Magellan Aerospace, Middletown - Chapter 11 DIP Terms

DIP Terms

Borrower(s) / Guarantor(s)

• Magellan Aerospace, Middletown, Inc., as Borrower
• No Guarantors

Agent / Lender(s)

• Magellan Aerospace USA, Inc., the Debtor’s parent and existing prepetition unsecured lender, as DIP Lender
• No Agent

DIP Commitments

• $20 million revolving new-money credit facility:
  • Up to $2 million available upon entry of the interim order
  • The remaining balance available upon entry of the final order, in each case consistent with and to the extent required under the budget
  • The Debtor may make unlimited interim draws, provided it does not exceed the maximum principal amount available during the interim period and meets all requirements for interim loans under the DIP term sheet
• Upon entry of the final order, prepetition obligations equal to three times the aggregate principal amount of funded DIP loans will be rolled up, secured by the DIP liens and entitled to DIP superpriority claims pari passu with the new-money DIP obligations:
  • The roll-up may not exceed $60 million and is subject to any limitations or modifications ordered by the court
  • The Debtor owes more than $80 million of unsecured prepetition intercompany loans to the DIP Lender
• Advances require one business day’s prior written notice, and the Debtor must pay all accrued and unpaid interest outstanding at the time of the borrowing notice
• No letters of credit may be issued under or in connection with the facility
• The documents define "DIP Facility" inconsistently: the motion defines it as the new money loaned together with the rolled-up prepetition loans, while the DIP Term Sheet uses the term to refer to the $20 million revolving facility alone

Cash Collateral and Cash Management

• As of the petition date, no entity held a security interest in the Debtor’s property, and the Debtor believes no person or entity has a lien on its cash
• To the extent any entity holds a validly perfected prepetition lien, the Debtor anticipates continuing to use cash collateral
• The Debtor must maintain the same or a substantially similar prepetition cash management system, with material changes subject to the DIP Lender’s commercially reasonable approval
• The interim and final orders will grant the DIP Lender a valid and enforceable lien and security interest in cash held in the Debtor’s bank accounts

Interest Rate

• SOFR + 1.5% per annum, accruing from and after the petition date
• Accrued and unpaid interest is payable on the last business day of each month and before or in connection with each borrowing notice
• Upon the Termination Date, interest on outstanding obligations increases by 2.0% per annum under the DIP Term Sheet. The Rule 4001 summary chart and the proposed interim order instead tie the 2.0% increase to the occurrence of an event of default.
• Interest is calculated using a 365-day year, or 366 days in a leap year, for the actual number of days elapsed
• The proposed interim order states that DIP loan debt bears interest at "the Default Rate (as defined in the DIP Term Sheet)" plus an additional 2.0% following an event of default. The DIP Term Sheet defines a Non-Default Interest Rate and a Default Interest Rate but does not define a "Default Rate," and as drafted the interim order would set the base rate at the default rate and add a further 2.0%. The proposed interim order provides that it controls in the event of a conflict with the DIP documents.

Fees

• No origination fee, original issue discount, prepayment fee or exit fee
• The Debtor must reimburse the DIP Lender for all reasonable and documented costs and expenses, including legal, financial advisor and similar fees and expenses incurred in connection with the DIP Facility and the chapter 11 case on a prepetition or postpetition basis
• Reimbursable expenses are payable promptly upon written demand, but no later than 10 business days after demand, without further court approval and regardless of whether included in the budget
• Failure to pay such expenses within 10 business days after delivery of the applicable invoice constitutes an event of default
• The proposed interim order separately states that there are no fees associated with the DIP loan, which is in tension with the DIP Term Sheet's lender fee and expense reimbursement obligation

Maturity and Termination

• The Termination Date is the earliest to occur of:
  • 15 days after the petition date, if the interim order has not been entered
  • 40 days after the petition date, if the final order has not been entered
  • The occurrence and continuation of an event of default beyond any applicable cure or grace period
  • The effective date of a confirmed plan of reorganization or liquidation that provides for indefeasible payment in full of all obligations, including prepetition obligations to the extent of the roll-up amount, or is otherwise acceptable to the DIP Lender in its reasonable discretion (the Rule 4001 summary chart states sole discretion)
  • The closing date of any section 363 sale
  • 180 days after the petition date
• Upon the Termination Date, the DIP Facility terminates, the DIP Lender has no further funding obligation, and all DIP obligations and rolled-up prepetition obligations become immediately due and payable
• The DIP Term Sheet provides that the facility terminates on the earliest of the specified Termination Date events, including 180 days after the petition date, whereas the proposed interim order separately states that DIP loan debt matures on December 31, 2026, subject to extension by the DIP Lender in its sole and absolute discretion. Because December 31, 2026 is earlier than 180 days after the July 22, 2026 petition date, the documents contain potentially inconsistent outside maturity provisions; the proposed interim order states that it controls in the event of a conflict with the DIP documents.

