Kabbage - Notice of Filing of Revised Cash Collateral Order
- Date
- 2022-11-04
Summary
Doc 208-2, filed November 4, 2022 in In re Kabbage, Inc. d/b/a KServicing, et al., Case No. 22-10951 (CTG), in the U.S. Bankruptcy Court for the District of Delaware, is Exhibit 2, a redline of a proposed order authorizing the Debtors to use cash collateral and granting adequate protection to the Federal Reserve Bank of San Francisco. The proposed order recites a petition date of October 3, 2022 and a hearing on November 7, 2022. In its stipulations, KServicing admits liability to the Reserve Bank of approximately $536,450,940 in outstanding Advances under the Paycheck Protection Program Liquidity Facility agreements. The order defines Cash Collateral, ties its use to a Cash Collateral Budget, and preserves the SBA's rights. The 30-page document ends with an Exhibit 1 Cash Collateral Budget cover page.
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Case 22-10951-CTG Doc 208-2 Filed 11/04/22 Page 1 of 30
Exhibit 2
Redline
RLF1 28198925v.1
Case 22-10951-CTG Doc 208-2 Filed 11/04/22 Page 2 of 30
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
-----------------------------------------------------------x
In re : Chapter 11
:
KABBAGE, INC. d/b/a KSERVICING, et al., : Case No. 22-10951 (CTG)
:
:
Debtors.1 : (Jointly Administered)
:
: Re: Docket No. 143
-----------------------------------------------------------x
ORDER UNDER 11 U.S.C. §§ 105, 361, 362, AND 363,
AND BANKRUPTCY RULES 2002, 4001, 6004, AND 9014
(I) AUTHORIZING DEBTORS TO USE CASH COLLATERAL AND
(II) GRANTING ADEQUATE PROTECTION TO SECURED LENDER
This matter is before the Court pursuant to the motion (the “Motion”)2 filed by Kabbage,
Inc. d/b/a KServicing (“KServicing”) and its Debtors affiliates, as Debtors and Debtors in
possession in the above-captioned chapter 11 cases (collectively, the “Debtors”), pursuant to
sections 105, 361, 362 and 363 of Title 11 of the United States Code, 11 U.S.C. §§ 101, et seq.
(the “Bankruptcy Code”), Rules 2002, 4001, 6004, and 9014 of the Federal Rules of Bankruptcy
Procedure (the “Bankruptcy Rules”) and Rule 4001-2 of the Local Rules of Bankruptcy Practice
and Procedure of the United States Bankruptcy Court for the District of Delaware (the “Local
Rules”), seeking, among other relief, the entry of an order (this “Order”):
1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtors’ federal tax identification
number, as applicable are: Kabbage, Inc. d/b/a KServicing (3937); Kabbage Canada Holdings, LLC (N/A); Kabbage
Asset Securitization LLC (N/A); Kabbage Asset Funding 2017-A LLC (4803); Kabbage Asset Funding 2019-A
LLC (8973); and Kabbage Diameter, LLC (N/A). Kabbage is a trademark of American Express used under license;
Kabbage, Inc. d/b/a KServicing is not affiliated with American Express. The Debtors’ mailing and service address
is 925B Peachtree Street NE, Suite 383, Atlanta, GA 30309.
2 All capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Motion.
RLF1 28199526v.1
Case 22-10951-CTG Doc 208-2 Filed 11/04/22 Page 3 of 30
(i) authorizing the Debtors to use the Cash Collateral (as defined below) as
contemplated by section 363 of the Bankruptcy Code in accordance with the terms set forth herein
effective as of the entry of the Order;
(ii) subject to the Carve-Out, granting and affirming the adequate protection being
given to the Federal Reserve Bank of San Francisco (the “Reserve Bank”) with respect to
Indebtedness (as defined below) owed under the Paycheck Protection Program Liquidity Facility
(the “PPPLF”) pursuant to (a) that certain Paycheck Protection Program Liquidity Facility Letter
of Agreement (the “Letter of Agreement”), dated May 12, 2020 (as amended January 14, 2021),
by and among KServicing and the Reserve Bank, and (b) the Federal Reserve’s Operating Circular
No. 10, effective July 16, 2013 (the “Operating Circular” and, together with the Letter of
Agreement, the “Program Agreements”); and
(iii) modifying the automatic stay to the extent hereinafter set forth and waiving the
fourteen (14) day stay provisions of Bankruptcy Rules 4001(a)(3) and 6004(h).
The Court having held a hearing on November 7, 2022 (the “Hearing”) to consider the
entry of this Order approving the Motion pursuant to Bankruptcy Rule 4001(b)(2), and having
found that notice of the Motion and Hearing was provided as authorized by Bankruptcy Rule
4001(b)(3); and the Court having heard and resolved or overruled any and all objections to the
relief requested in the Motion; and it appearing that the relief requested in the Motion is in the best
interests of the Debtors, their estates (the “Estates”), and creditors; and upon the record herein and
after due deliberation thereon; and good and sufficient cause appearing therefor,
2
Case 22-10951-CTG Doc 208-2 Filed 11/04/22 Page 4 of 30
IT IS HEREBY FOUND AND DETERMINED THAT:3
A. Petition Date. On October 3, 2022 (the “Petition Date”), the Debtors commenced this
chapter 11 case (the “Chapter 11 Case”) by filing a voluntary petition for relief under
chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District
of Delaware (the “Court”). The Debtors operates their business and manage their affairs
as a Debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy
Code. As of the date hereof, no trustee, examiner, or official committee of creditors
holding unsecured claims (a “Creditors’ Committee”) has been appointed in the Chapter
11 Case.
B. Jurisdiction and Venue. The Court has jurisdiction over the Chapter 11 Case, the parties,
and the Debtors’ property pursuant to 28 U.S.C. § 1334. This is a core proceeding
pursuant to 28 U.S.C. § 157(b)(2)(D). The Court is a proper venue for the Chapter 11
Case and this Motion under 28 U.S.C. §§ 1408 and 1409.
C. Notice. The Hearing was held pursuant to Bankruptcy Rules 2002 and 4001 and Local
Rule 4001-2(c). Notice of the Motion and of the Hearing was given by the Debtors on
October 24, 2022 (Docket No. [•]143). Notice of the Motion was provided to: (i) the
Office of the United States Trustee for the District of Delaware; (ii) the holders of the 30
largest unsecured claims against the Debtors on a consolidated basis; (iii) the Reserve
Bank; (iv) Customers Bank; (v) Cross River Bank; (vi) the United States Department of
Justice; (vii) the Federal Trade Commission; (viii) the Small Business Administration;
(ix) the Internal Revenue Service; (x) the Securities and Exchange Commission; (xi) the
United States Attorney’s Office for the District of Delaware; (xii) the Banks; and (xiii)
any party that has requested notice pursuant to Bankruptcy Rule 2002, in each case by
telecopy, email, overnight courier, and/or hand delivery and otherwise in accordance with
Local Rule 9013(m) (together the “Notice Parties”). Notice of the Hearing and the relief
requested in the Motion has been provided as authorized by Bankruptcy Rule 4001(b)
and (d).
D. Acknowledgments and Stipulations. Subject only to the rights of parties in interest
specifically set forth in Paragraph 21 of this Order, in exchange for and as a material
inducement for the Reserve Bank to agree to the relief sought herein, the Debtors
acknowledge, represent, stipulate and agree as follows:
(i) KServicing services a series of Paycheck Protection Program loans (the “PPP
Loans”) which are pledged as Collateral (as defined in the Operating Circular) for
the Obligations (as defined in the Operating Circular) under the Program
Agreements (including any proceeds and offspring of such Collateral, the “PPPLF
Collateral”) and are guaranteed by the U.S. Small Business Administration
(“SBA”).
