all Comfort Letter Obligations in accordance with applicable non-bankruptcy law, and the Reorganized Debtors reserve all of their rights thereunder.

19. Workers’ Compensation Programs

As of the Effective Date, the Reorganized Debtors shall continue to honor their obligations under (i) all applicable workers’ compensation laws in states in which the Reorganized Debtors operate; and (ii) the Debtors’ (a) written contracts, agreements, and agreements of indemnity, in each case relating to workers’ compensation, (b) self-insurer workers’ compensation bonds, policies, programs, and plans for workers’ compensation and (c) workers’ compensation insurance. All Proofs of Claims on account of workers’ compensation shall be deemed withdrawn automatically and without any further notice to or action, order, or approval of the Bankruptcy Court; provided that nothing in the Plan shall limit, diminish, or otherwise alter the Debtors’ or Reorganized


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Debtors’ defenses, Causes of Action, or other rights under applicable non-bankruptcy law with respect to any such contracts, agreements, policies, programs and plans.

L. Treatment of Executory Contracts and Unexpired Leases

1. Assumption and Rejection of Executory Contracts and Unexpired Leases

On the Effective Date, except as otherwise provided herein, all Executory Contracts or Unexpired Leases not otherwise assumed or rejected will be deemed assumed by the applicable Reorganized Debtor in accordance with the provisions and requirements of sections 365 and 1123 of the Bankruptcy Code, other than (i) those that are identified on the Rejected Executory Contracts and Unexpired Leases Schedule; (ii) those that have been previously rejected by a Final Order; (iii) those that have been previously assumed by a Final Order; (iv) those that are the subject of a motion to reject Executory Contracts or Unexpired Leases that is pending on the Confirmation Date; (v) those that are subject to a motion to reject an Executory Contract or Unexpired Lease pursuant to which the requested effective date of such rejection is after the Effective Date; or (vi) (a) the Comfort Letters, (b) the New Money Backstop Commitment Agreement, and (c) the Restructuring Support Agreement, in each case, with respect to clauses (vi)(a) through (vi)(c), shall in all events be assumed by the Debtors pursuant to the Plan.

Entry of the Confirmation Order shall constitute an order of the Bankruptcy Court approving the assumptions, assumptions and assignments, or rejections of such Executory Contracts or Unexpired Leases as set forth in the Plan (including the assumption of the New Money Backstop Commitment Agreement and the Restructuring Support Agreement), the Assumed Executory Contract/Unexpired Lease Schedule, or the Rejected Executory Contracts and Unexpired Leases Schedule, pursuant to sections 365(a) and 1123 of the Bankruptcy Code. Except as otherwise specifically set forth herein, assumptions or rejections of Executory Contracts and Unexpired Leases pursuant to the Plan are effective as of the Effective Date; provided that rejections of Unexpired Leases of non-residential real property shall be effective as of the later of (i) the Effective Date and (ii) the date on which the leased premises are unconditionally surrendered to the landlord under such rejected Unexpired Lease. The Debtors are authorized to abandon any De Minimis Assets at or on the leased premises subject to an Unexpired Lease rejected pursuant to the Plan, and the counterparties to rejected leases may dispose of any such De Minimis Assets remaining at or on the leased premises on the applicable lease rejection date in accordance with the terms and provisions of the Lease Rejection Procedures Order.

Each Executory Contract or Unexpired Lease assumed pursuant to the Plan or by Bankruptcy Court order but not assigned to a third party before the Effective Date shall re-vest in and be fully enforceable by the applicable contracting Reorganized Debtor in accordance with its terms, except as such terms may have been modified by the provisions of the Plan or any order of the Bankruptcy Court authorizing and providing for its assumption under applicable federal law (in each case, in accordance with applicable law, including by consent of the counterparty to such Executory Contract or Unexpired Lease). Subject to applicable law, including section 365(d)(4) of the Bankruptcy Code, any motions to assume Executory Contracts or Unexpired Leases pending on the Effective Date shall be subject to approval by a Final Order of the Bankruptcy Court on or after the Effective Date but may be withdrawn, settled, or otherwise prosecuted by the Reorganized Debtors.


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In addition, unless otherwise provided by an order of the Bankruptcy Court, at least twenty-one (21) days prior to the Confirmation Hearing, the Debtors shall file, or cause to be filed, notices of proposed assumption and proposed amounts of Cure Claims to be served by overnight mail on counterparties to Executory Contracts and Unexpired Leases to be assumed pursuant to the Plan. Any objection to the assumption of an Executory Contract or Unexpired Lease under the Plan must be filed, served and actually received by the Debtors no later than seven (7) days prior to the Confirmation Hearing; provided that, if the Debtors file an amended Assumed Executory Contracts and Unexpired Lease Schedule (the “Amended Schedule”), then, with respect to any lessor or counterparty affected by such Amended Schedule, the earlier of (i) seven (7) days from the date the Amended Schedule is filed and (ii) the Confirmation Hearing. Any counterparty to an Executory Contract or Unexpired Lease that fails to timely object to the proposed assumption of any Executory Contract or Unexpired Lease will be deemed to have consented to such assumption.

2. Claims Based on Rejection of Executory Contracts or Unexpired Leases

Proofs of Claim with respect to Claims arising from the rejection of Executory Contracts or Unexpired Leases, if any, must be Filed with the Bankruptcy Court within 30 days after the date of entry of an order of the Bankruptcy Court (including the Confirmation Order) approving such rejection. Any Claims arising from the rejection of an Executory Contract or Unexpired Lease not Filed within such time will be Disallowed pursuant to the Confirmation Order, forever barred from assertion, and shall not be enforceable against, as applicable, the Debtors, the Reorganized Debtors, the Estates, or property of the foregoing parties, without the need for any objection by the Debtors or the Reorganized Debtors, as applicable, or further notice to, or action, order, or approval of the Bankruptcy Court or any other Entity, and any Claim arising out of the rejection of the Executory Contract or Unexpired Lease shall be deemed fully satisfied, released, and discharged, notwithstanding anything in the Schedules, if any, or a Proof of Claim to the contrary. Claims arising from the rejection of the Debtors’ Executory Contracts or Unexpired Leases shall be classified as General Unsecured Claims and shall be treated in accordance with Article III.B.4 of the Plan.

3. Cure of Defaults for Assumed Executory Contracts and Unexpired Leases

The Debtors or the Reorganized Debtors, as applicable, shall pay Cure Claims, if any, on the Effective Date or as soon as practicable thereafter, or on such other terms as the parties to such Executory Contracts or Unexpired Leases may otherwise agree. Any Cure Claim shall be deemed fully satisfied, released, and discharged upon payment by the Debtors or the Reorganized Debtors of such Cure Claim, as applicable; provided that, subject to the reasonable consent of the Requisite Consenting Creditors, nothing herein shall prevent the Reorganized Debtors from paying any Cure Claim despite the failure of the relevant counterparty to File such request for payment of such Cure Claim. The Reorganized Debtors may, with the reasonable consent with the Requisite Consenting Creditors, settle any Cure Claim on account of any Executory Contract or Unexpired Lease without any further notice to or action, order, or approval of the Bankruptcy Court.

Assumption of any Executory Contract or Unexpired Lease pursuant to the Plan or otherwise shall result in the full release and satisfaction of any Claims or defaults, whether monetary or


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nonmonetary, including defaults of provisions restricting the change in control or ownership interest composition or other bankruptcy-related defaults, arising under any assumed Executory Contract or Unexpired Lease at any time before the date that the Debtors assume such Executory Contract or Unexpired Lease; provided that the Debtors or the Reorganized Debtors, as applicable, will remain obligated to pay any accrued but unbilled rent and other charges under any such assumed Unexpired Lease of non-residential real property, including with respect to reconciliations, adjustments, and indemnification obligations. Any Proofs of Claim Filed with respect to an Executory Contract or Unexpired Lease that has been assumed shall be deemed Disallowed and expunged, without further notice to or action, order, or approval of the Bankruptcy Court.

4. Dispute Resolution

In the event of a timely Filed objection regarding (i) the amount of any Cure Claim; (ii) the ability of the Reorganized Debtors or any assignee to provide “adequate assurance of future performance” (within the meaning of section 365 of the Bankruptcy Code) under the Executory Contract or Unexpired Lease to be assumed; or (iii) any other matter pertaining to assumption or the cure payments required by section 365(b)(1) of the Bankruptcy Code, such dispute shall be resolved by a Final Order of the Bankruptcy Court (which may be the Confirmation Order) or as may be agreed upon by the Debtors (with the reasonable consent of the Requisite Consenting Creditors) or the Reorganized Debtors, as applicable, and the counterparty to the Executory Contract or Unexpired Lease.

5. Indemnification Obligations

Notwithstanding anything in the Plan to the contrary each Indemnification Obligation shall be assumed by the applicable Debtor, effective as of the Effective Date, pursuant to sections 365 and 1123 of the Bankruptcy Code or otherwise. Each Indemnification Obligation shall remain in full force and effect, shall not be modified, reduced, discharged, impaired, or otherwise affected in any way, and shall survive Unimpaired and unaffected, irrespective of when such obligation arose.

Indemnification Obligations are being assumed pursuant to the Plan in a manner consistent with other contractual obligations being assumed pursuant to the Plan, such as real property leases being assumed by the Debtors. The Debtors believe that such assumption benefits their Unsecured Creditors by reducing Claims that might otherwise be asserted against their Estates and would dilute creditor recoveries as a result.

6. Modifications, Amendments, Supplements, Restatements, or Other Agreements

Unless otherwise provided in the Plan, each Executory Contract or Unexpired Lease that is assumed shall include all modifications, amendments, supplements, restatements, or other agreements that in any manner affect such Executory Contract or Unexpired Lease, and Executory Contracts and Unexpired Leases related thereto, if any, including easements, licenses, permits, rights, privileges, immunities, options, rights of first refusal, and any other interests,


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unless any of the foregoing agreements has been previously rejected or repudiated or is rejected or repudiated under the Plan.

Modifications, amendments, and supplements to, or restatements of, prepetition Executory Contracts and Unexpired Leases that have been executed by the Debtors during the Chapter 11 Cases shall not be deemed to alter the prepetition nature of the Executory Contract or Unexpired Lease, or the validity, priority, or amount of any Claims that may arise in connection therewith.

7. Reservation of Rights

Neither the inclusion of any Executory Contract or Unexpired Lease on the Debtors’ Schedules, or the Rejected Executory Contracts and Unexpired Leases Schedule, nor anything contained in the Plan, shall constitute an admission by the Debtors that any such contract or lease is in fact an Executory Contract or Unexpired Lease or that any Reorganized Debtor has any liability thereunder. If there is a dispute regarding whether a contract or lease is or was executory or unexpired at the time of assumption or rejection, the Debtors, or, after the Effective Date, the Reorganized Debtors, shall have 30 days following entry of a Final Order resolving such dispute to alter their treatment of such contract or lease.

8. Nonoccurrence of Effective Date; Bankruptcy Code Section 365(d)(4)

In the event that the Effective Date does not occur, the Bankruptcy Court shall retain jurisdiction with respect to any request to extend the deadline for assuming or rejecting Unexpired Leases of nonresidential real property pursuant to section 365(d)(4) of the Bankruptcy Code.

M. Provisions Governing Distributions

1. Timing and Calculation of Amounts to Be Distributed

Unless otherwise provided in the Plan, on the Effective Date or with respect to Unsecured Claims, the Initial Unsecured Claims Distribution Date, or as soon as reasonably practicable thereafter (or, if a Claim is not an Allowed Claim on the Effective Date, or with respect to Unsecured Claims, the Initial Unsecured Claims Distribution Date, on the date that such Claim becomes Allowed or as soon as reasonably practicable thereafter), the Distribution Agent shall make initial distributions under the Plan on account of each Holder of an Allowed Claim in the full amount of the distributions that the Plan provides for Allowed Claims in each applicable Class. In the event that any payment or act under the Plan is required to be made or performed on a date that is not a Business Day, then the making of such payment or the performance of such act may be completed on the next succeeding Business Day, but shall be deemed to have been completed as of the required date. If and to the extent that there are Disputed Claims, distributions on account of any such Disputed Claims shall be made pursuant to the provisions set forth in Article VII of the Plan. Except as specifically provided in the Plan, Holders of Claims shall not be entitled to interest, dividends, or accruals on the distributions provided for in the Plan, regardless of whether such distributions are delivered on or at any time after the Effective Date.


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2. Partial Distributions on Account of Allowed Unsecured Claims

The Reorganized Debtors shall be authorized to cause partial distributions to be made on account of Allowed Unsecured Claims before all Unsecured Claims are Allowed; provided that the Bankruptcy Court shall have authorized such partial distribution by Final Order after notice and a hearing.

3. Rights and Powers of Distribution Agent

The Distribution Agent shall be empowered to (i) effect all actions and execute all agreements, instruments, and other documents necessary to perform its duties under the Plan; (ii) make all distributions contemplated hereby; (iii) employ professionals to represent it with respect to its responsibilities; and (iv) exercise such other powers as may be vested in the Distribution Agent by order of the Bankruptcy Court, pursuant to the Plan, or as deemed by the Distribution Agent to be necessary and proper to implement the provisions hereof. The Distribution Agent may request an expedited determination of taxes under section 505(b) of the Bankruptcy Code for all returns filed for or on behalf of the Unsecured Recovery Cash Pool and the General Unsecured Elective Claim Recovery Cash Pool for all taxable periods through the date on which final distributions are made.

4. Special Rules for Distributions to Holders of Disputed Claims and Interests

Notwithstanding any provision otherwise in the Plan and except as otherwise agreed by the relevant parties, (i) no partial payments and no partial distributions shall be made with respect to a Disputed Claim until all such disputes in connection with such Disputed Claim have been resolved by settlement or Final Order; and (ii) any Entity that holds both an Allowed Claim and a Disputed Claim shall not receive any distribution on account of the Allowed Claim (other than Allowed First Lien Debt Secured Claims held by Consenting Creditors, who shall receive the treatment set forth in Article III.B.7. on account of such Allowed First Lien Debt Secured Claims in any event) unless and until all objections to the Disputed Claim have been resolved by settlement or Final Order or the Disputed Claims have been Allowed or expunged. Any dividends or other distributions arising from property distributed to Holders of Allowed Claims in a Class and paid to such Holders under the Plan shall also be paid, in the applicable amounts, to any Holder of a Disputed Claim in such Class that becomes an Allowed Claim after the date or dates that such dividends or other distributions were earlier paid to Holders of Allowed Claims in such Class.

5. Delivery of Distributions and Undeliverable or Unclaimed Distributions

(a) Record Date for Distribution

On the Distribution Record Date, the Claims Register shall be closed and any party responsible for making distributions shall instead be authorized and entitled to recognize only those record Holders listed on the Claims Register as of the close of business on the Distribution Record Date. [For the avoidance of doubt, the Distribution Record Date shall not apply to the 6.125% First Lien Notes, 9.00% First Lien Notes, Second Lien Notes, and Unsecured Notes, the holders of which shall receive a distribution in accordance with Article VI of the Plan and, as applicable, the customary procedures of DTC on or as soon as practicable after the Effective Date.]


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(b) Delivery of Distributions

(i) Initial Unsecured Claims Distribution Date

Except as otherwise provided herein, on the Initial Unsecured Claims Distribution Date, the Distribution Agent shall make distributions to Holders of Allowed Unsecured Claims as of the Distribution Record Date at the address for each such Holder as indicated on the Debtors’ books and records as of the date of any such distribution; provided that the address for each Holder of an Allowed Unsecured Claim shall be deemed to be the address set forth in any Proof of Claim Filed by that Holder, or, if no Proof of Claim has been Filed, the address set forth in the Schedules. If a Holder holds more than one Claim in any one Class, all Claims of the Holder will be aggregated into one Claim and one distribution will be made with respect to the aggregated Claim.

(ii) Quarterly Distribution Date

On each Quarterly Distribution Date or as soon thereafter as is reasonably practicable, but in any event, no later than 30 days after each Quarterly Distribution Date, the Distribution Agent shall make the distributions required to be made on account of Allowed Claims under the Plan on such date. Any distribution that is not made on the Effective Date or with respect to Unsecured Claims, the Initial Unsecured Claims Distribution Date or on any other date specified herein because the Claim that would have been entitled to receive that distribution is not an Allowed Claim on such date, shall be distributed on the first Quarterly Distribution Date after such Claim is Allowed; provided that a distribution with respect to Allowed Unsecured Claims on such Quarterly Distribution Date shall be subject to (i) Allowance or Disallowance by Final Order of all Unsecured Claims having occurred or (ii) the Bankruptcy Court having authorized a partial distribution on account of Allowed Unsecured Claims after notice and a hearing upon a motion Filed by the Reorganized Debtors. No interest shall accrue or be paid on the unpaid amount of any distribution paid on a Quarterly Distribution Date in accordance with Article VI.A of the Plan.

(iii) Delivery of Distributions on Account of Prepetition ABL Claims

All distributions to Holders of Prepetition ABL Claims shall be deemed completed when made to (or at the direction of) the Prepetition ABL Agent, which shall be deemed to be the Holder of all Prepetition ABL Claims for purposes of distributions to be made hereunder. As soon as practicable in accordance with the requirements set forth in Article VI of the Plan, the Prepetition ABL Agent shall cause such distributions to be made to or on behalf of such Holders in accordance with the Prepetition ABL Credit Agreement and subject to the rights of the Prepetition ABL Agent to assert its Prepetition ABL Agent Charging Lien. If the Prepetition ABL Agent is unable to make, or consents to the Reorganized Debtors making, such distributions, the Reorganized Debtors, with the Prepetition ABL Agent’s cooperation, shall make such distributions to the extent practicable to do so (provided that until such distributions are made, the Prepetition ABL Agent’s Charging Lien shall attach to the property to be distributed in the same manner as if such distributions were made through the Prepetition ABL Agent). The Prepetition ABL Agent shall have no duties or responsibilities relating to any form of distribution that is not DTC eligible, and the Debtors or the Reorganized Debtors, as


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applicable, shall seek the cooperation of the DTC so that any distribution on account of a Prepetition ABL Claim that is held in the name of, or by a nominee of, the DTC, shall be made through the facilities of the DTC on the Effective Date or as soon as practicable thereafter.

(iv) Delivery of Distributions on Account of First Lien Claims

All distributions to Holders of 6.125% First Lien Notes Claims shall be deemed completed when made to (or at the direction of) the 6.125% First Lien Notes Trustee, which shall be deemed to be the Holder of all 6.125% First Lien Notes Claims for purposes of distributions to be made hereunder; provided that non-Cash consideration shall not be distributed in the name of the 6.125% First Lien Notes Trustee. As soon as practicable in accordance with the requirements set forth in Article VI of the Plan, the 6.125% First Lien Notes Trustee shall cause such distributions to or on behalf of such Holders to be made in accordance with the 6.125% First Lien Notes Indenture and subject to the rights of the 6.125% First Lien Notes Trustee to assert its 6.125% First Lien Notes Trustee Charging Lien.

All distributions to Holders of 9.00% First Lien Notes Claims shall be deemed completed when made to (or at the direction of) the 9.00% First Lien Notes Trustee, which shall be deemed to be the Holder of all 9.00% First Lien Notes Claims for purposes of distributions to be made hereunder; provided that non-Cash consideration shall not be distributed in the name of the 9.00% First Lien Notes Trustee. As soon as practicable in accordance with the requirements set forth in Article VI of the Plan, the 9.00% First Lien Notes Trustee shall cause such distributions to or on behalf of such Holders to be made in accordance with the 9.00% First Lien Notes Indenture and subject to the rights of the 9.00% First Lien Notes Trustee to assert its 9.00% First Lien Notes Trustee Charging Lien.

If the 6.125% First Lien Notes Trustee or the 9.00% First Lien Notes Trustee, as applicable, is unable to make, or consents to the Reorganized Debtors making, such distributions, the Reorganized Debtors, with the cooperation of the 6.125% First Lien Notes Trustee or the 9.00% First Lien Notes Trustee, as applicable, shall make such distributions to the extent practicable to do so (provided that until such distributions are made, the 6.125% First Lien Notes Trustee Charging Lien and the 9.00% First Lien Notes Trustee Charging Lien shall attach to the property to be distributed in the same manner as if such distributions were made through the 6.125% First Lien Notes Trustee or the 9.00% First Lien Notes Trustee, as applicable). The 6.125% First Lien Notes Trustee and the 9.00% First Lien Notes Trustee shall have no duties or responsibilities relating to any form of distribution that is not DTC eligible. The 6.125% First Lien Notes Trustee, the 9.00% First Lien Notes Trustee, and the Debtors or the Reorganized Debtors, as applicable, shall seek the cooperation of DTC so that any distribution on account of a 6.125% First Lien Notes Claim or a 9.00% First Lien Notes Claim that is held in the name of, or by a nominee of, DTC, shall be made through the facilities of DTC on the Effective Date or as soon as practicable thereafter. The 6.125% First Lien Notes Trustee and 9.00% First Lien Notes Trustee may transfer or direct the transfer of such distributions directly through facilities of DTC (whether by means of book-entry exchange, free delivery, or otherwise) and will be entitled to recognize and deal for all purposes under the Plan with Holders of 6.125% First Lien Notes Claims and 9.00% First Lien Notes Claims to the extent consistent with the customary practices of DTC.


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All distributions to Holders of Prepetition First Lien Term Loan Claims shall be deemed completed when made to the Prepetition First Lien Term Loan Agent, which shall be deemed to be the Holder of all Prepetition First Lien Term Loan Claims for purposes of distributions to be made hereunder, for distribution to holders of Prepetition First Lien Term Loan Claims in accordance with the terms of the Prepetition First Lien Term Loan Documents. All distributions on account of Prepetition First Lien Term Loan Claims may, with the consent of the Prepetition First Lien Term Loan Agent, be made by the Distribution Agent directly to holders of Prepetition First Lien Term Loan Claims in accordance with the terms of the Plan and the Prepetition First Lien Term Loan Documents.

(v) Delivery of Distributions on Account of Second Lien Notes Claims

Except as otherwise reasonably requested by the Second Lien Notes Trustee, all distributions to Holders of Second Lien Notes Claims shall be deemed completed when made to (or at the direction of) the Second Lien Notes Trustee, which shall be deemed to be the Holder of all Second Lien Notes Claims for purposes of distributions to be made hereunder. The Second Lien Notes Trustee shall hold or direct such distributions for the benefit of the Holders of Second Lien Notes Claims. As soon as practicable in accordance with the requirements set forth in Article VI of the Plan, the Second Lien Notes Trustee shall arrange to deliver such distributions to be made to or on behalf of such Holders in accordance with the Second Lien Notes Indenture and subject to the rights of the Second Lien Notes Trustee to assert its Second Lien Notes Trustee Charging Lien. If the Second Lien Notes Trustee is unable to make, or consents to the Reorganized Debtors making, such distributions, the Reorganized Debtors, with the Second Lien Notes Trustee’s cooperation, shall make such distributions to the extent practicable to do so (provided that until such distributions are made, the Second Lien Notes Trustee Charging Lien shall attach to the property to be distributed in the same manner as if such distributions were made through the Second Lien Notes Trustee). The Second Lien Notes Trustee shall have no duties or responsibilities relating to any form of distribution that is not DTC eligible and the Debtors or the Reorganized Debtors, as applicable, shall seek the cooperation of DTC so that any distribution on account of a Second Lien Notes Claim that is held in the name of, or by a nominee of, DTC, shall be made through the facilities of DTC on the Effective Date or as soon as practicable thereafter.

(vi) Delivery of Distributions on Account of Unsecured Notes Claims

All distributions to Holders of Unsecured Notes Claims shall be deemed completed when made to (or at the direction of) the Unsecured Notes Trustee, which shall be deemed to be the Holder of all Unsecured Notes Claims for purposes of distributions to be made hereunder. As soon as practicable in accordance with the requirements set forth in Article VI of the Plan, the Unsecured Notes Trustee shall cause such distributions to be made to or on behalf of such Holders in accordance with the Unsecured Notes Indenture and subject to the rights of the Unsecured Notes Trustee to assert its Unsecured Notes Trustee Charging Lien. If the Unsecured Notes Trustee is unable to make, or consents to the Reorganized Debtors making, such distributions, the Reorganized Debtors, with the Unsecured Notes Trustee’s cooperation, shall make such distributions to the extent practicable to do so (provided that until such distributions are made, the Unsecured Notes Trustee Charging Lien shall attach to the property to be distributed in the same manner as if such distributions were made through the Unsecured Notes Trustee). The


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Unsecured Notes Trustee shall have no duties or responsibilities relating to any form of distribution that is not DTC eligible and the Debtors or the Reorganized Debtors, as applicable, shall seek the cooperation of DTC so that any distribution on account of an Unsecured Notes Claim that is held in the name of, or by a nominee of, DTC, shall be made through the facilities of DTC on the Effective Date or as soon as practicable thereafter.