Carve Out

• Unpaid postpetition fees and expenses of the court clerk and U.S. Trustee under 28 U.S.C. § 1930(a)
• Unpaid postpetition fees and expenses incurred before delivery of a Termination Date notice by retained Debtor and committee professionals, subject to subsequent court allowance and available retainers:
  • Committee professionals are subject to a $50,000 cap
• Post-Termination Date notice professional fee caps:
  • Debtor professionals: $250,000
  • Official committee professionals: $100,000
• Fees and expenses of a trustee under section 726(b) of the Bankruptcy Code, up to $50,000
• The Debtor must deposit the budgeted amount for professionals and the U.S. Trustee into the Carve Out Account at the end of each calendar week

Use of Proceeds

• Proceeds may be used, in each case consistent with the budget, to:
  • Fund postpetition operating expenses and working capital needs after applying all other available cash, including activities required to remain in or return to legal compliance
  • Pay the DIP Lender’s fees and expenses
  • Fund the Carve Out Account
  • Pay professional fees incurred by or for the benefit of the Debtor or the DIP Lender
  • Pay other costs and expenses of administering the chapter 11 case in the ordinary course, or outside the ordinary course with the DIP Lender’s written consent, which may not be unreasonably withheld or delayed
• DIP proceeds and cash collateral may not be used to:
  • Challenge or contest the validity, perfection or priority of the DIP Lender’s or its affiliates’ security interests
  • Commence, prosecute or defend claims or proceedings against the DIP Lender, its affiliates or their representatives, including lender-liability or subordination claims
  • Disallow or challenge the Debtor’s obligations under the DIP documents
  • Fund acquisitions, capital expenditures, capital leases or similar expenditures

Credit Bid

• Magellan USA may use all or any portion of the Prepetition Loans or DIP Loan to credit bid in connection with any bulk or piecemeal sale or other disposition of all or any portion of the DIP Collateral under section 363, section 1129 or otherwise

Avoidance Actions

• Upon entry of the final order, DIP Collateral will include avoidance actions arising under chapter 5 of the Bankruptcy Code or applicable state law and their proceeds
• The DIP Lender’s superpriority claim may not be paid from avoidance actions or their proceeds

Challenge Period

• Not applicable

Security and Priorities

• The DIP obligations and roll-up amount, including accrued interest, fees, costs and expenses, receive superpriority administrative expense claims:
  • The claims are subject and subordinate to the Carve Out
  • Prepetition permitted liens and prepetition lender adequate protection claims are senior to the DIP superpriority claims
• The DIP obligations and rolled-up prepetition obligations are secured by valid, enforceable and fully perfected liens on substantially all property of the estate, granted under sections 364(c)(2), 364(c)(3) and 364(d)(1) and subject only to validly perfected, enforceable and unavoidable liens existing on the petition date. Priming authority under section 364(d)(1) is invoked notwithstanding the Debtor's statement that no entity holds a security interest in its property.
• The DIP liens include:
  • First-priority liens on unencumbered property, including avoidance actions and their proceeds upon entry of the final order
  • Junior liens on assets encumbered by permitted senior liens
• The DIP liens are effective and perfected as of the petition date without further filing, notice or action, although the DIP Lender may make filings to memorialize the liens

Adequate Protection

Prepetition Lenders

• To the extent any Prepetition Lender exists, it will receive:
  • An administrative expense claim subject to the Carve Out, the DIP Lender’s superpriority claims and the Prepetition Lender’s existing claims against its prepetition collateral
  • Valid, binding, enforceable and perfected replacement liens on DIP Collateral, subject to the Carve Out and prepetition liens, equal to any postpetition diminution in the value of its prepetition collateral resulting from its sale, use, lease or disposition

