Leslie's - Chapter 11 DIP Terms

DIP Terms

Borrower(s) / Guarantor(s)

• Leslie's Poolmart, Inc., as Borrower under the term loan facility and as Parent Borrower under the ABL facility
• LPM Manufacturing, Inc. and Cortz, Inc., as Subsidiary Borrowers under the ABL facility
• Leslie's, Inc., as Holdings, and each of the other debtors, as Guarantors; the debtors are jointly and severally liable for the DIP obligations

Agent / Lender(s)

• Alter Domus (US) LLC, as administrative and collateral agent under the term loan facility, the same role it holds under the prepetition term loan
• Jefferies Capital Services, LLC, as fronting lender funding the term loans before assigning them to the backstop parties and participating lenders
• Bank of America, N.A., as administrative and co-collateral agent under the ABL facility, and U.S. Bank National Association, as co-collateral agent, the same roles both hold under the prepetition ABL facility
• An ad hoc group of unaffiliated DIP lenders and prepetition term loan lenders, advised by Akin Gump Strauss Hauer & Feld and Houlihan Lokey, is the term lender group; the required consenting term loan lenders approve budget updates, any plan or disclosure statement, any non-consensual financing or cash collateral motion, assumption or rejection of material contracts and leases, and changes to the Steve Ortega consultant engagement

DIP Commitments

• $90 million superpriority term loan facility, all new money, available in two equal single draws:
  • $45 million on entry of the interim order, funded through Jefferies as fronting lender within one business day of closing
  • $45 million on entry of the final order, funded within one business day of the final order entry date
• Amounts repaid or prepaid on either tranche may not be reborrowed, and the borrower may not voluntarily prepay the term loans before maturity
• $225 million superpriority asset-based revolving facility, capped at the lesser of that amount and the amount the DIP orders permit, which refinances the $250 million prepetition ABL facility and includes a $25 million letter of credit sublimit and a $12.5 million swingline sublimit, each part of and not in addition to the revolving commitments
• Availability is governed by a borrowing base consisting of credit card receivables (90% advance rate), trade receivables (85% advance rate) and inventory (seasonal advance rates ranging from 45% to 75% of cost, subject to appraised-value caps), less availability reserves
• The ABL facility rolls up the prepetition ABL obligations in two stages:
  • On entry of the interim order, the creeping roll-up: all bank product obligations and outstanding letters of credit under the prepetition ABL facility are deemed exchanged for and issued under the DIP ABL credit agreement, and all cash, collections and proceeds of ABL priority collateral are applied dollar-for-dollar to reduce the prepetition ABL obligations and deemed reborrowed as DIP ABL obligations
  • On entry of the final order, the final roll-up: all remaining prepetition ABL obligations are deemed exchanged and converted on a cashless basis into DIP ABL obligations
• The prepetition ABL secured parties would not consent to cash collateral use, and the DIP ABL agent and lenders would not provide the facility, without the roll-up, which is authorized solely as consideration for the prepetition ABL lenders' agreement to fund under the DIP ABL facility and not as adequate protection
• Up to $15 million of the original principal amount of the term loans, together with all capitalized and accrued interest and all backstop and upfront premium loans, may be converted or exchanged into new common equity on the restructuring effective date as described in the restructuring term sheet

Prepetition Capital Structure

• $757 million principal outstanding under the term loan facility, drawn from an original $810 million facility, with Alter Domus as agent
• $30 million in revolving loans plus approximately $11.1 million in issued and undrawn letters of credit outstanding under the $250 million ABL facility, with Bank of America as agent
• The facilities hold cross-priority liens: the term loan ranks first and the ABL second on term priority collateral, and the ABL first and the term loan second on ABL priority collateral, under the 2016 amended and restated intercreditor agreement, which remains in full force and now governs the DIP facilities on the same footing

