Adeptus DIPmotion by WSJ.com

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Louis R. Strubeck, Jr. (SBT 19425600) Kristian W. Gluck (SBT 24038921) John N. Schwartz (SBT 00797397) Liz Boydston (SBT 24053684) Timothy S. Springer (SBT 24088460) Norton Rose Fulbright US LLP 2200 Ross Avenue, Suite 3600 Dallas, Texas 75201-7932 Telephone: (214) 855-8000 Facsimile: (214) 855-8200 PROPOSED ATTORNEYS FOR THE DEBTORS AND DEBTORS IN POSSESSION

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF TEXAS DALLAS DIVISION In re: ADPT DFW HOLDINGS LLC, et al., 1

Debtors.

§ § § § § § §

Chapter 11 Case No. 17-31432 Joint Administration Pending

DEBTORS’ MOTION FOR INTERIM AND FINAL ORDER (I) AUTHORIZING DEBTORS TO OBTAIN POST-PETITION FINANCING; (II) GRANTING LIENS, SECURITY INTERESTS AND SUPERPRIORITY STATUS; (III) AUTHORIZING USE OF CASH COLLATERAL; (IV) AFFORDING ADEQUATE PROTECTION; (V) SCHEDULING A FINAL HEARING; AND (VI) MODIFYING AUTOMATIC STAY The above-captioned debtors and debtors in possession (collectively, the “Debtors”) file this Motion for Interim and Final Order (I) Authorizing Debtors to Obtain Post-Petition Financing; (II) Granting Liens, Security Interests and Superpriority Status; (III) Authorizing Use of Cash Collateral; (IV) Affording Adequate Protection; (V) Scheduling a Final Hearing; and (VI) Modifying Automatic Stay (the “DIP Financing Motion”), and would respectfully show the Court as follows:

The Debtors include all of the affiliated entities that are listed on the Appendix, attached hereto.

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JURISDICTION, VENUE, AND AUTHORITY

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157

and 1334. This matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2). This Court has constitutional authority to enter a final order on the DIP Financing Motion. 2.

Venue is proper in this District and this Court pursuant to 28 U.S.C. §§ 1408 and

The statutory bases for the relief requested herein are sections 105(a), 362(d),

1409.

363(b), 364(c) and (d), and 507(a) of title 11 of the United States code (the “Bankruptcy Code”); rules 4001, 6003, and 6004 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”); and Appendix H to the Local Bankruptcy Rules. II. 4.

PRELIMINARY STATEMENT

The Debtors require immediate authority to obtain post-petition financing so as to

provide sufficient liquidity to continue their operations in an orderly manner on a post-petition basis. The Debtors intend to borrow enough funds to operate in the ordinary course of business during these bankruptcy Cases, with the goal of achieving a sale of the businesses or substantially all assets. 5.

Accordingly, the Debtors are seeking authority to execute the Senior Secured

Super-Priority Debtor-in-Possession Credit Agreement (the “DIP Agreement”) 2 in substantially the same form as the agreement attached hereto as Exhibit B. The Debtors negotiated the DIP Agreement with Deerfield Management Company, L.P. (the “Administrative Agent”) and

Capitalized terms not otherwise defined in this DIP Financing Motion shall have the same meaning ascribed in the DIP Agreement.

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Deerfield Private Design Fund IV, L.P.; Deerfield Partners, L.P.; Deerfield International Master Fund, L.P.; and the other entities and financial institutions that may from time to time become post-petition lenders under the DIP Agreement (collectively, together with their respective successors and assigns, the “DIP Lenders”). In connection with the DIP Agreement, the Debtors are also seeking authority to execute the Senior Secured Super-Priority Debtor-in-Possession Security and Pledge Agreement (the “DIP Security Agreement”), in substantially the same form as the agreement attached hereto as Exhibit C. 3 Pursuant to the DIP Security Agreement, the Debtors would agree (and hereby propose) to grant to the DIP Lender the following protections, subject only to the Carve Out defined herein and Permitted Liens defined in the DIP Agreement: (a)

superpriority administrative claim for advances made under the DIP Agreement;

(b)

pursuant to 11 U.S.C. § 364(c)(2), perfected, first priority, senior security interests in and liens upon all DIP Collateral (as defined herein) wherever located that as of the Petition Date is not subject to valid, perfected, and non-avoidable liens or to valid and unavoidable liens in existence on the Petition Date that are perfected thereafter (with a priority that relates back to a date prior to the Petition Date) as permitted by section 546(b) of the Bankruptcy Code, excluding, however, any amounts that are recovered or otherwise received by the Debtors in respect of avoidance actions and any proceeds thereof;

(c)

pursuant to 11 U.S.C. § 364(d)(1), perfected first priority, senior priming security interests in and liens upon all DIP Collateral that is at any time subject to the Primed Liens, all of which Primed Liens shall be primed by and subject and subordinate to the security interests and liens granted to DIP Agent, for the benefit of DIP Secured Parties, pursuant to the DIP Agreement.

The Debtors anticipate needing $22.0 million in financing during the first

thirty (30) days of these Cases, and up to $45.0 million over the course of the thirteen-week

The DIP Agreement and the DIP Credit Agreement are subject to final negotiations between the Debtors and DIP Lenders. The Debtors will provide redline comparisons of material changes, if any, made to the DIP Agreement, the DIP Credit Agreement, or the Interim Order in connection with a hearing on the DIP Financing Motion.

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budget period described in the Budget attached as Exhibit D. The DIP Lenders have agreed to advance such funds on the terms set forth in the DIP Agreement, and as summarized below. III. 7.

BACKGROUND

On April 19, 2017 (the “Petition Date”), the Debtors commenced these cases (the

“Chapter 11 Cases”) by filing voluntary petitions for relief under chapter 11 of the Bankruptcy Code. 8.

The Debtors remain in possession of their assets and continue to operate and

manage their business as debtors in possession pursuant to 11 U.S.C. §§ 1107(a) and 1108. 9.

No trustee, examiner or committee of creditors has been appointed in any of the

Debtors’ Chapter 11 Cases. 10.

As set forth in detail in the Declaration of Andrew Hinkelman in Support of First

Day Motions (the “Hinkelman Declaration”), filed contemporaneously herewith, since being formed in 2002, the Debtors (and, together with their non-debtor affiliates, collectively, the “Adeptus Enterprise”), 4 have operated a patient-centered healthcare organization that provides emergency care through freestanding emergency rooms (“FSERs”), 5 which are open to the public 24 hours a day, seven days a week. The Adeptus Enterprise constitutes the oldest and largest network of freestanding emergency rooms in the United States and seeks to provide local 4

There are 63 non-debtor affiliates in the Adeptus Enterprise.