Conditions Precedent to Borrowing

• The initial draw is subject to conditions that include:
  • Entry of an interim order, in form and substance satisfactory to the DIP Lender in its sole discretion, approving the facility, DIP liens and superpriority claims and providing for exercise of remedies upon at least five days’ notice; the order must not have been modified or amended without the DIP Lender’s approval or reversed, vacated or stayed pending appeal
  • Continuation of the Debtor’s existing cash management system
  • A DIP Lender-approved budget and disclosure of all material budget assumptions
  • Delivery of a borrowing notice by 11:00 a.m. ET one business day before the requested funding date, unless the DIP Lender agrees to a later time in its sole discretion
  • A draw amount not exceeding forecasted cash requirements under the budget for the applicable borrowing period
  • The DIP Lender’s advance review of first-day motions and other pleadings relating to the facility, with such documents being reasonably satisfactory to it
  • Maintenance of insurance on the DIP Collateral in amounts and scope reasonably acceptable to the DIP Lender
  • Accuracy of the representations and warranties in the DIP Term Sheet
  • The DIP Term Sheet’s compliance with applicable law and the absence of any injunction against it
• Subsequent draws are subject to substantially similar conditions, including entry of an unmodified, unstayed final order satisfactory to the DIP Lender in its sole discretion, compliance with the DIP Term Sheet and interim order, maintenance of acceptable insurance, payment of all interest, fees and expenses then owing to the DIP Lender, and the absence of a default or event that would become a default with notice or lapse of time
• Each borrowing is also conditioned on the absence of a material adverse change, other than commencement and continuation of the chapter 11 case, that in the DIP Lender’s reasonable judgment has or could reasonably be expected to materially affect its rights and remedies or the Debtor’s ability to perform its obligations

Events of Default

• Events of default include:
  • Entry of an interim or final order that is not acceptable to the DIP Lender in its reasonable discretion under the DIP Term Sheet, or in its sole discretion under the Rule 4001 summary chart and the proposed interim order
  • Conversion of the case to chapter 7, dismissal of the case or the filing of a motion seeking either form of relief
  • Filing, supporting or seeking confirmation of a plan that does not provide for indefeasible payment in full of the DIP obligations and rolled-up prepetition obligations, unless otherwise agreed by the DIP Lender
  • Appointment of a section 1104 trustee without the DIP Lender’s written consent, or the filing of a motion seeking such appointment that the Debtor fails to timely oppose
  • An order staying or vacating the facility or DIP orders without the DIP Lender’s consent, or a motion seeking such relief that the Debtor fails to timely oppose
  • An attempt to invalidate, reduce or impair the DIP Lender’s claims or surcharge its collateral under section 506(c)
  • Entry of a final order granting a creditor holding a claim exceeding $1 million relief from the automatic stay or the right to retain or withhold assets valued above $1 million
  • Failure to make payments when due or a material breach of the DIP documents or DIP orders
  • Action restricting the DIP Lender’s ability to credit bid
  • Failure to distribute sale proceeds to the DIP Lender contemporaneously with a sale closing, subject to the Carve Out
  • Commencement of a non-stayed suit seeking to reduce, set off or subordinate the DIP obligations or liens
  • Denial or loss of authorization to use cash collateral
  • Allowance of an administrative expense claim exceeding $250,000 that is not subordinated to the DIP Lender’s superpriority claims
  • Seeking to grant liens other than the DIP liens
  • Payment of, or an application to pay, a prepetition claim or other amount without the DIP Lender’s consent, other than budgeted amounts subject to permitted variances
  • Failure to comply with the budget, subject to permitted variances

Additional Covenants and Lender Access

• Other than the DIP Loan, the Debtor may not incur or seek secured or section 364(c)(1) superpriority debt unless the Debtor and Magellan USA consent, no debt or further funding obligation is then outstanding, or the new credit is first used to pay the Prepetition Loans in full in cash
• The Debtor must maintain and insure the DIP Collateral, pay postpetition taxes, assessments and governmental charges relating to it, provide proof upon written demand, and name the lenders as lender loss payees or additional insureds, as applicable
• Upon reasonable notice and at the Debtor’s expense, Magellan USA and its representatives may inspect the Debtor’s premises, assets, books and records and access its personnel and retained professionals, except where disclosure would compromise attorney-client privilege

Automatic Stay and Remedies

• The proposed DIP orders will modify the automatic stay to permit creation and perfection of the DIP liens
• Following the Termination Date, and absent a contrary court order during the applicable notice period, the DIP Lender may realize on the DIP Collateral and exercise available remedies without obtaining further court relief
• The DIP Term Sheet requires the requested DIP orders to permit the DIP Lender, following an event of default and the resulting Termination Date, to exercise remedies against the DIP Collateral upon at least five days’ notice to the Debtor, U.S. Trustee and any committee; the proposed interim order as filed expressly modifies the stay to create and perfect the DIP liens but does not itself contain the contemplated five-day enforcement provision

