SUMMARY OF PROPOSED DIP FINANCING TERMS

SUMMARY OF PROPOSED DIP FINANCING TERMS
SENIOR SECURED SUPERPRIORITY DEBTOR-IN-POSSESSION CREDIT FACILITY
Cascabel Financial Holdings, Inc. Cascabel Asset Management LLC
as Borrowers / Debtors
Prepared by
Calderwood & Harkness LLP 599 Lexington Avenue New York, NY 10022
On behalf of
Driftwood Absolute Return Fund Ltd. as Proposed DIP Lender
September 1, 2023
CONFIDENTIAL — FOR DISCUSSION PURPOSES ONLY. This term sheet does not constitute a commitment to lend and is subject to the execution and delivery of definitive documentation satisfactory to the DIP Lender and its counsel. No binding obligations shall arise from the circulation or acknowledgment of this term sheet. This document is being circulated to the Debtors and pre-petition first lien lenders in advance of the anticipated Chapter 11 filing and is provided on a confidential basis. Recipients of this term sheet agree to maintain the confidentiality of its contents and not to disclose the same to any third party without the prior written consent of Calderwood & Harkness LLP and Driftwood Absolute Return Fund Ltd., except as may be required by applicable law, regulation, or court order. Any unauthorized distribution, copying, or disclosure is strictly prohibited.
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INTRODUCTORY OVERVIEW
Driftwood Absolute Return Fund Ltd. ("Driftwood" or the "DIP Lender"), an exempted company incorporated under the laws of the Cayman Islands, hereby proposes to provide a senior secured superpriority debtor-in-possession credit facility (the "DIP Facility") in an aggregate amount of Seventy-Five Million Dollars ($75,000,000) to Cascabel Financial Holdings, Inc. ("Cascabel" or "CFH") and Cascabel Asset Management LLC ("CAM" and, together with Cascabel, the "Borrowers" or "Debtors") in connection with the Debtors' anticipated voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code, 11 U.S.C. §§ 101 et seq. (the "Bankruptcy Code"), to be filed in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") on or about September 8, 2023 (the date of such filing, the "Petition Date").
The DIP Facility is comprised of two components: (i) a New Money DIP Tranche in the aggregate principal amount of $43,000,000, consisting of new cash advances to the Debtors, and (ii) a Roll-Up Tranche in the aggregate principal amount of $32,000,000, reflecting a dollar-for-dollar conversion of Driftwood's existing pre-petition first lien term loan claims into post-petition DIP obligations with superpriority administrative expense claim status. The terms and conditions of the DIP Facility are summarized in greater detail in the sections that follow.
For the avoidance of doubt, Ridgeline Community Bank, a Delaware state-chartered commercial bank and a wholly owned subsidiary of Cascabel, is expressly excluded from the anticipated Chapter 11 filing. Ridgeline Community Bank will continue to operate under the regulatory supervision of the Delaware Office of the State Bank Commissioner and the Federal Deposit Insurance Corporation (the "FDIC"), and the DIP Facility is not intended to, and shall not, encumber the assets of Ridgeline Community Bank except to the extent of Cascabel's equity interests therein, subject to applicable regulatory restrictions.
All terms and conditions set forth in this Summary of Proposed DIP Financing Terms (this "Term Sheet") remain subject to negotiation and the execution and delivery of definitive documentation in form and substance satisfactory to the DIP Lender and its counsel, Calderwood & Harkness LLP. Nothing herein shall be deemed to constitute a binding commitment on the part of the DIP Lender to provide financing, and no binding obligations shall arise until the execution of a definitive Senior Secured Superpriority Debtor-in-Possession Credit Agreement (the "DIP Credit Agreement") and the entry of applicable orders by the Bankruptcy Court authorizing the DIP Facility.
SECTION 1: PARTIES
1.1 Borrowers / Debtors
Cascabel Financial Holdings, Inc. ("CFH")
A corporation duly organized and existing under the laws of the State of Delaware, with its principal executive offices located at 1200 Market Street, Suite 900, Wilmington, Delaware 19801. CFH serves as the parent holding company of the Cascabel enterprise, maintaining direct and indirect ownership interests in both operating subsidiaries described herein. CFH's employer identification number is 84-3291057.
Cascabel Asset Management LLC ("CAM")
A limited liability company organized under the laws of the State of Delaware, registered as an investment adviser with the United States Securities and Exchange Commission (the "SEC") under the Investment Advisers Act of 1940, as amended. CAM currently manages approximately $1.2 billion in client assets under management across a range of separately managed accounts and commingled investment vehicles. CAM operates as a wholly owned subsidiary of CFH.
Senior Management of the Debtors:
•  Chief Executive Officer: Gerald T. Harmon
•  Chief Financial Officer: Susan K. Nakamura
1.2 DIP Lender
Driftwood Absolute Return Fund Ltd. ("Driftwood" or the "DIP Lender")
An exempted company incorporated under the laws of the Cayman Islands, with its registered office located at 4th Floor, Harbour Place, 103 South Church Street, George Town, Grand Cayman, KY1-1002, Cayman Islands. Driftwood maintains its principal office at 280 Park Avenue, 38th Floor, New York, New York 10017.
Driftwood is managed by Driftwood Capital Advisors LLC, a Delaware limited liability company serving as its investment manager (the "Investment Manager"). The Investment Manager's co-founders and managing partners are Marcus Ellison (Co-Founder and Chief Investment Officer) and Priya Venkatesh (Co-Founder and Chief Operating Officer). As of September 2023, Driftwood and its affiliated funds managed by Driftwood Capital Advisors LLC have aggregate assets under management of approximately $4.8 billion, with a primary focus on credit-oriented and special situations investment strategies.
Driftwood is an existing holder of $32,000,000 in face value of pre-petition first lien term loan claims against CFH, as more fully described in Section 2.3 below.
1.3 DIP Lender's Counsel
Calderwood & Harkness LLP
•  New York Office: 599 Lexington Avenue, New York, New York 10022
•  Delaware Office: 1000 North King Street, Suite 300, Wilmington, Delaware 19801
•  Responsible Partner: Colette Whitman
Calderwood & Harkness LLP serves as counsel to Driftwood in connection with the DIP Facility, the Chapter 11 cases, and all related matters. All references herein to the DIP Lender's counsel shall be deemed references to Calderwood & Harkness LLP.
1.4 Pre-Petition First Lien Administrative Agent
Velthorn National Bank, N.A.
500 Boylston Street, Boston, Massachusetts 02116. Velthorn National Bank, N.A. serves as the administrative agent and collateral agent under the Pre-Petition First Lien Credit Agreement dated as of January 15, 2021 (as amended, restated, supplemented, or otherwise modified from time to time, the "Pre-Petition First Lien Credit Agreement"), among CFH as borrower, the lenders party thereto from time to time, and Velthorn National Bank, N.A. as administrative agent and collateral agent.
SECTION 2: BACKGROUND AND PRE-PETITION CAPITAL STRUCTURE
2.1 Company Background
Cascabel Financial Holdings, Inc. operates a mid-market financial services platform that combines a registered investment advisory business conducted through CAM with a state-chartered commercial banking subsidiary, Ridgeline Community Bank (the "Bank" or "Ridgeline"). Ridgeline is a Delaware state-chartered commercial bank, with its principal office located in Wilmington, Delaware, and operates six branch locations throughout New Castle and Kent Counties, Delaware. Ridgeline's deposits are insured by the FDIC up to applicable limits.
The Debtors' financial distress stems from a confluence of factors that materialized over the period from late 2022 through mid-2023:
Concentrated Commercial Real Estate Loan Losses. Ridgeline's loan portfolio carried substantial concentration risk in commercial real estate ("CRE") lending, particularly in the office and mixed-use segments of the Delaware and southeastern Pennsylvania markets. Significant unrealized losses in the CRE portfolio have contributed to the erosion of Ridgeline's capital adequacy ratios and the overall enterprise value of Cascabel.
Failed Fintech Lender Acquisition. In the fourth quarter of 2022, CFH completed the acquisition of a consumer fintech lending platform for approximately $47 million, funded in part with proceeds from the Second Lien Notes described below. The acquired platform experienced rapid deterioration in loan performance and regulatory scrutiny, resulting in substantial write-downs and the ultimate wind-down of the platform's operations in the second quarter of 2023. The failed acquisition significantly impaired CFH's liquidity and balance sheet.
Depositor Outflows. In the wake of broader banking sector turmoil in the first and second quarters of 2023, Ridgeline experienced accelerating depositor outflows, which placed significant pressure on the Bank's liquidity position. While Ridgeline has stabilized its deposit base in recent weeks, the outflows exacerbated the Debtors' overall liquidity crisis and necessitated intercompany support from CFH that further strained the holding company's available resources.
As of the anticipated Petition Date, the Debtors' consolidated financial position is summarized as follows:
•  Total Assets (approximate): $620,000,000
•  Total Liabilities (approximate): $710,000,000
•  Negative Equity Position (approximate): ($90,000,000)
•  Ridgeline Community Bank Total Deposits (approximate): $385,000,000
The Chapter 11 filing is intended to provide the Debtors with the breathing room necessary to stabilize their operations, explore strategic alternatives (including a potential sale of the investment advisory business or a recapitalization of the holding company), and develop a plan of reorganization that maximizes value for the benefit of all stakeholders.
2.2 Pre-Petition Capital Structure
The following table summarizes the Debtors' pre-petition funded debt obligations as of the anticipated Petition Date:
The First Lien Term Loan is secured by a first priority lien on substantially all assets of CFH and CAM (excluding assets of Ridgeline Community Bank to the extent subject to regulatory restrictions), pursuant to the Pre-Petition First Lien Credit Agreement and related security documents. The Second Lien Notes are secured by a second priority lien on substantially the same collateral, pursuant to an intercreditor agreement between the first lien administrative agent and the second lien indenture trustee. The Unsecured Notes are unsecured bilateral obligations of CFH.
2.3 First Lien Lender Composition
The following table sets forth the composition of the lending syndicate under the Pre-Petition First Lien Credit Agreement as of the date hereof:
Driftwood acquired its $32,000,000 face value position in the First Lien Term Loan through a series of secondary market purchases executed between March 2023 and July 2023. The aggregate purchase price for Driftwood's position was approximately $21,760,000, reflecting a weighted average acquisition price of approximately $0.68 on the dollar. All assignments were effectuated in compliance with the Pre-Petition First Lien Credit Agreement and were duly recorded by the administrative agent. Driftwood's position in the first lien syndicate is the basis for the Roll-Up Tranche described in Section 3.4 and Section 9 herein.
2.4 Second Lien Holder Composition
The Second Lien Notes were issued pursuant to an Indenture dated as of June 1, 2022 (the "Second Lien Indenture"), by and between CFH as issuer and Zynvaro Trust Company as indenture trustee. Zynvaro Trust Company maintains its principal office at 101 Hudson Street, Jersey City, New Jersey 07302.
The $45,000,000 aggregate principal amount of Second Lien Notes is held by a limited group of institutional investors. The primary holder is Ashford Mezzanine Capital, LP, which holds approximately $30,000,000 of the $45,000,000 outstanding principal amount (representing approximately 66.7% of the Second Lien Notes). The remaining $15,000,000 is held by other institutional investors whose identities and holdings are not disclosed herein.
The Second Lien Notes bear interest at a fixed rate of 10.50% per annum and are secured by a second priority lien on substantially the same collateral as the First Lien Term Loan, subject to the terms and conditions of the Intercreditor Agreement dated as of June 1, 2022, by and between Velthorn National Bank, N.A. (as first lien collateral agent) and Zynvaro Trust Company (as second lien indenture trustee).
SECTION 3: DIP FACILITY — SUMMARY OF PRINCIPAL TERMS
3.1 Type of Facility
The DIP Facility shall be a senior secured superpriority debtor-in-possession credit facility authorized pursuant to Sections 364(c)(1), 364(c)(2), 364(c)(3), and 364(d)(1) of the Bankruptcy Code, providing the DIP Lender with (i) superpriority administrative expense claim status with respect to all DIP obligations, (ii) perfected first priority liens on all unencumbered property of the Debtors' estates, (iii) perfected junior liens on property of the Debtors' estates subject to valid, perfected, and non-avoidable liens existing as of the Petition Date, and (iv) perfected first priority priming liens on all property of the Debtors' estates that is subject to valid, perfected, and non-avoidable liens existing as of the Petition Date (including, without limitation, the liens securing the Pre-Petition First Lien Credit Agreement), in each case subject to the Carve-Out described in Section 8 herein.
3.2 Total Commitment
The total aggregate commitment under the DIP Facility shall be $75,000,000, comprised of the following tranches:
3.3 New Money DIP Tranche — Availability
The $43,000,000 New Money DIP Tranche shall be available to the Borrowers in two draws, as follows:
Draw 1 (Interim Draw): $18,000,000 — available upon entry of the Interim Order (as defined below) of the Bankruptcy Court authorizing the Debtors to obtain credit and incur debt under the DIP Facility on an interim basis pursuant to Bankruptcy Rule 4001(c) (the "Interim DIP Order"). Draw 1 proceeds shall be used to fund the Debtors' immediate post-petition working capital requirements, pay the commitment fee ($1,500,000), fund the adequate protection reserve ($3,500,000), and pay accrued and unpaid professional fees of the DIP Lender's counsel.
Draw 2 (Final Draw): $25,000,000 — available upon entry of a final order of the Bankruptcy Court authorizing the Debtors to obtain credit and incur debt under the DIP Facility on a final basis (the "Final DIP Order"), following notice and a hearing as required under Section 364 of the Bankruptcy Code and Bankruptcy Rule 4001(c). Draw 2 proceeds shall be used for working capital and general corporate purposes of the Debtors during the pendency of the Chapter 11 cases.
Total New Money: $43,000,000.
All draws under the New Money DIP Tranche shall be made in a single funding on the applicable draw date and shall not be subject to reborrowing once repaid.
3.4 Roll-Up Tranche
The DIP Facility shall include a Roll-Up Tranche in the aggregate principal amount of $32,000,000, representing a dollar-for-dollar roll-up and conversion of Driftwood's pre-petition first lien term loan claims into post-petition DIP obligations.
The Roll-Up Tranche shall become effective upon entry of the Final DIP Order. Upon such effectiveness:
(a) Driftwood's $32,000,000 in pre-petition first lien term loan claims shall be deemed converted into post-petition DIP obligations under the DIP Credit Agreement;
(b) The rolled-up obligations shall bear interest at the DIP interest rate set forth in Section 4.1 herein, be secured by the DIP liens described in Section 6.1 herein, and be entitled to superpriority administrative expense claim status under Section 6.2 herein, in each case pari passu with the New Money DIP Tranche;
(c) Driftwood's pre-petition first lien claims shall be deemed satisfied and discharged to the extent of the $32,000,000 roll-up, and Driftwood shall no longer be treated as a holder of pre-petition first lien claims for purposes of voting, distributions, adequate protection, or any other purpose under the Pre-Petition First Lien Credit Agreement; and
(d) The aggregate outstanding principal amount of pre-petition first lien term loan claims entitled to adequate protection under Section 7 herein shall be reduced from $120,000,000 to $88,000,000 to reflect the satisfaction of Driftwood's pre-petition claims through the roll-up.
The mechanics and challenge period applicable to the roll-up are described in greater detail in Section 9 below.
3.5 Use of Proceeds
Proceeds of the DIP Facility shall be used solely for the following purposes:
(a) Working capital and general corporate purposes of the Debtors during the pendency of the Chapter 11 cases, in each case in accordance with the DIP Budget;
(b) Payment of administrative expenses of the Chapter 11 cases, including professional fees of the Debtors' retained professionals and the professionals retained by the Official Committee of Unsecured Creditors (if appointed), in each case subject to the Carve-Out;
(c) Funding of the adequate protection reserve in the amount of $3,500,000, to be funded from Draw 1 proceeds and maintained in a segregated deposit account for the benefit of the pre-petition first lien lenders as described in Section 7.5;
(d) Payment of the commitment fee in the amount of $1,500,000, to be paid from Draw 1 proceeds upon entry of the Interim DIP Order as described in Section 4.3;
(e) Payment of adequate protection obligations to the pre-petition first lien lenders as described in Section 7;
(f) Payment of the fees and expenses of Calderwood & Harkness LLP as counsel to the DIP Lender, as described in Section 17.1; and
(g) Such other uses as may be approved by the Bankruptcy Court and consented to by the DIP Lender.
Excluded Uses. Notwithstanding the foregoing, no proceeds of the DIP Facility shall be used, directly or indirectly, for the operations, obligations, or liabilities of Ridgeline Community Bank. Ridgeline Community Bank's operations are ring-fenced from the Debtors' estates, and DIP Facility proceeds shall not be transferred, advanced, contributed, or otherwise made available to Ridgeline Community Bank without the prior written consent of the DIP Lender and, to the extent required, the approval of the Bankruptcy Court and the applicable banking regulators.
SECTION 4: INTEREST RATE AND FEES
4.1 Interest Rate
All outstanding DIP obligations (including both the New Money DIP Tranche and the Roll-Up Tranche) shall bear interest at a rate per annum equal to Adjusted Term SOFR plus 900 basis points (9.00%).
For purposes of the DIP Facility:
(a) "Adjusted Term SOFR" means the forward-looking Secured Overnight Financing Rate term rate published by the CME Group Benchmark Administration Limited (or a successor administrator acceptable to the DIP Lender) for a one-month interest period, as determined two (2) U.S. Government Securities Business Days prior to the beginning of each interest period, plus a credit spread adjustment of 0.11448% (11.448 basis points) per annum.
(b) SOFR Floor: The Adjusted Term SOFR component of the interest rate shall not be less than 4.00% per annum (the "SOFR Floor"), regardless of the actual Adjusted Term SOFR rate.
(c) Minimum All-In Interest Rate: Accordingly, the minimum effective interest rate on all DIP obligations shall be 13.00% per annum (4.00% SOFR Floor + 9.00% spread).
Interest shall be payable monthly in arrears, in cash, on the first business day of each calendar month for the immediately preceding calendar month, commencing on the first such date following the initial funding under the DIP Facility. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed (including the first day but excluding the last day) during each interest period.
4.2 Default Rate
Upon the occurrence and during the continuance of an Event of Default (as defined in Section 16 herein), all outstanding DIP obligations shall automatically bear interest at the applicable interest rate plus an additional 200 basis points (2.00%) per annum (the "Default Rate").
•  Total default spread: Adjusted Term SOFR + 1,100 basis points (11.00%)
•  Minimum all-in Default Rate: 15.00% per annum (4.00% SOFR Floor + 11.00% spread)
Default interest shall accrue from the date of the Event of Default and shall be payable on demand.
4.3 Commitment Fee
The DIP Lender shall receive a commitment fee equal to 2.00% of the total $75,000,000 DIP Facility commitment, in the aggregate amount of $1,500,000 (the "Commitment Fee").
The Commitment Fee shall be fully earned upon the Debtors' acceptance of this Term Sheet and shall be due and payable in full in cash upon entry of the Interim DIP Order, from the proceeds of Draw 1. The Commitment Fee is non-refundable and shall not be subject to rebate, reduction, or offset under any circumstances, including without limitation the termination, acceleration, or prepayment of the DIP Facility.
4.4 Exit Fee
The DIP Lender shall receive an exit fee equal to 1.50% of all amounts actually drawn under the DIP Facility (including the Roll-Up Tranche) (the "Exit Fee").
If the DIP Facility is fully drawn (including the Roll-Up Tranche), the Exit Fee shall be calculated as 1.50% × $75,000,000 = $1,125,000.