There are two types of FSERs: (i) a hospital outpatient department (“HOPD”) that is affiliated with a hospital system, and (ii) an independent freestanding emergency department (“IFSED”). Both HOPDs and IFSEDs are subject to, among other rules and regulations, the Emergency Medical Treatment and Labor Act (EMTALA). As a result of their affiliation with a hospital system, HOPDs are subject to additional rules and regulations, including those promulgated by the Centers for Medicare and Medicaid Services (“CMS”). HOPDs can bill and collect from government-funded health programs, including Medicare, Medicaid, and TRICARE, for facility fees in addition to seeking reimbursement for services rendered. IFSEDs, on the other hand, are not recognized by CMS as emergency departments and therefore cannot bill government-funded health programs for facility fees. Each state has adopted different rules related to the operation of IFSEDs. The Adeptus Enterprise includes both HOPDs and IFSEDs.

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communities with immediate and convenient access to quality emergency care in a patientfriendly, cost-effective setting. In 2016, approximately 408,000 patients visited facilities within the Adeptus Enterprise, which employs or engages as independent contractors approximately 3,824 physicians, nurses, radiology technicians, laboratory professionals, and administrative staff and consists of 203 entities organized under the laws of various states. 11.

In recent years, the Adeptus Enterprise has expanded significantly to include five

fully operational hospitals and 99 FSERs that are either wholly owned by the Debtors or by joint ventures between the Debtors and leading healthcare systems in Arizona, Colorado, and Texas (collectively, the “Joint Ventures”). 6 The Joint Ventures currently include joint ventures with Dignity Health in Arizona; the University of Colorado Health in Colorado Springs, Colorado and Denver, Colorado; and Texas Health Resources in Dallas, Texas. 7 Because the Debtors do not have the unitary authority to commence chapter 11 cases for the Joint Ventures, the Joint Ventures and their wholly-owned HOPDs are not debtors in these Chapter 11 Cases. Although the Joint Ventures are not debtors, they are critical components of the Adeptus Enterprise and are essential to the Debtors’ successful reorganization. 8 6

Prior to the Petition Date, the Adeptus Enterprise also included a joint venture in Louisiana (the “Louisiana JV”) with the unaffiliated Ochsner Clinic Foundation, a Louisiana non-profit corporation. Due to a lack of activity by the Louisiana JV, Ochsner Clinic Foundation and debtor ADPT New Orleans Holdings LLC agreed to terminate the Louisiana JV and all agreements related thereto. 7

The Adeptus Enterprise also includes a joint venture with Mount Carmel Health System in Ohio. However; as of the Petition Date, construction has not begun on either the hospital or any HOPD in Ohio.

In addition to these associations with the Joint Ventures, the Adeptus Enterprise has important relationships with three other non-debtor entities: National Medical Professionals of Texas, PLLC; National Medical Professionals of Houston, PLLC; and National Medical Professionals of Colorado, PLLC (collectively, the “NMPs”). Through an Exclusive Management and Administrative Services Agreement between each of the NMPs and Debtor First Choice ER, LLC (“First Choice”), First Choice provides management services for the day-to-day, non-clinical aspects of the NMPs, including assistance with the coding process, collections, recruitment, and bookkeeping. The Debtors also administer the NMPs’ payrolls. The Debtors were required to contract with the NMPs because the Corporate Practice of Medicine doctrines in Texas and Colorado prohibit business corporations from practicing medicine or

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Although the Adeptus Enterprise has shown impressive growth during the last

three years, the Debtors have recently faced increased competition, declining revenues, significant working capital demands, and issues with their revenue cycle management. These challenges caused significant strain on the Debtors’ liquidity and threatened the Debtors’ ability to continue operating as a going concern. After carefully considering all available strategic alternatives, the Debtors concluded that it was in the best interests of their creditors, physicians, staff, and patients to undergo a chapter 11 restructuring. IV. 13.

THE DEBTORS’ CAPITAL STRUCTURE

A more-complete description of the Debtors’ financial history and capital

structure is set forth in the Hinkelman Declaration, which is incorporated herein by reference. 14.

Pursuant to that certain Credit Agreement dated as of October 6, 2015 (as

amended, restated, supplemented, or otherwise modified from time to time, the “Prepetition Loan Agreement”), Deerfield Private Design Fund IV, L.P.; Deerfield Partners, L.P.; Deerfield International Master Fund, L.P.; and the other entities and financial institutions parties to the Prepetition Loan Agreement, as lenders (in such capacity, collectively and together with their successors and assigns, “Prepetition Secured Lenders”) and Deerfield Management Company, L.P., as administrative and collateral agent for Prepetition Secured Lenders (in such capacities, together with its successors and assigns, “Prepetition Agent”; and together with Prepetition Secured Lenders, the “Prepetition Secured Parties”), hold and made certain loans and other financial accommodations available to First Choice ER LLC (the “Prepetition Borrower”), which employing physicians to provide medical services. In those particular states, entities that employ physicians must be owned by a licensed medical doctor. Because the NMPs are independently owned, they are not debtors in these Chapter 11 Cases. However, the services provided by the NMPs are an essential element of the Adeptus Enterprise.

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obligations were guaranteed by Adeptus Health LLC (“Holdings”) and certain of Holdings’ subsidiaries party to the Prepetition Loan Agreement (together with Holdings, the “Prepetition Guarantors”). 15.

As of the Petition Date, the Borrower and the Guarantors (collectively, the

“Prepetition Loan Parties”) were jointly and severally indebted and liable to Prepetition Secured Parties under the Prepetition Loan Agreement, and any and all instruments, agreements, and documents related to or entered in connection with any of the foregoing (collectively with the Prepetition Loan Agreement and the Prepetition Security Documents (as hereinafter defined), the “Prepetition Loan Documents”) in the aggregate principal amount of $226,249,818.92 (such principal amount, together with all interest, fees, costs, expenses (including attorneys’ fees), and other amounts heretofore or hereafter accruing thereon or at any time chargeable to Debtors in connection with the Prepetition Loan Documents is collectively referred to herein as, the “Prepetition Secured Debt”). V. 16.

RELIEF REQUESTED

The DIP Financing Motion requests entry of an interim order, substantially in the

form attached hereto as Exhibit A (the “Interim Order”) and a final order (a “Final Order”) pursuant to sections 105, 361, 362, 363, and 364 of title 11 of the United States Code, 11 U.S.C. §§ 101, et seq. (the “Bankruptcy Code”), and in accordance with Rules 2002, 4001, 6004 and 9014 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”): (a)

authorizing Debtors to obtain post-petition financing (a) in an aggregate amount of up to $22.0 on an interim basis (the “Interim DIP Facility Amount”), and (b) in a total aggregate principal amount of up to $45.0 on a final basis (the “Final DIP

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Facility Amount” and, collectively with the Interim DIP Financing, the “DIP Facility”) from the DIP Lenders; 9 (b)

authorizing and approving the Debtors to (a) execute the DIP Agreement in substantially the same form attached hereto as Exhibit B and (b) perform such other acts or amendments as may be requested by the DIP Lenders as necessary or desirable, in DIP Lenders’ sole and absolute discretion but consistent with the Interim Order, in connection with the DIP Agreement and the Interim Order, including, without limitation, the delivery and execution, in connection with a Final Order, of final debtor-in-possession loan documentation acceptable the DIP Lenders in their sole and absolute discretion but consistent with the Interim Order and the DIP Agreement;

