Exhibit 10.1

 

EXECUTION

 

SYNERGY PHARMACEUTICALS INC.

 

SUPERPRIORITY DIP FACILITY

 

Binding Term Sheet

 

December 11, 2018

 

This binding term sheet (the “Binding Term Sheet”) sets forth the terms and
conditions with respect to the New Money DIP Loans (as defined below), the DIP
Facility (as defined below), the treatment of the Prepetition Obligations (as
defined below),  which terms and conditions will be set forth in the DIP Loan
Documents (as defined below).

 

The obligations of the DIP Lenders to provide financing pursuant to this Binding
Term Sheet shall be subject to the terms and conditions set forth herein and
conditioned upon (i) the execution and delivery of definitive DIP Loan Documents
(as defined below), (ii) the execution and delivery of signature pages to this
Binding Term Sheet by each of the parties hereto, and (iii) the entry in the
Bankruptcy Court (as defined below) of the Financing Orders (as defined below).

 

Borrower:

 

Synergy Pharmaceuticals Inc., a debtor-in-possession in the cases (the “Chapter
11 Cases”) pending with respect to itself and Synergy Advanced
Pharmaceuticals, Inc., its wholly owned subsidiary (each a “Debtor” and,
collectively, the “Debtors) under Chapter 11 of Title 11 of the United States
Code (as amended, the “Bankruptcy Code”) and filed with the United States
Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”).
(As used herein, the term “Petition Date” shall mean the date upon which the
Chapter 11 Cases are commenced in the Bankruptcy Court.)

 

 

 

Guarantor:

 

Synergy Advanced Pharmaceuticals, Inc., a wholly owned subsidiary of the
Borrower (the Borrower and the Guarantor, together, the “DIP Loan Parties”).

 

 

 

DIP Lenders and Commitments:

 

Each of the entities and their respective commitments set forth
on Exhibit A hereto, as such exhibit may be amended prior to the entry of the
Final Order (as defined below) solely to adjust the “proportionate shares” of
the DIP Lenders, but not to reduce the aggregate commitments of the DIP Lenders,
collectively.

 

 

 

Administrative Agent and Collateral Agent:

 

CRG Servicing LLC (the “DIP Administrative Agent” and collectively with the DIP
Lenders, the “DIP Secured Parties”).

 

 

 

Prepetition Credit Agreement:

 

That certain Term Loan Agreement (the “Prepetition Credit Agreement”), dated as
of September 1, 2017 (as later modified or amended), among Synergy
Pharmaceuticals Inc. (the “Prepetition Borrower”), the Subsidiary Guarantors
party thereto (the “Prepetition Guarantors”), the lenders party thereto (the
“Prepetition Lenders”), and CRG Servicing LLC as Administrative Agent and
Collateral Agent (the “Prepetition Administrative Agent” and collectively with
the Prepetition Lenders, the “Prepetition Secured Parties”). Unless

 

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otherwise defined herein, terms defined in the Prepetition Credit Agreement are
used herein with such defined meanings.

 

 

 

DIP Facility:

 

Debtor-in-possession senior secured superpriority term loan facility in an
aggregate principal amount equal to [$155,000,000], comprised of [$45,000,000]
of “new money” loans (the “New Money DIP Loans”), plus approximately
[$110,000,000] of loans representing a “roll up” of a portion of the Prepetition
Obligations (as defined below) equal to the sum of (i) outstanding principal,
plus (ii) accrued and unpaid interest, including accrued and unpaid postpetition
interest at the Default Rate specified in the Prepetition Credit Agreement (the
“Prepetition Default Rate”) from the Petition Date through and including the
date of the entry of the Second Interim Order (and as otherwise provided in the
Second Interim Order), plus (iii) any and all unreimbursed costs, fees and
expenses of the Prepetition Secured Parties incurred in accordance with the
Prepetition Credit Agreement (the “Roll Up Dip Loans” and together with the New
Money DIP Loans, the “DIP Loans”). 

 

 

 

Interest Rate:

 

Interest shall accrue on the DIP Loans at the rate of Libor + 9.50% per annum,
and shall be payable monthly, on the first (1st) business day of each month, in
arrears, in accordance with the Budget (defined below).

 

 

 

Default Rate:

 

At all times while an Event of Default (as defined in the DIP Loan Documents)
exists, principal, interest and other amounts shall bear interest at a rate per
annum equal to 4.00% in excess of the interest rate set forth in “Interest Rate”
above.

 

 

 

New Money DIP Loan Fees:

 

1.             An “Upfront Fee” equal to 2.00% of the total amount of New Money
DIP Loans shall be paid upon entry of the Final Order (as defined below).

 

2.             An “Exit Fee” equal to 3.00% of the total amount of New Money DIP
Loans shall be paid upon the Maturity Date (as defined below).

 

 

 

Nature of Fees:

 

Fully earned and non-refundable under all circumstances.

 

 

 

Expenses of DIP Secured Parties:

 

The reasonable and documented professional fees and expenses incurred by the DIP
Secured Parties shall be promptly paid by the Debtors on no less than a monthly
basis.

 

 

 

Maturity Date:

 

The earliest of (a) April 9, 2019; (b) the consummation of a sale of all or
substantially all of the Borrower’s assets; (c) acceleration of the DIP Loans
pursuant to the DIP Loan Documents (as defined below); and (d) such later date
as the DIP Lenders in their sole discretion may agree in writing with the
Debtors.

 

 

 

Budget:

 

All advances under the DIP Facility and any Cash Collateral shall be used by the
DIP Loan Parties solely in accordance with a rolling 13-

 

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week budget (the “Budget”), for the period commencing on the Petition Date
through and including March 31, 2019 (the “Budget Period”), setting forth all
forecasted (i) cash receipts of the DIP Loan Parties (the “Cash Receipts”)
(ii) cash operating disbursements (the “Cash Operating Disbursements”) of the
DIP Loan Parties, and (iii) non-operating, bankruptcy-related cash disbursements
of the DIP Loan Parties (the “Cash Bankruptcy Disbursements”), which Budget
shall be approved by the DIP Administrative Agent in its sole and absolute
discretion and may be modified by the DIP Loan Parties with the written consent
of the DIP Administrative Agent in its sole and absolute discretion and without
further order of the Bankruptcy Court; provided, that (i) the total amount of
funding provided pursuant to the Budget shall not exceed the total amount of the
DIP Facility authorized by each of the Financing Orders (as defined below), and
(ii) the reasonable and documented professional fees and expenses incurred by
the DIP Secured Parties shall not be subject to a cap. A copy of the Budget
approved by the DIP Administrative Agent is attached hereto as Exhibit B.

 

Compliance with the Budget will be measured every week, starting with the third
week following the Petition Date, for the period beginning as of the week of the
Petition Date and ending the week prior to the week on which compliance is
measured. For purposes of illustration, on the third week following the Petition
Date, the DIP Loan Parties’ compliance with the Budget for the first two weeks
following the Petition Date shall be measured. Each date on which compliance
with the Budget is measured is referred to herein as a “Testing Date”. As of any
applicable Testing Date:

 

1.             the cumulative Cash Receipts may vary from the Budget by no more
than the following: (a) 20.00% for the first four-week period (and each week
thereof), beginning as of the week of the Petition Date, (b) 15.00% for the
first five-week period beginning as of the week of the Petition Date, and
(c) 10.00% for the first six-week period and all subsequent weeks of the period
beginning as of the week of the Petition Date (the “Cash Receipt Variance”);

 

2.             the cumulative Cash Operating Disbursements may vary from the
Budget by no more than the following: (a) 20.00% for the first four-week period
(and each week thereof), beginning as of the week of the Petition Date,
(b) 15.00% for the first five-week period beginning as of the week of the
Petition Date, and (c) 10.00% for the first six-week period and all subsequent
weeks of the period beginning as of the week of the Petition Date (the “Cash
Operating Variance”); and

 

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3.             the cumulative Cash Bankruptcy Disbursements shall not exceed at
any time during the Budget Period the aggregate capped amount set forth in the
Budget with respect thereto (the “Cash Bankruptcy Disbursement Cap”), subject to
a variance of no more than 10% (the “Cash Bankruptcy Disbursement Variance” and
together with the Cash Receipt Variance and the Cash Operating Variance, the
“Permitted Variances”).