Cash Collateral

• The debtors are authorized on an interim basis to use cash collateral, defined as all cash, securities, deposit accounts and other cash equivalents in which the estates have an interest as of the petition date, including cash proceeds of the prepetition collateral, in each case subject to setoff rights or perfected liens for the benefit of the prepetition secured parties
• The prepetition secured parties have consented or are deemed to have consented, and use runs until a DIP termination event, through the notice period following one, and resumes if the event is cured before the notice period ends
• All collections and proceeds of DIP collateral and cash collateral must be promptly deposited in accordance with the DIP documents and the cash management order, with ABL priority collateral proceeds deposited into the same accounts used prepetition or as the DIP ABL agent directs
• Credit card proceeds transfer daily by ACH or wire to a blocked account whether or not obligations are outstanding; on a cash dominion event the debtors must comply with the ABL facility's cash management provisions, sweeping all collections to a concentration account under the sole dominion and control of the ABL agent
• A cash dominion event is triggered by any event of default or by excess availability falling below the greater of 12.5% of the line cap and $15.625 million, and once triggered is deemed continuing at all times thereafter even if the default is cured or availability recovers
• Swept funds apply first to permanently reduce the prepetition ABL obligations until paid in full, then ratably to letter of credit and swingline obligations, then to revolving loans, then to cash collateralize remaining letter of credit obligations if an event of default exists, with any remainder available for operations
• During a cash dominion event the debtors must account for any term priority collateral proceeds swept into the concentration account, and the ABL agent must promptly remit those proceeds to the DIP term agent
• The debtors must maintain the petition-date cash management system as modified by the interim order and may not open any deposit or securities account not subject to the DIP liens

Interest Rate

• Term loan facility:
  • Adjusted Term SOFR + 6.50%, or Alternate Base Rate + 5.50%, with a 0.00% floor
  • Interest is payable in kind monthly in arrears, capitalized and added to principal on each interest payment date, and all accrued but unpaid interest may be converted or exchanged into new common equity on the restructuring effective date
  • Default Rate Increase: 2.00%, at the written election of the required DIP lenders, which may apply retroactively to the date the event of default first occurred
• ABL facility:
  • Term SOFR + 3.25%, or Base Rate + 2.25%, with a 0% floor
  • Interest is payable in cash in arrears on each interest payment date
  • Default Rate Increase: 2.00%

Fees

• Term loan facility:
  • Backstop Premium: 7.00% of the term loan commitments held by the backstop parties, fully earned, due and payable on the closing date in the form of additional term loans
  • Upfront Premium: 9.50% of the term loans funded by the fronting lender on each of the closing date and the final funding date, earned and payable in full in the form of additional term loans on each such date
  • Both premiums are paid to the fronting lender and subsequently assigned under the master consent to assignment, the backstop premium for the pro rata benefit of the backstop parties only and the upfront premium for the pro rata benefit of the backstop parties and the participating lenders
  • Agency fees are set out in a separate agency fee letter, and fronting fees in a separate fronting fee letter
• ABL facility:
  • Commitment Fee: 0.30% per annum on the actual daily unused revolving commitment, payable monthly in arrears
  • Letter of Credit Fee: the Term SOFR applicable margin on standby letters of credit, and 50% of that margin on commercial letters of credit, in each case on the daily maximum drawable amount, payable monthly in arrears
  • Fronting Fee: 0.125% per annum on each standby and commercial letter of credit, payable on issuance for commercial letters and monthly in arrears for standby letters
  • Remaining fees are set out in a separate fee letter, fully earned when paid and non-refundable
• Fees are approved on entry of the interim order and, once paid, are not subject to challenge, avoidance or disgorgement; all fees, costs and expenses paid prepetition to the DIP or prepetition secured parties or their professionals are approved in full
• The debtors also pay the DIP agents' and lenders' fees and expenses, including Seward & Kissel as counsel to the DIP term agent; Akin Gump, one local counsel, Houlihan Lokey and a specified consultant for the term lender group; and Morgan Lewis, Bracewell and FTI for the DIP and prepetition ABL agent, in each case without retention motions or fee applications; postpetition invoices are paid after a 10-business-day review period by the debtors, any committee and the U.S. Trustee, with undisputed amounts paid within five days after it, and amounts accrued before closing are paid at closing without review

