Pg 1 of 24 Hearing Date and Time: July 20, 2017 at 10:00 a.m. (prevailing Eastern Time Objection Deadline: July 13, 2017 at 4:00 p.m. (prevailing Eastern Time Christopher Marcus, P.C. James H.M. Sprayregen, P.C. John T. Weber William A. Guerrieri (admitted pro hac vice KIRKLAND & ELLIS LLP Alexandra Schwarzman (admitted pro hac vice KIRKLAND & ELLIS INTERNATIONAL LLP KIRKLAND & ELLIS LLP 601 Lexington Avenue KIRKLAND & ELLIS INTERNATIONAL LLP New York, New York 10022 300 North LaSalle Street Telephone: (212 446-4800 Chicago, Illinois 60654 Facsimile: (212 446-4900 Telephone: (312 862-2000 Facsimile: (312 862-2200 Proposed Counsel to the Debtors and Debtors in Possession UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re: Chapter 11 21st CENTURY ONCOLOGY HOLDINGS, INC., et al., 1 Case No. 17-22770 (RDD Debtors. (Jointly Administered NOTICE OF DEBTORS MOTION SEEKING ENTRY OF AN ORDER (I AUTHORIZING THE DEBTORS TO PAY THE PREPETITION CLAIM OF BESSE MEDICAL, AND (II GRANTING RELATED RELIEF PLEASE TAKE NOTICE that on June 29, 2017, 21st Century Oncology Holdings, Inc. and its affiliated debtors in the above-captioned chapter 11 cases, as debtors and debtors in possession (collectively, the Debtors, filed the Debtors Motion Seeking Entry of an Order (I Authorizing the Debtors to Pay the Prepetition Claim of Besse Medical, and (II Granting Related Relief (the Motion. A hearing on the Motion will be held before the Honorable Robert D. Drain of the United States Bankruptcy Court for the Southern District of New York (the Court, 300 1 Each of the Debtors in the above-captioned jointly administered chapter 11 cases and their respective tax identification numbers are set forth in the Order Directing Joint Administration of Chapter 11 Cases [Docket No. 30]. The location of 21st Century Oncology Holdings Inc. s corporate headquarters and the Debtors service address is: 2270 Colonial Boulevard, Fort Myers, Florida 33907.
Pg 2 of 24 Quarropas Street, White Plains, New York 10601, on July 20, 2017, at 10:00 a.m. (prevailing Eastern Time. PLEASE TAKE FURTHER NOTICE that any responses or objections to the Motion (each, an Objection shall be in writing, shall conform to the Federal Rules of Bankruptcy Procedure, the Local Bankruptcy Rules for the Southern District of New York, and the Final Order (I Establishing Certain Notice, Case Management, and Administrative Procedures and (II Granting Related Relief [Docket No. 125] (the Case Management Order, and shall be filed with the Court (a by registered users of the Bankruptcy Court s case filing system, electronically in accordance with General Order M 399 (which can be found at http://www.nysb.uscourts.gov and (b by all other parties in interest, on a CD-ROM, in text-searchable portable document format (PDF (with a hard copy delivered directly to Chambers as set forth in the Case Management Order, in accordance with the customary practices of the Bankruptcy Court and General Order M 399, to the extent applicable, and served so as to be actually received no later than July 13, 2017, at 4:00 p.m. (prevailing Eastern Time (the Objection Deadline on each of the Standard Parties (as defined in the Case Management Order. PLEASE TAKE FURTHER NOTICE that if no Objections or other responses are timely filed and served with respect to the Motion, the Debtors shall, on or after the Objection Deadline, submit to the Court an order substantially in the form annexed as Exhibit A to the Motion, which order the Court may enter without further notice or opportunity to be heard. PLEASE TAKE FURTHER NOTICE that the Hearing may be continued or adjourned thereafter from time to time without further notice other than an announcement of the adjourned date or dates in open court at the Hearing. 2
