Opinion
Case No. 02-21797
December 31, 2002
Crumb Munding, P.S., John D. Munding, for Debtor.
Stamper, Rubens, Stocker Smith, P.S., Scott Smith, for Weaver.
Upon the Motion For Order Authorizing Debtor To Incur Post Petition Secured Indebtedness, and Granting Security Interests and Superpriority Claims, Pursuant to Sections 105, 364(c) and 364(d) of the Bankruptcy Code and Bankruptcy Rules 2002, 4001, and 9014, of Medinex Systems, Inc., which is the debtor and debtor in possession herein ("Debtor"), filed in the above-captioned chapter 11 case (the "Case"):
(a) seeking the Court's authorization, pursuant to sections 105, 364(c) and 364(d) of Title 11 of the United States Code ( 11 U.S.C. § 101 et seq., as amended, the "Bankruptcy Code") and Rules 4001, 2002, and 9014 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules"), for the Debtor to obtain from Charles and Donna Weaver Trust, as lender (the "Lender"), a cash advance (the "Loan"), pursuant to, and to execute the other documents.
Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed thereto in the Financing Agreement.
(b) the Hearing having been held on December 11, 2002, and upon all of the pleadings filed with the Court and all of the proceedings held before the Court; and upon the record of the hearing, including without limitation the oral modifications to the loan documents described by counsel to the parties appearing; and the Court having noted the appearances of all parties in interest in the record of this Court and pursuant to the Court's findings as set forth on the recorded record of December 13, 2002; and it appearing to this Court that the relief requested in the Motion is in the best interests of the Debtor and its creditors and is essential for the continued operations of the Debtor's business; and it further appearing that the Debtor is 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 sufficient cause appearing therefore;
IT IS HEREBY ORDERED, ADJUDGED, FOUND, AND DECREED that:
Findings of fact shall be construed as conclusions of law, and conclusions of law shall be construed as findings of fact, pursuant to Bankruptcy Rule 7052.
1. Disposition. The Motion is deemed amended to seek approval of the Revised Amended Proposed Financing Agreement and is further amended with respect to the Lien and priority matters covered in this Order and, as so amended, is granted. Subject to the terms hereof, this Order is valid immediately and is fully effective upon its entry and shall secure any and all advances made by Lender to Debtor between December 11, 2002, and the entry of this order.
2. Jurisdiction. This Court has jurisdiction over the Case and the 6 parties and property affected hereby pursuant to 28 U.S.C. § 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(d).
3. Purpose and Necessity of Financing. Good cause has been shown for entry of this Order. The Debtor requires immediate financing to fund in part the payments required to sustain continued business operations, continued operations, and payment of certain trade vendors, is essential to the preservation of value in this case as it underlies core structures of the Debtor's business. The Debtor is not able to obtain adequate unsecured credit allowable under section 503(a) or (b) of the Bankruptcy Code as an administrative expense and is unable to obtain, within the time required by their needs to avoid immediate and irreparable harm or in any other foreseeable time frame, other financing under sections 364(c) and (d) of the Bankruptcy Code on equal or more favorable terms than the Financing Agreement and the other Financing Documents. Except for the funding contemplated by this Order, a loan facility in the amount provided by the Financing Agreement and the other Financing Documents is unavailable to the Debtor generally without the Debtor's granting to the Lender, pursuant to sections 364(c) and (d) of the Bankruptcy Code, the Liens and priorities set forth in this Order. After considering all alternatives, the Debtor has concluded in the exercise of its prudent business judgment that the loan facility agreed to by Lender represents the best financing available to effect a reorganization.
4. Exigency. The ability of the Debtor to continue business operations through the incurrence of new indebtedness for borrowed money and other financial accommodations is vital to the Debtor's estate and creditors thereof, because the continued operation of digital transcription services underlies the majority of the business operation. Assuming that reorganization is possible in this case, the preservation and maintenance of the ongoing business operations is integral to a successful reorganization of the Debtor pursuant to the provisions of Chapter 11 of the Bankruptcy Code. Absent entry of this Order, the Debtor's estate will be irreparably harmed.
5. Good Faith Bargaining. The Interim Emergency Financing Agreement ("Financing Agreement") and DIP Note have been negotiated in good faith and at arm's-length between the Debtor and the Lender and any Loans extended and other financial accommodations made to the Debtor by the Lender pursuant to the Financing Agreement shall be deemed to have been extended by the Lender in good faith, as that term is used in section 364(e) of the Bankruptcy Code,
6. Borrowing Authorization. The Debtor is immediately authorized to borrow — pursuant to the terms of the Financing Agreement, the DIP Note, and this Order — the principal amount of up to $145,000.00 ("Maximum Loan Amount").
7. Power to Execute Necessary Documents. The Debtor is expressly authorized and empowered to enter into and deliver, inter alia, the Financing Agreement and the DIP Note in substantially the form as revised and represented to the court at hearing. The Debtor also is authorized, empowered, and directed to perform all of their obligations under the Financing Agreement and the DIP Note to give effect to the terms of the financing provided for in this Order. The Financing Agreement and DIP Note shall constitute valid and binding obligations of the Debtor enforceable against the Debtor, and its successors and assigns, in accordance with their terms, subject to the terms of this Order.
8. Prior Security Interest/Loan Documents. Nothing within this Order or the Financing Documents shall be construed as validation of the allegedly perfected security interest of Lender in Debtor's collateral arising from those loan documents dated November 15, 2002. Any security interest created thereby is hereby subordinated to the security interest, lien status, and priority created by the DIP Financing Agreement, DIP Note, and this Order.