 

The DIP Loan Parties shall be deemed to be in compliance with the Budget for all
purposes under this Binding Term Sheet, the DIP Loan Documents, and the
Financing Orders unless, as of any applicable date of determination, the DIP
Loan Parties’ (x) cumulative Cash Receipts, (y) cumulative Cash Operating
Disbursements, or (z) cumulative Bankruptcy Disbursements, as applicable, vary
from the Budget by more than the applicable Permitted Variance as measured on
any Testing Date; provided, however, that with respect to cumulative Cash
Receipts, the DIP Loan Parties shall not be deemed to have failed to comply with
the Budget unless the DIP Loan Parties’ cumulative Cash Receipts fall beneath
the amounts set forth in the Budget as measured on any two consecutive Testing
Dates during the first four week period beginning as of the Petition Date. All
references to compliance with the “Budget” in this Term Sheet shall be construed
as being qualified by the phrase, “subject to Permitted Variances.”

 

As further set forth below, after the first three weeks following the Petition
Date, the Debtors shall provide the DIP Administrative Agent with weekly and
cumulative variance reporting on a line item basis for Cash Receipts, Cash
Operating Disbursements and Cash Bankruptcy Disbursements, which reporting shall
(i) detail the variance, if any, of actual cash disbursements and actual cash
receipts from the Budget and (ii) provide an explanation of any per line item
variance greater than 5.00% (the “Variance Report”).

 

 

 

Mandatory Prepayments:

 

Mandatory prepayment of the DIP Loans shall be required: (i) upon the
consummation of an Acceptable 363 Sale (as defined below), or (ii) upon the
effectiveness of an Acceptable Plan (as defined below), as an alternative to a
sale.

 

 

 

DIP Obligations:

 

As used herein, the term “DIP Obligations” means (a) the due and punctual
payment by the Debtors of (i) the unpaid principal amount of and interest on
(including interest accruing after the maturity of the DIP Loans and interest
accruing after the commencement of the Chapter 11 Cases) the DIP Loans, as and
when due, whether at maturity, by acceleration or otherwise, and (ii) all other
monetary obligations, including advances, debts, liabilities, obligations, fees,
costs, expenses and indemnities, whether primary, secondary, direct,

 

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indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, fixed or otherwise, of the Debtors to the DIP Lenders under
the DIP Loan Documents and the Financing Orders, and (b) the due and punctual
payment and performance of all covenants, duties, agreements, obligations and
liabilities of the Debtor to the DIP Lender under or pursuant to the DIP Loan
Documents and the Financing Orders.

 

 

 

Prepetition Obligations:

 

As used herein, the term “Prepetition Obligations” means, as of the Petition
Date, the indebtedness of the Debtors to the to the Prepetition Lenders under
the Prepetition Credit Agreement and all other documents executed and delivered
in connection therewith (collectively, the “Prepetition Loan Documents”) in the
approximate aggregate amount of $[147,100,000], which amount is the sum of:
(i) principal in the amount of $107,551,191.90, plus (ii) accrued and unpaid
interest in the amount of $2,322,806.99 (including interest at the Prepetition
Default Rate in the amount of $250,952.78), plus (iii) Prepayment Premium(1) in
the amount of $34,954,137.37, plus (iv) Back-End Facility Fee(2) in the amount
of $2,151,023.84, plus (v) unreimbursed costs, fees and expenses in accordance
with the Prepetition Loan Documents (collectively, the “Prepetition
Obligations”).

 

 

 

Cash Collateral:

 

The Prepetition Lenders shall consent to the use of their “cash collateral” as
defined in section 363(a) of the Bankruptcy Code (the “Cash Collateral”), all in
accordance with the terms and conditions set forth in this Binding Term Sheet,
the Financing Orders (as defined below), and the Budget; provided, that the DIP
Loan Parties shall operate their cash management system in a manner that is the
same as or substantially similar to their prepetition cash management system,
including daily “sweeps” of cash from the DIP Loan Parties’ revenue lock-box to
their main operating account which shall continue in the same or substantially
similar manner as prior to the Petition Date.

 

 

 

Use of New Money DIP Loan Proceeds and Cash Collateral:

 

The proceeds of the New Money DIP Loans and Cash Collateral shall be available
to finance, in each case in accordance with the Budget (as defined below):

 

1.             working capital and general corporate purposes of the Debtors,

 

2.             the pursuit of an Acceptable 363 Sale (as defined below), and

 

3.             bankruptcy-related costs and expenses, subject to the Carve Out
(as defined below).

 

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(1)  Prepayment Premium calculated in accordance with Section 3.03(a) (i) (B) of
the Prepetition Credit Agreement.

(2)  Back-End Facility Fee is defined and set forth in the Fee Letter dated
September 1, 2017.

 

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Initial Approval by the Bankruptcy Court:

 

The use of Cash Collateral, the DIP Facility, this Binding Term Sheet and all
terms and conditions set forth herein (collectively, the “Transactions”) shall
be subject to the entry in the Bankruptcy Court of an interim order, in form and
substance acceptable to the DIP Administrative Agent in its sole and absolute
discretion, approving the Transactions (the “First Interim Order). In the event
that the Second Interim Order (as defined below) is not entered in the
Bankruptcy Court on or prior to December 21, 2018, the consent of the
Prepetition Lenders to the use of Cash Collateral shall automatically terminate.

 

 

 

Documentation:

 

Definitive financing documentation with respect to the DIP Loans satisfactory in
form and substance to the DIP Secured Parties (the “DIP Loan Documents”) shall
be executed and delivered by the parties thereto on or prior to December 18,
2018, and shall be approved upon the entry in the Bankruptcy Court of a second
interim order, in form and substance acceptable to the DIP Administrative Agent
in its sole and absolute discretion, approving (among other things) the DIP Loan
Documents (the “Second Interim Order”).

 

 

 

Documentation Principles:

 

The DIP Loan Documents shall, except as otherwise set forth herein, be based on
and consistent with the Prepetition Credit Agreement and the other Prepetition
Loan Documents, as modified by the terms set forth in this Binding Term Sheet
and subject to (i) materiality qualifications and other exceptions that give
effect to, permit and/or accommodate the structure of any Acceptable 363 Sale or
Acceptable Plan, as applicable, (ii) modifications to reflect the status of the
DIP Loan Parties as debtors-in-possession in the Chapter 11 Cases, and (iii) be
negotiated in good faith within a reasonable (consistent with the term of this
Binding Term Sheet) time period. This paragraph collectively referred to herein
as the “Documentation Principles”.

 

 

 

Initial Funding, Roll Up and Prepetition Claim:

 

Subject to the terms and conditions set forth in the DIP Loan Documents and this
Binding Term Sheet, including the Conditions Precedent (defined below):

 

1.             Upon the entry in the Bankruptcy Court of the Second Interim
Order, in form and substance acceptable to the DIP Administrative Agent in its
sole and absolute discretion, approving the DIP Loans, the continued use of Cash
Collateral in accordance with this Binding Term Sheet, and providing Adequate
Protection for the Prepetition Lenders in accordance with this Binding Term
Sheet: (i) $11,500,000 of the New Money DIP Loans will be advanced for the
liquidity needs of the Debtors in accordance with the Budget (the “First
Advance”), and (ii) 100% of the Rollup DIP Loans will be used to discharge, on a
dollar for dollar basis, all outstanding Prepetition Obligations, other than the
Prepayment Premium and the Back-End Facility Fee. The indebtedness represented
by the Prepayment Premium and the Back-End Facility Fee, including all accrued
and unpaid

 

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postpetition interest from the Petition Date through and including the date of
the entry of the Second interim Order (and as otherwise provided in the Second
Interim Order), shall constitute a prepetition secured claim of the Prepetition
Administrative Agent on behalf of the Prepetition Lenders (the “Remaining
Prepetition Secured Claim”).

 

2.             The remaining $33,500,000 of New Money DIP Loans will be advanced
for the liquidity needs of the Debtors in accordance with the Budget (the
“Second Advance”) upon the entry in the Bankruptcy Court of a final order, in
form and substance acceptable to the DIP Administrative Agent in its sole and
absolute discretion, approving (among other things) the DIP Loans (the “Final
Order” and collectively with the First Interim Order and the Second Interim
order, the “Financing Orders”).

