IN RE PHOENIX RESTAURANT GROUP, INC., (Bankr.M.D.Tenn. 2001)

KEITH M. LUNDIN, United States Bankruptcy Judge

Upon the motion dated November 5, 2001 (the "Motion") of Phoenix Restaurant Group. Inc. ("PRG") and PRG's subsidiaries in these jointly-administered proceedings (the "Subsidiary Debtors"), as debtors and debtors in possession in the above-captioned cases (collectively, the "Debtors"), (a) for authorization and approval, pursuant to Section 364(c) of title 11 of the United States Code (the "Bankruptcy Code") and Bankruptcy Rules 4001(b), (c) and (d), to (i) obtain postpetition financing pursuant to the terms and provisions of the Loan Documents described in Debtors' Motion (the "Postpetition Credit Facility"), and (ii) grant mortgages, security interests, liens and superpriority claims to the Lender, and (b) for final approval of the Motion (the "Final Hearing") in accordance with Bankruptcy Rule 4001(c)(2); and upon the objections (each an "Objection" and collectively the "Objections") filed by the Consolidated Official Unsecured Creditors' Committee (the "Committee"), the United States Trustee (the "U.S. Trustee"), Jack M. Lloyd, Cathy Lloyd, HMH Restaurants, LLC, 1301 Brandon Corporation, 4325 South Florida Corporation, 4755 West Atlantic Corporation, 6708 Forest Hill Corporation, 10111 South Federal Corporation and 12701 Dale Mabry Corporation, and LH Leasing, Inc. (collectively, the "Objecting Parties"); the Court having considered the Debtors' Motion and the Exhibits attached thereto, including, without limitation, the Loan Documents; and in accordance with Bankruptcy Rule 4001(b), (c) and (d)(1), due and proper notice of the Motion having been given; a hearing to consider interim approval of the Loan Documents having been held and concluded on November 6, 2001 (the "Interim Hearing") and the Court having entered an interim order on November 7, 2001 granting the relief requested in the Motion on an interim basis (the "Interim Order") (Doc. No. 42); and a hearing to consider final approval of the Motion having been held on November 28, 2001 and continued to November 29, 2001 (the "Final Hearing"); and upon all of the pleadings filed with the Court and all of the proceedings held before the Court and the evidence adduced therein; and the Court having noted the appearances of all parties in interest in the record of the Court; and objections to the relief requested in the Motion having been withdrawn, resolved or overrated by the Court; and resolution of the Objection filed by HMH Restaurants, LLC to the relief requested in the Motion being resolved by separate Order of this Court; and it appearing to the Court that the relief requested by the Motion is in the best interests of the Debtors and their creditors, is essential for the continued operations of the Debtors' businesses and is necessary and beneficial to the Debtors and their estates; and it further appearing that the Debtors are unable to obtain unsecured credit for money borrowed allowable as an administrative expense under section 503(b)(1) of the Bankruptcy Code; and after due deliberation and consideration and good and sufficient cause appearing therefore,

Unless otherwise defined herein, all capitalized terms shall have the meanings ascribed to them in the Credit Agreement and m the Motion. In the case of any conflicting definitions, the definitions provided by the Credit Agreement will control.

THE COURT HEREBY FINDS AND CONCLUDES:

1. On October 18, 2001 (the "Involuntary Petition Date"), an involuntary petition seeking an order for relief under chapter 7 of the Bankruptcy Code (the "Involuntary Petition") was filed by six petitioning creditors against PRG in the United States Bankruptcy Court for the Middle District of Florida. On October 25, 2001, PRG filed a motion to transfer venue of the involuntary case to the United States Bankruptcy Court for the Middle District of Tennessee. On October 29, 2001, an order was entered transferring the venue over the Involuntary Petition to this Court. On October 31, 2001 (the "Petition Date"), the Subsidiary Debtors filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Middle District of Tennessee. Also on October 31, 2001 PRG filed a motion to convert the involuntary Petition to a voluntary proceeding under chapter 11 of the Bankruptcy Code.