9. Claim/Lien Status and Priority. Notwithstanding any contrary provision in the Financing Agreement or in the Motion, none of the obligations created or evidenced by any of the DIP Financing Agreement and DIP Note ("Loan Documents") shall have superpriority administrative expense claim status, However, all such DIP Loans shall be secured by first priority Liens and security interests granted herein and in the DIP Loan Documents to the Lender in the Collateral and shall be subject and subordinate to the $25,000.00 "carve out" of cash collateral. Said new liens are first priority Liens, and shall otherwise have the priority and be afforded the senior secured status afforded by sections 364(d) of the Bankruptcy Code, as applicable. In addition to and not in derogation of or otherwise modifying the validity, priority or extent of the Liens and security interests described above and granted herein, all DIP Loan Obligations owed to the Lender shall be claims of the Lender ("DIP Claims") of the kind specified in, and shall have the priority of secured claims described in the Bankruptcy Code and, as such, shall have such treatment in any plan which may be confirmed in this case; provided, however, that the DIP Loan Obligations shall be subordinated and immediately junior in priority to all other administrative expense claims allowed under section 503(b) of the Bankruptcy Code up to the allowed carve out for administrative expenses. Nothing in this Order varies or modified the right of the Debtor to use Cash Collateral as set forth in the Interim Cash Collateral Order.
No other liens or priority status, other than the administrative cash collateral carve out and the UST/Clerk Fees, having a lien or administrative priority superior to PCU with that granted by this Order to the Lender, shall be granted while any portion of the DIP Loan Obligations under the Financing Agreement and DIP Note remains outstanding, absent the express written consent of the Lender.
10. Lien to Secure Post-Petition Obligations. As security for all of the DIP Loan Obligations, and as more fully described in the Financing Agreement and DIP Note, the Lender is hereby granted effective immediately as of December 11, 2002, and without the necessity of the execution or filing by the Lender or the Debtor of a security agreement, financing statements, trademark, copyright, tradename or patent assignment filings with the United Sates Patent and Trademark Office or Copyright Office, licensee consents or otherwise), pursuant to sections 364(c) and 364(d) of the Bankruptcy Code, as applicable, a first priority security interest in and lien upon all of the Collateral of the Debtor, senior in all respects to any and all present and future liens, claims or encumbrances, if any, that encumber the Collateral, including any security interest claims under Existing Loan Documents, subject to the administrative cash collateral carve out, but expressly excluding from the Collateral any claims or other property recovered by or on behalf of the Debtor or the estate of the Debtor pursuant to sections 542, 544, 545, 547, 548, 549, 550, 551, 553(b) or 724(a) of the Bankruptcy Code. Subject to the limitations expressly contained in this Order, the security interests and Liens in the Collateral granted to the Lender hereunder include, but are not limited to: (a) those items and types of Collateral in which security interests may be created under Article 9 of the Uniform Commercial Code; (b) those items and types of I Collateral not governed by Article 9 of the Uniform Commercial Code, including without limitation, licenses issued by any federal or state regulatory authority and any leasehold or other real property interests; and (c) the products and proceeds of any of the foregoing. Said liens and security interests discussed herein shall not be subject to any lien or security interest that is avoided and preserved for the benefit of the Debtor's estate under section 551 of the Bankruptcy Code, or be subordinated to or made pari passu with any other lien or security interest under section 364(d) of the Bankruptcy Code or otherwise. The Liens and security interests arising hereunder shall be and hereby are fully perfected security interests, such that no additional steps need be taken by the Lender to perfect said interests.
11. Additional Perfection Measures. The liens and priority granted to the Lender pursuant to this Order and the Financing Agreement and DIP Note with respect to property of the Debtor's estate shall be perfected by operation of law upon entry of this Order by the Court. The Lender shall not be required to enter into or file or record financing statements, leasehold mortgages, notices of lien or similar instruments in any jurisdiction (including, trademark, copyright, tradename or patent assignment filings with the United State Patent and Trademark Office, Copyright Office or any similar agency with respect to intellectual property), or obtain consents from any licensor or similarly party-in-interest, or take any other action in order to validate and to perfect the security interest and lien granted to the Lender pursuant to this Interim Order, If the Lender, in its sole discretion, chooses to obtain consents from any licensor or similarly situated party-in-interest, to file such financing statements, notices of lien or similar instruments, or to otherwise confirm perfection of such security interests and liens (i) all such documents shall be deemed to have been recorded and filed as of the time and on the date of entry of this Order, and (ii) no defect in any such act shall affect or impair the validity, perfection and enforceability of the liens granted hereunder. In lieu of obtaining such consents or filing such financing statements, notices of lien or similar instruments, the Lender may, at its sole discretion, choose to file a true and complete copy of this Order in any place at which any such instruments would or could be filed, together with a description of Collateral located within the geographic area covered by such place of filing, and such filing by the Lender shall have the same effect as if such financing statements, notices of lien or similar instruments had been filed or recorded at the time and on the date of entry of this Interim Order.
12. Adequate Notice. The notice given by the Debtor of the Interim Hearing was given in accordance with Bankruptcy Rules 2002 and 4001(c)(2) and the local rules of this Court. Under the circumstances, no further notice of the request for the relief granted at the Interim Hearing was required.
13. Interim Disbursement. The Court recognizes an interim disbursement made on December 16, 2002, in the amount of $53,500.00 from Lender to Debtor. The interim advance is deemed to have been made in accordance with the Court's prior rulings and this order. The advance made on December 16, 2002, is given a priority secured interest in Debtor's property as described in this order.
SO ORDERED: