EB Holdings II, Inc. Informational Report

DALLAS--()--EB Holdings II, Inc., a Nevada corporation (“EBH II”), reports the following information in connection with its EUR 600m PIK Loan Agreement dated March 23, 2007 (the “Loan”):

1. On March 29, 2017, EBH II, through its advisors, furnished on a confidential basis to Kirkland & Ellis LLP (“Kirkland”), legal advisors to an ad hoc committee of certain purported holders of the Loan consisting of funds affiliated with each of Alcentra Limited, Fortress Investment Group/Mount Kellet Capital Management, GoldenTree Asset Management LP, HIG Capital International Advisors LLP/Bayside Capital, Sound Point Capital Management, LP and Varde Partners Europe Limited (the “Committee”), the following term sheet relating to a proposed restructuring of the Loan:

HIGHLY CONFIDENTIAL
For Settlement Purposes Only
March 29, 2017

EB HOLDINGS II, INC.

Summary of Key Restructuring Terms

THIS TERM SHEET (THIS “TERM SHEET”) CONTAINS THE PRINCIPAL TERMS AND CONDITIONS OF A POTENTIAL RESTRUCTURING TRANSACTION (THE “RESTRUCTURING”) AMONG (A) EB HOLDINGS II, INC., A NEVADA CORPORATION (THE “COMPANY”), (B) HOWARD M. MEYERS (“MEYERS”) AND (C) EACH OF THE BENEFICIAL OWNERS (OR INVESTMENT MANAGERS OR ADVISORS FOR THE BENEFICIAL OWNERS) OF THE COMPANY’S PIK LOAN FACILITY (THE “PIK LOAN”) IN THE ORIGINAL PRINCIPAL AMOUNT OF 600,000,000 EUROS WHO BECOME A PARTY TO THE RESTRUCTURING SUPPORT AGREEMENT (AS DESCRIBED BELOW) (THE “CONSENTING PIK HOLDERS”).

THIS TERM SHEET HAS BEEN PRODUCED FOR DISCUSSION AND SETTLEMENT PURPOSES ONLY. THIS TERM SHEET IS NOT AN OFFER OR A SOLICITATION WITH RESPECT TO ANY LOAN INSTRUMENTS OR SECURITIES OF THE COMPANY. ANY SUCH OFFER OR SOLICITATION SHALL COMPLY WITH ALL APPLICABLE LAWS.

Restructuring:  

The Exchange: All holders (the “PIK Holders”) of the PIK Loan would exchange (the “Exchange”) their respective interests (including principal and accrued interest) in the PIK Loan for cash in the aggregate amount of 535 million euros (the “Exchange Amount”).

 

The Acquisition: Simultaneously with and in order to fund the Exchange, a newly-formed company (“Newco”) to be organized by Meyers would purchase from the Company (the “Acquisition”) all of the shares it owns in Eco-Bat Technologies Limited, a U.K. company (“EBT”), for an aggregate purchase price, payable in cash, equal to the Exchange Amount.

 

Financing: The Acquisition would be financed through a combination of equity and debt. Simultaneously with the execution of the Restructuring Support Agreement, Meyers would provide an equity commitment in the aggregate amount of 235 million euros. (Newco would retain the right to include one or more equity owners in addition to Meyers, but that will not be a condition to the transaction). Meyers has had discussions with debt financing providers including those who have previously led or participated in financings for the Company and for EBT. Based on these discussions, Newco intends to raise approximately 300 million euros of debt financing to finance the Acquisition. Newco will provide debt financing term sheets and indications of interest for at least 300 million euros to the Consenting PIK Holders within 30 days of execution of the Restructuring Support Agreement.

 

Releases: Subject to and upon the consummation of the Restructuring, the existing litigation involving the parties would be dismissed with prejudice, and the Company, Meyers, the Consenting PIK Holders, and their respective employees, directors, partners, advisors, representatives and affiliates would all be granted full and unconditional releases. A release by all parties in the litigation, EBT, and the holders of at least 95% of the principal amount of the PIK Loan would be a condition to the consummation of the Restructuring; provided, however, that Meyers and the Company would have the right, in their discretion, to reduce such 95% requirement.

 

As an alternative approach, if so desired by the Consenting PIK Holders, such dismissal of the litigation and releases would instead become effective at the time of the signing of the Restructuring Support Agreement, in consideration of Meyers and the Company agreeing to a consensual transfer of the EBT shares held by the Company if Newco does not complete the Acquisition as a result of its material breach or failure to obtain the required debt financing (and the other conditions to the closing have been satisfied). In connection with that transfer, Meyers would be available if so desired to continue for up to a year to assist in the transition, and would cause RSR Corporation to transfer the agreements relevant to EBT.

 

No Involuntary Bankruptcy Filing: This Term Sheet and the Restructuring proposed herein are expressly conditioned on there being no involuntary bankruptcy filing as to the Company by any person, including, without limitation, any of the PIK Holders. The Company believes that an involuntary bankruptcy would likely result in damage to EBT, which could have a material adverse effect on the value of the shares of EBT held by the Company and Newco’s ability to obtain debt financing for the transaction.

 
Form of Transaction:

The PIK Loan Agreement provides that the Company and PIK Holders owning at least 90% in principal amount of the PIK Loan may amend the PIK Loan Agreement in any respect, including reducing principal or interest with respect to all PIK Holders. Accordingly, subject to confirmation by legal counsel, the Restructuring (including the Exchange) would be consummated “out of court” without the necessity of a bankruptcy filing if the holders of at least 90% of the outstanding amount of the PIK Loan, all PIK Holders party to the litigation, the Company and Meyers agree. In the event, however, that this is not practicable, then the Restructuring would be accomplished through a “pre-packaged” Chapter 11 bankruptcy.

 
Transaction Documents: The transaction documents would include a Restructuring Support Agreement, Acquisition Agreement, and Loan Modification/Exchange Agreement. If the Restructuring is to be accomplished through a pre-packaged bankruptcy, those agreements would be executed prior to the filing of any Chapter 11 petition. The Restructuring Support Agreement must in any event be signed by Consenting PIK Holders constituting at least 66-2/3% in principal amount of the PIK Loan and a majority in number of the PIK Holders, as well as all parties to the existing litigation.

 

The transaction documents would contain representations, covenants, closing conditions and such other terms as are customary for transactions of this type, including that the closing is subject to obtaining the requisite debt financing.

 

There would be no purchase price adjustments. Newco would not be entitled to any indemnification from the Company in respect of the Acquisition.

 

The transaction documents would be negotiated and executed as soon as practicable. In the event of an out of court Restructuring, the outside date (subject to customary extensions and exceptions) for the closing of the Restructuring would be 90 days from the execution of the transaction documents by all requisite parties. In the event of a pre-packaged bankruptcy, the closing would occur as soon as practicable following approval by the court.

 

Miscellaneous:

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 that may be required to reflect tax, financing, accounting, and legal considerations.

 

Expenses: Subject to and upon consummation of the transaction, the Company would reimburse the PIK Holders for the reasonable, documented out-of-pocket expenses for the negotiation, documentation and consummation of 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. 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. In no event shall this Term Sheet, the proposed terms of the Restructuring, the discussions with respect to this Term Sheet or any subsequent communications, letters of intent, draft documents or work product of the parties or their respective employees, directors, affiliates or advisors or other representatives be used in any litigation, bankruptcy or other proceedings or constitute an admission of any kind.

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2. On March 30, 2017, EBH II, through its advisors, furnished to Kirkland the following alternative term sheet relating to a proposed restructuring of the Loan:

HIGHLY CONFIDENTIAL
For Settlement Purposes Only
March 30, 2017

EB HOLDINGS II, INC.