(c)

authorizing and directing Debtors to (a) pay the principal, interest, fees, expenses, and other amounts payable under the DIP Agreement as such become due, including, without limitation, reasonable fees incurred and disbursements made by DIP Lender for attorneys, advisors, accountants, and other consultants, and (b) pay the expenses set forth in the Budget (as hereinafter defined), in each case in accordance with this Interim Order;

(d)

approving, as applicable, Debtors’ grant of mortgages, security interests, liens and superpriority claims to the DIP Lender including (a) an allowed administrativeexpense priority claim pursuant to section 364(c)(1) of the Bankruptcy Code with priority over all administrative expenses including, without limitation, of the kinds specified in or arising or ordered under sections 105, 326, 328, 330, 331, 503(b), 506(c), 507(a), 507(b), 546(c), 726, 1102, 1104, 1113, or 1114 of the Bankruptcy Code or other applicable law, subject only to the Carve Out (as hereinafter defined); (b) valid, binding, continuing, enforceable, unavoidable, and automatically perfected first-priority security interests and liens pursuant to section 364(c)(2) of the Bankruptcy Code on all DIP Collateral (as defined in the DIP Agreement), whether now existing or hereafter acquired, of Debtors that was unencumbered by any security interest or lien as of the Petition Date, subject only to the Carve Out, excluding, however, any amounts that are recovered or otherwise received by the Debtors in respect of avoidance actions and any proceeds thereof (the “Unencumbered DIP Collateral Liens”); (c) valid, binding, continuing, enforceable, unavoidable, and automatically perfected priming liens pursuant to section 364(d) of the Bankruptcy Code (the “Priming Liens” and, together with the Unencumbered DIP Collateral Liens, the “DIP Liens”) on all DIP Collateral, subject only to the Carve Out, in each case as provided herein;

Pursuant to the DIP Agreement, all of Debtors are jointly liable for the obligations under the DIP Loan Agreements either as borrowers or guarantors.

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(e)

modifying the automatic stay to the extent necessary to implement and effectuate the DIP Agreement and the Interim Order;

(f)

approving the Debtors and Prepetition Secured Lenders agreement to the consensual use of cash collateral, which consists of funds held in the Debtors’ bank accounts or due on checks issued but not cashed;

(g)

approving the grant of replacement liens to the Prepetition Secured Lenders, pari pasu, in consideration for the use of cash collateral and their agreement to allow the DIP Liens for the DIP Lender; and

(h)

scheduling a final hearing (the “Final Hearing”) to consider entry of a Final Order granting the relief requested in the DIP Financing Motion on a final basis.

Compliance with Requirements of Bankruptcy Rule 4001.

17.

In accordance with Bankruptcy Rule 4001(c)(1)(B), the following is a concise

statement of the material provisions of the DIP Agreement and the Interim Order: Provision DIP Agreement Parties

Summary Borrowers: Adeptus Health, Inc. Guarantors: All other Debtors Admin. Agent:

Lenders:

Location DIP Agreement at 1 and signature pages; §§ 6.13–6.14

Deerfield Management Company, L.P. (in such capacity, together with its successors and assigns in such capacity, the “Administrative Agent”) Deerfield Private Design Fund IV, L.P.; Deerfield Partners, L.P.; Deerfield International Master Fund, L.P.; and the other entities and financial institutions that may from time to time become post-petition lenders under the DIP Agreement

Interest rate

The loans under the DIP Agreement shall bear a rate of interest of ten percent (10%) per annum, compounded on the basis of a 365-day or 366-day year, as the case may be. Interest shall be payable in-kind (and compounded) quarterly in arrears on the last business day of each calendar quarter and on the Termination Date (with interest accruing on any such interest that is added to the principal amount of the loans). The interest on the DIP Agreement shall increase to the rate of interest of twelve percent (12%) per annum upon the occurrence of an event of default under the DIP Agreement or any related documents and any default interest shall be payable in-kind (and compounded) upon demand (with interest accruing on any such interest that is added to the principal amount of the loans)..

DIP Agreement at 2 (definitions of “Applicable Rate,” “Default,” and “Event of Default” and “Interest Payment Date”), §§ 2.8, 2.10, 8.1.

Maturity

The DIP Agreement shall mature on the earliest (such earliest date, the “Maturity Date”) of (a) ninety (90) days after the commencement of the Cases, (b) the date of the substantial consummation (as defined in 11 U.S.C. § 1101(2)) of a plan of reorganization in these Cases that has been confirmed by an order of this Court, (c) the date of a sale of all or

DIP Agreement at 15 (definition of “Maturity Date”), § 2.7.

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substantially all of the assets of the Debtors, (d) the conversion of these Cases to a proceeding under Chapter 7 of the Bankruptcy Code, (e) an order is entered by the Bankruptcy Court dismissing these Cases, which does not contain a provision for termination of this Agreement and payment in full of the loans and other obligations under the DIP Agreement and other related documents prior to such dismissal and (f) such earlier date on which all loans and other obligations under the DIP Agreement and other related documents shall become due and payable in accordance with the terms of the DIP Agreement and the other related documents (including pursuant to any acceleration of any such loans or other obligations upon the occurrence of an event of default under the DIP Agreement or any related documents; provided, however, that if such date is not a business day, the Maturity Date shall be the next preceding business day. Events of default

a. Failure by the Borrower to pay principal, interest, fees or other amounts when due (subject to, with respect to amounts that are not principal, certain cure periods);

DIP Agreement Â§ 8.1.

b. Breach by any Debtor of certain affirmative covenants and any of the negative covenants; c. Failure to perform or observe any other non-payment, not immediate default affirmative covenant or negative covenant or agreement by any Debtor (subject to certain cure periods); d. Any representation or warranty made by any Debtor shall prove to have been incorrect or misleading in any material respect when made or deemed made; e. General cross-default provisions related to other indebtedness in an aggregate principal amount in excess of $1,500,000 and swap contracts; f.

[reserved]

g. Any writ or warrant of attachment against any material part of the property of any Debtor or any of its subsidiaries that is not released, vacated, or fully bonded within thirty (30) days after issuance or levying; h. There shall be entered against any Debtor or any of its subsidiaries (i) any final judgment or order for the payment of money in an aggregate amount (as to all such judgments and orders) in excess of $1,500,000 (to the extent not covered by independent third-party insurance as to which the insurer has been notified of the claim and does not dispute coverage) ; or (ii) any non-monetary final judgment that has, or could reasonably be expected to have, individually or in the aggregate, a material adverse effect, and in either case, (A) enforcement proceedings are commenced by any creditor upon such judgment or order, or (B) there is a period of ten consecutive days during which a stay of enforcement of such judgment, by reason of a pending appeal or otherwise, is not in effect; i.