2. On November 13, 2001, an official Unsecured Creditors' Committee (the "Committee") was appointed in these proceedings.

3. Pursuant to an Order of this Court, these chapter 11 cases have been consolidated for procedural purposes only and are being jointly administered.

4. This Court has jurisdiction over this proceeding and the parties in interest and properties and interests in properties affected hereby under sections 157(b) and 1334 of title 28 of the United States Code (the "Judiciary Code"). Consideration of the Motion constitutes a core proceeding under section 157(b)(2) of the Judiciary Code.

5. In connection with certain prepetition credit agreements, each of the Debtors granted to or for the benefit of the Lender and/or the Lender's affiliates various security interests and liens on certain of Debtors' assets and properties. All assets and properties of the Debtors as to which liens and security interests were granted under or in connection with the Debtors' prepetition financing are hereinafter referred to as the "Prepetition Collateral."

6. The Debtors' businesses require the availability of credit in order to finance the ordinary costs of their operations. Without such credit the Debtors will not be able to pay their employees and other direct operating expenses or to purchase inventory. Inability to obtain such credit would result in a disruption of the Debtors' businesses and would cause immediate and irreparable harm to the Debtors' estates.

7. Certain of the Debtors' assets, including current assets, equipment and stock of subsidiaries, are subject to the liens and security interests of the Lender and Lenders affiliates under various prepetition financing agreements. All of the Debtors' cash relating to those assets constitutes proceeds of the Prepetition Collateral and, therefore, is cash collateral of the Lenders within the meaning of section 363(a) of the Bankruptcy Code.

8. The Debtors are unable to obtain interim or permanent financing from sources other than the Lender on terms more favorable than under the Loan Documents. The Debtors have been unable to obtain interim unsecured credit solely under section 503(b)(1) of the Bankruptcy Code as an administrative expense. New credit is unavailable to the Debtors without (a) granting to the Lender claims having superpriority over that of all administrative expenses of the kind specified in sections 503(b) and 507(b) of the Bankruptcy Code (other than U.S. Trustee fees and the Professional Carve-Out Expenses (as defined in the Loan Documents), (b) securing such loans and other obligations with liens on and security interests in all of the prepetition and postpetition assets, properties and interests in property of the Debtors (the "Collateral") and replacement liens as provided herein and in the Loan Documents, and (c) granting adequate protection pursuant to section 361 of the Bankruptcy Code to the Lender with respect to outstanding prepetition indebtedness.

9. The Lender has indicated a willingness to consent and agree to provide financing to the Debtors subject to (i) the entry of this Final Order, (ii) the terms and conditions of the Loan Documents, and (iii) a finding by the Court that such financing is essential to the Debtors' estates, has been negotiated at arms' length and in good faith, and that, as provided in sections 363(m) and 364(e) of the Bankruptcy Code, any mortgages, security interests, liens, claims, superpriority claims and other protections wanted to the Lender pursuant to this Order and the Credit Agreement will not be affected by any subsequent reversal, modification, vacatur or amendment of this Order or any other order.

10. Due notice of the Final Hearing and the Motion has been provided as required by the Order Establishing Notice, Case Management and Administrative Procedures and in accordance with Bankruptcy Rule 4001(b), (c) and (d), which notice is good and sufficient for all purposes under the Bankruptcy Code, including, without limitation, sections 102(1), 363(e) and 364 of the Bankruptcy Code, and no other notice need be given for entry of this Order.

11. The Debtors must incur new indebtedness for borrowed money and other financial accommodations in order for the Debtors to finance their respective operations, and such new indebtedness is in the best interests of the Debtors and their respective creditors and estates. The postpetition financing authorized hereunder is vital to avoid immediate and irreparable harm to the Debtors' estates and to allow the orderly continuation and operation of the Debtors' businesses.

