UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE

In re
BACK YARD BURGERS, INC., et al.
1
Debtors.
Chapter 11
Case No. 12-12882 (PJW)
(Joint Administration Requested)
DEBTORS MOTION FOR ENTRY OF ORDERS (I) AUTHORIZING
DEBTORS TO OBTAIN POSTPETITION FINANCING PURSUANT TO
SECTIONS 363 AND 364 OF THE BANKRUPTCY CODE, (II) GRANTING LIENS
AND SUPERPRIORITY CLAIMS TO THE POSTPETITION LENDER
PURSUANT TO SECTION 364 OF BANKRUPTCY CODE, (III) AUTHORIZING
USE OF CASH COLLATERAL PURSUANT TO SECTION 363 OF
BANKRUPTCY CODE, (IV) PROVIDING ADEQUATE PROTECTION TO
PREPETITION LENDER PURSUANT TO SECTIONS 361, 362, 363,
AND 364 OF BANKRUPTCY CODE, AND (V) SCHEDULING FINAL HEARING
The above-captioned debtors and debtors-in-possession (collectively, the Debtors)
hereby submit this motion (the Motion)
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, pursuant to sections 361, 362, 363, and 364 of title
11 of the United States Code, 11 U.S.C. 101, et seq. (the Bankruptcy Code), and Rules
2002 and 4001 of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules), and
Rules 4001-2 and 6004-1 of the Local Rules of Bankruptcy Practice and Procedure of the United
States Bankruptcy Court for the District of Delaware (the Local Rules), for entry of interim
and final orders (I) authorizing the Debtors to obtain post-petition financing pursuant to sections
363 and 364 of the Bankruptcy Code, (II) granting liens and superpriority claims to the
1
The Debtors in these chapter 11 cases, along with the last four digits of each Debtors federal tax
identification number, are: Back Yard Burgers, Inc. (7163), BYB Properties, Inc. (9046), Nashville BYB, LLC
(6507) and Little Rock Back Yard Burgers, Inc. (9133). The mailing address of the Debtors is: St. Clouds
Building, 500 Church Street, Suite 200, Nashville, TN 37219.
2
Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Secured Super-
Priority Debtor-in-Possession Credit Agreement between Back Yard Burgers, Inc., BYB Properties, LLC,
Nashville BYB, LLC, Little Rock Back Yard Burgers, Inc., as borrowers, and Pharos Capital Partners II, L.P.
and Pharos Capital Partners II-A, L.P., as lenders, dated as of October [_], 2012, annexed hereto as Exhibit A
(the DIP Credit Agreement).
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postpetition lender pursuant to section 364 of the Bankruptcy Code, (III) authorizing use of cash
collateral pursuant to section 363 of the Bankruptcy Code, (IV) providing adequate protection to
the prepetition lender pursuant to sections 361, 362, 363, and 364 of the Bankruptcy Code, and
(V) scheduling a final hearing. In support of this Motion the Debtors respectfully state as
follows:
Status of the Case
1. On the date hereof (the Petition Date), each of the Debtors commenced these cases
by filing voluntary petitions for relief under chapter 11 of the Bankruptcy Code.
2. The Debtors have continued in possession of their properties and are operating and
managing their business as debtors-in-possession pursuant to sections 1107(a) and 1108 of the
Bankruptcy Code.
3. No request has been made for the appointment of a trustee or examiner and a
creditors committee has not yet been appointed in these cases.
Jurisdiction, Venue, and Statutory Predicates
4. The Court has jurisdiction over this Motion pursuant to 28 U.S.C. 157 and 1334.
Venue is proper in this district pursuant to 28 U.S.C. 1408. This matter is core within the
meaning of 28 U.S.C. 157(b)(2).
5. The statutory predicates for the relief sought herein are sections 361, 362, 363, and
364 of the Bankruptcy Code, Bankruptcy Rules 2002 and 4001 and Local Rules 4001-2 6004-1.
Background
A. General Background
6. The Debtors are an established quick-service restaurant chain with approximately 90
locations concentrated in the Southeast United States. The Debtors operate company owned
locations and maintain a franchise network of individually owned restaurants which collectively
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employ approximately five hundred and twelve (512) employees. Back Yard Burgers began as a
single restaurant in Cleveland, Mississippi in 1987, and today, the Debtors pride themselves on
having a strong reputation for offering big and bold backyard tastes served straight from the grill
at value prices. The Debtors compete for business by offering black-angus hamburgers and
chicken grilled on-site on charcoal grills, providing savory flavors most usually found only in
neighborhood back yards. Meal offerings include chicken sandwiches, turkey burgers, hot dogs,
salads, sides, and desserts; however, the main focus of the menu is centered on the Debtors
premium Black Angus burgers.
7. The Debtors own and operate approximately 25 restaurants (excluding franchised
locations), positioned as quick-service dining destinations where families and children can enjoy
a wide variety of freshly prepared meals and desserts for lunch and dinner. Restaurant
operations generated $18.4 million in revenue in the first eight (8) months of 2012 with a $2.4
million EBITDA loss.
8. The Debtors also have contracted with approximately forty-two (42) franchisees to
operate more than sixty-four (64) restaurants under franchise agreements. Franchisees are
offered the right to operate a Back Yard Burgers restaurant for an upfront fee, and franchised
locations are operated under strict guidelines to present and preserve a unified brand image.
Franchising offers stable cash flows from the collection of royalties and product purchases,
accounting for approximately $1.3 million in revenue in the first eight (8) months of 2012.
9. In the first nine months of 2012, the Debtors reported a 0.8 percent decline and 1.8
percent incline in same store sales of franchise and company operated stores, respectively. In
the same segments, the Debtors reported declines of 4.0 percent and 5.7 percent, respectively, in
2011. These decreases were driven by a decline in guest traffic.
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10. A detailed factual background of the Debtors businesses and operations, as well as
the events precipitating the commencement of these cases, is more fully set forth in the
Declaration of James E. Boyd, Jr. in Support of the Debtors Chapter 11 Petitions and Requests
for First Day Relief (the First Day Declaration), filed contemporaneously herewith and
incorporated herein by reference.
B. The Debtors Prepetition Debt Structure
11. Under that certain Loan and Security Agreement, between BBAC Merger Sub, Inc.
(BBAC Merger Sub), a Delaware corporation, Back Yard Burgers, Inc. (BYB), Little Rock
Back Yard Burgers, Inc. (Little Rock BYB), Atlanta Burgers BYB Corporation (Atlanta
BYB), BYB Properties, Inc. (BYB Properties), (together with Nashville BYB, LLC,
Nashville BYB, which subsequently joined the Agreement, the Harbert Borrowers) and
Harbert Mezzanine Partners II, L.P. (together with its successors and assigns, Harbert or the
Prepetition Lender), dated November 5, 2007 (as amended, supplemented or otherwise
modified from time to time, the Prepetition Loan Agreement,), the Debtors issued a
promissory note in the amount of approximately $6 million. The Prepetition Obligations accrue
interest at a fixed rate of 17% per annum; of which 12% per annum is payable in cash and the
remaining 5% in cash or payment-in-kind at the option of the Debtors. The current outstanding
balance under the Prepetition Obligations (inclusive of principal and interest) is approximately
$8,877,581.87. The Prepetition Obligations are set to mature on November 5, 2013. There are
no guarantors of the Prepetition Obligations.
12. To secure the obligations under the Prepetition Loan Agreement and the other
documents, agreements, or instruments evidencing. guaranteeing, or securing the Prepetition
Obligations (the Prepetition Loan Documents), the Debtors granted the Prepetition Lender
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continuing Liens and security interests (collectively, the Prepetition Liens) in and to
substantially all of the Debtors' assets (the Prepetition Collateral).
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The Prepetition Loan
Agreement contains customary representations, warranties, and customary material affirmative
and negative covenants.
13. In connection with their overall review of their financial performance and operations,
the Debtors determined that in order to effectively reorganize a renegotiation of the Prepetition
Loan Agreement was necessary. The Debtors engaged in negotiations with Harbert to
restructure the Prepetition Loan Agreement and to negotiate terms more favorable to the Debtors.
The Debtors believe a revised Prepetition Loan Agreement, with more favorable terms, will
allow the Debtors to effectively reorganize. Therefore, with the assistance of their advisors and
their majority equity holders, Pharos Capital II, L.P. (Pharos II) and Pharos Capital Partners
II-A, L.P. (Pharos II-A, together with Pharos II, Pharos or the Postpetition Lender), the
Debtors approached Harbert to discuss the modification of the Prepetition Loan Agreement. The
Debtors, Harbert and Pharos engaged in negotiations to develop an agreement pursuant to which
Harbert would retain the benefits of the Prepetition Loan Agreement while allowing the Debtors
an opportunity to restructure their obligations. In addition, as a result of the negotiations with
Harbert and Pharos, the Debtors along with Harbert and Pharos agreed to the Plan Support
Agreement, pursuant to which both Pharos and Harbert will support the Debtors
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The Prepetition Loan Agreement defines Collateral as meaning all Property of each Borrower, subject to the
proviso set forth below, wherever located and whether now owned by such Borrower or hereafter acquired,
including but not limited to, all owned Real Property of such Borrower and (a) all Inventory; (b) all General
Intangibles; (c) all Accounts; (d) all Chattel Paper; (e) all Instruments and Documents and any other instrument
or intangible representing payment for goods or services; (f) all Equipment; (g) all Investment Property; (h) all
Commercial Tort Claims (i) all Letter-of-Credit Rights; (j) all Deposit Accounts and funds on deposit
therein, including but not limited to funds otherwise on deposit with or under the Control of Lender or its agents
or correspondents; and (k) all Fixtures; and (l) all parts, replacements substitutions, profits, products,
Accessions, cash and non-cash Proceeds and Supporting Obligations of any of the foregoing in any form and
wherever located Collateral also includes (x) all written or electronically recorded books and records relating
to any such Collateral and other rights relating thereto and (y) any other real or personal Property as to which
Lender, at any time of determination, has a Lien to secure the Obligations.
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reorganizational efforts so long as the plan contains certain material provisions set forth in the
Plan Support Agreement. Pursuant to the agreement, Pharos agreed to act as Postpetition Lender
to the Debtors and provide the DIP Facility and Harbert and Pharos agreed to share the
Prepetition Liens and Postpetition Liens and claims arising in respect of such Liens pari passu.
The agreement between Pharos and Harbert with regard to the rights and priorities as between
the Prepetition Lender and Postpetition Lender are set forth in an intercreditor agreement (the
Intercreditor Agreement).
C. The DIP Facility
14. The Debtors are requesting authority to enter into a senior secured super-priority
multiple draw term loan credit facility in an aggregate principal amount of up to $2,900,000 (the
DIP Facility) with the Postpetition Lender and to grant to the Postpetition Lender postpetition
Liens and security interests on all real and personal property of the Debtors, whether now owned
or hereafter acquired as more fully set forth in the DIP Credit Agreement (the Postpetition
Liens). The Debtors request authority to borrow up to $700,000 on an interim basis.
15. The material terms of the DIP Facility are summarized as follows:
a. Lender: Pharos Capital Partners II, L.P. and Pharos Capital Partners II-A,
L.P.
b. Credit Facility: (Section 1.1 of the DIP Credit Agreement) A $2,900,000
Debtor-In-Possession Term DIP Facility with multiple draw-downs.
Advances under the DIP Facility will be subject to the Budget (defined
below) and, once repaid, may not be reborrowed.
c. Use of Proceeds: (Section 1.3 of the DIP Credit Agreement) Operating and
administrative expenses of the Debtors, to the extent permitted under the
Budget (including payment of Bankruptcy Court approved hourly
professional fees and other budgeted administrative expenses arising in these
cases) and the Harbert Adequate Protection.
d. Budget: (Section 3.25 of the DIP Credit Agreement; Para. G of the Interim
Order) The loans under the DIP Facility shall be limited in accordance with
the cash flow budget (the Budget), subject to certain variances, depicting
on a weekly basis cash revenue, receipts, expenses, disbursements and other
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information for a period acceptable to the Postpetition Lender, which shall be
in form and substance acceptable to the Postpetition Lender.
e. Security: (Section 1.11 of the DIP Credit Agreement; Para. 12 and 13 of the
Interim Order) Subject only to the Intercreditor Agreement and the Carve-
Out, the DIP Facility (i) will be entitled to superpriority claim status pursuant
to Section 364(c)(1) of the Bankruptcy Code, and (ii) will be secured by a
first priority perfected Lien on the Collateral
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, whether now owned or
hereafter acquired, pursuant to Sections 364(c)(2) and 364(d) of the
Bankruptcy Code, including, upon entry of the final order, any avoidance
power claims of the Borrowers under Sections 544, 545, 547, 548, 550, 551,
and 553(b) of the Bankruptcy Code or other similar claims under state or
federal law against any entity other than the Lender or its predecessors-in-
interest (collectively, the Avoidance Claims), (iii) will be secured by a pari
passu Lien, as set forth in the Intercreditor Agreement, upon all of the
Borrowers assets that are subject to any valid and nonavoidable Lien in
favor of Harbert, including all real and personal property whether now owned
or hereafter acquired, pursuant to Section 364(c)(3) of the Bankruptcy Code;
(iv) will be secured by a senior Lien (pari passu with Harbert) upon all of the
Borrowers assets that are subject to any valid and nonavoidable Lien in
favor of any party other than Harbert to the extent such lien is junior in
priority to the Lien in favor of Harbert, including all real and personal
property whether now owned or hereafter acquired, pursuant to Section
364(c)(3) of the Bankruptcy Code; and (v) will be secured by a second-
priority Lien upon all of the Borrowers assets that are subject to any valid
and nonavoidable Lien in favor of any party other than Harbert, to the extent
such Lien is senior to the Lien in favor of Harbert, including all real and
personal property whether now owned or hereafter acquired, pursuant to
Section 364(c)(3) of the Bankruptcy Code. The Liens will be subject only to
the Carve-Out described below. The provisions of Section 551 of the
Bankruptcy Code shall be inapplicable to the extent that the Debtors attempt
to avoid any prepetition lien of the Postpetition Lender.
4
Collateral is defined in the DIP Credit Agreement as the property identified as collateral under the Interim
Order or Final Order, or any property covered by the other Collateral Documents and any other property,
including but not limited to means all Property of each Borrower, wherever located and whether now
owned by such Borrower or hereafter acquired, including but not limited to, all owned Real Property of
such Borrower and (a) all Inventory; (b) all General Intangibles; (c) all Accounts; (d) all Chattel Paper; (e)
all Instruments and Documents and any other instrument or intangible representing payment for goods or
services; (f) all Equipment; (g) all Investment Property; (h) all Commercial Tort Claims, including, upon
entry of the Final Order, the Avoidance Claims (i) all Letter-of-Credit Rights; (j) all Deposit Accounts and
funds on deposit therein, including but not limited to funds otherwise on deposit with or under the Control
of Lender or its agents or correspondents; (k) all Fixtures; and (l) all parts, replacements, substitutions,
profits, products, accessions, cash and non-cash Proceeds, and Supporting Obligations of any of the
foregoing (including, but not limited to, insurance proceeds) in any form and wherever located. Collateral
also includes (x) all written or electronically recorded books and records relating to any such Collateral and
other rights relating thereto and (y) any other real or personal Property as to which Lender, at any time of
determination, has a Lien to secure the Obligations.
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f. Carve-Out: (Section 1.11(d) of the DIP Credit Agreement; Para. 14 of the
Interim Order) The DIP Facility shall provide for a Carve-Out for (i) all
allowed and unpaid fees and expenses of attorneys, investment bankers and
financial advisors (collectively, the Estate Professionals) employed by the
Borrowers and the Committee, pursuant to sections 327, 328, 1102 and 1103
of the Bankruptcy Code, and any disbursements of any member of the
Committee, which are incurred or accrued prior to the Termination Date,
whether allowed prior to or after the Termination Date, plus the amount of
any retainers held by such Estate Professionals on the Petition Date, (ii)
following the Termination Date, allowed fees and expenses of Estate
Professionals and any Committee members incurred or accrued after the
Termination Date, in an aggregate amount not to exceed $100,000, and (iii)
quarterly fees required to be paid pursuant to 28 U.S.C. 1930(a)(6) and any
fees payable to the Clerk of the Bankruptcy Court or to the Debtors
appointed claims agent. Except to the extent of the funding under the DIP
Facility provided for in the Budget, the Postpetition Lender shall have no
obligation to fund the Carve-Out.
g. Maturity Date: (Annex A of the DIP Credit Agreement) The earliest of (i)
the effective date of confirmation of a plan of reorganization for the Debtors,
(ii) the date of termination of the Postpetition Lenders obligations to make
Advances pursuant to Section 8.2(a) of the DIP Facility, (iii) the date on
which all of the Obligations under the DIP Facility have been paid in full in
cash or other immediately available funds, (iv) the date upon which the
Interim Order expires, unless the Final Order shall have been entered and
become effective by such date, (v) the date of entry of an order of the
Bankruptcy Court confirming a plan of reorganization in the chapter 11 cases
that has not been consented to by the Postpetition Lender and fails to provide
for the payment in full in cash of all Obligations under the DIP Facility on
the effective date of such plan, (vi) without the written consent of the
Postpetition Lender, the date of the closing of a sale of all or substantially all
the Debtors assets pursuant to section 363 of the Bankruptcy Code, a
confirmed plan of reorganization or a conversion to chapter 7 of the
Bankruptcy Code.
h. Interest Rates: (Section 1.14 of the DIP Credit Agreement; Para. 9 of the
Interim Order) The outstanding principal balance under the DIP Facility will
accrue interest at a rate of 8.5% per annum, which shall be increase by 2%
upon the occurrence of an Event of Default.
i. Fees: (Section 1.16 of the DIP Credit Agreement; Para. 10 of the Interim
Order) 1.5% Facility Fee and payment of all Lender Expenses.
j. Closing Date: (Annex A of the DIP Credit Agreement) The date on which the
Interim Order is entered or as soon as practicable thereafter.
k. Budget Compliance: (Section 3.25 of the DIP Credit Agreement) The
Debtors shall not pay any expenses or other disbursements other than those
set forth in the Budget; provided, however that total disbursements may not
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exceed the amounts in the Budget by more than 10% and receipts shall not be
less than 90% of the amounts in the Budget, in each case on a 2-week
cumulative basis and excluding the timing differences resulting from the
payment of fees and expenses of Estate Professionals, provided that the
aggregate payment of fees and expenses of Estate Professionals within the
applicable pay period shall not exceed the amounts allocated therefor in the
Budget. Amounts unused for disbursements in any week may be carried
forward to subsequent weeks. The Debtors shall deliver a weekly
reconciliation (with supporting documentation reasonably satisfactory to the
Postpetition Lender) for the prior week and the prior 4 week period of actual
expenses and receipts for the applicable period by close of business on the
Wednesday of the following week.
l. Financial Reporting: (Section 4 of the DIP Credit Agreement) Customary
and as agreed by the Debtors and the Postpetition Lender.
m. Investigation Period and Releases of Prepetition Lender. (Para. D1 and 36 of
the Interim) Subject to entry of the Final Order, and without prejudice to any
right of a Committee or any other party in interest to challenge the Prepetition
Lenders liens and claims by the deadline specified in the Interim Order
(being 60 days after appointment of any official Committee, but in no event
later than 75 days after the Petition Date, or such later date as the Prepetition
Lender may hereafter agree in writing), the Interim Order provides for the
release of any and all claims of the Debtors or their estates against the
Prepetition Lender or its officers, directors, trustees, employees, agents,
attorneys, professionals, affiliates, subsidiaries, predecessors in interest,
successors and assigns.
n. Releases of Postpetition Lender. (Section 1.14 of the DIP Credit Agreement)
Borrowers acknowledge that, effective upon entry of the Final Order, they
shall have no defense, counterclaim, offset, recoupment, cross-complaint,
claim or demand of any kind or nature whatsoever that can be asserted to
reduce or eliminate all of Borrowers liability to repay the Postpetition
Lender as provided in this Agreement or to seek affirmative relief or damages
of any kind or nature from the Postpetition Lender. The Borrowers further,
grant a release to the Postpetition Lender in any way, directly or indirectly
arising out of, connected with or relating to this Agreement, the Interim
Order, the Final Order and the transactions contemplated hereby, and all
other agreements, certificates, instruments and other documents and
statements (whether written or oral) related to any of the foregoing.
o. Events of Default: (Section 8 of the DIP Credit Agreement) Customary
events of default as agreed by the Debtors and the Postpetition Lender,
including, without limitation:
i. Failure to pay interest, principal, or fees when due subject
to five (5) days grace on interest and fees;
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ii. Any representation or warranty found to be materially
incorrect when made or any breach of any covenant which
remains unremedied for ten (10) days or more:
iii. Conversion of any of the Debtors chapter 11 cases to cases
under chapter 7 or dismissal of any of the Debtors chapter
11 cases or Appointment of a chapter 11 trustee or examiner
with expanded powers;
iv. The Bankruptcy Courts entry of an order granting relief
from the automatic stay to permit foreclosure of security
interests in any assets of the Debtors having value in excess
of $50,000;
v. Granting of any superpriority administrative expense claim
or lien which is pari passu with or senior to those granted to
the Postpetition Lender (other than the Carve-Out);
vi. Failure of the Bankruptcy Court to enter, within 17 days
following the entry of an interim order approving the DIP
Facility, a final order approving the DIP Facility in form
and substance satisfactory to the Lender (the Final
Order);
vii. Failure of the Debtors to satisfy any of the following plan
milestones (the Plan Milestones):
1. A disclosure statement (the Disclosure
Statement) and plan of reorganization (the
Plan), in the form annexed to the plan
support agreement by and between the
Borrowers, Lender and Harbert or such
other plan as agreed to by the parties to such
plan support agreement, filed on or before
November 5, 2012;
2. An order, in form and substance satisfactory
to the Postpetition Lender, approving the
Disclosure Statement and establishing
procedures for solicitation, voting and
confirmation of the Plan entered on or
before December 13, 2013 (a Disclosure
Statement Order);
3. An order, in form and substance satisfactory
to the Postpetition Lender, confirming the
Plan entered on or before January 28, 2013
(a Disclosure Statement Order); and
4. The Plan becomes effective on or before
June 30, 2013.
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D. Consensual Use of Cash Collateral and Adequate Protection
16. In connection with entry into the DIP Facility, the Debtors are also requesting that the
Court authorize the consensual use of Cash Collateral, subject to the terms of any Orders
granting this Motion and a Budget. The Prepetition Lender has agreed to allow the Postpetition
Liens to become the pari passu Liens on the Debtors assets (including the Prepetition
Collateral), in consideration of the adequate protection provided under the Interim Order and the
Final Order and the other terms thereof. Accordingly, the adequate protection proposed herein to
protect the Prepetition Lenders interest in the Prepetition Collateral is fair and reasonable and
sufficient to satisfy the requirements of sections 363(c)(2) and/or (d) of the Bankruptcy Code.
Relief Requested
17. By this Motion, the Debtors request that the Court (a) approve the Debtors entry into
the DIP Facility and granting the Postpetition Liens, (b) authorize (i) the Debtors use of Cash
Collateral; and (ii) the Debtors provision of adequate protection to the Prepetition Lender for the
usage of Cash Collateral; (c) schedule a final hearing on the Motion; (d) grant a waiver of any
stay of the effectiveness of the order approving this Motion; and (e) grant such other and related
relief as if just and proper.
18. The Debtors submit that the relief requested herein is in the best interests of the
Debtors, their estates and stakeholders, and presents the best opportunity for the Debtors to
maximize the value of their estates.
Basis for Relief Requested
A. Postpetition Financing Under Section 364 of the Bankruptcy Code
19. Pursuant to section 364(c) of the Bankruptcy Code, a court may authorize a debtor to
incur debt that is: (a) entitled to a superpriority administrative expense status; (b) secured by a
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lien on otherwise unencumbered property; or (c) secured by a junior lien on encumbered
property if the debtor cannot obtain postpetition credit on an unsecured basis, as an
administrative expense priority or secured solely by junior liens on the debtors assets. See 11
U.S.C. 364(c);
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see also Pearl-Phil GMT (Far East) Ltd. v. Caldor Corp., 266 B.R. 575, 584
(S.D.N.Y. 2001) (authorizing superpriority administrative expenses where debtor could not
obtain credit as an administrative expense).
20. Additionally, section 364(d)(1) of the Bankruptcy Code provides that a court may
authorize a debtor to incur postpetition debt on a senior or priming basis if (a) the debtor is
unable to obtain credit otherwise and (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. See 11 U .S.C. 364(d)(1). Specifically, section 364(d)(1) provides, in relevant
part, that a court may, after notice and a hearing:
authorize the obtaining of credit or the incurring of debt secured by
a senior or equal lien on property of the estate that is subject to a
lien only if
(A) the [debtor] is unable to obtain credit otherwise; and
(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.
11 U.S.C. 364(d)(1).
21. Courts in this jurisdiction and others have fashioned guidelines in applying these
statutory requirements. Generally, courts advocate using a holistic approach to evaluate
5
Specifically, section 364(c) of the Bankruptcy Code provides, in pertinent part, that:
If the trustee [or debtor in possession] is unable to obtain unsecured credit allowable under section 503(b)(1) 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 or all administrative expenses of the kind specified in
section 503(b) or 507(b) of this title; (2) secured by a junior lien on property of the estate that is not otherwise
subject to a lien; or (3) secured by a junior lien on property of the estate that is subject to a lien.
11 U.S.C. 364(c).
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superpriority postpetition financing agreements, focusing on the transaction as a whole. As one
court has noted:
Obtaining credit should be permitted not only because it is not available
elsewhere, which could suggest the unsoundness of the basis for use of the funds
generated by credit, but also because the credit acquired is of significant benefit to
the debtors estate and . . . the terms of the proposed loan are within the bounds of
reason, irrespective of the inability of the debtor to obtain comparable credit
elsewhere.
In re Aqua Assocs., 123 B.R. 192, 196 (Bankr. E.D. Pa. 1991).
22. More specifically, in evaluating a debtors proposed postpetition financing, courts
consider whether the postpetition financing (a) is necessary to preserve the assets of the estate
and is necessary, essential and appropriate for continued operation of the Debtors business,
(b) is in the best interests of the Debtors creditors and estates, (c) is an exercise of a debtors
sound and reasonable business judgment, (d) was negotiated in good faith and at arms length
between the debtor, on the one hand, and the agents and the lenders on the other and (e) contains
terms that are fair, reasonable and adequate given the circumstances of the debtor and the
proposed postpetition lender. See, e.g., East West Resort Dev. V, L.P., L.L.P., Case No. 10-
10452 (BLS) (Bankr. D. Del. Mar. 11, 2010).
23. The Debtors submit that entry into the DIP Facility is in the best interests of the
Debtors creditors, is necessary to preserve the value of estate assets and is an exercise of the
Debtors sound and reasonable business judgment.
B. Entry into the DIP Facility is in the Best Interests of the Debtors Creditors and
Estates, is Necessary to Preserve Estate Assets and is an Exercise of the Debtors
Sound and Reasonable Business Judgment
24. A debtors decision to enter into a postpetition lending facility under section 364 of
the Bankruptcy Code is governed by the business judgment standard. See, e.g., Trans World
Airlines, Inc. v. Travelers Intl AG (In re Trans World Airlines, Inc.), 163 B.R. 964, 974 (Bankr.
14
D. Del. 1994) (approving postpetition loan and receivables facility because such facility
reflect[ed] sound and prudent business judgment.); In re Ames Dept Stores, Inc., 115 B.R, 34,
38 (Bankr. S.D.N.Y. 1990) (noting that financing decisions under section 364 of the Bankruptcy
Code must reflect a debtors business judgment); Bray v. Shenandoah Fed Say & Loan Assn (In
re Snowshoe Co., Inc.), 789 F.2d 1085, 1088 (4th Cir, 1986); Ames Dept Stores, 115 B.R. at 40
(cases consistently reflect that the courts discretion under section 364 is to be utilized on
grounds that permit reasonable business judgment to be exercised so long as the financing
agreement does not contain terms that leverage the bankruptcy process and powers or its purpose
is not so much to benefit the estate as it is to benefit parties in interest); In re Curlew Valley
Assocs., 14 B.R. 506, 513-14 (Bankr. D. Utah 1981); In re Simasko Prod. Co., 47 B.R. 444, 449
(D. Colo. 1985).
25. Generally, the business judgment standard requires that, absent evidence to the
contrary, a debtor in possession is afforded discretion to act with regard to business decision-
making. See Simasko Prod., 47 B.R. at 449 ([D]iscretion to act with regard to business
planning activities is at the heart of the debtors power.) (citations omitted). Specifically, to
determine whether the business judgment standard is met, a court is required to examine
whether a reasonable business person would make a similar decision under similar
circumstances. In re Exide Techs., 340 B.R. 222, 239 (Bankr. D. Del. 2006); see also Curlew
Valley, 14 B.R. at 513-14 (noting that courts should not second guess a debtors business
decision when that decision involves a business judgment made in good faith, upon a
reasonable basis, and within the scope of [the debtors] authority under the [Bankruptcy] Code.)
(citation omitted).
15
26. The Debtors decision to enter into the proposed DIP Facility satisfies this standard.
This decision is the culmination of an intense, several week-long process targeted at negotiating
an overall financial and operational restructuring of the Debtors. The Debtors do not have the
ability to survive operating on Cash Collateral alone. If the Debtors do not obtain postpetition
financing, they would not be able to continue operating their businesses, resulting in lost jobs
and a destruction of value.
27. Entry into the DIP Facility and securing the financing available thereunder is
absolutely necessary to the preservation of estate assets and is in the best interest of the Debtors
creditors and all parties in interest. Thus, entry into the DIP Facility is an exercise of the
Debtors sound business judgment. Given the Debtors liquidity needs, the DIP Facility is of
critical importance to the Debtors continued operations and to preserving going concern value,
especially following the commencement of these chapter 11 cases and the general uncertainty in
the marketplace that will accompany this process.
28. Specifically, the Debtors have an urgent need to obtain access to the DIP Facility to,
among other things, continue the operation of their businesses in an orderly manner, maintain
business relationships and assure the continuity of operations with, and ability to make payment
to, vendors, suppliers and customers, pay their employees and satisfy other working capital and
operational needs each of which is vital to preserving and maintaining the value of these
estates for the benefits of all stakeholders. Moreover, the Debtors believe that access to the DIP
Facility will provide comfort and confidence to all parties in interest at this critical juncture.
C. The Terms of the DIP Facility are Fair, Reasonable and Appropriate
29. It is well recognized in this jurisdiction and others that the appropriateness of a
proposed postpetition financing facility must be considered in light of current market conditions.
See, e.g., Snowshoe Co., 789 F.2d at 1088 (noting that a debtor is not required to seek credit from
16
every possible lender before determining such credit is unavailable). Indeed, courts often
recognize that where there are few lenders likely, able and willing to extend the necessary credit
to a debtor, it would be unrealistic and unnecessary to require [a debtor] to conduct such an
exhaustive search for financing. In re Sky Valley, Inc., 100 B.R. 107, 113 (Bankr. N.D. Ga.
1988), affd, 99 B.R. 117 (N.D. Ga. 1989).
30. The DIP Facility is an integral part of the Debtors overall restructuring. The
Prepetition Lender did not agree to provide financing and would not agree to be primed or share
pair passu with any other lender. Given the Debtors severe liquidity problems and their overall
value as compared to the amount of debt outstanding under the Prepetition Loan, the DIP Facility
was the only postpetition financing available to satisfies the Debtors liquidity needs.
Accordingly, the Debtors submit that the terms of the DIP Facility are reasonable and represent
the best source of financing available to the Debtors under the circumstances.
D. The Scope of the Carve-Out is Appropriate
31. The proposed DIP Facility subjects the security interests and administrative expense
claims of the Postpetition Lender to the Carve-Out. Similar carve-outs for professional fees have
been found to be reasonable and necessary to ensure that a debtors estate and any statutory
committee can retain assistance from counsel. See Ames, 115 B.R. at 40. The DIP Facility does
not directly or indirectly deprive the Debtors estates or other parties in interest of possible rights
and powers by restricting the services for which professionals may be paid in these cases. Id. at
38 (observing that courts insist on carve-outs for professionals representing parties-in-interest
because [a]bsent such protection, the collective rights and expectations of all parties-in-interest
are sorely prejudiced). Additionally, the Carve-Out protects against administrative insolvency
during the course of these chapter 11 cases by ensuring that assets remain for the payment of
U.S. Trustee fees and professional fees of the Debtors and any committee of unsecured creditors,
17
notwithstanding the grant of superpriority and administrative liens and claims under the DIP
Facility.
E. The DIP Facility was Negotiated in Good Faith and Should be Afforded the Protection
of Section 364(e) of the Bankruptcy Code
32. Pursuant to section 364(e) of the Bankruptcy Code, any reversal or modification on
appeal of an authorization to obtain credit or incur debt or a grant of priority or a lien under
section 364 of the Bankruptcy Code shall not affect the validity of that debt incurred or priority
or lien granted as long as the entity that extended credit extended such credit in good faith.
See 11 U.S.C. 364(e).