The Exit Fee shall be due and payable in full in cash upon the earliest to occur of:
(a) The stated maturity of the DIP Facility;
(b) The repayment in full of all DIP obligations; or
(c) The acceleration of all DIP obligations following the occurrence of an Event of Default.
The Exit Fee shall be deemed fully earned upon the initial funding under the DIP Facility and shall constitute an administrative expense of the Debtors' estates.
4.5 Unused Line Fee
The Borrowers shall pay to the DIP Lender an unused line fee equal to 0.50% per annum on the daily average undrawn and uncommitted portion of the New Money DIP Tranche during each calendar month (or portion thereof) during which any unfunded commitment remains outstanding (the "Unused Line Fee").
The Unused Line Fee shall be payable monthly in arrears on the first business day of each calendar month, commencing on the first such date following the initial funding under the DIP Facility. The Unused Line Fee shall be calculated on the basis of a 360-day year for the actual number of days elapsed. For the avoidance of doubt, the Roll-Up Tranche shall not be included in the calculation of the Unused Line Fee.
SECTION 5: MATURITY
The DIP Facility shall mature and all outstanding DIP obligations shall become due and payable in full on the earliest to occur of the following (such earliest date, the "Maturity Date"):
(i) Twelve (12) months from the Petition Date (i.e., September 8, 2024, assuming a Petition Date of September 8, 2023), being the outside maturity date of the DIP Facility;
(ii) The effective date of a confirmed Chapter 11 plan of reorganization (the "Plan Effective Date") in the Debtors' Chapter 11 cases;
(iii) The consummation of a sale of substantially all assets of the Debtors pursuant to Section 363 of the Bankruptcy Code (a "Section 363 Sale"), to the extent such sale is approved by final order of the Bankruptcy Court; or
(iv) The occurrence of an Event of Default and the acceleration of the DIP obligations in accordance with Section 16.1 herein.
On the Maturity Date, all outstanding principal, accrued and unpaid interest, the Exit Fee, and all other amounts owing under the DIP Credit Agreement and the DIP Orders shall be immediately due and payable in full in cash, without presentment, demand, protest, or other notice of any kind, all of which are hereby expressly waived by the Borrowers. The Debtors' Chapter 11 plan of reorganization shall provide for the indefeasible repayment in full in cash of all DIP obligations on or before the Plan Effective Date.
SECTION 6: SECURITY AND PRIORITY
6.1 DIP Liens
All DIP obligations (including both the New Money DIP Tranche and the Roll-Up Tranche) shall be secured by valid, binding, enforceable, and perfected liens (collectively, the "DIP Liens") on substantially all assets of each of the Borrowers, whether now owned or hereafter acquired, including without limitation:
(a) All tangible and intangible personal property, including but not limited to accounts, chattel paper, commercial tort claims, deposit accounts, documents, equipment, general intangibles (including payment intangibles and software), goods, instruments, intellectual property (including trademarks, trade names, copyrights, patents, and licenses), inventory, investment property, letter-of-credit rights, money, and supporting obligations;
(b) All real property interests, including owned and leased real estate, fixtures, and improvements;
(c) All proceeds of causes of action and avoidance actions under Chapter 5 of the Bankruptcy Code (including actions arising under Sections 544, 545, 547, 548, 549, 550, and 553 of the Bankruptcy Code), subject to the entry of the Final DIP Order;
(d) All equity interests in subsidiaries of the Borrowers, including all membership interests, partnership interests, and capital stock (including the equity interests in Ridgeline Community Bank, to the extent not subject to the regulatory exclusion described below);
(e) All books, records, files, correspondence, and other documents;
(f) All proceeds and products of any and all of the foregoing, including insurance proceeds; and
(g) All other assets and properties of the Debtors' estates, of whatever kind, nature, or description, wherever located.
The DIP Liens shall constitute first priority priming liens on all collateral that is subject to valid, perfected, and non-avoidable liens existing as of the Petition Date, including the liens securing the Pre-Petition First Lien Credit Agreement, pursuant to Section 364(d)(1) of the Bankruptcy Code. The DIP Liens shall also constitute first priority liens on all unencumbered property of the Debtors' estates pursuant to Section 364(c)(2) of the Bankruptcy Code, and junior liens on property of the Debtors' estates subject to valid, perfected, and non-avoidable liens existing as of the Petition Date (to the extent not primed) pursuant to Section 364(c)(3) of the Bankruptcy Code.
Excluded Collateral. Notwithstanding the foregoing, the DIP Liens shall not extend to any assets of Ridgeline Community Bank that are subject to regulatory restrictions or prohibitions imposed by the Delaware Office of the State Bank Commissioner, the FDIC, or any other applicable banking regulatory authority. To the extent that the pledge of Cascabel's equity interests in Ridgeline Community Bank requires regulatory approval, the DIP Liens on such equity interests shall be subject to the receipt of such approval (and the Borrowers shall use commercially reasonable efforts to obtain such approval promptly following the Petition Date).
6.2 Superpriority Claims
All DIP obligations (including the New Money DIP Tranche and the Roll-Up Tranche, together with all accrued interest, fees, costs, expenses, and other amounts owing under the DIP Credit Agreement) shall constitute allowed superpriority administrative expense claims (the "DIP Superpriority Claims") pursuant to Sections 364(c)(1) and 507(b) of the Bankruptcy Code, with priority in payment over any and all other administrative expense claims, whether now existing or hereafter arising in the Debtors' Chapter 11 cases or in any successor case (including, without limitation, any case under Chapter 7 of the Bankruptcy Code resulting from the conversion of the Chapter 11 cases), to the fullest extent provided by applicable law.
The DIP Superpriority Claims shall be subject only to the Carve-Out as defined and described in Section 8 herein.
6.3 Priming.  The DIP Liens shall prime and be senior in priority to all pre-petition liens on the Debtors' assets, including the liens securing the Pre-Petition First Lien Credit Agreement (the "Pre-Petition First Liens") and the liens securing the Second Lien Indenture (the "Pre-Petition Second Liens"), pursuant to Section 364(d)(1) of the Bankruptcy Code. The pre-petition first lien lenders shall receive adequate protection of their interests in the pre-petition collateral as described in Section 7 herein, which adequate protection shall be deemed sufficient to satisfy the requirements of Section 364(d)(1)(B) of the Bankruptcy Code.
