Egalet Reduces Debt Obligation, Extends Maturity and Lowers Annual Interest Payments through Refinancing of Existing Convertible Notes

On December 20, 2017, Egalet Corporation (the “Company”) entered into exchange agreements (the “Exchange Agreements”) with certain holders (the “Holders”) of the Company’s 5.50% convertible senior notes due 2020 (the “5.50% Notes”) pursuant to which the Holders have agreed to exchange, in the aggregate, approximately $36.4 million of outstanding principal amount of the 5.50% Notes for, in the aggregate, (i) approximately $23.9 million of the Company’s new 6.50% convertible senior notes due 2024 (the “New Notes”), (ii) a warrant exercisable for 3.5 million shares of the Company’s common stock and (iii) payments, in cash, of all accrued but unpaid interest as of the closing on the 5.50% Notes exchanged in the transaction (the “Exchange”). The Exchange Agreements include the terms and conditions of the exchange of the 5.50% Notes and issuance and sale of the New Notes, customary representations and warranties, and other terms and conditions customary in agreements of this type. The Exchange Agreements also provide that, for a period of nine months, the Company will not enter into additional exchange transactions with the other holders of the 5.50% Notes on terms more favorable to the noteholders (relative to the New Notes) without the written consent of the holders of a majority of the outstanding principal amount of the New Notes. The Exchange is expected to close on Friday, December 22, 2017, subject to customary closing conditions.

The New Notes will pay interest semiannually in arrears on January 1 and July 1 of each year commencing July 1, 2018 at a rate of 6.50% per year, which rate is subject to adjustment in accordance with the terms of the indenture that will govern the New Notes (the “Indenture”) and as described below. The New Notes will mature on December 31, 2024, unless earlier repurchased, redeemed or converted in accordance with the terms of the Indenture prior to such date. Subject to certain conditions, on or after January 1, 2021, the Company may redeem for cash all or a part of the New Notes. The New Notes will be convertible at any time until the close of business on the business day immediately preceding the maturity date. Upon conversion and subject to certain conditions, holders of the New Notes will receive shares of the Company’s common stock at an initial conversion rate of 749.6252 shares of common stock per $1,000 principal amount of New Notes, which is equivalent to an initial conversion price of approximately $1.33 per share, and is subject to adjustment under the terms of the New Notes. This represents a premium of approximately 15% over the last reported sale price of $1.16 per share of Egalet’s common stock on The NASDAQ Global Market on December 19, 2017. Similar to the 5.50% Notes, the New Notes will provide for an interest make-whole payment in connection with conversions that occur prior to July 1, 2021.

In addition, the indenture that will govern the New Notes will require the Company to use its reasonable best efforts to (i) seek stockholder approval of an amendment to the Company’s Third Amended & Restated Certificate of Incorporation, as amended, in order to increase the amount of authorized shares available for issuance thereunder, and (ii) if and when such approval is obtained, to reserve from such amount the number of shares that may be issued in respect of the New Notes and any other securities issued in connection with the Exchange. In the Exchange Agreements, the Holders have granted a proxy to the Company authorizing the Company to vote any shares of common stock held by such Holder in favor of such amendment at any applicable meeting of the Company’s stockholders. If the Company is unable to obtain stockholder approval on or prior to July 1, 2018, the interest rate of the New Notes will increase to 10.0% unless and until such stockholder approval is obtained.