(ii) KServicing admits that, as of the Petition Date, KServicing was justly and
lawfully liable to the Reserve Bank (x) in the aggregate principal amount of
approximately $536,450,940 in respect of outstanding Advances under the
Program Agreements, plus (y) accrued and unpaid interest and costs and expenses
including, without limitation, attorney’s fees, agent’s fees, other professional fees
3 Findings of fact shall be construed as conclusions of law, and conclusions of law shall be construed as findings of
fact, as applicable, and vice versa, pursuant to Bankruptcy Rule 7052.
3
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and disbursements and other obligations owing under the Program Agreements
(collectively, the “Indebtedness”).
(iii)KServicing’s Obligations under the Program Agreements are secured by the
Reserve Bank’s valid perfected first priority lien (the “Prepetition Lien”) upon
and in all of the PPPLF Collateral.
(iv)Any payments to the Reserve Bank made on account of the Program Agreements
before the Petition Date were (a) payments on account of the PPPLF Collateral or
(b) otherwise not subject to any avoidance, offset, recharacterization,
subordination (whether equitable, contractual, or otherwise), recoupment,
counterclaim, or defense (including, without limitation, under sections 105, 506,
510, 544, 547, 548, 549, 550, 552, and/or 553 of the Bankruptcy Code).
(v) (a) all of the cash in the Debtors’ Synovus Servicing Account4 other than (1) cash
proceeds (if any) on account of KS PPP Loans5 (which funds (if any) shall be
promptly segregated from proceeds of the PPPLF Collateral) and (2) any portion
of the Additional Cash (as defined herein) held in the Synovus Servicing Account,
(b) all of the cash in the Debtors’ Primis Account6 other than any portion of the
Additional Cash and (c) all payments and proceeds received in respect of the PPP
Loans that constitute PPPLF Collateral, wherever held, constitute PPPLF
Collateral and Cash Collateral of the Reserve Bank, subject to the reservation of
rights as set forth in Paragraph 19 herein.
(vi)All outstanding Obligations under the Program Agreements to the extent under-
secured shall at all times be entitled to priority treatment under section 507(a)(2)
of the Bankruptcy Code (the “Reserve Bank Priority Claim”) and shall have
priority over any and all unsecured claims against the Debtors now existing or
hereafter arising, of any kind or nature whatsoever. The Reserve Bank Priority
Claim shall survive any conversion of the Chapter 11 Case to a case under chapter
7 of the Bankruptcy Code or the dismissal of the Chapter 11 Case.
(vii) In (a) making the decision to make the loans and financial
accommodations under the Program Agreements, (b) administering the loans and
financial accommodations extended under the Program Agreements, (c) making
the decision to collect upon the indebtedness and Obligations of the Debtors, (d)
cooperating in the Debtors’ efforts toward the winddown of their operations in an
orderly manner, or (e) otherwise engaging in transactions and communications
with the Debtors, in each case prior to the entry of the Order, the Reserve Bank
shall not by reason thereof be considered to have been or be exercising control
over any operations of the Debtors or acting in any way as a responsible person,
or as an owner or operator under any applicable law or regulation, including,
4 As defined in the Motion of Debtors for Entry of Interim and Final Orders (I) Authorizing Debtors to (A) Continue
Using Existing Cash Management System, Bank Accounts, and Business Forms, (B) Implement Changes to Cash
Management in the Ordinary Course of Business; and (II) Granting Related Relief [Docket No. 12] (the “Cash
Management Motion”).
5 As defined in the Cash Management Motion.
6 As defined in the Cash Management Motion. The Primis Account is a correspondent bank account established in
connection with the KServicing’s participation in the PPPLF.
4
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without limitation, any environmental law, any labor law, or any other statute,
regulation, or doctrine.
(viii) The Obligations are secured by valid, binding, enforceable, duly perfected
and unavoidable security interests in and liens on the PPPLF Collateral, and the
Obligations and Program Agreements and the security interests granted in respect
thereof are not subject to any challenge or defense, including, without limitation,
respectively, avoidance, reductions, recharacterization, subordination (whether
equitable, contractual, or otherwise), claims, counterclaims, cross claims, offsets,
recoupment, defenses, or any other challenges under the Bankruptcy Code or any
applicable law or regulation by any person or entity.
(ix)The Debtors have waived, discharged, and released any right they may have to
challenge the Obligations underlying the Program Agreements or the liens on the
PPPLF Collateral, or to assert any offsets, recoupment, defenses, claims,
objections, challenges, avoidance actions, causes of action, and/or choses of
action against the Reserve Bank, with respect to their obligations under the
Program Agreements, the liens on the PPPLF Collateral, or any other matters
arising therefrom or relating thereto.
E. Cash Collateral. For purposes of this Order, the term “Cash Collateral” shall mean all
“cash collateral,” as defined in section 363 of the Bankruptcy Code, in or on which the
Reserve Bank holds a lien, security interest, or other interest, whether existing on the
Petition Date, arising pursuant to this Order, or otherwise, namely:
(i) all cash proceeds of the PPP Loans that comprise the PPPLF Collateral;
(ii) (a) all cash held in any Synovus Servicing Account other than (1) cash proceeds
on account of KS PPP Loans7 (which funds shall be promptly segregated from
proceeds of the PPPLF Collateral), (2) any portion of the Additional Cash held in
the Synovus Servicing Account, and (b) all cash held in the Primis Account other
than any portion of the Additional Cash held in the Primis Account; and
(iii)cash held as of the Petition Date or received thereafter in the Debtors’ general
operating accounts, disbursement-only accounts, and custody accounts as it
relates to the PPP Loans that comprise the PPPLF Collateral or proceeds thereof;
The Debtors represent and stipulate that all of the Debtors’ cash, cash equivalents, deriving
from the above-mentioned accounts as it relates to the PPPLF Collateral, constitute Cash
Collateral.
F. Use of Cash Collateral. The terms of the use of Cash Collateral pursuant to this Order are
fair and reasonable, reflect the Debtors’ exercise of prudent business judgment consistent
with their fiduciary duties and constitute fair consideration. Good and sufficient cause
has been shown for entry of this Order. The Debtors have a need to use a portion of the
Cash Collateral, in accordance with the terms and limitations set forth herein, to operate
their business and effectuate an organized wind-down of their business, which will be
used in accordance with the terms of this Order and consistent with the Cash Collateral
Budget subject to any Permitted Variance. The Debtors intend to use Cash Collateral for
7 As defined in the Cash Management Motion.
5
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general corporate purposes, including to service loans and pay related fees and expenses
associated with the administration of the Chapter 11 Case, which will aid in an efficient
wind-down of the Debtors’ business. The adequate protection provided herein is
consistent with and authorized by the Bankruptcy Code and adequately protects the
Reserve Bank’s interests in the PPPLF Collateral. The Debtors will not have sufficient
sources of working capital to operate their business in the ordinary course of business,
including to service the PPP Loans that are pledged as PPPLF Collateral, throughout the
Chapter 11 Case without authorized use of Cash Collateral. Absent authorization to use
Cash Collateral, the Debtors, their Estates, their creditors, and the borrowers of the PPP
Loans would suffer immediate and irreparable harm.
G. Cash Collateral Budget. The Reserve Bank is willing to consent to the Debtors’ use of
Cash Collateral solely in accordance with the Cash Collateral Budget (as defined herein)
as set forth in Paragraph 2 herein (as such budget may be modified from time to time by
the Debtors upon prior written consent as set forth in this Order, the “Cash Collateral
Budget”), including the limited use of the Cash Collateral as provided in the Cash
Collateral Budget during the Budget Period (as defined herein), solely upon the
protections, terms and conditions provided for in this Order.
