Harvest Sherwood Food Distributors - Chapter 11 DIP Terms

DIP Terms

Borrower(s) / Guarantor(s)

• Harvest Sherwood Food Distributors, Inc., Harvest Meat Company, Inc., Hamilton Meat, LLC, Western Boxed Meats Distributors, Inc., SFD Acquisition LLC, SFD Company LLC, and Sherwood Food Distributors, L.L.C., as Borrowers
• Each of the other Debtors, other than Del Mar Holding LLC and Del Mar Acquisition Inc., as Guarantors, authorized and directed to jointly, severally, and unconditionally guarantee in full all of the DIP Obligations of the Borrowers

Agent / Lender(s)

• Atlas Grove Management, LLC, as administrative agent (the "DIP Agent")
• The lenders from time to time party thereto, as DIP Lenders (together with the DIP Agent, the "DIP Secured Parties")

DIP Commitments

• Senior secured superpriority debtor-in-possession revolving credit facility in the aggregate principal amount of up to $150 million, comprised of new money DIP loans, the entire amount of which is made available upon entry of the final order
• The DIP Facility constitutes replacement debtor-in-possession financing, the proceeds of which are used to pay in full the obligations under the Debtors' existing debtor-in-possession credit agreement with JPMorgan Chase Bank, N.A., as existing DIP agent

Cash Collateral

• The Debtors are authorized to use all cash collateral solely in accordance with the final order, the DIP Documents, and subject to the DIP Budgets, and are otherwise enjoined and prohibited from using cash collateral
• Cash collateral consists of all of the Debtors' cash, including cash and other amounts on deposit or maintained in any account, any amounts generated by the collection of accounts receivable or other disposition of the DIP Collateral, and the proceeds of any of the foregoing

Fees

• The Debtors are to pay all reasonable and documented out-of-pocket fees and expenses incurred by the professionals and consultants retained by the DIP Agent and the DIP Lenders (the "DIP Professionals," including Akin Gump Strauss Hauer & Feld LLP and Venable LLP), whether or not the DIP Facility is consummated, together with the reasonable and documented out-of-pocket expenses of the DIP Agent and the DIP Lenders for administration and enforcement costs and documentary taxes associated with the DIP Facility
  • Such fees and expenses are subject to a prior ten-day review by the Debtors, the U.S. Trustee, and any Creditors' Committee, with undisputed amounts paid and any disputed portion withheld pending resolution
• The Debtors will, jointly and severally, indemnify the DIP Secured Parties and their Related Parties against losses arising out of or relating to the DIP Documents and the use of loan proceeds, except to the extent determined by final, non-appealable judgment to have been incurred primarily by reason of such person's actual fraud, gross negligence, criminal acts, or willful misconduct

Carve Out

• The Carve Out consists of:
  • All fees required to be paid to the Clerk of the Court and the U.S. Trustee under section 1930(a) of title 28, plus interest at the statutory rate
  • Up to $50,000 in fees and expenses incurred by a chapter 7 trustee under section 726(b) of the Bankruptcy Code
  • Allowed Professional Fees of the Professional Persons incurred on or before delivery of a Carve Out Trigger Notice (the "Pre-Carve Out Trigger Amount")
  • Following delivery of a Carve Out Trigger Notice:
    • Debtor Post-Carve Out Trigger Notice Cap: $950,000 for the Debtor Professionals
    • Committee Post-Carve Out Trigger Notice Cap: $100,000 for the Committee Professionals
• A "Carve Out Trigger Notice" means either (i) a written notice from the DIP Agent stating that an Event of Default has occurred under the DIP Facility and that the Post-Carve Out Trigger Notice Cap has been invoked, or (ii) the occurrence of the Maturity Date under the DIP Credit Agreement, which is deemed automatic delivery of such notice
• The Carve Out is senior to all claims and liens, including the liens securing the DIP Facility, and the DIP Collateral excludes the Carve Out Account

