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P ACHULSKI S TANG Z IEHL & J ONES LLP
Richard M. Pachulski (CA Bar No. 90073) James I. Stang (CA Bar No. 94435) Dean A. Ziehl (CA Bar No. 84529) Linda F. Cantor (CA Bar No. 153762) Debra I. Grassgreen (CA Bar No. 169978) PACHULSKI STANG ZIEHL & JONES LLP 10100 Santa Monica Blvd., Suite 1300 Los Angeles, CA 90067-4114 Telephone: 310/277-6910 Facsimile: 310/201-0760 E-mail: rpachulski@pszjlaw.com jstang@pszjlaw.com dziehl@pszjlaw.com lcantor@pszjlaw.com dgrassgreen@pszjlaw.com Proposed Attorneys for Debtor and Debtor in Possession UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA SANTA ANA DIVISION In re: American Suzuki Motor Corporation,1 Debtor. Case No.: 12-_____ (___) Chapter 11 NOTICE OF EMERGENCY MOTION AND EMERGENCY MOTION FOR INTERIM AND FINAL ORDERS (1) AUTHORIZING POSTPETITION FINANCING PURSUANT TO 11 U.S.C. 105, 361, 362, 363, 364(c)(1), 364(c)(2), 364(c)(3) AND 364(d)(1); (2) AUTHORIZING THE USE OF CASH COLLATERAL; (3) GRANTING SECURITY INTERESTS AND SUPERPRIORITY CLAIMS; (4) PROVIDING ADEQUATE PROTECTION; (5) MODIFYING THE AUTOMATIC STAY; AND (6) GRANTING RELATED RELIEF; MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF [Declaration of M. Freddie Reiss, Proposed Chief Restructuring Officer, in Support of Emergency First Day Motions Filed Concurrently Herewith] TO THE HONORABLE UNITED STATES BANKRUPTCY JUDGE, THE OFFICE OF THE UNITED STATES TRUSTEE, THE DEBTORS PREPETITION AND POSTPETITION LENDER, THE CREDITORS APPEARING ON THE LIST FILED IN ACCORDANCE WITH RULE 1007(D) OF THE FEDERAL RULES OF BANKRUPTCY PROCEDURE, ALL ENTITIES KNOWN TO ASSERT LIENS IN OR UPON THE DEBTORS ASSETS, AND PARTIES REQUESTING SPECIAL NOTICE:
The last four digits of the Debtors federal tax identification number are 8739. The Debtors address is: 3251 East Imperial Highway, Brea, California 92821.
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ATTORNEYS AT LAW LOS ANGELES, CALIFORNIA
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PLEASE TAKE NOTICE that American Suzuki Motor Corporation, the above-captioned debtor and debtor in possession (the Debtor), hereby moves (the Motion) this Court for entry of an order substantially in the form attached hereto as Exhibit A (the Interim DIP Order), and following a final hearing, a final order, among other things: (a) authorizing the Debtor to obtain postpetition loans, credit and other financial
accommodations, on an interim basis, pending a final hearing on the Motion (the Final Hearing), from Suzuki Motor Corporation (SMC) in accordance with the DIP Loan Documents (as defined below), secured by security interests and liens on substantially all of the assets of the Debtor, as set forth in the DIP Credit Agreement (as defined below) and herein, pursuant to sections 105, 361, 362, 363, 364(c)(1), 364(c)(2), 364(c)(3) and 364(d)(1) of title 11 of the United States Code, 11 U.S.C. 101 et seq. (the Bankruptcy Code) and Rules 2002, 4001 and 9014 of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules), subject to Permitted Priority Liens and the payment of Carve-Out Expenses, and excluding Avoidance Actions or the proceeds thereof; (b) authorizing the Debtor to enter into, be bound by, and perform under the
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debtor in possession credit facility (the DIP Credit Facility) governed by the Debtor-InPossession Loan and Security Agreement dated November 5, 2012, by and among the Debtor, as borrower, and SMC, as lender, substantially in the form attached hereto as Exhibit B (as such agreement may be modified, supplemented, amended or restated from time to time, the DIP Credit Agreement, and together with the other Loan Documents, as defined in the DIP Credit Agreement, the DIP Loan Documents);2 (c) authorizing the Debtor to grant SMC (as lender under the DIP Credit
Agreement, the DIP Lender), superpriority administrative claim status pursuant to Bankruptcy Code section 364(c)(1) in respect of all Obligations, as defined in the DIP Credit Agreement (the DIP Obligations); (d) authorizing the Debtor to use the collateral, including cash collateral, under
that certain Loan and Security Agreement dated as of July 27, 2012 between the Debtor, as
Capitalized terms not otherwise defined herein have the meaning ascribed to them in the DIP Credit Agreement.
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borrower, and SMC as lender (as such agreement may have been modified, supplemented, amended or restated from time to time, the Existing Senior Secured Credit Facility), which collateral secures the Debtors obligations to SMC (as lender under the Existing Senior Secured Credit Facility, the Existing Senior Lender), and granting adequate protection as set forth herein; (e) (f) modifying the automatic stay to the extent hereinafter set forth; and setting the Final Hearing, for consideration of the entry of an order approving
this Motion on a final basis (Final DIP Order). The DIP Lender and the Existing Senior Lender is SMC, an affiliate and insider of the Debtor. SMC holds 100% of the equity interests in the Debtor and sells the product necessary for the Debtor to operate its business. The DIP Credit Facility will prime and shall be senior to the Existing Senior Secured Credit Facility. PLEASE TAKE FURTHER NOTICE that this Motion is made pursuant to sections 105, 361, 362, 363, 364, 503(b), and 507 of the Bankruptcy Code and Bankruptcy Rules 2002, 4001 and 9014, and Rules 4001-2 and 9075-1 of the Local Bankruptcy Rules of the United States Bankruptcy Court for the Central District of California (the Local Bankruptcy Rules),3 and is made on the grounds that the authorization of the requested financing and use of cash collateral is: (a) within the Debtors sound business judgment, (b) in the best interest of the Debtors estate, and (c) essential to the continuation of the Debtors business operations. The DIP Credit Facility and use of cash collateral allows the Debtor to continue operations while it administers its chapter 11 case thereby maximizing recoveries by creditors. PLEASE TAKE FURTHER NOTICE that the Debtor requests that the relief sought herein be granted on an emergency basis because uninterrupted access to financing in the form of the DIP Credit Facility and cash collateral is essential to the survival of the Debtors business. Further, pursuant to Local Bankruptcy Rule 4001-2(e), the Court is specifically authorized to grant interim relief under a financing and/or cash collateral motion to prevent immediate and irreparable harm to the estate pending a final hearing.
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Pursuant to Local Bankruptcy Rule 9075-1(a)(3), no separate motion for an expedited hearing is required.
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PLEASE TAKE FURTHER NOTICE that this Motion is based on this Notice and Motion, the Notice of Emergency Motions that will be filed and served after a hearing date for the Debtors First Day Motions has been obtained, the attached Memorandum of Points and Authorities, the Declaration of M. Freddie Reiss, Proposed Chief Restucturing Officer, in Support of Emergency First Day Motions (the Reiss Declaration) filed concurrently herewith, and the arguments of counsel and other admissible evidence properly brought before the Court at or before the hearing on this Motion. In addition, the Debtor requests that the Court take judicial notice of all documents filed with the Court in this case. PLEASE TAKE FURTHER NOTICE that any opposition or objection to this Motion must be filed with the Court and served on proposed counsel for the Debtor at the above address any time before the hearing or may be presented at the hearing on this Motion. You will receive a separate notice of the hearing on this Motion. Your failure to timely object may be deemed by the Court to constitute consent to the relief requested herein. PLEASE TAKE FURTHER NOTICE that counsel to the Debtor will serve this Notice and Motion, the attached Memorandum of Points and Authorities and the Reiss Declaration on: (a) the Office of the United States Trustee, (b) the creditors appearing on the list filed in accordance with Rule 1007(d) of the Federal Rules of Bankruptcy Procedure, (c) the Debtors prepetition and postpetition lender, SMC, (d) parties that file with the Court and serve upon the Debtor requests for notice of all matters in accordance with Bankruptcy Rule 2002, and (e) any known parties that assert a lien on the Debtors assets. To the extent necessary, the Debtor requests that the Court waive compliance with Local Bankruptcy Rule 9075-1(a)(5) and approve service (in addition to the means of service set forth in such Local Bankruptcy Rule) by overnight and electronic delivery. In the event that the Court grants the relief requested by the Motion, the Debtor shall provide notice of entry of the Interim DIP Order granting such relief upon each of the foregoing parties and any other parties in interest as the Court directs. The Debtor submits that such notice is sufficient and that no other or further notice be given.
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WHEREFORE the Debtor respectfully requests that the Court grant the relief requested herein and grant such further relief as the Court deems just and proper. Dated: November 5, 2012 PACHULSKI STANG ZIEHL & JONES LLP By /s/ Debra I. Grassgreen Richard M. Pachulski James I. Stang Dean A. Ziehl Linda F. Cantor Debra I. Grassgreen Proposed Attorneys for Debtor and Debtor in Possession
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Richard M. Pachulski (CA Bar No. 90073) James I. Stang (CA Bar No. 94435) Dean A. Ziehl (CA Bar No. 84529) Linda F. Cantor (CA Bar No. 153762) Debra I. Grassgreen (CA Bar No. 169978) PACHULSKI STANG ZIEHL & JONES LLP 10100 Santa Monica Blvd., Suite 1300 Los Angeles, CA 90067-4114 Telephone: 310/277-6910 Facsimile: 310/201-0760 E-mail: rpachulski@pszjlaw.com jstang@pszjlaw.com dziehl@pszjlaw.com lcantor@pszjlaw.com dgrassgreen@pszjlaw.com Proposed Attorneys for Debtor and Debtor in Possession UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA SANTA ANA DIVISION In re: American Suzuki Motor Corporation,1 Debtor. Case No.: 12-_____ (___) Chapter 11 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF EMERGENCY MOTION FOR INTERIM AND FINAL ORDERS (1) AUTHORIZING POSTPETITION FINANCING PURSUANT TO 11 U.S.C. 105, 361, 362, 363, 364(c)(1), 364(c)(2), 364(c)(3) AND 364(d)(1); (2) AUTHORIZING THE USE OF CASH COLLATERAL; (3) GRANTING SECURITY INTERESTS AND SUPERPRIORITY CLAIMS; (4) PROVIDING ADEQUATE PROTECTION; (5) MODIFYING THE AUTOMATIC STAY; AND (6) GRANTING RELATED RELIEF
[Declaration of M. Freddie Reiss, Proposed Chief Restructuring Officer, in Support of Emergency First Day Motions Filed Concurrently Herewith]
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Page NEED FOR FINANCING ........................................................................................................ 1 MATERIAL TERMS OF FINANCING .................................................................................. 2 STATEMENT PURSUANT TO LOCAL BANKRUPTCY RULE 4001-2 ............................ 5 BACKGROUND ...................................................................................................................... 7 A. Jurisdiction and Venue .................................................................................................. 7 B. General Background ..................................................................................................... 7 C. The Debtors Existing Secured Debt ............................................................................ 9 V. PROPOSED DIP FINANCING.............................................................................................. 10 A. The DIP Credit Facility and Use of Cash Collateral are Critical to the Debtors Continued Operations ................................................................................................. 10 B. The Debtors Selection of SMC as DIP Lender.......................................................... 11 VI. BASIS FOR RELIEF .............................................................................................................. 11 A. The DIP Credit Facility Should Be Approved Under 11 U.S.C. 364(c), 364(d)(1) ..................................................................................................................................... 11 B. The Debtor Should Be Granted Access to Cash Collateral Under 11 U.S.C. 363(c)(1) . 15 VII. INTERIM DIP ORDER AND FINAL HEARING ................................................................ 15 VIII. NOTICE .................................................................................................................................. 16 IX. CONCLUSION ....................................................................................................................... 16 I. II. III. IV.
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Page Cases In re 495 Cent. Park Ave. Corp., 136 B.R. 626 (Bankr. S.D.N.Y. 1992) ............................................................................................ 13 In re Ames Dept. Stores, 115 B.R. 34 (Bankr. S.D.N.Y. 1990) .............................................................................................. 12 In re Antico Mfg. Co., 31 B.R. 103 (Bankr. E.D.N.Y. 1983).............................................................................................. 14 In re Defender Drug Stores, 126 B.R. 76 (Bankr. D. Ariz. 1991), affd, 145 B.R. 312 (B.A.P. 9th Cir. 1992) ..................................................................................... 14 In re Ellingsen MacLean Oil Co., 834 F.2d 599 (6th Cir. 1987) .......................................................................................................... 14 In re Reading Tube Indus., 72 B.R. 329 (Bankr. E.D. Pa. 1987) ............................................................................................... 13 In re Simasko Production Co., 47 B.R. 444 (D. Colo. 1985) ........................................................................................................... 12 In re Sky Valley, Inc., 100 B.R. 107 (Bankr. N.D. Ga. 1988) ............................................................................................ 13 In re Snowshoe Co., 789 F.2d 1085 (4th Cir. 1986) ........................................................................................................ 13 In re Stanley Hotel, Inc., 15 B.R. 660 (D. Colo. 1981) ........................................................................................................... 13 Weinstein, Eisen, Weiss LLP v. Gill (In re Cooper Common, LLC), 424 F.3d 963 (9th Cir. 2005) ......................................................................................................... 15 Statutes 11 U.S.C. 363 ................................................................................................................................... 15 11 U.S.C. 364 ................................................................................................................................... 12
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American Suzuki Motor Corporation, the above-captioned debtor and debtor in possession (the Debtor), hereby files this Memorandum of Points and Authorities in support of its Emergency Motion for Interim and Final Orders (A) Authorizing Postpetition Financing Pursuant to 11 U.S.C. 105, 361, 362, 363, 364(c)(1), 364(c)(2), 364(c)(3) and 364 (d)(1); (2) Authorizing the Use of Cash Collateral; (3) Granting Security Interests and Superpriority Claims; (4) Providing Adequate Protection; (5) Modifying Automatic Stay; and (6) Granting Related Relief (the Motion),1 and represents as follows: I. NEED FOR FINANCING As more fully set forth herein and the Reiss Declaration, the Debtor has an urgent and immediate need for access to cash collateral and borrowings under the DIP Credit Agreement with SMC in the principal amount of up to $50,000,000 in postpetition advances and $50,000,000 in inventory loans following entry of the Final DIP Order, of which $15,000,000 in postpetition advances and $30,000,000 in inventory loans would be available under the proposed Interim DIP Order. The Debtor is the sole distributor in the continental United States of Suzuki automobiles, motorcycles, all-terrain vehicles (ATV), and marine outboard engines (collectively, the Suzuki Products). As of the Petition Date, the Debtor wholesaled the Suzuki Products through three primary business divisions: automotive (the Automotive Division), motorcycles and ATV (the Motorcycles/ATV Division), and outboard marine motors and related products (the Marine Division and together with the Automotive Division and Motorcycles/ATV Division, the Divisions). The Debtor commenced this chapter 11 case to restructure its Automotive Division and intends to continue ordinary course operations as to the remaining Divisions. The Debtor must have sufficient liquidity to meet the needs, demands and obligations of its business. The proposed DIP Credit Facility will provide the Debtor with access to sufficient financing to fund operations. The
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Capitalized terms not otherwise defined herein have the meaning ascribed to them in the Motion or the DIP Credit Agreement (as defined in the Motion), as applicable.
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proposed DIP Lender is SMC, an affiliate and insider of the Debtor. SMC holds 100% of the equity interests in the Debtor and sells the product necessary for the Debtor to operate its business. Under the proposed DIP Credit Facility and associated Interim DIP Order and Final DIP Order, the Debtor will have access to three types of financing: (1) access to cash collateral in which SMC asserts an interest under a prepetition loan arrangement; (2) availability under a new revolving line of credit to the extent necessary; and (3) continuing deliveries of product from SMC, including motorcycles, outboard marine motors, ATVs, and assorted parts utilized in the Divisions, on fifteenday credit terms. As to item (3), SMCs extension of credit will constitute advances under the inventory loan portion of the DIP Credit Facility. Without the proposed postpetition financing and use of cash collateral, the Debtor will not have any liquidity to operate its business, and therefore will be unable to fund its ordinary course expenditures or pay the expenses necessary to administer the chapter 11 case. Simply put, without access to financing and continued use of cash collateral, the Debtor will be required to cease operations and liquidate other than as a going concern, causing irreparable harm to the Debtor, its estate and creditors. Accordingly, the Debtor has an urgent and immediate need for the borrowings under the DIP Credit Agreement and use of cash collateral contemplated herein. II. MATERIAL TERMS OF FINANCING Pursuant to Bankruptcy Rules 4001(b) and 4001(c) and Local Bankruptcy Rule 4001-2(c), the relevant provisions of the DIP Credit Agreement are as follows:2 Term DIP Lender Borrower Borrowing Limits Suzuki Motor Corporation American Suzuki Motor Corporation The Debtor seeks authorization to borrow up to $50,000,000 in postpetition advances and $50,000,000 in inventory loans following entry of the Final DIP Order, of which $15,000,000 in postpetition advances and $30,000,000 in inventory loans would be available under the proposed Interim DIP Order. See Interim Description
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The following chart summarizes the material terms and conditions of the DIP Credit Facility. In the event of any inconsistency with the DIP Credit Agreement, the terms and conditions of the DIP Credit Agreement shall control.
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Term DIP Order, at 2. Interest Rate
Description
Postpetition advances under the DIP Credit Facility shall bear interest at the rate of LIBOR plus 3% per annum, which shall be payable quarterly on the last day of each quarter. Inventory loans shall not accrue interest if paid within fifteen-day credit terms. See DIP Credit Agreement, at 2.06(a). No closing or exit fees are payable under the DIP Credit Agreement. DIP Lenders professional fees relating to the financing shall be reimbursed. The earliest to occur of: (i) six (6) months after the date of the DIP Credit Agreement or such later date to which the DIP Lender consents, (ii) the closing of a sale of substantially all of the assets of the Debtor or substantial consummation of a chapter 11 plan, or (iii) the occurrence of an event of default. See DIP Credit Agreement, at 2.05(a). Funding under the DIP Credit Facility is subject to entry of the Interim DIP Order by the Court and other customary conditions, representations and warranties, and covenants for a financing of this type. See DIP Credit Agreement, at Articles III, IV and V. The proceeds of the DIP Credit Facility and other cash collateral will be used by the Debtor to fund ordinary course working capital and the payment of expenses incurred in administering this case as set forth in the budget attached to the proposed Interim DIP Order as Exhibit 1 (the Budget), subject to a variance of no more than 15% on total budgeted disbursements for each month, provided that disbursements for professional fees and expenses shall not be subject to any variance. See DIP Credit Agreement, at 5.03. The obligations of the Debtor under the DIP Credit Agreement, the Interim DIP Order and the Final DIP Order, (i) pursuant to section 364(c)(1) of the Bankruptcy Code, shall at all times constitute allowed superpriority claims, subordinate to Permitted Priority Liens and the payment of Carve-Out Expenses and shall only be payable from proceeds of Avoidance Actions subject to entry of the Final DIP Order, and (ii) pursuant to sections 364(c)(2), 364(c)(3) and 364(d)(1) of the Bankruptcy Code, shall be secured by perfected first priority priming liens on and security interests on substantially all assets of the Debtor, excluding Avoidance Actions and subject to Permitted Priority Liens and the payment of Carve-Out Expenses. See Interim DIP Order, at 4-9. The term Carve-Out Expenses means: (i) any unpaid fees payable to the U.S. Trustee; (ii) allowed and unpaid reasonable fees and expenses of estate professionals in an aggregate amount not to exceed the amounts set forth for each professional in the Budget, (iii) from and after any Carve-Out Expense Reduction 3
Fees
Final Maturity Date
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Conditions Precedent, Representations and Warranties, and Covenants Use of Proceeds of DIP Loan and Cash Collateral
Security and Priority
Carve-Out Expenses
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Term
Description Period, an aggregate amount not to exceed $1,000,000 for Debtor professionals and $150,000 for Committee professionals, and (iv) any obligations up to $10,000,000 in the aggregate owed by the Debtor under indemnity agreements with the Debtors directors and chief restructuring officer with respect to pending or threatened litigation against them in their personal capacities for acts occurring on or after September 10, 2012, including obligations to reimburse reasonable fees and expenses that may be incurred in connection with such pending or threatened litigation. See Interim DIP Order, at 9.
Adequate Protection
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As further specified in the Interim DIP Order, the Existing Senior Lender shall be granted replacement liens against substantially all of the Debtors assets, excluding Avoidance Actions, which shall be subordinate only to the DIP Liens and Permitted Priority Liens and the payment of Carve-Out Expenses. See Interim DIP Order, at 11. The Existing Secured Lender shall also have the benefit of a superpriority claim pursuant to sections 364(c)(1) and 507(b) of the Bankruptcy Code to the extent of any diminution in value of the Collateral, subordinate to the superpriority claim of the DIP Lender and only extending to proceeds of Avoidance Actions subject to entry of the Final DIP Order. Id. The Debtor shall achieve the following timeline milestones in connection with a plan of reorganization and/or the sale of a significant portion or all or substantially all of their assets or equity, in each case in form and substance and in a manner reasonably satisfactory to the DIP Lender (the Plan/Sale Milestones): (a) filing of a plan of reorganization (the Plan), a disclosure statement (the Disclosure Statement) and motion to approve an asset purchase agreement (the APA), no later than three business days after the Petition Date; (b) entry of an order approving bidding procedures by no later than December 5, 2012; (c) subject to entry of the Final DIP Order, entry of an order approving the Disclosure Statement by no later than December 21, 2012; (d) subject to entry of the Final DIP Order, entry of a final order of the Bankruptcy Court either (i) confirming the Plan or (ii) approving the sale (either, the Approval Order) by no later than February 28, 2013; and (e) subject to entry of the Final DIP Order, consummation of the Plan or closing of the sale by no later than March 29, 2013. See Interim DIP Order, at 15. Failure by the Debtor to repay the DIP Credit Facility when due or any other Event of Default (as set forth at 7.01 of the DIP Credit Agreement) will trigger the DIP Lenders right, in its sole and absolute discretion, to suspend or terminate the commitments under the DIP Credit Facility, and, upon such suspension or termination, the Debtors right to use Cash Collateral shall thereupon terminate pending further order of the Bankruptcy 4
Plan and Sale Process
Remedies for Event of Default
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Term
Description Court (unless otherwise agreed in writing by the DIP Lender and the Existing Senior Lender). Following five (5) days notice of the Event of Default to the Debtor, the Committee and the United States Trustee, and upon failure of the Debtor to cure such Event of Default during such time (which failure shall be deemed to occur if the DIP Loan Documents do not permit such Event of Default to be cured), the DIP Lender and/or the Existing Senior Lender may petition the Bankruptcy Court (including on an expedited basis) for an order granting relief from stay to exercise any and all rights and remedies provided under the DIP Loan Documents and the Existing Senior Loan Document. See Interim DIP Order, at 18. III.
STATEMENT PURSUANT TO LOCAL BANKRUPTCY RULE 4001-2 Pursuant to Bankruptcy Rule 4001(c) and Local Bankruptcy Rules 4001-2(b) and (d), the DIP Credit Agreement and/or the Interim DIP Order and Final DIP Order contain the following provisions: Provision Cross-collateralization clauses Description The proposed Interim DIP Order does not provide for the granting of cross-collateralization protection to any prepetition secured creditors, other than replacement liens as set forth in the Interim DIP Order. See Interim DIP Order, at 11.
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Provisions or findings of fact None. that bind the estate or all parties in interest with respect to the validity, perfection or amount of secured partys lien or debt Waivers of 11 U.S.C. 506(c), unless the waiver is effective only during the period in which the debtor is authorized to use cash collateral or borrow funds Provisions that operate, as a practical matter, to divest the debtor in possession of any discretion in the formulation of a plan or administration of the estate or to limit access to the court to seek any relief
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Subject to entry of the Final DIP Order and the payment of Carve-Out Expenses, SMC shall not be subject to surcharge under section 506(c) of the Bankruptcy Code. See Interim DIP Order, at 23.
The DIP Credit Facility imposes certain Plan/Sale Milestones certain of which are subject to entry of the Final DIP Order. The Debtor also waives any right it may have to seek authority: (i) to obtain postpetition loans or other financial accommodations, other than from the DIP Lender or as otherwise may be expressly permitted pursuant to the DIP Loan Documents, (ii) to propose, support or have a chapter 11 plan that does not provide for the indefeasible payment in cash, in full satisfaction of DIP 5
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Provision under other applicable law
Description Obligations on the effective date of such chapter 11 plan, or (iii) to seek relief under the Bankruptcy Code to the extent such relief would directly restrict or impair the rights and remedies of the DIP Lender under this Interim Order and the other DIP Loan Documents. See Interim DIP Order, at 21. None.
Releases of liability for the creditors alleged prepetition torts or breaches of contract Waivers of procedural requirements, including those of foreclosure mandated under applicable nonbankruptcy law, and for perfection of replacement liens Waivers, effective on default or expiration, of the debtors right to move for a court order pursuant to 11 U.S.C. 363(c)(2)(B) authorizing the use of cash collateral in the absence of the secured partys consent Provisions that grant a lien in an amount in excess of the dollar amount of cash collateral authorized under the applicable cash collateral order Provisions providing for the paying down of prepetition principal owed to a creditor Findings of fact on matters extraneous to the approval process Provisions granting liens to the prepetition secured creditor on the debtors claims and causes of action arising under 11 U.S.C. 544, 545, 547, 548, or 549 Provisions that deem prepetition secured debt to be postpetition debt or that use
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The Interim DIP Order provides that the DIP Lender shall not be required to file financing statements, mortgages, deeds of trust, security deeds, notices of lien, or similar instruments in any jurisdiction, or take any other action, to attach or perfect the security interests and liens granted under the DIP Credit Agreement and the Interim DIP Order. See Interim DIP Order, at 13. None.
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The Existing Senior Lender is granted replacement liens. See Interim DIP Order at 11.
None.
None.
None. Any superpriority claims of the DIP Lender and the Existing Senior Lender shall only be payable out of proceeds of Avoidance Actions subject to entry of the Final DIP Order. See Interim DIP Order, at 8, 11(b).
None.
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Provision postpetition loans from a prepetition secured creditor to pay part or all of that secured creditors prepetition debt, other than as provided in 11 U.S.C. 552(b) Provisions that provide disparate treatment for the professionals retained by a creditors committee from that provided for the professionals retained by the debtor with respect to a professional fee carve out Provisions priming any secured lien.
Description
Committee fees are set forth in the Budget at lesser amounts than the Debtors professionals. Further, Committee professionals have a smaller post-default carve-out than the Debtors professionals. See Interim DIP Order, at 9.
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The DIP Credit Facility primes the Existing Senior Secured Facility on a consensual basis. See Interim DIP Order, at 4. IV. BACKGROUND
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A.
Jurisdiction and Venue The Court has jurisdiction over this matter pursuant to 28 U.S.C. 157 and 1334. This is a
core proceeding pursuant to 28 U.S.C. 157(b)(2). Venue is proper pursuant to 28 U.S.C. 1408 and 1409. B. General Background On the date hereof (the Petition Date), the Debtor filed a voluntary petition for relief under chapter 11 of title 11 of the United States Code (the Bankruptcy Code). The Debtor continues to operate and manage its affairs as a debtor in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. No trustee, examiner, or committee has been appointed in this chapter 11 case. The Debtor was established in 1986 as the sole distributor in the continental United States of the Suzuki Products. Suzuki Motor Corporation (SMC), the 100% interest holder in the Debtor, manufacturers substantially all of the Suzuki Products3 and is not a debtor in this or any other
The ATVs are manufactured by an 80% owned affiliate of the Debtor. An overview of the Suzuki Products manufactured by SMC, its affiliates, and certain unaffiliated entities is included in the Reiss Declaration.
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insolvency proceeding. As of the Petition Date, the Debtor has approximately 295 employees across the Automotive Division, the Motorcycles/ATV Division, and the Marine Division. In the operation of its business, the Debtor purchases Suzuki Products from SMC and certain other non-debtor affiliates. In turn, the Debtor wholesales virtually its entire inventory through a network of independently owned and unaffiliated dealerships located throughout the continental United States. The dealers then market and sell the Suzuki Products to retail customers. As of the Petition Date, there are approximately 220 automotive dealerships, over 900 motorcycle/ATV dealerships, and over 780 outboard marine dealerships. Through dealers, the Debtor also sells a portion of its automotive inventory (less than 10%) to car rental companies and others (less than 2%) that lease the vehicles to retail customers. The Debtor also purchases the majority of its automotive parts from SMC and certain unaffiliated companies and resells them to the automotive dealers and authorized warranty service providers. The Debtor determined that its Automotive Division is facing and will continue to face a number of serious challenges in the highly regulated and competitive automotive industry in the continental U.S. market. The challenges include unfavorable foreign exchange rates, disproportionally high and increasing costs associated with meeting more stringent state and federal automotive regulatory requirements unique to the continental U.S. market, low sales volumes, a limited number of models in its line-up, and existing and potential litigation costs. The Debtor has exhausted all available means to reduce the cost of operating the Automotive Division for it to operate profitably. Accordingly, the Debtor determined that the best way to preserve and enhance the value of its overall business is to wind down new sales of the Automotive Division in the continental U.S. and realign its business focus on the long-term growth of its Motorcycles/ATV and Marine Divisions. Contemporaneous with the filing of this case, the Debtor filed the Plan. Under the proposed Plan, the Motorcycles/ATV and Marine Divisions will remain largely unaffected including the warranties associated with such products. As part of its restructuring, NounCo, Inc., a wholly owned subsidiary of SMC, will purchase the Motorcycles/ATV and Marine Divisions and the parts and service components of the Automotive Division. The restructured Automotive Division intends to
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honor automotive warranties and authorize the sale of genuine Suzuki automotive parts and services to retail customers through a network of parts and service only dealerships that will provide warranty services. The Debtors Motorcycles/ATV Division is strong and competitively positioned in its market, allowing for long-term growth as economic conditions improve. Similarly, the Marine Division has remained competitive during the recent challenging economic times and the Debtor is working to further build its market share in the marine industry through continued investment in new product development and resuming large-scale marketing events focused on attracting new marine customers. The strategy embodied in the proposed Plan returns the business to its roots in the U.S. market, which began with motorcycles, and is intended to position the overall business for success in the continental U.S. for the benefit of all parties in interest. The Suzuki name is recognized around the world as a brand of quality products that offer reliability and originality. SMC has informed the Debtor that it continues to invest in its operations, improve its overall performance worldwide, and remains committed to manufacturing Suzuki Products for customers around the world. SMCs manufacturing and world-wide distribution of Suzuki automobiles will continue despite the Debtors wind down of the continental U.S. Automotive Division. Additional factual background regarding the Debtor, including its current and historical business operations and the events precipitating its chapter 11 filing, is set forth in detail in the Reiss Declaration filed contemporaneously with this Motion and incorporated herein by reference. C. The Debtors Existing Secured Debt The Debtor, as borrower, and SMC, as lender, are parties to the Existing Senior Secured Credit Facility. Pursuant to the Existing Senior Secured Credit Facility, SMC made loans and provided other financial accommodations to or for the benefit of the Debtor. As of the Petition Date, the Debtor is indebted to the Existing Senior Lender, under the Existing Senior Secured Credit Facility, in the amount of no less than approximately $152,300,000 (the Existing Prepetition Debt). The Debtor also owes SMC approximately $9,400,000 on account of unsecured prepetition obligations.
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Pursuant to the Existing Senior Secured Credit Facility and related documents (the Existing Senior Secured Loan Documents), the Existing Senior Lender asserts that the Existing Prepetition Debt is secured by valid, perfected, first priority liens (the Existing Prepetition Liens) on substantially all of the property of the Debtor (the Existing Prepetition Collateral), including the cash collateral of the Debtor within the meaning of section 363(a) of the Bankruptcy Code. In addition to the foregoing secured indebtedness, the Debtor has certain outstanding equipment lease obligations and undrawn lines of credit with Union Bank, N.A., Bank of TokyoMitsubishi, The Shizuoka Bank, Ltd., and Mizuho Corporate Bank, Ltd. Permitted Priority Liens under the DIP Credit Facility generally consist of equipment lease debt and certain pledged cash collateral accounts. V. PROPOSED DIP FINANCING A. The DIP Credit Facility and Use of Cash Collateral are Critical to the Debtors Continued Operations The Debtor requires immediate access to the DIP Credit Facility and cash collateral in order to sustain its ongoing operations and administer this chapter 11 case. As noted above, the Debtor is the sole distributor of the Suzuki Products in the United States. The Debtor has hundreds of dealers, employees and vendors that depend on the Debtor to satisfy its obligations, and the Debtor fully intends to do so on a postpetition basis. The Debtor, in turn, is dependent on continuing to have access to product from SMC. The DIP Credit Facility provides the Debtor with inventory loans on interest-free fifteen-day terms that will allow the Debtor to continue to seamlessly receive and distribute the Suzuki Products and to preserve the Debtors going concern business. Absent immediate funding through the DIP Credit Facility and use of cash collateral, the Debtor would be forced to shut-down its business and convert this case to chapter 7, which would have a tremendously adverse effect on the Debtors estate, its dealers, employees, vendors and other constituents.
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B.
The Debtors Selection of SMC as DIP Lender Although SMC is the sole equity holder of the Debtor, the Debtor and SMC are separately
represented by counsel and the Debtor has two independent members on its board of directors (the Special Committee). Prior to agreeing to enter into the DIP Credit Facility with SMC, the Debtor contacted alternative funding sources. The Debtor was advised that any provision of credit would be on substantially less attractive credit terms than those offered by SMC through the DIP Credit Facility. As a result, the Debtor and its professionals negotiated with SMC and its professionals as to the terms of the DIP Credit Facility and the proposed Interim DIP Order, including consensual priming of the Existing Senior Secured Credit Facility and access to cash collateral. Such negotiations were conducted at arms length and in good faith. Ultimately, the proposed DIP Credit Facility was presented to, and approved by, the Special Committee. The Debtor believes, in the exercise of its sound business judgment, that the DIP Credit Facility and the other terms of the proposed Interim DIP Order are the best credit terms currently available to this estate. VI. BASIS FOR RELIEF A. The DIP Credit Facility Should Be Approved Under 11 U.S.C. 364(c), 364(d)(1) Pursuant to sections 364(c) and 364(d)(1) of the Bankruptcy Code, the Debtor requests authority to enter into the DIP Credit Agreement as an administrative expense, having priority over other administrative expenses and secured by a senior lien on substantially all of the property of the Debtors estates, subject to Permitted Priority Liens and the payment of Carve-Out Expenses. The DIP Credit Facility will prime and be senior to the Existing Senior Secured Credit Facility. The Debtor needs cash to meet ongoing obligations necessary to run its business and administer its chapter 11 case. Under the proposed DIP Credit Facility and associated Interim DIP Order and Final DIP Order, the Debtor will have access to three types of financing: (1) access to cash collateral in which SMC asserts an interest under the Existing Senior Secured Credit Facility; (2) availability under a new revolving line of credit to the extent necessary; and (3) continuing deliveries of product from SMC, including motorcycles, outboard marine motors, ATVs, and assorted parts utilized in the
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Divisions, on fifteen-day credit terms. As to the latter, deliveries of product on credit terms will constitute advances under the inventory loan portion of the DIP Credit Facility. Pursuant to section 364(c) of the Bankruptcy Code, a debtor may, in the exercise of business judgment, incur secured debt if the debtor has been unable to obtain unsecured credit and the borrowing is in the best interest of the estate. See, e.g., In re Ames Dept. Stores, 115 B.R. 34, 38 (Bankr. S.D.N.Y. 1990) (with respect to postpetition credit, courts permit debtors-in-possession to exercise their basic business judgment consistent with their fiduciary duties); In re Simasko Production Co., 47 B.R. 444, 448-9 (D. Colo. 1985) (authorizing interim financing agreement where debtors best business judgment indicated financing was necessary and reasonable for benefit of estate). Section 364(c) of the Bankruptcy Code provides, in pertinent part, that: (c) If the trustee [or debtor in possession] is unable to obtain unsecured credit allowable-under section 503(b)(1) of this title as an administrative expense, the court, after notice and a hearing, may authorize the obtaining of credit or the incurring of debt (1) with priority over any and all administrative expenses of the kind specified in section 503(b) or 507(b) of this title: (2) secured by a lien on property of the estate that is not otherwise subject to a lien; or (3) secured by a junior lien on property of the estate that is subject to a lien. 11 U.S.C. 364(c). Section 364(d)(1) of the Bankruptcy Code governs the incurrence of senior secured debt or priming loans. Pursuant to section 364(d)(1) of the Bankruptcy Code, the Court may, after notice and a hearing, authorize the obtaining of credit or the incurring of debt secured by a senior or equal lien only if (1) the trustee is unable to obtain such credit otherwise; and (2) there is adequate protection of the interest of the holder of the lien on the property of the estate on which such senior or equal lien is proposed to be granted. 11 U.S.C. 364(d)(1).
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In satisfying the standards of section 364 of the Bankruptcy Code, a debtor need not seek credit from every available source, but should make a reasonable effort to seek other sources of credit available under sections 364(a) and (b) of the Bankruptcy Code. See, e.g., In re Snowshoe Co., 789 F.2d 1085, 1088 (4th Cir. 1986) (trustee had demonstrated by good faith effort that credit was not available without senior lien by unsuccessfully contacting other financial institutions in immediate geographic area; the statute imposes no duty to seek credit from every possible lender before concluding that such credit is unavailable). Instead, a debtors efforts are to be considered on a case by case basis, particularly [g]iven the time is of the essence nature of this type of financing. In re Reading Tube Indus., 72 B.R. 329, 332 (Bankr. E.D. Pa. 1987). In In re Sky Valley, Inc., 100 B.R. 107, 112-13 (Bankr. N.D. Ga. 1988), the bankruptcy court stated that it would be unrealistic and unnecessary to require Debtors to conduct such an exhaustive search for financing where the business suffered from financial stress, had little or no unencumbered property, and the primary property was subject to numerous liens, and thus the debtors approach of only four lenders was sufficient under such circumstances. See also In re Stanley Hotel, Inc., 15 B.R. 660, 663 (D. Colo. 1981) (section 364(d)(1)(A) of the Bankruptcy Code satisfied where two banks refused to provide unsecured credit to debtor); See also In re 495 Cent. Park Ave. Corp., 136 B.R. 626, 631 (Bankr. S.D.N.Y. 1992) (element satisfied where specialist in commercial lending practices . . . explained that most banks lend money only in return for a senior secured position. The debtor cannot obtain financing secured by a lien on unencumbered property . . . because there is no property in the estate which is not already subject to a lien.). The liens that the Debtor proposes to grant to SMC, as the DIP Lender, to secure repayment of the DIP Credit Facility will prime the existing prepetition secured debt of SMC, as the Existing Senior Lender. SMC consents to the priming proposed hereby. Despite efforts to locate alternative funding sources, the Debtor does not have access to financing on better terms than the proposed DIP Credit Facility. Moreover, the Debtor cannot obtain the financing that it requires via unsecured credit allowable under section 503(b)(1) of the Bankruptcy Code. The Debtor needs to purchase inventory from SMC and does not have the financial wherewithal to pay for that inventory on a cash on delivery basis. Under the DIP Credit Facility, SMC will extend credit to the Debtor on fifteenDOCS_SF:81040.6 12832/001
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day terms, secured by the liens and security interests described above. In addition, the line of credit provided under the DIP Credit Facility is essential for the Debtor to obtain credit from vendors, as the existence of this facility will afford vendors a level of comfort that the Debtor will be able to pay for the goods and services that it will receive on credit. As indicated above, section 364(c) of the Bankruptcy Code enumerates certain incentives that a bankruptcy court may grant to postpetition lenders. Such incentives are not exhaustive. Bankruptcy courts frequently have authorized the use of inducements not specified in the statute. See, e.g., In re Ellingsen MacLean Oil Co., 834 F.2d 599 (6th Cir. 1987) (affirming financing order that prohibited any challenges to the validity of already existing liens); In re Defender Drug Stores, 126 B.R. 76 (Bankr. D. Ariz. 1991) (authorizing enhancement fee to postpetition lender), affd, 145 B.R. 312, 316 (B.A.P. 9th Cir. 1992) ([b]ankruptcy courts . . . have regularly authorized postpetition financial arrangements containing lender incentives beyond the explicit priorities and liens specified in section 364); In re Antico Mfg. Co., 31 B.R. 103 (Bankr. E.D.N.Y. 1983) (authorizing lien on prepetition collateral to secure postpetition indebtedness). The Debtor proposes to grant SMC, as the DIP Lender and Existing Senior Lender, certain enhancements in the form of senior liens against the Debtors prepetition and postpetition assets, debt and security acknowledgements, releases, and waivers of rights under sections 506(c) and 552 of the Bankruptcy Code. The Debtor believes that such enhancements are reasonable in return for the funding available under the DIP Credit Facility. In short, the Debtor respectfully submits that the DIP Credit Facility satisfies sections 364(c) and (d) of the Bankruptcy Code. The best credit terms available to the Debtor are those set forth in the DIP Credit Facility. Thus, the Debtor believes that it is fair, reasonable and necessary for the Court to approve the DIP Credit Facility and enter the Interim DIP Order (and subsequent to the Final Hearing, the Final DIP Order). In addition to representing the best terms presently available to Debtor, the DIP Financing is also in the best interests of the Debtors estate. The DIP Credit Facility will provide the Debtor needed funding to maintain and operate its business and administer the chapter 11 case. The DIP Credit Facility therefore is plainly in the best interests of Debtors estate.
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Based on the above, the DIP Lender should be accorded the benefits of section 364(e) of the Bankruptcy Code in respect of the DIP Credit Facility as SMC has offered to extend such financing in good faith. Further, section 364(e) provides a lender with a presumption of good faith. Weinstein, Eisen, Weiss LLP v. Gill (In re Cooper Common, LLC), 424 F.3d 963, 969 (9th Cir. 2005). B. The Debtor Should Be Granted Access to Cash Collateral Under 11 U.S.C. 363(c)(1) The Debtors use of property of the estates is governed by section 363 of the Bankruptcy Code. Section 363(c)(1) provides, in pertinent part, that: If the business of the debtor is authorized to be operated under section . . . 1108 . . . of this title and unless the court orders otherwise, the trustee [or debtor in possession] may enter into transactions, including the sale or lease of property of the estates, in the ordinary course of business, without notice or hearing, and may use property of the estates in the ordinary course of business without notice or hearing. 11 U.S.C. 363(c)(1). The Bankruptcy Code establishes a special requirement, however, regarding the debtor in possessions use of cash collateral, defined as cash, negotiable instruments, documents of title, securities, deposit accounts, or other cash equivalents whenever acquired in which the estates and an entity other than the estates have an interest . . .. 11 U.S.C. 363(a). Section 363(c)(2) of the Bankruptcy Code permits the debtor in possession to use, sell or lease cash collateral under subsection (c)(1) only if either of two alternative circumstances exist: (A) each entity that has an interest in such cash collateral consents; or (B) the court, after notice and a hearing, authorizes such use, sale, or lease in accordance with the provisions of this section. 11 U.S.C. 363(c)(2). Here, SMC consents to the use of cash collateral consistent with the Budget and such use is absolutely necessary in the Debtors business judgment to continue operations and maximize the value of these estates. VII. INTERIM DIP ORDER AND FINAL HEARING Pursuant to Bankruptcy Rules 4001(b)(2) and (c)(2) and Local Bankruptcy Rules 4001-2(e) and (f), the Debtor requests that the Court enter the Interim DIP Order to prevent immediate and
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irreparable harm to the estate pending a final hearing and set a date for the Final Hearing within thirty (30) days of the Petition Date. The urgent need to preserve the Debtors business, and avoid immediate and irreparable harm to the estate, makes it imperative that the Debtor be authorized to access postpetition financing up to $15,000,000 in postpetition advances and $30,000,000 in inventory loans on an interim basis and use cash collateral, pending the Final Hearing, in order to continue its operations and administer the chapter 11 case. Without the ability to borrow funds under the DIP Credit Agreement and use cash collateral, the Debtor would be unable to meet its postpetition obligations or to fund its working capital needs, thus causing irreparable harm to the value of the Debtors estate and ending the Debtors reorganization efforts. Accordingly, the Debtor respectfully requests that, pending the hearing on a Final DIP Order, the Interim DIP Order be approved in all respects and that the terms and provisions of the Interim DIP Order be implemented and be deemed binding and that, after the Final Hearing, the Final DIP Order be approved in all respects and the terms and provisions of the Final DIP Order be implemented and be deemed binding VIII. NOTICE The Motion has been served on the following parties or, in lieu thereof, on their counsel, if known: (a) the Office of the United States Trustee, (b) the creditors appearing on the list filed in accordance with Rule 1007(d) of the Federal Rules of Bankruptcy Procedure, (c) the Debtors prepetition and postpetition lender, SMC, (d) parties that file with the Court and serve upon the Debtor requests for notice of all matters in accordance with Bankruptcy Rule 2002, and (e) any known parties that assert a lien on the Debtors assets. The Debtor submits that, in light of the nature of the relief requested, no other or further notice need be given. IX. CONCLUSION Based upon the foregoing, the Debtor requests entry of the Interim DIP Order and the Final DIP Order under sections 105, 361, 362, 363, 364 and 507 of the Bankruptcy Code, Bankruptcy Rule 4001 and Local Rule 4001-2: (i) authorizing the Debtor to (a) enter into and incur credit under
