1024-00001 · Driftwood Absolute Return Fund Ltd · Transaction Documents

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UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

In re:

CASCABEL FINANCIAL HOLDINGS, INC., a Delaware corporation, and CASCABEL ASSET MANAGEMENT LLC, a Delaware limited liability company,

Debtors.

Case No. 23-11487 (KFM)

Chapter 11

(Jointly Administered)

STIPULATION AND AGREED ORDER REGARDING ADEQUATE PROTECTION FOR PRE-PETITION FIRST LIEN LENDERS IN CONNECTION WITH THE SENIOR SECURED SUPERPRIORITY DEBTOR-IN-POSSESSION CREDIT FACILITY

Filed: October 9, 2023

This Stipulation and Agreed Order Regarding Adequate Protection for Pre-Petition First Lien Lenders in Connection with the Senior Secured Superpriority Debtor-in-Possession Credit Facility (this "Stipulation") is entered into as of October 9, 2023, by and among the following parties (each a "Party" and collectively the "Parties"):

(i) Driftwood Absolute Return Fund Ltd., a Cayman Islands exempted company (in its capacity as DIP Lender under the DIP Credit Agreement (as defined below), the "DIP Lender" or "Driftwood"), acting through its investment manager, Driftwood Capital Advisors LLC, a Delaware limited liability company, with its principal office at 280 Park Avenue, 38th Floor, New York, New York 10017;

(ii) Cascabel Financial Holdings, Inc., a corporation organized and existing under the laws of the State of Delaware ("Cascabel" or "CFH"), with its principal office at 1200 Market Street, Suite 900, Wilmington, Delaware 19801;

(iii) Cascabel Asset Management LLC, a limited liability company organized and existing under the laws of the State of Delaware and a registered investment adviser with the U.S. Securities and Exchange Commission ("CAM" and, together with CFH, the "Debtors");

(iv) Velthorn National Bank, N.A., a national banking association organized and existing under the laws of the United States, with its principal office at 500 Boylston Street, Boston, Massachusetts 02116, in its capacity as administrative agent (in such capacity, the "Pre-Petition Agent") under the Pre-Petition First Lien Credit Agreement (as defined below) and as a lender holding Thirty-Eight Million Dollars ($38,000,000) of the Pre-Petition First Lien Facility; and

(v) Pinnacle Credit Partners Fund II, LP, a limited partnership organized and existing under the laws of the State of Delaware ("Pinnacle"), in its capacity as a lender holding Twenty-Eight Million Dollars ($28,000,000) of the Pre-Petition First Lien Facility.

Velthorn National Bank, N.A. and Pinnacle Credit Partners Fund II, LP are referred to herein collectively as the "Ad Hoc Group," and together hold an aggregate of Sixty-Six Million Dollars ($66,000,000) of the One Hundred Twenty Million Dollar ($120,000,000) Pre-Petition First Lien Facility.

Brindoval Institutional Lending, LLC, a holder of Twenty-Two Million Dollars ($22,000,000) of the Pre-Petition First Lien Facility, is not a signatory to this Stipulation but shall benefit from the terms and protections set forth herein in its capacity as a Pre-Petition Secured Lender, as more fully described in Section 5.3 below.

This Stipulation embodies the terms of a global settlement reached on October 6, 2023, among the Parties, resolving (a) the objection filed by the Ad Hoc Group on September 19, 2023 (Dkt. No. 47) (the "Ad Hoc Group Objection") to the priming lien and roll-up provisions of the DIP Credit Facility, and (b) the limited objection filed on October 2, 2023, by the Official Committee of Unsecured Creditors (the "Committee"), appointed by the United States Trustee on September 22, 2023, through its counsel, Breckenridge McCoy LLP (Thomas A. Breckenridge, Lead Partner, 919 North Market Street, Suite 700, Wilmington, Delaware 19801) (the "Committee Objection"), regarding the Carve-Out amount and the Challenge Period.

This Stipulation is submitted to and subject to approval by the Honorable Karen F. McAllister, United States Bankruptcy Judge for the District of Delaware.

RECITALS

WHEREAS, the Parties make the following recitals in support of this Stipulation:

A. The Chapter 11 Cases

On September 8, 2023 (the "Petition Date"), each of Cascabel Financial Holdings, Inc. and Cascabel Asset Management LLC filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Code, 11 U.S.C. §§ 101–1532 (the "Bankruptcy Code"), in this Court. The Debtors' Chapter 11 cases are being jointly administered under Case No. 23-11487 (KFM) for procedural purposes only pursuant to Rule 1015(b) of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules") and Local Bankruptcy Rule 1015-1. No trustee or examiner has been appointed in the Chapter 11 Cases. The Debtors continue to manage and operate their businesses as debtors in possession pursuant to §§ 1107 and 1108 of the Bankruptcy Code.

Ridgeline Community Bank, a Delaware state-chartered commercial bank regulated by the Delaware Office of the State Bank Commissioner and the Federal Deposit Insurance Corporation (the "FDIC"), with total deposits of approximately Three Hundred Eighty-Five Million Dollars ($385,000,000) as of the Petition Date, is a wholly-owned subsidiary of Cascabel Financial Holdings, Inc. Ridgeline Community Bank was excluded from the Chapter 11 filing and continues to operate under the supervision and oversight of its applicable bank regulators. No assets of Ridgeline Community Bank are subject to the liens or claims granted or created under this Stipulation, the DIP Credit Agreement, or the DIP Orders, except as may otherwise be expressly provided therein and as permitted by applicable regulatory authorities.

As of the Petition Date, Cascabel had total consolidated assets of approximately Six Hundred Twenty Million Dollars ($620,000,000) and total consolidated liabilities of approximately Seven Hundred Ten Million Dollars ($710,000,000), resulting in a negative consolidated equity position of approximately Ninety Million Dollars ($90,000,000).

Gerald T. Harmon serves as the Chief Executive Officer of the Debtors. Susan K. Nakamura serves as the Chief Financial Officer of the Debtors. On August 25, 2023, approximately two weeks prior to the Petition Date, the Debtors retained Alderpoint Advisory Partners LLC, with its principal office at 399 Park Avenue, 22nd Floor, New York, New York 10022, and Terrence M. Kowalski, a senior managing director of Alderpoint Advisory Partners LLC, was appointed as Chief Restructuring Officer (the "CRO") of the Debtors. The CRO has been instrumental in managing the Debtors' restructuring efforts and in negotiating the terms of this Stipulation.

B. Pre-Petition Capital Structure

The Debtors' pre-petition funded indebtedness totaled approximately One Hundred Eighty-Three Million Five Hundred Thousand Dollars ($183,500,000), consisting of the following:

First Lien Term Loan. On January 15, 2021, Cascabel Financial Holdings, Inc., as borrower, entered into that certain Credit Agreement (as amended, restated, supplemented, or otherwise modified from time to time, the "Pre-Petition First Lien Credit Agreement") providing for a senior secured term loan facility in the original aggregate principal amount of One Hundred Twenty Million Dollars ($120,000,000) (the "Pre-Petition First Lien Facility"), with Velthorn National Bank, N.A. as administrative agent (in such capacity, the "Pre-Petition Agent"). The Pre-Petition First Lien Facility matures on January 15, 2026, and bears interest at a rate per annum equal to Adjusted Term SOFR plus 425 basis points. The obligations under the Pre-Petition First Lien Credit Agreement are secured by first priority liens on substantially all assets of the Debtors, subject to certain customary exceptions. As of the Petition Date, the outstanding principal balance under the Pre-Petition First Lien Facility was One Hundred Twenty Million Dollars ($120,000,000), plus accrued and unpaid interest, fees, costs, and expenses. The lender holdings under the Pre-Petition First Lien Facility are as follows:

(a) Velthorn National Bank, N.A. — Thirty-Eight Million Dollars ($38,000,000);

(b) Pinnacle Credit Partners Fund II, LP — Twenty-Eight Million Dollars ($28,000,000);

(d) Driftwood Absolute Return Fund Ltd. — Thirty-Two Million Dollars ($32,000,000), representing approximately 26.67% of the total Pre-Petition First Lien Facility, acquired by Driftwood on the secondary market between March 2023 and July 2023 at an average purchase price of $0.68 per dollar of face value, for an aggregate cost basis of approximately Twenty-One Million Seven Hundred Sixty Thousand Dollars ($21,760,000).

Second Lien Notes. On June 1, 2022, Cascabel Financial Holdings, Inc. issued Forty-Five Million Dollars ($45,000,000) in aggregate principal amount of 10.50% Senior Secured Second Lien Notes due 2027 (the "Second Lien Notes") under an indenture dated June 1, 2022 (the "Second Lien Indenture"), with Zynvaro Trust Company, with its principal office at 101 Hudson Street, Jersey City, New Jersey 07302, as indenture trustee (the "Second Lien Trustee"). As of the Petition Date, the outstanding principal balance of the Second Lien Notes was Forty-Five Million Dollars ($45,000,000), plus accrued and unpaid interest. Ashford Mezzanine Capital, LP holds approximately Thirty Million Dollars ($30,000,000) of the Forty-Five Million Dollars ($45,000,000) in outstanding Second Lien Notes. The Second Lien Notes are secured by second priority liens on substantially all assets of the Debtors, junior to the liens securing the Pre-Petition First Lien Facility.

Unsecured Notes. Cascabel Financial Holdings, Inc. has outstanding unsecured promissory notes in the aggregate principal amount of Eighteen Million Five Hundred Thousand Dollars ($18,500,000) bearing interest at a fixed rate of 8.00% per annum and maturing on March 1, 2025 (the "Unsecured Notes").

C. The DIP Credit Facility

On the Petition Date, the Debtors filed a motion (Dkt. No. 15) (the "DIP Motion") seeking authority pursuant to §§ 364(c) and 364(d) of the Bankruptcy Code to enter into a Senior Secured Superpriority Debtor-in-Possession Credit Agreement (the "DIP Credit Agreement") with Driftwood Absolute Return Fund Ltd. as DIP Lender, providing for a debtor-in-possession credit facility in the aggregate principal amount of Seventy-Five Million Dollars ($75,000,000) (the "DIP Facility" or the "DIP Credit Facility"). The DIP Facility consists of the following tranches:

(i) New Money DIP Tranche: Forty-Three Million Dollars ($43,000,000) in new money term loans, to be advanced in two draws: Draw 1 in the amount of Eighteen Million Dollars ($18,000,000), available upon entry of the Interim DIP Order (as defined below); and Draw 2 in the amount of Twenty-Five Million Dollars ($25,000,000), available upon entry of the Final DIP Order (as defined below) (collectively, the "New Money DIP Tranche"); and

(ii) Roll-Up Tranche: Thirty-Two Million Dollars ($32,000,000), representing a dollar-for-dollar roll-up of Driftwood's pre-petition first lien claims under the Pre-Petition First Lien Facility upon entry of the Final DIP Order, converting those claims to superpriority administrative expense claims with DIP lien priority, pari passu with the New Money DIP Tranche (the "Roll-Up Tranche," and the aggregate amount of Driftwood's pre-petition first lien claims so rolled up, the "Roll-Up Amount").

The DIP Facility bears interest at a rate per annum equal to Adjusted Term SOFR plus 900 basis points, with a SOFR floor of 4.00%, resulting in a minimum all-in rate of 13.00% per annum. Upon the occurrence and during the continuance of an Event of Default (as defined in the DIP Credit Agreement), an additional 200 basis points shall apply, resulting in a minimum default rate of 15.00% per annum. In addition to interest, the DIP Facility provides for the following fees: (a) a commitment fee equal to 2.00% of the total Seventy-Five Million Dollar ($75,000,000) commitment, in the amount of One Million Five Hundred Thousand Dollars ($1,500,000), payable upon entry of the Interim DIP Order; (b) an exit fee equal to 1.50% of all amounts drawn under the DIP Facility, in the amount of One Million One Hundred Twenty-Five Thousand Dollars ($1,125,000), payable upon the maturity, termination, or repayment of the DIP Facility; and (c) an unused line fee of 0.50% per annum on the undrawn portion of the New Money DIP Tranche.

The DIP Facility grants the DIP Lender first priority priming liens (the "DIP Liens") on substantially all assets of the Debtors (excluding Ridgeline Community Bank assets subject to regulatory restrictions), including avoidance action proceeds, pursuant to § 364(d) of the Bankruptcy Code, and superpriority administrative expense claims (the "DIP Superpriority Claims") pursuant to § 364(c)(1) of the Bankruptcy Code, in each case senior to all other liens and claims except for the Carve-Out (as defined herein).

The DIP Credit Agreement requires the Debtors to maintain and comply with a 13-week rolling cash flow budget (the "DIP Budget"), to be updated every four (4) weeks, with variance testing thresholds of plus or minus ten percent (±10%) on revenue and plus or minus fifteen percent (±15%) on disbursements, in each case tested on a cumulative bi-weekly basis.

D. Entry of the Interim DIP Order

On September 15, 2023, after notice and a hearing, this Court entered the Interim Order (I) Authorizing the Debtors to Obtain Senior Secured Superpriority Post-Petition Financing, (II) Granting Liens and Superpriority Administrative Expense Claims, (III) Granting Adequate Protection, and (IV) Scheduling a Final Hearing (Dkt. No. 38) (the "Interim DIP Order"), authorizing the Debtors to borrow up to Eighteen Million Dollars ($18,000,000) under Draw 1 of the New Money DIP Tranche on an interim basis, granting interim priming liens to the DIP Lender, and providing interim adequate protection to the Pre-Petition Secured Lenders pending entry of a final order. Promptly following entry of the Interim DIP Order, Draw 1 was advanced, and the following amounts were funded from Draw 1 proceeds: (a) the commitment fee of One Million Five Hundred Thousand Dollars ($1,500,000) was paid to the DIP Lender; and (b) the adequate protection reserve of Three Million Five Hundred Thousand Dollars ($3,500,000) (the "Adequate Protection Reserve") was funded and deposited into a segregated account held by the Pre-Petition Agent.