Use of Proceeds

• Proceeds of the DIP Facility and cash collateral are to be used solely in accordance with the DIP Credit Agreement and the final order, and subject to the DIP Budgets, including to:
  • Consummate the refinancing of the obligations under the existing DIP facility documents and existing DIP orders, including the Settlement Claw-Back Obligations
  • Pay interest, fees, and expenses (including attorneys' fees) to the DIP Lenders
  • Fund fees and expenses incurred in connection with liquidating the Debtors' assets
  • Pay the fees and expenses of any Professional Person, including to fund the Carve Out and Carve Out Account
  • Pay certain other costs and expenses of administering the chapter 11 cases
• The Debtors, the existing DIP agent, and the existing DIP lenders are also authorized to use the proceeds of the DIP Loans to cash collateralize any letters of credit issued by the existing DIP agent or any existing DIP lender and to repay in full the obligations under the existing DIP facility documents, wwith the Debtors directed to take all steps reasonably necessary to release any liens or encumbrances granted thereunder upon repayment in full

Credit Bid

• The DIP Agent, or any assignee or designee, acting on behalf of the DIP Secured Parties, has the exclusive and unqualified right to credit bid up to the full amount of any DIP Obligations pertaining to the DIP Loans in the sale of any DIP Collateral, including pursuant to section 363, a plan of reorganization or liquidation under section 1129, or a sale or disposition by a chapter 7 trustee under section 725 of the Bankruptcy Code
• The DIP Agent has the absolute right to assign, sell, or otherwise dispose of its credit bid right (or the assets to be acquired pursuant to such credit bid) to any acquisition entity or joint venture formed in connection with such bid
• Nothing prejudices the rights of any party in interest (other than the Debtors) to seek to exercise any rights pursuant to section 363(k) of the Bankruptcy Code, or the DIP Secured Parties' rights to oppose such relief

Avoidance Actions

• The DIP Collateral does not include, and the DIP Liens do not encumber, Avoidance Actions, except that the DIP Liens encumber the Avoidance Proceeds
• The DIP Secured Parties may avail themselves of Commercial Avoidance Proceeds (proceeds of Avoidance Actions against non-insider commercial counterparties) only on a "last look" basis if all other DIP Collateral is inadequate to indefeasibly repay the DIP Obligations in full
• Avoidance Actions against Sprouts Farmers Market, Inc. and SFM, LLC d/b/a Sprouts Farmers Market (the "Sprouts Avoidance Actions") are not Commercial Avoidance Actions, and the DIP Secured Parties have full recourse to the proceeds thereof

Securities and Priorities

• Subject and subordinate only to the Carve Out, all DIP Obligations constitute allowed senior administrative expense claims of the DIP Secured Parties against each of the Debtors' estates (the "DIP Superpriority Claims") pursuant to section 364(c)(1) of the Bankruptcy Code, with priority over all other administrative expenses and claims, payable from and with recourse to all prepetition and postpetition property of the Debtors and all proceeds thereof, including the Avoidance Proceeds and all commercial tort claims
• As security for the DIP Obligations, and automatically perfected as of the Petition Date, the Debtors grant the DIP Agent, for the benefit of the DIP Lenders, the following liens and security interests in the DIP Collateral, subject and subordinate only to the Carve Out and any Permitted Liens (the "DIP Liens"):
  • Pursuant to section 364(c)(2), a first priority senior lien on all DIP Collateral not subject to a valid, perfected, and unavoidable lien
  • Pursuant to section 364(c)(3), a junior lien on all DIP Collateral subject to a Permitted Lien
  • Pursuant to section 364(d)(1), a first priority senior priming lien on all DIP Collateral
• The DIP Collateral includes substantially all of the Debtors' prepetition and postpetition property and proceeds, including unencumbered cash, deposit and securities accounts, inventory, accounts receivable, general intangibles, intellectual property, owned real estate, machinery and equipment, the issued and outstanding capital stock and other equity interests of each Debtor, commercial tort claims, and the Avoidance Proceeds, but excludes the Avoidance Actions themselves and the Carve Out Account
• Except as set forth in or permitted by the final order, no other superpriority claims may be granted or allowed in the chapter 11 cases

Waivers

• Section 506(c) Surcharge: Retroactive to the Petition Date, and without the prior written consent of the DIP Secured Parties (no such consent to be implied from any action, inaction, or acquiescence), no expenses of administration of the chapter 11 cases, or any future proceeding resulting therefrom, will be charged against or recovered from the DIP Collateral or the DIP Secured Parties pursuant to sections 105(a) or 506(c) of the Bankruptcy Code or any similar principle of law or equity
• Marshaling: Except as provided in the final order, the DIP Secured Parties are not subject to the equitable doctrine of "marshaling" or any other similar doctrine with respect to any of the DIP Collateral