33. The terms of the DIP Facility were negotiated in good faith between the Debtors and
the DIP Lender, and all of the DIP Facility obligations will be extended by the Postpetition
Lender in good faith (as such term is used in section 364(e) of the Bankruptcy Code). The terms
of the DIP Facility were negotiated between the Debtors, the Postpetition Lender and the
Prepetition Lender, each of which was represented by separate counsel. The Prepetition Lender
was not willing to extend additional credit, was not willing to be primed and was not willing to
share pari passu its first priority liens with any other lender. No consideration is being provided
to any party in connection with the DIP Facility other than as set forth herein. Moreover, the
DIP Facility has been extended in express reliance upon the protections afforded by section
364(e) of the Bankruptcy Code and the Postpetition Lender should be entitled to the full
protection of section 364(e) of the Bankruptcy Code in the event that the Interim Order or any
provision thereof is vacated, reversed or modified on appeal or otherwise. See 11 U.S.C.
363(e).
18
F. The Debtors Proposed Grant of Adequate Protection to Use Cash Collateral is
Appropriate
34. The DIP Facility contemplates providing the Postpetition Lender with first priority
perfected security interests and liens on substantially all assets of the Debtors, including the
Prepetition Collateral, pursuant to section 364(c)(2) and/or 364(d) of the Bankruptcy Code, at the
Postpetition Lenders option, subject to the Intercreditor Agreement. Accordingly, the Debtors
are required to show that the interests of the Prepetition Lender in the Prepetition Collateral are
adequately protected. 11 U.S.C. 364(c) and (d). Pursuant to section 363(c) of the
Bankruptcy Code, the Debtors may only use cash collateral of the Prepetition Lender subject to
the consent of the Prepetition Lender or the grant of adequate protection. 11 U.S.C. 363(c)(2).
35. The Prepetition Lender has consented to the proposed DIP Facility and the granting
of the Postpetition Liens senior in priority to the Prepetition Senior Liens pursuant to the terms of
the Intercreditor Agreement and subject to the granting of adequate protection as set forth in the
Order. Accordingly, the Debtors entry into the DIP Facility satisfies the requirements of
sections 363(c)(2) and/or 364(d) of the Bankruptcy Code, as applicable. See 11 U.S.C.
363(c), 364(d).
G. Approval of the DIP Facility on an Interim Basis is Necessary to Prevent Immediate
and Irreparable Harm
36. Bankruptcy Rule 4001(c)(2) governs the procedures for obtaining authorization to
obtain postpetition financing and provides, in relevant part:
The court may commence a final hearing on a motion for authority to obtain
credit no earlier than 14 days after service of the motion. If the motion so
requests, the court may conduct a hearing before such 14-day period expires, but
the court may authorize the obtaining of credit only to the extent necessary to
avoid immediate and irreparable harm to the estate pending a final hearing.
Fed. R. Bankr. Proc. 4001(c)(2).
19
37. In examining requests for interim relief under the immediate and irreparable harm
standard, courts apply the same business judgment standard applicable to other business
decisions. See, e.g., Ames Dept Stores, 115 B.R. at 36; Simasko, 47 B.R. at 449. After the 14-
day period, the request for financing is not limited to those amounts necessary to prevent the
destruction of the debtors business, and the debtor is entitled to borrow those amounts that it
believes are prudent to the operation of its business. Ames Dept. Stores, 115 B.R. at 36.
38. Immediate and irreparable harm would result if the relief requested herein is not
granted on an interim basis. As described in detail herein, and in the First Day Declaration, the
Debtors have an immediate need to obtain access to liquidity to, among other things, provide
comfort to their employees, customers and suppliers as well as to continue to operate their
businesses, maintain key business relationships, make payroll and satisfy other working capital
and operational needs. Funding each of these expenditures is necessary to preserve and maintain
the value of the Debtors estates for the benefit of all parties in interest.
39. Without approval of the DIP Facility, trade vendors might discontinue the provision
of goods and services, which would disrupt operations and frustrate the Debtors reorganization
and/or sale efforts. Additionally, absent access to liquidity under the DIP Facility, the Debtors
face the potential inability to satisfy their payroll and other direct operating expenses necessary
to run their businesses in the ordinary course. Thus, availability of sufficient working capital and
liquidity is vital to the preservation and maintenance of the value of the Debtors estates.
40. The crucial importance of a debtors ability to secure postpetition financing to prevent
immediate and irreparable harm to its estate has been repeatedly recognized in this district. See,
e.g., In re Taylor-Wharton Intl LLC, Case No. 09-14089 (Bankr. D. Del. Nov. 20, 2009); In re
Lazy Days R.V. Center Inc., Case No. 09-13911 (Bankr. D. Del. Nov. 6, 2009); In re Source
20
Interlink Cos., Case No. 09-11424 (Bankr. D. Del. May 28, 2009); In re Abitibi-Bowater Inc.,
Case No. 09-11296 (Bankr. D. Del. Apr. 20, 2009); In re EZ Lube, LLC, Case No. 08-13256
(Bankr. D. Del. Jan 14, 2009).
H. Modification of the Automatic Stay Provided Under Section 362 of the Bankruptcy
Code is Appropriate Under the Circumstances
41. The Interim Order proposes that the automatic stay imposed under section 362(a) of
the Bankruptcy Code be lifted to allow the Postpetition Lender, in its sole discretion, file the
Interim Order or such financing statements, mortgages, deeds of trust, notices of lien, or similar
instruments or otherwise confirm perfection of such liens, security interests and mortgages. The
Interim Order also proposes that, upon five business days prior notice to the Court, U.S. Trustee,
counsel for the Debtors, and counsel for any Committee, the automatic stay imposed under
section 362(a) of the Bankruptcy Code be lifted to allow the Postpetition Lender to exercise
remedies following a default under the DIP Facility and/or Postpetition Loan Documents.
42. Stay modification provisions of this sort are ordinary and usual features of debtor in
possession financing facilities and, in the Debtors business judgment, are reasonable under the
present circumstances. Accordingly, the Court should modify the automatic stay to the extent
contemplated under the DIP Facility and the proposed DIP Orders.
I. Relief from the Fourteen Day Waiting Periods Under Bankruptcy Rules 6004(h) is
Appropriate
43. Bankruptcy Rule 6004(h) provides that an order authorizing the use, sale, or lease of
property . . . is stayed until the expiration of fourteen (14) days after entry of the order, unless the
court orders otherwise. The Debtors request that the Interim Order be effective immediately by
providing that the fourteen-day stay under Bankruptcy Rules 6004(h) is waived.
44. The purpose of Bankruptcy Rule 6004(h) is to provide sufficient time for an objecting
party to appeal before an order can be implemented. See Advisory Committee Notes to Fed. R.
21
Bankr. P. 6004(h). Although Bankruptcy Rules 6004(h) and the Advisory Committee Notes are
silent as to when a court should order otherwise and eliminate or reduce the fourteen-day stay
period, Collier on Bankruptcy suggests that the fourteen-day stay period should be eliminated to
allow a sale or other transaction to close immediately where there has been no objection to the
procedure. 10 Collier on Bankruptcy 15th Ed. Rev., 6064.09 (L. King, 15th rev. ed. 1988).
Furthermore, Colliers provides that if an objection is filed and overruled, and the objecting party
informs the court of its intent to appeal, the stay may be reduced to the amount of time actually
necessary to file such appeal. Id.
45. As set forth above, entry into the DIP Facility is critical to enable the Debtors to
continue to fund their operations and the expenses of these chapter 11 cases, absent which the
Debtors estates will be irreparably harmed. The Debtors therefore request that the Court waive
the fourteen-day stay period under Bankruptcy Rules 6004(h) to the extent it applies.
Request For Final Hearing
46. Pursuant to Bankruptcy Rules 4001(b)(2) and (c)(2) and Local Rule 4001-2(c), the
Debtors requests that the Court schedule the final hearing on the Motion for September 6, 2012
at 10:00 a.m., which is an omnibus hearing date in these cases.
No Prior Request
47. No prior Motion for the relief requested herein has been made to this or any other
court.
Notice
48. Notice of this Motion has been given to the following parties or, in lieu thereof, to
their counsel, if known: (a) the Office of the United States Trustee for the District of Delaware;
(b) counsel to the Prepetition Lender; (c) counsel to the Postpetition Lender; (d) creditors holding
the thirty (30) largest unsecured claims as set forth in the consolidated list filed with the Debtors
22
petitions; (e) those parties requesting notice pursuant to Rule 2002; (f) the Office of the United
States Attorney General for the District of Delaware; and (g) the Internal Revenue Service. In
light of the nature of the relief requested herein, the Debtors submit that no other or further
notice is necessary.
Conclusion
WHEREFORE, the Debtors respectfully request that this Court enter an order granting
the relief requested herein and that it grant the Debtors such other and further relief as is just and
proper.
Dated: October 17, 2012 GREENBERG TRAURIG, LLP
/s/ Dennis A. Meloro
Dennis A. Meloro (DE Bar No. 4435)
1007 North Orange Street, Suite 1200
Wilmington, Delaware 19801
Telephone: (302) 661-7000
Facsimile: (302) 661-7360
Email: melorod@gtlaw.com
-and-
Nancy A. Mitchell (pro hac vice pending)
Maria J. DiConza (pro hac vice pending)
Matthew L. Hinker (DE Bar No. 5348)
GREENBERG TRAURIG, LLP
200 Park Avenue
New York, New York
Telephone: (212) 801-9200
Facsimile: (212) 801-6400
Email: mitchelln@gtlaw.com
diconzam@gtlaw.com
hinkerm@gtlaw.com
Proposed Counsel for the Debtors and Debtors-in-
Possession
EXHIBIT A TO MOTION
SECURED SUPER-PRIORITY DEBTOR-IN-POSSESSION CREDIT AGREEMENT
Dated as of October __, 2012
among
BACK YARD BURGERS, INC.
BYB PROPERTIES, INC.
NASHVILLE BYB, LLC AND
LITTLE ROCK BACK YARD BURGERS, INC.,
as Borrowers
and
PHAROS CAPITAL PARTNERS II, L.P. AND
PHAROS CAPITAL PARTNERS II-A, L.P.,
as Lender
TABLE OF CONTENTS
Page
-i-
1. AMOUNT AND TERMS OF CREDIT ............................................................................ 2
1.1 Credit Facility. ....................................................................................................... 2
1.2 Prepayments........................................................................................................... 2
1.3 Use of Proceeds...................................................................................................... 2
1.4 Interest Rate ........................................................................................................... 3
1.5 Receipt of Payments .............................................................................................. 4
1.6 Application and Allocation of Payments ............................................................... 4
1.7 Loan Account and Accounting .............................................................................. 4
1.8 Indemnity............................................................................................................... 5
1.9 Taxes...................................................................................................................... 5
1.10 Single Loan ............................................................................................................ 6
1.11 Super-Priority Nature of Obligations and Lenders Liens..................................... 6
1.12 Payment of Obligations.......................................................................................... 7
1.13 No Discharge; Survival of Claims ......................................................................... 7
1.14 Release ................................................................................................................... 8
1.15 Waiver of Any Priming Rights .............................................................................. 8
1.16 Fees and Expenses of Lender................................................................................. 8
2. CONDITIONS PRECEDENT........................................................................................... 8
2.1 Conditions to the Initial Loan ................................................................................ 9
2.2 Further Conditions to the Advances ...................................................................... 9
3. REPRESENTATIONS AND WARRANTIES................................................................ 10
3.1 Valid Existence and Power .................................................................................. 10
3.2 Authorization; Enforceability .............................................................................. 11
3.3 Financial Statement and Financial Condition...................................................... 11
3.4 Properties ............................................................................................................. 11
3.5 Litigation.............................................................................................................. 12
3.6 Agreements, Etc................................................................................................... 12
3.7 Authorizations...................................................................................................... 12
3.8 Title...................................................................................................................... 12
3.9 Collateral.............................................................................................................. 12
3.10 Jurisdiction of Organization; Location ................................................................ 13
3.11 Taxes.................................................................................................................... 13
3.12 Labor Law Matters............................................................................................... 13
3.13 Judgment Liens .................................................................................................... 13
3.14 Corporate Structure.............................................................................................. 13
3.15 Deposit Accounts ................................................................................................. 14
3.16 Environmental...................................................................................................... 14
3.17 ERISA.................................................................................................................. 14
3.18 Investment Company Act .................................................................................... 15
TABLE OF CONTENTS
(continued)
Page
-ii-
3.19 Sanctioned Persons; Sanctioned Countries.......................................................... 15
3.20 Compliance with Laws and Agreements ............................................................. 15
3.21 Full Disclosure..................................................................................................... 15
3.22 Subsidiaries.......................................................................................................... 15
3.23 Collateral Documents........................................................................................... 15
3.24 Federal Reserve Regulations................................................................................ 15
3.25 Budget .................................................................................................................. 16
3.26 Reorganization Matters........................................................................................ 17
4. FINANCIAL STATEMENTS AND INFORMATION.................................................. 17
4.1 Reports and Notices ............................................................................................. 18
4.2 Communication with Financial Advisors ............................................................ 18
5. AFFIRMATIVE COVENANTS ..................................................................................... 18
5.1 Use of Proceeds.................................................................................................... 18
5.2 Maintenance of Business and Properties ............................................................. 18
5.3 Insurance.............................................................................................................. 18
5.4 Certain Notices..................................................................................................... 20
5.5 Books and Records; Inspections; Appraisals....................................................... 20
5.6 Financial Information........................................................................................... 20
5.7 Maintenance of Existence and Rights.................................................................. 20
5.8 Payment of Taxes, Etc ......................................................................................... 21
5.9 Compliance; Hazardous Materials....................................................................... 21
5.10 Covenants Regarding Collateral .......................................................................... 21
5.11 Payment of Obligations........................................................................................ 21
5.12 Additional Collateral; Additional Subsidiaries.................................................... 22
5.13 Further Assurances............................................................................................... 22
5.14 Plan Schedule....................................................................................................... 22
5.15 Compliance with the Budget................................................................................ 23
6. NEGATIVE COVENANTS............................................................................................ 23
6.1 Indebtedness and Other Obligations .................................................................... 23
6.2 Liens..................................................................................................................... 23
6.3 Restricted Payments............................................................................................. 24
6.4 Loans and Other Investments............................................................................... 24
6.5 Change in Business .............................................................................................. 24
6.6 Transactions with Affiliates................................................................................. 24
6.7 No Change in Name, Offices, or Jurisdiction of Organization; Removal of
Collateral.............................................................................................................. 24
6.8 No Sale-Leasebacks ............................................................................................. 25
6.9 Margin Stock........................................................................................................ 25
6.10 Tangible Collateral............................................................................................... 25
TABLE OF CONTENTS
(continued)
Page
-iii-
6.11 Subsidiaries.......................................................................................................... 25
6.12 Liquidation, Mergers; Consolidations, and Dispositions of Assets; Name
and Good Standing............................................................................................... 25
6.13 Change of Fiscal Year or Accounting Methods................................................... 26
6.14 Deposit Accounts ................................................................................................. 26
6.15 Prepetition Obligations; Modifications of Prepetition Loan Documents ............ 26
6.16 Anti-Layering....................................................................................................... 26
6.17 Restricted Payments; Certain Payments of Indebtedness .................................... 26
6.18 Restrictive Agreements........................................................................................ 27
6.19 Environmental Laws ............................................................................................ 27
6.20 Chapter 11 Claims................................................................................................ 27
7. TERM .............................................................................................................................. 27
7.1 Termination.......................................................................................................... 27
7.2 Survival of Obligations upon Termination of Financing Arrangements ............. 27
8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES.................................................. 28
8.1 Events of Default ................................................................................................. 28
8.2 Remedies.............................................................................................................. 31
8.3 Waivers by Borrowers ......................................................................................... 32
8.4 Setoff and Sharing of Payments........................................................................... 32
9. ASSIGNMENT; SUCCESSORS AND ASSIGNS......................................................... 33
9.1 Assignment .......................................................................................................... 33
9.2 Successors and Assigns........................................................................................ 33
10. MISCELLANEOUS ........................................................................................................ 33
10.1 Complete Agreement; Modification of Agreement ............................................. 33
10.2 Amendments and Waivers ................................................................................... 34
10.3 No Waiver............................................................................................................ 34
10.4 Remedies.............................................................................................................. 34
10.5 Severability .......................................................................................................... 34
10.6 Conflict of Terms................................................................................................. 35
10.7 GOVERNING LAW; CONSENT TO JURISDICTION, ETC........................... 35
10.8 Notices ................................................................................................................. 36
10.9 Section Titles ....................................................................................................... 36
10.10 Counterparts......................................................................................................... 36
10.11 WAIVER OF JURY TRIAL................................................................................ 36
10.12 Press Releases and Related Matters..................................................................... 37
10.13 Reinstatement....................................................................................................... 37
10.14 Advice of Counsel................................................................................................ 37
TABLE OF CONTENTS
(continued)
Page
-iv-
10.15 No Strict Construction ......................................................................................... 37
10.16 Parties Including Trustees; Bankruptcy Court Proceedings ................................ 37
10.17 USA PATRIOT Act Notice ................................................................................. 38
-v-
INDEX OF ANNEXES AND EXHIBITS
Annex A Definitions
Annex B Financial Statements - Reporting
Annex C Notice Addresses
Exhibit A Budget
1
SECURED SUPER-PRIORITY DEBTOR-IN-POSSESSION CREDIT AGREEMENT
This SECURED SUPER-PRIORITY DEBTOR-IN-POSSESSION CREDIT
AGREEMENT (this Agreement), dated as of October __, 2012, among Back Yard Burgers,
Inc., a Delaware corporation, as debtor and debtor-in-possession (BYB), BYB Properties, Inc.,
a Delaware corporation, as debtor and debtor-in-possession (BYB Properties), Nashville BYB,
LLC, a Tennessee limited liability company, as debtor and debtor-in-possession (Nashville
BYB), Little Rock Back Yard Burgers, Inc., a Delaware corporation, as debtor and debtor-in-
possession (Little Rock BYB and together with BYB, BYB Properties and Nashville BYB,
each a Borrower and collectively, the Borrowers), Pharos Capital Partners II, L.P., a
Delaware limited partnership (Pharos II), and Pharos Capital Partners II-A, L.P., a Delaware
limited partnership (Pharos II-A and together with Pharos II, collectively, the Lender).
RECITALS
WHEREAS, on October 17, 2012 (the Petition Date), each of the Borrowers
commenced bankruptcy cases (collectively, the Chapter 11 Cases) under chapter 11 of the
United States Bankruptcy Code, 11 U.S.C. 101 et seq. (the Bankruptcy Code) by filing
voluntary petitions for reorganization with the United States Bankruptcy Court for the District of
Delaware (the Bankruptcy Court);
WHEREAS, each of the Borrowers continues to operate its business and manage its
properties as a debtor and debtor-in-possession pursuant to Sections 1107(a) and 1108 of the
Bankruptcy Code;
WHEREAS, Borrowers have requested that Lender provide to Borrowers a senior
secured, super-priority multiple draw term loan credit facility in an aggregate principal amount
of up to $2,900,000, and Lender is willing to provide such credit facility to Borrowers, subject to
the terms and conditions set forth herein;
WHEREAS, Borrowers have agreed to secure all of the Obligations to Lender hereunder
and under the other Loan Documents by granting to Lender a first-priority security interest in
and lien upon all of their now existing and hereafter-acquired assets and properties; and
WHEREAS, capitalized terms used in this Agreement and not otherwise defined,
including terms in these recitals, shall have the meanings ascribed to them in Annex A and, for
purposes of this Agreement and the other Loan Documents, the rules of construction set forth in
Annex A shall govern. All Annexes, Schedules, Exhibits and other attachments (collectively,
Appendices) hereto, or expressly identified to this Agreement, are incorporated herein by
reference, and taken together with this Agreement, shall constitute but a single agreement. These
recitals shall be construed as part of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, and for other good and valuable consideration, the parties hereto agree as
follows:
2
1. AMOUNT AND TERMS OF CREDIT
1.1 Credit Facility.
(a) Credit Facility.
(i) Subject to the terms and conditions hereof, Lender agrees to make
available to Borrowers on each Loan Advance Date an advance (each, an Advance) in an
amount necessary to meet the expenses set forth in the Budget for the following four weeks.
The aggregate amount of Advances shall not at any time exceed the Commitment. Any
borrowed funds, once repaid, may not be reborrowed. The Commitment shall terminate on the
Maturity Date or earlier as provided herein.
(ii) Each Advance shall be made on a Loan Advance Date, and shall
be made upon request by Borrowers to Lender. Any such request must be made no later than
5:00 p.m. (Central Time) five (5) Business Days prior to the proposed Advance; provided
however, that the initial Advance shall be made as soon as practicable after entry of the Interim
Order. Each such request (an Advance Request) shall be in writing, shall be made by
electronic mail, telecopy or overnight courier, and shall include such information as may be
required by Lender.
(iii) The entire unpaid balance of the Loan and all other non-contingent
Obligations shall be due and payable in full in cash or other immediately available funds on the
Maturity Date or earlier as provided herein.
(b) Reliance on Notices. Lender shall be entitled to rely upon, and shall be
fully protected in relying upon, any Advance Request or similar notice or request believed by
Lender to be genuine. Lender may assume that each Person executing and delivering any notice
in accordance herewith was duly authorized, unless the responsible individual acting thereon for
Lender has actual knowledge to the contrary.
1.2 Prepayments.
(a) No Other Prepayments. In no instance may the Borrowers prepay any
Obligations hereunder from available cash.
(b) No Implied Consent. Nothing in this Section 1.2 shall be construed to
constitute Lenders consent to any transaction that is not permitted by other provisions of this
Agreement or the other Loan Documents.
1.3 Use of Proceeds. Borrowers shall utilize the proceeds of the Advances which are
received on each Loan Advance Date for (a) operating costs, (b) administrative expenses in
connection with the Chapter 11 Cases, (including payment of (x) hourly professional fees
approved by the Bankruptcy Court, (y) the Harbert Adequate Protection and (z) other budgeted
administrative expenses), each to the extent permitted under the Budget. Borrowers shall not be
permitted to use the proceeds of any Advances: (i) for the payment of interest or principal in
3
respect of the Prepetition Obligations or to satisfy any Indebtedness or other obligations in
respect of any Permitted Liens, in each case except to the extent set forth in the Budget; (ii) to
finance in any way any action, suit, arbitration, proceeding, application, motion or other
litigation of any type adverse to the interests of Lender or its rights and remedies under this
Agreement, the other Loan Documents, including the Interim Order or the Final Order (other
than in connection with the challenge by Borrowers that a Default or Event of Default exists
hereunder or any other Loan Document as set forth in Section 8.1), (iii) to make any distribution
under a plan of reorganization in the Chapter 11 Cases, unless agreed to by the Lender, (iv) to
make any payment in settlement of any claim, action or proceeding, before any court, arbitrator
or other governmental body without the prior written consent of Lender, or (v) in any manner
inconsistent with the Interim Order or Final Order.
1.4 Interest Rate.
(a) Borrowers shall pay to Lender interest on the unpaid principal amount of
the Loan from the date of each Advance until the maturity of the Loan, at a rate equal to eight
and a half percent (8.5%) per annum (the Interest Rate), in arrears on each Interest Payment
Date, on the date of any prepayment of any such Loan permitted hereunder, and at maturity.
Interest on the Loan shall be paid in kind.
(b) If any payment on the Loan becomes due and payable on a day other than
a Business Day, the maturity thereof will be extended to the next succeeding Business Day and,
with respect to payments of principal, interest thereon shall be payable at the then-applicable rate
during such extension.
(c) From and after the occurrence of an Event of Default and for so long as
such Event of Default is continuing, following written notice to Borrowers, but without further
notice, motion or application to, hearing before, or order from the Bankruptcy Court, the Interest
Rate may, in Lenders election, be increased by up to two percentage points (2%) per annum (the
Default Rate), and all outstanding Obligations shall bear interest at the Default Rate applicable
to such Obligations. Interest at the Default Rate shall accrue from the initial date of such Event
of Default until that Event of Default is cured or waived and shall be payable upon demand.
(d) Notwithstanding anything to the contrary set forth in this Section 1.4, if a
court of competent jurisdiction determines in a final order that the rate of interest payable
hereunder exceeds the highest rate of interest permissible under law (the Maximum Lawful
Rate), then so long as the Maximum Lawful Rate would be so exceeded, the rate of interest
payable hereunder shall be equal to the Maximum Lawful Rate; provided, however, that if at any
time thereafter the rate of interest payable hereunder is less than the Maximum Lawful Rate,
Borrowers shall continue to pay interest hereunder at the Maximum Lawful Rate until such time
as the total interest received by Lender, is equal to the total interest that would have been
received had the Interest Rate payable hereunder been (but for the operation of this paragraph)
the Interest Rate payable since the Closing Date as otherwise provided in this Agreement. In no
event shall the total interest received by Lender pursuant to the terms hereof exceed the amount
that Lender could lawfully have received had the interest due hereunder been calculated for the
full term hereof at the Maximum Lawful Rate.
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1.5 Receipt of Payments. Borrowers shall make each payment under this Agreement
not later than 2:00 p.m. (Central time) on the day when due in immediately available funds in
Dollars as directed by the Lender. For purposes of computing interest as of any date, all
payments shall be deemed received on the Business Day on which immediately available funds
therefor are received by the Lender prior to 2:00 p.m. (Central time). Payments received after
2:00 p.m. (Central time) on any Business Day or on a day that is not a Business Day shall be
deemed to have been received on the following Business Day.
1.6 Application and Allocation of Payments.
(a) All payments made whether consisting of proceeds of Collateral or
otherwise and received prior to the occurrence and continuance of an Event of Default shall be
applied to the Loan. In no event shall any amounts so paid be available for reborrowing.
(b) All payments made whether consisting of proceeds of Collateral or
otherwise and received when an Event of Default has occurred and is continuing or following the
Maturity Date shall be applied to the Obligations in the following order: (1) first, to interest on
the Loan; (2) second, to principal payments on the Loan; (3) third, to all other Obligations; and
(4) fourth, to Borrowers, their respective successors and assigns, or as a court of competent
jurisdiction may direct.
(c) Lender is authorized to, and at its sole election may, charge to the Loan
balance on behalf of Borrowers and cause to be paid all expenses, Charges, costs (including
insurance premiums in accordance with Section 5.3(c)) and interest and principal, other than
principal of the Loan, owing by Borrowers under this Agreement or any of the other Loan
Documents if and to the extent Borrowers fails to pay promptly any such amounts as and when
due. At Lenders option and to the extent permitted by law, any charges so made shall constitute
part of the Loan hereunder.
1.7 Loan Account and Accounting. Lender shall maintain a loan account (the Loan
Account) on its books to record all Advances, all payments made by Borrowers, and all other
debits and credits as provided in this Agreement with respect to the Loan or any other
Obligations. All entries in the Loan Account shall be made in accordance with Lenders
customary accounting practices as in effect from time to time. The balance in the Loan Account,
as recorded on Lenders most recent printout or other written statement, shall, absent manifest
error, be presumptive evidence of the amounts due and owing to Lender by Borrowers; provided
that any failure to so record or any error in so recording shall not limit or otherwise affect
Borrowers duty to pay the Obligations. Lender shall render to Borrowers a monthly accounting
of transactions with respect to the Loan setting forth the balance of the Loan Account for the
immediately preceding month. Unless Borrowers notify Lender in writing of any objection to
any such accounting (specifically describing the basis for such objection), within thirty (30) days
after the date thereof, each and every such accounting shall be presumptive evidence of all
matters reflected therein. Only those items expressly objected to in such notice shall be deemed
to be disputed by Borrowers. Notwithstanding any provision herein contained to the contrary,
5
Lender may rely on the Loan Account as evidence of the amount of Obligations from time to
time owing to it.
1.8 Indemnity. Borrowers shall indemnify and hold harmless Lender and its
respective Affiliates, and each such Persons respective officers, directors, employees, attorneys,
agents and representatives (each, an Indemnified Person), from and against any and all suits,
actions, proceedings, claims, damages, losses, liabilities and expenses (including reasonable
attorneys fees and disbursements and other costs of investigation or defense, including those
incurred upon any appeal) that may be instituted or asserted against or incurred by any such
Indemnified Person as the result of the Obligations and credit having been extended, suspended
or terminated under this Agreement and the other Loan Documents and the administration of
such credit, and in connection with or arising out of the transactions contemplated hereunder and
thereunder and any actions or failures to act in connection therewith, including any and all
Environmental Liabilities and legal costs and expenses arising out of or incurred in connection
with disputes between or among any parties to any of the Loan Documents (collectively,
Indemnified Liabilities); provided that Borrowers shall not be liable for any indemnification to
an Indemnified Person to the extent that any such suit, action, proceeding, claim, damage, loss,
liability or expense results from that Indemnified Persons gross negligence or willful
misconduct. No Indemnified Person shall be responsible or liable to any other party to the Loan
Document, any successor, assignee or third-party beneficiary of such person or any other person
asserting claims derivatively through such party, for indirect, punitive, exemplary or
consequential damages which may be alleged as a result of the Obligations and credit having
been extended, suspended or terminated under any Loan Document or as a result of any other
transaction contemplated hereunder or thereunder.
1.9 Taxes.
(a) Any and all payments by Borrowers hereunder shall be made, in
accordance with this Section 1.9, free and clear of and without deduction for any and all present
or future Taxes. If Borrowers shall be required by law to deduct any Taxes from or in respect of
any sum payable hereunder, (i) the sum payable shall be increased as much as shall be necessary
so that, after making all required deductions (including deductions applicable to additional sums
payable under this Section 1.9), Lender receives an amount equal to the sum it would have
received had no such deductions been made, (ii) Borrowers shall make such deductions, and
(iii) Borrowers shall pay the full amount deducted to the relevant taxing or other authority in
accordance with Applicable Law. Within thirty (30) days after the date of any payment of
Taxes, Borrowers shall furnish to Lender the original or a certified copy of a receipt evidencing
payment thereof.
(b) Borrowers shall indemnify and, within ten (10) days of written demand
therefor, pay Lender for the full amount of Taxes (including any Taxes imposed by any
jurisdiction on amounts payable under this Section 1.9) paid by Lender, and any liability
(including penalties, interest and expenses) arising therefrom or with respect thereto, whether or
not such Taxes were correctly or legally asserted.
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1.10 Single Loan. The Loan to Borrowers and all of the other Obligations shall
constitute one general obligation of the Borrowers secured by all of the Collateral.
1.11 Super-Priority Nature of Obligations and Lenders Liens.
(a) The priority of Lenders Liens on the Collateral shall be set forth in the
Interim Order and the Final Order.
(b) Subject only to the Intercreditor Agreement and the Carve Out (as
hereinafter defined), all of the Obligations (i) shall be entitled to superpriority claim status
pursuant to Section 364(c)(1) of the Bankruptcy Code, (ii) shall be secured by a first-priority
Lien upon the Collateral, whether now owned or hereafter acquired, pursuant to Sections
364(c)(2) and 364(d) of the Bankruptcy Code, including, upon entry of the final order, any
avoidance power claims of the Borrowers under Sections 544, 545, 547, 548, 550, 551, and
553(b) of the Bankruptcy Code or other similar claims under state or federal law against any
entity other than the Lender or its predecessors-in-interest (collectively, the Avoidance
Claims), (iii) shall be secured by a pari passu Lien, as set forth in the Intercreditor Agreement,
upon all of the Borrowers assets that are subject to any valid and nonavoidable Lien in favor of
Harbert, including all real and personal property whether now owned or hereafter acquired,
pursuant to Section 364(c)(3) of the Bankruptcy Code; (iv) shall be secured by a senior Lien
(pari passu with Harbert) upon all of the Borrowers assets that are subject to any valid and
nonavoidable Lien in favor of any party other than Harbert to the extent such lien is junior in
priority to the Lien in favor of Harbert, including all real and personal property whether now
owned or hereafter acquired, pursuant to Section 364(c)(3) of the Bankruptcy Code; and (v) shall
be secured by a second-priority Lien upon all of the Borrowers assets that are subject to any
valid and nonavoidable Lien in favor of any party other than Harbert, to the extent such Lien is
senior to the Lien in favor of Harbert, including all real and personal property whether now
owned or hereafter acquired, pursuant to Section 364(c)(3) of the Bankruptcy Code.
(c) The provisions of Section 551 of the Bankruptcy Code shall be
inapplicable to the extent that the Borrowers attempt to avoid any prepetition Lien of the Lender.
Subject to the Intercreditor Agreement and the Carve-Out, such claim of the Lender shall have
priority over all other costs and expenses of the kinds specified in, or ordered pursuant to,
Sections 105, 326, 328, 330, 331, 503(b), 506(c) (subject to entry of the Final Order), 507(a),
507(b), 546(c), 726, 1114 or any other provision of the Bankruptcy Code or otherwise as set
forth in the Interim Order or the Final Order, and shall at all times be senior to the rights of
Borrowers, Borrowers estates, and any successor trustee or estate representative in the
Chapter 11 Cases or any subsequent proceeding or case under the Bankruptcy Code. The Liens
granted to Lender on the Collateral, and the priorities accorded to the Obligations, shall have the
priority and senior secured status afforded by Sections 364(c) and 364(d)(1) of the Bankruptcy
Code (all as more fully set forth in the Interim Order and Final Order) senior to all claims and
interests other than the Carve-Out or as set forth in the Intercreditor Agreement.