Summary of Key Restructuring Terms

THIS TERM SHEET (THIS “TERM SHEET”) CONTAINS THE PRINCIPAL TERMS AND CONDITIONS OF A POTENTIAL RESTRUCTURING TRANSACTION (THE “RESTRUCTURING”) AMONG (A) EB HOLDINGS II, INC., A NEVADA CORPORATION (THE “COMPANY”), (B) HOWARD M. MEYERS (“MEYERS”) AND (C) EACH OF THE BENEFICIAL OWNERS (OR INVESTMENT MANAGERS OR ADVISORS FOR THE BENEFICIAL OWNERS) OF THE COMPANY’S PIK LOAN FACILITY (THE “PIK LOAN”) IN THE ORIGINAL PRINCIPAL AMOUNT OF 600,000,000 EUROS WHO BECOME A PARTY TO THE RESTRUCTURING SUPPORT AGREEMENT (AS DESCRIBED BELOW) (THE “CONSENTING PIK HOLDERS”).

THIS TERM SHEET HAS BEEN PRODUCED FOR DISCUSSION AND SETTLEMENT PURPOSES ONLY. THIS TERM SHEET IS NOT AN OFFER OR A SOLICITATION WITH RESPECT TO ANY LOAN INSTRUMENTS OR SECURITIES OF THE COMPANY. ANY SUCH OFFER OR SOLICITATION SHALL COMPLY WITH ALL APPLICABLE LAWS.

Restructuring:

 

The Exchange: All holders (the “PIK Holders”) of the PIK Loan would exchange (the “Exchange”) their respective interests (including principal and accrued interest) in the PIK Loan for cash in the aggregate amount of 535 million euros (the “Exchange Amount”).

 

The Acquisition: Simultaneously with and in order to fund the Exchange, a newly-formed company (“Newco”) to be organized by Meyers would purchase from the Company (the “Acquisition”) all of the shares it owns in Eco-Bat Technologies Limited, a U.K. company (“EBT”), for an aggregate purchase price, payable in cash, equal to the Exchange Amount.

 

Financing: The Acquisition would be financed through a combination of equity and debt. Simultaneously with the execution of the Restructuring Support Agreement, Meyers would provide an equity commitment in the aggregate amount of 235 million euros. (Newco would retain the right to include one or more equity owners in addition to Meyers, but that will not be a condition to the transaction). Meyers has had discussions with debt financing providers including those who have previously led or participated in financings for the Company and for EBT. Based on these discussions, Newco intends to raise approximately 300 million euros of debt financing to finance the Acquisition. Newco will provide debt financing term sheets and indications of interest for at least 300 million euros to the Consenting PIK Holders within 30 days of execution of the Restructuring Support Agreement.

 

Go-Shop: The definitive agreement for the Acquisition would contain a go-shop provision (or if the transaction occurs in a pre-packaged bankruptcy, a stalking horse provision), whereby the Company would offer the shares to any qualified person, pursuant to a process conducted by an independent investment banking firm acceptable to the Consenting PIK Holders. The Company would sell the shares to the bidder who makes the highest and best offer in the opinion of such investment banker (and subject to such other provisions as are required in a bankruptcy proceeding, if applicable). To facilitate this process, Meyers would cause RSR Corporation to transfer the agreements relevant to EBT. Additionally, if desired, Meyers would be available to assist in the transition for a period of up to a year. If the shares are sold to a higher bidder, Newco would be entitled to (a) a break-up (stalking horse) fee of 5% of the purchase price and (b) reimbursement of reasonable, documented out-of-pocket expenses in connection with the transaction, up to $8.5 million in the aggregate.

 

Consensual Transfer: If Newco remains the highest bidder but does not complete the Acquisition as a result of its material breach or the failure to obtain the requisite debt financing (and the other conditions to the Acquisition have been satisfied), the Company would transfer the EBT shares consensually for the benefit of the PIK Holders. Meyers would cause RSR to transfer the agreements relevant to EBT. Also, if so desired, Meyers would be available to assist in the transition for up to a year.

 

Releases: Effective at the time of the signing of the Restructuring Support Agreement, the existing litigation involving the parties would be dismissed with prejudice, and the Company, Meyers, the Consenting PIK Holders, and their respective employees, directors, partners, advisors, representatives and affiliates would all be granted full and unconditional releases. A release by all parties in the litigation, EBT, and the holders of at least 95% of the principal amount of the PIK Loan would be required; provided, however, that Meyers and the Company would have the right, in their discretion, to reduce such 95% requirement.

 

No Involuntary Bankruptcy Filing: This Term Sheet and the Restructuring proposed herein are expressly conditioned on there being no involuntary bankruptcy filing as to the Company by any person, including, without limitation, any of the PIK Holders. The Company believes that an involuntary bankruptcy would likely result in damage to EBT, which could have a material adverse effect on the value of the shares of EBT held by the Company and Newco’s ability to obtain debt financing for the transaction.

 

Form of Transaction:

The PIK Loan Agreement provides that the Company and PIK Holders owning at least 90% in principal amount of the PIK Loan may amend the PIK Loan Agreement in any respect, including reducing principal or interest with respect to all PIK Holders. Accordingly, subject to confirmation by legal counsel, the Restructuring (including the Exchange) would be consummated “out of court” without the necessity of a bankruptcy filing if the holders of at least 90% of the outstanding amount of the PIK Loan, all PIK Holders party to the litigation, the Company and Meyers agree. In the event, however, that this is not practicable, then the Restructuring would be accomplished through a “pre-packaged” Chapter 11 bankruptcy.
 

Transaction Documents:

The transaction documents would include a Restructuring Support Agreement, Acquisition Agreement, and Loan Modification/Exchange Agreement. If the Restructuring is to be accomplished through a pre-packaged bankruptcy, those agreements would be executed prior to the filing of any Chapter 11 petition. The Restructuring Support Agreement must in any event be signed by Consenting PIK Holders constituting at least 66-2/3% in principal amount of the PIK Loan and a majority in number of the PIK Holders, as well as all parties to the existing litigation.
 
The transaction documents would contain representations, covenants, closing conditions and such other terms as are customary for transactions of this type, including that the closing is subject to obtaining the requisite debt financing.
 
There would be no purchase price adjustments. Newco would not be entitled to any indemnification from the Company in respect of the Acquisition.
 
The transaction documents would be negotiated and executed as soon as practicable. In the event of an out of court Restructuring, the outside date (subject to customary extensions and exceptions) for the closing of the Restructuring would be 90 days from the execution of the transaction documents by all requisite parties. In the event of a pre-packaged bankruptcy, the closing would occur as soon as practicable following approval by the court.
 

Miscellaneous:

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 that may be required to reflect tax, financing, accounting, and legal considerations.

 

Expenses: Subject to and upon consummation of the transaction, the Company would reimburse the PIK Holders for the reasonable, documented out-of-pocket expenses for the negotiation, documentation and consummation of 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. 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. In no event shall this Term Sheet, the proposed terms of the Restructuring, the discussions with respect to this Term Sheet or any subsequent communications, letters of intent, draft documents or work product of the parties or their respective employees, directors, affiliates or advisors or other representatives be used in any litigation, bankruptcy or other proceedings or constitute an admission of any kind.

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3. On April 6, 2017, EBH II entered into a confidentiality and standstill agreement (the “Confidentiality Agreement”) with the Committee, pursuant to which EBH II’s proposals of March 29, 2017 and March 30, 2017 were shared with the Committee.

4. On April 13, 2017, the Committee sent EBH II, through their respective advisors, the following term sheet counter proposal:

K&E Comments
HIGHLY CONFIDENTIAL
For Settlement Purposes Only
April 13, 2017

EB HOLDINGS II, INC.