 

 

 

Security:

 

As security for the DIP Obligations, each Debtor shall grant to the DIP Lenders
a security interest in and continuing lien on all of such Debtor’s right, title
and interest in, to and under all the Debtor’s assets, including, but not
limited to the following, in each case, whether now owned or existing or
hereafter acquired, created or arising and wherever located (all of which being
hereafter collectively referred to as the “DIP Collateral”): all assets and
property of each Debtor and its estate, real or personal, tangible or
intangible, now owned or hereafter acquired, whether arising before or after the
Petition Date, including, without limitation, all contracts, contract rights,
licenses, general intangibles, instruments, equipment, accounts, documents,
goods, inventory, fixtures, documents, cash, cash equivalents, chattel paper,
letters of credit and letter of credit rights, investment property, commercial
tort claims, money, insurance, receivables, receivables records, deposit
accounts, collateral support, supporting obligations and instruments, all
interests in leaseholds and real properties, all patents, copyrights,
trademarks, trade names and other intellectual property (whether such
intellectual property is registered in the United States or in any foreign
jurisdiction), all equity interests, all books and records relating to the
foregoing, all other personal and real property of the Debtor, and all other
collateral pledged under the DIP Loan Documents, any actions under sections 544,
545, 547, 548 and 550 of the Bankruptcy Code, other than any such actions
acquired by the purchaser under an Acceptable 363 Sale (the “Avoidance
Actions”), and all proceeds, products, accessions, rents and profits of or in
respect of any of the foregoing (in each case as the foregoing are defined in
the Uniform Commercial Code as in effect from time to time in the State of
Delaware (and, if defined in more than one Article of such Uniform Commercial
Code, shall have the meaning given in Article 9 thereof)); provided, that
(i) the DIP Lender shall receive perfected security interests in and a lien on
Avoidance Actions and their proceeds only upon entry of the Final Order; and
(ii) the DIP Collateral shall not include the

 

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Company’s directors and officers insurance policy or any proceeds thereof.

 

 

 

Priority and Liens:

 

All of the claims of the DIP Administrative Agent and the DIP Lenders under the
DIP Facility with respect to the DIP Loans and the DIP Obligations shall at all
times:

 

1.             pursuant to Section 364(c)(1) of the Bankruptcy Code, be entitled
to superpriority claim status in the Chapter 11 Cases (which claims shall be
payable from and have recourse to all DIP Collateral);

 

2.             pursuant to Section 364(c)(2) of the Bankruptcy Code, be secured
by a perfected first priority lien on all DIP Collateral other than all property
of the Debtors that is subject to valid and perfected liens in existence at the
time of the commencement of the Chapter 11 Cases or subject to valid liens in
existence at the time of such commencement that are perfected subsequent to such
commencement as permitted by Section 546(b) of the Bankruptcy Code (the “Prior
Senior Liens”);

 

3.             pursuant to Section 364(c)(3) of the Bankruptcy Code, be secured
by a perfected junior lien on all property of the Debtors that is subject to a
Prior Senior Lien; and

 

4.             pursuant to Section 364(d)(1) of the Bankruptcy Code, be secured
by a perfected first priority, senior priming lien on all of the property of the
Debtors (including, without limitation, inventory, receivables, equipment,
machinery, intellectual property, general intangibles, real property, capital
stock of subsidiaries, membership interests in limited liability companies) that
is subject to the existing liens that secure the obligations of the Debtors to
the Prepetition Lenders under or in connection with the Prepetition Loan
Documents and the Prepetition Obligations.

 

 

 

Adequate Protection:

 

The Second Interim Order shall provide, as adequate protection for the use of
the collateral securing the Remaining Prepetition Secured Claim and the priming
of the liens and security interests granted to the Prepetition Secured Parties
under the Prepetition Loan Documents (the “Prepetition Liens”), the Prepetition
Lenders shall be entitled to receive, to the extent of any use of, or diminution
in the value of, the collateral securing the Prepetition Obligations (the
“Prepetition Obligations”):

 

1.             superpriority claim status;

 

2.             replacement liens on all DIP Collateral, junior only to the liens
of the DIP Administrative Agent and the DIP Lenders, but subject to any Prior
Senior Liens;

 

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3.             commencing on the date upon which the Second Interim Order is
entered in the Bankruptcy Court, payment on a monthly basis of postpetition
interest accruing from such date at the Default Rate specified in the
Prepetition Credit Agreement; and

 

4.             reimbursement of all fees, costs and expenses incurred in
connection with defending the validity and enforceability of the Prepetition
Obligations, the Prepetition Liens (as defined below) or the Remaining
Prepetition Secured Claim.

 

 

 

Carve Out:

 

The liens on and security interests in the DIP Collateral and the super-priority
administrative expense claims shall be subject to the “Carve Out.” For purposes
hereof, the “Carve Out” means: (i) all unpaid fees required to be paid to the
Clerk of the Bankruptcy Court and to the Office of the United States Trustee
under section 1930(a) of title 28 of the United States Code, (ii) all reasonable
fees and expenses up to $50,000 incurred by a trustee under Section 729(b) of
the Bankruptcy Code (the “Chapter 7 Trustee Fee Cap”); and (iii) in the event of
the occurrence and during the continuance of an Event of Default, the payment of
documented unpaid professional fees and disbursements incurred by the Borrower
and any statutory committees appointed in the Chapter 11 Cases, in each case to
the extent allowed by the Court, in an aggregate amount not to exceed all
accrued and unpaid professional fees and disbursements owing as of the date of
the Event of Default (whether allowed as of such date or subsequent thereto),
plus $2,500,000; provided, that (a) no portion of the Carve Out shall be
utilized for the payment of professional fees and disbursements incurred in
connection with any challenge to (i) the amount, extent, priority, validity,
perfection or enforcement of the indebtedness of, or other claims against, the
Debtors owing to the DIP Lenders or the Prepetition Lenders or (ii) the
collateral securing such indebtedness or the perfection, priority or validity of
the liens granted in favor of the DIP Lenders or the Prepetition Lenders with
respect thereto, and (b) the Carve Out shall not reduce the amounts payable to
the DIP Lenders under the DIP Loan Documents and to the Prepetition Lenders
under the Prepetition Loan Documents.

 

 

 

Acceptable 363 Sale:

 

As used herein, the term “Acceptable 363 Sale” means a sale of all or
substantially all of the Debtor’s assets pursuant to Section 363 of the
Bankruptcy Code, subject to the following conditions:

 

1.             the DIP Administrative Agent shall have reviewed and approved in
writing any bid procedures, “stalking horse” asset purchase agreement (the
“Stalking Horse Purchase Agreement”), or any other related agreement; it being
understood and agreed that the DIP Administrative Agent has reviewed and
approved the form of

 

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Stalking Horse Purchase Agreement with [BH], a corporation organized under the
laws of British Columbia Canada (“BH”) and its wholly owned subsidiary
[PURCHASER], a private limited company organized under the laws of Ireland (the
“BH APA”), the agreements, schedules and exhibits thereto, and bid procedures
related to it presented to the DIP Administrative Agent prior to the Petition
Date;

 

2.             the sale order shall provide for the indefeasible repayment in
full in cash of the DIP Facility upon consummation of the sale; and

 

3.             the sale shall be consummated not later than April 9, 2019.

 

 

 

Acceptable Plan:

 

As used herein, the term “Acceptable Plan” means a plan of reorganization or
liquidation for each of the Chapter 11 Cases that:

 

1.             Is confirmed on or prior to March 15, 2019; provided, that the
closing of the BH APA (or the asset purchase agreement of a higher bidder
pursuant to an auction), has occurred on or before April 9, 2019.

 

2.             Either: (a) Pays the Remaining Prepetition Secured Claim
(estimated to be $37.1 million) indefeasibly in full in cash on the effective
date of such Acceptable Plan; OR

 

(b) Offers to the class of unsecured creditors, if they vote to accept such
Acceptable Plan, the amounts set forth below, and satisfies the Remaining
Prepetition Secured Claim by the applicable amounts below:

 

(i)             If there is a “shortfall” (i.e. the amount of remaining sale
proceeds held for distribution is less than $37.1 million per the Budget) of
$0.00 to $5 million, then the Prepetition Secured Parties shall receive $20
million in cash to satisfy the Remaining Prepetition Claim and $12 million in
cash shall be made available for distributions to general unsecured creditors;

 

(ii)         If there is no shortfall but the amount of remaining sale proceeds
exceeds $37.1 million then the excess proceeds up to $5 million shall be shared
75% to the Prepetition Secured Lenders and 25% to the general unsecured
creditors, such that the Prepetition Secured Parties would receive a total up to
$24 million in cash to satisfy in full the Remaining Prepetition Secured Claim
and the general unsecured creditors up to $13 million in cash; and

 

(iii)      If there is no shortfall but the amount of remaining sale proceeds
exceeds $42.1 million, then such excess proceeds shall be shared 50/50 as
between the Prepetition Secured Lenders and the general unsecured creditors
until, as applicable, the Prepetition Secured

 

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Parties have received $37.1 million cash to satisfy the Remaining Prepetition
Secured Claim and the general unsecured creditors have received payment in the
full amount of their allowed claims.

 

(For the avoidance of doubt, a chart illustrating each waterfall scenario is
attached as Exhibit C.)