H. Adequate Protection. The Reserve Bank shall receive, pursuant to sections 361 and
363(e) of the Bankruptcy Code, adequate protection in the form of:
(i) the Debtors working cooperatively with the Reserve Bank to timely implement
direct payments from the SBA to the Reserve Bank on all PPP loans constituting
PPPLF Collateral by November 7, 2022 (or as soon as practicable thereafter
solely to the extent that such delay is solely on account of any action or inaction
by the SBA) including, but not limited to, (a) delivering written instructions to the
SBA to direct all payments on KS PPP Loans to the Reserve Bank and (b)
delivering a list to the Reserve Bank of all the KS PPP Loans, in each case, in a
form and manner reasonably acceptable to the Reserve Bank.
(ii) the Debtors not, at any point, depositing or maintaining proceeds of the PPPLF
Collateral in any other account, and if such funds are received in any other
account, KServicing immediately (within one business day) remitting such funds
to the Reserve Bank or to the Synovus Servicing Account for the sole benefit of
the Reserve Bank or another segregated bank account satisfactory to the Reserve
Bank.
(iii)the Debtors shall provide weekly reporting (including bank balances) on all
amounts in the Synovus Servicing Account, including whether any payments in
connection with KS PPP loans have been deposited in, or transferred from, the
Synovus Servicing Account.
(iv)the Debtors continuing to service the PPP Loans constituting PPPLF Collateral in
the ordinary course in accordance with the Program Agreements and remitting all
payments received to the Reserve Bank weekly, subject to the terms hereof,
including Paragraph 19 hereof.
(v) subject to the receipt of underlying reports and data from the SBA, the Debtors
deliver to the Reserve Bank on Monday of each week (a) PPPLF reduction reports
(“PPPLF Reduction Reports”) and (b) a list of KS PPP Loans on which SBA has
made payments and, for each such loan, the amount paid by the SBA during the
6
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prior week (“KS PPP Loan Payment Report”), in each case, in a form and manner
acceptable to the Reserve Bank.
(vi)the Debtors working cooperatively with the Reserve Bank to identify potential
third party loan servicers for the remaining PPP Loans that constitute PPPLF
Collateral and cooperate and reasonably assist in the transfer of the loan portfolio
to a third-party servicer; subject to the parties determining the costs of such
transfer and how such costs to effectuate such transfer shall be borne.
(vii) the Debtors not granting any liens or security interests with respect to the
PPPLF Collateral.
(viii) the Debtors obtaining the consent of the Reserve Bank (such consent not
to be unreasonably withheld, conditioned, or delayed) with respect to any
settlement with Cross River Bank, Customers Bank, or any non-governmental
party.
(ix)the Debtors providing to the Reserve Bank (a) any accounting or financial
disclosures provided to the U.S. Department of Justice (“DOJ”) and/or the
Borrower’s Depository Institution (as defined in the Letter of Agreement), or any
successor thereof, and (b) any additional reporting with respect to the PPPLF
Collateral and the Debtors’ administration of the processing of PPP Loans in
connection therewith as may be reasonably requested by the Reserve Bank from
time to time.
(x) to the extent not included in (viix), the Debtors providing the Reserve Bank with a
weekly report of their cash balances including both PPP Loan proceeds that
constitute PPPLF Collateral as well as other cash through to the earlier of (x) the
closing of the Chapter 11 Case or (y) if applicable, the date on which all
Indebtedness has been indefeasibly paid in full; provided that weekly reporting of
borrower payment remittances due to Cross River Bank or Customers Bank shall
not be provided to the Reserve Bank.
(xi)the Debtors providing real-time weekly reporting to the Reserve Bank on all
payments to the Debtors or their affiliates from the SBA, recipients of the PPP
Loans (the “PPP Borrowers”) or any other source with regard to the PPP Loans
that constitute PPPLF Collateral.
(xii) the Debtors’ payment of the Reserve Bank’s professional fees in the
amounts not to exceed the amounts set forth in the Cash Collateral Budget and
solely from the Cash Collateral, of each of (i) Cleary Gottlieb Steen & Hamilton
LLP, (ii) Young Conaway Stargatt & Taylor, LLP, and (iii) Chilmark Partners
LLC in connection with the Chapter 11 Case (collectively, the “Reserve Bank
Professional Fees”), subject to reasonableness review solely as set forth in this
Order.8
(xiii) the Debtors granting to the Reserve Bank valid perfected first priority
replacement liens on all of the Debtors’ unencumbered property and assets owned
or held as of the Petition Date and all property acquired or obtained after the
Petition Date, and junior liens on all of the Debtors’ property and assets
8 Nothing in this Order limits or waives the Reserve Bank’s right to assert a claim for any unpaid professional fees
that are owed under the PPPLF.
7
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encumbered as of the Petition Date, subject to and limited to the extent of any
diminution in value, which may result from the Debtors’ use of Cash Collateral;
provided that such replacement liens shall not apply to any borrower payment
remittances made in accordance with the Partner Bank Agreements9 due to Cross
River Bank or Customers Bank; provided further that nothing herein shall limit
the Debtors’ right to seek recharacterization of adequate protection as being
applied to the Obligations.
(xiv) Entry of this Order is in the best interests of the Debtors’ estates and
creditors as its implementation will, among other things, allow for the continued
operation of the Debtors’ business and enhance the prospects of a successful
chapter 11.
Based upon the foregoing findings, acknowledgements, and conclusions, and upon the
record made before this Court at the Hearing, and good and sufficient cause appearing therefor,
IT IS HEREBY ORDERED THAT:
1. Disposition. The Motion is granted on the terms set forth in this
Order. Any objection to the relief sought in the Motion that has
not previously been withdrawn or resolved is hereby overruled on
its merits.
2. Authorization for Use of Cash Collateral. Subject to the terms and
conditions of this Order, including the Cash Collateral Cap
established under Paragraph 4, and upon entry of this Order, the
Debtors are hereby authorized to use the Cash Collateral in
accordance with the terms, conditions, and limitations set forth in
this Order, during the period beginning on the date of entry of this
Final Order until the occurrence of the Termination Date (as
defined below) (the “Budget Period”), subject to the terms and
conditions of this Final Order and in accordance with the 13-week
budget attached as Exhibit 1 to this Final Order (the “Initial
Budget,” as such budget may be extended or modified from time to
time in accordance herewith, the “Cash Collateral Budget”);
provided that for each rolling four-week testing period, with the
first such period beginning with the week in which this Final Order
is entered and ending four weeks thereafter (and each week
thereafter) (each four-week period, a “Testing Period”), the actual
disbursements for the line items labeled: “Operating Expenses
(Incl. Payroll),” “Insurance (Incl. Incremental D&O),” and
“Taxes” (together the “Tested Disbursement Line Items”) of the
Debtors for such Testing Period on an aggregate basis shall not be
greater than 115% of the amount estimated therefore set forth in
9 As defined in the Motion of Debtors for Entry of Interim and Final Orders Authorizing Debtors to (I) Continue
Servicing and Subservicing Activities and (II) Perform Related Obligations [Docket No. 11].