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the DIP Credit Agreement with SMC, as the DIP Lender, (b) use cash collateral, and (c) provide adequate protection to SMC, as the Existing Senior Lender, in accordance with the provisions hereof, and (ii) scheduling the Final Hearing.
Dated:
November 5, 2012
PACHULSKI STANG ZIEHL & JONES LLP By /s/ Debra I. Grassgreen Richard M. Pachulski James I. Stang Dean A. Ziehl Linda F. Cantor Debra I. Grassgreen Proposed Attorneys for Debtor and Debtor in Possession
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EXHIBIT A (Proposed Interim DIP Order)
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1 Richard M. Pachulski (CA Bar No. 90073) James I. Stang (CA Bar No. 94435) 2 Dean A. Ziehl (CA Bar No. 84529) Linda F. Cantor (CA Bar No. 153762) 3 Debra I. Grassgreen (CA Bar No. 169978) 4 PACHULSKI STANG ZIEHL & JONES LLP 10100 Santa Monica Blvd., Suite 1300 5 Los Angeles, CA 90067-4114 Telephone: 310/277-6910 6 Facsimile: 310/201-0760 E-mail: rpachulski@pszjlaw.com 7 jstang@pszjlaw.com dziehl@pszjlaw.com 8 lcantor@pszjlaw.com 9 dgrassgreen@pszjlaw.com 10 Proposed Attorneys for Debtor and Debtor in Possession 11 UNITED STATES BANKRUPTCY COURT 12 CENTRAL DISTRICT OF CALIFORNIA SANTA ANA DIVISION 13 Case No. 8:12In re 14 Chapter 11 American Suzuki Motor Corporation,1 15 Debtor. INTERIM ORDER (1) AUTHORIZING POSTPETITION FINANCING 16 PURSUANT TO 11 U.S.C. 105, 361, 362, 363, 364(c)(1), 364(c)(2), 364(c)(3) AND 17 364(d)(1); (2) AUTHORIZING THE USE OF CASH COLLATERAL; (3) 18 GRANTING SECURITY INTERESTS AND SUPERPRIORITY CLAIMS; (4) 19 PROVIDING ADEQUATE PROTECTION; (5) MODIFYING THE 20 AUTOMATIC STAY; AND (6) GRANTING RELATED RELIEF 21 22 23 24 25 26 27 28
1
Date: Time: Place:
TBD TBD Ronald Reagan Federal Building & U.S. Courthouse 411 West Fourth Street Santa Ana, CA 92701-4593
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On November 5, 2012, American Suzuki Motor Corporation (the Debtor), debtor and
2 debtor in possession in the above-captioned chapter 11 case (the Chapter 11 Case), filed its 3 motion (the Motion) pursuant to sections 105, 361, 362, 363, 364(c)(1), 364(c)(2), 364(c)(3) and 4 364(d)(1) of title 11 of the United States Code, 11 U.S.C. 101 et seq. (the Bankruptcy Code) 5 and Rules 2002, 4001 and 9014 of the Federal Rules of Bankruptcy Procedure (the Bankruptcy 6 Rules), requesting, among other things: 7 8 9 10 11
(a)
authorization for the Debtor to obtain postpetition loans, credit and other
financial accommodations from Suzuki Motor Corporation (SMC), on an interim basis, pending a final hearing on the Motion (the Final Hearing) in accordance with the DIP Loan Documents (as defined below), secured by security interests and liens on substantially all of the assets of the Debtor, as set forth in the DIP Credit Agreement (as defined below) and herein, pursuant to Bankruptcy Code sections 364(c)(2), 364(c)(3) and 364(d)(1), subject to Permitted Prior Liens and payment of Carve-Out Expenses, and excluding Avoidance Actions (as defined below) or the proceeds thereof; (b) authorization for the Debtor to enter into, be bound by, and perform under the
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debtor in possession credit facility (the DIP Credit Facility) governed by the Debtor-In-Possession Loan and Security Agreement dated November 5, 2012, by and among the Debtor, as borrower, and SMC, as lender (as such agreement may be modified, supplemented, amended or restated from time to time, the DIP Credit Agreement, and together with the other Loan Documents, as defined in the DIP Credit Agreement, the DIP Loan Documents);2 (d) authorization for the Debtor to grant SMC (as lender under the DIP Credit
Agreement, the DIP Lender), superpriority administrative claim status pursuant to Bankruptcy Code section 364(c)(1) in respect of all Obligations, as defined in the DIP Credit Agreement (the DIP Obligations);
Capitalized terms not otherwise defined herein have the meaning ascribed to them in the DIP Credit Agreement. The DIP Credit Agreement is attached as Exhibit B to the Motion.
1
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(c)
authorization for the Debtor to use the collateral, including cash collateral,
under that certain Loan and Security Agreement dated as of July 27, 2012 between the Debtor, as borrower, and SMC as lender (as such agreement may have been modified, supplemented, amended or restated from time to time, the Existing Senior Secured Credit Facility), which collateral secures the Debtors obligations to SMC (as lender under the Existing Senior Secured Credit Facility, the Existing Senior Lender), and granting adequate protection as set forth herein; (e) (f) modification of the automatic stay to the extent hereinafter set forth; and the setting of the Final Hearing, for consideration of the entry of an order
approving the Motion on a final basis (Final DIP Order). On November [__], 2012, the Court held an initial hearing on the Motion (the Interim
12 Hearing). Appearances at the Interim Hearing are noted in the record thereof. The Court has 13 reviewed and considered the Motion, the declarations and other documents filed in support thereof, 14 any declarations or other documents filed in opposition thereto, the arguments and representations 15 of counsel at the Interim Hearing, and any evidence presented at the Interim Hearing. Based on that 16 review and consideration, THE COURT HEREBY MAKES THE FOLLOWING FINDINGS 17 OF FACT AND CONCLUSIONS OF LAW:3 18 A. Commencement. On November 5, 2012 (the Filing Date), the Debtor filed a
19 voluntary petition under chapter 11 of the Bankruptcy Code. The Debtor continues to operate its 20 business and manage its assets and affairs as a debtor in possession pursuant to Bankruptcy Code 21 sections 1107(a) and 1108. 22 B. Jurisdiction and Venue. This Court has jurisdiction to consider this matter pursuant
23 to 28 U.S.C. 157 and 1334. This is a core proceeding pursuant to 28 U.S.C. 157(b). Venue is 24 proper before this Court pursuant to 28 U.S.C. 1408 and 1409. 25 26 27 28 2
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These findings and conclusions constitute the Courts findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052.
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C.
No Committee. No committee has been appointed in the Chapter 11 Case pursuant
2 to Bankruptcy Code section 1102. 3 D. Notice. Under the circumstances, the notice given of the Motion, the relief
4 requested, and the Interim Hearing was adequate, sufficient, and in compliance with Bankruptcy 5 Rules 4001(b) and 4001(c), having been served on (among others), each of the Debtors 30 largest 6 unsecured creditors, as set forth on the list filed by the Debtor pursuant to Bankruptcy Rule 1007(d) 7 (the 30 Largest Unsecured Creditors), the Office of the United States Trustee, the Existing Senior 8 Lender, the DIP Lender, and all other parties known by the Debtor to assert liens or security interests 9 in the assets of the Debtor (the Noticed Parties). 10 E. The Existing Prepetition Debt. The books and records of the Debtor reflect that as of
11 the Filing Date, the Debtor is indebted to the Existing Senior Lender, under the Existing Senior
12 Secured Credit Facility, in an amount no less than approximately $152,300,000 (the Existing 13 Prepetition Debt). Pursuant to the Existing Senior Secured Credit Facility and related documents 14 (the Existing Senior Secured Loan Documents), the Existing Senior Lender asserts that the 15 Existing Prepetition Debt is secured by valid, perfected, first priority liens (the Existing Prepetition 16 Liens) on substantially all of the property of the Debtor (the Existing Prepetition Collateral), 17 including the cash collateral of the Debtor within the meaning of Bankruptcy Code section 363(a) 18 (Cash Collateral). 19 F. The Need for Postpetition Financing and Use of Cash Collateral. The Debtor has
20 requested from the DIP Lender, and DIP Lender is willing to extend, certain loans, credit and other 21 financial accommodations on the terms and conditions set forth in the DIP Loan Documents. The 22 Debtor does not have sufficient available sources of working capital, including Cash Collateral, to 23 operate its business without the financing requested under the Motion. The Debtor has requested 24 that the Existing Lender consent, and Existing Lender is willing to do so, to the Debtors use of the 25 Existing Prepetition Collateral (including Cash Collateral), the incurrence of the DIP Obligations, 26 and the subordination of the Existing Prepetition Liens and Adequate Protection Liens (as defined 27 below) to the DIP Liens (as defined below) and the Carve-Out Expenses (as defined below). The 28 Debtors ability to fund its postpetition operations, including maintaining business relationships 3
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1 with its vendors, suppliers, and dealers, and paying its employees, is essential to maintaining the 2 going concern value of the Debtor and the Debtor's ability to maximize the value of the assets of its 3 estate (the Estate). The ability of the Debtor to maintain postpetition operations and preserve the 4 value of the Estate depends on the immediate availability of sufficient working capital and liquidity 5 through the proposed postpetition financing arrangements with the DIP Lender, and the immediate 6 ability of the Debtor, pursuant to those arrangements, to use Existing Prepetition Collateral 7 (including Cash Collateral in which the Existing Senior Lender asserts an interest). 8 G. Credit Unavailable On More Favorable Terms. The Debtor is unable to procure
9 postpetition financing in the form of unsecured credit allowable under Bankruptcy Code section 10 503(b)(1), as an administrative expense under Bankruptcy Code sections 364(a) or (b), or solely 11 based on the grant of an administrative expense priority pursuant to Bankruptcy Code section
12 364(c)(1). The Debtor also is unable to obtain secured credit allowable solely under Bankruptcy 13 Code sections 364(c)(2) or 364(c)(3). The Debtor has been unable to procure the necessary 14 financing on terms more favorable than the financing offered by the DIP Lender. 15 H. Budget. The Debtor has prepared and delivered to the DIP Lender an initial Budget,
16 a copy of which is attached hereto as Exhibit 1. The initial Budget has been prepared by the Debtor 17 and sets forth, among other things, projections for the periods covered thereby. The DIP Lender is 18 relying on the Debtor's compliance with the Budget, in accordance with the terms of the DIP Loan 19 Documents, in determining to enter into the postpetition financing arrangements provided for in the 20 DIP Loan Documents. 21 I. Business Judgment and Good Faith Pursuant to Bankruptcy Code Section 364(e).
22 The terms of the DIP Loan Documents are fair, just and reasonable under the circumstances, are 23 ordinary and appropriate for secured financing to a debtor in possession, reflect the Debtors 24 exercise of its prudent business judgment consistent with its fiduciary duties, and are supported by 25 reasonably equivalent value and fair consideration. The terms and conditions of the DIP Loan 26 Documents have been negotiated in good faith and at arms' length by and among the Debtor, on one 27 hand, and the DIP Lender, on the other hand, with all parties being represented by counsel. Any 28 credit extended under the terms of this order (the Interim Order) shall be deemed to have been 4
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1 extended in good faith by the DIP Lender, as such term is used in Bankruptcy Code section 2 364(e). 3 J. Good Cause/Irreparable Harm. The relief granted in this Interim Order is necessary,
4 essential and appropriate, and is in the best interests of and will benefit the Debtor, its creditors and 5 its Estate, as its implementation will, among other things, provide the Debtor with the necessary 6 liquidity to (a) minimize disruption to the Debtors business and ongoing operations, (b) preserve 7 and maximize the value of the Estate for the benefit of all the Debtors creditors, and (c) avoid 8 immediate and irreparable harm to the Debtor, its creditors, its business, its employees, and its 9 assets. 10 K. Immediate Entry. Sufficient cause exists for immediate entry of this Interim Order
11 pursuant to Bankruptcy Rules 4001(b)(2) and 4001(c)(2). No party appearing in the Chapter 11
12 Case has filed or made an objection to the relief sought in the Motion or the entry of this Interim 13 Order, or any objections that were made (to the extent such objections have not been withdrawn or 14 resolved) are overruled. 15 Based on the foregoing, and after due consideration and good cause appearing therefor, IT
16 IS HEREBY ORDERED, ADJUDGED AND DECREED, that: 17 1. Motion Granted. The Motion is granted to the extent provided in this Interim Order.
18 Any and all objections to the entry of this Interim Order are overruled. 19 2. Authorization To Borrow, Incur Credit and Use Loan Proceeds. The Debtor is
20 authorized to do the following, in accordance with the DIP Credit Agreement and the Budget: 21 (i) incur Inventory Loans, in an aggregate amount not to exceed $30,000,000, and (ii) obtain 22 Advances in an aggregate amount not to exceed $15,000,000. Upon the entry of this Interim Order, 23 the Debtor shall be authorized to use the Inventory Loans and Advances (collectively, the 24 Postpetition Loans) in accordance with the Budget and subject to the terms and conditions of the 25 DIP Loan Documents. 26 3. Approval of DIP Loan Documents. The Debtor is authorized to enter into and be
27 bound by the DIP Loan Documents and incur the indebtedness contemplated thereunder. The terms, 28 conditions and covenants of the DIP Loan Documents are sufficient and conclusive evidence of the 5
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1 borrowing arrangements by and among the Debtor and the DIP Lender, and the Debtor's assumption 2 and adoption of all of the terms, conditions, and covenants of the DIP Credit Agreement and the 3 other DIP Loan Documents for all purposes, including, to the extent applicable, the payment of all 4 DIP Obligations arising thereunder, including all principal, interest, and other fees and expenses, 5 including, the DIP Lenders legal and other professional fees and expenses, as more fully set forth in 6 the DIP Loan Documents. 7 4. Grant of DIP Liens. To secure the prompt payment and performance of all DIP
8 Obligations, now existing and hereafter arising, the DIP Lender shall have and is granted, effective 9 as of the Filing Date, valid and perfected first priority liens and security interests in and on all of the 10 Collateral (defined below), superior to all other liens, claims, interests, security interests or 11 encumbrances in or on such property (the DIP Liens), but subject to the Permitted Priority Liens
12 and the payment of the Carve-Out Expenses (as defined below). 13 5. Collateral. For purposes of this Interim Order, the term Collateral shall have the
14 meaning ascribed to such term in the DIP Loan Documents, which term includes the following: (a) 15 all Receivables, (b) all Equipment, (c) all General Intangibles, (d) all Inventory, (e) all Investment 16 Property, (f) all Subsidiary Stock, (g) all of the Debtors right, title and interest in and to, whether 17 now owned or hereafter acquired and wherever located, (i) its respective goods and other property 18 including, but not limited to, all Vehicles returned or rejected by Customers; (ii) all of the Debtors 19 rights as a consignor, a consignee, an unpaid vendor, mechanic, artisan, or other holder of a lien, 20 including stoppage in transit, setoff, detinue, replevin, reclamation and repurchase; (iii) all 21 additional amounts due to the Debtor from any Customer; (iv) other property, including warranty 22 claims, relating to any goods securing the DIP Obligations; (v) all of the Debtors contract rights, 23 rights of payment which have been earned under a contract right, instruments (including promissory 24 notes), documents, chattel paper (including electronic chattel paper), warehouse receipts, deposit 25 accounts, letters of credit and money; (vi) all commercial tort claims (whether now existing or 26 hereafter arising); (vii) if and when obtained by the Debtor, all real and personal property of third 27 parties in which the Debtor has been granted a lien or security interest as security for the payment or 28 enforcement of Receivables to the extent of such lien or security interest; (viii) all letter of credit 6
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1 rights (whether or not the respective letter of credit is evidenced by a writing); (ix) all supporting 2 obligations; and (x) any other goods, personal property or real property now owned or hereafter 3 acquired in which the Debtor has expressly granted a security interest or may in the future grant a 4 security interest to the DIP Lender under the DIP Credit Agreement, or in any amendment or 5 supplement thereto, or under any other agreement between the DIP Lender and the Debtor; (h) all 6 Real Property; (i) all of the Debtors ledger sheets, ledger cards, files, correspondence, records, 7 books of account, business papers, computers, computer software (owned by the Debtor or in which 8 it has an interest), computer programs, tapes, disks and documents relating to clauses (a), (b), (c), 9 (d), (e), (f), (g) or (h) of this definition; and (j) all proceeds and products of clauses (a), (b), (c), (d), 10 (e), (f), (g), (h) and (i) of this definition in whatever form, including, but not limited to: cash, deposit 11 accounts (whether or not comprised solely of proceeds), certificates of deposit, insurance proceeds
12 (including hazard, flood and credit insurance), negotiable instruments and other instruments for the 13 payment of money, chattel paper, security agreements, documents, eminent domain proceeds, 14 condemnation proceeds and tort claim proceeds. 15 6. Avoidance Actions. The definition of Collateral hereunder does not include, and the
16 DIP Liens shall not attach, to any cause of action of the Debtor or the Estate arising under 17 Bankruptcy Code sections 542, 544, 547, 548, 550, 551, 553(b) or 724(a), or any applicable 18 avoidance or fraudulent transfer state law (together, Avoidance Actions), or any proceeds 19 therefrom. 20 7. Priority of DIP Liens. The DIP Liens shall be first and senior in priority to all other
21 liens, claims, interests, security interests or encumbrances in or on the Collateral, whether created 22 consensually, by an order of the Court, or otherwise, including liens or interests granted in favor of 23 third parties in conjunction with Bankruptcy Code sections 363 and 364, or any other section of the 24 Bankruptcy Code, or other applicable law; provided, however, that the DIP Liens shall be subject to 25 the Permitted Priority Liens and the payment of the Carve-Out Expenses. 26 8. Superpriority Administrative Expense for DIP Obligations. For all DIP Obligations,
27 the DIP Lender is granted an allowed superpriority administrative claim pursuant to Bankruptcy 28 Code Section 364(c)(1), having priority in right of payment over any and all other obligations, 7
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1 liabilities and indebtedness of the Debtor, whether now in existence or hereafter incurred by the 2 Debtor, and over any and all administrative expenses or priority claims of the kind specified in, or 3 ordered pursuant to, inter alia, Bankruptcy Code sections 105, 326, 328, 330, 331, 503(b), 507(a), 4 507(b), 364(c)(1), 546(c), 726 or 1114 (the Superpriority Claim), provided, however, that the 5 Superpriority Claim shall be subject to the payment of the Carve-Out Expenses and shall only be 6 payable from the proceeds of Avoidance Actions following entry of the Final DIP Order. 7 9. Carve-Out Expenses. For purposes of this Interim Order, the term Carve-Out
8 Expenses means: 9 10 11
(i) amounts payable pursuant to 28 U.S.C. 1930(a)(6) and any fees due to the Clerk of the Court; (ii) allowed amounts payable for professional fees and expenses incurred during the Chapter 11 Case; provided, that the amount entitled to priority under this sub-clause (ii) following the Filing Date and before any Carve-Out Expense Reduction Period (defined below) shall not exceed, as to professionals employed by the Debtor, the lesser of (x) the aggregate amount incurred by each applicable professional for such period and (y) the aggregate amount specified in the Budget for each such professional for such period (whenever such amounts might be incurred prior to the delivery of a Carve-Out Notice and, as to which any prepetition retainer held by such professional shall be applied against postpetition services as permitted by the Bankruptcy Court), and as to any professional employed by any official committee of unsecured creditors in the Chapter 11 Case under Bankruptcy Code section 1102 (the Committee), the lesser of (x) the aggregate amount incurred by each such Committee professional for such period and (y) the aggregate amount specified in the Budget for each such Committee professional for such period (whenever such amounts might be incurred prior to the delivery of a Carve-Out Notice), and provided further that the amount entitled to priority under this sub-clause (ii) from and after any Carve-Out Expense Reduction Period shall not exceed, as to professionals employed by the Debtor, the lesser of (x) the aggregate amount incurred by such professionals for such period and (y) $1,000,000, and as to professionals employed by the Committee, the lesser of (x) the 8
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aggregate amount incurred by such Committee professionals for such period and (y) $150,000; and (iii) any obligations up to $10,000,000 in the aggregate owed by the Debtor under indemnity agreements with the Debtors directors and chief restructuring officer with respect to pending or threatened litigation against them in their personal capacities for acts occurring on or after September 10, 2012, including obligations to reimburse reasonable fees and expenses that may be incurred in connection with such pending or threatened litigation.
8 For purposes of this Interim Order, Carve-Out Expense Reduction Period means any period 9 following the delivery of a notice by the DIP Lender to the Debtor stating that an Event of Default 10 under the DIP Credit Agreement, or a default by the Debtor in any of its obligations under this 11 Interim DIP Order or the Final DIP Order, has occurred and is continuing. Notwithstanding
12 anything to the contrary herein, the Carve-Out Expenses shall be payable first out of any 13 immediately available unencumbered assets of the Estate prior to payment out of the Collateral. 14 10. Authorization to Use Cash Collateral. Upon the entry of this Interim Order, the
15 Debtor shall be authorized to use Cash Collateral in accordance with the Budget and subject to the 16 terms and conditions of the DIP Loan Documents, until such time as this authority is terminated 17 pursuant to Paragraph 18 hereof. Nothing in this Interim Order shall authorize the disposition of any 18 assets of the Debtor or the Estate outside the ordinary course of business. 19 20 21 22 23 24 25 26 27 28 11. Adequate Protection. a. Adequate Protection Liens. As adequate protection for the diminution in
value of its interests in the Existing Prepetition Collateral (including Cash Collateral), on account of the Debtors use of the Existing Prepetition Collateral (including Cash Collateral), the imposition of the automatic stay, the incurrence of the DIP Obligations, and the subordination of the Existing Prepetition Liens to the DIP Liens and the payment of the Carve-Out Expenses, the Existing Senior Lender is granted, pursuant to Bankruptcy Code sections 361 and 363(e), continuing, perfected replacement liens and security interests on all Collateral (the Adequate Protection Liens). The Existing Senior Lender shall only be entitled to adequate protection of its interests in the Existing Prepetition Collateral to the 9
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extent that the Existing Prepetition Liens on the Existing Prepetition Collateral are valid and enforceable and not subject to avoidance and the Existing Prepetition Debt is not subject to disallowance. The Adequate Protection Liens shall be junior and subordinate only to (i) the DIP Liens, (ii) the Existing Prepetition Liens, (iii) the Permitted Priority Liens, and (iii) the payment of the Carve-Out Expenses. The Existing Prepetition Liens shall be junior and subordinate to the DIP Liens and the Carve-Out Expenses and shall continue to be junior and subordinate to Permitted Priority Liens. b. Section 507(b) Priority Claim. To the extent that the Adequate Protection
Liens are insufficient protection against the diminution in value of the interests of the Existing Senior Lender in the Existing Prepetition Collateral (including Cash Collateral) on account of the Debtors use of the Existing Prepetition Collateral (including Cash Collateral), the imposition of the automatic stay, the incurrence of the DIP Obligations, and the subordination of the Existing Prepetition Liens to the DIP Liens and payment of the Carve-Out Expenses, the Existing Senior Lender is granted, pursuant to Bankruptcy Code section 507(b), an allowed superpriority administrative expense claim in the Chapter 11 Case, or any case for the Debtor under chapter 7 of the Bankruptcy Code (the Adequate Protection Claim). The Adequate Protection Claim shall be junior and subordinate only to (i) the Superpriority Claim and (ii) the payment of the Carve-Out Expenses. Further, the Adequate Protection Claim shall only be payable from the proceeds of Avoidance Actions following entry of the Final DIP Order. c. Additional Adequate Protection. As additional adequate protection, the
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Debtor shall provide to the Existing Senior Lender with the reporting required by Section 5.01(a) of the DIP Credit Agreement. 12. Reservation of Rights Regarding Prepetition Debt and Liens. Nothing in this Interim
25 Order shall prejudice the rights of any party with standing to object to and/or challenge the amount, 26 extent, validity and enforceability of the Existing Prepetition Debt or the Existing Prepetition Liens, 27 the rights of any party with standing to propose and confirm a chapter 11 plan that modifies the 28 Existing Prepetition Liens and treats the Existing Prepetition Debt in accordance with the 10
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1 Bankruptcy Code, or the rights of the Existing Senior Lender to oppose any such objection, 2 challenge or proposed plan. 3 13. Postpetition Lien Perfection. The entry of this Interim Order shall be sufficient and
4 conclusive evidence of the validity, perfection and priority of the DIP Liens and the Adequate 5 Protection Liens. Neither the DIP Lender nor the Existing Senior Lender shall be required to file or 6 record any financing statements, mortgages, notices of lien or similar instruments in any jurisdiction 7 or take any other action in order to validate and perfect the respective security interests and liens 8 granted to them pursuant to the Interim Order. If the DIP Lender or the Existing Senior Lender 9 elects, in its sole discretion, to file, record, or register a copy of this Interim Order, a financing 10 statement, mortgage, notice of lien, or similar instrument in respect of the DIP Liens and/or the 11 Adequate Protection Liens, the Debtor is directed to execute such documents and instruments as the
12 DIP Lender and Existing Senior Lender may reasonably request, the DIP Lender and Existing 13 Senior Lender are authorized to file, record or register such instrument, and the applicable filing or 14 recording official is authorized and directed to file, record or register such instrument for such 15 purpose. All such instruments that may be filed, recorded or registered shall, irrespective of the 16 actual filing date thereof, be deemed filed, recorded or registered as of the time and date of the entry 17 of this Interim Order. The filing, recording or registration of a copy of this Interim Order shall be 18 tantamount to the filing, recordation or registration of a financing statement, mortgage or other 19 instrument perfecting the DIP Liens and Adequate Protection Liens in accordance with applicable 20 non-bankruptcy law. Should the DIP Lender or the Existing Senior Lender attempt to file, record or 21 register this Interim Order or any other instrument as authorized hereunder, no defect or failure in 22 connection with such attempt shall in any way limit, waive or alter the validity, enforceability, 23 attachment, or perfection of the DIP Liens and Adequate Protection Liens. 24 14. Payment of Fees and Expenses. The Debtor is authorized to pay to the DIP Lender,
25 any and all fees, costs and expenses incurred under the DIP Loan Documents, including the 26 reasonable professional fees and expenses incurred by the DIP Lender (Lender Fees and 27 Expenses). The Debtor shall pay each invoice for Lender Fees and Expenses no later than ten (10) 28 days following receipt by the Debtor of such invoice. Any such invoice shall be copied by the DIP 11
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1 Lender on the United States Trustee and the Committee (or the 30 Largest Unsecured Creditors if no 2 Committee has been appointed). Payment of Lender Fees and Expenses shall not require prior 3 application or approval of the Court, and shall not be subject to the Guidelines promulgated by the 4 United States Trustee, but any dispute regarding the payment of such fees and expenses shall be 5 resolved by the Court following notice and an opportunity for a hearing. Notwithstanding any 6 provision of the DIP Loan Documents, including any provision of this Interim Order, the payment 7 of Lender Fees and Expenses shall not be subject to any limitation under or in connection with the 8 Budget. 9 15. Plan/Sale Milestones. The Debtor has indicated that it intends to pursue
10 confirmation of a chapter 11 plan and/or to sell all or substantially all of its assets pursuant to a 11 duly-noticed motion. In accordance with the DIP Credit Agreement, the Debtor shall comply with
12 the following Plan/Sale Milestones, in each case, in form and substance and in a manner 13 reasonably satisfactory to the DIP Lender: 14 15 16 17 18 19 20 21 22 23 24 25 26 (a) filing of a plan of reorganization (the Plan of Reorganization), a disclosure
statement (the Disclosure Statement) and a motion to approve the Stalking Horse APA, no later than three (3) Business Days after the Filing Date; (b) entry of an order approving bidding procedures in connection with the
Stalking Horse APA by no later than December 5, 2012; (c) subject to entry of the Final DIP Order, entry of an order approving the
Disclosure Statement by no later than December 21, 2012; (d) subject to entry of the Final DIP Order, entry of a Final Order either (i)
confirming the Plan of Reorganization or (ii) approving the sale (either, the Approval Order) by no later than February 28, 2013; and (e) subject to entry of the Final DIP Order, consummation of the Plan of
Reorganization or closing of the sale no later than March 29, 2013. 16. Deposit Accounts, Securities Accounts and Investment Accounts. Subject to the
27 requirements of Section 6.13(e) of the DIP Credit Agreement pertaining to the opening of new 28 accounts, the Debtor shall maintain its existing cash management system, composed of the deposit 12
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1 accounts, securities accounts and investment accounts as set forth on Schedule 6.13(e), unless the 2 DIP Lender consents in writing to any proposed modification of such cash management system. In 3 addition, and notwithstanding the provisions of Section 6.13(e), the DIP Lender (for purposes of the 4 DIP Liens) and Existing Senior Lender (for purposes of the Adequate Protection Liens) shall be 5 deemed hereunder, without any further action of any kind, to have control over all of the Debtors 6 deposit accounts, securities accounts and investment accounts and the property therein or credited 7 thereto, within the meaning of Sections 8-106, 9-104, 9-105, 9-106, 9-107 and 9-314 of the 8 California Commercial Code. 9 17. Amendment of DIP Loan Documents. Subject to the terms and conditions of the DIP
10 Credit Agreement and the other DIP Loan Documents, the Debtor and the DIP Lender may amend, 11 modify, supplement or waive any provision of the DIP Loan Documents (an Amendment) without
12 further approval or order of the Court provided that (i) such Amendment is not material (for 13 purposes hereof, a material Amendment shall mean any Amendment that increases the interest 14 rate other than as currently provided in the DIP Credit Agreement, increases the amount of available 15 Inventory Loans or Advances under the DIP Credit Agreement, adds specific new events of default 16 or enlarges the nature and extent of remedies available to the DIP Lender following an Event of 17 Default, as defined in Section 7.01 of the DIP Credit Agreement, or otherwise modifies any terms 18 and conditions in any the DIP Loan Documents in a manner materially less favorable to the Debtor) 19 and is undertaken in good faith by the Debtor and the DIP Lender; (ii) the Debtor provides prior 20 written notice of the Amendment (the Amendment Notice) to (x) the U.S. Trustee and (y) counsel 21 to the Committee, if appointed, or if no such Committee has been appointed at the time of such 22 Amendment, the 30 Largest Unsecured Creditors; (iii) the Debtor files the Amendment with the 23 Court; and (iv) no objection to the Amendment is filed with the Court within ten (10) days from the 24 later of the date the Amendment is served or the date the Amendment is filed with the Court in 25 accordance with this Paragraph. Any material Amendment to the DIP Loan Documents must be 26 approved by the Court. Further, the Budget may be amended without need for Court approval in 27 accordance with the DIP Credit Agreement, provided that a copy of the amended Budget shall be 28 provided to the United States Trustee and the Committee. 13
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18.
Remedies Upon Default. a. Upon the occurrence of an Event of Default, the DIP Lender may, in its sole
and absolute discretion, suspend or terminate the commitments under the DIP Credit Facility, and, upon such suspension or termination, the Debtors right to use Cash Collateral shall thereupon terminate pending further order of the Bankruptcy Court (unless otherwise agreed in writing by the DIP Lender and the Existing Senior Lender). Following five (5) days notice of the Event of Default to the Debtor, the Committee and the United States Trustee, and upon failure of the Debtor to cure such Event of Default during such time (which failure shall be deemed to occur if the DIP Loan Documents do not permit such Event of Default to be cured), the DIP Lender and/or the Existing Senior Lender may petition the Bankruptcy Court (including on an expedited basis) for an order granting relief from stay to exercise any and all rights and remedies provided under the DIP Loan Documents and the Existing Senior Loan Document. Until all of the DIP Obligations are indefeasibly paid and satisfied in full (i) the DIP Lender is entitled to exercise any and all of the rights and remedies provided under the DIP Credit Agreement and this Interim Order, subject to the granting of relief from stay by the Court, and (ii) no other party shall foreclose or otherwise seek to enforce any junior lien or claim with respect to any Collateral. b. If the Debtors right to use Cash Collateral terminates pursuant to Paragraph
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18.a following the occurrence of an Event of Default, the Debtor may move the Court (including on an expedited basis) for authorization to use Cash Collateral under Bankruptcy Code section 363(c)(2), but only (i) to the extent necessary to avoid immediate and irreparable harm and (ii) to the extent that the interests of the DIP Lender and the Existing Senior Lender are adequately protected. As to both (i) and (ii), the Debtor shall bear the burden of proof and the DIP Lender and the Existing Senior Lender reserve their rights to oppose any such relief. 19. Modification of The Automatic Stay. The automatic stay provisions of Bankruptcy
27 Code section 362 and any other restrictions imposed by an order of the Court or applicable law are 28 modified and vacated without further notice, application or order of the Court to the extent 14
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1 necessary to permit the DIP Lender, the Existing Senior Lender, and SMC to perform any act 2 authorized or permitted under or by virtue of this Interim Order or the other DIP Loan Documents, 3 including, (a) to implement the postpetition financing arrangements authorized by this Interim 4 Order and pursuant to the terms of the other DIP Loan Documents, and (b) to take any act to create, 5 validate, evidence, attach or perfect any lien, security interest, right or claim in the Collateral. 6 20. Effect of Reversal, Modification, Vacatur or Stay. The terms of this Interim Order
7 were negotiated in good faith and at arm's length by and among the Debtor and SMC. SMC is 8 entitled to the full protections of Bankruptcy Code section 364(e) in the event this Interim Order or 9 any provision hereof is vacated, reversed, modified, or stayed, on appeal or otherwise. Neither the 10 vacatur, reversal, modification or stay of this Interim Order shall affect, prejudice or impair: (a) the 11 validity and effect of the acts taken by the DIP Lender and the Existing Senior Lender in accordance
12 with and/or in reliance on this Interim Order, prior to receiving actual written notice of such vacatur, 13 modification, reversal or stay, (b) the validity or enforceability of any obligation, indebtedness or 14 liability incurred by the Debtor to the DIP Lender or the Existing Senior Lender under the DIP Loan 15 Documents prior to receiving actual written notice of such vacatur, modification, reversal or stay, 16 (c) the validity or enforceability of any security interest, lien, priority, or other protection authorized 17 or created hereunder in favor of the DIP Lender or the Existing Senior Lender prior to receiving 18 actual written notice of such vacatur, modification, reversal or stay, or (d) the rights, remedies, 19 privileges and benefits granted herein to the DIP Lender and the Existing Senior Lender in respect of 20 all such acts, indebtedness, obligations, liabilities, security interests, liens, priorities, and other 21 protections, all of which shall be governed by the original provisions of the DIP Loan Documents. 22 The provisions of this Paragraph shall remain in full force and effect, irrespective of whether (i) a 23 Final DIP Order is entered, and (ii) the Chapter 11 Case is converted. 24 21. Debtor Waivers. At all times during the Chapter 11 Case, and irrespective of
25 whether an Event of Default has occurred, the Debtor waives any right it may have to seek authority: 26 (i) to obtain postpetition loans or other financial accommodations pursuant to Bankruptcy Code 27 sections 364(c) and 364(d), other than from the DIP Lender or as otherwise may be expressly 28 permitted pursuant to the DIP Loan Documents, (ii) to propose, support or have a chapter 11 plan 15
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1 that does not provide for the indefeasible payment in cash, in full satisfaction of DIP Obligations on 2 the effective date of such chapter 11 plan, or (iii) to seek relief under the Bankruptcy Code, 3 including Bankruptcy Code section 105, to the extent such relief would directly restrict or impair the 4 rights and remedies of the DIP Lender under this Interim Order and the other DIP Loan Documents. 5 22. Limitations on Use of the Postpetition Loan Proceeds and Cash Collateral. In
6 addition to the other terms and conditions to which use of Postpetition Loan proceeds and Cash 7 Collateral are subject under the DIP Loan Documents, none of the proceeds of the Postpetition 8 Loans or the Cash Collateral may be used to challenge, as opposed to investigate, the validity, 9 allowability, perfection, priority, extent or enforceability of the Existing Senior Secured Loan 10 Documents or the Existing Prepetition Liens, or to pursue any causes of action of any kind against 11 the Existing Senior Lender or the DIP Lender in any capacity. No more than an aggregate of
12 $25,000 of any proceeds of the Postpetition Loans and/or Cash Collateral shall be used by counsel to 13 any Committee to investigate the validity, allowability, perfection, priority, extent or enforceability 14 of the Existing Senior Secured Loan Documents or the Existing Prepetition Liens, or any causes of 15 action of any kind against the DIP Lender or the Existing Senior Lender in any capacity. 16 23. Limitation On Surcharge. Except for Carve-Out Expenses, subject to entry of the
17 Final DIP Order, no costs or expenses of any kind may be assessed against the Existing Senior 18 Lender, the Existing Prepetition Collateral, the DIP Lender, or the Collateral, whether pursuant to 19 Bankruptcy Code sections 105 or 506(c), or otherwise. 20 24. Power To Waive Rights. The DIP Lender, in its sole and absolute discretion, shall
21 have the right to waive any of the terms, rights and remedies provided or acknowledged in this 22 Interim Order in respect of the DIP Lender (the DIP Lender Rights), and shall have no obligation 23 or duty to any other party with respect to the exercise or enforcement, or failure to exercise or 24 enforce, any DIP Lender Right(s). Any waiver by the DIP Lender of any DIP Lender Rights shall 25 not be or constitute a continuing waiver. Any delay in enforcing, or failure to exercise or enforce, 26 any DIP Lender Right shall not constitute a waiver of such DIP Lender Right, subject the DIP 27 Lender to any liability to any other party, or cause or enable any other party to rely on or in any way 28 seek to assert a defense to any obligation owed by the Debtor to the DIP Lender. 16
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25.
Disposition of Collateral. Except as otherwise provided in the DIP Credit
2 Agreement, the Debtor shall not encumber or otherwise dispose of any portion of the Collateral 3 without the prior written consent of the DIP Lender in its sole and absolute discretion (no such 4 consent shall be implied, from any other action, inaction or acquiescence by the DIP Lender) and an 5 order of this Court. The Debtor shall not, without the consent of the DIP Lender, in its sole and 6 absolute discretion, (a) enter into any agreement to return any goods to any of their creditors for 7 application against any prepetition indebtedness under any applicable provision of Bankruptcy 8 Code Section 546, or (b) consent to any creditor taking any setoff against any of its prepetition 9 indebtedness based on any such return pursuant to Bankruptcy Code section 553(b)(1) or otherwise. 10 26. Reservation of Rights. The terms, conditions and provisions of this Interim Order
11 are in addition to and without prejudice to the rights of the DIP Lender and the Existing Senior
12 Lender to pursue any and all rights and remedies under the Bankruptcy Code, the DIP Loan 13 Documents or any other applicable agreement or law, including, rights to seek adequate protection 14 and/or additional or different adequate protection, to seek relief from the automatic stay, to seek 15 injunctive relief, to oppose any request for use of Cash Collateral or the granting of any interest in 16 the Collateral or priority in favor of any other party, to object to any sale of assets, and to object to 17 applications for allowance and/or payment of compensation of professionals or other parties seeking 18 compensation or reimbursement from the Estate. 19 20 21 22 23 24 25 26 27 28 27. Binding Effect of Order. a. Effective immediately upon entry, this Interim Order shall be valid and
binding upon and inure to the benefit of the DIP Lender, the Existing Senior Lender, the Debtor, the property of the Estate, all other creditors of the Debtor, the Committee (if and when appointed), and all other parties in interest and their respective successors and assigns (including any trustee or any other fiduciary hereafter appointed as a legal representative of the Debtor), in the Chapter 11 Case, any case for the Debtor under chapter 7 of the Bankruptcy Code, or upon dismissal of the Chapter 11 Case or any such chapter 7 case. b. Any order dismissing the Chapter 11 Case under Bankruptcy Code section
1112 or otherwise, shall be deemed to provide (in accordance with Bankruptcy Code 17
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sections 105 and 349) that (a) the DIP Liens, the Superpriority Claim, the Adequate Protection Liens and the Adequate Protection Claim shall continue in full force and effect notwithstanding such dismissal until the DIP Obligations and Existing Prepetition Debt are indefeasibly paid and satisfied in full, and (b) this Court shall retain jurisdiction to the greatest extent permitted by applicable law, notwithstanding such dismissal, for purposes of enforcing the DIP Liens, the Superpriority Claim, the Adequate Protection Liens and the Adequate Protection Claim. c. If the Court modifies any provision of this Interim Order or the other DIP Loan Documents following a subsequent hearing or otherwise, (a) such modifications shall not affect the rights or priorities of the DIP Lender or the Existing Senior Lender pursuant to this Interim Order with respect to the Collateral, the Existing Prepetition Collateral, the DIP Obligations and/or other obligations that have been incurred hereunder or in reliance hereon, that were incurred or arose prior the DIP Lender and Existing Lender receiving actual written notice of such modification, and (b) subject to the foregoing clause, this Interim Order shall remain in full force and effect except as specifically amended or modified. 28. Treatment of DIP Liens and DIP Obligations. The DIP Liens granted pursuant to
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17 this Interim Order shall not be altered, modified, extended, impaired, or affected by any chapter 11 18 plan, unless the DIP Lender shall have given express prior written consent with respect thereto in its 19 sole and absolute discretion (no such consent shall be implied, from any other action, inaction or 20 acquiescence by the DIP Lender. 21 29. No Owner/Operator Liability. In determining to extend credit and make loans under
22 the DIP Credit Agreement and this Interim Order, and in exercising any rights or remedies as and 23 when permitted pursuant to the DIP Credit Agreement and this Interim Order, the DIP Lender shall 24 not be deemed to be in control of the operations of the Debtor or to be acting as a responsible 25 person or owner or operator with respect to the operation or management of the Debtor (as such 26 terms, or any similar terms, are used in the United States Comprehensive Environmental Response, 27 Compensation and Liability Act, 29 U.S.C. 9601 et seq., as amended, or any similar federal or 28 state statute). 18
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30.
Marshalling. In no event shall the DIP Lender or the Existing Senior Lender be
2 subject to the equitable doctrine of marshalling or any similar doctrine with respect to the 3 Collateral. The Existing Senior Lender shall be entitled to all of the rights and benefits of 4 Bankruptcy Code section 552(b) and the equities of the case exception under Bankruptcy Code 5 section 552(b) shall not apply to the Existing Senior Lender with respect to proceeds, products, 6 offspring or profits of any of the Collateral. 7 31. Term and Termination. Notwithstanding any other provision of this Interim Order to
8 the contrary, the DIP Lenders obligation to extend Postpetition Loans and the Debtors authority to 9 use Cash Collateral may be terminated pursuant to the DIP Credit Agreement, as provided in 10 Paragraph 18 hereof. 11
32.
Interim Order Governs. In the event that any provision of this Interim Order
12 conflicts with any term of any other DIP Loan Documents, this Interim Order shall govern. 13 33. No Prejudice. This Interim Order shall not prejudice, impair or adversely affect any
14 of the rights of the Existing Senior Lender under the Existing Senior Secured Loan Documents. 15 34. Retention of Jurisdiction. The Court has and will retain jurisdiction to interpret and
16 enforce the provisions of this Interim Order. 17 35. Final Hearing, Objection and Reply Dates. The Final Hearing on the Motion shall be
18 held on __________________, 2012 at ______ before this Court. The Debtor shall promptly mail 19 copies of this Interim Order and notice of the Final Hearing to the Noticed Parties, and to any other 20 party that has filed a request for notices with this Court and to the Committee after its appointment, 21 or to its counsel. Any party in interest objecting to the relief sought at the Final Hearing shall file a 22 written objection and any evidence in support thereof no later than __________________, 2012 at 23 ______ and serve it no later than such date on counsel for the Debtor: Pachulski Stang Ziehl & 24 Jones LLP, Attn: Richard M. Pachulski and Debra I. Grassgreen, 10100 Santa Monica Blvd., 13th 25 Floor, Los Angeles, CA 90067, Facsimile: (310) 201-0760, and counsel for the DIP Lender and 26 Existing Senior Lender: Klee, Tuchin, Bogdanoff & Stern LLP, Attn: Michael Tuchin, Lee 27 Bogdanoff, Martin Barash, and David Fidler, 1999 Avenue of the Stars, 39th Floor, Los Angeles, CA 28 90067, Facsimile: 310-407-9090, email: mtuchin@ktbslaw.com; lbogdanoff@ktbslaw.com; 19
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1 mbarash@ktbslaw.com, and dfidler@ktbslaw.com. Any party replying to such an objection shall 2 file a written reply and any evidence in support thereof no later than __________________, 2012 at 3 ______ and serve it no later than such date on the objecting parties and other parties requesting 4 notice in these cases. 5 6 DATED: November ___, 2012 7 8 9 10 11
HONORABLE UNITED STATES BANKRUPTCY JUDGE
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EXHIBIT 1 Initial Budget
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ASMC - Consolidated Cash Flow Forecast
CASH FLOW STATEMENT $ in thousands RECEIPTS A/R (including holdback) Interest & Misc. Receipts SMC DIP Revolver Advance Borrowings Proceeds from Asset Sales TOTAL RECEIPTS DISBURSEMENTS Ordinary Course Expenditures SMC DIP Inventory Loans Payroll and Benefits Other Operating Disbursements Total Ordinary Course Expenditures Restructuring Expenditures Restructuring Professionals [1] US Trustee Fees Deposit - Utilities Payments to Shippers Payments to Critical Vendors Payments to Tax Authorities Total Restructuring Expenditures DIP SMC DIP Revolver Advance Repayments SMC DIP Revolver Advances Interest Total DIP TOTAL DISBURSEMENTS NET CASH FLOW BEGINNING CASH BALANCE ENDING CASH (BOOK) $ 57,529 $ 328 $ 13,000 $ 13,328 Fcst Nov-12 $ 57,801 55 $ 57,857
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Fcst Dec-12 $ 78,968 56 $ 79,024
Fcst Jan-13 $ 65,114 54 10,378 $ 75,546
Fcst Feb-13 $ 62,098 51 16,396 $ 78,545
Fcst Mar-13 $ 64,851 106 17,916 $ 82,873
Fcst Total $ 328,834 322 44,690 $ 373,846
$ 14,315 2,463 36,636 53,414 200 55 2,000 900 960 4,115
$ 38,320 1,971 39,557 79,849 3,128 3,128 $ 82,977
$ 40,390 1,843 36,530 78,763 3,128 30 3,158 $ 81,921
$ 36,607 1,786 26,778 65,171 2,968 2,968 10,378 28 10,406 $ 78,545 3,000 3,000
$ 37,730 1,772 23,959 63,461 2,968 2,968 16,396 49 16,444 $ 82,873 $ $ $ 3,000 3,000
$ 167,363 9,834 163,461 340,658 12,392 30 55 2,000 900 960 16,337 26,774 76 26,850 $ 383,846 $ (10,000) $ 13,000 $ 3,000
$ (3,953) $ $ 13,328 $ $ 9,375 $
(6,375) $ 9,375 $ 3,000 $
SMC DIP Revolver Advance Balance SMC DIP Inventory Loans Budgeted Monthly Professional Fee Accrual [2]
$ $ 14,315 $ 3,835
$ $ 17,552 $ 3,835
$ 10,378 $ 19,016 $ 3,635
$ 16,396 $ 20,403 $ 3,635
$ 17,916 $ 20,757 $ 3,635
Notes [1] Amounts budgeted for Restructuring Professionals are reflected on a projected cash basis. For purposes of determining Carve-Out Expenses, see Budgeted Monthly Professional Fee Accrual footnote below. [2] Budgeted Monthly Professional Fee Accrual is reflected on an accrual basis and will be paid when allowed by the Court. Carve-Out Expenses for Debtor and Committee Professionals are calculated based on amounts reflected in Budgeted Monthly Professional Accrual. See page 2 hereof for further detail.
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ASMC Restructuring Professional Fees