(c) No Fractional Shares/Warrants

No fractional shares of Reorganized Claire’s Parent Interests or New Preferred Equity Interests shall be distributed, and no Cash shall be distributed in lieu of such fractional amounts. When any distribution pursuant to the Plan on account of an Allowed Claim otherwise would result in the issuance of shares of Reorganized Claire’s Parent Interests or New Preferred Equity Interests that is not a whole number, such Reorganized Claire’s Parent Interests or New Preferred Equity Interests, as applicable, shall be rounded as follows: (i) fractions of greater than one-half shall be rounded to the next higher whole number, and (ii) fractions of one-half or less shall be rounded to the next lower whole number with no further payment on account thereof. The total number of authorized and/or issued shares of Reorganized Claire’s Parent Interests and New Preferred Equity Interests to be distributed pursuant to the Plan shall be adjusted as necessary to account for the foregoing rounding.

(d) Undeliverable Distributions and Unclaimed Property

In the event that any distribution to any Holder is returned as undeliverable, no distribution to such Holder shall be made unless and until the Reorganized Debtors have determined the then-current address of such Holder, at which time such distribution shall be made to such Holder without interest; provided that such distributions shall be deemed unclaimed property under section 347(b) of the Bankruptcy Code at the expiration of one year from the time of such distribution. After such date, all unclaimed property or interests in property shall be redistributed Pro Rata as provided under the Plan (it being understood that, for purposes of Article VI.E.4 of the Plan, “Pro Rata” shall be determined as if the Claim underlying such unclaimed distribution had been Disallowed), except for such unclaimed Reorganized Claire’s Parent Interests, which shall be cancelled, and all other unclaimed property or interests in property shall revert to the Reorganized Debtors without need for a further order by the Bankruptcy Court (notwithstanding any applicable federal, provincial, or state escheat, abandoned, or unclaimed property laws to the contrary), and the Claim of any Holder to such property or Interest in property shall be discharged and forever barred.

A distribution shall be deemed unclaimed if a Holder has not (i) accepted a particular distribution or, in the case of distributions made by check, negotiated such check; (ii) given notice to the Reorganized Debtors of an intent to accept a particular distribution; (iii) responded to the Debtors’ or Reorganized Debtors’ requests for information necessary to facilitate a particular distribution; or (iv) taken any other action necessary to facilitate such distribution.

6. Securities Registration Exemption

All shares of Reorganized Claire’s Parent Interests issued under the Plan will be issued without registration under the Securities Act or any similar federal, state, or local law, in reliance upon


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section 1145 of the Bankruptcy Code. Shares of Reorganized Claire’s Parent Interests issued under the Plan in reliance upon section 1145 of the Bankruptcy Code are exempt from, among other things, the registration requirements of Section 5 of the Securities Act and any other applicable federal, state, or local law requiring registration prior to the offering, issuance, distribution, or sale of Securities. The Reorganized Claire’s Parent Interests issued pursuant to section 1145 of the Bankruptcy Code (i) will not be a “restricted security” as defined in Rule 144(a)(3) under the Securities Act; and (ii) will, subject to the Shareholders Agreement and the Reorganized Claire’s Parent Organizational Documents, be freely tradable and transferable by any holder thereof that (a) is not an “affiliate” of the Reorganized Debtors as defined in Rule 144(a)(1) under the Securities Act, (b) has not been such an “affiliate” within 90 days of such transfer, (c) has not acquired the Reorganized Claire’s Parent Interests from an “affiliate” within one year of such transfer, and (d) is not an entity that is an “underwriter” as defined in subsection (b) of section 1145 of the Bankruptcy Code. Reorganized Claire’s Parent Interests issued to Holders of First Lien Debt Secured Claims in exchange for such Claims shall be issued in reliance on section 1145 of the Bankruptcy Code.

The availability of the exemption under section 1145 of the Bankruptcy Code or any other applicable securities laws shall not be a condition to the occurrence of the Effective Date.

The issuance and sale, as applicable, of the New Preferred Equity Interests pursuant to the New Money Backstop Commitment Agreement, the First Lien Rights Offering, the Shareholder Rights Offering, the Rights Offering Procedures, and/or the Management Equity Incentive Plan are being made in reliance on the exemption from registration set forth in section 4(a)(2) of the Securities Act and Regulation D thereunder. Such Securities will be considered “restricted securities” and may not be transferred except pursuant to an effective registration statement or under an available exemption from the registration requirements of the Securities Act, such as under certain conditions, the resale provisions of Rule 144 of the Securities Act.

Should the Reorganized Debtors elect, on or after the Effective Date, to reflect all or any portion of the ownership of the Reorganized Claire’s Parent Interests or the New Preferred Equity Interests through the facilities of DTC, the Reorganized Debtors shall not be required to provide any further evidence other than the Plan or Confirmation Order with respect to the treatment of such applicable portion of the Reorganized Claire’s Parent Interests or the New Preferred Equity Interests, and such Plan or Confirmation Order shall be deemed to be legal and binding obligations of the Reorganized Debtors in all respects.

DTC shall be required to accept and conclusively rely upon the Plan and Confirmation Order in lieu of a legal opinion regarding whether the Reorganized Claire’s Parent Interests or the New Preferred Equity Interests are exempt from registration and/or eligible for DTC book-entry delivery, settlement, and depository services.

Notwithstanding anything to the contrary in the Plan, no entity (including, for the avoidance of doubt, DTC) may require a legal opinion regarding the validity of any transaction contemplated by the Plan, including, for the avoidance of doubt, whether the Reorganized Claire’s Parent Interests or the New Preferred Equity Interests are exempt from registration and/or eligible for DTC book-entry delivery, settlement, and depository services.


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7. Compliance with Tax Requirements

In connection with the Plan, to the extent applicable, Reorganized Claire’s Parent, the other Reorganized Debtors, and the Distribution Agent, as applicable, shall comply with all tax withholding and reporting requirements imposed on them by any Governmental Unit, and all distributions pursuant to the Plan shall be subject to such withholding and reporting requirements. The Debtors shall consult with the Requisite Consenting Creditors and use commercially reasonable efforts to structure the Restructuring Transactions in a manner that will mitigate or eliminate any withholding obligations. Notwithstanding any provision in the Plan to the contrary, the Reorganized Debtors and the Distribution Agent, as applicable, shall be authorized to take all actions necessary or appropriate to comply with such withholding and reporting requirements, including liquidating a portion of the distribution to be made under the Plan to generate sufficient funds to pay applicable withholding taxes, withholding distributions pending receipt of information necessary to facilitate such distributions or establishing any other mechanisms they believe are reasonable and appropriate. The Reorganized Debtors reserve the right to allocate all distributions made under the Plan in compliance with applicable wage garnishments, alimony, child support, and other spousal awards, Liens, and encumbrances.

8. Allocations

Distributions in respect of Allowed Claims shall be allocated first to the principal amount of such Claims (as determined for federal income tax purposes) and then, to the extent the consideration exceeds the principal amount of the Claims, to any portion of such Claims for accrued but unpaid interest as Allowed herein.

9. No Postpetition Interest on Claims

Unless otherwise specifically provided for in the Plan, the Confirmation Order, or other order of the Bankruptcy Court, or required by applicable bankruptcy law, postpetition interest shall not accrue or be paid on any Claims and no Holder of a Claim shall be entitled to interest accruing on or after the Commencement Date on any such Claim, except, for the avoidance of doubt, the CLSIP Repayment and the Gibraltar Repayment.

10. Setoffs and Recoupment

Except as otherwise expressly provided herein, the Debtors or the Reorganized Debtors, as applicable, may, but shall not be required to, set off against or recoup from any Claims of any nature whatsoever that the Debtors or the Reorganized Debtors may have against the Holder, but neither the failure to do so nor the Allowance of any Claim hereunder shall constitute a waiver or release by the Debtors or the Reorganized Debtors of any such Claim they may have against the Holder of such Claim. In no event shall any Holder of Claims be entitled to set off any such Claim against any claim, right, or Cause of Action of the Debtor or Reorganized Debtor (as applicable), unless (i) the Debtors have consented (which consent shall not be unreasonably withheld); and (ii) such Holder has Filed a motion with the Bankruptcy Court requesting the authority to perform such setoff on or before the Confirmation Date, and notwithstanding any indication in any Proof of Claim or otherwise that such Holder asserts, has, or intends to preserve any right of setoff pursuant to section 553 of the Bankruptcy Code or otherwise.


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11. Claims Paid or Payable by Third Parties

(a) Claims Paid by Third Parties

A Claim shall be reduced in full, and such Claim shall be Disallowed without an objection to such Claim having to be Filed and without any further notice to or action, order, or approval of the Bankruptcy Court, to the extent that the Holder of such Claim receives payment in full on account of such Claim from a party that is not a Debtor or Reorganized Debtor. To the extent a Holder of a Claim receives a distribution on account of such Claim and receives payment from a party that is not a Debtor or a Reorganized Debtor on account of such Claim, such Holder shall repay, return or deliver any distribution held by or transferred to the Holder to the applicable Reorganized Debtor to the extent the Holder’s total recovery on account of such Claim from the third party and under the Plan exceeds the amount of such Claim as of the date of any such distribution under the Plan.

(b) Claims Payable by Insurance Carriers

No distributions under the Plan shall be made on account of an Allowed Claim that is payable pursuant to one of the Debtors’ insurance policies until the Holder of such Allowed Claim has exhausted all remedies with respect to such insurance policy. To the extent that one or more of the Debtors’ insurers agrees to satisfy in full or in part a Claim (if and to the extent adjudicated by a court of competent jurisdiction), then immediately upon such insurers’ agreement, such Claim may be expunged to the extent of any agreed upon satisfaction on the Claims Register by the Claims and Noticing Agent without a Claim objection having to be Filed and without any further notice to or action, order, or approval of the Bankruptcy Court.

(c) Applicability of Insurance Policies

Except as otherwise provided in the Plan, distributions to Holders of Allowed Claims shall be in accordance with the provisions of any applicable insurance policy. Nothing contained in the Plan shall constitute or be deemed a waiver of any Cause of Action that the Debtors or any Entity may hold against any other Entity, including insurers under any policies of insurance, nor shall anything contained herein constitute or be deemed a waiver by such insurers of any defenses, including coverage defenses, held by such insurers.

N. Procedures for Resolving Contingent, Unliquidated, and Disputed Claims

1. Allowance of Claims

After the Effective Date, each of the Debtors or the Reorganized Debtors shall have and retain any and all rights and defenses such Debtor had with respect to any Claim immediately before the Effective Date. Except as expressly provided in the Plan or in any order entered in the Chapter 11 Cases before the Effective Date (including the Confirmation Order), no Claim shall become an Allowed Claim unless and until such Claim is deemed Allowed pursuant to the Plan or a Final Order, including the Confirmation Order (when it becomes a Final Order), Allowing such Claim.


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2. Claims and Interests Administration Responsibilities

Except as otherwise expressly provided in the Plan and notwithstanding any requirements that may be imposed pursuant to Bankruptcy Rule 9019, after the Effective Date, the Reorganized Debtors shall have the exclusive authority (i) to File, withdraw, or litigate to judgment objections to Claims; (ii) to settle or compromise any Disputed Claim without any further notice to or action, order, or approval by the Bankruptcy Court; and (iii) to administer and adjust the Claims Register to reflect any such settlements or compromises without any further notice to or action, order, or approval by the Bankruptcy Court. For the avoidance of doubt, except as otherwise provided herein, from and after the Effective Date, each Reorganized Debtor shall have and retain any and all rights and defenses such Debtor had immediately prior to the Effective Date with respect to any Disputed Claim or Interest, including the Causes of Action retained pursuant to Article IV of the Plan.

3. Estimation of Claims

Before or after the Effective Date, the Debtors or the Reorganized Debtors may at any time request that the Bankruptcy Court estimate any Disputed Claim or Disputed Interest that is contingent or unliquidated pursuant to section 502(c) of the Bankruptcy Code for any reason, regardless of whether any party previously has objected to such Claim or whether the Bankruptcy Court has ruled on any such objection, and the Bankruptcy Court shall retain jurisdiction to estimate any such Claim, including during the litigation of any objection to any Claim or during the appeal relating to such objection. In the event that the Bankruptcy Court estimates any Disputed, contingent, or unliquidated Claim, that estimated amount shall constitute a maximum limitation on such Claim for all purposes under the Plan (including for purposes of distributions), and the Debtors or the Reorganized Debtors, as applicable, may elect to pursue any supplemental proceedings to object to any ultimate distribution on such Claim. Notwithstanding section 502(j) of the Bankruptcy Code, in no event shall any Holder of a Claim that has been estimated pursuant to section 502(c) of the Bankruptcy Code or otherwise be entitled to seek reconsideration of such estimation unless such Holder has Filed a motion requesting the right to seek such reconsideration on or before 21 days after the date on which such Claim is estimated. All of the aforementioned Claims and objection, estimation, and resolution procedures are cumulative and not exclusive of one another. Claims may be estimated and subsequently compromised, settled, withdrawn, or resolved by any mechanism approved by the Bankruptcy Court.

4. Adjustment to Claims Register Without Objection

Any duplicate Claim or Interest or any Claim or Interest that has been paid or satisfied, or any Claim that has been amended or superseded, may be adjusted or expunged on the Claims Register by the Debtors or the Reorganized Debtors upon stipulation between the parties in interest without a Claims objection having to be Filed and without any further notice to or action, order, or approval of the Bankruptcy Court.


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5. Time to File Objections to Claims

Any objections to a Claim shall be Filed on or before the Claims Objection Deadline, as such deadline may be extended from time to time.

6. Disallowance of Claims

Any Claims held by Entities from which property is recoverable under section 542, 543, 550, or 553 of the Bankruptcy Code or that is a transferee of a transfer avoidable under section 522(f), 522(h), 544, 545, 547, 548, 549, or 724(a) of the Bankruptcy Code, shall be deemed Disallowed pursuant to section 502(d) of the Bankruptcy Code, and Holders of such Claims may not receive any distributions on account of such Claims until such time as such Causes of Action against that Entity have been settled or a Bankruptcy Court order with respect thereto has been entered and all sums due, if any, to the Debtors by that Entity have been turned over or paid to the Debtors or the Reorganized Debtors.

7. Amendments to Claims

On or after the Effective Date, except as provided in the Plan or the Confirmation Order, a Claim may not be Filed or amended without the prior authorization of the Bankruptcy Court or the Reorganized Debtors.

8. Distributions After Allowance

To the extent that a Disputed Claim ultimately becomes an Allowed Claim, distributions (if any) shall be made to the Holder of such Allowed Claim in accordance with the provisions of the Plan. As soon as reasonably practicable after the date that the order or judgment of a court of competent jurisdiction allowing any Disputed Claim becomes a Final Order, the Reorganized Debtors shall provide to the Holder of such Claim the distribution (if any) to which such Holder is entitled under the Plan as of the Effective Date.

9. Single Satisfaction of Claims

Holders of Allowed Claims may assert such Claims against each Debtor obligated with respect to such Claims, and such Claims shall be entitled to share in the recovery provided for the applicable Class of Claims against each obligated Debtor based upon the full Allowed amount of such Claims. Notwithstanding the foregoing, in no case shall the aggregate value of all property received or retained under the Plan on account of any Allowed Claim exceed 100 percent of the underlying Allowed Claim plus applicable interest, if any.

O. Settlement, Release, Injunction, and Related Provisions

1. Compromise and Settlement of Claims, Interests, and Controversies

Pursuant to section 1123 of the Bankruptcy Code and Bankruptcy Rule 9019 and in consideration for the distributions and other benefits provided pursuant to the Plan, the Plan is and shall be deemed a good-faith compromise and settlement of all Claims, Interests, and controversies relating to the contractual, legal, and subordination rights that a Holder of a Claim


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or Interest may have with respect to any Allowed Claim or Interest, or any distribution to be made on account of such Allowed Claim or Interest.

The entry of the Confirmation Order shall constitute the Bankruptcy Court’s approval of the compromise or settlement of all such Claims, Interests, and controversies, as well as a finding by the Bankruptcy Court that such compromise or settlement is in the best interests of the Debtors, their Estates, and Holders of Claims and Interests and is fair, equitable, and reasonable. The compromises, settlements, and releases described herein shall be deemed nonseverable from each other and from all other terms of the Plan. In accordance with the provisions of the Plan, pursuant to Bankruptcy Rule 9019, without any further notice to or action, order, or approval of the Bankruptcy Court, after the Effective Date, the Reorganized Debtors may compromise and settle Claims against, and Interests in, the Debtors and their Estates and Causes of Action against other Entities.

2. Discharge of Claims and Termination of Interests

Pursuant to section 1141(d) of the Bankruptcy Code, and except as otherwise specifically provided in the Plan or in a contract, instrument, or other agreement or document executed pursuant to the Plan, the distributions, rights, and treatment that are provided in the Plan shall be in complete satisfaction, discharge, and release, effective as of the Effective Date, of Claims (including any Intercompany Claims resolved or compromised after the Effective Date by the Reorganized Debtors), Interests, and Causes of Action of any nature whatsoever, including any interest accrued on Claims or Interests from and after the Commencement Date, whether known or unknown, against, liabilities of, Liens on, obligations of, rights against, and interests in, the Debtors or any of their assets or properties, regardless of whether any property shall have been distributed or retained pursuant to the Plan on account of such Claims and Interests, including demands, liabilities, and Causes of Action that arose before the Effective Date, any contingent or non-contingent liability on account of representations or warranties issued on or before the Effective Date, and all debts of the kind specified in sections 502(g), 502(h), or 502(i) of the Bankruptcy Code, in each case whether or not (i) a Proof of Claim based upon such debt or right is Filed or deemed Filed pursuant to section 501 of the Bankruptcy Code; (ii) a Claim or Interest based upon such debt, right, or Interest is Allowed pursuant to section 502 of the Bankruptcy Code; or (iii) the Holder of such a Claim or Interest has voted to accept the Plan. Any default or “event of default” by the Debtors or Affiliates with respect to any Claim or Interest that existed immediately before or on account of the Filing of the Chapter 11 Cases shall be deemed cured (and no longer continuing) as of the Effective Date with respect to a Claim that is Unimpaired by the Plan. The Confirmation Order shall be a judicial determination of the discharge of all Claims and Interests subject to the Effective Date occurring.

3. Releases by the Debtors

Pursuant to section 1123(b) of the Bankruptcy Code, for good and valuable consideration, the adequacy of which is hereby confirmed, as of the Effective Date, the Debtors and their Estates, the Reorganized Debtors and each of their respective current and former Affiliates (with respect to non-Debtors, to the extent permitted by applicable law), on behalf of themselves and their respective Estates, including, without limitation, any successor to the Debtors or any Estate representative appointed or selected pursuant to section 1123(b)(3)


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of the Bankruptcy Code, shall be deemed to have conclusively, absolutely, unconditionally, irrevocably, and forever released, waived and discharged the Released Parties from any and all Claims, Interests, obligations, rights, suits, damages, Causes of Action, remedies, and liabilities whatsoever (including any derivative Claims asserted or that may be asserted on behalf of the Debtors or their Estates), whether known or unknown, foreseen or unforeseen, existing or hereinafter arising, in law, equity, or otherwise, based on or relating to, or in any manner arising from, in whole or in part, the Debtors, the DIP Financing, the Restructuring Support Agreement, the New Money Backstop Commitment Agreement, the New Money Investment, the First Lien Rights Offering, the Shareholder Rights Offering, the Rights Offering Procedures, the formulation, preparation, dissemination, negotiation of the Plan, the Disclosure Statement, or any Restructuring Transaction, contract, instrument, release, or other agreement or document created or entered into in connection with the Plan, the Disclosure Statement, the Chapter 11 Cases, the pursuit of Confirmation, the pursuit of Consummation, the administration and implementation of the Plan, including the issuance or distribution of Securities pursuant to the Plan, or the distribution of property under the Plan, or any other related agreement, or upon any other act or omission, transaction, agreement, event, or other occurrence taking place on or before the Effective Date related or relating to the foregoing. Notwithstanding anything to the contrary in the foregoing, the releases set forth in Article VIII.C of the Plan (i) shall only be applicable to the maximum extent permitted by law; and (ii) shall not be construed as (a) releasing any Released Party from Claims or Causes of Action arising from an act or omission that is judicially determined by a Final Order to have constituted actual fraud, willful misconduct, or gross negligence, or (b) releasing any post-Effective Date obligations of any party or Entity under the Plan, any Restructuring Transaction, or any document, instrument, or agreement (including those set forth in the Plan Supplement) executed to implement the Plan.

4. Releases by Holders of Claims and Interests

As of the Effective Date, for good and valuable consideration, the adequacy of which is hereby confirmed, each Releasing Party is deemed to have conclusively, absolutely, unconditionally, irrevocably, and forever released, waived and discharged each Debtor, Reorganized Debtor, and other Released Party from any and all Claims, obligations, rights, suits, damages, Causes of Action, remedies, and liabilities whatsoever, including any derivative Claims asserted or that may be asserted on behalf of the Debtors or their Estates, that such Entity would have been legally entitled to assert in their own right (whether individually or collectively) or on behalf of the Holder of any Claim or Interest, whether known or unknown, foreseen or unforeseen, existing or hereinafter arising, in law, equity, or otherwise, based on or relating to, or in any manner arising from, in whole or in part, the Debtors, the DIP Financing, the Restructuring Support Agreement, the New Money Backstop Commitment Agreement, the New Money Investment, the First Lien Rights Offering, the Shareholder Rights Offering, the Rights Offering Procedures, the formulation, preparation, dissemination, negotiation of the Plan, the Disclosure Statement, or any Restructuring Transaction, contract, instrument, release, or other agreement or document created or entered into in connection with the Plan, the Disclosure Statement, the Chapter 11 Cases, the pursuit of Confirmation, the pursuit of Consummation, the administration and implementation of the Plan, including the issuance or distribution of


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Securities pursuant to the Plan, or the distribution of property under the Plan, or any other related agreement, or upon any other act or omission, transaction, agreement, event, or other occurrence taking place on or before the Effective Date related or relating to the foregoing. Notwithstanding anything to the contrary in the foregoing, the releases set forth in Article VIII.D of the Plan (i) shall only be applicable to the maximum extent permitted by law; and (ii) shall not be construed as (a) releasing any Released Party from Claims or Causes of Action arising from an act or omission that is judicially determined by a Final Order to have constituted actual fraud, willful misconduct, or gross negligence, or (b) releasing any post-Effective Date obligations of any party or Entity under the Plan, any Restructuring Transaction, or any document, instrument, or agreement (including those set forth in the Plan Supplement) executed to implement the Plan.

5. Exculpation

Except as otherwise specifically provided in the Plan, no Exculpated Party shall have or incur liability for, and each Exculpated Party is hereby released and exculpated from, any Cause of Action for any claim related to any act or omission in connection with, relating to, or arising out of, the Chapter 11 Cases, in whole or in part, the Debtors, the formulation, preparation, dissemination, negotiation, of the Plan, the Disclosure Statement, or any Restructuring Transaction, contract, instrument, release, or other agreement or document created or entered into in connection with the Plan, the Disclosure Statement, the filing of the Chapter 11 Cases, the pursuit of Confirmation, the pursuit of Consummation, the administration and implementation of the Plan, including the issuance or distribution of Securities pursuant to the Plan, or the distribution of property under the Plan, or any other related agreement, except for Claims or Causes of Action arising from an act or omission that is judicially determined in a Final Order to have constituted actual fraud, willful misconduct, or gross negligence, but in all respects such Exculpated Parties shall be entitled to reasonably rely upon the advice of counsel with respect to their duties and responsibilities. The Exculpated Parties have, and upon completion of the Plan shall be deemed to have, participated in good faith and in compliance with the applicable laws with regard to the solicitation of, and distribution of, consideration pursuant to the Plan and, therefore, are not, and on account of such distributions shall not be, liable at any time for the violation of any applicable law, rule, or regulation governing the solicitation of acceptances or rejections of the Plan or such distributions made pursuant to the Plan.

