In re

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE
Chapter 11
CRDENTIA CORP., et al.,
1
Case No. 10-
(Joint Administration Requested)
Debtors.
MOTION FOR ORDER (A) AUTHORIZING DEBTORS TO OBTAIN
INTERIM POST-PETITION FINANCING AND GRANT SECURITY
INTERESTS AND SUPERPRIORITY ADMINISTRATIVE EXPENSE
STATUS PURSUANT TO 11 U.S.C. 105 AND 364(c); (B) MODIFYING
THE AUTOMATIC STAY PURSUANT TO 11 U.S.C. 362; (C)
AUTHORIZING DEBTORS TO ENTER INTO AGREEMENTS WITH
COMVEST CAPITAL LLC; AND (D) SCHEDULING A FINAL HEARING
PURSUANT TO BANKRUPTCY RULE 4001
The debtors and debtors in possession in the above-captioned cases (each a "Debtor" and
collectively, the "Debtors" or "Borrower"), by this motion (this "Motion"), seek entry of interim
and final orders pursuant to sections 105, 361, 362, 363, 364 and 507(b) of title 11 of the United
States Code, 11 U.S. C. 101 et seq. (the "Bankruptcy Code"), Rules 2002, 4001 and 9014 of
the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules") and Rule 4001-2 of the
Local Rules of Bankruptcy Practice and Procedure (the "Local Rules"): (a) authorizing the
Debtors to use cash collateral; (b) authorizing the Debtors to assume the Ratification Agreement
(as defined herein); (c) authorizing the Debtors to obtain postpetition secured financing from
Com Vest Capital, LLC, the Debtors' prepetition secured lender (the "Secured Lender") (i) on an
interim basis up to an aggregate principal amount of $500,000 pursuant to an interim order (the
The Debtors, along with the last four digits of their federal tax identification numbers, are: O:dentia
Corp.(5701), ATS Universal, LLC (3980), Baker Auderson Christie, Inc. (3631), CRDE Corp. (2509), GHS
Acquisition Corporation (9736), Health Industry Professionals, LLC ( 4246), IDP Holding, Inc. (3468), MP Health
Corp. (4403), New Age Staffing, Inc. (1214) aud Nurses Network, Inc. (6291) .. The Debtors' mailing address for
purposes of these cases is 5001 LBJ Freeway, Suite 850, Dallas, TX 75244.
{BAY:01512346vl}
"Interim Order"), and (ii) on a final basis up to an aggregate principal amount of $900,000
pursuant to a final order (the "Final Order" and, together with the Interim Order, the "DIP
Orders"); (d) granting the Secured Lender postpetition liens and providing it superpriority
administrative expense status; (e) providing the Secured Lender adequate protection; (f)
modifying the automatic stay in certain respects; (g) scheduling a final hearing; and (h)
approving ce1iain notice procedures. In supp01i of this Motion, the Debtors submit: (i) the
Ratification Agreement; (ii) the Budget (as defined below); and (iii) the Declaration of Rebecca
Irish in Support of the Debtors' Chapter 11 Petitions and First Day Pleadings (the "Irish
Declaration") filed concunently herewith, and further state as follows:
JURISDICTION AND VENUE
1. This Court has jurisdiction over this Motion pursuant to 28 U.S.C. 157 and
1334. Venue in this District is proper pursuant to 28 U.S. C. 1408 and 1409.
2. This is a core proceeding pursuant to 28 U.S.C. 157(b).
3. The predicates for the relief requested are sections 105, 361, 362, 363, 364 and
507(b) of the Bankruptcy Code, Bankruptcy Rules 2002, 4001 and 9014 and Local Rule 4001-2.
BACKGROUND
A. General Background
4. On March 17, 2010 (the "Petition Date"), the Debtors commenced their
bankruptcy cases by filing voluntary petitions for relief under chapter 11 of the Bankruptcy
Code. The Debtors are operating their respective businesses as debtors in possession pursuant to
sections 1107 and 1108 of the Bank:mptcy Code.
5. The events leading up to the Petition Date and the facts and circumstances
supporting the relief requested herein are set forth in the Irish Declaration.
2
6. On the Petition Date, the Debtors also filed, among other pleadings, the Debtors'
Joint Chapter 11 Plan of Reorganization (the "Plan") and the related disclosure statement (the
"Disclosure Statement").
7. The Plan provides for (i) the emergence of the Debtors from bankruptcy as
Reorganized Crdentia and the re-vesting of the Debtors' assets in Reorganized Crdentia free and
clear of any liens, encumbrances or other interests; ( ii) the vesting of all equity in Reorganized
Crdentia in Com Vest, the Secured Lender, or its designee; (iii) the opportunity for third parties to
purchase the Debtors or their assets free and clear of any liens, encumbrances or other interests at
a fraction of the amount of the Secured Lender's debt; and (iv) the resolution of all outstanding
claims against and interests in the Debtors.
8. No trustee, examiner, creditors' committee, or other official committee has been
appointed in the Debtors' chapter 11 cases.
B. Pre-Petition Financing Agreements.
9. Prior to the commencement of the Cases, Lender made loans and advances and
provided credit accommodations to Bmmwer pursuant to (1) Loan and Security Agreement,
dated July 3, 2008, by and between Borrower and Lender, as successor to Capital Tempfunds, a
division of Capital Business Credit LLC ("Tempfunds"), the First Amendment dated as of June
22, 2009, between Wells Fargo Bank, N.A., acting through its Wells Fargo Business Credit and
Operating Division ("WFBC"), successor in interest to Tempfunds, and the Second Amendment
to Loan and Security Agreement, dated July 22, 2009 (as the same has heretofore been amended,
supplemented, modified, extended, renewed, restated and/or replaced at any time prior to the
Petition Date, the "Existing Loan Agreement"), and (2) all other agreements, documents, and
instruments executed and/or delivered with, to, or in favor of Secured Lender, including, without
limitation, the security agreements, notes, guarantees, mortgages, and Uniform Commercial
3
Code ("UCC") financing statements and all other related agreements, documents, and
instruments executed and/or delivered in connection therewith or related thereto, (collectively,
the "Pre-Petition Financing Agreements"). Copies of the operative Pre-Petition Financing
Agreements are annexed to the Exhibit Supplement as Exhibit "A".
10. Prior to the commencement of the Cases, Borrower obtained revolving and term
loans from Secured Lender pursuant to the Revolving Credit and Term Loan Agreement dated
February 22, 2008, executed by Crdentia in favor of Secured Lender in the aggregate principal
amount of $16,700,000 (the "Term Loan Agreement" and together with all other agreements,
documents and instruments executed and/or delivered in connection therewith, the "Term Loan
Documents"). Pursuant to the Te1m Loan Documents, borrowings are secured by the Pre-
Petition Collateral (as hereinafter defined).
11. As of the Petition Date, the aggregate amount of all Loans and other Pre-Petition
Obligations (as defined in the Ratification Agreement) owed by the Debtors to Secured Lender
under and in connection with the Pre-Petition Financing Agreements, consisting of Revolving
Loans with a principal due in an amount not less than $5,736,551.72 and the Term Loans with
principal due in an amount not less than $10,693,240.81 plus all interest accruing thereon, and all
fees, costs, expenses, and other charges accrued, accruing, or chargeable with respect thereto
totaling $18,995,353.01 (the "Pre-Petition Obligations", as such term is more fully defined in the
Ratification Agreement
2
), and that the Pre-Petition Obligations constitute allowed, legal, valid,
binding, enforceable and non-avoidable obligations of the Debtors, and are not subject to any
offset, defense, counterclaim, avoidance, recharacterization or subordination pursuant to the
2
To the extent that the term "Pre-Petition Obligations" as defined and used in the Interim Order is in any
way inconsistent or conflicts with the way in which such term is defined in the Ratification Agreement, the
definition of such term contained in the Ratification Agreement shall control and shall be incorporated into the
Interim Order.
4
Bankruptcy Code or any other applicable law, and Debtors do not possess and shall not assert
any claim, counterclaim, setoff or defense of any kind, nature or description which would in any
way affect the validity, enforceability and non-avoidability of any of the Pre-Petition
Obligations.
12. As of the Petition Date, the Pre-Petition Obligations were fully secured pursuant
to the Pre-Petition Financing Agreements by valid, perfected, enforceable and non-avoidable
first priority security interests and liens granted by the Debtors to Secured Lender upon all of the
Collateral (as defined in the Existing Loan Agreement) existing as of the Petition Date and all
rents, issues, profits, proceeds, and products thereof (the "Prepetition Collateraf', and
collectively, together with any other property of the Debtors' bankruptcy estates (as defined
under section 541 of the Bankruptcy Code, the "Estates"). Debtors do not possess and will not
asse1i any claim, counterclaim, setoff or defense of any kind, nature or description, which would
in any way affect the validity, enforceability and non-avoidability of any of Secured Lender's
liens, claims and/or security interest in the Pre-Petition Collateral.
C. Need for Access to DIP Financing
13. As set fmih in the Irish Declaration, the Debtors' estates will suffer immediate
and ineparable harm if the Debtors do not obtain authorization to use cash collateral and
immediate access to the proposed debtor-in-possession financing ("DIP Financing"). The
Debtors do not have sufficient available sources of working capital to operate their businesses in
the ordinary course of their businesses without the financing requested herein. The Debtors'
ability to maintain business relationships with their vendors, suppliers, and customers, to pay
their employees, and to otherwise fund their operations, is essential to Debtors' continued
viability. The ability of the Debtors to obtain sufficient working capital and liquidity through the
proposed post-petition financing anangements with Secured Lender as set forth in this Motion is
5
vital to the preservation and maintenance of the gomg concern values of the Debtors.
Accordingly, the Debtors have an immediate need to obtain the post-petition financing in order
to permit, among other things, the orderly continuation of the operation of their businesses, to
minimize the disruption of their business operations, and to manage and preserve the assets of
their estates in order to maximize the recovery to all estate creditors.
14. The Debtors believe that it would be futile, under the circumstances, to pursue
alternative post-petition financing in the form of: (1) unsecured credit allowable as an
administrative expense under Section 503(b)(l) of the Code; (2) unsecured credit allowable
under Sections 364(a) and 364(b) of the Code; or (3) secured credit pursuant to Section 364(c) of
the Code, on more favorable terms and conditions from sources other than the Secured Lender.
Accordingly, the Secured Lender has agreed to fund the Debtors' continued operations in chapter
11 in exchange for the reasonable protections proposed, including first-priority liens on all of the
Debtors' assets.
D. Events of Default under the Existing Loan Agreement
15. Since the fall of 2008, the Debtors have been in default on their obligations to
Com Vest. The first default occmTed in the fall of 2008 due to the Debtors' failure to satisfy an
EBITDA covenant. Currently, the defaults include failure to pay interest, failure to pay interest
timely, failure to provide audited financial statements, and failure to maintain required financial
ratios in the debt covenants agreed to by the Debtors.
E. Ratification Agreement
16. On March 17, 2010, the Debtors and the Secured Lender entered into that certain
Ratification and Amendment Agreement (the "Ratification Agreement", and with the Existing
Loan Agreement, the "DIP Loan Documents"), a copy of which is annexed to the Exhibit
Supplement as Exhibit "B". Pursuant to the Ratification Agreement, the Existing Loan
6
Agreement is modified so as to allow the Debtors' use of cash collateral and DIP Financing as
described herein.