E. The Ad Hoc Group Objection

On September 19, 2023, the Ad Hoc Group of First Lien Lenders, comprised of Velthorn National Bank, N.A. and Pinnacle Credit Partners Fund II, LP, holding an aggregate of Sixty-Six Million Dollars ($66,000,000) of the One Hundred Twenty Million Dollar ($120,000,000) Pre-Petition First Lien Facility (representing 55.00% of the total Pre-Petition First Lien Facility), through their counsel Hartwell & Crane LLP (Monica L. Hartwell, Lead Partner, 51 JFK Parkway, Suite 200, Short Hills, New Jersey 07078), filed an objection (the "Ad Hoc Group Objection") (Dkt. No. 47) to entry of the Final DIP Order. The Ad Hoc Group Objection challenged the priming of the Pre-Petition First Lien Facility by the DIP Facility pursuant to § 364(d) of the Bankruptcy Code and the dollar-for-dollar roll-up of Driftwood's Thirty-Two Million Dollar ($32,000,000) pre-petition first lien claims into the DIP Facility. In particular, the Ad Hoc Group Objection asserted, among other things, that: (a) the adequate protection proposed in the DIP Motion was insufficient to protect the Ad Hoc Group's interests against the diminution in value of their collateral resulting from the granting of senior priming liens to the DIP Lender; (b) the roll-up of Driftwood's pre-petition first lien claims elevated a pre-petition pari passu lender's position to the detriment of the remaining first lien lenders; and (c) the terms of the DIP Facility, including the interest rate, fees, and milestones, were not commercially reasonable under the circumstances.

F. The Committee's Limited Objection

On September 22, 2023, the United States Trustee for Region 3 appointed the Official Committee of Unsecured Creditors (the "Committee") in the Debtors' Chapter 11 Cases. The Committee is chaired by Vendara Technology Solutions, Inc., a trade creditor owed approximately Three Million Two Hundred Thousand Dollars ($3,200,000) for software licensing services, and its members include Cornerpoint Consulting Group LLC, owed approximately One Million Eight Hundred Thousand Dollars ($1,800,000) for consulting services, and three individual former executives of the Debtors with deferred compensation claims aggregating approximately Two Million Four Hundred Thousand Dollars ($2,400,000).

On October 2, 2023, the Committee, through its counsel Breckenridge McCoy LLP (Thomas A. Breckenridge, Lead Partner, 919 North Market Street, Suite 700, Wilmington, Delaware 19801), filed a limited objection (the "Committee Objection") (Dkt. No. 62) to entry of the Final DIP Order. The Committee Objection contested (i) the aggregate amount of the Carve-Out for professional fees, which the Committee contended was insufficient to fund the Committee's investigation and prosecution of potential claims and causes of action on behalf of the Debtors' estates, and (ii) the length of the Challenge Period for investigation of the validity and enforceability of pre-petition liens and the roll-up, which the Committee contended was too short to permit a meaningful investigation of the Pre-Petition Secured Lenders' liens and Driftwood's pre-petition claims.

G. Negotiations and Settlement

Following the filing of the Ad Hoc Group Objection and the Committee Objection, the Parties engaged in extensive, good-faith, arms'-length negotiations over the course of several weeks in an effort to resolve all outstanding disputes regarding the DIP Facility and to reach a consensual resolution that would allow the Debtors to obtain the full DIP Facility and proceed with their restructuring efforts.

Driftwood, through its counsel Calderwood & Harkness LLP (Colette Whitman, Responsible Partner, 599 Lexington Avenue, New York, New York 10022; Wilmington office: 1000 North King Street, Suite 300, Wilmington, Delaware 19801), proposed an enhanced adequate protection package to Hartwell & Crane LLP by letter dated October 3, 2023. The enhanced proposal addressed the principal concerns raised by the Ad Hoc Group, including increased adequate protection payments, the establishment and maintenance of the Adequate Protection Reserve, the granting of replacement liens and superpriority administrative expense claims, and the reimbursement of the Ad Hoc Group's professional fees.

Simultaneously, the Debtors, through their counsel Whitfield, Graves & Sato LLP (Jonathan R. Whitfield, Lead Partner, and Rachel P. Dumont, Lead Associate, 1201 North Market Street, Suite 1500, Wilmington, Delaware 19801), and their financial advisor Alderpoint Advisory Partners LLC (CRO Terrence M. Kowalski) and investment banker Solstice Partners LLC (David R. Chin, Managing Director, 650 Fifth Avenue, 18th Floor, New York, New York 10019), participated in the negotiations and facilitated discussions among all constituencies.

On October 6, 2023, the Parties reached a global settlement resolving all issues raised in the Ad Hoc Group Objection and the Committee Objection. The Debtors, through their counsel and advisors, have reviewed the terms of the settlement and support the settlement as being in the best interests of the Debtors' estates, their creditors, and all parties in interest.

H. Purpose of Stipulation

This Stipulation sets forth the enhanced adequate protection to be provided to the Pre-Petition Secured Lenders (as defined herein), resolves the Ad Hoc Group Objection and the Committee Objection in their entirety, and is intended to be incorporated into and made a part of the Final Order (I) Authorizing the Debtors to Obtain Senior Secured Superpriority Post-Petition Financing, (II) Granting Liens and Superpriority Administrative Expense Claims, (III) Granting Adequate Protection, and (IV) Granting Related Relief (the "Final DIP Order") to be entered by this Court on or about October 13, 2023.

NOW, THEREFORE, in consideration of the mutual covenants, agreements, and obligations set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby stipulate and agree as follows:

ARTICLE I — DEFINITIONS

Section 1.1 — Defined Terms. As used in this Stipulation, the following terms shall have the meanings ascribed to them below. All capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the DIP Credit Agreement, dated as of October 13, 2023, by and among Cascabel Financial Holdings, Inc., as borrower, Cascabel Asset Management LLC, as guarantor, and Driftwood Absolute Return Fund Ltd., as DIP Lender (as the same may be amended, restated, supplemented, or otherwise modified from time to time, the "DIP Credit Agreement"), the terms of which are incorporated herein by reference.

(a) "Ad Hoc Group" means, collectively, Velthorn National Bank, N.A. and Pinnacle Credit Partners Fund II, LP, as holders of an aggregate of Sixty-Six Million Dollars ($66,000,000) of the Pre-Petition First Lien Facility.

(b) "Adequate Protection Default" has the meaning set forth in Section 8.1 hereof.

(c) "Adequate Protection Liens" means the replacement liens granted to the Pre-Petition Secured Lenders pursuant to Section 2.1 hereof and the Final DIP Order.

(d) "Adequate Protection Payments" means the monthly adequate protection payments to be made by the Debtors to the Pre-Petition Secured Lenders (through the Pre-Petition Agent) pursuant to Section 2.3 hereof.

(e) "Adequate Protection Reserve" means the segregated cash reserve in the amount of Three Million Five Hundred Thousand Dollars ($3,500,000) funded from Draw 1 proceeds upon entry of the Interim DIP Order and maintained in a segregated account held by the Pre-Petition Agent, as more fully described in Section 2.4 hereof.

(f) "Bankruptcy Code" means Title 11 of the United States Code, 11 U.S.C. §§ 101–1532, as amended from time to time.

(g) "Bankruptcy Rules" means the Federal Rules of Bankruptcy Procedure, as amended from time to time, and the local rules of this Court.

(h) "Carve-Out" means the carve-out for professional fees and expenses and statutory fees described in Section 3.1 hereof.

(i) "Carve-Out Trigger Notice" means a written notice delivered by the DIP Lender to the Debtors, the Pre-Petition Agent, and the Committee upon the occurrence of a Termination Event (as defined in the DIP Credit Agreement) declaring that the Carve-Out has been triggered.

(j) "Challenge" means any challenge, claim, action, or proceeding relating to the validity, enforceability, priority, or extent of the Pre-Petition Secured Lenders' liens and claims under the Pre-Petition First Lien Credit Agreement, the validity, enforceability, priority, or extent of Driftwood's pre-petition first lien claims, and/or the Roll-Up Tranche.

(k) "Challenge Period" means the period within which a Challenge may be commenced, as set forth in Article IV hereof.

(l) "Chapter 11 Cases" means the jointly administered Chapter 11 cases of the Debtors pending in this Court under Case No. 23-11487 (KFM).

(m) "Committee" means the Official Committee of Unsecured Creditors appointed by the United States Trustee on September 22, 2023, in the Chapter 11 Cases.

(n) "Court" means the United States Bankruptcy Court for the District of Delaware.

(o) "CRO" means Terrence M. Kowalski of Alderpoint Advisory Partners LLC, in his capacity as Chief Restructuring Officer of the Debtors.

(p) "DIP Budget" means the 13-week rolling cash flow budget required under the DIP Credit Agreement, as updated from time to time in accordance with the terms thereof.

(q) "DIP Credit Agreement" has the meaning set forth in the preamble to this Section 1.1.

(r) "DIP Credit Facility" or "DIP Facility" means the Seventy-Five Million Dollar ($75,000,000) Senior Secured Superpriority Debtor-in-Possession Credit Facility provided under the DIP Credit Agreement.

(s) "DIP Lender" means Driftwood Absolute Return Fund Ltd., a Cayman Islands exempted company, acting through its investment manager, Driftwood Capital Advisors LLC, a Delaware limited liability company.

(t) "DIP Liens" means the first priority priming liens granted to the DIP Lender pursuant to § 364(d) of the Bankruptcy Code, the DIP Credit Agreement, and the DIP Orders, on substantially all assets of the Debtors (excluding Ridgeline Community Bank assets subject to regulatory restrictions), including avoidance action proceeds.

(u) "DIP Orders" means, collectively, the Interim DIP Order and the Final DIP Order.

(v) "DIP Superpriority Claims" means the superpriority administrative expense claims granted to the DIP Lender pursuant to § 364(c)(1) of the Bankruptcy Code, the DIP Credit Agreement, and the DIP Orders.

(w) "Draw 1" means the initial draw of Eighteen Million Dollars ($18,000,000) under the New Money DIP Tranche, available upon entry of the Interim DIP Order.

(x) "Draw 2" means the second draw of Twenty-Five Million Dollars ($25,000,000) under the New Money DIP Tranche, available upon entry of the Final DIP Order.

(y) "Fee Cap" means the aggregate cap of One Million Two Hundred Thousand Dollars ($1,200,000) on the reimbursement of the reasonable and documented fees and expenses of Hartwell & Crane LLP, as set forth in Section 2.5 hereof.

(z) "Final DIP Order" means the Final Order (I) Authorizing the Debtors to Obtain Senior Secured Superpriority Post-Petition Financing, (II) Granting Liens and Superpriority Administrative Expense Claims, (III) Granting Adequate Protection, and (IV) Granting Related Relief, to be entered by this Court on or about October 13, 2023, incorporating the terms of this Stipulation.

(aa) "Interim DIP Order" means the Interim Order entered by this Court on September 15, 2023 (Dkt. No. 38), authorizing the Debtors to borrow up to Eighteen Million Dollars ($18,000,000) under Draw 1 on an interim basis.

(bb) "New Money DIP Tranche" means the Forty-Three Million Dollar ($43,000,000) new money term loan tranche under the DIP Credit Agreement, consisting of Draw 1 and Draw 2.

(cc) "Parties" means, collectively, Driftwood, the Debtors, Velthorn National Bank, N.A. (in its capacity as Pre-Petition Agent and as a Pre-Petition Secured Lender), and Pinnacle Credit Partners Fund II, LP.

(dd) "Petition Date" means September 8, 2023.

(ee) "Pre-Petition Agent" means Velthorn National Bank, N.A., in its capacity as administrative agent under the Pre-Petition First Lien Credit Agreement.

(ff) "Pre-Petition First Lien Credit Agreement" means that certain Credit Agreement, dated as of January 15, 2021, by and among Cascabel Financial Holdings, Inc., as borrower, Cascabel Asset Management LLC, as guarantor, the lenders party thereto, and Velthorn National Bank, N.A., as administrative agent, as amended, restated, supplemented, or otherwise modified from time to time.

(gg) "Pre-Petition First Lien Facility" means the One Hundred Twenty Million Dollar ($120,000,000) senior secured term loan facility provided under the Pre-Petition First Lien Credit Agreement.

(hh) "Pre-Petition Secured Lenders" means all holders of claims under the Pre-Petition First Lien Facility other than Driftwood in respect of the Roll-Up Amount, i.e., Velthorn National Bank, N.A. (holding $38,000,000), Pinnacle Credit Partners Fund II, LP (holding $28,000,000), and Brindoval Institutional Lending, LLC (holding $22,000,000), holding an aggregate of Eighty-Eight Million Dollars ($88,000,000) of the Pre-Petition First Lien Facility.

(ii) "Roll-Up Amount" means the aggregate principal amount of Thirty-Two Million Dollars ($32,000,000) of Driftwood's pre-petition first lien claims under the Pre-Petition First Lien Facility that are subject to the dollar-for-dollar roll-up under the Roll-Up Tranche.

(jj) "Roll-Up Tranche" means the Thirty-Two Million Dollar ($32,000,000) tranche of the DIP Facility representing the dollar-for-dollar roll-up of the Roll-Up Amount upon entry of the Final DIP Order, as described in Recital C hereof.

(kk) "§ 507(b) Claims" means the allowed superpriority administrative expense claims granted to the Pre-Petition Secured Lenders pursuant to § 507(b) of the Bankruptcy Code, as described in Section 2.2 hereof.

(ll) "Stipulation" means this Stipulation and Agreed Order Regarding Adequate Protection for Pre-Petition First Lien Lenders in Connection with the Senior Secured Superpriority Debtor-in-Possession Credit Facility.

(mm) "Termination Event" has the meaning ascribed to such term in the DIP Credit Agreement.

Section 1.2 — Incorporation by Reference. All capitalized terms used but not otherwise defined in this Stipulation shall have the respective meanings ascribed to them in the DIP Credit Agreement, the terms and conditions of which are incorporated herein by reference as though fully set forth herein. To the extent of any conflict between the definitions set forth herein and those set forth in the DIP Credit Agreement, the definitions set forth in this Stipulation shall control.