Maturity

• Term loans mature on the earliest to occur of:
  • Six months after the closing date, per a drafting note to the credit agreement, which leaves the date itself blank; the required DIP lenders may extend by one month and again by a second month
  • Substantial consummation of the plan or any other confirmed Chapter 11 plan
  • Acceleration of the obligations
  • Dismissal of the cases or conversion to Chapter 7
• The ABL facility terminates on the earliest to occur of:
  • A date left blank in the credit agreement, which a drafting note states is to be the six-month anniversary of the closing date, extendable by one month on up to three separate occasions with required lender consent
  • The latest stated maturity of the term loan facility, including any extension
  • The date the obligations become due and payable by acceleration or otherwise
  • The effective date of a plan of reorganization
  • The date of a sale of all or substantially all of the debtors' assets, including under sections 363 or 365
  • Acceleration or termination of the agreement by its terms
• Term loan prepayments are mandatory on 100% of net proceeds of a sale of all or substantially all assets under section 363 after funding the Carve Out, on 100% of net proceeds of other non-ordinary-course dispositions, insurance or condemnation proceeds and extraordinary receipts above a $500,000 annual threshold subject to a 20-day reinvestment right, and on 100% of net proceeds of non-permitted indebtedness; individual lenders may decline their share and the declined proceeds are retained by the borrower

Key Dates

• Petition date: Sept. 30, 2026, in the Bankruptcy Court for the Southern District of Texas
• Interim order entered: Oct. 1, 2026
• Final order objection deadline: Oct. 20, 2026 at 4:00 p.m. (Central Time)
• Final hearing: Oct. 27, 2026 at 9:00 a.m. (Central Time), subject to adjournment on the debtors' notice; the Court may enter the final order without a hearing if no objection is timely filed
• Carve Out reserve funding begins with the week ended Oct. 3, 2026
• First variance and liquidity reports under both facilities due Oct. 16, 2026; first ABL budget covenant test date Oct. 24, 2026; first term loan PIK interest payment date Oct. 31, 2026
• Both facilities require compliance with milestones set out in schedules to the respective credit agreements; the term loan milestones may be amended or extended under the restructuring support agreement, and extending a milestone does not require further Court approval

Carve Out

• Post-Carve Out Trigger Notice Cap: $1.75 million for allowed professional fees of debtor and committee professionals incurred after the first business day following delivery of a carve out trigger notice
• Chapter 7 Trustee Fee: $100,000 of fees and expenses under section 726(b)
• The Carve Out also covers all clerk and U.S. Trustee fees under 28 U.S.C. section 1930(a) plus statutory interest, and all allowed professional fees incurred on or before the first business day after a trigger notice; any investment banker or financial advisor transaction fee is included only to the extent funded into the reserves from the transaction proceeds and, where the transaction includes ABL priority collateral, only after the DIP ABL and prepetition ABL obligations are paid in full
• A carve out trigger notice may be delivered by either DIP agent following an event of default, acceleration of either facility, or termination of the right to use cash collateral
• Beginning with the week ended Oct. 3, 2026 and each Thursday thereafter, the debtors must fund a segregated trust reserve equal to the greater of estimated and budgeted unpaid professional fees for the week, plus the post-trigger cap, plus budgeted professional fees for the following two weeks; professionals deliver weekly fee estimates by 7:00 p.m. New York time on the third business day of each week, and a professional that misses a statement by more than three days is limited to its budgeted amount
• The ABL agent may separately maintain a borrowing base reserve on the same calculation, less amounts already funded, and the Carve Out as it relates to ABL priority collateral is limited to the funded reserves and that borrowing base reserve until the DIP ABL obligations are paid in full
• The Carve Out is senior to all liens and claims securing the DIP obligations, the adequate protection liens, the prepetition secured obligations and the DIP superpriority claims; following a trigger notice the agents may not sweep or foreclose on cash until the reserves are fully funded, subject to a carve-out for ABL loan proceeds and ABL priority collateral proceeds exceeding the reserves; and neither the budget nor the Carve Out caps the professional fees the debtors owe

Use of Proceeds

• Fund working capital and general corporate purposes, including capital expenditures and investments, and maintain vendor, supplier and customer relationships
• Pay the costs of administering the cases, including debtor professional fees consistent with the restructuring support agreement, and fund obligations arising from the Carve Out
• Pay agency fees and the fees and expenses of the agents and lenders, and make adequate protection payments
• Pay prepetition claims only as permitted by the approved budget or otherwise authorized by the Court
• ABL proceeds fund ordinary working capital, letters of credit and general corporate needs, plus certain prepetition and pre-filing expenses approved by the Court
• Term loan proceeds not immediately applied under the budget must be held in deposit accounts subject to the collateral agent's liens, which are granted and perfected solely by the orders