 

3.              Assigns to the Debtors the Avoidance Actions (and/or proceeds
thereof) given to the Prepetition Secured Lenders as adequate protection.

 

4.              Contains, to the maximum extent permissible by law, releases and
other exculpatory provisions for the DIP Secured Parties, Prepetition Secured
Parties and each of their respective affiliates in form and substance
satisfactory to the DIP Administrative Agent and the Prepetition Administrative
Agent in their sole and absolute discretion.

 

5.              Becomes effective on or before April 10, 2019.

 

6.              Is otherwise in form and substance reasonably satisfactory to
the DIP Administrative Agent with respect to any provision that may adversely
affect the DIP Secured Parties and/or the Prepetition Secured Parties.

 

 

 

Credit Bidding:

 

Each of the Financing Orders and the DIP Loan Documents shall provide that, in
connection with an Acceptable 363 Sale or an Acceptable Plan that provides for
the sale of the DIP Collateral, the DIP Administrative Agent and the Prepetition
Administrative Agent shall have the right to credit bid up to and including the
full amount of the DIP Obligations plus the full amount of the Remaining
Prepetition Secured Claim for the DIP Collateral. Any such credit bid may
provide for the assignment of the right to purchase the acquired assets to a
newly formed acquisition vehicle. Notwithstanding the foregoing, the DIP
Administrative Agent and the Prepetition Administrative Agent shall not be
entitled to exercise such right to credit bid unless and until the BH APA is
terminated or modified in a manner adverse in any material respect to the DIP
Secured Parties.

 

 

 

Marshalling and Waiver of 506(c) Claims 552(b) Rights:

 

(i) Each of the Financing Orders shall provide, effective upon the entry of the
Final Order, that in no event shall the DIP Administrative Agent, the DIP
Lenders, the Prepetition Administrative Agent, or the Prepetition Lenders be
subject to the equitable doctrine of “marshaling” or any similar doctrine with
respect to the DIP Collateral or the Prepetition Collateral (as defined below),
(ii) the First Interim Order shall approve the waiver of all 506(c) claims on
account of amounts covered by the Carve-Out, and (iii) the Final Order shall
approve the waiver of all 506(c) claims and similar rights under 552(b).

 

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Automatic Stay:

 

Notwithstanding the provisions of Section 362 of the Bankruptcy Code, and
subject to the applicable provisions of the Financing Orders, as the case may
be, upon the Maturity Date (whether by acceleration or otherwise), the DIP
Secured Parties shall be entitled to immediate payment of all obligations under
the DIP Facility and to enforce the remedies provided for under the DIP Loan
Documents or under applicable law, without further notice, motion or application
to, hearing before, or order from, the Bankruptcy Court, but subject to the
following conditions (the “Waiting Period Procedures”):

 

1.              The DIP Secured Parties shall notify the DIP Loan Parties that
the Maturity Date has occurred (such notice, a “Maturity Date Notice” and the
date of any such notice, the “Maturity Date Notice Date”). A copy of any
Maturity Date Notice shall be provided by email to the Debtors’ counsel.

 

2.              A waiting period shall commence upon delivery of the Maturity
Date Notice and shall expire four (4) business days after the Maturity Date
Notice Date (the “Waiting Period”). During the Waiting Period, the Debtors shall
be entitled to seek an emergency hearing before the Bankruptcy Court for the
sole purpose of contesting the occurrence of a Maturity Date (including, for the
avoidance of doubt, contesting the occurrence of any breach, default, or Event
of Default alleged to underlie the occurrence of the Maturity Date.

 

3.              During the Waiting Period, the Debtors may continue to use the
DIP Collateral, including the Cash Collateral.

 

None of the DIP Secured Parties or the Prepetition Secured Parties shall object
to any motion filed by the Debtors during the Waiting Period seeking such
expedited hearing nor seek to reduce such Waiting Period.

 

 

 

Conditions Precedent:

 

The several obligations of the DIP Lenders to make the DIP Loans shall be
conditioned on the satisfaction or waiver of the following:

 

1.              with respect to the First Advance of the New Money Dip Loans and
the “Roll Up”:

 

a.             the filing by the Debtors of an Acceptable Plan and disclosure
statement in the Bankruptcy Court not later than December 21, 2018;

 

b.             definitive DIP Loan Documents in form and substance acceptable to
the DIP Administrative Agent in its sole and absolute discretion, shall have
been executed and delivered by the parties thereto on or prior to December 18,
2018;

 

c.              the entry by the Bankruptcy Court of the Second Interim Order in
form and substance acceptable to the

 

12

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DIP Administrative Agent in its sole and absolute discretion; and

 

d.             the Debtors shall have been at all times in compliance with the
Budget (subject to the Permitted Variances).

 

2.              with respect to the Second Advance of the New Money DIP Loans,
the entry of the Final Order in form and substance acceptable to the DIP
Administrative Agent in its sole and absolute discretion;

 

3.              with respect to the BH APA, the Bid Procedures Motion, the Sale
Motion and the respective orders of the Bankruptcy Court related thereto shall
not have been modified or amended in a manner adverse in any material respects
to the rights and interests of the DIP Secured Parties without the prior written
consent of the DIP Administrative Agent in its sole and absolute discretion; and

 

4.              other than the Designated Defaults or a Liquidity Covenant
Default (as such terms are defined in the Limited Forbearance Agreement dated
November 19, 2018, among the Debtors and the Prepetition Secured Parties, as
amended by Amendment to Limited Forbearance Agreement dated December 5, 2018)
and the event of default under the Prepetition Credit Agreement resulting from
the Debtors filing for bankruptcy (and any default or other event of default
arising therefrom or related thereto), no Default or Event of Default shall have
occurred.

 

 

 

Representations and Warranties:

 

The representations and warranties of the DIP Loan Parties under the DIP Loan
Documents shall be substantially similar to those set forth in the Prepetition
Credit Agreement, subject to the Documentation Principles, and include the
following, in each case subject to certain exceptions, qualifications, and carve
outs to be set forth in the DIP Loan Documents and substantially consistent with
the Documentation Principles:

 

a.              The Debtor is duly organized, validly existing, in good standing
and qualified to do business in the state of its organization.

 

b.              As of the Petition Date, the approximate aggregate outstanding
amount of the Prepetition Obligations is [$147,100,000], which amount is the sum
of: (i) principal in the amount of $107,551,191.90, plus (ii) accrued and unpaid
interest in the amount of $2,322,806.99 (including interest at the Prepetition
Default Rate in the amount of $250,952.8), plus (iii) Prepayment Premium in the
amount of $34,954,137.37, plus (iv) Back-End Facility Fee in the

 

13

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amount of $2,151,023.84, plus (v) unreimbursed costs, fees and expenses in
accordance with the Prepetition Loan Documents.

 

c.               The stipulations of the Debtors in each of the Financing Orders
are true, accurate and correct.

 

d.              The Debtor has full power and authority to operate and conduct
its business, to execute, deliver and perform this Binding Term Sheet and
associated documents and to incur obligations under this Binding Term Sheet, the
DIP Loan Documents and the Financing Orders.

 

e.               Neither the DIP Obligations nor the Prepetition Obligations
shall be subject to setoff or recoupment or any such rights under Bankruptcy
Code section 553 or otherwise with respect to any claim the Debtor may have
against the DIP Lender arising on or before the Petition Date.

 

f.                All material contracts and agreements with critical Vendors
(the “Vendor Contracts”) and key customers (the “Customer Contracts”) shall
remain in full force and effect and no defaults or termination events exist or
have been asserted with respect to any such contracts, other than a default
resulting from the commencement of the Chapter 11 Cases, or the insolvency or
financial condition of the DIP Loan Parties; provided, that no such default
shall result in a termination of the (i) BH APA or (ii) any material Vendor
Contracts or Customer Contracts.

