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2024-12-12 Motion Authorizing DIP (Doc 246)Case 24-11647-MFW Doc 246 Filed 12/12/24 Page 1 of 31 IN TIIE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re SilverRock Development LLC, et al., Debtors) Chapter 11 Case No. 24-11647 (MFW) (Jointly Administered) Objection Deadline: December 26, 2024 @ 4p.m. (ET) Hearing Date: January 2, 2025 at 10:30 a.m. (ET) MOTION OF DEBTORS PURSUANT TO SECTIONS 105, 361, 362,363, 364, AND 507 OF THE BANKRUPTCY CODE, BANKRUPTCY RULE 4001, AND LOCAL RULE 4001-2, FOR AN ORDER (I) AUTHORIZING DEBTORS TO OBTAIN POSTPETITION FINANCING; (II) GRANTING DIP LENDER PRIMING LIENS AND SUPER -PRIORITY CLAIMS; AND (III) GRANTING RELATED RELIEF Debtors hereby file this motion (the "Motion") for the entry of an order (the "Order2") authorizing the Debtors to obtain postpetition financing in accordance with Debtor -In -Possession Term Sheet (the "Term Sheet") executed between the Debtors, as borrowers, on one hand, and the 'The Debtors in these chapter 11 cases, along with the last four digits of each Debtor's federal tax identification number, as applicable, are: SilverRock Development Company, LLC (5730), RGC PA 789, LLC (5996), SilverRock Lifestyle Residences, LLC (0721), SilverRock Lodging, LLC (4493), SilverRock Luxury Residences, LLC (6598) and SilverRock Phase I, LLC (2247). The location of the Debtors' principal place of business and the Debtors' mailing address is 343 Fourth Avenue, San Diego, CA 92101. 2 The proposed form of order is attached hereto as Exhibit A. 1 Case 24-11647-MFW Doc 246 Filed 12/12/24 Page 2 of 31 City of La Quinta ("DIP Lender" or the "City"), as lender, on the other in the principal amount of $11,000,000.00 (the "Principal Amount"). The Term Sheet is attached to the Order as Exhibit 1."3 In support of this Motion, the Debtors rely upon, and incorporate by reference, the Declaration Christopher S. Sontchi, Independent Manager of the Debtors,(the "Sontchi Declaration"), attached hereto as Exhibit B, the Declaration of 'Douglas Wilson (the "Wilson Declaration"), the Debtors' Chief Restructuring Officer ("CRO"), attached hereto as Exhibit C, the List of secured creditors, attached hereto as Exhibit D, and the Declaration of Robert S. Green Jr., Pursuant to 28 U.S.C. § 1746, In Support of, Debtors' Chapter 11 Petitions and First Day Pleadings (the "Green Declaration") [D.I. 13] in support of the Debtors' voluntary petitions (the "Chapter 11 Petitions") for chapter 11 relief commencing the above -captioned chapter 11 cases (the "Cases"). In further support of this Motion, the Debtors respectfully state as follows: I. JURISDICTION, VENUE, AND STATUTORY PREDICATE 1. The United States Bankruptcy Court for the District of Delaware (the "Court") has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334 and the Amended Standing Order of Reference from the United States District Court for the District of Delaware, dated February 29, 2012. 2. This matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2), and the Debtors confirm their consent pursuant to Local Rule 9013-1(0 to the entry of a final 3 Attached to the Term Sheet is a Memorandum of Understanding ("MOU") entered between Debtors and DIP Lender that provides for a consensual process to sell the Project opportunity and clearly sets forth Debtors' and DIP Lender's rights in connection with the sale. The MOU is incorporated in the Term Sheet, and unless the context indicates otherwise, references herein to the Term Sheet include the MOU. 2 Case 24-11647-MFW Doc 246 Filed 12/12/24 Page 3 of 31 order by the Court in connection with this Motion to the extent that it is later determined that the Court, absent consent of the parties, cannot enter final orders or judgments in connection herewith consistent with Article III of the United States Constitution. 3. Venue is proper pursuant to 28 U.S.C. §§ 1408 and 1409. 4. The statutory bases for the relief requested herein are sections 105(a), 362, 363 and 364 of the Bankruptcy Code, Bankruptcy Rules 4001 and 9014, and Local Rule 4001-2. 5. No creditor or other statutory committee has been appointed in these Chapter 11 Cases. II. STATEMENT OF FACTS 6. A more thorough and complete discussion of the Debtors' history, operations, capital structure, and events that led up to this bankruptcy filing is set forth in the Green Declaration, which is incorporated herein. As set forth in Green Declaration, the Debtors' business operations center around the real estate development of a 525-acre master planned community in the City of La Quinta, California (the "Project"), now known as "Talus." To date, the Debtors currently own approximately 140 acres of land in the Project. As noted in the Green Declaration, the Debtors' real property and real estate development assets have been credibly appraised at a value of more than $409 million. This substantial underlying value provides the Debtors with the basis to prime the Project's existing secured creditors to secure necessary debtor in possession financing to run a fulsome marketing process and successfully confirm a Chapter 11 Plan of Reorganization for the benefit of all constituencies to the bankruptcy estates. Prior to the hearing on this Motion, the Debtors will submit additional evidence establishing the value of the Project opportunity and its underlying equity cushion. 3 Case 24-11647-MFW Doc 246 Filed 12/12/24 Page 4 of 31 7. The Debtors require postpetition financing to fund the anticipated sale process and to ultimately confirm a chapter 11 plan for the benefit of all stakeholders. To date, the Debtors were able to obtain interim funding of $2,690,965.00 (the "Interim Funding") pursuant four interim fmancing orders (the "Interim Orders") pursuant to a term sheet (the "Prior Term Sheet") enteredinta between the Debtors and the City. The City provided funding under the Prior Terni Sheet without priming any of the Project's existing secured creditors. The Interim Funding provided by the City allowed the Debtors to stabilize the Project, pay administrative expenses in connection with these Chapter 11 Cases, appoint the Independent Manager, and begin discussions with major stakeholders regarding a consensual process forward. The Interim Funding does not provide the necessary funding to complete a fulsome sale process for the Project for the benefit of the Debtors, their estates, and their stakeholders. As a result, upon the appointment of the Independent Manager, the Debtors began to assess their need for additional postpetition financing. (Sontchi Declaration at Par 10; Wilson Declaration at Pars 8-9). 8. To assess such financings requirements, the Debtors' CRO analyzed the cash needs of the Debtors in connection with postpetition financing and under the supervision and direction of the Independent Manager, the CRO worked to identify parties that were interested in providing postpetition financing to the Debtors. (Wilson Declaration at Pars 11-12). 9. The Debtors estimate they require a total of $11 million, inclusive of the $2,690,965 already committed, to fund their intended sale process and propose a chapter 11 plan. The additional funding will provide the Debtors with the necessary funds to hire a qualified real estate broker, provide such broker the time it needs to conduct a fulsome and robust marketing process, and sell the Project opportunity. (Wilson Declaration at Par 9). 4 Case 24-11647-MFW Doc 246 Filed 12/12/24 Page 5 of 31 10. The CRO extensively shopped the DIP lending market, including engaging with existing secured creditors, to see if they would finance the Debtors' needs. Other than the City, none of the existing secured creditors presented DIP funding terms to the Debtors. In addition to engaging with existing secured creditors, the process also included reaching out to parties outside the existing capital structure. As part of this process, the CRO reached out to approximately two existing secured creditors and five third -party financial institutions to assess interest in providing debtor -in -possession financing. While the CRO received term sheets from multiple outside lenders, none of those term sheets were as favorable as the City's, which, among other things, includes as rate of 4.71% per annum (the rate of interest set by the State of California for investments of public agency funds as in effect as of the date of this Motion), does not include facility fees, and is without a make -whole provision. Further, none of lenders, including the City, who submitted proposals were willing to provide postpetition financing without priming the existing secured creditors. The Debtors and their advisors engaged in extensive and arm's-length negotiations with the City and were ultimately able to secure the proposed DIP Credit Facility (as defined below) as set forth in the Term Sheet. The Debtors believe this represents the best debtor - in -possession financing facility that they are able to obtain. (Wilson Declaration at Pars 11-12; Sontchi Declaration at Par 11). 11. The proposed milestones set forth in the Term Sheet are appropriate under the circumstances. The entry of the MOU attached to the Term Sheet provides for a consensual process with DIP Lender to sell the Project opportunity and clearly set forth the parties' rights in connection with the sale of the Project opportunity. Further, the DIP Lender would not enter into 5 Case 24-11647-MFW Doc 246 Filed 12/12/24 Page 6 of 31 the DIP Term Sheet without the Debtors agreeing to the terms of the MOU. (Sontchi Declaration at Par 12). 12. The Term Sheet provides for granting the City liens on all of Debtors' property and primes the existing secured creditors of the estate, which are more fully described in Exhibit D, attached hereto, the Green Declaration, and in Debtors' Bankruptcy Schedules and Statements of Financial Affairs. The City and the Debtors are seeking to obtain the voluntary consent of the affected secured creditors to prime their interests, but to the extent such consent is not obtained, the Debtors assert there is sufficient equity cushion in the Project to protect the secured interests of the creditors. 13. Since the appointment of the Independent Manager, the Debtors have taken important and significant steps to further expand the equity cushion in the Project. The Debtors have filed a motion with this Court, pursuant to Bankruptcy Rule 9019, to settle with certain preferred equity holders and unsecured creditors whose interests were secured within 90 days of the Petition Date (the "Preferential Interest Holders"). Under the terms of this proposed settlement, the Preferential Interest Holders will reconvey approximately $34,153,111 in secured debt to the estate, further augmenting the Project's existing equity cushion. The Debtors have also filed an avoidance action against those Preferential Interest Holders who have not voluntarily agreed to reconvey which seeks to avoid approximately $35,925,80 in secured debt4. As a result of filing the complaint, the Debtors assert that such debt is disputed as of the filing of this Motion. 4 Debtors dispute the validity of an approximate additional $40,000,000 of secured debt, which is not subject to the Complaint. 6 Case 24-11647-MFW Doc 246 Filed 12/12/24 Page 7 of 31 14. The $11 million ("DIP Credit Facility") provided by the Term Sheet includes the $2,690,965 loaned under the Prior Term Sheet and subjects the entire DIP Credit Facility amount to the priming liens and superpriority administrative expenses described herein. III. RELIEF REQUESTED 15. The Debtors need sufficient cash to maintain and preserve the value of their real estate and the Project opportunity, to run a robust and fulsome sale process and pay related administrative expenses, during the pendency of these Chapter 11 Cases. The Debtors have undertaken an analysis of the minimum funding necessary to achieve this and have limited the amount of the postpetition loan to such an amount. To obtain the use of the necessary funds, the Debtors have negotiated with the DIP Lender with respect to it providing the DIP Credit Facility. The Debtors and the DIP Lender have reached an agreement on the terms of the DIP Credit Facility, as set forth in the Term Sheet, the Order, and this herein Motion. 16. The Debtors seek, pursuant to Sections 105, 361, 362, 363, 364, and 507 of the Bankruptcy Code and Bankruptcy Rules 4001(b) and (c), the entry of an order authorizing the Debtors to obtain postpetition financing for the following. (i) Entry of an Order allowing the Debtors to borrow, based upon the DIP Credit Facility, a total of $11,000,000.00; (ii) a finding that the Debtors and DIP Lender are authorized to execute and act under the Term Sheet, enter into and execute all forthcoming DIP Documents, and to perform such other and further acts as may be necessary or appropriate in connection therewith; (iii) a finding that the Debtors are authorized to use the proceeds of the DIP Credit Facility for working capital and general corporate purposes in accordance with the Budget, attached to the proposed Order as Exhibit 2; 7 Case 24-11647-MFW Doc 246 Filed 12/12/24 Page 8 of 31 (iv) granting the DIP Lender a senior priming lien on all of Debtors' interests in real and personal property' (the "DIP Collateral"), pursuant to section 364(d) of the Bankruptcy Code; (v) granting the DIP Lender superpriority administrative claims, pursuant to section 364(c) of the Bankruptcy Code, as set forth in the Term Sheet and Order; (vi) modifying the automatic stay, set forth in section 362 of the Bankruptcy Code,to the extent necessary to implement and effectuate the terms of the Term Sheet, including a waiver of any applicable stay with respect to the effectiveness and enforceability of the Order (including under Bankruptcy Rule 6004); and (vii) related relief. 17. The relief sought herein is the product of good faith, arms' length negotiations by and between the Debtors and the DIP Lender. Approval of the Motion is necessary because, without the ability to borrow funds from the DIP Lender, the Debtors will lack the cash to operate their businesses and therefore preserve the value of the assets during the pendency of the Chapter 11 Cases. IV. MATERIAL TERMS OF THE DIP CREDIT FACILITY 18. Pursuant to and in accordance with Bankruptcy Rule 4001(b)(1)(B) and (c)(1)(B) and Local Bankruptcy Rule ("Local Rule") 4001-2, the material provisions of the DIP Credit Facility, and the location of such provisions in the relevant source documents, are as follows: 5 Without limiting the generality of the foregoing, the scope of the DIP Lender's priming lien includes certain property known as "PA 9," which purportedly is (or was) subject to a 42.8° ° tenant in common interest in favor of SilverRock Land II, LLC ("Land II"), an entity owned by the Traub Family Revocable Trust. Debtors may encumber the entirety of PA 9 without consent from Land II pursuant to the tenant in common agreement between Land II and RGC PA 789, LLC. 8 Case 24-11647-MFW Doc 246 Filed 12/12/24 Page 9 of 31 Borrowers Bankruptcy Rule 4001(c)(1)(B) Term Sheet, paragraph.1 Order, paragraph 2 The Debtors, jointly and severally DIP Lender Bankruptcy Rule 4001(c)(1)(B) Term Sheet, paragraph 2 Order paragraph 2 I"he City of La Quinta Commitment Bankruptcy Rule 4001(c)(1)(B); Local Rule 4001-2(a)(i)(A), (a)(ii) Term Sheet, paragraph 3 Order, paragraph 3 $11,000,000, including amounts previously advanced by DIP Lender under interim orders Milestones: Bankruptcy Rule 4001(c)(1)(B); Local Rule 4001- 2(a)(i)(H), (a)(ii) Term Sheet, paragraph 12(a) The milestones below may be subject to further revisions upon agreement between the Debtors and the DIP Lenders after they have had discussions with the broker retained with respect to the sale of the Project opportunity. To the extent the milestones require an action of the Bankruptcy Court, they are subject to the availability of the Bankruptcy Court. i. The Debtors shall have selected a broker, and filed an application to engage such broker, not later than December 12, 2024; ii. The Debtors shall have obtained an order approving 9 Case 24-11647-MFW Doc 246 Filed 12/12/24 Page 10 of 31 engagement of the broker not later than January 3, 2025; iii. The Debtors shall have filed a motion for approval of bid procedures not later than January 31, 2025; iv. The Debtors shall have obtained a report regarding cost to complete the project not later than February 10, 2025; v. The Court shall have entered its order approving the bid procedures not later than February 28, 2025; vi. The Court shall have entered its order authorizing the entry into a definitive agreement with a stalking horse purchaser not later than April 30, 2025 ; vii. Final, bids that are not contingent on due diligence or similar discretionary considerations must be submitted not later than June 30, 2025; viii. The Debtors shall have selected the successful purchaser (and if appropriate a back-up bidder) not later August 15, 2025; ix. The Bankruptcy Court shall have entered its order approving a sale of all or substantially all of the Property 10 Case 24-11647-MFW Doc 246 Filed 12/12/24 Page 11 of 31 not later than September 12, 2025; x. Closing on the sale (and if Closing is to occur pursuant to the Debtors' Plan, the Effective Date) (the "Closing Date") shall occur not later than October 10, 2025; xi. Irrespective of the Closing Date, the Effective Date of the Debtors' plan shall have occurred not later than December 31, 2025. Interest Rates/Make Whole Provision Bankruptcy Rule 4001(c)(1)(B); Local Rule 4001-2(a)(i)(B), (a)(ii) Term Sheet, paragraph 5 Interest Rate: 4.71% per annum. Default Interest Rate: Five percent (5%) per annum rate applicable after the occurrence of an Event of Default. Make Whole Provision N/A Term/Maturity Bankruptcy Rule 4001(c)(1)(B); Local Rule 4001- 2(a)(B), (a)(ii) Term Sheet, pages 2-3 Order, paragraph 9 11 Term and Maturity Date: DIP Credit Facility shall become available for use as of the date the Court enters the Order, and its Term shall last through the Maturity Date. The Maturity Date shall be the first to occur of: a. The effective date of a chapter 11 plan for any of the Debtors in the Bankruptcy Case (the "Effective Date"). b. The closing of a sale, assignment or transfer of substantially all or Case 24-11647-MFW Doc 246 Filed 12/12/24 Page 12 of 31 substantially all of the Debtors' assets (the "Closing"). c. The occurrence of an Event of Default under or with respect to the Facility. d. The dismissal or conversion of the Bankruptcy Case (or the case of any of the Debtors), or appointment of a trustee with respect to any of the Debtors. e. The termination of Christopher Sontchi as the manager of any of the Debtors. f. The termination of Douglas Wilson as chief restructuring officer of any of the Debtors. g. December 31, 2025. Use of DIP Credit Facility; Refinancing Bankruptcy Rule 4001(c)(1)(B); Local Rule 4001- 2(a)(ii) Term Sheet paragraph 12(b) Order, paragraph 10(j) The Debtors shall use the proceeds of the DIP Credit Facility in accordance with the Budget, with up to a 10% permitted variance upon approval of the DIP Lender, and such approval shall not be unreasonably withheld. No refinancing terms are included. Borrowing Limits Bankruptcy Rule 4001(c)(1)(B); Local Rule 4001- (a)(i)(E), (a)(ii) Term Sheet, paragraph 7 12 Debtors shall be entitled to draw the full amount of the Facility upon satisfaction of all conditions to borrowing under the Loan Documents. Debtors alternatively shall have the right to make monthly draws by providing written notice to the City at least three (3) business days prior to each draw specifying the amount of the draw. The Debtors may hold and maintain up to $2,000,000 in their operating accounts. All funds in excess of $2,000,000 shall