Incurred - $ in thousands Debtor's Professionals Debtor's Bankruptcy Counsel - PSZJ Debtor's Financial Advisor - FTI Debtor's CRO - Reiss Debtor's Investment Bank - Imperial Capital Debtor's Special Counsel - Nelson Mullins Debtor's Litigation Expert Committee Professionals Committee Bankruptcy Counsel Committee Financial Advisor Other Professionals Noticing/Claims Agent - Rust Omni Lender Professional - KTBS Total Professional Fees $ Nov-12 $ 1,250 1,200 100 100 600 85 $ Dec-12 1,250 1,200 100 100 600 85 $ Jan-13 1,250 1,000 100 100 600 85 $ Feb-13 1,250 1,000 100 100 600 85 $ Mar-13 1,250 1,000 100 100 600 85 $ Total 6,250 5,400 500 500 3,000 425
200 100
200 100
200 100
200 100
200 100
1,000 500
100 100 3,835 $
100 100 3,835 $
100 100 3,635 $
100 100 3,635 $
100 100 3,635
500 500 $ 18,575
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EXHIBIT B (DIP Credit Agreement)
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DEBTOR-IN-POSSESSION LOAN AND SECURITY AGREEMENT Dated as of November 5, 2012 by and between AMERICAN SUZUKI MOTOR CORPORATION, as a debtor and debtor-in-possession as the Borrower, and SUZUKI MOTOR CORPORATION, as the Lender,
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TABLE OF CONTENTS Page(s) ARTICLE I DEFINITIONS; CERTAIN TERMS...........................................................................1 Section 1.01 Section 1.02 Section 1.03 Section 1.04 Definitions..............................................................................................1 Terms Generally...................................................................................16 Uniform Commercial Code Terms ......................................................16 Time References ..................................................................................17
ARTICLE II THE OBLIGATIONS ..............................................................................................17 Section 2.01 Section 2.02 Section 2.03 Section 2.04 Section 2.05 Section 2.06 Section 2.07 Section 2.08 Section 2.09 Inventory Loans ...................................................................................17 Advances ..............................................................................................17 Lender Advances .................................................................................18 Making the Advances ..........................................................................18 Repayment of Loans; Prepayments .....................................................18 Interest..................................................................................................19 Prepayment of Loans ...........................................................................20 Payments ..............................................................................................20 Denomination of Loans........................................................................21
ARTICLE III CONDITIONS TO EFFECTIVENESS ..................................................................21 Section 3.01 Section 3.02 Section 3.03 Conditions Precedent to Interim Facility Effectiveness.......................21 Conditions Precedent to Final Facility Effectiveness ..........................22 Conditions Precedent to All Loans ......................................................23
ARTICLE IV REPRESENTATIONS AND WARRANTIES ......................................................24 Section 4.01 Representations and Warranties ...........................................................24
ARTICLE V COVENANTS OF THE BORROWER ...................................................................26 Section 5.01 Affirmative Covenants .........................................................................26
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Section 5.02 Section 5.03
Negative Covenants .............................................................................27 Financial Covenant ..............................................................................28
ARTICLE VI COLLATERAL ......................................................................................................29 Section 6.01 Section 6.02 Section 6.03 Section 6.04 Section 6.05 Section 6.06 Section 6.07 Section 6.08 Section 6.09 Section 6.10 Section 6.11 Section 6.12 Section 6.13 Section 6.14 Section 6.15 Section 6.16 Security Interest in the Collateral ........................................................29 Perfection of Security Interest .............................................................29 Administrative Priority ........................................................................30 Survival ................................................................................................30 Disposition of Collateral ......................................................................31 Preservation of Collateral ....................................................................31 Ownership of Collateral; Real Property ...............................................32 Compliance with Laws ........................................................................32 Inspection of Premises .........................................................................32 Insurance ..............................................................................................33 Failure to Pay Insurance.......................................................................33 Payment of Taxes .................................................................................33 Receivables ..........................................................................................34 Maintenance of Equipment ..................................................................35 Exculpation of Liability .......................................................................36 Subsidiaries ..........................................................................................36
ARTICLE VII EVENTS OF DEFAULT ......................................................................................36 Section 7.01 Section 7.02 Section 7.03 Section 7.04 Events of Default .................................................................................36 Rights and Remedies............................................................................39 The Lenders Discretion ......................................................................41 Rights and Remedies not Exclusive.....................................................41
ARTICLE VIII MISCELLANEOUS ............................................................................................42
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Section 8.01 Section 8.02 Section 8.03 Section 8.04 Section 8.05 Section 8.06 Section 8.07 Section 8.08 Section 8.09
Notices, Etc ..........................................................................................42 Amendments ........................................................................................43 No Waiver; Remedies, Etc ...................................................................44 Expenses; Taxes; Attorneys Fees .......................................................44 Right of Set-off ....................................................................................45 Severability ..........................................................................................45 Assignments .........................................................................................45 Counterparts .........................................................................................45 GOVERNING LAW............................................................................46
Section 8.10 CONSENT TO JURISDICTION; SERVICE OF PROCESS AND VENUE ........................................................................................................46 Section 8.11 Section 8.12 Section 8.13 Section 8.14 Section 8.15 Section 8.16 Section 8.17 Section 8.18 Section 8.19 Section 8.20 WAIVER OF JURY TRIAL, ETC ......................................................46 No Party Deemed Drafter ....................................................................47 Reinstatement; Certain Payments ........................................................47 Indemnification ....................................................................................47 Further Assurances...............................................................................48 Records ................................................................................................48 Binding Effect ......................................................................................48 Interest..................................................................................................48 Integration ............................................................................................49 Parties Including Trustees; Bankruptcy Court Proceedings ................49 SCHEDULES AND EXHIBITS Schedule 1.01(h) Schedule 4.01(b)(ii) Schedule 4.01(d) Schedule 6.07(b) Liens Existing on the Filing Date Subsidiaries Commercial Tort Claims Real Property
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Schedule 6.13(e) Exhibit A Exhibit B
Deposit, Securities and Investment Accounts Notice of Borrowing Interim Bankruptcy Court Order
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DEBTOR-IN-POSSESSION LOAN AND SECURITY AGREEMENT This Debtor-in-Possession Loan and Security Agreement, dated as of November 5, 2012, is made by and between American Suzuki Motor Corporation, a California corporation, as a debtor and debtor-in-possession under Chapter 11 of the Bankruptcy Code (the Borrower), and Suzuki Motor Corporation, a corporation organized under the laws of Japan (the Lender). RECITALS WHEREAS, the Borrower has commenced a case (the Chapter 11 Case) under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the Central District of California (the Bankruptcy Court), and the Borrower has retained possession of its assets and is authorized under the Bankruptcy Code to continue the operation of its business as a debtor-in-possession. WHEREAS, the Borrower has asked the Lender to make post-petition advances and extensions of credit to the Borrower consisting of (a) advances in an aggregate principal amount not to exceed $50,000,000 at any time outstanding and (b) Inventory Loans (as defined below) in an aggregate principal amount not to exceed $50,000,000 at any time outstanding, in each case as provided herein. The proceeds of the loans shall be used (a) for working capital and general corporate purposes of the Borrower and its subsidiaries and (b) to pay fees and expenses related to this Agreement and the Chapter 11 Case, all as more particularly set forth herein. The Lender is willing to extend such credit to the Borrower subject to the terms and conditions hereinafter set forth. In consideration of the premises and the covenants and agreements contained herein, the parties hereto agree as follows: ARTICLE I DEFINITIONS; CERTAIN TERMS Section 1.01 Definitions. As used in this Agreement, the following terms shall have the respective meanings indicated below, such meanings to be applicable equally to both the singular and plural forms of such terms: Advances has the meaning specified therefor in Section 2.02. Agreed Administrative Expense Priorities means that administrative expenses with respect to the Borrower and, with respect to sub-clause (ii) of clause first, the Committee, shall have the following order of priority: first, (i) amounts payable pursuant to 28 U.S.C. 1930(a)(6) and any fees due to the clerk of the Bankruptcy Court; (ii) (a) allowed amounts payable for professional fees and expenses incurred during the Chapter 11 Case; provided, that the amount entitled to priority under this sub-clause (ii) of this clause first following the Filing Date and before any Carve-Out Expense Reduction Period shall not exceed, as to professionals employed by the Borrower, the lesser of (x) the aggregate amount incurred by each applicable professional for such period and (y) the
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aggregate amount specified in the Budget for each such professional for such period (whenever such amounts might be incurred prior to the delivery of a Carve-Out Notice and as to which any prepetition retainer held by such professional shall be applied against post-petition services as permitted by the Bankruptcy Court), and as to any professional employed by the Committee, the lesser of (x) the aggregate amount incurred by each such Committee professional for such period and (y) the aggregate amount specified in the Budget for each such Committee professional for such period (whenever such amounts might be incurred prior to the delivery of a Carve-Out Notice), and provided, further that the amount entitled to priority under this sub-clause (ii) from and after any Carve-Out Expense Reduction Period shall not exceed, as to professionals employed by the Borrower, the lesser of (x) the aggregate amount incurred by such professionals for such period and (y) $1,000,000, and as to professionals employed by the Committee, the lesser of (x) the aggregate amount incurred by the Committee professionals for such period and (y) $150,000; and (iii) any obligations up to $10,000,000 in the aggregate owed by the Borrower under indemnity agreements with the Borrowers directors and chief restructuring officer with respect to pending or threatened litigation against them in their personal capacities for acts occurring on or after September 10, 2012, including obligations to reimburse reasonable fees and expenses that may be incurred in connection with such pending or threatened litigation; second, all Obligations in accordance with Section 6.03, and third, all other allowed administrative expenses. Agreement means this Loan and Security Agreement, including all amendments, modifications and supplements and any exhibits or schedules to any of the foregoing. Applicable Law means all laws, rules and regulations applicable to the Person, conduct, transaction, covenant, Loan Document or contract in question, including all applicable common law and equitable principles; all provisions of all applicable state, federal and foreign constitutions, statutes, rules, regulations, treaties, directives and orders of any Governmental Body, and all orders, judgments and decrees of all courts and arbitrators. Approval Order has the meaning ascribed thereto in the definition of Plan/Sale Milestones. Avoidance Actions means all causes of action arising under sections 542, 544, 547, 548, 550, 551, 553(b) or 724(a) of the Bankruptcy Code, or any applicable avoidance or fraudulent transfer state law, and any proceeds therefrom. Bankruptcy Code means the United States Bankruptcy Code (11 U.S.C. 101, et seq.), as amended, and any successor statute. Bankruptcy Court has the meaning specified therefor in the recitals hereto, or any other court having jurisdiction over the Chapter 11 Case from time to time. Bankruptcy Court Orders means the Interim Bankruptcy Court Order and the Final Bankruptcy Court Order. Borrower has the meaning specified therefor in the preamble hereto.
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Budget means (a) the monthly cash requirements forecast setting forth cash receipts and disbursements and Loans of the Borrower for the period covered thereby, delivered by the Borrower to the Lender on or before the Interim Facility Effective Date pursuant to Section 3.01(h) and (b) any updated Budget delivered to the Lender pursuant to Section 5.01(a)(i), which updated Budget shall be in form and substance reasonably satisfactory to the Lender, provided that any modifications to the Budget concerning professional fees and expenses shall be satisfactory to the Lender in its sole and absolute discretion. Business Day means any day other than a Saturday, Sunday or other day on which commercial banks in Japan or California are authorized or required to close. Carry-Forward Amounts has the meaning specified therefor in Section 5.03. Carve-Out Expenses means the administrative expenses identified in clause first of the definition of Agreed Administrative Expense Priorities, subject to the limitations set forth in such clause; provided, however, that the Carve-Out Expenses shall be payable first out of any immediately available unencumbered assets of the Borrower prior to payment out of the Collateral. Carve-Out Expense Reduction Period means any period following the delivery of a Carve Out Notice. Carve-Out Notice means a notice delivered by the Lender to the Borrower stating that an Event of Default under this Agreement or a default by the Borrower in any of its obligations under any of the Bankruptcy Court Orders, in either case, has occurred and is continuing. Cash Collateral has the meaning given to such term in the Bankruptcy Code. CERCLA has the meaning specified therefor in the definition of Environmental Laws. Chapter 11 Case has the meaning specified therefor in the recitals hereto. Charges means all taxes, charges, fees, imposts, levies or other assessments, including all net income, gross income, gross receipts, sales, use, ad valorem, value added, transfer, franchise, profits, inventory, capital stock, license, withholding, payroll, employment, social security, unemployment, excise, severance, stamp, occupation and property taxes, custom duties, fees, assessments, liens, claims and charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts, imposed by any taxing or other authority, domestic or foreign, upon the Collateral or the Borrower. Collateral means and includes: (a) (b) (c) all Receivables; all Equipment; all General Intangibles; 3
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(d) (e) (f)
all Inventory; all Investment Property; all Subsidiary Stock;
(g) all of the Borrowers right, title and interest in and to, whether now owned or hereafter acquired and wherever located; (i) its respective goods and other property including, but not limited to, all Vehicles returned or rejected by Customers; (ii) all of the Borrowers rights as a consignor, a consignee, an unpaid vendor, mechanic, artisan, or other holder of a lien, including stoppage in transit, setoff, detinue, replevin, reclamation and repurchase; (iii) all additional amounts due to the Borrower from any Customer; (iv) other property, including warranty claims, relating to any goods securing the Obligations; (v) all of the Borrowers contract rights, rights of payment which have been earned under a contract right, instruments (including promissory notes), documents, chattel paper (including electronic chattel paper), warehouse receipts, deposit accounts, letters of credit and money; (vi) all commercial tort claims (whether now existing or hereafter arising); (vii) if and when obtained by the Borrower, all real and personal property of third parties in which the Borrower has been granted a lien or security interest as security for the payment or enforcement of Receivables to the extent of such lien or security interest; (viii) all letter of credit rights (whether or not the respective letter of credit is evidenced by a writing); (ix) all supporting obligations; and (x) any other goods, personal property or real property now owned or hereafter acquired in which the Borrower has expressly granted a security interest or may in the future grant a security interest to the Lender hereunder, or in any amendment or supplement hereto or thereto, or under any other agreement between the Lender and the Borrower; (h) all Real Property;
(i) all of the Borrowers ledger sheets, ledger cards, files, correspondence, records, books of account, business papers, computers, computer software (owned by the Borrower or in which it has an interest), computer programs, tapes, disks and documents relating to clauses (a), (b), (c), (d), (e), (f), (g) or (h) of this definition; and (j) all proceeds and products of clauses (a), (b), (c), (d), (e), (f), (g), (h) and (i) of this definition in whatever form, including, but not limited to: cash, deposit accounts (whether or not comprised solely of proceeds), certificates of deposit, insurance proceeds (including hazard, flood and credit insurance), negotiable instruments and other instruments for the payment of money, chattel paper, security agreements, documents, eminent domain proceeds, condemnation proceeds and tort claim proceeds. Notwithstanding the foregoing, none of the following items will be included in the Collateral: (a) any asset of an Excluded Subsidiary or any Equity Interests of an Excluded Subsidiary (other than 65% of the voting Equity Interests and 100% of any non-voting Equity Interests of any first-tier Excluded Subsidiary, each of which shall constitute Collateral);
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(b) assets if the granting of a security interest in such asset would (I) be prohibited by Applicable Law (but proceeds and receivables thereof, the assignment of which is expressly deemed effective under the UCC, shall not be deemed excluded from the Collateral regardless of such prohibition), or (II) be prohibited by contract (except to the extent such prohibition is overridden by UCC Section 9-408) (but proceeds and receivables thereof shall not be deemed excluded from the Collateral regardless of such prohibition); (c) any property and assets, the pledge of which would require approval, license or authorization of any Governmental Body or any other Person, unless and until such consent, approval, license or authorization shall have been obtained or waived; (d) any United States intent-to-use trademark applications to the extent and for so long as the grant of a security interest therein would impair the validity or enforceability of, or render void or voidable or result in the cancellation of, the Borrowers right, title or interest therein or any trademark issued as a result of such application; and (e) any Avoidance Actions.
It is the intention of the parties that if the Lender has a perfected Lien in any property or assets that the Borrower may receive upon the sale, lease, license, exchange, transfer or Disposition of any particular property or assets excluded from the Collateral pursuant to the foregoing (other than Avoidance Actions), then all such proceeds of such particular property or assets shall be included in the Collateral. Committee means the official committee of unsecured creditors appointed in the Chapter 11 Case, if any, pursuant to Bankruptcy Code section 1102. Customer means and includes the account debtor with respect to any Receivable. Default means an event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default. Disclosure Statement means a disclosure statement with respect to a Plan of Reorganization. Disposition means any transaction, or series of related transactions, pursuant to which any Person or any of its Subsidiaries sells, assigns, transfers or otherwise disposes of any property or assets (whether now owned or hereafter acquired) to any other Person, in each case, whether or not the consideration therefor consists of cash, securities or other assets owned by the acquiring Person, excluding any sales of Inventory in the Ordinary Course of Business. Distributorship Agreement means those certain exclusive distributorship agreements by and between the Lender and the Borrower concerning the sale of Vehicles by the Lender to the Borrower, including those dated as of April 27, 2012 and May 1, 2012, as the same may be amended, restated, modified or supplemented from time to time. Dollar, Dollars and the symbol $ each means lawful money of the United States of America.
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Environmental Claims means any claims, suits or proceedings arising under or relating to any Environmental Laws or any release or disposal of Hazardous Material. Environmental Laws means the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. 9601 et seq.) (CERCLA), the Hazardous Materials Transportation Act (49 U.S.C. 5101 et seq., formerly codified at 49 App. U.S.C. 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. 6901 et seq.) (RCRA), the Federal Clean Water Act (33 U.S.C. 1251 et seq.), the Clean Air Act (42 U.S.C. 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. 2601 et seq.) and the Occupational Safety and Health Act (29 U.S.C. 651 et seq.), as such laws may be amended or otherwise modified from time to time, and any other present or future federal, state, local or foreign statute, ordinance, rule, regulation, order, judgment, decree, permit, license or other binding determination of any Governmental Body imposing liability or establishing standards of conduct for protection of the environment or other government restrictions relating to the protection of the environment or the Release, deposit or migration of any Hazardous Materials into the environment. Environmental Liabilities means any monetary obligations, losses, liabilities (including strict liability), damages, punitive damages, consequential damages, treble damages, costs and expenses (including all reasonable out-of-pocket fees, disbursements and expenses of counsel, out-of-pocket expert and consulting fees and out-of-pocket costs for environmental site assessments, remedial investigation and feasibility studies), fines, penalties, sanctions and interest incurred as a result of any Environmental Claim filed by any Governmental Body or any third party which relate to any violations of Environmental Laws, remedial actions, releases or threatened releases of Hazardous Materials from or onto (i) any property presently or formerly owned by the Borrower or any of its Subsidiaries or a predecessor in interest, or (ii) any facility which received Hazardous Materials generated by the Borrower or any of its Subsidiaries or a predecessor in interest. Environmental Lien means any Lien in favor of any Governmental Body for Environmental Liabilities. Equipment means and includes all of the Borrowers goods (other than Inventory) whether now owned or hereafter acquired and wherever located including all equipment, machinery, apparatus, motor vehicles, fittings, furniture, furnishings, fixtures, parts, accessories and all replacements and substitutions therefor or accessions thereto. Equity Interests of any Person means any and all shares, rights to purchase, options, warrants, general, limited or limited liability partnership interests, member interests, participation or other equivalents of or interest in (regardless of how designated) equity of such Person, whether voting or nonvoting, including common stock, preferred stock, convertible securities or any other equity security (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended). Event of Default means any of the events set forth in Section 7.01.
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Excluded Subsidiary means any Subsidiary of the Borrower (i) that is not organized under the laws of the United States, any state thereof or the District of Columbia or (ii) that is a disregarded entity for U.S. federal income tax purposes whose sole assets are Capital Stock of Subsidiaries that are not organized under the laws of the United States, any state thereof or the District of Columbia. Existing Senior Lender means the Lender, as such term is defined in the Existing Senior Secured Credit Facility. Existing Senior Loan Documents means the Loan Documents, as such term is defined in the Existing Senior Secured Credit Facility. Existing Senior Secured Credit Facility means that certain Loan and Security Agreement, dated as of July 27, 2012, between the Borrower and the Lender, as the same may be amended, restated, modified or supplemented from time to time. Extraordinary Receipts means any cash received by the Borrower or any of its Subsidiaries not in the Ordinary Course of Business (and not consisting of proceeds described in Section 2.05(b)(iii) hereof), including, without limitation, (a) proceeds of insurance, (b) condemnation awards (and payments in lieu thereof) and (c) foreign, United States, state or local tax refunds. Filing Date means November 5, 2012. Final Bankruptcy Court Order means a Final Order with respect to the Borrower which shall (i) find and conclude that the Loan Documents were negotiated in good faith and that the Lender is entitled to the protections of section 364(e) of the Bankruptcy Code (ii) order that, on the Final Facility Effective Date, the Liens and security interests in favor of the Lender referred to in Section 6.01 shall be valid and perfected Liens and security interests in the Collateral, prior to all other Liens and security interests in the Collateral and subject only to Permitted Priority Liens and the payment of Carve-Out Expenses; (iii) provide to the Existing Senior Lender, as adequate protection in connection with the use of Cash Collateral, the consensual priming of the prepetition Liens and security interests of the Existing Senior Lender hereunder, and any diminution in the value of the collateral securing the Existing Senior Secured Credit Facility, (a) replacement Liens and security interests in the Collateral, junior in each case only to (I) any valid, perfected, enforceable and non-avoidable lien or security interest that is senior to the liens and security interests in favor of the Existing Senior Lender, as of the Filing Date, (II) the Liens and security interests in the Collateral granted to secure the Obligations hereunder, and (III) Carve-Out Expenses; (b) a superpriority administrative claim under Bankruptcy Code section 507(b), subordinate only to the payment of Carve-Out Expenses and the superpriority administrative claim granted to the Lender in respect of the Obligations hereunder; (c) payment of the reasonable costs and expenses of the Existing Senior Lender (including the reasonable professional fees and costs) under the Existing Senior Secured Credit Facility, without the requirement of prior application or approval of the Bankruptcy Court, provided that any disputes regarding such costs and expenses shall be resolved by the Bankruptcy Court following notice and an opportunity for a hearing; (iv) provide that all proceeds of collateral under the Existing Senior Credit Facility and Collateral hereunder shall be applied first to satisfy the Obligations, as
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provided herein; and (v) provide that except for Carve-Out Expenses, no costs or expenses of any kind may be assessed against the Existing Senior Lender, the collateral securing the Existing Senior Secured Credit Facility, the Lender, or the Collateral, whether pursuant to Bankruptcy Code sections 105 or 506(c), or otherwise. Final Bankruptcy Court Order Entry Date means the date on which the Final Bankruptcy Court Order shall have been entered by the Bankruptcy Court. Final Facility Effective Date has the meaning specified therefor in Section 3.02. Final Maturity Date means the date which is the earliest of (a) the date which is 30 days following the date of entry of the Interim Bankruptcy Court Order if the Final Bankruptcy Court Order has not been entered by the Bankruptcy Court on or prior to such date, (b) the date that is six (6) months from the date of this Agreement or such later date to which the Lender consents in writing in its sole and absolute discretion, (c) the earlier of the effective date or substantial consummation (as defined in section 1101(2) of the Bankruptcy Code) of a Plan of Reorganization that has been confirmed by an order of the Bankruptcy Court, (d) the date of a sale or liquidation of a significant portion or all or substantially all of the Equity Interests or assets of the Borrower; and (e) such earlier date on which all Loans and other Obligations for the payment of money shall become due and payable in accordance with the terms of this Agreement and the other Loan Documents. Final Period means the period commencing on the Final Facility Effective Date and ending on the Final Maturity Date. Final Order means an order, judgment, or other decree of the Bankruptcy Court that has not been vacated, reversed, modified, amended, or stayed, and for which the time to further appeal or seek review or rehearing has expired with no appeal, review or rehearing having been filed or sought. General Intangibles means and includes all of the Borrowers general intangibles, whether now owned or hereafter acquired, including all payment intangibles, all choses in action, causes of action, corporate or other business records, inventions, designs, patents, patent applications, equipment formulations, manufacturing procedures, quality control procedures, trademarks, trademark applications, service marks, trade secrets, goodwill, copyrights, design rights, software, computer information, source codes, codes, records and updates, registrations, licenses, franchises, customer lists, tax refunds, tax refund claims, computer programs, all claims under guaranties, security interests or other security held by or granted to the Borrower to secure payment of any of the Receivables by a Customer (other than to the extent covered by Receivables) all rights of indemnification and all other intangible property of every kind and nature (other than Receivables). Governmental Body means any nation or government, any United States federal, state, city, town, municipality, county or other political subdivision thereof or thereto and any department, commission, board, bureau, instrumentality, agency or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. 8
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Case 8:12-bk-22808-CB
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Hazardous Material means, without limitation, any flammable explosives, radioactive materials, friable and damaged asbestos, polychlorinated biphenyls, petroleum and petroleum products, methane, hazardous or Toxic Substances or related materials as defined in CERCLA, the Hazardous Materials Transportation Act (49 U.S.C. 5101, et seq., formerly codified at 49 App. U.S.C. 1801 et seq.), RCRA, or any other applicable Environmental Law and in the regulations adopted pursuant thereto. Highest Lawful Rate means, with respect to the Lender, the maximum non-usurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the Obligations under laws applicable to the Lender which are currently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum non-usurious interest rate than applicable laws now allow. Indemnified Matters has the meaning specified therefor in Section 8.14. Indemnitees has the meaning specified therefor in Section 8.14. Interim Bankruptcy Court Order means the order of the Bankruptcy Court with respect to the Borrower, the transactions contemplated under this Agreement, and Borrowers use of Cash Collateral and granting of adequate protection regarding the Liens securing the Existing Senior Secured Credit Facility, substantially in the form of Exhibit B and otherwise in form and substance reasonably satisfactory to the Lender, as the same may be amended, modified or supplemented from time to time with the express written joinder or consent of the Lender and the Borrower, which shall, inter alia, (i) find and conclude that the Loan Documents were negotiated in good faith and that the Lender is entitled to the protections of section 364(e) of the Bankruptcy Code, (ii) order that, during the Interim Period, the Liens and security interests in favor of the Lender referred to in Section 6.01 hereof shall be valid and perfected Liens and security interests in the Collateral, prior to all other Liens and security interests in the Collateral and subject only to Permitted Priority Liens and the payment of Carve-Out Expenses, and (iii) provide to the Existing Senior Lender, as adequate protection in connection with the use of Cash Collateral, the consensual priming of the prepetition Liens and security interests of the Existing Senior Lender hereunder, and any diminution in the value of the collateral securing the Existing Senior Secured Credit Facility, (a) replacement Liens and security interests in the Collateral, junior in each case only to (I) any valid, perfected, enforceable and non-avoidable lien or security interest that is senior to the Liens and security interests in favor of the Existing Senior Lender, as of the Filing Date, (II) the Liens and security interests in the Collateral granted to secure the Obligations hereunder, and (III) Carve-Out Expenses; (b) a superpriority administrative claim under Bankruptcy Code section 507(b), subordinate only to the payment of Carve-Out Expenses and the superpriority administrative claim granted to the Lender in respect of the Obligations hereunder and only payable from proceeds of Avoidance Actions subject to entry of the Final Bankruptcy Court Order; (c) payment of the reasonable costs and expenses of the Existing Senior Lender (including the reasonable professional fees and costs) under the Existing Senior Secured Credit Facility, without the requirement of prior application or approval of the Bankruptcy Court, provided that any disputes regarding such costs and expenses shall be resolved by the Bankruptcy Court following notice and an opportunity for a hearing; and (iv) provide that all
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proceeds of collateral under the Existing Senior Credit Facility, and Collateral hereunder, shall be applied first to satisfy the Obligations, as provided herein. Interim Bankruptcy Court Order Entry Date means the date on which the Interim Bankruptcy Court Order shall have been entered by the Bankruptcy Court. Interim Facility Effective Date has the meaning specified therefor in Section 3.01. Interim Period means the period commencing on the Interim Facility Effective Date and ending on the earlier to occur of (a) the Final Facility Effective Date and (b) the Final Maturity Date. Inventory means and includes as to the Borrower all of the Borrowers now owned or hereafter acquired Vehicles, goods, merchandise and other personal property, wherever located, including Vehicles, goods, merchandise and other personal property furnished under any consignment arrangement, contract of service or held for sale or lease, all raw materials, work in process, finished goods and materials and supplies of any kind, nature or description which are or might be used or consumed in the Borrowers business or used in selling or furnishing such Vehicles, goods, merchandise and other personal property, and all documents of title or other documents representing them. Inventory Loan has the meaning specified therefor in Section 2.01. Investment Property means and includes all of the Borrowers now owned or hereafter acquired securities (whether certificated or uncertificated), securities entitlements, securities accounts, commodities contracts and commodities accounts. Leasehold Interests means all of the Borrowers right, title and interest in and to, and as lessee, in and to any premises or real property leased by the Borrower. Lender has the meaning specified therefor in the preamble hereto. Lender Advances has the meaning specified therefor in Section 2.03. LIBOR means the London Interbank Offered Rate for Dollars for a period of three (3) months as determined from time to time by the Lender. Lien means any mortgage, deed of trust, pledge, hypothecation, assignment, security interest, lien (whether statutory or otherwise), Charge, claim or encumbrance, or preference, priority or other security agreement or preferential arrangement held or asserted in respect of any asset of any kind or nature whatsoever including any conditional sale or other title retention agreement, the interest of any lessor under any contract designated as a lease that would be deemed to be a valid, unavoidable and enforceable security interest under the applicable provisions of the Uniform Commercial Code (including Section 1-203 thereof) and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction (other than precautionary lien filings).
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Loan or Loans means the Inventory Loans, the Advances and any Lender Advances made by the Lender to the Borrower pursuant to Article II hereof. Loan Account means an account maintained hereunder by the Lender on its books of account, and with respect to the Borrower, in which the Borrower will be charged with all Loans made to, and all other Obligations incurred by, the Borrower. Loan Document means this Agreement, any deposit account control agreement, any mortgage, any security agreement, any pledge agreement, the Interim Bankruptcy Court Order, the Final Bankruptcy Court Order and any other agreement, instrument, certificate, report and other document executed and delivered pursuant hereto or thereto or otherwise evidencing or securing any Loan or any other Obligation. Material Adverse Effect means a material adverse effect on any of (a) the operations, business, assets, properties or condition (financial or otherwise) of the Borrower taken as a whole (except for the commencement of the Chapter 11 Case, events contemplated in the Budget (including the orderly wind down of Borrowers automotive business lines (other than Borrowers automotive parts/services business lines) in a manner consistent with the Budget, and events that typically result from the commencement of cases under Chapter 11 of the Bankruptcy Code), (b) the ability of the Borrower to perform any of its obligations under any Loan Document to which it is a party, (c) the legality, validity or enforceability of this Agreement or any other Loan Document, (d) the rights and remedies of the Lender under any Loan Document, or (e) the validity, perfection or priority of a Lien in favor of the Lender on any of the Collateral. Measurement Period means the trailing one-month period ending on the last calendar day of each month. Net Cash Proceeds means, with respect to any Disposition by the Borrower or any of its Subsidiaries, the aggregate amount of cash received (directly or indirectly) from time to time (whether as initial consideration or through the payment or Disposition of deferred consideration) by or on behalf of the Borrower or such Subsidiary, in connection therewith after deducting therefrom only (a) the amount of any Indebtedness secured by any Permitted Encumbrance on any asset (other than Indebtedness assumed by the purchaser of such asset) which is required to be, and is, repaid in connection with such Disposition (other than Indebtedness under this Agreement), (b) reasonable expenses related thereto incurred by the Borrower or such Subsidiary in connection therewith, (c) transfer taxes paid to any taxing authorities by the Borrower or such Subsidiary in connection therewith, and (d) income and franchise taxes to be paid in connection with such Disposition (after taking into account any tax credits or deductions and any tax sharing arrangements); in each case, to the extent, but only to the extent, that the amounts so deducted are (x) actually paid or required to be paid (and reserved for such purpose) and (y) properly attributable to such transaction or to the asset that is the subject thereof. Notice of Borrowing has the meaning specified therefor in Section 2.04. Obligations means all present and future indebtedness, obligations, and liabilities of the Borrower to the Lender arising under or in connection with this Agreement or any other Loan 11