6. Injunction

EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THE PLAN OR FOR DISTRIBUTIONS REQUIRED TO BE PAID OR DELIVERED PURSUANT TO THE PLAN OR THE CONFIRMATION ORDER, ALL ENTITIES THAT HAVE HELD, HOLD, OR MAY HOLD CLAIMS OR INTERESTS THAT HAVE BEEN RELEASED PURSUANT TO ARTICLE VIII.C OR ARTICLE VIII.D OF THE PLAN, SHALL BE DISCHARGED PURSUANT TO ARTICLE VIII.B OF THE PLAN, OR ARE SUBJECT TO EXCULPATION PURSUANT TO ARTICLE VIII.E OF THE PLAN, ARE PERMANENTLY ENJOINED, FROM AND AFTER THE EFFECTIVE DATE, FROM TAKING ANY OF THE FOLLOWING ACTIONS AGAINST, AS APPLICABLE, THE DEBTORS, THE REORGANIZED DEBTORS, THE RELEASED PARTIES, OR THE EXCULPATED


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PARTIES (TO THE EXTENT OF THE EXCULPATION PROVIDED PURSUANT TO ARTICLE VIII.E OF THE PLAN WITH RESPECT TO THE EXCULPATED PARTIES): (I) COMMENCING OR CONTINUING IN ANY MANNER ANY ACTION OR OTHER PROCEEDING OF ANY KIND ON ACCOUNT OF OR IN CONNECTION WITH OR WITH RESPECT TO ANY SUCH CLAIMS OR INTERESTS; (II) ENFORCING, ATTACHING, COLLECTING, OR RECOVERING BY ANY MANNER OR MEANS ANY JUDGMENT, AWARD, DECREE, OR ORDER AGAINST SUCH ENTITIES ON ACCOUNT OF OR IN CONNECTION WITH OR WITH RESPECT TO ANY SUCH CLAIMS OR INTERESTS; (III) CREATING, PERFECTING, OR ENFORCING ANY LIEN OR ENCUMBRANCE OF ANY KIND AGAINST SUCH ENTITIES OR THE PROPERTY OR THE ESTATES OF SUCH ENTITIES ON ACCOUNT OF OR IN CONNECTION WITH OR WITH RESPECT TO ANY SUCH CLAIMS OR INTERESTS; (IV) ASSERTING ANY RIGHT OF SETOFF, SUBROGATION, OR RECOUPMENT OF ANY KIND AGAINST ANY OBLIGATION DUE FROM SUCH ENTITIES OR AGAINST THE PROPERTY OF SUCH ENTITIES ON ACCOUNT OF OR IN CONNECTION WITH OR WITH RESPECT TO ANY SUCH CLAIMS OR INTERESTS UNLESS SUCH ENTITY HAS TIMELY ASSERTED SUCH SETOFF RIGHT IN A DOCUMENT FILED WITH THE BANKRUPTCY COURT EXPLICITLY PRESERVING SUCH SETOFF, AND NOTWITHSTANDING AN INDICATION OF A CLAIM OR INTEREST OR OTHERWISE THAT SUCH ENTITY ASSERTS, HAS, OR INTENDS TO PRESERVE ANY RIGHT OF SETOFF PURSUANT TO APPLICABLE LAW OR OTHERWISE; AND (V) COMMENCING OR CONTINUING IN ANY MANNER ANY ACTION OR OTHER PROCEEDING OF ANY KIND ON ACCOUNT OF OR IN CONNECTION WITH OR WITH RESPECT TO ANY SUCH CLAIMS OR INTERESTS RELEASED OR SETTLED PURSUANT TO THE PLAN.

Under applicable law, a debtor’s release of certain parties, such as the Debtors’ release of the Released Parties, is appropriate where: (a) there is an identity of interest between the debtor and the third party, such that a suit against the released non-debtor party is, at core, a suit against the debtor or will deplete assets of the estate; (b) there is a substantial contribution by the non-debtor of assets to the reorganization; (c) the injunction is essential to the reorganization; (d) there is overwhelming creditor support for the injunction; and (e) the chapter 11 plan will pay all or substantially all of the claims affected by the injunction. See. e.g., In re Indianapolis Downs, LLC, 486 B.R. 286, 303 (Bankr. D. Del. 2013) (citation omitted). Importantly, these factors are “neither exclusive nor are they a list of conjunctive requirements,” but “[i]nstead, they are helpful in weighing the equities of the particular case after a fact-specific review.” Id. (citations omitted). Further, a chapter 11 plan may provide for a release of third-party claims against non-debtors, such as the releases provided for in Section IV.O.4, where such releases are consensual. Id. at 304–06. In addition, exculpation is appropriate where it applies to estate fiduciaries. Id. at 306. Finally, an injunction is appropriate where it is necessary to the reorganization and fair pursuant to section 105(a) of the Bankruptcy Code. In re W.R. Grace & Co., 475 B.R. 34, 107 (D. Del. 2012) (citing In re Global Indus. Techs., Inc., 645 F.3d 201, 206 (3d Cir. 2011)).

The Debtors believe that the releases, exculpations, and injunctions set forth in the Plan are appropriate because, among other things, the releases are narrowly tailored to the Debtors’ restructuring proceedings, and each of the Released Parties has afforded value to the Debtors and aided in the reorganization process, which facilitated the Debtors’ ability to propose and pursue Confirmation of the Plan. In addition, the Debtors believe the releases provided for in Article


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VIII.C of the Plan are entirely consensual under the established case law in the United States Bankruptcy Court for the District of Delaware. See, e.g., Indianapolis Downs, 486 B.R. at 304–06; In re Washington Mut. Inc., 442 B.R. 314, 352 (Bankr. D. Del. 2011). The Debtors will be prepared to meet their burden to establish the basis for the releases, exculpations, and injunctions for each Released Party and Exculpated Party as part of the Confirmation of the Plan.

Pursuant to the release provided by Article VIII.C of the Plan, the Debtors will release all Causes of Action in favor of their Estates arising from the 2016 Exchange, such as avoidance claims arising under chapter 5 of the Bankruptcy Code or claims arising from any alleged breaches of fiduciary duties. This provision results from, among other things, the Debtors’ independent consideration of the relative merits of pursuant potential claims or causes of action in connection with the 2016 Exchange, the costs associated with prosecuting such actions and expected duration of such litigation, and the potential value that might be realized, if any, from such litigation. Additionally, claims otherwise subject to the release could have given rise to indemnification and/or contribution claims from the Debtors to the detriment of creditor recoveries in general. Such release is also a component of the overall resolution reached by the Debtors in connection with the transactions contemplated by the RSA. The Debtors do not believe that the Consenting Creditors would have entered into the RSA without the releases contemplated by the Plan.

7. Subordination Rights

The classification and manner of satisfying all Claims and Interests under the Plan take into consideration all subordination rights, whether arising under general principles of equitable subordination, contract, section 510(c) of the Bankruptcy Code, any of the Intercreditor Agreements or otherwise, that a Holder of a Claim or Interest may have against other Claim or Interest Holders with respect to any distribution made pursuant to the Plan. Except as provided in the Plan, all subordination rights that a Holder of a Claim may have with respect to any distribution to be made pursuant to the Plan shall be discharged and terminated, and all actions related to the enforcement of such subordination rights shall be permanently enjoined.

Pursuant to Bankruptcy Rule 9019 and in consideration for the distributions and other benefits provided under the Plan, the provisions of the Plan shall constitute a good faith compromise and settlement of all claims or controversies relating to the subordination rights that a Holder of a Claim may have with respect to any Allowed Claim or any distribution to be made pursuant to the Plan on account of any Allowed Claim. The entry of the Confirmation Order shall constitute the Bankruptcy Court’s approval, as of the Effective Date, of the compromise or settlement of all such claims or controversies and the Bankruptcy Court’s finding that such compromise or settlement is in the best interests of the Debtors, the Reorganized Debtors and their respective property and Claim and Interest Holders and is fair, equitable and reasonable.

8. Release of Liens

Except (i) with respect to the Liens securing (a) the New Reorganized Debt, and (b) to the extent elected by the Debtors, with the consent of the Requisite Consenting Creditors, with respect to an Allowed Other Secured Claim in accordance with Article III.B.2 of the Plan; or (ii) as otherwise provided herein or in any contract, instrument, release, or other agreement or document created


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pursuant to the Plan, on the Effective Date, all mortgages, deeds of trust, Liens, pledges, or other security interests against any property of the Estates shall be fully released and discharged, and the holders of such mortgages, deeds of trust, Liens, pledges, or other security interests shall execute such documents as may be reasonably requested by the Debtors or the Reorganized Debtors, as applicable, to reflect or effectuate such releases, and all of the right, title, and interest of any holder of such mortgages, deeds of trust, Liens, pledges, or other security interests shall revert to the Reorganized Debtor and its successors and assigns.

P. Conditions Precedent to Consummation of the Plan

1. Conditions Precedent to the Effective Date

It shall be a condition to Consummation of the Plan that the following conditions shall have been satisfied or occur in conjunction with the occurrence of the Effective Date (or shall be waived pursuant to Article IX.B of the Plan):

(b) The Bankruptcy Court shall have entered the Disclosure Statement Order and approved the Rights Offering Procedures and solicitation procedures and other materials related to the Plan in form and substance consistent with the Restructuring Support Agreement and otherwise reasonably acceptable to the Debtors and the Requisite Consenting Creditors;

(c) The Bankruptcy Court shall have entered the Confirmation Order, which order shall approve the assumption of the New Money Backstop Commitment Agreement, in form and substance materially consistent with the Plan and otherwise reasonably acceptable to the Debtors and the Requisite Consenting Creditors, and such order shall not have been stayed pending appeal;

(d) The New Money Backstop Commitment Agreement shall not have been terminated and shall remain in full force and effect (with all conditions precedent thereto having been satisfied or waived) on terms reasonably acceptable to the Debtors and the Requisite Consenting Creditors;

(e) The Restructuring Support Agreement shall not have been terminated and shall be in full force and effect, other than on account of a breach thereof by the Sponsor or one or more of the Consenting Creditors;

(f) The Debtors shall not be in default under the DIP Credit Agreement or the DIP Order, which default results in an acceleration of the Debtors’ obligations outstanding under the DIP Credit Agreement (or, to the extent that the Debtors have been in default or are in default under the DIP Credit Agreement or the DIP Order that results in the acceleration of outstanding obligations, on the Effective Date, such default shall have been waived by the DIP Agent or cure by the Debtors in a manner consistent with the DIP Credit Agreement and/or DIP Order);

(g) The Professional Fee Escrow shall have been established and funded in Cash in accordance with Article II.C of the Plan;


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(h) The Unsecured Recovery Cash Pool Account and the General Unsecured Elective Claim Recovery Cash Pool Account each shall have been established and funded in Cash in accordance with Article IV.F.2 of the Plan;

(i) The conditions precedent to entry into the New Reorganized Debt shall have been satisfied, waived, or shall be satisfied contemporaneously with the occurrence of the Effective Date;

(j) The New Reorganized Debt Documents shall have been executed and delivered by each Entity party thereto and the Debtors shall have issued the indebtedness contemplated thereby;

(k) Reorganized Claire’s Parent Organizational Documents and agreements providing for the terms of the Reorganized Claire’s Parent Interests and New Preferred Equity Interests shall have been adopted, in each case, on terms consistent with the Plan and otherwise reasonably acceptable to the Debtors and the Requisite Consenting Creditors;

(l) All conditions precedent to the issuance of the Reorganized Claire’s Parent Interests and the New Preferred Equity Interests, other than any conditions related to the occurrence of the Effective Date, shall have occurred;

(m) The DIP Claims shall have been indefeasibly paid in full in Cash in accordance with the terms of the DIP Documents and all undrawn letters of credit outstanding under the DIP Documents shall have been terminated or cash collateralized in accordance with the terms of the DIP Documents;

(n) To the extent not otherwise paid prior to the Effective Date, all First Lien Fees and Expenses shall have been paid in Cash in full;

(o) To the extent not otherwise paid prior to the Effective Date, all then-outstanding CLSIP Term Loan Obligations shall have been paid in Cash in full;

(p) To the extent not otherwise paid prior to the Effective Date, all then-outstanding Gibraltar Obligations shall have been paid in Cash in full;

(q) All First Lien Agents Professional Fees shall have been paid in Cash in full;

(r) All Prepetition ABL Agent Professional Fees shall have been paid in Cash in full;

(s) All DIP Agent Professional Fees shall have been paid in Cash in full;

(t) The Company shall have generated consolidated adjusted EBITDA (which shall be calculated using the same methodology and definition used in the Company’s financial reporting) of at least $185,000,000.00 measured as of the last month for which internal financial statements are available, and adjusted for a 52-week year, if applicable;


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(u) The reorganized Company, shall have minimum consolidated Cash on the Effective Date, assuming pro forma for all uses of Cash associated with the Restructuring, including a deduction for any accruals or escrowed payments, of $75,000,000.00; and

(v) The Debtors shall have assumed, rejected, and/or renegotiated their store leases in consultation with the Consenting Creditors and in a manner reasonably acceptable to each of the Debtors and the Requisite Consenting Creditors, as evaluated by reference to the Debtors’ store portfolio as a whole.

2. Waiver of Conditions

The conditions to the Effective Date of the Plan set forth in Article IX of the Plan may be waived only by consent of the Debtors, with the consent of the Requisite Consenting Creditors (and, solely with respect to the conditions set forth in Article IX.A.12 and Article IX.A.18 of the Plan, with the consent of the DIP Agent, such consent not to be unreasonably withheld), without notice, leave, or order of the Bankruptcy Court or any formal action other than proceedings to confirm or consummate the Plan, subject to the terms of the Bankruptcy Code and the Bankruptcy Rules.

3. Substantial Consummation

“Substantial consummation” of the Plan, as defined by section 1101(2) of the Bankruptcy Code, shall be deemed to occur on the Effective Date.

4. Effect of Non-Occurrence of Conditions to the Effective Date

If the Effective Date does not occur, the Plan shall be null and void in all respects and nothing contained in the Plan or the Disclosure Statement shall (i) constitute a waiver or release of any Claims by or Claims against or Interests in the Debtors; (ii) prejudice in any manner the rights of the Debtors, any Holders of a Claim or Interest or any other Entity; or (iii) constitute an admission, acknowledgment, offer, or undertaking by the Debtors, any Holders, or any other Entity in any respect.

Q. Modification, Revocation, or Withdrawal of the Plan

1. Modification and Amendments

The Debtors, with the consent of (i) the Requisite Consenting Creditors (which consent shall not be unreasonably withheld or delayed) and (ii) solely with respect to matters affecting the DIP Agent and/or the DIP Lenders, the Required DIP Lenders (such consent not to be unreasonably withheld, conditioned, or delayed), reserve the right to modify the Plan and seek Confirmation consistent with the Bankruptcy Code and the Bankruptcy Rules and, as appropriate, not resolicit votes on such modified Plan. Subject to certain restrictions and requirements set forth in section 1127 of the Bankruptcy Code, Bankruptcy Rule 3019, and those restrictions on modifications set forth in the Plan, the Debtors, with the consent of (a) the Requisite Consenting Creditors (which consent shall not be unreasonably withheld or delayed) and (b) solely with respect to matters affecting the DIP Agent and/or the DIP Lenders, the Required DIP Lenders (such consent not to be unreasonably withheld, conditioned, or delayed), expressly reserve their rights to alter, amend, or modify materially the Plan one or more times, after Confirmation, and, to the extent necessary,


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may initiate proceedings in the Bankruptcy Court to so alter, amend, or modify the Plan, or remedy any defect or omission, or reconcile any inconsistencies in the Plan, the Disclosure Statement, or the Confirmation Order, in such matters as may be necessary to carry out the purposes and intent of the Plan.

2. Effect of Confirmation on Modifications

Entry of the Confirmation Order shall mean that all modifications or amendments to the Plan occurring after the solicitation thereof are approved pursuant to section 1127(a) of the Bankruptcy Code and do not require additional disclosure or resolicitation under Bankruptcy Rule 3019.

3. Revocation or Withdrawal of the Plan

Subject to the applicable provisions of the Restructuring Support Agreement, the Debtors reserve the right, with consent of the Requisite Consenting Creditors (which consent shall not be unreasonably withheld or delayed), to revoke or withdraw the Plan prior to the Confirmation Date. If the Debtors revoke or withdraw the Plan, in accordance with the preceding sentence, or if Confirmation and Consummation do not occur, then: (i) the Plan shall be null and void in all respects; (ii) any settlement or compromise embodied in the Plan (including the fixing or limiting to an amount certain of any Claim or Interest or Class of Claims or Interests), assumption or rejection of Executory Contracts or Unexpired Leases effected by the Plan, and any document or agreement executed pursuant to the Plan, shall be deemed null and void; and (iii) nothing contained in the Plan shall (a) constitute a waiver or release of any Claims or Interests; (b) prejudice in any manner the rights of the Debtors or any other Entity, including the Holders of Claims or the non-Debtor subsidiaries; or (c) constitute an admission, acknowledgement, offer, or undertaking of any sort by the Debtors or any other Entity, including the non-Debtor subsidiaries.

R. Retention of Jurisdiction

Notwithstanding the entry of the Confirmation Order and the occurrence of the Effective Date, on and after the Effective Date, the Bankruptcy Court shall retain jurisdiction over the Chapter 11 Cases and all matters arising out of, or related to, the Chapter 11 Cases and the Plan, including jurisdiction to:

(a) Allow, Disallow, determine, liquidate, classify, estimate, or establish the priority, Secured or unsecured status, or amount of any Claim or Interest, including the resolution of any request for payment of any Administrative Claim and the resolution of any and all objections to the Secured or unsecured status, priority, amount, or Allowance of Claims or Interests; provided that, for the avoidance of doubt, the Bankruptcy Court’s retention of jurisdiction with respect to such matters shall not preclude the Debtors or the Reorganized Debtors, as applicable, from seeking relief from any other court, tribunal, or other legal forum of competent jurisdiction with respect to such matters;


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(b) decide and resolve all matters related to the granting and denying, in whole or in part, any applications for allowance of compensation or reimbursement of expenses to Professionals authorized pursuant to the Bankruptcy Code or the Plan;

(c) resolve any matters related to (i) the assumption or assumption and assignment of any Executory Contract or Unexpired Lease to which a Debtor is a party or with respect to which a Debtor may be liable in any manner and to hear, determine, and, if necessary, liquidate, any Claims arising therefrom, including Claims related to the rejection of an Executory Contract or Unexpired Lease, cure costs pursuant to section 365 of the Bankruptcy Code, or any other matter related to such Executory Contract or Unexpired Lease; (ii) the Reorganized Debtors amending, modifying, or supplementing, after the Confirmation Date, pursuant to Article V of the Plan, any Executory Contracts or Unexpired Leases to the schedule of Executory Contracts and Unexpired Leases to be assumed; and (iii) any dispute regarding whether a contract or lease is or was executory or unexpired;

(d) adjudicate controversies, if any, with respect to distributions to Holders of Allowed Claims;

(e) adjudicate, decide, or resolve any motions, adversary proceedings, contested, or litigated matters, and any other matters, and grant or deny any applications involving a Debtor that may be pending on the Effective Date;

(f) adjudicate, decide, or resolve any and all matters related to Causes of Action;

(g) adjudicate, decide, or resolve any and all matters related to section 1141 of the Bankruptcy Code;

(h) enter and implement such orders as may be necessary or appropriate to execute, implement, or consummate the provisions of the Plan and all contracts, instruments, releases, indentures, and other agreements or documents created in connection with the Plan or the Disclosure Statement;

(i) enforce any order for the sale of property pursuant to sections 363, 1123, or 1146(a) of the Bankruptcy Code;

(j) resolve any cases, controversies, suits, disputes, or Causes of Action that may arise in connection with the Consummation, interpretation, or enforcement of the Plan or any Entity’s obligations incurred in connection with the Plan;

(k) issue injunctions, enter and implement other orders, or take such other actions as may be necessary or appropriate to restrain interference by any Entity with Consummation or enforcement of the Plan;

(l) resolve any cases, controversies, suits, disputes, or Causes of Action with respect to the settlements, compromises, discharges, releases, injunctions, exculpations, and other provisions contained in Article VIII of the Plan and enter such orders as may be necessary or appropriate to implement such releases, injunctions, and other provisions;


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(m) resolve any cases, controversies, suits, disputes, or Causes of Action with respect to the repayment or return of distributions and the recovery of additional amounts owed by the Holder of a Claim or Interest for amounts not timely repaid pursuant to Article VI.K.1 of the Plan;

(n) enter and implement such orders as are necessary or appropriate if the Confirmation Order is for any reason modified, stayed, reversed, revoked, or vacated;

(o) determine any other matters that may arise in connection with or relate to the Plan, the Disclosure Statement, the Confirmation Order, or the Plan Supplement, including with respect to the New Money Backstop Commitment Agreement;

(p) adjudicate any and all disputes arising from or relating to distributions under the Plan or any transactions contemplated therein;

(q) consider any modifications of the Plan, to cure any defect or omission, or to reconcile any inconsistency in any Bankruptcy Court order, including the Confirmation Order;

(r) determine requests for the payment of Claims and Interests entitled to priority pursuant to section 507 of the Bankruptcy Code;

(s) hear and determine matters concerning state, local, and federal taxes in accordance with sections 346, 505, and 1146 of the Bankruptcy Code (including the expedited determination of taxes under section 505(b) of the Bankruptcy Code);

(t) hear and determine matters concerning exemptions from state and federal registration requirements in accordance with section 1145 of the Bankruptcy Code;

(u) hear and determine all disputes involving the existence, nature, or scope of the release provisions set forth in the Plan, including any dispute relating to any liability arising out of the termination of employment or the termination of any employee or retiree benefit program, regardless of whether such termination occurred prior to or after the Effective Date;

(v) enforce all orders previously entered by the Bankruptcy Court;

(w) hear any other matter not inconsistent with the Bankruptcy Code;

(x) enter an order concluding or closing the Chapter 11 Cases; and

(y) enforce the injunction, release, and exculpation provisions set forth in Article VIII of the Plan.

Notwithstanding the foregoing, the Bankruptcy Court shall not retain jurisdiction over disputes concerning documents contained in the Plan Supplement that have a jurisdictional, forum selection, or dispute resolution clause that refers disputes to a different court and any disputes concerning documents contained in the Plan Supplement that contain such clauses shall be governed in accordance with the provisions of such documents.


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S. Miscellaneous Provisions

1. Immediate Binding Effect

Subject to Article IX.A of the Plan and notwithstanding Bankruptcy Rules 3020(e), 6004(h), or 7062 or otherwise, on the Effective Date, upon the effectiveness of the Plan, the terms of the Plan, the Plan Supplement, and the Confirmation Order shall be immediately effective and enforceable and deemed binding upon the Debtors and Reorganized Debtors, as applicable, and any and all Holders of Claims or Interests (regardless of whether the Holders of such Claims or Interests are deemed to have accepted or rejected the Plan), all Entities that are parties to or are subject to the settlements, compromises, releases, and injunctions described in the Plan, each Entity acquiring property under the Plan, the Confirmation Order and any and all non-Debtor parties to Executory Contracts and Unexpired Leases with the Debtors. All Claims shall be as fixed, adjusted, or compromised, as applicable, pursuant to the Plan regardless of whether any Holder of a Claim or debt has voted on the Plan.

2. Additional Documents

On or before the Effective Date, the Debtors may File with the Bankruptcy Court such agreements and other documents as may be necessary or appropriate to effectuate and further evidence the terms and conditions of the Plan. The Debtors and all Holders of Claims or Interests receiving distributions pursuant to the Plan and all other parties in interest shall, from time to time, prepare, execute, and deliver any agreements or documents and take any other actions as may be necessary or advisable to effectuate the provisions and intent of the Plan.

3. Payment of Statutory Fees

All fees due and payable pursuant to 28 U.S.C. § 1930(a) prior to the Effective Date shall be paid by the Debtors in full in Cash on the Effective Date. On and after the Effective Date, the Reorganized Debtors shall pay any and all such fees in full in Cash when due and payable, and shall file with the Bankruptcy Court quarterly reports in a form reasonably acceptable to the U.S. Trustee. Each Debtor shall remain obligated to pay quarterly fees to the U.S. Trustee until the earliest of that particular Debtor’s case being closed, dismissed, or converted to a case under chapter 7 of the Bankruptcy Code. Notwithstanding anything to the contrary herein, the U.S. Trustee shall not be required to file a Proof of Claim or any other request for payment of quarterly fees.