Section 1.3 — Rules of Construction. Unless the context otherwise requires: (a) words importing the singular include the plural and vice versa; (b) words importing a gender include each gender; (c) the words "include," "includes," and "including" shall be deemed to be followed by the words "without limitation"; (d) references to "Sections," "Articles," "Exhibits," and "Schedules" are to sections, articles, exhibits, and schedules of this Stipulation; and (e) references to any agreement or instrument are to such agreement or instrument as amended, restated, supplemented, or otherwise modified from time to time.

ARTICLE II — ADEQUATE PROTECTION PACKAGE

Section 2.1 — Replacement Liens (Adequate Protection Liens)

(a) Pursuant to §§ 361 and 363(e) of the Bankruptcy Code, and in consideration for the priming of the Pre-Petition First Lien Facility by the DIP Facility, the Pre-Petition Secured Lenders (holding an aggregate of Eighty-Eight Million Dollars ($88,000,000) of the Pre-Petition First Lien Facility) are hereby granted, effective immediately upon entry of the Final DIP Order incorporating this Stipulation, valid, binding, enforceable, and perfected replacement liens (the "Adequate Protection Liens") on all property of the Debtors' estates upon which the DIP Liens attach. The Adequate Protection Liens shall attach to substantially all assets of the Debtors, including, without limitation, all tangible and intangible personal property, real property, accounts, general intangibles, instruments, chattel paper, inventory, equipment, investment property, deposit accounts, intellectual property, and avoidance action proceeds (whether arising under §§ 544, 545, 547, 548, 549, 550, or 553 of the Bankruptcy Code or otherwise), but excluding assets of Ridgeline Community Bank that are subject to regulatory restrictions imposed by the Delaware Office of the State Bank Commissioner or the FDIC.

(b) The Adequate Protection Liens shall be junior only to (i) the DIP Liens granted to the DIP Lender under the DIP Credit Agreement and the DIP Orders, and (ii) the Carve-Out, as set forth in Article III hereof.

(c) The Adequate Protection Liens shall be senior to any and all liens securing the Second Lien Notes, any liens or claims of the holders of the Unsecured Notes, and any other liens, claims, or encumbrances on the property of the Debtors' estates, whether arising prior to or after the Petition Date.

(d) The Adequate Protection Liens shall secure all Pre-Petition First Lien Obligations of the Pre-Petition Secured Lenders in the aggregate principal amount of Eighty-Eight Million Dollars ($88,000,000), together with all accrued and unpaid interest, fees, costs, and expenses payable under or in connection with the Pre-Petition First Lien Credit Agreement as of the Petition Date and as allowed in these Chapter 11 Cases.

(e) The Adequate Protection Liens shall be deemed valid, enforceable, and perfected as of the date of entry of the Final DIP Order, without the necessity of any further action by the Pre-Petition Secured Lenders, the Pre-Petition Agent, or the Debtors, including, without limitation, the filing or recording of any financing statements, mortgages, notices, or other documents or instruments under applicable state law, the Uniform Commercial Code, or otherwise.

Section 2.2 — Superpriority Administrative Expense Claims

(a) Pursuant to § 507(b) of the Bankruptcy Code, the Pre-Petition Secured Lenders are hereby granted, effective immediately upon entry of the Final DIP Order incorporating this Stipulation, allowed superpriority administrative expense claims (the "§ 507(b) Claims") against each of the Debtors, jointly and severally, to the extent of any diminution in the value of the Pre-Petition Secured Lenders' interests in the Debtors' assets resulting from, among other things, the use, sale, or lease of the Pre-Petition Secured Lenders' collateral, the priming of the Pre-Petition First Lien Facility by the DIP Facility, and the imposition of the automatic stay pursuant to § 362 of the Bankruptcy Code.

(b) The § 507(b) Claims shall be junior to the DIP Superpriority Claims granted to the DIP Lender pursuant to § 364(c)(1) of the Bankruptcy Code under the DIP Credit Agreement and the DIP Orders.

(c) The § 507(b) Claims shall be senior to all other administrative expense claims under § 503(b) of the Bankruptcy Code and all other claims of any kind or nature, whether arising prior to or after the Petition Date, except as subordinated to (i) the DIP Superpriority Claims and (ii) the Carve-Out.

(d) For the avoidance of doubt, the § 507(b) Claims are in addition to, and not in lieu of, the Adequate Protection Liens, the Adequate Protection Payments, and all other components of the adequate protection package set forth in this Article II.

Section 2.3 — Adequate Protection Payments

(a) Commencing on the first business day of the first full calendar month following entry of the Final DIP Order and on the first business day of each calendar month thereafter during the pendency of the DIP Facility, the Debtors shall make monthly adequate protection payments (the "Adequate Protection Payments") to the Pre-Petition Secured Lenders, through the Pre-Petition Agent, Velthorn National Bank, N.A., in an amount equal to current-pay interest on the aggregate outstanding Pre-Petition First Lien Obligations of the Pre-Petition Secured Lenders in the amount of Eighty-Eight Million Dollars ($88,000,000) at the non-default contract rate under the Pre-Petition First Lien Credit Agreement, which rate is Adjusted Term SOFR plus 425 basis points per annum.

(b) Based on the current Adjusted Term SOFR rate of approximately 5.33%, the estimated annual applicable rate is approximately 9.58% per annum (5.33% plus 4.25%), and the estimated monthly Adequate Protection Payment is approximately Seven Hundred Two Thousand One Hundred Thirty-Three Dollars ($702,133) (calculated as $88,000,000 multiplied by 9.58%, divided by 12). The actual amount of each monthly Adequate Protection Payment shall be calculated based on the applicable Adjusted Term SOFR rate in effect for the relevant interest period, as determined in accordance with the Pre-Petition First Lien Credit Agreement.

(c) Adequate Protection Payments shall be distributed by the Pre-Petition Agent to the Pre-Petition Secured Lenders pro rata based on their respective holdings of the Pre-Petition First Lien Facility, as follows:

(i) Velthorn National Bank, N.A. — Thirty-Eight Million Dollars ($38,000,000), representing 43.18% of the Pre-Petition Secured Lenders' aggregate holdings;

(ii) Pinnacle Credit Partners Fund II, LP — Twenty-Eight Million Dollars ($28,000,000), representing 31.82% of the Pre-Petition Secured Lenders' aggregate holdings; and

(iii) Brindoval Institutional Lending, LLC — Twenty-Two Million Dollars ($22,000,000), representing 25.00% of the Pre-Petition Secured Lenders' aggregate holdings.

(d) All Adequate Protection Payments shall be made by wire transfer of immediately available funds to the account designated in writing by the Pre-Petition Agent. The Debtors shall provide the Pre-Petition Agent with a Monthly Adequate Protection Payment Certificate, substantially in the form attached hereto as Exhibit B, in connection with each Adequate Protection Payment.

(e) The Adequate Protection Payments are intended to compensate the Pre-Petition Secured Lenders for the diminution in value of their interests in the Debtors' collateral resulting from the use, sale, or lease of such collateral and the priming of the Pre-Petition First Lien Facility by the DIP Facility. The making of Adequate Protection Payments shall not constitute an admission or determination by the Debtors or the DIP Lender as to the allowed amount of the Pre-Petition Secured Lenders' claims or the validity, priority, or extent of the Pre-Petition Secured Lenders' liens, except as otherwise provided in Article IV hereof upon expiration of the Challenge Period.

Section 2.4 — Adequate Protection Reserve

(a) An adequate protection reserve in the amount of Three Million Five Hundred Thousand Dollars ($3,500,000) (the "Adequate Protection Reserve") was funded from the proceeds of Draw 1 upon entry of the Interim DIP Order and has been deposited into a segregated, interest-bearing account held and maintained by the Pre-Petition Agent, Velthorn National Bank, N.A. (the "Reserve Account"). The Debtors shall cause the Adequate Protection Reserve to be maintained at the required level of Three Million Five Hundred Thousand Dollars ($3,500,000) at all times during the pendency of the DIP Facility.

(b) The Adequate Protection Reserve shall be available to satisfy any shortfall in Adequate Protection Payments in the event the Debtors fail to make any such payment when due, and the Pre-Petition Agent is authorized, without further order of the Court, to apply funds from the Adequate Protection Reserve to cure any such shortfall; provided, however, that the Debtors shall promptly replenish the Adequate Protection Reserve to its required level following any such application.

(c) Upon the expiration or termination of the DIP Facility, whether by reason of maturity, repayment, acceleration, or otherwise: (i) any amounts remaining in the Adequate Protection Reserve shall first be applied to any outstanding and unpaid Pre-Petition First Lien Obligations of the Pre-Petition Secured Lenders; and (ii) any remaining amounts after satisfaction in full of all Pre-Petition First Lien Obligations of the Pre-Petition Secured Lenders shall be returned to the Debtors' estates.

(d) The Adequate Protection Reserve is subject to the DIP Liens and the Carve-Out. For the avoidance of doubt, the Adequate Protection Reserve shall not be subject to any liens, claims, or encumbrances of any party other than the DIP Lender (in respect of the DIP Liens), the Carve-Out, and the Pre-Petition Secured Lenders (in respect of their Adequate Protection Liens).

Section 2.5 — Reimbursement of Ad Hoc Group Counsel Fees

(a) As an additional component of the adequate protection package set forth herein, the Debtors shall reimburse the reasonable and documented fees and expenses of Hartwell & Crane LLP, counsel to the Ad Hoc Group, incurred in connection with the Chapter 11 Cases, the DIP Facility, this Stipulation, and the ongoing monitoring of the Debtors' compliance with the DIP Credit Agreement and the DIP Orders (collectively, the "Reimbursable Fees").

(b) The Reimbursable Fees shall be subject to an aggregate cap of One Million Two Hundred Thousand Dollars ($1,200,000) (the "Fee Cap") for the duration of the Chapter 11 Cases, inclusive of all fees and expenses incurred from and after the Petition Date through the earlier of (i) the effective date of a confirmed Chapter 11 plan, (ii) the conversion or dismissal of the Chapter 11 Cases, or (iii) the termination of the DIP Facility.

(c) Hartwell & Crane LLP shall submit monthly invoices, appropriately redacted to preserve any applicable attorney-client privilege, work product protection, or other applicable privileges, to counsel for the Debtors (Whitfield, Graves & Sato LLP) and counsel for the DIP Lender (Calderwood & Harkness LLP). The Debtors and the DIP Lender shall have fifteen (15) business days following receipt of each invoice to raise any objection to the reasonableness of any fees or expenses set forth therein. If no objection is timely raised within such fifteen (15) business day period, the invoice shall be deemed approved and shall be paid by the Debtors within five (5) business days following the expiration of the objection period. If an objection is timely raised, the Parties shall confer in good faith to resolve such objection, and any unresolved disputes shall be submitted to the Court for resolution.

(d) The payment of Reimbursable Fees to Hartwell & Crane LLP constitutes a component of the adequate protection package set forth herein and shall be an allowed administrative expense of the Debtors' estates pursuant to § 503(b)(1)(A) of the Bankruptcy Code. For the avoidance of doubt, the Fee Cap is an aggregate cap and shall not be subject to any separate monthly limitation.

ARTICLE III — CARVE-OUT

Section 3.1 — Professional Fee Carve-Out

(a) Notwithstanding anything to the contrary in the DIP Credit Agreement, the DIP Orders, or this Stipulation, the DIP Liens, the DIP Superpriority Claims, the Adequate Protection Liens, and the § 507(b) Claims shall each be subject to, and subordinate to, a carve-out (the "Carve-Out") in an aggregate amount of Two Million Seven Hundred Fifty Thousand Dollars ($2,750,000), consisting of:

(i) Two Million Five Hundred Thousand Dollars ($2,500,000) for the allowed and unpaid professional fees and expenses of (A) the Debtors' retained professionals and (B) the Committee's retained professionals, in each case incurred in the Chapter 11 Cases, whether incurred prior to or after the delivery of a Carve-Out Trigger Notice; and

(ii) Two Hundred Fifty Thousand Dollars ($250,000) for fees payable to the Clerk of the United States Bankruptcy Court for the District of Delaware and to the United States Trustee pursuant to 28 U.S.C. § 1930.

(b) Of the Two Million Five Hundred Thousand Dollars ($2,500,000) available for professional fees under clause (a)(i) above, no more than Seven Hundred Fifty Thousand Dollars ($750,000) shall be allocated to the fees and expenses of the Committee's retained professionals. This allocation represents an increase from the Five Hundred Thousand Dollars ($500,000) originally proposed by the DIP Lender in the DIP Motion, as agreed upon by the Parties in resolution of the Committee Objection. The remaining One Million Seven Hundred Fifty Thousand Dollars ($1,750,000) shall be available for the fees and expenses of the Debtors' retained professionals.

(c) The Carve-Out shall be senior to, and shall have priority over, the DIP Liens, the DIP Superpriority Claims, the Adequate Protection Liens, and the § 507(b) Claims, in that order of priority.

(d) The Carve-Out shall be triggered upon the occurrence of a Termination Event (as defined in the DIP Credit Agreement) and the delivery of a Carve-Out Trigger Notice by the DIP Lender to the Debtors, the Pre-Petition Agent, and the Committee. Following delivery of the Carve-Out Trigger Notice, the Debtors' retained professionals and the Committee's retained professionals shall be entitled to incur and be paid fees and expenses from the Carve-Out, subject to the aggregate and allocation limits set forth in this Section 3.1.

(e) The Carve-Out shall not be available to fund the prosecution of any claim, action, or proceeding against the DIP Lender, except for Challenges commenced within the applicable Challenge Period as set forth in Article IV hereof. The Carve-Out shall not include any success fees, transaction fees, or similar contingent compensation payable to any retained professional.