Credit Bid

• Subject to section 363(k), each of the four agents has the unconditional right, directly or through acquisition vehicles, to credit bid its full aggregate outstanding obligations including accrued interest, fees and expenses on a dollar-for-dollar basis in any sale, whether under section 363 or as part of a plan confirmed under section 1129(b)(2)(A)(ii)-(iii):
  • The DIP ABL agent and the prepetition ABL agent, against ABL priority collateral
  • The DIP term agent, at the direction of the required DIP term loan lenders, and the prepetition term loan agent, at the direction of its required lenders, against term priority collateral
• Each may bid against the other collateral pool only if the obligations secured by that pool are paid in full concurrently with or immediately after the bid
• Each agent may assign, sell or dispose of its credit bid rights to any acquisition entity or joint venture formed for the bid, each is deemed a qualified bidder, and the debtors may not object to any such credit bid
• Where a sale spans both collateral pools and the secured parties cannot agree on allocation of the purchase price after good-faith negotiation, any agent may apply to the Court for a determination, and the DIP secured parties have agreed to an emergency hearing on that question

Avoidance Actions

• The DIP collateral excludes avoidance actions under sections 502(d), 544, 545, 547, 548, 549 and 550 and analogous state law, and excludes their proceeds until the final order; on entry of the final order granting such relief, the collateral includes any property or proceeds recovered from successful avoidance actions, whether by judgment, settlement or otherwise
• The DIP superpriority claims have recourse to all pre- and postpetition property of the loan parties, excluding the avoidance actions themselves but including avoidance proceeds upon entry of the final order
• In avoidance proceeds, the term loan and ABL liens share pro rata at each level, as do the two sets of adequate protection liens, in each case behind the Carve Out

Challenge Period and Budget

• The debtors' stipulations and releases bind the estates in all circumstances and bind all other parties in interest, including any committee and any trustee, unless a party with requisite standing files a challenge by the earlier of:
  • 75 calendar days from entry of the interim order
  • The deadline for objections to confirmation of the debtors' plan
• A trustee appointed before the challenge period expires has the longer of the remaining period and 30 days from appointment; a timely standing motion that attaches a complaint tolls the deadline, subject to entry of the final order, only for the moving party and only as to the specified challenges
• Challenges must be pleaded with specificity or are forever waived; absent a timely successful challenge, the prepetition obligations become allowed claims not subject to any claims or defenses and the prepetition liens become unchallengeable. Nothing in the interim order confers standing on any party to pursue estate causes of action, and all rights to object to standing are reserved
• Investigation Budget Cap: $75,000 of allowed professional fees for a creditors' committee, if one is appointed, to investigate but not prosecute a potential challenge. As of entry of the interim order, the U.S. Trustee had not appointed a committee
• The roll-up is expressly subject to the challenge reservation, and the Court may fashion any appropriate relief on a successful challenge; no facility is treated as paid in full until the challenge period expires without a challenge or any timely challenge is finally resolved
• The initial approved budget, attached to the interim order, is a 13-week rolling cash flow forecast reflecting operating receipts, operating and non-operating disbursements, net operating cash flow, borrowing base detail and weekly liquidity. Updates require approval of the DIP ABL agent and the required consenting term loan lenders, and failure to comply with the budget or the reporting requirements is an event of default after any applicable cure period
• The 13-week budget forecasts $156.9 million of total receipts against $166.6 million of operating and $88.1 million of non-operating disbursements before financing; weekly receipts decline from $19.3 million in the week ended Oct. 2, 2026 to $7.8 million in the week ended Dec. 25, 2026, and non-operating disbursements are front-loaded, at $23.5 million in the first week and $70.7 million across the first four weeks

