Hawthorne Race Course - Chapter 11 DIP Terms

$20 million DIP Terms

Borrower(s)

• Hawthorne Race Course, Inc., Post Time Catering, Inc., Suburban Downs, Inc., and Carey Heirs Properties, LLC, as co-borrowers on a joint and several basis

Lender

• Derby DIP LLC, as DIP Lender

DIP Commitments

• Up to $20 million senior secured superpriority term loan facility
  • The DIP loan agreement originally provided for a loan amount of $16 million, which was increased to $20 million upon entry of the final order
  • The debtors may only access funds in excess of $18.1 million upon consultation with the creditors' committee if: (a) a stalking horse bid of at least $85 million has been identified, or (b) a sale order providing for a purchase price of at least $85 million has been entered
  • Notwithstanding the foregoing, the DIP commitment and/or DIP loans may not exceed $16 million absent the consent of Signature Bank in its sole discretion
• An opening disbursement of $1,485,506 was funded at closing, with the remaining balance available through bi-weekly draws upon two days' prior written notice and delivery of a variance report demonstrating budget compliance
• Amounts repaid may not be re-borrowed
• The debtors have delivered a final initial DIP budget covering a 22-week period from the petition date, reflecting projected operating receipts, operating disbursements, non-operating disbursements, net operating cash flow, and liquidity on a weekly basis. The budget may be modified from time to time with DIP lender and court approval.

Cash Collateral

• The debtors are authorized to use the DIP lender's cash collateral in accordance with the approved budget, subject to permitted variances, until the DIP termination declaration date, provided that Signature Bank is granted the adequate protection set forth in the final order. Following the DIP termination declaration date, the debtors' authority to use Signature Bank's cash collateral terminates simultaneously with the termination of the debtors' authority to use the DIP lender's cash collateral.
• All cash receipts generated from prepetition receivables constitute cash collateral of Signature Bank and must be paid to Signature Bank promptly upon the debtors' receipt.
• The debtors are unable to procure sufficient financing in the form of unsecured credit allowable as an administrative expense and are unable to obtain sufficient secured credit without granting the DIP lender the DIP liens and superpriority claims, subject to the carve out.

Interest Rate

• 13% per annum, payable with each bi-weekly draw
• Default Rate: 22% per annum
• Late Charge: 5% of any unpaid interest or principal payment
• Interest computed on a 360-day year based on actual days elapsed

Fees

• Loan Fee: 2.0% of the loan amount, fully earned and non-refundable. A portion of $60,000 was paid prepetition, with the balance due upon funding of the opening disbursement.
• Exit Fee: 2.0% of the full DIP commitment amount, fully earned and non-refundable upon entry of the interim financing order, payable on the maturity date or earlier acceleration of the DIP loan.
• Break-Up Fee: 3.0% of the outstanding DIP loan amount, payable immediately if the court does not enter the final financing order, together with all lender costs and expenses.
• Extension Fee: 1.0% of the full DIP commitment amount, payable upon exercise of the extension option.
• Guaranteed Interest Amount: an amount equal to three months of interest on the DIP loan, in no event less than $520,000.
• The debtors are obligated to pay all reasonable and documented out-of-pocket DIP lender expenses, including professional fees of Fox Rothschild LLP and such other professionals as the DIP lender determines necessary.

Maturity

• The earlier to occur of:
  • The effective date of the chapter 11 plan
  • 120 days from approval of interim financing
• The debtors have the right to extend the maturity one time for three months, subject to the following conditions:
  • No default during the term of the DIP loan
  • The property is under an active letter of intent with a new equity source to recapitalize the property in an amount in excess of $35 million
  • At least 30 days' prior written notice to the lender
  • Payment of the extension fee, plus interest on the DIP loan during the extension period
• The debtors may prepay the DIP loan in whole, but not in part, provided the lender has received aggregate interest payments equal to or greater than the guaranteed interest amount.
• Upon a DIP termination event, the DIP lender may deliver a remedies notice declaring the occurrence thereof and take remedial action. The debtors may seek an emergency hearing during a five-business-day waiting period following the DIP termination declaration date, during which the debtors may continue to use DIP collateral only for payroll and other expenses critical to maintaining the business. Following expiration of the waiting period, the DIP lender is granted automatic relief from the automatic stay to exercise all rights and remedies against the DIP collateral.