Certain ERISA-related defaults;

j. Any provision of the DIP Agreement or any related document ceases to be in full force and effect, ceases to give the Administrative Agent any material part of the liens purported to be created thereby or any Debtor or any other person or entity contests in any manner the validity or enforceability of any provision of the DIP Agreement or any related DEBTORSâ&#x20AC;&#x2122; MOTION FOR INTERIM AND FINAL ORDER (I) AUTHORIZING DEBTORS TO OBTAIN POST-PETITION FINANCING; (II) GRANTING LIENS, SECURITY INTERESTS AND SUPERPRIORITY STATUS; (III) AUTHORIZING USE OF CASH COLLATERAL; (IV) AFFORDING ADEQUATE PROTECTION; (V) SCHEDULING A FINAL HEARING; AND (VI) MODIFYING AUTOMATIC STAY 28155307.8

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document or any Debtor denies that it has any or further liability or obligation under any provision of the DIP Agreement or any related document, or purports to revoke, terminate or rescind the DIP Agreement or any related document; k.

A Change of Control (as defined in the DIP Agreement) shall occur;

Specific cross-default provisions related to MPT Documents;

m. Certain Chapter 11 milestones shall fail to occur including (i) entry by this Court of Final Order on or before twenty-eight (28) days after the Petition Date, (ii) entry by this Court of an order approving a disclosure statement for a plan, acceptable to the Administrative Agent on or before thirty-five (35) days after the Petition Date, or (iii) entry by this Court of a plan of reorganization acceptable to the Administrative Agent on or before ninety (90) days after the Petition Date; n. Certain events in these Cases shall occur, including (i) the Interim Order or Final Order shall have been stayed, amended, modified, reversed, or vacated, (ii) appointment, or the filing of an application by any Debtor, of a chapter 11 trustee or an examiner with enlarged powers (beyond those set forth in 11 U.S.C. § 1106(a)(3) and (4)) under § 1106(b), (iii) conversion of these Cases to chapter 7, (iv) confirmation of a chapter 11 plan that does not (A) contain a provision for termination of the commitments under the DIP Agreement and the payment and performance in full of all of the loans and other obligations under the DIP Agreement and the related documents on or before the effective date of such plan upon entry thereof or (B) provide for the continuation of liens and security interests securing the loans and other obligations under the DIP Agreement and the related documents, (v) dismissal of these Cases that does not provide for termination of the commitments under the DIP Agreement and the payment and performance in full of all loans and other obligations under the DIP Agreement and the related documents upon entry thereof, (vi) entry of orders in these Cases, among other things, contrary to the rights and protections under the Interim Order or the Final Order; (vii) the Debtors do not oppose applications related to subparagraphs (i) to (vi), (viii) an action against initiated by any Debtor or any of its affiliates, officers or employees against the Administrative Agent or DIP Lenders or any related person thereto; (ix) termination or modification of exclusivity periods under 11 U.S.C. § 1121 without consent of the Administrative Agent; (x) relief from the automatic stay for any claim equal to or exceeding $50,000 in the aggregate (for all such claims of all creditors), (xi) the invalidation of (or contesting by any Debtor) of the DIP Liens or Prepetition Secured Liens, (xii) suspension, liquidation or sale (actual or attempted) of the Debtors’ ordinary course of business operations or all or substantially all of its assets, or (xiii) the DIP Liens shall fail or cease to be valid and perfected and first priority liens against the DIP Collateral. Liens

All loans and other obligations of the Debtors under the DIP Agreement and related documents at all times will be given superpriority claim status and will be secured by a first priority perfected senior security interest in and lien on (a “DIP Lien”) all property and assets (tangible, intangible, real, personal or mixed) of the Debtors, whether now owned or hereafter acquired, including, without limitation, accounts, cash, deposit accounts, inventory,

Interim Order ¶ 7 and DIP Security Agreement”

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equipment, capital stock in subsidiaries, investment property, instruments, chattel paper, real estate, leasehold interests, contracts, patents, copyrights, trademarks, causes of action, insurance, and general intangibles, and all products and proceeds thereof (the “DIP Collateral”), as follows: (a) pursuant 11 U.S.C. § 364(c)(1), be entitled to superpriority claim status in these Cases and no other claims shall be senior thereto or pari passu therewith; (b) pursuant to 11 U.S.C. § 364(c)(2), be secured by a perfected first priority lien on all unencumbered property of the Debtors wherever located, excluding, however, any amounts that are recovered or otherwise received by the Debtors in respect of avoidance actions and any proceeds thereof; (c) pursuant to 11 U.S.C. § 364(d)(1), perfected first priority, senior priming security interests in and liens upon all DIP Collateral that is at any time subject to the Primed Liens, all of which Primed Liens shall be primed by and subject and subordinate to the security interests and liens granted to the Administrative Agent, for the benefit of the holders of the loans and obligations under the DIP Agreement and the related documents, pursuant to the DIP Agreement and the related documents, the Interim Order and the Final Order. (d) except for the Carve-Out, no costs or expenses of administration shall be imposed against the Administrative Agent or DIP Lenders or any of the DIP Collateral under 11 U.S.C. §§ 105 or 506(c), or otherwise, and each Debtor hereby waives for itself and on behalf of its estates in bankruptcy, any and all rights under §§ 105 or 506(c), or otherwise, to assert or impose or seek to assert or impose, any such costs or expenses of administration against the Administrative Agent, the DIP Lenders or the DIP Collateral. Automatic Perfection

All of the liens and security interests described herein securing the DIP Facility shall be effective and perfected as of the entry of the Interim Order, and shall be maintained as effective and perfected, without the necessity of the execution, delivery, filing or recording of mortgages, security agreements, pledge agreements, financing statements, control agreements, equity certificates, equity certificate powers, intellectual property security agreements or notices or other agreements or documents.

DIP Order ¶ 14 and the DIP Security Agreement.

Carve Out

For purposes hereof, the “Carve Out” shall mean the following: (i) all statutory fees required to be paid by the Debtors to the Clerk of the Bankruptcy Court and to the Office of the U.S. Trustee in such amounts as agreed to by the U.S. Trustee or as determined by order of the Court under section 1930(a) of title 28 of the United States Code; (ii) all rent due and owing to MPT Lessors under the MPT Leases pursuant to Section 365(d)(3) of the Bankruptcy Code; and (iii) all accrued and unpaid reasonable fees, disbursements, costs, and expenses incurred by Professional Persons (defined below), which fees, costs and expenses (x) are within the Budget (as defined below), (y) are allowed by this Court or another court of competent jurisdiction at any time and (z) were incurred (regardless of when invoiced or applied for) at any time; provided that, without prejudice to the rights of the Professional Persons or the Debtors to contest any such objection, nothing in this Interim Order shall be construed to impair the ability of any party to object to any fees, expenses, reimbursements, or

DIP Order ¶ 9(a)

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compensation sought by any such Professional Persons. Borrowing limits

$6.0 million is the maximum amount for loans provided to the Debtors on the Petition Date or the entry of the Interim Order and then loans can be requested every two weeks thereafter until the Maturity Date; provided that that overall maximum principal amount of the loans funded pending entry of a Final Order shall not exceed $22.0 million and the maximum principal amount of the loans funded prior to the Maturity Date shall not exceed $45.0 million.

DIP Agreement § 2.1 and definitions of “Bankruptcy Court Order Period”, “Commitment”, “Interim Bankruptcy Court Order Entry Date Term Loan Amount,” and “Loan Commitment.”