Securities and Priorities

• The DIP obligations constitute allowed superpriority administrative expense claims under section 364(c)(1) against each loan party, with priority over all other claims including those under sections 503(b) and 507(b) and the adequate protection obligations, subject only to the Carve Out and the relative priorities on Exhibit 3, and are considered section 503(b) administrative expenses for purposes of section 1129(a)(9)(A)
• Each DIP agent is granted automatically perfected liens on the DIP collateral, subject only to the Carve Out and permitted liens, with the following priorities:
  • First-priority senior liens under section 364(c)(2) on all previously unencumbered property
  • Junior liens under section 364(c)(3) on collateral subject to permitted liens
  • Priming senior liens under section 364(d)(1) on the prepetition collateral, priming the prepetition liens
• DIP collateral spans all of the debtors' pre- and postpetition assets, including an equity pledge of all direct U.S. subsidiaries, unencumbered cash, accounts, inventory, intellectual property, owned real estate and leaseholds, commercial tort claims, insurance policies and proceeds, and the proceeds of the debtors' section 506(c) rights to the extent enforceable against parties other than the agents, lenders or prepetition secured parties. It excludes excluded assets, avoidance actions, real property leases where the grant would cause a default (though lease proceeds are included) and landlord-held security deposits and prepaid rent until reversion
• Collateral is divided into DIP ABL priority collateral and DIP term priority collateral, tracking the ABL and term priority designations under the prepetition intercreditor agreement, and the DIP obligations step into the prepetition intercreditor agreement in place of the prepetition facilities, with no discharge of ABL obligations deemed to occur from the roll-up
• Within each collateral pool the waterfall under the Carve Out runs: the priority facility's DIP liens, that facility's adequate protection liens, that facility's prepetition liens, then the other facility's DIP liens, adequate protection liens and prepetition liens in the same order; in avoidance proceeds the two facilities share pro rata at each level
• The interim order is conclusive evidence of creation, validity, automatic perfection and priority without any filing or recordation, with all documents deemed recorded and filed as of the petition date; no claim or lien senior to or pari passu with the granted liens may be allowed while the obligations remain outstanding, and the DIP and adequate protection liens are not subject to section 551, subordination under section 364(d), later-arising governmental liens or intercompany liens
• Permitted liens are defined as valid, enforceable, non-avoidable and perfected liens existing on the petition date that are senior by operation of law or as permitted under the prepetition documents, including liens perfected postpetition under section 546(b). The Court made no finding that any alleged permitted lien is valid or senior, all parties' rights to challenge them are reserved, and a seller's section 546(c) reclamation right does not constitute a permitted lien and is expressly subordinate to the DIP, adequate protection and prepetition liens
• The DIP agents are deemed additional insureds and loss payees on the debtors' insurance policies and distribute recoveries first to the DIP obligations and second to the prepetition obligations, subject to the Carve Out and landlord rights to proceeds for damage to landlord property; any person receiving DIP collateral or its proceeds before the DIP obligations are paid in full holds them in trust and must turn them over
• In any inconsistency between the interim order and the DIP documents, the interim order governs

Adequate Protection

Prepetition ABL Secured Parties

• Replacement and additional postpetition liens on the DIP collateral, including avoidance proceeds upon entry of the final order, subordinate to the Carve Out, permitted liens and the Exhibit 3 priorities
• Allowed superpriority administrative expense claims under section 507(b) to the extent of any diminution in value, payable from the DIP collateral including, upon entry of the final order, avoidance proceeds, and subordinate to the Carve Out
• Current cash payments of interest at the applicable non-default rate on outstanding prepetition ABL obligations, accrued to the date those obligations are rolled up, refinanced or converted into DIP ABL obligations, for so long as any remain outstanding
• Payment of agency fees and the reasonable and documented prepetition and postpetition fees and expenses of Morgan Lewis & Bockius, Bracewell and FTI

Prepetition Term Loan Secured Parties

• Replacement and additional postpetition liens on the DIP collateral, including avoidance proceeds upon entry of the final order, subordinate to the Carve Out and the Exhibit 3 priorities
• Allowed superpriority administrative expense claims under section 507(b) to the extent of any diminution in value, payable from the DIP collateral including, upon entry of the final order, avoidance proceeds, and subordinate to the Carve Out
• Payment of agency fees and the reasonable and documented fees and expenses of Seward & Kissel as counsel to the prepetition term loan agent, and of the term lender group, including Akin Gump, Houlihan Lokey, one specified consultant, one local counsel per jurisdiction and, on an actual conflict, one additional counsel
• No current cash interest payments are provided