Carve Out

• The carve out consists of:
  • All unpaid statutory fees payable to the Clerk of Court and the U.S. Trustee, not subject to the approved budget
  • Chapter 7 Trustee Fee: up to $100,000
  • Reasonable unpaid professional fees incurred on or before the first calendar day following delivery of the carve out trigger notice, to the extent permitted by the approved budget and allowed by the court, net of any retainers held
  • Post-Carve Out Trigger Notice Cap: $500,000 in allowed professional fees incurred after the trigger date
• Plan-success fees, financing fees, transaction fees, or similar contingency fees are excluded from both the pre-trigger date fees and the post-carve out trigger notice cap, and are payable pursuant to any confirmed plan.
• Payments made prior to the trigger date in respect of allowed professional fees do not reduce the carve out.

Use of Proceeds

• The DIP loan proceeds and cash collateral may be used solely in accordance with the approved budget for the following purposes:
  • Maintain the orderly operation of the debtors' businesses
  • Make payroll for employees
  • Pay fees, costs, and expenses incurred in connection with the chapter 11 cases
  • Fund obligations benefiting from the carve out
  • Maintain business relationships with vendors and suppliers
  • Satisfy other working capital and operational needs
  • Pay closing costs, delinquent and current real property taxes, and lender's underwriting, documentation, and due diligence costs
• The creditors' committee may use DIP loan proceeds or DIP collateral to investigate the claims and liens of Signature Bank and Latto Capital and potential claims against each, up to an aggregate cap of $25,000 each.

Credit Bid

• The DIP lender may credit bid all or any portion of its DIP liens up to the full amount of the DIP obligations in connection with any proposed sale of the debtors' assets under section 363, a chapter 11 plan, or a chapter 7 disposition. The debtors shall, upon reasonable advance notice, provide for the assignment of the DIP lender's purchase rights to one or more subagents or a newly formed acquisition vehicle.
• Signature Bank (or any assignee or designee) may credit bid all or any portion of its prepetition liens up to the full amount of the prepetition Signature Bank secured obligations and shall automatically be deemed a qualified bidder, subject to:
  • Payment in full of any senior obligations on such collateral, unless the DIP lender consents in writing
  • The terms and conditions of any court-approved bidding procedures order
• The debtors shall similarly provide for the assignment of Signature Bank's purchase rights to subagents or a newly formed acquisition vehicle upon reasonable advance notice.

Avoidance Actions

• The DIP collateral excludes avoidance actions under chapter 5 of the Bankruptcy Code and proceeds thereof. The DIP liens do not attach to avoidance actions or their proceeds.

Challenge Period and Budget

• The deadline to bring a challenge to the debtors' stipulations regarding Signature Bank and Latto Capital is:
  • 30 calendar days after entry of the final order, for the creditors' committee
  • 15 days after entry of the final order, for all other parties in interest
• Any challenge must set forth with specificity the basis therefor; claims not so specified prior to the expiration of the challenge period are deemed forever waived, released, and barred.
• If no timely challenge is filed or the court does not rule in favor of the plaintiff, the debtors' stipulations become binding on all parties in interest, and the prepetition secured obligations of Signature Bank and Latto Capital shall constitute allowed claims not subject to defense, counterclaim, recharacterization, subordination, recoupment, offset, or avoidance.
• The creditors' committee may use up to $25,000 each from DIP loan proceeds or DIP collateral to investigate the claims and liens of Signature Bank and Latto Capital.

Securities and Priorities

• The DIP lender is granted valid, binding, enforceable, nonavoidable, and automatically perfected security interests in and liens on all DIP collateral, subject to the carve out, with the following priorities:
  • First-priority lien on all unencumbered DIP collateral, junior only to the carve out
  • First-priority senior priming lien on all encumbered DIP collateral, junior only to the carve out
• The DIP lender does not have a lien on any of the debtors' prepetition cash and receivables generated prior to the petition date.
• The DIP collateral excludes avoidance actions and proceeds thereof, prepetition cash and receivables (which constitute prepetition Signature Bank collateral), and equity or beneficial interests issued by any borrower.
• The DIP obligations constitute allowed superpriority administrative expense claims against each of the debtors on a joint and several basis, subject only to the carve out, with priority over all other administrative expense and unsecured claims. The DIP superpriority claims are payable first from DIP collateral, and only to the extent such collateral is insufficient, from other assets of the debtors' estates.