4. Reservation of Rights

Except as expressly set forth in the Plan, the Plan shall have no force or effect unless the Bankruptcy Court shall enter the Confirmation Order in accordance with Article IX.A of the Plan. Neither the Plan, any statement or provision contained in the Plan, nor any action taken or not taken by any Debtor with respect to the Plan, the Disclosure Statement, the Confirmation Order, or the Plan Supplement shall be or shall be deemed to be an admission or waiver of any rights of any Debtor with respect to the Holders of Claims or Interests prior to the Effective Date.


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5. Successors and Assigns

The rights, benefits, and obligations of any Entity named or referred to in the Plan or the Confirmation Order shall be binding on, and shall inure to the benefit of, any heir, executor, administrator, successor or assign, Affiliate, officer, director, manager, agent, representative, attorney, beneficiaries, or guardian, if any, of each Entity.

6. Service of Documents

Any pleading, notice, or other document required by the Plan to be served on or delivered to the Debtors or Reorganized Debtors, the Ad Hoc First Lien Group, Requisite Consenting Creditors, the Sponsor, and the Committee shall be served on:

Debtors: Claire’s Stores, Inc. 2400 West Central Road Hoffman Estates, Illinois 60192 Attn.: Stephen E. Sernett, Esq.

[email protected] with copies to:

Counsel to Debtors Weil Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Attn.: Ray C. Schrock, P.C.; Matt S. Barr; Ryan Preston Dahl; and Alexander W. Welch

[email protected] [email protected] [email protected]

[email protected] -and-

Richards, Layton & Finger, PA One Rodney Square 920 North King Street Wilmington, Delaware 19801 Attn: Daniel J. DeFranceschi; Zachary I.

Shapiro; Brendan J. Schlauch; and Brett M. Haywood

[email protected] [email protected] [email protected] [email protected]


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Counsel to the Committee Cooley LLP 1114 Avenue of the Americas New York, New York 10036 Attn: Seth Van Aalten; Cathy Herschcopf;

and Summer M. McKee [email protected] [email protected] [email protected] Bayard P.A.

600 N. King Street, Suite 400 Wilmington, Delaware 19801 Attn: Justin R. Alberto; Erin R. Fay; and Gregory Flasser [email protected] [email protected] [email protected]

Counsel to the Ad Hoc First Lien Group Willkie Farr & Gallagher LLP /Requisite Consenting Creditors 787 Seventh Avenue

New York, New York 10019 Attn.: Matthew A. Feldman; Brian S. Lennon; and Daniel I. Forman

[email protected] [email protected] [email protected]

-and-

Morris, Nichols, Arsht & Tunnell, LLP Rodney Square 1201 North Market Street Wilmington, Delaware 19899 Attn: Robert Dehney [email protected] Counsel to the Sponsor: Paul, Weiss, Rifkind, Wharton & Garrison

LLP 1285 Avenue of the Americas New York, New York 10019 Attn: Jeffrey D. Saferstein [email protected]

-and- Young, Conaway, Stargatt & Taylor, LLP


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Rodney Square, 1000 North King Street Wilmington, Delaware 19801 Attn: Pauline Morgan [email protected]

Counsel to the DIP Agent Latham & Watkins LLP

330 North Wabash Avenue, Suite 2800 Chicago, Illinois 60611 Attn.: Richard A. Levy

[email protected]

Latham & Watkins LLP 885 Third Avenue New York, New York 10022 Attn.: Annemarie V. Reilly

[email protected] -and-

Duane Morris LLP 222 Delaware Avenue, Suite 1600 Wilmington, Delaware 19801 Attn: Jarret P. Hutchings [email protected]

7. Term of Injunctions or Stays

Unless otherwise provided in the Plan or in the Confirmation Order, all injunctions or stays in effect in the Chapter 11 Cases pursuant to sections 105 or 362 of the Bankruptcy Code or any order of the Bankruptcy Court, and extant on the Confirmation Date (excluding any injunctions or stays contained in the Plan or the Confirmation Order) shall remain in full force and effect until the Effective Date. All injunctions or stays contained in the Plan or the Confirmation Order shall remain in full force and effect in accordance with their terms.

8. Entire Agreement

The Plan, Plan Supplement, Confirmation Order, the New Money Backstop Commitment Agreement, and the Restructuring Support Agreement (assumption of which agreements is approved by the Confirmation Order) supersede all previous and contemporaneous negotiations, promises, covenants, agreements, understandings, and representations on such subjects, all of which have become merged and integrated into the Plan and Confirmation Order.

9. Nonseverability of Plan Provisions

If, prior to Confirmation, any term or provision of the Plan is held by the Bankruptcy Court to be invalid, void, or unenforceable, the Bankruptcy Court shall be prohibited from altering or


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interpreting such term or provision to make it valid or enforceable; provided that at the request of the Debtors, the Bankruptcy Court shall have the power to alter and interpret such term or provision to make it valid or enforceable to the maximum extent practicable, consistent with the original purpose of the term or provision held to be invalid, void or unenforceable, and such terms or provision shall then be applicable as altered or interpreted provided that any such alteration or interpretation shall be acceptable to the Debtors. The Confirmation Order shall constitute a judicial determination and shall provide that each term and provision of the Plan, as it may have been altered or interpreted in accordance with the foregoing, is (i) valid and enforceable pursuant to its terms; (ii) integral to the Plan and may not be deleted or modified without consent from the Debtors; and (iii) nonseverable and mutually dependent.

10. Dissolution of Committee

On the Effective Date, the Committee and any other official committees appointed in the Chapter 11 Cases will dissolve; provided that, following the Effective Date, the Committee shall continue in existence and have standing and a right to be heard for the following limited purposes: (i) Claims and/or applications, and any relief related thereto, for compensation by Professionals and requests for Allowance of Administrative Expense Claims for substantial contribution pursuant to section 503(b)(3)(D) of the Bankruptcy Code; and (ii) any appeals of the Confirmation Order or other appeal to which the Committee is a party. Upon the dissolution of the Committee, the Committee Members and their respective Professionals will cease to have any duty, obligation or role arising from or related to the Chapter 11 Cases and shall be released and discharged from all rights and duties from or related to the Chapter 11 Cases.

11. Expedited Tax Determination

The Debtors may request an expedited determination of taxes under section 505(b) of the Bankruptcy Code for all returns filed for or on behalf of the Debtors for all taxable periods through the Effective Date.

V. ALTERNATIVES TO CONFIRMATION AND

CONSUMMATION OF THE PLAN

The Plan reflects a consensus among the Debtors, the Sponsor, and the Ad Hoc First Lien Group. The Debtors have determined that the Plan is the best alternative available for their successful emergence from chapter 11. If the Plan is not confirmed and consummated, the alternatives to the Plan are (i) continuation of the Chapter 11 Cases, which could lead to the filing of an alternative plan of reorganization, or a sale of some or all of the Debtors’ assets pursuant to section 363 of the Bankruptcy Code, or (ii) a liquidation under chapter 7 of the Bankruptcy Code.

A. Continuation of the Chapter 11 Cases

If the Plan is not confirmed, the Debtors (or, if the Debtors’ exclusive period in which to file a plan of reorganization has expired, any other party in interest) could attempt to formulate a


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different plan. Such alternative plan might involve either a reorganization and continuation of the Debtors’ business, or an orderly liquidation of their assets.

Alternatively, if the Plan is not confirmed, the Debtors could seek from the Bankruptcy Court, after notice and a hearing, authorization to sell all of their assets under section 363 of the Bankruptcy Code. Holders of Claims in Classes 2, 3, 4, 5, 6, and 7 would be entitled to credit bid on any property to which their security interest attaches to the extent of the value of such security interest, and to offset their Claims against the purchase price of the property. In addition, the security interests in the Debtors’ assets held by holders of Secured Claims would attach to the proceeds of any sale of the Debtors’ assets to the extent of their secured interests therein. Upon analysis and consideration of this alternative, the Debtors do not believe a sale of their assets under section 363 of the Bankruptcy Code would yield a higher recovery for holders of Claims than what they would receive under the Plan.

B. Liquidation under Chapter 7

If no plan can be confirmed, the Chapter 11 Cases may be converted to cases under chapter 7 of the Bankruptcy Code in which a trustee would be elected or appointed to liquidate the assets of the Debtors for distribution to their creditors in accordance with the priorities established by the Bankruptcy Code.

As demonstrated in the Liquidation Analysis, the Debtors believe that liquidation under chapter 7 would result in smaller distributions to creditors than those provided for in the Plan because of, among other things, the delay resulting from the conversion of the Chapter 11 Cases to cases under chapter 7, the additional administrative expenses associated with the appointment of a trustee and the trustee’s retention of professionals, and the loss in value attributable to an expeditious liquidation of the Debtors’ assets as required by chapter 7.

VI. TRANSFER RESTRICTIONS AND

CONSEQUENCES UNDER FEDERAL SECURITIES LAW

A. Section 1145 Securities

All shares of Reorganized Claire’s Parent Interests issued under the Plan will be issued without registration under the Securities Act or any similar federal, state, or local law. Shares of Reorganized Claire’s Parent Interests issued to Holders of First Lien Debt Secured Claims pursuant to Article III.B.6. under the Plan will be issued in reliance upon section 1145 of the Bankruptcy Code and will be exempt from, among other things, the registration requirements of Section 5 of the Securities Act and any other applicable federal, state, or local law requiring registration prior to the offering, issuance, distribution, or sale of Securities. The Reorganized Claire’s Parent Interests issued pursuant to section 1145 of the Bankruptcy Code (i) will not be a “restricted security” as defined in Rule 144(a)(3) under the Securities Act; and (ii) will, subject to the Shareholders Agreement and the Reorganized Claire’s Parent Organizational Documents, be freely tradable and transferable by any holder thereof that (a) is not an “affiliate” of the Reorganized Debtors as defined in Rule 144(a)(1) under the Securities Act, (b) has not been such an “affiliate” within 90 days of such transfer, (c) has not acquired the Reorganized Claire’s


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Parent Interests from an “affiliate” within one year of such transfer, and (d) is not an entity that is an “underwriter” as defined in subsection (b) of section 1145 of the Bankruptcy Code.

Section 1145(b) of the Bankruptcy Code defines “underwriter” for purposes of the Securities Act as one who, except with respect to ordinary trading transactions, (i) purchases a claim with a view to distribution of any security to be received in exchange for the claim, (ii) offers to sell securities issued under a plan for the holders of such securities, (iii) offers to buy securities issued under a plan from persons receiving such securities, if the offer to buy is made with a view to distribution or (d) is an issuer, as used in section 2(a)(11) of the Securities Act, with respect to such securities, which includes control persons of the issuer.

Notwithstanding the foregoing, control person underwriters may be able to sell securities without registration pursuant to the resale limitations of Rule 144 of the Securities Act which, in effect, permit the resale of securities received by such underwriters pursuant to a chapter 11 plan, subject to applicable volume limitations, notice and manner of sale requirements, and certain other conditions, including those under the Shareholders Agreement and the Reorganized Claire’s Parent Organizational Documents. Parties who believe they may be statutory underwriters as defined in section 1145 of the Bankruptcy Code are advised to consult with their own legal advisers as to the availability of the exemption provided by Rule 144.

B. Private Placement

The issuance and sale, as applicable, of the New Preferred Equity Interests pursuant to the New Money Backstop Commitment Agreement, including, but not limited to, the First Lien Rights Offering, the New Preferred Equity Interests Backstop Premium, the Shareholder Rights Offering, and the New Money Investment Procedures are being made in reliance on the exemption from registration set forth in section 4(a)(2) of the Securities Act and Regulation D thereunder (the “4(a)(2) Securities”). Such Securities will be considered “restricted securities” and may not be transferred except pursuant to an effective registration statement or under an available exemption from the registration requirements of the Securities Act, such as the resale provisions of Rule 144 of the Securities Act, in each case subject to the Shareholders Agreement and the Reorganized Claire’s Parent Organizational Documents.

Rule 144 provides a limited safe harbor for the public resale of restricted securities if certain conditions are met. These conditions vary depending on whether the holder of the restricted securities is an “affiliate” of the issuer. Rule 144 defines an affiliate of the issuer as “a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such issuer.”

A non-affiliate of an issuer that is not subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) and who has not been an affiliate of the issuer during the 90 days preceding such sale may resell restricted securities after a one-year holding period whether or not there is current public information regarding the issuer.

An affiliate of an issuer that is not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act may resell restricted securities after the one-year holding period if at the time of the sale certain current public information regarding the issuer is available. An affiliate must


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also comply with the volume, manner of sale and notice requirements of Rule 144. First, the rule limits the number of restricted securities (plus any unrestricted securities) sold for the account of an affiliate (and related persons) in any three-month period to the greater of 1% of the outstanding securities of the same class being sold or, if the class is listed on a stock exchange, the average weekly reported volume of trading in such securities during the four weeks preceding the filing of a notice of proposed sale on Form 144 or if no notice is required, the date of receipt of the order to execute the transaction by the broker or the date of execution of the transaction directly with a market maker. Second, the manner of sale requirement provides that the restricted securities must be sold in a broker’s transaction, directly with a market maker or in a riskless principal transaction (as defined in Rule 144). Third, if the amount of securities sold under Rule 144 in any three month period exceeds 5,000 shares or has an aggregate sale price greater than $50,000, an affiliate must file or cause to be filed with the SEC three copies of a notice of proposed sale on Form 144, and provide a copy to any exchange on which the securities are traded.

The Debtors believe that the Rule 144 exemption will not be available with respect to any 4(a)(2) Securities (whether held by non-affiliates or affiliates) until at least one year after the Effective Date. Accordingly, unless transferred pursuant to an effective registration statement or another available exemption from the registration requirements of the Securities Act, nonaffiliated holders of 4(a)(2) Securities will be required to hold their 4(a)(2) Securities for at least one year and, thereafter, to sell them only in accordance with the applicable requirements of Rule 144, pursuant to the an effective registration statement or pursuant to another available exemption from the registration requirements of applicable securities laws.

* * * * *

Legends. To the extent certificated or issued by way of direct registration on the records of the issuer’s transfer agent, certificates evidencing the Reorganized Claire’s Parent Interests held by holders of 10% or more of the outstanding Reorganized Claire’s Parent Interests, or who are otherwise underwriters as defined in section 1145(b) of the Bankruptcy Code, and all Reorganized Claire’s Parent Interests issued in the First Lien Rights Offering or the Shareholder Rights Offering will bear a legend substantially in the form below:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON [DATE OF ISSUANCE], HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY OTHER APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN AVAILABLE EXEMPTION FROM REGISTRATION THEREUNDER.

The Debtors and Reorganized Debtors, as applicable, reserve the right to reasonably require certification, legal opinions or other evidence of compliance with Rule 144 as a condition to the removal of such legend or to any resale of the 4(a)(2) Securities. The Debtors and Reorganized Debtors, as applicable, also reserve the right to stop the transfer of any 4(a)(2) Securities if such transfer is not in compliance with Rule 144, pursuant to an effective registration statement or


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pursuant to another available exemption from the registration requirements of applicable securities laws. All persons who receive 4(a)(2) Securities will be required to acknowledge and agree that (a) they will not offer, sell or otherwise transfer any 4(a)(2) Securities except in accordance with an exemption from registration, including under Rule 144 under the Securities Act, if and when available, or pursuant to an effective registration statement, and (b) the 4(a)(2) Securities will be subject to the other restrictions described above.

In any case, recipients of securities issued under the Plan are advised to consult with their own legal advisers as to the availability of any such exemption from registration under state law in any given instance and as to any applicable requirements or conditions to such availability.

BECAUSE OF THE COMPLEX, SUBJECTIVE NATURE OF THE QUESTION OF WHETHER A PARTICULAR PERSON MAY BE AN UNDERWRITER OR AN AFFILIATE AND THE HIGHLY FACT-SPECIFIC NATURE OF THE AVAILABILITY OF EXEMPTIONS FROM REGISTRATION UNDER THE SECURITIES ACT, INCLUDING THE EXEMPTIONS AVAILABLE UNDER SECTION 1145 OF THE BANKRUPTCY CODE AND RULE 144 UNDER THE SECURITIES ACT, NONE OF THE DEBTORS MAKE ANY REPRESENTATION CONCERNING THE ABILITY OF ANY PERSON TO DISPOSE OF THE SECURITIES TO BE ISSUED UNDER OR OTHERWISE ACQUIRED PURSUANT TO THE PLAN. THE DEBTORS RECOMMEND THAT POTENTIAL RECIPIENTS OF THE SECURITIES TO BE ISSUED UNDER OR OTHERWISE ACQUIRED PURSUANT TO THE PLAN CONSULT THEIR OWN COUNSEL CONCERNING WHETHER THEY MAY FREELY TRADE SUCH SECURITIES AND THE CIRCUMSTANCES UNDER WHICH THEY MAY RESELL SUCH SECURITIES.

Notwithstanding anything contained herein to the contrary, each recipient of the Reorganized Claire’s Parent Interests or New Preferred Equity Interests issued pursuant to the Plan will be deemed to be a party to the Shareholders Agreement, and such Reorganized Claire’s Parent Interests and New Preferred Equity Interests will be subject to the Reorganized Claire’s Parent Organizational Documents. Without limiting the forgoing, on the Effective Date, holders of the Reorganized Claire’s Parent Interests and New Preferred Equity Interests will become parties to the Shareholders Agreement and the Reorganized Claire’s Parent Organizational Documents, which shall govern (among other things) the relative rights of holders of New Preferred Equity Interests and Reorganized Claire’s Parent Interests, which shall be in form and substance acceptable to the Requisite Consenting Creditors in good faith.

VII. CERTAIN TAX CONSEQUENCES OF THE PLAN

The following discussion is a summary of certain U.S. federal income tax consequences of the consummation of the Plan to the Debtors and to certain holders of Claims. The following summary does not address the U.S. federal income tax consequences to holders of Claims who are Unimpaired or otherwise entitled to payment in full in Cash under the Plan or who are deemed to reject to Plan, or to holders of Existing Claire’s Parent Equity Interests.

The discussion of U.S. federal income tax consequences below is based on the Internal Revenue Code of 1986, as amended (the “Tax Code”), U.S. Treasury regulations, judicial authorities,


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published positions of the Internal Revenue Service (“IRS”), and other applicable authorities, all as in effect on the date of this Disclosure Statement and all of which are subject to change or differing interpretations (possibly with retroactive effect). The U.S. federal income tax consequences of the contemplated transactions are complex and subject to significant uncertainties. The Debtors have not requested an opinion of counsel or a ruling from the IRS with respect to any of the tax aspects of the contemplated transactions.

This summary does not address foreign, state, or local tax consequences of the contemplated transactions, nor does it address the U.S. federal income tax consequences of the transactions to special classes of taxpayers (e.g., non-U.S. taxpayers, small business investment companies, regulated investment companies, real estate investment trusts, banks and certain other financial institutions, insurance companies, tax-exempt organizations, retirement plans, individual retirement and other tax-deferred accounts, holders that are, or hold their Claims through, S corporations, partnerships or other pass-through entities for U.S. federal income tax purposes, persons whose functional currency is not the U.S. dollar, dealers in securities or foreign currency, traders that mark-to-market their securities, persons subject to the alternative minimum tax or the “Medicare” tax on net investment income, and persons whose Claims are part of a straddle, hedging, constructive sale, or conversion transaction). In addition, this discussion does not address the Foreign Account Tax Compliance Act or U.S. federal taxes other than income taxes, nor does it apply to natural persons receiving First Lien Subscription Rights or any person that acquires Reorganized Claire’s Parent Interests or any New Money Investment in the secondary market.

Unless otherwise indicated, this discussion assumes that all First Lien Debt Secured Claims, Class 9 Unsecured Claims, Class 10 General Unsecured Elective Claims, Reorganized Claire’s Parent Interests, First Lien Subscription Rights, and the New Money Investment are held as “capital assets” (generally, property held for investment) within the meaning of section 1221 of the Tax Code and that the various debt and other arrangements to which the Debtors are a party will be respected for U.S. federal income tax purposes in accordance with their respective forms.

The following summary of certain U.S. federal income tax consequences is for informational purposes only and is not a substitute for careful tax planning and advice based upon your individual circumstances. All holders of Claims and Interests are urged to consult their tax advisor for the U.S. federal, state, local and other tax consequences applicable under the Plan.

A. Consequences to the Debtors

For U.S. federal income tax purposes, each of the Debtors is a member of an affiliated group of corporations (or is a disregarded entity wholly-owned by members of such group) of which Claire’s Parent is the common parent and which files a single consolidated U.S. federal income tax return (the “Tax Group”). The Debtors estimate that the Tax Group had approximately $8 million of consolidated net operating losses (“NOLs”) as of February 3, 2018, which is expected to be fully utilized to offset 2018 taxable income. Subject to on-going review, the Debtors believe that the aggregate tax basis in their assets (other than stock of members of the Tax Group) is substantially less than fair market value. In addition, the Debtors expect that a portion of their interest expense for the 2018 taxable year will be subject to disallowance and carry


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forward under new section 163(j) of the Tax Code. The amount of any such NOLs and other tax attributes remain subject to audit and adjustment by the IRS.

As discussed below, in connection with the Plan, the Debtors’ anticipate that their tax attributes (in particular, tax basis in assets) will be reduced, and that the subsequent utilization of certain tax attributes (such as any disallowed interest expense carryforward incurred through the Effective Date) will be restricted.

1. Cancellation of Debt

In general, the Tax Code provides that a corporate debtor in a bankruptcy case must reduce certain of its tax attributes—such as NOL carryforwards and current year NOLs, capital loss carryforwards, tax credits, and tax basis in assets—by the amount of any cancellation of debt (“COD”) incurred pursuant to a confirmed chapter 11 plan. The amount of COD incurred is generally the amount by which the indebtedness discharged exceeds the value of any consideration given in exchange therefor. Certain statutory or judicial exceptions may apply to limit the amount of COD incurred for U.S. federal income tax purposes. If advantageous, a corporate debtor can elect to reduce the basis of depreciable property prior to any reduction in its NOL carryforwards or other tax attributes. Under applicable Treasury Regulations, the reduction in certain tax attributes occurs under consolidated return principles, as in the case of the Debtors who are members of the Tax Group. Any reduction in tax attributes in respect of COD generally does not occur until after the determination of the debtor’s net income or loss for the taxable year in which the COD is incurred.

In connection with the implementation of the Plan, the Debtors are expected to incur a significant amount of COD for U.S. federal income tax purposes, with an attendant reduction in tax attributes (but in the case of tax basis, only to the extent such tax basis exceeds the amount of the respective Debtor’s liabilities, as determined for these purposes, immediately after the Effective Date).

2. Potential Application of AHYDO Provisions

The New First Lien Term Loan may be subject to the provisions of the Tax Code dealing with applicable high yield discount obligations (“AHYDOs”). These provisions can result in the deferral, and even disallowance, of an issuer’s deduction of interest with respect to original issue discount (“OID”). As discussed below (see B.5—“Consequences to Holders of Certain Claims – New Money Investment”), the New First Lien Term Loan may be issued with OID. Moreover, in the event that the New First Lien Term Loan is treated as a contingent payment debt obligation for U.S. federal income tax purposes, all stated interest would be treated as part of the OID. A debt obligation is generally treated as an AHYDO if it is issued with substantial OID (meaning that there is accrued OID as of the close of the first accrual period ending after the fifth anniversary of issuance in excess of one year’s interest, both actual and imputed), has a yield to maturity of at least five percentage points over the applicable federal rate in effect for the calendar month in which such notes are issued, and has a maturity of over five years.

In the event that a debt instrument constitutes an AHYDO, the issuer’s interest deduction is disallowed to the extent the yield to maturity on the debt instrument is at least six percentage


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points over the applicable federal rate; otherwise, the deduction is merely deferred until paid in Cash. Accordingly, it is possible that the deductibility of interest relating to the First Lien Term Loans may, in part, be deferred or disallowed.

3. Limitation of NOL Carryforwards and Other Tax Attributes

Following the Effective Date, any remaining NOL carryforwards and certain other tax attributes (including any disallowed interest expense) allocable to periods prior to the Effective Date (“Pre-Change Losses”) may be subject to certain limitations resulting from a change in ownership. Any such limitation applies in addition to, and not in lieu of, any attribute reduction that results from COD incurred in connection with the Plan.

Under section 382 of the Tax Code, if a corporation (or consolidated group) undergoes an “ownership change,” the amount of its Pre-Change Losses that may be utilized to offset future taxable income generally are subject to an annual limitation. The Debtors expect that the issuance of Reorganized Claire’s Parent Interests pursuant to the Plan will constitute an ownership change of the Tax Group for this purpose.

(a) General Annual Limitation

In general, the amount of the annual limitation to which a corporation (or consolidated group) that undergoes an ownership change will be subject is equal to the product of (A) the fair market value of the stock of the corporation (or common parent of the consolidated group) immediately before the ownership change (with certain adjustments) multiplied by (B) the “long term tax exempt rate” in effect for the month in which the ownership change occurs (e.g., 2.32% for ownership changes occurring in July 2018). For a corporation (or consolidated group) in bankruptcy that undergoes an ownership change pursuant to a confirmed bankruptcy plan, the fair market value of the stock of the corporation is generally determined immediately after (rather than before) the ownership change after giving effect to the discharge of creditors’ claims, but subject to certain adjustments; in no event, however, can the stock value for this purpose exceed the pre-change gross value of the corporation’s assets. Any portion of the annual limitation that is not used in a given year may be carried forward, thereby adding to the annual limitation for the subsequent taxable year.

Under certain circumstances, the annual limitation otherwise computed may be increased if the corporation (or consolidated group) has an overall built-in gain in its assets at the time of the ownership change. Significantly, if the loss corporation (or consolidated group) has a net unrealized built-in gain at the time of an ownership change, any built-in gains recognized (or, under an IRS notice, treated as recognized) during the following five years (up to the amount of the original net unrealized built-in gain) generally will increase the annual limitation in the year recognized, such that the loss corporation (or consolidated group) would be permitted to use its Pre-Change Losses against such built-in gain income in addition to its regular annual allowance. The Debtors anticipate that the Tax Group will be in a net unrealized built-in gain position on the Effective Date.

If the corporation (or consolidated group) does not continue its historic business or use a significant portion of its historic assets in a new business for at least two years after the


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ownership change, the annual limitation resulting from the ownership change is reduced to zero, thereby precluding any utilization of the corporation’s pre-change losses (absent any increases due to recognized built-in gains). Currently, the Debtors anticipate that regardless of the application of section 382, all NOL carryforwards will be fully utilized in the 2018 taxable year. However, section 382 may restrict the subsequent utilization of other tax attributes, such as the carryforward of any disallowed interest expense allocable to the period through the Effective Date.

(b) Special Bankruptcy Exception

An exception to the foregoing annual limitation rules generally applies when shareholders and “qualified creditors” of a debtor corporation in chapter 11 receive, in respect of their equity interests or claims (as applicable), at least fifty percent (50%) of the vote and value of the stock of the reorganized debtor (or a controlling corporation if also in chapter 11) pursuant to a confirmed chapter 11 plan. Under this exception, a debtor’s Pre-Change Losses are not subject to the annual limitation. However, if this exception applies, the debtor’s Pre-Change Losses generally will be reduced by the amount of any interest deductions claimed during the three taxable years preceding the taxable year that includes the effective date of the plan of reorganization, and during the part of the taxable year prior to and including the effective date of the plan of reorganization, in respect of all debt converted into stock in the reorganization. Also, if the reorganized debtor thereafter undergoes another “ownership change” within two years, the annual limitation with respect to such later ownership change could be zero, effectively precluding any future use of their Pre-Change Losses. A debtor that qualifies for this exception may, if it so desires, elect not to have the exception apply and instead remain subject to the annual limitation described above. The Debtors have not determined whether or not this exception will apply in connection with the Plan. Accordingly, it is possible that the Debtors will not qualify for this exception or that the Debtors will elect not to apply this exception.

B. Consequences to Holders of Certain Claims

This summary discusses the U.S. federal income tax consequences to holders of Class 7 First Lien Debt Secured Claims and Class 9 Unsecured Claims. Unless otherwise noted, the discussion below applies only to U.S. Holders. As used herein, the term “U.S. Holder” means a beneficial owner of First Lien Debt Secured Claims, Class 9 Unsecured Claims, the Reorganized Claire’s Parent Interests or Subscription Rights that is for U.S. federal income tax purposes:

an individual who is a citizen or resident of the United States;

a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

a trust, if a court within the United States is able to exercise primary jurisdiction over its administration and one or more U.S. persons have authority to control all of its


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substantial decisions, or if the trust has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

If a partnership or other entity or arrangement taxable as a partnership for U.S. federal income tax purposes holds First Lien Debt Secured Claims, Class 9 Unsecured Claims, the Reorganized Claire’s Parent Interests or the Subscription Rights, the tax treatment of a partner in such partnership generally will depend upon the status of the partner and the activities of the partnership. If you are a partner in such a partnership holding any of such instruments, you should consult your own tax advisor.

The following discussion does not necessarily apply to holders who have Claims in more than one class relating to the same underlying obligation (such as where the underlying obligation is classified as partially secured and partially unsecured). Such holders should consult their tax advisor regarding the effect of such dual status obligations on the federal income tax consequences of the Plan to them.

1. Holders of Class 7 First Lien Debt Secured Claims

Pursuant to the Plan, holders of First Lien Debt Secured Claims will receive Reorganized Claire’s Parent Interests and, for Eligible Holders, the right to participate in the Rights Offering, or for non-Eligible Holders, Cash in the amount equal to the value of the First Lien Subscription Rights that would have been distributable to such Holder if such Holder was an Eligible First Lien Holder, in complete and final satisfaction of their Claims. Under the Plan, the Reorganized Claire’s Parent Interests and the First Lien Subscription Rights will be contributed to Claire’s Stores (the borrower under the First Lien Debt Secured Claims) either as a capital contribution or in exchange, in whole or in part, for an intercompany note issued by Claire’s Stores (as determined by the Debtors) and, immediately thereafter, distributed by or on behalf of Claire’s Stores to holders of First Lien Debt Secured Claims.

The U.S. federal income tax consequences of the Plan to a U.S. holder of the New First Lien Term Loan depends, in part, on whether Claire’s Stores is the issuer of the New First Lien Term Loan (which has not yet been determined), and if so, whether the First Lien Secured Claims and, possibly, the First Lien Subscription Rights constitute “securities” of Claire’s Stores for U.S. federal income tax purposes.

The term “security” is not defined in the Tax Code or in the Treasury regulations issued thereunder and has not been clearly defined by judicial decisions. The determination of whether a particular debt obligation constitutes a “security” depends on an overall evaluation of the nature of the debt, including whether the holder of such debt obligation is subject to a material level of entrepreneurial risk and whether a continuing proprietary interest is intended or not. One of the most significant factors considered in determining whether a particular debt obligation is a security is its original term. In general, debt obligations issued with a weighted-average maturity at issuance of less than five (5) years do not constitute securities, whereas debt obligations with a weighted-average maturity at issuance of ten (10) years or more constitute securities. In addition, a right to acquire stock and, presumably, a right to acquire a “security” generally can also be treated as a “security.” The New First Lien Term will have a 20-year maturity. Accordingly, in the event the First Lien Term Loan will be issued by Claire’s Stores, the First


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Lien Subscription Rights may constitute a “security” of Claire’s Stores as relates to the First Lien Term Loan. Holders of the First Lien Debt Secured Claims are urged to consult their own tax advisors regarding the appropriate status for U.S. federal income tax purposes of the First Lien Debt Secured Claims (which include debt obligations that have maturities of between 5 and 7 years) and the First Lien Subscription Rights are “securities” of Claire’s Stores for U.S. federal income tax purposes. See A.1.c—“Treatment of Subscription Rights,” below.

(a) Recapitalization Treatment

In the event that the First Lien Subscription Rights (as relates to the New First Lien Term Loans) and a holder’s First Lien Debt Secured Claim constitute a “security” of Claire’s Stores for U.S. federal income tax purposes, the holder’s receipt of the First Lien Subscription Rights should be treated as a “recapitalization” for U.S. federal income tax purposes. So treated, each holder of an Allowed First Lien Debt Secured Claim generally will not recognize any loss upon the exchange of its Claim, but will recognize gain (computed as described in the next section), if any, to the extent of any consideration received other than stock or securities of Claire’s Stores. Thus, a U.S. Holder that has a gain would recognize such gain to the extent of the fair market value of the Reorganized Claire’s Parent Interests received and possibly the portion of the value of the First Lien Subscription Rights allocable to the New Preferred Equity Interests. See B.3— “Character of Gain or Loss,” below. A U.S. Holder will also have interest income to the extent of any consideration allocable to accrued but unpaid interest not previously included in income (see B.4—“Distributions in Discharge of Accrued Interest or OID,” below).

In a recapitalization exchange, a U.S. Holder’s tax basis in the First Lien Subscription Rights as relates to New First Lien Term Loans should equal such U.S. holder’s adjusted tax basis in its First Lien Debt Secured Claim, increased by any gain or interest income recognized in the exchange, and decreased by the fair market value of the taxable consideration received. In general, the holder’s holding period for such portion of the First Lien Subscription Rights would include the holder’s holding period for its Claim, except to the extent that such rights were issued in respect of a Claim for accrued but unpaid interest. A U.S. holder would have a tax basis in the Reorganized Claire’s Parent Interests and possibly the portion of the First Lien Subscription Rights as relates to the New Preferred Equity Interests received equal to their fair market value. The holder’s holding period in the Reorganized Claire’s Parent Interests received should begin the day following the Effective Date.

(b) Taxable Exchange Treatment

In the event that First Lien Subscription Rights or a holder’s First Lien Debt Secured Claim do not constitute a “security” of Claire’s Stores for U.S. federal income tax purposes, a U.S. Holder of an Allowed First Lien Debt Secured Claim will recognize gain or loss in an amount equal to the difference, if any, between (i) the sum of the aggregate fair market value of Reorganized Claire’s Parent Interests and any First Lien Subscription Rights received and the amount of any cash received in satisfaction of its Claims (other than any consideration received in respect of a Claim for accrued but unpaid interest and possibly accrued OID, and (ii) the U.S. Holder’s adjusted tax basis in its Claims (other than any tax basis attributable to accrued but unpaid interest and possibly accrued OID). See B.3— “Character of Gain or Loss,” below. A U.S. Holder will have ordinary interest income to the extent of any consideration allocable to accrued


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but unpaid interest not previously included in income. See B.4— “Distributions in Discharge of Accrued Interest or OID,” below.

In this instance, a U.S. Holder of First Lien Debt Secured Claims will have a tax basis in Reorganized Claire’s Parent Interests and First Lien Subscription Rights received in satisfaction of its Claims equal to the fair market value of such interests and rights. The holder’s holding period in which the Reorganized Claire’s Parent Interests are received should begin the day following the Effective Date.

(c) First Lien Subscription Rights

The characterization of the First Lien Subscription Rights and their subsequent exercise for U.S. federal income tax purposes – as the exercise of options to acquire a portion of the New Money Investment (i.e., a portion of each of the New First Lien Term Loans and New Preferred Equity Interests, together with a commitment to lend under the Exit ABL Revolver Facility) or, alternatively, as an integrated transaction pursuant to which the New Money Investment is acquired directly in partial satisfaction of a holder’s Claim – is uncertain. The characterization of the First Lien Subscription Rights as the exercise of an option to acquire a portion of the New Money Investment or, alternatively, as an integrated transaction may impact, among other things, the amount of loss (if any) that a holder of First Lien Debt Secured Claims may recognize upon the satisfaction of its Claim and, assuming the exercise of such rights, a holder’s tax basis in the New First Lien Term Loan received. The discussion herein assumes that the First Lien Subscription Rights are respected as options to acquire the New Money Investment (including the discussion above regarding the calculation of gain or loss).

Regardless of the characterization of the First Lien Subscription Rights, a U.S. holder of First Lien Subscription Rights generally would not recognize any gain or loss upon the exercise of such First Lien Subscription Rights. A U.S. holder’s aggregate tax basis in the New First Lien Terms Loans and New Preferred Equity Interests received upon exercise of a First Lien Subscription Right should be equal to the sum of (i) the amount paid upon exercise of the First Lien Subscription Rights and (ii) the holder’s tax basis in either (a) the First Lien Subscription Rights, or (b) under an integrated transaction analysis, the New First Lien Term Loans and New Preferred Equity Interests treated as directly acquired in partial satisfaction of the holder’s First Lien Debt Secured Claim (which, in the case of recapitalization exchange, should be a carryover tax basis increased for any interest income or gain recognized, and in the case of taxable exchange, should be the portion of the “issue price” of the New First Lien Term Loans and the portion of the fair market value of the New Preferred Equity Interests treated as directly acquired in partial satisfaction of the holder’s First Lien Debt Secured Claim). For a discussion of issue price, see B.5—“New Money Investment,” below.

A U.S. holder’s holding period in the New First Lien Terms Loans and New Preferred Equity Interests received upon exercise of a First Lien Subscription Right generally should commence the day following the exercise of the right, unless the First Lien Subscription Right is disregarded and the holder is instead treated as directly receiving a portion of the New First Lien Term Loans and New Preferred Equity Interests in partial satisfaction of its First Lien Debt Secured Claim. In the latter event, if the receipt of the receipt of the New First Lien Term Loans was part of a “recapitalization” exchange for U.S. federal income tax purposes, the U.S. holder could have a


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holding period that includes its holding period in the First Lien Debt Secured Claim deemed exchanged directly for a portion of the New First Lien Term Loans. In addition, if either the First Lien Subscription Rights or, under an integrated transaction analysis, the New First Lien Term Loans are treated as received as part of a recapitalization, any gain recognized upon a subsequent disposition of the New First Lien Term Loans may be treated as ordinary income to the extent of any carryover of accrued market discount not previously included in income (see B.3— “Character of Gain or Loss,” below).

It is uncertain whether a U.S. Holder that receives but does not exercise a First Lien Subscription Right should be treated as receiving anything of additional value in respect of its Claim. If the U.S. Holder is treated as having received a First Lien Subscription Right of value (despite its subsequent lapse), such that it obtains a tax basis in the right, the U.S. Holder generally would recognize a loss to the extent of the U.S. Holder’s tax basis in the First Lien Subscription Right. In general, such loss would be a capital loss, long-term or short-term, depending upon whether the requisite holding period was satisfied (which in the case of a recapitalization exchange, even if the right goes unexercised, should include the holding period of the First Lien Debt Secured Claim exchanged therefor).

For a discussion of certain federal income tax consequences with respect to the ownership of the New First Lien Terms Loans and New Preferred Equity Interests, see B.5— “New Money Investment,” below.

(d) Disposition of Reorganized Claire’s Parent Interests

Unless a nonrecognition provision applies, and subject to the discussion below, a U.S. Holder generally will recognize capital gain or loss upon the sale or exchange of the Reorganized Claire’s Parent Interests in an amount equal to the difference between (i) the sum of the cash and the fair market value of any property received from such disposition and (ii) the U.S. Holder’s adjusted tax basis in the Reorganized Claire’s Parent Interests. Any such gain or loss generally should be long-term capital gain or loss if the U.S. Holder has held its Reorganized Claire’s Parent Interests for more than one year at that time. A reduced tax rate on long-term capital gain may apply in respect of Reorganized Claire’s Parent Interests held by non-corporate holders. The deductibility of capital losses is subject to significant limitations.

In general, any gain recognized by a U.S. Holder upon a disposition of the Reorganized Claire’s Parent Interests (or any equity interests or property received for such Reorganized Claire’s Parent Interests in a later tax-free exchange) received in exchange for its Claim will be treated as ordinary income for U.S. federal income tax purposes to the extent of (i) any ordinary loss deductions previously claimed as a result of the write-down of the Claim, decreased by any income (other than interest income) recognized by the U.S. Holder upon exchange of the Claim, and (ii) with respect to a cash-basis holder and in addition to clause (i) above, any amounts which would have been included in its gross income if the U.S. Holder’s Claim had been satisfied in full but which was not included by reason of the cash method of accounting.

For a discussion of the possibility that similar recapture treatment may apply to a subsequent disposition of New Preferred Equity Interests acquired pursuant to the First Lien Subscription Rights, see B.5.c—“New Money Investment – New Preferred Equity Interests,” below.


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2. Holders of Class 9 Unsecured Claims and Class 10 General Unsecured Elective Claims

(a) Gain or Loss

Pursuant to the Plan, each holder of an Allowed Class 9 Unsecured Claim or an Allowed Class 10 General Unsecured Elective Claim will receive its pro rata cash distribution from the Unsecured Recovery Cash Pool or the General Unsecured Elective Claim Recovery Cash Pool, as applicable, in full and final satisfaction, compromise, settlement, release, and discharge of their Claims.

In general, a U.S. Holder of an Allowed Class 9 Unsecured Claim or an Allowed Class 10 General Unsecured Elective Claim will recognize gain or loss in an amount equal to the difference, if any, between (i) the cash received in satisfaction of its Claims (other than any consideration received in respect of a Claim for accrued but unpaid interest and possibly accrued OID), and (ii) the U.S. Holder’s adjusted tax basis in its Claims (other than any tax basis attributable to accrued but unpaid interest and possibly accrued OID). See B.3— “Character of Gain or Loss,” below. A U.S. Holder will have ordinary interest income to the extent of any consideration allocable to accrued but unpaid interest not previously included in income. See B.4— “Distributions in Discharge of Accrued Interest or OID,” below.

In the event of the subsequent disallowance of any Disputed Class 9 Unsecured Claims or any Disputed Class 10 General Unsecured Elective Claims, a holder of a previously Allowed Claim may receive additional post-Effective Date distributions. Accordingly, it is possible that any loss, or a portion of any gain, realized by a U.S. Holder may be deferred until all Disputed Class 9 Unsecured Claims or Disputed Class 10 General Unsecured Elective Claims are Allowed or Disallowed. In addition, a holder may have imputed interest income with respect to such distribution. U.S. Holders are urged to consult their tax advisors regarding the possible application (and the ability to elect out) of the “installment method” of reporting any gain that may be recognized by such holders in respect of their Claims due to the receipt of cash in a taxable year subsequent to the taxable year in which the Effective Date occurs. The discussion herein assumes that the installment method does not apply.

(b) Tax Reporting for Assets Allocable to Disputed Claims

Pursuant to the Plan, all parties (including the Debtors, holders of Class 9 Unsecured Claims or Class 10 General Unsecured Elective Claims, and the Distribution Agent) will (i) treat the Unsecured Recovery Cash Pool and the General Unsecured Elective Claim Recovery Cash Pool as a “disputed ownership fund” for U.S. federal income tax purposes, and (ii) to the extent permitted by applicable law, report consistently with the foregoing for state and local income tax purposes. All taxes imposed on the assets or income of the Unsecured Recovery Cash Pool and the General Unsecured Elective Claim Recovery Cash Pool will be payable out of the assets of the Unsecured Recovery Cash Pool or the General Unsecured Elective Claim Recovery Cash Pool, as applicable.

A “disputed ownership” fund is a separate taxable entity subject to U.S. federal income tax. Accordingly, the Unsecured Recovery Cash Pool and the General Unsecured Elective Claim


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Recovery Cash Pool will be subject to tax annually on any net income earned with respect to its assets (including any gain recognized upon the disposition of such assets). All distributions from such assets (which distributions will be net of the expenses, including taxes, relating to the retention or disposition of such assets) will be treated as received by holders in respect of their Claims as if distributed by the Debtors. A disputed ownership fund that holds only passive assets is taxed as a qualified settlement fund, which is subject to an entity level tax at the maximum rate applicable to trusts and estates.

3. Character of Gain or Loss

Where gain or loss is recognized by a U.S. Holder, the character of such gain or loss as long-term or short-term capital gain or loss or as ordinary income or loss will be determined by a number of factors, including the tax status of the U.S. Holder, whether the Claim constitutes a capital asset in the hands of the U.S. Holder and how long it has been held, whether the Claim was acquired at a market discount, and whether and to what extent the U.S. Holder previously claimed a bad debt deduction.

A holder that purchased its Claims from a prior holder at a “market discount” (relative to the principal amount of the Claims at the time of acquisition) may be subject to the market discount rules of the Tax Code. A holder that purchased its Claim from a prior holder will be considered to have purchased such Claim with “market discount” if the holder’s adjusted tax basis in its Claim is less than the adjusted issue price of such Claim by at least a de minimis amount. Under these rules, gain recognized on the exchange of Claims (other than in respect of a Claim for accrued but unpaid interest) generally will be treated as ordinary income to the extent of the market discount accrued (on a straight line basis or, at the election of the holder, on a constant yield basis) during the holder’s period of ownership, unless the holder elected to include the market discount in income as it accrued. If a holder of Claims did not elect to include market discount in income as it accrued and, thus, under the market discount rules, was required to defer all or a portion of any deductions for interest on debt incurred or maintained to purchase or carry its Claims, such deferred amounts would become deductible at the time of the exchange.

In the case of an exchange of any First Lien Debt Secured Claims that qualifies as a recapitalization exchange, the Tax Code indicates that any accrued market discount in respect of such Claims should only be currently includable in income to the extent of any gain recognized in the recapitalization exchange. Any accrued market discount that is not included in income should be applied to any “securities” received in the exchange (such as potentially the First Lien Subscription Rights as relates to the New First Lien Term Loans, and assuming the exercise of such rights, the New First Lien Term Loans), such that any gain recognized by a U.S. Holder upon a subsequent disposition of such securities would be treated as ordinary income to the extent of any accrued market discount not previously included in income. To date, specific Treasury regulations implementing this rule have not been issued.

4. Distributions in Discharge of Accrued Interest or OID

In general, to the extent that any consideration received pursuant to the Plan by a U.S. Holder of a Claim is received in satisfaction of interest accrued during its holding period, such amount will be taxable to the U.S. Holder as interest income (if not previously included in the U.S. Holder’s


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gross income). Conversely, a U.S. Holder may be entitled to recognize a loss to the extent any accrued interest or amortized OID was previously included in its gross income and is not paid in full. However, the IRS has privately ruled that a holder of a “security” of a corporate issuer, in an otherwise tax-free exchange, could not claim a current deduction with respect to any unpaid OID. Accordingly, it is also unclear whether, by analogy, a U.S. Holder of a Claim that does not constitute a “security” would be required to recognize a capital loss, rather than an ordinary loss, with respect to previously included OID that is not paid in full.

The Plan provides that consideration received in respect of a Claim is generally allocable first to the principal amount of the Claim (as determined for U.S. federal income tax purposes) and then, to the extent of any excess, to any Claim for accrued but unpaid interest. There is no assurance that the IRS will respect such allocation for U.S. federal income tax purposes. Holders are urged to consult their tax advisors regarding the allocation of consideration received under the Plan, as well as the deductibility of accrued but unpaid interest (including OID) and the character of any loss claimed with respect to accrued but unpaid interest (including OID) previously included in gross income for U.S. federal income tax purposes.

5. New Money Investment

The New Money Investment is comprised of (i) the New First Lien Term Loan, (ii) the New Preferred Equity Interests and (iii) a commitment to loan under the Exit ABL Revolver Facility. As discussed above, pursuant to the Plan, holders of Class 7 First Lien Debt Secured Claims receiving First Lien Subscription Rights will be entitled to acquire a portion of the New Money Investment. The cash exercise price on the Effective Date will be allocated to the New First Lien Term Loan and the New Preferred Equity Interests in accordance with the New Money Backstop Commitment Agreement.

As discussed above, a U.S. Holder’s initial tax basis in the New First Lien Term Loans and the New Preferred Equity Interests acquired upon exercise of its First Lien Subscription Rights should equal the sum of (i) the portion of the holder’s tax basis in its First Lien Subscription Right allocable to such loans or equity interests, respectively, and (ii) the allocated portion of the cash exercise price.

The following discussion is based on the principal terms of the New First Lien Term Loan and New Preferred Equity Interests described in the Plan Term Sheet, unless otherwise indicated. To the extent the terms vary, and depending on any additional terms, the federal income tax treatment may differ from that described below.

(a) New First Lien Term Loan

The New First Lien Term Loan may be issued with OID for U.S. federal income tax purposes. The amount of OID, and the manner in which the New First Lien Term Loan will be treated under the OID provisions of the Tax Code, depends in part on whether the “issue price” of the New First Lien Term Loan is less than the face amount of such loans for OID purposes or, alternatively, whether the New First Lien Term Loan is treated a “contingent payment debt instrument” under applicable Treasury regulations (the “Contingent Payment Debt Regulations”).