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Document, whether or not the right of payment in respect of such claim is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed, legal, equitable, secured, unsecured, and whether or not such claim is discharged, stayed or otherwise affected by any proceeding referred to in Section 7.01(f). Without limiting the generality of the foregoing, the Obligations of the Borrower under the Loan Documents include (a) the obligation to pay principal of the Inventory Loans, the Advances and the Lender Advances, interest, charges, expenses, fees, attorneys fees and disbursements, indemnities and other amounts payable by the Borrower under the Loan Documents, and (b) the obligation of the Borrower to reimburse any amount in respect of any of the foregoing that the Lender (in its sole discretion) may elect to pay or advance on behalf of the Borrower. Ordinary Course of Business means the business practices established by the Borrower as conducted prior to the Interim Facility Effective Date and as established thereafter from time to time by the Borrower, provided such practices are not inconsistent in any material respect with general industry standards then prevailing with respect to such business practices, and provided, further, that the orderly wind down of Borrowers automotive business lines (other than Borrowers automotive parts/services business lines) in a manner consistent with the Budget shall be deemed to constitute Ordinary Course of Business for purposes of this Agreement. Permitted Encumbrances means: (a) Liens securing the Obligations;
(b) Liens for taxes, assessments and governmental charges as to which payment and enforcement is stayed under the Bankruptcy Code or pursuant to orders of the Bankruptcy Court; (c) deposits or pledges to secure obligations under workers compensation, social security or similar laws, or under unemployment insurance or other forms of governmental insurance or benefits; (d) prepetition retainers for Borrowers professionals;
(e) deposits or pledges to secure bids, tenders, contracts (other than contracts for the payment of money), leases, statutory obligations, surety, performance, stay, customs and appeal bonds and other obligations of like nature arising in the Ordinary Course of Business; (f) Liens imposed by operation of law, such as carriers, warehousemens, landlords, suppliers, mechanics, workers, materialmens or other like Liens arising in the Ordinary Course of Business with respect to obligations which are not due and payable or which are being properly contested in good faith by appropriate measures or proceedings promptly instituted and diligently conducted, or as to which payment and enforcement is stayed under the Bankruptcy Code or pursuant to orders of the Bankruptcy Court; (g) Liens (including purchase money liens and liens arising under capitalized leases) placed upon machinery, equipment or other fixed assets after the Filing Date, to secure all or a portion of the cost of the purchase, acquisition, improvement, installation, design or repair of such fixed assets price thereof or the lease obligations relating thereto (in the case of a capitalized lease), provided that no such lien shall encumber any other property of the Borrower
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(other than the proceeds of such fixed assets) (provided that individual financings of fixed assets provided by one lender or lessor may be cross collateralized to other outstanding financings of fixed assets provided by such lender or lessor); (h) Liens existing on the Filing Date, as described on Schedule 1.01(h) (other than the Liens described in clause (q) below), but not the extension of coverage thereof to other property or the extension of maturity, refinancing or other modification of the terms thereof or the increase of the Indebtedness secured thereby; (i) all easements, covenants, encroachments, protrusions, licenses, public or private roads, conditions, restrictions, rights of way, reservations of, or rights of others, encumbrances and other similar matters, improvements and structures located on, over or under any Real Property that are disclosed in policies of title insurance accepted by the Lender, and all other similar matters or minor defects or irregularities affecting title, or any state of facts that an accurate survey would disclose, in each case which do not interfere in any material respect with the Ordinary Course of Business or have a Material Adverse Effect on the value of such Real Property; (j) any zoning or similar law or right reserved to or vested in any Governmental Body, or any Lien resulting from any exercise or enforcement thereof, in each case which do not interfere in any material respect with the Ordinary Course of Business or have a Material Adverse Effect on the value of such Real Property; (k) any interest or title of a lessor under any lease or sublease (other than a capital lease or any other lease that would be deemed to be a security interest under the applicable provisions of the Uniform Commercial Code (including Division 1-203 thereof)) and nonexclusive licensors under license agreements entered into by the Borrower or any of its Subsidiaries as permitted under this Agreement or in the Ordinary Course of Business and any financing statement filed in connection with any such lease or sublease; (l) Liens on collateral comprised of cash securing the obligations of the Borrower in connection with any non-speculative interest rate hedges, foreign currency exchange agreements, currency swap agreements, commodity price protection agreements and other interest or currency exchange rate or commodity price hedging arrangements, in each case entered into for hedging and not for speculative purposes; (m) judgment Liens arising solely as a result of the existence of judgments, orders, or awards that do not constitute an Event of Default under this Agreement; (n) Liens that are replacements of Permitted Encumbrances, so long as the principal amount of the indebtedness secured by such Lien is not increased as a result of such renewal and the Lien does not extend to any property or assets not originally subject to such Lien; (o) rights of setoff or bankers liens upon deposits of cash in favor of banks or other depository institutions, solely to the extent incurred in connection with the maintenance of such deposit accounts in the Ordinary Course of Business;
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(p) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; and (q) Liens securing the indebtedness outstanding pursuant to the Existing Senior Secured Credit Facility; provided that, all such Liens are junior and subordinate in all respects to the Liens securing the Obligations with respect to all Collateral pursuant to the Bankruptcy Court Orders. Permitted Priority Liens means valid, perfected and non-avoidable Permitted Encumbrances (a) existing on the Filing Date that are senior to the Liens securing the Existing Senior Secured Credit Facility by operation of law and (b) arising after the Filing Date but only to the extent such Permitted Encumbrances would be senior to the Liens granted to the Lender pursuant to this Agreement and the Bankruptcy Court Orders; provided, for the avoidance of doubt, that the Liens in clause (q) of the definition of Permitted Encumbrances shall not be Permitted Priority Liens. Person means any individual, sole proprietorship, partnership, corporation, business trust, joint stock company, trust, unincorporated organization, association, limited liability company, limited liability partnership, institution, public benefit corporation, joint venture, entity or Governmental Body (whether federal, state, county, city, municipal or otherwise, including any instrumentality, division, agency, body or department thereof). Plan of Reorganization means a plan of reorganization in the Chapter 11 Case. Plan/Sale Milestones means the following milestones with respect to a Plan of Reorganization and/or the sale of all or substantially all of the Borrowers assets or Equity Interests pursuant to a duly-noticed motion, in each case, in form and substance and in a manner reasonably satisfactory to the Lender: (a) filing of a Plan of Reorganization, a Disclosure Statement and a motion to approve the Stalking Horse APA no later than three (3) Business Days after the Filing Date; (b) entry of an order approving bidding procedures in connection with the Stalking Horse APA by no later than December 5, 2012; (c) subject to entry of the Final Bankruptcy Court Order, entry of an order approving the Disclosure Statement by no later than December 21, 2012; (d) subject to entry of the Final Bankruptcy Court Order, entry of a Final Order either (i) confirming the Plan of Reorganization or (ii) approving the sale (either, the Approval Order) by no later than February 28, 2013; and (e) (e) subject to entry of the Final Bankruptcy Court Order, consummation of the Plan of Reorganization or closing of the sale no later than March 29, 2013. Post-Default Rate means a rate of interest per annum equal to the interest rate then in effect plus 2%.
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Pre-Petition Obligations means all indebtedness, obligations (including obligations in respect of any letters of credit) and liabilities of the Borrower incurred prior to the Filing Date plus fees, expenses, and indemnities due thereunder and interest thereon accruing both before and after the Filing Date to the extent allowable under the Bankruptcy Code, whether such indebtedness, obligations or liabilities are direct or indirect, joint or several, absolute or contingent, due or to become due, whether for payment or performance, now existing or hereafter arising. RCRA has the meaning specified therefor in the definition of Environmental Laws. Real Property means all of the Borrowers right, title and interest (whether an interest in fee simple, a Leasehold Interest or any other interest of any kind whatsoever) in and to any premises or real property that are hereafter owned or leased by the Borrower. Receivables means and includes all of the Borrowers accounts, contract rights, instruments, documents, chattel paper (including electronic chattel paper), general intangibles relating to accounts, drafts and acceptances, credit card receivables and all other forms of obligations owing to the Borrower arising out of or in connection with the sale or lease of Inventory or the rendition of services, all supporting obligations, guarantees and other security therefor, whether secured or unsecured, now existing or hereafter created, and whether or not specifically sold or assigned to the Lender hereunder. Release means any spilling, leaking, pumping, emitting, emptying, discharging, injecting, escaping, leaching, migrating, dumping, or disposing of Hazardous Materials into the environment. Remittance Due Date has the meaning specified therefor in Section 2.01. Remittance Request means, with respect to any Vehicles, the invoice issued by the Lender for such Vehicles. Remittance Request Period means, with respect to any Remittance Request, the period of time covered by such Remittance Request. Stalking Horse APA means that certain Asset Purchase Agreement, dated as of November 6, 2012, by and between the Borrower and NounCo, Inc. Subsidiary means, with respect to any Person, a corporation or other entity of whose Equity Interests having ordinary voting power (other than Equity Interests having such power only by reason of the happening of a contingency) to elect a majority of the directors of such corporation, or other Persons performing similar functions for such entity, are owned, directly or indirectly, by such Person. Subsidiary Stock means all of the issued and outstanding Equity Interests of any Subsidiary owned directly by the Borrower (not to exceed 65% of the voting Equity Interests of any Excluded Subsidiary).
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Toxic Substance means and include any material present on the Real Property or the Leasehold Interests which has been shown to have significant adverse effect on human health or which is subject to regulation under the Toxic Substances Control Act (TSCA), 15 U.S.C. 2601 et seq., applicable state law, or any other applicable Federal or state laws now in force or hereafter enacted relating to toxic substances. Toxic Substance includes but is not limited to asbestos, polychlorinated biphenyls (PCBs) and lead-based paints. Uniform Commercial Code has the meaning specified therefor in Section 1.03. Vehicles means all motor vehicles, motorcycles and outboard motors, and all replacement parts and accessories for any of the foregoing, held or acquired by the Borrower for the purpose of selling or leasing such vehicles. Variance has the meaning specified therefor in Section 5.03. Section 1.02 Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words include, includes and including shall be deemed to be followed by the phrase without limitation. The word will shall be construed to have the same meaning and effect as the word shall. Unless the context requires otherwise, (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Persons successors and assigns, (c) the words herein, hereof and hereunder, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words asset and property shall be construed to have the same meaning and effect and to refer to any right or interest in or to assets and properties of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible. References in this Agreement to determination by the Lender include good faith estimates by the Lender (in the case of quantitative determinations) and good faith beliefs by the Lender (in the case of qualitative determinations). Section 1.03 Uniform Commercial Code Terms. Terms used herein and defined in the Uniform Commercial Code as adopted in the State of California from time to time (the Uniform Commercial Code) shall have the meaning given therein unless otherwise defined herein. Without limiting the foregoing, unless otherwise defined in this Agreement, the terms accounts, chattel paper, commercial tort claims, instruments, general intangibles, goods, payment intangibles, proceeds, supporting obligations, securities, investment property, documents, deposit accounts, software, letter of credit rights, inventory, equipment and fixtures, as and when used in the description of Collateral shall have the meanings given to such terms in Divisions 8 or 9 of the Uniform Commercial Code. To the extent the definition of any category or type of collateral is expanded by any amendment,
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modification or revision to the Uniform Commercial Code, such expanded definition will apply automatically as of the date of such amendment, modification or revision. Section 1.04 Time References. Unless otherwise indicated herein, all references to time of day refer to Pacific Standard Time or Pacific daylight saving time, as in effect in Los Angeles, California on such day. For purposes of the computation of a period of time from a specified date to a later specified date, the word from means from and including and the words to and until each means to but excluding; provided, however, that with respect to a computation of fees or interest payable to the Lender, such period shall in any event consist of at least one full day. ARTICLE II THE OBLIGATIONS Section 2.01 Inventory Loans. From time to time following the Interim Facility Effective Date, pursuant to the applicable Distributorship Agreement, the Lender may ship Vehicles to the Borrower to be held and disposed of by the Borrower as Inventory. To the extent that the Borrower does not pay the purchase price for such Vehicles to the Lender upon or prior to shipment thereof in accordance with the applicable Distributorship Agreement, the Lender shall be deemed to have made a loan under this Agreement to the Borrower in an amount equal to the purchase price for such Vehicles (the Inventory Loans); provided, that, prior to the Final Facility Effective Date, the aggregate principal amount of Inventory Loans outstanding shall not exceed $30,000,000; provided, further, that on and after the Final Facility Effective Date, the aggregate principal amount of Inventory Loans outstanding at any time shall not exceed $50,000,000. For the avoidance of doubt, (i) the term ship or shipment means the moment a Vehicle departs from the port of origin and (ii) any amounts owing by the Borrower to the Lender under the applicable Distributorship Agreement prior to the Interim Facility Effective Date on account of Vehicles shipped by the Lender to the Borrower shall not be Inventory Loans for purposes of this Agreement. As and to the extent that the Borrower makes payment for Vehicles in accordance with the applicable Distributorship Agreement, the principal amount of such Inventory Loan corresponding to such Vehicles shall be deemed to be repaid. Notwithstanding anything in any Distributorship Agreement to the contrary, payment for Vehicles shall be made in full by the Borrower promptly, but in any event no later than the end of the month of the applicable Remittance Request Period, if the applicable Remittance Request Period is between the first day and the 15th day of a month, and no later than the 15th day of the following month if the applicable Remittance Request Period is between the 16th day and the final day of a month (the Remittance Due Date). Following the Interim Facility Effective Date, the Borrower and the Lender may enter into mutually acceptable documentation reflecting such payment terms. Section 2.02 Advances. The Lender agrees that it shall from time to time make Advances (the Advances) to the Borrower on the terms set forth in this Agreement; provided, that prior to the Final Facility Effective Date, the aggregate principal amount of Advances outstanding at any time shall not exceed $15,000,000; provided, further, that on and after the Final Facility Effective Date, the aggregate principal amount of Advances outstanding at any time shall not exceed $50,000,000.
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Section 2.03 Lender Advances. The Lender may from time to time make such disbursements and advances (the Lender Advances) which the Lender, in its sole discretion, deems necessary or desirable to preserve, protect, prepare for sale or lease or dispose of the Collateral or any portion thereof, to enhance the likelihood or maximize the amount of repayment by the Borrower of the Loans and other Obligations or to pay any other amount chargeable to the Borrower pursuant to the terms of this Agreement, including, without limitation, costs, fees and expenses as described in Section 8.04. The Lender Advances shall be repayable on demand and be secured by the Collateral and shall bear interest at a rate per annum equal to the rate then applicable to the Loans. The Lender Advances shall constitute Obligations hereunder which may be charged to the Loan Account in accordance with Section 2.08. The Lender shall notify the Borrower in writing of each such Lender Advance, which notice shall include a description of the purpose of such the Lender Advance. Section 2.04 Making the Advances. (a) The Borrower shall give the Lender written notice, in substantially the form of Exhibit A hereto (a Notice of Borrowing), not later than 12:00 noon on the date which is three (3) Business Days prior to the date of the proposed Advance (or shorter period as the Lender is willing to accommodate from time to time). Such Notice of Borrowing shall be irrevocable and shall specify (i) the principal amount of the proposed Advance, (ii) the proposed borrowing date, which must be a Business Day and (iii) whether the Advance is to be funded to the Borrower or to a third party at the Borrowers request. (b) Following the occurrence and during the continuation of a Default or an Event of Default, any Notice of Borrowing shall be funded only if and to the extent that the Lender consents to such Notice of Borrowing in its sole and absolute discretion. Section 2.05 Repayment of Loans; Prepayments. (a) Repayment. The outstanding principal of the Loans shall be due and payable on the Final Maturity Date. (b) Mandatory Prepayment.
(i) If, prior to the Final Facility Effective Date, the aggregate principal amount of all Inventory Loans exceeds the amount set forth in Section 2.01, the Borrower shall immediately prepay the Inventory Loans to the full extent of any such excess. (ii) If, at any time, the aggregate principal amount of all Advances exceeds the applicable amount set forth in Section 2.02, the Borrower shall immediately prepay the Advances to the full extent of any such excess. (iii) Immediately upon any Disposition by the Borrower or any of its Subsidiaries (other than sales of Inventory in the Ordinary Course of Business), the Borrower shall prepay the outstanding principal amount of the Loans in accordance with clause (c) below in an amount equal to 100% of the Net Cash Proceeds received by such Person in connection with such Disposition in excess of $50,000. Nothing contained in this subsection (iii) shall
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permit the Borrower or any of its Subsidiaries to make a Disposition of any property other than in accordance with Section 6.05. (iv) Upon the receipt by the Borrower or any of its Subsidiaries of any Extraordinary Receipts, the Borrower shall prepay the outstanding principal of the Loans in accordance with clause (c) below in an amount equal to 100% of the amount of such Extraordinary Receipts in excess of $1,000,000, net of any reasonable expenses incurred in collecting such Extraordinary Receipts and any taxes paid or required to be paid (and reserved for such purpose) in connection with such Extraordinary Receipts. (c) Application of Payments. Each prepayment pursuant to subsections (b)(iii) and (b)(iv) above shall be applied (i) first, to pay principal of the Lender Advances until paid in full, (ii) second, to pay principal in respect of the Inventory Loans until paid in full and (iii) third, to pay principal in respect of the Advances until paid in full. (d) Interest. Any prepayment made pursuant to this Section 2.05 (other than prepayments made pursuant to subsections (b)(i) and (ii) of this Section 2.05) shall be accompanied by accrued interest on the principal amount being prepaid to the date of prepayment. (e) Cumulative Prepayments. Except as otherwise expressly provided in this Section 2.05, payments with respect to any subsection of this Section 2.05 are in addition to payments made or required to be made under any other subsection of this Section 2.05. Section 2.06 Interest. (a) Loans. Subject to the terms of this Agreement, the Advances and Lender Advances shall bear interest on the principal amount thereof from time to time outstanding, from the date each such Advance or Lender Advance is made until repaid, at a rate per annum equal to LIBOR plus three percent (3%). Interest shall be calculated on each Advance and Lender Advance quarterly, on and as of the last day of such quarter; provided, that, to the extent Advances and Lender Advances are made during a quarter, interest shall be calculated for the period from the date such Advance or Lender Advance is made until the last day of such quarter; provided, further, that, to the extent Advances or Lender Advances are repaid during a quarter, interest shall be calculated for the period from the first day of such quarter until the date such Advance or Lender Advance is repaid. To the extent that any Loan is deemed paid hereunder, the interest accruing on such Loan shall remain an Obligation owing under this Agreement until such interest is paid. The Inventory Loans shall not bear interest if paid by the Remittance Due Date, and if not paid by such Remittance Due Date, such past due Inventory Loans shall bear interest on the principal amount thereof, from the first day following the applicable Remittance Due Date until repaid, at a rate per annum equal to LIBOR plus three percent (3%). Interest on such past due Inventory Loans shall be calculated and paid in the same manner as interest on Advances and Lender Advances. (b) Default Interest. To the extent permitted by law and notwithstanding anything to the contrary in this Section, upon the occurrence and during the continuance of an Event of Default, the principal of, and all accrued and unpaid interest on, all Advances, fees, indemnities, or any other Obligations of the Borrower under this Agreement and the other Loan 19
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Documents, shall bear interest, from the date such Event of Default occurred until the date such Event of Default is waived in writing in accordance herewith, at a rate per annum equal at all times to the Post-Default Rate. All interest at the Post-Default Rate shall be paid in cash. (c) Interest Payment. Interest on the Advances shall be payable quarterly in cash, in arrears, on the last day of each quarter, commencing on the last day of the first quarter following the Interim Facility Effective Date and at maturity (whether upon demand, by acceleration or otherwise). Interest at the Post-Default Rate shall be payable on demand. (d) General. All interest shall be computed on the basis of a year of three hundred sixty (360) days for the actual number of days, including the first day but excluding the last day, elapsed. Section 2.07 Prepayment of Loans. (a) Partial Prepayment. The Borrower may, at any time and from time to time, upon at least five (5) Business Days prior written notice to the Lender, prepay without penalty or premium the principal of the Loans, in part. Each prepayment made pursuant to this clause (a) shall be accompanied by the payment of accrued interest to the date of such payment on the amount prepaid. Any amounts prepaid by Borrower may be re-borrowed subject to the terms and conditions of this Agreement. (b) Prepayment In Full. The Borrower may, upon at least five (5) Business Days prior written notice to the Lender, terminate this Agreement by paying to the Lender, in cash, the Obligations, in full. If the Borrower has sent a notice of termination pursuant to this clause (b), then the Lenders obligations to extend credit hereunder shall terminate and the Borrower shall be obligated to repay the Obligations, in full, on the date set forth as the date of termination of this Agreement in such notice. (c) Interest and Fees. Any prepayment made pursuant to this Section 2.07 shall be accompanied by accrued interest on the principal amount being prepaid to the date of prepayment. Section 2.08 Payments. The Borrower will make each payment under this Agreement not later than 12:00 noon on the day when due, in Dollars and in immediately available funds, to the account specified by the Lender for such payment. All payments received by the Lender after 12:00 noon on any Business Day will be credited to the Loan Account on the next succeeding Business Day. All payments shall be made by the Borrower without set-off, counterclaim, deduction or other defense to the Lender. The Borrower hereby authorizes the Lender to, and the Lender may, from time to time, charge the Loan Account of the Borrower with any amount due and payable by the Borrower under any Loan Document. The Borrower agrees that the Lender shall have the right to make such charges whether or not any Default or Event of Default shall have occurred and be continuing. Any amount charged to the Loan Account of the Borrower shall be deemed an Advance hereunder made by the Lender to the Borrower. The Borrower confirms that any charges which the Lender may so make to the Loan Account of the Borrower as herein provided will be made as an accommodation to the Borrower and solely at the Lenders discretion. Whenever any payment to be made under any such Loan 20
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Document shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall in such case be included in the computation of interest or fees, as the case may be. Each determination by the Lender of an interest rate hereunder shall be conclusive and binding for all purposes in the absence of manifest error. Section 2.09 Denomination of Loans. All Loans made or deemed made under this Agreement shall be denominated in Dollars. ARTICLE III CONDITIONS TO EFFECTIVENESS Section 3.01 Conditions Precedent to Interim Facility Effectiveness. This Agreement shall become effective as of the Business Day (the Interim Facility Effective Date) when each of the following conditions precedent shall have been satisfied or waived in a manner satisfactory to the Lender in its sole and absolute discretion: (a) Interim Bankruptcy Court Order. The Interim Bankruptcy Court Order shall have been entered by the Bankruptcy Court on or before the third (3rd) Business Day following the Filing Date, and the Lender shall have received a true and complete copy of such order, and such order shall be in full force and effect and shall not have been reversed, modified, amended, stayed or vacated, absent prior written consent of the Lender and the Borrower. (b) Payment of Fees, Etc. The Borrower shall have paid on or before the Interim Facility Effective Date all fees, costs, expenses and taxes then due and payable pursuant to Section 8.04. (c) Representations and Warranties; No Event of Default. The following statements shall be true and correct: (i) the representations and warranties contained in Article IV and in each other Loan Document, certificate or other writing delivered to the Lender pursuant hereto or thereto on or prior to the Interim Facility Effective Date are true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations or warranties that already are qualified or modified as to materiality or Material Adverse Effect in the text thereof, which representations and warranties shall be true and correct in all respects subject to such qualification) on and as of the Interim Facility Effective Date as though made on and as of such date, except to the extent that any such representation or warranty expressly relates solely to an earlier date (in which case such representation or warranty shall be true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations or warranties that already are qualified or modified as to materiality or Material Adverse Effect in the text thereof, which representations and warranties shall be true and correct in all respects subject to such qualification) on and as of such earlier date) and (ii) no Default or Event of Default shall have occurred and be continuing on the Interim Facility Effective Date or would result from the making of Loans on such date. (d) Loan Documents. The Lender shall have received the executed Loan Documents, all in form and substance satisfactory to the Lender.
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(e) Proceedings of the Borrower. The Lender shall have received a copy of the resolutions in form and substance reasonably satisfactory to the Lender, of the board of directors of the Borrower authorizing (i) the execution, delivery and performance of this Agreement, and all other Loan Documents and (ii) the granting by the Borrower of the security interests in and liens upon the Collateral in each case certified by the senior officer of the Borrower as of the Interim Facility Effective Date; and, such certificate shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded as of the date of such certificate. (f) Good Standing Certificates. The Lender shall have received a good standing certificate for the Borrower dated not more than 30 days prior to the Interim Facility Effective Date, issued by the Secretary of State of the State of California. (g) No Litigation. No claim, investigation, injunction, writ, restraining order or other order of any nature that restrains or prevents the consummation of the transactions contemplated hereby shall exist or have been issued by any Governmental Body that could, in the aggregate, have a Material Adverse Effect on the Borrower or the transactions contemplated hereby and by the Stalking Horse APA. (h) Budget. The Lender shall have received a copy of the Budget, together with a certificate of an officer of the Borrower stating that such Budget has been prepared on a reasonable basis and in good faith and is based on assumptions believed by the Borrower to be reasonable at the time made and from the best information then available to the Borrower, which Budget shall be in form and substance satisfactory to the Lender in its sole and absolute discretion. (i) Priority. The Lender shall be reasonably satisfied that it has been granted, and holds, a perfected, first priority Lien on, and security interest in, all of the Collateral, subject only to Permitted Priority Liens and the payment of Carve-Out Expenses. (j) First Day Motions and Orders. The Lender shall have received on or before the Filing Date, copies of the first day motions to be filed by the Borrower with the Bankruptcy Court in the Chapter 11 Case, each of which shall be in form and substance reasonably satisfactory to the Lender, and the orders of the Bankruptcy Court approving such motions shall have been entered by the Bankruptcy Court on or before the third (3rd) Business Day after the Filing Date. (k) Commencement of Chapter 11 Case. The Borrower shall have commenced the Chapter 11 Case and no trustee, examiner with enlarged powers (beyond those set forth in section 1106(a)(3) and (4) of the Bankruptcy Code) or receiver shall have been appointed or designated with respect to the Borrowers business, properties or assets and no motion shall be pending seeking any relief or seeking any other relief in the Bankruptcy Court to exercise control over any Collateral with an aggregate value in excess of $100,000. Section 3.02 Conditions Precedent to Final Facility Effectiveness. The obligation of the Lender to make any Loan during the Final Period shall commence as of the Business Day (the Final Facility Effective Date) when each of the following conditions precedent shall have been satisfied or waived in a manner satisfactory to the Lender in its sole and absolute discretion: 22
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(a) Final Bankruptcy Court Order, Etc. The Final Bankruptcy Court Order shall have been signed and entered by the Bankruptcy Court on a date that is within thirty (30) days following the date of the entry of the Interim Facility Bankruptcy Court Order, and the Lender shall have received a true and complete copy of such order, and such order shall be in full force and effect and shall not have been reversed, modified, amended, stayed, or vacated, absent the prior written consent of the Lender and the Borrower. (b) Payment of Fees, Etc. The Borrower shall have paid on or before such date all fees, costs, expenses and taxes then due and payable pursuant to Section 8.04. (c) Representations and Warranties; No Event of Default. The following statements shall be true and correct: (i) the representations and warranties contained in Article IV and in each other Loan Document, certificate or other writing delivered to the Lender pursuant hereto or thereto on or prior to the Final Facility Effective Date are true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations or warranties that already are qualified or modified as to materiality or Material Adverse Effect in the text thereof, which representations and warranties shall be true and correct in all respects subject to such qualification) on and as of the Final Facility Effective Date as though made on and as of such date, except to the extent that any such representation or warranty expressly relates solely to an earlier date (in which case such representation or warranty shall be true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations or warranties that already are qualified or modified as to materiality or Material Adverse Effect in the text thereof, which representations and warranties shall be true and correct in all respects subject to such qualification) on and as of such earlier date) and (ii) no Default or Event of Default shall have occurred and be continuing on the Final Facility Effective Date or would result from the making of Loans on such date. (d) Liens; Priority. The Lender shall be reasonably satisfied that it has been granted, and still continues to hold, a perfected, first priority Lien on and security interest in all of the Collateral, subject only to Permitted Priority Liens and the payment of Carve-Out Expenses. (e) No Litigation. No claim, investigation, injunction, writ, restraining order or other order of any nature that restrains or prevents the consummation of the transactions contemplated hereby shall exist or have been issued by any Governmental Body that could, in the aggregate, have a Material Adverse Effect on the Borrower or the transactions contemplated hereby and by the Stalking Horse APA. Section 3.03 Conditions Precedent to All Loans. The obligation of the Lender to make any Loan after the Interim Facility Effective Date is subject to the fulfillment or waiver, in a manner satisfactory to the Lender, of each of the following conditions precedent: (a) Payment of Fees, Etc. The Borrower shall have paid all fees, costs, expenses and taxes then due and payable pursuant to this Agreement and the other Loan Documents, including, without limitation, Section 8.04. (b) Representations and Warranties; No Event of Default. The following statements shall be true and correct, and the submission by the Borrower to the Lender of a Notice 23
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of Borrowing with respect to each such Loan, and the Borrowers acceptance of the proceeds of any Loan, shall each be deemed to be a representation and warranty by the Borrower on the date of such Loan that: (i) the representations and warranties contained in Article IV and in each other Loan Document, certificate or other writing delivered to the Lender pursuant hereto or thereto on or prior to the date of such Loan are true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations or warranties that already are qualified or modified as to materiality or Material Adverse Effect in the text thereof, which representations and warranties shall be true and correct in all respects subject to such qualification) on and as of the date of such Loan as though made on and as of such date, except to the extent that any such representation or warranty expressly relates solely to an earlier date (in which case such representation or warranty shall be true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations or warranties that already are qualified or modified as to materiality or Material Adverse Effect in the text thereof, which representations and warranties shall be true and correct in all respects subject to such qualification) on and as of such earlier date), (ii) no Default or Event of Default shall have occurred and be continuing on the date of such Loan or would result from the making of Loans on such date and (iii) the conditions set forth in this Section 3.03 have been satisfied as of the date of such request. (c) Legality. The making of such Loan shall not contravene any law, rule or regulation applicable to the Lender. (d) Notices. The Lender shall have received a Notice of Borrowing pursuant to Section 2.04 hereof. (e) Delivery of Documents. The Lender shall have received such other agreements, instruments, approvals and other documents, each in form and substance satisfactory to the Lender, as the Lender may reasonably request. (f) Proceedings; Receipt of Documents. All proceedings in connection with the making of such Loan and the other transactions contemplated by this Agreement and the other Loan Documents, and all documents incidental hereto and thereto, shall be reasonably satisfactory to the Lender and its counsel, and the Lender and such counsel shall have received all such information and such counterpart originals or certified or other copies of such documents, in form and substance satisfactory to the Lender, as the Lender or such counsel may reasonably request. ARTICLE IV REPRESENTATIONS AND WARRANTIES Section 4.01 Representations and Warranties. The Borrower hereby represents and warrants to the Lender as follows: (a) Authority. Subject to the entry and the terms of the Bankruptcy Court Orders, the Borrower has full power, authority and legal right to enter into this Agreement and the other Loan Documents and to perform all of its obligations hereunder and thereunder. Subject to the entry and the terms of the Bankruptcy Court Orders, this Agreement and the other Loan Documents have been duly executed and delivered by the Borrower, and this Agreement and the 24