8
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the Budget for such period (such percentage, a “Permitted
Variance”). No later than Friday of the fourth week covered by
the Initial Budget (and every fourth week after), the Debtors shall
provide to the Reserve Bank a proposed updated 13-week cash
flow forecast, substantially in the form of the Initial Budget, which
updated Budget shall only become the Budget upon the prior
express written consent of the Reserve Bank to be granted in its sole
discretion (but shall not be required to be filed with the Court);
provided, that if the Reserve Bank does not object to the proposed
updated 13-week cash flow forecast by the following Friday or such
later time as agreed to by the Debtors and the Reserve Bank, the
updated Budget shall become the Budget. Further, on Wednesday
of each calendar week, the Debtors shall provide the Reserve
Bank, Chilmark Partners LLC, and Cleary Gottlieb Steen &
Hamilton LLP with a variance report comparing, on an aggregate
and line item basis, actual results for the previous individual week
and cumulative preceding weeks (up to four consecutive weeks) to
the amounts set forth in the Budget for such periods. Each
variance for Tested Disbursement Line Items in excess of 5% shall
be accompanied by a qualitative explanation. The expenditures
authorized in the Cash Collateral Budget shall be adhered to on a
line-by-line basis, on a cumulative basis during the Budget Period
(i.e. unused amounts shall carry forward to successive weeks on a
line-by-line basis), with no carry-over surplus to any other line
item(s) or to a subsequent budget period, if any, except to the
extent agreed to in writing as set forth in this paragraph. The
Reserve Bank may, in its sole discretion, agree in writing to the use
of Cash Collateral in a manner or amount which does not conform
to the Cash Collateral Budget (each such use of Cash Collateral, a
“Non-Conforming Use”). If such written consent is given, the
Debtors shall be authorized pursuant to this Order to expend Cash
Collateral for such Non-Conforming Use without further Court
approval, and the Reserve Bank shall be entitled to all of the
protections specified in this Order for any such Non-Conforming
Use.
3. Approved Budget. Cash Collateral used pursuant to this Order
shall be used by the Debtors only in accordance with the Cash
Collateral Budget and this Order.
4. Scope of the Cash Collateral. For purposes of the Cash Collateral
Budget, the Cash Collateral available to the Debtors during the
Budget Period shall be (a) amounts held by the Debtors in the
Synovus Servicing Account and Primis Account as of the Petition
9
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Date, totaling $1,468,882 (“Additional Cash”);10 and (b)(x)
payments that constitute Agreed Cash Amounts (as defined herein)
held by the Debtors as of the Petition Date totaling $631,854; and
(y), without duplication of (a) or (b)(x), amounts actually and
subsequently paid to the Debtors after the Petition Date that in
each case of (x) and (y) constitute Agreed Cash Amounts (as
defined in this paragraph): (i) amounts actually paid by the SBA or
the relevant PPP Borrower representing interest on any PPP Loans
pledged as PPPLF Collateral that is in excess of 35 basis points per
annum; (ii) without duplication of the amounts in (i), the “Excess
Amounts,”11 not to exceed $6,653,313 6,611,980 in the aggregate,
which constitute excess state and local tax amounts as agreed by
the Debtors and the Reserve Bank (“SALT”); and (iii) without
duplication of the amounts in (i), amounts actually paid by the
SBA or the relevant PPP Borrower relating to principal and interest
payments for each PPP Loan not to exceed $7,725,403 in the
aggregate (where (i), (ii) and (iii) shall collectively constitute the
“Agreed Cash Amounts”); provided that absent further prior
written consent from the Reserve Bank, the aggregate total Cash
Collateral available during the Budget Period, including in respect
of any payments received from the Reserve Bank pursuant to
Paragraph 18 hereunder, shall be the capped amount as set forth in
the Cash Collateral Budget (the “Cash Collateral Cap”); provided
further that, payments remittances of amounts in (ii) would not be
made until the Advances under the Program Agreements are
indefeasibly repaid in full; provided further that, the Reserve Bank
shall remit any Agreed Cash Amounts no later than seven (7)
calendar days following (1) the receipt of such amounts by the
Reserve Bank and (2) the delivery of the PPPLF Reduction Report
by the Debtors to the Reserve Bank on account of such amounts
with no discrepancies. Any such Agreed Cash Amounts remitted
to the Debtors shall be segregated and held in the Synovus
Servicing Account until such time that any such Agreed Cash
Amounts is required to be used by the Debtors, in accordance with
the Budget, Cash Collateral Cap and this Order. With respect to
PPP Loan payments received directly by the Reserve Bank from
10 Without limiting the Debtors’ rights to use such amounts in accordance with the terms of this Order, the Debtors
and the Reserve Bank each reserve their rights with respect to whether the Additional Cash constitutes Cash
Collateral and PPPLF Collateral.
11 For purposes of this subsection (ii), the “Excess Amount” for each “Inactive Loan” means any amount actually paid
by the SBA or the relevant PPP Borrower on such PPP Loan following the Petition Date. The “Excess Amount” for
each “Active Loan” means any amount actually paid by the SBA or the relevant PPP Borrower on such PPP Loan
following the Petition Date after such payments are first applied to make a payment of (1) principal on the Advances
in an amount equal to the “Net Balance Amount” for such PPP Loan, and (2) interest due and payable on the
Advances related to such payment of principal.
10
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the SBA, the Reserve Bank shall remit any funds that constitute
Agreed Cash Amounts up to the Cash Collateral Cap (less any
Agreed Cash Amounts received directly and retained by the
Debtors) consistent with the terms of the Cash Collateral Budget
and this Order.
5. Adequate Protection for the Reserve Bank. The Reserve Bank
submits that Adequate Protection, in accordance with Paragraph H
hereunder, is required to avoid a diminution of value of its PPPLF
Collateral, if any; the Debtors (on their own behalf and on behalf
of their Estates) reserve the right to contest the Reserve Bank’s
position with respect to potential diminution in value, and by this
Order the Court makes no findings with respect to diminution in
value, if any; however, as a compromise and settlement, to address
any potential diminution in value, the Reserve Bank is hereby
granted the following (which shall be referred to collectively as the
“Adequate Protection Rights”):
a. Adequate Protection Payments. Pursuant to sections 361(1) and 363(e) of the
Bankruptcy Code, the Debtors shall pay, transfer, or otherwise convey from the Cash Collateral to
the Reserve Bank adequate protection payments in the form of all Reserve Bank Professional Fees
in the amounts not to exceed the amounts set forth in the Cash Collateral Budget incurred before
or after the Petition Date in connection with the Program Agreements, as provided in this Order,
subject to the procedures set forth in Paragraph 22 herein.
b. Replacement Liens. As further adequate protection against, and limited to the
extent of, any diminution in value, the Reserve Bank is hereby granted, subject and subordinate to
the Carve-Out, replacement liens on all of the Debtors’ unencumbered property and assets owned
or held as of the Petition Date and all property acquired or obtained after the Petition Date,
including, without limitation, proceeds of claims and causes of actions arising under chapter 5 of
the Bankruptcy Code, and junior liens on all of the Debtors’ property and assets encumbered as of
the Petition Date; provided that such replacement liens shall not apply to any borrower payment
remittances due to Cross River Bank or Customers Bank. Notwithstanding anything to the
contrary set forth in this Order, the liens granted to the Reserve Bank in this Order shall not prime
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the liens, if any, that exist in favor of Synovus Bank pursuant to the agreements governing the
Debtors’ accounts with Synovus Bank (as described in the Motion of Debtors for Entry of Interim
and Final Orders (I) Authorizing Debtors to (A) Continue Using Existing Cash Management
System, Bank Accounts, and Business Forms, (B) Implement Changes to Cash Management in the
Ordinary Course of Business; and (II) Granting Related Relief [Docket No. 12]) and otherwise
applicable law; provided that, for purposes of the replacement liens granted to the Reserve Bank
in this Order, any such liens in favor of Synovus Bank shall be limited to cash in the Main
Operating Account (as defined in the Cash Management Motion); provided further, that for the
avoidance of doubt, any such liens in favor of Synovus Bank shall not attach to any amounts that
are not property of the Debtors’ estate. For the avoidance of doubt, the Reserve Bank’s existing
liens will attach to any proceeds or offspring of the PPPLF Collateral, pursuant to section 552 of
the Bankruptcy Code.
c. Other Adequate Protections. The Debtors also agree to provide the Adequate
Protections in accordance with Paragraph H hereof.