be Case 24-11647-MFW Doc 246 Filed 12/12/24 Page 13 of 31 maintained in a segregated account subject to a security interest in favor of the City (the "Secured Account"), which shall be deemed to be a perfected security interest pursuant to the terms of the Order. Subject to the foregoing limitation, absent the pendency of a default under the DIP Documents, the Debtors may transfer funds from the Secured Account to the Debtors' operating account. Borrowing Conditions Bankruptcy Rule 4001(c)(1)(B); Local Rule 4001- 2(a)(i)(E) Term Sheet paragraph 14 Subject to satisfaction or written waiver by the DIP Lender, the DIP Lender's obligation to fund the full amount provided by the DIP Facility is conditioned upon: i) Final approval by the La Quinta City Council. ii) Entry and finality of the Order. iii) Acceptance of the Budget by the DIP Lender. iv) The preparation, delivery, execution and (as applicable) recordation of the DIP Documents (including a credit agreement, promissory note, deed of trust, security agreement and financing statements) in a form and substance acceptable to the DIP Lender in its sole discretion. a. Debtors shall have signed a definitive agreement with RD Olson Construction, Inc. for the clean-up and dust control of the Project b. The absence of an Event of Default, or the occurrence 13 Case 24-11647-MFW Doc 246 Filed 12/12/24 Page 14 of 31 of any act or omission that, with the giving of notice or the passage of time, would constitute an Event of Default. c. D I P Lender's receipt of a lender title insurance policy regarding DIP Collateral. Fees/Expenses Bankruptcy Rule(c)(1)(B); Local Rule 4001- 2(a)(i)(B), (a)(ii) Term Sheet, paragraph 10 Fees: The Term Sheet contains no Facility Fees. Ex ' enses: Debtors will be responsible for paying transfer taxes and fees in connection with recording a deed of trust securing the DIP Facility, a sale pursuant to the deed of trust, or a sale pursuant to Bankruptcy Code Section 363. Debtors will also be responsible for reimbursing the City for up to $600,000 in professional fees and costs, which will not count against the Budget. Approved Budget Bankruptcy Rule 4001(c)(1)(B); Local Rule 4001- 2(a)(i)(E), (a)(ii) Term Sheet, paragraph 12(b) Order, paragraphs vii, 2(d), 5, 10(j) The DIP Facility Loan will be spent according to the Budget, with allowed 10% variance upon approval of the DIP Lender, where such approval may not be unreasonably withheld. Other Covenants; Local Rule 4001-2(a)(i)(E), (a)(ii) Term Sheet, paragraph 12 Debtors covenant to complete the Milestones and to use the DIP Facility funds as discussed herein. Debtors and DIP Lender further covenant to comply with the terms of the Memorandum of Understanding attached to the Term Sheet as Exhibit B. Debtors shall maintain security and fencing for the Project in 14 Case 24-11647-MFW Doc 246 Filed 12/12/24 Page 15 of 31 accordance with the Budget. Debtors shall consult with the DIP Lender before entering into any agreement outside of the ordinary course of business, and Debtors shall maintain D&O insurance for the Independent Manager in an amount not less than $10 million and tail coverage not less than five years. Liens and Superpriority Claims Bankruptcy Rule 4001(c)(1)(B)(i), (xi); Local Rule 4001-(a)(i)(D), (G), (P), (U), 4001-2(a)(ii) Term Sheet, paragraph 6 Order, paragraphs v, 3 Debtors' obligations under the DIP Facility shall be secured by a lien held by DIP Lender in all interests of the Debtors in real and personal property, including without limitation all property co -owned by any of the Debtors as a tenant in common (the "DIP Collateral"). This lien shall prime all existing liens in the DIP Collateral. DIP Lender shall be entitled to a superpriority administrative expense to secure all indebtedness and obligations under the Facility pursuant to Section 364(c)(1) of the Bankruptcy Code, senior to all other administrative expenses in the Borrowers' chapter 11 cases (the "Superpriority Expense"), subject only to the Carve Out. Priming of Secured Liens Without Consent of Lienholder Local Rule 4001-(a)(i)(P) Order, paragraph I(H) The proposed order provides for priming of the secured creditors. At the time of fling this motion, the secured creditors have not consented to the priming of their liens. The justification for such priming is set forth herein. Use of Cash Collateral Bankruptcy Rule 4001(b)(1)(B)(ii) Local Rule 4001-2((a)(i)(A) N/A Adequate Protection Bankruptcy Rule 4001(b)(1)(B)(iv); The secured creditors to the Debtors' estate are adequately protected against any diminution resulting from any of the 15 Case 24-11647-MFW Doc 246 Filed 12/12/24 Page 16 of 31 Order, paragraph I(H incurrence of priming liens or superpriority claims granted to the DIP Lender, or resulting from the subordination of their prepetition secured interests to the DIP Lender's priming liens because of the substantial equity cushion already existing in the DIP Collateral. Carve -Out Local Rule 4001-2(a)(i)(F) Term Sheet, paragraph 13 Order, paragraph 7 16 a. Fees payable to the United States Trustee pursuant to 28 U.S.C. Section 1930(a). b. Fees payable to the clerk of the Bankruptcy Court. c. To the extent such expenses are incurred prior to the Carve -Out Trigger: i. Allowed fees and expenses incurred by the Independent Manager in the amount set forth in the Approved Budget, not exceeding $60,000.00 per month plus reasonable expenses; ii. Allowed fees and costs of defense with respect to indemnification obligations owed by Borrowers to the Independent Manager; provided, however, that this carve out shall apply solely to the extent such fees and costs exceed the amount of coverage required to be provided by D&O insurance; iii. Allowed fees and costs plus the payment of the Independent Manager's allowed legal fees and Case 24-11647-MFW Doc 246 Filed 12/12/24 Page 17 of 31 expenses in connection with the Chapter 11 Cases; iv. Allowed fees and expenses incurred by the CRO in the maximum amount set forth in the Approved Budget (subject to the Permitted Variances); and v. Allowed fees and expenses incurred by Borrowers' other court approved professionals in the maximum aggregate amount set forth in the Approved Budget (subject to the Permitted Variances). d. Up to a maximum amount equal to the lesser of (a) $400,000, or (b) amounts remaining available under the Approved Budget (without reference to the Carve -Out Trigger) for unpaid documented fees, costs and expenses accrued or incurred by the Independent Manager and other retained professionals following the occurrence of the Carve -Out Trigger, payable under sections 330 and 331 of the Bankruptcy Code and subsequently allowed by order of the Bankruptcy Court (the "Post -Trigger Carve Out"). e. Notwithstanding the foregoing: (1) the amounts of each carve out set forth above shall be reduced by the amounts paid from the Facility (whether pursuant to the Interim Orders or the Approval Order) to or for the benefit of the holder of each such carve out; (2) except to the extent of the Post - Trigger Carve Out, the carve outs shall 17 Case 24-11647-MFW Doc 246 Filed 12/12/24 Page 18 of 31 be limited to fees and costs incurred prior to the first to occur of (i) the Commitment Termination Date, and (ii) the occurrence of an Event of Default; (3) no carve out shall be available with respect to fees or expenses that are incurred with respect to matters that are not a permitted use of the proceeds of the loans under the Facility; (4) absent the City's express written agreement, the amount of the carve outs set forth in the Approved Budget (subject to Permitted Variances) shall not increase by virtue of any extensions of time or increases in amounts as may be provided for in subsequent amendments to the Approved Budget; and (5) to the extent that any Permitted Variance, reallocation of funds, or other use of funds reduces the amount of funds available under the Approved Budget for the payment of fees or expenses, the maximum amount of the Carve Out shall be reduced accordingly. f. A "Carve -Out Trigger" occurs upon delivery (by email or otherwise) by the City of written notice to the Debtors, the Debtors' lead bankruptcy counsel, and the United States Trustee of the occurrence of an Event of Default. Waivers under Sections 506(c) and 552(b) and the Equitable Doctrine of Marshaling. Bankruptcy Rule 4001(c)(1)(B)(x); 4001(c)(1)(B); Local Rule 4001-2(a)(i)(V), (W), (X) Term Sheet, paragraph 18 Debtors, their successors and assigns waive surcharge rights in Bankruptcy Code Section 506(c) and to assert the equities of the case exception under Bankruptcy Code 552(b) 18 Case 24-11647-MFW Doc 246 Filed 12/12/24 Page 19 of 31 Order, paragraph 10(h) Determination Regarding Prepetition Claim; Stipulations of the Debtors, Waiver Bankruptcy Rule 4001(c)(1)(B)(iii), (viii); Local Rule 4001-2(a)(i)(Q) Term Sheet, paragraph 18 Order, paragraph 10(h) Debtors agree to waive: i. to seek or obtain entry of an order priming (under section 364(d) of the Bankruptcy Code) the liens and security interest of the DIP Lender that secure the DIP Facility, or the prepetition liens, security interests of the City, and/or property interests of the City (including without limitation the City's repurchase options); or ii. without the City's prior written consent, to sell, transfer, assign or revest the Debtors' property free and clear of the liens and security interests of the City that secure the Facility, or the prepetition liens, security interests of the City, and/or property interests of the City (including without limitation the City's repurchase options). iii. Such waivers and releases shall survive repayment of the indebtedness and satisfaction of other obligations under the Facility. Challenge Period Bankruptcy Rule 4001(b)(1)(B)(iii); Local Rule 4001-2(a)(B) N A, except insofar as parties -in -interest may oppose the Motion. Waiver or Modification of the Automatic Stay Bankruptcy Rule 4001(c)(1)(B)(iv) None, except to the extent necessary to enforce the DIP Documents, Term Sheet and Order 19 Case 24-11647-MFW Doc 246 Filed 12/12/24 Page 20 of 31 Release, Waivers or Limitation on any Claim or Cause of Action N/A Events of Default Bankruptcy Rule 4001(c)(1)(B); Local Rule 4001- 2(c) Term Sheet, paragraph 4 Order, paragraph 2(c) Customary events of default of similar transactions, along with those set forth herein and in the Term Sheet (including the MOU). Remedies Bankruptcy Rule 4001(c)(1)(B) Term Sheet paragraph 17 Subject to the Order, with respect to enforcement of remedies upon an Event of Default, the City shall provide a Carve - Out Trigger notice to the Debtors five (5) Business Days' prior to taking such action (the "Remedies Notice Period"), and after the expiration of the Remedies Notice Period, the City shall be authorized and entitled to exercise all rights and remedies provided in the DIP Documents or Order (as applicable) and under applicable law. During the Remedies Notice Period, the Borrowers may use cash in their operating account in the ordinary course of business, consistent with past practices and the Budget, including for the purposes of funding the Carve Out. During the Remedies Notice Period, any party in interest shall be entitled to seek an emergency hearing with the Bankruptcy Court seeking to stay the City's exercise of any rights and remedies and funds in the operating account may be used for this purpose. Indemnification; Exculpation Bankruptcy Rule 4001(c)(1)(B)(ix) The Debtors and their successors and assigns shall indemnify the City for all claims and liability arising from or in connection with the transactions 20 Case 24-11647-MFW Doc 246 Filed 12/12/24 Page 21 of 31 Order, paragraph 10(g) contemplated herein, except to the extent of liability that is determined by final order to result from the City's intentional or willful misconduct or gross negligence. V. BASIS FOR RELIEF A. Entry into the -'berm Sheet and DIP Documents is a Sound Exercise of the Debtors' Business Judgment 19. The Court should authorize the Debtors, as a sound exercise of their business judgment, to enter into the DIP Credit Facility. Section 364 of the Bankruptcy Code authorizes the Debtors to obtain secured or superpriority postpetition financing. Courts grant a debtor's business judgment considerable deference in obtaining postpetition secured credit, so long as the arrangements for such credit do not run afoul of the provisions of, and policies underlying, the Bankruptcy Code. See, e.g., In re Trans World Airlines, Inc., 163 B.R. 964, 974 (Bankr. D. Del. 1994) (approving a postpetition loan and receivables facility because such facility "reflect[ed] sound and prudent business judgment"); In re L.A. Dodgers LLC, 457 B.R. 308, 313 (Bankr. D. Del. 2011) ("[C]ourts will almost always defer to the business judgment of a debtor in the selection of the lender."); In re Ames Dep't Stores, Inc., 115 B.R. 34, 40 (Bankr. S.D.N.Y. 1990) ("[C]ases consistently reflect that the court's discretion under section 364 is to be utilized on grounds that permit reasonable business judgment to be exercised so long as the financing agreement does not contain terms that leverage the bankruptcy process and powers or its purpose is not so much to benefit the estate as it is to benefit a party -in -interest."). 20. To determine whether the business judgment standard is met, the Court need only "examine whether a reasonable business person would make a similar decision under similar 21 Case 24-11647-MFW Doc 246 Filed 12/12/24 Page 22 of 31 circumstances." In re Exide Techs., 340 B.R. 222, 239 (Bankr. D. Del. 2006); see also In re Curlew ValleyAssocs., 14 B.R. 506, 513-14 (Bankr. D. Utah 1981) (noting that courts should not second guess a debtor's business decision when that decision involves "a business judgment made in good faith, upon a reasonable basis, and within the scope of [the debtor's] authority under the [Bankruptcy] Code"). The Court should evaluate the soundness of a debtor's business judgment, "in context, and considering the relative circumstances of the parties." In re Farmland Indus., Inc., 294 B.R. 855, 886 (Bankr. W.D. Mo. 2003) ("Viewed in isolation, several of the terms of the [postpetition financing] might appear to be extreme or even unreasonable. Certainly, many of them favor the DIP [1]ender. But, taken in context, and considering the relative circumstances of the parties, the Court does not believe that the terms are unreasonable."); see also Unsecured Creditors' Comm. Mobil Oil Corp. v. First Nat'l Bank & Trust Co. (In re Elingsen McLean Oil Co.), 65 B.R. 358, 365 n.7 (W.D. Mich. 1986) (recognizing that a debtor may have to enter into "hard bargains" to acquire funds for its reorganization). 21. The Debtors and the DIP Lender negotiated the Term Sheet in good faith, at arm's- length, and with the assistance of their respective advisors. The postpetition financing made available by the DIP Credit Facility will provide the Debtors with adequate liquidity to execute a sale process. The interest rate and priming lien are integral components of the overall package demanded by the DIP Lender as consideration for the extension of the DIP Credit Facility. The Debtors, in consultation their other advisors, have determined that the proposed DIP Credit Facility presents the best financing proposal currently available to the Debtors. (Wilson Decl, paragraphs 10-11). Simply put, the Debtors do not have other viable alternatives to the DIP Credit Facility. Absent access to the DIP Credit Facility, the Debtors would be forced to liquidate 22 Case 24-11647-MFW Doc 246 Filed 12/12/24 Page 23 of 31 imminently pursuant to chapter 7 of the Bankruptcy Code, which would have a detrimental impact on the value of the Debtors' assets and preclude the Debtors from conducting an orderly sale process that will benefit stakeholders. Thus, the terms of the DIP Credit Facility reflect a sound exercise -of the Debtors' business judgment, and -the Debtors should be authorized to enter into the Term Sheet, obtain the DIP Credit Facility proceeds, all on the terms set forth herein and the proposed Order. 22. The Debtors, in good faith and at arm's length, and DIP Lender also entered into the MOU in connection with the Term Sheet. The MOU provides for a consensual process with DIP Lender to sell the Project opportunity and clearly set forth the parties' rights in connection with the sale of the Project opportunity. B. The Bankruptcy Court May Approve Postpetition Financing through the Priming DIP Credit Facility 23. Bankruptcy Code section 364(d) provides as follows: (1) The court, after notice and a hearing, may authorize the obtaining of credit or the incurring of debt secured by a senior or equal lien on property of the estate that is subject to a lien only if- (A)The trustee is unable to obtain such credit otherwise; and (B) 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. 24. A secured creditor is adequately protected under Section 364(d) if it "receives the value for which [it] bargained pre -bankruptcy." In re Swedeland Development Group, Inc., 16 F.3d 552, 564 (3d Cir. 1994), quoting In re O'Connor, 808 F.2d 1393, 1396 (10th Cir. 1987). The existence of an "equity cushion seems to be the preferred test in determining whether priming of a senior lien is appropriate under Section 364[d]" In re YL West 87th Holdings 1 LLC, 423 B.R. 421, 441 (Bankr. S.D.N.Y. 2010) (internal citations omitted). 23 Case 24-11647-MFW Doc 246 Filed 12/12/24 Page 24 of 31 25. The Debtors endeavored to identify potential sources of financing and explored various financing alternatives. Based on discussions with potential lenders, the Debtors have concluded that adequate and acceptable financing on an unsecured basis or on a junior priority basis to the existing secured creditors is not available. The Debtors believe there is a substantial equity cushion in the Project opportunity to ensure that all secured creditors to the bankruptcy estate receive the same value they bargained for pre -bankruptcy even after the DIP Lender is granted a priming lien pursuant to the Term Sheet. Debtors will introduce admissible and credible evidence before the hearing on the Motion to further establish this fact6. The Debtors have augmented the existing equity cushion in the Project through settling with multiple Preferential Equity Holders to cancel their promissory notes and reconvey their deeds of trust to the estate. 26. If a debtor is unable to obtain credit on more favorable terms despite making efforts to seek such creditor, a bankruptcy court may allow a priming lien under Bankruptcy Code Section 364(d). In re Snowshoe Co., Inc., 789 F.2d 1085, 1088 (4th Cir. 1986). This does not mean a debtor seek alternative financing from every possible lender; rather, the debtor simply must demonstrate sufficient efforts to obtain financing without the need to grant a senior lien. Bray v. Shenandoah Fed. Say. & Loan Ass 'n (In re Snowshoe Co.), 789 F.2d 1085, 1088 (4th Cir. 1986) (demonstrating that credit was unavailable absent the senior lien by establishment of unsuccessful contact with other financial institutions in the geographic area). Further, provided that a debtor's business judgment does not run afoul of the provisions of, and policies underlying, the Bankruptcy 6 Debtors will also seek the consent of existing secured creditors to grant the priming lien described herein. 