Case Doc 6 Filed 10/31/18 Page 1 of 55 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

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1 Case Doc 6 Filed 10/31/18 Page 1 of 55 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE ) In re: ) Chapter 11 ) EGALET CORPORATION, et al., ) Case No ( ) ) ) Joint Administration Requested Debtors. 1 ) ) MOTION OF DEBTORS FOR ENTRY OF INTERIM AND FINAL ORDERS APPROVING (I) THE DEBTORS CONTINUED MAINTENANCE OF THEIR EXISTING BANK ACCOUNTS AND USE OF THEIR CASH MANAGEMENT SYSTEM, (II) THE PAYMENT OF CERTAIN OBLIGATIONS RELATED THERETO, (III) THE CONTINUATION OF INTERCOMPANY TRANSACTIONS, (IV) ADMINISTRATIVE EXPENSE STATUS FOR POSTPETITION INTERCOMPANY CLAIMS, (V) THE DEBTORS CONTINUED USE OF EXISTING BUSINESS FORMS, AND (VI) GRANTING THE DEBTORS A WAIVER OF THE REQUIREMENTS CONTAINED IN SECTION 345(B) OF THE BANKRUPTCY CODE The above-captioned debtors and debtors-in-possession (collectively, the Debtors ), by and through their undersigned proposed attorneys, hereby file this motion (this Motion ) for the entry of an interim order, substantially in the form attached hereto as Exhibit C (the Interim Order ), and a final order, substantially in the form attached hereto as Exhibit D (the Final Order, and together with the Interim Order, the Orders ), 2 pursuant to sections 105, 345(b), 363(b) and (c), 364, 503, and 507 of chapter 11 of title 11 of the United States Code (the Bankruptcy Code ), Rules 6003(b) and 6004(h) of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules ), and Rule of the Local Rules for the United States 1 2 The Debtors in these Chapter 11 Cases, along with the last four digits of their respective federal tax identification numbers, are: Egalet Corporation (5334), Egalet US Inc. (6649), and Egalet Limited (Foreign). The Debtors corporate headquarters and mailing address is located at 600 Lee Road, Suite 100, Wayne, PA The Debtors will provide a proposed form of Final Order to this Court, the Office of the United States Trustee for the District of Delaware, and all parties-in-interest upon appropriate notice in advance of the Final Hearing (as defined below)

2 Case Doc 6 Filed 10/31/18 Page 2 of 55 Bankruptcy Court for the District of Delaware (the Local Rules ): (i) approving the Debtors continued maintenance of their existing bank accounts and use of their cash management system (the Cash Management System ); (ii) authorizing the payment of certain obligations related thereto; (iii) authorizing the Debtors to continue engaging in Intercompany Transactions (as defined below) in the ordinary course of business; (iv) granting administrative expense status for Postpetition Intercompany Claims (as defined below); (v) approving the Debtors continued use of existing checks and business forms; (vi) granting the Debtors a waiver of the requirements contained in section 345(b) the Bankruptcy Code; (vii) scheduling a hearing to consider the relief requested herein on a final basis (the Final Hearing ); and (viii) granting related relief to the Debtors. In support of this Motion, the Debtors rely upon and incorporate by reference the Declaration of Robert Radie, Chief Executive Officer of Egalet Corporation in Support of Chapter 11 Petitions and First Day Motions (the First Day Declaration ), 3 filed contemporaneously herewith, and respectfully state as follows: JURISDICTION AND VENUE 1. This Court has jurisdiction over this matter pursuant to 28 U.S.C. 157 and 1334 and the Amended Standing Order of Reference from the United States District Court for the District of Delaware dated as of February 29, This is a core proceeding pursuant to 28 U.S.C. 157(b)(2). Pursuant to Rule (f) of the Local Rules of Bankruptcy Practice and Procedure of the United States Bankruptcy Court for the District of Delaware (the Local Rules ), the Debtors consent to the entry of a final judgment or order with respect to this Motion if it is determined that this Court would lack Article III jurisdiction to enter such final order or judgment absent the consent of the parties. 3 Each capitalized term used but not defined herein shall have the meaning ascribed to it in the First Day Declaration. 2

3 Case Doc 6 Filed 10/31/18 Page 3 of Venue of these chapter 11 cases (the Chapter 11 Cases ) and this Motion is proper in this District pursuant to 28 U.S.C and The statutory predicates for the relief sought hereby are sections 105, 345(b), 363(b) and (c), 364, 503, and 507 of the Bankruptcy Code, Bankruptcy Rules 6003(b) and 6004(h), and Local Rule BACKGROUND 4. On the date hereof (the Petition Date ), each of the Debtors commenced a voluntary case under chapter 11 of the Bankruptcy Code. The Debtors are authorized to operate their businesses and manage their properties as debtors-in-possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. No official committees have been appointed in these Chapter 11 Cases and no request has been made for the appointment of a trustee or an examiner. Contemporaneously herewith, the Debtors filed a motion seeking joint administration of their Chapter 11 Cases for procedural purposes only, pursuant to Bankruptcy Rule 1015(b). 5. On the Petition Date, the Debtors also filed their Joint Plan of Reorganization for Egalet Corporation and its Affiliated Debtors Under Chapter 11 of the Bankruptcy Code (the Plan ) and the related Disclosure Statement. Additional information regarding the Debtors businesses, capital structure, and the circumstances leading to the filing of these Chapter 11 Cases is set forth in the First Day Declaration. THE CASH MANAGEMENT SYSTEM 6. The Debtors Cash Management System is substantially similar to the system that the Debtors have used in the day-to-day operations of their businesses since January The Cash Management System constitutes an essential business practice and is substantially similar to systems utilized by comparable corporate enterprises. The Cash 3