Section 3.2 — Carve-Out Reservation

Notwithstanding any other provision of the DIP Credit Agreement, the DIP Orders, or this Stipulation, the Debtors shall at all times maintain a segregated cash reserve or other arrangement, in form and substance reasonably acceptable to the DIP Lender and the Pre-Petition Agent, sufficient to fund the Carve-Out in full upon the occurrence of a Termination Event and delivery of a Carve-Out Trigger Notice. Such reserve may be funded from the proceeds of the DIP Facility, the Debtors' existing cash on hand, or other available sources. The Debtors shall provide the DIP Lender and the Pre-Petition Agent with a monthly certification confirming the sufficiency of the Carve-Out reserve.

ARTICLE IV — CHALLENGE PERIOD

Section 4.1 — Committee Challenge Period

The Committee shall have a period of seventy-five (75) calendar days following entry of the Final DIP Order (i.e., from October 13, 2023, through and including December 27, 2023) (the "Committee Challenge Period") within which to investigate and, if warranted, commence any Challenge by filing an adversary proceeding or contested matter in this Court, relating to (i) the validity, enforceability, priority, or extent of the Pre-Petition Secured Lenders' liens under the Pre-Petition First Lien Credit Agreement, (ii) the validity, enforceability, priority, or extent of Driftwood's pre-petition first lien claims under the Pre-Petition First Lien Credit Agreement, and/or (iii) the Roll-Up Tranche. The Committee Challenge Period of seventy-five (75) days represents an extension from the sixty (60) day period originally proposed by the DIP Lender in the DIP Motion, as agreed upon by the Parties in resolution of the Committee Objection. The Committee shall be entitled to use the portion of the Carve-Out allocated to the Committee's retained professionals to fund any investigation during the Challenge Period.

Section 4.2 — Other Party in Interest Challenge Period

Any other party in interest (other than the Committee) shall have a period of sixty (60) calendar days following entry of the Final DIP Order (i.e., from October 13, 2023, through and including December 12, 2023) (the "General Challenge Period" and, together with the Committee Challenge Period, the "Challenge Periods") within which to investigate and, if warranted, commence any Challenge by filing an adversary proceeding or contested matter in this Court. For the avoidance of doubt, any party in interest that is not the Committee and that seeks to commence a Challenge must do so within the General Challenge Period; the extended Committee Challenge Period applies solely to the Committee.

Section 4.3 — Effect of Expiration Without Challenge

If no Challenge is timely commenced within the applicable Challenge Period: (a) the Pre-Petition Secured Lenders' liens and claims under the Pre-Petition First Lien Credit Agreement shall be deemed and shall conclusively be established as valid, enforceable, properly perfected, and of the priority set forth in the Pre-Petition First Lien Credit Agreement; (b) Driftwood's pre-petition first lien claims under the Pre-Petition First Lien Credit Agreement shall be deemed and shall conclusively be established as valid, enforceable, properly perfected, and allowed in the aggregate principal amount of Thirty-Two Million Dollars ($32,000,000), plus accrued and unpaid interest, fees, costs, and expenses; (c) the Roll-Up Tranche shall be deemed and shall conclusively be established as valid and enforceable in accordance with its terms; and (d) all parties in interest, including the Committee, the Debtors, any trustee appointed in the Chapter 11 Cases, and any successor or representative of the Debtors' estates, shall be forever barred, estopped, and enjoined from asserting any Challenge or any claim, action, or proceeding seeking to avoid, recharacterize, equitably subordinate, or otherwise challenge the foregoing liens, claims, or transactions under any provision of the Bankruptcy Code (including, without limitation, §§ 502, 506, 510, 544, 545, 547, 548, 549, 550, and 553), applicable non-bankruptcy law, or otherwise.

No Challenges to the pre-petition liens, Driftwood's pre-petition first lien claims, or the Roll-Up Tranche were commenced within the applicable Challenge Period.

ARTICLE V — CONSENT TO PRIMING AND ROLL-UP

Section 5.1 — Consent of the Ad Hoc Group

Subject to and conditioned upon the full and timely performance by the Debtors and the DIP Lender of the adequate protection provisions set forth in Article II hereof and Article III hereof, and subject to the terms and conditions of this Stipulation, the Ad Hoc Group (consisting of Velthorn National Bank, N.A. and Pinnacle Credit Partners Fund II, LP) hereby irrevocably consents to:

(a) The priming of the Pre-Petition First Lien Facility by the DIP Facility pursuant to § 364(d) of the Bankruptcy Code, such that the DIP Liens shall be senior in priority to the liens securing the Pre-Petition First Lien Facility; and

(b) The dollar-for-dollar roll-up of Driftwood's Thirty-Two Million Dollar ($32,000,000) pre-petition first lien claims under the Pre-Petition First Lien Credit Agreement into the DIP Facility, with the Roll-Up Tranche receiving superpriority administrative expense claim status under § 364(c)(1) of the Bankruptcy Code and DIP lien priority under § 364(d) of the Bankruptcy Code, pari passu in all respects with the Forty-Three Million Dollar ($43,000,000) New Money DIP Tranche.

The consent of the Ad Hoc Group set forth in this Section 5.1 is granted solely in reliance upon, and is expressly conditioned upon, the adequate protection package set forth in this Stipulation, including, without limitation, the Adequate Protection Liens, the § 507(b) Claims, the Adequate Protection Payments, the Adequate Protection Reserve, and the reimbursement of Hartwell & Crane LLP fees, and such consent shall be deemed withdrawn and of no further force or effect in the event of a material breach of the adequate protection provisions that is not cured within the applicable cure periods set forth herein.

Section 5.2 — Withdrawal of Objections

(a) Upon entry of the Final DIP Order incorporating this Stipulation, the Ad Hoc Group shall be deemed to have withdrawn the Ad Hoc Group Objection filed on September 19, 2023 (Dkt. No. 47), in its entirety and with prejudice. The Ad Hoc Group shall take no further action to prosecute or pursue the Ad Hoc Group Objection.

(b) Upon entry of the Final DIP Order incorporating this Stipulation, the Committee shall be deemed to have withdrawn the Committee Objection filed on October 2, 2023 (Dkt. No. 62), in its entirety and with prejudice. The Committee shall take no further action to prosecute or pursue the Committee Objection.

(c) For the avoidance of doubt, the withdrawals contemplated by this Section 5.2 are without prejudice to the right of the Committee or any party in interest to commence a Challenge within the applicable Challenge Period as set forth in Article IV hereof, and without prejudice to any rights expressly reserved in this Stipulation.

Section 5.3 — Reservation of Rights of Non-Party Lenders

Brindoval Institutional Lending, LLC, as a holder of Twenty-Two Million Dollars ($22,000,000) of the Pre-Petition First Lien Facility (representing 25.00% of the Pre-Petition Secured Lenders' aggregate holdings), is not a signatory to this Stipulation and is not a member of the Ad Hoc Group. Notwithstanding the foregoing, Brindoval Institutional Lending, LLC shall receive the benefits of the adequate protection package set forth in Article II hereof on a pro rata basis with the members of the Ad Hoc Group, including, without limitation, Adequate Protection Liens, § 507(b) Claims, Adequate Protection Payments, and the benefit of the Adequate Protection Reserve. Brindoval Institutional Lending, LLC shall not be deemed to have consented to any provision of this Stipulation, including, without limitation, the priming of the Pre-Petition First Lien Facility or the Roll-Up Tranche, unless and until Brindoval Institutional Lending, LLC independently files a written joinder to this Stipulation with the Court. Nothing in this Stipulation shall be construed to limit, waive, or otherwise affect any rights, claims, or defenses of Brindoval Institutional Lending, LLC, except that Brindoval Institutional Lending, LLC shall be bound by the terms of the Final DIP Order to the same extent as all other parties in interest in the Chapter 11 Cases.

ARTICLE VI — MILESTONES

Section 6.1 — Recitation of DIP Milestones. The DIP Credit Agreement requires the Debtors to comply with the following milestones (collectively, the "Milestones"), the satisfaction of which is a condition to the DIP Lender's continued obligations under the DIP Credit Agreement:

(a) Interim DIP Order: Entry of the Interim DIP Order within five (5) business days of the Petition Date. Status: Satisfied. The Interim DIP Order was entered by this Court on September 15, 2023.

(b) Final DIP Order: Entry of the Final DIP Order within thirty-five (35) days of the Petition Date. The Final DIP Order is expected to be entered on or about October 13, 2023.

(c) Filing of Plan and Disclosure Statement: Filing of a Chapter 11 plan of reorganization and a related disclosure statement within ninety (90) days of the Petition Date (i.e., on or before December 7, 2023).

(d) Confirmation Order: Entry of an order confirming the Debtors' Chapter 11 plan of reorganization within one hundred fifty (150) days of the Petition Date (i.e., on or before February 5, 2024).

(e) Plan Effective Date: Occurrence of the effective date of the Debtors' confirmed Chapter 11 plan of reorganization within one hundred eighty (180) days of the Petition Date (i.e., on or before March 6, 2024).

(f) DIP Maturity (Outside Date): The DIP Facility shall mature on September 8, 2024 (twelve (12) months from the Petition Date), unless earlier terminated or extended in accordance with the terms of the DIP Credit Agreement.

Section 6.2 — Reservation of Rights. The Ad Hoc Group expressly reserves the right to object to any request by the Debtors or the DIP Lender to extend, modify, or waive any Milestone under the DIP Credit Agreement, and nothing in this Stipulation shall be construed as the Ad Hoc Group's consent to any such extension, modification, or waiver. The Ad Hoc Group further reserves the right to be heard on any motion, application, or request related to the Milestones.

ARTICLE VII — BUDGET COMPLIANCE AND MONITORING

Section 7.1 — Budget Compliance

(a) The adequate protection package set forth in Article II hereof is conditioned upon, and shall remain in full force and effect only so long as, the Debtors remain in compliance with the DIP Budget, as required under the DIP Credit Agreement.

(b) The DIP Budget shall be a 13-week rolling cash flow budget, updated by the Debtors every four (4) weeks and delivered to the DIP Lender and the Pre-Petition Agent simultaneously upon each update. The DIP Budget shall set forth, on a weekly basis, all projected cash receipts, cash disbursements, and net cash flows of the Debtors for the ensuing 13-week period.

(c) Variance testing under the DIP Budget shall be conducted on a cumulative bi-weekly basis, with the following permitted variance thresholds: (i) actual revenue shall not deviate from budgeted revenue by more than plus or minus ten percent (±10%); and (ii) actual disbursements shall not exceed budgeted disbursements by more than fifteen percent (+15%), nor shall actual disbursements be less than budgeted disbursements by more than fifteen percent (−15%). Any breach of the foregoing variance thresholds that is not cured within the applicable cure periods set forth in the DIP Credit Agreement shall constitute an Event of Default under the DIP Credit Agreement and an Adequate Protection Default under this Stipulation.

Section 7.2 — Reporting

(a) The Debtors shall provide the Pre-Petition Agent with all financial reporting and information required to be delivered under the DIP Credit Agreement, including, without limitation: (i) monthly unaudited financial statements (balance sheet, income statement, and cash flow statement) of each Debtor and on a consolidated basis; (ii) each updated 13-week DIP Budget; (iii) bi-weekly variance reports comparing actual results to the DIP Budget; and (iv) such other information as may reasonably be requested by the Pre-Petition Agent from time to time.

(b) All such reporting and information shall be delivered to the Pre-Petition Agent simultaneously with delivery to the DIP Lender, and the Pre-Petition Agent is authorized to share such reporting and information with the members of the Ad Hoc Group, subject to customary confidentiality restrictions and any applicable non-disclosure agreements.

(c) The Debtors shall make their Chief Financial Officer, Susan K. Nakamura, and the CRO, Terrence M. Kowalski, available for reasonable telephonic or in-person discussions with the Pre-Petition Agent and the Ad Hoc Group regarding the Debtors' financial condition, operations, and compliance with the DIP Credit Agreement and this Stipulation, upon reasonable prior notice.

ARTICLE VIII — EVENTS OF DEFAULT AND REMEDIES

Section 8.1 — Adequate Protection Default

An "Adequate Protection Default" shall occur upon the occurrence of any of the following events:

(a) The Debtors' failure to make any Adequate Protection Payment within three (3) business days of the applicable due date as set forth in Section 2.3 hereof;

(b) The Debtors' failure to maintain the Adequate Protection Reserve at the required level of Three Million Five Hundred Thousand Dollars ($3,500,000), as set forth in Section 2.4 hereof, and such failure continues for a period of three (3) business days after written notice thereof from the Pre-Petition Agent to the Debtors and the DIP Lender;

(c) The Debtors' failure to reimburse approved invoices of Hartwell & Crane LLP in accordance with Section 2.5 hereof and such failure continues for a period of five (5) business days after written notice thereof from Hartwell & Crane LLP to the Debtors and the DIP Lender;

(d) The occurrence and continuance of an Event of Default under the DIP Credit Agreement (as defined therein), unless such Event of Default is cured or waived in accordance with the terms of the DIP Credit Agreement; or

(e) The Debtors' failure to comply with the reporting obligations set forth in Section 7.2 hereof and such failure continues for a period of five (5) business days after written notice thereof from the Pre-Petition Agent to the Debtors and the DIP Lender.

Section 8.2 — Remedies Upon Adequate Protection Default

(a) Upon the occurrence and during the continuance of an Adequate Protection Default, the Pre-Petition Secured Lenders (through the Pre-Petition Agent or counsel to the Ad Hoc Group) may provide written notice of such default to the Debtors, the DIP Lender, the Committee, and the United States Trustee.