Summary of Key Restructuring Terms

THIS TERM SHEET (THIS “TERM SHEET” CONTAINS THE PRINCIPAL TERMS AND CONDITIONS OF A POTENTIAL RESTRUCTURING TRANSACTION (THE “RESTRUCTURING”) AMONG (A) EB HOLDINGS II, INC., A NEVADA CORPORATION (THE “COMPANY”), (B) HOWARD M. MEYERS (“MEYERS”) AND (C) EACH OF THE BENEFICIAL OWNERS (OR INVESTMENT MANAGERS OR ADVISORS FOR THE BENEFICIAL OWNERS) OF THE COMPANY’S PIK LOAN FACILITY (THE “PIK LOAN”) IN THE ORIGINAL PRINCIPAL AMOUNT OF 600,000,000 EUROS WHO BECOME A PARTY TO A RESTRUCTURING SUPPORT AGREEMENT (THE “RESTRUCTURING SUPPORT AGREEMENT”) (AS DESCRIBED BELOW) (COLLECTIVELY, THE “CONSENTING PIK HOLDERS”).

THIS TERM SHEET HAS BEEN PRODUCED FOR DISCUSSION AND SETTLEMENT PURPOSES ONLY. THIS TERM SHEET IS NOT AN OFFER OR A SOLICITATION WITH RESPECT TO ANY LOAN INSTRUMENTS OR SECURITIES OF THE COMPANY. ANY SUCH OFFER OR SOLICITATION SHALL COMPLY WITH ALL APPLICABLE LAWS.

Restructuring:  

The Exchange: All holders (the “PIK Holders”) of the PIK Loan would exchange (the “Exchange”) their respective interests (including principal and accrued interest) in the PIK Loan for cash in the aggregate amount of 700 million euros (the “Exchange Amount”). For the avoidance of doubt, 100% of the Exchange Amount will be paid to the PIK Holders on account of their interests in the PIK Loan, and no portion of the Exchange Amount will be paid to any non-PIK Holder.

 

The Acquisition: Simultaneous with, and as a condition to, the consummation of the Exchange (whether through an out-of-court exchange offer and consent solicitation process, a pre-packaged chapter 11 case, or an alternative restructuring method, in each case such method being acceptable to the ad hoc committee of PIK Holders (“PIK Lender Committee”)) a newly-formed company (“Newco”) to be organized by Meyers would purchase from the Company (the “Acquisition”) all of the shares it owns in Eco-Bat Technologies Limited, a U.K. company (“EBT”), for an aggregate purchase price, payable in cash, equal to the Exchange Amount.1 Company/Meyers to provide additional details about Newco/Acquisition (e.g., where Newco sits in relation to the Company and EBT). The date that the Exchange is consummated pursuant to its terms shall be the “Exchange Effective Date”).

 

Financing: The Acquisition would be financed through a combination of equity and debt.

 

Simultaneous with, and as a condition to, the effectiveness of the Restructuring Support Agreement (the “RSA Effective Date”), (i) Newco and Meyers will provide the PIK Lender Committee with an equity commitment letter in an aggregate amount of not less than [235]2 Amount to be adjusted in light of debt financing amount available, discussed below (combined amount of debt and equity financing shall equal 700 million euros). million euros (the “Equity Contribution”) to finance the Exchange, and (ii) Newco and Meyers will undertake to provide the PIK Lender Committee, within 30 days of the RSA Effective Date, with binding and finalized debt commitment letters in an aggregate amount of not less than [465]3 Amount to be adjusted in light of equity contribution, discussed above. (combined amount of debt and equity financing shall equal 700 million euros) million euros (the “Debt Contribution”) to finance the Exchange. In each case, the letters provided to the PIK Lender Committee in (i) and (ii) above must be in form and substance reasonably acceptable to the PIK Lender Committee, in its sole discretion.

 

In respect of the Equity Contribution, Newco would retain the right to include one or more equity owners in addition to Meyers, but that will not be a condition to the Acquisition.

 

The Company and Meyers will hold weekly conference calls (or more frequently if requested by the PIK Lender Committee), commencing on the date hereof, to provide updates to the PIK Lender Committee on the progress of the financing process and the Restructuring.

 

The Equity Contribution and the Debt Contribution must have closed, and the Exchange consummated, within 60 days from the RSA Effective Date; provided that if the Exchange is consummated pursuant to a chapter 11 prepackaged plan of reorganization, this deadline shall be extended an additional 45 days so long as the chapter 11 cases are consummated within 60 days of the RSA Effective Date (subject to adjustment by the PIK Lender Committee, in its sole discretion, to account for implementation mechanics).

 

Releases: As of the Exchange Effective Date (including, for the avoidance of doubt, the settlement date, in the case the Exchange is implemented through an exchange offer and consent solicitation, and the effective date, in the case the Exchange is implemented through a chapter 11 plan) (i) any existing litigation involving the PIK Holders, the Company, Meyers, EBT and each of their respective affiliates, would be dismissed with prejudice, and (ii) the PIK Holders, the Company, Meyers, EBT and each of their respective employees, directors, partners, advisors, representatives and affiliates would be granted full and unconditional mutual releases as set forth in the Restructuring Support Agreement, which unconditional mutual releases shall be effective as of the Exchange Effective Date. A release by all parties in the litigation, EBT, and the holders of at least 90% of the principal amount of the PIK Loan would be required; provided, however, that Meyers and the Company would have the right, in their discretion, to reduce such 90% requirement.

 

For the avoidance of doubt, any litigation between the parties will continue (unless stayed by court order) until the consummation of the Exchange Effective Date.

 

No Bankruptcy Filing/Consent to Filing: Subject to the existing standstill agreement between the PIK Lender Committee and the Company (the “Standstill Agreement”), which shall govern prior to the RSA Effective Date, the Restructuring Support Agreement shall provide that neither the Consenting PIK Lenders, nor the Company, shall commence or support a chapter 11 case in respect of the Company, other than a case to implement the terms of the Exchange; provided, however, that if the Restructuring Support Agreement terminates by its terms (for example, if the Debt Contribution and/or the Equity Contribution cannot be obtained within the timelines or is terminated provided in the Restructuring Support Agreement), then either (a) the Company will (and Meyers will cause the Company to), within 5 business days of such termination, commence a voluntary chapter 11 case, or (b) the Company will (and Meyers will cause the Company to) consent to the commencement of an involuntary chapter 11 case by the Consenting PIK Lenders and the Company and Meyers will not seek to dismiss or otherwise challenge any such involuntary chapter 11 case after it has been commenced (or support any such in having such involuntary chapter 11 case be dismissed or challenged). The Restructuring Support Agreement will provide that the Company shall finance any chapter 11 case through a dividend paid to the Company not later prior to the commencement of the chapter 11 case to be arranged by Meyers and/or EBT in an amount satisfactory to the Consenting PIK Holders and set forth in the Restructuring Support Agreement.

 
Form of Transaction: The PIK Loan Agreement provides that the Company and PIK Holders owning at least 90% in principal amount of the PIK Loan may amend the PIK Loan Agreement in any respect, including reducing principal or interest with respect to all PIK Holders. The Exchange will be consummated “out of court” (e.g., through an exchange offer and consent solicitation process) without the necessity of a bankruptcy filing if the holders of at least 90% of the outstanding amount of the PIK Loan, all PIK Holders party to the litigation, the Company and Meyers agree. In the event, however, that this is not practicable, then the Exchange would be accomplished through a “pre-packaged” chapter 11 bankruptcy.
 