• Diminution in value is measured from the petition date and captures the sale, lease or use of prepetition collateral, including use to pay the Carve Out, the priming of the prepetition liens and the imposition of the automatic stay
• Adequate protection fees exclude any fees incurred contesting the relief sought in the motion or in connection with any prohibited action, other than defending against one. The prepetition secured parties may request further or different adequate protection, and all parties' rights to contest such requests are preserved
• Until the DIP obligations are paid in full, the prepetition secured parties may take no action to foreclose on or recover against the DIP collateral, are deemed to consent to authorized dispositions and lien releases, and must deliver releases and termination statements on request; any identifiable proceeds of prepetition collateral they receive are held in trust and turned over to the applicable DIP agent

Waivers

• Effective upon entry of the interim order, the debtors and their estates release the DIP lenders and DIP agents, and, subject to entry of the final order, the prepetition secured parties, together with each of their former, current and future officers, employees, directors, agents, representatives, owners, members, partners, advisors, shareholders, managers, consultants, accountants, attorneys, affiliates and predecessors, each solely in those capacities, from all claims arising out of or relating to the prepetition facilities documents and the DIP documents, including lender liability and equitable subordination claims, claims under the Bankruptcy Code and, subject to and effective upon the final order, avoidance actions and claims regarding the validity, priority, perfection or availability of the prepetition liens; claims arising from gross negligence, fraud, bad faith or willful misconduct are carved out
• Subject to entry of the final order granting such relief:
  • Section 506(c): no costs or expenses of administering the cases may be charged against or recovered from the DIP collateral or the prepetition collateral, including cash collateral, without the applicable agents' prior written consent
  • Section 552(b): the "equities of the case" exception does not apply to the prepetition secured parties with respect to proceeds, products, offspring or profits of the prepetition collateral
  • The equitable doctrine of "marshaling" and any similar doctrine does not apply to the DIP secured parties or the prepetition secured parties
• The debtors waive, discharge and release any right to challenge the prepetition secured obligations, the priority of their obligations and the validity, extent and priority of the prepetition liens, subject in all respects to the challenge reservation
• Under section 1141(d)(4), the debtors waive any discharge of remaining DIP obligations or adequate protection obligations, and the Carve Out, DIP liens, superpriority claims and adequate protection obligations survive conversion, dismissal, a section 363(b) sale and plan confirmation
• The ABL credit agreement has the loan parties waive section 105 relief that would impair the ABL agent's or lenders' remedies and waive non-consensual use of cash collateral, limiting any notice-period hearing to whether a default occurred; the interim order, which governs any inconsistency, instead preserves the debtors' and any committee's right to seek an emergency hearing to contest a default or to obtain non-consensual use of cash collateral

Permitted Variance

• Term loan facility, tested as of the last day of each variance testing period, being the first four weeks of the initial budget reported on the fifth Friday after the petition date and each subsequent rolling four-week period:
  • Unfavorable cumulative variance in aggregate receipts may not exceed 20%
  • Unfavorable cumulative variance in aggregate disbursements, excluding professional fees, may not exceed 15%
• ABL facility, tested on a cumulative rolling four-week basis beginning Oct. 24, 2026 and each weekly anniversary:
  • Actual total collections may not fall below 80% of budgeted total collections
  • Actual total disbursements, excluding professional fees, may not exceed 115% of budget
• Minimum Liquidity: both facilities require liquidity, defined as unrestricted cash and cash equivalents of the loan parties plus excess availability under the ABL facility, of at least $25 million as of the last day of any calendar week
• Minimum Excess Availability: the ABL facility requires excess availability of at least $10 million at all times
• The ABL facility also caps aggregate cash held across all accounts, other than escrowed professional fee cash, at $32.5 million on a pro forma basis through the business day following any borrowing, with any excess applied to prepay the revolving loans, swingline loans and letter of credit borrowings
• Reporting under the term loan facility runs weekly: variance reports and liquidity calculations are due by 12:00 p.m. (Pacific Standard time) each Friday beginning Oct. 16, 2026, bifurcating operating and non-operating receipts and disbursements with line-item commentary on whether each material variance is permanent or timing-based; updated 13-week budgets and professional fee forecasts are due every fourth Friday and take effect only if satisfactory to the required DIP lenders in their sole discretion, with the existing budget remaining in effect until then. The ABL facility requires weekly borrowing base certificates each Friday by 12:00 p.m. (Pacific Time), weekly variance reports beginning Oct. 16, 2026 covering total collections, total disbursements, professional fees and inventory receipts, and weekly liquidity reports, plus updated 13-week budgets every fourth Friday that take effect only on the ABL agent's approval in its sole discretion