B. Compliance with Requirements of Bankruptcy Rule 4001(c)(B)(i)-(xi). Provision

A grant of priority or a lien on property of the estates under § 364(c) or (d)

The providing of adequate protection or priority for a claim that arose before the commencement of the case, including the granting of a lien on property of the estates to secure the claim, or the use of property of the estates or credit obtained under § 364 to make cash payments on account of the claim A determination of the validity, enforceability, priority, or amount of a claim that arose before the commencement of the case, or of any lien securing the claim

Summary

(1) Superpriority administrative claim under § 364(c)(1); (2) first priority liens on unsecured DIP Collateral under § 364(c)(2); and (3) priming liens on secured DIP Collateral under § 364(d)(1) Prepetition secured lenders will receive replacement liens for use of cash collateral or for diminution in the value of Prepetition Secured Collateral.

Interim Order ¶7

Parties in interest with standing in the Cases (other than the Debtors) shall have thirty (30) days from the commencement of the Cases to contest (through an adversary proceeding) the findings described in the preceding sentence or otherwise to assert claims against the Primed Parties and all rights of such parties in interest and the Primed Parties with respect to such findings and claims are expressly reserved (provided that only matters raised in such adversary proceedings may survive the expiration of such thirty-day period).

Interim Order ¶ 21(c)

Location

In effect if interim approval is granted, but final relief is denied? Yes, to the extent of the interim draw amount

Interim Order Yes, to the extent ¶ 14(ii) of the diminution in value

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Provision

Summary

Location

A waiver or modification of Code provisions or applicable rules relating to the automatic stay A waiver or modification of any entity’s authority or right to file a plan, seek an extension of time in which the debtor has the exclusive right to file a plan, request the use of cash collateral under § 363(c), or request authority to obtain credit under § 364 The establishment of deadlines for filing a plan of reorganization, for approval of a disclosure statement, for a hearing on confirmation, or for entry of a confirmation order A waiver or modification of the applicability of nonbankruptcy law relating to the perfection of a lien on property of the estate, or on the foreclosure or other enforcement of the lien; A release, waiver, or limitation on any claim or other cause of action belonging to the estates or the trustee, including any modification of the statute of limitations or other deadline to commence an action

As needed to perfect liens granted pursuant to interim and/or final relief.

Interim Order ¶¶ 16(b), 17

N/A

In effect if interim approval is granted, but final relief is denied?

(1) entry of Final DIP Order within twenty- DIP eight (28) days; (2) entry of order approving Agreement disclosure statement within thirty-five (35) § 8.1(m) days; (3) entry of confirmation order within ninety (90) days

DIP Liens automatically perfected

Debtors’ claims regarding Prepetition Secured Obligations waived; Challenge periods established as to stipulations regarding Prepetition Secured Obligations

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Interim Order ¶ 15

Interim Order ¶¶ G, 21

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Provision

Summary

Location

The indemnification of any entity

Debtors are hereby authorized to and hereby agree, on a joint and several basis, to indemnify and hold harmless DIP Secured Parties and each of their respective affiliates, directors, officers, shareholders, partners, employees, agents, representatives, attorneys, consultants, advisors, professionals and controlling persons, and each of their successors and permitted assigns (each, an “Indemnified Party”) from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including, without limitation, attorney’s fees) or disbursements of any nature whatsoever which may be imposed on, incurred by or asserted against an Indemnified Party in any way relating to or arising out of any of the DIP Agreement or any other document or transaction contemplated hereby or any action taken or omitted by DIP Agent or DIP Lenders under any of the DIP Agreement. No Indemnified Party shall have any liability (whether direct or indirect, in contract, tort or otherwise) to any Debtor or any of its subsidiaries or any shareholders or creditors of the foregoing for or in connection with the transactions contemplated hereby, except to the extent such liability is determined by a court of competent jurisdiction in a final non-appealable judgment or order to have resulted solely from such Indemnified Party’s gross negligence or willful misconduct. All indemnities of the Indemnified Parties shall be secured by the DIP Collateral and afforded all of the priorities and protections afforded to the DIP Loans under this Interim Order and the DIP Agreement. Waiver of any claims against the DIP Collateral pursuant to 11 U.S.C. §§ 506(a) or 105(a) without the prior written consent of DIP Agent, and no such consent shall be implied from any action, inaction, or acquiescence by any DIP Secured Party.

Interim Order ¶ 22

A release, waiver, or limitation of any right under §506(c)

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In effect if interim approval is granted, but final relief is denied?

Interim Order ¶ 9(a)

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Provision

Summary

The granting of a lien on any claim or cause of action arising under §§ 544, 545, 547, 548, 549, 553(b), 723(a), or 724(a).

The Liens granted under the DIP Agreement N/A exclude any amounts that are recovered or otherwise received by the Debtors in respect of avoidance actions and any proceeds thereof.

VI.

Location

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In effect if interim approval is granted, but final relief is denied?

BASIS FOR RELIEF REQUESTED

Cash Collateral and Adequate Protection.

18.

Section 363(c) of the Bankruptcy Code provides that a debtor-in-possession may

use cash collateral if all interested entities consent or the court, after notice and a hearing, authorizes such use. 11 U.S.C. § 363(c). Section 363(e) of the Bankruptcy Code requires that the use of cash collateral be prohibited or conditioned as is necessary to provide adequate protection to persons that have an interest in cash collateral. In re DeSardi, 340 B.R. 790, 797 (Bankr. S.D. Tex. 2006) (“Adequate protection is . . . grounded in the belief that secured creditors should not be deprived of the benefit of their bargain”). Read together, § 363(c) and (e) of the Bankruptcy Code authorize a debtor-in-possession to use the cash collateral of a secured creditor if such creditor’s collateral is adequately protected. See In re Harrington & Richardson, Inc., 48 B.R. 431, 433 (Bankr. D. Mass. 1985) (finding that the court may authorize the use of cash collateral upon a showing that those with an interest in the cash collateral are adequately protected). 19.

Although the term “adequate protection” is not precisely defined in the

Bankruptcy Code, § 361 sets forth three non-exclusive examples of what may constitute adequate protection: (1) periodic cash payments equivalent to the decrease in value of the

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creditor’s interest in the property; (2) an additional or replacement lien on other unencumbered property of the debtor; or (3) other relief that provides the indubitable equivalent of the creditor’s property interest. United Sav. Ass’n of Tex. v. Timbers of Inwood Forest Assocs., Ltd. (In re Timbers of Inwood Forest Assocs., Ltd.), 793 F.2d 1380, 1388 (5th Cir. 1986). “[T]he debtor-inpossession has the burden of proof on the issue of adequate protection.”

In re Cafeteria

Operators, L.P., 299 B.R. 400, 406 (Bankr. N.D. Tex. 2003). 20.

Bankruptcy Rule 4001(b) permits a court to approve use of cash collateral during

the fifteen-day period following the filing of a motion only to the “extent necessary to avoid immediate and irreparable harm to the estate pending a final hearing.” Here, the Debtors require immediate access to the cash collateral to, among other things, fund any interim obligations while final approval of the proposed DIP Agreement is forthcoming. 21.