24 Case 24-11647-MFW Doc 246 Filed 12/12/24 Page 25 of 31 Code, courts grant a debtor considerable deference in acting in accordance therewith. See, e.g. In re L.A. Dodgers LLC, 457 B.R. 308, 313 (Bankr. D. Del. 2011) ("[C]ourts will almost always defer to the business judgment of a debtor in the selection of the lender."); In re Ames Dept Stores, Inc., 115 B.R. 34, 40 (Bankr. S.D.N.Y. 1990) ("Cases consistently reflect that the court's discretion under section 364 is to be utilized on grounds that permit reasonable business judgment to be exercised so long as the financing agreement does not contain terms that leverage the bankruptcy process and powers or its purpose is not so much to benefit the estate as it is to benefit parties in interest."); In re Simasko Production Co., 47 B.R. 444, 448-49 (Bankr. D. Colo. 1985) (authorizing financing agreement where debtor's best business judgment indicated financing was necessary and reasonable for benefit of estate). 27. As discussed in the Wilson and Sontchi Declarations, despite the efforts of the CRO, which included discussions with eight potential DIP lenders -including two existing secured creditors, the Debtors have been unable to procure sufficient financing to obtain postpetition financing or other financial accommodations from on more favorable terms and conditions than those for which approval is sought herein. The DIP Lender's terms are particularly attractive because, among other things, the DIP Lender is willing to lend up to the full amount needed by Debtors at the below -market rate of 4.71% per annum (a rate of interest appropriate for the City to apply as it is periodically set by the State of California for investments of public agency funds), it is not charging the Debtors a facility fee, and its proposed Term Sheet does not contain a make - whole provision. However, the only way to obtain such financing is to grant to the DIP Lender the protections, including the priming liens, provided in the Order, Term Sheet, and DIP Documents. 25 Case 24-11647-MFW Doc 246 Filed 12/12/24 Page 26 of 31 28. The Debtors are in need of an immediate additional infusion of liquidity to, among other things, procure goods and services integral to preserve the value of Debtors' real estate and the Project opportunity, maintain ordinary course relationships with vendors, suppliers, and customers, pay its Independent Manager, CRO, and bankruptcy professionals, hire a real estate broker who can successfully market and sell the Project opportunity, satisfy working capital needs in the ordinary course, and complete a sales process in the best interest of all stakeholders to the bankruptcy estates. These expenses are fully reflected in the Budget. Access to sufficient working capital and liquidity made available through the DIP Credit Facility, as requested by this Motion, is vital to the preservation and maintenance of the Debtors' going concern value and to the Debtors' ultimate goal of selling the Project opportunity and confirming a chapter 11 plan for the benefit of the creditors to the Debtors' estates. 29. Given these circumstances, the Independent Manager and the CRO determined that it is in the best interest of the Debtors and their estates to secure funding from the DIP Credit Facility, which offers the best available terms while giving the Debtors the time and resources needed to conduct a fulsome and robust sale process for the Project opportunity. The interests of existing secured creditors are adequately protected by the substantial equity cushion in the Project opportunity. 30. Bankruptcy Code section 364(c) provides as follows: If the trustee 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) and 507(b) of this title; 26 Case 24-11647-MFW Doc 246 Filed 12/12/24 Page 27 of 31 (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. 31. Section 364(c) of the Bankruptcy Code provides, among other things, that, if a debtor is unable to obtain unsecured credit allowable as an administrative expense under section 5fr3(b)(1) of the Bankruptcy Code, the court may authorize the debtor to obtain credit or incur debt (i) with priority over any and all administrative expenses as specified in section 503(b) or 507(b) of the Bankruptcy Code, (ii) secured by a lien on property of the estate that is not otherwise subject to a lien, or (iii) secured by a junior lien on property of the estate that is subject to a lien. 11 U.S.C. § 364(c). Section 364(c) also 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), aff'd, 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). 32. Here, Debtors cannot obtain financing through the DIP Credit Facility without granting the City a superpriority administrative claim under Section 364(c), subject only to the Carve -Out described herein. This superpriority claim, in addition to the priming lien, is necessary 27 Case 24-11647-MFW Doc 246 Filed 12/12/24 Page 28 of 31 for the Debtors to secure the funds they need, on the most favorable terms available, to preserve the Project opportunity and spearhead a successful Chapter 11 reorganization. C. The Scope of the Carve -Out Is Appropriate 33. Theproposed DIP Credit Facility subjects the security interests and administrative expense claims of the DIP Lender to the Carve -Out for payment of: a) Fees payable to the United States Trustee pursuant to 28 U.S.C. Section 1930(a). b) Fees payable to the clerk of the Bankruptcy Court. c) To the extent expenses are incurred prior to the Carve -Out Trigger, as defined in the Term Sheet: i. Allowed fees and expenses incurred by the Independent Manager in the amount set forth in the Budget, not exceeding $60,000.00 per month plus reasonable expenses; ii. Allowed fees and costs of defense with respect to indemnification obligations owed by Debtors to the Independent Manager; provided, however, that this carve out shall apply solely to the extent such fees and costs exceed the amount of coverage required to be provided by D&O (Directors and Officers) insurance; iii. Allowed fees and costs plus the payment of the Independent Manager's allowed legal fees and expenses in connection with the Chapter 11 Cases; iv. Allowed fees and expenses incurred by the CRO in the maximum amount set forth in the Budget, subject to the Term Sheet's Permitted Variances; and v. Allowed fees and expenses incurred by Debtors' other court approved professionals in the maximum aggregate amount set forth in the Budget, subject to the Term Sheet's Permitted Variances. d) Up to a maximum amount equal to the lesser of (a) $400,000, or (b) amounts remaining available under the Budget (without reference to the Carve -Out Trigger, as that phrase is defined by the Term Sheet) for unpaid documented fees, costs and expenses accrued or incurred by the Independent Manager and other retained professionals following the occurrence of the Carve -Out Trigger, payable under sections 330 and 331 of the 28 Case 24-11647-MFW Doc 246 Filed 12/12/24 Page 29 of 31 Bankruptcy Code and subsequently allowed by order of the Bankruptcy Court. (collectively, the "Carve -Out Fees") 34. These sorts of carve -outs have been found to be reasonable and necessary. See Ames Dept Stores, 115 B.R. at 40. Subject to the Budget, the Carve -Out ensures that proceeds of the DIP CreditFacility may be used for the payment of the Carve -Out Fees notwithstanding the grant of superpriority and administrative liens and claims under the DIP Credit Facility. D. The DIP Lender Is Entitled to the Protections Afforded to a Good Faith Lender Under Section 364(e) 35. Section 364(e) of the Bankruptcy Code protects a good faith lender's right to collect on loans extended to a debtor, and its right in any lien securing those loans, even if the authority of the debtor to obtain such loans or grant such liens is later reversed or modified on appeal. Specifically, section 364(e) provides that: The reversal or modification on appeal of an authorization under this section [364 of the Bankruptcy Code] to obtain credit or incur debt, or of a grant under this section of a priority or a lien, does not affect the validity of any debt so incurred, or any priority or lien so granted, to an entity that extended such credit in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and the incurring of such debt, or the granting of such priority or lien, were stayed pending appeal. 11 U.S.C. § 364(e). 36. In this case, the Term Sheet is the result of (i) the Debtors' reasonable and informed determination that the DIP Lender offered the most favorable terms available on which to obtain needed postpetition financing, and (ii) are the product of extended arm's-length, good faith negotiations between and among the Debtors and the DIP Lender. The terms and conditions of the Term Sheet are fair and reasonable under the circumstances, reflect the Debtors' exercise of prudent business judgment consistent with their fiduciary duties, are supported by reasonably 29 Case 24-11647-MFW Doc 246 Filed 12/12/24 Page 30 of 31 equivalent value and fair consideration, and are in the best interests of the Debtors, their estates and creditors. The proceeds under the DIP Credit Facility will be used only for purposes that are permissible under the Bankruptcy Code, no consideration is being provided to any party to the Term Sheet other than as described herein and the DIP Lender extended the DIP Credit Facility in reliance upon the protections offered by section 364(e) of the Bankruptcy Code. 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). Accordingly, the Debtors request that the Court find that the DIP Lender has acted as a "good faith" lender within the meaning of section 364(e) of the Bankruptcy Code and is entitled to all of the protections afforded by that section. E. The Automatic Stay Should Be Modified on a Limited Basis 37. The relief requested herein contemplates a modification of the automatic stay (to the extent applicable) to permit the Debtors to grant the security interests, liens, and superpriority claims described above and to allow for the execution of the Term Sheet and DIP Documents. Stay modifications of this kind are ordinary and standard features of postpetition debtor financing facilities and, in the Debtors' business judgment, are reasonable and fair under the present circumstances. 38. Waiver of the 14-day stay imposed by Bankruptcy Rule 6004(h), to the extent applicable. VI. NOTICE 39. Notice of the Motion has been given by the Debtors to: (i) the Office of the United States Trustee for the District of Delaware; (ii) the Debtors' twenty (20) largest unsecured creditors (excluding insiders); (ii) counsel to the DIP Lender; (iii) all known holders of liens upon 30 Case 24-11647-MFW Doc 246 Filed 12/12/24 Page 31 of 31 the Debtors' assets; and (iv) all parties that have filed notices of appearance pursuant to Bankruptcy Rule 2002; by facsimile transmission, email, overnight courier and/or hand delivery. WHEREFORE, the Debtors respectfully request that the Court grant the relief requested herein and such other and further relief as is just and proper. Dated: December 12, 2024 ARMSTRONG TEASDALE, LLP Wilmington, Delaware /s/Jonathan M. Stemerman Jonathan M. Stemerman (No. 4510) Eric NI. Sutty (No. 4007) Denisse Guevara (No. 7206) 1007 North Market Street, Third Floor Wilmington, Delaware 19801 Telephone: (302) 416-9670 jstemerman@atllp.com esutty@atllp.com dguevara@atllp.com -and- Victor A. Vilaplana (Pro Hac Vice) 823 La Jolla Rancho Road La Jolla, CA 92037 Telephone: (619) 840-4130 vavilaplana@gmail.com -and- Benjamin M. Carson (Pro Hac Vice) 5965 Village Way STE E105 San Diego, CA 92130 Telephone: (858) 255-4529 ben@benjamincarson.com Counsel to the Debtors and Debtors in Possession 31 Case 24-11647-MFW Doc 246-1 Filed 12/12/24 Page 1 of 44 Exhibit A (Proposed Order) RLFI 32024966v.I Case 24-11647-MFW Doc 246-1 Filed 12/12/24 Page 2 of 44 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: SilverRock Development Company, et al., Debtors: t Chapter 11 Case No. 24-11647 (NIFW) (Jointly Administered) RE D.I. ORDER (I) AUTHORIZING TIIE DEBTORS TO OBTAIN POSTPETITION SECURED FINANCING, (II) GRANTING PRI M ING LIENS AND SUPERPRIORITY AD\IINISTRATIVE EXPENSE STATUS, AND (III) GRANTING RELATED RELIEF Upon the motion (the "Motion") dated December 12, 2024, of Debtors in the above - captioned chapter 11 cases (collectively, the "Cases"), pursuant to sections 105,362,363, and 364 of title 11 of the United States Code, 11 U.S.C. §§ 101, et seq. (the "Bankruptcy Code"), Rules 4001 and 9014 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules") and the corresponding local rules of this District (the "Local Rules"), requesting entry of an Order2 authorizing the Debtors to, among other things: (i) Obtain senior secured postpetition financing in an aggregate principal amount not to exceed $11,000,000.00 (the "DIP Credit Facility3"), pursuant to the terms and 'The Debtors in these chapter 11 cases, along with the last four digits of each Debtor's federal tax identification number, as applicable, are: SilverRock Development Company, LLC (5730), RGC PA 789, LLC (5996), SilverRock Lifestyle Residences, LLC (0721), SilverRock Lodging, LLC, (4493), SilverRock Luxury Residences, LLC (6598) and SilverRock Phase 1, LLC (2247). The location of the Debtors' principal place of business and the Debtors' mailing address is 343 Fourth Avenue, San Diego, CA 92101. 2 For the avoidance of doubt, the DIP Lender is still reviewing the terms of this Order and reserves the right to make further changes. 3 The DIP Credit Facility amount includes and rolls up the $2,690,965 previously loaned by DIP Lender to Debtors on an interim basis (the "Interim DIP Credit Facility"). 2 RLF 132024966v.1 Case 24-11647-MFW Doc 246-1 Filed 12/12/24 Page 3 of 44 conditions of the Term Sheet, including the Memorandum of Understanding (collectively, the "Term Sheet"), the DIP Documents (as defined below), and this Order; (ii) Enter into (a) the executed Term Sheet, substantially in the form attached as Exhibit 1 hereto, by and among the Debtors and the City of La Quinta (the "DIP Lender") and_(b) the documents necessary and appropriate pursuant to the Term Sheet and the DIP Credit Facility (the "DIP Documents°") (iii) Borrow, pursuant to the DIP Documents and the Order (as defined below), postpetition financing in an aggregate principal amount of up to $11,000,000.00; (iv) Execute and deliver the Tenn Sheet and the other DIP Documents to the DIP Lender; (v) Grant to the DIP Lender the DIP Liens (as defined below) on all of the DIP Collateral (as defined below) to secure the DIP Credit Facility and all obligations owing and outstanding thereunder and under the DIP Documents, as applicable, and this Order, as applicable (collectively, the "DIP Obligations"); (vi) Grant to the DIP Lender allowed superpriority administrative expense claims in the Cases for the DIP Credit Facility and all DIP Obligations; and (vii) Use the proceeds of the DIP Credit Facility in accordance with the Term Sheet and the Budget, a copy of which Budget is attached hereto as Exhibit 2; and (viii) Grant such other and further relief as this Court deems necessary and just. The Court having considered the Motion, the Declaration of Debtors' Chief Restructuring Officer Douglas Wilson ("CRO") in Support of the Motion (the "Wilson Declaration"), the Debtors and DIP Lender anticipate these documents will include a Loan and Security Agreement, Promissory Note, and Deed of Trust. 3 RLF I 32024966v.t Case 24-11647-MFW Doc 246-1 Filed 12/12/24 Page 4 of 44 Declaration of Debtors' sole Independent Manager Christopher S. Sontchi in Support of the Motion (the "Sontchi Declaration"), the exhibits attached thereto, the Term Sheet, the Budget, and the evidence submitted or adduced and the arguments of counsel made at the hearing on this Motion; and notice of the Motion and the hearing on the Motion having been given in accordance with Bankruptcy Rules 4001 and 9014; held and concluded; and it appearing that granting the relief requested in the Motion is fair and reasonable and in the best interests of the Debtors, their estates and their creditors, and is essential for the preservation of the value of the Debtors' property; and all objections, if any, to the entry of this Order having been withdrawn, resolved or overruled by the Court; and after due deliberation and consideration, and good and sufficient cause appearing therefor: I. IT IS FOUND AND CONCLUDED5: A. Petition Date. On August 5, 2024 (the "Petition Date"), the Debtors filed voluntary petitions under chapter 11 of the Bankruptcy Code with this Court. B. Jurisdiction and Venue. This Court has jurisdiction over these proceedings, pursuant to 28 U.S.C. §§ 157(b) and 1334 and the Amended Standing Order of Reference from the United States District Court for the District of Delaware, and over the persons and property affected hereby. Venue for the Chapter 11 Case and proceedings on the Motion is proper in this district pursuant to 28 U.S.C. §§ 1408 and 1409. Consideration of the Motion constitutes a core proceeding under 28 U.S.C. § 157(b)(2). This Court may enter a final order consistent with Article III of the United States Constitution. 5 The findings and conclusions set forth herein constitute the court's findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052, made applicable to this proceeding pursuant to Bankruptcy Rule 9014. To the extent that any of the following findings of fact constitute conclusions of law, they are adopted as such. To the extent any of the following conclusions of law constitute findings of fact, they are adopted as such. 4 RLF I 32024966v. I Case 24-11647-MFW Doc 246-1 Filed 12/12/24 Page 5 of 44 C. Notice. Notice of the hearing on the Motion and the relief requested therein has been served by the Debtors pursuant to Bankruptcy Rules 2002 and 4001(b), (c), and (D) and in accordance with the Local Rules on (i) the Office of the United States Trustee for the District of Delaware; (ii) the Debtors' thirty (20) largest unsecured creditors (excluding insiders); (ii) counsel to the DIP Lender; (iii) all known holders of liens upon the DIP Collateral; and (iv) -all parties that have filed notices of appearance pursuant to Bankruptcy Rule 2002. The notice constitutes good and sufficient notice of the relief requested herein, and no further notice of the relief granted by this Order is necessary or shall be required. D. Additional FindinEs and Conclusions. i. All Debtors are Borrowers. The entirety of Debtors' assets comprises the DIP Collateral. The capital structure of the Project and the DIP Collateral, including a list of those creditors with a secured interest in the DIP Collateral (collectively, the "Prepetition Secured Creditors"), is more fully laid out in the Green Declaration6 and in the Debtors' Bankruptcy Schedules and Statements of Financial Affairs, both of which are incorporated herein by reference. Those amounts owed to the Prepetition Secured Creditors shall be referred to herein as the "Prepetition Secured Obligations." ii. The DIP Lender provided the Interim DIP Credit Facility pursuant to the interim DIP orders [Docket Nos. 162, 188, 208, & 243] (the "Interim DIP Orders"). iii. Neither the DIP Lender nor the Prepetition Secured Creditors is a control person or insider (as defined in section 101(31) of the Bankruptcy Code) of any Debtor; iv. the Prepetition Secured Creditors are entitled, pursuant to sections 361, 363(e) and 364(d)(1) of the Bankruptcy Code, to adequate protection of their respective 6 Capitalized terms not defined herein shall have the meanings ascribed to them in the Motion. 