F. Proposed Use of Cash Collateral and Proposed DIP Financing
17. The Seemed Lender is willing to permit the Debtors to use cash collateral (as
defined by Section 363(a) of the Code, including, any pre-petition proceeds and, subject to Section
552 of the Code, any and all post-petition proceeds of the Pre-Petition Collateral as well as (the
"Cash Collateral")) and to operate under the Existing Loan Agreement as modified in certain
respects by the Ratification Agreement. In addition to permitting the use of Cash Collateral, the
Ratification Agreement provides the Debtors with access to additional postpetition credit in the
maximum amount of$900,000 (the "DIP Loan'') on substantially the same tenns and conditions of
the Existing Loan Agreement prior to the Petition Date, with the amendments described below.
18. Given the Debtors' current debt obligations and lack of liquidity, the Debtors
have had to rely for some time on protective advances from the Secured Lender made under the
Existing Loan Agreement to meet daily operating needs and remain unable to satisfy obligations
as they come due. As indicated in the 13 week budget and which has been approved by the
Seemed Lender (as amended, modified or supplemented from time to time, the "DIP Budget", a copy
of which is annexed to the Exhibit Supplement as Exhibit "C"), the Debtors will need additional
funds from the Seemed Lender as well as the use of Cash Collateral to operate postpetition.
RELIEF REQUESTED
19. By this Motion, the Debtors seek entry of the DIP Orders, inter alia:
a. authoriziog the Debtors to use Cash Collateral; provided that all expenditures
of Cash Collateral shall be pursuant to the DIP Budget;
b. authorizing the Debtors to obtain secured debtor-in-possession financing
up to an aggregate principal amount of the DIP Loan $900,000 provided
that, prior to the Final Order, the Debtors may only borrow on an interim
basis up to an aggregate principal or face amount of $500,000, and
7
provided further that all interim and final borrowings shall be pursuant to
the DIP Budget;
c. authorizing the Debtors to assume the Ratification Agreement and such
additional documents, instruments and agreements as are required to
implement the terms of the DIP Orders, and to perform such other and
further acts as may be required in connection with the DIP Loan
Documents;
d. granting Replacement Liens on all DIP Collateral subject and junior only
to the post-petition liens described below and the Carve-Out (defined
below);
e. granting security interests, liens and superpriority claims (including a
superpriority claim pursuant to section 364(c)(l) of the Bankruptcy Code,
liens pursuant to sections 364(c)(2) and 364(c)(3) of the Bankruptcy Code,
and priming liens pursuant to section 364(d) of the Bankruptcy Code) in
favor of the Secured Lender, to secure the DIP Loan;
f modifYing the automatic stay imposed by section 362 of the Bankruptcy
Code as required to permit the Secured Lender to implement the terms of
the DIP Orders and, upon the occurrence and during the continuance of an
Event of Default, to exercise all rights and remedies in the Ratification
Agreement as set fmth in the Interim Order;
g. scheduling a final hearing ("Final Hearing"), to be held no later than thirty
(30) days after entry of the Interim Order, to consider entry of the Final
Order; and
h. approving certain notice procedures for the hearings hereon.
20. Pending entry of the Final Order, the Debtors seek approval of the Interim Order,
which will (i) authorize the Debtors to use Cash Collateral as set fmth in the DIP Budget; (ii)
authorize the Debtors to bonow up to $900,000 under the DIP Loan, (iii) grant to the Secured
Lender the liens and superpriority claims described herein, ( iv) schedule the Final Hearing, and
(v) approve ce1tain notice procedures.
SUMMARY OF PRINCIPAL TERMS OF DIP FINANCING
21. The DIP Loan is the product of arm's length negotiations between the Debtors,
the Secured Lender and their respective advisors.
22. Pursuant to Local Rule 4001-2, the following provisions are highlighted:
8
a. Grants of Cross-Collateralization(Local Rule 4001-2(a)(i)(A)). The
proposed Interim Order (p. 12, 2.1.1) grants the Seemed Lender a lien on
all Pre-petition and Post-petition Collateral (as such terms are defined in
the Ratification Agreement) (collectively, the "DIP Collateral") of the
Debtors to secure repayment of all obligations owed by the Debtors to the
Secured Lender.
b. Limitations on Investigation (Local Rule 4001-2(a)(i)(B)). The proposed
Interim Order (p. 15, 2.3.2) includes stipulations and findings of fact with
respect to, among other things, the extent, validity, priority, perfection and
enforceability of the claims, liens and security interests of the Seemed
Lender, as well as a waiver of claims held by the Debtors (and any party
acting by, through or on behalf of the Debtors) against the Secured
Lenders relating to the DIP Loan Documents. The Interim Order (p. 19,
4.1 ), however, gives all parties in interest other than the Debtors fOlty-
five ( 45) days after entry of the Interim Order to investigate and, if
appropriate, challenge such matters. The Debtors believe that a forty-five
day investigation period presents all parties in interest with more than
sufficient time within which to conduct any investigation of the Seemed
Lender's Claims. Fmiher, the Interim Order (p. 15, ~ 2 . 3 . 2 ) precludes the
Secured Lender's funds from being used to pay professional fees or
expenses incuned in connection with any such challenge.
c. Waiver of Smcharge Rights under 506(c) (Local Rule 4001-2(a)(i)(C)).
The proposed lntetim Order (p21 4.3) provides that, with the exception
of certain listed Carve-Out expenses, no costs or expenses of
administration shall be charged or assessed against or recovered from the
Secured Lender's collateral without the prior written consent of the
Secured Lender.
d. Lien on Avoidance Actions (Local Rule 4001-2(a)(i)(D)). The proposed
Interim Order (p. 15, ~ 7) grants the Seemed Lender a first-priority lien on
proceeds of avoidance actions under chapter 5 of the Bankruptcy Code.
This is appropriate because it is part of the secmity given for the DIP Loan
and because it likely is oflittle consequence given that the Secured Lender
has funded the Debtors' operations for several months prior to the Petition
Date and given that the Debtors' proposed Plan revests in Reorganized
Crdentia all avoidance claims the Debtors may have under Chapter 5 of
the Bankruptcy Code, which interests shall be owned by the Seemed
Lender.
e. Provisions that Deem Prepetition Debt to be Postpetition Debt (Local Rule
400 1-2(a)(i)(E)). There are no provisions in the proposed Interim Order
that deem prepetition debt to be postpetition debt.
.f. Provisions with Respect to the Treatment of Professionals Retained by a
Creditors' Committee and the Debtor (Local Rule 4001-2(a)(i)(F)). The
proposed Interim Order (p. 14-15, 2.3.1) provides for a carve-out from
the Secured Lender's collateral in the amount of $85,000 for Professionals
9
(including any notlcmg, balloting and claims agent) retained by the
Debtors and $25,000 for Professionals retained by any committee.
g. Provisions that Prime an Existing Secured Lien Without Such
Lienholder's Consent (Local Rule 4001-2(a)(i)(G)). There are no
provisions in the proposed Interim Order that prime an existing secured
lien without such lienholder's consent.
23. Certain key terms of the DIP Loan Documents are as follows:
4
a. Borrowers: Crdentia, Inc. CRDE Corp., GHS Acquisition Corporation,
Staff Search Acquisition Corp., MP Health Corp., Prime Staff, LP, Mint
Medical Staffing Odessa, LP and ATS Universal, LLC
b. Use of DIP Loan: The DIP Loan shall be used only to the extent that Cash
Collateral is not sufficient to pay the Debtors' and other expenses set forth
in the DIP Budget.
c. DIP Budget: Payment of any expenses, whether through the use of Cash
Collateral or with the proceeds of DIP Advances, shall be made only
pursuant to the DIP Budget, provided that (i) total cash expenditures may
exceed the amounts set forth in the DIP Budget provided that such cash
expenditures do not, in the aggregate, exceed 1 I 0% of the total cash
expenditures set fmth in the DIP Budget for any week without the prior
written consent of Secured Lender.
d. Interest Rate: The DIP Loan shall bear interest at the rate of 12%.
e. Temr The DIP Loan shall expire on the earlier of(a) May 31,2010, or
(b) an event of default shall have occured
f Security and Supe1:priority: The Prepetition Obligations shall be secured
by the Replacement Liens (as defined below). The DIP Loan shall be
secured, and all interest that accrues thereon shall be secured, by the DIP
Loan Documents, the Replacement Liens and by post-petition liens
pursuant to sections 363(c)(2), 364(c)(3) and 364(d)(1) of the Bankruptcy
Code. In addition, the DIP Loan shall have superpriority administrative
expense status under section 364( c)( 1) of the Bankruptcy Code.
24. The DIP Loan contains a carve-out (the "Carve-Out") from the Secured Lenders
Collateral with the following terms:
4
This summary is qualified iu its entirety by reference to the DIP Loan Documents. To the extent there is any
iucousisteucy between this Motion and the DIP Loan Documents, the latter shall govern.
10
a. The Debtors Professional Carve-Ont . The unpaid and outstanding
reasonable fees and expenses actually incuned on or after the Petition
Date, and approved by a final order of the Conrt pursuant to sections 326,
328, 330, or 331 of the Bankruptcy Code (collectively, the "Allowed
Professional Fees") by attorneys, accountants and other professionals
retained by the Debtors under section 327 or 1103(a) of the Bankruptcy
Code and any noticing, balloting and claims agent (the "Debtors'
Professionals"), less the amount of any retainers, if any, then held by each
$85,000 (the "Debtors Professional Fee Carve-Out").
b. The CommitteeDebtors Professional Carve Out . The unpaid and
outstanding Allowed Professional Fees by attorneys, accountants and
other professionals retained by any Committee(s) under section 327 or
11 03( a) of the Bankruptcy Code (collectively, the "Committee
Professionals"), less the amount of any retainers, if any, then held by each
Professionals, in a cumulative, aggregate sum not to exceed $25,000 (the
"Committee Professional Fee Carve-Out" and with the Debtors
Professional Fee Carve-Out, the "Professional Fee Carve-Out").
c. Excluded Professional Fees. The Professional Fee Carve-Out shall not be
used to pay any Allowed Professional Fees or any other fees and/or
expenses incuned by any Professional in connection with any of the
following: (a) an assertion or joinder in (but excluding any investigation
into) any claim, counter -claim, action, proceeding, application, motion,
objection, defense, or other contested matter seeking any order, judgment,
determination or similar relief: (i) challenging the legality, validity,
priority, perfection, or enforceability of the Obligations or Secured
Lender's liens on and security interests in the Collateral, (ii) invalidating,
setting aside, avoiding, or subordinating, in whole or in part, the
Obligations or Secured Lender's liens on and security interests in the
Collateral, or (iii) preventing, hindering, or delaying Secured Lender's
assetiion or enforcement of any lien, claim, right or security interest or
realization upon any Collateral, (b) a request for authorization to obtain
debtor-in-possession financing or other financial accommodations
pursuant to section 364(c) or (d) of the Banktuptcy Code other than from
Secured Lender without the prior written consent of Secured Lender, (c)
the commencement or prosecution of any action or proceeding of any
claims, causes of action, or defenses against Secured Lender or any of
their respective officers, directors, employees, agents, attorneys, affiliates,
assigns, or successors, including, without limitation, any attempt to
recover or avoid any claim or interest from Secured Lender under Chapter
5 of the Bankruptcy Code, or (d) any act which has the effect of materially
and adversely modifying or compromising the rights and remedies of
Secured Lender, or which is contrmy, in a matn1er that is material and
adverse to Secured Lender to any term or condition set fmih in or
acknowledged by the Financing Agreements or the Interim Order and
11
which results in the occurrence of an Event of Default under the
Financing Agreements and/or the Interim Order.