Pg 3 of 24 PLEASE TAKE FURTHER NOTICE that copies of the Motion and Case Management Order may be obtained free of charge by visiting the website of Kurtzman Carson Consultants LLC, at www.kccllc.net/21co. You may also obtain copies of any pleadings by visiting the Court s website at http://www.nysb.uscourts.gov in accordance with the procedures and fees set forth therein. New York, New York Dated: June 29, 2017 /s/ Christopher Marcus, P.C. Christopher Marcus, P.C. John T. Weber KIRKLAND & ELLIS LLP KIRKLAND & ELLIS INTERNATIONAL LLP 601 Lexington Avenue New York, New York 10022 Telephone: (212 446-4800 Facsimile: (212 446-4900 - and - James H.M. Sprayregen, P.C. William A. Guerrieri (admitted pro hac vice Alexandra Schwarzman (admitted pro hac vice KIRKLAND & ELLIS LLP KIRKLAND & ELLIS INTERNATIONAL LLP 300 North LaSalle Street Chicago, Illinois 60654 Telephone: (312 862-2000 Facsimile: (312 862-2200 Proposed Counsel to the Debtors and Debtors in Possession 3
Pg 4 of 24 Hearing Date and Time: July 20, 2017 at 10:00 a.m. (prevailing Eastern Time Objection Deadline: July 13, 2017 at 4:00 p.m. (prevailing Eastern Time Christopher Marcus, P.C. James H.M. Sprayregen, P.C. John T. Weber William A. Guerrieri (admitted pro hac vice KIRKLAND & ELLIS LLP Alexandra Schwarzman (admitted pro hac vice KIRKLAND & ELLIS INTERNATIONAL LLP KIRKLAND & ELLIS LLP 601 Lexington Avenue KIRKLAND & ELLIS INTERNATIONAL LLP New York, New York 10022 300 North LaSalle Street Telephone: (212 446-4800 Chicago, Illinois 60654 Facsimile: (212 446-4900 Telephone: (312 862-2000 Facsimile: (312 862-2200 Proposed Counsel to the Debtors and Debtors in Possession UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re: Chapter 11 21st CENTURY ONCOLOGY HOLDINGS, INC., et al., 1 Case No. 17-22770 (RDD Debtors. (Jointly Administered DEBTORS MOTION SEEKING ENTRY OF AN ORDER (I AUTHORIZING THE DEBTORS TO PAY THE PREPETITION CLAIM OF BESSE MEDICAL, AND (II GRANTING RELATED RELIEF The above-captioned debtors and debtors in possession (collectively, the Debtors respectfully state as follows in support of this motion (this Motion : Relief Requested 1. By this Motion, the Debtors seek entry of an order, substantially in the form attached hereto as Exhibit A (the Order : (a authorizing the Debtors to pay the prepetition claim of Besse Medical, a division of ASD Specialty Healthcare, LLC ( Besse in the amount of $1,246,629.23 (the Prepetition Claim ; 2 and (b granting related relief. In support of this 1 Each of the Debtors in the above-captioned jointly administered chapter 11 cases and their respective tax identification numbers are set forth in the Order Directing Joint Administration of Chapter 11 Cases [Docket No. 30]. The location of 21st Century Oncology Holdings Inc. s corporate headquarters and the Debtors service address is: 2270 Colonial Boulevard, Fort Myers, Florida 33907. 2 For the avoidance of doubt, the term Prepetition Claim as used herein does not include any prepetition unsecured claims entitled to administrative priority under section 503(b(9 of the Bankruptcy Code. The current outstanding balance owed to Besse on account of prepetition shipments totals $1,597,863.11, of which
Pg 5 of 24 Motion, the Debtors submit the declaration of Paul B. Rundell (the Rundell Declaration, attached hereto as Exhibit B. Jurisdiction, Venue, and Procedural Background 2. The United States Bankruptcy Court for the Southern District of New York 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 Southern District of New York, dated December 1, 2016. The Debtors confirm their consent, pursuant to Rule 7008 of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules, to the entry of a final order by the Court in connection with this Application to the extent that it is later determined that the Court, absent consent of the parties, cannot enter final orders or judgments in connection herewith consistent with Article III of the United States Constitution. This matter is a core proceeding within the meaning of 28 U.S.C. 157(b(2. 3. Venue is proper in this Court pursuant to 28 U.S.C. 1408 and 1409. 4. The statutory bases for the relief requested herein are sections 105(a and 363 of title 11 of the United States Code (the Bankruptcy Code, and Bankruptcy Rules 2016, and Rule 2016-1 of the Local Bankruptcy Rules for the Southern District of New York (the Local Bankruptcy Rules. 5. On May 25, 2017 (the Petition Date, each of the Debtors filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code. The Debtors are operating their businesses and managing their properties as debtors in possession pursuant to sections 1107(a and 1108 of the Bankruptcy Code. On May 26, 2017, the Court entered an order authorizing the joint administration and procedural consolidation of the chapter 11 cases pursuant to Bankruptcy $351,233.88 ( 503(b(9 Claim represents goods shipped to the Debtors in the ordinary course of business and received by the Debtors within 20 days prior to the Petition Date. 2