4 Case Doc 6 Filed 10/31/18 Page 4 of 55 Management system enables the Debtors to monitor the collection and disbursement of funds and to facilitate cash monitoring, forecasting, and reporting. The Debtors third party logistics provider, a subsidiary of Cardinal Health 105, Inc., tracks all of the Debtors trade receipts related to the sale of pharmaceutical products, and provides such information to the Debtors. The Debtors finance, accounting, and treasury personnel implement controls for transferring and disbursing funds, including in connection with intercompany transactions, track all such transfers and disbursements, and regularly reconcile the Debtors books and records to ensure that all receipts, transfers, and disbursements are properly recorded. A. The Bank Accounts 7. The bank accounts through which the Cash Management System operates are part of a company-wide accounting and cash concentration and disbursement system used by the Debtors. A flowchart depicting the Cash Management System is attached hereto as Exhibit A. 8. The Debtors maintain five (5) deposit accounts, as listed in the table attached hereto as Exhibit B. The Debtors incorporated in the United States Egalet Corporation and Egalet US Inc. (the U.S. Debtors ) maintain four (4) of those deposit accounts at Wells Fargo Bank, N.A. (collectively, the U.S. Bank Accounts ). Egalet Limited, a Debtor incorporated in the U.K. that operates in Denmark, maintains one deposit account denominated in Danish Kroner (the Danish Bank Account, and together with the U.S. Bank Accounts, the Bank Accounts ) at Danske Bank (together with Wells Fargo Bank, N.A., the Banks ). All of the Bank Accounts are non-interest bearing accounts. i. U.S. Operating Accounts 4

5 Case Doc 6 Filed 10/31/18 Page 5 of One of the U.S. Bank Accounts is a lockbox account (ending in x2072) maintained by Egalet US Inc. (the Lockbox Account ). The Lockbox Account is the U.S. Debtors primary account for receipt of customer payments. The funds from the Lockbox Account are, in turn, transferred in the ordinary course of business to operating or payroll U.S. Bank Accounts to fund operations. As the Cash Management System does not incorporate any automatic sweeps or zero-balance accounts, funds from the Lockbox Account are directed to other accounts by the Debtors finance and treasury department in the ordinary course of business on an as-needed basis. 10. Egalet US Inc. maintains an operating account (ending in x2064) (the Egalet U.S. Operating Account ), which is funded from the Lockbox Account or, if there is a shortfall in funds from the Lockbox Account, from the Money Market Fund (as defined below) in the Investment Account (as defined below). The Egalet U.S. Operating Account is used primarily to pay the U.S. Debtors operating disbursements for trade payables. Certain miscellaneous cash receipts unrelated to pharmaceutical sales such as insurance refunds related to the Debtors auto fleet program or revenue sharing proceeds from Wells Fargo Bank, N.A. ( Wells Fargo ) related to the U.S. Debtors corporate credit card program are also funded into the Egalet U.S. Operating Account, and used for operating expenses. 11. Invoices for trade disbursements are subject to the review of the heads of the departments that have purchased the goods or services as well as several members of the finance department. In a given week, the Finance Operations Manager reviews invoices that have been approved by department heads and prepares a list of invoices that are both approved and due to be paid. The list is then reviewed by the Executive Director of Financial Planning and Analysis and the Chief Accounting Officer, and those employees determine which invoices 5

6 Case Doc 6 Filed 10/31/18 Page 6 of 55 should be paid that week. After that review, the Chief Accounting Officer approves transfers from the Lockbox Account (or the Money Market Fund in the Investment Account, if necessary) to the Egalet U.S. Operating Account via Wells Fargo s online platform in the aggregate amount necessary to cover the approved invoices. The Chief Accounting Officer then approves transfers from the Egalet U.S. Operating Account to the vendors as prepared by the Finance Operations Manager. The payments are populated on the online Wells Fargo Cash Electronic Office (the Wells Fargo CEO ) platform via an interface with the Debtor s Oracle enterprise resource planning platform. All members of the finance and treasury department are notified of all such transfers. 12. Egalet Corporation also maintains an operating account (ending in x2056) (the Egalet Corp Operating Account, and together with the Egalet U.S. Operating Account, the U.S. Operating Accounts ) which has been used primarily for scheduled debt-service payments on its 13% Senior Secured Notes, 5.50% Convertible Notes due 2020, and 6.50% Convertible Notes due 2024 (collectively, the Notes ) and other scheduled payments under the indentures governing the Notes (the Notes Payments ). Inflows into the Egalet Corp Operating account are also funded from the Lockbox Account or, if there is a shortfall in funds from the Lockbox Account, from the Money Market Fund in the Investment Account via an intermediate transfer to the Egalet U.S. Operating Account. In addition, from time to time, Egalet Corporation has sold shares of its common stock in at the market offerings as defined in Rule 415 under the Securities Act of 1933, as amended. The net proceeds of these offerings (after agreed commissions) have been deposited in the Egalet Corp Operating Account. 13. The indenture trustees for the Notes provide the Debtors with invoices for scheduled Notes Payments. To the extent funds in the Egalet Corp Operating Account are 6