6. Survival of Adequate Protection Rights. The Adequate Protection
Rights shall continue in the Chapter 11 Case and in any successor
case under the Bankruptcy Code (a “Successor Case”), and shall be
and remain valid and enforceable (i) against any chapter 11 trustee
appointed in the Chapter 11 Case, (ii) against any chapter 7 trustee
appointed in a Successor Case, (iii) against any other
representative of the Debtors’ estates or any assignee of assets or
rights of the Debtors’ estates, and (iv) upon any conversion or
dismissal of the Chapter 11 Case or any Successor Case; and all
security interests shall maintain their perfected status and
respective priority as provided in this Order until the Adequate
Protection obligations have been indefeasibly paid in full in cash
and satisfied.
7. Restrictions on Use of Cash Collateral. Notwithstanding anything
to the contrary in this Order, no PPPLF Collateral (including,
without limitation, Cash Collateral) may be used to request
authorization from the Court to obtain any postpetition loans or
other financial accommodations pursuant to section 364(c) or (d)
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of the Bankruptcy Code without the consent of the Reserve Bank
or with respect to the investigation or the prosecution of the
validity, perfection, enforceability, and extent of the Obligations
and valid perfected first priority liens in the PPPLF Collateral or
any potential claims of the Debtors’ estates against the Reserve
Bank in respect of the Program Agreements, or any other claims,
causes of action, or defenses under chapter 5 of the Bankruptcy
Code or any other claims and causes of action (collectively, the
“Claims and Defenses”)in each case in respect of the Program
Agreements.
8. Carve-Out. Any security interests or claims granted herein as
Adequate Protection shall be subject in all respects and subordinate
to the Carve-Out. “Carve-Out” shall mean the sum, without
duplication, of the following: (i) all fees required to be paid to the
Clerk of the Bankruptcy Court and to the U.S. Trustee under
section 1930(a) of title 28 of the United States Code plus interest at
the statutory rate (without regard to the notice set forth in (iii)
below); (ii) fees and expenses up to $50,000 incurred by a trustee
under section 726(b) of the Bankruptcy Code (without regard to
the notice set forth in (iii) below); (iii) to the extent allowed at any
time, whether by interim or final compensation order, all unpaid
fees and expenses (the “Professional Fees”) incurred by persons or
firms retained by the Debtors pursuant to section 327, 328 or 363
of the Bankruptcy Code (collectively, the “Debtors Professionals”)
and the Creditors’ Committee (the “Committee Professionals” and,
together with the Debtors Professionals, the “Professional
Persons”) appointed in the Chapter 11 Case pursuant to section
1103 of the Bankruptcy Code at any time before or on the first
business day after delivery by the Reserve Bank of a Carve-Out
Trigger Notice (defined below), whether allowed by the
Bankruptcy Court prior to or after delivery of a Carve-Out Trigger
Notice and without regards to whether such fees and expenses are
provided for in the Cash Collateral Budget; and (iv) Professional
Fees of Professional Persons in an aggregate amount not to exceed
$500,000 incurred after the first business day following delivery by
the Reserve Bank, as applicable, of the Carve-Out Trigger Notice,
to the extent allowed at any time, whether by interim order,
procedural order, or otherwise (the amount set forth in this clause
(iv), the “Post-Carve-Out Trigger Notice Cap”). For purposes of
the foregoing, “Carve-Out Trigger Notice” shall mean a written
notice delivered by email (or other electronic means) by the
Reserve Bank, to the Debtors, their lead restructuring counsel, the
U.S. Trustee, and counsel to the Creditors’ Committee, which
notice may be delivered following the occurrence and during the
continuation of an Event of Default, stating that the Post- Carve-
Out Trigger Notice Cap has been invoked.
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a. The Debtors shall establish a segregated trust account not subject to the control of
any party, including the Reserve Bank (the “Professional Fee Reserve Account”) for the sole
purpose of paying unpaid Professional Fees. The Debtors shall, by no later than the end of the
calendar week in which this Order is entered, transfer from cash on hand into the Professional Fee
Reserve Account, the Professional Fees set forth in the Cash Collateral Budget for the preceding
calendar week into the Professional Fee Reserve Account, provided that the Debtors’ obligations
to pay Professional Fees shall not be limited or deemed limited to funds held in the Professional
Fee Reserve Account. The Professional Fee Reserve Account (including any and all funds held
therein) shall not be property of the Debtors’ estates and shall not be subject to the control of any
party, but shall be held in trust exclusively for the benefit of Professional Persons. Professional
Fees shall be first paid from the Professional Fee Reserve Account. Notwithstanding the
foregoing, the Reserve Bank shall retain a residual interest in the Professional Fee Reserve
Account (and any funds therein) to the extent such funds are not used to pay Professional Fees
under the terms of this Order.
b. On the day on which a Carve-Out Trigger Notice is given by the Reserve Bank to
the Debtors with a copy to counsel to the Committee (the “Carve-Out Trigger Declaration Date”),
the Carve-Out Trigger Notice shall constitute a demand to the Debtors to utilize all cash in the
Professional Fee Reserve Account, and, to the extent there are remaining unpaid Professional Fees
following the depletion of the Professional Fee Reserve Account, cash on hand as of such date and
any available cash thereafter held by any Debtors to increase the Professional Fee Reserve Account
in an amount equal to the then unpaid amounts of the Professional Fees plus the Post-Carve-Out
Trigger Notice Cap; provided that for the avoidance of doubt, (i) Post-Carve-Out Trigger Notice
Cap amounts shall be available only for payment of Professional Fees accrued after the Carve-Out
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Trigger Declaration Date, and (ii) “available cash,” with respect to proceeds of PPPLF Collateral,
shall consist only of Agreed Cash Amounts held as of the Petition Date or actually received by the
Debtors after the Petition Date and prior to the Carve-Out Trigger Declaration Date. The Debtors
shall hold such amounts in trust to pay such Professional Fees prior to any and all other claims.
Notwithstanding anything to the contrary in this Order, following delivery of a Carve-Out Trigger
Notice, the Reserve Bank shall not foreclose on cash held by the Debtors (or KS PPP Loan
proceeds held by the Reserve Bank in trust to be remitted to the Debtors pursuant to Paragraph 20
herein) until the Professional Fee Reserve Account has been fully funded in the total amount of
outstanding Professional Fees as of the Carve-Out Trigger Declaration Date plus the Post-Carve-
Out Trigger Notice Cap. Further, notwithstanding anything to the contrary in this Order, (1) the
failure of the Professional Fee Reserve Account amounts to satisfy in full the Professional Fees
shall not affect the priority of the Carve-Out, and (2) in no way shall the Cash Collateral Budget,
Carve-Out, the Post-Carve-Out Trigger Notice Cap or any of the foregoing be construed as a cap
or limitation on the amount of the Professional Fees due and payable by the Debtors. For the
avoidance of doubt and notwithstanding anything to the contrary in this Order (x) funds transferred
to the Professional Fee Reserve Account shall not be subject to any liens or claims granted to the
Reserve Bank and shall not constitute Cash Collateral or Adequate Protection collateral, although
the Reserve Bank shall retain a residual interest in the Professional Fee Reserve Account (and any
funds therein) to the extent such funds are not used to pay Professional Fees under the terms of
this Order and (y) the Carve-Out shall be senior to any and all forms of adequate protection, liens,
or claims securing the Obligations.
c. So long as the Carve-Out Trigger Notice has not been delivered in accordance with
this Order, the Debtors shall be permitted to pay administrative expenses of Professional Persons
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allowed and payable under the Bankruptcy Code, as the same may become due and payable,
including on an interim basis. Any payment or reimbursement made prior to the occurrence of the
Carve-Out Trigger Declaration Date in respect of any Professional Fees shall not reduce the Carve-
Out.
d. The Reserve Bank shall not be responsible for the payment or reimbursement of
any fees or disbursements of any Professional Person incurred in connection with the Chapter 11
Case or any Successor Case, and for the avoidance of doubt, shall not be responsible for the
payment of any amounts to the Debtors or any Professional Person to the extent the Professional
Fee Reserve Account is not actually funded in the amounts authorized by this Order. Nothing in
this Order or otherwise shall be construed to obligate the Reserve Bank, in any way, to pay
compensation to, or to reimburse expenses of, any Professional Person or to guarantee that the
Debtors have sufficient funds to pay such compensation or reimbursement.
e. Any payment or reimbursement made on or after the occurrence of the Carve-Out
Trigger Declaration Date in respect of any Professional Fees shall permanently reduce the Carve-
Out on a dollar-for-dollar basis. Any funding of the Carve-Out shall be entitled to the protections
granted under this Order, the Bankruptcy Code, and applicable law.