Transaction Documents: The transaction documents would include the Restructuring Support Agreement, an acquisition agreement, and a loan modification/exchange agreement and such other agreements as are necessary to implement the Exchange.4 TBD if exchange offer memorandum and consent solicitation statement is necessary, and if so, timeline to implement. If the Exchange is to be accomplished through a pre-packaged bankruptcy, those agreements would be executed prior to the filing of any Chapter 11 petition. The Restructuring Support Agreement must in any event be signed by Consenting PIK Holders constituting at least 66-2/3% in principal amount of the PIK Loan and a majority in number of the PIK Holders, as well as all parties to the existing litigation.
 
The transaction documents would contain representations, covenants, closing conditions and such other terms as are customary for transactions of this type, including that the closing is subject to obtaining the Equity Contribution and Debt Contribution.
 
There would be no purchase price adjustments. Newco would not be entitled to any indemnification from the Company in respect of the Acquisition.
 
The transaction documents would be negotiated and executed as soon as practicable. The outside date for the closing of the Exchange would be 30 days from the RSA Effective Date.
 
Miscellaneous:

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 that may be required to reflect tax, financing, accounting, and legal considerations.

 

Standstill Termination: The Company agrees to waive the three business day termination notice provision in the Standstill Agreement.

 

Fees/Expenses: The Company will reimburse the PIK Holders for the reasonable and documented fees and out-of-pocket expenses of the PIK Holders and their advisors relating to the negotiation, documentation and consummation of the Restructuring, including “on the clock” amounts as of the date hereof. Payments of any outstanding fees and expenses will be made on the RSA Effective Date (for all pre-RSA Effective Date fees and expenses) and on the Exchange Effective Date (for any and all unpaid pre-Exchange Effective Date fees and expenses).

 

Nature of this Term Sheet: This Term Sheet is non-binding and may be withdrawn at any time. 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. In no event shall this Term Sheet, the proposed terms of the Restructuring, the discussions with respect to this Term Sheet or any subsequent communications, letters of intent, draft documents or work product of the parties or their respective employees, directors, affiliates or advisors or other representatives be used in any litigation, bankruptcy or other proceedings or constitute an admission of any kind.

1 Company/Meyers to provide additional details about Newco/Acquisition (e.g., where Newco sits in relation to the Company and EBT).

2 Amount to be adjusted in light of debt financing amount available, discussed below (combined amount of debt and equity financing shall equal 700 million euros).

3 Amount to be adjusted in light of equity contribution, discussed above. (combined amount of debt and equity financing shall equal 700 million euros)

4 TBD if exchange offer memorandum and consent solicitation statement is necessary, and if so, timeline to implement.

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5. On April 20, 2017, EBH II furnished to the Committee, through their respective advisors, the following two alternative term sheet proposals:

HIGHLY CONFIDENTIAL
For Settlement Purposes Only
April 20, 2017

EB HOLDINGS II, INC.

Summary of Key Restructuring Terms

(Proposal A)

THIS TERM SHEET (THIS “TERM SHEET” CONTAINS THE PRINCIPAL TERMS AND CONDITIONS OF A POTENTIAL RESTRUCTURING TRANSACTION (THE “RESTRUCTURING”) AMONG (A) EB HOLDINGS II, INC., A NEVADA CORPORATION (THE “COMPANY”), (B) HOWARD M. MEYERS (“MEYERS”) AND (C) EACH OF THE BENEFICIAL OWNERS (OR INVESTMENT MANAGERS OR ADVISORS FOR THE BENEFICIAL OWNERS) OF THE COMPANY’S PIK LOAN FACILITY (THE “PIK LOAN”) IN THE ORIGINAL PRINCIPAL AMOUNT OF 600,000,000 EUROS WHO BECOME A PARTY TO A RESTRUCTURING SUPPORT AGREEMENT (THE “RESTRUCTURING SUPPORT AGREEMENT”) (AS DESCRIBED BELOW) (COLLECTIVELY, THE “CONSENTING PIK HOLDERS”).

THIS TERM SHEET HAS BEEN PRODUCED FOR DISCUSSION AND SETTLEMENT PURPOSES ONLY. THIS TERM SHEET IS NOT AN OFFER OR A SOLICITATION WITH RESPECT TO ANY LOAN INSTRUMENTS OR SECURITIES OF THE COMPANY. ANY SUCH OFFER OR SOLICITATION SHALL COMPLY WITH ALL APPLICABLE LAWS.

Restructuring:

The Loan Settlement: The Company would retire the entire PIK Loan (the “Loan Settlement”) for cash in the aggregate amount equal to 600 million euros (the “Settlement Amount”). For the avoidance of doubt, 100% of the Settlement Amount will be paid to the holders of the PIK Loan (the “PIK Holders) on account of their interests in the PIK Loan, and no portion of the Settlement Amount will be paid to any non-PIK Holder.

 

The Plan: The Loan Settlement would be accomplished through a pre-packaged bankruptcy plan (the “Plan”) under chapter 11 of the United States Bankruptcy Code. Upon confirmation of the Plan by the Bankruptcy Court (the “Plan Effective Date”), the outstanding shares of the Company would be cancelled and 100% of the new equity of the reorganized company would be issued to Meyers or a newly-formed company organized by Meyers (in either case, the “Plan Sponsor”). As soon as practicable, the parties would enter into the Restructuring Support Agreement setting forth the terms contained herein and otherwise in form and substance satisfactory to the parties.

 

Plan Funding: The Plan would be financed through a combination of equity and debt (the “Plan Funding”). The Plan Sponsor would provide up to 235 million euros in equity (the “Equity Contribution”) and would seek third-party debt financing for the balance of the funds necessary to consummate the Plan (the “Debt Financing”).

 

Simultaneous with, and as a condition to, the effectiveness of the Restructuring Support Agreement (the “RSA Effective Date”), (i) the Plan Sponsor will provide the ad hoc committee of PIK Holders (the “PIK Lender Committee”) with an equity commitment letter for the Equity Contribution and (ii) the Plan Sponsor will undertake to seek to provide the PIK Lender Committee, within 90 days of the RSA Effective Date, with binding and finalized debt commitment letters in an aggregate amount of not less than 365 million euros for the Debt Financing. In each case, the letters provided to the PIK Lender Committee in (i) and (ii) above must be in form and substance reasonably acceptable to the PIK Lender Committee, the Company and Meyers, in their sole discretion.

 

In respect of the Equity Contribution, the Plan Sponsor would retain the right to include one or more equity owners in addition to Meyers, but that will not be a condition to the Plan or the Loan Settlement.

 

Subject to the execution of a mutually satisfactory NDA/standstill agreement, the Company and Meyers will hold weekly conference calls, to provide updates to the PIK Lender Committee on the progress of the financing process and the Restructuring.

 

Plan Effective Date: The effective date of the Plan must occur within 120 days from the filing of a chapter 11 case (subject to extension by the PIK Lender Committee, in its sole discretion, to account for implementation mechanics or the satisfaction of the conditions to the confirmation of the Plan set forth below).

 

Releases: On the Release Effective Date, (i) any litigation involving the PIK Holders, the Company, Meyers and each of their respective affiliates, would be dismissed with prejudice, and (ii) the PIK Holders, the Company, Meyers and each of their respective employees, directors, partners, advisors, representatives and affiliates would be granted full, unconditional and irrevocable mutual releases as set forth in the Restructuring Support Agreement, which shall be effective upon the Release Effective Date. A release by all parties in the litigation and their respective affiliates and the holders of at least 95% of the principal amount of the PIK Loan would be required; provided, however, that Meyers and the Company would have the right, in their discretion, to reduce such 95% requirement. The “Release Effective Date” will be the date that is not later than 10 days following the delivery of the commitment(s) for the Debt Financing in accordance with the Restructuring Support Agreement.