7 Case Doc 6 Filed 10/31/18 Page 7 of 55 insufficient to cover the scheduled payments, the Chief Accounting Officer approves funds transfers initiated by the Finance Operations Manager through the Wells Fargo CEO platform from the Lockbox (or the Money Market Fund in the Investment Account, via an intermediate transfer to the Egalet U.S. Operating Account, if necessary) to the Egalet Corp Operating Account, typically one or two days prior to the scheduled due date. The Chief Accounting Officer then manually transfers funds from the Egalet Corp Operating Account to the relevant indenture trustee on the due date. ii. Payroll Account 14. Egalet US Inc. maintains a payroll account (ending in x5382) (the Payroll Account ) which is used to fund all U.S. employee payroll and related withholdings and taxes, as well as payments for certain employee benefits. Payroll for U.S. employees is made on the 15th and last day of the month (unless such days fall on weekends or holidays, in which case payroll is made on the business day before such weekend or holiday) and is processed through a third-party administrator, ADP, LLC ( ADP ). Prior to each scheduled payroll due date, the Chief Accounting Officer approves the transfers funds from the Lockbox Account (or the Money Market Fund in the Investment Account, via an intermediate transfer to the Egalet U.S. Operating Account, if necessary) to prefund the Payroll Account. Subsequently, two days in advance of the relevant payroll due date, ADP automatically draws from the Payroll Account as necessary to fund net employee pay, and, typically on the same day, makes a separate draw of funds for employee taxes and withholdings. ADP then distributes payroll to the employees through direct deposit, and withholdings to applicable third parties. 7

8 Case Doc 6 Filed 10/31/18 Page 8 of 55 iii. The Danish Bank Account 15. As explained in the First Day Declaration, Egalet Limited conducts limited operations in Denmark. Egalet, Limited maintains the Danish Bank Account at Danske Bank to conduct these limited operations. The Danish Bank Account is used for Danish receipts and collections primarily from Danish tax credits and value-added tax reimbursements and Danish disbursements, including payroll for the four employees located in Denmark Disbursements from the Danish Bank Account are managed in a similar manner to disbursements from the Egalet U.S. Operating Account. Invoices for trade payables are reviewed by personnel from the department that incurred the expense. A finance consultant in Denmark creates weekly lists of invoices that have been approved by the relevant personnel and due to be paid. The U.S. finance personnel then reviews those lists, and the Chief Accounting Officer approves the transfers to vendors through Danske Bank s online portal. 17. The mechanics for payroll funding for Egalet Limited are also similar to those of U.S. payroll. Two days prior to each monthly payroll date, Egalet Limited s third-party payroll processor, Bluegarden A/S, debits the Danish Bank Account as necessary to fund net employee pay, employee taxes and withholdings, and certain benefits. B. Investment Account 18. Egalet Corporation maintains an investment account (ending in x9461) (the Investment Account ) with Wells Fargo Clearing Services, LLC. 5 The Investment 4 5 Since 2016, the Debtors have not transferred cash from any of the U.S. Bank Accounts or the Investment Account to the Danish Bank Account to fund Egalet Limited s operations. The funds or other property in the Bank Accounts and the Investment Account are collateral securing the obligations under the 13% Senior Secured Notes issued by Egalet Corporation and guaranteed by the other Debtors, and the related indenture (the Secured Notes Indenture ). The U.S. Debtors banking and investment activities were previously with Silicon Valley Bank, but were transferred to Wells Fargo in mid At that time, no deposit account control agreements were put in place with respect to the U.S. Bank Accounts or the Investment Account. Nevertheless, the security interest of the collateral trustee under the Secured Notes Indenture (i) in the funds in the U.S. Bank Accounts, as proceeds of collateral and (ii) in the 8

9 Case Doc 6 Filed 10/31/18 Page 9 of 55 Account was funded with certain of the proceeds of its issuance of the Notes. There are no other regular inflows into the Investment Accounts. 19. The Debtors investment policy requires that funds be invested only in fixed income instruments denominated and payable in U.S. dollars, including: Obligations of the U.S. government and its agencies; Money market funds of at least $5.0 billion registered according to SEC Rule 2a-7 of the Investment Company Act of 1940 and rated AAA or equivalent by at least one Nationally Recognized Statistical Rating Organization ( NRSRO ); Federal Deposit Insurance Corporation ( FDIC )-backed bank debt issued by banks as either corporate notes or certificates of deposits under the statutory minimum for FDIC guaranty (250K) or fully backed for principal and interest by FDIC; and Non-Financial corporate obligations including Commercial Paper issued by companies with financials meeting designated pre-approval criteria and minimum short-term credit ratings of A-1/P-1/F1 from at least two NRSROs. 20. Funds in the Investment Account are invested in (i) a Goldman Sachs money market fund (the Money Market Fund ) and (ii) U.S. treasuries and corporate notes (the Marketable Securities ). The investments in the Money Market Fund are highly liquid, and are used to fund the U.S. Debtors operations, payroll, or debt service when the Lockbox Accounts do not have sufficient funds. The need to utilize funds from the Money Market Fund is assessed by the Debtors finance and treasury department, and funds are transferred to the Egalet U.S. Operating Account at the direction of the Chief Accounting Officer. Pursuant to a standing instruction with Wells Fargo Clearing Services, LLC, funds from the Money Market Fund are available upon the Debtors request, and may be transferred to the Egalet U.S. Operating Account on the same day as requested. property in the Investment Account, as proceeds of collateral or investment property, remains perfected due to the filing of UCC financing statements. 9