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other Loan Documents constitute the legal, valid and binding obligation of the Borrower enforceable in accordance with their terms. Subject to the entry and the terms of the Bankruptcy Court Orders, the execution, delivery and performance of this Agreement and of the other Loan Documents (a) are within the Borrowers corporate powers, have been duly authorized by all necessary company action, are not in contravention of law or the terms of the Borrowers certificate of incorporation or bylaws, or other applicable documents relating to the Borrowers formation, (b) will not conflict in any material respect with or violate any law or regulation, or any judgment, order or decree of any Governmental Body (other than conflicts, breaches and defaults, the enforcement of which will be stayed by virtue of the filing of the Chapter 11 Case) and (c) will not require the Consent of any Governmental Body. (b) Formation and Qualification.
(i) The Borrower is duly formed and in good standing under the laws of the State of California and is qualified to do business and is in good standing in all states in which qualification and good standing are necessary for the Borrower to conduct its business and own its property and where the failure to so qualify could reasonably be expected to have a Material Adverse Effect on the Borrower. The Borrower has delivered to the Lender true and complete copies of its certificate of incorporation and bylaws as in effect on the Filing Date and will promptly notify the Lender of any amendment or changes thereto. (ii) The only Subsidiaries of the Borrower as of the Filing Date are listed on Schedule 4.01(b)(ii). (c) Survival of Representations and Warranties. All representations and warranties of the Borrower contained in this Agreement and the other Loan Documents shall be true in all material respects at the time of the Borrowers execution of this Agreement and the other Loan Documents, and shall survive the execution, delivery and acceptance thereof by the parties thereto and the closing of the transactions described therein or related thereto. (d) Commercial Tort Claims. As of the Filing Date, the Borrower is not a plaintiff with respect to any commercial tort claims exceeding $50,000 (either individually or in the aggregate), except as set forth on Schedule 4.01(d) hereto. (e) Use of Proceeds. The proceeds of the Loans and Cash Collateral shall be used in accordance with the Budget (within the variances from budgeted amounts permitted under this Agreement) (i) for working capital and general corporate purposes of the Borrower and its subsidiaries and (ii) to pay reasonable fees and expenses related to this Agreement and the Chapter 11 Case; provided, that amounts set forth in any line item in the Budget may not be utilized for any other line item in the Budget. None of the proceeds of the Loans or Cash Collateral may be used to challenge, as opposed to investigate, the validity, allowability, perfection, priority, extent or enforceability of the Existing Senior Loan Documents, or the liens or security interests securing the obligations under the Existing Senior Loan Documents or to pursue any causes of action of any kind against the Lender or the Existing Senior Lender in any capacity. No more than $25,000 of any proceeds or Cash Collateral shall be used by counsel to the Committee to investigate the validity, allowability, perfection, priority, extent or enforceability of the Existing Senior Loan Documents or the liens or security interests securing
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the obligations under the Existing Senior Loan Documents or any causes of action of any kind against the Lender or the Existing Senior Lender in any capacity. (f) Administrative Priority; Lien Priority.
(i) After the Interim Bankruptcy Court Order Entry Date or the Final Bankruptcy Court Order Entry Date, as the case may be, the Obligations of the Borrower will constitute allowed administrative expenses in the Chapter 11 Case, having priority in payment over all other administrative expenses and unsecured claims against the Borrower now existing or hereafter arising, of any kind or nature whatsoever, including, without limitation, all administrative expenses of the kind specified in, or arising or ordered under, sections 105, 326, 328, 330, 331, 503(b), 506(c), 507(a), 507(b), 546(c), 726 and 1114 of the Bankruptcy Code, subject only to the payment of Carve-Out Expenses. (ii) Upon entry of the Interim Bankruptcy Court Order or the Final Bankruptcy Court Order, as the case may be, the Liens and security interests of the Lender on the Collateral referred to in Section 6.01 hereof shall be valid and perfected first priority Liens, subject only to Permitted Priority Liens and the payment of Carve-Out Expenses. (iii) On and after the Interim Bankruptcy Court Order Entry Date and prior to the Final Bankruptcy Court Order Entry Date, the Interim Bankruptcy Court Order is in full force and effect, and has not been reversed, modified, amended, stayed or vacated, absent the written consent of the Lender and the Borrower, and on and after the Final Bankruptcy Court Order Entry Date, the Final Bankruptcy Court Order is in full force and effect, and has not been reversed, modified, amended, stayed or vacated absent the written consent of the Lender and the Borrower. (g) Appointment of Trustee or Examiner; Liquidation. No order has been entered in the Chapter 11 Case (i) for the appointment of a Chapter 11 trustee, (ii) for the appointment of an examiner with enlarged powers (beyond those set forth in sections 1106(a)(3) and (4) of the Bankruptcy Code) under section 1106(b) of the Bankruptcy Code or (iii) to convert the Chapter 11 Case to a Chapter 7 case or to dismiss the Chapter 11 Case. ARTICLE V COVENANTS OF THE BORROWER Section 5.01 Affirmative Covenants. So long as any principal of or interest on any Loan or any other Obligation (whether or not due) shall remain unpaid, the Borrower will, unless the Lender shall otherwise consent in writing: (a) Reporting Requirements. Furnish to the Lender:
(i) not later than 5:00 p.m. Pacific time on the 20th day of each month, an updated Budget for the next succeeding one-month period, supplementing and superseding the Budget previously delivered, prepared in form and substance reasonably satisfactory to the Lender (provided that any modifications to the Budget concerning professional fees and expenses shall be satisfactory to the Lender in its sole and absolute discretion) showing actual performance from projected performance and any variances of actual performance (in each case,
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against the immediately-preceding Budget), which updated Budget, when delivered and as so updated, shall be (1) consistent with the Budget delivered to the Lender on or prior to the Interim Facility Effective Date, (2) believed by the Borrower at the time furnished to be reasonable, (3) prepared on a reasonable basis and in good faith, and (4) based on assumptions believed by the Borrower to be reasonable at the time made and upon the best information then reasonably available to the Borrower, and shall be accompanied by a certificate of an Authorized Officer of the Borrower certifying as to the matters set forth in subclauses (1), (2), (3) and (4) above; (ii) simultaneously with the delivery of the Budget required by Section 5.01(a)(i), but only if any Loans are outstanding as of the date such Budget is required to be delivered, a certificate showing the calculation of the financial covenant specified in Section 5.03; and (iii) promptly after the filing thereof and to the extent the same is not publicly available on the Bankruptcy Courts electronic docket, copies of all pleadings, motions, applications, financial information and other papers and documents filed by the Borrower in the Chapter 11 Case, which papers and documents shall also be given or served on the Borrowers counsel. (b) Use of Proceeds. Use the proceeds of the Loans in accordance with Section 4.01(e) and subject to the terms, conditions and limitations of this Agreement and the Bankruptcy Court Orders. (c) Plan/Sale Milestones. The Borrower shall comply with and achieve the Plan/Sale Milestones. Section 5.02 Negative Covenants. So long as any principal of or interest on any Loan or any other Obligation (whether or not due) shall remain unpaid, the Borrower shall not, unless the Lender shall otherwise consent in writing: (a) of Claims. (i) At any time, seek, consent to or suffer to exist any reversal, modification, amendment, stay or vacation of any of the Bankruptcy Court Orders, except for modifications and amendments agreed to by the Lender. (ii) At any time, suffer to exist a priority for any administrative expense or unsecured claim against the Borrower (now existing or hereafter arising of any kind or nature whatsoever), including without limitation any administrative expense of the kind specified in, or arising or ordered under, sections 105, 326, 328, 330, 331, 503(b), 506(c), 507(a), 507(b), 546(c) 726 or 1114 of the Bankruptcy Code equal or superior to the priority of the Lender in respect of the Obligations, except for Carve-Out Expenses. (iii) At any time, suffer to exist any Lien on the Collateral having a priority equal or superior to the Lien in favor of the Lender in respect of the Collateral, except for Permitted Priority Liens and the payment of Carve-Out Expenses. Bankruptcy Court Orders; Administrative Priority; Lien Priority; Payment
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(iv) Prior to the date on which the Obligations have been paid in full in cash, pay any administrative expense claims except (A) Carve-Out Expenses, (B) Obligations due and payable hereunder, and (C) other administrative expense and professional claims incurred in the business of the Borrower or the Chapter 11 Case, in each case, to the extent provided in the Budget and having the order of priority set forth in the definition of the term Agreed Administrative Expense Priorities. (b) Limitation on Payments of Certain Prepetition Obligations. Make any payment or prepayment on or redemption or acquisition for value (including, without limitation, by way of depositing with any trustee with respect thereto money or securities before due for the purpose of paying when due) of any Pre-Petition Obligations of the Borrower, in each case, incurred prior to the Filing Date unless such payment, prepayment or redemption or acquisition for value is (A) consistent with the Budget and (B) approved by the Bankruptcy Court. In addition, the Borrower shall not permit any of its Subsidiaries to make any payment, redemption or acquisition which the Borrower is prohibited from making under the provisions of this Section 5.02(b). (c) Compliance with Budget. (i) Except with respect to payments to the Lenders professionals, make any payment or incur any obligation that is not provided for in the Budget (within the variances from budgeted amounts permitted by this Agreement), (ii) during any monthly budget period, make any payment or incur any obligation for any future monthly period of the Budget (for example, amounts budgeted for month 4 may not be paid in month 2), (iii) make any payment on account of any item in the Budget for any period following the closing of the transactions contemplated by the Stalking Horse APA or a Plan of Reorganization or (iv) notwithstanding the timing of any such payment as set forth in the Budget, to the extent that the Borrower is able to obtain credit terms from vendors (other than the Lender), pay such vendors more than twenty (20) days prior to the expiration of such credit terms; provided, however, that the Borrower may make payments to vendors from time to time as the Borrower reasonably determine are necessary or desirable to be able to continue to utilize credit extended by or maintain availability with such vendors. (d) Requests for Borrowing. Request any Advances if, after giving effect to such requested Advance and the use of the proceeds thereof (if such proceeds are used within four (4) Business Days after the receipt thereof), the aggregate amount of cash and cash equivalents held by the Borrower and its Subsidiaries exceeds $8,000,000. (e) Material Contracts. Reject, terminate or seek to reject or terminate any agreement, contract, license or lease that is material to the business, operations, condition (financial or otherwise), performance or properties of the Borrower or its Subsidiaries except as contemplated in the Budget and as approved by the Bankruptcy Court on notice to Lender. Section 5.03 Financial Covenant. So long as any principal of or interest on any Loan or any other Obligation (whether or not due) shall remain unpaid, the Borrower shall not, unless the Lender shall otherwise consent in writing, to the extent that Loans are outstanding on the date that the Budget is required to be delivered pursuant to Section 5.01(a)(i), permit the total disbursements made in any Measurement Period to exceed the total budgeted disbursements for such Measurement Period by more than fifteen percent (15%) (the Variance); provided,
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however, that disbursements made with respect to any line item in the Budget for professional fees and expenses shall not be subject to any Variance. Unused amounts set forth in the Budget for any line item may be carried forward and used to fund such line item during the subsequent one-month Budget periods (such unused amounts, the Carry-Forward Amounts); provided, that in no event shall any Variance be included in any Carry-Forward Amounts. To the extent that the Borrowers actual cash receipts during any period materially exceed the projections set forth in the Budget, the Borrower and the Lender will discuss in good faith appropriate modifications to the Budget. ARTICLE VI COLLATERAL Section 6.01 Security Interest in the Collateral. To secure the prompt payment and performance to the Lender of the Obligations, the Borrower hereby assigns, pledges and grants to the Lender a continuing security interest in and to and Lien on all of its Collateral, whether now owned or existing or hereafter acquired or arising and wheresoever located. The Borrower shall cause its financial statements to reflect such security interest. From time to time, the Borrower shall provide the Lender with written notice of all commercial tort claims with a claim exceeding $50,000, such notice to contain the case title together with the applicable court and a brief description of the claim(s). Upon delivery of each such notice, the Borrower shall be deemed to hereby grant to the Lender a security interest and lien in and to such commercial tort claims and all proceeds thereof. Section 6.02 Perfection of Security Interest. (a) Upon entry of the Interim Bankruptcy Court Order or Final Bankruptcy Court Order, as the case may be, the Liens and security interests in favor of the Lender referred to in Section 6.01 shall be valid and perfected Liens on, and security interests in, the Collateral, prior to all other Liens on, and security interests in, the Collateral, other than Permitted Priority Liens and the payment of Carve-Out Expenses. Such Liens and security interests and their priority shall remain in effect until all Obligations shall have been repaid in cash in full. (b) The Liens and security interests referred to herein shall be deemed valid and perfected by entry of the Interim Bankruptcy Court Order or the Final Bankruptcy Court Order, as the case may be, and entry of the Interim Bankruptcy Court Order shall have occurred on or before the date of any Advance or Inventory Loan. The Lender shall not be required to file any financing statements, mortgages, certificates of title, notices of Lien or similar instruments in any jurisdiction or filing office or to take any other action in order to validate or perfect the Lien and security interest granted by or pursuant to this Agreement, the Interim Bankruptcy Court Order or the Final Bankruptcy Court Order, as the case may be, or any other Loan Document; provided, that the Lender shall be permitted to file any financing statements, mortgages, certificates of title, notices of Lien or similar instruments in any jurisdiction or filing office and to take any other action with respect to the Lien and security interest granted by or pursuant to this Agreement, the Interim Bankruptcy Court Order or the Final Bankruptcy Court Order, as the case may be, or any other Loan Document.
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(c) Notwithstanding the foregoing, the Borrower shall take all action that the Lender may reasonably request, so as at all times to maintain the validity, perfection, enforceability and priority of the Lenders security interest in and Lien on the Collateral or to enable the Lender to protect, exercise or enforce its rights hereunder and in the Collateral, including, but not limited to, (i) delivering to the Lender, endorsed or accompanied by such instruments of assignment as the Lender may specify, and stamping or marking, in such manner as the Lender may specify, any and all chattel paper, instruments, letters of credits and advices thereof and documents, in each case, evidencing or forming a part of the Collateral with a value exceeding $50,000, (ii) using commercially reasonable efforts to enter into control agreements, in form reasonably satisfactory to the Lender upon the reasonable request of the Lender, and (iii) executing and delivering financing statements, control agreements, instruments of pledge, mortgages, title insurance policies, notices and assignments, in each case in form and substance reasonably satisfactory to the Lender, relating to the creation, validity, perfection, maintenance or continuation of the Lenders security interest and Lien on Collateral under the Uniform Commercial Code or other Applicable Law. By its signature hereto, the Borrower hereby authorizes the Lender to file against the Borrower, one or more financing, continuation or amendment statements pursuant to the Uniform Commercial Code in form and substance satisfactory to the Lender (which statements may have a description of collateral which is broader than that set forth herein). The Borrower authorizes the Lender at any time and from time to time to file, one or more financing or continuation statements and amendments thereto, relating to the Collateral (including, without limitation, any such financing statements that describe the Collateral as all assets or all personal property (or words of similar effect) or that describe or identify the Collateral by type or in any other manner as the Lender may determine. All charges, expenses and reasonable fees the Lender may incur in doing any of the foregoing, and any local taxes relating thereto, shall be charged to the Loan Account and added to the Obligations, or, at the Lenders option, shall be paid to the Lender immediately upon demand. (d) Notwithstanding anything herein to the contrary, all proceeds received by the Lender from the Collateral subject to the Liens granted in Section 6.01 or in any other Loan Document or by the Bankruptcy Court Orders shall be subject to the payment of Carve-Out Expenses. Section 6.03 Administrative Priority. The Borrower agrees that the Obligations shall constitute allowed administrative expenses in the Chapter 11 Case, having priority over all administrative expenses of and unsecured claims against such Person now existing or hereafter arising, of any kind or nature whatsoever, including, without limitation, all administrative expenses of the kind specified in, or arising or ordered under, sections 105, 326, 328, 330, 331, 503(b), 506(c), 507(a), 507(b), 546(c), 726 and 1114 of the Bankruptcy Code, subject only to the payment of Carve-Out Expenses. Section 6.04 Survival. The Liens, lien priority, administrative priorities and other rights and remedies granted to the Lender pursuant to this Agreement, the Bankruptcy Court Orders and the other Loan Documents (specifically including, without limitation, the existence, perfection and priority of the Liens and security interests provided herein and therein, and the administrative priority provided herein and therein) shall not be modified, altered or impaired in any manner by any other financing or extension of credit or incurrence of Indebtedness by the Lender (pursuant to section 364 of the Bankruptcy Code or otherwise), or by any dismissal or
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conversion of any of the Chapter 11 Case, or by any other act or omission whatsoever. Without limitation, notwithstanding any such order, financing, extension, incurrence, dismissal, conversion, act or omission: (a) except for Carve-Out Expenses, no costs or expenses of administration which have been or may be incurred in the Chapter 11 Case or any conversion of the same or in any other proceedings related thereto, and no priority claims, are or will be prior to or on parity with any claim of the Lender against the Borrower in respect of any Obligation; (b) upon entry of the Interim Bankruptcy Court Order or Final Bankruptcy Court Order, as the case may be, the Liens in favor of the Lender set forth in Section 6.01 shall constitute valid and perfected first priority Liens and security interests to which other Liens and security interests shall be subordinate and junior, subject only to Permitted Priority Liens and the payment of Carve-Out Expenses, and which Liens and security interests shall be prior to all other Liens and security interests, now existing or hereafter arising, in favor of any other creditor or any other Person whatsoever; and (c) the Liens in favor of the Lender set forth herein, in the Bankruptcy Court Orders and in the other Loan Documents shall continue to be valid and perfected without the necessity that the Lender file financing statements, mortgages, certificates of title, notices of Lien or other similar instruments or otherwise perfect its Lien under applicable non-bankruptcy law. Section 6.05 Disposition of Collateral. The Borrower will not make any Disposition of Collateral, whether by sale, lease or otherwise except: (a) the sale of Inventory in the Ordinary Course of Business;
(b) the Disposition or transfer of obsolete, worn, damaged or surplus assets in the Ordinary Course of Business; (c) Dispositions of Receivables, but only to the extent of a compromise, write down or collection thereof in the Ordinary Course of Business, or in connection with the bankruptcy or reorganization of the applicable Customer and Dispositions of any securities received in any such bankruptcy or reorganization; (d) the use or transfer of money or cash equivalents in a manner that is not prohibited by the terms of this Agreement; and (e) the lapse of registered patents, trademarks, copyrights and other intellectual property of the Borrower or any Subsidiary thereof to the extent not economically desirable in the conduct of their business and so long as such lapse is not materially adverse to the interests of the Lender. Section 6.06 Preservation of Collateral. Subject to the Bankruptcy Court Orders, following the occurrence and during the continuance of an Event of Default, in addition to the rights and remedies set forth in Section 7.02 hereof, the Lender: (a) may at any time take such steps as the Lender deems necessary to protect the Lenders interest in and to preserve the Collateral, including the hiring of such security guards or the placing of other security protection
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measures as the Lender may deem appropriate; (b) may employ and maintain at any of the Borrowers premises a custodian who shall have full authority to do all acts reasonably necessary to protect the Lenders interests in the Collateral; (c) may lease warehouse facilities to which the Lender may move all or part of the Collateral; (d) may use the Borrowers owned or leased lifts, hoists, trucks and other facilities or equipment for handling or removing the Collateral; and (e) to the extent the Borrower has the right to grant such right, shall have, and is hereby granted, a right of ingress and egress to the places where the Collateral is located, and may proceed over and through any of the Borrowers owned or leased property. Subject to the Bankruptcy Court Orders, the Borrower shall cooperate fully with all of the Lenders efforts to preserve the Collateral and will take such actions to preserve the Collateral as the Lender may reasonably direct. All of the Lenders actual expenses of preserving the Collateral, including any expenses relating to the bonding of a custodian, shall be charged to the Loan Account and added to the Obligations. Section 6.07 Ownership of Collateral; Real Property. (a) With respect to the Collateral, at the time the Collateral becomes subject to the Lenders security interest: (i) the Borrower shall be the sole owner of and fully authorized and able to sell, transfer, pledge and/or grant a first priority security interest in each and every item of Collateral to the Lender; and, except for Permitted Encumbrances, the Collateral shall be free and clear of all Liens and encumbrances whatsoever; (ii) each document and agreement executed by the Borrower or delivered to the Lender in connection with this Agreement shall be true and correct in all material respects; and (iii) all signatures and endorsements of the Borrower that appear on such documents and agreements shall be genuine and the Borrower shall have full capacity to execute same. (b) Schedule 6.07(b) hereto sets forth a correct and complete list as of the Interim Facility Effective Date of (i)(A) each place of business of the Borrower and (B) the chief executive office of the Borrower; and (ii) the location, by state and street address, of all Real Property owned or leased by the Borrower, together with the names of any landlords. Section 6.08 Compliance with Laws. The Borrower shall comply with all Applicable Laws with respect to the Collateral or any part thereof or to the operation of the Borrowers business, in each case, the non-compliance with which could reasonably be expected to have a Material Adverse Effect, except to the extent that such compliance is stayed as a result of the Chapter 11 Case. Section 6.09 Inspection of Premises. Subject to the Bankruptcy Court Orders, at all reasonable times upon reasonable prior notice to the Borrower (as long as no Default or Event of Default has occurred and is continuing), the Lender and its agents and representatives shall have full access to and the right to audit, check, inspect and make abstracts and copies from the Borrowers books, records, audits, correspondence and all other papers relating to the Collateral and the operation of the Borrowers business, provided, that the Lender shall use commercially reasonable efforts to minimize any disruption to the normal business operations of the Borrower resulting from such access and activities. To the extent such access does not disrupt the normal business operations of the Borrower, the Lender and its agents and representatives, may enter upon any premises of the Borrower at any time during business hours and at any other reasonable
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time, and from time to time, in each case, upon reasonable notice to the Borrower (so long as no Default or Event of Default has occurred and is continuing), for the purpose of inspecting the Collateral and any and all records pertaining thereto and the operation of the Borrowers business. The Borrower agrees to pay the reasonable fees and out-of-pocket costs of any auditor or other third party engaged by the Lender to conduct visits, audits, inspections appraisals, valuations and field examinations of the Borrower and the Collateral. In furtherance of the foregoing, the Borrower authorizes its officer, directors and independent accountants to discuss the affairs, finances and accounts of the Borrower and its Subsidiaries (independently or together with representatives of the Borrower) with the Lender and the agents and representatives of the Lender in accordance with this Section 6.09. Section 6.10 Insurance. The Borrower shall (a) keep all its insurable properties insured against the hazards of fire, flood, sprinkler leakage, those hazards covered by extended coverage insurance and such other hazards, and for such amounts, as is customary in the case of companies engaged in businesses similar to the Borrowers (including business interruption) under policies issued by financially sound and reputable insurance companies; (b) maintain all such workers compensation or similar insurance as may be required under the laws of any state or jurisdiction in which the Borrower is engaged in business; (c) maintain public liability insurance against claims for personal injury, death or property damage suffered by others and other similar hazards for such amounts, as is customary in the case of companies engaged in businesses similar to the Borrowers under policies issued by financially sound and reputable insurance companies, and (d)(i) furnish the Lender with copies of all policies and evidence of the maintenance of such policies at the Lenders request and (ii) furnish the Lender with appropriate loss payable endorsements in form and substance reasonably satisfactory to the Lender, naming lender loss payee or additional insured as its interests may appear with respect to all insurance coverage referred to in clause (a) and (c) above. The Borrower at all times shall maintain the assets and Real Property of the Borrower so that such insurance shall remain in full force and effect. The Borrower shall bear the full risk of any loss of any nature whatsoever with respect to the Collateral. Section 6.11 Failure to Pay Insurance. If the Borrower fails to obtain insurance as hereinabove provided, or to keep the same in force, the Lender, if the Lender so elects, may obtain such insurance and pay the premium therefor on behalf of the Borrower, and charge the Loan Account therefor and such expenses so paid shall be part of the Obligations. Section 6.12 Payment of Taxes. The Borrower will pay, when due, all material taxes, assessments and other Charges lawfully levied or assessed upon the Borrower or any of the Collateral including real and personal property taxes, assessments and charges and all franchise, income, employment, social security benefits, withholding, and sales taxes, except in each case, to the extent the same has been properly contested in good faith by appropriate measures or proceedings promptly instituted and diligently conducted or to the extent that payment or any enforcement action is stayed as a result of the Chapter 11 Case. Subject to the Bankruptcy Court Orders, if an Event of Default shall have occurred and be continuing and any such taxes, assessments, or other Charges remain unpaid after the date fixed for their payment, or if any claim shall be made which, in the Lenders opinion, may create a valid Lien on the Collateral, the Lender may without notice to the Borrower pay the taxes, assessments or other Charges and the Borrower hereby indemnifies and holds the Lender harmless in respect thereof. The amount
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of any payment by the Lender under this Section 6.12 shall be charged to the Loan Account and added to the Obligations and, until the Borrower shall furnish the Lender with an indemnity therefor (or supply the Lender with evidence satisfactory to the Lender that due provision for the payment thereof has been made), the Lender may hold without interest any balance standing to Borrowers credit and the Lender shall retain its security interest in and Lien on any and all Collateral held by the Lender. Section 6.13 Receivables. (a) Nature of Receivables. All Receivables arose from valid sales in the Ordinary Course of Business. To the Borrowers knowledge, other than counterclaims or offsetting claims resulting from Borrowers failure to pay prepetition amounts that are not paid as a result of the Chapter 11 Case, no counterclaims or offsetting claims with respect to presently outstanding Receivables are pending or, to the Borrowers knowledge, threatened, and the Receivables are collectible net of reserves established and maintained on a basis consistent with past practices. No part of any such Receivables is contingent upon performance by the Borrower or any other party of any obligation, and no agreements for deductions or discounts have been made with respect to any part of such Receivables. (b) Notification of Assignment of Receivables. Subject to the Bankruptcy Court Orders, at any time following the occurrence and during the continuance of an Event of Default, the Lender shall have the right to send notice of the assignment of, and the Lenders security interest in and Lien on, the Receivables to any and all Customers and any other third party holding Collateral. Subject to the Bankruptcy Court Orders, at any time after the occurrence and during the continuance of an Event of Default, the Lender shall have the sole right to collect the Receivables, take possession of the Collateral, or both. The Lenders actual collection expenses, including, but not limited to, stationery and postage, telephone and facsimile, secretarial and clerical expenses and the salaries of any collection personnel used for collection, may be charged to the Loan Account and added to the Obligations. (c) Power of the Lender to Act on the Borrowers Behalf. Subject to the Bankruptcy Court Orders, the Lender shall have the right to receive, endorse, assign and/or deliver in the name of the Lender or the Borrower any and all checks, drafts and other instruments for the payment of money relating to the Receivables, and the Borrower hereby waives notice of presentment, protest and non-payment of any instrument so endorsed. Subject to the Bankruptcy Court Orders, the Borrower hereby constitutes the Lender or the Lenders designee as the Borrowers attorney with power (i) at any time to file financing statements or any other filings deemed reasonably necessary by the Lender to preserve, protect, or perfect the Lenders interest in the Collateral and to file same; and (ii) at any time following the occurrence and during the continuance of an Event of Default: (A) to endorse the Borrowers name upon any notes, acceptances, checks, drafts, money orders or other evidences of payment or Collateral; (B) to receive, open and dispose of all mail addressed to the Borrower; (C) to demand payment of the Receivables; (D) to enforce payment of the Receivables by legal proceedings or otherwise; (E) to exercise all of the Borrowers rights and remedies with respect to the collection of the Receivables and any other Collateral; (F) to settle, adjust, compromise, extend or renew the Receivables; (G) to settle, adjust or compromise any legal proceedings brought to collect Receivables; (H) to prepare, file and sign the Borrowers name on a proof of claim in bankruptcy
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or similar document against any Customer; (I) to prepare, file and sign the Borrowers name on any notice of Lien, assignment or satisfaction of Lien or similar document in connection with the Receivables; and (J) to do all other acts and things necessary to carry out this Agreement. All acts of said attorney or designee are hereby ratified and approved, and said attorney or designee shall not be liable for any acts of omission or commission nor for any error of judgment or mistake of fact or of law, unless done maliciously or with gross (not mere) negligence (as determined by a court of competent jurisdiction in a final non-appealable judgment); this power being coupled with an interest is irrevocable while any of the Obligations remain unpaid. Subject to the Bankruptcy Court Orders, the Lender shall have the right at any time following the occurrence and during the continuance of an Event of Default to change the address for delivery of mail addressed to the Borrower. (d) No Liability. The Lender shall not, under any circumstances or in any event whatsoever, have any liability for any error or omission or delay of any kind occurring in the settlement, collection or payment of any of the Receivables or any instrument received in payment thereof, or for any damage resulting therefrom other than as a result of the Lenders gross negligence or willful misconduct. Subject to the Bankruptcy Court Orders, following the occurrence and during the continuance of an Event of Default, the Lender may, without notice or consent from the Borrower, sue upon or otherwise collect, extend the time of payment of, compromise or settle for cash, credit or upon any terms any of the Receivables or any other securities, instruments or insurance applicable thereto and/or release any obligor thereof. Subject to the Bankruptcy Court Orders, the Lender is authorized and empowered to accept following the occurrence and during the continuance of an Event of Default the return of the goods represented by any of the Receivables, without notice to or consent by the Borrower, all without discharging or in any way affecting the Borrowers liability hereunder. (e) Deposit Accounts, Securities Accounts and Investment Accounts. All deposit accounts, securities accounts and investment accounts of the Borrower as of the Interim Facility Effective Date are set forth on Schedule 6.13(e). The Borrower shall not open any new deposit account, securities account or investment account unless (i) the Borrower shall have given at least five (5) days prior written notice to the Lender and (ii) that bank, depository institution or securities intermediary, the Borrower and the Lender shall first have entered into an account control agreement in form and substance reasonably satisfactory to the Lender sufficient to give the Lender control (for purposes of Divisions 8 and 9 of the Uniform Commercial Code) over such account; however, notwithstanding anything to the contrary provided for in this Agreement, the Borrower need not comply with the foregoing requirements of this Section 6.13(e) with respect to any deposit accounts used exclusively to fund payroll obligations (including payroll taxes and other employee wage and benefit payments) so long as the Borrower shall not maintain funds on deposit therein or credited thereto at any time in excess of the amounts necessary to fund such payroll obligations and any related payroll processing expenses routinely paid from such accounts on a current basis. Section 6.14 Maintenance of Equipment. Except for Equipment no longer needed as a result of the orderly wind down of Borrowers automotive business lines (other than Borrowers automotive parts/services business lines) in a manner consistent with the Budget, the Equipment shall be maintained in good operating condition and repair (reasonable wear and tear, casualty and Dispositions permitted under Section 6.05 excepted) and all necessary replacements of and
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repairs thereto shall be made so that the value and operating efficiency of the Equipment necessary to the business of the Borrower shall be maintained and preserved. The Borrower shall not use or operate the Equipment in material violation of any material law, statute, ordinance, code, rule or regulation. The Borrower shall have the right to sell Equipment to the extent set forth in Section 6.05 hereof. Section 6.15 Exculpation of Liability. Nothing herein contained shall be construed to constitute the Lender as the Borrowers agent for any purpose whatsoever, nor shall the Lender be responsible or liable for any shortage, discrepancy, damage, loss or destruction of any part of the Collateral wherever the same may be located and regardless of the cause thereof, except to the extent caused by the gross negligence or willful misconduct of the Lender. The Lender, whether by anything herein or in any assignment or otherwise, shall not assume any of the Borrowers obligations under any contract or agreement assigned to the Lender, and the Lender shall be responsible in any way for the performance by the Borrower of any of the terms and conditions thereof. Section 6.16 Subsidiaries. The Borrower shall not form any Subsidiary unless (i) the Borrower shall provide at least ten (10) Business Days prior written notice of the Borrowers intention to form such Subsidiary and (ii) substantially concurrently with the formation thereof, (x) such Subsidiary (other than an Excluded Subsidiary) expressly joins in this Agreement and the other Loan Documents, as applicable, as a borrower or a guarantor and (y) the Lender shall have received such other agreements, instruments, approvals, legal opinions or other documents reasonably requested by the Lender in order to create, perfect, establish the first priority of or otherwise protect any Lien purported to be covered by this Agreement or the other Loan Documents or otherwise to effect the intent that such Subsidiary shall become bound by all of the terms, covenants and agreements contained in this Agreement and the other Loan Documents and that all property and assets of such Subsidiary constituting Collateral shall become Collateral for the Obligations. ARTICLE VII EVENTS OF DEFAULT Section 7.01 Events of Default. The occurrence of any one or more of the following events shall constitute an Event of Default: (a) Failure by the Borrower to (i) pay any principal on the Obligations when due, whether at maturity or by reason of acceleration pursuant to the terms of this Agreement or by notice of intention to prepay or (ii) pay when due any other liabilities or make any other payment, fee or charge provided for herein when due or in any other Loan Document and such failure to pay when due any amount described in this clause (ii) shall continue for three (3) Business Days; (b) Any representation or warranty made or deemed made by the Borrower in this Agreement, any other Loan Document or any related agreement or in any certificate, document or financial or other statement furnished at any time in connection herewith or therewith shall prove to have been misleading in any material respect on the date when made or