Pg 6 of 24 Rule 1015(b [Docket No. 30]. No request for the appointment of a trustee or examiner has been made in these chapter 11 cases. On June 15, 2017, the Office of the United States Trustee appointed the official committee of unsecured creditors in these chapter 11 cases (the Committee [Docket No. 92]. Besse Medical s Products and Prepetition Claim 6. Besse is the sole distributor of TESTOPEL ( Testopel an absolutely critical medication the Debtors use for treating cancer patients with low testosterone. Besse also provides the Debtors with a few other critical medications such as: Bacillus Calmette-Guerin ( BCG, which is a drug used to treat early-stage bladder cancer; Xiaflex, which is used to treat Peyronie s disease; and Eligard, used to treat prostate cancer. There is no substitute in the market for Testopel, and although there are other vendors that carry BCG, Xiaflex, and Eligard, such vendors cannot supply Testopel. The Debtors do not have a supply contract in place with Besse in connection with Testopel, BCG, Xiaflex, or Eligard (collectively, the Products. Notwithstanding the constructive discussions the Debtors have had with Besse regarding a go-forward relationship, the Debtors have been informed that if they do not pay Besse s Prepetition Claim, Besse will cease supplying the Debtors with the Products. The Debtors inability to access Testopel, as well as incurring additional costs in finding alternative vendors for the other Products, would result in immediate and irreparable harm to the Debtors operations and their ability to treat their patients. To maintain operational stability and patient confidence, the Debtors seek to pay Besse the amount of the Prepetition Claim. 3
Pg 7 of 24 I. The Court Should Authorize the Debtors to Pay the Prepetition Claim Because the Products are Vital to the Debtors Businesses and Patient Care. A. Besse is the Sole Distributor of Testopel and No Substitute Product Exists in the Market. 7. Besse supplies the Debtors with Testopel for which there is no substitute vendor or product in the market. One of the Debtors main businesses is urology care diagnosing and treating (i diseases of the urinary tract in both men and women and (ii the reproductive tract in men. The Debtors urologists offer a suite of services to their patients and, because many urology patients struggle with issues of low testosterone, providing Testopel as part of the care regiment is a vital component of these services. The Debtors urologists simply cannot run their practices without Testopel, which they administer to over 4,800 patients. 8. Furthermore, even a delay in the delivery of the Products of only a few days, would cause an immediate and irreparable impact to the Debtors ability to provide care to their patients. As noted, the Debtors do not have a supply agreement with Besse, and, in fact, Besse provides the Debtors competitors with the same Products. If the Debtors do not have access to Testopel, patients would be forced, likely at significant expense, to seek alternative treatment providers. Simply put, Testopel is vital to the Debtors ability to provide patient treatment care and, therefore, essential to the Debtors ability to generate revenue and continue operating their businesses in chapter 11. B. Failure to Pay Besse s Prepetition Claim May Result in Delays in the Procurement of the Products Which Would be Detrimental to the Debtors Estates. 9. Despite the Debtors assurances that Besse will be paid in the ordinary course of business on a go-forward basis, Besse is unwilling to continue to provide the Debtors with the Products unless the Prepetition Claim is paid. Even a temporary halt of the Products would 4