10 Case Doc 6 Filed 10/31/18 Page 10 of The Marketable Securities are less liquid than the Money Market Fund. Although the Marketable Securities are categorized as available for sales securities, the Debtors practice is generally to hold them to maturity. The proceeds paid at maturity are invested in the Money Market Fund. Historically, some of those proceeds have been reinvested in Marketable Securities based on the Debtors outlook for liquidity requirements and in consultation with Wells Fargo Clearing Services, LLC as investment advisor. C. Corporate Card Collateral Account 22. Egalet US Inc. provides corporate credit cards to most of the U.S. employees for payment of business-related expenses through the WellsOne Commercial Card program. Pursuant to this program, Wells Fargo provides Egalet US Inc. with a $400,000 aggregate credit line, and Egalet US Inc. pays Wells Fargo monthly from the Egalet U.S. Operating Account for all expense charges of U.S. employees. Given that the success of the Debtors business is heavily dependent on its sales personnel, and such personnel must incur significant travel and entertainment expenses to be effective, the availability of corporate credit card program is of vital importance. That availability is conditioned upon the maintenance of collateral to secure Egalet US Inc. s credit line. Thus, Egalet US Inc. maintains a restricted certificate of deposit account at Wells Fargo Bank, N.A. (ending in x1527) (the Credit Card Collateral Account ), that serves as security for the corporate credit card program pursuant to a security agreement. The Credit Card Collateral Account is an interest-bearing account, and interest is deposited into the Egalet Corp Operating Account. D. Intercompany Transactions 23. In the ordinary course of business, the Debtors engage in business transactions with each other (collectively, the Intercompany Transactions ), some of which result in intercompany receivables and payables (collectively, the Intercompany Claims ). 10

11 Case Doc 6 Filed 10/31/18 Page 11 of 55 Accordingly, at any given time there may be Intercompany Claims owing by one Debtor to another Debtor. 24. The Company keeps meticulous records of the Intercompany Transactions that allow for the Debtors to readily ascertain, trace, and account for all such transactions and any resulting Intercompany Claims. Each Intercompany Transaction is accounted for in the appropriate books and records of the Debtors. To ensure that each Debtor will not fund the operations of another entity at the expense of its creditors, the Debtors will continue to maintain the records of such transfers in the event that this Court authorizes the continuation of the Intercompany Transactions on the terms set forth in this Motion. 25. The Intercompany Transactions are necessary to ensure that the Debtors have sufficient funding, goods, or services to continue operating in the ordinary course. For example, in the ordinary course of business, the U.S. Debtors perform sales, marketing, regulatory and other functions related to the commercialization of intellectual property owned by Egalet Limited Pursuant to certain shared services agreements, or in accordance with the Debtors policy of paying U.S. dollar denominated debt from U.S. accounts, the expenses of those functions are paid from the Egalet Inc. Operating Account. Those payments result in the recording of Intercompany Claims of Egalet US Inc. against Egalet Limited as book entries. Further, when cash from the Money Market Fund in the Investment Account is transferred to the Egalet Inc. Operating Account for payment of trade payables, an Intercompany Claim of Egalet Corporation against Egalet US Inc. is booked. Similarly, when cash from the Lockbox Account is transferred to the Egalet Corp Operating Account for Notes Payments, the Debtors record an Intercompany Claim of Egalet US Inc. against Egalet Corp. Intercompany Claims in favor of 11

12 Case Doc 6 Filed 10/31/18 Page 12 of 55 Egalet Corporation against Egalet US Inc. and Egalet Limited are recorded in connection with certain stock compensation to employees as well as the Debtors employee stock purchase plan. 26. The system of Intercompany Transactions is important to the Debtors ability to manage their operations. If the Intercompany Transactions were to be discontinued, the Cash Management System and the Company s operations would be unnecessarily disrupted to the detriment of the Debtors and their creditors and other stakeholders. E. Business Forms 27. In the ordinary course of business, the Debtors use a number of business forms, including, but not limited to, checks, letterhead, and invoices (the Business Forms ). If the Debtors were required to obtain new business forms as a result of the filing of these Chapter 11 Cases, the Debtors would incur significant expense and attendant delay in effectuating their ordinary course, prepetition business transactions. Under the proposed form of Interim Order, the Debtors will begin printing Debtor-in-Possession on all checks which the Debtors or their agents print themselves within ten days of the entry of such order, but request that the Court authorize the continued use of Business Forms that have already been printed, rather than incur the expense and delay of ordering new business forms. RELIEF REQUESTED 28. The Debtors seek the entry of an Order approving: (i) the continued maintenance of the Debtors existing Bank Accounts, Credit Card Collateral Account and Investment Account and continued use of the Cash Management System, including authority to close existing Bank Accounts and/or open new bank accounts with one or more of the Banks or a different banking institution as the Debtors may deem necessary and appropriate; (ii) the payment of certain obligations related thereto; (iii) the continuation of the Intercompany Transactions among the Debtors, in each case as described in this Motion; (iv) administrative 12