Adequate Protection

Signature Bank

• As of the petition date, the Signature Bank prepetition borrowers (Hawthorne Race Course, Carey Heirs Properties, and Suburban Downs) were jointly and severally indebted to Signature Bank in an amount not less than $51,577,523 under a loan and security agreement dated April 20, 2016, secured by first-priority liens on prepetition Signature Bank collateral, including mortgages on the CHP Property (3501 South Laramie Avenue, Cicero, Illinois) and the HRC Property (5065 Cal Sag Road, Crestwood, Illinois).
• As adequate protection for any diminution in value of Signature Bank's interest in prepetition collateral:
  • Monthly adequate protection payments of $75,000, nunc pro tunc to March 1, 2026, paid on the first business day of each month
  • All cash receipts generated from prepetition receivables to be paid to Signature Bank promptly upon the debtors' receipt
  • Replacement liens on all prepetition Signature Bank collateral pledged to secure the DIP obligations and any unencumbered collateral, subordinate only to the DIP liens
  • Allowed superpriority administrative expense claims under section 507(b) in the amount of any diminution in value, subordinate only to the DIP superpriority claims. Signature Bank shall not receive payments on account of its 507(b) claims until the DIP obligations have been indefeasibly paid in full in cash.
  • Financial reporting substantially in compliance with the prepetition loan documents, with contemporaneous delivery to Signature Bank of all budgets, reports, financial statements, and other information provided to the DIP lender
  • Cooperation with and unfettered access for Signature Bank's professional advisors, including counsel and financial advisor

Latto Capital

• As of the petition date, Hawthorne Race Course was indebted to Latto Capital in an amount not less than $7,500,000, secured by a mortgage on the CHP Property dated January 4, 2025, which is subordinate and junior in all respects to the Signature Bank prepetition CHP mortgage. The original principal amount of the loan was $5,000,000.
• As adequate protection for Latto Capital's interest in the CHP Property:
  • Monthly adequate protection payments of $10,000, nunc pro tunc to March 1, 2026, paid on the first business day of each month
  • Access to all information shared among the debtors and the DIP lender, whether required by the DIP loan agreement or otherwise
  • Cooperation with and unfettered access for Latto Capital's counsel and financial advisors

Aria Group Architects

• A replacement lien on the CHP Property for any diminution in value of Aria Group Architects, Inc.'s interest from and after the petition date, with the same validity, extent, and priority as the Aria mechanic's lien (Doc No. 2422008024, recorded August 7, 2024) may have had as of the petition date. Nothing in the final order impairs Aria Group's right to assert the priority of its mechanic's lien.

Waivers

• As a material inducement to the DIP lender, Signature Bank, and Latto Capital:
  • Section 506(c): No costs or expenses of administration shall be charged against the DIP collateral, the prepetition Signature Bank collateral, or the DIP lender, Signature Bank, or Latto Capital, without prior written consent
  • Section 552(b): The "equities of the case" exception shall not apply to the DIP lender with respect to proceeds, products, offspring, or profits of the collateral, or to Signature Bank with respect to proceeds of the prepetition Signature Bank collateral
  • The equitable doctrine of "marshaling" shall not apply with respect to the DIP collateral, the DIP obligations, the prepetition Signature Bank secured obligations, or the prepetition Signature Bank collateral

Releases

• Effective upon entry of the final order and subject to the challenge period, the debtors and their estates release the DIP lender, Signature Bank, and their respective officers, directors, employees, agents, advisors, attorneys, affiliates, and predecessors in interest from all prepetition claims, demands, liabilities, and causes of action, including lender liability and equitable subordination claims, except claims resulting from bad faith, fraud, gross negligence, or willful misconduct established by a final, non-appealable order.