 

For the avoidance of doubt, litigation among the parties will continue (unless stayed by court order) until the occurrence of the Release Effective Date; provided, however, that no party may seek to enjoin or challenge the restructuring transactions, including the Restructuring Support Agreement, set forth in this Term Sheet, and the releases provided for above shall continue to be binding and encompass any such litigation regardless of any developments once the Restructuring Support Agreement is executed.

 

No Bankruptcy Filing/No Consent to Filing: Subject to the existing standstill agreement between the PIK Lender Committee and the Company (the “Standstill Agreement”), which shall govern prior to the RSA Effective Date, the Restructuring Support Agreement shall provide that neither the Consenting PIK Lenders, nor the Company, shall commence or support a chapter 11 case in respect of the Company, other than a case to implement the terms of the Plan. Nothing set forth herein or in the Restructuring Support Agreement, except as expressly forth therein, will require the Company (or any other party) (a) following such termination to commence a voluntary chapter 11 case, (b) to consent to the commencement of an involuntary chapter 11 case by the Consenting PIK Lenders or (c) to not seek to dismiss or otherwise challenge any such involuntary chapter 11 case after it has been commenced (or not support any such involuntary chapter 11 case be dismissed or challenged). For avoidance of doubt, in no event will the Company be required to commence or consent to any bankruptcy filing in the absence of obtaining prior to such filing the releases and for the litigation to be dismissed with prejudice, each as provided for above.

 
Conditions to the Plan:

The Plan Funding, and the consideration contemplated, herein would be expressly conditioned upon: (i) confirmation of a chapter 11 plan (“Confirmation”) incorporating the terms of the Restructuring Support Agreement; and (ii) a final, non-appealable ruling by the bankruptcy court pursuant to 11 U.S.C. 505, contemporaneous with or prior to Confirmation, holding that there will be no increase in the Company’s U.S. federal corporate income taxes under section 988 of the Internal Revenue Code (relating to foreign currency gain) from the Loan Settlement. For the avoidance of doubt, in the event the Restructuring Support Agreement is terminated in accordance with its terms without the Plan Funding, Loan Settlement or Plan Confirmation having occurred thereunder, then unless otherwise expressly provided in the Restructuring Support Agreement and subject to the releases and dismissal of litigation provided above, the parties will be released from their obligations thereunder and free to prosecute their respective positions in the bankruptcy case.

 
Transaction Documents:

The transaction documents would include the Restructuring Support Agreement, an acquisition agreement, and a loan modification/exchange agreement and such other agreements as are necessary to implement the Plan. Those agreements would be executed prior to the filing of any chapter 11 petition. The Restructuring Support Agreement must, unless otherwise agreed by the Company and Meyers, in any event be signed prior to the RSA Effective Date by Consenting PIK Holders constituting at least 90% in principal amount of the PIK Loan and a majority in number of the PIK Holders, as well as all members of the PIK Lender Committee and all parties to the existing litigation.

 

The transaction documents would contain representations, covenants, closing conditions and such other terms as are customary for transactions of this type, including that the Plan is subject to obtaining the Plan Funding.

 

There would be no adjustments in respect of the Settlement Amount.

 

The transaction documents would be negotiated and executed as soon as practicable.

 
Miscellaneous:

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 that may be required to reflect tax, financing, accounting, and legal considerations.

 

Fees/Expenses: Subject to and simultaneously with the Release Effective Date, the Company would reimburse the PIK Holders for the reasonable and documented fees and out-of-pocket expenses of the PIK Holders and their advisors relating to the negotiation, documentation and consummation of the Restructuring, including “on the clock” amounts as of the date hereof, and would thereafter reimburse the PIK Holders for such amount, subject to a cap of $8.5 million.

 

Nature of this Term Sheet: This Term Sheet is non-binding and may be withdrawn at any time. 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. In no event shall this Term Sheet, the proposed terms of the Restructuring, the discussions with respect to this Term Sheet or any subsequent communications, letters of intent, draft documents or work product of the parties or their respective employees, directors, affiliates or advisors or other representatives be used in any litigation, bankruptcy or other proceedings or constitute an admission of any kind.

********

HIGHLY CONFIDENTIAL
For Settlement Purposes Only
April 20, 2017

EB HOLDINGS II, INC.

Summary of Key Restructuring Terms

(Proposal B)

THIS TERM SHEET (THIS “TERM SHEET” CONTAINS THE PRINCIPAL TERMS AND CONDITIONS OF A POTENTIAL RESTRUCTURING TRANSACTION (THE “RESTRUCTURING”) AMONG (A) EB HOLDINGS II, INC., A NEVADA CORPORATION (THE “COMPANY”), (B) HOWARD M. MEYERS (“MEYERS”) AND (C) EACH OF THE BENEFICIAL OWNERS (OR INVESTMENT MANAGERS OR ADVISORS FOR THE BENEFICIAL OWNERS) OF THE COMPANY’S PIK LOAN FACILITY (THE “PIK LOAN”) IN THE ORIGINAL PRINCIPAL AMOUNT OF 600,000,000 EUROS WHO BECOME A PARTY TO A RESTRUCTURING SUPPORT AGREEMENT (THE “RESTRUCTURING SUPPORT AGREEMENT”) (AS DESCRIBED BELOW) (COLLECTIVELY, THE “CONSENTING PIK HOLDERS”).

THIS TERM SHEET HAS BEEN PRODUCED FOR DISCUSSION AND SETTLEMENT PURPOSES ONLY. THIS TERM SHEET IS NOT AN OFFER OR A SOLICITATION WITH RESPECT TO ANY LOAN INSTRUMENTS OR SECURITIES OF THE COMPANY. ANY SUCH OFFER OR SOLICITATION SHALL COMPLY WITH ALL APPLICABLE LAWS.

Restructuring:  

The Loan Settlement: The Company would retire the entire PIK Loan (the “Loan Settlement”) for cash in the aggregate amount equal to 600 million euros (the “Settlement Amount”). For the avoidance of doubt, 100% of the Settlement Amount will be paid to the holders of the PIK Loan (the “PIK Holders”) on account of their interests in the PIK Loan, and no portion of the Settlement Amount will be paid to any non-PIK Holder.

 

The Plan: The Loan Settlement would be accomplished through a pre-packaged bankruptcy plan (the “Plan”) under chapter 11 of the United States Bankruptcy Code. Upon confirmation of the Plan by the Bankruptcy Court (the “Plan Effective Date”), the outstanding shares of the Company would be cancelled and 100% of the new equity of the reorganized company would be issued to Meyers or a newly-formed company organized by Meyers (in either case, the “Plan Sponsor”). As soon as practicable, the parties would enter into the Restructuring Support Agreement setting forth the terms contained herein and otherwise in form and substance satisfactory to the parties.

 

Plan Funding: The Plan would be financed through a combination of equity and debt (the “Plan Funding”). The Plan Sponsor would provide up to 235 million euros in equity (the “Equity Contribution”) and would seek third-party debt financing for the balance of the funds necessary to consummate the Plan (the “Debt Financing”).

 

Simultaneous with, and as a condition to, the effectiveness of the Restructuring Support Agreement (the “RSA Effective Date”), (i) the Plan Sponsor will provide the ad hoc committee of PIK Holders (the “PIK Lender Committee”) with an equity commitment letter for the Equity Contribution and (ii) the Plan Sponsor will undertake to seek to provide the PIK Lender Committee, within 90 days of the RSA Effective Date, with binding and finalized debt commitment letters in an aggregate amount of not less than 365 million euros for the Debt Financing. In each case, the letters provided to the PIK Lender Committee in (i) and (ii) above must be in form and substance reasonably acceptable to the PIK Lender Committee, the Company and Meyers, in their sole discretion.