13 Case Doc 6 Filed 10/31/18 Page 13 of 55 expense status for Postpetition Intercompany Claims (as defined below); (v) the Debtors continued use of Business Forms; and (vi) granting the Debtors a waiver of the requirements contained in section 345(b) of the Bankruptcy Code on an interim basis as provided for herein. 29. The Debtors also request permission to pay the Banks any ordinary course prepetition or postpetition service fees and other fees, costs, charges, and expenses, in accordance with the terms of applicable account agreements between the Banks and the Debtors, which currently amount to less than $2,000 on a monthly basis. 6 BASIS FOR RELIEF REQUESTED A. The Continued Use of the Existing Bank Accounts and Cash Management System Is Essential To the Debtors Ongoing Business Operations 30. To supervise the administration of chapter 11 cases, the Office of the United States Trustee (the U.S. Trustee ) has established cash management-related operating guidelines for debtors-in-possession. Among other things, these guidelines require a chapter 11 debtor to: (i) close all existing bank accounts and open new debtor-in-possession bank accounts; and (ii) obtain new business forms such as checks that bear the designation debtor-inpossession, the bankruptcy case number, and the type of account for each debtor-in-possession account. These requirements were established to demarcate prepetition and postpetition 6 Nothing contained in this Motion or any actions taken by the Debtors pursuant to relief granted in the Order is intended or should be construed as: (i) an admission as to the validity of any particular claim against a Debtor entity; (ii) a waiver of the Debtors rights to dispute any particular claim on any grounds; (iii) a promise or requirement to pay any particular claim; (iv) an implication or admission that any particular claim is of a type specified or defined in this Motion; (v) a request or authorization to assume any agreement, contract, or lease pursuant to section 365 of the Bankruptcy Code; (vi) a waiver or limitation of the Debtors rights under the Bankruptcy Code or any other applicable law; or (vii) a concession by the Debtors that any liens (contractual, common law, statutory, or otherwise) satisfied pursuant to this Motion are valid, and the Debtors expressly reserve their rights to contest the extent, validity, or perfection or seek avoidance of all such liens. If this Court grants the relief sought herein, any payment made pursuant to the Court s order is not intended and should not be construed as an admission as to the validity of any particular claim or a waiver of the Debtors rights to subsequently dispute such claim. 13

14 Case Doc 6 Filed 10/31/18 Page 14 of 55 transactions and operations and to prevent the inadvertent postpetition payment of prepetition claims through the presentation of checks drawn prior to the filing of a bankruptcy petition. 31. As explained above, the Debtors Cash Management System has been employed in substantially similar form since January 2015, and is an essential business practice. The use of this system provides numerous benefits to the Debtors, including the ability to ensure cash availability and to reduce administrative expenses by facilitating the movement of funds. The Debtors successful transition into chapter 11, as well as the preservation and enhancement of their going concern value, would be markedly more difficult if the Debtors cash management procedures are disrupted. 32. Preserving a business as usual atmosphere and avoiding the unnecessary distractions that inevitably would be associated with any substantial disruption of the Cash Management System will facilitate the Debtors stabilization of their postpetition business operations. The commencement of the Debtors Chapter 11 Cases will undoubtedly place a substantial strain on their relationships with certain of their vendors that are vital to the Debtors continued operations and to the achievement of a successful resolution of these cases. Requiring the Debtors to open new debtor-in-possession bank accounts could cause delay and confusion among such vendors, potentially straining these relationships. Indeed, among other things, a transition to new debtor-in-possession bank accounts could disrupt the Debtors efforts to collect funds at this crucial juncture. Therefore, the Debtors should be permitted to continue to manage their cash and transfer monies among the Bank Accounts and Investment Account as needed in accordance with the Cash Management System. The Debtors will continue to maintain detailed records of all fund transfers. 14

15 Case Doc 6 Filed 10/31/18 Page 15 of Pursuant to Local Rule (a), upon motion of the debtor, the Court may, without notice and hearing, permit the debtor to... use its existing bank accounts. DEL. BANKR. L.R (a). In other cases, this Court has recognized that the strict enforcement of bank account closing requirements is not uniformly required. 34. Allowing the Debtors to utilize their Cash Management System is entirely consistent with applicable provisions of the Bankruptcy Code. Section 363(c)(1) of the Bankruptcy Code authorizes a debtor-in-possession to use property of the estate in the ordinary course of business without notice or a hearing. 11 U.S.C. 363(c)(1). The purpose of section 363(c)(1) of the Bankruptcy Code is to provide a debtor-in-possession with the flexibility to engage in ordinary course transactions required to operate its business, without unneeded oversight by the debtor s creditors or having to obtain court approval. See, e.g., In re Lavigne, 114 F.3d 379, 384 (2d Cir. 1997); In re Roth Am., Inc., 975 F.2d 949, 952 (3d Cir. 1992). 35. The Debtors ability to continue using the Cash Management System and engage in related routine transactions falls within the parameters of section 363(c) of the Bankruptcy Code. See, e.g., In re Charter Co., 778 F.2d 617, 621 (11th Cir. 1985) (holding that a debtor s request for authority to continue using its existing cash management system is consistent with section 363(c)(1) of the Bankruptcy Code). 36. Moreover, to the extent that use of the existing Cash Management System is beyond the ordinary course of the Debtors businesses, such use is permitted by sections 363(b)(1) and 105(a) of the Bankruptcy Code. Section 363(b)(1) of the Bankruptcy Code provides, in relevant part, that [t]he trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate. 11 U.S.C. 363(b)(1). Section 105(a) of the Bankruptcy Code further provides that this Court may issue any order... 15

16 Case Doc 6 Filed 10/31/18 Page 16 of 55 that is necessary or appropriate to carry out the provisions of [the Bankruptcy Code] U.S.C. 105(a). 37. Where there is a valid business justification for using property outside the ordinary course of business, the law presumes that, in making a business decision the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company. In re Integrated Res., Inc., 147 B.R. 650, 656 (S.D.N.Y. 1992) (quoting Smith v. Van Gorkom, 488 A.2d 858, 872 (Del. 1985)). 38. Bankruptcy courts routinely permit chapter 11 debtors to continue using their existing cash management systems, generally treating requests for such relief as relatively simple matters. See In re Baldwin-United Corp., 79 B.R. 321, 327 (Bankr. S.D. Ohio 1987); see also In re Columbia Gas Sys., 997 F.2d 1039, 1061 (3d Cir. 1993) (recognizing that a requirement to maintain all accounts separately would be a huge administrative burden and economically inefficient ); Charter Co., 778 at 621 (holding that allowing the debtors to use their prepetition routine cash management system was entirely consistent with applicable provisions of the Bankruptcy Code). 39. This Court has granted debtors the authority to continue using their existing bank accounts and cash management system in a number of large chapter 11 cases. See, e.g., In re Open Road Films, LLC, Case No (LSS) [Docket No. 117] (Bankr. D. Del. October 1, 2018); In re RM Holdco LLC, Case No (MFW) [Docket No. 153] (Bankr. D. Del. September 4, 2018); In re Heritage Home Group LLC, Case No (KG) [Docket No. 167] (Bankr. D. Del. August 24, 2018); In re EBH Topco, LLC, Case No (BLS) [Docket No. 213] (Bankr. D. Del. June 26, 2018); In re Gibson Brands, Inc., Case No