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deemed to have been made, in each case, to the extent such failure results in a Material Adverse Effect; (c) Issuance of a notice of Lien (other than Permitted Encumbrances), levy, assessment, injunction or attachment against the Borrowers Inventory, Receivables or against a portion of the Borrowers other property, such Lien, levy, assessment, injunction or attachment is not stayed or lifted within thirty (30) days, in each case, to the extent that the imposition or issuance thereof results in a Material Adverse Effect; (d) Except as otherwise provided in Sections 7.01(a) and (b), failure or neglect of the Borrower to perform, keep or observe any term, provision, condition or covenant, contained in this Agreement or in any other Loan Document; (e) Any judgment or judgments are rendered against the Borrower for an aggregate amount in excess of $1,000,000 and (i) enforcement proceedings shall have been commenced by a creditor upon such judgment, (ii) there shall be any period of forty-five (45) consecutive days during which a stay of enforcement of such judgment, by reason of a pending appeal or otherwise, shall not be in effect, and (iii) any such judgment results in the creation of a Lien upon any of the Collateral (other than a Permitted Encumbrance), in each case, to the extent the same results in a Material Adverse Effect; provided, however, that any such judgment shall not give rise to an Event of Default under this Section 7.01(e) to the extent (A) the amount of such judgment is covered by a valid and binding policy of insurance between the defendant and the insurer covering full payment thereof and (B) such insurer has been notified, and has not disputed the claim made for payment, of the amount of such judgment, order, award or settlement; (f) Any Subsidiary of the Borrower that is not a party to the Chapter 11 Case shall (i) apply for, consent to or suffer the appointment of, or the taking of possession by, a receiver, custodian, trustee, liquidator or similar fiduciary of itself or of all or a substantial part of its property, (ii) make a general assignment for the benefit of creditors, (iii) commence a voluntary case under any state or federal bankruptcy laws (as now or hereafter in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a petition seeking to take advantage of any other law providing for the relief of debtors, (vi) acquiesce to, or fail to have dismissed, within forty-five (45) days, any petition filed against it in any involuntary case under such bankruptcy laws, or (vii) take any action for the purpose of effecting any of the foregoing; (g) The Interim Bankruptcy Court Order or the Final Bankruptcy Court Order shall have been stayed, amended, modified, reversed or vacated without the express prior written consent of the Lender; (h) The Interim Bankruptcy Court Order shall not have been entered by the Bankruptcy Court within three (3) Business Days after the Filing Date or the Final Bankruptcy Court Order shall not have been entered by the Bankruptcy Court within thirty (30) days from the Interim Bankruptcy Court Order Entry Date; (i) An order with respect to any of the Chapter 11 Case shall be entered by the Bankruptcy Court appointing, or the Borrower shall file an application for an order with respect to 37
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the Chapter 11 Case seeking the appointment of, (i) a trustee under section 1104 of the Bankruptcy Code, or (ii) an examiner with enlarged powers (beyond those set forth in section 1106(a)(3) and (4) of the Bankruptcy Code) under section 1106(b) of the Bankruptcy Code; (j) An order with respect to the Chapter 11 Case shall be entered by the Bankruptcy Court converting the Chapter 11 Case to a case under Chapter 7 of the Bankruptcy Code; (k) Without the express prior written consent of the Lender, an order shall be entered by the Bankruptcy Court confirming a Plan of Reorganization which does not (i) contain a provision for payment in full in cash of all Obligations of the Borrower hereunder and under the other Loan Documents on or before the effective date of such Plan of Reorganization upon entry thereof and (ii) provide for the continuation of the Liens and security interests granted to the Lender, and the priority thereof until such Plan of Reorganization effective date; (l) Without the express prior written consent of the Lender, an order shall be entered by the Bankruptcy Court authorizing the sale of the a significant portion or all or substantially all of the Borrowers assets or Equity Interests which does not (i) contain a provision for payment in full in cash of all Obligations of the Borrower hereunder and under the other Loan Documents on or before the effective date of such sale upon entry thereof and (ii) provide for the continuation of the Liens and security interests granted to the Lender, and the priority thereof until such sale effective date; (m) An order shall be entered by the Bankruptcy Court dismissing the Chapter 11 Case which does not contain a provision for the payment in full in cash of all Obligations of the Borrower hereunder and under the other Loan Documents, upon entry thereof; (n) An order with respect to the Chapter 11 Case shall be entered by the Bankruptcy Court without the express prior written consent of the Lender, (i) to revoke, reverse, stay, modify, supplement or amend any of the Bankruptcy Court Orders, (ii) to permit any administrative expense or any claim (now existing or hereafter arising, of any kind or nature whatsoever) to have administrative priority as to the Borrower equal or superior to the priority of the Lender in respect of the Obligations, except for allowed administrative expenses having priority over the Obligations to the extent set forth in the Agreed Administrative Expense Priorities, or (iii) to grant or permit the grant of a Lien on the Collateral other than a Permitted Encumbrance; (o) An application for any of the orders described in clauses (h) through (n) above shall be made by any Person and (i) such application is not contested by the Borrower in good faith, or (ii) the relief requested is granted in an order that is not stayed pending appeal; (p) An order shall be entered by the Bankruptcy Court that is not stayed pending appeal granting relief from the automatic stay to any creditor of the Borrower with respect to any claim in an amount equal to or exceeding $1,000,000 in the aggregate; (q) (i) The Borrower shall attempt to invalidate, reduce or otherwise impair the Liens or security interests of Lenders claims or rights against the Borrower or to subject any Collateral to assessment pursuant to section 506(c) of the Bankruptcy Code, (ii) any Lien or
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security interest created by this Agreement, the Bankruptcy Court Orders or any other Loan Document shall, for any reason, cease to be a valid first priority Lien, subject only to Permitted Priority Liens and the payment of Carve-Out Expenses, or (iii) any action is commenced by the Borrower which contests the validity, perfection, enforceability or priority of any of the Liens and security interests of the Lender created by this Agreement, any of the Bankruptcy Court Orders or any other Loan Document; (r) The determination of the Borrower, whether by vote of the Borrowers board of directors or otherwise, other than the orderly wind down of Borrowers automotive business lines (other than Borrowers automotive parts/services business lines) in a manner consistent with the Budget, to suspend the operation of the Borrowers business, liquidate all or substantially all of the Borrowers assets, or employ an agent or other third party to conduct any sales of all or substantially all of the Borrowers assets, or the filing of a motion or other application in the Chapter 11 Case, seeking authority to do any of the foregoing, in each case without the prior written consent of the Lender; (s) This Agreement, the Bankruptcy Court Orders or any other Loan Document, shall for any reason fail or cease to create a valid and perfected and, except to the extent permitted by the terms hereof or thereof, first priority Lien in favor of the Lender on any Collateral purported to be covered thereby; (t) Any provision of any Loan Document shall at any time for any reason (other than pursuant to the express terms thereof) cease to be valid and binding on or enforceable against the Borrower, or the validity or enforceability thereof shall be contested by any party thereto, or a proceeding shall be commenced by the Borrower or any Governmental Authority having jurisdiction over it, seeking to establish the invalidity or unenforceability thereof, or the Borrower shall deny in writing that it has any liability or obligation purported to be created under any Loan Document; (u) Any material portion of the Collateral shall be seized or taken by a Governmental Body, or the Borrower shall have become the subject matter of claim, litigation, suit or other proceeding which, in the reasonable, good faith opinion of the Lender, upon final determination, could reasonably be expected to result in impairment or loss of a material portion of the security provided by this Agreement or the other Loan Documents, in each case, to the extent the same results in a Material Adverse Effect; or (v) All, or a substantial portion, of the Borrowers business operations, taken as a whole, cease to operate because of the occurrence of an explosion or other similar event, natural disaster or other Act of God, which occurrence results in a Material Adverse Effect. Section 7.02 Rights and Remedies. (a) Subject to the Bankruptcy Court Orders, upon the occurrence and during the continuance of: (a) an Event of Default pursuant to Section 7.01(f) all Obligations shall be immediately due and payable; and (b) any of the other Events of Default, at the option of the Lender upon written notice to the Borrower, all Obligations shall be immediately due and payable. Subject to the Bankruptcy Court Orders, upon the occurrence and during the 39
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continuance of any Event of Default, the Lender shall have the right (x) to immediately cease to make any Advances, Inventory Loans or Lender Advances and (y) to exercise any and all rights and remedies provided for herein, under the other Loan Documents, under the Uniform Commercial Code, under the Bankruptcy Code and at law or equity generally, including the right to foreclose the security interests granted herein and to realize upon any Collateral by any available judicial procedure and/or to take possession of and sell any or all of the Collateral with or without judicial process. Subject to the Bankruptcy Court Orders, upon the occurrence and during the continuance of any Event of Default, the Lender may enter any of the Borrowers premises or other premises without legal process and without incurring liability to the Borrower therefor, and the Lender may thereupon, or at any time thereafter, in its discretion without notice or demand, take the Collateral and remove the same to such place as the Lender may deem advisable and the Lender may require the Borrower to make the Collateral available to the Lender at a convenient place. Subject to the Bankruptcy Court Orders, upon the occurrence and during the continuance of any Event of Default, with or without having the Collateral at the time or place of sale, the Lender may sell the Collateral, or any part thereof, at public or private sale, at any time or place, in one or more sales, at such price or prices, and upon such terms, either for cash, credit or future delivery, as the Lender may elect. Except as to that part of the Collateral which is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, the Lender shall give the Borrower reasonable notification of such sale or sales, it being agreed that in all events written notice mailed to the Borrower at least ten (10) days prior to such sale or sales is reasonable notification. At any public sale the Lender may bid for and become the purchaser, and the Lender or any other purchaser at any such sale thereafter shall hold the Collateral sold absolutely free from any claim or right of whatsoever kind, including any equity of redemption and all such claims, rights and equities are hereby expressly waived and released by the Borrower. In connection with the exercise of the foregoing remedies, including the sale of Inventory, at such time as the Lender shall be lawfully entitled to exercise such remedies, and for no other purpose, the Lender is granted a perpetual nonrevocable, royalty free, nonexclusive license and the Lender is granted permission to use all of the Borrowers (a) trademarks, trade styles, trade names, patents, patent applications, copyrights, service marks, licenses, franchises and other proprietary rights which are used or useful in connection with Inventory for the purpose of marketing, advertising for sale and selling or otherwise disposing of such Inventory and (b) Equipment for the purpose of completing the manufacture of unfinished goods. Subject to the Bankruptcy Court Orders, the cash proceeds realized from the sale of any Collateral shall be applied to the Obligations in the order set forth in Section 7.02(c) hereof. Noncash proceeds will only be applied to the Obligations as they are converted into cash. If any deficiency shall arise, the Borrower shall remain liable to the Lender therefor. (b) To the extent that Applicable Law imposes duties on the Lender to exercise remedies in a commercially reasonable manner, the Borrower acknowledges and agrees that it is not commercially unreasonable for the Lender: (i) to fail to incur expenses reasonably deemed significant by the Lender to prepare Collateral for disposition or otherwise to complete raw material or work in process into finished goods or other finished products for disposition; (ii) to fail to obtain third party consents for access to Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain governmental or third party consents for the collection or disposition of Collateral to be collected or disposed of; (iii) to fail to exercise collection remedies against Customers or other Persons obligated on Collateral or to remove Liens on or any adverse claims against Collateral; (iv) to exercise collection remedies against Customers and other
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Persons obligated on Collateral directly or through the use of collection agencies and other collection specialists; (v) to advertise dispositions of Collateral through publications or media of general circulation, whether or not the Collateral is of a specialized nature; (vi) to contact other Persons, whether or not in the same business as the Borrower, for expressions of interest in acquiring all or any portion of such Collateral; (vii) to hire one or more professional auctioneers to assist in the disposition of Collateral, whether or not the Collateral is of a specialized nature; (viii) to dispose of Collateral by utilizing internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capacity of doing so, or that match buyers and sellers of assets; (ix) to dispose of assets in wholesale rather than retail markets; (x) to disclaim disposition warranties, such as title, possession or quiet enjoyment, (xi) to purchase insurance or credit enhancements to insure the Lender against risks of loss, collection or disposition of Collateral or to provide to the Lender a guaranteed return from the collection or disposition of Collateral; or (xii) to the extent deemed appropriate by the Lender, to obtain the services of other brokers, investment bankers, consultants and other professionals to assist the Lender in the collection or disposition of any of the Collateral. The Borrower acknowledges that the purpose of this Section 7.02(b) is to provide non-exhaustive indications of what actions or omissions by the Lender would not be commercially unreasonable in the Lenders exercise of remedies against the Collateral and that other actions or omissions by the Lender shall not be deemed commercially unreasonable solely on account of not being indicated in this Section 7.02(b). Without limitation upon the foregoing, nothing contained in this Section 7.02(b) shall be construed to grant any rights to the Borrower or to impose any duties on the Lender that would not have been granted or imposed by this Agreement or by Applicable Law in the absence of this Section 7.02(b). (c) After the occurrence and during the continuance of an Event of Default, the Lender shall, apply all payments in respect of the Obligations and all proceeds of the Collateral, (i) first, to pay the Obligations in respect of any fees, expense reimbursements, indemnities and other amounts then due and payable to the Lender until paid in full; (ii) second, to pay interest then due and payable in respect of Lender Advances until paid in full; (iii) third, to pay principal of the Lender Advances until paid in full; (iv) fourth, to pay interest then due and payable in respect of the Inventory Loans until paid in full, (v) fifth, to pay principal then due and payable in respect of the Inventory Loans until paid in full, (vi) sixth, to pay interest then due and payable in respect of the Advances until paid in full, (vii) seventh, to pay principal then due and payable in respect of the Advances until paid in full; and (viii) eighth, to the ratable payment of all other Obligations then due and payable. Section 7.03 The Lenders Discretion. The Lender shall have the right in its sole discretion to determine which rights, Liens, security interests or remedies the Lender may at any time pursue, relinquish, subordinate, or modify or to take any other action with respect thereto and such determination will not in any way modify or affect the Lenders rights hereunder. Section 7.04 Rights and Remedies not Exclusive. The enumeration of the foregoing rights and remedies is not intended to be exhaustive and the exercise of any rights or remedy shall not preclude the exercise of any other right or remedies provided for herein or otherwise provided by law, all of which shall be cumulative and not alternative.
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ARTICLE VIII MISCELLANEOUS Section 8.01 Notices, Etc. All notices and other communications provided for hereunder shall be in writing and shall be mailed (certified mail, postage prepaid and return receipt requested), telecopied or delivered by hand, Federal Express or other reputable overnight courier: if to the Borrower: American Suzuki Motor Corporation 3251 East Imperial Highway Brea, CA 92821-6795 Attention: Koichi Kato Telephone: (714) 996-7040 Ext. 2034 Facsimile: (714) 985-0887 E-mail: Koichi.Kato@suz.com
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with a copy to: Pachulski Stang Ziehl & Jones LLP Attn: Richard M. Pachulski 10100 Santa Monica Blvd., 13th Floor Los Angeles, CA 90067 Telephone: (310) 277-6910 Facsimile: (310) 201-0760 E-mail: rpachulski@pszjlaw.com if to the Lender: Suzuki Motor Corporation 300 Takatsuka-cho Hamamatsu-shi Shizuoka 432-8611 Japan Attention: Kenichi Ayukawa, Global Automotive Marketing Telephone: 011-81-53-440-2810 Facsimile: 011-81-53-440-2318 E-mail: kayukawa@hhq.suzuki.co.jp with a copy to: Klee, Tuchin, Bogdanoff & Stern LLP Attn: Kenneth N. Klee 1999 Avenue of the Stars, 39th Floor Los Angeles, CA 90067 Telephone: (310) 407-4000 Facsimile: (310) 407-9090 E-mail: kklee@ktbslaw.com or, as to each party, at such other address as shall be designated by such party in a written notice to the other parties complying as to delivery with the terms of this Section 8.01. All such notices and other communications shall be effective, (a) if mailed (certified mail, postage prepaid and return receipt requested), when received or three (3) days after deposited in the mails, whichever occurs first, (b) if telecopied, when transmitted and confirmation received, (c) if delivered by hand, Federal Express or other reputable overnight courier, upon delivery, or (d) if delivered by electronic mail, when no notice of failure of delivery was received within a reasonable time after such message was sent, except that notices to the Lender pursuant to Article II shall not be effective until received by the Lender. Section 8.02 Amendments. No amendment or waiver of any provision of this Agreement, and no consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Lender, and then such waiver or
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consent shall be effective only in the specific instance and for the specific purpose for which given Section 8.03 No Waiver; Remedies, Etc. No failure on the part of the Lender to exercise, and no delay in exercising, any right hereunder or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right under any Loan Document preclude any other or further exercise thereof or the exercise of any other right. The rights and remedies of the Lender provided herein and in the other Loan Documents are cumulative and are in addition to, and not exclusive of, any rights or remedies provided by law. The rights of the Lender under any Loan Document against any party thereto are not conditional or contingent on any attempt by the Lender to exercise any of their rights under any other Loan Document against such party or against any other Person. Section 8.04 Expenses; Taxes; Attorneys Fees. The Borrower will pay on demand, all reasonable costs and expenses incurred by or on behalf of the Lender, regardless of whether the transactions contemplated hereby are consummated, including, without limitation, reasonable fees, costs, client charges and expenses of one outside counsel and one local counsel in each relevant jurisdiction for the Lender, searches and filings, miscellaneous disbursements, travel, lodging and meals, arising from or relating to: (a) the negotiation, preparation, execution, delivery, performance and administration of this Agreement and the other Loan Documents (including, without limitation, the preparation of any additional Loan Documents pursuant to Section 6.16), (b) any requested amendments, waivers or consents to this Agreement or the other Loan Documents whether or not such documents become effective or are given, (c) the preservation and protection of the Lenders rights under this Agreement or the other Loan Documents, (d) the defense of any claim or action asserted or brought against the Lender by any Person that arises from or relates to this Agreement, any other Loan Document, the Lenders claims against the Borrower, or any and all matters in connection therewith, (e) the commencement or defense of, or intervention in, any court proceeding arising from or related to this Agreement or any other Loan Document, (f) the protection, collection, lease, sale, taking possession of or liquidation of, any Collateral or other security in connection with this Agreement or any other Loan Document, (g) any attempt to enforce any Lien or security interest in any Collateral or other security in connection with this Agreement or any other Loan Document, (h) any attempt to collect from the Borrower, (i) any Environmental Liabilities incurred in connection with the investigation, removal, cleanup and/or remediation of any Hazardous Materials present or arising out of the operations of any facility of the Borrower, (j) any Environmental Liabilities incurred in connection with any Environmental Lien or (k) the receipt by the Lender of any advice from professionals with respect to any of the foregoing. Without limitation of the foregoing or any other provision of any Loan Document: (i) the Borrower agrees to pay all stamp, document, transfer, recording or filing taxes or fees and similar impositions now or hereafter determined by the Lender to be payable in connection with this Agreement or any other Loan Document, and the Borrower agrees to save the Lender harmless from and against any and all present or future claims, liabilities or losses with respect to or resulting from any omission to pay or delay in paying any such taxes, fees or impositions, and (ii) if the Borrower fails to perform any covenant or agreement contained herein or in any other Loan Document, the Lender may itself perform or cause performance of such covenant or agreement, and the expenses of the Lender incurred in connection therewith shall be reimbursed on demand by the Borrower.
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Section 8.05 Right of Set-off. Subject to the Bankruptcy Court Orders, upon the occurrence and during the continuance of any Event of Default, the Lender may, and is hereby authorized to, at any time and from time to time, without notice to the Borrower (any such notice being expressly waived by the Borrower) and to the fullest extent permitted by law, set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Lender to or for the credit or the account of the Borrower against any and all obligations of the Borrower either now or hereafter existing under any Loan Document, irrespective of whether or not the Lender shall have made any demand hereunder or thereunder and although such obligations may be contingent or unmatured. The Lender agrees to notify the Borrower promptly after any such set-off and application made by the Lender provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Lender under this Section 8.05 are in addition to the other rights and remedies (including other rights of set-off) which the Lender may have under this Agreement or any other Loan Documents of law or otherwise. Section 8.06 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. Section 8.07 Assignments. (a) This Agreement and the other Loan Documents shall be binding upon and inure to the benefit of the Borrower and the Lender and their respective successors and assigns (including, except for the right to request Loans, any trustee succeeding to the rights of the Borrower pursuant to Chapter 11 of the Bankruptcy Code or pursuant to any conversion to a case under Chapter 7 of the Bankruptcy Code); provided, however, that the Borrower may not assign or transfer any of its rights hereunder or under the other Loan Documents without the prior written consent of the Lender and any such assignment without the Lenders prior written consent shall be null and void. (b) The Lender may assign to one or more other lenders or other entities all or a portion of its rights and obligations under this Agreement with respect to all or a portion of any Loan. Section 8.08 Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of this Agreement by facsimile or electronic mail shall be equally as effective as delivery of an original executed counterpart of this Agreement. Any party delivering an executed counterpart of this Agreement by facsimile or electronic mail also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement. The foregoing shall apply to each other Loan Document mutatis mutandis.
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Section 8.09 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH OTHER LOAN DOCUMENT) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF CALIFORNIA, EXCEPT AS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH OTHER LOAN DOCUMENT. Section 8.10 CONSENT TO JURISDICTION; SERVICE OF PROCESS AND VENUE. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE BANKRUPTCY COURT, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER HEREBY IRREVOCABLY ACCEPTS IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE BANKRUPTCY COURT. THE BORROWER HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF THE BANKRUPTCY COURT AND IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER AT ITS ADDRESS FOR NOTICES AS SET FORTH IN SECTION 8.01. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE LENDER TO SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY OTHER JURISDICTION. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE JURISDICTION OR LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN SUCH COURT AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. Section 8.11 WAIVER OF JURY TRIAL, ETC. THE BORROWER AND THE LENDER HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS, OR UNDER ANY AMENDMENT, WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION THEREWITH, OR ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION, PROCEEDINGS OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. THE BORROWER HEREBY ACKNOWLEDGES THAT THIS
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PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER ENTERING INTO THIS AGREEMENT. Section 8.12 No Party Deemed Drafter. Each of the parties hereto agrees that no party hereto shall be deemed to be the drafter of this Agreement. Section 8.13 Reinstatement; Certain Payments. If any claim is ever made upon the Lender for repayment or recovery of any amount or amounts received by the Lender in payment or on account of any of the Obligations, the Lender shall give prompt notice of such claim to the Borrower, and if the Lender repays all or part of such amount by reason of (i) any judgment, decree or order of any court or administrative body having jurisdiction over the Lender or any of its property, or (ii) any good faith settlement or compromise of any such claim effected by the Lender with any such claimant, then and in such event the Borrower agrees that (A) any such judgment, decree, order, settlement or compromise shall be binding upon it notwithstanding the cancellation of any Indebtedness hereunder or under the other Loan Documents or the termination of this Agreement or the other Loan Documents, and (B) it shall be and remain liable to the Lender hereunder for the amount so repaid or recovered to the same extent as if such amount had never originally been received by the Lender. Section 8.14 Indemnification. (a) General Indemnity. In addition to the Borrowers other Obligations under this Agreement, the Borrower agrees to defend, protect, indemnify and hold harmless the Lender and all of their respective officers, directors, employees, attorneys, consultants and agents (collectively called the Indemnitees) from and against any and all losses, damages, liabilities, obligations, penalties, fees, reasonable costs and expenses (including, without limitation, reasonable attorneys fees, costs and expenses) incurred by such Indemnitees, whether prior to or from and after the Interim Facility Effective Date, whether direct, indirect or consequential, as a result of or arising from or relating to or in connection with any of the following: (i) the negotiation, preparation, execution or performance or enforcement of this Agreement, any other Loan Document or of any other document executed in connection with the transactions contemplated by this Agreement, (ii) the Lenders furnishing of funds to the Borrower under this Agreement or the other Loan Documents, including, without limitation, the management of any such Loans, (iii) any matter relating to the financing transactions contemplated by this Agreement or the other Loan Documents or by any document executed in connection with the transactions contemplated by this Agreement or the other Loan Documents, or (iv) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto (collectively, the Indemnified Matters); provided, however, that the Borrower shall not have any obligation to any Indemnitee under this subsection (a) for any Indemnified Matter caused by the gross negligence or willful misconduct of such Indemnitee, as determined by a final judgment of a court of competent jurisdiction. (b) The indemnification for all of the foregoing losses, damages, fees, costs and expenses of the Indemnitees are chargeable against the Loan Account. To the extent that the undertaking to indemnify, pay and hold harmless set forth in this Section 8.14 may be unenforceable because it is violative of any law or public policy, the Borrower shall, jointly and severally, contribute the maximum portion which it is permitted to pay and satisfy under
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applicable law, to the payment and satisfaction of all Indemnified Matters incurred by the Indemnitees. The indemnities set forth in this Section 8.14 shall survive the repayment of the Obligations and discharge of any Liens granted under the Loan Documents. Section 8.15 Further Assurances. The Borrower agrees to cooperate to take such action and execute, acknowledge and deliver, at its sole cost and expense, such agreements, instruments or other documents as the Lender may require from time to time in order (a) to carry out more effectively the purposes of this Agreement and the other Loan Documents, (b) to subject to valid and perfected first priority Liens any of the Collateral or any other property of the Borrower, (c) to establish and maintain the validity and effectiveness of any of the Loan Documents and the validity, perfection and priority of the Liens intended to be created thereby, and (d) to better assure, convey, grant, assign, transfer and confirm unto the Lender the rights now or hereafter intended to be granted to it under this Agreement or any other Loan Document Section 8.16 Records. The unpaid principal of and interest on the Loans, the interest rate or rates applicable to such unpaid principal and interest, the duration of such applicability, and the accrued and unpaid costs, fees and expenses payable pursuant to this Agreement, shall at all times be ascertained from the records of the Lender, which shall be conclusive and binding absent manifest error. Section 8.17 Binding Effect. This Agreement shall become effective when it shall have been executed by the Borrower and the Lender and when the conditions precedent set forth in Section 3.01 hereof have been satisfied or waived in writing by the Lender, and thereafter shall be binding upon and inure to the benefit of the Borrower and the Lender, and their respective successors and assigns, except that the Borrower shall not have the right to assign their rights hereunder or any interest herein without the prior written consent of the Lender, and any assignment by the Lender shall be governed by Section 8.07 hereof. Section 8.18 Interest. It is the intention of the parties hereto that the Lender shall conform strictly to usury laws applicable to it. Accordingly, if the transactions contemplated hereby or by any other Loan Document would be usurious as to the Lender under laws applicable to it (including the laws of the United States of America and the State of California or any other jurisdiction whose laws may be mandatorily applicable to the Lender notwithstanding the other provisions of this Agreement), then, in that event, notwithstanding anything to the contrary in this Agreement or any other Loan Document or any agreement entered into in connection with or as security for the Obligations, it is agreed as follows: (a) the aggregate of all consideration which constitutes interest under law applicable to the Lender that is contracted for, taken, reserved, charged or received by the Lender under this Agreement or any other Loan Document or agreements or otherwise in connection with the Obligations shall under no circumstances exceed the maximum amount allowed by such applicable law, any excess shall be canceled automatically and if theretofore paid shall be credited by the Lender on the principal amount of the Obligations (or, to the extent that the principal amount of the Obligations shall have been or would thereby be paid in full, refunded by the Lender, as applicable, to the Borrowers); and (b) in the event that the maturity of the Obligations is accelerated by reason of any Event of Default under this Agreement or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest under law applicable to the Lender may never include more than the maximum amount allowed by such applicable law, and excess
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interest, if any, provided for in this Agreement or otherwise shall be canceled automatically by the Lender, as applicable, as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited by the Lender, as applicable, on the principal amount of the Obligations (or, to the extent that the principal amount of the Obligations shall have been or would thereby be paid in full, refunded by the Lender to the Borrowers). All sums paid or agreed to be paid to the Lender for the use, forbearance or detention of sums due hereunder shall, to the extent permitted by law applicable to the Lender, be amortized, prorated, allocated and spread throughout the full term of the Loans until payment in full so that the rate or amount of interest on account of any Loans hereunder does not exceed the maximum amount allowed by such applicable law. If at any time and from time to time (i) the amount of interest payable to the Lender on any date shall be computed at the Highest Lawful Rate applicable to the Lender pursuant to this Section 8.18 and (ii) in respect of any subsequent interest computation period the amount of interest otherwise payable to the Lender would be less than the amount of interest payable to the Lender computed at the Highest Lawful Rate applicable to the Lender, then the amount of interest payable to the Lender in respect of such subsequent interest computation period shall continue to be computed at the Highest Lawful Rate applicable to the Lender until the total amount of interest payable to the Lender shall equal the total amount of interest which would have been payable to the Lender if the total amount of interest had been computed without giving effect to this Section 8.18. For purposes of this Section 8.18, the term applicable law shall mean that law in effect from time to time and applicable to the loan transaction between the Borrower, on the one hand, and the Lender, on the other, that lawfully permits the charging and collection of the highest permissible, lawful non-usurious rate of interest on such loan transaction and this Agreement, including laws of the State of California and, to the extent controlling, laws of the United States of America. The right to accelerate the maturity of the Obligations does not include the right to accelerate any interest that has not accrued as of the date of acceleration. Section 8.19 Integration. This Agreement, together with the other Loan Documents, reflects the entire understanding of the parties with respect to the transactions contemplated hereby and shall not be contradicted or qualified by any other agreement, oral or written, before the date hereof. Section 8.20 Parties Including Trustees; Bankruptcy Court Proceedings. This Agreement, the Bankruptcy Court Orders, the other Loan Documents, and all Liens created hereby or pursuant hereto or to any other Loan Document shall be binding upon the Borrower, the estate of the Borrower, and any trustee or successor in interest of the Borrower in the Chapter 11 Case or any subsequent case commenced under Chapter 7 of the Bankruptcy Code or any other bankruptcy or insolvency laws, and shall not be subject to section 365 of the Bankruptcy Code. This Agreement, the other Loan Documents and the Bankruptcy Court Orders shall be binding upon, and inure to the benefit of, the successors of the Lender and its assigns, transferees and endorsees. The Liens created by this Agreement, the other Loan Documents and the Bankruptcy Court Orders shall be and remain valid and perfected in the event of the substantive consolidation or conversion of the Chapter 11 Case or any other bankruptcy case of the Borrower to a case under Chapter 7 of the Bankruptcy Code, or in the event of dismissal of
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the Chapter 11 Case or the release of any Collateral from the jurisdiction of the Bankruptcy Court for any reason, without the necessity that the Lender file financing statements or otherwise perfect its security interests or Liens under applicable law. [Remainder of this page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. BORROWER: AMERICAN SUZUKI MOTOR CORPORATION, a California corporation, as debtor and debtor-inpossession
By: Name: Title: LENDER: SUZUKI MOTOR CORPORATION, a corporation organized under the laws of Japan By: Name: Title: Takashi Iwatsuki Chairman of the Board
[SIGNATURE PAGE TO DEBTOR-IN-POSSESSION LOAN AND SECURITY AGREEMENT]