Refinancing and Settlement Claw-Back Obligations

• On the closing date, the Debtors are authorized and directed to use the proceeds of the DIP Loans to (i) cash collateralize any letters of credit issued by the Existing DIP Agent or any Existing DIP Lender and (ii) Pay in Full the obligations under the Existing DIP Facility Documents and the Existing DIP Orders (other than specified surviving contingent obligations and Unliquidated Obligations for which no claim has been made), whereupon the Existing DIP Liens are deemed released and extinguished without further action
• Blakemore Investments LLC and Milwaukee Investments LP (the "Capital Providers") have asserted an interest in, and/or a right to payment of, certain antitrust claim proceeds (the "Antitrust Claim Proceeds") under a December 21, 2022 Capital Provision Agreement; their adversary proceeding was dismissed and the dismissal is the subject of a pending appeal (the "Capital Providers Proceedings")
• Certain Antitrust Claim Proceeds were previously used to pay down the Existing DIP Facility under court-approved settlements with JBS and Pilgrim's Pride (the "Settlement Payments"), subject to claw-back/disgorgement obligations (the "Settlement Claw-Back Obligations")
• Upon the Refinancing, the DIP Secured Parties are deemed to assume, and are bound by, all Settlement Claw-Back Obligations (jointly but not severally liable to disgorge), and the Existing DIP Secured Parties are fully released and discharged from those obligations; if any Settlement Payments are clawed back or disgorged from the DIP Secured Parties, the DIP Obligations are increased by that amount
• The DIP Secured Parties have agreed to provide a letter of credit in the amount of $40,000,000 (the "Claw-Back LOC"), drawable by an Escrow Agent at the direction of the Debtors or the Liquidating Trust to secure satisfaction of the Settlement Claw-Back Obligations, with the Claw-Back LOC and an associated escrow arrangement governing draws, renewals, beneficiary substitution, and termination; the DIP Secured Parties' obligation to provide the Claw-Back LOC terminates on specified events (e.g., a final non-appealable order resolving the Capital Providers' appeal, a settlement releasing the parties, or repayment of the DIP in full)

Remedies

• Upon the occurrence and continuance of an Event of Default, the DIP Agent may deliver a written Default Notice to the Debtors, their counsel (Sidley Austin LLP), the U.S. Trustee, and counsel to any Creditors' Committee, commencing a five business day Remedies Notice Period
• Before expiration of the Remedies Notice Period, the DIP Secured Parties may terminate, reduce, or restrict use of Cash Collateral, cease or reduce making DIP Loans, declare all DIP Obligations immediately due and payable, and charge the default rate of interest; after expiration and during a continuing Event of Default, they may additionally freeze account balances, set off amounts in controlled accounts, enforce remedies against the DIP Collateral and guaranty rights, and exercise all other available rights, with the automatic stay deemed terminated at the end of the Remedies Notice Period unless the Court orders otherwise
• During the Remedies Notice Period, the Debtors may use DIP proceeds (drawn before the Default Notice) and Cash Collateral only to fund operations in accordance with the DIP Credit Agreement and DIP Budgets, and the parties consent to an expedited hearing on whether an Event of Default has occurred
• The Creditors' Committee may appear and be heard at any hearing regarding an Event of Default; the granting of stay relief to another creditor constitutes an Event of Default only if it relates to DIP Collateral exceeding $100,000 in aggregate value

Permitted Variance

• The Debtors may use cash collateral and the proceeds of the DIP Facility only in accordance with the DIP Budgets, comprised of a Long-Term DIP Budget (a projected statement of sources and uses of cash for the Debtors covering 18 calendar months) and a 13-week cash flow forecast (the "Short-Term DIP Budget")
• No later than the fourth business day of each week, the Debtors must deliver a budget variance report to the DIP Agent (for delivery to the DIP Lenders) and the Creditors' Committee, including the variance against the Short-Term DIP Budget and, certified by the Debtors' Chief Restructuring Officer, an explanation in reasonable detail of any material variances
• Variance from the Short-Term DIP Budget is tested on a rolling four-week basis, and total disbursements may not be more than 105% of the projected disbursements in the Short-Term DIP Budget (the "Permitted Variances")