17 Case Doc 6 Filed 10/31/18 Page 17 of 55 (CSS) [Docket No. 190] (Bankr. D. Del. May 22, 2018); In re Appvion, Inc., Case No (KJC) [Docket No. 224] (Bankr. D. Del. October 30, 2017). 40. Accordingly, the Debtors should be authorized to maintain their existing Bank Accounts and continue using the Cash Management System. B. Payment of Bank Fees Is Necessary and Appropriate 41. In addition, the Debtors request that the Banks be permitted to charge back returned items, such as prepetition checks returned as unpaid, against amounts on deposit in the Bank Accounts, regardless of whether such amounts were deposited before or after the Petition Date and regardless of whether the returned checks relate to prepetition or postpetition items. The Debtors also request authority to pay both prepetition and postpetition service and other fees, costs, charges, and expenses to which such banks may be entitled under their contractual arrangements with the Debtors. The Debtors require this relief to minimize the disruption of the Cash Management System and to assist them in achieving a smooth transition to operating under chapter This Court has granted similar relief in other chapter 11 cases. See, e.g., In re Radioshack Corp., Case No (BLS), [Docket No. 880] (Bankr. D. Del. Mar. 9, 2015); In re Endeavour Operating Corp., Case No (KJC), [Docket No. 149] (Bankr. D. Del. Nov. 6, 2014). Accordingly, this Court should authorize the Debtors to pay the bank fees and other obligations relating to the operation of their Cash Management System. C. Continuation of the Intercompany Transactions Is Necessary and Appropriate 43. The Intercompany Transactions reduce the administrative costs incurred by the Debtors. The Debtors maintain strict records of all transfers of cash and can readily ascertain, trace, and account for all Intercompany Transactions. By allowing the Debtors to properly account for postpetition accounts payable and accounts receivable, the continuation of 17

18 Case Doc 6 Filed 10/31/18 Page 18 of 55 the Intercompany Transactions will help ensure that each Debtor is only obligated to pay for services that it actually uses. If the Intercompany Transactions were to be discontinued, the Cash Management System and related administrative controls would be disrupted, thereby causing irreparable harm to the Debtors business operations. 44. As described above, at any given time, there may be amounts outstanding among the Debtors as a result of the Intercompany Transactions. The Cash Management System and the Intercompany Transactions are designed to ensure that funding is available to support the operations of the Debtors. Accordingly, the Debtors submit that continuing the Intercompany Transactions as described in this Motion is in the best interests of the Debtors and their estates. 45. Although the Debtors expect fully to be able to operate in bankruptcy and that the costs of administering their estates will not have a material impact on their creditors recoveries, as an additional measure to ensure a Debtor will not fund the operations of another Debtor, the Debtors request that, pursuant to section 364(c)(1) of the Bankruptcy Code, all claims of one Debtor against another Debtor arising after the Petition Date as a result of Intercompany Transactions (collectively, the Postpetition Intercompany Claims ) be granted administrative expense status with priority over any and all administrative expenses of the kind specified in sections 503(b) and 507(b) of the Bankruptcy Code, subject and subordinate only to: (i) the priorities, liens, claims, and security interests granted under any order authorizing the use of cash collateral and/or the contractual agreements memorializing such financing or use; and (ii) any other valid liens. 46. This Court has granted similar relief in other comparable multi-debtor chapter 11 cases. See, e.g., In re RM Holdco LLC, Case No (MFW) [Docket No. 153] (Bankr. D. Del. September 4, 2018); In re Molycorp, Inc., Case No (CSS), 18

19 Case Doc 6 Filed 10/31/18 Page 19 of 55 [Docket No. 271] (Bankr. D. Del. July 22, 2015); In re Source Home Entertainment, LLC, Case No (KG), [Docket No. 42] (Bankr. D. Del. June 24, 2014); In re Longview Power, LLC, Case No (BLS), [Docket No. 1077] (Bankr. D. Del. Apr. 1, 2014). D. Continued Use of Business Forms Is Necessary and Appropriate 47. It is imperative that the Debtors be permitted to continue using their existing Business Forms. A substantial amount of time and expense would be required to print new business forms and stationery (and to dispose of existing forms and stationery). Local Rule (a) provides that this Court may, without notice and a hearing, permit a debtor to use its existing checks, but shall require the designation of Debtor in Possession and a corresponding bankruptcy case number on checks that it reorders postpetition. See Del. Bankr. L.R (a). In compliance with Local Rule (a), under the proposed form of Order, the Debtors will begin printing Debtor-in-Possession on all checks which the Debtors or their agents print themselves within ten days of the entry of such order. 48. In addition, the Debtors anticipate taking other measures to address the policies underlying the U.S. Trustee s cash management-related operating guidelines, including alerting parties-in-interest that they are in bankruptcy and seeking to prevent the unauthorized payment of prepetition debts by providing the Banks with notice to stop payment on all outstanding checks and drafts issued prepetition, except as otherwise permitted by order of this Court. 49. This Court has granted debtors the authority to continue using their existing business forms in a number of chapter 11 cases. See, e.g., In re Open Road Films, LLC, Case No (LSS) [Docket No. 117] (Bankr. D. Del. October 1, 2018); In re Altegrity, Inc., Case No (LSS), [Docket No. 199] (Bankr. D. Del. Mar. 15, 2015); In re Radioshack Corp., Case No (BLS), [Docket No. 880] (Bankr. D. Del. Mar. 9, 2015). 19