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Schedule 1.01(h) Liens Existing as of Filing Date
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State California
Secured Party The Bank of Tokyo Mitsubishi UFJ Ltd., Los Angeles Branch 777 S. Figueroa Street, Suite 600 Los Angeles, CA 90017 GE Capital Retail Bank 170 West Election Drive, Suite 125 Draper, UT 84020 GE Capital Financial Inc. 4246 South Riverboat Road, Suite 300 Salt Lake City, UT 84123 General Electric Capital Corporation 3251 E. Imperial Highway Brea, CA 92821 General Electric Capital Corporation 2400 East Katella Avenue, Suite 800 Anaheim, CA 92806 General Electric Capital Corporation 2400 East Katella Ave., Ste 800 Anaheim, CA 92806 General Electric Capital Corporation 2400 East Katella Avenue, Suite 800 Anaheim, CA 92806 General Electric Capital Corporation 2400 East Katella Avenue, Suite 800 Anaheim, CA 92806 General Electric Capital Corporation 2400 East Katella Avenue, Suite 800 Anaheim, CA 92806
Collateral All inventory, documents of titles, A/R and contract rights
Effective Date
UCC Lapse Date 6/3/2015
10/18/1985
California
California
California
Billing Reserve Account; Loss Limit Reserve Account; Promotion Reserve Account, set forth under the Retail Financing Program Agreement, Feb. 6, 1987. All accounts and proceeds therefrom under Credit Agreement between the lender and each account holder (a retail customer). 2003 Featherlite Enclosed Car Trailer VIN: 9957 2003 Peterbilt 387 Tractor, VIN: 1XP7DB9X84D811962 (2) Featherlite Enclosed Car Trailer VIN: 2862 and 2863 2005 Featherlite Enclosed Car Trailer VIN: 9417 2005 Featherlite Enclosed Car Trailer VIN: 9317 2006 Enclosed Car Trailer 4940
2/23/1987
2/25/2017
4/22/1999
2/22/2014
7/11/2003
7/11/2013
California
10/7/2003
6/19/2013
California
7/20/2004
2/26/2014
California
3/4/2005
11/16/2014
California
7/23/2005
3/22/2015
California
7/31/2006
4/21/2016
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State California
Secured Party Insight Investments, Corp. 600 City Parkway West Suite 500 Orange, CA 92868 Fuyo General Lease (USA) Inc. 733 Third Avenue, 17th Floor New York, NY 10017 Fuyo General Lease (USA) Inc. 733 Third Avenue, 17th Floor New York, NY 10017 CIT Communications Finance Corp. 1 CIT Drive Livingston, NJ 07039 Fuyo General Lease (USA) Inc. 733 Third Avenue, 17th Floor New York, NY 10017 CIT Communications Finance Corp. 1 CIT Drive Livingston, NJ 07039 Fuyo General Lease (USA) Inc. 733 Third Avenue, 17th Floor New York, NY 10017 De Lage Landen Financial Services, Inc. 1111 Old Eagle School Road Wayne, PA 19087 Bank of America 1655 Grant. St., CA4 701-10-57 Concord, CA 94520 Attn: Irma Tinoco
Collateral Computer equipment leased under Master Lease Agreement 6474, schedules 37Q, etc. Computer equipment leased under Master Lease Agreement No. 6474, Dec. 19, 2000 (Assigned by Insight Investments Corp.) Computer equipment leased under Master Lease Agreement No. 6474, Dec. 19, 2000 (Assigned by Insight Investments Corp.) Computer related equipment under Lease No. X354360, incl. S8500 Media Server, etc. (Assigned by Insight Investments Corp.) Computer equipment leased under Master Lease Agreement No. 6474, Dec. 19, 2000 (Assigned by Insight Investments, LLC) Computer related equipment under Lease No. X354360 Computer equipment leased under Master Lease Agreement No. 6474, Dec. 19, 2000. (Assigned by Insight Investments, LLC) 1 Muratec MFX2030 90143026 Including all components, additions, upgrades, attachments, accessions, substitutions, replacement and proceeds of the foregoing CD Account No. 2680
Effective Date
UCC Lapse Date 11/6/2012
11/6/2007
California
9/12/2007
12/4/2012
California
8/28/2009
8/28/2014
California
2/8/2010
2/8/2015
California
8/16/2010
7/16/2015
California
11/12/2010
11/12/2015
California
11/23/2010
11/23/2015
Georgia
9/4/2007
9/4/2012
California
Cash collateral account
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State California
Secured Party Union Bank of California P.O. Box 513840 Los Angeles, CA 90051-3840 Attn: Mr. Shigetoshi Takashi Union Bank of California P.O. Box 513840 Los Angeles, CA 90051-3840 Attn: Mr. Shigetoshi Takashi Union Bank of California P.O. Box 513840 Los Angeles, CA 90051-3840 Attn: Mr. Shigetoshi Takashi
Collateral
Effective Date
UCC Lapse Date
CD Account No. 6354
California
CD Account No. 6495
California
CD Account No. 7139
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Schedule 4.01(b)(ii) Subsidiaries SUZUKI MANUFACTURING OF AMERICA CORPORATION 1520 TECHNOLOGY PKWY NW Rome, Georgia 30165 Phone: (706) 378-2100
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Schedule 4.01(d) Commercial Tort Claims None
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Schedule 6.07(b) Real Property ASMC HEADQUARTERS 3251 E. Imperial Hwy Brea, CA 92821-6795 OTHER OFFICE LOCATIONS 3075 Chastain Meadows Parkway NW Marietta, GA 30066 5021 Richard Lane Mechanicsburg, PA 17055 46976 Magellan Wixom, MI 48393 OTHER PROPERTY (house) 20593 Manzanita Ave. Yorba Linda, CA 92886 (house) 2005 E. Hillman Circle Orange, CA 92867 (leased warehouse) 3170 Nasa Street Brea, CA 92821 (vacant land) Big Shanty Road Marietta, GA 30066 (Vacant Land)Leased by ASMC from World Oil 10970 South Street Cerritos, CA 90703 (Test Track)Leased by ASMC from Corona Clay 10600 Dawson Canyon Rd Corona, CA 92883
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Schedule 6.13(e) Deposit, Securities and Investment Accounts Please see attached.
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Bank Union Bank of California-JCC P.O. BOX 513840 Los Angeles, CA 90051-3840 Attn: Mr. Shigetoshi Takashi Ph: 877-688-6466 Fax: 800-738-2329 Union Bank of California-JCC P.O. BOX 513840 Los Angeles, CA 90051-3840 Attn: Mr. Shigetoshi Takashi Ph: 213-488-3851 Fax: 213-488-3893 Bank of the West 300 S. Grand Ave., 7th floor Los Angeles, CA 90071 Attn: Mr. Hidemi Noguchi Ph: 213-972-0288 Fax: 213-972-0259 Mizuho 350 S, Grand Ave., 14th Floor Los Angeles, CA 90071 Attn: Mr. Yuji Hoshaku Ph: 213-612-2781 Fax:213-243-4896
Account Holder American Suzuki Motor Corporation
Account No. #9997
Account Type Main Checking
American Suzuki Motor Corporation
#1926
Mega Savings
#2297
Checking
#2442
Checking
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Bank Shizuoka Bank, Ltd. 801 So. Figueroa St., Ste 800 Los Angeles, CA 90017 Attn: Mr. Fumiyasu Sato Ph: 213-622-3233 Fax: 213-623-8674 Sumitomo Mitsui Bank 601 S. Figueroa St., Suite 1800 Los Angeles, CA 90017 Attn: Mr. Hisashi Toyoda Ph: 213-452-7891 Fax: 213-623-6832 Union Bank of California P.O. BOX 513840 Los Angeles, CA 90051-3840 Attn: Mr. Shigetoshi Takashi Ph: 877-688-6466 Fax: 800-738-2329 Bank of America 290 So. State College Brea, CA 92821 Attn: Denise Makarem Ph: 800-932-0132 or 714-562-5005 Bank of America 1655 Grant. St., CA4 701-10-57 Concord, CA 94520 Attn: Irma Tinoco Ph: 800-233-8820 (x57129) Union Bank of California P.O. BOX 513840 Los Angeles, CA 90051-3840 Attn: Mr. Shigetoshi Takashi Ph: 877-688-6466 Fax: 800-738-2329
Account No. #1150
Account Type Checking
#3837
Investment
#0245
Checking for Self-Insurance Plan
#2999
Checking for Payroll
#2680
CD Account
#6354
CD Account
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Bank Union Bank of California P.O. BOX 513840 Los Angeles, CA 90051-3840 Attn: Mr. Shigetoshi Takashi Ph: 877-688-6466 Fax: 800-738-2329 Union Bank of California P.O. BOX 513840 Los Angeles, CA 90051-3840 Attn: Mr. Shigetoshi Takashi Ph: 877-688-6466 Fax: 800-738-2329 Union Bank of California P.O. BOX 513840 Los Angeles, CA 90051-3840 Attn: Mr. Shigetoshi Takashi Ph: 877-688-6466 Fax: 800-738-2329 Union Bank of California P.O. BOX 513840 Los Angeles, CA 90051-3840 Attn: Mr. Shigetoshi Takashi Ph: 877-688-6466 Fax: 800-738-2329
Account No. #6495
Account Type CD Account
#7139
CD Account
#7371
Checking for Health Plan Aetna
#7363
Checking for Health Plan Chard Snyder
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EXHIBIT A FORM OF NOTICE OF BORROWING __________, 20__ Suzuki Motor Corporation 300 Takatsuka-cho, Minami-ku Hamamatsu-shi, Shizuoka-ken 432-8065 Japan Attention: Mr. Ayukawa Ladies and Gentlemen: Reference is made to that certain Debtor-in-Possession Loan and Security Agreement dated as of November 5, 2012 (as amended, restated, supplemented or otherwise modified and in effect from time to time, the Loan and Security Agreement) by and among the undersigned, as the Borrower, and Suzuki Motor Corporation, a corporation organized under the laws of Japan (the Lender). Capitalized terms used herein but not defined herein shall have the respective meanings ascribed to such terms in the Loan and Security Agreement. The Borrower hereby gives the Lender notice pursuant to Section 2.04(a) of the Loan and Security Agreement that the Borrower requests an Advance under the Loan and Security Agreement, and in connection therewith sets forth below the information relating to such Advance (the Proposed Advance) as required by Section 2.04(a) of the Loan and Security Agreement. (i) (ii) The aggregate principal amount of the Proposed Advance is $__________. The date of borrowing of the Proposed Advance is __________ __, ____.
(iii) The Proposed Advance shall be [funded to the Borrower]/[funded at the Borrowers request to the third party identified on Annex A hereto]. The Borrower hereby certifies that (i) the representations and warranties contained in Article IV of the Loan and Security Agreement and in each other Loan Document, certificate or other writing delivered to the Lender pursuant thereto on or prior to the date hereof are true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations or warranties that already are qualified or modified as to materiality or Material Adverse Effect in the text thereof, which representations and warranties shall be true and correct in all respects subject to such qualification) on and as of the date hereof as though made on and as of the date hereof, except to the extent that any such representation or warranty expressly relates solely to an earlier date (in which case such representation or warranty shall be true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations or warranties that already are qualified or modified as to materiality or Material Adverse Effect in the text thereof, which representations and warranties shall be true and correct in all respects subject to such qualification) on and as of such earlier date), (ii) no Default or Event of Default has occurred or is continuing on the date hereof
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or would result from the making of the Proposed Advance and (iii) the conditions set forth in Section 3.03 of the Loan and Security Agreement have been satisfied as of the date hereof. Very truly yours, AMERICAN SUZUKI MOTOR CORPORATION, as debtor and debtor-in-possession By: Name: Title:
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ANNEX A Please fund the Proposed Advance to _______________ pursuant to the following payment instructions: [Insert wire transfer or other payment instructions.]
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EXHIBIT B [FORM OF INTERIM BANKRUPTCY COURT ORDER FILED SEPARATELY]
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Term DIP Order, at 2. Interest Rate

Final Maturity Date

Security and Priority

Plan and Sale Process

Remedies for Event of Default

Provision under other applicable law

EXHIBIT A (Proposed Interim DIP Order)

P ACHULSKI S TANG Z IEHL & J ONES LLP

ATTORNEYS AT LAW LOS ANGELES, CALIFORNIA

Date: Time: Place:

No Committee. No committee has been appointed in the Chapter 11 Case pursuant

Disposition of Collateral. Except as otherwise provided in the DIP Credit

HONORABLE UNITED STATES BANKRUPTCY JUDGE

EXHIBIT 1 Initial Budget

Fcst Dec-12 $ 78,968 56 $ 79,024

Fcst Jan-13 $ 65,114 54 10,378 $ 75,546

Fcst Feb-13 $ 62,098 51 16,396 $ 78,545

Fcst Mar-13 $ 64,851 106 17,916 $ 82,873

Fcst Total $ 328,834 322 44,690 $ 373,846

$ 14,315 2,463 36,636 53,414 200 55 2,000 900 960 4,115

$ 38,320 1,971 39,557 79,849 3,128 3,128 $ 82,977

$ 40,390 1,843 36,530 78,763 3,128 30 3,158 $ 81,921

$ (3,953) $ $ 13,328 $ $ 9,375 $

(6,375) $ 9,375 $ 3,000 $

$ 10,378 $ 19,016 $ 3,635

$ 16,396 $ 20,403 $ 3,635

$ 17,916 $ 20,757 $ 3,635

ASMC Restructuring Professional Fees

100 100 3,835 $

100 100 3,835 $

100 100 3,635 $

100 100 3,635 $

100 100 3,635

500 500 $ 18,575

EXHIBIT B (DIP Credit Agreement)

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Section 5.02 Section 5.03

Negative Covenants .............................................................................27 Financial Covenant ..............................................................................28

ARTICLE VIII MISCELLANEOUS ............................................................................................42

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Schedule 6.13(e) Exhibit A Exhibit B

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(d) (e) (f)

all Inventory; all Investment Property; all Subsidiary Stock;

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