12. Upon entry of this Order, and subject to the conditions in the Loan Documents, the Debtors will be entitled under the Loan Documents to borrow up to $3,500,000.00.

13. The Loan Documents have been negotiated in good faith and at ants length between the Debtors and the Lender, and any credit extended and loans made to the Debtors by the Lenders shall be deemed to have been extended or made, as the case may be, in good faith within the meaning of section 364(e) of the Bankruptcy Code.

14. The terms of the Loan Documents are fair and reasonable, reflect the Debtors' exercise of prudent business judgment consistent with their fiduciary duties and are supported by reasonably equivalent value and fair consideration.

THEREFORE, IT IS HEREBY ORDERED, ADJUDGED AND DECREED:

15. The Objections filed by the U.S. Trustee and the Committee are resolved on the terms set forth herein.

16. The Debtors' request in the Motion for final approval of the Postpetition Credit Facility shall be, and it hereby is, approved in all respects, subject to the provisions of this Order.

17. The Debtors shall be, and they hereby are, authorized to execute and deliver the Loan Documents and to perform their respective obligations thereunder in accordance with the terms of the Credit Agreement. Except to the extent expressly modified herein, the Loan Documents shall be, and they hereby are, approved by this Order and, by this reference, incorporated herein as part of this Order.

18. Upon execution and delivery of the Note and other documents described in the Loan Documents, such agreements, documents and instruments shall constitute valid, binding obligations of the Debtors, enforceable against each of the Debtors in accordance with their terms.

19. Each of the Debtors is authorized and directed to take and effect all actions, to execute, deliver and implement all agreements, instruments and documents and to pay all present and future fees, costs, expenses and taxes that may be provided for under or required or necessary for their performance under the Loan Documents, including, without limitation, the execution and delivery of the Note and other documents in substantially the form attached to the Loan Documents, and the performance of all of their obligations thereunder.

20. As security for the payment and performance of the Obligations under the Loan Documents, the Lender shall be, and hereby is, granted, effective immediately and without the necessity of the execution by the Debtors of financing statements, mortgages, security agreements, or otherwise:

a. a perfected first priority Lien on all previously unencumbered Collateral pursuant to section 364(c)(2) of the Bankruptcy Code; and

b. a perfected junior Lien on property of the estate currently encumbered by other Liens pursuant to section 364(c)(3) of the Bankruptcy Code.

The security interests and liens granted to the Lender hereunder shall not be subject to any security interest or lien that is avoided and preserved for the benefit of any of the estates of any of the Debtors under section 551 of the Bankruptcy Code. Except as specifically provided herein, the security interests and liens granted to the Lender shall not be made on a parity with, or subordinated to, any other security interest or lien under section 364(d) of the Bankruptcy Code or otherwise. The liens and encumbrances granted in this Final Order in no way enhance the prepetition lien rights and encumbrances held by Lender to secure its prepetition debt.

21. As adequate protection for the use by the Debtors of any Prepetition Collateral, including the cash collateral to the extent provided in the Loan Documents, and for any diminution in the value of the interests of the Lender in the Prepetition Collateral, the Lender under its prepetition financing agreements shall be and hereby is granted valid, binding, enforceable and perfected security interests in and liens on the Collateral up to the amount of Lender's interest in the Prepetition Collateral, subject and subordinate only to (i) the security interests and liens granted to the Lender under the Loan Documents, (ii) Permitted Expenses (as herein defined), and (iii) any other liens or security interests permitted under the Credit Agreement, provided that the Lender shall receive adequate protection only to the extent of any diminution in the value of the Collateral.