Pg 8 of 24 impose a severe strain on the Debtors operations and their ability to provide treatments to patients, and the cumulative impact of such events could adversely affect the Debtors operations and, particularly, their ability to maintain business-as-usual. 10. Over 4,800 of the Debtors patients rely on Testopel and over 8,000 are administered BCG, Eligard, and Xiaflex. The revenue generated by the Debtors from the use of these drugs in the care of patients is greater than the amount of the Prepetition Claim. Specifically, over the last twelve months, the Debtors generated approximately $5.8 million in revenue attributable to the use of the Products. The Debtors simply cannot afford any delays in the procurement of these Products. 11. Any interruption in obtaining the Products however brief would disrupt the Debtors operations and would cause irreparable harm to the Debtors businesses, goodwill, patient base, and market share. Such harm far outweighs the cost of paying the Prepetition Claim. Accordingly, by this Motion, the Debtors seek authorization to pay Besse subject to the limitations set forth in the Order. II. The Debtors Negotiated With Besse to Provide Favorable Trade Terms for the Postpetition Procurement of the Products in Exchange for Payment of the Prepetition Claim. 12. Subject to the Court s approval, the Debtors intend to pay Besse only to the extent necessary to preserve the value of their estates. Notably, through arms-length, good-faith negotiations, the Debtors and Besse have agreed that Besse will not require immediate payment of its 503(b(9 Claim in the amount of $351,233.88, which the Debtors are not seeking authority to pay by this Motion. 3 Instead, Besse has agreed that in return for the immediate payment of the Prepetition Claim, it will continue to supply the Products to the Debtors. In addition, Besse has 3 The Debtors acknowledge the extent, nature and validity of Besse s 503(b(9 Claim. 5
Pg 9 of 24 agreed to provide favorable trade terms for postpetition purchases. Specifically, through and including December 31, 2017, instead of a C.O.D. arrangement or the current net 10 day credit terms, Besse will provide 60-day credit terms for postpetition purchases and up to a total of $1.5 million in credit (the Trade Terms so long as the Debtors remain current in their postpetition obligations to Besse. Basis for Relief I. The Debtors Request for Authorization to Pay Besse s Prepetition Claim is a Sound Exercise of Their Business Judgment and is in the Best Interest of the Estates. 13. Courts in this district generally acknowledge that it is appropriate to authorize the payment of prepetition obligations where necessary to protect and preserve the estate, including an operating business s going-concern value. See In re Ionosphere Clubs, Inc., 98 B.R. 174, 175 (Bankr. S.D.N.Y. 1989 and Armstrong World Indus., Inc. v. James A. Phillips, Inc. (In re James A. Phillips, Inc., 29 B.R. 391, 398 (S.D.N.Y. 1983. 14. Courts recognize that payments to prepetition creditors are appropriate pursuant to Section 105(a of the Bankruptcy Code under the doctrine of necessity where such payments are necessary to the continued operation of the debtor s business. See In re United Am., Inc., 327 B.R. 776, 782 (Bankr. E.D. Va. 2005 (acknowledging the doctrine of necessity because otherwise there will be no reorganization and no creditor will have an opportunity to recoup any part of its pre-petition claim ; In re Boston & Me. Corp., 634 F.2d 1359, 1382 (1st Cir. 1980 (recognizing the existence of a judicial power to authorize trustees to pay claims for goods and services that are indispensably necessary to the debtors continued operation. 15. Several courts apply the doctrine of necessity where payment of a prepetition claim (a is necessary for the successful reorganization of the debtor, (b falls within the sound business judgment of the debtor, and (c will not prejudice other unsecured creditors. 6