5 RLFI 32024966v.I Case 24-11647-MFW Doc 246-1 Filed 12/12/24 Page 6 of 44 interests in the DIP Collateral, to the extent of any diminution in the value of the DIP Collateral occurring from and after the Petition Date (the "Diminution"), that may be caused by or arising as a result of (A) the incurrence and payment of the DIP Obligations, (B) the granting_ of the DIP Liens and the DIP Superpriority Claim, (C) the subordination of the Prepetitiorr Secured Obligations to the DIP Superpriority Claim, and (D) imposition of the automatic stay pursuant to section 362 of the Bankruptcy Code. E. Findings Regarding the DIP Credit Facility. (i) Need for the DIP Credit Facility. Debtors need to obtain funds to, among other things, maintain their real estate, preserve the value of the Project opportunity, pay administrative expenses during the pendency of these bankruptcy proceedings, hire a broker to market and sell the Project opportunity, complete a thorough and robust sales process, and confirm a Chapter 11 Plan for the benefit of all the constituencies of the estates. The only choice of such funds is the DIP Credit Facility. (ii) Priming of Any Prepetition Liens. Upon the entry of the Order, the priming of any existing liens on any of the DIP Collateral, as contemplated by the Tenn Sheet and as further described below, is a condition to the Debtors' borrowings under the DIP Credit Facility, which borrowing is necessary for the Debtors to be able to continue to complete a robust process for selling the Project opportunity and reorganizing to maximize returns for all constituencies of the bankruptcy estates. (iii) No Credit Available on N. Favorable Terms. The Debtors have been unable to obtain (a) unsecured credit allowable under Bankruptcy Code section 503(b)(1) as an administrative expense, or (b) secured credit on more favorable terms and conditions than those provided in the Term Sheet, DIP Documents, and this Order. The Debtors are unable to obtain 6 RLF I 3202496ov. I Case 24-11647-MFW Doc 246-1 Filed 12/12/24 Page 7 of 44 credit without granting to the DIP Lender the DIP Protections (as defined below). F. Effect of Reversal; Good Faith. The DIP Lender has indicated a willingness to provide financing to the Debtors in accordance with the Term Sheet, the MOU and this Order, provided that the DIP Obligations, DIP Liens and other protections granted by this Order and the Term Sheet will not be affected by any subsequent reversal or modification of this Order as provided in section 364(e) of the Bankruptcy Code. The DIP Lender has acted in good faith in agreeing to provide the DIP Credit Facility approved by this Order. G. Business Judgment and Good Faith Pursuant to Section 364(e). (i) The terms and conditions of the DIP Credit Facility, the Term Sheet, DIP Documents, Budget and the fees paid and to be paid thereunder are fair, reasonable, and the best available under the circumstances, reflect the Debtors' exercise of prudent business judgment consistent with their fiduciary duties, and are supported by reasonably equivalent value and consideration; (ii) the Term Sheet and D I P Documents were negotiated in good faith and at arms' length between the Debtors and the DIP Lender; and (iii) the DIP Credit Facility loan proceeds to be obtained pursuant to the Tern Sheet and Dip Documents will be advanced in good faith, and for valid business purposes and uses, as a consequence of which the DIP Lender is entitled to the protection and benefits of section 364(e) of the Bankruptcy Code. H. Prepetition Secured Creditors Have Either Consent to the DIP Credit Facility or are Adequately Protected. The Prepetition Secured Creditors have either consented to Debtors borrowing from the DIP Credit Facility pursuant to the Term Sheet and DIP Documents, or, to the extent they have not consented, will be adequately protected upon implementation of the 7 RLF I 32024966v. I Case 24-11647-MFW Doc 246-1 Filed 12/12/24 Page 8 of 44 DIP Credit Facility loan and granting of the DIP Liens (as defined below). This adequate protection results from the substantial equity cushion in the DIP Collateral, even after imposition of the DIP Liens, as is more fully described in the Motion and supporting exhibits. This equity cushion is sufficient to adequately protect the Prepetition Secured Creditors. I. Immediate Entry of Order. The Debtors have requested immediate entry of this Order pursuant to Bankruptcy Rule 4001(c)(2) and Local Rule 4001-2(b). The permission granted herein for the Debtors to obtain postpetition financing from the DIP Lender pursuant to the Tenn Sheet, to obtain funds thereunder and to use the proceeds of this postpetition financing pursuant to this Order is necessary to avoid immediate and irreparable harm to the Debtors. Entry of this Order is in the best interests of the Debtors' respective estates and creditors as its implementation will, among other things, allow for access to the financing necessary for the continued administration of Debtors' estates, preservation of Debtors' real estate and the Project opportunity, enhancement of the Debtors' prospects for a successful sale of substantially all of their assets, and confirmation of a successful Chapter 11 plan. Based upon the foregoing findings, acknowledgements, and conclusions, and upon the record made before this Court at the hearing on the Motion (the "Hearing"), and good and sufficient cause appearing therefor; NOW, THEREFORE, based upon the foregoing findings and conclusions, and upon consideration of the Motion and the record made before this Court with respect to the Motion, including the record created during the Hearing, and with the consent of the Debtors and the DIP Lender to the form and entry of this Order, and good and sufficient cause appearing therefor, and the Court being otherwise fully advised in the premises; IT IS HEREBY ORDERED AND ADJUDGED THAT: h RLF l 32024906v. I Case 24-11647-MFW Doc 246-1 Filed 12/12/24 Page 9 of 44 1. Motion Granted. The Motion is GRANTED in accordance with the terms and conditions set forth in this Order, Term Sheet, MOU, and DIP Documents. Any objections to the Motion with respect to entry of this Order to the extent not withdrawn, waived or otherwise resolved, and all reservations of rights included therein, are hereby denied and overruled on the merits. 2. The Term Sheet, MOU and the DIP Documents. (a) Approval of Entry into the Term Sheet and DIP Documents. The Debtors are authorized to execute, deliver and perform in accordance with the Term Sheet and DIP Documents and to incur and to perform the DIP Obligations in accordance with, and subject to, the terms of this Order, and to execute and deliver all instruments and documents which may be required or necessary for the performance by the Debtors under the Term Sheet. The Debtors are hereby authorized to do and perform all acts, pay the principal, interest, fees, expenses, and other amounts described in the Term Sheet and all other DIP Documents as such become due. The form and substance of both the Term Sheet and DIP Documents are hereby approved. (b) Enforceable Obligations. The Term Sheet shall constitute and evidence the valid and binding obligations of the Debtors, which obligations shall be enforceable against the Debtors, their estates and any successors thereto and their creditors or representatives thereof, in accordance with their terms. (c) Termination. Notwithstanding anything in this Order, the DIP Lender's commitments under the Term Sheet and the DIP Documents shall continue until the first to occur of (a) December 15, 2025; (b) occurrence of an Event of Default; or (c) the Maturity Date (the "Commitment Termination Date"); provided, however, that upon the occurrence of an event that, with the passage of time and/or the giving of notice would become an Event of Default (a 9 RLF 1 32024966v.1 Case 24-11647-MFW Doc 246-1 Filed 12/12/24 Page 10 of 44 "Default"), the funding commitment shall be suspended unless and until Borrowers have cured such Default. (d) Protection of the DIP Lender and Other Rights. The Debtors shall use the proceeds of the DIP Credit Facility only for the purposes specifically set forth in the Term Sheet, the DIP Documents, and this Order and in strict compliance with the Budget subject to permitted variances (at a 10% level) determined on the basis of aggregate cash disbursements (the "Permitted Variances"). The Debtors shall inform the DIP Lender promptly of any disbursement made based on Permitted Variances. Any adjustments to the Budget (other than the Permitted Variances) shall be approved by the DIP, for which approval shall not be unreasonably withheld, provided that the adjustment does not cause the total Budget to exceed the maximum amount of the Funding Cap. 3. The DIP Lien Priority. (a) To secure the DIP Obligations, the DIP Lender is hereby granted pursuant to and in accordance with 364(c)(1), and 364(d) of the Bankruptcy Code, valid, enforceable and fully perfected lien in the DIP Collateral comprising all of Debtors' assets (the "DIP Liens"),7 subject only to prior payment of the Carve -Out; (b) The DIP Liens shall be effective immediately upon the entry of this Order, and the DIP Liens shall not at any time be made subject or subordinated to, or made pari passu with, any other lien, security interest or claim existing as of the Petition Date or created thereafter, other than prior payment of the Carve -Out; Without limiting the generality of the foregoing, the scope of the DIP Liens includes certain property known as "PA 9," which purportedly is (or was) subject to a 42.8°0 tenant in common interest in favor of SilverRock Land II, LLC, an entity owned by the Traub Family Revocable Trust. 10 RLF 132024966v. I Case 24-11647-MFW Doc 246-1 Filed 12/12/24 Page 11 of 44 (c) The DIP Liens shall be and hereby are deemed fully perfected liens and security interests, effective and perfected upon the date of the Order, without the necessity of execution by the Debtors of mortgages, security agreements, pledge agreements, financing agreements, financing statements, account control agreements or any other agreements, filings or instruments, such that no additional actions need be taken by the DIP Lender or any other party (including, without limitation, any depository bank or securities intermediary) to perfect such interests. (d) At all times prior to indefeasible payment in cash in full of the DIP Obligations, the priority of the DIP Liens will: i. Pursuant to Section 364(d)(1) of the Bankruptcy Code, be perfected first priority liens on all DIP Collateral; ii. Pursuant to Section 364(d)(1) of the Bankruptcy Code, be perfected first priority, senior priming liens on all DIP Collateral; iii. Be valid and enforceable against any trustee appointed in the Cases, upon the conversion of any of the Cases to a case under Chapter 7 of the Bankruptcy Code (a "Successor Case"), or upon the dismissal of the any of the Cases or Successor Case; and 4. Superpriority Administrative Claim. The DIP Lender is hereby granted an allowed superpriority administrative expense claim (the "DIP Superpriority Claim", together with the DIP Liens, the "DIP Protections") pursuant to section 364(c)(1) of the Bankruptcy Code in each of the Cases and in any Successor Case(s) for all DIP Obligations, having priority over any and all other claims against the Debtors, now existing or hereafter arising, of any kind whatsoever except for payment of the Carve -Out, including, without limitation, all administrative expenses of the kinds specified in or arising or ordered under sections 105(a), 326, 328, 330, 331, 503(a), 11 RLF I 32024966v.I Case 24-11647-MFW Doc 246-1 Filed 12/12/24 Page 12 of 44 503(b), 506(c), 507(a), 507(b), 546(c) , 546(d), 726, 1113, and 1114 and any other provision of the Bankruptcy Code or otherwise, whether or not such expenses or claims may become secured by a judgment lien or other non-consensual lien, levy or attachment, which allowed DIP Superpriority Claim shall be payable from and have recourse to all pre- and post -petition property of the Debtors and all proceeds thereof. The DIP Superpriority Claim shall be subject and subordinate in priority of payment only to prior payment of the Carve -Out. The DIP Superpriority Claim shall be senior in all respects to any superpriority claims granted in these Cases including, without limitation, on account of any break-up fee or expense reimbursement that may be granted by the Court in connection with any sale of the Debtors' assets. 5. Authorization to Use Proceeds of the DIP Credit Facility. Pursuant to the terms and conditions of this Order, the Term Sheet, and DIP Documents and in accordance with the Budget and any variances thereto that may be permitted pursuant thereto or pursuant to the Term Sheet or DIP Documents, the Debtors are authorized to use the postpetition financing proceeds pursuant to the Term Sheet, DIP Documents and Budget. 6. Authorization and Direction for Payment of DIP Financing Fees and Expenses. The Debtors are hereby authorized to pay such fees, costs, and expenses in accordance with the Tenn Sheet, the DIP Documents, and this Order, without any requirement that the Debtors, the DIP Lender or their respective attorneys file any further application or other pleading, notice, or document with the Court for approval or payment of such fees, costs or expenses. 7. Carve -Out. a. The DIP Liens and the DIP Superpriority Claim (as defined below) shall be subject and subordinate to the payment of: (a) fees payable to the United States Trustee pursuant to 28 U.S.C. Section 1930(a); (b) fees payable to the clerk of the Bankruptcy Court; (c) to the extent 12 RLF] 32024966v.1 Case 24-11647-MFW Doc 246-1 Filed 12/12/24 Page 13 of 44 expenses are incurred prior to the Carve -Out Trigger: (i) allowed fees and expenses incurred by the Independent Manager in the amount set forth in the Budget, not exceeding $60,000.00 per month plus reasonable expenses; (i) allowed fees and costs of defense with respect to indemnification obligations owed by Debtors to the Independent Manager; provided, however, that this carve out shall apply solely to the extent such fees and costs exceed the amount of coverage required to be provided by D&O (Directors and Officers) insurance; (iii) allowed fees and costs plus the payment of the Independent Manager's allowed legal fees and expenses in connection with the Chapter 11 Cases; (iv) allowed fees and expenses incurred by the CRO in the maximum amount set forth in the Budget, subject to the Term Sheet's Permitted Variances; (v) allowed fees and expenses incurred by Debtors' other court approved professionals in the maximum aggregate amount set forth in the Budget, subject to the Term Sheet's Permitted Variances; and (vi) up to a maximum amount equal to the lesser of (a) $400,000, or (b) amounts remaining available under the Budget (without reference to the Carve -Out Trigger, as that phrase is defined by the Term Sheet) for unpaid documented fees, costs and expenses accrued or incurred by the Independent Manager and other retained professionals following the occurrence of the Carve -Out Trigger, payable under sections 330 and 331 of the Bankruptcy Code and subsequently allowed by order of the Bankruptcy Court (collectively, the "Carve -Out"). Notwithstanding anything to the contrary herein, the amounts of each carve out set forth above shall be reduced by the amounts paid from the DIP Facility (whether pursuant to the Interim Orders or this Order) to or for the benefit of the holder of each such carve out; (2) except to the extent of the Post -Trigger Carve Out, the carve outs shall be limited to fees and costs incurred prior to the first to occur of (i) the Commitment Termination Date, and (ii) the occurrence of an Event of Default; (3) no carve out shall be available with respect to fees or expenses that are incurred with respect to matters that are 13 RLFI 32024966v.1 Case 24-11647-MFW Doc 246-1 Filed 12/12/24 Page 14 of 44 not a permitted use of the proceeds of the loans under the Facility; (4) absent the City's express written agreement, the amount of the carve outs set forth in the Budget (subject to Permitted Variances) shall not increase by virtue of any extensions of time or increases in amounts as may be provided for in subsequent amendments to the Budget; and (5) to the extent that any Permitted Variance, reallocation of funds, or other use of funds reduces the amount of funds available under the Budget for the payment of fees or expenses, the maximum amount of the Carve Out shall be reduced accordingly b. "Carve -Out Trigger" shall mean upon delivery (by email or otherwise) by the City of written notice to the Debtors, the Debtors' lead bankruptcy counsel, and the United States Trustee of the occurrence of an Event of Default. 8. Payment of Compensation. Nothing herein shall be construed as consent to the allowance of any professional fees or expenses of the Debtors or affect the right of any party in interest to object to the allowance and payment of such fees and expenses. 9. Maturity Date. The maturity date (the "Maturity Date") shall be the first to occur of: a. The effective date of a chapter 11 plan for any of the Debtors in the Bankruptcy Case (the "Effective Date"). b. The closing of a sale, assignment or transfer of substantially all or substantially of the Debtors' assets (the "Closing"). c. The occurrence of an Event of Default under or with respect to the Facility. d. The dismissal or conversion of the Bankruptcy Case (or the case of any of the Debtors), or appointment of a trustee with respect to any of the Debtors. 