Accordingly, the Debtors request that the Court authorize the Debtors to

immediately borrow and use the cash collateral in the amounts set forth in the Budget, pending a final hearing. At the final hearing, the Debtors request that the relief requested herein be granted on a permanent basis. B.

Debtors Should Be Authorized to Obtain Post-Petition Financing.

22.

Section 364 of the Bankruptcy Code provides the requirements for a debtor to

obtain post-petition financing, stating: (a) If the trustee is authorized to operate the business of the debtor under section 721, 1108, 1203, 1204, or 1304 of this title, unless the court orders otherwise, the trustee may obtain unsecured credit and incur unsecured debt in the ordinary course of business allowable under section 503(b)(1) of this title as an administrative expense. (b) The court, after notice and a hearing, may authorize the trustee to obtain unsecured credit or to incur unsecured debt other than under subsection (a) of this DEBTORS’ MOTION FOR INTERIM AND FINAL ORDER (I) AUTHORIZING DEBTORS TO OBTAIN POST-PETITION FINANCING; (II) GRANTING LIENS, SECURITY INTERESTS AND SUPERPRIORITY STATUS; (III) AUTHORIZING USE OF CASH COLLATERAL; (IV) AFFORDING ADEQUATE PROTECTION; (V) SCHEDULING A FINAL HEARING; AND (VI) MODIFYING AUTOMATIC STAY 28155307.8

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section, allowable under section 503(b)(1) of this title as an administrative expense. (c) If the trustee is unable to obtain unsecured credit allowable under section 503(b)(1) of this title as an administrative expense, the court, after notice and a hearing, may authorize the obtaining of credit or the incurring of debt— (1) with priority over any or all administrative expenses of the kind specified in section 503(b) or 507(b) of this title; (2) secured by a lien on property of the estates that is not otherwise subject to a lien; or (3) secured by a junior lien on property of the estates that is subject to a lien. (d) The court, after notice and a hearing, may authorize the obtaining of credit or the incurring of debt secured by a senior or equal lien on property of the estates that is subject to a lien only if (A) the trustee is unable to obtain such credit otherwise; and (B) there is adequate protection of the interest of the holder of the lien on the property of the estates on which such senior or equal lien is proposed to be granted. 11 U.S.C. § 364(a)–(d). 23.

The sub-sections of § 364 work together in alternative form. If a debtor is unable

to obtain unsecured credit in the ordinary course of business under sub-section 364(a), the debtor may seek authority to obtain credit outside the ordinary course of business under subsection 364(b). Id. § 364(a)–(b). If that authority is insufficient, the debtor may seek authority to obtain credit with specialized priority or with security. Id. § 364(c)(1)–(3). If a debtor-inpossession cannot obtain post-petition credit on an unsecured basis, the Court may authorize the obtaining of credit or the incurring of debt, repayment of which is entitled to super-priority administrative expense status or is secured by a lien on unencumbered property, or a combination of the foregoing. Id. § 364(d). 24.

The statutory requirement for obtaining post-petition credit under Section 364 is a

finding, made after notice and hearing, that Debtors are “unable to obtain unsecured credit allowable under section 503(b)(1) of [the Bankruptcy Code].” In re Plabell Rubber Prods., Inc.,

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137 B.R. 897, 900 (Bankr. N.D. Ohio 1992) (the debtor must show “by a good faith effort that credit was not available without” the protections of § 364(c)).

Section 364 financing is

appropriate when the trustee or debtor-in-possession is unable to obtain unsecured credit allowable as an ordinary administrative claim. See In re Crouse Grp., Inc., 71 B.R. 544, 549, modified on other grounds, 75 B.R. 553 (Bankr. E.D. Pa. 1987) (secured credit under § 364(c)(2) is authorized, after notice and hearing, upon showing that unsecured credit cannot be obtained). 25.

Courts have articulated a three-part test to determine whether a debtor is entitled

to § 364(c) financing: (i) the debtor is unable to obtain unsecured credit under § 364(b) (i.e., by allowing a lender only an administrative claim); (ii) the credit transaction is necessary to preserve the assets of the estate; and (iii) the terms of the transaction are fair, reasonable, and adequate given the circumstances of the debtor and the proposed lender. See Crouse Grp., 71 B.R. at 549. Additionally, courts will generally accord significant weight to the necessity of the debtor obtaining post-petition financing in order to remain viable. See In re Snowshoe Co., 789 F.2d 1085, 1088 (4th Cir. 1986); In re Ames Dep’t Stores, 115 B.R. 34, 40 (Bankr. S.D.N.Y. 1990). 26.

Debtors’ immediate access to liquidity is essential to the Debtors’ operations and

the value of their assets. Absent access to the working capital financing that will be available to Debtors under the proposed DIP Agreement on an interim basis, Debtors will be unable to maintain their business operations or preserve the value of their assets. Debtors believe that the terms and conditions of the DIP Agreement, the proposed Interim Order, and the related relief requested herein are fair, reasonable, and in the best interests of Debtors, their estate, and their creditors.

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As discussed in further detail below, Debtors propose to obtain financing under

the DIP Agreement, the Interim Order, and the Final Order by providing security interests in and liens on the DIP Collateral pursuant to Bankruptcy Code § 364. The evidence presented at the interim and final hearings will show that a DIP Agreement of the type needed in these chapter 11 cases could not have been obtained under ordinary-course-of-business terms or on an unsecured basis as an administrative expense pursuant to § 364(b) or (c).

Therefore, Debtors seek

authorization to obtain credit or to incur debt (i) with priority over any or all administrative expenses of the kind specified 11 U.S.C. §§ 503(b) or 507(b) pursuant to § 364(c)(1) and (ii) secured by a lien on property of the estates that is not otherwise subject to a lien pursuant to § 364(c)(2). Additionally, with the consent of the Debtors Prepetition Secured Lenders, Debtors seek authorization to obtain credit or to incur debt secured by a senior, priming lien on property of the estates that is subject to a lien pursuant to § 364(d)(1). Debtors contend that there is adequate protection of the interest of the holder of the lien on the property of the estates on which such senior or equal lien is proposed to be granted. i. 28.

Debtors Do Not Have an Alternative to the DIP Agreement.

The evidence at the interim hearing will show that DIP Financing of the type

needed in this case could not have been obtained on an unsecured basis. Indeed, the potential sources of a credit facility for the Debtors, obtainable on an expedited basis and on reasonable terms, are practically nonexistent. In these circumstances, “[t]he statute imposes no duty to seek credit from every possible lender before concluding that such credit is unavailable.” In re Snowshoe Co., 789 F.2d at 1088. A debtor needs only demonstrate “by a good faith effort that credit was not available without” the protections of § 364(c). Id.; In re Plabell, 137 B.R. at 900.

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Where there are few lenders likely to be able and/or willing to extend the necessary credit to the debtor, “it would be unrealistic and unnecessary to require [the debtor] to conduct an exhaustive search for financing.” In re Sky Valley, Inc., 100 B.R. 107, 113 (Bankr. N.D. Ga. 1988), aff’d sub nom., Anchor Say. Bank FSB v. Sky Valley, 99 B.R. 117, 120 n.4 (N.D. Ga. 1989). Thus, the evidence introduced at the interim hearing will satisfy the requirement of § 364(c) that unsecured credit was unavailable. 29.