20 Case Doc 6 Filed 10/31/18 Page 20 of 55 E. Cause Exists For Waiver of Section 345(b) Requirements 50. The Debtors respectfully request: (i) authorization to continue to deposit funds in accordance with existing practices under the Cash Management System, subject to any reasonable changes to the Cash Management System that the Debtors may implement (the Deposit Practices ); and (ii) an initial 60-day waiver of the investment deposit requirements of section 345(b) of the Bankruptcy Code, to the extent such requirements are inconsistent with the Deposit Practices, without prejudice to the Debtors right to seek further waivers from the U.S. Trustee without further order of this Court. As indicated above, the Debtors deposit funds and manage their cash in accordance with the Cash Management System. 51. Section 345(a) of the Bankruptcy Code authorizes a debtor-in-possession to make deposits or investments of estate money in a manner as will yield the maximum reasonable net return on such money, taking into account the safety of such deposit or investment. 11 U.S.C. 345(a). For deposits or investments that are not insured or guaranteed by the United States or by a department, agency, or instrumentality of the United States or backed by the full faith and credit of the United States, section 345(b) of the Bankruptcy Code provides that the estate must require from the entity with which the money is deposited or invested a bond in favor of the United States secured by the undertaking of an adequate corporate surety, unless the court for cause orders otherwise. 11 U.S.C. 345(b). 52. In determining whether cause exists, this Court should consider the totality of the circumstances, including the following factors: A. the sophistication of the debtor s business; B. the size of the debtor s business operations; C. the amount of the investments involved; 20

21 Case Doc 6 Filed 10/31/18 Page 21 of 55 D. the bank ratings (Moody s and Standard and Poor) of the financial institutions where the debtor-in-possession s funds are held; E. the complexity of the case; F. the safeguards in place within the debtor s own business of insuring the safety of the funds; G. the debtor s ability to reorganize in the face of a failure of one or more of the financial institutions; H. the benefit to the debtor; I. the harm, if any, to the estate; and J. the reasonableness of the debtor s request for relief from section 345(b) requirements in light of the overall circumstances of the case. See In re Service Merchandise Co., 240 B.R. 894, 896 (Bankr. M.D. Tenn. 1999) The Debtors believe that they are in substantial compliance with the requirements of section 345(b) of the Bankruptcy Code because all of the U.S. Bank Accounts and the Credit Card Collateral Account are presently maintained with Wells Fargo Bank, N.A., which is a U.S. Trustee-authorized depository institution. The Investment Account is maintained with Wells Fargo Clearing Services, LLC, and the funds in the Investment Account are maintained in safe, liquid securities (including U.S. Treasuries) pursuant to a highly conservative internal investment policy. This Danish Bank Account is maintained at Danske Bank, which is the largest bank in Denmark and a major retail bank in northern Europe. 54. Nevertheless, out of an abundance of caution, the Debtors request an initial 60-day waiver of the investment deposit requirements of section 345(b) of the Bankruptcy 7 Congress enacted the section 345(b) requirements primarily to apply in the case of a smaller debtor with limited funds that cannot afford a risky investment to be lost. H.R. Rep , 103d Cong., 2d Sess. 224 (Oct. 4, 1994); 140 Cong. Rec. H10767 (Oct. 4, 1994). Thus, Congress added the waiver clause in section 345(b) of the Bankruptcy Code to allow the courts to approve investments other than those permitted by section 345(b) for just cause. Id. 21

22 Case Doc 6 Filed 10/31/18 Page 22 of 55 Code, to the extent such requirements are inconsistent with the Deposit Practices. 8 Requiring the Debtors to modify their Cash Management System to strictly comply with the investment deposit requirements under section 345(b) of the Bankruptcy Code would only distract the Debtors management and cause the Debtors estates to incur potentially substantial costs unnecessarily to the detriment of all creditors. Given the complexity of the Debtors Cash Management System and the relative security of the Bank Accounts, the Credit Card Collateral Account, and the Danish Bank Account, the Debtors submit that cause exists to grant an interim waiver of the requirements of section 345(b) in the manner requested herein. 55. Finally, in other large, complex chapter 11 cases, this Court has granted requests to approve the use of deposit and investment practices that do not comply strictly with section 345(b) of the Bankruptcy Code but that, as here, are safe and prudent. See, e.g., In re Colt Holding Company LLC, Case No (LSS), [Docket No. 73] (Bankr. D. Del. June 16, 2015) (granting an initial 60-day extension to comply with section 345(b) without prejudice to seek an additional extension or a waiver of the requirements); In re Allied Nevada Gold Corp., Case No (MFW), [Docket No. 56] (Bankr. D. Del. Mar. 11, 2015) (granting an initial 60-day extension to comply with section 345(b) without prejudice to file a motion seeking authority to deviate from such requirements). F. Failure To Grant the Relief Requested In the First 21 Days Would Cause Immediate and Irreparable Harm 56. Bankruptcy Rule 6003(b) allows the use of property of the estate, or the payment of prepetition claims, within 21 days of the Petition Date if the relief would prevent 8 Local Rule (b) provides that if a motion for a waiver of the restrictions imposed by section 345(b) is filed on the first day of a chapter 11 case in which there are more than 200 creditors, the Court may grant an interim waiver until a hearing on the debtor s motion can be held. DEL. BANKR. L.R (b). As this Motion is being filed on the Petition Date and the Debtors have in excess of 200 creditors, the Debtors submit that their request for an interim waiver is consistent with Local Rule (b). 22