Sale Milestones

• The debtors shall comply with the following milestones:
  • On or before April 22, 2026: File a motion seeking to establish bidding procedures (with or without a stalking horse then-identified) to sell all or substantially all of the debtors' assets, including the HRC Property and CHP Property
  • On or before May 6, 2026: Entry of an order approving the bidding procedures and stalking horse bidder protections
  • On or before July 7, 2026: Auction held, or if no qualified topping bids were timely received, cancelled
  • Following the auction: Entry of an order approving the sale(s) to the successful bidder, free and clear of all valid real estate taxes
  • On or before August 7, 2026: Closing of the sale(s)
• Each milestone may be extended with the written consent of Signature Bank and the creditors' committee. If the debtors have identified one or more stalking horse bids sufficient in the aggregate to pay all DIP obligations and prepetition Signature Bank secured obligations in full at closing, the debtors shall file a notice identifying such stalking horse bidder(s). If such bids are sufficient to pay all DIP obligations in full but not all prepetition Signature Bank secured obligations, the debtors must notify and consult with the creditors' committee and obtain the written consent of Signature Bank.
• Failure to make monthly adequate protection payments to Signature Bank, any other default in obligations to Signature Bank, or failure to meet any milestone constitutes "cause" to modify the automatic stay in any motion filed by Signature Bank.

$1M Supplemental DIP Terms

Borrower(s)

• Hawthorne Race Course, Inc., Suburban Downs, Inc., Carey Heirs Properties, LLC, and Post Time Catering, Inc., as Borrowers

Lender

• Derby DIP, LLC, as Supplemental DIP Lender and existing DIP Lender

DIP Commitments

• Up to $1 million of supplemental postpetition financing requested on a final basis
• The supplemental financing is in addition to the Debtors’ existing DIP facility with Derby DIP, LLC, under which the Debtors were authorized to borrow up to $20 million.

Use of Proceeds

• Fund the costs of the horsemen’s training and an orderly transition of the Backstretch Community, including:
  • Payroll, benefits, and union dues for maintenance, security, starters, and paramedics;
  • [Repairs/maintenance] to the horsemen’s living space and track upkeep; and
  • Other necessary services and goods, including waste management, [insurance], machinery rental and fuel, and applicable [taxes]
• The Debtors estimate that maintaining the horsemen’s training and allowing the Backstretch Community to remain at the Acquired Property during August 2026 will cost more than $900,000.
• The Sale Order will permit the horsemen and the Backstretch Community to remain at the Acquired Property through August 31, 2026.

Repayment

• All obligations owed by the Debtors to Derby DIP, LLC, including the Supplemental DIP Financing, will be paid at the closing of the sale to ALLIMAC 2023, LLC or its designee.
• The Purchaser’s purchase agreement provides for a closing no later than July 30, 2026.
• In the event of a closing:
  • The Purchaser will contribute $1 million to the Illinois Thoroughbred Horsemen’s Association at closing solely to assist with the effective transition and removal of the horsemen, the Backstretch Community, and horses from the Acquired Property.
  • At closing, the Illinois Thoroughbred Horsemen’s Association will use those funds to pay the Debtors the amount required to satisfy the Supplemental DIP Financing in full.
• The Debtors state that the Supplemental DIP Financing will not reduce sale proceeds available to creditors because, upon closing, the Illinois Thoroughbred Horsemen’s Association will reimburse the Debtors for all amounts incurred under the Supplemental DIP Financing.

Priority and Security

• The motion is brought under sections 105(a) and 364 of the Bankruptcy Code; the Supplemental DIP Financing is proposed to be secured and granted priority as set forth in section 364(c)/(d) [confirm lien priority and any superpriority administrative-claim status against the source — ¶18(a) is illegible].
• [Disbursement of the Supplemental DIP proceeds is subject to Debtor control provisions — confirm ¶18(e) against a clean copy.]

Requested Procedural Relief

• The Debtors request that the motion be heard on shortened notice on the same date as the continued sale hearing.
• The Debtors also request that the notice requirements under Bankruptcy Rule 6004(a) and the 14-day stay under Bankruptcy Rule 6004(b) be excused to the extent applicable.