10. Other Rights and Obligations. (a) Good Faith Under Section 364(e) of the Bankruptcy Code. The DIP Lender has acted in good faith in connection with negotiating the Term Sheet, the DIP Documents, 14 RLF I 32024966v. I Case 24-11647-MFW Doc 246-1 Filed 12/12/24 Page 15 of 44 and the loans to be made pursuant thereto, and their reliance on this Order is in good faith. Based on the findings set forth in this Order and the record made during the Hearing, and in accordance with section 364(e) of the Bankruptcy Code and Bankruptcy Rules 4001(b) and (c), in the event any or all of the provisions of this Order are hereafter reversed, modified amended or vacated by a subsequent order of this or any other Court, the DIP Lender is entitled to all of the benefits and protections provided in section 364(e) of the Bankruptcy Code. (b) Binding Effect. The DIP Liens, DIP Superpriority Claim and other rights and remedies granted under this Order shall be valid and enforceable against any trustee appointed in any or all of the Debtors' Cases and upon the dismissal of any or all of the Debtors' Cases, or in any Successor Case(s), and such liens and security interests shall maintain their first priority as provided in this Order until all the DIP Obligations have been indefeasibly paid in full in cash and the DIP Lender's commitments have been terminated in accordance with the Term Sheet, DIP Documents and this Order. (c) The DIP Lender's Liability for Collateral. So long as the DIP Lender complies with reasonable commercial lending practices, the DIP Lender shall not in any way or manner be liable or responsible for: (a) the safekeeping of the DIP Collateral; (b) any loss or damage thereto occurring or arising in any manner or fashion from any cause; (c) any diminution in the value thereof; or (d) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other person whomsoever. (d) Remedies Cumulative. The DIP Lender's rights and remedies under the Term Sheet the DIP Documents, and all other agreements shall be cumulative. The DIP Lender shall have all other rights and remedies not inconsistent herewith as provided by law, or in equity, subject to the requirements of the Bankruptcy Code. No exercise by the DIP Lender of one right 15 RLF 132024966v.1 Case 24-11647-MFW Doc 246-1 Filed 12/12/24 Page 16 of 44 or remedy shall be deemed an election. No delay by the DIP Lender shall constitute a waiver, election, or acquiescence by it. No waiver by the DIP Lender shall be effective unless made in a written document signed on behalf of the DIP Lender and then shall be effective only in the instance and for the purpose for which it was given. (e) With respect to enforcement of remedies upon an Event of Default, the City shall provide a Carve -Out Trigger notice to the Borrowers five (5) Business Days' prior to taking such action (the "Remedies Notice Period"), and after the expiration of the Remedies Notice Period, the City shall be authorized and entitled to exercise all rights and remedies provided in the DIP Documents or this Order (as applicable) and under applicable law. During the Remedies Notice Period, the Borrowers may use cash in their operating account in the ordinary course of business, consistent with past practices and the Budget, including for the purposes of funding the Carve Out. During the Remedies Notice Period, any party in interest shall be entitled to seek an emergency hearing with the Bankruptcy Court seeking to stay the City's exercise of any rights and remedies and funds in the operating account may be used for this purpose. (f) No Priming of DIP Lender. The Debtors shall not in any way prime or seek to prime (or otherwise cause to be subordinated in any way) the liens provided to the DIP Lender by offering subsequent lender or any party -in -interest a superior or pari passu lien or claim with respect to the DIP Collateral pursuant to section 364(d) of the Bankruptcy Code or otherwise; (g) Indemnification. The Debtors and their successors and assigns shall indemnify the DIP Lender for all claims and liability arising from or in connection with the transactions contemplated herein, except to the extent of liability that is determined by final order to result from the DIP Lender's intentional or willful misconduct or gross negligence; 16 RLF 132024966v.1 Case 24-11647-MFW Doc 246-1 Filed 12/12/24 Page 17 of 44 (h) Waiver. The Debtors, their successors or assigns, and any subsequently appointed trustee or fiduciary shall forever waive and release and any all rights, with respect to this Order to (1) assert the "equities of the case" exception in Bankruptcy Code Section 552(b); (2) surcharge rights in Bankruptcy Code Section 506(c), or; (3) without the DIP Lender's prior written consent to sell, transfer, assign, or revest the DIP Collateral, including without limitation, the DIP Lender's repurchase options; (i) Administrative Expense Claims. Until such time as all DIP Obligations are paid in full and the Cases have been closed, subject to the Carve -Out, the Debtors shall not in any way or at any time seek allowance of any administrative expense claim against the Debtors of any kind or nature whatsoever, that is superior to or pari passu with the DIP Lender's superpriority administrative expense claim against the bankruptcy estates, as described more fully in the Term Sheet and this Order (the "Superpriority Claim"); and (j) Use of Proceeds of the DIP Credit Facility. Proceeds of the DIP Credit Facility shall be used in a manner consistent with the terms and conditions of the Term Sheet, this Order, and the Budget. 11. Survival of Order and Other Matters. The provisions of this Order and any actions taken pursuant hereto shall survive entry of any order which may be entered (i) confirming any Plan in the Cases, (ii) converting any of the Cases to a case under chapter 7 of the Bankruptcy Code or a Successor Case, (iii) to the extent authorized by applicable law, dismissing the Cases, (iv) withdrawing the reference of the Cases from this Court, or (v) providing for abstention from handling or retaining of jurisdiction of the Cases in this Court and this Order. The terms and provisions of this Order shall be binding upon the Debtors and the Lender, the Prepetition Secured 17 RLF I 32024966v.I Case 24-11647-MFW Doc 246-1 Filed 12/12/24 Page 18 of 44 Creditors and each of their respective successors and assigns, and shall inure to the benefit of the Debtors and the DIP Lender, the Prepetition Secured Creditors and each of their respective successors and assigns including, without limitation, any trustee, examiner with expanded powers, responsible officer, estate administrator or representative, or similar person appointed or elected in a case for any Debtor under any chapter of the Bankruptcy Code, including any Successor Case. The terms and provisions of this Order shall also be binding on all of the Debtors' creditors, equity holders, and all other parties in interest, including, but not limited to a trustee appointed or elected under chapter 7 or chapter 11 of the Bankruptcy Code. (a) Enforceability This Order shall constitute findings of fact and conclusions of law pursuant to the Bankruptcy Rule 7052 and shall take effect and be fully enforceable immediately upon entry of this Order. Notwithstanding Bankruptcy Rules 4001(a)(3), 6004(h), 6006(d), 7062, 9024, or any other Bankruptcy Rule, or Rule 62(a) of the Federal Rules of Civil Procedure, this Order shall be immediately effective and enforceable upon its entry and there shall be no stay of execution or effectiveness of this Order. (b) Objections Overruled. All objections to the Motion to the extent not withdrawn or resolved, are hereby overruled. 12. Governmental Consents. Except as otherwise provided herein, the execution, delivery and performance by the Debtors of the DIP Documents and the consummation of the transactions contemplated by the DIP Documents do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any governmental authority. 13. Interim DIP Orders. Upon entry of this Order, the terms of the Interim DIP Orders shall be superseded and replaced in their entirety with the terms set forth in this Order, the Term Sheet and the DIP Documents. 18 RLFI 32024966v.1 Case 24-11647-MFW Doc 246-1 Filed 12/12/24 Page 19 of 44 14. Priority of Terms. To the extent of any conflict between or among (a) the express terms or provisions of the Term Sheet, DIP Documents, the Motion or any other agreements, on the one hand, and (b) the terms and provisions of this Order, on the other hand, unless such term or provision herein -is phrased in terms of "as defined in" "as set forth in" or "as limited by" or "as more fully described in" the DIP Documents (or words of similar import), the terms and provisions of this Order shall govern. 15. Retention of Jurisdiction. This Court has and will retain jurisdiction to enforce this Order. 19 RLF 132024966v.1 Case 24-11647-MFW Doc 246-1 Filed 12/12/24 Page 20 of 44 Exhibit 1 (Term Sheet) RLFI 32024966v. I Docusign Envelope ID: 451A7rtagpe1-gsM9181�323UoC 246-1 Filed 12/12/24 Page 21 of 44 In re SilverRock Development Company, LLC, et al. Jointly Administered Chapter 11 case no. 24-11647 (the `Bankruptcy Case") Term Sheet for Debtor -In -Possession ("DIP") Financing Facility (the "Facility") Dated: December 10, 2024 This Term Sheet sets forth the terms and conditions of a debtor -in -possession credit facility to be provided to the Borrowers, as defined below, by the City of La Quinta.' 1. Borrowers: SilverRock Development Company, LLC (5730), RGC PA 789, LLC (5996), SilverRock Lifestyle Residences, LLC (0721), SilverRock Lodging, LLC, (4493), SilverRock Luxury Residences, LLC (6598) and SilverRock Phase 1, LLC (2247) (collectively, "Borrowers"), jointly and severally. 2. Lender: City of La Quinta (the "City"). 3. Maximum Commitment: The aggregate maximum amount of principal under the Facility will be $11,000,000.00 ("Funding Cap"), including principal amounts previously funded by the City on an interim basis. 4. Term: Funding commitment shall commence upon the entry of a fmal order approving the Facility (the "Approval Order") and shall continue until the first to occur of (a) December 15, 2025; (b) occurrence of an Event of Default; (c) the Maturity Date (the "Commitment Termination Date");, provided, however, that the City will continue to fund all draw requests under the existing Interim Orders pursuant to an updated agreed budget through and including January 2, 2025; and further provided that upon the occurrence of an event that, with the passage of time and/or the giving of notice would become an Event of Default (a "Default"), the funding commitment shall be suspended unless and until Borrowers have cured such Default. 5. Interest. Interest shall accrue on the outstanding principal advanced by the City at the Local Agency Investment Fund ("LAIF") rate in effect as of the date of entry of the Approval Order. (Such rate presently is 4.71°0 per annum; see LAIF Quarterly Apportionment Rates (ca.go'. )). From and after the occurrence of an Event of Default with respect to the Facility, default interest shall accrue and be payable on the outstanding principal under the Facility at the rate of 5.0% (which shall be in addition to the LAIF rate, or the maximum allowable interest rate per California law, whichever is less). The interest rate set forth in this paragraph shall apply with respect to the interim and fmal financing provided by the City. 6. Security. Borrowers' obligations and indebtedness under the Facility shall be secured by liens and security interests (collectively "Liens") on all of the Borrowers' interests in real and personal property, including without limitation (a) all proceeds of claims and causes ' Terms that are defined either in this Term Sheet or the attached Memorandum of Understanding ("MOU") shall apply with respect to both documents. Docusign Envelope ID: 451A7rgp9g8jtr9f8r323uoc 246-1 Filed 12/12/24 Page 22 of 44 of action of the Borrowers or the bankruptcy estates, but excluding a direct lien or security interest in avoidance actions arising under Sections 544, 547, 548 and 549 of the Bankruptcy Code ("Avoidance Actions"), and (b) all property in which the Debtors, or any of them, are authorized by law or contract to grant a lien or security interest. Subject only to the Carve Out (discussed below), the Liens securing the Facility shall be first priority priming liens pursuant to Section 364(d)(1) of the Bankruptcy Code, senior to all other liens and security interests in the Borrowers' property (other than the prepetition property interests of the City). The City shall be entitled to a superpriority administrative expense to secure all indebtedness and obligations under the Facility pursuant to Section 364(c)(1) of the Bankruptcy Code, senior to all other administrative expenses in the Borrowers' chapter 11 cases (the "Superpriority Expense"), subject only to the Carve Out. 7. Draws. Borrowers shall be entitled to draw the full amount of the Facility upon satisfaction of all conditions to borrowing under the Loan Documents. Borrowers alternatively shall have the right to make monthly draws by providing written notice to the City at least three (3) business days prior to each draw specifying the amount of the draw. The Borrowers may hold and maintain up to $2,000,000 in their operating accounts. All funds in excess of $2,000,000 shall be maintained in a segregated account subject to a security interest in favor of the City (the "Secured Account"), which shall be deemed to be a perfected security interest pursuant to the terms of the Approval Order. Subject to the foregoing limitation, absent the pendency of a default under the Loan Documents, the Borrowers may transfer funds from the Secured Account to the Borrowers' operating account. During the pendency of a default under the Loan Documents, the Borrowers shall be precluded from transferring the funds in the Secured Account to the Borrowers' operating account, or otherwise disbursing or using such funds without the advance written consent of the City. Upon the occurrence of an Event of Default, the Borrowers shall transfer such funds to the City, to be held in a segregated account pending determination of amounts needed for funding expenses subject to the Carve Out, with any excess remitted to the City as a payment of the Borrowers' indebtedness under the Facility. 8. Maturity Date. All principal, interest, fees and charges under the Facility shall be due and payable on the first to occur of: a. The effective date of a chapter 11 plan for any of the Borrowers in the Bankruptcy Case (the "Effective Date"). b. The closing of a sale, assignment or transfer of substantially all or substantially of the Borrowers' assets (the "Closing"). c. The occurrence of an Event of Default under or with respect to the Facility. d. The dismissal or conversion of the Bankruptcy Case (or the case of any of the Borrowers), or appointment of a trustee with respect to any of the Borrowers. e. The termination of Christopher Sontchi as the manager of any of the Borrowers. 2 Docusign Envelope ID: 451A7r gp9lifiga j8MM323 joc 246-1 Filed 12/12/24 Page 23 of 44 f. The termination of Douglas Wilson as chief restructuring officer of any of the Borrowers. g. December 31, 2025. 10. Transfer Taxes. The parties do not believe that any transfer tax or fee will be payable as a c-ondition to recording the Deed of Trust securing the Facility (the "DOT"). However, to the extent thata transfer tax or fee is required in connection with the recordation of the DOT, a sale pursuant to the DOT, or a sale pursuant to a sale under section 363 of the Bankruptcy Code, the -Borrowers' (or if applicable, the purchaser) shall bear responsibility for the payment of suchtaxor fee.City's professional fees and costs. On the Maturity Date and thereafter, Borrowers shall pay all reasonable and documented professional fees and costs incurred by the City in connection with the Borrowers' chapter 11 cases subject to the terms of the applicable order; provided, however, that the maximum amount of such fees and costs shall not exceed $600,000.00.Additionally, in the event that Borrowers default with respect to the Facility, the City shall be entitled to recover reasonable and documented professional fees and costs, including without limitation attorneys' fees and costs incurred in connection with any action or proceeding to enforce or construe the Loan Documents, and/or to defend against any claims asserted by any person against the City in connection with the Facility or the Borrowers' chapter 11 cases. The City's professional fees and costs subject shall not apply against the Approved Budget. The City's rights to recovery of its professional fees as set forth in this paragraph shall survive the repayment of Borrowers' indebtedness under the Facility. Nothing in this paragraph shall limit the City's right to seek or obtain reimbursement or other consideration from a purchaser or developer on account of additional fees or expenses as may be incurred in connection with the negotiation, documentation or implementation of development or related agreements. 11. Indemnification. The Borrowers and their successors and assigns shall indemnify the City for all claims and liability arising from or in connection with the transactions contemplated herein, except to the extent of liability that is determined by final order to result from the City's intentional or willful misconduct or gross negligence. 12. Covenants. In addition to covenants, terms and conditions that are customarily included in debtor -in -possession loan documents, the following terms, conditions and covenants shall govern the Borrowers and the Facility: a. Milestones. The Debtors shall take commercially reasonable efforts to implement the following milestones (the "Milestones") with respect to the sale of the Borrowers' real property (the "Property"), which may be pursuant to a chapter 11 plan, and approval and consummation of a chapter 11 plan unless the City agrees in writing (which consent may be confirmed via e-mail by counsel on behalf of the City) to extend or waive any Milestone, and provided that the Milestones that require an action of the Bankruptcy Court are subject to the availability of the Bankruptcy Court. Further, the parties agree that the Milestones may be subject to further revision upon consent of the Debtors and the City after further discussion with the broker retained with respect to the sale of the Property: 3 Docusign Envelope ID: 451A7 gg1 9g8mj8 K1323�OC 246-1 Filed 12/12/24 Page 24 of 44 i. The Borrowers shall have selected a broker, and filed an application to engage such broker, not later than December 12, 2024; ii. The Borrowers shall have obtained an order approving engagement of the broker not later than January 3, 2025; iii. The Borrowers shall have filed a motion for approval of bid procedures not later than January 31, 2025; iv. The Borrowers shall have obtained a report regarding cost to complete the project not later than February 10, 2025; v. The Court shall have entered its order approving the bid procedures not later than February 28, 2025; vi. The Court shall have entered its order authorizing the entry into a definitive agreement with a stalking horse purchaser not later than April 30, 2025 ; vii. Final, bids that are not contingent on due diligence or similar discretionary considerations must be submitted not later than June 30, 2025; viii. The Borrowers shall have selected the successful purchaser (and if appropriate a back-up bidder) not later August 15, 2025; ix. The Bankruptcy Court shall have entered its order approving a sale of all or substantially all of the Property not later than September 12, 2025; x. Closing on the sale (and if Closing is to occur pursuant to the Borrowers' Plan, the Effective Date) (the "Closing Date") shall occur not later than October 10, 2025; xi. Irrespective of the Closing Date, the Effective Date of the Borrowers' plan shall have occurred not later than December 31, 2025. b. Use of Funds. Funds advanced under the Facility shall be used solely for the purposes set forth in a budget approved by the City and attached hereto as Exhibit A (the "Approved Budget") subject to permitted variances (at a 10% level) determined on the basis of aggregate cash disbursements (the "Permitted Variances"). Borrowers shall inform the City promptly of any disbursement made based on Permitted Variances. Any adjustments to the Approved Budget (other than the Permitted Variances) shall be approved by the City, for which approval shall not be unreasonably withheld, provided that the adjustment does not cause the total Approved Budget to exceed the maximum amount of the Funding Cap. c. Memorandum of Understanding. Borrowers and the City shall enter into and comply with the Memorandum of Understanding attached hereto as Exhibit B. 4 Docusign Envelope ID: 451A7MFg81LWr83233oc 246-1 Filed 12/12/24 Page 25 of 44 d. Site Protection. Borrowers shall maintain security for the project consistent with the Approved Budget. Such security measures shall include: fenced and locked access to all areas of construction including construction staging areas; security camera system to remain operational and to have sufficient storage capacity for at least two weeks of video recordings; and roadways and pathways adjacent to the project site where the public has access must be maintained and protected if impacted by conditions related to the project, this can include barricades or k-rail to protect slopes, and or repair and maintenance associated with water, sand or debris from the project site. Borrowers shall maintain fencing on the property as follows: fencirr&as described above for security where applicable shall include dust screening; all gated access to construction areas shall be lockable; and fencing shall be maintained to provide uninterrupted security of the site and reduce the spread of blowing sand or dust. e. Material Contracts. Prior to entering into any contract, agreement or binding term sheet outside of the ordinary course of business, the Borrowers will consult with the City. f. D&O Insurance. The Borrowers shall maintain D&O coverage for the Independent Manager in an amount not less than $10,000,000, with a tail not less than five (5) years. 