23 Case Doc 6 Filed 10/31/18 Page 23 of 55 immediate and irreparable harm. FED. R. BANKR. P. 6003(b). For the reasons set forth above and in the First Day Declaration, to the extent that Bankruptcy Rule 6003(b) is applicable to the relief requested herein, the Debtors submit that the relief requested in the Motion is necessary to prevent immediate and irreparable harm to the Debtors and their estates, as any disruption of the Cash Management System would substantially diminish or impair the Debtors efforts in these Chapter 11 Cases to preserve and maximize estate value. WAIVER OF RULE 6004 STAY 57. Because the continuation of the Cash Management System, Bank Accounts, and business forms, and the payment of related expenses to the Banks are essential, for the reasons set forth herein, to prevent immediate and irreparable harm to the Debtors and their estates, the Debtors submit that cause exists for a waiver of the 14-day stay imposed by Rule 6004(h) of the Bankruptcy Rules, to the extent applicable. NOTICE 58. Notice of this Motion has been provided by first class mail and to: (i) the Office of the United States Trustee for Region 3, serving the District of Delaware; (ii) the Office of the United States Attorney for the District of Delaware; (iii) the Internal Revenue Service; (iv) the Debtors thirty (30) largest unsecured creditors on a consolidated basis (excluding insiders); (v) the Securities and Exchange Commission; (vi) counsel to the Ad Hoc Noteholder Committee; (vii) counsel to the ad hoc committee of holders of the 5.50% Convertible Notes due 2020 and 6.50% Convertible Notes due 2024; and (viii) any party that has requested notice pursuant to Bankruptcy Rule Notice of this Motion and any order entered hereon will be served in accordance with Local Rule (m). The Debtors submit that, in light of the nature of the relief requested, no other or further notice need be given. 23

24 Case Doc 6 Filed 10/31/18 Page 24 of 55 CONCLUSION WHEREFORE, the Debtors respectfully request that this Court enter the proposed form of Order and grant such other and further relief to the Debtors as is just and proper. Dated: October 30, 2018 Wilmington, Delaware Respectfully submitted, By: /s/ Sean T. Greecher YOUNG CONAWAY STARGATT & TAYLOR, LLP Robert S. Brady (No. 2847) Sean T. Greecher (No. 4484) 1000 North King Street Wilmington, DE Telephone: (302) Facsimile: (302) and - DECHERT LLP Michael J. Sage (pro hac vice application pending) Brian E. Greer (pro hac vice application pending) Stephen M. Wolpert (pro hac vice application pending) Alaina R. Heine (pro hac vice application pending) 1095 Avenue of the Americas New York, New York Telephone: (212) Facsimile: (212) Proposed Attorneys for the Debtors and Debtors-in-Possession 24

25 Case Doc 6 Filed 10/31/18 Page 25 of 55 EXHIBIT A Cash Management System Flow Chart

26 Case Doc 6 Filed 10/31/18 Page 26 of 55

27 Case Doc 6 Filed 10/31/18 Page 27 of 55 EXHIBIT B Accounts

28 Case Doc 6 Filed 10/31/18 Page 28 of 55 Cash & Deposit Accounts (the Bank Accounts ) Depository Institution (name and address) Wells Fargo 420 Montgomery Street San Francisco, CA (the Lockbox Account ) Wells Fargo 420 Montgomery Street San Francisco, CA (the Egalet US Operating Account ) Wells Fargo 420 Montgomery Street San Francisco, CA (the Payroll Account ) Wells Fargo 420 Montgomery Street San Francisco, CA (the Egalet Corp Operating Account ) Danske Bank Finanscenter København Holmens Kanal 2 DK-1090 København K (the Danish Bank Account Type Last Four Digits of Account Number Account Holder Lockbox 2072 Egalet US, Inc. Operating 2064 Egalet US, Inc. Payroll 5382 Egalet US, Inc. Operating 2056 Egalet Corporation Operating 3214 Egalet Limited Description Used as the Debtors primary receipts / collection account from U.S. thirdparty customers / wholesalers Funds received in this account are then used to primarily fund the Debtors other operating disbursement and payroll accounts (Account Numbers ending 2064, 5382 and 2056) Non-interest bearing account Used primarily to pay Debtors operating disbursements Certain miscellaneous cash receipts are deposited into this account Inflows into this account are from the Egalet US, Inc. Lockbox (Account Number ending 2072) or Egalet Corporation Money Market / Marketable Securities accounts (Account Number ending 9461) Non-interest bearing account Used to fund U.S. employees payroll and related withholdings/taxes/benefits Inflows into this account are primarily from the accounts of Egalet US, Inc. Lockbox (Account Number ending 2072) or Egalet US, Inc. Operating (Account Number ending 2064) This account is funded prior to each scheduled payroll date Non-interest bearing account Used primarily for the Debtors debt service payments Inflows into this account are from ATM proceeds and from the accounts of Egalet US, Inc. Lockbox (Account Number ending 2072) or Egalet US, Inc. Operating (Account Number ending 2064) Non-interest bearing account The Debtors maintain a foreign bank account at Egalet Limited for operations related to their Danish branch Used primarily for Danish receipts / collections (primarily from tax credits and value-added tax (VAT) 2