Pg 10 of 24 United Am., 327 B.R. at 782. A bankruptcy court s use of its equitable powers to authorize the payment of pre-petition debt when such payment is needed to facilitate the rehabilitation of the debtor is not a novel concept. See, e.g., In re Ionosphere Clubs, Inc., 98 B.R. 174, 175 (Bankr. S.D.N.Y. 1989. That is because the rehabilitation of a debtor in reorganization cases remains the paramount policy and goal of Chapter 11. In re Ionosphere Clubs, 98 B.R. at 175-76; see also In re Just For Feet, 242 B.R. 821, 826 (Bankr. D. Del 1999 (finding that payment of prepetition claims to certain trade vendors was essential to the survival of the debtor during the chapter 11 reorganization. 16. And implicit in the fiduciary duties of any debtor-in-possession is the obligation to protect and preserve the estate, including an operating business s going-concern value. In re CoServ, 273 B.R. at 497. Some courts note that there are instances in which a debtor can fulfill this fiduciary duty only... by the preplan satisfaction of a prepetition claim. Id. The court in CoServ specifically noted the pre-plan satisfaction of prepetition claims would be a valid exercise of the debtor s fiduciary duty when the payment is the only means to effect a substantial enhancement of the estate.... Id. Consistent with a debtor s fiduciary duties, courts have also authorized payment of prepetition obligations under section 363(b of the Bankruptcy Code where a sound business purpose exists for doing so. See, e.g., In re Ionosphere Clubs, 98 B.R. at 175. 17. Here, paying Besse is (a necessary to the Debtors continued operations and the Debtors ability to continue to provide cancer care treatment to their patients, (b represents a sound exercise of the Debtors business judgment, and (c will protect, preserve, and maximize the value of the estates. First, there are no substitutes and no alternative vendors supplying Besse s most critical product Testopel. And over 8,000 patients rely on BCG, Xiaflex, and 7
Pg 11 of 24 Eligard treatments. Failure to obtain the Products will render the Debtors unable to obtain a critical medication and care for thousands of their patients, which will likely lead to the loss of these patients and a substantial decrease in revenue, loss of goodwill among its patients, and a reduction in the Debtors market share. 18. The Debtors other creditors will be no worse off, and in fact will fare far better, if the Debtors are authorized to pay Besse. There will be minimal disruption to the Debtors operations and they will keep the revenue stream and patients supported by Besse s Products. This revenue will in turn enhance the value of the estates for all stakeholders and enable the Debtors to seamlessly continue its day-to-day operations. Authorizing the Debtors to pay the Prepetition Claim in exchange for the Trade Terms simply promotes the two recognized policies of chapter 11 preserving going concern value and maximizing the value available to satisfy creditors. 19. The Debtors submit that the relief sought in this Motion will not burden the Debtors, but will help maximize the value of their estates. For these reasons, the Debtors believe the relief requested herein is necessary to preserve the value of their estates for the benefit of all stakeholders in these chapter 11 cases and should be granted. Courts in this district routinely grant relief consistent to that which the Debtors are seeking herein. See, e.g., In re Avaya Inc., Case No. 17-10089 (SMB (Bankr. S.D.N.Y. Feb. 10, 2017; In re Sunedison, Inc., Case No. 16-10992 (SMB (Bankr. S.D.N.Y. June 8, 2016; In re Aeropostale, Inc., Case No. 16-11275 (SHL (Bankr. S.D.N.Y. June 3, 2016; In re Aspect Software Parent, Inc., Case No. 16-10597 (MFW (Bankr. S.D.N.Y. Apr. 1, 2016. 8
Pg 12 of 24 Motion Practice 20. This Application includes citations to the applicable rules and statutory authorities upon which the relief requested herein is predicated, and a discussion of their application to this Application. Accordingly, the Debtors submit that this Application satisfies Local Bankruptcy Rule 9013-1(a. Waiver of Stay under Bankruptcy Rule 6004(h 21. Pursuant to Bankruptcy Rule 6004(h, [a]n order authorizing the use, sale, or lease of property other than cash collateral is stayed until the expiration of 14 days after entry of the order, unless the court orders otherwise. As set forth throughout this Motion, failure to grant the relief requested herein would be