9. No Third Party Rights. Except as explicitly provided for herein,
this Order does not create any rights for the benefit of any third
party, creditor, equity holder, or any direct, indirect, or incidental
beneficiary.
10. Termination; Events of Default. The Debtors’ right, and the right
of any other representative of the Estates, to use the Cash
Collateral under this Order shall terminate, automatically and
without the need for notice or demand by the Reserve Bank or any
further order of the Court upon the occurrence of any of the
following, unless waived by the Reserve Bank: (a) the appointment
of a chapter 11 trustee or of an examiner with expanded powers in
the Chapter 11 Case (having powers beyond those set forth in
sections 1106(a)(3) and (4) of the Bankruptcy Code); (b) the
conversion of the Chapter 11 Case to a case under chapter 7 of the
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Bankruptcy Code; (c) the dismissal of the Chapter 11 Case; (d) a
determination by the Court that a material violation or breach of
any of the provisions of this Order has occurred; (e) any other (i.e.
not material) violation or breach by the Debtors of any of the
provisions of this Order that is not disputed or cured within five (5)
business days of written notice from the Reserve Bank (either (d)
or (e), an “Event of Default”); and (f) the effective date of any plan
of liquidation in the Chapter 11 Case that has been confirmed by
an order of the Court. The date on which the earliest of clauses (a)
through (f) occurs is referred to as the “Termination Date.”
11. Remedies and Stay Modification.
(i)a. The automatic stay provisions of section 362 of the
Bankruptcy Code shall be deemed, and are hereby,
modified, without the need for further order of the Court,
solely to permit the Reserve Bank upon, or at any time
after, the occurrence of any Termination Date (including,
without limitation, as a result of the occurrence of any
Event of Default under this Order) to deliver written notice
by electronic mail to counsel for the Debtors, counsel for
any Creditors’ Committee, counsel for any trustee, and
counsel for the U.S. Trustee, stating that the Reserve Bank
elects to commence the exercise of rights and remedies in
respect of this Order and the Program Agreements, and
under applicable bankruptcy and non-bankruptcy law (a
“Remedies Notice”).
(ii)b. Following the fifth (5th) business day following the
delivery by the Reserve Bank of a Remedies Notice (the
“Remedies Notice Period”), and in the event that the
Debtors have not delivered notice of intent to contest the
Remedies Notice or cured the alleged Event of Default
within five (5) business days following delivery of the
Remedies Notice (“Remedies Objection Deadline”), the
automatic stay provisions of section 362 of the Bankruptcy
Code shall be deemed, and are hereby, modified, without
the need for further order of the Court, to permit the
Reserve Bank to exercise all rights and remedies provided
for in this Order or in the Program Agreements or under
applicable bankruptcy or non-bankruptcy law. The Reserve
Bank and the Debtors reserve their respective rights to
schedule an expedited hearing on any Event of Default
(including whether an Event of Default has occurred or is
continuing) or for the contested use of Cash Collateral
following the termination of the Remedies Notice Period.
(iii)c. Following the expiration of the Remedies Notice
Period, and in the event that the Debtors have not delivered
notice of intent to contest the Remedies Notice prior to the
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Remedies Objection Deadline or cured the alleged Event of
Default, the Debtors (or any trustee in the Chapter 11 Case
or in a Successor Case) shall cooperate with the Reserve
Bank in connection with its exercise of rights and remedies
by, among other things, (i) providing access to the PPPLF
Collateral and the Debtors’ premises to the Reserve Bank
and its representatives and agents, (ii) providing access to
the Debtors’ books and records to the Reserve Bank and its
representatives and agents, (iii) providing any information
or documents reasonably requested by the Reserve Bank or
its representatives or agents, (iv) performing the other
obligations of the Debtors in connection with the Reserve
Bank’s exercise of rights and remedies as required by the
Program Agreements, (v) taking reasonable steps to
safeguard and protect the assets and property subject to the
liens in the PPPLF Collateral, and (vi) refraining from any
interference with (and from any encouragement of others to
interfere with) the Reserve Bank’s enforcement of its rights
and remedies.
(iv)d. This Court shall retain jurisdiction to hear and
resolve any disputes arising under or related to this Order,
including, without limitation, matters relating to the
application or continuation of the automatic stay of section
362(a) of the Bankruptcy Code or any other injunctive
relief that may be requested in accordance with this Order
(together, the “Remedies Procedures”).
1.12. Application of Collateral Proceeds. Following the occurrence of any Termination
Date (including without limitation, as a result of the occurrence of any Event of Default under this
Order) and the expiration of the Remedies Notice Period, and in the event that the Debtors have
not delivered notice of intent to contest the Remedies Notice or cured the alleged Event of Default,
the Debtors or any subsequent agent or trustee thereof shall remit to the Reserve Bank one-hundred
percent (100%) of all collections on, and proceeds of, the PPPLF Collateral, including, without
limitation, all Cash Collateral, and the automatic stay provisions of section 362 of the Bankruptcy
Code are hereby modified, without the need for further order of the Court, to permit the Reserve
Bank to retain and apply all such collections, proceeds, and Cash Collateral to satisfy or reduce
the Obligations in accordance with the Program Agreements, until the Obligations are indefeasibly
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satisfied in full. In furtherance of the foregoing, each bank, brokerage firm, and other financial
institution with an account of the Debtors is hereby authorized to comply (without the need for
consent of the Debtors or any other representative of the estates) with any instructions originated
by the Reserve Bank (or its designee) to such bank, brokerage firm, or financial institution
directing the disposition of cash, checks, instruments, securities, investment property, or other
items deposited by the Debtors (or other representative of the estates) from time to time, including,
without limitation, any instruction to send to the Reserve Bank (or its designee) by wire transfer
(to such account as the Reserve Bank (or its designee) shall specify) or in such other manner as
the Reserve Bank (or its designee) shall direct, all cash and other property held for, or owed by it
to (or for the credit or benefit of), the Debtors or the estates.
2.13. Limitation on Section 506(c) Claims. No costs or expenses of administration that
have been or may be incurred in the Chapter 11 Case or in any Successor Case at any time shall
be surcharged against, and no person may seek to surcharge any costs or expenses of administration
against, the Reserve Bank, or any of its claims, or any assets or property subject to the PPPLF
Collateral, pursuant to section 506(c) or section 105 of the Bankruptcy Code or otherwise. No
action, inaction, or acquiescence by the Reserve Bank shall be deemed to be, or shall be considered
evidence of, any alleged consent to a surcharge against the Reserve Bank, any of its claims, or any
assets or property subject to the PPPLF Collateral. The Debtors and the Reserve Bank agree to
have good faith discussions regarding the potential transfer of the servicing of the PPP Loans
pledged as PPPLF Collateral following the effective date of a plan of liquidation (to the extent
such transfer of servicing or the indefeasible payment in full of the Indebtedness has not occurred
earlier) and with respect to a reasonable budget for the orderly winddown of the Chapter 11 Cases.