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The method for determining the “issue price” of the New First Lien Term Loan for U.S. federal income tax purposes is uncertain. Under applicable Treasury regulations, if a substantial amount of the debt instruments in a debt offering is issued for cash, the issue price of each debt instrument is determined based on the cash price. Although not defined, a substantial amount of a debt offering could be ten percent or more of the offering. If a substantial amount is not issued for cash but the debt instruments are traded on an “established market,” the issue price of each debt instrument will be its fair market value at issuance. For this purpose, an “established market” need not be a formal market. In general, a debt will be treated as traded on an established market if (i) there is an executed purchase or sale of the debt within the 31-day period ending 15 days after the Effective Date and the price becomes reasonably available to the issuer within a reasonable period after the sale or (ii) there is one or more “firm quotes” or “indicative quotes” for the debt (in each case as such terms are defined in applicable Treasury regulations) from a broker, dealer or pricing service. In the present case, half of the New First Term Loan will be offered pursuant to the First Lien Subscription Rights and Shareholder Subscription Rights and will be received in partial satisfaction of the First Lien Debt Secured Claims and Existing Claire’s Parent Equity Interests, with the remainder acquired for cash by the Backstop Parties pursuant to the terms of the New Money Backstop Agreement. Accordingly, it is possible that the cash price paid by the Backstop Parties may determine the issue price of the New First Lien Term Loan. Alternatively, in the event that such price is not determinative, the Debtors expect that the issue price of the New First Lien Term Loan would be its fair market value at issuance.

(i) Contingent Payment Debt Instrument Treatment

It is possible that the New First Lien Term Loan will be treated as a contingent payment debt obligation for U.S. federal income tax purposes. Depending on the likelihood at issuance that the make-whole premium will be triggered upon a change in control or other event, the New First Lien Term Loan may be considered a contingent payment debt obligation. Holders are urged to consult their tax advisors regarding the application of the Contingent Payment Debt Regulations to the New First Lien Term Loan.

The taxation of contingent payment debt instruments is complex. In general, the rules applicable to such instruments could require a holder to accrue ordinary income at a higher rate than the stated interest rate and the rate that would otherwise be imputed under the OID rules, and to treat as ordinary income (rather than capital gain) any gain recognized on the taxable disposition of the New First Lien Term Loan.

If the New First Lien Term Loan is treated as a contingent payment debt instrument, the Debtors must construct a “projected payment schedule.” Holders of a contingent payment debt instrument generally must recognize all interest income with respect to such debt (including stated interest) on a constant yield basis (regardless of their method of accounting) at a rate determined based on the “issue price” and the projected payment schedule for such debt, subject to certain adjustments if actual contingent payments differ from those projected. In the present case, the projected payment schedule generally will be determined by including each noncontingent payment and the “expected value” as of the issue date of each projected contingent payment of principal and interest on the New First Lien Term Loan, adjusted as necessary so that the projected payments discounted at the “comparable yield” (which is the


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greater of the yield at which the debtor would issue a fixed-rate debt instrument with terms and conditions similar to those of the New First Lien Term Loan, as applicable, or the applicable federal rate) equals the issue price for the loan.

The amount of interest that is treated as accruing during an accrual period on a contingent payment debt instrument is the product of the “comparable yield” and the debt’s adjusted issue price at the beginning of such accrual period. The “adjusted issue price” of a contingent payment debt instrument is the issue price of such debt increased by interest previously accrued on such debt (determined without adjustments for differences between the projected payment schedule and the actual payments on such debt), and decreased by the amount of any noncontingent payments (in the present case, all payments would effectively be contingent as to either timing or amount) and the projected amount of any contingent payments previously made on such debt.

Except for adjustments made for differences between actual and projected payments, the amount of interest included in income by a holder of a contingent payment debt instrument is the portion that accrues while such holder holds such debt (with the amount attributable to each accrual period allocated ratably to each day in such period). If actual payments differ from projected payments, then the holder generally will be required in any given taxable year either to include additional interest in gross income (i.e., where the actual payments exceed projected payments in such taxable year) or to reduce the amount of interest income otherwise accounted for on the debt (i.e., where the actual payments are less than the projected payments in such taxable year), as applicable. If the negative adjustment exceeds the interest for the taxable year that otherwise would have been accounted for on the debt, the excess will be treated as ordinary loss. However, the amount treated as an ordinary loss in any taxable year is limited to the amount by which the holder’s total interest inclusions on the debt exceed the total amount of the net negative adjustments the holder treated as ordinary loss on such debt in prior taxable years. Any remaining excess will be a negative adjustment carryforward and may be used to offset interest income in succeeding years. If debt is sold, exchanged or retired, any negative adjustment carryforward from the prior year will reduce the holder’s amount realized on the sale, exchange or retirement.

The yield, timing and amounts set forth on the projected payment schedules are for U.S. federal income tax purposes only and are not assurances by the Debtors with respect to any aspect of the contingent payment debt instrument. After issuance, any holder of the debt may obtain the comparable yield, the projected payment schedule, the issue price, the amount of OID, and the issue date for the debt by writing to the Debtors. For U.S. federal income tax purposes, a holder generally must use the Debtor’s comparable yield and projected payment schedule for a contingent payment debt instrument in determining the amount and accrual of OID on such debt unless such schedule is unreasonable and the holder explicitly discloses in accordance with the Contingent Payment Debt Regulations its differing position and why the Debtor’s schedule is unreasonable. The IRS generally is bound by the Debtor’s comparable yield and projected payment schedule unless either is unreasonable.

Unless a non-recognition provision applies, a holder generally will recognize gain or loss upon the sale, redemption (including at maturity) or other taxable disposition of a contingent payment debt instrument equal to the difference, if any, between such holder’s adjusted tax basis in such


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debt and the amount realized on the sale, redemption or other disposition (with any negative adjustment carryforward from the prior year reducing such holder’s amount realized).

Under the Contingent Payment Debt Regulations, any gain recognized on a sale, redemption or other taxable disposition of a contingent payment debt instrument generally will be ordinary interest income, and any loss will be an ordinary loss to the extent a holder’s total interest inclusions on such debt exceed the total amount of ordinary loss such holder took into account through the date of the disposition with respect to differences between actual payments and projected payments (and any additional loss generally will be capital loss).

For purposes of computing gain or loss, a holder’s adjusted tax basis in a contingent payment debt instrument generally will equal the holder’s initial tax basis in such loan, increased by the amount of any interest previously accrued on such debt (determined without adjustments for differences between the projected payment schedule and the actual payments on such loan) up through the date of the sale, redemption or taxable disposition, and decreased by the amount of any noncontingent payments and the projected amount of any contingent payments previously made on such debt.

(ii) Noncontingent Debt Payment Instrument Treatment

In the event that the New First Lien Term Loan is not treated as a contingent payment debt instrument, the amount of OID, if any, will be equal to the excess of the “stated redemption price at maturity” of the loan over its “issue price.” For this purpose, the general rule is that the stated redemption price at maturity of a debt instrument is the sum of all payments provided by the debt instrument other than payments of “qualified stated interest,” i.e., stated interest that is unconditionally payable at least annually at a constant rate in cash or property (other than debt of the issuer).

A holder of the New First Lien Term Loan generally must include any OID in gross income as it accrues over the term of the loan in accordance with a constant yield-to-maturity method, regardless of whether the holder is a cash or accrual method taxpayer, and regardless of whether and when the holder receives cash payments of interest on the New First Lien Term Loan.

Accordingly, a holder could be treated as receiving interest income in advance of a corresponding receipt of cash. Any OID that a holder includes in income will increase the tax basis of the holder in the New First Lien Term Loan. A holder generally will not be required to include separately in income cash payments received on the New First Lien Term Loan; instead, except as discussed below, such payments will reduce the holder’s tax basis in its Exit Term Loa by the amount of the payment. The amount of OID includible in income for a taxable year by a holder of the New First Lien Term Loans generally will equal the sum of the “daily portions” of the total OID on the loan for each day during the taxable year (or portion thereof) on which such holder held the loan. Generally, the daily portion of the OID is determined by allocating to each day during an accrual period a ratable portion of the OID on such New First Lien Term Loan that is allocable to the accrual period in which such day is included. The amount of OID allocable to each accrual period generally will be an amount equal to the product of the “adjusted issue price” of the New First Lien Term Loan at the beginning of such accrual period and its yield to maturity. The “adjusted issue price” of the New First Lien Term Loan at the beginning of any


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accrual period will equal the issue price, increased by the total OID accrued for each prior accrual period, less any cash payments made on such bond on or before the first day of the accrual period.

In the event that the New First Lien Term Loan is not treated as a contingent payment debt instrument, the amount of OID includible in a holder’s gross income with respect to the New First Lien Term Loan will be reduced or eliminated if the loan is acquired (or deemed to be acquired) at a “premium.” A debt instrument is acquired at a “premium” if the holder’s tax basis in the debt is greater than the adjusted issue price of the debt at the time of the acquisition.

If a holder acquires any New First Lien Term Loan at a premium, the amount of any OID includible in its gross income in any taxable year with respect to the loans (other than any contingent term loans) will be (i) eliminated if the holder’s tax basis in the loan exceeds their stated redemption price at maturity, or (ii) reduced by an allocable portion of the premium (generally determined by multiplying the annual OID accrual with respect to the New First Lien Term Loan by a fraction, the numerator of which is the amount of the premium, and the denominator of which is the total OID). Alternatively, in the second case, if a holder is willing to treat all stated interest as OID (including qualified stated interest), such holder may elect to recompute the OID accruals by treating its acquisition as a purchase at original issue and applying the constant yield method. Such an election may not be revoked without the consent of the IRS. In the event the New First Lien Term Loan has qualified stated interest, and a holder’s premium exceeds the amount of OID, the holder should be entitled to deduct a portion of such excess premium against the qualified stated interest based on a constant yield method (but not in excess of the qualified stated interest then accrued). Any excess premium that has not been allowed due to the limitation to accrued qualified stated interest should be allowed as a deduction as of the end of the holder’s accrual period in which the New First Lien Term Loan is sold, retired or otherwise disposed of.

Holders generally will recognize capital gain or loss upon the sale, redemption (including at maturity) or other taxable disposition of the New First Lien Term Loan in the event that New First Lien Term Loan is not a contingent payment debt instrument equal to the difference, if any, between such holder’s adjusted tax basis in such loan and the amount realized on the sale, exchange or redemption. Generally, a holder’s adjusted tax basis will be equal to its initial tax basis in such loan increased by any OID previously included in income, and reduced by cash payments received on such loan other than payments of qualified stated interest. If applicable, a holder’s adjusted tax basis in the loan also will be reduced by any amortizable premium which the holder has previously deducted or which is deductible in the current period. Gain or loss recognized on the sale or other taxable disposition of the portion of the New First Lien Term Loan will generally be long-term capital gain or loss if, at the time of sale or other taxable disposition, the portion of the New First Lien Term Loan is treated as held for more than one year. Long term capital gains recognized by non-corporate taxpayers are subject to reduced tax rates. The deductibility of capital losses is subject to significant limitations.

(iii) Potential Application of AHYDO Provisions

The New First Lien Term Loan may be subject to the provisions of the Tax Code dealing with “applicable high yield discount obligations,” as discussed in A.2 “—Consequences to the


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Debtors —Potential Application of AHYDO Provisions,” above, in which event a portion of the Debtors’ deduction with respect to accrued OID may be disallowed. In such instance, an equivalent portion of a corporate holder’s income with respect to any disallowed OID may be treated as a dividend for purposes of the dividend-received deduction to the extent such amount would be so treated if it had been a distribution made by the issuer with respect to its stock (that is, to the extent the issuer has sufficient earnings and profits such that a distribution in respect of its stock would constitute a dividend for federal income tax purposes and, presumably, subject to certain holding period and taxable income requirements and other limitations on the dividend-received deduction).

(iv) Recent Legislation

Pursuant to recent legislation, for taxable years beginning after December 31, 2017 (and for taxable years beginning after 2018 in the case of OID), an accrual method taxpayer that reports revenues on an applicable financial statement generally must recognize income for U.S. federal income tax purposes no later than the taxable year in which such income is taken into account as revenue in the applicable financial statement. It is unclear how this rule applies to holders of debt instruments issued with OID, including whether it would apply to alter the accrual and inclusion of OID described above. Accordingly, this rule could potentially require such a taxpayer to recognize income for U.S. federal income tax purposes with respect to the New First Lien Term Loan prior to the time such income would otherwise have been recognized. Each holder is urged to consult its tax advisor regarding the possible application of the recent legislation to the New First Lien Term Loan.

(b) New Preferred Equity Interests

(i) Distributions

Cash distributions with respect to the New Preferred Equity Interests generally will be treated as taxable dividends to the extent paid out of the Reorganized Claire’s Parent current or accumulated earnings and profits as determined under U.S. federal income tax principles (“earnings and profits”), and will be includible as ordinary income by the holder when received. To the extent the amount of any distribution exceeds available earnings and profits with respect to such distribution, the excess will be applied against and will reduce the holder’s adjusted tax basis (on a dollar-for-dollar basis) in respect of the stock as to which the distribution was made, but not below zero. Any remaining excess will be treated as gain from the sale or exchange of such stock, with the consequences discussed below (see B.5.b.iv—“Disposition of New Preferred Equity Interests”).

Under section 305 of the Tax Code, in certain circumstances, stock distributions are taxed in the manner described in the foregoing paragraph. However, based on the currently contemplated terms of the New Preferred Equity Interests and capital structure of the Reorganized Debtors, the Debtors intend to take the position that distributions with respect to the New Preferred Equity Interests that are paid in the form of Reorganized Claire’s Parent Interests will not be treated as taxable dividends under section 305 of the Tax Code and, consequently, such distributions would not be subject to withholding. There is no assurance, however, that the IRS will not successfully take a contrary position. To the extent that Reorganized Claire’s Parent is required to withhold


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taxes on any distribution with respect to the New Preferred Equity Interests, it is currently envisioned that the amount actually distributed or accrued will be reduced by the required withholding amount.

Dividends are generally taxed as ordinary income; however, dividends received by non-corporate holders may qualify for taxation at lower rates applicable to long-term capital gains, provided certain holding period and other requirements are satisfied. The length of time that a shareholder has held stock is reduced for any period during which the shareholder’s risk of loss with respect to the stock is diminished by reason of the existence of certain options, contracts to sell, short sales or similar transactions. Non-corporate holders should consult their own tax advisors regarding the applicability of such lower rates under their particular factual situation.

In general, a distribution to a corporate shareholder that is treated as a dividend for U.S. federal income tax purposes will qualify for the 50% dividends received deduction that is available to corporate shareholders that own less than 20% of the voting power or value of the outstanding stock of the distributing corporation (other than certain preferred stock not applicable here). A corporate shareholder holding 20% or more of the distributing corporation (by vote and value) may be eligible for a 65% dividends received deduction. No assurance can be given that the Debtors will have sufficient earnings and profits (as determined for U.S. federal income tax purposes) to cause distributions to be treated as dividends and thus eligible for a dividends received deduction.

The dividends received deduction is only available if certain holding period and taxable income requirements are satisfied. The length of time that a shareholder has held stock is reduced for any period during which the shareholder’s risk of loss with respect to the stock is diminished by reason of the existence of certain options, contracts to sell, short sales or similar transactions. In addition, to the extent that a corporation incurs indebtedness that is directly attributable to an investment in the stock on which the dividend is paid, all or a portion of the dividends received deduction may be disallowed. Finally, the tax consequences of the receipt of a dividend by a corporate shareholder may be different if the dividend is treated as an “extraordinary dividend” under applicable rules.

(ii) Constructive Distributions

As discussed above (see discussion at B.5.b.i, above), under section 305 of the Tax Code, certain transactions that affect a shareholder’s proportionate interest in the corporation’s assets are treated as creating deemed distributions on stock, which distributions may be taxed as dividends, despite the absence of any actual payment of cash (or property) to the holder of such stock.

Significantly, unless the New Preferred Equity Interests is considered “participating stock”—stock that participates in corporate growth to any significant extent (disregarding conversion privileges)—a holder of New Preferred Equity Interests may be treated as receiving constructive distributions if the excess of the stock’s “redemption price” over the stock's “issue price” is more than a de minimis amount— so-called “Preferred OID.”

It is contemplated that the New Preferred Equity Interests will have the right to participate in any liquidation proceeds at the greater of its liquidation preference or on an as-if converted into


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Reorganized Claire’s Parent Interests basis. It is also contemplated that the New Preferred Equity Interests will participate in any dividends on the Reorganized Claire’s Parent Interests. Accordingly, the Debtors currently intend to treat the New Preferred Equity Interests as participating preferred stock for purposes of section 305 of the Tax Code. There is no assurance, however, that the IRS will not successfully take a contrary position. Moreover, if the actual terms of the New Preferred Equity Interests differ from the contemplated terms, the treatment may differ from that described herein. In general, each holder is bound by Reorganized Claire’s Parent determination as to whether there is a constructive distribution due to Preferred OID, unless the holder explicitly discloses that it is taking a contrary position in a statement attached to its timely filed tax return for the taxable year in which it acquires the stock. U.S. Holders should consult their tax advisors as to the tax consequences of holding New Preferred Equity Interests and of the possibility that the holder will be treated as receiving constructive dividends with respect to such stock.

(iii) Conversion into Reorganized Claire’s Parent Interests

A U.S. Holder generally will not recognize any gain or loss in respect of the receipt of Reorganized Claire’s Parent Interests upon the conversion of the New Preferred Equity Interests, except in respect of (i) any cash paid to such holder in lieu of fractional shares and (ii) potentially any Reorganized Claire’s Parent Interests received attributable to any unpaid dividends. The adjusted tax basis of the Reorganized Claire’s Parent Interests received on conversion will (except with respect to any unpaid dividends taxable upon conversion) equal the adjusted tax basis of the New Preferred Equity Interests converted less the portion of the holder’s tax basis allocable to any fractional share, and the holding period of such Reorganized Claire’s Parent Interests received on conversion will (except with respect to any unpaid dividends taxable upon conversion) generally include the period during which the converted New Preferred Equity Interests was held prior to conversion.

(iv) Disposition of New Preferred Equity Interests

Unless a nonrecognition provision applies, and subject to the discussion below, a U.S. Holder generally will recognize capital gain or loss upon the sale or exchange of the New Preferred Equity Interests in an amount equal to the difference between (i) the sum of the cash and the fair market value of any property received from such disposition and (ii) the U.S. Holder’s adjusted tax basis in the New Preferred Equity Interests. Any such gain or loss generally should be long-term capital gain or loss if the U.S. Holder has held its Reorganized Claire’s Parent Interests for more than one year at that time. A reduced tax rate on long-term capital gain may apply in respect of Reorganized Claire’s Parent Interests held by non-corporate holders. The deductibility of capital losses is subject to significant limitations.

Similar to the treatment of the disposition of Reorganized Claire’s Parent Interests discussed above (see discussion at B.1.d, above), it is possible that all or part of any gain recognized by a U.S. Holder upon a disposition of the New Preferred Equity Interests (or any stock or property received for such New Preferred Equity Interests in a later tax-free exchange or upon conversion) will be treated as ordinary income for U.S. federal income tax purposes to the extent of (i) any ordinary loss deductions previously claimed as a result of the write-down of the Claim, decreased by any income (other than interest income) recognized by the U.S. Holder upon


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exchange of the Claim, and (ii) with respect to a cash-basis holder and in addition to clause (i) above, any amounts which would have been included in its gross income if the U.S. Holder’s Claim had been satisfied in full but which was not included by reason of the cash method of accounting. Even if, as assumed herein, the First Lien Subscription Rights generally are respected as options to acquire the New Money Investment, there is no assurance that the IRS would not assert a contrary position in respect of certain provisions of the Tax Code.

(c) Exit ABL Revolver Facility

Stated interest paid on the Exit ABL Revolver Facility will be taxable to a U.S. Holder as ordinary interest income at the time it accrues or is received, in accordance with the U.S. Holder’s method of accounting for U.S. federal income tax purposes.

If the principal amount of a loan under the Exit ABL Revolver Facility exceeds its “issue price” by more than a de minimis amount, the loan will be considered to have been issued with OID for U.S. federal income tax purposes in the amount of such excess. In such event, a U.S. Holder will be required to include the OID in income for U.S. federal income tax purposes as it accrues, regardless of the U.S. Holder’s regular method of accounting, in accordance with a constant-yield method, before the receipt of cash payments attributable to this income. Under this method, a U.S. Holder generally will be required to include in income increasingly greater amounts of OID in successive accrual periods. The Debtors anticipate that the “issue price” of any loans under the Exit ABL Revolver Facility will be based on the cash amount loaned.

Holders generally will recognize capital gain or loss upon the sale, redemption (including at maturity) or other taxable disposition of any loan under the Exit ABL Revolver Facility equal to the difference, if any, between such holder’s adjusted tax basis in such loan and the amount realized on the sale, exchange or redemption (subject to market discount rules, if applicable). Generally, a holder’s adjusted tax basis will be equal to its initial tax basis in such loan increased by any OID previously included in income, and reduced by cash payments received on such loan other than payments of qualified stated interest. Gain or loss recognized on the sale or other taxable disposition of any loan under the Exit ABL Revolver Facility generally will be long-term capital gain or loss if, at the time of sale or other taxable disposition, such loan is treated as held for more than one year. Long term capital gains recognized by non-corporate taxpayers are subject to reduced tax rates. The deductibility of capital losses is subject to significant limitations.

6. Information Reporting and Backup Withholding

Payments of interest (including accruals of OID) or dividends and any other reportable payments, possibly including amounts received pursuant to the Plan and payments of proceeds from the sale, retirement or other disposition of the exchange consideration, may be subject to “backup withholding” if a recipient of those payments fails to furnish to the payor certain identifying information and, in some cases, a certification that the recipient is not subject to backup withholding. Backup withholding is not an additional tax. Any amounts deducted and withheld generally should be allowed as a refund or credit against that recipient’s U.S. federal income tax, provided that appropriate proof is timely provided under rules established by the IRS. Furthermore, certain penalties may be imposed by the IRS on a recipient of payments who


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is required to supply information but who does not do so in the proper manner. Backup withholding generally should not apply with respect to payments made to certain exempt recipients, such as corporations and financial institutions. Information may also be required to be provided to the IRS concerning payments, unless an exemption applies. Holders of Claims should consult their tax advisors regarding their qualification for exemption from backup withholding and information reporting and the procedures for obtaining such an exemption.

U.S. Treasury regulations generally require disclosure by a taxpayer on its U.S. federal income tax return of certain types of transactions in which the taxpayer participated, including, among other types of transactions, certain transactions that result in the taxpayer’s claiming a loss in excess of certain thresholds. U.S. Holders of Claims should consult their tax advisors regarding these regulations and whether the contemplated transactions under the Plan would be subject to these regulations and require disclosure on their tax returns.

The foregoing summary has been provided for informational purposes only and does not discuss all aspects of U.S. federal income taxation that may be relevant to a particular holder’s circumstances and income tax situation. All holders of Claims and Interests are urged to consult their tax advisors concerning the federal, state, local, and other tax consequences applicable under the Plan.

VIII. VOTING PROCEDURES AND REQUIREMENTS

Before voting to accept or reject the Plan, each holder of a Claim or Interests entitled to vote (each, a “Voting Creditor”) should carefully review the Plan attached hereto as Exhibit A. All descriptions of the Plan set forth in this Disclosure Statement are subject to the terms and provisions of the Plan.

A. Voting Deadline

All Voting Creditors have been sent a Ballot together with this Disclosure Statement. Such holders should read the Ballot carefully and follow the instructions contained therein. Please use only the Ballot that accompanies this Disclosure Statement to cast your vote. Special procedures are set forth below for the beneficial holders of securities (“Beneficial Holders”) who hold such securities in “street name” through a broker, dealer, commercial bank, trust company, or other agent or nominee (“Nominee”).

The Debtors have engaged Prime Clerk LLC as their voting agent (the “Voting Agent”) to assist in the transmission of voting materials and in the tabulation of votes with respect to the Plan. FOR YOUR VOTE TO BE COUNTED, YOUR VOTE MUST BE RECEIVED BY THE VOTING AGENT AT THE ADDRESS SET FORTH BELOW ON OR BEFORE THE VOTING DEADLINE OF 5:00 P.M. (EASTERN TIME) ON AUGUST 31, 2018, UNLESS EXTENDED BY THE DEBTORS.