 

 

 

Affirmative Covenants:

 

The affirmative covenants of the DIP Loan Parties under the DIP Loan Documents
shall be limited to the following, in each case subject to certain exceptions,
qualifications, and carve outs to be set forth in the DIP Loan Documents and
substantially consistent with the Documentation Principles:

 

a.              use the advances made under the DIP Facility and/or the Cash
Collateral only for the purposes set forth herein and identified in the Budget,
except as would not cause the Borrower’s cash disbursements on an aggregate
basis for operating expenses to vary from the Budget by more than the applicable
Operating Variance, and shall not use such funds to commence any action against
the DIP Administrative Agent, the DIP Lenders or their respective affiliates,
employees, directors, officers or principals;

 

b.              permit the DIP Secured Parties and their representatives and
designees to visit and inspect the properties, books and

 

14

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records of the Debtor upon reasonable notice at the Debtor’s expense;

 

c.               subject to the Budget, pay all taxes, assessments,
contributions and other governmental charges imposed upon any Debtor or any of
its properties or assets as they become due and payable, to the extent payment
and/or enforcement thereof is not stayed as a result of the Chapter 11 Cases;

 

d.              maintain in good working order all material properties used in
the Borrower’s business, as and to the extent in good working order as of the
Petition Date;

 

e.               maintain insurance with respect to the business and property of
the Debtors against loss of the kind and in the amounts maintained by the
Debtors as of the Petition Date;

 

f.                comply in all material respects with the requirements of all
applicable laws;

 

g.               cause its financial professionals to provide the DIP Secured
Parties and the Prepetition Secured Parties with detailed weekly status reports
regarding the post-petition marketing efforts and provide any information
regarding the Acceptable Sale that the DIP Lenders/Prepetition Lenders may
request;

 

h.              comply in all material respects with the schedule of Case
Milestones (as defined below);

 

i.                  promptly upon request execute and deliver such documents and
do such other acts as the DIP Secured Parties may reasonably request in
connection with the DIP Facility, and in accordance with the DIP Loan Documents
(including but not limited to execution of any additional security documents
that may be required); and

 

j.                 comply with all obligations of the Debtors under the DIP Loan
Documents and the Financing Orders.

 

 

 

Negative Covenants:

 

The negative covenants of the DIP Loan Parties under the DIP Loan Documents
shall be limited to the following, in each case subject to certain exceptions,
qualifications, and carve outs to be set forth in the DIP Loan Documents and
substantially consistent with the Documentation Principles:

 

a.              incur any indebtedness (other than the borrowings under the DIP
Facility and obligations permitted to be incurred under the Budget, any other
indebtedness permitted to be incurred by the DIP Lenders and the Bankruptcy
Court, and any unsecured obligations incurred in the ordinary course of

 

15

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business by the Debtors and permitted to be incurred by the Budget);

 

b.              incur any liens other than liens permitted in writing by the DIP
Administrative Agent in its sole and absolute discretion;

 

c.               make any investments in any person or make any loan to any
person (other than as permitted in writing by the DIP Administrative Agent in
its sole and absolute discretion);

 

d.              engage in any business other than the business engaged in by the
Debtors on the Petition Date;

 

e.               sell any assets outside the ordinary course of business
(i) except with the written consent of the DIP Administrative Agent in its sole
and absolute discretion, or (ii) unless such sale results in the indefeasible
payment in full in cash of the DIP Obligations;

 

f.                acquire assets, merge, consolidate or dissolve without the
consent of the DIP Administrative Agent in its sole and absolute discretion;

 

g.               terminate or agree to any modification to any organizational
documents of any Debtor except with the written consent of the DIP
Administrative Agent in its sole and absolute discretion;

 

h.              engage in any transactions with insiders without the written
consent of DIP Administrative Agent in its sole and absolute discretion, except
as set forth in the Budget;

 

i.                  use proceeds of the Carve Out, DIP Collateral or Prepetition
Collateral except as set forth herein, including, but not limited to,
investigate or challenge the validity, perfection, priority, extent, or
enforceability of Prepetition Liens; provided, that not more than $75,000 of the
proceeds of the Carve Out, DIP Collateral or Prepetition Collateral may be set
aside for use by any statutory committees appointed in the Chapter 11 Cases for
purposes of investigating such validity, perfection, priority, extent or
enforceability of Prepetition Liens

 

j.                 amend the any of the Financing Orders or the Budget without
the DIP Lenders’ consent;

 

16

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k.              agree to entry of any order precluding or modifying the DIP
Lenders’ and Prepetition Lenders’ rights to “credit bid” up to the full amount
of the outstanding DIP Loans plus the Remaining Prepetition Secured Claim for
the Debtor’s assets; or

 

l.                  other than the Carve Out, consent to the granting of
adequate protection payments or liens, super-priority administrative expense
claims or liens having priority senior or pari passu with those granted to the
DIP Lenders or Prepetition Lenders, except as permitted by the DIP Loan
Documents.

 

 

 

Case Milestones:

 

The milestone schedule with which the Debtors shall comply, for the purpose of
ensuring the timely pursuit and consummation of an Acceptable 363 Sale on or
before April 9, 2019 or the consummation of an Acceptable Plan on or before
April 10, 2019, shall be as set forth on Exhibit D hereto.

 

 

 

Events of Default:

 

The Events of Default under the DIP Loan Documents shall be substantially
similar to those set forth in the Prepetition Credit Agreement, subject to the
Documentation Principles, and include the following, in each case subject to
certain exceptions, qualifications, cure periods, and carve-outs to be set forth
in the DIP Loan Documents and substantially consistent with the Documentation
Principles:

 

a.              The failure by the Debtors to perform or comply with any term,
condition, covenant or obligation (including a payment obligation) contained in
the DIP Loan Documents or any of the Financing Orders.

 

b.              The cessation of the DIP Facility to be in full force and effect
or the DIP Facility being declared by the Bankruptcy Court to be null and void
or the validity or enforceability of the DIP Facility being contested by any
Debtor or any Debtor denying in writing that it has any further liability or
obligation under the DIP Facility or the DIP Lenders ceasing to have the benefit
of the liens granted by the Financing Orders.

 

c.               The entry of any order of the Bankruptcy Court granting to any
third party a claim or lien pari passu with or senior to that granted to the DIP
Lenders hereunder.

 

d.              Until the DIP Obligations are repaid in full, the Debtors shall
make any payment of principal or interest or otherwise on account of any
indebtedness for borrowed money or payables other than the DIP Obligations under
the DIP Facility or other than in accordance with the Budget

 

17

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approved by the DIP Administrative Agent in its sole and absolute discretion.

 

e.               The Debtor fails to make any interest payments due under the
any of the Financing Orders within three (3) business days of when due.

 

f.                Failure of the Debtor to meet any of the applicable Case
Milestones (other than as the result of any action or omission of the DIP
Secured Parties).

 

g.               Failure of the Debtors to maintain cash disbursements and
collections within the Permitted Variance under the Budget.

 

h.              The entry of an order converting the Chapter 11 Cases to cases
under chapter 7 of the Bankruptcy Code, or the Debtors filing a motion or not
opposing a motion seeking such relief.

 

i.                  The entry of an order dismissing the Chapter 11 Cases, or
the Debtors filing a motion or not opposing a motion seeking such relief without
the consent of the DIP Lenders.

 

j.                 The entry of an order in the Chapter 11 Cases appointing any
examiner having expanded powers or a trustee to operate all or any part of the
Borrower’s business.

 

k.              The entry of an order in the Chapter 11 Cases granting relief
from the automatic stay so as to allow a third party or third parties to proceed
against any material (in the DIP Administrative Agent’s sole discretion)
property, including the collateral pledged pursuant to the DIP Facility and the
Prepetition Liens, of the Debtor or to commence or continue any prepetition
litigation against the Debtors involving potential liability not covered by
insurance, in excess of $1,000,000 in the aggregate.

 

l.                  The entry of an order in the Chapter 11 Cases charging any
of the DIP Collateral or Prepetition Collateral under Section 506(c) of the
Bankruptcy Code against the DIP Secured Parties or Prepetition Secured Parties
or the commencement of other actions by any DIP Loan Party or affiliate thereof
that challenges the rights and remedies of any of the DIP Secured Parties under
the DIP Facility or Prepetition Secured Parties under the Prepetition Credit
Agreement in any of the Chapter 11 Cases or in a manner inconsistent with the
DIP Loan Documents.

 

m.          Without the prior written consent of the Agent and other than in
respect of the DIP Facility and the Carve-Out, the bringing of any motion or
taking of any action seeking entry of an order, or the entry of an

 

18

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order by the Bankruptcy Court, in any of the Chapter 11 Cases (i) granting
superpriority administrative expense status to any claim pari passu with or
senior to the claims of the DIP Secured Parties or the Prepetition Secured
Parties, (ii) permitting the Debtors to obtain financing under Section 364 of
the Bankruptcy Code, (iii) permitting the Debtors to grant security interests or
liens under Section 364 of the Bankruptcy Code, (iv) permitting the Debtors to
use cash collateral under Section 364 of the Bankruptcy Code, or (v) authorizing
the Debtors to take other actions adverse to any DIP Credit Party or any
Prepetition Credit Party or their rights and remedies under the DIP Loan
Documents, the Prepetition Credit Agreement or their interest in Prepetition
Collateral or the DIP Collateral under Section 364 of the Bankruptcy Code.

