DALLAS–(BUSINESS WIRE)–EB Holdings II, Inc., a Nevada corporation (“EBH II”), reports the following information in connection with its EUR 600m PIK Loan Agreement due March 2017 (the “Loan”):
1. On July 29, 2016, EBH II entered into a non-disclosure agreement with an ad hoc committee of certain holders of the Loan, consisting of funds affiliated with each of Alcentra Limited, Fortress Investment Group / Mount Kellet Capital Management, GoldenTree Asset Management, HIG International Advisors LLP / Bayside Capital, Sound Point Capital Management, LP, and Värde Partners Europe Limited (the “Committee”).
2. On August 9, 2016, EBH II furnished to the Committee’s advisors, Houlihan Lokey Capital, Inc. and Kirkland & Ellis LLP, the following email and term sheet:
From: Howard M Meyers
Sent: Tuesday, August 09, 2016 11:24 AM
Subject: EB Holdings II, Inc. Confidential
Ladies and Gentlemen,
As requested and on behalf of EB Holdings II, Inc., attached is a non-binding, confidential restructuring proposal, in an attempt to reach a consensual agreement with EB Holdings II’s Noteholders. We request and you are authorized to furnish a copy of the proposal to those members of the Noteholders Committee who are parties to the NDA with EB Holdings II, Inc.
Howard M. Meyers
EB Holdings II, Inc.
For Settlement Purposes Only
Subject to FRE 408
August 9, 2016
RESTRUCTURING TERM SHEET
Summary of Key Restructuring Terms
All holders (“PIK Holders”) of PIK Notes due March 2017 (the “Existing Notes”) to exchange their Existing Notes for (i) new senior secured notes aggregating €500 million in principal amount (the “Notes”) issued by EB Holdings II, Inc., a Nevada corporation (“HoldCo”), and (ii) cash in the amount of €50 million.
HoldCo to arrange for €50 million to be contributed to capital by Quexco Incorporated, a Delaware corporation (“Quexco”), or its affiliates, to fund the cash portion of the exchange. HoldCo also to arrange to have Quexco or its affiliates pledge collateral (as described below).
Expressly conditioned upon the exchange of 100% of the Existing Notes for the Notes.
Parties to execute a restructuring support agreement, with customary terms and conditions and a target signing date on or prior to September 15, 2016.
The closing of the restructuring would occur as soon as practicable thereafter.
Interest. Interest to be payable in cash semi-annually at 6.0% per annum. If on any interest payment date, HoldCo does not have cash on hand sufficient to make a cash interest payment in full because OpCo has been unable to pay a cash dividend to HoldCo solely because of the restricted payment covenants in its credit agreements or applicable English law, HoldCo may instead pay in kind (PIK) the amount of any such insufficiency at a rate equal to 200 basis points in excess of the applicable cash interest rate.
Maturity. 10 years
Collateral. The Notes to be secured by first priority liens on (a) HoldCo’s approximately 87% equity interests in Eco-Bat Technologies Limited, a UK company (“OpCo”), and (b) 100% equity interests in each of the Affiliated Companies (as defined below), subject to the terms specified below.
HoldCo to arrange for (a) HoldCo’s affiliate, Quexco, to pledge 100 % of the equity in each of RSR Corporation, a Delaware corporation (the “Management Company”), Environmental Service Insurance Company, a Vermont corporation (the “Captive Insurance Company”), and RSR Technologies, Inc., a Delaware corporation (the “R&D Company”), and (b) Management Company to pledge 100% of the equity in Quemetco Metals Limited, Inc., a Texas corporation (“QML”, and together with the Management Company, the Captive Insurance Company, and the R&D Company, the “Affiliated Companies”), in each case to secure the obligations of HoldCo under the Notes. The Affiliated Companies own, directly or indirectly, certain assets (the “Eco-Bat Related Assets”) relevant to the operations of OpCo, including management and personnel arrangements, services agreements with OpCo and various permits, licenses and other intellectual property rights and interests.
The Affiliated Companies to be permitted at any time (i) to make dividends or other distributions in respect of all assets, other than the Eco-Bat Related Assets, including, without limitation, (A) the Management Company’s subsidiary that manufactures lubricants used in the drilling industry and its related intellectual property rights and interests and (B) land held for investment purposes in Dallas, Texas (collectively, the “Excluded Assets”) and (ii) to sell, assign or otherwise transfer all or any portion of the Excluded Assets to any person and distribute the sale proceeds thereof to Quexco. The Excluded Assets (and proceeds therefrom) would not in any event be available as collateral for the Notes and will remain beneficially the property of Quexco in the event of a foreclosure.
Furthermore, Quexco may at any time sell, assign or otherwise transfer the equity in any of the Affiliated Companies and/or some or all of the assets and/or liabilities of any of the Affiliated Companies, including Eco-Bat Assets, to OpCo or any wholly-owned subsidiary of OpCo, and the pledge thereon would be released.
Other Terms. The covenants, events of default and other terms regarding the Notes would be set forth in an amendment to the existing PIK Loan Agreement entered into by the requisite Holders that would address the restructuring terms and otherwise would remain in effect on substantially the same existing terms and conditions.
Structuring. It is understood that this term sheet does not represent all of the key terms of any potential restructuring and requires continued development by the parties, as well as adjustments to reflect tax, financing, accounting, and legal considerations. Any potential restructuring would contain full, unconditional terms and conditions appropriate to a transaction of this nature.
Expenses. The parties will bear their own expenses in connection with the consideration, negotiation, execution, and consummation of any potential restructuring, except that subject to and upon the Closing, HoldCo would reimburse the PIK Holders for the reasonable out-of-pocket expenses of Houlihan Lokey and Kirkland & Ellis in connection with the restructuring up to $8.5 million in the aggregate.
Nature of this Term Sheet. This term sheet is non-binding and may be withdrawn at any time by HoldCo in its sole and absolute discretion. No party participating in these discussions is obligated to enter into or consummate any agreement. It is expressly understood that any restructuring or modification of existing agreements will require definitive written agreements executed by the parties. No continued discussions, letters of intent, or other communications shall be deemed to create any such obligation.
3. On August 18, 2016, the Committee sent EBH II the following letter:
To: EB Holdings II, Inc.
Attn.: Howard M. Meyers
August 18, 2016
Termination of Confidentiality Agreement
Reference is made to the confidentiality agreement (the “Confidentiality Agreement”), dated as of July 29, 2016, entered into among EB Holdings II, Inc. (the “Company”) and the Recipients (as defined therein). Capitalized terms not otherwise defined herein shall have the meaning assigned to such terms in the Confidentiality Agreement.
The undersigned Requisite Holders hereby notify the Company that they unanimously desire to terminate the Confidentiality Agreement effective immediately today on August 18, 2016 (the “Termination Date”) pursuant to paragraph 9.1 of the Confidentiality Agreement. The Recipients expect to be cleansed, by public disclosure of the term sheet delivered to Kirkland & Ellis LLP and Houlihan Lokey Capital, Inc. on August 9, 2016, promptly after the Termination Date but in any case no later than by 9:00 a.m., New York City time, on the fourth Business Day after the occurrence of the Termination Date.
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[signed by all Committee members]