(b) Following delivery of such notice and the expiration of any applicable cure periods set forth herein, the Pre-Petition Secured Lenders shall be entitled, subject to the Carve-Out and upon further application to the Court (with not less than five (5) business days' prior written notice to the Debtors, the DIP Lender, the Committee, and the United States Trustee), to seek such remedies as may be available to them under the Bankruptcy Code, including, without limitation, (i) modification of the automatic stay to the extent necessary to exercise rights and remedies against the Debtors' assets, (ii) the appointment of a trustee

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE
In re:
CASCABEL FINANCIAL HOLDINGS, INC., a Delaware corporation, and CASCABEL ASSET MANAGEMENT LLC, a Delaware limited liability company,
Debtors.
Case No. 23-11487 (KFM)
Chapter 11
(Jointly Administered)
STIPULATION AND AGREED ORDER REGARDING ADEQUATE PROTECTION FOR PRE-PETITION FIRST LIEN LENDERS IN CONNECTION WITH THE SENIOR SECURED SUPERPRIORITY DEBTOR-IN-POSSESSION CREDIT FACILITY
Filed: October 9, 2023
This Stipulation and Agreed Order Regarding Adequate Protection for Pre-Petition First Lien Lenders in Connection with the Senior Secured Superpriority Debtor-in-Possession Credit Facility (this "Stipulation") is entered into as of October 9, 2023, by and among the following parties (each a "Party" and collectively the "Parties"):
(i) Driftwood Absolute Return Fund Ltd., a Cayman Islands exempted company (in its capacity as DIP Lender under the DIP Credit Agreement (as defined below), the "DIP Lender" or "Driftwood"), acting through its investment manager, Driftwood Capital Advisors LLC, a Delaware limited liability company, with its principal office at 280 Park Avenue, 38th Floor, New York, New York 10017;
(ii) Cascabel Financial Holdings, Inc., a corporation organized and existing under the laws of the State of Delaware ("Cascabel" or "CFH"), with its principal office at 1200 Market Street, Suite 900, Wilmington, Delaware 19801;
(iii) Cascabel Asset Management LLC, a limited liability company organized and existing under the laws of the State of Delaware and a registered investment adviser with the U.S. Securities and Exchange Commission ("CAM" and, together with CFH, the "Debtors");
(iv) Velthorn National Bank, N.A., a national banking association organized and existing under the laws of the United States, with its principal office at 500 Boylston Street, Boston, Massachusetts 02116, in its capacity as administrative agent (in such capacity, the "Pre-Petition Agent") under the Pre-Petition First Lien Credit Agreement (as defined below) and as a lender holding Thirty-Eight Million Dollars ($38,000,000) of the Pre-Petition First Lien Facility; and
(v) Pinnacle Credit Partners Fund II, LP, a limited partnership organized and existing under the laws of the State of Delaware ("Pinnacle"), in its capacity as a lender holding Twenty-Eight Million Dollars ($28,000,000) of the Pre-Petition First Lien Facility.
Velthorn National Bank, N.A. and Pinnacle Credit Partners Fund II, LP are referred to herein collectively as the "Ad Hoc Group," and together hold an aggregate of Sixty-Six Million Dollars ($66,000,000) of the One Hundred Twenty Million Dollar ($120,000,000) Pre-Petition First Lien Facility.
Brindoval Institutional Lending, LLC, a holder of Twenty-Two Million Dollars ($22,000,000) of the Pre-Petition First Lien Facility, is not a signatory to this Stipulation but shall benefit from the terms and protections set forth herein in its capacity as a Pre-Petition Secured Lender, as more fully described in Section 5.3 below.
This Stipulation embodies the terms of a global settlement reached on October 6, 2023, among the Parties, resolving (a) the objection filed by the Ad Hoc Group on September 19, 2023 (Dkt. No. 47) (the "Ad Hoc Group Objection") to the priming lien and roll-up provisions of the DIP Credit Facility, and (b) the limited objection filed on October 2, 2023, by the Official Committee of Unsecured Creditors (the "Committee"), appointed by the United States Trustee on September 22, 2023, through its counsel, Breckenridge McCoy LLP (Thomas A. Breckenridge, Lead Partner, 919 North Market Street, Suite 700, Wilmington, Delaware 19801) (the "Committee Objection"), regarding the Carve-Out amount and the Challenge Period.
This Stipulation is submitted to and subject to approval by the Honorable Karen F. McAllister, United States Bankruptcy Judge for the District of Delaware.
RECITALS
WHEREAS, the Parties make the following recitals in support of this Stipulation:
A. The Chapter 11 Cases
On September 8, 2023 (the "Petition Date"), each of Cascabel Financial Holdings, Inc. and Cascabel Asset Management LLC filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Code, 11 U.S.C. §§ 101–1532 (the "Bankruptcy Code"), in this Court. The Debtors' Chapter 11 cases are being jointly administered under Case No. 23-11487 (KFM) for procedural purposes only pursuant to Rule 1015(b) of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules") and Local Bankruptcy Rule 1015-1. No trustee or examiner has been appointed in the Chapter 11 Cases. The Debtors continue to manage and operate their businesses as debtors in possession pursuant to §§ 1107 and 1108 of the Bankruptcy Code.
Ridgeline Community Bank, a Delaware state-chartered commercial bank regulated by the Delaware Office of the State Bank Commissioner and the Federal Deposit Insurance Corporation (the "FDIC"), with total deposits of approximately Three Hundred Eighty-Five Million Dollars ($385,000,000) as of the Petition Date, is a wholly-owned subsidiary of Cascabel Financial Holdings, Inc. Ridgeline Community Bank was excluded from the Chapter 11 filing and continues to operate under the supervision and oversight of its applicable bank regulators. No assets of Ridgeline Community Bank are subject to the liens or claims granted or created under this Stipulation, the DIP Credit Agreement, or the DIP Orders, except as may otherwise be expressly provided therein and as permitted by applicable regulatory authorities.
As of the Petition Date, Cascabel had total consolidated assets of approximately Six Hundred Twenty Million Dollars ($620,000,000) and total consolidated liabilities of approximately Seven Hundred Ten Million Dollars ($710,000,000), resulting in a negative consolidated equity position of approximately Ninety Million Dollars ($90,000,000).
Gerald T. Harmon serves as the Chief Executive Officer of the Debtors. Susan K. Nakamura serves as the Chief Financial Officer of the Debtors. On August 25, 2023, approximately two weeks prior to the Petition Date, the Debtors retained Alderpoint Advisory Partners LLC, with its principal office at 399 Park Avenue, 22nd Floor, New York, New York 10022, and Terrence M. Kowalski, a senior managing director of Alderpoint Advisory Partners LLC, was appointed as Chief Restructuring Officer (the "CRO") of the Debtors. The CRO has been instrumental in managing the Debtors' restructuring efforts and in negotiating the terms of this Stipulation.
B. Pre-Petition Capital Structure
The Debtors' pre-petition funded indebtedness totaled approximately One Hundred Eighty-Three Million Five Hundred Thousand Dollars ($183,500,000), consisting of the following:
First Lien Term Loan. On January 15, 2021, Cascabel Financial Holdings, Inc., as borrower, entered into that certain Credit Agreement (as amended, restated, supplemented, or otherwise modified from time to time, the "Pre-Petition First Lien Credit Agreement") providing for a senior secured term loan facility in the original aggregate principal amount of One Hundred Twenty Million Dollars ($120,000,000) (the "Pre-Petition First Lien Facility"), with Velthorn National Bank, N.A. as administrative agent (in such capacity, the "Pre-Petition Agent"). The Pre-Petition First Lien Facility matures on January 15, 2026, and bears interest at a rate per annum equal to Adjusted Term SOFR plus 425 basis points. The obligations under the Pre-Petition First Lien Credit Agreement are secured by first priority liens on substantially all assets of the Debtors, subject to certain customary exceptions. As of the Petition Date, the outstanding principal balance under the Pre-Petition First Lien Facility was One Hundred Twenty Million Dollars ($120,000,000), plus accrued and unpaid interest, fees, costs, and expenses. The lender holdings under the Pre-Petition First Lien Facility are as follows:
(a) Velthorn National Bank, N.A. — Thirty-Eight Million Dollars ($38,000,000);
(b) Pinnacle Credit Partners Fund II, LP — Twenty-Eight Million Dollars ($28,000,000);
(c) Brindoval Institutional Lending, LLC — Twenty-Two Million Dollars ($22,000,000); and
(d) Driftwood Absolute Return Fund Ltd. — Thirty-Two Million Dollars ($32,000,000), representing approximately 26.67% of the total Pre-Petition First Lien Facility, acquired by Driftwood on the secondary market between March 2023 and July 2023 at an average purchase price of $0.68 per dollar of face value, for an aggregate cost basis of approximately Twenty-One Million Seven Hundred Sixty Thousand Dollars ($21,760,000).
Second Lien Notes. On June 1, 2022, Cascabel Financial Holdings, Inc. issued Forty-Five Million Dollars ($45,000,000) in aggregate principal amount of 10.50% Senior Secured Second Lien Notes due 2027 (the "Second Lien Notes") under an indenture dated June 1, 2022 (the "Second Lien Indenture"), with Zynvaro Trust Company, with its principal office at 101 Hudson Street, Jersey City, New Jersey 07302, as indenture trustee (the "Second Lien Trustee"). As of the Petition Date, the outstanding principal balance of the Second Lien Notes was Forty-Five Million Dollars ($45,000,000), plus accrued and unpaid interest. Ashford Mezzanine Capital, LP holds approximately Thirty Million Dollars ($30,000,000) of the Forty-Five Million Dollars ($45,000,000) in outstanding Second Lien Notes. The Second Lien Notes are secured by second priority liens on substantially all assets of the Debtors, junior to the liens securing the Pre-Petition First Lien Facility.
Unsecured Notes. Cascabel Financial Holdings, Inc. has outstanding unsecured promissory notes in the aggregate principal amount of Eighteen Million Five Hundred Thousand Dollars ($18,500,000) bearing interest at a fixed rate of 8.00% per annum and maturing on March 1, 2025 (the "Unsecured Notes").
C. The DIP Credit Facility
On the Petition Date, the Debtors filed a motion (Dkt. No. 15) (the "DIP Motion") seeking authority pursuant to §§ 364(c) and 364(d) of the Bankruptcy Code to enter into a Senior Secured Superpriority Debtor-in-Possession Credit Agreement (the "DIP Credit Agreement") with Driftwood Absolute Return Fund Ltd. as DIP Lender, providing for a debtor-in-possession credit facility in the aggregate principal amount of Seventy-Five Million Dollars ($75,000,000) (the "DIP Facility" or the "DIP Credit Facility"). The DIP Facility consists of the following tranches:
(i) New Money DIP Tranche: Forty-Three Million Dollars ($43,000,000) in new money term loans, to be advanced in two draws: Draw 1 in the amount of Eighteen Million Dollars ($18,000,000), available upon entry of the Interim DIP Order (as defined below); and Draw 2 in the amount of Twenty-Five Million Dollars ($25,000,000), available upon entry of the Final DIP Order (as defined below) (collectively, the "New Money DIP Tranche"); and
(ii) Roll-Up Tranche: Thirty-Two Million Dollars ($32,000,000), representing a dollar-for-dollar roll-up of Driftwood's pre-petition first lien claims under the Pre-Petition First Lien Facility upon entry of the Final DIP Order, converting those claims to superpriority administrative expense claims with DIP lien priority, pari passu with the New Money DIP Tranche (the "Roll-Up Tranche," and the aggregate amount of Driftwood's pre-petition first lien claims so rolled up, the "Roll-Up Amount").
The DIP Facility bears interest at a rate per annum equal to Adjusted Term SOFR plus 900 basis points, with a SOFR floor of 4.00%, resulting in a minimum all-in rate of 13.00% per annum. Upon the occurrence and during the continuance of an Event of Default (as defined in the DIP Credit Agreement), an additional 200 basis points shall apply, resulting in a minimum default rate of 15.00% per annum. In addition to interest, the DIP Facility provides for the following fees: (a) a commitment fee equal to 2.00% of the total Seventy-Five Million Dollar ($75,000,000) commitment, in the amount of One Million Five Hundred Thousand Dollars ($1,500,000), payable upon entry of the Interim DIP Order; (b) an exit fee equal to 1.50% of all amounts drawn under the DIP Facility, in the amount of One Million One Hundred Twenty-Five Thousand Dollars ($1,125,000), payable upon the maturity, termination, or repayment of the DIP Facility; and (c) an unused line fee of 0.50% per annum on the undrawn portion of the New Money DIP Tranche.
The DIP Facility grants the DIP Lender first priority priming liens (the "DIP Liens") on substantially all assets of the Debtors (excluding Ridgeline Community Bank assets subject to regulatory restrictions), including avoidance action proceeds, pursuant to § 364(d) of the Bankruptcy Code, and superpriority administrative expense claims (the "DIP Superpriority Claims") pursuant to § 364(c)(1) of the Bankruptcy Code, in each case senior to all other liens and claims except for the Carve-Out (as defined herein).
The DIP Credit Agreement requires the Debtors to maintain and comply with a 13-week rolling cash flow budget (the "DIP Budget"), to be updated every four (4) weeks, with variance testing thresholds of plus or minus ten percent (±10%) on revenue and plus or minus fifteen percent (±15%) on disbursements, in each case tested on a cumulative bi-weekly basis.
D. Entry of the Interim DIP Order
On September 15, 2023, after notice and a hearing, this Court entered the Interim Order (I) Authorizing the Debtors to Obtain Senior Secured Superpriority Post-Petition Financing, (II) Granting Liens and Superpriority Administrative Expense Claims, (III) Granting Adequate Protection, and (IV) Scheduling a Final Hearing (Dkt. No. 38) (the "Interim DIP Order"), authorizing the Debtors to borrow up to Eighteen Million Dollars ($18,000,000) under Draw 1 of the New Money DIP Tranche on an interim basis, granting interim priming liens to the DIP Lender, and providing interim adequate protection to the Pre-Petition Secured Lenders pending entry of a final order. Promptly following entry of the Interim DIP Order, Draw 1 was advanced, and the following amounts were funded from Draw 1 proceeds: (a) the commitment fee of One Million Five Hundred Thousand Dollars ($1,500,000) was paid to the DIP Lender; and (b) the adequate protection reserve of Three Million Five Hundred Thousand Dollars ($3,500,000) (the "Adequate Protection Reserve") was funded and deposited into a segregated account held by the Pre-Petition Agent.
E. The Ad Hoc Group Objection
On September 19, 2023, the Ad Hoc Group of First Lien Lenders, comprised of Velthorn National Bank, N.A. and Pinnacle Credit Partners Fund II, LP, holding an aggregate of Sixty-Six Million Dollars ($66,000,000) of the One Hundred Twenty Million Dollar ($120,000,000) Pre-Petition First Lien Facility (representing 55.00% of the total Pre-Petition First Lien Facility), through their counsel Hartwell & Crane LLP (Monica L. Hartwell, Lead Partner, 51 JFK Parkway, Suite 200, Short Hills, New Jersey 07078), filed an objection (the "Ad Hoc Group Objection") (Dkt. No. 47) to entry of the Final DIP Order. The Ad Hoc Group Objection challenged the priming of the Pre-Petition First Lien Facility by the DIP Facility pursuant to § 364(d) of the Bankruptcy Code and the dollar-for-dollar roll-up of Driftwood's Thirty-Two Million Dollar ($32,000,000) pre-petition first lien claims into the DIP Facility. In particular, the Ad Hoc Group Objection asserted, among other things, that: (a) the adequate protection proposed in the DIP Motion was insufficient to protect the Ad Hoc Group's interests against the diminution in value of their collateral resulting from the granting of senior priming liens to the DIP Lender; (b) the roll-up of Driftwood's pre-petition first lien claims elevated a pre-petition pari passu lender's position to the detriment of the remaining first lien lenders; and (c) the terms of the DIP Facility, including the interest rate, fees, and milestones, were not commercially reasonable under the circumstances.
F. The Committee's Limited Objection
On September 22, 2023, the United States Trustee for Region 3 appointed the Official Committee of Unsecured Creditors (the "Committee") in the Debtors' Chapter 11 Cases. The Committee is chaired by Vendara Technology Solutions, Inc., a trade creditor owed approximately Three Million Two Hundred Thousand Dollars ($3,200,000) for software licensing services, and its members include Cornerpoint Consulting Group LLC, owed approximately One Million Eight Hundred Thousand Dollars ($1,800,000) for consulting services, and three individual former executives of the Debtors with deferred compensation claims aggregating approximately Two Million Four Hundred Thousand Dollars ($2,400,000).
On October 2, 2023, the Committee, through its counsel Breckenridge McCoy LLP (Thomas A. Breckenridge, Lead Partner, 919 North Market Street, Suite 700, Wilmington, Delaware 19801), filed a limited objection (the "Committee Objection") (Dkt. No. 62) to entry of the Final DIP Order. The Committee Objection contested (i) the aggregate amount of the Carve-Out for professional fees, which the Committee contended was insufficient to fund the Committee's investigation and prosecution of potential claims and causes of action on behalf of the Debtors' estates, and (ii) the length of the Challenge Period for investigation of the validity and enforceability of pre-petition liens and the roll-up, which the Committee contended was too short to permit a meaningful investigation of the Pre-Petition Secured Lenders' liens and Driftwood's pre-petition claims.
G. Negotiations and Settlement
Following the filing of the Ad Hoc Group Objection and the Committee Objection, the Parties engaged in extensive, good-faith, arms'-length negotiations over the course of several weeks in an effort to resolve all outstanding disputes regarding the DIP Facility and to reach a consensual resolution that would allow the Debtors to obtain the full DIP Facility and proceed with their restructuring efforts.
Driftwood, through its counsel Calderwood & Harkness LLP (Colette Whitman, Responsible Partner, 599 Lexington Avenue, New York, New York 10022; Wilmington office: 1000 North King Street, Suite 300, Wilmington, Delaware 19801), proposed an enhanced adequate protection package to Hartwell & Crane LLP by letter dated October 3, 2023. The enhanced proposal addressed the principal concerns raised by the Ad Hoc Group, including increased adequate protection payments, the establishment and maintenance of the Adequate Protection Reserve, the granting of replacement liens and superpriority administrative expense claims, and the reimbursement of the Ad Hoc Group's professional fees.
Simultaneously, the Debtors, through their counsel Whitfield, Graves & Sato LLP (Jonathan R. Whitfield, Lead Partner, and Rachel P. Dumont, Lead Associate, 1201 North Market Street, Suite 1500, Wilmington, Delaware 19801), and their financial advisor Alderpoint Advisory Partners LLC (CRO Terrence M. Kowalski) and investment banker Solstice Partners LLC (David R. Chin, Managing Director, 650 Fifth Avenue, 18th Floor, New York, New York 10019), participated in the negotiations and facilitated discussions among all constituencies.
On October 6, 2023, the Parties reached a global settlement resolving all issues raised in the Ad Hoc Group Objection and the Committee Objection. The Debtors, through their counsel and advisors, have reviewed the terms of the settlement and support the settlement as being in the best interests of the Debtors' estates, their creditors, and all parties in interest.
H. Purpose of Stipulation
This Stipulation sets forth the enhanced adequate protection to be provided to the Pre-Petition Secured Lenders (as defined herein), resolves the Ad Hoc Group Objection and the Committee Objection in their entirety, and is intended to be incorporated into and made a part of the Final Order (I) Authorizing the Debtors to Obtain Senior Secured Superpriority Post-Petition Financing, (II) Granting Liens and Superpriority Administrative Expense Claims, (III) Granting Adequate Protection, and (IV) Granting Related Relief (the "Final DIP Order") to be entered by this Court on or about October 13, 2023.
NOW, THEREFORE, in consideration of the mutual covenants, agreements, and obligations set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby stipulate and agree as follows:
ARTICLE I — DEFINITIONS
Section 1.1 — Defined Terms. As used in this Stipulation, the following terms shall have the meanings ascribed to them below. All capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the DIP Credit Agreement, dated as of October 13, 2023, by and among Cascabel Financial Holdings, Inc., as borrower, Cascabel Asset Management LLC, as guarantor, and Driftwood Absolute Return Fund Ltd., as DIP Lender (as the same may be amended, restated, supplemented, or otherwise modified from time to time, the "DIP Credit Agreement"), the terms of which are incorporated herein by reference.
(a) "Ad Hoc Group" means, collectively, Velthorn National Bank, N.A. and Pinnacle Credit Partners Fund II, LP, as holders of an aggregate of Sixty-Six Million Dollars ($66,000,000) of the Pre-Petition First Lien Facility.
(b) "Adequate Protection Default" has the meaning set forth in Section 8.1 hereof.
(c) "Adequate Protection Liens" means the replacement liens granted to the Pre-Petition Secured Lenders pursuant to Section 2.1 hereof and the Final DIP Order.
(d) "Adequate Protection Payments" means the monthly adequate protection payments to be made by the Debtors to the Pre-Petition Secured Lenders (through the Pre-Petition Agent) pursuant to Section 2.3 hereof.
(e) "Adequate Protection Reserve" means the segregated cash reserve in the amount of Three Million Five Hundred Thousand Dollars ($3,500,000) funded from Draw 1 proceeds upon entry of the Interim DIP Order and maintained in a segregated account held by the Pre-Petition Agent, as more fully described in Section 2.4 hereof.
(f) "Bankruptcy Code" means Title 11 of the United States Code, 11 U.S.C. §§ 101–1532, as amended from time to time.
(g) "Bankruptcy Rules" means the Federal Rules of Bankruptcy Procedure, as amended from time to time, and the local rules of this Court.
(h) "Carve-Out" means the carve-out for professional fees and expenses and statutory fees described in Section 3.1 hereof.
(i) "Carve-Out Trigger Notice" means a written notice delivered by the DIP Lender to the Debtors, the Pre-Petition Agent, and the Committee upon the occurrence of a Termination Event (as defined in the DIP Credit Agreement) declaring that the Carve-Out has been triggered.
(j) "Challenge" means any challenge, claim, action, or proceeding relating to the validity, enforceability, priority, or extent of the Pre-Petition Secured Lenders' liens and claims under the Pre-Petition First Lien Credit Agreement, the validity, enforceability, priority, or extent of Driftwood's pre-petition first lien claims, and/or the Roll-Up Tranche.
(k) "Challenge Period" means the period within which a Challenge may be commenced, as set forth in Article IV hereof.
(l) "Chapter 11 Cases" means the jointly administered Chapter 11 cases of the Debtors pending in this Court under Case No. 23-11487 (KFM).
(m) "Committee" means the Official Committee of Unsecured Creditors appointed by the United States Trustee on September 22, 2023, in the Chapter 11 Cases.
(n) "Court" means the United States Bankruptcy Court for the District of Delaware.
(o) "CRO" means Terrence M. Kowalski of Alderpoint Advisory Partners LLC, in his capacity as Chief Restructuring Officer of the Debtors.
(p) "DIP Budget" means the 13-week rolling cash flow budget required under the DIP Credit Agreement, as updated from time to time in accordance with the terms thereof.
(q) "DIP Credit Agreement" has the meaning set forth in the preamble to this Section 1.1.
(r) "DIP Credit Facility" or "DIP Facility" means the Seventy-Five Million Dollar ($75,000,000) Senior Secured Superpriority Debtor-in-Possession Credit Facility provided under the DIP Credit Agreement.
(s) "DIP Lender" means Driftwood Absolute Return Fund Ltd., a Cayman Islands exempted company, acting through its investment manager, Driftwood Capital Advisors LLC, a Delaware limited liability company.
(t) "DIP Liens" means the first priority priming liens granted to the DIP Lender pursuant to § 364(d) of the Bankruptcy Code, the DIP Credit Agreement, and the DIP Orders, on substantially all assets of the Debtors (excluding Ridgeline Community Bank assets subject to regulatory restrictions), including avoidance action proceeds.
(u) "DIP Orders" means, collectively, the Interim DIP Order and the Final DIP Order.
(v) "DIP Superpriority Claims" means the superpriority administrative expense claims granted to the DIP Lender pursuant to § 364(c)(1) of the Bankruptcy Code, the DIP Credit Agreement, and the DIP Orders.
(w) "Draw 1" means the initial draw of Eighteen Million Dollars ($18,000,000) under the New Money DIP Tranche, available upon entry of the Interim DIP Order.
(x) "Draw 2" means the second draw of Twenty-Five Million Dollars ($25,000,000) under the New Money DIP Tranche, available upon entry of the Final DIP Order.
(y) "Fee Cap" means the aggregate cap of One Million Two Hundred Thousand Dollars ($1,200,000) on the reimbursement of the reasonable and documented fees and expenses of Hartwell & Crane LLP, as set forth in Section 2.5 hereof.
(z) "Final DIP Order" means the Final Order (I) Authorizing the Debtors to Obtain Senior Secured Superpriority Post-Petition Financing, (II) Granting Liens and Superpriority Administrative Expense Claims, (III) Granting Adequate Protection, and (IV) Granting Related Relief, to be entered by this Court on or about October 13, 2023, incorporating the terms of this Stipulation.
(aa) "Interim DIP Order" means the Interim Order entered by this Court on September 15, 2023 (Dkt. No. 38), authorizing the Debtors to borrow up to Eighteen Million Dollars ($18,000,000) under Draw 1 on an interim basis.
(bb) "New Money DIP Tranche" means the Forty-Three Million Dollar ($43,000,000) new money term loan tranche under the DIP Credit Agreement, consisting of Draw 1 and Draw 2.
(cc) "Parties" means, collectively, Driftwood, the Debtors, Velthorn National Bank, N.A. (in its capacity as Pre-Petition Agent and as a Pre-Petition Secured Lender), and Pinnacle Credit Partners Fund II, LP.
(dd) "Petition Date" means September 8, 2023.
(ee) "Pre-Petition Agent" means Velthorn National Bank, N.A., in its capacity as administrative agent under the Pre-Petition First Lien Credit Agreement.
(ff) "Pre-Petition First Lien Credit Agreement" means that certain Credit Agreement, dated as of January 15, 2021, by and among Cascabel Financial Holdings, Inc., as borrower, Cascabel Asset Management LLC, as guarantor, the lenders party thereto, and Velthorn National Bank, N.A., as administrative agent, as amended, restated, supplemented, or otherwise modified from time to time.
(gg) "Pre-Petition First Lien Facility" means the One Hundred Twenty Million Dollar ($120,000,000) senior secured term loan facility provided under the Pre-Petition First Lien Credit Agreement.
(hh) "Pre-Petition Secured Lenders" means all holders of claims under the Pre-Petition First Lien Facility other than Driftwood in respect of the Roll-Up Amount, i.e., Velthorn National Bank, N.A. (holding $38,000,000), Pinnacle Credit Partners Fund II, LP (holding $28,000,000), and Brindoval Institutional Lending, LLC (holding $22,000,000), holding an aggregate of Eighty-Eight Million Dollars ($88,000,000) of the Pre-Petition First Lien Facility.
(ii) "Roll-Up Amount" means the aggregate principal amount of Thirty-Two Million Dollars ($32,000,000) of Driftwood's pre-petition first lien claims under the Pre-Petition First Lien Facility that are subject to the dollar-for-dollar roll-up under the Roll-Up Tranche.
(jj) "Roll-Up Tranche" means the Thirty-Two Million Dollar ($32,000,000) tranche of the DIP Facility representing the dollar-for-dollar roll-up of the Roll-Up Amount upon entry of the Final DIP Order, as described in Recital C hereof.
(kk) "§ 507(b) Claims" means the allowed superpriority administrative expense claims granted to the Pre-Petition Secured Lenders pursuant to § 507(b) of the Bankruptcy Code, as described in Section 2.2 hereof.
(ll) "Stipulation" means this Stipulation and Agreed Order Regarding Adequate Protection for Pre-Petition First Lien Lenders in Connection with the Senior Secured Superpriority Debtor-in-Possession Credit Facility.
(mm) "Termination Event" has the meaning ascribed to such term in the DIP Credit Agreement.
Section 1.2 — Incorporation by Reference. All capitalized terms used but not otherwise defined in this Stipulation shall have the respective meanings ascribed to them in the DIP Credit Agreement, the terms and conditions of which are incorporated herein by reference as though fully set forth herein. To the extent of any conflict between the definitions set forth herein and those set forth in the DIP Credit Agreement, the definitions set forth in this Stipulation shall control.
Section 1.3 — Rules of Construction. Unless the context otherwise requires: (a) words importing the singular include the plural and vice versa; (b) words importing a gender include each gender; (c) the words "include," "includes," and "including" shall be deemed to be followed by the words "without limitation"; (d) references to "Sections," "Articles," "Exhibits," and "Schedules" are to sections, articles, exhibits, and schedules of this Stipulation; and (e) references to any agreement or instrument are to such agreement or instrument as amended, restated, supplemented, or otherwise modified from time to time.
ARTICLE II — ADEQUATE PROTECTION PACKAGE
Section 2.1 — Replacement Liens (Adequate Protection Liens)
(a) Pursuant to §§ 361 and 363(e) of the Bankruptcy Code, and in consideration for the priming of the Pre-Petition First Lien Facility by the DIP Facility, the Pre-Petition Secured Lenders (holding an aggregate of Eighty-Eight Million Dollars ($88,000,000) of the Pre-Petition First Lien Facility) are hereby granted, effective immediately upon entry of the Final DIP Order incorporating this Stipulation, valid, binding, enforceable, and perfected replacement liens (the "Adequate Protection Liens") on all property of the Debtors' estates upon which the DIP Liens attach. The Adequate Protection Liens shall attach to substantially all assets of the Debtors, including, without limitation, all tangible and intangible personal property, real property, accounts, general intangibles, instruments, chattel paper, inventory, equipment, investment property, deposit accounts, intellectual property, and avoidance action proceeds (whether arising under §§ 544, 545, 547, 548, 549, 550, or 553 of the Bankruptcy Code or otherwise), but excluding assets of Ridgeline Community Bank that are subject to regulatory restrictions imposed by the Delaware Office of the State Bank Commissioner or the FDIC.
(b) The Adequate Protection Liens shall be junior only to (i) the DIP Liens granted to the DIP Lender under the DIP Credit Agreement and the DIP Orders, and (ii) the Carve-Out, as set forth in Article III hereof.
(c) The Adequate Protection Liens shall be senior to any and all liens securing the Second Lien Notes, any liens or claims of the holders of the Unsecured Notes, and any other liens, claims, or encumbrances on the property of the Debtors' estates, whether arising prior to or after the Petition Date.
(d) The Adequate Protection Liens shall secure all Pre-Petition First Lien Obligations of the Pre-Petition Secured Lenders in the aggregate principal amount of Eighty-Eight Million Dollars ($88,000,000), together with all accrued and unpaid interest, fees, costs, and expenses payable under or in connection with the Pre-Petition First Lien Credit Agreement as of the Petition Date and as allowed in these Chapter 11 Cases.
(e) The Adequate Protection Liens shall be deemed valid, enforceable, and perfected as of the date of entry of the Final DIP Order, without the necessity of any further action by the Pre-Petition Secured Lenders, the Pre-Petition Agent, or the Debtors, including, without limitation, the filing or recording of any financing statements, mortgages, notices, or other documents or instruments under applicable state law, the Uniform Commercial Code, or otherwise.
Section 2.2 — Superpriority Administrative Expense Claims
(a) Pursuant to § 507(b) of the Bankruptcy Code, the Pre-Petition Secured Lenders are hereby granted, effective immediately upon entry of the Final DIP Order incorporating this Stipulation, allowed superpriority administrative expense claims (the "§ 507(b) Claims") against each of the Debtors, jointly and severally, to the extent of any diminution in the value of the Pre-Petition Secured Lenders' interests in the Debtors' assets resulting from, among other things, the use, sale, or lease of the Pre-Petition Secured Lenders' collateral, the priming of the Pre-Petition First Lien Facility by the DIP Facility, and the imposition of the automatic stay pursuant to § 362 of the Bankruptcy Code.
(b) The § 507(b) Claims shall be junior to the DIP Superpriority Claims granted to the DIP Lender pursuant to § 364(c)(1) of the Bankruptcy Code under the DIP Credit Agreement and the DIP Orders.
(c) The § 507(b) Claims shall be senior to all other administrative expense claims under § 503(b) of the Bankruptcy Code and all other claims of any kind or nature, whether arising prior to or after the Petition Date, except as subordinated to (i) the DIP Superpriority Claims and (ii) the Carve-Out.
(d) For the avoidance of doubt, the § 507(b) Claims are in addition to, and not in lieu of, the Adequate Protection Liens, the Adequate Protection Payments, and all other components of the adequate protection package set forth in this Article II.
Section 2.3 — Adequate Protection Payments
(a) Commencing on the first business day of the first full calendar month following entry of the Final DIP Order and on the first business day of each calendar month thereafter during the pendency of the DIP Facility, the Debtors shall make monthly adequate protection payments (the "Adequate Protection Payments") to the Pre-Petition Secured Lenders, through the Pre-Petition Agent, Velthorn National Bank, N.A., in an amount equal to current-pay interest on the aggregate outstanding Pre-Petition First Lien Obligations of the Pre-Petition Secured Lenders in the amount of Eighty-Eight Million Dollars ($88,000,000) at the non-default contract rate under the Pre-Petition First Lien Credit Agreement, which rate is Adjusted Term SOFR plus 425 basis points per annum.
(b) Based on the current Adjusted Term SOFR rate of approximately 5.33%, the estimated annual applicable rate is approximately 9.58% per annum (5.33% plus 4.25%), and the estimated monthly Adequate Protection Payment is approximately Seven Hundred Two Thousand One Hundred Thirty-Three Dollars ($702,133) (calculated as $88,000,000 multiplied by 9.58%, divided by 12). The actual amount of each monthly Adequate Protection Payment shall be calculated based on the applicable Adjusted Term SOFR rate in effect for the relevant interest period, as determined in accordance with the Pre-Petition First Lien Credit Agreement.
(c) Adequate Protection Payments shall be distributed by the Pre-Petition Agent to the Pre-Petition Secured Lenders pro rata based on their respective holdings of the Pre-Petition First Lien Facility, as follows:
(i) Velthorn National Bank, N.A. — Thirty-Eight Million Dollars ($38,000,000), representing 43.18% of the Pre-Petition Secured Lenders' aggregate holdings;
(ii) Pinnacle Credit Partners Fund II, LP — Twenty-Eight Million Dollars ($28,000,000), representing 31.82% of the Pre-Petition Secured Lenders' aggregate holdings; and
(iii) Brindoval Institutional Lending, LLC — Twenty-Two Million Dollars ($22,000,000), representing 25.00% of the Pre-Petition Secured Lenders' aggregate holdings.
(d) All Adequate Protection Payments shall be made by wire transfer of immediately available funds to the account designated in writing by the Pre-Petition Agent. The Debtors shall provide the Pre-Petition Agent with a Monthly Adequate Protection Payment Certificate, substantially in the form attached hereto as Exhibit B, in connection with each Adequate Protection Payment.
(e) The Adequate Protection Payments are intended to compensate the Pre-Petition Secured Lenders for the diminution in value of their interests in the Debtors' collateral resulting from the use, sale, or lease of such collateral and the priming of the Pre-Petition First Lien Facility by the DIP Facility. The making of Adequate Protection Payments shall not constitute an admission or determination by the Debtors or the DIP Lender as to the allowed amount of the Pre-Petition Secured Lenders' claims or the validity, priority, or extent of the Pre-Petition Secured Lenders' liens, except as otherwise provided in Article IV hereof upon expiration of the Challenge Period.
Section 2.4 — Adequate Protection Reserve
(a) An adequate protection reserve in the amount of Three Million Five Hundred Thousand Dollars ($3,500,000) (the "Adequate Protection Reserve") was funded from the proceeds of Draw 1 upon entry of the Interim DIP Order and has been deposited into a segregated, interest-bearing account held and maintained by the Pre-Petition Agent, Velthorn National Bank, N.A. (the "Reserve Account"). The Debtors shall cause the Adequate Protection Reserve to be maintained at the required level of Three Million Five Hundred Thousand Dollars ($3,500,000) at all times during the pendency of the DIP Facility.
(b) The Adequate Protection Reserve shall be available to satisfy any shortfall in Adequate Protection Payments in the event the Debtors fail to make any such payment when due, and the Pre-Petition Agent is authorized, without further order of the Court, to apply funds from the Adequate Protection Reserve to cure any such shortfall; provided, however, that the Debtors shall promptly replenish the Adequate Protection Reserve to its required level following any such application.
(c) Upon the expiration or termination of the DIP Facility, whether by reason of maturity, repayment, acceleration, or otherwise: (i) any amounts remaining in the Adequate Protection Reserve shall first be applied to any outstanding and unpaid Pre-Petition First Lien Obligations of the Pre-Petition Secured Lenders; and (ii) any remaining amounts after satisfaction in full of all Pre-Petition First Lien Obligations of the Pre-Petition Secured Lenders shall be returned to the Debtors' estates.
(d) The Adequate Protection Reserve is subject to the DIP Liens and the Carve-Out. For the avoidance of doubt, the Adequate Protection Reserve shall not be subject to any liens, claims, or encumbrances of any party other than the DIP Lender (in respect of the DIP Liens), the Carve-Out, and the Pre-Petition Secured Lenders (in respect of their Adequate Protection Liens).
Section 2.5 — Reimbursement of Ad Hoc Group Counsel Fees
(a) As an additional component of the adequate protection package set forth herein, the Debtors shall reimburse the reasonable and documented fees and expenses of Hartwell & Crane LLP, counsel to the Ad Hoc Group, incurred in connection with the Chapter 11 Cases, the DIP Facility, this Stipulation, and the ongoing monitoring of the Debtors' compliance with the DIP Credit Agreement and the DIP Orders (collectively, the "Reimbursable Fees").
(b) The Reimbursable Fees shall be subject to an aggregate cap of One Million Two Hundred Thousand Dollars ($1,200,000) (the "Fee Cap") for the duration of the Chapter 11 Cases, inclusive of all fees and expenses incurred from and after the Petition Date through the earlier of (i) the effective date of a confirmed Chapter 11 plan, (ii) the conversion or dismissal of the Chapter 11 Cases, or (iii) the termination of the DIP Facility.
(c) Hartwell & Crane LLP shall submit monthly invoices, appropriately redacted to preserve any applicable attorney-client privilege, work product protection, or other applicable privileges, to counsel for the Debtors (Whitfield, Graves & Sato LLP) and counsel for the DIP Lender (Calderwood & Harkness LLP). The Debtors and the DIP Lender shall have fifteen (15) business days following receipt of each invoice to raise any objection to the reasonableness of any fees or expenses set forth therein. If no objection is timely raised within such fifteen (15) business day period, the invoice shall be deemed approved and shall be paid by the Debtors within five (5) business days following the expiration of the objection period. If an objection is timely raised, the Parties shall confer in good faith to resolve such objection, and any unresolved disputes shall be submitted to the Court for resolution.
(d) The payment of Reimbursable Fees to Hartwell & Crane LLP constitutes a component of the adequate protection package set forth herein and shall be an allowed administrative expense of the Debtors' estates pursuant to § 503(b)(1)(A) of the Bankruptcy Code. For the avoidance of doubt, the Fee Cap is an aggregate cap and shall not be subject to any separate monthly limitation.
ARTICLE III — CARVE-OUT
Section 3.1 — Professional Fee Carve-Out
(a) Notwithstanding anything to the contrary in the DIP Credit Agreement, the DIP Orders, or this Stipulation, the DIP Liens, the DIP Superpriority Claims, the Adequate Protection Liens, and the § 507(b) Claims shall each be subject to, and subordinate to, a carve-out (the "Carve-Out") in an aggregate amount of Two Million Seven Hundred Fifty Thousand Dollars ($2,750,000), consisting of:
(i) Two Million Five Hundred Thousand Dollars ($2,500,000) for the allowed and unpaid professional fees and expenses of (A) the Debtors' retained professionals and (B) the Committee's retained professionals, in each case incurred in the Chapter 11 Cases, whether incurred prior to or after the delivery of a Carve-Out Trigger Notice; and
(ii) Two Hundred Fifty Thousand Dollars ($250,000) for fees payable to the Clerk of the United States Bankruptcy Court for the District of Delaware and to the United States Trustee pursuant to 28 U.S.C. § 1930.
(b) Of the Two Million Five Hundred Thousand Dollars ($2,500,000) available for professional fees under clause (a)(i) above, no more than Seven Hundred Fifty Thousand Dollars ($750,000) shall be allocated to the fees and expenses of the Committee's retained professionals. This allocation represents an increase from the Five Hundred Thousand Dollars ($500,000) originally proposed by the DIP Lender in the DIP Motion, as agreed upon by the Parties in resolution of the Committee Objection. The remaining One Million Seven Hundred Fifty Thousand Dollars ($1,750,000) shall be available for the fees and expenses of the Debtors' retained professionals.
(c) The Carve-Out shall be senior to, and shall have priority over, the DIP Liens, the DIP Superpriority Claims, the Adequate Protection Liens, and the § 507(b) Claims, in that order of priority.
(d) The Carve-Out shall be triggered upon the occurrence of a Termination Event (as defined in the DIP Credit Agreement) and the delivery of a Carve-Out Trigger Notice by the DIP Lender to the Debtors, the Pre-Petition Agent, and the Committee. Following delivery of the Carve-Out Trigger Notice, the Debtors' retained professionals and the Committee's retained professionals shall be entitled to incur and be paid fees and expenses from the Carve-Out, subject to the aggregate and allocation limits set forth in this Section 3.1.
(e) The Carve-Out shall not be available to fund the prosecution of any claim, action, or proceeding against the DIP Lender, except for Challenges commenced within the applicable Challenge Period as set forth in Article IV hereof. The Carve-Out shall not include any success fees, transaction fees, or similar contingent compensation payable to any retained professional.
Section 3.2 — Carve-Out Reservation
Notwithstanding any other provision of the DIP Credit Agreement, the DIP Orders, or this Stipulation, the Debtors shall at all times maintain a segregated cash reserve or other arrangement, in form and substance reasonably acceptable to the DIP Lender and the Pre-Petition Agent, sufficient to fund the Carve-Out in full upon the occurrence of a Termination Event and delivery of a Carve-Out Trigger Notice. Such reserve may be funded from the proceeds of the DIP Facility, the Debtors' existing cash on hand, or other available sources. The Debtors shall provide the DIP Lender and the Pre-Petition Agent with a monthly certification confirming the sufficiency of the Carve-Out reserve.