d. Carve Out Reserve. At Secured Lender's sole discretion, it may, at any
time and in any increment in accordance with the Loan Agreement,
establish an Availability Reserve against the amount of Loans and other
credit accommodations that would otherwise be made available to the
Debtors pursuant to the lending formulae contained in the Loan
Agreement in respect of the Professional Fee Carve-Out and the other
Carve-Out Expenses.
e. Payment of Carve-Out Expenses. Any payment or reimbursement made
either directly by or on behalf of Secured Lender at any time or by or on
behalf of the Debtors on or after the occurrence of an Event of Default (as
defined in the Ratification Agreement) in respect of any Allowed
Professional Fees or any other Carve-Out Expenses shall, in either case,
permanently reduce the Professional Fee Carve-Out for such Professional,
on a dollar-for-dollar basis. Secured Lender's obligation to fund or
otherwise pay the Professional Fee Carve Out and the other Carve-Out
Expenses shall be added to and made a part of the Obligations, secured by
the Collateral, and entitle the Seemed Lender to all of the rights, claims,
liens, priorities and protections under the Interim Order, the Financing
Agreements, the Bankruptcy Code, and/or applicable law. Payment of any
Carve-Out Expenses, whether by or on behalf of Seemed Lender, shall not
and shall not be deemed to reduce the Obligations and shall not be deemed
to subordinate any Secured Lender's liens and security interests in the
Collateral or their Super-Priority Claim to any junior pre-petition or post-
petition lien, interest, or claim in favor of any other party. Except as
othetwise provided herein with respect to the Professional Fee Carve-Out
and the other Carve-Out Expenses, Seemed Lender shall not be
responsible for the direct payment or reimbursement of any fees or
dis bmsements of any Professionals incurred in connection with the Cases
under any chapter of the Bankruptcy Code, and nothing in sections 2.3, 2.4
or 2.5 of the Interim Order shall be construed to obligate Secured Lender
in any way, to pay compensation to or to reimbmse expenses of any
Professional, or to ensure that the Debtors have sufficient funds to pay
such compensation or reimbmsement.
BASIS FOR RELIEF
A. Basis for Emergency Relief
25. As set forth in the Irish Declaration, the Debtors bring this Motion on an
expedited basis to avoid the immediate and irreparable harm that will be suffered by the Estates
12
if the Debtors do not obtain the liquidity needed to operate their business during these chapter II
cases. The Debtors need immediate access to both cash collateral and the proposed interim
financing.
26. Local Rule 4001(b) provides that the Court may grant interim relief when it is
necessary to avoid immediate and ineparable harm to the estate. Bankruptcy Rule 400 I (c)
provides that a final hearing on a motion to obtain credit pursuant to section 364 of the
Bankruptcy Code may not be commenced earlier than fifteen (15) days after the service of such
motion. Upon request, however, this Court is empowered to conduct an interim expedited
hearing on motion at which time it may authorize a debtor to obtain credit to the extent necessary
to avoid immediate and ineparable harm to a debtor's estate. Pursuant to Bankruptcy Rule
4001(c) and Local Rule 4001(b), the Debtors request that the Comi conduct an expedited Interim
Hearing as soon after the Petition Date as the Court's schedule permits.
27. The Debtors have determined, in consultation with their advisors, that they would
not be able to obtain alternative financing on tenus superior to the tenus of the DIP Loan, and
such terms are market terms that represent the best terms reasonably available to the Debtors.
B. The Court Should Permit the Debtors' Use of Cash Collateral
28. Section 363(c)(2) of the Bankruptcy Code provides that debtors may not use, sell or
lease cash collateral unless "(a) each entity that has an interest io such cash collateral consents; or
(b) the court, after notice and a heariog, authorizes such use, sale or lease io accordance with the
provisions of this section." II U.S.C. 363( c)(2). "Cash collateral'' is defined to mean "cash,
negotiable instruments, documents of title, securities, deposit accounts or other cash equivalents in
which the estate and an entity other than the estate have an interest." II U.S.C. 363(a).
29. Section 363(e) of the Bankruptcy Code provides that upon request of an entity
that has an interest in property to be used by a debtor, the Court shall prohibit or condition such
13
use as is necessary to provide adequate protection of such interest. Although "adequate
protection" is not defined in the Bankruptcy Code, section 361 of the Bankruptcy Code provides
the following tlu-ee non-exclusive examples of what may constitute adequate protection:
( 1) requiring the trustee to make a cash payment or periodic
cash payments to such entity, to the extent that the ... use .
. . under section 363 of this title, or any grant of a lien
under section 364 of this title results in a decrease in the
value of such entity's interest in such property;
(2) providing to such entity an additional or replacement lien to
the extent that such ... use ... results in a decrease in the
value of such entity's interest in such property; or
(3) granting such other relief ... as will result in the realization
by such entity of the indubitable equivalent of such entity's
interest in such property.
11 U.S.C. 361.
30. According to the legislative history, a finding of adequate protection is "left to
case-by-case interpretation and development. It is expected that the courts will apply the concept
in light of facts of each case and general equitable principals." H.R. Rep. No. 595, 95th Cong.,
2nd Sess. 339 (1977), reprinted in 1978 U.S.C.C.AN. 5787, 6295. See In re O'Connor, 808
F.2d 1393, 1396-97 (lOth Cir. 1987); In re Nashua Trust Co., 73 B.R. 423, 430-31 (Bankr. D.
N.J. 1987). The purpose is to protect a secured creditor from diminution in the value of its
interest in the particular collateral during the period of use. See In re Swede/and Dev. Group,
Inc., 16 F. 3d 552, 564 (3d Cir. 1994); In re Pursuit Athletic Footwear, Inc., 193 B.R. 713, 716
(Bankr. D. Del. 1996); In rePlanned Sys., Inc., 78 B.R. 852, 861-62 (Bankr. S.D. Ohio 1987).
31. The Secured Lender has consented to the Debtors' use of Cash Collateral on the
terms and conditions set forth in the DIP Loan Documents and Interim Order. The Secured
Lender has conditioned its consent to funding the DIP Loan on their receipt of replacement liens
on all DIP Collateral (the Liens") for their interest in the Prepetition Collateral
14
(the "Adequate Protection"). They fmiher require, as Adequate Protection, that the Replacement
Liens be deemed perfected automatically upon entry of the Interim Order, without the necessity
of the filing of any UCC financing statement, state or federal notice, mortgage or similar
instrument or document in any state or public record or office and without the necessity of taking
possession or "control" (within the meaning of the Uniform Commercial Code) of any Collateral.
32. The Debtors submit that the foregoing protections to be granted to the Seemed
Lender will provide the Secured Lender with sufficient adequate protection.
C. The Court Should Permit the Debtors to Obtain Secured DIP Financing
33. Section 364 of the Bankruptcy Code authorizes this Court to allow the Debtors to
obtain postpetition financing in the manner proposed. As secmity for all obligations owed under
the DIP Loan, the Debtors propose to grant to the Secured Lender, subject to the Carve-Out (as
defmed below), a superpriority claim and perfected first-priority security interests and liens on
the DIP Collateral.
34. Section 364 of the Bankruptcy Code provides as follows:
(c) If the trustee is unable to obtain unsecured credit allowable under section
503(b)(l) of this title as an administrative expense, the court, after notice
and a hearing, may authorize the obtaining of credit or the incurring of
debt-
(1) with priority over any and all administrative expenses of the kind
specified in section 503(b) and 507(b) ofthis title;
(2) secured by a lien on property of the estate that is not otherwise
subject to a lien;
(3) secured by a junior lien on property of the estate that is subject to a
lien.
(d) (1) The comi, after notice and a hearing, may authorize the obtaining
of credit or the incurring of debt secured by a senior or equal lien on
prope1iy of the estate that is subject to a lien only if-
( A) the trustee is unable to obtain such credit otherwise; and
15
11 U.S.C. 364.
(B) there is adequate protection of the interest of the holder of
the lien on the property of the estate on which such senior
or equal lien is proposed to be granted.
35. Generally, sections 364(c) and (d) of the Bankruptcy Code require a debtor to
demonstrate that alternative sources of post-petition credit are not available under sections 364(a)
or (b). However, where few lenders are likely able or willing to extend the credit required, "it
would be umealistic and unnecessary to require [the debtor] to conduct an exhaustive search for
financing." In re Sky Valley, Inc., 100 B.R. 107, 113 (Bankr. N.D. Ga. 1988), aff'd sub nom.,
Anchor Savings Bank FSB v. Sky Valley, Inc., 99 B.R. 117, 120 n. 4 (N.D. Ga. 1989).
36. The universe of lenders who would commit to meet the Debtors' postpetition
financing requirements is very limited. Given the Debtors' precarious financial condition and
existing financing anangements, the Debtors determined in consultation with their advisors that
they would not be able to obtain unsecured credit or other financial accommodations allowable
as an administrative expense under section 503(b)(l) of the Bankruptcy Code. DIP financing is
not otherwise available without the Debtors (i) granting, pursuant to section 364(c)(l) of the
Bankruptcy Code, claims having priority over any and all administrative expenses of the kinds
specified in sections 503(b) and 507(b), of the Bankruptcy Code, other than in respect of the
Carve-Out; and (ii) securing, pursuant to section 364(c)(2) and (3) of the Bank:mptcy Code, such
obligations with security interests in and liens on certain of the Debtors' assets (i.e., the DIP
Collateral).
37. The Debtors have determined in consultation with their advisors that the tenus of
financing proposed by the Secured Lender are the most favorable available under the
circumstances. This is particularly true given: (i) reduced liquidity in the financial markets; (ii)
the delay and cost attendant to soliciting proposals from new lenders, which would require
16
additional due diligence and related fees; (iii) the Debtors cannot survrve through use of
unencumbered prope1ty; and (iv) any effort to bring in alternative debtor-in-possession financing
will entail a "priming fight" that would be expensive, a distraction for the Debtors' management
and involve litigation risk. Further, the Debtors' Plan is predicated on the Secured Lender
effectively exchanging its debt for the equity of the Reorganized Crdentia and funding the Plan's
distributions. Accordingly, it is unrealistic to commence litigation against the Secured Lender in
order to install a new financing arrangement.
38. The Debtors negotiated the best financing arrangement that they can reasonably
expect under the circumstances. The fees are customary and reasonable, and courts routinely
authorize similar lender incentives beyond the explicit liens and rights specified in section 364 of
the Bankruptcy Code. See In re Defender Drug Stores, Inc., 145 B.R. 312, 316 (9th Cir. BAP
1992). Moreover, the alternatives are dire; without liquidity the Debtors cannot continue
operations and will be forced to dismiss these cases or conve1t to chapter 7.
39. Based on the foregoing, the Debtors request that the Court approve the DIP Loan
in accordance with the te1ms in the Ratification Agreement and DIP Orders.
D. The Secured Lender is Entitled to the "Good Faith"
Protections of Section 364(e) of the Bankruptcy Code
40. The terms and conditions of the DIP Loan are fair and reasonable. Such terms
and conditions were negotiated in good faith and at mm's length at all times by the Debtors, the
Secured Lender and their respective advisors. The DIP Loan Documents went through multiple
iterations and reflect material changes fi:om the te1ms originally proposed by the Secured Lender.