A BENEFICIAL HOLDER OF THE 6.125% FIRST LIEN NOTES, THE 9.00% FIRST LIEN NOTES, THE SECOND LIEN NOTES, OR THE UNSECURED NOTES HOLDING SUCH


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NOTES IN “STREET NAME” THROUGH A NOMINEE MAY VOTE AS FURTHER DESCRIBED BELOW.

IF IT IS A NOMINEE’S CUSTOMARY AND ACCEPTED PRACTICE TO COLLECT VOTES FROM BENEFICIAL HOLDERS BY VOTER INFORMATION FORM (“VIF”), E-MAIL, TELEPHONE, OR OTHER CUSTOMARY MEANS OF COMMUNICATION, THE NOMINEE MAY EMPLOY THAT METHOD OF COMMUNICATION IN LIEU OF COLLECTING PAPER BENEFICIAL HOLDER BALLOTS.

IF YOU MUST RETURN YOUR BALLOT (OR OTHERWISE CONVEY YOUR VOTE) TO YOUR NOMINEE, YOU MUST RETURN YOUR BALLOT (OR OTHER CUSTOMARY COMMUNICATION) TO YOUR NOMINEE IN SUFFICIENT TIME FOR YOUR NOMINEE TO PROCESS YOUR VOTE AND RETURN A MASTER BALLOT INCORPORATING YOUR VOTE TO THE VOTING AGENT BEFORE THE VOTING DEADLINE.

IF A BALLOT IS DAMAGED OR LOST, YOU MAY CONTACT THE VOTING AGENT AT THE NUMBER SET FORTH BELOW TO RECEIVE A REPLACEMENT BALLOT. ANY BALLOT THAT IS EXECUTED AND RETURNED BUT WHICH DOES NOT INDICATE AN ACCEPTANCE OR REJECTION OF THE PLAN WILL NOT BE COUNTED.

IF YOU HAVE ANY QUESTIONS CONCERNING VOTING PROCEDURES, YOU MAY CONTACT THE VOTING AGENT AT:

Claire’s Stores Ballot Processing c/o Prime Clerk LLC

830 Third Avenue, 3rd Floor New York, New York 10022

Telephone: 1-844-276-3027 (domestic toll-free) or 1-917-962-8890 (international)

E-mail: [email protected] with “ Claire’s” in the subject line

Additional copies of this Disclosure Statement are available upon request made to the Voting Agent, at the telephone numbers or e-mail address set forth immediately above.

B. Voting Procedures

The Debtors are providing copies of this Disclosure Statement (including all exhibits and appendices) and related materials and a Ballot (collectively, a “Solicitation Package”) to Voting Creditors. Record holders of certain Claims may include Nominees. If such Nominees do not hold Claims for their own account, they must provide copies of the Solicitation Package to their customers that are the Voting Creditors thereof as of the Record Date. If it is a Nominee’s customary and accepted practice to forward the solicitation information to Beneficial Holders by e-mail, telephone, or other customary means of communication, the Nominee may employ that method of communication in lieu of sending the paper Beneficial Ballot and/or Solicitation Package. Any Voting Creditor that is a Beneficial Holder and has not received a Ballot should contact its Nominee. Any Eligible Holder that is not a Beneficial Holder and has not received a Ballot should contact the Voting Agent.


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Voting Creditors should provide all of the information requested by the Ballot and return all Ballots received in the enclosed, self-addressed, postage-paid envelope provided with each such Ballot either to the Voting Agent or their Nominee, as applicable.

In addition to accepting hard-copy Ballots, the Debtors seek authorization to accept Ballots (from voting parties that are not required to vote through a Nominee) via electronic, online transmissions, solely through a customized online balloting portal on the Debtors’ case website to be maintained by the Voting Agent (the “E-Ballot Portal”). The encrypted ballot data and audit trail created by such electronic submission through the E-Ballot Portal shall become part of the record of any Ballot submitted in this manner, and the Voting Creditor’s electronic signature will be deemed to be immediately legally valid and effective.

The Record Date for determining which holders are entitled to vote on the Plan is July 17, 2018. The applicable administrative agent or indenture trustee under any debt documents will not vote on behalf of its respective holders. Such holders must submit their own Ballot.

C. Parties Entitled to Vote

Under the Bankruptcy Code, only holders of Claims or Interests in “impaired” classes are entitled to vote on the Plan. Under section 1124 of the Bankruptcy Code, a class of Claims or Interests is “impaired” under the Plan unless (1) the Plan leaves unaltered the legal, equitable, and contractual rights to which such Claim or Interest entitles the holder thereof or (2) notwithstanding any legal right to an accelerated payment of such Claim or Interest, the Plan cures all existing defaults (other than defaults resulting from the occurrence of events of bankruptcy) and reinstates the maturity of such claim or interest as it existed before the default.

If, however, the holder of an impaired Claim or Interest will not receive or retain any distribution under the Plan on account of such Claim or Interest, the Bankruptcy Code deems such holder to have rejected the plan, and, accordingly, holders of such Claims and Interests do not actually vote on the Plan and will not receive a Ballot. If a Claim or Interest is not impaired by the Plan, the Bankruptcy Code presumes the holder of such Claim or Interest to have accepted the Plan and, accordingly, holders of such Claims and Interests are not entitled to vote on the Plan, and also will not receive a Ballot.

A vote may be disregarded if the Bankruptcy Court determines, pursuant to section 1126(e) of the Bankruptcy Code, that it was not solicited or procured in good faith or in accordance with the provisions of the Bankruptcy Code.

The Bankruptcy Code defines “acceptance” of a plan by a class of (i) Claims as acceptance by creditors in that class that hold at least two-thirds (2/3) in dollar amount and more than one-half (1/2) in number of the Claims that cast ballots for acceptance or rejection of the Plan and (ii) Interests as acceptance by interest holders in that class that hold at least two-thirds (2/3) in amount of the Interests that cast ballots for acceptance or rejection of the Plan.

The Claims in the following classes are impaired under the Plan and entitled to vote to accept or reject the Plan:


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Class 7 – First Lien Debt Secured Claims Against All Debtors Other than Claire’s Parent

Class 9 – Unsecured Claims Against All Debtors Other than Claire’s Parent

Class 10 – General Unsecured Elective Claims Against All Debtors Other than Claire’s Parent

Class 14 – Existing Claire’s Parent Equity Interests

1. Voting Creditors (Who Are Not Beneficial Holders)

A Voting Creditor that holds a Claim as a record holder in its own name should vote on the Plan by completing and signing a Ballot and returning it directly to the Voting Agent on or before the Voting Deadline (i) using the enclosed pre-addressed, postage-paid return envelope or (ii) via the E-Ballot Portal. The Voting Agent will not accept Ballots submitted by e-mail or facsimile; provided, however, that the Voting Agent will accept Master Ballots submitted by Nominees by e-mail.

2. Beneficial Holders

A Voting Creditor holding a Claim as a Beneficial Holder in “street name” through a Nominee may vote on the Plan by one of the following two methods (as selected by such Beneficial Holder’s Nominee):

Complete and sign a Ballot for use by a Beneficial Holder to convey its vote to its Nominee (each, a “Beneficial Ballot”). Return the Beneficial Ballot to your Nominee as promptly as possible and in sufficient time to allow such Nominee to process your instructions and return a completed “master” Ballot (each, a “Master Ballot”) to the Voting Agent by the Voting Deadline; or

Complete and sign the pre-validated Beneficial Ballot (as described below) provided to you by your Nominee. Return the pre-validated Beneficial Ballot to the Voting Agent by the Voting Deadline using the return envelope provided in the Solicitation Package.

If it is a Nominee’s customary and accepted practice to forward the solicitation information to (and collect votes from) Beneficial Holders by e-mail, telephone, or other customary means of communication, the Nominee may employ that method of communication in lieu of sending the paper Beneficial Ballot and/or Solicitation Package.

Any Beneficial Ballot returned to a Nominee by a Voting Creditor will not be counted for purposes of acceptance or rejection of the Plan until such Nominee properly completes and delivers to the Voting Agent that Beneficial Ballot (properly validated) or a Master Ballot casting the vote of such Voting Creditor.

If a Beneficial Holder holds Claims in Class 7 or Class 9 through more than one Nominee or through multiple accounts, such Beneficial Holder may receive more than one Beneficial Ballot and each such Beneficial Holder should execute a separate Beneficial Ballot for each block of Claims in Class 7 or Class 9 that it holds through any Nominee and must return each such Beneficial Ballot to the appropriate Nominee. Votes cast by Beneficial Holders through


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Nominees will be applied to the applicable positions held by such Nominees, as of the Voting Record Date, as evidenced by the applicable securities position report(s) obtained from DTC. Votes submitted by a Nominee pursuant to a Master Ballot will not be counted in excess of the amount of such Claims held by such Nominee as of the Voting Record Date.

If a Holder is registered directly with the applicable indenture trustee, the voting amounts of those Claims shall be the amounts set forth on the books and records of the applicable indenture trustee as of the Voting Record Date.

3. Nominees

A Nominee that, on the Record Date, is the record holder of Claims for one or more Voting Creditors can obtain and/or convey the votes of the Beneficial Holders of such Claims, consistent with customary practices for obtaining the votes of securities held in “street name,” in one of the following two ways:

(a) Pre-Validated Ballots

The Nominee may “pre-validate” a Beneficial Ballot by (i) signing the Beneficial Ballot; (ii) indicating on the Beneficial Ballot the amount and the account number of the Claims held by the Nominee for the Beneficial Holder; and (iii) forwarding such Beneficial Ballot, together with the Disclosure Statement, a pre-addressed, postage-paid return envelope addressed to, and provided by, Prime Clerk, and other materials requested to be forwarded, to the Beneficial Holder for voting. The Beneficial Holder must then complete the information requested in the Beneficial Ballot, and return the Beneficial Ballot directly to Prime Clerk in the pre-addressed, postage-paid return envelope so that it is RECEIVED by Prime Clerk on or before the Voting Deadline. A list of the Beneficial Holders to whom “pre-validated” Beneficial Ballots were delivered should be maintained by Nominees for inspection for at least one (1) year from the Voting Deadline.

(b) Master Ballots

If the Nominee elects not to pre-validate Beneficial Ballots, the Nominee may obtain the votes of Beneficial Holders by forwarding to the Beneficial Holders the unsigned Beneficial Ballots, VIF, e-mail, or other customary method of collecting votes from a Beneficial Holder, together with the Disclosure Statement, a pre-addressed, postage-paid return envelope provided by, and addressed to, the Nominee, and other materials requested to be forwarded. Each such Beneficial Holder must then indicate his, her, or its vote on the Beneficial Ballot, complete the information requested on the Beneficial Ballot, review the certifications contained on the Beneficial Ballot, execute the Beneficial Ballot, and return the Beneficial Ballot to the Nominee. If it is accepted practice for a Nominee to collect votes via e-mail, telephone, or other customary method of communication, the Beneficial Holder shall follow the Nominee’s instruction for completing and submitting its votes to the Nominee. After collecting the Beneficial Holders’ votes, the Nominee should, in turn, complete a Master Ballot compiling the votes and other information from the Beneficial Holders, execute the Master Ballot, and deliver the Master Ballot to Prime Clerk so that it is RECEIVED by Prime Clerk on or before the Voting Deadline.27 All Beneficial Ballots 27 Nominees will be permitted to submit their Master Ballots to the Voting Agent by e-mail.


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returned by Beneficial Holders should either be forwarded to Prime Clerk (along with the Master Ballot) or retained by Nominees for inspection for at least one (1) year from the Voting Deadline. EACH NOMINEE SHOULD ADVISE ITS BENEFICIAL HOLDERS TO RETURN THEIR BENEFICIAL BALLOTS (OR OTHERWISE CONVEY THEIR VOTES) TO THE NOMINEE BY A DATE CALCULATED BY THE NOMINEE TO ALLOW IT TO PREPARE AND RETURN THE MASTER BALLOT TO PRIME CLERK SO THAT IT IS RECEIVED BY PRIME CLERK ON OR BEFORE THE VOTING DEADLINE.28

4. Miscellaneous

All Ballots must be signed by the Voting Creditor, or any person who has obtained a properly completed Ballot proxy from the Voting Creditor, by the Record Date. Unless otherwise ordered by the Bankruptcy Court, Ballots that are signed, dated, and timely received, but on which a vote to accept or reject the Plan has not been indicated, will not be counted. The Debtors may request that the Voting Agent attempt to contact such voters to cure any such defects in the Ballots. Any Ballot marked to both accept and reject the Plan shall not be counted. If you return more than one Ballot voting different Claims, the Ballots are not voted in the same manner, and you do not correct this before the Voting Deadline, those Ballots will not be counted. An otherwise properly executed Ballot (other than a Master Ballot) that attempts to partially accept and partially reject the Plan will likewise not be counted.

The Ballots provided to Voting Creditors will reflect the principal amount of such Voting Creditor’s Claim; however, when tabulating votes, the Voting Agent may adjust the amount of such Voting Creditor’s Claim to reflect the amount of the Claim actually voted, including prepetition interest.

Under the Bankruptcy Code, for purposes of determining whether the requisite acceptances have been received, only Voting Creditors that actually vote will be counted. The failure of a holder to deliver a duly executed Ballot to the Voting Agent or its Nominee will be deemed to constitute an abstention by such holder with respect to voting on the Plan and such abstentions will not be counted as votes for or against the Plan.

Except as provided below, unless the Ballot is timely submitted to the Voting Agent before the Voting Deadline together with any other documents required by such Ballot, the Debtors may, in their sole discretion, reject such Ballot as invalid, and therefore decline to utilize it in connection with seeking confirmation of the Plan.

5. Fiduciaries and Other Representatives

If a Beneficial Holder Ballot is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation, or another person acting in a fiduciary or representative capacity, such person should indicate such capacity when signing and, if requested, must submit proper

28 Notwithstanding the foregoing, Nominees are authorized to transmit Solicitation Packages and collect votes to

accept or to reject the Plan from Beneficial Holders in accordance with their customary practices, including the use of a “voting instruction form” in lieu of (or in addition to) a Beneficial Ballot, and collecting votes from Beneficial Holders through online voting, by phone, facsimile, or other electronic means.


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evidence satisfactory to the Debtors of authority to so act. Authorized signatories should submit the separate Beneficial Holder Ballot of each Voting Creditor for whom they are voting.

UNLESS THE BALLOT OR THE MASTER BALLOT IS SUBMITTED TO THE VOTING AGENT ON OR BEFORE THE VOTING DEADLINE, SUCH BALLOT WILL BE REJECTED AS INVALID AND WILL NOT BE COUNTED AS AN ACCEPTANCE OR REJECTION OF THE PLAN; PROVIDED, THAT THE DEBTORS RESERVE THE RIGHT, IN THEIR SOLE DISCRETION, TO REQUEST THE BANKRUPTCY COURT TO ALLOW SUCH BALLOT TO BE COUNTED.

6. Agreements upon Furnishing Ballots

The delivery of an accepting Ballot pursuant to one of the procedures set forth above will constitute the agreement of the voter with respect to such Ballot to accept (a) all of the terms of, and conditions to, this solicitation; and (b) the terms of the Plan including the injunction, releases, and exculpations set forth in Article VII therein. All parties in interest retain their right to object to confirmation of the Plan pursuant to section 1128 of the Bankruptcy Code.

7. Change of Vote

Any party that has previously submitted a properly completed Ballot to the Voting Agent before the Voting Deadline may revoke such Ballot and change its vote by submitting to the Voting Agent a subsequent, properly completed Ballot for acceptance or rejection of the Plan before the Voting Deadline.

8. Requirement to File a Proof of Claim

Any person or entity that is required to timely file a proof of claim in the form and manner specified by the order entered by the Bankruptcy Court establishing the date for filing proofs of claim for these Chapter 11 Cases (the “Bar Date”) and who failed to do so on or before the Bar Date associated with such claim shall not, with respect to such claim, be treated as a creditor of the Debtors for the purposes of voting on the Plan.

D. Waivers of Defects, Irregularities, etc.

Unless otherwise directed by the Bankruptcy Court, all questions as to the validity, form, eligibility (including time of receipt), acceptance, and revocation or withdrawals of Ballots will be determined by the Voting Agent or the Debtors, as applicable, which determination will be final and binding. The Debtors reserve the right to reject any and all Ballots submitted by any of their respective creditors not in proper form, the acceptance of which would, in the opinion of the Debtors or their counsel, as applicable, be unlawful. The Debtors further reserve their respective rights to waive any defects or irregularities or conditions of delivery as to any particular Ballot by any of their creditors. The interpretation (including the Ballot and the respective instructions thereto) by the applicable Debtor, unless otherwise directed by the Bankruptcy Court, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with deliveries of Ballots must be cured prior to the Voting Deadline or within such time as the Debtors (or the Bankruptcy Court) determines. Neither the Debtors nor any other person will be under any duty to provide notification of defects or irregularities with respect to deliveries of


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Ballots nor will any of them incur any liabilities for failure to provide such notification. Unless otherwise directed by the Bankruptcy Court, delivery of such Ballots will not be deemed to have been made until such irregularities have been cured or waived. Ballots previously furnished (and as to which any irregularities have not theretofore been cured or waived) will be invalidated.

E. Further Information, Additional Copies

If you have any questions or require further information about the voting procedures for voting your Claim, or about the packet of material you received, or if you wish to obtain an additional copy of the Plan, this Disclosure Statement, or any exhibits to such documents, please contact the Voting Agent.

IX. FACTORS TO CONSIDER BEFORE VOTING

Before voting to accept or reject the Plan, holders of Claims or Interests entitled to vote should read and carefully consider the risk factors set forth below, in addition to the information set forth in this Disclosure Statement together with any attachments, exhibits, or documents incorporated by reference hereto. The factors below should not be regarded as the only risks associated with the Plan or its implementation. Documents filed with the SEC may contain important risk factors that differ from those discussed below, and such risk factors are incorporated as if fully set forth herein and are a part of this Disclosure Statement. Copies of any document filed with the SEC may be obtained by visiting the SEC website at http://www.sec.gov.

A. Risks Relating to the Debtors’ Business Operations and Financial Condition

1. Competition

The specialty retail business is highly competitive, and the results of the Debtors’ operations are sensitive to, and may be adversely affected by, competitive pricing, promotional pressures, additional competitor store openings, growth of e-commerce competitors, and other factors. The Debtors compete with international, national, and local department stores, specialty and discount store chains, independent retail stores, and e-commerce retailers. Many of the Debtors’ competitors are companies with substantially greater financial, marketing, and other resources. The Reorganized Debtors’ ability to successfully implement their business plan depends on their ability to thrive in this highly competitive environment.

2. Supplier Relationships

The Debtors rely significantly on their suppliers. Adverse changes in any of the relationships with their suppliers, or the inability to enter into new relationships with suppliers, could negatively impact the Debtors’ operations and performance. The Debtors’ current arrangements with suppliers may not remain in effect on current or similar terms, and the impact of changes to those arrangements may adversely impact the Debtors’ revenue.


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3. Right-Sizing Real Estate Portfolio

The Debtors’ efforts to renegotiate leases and close stores during the Chapter 11 Cases is part of the Debtors’ wider effort to cut costs and maintain profitability. The Debtors forward-looking financial projections are based on the closure of certain stores and substantial concessions from various landlords. If the Debtors are unable to reach satisfactory terms with the quantity of landlords they anticipate, the Debtors may be forced to close additional stores, thereby decreasing revenue. Further, the actual lease savings realized by the Debtors may be substantially less than the Debtors anticipate.

4. Shopping Mall Traffic

Many of the Debtors’ stores are located in traditional shopping malls, and customer traffic in those shopping malls drives sales at those locations. Sales volume and shopping mall traffic may be adversely affected by economic downturns in a particular area, competition from online retailers, competition from non-shopping mall retailers and other shopping malls where the Debtors do not have stores, and the closing of anchor tenants in a particular shopping mall. A decline in the popularity of shopping malls among the Debtors’ target customers may result in decreased sales and revenue.

5. Concessions Partner Relationships

A crucial part of the Debtors’ business plan is the expansion of its “concessions” business, through which the Debtors partner with other prominent retailers (the “Concessions Partners”) to sell the Debtors’ merchandise in a dedicated “mini-footprint” under the Claire’s® brand. Concessions Partners typically are retailers with store locations benefitting from heavy daily foot traffic, such as pharmacies, supermarkets, and other specialty retail locations located outside of the traditional shopping mall format. By partnering with other retailers, the Debtors are able to gain access to new sales channels without encroaching on their traditional mall-based operations and to drive revenue that is untethered to mall traffic. Adverse changes in any of the Debtors’ relationships with their Concessions Partners, or the Debtors’ inability to enter into new relationships with Concessions Partners, may negatively impact the Debtors’ revenue and overall performance.

6. Customer Preferences

The retail fashion jewelry and accessories business fluctuates according to changes in customer preferences, which are dictated by fashion trends, perceived value, and seasonality. The success of the Debtors’ business is highly dependent on the Debtors’ ability to anticipate, identify, or react to changing styles or trends. If the Debtors are unable to anticipate, identify, or react sufficiently to such changing styles or trends, the Debtors’ revenue and overall performance, as well as its brand image, by be adversely affected.

7. Asbestos Allegations

In December 2017, January 2018, and March 2018, allegations arose regarding asbestos contained in the Debtors’ talc-based cosmetic products. Of the products the Debtors have tested, results have consistently shown that if present, any asbestos in the Debtors’ products is at levels


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below which can be quantified by accepted analytical methodologies. The Debtors have contacted individual stores to send samples of the remaining talc-based products yet to be tested, which will be provided to Food and Drug Administration (“FDA”) inspectors for testing. In addition, Health Canada tested samples of the Debtors’ talc-based cosmetics, and the results provided to the Debtors were consistent with the Debtors’ results. If the FDA’s investigation results in evidence of quantifiable levels of asbestos, all of the Debtors’ talc-based cosmetics may be subject to a recall, which could have a material adverse impact on revenue and overall performance, as well as the brand image, of the Debtors or the Reorganized Debtors.

8. Pending and Future Litigation

There is, or may be in the future, certain litigation that could result in a material judgment against the Debtors or the Reorganized Debtors. Such litigation, and any judgment in connection therewith, could have a material negative effect on the Debtors or the Reorganized Debtors.

B. Certain Bankruptcy Law Considerations

1. Risk of Non-Confirmation of the Plan

Although the Debtors believe that the Plan satisfies all requirements necessary for confirmation by the Bankruptcy Court, there can be no assurance that the Bankruptcy Court will reach the same conclusion or that modifications to the Plan will not be required for confirmation or that such modifications would not necessitate re-solicitation of votes. Moreover, the Debtors can make no assurances that they will receive the requisite acceptances to confirm the Plan, and even if all Voting Classes vote in favor of the Plan or the requirements for “cram down” are met with respect to any Class that rejects or is deemed to reject the Plan, the Bankruptcy Court may exercise discretion as a court of equity and choose not to confirm the Plan. If the Plan is not confirmed, it is unclear what distributions holders of Claims or Interests would ultimately receive with respect to their Claims or Interests in a subsequent plan of reorganization or otherwise.

2. Non-Consensual Confirmation

If any impaired class of Claims or Interests does not accept or is deemed not to accept a plan of reorganization, a Bankruptcy Court may nevertheless confirm such plan at the proponent’s request if at least one impaired class has accepted the plan (with such acceptance being determined without including the vote of any “insider” in such class), and as to each impaired class that has not accepted the plan, the Bankruptcy Court determines that the plan “does not discriminate unfairly” and is “fair and equitable” with respect to the dissenting impaired classes. If any Classes vote to reject or are deemed to reject the Plan, then these requirements must be satisfied with respect to such rejecting Classes. The Debtors believe that the Plan satisfies these requirements.

3. Financial Projections

The Debtors have prepared financial projections on a consolidated basis with respect to the Reorganized Debtors based on certain assumptions, as set forth in Exhibit G hereto. The projections have not been compiled, audited, or examined by independent accountants, and


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neither the Debtors nor their advisors make any representations or warranties regarding the accuracy of the projections or the ability to achieve forecasted results.