For the avoidance of doubt, the priority of the DIP Liens relative to the Pre-Petition First Liens and the Pre-Petition Second Liens shall be as follows:
1.  DIP Liens (first priority, priming)
2.  Pre-Petition First Liens (second priority, subject to the DIP Liens and the Carve-Out, and subject to replacement liens as described in Section 7.2)
3.  Pre-Petition Second Liens (third priority, subject to the DIP Liens, the Carve-Out, and the Pre-Petition First Liens)
SECTION 7: ADEQUATE PROTECTION FOR PRE-PETITION FIRST LIEN LENDERS
7.1 Overview.  In consideration of the priming of the Pre-Petition First Liens by the DIP Liens and the use of the Debtors' cash collateral, and in satisfaction of the requirements of Sections 361, 363(e), and 364(d)(1)(B) of the Bankruptcy Code, the following adequate protection shall be provided to the holders of pre-petition first lien term loan claims under the Pre-Petition First Lien Credit Agreement (collectively, the "Pre-Petition First Lien Lenders") — namely, Velthorn National Bank, N.A., Pinnacle Credit Partners Fund II, LP, and Brindoval Institutional Lending, LLC — on account of the aggregate remaining pre-petition first lien claims of $88,000,000 (reflecting the total $120,000,000 outstanding under the Pre-Petition First Lien Credit Agreement less the $32,000,000 of Driftwood's claims that are subject to the roll-up described in Section 3.4 and Section 9 herein).
7.2 Replacement Liens
The Pre-Petition First Lien Lenders shall receive replacement liens (the "Replacement Liens") on all DIP collateral, to the same extent and with the same validity as the Pre-Petition First Liens, subject and junior only to:
(a) The DIP Liens; and
(b) The Carve-Out.
The Replacement Liens shall be deemed valid, perfected, and enforceable without the need for any further action by the Pre-Petition First Lien Lenders, the administrative agent, or the Debtors, including without limitation the filing or recording of any financing statements, mortgages, notices, or other documents.
7.3 Superpriority Administrative Expense Claims
The Pre-Petition First Lien Lenders shall be entitled to allowed superpriority administrative expense claims pursuant to Section 507(b) of the Bankruptcy Code (the "Adequate Protection Superpriority Claims"), with priority over all other administrative expense claims in the Chapter 11 cases, but junior and subordinate to the DIP Superpriority Claims.
7.4 Adequate Protection Payments
The Debtors shall make monthly cash payments of current interest on the $88,000,000 of pre-petition first lien claims (excluding the $32,000,000 subject to the roll-up) at the non-default contract rate under the Pre-Petition First Lien Credit Agreement of Adjusted Term SOFR plus 425 basis points (4.25%) per annum (the "Adequate Protection Payments").
Based on the current Adjusted Term SOFR rate of approximately 5.33%, the estimated annual interest rate applicable to the Adequate Protection Payments is approximately 9.58%, and the estimated monthly Adequate Protection Payment is approximately $702,133 ($88,000,000 × 9.58% ÷ 12). Adequate Protection Payments shall be payable monthly in arrears to Velthorn National Bank, N.A. as administrative agent for distribution to the Pre-Petition First Lien Lenders in accordance with the terms of the Pre-Petition First Lien Credit Agreement.
7.5 Adequate Protection Reserve
From the proceeds of Draw 1, the Debtors shall fund a segregated cash reserve account (the "Adequate Protection Reserve") in the amount of $3,500,000, to be held in a segregated interest-bearing deposit account at Velthorn National Bank, N.A. for the benefit of the Pre-Petition First Lien Lenders. The Adequate Protection Reserve shall serve as additional security for the Adequate Protection Payments and shall be available to fund Adequate Protection Payments in the event the Debtors' cash flows are insufficient for such purpose. Amounts on deposit in the Adequate Protection Reserve shall be returned to the Debtors' estates upon repayment in full of the pre-petition first lien claims or upon the Plan Effective Date, to the extent not previously applied to Adequate Protection Payments.
7.6 Pre-Petition Lender Professional Fees
The Debtors' estates shall pay the reasonable and documented professional fees and expenses of counsel to the Ad Hoc Group of First Lien Lenders, which counsel is identified as:
Hartwell & Crane LLP 51 JFK Parkway, Suite 200 Short Hills, New Jersey 07078 Lead Partner: Monica L. Hartwell
Payment of such professional fees and expenses shall be subject to an aggregate cap of $1,200,000 during the pendency of the Chapter 11 cases, inclusive of all fees and expenses incurred from the date of retention through the consummation of a plan of reorganization or other conclusion of the cases. Payment shall be made monthly upon presentation of reasonably detailed invoices, without need for fee application or Bankruptcy Court approval (except as to reasonableness upon objection by the Debtors, the Committee, or the United States Trustee).
SECTION 8: CARVE-OUT
8.1 Professional Fee Carve-Out
The DIP Liens and the DIP Superpriority Claims shall be subject and subordinate to a carve-out (the "Carve-Out") in favor of the following:
(a) Debtors' Professionals: Allowed but unpaid professional fees and disbursements of professionals retained by the Debtors pursuant to Sections 327, 328, or 363 of the Bankruptcy Code that are incurred during the Chapter 11 cases, whether before or after the occurrence of an Event of Default, in an aggregate amount not to exceed the amounts specified below; and
(b) Committee Professionals: Allowed but unpaid professional fees and disbursements of professionals retained by the Official Committee of Unsecured Creditors, if appointed, pursuant to Sections 328 and 1103 of the Bankruptcy Code, whether before or after the occurrence of an Event of Default, in an aggregate amount not to exceed the amounts specified below.
The maximum aggregate amount available under the Professional Fee Carve-Out for all Debtors' professionals and Committee professionals combined shall be $2,500,000, of which no more than $750,000 shall be available to professionals retained by the Committee.
For the avoidance of doubt, the Professional Fee Carve-Out shall not include fees and expenses payable to Calderwood & Harkness LLP as counsel to the DIP Lender (which fees are separately provided for under Section 17.1) or fees and expenses of Hartwell & Crane LLP as counsel to the Ad Hoc Group of First Lien Lenders (which fees are separately provided for under Section 7.6).
8.2 Statutory Fees
In addition to the Professional Fee Carve-Out, the Carve-Out shall include an amount equal to $250,000 for fees payable to the Clerk of the Bankruptcy Court and quarterly fees payable to the United States Trustee pursuant to 28 U.S.C. § 1930(a)(6) and 31 U.S.C. § 3717 (the "Statutory Fee Reserve").
8.3 Total Carve-Out
The total amount of the Carve-Out shall be:
The DIP Liens, the DIP Superpriority Claims, the Replacement Liens, and the Adequate Protection Superpriority Claims shall each be subject and subordinate to the Carve-Out. The Carve-Out shall be senior in priority to all liens and claims securing or constituting the DIP obligations and the adequate protection obligations.
SECTION 9: ROLL-UP MECHANICS
9.1 Triggering Event
The roll-up of Driftwood's $32,000,000 pre-petition first lien term loan claims into post-petition DIP obligations (the "Roll-Up") shall become effective upon, and only upon, entry of the Final DIP Order by the Bankruptcy Court. No portion of the Roll-Up shall become effective upon entry of the Interim DIP Order. The Final DIP Order shall contain specific provisions authorizing and approving the Roll-Up in form and substance satisfactory to the DIP Lender and Calderwood & Harkness LLP.