The Debtors and the Secured Lender also conducted extensive negotiations concerning the DIP
Budget and the te1ms of certain "first-day" pleadings that require the immediate use of cash
collateral and access to interim financing fiom the Secured Lender.
17
41. In light of the foregoing, the Secured Lender should be accorded the benefits and
protections of section 364( e) of the Bankmptcy Code with respect to the DIP Loan; specifically,
any loans, advances or other financial accommodations that the Secured Lender makes or causes
to be made from time-to-time to the Debtors on the te1ms and conditions set forth in the DIP
Loan should be deemed to have been made and provided in "good faith" as the te1m is used in
section 364(e) of the Bankmptcy Code, and shall be entitled to the full protection of section
364(e) ofilie Bankruptcy Code in the event that the DIP Orders or DIP Loan or any provisions
are hereafter modified, vacated, amended or stayed by subsequent order of this Court or any
other court without the express consent of the Secured Lender.
E. The Section 506(c) Waiver Should be Approved
42. The Court should approve the Debtors' waiver of any right to surcharge the
Postpetition Collateral. Such waivers and provisions are standard and customary under
financings between sophisticated parties such as the Debtors and the Secured Lender. As one
court noted in discussing the later enforceability of such waivers, "the Trustee and Debtors-in-
Possession in this case had significant interests in asserting claims under 506(c) and have made
use of their rights against the Secured Lender under 506(c) by waiving them in exchange for
concessions to the estates (including a substantial carve-out for the benefit of administrative
creditors)." In re Molten Metal Technology, Inc., 244 B.R. 515, 527 (Bankr. D. Mass. 2000); See
also In re Nutri/System of Florida Assocs., 178 B.R. 645, 650 (E. D. Pa. 1995) (noting that debtor
had waived 506(c) rights in obtaining debtor-in-possession financing); cf In re Telesphere
Communications, Inc., 179 B.R. 544, 549 (Bank. N.D. Ill. 1994) (approving settlement between
debtor and certain lenders wherein debtor waived certain rights (including 506(c) rights) against
the lenders in exchange for valuable consideration).
18
43. The waiver of surcharge rights is particularly appropriate where, as here, it is tied
to the benefit to be received fiom a carve-out. Under the DIP Loan, the Debtors agree to waive
any rights to charge costs and expenses against the Secured Lender's collateral except for the
Carve-Out. In other words, the Debtors have waived the uncertainty of surcharge rights in
exchange for the valuable and predictable rights granted to the Debtors' other estate
professionals under a carve-out. q In re Lunan Family Restaurants Ltd. P'ship, 192 B.R 173,
178 (N.D. IlL 1996) ("The burden of proof is on any proponent of 506(c) treatment, who must
show by a preponderance of evidence that [(1) the expenditure was necessary, (2) the amounts
were reasonable, and (3) the secured creditor was the party primarily benefited by the
expenditure]."), citing In re Flagstaff, 739 F.2d 73, 77 (2d Cir. 1984) and New Orleans Public
Service Inc. v. Delta Towers, Ltd. (In re Delta Towers), 112 B.R 811, 815 (B.D. La. 1990), rev'd
on other grounds sub nom., In re Delta Towers, 924 F.2d 74 (5th Cir. 1991).
F. Modification of Automatic St:rr
44. The DIP Loan contemplates a modification of the automatic stay to the extent
applicable and necessary, to permit the Secured Lender to implement the terms of the DIP Orders
and, upon the occulTence and during the continuance of an Event of Default, to exercise all rights
and remedies in the DIP Amendment as set forth in the Interim Order. Provisions of this kind
are standard in debtor-in-possession financing and are reasonable under the circumstances.
G. Establishing Notice Procedures and Request for Final Hearing
45. Pursuant to Bankruptcy Rule 4001(b)(2), the Court may commence a final hearing
fifteen (15) days after service of this Motion. Local Rule 4001-2(c) further specifies that the
Final Order may only be entered after notice and a hearing and that ordinarily a final hearing
shall be held at least ten (10) days after the organizational meeting of a creditors committee, if
any. The Debtors shall, within three (3) business days of the entry of the Interim Order by the
19
Court, serve by overnight mail, a copy of the Interim Order and a notice of the Final Hearing
("Final Hearing Notice") to consider entry of the Final Order on the date established by the
Comt.
46. Any party in interest objecting to the relief sought at the Final Hearing shall serve
and file objections, which objections shall: (i) be in writing; (ii) conform to the Bankmptcy
Rules and the Local Rules; and (iii) be filed with the Clerk of the United States Bankruptcy
Court for the District of Delaware no later than three (3) business days before the Final Hearing
and served upon the following patties so as to be received not less than three (3) business days
before the Final Hearing: (a) counsel to the Debtors, Gersten Savage, LLP, Attn: Paul
Rachmuth, Esq, 600 Lexington Avenue, New York, New York 10017 and Bayard, P.A., Attn:
Jamie L. Edmonson, Esq., 222 Delaware Avenue, Suite 900, Wilmington, Delaware 19899 (b)
the United States Trustee for the District of Delaware; (c) counsel to the Secured Lender,
Lowenstein Sandler PC, Attn: Thomas A Pitta, Esq, 65 Livingston Avenue, Roseland, New
Jersey 07068; tpitta@lowenstein.com and (d) counsel to any statutory committee appointed in
these chapter 11 cases.
47. The Debtors request that the Court schedule the Final Hearing and approve the
proposed notice and objection procedmes for the Final Hearing set forth herein.
NOTICE AND PRIOR MOTIONS
48. The Debtors shall, as soon as reasonably possible after the Court schedules the
interim heating on this Motion to consider entry of the proposed Interim Order, serve by overnight
mail, a notice of such interim hearing on (a) the U.S. Trustee, (b) the creditors listed on the
Debtors' Consolidated List of Creditors Holding 20 Largest Unsecmed Claims, (c) counsel to the
Secured Lender, and (d) all patties with liens of record on the Debtors' assets as of the Petition
Date.
20
49. In light of the nature of the relief requested herein, the Debtors submit that no
other and further notice of the Motion is necessary or required.
50. No previous request for the relief sought has been made to this or any other comt.
WHEREFORE, the Debtors request that the Comt (i) immediately enter the Interim
Order, (ii) schedule the Final Hearing, and (iii) grant the Debtors such other and further relief as
it deems may be just and proper under the circumstances.
March 17,2010
Wilmington, Delaware
BAYARD, P.A.
Is/ Jamie L. Edmonson
Jamie L. Edmonson (No. 4247)
222 Delaware A venue, Suite 900
Wilmington, DE 19801
Phone: (302) 655-5000
Fax: (302) 658-6395
-and-
GERSTEN SAY AGE, LLP
Paul Rachmuth
600 Lexington A venue
New York, New York 10022
Telephone: (212) 752-9700
Facsimile: (212) 980-5192
Proposed Counsel for the Debtors and
Debtors in Possession
21
Inre
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
Chapter 11
CRDENTIA CORP., et al.,' Case No. 10-___ _
Debtors. (Joint Administration Requested)
[PROPOSED] ORDER (A) AUTHORIZING DEBTORS TO
OBTAIN INTERIM POST-PETITION FINANCING AND
GRANT SECURITY INTERESTS AND SUPERPRIORITY
ADMINISTRATIVE EXPENSE STATUS PURSUANT TO 11 U.S.C.
105 AND 364(c); (B) MODIFYING THE AUTOMATIC STAY
PURSUANT TO 11 U.S.C. 362; (C) AUTHORIZING DEBTORS
TO ENTER INTO AGREEMENTS WITH COMVEST
CAPITAL LLC; AND (D) SCHEDULING A FINAL
HEARING PURSUANT TO BANKRUPTCY RULE 4001
Upon the motion (the "Motion"), dated March 17, 2010, Crdentia, Inc.
("Crdentia''), CRDE Corp., GHS Acquisition Corporation, Staff Search Acquisition Corp., MP
Health Corp., Prime Staff, LP, Mint Medical Staffing Odessa, LP and ATS Universal, LLC
(each, individually, a "Debtor" aud collectively, "Debtors" or "Bonower"), each as a debtor aud
debtor-in-possession in the above-captioned chapter 11 cases (collectively, the "Cases"),
pursuant to sections 105, 361, 362, 364(c)(1), 364(c)(2) aud 364(c)(3) of title 11 of the United
States Code, 11 U.S.C. 101, et seq. (the "Bankruptcy Code") and Rules 2002, 4001(c), aud
9014 of the Federal Rules of Banhuptcy Procedure (the "Bankruptcy Rules"), seeking, among
other things:
The Debtors, along with the last four digits of their federal tax identification numbers,
are: Crdentia Corp.(5701), ATS Universal, LLC (3980), Baker Anderson Christie, Inc. (3631),
CRDE Corp. (2509), GHS Acquisition Corporation (9736), Health Industry Professionals, LLC
(4246), IDP Holding, Inc. (3468), MP Health Corp. (4403), New Age Staffing, Inc. (1214) and
Nurses Network, Inc. (6291) .. The Debtors' mailing address for purposes of these cases is 1964
Howell Branch Road, Ste. 206, Winter Park, Florida 32792.
{BAY:Ol512347vl)
(1) authorization for Bon-ower to obtain post-petition loans, advances and
other financial accommodations on an interim basis for a period through and including the date
of the Final Hearing (as hereinafter defined) from Com Vest Capital LLC ("Lender"), inclusive of
the amount of all pre-petition indebtedness owed by Debtors to Lender, in accordance with the
terms and conditions set forth in the Existing Loan Agreement (as hereinafter defined), as
amended and ratified by the Ratification Agreement (as hereinafter defined), and in accordance
with the Budget (as hereinafter defmed) and this Order, secured by security interests in and liens
upon all of the Collateral (as hereinafter defined) pursuant to sections 364(c)(2) and 364(c)(3) of
the Bankruptcy Code;
(2) authorization for Debtors to enter into the Ratification and Amendment
Agreement, dated March 17, 2010 (the "Ratification Agreement", a copy of which is annexed to
the Exhibit Supplement to the Motion (the "Exhibit Supplement") as Exhibit "B" thereto), by
and among Debtors and Lender, which ratifies, extends, adopts and amends the Existing Loan
Agreement and the other existing loan, financing and security agreements by and among
Bon-ower, and Lender (capitalized ten-us not otherwise defined in this Order shall have the
respective meanings ascribed thereto in the Existing Loan Agreement, as amended and ratified
by the Ratification Agreement);
(3) modification of the automatic stay to the extent hereinafter set forth;
( 4) granting to Lender a super-priority administrative claim status pursuant to
section 364(c)(1) of the Bankruptcy Code in respect of all Obligations (as defined in the
Ratification Agreement); and
( 5) setting a final hearing on the Motion.