detrimental to the Debtors, their estates and all stakeholders. For this reason and those set forth above, the Debtors submit that ample cause exists to justify a waiver of the 14-day stay imposed by Bankruptcy Rule 6004(h. Notice 22. The Debtors have provided notice of this Application to: (a the United States Trustee for Region 2; (b counsel to the Committee; (c counsel to the agent under the Debtors postpetition financing facility; (d counsel to the ad hoc committee of lenders under the Debtors prepetition 21C secured credit facility; (e counsel to the administrative agent under the Debtors prepetition 21C secured credit facility; (f counsel to the ad hoc committee of crossover lenders and noteholders; (g the indenture trustee for the Debtors 11% senior notes due 2023; (h the holders of the Debtors SFRO PIK Notes; (i the United States Attorney for the Southern District of New York; (j the United States Securities and Exchange Commission; (k the state attorneys general for states in which the Debtors conduct business; (l the Internal Revenue Service; (m Besse; and (n any party that has requested notice pursuant to Bankruptcy Rule 2002. In light of 9
Pg 13 of 24 the nature of the relief requested, the Debtors respectfully submit that no further notice is necessary. No Prior Request 23. No prior request for the relief sought in this Motion has been made to this or any other court. [Remainder of page intentionally left blank.] 10
Pg 14 of 24 WHEREFORE, the Debtors respectfully request entry of the Order, substantially in the form attached hereto as Exhibit A, (a granting the relief requested herein and (b granting such other relief as is just and proper. New York, New York Dated: June 29, 2017 /s/ Christopher Marcus, P.C. Christopher Marcus, P.C. John T. Weber KIRKLAND & ELLIS LLP KIRKLAND & ELLIS INTERNATIONAL LLP 601 Lexington Avenue New York, New York 10022 Telephone: (212 446-4800 Facsimile: (212 446-4900 - and - James H.M. Sprayregen, P.C. William A. Guerrieri (admitted pro hac vice Alexandra Schwarzman (admitted pro hac vice KIRKLAND & ELLIS LLP KIRKLAND & ELLIS INTERNATIONAL LLP 300 North LaSalle Street Chicago, Illinois 60654 Telephone: (312 862-2000 Facsimile: (312 862-2200 Proposed Counsel to the Debtors and Debtors in Possession 11
Pg 15 of 24 EXHIBIT A Proposed Order
Pg 16 of 24 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re: Chapter 11 21st CENTURY ONCOLOGY HOLDINGS, INC., et al., 1 Case No. 17-22770 (RDD Debtors. (Jointly Administered ORDER (I AUTHORIZING THE DEBTORS TO PAY THE PREPETITION CLAIM OF BESSE MEDICAL, AND (II GRANTING RELATED RELIEF Upon the motion (the Motion 2 of the above-captioned debtors and debtors in possession (collectively, the Debtors for entry of an order (this Order, (a authorizing the Debtors to pay the Prepetition Claim (as defined in the Motion held by Besse Medical, a division of ASD Specialty Healthcare, LLC ( Besse in an amount of $1,246,629.23; and (b granting related relief; and this Court having 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 Southern District of New York, dated December 1, 2016; and this Court having found that this is a core proceeding pursuant to 28 U.S.C. 157(b(2; and this Court having found that venue of this proceeding and the Motion in this district is proper pursuant to 28 U.S.C. 1408 and 1409; and this Court having considered the Rundell Declaration; and this Court having found that the relief requested in the Motion is in the best interests of the Debtors estates, their creditors, and other parties-in-interest; and this Court having found that the Debtors notice of the Motion and opportunity for a hearing on the Motion were appropriate 1 Each of the Debtors in the above-captioned jointly administered chapter 11 cases and their respective tax identification numbers are set forth in the Order Directing Joint Administration of Chapter 11 Cases [Docket No. 30]. The location of 21st Century Oncology Holdings Inc. s corporate headquarters and the Debtors service address is: 2270 Colonial Boulevard, Fort Myers, Florida 33907. 2 Capitalized term used herein but not otherwise defined shall have the meaning ascribed to such terms in the Motion.