Because of Debtors’ acute liquidity crisis, the status of Debtors’ operations and

collateral base, the need to maintain key employees, and the impracticability of pursuing (and paying for) numerous prospective lenders, it was not practicable to try to “shop” the DIP Agreement to other possible lenders prior to the Petition Date. The DIP Lender is Debtors’ Prepetition Secured Lender. As a result, they are familiar with the Debtors’ business operations, corporate structure, financing arrangements, and collateral base, and has already performed due diligence in connection with the DIP Agreement, was able to offer DIP financing to meet the Debtors’ working capital needs on the terms, and within the time frame, that the Debtors needed. ii. 30.

The DIP Financing is Necessary to Preserve the Assets of the Estates.

The Court should authorize Debtors to enter into the DIP Agreement and obtain

the DIP Financing as an exercise of Debtors’ sound business judgment. Provided that an agreement to obtain secured credit does not run afoul of the provisions of, and policies underlying, the Bankruptcy Code, courts grant debtors considerable deference in acting in accordance with their sound business judgment in obtaining such credit. See In re Barbara K. Enters., Inc., No. 08-11474, 2008 WL 2439649, at *14 (Bankr. S.D.N.Y. June 16, 2008) (explaining that courts defer to a debtor’s business judgment “so long as a request for financing

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does not ‘leverage the bankruptcy process’ and unfairly cede control of the reorganization to one party in interest”); In re Ames Dep’t Stores, Inc., 115 B.R. 34, 40 (Bankr. S.D.N.Y. 1990) (“Cases consistently reflect that the court’s discretion under section 364 [of the Bankruptcy Code] is to be utilized on grounds that permit [a debtor’s] reasonable business judgment to be exercised so long as the financing agreement does not contain terms that leverage the bankruptcy process and powers or its purpose is not so much to benefit the estates as it is to benefit a party-in interest.”); In re Farmland Indus., Inc., 294 B.R. 855, 881 (Bankr. W.D. Mo. 2003) (“[T]the applicable factors can be synthesized . . . [t]hat the proposed financing is an exercise of sound and reasonable business judgment . . . .”). 31.

Debtors’ management exercised their best business judgment in negotiating the

DIP Agreement and the Interim Order that is presently before the Court. Debtors negotiated the DIP Agreement with the DIP Lender in good faith, at arm’s-length, and with the assistance of outside counsel, to obtain the required post-petition financing on terms as favorable as possible for the Debtor under the circumstances. 32.

One of the proposed uses of the requested financing is to pay all obligations

arising in the ordinary course of the Debtors’ business under the (a) Management Services Agreement, dated as of October 21, 2014, between Adeptus Health Management LLC and AGH Phoenix LLC, (b) Management Services Agreement, dated as of May 10, 2016, between Adeptus Health Management LLC and the FTH DFW Partners, LLC, and (c) Amended and Restated ER Facilities Management Services Agreement, dated February 1, 2017, between Adeptus Health Management LLC and UCHealth Partners LLC (collectively, the “Management Services Agreements”). These expenses are included in the proposed budget in Exhibit D and do include

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prepetition obligations. The Debtors’ performance under the Management Services Agreements is necessary to the successful operation of the Joint Ventures, and if the Debtors do not fulfill their obligations under these agreements, the other parties in the Joint Ventures could request adequate protection under these executory contracts or could seek to offset these expenses, thereby reducing the receivables which the Debtors would be able to collect. Moreover, because the Management Services Agreements are executory contracts, the expenses that the Debtors are seeking to pay would otherwise be amounts that the Debtors would have to cure upon the assumption of these agreements. 33.

Furthermore, pursuant to the following leases, various Debtors lease certain

facilities from MPT Operating Partnership, L.P. (“MPT Op”) and various of its subsidiaries lease (the “MPT Facilities”): (a) that certain Master Lease Agreement, dated August 29, 2013, as amended (as amended, the “2013 Master Lease”) by and between the MPT 2013 Lessors and certain of the Adeptus Lessees 10; (b) that certain Master Lease Agreement, dated September 26, 2014 (as amended, the “2014 Master Lease” and together with the 2013 Master Lease, the “Original Leases”) by and between MPT 2014 Lessors and certain of the Adeptus Lessees; (c) that certain Master Lease Agreement, dated April 20, 2015 (as amended, the “Colorado Master Lease”) by and between MPT Colorado Lessors and ADPT-CO MPT Holdings LLC (“Adeptus CO Holdco”); (d) that certain Master Sublease Agreement, dated April 20, 2015 (as amended, the “Colorado Master Sublease”) by and between Adeptus CO Holdco, UC Health Colorado Springs Hospital LLC and UC Health Broomfield Hospital LLC (collectively, the

References to “Adeptus Lessees” refers to the entities designated by Holdings to be a “Lessee” under the 2013 Master Lease, the 2014 Master Lease or the Colorado Master Lease, as context dictates.

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“Colorado JV Operator”); and (e) those certain subleases for the facilities leased for Dignity Health (Arizona) (the “Arizona JV”) and Texas Health Resources (Texas - Dallas Region) (the “Dallas JV”) with the applicable operator (collectively, the “Dallas and Arizona JV Subleases”, and together with the Original Leases, the Colorado Master Lease and the Colorado Master Sublease, the “MPT Leases”). Similar to the Management Services Agreements, the Debtors’ performance under the MPT Leases is necessary to the successful operation of the Joint Ventures. Pursuant to the Interim Order, the Debtors are requested authority to use proceeds of the DIP Facility to pay the MPT Leases and to reaffirm, ratify, and confirm the obligations under the respective MPT Leases.. MPT Op has consent to the relief requested herein. 34.

Accordingly, Debtors and their advisors determined in their business judgment

that the DIP Agreement provides a greater amount of financing on more favorable terms than any other reasonably available alternative. As noted above, the DIP Agreement will provide Debtors with the much-required access to the necessary liquidity, which Debtors and their advisors have independently determined should be sufficient to support Debtors’ ongoing operations and reorganization activities through the pendency of the chapter 11 cases. Thus, Debtors submit that entering into the DIP Agreement constitutes an exercise of the Debtors’ sound business judgment that should be approved by the Court. iii. 35.

The Terms of the DIP Agreement Are Reasonable.

The terms of the proposed DIP Agreement represent the most favorable terms to

Debtors on which the DIP Lenders would agree to make the DIP Agreement available. Debtors considered the terms described herein when determining in their sound business judgment that the DIP Agreement constituted the best terms on which Debtors could obtain the post-petition

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financing necessary to continue their operations and prosecute the chapter 11 cases.

The

availability of the DIP Facility is in the best interests of Debtors’ estate, creditors, and other parties in interest. C.

Modification of the Automatic Stay Is Warranted.

36.