 

n.              The entry of any order terminating any Debtor’s exclusive right
to file a plan of reorganization or the expiration of any Debtor’s exclusive
right to file a plan of reorganization.

 

o.              There shall arise any superpriority claim in the Chapter 11 Case
which is pari passu with or senior to the priority of the claims of the DIP
Secured Parties, except with respect to the Carve-Out and as set forth in the
DIP Loan Documents.

 

p.              The entry of any order in the Chapter 11 Cases which provides
adequate protection, or the granting by any DIP Loan Party of similar relief in
favor of any one or more of any DIP Loan Party’s prepetition creditors, contrary
to the terms and conditions of any of the Financing Orders or the DIP Loan
Documents.

 

q.              The DIP Loan Parties or any of their subsidiaries or affiliates,
or any person claiming by or through any of the foregoing, shall obtain court
authorization to commence, or shall commence, join in, assist, acquiesce to, or
otherwise participate as an adverse party in any suit or other proceeding
against any DIP Credit Party or any Prepetition Credit Party regarding the DIP
Facility or the Prepetition Secured Parties regarding the Prepetition Credit
Agreement.

 

r.                 A plan of reorganization shall be filed by the Debtors, or be
confirmed in any of the Chapter 11 Cases that is not an Acceptable Plan, or any
order shall be entered which dismisses any of the Chapter 11 Cases and which
order (i) does not provide for termination of the unused commitments under the
DIP Facility and payment in full in cash of the DIP Loan Parties’ obligations
under the DIP Facility, (ii) does not provide, to the extent permitted by
applicable law, for release and exculpatory provisions relating to the DIP
Secured Parties and the Prepetition Secured Parties that are satisfactory to the

 

19

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DIP Administrative Agent and the Prepetition Administrative Agent in their sole
and absolute discretion and (iii) is not otherwise reasonably satisfactory to
the DIP Administrative Agent and the Prepetition Administrative Agent in their
sole and absolute discretion, or any of the DIP Loan Parties or any of their
subsidiaries or affiliates, shall file, propose, support, or fail to contest in
good faith the filing or confirmation of such a plan or the entry of such an
order.

 

s.                Any judgment or order as to liability not covered by
insurance, or debt for the payment of money, in excess of $1,000,000 shall be
rendered against the Debtors (individually or in the aggregate), and the
enforcement thereof shall not have been stayed.

 

t.                 The Bankruptcy Court shall enter an order authorizing the
sale of all or substantially all of the assets of the Debtors unless (i) such
order contemplates indefeasible repayment in full in cash of the DIP Facility
upon consummation of the sale or (ii) consummated as part of an Acceptable Plan.

 

u.              The entry of an order in the Chapter 11 Cases avoiding or
permitting recovery of any portion of the payments made on account of the
obligations under the DIP Facility, the DIP Loan Documents, the Prepetition
Credit Agreement or any related documents or the taking of any action by any DIP
Loan Party to challenge, support or encourage a challenge of any such payments.

 

v.              The Final Order and the terms thereof shall cease to create a
valid and perfected security interest and lien on the DIP Collateral.

 

w.            The Final Order does not include a waiver, in form and substance
satisfactory to the Agent in its sole and absolute discretion, of (i) the right
to surcharge the Prepetition Collateral and/or the DIP Collateral under
Section 506(c) of the Bankruptcy Code; (ii) any ability to limit the extension
under Section 552(b) of the Bankruptcy Code of the liens of the Prepetition
Administrative Agent on the Prepetition Collateral to any proceeds, products,
offspring, or profits of the Prepetition Collateral acquired by any DIP Loan
Party after the Petition Date and (iii) the doctrine of marshalling.

 

x.              The filing or support of any pleading by any DIP Loan Party (or
any affiliate thereof) seeking, or otherwise consenting to, any relief the
granting of which could reasonably be expected to result in the occurrence of an
Event of Default.

 

y.              Any non-monetary, judgment or order with respect to a
post-petition event shall be rendered against any Debtor which

 

20

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does or would reasonably be expected to (i) cause a material adverse change in
the financial condition, business, prospects, operations or assets of the
Debtors as a whole or (ii) have a material adverse effect on the rights and
remedies of the DIP Lenders, and, in each case, there shall be a period of ten
(10) consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect.

 

z.               Any of the Financing Orders being amended or modified without
the consent of the DIP Lenders.

 

aa.       Any Vendor Contract or Customer Contract is terminated or modified
without the prior written consent of the DIP Administrative Agent in its sole
and absolute discretion, and such modification or termination does or would
reasonably be expected to (i) cause a material adverse change in the financial
condition, business, prospects, operations or assets of the Debtors as a whole,
(ii) have a material adverse effect on the rights and remedies of the DIP
Secured Parties, or (iii) result in a termination of the BH APA.

 

bb.       The commencement of any investigation by, or issuance of any recall
order by, the U.S. Food and Drug Administration, and such FDA investigation or
recall order does or would reasonably be expected to (i) cause a material
adverse change in the financial condition, business, prospects, operations or
assets of the Debtors as a whole, (ii) have a material adverse effect on the
rights and remedies of the DIP Secured Parties, or (iii) result in a termination
of the BH APA.

 

cc.         The commencement of any investigation of any Debtor by any federal
or state agency or other governmental or judicial entity, and such investigation
does or would reasonably be expected to (i) cause a material adverse change in
the financial condition, business, prospects, operations or assets of the
Debtors as a whole, (ii) have a material adverse effect on the rights and
remedies of the DIP Secured Parties, or (iii) result in a termination of the BH
APA.

 

dd.       The issuance by the Internal Revenue Service or any state tax
authority of one or more deficiency notices exceeding, in the aggregate,
$1,000,000 at any time.

 

ee.         The closing of an Acceptable 363 Sale shall not have occurred on or
prior to March 31, 2019, and the Budget shall not have been modified by the DIP
Loan Parties (with the consent of the DIP Administrative Agent in its sole an
absolute discretion) to reflect and forecast the DIP Loan Parties’ Cash
Receipts, Cash Operating Disbursements and Cash

 

21

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Bankruptcy Disbursements for the period commencing on April 1, 2019 through and
including April 10, 2019 (subject to Permitted Variances).

 

 

 

Remedies:

 

Notwithstanding the provisions of Section 362 of the Bankruptcy Code, but
subject to the Waiting Period Procedures and any other applicable provisions of
the Financing Orders, as the case may be, if any Event of Default occurs and is
continuing, the DIP Secured Parties may take any or all of the following
actions:

 

a.              declare by a Maturity Date Notice the commitment of the DIP
Lenders to make Loans and consent to use of Cash Collateral to be terminated,
whereupon such commitment and consent shall be terminated;

 

b.              declare a Maturity Date Notice the unpaid amount of the DIP
Obligations and the Prepetition Obligations, all interest accrued and unpaid
thereon, and all other amounts owing or payable under the DIP Loan Documents,
the Prepetition Loan Documents, this Binding Term Sheet and the Financing
Orders;

 

c.               to be immediately due and payable, without presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived by
the Debtor; or

 

d.              take any other action or exercise any other right or remedy
(including, without limitation, with respect to the liens in favor of the DIP
Administrative Agent and the DIP Lenders) permitted under the Dip Loan
Documents, or by applicable law.

 

 

 

Expenses and Indemnification:

 

The DIP Administrative Agent and the DIP Lenders (and their affiliates and
respective officers, directors, employees, advisors and agents) (each such
person, an “Indemnitee”) will have no liability for, and will be indemnified and
held harmless against, any losses, claims, damages, liabilities or expenses
incurred in respect of the financing contemplated hereby or the use or the
proposed use of proceeds thereof, except to the extent they are found by a
final, non-appealable judgment of a court of competent jurisdiction to arise
from the gross negligence or willful misconduct of the relevant indemnified
person. Such indemnity shall not be available (i) to the extent arising from a
material breach of any obligation of such Indemnitee under the DIP Loan
Documents or (ii) to the extent arising out of any loss, claim, damage,
liability or expense that does not involve an act or omission of the DIP Loan
Parties and that is brought by an Indemnitee against another Indemnitee (other
than claims against an Indemnitee in its capacity or in fulfilling its role as
DIP Administrative Agent or any similar role under the DIP Loan Documents).

 

22

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Governing Law:

 

New York.

 

{Signatures follow.}

 

23

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IN WITNESS WHEREOF, the parties hereto have caused this Binding Term Sheet to be
executed as of the date first set forth above.