9.2 Treatment.  Upon the effectiveness of the Roll-Up:
(a) Driftwood's pre-petition first lien claims in the aggregate face amount of $32,000,000 shall be deemed irrevocably converted into, and satisfied by, post-petition DIP obligations under the DIP Credit Agreement, with the same terms and conditions as the New Money DIP Tranche, including without limitation:
(i) Interest at the DIP interest rate of Adjusted Term SOFR + 900 basis points (subject to the SOFR Floor);
(ii) Security provided by the DIP Liens on all DIP collateral;
(iii) Superpriority administrative expense claim status pari passu with the New Money DIP Tranche; and
(iv) Maturity on the Maturity Date.
(b) The rolled-up claims shall constitute DIP obligations in all respects and shall be entitled to the same protections, priorities, and remedies as the New Money DIP Tranche.
(c) Driftwood shall no longer hold any pre-petition first lien claims for any purpose under the Pre-Petition First Lien Credit Agreement, the Chapter 11 cases, or any plan of reorganization, including without limitation for purposes of:
(i) Voting on a plan of reorganization;
(ii) Receiving distributions under a plan of reorganization on account of pre-petition first lien claims;
(iii) Adequate protection payments or protections; or
(iv) Exercising any rights or remedies under the Pre-Petition First Lien Credit Agreement.
(d) The aggregate outstanding balance of pre-petition first lien claims entitled to treatment under the Pre-Petition First Lien Credit Agreement shall be reduced from $120,000,000 to $88,000,000.
9.3 Challenge Period
The DIP Orders shall contain provisions establishing a limited period during which parties in interest may investigate and, if appropriate, challenge the validity, extent, priority, or perfection of the Pre-Petition First Liens, the pre-petition first lien claims, or the propriety of the Roll-Up (the "Challenge Period"), as follows:
(a) Committee Challenge Period: The Official Committee of Unsecured Creditors (if appointed by the United States Trustee) shall have seventy-five (75) days from the date of entry of the Final DIP Order to investigate and, if warranted, commence an adversary proceeding or contested matter challenging the validity, extent, perfection, or priority of the Pre-Petition First Liens, the pre-petition first lien claims, or the Roll-Up, including without limitation any claim that such liens or claims are subject to avoidance, subordination, recharacterization, or disallowance under the Bankruptcy Code or applicable non-bankruptcy law.
(b) Other Parties in Interest: Any other party in interest (including the Debtors and any individual creditor) shall have sixty (60) days from the date of entry of the Final DIP Order for the same investigative and challenge purposes described in clause (a) above.
(c) Expiration of Challenge Period: If no challenge is timely commenced within the applicable Challenge Period, the Pre-Petition First Liens and the pre-petition first lien claims shall be deemed valid, binding, enforceable, properly perfected, and not subject to avoidance, subordination, recharacterization, or disallowance, and the Roll-Up shall be deemed valid, authorized, and not subject to challenge, in each case for all purposes of the Chapter 11 cases, any successor cases, and any plan of reorganization.
SECTION 10: BUDGET AND FINANCIAL REPORTING
10.1 DIP Budget
Prior to the initial funding under the DIP Facility, the Debtors shall prepare and deliver to the DIP Lender a thirteen (13)-week rolling cash flow budget (the "DIP Budget") setting forth, on a weekly basis, projected cash receipts, cash disbursements (by category), and net cash flow for the thirteen-week period commencing on the Petition Date. The DIP Budget shall be prepared by the Debtors' management with the input and assistance of the Debtors' financial advisor, Alderpoint Advisory Partners LLC (Chief Restructuring Officer: Terrence M. Kowalski), and shall be subject to the prior written approval of the DIP Lender (which approval shall not be unreasonably withheld or delayed).
The approved DIP Budget shall be attached as an exhibit to the DIP Credit Agreement and shall form the basis for variance testing as described in Section 10.3 below.
10.2 Budget Updates
The DIP Budget shall be updated and resubmitted by the Debtors for the DIP Lender's approval every four (4) weeks during the term of the DIP Facility, each time rolling the budget forward by four weeks so that the DIP Budget at all times covers a thirteen-week forward-looking period. Each updated DIP Budget shall be delivered to the DIP Lender no later than the Friday preceding the first week of the new budget period. The DIP Lender shall have five (5) business days following receipt of each updated DIP Budget to approve or object to the same. If the DIP Lender objects, the parties shall work in good faith to resolve such objections. Pending resolution, the most recently approved DIP Budget shall continue in effect.
10.3 Variance Testing
Compliance with the DIP Budget shall be tested on a cumulative bi-weekly basis (i.e., every two weeks on a cumulative basis from the Petition Date), as follows:
•  Revenue Variance: Actual cumulative cash receipts shall not be less than 90%, and shall not exceed 110%, of the cumulative cash receipts projected in the DIP Budget for the applicable testing period (i.e., permitted variance of ±10%).
•  Disbursement Variance: Actual cumulative cash disbursements shall not exceed 115%, and shall not be less than 85%, of the cumulative cash disbursements projected in the DIP Budget for the applicable testing period (i.e., permitted variance of ±15%).
Failure to comply with the foregoing variance thresholds for any testing period shall constitute an Event of Default under Section 16 herein, subject to any applicable notice and cure provisions set forth in the definitive documentation.
10.4 Reporting Requirements
The Debtors shall provide the following reports and information to the DIP Lender during the term of the DIP Facility:
(a) Weekly Cash Flow Reports: Within three (3) business days following the end of each calendar week, a report setting forth actual cash receipts and cash disbursements for such week, compared against the amounts projected in the DIP Budget, together with a narrative explanation of any material variances.
(b) Monthly Financial Statements: Within twenty (20) days following the end of each calendar month, unaudited consolidated financial statements of the Debtors (including a balance sheet, income statement, and statement of cash flows) for such month and on a year-to-date basis, prepared in accordance with generally accepted accounting principles applied on a basis consistent with prior periods (subject to the absence of footnotes and normal year-end adjustments).
(c) Material Adverse Change Notices: Prompt written notice (and in any event within two (2) business days of the Debtors' becoming aware) of (i) any Material Adverse Effect (as defined in the DIP Credit Agreement), (ii) any regulatory action, proceeding, or inquiry by the Delaware Office of the State Bank Commissioner, the FDIC, the SEC, or any other governmental authority that could reasonably be expected to have a Material Adverse Effect, (iii) any breach or anticipated breach of any milestone set forth in Section 11 herein, or (iv) any other event or circumstance that could reasonably be expected to have a material adverse impact on the Debtors' operations, financial condition, assets, or ability to consummate a plan of reorganization.