The DIP Agreement and the proposed Interim Order contemplate that the

automatic stay arising under 11 U.S.C. § 362 shall be modified so that upon the occurrence of an Event of Default the Administrative Agent shall be entitled to an expedited hearing before the Court at which the Debtors shall be required to show cause as to why the automatic stay provisions of section 362 of the Bankruptcy Code, to the extent applicable, should not be immediately lifted, vacated, modified and/or terminated.

The Debtors submit that stay

modification provisions of this sort are ordinary and usual features of post-petition debtor-inpossession financing facilities; in Debtors’ business judgment, are reasonable under the present circumstances; and are permissible pursuant to Appendix H of the Local Bankruptcy Rules. Accordingly, Debtors’ request that the Court modify the automatic stay to the extent contemplated by the Interim and Final Orders. D.

The Lender Should Be Deemed a Good Faith Lender Under § 364(e).

37.

Section 364(e) of the Bankruptcy Code protects a good faith lender’s right to

collect on loans extended to a debtor, and its right in any lien securing those loans, even if the authority of the debtor to obtain such loans or grant such liens is later reversed or modified on appeal. Specifically, § 364(e) provides that: The reversal or modification on appeal of an authorization under this section [364 of the Bankruptcy Code] to obtain credit or incur debt, or of a grant under this section of a priority or a lien, does not affect the validity of any debt so incurred, or any priority or lien so granted, to an entity that extended such credit in good DEBTORS’ MOTION FOR INTERIM AND FINAL ORDER (I) AUTHORIZING DEBTORS TO OBTAIN POST-PETITION FINANCING; (II) GRANTING LIENS, SECURITY INTERESTS AND SUPERPRIORITY STATUS; (III) AUTHORIZING USE OF CASH COLLATERAL; (IV) AFFORDING ADEQUATE PROTECTION; (V) SCHEDULING A FINAL HEARING; AND (VI) MODIFYING AUTOMATIC STAY 28155307.8

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faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and the incurring of such debt, or the granting of such priority or lien, were stayed pending appeal. 11 U.S.C. § 364(e). 38.

The proposed financing offered by the DIP Lender is the result of arms’-length,

good faith negotiations between Debtors and the DIP Lender. The terms and conditions of the DIP Agreement are fair and reasonable, and the proceeds under the DIP Agreement will be used only for purposes that are permissible under the Bankruptcy Code. Further, no consideration is being provided to any party to the DIP Agreement other than as described herein. Accordingly, the Court should find that the Lenders is a “good faith” lender within the meaning of § 364(e) and is entitled to all of the protections afforded by that section. E.

Interim Approval of the DIP Agreement Is Appropriate.

39.

Bankruptcy Rule 4001(c)(2) provides that a final hearing on a motion to obtain

credit pursuant to 11 U.S.C. § 364 may not be commenced earlier than fourteen (14) days after the service of such motion. Upon request, however, the Court is empowered to conduct a preliminary expedited hearing on the motion and authorize the obtaining of credit to the extent necessary to avoid immediate and irreparable harm to a debtor’s estate. 40.

Pursuant to Bankruptcy Rules 4001(c) and (d), Debtors request that the Court

conduct an expedited interim hearing on the date hereof or as soon as practicable to consider entry of the Interim Order authorizing Debtors to borrow an amount sufficient to fund their operating expenses pending the Final Hearing on the DIP Financing. The Court may grant interim relief in respect of a motion filed pursuant to § 364 where, as here, interim relief is

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“necessary to avoid immediate and irreparable harm to the estates pending a final hearing.” Fed. R. Bankr. P. 4001(b)(2), (c)(2). 41.

Debtors and their estates will suffer immediate and irreparable harm if the interim

relief requested herein is not granted promptly.

Indeed, as explained in the Hinkelman

Declaration, unless the Court approves the Debtors’ interim access to the DIP Financing, the Debtors will not have access to any cash whatsoever. Accordingly, Debtors have an immediate need for access to liquidity to, among other things, permit the orderly continuation of the operation of their business, to make payroll, and to satisfy other working capital and operation needs, all of which are required to preserve and maintain Debtors’ going concern value for the benefit of all parties in interest. 42.

Accordingly, for all of the reasons set forth above, prompt entry of the Interim

Order is necessary to avert immediate and irreparable harm to Debtors’ estates and is consistent with, and warranted under, Bankruptcy Rules 4001(b)(2) and (c)(2). IV. 43.

REQUEST FOR FINAL HEARING

Pursuant to Bankruptcy Rule 4001(c)(2), Debtors request the Court to set a date

for the Final Hearing. V. 44.

WAIVER NOTICE AND STAY OF AN ORDER

To implement the foregoing successfully, the Debtors seek a waiver of the notice

requirements under Bankruptcy Rule 6004(a) and any stay of an order granting the relief requested herein pursuant to Bankruptcy Rule 6004(h), or otherwise.

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VI. 45.

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NOTICE

Notice of this Motion has been provided to (a) the Office of the United States

Trustee for the Northern District of Texas; (b) the Office of the Attorney General of the States of Arizona, Colorado, and Texas; (c) each of the Debtors’ forty (40) largest unsecured creditors; (d) Katten Muchin Rosenman LLP, 525 West Monroe Street, Chicago, IL 60661 (Attn: Peter Siddiqui), counsel to Deerfield Management Company, L.P.; (e) the Securities and Exchange Commission; and (f) the Internal Revenue Service. The Debtors submit that, in light of the nature of the relief requested, no other or further notice is necessary or required. VII. 46.

NO PRIOR REQUEST

No previous request for the relief sought herein has been made to this or any other

court. WHEREFORE, based upon the foregoing, the Debtors respectfully request that the Court enter an order substantially in the form annexed hereto as Exhibit A (a) granting the relief requested herein and (b) granting such other relief, at law or in equity, as may be deemed just and proper.

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Dated:

April 19, 2017 Dallas, Texas

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NORTON ROSE FULBRIGHT US LLP By: /s/ Timothy S. Springer Louis R. Strubeck, Jr. (SBT 19425600) louis.strubeck@nortonrosefulbright.com Kristian W. Gluck (SBT 24038921) kristian.gluck@nortonrosefulbright.com John N. Schwartz (SBT 00797397) john.schwartz@nortonrosefulbright.com Liz Boydston (SBT 24053684) liz.boydston@nortonrosefulbright.com Timothy S. Springer (SBT 24088460) tim.springer@nortonrosefulbright.com Norton Rose Fulbright US LLP 2200 Ross Avenue, Suite 3600 Dallas, Texas 75201-7932 Telephone: (214) 855-8000 Facsimile: (214) 855-8200 Proposed Attorneys for the Debtors and Debtors in Possession

DEBTORSâ&#x20AC;&#x2122; MOTION FOR INTERIM AND FINAL ORDER (I) AUTHORIZING DEBTORS TO OBTAIN POST-PETITION FINANCING; (II) GRANTING LIENS, SECURITY INTERESTS AND SUPERPRIORITY STATUS; (III) AUTHORIZING USE OF CASH COLLATERAL; (IV) AFFORDING ADEQUATE PROTECTION; (V) SCHEDULING A FINAL HEARING; AND (VI) MODIFYING AUTOMATIC STAY 28155307.8

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