 

 

DIP LOAN PARTIES:

 

 

 

SYNERGY PHARMACEUTICALS INC., as Borrower

 

 

 

 

 

By:

/s/ Gary G. Gemignani

 

 

 

 

 

Name: Gary G. Gemignani

 

 

 

 

 

Title:   EVP, Chief Financial Officer

 

 

 

 

 

SYNERGY ADVANCED PHARMACEUTICALS, INC., as Guarantor

 

 

 

 

By:

/s/ Gary G. Gemignani

 

 

 

 

 

Name: Gary G. Gemignani

 

 

 

 

 

Title:   EVP, Chief Financial Officer

 

 

24

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CRG SERVICING LLC, as DIP Administrative Agent

 

 

 

By

/s/ Nathan Hukill

 

 

Nathan Hukill

 

 

President

 

 

 

 

 

 

 

DIP LENDERS:

 

 

 

CRG PARTNERS III L.P.

 

 

By CRG PARTNERS III GP L.P., its General Partner

 

 

 

By CRG PARTNERS III GP LLC, its General Partner

 

 

 

 

 

 

 

By

/s/ Nathan Hukill

 

 

 

 

Nathan Hukill

 

 

 

 

Authorized Signatory

 

 

 

 

CRG PARTNERS III (CAYMAN) UNLEV AIV I L.P.

 

 

By CRG PARTNERS III (CAYMAN) GP L.P., its General Partner

 

 

By CRG PARTNERS III GP LLC, its General Partner

 

 

 

 

 

 

 

By

/s/ Nathan Hukill

 

 

 

 

Nathan Hukill

 

 

 

 

Authorized Signatory

 

 

 

 

 

 

 

Witness:

/s/ Nicole Nesson

 

 

 

Name:

Nicole Nesson

 

 

 

CRG PARTNERS III—PARALLEL FUND “A” L.P.

 

 

By CRG PARTNERS III—PARALLEL FUND “A” GP L.P., its General Partner

 

 

By CRG PARTNERS III GP LLC, its General Partner

 

 

 

 

 

 

 

By

/s/ Nathan Hukill

 

 

 

 

Nathan Hukill

 

 

 

 

Authorized Signatory

 

 

 

 

CRG PARTNERS III—PARALLEL FUND “B” L.P.

 

 

By CRG PARTNERS III—PARALLEL FUND “B” GP L.P., its General Partner

 

 

By CRG PARTNERS III GP LLC, its General Partner

 

 

 

 

 

 

 

By

/s/ Nathan Hukill

 

 

 

 

Nathan Hukill

 

 

 

 

Authorized Signatory

 

 

25

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CRG PARTNERS III (CAYMAN) LEV AIV I L.P.

 

 

By CRG PARTNERS III (CAYMAN) GP L.P., its General Partner

 

 

By CRG PARTNERS III GP LLC, its General Partner

 

 

 

 

 

 

 

By

/s/ Nathan Hukill

 

 

 

 

Nathan Hukill

 

 

 

 

Authorized Signatory

 

 

 

 

 

 

 

Witness:

/s/ Nicole Nesson

 

 

 

Name:

Nicole Nesson

 

 

 

 

CRG ISSUER 2017-1

 

 

By CRG SERVICING LLC, acting by power of attorney

 

 

 

 

 

By

/s/ Nathan Hukill

 

 

 

Nathan Hukill

 

 

 

Authorized Signatory

 

 

26

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EXHIBIT A: DIP LENDERS AND COMMITMENTS

 

Lender

 

$ Amount

 

Proportionate Share

 

CRG Partners III L.P.

 

7,618,864

 

4.919

%

CRG Partners III (Cayman) Unlev AIV I L.P.

 

7,743,700

 

5.000

%

CRG Partners III — Parallel Fund “A” L.P.

 

12,497,080

 

8.069

%

CRG Partners III — Parallel Fund “B” L.P.

 

18,000,000

 

11.622

%

CRG Partners III (Cayman) Lev AIV I L.P.

 

13,500,000

 

8.717

%

CRG Issuer 2017-1

 

95,514,355

 

61.672

%

Total

 

154,873,999

 

100.000

%

 

27

--------------------------------------------------------------------------------

 

EXHIBIT B: BUDGET

 

Prepared at the Direction of Counsel
Privileged and Confidential
DRAFT -Subject to Material Change
For Professional Eyes ONLY

 

($ in Thousands)

 

Fiscal Year:

 

2018

 

2018

 

2018

 

2019

 

2019

 

2019

 

2019

 

2019

 

2019

 

2019

 

2019

 

2019

 

2019

 

2018-2019

 

Week Ended:

 

12/14/18

 

12/21/18

 

12/28/18

 

01/04/19

 

01/11/19

 

01/18/19

 

01/25/19

 

02/01/19

 

02/08/19

 

02/15/19

 

02/22/19

 

03/01/19

 

03/08/19

 

03/08/19

 

Actual / Forecast:

 

Forecast

 

Forecast

 

Forecast

 

Forecast

 

Forecast

 

Forecast

 

Forecast

 

Forecast

 

Forecast

 

Forecast

 

Forecast

 

Forecast

 

Forecast

 

Forecast

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Post-Petition Week:

 

Week 1

 

Week 2

 

Weak 3

 

Week 4

 

Week 5

 

Week 6

 

Week 7

 

Week 8

 

Week 9

 

Week 10

 

Week 11

 

Week 12

 

Week 13

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13-Week Cash Flow Budget

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Receipts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales Receipts

 

$

1,039

 

$

1,712

 

$

1,806

 

$

1,891

 

$

1,766

 

$

1,766

 

$

1,766

 

$

1,766

 

$

1,766

 

$

1,766

 

$

1,766

 

$

1,766

 

$

—

 

$

20,579

 

Other Receipts

 

—

 

—

 

—

 

40

 

—

 

—

 

—

 

40

 

—

 

—

 

—

 

40

 

—

 

120

 

Total Operating Receipts

 

$

1,039

 

$

1,712

 

$

1,806

 

$

1,931

 

$

1,766

 

$

1,766

 

$

1,766

 

$

1,806

 

$

1,766

 

$

1,766

 

$

1,766

 

$

1,806

 

$

—

 

$

20,699

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Disbursements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payroll

 

—

 

—

 

(1,823

)

—

 

(1,823

)

—

 

—

 

(1,823

)

—

 

(3,545

)

—

 

(1,823

)

—

 

(10,837

)

Sales & Marketing

 

—

 

(101

)

—

 

(713

)

(4

)

(4

)

(4

)

(887

)

(4

)

(139

)

(4

)

(887

)

—

 

(2,749

)

GTN (Relay/TC)

 

—

 

(89

)

(386

)

(1,920

)

(372

)

—

 

(150

)

(970

)

(476

)

(1,333

)

(150

)

(8,163

)

—

 

(14,009

)

Inventory

 

—

 

(15

)

(3,716

)

(103

)

(157

)

(1

)

(1

)

(4,353

)

(1

)

(1

)

(1

)

(43

)

—

 

(8,390

)

R&D / Regulatory

 

—

 

—

 

(342

)

(666

)

—

 

—

 

(405

)

(425

)

(95

)

—

 

—

 

(385

)

—

 

(2,318

)

G&A

 

—

 

—

 

—

 

(201

)

(15

)

(15

)

(15

)

(201

)

(15

)

(125

)

(15

)

(481

)

—

 

(1,083

)

Other Disbursements

 

—

 

(733

)

(131

)

—

 

(700

)

(72

)

(733

)

(131

)

(700

)

(447

)

(733

)

(131

)

(500

)

(5,010

)

Total Operating Disbursements

 

$

—

 

$

(939

)

$

(6,397

)

$

(3,603

)

$

(3,070

)

$

(92

)

$

(1,308

)

$

(8,790

)

$

(1,291

)

$

(5,589

)

$

(903

)

$

(11,912

)

$

(500

)

$

(44,395

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

$

1,039

 

$

773

 

$

(4,591

)

$

(1,672

)

$

(1,304

)

$

1,674

 

$

458

 

$

(6,983

)

$

475

 

$

(3,823

)

$

863

 

$

(10,106

)

$

(500

)

$

(23,696

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Operating Disbursements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

—

 

—

 

(258

)

(279

)

—

 

—

 

—

 

(2,095

)

—

 

—

 

—

 

(1,837

)

—

 

(4,469

)

Total Non-Operating Disbursements

 

$

—

 

$

—

 

$

(258

)

$

(279

)

$

—

 

$

—

 

$

—

 

$

(2,095

)

$

—

 

$

—

 

$

—

 

$

(1,837

)

$

—

 

$

(4,469

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bankruptcy Related Disbursements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DIP Financing Fees

 

—

 

(900

)

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

(1,350

)