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3.14. No Marshaling. The Reserve Bank shall not be subject to the equitable doctrine of
“marshaling” or any other similar doctrine with respect to any of the assets or property subject to
the liens in the PPPLF Collateral or otherwise. Without limiting the generality of the foregoing,
no party other than the Reserve Bank shall be entitled, directly or indirectly, to direct the exercise
of rights or remedies or to seek (whether by order of this Court or otherwise) to marshal or
otherwise control the enforcement of the PPPLF Collateral.
4.15. Equities-of-the-Case Waiver. The Reserve Bank shall be entitled to all of the rights
and benefits of section 552(b) of the Bankruptcy Code, and no person may assert an “equities of
the case” claim under section 552(b) of the Bankruptcy Code against the Reserve Bank with
respect to any proceeds, product, offspring, or profits of any of the PPPLF Collateral, or otherwise.
5.16. Restrictions on Granting Post-Petition Liens. Except as otherwise provided in this
Order, it shall be an Event of Default (subject to the Remedies Procedures) if any claim or lien
having a priority superior or pari passu with those granted by this Order to the Reserve Bank is
granted or permitted by any order of this Court heretofore or hereafter entered in the Chapter 11
Case, while any portion of the Debtors’ obligations pursuant to the Program Agreements are
outstanding.
6.17. Additional Perfection Measures.
a. If the Reserve Bank, in its sole and absolute discretion, chooses to take any action
to obtain consents from any other party in interest, or to file or record any mortgages, financing
statements, notices of lien, or other notices, documents, or instruments, or to otherwise record or
perfect such security interests and liens (in each case subject to the terms and scope of the liens
granted to secure the PPPLF Collateral), the Reserve Bank is hereby authorized, but not directed,
to take such action and/or to request that the Debtors take such action on its behalf (and the Debtors
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are hereby authorized to take such action) and: (i) any such notices, documents, or instruments
shall be deemed to have been recorded and filed as of the time and on the date of entry of this
Order; and (ii) no defect in any such act shall affect or impair the validity, perfection, and
enforceability of the liens granted under this Order.
b. In lieu of obtaining such consents or filing or recording any such mortgages,
financing statements, notices of lien, or similar documents or instruments, the Reserve Bank may,
in its sole and absolute discretion, choose to file or record a true and complete copy of this Order
in any place in which any such documents or instruments would or could be filed, together with a
description of collateral, and such filing by the Reserve Bank shall have the same effect as if such
mortgages, deeds of trust, financing statements, notices of lien, or similar documents or
instruments had been filed or recorded at the time and on the date of entry of this Order.
7.18. Delivery of Reports, Pleadings, and Documents. In addition to all other
requirements set forth in this Order, the Debtors shall contemporaneously deliver to the Reserve
Bank all financial reports, budgets, and forecasts delivered by the Debtors to the U.S. Trustee, DOJ
or to any Creditors’ Committee, its professionals, or advisors.
8.19. Assignment and Reservation of Rights. Pursuant to the Program Agreements, the
Reserve Bank hereby instructs and the Debtors irrevocably assign to the Reserve Bank all of its
right, title and interest in and to any and all amounts to which the Debtors are or may become
entitled related to the PPPLF Collateral, including without limitation, all amounts paid or payable
by any borrower in respect of PPP Loans that are pledged as PPPLF Collateral, and all amounts
paid or payable by the SBA in respect of such PPPLF Collateral, including any loan forgiveness,
guarantee amounts, or payments by PPP Borrowers in respect of the PPP Loans comprising the
PPPLF Collateral. Without limiting the foregoing, in connection with the relief granted hereunder,
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the Reserve Bank agrees to remit to the Debtors for the Budget Period the Agreed Cash Amounts,
subject to the Cash Collateral Cap (less any Agreed Cash Amounts received directly and retained
by the Debtors) and the terms and limitations of this Order. Such Cash Collateral shall be used
only in accordance with and subject to the Cash Collateral Budget. The Debtors and the Reserve
Bank each reserve their rights with respect to whether the Agreed Cash Amounts constitute Cash
Collateral, and all rights and defenses thereto of each other Debtors and the Reserve Bank are
preserved; provided that any such challenge to the validity of the lien, the scope of the PPPLF
Collateral and rights, in each instance, with respect to the Agreed Cash Amounts shall be brought
prior to the end of the Challenge Period (as defined herein); provided further that to the extent the
outstanding Indebtedness (as defined herein) is indefeasibly paid in full and following expiration
of the Challenge Period and resolution of all timely Challenges, any remaining Agreed Cash
Amounts shall not constitute Cash Collateral.
9.a. KS PPP Loans. With respect to any KS PPP Loan
Proceeds, the Reserve Bank agrees that: (w) the KS PPP Loans and
the KS PPP Loan Proceeds are not proceeds of Pledged PPPLF
Loans, (x) any KS PPP Loan Proceeds received by the Reserve
Bank are property of the Debtors and shall be held in trust,
exclusively for the benefit of the Debtors until such amounts are
remitted to the Debtors pursuant to the terms of this Order, and (y)
any KS PPP Loan Proceeds received by the Reserve Bank shall be
remitted, without offset or recoupment, to the Debtors. The
Reserve Bank shall remit any KS PPP Loan Proceeds no later than
seven (7) calendar days after receiving (i) such KS PPP Loan
Proceeds and (ii) the KS PPP Loan Payment Report relating to
such KS PPP Loan Proceeds with no discrepancies.
10.20. Reservation of Certain Third-Party Rights and Bar of Challenges and Claims.
a. The Debtors’ acknowledgements, stipulations, and releases set forth in Paragraph
D above (collectively, the “Stipulations”) are final and binding upon the Debtors. The Stipulations
shall be binding upon each other party in interest, including, without limitation, a Creditors’
Committee, unless, and only to the extent that, a Challenge (defined below) is commenced by a
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party with standing within the Challenge Period and a final, non-appealable order is entered
sustaining any such Challenge.
b. No more than $25,000 of the proceeds of Cash Collateral may be used by the
Creditors’ Committee, solely to investigate, within the Challenge Period the Debtors’ stipulations.
“Challenge” shall mean an adversary proceeding or contested matter against the Reserve Bank
challenging the admissions, stipulations, findings, or releases included in the Stipulations.
c. Any Challenge under this paragraph must be commenced by a party in interest,
including, but not limited to, any Creditors’ Committee, with standing and requisite authority to
bring the Challenge by no later than the seventy-fifth (75th) calendar day following the entry of
the Order (the “Challenge Period”), provided, however, that if a trustee is appointed prior to the
expiration of the Challenge Period, such trustee will have until the later of the expiration of the
Challenge Period or ten twenty (1020) days after appointment (subject to a further order of this
Court) to assert a Challenge. If any such adversary proceeding or contested matter is timely filed
and remains pending and the Chapter 11 Case is converted to a case under chapter 7 of the
Bankruptcy Code, the chapter 7 trustee may continue to prosecute such adversary proceeding or
contested matter on behalf of the Debtors’ estate. For the avoidance of doubt, any trustee appointed
or elected in the Chapter 11 Case shall, until the expiration of the period provided herein for
asserting Challenges, and thereafter for the duration of any adversary proceeding or contested
matter commenced pursuant to this paragraph (whether commenced by such trustee or commenced
by any other party in interest on behalf of the Debtors’ estates), be deemed to be a party other than
the Debtors and shall not, for purposes of such adversary proceeding or contested matter, be bound
by the acknowledgments, admissions, confirmations and stipulations of the Debtors in this Order.