Due and appropriate notice of the Motion, the relief requested therein, and the
Interim Hearing (as defined below) (the "Notice") having been served by the Debtors on (i) the
Lender; (ii) Ur,tited States Trustee for the District of Delaware (the "U.S. Trustee"); (iii) holders
of the twenty (20) largest unsecured claims against the Debtors' estates (on a consolidated basis)
(the "20 Largest Unsecured Creditors"); (iv) the Internal Revenue Service ("IRS"); (v) the
2
Attorney General of the State of Delaware; (vi) all landlords, owners, and/or operators of
premises at which any of the Debtors' inventory and/or equipment is located; and (vii) certain
other parties identified in the certificate of service filed with the Comt, including, without
limitation, all creditors who have filed or recorded pre-petition liens or security interests against
any of the Debtors' assets (collectively, the "Noticed Parties");
The initial hearing on the Motion having been held by this Comt on March [_j,
2010 (the "Interim Hearing");
Upon the record made by the Debtors at the Interim Hearing, including the
Motion and the filings and pleadings in the Cases, and good and sufficient cause appearing
therefore;
THE COURT HEREBY MAKES THE FOLLOWING FINDINGS OF FACTS
AND CONCLUSIONS OF LAW:
A Petition. On March 17, 2010 (the "Petition Date"), each of the Debtors
filed voluntary petitions (the "Petitions") under chapter 11 of the Bankruptcy Code. A motion
for joint administration of the Debtors' estates is pending. The Debtors continue to operate their
businesses and manage their propetties as debtors-in-possession pmsuant to sections 1107(a) and
1108 of the Bankmptcy Code.
B. Jmisdiction and Venue. The Court has jurisdiction of this proceeding and
the parties and propetty affected hereby pmsuant to 28 U.S.C. 157(b) and 1334. The Motion
is a "core" proceeding as defined in 28 U.S. C. 157(b)(2)(A), (D), and (M). Venue of the Cases
and the Motion in this Comt is proper pmsuant to 28 U.S.C. 1408 and 1409.
C. Notice. Under the circumstances, the Notice given by the Debtors of the
Motion, the Interim Hearing and the relief granted under this Order constitutes due and sufficient
notice thereof and complies with Bankruptcy Rule 400 1( c).
'D. Debtors' Acknowledgments and Agreements. The Debtors admit,
stipulate, acknowledge and agree that:
3
(i) Pre-Petition Financing Agreements. Prior to the commencement
of the Cases, Lender made loans and advances and provided credit accommodations to Borrower
pursuant to (1) Loan and Security Agreement, dated July 3, 2008, by and between Borrower and
Lender, as successor to Capital Tempfunds, a division of Capital Business Credit LLC
("Tempfunds"), the First Amendment dated as of June 22, 2009, between Wells Fargo Bank,
N.A., acting through its Wells Fargo Business Credit and Operating Division ("WFBC"),
successor in interest to Tempfunds, and the Second Amendment to Loan and Security
Agreement, dated July 7, 2009 (as the same has heretofore been amended, supplemented,
modified, extended, renewed, restated and/or replaced at any time prior to the Petition Date, the
"Existing Loan Agreement"), and (2) all other agreements, documents, and instruments executed
and/or delivered with, to, or in favor of Lender, including, without limitation, the security
agreements, notes, guarantees, mortgages, and Uniform Commercial Code ("UCC") financing
statements and all other related agreements, documents, and instruments executed and/or
delivered in connection therewith or related thereto, (collectively, the "Pre-Petition Financing
Agreements"). Copies of the operative Pre-Petition Financing Agreements are annexed to the
Exhibit Supplement as Exhibit "B".
(ii) Term Loan Debt. Prior to the commencement of the Cases,
Borrower obtained term loans from Lender pursuant to the Revolving Credit and Term Loan
Agreement dated February 22, 2008, executed by Crdentia in favor of Lender in the aggregate
principal amount of $16,700,000 (the "Term Loan Agreement" and together with all other
agreements, documents and instruments executed and/or delivered in connection therewith, the
"Term Loan Documents"). Pursuant to the Te1m Loan Documents, bonowings are secured by
the Pre-Petition Collateral (as hereinafter defined).
(iii) Pre-Petition Obligations Amount. As of the Petition Date, the
aggregate amount of all Loans and other Pre-Petition Obligations (as defined in the Ratification
Agreement) owed by the Debtors to Secured Lender under and in connection with the Pre-
4
Petition Financing Agreements, consisting of Revolving Loans with a principal due in an amount
not less than $5,736,551.72 and the Term Loans with principal due in an amount not less than
$10,693,240.81 plus all interest accruing thereon, and all fees, costs, expenses, and other charges
accrued, accruing, or chargeable with respect thereto totaling $18,995,353.01 (the "Pre-Petition
Obligations", as such term is more fully defined in the Ratification Agreement
1
), and that the
Pre-Petition Obligations constitute allowed, legal, valid, binding, enforceable and non-avoidable
obligations of the Debtors, and are not subject to any offset, defense, counterclaim, avoidance,
recharacterization or subordination pursuant to the Bankruptcy Code or any other applicable law,
and Debtors do not possess and shall not assert any claim, counterclaim, setoff or defense of any
kind, nature or description which would in any way affect the validity, enforceability and non-
avoidability of any of the Pre-Petition Obligations.
(iv) Pre-Petition Collateral. As of the Petition Date, the Pre-Petition
Obligations were fully secured pursuant to the Pre-Petition Financing Agreements by valid,
perfected, enforceable and non-avoidable first priority security interests and liens granted by the
Debtors to Lender upon all of the Collateral (as defined in the Existing Loan Agreement)
existing as of the Petition Date and all rents, issues, profits, proceeds, and products thereof (the
"Prepetition Collateral", and collectively, together with any other property of the Debtors'
bankruptcy estates (as defined under section 541 of the Bankruptcy Code, the "Estates") .
Debtors do not possess and will not assert any claim, counterclaim, setoff or defense of any kind,
nature or description, which would in any way affect the validity, enforceability and non-
avoidability of any of Lender's liens, claims and/or security interest in the Pre-Petition
Collateral.
To the extent that the te1m "Pre-Petition Obligations" as defined and used in this Interim
Order is in ari.y way inconsistent or conflicts with the way in which such term is defined in the
Ratification Agreement, the definition of such term contained in the Ratification Agreement shall
control and shall be incorporated into this Interim Order.
5
E. Findings Regarding the Postpetition Financing.
(i) Postpetition Financing. The Debtors have requested from Lender,
and Lender is willing to extend, certain loans, advances and other financial accommodations, as
more particularly described and on the terms and conditions set fmth in this Order and the
Financing Agreements (as hereinafter defined);
(ii) Need for Post-Petition Financing. The Debtors do not have
sufficient available sources of working capital to operate their businesses in the ordinary course
of their businesses without the financing requested under the Motion. The Debtors' ability to
maintain business relationships with their vendors, suppliers, and customers, to pay their
employees, and to otherwise fund their operations, is essential to Debtors' continued viability.
The ability of the Debtors to obtain sufficient working capital and liquidity through the proposed
post-petition financing arrangements with Lender as set forth in this Order and the Financing
Agreements is vital to the preservation and maintenance of the going concern values of the
Debtors. Accordingly, the Debtors have an immediate need to obtain the post-petition financing
in order to permit, among other things, the orderly continuation of the operation of their
businesses, to minimize the disruption of their business operations, and to manage and preserve
the assets of their estates in order to maximize the recovery to all estate creditors;
(iii) No Credit Available on More Favorable Tenns. The Debtors
believe that it would be futile, under the circumstances, to pursue alternative post-petition
financing in the form of: (1) unsecured credit allowable as an administrative expense under
Section 503(b)(l) of the Code; (2) unsecured credit allowable under Sections 364(a) and 364(b)
of the Code; or (3) secured credit pursuant to Section 364(c) of the Code, on more favorable
tenns and conditions from sources other than the Secured Lender. Accordingly, the Secured
Lender has agreed to fund the Debtors' continued operations in chapter 11 in exchange for the
reasonable protections proposed, including first-priority liens on all of the Debtors' assets.;
(iv) Business Judgment and Good Faith Pursuant to Section 364(e).
The terms of the Financing Agreements and this Order are fair, just, and reasonable under the
6
circumstances, are ordinary and appropriate for secured financing to debtors-in-possession,
reflect the Debtors' exercise of their prudent business judgment consistent with their fiduciary
duties, and are suppmted by reasonably equivalent value and fair consideration. The terms and
conditions of the Financing Agreements and this Order have been negotiated in good faith and at
arms' length by and among the Debtors and Lender, with all parties represented by counsel. Any
credit extended under the terms of this Order shall be deemed to have been extended in good
faith by Lender as that term is used in section 364( e) of the Banlauptcy Code.
( v) Budget. Bonower has prepared and delivered to Lender an initial
thi:tteen (13) week budget (the "Budget") (a copy of which is annexed to the Exhibit Supplement
as Exhibit "C"). The Budget has been thoroughly reviewed by Bonower and its management
and sets forth, among other things, in each case, commencing with the week ending as of March
19, 2010: (A) projected weekly cash receipts for each week; (B) projected weekly cash
disbmsements for each week; and (C) projected weekly loan balances for each week. Lender is
relying upon the Debtors' compliance with the Budget in accordance with Section 5.3 of the
Ratification Agreement in determining to enter into the post-petition financing agreements
provided for herein.
(vi) Good Cause. The relief requested in the Motion is necessary,
essential, and appropriate and is in the best interests of and will benefit the Debtors, then
creditors, and their Estates as its implementation will, among other things, provide the Debtors
with the necessary liquidity (A) to minimize disruption to the Debtors' businesses and on-going
operations, (B) preserve and maximize the value of the Debtors' Estates for the benefit of all the
Debtors' creditors, and (C) avoid immediate and irreparable harm to the Debtors, their creditors,
their businesses, their employees, and their assets.
(vii) Immediate Entry. Sufficient cause exists for immediate entry of
this Order pmsuant to Bankruptcy Rules 4001(c)(2). No party appearing in the Cases has filed
or made an objection to the relief sought in the Motion and the entry of this Order, or any
7
objections that were made (to the extent such objections have not been withdrawn) are hereby
ovenuled.
Based upon the foregoing, and after due consideration and good cause appearing
therefor;
IT IS HEREBY ORDERED, ADJUDGED AND DECREED, that:
Section 1. Authorization and Conditions to Financing.
1.1 Motion Granted. The Motion is granted in accordance with Bankmptcy
Rule 400l(c)(2) to the extent provided in this Order. This Order shall hereinafter be refetTed to
as the " I n t e t ~ m Order."
1.2 Authorization to Bonow and Use of Loan Proceeds. Bon-ower is hereby
authorized and empowered to immediately bon-ow and obtain Loans and to incur indebtedness
and obligations owing to Lender pursuant to the terms and conditions of this Interim Order and
the Existing Loan Agreement, as ratified and amended by the Ratification Agreement (as the
same has heretofore been or may hereafter be amended, modified, supplemented, restated,
extended or replaced, the "Loan Agreement"; as such term is more fully defined in the
Ratification Agreement) and the other Financing Agreements during the period commencing on
the date of this Interim Order through and including the date of the Final Hearing as set forth in
section 6 of this Interim Order (the "Interim Financing Period") in an amount not to exceed
$500,000 in accordance with the Budget. Subject to the terms and conditions contained in this
Interim Order, the Budget and the Financing Agreements, Bon-ower shall use the proceeds of the
Loans and any other credit accommodations provided to Bon-ower or pursuant to this Interim
Order and the Loan Agreement for, inter alia, the payment of employee salaries, payroll, taxes,
and other general operating and working capital purposes in the ordinary course of Debtors'
businesses in accordance with the Financing Agreements, including amounts paid for such
purposes which may constitute administrative expense claims under the Bankruptcy Code
directly attributable to the operation of Debtors' businesses, expenditures authorized by final
order of the Court including, without limitation, professionals whose retention has been approved
8
by the Court under Sections 327, 328, and 330 of the Bankruptcy Code (to the extent such Court-
authorized expenditures are in accordance with the Financing Agreements) and the fees of the
U.S. Trustee, the Clerk of this Comt.
