Re: Farmas USA
SGYP
Synergy Investment Group
February 18, 2019
Hi Nachete96
First of all, as mentioned in my previous email, my emails going forward will be more scattered around. After 9 months of non-stop work on behalf of shareholders, I have finally had some time to breathe after the appointment of the Official Committee of Equity Holders. I had time to disconnect from the outside world by traveling to the mountains in Utah on February 4th and staying there for a while to just get a chance to literally disconnect from the world. Losing my phone on the trip made things even easier.
This investment has really shaken all my life just months before I am becoming a dad on June 12. I needed some time to myself to prioritize and come back energized for everything that lies ahead. So I apologize to everyone who has written to me in the last 2 weeks without a reply.
I will try to give everyone a glimpse of what's happening but let me remind you that this email campaign in no way officially portrays the position of the Official Equity Committee.
Lack of Information
The Official Equity Committee is operating in a vacuum where they can't trade securities and they can't talk about what's happening with outsiders. But rest assured that they are being advised by the best professionals in the industry which plays an extremely important part moving forward. Anything that we find out about the Equity Committee moving forward will be through the filings in court.
Please keep the Committee in your prayers and be supportive of the work they are doing. I can't emphasize enough the amount of pressure they are working under. Many bankruptcies last at least six months up to 2 years. Here, we have an extremely short bankruptcy case which planned to get rid of all of its assets in a 60 day period. You will recall that the original deadline for bids was on February 11.
Working without Professionals Before Equity Committee
I was always honest about our legal limitations and I even shared the original Engagement Letter with the group where Cole Schotz specifically stated that there was no budget for discovery and no budget for an expert witness. Any good legal piece of work in a bankruptcy court needs to be supplemented with the testimony of a professional.
For example, if you want to allege that the company is worth $1 billion because: "this year sales are on track to exceed $100 million in net sales and there are 12 years of patents left." If a lawyer submits that information to the docket without the testimony of a financial expert, that would almost immediately get thrown out (Because all that you will need is another lawyer to argue otherwise). Even worse, if the lender were to hire a financial expert to say the asset is worth only $500 million his testimony would have a higher priority than what the lawyer argued because he is no financial expert.
Jefferies, Centerview, and Houlihan Lokey charge $100,000 per month plus commissions for restructuring or sale of the company so we were never within the realm of possibility of contesting valuations and timelines without experts on our side.
Superb Pieces of Legal Work Moving Forward
With a budget of less than $40k for legal work vs the $1.2 million of pre-petition legal work of Synergy and more than $3.6 million total (I have to double check the figure but I believe it's accurate). We, the shareholders, were literally David vs Goliath before the appointment.
Now the balance has changed. The Official Equity Committee has the most expensive lawyers in this bankruptcy case. They have also hired Houlihan Lokey as their financial advisor.
If I were a guessing man I would say that between the financial advisor and the lawyers we already have pilled up close to 400k in legal and professional fees in 3 weeks.
The result nevertheless moving forward is going to be superb pieces of legal work accompanied by the financial expert testimony of their legal advisor to make the case of the Official Equity Committee stronger.
No More Allies in This Case
Our strongest ally during this process was Latham & Watkins which is the law firm for the unsecured creditors. Their defense since the beginning was impressive and thanks to their help we were able to be appointed to have an Official Equity Committee. With the current Bausch Health bid, there is no money left over for shareholders. When that's the case, then the US Trustee would usually not appoint any equity committee because all their legal fees and professional fees would come out of the unsecured creditors' recoveries. However, thanks to a vote in our favor from the unsecured creditors we were able to get an appointment.
The fact that Latham & Wakins voted for our approval on this case it means that they willfully decided to risk a full recovery in exchange for us having a chance to make our case in this bankruptcy case. Cole Schotz is a law firm that works very closely with Latham & Watkins and that really helped and that's why I chose a law firm close to Latham & Wakins.
In fact, we rode all of their objections and join in with them to make their case stronger. However, we took a very cautious approach in regards to racking up fees and showing too much opposition because a bombastic approach would have guaranteed a denial of appointment and a vote against us from the unsecured creditors.
However, when the KEIP (Key Employment Incentive Plan) came into play Cole Schotz and Latham & Watkins started to diverge on points of view. We believed that management shouldn't be rewarded for bringing the value of the company down and then getting a bonus for selling it at a higher price. However, Latham believed that not only should the CFO and CEO be rewarded but also two other senior executives as well.
We were also in the process of trying to negotiate a settlement with the CRG prepayment penalty when the Official Equity Committee was appointed.
Change of Direction
When the Official Equity Committee was appointed I tried telling all the members that keeping Latham & Watkins as an ally was imperative. To that extent, keeping Cole Schotz as the official law firm for the Official Equity Committee was imperative for that strategy to work since we had been working for the past 7 weeks hand in hand with the unsecured creditor's committee. However, the Official Equity Committee decided it was on their best interest to switch law firms and start from scratch. There are positive and negatives:
Positives
- The positive thing is that you can start with clean sleet where you don't have to honor any previous commitments made by the ad hoc committee because this is a new set of members and a new set of lawyers.
- You can go to a more prestigious and expensive law firm.
- You can get a new legal perspective with a new set of eyes from a different point of view.
Negatives
- First, there was a broken honor code. Cole Schotz went above and beyond what was required of them and financed a good chunk of our legal defense out of their own pocket. They did so believing that we will honor that good faith and appoint them to represent us officially once the committee was formed. All of our work was done by an associate lawyer and we still needed to see the work of their senior and partner lawyers.
- We have a judge who comes from private practice and understands what it's to do pro-bono work and work in good faith for a committee. When Cole Schotz wasn't appointed we almost certainly lost reputation points.
- By bringing more expensive lawyers and having lawyers start from scratch to catch up - the Official Equity Committee certainly didn't make several parties happy as this is more expensive than continuing with the same law firm
- Finally, we lost a good ally in Latham & Wakins who after today's motions it's clear he has switched sides from the Equity's side to the Debtor's side. I would speculate that they aren't very happy with losing Cole Schotz in this process.
Now that the Official Equity Committee has changed course this has become a high-stakes bankruptcy case. For example, I wanted to propose to settle the CRG pre-payment penalty for $17 million, however, the Official Equity Committee has filed a motion believing that the entirety of the claim can be disallowed. However, if they are unsuccessful in challenging it they might have to pay almost the entirety of the claim but if they are successful we will have additional recoveries.
Unity is Important
Even if we don't agree with particular decisions made by the Official Equity Committee it's always important to remain united because as the Bible says "a House Divided can't stand."
This week, there's a motion by Ken Grossman and Dr. Mitwally who they are trying to get appointed to the Official Equity Committee. The Trustee has enough power to add more than 7 members to a Committee if he/she chooses to do so. Usually, the 7 largest shareholders who apply to serve are appointed to serve on a Committee. Ken Grossman and Dr. Mitwally knew they were the largest shareholders in our group and they want to know why they weren't appointed and most importantly they want to serve.
You can make points in favor of or against this motion. I think the credentials of these 2 individuals are impressive and the committee will definitely benefit from their expertise. But also, it's important not to take sides or to turn this into an internal conflict. These individuals have a right to fight for their appointment and we should respect whatever the judge decides.
Finally, we have to be extremely grateful for each of the 7 members who volunteered to serve on the Official Equity Committee. They are not being compensated for their time or effort and the least we can show is gratitude.
He vendido hace un rato 2 call QQQ (Nasdaq) lejos. De momento tibio verde. Por si se cae para perder menos. Llevo un par AMD también verdes y en dinero y por abajo unas cuantas putts vendidas AMD.