(d) Lenders Liens on the Collateral and Lenders administrative claims under
Sections 364(c)(1) and 364(d) of the Bankruptcy Code included within the Obligations shall also
have priority over any claims arising under Section 506(c) of the Bankruptcy Code (subject to
7
entry of the Final Order), provided that Lenders Liens on the Collateral shall be subject and
subordinate to the following (hereafter referred to as the Carve-Out): (a) all allowed and
unpaid fees and expenses of attorneys, investment bankers and financial advisors (collectively,
the Estate Professionals) employed by the Borrowers and the Committee, pursuant to sections
327, 328, 1102 and 1103 of the Bankruptcy Code, and any disbursements of any member of the
Committee, which are incurred or accrued prior to the Termination Date, whether allowed prior
to or after the Termination Date, plus the amount of any retainers held by such Estate
Professionals on the Petition Date; (b) following the Termination Date, allowed fees and
disbursements of Estate Professionals incurred or accrued after such Termination Date by the
Estate Professionals, and any disbursements of any member of the Committee, in an aggregate
amount not to exceed $100,000, and (c) quarterly fees required to be paid pursuant to 28 U.S.C.
1930(a)(6) and any fees payable to the Clerk of the Bankruptcy Court or to the Borrowers
appointed claims agent; provided, however, that the Carve-Out shall not include, apply to, or be
available for any fees or expenses incurred by any party, including any Borrower or the
Committee, or any Estate Professionals, in connection with, or relating to, the initiation or
prosecution of any claims, causes of action, adversary proceedings, or other litigation against the
Lender or any other Released Party, including without limitation, challenging the amount,
validity, perfection, priority, or enforceability of or asserting any defense, counterclaim, or offset
to, the Obligations or the Liens. In addition, the Carve-Out and any other proceeds of the Loan
shall not be used in connection with (i) preventing, hindering or delaying Lenders enforcement
or realization upon the Collateral once an Event of Default has occurred, except to contest that an
Event of Default has occurred, (ii) selling or otherwise disposing of the Collateral without the
consent of Lender, (iii) using or seeking to use any insurance proceeds related to the Collateral
without the consent of Lender, or (iv) incurring indebtedness senior to Lenders Liens hereunder
other than as permitted in this Agreement. Lender shall not be responsible for the direct payment
or reimbursement of any fees or disbursements of any Estate Professionals incurred in
connection with the Chapter 11 Cases under any chapter of the Bankruptcy Code, and nothing in
this Agreement or otherwise shall be construed to obligate Lender in any way to pay
compensation to or to reimburse expenses of any Estate Professional, or to guarantee that
Borrowers have sufficient funds to pay such compensation or reimbursement.
1.12 Payment of Obligations. Upon the maturity (whether by acceleration or
otherwise) of any of the Obligations, Lender shall be entitled to immediate payment of such
Obligations without further application to or order of the Bankruptcy Court.
1.13 No Discharge; Survival of Claims. Unless otherwise consistent with the terms of
this Agreement, Borrowers agree that (a) the Obligations shall not be discharged by the entry of
an order confirming the Plan or any other plan of reorganization in the Chapter 11 Cases (and
pursuant to Section 1141(d)(4) of the Bankruptcy Code, Borrowers hereby waive any such
discharge) and (b) the super-priority administrative claim granted to Lender pursuant to the
Interim Order and Final Order and described in Section 1.11 and the Liens granted to Lender
pursuant to the Interim Order and Final Order and described in Section 1.11 shall not be affected
in any manner by the entry of an order confirming the Plan or any other plan of reorganization in
the Chapter 11 Cases.
8
1.14 Release. Borrowers hereby acknowledge that, effective upon entry of the Final
Order, they shall have no defense, counterclaim, offset, recoupment, cross-complaint, claim or
demand of any kind or nature whatsoever that can be asserted to reduce or eliminate all of
Borrowers liability to repay Lender as provided in this Agreement or to seek affirmative relief
or damages of any kind or nature from Lender. Each Borrower, on behalf of its respective
bankruptcy estate, and on behalf of its respective successors, assigns, Subsidiaries and any
Affiliates and any Person acting for and on behalf of, or claiming through them, hereby fully,
finally and forever releases and discharges Lender and all of Lenders past and present officers,
directors, servants, agents, attorneys, assigns, heirs, parents, subsidiaries, and each Person acting
for or on behalf of any of them (collectively, the Released Parties), of and from any and all
past or present actions, causes of action, demands, suits, claims, liabilities, Liens, lawsuits,
adverse consequences, amounts paid in settlement, costs, damages, debts, deficiencies,
diminution in value, disbursements, expenses, losses and other obligations of any kind or nature
whatsoever, whether in law, equity or otherwise (including, without limitation, those arising
under Sections 541 through 550 of the Bankruptcy Code and interest or other carrying costs,
penalties, legal, accounting and other professional fees and expenses, and incidental,
consequential and punitive damages payable to third parties), whether known or unknown, fixed
or contingent, direct, indirect, or derivative, asserted or unasserted, foreseen or unforeseen,
suspected or unsuspected, against any of the Released Parties, whether held in a personal or
representative capacity, and which are based on any act, fact, event or omission or other matter,
cause or thing occurring at or from any time prior to and including the date hereof in any way,
directly or indirectly arising out of, connected with or relating to this Agreement, the Interim
Order, the Final Order and the transactions contemplated hereby, and all other agreements,
certificates, instruments and other documents and statements (whether written or oral) related to
any of the foregoing.
1.15 Waiver of Any Priming Rights. Upon the Closing Date, and until all of the
Obligations have been repaid in full in cash or other immediately available funds and the
Commitment has terminated, each Borrower, for itself and on behalf of its respective estate,
hereby irrevocably waives any right, pursuant to Sections 364(c) or 364(d) of the Bankruptcy
Code or otherwise, to grant any Lien of equal or greater priority than the Liens securing the
Obligations, or to approve a claim of equal or greater priority than the Obligations.
1.16 Fees and Expenses of Lender.
(a) Facility Fee. The Borrowers shall pay to the Lender a facility fee (the
Facility Fee) equal to one and a half percent (1.5%) of (i) the Interim Order Amount, which
shall be fully-earned and added to the outstanding principal amount of the Facility upon entry of
the Interim Order and (ii) the Loan Amount minus the Interim Order Amount, which shall be
fully-earned and added to the outstanding principal amount of the Facility upon entry of the Final
Order.
(b) Lender Expenses. Borrowers agree to pay any and all Lender Expenses
promptly after demand therefor by and at the direction of the Lender. Lender Expenses may be
paid in cash or in kind at the option of the Lender.
2. CONDITIONS PRECEDENT
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2.1 Conditions to the Initial Loan. Lender shall not be obligated to make the Loan on
the Closing Date until the following conditions have been satisfied or provided for in a manner
reasonably satisfactory to or waived in writing by Lender:
(a) Credit Agreement; Loan Documents. This Agreement and the other Loan
Documents or counterparts hereof shall have been duly executed by, and delivered to, Borrowers
and Lender, each in form and substance reasonably satisfactory to Lender.
(b) Bankruptcy Matters. Entry by the Bankruptcy Court of the Interim Order,
by no later than five (5) Business Days following the hearing on the motion seeking approval of
the Loan Documents, in form and substance reasonably satisfactory to Lender, among other
things, (x) approving the transactions contemplated hereby, (y) granting a first-priority perfected
security interest in all other Collateral subject only to the Carve-Out and Intercreditor
Agreement, and (z) modifying the automatic stay to permit the creation and perfection of
Lenders Liens and automatically vacating the automatic stay to permit enforcement of Lenders
default-related rights and remedies under this Agreement, the other Loan Documents and
Applicable Law.
(c) Security Interests. Lender shall have received evidence satisfactory to
Lender that Lender has a valid and perfected first-priority security interest in the Collateral.
(d) Resolutions. Lender shall have received, in form and substance
reasonably satisfactory to Lender, resolutions of each Borrowers Board of Directors, approving
and authorizing the execution, delivery and performance of the Loan Documents and the
transactions to be consummated in connection therewith, each certified as of the Closing Date by
such Persons corporate secretary or an assistant secretary as being in full force and effect
without any modification or amendment.
(e) Financials; Financial Condition. Lender shall be reasonably satisfied that
any financial statements delivered to Lender fairly present the business and financial condition of
Borrowers, and that, other than the filing of the Chapter 11 Cases, there has been no material
adverse change in the assets, business, financial condition or income of Borrowers since the date
of the most recent financial statements delivered to Lender.
(f) Budget. Lender shall have received the Budget described in Section 3.25.
Lender may in its sole discretion defer, and thereby waive as a closing condition hereunder, the
execution and delivery of one or more of the foregoing items or any other Loan Document. In
the event of such a deferral and waiver, Borrowers agree to execute and deliver such Loan
Document or, as the case may be, execute and deliver or provide such other item, in each case, in
form and substance reasonably satisfactory to Lender, as soon as practicable, but in any event not
later than the earlier to occur of (i) ten (10) days following the Closing Date and (b) entry of the
Final Order.
2.2 Further Conditions to the Advances.
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(a) Except as otherwise expressly provided herein, Lender shall not be
obligated to fund any Advance hereunder, or to take, fulfill, or perform any other action
hereunder, if, as of the date thereof:
(i) the Advance requested would cause the aggregate outstanding amount
of the Loan to exceed the amount then authorized by the Interim Order or the Final Order, as the
case may be, or any order modifying, reversing, staying or vacating such order shall have been
entered, or any appeal of such order shall have been timely filed;
(ii) any representation or warranty by Borrowers contained herein or in
any other Loan Document is untrue or incorrect in any material respect as of such date, except to
the extent that such representation or warranty expressly relates to an earlier date and except for
changes therein expressly permitted or expressly contemplated by this Agreement and Lender
has determined not to make such Advance as a result of the fact that such warranty or
representation is untrue or incorrect in any material respect;
(iii) (A) any Default or Event of Default has occurred and is continuing or
would result after giving effect to such Advance and (B) Lender shall have determined not to
make such Advance as a result of such Default or Event of Default; or
(iv) (A) the Final Order has not been entered immediately following the
expiration of the Interim Order and by no later than 17 days after the entry of the Interim Order,
(B) the Interim Order or the Final Order, as the case may be, shall have been vacated, stayed,
reversed, modified or amended without Lenders consent or shall otherwise not be in full force
and effect, (C) a motion for reconsideration of any such order shall have been timely filed, or
(D) an appeal of any such order shall have been timely filed and such order in any respect is the
subject of a stay pending appeal.
(b) In addition, prior to the funding of any Advance, Borrowers shall have
delivered to Lender the Budget reconciliation report required pursuant to clause (d) of Annex B.
The request and acceptance by Borrowers of the proceeds of any Advance shall be deemed to
constitute, as of the date thereof, (i) a representation and warranty by Borrowers that the
conditions in this Section 2.2 have been satisfied, and (ii) a reaffirmation by Borrowers of the
granting and continuance of Lenders Liens, pursuant to the Collateral Documents.
3. REPRESENTATIONS AND WARRANTIES
To induce Lender to make the Loan, Borrowers makes the following representations and
warranties to Lender, each and all of which shall survive the execution and delivery of this
Agreement. Each of the representations and warranties made herein are subject to the effect of
the filing of the Chapter 11 Cases.
3.1 Valid Existence and Power. Each Borrower is duly organized, validly existing
and in good standing under the laws of the jurisdictions of its organization, and is duly qualified
or licensed to transact business in all jurisdictions where the failure to be so qualified could
reasonably be likely to have a Material Adverse Effect. Subject to the entry by the Bankruptcy
Court of the Interim Order (or the Final Order, when applicable), each Borrower has the power to
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make and perform each Loan Documents executed by it and all Loan Documents will constitute
the legal, valid, and binding obligations of such Borrower, enforceable in accordance with their
respective terms, subject only to bankruptcy and similar laws affecting creditors rights
generally. Each Borrower is organized under the laws of jurisdiction set forth in the recitals.
3.2 Authorization; Enforceability. Upon the entry by the Bankruptcy Court of the
Interim Order (or the Final Order, when applicable), the execution, delivery, and performance
thereof by each Borrower have been duly authorized by all necessary actions of such Borrower
and do not and will not violate any provision of law or regulation, or any writ, order, or decree of
any Governmental Authority or any provision of the governing instruments of such Borrower,
and do not and will not, with the passage of time or the giving of notice, result in a breach of or
constitute a default or require any consent under, or result in the creation of any Lien upon any
property or assets of such Borrower pursuant to, any law, regulation, instrument, or agreement to
which any such Borrower is a party or by which any such Borrower or its respective properties
may be subject, bound, or affected. This Agreement has been duly executed and delivered by
each Borrower and, subject to the entry by the Bankruptcy Court of the Interim Order (or the
Final Order, when applicable) constitutes, and each other Loan Document to which each
Borrower is a party, when executed and delivered by such Borrower will constitute, a legal, valid
and binding obligation of such Borrower, enforceable in accordance with its terms.
3.3 Financial Statement and Financial Condition. Other than as disclosed in financial
statements delivered to Lender on or before the Closing Date or on Schedule 3.3, as of the
Closing Date, no Borrower has any direct or contingent obligations or liabilities (including any
guarantees or operating or capital leases) or any material unrealized or anticipated losses from
any commitments of such Borrower. All financial statements from time to time delivered to
Lender by Borrowers or required to be provided by Borrowers to Lender (the Financial
Statements) shall have been prepared in accordance with GAAP and fairly present in all
material respects the financial condition of the Borrowers as of the date thereof. No Borrower is
aware of any material adverse fact (other than facts which are generally available to the public
and not particular to such Borrower, such as general economic trends) concerning the financial
condition of such Borrower which has not been fully disclosed to Lender, including any material
adverse change in the operations or financial condition of such Borrower since the date of the
most recent financial statements delivered to Lender.
3.4 Properties.
(a) Each Borrower has valid property interests in full force and effect with
respect to all of its real and personal property material to its business, except for defects which
could not reasonably be expected to have a Material Adverse Effect.
(b) Each Borrower owns, or is licensed to use, all Intellectual Property
material to its business, and the use thereof by any Borrower does not infringe upon the rights of
any other Person, except for any such infringements that, individually or in the aggregate, could
not reasonably be expected to result in a Material Adverse Effect.
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3.5 Litigation. (a) Other than the Chapter 11 Cases and except as disclosed on
Schedule 3.5(a), there are no suits or proceedings pending or, to any Borrowers knowledge,
threatened by or before any arbitrator or Governmental Authority against or affecting such
Borrower or any Subsidiary of such Borrower, or their respective assets, (collectively,
Litigation) which could reasonably be expected to have a Material Adverse Effect or that
involve any of the Loan Documents.
(b) Except as disclosed on Schedule 3.5(b), as of the Closing Date, to each Borrowers
knowledge: (i) after conducting such searches of records in courts in which Borrowers
reasonably anticipate any FACTA Litigation to be filed, there is no FACTA Litigation pending,
and (ii) after conducting such searches of the Internet, newspapers and periodicals as Borrowers
reasonably deem relevant and likely to contain advertisements or solicitations, there is no
FACTA Litigation threatened by any Person or Governmental Authority. None of the matters
disclosed on Schedule 3.5(b) could reasonably be expected to have a Material Adverse Effect.
3.6 Agreements, Etc. Other than the Chapter 11 Cases, no Borrower is subject or
party to any order or decree of any Governmental Authority or any charter or other corporate or
limited liability company restriction, adversely affecting its business, assets, operations, or
condition (financial or otherwise), nor is any such Borrower in default in the performance,
observance, or fulfillment of any of the obligations, covenants, or conditions contained in any
agreement or instrument to which it is a party, or any law, regulation, decree, order, or the like to
which it is subject which, in each case, could be reasonably likely to have a Material Adverse
Effect.
3.7 Authorizations. All authorizations, consents, approvals, and licenses required
under Applicable Law for the ownership or operation of the property owned or operated by any
Borrower or for the conduct of any business in which such Borrower is engaged have been duly
issued and are in full force and effect, and such Borrower is not in default, nor has any event
occurred which with the passage of time or the giving of notice, or both, would constitute a
default, under any of the terms or provisions of any part thereof, or under any order, decree,
ruling, regulation, closing agreement or other decision or instrument of any governmental
commission, bureau or other administrative agency or public regulatory body having jurisdiction
over such Person, which default would have a Material Adverse Effect on such Person. Except
as noted herein, including entry of the Interim and Final Order, no material approval, consent or
authorization of, or filing or registration with, any governmental commission, bureau or other
regulatory authority or agency which has not been obtained is required with respect to the
execution, delivery or performance of any Loan Document.
3.8 Title. Each Borrower has good title to all of the assets shown in its financial
statements free and clear of all Liens, except Permitted Liens.
3.9 Collateral.
(a) The Liens granted to Lender herein and pursuant to any of the Collateral
Documents (a) constitute and, as to subsequently acquired property included in the Collateral
covered by the Collateral Documents, will constitute, security interests under the UCC entitled to
all of the rights, benefits, and priorities provided by the UCC and (b) are and, as to such
subsequently acquired Collateral, will be fully perfected, superior, and prior to the rights of all
third persons, now existing or hereafter arising, except for the Prepetition Obligations, subject to
13
the terms of the Intercreditor Agreement, and such Permitted Liens having priority over the
Liens of Lender by operation of law or under a purchase money arrangement. All of the
Collateral is intended for use solely in Borrowers business.
(b) Schedule 3.9(b) sets forth all of the Borrowers insurance policies in effect
as of the Closing Date and sets forth as to each such policy (as applicable) the type of insurance
provided by such policy, the underwriter thereof, the maximum coverage provided thereunder,
the deductible applicable thereto, and a brief description of any non-customary term as set forth
therein. Each of such policies is currently in effect and all premiums thereon have been paid to
date.
3.10 Jurisdiction of Organization; Location. The jurisdiction in which each Borrower
and each Subsidiary of a Borrower is organized, the chief executive office of each Borrower and
each Subsidiary, the office where each Borrowers and each Subsidiarys books and records are
located, have been correctly and completely disclosed to Lender. All of each Borrowers and
each Subsidiarys other places of business, and any other places where any Collateral (other than
Inventory in-transit) is kept, are all correctly and completely disclosed to Lender, except as the
Borrowers shall promptly notify the Lender in writing. The Collateral (other than Inventory in-
transit) is located and shall at all times be kept and maintained only at a Permitted Location.
3.11 Taxes. Except as set forth on Schedule 3.11, each Borrower and each Subsidiary
of a Borrower have filed all Federal and state income and other tax returns which are required to
be filed (after giving effect to any extensions), and have paid all taxes as shown on said returns
and all taxes, including withholding, FICA, and ad valorem taxes, shown on all assessments
received by it to the extent that such taxes have become due unless such amounts are being
Properly Contested or stayed as a result of the filing of the Chapter 11 Cases. No Borrower or
Subsidiary of a Borrower is subject to any Federal, state, or local tax Liens nor has such Person
received any notice of deficiency or other official notice to pay any taxes unless such amounts
are being Properly Contested or stayed as a result of the filing of the Chapter 11 Cases. Each
Borrower and each Subsidiary of a Borrower has paid all sales and excise taxes payable by it
unless such amounts are being Properly Contested or stayed as a result of the filing of the
Chapter 11 Cases.
3.12 Labor Law Matters. No goods or services have been or will be produced by any
Borrower or any Subsidiary of a Borrower in violation of any applicable labor laws or
regulations or any collective bargaining agreement or other labor agreements or in violation of
any minimum wage, wage-and-hour or other similar laws or regulations, in each case which
could reasonably be expected to have a Material Adverse Effect.
3.13 Judgment Liens. No Borrower, no Subsidiary of a Borrower, nor any of their
respective assets, are subject to any unpaid judgments (whether or not stayed) or any judgment
liens in any jurisdiction, which if unpaid would constitute an Event of Default.
3.14 Corporate Structure. As of the Closing Date, Schedule 3.14 sets forth (a) the
correct legal name of each Borrower, its jurisdiction of organization and the percentage of its
Stock having voting powers owned by each Person, (b) the number, nature and holder of all
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outstanding Stock of each Borrower and each of its Subsidiaries and (c) the number of
authorized and issued Stock of each Borrower and each Subsidiary of Borrower. Each Borrower
has good title to all of the shares it purports to own of the Stock of each of its Subsidiaries, free
and clear in each case of any Lien other than Permitted Liens. All such Stock has been duly
issued and is fully paid and non-assessable. Since the date of the last audited financial
statements of Borrowers and their Subsidiaries delivered to Lender, no Borrower has made, or
obligated itself to make, any dividends (other than stock dividends) or other distribution on or
with respect to, or any purchase, redemption, retirement or other acquisition of, any Stock of
such Borrower. As of the Closing Date, Schedule 3.14 sets forth outstanding options to
purchase, or any rights or warrants to subscribe for, or any commitments or agreements to issue
or sell, or any Stock or obligations convertible into, or any powers of attorney relating to, Stock
of any Borrower or any Subsidiaries of a Borrower. Except as set forth on Schedule 3.14, there
are no outstanding agreements or instruments binding upon the holders of any Stock of any
Borrower or any Subsidiary of a Borrower, as of the Closing Date relating to the ownership of
such Stock.
3.15 Deposit Accounts. No Borrower or any of its Subsidiaries has any Deposit
Accounts other than those listed on Schedule 3.15.
3.16 Environmental. Except as disclosed in the environmental site assessments
delivered to Lender pursuant to this Agreement or which could not reasonably be expected to
cause any Borrower or any Subsidiary of a Borrower to suffer a loss or liability in excess of
$200,000, (a) except for ordinary and customary amounts of solvents, cleaners and similar
materials used in the ordinary course of a Borrowers or its Subsidiarys business and in
compliance with all Environmental Laws, none of Borrowers, any Subsidiary of a Borrower, or,
to any Borrowers knowledge, any previous owner or operator of any real property currently
owned or operated by a Borrower or a Subsidiary, has generated, stored, or disposed of any
Regulated Material on any portion of such property, or transferred any Regulated Material from
such property to any other location in violation of any applicable Environmental Laws; (b) no
Person (other than a Borrower or a Subsidiary of a Borrower) has generated, stored or disposed
of any Regulated Material on any portion of the real property currently owned or operated by
such Borrower or any Subsidiary of such Borrower, and, except for ordinary and customary
amounts of solvents, cleaners and similar materials used in the ordinary course of such
Borrowers or its Subsidiarys business and in compliance with all Environmental Laws, no
Regulated Material is now located on such property; and (c) each Borrower and its respective
Subsidiaries are in compliance with all applicable Environmental Laws and no Borrower nor any
Subsidiary has been notified of any action, suit, proceeding, or investigation which calls into
question compliance by such Borrower or any Subsidiary of such Borrower with any
Environmental Laws or which seeks to suspend, revoke or terminate any license, permit, or
approval necessary for the generation, handling, storage, treatment, or disposal of any Regulated
Material.
3.17 ERISA. If requested by Lender, Borrowers have furnished to Lender true and
complete copies of the latest annual report required to be filed pursuant to Section 104 of
ERISA, with respect to each Employee Plan, and no ERISA Termination Event with respect to
any Employee Plan has occurred and is continuing. No Borrower nor any Subsidiary of a
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Borrower has any unfunded liability with respect to any such Employee Plan in excess of
$200,000.
3.18 Investment Company Act. No Borrower or any Subsidiary of a Borrower is an
investment company as defined in the Investment Company Act of 1940, as amended.
3.19 Sanctioned Persons; Sanctioned Countries. No Borrower, any Subsidiary of a
Borrower, or any Affiliate of a Borrower (a) is a Sanctioned Person or (b) does business in a
Sanctioned Country or with a Sanctioned Person in violation of the economic sanctions of the
United States administered by OFAC. Borrowers will not use the proceeds of any Advance to
fund any operation in, finance any investments or activities in, or make any payments to, a
Sanctioned Person or a Sanctioned Country.
3.20 Compliance with Laws and Agreements. Each Borrower is in compliance with all
Applicable Law, except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect. All material contracts of each
Borrower are valid and in full force and effect, and are enforceable by such Borrower in
accordance with their terms. No Borrower has waived any of its material rights, defenses, setoffs
or rights recoupment under any such contracts, other than Prepetition monetary defaults in
respect of such contracts.
3.21 Full Disclosure. Each Borrower has disclosed to Lender each fact and
circumstance which such Borrower knows or should know and which, by itself or together with
any other fact disclosed or undisclosed, could reasonably be expected to have Material Adverse
Effect. No Loan Document or any other agreement, document, certificate, or statement delivered
by any Borrower or a Subsidiary of a Borrower to Lender contains any untrue statement of a
material fact or omits to state any material fact which is known or which should be known by
such Person necessary to keep the other statements from being misleading.
3.22 Subsidiaries. No Borrower directly or indirectly owns any equity or similar
interest in, or any interest convertible into or exchangeable or exercisable for any equity or
similar interest in, any Person other than the other Borrowers.
3.23 Collateral Documents. The Collateral Documents create in favor of Lender, a
legal, valid and enforceable security interests in and liens upon the Collateral, prior and superior
in right to any other Person, subject, as to priority, only to the Carve-Out as set forth in the
Interim Order and the Final Order, the Permitted Prior Liens (as defined in the Interim Order or
Final Order, as applicable), and as set forth in the Intercreditor Agreement.
3.24 Federal Reserve Regulations.
(a) No Borrower is engaged principally, or as one of its important activities,
in the business of extending credit for the purpose of buying or carrying Margin Stock.
(b) No part of the proceeds of the Loan will be used, whether directly or
indirectly, and whether immediately, incidentally or ultimately, (i) to buy or carry Margin Stock
16
or to extend credit to others for the purpose of buying or carrying Margin Stock or to refund
indebtedness originally incurred for such purpose or (ii) for any purpose that entails a violation
of, or that is inconsistent with, the provisions of the Regulations of the Federal Reserve Board,
including Regulation T, U or X.
3.25 Budget.
(a) Borrowers have prepared and delivered to Lender the initial Budget, a
copy of which is attached hereto as Exhibit A. The Budget has been thoroughly reviewed by
Borrowers and their management and sets forth for the periods covered thereby, and includes
among other things, projected weekly operating cash receipts and disbursements for each week
commencing on or before the date hereof (collectively, the Projected Information). In addition
to the initial Budget, Borrowers shall thereafter deliver to Lender updates to the Budget in the
manner set forth in clause (c) below.
(b) Each Borrower acknowledges, confirms and agrees that the Borrowers
shall not pay any expenses or other disbursements other than those set forth in the Budget;
provided, however that the Borrowers actual cash disbursements for any period set forth in the
Budget shall not exceed the amounts set forth in the Budget for such period by more than 10%
and cash receipts for the applicable period shall not be less than 90% of the amounts set forth in
the Budget for such period, in each case on a 2-week cumulative basis and without regard for the
timing differences resulting from the payment of fees and expenses of Estate Professionals.
Amounts unused during any week may be carried forward to subsequent weeks.
(c) By no later than 5:00 p.m. (Central time) on the Wednesday (or, if not a
Business Day, on the next Business Day thereafter) of each week, Borrowers shall furnish to
Lender, in form and substance reasonably satisfactory to Lender, together with supporting
documentation reasonably satisfactory to the Lender, (i) a report that sets forth for the
immediately preceding week the actual cash disbursements in comparison to the Projected
Information for such weekly periods set forth in the Budget on a cumulative, weekly roll-forward
basis, together with a certification from a Financial Officer of Borrowers that no Material Budget
Deviation has occurred, except as permitted in this Agreement, and (ii) documentation
evidencing the prior four (4) week period of actual expenses and receipts for the applicable
period. Each such updated Budget shall be in form and substance reasonably satisfactory to
Lender and approved by Lender in its reasonable discretion.
(d) Each Borrower hereby confirms, acknowledges and agrees that (i) a
failure to maintain the minimum deviations in the Budget described in Section 3.25(b) hereof
shall constitute a material deviation from the Budget (each, a Material Budget Deviation) and
an additional Event of Default and (ii) the failure to deliver any Budget or any reports with
respect to any Budget, in form and substance reasonably satisfactory to Lender, as provided in
Section 3.25(a) hereof, shall constitute an Event of Default. Notwithstanding any approval by
Lender of the initial Budget or any subsequent or amended Budget(s), Lender will not, and shall
not be required to, provide any Advances to any Borrower pursuant to the Budget, but shall only
provide the Loan in accordance with the terms and conditions set forth in the Interim Order and
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Final Order. Lender is relying upon Borrowers delivery of, and compliance with, the Budget in
accordance with this Section 3.25 in determining to enter into the Post-Petition financing
arrangements provided for herein.
3.26 Reorganization Matters.
(a) The Chapter 11 Cases were commenced on the Petition Date in
accordance with Applicable Law and proper notice thereof and the proper notice for (i) the
motion seeking approval of the Loan Documents and the Interim Order and Final Order, (ii) the
hearing for the approval of the Interim Order, and (iii) the hearing for the approval of the Final
Order has been or will be given. Borrowers shall give, on a timely basis as specified in the
Interim Order or the Final Order, as applicable, all notices required to be given to all parties
specified in the Interim Order or Final Order, as applicable.
(b) After the entry of the Interim Order, and pursuant to and to the extent
permitted in the Interim Order and the Final Order, the Obligations will constitute allowed
administrative expense claims in the Chapter 11 Cases having priority over all administrative
expense claims and unsecured claims against Borrowers now existing or hereafter arising, of any
kind whatsoever, including, without limitation, all administrative expense claims of the kind
specified in Sections 105, 326, 330, 331, 503(b), 506(c), 507(a), 507(b), 546(c), 726, 1114 or any
other provision of the Bankruptcy Code or otherwise, as provided under Section 364(c)(1) of the
Bankruptcy Code, subject, as to priority only to the Carve-Out as set forth in the Interim Order
and the Final Order.
(c) After the entry of the Interim Order and pursuant to and to the extent
provided in the Interim Order and the Final Order, the Obligations will be secured by a valid and
perfected first-priority security interest in and lien upon all of the Collateral, subject, as to
priority, only to the Carve-Out as set forth in the Interim Order and the Final Order, the
Permitted Prior Liens (as defined in the Interim Order or Final Order, as applicable), and as set
forth in the Intercreditor Agreement.
(d) The Interim Order (with respect to the period prior to entry of the Final
Order) or the Final Order (with respect to the period on and after entry of the Final Order), as the
case may be, is in full force and effect has not been reversed, stayed, modified or amended.
(e) Notwithstanding the provisions of Section 362 of the Bankruptcy Code,
and subject to the applicable provisions of the Interim Order or Final Order, as the case may be,
upon the maturity (whether by acceleration or otherwise) of any of the Obligations, Lender shall
be entitled to immediate payment of such Obligations and to enforce the remedies provided for
hereunder or under Applicable Law, without further application to or order by the Bankruptcy
Court.
4. FINANCIAL STATEMENTS AND INFORMATION
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4.1 Reports and Notices. Each Borrower hereby agrees that from and after the
Closing Date and until the Termination Date, it shall deliver to Lender the financial statements,
notices and other information reasonably requested by Lender at the times requested, to the
Persons and in the manner set forth in Annex B.
4.2 Communication with Financial Advisors. Borrowers authorize Lender to
communicate directly with any financial advisors, investment bankers and consultants of the
Borrowers, and authorize and shall instruct those financial advisors, investment bankers and,
subject to executed non-disclosure agreements and limitations contained therein, consultants to
communicate to Lender information relating to Borrowers with respect to the business, results of
operations and financial condition of Borrowers.
5. AFFIRMATIVE COVENANTS
Each Borrower agrees that from and after the date hereof and until the Termination Date
that it:
5.1 Use of Proceeds. Shall use the Proceeds only in accordance with the uses
permitted by Section 1.3 and shall furnish Lender all evidence it may require with respect to such
uses. No part of the proceeds of the Loan will be used, whether directly or indirectly, for any
purpose that entails a violation of any of the Regulations of the Federal Reserve Board, including
Regulations T, U and X.
5.2 Maintenance of Business and Properties. Shall at all times (a) (i) maintain,
preserve, and protect all Collateral and the remainder of its property used or useful in the conduct
of its business, (ii) keep the same in good repair, working order, and condition except for
ordinary wear and tear, and (iii) make, or cause to be made, all material needful and proper
repairs, renewals, replacements, betterments, and improvements thereto so that the business
carried on in connection therewith may be conducted properly and in accordance with standards
generally accepted in businesses of a similar type and size, and (b) maintain and keep in full
force and effect all licenses and permits necessary to the proper conduct of its business.