DIP Termination Events and Remedies

• Either facility's obligations accelerate and its commitments terminate, on instruction by the requisite lenders and without further Court action, on the earliest to occur of:
  • Any event of default under either DIP credit agreement, each of which is incorporated by reference into the interim order
  • The debtors' failure to comply with any provision of the interim order
  • The occurrence of the termination date or maturity date under either facility
  • Entry of an order authorizing, or the debtors' filing of a motion seeking, use of DIP collateral, cash collateral or financing under section 364 without the consent of the DIP ABL agent and the required consenting term loan lenders
  • Dismissal of any case or conversion to Chapter 7
  • Termination of the interim order without entry of the final order
  • The filing of a plan or disclosure statement not approved by the required consenting term loan lenders and the DIP ABL agent, whose approval may not be unreasonably withheld
• Remedies require a stay relief motion on not less than five business days' notice, which may be given by email, to the debtors, the U.S. Trustee, the term lender group, both agents and any committee, and require entry of a Court order granting that motion; the secured parties may then freeze and set off account balances, enforce against and foreclose on the DIP collateral, occupy the debtors' premises, and dispose of collateral
• During the notice period neither the DIP secured parties nor the prepetition secured parties may exercise default rights or remedies, the debtors may continue using previously drawn proceeds and cash collateral to fund operations in accordance with the approved budget, and the debtors or a committee may seek an emergency hearing solely to contest whether an event of default has occurred and is continuing or to seek non-consensual use of cash collateral. At the end of the notice period, absent a contrary order, the right to use cash collateral immediately ceases
• The DIP secured parties may enter leased premises after an event of default only under a separate written agreement with the landlord, pre-existing non-bankruptcy rights, the landlord's written consent, or a Court order entered after notice and an opportunity to be heard

Limitations on Use of Proceeds

• No DIP loans, DIP collateral, prepetition collateral, cash collateral or Carve Out amounts, other than the $75,000 investigation budget cap, may be used directly or indirectly, including through reimbursement of a non-debtor party's professional fees, to investigate, commence, prosecute or threaten any challenge to the DIP or prepetition liens, claims or obligations; to assert claims, counterclaims or avoidance actions against the DIP or prepetition secured parties or their representatives, other than for a DIP secured party's own failure to perform under the DIP documents; to hinder or delay enforcement against the collateral; to subordinate or recharacterize the obligations other than to the Carve Out; to modify the secured parties' rights without their consent; to pay prepetition claims absent Court approval or permission under the DIP documents; or to pay professional fees incurred in connection with any of the foregoing
• The limitations do not apply to defending against a prohibited action

Governance and Case Control

• The term loan facility requires the borrower to adopt a transformation committee mandate and constitute a transformation committee by a date set in the milestones, and thereafter to comply with that mandate in all material respects
• The borrower may not terminate or materially modify the consultant engagement letter of Steve Ortega without the consent of the required consenting term loan lenders, and must retain a financial advisor acceptable to the ABL agent, with Berkley Research Group acknowledged as acceptable
• Material pleadings, orders and filings must be provided in draft to the agents and the required consenting term loan lenders at least three business days before filing, subject to a shorter period in exigent circumstances, and the debtors may not assume or reject any material contract or unexpired lease without the required consenting term loan lenders' consent, not to be unreasonably withheld
• Material amendments to the DIP documents require Court approval, which may be sought on an expedited basis, while non-material or non-adverse amendments, milestone extensions, covenant and default waivers, and delivery of updated approved budgets do not
• Senior management and the debtors' financial advisors hold up to one call per week with the steering committee under the term loan, and separately with the ABL agent, on financial and operational performance and case status; the steering committee may inspect once per calendar year at the borrower's expense, and at any time during normal business hours on reasonable notice while an event of default exists