Pg 17 of 24 under the circumstances and no other notice need be provided; and this Court having reviewed the Motion and having heard the statements in support of the relief requested therein at a hearing before this Court (the Hearing ; and this Court having determined that the legal and factual bases set forth in the Motion and at the Hearing establish just cause for the relief granted herein; and upon all of the proceedings had before this Court; and after due deliberation and sufficient cause appearing therefor, it is HEREBY ORDERED THAT: 1. The Motion is granted as set forth herein. 2. The Debtors are authorized and directed to pay promptly the Prepetition Claim in the amount of $1,246,629.23. 3. Through and including December 31, 2017 (unless such date is otherwise extended by the Besse and Debtors, so long as the Debtors are current in their postpetition obligations to Besse, Besse shall provide the Debtors with 60-day credit terms and up to $1.5 million in credit in connection with the postpetition purchase of the Products and other goods from Besse. 4. Besse shall have an allowed claim entitled to priority under Section 503(b(9 of the Bankruptcy Code in the amount of $351,233.88. 5. Notwithstanding Bankruptcy Rule 6004(h, the terms and conditions of this Order are immediately effective and enforceable upon its entry. 6. The Debtors are authorized to take all actions necessary to effectuate the relief granted in this Order in accordance with the Motion. 2
Pg 18 of 24 7. This Court retains exclusive jurisdiction with respect to all matters arising from or related to the implementation, interpretation, and enforcement of this Order. New York, New York Dated:, 2017 HONORABLE ROBERT D. DRAIN UNITED STATES BANKRUPTCY JUDGE 3
Pg 19 of 24 Exhibit B Rundell Declaration
Pg 20 of 24 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re: Chapter 11 21st CENTURY ONCOLOGY HOLDINGS, INC., et al., 1 Case No. 17-22770 (RDD Debtors. (Jointly Administered DECLARATION OF PAUL B. RUNDELL IN SUPPORT OF DEBTORS MOTION SEEKING ENTRY OF AN ORDER (I AUTHORIZING THE DEBTORS TO PAY THE PREPETITION CLAIM OF BESSE MEDICAL, AND (II GRANTING RELATED RELIEF I, Paul Rundell, hereby declare under penalty of perjury: 1. I am the Interim Chief Executive Officer of 21st Century Oncology Holdings, Inc., one of the Debtors in the above-captioned chapter 11 cases. 2. I have served the Debtors in my current capacity since February 27, 2017. In such capacity, I am generally familiar with the Debtors day-to-day operations, business and financial affairs, and books and records. I am above 18 years of age, and I am competent to testify. 3. I submit this declaration in support of the Debtors Motion Seeking Entry of an Order (I Authorizing the Debtors to Pay the Prepetition Claim of Besse Medical, and (II Granting Related Relief, filed contemporaneously herewith. 4. Except as otherwise indicated herein, all facts set forth in this declaration are based on my personal knowledge, my discussions with other members of the Debtors management team and the Debtors advisors, and my review of the relevant documents and information concerning the Debtors operations, financial affairs, and refinancing and 1 Each of the Debtors in the above-captioned jointly administered chapter 11 cases and their respective tax identification numbers are set forth in the Order Directing Joint Administration of Chapter 11 Cases [Docket No. 30]. The location of 21st Century Oncology Holdings Inc. s corporate headquarters and the Debtors service address is: 2270 Colonial Boulevard, Fort Myers, Florida 33907.