13. Carve Out. There shall be a carve out from the City's Liens and superpriority administrative expense claim for: a. Fees payable to the United States Trustee pursuant to 28 U.S.C. Section 1930(a). b. Fees payable to the clerk of the Bankruptcy Court. c. To the extent such expenses are incurred prior to the Carve -Out Trigger: i. Allowed fees and expenses incurred by the Independent Manager in the amount set forth in the Approved Budget, not exceeding $60,000.00 per month plus reasonable expenses; ii. Allowed fees and costs of defense with respect to indemnification obligations owed by Borrowers to the Independent Manager; provided, however, that this carve out shall apply solely to the extent such fees and costs exceed the amount of coverage required to be provided by D&O insurance; iii. Allowed fees and costs plus the payment of the Independent Manager's allowed legal fees and expenses in connection with the Chapter 11 Cases; iv. Allowed fees and expenses incurred by the CRO in the maximum amount set forth in the Approved Budget (subject to the Permitted Variances); and 5 Docusign Envelope ID: 451A7eeA ptipsi a323 3oc 246-1 Filed 12/12/24 Page 26 of 44 v. Allowed fees and expenses incurred by Borrowers' other court approved professionals in the maximum aggregate amount set forth in the Approved Budget (subject to the Permitted Variances). d. Up to a maximum amount equal to the lesser of (a) $400,000, or (b) amounts remaining available under the Approved Budget (without reference to the Carve - Out Trigger) for unpaid documented fees, costs and expenses accrued or incurred by the Independent Manager and other retained professionals following the occurrence of the Carve -Out Trigger, payable under sections 330 and 331 of the Bankruptcy Code and subsequently allowed by order of the Bankruptcy Court (the "Post -Trigger Carve Out"). e. Notwithstanding the foregoing: (1) the amounts of each carve out set forth above shall be reduced by the amounts paid from the Facility (whether pursuant to the Interim Orders or the Approval Order) to or for the benefit of the holder of each such carve out; (2) except to the extent of the Post -Trigger Carve Out, the carve outs shall be limited to fees and costs incurred prior to the first to occur of (i) the Commitment Termination Date, and (ii) the occurrence of an Event of Default; (3) no carve out shall be available with respect to fees or expenses that are incurred with respect to matters that are not a permitted use of the proceeds of the loans under the Facility; (4) absent the City's express written agreement, the amount of the carve outs set forth in the Approved Budget (subject to Permitted Variances) shall not increase by virtue of any extensions of time or increases in amounts as may be provided for in subsequent amendments to the Approved Budget; and (5) to the extent that any Permitted Variance, reallocation of funds, or other use of funds reduces the amount of funds available under the Approved Budget for the payment of fees or expenses, the maximum amount of the Carve Out shall be reduced accordingly. f. A "Carve -Out Trigger" occurs upon delivery (by email or otherwise) by the City of written notice to the Debtors, the Debtors' lead bankruptcy counsel, and the United States Trustee of the occurrence of an Event of Default. 14. Conditions to funding. The obligations of the City to fund the full amount of the Facility will be subject to satisfaction or written waiver, by the City, of each of the following conditions precedent: a. Final approval by the La Quinta City Council. b. Entry and finality of the Approval Order. c. Acceptance of an Approved Budget by the City. d. The preparation, delivery, execution and (as applicable) recordation of the Loan Documents (including a credit agreement, promissory note, deed of trust, security agreement and financing statements) in a form and substance acceptable to the City in its sole discretion. 6 Docusign Envelope ID: 451A7pg8in9r8323P3oc 246-1 Filed 12/12/24 Page 27 of 44 e. Borrowers shall have signed a definitive agreement with RD Olson Construction, Inc. for the clean-up and dust control of the Property. f. The absence of an Event of Default, or the occurrence of any act or omission that, with the giving of notice or the passage of time, would constitute an Event of Default. g. The City's receipt of a lender title insurance policy regarding the real property Collateral securing the Facility. 15. Interim DIP Financing. The City will continue to provide bridge DIP financing on an interim basis in a maximum amount of $2,690,965 pursuant to a further interim budget attached hereto as Exhibit C (in addition to funds previously provided pursuant to prior Interim Orders). Such financing shall be subject to and conditioned upon entry of a fourth interim financing order that contains terms substantially the same as the first, second and third Interim Orders. The funding commitment under the fourth interim financing shall terminate on the first to occur of: (a) January 2, 2025; (b) entry of an order approving the Facility; (c) filing of a motion to approve alternative DIP financing; or (d) occurrence of a default under the fourth Interim Order or related documents. Advances made pursuant to Interim Orders shall apply to, and reduce availability of funds under, the Approved Budget. 16. Defaults. In addition to customary defaults, the following shall constitute defaults under the Facility: a. Any Borrowers' failure to comply with the Loan Documents, this Term Sheet, any Interim Order, the Approval Order, the CRO Order, the MOU or any other order of the Bankruptcy Court; b. Failure to achieve any Milestone by the date provided with respect to such Milestone in each case, as then in effect after giving effect to any extensions, waivers or amendments thereto made in accordance with the requirements of this Term Sheet (and without regard to the Debtors' reasonable efforts to achieve such Milestones); c. Failure to pay principal, interest, fees or charges under the Facility when due; d. Entry of an order (i) granting relief from the automatic stay on any portion of Borrowers' real estate; (ii) granting relief stay on any other Borrower asset with a value in excess of $500,000; or (iii) converting or dismissing the Bankruptcy Case, or appointing a trustee. e. The Borrowers, or any of them, file a chapter 11 plan that is not reasonably acceptable to the City. 17. Remedies: Subject to the Approval Order, with respect to enforcement of remedies upon an Event of Default, the City shall provide a Carve -Out Trigger notice to the Borrowers five (5) Business Days' prior to taking such action (the "Remedies Notice Period"), and 7 Docusign Envelope ID: 451A7e dgg gib M323Doc 246-1 Filed 12/12/24 Page 28 of 44 after the expiration of the Remedies Notice Period, the City shall be authorized and entitled to exercise all rights and remedies provided in the Loan Documents or Approval Order (as applicable) and under applicable law. During the Remedies Notice Period, the Borrowers may use cash in their operating account in the ordinary course of business, consistent with past practices and the Approved Budget, including for the purposes of funding the Carve Out. During the Remedies Notice Period, any party in interest shall be entitled to seek an emergency hearing with the Bankruptcy Court seeking to stay the City's exercise of any rights and remedies and funds in the operating account may be used for this purpose. 18. Approval Order. The Approval Order shall contain terms and conditions that are customary for orders approving DIP financing. Additionally, and without limiting the generality of the foregoing, the Approval Order shall: a. Approve and implement the terms set forth in this Term Sheet. b. Approve the form and substance of the Loan Documents. c. Approve and incorporate into the Approval Order by reference the terms and conditions of the MOU. d. Provide for the immediate effectiveness of the Approval Order upon entry. e. Forever waive and release any and all rights of the Borrowers, their successors and assigns, and any subsequently appointed trustee or fiduciary: vi. to assert the "equities of the case" exception in Bankruptcy Code section 552(b); vii. to surcharge rights in Bankruptcy Code section 506(c); viii. to seek or obtain entry of an order priming (under section 364(d) of the Bankruptcy Code) the liens and security interest of the City that secure the Facility, or the prepetition liens, security interests of the City, and/or property interests of the City (including without limitation the City's repurchase options); or ix. without the City's prior written consent, to sell, transfer, assign or revest the Borrowers' property free and clear of the liens and security interests of the City that secure the Facility, or the prepetition liens, security interests of the City, and/or property interests of the City (including without limitation the City's repurchase options). x. Such waivers and releases shall survive repayment of the indebtedness and satisfaction of other obligations under the Facility. f. Provide that the Liens are deemed perfected without filing or recordation (without prejudice to the rights of the City to require filing and recordation). 8 Docusign Envelope ID: 45IA7 d pq8iif9181� 323uoc 246-1 Filed 12/12/24 Page 29 of 44 19. Binding Effect. The City and the Borrowers shall in good faith take all action that is necessary and appropriate to implement and seek approval of the Bankruptcy Court of, and to satisfy all conditions set forth in this Term Sheet. Notwithstanding the foregoing, (a) the Borrowers, in the exercise of their fiduciary duties, reserve the right to terminate this Term Sheet; and (b) absent court approval of the Term Sheet and exhibits attached hereto on or before January 2, 2025, either party may terminate this Term Sheet. Termination shall relieve all parties of their obligations under this Term Sheet (without impairing the rights of the parties under any Interim Order). Agreed SilverRock Development Company, LLC, RGC PA 789, LLC, SilverRock Lifestyle Residences, LLC, SilverRock Lodging, LLC, SilverRock Luxury Residences, LLC, and SilverRock Phase 1, LLC Vow) WitsatA, By: Name: Douglas Wilson Chief Restructuring Officer IA.G ptit4iL 5 59hGa By: Name: Christopher Sontchi Independent Manager City of La Quinta By: Jon McMillen, City Manager Attest: By: Monika Radeva, City Clerk Approved as to form: By: William H. Ihrke, City Attorney Case 24-11647-MFW Doc 246-1 Filed 12/12/24 Page 30 of 44 Agreed SilverRock Development Company, LLC, RGC PA 789, LLC, SilverRock Lifestyle Residences, LLC, SilverRock Lodging, LLC, SilverRock Luxury Residences, LLC, and SilverRock Phase 1, LLC By: Name: Douglas Wilson Chief Restructuring Officer By: Name: Christopher Sontchi Independent Manager City of La Quinta By: Jon McMillen, City Manager Attest: By: v Monika Radeva, City Clerk Approved as to form: 12/11/2024 By: Lila:.— .?' G.___ William H. Ihrke, City Attorney 10 Docusign Envelope ID: 451A7f EFB 9g8ig9f8 r 323uoc 246-1 Filed 12/12/24 Page 31 of 44 Exhibit A Approved Budget 12/10/2024 2:22 PM Case 24-11647-MFW Doc 246-1 Filed 12/12/24 Page 32 of 44 im 14 iit If It giell28q ..a a`a*agagsaa eaminx 211 241 911 .ij 8 8 § 8 8 ryw8�ry 8umE :ao 4 XEEFEE :�o n LERFEE n n EEAREE XMAFEE ti0gon ` ^ ^ gnmEE .1 4.n .. N n .. 8EASREE eao ;, AEAEEEEEE FEREEEEX Lease renews in April2025 c aD c 8 0 21 g$ x y E 23 E Fv �a— ¢qg i a r' E g. - 1 tyar E gpp_ <<s� .� ° i a A °�' �' x- E o 9 E€ 's ;;.. looe 'E iii! Nab 8 3E =a qg AE e v8 5E a EAR EX a §. Val RE g nF, m R R 8 8 od I 12/10/2024 2:22 PM Case 24-11647-MFW Doc 246-1 Filed 12/12/24 Page 33 of 44 • n" €3 R gH5 r is i 1188.243, 103.346 (27,176) (779,960j 49,4.419 1.154.576 333.659 (463.813) 458,520 1547,781, 1405.484j 856,003 (3666371 )399.84/11 1.133.363 1390.6371 1783,311) 188,243 334697 487,073 1,467,033 3,082,641 4,428,065 5,594,446 6,058,219 6,849,699 7,397,480 7,802,965 8,196,962 8,563,599 8,963,446 9,330,083 9,720,721 10,504,031 (198,243) (84,897) (112,073) (892.033) (392,614) 761,962 2,095,621 631.808 1,090,328 542,547 137,462 993,055 626,428 226,581 1,359,944 969,306 (188,243) 103,346 (27.176) (779,960) 499.419 1,154,576 333659 (463613) 458,520 (547,781) (405,484) 856,003 (366637) (399847) 1,133,363 (390,637) (783,311) g §- I "a g pp as A g 411 §1$1 aS�P 1 1 R 8$ 8 1 41 � � ,4pSry r $ § § R Sty .R $ $ § 211 §-RI § b 1 1. �a " § § ems• U. A gg " § RR "IA � §. § ��s�a -s,, a F a$ Ai i m i 9 S 0 -I s 111111 s _'Sz 3 1 5 '1: $ Q ss�w Docusign Envelope ID: 451A7dgpe1giftE6918R323voc 246-1 Filed 12/12/24 Page 34 of 44 Exhibit B Memorandum of Understanding SilverRock Development Company, LLC ("SDC"), RGC PA 789, LLC, SilverRock Lifestyle Residences, LLC, SilverRock Lodging, LLC, SilverRock Luxury Residences, LLC, and SilverRock Phase 1, LLC (individually, a "Debtor" and collectively, the "Debtors") and The City of La Quinta, a California municipal corporation (the "City") hereby enter into this Memorandum of Understanding ("MOU") as of this loth, day of December, 2024, with reference to the following recitals: WHEREAS, as more specifically described and detailed in that certain Declaration of Jon McMillen in Support of City of La Quinta's Opposition to Motion of Debtors Pursuant to Sections 105, 361, 362, 363, 364, and 507 of the Bankruptcy Code, Bankruptcy Rule 4001, and Local Rule 4001-2, for Interim and Final Orders (I) Authorizing Debtors to Obtain Postpetition Financing; (1I) Granting DIP Lender Liens and Super -Priority Claims; (111) Scheduling a Final Hearing; and (IV) Granting Related Relief [Docket No. 67] (the "McMillen Declaration"), the City and SDC entered into that certain Purchase, Sale, and Development Agreement dated November 19, 2014 (the "Original PSDA"), as amended by Amendment No. 1, dated October 29, 2015, Amendment No. 2, dated April 18, 2017, Amendment No. 3, dated November 28, 2018, Amendment No. 4, dated October 12, 2021, and Amendment No. 5, dated November 16, 2023 (together, the "PSDA") and that certain Statutory Development Agreement, dated November 19, 2014, by and between SilverRock Development Company and City, adopted pursuant to California Government Code section 65864 et seq. and recorded in the Office of the Riverside County Official Records on December 18, 2014, as Document No. 2014-0484106 (the "Development Agreement"), which concern the purchase, sale and development of two luxury resort hotels with attached residences, appurtenant golf clubhouse and conference center, and other amenities formerly known as "SilverRock" and now referred to as "Talus" (the "Project"); WHEREAS, as more specifically described and detailed in the McMillen Declaration, pursuant to the PSDA, the Development Agreement and related documents and instruments, the City transferred certain real property to SDC (the "Property"); WHEREAS, on August 5, 2024 (the "Petition Date"), the Debtors commenced chapter 11 cases, which have been administratively consolidated for procedural purposes only under Chapter 11 Case No. 24-11647 MFW (each case, a "Chapter 11 Case" and collectively, the "Chapter 11 Cases") in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). The Debtors continue to operate their businesses and manage their properties as debtors - in -possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code; WHEREAS, on September 3, 2024, the Bankruptcy Court heard and denied Debtors' motion for an interim and permanent order for Debtor -In -Possession Financing ("DIP Financing") to be provided and serviced by non-party Serene Investment Management, LLC, based upon terms that were not acceptable to the Bankruptcy Court; thereafter, Debtors and the City negotiated a term sheet ("Interim Term Sheet") to provide interim funding pending resolution of the Chapter 11 Cases with proposed terms and conditions that, among other goals, addressed concerns raised by the Bankruptcy Court; 12 Docusign Envelope ID: 451A7cedgp 413Ig918MM1323�OC 246-1 Filed 12/12/24 Page 35 of 44 WHEREAS, on September 20, 2024, Debtors filed their Motion of Debtors Pursuant to Sections 105, 361, 362, 363, 364, and 507 of the Bankruptcy Code, Bankruptcy Rule 4001, and Local Rule 4001-2, for Interim and Final Orders (I) Authorizing Debtors to Obtain Postpetition Financing from the City of La Quinta; (11) Granting Non -Priming DIP Lenders Liens and Super - Priority Claims; (111) Scheduling a Final Hearing; and (IV) Granting Related Relief [Docket No. 125] (the "Interim DIP Financing Motion"), which included the Term Sheet, proposed order, and other terms and conditions for the proposed alternative DIP Financing to be provided by the City; W t IEREAS, on October 1, 2024, the Bankruptcy Court entered its Interim Order (I) Authorizing the Debtors to Obtain Interim Postpetition Secured Financing, (II) Granting Non -Priming Liens and Superpriority Administrative Expense Status, and (III) Scheduling a Final Hearing [Docket No. 162] the ("First Interim DIP Order") granting the Interim DIP Financing Motion, on an interim basis; WHEREAS, on October 18, 2024, the Bankruptcy Court entered its Second Interim Order (1) Authorizing the Debtors to Obtain Interim Postpetition Secured Financing, (II) Granting Non -Priming Liens and Superpriority Administrative Expense Status, and (III) Scheduling a Final Hearing [Docket No. 188] the ("Second Interim DIP Order"), extending the term and amount of the DIP financing by the City on an interim basis; WHEREAS, on October 31, 2024, the Bankruptcy Court entered its Third Interim Order (1) Authorizing the Debtors to Obtain Interim Postpetition Secured Financing, (II) Granting Non -Priming Liens and Superpriority Administrative Expense Status, and (111) Scheduling a Final Hearing [Docket No. 208] the ("Third Interim DIP Order"), further extending the term and amount of the DIP financing by the City on an interim basis; WHER FAS, on December 6, 2024, the Bankruptcy Court entered its Fourth Interim Order (I) Authorizing the Debtors to Obtain Interim Postpetition Secured Financing, (II) Granting Non -Priming Liens and Superpriority Administrative Expense Status, and (111) Scheduling a Final Hearing [Docket No. 243] the ("Fourth Interim DIP Order"), further extending the term and amount of the DIP financing by the City on an interim basis (the First Interim DIP Order, the Second Interim DIP Order, the Third Interim DIP Order, the Fourth Interim DIP Order and all other interim DIP financing orders as may be entered in connection with interim financing to be provided by the City are referred to collectively herein as the "Interim Orders"); WHEREAS, concurrently herewith, the Debtors (as Borrowers) and the City have entered into a Term Sheet (the "Term Sheet") providing for the City to provide up to a maximum of $11,000,000 of DIP financing on a final basis, subject to the entry of an order approving such financing on terms and conditions set forth in the Term Sheet; WHEREAS, the Debtors and the City acknowledge and agree that their mutual interests are served by cooperating and coordinating in connection with (a) the Debtors' efforts to sell the Property to an acceptable developer who can complete the Project; (b) the preparation, confirmation and consummation of a chapter 11 plan; and (c) the administration of the Chapter 11 Cases; 13 Docusign Envelope ID: 451A7titgEt ilgreKM323�OC 246-1 Filed 12/12/24 Page 36 of 44 WHEREAS, in consideration of the DIP Financing described in the Term Sheet and the mutual agreements set forth herein, the Debtors and the City hereby agree as follows: 1. Communications. a. The parties shall maintain open and transparent communications regarding the sale process, the preparation of a plan and disclosure statement, the commencement of litigation, the Debtors' operations, conditions at the property and other material matters as may arise from time to time with respect to the Chapter 11 Cases. To the extent necessary or appropriate, the provision of information by one party to another may be subject to a customary non -disclosure agreement ("NDA"). All disputes pertaining to the designation of confidential material or to the enforceability of relevant NDA's shall be resolved by the Bankruptcy Court. To facilitate the orderly provision of information, the parties shall meet routinely with each other. b. The Debtors shall make a good faith effort (but are not required) to provide to the City a draft of all material motions and applications at least three (3) days prior to serving or filing such motion or application. In the event that the City raises a concern regarding any proposed motion or application, the Debtors shall attempt to address such concerns in good faith. c. Information Sharing. Upon a request by the City in writing (which may be by email), Debtors and CRO shall provide to the City all documents and information in their possession, custody or control that the City from time to time may request in writing regarding: the condition or value of the Debtors' assets; claims against Debtors; negotiations and communications with prospective purchaser and/or financers of the Debtors or their business; contracts between Debtors and third parties; transfers and payments made by Debtors; and dealings between Debtors and their insiders; cost to complete the project; appraisal reports; information regarding prospective purchasers (including without limitation their financial wherewithal and experience); purchase proposals, letters of intent and term sheets. Any request by the City shall be reasonable in scope, and shall describe the type of documents or information requested. Notwithstanding the foregoing, Debtors are not required to provide to the City any documents or information protected by the attorney -client privilege. 