—

 

(2,250

)

Professional Fees

 

—

 

(200

)

—

 

—

 

—

 

(650

)

—

 

(395

)

—

 

(4,153

)

—

 

(1,490

)

—

 

(6,889

)

Utility Deposit

 

(30

)

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

(30

)

Total Bankruptcy Related Disbursements

 

$

(30

)

$

(1,100

)

$

—

 

$

—

 

$

—

 

$

(650

)

$

—

 

$

(395

)

$

—

 

$

(4,153

)

$

—

 

$

(2,840

)

$

—

 

$

(9,169

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Cash Flow before Financing

 

$

1,009

 

$

(827

)

$

(4,849

)

$

(1,950

)

$

(1,304

)

$

1,024

 

$

458

 

$

(9,474

)

$

475

 

$

(7,976

)

$

863

 

$

(14,784

)

$

(500

)

$

(37,884

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Balance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Cash Balance

 

14,328

 

15,336

 

26,509

 

21,660

 

53,210

 

51,906

 

52,930

 

53,389

 

43,915

 

44,390

 

36,414

 

37,277

 

52,171

 

14,328

 

Net lash Flow before Financing

 

1,009

 

(327

)

(4,849

)

(1,950

)

(1,304

)

1,024

 

458

 

(9,474

)

475

 

(7,976

)

863

 

(14,784

)

(500

)

(37,334

)

DIP Proceeds (New Money)

 

—

 

11,500

 

—

 

33,500

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

45,000

 

DIP Paydown

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

(155,323

)

—

 

(155,323

)

363 Sale Proceeds

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

185,000

 

—

 

185,000

 

Ending Cash Balance

 

$

15,336

 

$

26,500

 

$

21,660

 

$

53,210

 

$

51,906

 

$

52,930

 

$

53,389

 

$

43,915

 

$

44,390

 

$

36,414

 

$

37,277

 

$

52,171

 

$

51,671

 

$

51,671

 

 

28

--------------------------------------------------------------------------------

 

EXHIBIT C: ACCEPTABLE PLAN ILLUSTRATION

 

Synergy Pharmaceuticals

Confidential Preliminary Working Draft

 

Illustrative Sharing Waterfall

Work Product Prepared at the Direction of Counsel: For Discussion Purposes Only

 

 

Distributable Cash After Wind-Down

 

 

 

30,100

 

32,100

 

34,100

 

37,100

 

39,600

 

42,100

 

44,600

 

47,100

 

49,600

 

52,100

 

54,600

 

57,100

 

59,600

 

62,100

 

64,600

 

67,100

 

69,600

 

72,100

 

(Shortfall) / Excess

 

 

 

(7,000

)

(5,000

)

(3,000

)

—

 

2,500

 

5,000

 

7,500

 

10,000

 

12,500

 

15,000

 

17,500

 

20,000

 

22.500

 

25,000

 

27,500

 

30,000

 

32,500

 

35,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Initial Sharing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds to Secured Lender

 

 

 

30,100

 

20,100

 

20,100

 

20,100

 

20,100

 

20,100

 

20,100

 

20,100

 

20,100

 

20,100

 

20,100

 

20,100

 

20,100

 

20,100

 

20,100

 

20,100

 

29,100

 

20,100

 

Proceeds to Unsecureds

 

 

 

—

 

12,000

 

12,000

 

12,000

 

12.000

 

12,000

 

12,000

 

12,000

 

12,000

 

12,000

 

12,000

 

12,000

 

12,000

 

12,000

 

12,000

 

12,000

 

12,000

 

12,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Range 1 (Shortfall <5M)

 

100

%

N/A

 

—

 

2,000

 

5,000

 

5,000

 

5,000

 

5,000

 

5,000

 

5,000

 

5,000

 

5,000

 

5,000

 

5,000

 

5,000

 

5,000

 

5,000

 

5,000

 

5,000

 

Range 2 (Excess up to 5M)

 

75

%

N/A

 

—

 

 

 

 

 

1,875

 

3,750

 

3,750

 

3,750

 

3,750

 

3,750

 

3,750

 

3,750

 

3,750

 

3,750

 

3,750

 

3,760

 

3,750

 

3,750

 

Range 3 (Excess Above 5M)

 

50

%

N/A

 

—

 

 

 

 

 

—

 

—

 

1,250

 

2,500

 

3,750

 

5,000

 

6,250

 

7,500

 

8,750

 

10,000

 

11,250

 

12,500

 

13,750

 

15,000

 

Total Sharing Proceeds to Secured Lender

 

 

 

 

 

—

 

2,000

 

5,000

 

6,875

 

8,750

 

10,000

 

11,250

 

12,500

 

13,750

 

15,000

 

16,250

 

17,000

 

17,000

 

17,000

 

17,000

 

17,000

 

17,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Proceeds from Distributable Cash After Wind-Down

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured Lender

 

 

 

30,100

 

20,100

 

22,100

 

25,100

 

26,975

 

28,850

 

30,100

 

31,350

 

32,600

 

33,850

 

35,100

 

36,350

 

37,100

 

37,100

 

37,100

 

37,100

 

37,100

 

37,100

 

Unsecureds

 

 

 

 

 

12,000

 

12,000

 

12,000

 

12,625

 

13,250

 

14,500

 

15,750

 

17,000

 

18,250

 

19,500

 

20,750

 

22,500

 

25,000

 

27,500

 

30,000

 

32,500

 

35,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured Claim Deficiency

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recovery %

 

37,100

 

81

%

54

%

60

%

68

%

73

%

78

%

81

%

85

%

88

%

91

%

95

%

98

%

100

%

100

%

100

%

100

%

100

%

100

%

Unsecured Claims

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recovery %

 

38,603

 

0

%

31

%

31

%

31

%

33

%

34

%

38

%

41

%

44

%

47

%

51

%

54

%

58

%

65

%

71

%

78

%

84

%

91

%

 

29

--------------------------------------------------------------------------------

 

EXHIBIT D: CASE MILESTONE SCHEDULE

 

Budget

 

1.              On or before the Petition Date, the DIP Administrative Agent
shall have approved, based on then current information, the Budget.

 

2.              On or before December 18, 2018, the DIP Administrative Agent
shall have reaffirmed its approval, based on then then current information, of
the Budget, or the DIP Loan Parties shall have adopted a revised budget
acceptable to the DIP Administrative Agent in its sole and absolute discretion.

 

DIP Facility

 

1.              Not later than the Petition Date, the Debtors shall file with
the Bankruptcy Court a motion seeking approval of the DIP Facility, this Binding
Term Sheet, the DIP Loans, and all fees, expenses, indemnification, and other
obligations contemplated thereunder.

 

2.              Not later than 3 days following the Petition Date, the
Bankruptcy Court shall have entered the First Interim Order.

 

3.              Not later than December 18, 2018, finalize DIP Credit Agreement.

 

4.              Not later than December 21, 2018, the Bankruptcy Court shall
have entered the Second Interim Order.

 

5.              Not later than January 15, 2019, the Bankruptcy Court shall have
entered the Final Order.

 

Acceptable 363 Sale

 

1.              Not later than December 12, 2019, the Debtors shall file with
the Bankruptcy Court Sale Motion and Bid Procedures Motion, in each case
acceptable to the DIP Administrative Agent in its sole and absolute discretion.

 

2.              Not later than January 4, 2019, a Bid Procedures Hearing shall
be held in the Bankruptcy Court.

 

3.              The deadline for bidding shall be a date not later than
February 9, 2019.

 

4.              The date specified for an auction, if necessary, shall be a date
not later than February 12, 2019.

 

5.              Not later than February 15, 2019, a Sale Hearing shall be held
in the Bankruptcy Court.

 

6.              The closing of the Acceptable 363 Sale shall occur on or before
April 9, 2019.

 

Acceptable Plan

 

1.              Not later than January 4, 2019, the Debtors shall file their
Schedules and Statement of Financial Affairs.

 

30

--------------------------------------------------------------------------------

 

2.              The bar date for filing proofs of claim shall be a date not
later than February 11, 2019.

 

3.              Not later than December 21, 2019, the Debtors shall file with
the Bankruptcy Court an Acceptable Plan and a disclosure statement with respect
thereto.

 

4.              Not later than February 18, 2019, the Bankruptcy Court shall
enter an order approving a disclosure statement with respect to an Acceptable
Plan.

 

5.              Not later than March 15, 2019, the Bankruptcy Court shall enter
an order confirming an Acceptable Plan.

 

6.              Not later than Apri1 10, 2019, such Acceptable Plan shall become
effective.

 

31

--------------------------------------------------------------------------------