Pg 21 of 24 restructuring initiatives. If called upon to testify, I could and would testify competently to the facts set forth herein. Besse Medical s Products and Prepetition Claim 5. Besse is the sole distributor of TESTOPEL ( Testopel an absolutely critical medication the Debtors use for treating cancer patients with low testosterone. Besse also provides the Debtors with a few other critical medications such as: Bacillus Calmette-Guerin ( BCG, which is a drug used to treat early-stage bladder cancer; Xiaflex, which is used to treat Peyronie s disease; and Eligard, used to treat prostate cancer. There is no substitute in the market for Testopel, and although there are other vendors that carry BCG, Xiaflex, and Eligard, such vendors cannot supply Testopel. The Debtors do not have a supply contract in place with Besse in connection with Testopel, BCG, Xiaflex, or Eligard (collectively, the Products. Notwithstanding the constructive discussions the Debtors have had with Besse regarding a go-forward relationship, the Debtors have been informed that if they do not pay Besse s Prepetition Claim, Besse will cease supplying the Debtors with the Products. The Debtors inability to access Testopel, as well incurring additional costs in finding alternative vendors for the other Products, would result in immediate and irreparable harm to the Debtors operations and their ability to treat their patients. To maintain operational stability and patient confidence, the Debtors seek to pay Besse the amount of the Prepetition Claim. A. Besse is the Sole Distributor of Testopel and No Substitute Product Exists in the Market. 6. Besse supplies the Debtors with Testopel for which there is no substitute vendor or product in the market. One of the Debtors main businesses is urology care diagnosing and treating (i diseases of the urinary tract in both men and women and (ii the reproductive tract in men. The Debtors urologists offer a suite of services to their patients and, because many 2
Pg 22 of 24 urology patients struggle with issues of low testosterone, the prescribing of Testopel is a vital component of these services. The Debtors urologists simply cannot run their practices without Testopel, which they administer to over 4,800 patients. 7. Furthermore, even a delay in the delivery of the Products of only a few days, would cause an immediate and irreparable impact to the Debtors ability to provide care to their patients. As noted, the Debtors do not have a supply agreement with Besse, and, in fact, Besse provides the Debtors competitors with the same Products. If the Debtors do not have access to Testopel, patients would be forced, likely at significant expense, to seek alternative treatment providers. Simply put, Testopel is vital to the Debtors ability to provide patient treatment care and, therefore, essential to the Debtors ability to generate revenue and continue operating their businesses in chapter 11. B. Failure to Pay Besse s Prepetition Claim May Result in Delays in the Procurement of the Products Which Would be Detrimental to the Debtors Estates. 8. Despite the Debtors assurances that Besse will be paid in the ordinary course of business on a go-forward basis, Besse is unwilling to continue to provide the Debtors with the Products unless the Prepetition Claim is paid. Even a temporary halt of the Products would impose a severe strain on the Debtors operations and their ability to provide treatments to patients, and the cumulative impact of such events could adversely affect the Debtors operations and, particularly, their ability to maintain business-as-usual. 9. Over 4,800 of the Debtors patients rely on Testopel and over 8,000 are administered BCG, Eligard, and Xiaflex. The revenue generated by the Debtors from the use of these drugs in the care of patients is greater than the amount of the Prepetition Claim. Specifically, over the last twelve months, the Debtors generated approximately $5.8 million in 3
Pg 23 of 24 revenue attributable to the use of the Products. The Debtors simply cannot afford any delays in the procurement of these Products. 10. Any interruption in obtaining the Products however brief would disrupt the Debtors operations and would cause irreparable harm to the Debtors businesses, goodwill, patient base, and market share. Such harm far outweighs the cost of paying the Prepetition Claim. Accordingly, by this Motion, the Debtors seek authorization to pay Besse subject to the limitations set forth in the Order. C. The Debtors Negotiated With Besse to Provide Favorable Trade Terms for the Postpetition Procurement of the Products in Exchange for Payment of the Prepetition Claim. 11. Subject to the Court s approval, the Debtors intend to pay Besse only to the extent necessary to preserve the value of their estates. Notably, through arms-length, good-faith negotiations, the Debtors and Besse have agreed that Besse will not require immediate payment of its 503(b(9 Claim in the amount of $351,233.88, which the Debtors are not seeking authority to pay by this Motion. 2 Instead, Besse has agreed that in return for the immediate payment of the Prepetition Claim, it will continue to supply the Products to the Debtors. In addition, Besse has agreed to provide favorable trade terms for postpetition purchases. Specifically, through and including December 31, 2017, instead of a C.O.D. arrangement or the current net 10 day credit terms, Besse will provide 60-day credit terms for postpetition purchases and up to a total of $1.5 million in credit (the Trade Terms so long as the Debtors remain current in their postpetition obligations to Besse. 2 The Debtors acknowledge the extent, nature and validity of Besse s 503(b(9 Claim. 4
Pg 24 of 24 Pursuant to 28 U.S.C. 1746, I declare under penalty of perjury that the foregoing is true and correct to the best of my knowledge, information, and belief. Dated: June 29, 2017 Respectfully Submitted, /s/ Paul Rundell Paul Rundell Interim Chief Executive Officer 21st Century Oncology Holdings, Inc. 2270 Colonial Blvd. Fort Myers, FL 33907 5