(d) Milestone Compliance Certificates: Promptly following the satisfaction of each milestone set forth in Section 11, a certificate of the Debtors' Chief Restructuring Officer confirming satisfaction of such milestone and the current status of all remaining milestones.
(e) Additional Information: Such other reports, documents, and information as the DIP Lender may reasonably request from time to time.
SECTION 11: MILESTONES
The Debtors shall satisfy each of the following milestones (collectively, the "Milestones") by no later than the applicable deadline set forth below:
Each Milestone deadline set forth above shall be a date certain, calculated by reference to the Petition Date, and shall not be subject to extension except with the prior written consent of the DIP Lender (which consent may be granted or withheld in the DIP Lender's sole and absolute discretion).
Failure to satisfy any Milestone by its stated deadline shall constitute an immediate Event of Default under the DIP Credit Agreement, without any requirement for notice, demand, or cure period, except as may otherwise be expressly provided in the definitive documentation.
The Debtors acknowledge and agree that the Milestone deadlines are ambitious and that the Debtors shall use their best efforts, in consultation with their retained professionals and the DIP Lender, to satisfy each Milestone within the timeframes specified above. The DIP Lender reserves the right to modify or supplement the Milestones in the definitive documentation as the DIP Lender deems necessary or appropriate.
SECTION 12: CONDITIONS PRECEDENT
12.1 Conditions to Draw 1 (Interim Draw)
The obligation of the DIP Lender to fund Draw 1 (the Interim Draw of $18,000,000 under the New Money DIP Tranche) shall be subject to the satisfaction (or waiver by the DIP Lender in its sole discretion) of each of the following conditions precedent:
(a) Interim DIP Order. The Bankruptcy Court shall have entered the Interim DIP Order, in form and substance satisfactory to the DIP Lender and Calderwood & Harkness LLP, authorizing the Debtors to borrow up to $18,000,000 under the DIP Facility on an interim basis, granting the DIP Liens and the DIP Superpriority Claims, and providing the adequate protection described in Section 7 herein. The Interim DIP Order shall not have been stayed, reversed, modified, or vacated.
(b) Definitive Documentation. The DIP Credit Agreement and all related documents (including security agreements, pledge agreements, guaranties, and any other documentation required by the DIP Lender) shall have been duly executed and delivered by the parties thereto, each in form and substance satisfactory to the DIP Lender and Calderwood & Harkness LLP.
(c) DIP Budget. The Debtors shall have delivered to the DIP Lender the initial thirteen (13)-week DIP Budget, and such DIP Budget shall have been approved in writing by the DIP Lender.
(d) Commitment Fee. The Commitment Fee of $1,500,000 shall have been paid to the DIP Lender from the proceeds of Draw 1.
(e) Adequate Protection Reserve. The Adequate Protection Reserve of $3,500,000 shall have been funded from the proceeds of Draw 1 into the segregated account described in Section 7.5.
(f) DIP Lender's Professional Fees. All accrued and unpaid fees and expenses of Calderwood & Harkness LLP as counsel to the DIP Lender, through the date of the initial funding, shall have been paid in full from the proceeds of Draw 1.
(g) Organizational Documents and Certificates. The Debtors shall have delivered to the DIP Lender and Calderwood & Harkness LLP:
(i) A certificate of the Secretary or Assistant Secretary of each Borrower, certifying copies of the organizational documents (including the certificate of incorporation, bylaws, limited liability company agreement, and any amendments thereto), resolutions of the board of directors or managers authorizing the DIP Facility, and incumbency and specimen signatures of all authorized officers;
(ii) Certificates of good standing for each Borrower from the Secretary of State of the State of Delaware, dated no earlier than five (5) business days prior to the Petition Date;
(iii) An officer's certificate of the Chief Financial Officer of CFH, certifying that all representations and warranties are true and correct in all material respects and that no Event of Default exists; and
(iv) Such legal opinions of the Debtors' counsel as the DIP Lender may reasonably request, including opinions regarding due authorization, enforceability, and absence of conflict.
(h) No Event of Default. No Event of Default (as defined in Section 16) shall have occurred and be continuing as of the date of Draw 1.
(i) Representations and Warranties. All representations and warranties set forth in the DIP Credit Agreement and this Term Sheet shall be true and correct in all material respects as of the date of Draw 1.
(j) No Material Adverse Effect. No Material Adverse Effect shall have occurred since the Petition Date.
12.2 Conditions to Draw 2 (Final Draw)
The obligation of the DIP Lender to fund Draw 2 (the Final Draw of $25,000,000 under the New Money DIP Tranche) shall be subject to the continued satisfaction (or waiver by the DIP Lender in its sole discretion) of each of the following conditions precedent:
(a) Prior Conditions. All conditions to Draw 1 set forth in Section 12.1 shall continue to be satisfied or shall have been waived by the DIP Lender.
(b) Final DIP Order. The Bankruptcy Court shall have entered the Final DIP Order, in form and substance satisfactory to the DIP Lender and Calderwood & Harkness LLP, authorizing the Debtors to borrow the full amount of the DIP Facility and approving the Roll-Up of Driftwood's $32,000,000 pre-petition first lien claims. The Final DIP Order shall not have been stayed, reversed, modified, or vacated, and the time for any appeal or rehearing shall have expired without any appeal or motion for rehearing having been timely filed (or, if filed, such appeal or motion shall have been dismissed or denied by a court of competent jurisdiction).
(c) Roll-Up Effectiveness. The Roll-Up of Driftwood's $32,000,000 pre-petition first lien claims into DIP obligations shall have become effective in accordance with Section 9 herein.
(d) No Event of Default. No Event of Default shall have occurred and be continuing as of the date of Draw 2.
(e) Budget Compliance. The Debtors shall be in compliance with the DIP Budget as of the most recent testing date, within the permitted variances set forth in Section 10.3.
(f) Milestone Compliance. The Debtors shall have satisfied all Milestones due on or prior to the date of Draw 2, including without limitation the entry of the Interim DIP Order within five (5) business days of the Petition Date.
SECTION 13: REPRESENTATIONS AND WARRANTIES
The DIP Credit Agreement shall contain representations and warranties customary for debtor-in-possession credit facilities of this type and size, to be made by each Borrower as of the date of the DIP Credit Agreement and as of the date of each draw, including without limitation the following:
(a) Organization and Good Standing. Each Borrower is duly organized, validly existing, and in good standing under the laws of the State of Delaware and is duly qualified and authorized to do business in each jurisdiction where the nature of its business or the ownership or leasing of its properties requires such qualification, except where the failure to be so qualified could not reasonably be expected to have a Material Adverse Effect.
(b) Corporate Authority; No Conflict. Each Borrower has all requisite corporate or limited liability company power and authority to execute, deliver, and perform its obligations under the DIP Credit Agreement and related documents. The execution, delivery, and performance of the DIP Credit Agreement have been duly authorized by all necessary corporate or limited liability company action and do not (i) violate any provision of the organizational documents of any Borrower, (ii) conflict with, result in a breach of, or constitute a default under any material agreement, instrument, or obligation to which any Borrower is a party or by which any Borrower or its assets may be bound (other than any default arising solely as a result of the commencement of the Chapter 11 cases), or (iii) violate any applicable law, rule, regulation, order, judgment, or decree applicable to any Borrower (other than the Bankruptcy Code, to the extent the DIP Orders authorize the DIP Facility).
(c) Enforceability. The DIP Credit Agreement and all related documents constitute the legal, valid, and binding obligations of each Borrower, enforceable against each Borrower in accordance with their terms, subject to the Bankruptcy Code and the DIP Orders.
(d) No Material Litigation. Except for the Chapter 11 cases, there is no action, suit, proceeding, investigation, or claim pending or, to the knowledge of the Borrowers, threatened against any Borrower that could reasonably be expected to have a Material Adverse Effect.
(e) Financial Statements and DIP Budget. The financial statements and the DIP Budget delivered to the DIP Lender fairly present, in all material respects, the financial condition and results of operations of the Debtors as of the dates and for the periods covered thereby. The DIP Budget has been prepared in good faith and is based upon assumptions that are reasonable in light of current and reasonably foreseeable conditions.
(f) Compliance with Laws. Each Borrower is in compliance with all applicable laws, rules, and regulations (including without limitation federal and state securities laws, banking regulations, environmental laws, tax laws, and ERISA), except where the failure to comply could not reasonably be expected to have a Material Adverse Effect.
(g) Perfection and Priority of DIP Liens. Upon entry of the applicable DIP Order, the DIP Liens shall constitute valid, perfected, and enforceable liens on the DIP collateral, with the priority described in Section 6 herein.
(h) Accuracy of Schedules and Statements. The schedules of assets and liabilities, statements of financial affairs, and all other documents filed by the Debtors in the Chapter 11 cases are accurate and complete in all material respects.
(i) No Undisclosed Liabilities. There are no material liabilities or obligations of any Borrower (whether accrued, contingent, absolute, or otherwise) that have not been disclosed to the DIP Lender in writing prior to the execution of the DIP Credit Agreement.
(j) Title to Collateral. Each Borrower has good and marketable title to, or valid leasehold interests in, all collateral pledged under the DIP Credit Agreement, free and clear of all liens, claims, encumbrances, and interests of any kind, except for the DIP Liens, the Pre-Petition First Liens, the Pre-Petition Second Liens, and other permitted liens to be specified in the DIP Credit Agreement.
(k) Insurance. Each Borrower maintains insurance policies with financially sound and reputable insurance companies providing coverage in such amounts and against such risks as are customary for companies of similar size engaged in similar businesses and owning similar properties.
(l) ERISA Compliance. Each Borrower is in compliance with the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the regulations thereunder, with respect to each employee benefit plan maintained by or on behalf of such Borrower. No ERISA Event has occurred or is reasonably expected to occur that could reasonably be expected to result in aggregate liability to the Borrowers in excess of $500,000.
(m) Tax Compliance. Each Borrower has timely filed all federal, state, local, and foreign tax returns required to be filed and has paid all taxes due and owing (or has made adequate provision therefor), except where the failure to file or pay could not reasonably be expected to have a Material Adverse Effect and except for taxes being contested in good faith by appropriate proceedings.
(n) Ridgeline Community Bank Regulatory Status. Ridgeline Community Bank is duly chartered and in good standing as a Delaware state-chartered commercial bank, with all necessary licenses, permits, and authorizations to conduct its banking business. Ridgeline Community Bank is not subject to any cease-and-desist order, consent decree, memorandum of understanding, or similar regulatory enforcement action that has not been disclosed to the DIP Lender in writing, except as could not reasonably be expected to have a Material Adverse Effect.
SECTION 14: AFFIRMATIVE COVENANTS
The DIP Credit Agreement shall contain affirmative covenants customary for debtor-in-possession credit facilities of this type and size, applicable to each Borrower during the term of the DIP Facility, including without limitation the following:
(a) Maintenance of Corporate Existence. Each Borrower shall maintain its corporate or limited liability company existence and all authorizations, licenses, and permits necessary for the conduct of its business, except where the failure to maintain any such authorization, license, or permit could not reasonably be expected to have a Material Adverse Effect.
(b) Compliance with DIP Orders. Each Borrower shall comply in all respects with the terms, conditions, and provisions of the Interim DIP Order, the Final DIP Order, and all other orders of the Bankruptcy Court relating to the DIP Facility.
(c) Maintenance of Insurance. Each Borrower shall maintain insurance policies with financially sound and reputable insurance companies providing coverage in such amounts and against such risks as are customary for companies of similar size engaged in similar businesses, and shall name the DIP Lender as an additional insured and loss payee as its interests may appear.
(d) Payment of Taxes and Governmental Charges. Each Borrower shall timely pay all taxes, assessments, and governmental charges due and owing (to the extent payment of pre-petition taxes is allowed as an administrative expense or otherwise authorized by the Bankruptcy Court), except taxes being contested in good faith by appropriate proceedings and for which adequate reserves have been established.
(e) Budget Compliance. Each Borrower shall comply with the DIP Budget within the permitted variances set forth in Section 10.3 herein and shall not make any expenditure or incur any obligation not contemplated by the DIP Budget without the prior written consent of the DIP Lender.
(f) Milestone Compliance. Each Borrower shall use its best efforts to satisfy all Milestones set forth in Section 11 herein by the applicable deadlines.
(g) Financial Reporting. Each Borrower shall deliver to the DIP Lender all financial reports, budget variance reports, and other information required by Section 10.4 herein, in each case within the time periods specified therein.
(h) Books and Records; Access Rights. Each Borrower shall maintain complete and accurate books and records of all transactions and shall permit the DIP Lender and its representatives (including Calderwood & Harkness LLP and any financial advisor retained by the DIP Lender) to inspect such books and records, visit the Borrowers' offices and facilities, and consult with the Borrowers' officers, employees, and professional advisors, in each case at reasonable times and upon reasonable notice (which may be telephonic or electronic), and at the Borrowers' expense.
(i) Preservation of Collateral. Each Borrower shall maintain, preserve, and protect the DIP collateral in good condition and working order (ordinary wear and tear excepted) and shall not permit any material waste,