22. "Permitted Expenses" means a carve-out for (i) Carve-Out Professionals (the "Professional Fee Carve-Out") and (ii) fees of the United States Trustee pursuant to 28 U.S.C. § 1930 from liens and superiority claims granted to the Lender pursuant to the Loan Documents, this Interim Order and the Final Order, for expenses relating to the administration of Debtors' chapter 11 cases and their estates. The Professional Fee Carve-Out is hereby modified to provide that $250,000.00 of such Carve-Out shall be available to Dinsmore Shohl and $250,000.00 shall be available to the Committee, its advisors and its professionals. Expenses for the Unsecured Creditors' Committee members as may be approved by the Court shall be included in the $250,000.00 Professional Fee Carve-Out available to the Committee. All of the dollar amounts contemplated by subparagraphs (i) and (ii) of this paragraph are collectively referred to as the "Permitted Expenses." The foregoing shall not be construed as consent to the allowance of any fees and expenses referred to above and shall not affect the right of the Debtors or the Lender to object to the allowances and payment of such amounts.

23. The Obligations shall constitute, in accordance with Section 364(c)(1) of the Bankruptcy Code, claims against each of the Debtors in its chapter 11 case which are administrative expense claims having priority over any and all administrative expenses of the kind specified in sections 503(b) or 507(b) of the Bankruptcy Code and any and all expenses and claims of the Debtors, whether heretofore or hereafter incurred, of the kind specified in sections 105, 326, 328, 506(c), 507(a), 726 or 1114 of the Bankruptcy Code, subject only to the Permitted Expenses. Except for the Permitted Expenses, no costs or administrative expenses which have been or may be incurred in the Debtors' chapter 11 cases, or during the period of time between the commencement of the filing of the involuntary petition against PRG and the entry of an order for relief in the chapter 11 case of PRG, or in subsequent cases under chapter 7 of the Bankruptcy Code as a result of a conversion pursuant to section 1112 of the Bankruptcy Code, and no priority claims, are or will be senior to or on a parity with the claims of the Lender with respect to the Obligations under the Loan Documents or any diminution in the value of the Prepetition Collateral. No other claim having a priority senior to orpari passu with that granted by this Order to the Lender shall be granted while any portion of the Obligations under the Loan Documents remains outstanding or otherwise until such time as all of the Lender's commitments under the Postpetition Credit Facility have been terminated.

24. The Debtors may use the proceeds of the loans and advances made pursuant to the Loan Documents only for the purposes specifically set fort in the Loan Documents, as modified by the Interim Order and this Final Order, provided that nothing in this Order shall be construed as approving the Debtors' Business Plan or the expenses contemplated therein or limiting the right of the Unsecured Creditors' Committee to object to such Business Plan.

25. The Postpetition Obligations shall be due and payable, without notice or demand, on the Termination Date, provided that the Loan Documents shall be and hereby are modified to provide a Maturity Date of March 7, 2002, so long as bidding procedures acceptable to Lender relating to the sale of substantially all of the Debtors' assets are approved by the Court on or before December 6, 2001.

26. The Lender shall not be required to file financing statements, mortgages, notices of lien or similar instruments in any jurisdiction or effect any other action to attach or perfect the security interests and liens granted under this Order or the Loan Documents. Notwithstanding the foregoing the Lender may, in its sole discretion, file such financing Statements, mortgages, notices of lien or similar instruments or otherwise confirm perfection of such liens, security interests and mortgages without seeking modification of the automatic stay under section 362 of the Bankruptcy Code and all such documents shall be deemed to have been filed or recorded at the time and on the date of the Petition Date.

27. Upon the occurrence and during the continuance of any Event of Default, the Loan Documents shall be subject to termination in the sole discretion of the Lender as provided therein, and upon five days' prior notice to the parties identified in the Loan Documents, the Lender will have all tights to enforce their liens and security interests in any manner provided in the Loan Documents or herein, or the otherwise to take any enforcement or remedial action provided by such agreements or applicable law.

28. Notwithstanding the occurrence of an Event of Default or the Termination Date or anything herein, all of the rights, remedies, benefits and protections provided to the Lender under this Order, the Loan Documents, and any additional documents executed thereunder shall survive the Termination Date.