5.3 Insurance.
(a) Shall (i) maintain (A) a policy of general liability insurance (including
food borne illness insurance on stores owned or operated by any Borrower) with combined single
limits for bodily injury and property damage (per occurrence and in the aggregate) in amounts
not less than, and with deductibles or self insured retentions not greater than, the amounts shown
on the insurance certificates delivered to the Lender on or about the Closing Date, subject to
reasonable and customary annual adjustments for appreciation and growth of Borrowers
business; (B) workers compensation insurance in such amounts that may be required by law or
statute in the jurisdictions where each individual owned or operated store or facility of any
Borrower is located; (C) business interruption insurance for a period of not less than 6 months,
and (ii) insure and keep insured all Collateral and other properties with insurance companies with
an A.M. Bests Rating of not less then A- VII and licensed, authorized, or admitted to underwrite
the applicable line(s) of insurance in the jurisdictions where each individual owned or operated
store or facility of any Borrower is located. All Property insurance covering Collateral shall be
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in amounts equal to the then current replacement cost of the Collateral without deduction for
depreciation or coinsurance and, shall name Lender as loss payee, mortgagee and shall utilize
lenders loss payee endorsement under a long-form New York standard loss payee clause, or its
equivalent, reasonably acceptable to Lender and shall not be terminable except upon 30 days
written notice to Lender. On or before the Closing Date and thereafter on an annual basis (or at
such other more frequent intervals as Lender may reasonably request from time to time),
Borrowers shall furnish Lender evidence of insurance in the form of an Accord Form 27 (or
similar instrument) with respect to property insurance and an Accord Form 25 (or similar
instrument) with respect to liability insurance.
(b) If any of a Borrowers Real Property or Equipment suffers a casualty or is
condemned by a Governmental Authority (each, a Loss), Borrowers may apply the Net
Proceeds of any such casualty or condemnation to the repair, restoration, or replacement of the
assets suffering such Loss, so long as (i) such repair, restoration, or replacement is completed
within 180 days after the date of such Loss (or such longer period of time agreed to in writing by
Lender), (ii) while such repair, restoration, or replacement is underway, all of such Net Proceeds
are on deposit in a separate Deposit Account over which Lender or Harbert has exclusive
Control, and (iii) no Event of Default existed on the date of such Loss and such Loss did not
cause an Event of Default. If an Event of Default exists at the time of or after any such Loss, or
occurs as a result of any such Loss, or such repair, restoration, or replacement is not completed
within 180 days after the date of such Loss (or such longer period of time agreed to in writing by
Lender), Lender may, subject to the Intercreditor Agreement, immediately and without notice to
any Person apply all of such Net Proceeds to the Obligations, regardless of any other prior
agreement regarding the disposition of such Net Proceeds.
(c) Within ten (10) days after the date of entry of any Interim Order or Final
Order, fire and extended coverage policies maintained with respect to any Collateral shall be
endorsed or otherwise amended to include (i) a lenders loss payable clause (regarding personal
property), in form and substance reasonably satisfactory to Lender, which endorsements or
amendments shall provide, that the insurer shall pay all proceeds otherwise payable to any
Borrower under the policies directly to Lender, (ii) a provision to the effect that none of any
Borrower, Lender nor any other party shall be a coinsurer, and (iii) such other provisions as
Lender may reasonably require from time to time to protect the interests of Lender. Commercial
general liability policies shall be endorsed to name Lender as an additional insured. Business
interruption policies shall name Lender as loss payee and shall be endorsed or amended to
include (i) a provision that, from and after the Closing Date, the insurer shall pay all proceeds
otherwise payable to any Borrower under the policies directly to Lender, (ii) a provision to the
effect that none of any Borrower, Lender or any other party shall be a co-insurer, and (iii) such
other provisions as Lender may reasonably require from time to time to protect the interests of
Lender. Each such policy referred to in this paragraph also shall provide that it shall not be
canceled, modified or not renewed (i) by reason of nonpayment of premium except upon not less
than ten (10) days prior written notice thereof by the insurer to Lender (giving Lender the right
to cure defaults in the payment of premiums), or (ii) for any other reason except upon not less
than thirty (30) days prior written notice thereof by the insurer to Lender. All such insurance
which covers the Collateral shall include an endorsement in favor of Lender, which endorsement
shall provide that the insurance, to the extent of Lenders interest therein, shall not be impaired
20
or invalidated, in whole or in part, by reason of any act or neglect of any Borrower or by the
failure of any Borrower to comply with any warranty or condition of the policy. Borrowers shall
deliver to Lender, prior to the cancellation, modification or nonrenewal of any such policy of
insurance, a copy of a renewal or replacement policy (or other evidence of renewal of a policy
previously delivered to Lender) together with evidence reasonably satisfactory to Lender of
payment of the premium therefor.
5.4 Certain Notices. Shall provide Lender immediate notice of (a) the occurrence of a
Default or Event of Default and what action (if any) Borrowers are taking to correct the same;
(b) any FACTA Litigation, (c) any litigation (other than FACTA Litigation) against any
Borrower involving potential liability in an amount in excess of $50,000 or material changes in
existing litigation or any judgment against it or its assets in excess of $50,000; (d) any damage or
loss to Collateral in excess of $50,000; (e) any notice from taxing authorities as to claimed
deficiencies or any tax lien or any notice relating to alleged ERISA violations; (f) any Reportable
Event, as defined in ERISA; (g) any rejection, return, offset, dispute, loss, or other circumstance
in an amount equal to or greater than $50,000 or otherwise having a Material Adverse Effect on
any Collateral; (h) the cancellation or termination of, or any default under, any material contract;
(i) any acceleration of the maturity of any Material Indebtedness of any Borrower or the
occurrence or existence of any event or circumstances which gives the holder of such
Indebtedness the right to accelerate; (j) any loss of material licenses or permits; and (k) any
notice given to or by Harbert.
5.5 Books and Records; Inspections; Appraisals. Shall keep proper books of record
and account consistent with past practices previously disclosed to Lender and in which full, true
and correct entries are made of all dealings and transactions in relation to their business and
activities, and shall permit Lender and its agents to visit and inspect their properties, to conduct
inspections, verifications (of accounts and otherwise), appraisals, and examinations of the
Collateral and such Borrowers other property and books and records, and to make extracts from
their books and records, in each case at such times and with such frequency as Lender may
request from time to time, with (a) when no Default or Event of Default is in existence,
reasonable notice thereof and (b) when any Default or Event of Default is in existence, no notice
thereof, and Borrowers shall pay the cost of such inspections, verifications, appraisals, and
examinations; provided, however, that unless an Event of Default is in existence, no more than
one field examination may be conducted within any 12 month period and no more than one
appraisal may be conducted within any 12 month period, and so long as there is no Event of
Default, the cost of any such appraisals and examinations shall be borne by Lender.
5.6 Financial Information. Shall maintain books and records in accordance with
GAAP and shall furnish to Lender such periodic financial and other information (i) as reasonably
requested by Lender from time to time concerning the business, properties, or financial condition
of the Borrowers or (ii) provided to Harbert or provided for under the Prepetition Loan
Documents.
5.7 Maintenance of Existence and Rights. Shall preserve and maintain its legal
existence, authorities to transact business, rights and franchises, trade names, patents,
trademarks, and permits necessary to the conduct of its business.
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5.8 Payment of Taxes, Etc. Subject to any restrictions imposed by the Bankruptcy
Code or the Bankruptcy Court, shall pay before delinquent all of its Indebtedness and taxes,
except to the extent such taxes are being Properly Contested.
5.9 Compliance; Hazardous Materials. Shall strictly comply with all laws,
regulations, ordinances, and other legal requirements, including, without limitation, ERISA, all
securities laws, and all laws relating to hazardous materials and the environment unless such
failure to comply in not reasonably likely to result in a Material Adverse Effect. Borrowers shall
promptly report to Lender any notices of any material violations of such laws or regulations
received from any Governmental Authority, along with Borrowers proposed corrective action as
to such violation.
5.10 Covenants Regarding Collateral.
(a) Shall use the Collateral only in the ordinary course of its business and will
not permit the Collateral to be used in any material violation of any Applicable Law or policy of
insurance;
(b) Shall defend the Collateral against all claims and demands of all Persons,
except for Permitted Liens;
(c) Subject to the Intercreditor Agreement, shall promptly deliver to Lender
all Items, Instruments, Chattel Paper, Investment Property in the form of certificated securities,
and, if requested by Lender, Documents which constitute Collateral, in each case appropriately
indorsed to Lenders order other than those obtained in ordinary course of business and having a
value of not greater than $100,000;
(d) Subject to the Intercreditor Agreement, shall not create any Electronic
Chattel Paper without first granting Lender Control thereof pursuant to such measures as Lender
shall request;
(e) Shall promptly notify Lender of any material patents, trademarks, or
registered copyrights to which any Borrower or any Subsidiary of a Borrower acquires title or
rights after the Closing Date and any license agreements entered into after the Closing Date by
any Borrower or any Subsidiary of a Borrower authorizing such Borrower or Subsidiary to use
any third partys patents, trademarks, or copyrights but not including licenses among Borrowers;
and
(f) Shall give Lender at least 30 days written notice before using any trade,
assumed, or fictitious name not already used and shall use all trade, assumed, or fictitious names
in accordance with all Applicable Laws.
5.11 Payment of Obligations. Each Borrower will pay its Post-Petition Indebtedness
and other obligations, and claims for labor, materials, or supplies in accordance with the Budget
(subject to any deviations permitted pursuant to Section 3.25).
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5.12 Additional Collateral; Additional Subsidiaries. If any Borrower shall hereafter
acquire any material assets or other property which, in the judgment of Lender, is not already
subject to a perfected first-priority security interest in favor of Lender, such Borrower shall, at
such Borrowers expense, deliver any and all Collateral Documents and further instruments and
documents (including the delivery of legal opinions reasonably acceptable to Lender) and take
all such other action as Lender may deem necessary or desirable in obtaining the full benefits of,
or (as applicable) in perfecting and preserving the Liens of, such Collateral Documents and other
security and pledge agreements. If any additional Subsidiary of any Borrower is formed or
acquired after the Closing Date, such Borrower shall notify Lender thereof and (a) if such
Subsidiary is not a Foreign Subsidiary, such Borrower shall cause such Subsidiary to become an
additional Borrower hereunder by executing and delivering to the Lender a joinder agreement in
form and substance reasonably satisfactory to the Lender and under each applicable Collateral
Document in the manner provided therein within ten (10) Business Days after such Subsidiary is
formed or acquired and promptly take such actions and execute and deliver such Collateral
Documents as Lender shall reasonably request to create and perfect Liens on such Subsidiarys
assets to secure the Obligations, and (b) if any shares of Stock or other ownership interests or
Indebtedness of such Subsidiary are owned by or on behalf of any Borrower, such Borrower
shall cause such Stock and any promissory notes evidencing such Indebtedness to be pledged
within ten (10) Business Days after such Subsidiary is formed or acquired (except that, if such
Subsidiary is a Foreign Subsidiary, shares of stock or other ownership interests of such
Subsidiary to be pledged may be limited to 65% of the outstanding shares of Voting Stock of
such Subsidiary).
5.13 Further Assurances.
(a) Each Borrower will execute any and all further documents, financing
statements, agreements and instruments, and take all such further actions that may be required
under any Applicable Law, or which Lender may reasonably request, to effectuate the
transactions contemplated by the Loan Documents or to grant, preserve, protect or perfect the
Liens created or intended to be created by the Collateral Documents or the validity or priority of
any such Lien, all at the expense of Borrowers. Each Borrower also agrees to provide to Lender,
from time to time upon request, evidence reasonably satisfactory to Lender as to the perfection
and priority of the Liens created or intended to be created by the Collateral Documents,
including, without limitation, periodic lien searches as deemed necessary by Lender in its
reasonable discretion.
(b) If any material assets are acquired by any Borrower after the Closing Date
(other than assets constituting Collateral hereunder that become subject to the Lien of Lender
upon acquisition thereof), such Borrower will notify Lender thereof, and such Borrower will
cause such assets to be subjected to a Lien securing the Obligations and will take such actions as
shall be necessary or reasonably requested by Lender to grant and perfect such Liens, including
actions described in paragraph (a) of this Section 5.13, all at the expense of Borrowers.
5.14 Plan Schedule. Each Borrower shall comply with each of the Plan Milestones
upon the terms and at the times as provided for therein.
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5.15 Compliance with the Budget. Each Borrower shall comply with the provisions set
forth in Section 3.25 hereof.
6. NEGATIVE COVENANTS
Borrowers agree that from and after the date hereof until the Termination Date:
6.1 Indebtedness and Other Obligations. No Borrower will create, incur, assume or
permit to exist any Post-Petition Indebtedness, except:
(a) Indebtedness hereunder;
(b) Indebtedness contemplated by the Budget;
(c) the Prepetition Obligations; and
(d) other unsecured Indebtedness in an aggregate principal amount not
exceeding $10,000 at any time outstanding, provided that the terms of such Indebtedness are
reasonably acceptable to Lender.
Furthermore, other than as set forth in the Intercreditor Agreement, no Indebtedness under
clauses (ii) through (iv) shall be permitted to have an administrative expense claim status under
the Bankruptcy Code senior to or pari passu with the super-priority administrative expense
claims of Lender, as set forth herein and in the Interim Order and the Final Order.
6.2 Liens. No Borrower will create, incur, assume or permit to exist any Lien on any
property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues
(including accounts receivable) or rights in respect of any thereof, except:
(a) Liens in favor of Lender securing the Obligations;
(b) Permitted Liens;
(c) Liens securing the Prepetition Obligations to the extent set forth in, and
subject to the terms of, the Intercreditor Agreement; and
(d) To the extent attaching solely to Prepetition collateral, valid, properly
perfected and unavoidable Prepetition Liens of vendors to any Borrower securing an obligation
of such Borrower for the payment of the purchase price of Inventory in the aggregate amount not
to exceed $10,000 outstanding at any time for all such Liens; provided such Liens attach only to
the Inventory supplied by such vendor.
Notwithstanding the foregoing, other than as set forth in the Intercreditor Agreement,
Liens permitted by this Section 6.2 shall at all times be junior and subordinate to the Liens under
the Loan Documents and the Interim Order and Final Order. The prohibition provided for in this
Section 6.2 specifically includes, without limitation, any attempt by any Borrower, the
Committee, or any other party-in-interest in the Chapter 11 Cases to prime or create pari passu to
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any Liens or interests of Lender any Lien (other than for the Carve-Out or as set forth in the
Intercreditor Agreement) irrespective of whether such Liens or interests may be adequately
protected.
6.3 Restricted Payments. No Borrower shall make any Restricted Payment, except
that any Subsidiary of a Borrower may pay dividends or make other distributions to such
Borrower or to another Subsidiary wholly-owned by such Borrower.
6.4 Loans and Other Investments. No Borrower shall (a) make or permit to exist any
advances or loans to any Person, (b) guarantee or become contingently liable, directly or
indirectly, in connection with the obligations, leases (other than leases executed by a Borrower in
connection with leases of business locations entered into by a Borrower in the ordinary course of
its business), stock, or dividends of such Person, (c) own, purchase, or make any commitment to
purchase any stock, bonds, notes, debentures, or other securities of, or any interest in such
Person, or (d) make any capital contributions to such Person (all of which are sometimes
collectively referred to herein as Investments), except for (i) purchases of direct obligations of
the Federal Government; (ii) deposits in commercial banks; (iii) commercial paper of any U.S.
corporation having the highest ratings then given by the Moodys Investors Services, Inc. or
Standard & Poors Corporation; (iv) investments in Subsidiaries; (v) endorsement of negotiable
Instruments for collection in the ordinary course of business; (vi) advances to employees for
business travel, relocation expenses and other expenses incurred in the ordinary course of
business which do not at any time exceed in the aggregate $25,000; (vii) notes and other
securities received from financially troubled account debtors in order to liquidate outstanding
invoices, received in the ordinary course of business of a Borrower; and (ix) investments existing
as of the Closing Date and set forth in Schedule 6.4.
6.5 Change in Business. No Borrower shall enter into any business which is
substantially different from the business in which it is engaged on the Closing Date.
6.6 Transactions with Affiliates. No Borrower shall, in the ordinary course of
business or otherwise, (a) directly or indirectly purchase, acquire, or lease any property from any
Affiliate, (b) sell, transfer, or lease any property to any Affiliate that is not a Borrower, (c) pay
any management fees to any Affiliate that is not a Borrower or (d) otherwise deal with and
Affiliate that is not a Borrower, other than (i) transactions with any Affiliate that is a Borrower,
(ii) transactions described on Schedule 6.6, attached hereto and made a part hereof, and (iii)
transactions with Affiliates on arms-length terms which are no less favorable to the applicable
Borrower or such Subsidiary than would exist if the parties thereto were not Affiliates.
Notwithstanding anything to the contrary contained in the preceding sentence, nothing herein
shall limit or restrict any Borrowers right, in the ordinary course of its business, to pay salaries
and incentive compensation to such Borrowers employees, who may also be employed by an
Affiliate.
6.7 No Change in Name, Offices, or Jurisdiction of Organization; Removal of
Collateral. No Borrower shall (a) change its name or the jurisdiction in which it is organized, (b)
unless it shall have given 30 days advance written notice thereof to Lender, change the location
of its chief executive office or other office where books or records are kept, or (e) permit any
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Inventory or other tangible Collateral (other than Inventory in-transit) to be located at any
location other than a Permitted Location.
6.8 No Sale-Leasebacks. No Borrower shall enter into any sale-leaseback or similar
transaction, other than as existing on the Closing Date.
6.9 Margin Stock. No Borrower shall use any proceeds of the Advances to purchase
or carry any margin stock (within the meaning of Regulation U of the Board of Governors of
Federal Reserve System) or extend credit to others for the purpose of purchasing or carrying any
margin stock.
6.10 Tangible Collateral. No Borrower shall, except to the extent otherwise permitted
herein or as otherwise permitted by Lender in writing, (a) allow any Collateral to be commingled
with, or become an accession to or part of, any property of any other Person or (b) allow any
Collateral to become a Fixture.
6.11 Subsidiaries. No Borrower shall (a) cause or permit any Subsidiary to dissolve,
voluntarily or involuntarily, unless consented to by Lender, (b) permit any Subsidiary to issue
Stock, except to its parent, or (c) acquire or form any Subsidiary, unless no Event of Default
exists at the time of such acquisition or formation, such Subsidiary is a domestic Subsidiary and
promptly following such acquisition or formation, the Borrowers will provide the Lender with
written notice thereof setting forth information in reasonable detail describing all of the assets of
such Subsidiary and shall comply, and cause such Subsidiary to comply, with Section 5.12.
6.12 Liquidation, Mergers; Consolidations, and Dispositions of Assets; Name and
Good Standing. No Borrower shall (a) merge, reorganize, consolidate, or amalgamate with any
Person, other than the merger of a Borrower with and into another Borrower, or the merger of a
Subsidiary that is not a Borrower with and into a Borrower or another Subsidiary that is not a
Borrower; (b) liquidate, wind up its affairs or dissolve; (c) acquire by purchase, lease, or
otherwise all or substantially all of the assets of any Person; (d) sell, transfer, lease, or otherwise
dispose of any of its assets, except for (i) the sale of Inventory in the ordinary course of business,
(ii) sales of worn out, obsolete assets or assets no longer useful to the business, (iii) sales,
transfers, leases and other dispositions made by any Borrower to another Borrower that do not
violate Section 6.6; and (iv) other sales, transfers, leases and other dispositions of assets so long
as the assets sold, transferred, leased or otherwise disposed of in accordance with this clause
shall not exceed $50,000 in any Fiscal Year, (e) change its legal name or jurisdiction of
organization or change its Federal Employer Identification Number without providing Lender
with prompt written notice thereof; or (f) fail to remain in good standing and qualified to transact
business as a foreign entity in any state or other jurisdiction in which it is required to be qualified
to transact business as a foreign entity and in which the failure to do so could reasonably be
expected to have a Material Adverse Effect.
Upon the sales, leases, assignments, transfers or other dispositions permitted in the foregoing
clauses (d) (and, if applicable, the satisfaction of any conditions set forth therein or in any other
provision of this Agreement), the Lender shall, upon the written request of and at the expense of
the Borrowers, (i) release the Lien of the Lender on any of the assets sold pursuant thereto, and
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(ii) promptly deliver documents reasonably requested by the Borrowers (at the expense of the
Borrowers) to effect such releases.
6.13 Change of Fiscal Year or Accounting Methods. No Borrower shall change its
Fiscal Year or its accounting methods. As of the Closing Date, Borrowers fiscal year ends on or
about December 31 of each year.
6.14 Deposit Accounts. Shall not open or maintain any Deposit Account except for (a)
Deposit Accounts listed on Schedule 6.14; (b) Deposit Accounts which are, subject to the terms
of the Intercreditor Agreement, are subject to the Lenders Control on terms reasonably
satisfactory to Lender (it being understood that the form of control agreement delivered at
closing will be satisfactory for other accounts); and (c) such other Deposit Accounts as shall be
necessary for payroll, petty cash, local trade payables, utilities or professional fee escrow
accounts required by order of the Bankruptcy Court and other occasional needs of such
Borrower; provided that the balance of any Deposit Account which is not subject to Lenders
Control on terms reasonably acceptable to Lender, other than utilities or professional fee escrow
accounts required by order of the Bankruptcy Court, may not at any time exceed $30,000 without
Lenders prior written consent.
6.15 Prepetition Obligations; Modifications of Prepetition Loan Documents. No
Borrower shall amend, replace, refinance, refund, restructure, amend, supplement, extend or
otherwise modify the Prepetition Loan Documents in effect on the Closing Date.
6.17 Anti-Layering. Notwithstanding the provisions of Section 6.1, no Borrower shall
incur any Indebtedness that is senior in any respect in right of payment to the Obligations or the
Prepetition Obligations.
6.18 Restricted Payments; Certain Payments of Indebtedness.
(a) No Borrower will declare or make, or agree to pay or make, directly or
indirectly, any Restricted Payment, except, as long as no Default or Event of Default exists or
would arise therefrom, each Borrower may declare and pay dividends with respect to their Stock
payable solely in additional shares of Stock.
(b) No Borrower will make, or agree to make, directly or indirectly, any
payment or other distribution (whether in cash securities or other property) of or in respect of any
Indebtedness, or any payment or other distribution (whether in cash, securities or other property),
including any sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any Indebtedness (Prepetition or
otherwise), except:
(i) payment of regularly scheduled interest, principal payments and
other charges, as and when due in respect to any Indebtedness permitted hereunder and to the
extent set forth in the Budget;
(ii) the Harbert Adequate Protection; and
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(iii) without duplication, payments permitted pursuant to the Budget.
(c) Except pursuant to the Budget and except as specifically permitted
hereunder, no Borrower shall, without the express prior written consent of Lender or pursuant to
an order of the Bankruptcy Court after notice and hearing, make any payment or transfer with
respect to any Lien or Indebtedness incurred or arising prior to the filing of the Chapter 11 Cases
that is subject to the automatic stay provisions of the Bankruptcy Code whether by way of
adequate protection under the Bankruptcy Code or otherwise.
6.19 Restrictive Agreements. No Borrower will directly or indirectly, enter into, incur
or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any
condition upon the ability of any Borrower to create, incur or permit to exist any Lien upon any
of its property or assets in favor of Lender, as additional collateral for the Obligations, or
otherwise, except as provided for herein below, provided that (i) the foregoing shall not apply to
restrictions and conditions imposed by Applicable Law or by any Loan Document, (ii) the
foregoing shall not apply to restrictions or conditions imposed by any agreement relating to
secured Indebtedness permitted by this Agreement if such restrictions or conditions apply only to
the property or assets securing such Indebtedness, and (iii) the foregoing shall not apply to
customary provisions in leases restricting the assignment or subleasing thereof.
6.20 Environmental Laws. No Borrower shall (a) fail to comply with any
Environmental Law or to obtain, maintain or comply with any permit, license or other approval
required under any Environmental Law, or (b) become subject to any Environmental Liability,
which, in either event, is reasonably likely to have a Material Adverse Effect.
6.21 Chapter 11 Claims. No Borrower shall incur, create, assume, suffer to exist or
permit any other super-priority administrative claim which is pari passu with or senior to the
claims of Lender against Borrowers, other than as set forth in the Intercreditor Agreement.
7. TERM
7.1 Termination. The financing arrangements contemplated hereby shall be in effect
until the Maturity Date, and the Loan and all other Obligations shall be automatically due and
payable in full on such date.
7.2 Survival of Obligations upon Termination of Financing Arrangements. Except as
otherwise expressly provided for in the Loan Documents, no termination or cancellation
(regardless of cause or procedure) of any financing arrangement under this Agreement shall in
any way affect or impair the obligations, duties and liabilities of any Borrower or the rights of
Lender relating to any unpaid portion of the Loan or any other Obligations, due or not due,
liquidated, contingent or unliquidated, or any transaction or event occurring prior to such
termination, or any transaction or event, the performance of which is required after the Maturity
Date. Except as otherwise expressly provided herein or in any other Loan Document, all
undertakings, agreements, covenants, warranties and representations of or binding upon
Borrowers, and all rights of Lender, all as contained in the Loan Documents, shall not terminate
or expire, but rather shall survive any such termination or cancellation and shall continue in full
28
force and effect until the Termination Date; provided that the provisions of Section 10, the
payment obligations under Section 1.12, and the indemnities contained in the Loan Documents
shall survive the Termination Date.
8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES
8.1 Events of Default. Notwithstanding the provisions of Section 362 of the
Bankruptcy Code and without notice, application or motion to, hearing before, or order of the
Bankruptcy Court or any notice to Borrowers, and subject to Section 8.2(e), the occurrence of
any one or more of the following events (regardless of the reason therefor) shall constitute an
Event of Default hereunder:
(a) Any Borrower (i) fails to make any payment of principal of, or interest on,
the Loan or any of the other Obligations within five (5) Business Days of when due and payable,
or (ii) fails to pay or reimburse Lender for any expense reimbursable hereunder or under any
other Loan Document within five (5) days following Lenders demand for such reimbursement
or payment of expenses.
(b) Any representation or warranty made by a Borrower in this Agreement or
any other Loan Document, or in any certificate or report furnished in connection with this
Agreement or any other Loan Document, shall prove to have been untrue or incorrect in any
material respect when made.
(c) Any Borrower fails or neglects to perform, keep or observe any other
provision of this Agreement or of any of the other Loan Documents (other than any provision
embodied in or covered by any other clause of this Section 8.1) and the same shall remain
remedied for ten (10) days or more.
(d) Any Borrower defaults on the performance of any agreement, covenant, or
obligation contained in Sections 5 or 6.
(e) A judgment in excess of $50,000 (above any coverage available under any
applicable insurance) shall be rendered against any Borrower or any Subsidiary of a Borrower
and shall remain unpaid, undismissed, and unstayed for more than 10 days or there shall occur
any levy upon, or attachment, garnishment, or other seizure of, any portion of the Collateral or
other assets of any Borrower or any Subsidiary of a Borrower in excess of $50,000 by reason of
the issuance of any tax levy, judicial attachment, garnishment, or levy of execution.
(f) Loss, theft, damage, or destruction of any material portion of the
Collateral for which there is either no insurance coverage or with respect to which the applicable
Borrower has failed to procure and cause to remain in effect insurance in the types or amounts
required under Section 5.3(a);.
(g) Except for defaults occasioned by the filing of the Chapter 11 Cases and
defaults resulting from obligations with respect to which the Bankruptcy Code prohibits
Borrowers from complying or permits any Borrower not to comply, a default or breach occurs
29
under any other agreement, document or instrument entered into either (x) Prepetition and which
is affirmed after the Petition Date, or (y) Post-Petition, to which such Borrower is a party that is
not cured within any applicable grace period therefor, and such default or breach (i) involves the
failure to make any payment when due in respect of any Material Indebtedness or Guaranteed
Indebtedness (other than the Obligations) of such Borrower or the failure to make any payments
required by the Interim Order or the Final Order when applicable (including (x) undrawn
committed or available amounts and (y) amounts owing to all creditors under any combined or
syndicated credit arrangements), or (ii) causes, or permits any holder of such Material
Indebtedness or Guaranteed Indebtedness or a trustee to cause, Material Indebtedness or
Guaranteed Indebtedness or a portion thereof to become due prior to its stated maturity or prior
to its regularly scheduled dates of payment, or cash collateral in respect thereof to be demanded,
in each case, regardless of whether such default is waived, or such right is exercised, by such
holder or trustee.
(h) Any material provision of any Loan Document for any reason ceases to be
valid, binding and enforceable in accordance with its terms (or any Borrower shall challenge the
enforceability of any Loan Document or shall assert in writing, or engage in any action or
inaction based on any such assertion, that any provision of any of the Loan Documents has
ceased to be or otherwise is not valid, binding and enforceable in accordance with its terms), or
any Lien created under any Loan Document ceases to be a valid and perfected first-priority Lien
(except as otherwise permitted herein or therein) in any of the Collateral purported to be covered
thereby.
(i) Any Change of Control occurs.
(j) The occurrence of any uninsured loss to any material portion of the
Collateral.
(k) Any postpetition default in respect of the Prepetition Obligations.
(l) A Material Budget Deviation occurs or any Event of Default with respect
to the Budget as set forth in Section 3.25 occurs.
(m) The occurrence of any of the following in the Chapter 11 Cases:
(i) the bringing of a motion, or the execution of a written agreement,
or the filing of any plan of reorganization or disclosure statement attendant thereto by Borrowers
in the Chapter 11 Cases: (w) to obtain additional financing under Section 364(c) or (d) of the
Bankruptcy Code not otherwise permitted pursuant to this Agreement, unless such financing
results in the payment in full in cash of all of the Obligations; (x) to grant any Lien, other than
Permitted Liens, upon or affecting any Collateral; (y) except as provided in the Interim Order or
the Final Order, as the case may be, to use cash collateral of Lender under Section 363(c) of the
Bankruptcy Code without the prior written consent of Lender; or (z) any other action or actions
materially adverse to Lender or its rights and remedies hereunder or its interest in the Collateral;
30
(ii) the filing by Borrowers of any plan of reorganization or disclosure
statement attendant thereto by Borrowers or any other Person to which Lender does not consent
or otherwise agree to the treatment of its claims or the entry of any order terminating Borrowers
exclusive rights to file a plan of reorganization;
(iii) the entry of an order in the Chapter 11 Cases confirming a plan or
plans of reorganization that does not contain a provision for the repayment in full in cash or other
immediately available funds of all of the Obligations on or before the effective date of such plan
or plans, unless otherwise agreed to by the Lender;
(iv) the entry of an order amending, supplementing, staying, vacating
or otherwise modifying the Loan Documents, the Interim Order or the Final Order without the
written consent of Lender or the filing of a motion for reconsideration with respect to the Interim
Order or the Final Order;
(v) the Final Order is not entered immediately following the expiration
of the Interim Order and by no later than 17 days after the entry of the Interim Order;
(vi) the payment of, or application for authority to pay, any Prepetition
claim without Lenders prior written consent unless otherwise in accordance with the Budget or
permitted under this Agreement;
(vii) subject to entry of the Final Order, the allowance of any claim or
claims under Section 506(c) of the Bankruptcy Code or otherwise against Lender or any of the
Collateral;
(viii) the appointment of an interim or permanent trustee in the
Chapter 11 Cases or the appointment of a receiver or an examiner in the Chapter 11 Cases with
expanded powers to operate or manage the financial affairs, the business, or reorganization of
Borrowers; or the sale without Lenders consent of all or substantially all of Borrowers assets
either through a sale under Section 363 of the Bankruptcy Code, through a confirmed plan of
reorganization in the Chapter 11 Cases, or otherwise that does not provide for payment in full of
all of the Obligations in cash or other immediately available funds;
(ix) the dismissal of any of the Chapter 11 Cases, or the conversion of
any of the Chapter 11 Cases from one under Chapter 11 to one under Chapter 7 of the
Bankruptcy Code or any Borrower shall file a motion or other pleading seeking the dismissal of
any of the Chapter 11 Cases under Section 1112 of the Bankruptcy Code or otherwise;
(x) the entry of an order by the Bankruptcy Court granting relief from
or modifying the automatic stay of Section 362 of the Bankruptcy Code (x) to allow any creditor
to execute upon or enforce a Lien on any Collateral, or (y) with respect to any Lien of or the
granting of any Lien on any Collateral to any state or local environmental or regulatory agency
or authority, in either case having value in excess of $50,000;
31
(xi) the commencement of a suit or action against Lender and, as to any
suit or action brought by any Person other than Borrowers, officer or employee of any Borrower,
the continuation thereof without dismissal for thirty (30) days after service thereof on Lender,
that asserts or seeks by or on behalf of any Borrower, any state regulatory agency, the
Committee, or any other party in interest in the Chapter 11 Cases, a claim or any legal or
equitable remedy that would (a) have the effect of subordinating any or all of the Obligations or
Liens of Lender under the Loan Documents to any other claim, or (b) have a material adverse
effect on the rights and remedies of Lender under any Loan Document or the collectability of all
or any portion of the Obligations;
(xii) the entry of an order in the Chapter 11 Cases avoiding or requiring
repayment of any portion of the payments made on account of the Obligations owing under this
Agreement or the other Loan Documents;
(xiii) the failure of any Borrower to perform any of its obligations under
the Interim Order or the Final Order; or
(xiv) the entry of an order in the Chapter 11 Cases granting (i) any other
super-priority administrative claim or (ii) Lien equal or superior to that granted to Lender, other
than the Carve-Out, in each case as set forth in the Interim Order and the Final Order.
(n) Failure of the Borrowers to satisfy any of the following milestones in
connection with the Plan (each a Plan Milestone and collectively the Plan Milestones):
(i) file the Plan, in the form annexed to the plan support agreement by
and between the Borrowers, Lender and Harbert or such other plan as agreed to by the parties to
such plan support agreement, and the Disclosure Statement in the Bankruptcy Court by the date
that is fifteen days after the Petition Date;
(ii) obtain entry of the order of the Bankruptcy Court approving the
Disclosure Statement by the date that is fifty-five days after the Petition Date;
(iii) obtain entry of the order of the Bankruptcy Court confirming the
Plan and approving all exhibits, appendices, Plan supplement documents and all related
documents by the date that is one-hundred days after the Petition Date;
(iv) have an effective date with respect to the Plan by June 30, 2013.
(o) Any suspension of the Borrowers operations and business activities other
than in the ordinary course of business; or
(p) The Borrowers withdrawal, abandonment, or failure to diligently
prosecute the Plan or the cessation of activities required thereby.
8.2 Remedies. If any Event of Default has occurred and is continuing, Lender may,
notwithstanding the provisions of Section 362 of the Bankruptcy Code, without any application,
32
motion or notice to, hearing before, or order from, the Bankruptcy Court, and subject to the terms
of the Intercreditor Agreement:
(a) terminate or suspend the Loan facility with respect to additional
Advances, whereupon any additional Advances shall be made or incurred in Lenders sole
discretion so long as such Default or Event of Default is continuing;
(b) except as otherwise expressly provided herein, increase the rate of interest
applicable to the Loan to the Default Rate,
(c) reduce the Commitment from time to time;
(d) declare all or any portion of the Obligations, including all or any portion
of the Loan to be forthwith due and payable, all without presentment, demand, protest or further
notice of any kind, all of which are expressly waived by Borrowers; and/or
(e) exercise any rights and remedies provided to Lender under the Loan
Documents or at law or equity, including all remedies provided under the UCC, and pursuant to
the Interim Order and the Final Order, the automatic stay of Section 362 of the Bankruptcy Code
shall be modified and vacated to permit Lender to exercise such rights and remedies, without
further notice, application or motion to, hearing before, or order from, the Bankruptcy Court,
provided, however, that, notwithstanding anything to the contrary contained herein, Lender shall
be permitted to exercise any remedy in any interest of any Borrower in the Collateral only upon
five (5) Business Days prior written notice to such Borrower, counsel approved by the
Bankruptcy Court for the Committee and the United States Trustee and as set forth in the Interim
Order or Final Order (when applicable), and upon the occurrence of an Event of Default and the
exercise by Lender of its rights and remedies under this Agreement and the other Loan
Documents, each Borrower shall use commercially reasonable efforts to assist Lender in
effecting a sale or other disposition of the Collateral upon such terms as are reasonably
acceptable to Lender.
8.3 Waivers by Borrowers. Except as otherwise provided for in this Agreement or by
Applicable Law, each Borrower waives: (a) presentment, demand and protest and notice of
presentment, dishonor, notice of intent to accelerate, notice of acceleration, protest, default,
nonpayment, maturity, release, compromise, settlement, extension or renewal of any or all
commercial paper, accounts, contract rights, documents, instruments, chattel paper and
guaranties at any time held by Lender on which any Borrower may in any way be liable, and
hereby ratifies and confirms whatever Lender may do in this regard, (b) all rights to notice and a
hearing prior to Lenders taking possession or control of, or to Lenders replevy, attachment or
levy upon, the Collateral or any bond or security that might be required by any court prior to
allowing Lender to exercise any of its remedies, and (c) the benefit of all valuation, appraisal,
marshaling and exemption laws.
8.4 Setoff and Sharing of Payments. In addition to any rights now or hereafter
granted under Applicable Law and not by way of limitation of any such rights, upon the
occurrence and during the continuance of any Event of Default, Lender is hereby authorized
33
(notwithstanding the provisions of Section 362 of the Bankruptcy Code, without any application,
motion or notice to, hearing before, or order from, the Bankruptcy Court) at any time or from
time to time, without prior notice to Borrowers or to any Person, any such notice being hereby
expressly waived, to offset and to appropriate and to apply any and all balances held by it at any
of its offices for the account of Borrowers (regardless of whether such balances are then due) and
any other properties or assets at any time held or owing by Lender or that holder to or for the
credit or for the account of Borrowers against and on account of any of the Obligations that are
not paid when due; provided that Lender, when exercising such offset rights, shall give notice
thereof to Borrowers promptly after exercising such rights.
9. ASSIGNMENT; SUCCESSORS AND ASSIGNS
9.1 Assignment.
(a) After receiving the written consent of the Borrowers, Lender may make an
assignment of its rights and obligations under and with respect to the Collateral, the Loan, and
any Commitment or any portion thereof or interest therein, including Lenders rights, title,
interests, remedies, powers or duties thereunder.
(b) If the Borrowers provide the consent referred to in Section 9.1(a), each
Borrower shall assist Lender to effectuate such assignments under this Section 9.1, including the
execution and delivery of any and all agreements, documents and instruments as shall be
reasonably requested by Lender, and Lender may furnish any information concerning Borrowers
in its possession to the applicable assignees or prospective assignees.
9.2 Successors and Assigns. This Agreement and the other Loan Documents shall be
binding on and shall inure to the benefit of Borrowers, Lender and their respective successors
and assigns (including, in the case of Borrowers, a debtor-in-possession on behalf of Borrowers),
except as otherwise provided herein or therein. No Borrower may assign, transfer, hypothecate
or otherwise convey its rights, benefits, obligations or duties hereunder or under any of the other
Loan Documents without the prior express written consent of Lender. Any such purported
assignment, transfer, hypothecation or other conveyance by any Borrower without the prior
express written consent of Lender shall be void. Lender may assign all or any of its rights and
obligations hereunder to any Affiliate or Subsidiary of Lender without any notice to or consent
of Borrowers. The terms and provisions of this Agreement are for the purpose of defining the
relative rights and obligations of Borrowers and Lender with respect to the transactions
contemplated hereby and no Person shall be a third-party beneficiary of any of the terms and
provisions of this Agreement or any of the other Loan Documents.
10. MISCELLANEOUS
10.1 Complete Agreement; Modification of Agreement. This Agreement and the other
Loan Documents constitute the complete agreement between the parties with respect to the
subject matter hereof and thereof and may not be modified, altered or amended except as set
forth in Section 10.2. Any letter of interest, commitment letter or fee letter, if any, between any
Borrower and Lender or any of their respective Affiliates, predating this Agreement and relating
34
to a financing of substantially similar form, purpose or effect, shall be superseded by this
Agreement.
10.2 Amendments and Waivers.
(a) Except for actions expressly permitted to be taken by Lender, no
amendment, modification, termination or waiver of any provision of this Agreement or any other
Loan Document, or any consent to any departure by Borrowers therefrom, shall in any event be
effective unless the same shall be in writing and signed by Lender and Borrowers.
(b) Each amendment, modification, termination or waiver shall be effective
only in the specific instance and for the specific purpose for which it was given. No amendment,
modification, termination or waiver shall be required for Lender to take additional Collateral
pursuant to any Loan Document. No notice to or demand on Borrowers in any case shall entitle
Borrowers to any other or further notice or demand in similar or other circumstances.
(c) Upon the payment in full in cash or other immediately available funds of
all of the Obligations (other than contingent indemnification Obligations), the termination of the
Commitment and a release of all claims against Lender, and so long as no suits, actions,
proceedings or claims are pending or threatened against any Indemnified Person asserting any
damages, losses or liabilities that are Indemnified Liabilities, Lender shall deliver to Borrowers
all UCC termination statements, mortgage releases and other agreements, documents or
necessary or appropriate to evidence the termination of the Liens securing payment of the
Obligations.
10.3 No Waiver. Lenders failure, at any time or times, to require strict performance
by any Borrower of any provision of this Agreement or any other Loan Document shall not
waive, affect or diminish any right of Lender thereafter to demand strict compliance and
performance herewith or therewith. Any suspension or waiver of an Event of Default shall not
suspend, waive or affect any other Event of Default whether the same is prior or subsequent
thereto and whether the same or of a different type. Subject to the provisions of Section 10.2,
none of the undertakings, agreements, warranties, covenants and representations of any Borrower
contained in this Agreement or any of the other Loan Documents and no Default or Event of
Default by any Borrower shall be deemed to have been suspended or waived by Lender, unless
such waiver or suspension is by an instrument in writing signed by an officer of or other
authorized employee of Lender, and directed to such Borrower specifying such suspension or
waiver.
10.4 Remedies. Lenders rights and remedies under this Agreement shall be
cumulative and nonexclusive of any other rights and remedies that Lender may have under any
other agreement, including the other Loan Documents, by operation of law or otherwise.
Recourse to the Collateral shall not be required.
10.5 Severability. Wherever possible, each provision of this Agreement and the other
Loan Documents shall be interpreted in such a manner as to be effective and valid under
Applicable Law, but if any provision of this Agreement or any other Loan Document shall be
35
prohibited by or invalid under Applicable Law, such provision shall be ineffective only to the
extent of such prohibition or invalidity without invalidating the remainder of such provision or
the remaining provisions of this Agreement or such other Loan Document.
10.6 Conflict of Terms. Except as otherwise provided in this Agreement or any of the
other Loan Documents by specific reference to the applicable provisions of this Agreement, and
subject to the immediately following sentence, if any provision contained in this Agreement
conflicts with any provision in any of the other Loan Documents, the provision contained in this
Agreement shall govern and control. NOTWITHSTANDING THE FOREGOING, IF ANY
PROVISION IN THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT CONFLICTS
WITH ANY PROVISION IN THE INTERIM ORDER OR FINAL ORDER, THE PROVISION
IN THE INTERIM ORDER OR FINAL ORDER SHALL GOVERN AND CONTROL.
10.7 GOVERNING LAW; CONSENT TO JURISDICTION, ETC. EXCEPT AS
OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN ALL
RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE, THE LOAN DOCUMENTS AND THE OBLIGATIONS SHALL BE
GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN THAT STATE AND ANY APPLICABLE LAW (INCLUDING
THE BANKRUPTCY CODE). EACH BORROWER HEREBY CONSENTS AND AGREES
THAT THE BANKRUPTCY COURT SHALL HAVE EXCLUSIVE JURISDICTION TO
HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWERS AND
LENDER PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS; PROVIDED THAT
LENDER AND BORROWERS ACKNOWLEDGE THAT ANY APPEALS FROM THE
BANKRUPTCY COURT MAY HAVE TO BE HEARD BY A COURT OTHER THAN THE
BANKRUPTCY COURT; PROVIDED, FURTHER, THAT NOTHING IN THIS
AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LENDER FROM
BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION
TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN
FAVOR OF LENDER. EACH BORROWERS EXPRESSLY SUBMITS AND CONSENTS IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY
SUCH COURT, AND EACH BORROWER HEREBY WAIVES ANY OBJECTION THAT
SUCH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO
THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. EACH BORROWERS HEREBY WAIVES PERSONAL
SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY
SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS,
COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR
CERTIFIED MAIL ADDRESSED TO BORROWERS AT THE ADDRESS SET FORTH IN
ANNEX C OF THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED
COMPLETED UPON THE EARLIER OF BORROWERS ACTUAL RECEIPT THEREOF OR
36
THREE (3) DAYS AFTER DEPOSIT IN THE UNITED STATES MAILS, PROPER
POSTAGE PREPAID.
10.8 Notices.
(a) Addresses. All notices, demands, requests, directions and other
communications required or expressly authorized to be made by this Agreement shall, whether or
not specified to be in writing but unless otherwise expressly specified to be given by any other
means, be given in writing and (i) addressed to the party to be notified and sent to the address or
facsimile number indicated in Annex C, or (ii) addressed to such other address as shall be
notified in writing to the other parties hereto. Transmission by electronic mail shall not be
sufficient or effective to transmit any such notice under this clause (a).
(b) Effectiveness. All communications described in clause (a) above and all
other notices, demands, requests and other communications made in connection with this
Agreement shall be effective and be deemed to have been received (i) if delivered by hand, upon
personal delivery, (ii) if delivered by overnight courier service, one Business Day after delivery
to such courier service, (iii) if delivered by mail, when deposited in the mails, and (iv) if
delivered by facsimile, upon senders receipt of confirmation of proper transmission. Failure or
delay in delivering copies of any notice, demand, request, consent, approval, declaration or other
communication to any Person (other than Borrowers or Lender) designated in Annex C to
receive copies shall in no way adversely affect the effectiveness of such notice, demand, request,
consent, approval, declaration or other communication. The giving of any notice required
hereunder may be waived in writing by the party entitled to receive such notice.
10.9 Section Titles. The Section titles and Table of Contents contained in this
Agreement are and shall be without substantive meaning or content of any kind whatsoever and
are not a part of this Agreement between the parties hereto.
10.10 Counterparts. This Agreement may be executed in any number of separate
counterparts, each of which shall collectively and separately constitute one agreement. Delivery
of an executed counterpart of this Agreement by telefacsimile or other electronic method of
transmission shall have the same force and effect as the delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of this Agreement
by telefacsimile or other electronic method of transmission shall also deliver an original executed
counterpart, but the failure to do so shall not affect the validity, enforceability or binding effect
of this Agreement.
10.11 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY
AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON
AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY
(RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR
DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAW.
THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE
JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL
37
RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO
RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE, AMONG LENDER AND BORROWERS ARISING OUT OF, CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.
10.12 Press Releases and Related Matters. Borrowers agree that neither Borrowers nor
their Affiliates will in the future issue any press releases or other public disclosure using the
name of Lender or its affiliates or referring to this Agreement, or to the other Loan Documents
without at least two (2) Business Days prior notice to Lender and without the prior written
consent of Lender (other than any press releases or other public disclosure on or about the
Petition Date necessitated by the commencement of the Chapter 11 Cases) unless (and only to
the extent that) Borrowers or Affiliate is required to do so under law and then, in any event,
Borrowers or Affiliate will consult with Lender before issuing such press release or other public
disclosure. Borrowers consents to the publication by Lender of advertising material relating to
the financing transactions contemplated by this Agreement using Borrowers name, product
photographs, logo or trademark.
10.13 Reinstatement. This Agreement shall remain in full force and effect and shall
continue to be effective or to be reinstated, as the case may be, if at any time payment and
performance of the Obligations, or any part thereof, is, pursuant to Applicable Law, rescinded or
reduced in amount, or must otherwise be restored or returned by any obligee of the Obligations,
whether as a voidable preference, fraudulent conveyance, or otherwise, all as though such
payment or performance had not been made. In the event that any payment, or any part thereof,
is rescinded, reduced, restored or returned, the Obligations shall be reinstated and deemed,
reduced only by such amount paid and not so rescinded, reduced, restored or returned.
10.14 Advice of Counsel. Each of the parties represents to each other party hereto that
it has discussed this Agreement and, specifically, the provisions of Sections 10.7 and 10.11, with
its counsel.
10.15 No Strict Construction. The parties hereto have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto
and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of
the authorship of any provisions of this Agreement.
10.16 Parties Including Trustees; Bankruptcy Court Proceedings. This Agreement, the
other Loan Documents, and all Liens and other rights and privileges created hereby or pursuant
hereto or to any other Loan Document shall be binding upon Borrowers, the estates of
Borrowers, and any trustee, other estate representative or any successor in interest of Borrowers
in the Chapter 11 Cases or any subsequent case commenced under Chapter 7 of the Bankruptcy
Code, and shall not be subject to Section 365 of the Bankruptcy Code. This Agreement and the
other Loan Documents shall be binding upon, and inure to the benefit of, the successors of
Lender and their respective assigns, transferees and endorsees. The Liens created by this
38
Agreement and the other Loan Documents shall be and remain valid and perfected in the event of
the substantive consolidation or conversion of the Chapter 11 Cases or any other bankruptcy case
of Borrowers to a case under Chapter 7 of the Bankruptcy Code or in the event of dismissal of
the Chapter 11 Cases or the release of any Collateral from the jurisdiction of the Bankruptcy
Court for any reason, without the necessity that Lender file financing statements or otherwise
perfect its Liens under Applicable Law. Borrowers may not assign, transfer, hypothecate or
otherwise convey its rights, benefits, obligations or duties hereunder or under any of the other
Loan Documents without the prior express written consent of Lender. Any such purported
assignment, transfer, hypothecation or other conveyance by Borrowers without the prior express
written consent of Lender shall be void. The terms and provisions of this Agreement are for the
purpose of defining the relative rights and obligations of Borrowers and Lender with respect to
the transactions contemplated hereby and no Person shall be a third-party beneficiary of any of
the terms and provisions of this Agreement or any of the other Loan Documents.
10.17 USA PATRIOT Act Notice. To the extent that Lender is subject to the Patriot
Act (as hereinafter defined), Lender hereby notifies Borrowers that pursuant to the requirements
of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the
Patriot Act), it is required to obtain, verify and record information that identifies Borrowers,
which information includes the name and address of Borrowers and other information that will
allow Lender, as applicable, to identify Borrowers in accordance with the Patriot Act.
[Remainder of page intentionally left blank]
Signature Page 1
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the date first above written.
BORROWERS:
BACK YARD BURGERS, INC.
By: ___________________________________
Name:
Title:
BYB PROPERTIES, INC.
By: ___________________________________
Name:
Title:
NASHVILLE BYB, LLC
By: ___________________________________
Name:
Title:
LITTLE ROCK BACK YARD BURGERS, INC.
By: ___________________________________
Name:
Title:
Signature Page 2
LENDER:
PHAROS CAPITAL PARTNERS II, L.P.
by Pharos Capital Group II, LLC, its general partner
By:___________________________________
Name:
Title:
PHAROS CAPITAL PARTNERS II-A, L.P.
by Pharos Capital Group II-A, LLC, its general
partner
By:___________________________________
Name:
Title:
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ANNEX A
TO
CREDIT AGREEMENT
DEFINITIONS
Capitalized terms used in this Agreement and the other Loan Documents shall have the
following respective meanings (unless otherwise provided elsewhere in the Loan Documents),
and all references to Sections, Exhibits, Schedules or Annexes in the following definitions shall
refer to Sections, Exhibits, Schedules or Annexes of or to this Agreement:
Account Debtor means any Person who may become obligated to any Borrower under,
with respect to, or on account of, an Account, Chattel Paper or General Intangibles (including a
payment intangible).
Accounts means all accounts, as such term is defined in the UCC, now owned or
hereafter acquired by any Borrower, including (a) all accounts receivable, other receivables,
book debts and other forms of obligations (other than forms of obligations evidenced by Chattel
Paper, or Instruments), (including any such obligations that may be characterized as an account
or contract right under the UCC), (b) all of any Borrowers rights in, to and under all purchase
orders or receipts for goods or services, (c) all of any Borrowers rights to any goods represented
by any of the foregoing (including unpaid sellers rights of rescission, replevin, reclamation and
stoppage in transit and rights to returned, reclaimed or repossessed goods), (d) all rights to
payment due to any Borrower for property sold, leased, licensed, assigned or otherwise disposed
of, for a policy of insurance issued or to be issued, for a secondary obligation incurred or to be
incurred, for energy provided or to be provided, for the use or hire of a vessel under a charter or
other contract, arising out of the use of a credit card or charge card, or for services rendered or to
be rendered by any Borrower or in connection with any other transaction (whether or not yet
earned by performance on the part of any Borrower), (e) all health care insurance receivables and
(f) all collateral security of any kind, given by any Account Debtor or any other Person with
respect to any of the foregoing.
Advance has the meaning ascribed thereto in Section 1.1(a)(i).
Advance Request has the meaning ascribed thereto in Section 1.1(a)(ii).
Affiliate means, with respect to any Person, (a) any other Person directly or indirectly
owning 10% or more of the Voting Stock of such Person or of which such Person owns 10% or
more of such Voting Stock; (b) any other Person controlling, controlled by, or under common
control with such Person; (c) any Senior Officer or director of such Person or any Affiliate of
such Person; and (d) any family member or Affiliate of such Person; provided further, however,
that the term Affiliate when referring to the Borrowers shall specifically exclude Lender.
Agreement has the meaning ascribed thereto in the preamble hereto.
Applicable Law means as to any Person: (a) all statutes, rules, regulations, orders, or
other requirements having the force of law and applicable to such Person, and (b) all court orders
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and injunctions, and/or similar rulings and applicable to such Person, in each instance ((a) and
(b)) of or by any Governmental Authority, or court, or tribunal which has jurisdiction over such
Person, or any property of such Person including without limitation the Bankruptcy Code.
Bankruptcy Code has the meaning ascribed thereto in the recitals to this Agreement.
Bankruptcy Court has the meaning ascribed thereto in the recitals to this Agreement.
Bankruptcy Rules shall mean the Federal Rules of Bankruptcy Procedure, as the same
may from time to time be in effect and applicable to the Chapter 11 Cases.
Borrower or Borrowers has the meaning ascribed thereto in the preamble to this
Agreement.
Budget means the budget prepared by Borrowers (or its financial and/or restructuring
advisors approved by the Bankruptcy Court) and attached hereto as Exhibit A, as modified or
supplemented from time to time by additional budgets (covering any time period covered by a
prior budget or covering additional time periods) which modifications or supplements shall have
been approved in writing by Lender in its sole discretion as to subsequent modifications or
supplements of the initial Budget, with such supporting documentation as reasonably requested
by Lender in its sole discretion.
Business Day means any day that is not a Saturday, a Sunday or a day on which banks
are required or permitted to be closed in Wilmington, Delaware or Nashville, Tennessee.
BYB has the meaning given such term in the Preamble.
BYB Properties has the meaning given such term in the Preamble.
Capital Lease means, with respect to any Person, any lease of any property (whether
real, personal or mixed) by such Person as lessee that, in accordance with GAAP, would be
required to be classified and accounted for as a capital lease on a balance sheet of such Person.
Capital Lease Obligation means, with respect to any Capital Lease of any Person, the
amount of the obligation of the lessee thereunder that, in accordance with GAAP, would appear
on a balance sheet of such lessee in respect of such Capital Lease.
Carve-Out has the meaning ascribed thereto in Section 1.11(d).
Change of Control means, at any time, (a) occupation of a majority of the seats (other
than vacant seats) on the board of directors of any Borrower by Persons who were neither
(i) nominated by the board of directors of such Borrower nor (ii) appointed by directors so
nominated; or (b) any person (within the meaning of the Securities Exchange Act of 1934, as
amended) who is or becomes the beneficial owner (within the meaning of Rule 13d-3 and 13d-5
of the Securities Exchange Act of 1934, as amended, except that such person shall be deemed to
have beneficial ownership of all shares that such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time) directly or indirectly of forty
percent (40%) or more of the total voting power of the Voting Stock of any Borrower on a fully
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diluted basis, whether as a result of the issuance of securities of such Borrower, any merger,
consolidation, liquidation or dissolution of such Borrower, any direct or indirect transfers of
securities or otherwise.
Chapter 11 Cases shall have the meaning ascribed thereto in the recitals to this
Agreement.
Charges means all federal, state, county, city, municipal, local, foreign or other
governmental taxes (including taxes owed to the PBGC at the time due and payable), levies,
assessments, charges, liens, claims or encumbrances upon or relating to (a) the Collateral, (b) the
Obligations, (c) the employees, payroll, income or gross receipts of any Borrower, (d) any
Borrowers ownership or use of any properties or other assets, or (e) any other aspect of
Borrowers business.
Chattel Paper means any chattel paper, as such term is defined in the UCC, including
electronic chattel paper, now owned or hereafter acquired by Borrowers.
Closing Date means the date on which the Interim Order is entered or as soon as
practicable thereafter.
Collateral means the property identified as collateral under the Interim Order or Final
Order, or any property covered by the other Collateral Documents and any other property,
including but not limited to means all Property of each Borrower, wherever located and whether
now owned by such Borrower or hereafter acquired, including but not limited to, all Real
Property of such Borrower and (a) all Inventory; (b) all General Intangibles; (c) all Accounts; (d)
all Chattel Paper; (e) all Instruments and Documents and any other instrument or intangible
representing payment for goods or services; (f) all Equipment; (g) all Investment Property; (h) all
Commercial Tort Claims, including, upon entry of the Final Order, the Avoidance Claims (i) all
Letter-of-Credit Rights; (j) all Deposit Accounts and funds on deposit therein, including but not
limited to funds otherwise on deposit with or under the Control of Lender or its agents or
correspondents; (k) all Fixtures; and (l) all parts, replacements, substitutions, profits, products,
accessions, cash and non-cash Proceeds, and Supporting Obligations of any of the foregoing
(including, but not limited to, insurance proceeds) in any form and wherever located. Collateral
also includes (x) all written or electronically recorded books and records relating to any such
Collateral and other rights relating thereto and (y) any other real or personal Property as to which
Lender, at any time of determination, has a Lien to secure the Obligations.
Collateral Documents means the Security Agreement, the IP Security Agreement, the
Pledge Agreements, any Mortgage and all other agreements, documents and instruments granting
a Lien upon assets or properties of a Person as security for payment of the Obligations.
Commitment means the aggregate commitment of Lender to make Advances, which
aggregate commitment shall be $2,900,000.
Committee shall mean the official committee of unsecured creditors appointed in the
Chapter 11 Cases.
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Commercial Tort Claims means all commercial tort claims as such term is defined in
the UCC, now or hereafter held by Borrowers.
Compliance Certificate has the meaning ascribed thereto in Annex B.
Consolidated means, when used to modify a financial term, test, statement, or report of
a Person, the application or preparation of such term, test, statement or report (as applicable)
based upon the consolidation, in accordance with GAAP, of the financial condition or operating
results of such Person.
Control means, with respect to any asset, right, or property with respect to which a
security interest therein is perfected by a secured partys having control thereof (whether
pursuant to the terms of an agreement or through the existence of certain facts and
circumstances), that Lender has control of such asset, right, or property in accordance with the
terms of Article 9 of the UCC.
Copyright License means any and all rights now owned or hereafter acquired by any
Borrower under any written agreement granting any right to use any Copyright or Copyright
registration.
Copyrights means all of the following now owned or hereafter adopted or acquired by
any Borrower: (a) all copyrights and General Intangibles of like nature (whether registered or
unregistered), all registrations and recordings thereof; and all applications in connection
therewith, including all registrations, recordings and applications in the United States Copyright
Office or in any similar office or agency of the United States, any state or territory thereof, or
any other country or any political subdivision thereof, and (b) all reissues, extensions or renewals
thereof.
Cost means the lesser of (a) the cost of purchases, as reported on each Borrowers stock
ledger, based upon such Borrowers accounting practices which are in effect on the date of this
Agreement, and (b) the cost equivalent of the lowest ticketed price at which the subject Inventory
is offered for sale to the public after all mark-downs (whether or not such price is then reflected
on such Borrowers accounting system), which cost equivalent is determined in accordance with
the retail method of accounting reflecting such Borrowers historical business practices. Cost
does not include inventory capitalization costs or other non-purchase price charges (such as
freight) used in Borrowers calculation of cost of goods sold.
Cumulative Period means the period from the Petition Date through the Friday of the
most recent seven-day period then ended.
Default means any event or circumstance which, upon satisfaction of any requirement
for the giving of notice or the lapse of time, or the happening of any further condition, event, or
act, would constitute an Event of Default.
Default Rate has the meaning ascribed thereto in Section 1.4(c).
Deposit Accounts means all deposit accounts as such term is defined in the UCC,
now or hereafter held in the name of Borrowers.
A-5
Documents means all documents, as such term is defined in the UCC, now owned or
hereafter acquired by Borrowers, wherever located.
Dollars or $ means lawful currency of the United States of America.
Employee Plan means any employee benefit plan or other plan maintained for employees of
any Borrower or any Subsidiary of a Borrower and covered by Title W of ERISA.
Environmental Laws means all applicable federal, state, local and foreign laws,
statutes, ordinances, codes, rules, standards and regulations, now or hereafter in effect, and any
applicable judicial or administrative interpretation thereof including any applicable judicial or
administrative order, consent decree, order or judgment, imposing liability or standards of
conduct for or relating to the regulation and protection of human health, safety, the environment
and natural resources (including ambient air, surface water, groundwater, wetlands, land surface
or subsurface strata, wildlife, aquatic species and vegetation). Environmental Laws include the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C.
9601 et seq.) (CERCLA); the Hazardous Materials Transportation Authorization Act of
1994 (49 U.S.C. 5101 et seq.); the Federal Insecticide, Fungicide, and Rodenticide Act (7
U.S.C. 136 et seq.); the Solid Waste Disposal Act (42 U.S.C. 6901 et seq.); the Toxic
Substance Control Act (15 U.S.C. 2601 et seq.); the Clean Air Act (42 U.S.C. 7401 et
seq.); the Federal Water Pollution Control Act (33 U.S.C. 1251 et seq.); the Occupational
Safety and Health Act (29 U.S.C. 651 et seq.); and the Safe Drinking Water Act (42 U.S.C.
300(f) et seq.), and any and all regulations promulgated thereunder, and all analogous state,
local and foreign counterparts or equivalents and any transfer of ownership notification or
approval statutes.
Environmental Liabilities means, with respect to any Person, all liabilities, obligations,
responsibilities, response, remedial and removal costs, investigation and feasibility study costs,
capital costs, operation and maintenance costs, losses, damages, punitive damages, property
damages, natural resource damages, consequential damages, treble damages, costs and expenses
(including all reasonable fees, disbursements and expenses of counsel, experts and consultants),
fines, penalties, sanctions and interest incurred as a result of or related to any claim, suit, action,
investigation, proceeding or demand by any Person, whether based in contract, tort, implied or
express warranty, strict liability, criminal or civil statute or common law, including any arising
under or related to any Environmental Laws, Environmental Permits, or in connection with any
Release or threatened Release or presence of a Hazardous Material whether on, at, in, under,
from or about or in the vicinity of any real or personal property.
Environmental Permits means all permits, licenses, authorizations, certificates,
approvals or registrations required by any Governmental Authority under any Environmental
Laws.
Equipment means all equipment, as such term is defined in the UCC, now owned or
hereafter acquired by any Borrower, wherever located and, in any event, including all
Borrowers machinery and equipment, including processing equipment, conveyors, machine
tools, data processing and computer equipment, including embedded software and peripheral
equipment and all engineering, processing and manufacturing equipment, office machinery,
A-6
furniture, materials handling equipment, tools, attachments, accessories, automotive equipment,
trailers, trucks, forklifts, molds, dies, stamps, motor vehicles, rolling stock and other equipment
of every kind and nature, trade fixtures and fixtures not forming a part of real property, together
with all additions and accessions thereto, replacements therefor, all parts therefor, all substitutes
for any of the foregoing, fuel therefor, and all manuals, drawings, instructions, warranties and
rights with respect thereto, and all products and proceeds thereof and condemnation awards and
insurance proceeds with respect thereto.
ERISA means the Employee Retirement Income Security Act of 1974, as amended.
ERISA Termination Event means a reportable event as defined in Section 4043(b) of
ERISA, or the filing of a notice of intent to terminate under Section 4041 of ERISA.
Estate Professionals has the meaning ascribed thereto in Section 1.12(d).
Event of Default has the meaning ascribed thereto in Section 8.1.
Fair Labor Standards Act means the Fair Labor Standards Act, 29 U.S.C. 201 et seq.
FACTA means the federal Fair and Accurate Credit Transactions Act, 15 U.S.C.
1681 et seq., as amended.
FACTA Litigation means any claim, suit or proceeding naming any Borrower or any
Affiliate of a Borrower as a defendant and alleging, among other things, that such defendant is
liable under FACTA or any analogous state or local law.
Federal Funds Rate means, for any day, a floating rate equal to the weighted average of
the rates on overnight Federal funds transactions among members of the Federal Reserve
System, as determined by Lender in its sole discretion, which determination shall be final,
binding and conclusive (absent manifest error).
Federal Reserve Board means the Board of Governors of the Federal Reserve System.
Final Order means, collectively, the order of the Bankruptcy Court entered in the
Chapter 11 Cases after a final hearing under Bankruptcy Rule 4001(c)(2) or such other
procedures as approved by the Bankruptcy Court, which order shall be in form and substance
reasonably satisfactory to Lender, and from which no appeal or motion to reconsider has been
timely filed, or if timely filed, such appeal or motion to reconsider has been dismissed or denied
unless Lender waives such requirement, together with all extensions, modifications and
amendments thereto, in form and substance reasonably satisfactory to Lender, which, among
other matters but not by way of limitation, authorizes Borrowers to obtain credit, incur (or
guaranty) Indebtedness, and grant Liens under this Agreement and the other Loan Documents, as
the case may be, and provides for the super-priority of Lenders claims.
Financial Officer means, with respect to each Borrower, the chief financial officer, vice
president of finance, director of finance, controller or assistant controller of each such Borrower.
Financial Statements has the meaning ascribed thereto in Section 3.3.
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Fiscal Month, Fiscal Quarter, and Fiscal Year means each of the Borrowers fiscal
months, quarters, or years, as applicable.
Fixtures means all fixtures as such term is defined in the UCC, now owned or
hereafter acquired by Borrowers.
Foreign Subsidiary means any Subsidiary that is organized under the laws of a
jurisdiction other than the United States of America or any State thereof or the District of
Columbia.