ARTICLE IV — CHALLENGE PERIOD
Section 4.1 — Committee Challenge Period
The Committee shall have a period of seventy-five (75) calendar days following entry of the Final DIP Order (i.e., from October 13, 2023, through and including December 27, 2023) (the "Committee Challenge Period") within which to investigate and, if warranted, commence any Challenge by filing an adversary proceeding or contested matter in this Court, relating to (i) the validity, enforceability, priority, or extent of the Pre-Petition Secured Lenders' liens under the Pre-Petition First Lien Credit Agreement, (ii) the validity, enforceability, priority, or extent of Driftwood's pre-petition first lien claims under the Pre-Petition First Lien Credit Agreement, and/or (iii) the Roll-Up Tranche. The Committee Challenge Period of seventy-five (75) days represents an extension from the sixty (60) day period originally proposed by the DIP Lender in the DIP Motion, as agreed upon by the Parties in resolution of the Committee Objection. The Committee shall be entitled to use the portion of the Carve-Out allocated to the Committee's retained professionals to fund any investigation during the Challenge Period.
Section 4.2 — Other Party in Interest Challenge Period
Any other party in interest (other than the Committee) shall have a period of sixty (60) calendar days following entry of the Final DIP Order (i.e., from October 13, 2023, through and including December 12, 2023) (the "General Challenge Period" and, together with the Committee Challenge Period, the "Challenge Periods") within which to investigate and, if warranted, commence any Challenge by filing an adversary proceeding or contested matter in this Court. For the avoidance of doubt, any party in interest that is not the Committee and that seeks to commence a Challenge must do so within the General Challenge Period; the extended Committee Challenge Period applies solely to the Committee.
Section 4.3 — Effect of Expiration Without Challenge
If no Challenge is timely commenced within the applicable Challenge Period: (a) the Pre-Petition Secured Lenders' liens and claims under the Pre-Petition First Lien Credit Agreement shall be deemed and shall conclusively be established as valid, enforceable, properly perfected, and of the priority set forth in the Pre-Petition First Lien Credit Agreement; (b) Driftwood's pre-petition first lien claims under the Pre-Petition First Lien Credit Agreement shall be deemed and shall conclusively be established as valid, enforceable, properly perfected, and allowed in the aggregate principal amount of Thirty-Two Million Dollars ($32,000,000), plus accrued and unpaid interest, fees, costs, and expenses; (c) the Roll-Up Tranche shall be deemed and shall conclusively be established as valid and enforceable in accordance with its terms; and (d) all parties in interest, including the Committee, the Debtors, any trustee appointed in the Chapter 11 Cases, and any successor or representative of the Debtors' estates, shall be forever barred, estopped, and enjoined from asserting any Challenge or any claim, action, or proceeding seeking to avoid, recharacterize, equitably subordinate, or otherwise challenge the foregoing liens, claims, or transactions under any provision of the Bankruptcy Code (including, without limitation, §§ 502, 506, 510, 544, 545, 547, 548, 549, 550, and 553), applicable non-bankruptcy law, or otherwise.
No Challenges to the pre-petition liens, Driftwood's pre-petition first lien claims, or the Roll-Up Tranche were commenced within the applicable Challenge Period.
ARTICLE V — CONSENT TO PRIMING AND ROLL-UP
Section 5.1 — Consent of the Ad Hoc Group
Subject to and conditioned upon the full and timely performance by the Debtors and the DIP Lender of the adequate protection provisions set forth in Article II hereof and Article III hereof, and subject to the terms and conditions of this Stipulation, the Ad Hoc Group (consisting of Velthorn National Bank, N.A. and Pinnacle Credit Partners Fund II, LP) hereby irrevocably consents to:
(a) The priming of the Pre-Petition First Lien Facility by the DIP Facility pursuant to § 364(d) of the Bankruptcy Code, such that the DIP Liens shall be senior in priority to the liens securing the Pre-Petition First Lien Facility; and
(b) The dollar-for-dollar roll-up of Driftwood's Thirty-Two Million Dollar ($32,000,000) pre-petition first lien claims under the Pre-Petition First Lien Credit Agreement into the DIP Facility, with the Roll-Up Tranche receiving superpriority administrative expense claim status under § 364(c)(1) of the Bankruptcy Code and DIP lien priority under § 364(d) of the Bankruptcy Code, pari passu in all respects with the Forty-Three Million Dollar ($43,000,000) New Money DIP Tranche.
The consent of the Ad Hoc Group set forth in this Section 5.1 is granted solely in reliance upon, and is expressly conditioned upon, the adequate protection package set forth in this Stipulation, including, without limitation, the Adequate Protection Liens, the § 507(b) Claims, the Adequate Protection Payments, the Adequate Protection Reserve, and the reimbursement of Hartwell & Crane LLP fees, and such consent shall be deemed withdrawn and of no further force or effect in the event of a material breach of the adequate protection provisions that is not cured within the applicable cure periods set forth herein.
Section 5.2 — Withdrawal of Objections
(a) Upon entry of the Final DIP Order incorporating this Stipulation, the Ad Hoc Group shall be deemed to have withdrawn the Ad Hoc Group Objection filed on September 19, 2023 (Dkt. No. 47), in its entirety and with prejudice. The Ad Hoc Group shall take no further action to prosecute or pursue the Ad Hoc Group Objection.
(b) Upon entry of the Final DIP Order incorporating this Stipulation, the Committee shall be deemed to have withdrawn the Committee Objection filed on October 2, 2023 (Dkt. No. 62), in its entirety and with prejudice. The Committee shall take no further action to prosecute or pursue the Committee Objection.
(c) For the avoidance of doubt, the withdrawals contemplated by this Section 5.2 are without prejudice to the right of the Committee or any party in interest to commence a Challenge within the applicable Challenge Period as set forth in Article IV hereof, and without prejudice to any rights expressly reserved in this Stipulation.
Section 5.3 — Reservation of Rights of Non-Party Lenders
Brindoval Institutional Lending, LLC, as a holder of Twenty-Two Million Dollars ($22,000,000) of the Pre-Petition First Lien Facility (representing 25.00% of the Pre-Petition Secured Lenders' aggregate holdings), is not a signatory to this Stipulation and is not a member of the Ad Hoc Group. Notwithstanding the foregoing, Brindoval Institutional Lending, LLC shall receive the benefits of the adequate protection package set forth in Article II hereof on a pro rata basis with the members of the Ad Hoc Group, including, without limitation, Adequate Protection Liens, § 507(b) Claims, Adequate Protection Payments, and the benefit of the Adequate Protection Reserve. Brindoval Institutional Lending, LLC shall not be deemed to have consented to any provision of this Stipulation, including, without limitation, the priming of the Pre-Petition First Lien Facility or the Roll-Up Tranche, unless and until Brindoval Institutional Lending, LLC independently files a written joinder to this Stipulation with the Court. Nothing in this Stipulation shall be construed to limit, waive, or otherwise affect any rights, claims, or defenses of Brindoval Institutional Lending, LLC, except that Brindoval Institutional Lending, LLC shall be bound by the terms of the Final DIP Order to the same extent as all other parties in interest in the Chapter 11 Cases.
ARTICLE VI — MILESTONES
Section 6.1 — Recitation of DIP Milestones. The DIP Credit Agreement requires the Debtors to comply with the following milestones (collectively, the "Milestones"), the satisfaction of which is a condition to the DIP Lender's continued obligations under the DIP Credit Agreement:
(a) Interim DIP Order: Entry of the Interim DIP Order within five (5) business days of the Petition Date. Status: Satisfied. The Interim DIP Order was entered by this Court on September 15, 2023.
(b) Final DIP Order: Entry of the Final DIP Order within thirty-five (35) days of the Petition Date. The Final DIP Order is expected to be entered on or about October 13, 2023.
(c) Filing of Plan and Disclosure Statement: Filing of a Chapter 11 plan of reorganization and a related disclosure statement within ninety (90) days of the Petition Date (i.e., on or before December 7, 2023).
(d) Confirmation Order: Entry of an order confirming the Debtors' Chapter 11 plan of reorganization within one hundred fifty (150) days of the Petition Date (i.e., on or before February 5, 2024).
(e) Plan Effective Date: Occurrence of the effective date of the Debtors' confirmed Chapter 11 plan of reorganization within one hundred eighty (180) days of the Petition Date (i.e., on or before March 6, 2024).
(f) DIP Maturity (Outside Date): The DIP Facility shall mature on September 8, 2024 (twelve (12) months from the Petition Date), unless earlier terminated or extended in accordance with the terms of the DIP Credit Agreement.
Section 6.2 — Reservation of Rights. The Ad Hoc Group expressly reserves the right to object to any request by the Debtors or the DIP Lender to extend, modify, or waive any Milestone under the DIP Credit Agreement, and nothing in this Stipulation shall be construed as the Ad Hoc Group's consent to any such extension, modification, or waiver. The Ad Hoc Group further reserves the right to be heard on any motion, application, or request related to the Milestones.
ARTICLE VII — BUDGET COMPLIANCE AND MONITORING
Section 7.1 — Budget Compliance
(a) The adequate protection package set forth in Article II hereof is conditioned upon, and shall remain in full force and effect only so long as, the Debtors remain in compliance with the DIP Budget, as required under the DIP Credit Agreement.
(b) The DIP Budget shall be a 13-week rolling cash flow budget, updated by the Debtors every four (4) weeks and delivered to the DIP Lender and the Pre-Petition Agent simultaneously upon each update. The DIP Budget shall set forth, on a weekly basis, all projected cash receipts, cash disbursements, and net cash flows of the Debtors for the ensuing 13-week period.
(c) Variance testing under the DIP Budget shall be conducted on a cumulative bi-weekly basis, with the following permitted variance thresholds: (i) actual revenue shall not deviate from budgeted revenue by more than plus or minus ten percent (±10%); and (ii) actual disbursements shall not exceed budgeted disbursements by more than fifteen percent (+15%), nor shall actual disbursements be less than budgeted disbursements by more than fifteen percent (−15%). Any breach of the foregoing variance thresholds that is not cured within the applicable cure periods set forth in the DIP Credit Agreement shall constitute an Event of Default under the DIP Credit Agreement and an Adequate Protection Default under this Stipulation.
Section 7.2 — Reporting
(a) The Debtors shall provide the Pre-Petition Agent with all financial reporting and information required to be delivered under the DIP Credit Agreement, including, without limitation: (i) monthly unaudited financial statements (balance sheet, income statement, and cash flow statement) of each Debtor and on a consolidated basis; (ii) each updated 13-week DIP Budget; (iii) bi-weekly variance reports comparing actual results to the DIP Budget; and (iv) such other information as may reasonably be requested by the Pre-Petition Agent from time to time.
(b) All such reporting and information shall be delivered to the Pre-Petition Agent simultaneously with delivery to the DIP Lender, and the Pre-Petition Agent is authorized to share such reporting and information with the members of the Ad Hoc Group, subject to customary confidentiality restrictions and any applicable non-disclosure agreements.
(c) The Debtors shall make their Chief Financial Officer, Susan K. Nakamura, and the CRO, Terrence M. Kowalski, available for reasonable telephonic or in-person discussions with the Pre-Petition Agent and the Ad Hoc Group regarding the Debtors' financial condition, operations, and compliance with the DIP Credit Agreement and this Stipulation, upon reasonable prior notice.
ARTICLE VIII — EVENTS OF DEFAULT AND REMEDIES
Section 8.1 — Adequate Protection Default
An "Adequate Protection Default" shall occur upon the occurrence of any of the following events:
(a) The Debtors' failure to make any Adequate Protection Payment within three (3) business days of the applicable due date as set forth in Section 2.3 hereof;
(b) The Debtors' failure to maintain the Adequate Protection Reserve at the required level of Three Million Five Hundred Thousand Dollars ($3,500,000), as set forth in Section 2.4 hereof, and such failure continues for a period of three (3) business days after written notice thereof from the Pre-Petition Agent to the Debtors and the DIP Lender;
(c) The Debtors' failure to reimburse approved invoices of Hartwell & Crane LLP in accordance with Section 2.5 hereof and such failure continues for a period of five (5) business days after written notice thereof from Hartwell & Crane LLP to the Debtors and the DIP Lender;
(d) The occurrence and continuance of an Event of Default under the DIP Credit Agreement (as defined therein), unless such Event of Default is cured or waived in accordance with the terms of the DIP Credit Agreement; or
(e) The Debtors' failure to comply with the reporting obligations set forth in Section 7.2 hereof and such failure continues for a period of five (5) business days after written notice thereof from the Pre-Petition Agent to the Debtors and the DIP Lender.
Section 8.2 — Remedies Upon Adequate Protection Default
(a) Upon the occurrence and during the continuance of an Adequate Protection Default, the Pre-Petition Secured Lenders (through the Pre-Petition Agent or counsel to the Ad Hoc Group) may provide written notice of such default to the Debtors, the DIP Lender, the Committee, and the United States Trustee.
(b) Following delivery of such notice and the expiration of any applicable cure periods set forth herein, the Pre-Petition Secured Lenders shall be entitled, subject to the Carve-Out and upon further application to the Court (with not less than five (5) business days' prior written notice to the Debtors, the DIP Lender, the Committee, and the United States Trustee), to seek such remedies as may be available to them under the Bankruptcy Code, including, without limitation, (i) modification of the automatic stay to the extent necessary to exercise rights and remedies against the Debtors' assets, (ii) the appointment of a trustee

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

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