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d. Absent the timely filing of a Challenge within the Challenge Period, upon the next
calendar day following the expiration of the Challenge Period and for all purposes, including,
without limitation, in the Chapter 11 Case and any Successor Case, (i) all payments made to or for
the benefit of the Reserve Bank (whether prior to, on, or after the Petition Date) shall be
indefeasible and shall not be subject to counterclaim, offset, recoupment, subordination,
recharacterization, defense, recovery, or avoidance; (ii) any and all Challenges not timely filed
within the Challenge Period by any party whatsoever shall be deemed to be forever released,
waived, and barred; (iii) the PPPLF shall be deemed to be secured by a valid, binding, enforceable,
duly perfected, and non-avoidable security interests and liens in the PPPLF Collateral; and (iv) the
Stipulations shall be binding on all parties whatsoever, including, without limitation, any
Creditors’ Committee and any trustee or trustees appointed in the Chapter 11 Case or in any
Successor Case.
11.21. Review of Adequate Protection Professional Fee Payments. The Debtors shall pay
all reasonable and documented professional fees in accordance with Paragraph H of this Order
within ten (10) business days of delivery of a monthly statement or invoice for such fees and
expenses (it being understood that such statements or invoices shall be sufficiently detailed to
enable a determination as to the reasonableness of such fees and expenses; provided, however, that
such statements or invoices shall not be required to be maintained in any particular format and
may be redacted to protect privileged, confidential, or proprietary information, nor shall any such
counsel or other professional be required to file any interim or final fee applications with the Court
or otherwise seek the Court’s approval of any such payments) to the Debtors, the U.S. Trustee,
and the Creditors’ Committee (if one is appointed), unless, within such ten (10) business day
period, the Debtors, the U.S. Trustee, or the Creditors’ Committee (if one is appointed) serve a
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written objection upon the requesting party, in which case, the Debtors shall pay only such amounts
that are not the subject of any objection and the withheld amount subsequently agreed by the
objecting parties or ordered by the Court to be paid.
12.22. Binding Nature of Order; Successors and Assigns. It shall be an Event of Default
(subject to the Remedies Procedures) if the rights, remedies, powers, privileges, claims, liens, and
priorities of the Reserve Bank provided for in this Order or otherwise are adversely modified,
altered, eliminated, or impaired in any manner by any subsequent order or judgment (including,
without limitation, by any confirmation order or sale order), by any plan of liquidation in the
Chapter 11 Case, by the dismissal or conversion of the Chapter 11 Case, or in any Successor Case,
or to the extent the Debtors commence, support, or join in a motion, suit or other proceeding against
the Reserve Bank that seeks such relief. The provisions of this Order shall be binding upon, and
shall inure to the benefit of, the Debtors, the Estates, the Reserve Bank, any Creditors’ Committee,
and each of their respective successors and assigns, including, without limitation, any trustee
appointed under chapter 11 of the Bankruptcy Code, any examiner with expanded powers, any
responsible officer, any estates administrator or representative, any liquidation trustee, and any
similar person appointed in a case for the Debtors under any chapter of the Bankruptcy Code. The
provisions of this Order shall also be binding on all of the Debtors’ creditors and equity holders,
and all other parties in interest.
13.23. No Waiver. This Order shall not be construed in any way as a waiver or
relinquishment of any rights that the Reserve Bank may have to raise any matter or be heard on
any matter brought before the Court. Except as expressly provided in this Order, the Reserve Bank
retains and reserves all of its rights and remedies. For the avoidance of doubt, this Order and the
transactions contemplated hereby shall be without prejudice to (i) the rights of the Reserve Bank
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to seek (and the Debtors’ ability to object to any such request for) additional or different adequate
protections (including any amount equal to accrued and unpaid interest under the Program
Agreements), move to vacate the automatic stay, move for the appointment of a trustee or
examiner, move to dismiss or convert the Chapter 11 Case, or to take another action in the Chapter
11 Case and to appear and be heard in any matter raised in the Chapter 11 Case, (ii) the rights of
the Reserve Bank to assert claims, arising prior to or after the Petition Date, with regards to the
PPPLF Collateral or Program Agreements, and (iii) any and all rights, remedies, claims and causes
of action which the Reserve Bank may have against any other party liable for the Indebtedness.
14.24. Limits on Liability. Nothing in this Order shall in any way be construed or
interpreted to impose upon the Reserve Bank any liability for any claims arising from any activities
by the Debtors in the operation of their business or in connection with their restructuring efforts.
15.25. Priority of Terms. In the event of any conflict between (a) any term or provision of
the Motion, on the one hand, and (b) the terms and provisions of this Order, on the other hand, the
terms and provisions of this Order shall govern.
16.26. Survival. Except as otherwise provided herein, or by a further order of this Court
after notice to the Reserve Bank, the protections afforded under this Order, and any actions taken
pursuant thereto, shall survive the entry of any order (a) dismissing the Chapter 11 Case or (b)
converting the Chapter 11 Case to a case pursuant to chapter 7 of the Bankruptcy Code. If any or
all of the provisions of this Order are hereafter reversed, modified, vacated, stayed that action will
not affect (i) the validity of any obligation, indebtedness or liability under this Order prior to the
date of receipt of written notice to the Reserve Bank of the effective date of such action or (ii) the
validity and enforceability of any lien, administrative expense, right, or priority authorized or
created hereby or pursuant to this Order.
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17.27. Adequate Notice. The notice given by the Debtors of the Hearing was provided as
authorized by Bankruptcy Rule 4001(b)(3). The Debtors shall promptly mail copies of this Order
to the Notice Parties.
18.28. Immediate Binding Effect. This Order shall not be stayed and shall be valid and
fully effective immediately upon entry, notwithstanding the possible application of Bankruptcy
Rules 4001(a)(3), 6003(b), 6004(h), 7062, and 9014, or otherwise, and the Clerk of the Court is
hereby directed immediately to enter this Order on the Court’s docket in the Chapter 11 Case.
19.29. Proof of Claim. The Reserve Bank shall not be required to file a proof of claim in
the Chapter 11 Case or in any Successor Case with respect to the Obligations. The Debtors’
Stipulations shall be deemed to constitute a timely filed proof of secured claim for the Reserve
Bank upon entry of the Order, and the Reserve Bank shall be treated under section 502(a) of the
Bankruptcy Code as though it had filed a timely proof of claim, notwithstanding any order entered
by the Court concerning the establishment of a bar date for the filing of proofs of claim in the
Chapter 11 Case or in any Successor Case. The Reserve Bank is hereby authorized and entitled, in
their sole discretion, but not required, to file a proof of claim in the Chapter 11 Case or in any
Successor Case.
20.30. Retention of Jurisdiction. This Court shall retain jurisdiction over all matters
pertaining to the implementation, interpretation, and enforcement of this Order.
31. SBA.
a. The relief granted herein is without prejudice to the SBA’s authority and
rights, and responsibilities to third parties, under the Small Business Act, including 15 U.S.C. §§
636(a)(36), 636(a)(37) and 636m, and the regulations, FAQs, notices, forms and other guidance
promulgated by SBA for the Paycheck Protection Program, including the SBA Form 3507
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executed by the Debtor; and other applicable SBA Loan Program Requirements (as defined in
13 C.F.R. § 120.10); and other applicable federal law, including without limitation, the right of
setoff, if any. Other than the implementation of direct payments described in Section H(i) of this
Order, nothing in this Order imposes any additional obligations on SBA.
b. Nothing contained in this Order shall reduce, limit or release the Debtors’
statutory, regulatory and/or contractual obligations to honor timely and in full its payment
obligations to the SBA, if any. For the avoidance of doubt, the Debtors shall continue to remit to
the SBA the SBA share of any PPP Borrower payments received by the Debtors on a PPP loan
after the SBA’s guaranty purchase of the loan.
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Exhibit 1
Cash Collateral Budget
File and source
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