29. Nothing contained herein shall limit the rights of the Lender to (i) seek further relief from the automatic stay of section 362 of the Bankruptcy Code at any future time, (ii) seek additional adequate protection from the Debtors, (iii) request a conversion of any or all of the Debtors' chapter ii cases to chapter 7 or the appointment of a trustee or an examiner under section 1104 of the Bankruptcy Code, or (iv) propose, subject to the provisions of section 1121 of the Bankruptcy Code, a chapter 11 plan or plans in any or all of the above-captioned cases.

30. The provisions of this Order shall be binding upon and inure to the benefit of the Lender, the Debtors, and their respective successors and assigns. This Order shall bind any trustee or other fiduciary (including, without limitation, any examiner or responsible person) hereafter appointed for the estate of any of the Debtors, whether in the chapter 11 cases or in the event of the conversion of any chapter 11 case of a liquidation under chapter 7 of the Bankruptcy Code. Such binding effect is an integral part of this Order.

31. The Obligations under the Postpetition Credit Facility will not be discharged by the entry of an order confirming a plan or plans of reorganization in the above-captioned cases.

32. Except as expressly permitted by the Loan Documents, the Debtors will not, at any time during these chapter 11 cases, grant mortgages, security interests or liens in the Collateral or any portion thereof to any other parties pursuant to section 364(d) of the Bankruptcy Code or otherwise.

33. The Debtors shall provide (except as to the documents referenced in (i) below, which shall be made available to the Committee) following financial reports and other documents to the Committee and to the Lender (except with respect to the documents referred to in (i) below) on or before December 7, 2001:

(i) Any non-privileged documents in the possession of the Debtors relating to the validity and extent of the Lender's prepetition claims and secured status;

(ii) Debtors' consolidated financial statements, with segment notes, for the previous two fiscal years (audited, if available);

(iii) Any and all Schedules of Assets and Liabilities and/or Statements of Financial Affairs filed with the Court;

(iv) Weekly projections through March 30, 2002;

(v) Yearly projections for the next two years (monthly, if available); and

(vi) Monthly P L reports, on a per-store basis (including closed stores), for the previous twelve months.

(vii) A cure claims analysis

34. The Lender shall provide immediate access to any and all non-privileged documents in its possession relating to the validity and extent of the its prepetition claims against the Debtors and its secured status.

35. If any or all of the provisions of this Final Order, the Loan Documents, or any other related document are hereafter modified, vacated, amended or stayed by subsequent order of this Court or any other Court, such modification, vacatur, amendment or stay shall not affect the validity of any obligation to the Lender that is or was incurred prior to the effective date of such modification, vacatur, amendment or stay, or the validity and enforceability of any security interest, lien or priority authorized or created by this Order, the Loan Documents or any other related document and. notwithstanding any such modification, vacatur, amendment or stay, any obligations of the Debtors pursuant to this Order, the Loan Documents, or any other related document arising prior to the effective date of such modification, vacatur, amendment or stay shall be governed in all respects by the original provisions of this Order and the Loan Documents, and the validity of any such credit extended or security interest or lien granted pursuant to this Order or the Loan Documents is subject to the protection accorded under section 364(e) of the Bankruptcy Code.

36. This Order constitutes the Court's findings of fact and conclusions of law pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure and takes effect and becomes enforceable immediately upon execution hereof,

37. Notwithstanding any provisions in the Loan Documents, the following changes shall be and hereby are made to the substantive provisions of the Loan Documents:

(i) Paragraph 4.2(f) Shall be amended to provide:

4.2 Pleadings. No order shall have been entered by the Bankruptcy Court providing for (i) dismissal or conversion all of the Cases to Chapter 7 cases, (ii) the appointment of a Chapter 11 trustee in all of the Cases, (iii) the appointment of an examiner having enlarged powers relating to the operation of' the business of Borrowers (beyond those set forth under Bankruptcy Code § 1106(b) or § 1106(a)(3) and (4), (iv) the allowance of a Superpriority Claim or a Lien pari passu or senior to that of Lender granted pursuant to the collateral documents, (v) a stay, reversal, vacatur, or other modification of the Interim Order or the Final Order without the prior written consent of Lender, or (vi) relief from the automatic stay so as to allow a third party to proceed against any material Property or assets of Borrowers (except with respect to a third party proceeding against Property or assets of Borrowers in which such third party has a permitted first priority Permitted Lien).