 

In respect of the Equity Contribution, the Plan Sponsor would retain the right to include one or more equity owners in addition to Meyers, but that will not be a condition to the Plan or the Loan Settlement.

 

Subject to the execution of a mutually satisfactory NDA/standstill agreement, the Company and Meyers will hold weekly conference calls, to provide updates to the PIK Lender Committee on the progress of the financing process and the Restructuring.

 

Plan Effective Date: The Plan Effective Date must occur within 120 days from the filing of a chapter 11 case (subject to extension by the PIK Lender Committee, in its sole discretion, to account for implementation mechanics or the satisfaction of the conditions to the confirmation of the Plan set forth below)

 

Releases: Immediately upon the execution of the Restructuring Support Agreement (the “RSA Effective Date”), (i) any litigation involving the PIK Holders, the Company, Meyers, Eco-Bat Technologies Limited (“EBT”) and each of their respective affiliates, would be dismissed with prejudice, and (ii) the PIK Holders, the Company, Meyers and each of their respective employees, directors, partners, advisors, representatives and affiliates would be granted full, unconditional and irrevocable mutual releases as set forth in the Restructuring Support Agreement, which shall be effective upon the RSA Effective Date. A release by all parties in the litigation and their respective affiliates and the holders of at least 95% of the principal amount of the PIK Loan would be required; provided, however, that Meyers and the Company would have the right, in their discretion, to reduce such 95% requirement.

 

Optional Stalking Horse Bid: If the PIK Lender Committee so determines in its discretion, the definitive agreements with respect to the Plan Funding would contain a stalking horse provision, whereby the Company would offer the shares of the Company to any qualified person, pursuant to a process conducted by an independent investment banking firm acceptable to the Consenting PIK Holders. The Company would sell the shares to the bidder who makes the highest and best offer in the opinion of such investment banker (and subject to such other provisions as are required in a bankruptcy proceeding, if applicable). To facilitate this process, Meyers would cause RSR Corporation (“RSR”) to transfer the agreements relevant to EBT. Additionally, if desired, Meyers would be available to assist in the transition for a period of up to a year. If the shares are sold to a higher bidder, the Plan Sponsor would be entitled to (a) a stalking horse fee of 5% of the purchase price and (b) reimbursement of reasonable, documented out-of-pocket expenses in connection with the transaction, up to $8.5 million in the aggregate.

 

Consensual Transfer: If the Plan Sponsor remains the highest bidder but does not complete the Plan Funding as a result of its material breach or the failure to obtain the requisite debt financing (and the other conditions to the Plan Funding have been satisfied), the Company would transfer the Company shares consensually for the benefit of the PIK Holders, subject to appropriate releases. Meyers would cause RSR to transfer the agreements relevant to EBT. Also, if so desired, Meyers would be available to assist in the transition for up to a year.

 

Bankruptcy Filing: Subject to the existing standstill agreement between the PIK Lender Committee and the Company (the “Standstill Agreement”), which shall govern prior to the RSA Effective Date, the Restructuring Support Agreement shall provide that neither the Consenting PIK Lenders, nor the Company, shall commence or support a chapter 11 case in respect of the Company, other than a case to implement the terms of the Plan. If the Restructuring does not occur in accordance with the Restructuring Support Agreement, as the same may be amended from time to time, the parties would be released of their obligations to proceed and the Company would promptly, upon the request of the PIK Lender Committee, file for bankruptcy under chapter 11 and would not contest such a filing if initiated by the PIK Holders.

 
Conditions to the Plan:

The Plan Funding, and the consideration contemplated, herein would be expressly conditioned upon: (i) confirmation of a chapter 11 plan (“Confirmation”) incorporating the terms of the Restructuring Support Agreement; and (ii) a final, non-appealable ruling by the bankruptcy court pursuant to 11 U.S.C. 505, contemporaneous with or prior to Confirmation, holding that there will be no increase in the Company’s U.S. federal corporate income taxes under section 988 of the Internal Revenue Code (relating to foreign currency gain) from the Loan Settlement. For the avoidance of doubt, in the event the Restructuring Support Agreement is terminated in accordance with its terms without the Plan Funding, Loan Settlement or Plan Confirmation having occurred thereunder, then unless otherwise expressly provided in the Restructuring Support Agreement and subject to the releases and dismissal of litigation provided above, the parties will be released from their obligations thereunder and free to prosecute their respective positions in the bankruptcy case.

 
Transaction Documents:

The transaction documents would include the Restructuring Support Agreement, an acquisition agreement, and a loan modification/exchange agreement and such other agreements as are necessary to implement the Plan. Those agreements would be executed prior to the filing of any chapter 11 petition. The Restructuring Support Agreement must, unless otherwise agreed by the Company and Meyers, in any event be signed prior to the RSA Effective Date by Consenting PIK Holders constituting at least 90% in principal amount of the PIK Loan and a majority in number of the PIK Holders, as well as all members of the PIK Lender Committee and all parties to the existing litigation.

 

The transaction documents would contain representations, covenants, closing conditions and such other terms as are customary for transactions of this type, including that the Plan is subject to obtaining the Plan Funding.

 

There would be no adjustments in respect of the Settlement Amount.

 

The transaction documents would be negotiated and executed as soon as practicable.

 
Miscellaneous:

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 that may be required to reflect tax, financing, accounting, and legal considerations.

 

Fees/Expenses: Commencing upon the RSA Effective Date and continuing thereafter, the Company would reimburse the PIK Holders for the reasonable and documented fees and out-of-pocket expenses of the PIK Holders and their advisors relating to the negotiation, documentation and consummation of the Restructuring, including “on the clock” amounts as of the date hereof, subject to a cap of $8.5 million.

 

Nature of this Term Sheet: This Term Sheet is non-binding and may be withdrawn at any time. 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. In no event shall this Term Sheet, the proposed terms of the Restructuring, the discussions with respect to this Term Sheet or any subsequent communications, letters of intent, draft documents or work product of the parties or their respective employees, directors, affiliates or advisors or other representatives be used in any litigation, bankruptcy or other proceedings or constitute an admission of any kind.

********

6. On April 24, 2017, the Committee sent EBH II, through their respective advisors, the following term sheet counter proposal:

HIGHLY CONFIDENTIAL
For Settlement Purposes Only
April 24, 2017

EB HOLDINGS II, INC.

Summary of Key Restructuring Terms

THIS TERM SHEET (THIS “TERM SHEET” CONTAINS THE PRINCIPAL TERMS AND CONDITIONS OF A POTENTIAL RESTRUCTURING TRANSACTION (THE “RESTRUCTURING”) AMONG (A) EB HOLDINGS II, INC., A NEVADA CORPORATION (THE “COMPANY”), (B) HOWARD M. MEYERS (“MEYERS”) AND (C) EACH OF THE BENEFICIAL OWNERS (OR INVESTMENT MANAGERS OR ADVISORS FOR THE BENEFICIAL OWNERS) OF THE COMPANY’S PIK LOAN FACILITY (THE “PIK LOAN”) IN THE ORIGINAL PRINCIPAL AMOUNT OF 600,000,000 EUROS WHO BECOME A PARTY TO A RESTRUCTURING SUPPORT AGREEMENT (THE “RSA”), AS DESCRIBED BELOW (COLLECTIVELY, THE “CONSENTING PIK HOLDERS”).

THIS TERM SHEET HAS BEEN PRODUCED FOR DISCUSSION AND SETTLEMENT PURPOSES ONLY. THIS TERM SHEET IS NOT AN OFFER OR A SOLICITATION WITH RESPECT TO ANY LOAN INSTRUMENTS OR SECURITIES OF THE COMPANY. ANY SUCH OFFER OR SOLICITATION SHALL COMPLY WITH ALL APPLICABLE LAWS.

Restructuring:  

Parties: The “Parties” hereto are (i) the Company, (ii) Meyers, and (iii) those certain holders of the PIK Loan (the “PIK Holders”) who are managed accounts and/or affiliates of GoldenTree Asset Management LP, Alcentra Limited, Fortress Investment Group/Mount Kellet Capital Management, HIG Capital International Advisors LLP/Bayside Capital, Sound Point Capital Management, LP, and Värde Partners Europe Limited (such PIK Holders, the “PIK Lender Committee”). Collectively, the PIK Lender Committee holds approximately 76% of the PIK Loan.

 

The Loan Settlement: The Company would retire the entire PIK Loan (the “Loan Settlement”) for cash in the aggregate amount equal to [690]5 [To be discussed.] million euros (the “Settlement Amount”). For the avoidance of doubt, 100% of the Settlement Amount will be paid to the PIK Holders on account of their interests in the PIK Loan, and no portion of the Settlement Amount will be paid to any non-PIK Holder.

 

RSA: As soon as practicable, but not later than fourteen days from the date of this Term Sheet (unless extended with the express written consent of the Parties), the Company, Meyers, and the Consenting PIK Holders would enter into the RSA setting forth, among other things, the terms contained this Term Sheet and the remaining material terms of the Restructuring. The effective date of the RSA would be the “RSA Effective Date.”

 

The RSA must be (i) in form and substance satisfactory to the Company, Meyers, and the Consenting PIK Holders and (ii) signed, prior to the RSA Effective Date, by Consenting PIK Holders constituting at least (x) 66.67% in principal amount then outstanding of the PIK Loan and (y) a majority in number of the PIK Holders, which Consenting PIK Holders must include all PIK Holders (and their affiliates) that are parties to the pending litigation between, among others, the Parties (the “Litigation”).

 

The Plan and the Chapter 11 Case: The Loan Settlement would be accomplished through a pre-arranged bankruptcy plan that would incorporate the terms of the RSA (the “Plan”), as part of a case to be commenced by the Company under chapter 11 of the United States Bankruptcy Code (the “Chapter 11 Case”), which Chapter 11 Case would be filed within thirty days of the RSA Effective Date (unless extended with the consent of the Consenting PIK Holders) (such filing date, the “Petition Date”), provided, however, that for the avoidance of doubt, the RSA Effective Date shall, in all circumstances, be at least five business days prior to the Petition Date, unless such period is waived by the Consenting PIK Holders, the Company, and Meyers. As soon as practicable after the confirmation of the Plan by the bankruptcy court (the “Plan Effective Date”), the Settlement Amount would be paid and the outstanding shares of the Company would be cancelled and 100% of the new equity of the reorganized company would be issued to Meyers or a newly-formed company organized by Meyers (in either case, the “Plan Sponsor”).

 

The RSA would provide that the Company is to finance the Chapter 11 Case through a dividend paid to the Company (and arranged by Meyers and/or EBT) not later than the Petition Date, in an amount to be set forth in the RSA.

 

Plan Funding: The Plan would be financed through a combination of equity and debt (the “Plan Funding”). The Plan Sponsor would provide not less than 235 million euros in equity (the “Equity Contribution”) and would seek third-party debt financing of [455]6 [To be discussed, as per footnote 1 above.] million euros (the “Debt Financing”) to finance the Settlement Amount and to consummate the Plan.

 

Simultaneous with, and as a condition to, the RSA Effective Date, the Plan Sponsor will: (i) provide the Consenting PIK Holders with (a) an irrevocable and nonrefundable cash payment of not less than 20 million euros, which amount would be credited towards the Equity Contribution (the “Nonrefundable Payment”), and (b) an equity commitment letter for the remainder of the Equity Contribution (i.e., not less than 215 million euros) to be paid, pursuant to the Plan, no later than the Plan Effective Date; and (ii) undertake to seek to provide the Consenting PIK Holders, within forty-five days of the RSA Effective Date, final and binding commitment letters in respect of the Debt Financing, to be funded, pursuant to the Plan, no later than the Plan Effective Date. The letters to be provided to the Consenting PIK Holders in (i) and (ii) above must be in form and substance reasonably acceptable to the Consenting PIK Holders, the Company, and Meyers.

 

In respect of the Equity Contribution, the Plan Sponsor would retain the right to include one or more equity owners in addition to Meyers, but that will not be a condition to the Plan or the Loan Settlement.

 

Subject to the execution of a mutually satisfactory NDA/standstill agreement, which may be incorporated into the RSA, the Company and Meyers will hold weekly conference calls, to provide updates to the Consenting PIK Holders on the progress of the Plan Funding process and the Restructuring.

 

Plan Effective Date: The RSA would provide that the Plan Effective Date must occur within sixty-five days of the Petition Date (unless extended with the consent of the Consenting PIK Holders).

 

Releases: On the Plan Effective Date, and as part of the Plan, (i) the Litigation would be dismissed with prejudice, and (ii) the PIK Holders, the Company, Meyers and each of their respective employees, directors, partners, advisors, representatives and affiliates would be granted full, unconditional and irrevocable mutual releases ((i) and (ii), together, the “Mutual Release”). For the avoidance of doubt, the Mutual Release would require the release by (x) all parties to the Litigation and (y) PIK Holders representing at least 95% of the principal amount then outstanding of the PIK Loan; provided, however, that Meyers and the Company would have the right, in their discretion, to reduce such 95% requirement.

 

For so long as the RSA is effective, no Party may seek to enjoin or challenge the Restructuring, including the RSA. For the avoidance of doubt, the Litigation will continue (unless stayed by court order or otherwise agreed by the Parties) until the Plan Effective Date.

 

No Bankruptcy Filing/No Consent to Filing: Subject to the existing standstill agreement between the PIK Lender Committee and the Company (the “Standstill Agreement”), which Standstill Agreement would govern from the date of this Term Sheet until the RSA Effective Date, the RSA would provide that: (i) for so long as the RSA is effective, neither the Consenting PIK Lenders nor the Company would commence or support a chapter 11 case in respect of the Company other than the Chapter 11 Case to implement the Plan, and (ii) if the RSA terminates by its terms at any time after the RSA Effective Date and prior to the Petition Date, the Company and Meyers would either (a) commence a voluntary chapter 11 case or (b) consent to an involuntary chapter 11 case commenced by three or more of the Consenting PIK Holders.

 

For the avoidance of doubt, nothing in this Term Sheet prevents the termination of the Standstill Agreement according to its terms at any time prior to the RSA Effective Date.

 
Conditions to the Plan:

The Plan Funding (other than the Nonrefundable Payment), and the consideration contemplated in this Term Sheet would be expressly conditioned upon: (i) confirmation of the Plan (“Confirmation”) and (ii) the entry of an order by the bankruptcy court pursuant to 11 U.S.C. § 505, contemporaneous with or prior to Confirmation, determining that the Nonrefundable Payment shall be treated as a payment of interest for purposes of the U.S. federal income tax purposes related to AHYDO instruments (the “Section 505 Order”); provided, however, that the Company may, in its sole discretion, waive the condition set forth in (ii), above. The RSA would provide that the Company will file a motion seeking the Section 505 Order on the Petition Date; provided further, that such motion, and all related filings, shall be provided to tax and bankruptcy counsel for the Consenting PIK Lenders as soon as reasonably practicable prior to submission to the bankruptcy court (with such period to be no less than five business days prior to the Petition Date in the case of the initial motion seeking the Section 505 Order) for such counsel’s review, comment, and consent.