1.3 Financing Agreements.
1.3.1 Authorization. The Debtors are hereby authorized and directed to
enter into, execute, deliver, perfonn, and comply with all of the terms, conditions and covenants
of the Loan Agreement, the other Pre-Petition Financing Agreements, as ratified and amended
by the Ratification Agreement, and all other agreements, documents and instruments executed
and/ or delivered in connection with or related to the Loan Agreement and the Pre-Petition
Financing Agreements and this Interim Order, pursuant to which, inter alia, the Debtors ratify,
reaffirm, extend, assume, adopt, amend, and restate the Existing Loan Agreement and the other
Pre-Petition Financing Agreements to which they are a party, and together with the Loan
Agreement, the Pre-Petition Financing Agreements, as ratified and amended by the Ratification
Agreement, and all other agreements, documents and instruments executed and/or delivered in
connection therewith or related thereto, as all of the same have heretofore been or may hereafter
be amended, modified, extended, supplemented, restated or replaced, collectively, the "Financing
Agreements").
1.3 .2 Approval. The Financing Agreements (including, without
limitation, the Loan Agreement) and each term set forth therein are approved to the extent
necessary to implement the tenns and provisions of this Interim Order. All of such terms,
conditions, and covenants shall be sufficient and conclusive evidence of the borrowing
arrangements by and among the Borrower and Lender and of the Debtors' assumption and
adoption of all of the terms, conditions, and covenants of the Loan Agreement and the other
Financing Agreements for all purposes, including, without limitation, to the extent applicable,
9
the payment of all Obligations (as defined in the Loan Agreement) arising thereunder, including,
without limitation, all principal, interest, commissions, servicing fees, unused line fees, DIP
facility fees, early termination fees, and other fees and expenses, including, without limitation,
all of Lender's attorneys' fees and legal expenses, as more fully set forth in the Financing
Agreements.
1.3.3 Amendment. Subject to the te1ms and conditions of the Loan
Agreement and the other Financing Agreements, Lender and Debtors may amend, modifY,
supplement, or waive any provision of the Financing Agreements (an "Amendment") without
further approval or order of the Comt so long as (i) such Amendment is not material (for
pmposes hereof, a "material" Amendment shall mean any Amendment that operates to increase
the rate of interest other than as currently provided in the Financing Agreements, increase the
Maximum Credit (as defined in the Ratification Agreement), add specific new events of default
or enlarge the natme and extent of default remedies available to Lender following an event of
default, or otherwise modifY any terms and conditions in any Financing Agreements in a manner
materially less favorable to the Debtors (in the good faith judgment of Lender and Debtors), (ii)
the Debtors provide prior written notice of the Amendment (the "Amendment Notice") to
counsel to any official committee appointed in the Cases under section 1102 of the Bankruptcy
Code (collectively, the "Committee(s)") or in the event no such Committee is appointed at the
time of such Amendment, the 20 Largest Unsecured Creditors, and (y) the U.S. Trustee, and file
the Amendment Notice with the Court, and (iii) no objection to the Amendment is filed with the
Comt within two (2) business days from the later of the date the Amendment Notice is served or
the date the Amendment Notice is filed with the Comt in accordance with this section. Any
material Amendment to the Financing Agreements must be approved by the Court to be
effective.
1.4 Payment of Pre-Petition Debt. The Debtors are authorized to pay Lender
on account of the Pre-Petition Obligations in accordance with the Financing Agreements and
sections 1. 5 and I. 6 of this Interim Order.
10
1.5 Payments and Application of Payments. The Debtors are authorized and
directed to make all payments and transfers of Estate property to Lender as provided, permitted,
and/or required under the Loan Agreement and other Financing Agreements, which payments
and transfers shall not be avoidable or recoverable from Lender under Sections 547, 548, 550,
553 or any other provision of the Bankruptcy Code or any other claim, charge, assessment, or
other liability, whether by application of the Bankruptcy Code, other law, or otherwise. Lender
shall apply the proceeds of the Collateral or any other amounts or payments received by Lender
in respect of the Obligations in accordance with the Loan Agreement, the other Financing
Agreements and this Interim Order, including, without limitation, applying all payments,
proceeds and other amounts first to the Pre-Petition Obligations, until such Pre-Petition
Obligations are indefeasibly paid in full and completely satisfied, and then to the Post-Petition
Obligations. Without limiting the generality of the foregoing, the Debtors are authorized and
directed, without further order of this Court, to pay or reimburse Lender for all present and future
costs and expenses, including, without limitation, all reasonable professional fees and legal
expenses, paid, or incurred by Lender in connection with the financing transactions as provided
in this Interim Order and the Financing Agreements, all of which, among other things, shall be
and are included as part of the principal amount of the Obligations, and shall be secured by the
Collateral.
1.6 Continuation of Pre-Petition Procedures. All pre-petition practices and
procedures for the payment and collection of proceeds of the Collateral, the turnover of cash, and
delivery of propetiy to Lender, and the funding pursuant to the Financing Agreements, including
the blocked account arrangements and any other similar lockbox and blocked depository bank
accounts arrangements, are hereby approved, shall continue without intenuption or break in
continuity after the collilllencement ofthe Cases, and shall apply to any and all deposit accounts
established in accordance with applicable Guidelines of the United States Trustee, other local
rules and mandates or otherwise.
II
Section 2. Postpetition Lien; Superpriority Administrative Claim Status.
2.1 Post-Petition Lien.
2.1.1 Lien Granting. To secure the prompt payment and performance of
any and all Obligations of Debtors to Lender of whatever kind or natme or description, absolute
or contingent, now existing or hereafter arising, including, without limitation, all Pre-Petition
Obligations and all Post-Petition Obligations (as defined in the Ratification Agreement)
(collectively, the "Obligations", as such term is more fully defined in the Ratification Agreement
and is incorporated herein by reference), Lender shall have and is hereby granted, effective as of
the Petition Date, valid and perfected first priority security interests and liens, superior to all
other liens, claims and/or security interests that any creditor of any Debtor's Estate may have
(but subject to the Permitted Encumbrances and certain claims entitled to priority as and to the
extent expressly provided in section 2.1.2 below), in and upon all of the Pre-Petition Collateral
and the Post-Petition Collateral (as each term is defined in the Ratification Agreement). The Pre-
Petition Collateral and the Post-Petition Collateral are collectively referred to herein as the
"Collateral". Notwithstanding the foregoing or anything to the contrary contained in the Loan
Agreement, Lender's lien on and security interest in avoidance actions under Chapter 5 of the
Bankmptcy Code shall secure the Loans and other Obligations advanced or incuned after the
Petition Date until the entry of a Permanent Financing Order granting to Lender such a lien and
security interest on all Obligations. In accordance with Sections 552(b) and 361 of the
Bankruptcy Code, the value, if any, in any of the Collateral, in excess of the amount of the
Obligations secured by such Collateral after satisfaction of the Post-Petition Obligations of
Debtors to Lender, shall constitute additional security for the repayment of the Pre-Petition
Obligations and adequate protection for the use by Debtors and the diminution in the value of the
Collateral existing on the Petition Date.
2.1.2 Lien Priority. The pre-petition and post-petition liens and secmity
interests of Lender granted under the Financing Agreements and this Interim Order in the
Collateral shall be and shall continue to be first and senior in priority to all other interests and
12
liens of every kind, nature and description, whether created consensually, by an order of the
Comt, or otherwise, including, without limitation, liens or interests granted in favor of third
pmties in conjunction with sections 363, 364, and/or any other sections of the Bankruptcy Code
or other applicable law; provided, however, that Lender's liens and security interests in the
Collateral shall be subject only to (i) the liens expressly permitted under Sections 8.4 and 9.8 of
the Loan Agreement (to the extent such liens are valid, perfected, enforceable and unavoidable);
and (ii) the Carve-Out Expenses (as defined herein) solely to the extent provided for in sections
2.3, 2.4 and 2.5 of this Interim Order (collectively, the "Permitted Liens and Claims").
2.1.3 Post-Petition Lien Perfection. This Interim Order shall be
sufficient and conclusive evidence of the priority, perfection, and validity of the Post-Petition
Liens, effective as of the Petition Date, without any further act and without regard to any other
federal, state, or local requirements or law requiring notice, filing, registration, recording, or
possession of the Collateral or other act to validate or perfect such security interest or lien
including without limitation, control agreements with other financial institutions holding a
blocked account, investment property control account or other depository account consisting of
Collateral (a "Perfection Act"). Notwithstanding the foregoing, if Lender shall, in its sole
discretion, elect for any reason to file, record, or otherwise effectuate any Perfection Act, Lender
is authorized to perform such act and the Debtors are authorized and directed to perform such act
to the extent necessary or required by Lender, which act or acts shall be deemed to have been
accomplished as of the date and time of entry of this Interim Order, notwithstanding the date and
time actually accomplished, and in such event, the subject filing or recording office is authorized
to accept, file, and/or record any document in regard to such act in accordance with applicable
law. Lender may choose to file, record, or present a certified copy of this Interim Order in the
same manner as a Perfection Act, which shall be tantamount to a Perfection Act, and, in such
event, the subject filing or recording office is authorized to accept, file, or record such certified
copy of this Interim Order in accordance with applicable law. Should Lender so choose and
attempt to file, record, or perform a Perfection Act, no defect or failure in connection with such
13
attempt shall in any way limit, wmve, or alter the validity, enforceability, attachment, or
perfection of the Postpetition Lien by virtue of ently of this Interim Order.
2.2 Superpriority Administrative Expense. For all Post-Petition Obligations
now existing or hereafter arising pursuant to this Interim Order, the Financing Agreements or
otherwise, Lender is granted an allowed super-priority administrative claim pursuant to section
364(c)(1) of the Bankruptcy Code having priority in right of payment over any and all other
obligations, liabilities and indebtedness of Debtors, now in existence or hereafter incurred by
Debtors and over any and all administrative expenses or priority claims of the kind specified in,
or ordered pursuant to, inter alia, sections 105, 326, 328, 330, 331, 503(b), 506(c), 507(a),
507(b), 364(c)(1), 726 and/or 1114 of the Bankruptcy Code (the "Super-Priority Claim")
provided, however, the Super-Priority Claim shall be subject only to the Permitted Liens and
Claims as and to the extent expressly set forth in this Interim Order.
2.3 Carve-Out Expenses.
2.3.1 Carve-Out Expenses. Upon the declaration by Lender of
the occmTence of an Event of Default (as defined herein), Lender's liens, claims and security
interests in the Collateral and its Super-Priority Claim shall be subject only to the right of
payment of the following expenses (the "Carve-Out Expenses"):
a. statutory fees payable to the U.S.