GAAP means generally accepted accounting principles in the United States of America
consistently applied.
General Intangibles means all general intangibles, as such term is defined in the
UCC, now owned or hereafter acquired by Borrowers, including all right, title and interest that
any Borrower may now or hereafter have in or under any Contract, all payment intangibles,
customer lists, Licenses, Copyrights, Trademarks, Patents, and all applications therefor and
reissues, extensions or renewals thereof, rights in Intellectual Property, interests in partnerships,
joint ventures and other business associations, licenses, permits, copyrights, trade secrets,
proprietary or confidential information, inventions (whether or not patented or patentable),
technical information, procedures, designs, knowledge, know-how, software, data bases, data,
skill, expertise, experience, processes, models, drawings, materials and records, goodwill
(including the goodwill associated with any Trademark or Trademark License), all rights and
claims in or under insurance policies (including insurance for fire, damage, loss and casualty,
whether covering personal property, real property, tangible rights or intangible rights, all
liability, life, key man and business interruption insurance, and all unearned premiums),
uncertificated securities, chooses in action, deposit, checking and other bank accounts, rights to
receive tax refunds and other payments, rights to receive dividends, distributions, cash,
Instruments and other property in respect of or in exchange for pledged Stock and Investment
Property, rights of indemnification, all books and records, correspondence, credit files, invoices
and other papers, including without limitation all tapes, cards, computer runs and other papers
and documents in the possession or under the control of any Borrower or any computer bureau or
service company from time to time acting for any such Borrower.
Governing Documents means, with respect to any Person, the certificate or articles of
incorporation or formation, by-laws, operating agreement or other organizational or governing
documents of such Person.
Governmental Authority means any (a) court (whether in law or at equity or trial or
appellate), tribunal, or arbitator or arbitration proceeding and (b) any local, city, state, Federal,
municipal or quasi-municipal, foreign, or international government or any subdivision, agency,
authority, commission, bureau, branch, regulatory body or other body thereof.
Guaranteed Indebtedness means, as to any Person, any obligation of such Person
guaranteeing, providing comfort or otherwise supporting any Indebtedness, lease, dividend, or
other obligation (primary obligation) of any other Person (the primary obligor) in any
manner, including any obligation or arrangement of such Person to (a) purchase or repurchase
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any such primary obligation, (b) advance or supply funds (i) for the purchase or payment of any
such primary obligation or (ii) to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency or any balance sheet condition of the
primary obligor, (c) purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the primary obligor to make
payment of such primary obligation, (d) protect the beneficiary of such arrangement from loss
(other than product warranties given in the ordinary course of business) or (e) indemnify the
owner of such primary obligation against loss in respect thereof. The amount of any Guaranteed
Indebtedness at any time shall be deemed to be an amount equal to the lesser at such time of (x)
the stated or determinable amount of the primary obligation in respect of which such Guaranteed
Indebtedness is incurred and (y) the maximum amount for which such Person may be liable
pursuant to the terms of the instrument embodying such Guaranteed Indebtedness, or, if not
stated or determinable, the maximum reasonably anticipated liability (assuming full
performance) in respect thereof.
Harbert means Harbert Mezzanine Partners II, L.P., a Delaware limited partnership.
Harbert Adequate Protection means any adequate protection to be provided to Harbert
pursuant to the Interim Order and the Final Order, as applicable.
Hazardous Material means any substance, material or waste that is regulated by, or
forms the basis of liability now or hereafter under, any Environmental Laws, including any
material or substance that is (a) defined as a solid waste, hazardous waste, hazardous
material, hazardous substance, extremely hazardous waste, restricted hazardous waste,
pollutant, contaminant, hazardous constituent, special waste, toxic substance or other
similar term or phrase under any Environmental Laws, or (b) petroleum or any fraction or by-
product thereof, asbestos, polychlorinated biphenyls (PCBs), or any radioactive substance.
Indebtedness means, with respect to any Person, without duplication, (a) all
indebtedness of such Person for borrowed money or for the deferred purchase price of property,
(b) all reimbursement and other obligations with respect to letters of credit, bankers acceptances
and surety bonds, whether or not matured, (c) all obligations evidenced by notes, bonds,
debentures or similar instruments, (d) all indebtedness created or arising under any conditional
sale or other title-retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), (e) all Capital Lease Obligations and
the present value (discounted at the Interest Rate as in effect on the Closing Date) of future rental
payments under all synthetic leases, (f) all obligations of such Person under commodity purchase
or option agreements or other commodity price hedging arrangements, in each case whether
contingent or matured, (g) all obligations of such Person under any foreign exchange contract,
currency swap agreement, interest rate swap, cap or collar agreement or other similar agreement
or arrangement designed to alter the risks of that Person arising from fluctuations in currency
values or interest rates, in each case whether contingent or matured, (h) all Indebtedness referred
to above secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in property or other assets (including
accounts and contract rights) owned by such Person, even though such Person has not assumed
or become liable for the payment of such Indebtedness, and (i) the Obligations.
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Indemnified Liabilities has the meaning ascribed thereto in Section 1.8(a).
Indemnified Person has the meaning ascribed thereto in Section 1.8(a).
Intercreditor Agreement means the Intercreditor Agreement, effective as of the date
hereof, between Lender and Harbert as acknowledged by the Borrowers, to govern the relative
rights and priorities as between the Obligations and the Prepetition Obligations and the Liens
securing the same.
Instruments means all instruments, as such term is defined in the UCC, now owned
or hereafter acquired by Borrowers, wherever located, and, in any event, including all
certificated securities, all certificates of deposit, and all promissory notes and other evidences of
indebtedness, other than instruments that constitute, or are a part of a group of writings that
constitute, Chattel Paper.
Intellectual Property means any and all Licenses, Patents, Copyrights, Trademarks, and
the goodwill associated with such Trademarks.
Interest Payment Date means, with respect to any interest that has then accrued under
this Agreement (x) the fifteenth of each month succeeding the first full calendar month after the
Closing Date, (y) the date upon which the Commitment has been terminated and the Obligations
have been paid in full and (z) the Maturity Date.
Interest Rate means the rate of interest set forth in Section 1.4.
Interim Order means, collectively, the order of the Bankruptcy Court entered in the
Chapter 11 Cases, together with all extension, modifications, and amendments thereto, in form
and substance reasonably satisfactory to Lender, which, among other matters but not by way of
limitation, authorizes, on an interim basis, Borrowers to execute and perform under the terms of
this Agreement and the other Loan Documents.
Inventory means all inventory, as such term is defined in the UCC, now owned or
hereafter acquired by any Borrower, wherever located, and in any event including inventory,
merchandise, goods and other personal property that are held by or on behalf of such Borrower
for sale or lease or are furnished or are to be furnished under a contract of service, or that
constitute raw materials, work in process, finished goods, returned goods, or materials or
supplies of any kind, nature or description used or consumed or to be used or consumed in
Borrowers business or in the processing, production, packaging, promotion, delivery or shipping
of the same, including all supplies and embedded software.
Investment means (a) any stock, evidence of Indebtedness or other security of another
Person, (b) any loan, advance, contribution to capital, extension of credit (except for current
trade and customer accounts receivable for inventory sold or services rendered in the ordinary
course of business and payable in accordance with customary trade terms) to another Person,
(c) any purchase of (i) stock or other securities of another Person, or (ii) any business or
undertaking of any Person (whether by purchase of assets or securities), (d) any commitment or
option to make any such purchase, or (e) any other investment, in all cases whether now existing
or hereafter made.
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Investment Property means all investment property, as such term is defined in the
UCC, now owned or hereafter acquired by any Borrower, wherever located, including (i) all
securities, whether certificated or uncertificated, including stocks, bonds, interests in limited
liability companies, partnership interests, treasuries, certificates of deposit, and mutual fund
shares; (ii) all securities entitlements of any Borrower, including the rights of any Borrower to
any securities account and the financial assets held by a securities intermediary in such securities
account and any free credit balance or other money owing by any securities intermediary with
respect to that account; (iii) all securities accounts of any Borrower; (iv) all commodity contracts
of Borrowers; and (v) all commodity accounts held by any Borrower.
IP Security Agreement means that certain Trademark Security Agreement, dated as of
the date hereof, executed by each Borrower and Lender.
IRC means the Internal Revenue Code of 1986 and all regulations promulgated
thereunder.
IRS means the Internal Revenue Service.
Item means any item as defined in Section 4-104 of the UCC, and shall also mean and
include checks, drafts, money orders or other media of payment.
Lease means any agreement, whether written or oral, no matter how styled or
structured, pursuant to which any Borrower is entitled to the use or occupancy of any space in a
structure, land, improvement or premise for any period of time.
Lender has the meaning set forth in the preamble hereof.
Lender Expenses means all (a) costs or expenses (including taxes, and insurance
premiums) required to be paid by Borrowers or Guarantors under any of the Loan Documents
that are paid, advanced, or incurred by the Lender, (b) out-of-pocket fees or charges paid or
incurred by Lender in connection with the Lenders transactions with Borrowers under any of the
Loan Documents, including, fees or charges for photocopying, notarization, couriers and
messengers, telecommunication, public record searches (including tax lien, litigation, and UCC
searches and including searches with the patent and trademark office, the copyright office, or the
department of motor vehicles), filing, recording, publication, appraisal (including periodic
collateral appraisals or business valuations to the extent of the fees and charges (and up to the
amount of any limitation) contained in the Agreement), real estate surveys, real estate title
policies and endorsements, and environmental audits, (c) reasonable out-of-pocket costs and
expenses incurred by Lender in the disbursement of funds to Borrowers, (d) reasonable out-of-
pocket costs and expenses paid or incurred by the Lender to correct any default or enforce any
provision of the Loan Documents, or during the continuance of an Event of Default, in gaining
possession of, maintaining, handling, preserving, storing, shipping, selling, preparing for sale, or
advertising to sell the Collateral, or any portion thereof, irrespective of whether a sale is
consummated, (e) reasonable out-of-pocket audit fees and expenses (including travel, meals, and
lodging) of Lender related to any inspections or audits to the extent of the fees and charges (and
up to the amount of any limitation) contained in the Agreement, (f) reasonable out-of-pocket
costs and expenses of third party claims or any other suit paid or incurred by the Lender in
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enforcing or defending the Loan Documents or in connection with the transactions contemplated
by the Loan Documents or the Lenders relationship with Borrowers, (g) Lenders reasonable
costs and expenses (including reasonable attorneys fees) incurred in advising, structuring,
drafting, reviewing, administering (including travel, meals, and lodging), or amending the Loan
Documents, (h) loans, advances, debts, letters of credit, contingent reimbursement or
indemnification obligations, guaranties or payments made, issued or incurred by the Lender on
account of or to satisfy (in whole or in part) any reserves, obligations, offsets or liabilities under,
in connection with, or arising out of any patient financing agreements entered into by any
Borrower, and (i) Lenders reasonable costs and expenses (including reasonable attorneys,
accountants, consultants, and other advisors fees and expenses) incurred in terminating,
enforcing (including attorneys, accountants, consultants, and other advisors fees and expenses
incurred in connection with the Chapter 11 cases), or defending the Loan Documents.
License means any Copyright License, Patent License, Trademark License or other
License of rights or interests now held or hereafter acquired by Borrowers.
Lien means any mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, lien, charge, claim, security interest, easement or encumbrance, or preference,
priority or other security agreement or preferential arrangement of any kind or nature whatsoever
(including any interest of a vendor or a lessor under any conditional sale agreement, lease or title
retention agreement, any financing lease having substantially the same economic effect as any of
the foregoing, and the filing of, or agreement to give, any financing statement perfecting a
security interest under the UCC or comparable law of any jurisdiction).
Litigation has the meaning ascribed thereto in Section 3.5.
Little Rock BYB has the meaning as given such term in the Preamble.
Loan means, at any time, the aggregate amount of all Advances outstanding to
Borrowers.
Loan Account has the meaning ascribed thereto in Section 1.7.
Loan Advance Date means the date that the Interim Order is approved by the
Bankruptcy Court and every four weeks thereafter.
Loan Documents means this Agreement, the Collateral Documents, the Interim Order,
the Final Order, and all other agreements, instruments, documents and certificates executed and
delivered with, to or in favor of Lender and including all other pledges, powers of attorney,
consents, assignments, contracts, notices, letter of credit agreements and all other written matter
whether heretofore, now or hereafter executed by or on behalf of any Borrower in connection
with this Agreement or the transactions contemplated thereby. Any reference in this Agreement
or any other Loan Document to a Loan Document shall include all Appendices, Exhibits or
Schedules hereto or thereto, and all amendments, restatements, supplements or other
modifications hereto or thereto, and shall refer to this Agreement or such Loan Document as the
same may be in effect at any and all times such reference becomes operative.
Margin Stock has the meaning ascribed to such term in Regulation U.
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Material Adverse Effect means any event, other than the filing of the Chapter 11 Cases,
having a material adverse effect on (a) the business, assets, operations or financial or other
condition of Borrowers considered as a whole, (b) any Borrowers ability to repay the Loan or
any of the other Obligations in accordance with the terms of this Agreement, (c) the Collateral or
Lenders Liens on the Collateral or the priority of such Liens, or (d) Lenders rights and
remedies under this Agreement and the other Loan Documents. In determining whether any
individual event would result in a Material Adverse Effect, notwithstanding that such event in
and of itself does not have such effect, a Material Adverse Effect shall be deemed to have
occurred if the cumulative effect of such event and all other then-existing events would result in
a Material Adverse Effect.
Material Budget Deviation has the meaning ascribed to such term in Section 3.25(d)
hereof.
Material Indebtedness means Indebtedness (other than the Loan or Indebtedness
described in Section 6.1(a)(iv)) of all Borrowers or any Borrowers in an aggregate principal
amount exceeding $10,000. For purposes of determining the amount of Material Indebtedness at
any time, the principal amount of the obligations in respect of any hedging agreement (or other
like agreement) at such time shall be the maximum aggregate amount that Borrowers would be
required to pay if such hedging agreement were terminated at that time.
Maturity Date means the earliest of (a) the effective date of the Plan, (b) the date of
termination of Lenders obligations to make Advances pursuant to Section 8.2(a), (c) the date on
which all of the Obligations have been paid in full in cash or other immediately available funds,
(d) the date upon which the Interim Order expires, unless the Final Order shall have been entered
and become effective by such date, (e) the date of entry of an order of the Bankruptcy Court
confirming a plan of reorganization in the Chapter 11 Cases that has not been consented to by
Lender and fails to provide for the payment in full in cash of all Obligations under this
Agreement and the other Loan Documents on the effective date of such plan, (f) without the
written consent of Lender, the date of the closing of a sale of all or substantially all of
Borrowers assets pursuant to Section 363 of the Bankruptcy Code, a confirmed plan of
reorganization or a conversion to Chapter 7 of the Bankruptcy Code.
Moodys means Moodys Investors Service, Inc.
Mortgage means any mortgage, deed of trust and/or deed to secure debt executed by a
Borrower at any time in favor of Lender and pursuant to which such Borrower shall grant and
convey to Lender a Lien upon Real Property of such Borrower as security for the payment of the
Obligations, as the same may be amended, restated, supplemented or otherwise modified from
time to time. The term Mortgages means all of the foregoing.
Nashville BYB has the meaning as given such term in the Preamble.
Net Proceeds means, with respect to the disposition of any Property, (a) the proceeds
(including cash receivable (when received) by way of deferred payment) received by a Borrower
in cash from the sale, lease, transfer, or other disposition of such Property, including insurance
proceeds and awards of compensation received with respect to any Loss affecting all or part of
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such property, minus (b) the sum of (i) the reasonable and customary costs and expenses of such
sale, lease, transfer, or other disposition (including legal fees, transfer fees and other similar fees
and sales commissions actually incurred in connection with such disposition); (ii) amounts
applied to repayment of Debt for borrowed money (other than the Obligations) secured by a
Permitted Lien on such property which is senior to Lenders Liens; (iii) in connection with any
sale of such property, a reasonable reserve for post-closing adjustments to the purchase price;
plus (iv) the amount of income taxes reasonably estimated by the Borrowers to be incurred as
result of any gain on the sale of such Property (or minus the amount of income tax reduction (or
tax credit) reasonably estimated by the Borrowers to be received as a result of any loss on the
sale of such Property), provided that, (A) prior to the sale of any such Property, Borrowers
deliver to Lender a written estimate of the income tax impact of such sale as reasonably
determined by Borrowers, and (B) within fifteen (15) days after Borrowers file tax returns for the
tax year in which any such sale occurred, Borrowers shall consult with Lender to determine the
excess (if any) of the amount of sale proceeds withheld by Borrowers with respect to sales
occurring in such tax year over the capital gain tax liabilities actually incurred by Borrowers with
respect to such sales during such tax year, and Borrowers promptly (but in any event, within ten
(10) Business Days after such consultation) remit to Lender, for application to the Notes, the
amount of such excess, if any.
Obligations means all loans, advances, debts, liabilities and obligations for the
performance of covenants, tasks or duties or for payment of monetary amounts (whether or not
such performance is then required or contingent, or such amounts are liquidated or determinable)
owing by any Borrower to Lender, and all covenants and duties regarding such amounts, of any
kind or nature, present or future, whether or not evidenced by any note, agreement, letter of
credit agreement or other instrument, arising under this Agreement or any of the other Loan
Documents. Obligations includes all principal, interest (including all interest that accrues after
the commencement of any case or proceeding by or against Borrowers in bankruptcy, including
the Chapter 11 Cases, whether or not allowed in such case or proceeding), expenses, and any
other sum chargeable to Borrowers under this Agreement or any of the other Loan Documents.
OFAC means the United States Department of the Treasurys Office of Foreign Assets
Control or any successor thereto.
Patent License means rights under any written agreement now owned or hereafter
acquired by Borrowers granting any right with respect to any invention on which a Patent is in
existence.
Patents means all of the following in which Borrowers now holds or hereafter acquires
any interest: (a) all letters patent of the United States or of any other country, all registrations
and recordings thereof, and all applications for letters patent of the United States or of any other
country, including registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any State, or any other
country, and (b) all reissues, continuations, continuations-in-part or extensions thereof.
Patriot Act has the meaning ascribed thereto in Section 10.17.
PBGC means the Pension Benefit Guaranty Corporation.
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Permitted Liens means the following Liens: (a) Liens for taxes, assessments, and charges or
levies instituted or levied by any Governmental Authority (but not including any Lien imposed
pursuant to ERISA or any Environmental Law) which are not yet due and payable or which are
being Properly Contested; (b) the claims of third parties arising out of operation of law so long as
the obligations secured thereby are not past due or are being Properly Contested; (c) Liens
existing in respect of deposits or pledges made in the ordinary course of business in connection
with workers compensation, unemployment insurance, social security, and similar laws; (d)
judgment and other similar non-tax Liens arising in connection with court proceedings (other
than FACTA Litigation), but only to the extent and for so long as (i) the execution or
enforcement of such Liens is and continues to be effectively stayed or stayed and bonded on
appeal; (ii) the validity or amount of the claims secured thereby are being Properly Contested;
and (iii) such Liens do not, in the aggregate, materially detract from the value of the assets of the
Person whose assets are subject to such Lien or materially impair the use thereof in the operation
of such Persons business; (e) easements, rights-of-way, restrictions, encroachments, municipal
and zoning ordinances and other similar charges or encumbrances, and minor title deficiencies,
in each case not securing Indebtedness, not materially detracting from the value of the applicable
Real Property, and not materially interfering with the conduct of the business of Borrowers or
any of their Subsidiaries, subject in all events to Lenders review and approval of title insurance
commitments (not to be unreasonably withheld or delayed) and, where applicable, Lenders
receipt of title insurance policies, with respect thereto, and, provided that, with respect to
municipal and zoning ordinances, nothing herein shall limit or restrict Lenders right to require
any Borrower to obtain letters from applicable Governmental Entities confirming any applicable
Real Propertys conformance therewith in connection with the issuance of any title commitment
or title policy, as applicable; (f) statutory, contractual or common law Liens of landlords created
or arising in the ordinary course of business and securing amounts not yet due (or which are
being contested in good faith, by appropriate proceedings or other appropriate actions), and with
respect to which adequate reserves or other appropriate provisions are being maintained by the
applicable Borrower in accordance with GAAP; (g) Liens on equipment, arising from or related
to precautionary UCC or similar personal property financing statements regarding operating
leases (if any) entered into by Borrowers or their Subsidiaries in the ordinary course of business;
(h) Liens on Deposit Accounts (other than Deposit Accounts maintained with Lender) of
Borrowers or any of their Subsidiaries securing obligations owing by Borrowers and or such
Subsidiaries to banks or other financial institutions (other than Lender) under agreements or
arrangements providing for credit products or credit arrangements to be made available to
Borrowers or such Subsidiaries as part of, or in connection with, their respective cash
management systems, to the extent the maintenance of such Deposit Accounts at banks or
financial institutions other than Lender does not violate Section 6.14; and (i) any Lien primed
pursuant to the Interim Order or Final Order or otherwise junior to the Liens granted hereunder
or under the Collateral Documents; provided however, any such Permitted Liens shall only be
permitted to the extent they are expressly subordinate to the Obligations.
Permitted Location means (a) any location described on Schedule 3.10 attached hereto
and made a part hereof and (b) any other location as to which Borrowers shall have provided
written notice to Lender in accordance with this Agreement.
Person means any individual, sole proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation, limited liability company, institution,
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public benefit corporation, other entity or government (whether federal, state, county, city,
municipal, local, foreign, or otherwise, including any instrumentality, division, agency, body or
department thereof).
Petition Date has the meaning ascribed thereto in the recitals to this Agreement.
Plan means a plan of reorganization for the Borrowers which is consented to by the
Lender and confirmed by the Bankruptcy court.
Pledge Agreements means collectively, (i) that Stock Pledge Agreement, dated as of
the date hereof, executed by BYB in favor of Lender and (ii) that certain Equity Interest Pledge
Agreement, dated as of the date hereof, executed by BYB in favor of Lender.
Post-Petition means the time period beginning immediately upon the filing of the
Chapter 11 Cases.
Post-Petition Indebtedness means any or all Indebtedness of Borrowers incurred after
the filing of the Chapter 11 Cases.
Prepetition means the time period ending immediately prior to the filing of the Chapter
11 Cases.
Prepetition Loan Documents means, collectively, the following: (a) that certain Loan
and Security Agreement, dated November 5, 2007, as heretofore amended or modified, by and
among BBAC Merger Sub, Inc. BYB, certain of its subsidiaries and Harbert, and (b) the other
documents, agreements, or instruments evidencing, guaranteeing, or securing the Prepetition
Obligations.
Prepetition Obligations means all Indebtedness and other obligations and liabilities
owing to Harbert arising under the Prepetition Loan Documents.
Professional Fee Account shall have the meaning ascribed to that term in Section
3.25(e) hereof.
Projected Information shall have the meaning ascribed to that term in Section 3.25(a)
hereof.
Properly Contested means, in the case of any Indebtedness of Borrower (including any
taxes) which is not paid when due or payable by reason of such Borrowers bona fide dispute
over its liability therefor or the amount thereof, (a) such Indebtedness is being properly contested
in good faith by appropriate proceedings promptly instituted and diligently conducted; (b) such
Borrower has established appropriate reserves in accordance with GAAP; (c) the non-payment of
such Debt will not have a Material Adverse Effect and will not result in a forfeiture or sale of
any of such Borrowers assets; (d) no Lien is imposed upon any of such Borrowers assets with
respect to such Debt unless such Lien is at all times subordinate in priority to the Liens in favor
of Lender (except only with respect to property taxes that have priority as a matter of applicable
law) and enforcement of such Lien is stayed pending the final resolution or disposition of such
dispute; (e) if the Indebtedness results from, or is determined by the entry, rendition, or issuance
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against such Borrower or any of its assets of a judgment, writ, order, or decree, enforcement of
such judgment, writ, order, or decree is stayed pending a timely appeal or other judicial review;
and (f) if such contest is abandoned, settled, or determined adversely (in whole or in part) after
all appeals have been exhausted, such Borrower forthwith pays such Indebtedness and all
penalties, interest, and other amounts due in connection therewith. Only that portion of the
Indebtedness which is in dispute may be Properly Contested.
Property means an interest in any kind of property or asset, whether real, personal or
mixed and whether tangible or intangible.
Real Property means all land, together with the buildings, structures, parking areas, and
other improvements thereon, now or hereafter owned or leased by Borrowers, including all
easements, rights-of-way, and similar rights relating thereto and all leases, tenancies, and
occupancies thereof.
Regulation T means Regulation T of the Federal Reserve Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
Regulation U means Regulation U of the Federal Reserve Board as from time to time
in effect and all official rulings and interpretations thereunder or thereof.
Regulation X means Regulation X of the Federal Reserve Board as from time to time
in effect and all official rulings and interpretations thereunder or thereof.
Regulated Materials means any hazardous, toxic, or dangerous waste, substance, or
material, the generation, handling, storage, disposal, treatment, or emission of which is subject to
any Environmental Law.
Release means any release, threatened release, spill, emission, leaking, pumping,
pouring, emitting, emptying, escape, injection, deposit, disposal, discharge, dispersal, dumping,
leaching or migration of Hazardous Material in the indoor or outdoor environment, including the
movement of Hazardous Material through or in the air, soil, surface water, ground water or
property.
Restricted Payment means, with respect to Borrowers, (a) the declaration or payment
of any dividend or the incurrence of any liability to make any other payment or distribution of
cash or other property or assets in respect of Stock; (b) any payment on account of the purchase,
redemption, defeasance, sinking fund or other retirement of any Borrowers Stock or any other
payment or distribution made in respect thereof, either directly or indirectly; (c) any payment or
prepayment of principal of premium, if any, or interest, fees or other charges on or with respect
to, and any redemption, purchase, retirement, defeasance, sinking fund or similar payment and
any claim for rescission with respect to, any Permitted Liens; (d) any payment made to redeem,
purchase, repurchase or retire, or to obtain the surrender of, any outstanding warrants, options or
other rights to acquire Stock of any Borrower now or hereafter outstanding; (e) any payment of a
claim for the rescission of the purchase or sale of, or for material damages arising from the
purchase or sale of, any shares of any Borrowers Stock or of a claim for reimbursement,
indemnification or contribution arising out of or related to any such claim for damages or
rescission; (f) any payment, loan, contribution, or other transfer of funds or other property to any
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Stockholder of any Borrower other than payment of compensation in the ordinary course of
business to Stockholders who are employees of such Person; and (g) any payment of
management fees (or other fees of a similar nature) by any Borrower to any Stockholder of
Borrowers or its Affiliates.
Sanctioned County means a country subject to the sanctions program identified on the
list maintained by OFAC and available at the following website or as otherwise published from
time to time: http://www.treas.gov/offices/enforcement/ofac/programs/.
Sanctioned Person means (a) any Person named on the list of Specially Designated
Nationals or Blocked Persons maintained by OFAC available at
http://www.treas.gov/offices/eotffc/ofacisdniindex.html or as otherwise published from time to
time, (b) any agency, authority, or subdivision of the government of a Sanctioned Country, (c)
any Person or organization controlled by a Sanctioned Country, or (d) any Person resident in a
Sanctioned Country, to the extent subject to a sanctions program administered by OFAC.
Security Agreement means the Security Agreement, dated of even date herewith, by the
by and among Lender and Borrowers.
Senior Officer means, as to any Borrower, the chief executive officer, chief financial
officer, chief legal officer, manager (with respect to any manager-managed limited liability
company), or president of such Borrower.
S&P means Standard & Poors.
Stock means all shares, options, warrants, general or limited partnership interests,
membership interests or other equivalents (regardless of how designated) of or in a corporation,
partnership, limited liability company or equivalent entity whether voting or nonvoting,
including common stock, preferred stock or any other equity security (as such term is defined
in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934).
Stockholder means, with respect to any Person, each holder of Stock of such Person.
Subsidiary means, with respect to any Person, (a) any corporation of which an
aggregate of more than 50% of the outstanding Stock having ordinary voting power to elect a
majority of the board of directors of such corporation (irrespective of whether, at the time, Stock
of any other class or classes of such corporation shall have or might have voting power by reason
of the happening of any contingency) is at the time, directly or indirectly, owned legally or
beneficially by such Person or one or more Subsidiaries of such Person, or with respect to which
any such Person has the right to vote or designate the vote of 50% or more of such Stock whether
by proxy, agreement, operation of law or otherwise, and (b) any partnership or limited liability
company in which such Person and/or one or more Subsidiaries of such Person shall have an
interest (whether in the form of voting or participation in profits or capital contribution) of more
than 50% or of which any such Person is a general partner or may exercise the powers of a
general partner. Unless the context otherwise requires, each reference to a Subsidiary shall be a
reference to a Subsidiary of Borrowers.
A-18
Taxes means taxes, levies, imposts, deductions, Charges or withholdings, and all
liabilities with respect thereto, excluding taxes imposed on or measured by the net income of
Lender by the jurisdictions under the laws of which Lender is organized or conduct business or
any political subdivision thereof.
Termination Date means the earliest to occur of (i) the Maturity Date, or (ii) the date
that the Interim Order or the Final Order (when applicable) ceases to be in full force and effect.
Trademark License means rights under any written agreement now owned or hereafter
acquired by any Borrower granting any right to use any Trademark.
Trademarks means all of the following now owned or hereafter existing or adopted or
acquired by any Borrower: (a) all trademarks, trade names, corporate names, business names,
trade styles, service marks, logos, other source or business identifiers, prints and labels on which
any of the foregoing have appeared or appear, designs and general intangibles of like nature
(whether registered or unregistered), all registrations and recordings thereof, and all applications
in connection therewith, including registrations, recordings and applications in the United States
Patent and Trademark Office or in any similar office or agency of the United States, any state or
territory thereof, or any other country or any political subdivision thereof; (b) all reissues,
extensions or renewals thereof; and (c) all goodwill associated with or symbolized by any of the
foregoing.
UCC means the Uniform Commercial Code as the same may, from time to time, be
enacted and in effect in the State of Delaware; provided that to the extent that the UCC is used to
define any term herein or in any Loan Document and such term is defined differently in different
Articles or Divisions of the UCC, the definition of such term contained in Article or Division 9
shall govern; provided, further, that in the event that, by reason of mandatory provisions of law,
any or all of the attachment, perfection or priority of, or remedies with respect to, Lenders Lien
on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a
jurisdiction other than the State of Delaware, the term UCC shall mean the Uniform
Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the
provisions thereof relating to such attachment, perfection, priority or remedies and for purposes
of definitions related to such provisions.
Voting Stock means, with respect to any corporation, the outstanding stock of all
classes (or equivalent interests) which ordinarily, in the absence of contingencies, entitles holders
thereof to vote for the election of directors (or Persons performing similar functions) of such
corporation, even though the right so to vote has been suspended by the happening of such
contingency.
All undefined terms contained in any of the Loan Documents shall, unless the context
indicates otherwise, have the meanings provided for by the UCC to the extent the same are used
or defined therein; in the event that any term is defined differently in different Articles or
Divisions of the UCC, the definition in Article or Division 9 shall control. Unless otherwise
specified, references in this Agreement or any of the Appendices to a Section, subsection or
clause refer to such Section, subsection or clause as contained in this Agreement. The words
herein, hereof and hereunder and other words of similar import refer to this Agreement as
A-19
a whole, including all Annexes, Exhibits and Schedules, as the same may from time to time be
amended, restated, modified or supplemented, and not to any particular section, subsection or
clause contained in this Agreement or any such Annex, Exhibit or Schedule.
Wherever from the context it appears appropriate, each term stated in either the singular
or plural shall include the singular and the plural, and pronouns stated in the masculine, feminine
or neuter gender shall include the masculine, feminine and neuter genders. The words
including, includes and include shall be deemed to be followed by the words without
limitation; the word or is not exclusive; references to Persons include their respective
successors and assigns (to the extent and only to the extent permitted by the Loan Documents)
or, in the case of governmental Persons, Persons succeeding to the relevant functions of such
Persons; and all references to statutes and related regulations shall include any amendments of
the same and any successor statutes and regulations. Whenever any provision in any Loan
Document refers to the knowledge (or an analogous phrase) of any Borrower, such words are
intended to signify that such Borrower has actual knowledge or awareness of a particular fact or
circumstance or that such Borrower, if it had exercised reasonable diligence, would have known
or been aware of such fact or circumstance.
B-1
ANNEX B
TO
CREDIT AGREEMENT
FINANCIAL STATEMENTSREPORTING
(a) Financial Statements and Other Information: Borrowers will furnish to
Lender:
(i) promptly following the completion thereof, any Financial Statements
prepared in the ordinary course of business;
(ii) prior to the making of any Advance, a certificate of a Financial Officer of
Borrowers certifying as to whether a Default or Event of Default has occurred and, if a
Default or Event of Default has occurred, specifying the details thereof and any action
taken or proposed to be taken with respect thereto;
(iii) notice of any intended sale or other disposition of assets of Borrowers
permitted hereunder or the incurrence of any Indebtedness permitted hereunder at least
ten (10) Business Days prior to the date of consummation of such sale or disposition or
the incurrence of such Indebtedness; and
(iv) promptly following any request therefor, such other information regarding
the operations, business affairs and financial condition of Borrowers, or compliance with
the terms of any Loan Document, as Lender may reasonably request.