2. Sale of Property. a. Broker. The Debtors shall consult with the City regarding their selection of a broker, and the terms of employment of a broker, to be engaged with respect to the Debtors' proposed sale of the Property. The Debtors shall, at their sole discretion, include the City in communications with the selected broker. The City is authorized to have direct communications with the selected broker, but shall not communicate directly with the selected broker unless the Debtors are invited to or copied on such communications. 14 Docusign Envelope ID: 451A7rdgpe1'-g8It9i8M323uoc 246-1 Filed 12/12/24 Page 37 of 44 b. Selection of Developer/Purchaser. The Debtors shall make the determination regarding the selection of a Developer/Purchaser, and shall have responsibility for negotiating the terms and conditions of the sale, subject to approval of the Bankruptcy Court and to the terms of this MOU and the Facility. Without limiting the generality of the foregoing, the negotiation of the sale price and payment terms shall be the province of the Debtors. c. City Consent Rights. The City shall have the right to consent to or reject the sale to any Developer/Purchaser as the Debtors may propose. The City shall exercise its consent rights in good faith, giving due consideration to the experience, expertise and financial wherewithal of any proposed Developer/Purchaser, and the development terms, conditions and concessions as a proposed Developer/Purchaser may require. Absent the City's consent, the Debtors shall not seek approval of, or consummate, a sale to a proposed Developer/Purchaser. The parties acknowledge and agree that the City has the right to negotiate all terms and conditions related to the development of the Project, and to enter into development agreements and related documents directly with the selected Developer/Purchaser; and that the development terms and conditions to which the City may agree may differ from terms and conditions as were in effect and/or under discussion prepetition. The parties further acknowledge and agree that absent the City's written consent, the Debtors shall not seek to assume or assign the Purchase, Sale, and Development Agreement dated November 19, 2014, by and between SilverRock Development Company and City (the "Original PSDA"), as amended by Amendment No. 1, dated October 29, 2015, Amendment No. 2, dated April 18, 2017, Amendment No. 3, dated November 28, 2018, Amendment No. 4, dated October 12, 2021, and Amendment No. 5, dated November 16, 2023 (the "PSDA") or the Development Agreement, dated November 19, 2014, by and between SilverRock Development Company and City, adopted pursuant to California Government Code section 65864 et seq. and recorded in the Office of the Riverside County Official Records on December 18, 2014, as Document No. 2014-0484106 (the "Development Agreement"), and that effective on Closing to which the City consents in writing, the City shall not assert cure claims against the Debtors' estates under section 365 of the Bankruptcy Code with respect to the PSDA or Development Agreement (without prejudice to the City's right to assert prepetition claims or rejection damage claims in connection with the PSDA and Development Agreement, and to enforce all rights and remedies with respect to the Facility). d. Consultation. The parties agree to consult with each other in good faith regarding the selection of a stalking horse purchaser and the ultimate Developer/Purchaser of the Property; the terms and conditions of the sale and development of the Property; the procedures for sale of the Property (including whether to sell pursuant to section 363 of the Bankruptcy Code or pursuant to a plan). 15 Docusign Envelope ID: 451A7g89g8ig918323ioc 246-1 Filed 12/12/24 Page 38 of 44 3. Plan and Disclosure Statement. a. Preparation of Plan and Disclosure Statement. If the sale transaction is consummated through a plan, the Debtors shall provide an initial draft of a plan and disclosure statement to the City at least two (2) weeks prior to filing. If the sale transaction is not consummated through a plan, the Debtors shall provide an initial draft plan_and disclosure statement to the City at least five (5) business days prior to the filing. The Debtors shall attempt in good faith to provide drafts of material amendments and supplements at least five (5) business days prior to filing The City and the Debtors shall negotiate in good faith with respect to the Debtors' plan, disclosure statement and amendments and supplements. b. Contents of a Plan. The Debtors' plan shall contain terms and conditions consistent with this MOU and the Facility. c. Exclusivity. Effective upon entry of the Approval Order, the City hereby consents to a 120-day extension of the exclusivity periods set forth in section 1121 of the Bankruptcy Code. The Debtors and the City reserve their respective rights with respect to further extensions and/or termination of exclusivity. d. Miscellaneous. i. Effectiveness. This MOU shall be effective upon entry of the Approval Order, an shall be of no force or effective if the Approval Order is disapproved by the Bankruptcy Court. ii. Reservation of Rights. Except as set forth in the Term Sheet, the Loan Documents, the Interim DIP Orders, the Approval Order or this MOU, the Debtors and the City reserve their respective rights and remedies. iii. Survival. Unless terminated as set forth below, this MOU shall survive repayment and satisfaction of Debtors' obligations and indebtedness under the Facility. iv. Termination. Upon the occurrence of an Event of Default under the Facility, the City may, but is not required to, terminate this MOU by written notice to the Debtors. v. Third Party Beneficiaries. This MOU is solely between the Debtors and the City, and no third party is an intended beneficiary hereof. vi. Defined Terms. Capitalized terms used in this MOU shall have the same meaning given to such terms in the Term Sheet. [signatures follow] 16 Docusign Envelope ID: 451A7eCBAd p®1 -liti1e918M323uoc 246-1 Filed 12/12/24 Page 39 of 44 Agreed: SilverRock Development Company, LLC, RGC PA 789, LLC, SilverRock Lifestyle Residences, LLC, SilverRock Lodging, LLC, SilverRock Luxury Residences, LLC, and SilverRock Phase 1, LLC ONA1 Ma , By: Name: Douglas Wilson Chief Restructuring Officer / ' Name: Christopher Sontchi Independent Manager By: City of La Quinta By: Jon McMillen, City Manager Attest: By: Monika Radeva, City Clerk Approved as to form: By: William H. Ihrke, City Attorney Case 24-11647-MFW Doc 246-1 Filed 12/12/24 Page 40 of 44 Agreed: SilverRock Development Company, LLC, RGC PA 789, LLC, SilverRock Lifestyle Residences, LLC, SilverRock Lodging, LLC, SilverRock Luxury Residences, LLC, and SilverRock Phase 1, LLC By: Name: Douglas Wilson Chief Restructuring Officer By: Name: Christopher Sontchi Independent Manager City of La Quinta By: Jon McMillen, City Manager Attest: By: v 12/11/2024 Monika Radeva, City Clerk Approved as to form: By: William H. Ihrke, City Attorney 18 Docusign Envelope ID: 451A7eCsAdgt,4131 918i� 323 joc 246-1 Filed 12/12/24 Page 41 of 44 Exhibit C Revised Interim DIP Budget Budget attached to Fourth Interim DIP Order, clerk's docket 243-1, is incorporated by reference. 19 Case 24-11647-MFW Doc 246-1 Filed 12/12/24 Page 42 of 44 Exhibit 2 (Budget) RLF I 32024966v.1 12/10/2024 222 PM O;S ^ 1 A 14 A y@ � Case 24-11647-MFW Doc 246-1 Filed 12/12/24 Page 43 of 44 0•415R §gM$P`a assug sal 2R1 PIA g ^ « ' 3Q e § gg g 3 g4gsog n . an g -22 8°e8�N E '"R . $� x1 1 R g^gnnn g gg ag. F g5gggn gg g. .gg g4 8 g8«K'""g2 4211 N m « ego m^^ 8°««°e8A2go ri ei 3g • g ^R mR A ggggag F. FE Ng g .gag gg 4..g g A 8' n N 4 A lye=x2Ili lEg _ ��` „ ' o ds> .8 E'y EIgU E A ga a F. 12/10/2024 2:22 PM $ Case 24 11647 M FW Doc 246-1 Filed 1 % 2 24 Page 44 of 44 ##§■E |f %#g#© k } K § | ■ # 7 ■ t f | K =it §|||\ 1.334 195,000 320,000 341,807 295.000 270,030 293.616 270.000 295.000 308,847 270.000 270.000 279.210 270.000 270,000 282.227I } :188.2431 103.346 (27.176/ f779.9601 499.419 1.154,576 333.659 1463,8131 438,520 (547,7811 1405.4841 856,003 1366,637) (399,8471 1.133.363 (390,637. 783,311. 188,243 334,897 687,073 1,467,033 3,082,641 4,428,065 5,594,406 6,058,219 6,849,699 7,397,480 7,802,965 8,196,962 8,563,599 8,963.446 9,330,083 9,720,711 10,504,031 (188,243) (84,8971 (112,073) (892,033) (392,614) 763,962 1,095,621 631,8011 1,090,328 542,547 137,062 993,065 626,428 226,581 1,359,944 969,306 (188,243) 103,346 (27,176) (779,960) 499,419 1,154,576 333,659 (463,813) 458,520 (547,781) (405,484) 856,003 (366,637) (399,847) 1,133,363 (390,637) (783,311) 1188.243) 1114,8971 :112.0731 3892.0331 :392.614) 761,962 1.095.621 631.8013 1,090,328 542.547 137.062 993,065 26.428 226.581 1,359.944 969,306 185,996 250,000 575,000 575,000 3,000,003 5,500,000 7,000,000 7,000,000 8,250,000 8,250000 8,250,000 9,503,000 9,500.000 9,500,000 11,000,003 11,000,000 250.000 325.000 2,425,000 2,500.000 1,500.000 1.250.000 1.250,000 1,500,000 250.000 575.000 575.000 3.000.000 5.500.000 7,000.000 7,000.000 8.250,000 8.250,030 8.250,000 9.503.000 9.500000 9.500.003 11,030,000 11.000.000 11.000.000 4| §||| ri 41 2§|| 4§ §§||# | "I MI' $ 4 7§|K 1 41 !!IP | -|m |■##. �.; § , '11 ij . , ! - §§|2\ | A! §§|§ '11 HIV .�� 11 2§|§$ §§|§ \| ! !R "|! i .§1 | i ! ! ! § . ! .1.] |,\ $ { § /k| \\\! k | § \m| | !OW Case 24-11647-MFW Doc 246-2 Filed 12/12/24 Page 1 of 7 Exhibit B (Sontchi Declaration) Case 24-11647-MFW Doc 246-2 Filed 12/12/24 Page 2 of 7 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re SiLverRock Development Company, LLC, et al., Debtors.' Chapter 11 Case No. 24-11647 (Jointly Administered) DECLARATION OF CHRISTOPHER S. SONTCHI, SOLE INDEPENDENT MANAGER OF THE DEBTORS, IN SUPPORT OF DEBTORS' MOTION PURSUANT TO SECTIONS 105, 361, 362,363, 364, AND 507 OF THE BANKRUPTCY CODE, BANKRUPTCY RULE 4001, AND LOCAL RULE 4001- 2, FOR AN ORDER (I) AUTHORIZING DEBTORS TO OBTAIN POSTPETITION FINANCING; (II) GRANTING DIP LENDER LIENS AND SUPER -PRIORITY CLAIMS; AND (III) GRANTING RELATED RELIEF I, Christopher S. Sontchi, declare as follows under penalty of perjury: I. Background 1. I am the independent manager of all six Debtors (as defined in footnote 1 hereof). I am over the age of 18 and qualified to submit this declaration (the "Declaration"). If called to testify, I would testify competently to the facts and opinions set forth in this Declaration. 2. I submit this Declaration in support of the Debtors' Motion Pursuant to Sections 105 361, 362,363, 364, and 507 of the Bankruptcy Code, Bankruptcy Rule 4001, and Local Rule IThe Debtors in these chapter 11 cases, along with the last four digits of each Debtor's federal tax identification number, as applicable, are: SilverRock Development Company, LLC (5730), RGC PA 789, LLC (5996), SilverRock Lifestyle Residences, LLC (0721), SilverRock Lodging, LLC, (4493), SilverRock Luxury Residences, LLC (6598) and SilverRock Phase 1, LLC (2247). The location of the Debtors' principal place of business and the Debtors' mailing address is 343 Fourth Avenue, San Diego, CA 92101. 1 RLFI 32025735v.I Case 24-11647-MFW Doc 246-2 Filed 12/12/24 Page 3 of 7 4001-2, for an Order (1) Authorizing Debtors to Obtain Postpetition Financing; (II) Granting DIP Lender Liens and Super -Priority Claims; and (III) Granting Related Relief (the "Motion").2 I have reviewed the Motion and I am familiar with the relief requested therein. 3. Unless otherwise indicated, all statements in this Declaration are based on (i) my personal knowledge, (ii) information learned from my review of relevant documents, and (iii) information I received from the Debtors or their advisors. 4. I am not being specifically compensated for this testimony other than through payroll payments received as part of my regular compensation for my position as the independent manager of the six Debtors. II. Oualifications 5. I received a Juris Doctor from the University of Chicago Law School in 1992. 6. I have over thirty years of corporate bankruptcy, restructuring, and reorganization experience. I am a former Judge of the United States Bankruptcy Court for the District of Delaware, where I served for sixteen years, including one term as the Chief Judge. During my tenure, I presided over numerous significant chapter 11 cases, including Catholic Diocese of Wilmington, American Home Mortgage, Energy Future Holdings Corp., Visteon, Six Flags, Molycorp, Borden Dairy, Exide Technologies, Brooks Brothers, and Eagle Hospitality. 7. I currently am an International Judge of the Singapore International Commercial Court, where I focus on insolvency matters. I also am the sole member of Sontchi, LLC, where I 2 Capitalized terms that are used but not otherwise defined herein shall have the meaning ascribed to such terms in the Motion. 2 RLF I 32025735v.1 Case 24-11647-MFW Doc 246-2 Filed 12/12/24 Page 4 of 7 conduct mediations and arbitrations, provide expert services, and serve as an independent fiduciary. I also have served as the court -appointed mediator in many chapter 11 cases, including Mallinckrodt, MD Helicopters, The Roman Catholic Bishop of Oakland, and The Roman Catholic Archbishop of San Francisco. 8. I am a Lecturer in Law at The University of Chicago Law School, and I have taught restructuring to international judges associated with the World Bank Group. My previous experience also includes testifying before Congress on the safe harbors for financial contracts, as well as publishing articles on creditors' committees, valuation, asset sales, and safe harbors. III. The Debtors' Need for Post -Petition Financing 9. Since my appointment as Independent Manager, I have directed the Debtors to take a number of actions to benefit the estate and stabilize the Debtors' operations, including the Property. Specifically, under my direction, the Debtors have sought to void several preferential transactions encumbering Debtors' real property, both through a settlement motion and by initiating an adversary proceeding to void such transactions. In addition, in conjunction with Debtors' Chief Restructuring Officer (the "CRO"), Douglas Wilson, the Debtors are in the process of engaging, pending the Court's approval, a real estate broker who can appropriately market and sell the Project' opportunity and, hopefully, lead to distributions to creditors through a chapter 11 plan. Further, under my direction with the assistance of the CRO, the Debtors conducted a process to raise additional capital through post -petition financing that is necessary to preserve the value of 3 All capitalized terms not expressly defined herein shall have the meanings ascribed to them in the Motion. 3 RLF1 32025735v.1 Case 24-11647-MFW Doc 246-2 Filed 12/12/24 Page 5 of 7 the Project, compensate the Debtors' business and bankruptcy professionals, hire the real estate broker, complete a robust marketing and sales process, and facilitate a successful chapter 11 case. 10. Prior to my appointment, the Debtors entered into a financing arrangement with the City of La Quinta (the "City") to provide interim debtor -in -possession financing on a non -priming bases in the amount of $2,690,965 (the "Interim Funding"). I understand from my discussion with the CRO that the Interim Funding is not sufficient to conduct a marketing process and sale of the Project. I further understand that the Debtors require approximately $11 million to fund ongoing costs and fees through the end of calendar year 2025, during which time I expect that the Debtors would have completed a sale of the Project opportunity and proposed a chapter 11 plan. As the Debtors do not generate any income, I believe that absent sufficient DIP financing, the Debtors' business will quickly collapse and would be forced to liquidate under Chapter 7 of the Bankruptcy Code and would be unable to conduct an orderly sale process which would result in significant value destruction. As a result, I believe the proposed DIP financing is important for the Debtors' continued operational viability and will provide them with the necessary liquidity to preserve the business during these Chapter 11 Cases, which are designed to maximize value for all interested parties. IV. The Proposed Post -Petition Financing 11. It is my understanding that in an effort to raise additional financing the CRO contacted both existing secured creditors and third -party lenders regarding the potential for providing DIP financing to the Debtors in connection with these Chapter 11 Cases. It is my understanding that the CRO received proposals from a number of third -party lenders but none of the existing secured creditors. Further, it is my understanding that none of the lenders that 4 RLFI 32025735v.I Case 24-11647-MFW Doc 246-2 Filed 12/12/24 Page 6 of 7 submitted proposals were willing to provide such financing on a junior basis without a priming lien on the Debtors' property. I understand that the terms offered by the City for the DIP Credit Facility were significantly more favorable than the other offers received. Further, I understand that the Term Sheet and the DIP Credit Facility provide for a below -market interest rate of 4.71 %, no facility fee or make -whole provision. I believe that based on these features, the Debtors' ongoing, positive working relationship with the City, and the crucial role the City will play in selling the Project opportunity to facilitate Debtors' successful reorganization, the Debtors' entry into the Term Sheet and the DIP Credit Facility is in the best interest of both the Debtors and its constituencies. 12. Based on my discussions with the CRO and potential brokers for the sale of the Project opportunity, I believe that the proposed Milestones set forth in the Tenn Sheet are appropriate under the circumstances. In addition, I believe the Debtors' entry into the MOU provides for a consensual process with DIP Lender to sell the Project opportunity and clearly set forth the parties' rights in connection with the sale of the Project opportunity. Further, it is my understanding that the DIP Lender would not enter into the DIP Term Sheet without the Debtors agreeing to the terms of the NIOU. 13. Taking into account these circumstances and the Debtors' liquidity position, I believe that obtaining the DIP Credit Facility will maximize value for the benefit of the Debtors and their stakeholders. 