Trustee pursuant to 28 U.S. C. section 1930(a)(6);
b. fees payable to the Clerk of this
Court; and
c. subject to the terms and conditions of
this Interim Order, the unpaid and outstanding reasonable fees and
expenses actually incurred on or after the Petition Date, and
approved by a final order of the Court pursuant to sections 326,
328, 330, or 331 of the Bankruptcy Code (collectively, the
"Allowed Professional Fees") by attorneys, accountants, and other
14
professionals retained by the Debtors under section 327 or 1103(a)
of the Bankruptcy Code, as well as notice, balloting and claims
agents (the "Debtors Professionals"), less the amount of any
retainers, if any, then held by each Debtors Professionals, in a
cumulative, aggregate sum not to exceed $85,000 (the "Debtors
Professional Fee Carve-Out").
d. subject to the terms and conditions of
this Interim Order, the unpaid and outstanding Allowed
Professional Fees by attorneys, accountants and other professionals
retained by any Committee(s) under section 327 or 1103(a) of the
Bankruptcy Code (collectively, the "Committee Professionals"),
less the amount of any retainers, if any, then held by each
Committee Professionals, in a cumulative, aggregate sum not to
exceed $25,000 (the "Committee Professional Fee Carve-Out" and
with the Debtors Professional Fee Carveout, the "Professional Fee
Carveout" ).
2.3.2 Excluded Professional Fees. Notwithstanding anything to
the contrary in this Interim Order, the Professional Fee Carve-Out shall not be used to pay any
Allowed Professional Fees or any other fees and/or expenses incuned by any Professional in
connection with any of the following: (a) an assertion or joinder in (but excluding any
investigation into) any claim, counter-claim, action, proceeding, application, motion, objection,
defense, or other contested matter seeking any order, judgment, determination or similar relief:
(i) challenging the legality, validity, priority, perfection, or enforceability of the Obligations or
Lender's liens on and security interests in the Collateral, ( ii) invalidating, setting aside, avoiding,
or subordinating, in whole or in part, the Obligations or Lender's liens on and security interests
in the Collateral, or (iii) preventing, hindering, or delaying Lender's assertion or enforcement of
any lien, claim, right or security interest or realization upon any Collateral, (b) a request 1:l!....!lsl:
15
the Cash Collateral (as such term is defined in section 363 of the Bankruptcy Code) other than as
set forth in this Order, without the prior written consent of Lender, (c) a request for authorization
to obtain debtor-in-possession financing or other financial accommodations pursuant to section
364(c) or (d) of the Bankruptcy Code other than from Lender without the prior written consent of
Lender, (d) the commencement or prosecution of any action or proceeding of any claims, causes
of action, or defenses against Lender or any of their respective officers, directors, employees,
agents, attomeys, affiliates, assigns, or successors, including, without limitation, any attempt to
recover or avoid any claim or interest from Lender under Chapter 5 of the Bankruptcy Code, or
(e) any act which has the effect of materially and adversely modifying or compromising the
rights and remedies of Lender, or which is contrary, in a manner that is material and adverse to
Lender to any term or condition set forth in or acknowledged by the Financing Agreements or
this Interim Order and which results in the occurrence of an Event of Default under the
Financing Agreements and/ or this Interim Order.
2.4 Carve-Out Reserve. At Lender's sole discretion, Lender may, at any time
and in any increment in accordance with the Loan Agreement, establish an Availability Reserve
against the amount of Loans and other credit accommodations that would otherwise be made
available to the Debtors pursuant to the lending formulae contained in the Loan Agreement in
respect of the Professional Fee Carve-Out and the other Carve-Out Expenses.
2.5. Payment of Carve-Out Expenses. Any payment or reimbursement made
either directly by or on behalf of Lender at any time or by or on behalf of the Debtors on or after
the occurrence of an Event of Default in respect of any Allowed Professional Fees or any other
Carve-Out Expenses shall, in either case, permanently reduce the Debtors or Committees
Professional Fee Carve-Out, as applicable, on a dollar-for-dollar basis. Lender's obligation to
fund or otherwise pay the Professional Fee Carve-Out and the other Carve-Out Expenses shall be
added to and ':lade a part of the Obligations, secured by the Collateral, and entitle Lender to all
of the rights, claims, liens, priorities and protections under this Interim Order, the Financing
Agreements, the Bankruptcy Code, and/or applicable law. Payment of any Carve-Out Expenses,
16
whether by or on behalf of Lender, shall not be deemed to reduce the Obligations and shall not
be deemed to subordinate any Lender's liens and security interests in the Collateral or their
Super-Priority Claim to any junior pre-petition or post-petition lien, interest, or claim in favor of
any other party. Except as otherwise provided herein with respect to the Professional Fee Carve-
Out and the other Carve-Out Expenses, Lender shall not be responsible for the direct payment or
reimbursement of any fees or disbursements of any Professionals incuned in connection with the
Cases under any chapter of the Bankruptcy Code, and nothing in sections 2.3, 2.4 or 2.5 of this
Interim Order shall be constmed to obligate Lender in any way, to pay compensation to or to
reimburse expenses of any Professional, or to ensure that the Debtors have sufficient funds to
pay such compensation or reimbursement.
2.6. Section 507(b) Priority. To the extent Lender's liens on and security
interests in the Collateral or any other form of adequate protection of the Lender's interests is
insufficient to pay indefeasibly in full all Obligations, Lender shall also have the priority in
payment afforded by section 507(b) to the extent of any such deficiency.
Section 3. Default; Rights and Remedies; Relief from Stay.
3.1 Events of Default. The occunence of any of the following events shall
constitute an Event of Default under this Interim Order:
a. Debtors' failure to perform, m any respect, any of the tenus,
conditions or covenants or its obligations under this Interim Order; or
b. An "Event of Default" under the Loan Agreement or any of the other
Financing Agreements.
3.2 Rights and Remedies Upon Event of Default. Upon the occmTence of and
during the continuance of an Event of Default, the Debtors shall be bound by all restrictions,
prohibitions, and other tenus as provided in this Interim Order, the Loan Agreement, and the
other Financing Agreements, and Lender may elect any and all consequences of such Event of
Default, and Lender shall be entitled to take any act or exercise any right or remedy as provided
in this Interim Order and/or any Financing Agreement, including, without limitation, declaring
17
all Obligations immediately due and payable, accelerating the Obligations, ceasing to extend
Loans and/or make Letter of Credit Accommodations on behalf of Debtors, and, subject to
paragraph 3.4 below, setting off any Obligations with Collateral or proceeds in Lender's
possession, and enforcing any and all rights with respect to the Collateral. Lender shall have no
obligation to lend or advance any additional funds to or on behalf of the Debtors, or provide any
other financial accommodations to the Debtors immediately upon or after the occurrence of an
Event of Default or an act, event, or condition that with the giving of notice or the passage of
time, or both, would constitute an Event of Default.
3.3 Expiration of Commitment. Upon the expiration of the Debtors' authority
to borrow and obtain other credit accommodations fiom Lender pursuant to the tenns of this
Interim Order and the Financing Agreements (except if such authority shall be extended with the
prior written consent of Lender, which consent shall not be implied or construed from any other
action, inaction or acquiescence by Lender), unless an Event of Default set forth in section 3.2
above occms sooner and the automatic stay has been lifted or modified pmsuant to section 3.4 of
this Interim Order, all of the Obligations shall immediately become due and payable and the
Lender shall be automatically and completely relieved from the effect of any stay under section
362 of the Bankruptcy Code or any other restriction on the enforcement of its liens upon and
secmity interests in the Collateral or any other rights granted to Lender pursuant to the terms and
conditions of the Financing Agreements or this Interim Order, and Lender shall be and is hereby
authorized, in its discretion, to take any and all actions and remedies provided to it in this Interim
Order, the Financing Agreements and/or applicable law, which Lender may deem appropriate
and to proceed against and realize upon the Collateral and any other prope1ty of the Debtors'
Estates.
3.4 Relief fiom Automatic Stay. The automatic stay provisions of section 362
of the Bankruptcy Code and any other restriction imposed by an order of the Court or by law are
hereby modified and vacated without fiuther notice, application, or order of the Court to the
extent necessary to permit Lender to perform any act authorized or permitted under or by virtue
18
of this Interim Order or the Financing Agreements, including, without limitation, (a) to
implement the post-petition financing arrangements authorized by this Interim Order and
pursuant to the terms of the Financing Agreements, (b) to take any act to create, validate,
evidence, attach, or perfect any lien, security interest, right or claim in the Collateral, and (c) to
assess, charge, collect, advance, deduct, and receive payments with respect to the Obligations,
including, without limitation, all interests, fees, costs, expenses permitted under the Financing
Agreements, and apply such payments to the Obligations pursuant to the Financing Agreements
and this Interim Order. In addition, and without limiting the foregoing, upon the occunence of
an Event of Default and after providing tlTI"ee (3) business days prior written notice (the
"Enforcement Notice") to counsel for the Debtors, counsel for the Committee (if appointed), the
U.S. Trustee and the Court, Lender shall be entitled to take any action and exercise all rights and
remedies provided to them by this Interim Order, the Financing Agreements and/or applicable
law as it may deem appropriate in its sole discretion to, among other things, proceed against and
realize upon the Collateral and any other assets and properties of any Debtors' Estates upon
which Lender has been or may hereafter be granted liens and security interests to obtain the full
and indefeasible repayment of all Obligations.
Section 4. Representations; Covenants; and Waivers.
4.1 Objections to Pre-Petition Obligations. Any action, claim, or defense
(hereinafter, an "Objection") that seeks to object to, challenge, contest, or otherwise invalidate or
reduce, whether by setoff, recoupment, counterclaim, deduction, disgorgement or claim of any
kind (a) the existence, validity, or amount of the Pre-Petition Obligations, (b) the extent, legality,
validity, perfection, or enforceability of Lender's pre-petition liens and security interests in the
Pre-Petition Collateral, or (c) Lender's right to apply post-petition payments against Pre-Petition
Obligations in satisfaction of Lender's liens as provided for in this Interim Order (provided, that
the only grounds for challenging such right is that the Pre-Petition Obligations were not fully
secured by the Pre-Petition Collateral as of the Petition Date) shall be filed with the Court (x) by
any Committee, and no other party, within forty-five (45) calendar days from the date of
19
appointment of the Committee by the U.S. Trustee, or (y) in the event no Committee is
appointed, within the f01iy- five ( 45) days following the Petition Date by any party in interest
with requisite standing within (the "Objection Period"). If any such Objection is timely filed and
successfully pursued, nothing in this Interim Order shall prevent the Court from granting
appropriate relief with respect to the Pre-Petition Obligations and/or Lender's liens on the Pre-
Petition Collateral. If no Objection is timely filed or an Objection is timely filed but denied, (a)
the Pre-Petition Obligations shall be deemed allowed in full, shall not be subject to any setoff,
recoupment, counterclaim, deduction, or claim of any kind, and shall not be subject to any
ftniher objection or challenge by any pmiy at any time, and Lender's pre-petition liens on and
security interests in the Pre-Petition Collateral shall be deemed legal, valid, perfected,
enforceable, and non-avoidable for all purposes and of first and senior priority, subject to only
the Permitted Liens and Claims, and (b) Lender, its paliicipants, and each of their respective
agents, officers, directors, employees, attorneys, professionals, successors, and assigns shall be
deemed released and discharged from any and all claims and causes of action related to or arising
out of the Pre-Petition Financing Agreements and shall not be subject to any further objection or
challenge by any paliy at any time.