 

For the avoidance of doubt, if the RSA terminates in accordance with its terms prior to the Plan Effective Date (including because, among other things, the Company does not obtain the Plan Funding and/or the bankruptcy court does not enter the Section 505 Order (and such condition is not waived by the Company, as set forth in the proviso above)), the Parties will be released from their obligations under the RSA and be free to prosecute their respective positions in the Chapter 11 Case; provided, however, that, for the avoidance of doubt, the Nonrefundable Payment shall not be returned in such circumstance.

 
Transaction Documents:

The transaction documents would include the RSA, an acquisition agreement, and a loan modification/exchange agreement and such other agreements as are necessary to implement the Plan. Unless specified otherwise in this Term Sheet and/or the RSA, the transaction documents would be executed (or be in agreed form) prior to the Petition Date.

 

The transaction documents would contain representations, covenants, closing conditions and such other terms as are customary for transactions of this type, including that the Plan is subject to the Company obtaining the Plan Funding.

 

There would be no adjustments in respect of the Settlement Amount.

 
Miscellaneous:

Structuring: It is understood that this Term Sheet does not represent all of the material terms of the Restructuring and requires continued development by the Parties, as well as adjustments that may be required to reflect tax, financing, accounting, and legal considerations.

 

Fees/Expenses: The Company will reimburse the Consenting PIK Holders for the reasonable and documented fees and out-of-pocket expenses of the Consenting PIK Holders and their advisors relating to the negotiation, documentation, and consummation of the Restructuring. Payments of such fees and expenses will be made on the RSA Effective Date (for all pre-RSA Effective Date fees and expenses) and on the Plan Effective Date (for any and all remaining unpaid fees and expenses). For the avoidance of doubt, the amounts to be paid on account of such fees and expenses would be separate from the Settlement Amount.

 

Nature of this Term Sheet: This Term Sheet is non-binding and may be withdrawn at any time. No Party 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. In no event shall this Term Sheet, the proposed terms of the Restructuring, the discussions with respect to this Term Sheet or any subsequent communications, letters of intent, draft documents or work product of the Parties or their respective employees, directors, affiliates or advisors or other representatives be used in any litigation, bankruptcy or other proceedings or constitute an admission of any kind.

 

Shared Confidential Information: This Term Sheet constitutes “Shared Confidential Information,” as that term is defined in the Standstill Agreement.

5 [To be discussed.]

6 [To be discussed, as per footnote 1 above.]

********

7. On April 24, 2017, the Committee sent EBH II, through their respective advisors, the following letter terminating the Confidentiality Agreement:

To: EB Holdings II, Inc.
Attn.: Howard M. Myers
2777 Stemmons Freeway
Suite 2000
Dallas, TX 75207
United States

April 24, 2017

Dear Sirs:

Re: Termination Notice

Reference is made to the confidentiality and standstill agreement (the “Confidentiality and Standstill Agreement”), dated as of April 6, 2017, entered into among EB Holdings II, Inc. (the “Company”) and the Recipients (as defined therein). Capitalized terms used but not otherwise defined herein shall have the meaning assigned to such terms in the Confidentiality and Standstill Agreement.

By this notice (this “Termination Notice”), the undersigned Recipients, as Requisite Holders, notify the Company, pursuant clause (iii) of paragraph 11.1 of the Confidentiality and Standstill Agreement, that they unanimously desire to terminate the Confidentiality and Standstill Agreement. Pursuant to clause (iii) of paragraph 11.1 of the Confidentiality and Standstill Agreement, the Termination Date shall be Friday, April 28, 2017. Pursuant to paragraph 11.2 of the Confidentiality and Standstill Agreement, the Public Disclosure Date for purposes of issuing the Cleansing Document to cleanse the Disclosure Information shall be Monday, May 1, 2017. As required by paragraph 11.3 of the Confidentiality and Standstill Agreement, please provide the Recipients with a draft of the Cleansing Document by no later than Thursday, April 27, 2017.

The Recipients hereby reserve the right, in their sole discretion, to revoke this Termination Notice at any time prior to the Termination Date, by giving written notice of such revocation to the Company.

[SIGNATURE PAGES FOLLOW]

[signed by all Committee members]

********

8. On April 28, 2017, EBH II sent to the Committee, through their respective advisors, the following letter:

Paul Basta, Esq.
Kirkland & Ellis LLP
601 Lexington Avenue
New York, NY 10022
Paul.basta@kirkland.com

Neal Paul Donnelly, Esq.
Kirkland & Ellis LLP
30 St Mary Axe
London, EC3A 8AF
United Kingdom
Neal.donnelly@kirkland.com

Re: EB Holding II, Inc. (“EBH”)

Dear Paul and Neal:

We are in receipt of your clients’ April 24, 2017 notice of termination of the confidentiality/standstill agreement, a notice that was sent within hours of our receipt of your clients’ most recent restructuring proposal. Based on the content of that proposal and the near-contemporaneous termination notice, it appears that negotiations are or may soon be at an impasse.

Since 2013, EBH has worked diligently to achieve a consensual outcome (in lieu of pursuing other available alternatives including potentially, a voluntary bankruptcy) that would be consistent with the best interests of all stakeholders and would avoid years of costly litigation. To that end, EBH has made proposals in good faith both in process and substance for the benefit of its stakeholders. Unfortunately, rather than build on these efforts, your clients’ actions have been counter-productive, as is exemplified by their latest proposal, which among other things fails to recognize the significant risk, amount, and priority of potential tax liability upon a repayment or exchange of the PIKs and, unlike EBH’s proposals, is not designed to maximize financing probability. The latest proposal is neither acceptable nor constructive. As a result, EBH is withdrawing the proposals previously sent to you.

EBH has stood ready to pursue a consensual settlement if true good-faith negotiations could be convened. The continued threat to force EBH into an involuntary bankruptcy when the PIK debt itself is in dispute in the pending Nevada state court action is not productive. A contested bankruptcy proceeding, on top of the Nevada proceeding that your client commenced and that has now led to counterclaims that will go to trial, does not advance your client’s interests nor help to lead to a resolution. These facts similarly make your clients ineligible to commence an involuntary bankruptcy and open up the door for additional litigation and damages available under 11 U.S.C. 303(i) which, as you know, include attorney’s fees, proximate damages, and punitive damages.

Be assured, EBH remains hopeful that the parties can reach an agreement and continued discussions. However, further proposals reflecting the same unbalanced imposition of nearly all downside risk (specifically including the potentially significant tax liability that may occur upon any form of repayment of EBH’s debt), are not productive to reaching a consensual agreement.

                                                                                                                                                            Sincerely,

                                                                                                                                                            GARMAN TURNER GORDON LLP

                                                                                                                                                            GREGORY E. GARMAN, ESQ.

cc: EB Holdings II, Inc.’s Board of Directors

********

9. EBH II and the Committee agreed to include the following language in this release:

Certain U.S. tax liabilities may arise if EBH II restructures the Loan.

In connection with any potential restructuring of EBH II’s indebtedness (whether out of court or in bankruptcy), there is a possibility that EBH II may realize material taxable income under certain U.S. federal income tax rules related to the treatment of foreign currency gains. Any such taxable income would arise because EBH II’s functional currency is the U.S. dollar and the Loan is denominated in Euros. EBH II is a “C corporation” under the U.S. Internal Code; prior to January 1, 2013, EBH II was an “S corporation.” Although not free from doubt, it is possible that such income may be partially or fully offset by tax attributes made available in connection with such restructuring. The foregoing statement does not constitute tax advice by EBH II, nor should it be relied upon by any person.

********

For information contact: Teresa Zaidle at tzaidle@ebholdingsinc.com.

Contacts

EB Holdings II, Inc.
Teresa Zaidle, tzaidle@ebholdingsinc.com

Contacts

EB Holdings II, Inc.
Teresa Zaidle, tzaidle@ebholdingsinc.com