Many of the assumptions underlying the projections are subject to significant uncertainties that are beyond the control of the Debtors or Reorganized Debtors, including the timing, confirmation, and consummation of the Plan, consumer demand for the Reorganized Debtors’ products, inflation, and other unanticipated market and economic conditions. Some assumptions may not materialize, and unanticipated events and circumstances may affect the actual results. Projections are inherently subject to substantial and numerous uncertainties and to a wide variety of significant business, economic, and competitive risks, and the assumptions underlying the projections may be inaccurate in material respects. In addition, unanticipated events and circumstances occurring after the approval of this Disclosure Statement by the Bankruptcy Court including any natural disasters, terrorist attacks, or health epidemics may affect the actual financial results achieved. Such results may vary significantly from the forecasts and such variations may be material.

4. Allowed Claims Could Exceed Estimates

There can be no assurance that the Allowed amount of Claims participating in distributions will not be significantly more than projected, which in turn, could cause the value of distributions to holders of such Allowed Claims to be reduced. Inevitably, some assumptions will not materialize, and unanticipated events and circumstances may affect the ultimate results.

5. U.S. Federal Income Tax Risks

For a discussion of certain U.S. federal income tax consequences of the implementation of the Plan to the Debtors and to holders of certain Claims and Interests, see Section VII of this Disclosure Statement.

6. Risk of Non-Occurrence of the Effective Date

Although the Debtors believe that the Effective Date will occur soon after the Confirmation Date, there can be no assurance as to the timing of the Effective Date. If the conditions precedent to the Effective Date set forth in the Plan have not occurred or have not been waived as set forth in Article IX.A of the Plan, then the Confirmation Order may be vacated, in which event no distributions would be made under the Plan, the Debtors and all holders of Claims or Interests would be restored to the status quo as of the day immediately preceding the Confirmation Date, and the Debtors’ obligations with respect to Claims and Interests would remain unchanged.

7. Conversion into Chapter 7 Cases

If no plan of reorganization can be confirmed, or if the Bankruptcy Court otherwise finds that it would be in the best interest of holders of Claims and Interests, the Chapter 11 Cases may be converted to cases under chapter 7 of the Bankruptcy Code, pursuant to which a trustee would be appointed or elected to liquidate the Debtors’ assets for distribution in accordance with the priorities established by the Bankruptcy Code.


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C. Factors Relating to Securities to Be Issued

1. Implied Valuation of Securities

(a) Reorganized Claire’s Parent Interests

The estimated value of the Reorganized Claire’s Parent Interests for purposes of estimating recovery percentages under the Plan is based on the Valuation Analysis, which is annexed hereto as Exhibit I and which represents a hypothetical valuation of the Reorganized Debtors and assumes that, among other things, the Reorganized Debtors continue as an operating business. The Valuation Analysis does not purport to constitute an appraisal of the Reorganized Debtors or necessarily reflect the actual market value that might be realized through a sale or liquidation of the Reorganized Debtors or their assets, which may be materially different than the estimate set forth in the Valuation Analysis. The Creditors’ Committee asserts that it is prepared to substantiate a higher enterprise value than that expressed in the Valuation Analysis.

Furthermore, a liquid trading market for the Reorganized Claire’s Parent Interests may not develop or, if it develops, continue. In addition, the Reorganized Claire’s Parent Interests will not be listed on any securities exchange and the Reorganized Debtors will not be obligated to cause the Reorganized Claire’s Parent Interests to be listed on any securities exchange or over-the-counter market. Accordingly, the estimated value of the Reorganized Claire’s Parent Interests does not necessarily reflect the actual market value of the Reorganized Claire’s Parent Interests that might be realized after Confirmation of the Plan, which may be materially lower than the estimated valuation of the Reorganized Claire’s Parent Interests as set forth in this Disclosure Statement and the exhibits hereto. Accordingly, such estimated value is not necessarily indicative of the prices at which the Reorganized Claire’s Parent Interests may trade after giving effect to the transactions set forth in the Plan.

(b) New Preferred Equity Interests

The valuation of the Reorganized Debtors may not represent the trading value of the New Preferred Equity Interests in public or private markets and is subject to additional uncertainties and contingencies, all of which are difficult to predict. Actual market prices of such securities at issuance will depend upon, among other things: (1) prevailing interest rates; (2) conditions in the financial markets; (3) the anticipated initial securities holdings of prepetition creditors, some of whom may prefer to liquidate their investment rather than hold it on a long-term basis; and (4) other factors that generally influence the prices of securities. The actual market price of the New Preferred Equity Interests is likely to be volatile. Many factors, including factors unrelated to the Reorganized Debtors’ actual operating performance and other factors not possible to predict, could cause the market price of the Reorganized Claire’s Parent Interests to rise and fall. Accordingly, the implied value, stated herein and in the Plan, of the securities to be issued does not necessarily reflect, and should not be construed as reflecting, values that will be attained for the New Preferred Equity Interests in the public or private markets.

In addition, the issuance of the Reorganized Claire’s Parent Interests may adversely affect market price of the New Preferred Equity Interests, decrease the amount of earnings and assets available for distribution to holders of the New Preferred Equity Interests, decrease the amount


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of earnings and assets available for distribution to holders of the New Preferred Equity Interests or adversely affect the rights and powers, including voting rights, of the holders of the New Preferred Equity Interests.

2. Potential Dilution

The ownership percentage represented by the Reorganized Claire’s Parent Interests distributed under the Plan as of the Effective Date will be subject to dilution from the equity issued in connection with (a) the Management Equity Incentive Plan, (b) the issuance of the New Preferred Equity Interests, (c) any other equity that may be issued post-emergence, and (d) the conversion of any options, warrants, convertible securities, exercisable securities, or other securities that may be issued post-emergence.

The ownership percentage represented by the New Preferred Equity Interests issued pursuant to the New Money Backstop Commitment Agreement may be subject to dilution from the equity issued in connection with the Management Equity Incentive Plan. The issuance of any other equity post-emergence and the conversion of any options, warrants, convertible securities, exercisable securities, or other securities that may be issued post-emergence may affect the ownership percentage represented by the New Preferred Equity Interests issued pursuant to the New Money Backstop Commitment Agreement on a post-conversion basis.

In the future, similar to all companies, additional equity financings or other equity issuances by the Reorganized Debtors could adversely affect the value of the Reorganized Claire’s Parent Interests and the New Preferred Equity Interests. The amount and dilutive effect of any of the foregoing could be material.

3. Significant Holders of Reorganized Claire’s Parent Interests

Certain holders of First Lien Secured Claims are expected to acquire a significant ownership interest in the Reorganized Claire’s Parent Interests and the New Preferred Equity Interests issued pursuant to the Plan. These holders may, among other things, exercise a controlling influence over the business and affairs of the Reorganized Debtors and have the power to elect directors, control the appointment of a majority of the board of directors, and approve significant mergers and other material corporate transactions.

4. Interests Subordinated to the Reorganized Debtors’ Indebtedness

In any subsequent liquidation, dissolution, or winding up of the Reorganized Debtors, the Reorganized Claire’s Parent Interests and the New Preferred Equity Interests would rank below all debt claims against the Reorganized Debtors; further, the Reorganized Claire’s Parent Interests would rank below the New Preferred Equity Interests. As a result, holders of the Reorganized Claire’s Parent Interests and New Preferred Equity Interests will not be entitled to receive any payment or other distribution of assets upon the liquidation, dissolution, or winding up of the Reorganized Debtors until after all applicable holders of debt have been paid in full. Additionally, holders of the Reorganized Claire’s Parent Interests will not be entitled to receive any payment or other distribution of assets upon the liquidation, dissolution, or winding up of the Reorganized Debtors until after all applicable holders of debt and the liquidation preference of the New Preferred Equity Interests have been paid in full.


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5. Make-Whole Premiums

Upon the occurrence of certain events, including a change of control, merger, sale of all or substantially all assets, acceleration, default, bankruptcy, insolvency, redemption, or prepayment, whether mandatory or at the Reorganized Debtors’ option, a provision in the Exit Term Loan Credit Agreement would be triggered, entitling the lenders thereunder to the payment of certain premiums (as defined in the Restructuring Support Agreement, the “Make-Whole Premiums”). If triggered, the payment of the Make-Whole Premiums would adversely affect junior stakeholders of the Reorganized Debtors, including holders of the New Preferred Equity Interests and the Reorganized Claire’s Parent Interests. The potential that the Reorganized Debtors may be required to pay the Make-Whole Premiums may impact the prices at which the New Preferred Equity Interests and the Reorganized Claire’s Parent Interests may trade.

The Creditors’ Committee asserts that the Make-Whole Premiums, as well as the Preferred Redemption Premiums, position the Backstop Parties to recover nearly $1.5 billion immediately following the Effective Date and that such a recovery would negatively impact the Reorganized Debtors’ ability to address future working capital needs. The Debtors dispute the Creditors’ Committee’s assertions.

6. Voluntary or Involuntary Liquidation of the Reorganized Debtors’

If there is a voluntary or involuntary liquidation, winding-up, or dissolution of the Reorganized Company, each holder the New Preferred Equity Interests would be entitled to receive only the greater of (i) an amount equal to the liquidation preference (as described in the New Money Backstop Commitment Agreement, annexed hereto as Exhibit B) per share of New Preferred Equity Interests, prior to any distribution with respect to any other equity securities of the Debtor, and (ii) the amount payable per share, participating on an “as converted” basis, upon liquidation to the holders of the Reorganized Claire’s Parent Interests. Thereafter, holders of New Preferred Equity Interests will have no right or claim to the remaining assets, in any, of the Debtor.

7. Dividends

The Reorganized Debtors may not pay any dividends on the Reorganized Claire’s Parent Interests. In such circumstances, the success of an investment in the Reorganized Debtors will depend entirely upon any future appreciation in the value of the Reorganized Claire’s Parent Interests. There is, however, no guarantee that the Reorganized Claire’s Parent Interests will appreciate in value or even maintain its initial implied valuation.

8. Restrictions on Ability to Resell Reorganized Claire’s Parent Interests and New Preferred Equity Interests

The Reorganized Claire’s Parent Interests and the New Preferred Equity Interests will not be registered under applicable federal or state securities law. Absent such registration, the Reorganized Claire’s Parent Interests and the New Preferred Equity Interests may be offered and sold only in transactions that are not subject to, or that are exempt from, the registration requirements of applicable securities laws. These restrictions could significantly limit holders’ ability to resell the Reorganized Claire’s Parent Interests and the New Preferred Equity Interests. For a discussion of transfer restrictions on the Reorganized Claire’s Parent Interests and the New


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Preferred Equity Interests under applicable federal or state securities law, see Section VI of this Disclosure Statement.

9. Preferred Redemption Premiums

Upon the occurrence of certain events, including a change of control, merger, sale of all or substantially all assets, acceleration, default, bankruptcy, insolvency, redemption, or prepayment, whether mandatory or at the Reorganized Debtors’ option, holders of the New Preferred Equity Interests would be entitled to the payment of certain premiums (as defined in the Restructuring Support Agreement, the “Preferred Redemption Premiums”). If triggered, the payment of the Preferred Redemption Premiums would adversely affect junior stakeholders of the Reorganized Debtors, including holders of the Reorganized Claire’s Parent Interests. The potential that the Reorganized Debtors may be required to pay the Preferred Redemption Premiums may impact the prices at which the New Preferred Equity Interests and the Reorganized Claire’s Parent Interests may trade.

The Creditors’ Committee asserts that the Preferred Redemption Premiums, as well as the Make-Whole Premiums, position the Backstop Parties to recover nearly $1.5 billion immediately following the Effective Date and that such a recovery would negatively impact the Reorganized Debtors’ ability to address future working capital needs. The Debtors dispute the Creditors’ Committee’s assertions.

10. Conversion Rate of New Preferred Equity Interests

The conversion rate of the New Preferred Equity Interests is subject to adjustment only upon certain events, including, among others, stock splits, combinations, or certain other adjustments with respect to the Reorganized Claire’s Parent Interests. The conversion rate will not be adjusted for any other reason.

D. Factors Relating to the First Lien Rights Offering and the Shareholder Rights Offering

1. Debtors Could Modify the Rights Offering Procedures

The Debtors may modify the First Lien Rights Offering Procedures and/or the Shareholder Rights Offering Procedures, with the approval of the Requisite Backstop Parties (as defined in the New Money Backstop Commitment Agreement), to, among other things, adopt additional detailed procedures if necessary to administer the distribution and exercise of First Lien Subscription Rights and Shareholder Subscription Rights or to comply with applicable law. Such modifications may adversely affect the rights of those participating in the Rights Offering.

2. The New Money Backstop Commitment Agreement Could Be Terminated

The New Money Backstop Commitment Agreement contains certain provisions that give the parties the ability to terminate the New Money Backstop Commitment Agreement if various conditions are not satisfied. Termination of the New Money Backstop Commitment Agreement could prevent the Debtors from consummating the Plan. Under certain conditions in connection with the termination of the New Money Backstop Commitment Agreement, as more fully


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described therein, the Commitment Parties may be eligible to be paid the Breakup Premium in Cash.

The New Money Backstop Commitment Agreement is also subject to approval by the Bankruptcy Court. There can be no assurance that the Bankruptcy Court will approve the New Money Backstop Commitment Agreement.

E. Additional Factors

1. Debtors Could Withdraw the Plan

Subject to, and without prejudice to, the rights of any party in interest, the Plan may be revoked or withdrawn before the Confirmation Date by the Debtors.

2. Debtors Have No Duty to Update

The statements contained in this Disclosure Statement are made by the Debtors as of the date hereof, unless otherwise specified herein, and the delivery of this Disclosure Statement after that date does not imply that there has been no change in the information set forth herein since that date. Additionally, the Debtors have no duty to update this Disclosure Statement unless otherwise ordered to do so by the Bankruptcy Court.

3. No Representations Outside this Disclosure Statement Are Authorized

No representations concerning or related to the Debtors, the Chapter 11 Cases, or the Plan are authorized by the Bankruptcy Court or the Bankruptcy Code, other than as set forth in this Disclosure Statement. Any representations or inducements made to secure your acceptance or rejection of the Plan that are other than those contained in, or included with, this Disclosure Statement should not be relied upon in making the decision to accept or reject the Plan.

4. No Legal or Tax Advice Is Provided by this Disclosure Statement

The contents of this Disclosure Statement should not be construed as legal, business, or tax advice. Each holder of a Claim or Interest should consult its own legal counsel and accountant as to legal, tax, and other matters concerning their Claim or Interest.

This Disclosure Statement is not legal advice to you. This Disclosure Statement may not be relied upon for any purpose other than to determine how to vote on the Plan or object to confirmation of the Plan.

5. No Admission Made

Nothing contained herein or in the Plan shall constitute an admission of, or shall be deemed evidence of, the tax or other legal effects of the Plan on the Debtors or holders of Claims or Interests.


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X. CONFIRMATION OF THE PLAN

The Bankruptcy Court will confirm the Plan only if all of the requirements of section 1129 of the Bankruptcy Code are met. Among the requirements for confirmation are that the Plan is (A) accepted by all impaired Classes of Claims and Interests entitled to vote or, if rejected or deemed rejected by an impaired Class, that the Plan “does not discriminate unfairly” and is “fair and equitable” as to such Class; (B) in the “best interests” of the holders of Claims and Interests impaired under the Plan; and (C) feasible.

A. Acceptance of the Plan

The Bankruptcy Code defines “acceptance” of a plan by a class of (i) Claims as acceptance by creditors in that class that hold at least two-thirds (2/3) in dollar amount and more than one-half (1/2) in number of the Claims that cast ballots for acceptance or rejection of the Plan and (ii) Interests as acceptance by interest holders in that class that hold at least two-thirds (2/3) in amount of the Interests that cast ballots for acceptance or rejection of the Plan. Holders of Claims or Interests that fail to vote are not counted in determining the thresholds for acceptance of the Plan.

If any impaired Class of Claims or Interests does not accept the Plan (or is deemed to reject the Plan), the Bankruptcy Court may still confirm the Plan at the request of the Debtors if, as to each impaired Class of Claims or Interests that has not accepted the Plan (or is deemed to reject the Plan), the Plan “does not discriminate unfairly” and is “fair and equitable” under the so-called “cram down” provisions set forth in section 1129(b) of the Bankruptcy Code. The “unfair discrimination” test applies to classes of claims or interests that are of equal priority and are receiving different treatment under the Plan. A chapter 11 plan does not discriminate unfairly, within the meaning of the Bankruptcy Code, if the legal rights of a dissenting class are treated in a manner consistent with the treatment of other classes whose legal rights are substantially similar to those of the dissenting class and if no class of claims or interests receives more than it legally is entitled to receive for its claims or interests. The test does not require that the treatment be the same or equivalent, but that such treatment be “fair.” The “fair and equitable” test applies to classes of different priority and status (e.g., secured versus unsecured; claims versus interests) and includes the general requirement that no class of claims receive more than 100% of the allowed amount of the claims in such class. As to the dissenting class, the test sets different standards that must be satisfied in order for the Plan to be confirmed, depending on the type of claims or interests in such class. The following sets forth the “fair and equitable” test that must be satisfied as to each type of class for a plan to be confirmed if such class rejects the Plan:

Secured Creditors. Each holder of an impaired secured claim either (a) retains its liens on the property, to the extent of the allowed amount of its secured claim, and receives deferred cash payments having a value, as of the effective date of the plan, of at least the allowed amount of such secured claim, (b) has the right to credit bid the amount of its claim if its property is sold and retains its lien on the proceeds of the sale, or (c) receives the “indubitable equivalent” of its allowed secured claim.


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Unsecured Creditors. Either (a) each holder of an impaired unsecured claim receives or retains under the plan, property of a value, as of the effective date of the plan, equal to the amount of its allowed claim or (b) the holders of claims and interests that are junior to the claims of the dissenting class will not receive any property under the plan.

Interests. Either (a) each equity interest holder will receive or retain under the plan property of a value equal to the greater of (i) the fixed liquidation preference or redemption price, if any, of such equity interest and (ii) the value of the equity interest or (b) the holders of interests that are junior to the interests of the dissenting class will not receive or retain any property under the plan.

The Debtors believe the Plan satisfies the “fair and equitable” requirement with respect to any rejecting Class.

IF ALL OTHER CONFIRMATION REQUIREMENTS ARE SATISFIED AT THE CONFIRMATION HEARING, THE DEBTORS WILL ASK THE BANKRUPTCY COURT TO RULE THAT THE PLAN MAY BE CONFIRMED ON THE GROUND THAT THE SECTION 1129(b) REQUIREMENTS HAVE BEEN SATISFIED.

B. Best Interests Test

The Bankruptcy Code requires that each holder of an impaired Claim or Interest either (1) accept the Plan or (2) receive or retain under the Plan property of a value, as of the Effective Date, that is not less than the value such holder would receive if the Debtors were liquidated under chapter 7 of the Bankruptcy Code. This requirement is customarily referred to as the “best interest” test. The Debtors believe that the value of any distributions to holders of Allowed Claims and Interests in a chapter 7 case would be less than the value of distributions under the Plan.

C. Feasibility

The Debtors believe that the Plan meets the feasibility requirement set forth in section 1129(a)(11) of the Bankruptcy Code, as confirmation is not likely to be followed by liquidation or the need for further financial reorganization of the Reorganized Debtors or any successor under the Plan.

D. Notices and Confirmation Hearing

Section 1128(a) of the Bankruptcy Code requires the Bankruptcy Court to hold a confirmation hearing upon appropriate notice to all required parties. The Confirmation Hearing is scheduled for September [●], 2018 at 10:30 a.m. The Confirmation Hearing may be adjourned from time to time by the Bankruptcy Court without further notice except for the announcement of the continuation date made at the Confirmation Hearing, at any subsequent continued Confirmation Hearing, or pursuant to a notice filed on the docket for the Chapter 11 Cases.

Section 1128(b) of the Bankruptcy Code provides that any party in interest may object to the confirmation of a plan. Any objection to confirmation of the Plan must be in writing, must conform to the Bankruptcy Rules and the Local Rules, must set forth the name of the objector,


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the nature and amount of Claims or Interests held or asserted by the objector against the Debtors’ estates or properties, the basis for the objection and the specific grounds therefore, and must be filed with the Bankruptcy Court, with a copy to the chambers of Judge Mary F. Walrath, together with proof of service thereof, and served upon all of the below parties.


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If to the Debtors, to: Claire’s Stores, Inc. 2400 West Central Road Hoffman Estates, IL 60192 Attn: Stephen Sernett, General Counsel Telephone: (847) 765-4319 Telecopier: (847) 765-4618 E-mail:[email protected]

Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Attn: Ray C. Schrock, P.C.; Ryan Preston Dahl Telephone: (212) 310-8000 Telecopier: (212) 310-8007 E-mail:[email protected] [email protected] Richards, Layton & Finger, PA One Rodney Square 920 North King Street Wilmington, Delaware 19801 Attn: Daniel J. DeFranceschi; Zachary I. Shapiro; Brendan J. Schlauch; and Brett M. Haywood Telephone: (302) 651-7700 Telecopier: (302) 651-7701 E-mail:[email protected] [email protected] [email protected] [email protected]


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If to the Creditors’ Committee, to: Cooley LLP 1114 Avenue of the Americas New York, New York 10036 Attn: Seth Van Aalten; Cathy Herschcopf; and Summer M. McKee Telephone: (212) 479-6000 Telecopier: (212) 479-6275 E-mail:[email protected] [email protected] [email protected]

Bayard P.A. 600 N. King Street, Suite 400 Wilmington, Delaware 19801 Attn: Justin R. Alberto; Erin R. Fay; and Gregory Flasser Telephone: (302) 665-5000 Telecopier: (302) 658-6395 E-mail:[email protected] [email protected] [email protected]

If to the Ad Hoc First Lien Group, to: Willkie Farr & Gallagher LLP 787 Seventh Avenue New York, New York 10019 Attn: Matthew A. Feldman; Brian S. Lennon; and Daniel I. Forman Telephone: (212) 728-8000 Telecopier: (212) 728-8111 E-mail:[email protected] [email protected] [email protected]

Morris, Nichols, Arsht & Tunnell, LLP Rodney Square 1201 North Market Street Wilmington, Delaware 19899 Attn: Robert Dehney Telephone: (302) 658-9200 Telecopier: (302) 658-3989 E-mail:[email protected]

If to the Sponsor, to: Paul, Weiss, Rifkind, Wharton & Garrison LLP 1285 Avenue of the Americas New York, New York 10019 Attn: Jeffrey D. Saferstein Telephone: (212) 373-3000 Telecopier: (212) 757-3990 E-mail:[email protected]

Young, Conaway, Stargatt & Taylor, LLP Rodney Square, 1000 North King Street Wilmington, Delaware 19801 Attn: Pauline Morgan Telephone: (302) 571-6600 Telecopier: (302) 571-1253 E-mail:[email protected]


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If to the DIP Agent, to: Latham & Watkins LLP 330 North Wabash Avenue Suite 2800 Chicago, Illinois 60611 Attn: Richard A. Levy Telephone: (312) 876-7700 Telecopier: (312) 993-9767 E-mail:[email protected] Latham & Watkins LLP 885 Third Avenue New York, New York 10022 Attn: Annemarie V. Reilly Telephone: (212) 906-1200 Telecopier: (212) 751-4864 E-mail:[email protected]

Duane Morris LLP 222 Delaware Avenue Suite 1600 Wilmington, Delaware 19801 Attn: Jarret P. Hitchings Telephone: (302) 657-4900 Telecopier: (302) 657-4901 E-mail:[email protected]

UNLESS AN OBJECTION TO CONFIRMATION IS TIMELY SERVED AND FILED, IT MAY NOT BE CONSIDERED BY THE BANKRUPTCY COURT.


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XI. CONCLUSION AND RECOMMENDATION

The Debtors believe the Plan is in the best interests of all stakeholders and urge the holders of Claims in Classes 7, 9, 10, and 14 to vote in favor thereof.

Dated: July 7, 2018 Wilmington, Delaware

Respectfully submitted,

BMS DISTRIBUTING CORP. CBI DISTRIBUTING CORP. CLAIRE’S INC. CLAIRE’S BOUTIQUES, INC. CLAIRE’S CANADA CORP. CLAIRE’S PUERTO RICO CORP. CLAIRE’S STORES, INC. CSI CANADA LLC

/s/ Scott E. Huckins

Name: Scott E. Huckins Title: Authorized Officer


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