4.2 Debtors' Waivers. At all times during the Cases and whether or not an
Event of Default has occurred, the Debtors irrevocably waive any rights that they may have to
seek authority (i) to use Cash Collateral of Lender under section 363 of the Bankruptcy Code,
other than as specified herein, (ii) to obtain postpetition loans or other financial accommodations
pursuant to section 364(c) or (d) of the Bankruptcy Code other than from Lender, or as may be
otherwise expressly permitted pursuant to the Loan Agreement, (iii) to challenge the application
of any payments authorized by this Interim Order as pursuant to section 506(b) of the
Bankruptcy Code, or to asseti that the value of the Pre-Petition Collateral is less than the Pre-
Petition (iv) to propose or support a plan of reorganization that does not provide for
the indefeasible payment in full and satisfaction of all Obligations on the effective date of such
plan, or (v) to seek relief under the Bankruptcy Code, including without limitation, under section
20
105, to the extent any such relief would in any way restrict or impair the rights and remedies of
Lender as provided in this Interim Order and the Financing Agreements or Lender's exercise of
such rights or remedies; provided, however, Lender may otherwise consent in writing, but no
such consent shall be implied from any other action, inaction, or acquiescence by Lender.
4.3 Section 506(c) Claims. Except for the Carve-Out Expenses, no costs or
expenses of administration, which have or may be incurred in the Cases at any time during the
Interim Financing Period shall be charged against Lender, its claims, or the Collateral pursuant to
section 506(c) of the Bankruptcy Code without the prior written consent of Lender, and no such
consent shall be implied from any other action, inaction, or acquiescence by Lender.
4.4 Collateral Rights. Until all ofthe Obligations shall have been indefeasibly
paid and satisfied in full, (a) no other party shall foreclose or otherwise seek to enforce any
junior lien or claim in any Collateral, (b) subject to the terms and conditions of this Interim
Order, upon and after the occmTence and continuance of an Event of Default, Lender in its
discretion, in connection with a liquidation or other disposition of any of the Collateral may enter
upon, occupy, and use any real property, equipment, leasehold interests, warehouse
arrangements, trademarks, tradenames, copyrights, licenses, patents, or any other assets of the
Debtors, which are owned by or subject to a lien of any party other than the Debtors and which
are used by the Debtors in their businesses, all without interference from the respective lessors,
licensors, or owner of such property for the purpose of conducting liquidation sales of the
Debtors' assets and properties; provided that, Lender will be responsible for the payment of any
fees, rentals, royalties, or other amounts due such lessor, licensor, or owner of such property and
any reasonable costs or expenses incuned by such lessor, licensor, or owner for the period of
time that Lender actually occupies or uses the premises, equipment, or the intellectual property
(but in no event for any accrued and unpaid fees, rentals, or other amounts due for any period
prior to or a f t ~ r the date that any such party actually occupies or uses such assets or properties).
4.5 Release. In consideration of Lender making post-petition loans, advances
and providing other credit and financial accommodations to the Debtors pursuant to the
21
provisions of the Financing Agreements and this Interim Order, Debtors, on behalf of themselves
and their successors and assigns, (collectively, the "Releasors"), shall, forever release, discharge
and acquit Lender and its officers, directors, agents, attorneys and predecessors-in-interest
(collectively, the "Releasees") of and from any and all claims, demands, liabilities,
responsibilities, disputes, remedies, causes of action, indebtedness and obligations, of eve1y kind,
nature and description, including, without limitation, any so-called "lender liability" claims or
defenses, that Releasors had, have or hereafter can or may have against Releasees as of the date
hereof, in respect of events that occurred on or prior to the date hereof with respect to the
Debtors, the Pre-Petition Obligations, the Financing Agreements and any Loans, Letter of Credit
Accommodations or other financial accommodations made by Lender to Debtors pursuant to the
Financing Agreements. In addition, upon the indefeasible payment in full of all Obligations
owed to Lender by Debtors and termination of the rights and obligations arising under the
Financing Agreements and this Interim Order (which payment and termination shall be on terms
and conditions acceptable to Lender), Lender shall be released from any and all obligations,
liabilities, actions, duties, responsibilities and causes of action arising or occurring in connection
with or related to the Financing Agreements and/or this Interim Order (including without
limitation any obligation or responsibility (whether direct or indirect, absolute or contingent, due
or not due, primary or secondary, liquidated or unliquidated) to pay or otherwise fund the Carve-
Out Expenses), on terms and conditions acceptable to Lender.
Section 5. Other Rights and Obligations.
5.1 No Modification or Stay of This Interim Order. Notwithstanding (i) any
stay, modification, amendment, supplement, vacating, revocation, or reversal of this Interim
Order, the Financing Agreements, or any term hereunder or thereunder, (ii) the failure to obtain a
Final Order pursuant to Bankruptcy Rule 4001(c)(2), or (iii) the dismissal or conversion of the
Cases (a "Subject Event"), (x) the acts taken by Lender in accordance with this Interim Order,
and (y) the Post-Petition Obligations incurred or arising prior to the Lender's actual receipt of
written notice from Debtors expressly describing the occurrence of such Subject Event shall be
22
governed in all respects by the original provisions of this Interim Order, and the acts taken by
Lender in accordance with this Interim Order, and the post-petition liens granted to Lender in the
Post-Petition Collateral, and all other rights, remedies, privileges, and benefits in favor of the
Lender pursuant to this Interim Order and the Financing Agreements shall remain valid and in
full force and effect pursuant to section 364( e) of the Bankruptcy Code. For purposes of this
Interim Order, the term "appeal", as used in section 364(e) of the Bankruptcy Code, shall be
construed to mean any proceeding for reconsideration, amending, rehearing, or re-evaluating this
Interim Order by this Court or any other tribunal.
5.2 Power to Waive Rights; Duties to Third Parties. Lender shall have the
right to waive any of the terms, rights, and remedies provided or acknowledged in this Interim
Order in respect of Lender (the "Lender Rights"), and shall have no obligation or duty to any
other party with respect to the exercise or enforcement, or failure to exercise or enforce any
Lender Rights. Any waiver by Lender of any Lender Rights shall not be or constitute a
continuing waiver. A delay in or failure to exercise or enforce any Lender Right shall neither
constitute a waiver of such Lender Right, subject Lender to any liability to any other party, nor
cause or enable any other party to rely upon or in any way seek to assert as a defense to any
obligation owed by the Debtors to the Lender.
5.3 Disposition of Collateral. Debtors shall not sell, transfer, lease,
encumber or otherwise dispose of any portion of the Collateral without the prior written consent
of Lender (and no such consent shall be implied, from any other action, inaction or acquiescence
by Lender) and an order of this Comi, except for sales of Debtors' Inventory in the ordinary
course of its business or as approved by the Bankruptcy Court.
5.4 Inventory. Debtors shall not, without the consent of Lender, enter into
any agreement to return any inventory to any of its creditors for application against any pre-
petition under any applicable provision of section 546 of the Bankruptcy Code, or
consent to any creditor taking any setoff against any of its pre-petition indebtedness based upon
any such return pursuant to section 553(b )( 1) of the Bankruptcy Code or otherwise.
23
5.5 Reservation of Rights. Except as may be inconsistent with the
provisions of this Interim Order, the terms, conditions and provisions of this Interim Order is in
addition to and without prejudice to the rights of Lender to pmsue any and all rights and
remedies under the Bankruptcy Code, the Financing Agreements, or any other applicable
agreement or law, including, without limitation, rights to seek adequate protection and/or
additional or different adequate protection, to seek relief from the automatic stay, to seek an
injunction, to oppose any request for use of cash collateral or granting of any interest in the
Collateral or priority in favor of any other party, to object to any sale of assets, and to object to
applications for allowance and/or payment of compensation of Professionals or other patties
seeking compensation or reimbursement from the Estates.
5.6 Binding Effect. This Interim Order shall be binding upon Debtors, all
parties in interest in the Cases, and their respective successors and assigns, including any tmstee
or other fiduciary appointed in the Cases or any subsequently converted bankmptcy case(s) of
the Debtors. This Interim Order shall also inme to the benefit of Lender, Debtors, and their
respective successors and assigns. The provisions of this Interim Order and the Financing
Agreements, Post-Petition Obligations, Superpriority Claim and any and all rights, remedies,
privileges, and benefits in favor of Lender provided or acknowledged in this Interim Order, and
any actions taken pursuant thereto, shall be effective immediately upon entry of this Interim
Order pursuant to Bankmptcy Rules 6004(g) and 7062, shall continue in full force and effect,
and shall survive entry of any such other order, including without limitation any order which
may be entered confrrming any plan of reorganization, converting one or more of the Cases to
any other chapter under the Bankmptcy Code, or dismissing one or more of the Cases. Any
order dismissing one or more of the Cases under section 1112 or otherwise shall be deemed to
provide (in accordance with sections 105 and 349 of the Bankmptcy Code) that (a) the
Superpriority <;:;!aim and Lender's liens in the Collateral shall continue in full force and effect
notwithstanding such dismissal until the Obligations are indefeasibly paid and satisfied in full,
24
and (b) this Court shall retain jurisdiction, notwithstanding such dismissal, for the purposes of
enforcing the Superpriority Claim and liens in the Collateral.
5.7 Te1m; Termination. Notwithstanding any proviSion of this Interim
Order to the contrary, the term of the financing anangements among Debtors and Lender
authorized by this Interim Order may be terminated pmsuant to the terms of the Loan
Agreement.
5. 8 Limited Effect. Unless the Interim Order specifically provides
otherwise, in the event of a conflict between the terms and provisions of any of the Financing
Agreements and this Interim Order, the terms and provisions of this Interim Order shall govern,
interpreted as most consistent with the te1ms and provisions of the Financing Agreements.
5.9 Objections Ovenuled. All objections to the Motion on an interim basis
are hereby ovenuled.
Section 6. Final Hearing and Response Dates.
6.1 The Final Hearing on the Motion pursuant to Bankruptcy Rule 400l(c)(2)
is scheduled for April_, 2010 at_: _ _ .m. before this Court. The Debtors shall promptly
mail copies of this Interim Order to the Noticed Parties, and to any other party that has filed a
request for notices with this Court and to any Creditors' Committee after same has been
appointed, or Creditors' Committee counsel, if same shall have filed a notice.
6.2 Any party in interest objecting to the relief sought at the Final Hearing
shall serve and file objections, which objections shall: (i) be in writing; (ii) conform to the
Bankruptcy Rules and the Local Rules; and (iii) be filed with the Clerk of the United States
Bankruptcy Court for the District of Delaware no later than three (3) business days before the
Final Hearing and served upon the following parties so as to be received not less than three (3)
business days before the Final Hearing: (a) counsel to the Debtors, Gersten Savage, LLP, Attn:
Paul Rachmuth, Esq, 600 Lexington Avenue, New York, New York 10017 and Bayard, P.A.,
Attn: Jamie L. Edmonson, Esq., 222 Delaware Avenue, Suite 900, Wilmington, Delaware 19899
25
(b) the United States Trustee for the District of Delaware; (c) counsel to the Secured Lender,
Lowenstein Sandler PC, Attn: Thomas A. Pitta, Esq, 65 Livingston Avenue, Roseland, New
Jersey 07068; and (d) counsel to any statutmy committee appointed in these chapter 11 cases.
In the event this Comi modifies any of the provisions of this Interim Order or the
Financing Agreements following such further hearing, such modifications shall not affect the
rights and priorities of Lender pmsuant to this Interim Order with respect to the Collateral, and
any portion of the Obligations which arises or is incurred or is advanced prior to such
modifications (or otherwise arising prior to such modifications), and this Interim Order shall
remain in full force and effect except as specifically amended or modified at such Final Hearing.
Dated: March , 20 I 0
Wilmington, Delaware
UNITED STATES BANKRUPTCY JUDGE
26