(ii) Subsection (1) of Paragraph 7.1 shall be amended to read:

(1) Any order shall be entered by the Bankruptcy Court providing for (i) the invalidation, subordination, or other alteration to the Superpriority Claims and Liens granted to secure the Obligations, or (ii) any relief under Bankruptcy Code § 506(c) with respect to any Collateral, or (iii) relief against the Lender in any action or proceeding commenced against Lender arising out of or in connection with its pre-Petition Date loans and leases.

(iii) Paragraph 7.1(p) shall be deleted;

(iv) Paragraph 9.7 shall be amended to read:

9.7 Right of Set-off. Subject to the giving of the notice as described in Section 7, notwithstanding the provisions of Bankruptcy Code § 362 and any other rights and remedies of Lender now or hereafter wanted under applicable law or otherwise, and not by way of limitation of any such rights, upon the occurrence and during the continuance of any Event of Default, Lender is hereby authorized at any time or from time to time, without presentment demand, protest or other notice of any kind to Borrowers or to any other Person, any such notice being hereby expressly waived, to set-off any other indebtedness or other obligation at any time held or owing by Lender to or for the credit or the account of Borrowers against and on account of the Obligations of Borrowers to Lender under this Agreement or under any of the other Loan Documents, and all other claims of any nature or description arising out of or connected with this Agreement or any other Loan Document, irrespective of whether or not Lender shall have made any demand hereunder and although said Obligations, liabilities or claims, or any of them, shall be contingent or unmatured. Nothing in this paragraph is intended to or shall provide to Lender any additional security interest in or lien upon Borrowers' post-Petition Date Collateral on account of any of the pre-Petition Date obligations of Borrowers.

(v) Paragraph 9.7 shall be further modified to provide that Lender shall also provide five (5) business days written notice to the Committee before exercising any rights to setoff provided thereunder, to the extent that provision does not currently so provide;

(vi) The Lender consents to the continuation of the Debtor's bid procedure motion until December 4-5, 2001;

(vii) Paragraph 7.1(d) is amended to eliminate the reference to the appointment of a trustee or other responsible officer under Chapter 11 of the Bankruptcy Code as an event of default;

(viii) Paragraph 9.5(a) Shall be modified to delete any provision for payment of fees and/or expenses of Lender's counsel;

(ix) Paragraph 7.1(d) is amended to eliminate the reference to the appointment of a trustee, examiner, or other responsible officer under Chapter 11 of the Bankruptcy Code as an event of default; and

(x) Paragraph 14 is amended to strike out the last sentence and to substitute the following sentence:

"Without Court order, no portion of the Loans or Lender's cash collateral shall be used in any way to assert claims or defenses of any kind or character against Lender whether such claims or expenses arise under the Loans or any other loan or leases or other transaction or occurrence."

38. If other terms and conditions of the Loan Documents are in conflict with the terms and conditions of this Order, the provisions of this Order shall control.

39. The Clerk of the Court is hereby directed to forthwith enter this Order on the docket of the Court maintained with regard to these cases.

40. Service of the Motion as described therein, notice of the Interim Hearing and notice of the Final Hearing is deemed adequate and appropriate under the circumstances and in full compliance with applicable provisions of the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, and the Local Rules of the Middle District of Tennessee.

41. Any impact of the provisions of this order on the rights of LH Leasing Company under § 365(d)(10) are reserved for future determination.

IT IS SO ORDERED.