Releases and Stipulations

• Subject to the rights of parties in interest set forth in the proposed interim order, the Debtor stipulates that:
  • The Prepetition Loans are legal, valid and binding obligations and constitute an allowed unsecured claim exceeding $80 million
  • Prepetition Loans rolled up upon entry of the final order will become secured claims in an amount not exceeding $60 million
  • No offsets, defenses, counterclaims or other challenges exist with respect to the Prepetition Loans
  • The Debtor releases and is barred from asserting claims, defenses or setoff rights relating to the Prepetition Loans or otherwise against Magellan USA and its affiliates, subsidiaries, agents, officers, directors, employees, professionals, advisors, predecessors, successors and assigns
• The scope and timing of the release differ across the documents. The DIP Term Sheet provides for a release, effective only upon entry of the final order, of claims arising from or related to the DIP financing, and expressly preserves claims that do not so arise. The Rule 4001 summary chart likewise describes a release limited to claims related to the DIP Facility. The stipulation in the proposed interim order, by contrast, extends to claims relating to the Prepetition Loans "or otherwise" and is not by its terms deferred to the final order.
• The DIP documents do not provide for a challenge period or an investigation deadline for a committee or other parties in interest

Indemnification

• The Debtor will indemnify and hold harmless Magellan USA as applicable
• The indemnification obligations may not be discharged or deemed unenforceable against a liquidating trust established under a Debtor-proposed plan without Magellan USA’s prior written consent

Budget

• The proposed 13-week budget runs from the week ending July 24, 2026 through the week ending October 16, 2026 and projects:
  • Operating receipts of approximately $10.5 million and DIP draws of $8.0 million, for total receipts of approximately $18.5 million
  • Total disbursements of approximately $15.7 million, comprising approximately $12.0 million of operating expenses and $3.7 million of restructuring disbursements
  • Ending cash of approximately $2.7 million
• Budgeted DIP draws are $2 million in the week ending July 31, 2026 and $6 million in the week ending August 21, 2026, with no further draws in the projection period
• Because the roll-up amount is calculated as three times the aggregate principal amount of funded DIP loans, the budgeted $8 million of draws would correspond to approximately $24 million of rolled-up prepetition obligations, against the $60 million cap that would require the full $20 million commitment to be drawn
• Budgeted operating expenses include approximately $4.3 million of environmental costs, $3.3 million of COGS and administrative expenses, $3.2 million of payroll and benefits, and $674,000 of intercompany disbursements
• Budgeted restructuring disbursements include approximately $1.8 million for critical vendors, $900,000 for lead counsel, $250,000 for the financial advisor, $200,000 each for local counsel and committee professionals, $125,000 for the claims agent, $100,000 for the sale agent, $75,000 for DIP lender counsel and $30,000 for the independent director
• The budget's DIP fees and interest line is zero in each of the 13 weeks, notwithstanding that interest accrues from the petition date and is payable monthly

Covenants, Milestones and Reporting

• The DIP Term Sheet states that there are no milestones, no affirmative or negative covenants, and no representations and warranties
• Those entries sit uneasily with other provisions of the same document: budget compliance and breach of covenants are enumerated events of default, and the conditions precedent to each draw require that the representations and warranties contained in the DIP Term Sheet be true and correct
• The variance covenant is measured against a "Variance Report," which is not defined or otherwise required anywhere in the DIP documents. The Rule 4001 summary chart cites page 12 of the proposed interim order for reporting information; that page sets out events of default rather than any reporting obligation.

Waivers

• Subject to entry of the final order:
  • Sections 506(c) and 105(a): The Debtor waives the ability to surcharge the DIP Collateral
• No section 552(b) waiver
• The DIP Collateral definition includes proceeds of the Debtor's rights under sections 506(c) and 550, notwithstanding the contemplated section 506(c) surcharge waiver
• Magellan USA and the DIP Collateral are not subject to the doctrine of marshaling
• The Debtor waives its rights to:
  • Return DIP Collateral under section 546(h)
  • Consent to an order allowing claims under section 503(b)(9)
  • Consent to setoff under section 553

Permitted Variance

• Permitted Variance: Up to 20% from the budget for each applicable measurement period
• The aggregate variance for disbursements may not exceed 120% for any applicable measured period:
  • Deferred disbursements are attributed to their originally budgeted period to the extent necessary to avoid a violation in the period when paid
  • Professional-fee disbursements are measured using the amounts escrowed each week
• Aggregate receipts may not be less than 80% of budget for any applicable measured period:
  • Accelerated receipts are attributed to their originally budgeted reporting period to the extent necessary to avoid a violation in that period

Governing Law

• Ohio law, subject to applicable federal bankruptcy law
• The Debtor and DIP Lender consent to nonexclusive jurisdiction and venue in state or federal courts located in the Southern District of Ohio and waive trial by jury to the fullest extent permitted by law