14. Since my appointment as Independent Manager, I have had several candid and thorough discussions with the major secured creditors of the estates. I intend to continue these RLFI 32025735v.I Case 24-11647-MFW Doc 246-2 Filed 12/12/24 Page 7 of 7 discussions in an effort to reach a consensus with the secured creditors regarding the terms of the DIP Credit Facility and the path forward in these Chapter 11 Cases. Pursuant to 28 U.S.C. § 1746, I declare under penalty of perjury that the foregoing is true and correct to the best of my information, knowledge, and belief. Respectfully submitted, Dated: December 12, 2024 Wilmington, Delaware SILVERROCK DEVELOPMENT COMPANY, LLC (for itself and on behalf of its affiliated debtors as Debtors and Debtors in Possession) /s/ Christopher S. Sontchi Name: Christopher S. Sontchi Title: Independent Manager 6 RLFI 32025735v.1 Case 24-11647-MFW Doc 246-3 Filed 12/12/24 Page 1 of 7 Exhibit C (Wilson Declaration) Case 24-11647-MFW Doc 246-3 Filed 12/12/24 Page 2 of 7 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re SilverRock Development Company, LLC, et al., Debtors.1 Chapter 11 Case No. 24-11647 (Jointly Administered) DECLARATION OF DOUGLAS WILSON, CHIEF RESTRUCTURING OFFICER OF THE DEBTORS, IN SUPPORT OF DEBTORS' MOTION PURSUANT TO SECTIONS 105, 361, 362,363, 364, AND 507 OF THE BANKRUPTCY CODE, BANKRUPTCY RULE 4001, AND LOCAL RULE 4001- 2, FOR AN ORDER (I) AUTHORIZING DEBTORS TO OBTAIN POSTPETITION FINANCING; (II) GRANTING DIP LENDER LIENS AND SUPER -PRIORITY CLAIMS; AND (III) GRANTING RELATED RELIEF I, Douglas Wilson, declare as follows under penalty of perjury: Background 1. I am the Chief Restructuring Officer (the "CRO") of the Debtors and Debtors -in - Possession of the above -captioned Chapter 11 Case. Under the supervision of the Independent Manager, Christopher S. Sontchi, and with the assistance of my staff at Douglas Wilson Companies ("DWC"), I oversee the day-to-day operations of Debtors' business. 1The Debtors in these chapter 11 cases, along with the last four digits of each Debtor's federal tax identification number, as applicable, are: SilverRock Development Company, LLC (5730), RGC PA 789, LLC (5996), SilverRock Lifestyle Residences, LLC (0721), SilverRock Lodging, LLC, (4493), SilverRock Luxury Residences, LLC (6598) and SilverRock Phase 1, LLC (2247). The location of the Debtors' principal place of business and the Debtors' mailing address is 343 Fourth Avenue, San Diego, CA 92101. 1 Case 24-11647-MFW Doc 246-3 Filed 12/12/24 Page 3 of 7 2. I submit this Declaration in support of the Debtors' Motion Pursuant to Sections 105 361, 362,363, 364, and 507 of the Bankruptcy Code, Bankruptcy Rule 4001, and Local Rule 4001-2, for an Order (1) Authorizing Debtors to Obtain Postpetition Financing; (II) Granting DIP Lender Liens And Super -Priority Claims; And (III) Granting Related Relief (the "Motion").2 I have reviewed the Motion and I am familiar with the relief requested therein. 3. Unless otherwise indicated, all statements in this Declaration are based on (i) my personal knowledge, (ii) information learned from my review of relevant documents, and (iii) information I received from the Debtors or their advisors. Qualifications 4. I have over 40 years of development, receivership, and real estate management experience. I have served as a Court -Appointed Receiver in over 1,200 cases. The notable projects that I have been involved includes The Mark, a $155 million, 33-story, mixed -use development located one block from the San Diego Padres' Petco Park; Parkloft, a $60 million poured -in -place concrete and brick building with 120 one- and two-story residential lofts located in downtown San Diego's East Village neighborhood; China Basin Landing, a 675,000 square -foot office complex on the San Francisco Bay waterfront, adjacent to the San Francisco Giants' Pacific Bell Park; Half Street, a 400,000 square -foot office building with ground floor retail, located in the Capitol Riverfront District of Washington, D.C.; and the NOAA Facility, a 268,762 square -foot office and research facility located adjacent to the University of Maryland. 2 Capitalized terms that are used but not otherwise defined herein shall have the meaning ascribed to such terms in the Motion. 2 Case 24-11647-MFW Doc 246-3 Filed 12/12/24 Page 4 of 7 5. I am a member of the Urban Land Institute (UDMUC-Blue Council); the National Association of Federal Equity Receivers; the California Receivers Forum, the California Bankruptcy Forum for which I have served as president and treasurer, respectively. I am on the UCSID Real Estate Advisory Board as well as the USD Burnham -Moores Real Estate School; and Lambda Alpha International land economics fraternity. 6. I hold a Bachelor of Arts degree from the University of Denver. The Debtors' Need for Post -Petition Financing 7. The Debtors' current financial position requires immediate access to additional liquidity to preserve the value of the Project3 opportunity for the benefit of all stakeholders to the bankruptcy estates, pay necessary administrative and bankruptcy -related expenses, and pay the fees of a qualified real estate broker until such time that Debtors can complete a robust marketing and sale (the "Sales Process") of the Project opportunity. 8. To date, the Debtors have raised $2,690,965 from Court -approved Interim DIP Financing from the City of La Quinta ("City"). While this amount will fund Debtors' needs through early January, 2025, it is insufficient to sustain the Debtors through completion of the Sales Process. Absent sufficient additional capital, the Debtors will be unable to complete the Sales Process and will instead be forced into a Chapter 7 liquidation. 9. In conjunction with the Independent Manager and my staff at DWC, I have determined that the Debtors require approximately $11 million, inclusive of the Interim DIP 3 Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Motion. 3 Case 24-11647-MFW Doc 246-3 Filed 12/12/24 Page 5 of 7 Financing, to remain sufficiently liquid through the completion of the Sales Process. My staff has prepared a detailed Budget explaining the necessary uses of this $11 million, which is attached to the Motion. 10. As CRO of the Debtors, I have personally led the efforts to secure DIP financing te�uts that are in the best interest of the Debtors and their estates. In this capacity, I have engaged with six credible financial institutions with DIP financing experience, four of whom presented proposed term sheets for debtor in possession financing. I also contacted four law firms for recommendations on DIP financing partners and spoke with two of the Debtors' existing secured creditors over possible terms. The Proposed Post -Petition Financing 11. After significant diligence, negotiation with potential DIP lenders, and consultation with the Debtors' Independent Manager, legal counsel, and stakeholders, I determined that the terms and structure of the proposed DIP Credit Facility with the DIP Lender represents the best available financing option for the Debtors and their estates under the existing circumstances. The Debtors own a very complex real estate asset, and the DIP Credit Facility provides the Debtors with the necessary liquidity to complete the Sales Process at a below -market interest rate of 4.71 ° 0 per annum, without any facility fees, and without a make -whole provision. The Debtors have also enjoyed a transparent and collaborative working relationship with the DIP Lender since the Petition Date, and the DIP Lender's substantive contribution to these Cases is critical to complete the Sale Process in a manner that best serves the interests of all stakeholders to the estate. 12. During Debtors' negotiations with the DIP Lender, I continued to engage with alternative sources of DIP financing, including those described in Paragraph 5 herein, to obtain the 4 Case 24-11647-MFW Doc 246-3 Filed 12/12/24 Page 6 of 7 best possible fmancing terms. None of these other sources presented terms as favorable as the those provided by the DIP Lender. 13. The negotiations with the DIP Lender over the DIP Credit Facility were conducted in good faith and at arm's length. The DIP Credit Facility terms are the product of rigorous negotiation, finalized only after the Debtors' careful consideration of all available DIP financing alternatives. Based on my experience and knowledge of similar debtor in possession financing in the market, I believe the proposed interest rate provided for in the DIP Credit Facility is below market and fair and reasonable under the circumstances. The Debtors and their advisors (including DWC) considered the below market interest rate when determining whether the DIP Credit Facility constituted the best alternative reasonably available to the Debtors. As a result, I believe paying the interest rate in order to obtain the DIP Credit Facility is in the best interest of the estates. 14. I understand that the DIP Lender will not fund the DIP Credit Facility unless it is granted a priming lien in all of Debtors' property. However, every potential DIP lender I spoke to required a priming lien before funding. Based on my experience and discussions with the potential lenders, I do not believe that adequate and acceptable financing on an unsecured basis or on a junior priority basis is available. In the existing market, with an asset as complex as Project, I do not believe that it is feasible to raise $11 million in DIP financing without granting a priming lien. Priming the secured interests of existing secured creditors to obtain the DIP Credit Facility proceeds is both reasonable and appropriate under the circumstances of these Chapter 11 Cases. 15. Further, I understand that the DIP Facility requires the Debtors to comply with certain Milestones in connection with the postpetition sale process. I understand these Milestones were heavily negotiated and required by the DIP Lender as conditions to providing 5 Case 24-11647-MFW Doc 246-3 Filed 12/12/24 Page 7 of 7 the DIP Credit Facility. The Sale Process would not be possible absent access to the DIP Credit Facility. Based on my discussions with potential brokers, I believe that the Milestones are appropriate and reasonable and enable the Debtors to facilitate the Sale Process and consummate a transaction. 16. Based on my review of the DIP Credit Facility, my participation in the extensive process to secure DIP financing on the best possible terms, my consultation with the Independent Manager and with the Debtors' legal professionals, and my professional experience, I believe the DIP Credit Facility is both essential to the Debtors' ability to complete the Sales Process and offers the best possible DIP financing terms Debtor can obtain under the circumstances. Pursuant to 28 U.S.C. § 1746, I declare under penalty of perjury that the foregoing is true and correct to the best of my information, knowledge, and belief. Respectfully submitted, Dated: December 12, 2024 San Diego, California SILVERROCK DEVELOPMENT COMPANY, LLC (for itself and on behalf of its affiliated debtors as Debtors and Debtors in Possession) /s/ Douglas Wilson Name: Douglas Wilson Title: Chief Restructuring Officer 6 Case 24-11647-MFW Doc 246-4 Filed 12/12/24 Page 1 of 3 Exhibit D RLFI 32024966v.1 Case 24-11647-MFW Doc 246-4 Filed 12/12/24 Page 2 of 3 Please find below, to the best of Debtors' knowledge, a comprehensive list of Debtors' secured creditors, the amounts claimed by those creditors, the property securing those claims, and a brief description of the loans and security interests. The Motion requests that each of these secured interests be primed. Debtors reserve the right to object to any and all of these secured claims, or to modify/supplement them as new information becomes available. A more fulsome description ofthe secured creditors -may be found in the Green Declaration or in Debtors' filed Bankruptcy Schedules and Statements. 1) Poppy Bank Poppy Bank loaned SilverRock Development Company ("SRDC") $40M at a rate of 5% per annum on terms of a loan maturing November 1, 2024. The estimated balance remaining on the loan is $33M. To secure this loan, Poppy holds a first position deed of trust on SRDC's commercial property, 16 Montage Residential lots and the entire Pendry Residential lot. 2) Cypress Point Holdings, LLC Cypress, a preferred equity investor in the Project whose interest was later converted into a secured debt, claims it has a balance due of $39,559,190,65, accruing interest at 24% per annum. The Cypress Promissory Note matured on October 31, 2023 and is secured with a second position deed of trust on SRDC's commercial property. 3) Builder's Capital An estimated balance of $37,100,000 remains outstanding pursuant to a secured loan agreement between SilverRock Luxury Residences LLC ("SR Luxury") and Construction Loan Services II (Builders Capital). The loan accrues interest at a variable rate, which is currently 14.5% per annum. The notes executed pursuant to the loan have the same interest rate and mature on May 15, 2024 and November 11, 2024, respectively. The notes are secured by a first deed of trust on 13 Montage Residence lots (owned by SRDC) and a first position deed of trust in SR Luxury's leasehold interest in 16 Montage Residence lots. 4) Keilor Capital An estimated balance of $12,500,000 remains outstanding pursuant to a secured loan agreement between RGC PA 789, LLC ("789") and R:\F Pacifica Loan Opportunity Fund I, LLC and the Arnold Fishman Revocable Trust (Keilor Capital). The loan accrues interest at a variable rate, currently at 13.125% per annum. The loan matures on April 10, 2025. The loan is secured by a first position deed of trust on PA 7,8, and 9, previously owned by SRDC but now owned by 789. 5) First Pathway Partners An estimated balance of $14,600,000 remains outstanding pursuant to a loan made by Case 24-11647-MFW Doc 246-4 Filed 12/12/24 Page 3 of 3 SilverRock Resort Investment, LLC and SilverRock Resort Investment M, LLC ("First Pathway Partners"), entities funded with EB5 capital, to SilverRock RGC Preferred, LLC. This loan accrues at a fixed rate of 5.5° o per annum and does not have a maturity date. The loan is secured by a second position deed of trust in PA 7 and 8, which is owned by 7,8, and 9. 6) R.D. Olson RD Olson Construction, Inc. ("Olson"), who holds a mechanics lien in the estimated amount of $14,868,089 originating from construction work performed on behalf of SilverRock Lodging, LLC. The lien is secured by SRDC's commercial property, to which Olson claims (and Poppy disputes) it holds a first -position deed of trust. 7) Granite Construction Company Granite Construction Company ("Granite") holds a mechanics lien in the estimated amount of $4,500,000 originating from construction work performed on behalf of SilverRock Phase I, LLC secured by a deed of trust on SRDC's commercial property. 8) Avoidable Preferences Debtors are in the process of avoiding $82,276,900 worth of secured real property interests held by unsecured creditors or preferred equity holders who were converted into secured creditors in July of 2024, within 90 days of the Petition Date. Debtors will avoid this amount either through a 9019 motion (D.I. 2040) or an adversary proceeding (D.I. 241). More information on these avoidable preferences and the property they encumber can be found in the text of the motion and adversary proceeding. 9) SilverRock Land II, LLC ("Land II") Land II, which is owned 100% by the Traub Family Revocable Trust dated 1/22 15 ("Traub") owns 42.8% of Planning Area 9 ("PA 9") as a tenant in common ("TIC") with 789 (originally, Land II was a tenant in common with SRDC, but SRDC assigned all its rights in the TIC agreement to 789), pursuant to an executed TIC agreement. Pursuant to the TIC agreement, 789 has the right to encumber the entirety of PA 9, including Land II's TIC interest and without Land II's consent, to obtain a loan secured by PA 9. The Motion requests that Land II's TIC interest be primed. 10)Mechanics liens -various -See exhibit A to SRDC's and 789's SOFA's. Upon information and belief, Debtors understand each of the listed mechanics lien holders are subcontractors of R.D. Olson, Granite, or Robert Green Residential, Inc. All three contractors have filed their own mechanics lien, which, upon information and belief, include the claims of the subcontractors. Case 24-11647-MFW Doc 246-5 Filed 12/12/24 Page 1 of 2 IN TIIE UNITED STATES BANKRUPTCY COURT FOR TIIE DISTRICT OF DELAWARE Chapter 11 Case No. 24-11647 (MFW) Jointly Administered In re: SilverRock Development Company, et al., Debtors.' Objection Deadline: December 26, 2024 by 4p.m.(ET) Hearing Date: January 2, 2025 at 10:30 a.m. (ET) NOTICE OF MOTION AND HEARING PLEASE CAREFULLY REVIEW THIS MOTION AND THE ATTACHMENTS HERETO TO DETERMINE WHETHER THIS MOTION AFFECTS YOUR RIGHTS, CLAIMS OR INTERESTS. PLEASE TAKE NOTICE THAT YOUR CLAIMS OR INTERESTS MAY BE PRIMED BY THE RELIEF REQUESTED IN THIS MOTION. PLEASE TAKE NOTICE that, on December 12, 2024, the above -captioned debtors and debtors in possession (collectively, the "Debtors") filed the Motion of Debtors Pursuant to Sections 105, 361, 362,363, 364, and 507of the Bankruptcy Code, Bankruptcy Rule 4001, and Local Rule 4001-2, for an Order (I) Authorizing Debtors to Obtain Postpetition Financing; (II) Granting DIP Lender Priming Liens and Super -Priority Claims; and (Ill) Granting Related Relief (the "Motion") with the United States Bankruptcy Court for the District of Delaware (the "Court"). PLEASE TAKE FURTHER NOTICE that any responses or objections to the Motion must be in writing and filed with the Clerk of the Court, 824 North Market Street, 3rd Floor, Wilmington, Delaware 19801 on or before December 26. 2024 at 4:00 p.m. (prevailing Eastern Time) PLEASE TAKE FURTHER NOTICE that if any objections to the Motion are received, the Motion and such objections shall be considered at a hearing before The Honorable Mary F. Walrath, United States Bankruptcy Judge for the District of Delaware, at the Court, 824 North Market Street, 5th Floor, Courtroom 4, Wilmington, Delaware 19801 on January 2, 2025 at 10:30 a.m. (prevailing Eastern Time). PLEASE TAKE FURTHER NOTICE THAT, IF NO OBJECTIONS TO THE MOTION ARE TIMELY FILED IN ACCORDANCE WIT' I THIS NOTICE, THE COURT MAY The Debtors in these chapter 11 cases, along with the last four digits of each Debtor's federal tax identification number, as applicable, are: SilverRock Development Company, LLC (5730), RGC PA 789, LLC (5996), SilverRock Lifestyle Residences, LLC (0721), SilverRock Lodging, LLC (4493), SilverRock Luxury Residences, LLC (6598) and SilverRock Phase I, LLC (2247). The location of the Debtors' principal place of business and the Debtors' mailing address is 343 Fourth Avenue, San Diego, CA 92101. Case 24-11647-MFW Doc 246-5 Filed 12/12/24 Page 2 of 2 GRANT TIIE RELIEF REQUESTED IN THE MOTION WITHOUT FURTHER NOTICE OR HEARING. Dated: December 12, 2024 ARMSTRONG TEASDALE LLP Wilmington Delaware 's/Jonathan M. Stemerman Jonathan M. Stemerman (No. 4510) Eric M. Sutty (No. 4007) Denisse Guevara (No. 7206) 1007 North Market Street, Third Floor Wilmington, Delaware 19801 Telephone: (302) 416-9670 jsttemerman@atllp.com esutty@atllp.com dguevara@atllp.com and Victor A. Vilaplana (Admitted Pro Hac Vice) 823 La Jolla Rancho Rd. La Jolla, CA 92037 Telephone: (619) 840-4130 vavilaplana@gmail.com and Benjamin M. Carson (Admitted Pro Hac Vice) 5965 Village Way STE E105 San Diego, CA 92130 Telephone: (858) 255-4529 ben@benjarnincarson.com Proposed Counsel to the Debtors and Debtors in Possession