(b) Notices of Material Events. Borrowers will furnish to Lender prompt written
notice of the following:
(i) the occurrence of any Default or Event of Default;
(ii) the filing or commencement of any action, suit or proceeding by or before
any arbitrator or Governmental Authority against or affecting Borrowers or any Affiliate
thereof that, if adversely determined, could reasonably be expected to result in a Material
Adverse Effect;
(iii) any other development that results in, or could reasonably be expected to
result in, a Material Adverse Effect;
(iv) any change in Borrowers executive officers;
(v) any failure by Borrowers to pay rent accruing Post-Petition at any of such
Borrowers locations, which failure continues for more than ten (10) days following the
day on which such rent first came due;
(vi) any collective bargaining agreement or other labor contract to which
Borrowers becomes a party, or the application for the certification of a collective
bargaining agent; and
B-2
(vii) the filing of any Lien for unpaid taxes in excess of $100,000 against any
Borrower.
Each notice delivered under this clause (b) shall be accompanied by a statement of a
Financial Officer or other executive officer of Borrowers setting forth the details of the event or
development requiring such notice and, if applicable, any action taken or proposed to be taken
with respect thereto.
(c) Bankruptcy Matters. Borrowers will furnish to Lender copies of all monthly
reports, projections, or other information respecting Borrowers business or financial condition
or prospects as well as all pleadings, motions, applications and judicial information filed by or on
behalf of Borrowers with the Bankruptcy Court or provided by or to the U.S. Trustee (or any
monitor or interim receiver, if any, appointed in the Chapter 11 Cases) or the Committee, at the
time such document is filed with the Bankruptcy Court, or provided by or to the U.S. Trustee (or
any monitor or interim receiver, if any, appointed in the Chapter 11 Cases) or the Committee.
C-1
ANNEX C
TO
CREDIT AGREEMENT
NOTICE ADDRESSES
(A) If to Lender, at: Pharos Capital Partners II, L.P.
Pharos Capital Partners II-A, L.P.
1 Burton Hills Boulevard, Suite 180
Nashville, Tennessee 37215
Attn: D. Robert Crants, III
with copies to: Bradley Arant Boult Cummings LLP
1600 Division Street, Suite 700
Nashville, TN 37203
Attn: Doug Franck, Esq
(B) If to Borrowers, at: Back Yard Burgers, Inc.
500 Church Street, Suite 200
St. Clouds Building
Nashville, TN 37219
Attn: Laura DeRise
with copies to: Greenberg Traurig, LLP
200 Park Avenue
New York, NY 10166
Attn: Maria J. DiConza
Matthew L. Hinker
Fax: (212) 801-6400
E-mail:diconzam@gtlaw.com
hinkerm@gtlaw.com
C-2
EXHIBIT A
TO
CREDIT AGREEMENT
BUDGET
(Please see attached)
C-3
1
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re
BACK YARD BURGERS, INC., et al.
1
Debtors.
Chapter 11
Case No. 12-12882 (PJW)
(Joint Administration Requested)
Ref. Docket No. ______
INTERIM ORDER (I) AUTHORIZING DEBTORS TO OBTAIN POSTPETITION
FINANCING PURSUANT TO SECTIONS 363 AND 364 OF THE BANKRUPTCY
CODE, (II) GRANTING LIENS AND SUPERPRIORITY CLAIMS TO THE
POSTPETITION LENDER PURSUANT TO SECTION 364 OF BANKRUPTCY CODE,
(III) AUTHORIZING USE OF CASH COLLATERAL PURSUANT TO SECTION 363
OF BANKRUPTCY CODE, (IV) PROVIDING ADEQUATE PROTECTION TO THE
PREPETITION LENDER PURSUANT TO SECTIONS 361, 362, 363,
AND 364 OF BANKRUPTCY CODE, AND (V) SCHEDULING FINAL HEARING
Upon the motion (the Motion)
2
, dated October 17, 2012, of the above captioned
debtors (the Debtors), for entry of interim and final orders (I) authorizing the Debtors to
obtain post-petition financing pursuant to sections 363 and 364 of the Bankruptcy Code, (II)
granting liens and superpriority claims to the postpetition lenders pursuant to section 364 of the
Bankruptcy Code, (III) authorizing use of cash collateral pursuant to section 363 of the
Bankruptcy Code, (IV) providing adequate protection to the prepetition lender pursuant to
sections 361, 362, 363, and 364 of the Bankruptcy Code, and (V) scheduling a final hearing for
the entry of this order (the Order) and a final order (the Final Order); and the Court having
considered the Motion; and a hearing to consider approval of the DIP Facility on an interim basis
1
The Debtors in these chapter 11 cases, along with the last four digits of each Debtors federal tax
identification number, are: Back Yard Burgers, Inc. (7163), BYB Properties, Inc. (9046), Nashville BYB, LLC (6507)
and Little Rock Back Yard Burgers, Inc. (9133). The mailing address of the Debtors is: St. Clouds Building, 500
Church Street, Suite 200, Nashville, TN 37219.
2
Unless otherwise defined herein, all capitalized terms used herein have the meanings ascribed to such terms in the
Motion.
2
having been held and concluded on October 19, 2012 (the Interim Hearing); and upon all of the
pleadings filed with the Court and all of the proceedings held before the Court; and after due
deliberation and consideration and good and sufficient cause appearing therefor, THE COURT
HEREBY FINDS:
A. On October 17, 2012 (the Petition Date), each of the Debtors filed
voluntary petitions for relief under chapter 11 of the Bankruptcy Code. The Debtors have
continued in possession of their properties and are operating and managing their businesses as
debtors-in-possession pursuant to Sections 1107(a) and 1108 of the Bankruptcy Code.
B. No request has been made for the appointment of a trustee or examiner.
An official committee of unsecured creditors has not yet been appointed.
C. The Court has jurisdiction over this Motion pursuant to 28 U.S.C. 157
and 1334. Venue is proper in this district pursuant to 28 U.S.C. 1408. This matter is core
within the meaning of 28 U.S.C. 157(b)(2).
D. Without prejudice to the rights, remedies, and claims of any official
committee of unsecured creditors appointed in the Chapter 11 Cases (the Committee) set forth
in paragraph 36 below, the Debtors acknowledge, admit, and confirm the following:
1. Pursuant to that certain Loan and Security Agreement, dated as of
November 5, 2007 (as amended, supplemented, or otherwise modified from time
to time prior to the Petition Date, the Prepetition Loan Agreement) by and
among Harbert Mezzanine Partners II, L.P., as lender (together with its successors
and assigns, the Prepetition Lender), and the Debtors, as borrowers, and
pursuant to the Prepetition Loan Documents (as defined in the DIP Credit
Agreement), the Prepetition Lender made certain loans, advances, and other
3
financial accommodations to the Debtors to fund, among other things, the
operations of the Debtors.
2. Pursuant to the Prepetition Loan Documents, prior to the Petition
Date, the Prepetition Lender was granted continuing Liens on and security
interests in substantially all of the assets of the Debtors.
3. As of the Petition Date, (i) the Debtors were indebted and liable to
the Prepetition Lender, without defense, counterclaim, or offset of any kind, in
respect of loans made under the Prepetition Loan Agreement, in the aggregate
principal amount of $6,000,000 plus accrued and unpaid interest in the amount of
$2,877,581.87 through September 30, 2012, and (ii) the Debtors were indebted
and liable to the Prepetition Lender for unpaid fees, expenses (including any
attorneys, accountants, appraisers, and financial advisors fees that are
chargeable or reimbursable under the Prepetition Loan Documents), charges and
other obligations incurred in connection with such loans as provided in the
Prepetition Loan Documents (items (i) and (ii), together, and all other Obligations
(as such term is defined in the Prepetition Loan Agreement) are hereinafter
referred to as the Prepetition Obligations).
4. Pursuant to the Prepetition Loan Documents, the Debtors granted
first priority Liens and continuing pledges and security interests in the Prepetition
Collateral (as defined below) to and/or for the benefit of the Prepetition Lender
and its successors, to secure the Prepetition Obligations (collectively, the
Prepetition Liens).
4
5. The Prepetition Liens are (i) valid, binding, perfected, enforceable
first-priority Liens (except with respect to the permitted Liens described herein)
on the personal and real property described in the Prepetition Loan Documents
and all prepetition and postpetition proceeds, products, offspring, rents and profits
thereof (collectively, the Prepetition Collateral), (ii) not subject to avoidance,
recharacterization, reduction, disallowance, impairment, or subordination under
the Bankruptcy Code or applicable non-bankruptcy law, (iii) subject to the
Intercreditor Agreement which provides that such Prepetition Liens will be pari
passu with the Postpetition Liens (as defined below), and (iv) subordinate only to
(A) the Carve-Out (as defined below) to which the Postpetition Liens are subject,
and (B) valid, perfected, unavoidable Liens permitted under the Prepetition Loan
Agreement to the extent such Liens are presently in existence, permitted to be
senior to or pari passu with the Liens of the Prepetition Lender on the Prepetition
Collateral and in fact senior or pari passu with the Liens of the Prepetition Lender
on the Prepetition Collateral. The Prepetition Loan Documents are valid and
binding agreements and obligations of the Debtors.
6. The Prepetition Obligations constitute legal, valid, and binding
obligations of the Debtors, enforceable in accordance with their terms, and no
objection, offset, defense, or counterclaim of any kind or nature to the Prepetition
Obligations exists. The Prepetition Obligations, and any amounts previously paid
to the Prepetition Lender or its predecessors in interest on account thereof or with
respect thereto, are not subject to avoidance, recharacterization, reduction,
disallowance, impairment, or subordination pursuant to the Bankruptcy Code or
5
applicable non-bankruptcy law. The Debtors do not have, hereby forever release,
and are forever barred from bringing any claims, counterclaims, causes of action,
defenses, or setoff rights, whether arising under the Bankruptcy Code or
otherwise, against the Prepetition Lender or its affiliates, subsidiaries, agents,
officers, directors, employees, advisors, attorneys or predecessors in interest.
7. The Prepetition Lender perfected its Liens in and on the domestic
Prepetition Collateral by the filing of UCC-1 financing statements, UCC-3
amendments to financing statements, instruments filed in federal, state, and
county offices, mortgages, and other required documents against the Debtors and
such collateral with the proper federal, state, and county offices for the perfection
of such security interests and Liens.
E. An immediate need exists for the Debtors to obtain the DIP Facility on an
interim and final basis and use the Prepetition Lenders cash collateral as defined by section
363(a) of the Bankruptcy Code (including without limitation any proceeds of the Prepetition
Collateral, the Cash Collateral), in order to continue to operate their businesses and pursue
reorganization. The use of Cash Collateral would be insufficient to meet the Debtors immediate
postpetition liquidity needs without risking significant damage to the business. The Debtors are
unable to obtain the required funds (i) in the forms of (w) unsecured credit or debt allowable
under section 503(b)(l) of the Bankruptcy Code, (x) an administrative expense pursuant to
section 364(a) or (b) of the Bankruptcy Code, (y) unsecured debt having the priority afforded by
section 364(c)(l) of the Bankruptcy Code, or (z) debt secured only as described in section
364(c)(2) or (3) of the Bankruptcy Code, or (ii) on terms more favorable than those offered by
the Postpetition Lender under the DIP Credit Agreement, this Order, and all other agreements,
6
documents, notes, or instruments delivered pursuant hereto or thereto or in connection herewith
or therewith, including, without limitation, the budget, attached as Schedule A hereto (as such
budget may be extended, varied, supplemented, or otherwise modified in accordance with the
provisions of the Postpetition Loan Documents (as hereinafter defined) and the consent of the
Prepetition Lender, the Budget and, collectively with the DIP Credit Agreement, related
documents, this Order, and the Final Order, the Postpetition Loan Documents).
F. The Debtors have requested that (i) pursuant to the terms of the
Postpetition Loan Documents, the Postpetition Lender make loans and advances and provide
other financial accommodations to the Debtors, (ii) the Prepetition Lender consent to the use of
Cash Collateral, to be used by the Debtors solely in accordance with the terms of the Postpetition
Loan Documents and this Order, and (iii) the Prepetition Lender consent to the granting of pari
passu Liens on the Prepetition Collateral as provided in this Order. The Postpetition Lender is
willing to make such loans and advances and provide such other financial accommodations on a
superpriority and first priority secured basis (other than the pari passu basis in respect of the
Prepetition Liens), subject only to the Carve-Out and Existing Liens (as hereinafter defined), as
more particularly described herein and in the other Postpetition Loan Documents, pursuant to the
terms and conditions of the Postpetition Loan Documents. The relief requested in the Motion is
necessary, essential, and appropriate for the continued operation of the Debtors businesses, the
management and preservation of their assets and properties, and is in the best interests of the
Debtors, their estates, and creditors.
G. The Debtors have represented that, pending the Final Hearing, they will
need authorization from this Court to borrow pursuant to the DIP Facility on an interim basis in
the principal amount of up to $700,000 under the Postpetition Loan Documents and in
7
accordance with the Interim Budget in order to avoid immediate and irreparable harm to the
Debtors estates.
H. Based on the record before the Court, (i) the terms of the use of the
Prepetition Lenders Cash Collateral as provided in this Order and (ii) the terms of the
Postpetition Loan Documents, pursuant to which the postpetition loans and other financial
accommodations will be provided to the Debtors by the Postpetition Lender, have been
negotiated in good faith, as that term is used in section 364(e) of the Bankruptcy Code, and are
in the best interests of the Debtors, their estates, and creditors. The Postpetition Lender is
extending financing to the Debtors, and the Prepetition Lender is permitting the use of its Cash
Collateral and the granting of pari passu Liens on the Prepetition Collateral, in good faith, and
the Postpetition Lender and the Prepetition Lender are entitled to the benefits of the provisions of
section 364(e) of the Bankruptcy Code.
I. The Prepetition Lender consents to the Debtors use of the Prepetition
Lenders Cash Collateral and the granting of pari passu Postpetition Liens, solely on the terms
and conditions set forth in this Order, in the Postpetition Loan Documents, and in accordance
with the Budget. The adequate protection provided herein and other benefits and privileges
contained herein are consistent with and authorized by the Bankruptcy Code and are necessary in
order to obtain such consent.
J. Based on the record presented to the Court at the Interim Hearing, the
terms of the DIP Facility on an interim basis and of the use of the Cash Collateral on an interim
basis are fair and reasonable, reflect the Debtors prudent exercise of business judgment
consistent with their fiduciary duties and constitute reasonably equivalent value and fair
consideration for the Prepetition Lenders consent thereto.
8
K. Notice of the relief sought by the Motion and the hearing with respect
thereto was served on October 17, 2012 on the following parties in interest: (i) the United States
Trustee for the District of Delaware (the U.S. Trustee); (ii) those parties listed on the
Consolidated List of Creditors Holding the Thirty Largest Unsecured Claims Against the
Debtors, as identified in the Debtors chapter 11 petitions; (iii) counsel to the Prepetition Lender
and to the Postpetition Lender; and (iv) the Internal Revenue Service (collectively, the Interim
Notice Parties). Given the nature of the relief sought in the Motion, such notice constitutes
sufficient and adequate notice of the Motion and this Order pursuant to Bankruptcy Rules 2002,
4001(c) and (d), and 9014 and section 102(1) of the Bankruptcy Code, as required by sections
363(b) and 364(c) of the Bankruptcy Code, and no further notice of the Motion or this Order is
necessary or required.
NOW, THEREFORE, IT IS HEREBY ORDERED:
1. The Motion is granted on an interim basis. Any objections to the relief
sought in the Motion that have not been previously resolved or withdrawn are hereby overruled
on their merits. This Order shall become effective immediately upon its entry.
2. The Debtors are hereby (i) authorized and directed to enter into the DIP
Credit Agreement, substantially in the form filed with the Court, and the other Postpetition Loan
Documents and (ii) authorized to borrow funds, incur debt and other obligations, grant
Postpetition Liens, make deposits, provide guaranties and indemnities, and perform their
obligations in accordance with the terms and conditions of the Postpetition Loan Documents and
this Order. Any terms in the Postpetition Loan Documents may be (with the consent of the
Prepetition Lender) amended, modified, supplemented or the provisions thereof waived in
accordance with their terms, without further order of this Court but subject to notice of any
9
amendment, modification, supplement or waiver being provided after the same shall have
become effective to the U.S. Trustee, counsel to the Prepetition Lender, and counsel to any
Committee; provided, however, that notice of any (i) increase in the aggregate of the Postpetition
Lenders lending commitment, (ii) increase in the applicable interest rates, (iii) modification of
the maturity of the obligations under the Postpetition Loan Documents, or (iv) modification of
the financial covenants or financial events of default that are on terms materially more onerous
or burdensome to the Debtors, shall be provided to the U.S. Trustee, and counsel to any
Committee, each of which shall have five (5) Business Days from the date of such notice within
which to object in writing to such amendment, modification, or supplement, and upon any such
timely written objection, such amendment, modification, or supplement shall only be permitted
pursuant to an order of this Court. All obligations owed to the Postpetition Lender under or in
connection with the Postpetition Loan Documents, including, without limitation, all Obligations
(as each such term is defined in the DIP Credit Agreement), loans, advances, letters of credit and
other indebtedness, obligations, and amounts (contingent or otherwise) owing from time to time
under or in connection with the Postpetition Loan Documents, and any and all other obligations
at any time incurred by any of the Debtors to the Postpetition Lender, are defined and referred to
herein as the Postpetition Obligations.
3. Subject to the terms and conditions set forth in this Order, including the
adequate protection provided herein, the Debtors are authorized, pursuant to section 363(c)(2)(B)
of the Bankruptcy Code, to use the Prepetition Lenders Cash Collateral solely and exclusively
for the disbursements set forth in the Budget for the period of time from the date hereof until the
earliest to occur of (i) the Maturity Date, or (ii) the date that this Order or the Final Order (when
applicable) ceases to be in full force and effect, or (iii) the occurrence of an Event of Default
10
under the DIP Credit Agreement (each, a Termination Event and the date of any such event
the Termination Date). The Debtors shall promptly notify the Postpetition Lender and the
Prepetition Lender of the occurrence of any Event of Default under the DIP Credit Agreement.
The Debtors authority to use the Prepetition Lenders Cash Collateral on a consensual basis
shall automatically terminate on a Termination Event, all without further order or relief from the
Court, provided, however, that the Debtors reserve all rights to seek authorization to use the
Prepetition Lenders Cash Collateral after a Termination Event, and the Prepetition Lender
reserves all rights to object to such authorization.
4. The Prepetition Lender does not object to the Debtors grant to the
Postpetition Lender of a pari passu lien on the Prepetition Collateral pursuant to and to the extent
provided in this Order.
5. Upon execution and delivery of the Postpetition Loan Documents, the
Postpetition Loan Documents shall constitute valid and binding obligations of the Debtors,
enforceable against the Debtors in accordance with their terms; provided, however, that
notwithstanding any other provision of this Order or of the other Postpetition Loan Documents,
the Debtors shall not, prior to entry of the Final Order, incur Postpetition Obligations in the
principal amount of more than $700,000 (which amount is in addition to the use of Cash
Collateral permitted hereunder). No obligation, payment, transfer, or grant of security under this
Order or the other Postpetition Loan Documents shall be stayed, restrained, voidable, or
recoverable under the Bankruptcy Code or any applicable nonbankruptcy law, or subject to any
defense, reduction, setoff, recoupment, or counterclaim.
6. The Debtors shall use Cash Collateral and the loans or advances made
under or in connection with the Postpetition Loan Documents solely as provided in this Order
11
and in the other Postpetition Loan Documents (including the Budget). From and after the
Petition Date, amounts loaned and advanced under or in connection with the Postpetition Loan
Documents and all proceeds of Collateral, including, without limitation, all of the Debtors
existing or future cash and Cash Collateral (collectively, Lender Funds), shall not, directly or
indirectly, be used to pay expenses of the Debtors or to make debt payments (except as set forth
in this Order) or be otherwise disbursed except for (i) those debt payments, expenses and/or
disbursements that are expressly permitted under the Postpetition Loan Documents and are
consistent with the Budget approved by the Postpetition Lender (as such Budget may be
extended, varied, supplemented, or otherwise modified in accordance with the provisions of the
Postpetition Loan Documents and this Order) and (ii) compensation and reimbursement of fees
and expenses payable pursuant to sections 330 and 331 of the Bankruptcy Code and payable to
attorneys, accountants, investment bankers, financial advisors, or other professional persons
retained by the Debtors or any Committee and awarded pursuant to an order of this Court;
provided, however, that the foregoing shall not be construed as consent to the allowance of any
of the amounts referred to in the preceding clause (ii) and shall not affect the right of any party in
interest to object to the allowance and payment of any such amounts. Subject to entry of the
Final Order and except to the extent of the Carve-Out (as hereinafter defined), no administrative
expense claims, including fees and expenses of professionals, shall be charged or assessed
against or recovered from the Prepetition Collateral or the Collateral or attributed to the
Postpetition Lender or the Prepetition Lender with respect to their interests in the Collateral
and/or the Prepetition Collateral, as applicable, pursuant to the provisions of section 506(c) of the
Bankruptcy Code or otherwise by, through, or on behalf of the Debtors, without the prior written
consent of the Postpetition Lender and the Prepetition Lender, and no such consent shall be
12
implied from any action, inaction, or acquiescence by, either with or without notice to, the
Postpetition Lender or Prepetition Lender, or otherwise. Except as set forth in the second
sentence of this Paragraph, the Postpetition Lender and the Prepetition Lender have not
consented or agreed to the use of Lender Funds.
7. Notwithstanding anything herein to the contrary, no Lender Funds
(including amounts subject to the Carve-Out) may be used directly or indirectly by any of the
Debtors, any Committee, or any other person or entity to (i) object to or contest in any manner
the Postpetition Obligations, or to assert or prosecute any actions, claims, or causes of action
(including, without limitation, any claims or causes of action under chapter 5 of the Bankruptcy
Code) against the Postpetition Lender, (ii) seek authorization for any party to use any of the
Lender Funds on terms inconsistent with the terms of the DIP Credit Agreement and this Order
without the consent of the Postpetition Lender, or (iii) obtain Liens that are senior to, or on parity
with (x) the Liens of the Postpetition Lender in the Collateral or any portion thereof, and (y) the
Adequate Protection Liens (as defined below).
8. Notwithstanding anything herein to the contrary, no Lender Funds
(including amounts subject to the Carve-Out) may be used directly or indirectly by any of the
Debtors, any Committee, or any other person or entity to (i) object, contest, or raise any defense
to the validity, perfection, priority, extent, or enforceability of the Prepetition Obligations or the
Prepetition Liens, (ii) assert or prosecute any Claims and Defenses (as defined below) against the
Prepetition Lender, or its agents, affiliates, representatives, attorneys, advisors or predecessors in
interest, (iii) prevent, hinder, or otherwise delay the Prepetition Lenders assertion, enforcement,
or realization on the Cash Collateral, the Adequate Protection Obligations, or the Adequate
Protection Liens in accordance with the Prepetition Loan Documents and this Order, (iv) or
13
obtain Liens that are senior to, or on parity with (x) the Liens of the Prepetition Lender in the
Collateral or the Prepetition Collateral or any portion thereof, or the Adequate Protection Liens
(as defined below) or (v) seek to modify any of the rights granted to the Prepetition Lender
hereunder or under the Prepetition Loan Documents, in each of the foregoing cases without such
parties prior written consent.
9. Interest on the Postpetition Obligations shall accrue at the rates (including
any default rates) and shall be paid at the times set forth in the Postpetition Loan Documents.
10. Any and all fees and expenses paid or required to be paid in connection
with the Postpetition Loan Documents, whether or not provided for in the Budget, are hereby
authorized and shall be paid in accordance with the terms and provisions of the Postpetition Loan
Documents.
11. All Postpetition Obligations hereby constitute allowed superpriority
administrative expense claims under section 364(c)(l) of the Bankruptcy Code against each of
the Debtors (jointly and severally) having priority over all administrative expenses of the kind
specified in, or ordered pursuant to, any provision of the Bankruptcy Code, including, without
limitation, those specified in, or ordered pursuant to, sections 105, 326, 328, 330, 503(b), 506(c),
507(a), 507(b), 546(c), 726, and 1114 of the Bankruptcy Code, or otherwise (whether incurred in
the Chapter 11 Cases or any conversion thereof to a case under chapter 7 of the Bankruptcy Code
or any other proceeding related hereto or thereto) (the Superpriority Claims), which
superpriority claims shall, subject to the Intercreditor Agreement dated as of October __, 2012 by
and among the Prepetition Lender and the Postpetition Lender (the Intercreditor Agreement)
and the Carve-Out, be payable from and have recourse to all prepetition and postpetition
property of the Debtors and all proceeds thereof, including, subject to entry of the Final Order,
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all avoidance power claims of the Debtors under sections 544, 545, 547, 548, 550, 551, and
553(b) of the Bankruptcy Code and similar claims under state or federal law and any and all
proceeds therefrom (collectively, the Avoidance Claims).
12. As security for the Postpetition Obligations, the Postpetition Lender is
hereby granted pursuant to section 364(c)(2), (c)(3), and (d) of the Bankruptcy Code for the sole
benefit of the Postpetition Lender valid, binding, enforceable, first priority, and perfected Liens
(the Postpetition Liens) in the Collateral, which Postpetition Liens are (i) subject only to (x)
the Intercreditor Agreement, (y) the Carve-Out, and (z) non-avoidable, valid, enforceable, and
perfected Liens that are purchase money security interests or mechanics liens in existence as of
the Petition Date that are superior in priority to the Prepetition Liens (Liens specified in clauses
(x), (y), and (z) above are hereinafter referred to as the Existing Liens); provided, however,
that for the avoidance of doubt and without limiting the foregoing, the Postpetition Liens shall be
in all respects pari passu in rank and priority to any and all Prepetition Liens securing the
Prepetition Obligations, including, without limitation, the Adequate Protection Liens and any
other Liens other than the Existing Liens. The term Collateral shall include, without
limitation, all prepetition and postpetition assets and properties (tangible, intangible, real,
personal, and mixed) of each of the Debtors of any kind or nature, whether now existing or
newly acquired or arising, and wherever located, including, without limitation, all Collateral (as
such term is defined in the Postpetition Loan Documents), all accounts, accounts receivable,
inventory, goods, contract rights, instruments, documents, chattel paper, patents, trademarks,
copyrights and licenses therefor, intellectual property, general intangibles, payment intangibles,
letters of credit, letter-of-credit rights, supporting obligations, machinery and equipment,
vehicles, real property, fixtures, leases, leasehold interests, all of the issued and outstanding
15
capital stock entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2)) and all of
the issued and outstanding capital stock not entitled to vote (within the meaning of Treas. Reg.
Section 1.956-2(c)(2)) of each subsidiary of the Debtors, all of the capital stock of all other
persons that are not subsidiaries directly owned by any of the Debtors, money, investment
property, deposit accounts, securities accounts, books and records, all commercial tort claims and
all other causes of action (including, subject to entry of the Final Order, Avoidance Claims), all
Cash Collateral (as defined in this Order), and all cash and non-cash proceeds, rents, products,
substitutions, accessions and profits of all of the foregoing.
13. Subject to the Intercreditor Agreement and the Carve-Out, the Postpetition
Liens and the Adequate Protection Liens shall not be (i) subject or junior to any Lien that is
avoided and preserved for the benefit of the Debtors estates under section 551 of the Bankruptcy
Code or (ii) subordinated to or made pari passu with any other Lien, whether under section
364(d) of the Bankruptcy Code or otherwise. Except as provided in the Intercreditor Agreement,
no claim or Lien having a priority superior to or pari passu with those granted by this Order with
respect to the Postpetition Obligations and the Adequate Protection Obligations (as defined
below) shall be granted or allowed until the indefeasible payment in full in cash and satisfaction
in the manner provided in the Postpetition Loan Documents and this Order of the Postpetition
Obligations and the Adequate Protection Obligations.
14. To the extent unencumbered funds are not available to pay administrative
expenses in full, the claims granted hereunder to the Postpetition Lender, the Postpetition Liens,
and any claims or Liens ranking pari passu with or junior in priority to such claims of the
Postpetition Lender and the Postpetition Liens shall be subject to payment of the Carve-Out. As
used in this Order, the term Carve-Out means (a) all allowed unpaid fees and expenses of
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attorneys, investment bankers and financial advisors (collectively, the Estate Professionals)
employed by the Debtors and, if applicable, any Committee, pursuant to sections 327, 328, 1102
and 1103 of the Bankruptcy Code, and any disbursements of any member of any Committee,
which are incurred or accrued prior to the Termination Date and whenever allowed by the Court
(provided that such amounts shall not exceed the amounts set forth in the Budget), plus the
amount of any retainers held by such Estate Professionals on the Petition Date; plus (b)
following the Termination Date, allowed fees and disbursements of Estate Professionals incurred
or accrued after such Termination Date by the Estate Professionals, and any disbursements of
any member of the Committee, in an aggregate amount for all professionals not to exceed
$100,000, and (c) quarterly fees required to be paid pursuant to 28 U.S.C. 1930(a)(6) and any
fees payable to the Clerk of the Bankruptcy Court or to the Debtors appointed claims agent;
provided, however, that the Carve-Out shall not include, apply to, or be available for any fees or
expenses incurred by any party, including any Debtor or any Committee, or its respective
professionals, in connection with, or relating to, the initiation or prosecution of any claims,
causes of action, adversary proceedings, or other litigation against any of the Postpetition
Lender, the Prepetition Lender, or any other Released Party, including without limitation,
challenging the amount, validity, perfection, priority, or enforceability of or asserting any
defense, counterclaim, or offset to, the Postpetition Obligations, the Postpetition Liens, the
Prepetition Obligations, the Prepetition Liens, the Adequate Protection Obligations, or the
Adequate Protection Liens.
15. Notwithstanding anything herein to the contrary, the entry of this Order is
without prejudice to, and does not constitute a waiver of, expressly or implicitly, or otherwise
impair (a) any of the rights of the Postpetition Lender or the Prepetition Lender under the
17
Bankruptcy Code or under non-bankruptcy law, including, without limitation, the right of the
Postpetition Lender or the Prepetition Lender, to (i) request modification of the automatic stay of
section 362 of the Bankruptcy Code, (ii) request dismissal of any of the Chapter 11 Cases,
conversion of any of the Chapter 11 Cases to cases under chapter 7 of the Bankruptcy Code, or
appointment of a chapter 11 trustee or examiner (including with expanded powers), or (iii)
propose, subject to the provisions of section 1121 of the Bankruptcy Code, a chapter 11 plan or
plans or (b) any other rights, claims, or privileges (whether legal, equitable, or otherwise) of the
Postpetition Lender or the Prepetition Lender.
16. The Court finds that the adequate protection provided herein is reasonable
and sufficient to protect the interests of the Prepetition Lender. Notwithstanding anything herein
to the contrary, this Order is without prejudice to, and does not constitute a waiver of, expressly
or implicitly, the rights of the Prepetition Lender to seek additional adequate protection at any
time, including prior to a Termination Event; provided, however, that if any additional adequate
protection claims, Liens, or other rights are awarded at any time to or for the benefit of the
Prepetition Lender, such claims, Liens and/or other rights shall be at all times junior in all
respects to the claims and Liens granted to or for the benefit of the Postpetition Lender and shall
not affect the priority, validity, binding nature, enforceability, or perfection of any of such claims
and Liens granted to or for the benefit of the Postpetition Lender.
17. Notwithstanding anything herein or in the other Postpetition Loan
Documents, upon a Termination Event, the Debtors shall no longer, pursuant to this Order, the
other Postpetition Loan Documents, or otherwise, be authorized to borrow funds or incur
indebtedness hereunder or under the other Postpetition Loan Documents or to use any proceeds
of the Postpetition Obligations already received (and any obligations of the Postpetition Lender
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to make loans or advances hereunder or under the other Postpetition Loan Documents
automatically shall be terminated).
18. Notwithstanding anything herein or the occurrence of a Termination
Event, all of the rights, remedies, benefits, and protections provided (i) to the Postpetition Lender
under this Order and the other Postpetition Loan Documents and (ii) to the Prepetition Lender
under this Order, shall survive such Termination Event. Upon such Termination Event, the
principal of and all accrued interest and fees and all other Postpetition Obligations and accrued
Adequate Protection Obligations, shall, in each instance, be immediately due and payable and the
Postpetition Lender and the Prepetition Lender shall have all other rights and remedies provided
in this Order, the other Postpetition Loan Documents, the Prepetition Loan Documents, and
applicable law.
19. The automatic stay provisions of section 362 of the Bankruptcy Code are
hereby vacated and modified to the extent necessary to permit the Postpetition Lender and the
Prepetition Lender to exercise, upon the occurrence and during the continuation of any Event of
Default (as defined in the DIP Credit Agreement) or a Termination Event, all rights and remedies
provided for in the Postpetition Loan Documents and hereunder, and to take any or all of the
following actions without further order of or application to this Court: (i) terminate the Debtors
use of Cash Collateral and cease making any loans or advances to the Debtors; (ii) declare all
Postpetition Obligations and Adequate Protection Obligations to be immediately due and
payable; (iii) terminate any unfunded Commitments under the DIP Credit Agreement; (iv)
enforce rights against the Collateral in the possession of the Postpetition Lender for application
towards the Postpetition Obligations and the Adequate Protection Obligations; and (v) take any
other actions or exercise any other rights or remedies permitted under this Order, the other
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Postpetition Financing Documents, or applicable law to effect the repayment and satisfaction of
the Postpetition Obligations and the Adequate Protection Obligations; provided, however, that
the Postpetition Lender or the Prepetition Lender as applicable, shall provide five (5) days
written notice (by facsimile, telecopy, electronic mail, or otherwise) to the U.S. Trustee, counsel
to the Debtors, counsel to the Prepetition Lender, counsel to the Postpetition Lender, and counsel
to the Committee prior to exercising any enforcement rights or remedies in respect of the
Collateral (other than the rights described in clauses (i), (ii), and (iii) above (to the extent they
might be deemed remedies in respect of the Collateral). The rights and remedies of the
Postpetition Lender and the Prepetition Lender specified herein are cumulative and not exclusive
of any rights or remedies that they may have under the other Postpetition Loan Documents or
otherwise.
20. If the Postpetition Lender or the Prepetition Lender shall at any time
exercise any of their respective rights and remedies hereunder, under the other Postpetition Loan
Documents or under applicable law in order to effect payment or satisfaction of the Postpetition
Obligations or the Adequate Protection Obligations or to receive any amounts or remittances due
hereunder or under the other Postpetition Loan Documents, including without limitation,
foreclosing upon and selling all or a portion of the Collateral, the Postpetition Lender and the
Prepetition Lender shall have the right without any further action or approval of this Court to
exercise such rights and remedies as to all or such part of the Collateral as the Postpetition
Lender or the Prepetition Lender (as applicable) shall elect in their sole discretion, subject to the
provision by the applicable parties of the written notice as provided in the preceding paragraph.
No holder of a Lien primed by this Order or granted by the Debtors as adequate protection shall
be entitled to object on the basis of the existence of any such Lien to the exercise by the
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Postpetition Lender or the Prepetition Lender of their respective rights and remedies under the
Postpetition Loan Documents or under applicable law to effect satisfaction of the Postpetition
Obligations or the Adequate Protection Obligations or to receive any amounts or remittances due
hereunder or under the other Postpetition Loan Documents, provided that the Postpetition Lender
or the Prepetition Lender, as applicable, have complied with applicable law. The Postpetition
Lender and the Prepetition Lender shall be entitled to apply the payments or proceeds of the
Collateral and the Cash Collateral in accordance with the provisions of this Order and the other
Postpetition Loan Documents, and in no event shall any of such parties be subject to the
equitable doctrine of marshaling or any other similar doctrine with respect to any of the
Collateral or otherwise.
21. The failure or delay by (i) the Postpetition Lender to seek relief or
otherwise exercise its rights and remedies under this Order or any other Postpetition Loan
Documents or (ii) the Prepetition Lender to exercise its rights and remedies under this Order
shall not constitute a waiver of any of the rights of such Postpetition Lender or Prepetition
Lender hereunder, thereunder, or otherwise, and any single or partial exercise of such rights and
remedies against any of the Debtors or the Collateral shall not be construed to limit any further
exercise of such rights and remedies against any or all of the other Debtors and/or Collateral.
22. Except as expressly provided in the Postpetition Loan Documents and this
Order and so long as the DIP Facility is outstanding and the Carve-Out is in effect, the Debtors
shall be enjoined and prohibited from at any time during the Chapter 11 Cases granting claims or
Liens in the Collateral or any portion thereof to any other parties pursuant to sections 364(d),
503(b), or 507(b) of the Bankruptcy Code or otherwise. So long as the DIP Facility is
outstanding and the Carve-Out is in effect, the Debtors shall be enjoined and prohibited from at
21
any time (i) using the Collateral or Lender Funds except pursuant to the terms and conditions of
this Order and the other Postpetition Loan Documents and (ii) except in the event the DIP
Facility has been paid in full or will be paid in full, and an amount equal to the Carve-Out will be
paid to the Prepetition Lender on account of the Prepetition Obligations, as a result of the
financing for which the Debtors are applying, applying to any court for an order authorizing the
use of the Collateral or Lender funds except on the terms of this Order and the other Postpetition
Loan Documents.
23. The Postpetition Lender and the Prepetition Lender are hereby authorized,
but not required, to file or record financing statements, trademark filings, copyright filings,
mortgages, notices of lien or similar instruments in any jurisdiction, or take possession of or
control over, or take any other action in order to validate and perfect the Liens granted to them
hereunder. The Debtors shall execute and deliver to the Postpetition Lender and the Prepetition
Lender all such agreements, financing statements, instruments, and other documents as any
Postpetition Lender or the Prepetition Lender may request to evidence, confirm, validate, or
perfect the Liens granted pursuant hereto.
24. The Debtors shall furnish to the Postpetition Lender and the Prepetition
Lender, in form and substance reasonably satisfactory to the Postpetition Lender, all weekly
reports of receipts, disbursements, and a reconciliation of actual expenditures and disbursements
with those set forth in the Budget, on a line-by-line basis showing any variance to the proposed
corresponding line item of the Budget (the Budget Reconciliation) and shall also provide a
copy of the Budget Reconciliation to counsel for any Committee. Such Budget Reconciliation
shall be provided to the Postpetition Lender and the Prepetition Lender so as actually to be
22
received on or before Wednesday of the following week (or, if not a Business Day, on the next
Business Day thereafter).
25. Without limiting the rights of access and information afforded to the
Postpetition Lender under the Postpetition Loan Documents and subject to the execution and
delivery of non-disclosure agreements in form and substance acceptable to the Debtors, the
Debtors, upon reasonable written notice and at such reasonable times during normal business
hours and as often as may reasonably be requested (and, after a Default has occurred and is
continuing, upon notice and at times that are not limited to normal business hours), shall permit
any representatives designated by the Postpetition Lender or the Prepetition Lender to visit and
inspect any of their properties, to inspect, copy, and take extracts from their financial and
accounting records, and to discuss their affairs, finances, and accounts with their officers and
independent public accountants. Such right to inspect the Debtors books and records shall
include the right of the Postpetition Lender and its representatives to have reasonable access to
all records and files of the Debtors pertaining to the Collateral.
26. All Liens granted herein (including the Postpetition Liens and the
Adequate Protection Liens) and in the other Postpetition Loan Documents to or for the benefit of
the Postpetition Lender and the Prepetition Lender shall pursuant to this Order be, and they
hereby are, valid, enforceable, and perfected, effective as of the Petition Date, and
(notwithstanding any provisions of any agreement, instrument, document, the Uniform
Commercial Code, or any other relevant law or regulation of any jurisdiction) no further notice,
filing, possession, control, or other act shall be required to effect such perfection, and all Liens
on deposit accounts or securities accounts of any Debtors shall, pursuant to this Order be, and
they hereby are, deemed to confer control for purposes of sections 8-106, 9-104, and 9-106 of
23
each of the Delaware Uniform Commercial Code and the Tennessee Uniform Commercial Code
as respectively in effect as of the date hereof in favor of the Postpetition Lender; provided,
however, that if the Postpetition Lender or the Prepetition Lender shall, in its sole discretion,
choose to require the execution of and/or file (as applicable) such mortgages, financing
statements, control agreements, notices of Liens, and other similar instruments and documents,
all such mortgages, financing statements, control agreements, notices of Liens, or other similar
instruments and documents shall be deemed to have been executed, filed and/or recorded at the
time and on the date of the Petition Date. A certified copy of this Order may, in the discretion of
the Prepetition Lender or the Postpetition Lender (as applicable), be filed with or recorded in
filing ,or recording offices in addition to or in lieu of such financing statements, mortgages,
notices of lien or similar instruments. Each and every federal, state, and local government
agency or department may accept the entry by this Court of this Order as evidence of the
validity, enforceability, and perfection on the Petition Date of the Liens granted herein and in the
other Postpetition Loan Documents to or for the benefit of the Postpetition Lender and the
Prepetition Lender.
27. The Prepetition Lender may possess or control Collateral for the
Postpetition Obligations subject to the security interests granted pursuant to the Postpetition
Loan Documents and this Order.
28. The provisions of this Order shall be binding upon and inure to the benefit
of each of the Postpetition Lender, the Prepetition Lender, and the Debtors and their respective
successors and assigns (including any estate representative, chapter 7 trustee, or other trustee or
fiduciary hereafter appointed as a legal representative of the Debtors or with respect to the
property of the estates of the Debtors).
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29. Based on the findings set forth in this Order and in accordance with
section 364(e) of the Bankruptcy Code, which is applicable to the DIP Facility on an interim
basis and use of Cash Collateral contemplated by this Order, in the event that any or all of the
provisions of this Order or any other Postpetition Loan Documents are hereafter modified,
amended, or vacated by a subsequent order of this or any other Court, no such modification,
amendment, or vacation shall affect the validity, enforceability, or priority of any Lien or claim
authorized or created hereby or thereby or any Postpetition Obligations or Adequate Protection
Obligations incurred hereunder or thereunder. Notwithstanding any such modification,
amendment, or vacation, any Postpetition Obligations or Adequate Protection Obligations
incurred and any claim or lien granted to the Postpetition Lender or the Prepetition Lender
hereunder or under the other Postpetition Loan Documents arising prior to the effective date of
such modification, amendment, or vacation shall be governed in all respects by the original
provisions of this Order and the other Postpetition Loan Documents, and the Postpetition Lender
and the Prepetition Lender shall be entitled to all of the rights, remedies, privileges, and benefits,
including the Liens and priorities granted herein and therein, with respect to any such
Postpetition Obligations and Adequate Protection Obligations.
30. The validity, enforceability, priority, or amount of any of the claims and
Liens granted to or for the benefit of the Postpetition Lender under this Order or any other
Postpetition Loan Documents shall not be affected by any finding or order of this Court or any
other court regarding the Prepetition Obligations or Prepetition Liens, including, without
limitation, any order of this Court or any other Court invalidating the Prepetition Obligations or
Prepetition Liens.
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31. The Debtors are authorized and directed to do and perform all acts, to
make, execute, and deliver all instruments and documents (including, without limitation, the
execution of additional security agreements, pledge agreements, control agreements, mortgages,
and financing statements), and shall pay fees and expenses that may be required or necessary for
the Debtors performance under the Postpetition Loan Documents, including, without limitation,
(i) the execution of the Postpetition Loan Documents and (ii) the payment of the fees,
indemnification obligations, and other expenses described or provided in the Postpetition Loan
Documents, whether or not included in the Budget, as such become due, including, reasonable
attorneys and financial advisers fees and disbursements related to the Postpetition Loan
Document as provided for in the Postpetition Loan Documents. None of such reasonable
attorneys and financial advisers fees and disbursements shall be subject to the approval of this
Court or the U.S. Trustee guidelines, and no recipient of any such payment shall be required to
file with respect thereto any interim or final fee application with this Court. Notwithstanding the
foregoing, the Debtors shall provide copies of invoices for such fees and disbursements to the
U.S. Trustee and counsel for the Committee at least ten (10) days prior to payment thereof by the
Debtors. In addition, the Debtors are hereby authorized and directed to indemnify the
Postpetition Lender against any liability arising in connection with the Postpetition Loan
Documents to the extent provided in the Postpetition Loan Documents. All such fees, expenses,
and indemnities of the Postpetition Lender shall constitute Postpetition Obligations and shall be
secured by the Postpetition Liens and afforded all of the priorities and protections afforded to the
Postpetition Obligations under this Order and the other Postpetition Loan Documents.
32. The obligations of the Debtors in respect of the Postpetition Obligations,
the Adequate Protection Obligations, and the claims and Liens granted to or for the benefit of the
26
Postpetition Lender and the Prepetition Lender pursuant to this Order and the other Postpetition
Loan Documents, shall not be discharged by the entry of an order (a) confirming a chapter 11
plan in any of the Chapter 11 Cases (and, pursuant to section 1141(d)(4) of the Bankruptcy Code,
the Debtors hereby waive such discharge) or (b) converting any of the Chapter 11 Cases to a case
under chapter 7 of the Bankruptcy Code.
33. Until all obligations and indebtedness owing to the Postpetition Lender
and the Adequate Protection Obligations shall have been indefeasibly paid in full in cash and
satisfied in the manner provided in the Postpetition Loan Documents and this Order, no Debtor
shall seek an order dismissing any of the Chapter 11 Cases. If an order dismissing any of the
Chapter 11 Cases under section 1112 of the Bankruptcy Code or otherwise is at any time entered,
such order shall provide (in accordance with sections 105 and 349(b) of the Bankruptcy Code)
that (i) the claims and Liens granted pursuant to this Order and any subsequent order to or for the
benefit of the Postpetition Lender and/or the Prepetition Lender shall continue in full force and
effect and shall maintain their perfection and priorities as provided in this Order and subsequent
orders until all obligations in respect thereof shall have been indefeasibly paid in full in cash and
satisfied in the manner provided in the Postpetition Loan Documents and this Order (and that
such claims and Liens shall, notwithstanding such dismissal, remain binding on all parties in
interest) and (ii) to the extent permitted by applicable law, this Court shall retain jurisdiction,
notwithstanding such dismissal, for the purposes of enforcing such claims and Liens.
34. The provisions of this Order, including the grant of claims and Liens to or
for the benefit of the Postpetition Lender and the Prepetition Lender, and any actions taken
pursuant hereto shall survive the entry of any order converting any of the Chapter 11 Cases to a
case under chapter 7 of the Bankruptcy Code.
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35. The Prepetition Lender is entitled, under sections 363(e) and 364(d)(1)(B)
of the Bankruptcy Code, to adequate protection of its interest in the Prepetition Collateral,
including the Cash Collateral, for and equal in amount to the aggregate diminution in the value
of the Prepetition Lenders interest in the Prepetition Collateral, including any such diminution
resulting from (v) the Carve-Out, (w) the use of Cash Collateral, (x) the sale, lease, or use by the
Debtors (or other decline in value) of the Prepetition Collateral, (y) the granting of pari passu
Liens on the Prepetition Collateral to the Postpetition Lender, and (z) the imposition of the
automatic stay under section 362 of the Bankruptcy Code (the aggregate amount of such
diminution, which shall include, among other things, the aggregate amount of the Prepetition
Lenders Cash Collateral used by the Debtors from and after the Petition Date and the Carve-
Out, the Adequate Protection Obligations). The Prepetition Lender is hereby provided with
the following forms of adequate protection:
(a) Adequate Protection Lien. To secure the Adequate Protection
Obligations, the Prepetition Lender is hereby granted, effective and perfected as
of the Petition Date and without the necessity of the execution by the Debtors of
mortgages, security agreements, pledge agreements; financing statements, or
other agreements, a valid and perfected replacement security interest in, and lien
on, the Collateral (the Adequate Protection Lien), which Adequate Protection
Lien shall be pari passu to the Prepetition Liens and the Postpetition Liens on the
Collateral and subject and subordinate only to (i) the Carve-Out, and (ii) any
Existing Liens.
(b) Superpriority Claim. The Prepetition Lender is hereby granted an
allowed, superpriority administrative expense claim under section 507(b) of the
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Bankruptcy Code with respect to all Adequate Protection Obligations. The
Adequate Protection Obligations shall have priority over all administrative
expenses of the kind specified in, or ordered pursuant to, any provision of the
Bankruptcy Code, including, without limitation, those specified in, or ordered
pursuant to, sections 105, 326, 328, 330, 503(b), 506(c), 507(a), 507(b), 546(c),
726, and 1114 of the Bankruptcy Code, or otherwise (whether incurred in any of
the Chapter 11 Cases or any conversion thereof to a case under chapter 7 of the
Bankruptcy Code or any other proceeding related hereto or thereto), which
Adequate Protection Obligations shall be payable from and have recourse to all
prepetition and postpetition property of the Debtors and all proceeds thereof,
including, subject to the entry of the Final Order, the Avoidance Claims and the
proceeds therefrom. The Adequate Protection Obligations shall be subject and
subordinate only to the Carve-Out and shall be pari passu with the Postpetition
Obligations to the extent provided in the Intercreditor Agreement.
(c) Except for the Postpetition Loan Documents, the Postpetition
Liens, the Postpetition Obligations, the Intercreditor Agreement, and the Carve-
Out, the Debtors shall be prohibited from incurring additional obligations having
priority claims or Liens equal to or senior in priority to the Adequate Protection
Obligations or the Adequate Protection Liens.
(d) The Debtors shall provide the Prepetition Lender with copies of all
reports (including, but not limited to, the Budget and the Budget Reconciliation),
information, and other materials delivered to the Postpetition Lender, and such
29
other reports, information, and materials as reasonably requested by the
Prepetition Lender.
(e) The consent of the Prepetition Lender to the use of its Cash
Collateral by the Debtors shall terminate upon the Debtors failure to comply with
any other provision of this Order or the Final Order and in all events upon any
Termination Event.
(f) The Debtors shall pay the reasonable attorneys and financial
advisers fees and disbursements of the Prepetition Lender related to the Chapter
11 Cases and the Postpetition Obligations. No recipient of any such payment
shall be required to file with respect thereto any interim or final fee application
with this Court. Notwithstanding the foregoing, the Debtors shall provide copies
of invoices for such fees and disbursements to the U.S. Trustee and counsel for
any Committee at least ten (10) days prior to payment thereof by the Debtors.
36. (a) With a full reservation and no release, waiver, or discharge of any
rights of any Committee or other party in interest as provided in the following subparagraph,
each Debtor and each of its affiliates in its individual capacity hereby forever releases, waives,
and discharges the Prepetition Lender (whether in its prepetition or postpetition capacity),
together with its respective officers, directors, trustees, employees, agents, attorneys,
professionals, affiliates, subsidiaries, predecessors in interest, successors and assigns
(collectively, the Prepetition Released Parties and collectively with the Postpetition Released
Parties as defined below, the Releases Parties), of and from any and all claims and causes of
action arising out of, based upon or related to, in whole or in part, any of the Prepetition Loan
Documents, any aspect of the prepetition relationship between any Debtor relating to any of the
30
Prepetition Obligations, the Prepetition Loan Documents or any transaction contemplated
thereby, on the one hand, and any or all of the Released Parties, on the other hand, or any other
acts or omissions by any or all of the Released Parties in connection with any of the Prepetition
Obligations, Prepetition Loan Documents or their prepetition relationship with any Debtor or any
affiliate thereof, including, without limitation, any claims or defenses as to the extent, validity,
priority, or perfection of the Prepetition Liens or the Prepetition Obligations, lender liability
claims and causes of action, any actions, claims, or defenses under chapter 5 of the Bankruptcy
Code, or any other claims and causes of action (all such claims, defenses, and other actions
described in this Paragraph are collectively defined as the Claims and Defenses). Nothing
contained in this subparagraph shall affect the rights of any Committee or other party in interest
to undertake any action with respect to any investigation or prosecution of Claims and Defenses
that is permitted in subparagraph (b) of this paragraph.
(b) Notwithstanding anything contained herein to the contrary, the
extent, validity, priority, perfection, and enforceability of the Prepetition Obligations, the
Prepetition Liens, and all acknowledgments, admissions, and confirmations of the Debtors and
their affiliates above, are for all purposes subject to the rights of any party in interest (including
any trustee elected or appointed in these Cases), other than any Debtor or any of its respective
affiliates, to file a complaint pursuant to Bankruptcy Rule 7001 seeking to invalidate,
subordinate, or otherwise challenge the Prepetition Obligations or the Prepetition Liens;
provided, however, that any such complaint must be filed in this Court on or before December
17, 2012, or any subsequent date that may be agreed to in writing by the Prepetition Lender with
respect to the time to file any such complaint relating to the Prepetition Obligations and/or the
Prepetition Liens. If no such complaint is filed within such time period (or such timely filed
31
complaint does not result in a final and non-appealable order of this Court that is inconsistent
with clauses (i) through (iv) of subparagraph (c) of this paragraph), then any and all Claims and
Defenses against any of the Released Parties shall be, without further notice to or order of the
Court, deemed to have been forever relinquished, released, and waived as to such Committee and
other person or entity, and if such complaint is timely filed on or before such date, any and all
Claims and Defenses against any of the Released Parties shall be deemed, immediately and
without further action, to have been forever relinquished, released, and waived as to such
Committee and other person or entity, except with respect to Claims and Defenses that are
expressly asserted in such complaint.
(c) If no such complaint as to the Prepetition Obligations (relating to
Obligations subject to the Prepetition Liens), Prepetition Liens, or Released Parties is filed
within such time period, or such timely filed complaint does not result in a final and non-
appealable order of this Court that is inconsistent with clauses (i) through (iv) of this
subparagraph, then, without the requirement or need to file any proof of claim with respect
thereto, (i) the Prepetition Obligations shall constitute allowed secured claims for all purposes in
the Chapter 11 Cases and any subsequent cases or proceedings under the Bankruptcy Code,
including, without limitation, any chapter 7 proceedings if any Chapter 11 Case is converted to a
case under chapter 7 of the Bankruptcy Code (each, a Successor Case), (ii) the Prepetition
Liens shall be deemed legal, valid, binding, enforceable, perfected, first priority Liens not subject
to recharacterization, subordination (except as to the Existing Liens and the pari passu
Postpetition Liens and as otherwise specified in this Order) or avoidance for all purposes in the
Chapter 11 Cases and any Successor Case, (iii) the release of the Claims and Defenses against
the Released Parties shall be binding on all parties in interest in the Chapter 11 Cases and any
32
Successor Case, and (iv) the Prepetition Obligations, the Prepetition Liens, releases of the Claims
and Defenses against the Released Parties, and prior payments on account of or with respect to
the Prepetition Obligations shall not be subject to any other or further claims, cause of action,
recharacterization, objection, contest, setoff, defense, or challenge by any party in interest for
any reason, including, without limitation, by any successor to or estate representative of any
Debtor. Nothing in this Order shall confer standing upon the Committee or any other person or
entity to bring, assert, commence, continue, prosecute, or litigate the Claims and Defenses
against any Released Party.
37. Notwithstanding anything to the contrary herein or in any other
Postpetition Financing Document or in any Prepetition Financing Document, the Postpetition
Liens and the Superpriority Claims granted to the Postpetition Lender hereunder and under the
other Postpetition Loan Documents are and shall be at all times (including, without limitation,
after the occurrence of a Termination Event) pari passu in all respects to (a) the Adequate
Protection Liens and all other Liens securing any Prepetition Obligations, in all cases, whether
granted under this Order, the Prepetition Loan Documents, or otherwise, and (b) the Adequate
Protection Obligations, any other obligations in respect of adequate protection and all other
claims held by the Prepetition Lender (including, without limitation, any superpriority claims in
addition to the Adequate Protection Obligations), in each case, whether arising under or related
to the Prepetition Loan Documents, this Order, or otherwise.
38. Effective upon entry of the Final Order, the Debtors shall have no defense,
counterclaim, offset, recoupment, cross-complaint, claim or demand of any kind or nature
whatsoever that can be asserted to reduce or eliminate all of their liability to repay the
Postpetition Lender as provided in DIP Credit Agreement or to seek affirmative relief or
33
damages of any kind or nature from the Postpetition Lender. Each of the Debtors, on behalf of
its respective bankruptcy estate, and on behalf of its respective successors, assigns, Subsidiaries
and any Affiliates and any Person acting for and on behalf of, or claiming through them, hereby
fully, finally and forever releases and discharges the Postpetition Lender and all of the
Postpetition Lenders past and present officers, directors, servants, agents, attorneys, assigns,
heirs, parents, subsidiaries, and each Person acting for or on behalf of any of them (collectively,
the Postpetition Released Parties), of and from any and all past or present actions, causes of
action, demands, suits, claims, liabilities, Liens, lawsuits, adverse consequences, amounts paid in
settlement, costs, damages, debts, deficiencies, diminution in value, disbursements, expenses,
losses and other obligations of any kind or nature whatsoever, whether in law, equity or
otherwise (including, without limitation, those arising under Sections 541 through 550 of the
Bankruptcy Code and interest or other carrying costs, penalties, legal, accounting and other
professional fees and expenses, and incidental, consequential and punitive damages payable to
third parties), whether known or unknown, fixed or contingent, direct, indirect, or derivative,
asserted or unasserted, foreseen or unforeseen, suspected or unsuspected, against any of the
Released Parties, whether held in a personal or representative capacity, and which are based on
any act, fact, event or omission or other matter, cause or thing occurring at or from any time
prior to and including the date hereof in any way, directly or indirectly arising out of, connected
with or relating to DIP Credit Agreement, the Interim Order, the Final Order and the transactions
contemplated thereby, and all other agreements, certificates, instruments and other documents
and statements (whether written or oral) related to any of the foregoing
39. Unless such transaction will result in the immediate payment in full in
cash of all Prepetition Obligations and Postpetition Obligations, the Debtors shall not sell,
34
transfer, lease, encumber, or otherwise dispose of any portion of the Collateral without the prior
written consent of the Postpetition Lender and the Prepetition Lender (and no such consent shall
be implied from any other action, inaction, or acquiescence by the Postpetition Lender or the
Prepetition Lender) and an order of this Court, except for sales of the Debtors inventory in the
ordinary course of their business in accordance with the Budget.
40. Notwithstanding anything contained in the Postpetition Loan Documents
to the contrary, proceeds of the Prepetition Collateral may be applied to the Prepetition
Obligations, the Postpetition Obligations, or the Adequate Protection Obligations, in accordance
with the terms of the Intercreditor Agreement, and in no event shall the Postpetition Lender or
the Prepetition Lender be subject to the equitable doctrine of marshaling or any other similar
doctrine with respect to any such collateral or otherwise.
41. The Debtors shall, within two business days of entry of this Order, serve
by United States mail, first class postage prepaid, copies of the Motion, this Order, and a notice
of the Final Hearing (the Final Hearing Notice) to be held on ________________, 2012 at
___:___ __.m. to consider entry of the Final Order on the Interim Notice Parties. Copies of the
Motion, this Order, and the Final Hearing Notice also shall be served upon all persons requesting
service of papers pursuant to Bankruptcy Rule 2002 by United States mail, first class postage
prepaid, one Business Day following the receipt of such request. The Final Hearing Notice shall
state that any party in interest objecting to the entry of the Final Order shall file written
objections with the Court no later than 4:00 p.m. on _________________, 2012, which
objections shall be served so that the same are received on or before such date and time by:
(a) (i) Greenberg Traurig, LLP, The Nemours Building, 1007 North Orange Street, Suite 1200,
Wilmington, Delaware 19801, Attn: Dennis Meloro, Esq., and (ii) Greenberg Traurig, LLP, 200
35
Park Avenue, New York, New York, 10166, Attn: Maria J. DiConza, Esq. and Matthew L.
Hinker, Esq., Attorneys for the Debtors and Debtors in Possession; (b) Moore & Van Allen, 100
North Tryon Street, Suite 4700, Charlotte, NC 28202-4003, Attn: James Langdon, Esq.,
Attorneys for the Prepetition Lenders; and (c) (i) Bradley Arant Boult Cummings LLP, 1600
Division Street, Suite 700, Nashville, TN 37203, Attn: Doug Franck, Esq., and (ii) Morris James
LLP, 500 Delaware Avenue, Suite 1500, Wilmington, DE 19801-1494, Attn: Brett D. Fallon,
Attorneys for the Postpetition Lender.
42. This Order shall constitute findings of fact and conclusions of law.
43. The provisions of this Order, the Postpetition Loan Documents, the
Postpetition Obligations, the Superpriority Claims, the Adequate Protection Obligations, and any
and all rights, remedies, privileges, and benefits in favor of the Postpetition Lender and the
Prepetition Lender provided or acknowledged in this Order, and any actions taken pursuant
thereto, shall be effective immediately upon entry of this Order pursuant to Bankruptcy Rules
6004(g) and 7062.
44. In the event that any provision of this Order conflicts with any term of the
other Postpetition Loan Documents, this Order shall govern.
Dated: October , 2012
Wilmington, Delaware
Hon. Peter J. Walsh
United States Bankruptcy Judge
36
SCHEDULE A
BACK YARD BURGERS, INC
13 WEEK CASH FLOW PROJECTION
BUDGET NET SALES
ESTIMATE ACTUAL NET SALES
34S,619
34S,619
34S,619
34S,619
337,005
337,005
337,005
337,005
337,005
337,005
337,005
337,005
343,221
343,221
343,221
343,221
343,221
343,221
343,221
343,221
343,221
343,221
300,146
300,146
300,146
300,146
300,146
300,146
300,146
300,146
333,496
333,496
Ending {Mon-FrH !QLlW1 ... ,iotil!lii )ito7tii[L )];/i4li2:J;. F; iiii1iii[::t];(i8/iil ,oiid4ii3[. .. . olt25ti3J, ,. .. aifoll13
Cash Received
Beginning Cash Balance
Restaurant Deposits
Roy Draft ACH /Check
Other
Total'!:ashAvaiV"
Cash Disbursed
(72,038)
373,269
2.9,245
\f.;ao;47s:
169,975 (280,287)
373,269 353,955
29,245 32,328
(455,534) (620,413) (519,290) (795,449)
363,965 363,965 363,965 370,679
32,328 32.328 32,328 32,328
(932,010) (1,067,016) (917,120) (1,168,318) (1,303,087) (1,514,927) (1,410,492) (1,570,079) (1,679,228)
370,679 370,679 370,679 370,679 324,158 324,158 324,158 324,158 360,176
32,3?.3 32,323 32,323 32,323 32,323 32,32.3 32,323 32,323 32'.,323
Store expenses-controllables
IT Store Control!ables
Store UtllitlesControllables 20,000

store R&M I - I 12;ooo 1 ' ' 12;ooo j:>' : 12,ooo I ti,oiJo I < 1i;oooF iz,ooo I n,ooo I' iz,ooll I 12,ooo I 12,ooo I < 12,()6() I u,ooCi I 12,000 1 12,ooo 12,000
Store Capex . . . .. ';::.:s;ooo s,ooo . 5,000
Store Rent( inc! ACH) . , 186,384 .; . 3;410 ' < . 186,384 3,410 186,384 3,410 2,790 1Z6,000
cos- GFS 11s,ooo 119,388 122,830 ,roo,i3o: >:;,:1oo,z;o . . son 97;7!n: ll7,731 97,731. 99,534 99,534 "" 99,534 99,534 99,534 27,042 s7,o42
cos -other 37;5'oo 32,oss .:.':32;oss ft;soo :: .. n;soo: 11,soo .,..n.5oo li,Soo 'n,soG : u,soo it;soo u,soo ll;soo n,soo n;soo
Advertising 14,491 14,491' '14,491 14,491 . '14.,759 14,759 14,759 14.759 14,759 12;906 12,906 12,905 1.2,906 14,340
G&A 20,000 42,600 23,300 73,800 23,800 42,600 23,800 23,800 23,800 42,600 20,000 20,000 20,000 20,000 38,800
Insurance-Health I I I 33,ooo I I I 33.ooo I I I I 33,ooo I I I I 38,ooo
I I I 35,000 I l l 35,000 l l l 35,(100 l l l l 35,000
Payroll 5tore'per pyrl <eg I 293;3611 I 231;426J I .225,659;1 -;I '' '''.225,659 229,87.1.: 229,821 200,97S 200,97&
Payroll Corp-per pyrl <eg I I 61)ionl I fl,Mri I '51;000 GJ,COC 61,,0QC Sl))OQ 75;DOD 76,000
Interest
Loan payments
POS Loan Payments
Sales Tax (LR Prepayment)
Sales Tax (20th) 197,292 143,121 118,636 151.,031
Taxes Other 8,443 4,844
Pre-filing Retainer
Posl-fHing Oeoto!'s Fees 31,250 31,250 31,250 31,250 31,250 31,250 31.250 31,250 31.250 31,250 31,250 31,250 31,250 31,250 31,250
P:ePetit.io!1 Lender Fees 20,000 6,500 6,500 6,500 6,500 6,500 6,500 6,500 6,500 6,500 6,500 5,500 6,500 6,500 6,500
DIP Le!1der 30,000 5,000 5,000 10,000
Fees to th-2 U.S, Trustee 30,000 30,000
Claims Agent Retainer
Claims t\gent Fee 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000
Creditor Committee Fees 10,000 10,000 10.000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000
Real F. state Advh-;ory Fees 529,654
PR Fees 10,000
10,000 10,000 10,000 10,000
Net Cash Flow I 242,014 (450,262) (175,247) (164,879) 101,123 (276,159) (136,560) (135,007) 149,897 (251,198) (134,769) (211,840) 104,435 (159,587) (109,149) (826,966)
Net Casn Bafan.:e: I 169,975 ; (180,281):1'' :,: ;c(4$S;SS4) ".' c {o20,4l3)C.: ::.:: [SH;290) "'. ::. :[795,449) : : ' '(932))10\'": : ::{1))67;01'61 ., .... "'(917,120) (1,168;313) . ' :'.[1,303,087) [t,Sfi{9i7)' " '"(1j41o;ll92)"' . ; {1,570,079) : [1.679,4<8)