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Judge Rejects Vivus' Ch. 11 Plan, Wants Equity Panel Formed
Law360 (September 11, 2020, 11:54 AM EDT) -- Saying that a lack of management testimony on key plan issues was "fatal," a Delaware bankruptcy judge on Friday rejected a Chapter 11 plan offered by biopharmaceutical venture Vivus Inc. and ordered the addition of a stockholder committee to the company's future plan-drafting efforts.
A Delaware bankruptcy judge on Friday rejected Chapter 11 confirmation for biopharmaceutical venture Vivus Inc. (Photo by John Greim/LightRocket via Getty Images)
U.S. Bankruptcy Judge Laurie Selber Silverstein said during a video-conference ruling that the decision reflected in part unanswered questions regarding Vivus' value and that of a pulmonary hypertension drug prospect owned by the company.
The compound was given a $0 value in Vivus' plan despite having been touted to investors weeks before the bankruptcy as potentially worth more than $1.2 billion a year globally if proven safe and effective and if approved by regulators.
In her decision, the judge noted "first and foremost" that Vivus did not offer a management witness during confirmation to discuss the financial underpinnings of an estimate by Piper Sandler & Co., the company's investment banker, that put the company's value at between $210 million and $243 million.
"Vivus has not met its burden on confirmation, and in particular its burden to show under Section 1129(b) [of the Bankruptcy Code] that the plan is fair and equitable to stockholders," Judge Silverstein said. The judge added, "I cannot find on this record that Vivus is insolvent. Neither am I in a position to find that Vivus is solvent."
California-based Vivus sought Chapter 11 projection on July 7 with about $213.9 million in assets and $281.6 million in liabilities. It proposed a prepackaged plan that included a debt-for-equity term that will assign all of the reorganized company's new stock to IEH Biopharma LLC, holder of all of the company's secured debt, some $235.4 million.
Approval would have made Vivus a wholly owned affiliate of Icahn Enterprise Holdings LP, a Carl Icahn interest.
The judge said four stockholders who opposed the confirmation and who mounted an earlier, unsuccessful bid for the formation of an equity committee had proven "incredibly knowledgeable about Vivus, its products and its industry" and had raised significant questions about the company's plan, its estimated value and the value of its development drug holdings.
Those stockholders saw their request for an equity committee — which would have played a formal role in the case — shot down, despite arguments that Vivus inaccurately valued the pulmonary hypertension drug, VI-0106.
At the time, Judge Silverstein said that the court had no information to contest Piper Sandler's value estimates supporting Vivus' conclusion that current stockholders would be wiped out without any ordinary recovery.
On Friday, however, the judge observed that, notwithstanding the $0 value for VI-0106 in its plan, Vivus was not abandoning the drug, and is "planning to spend development dollars on it this year and next year."
The judge also cited questions about the value under Vivus' plan of net operating losses, which can be used as a tax offset for those who control them.
In other comments, the judge said that she was sensitive to the fact that the rejected plan would pay trade creditors in full. Stockholders had an opportunity to receive a $2.38 per share payout under the original plan, but only under alleged "Death Trap" conditions that included not objecting to the plan or advocating for or serving on an equity committee.
While the prohibitions were subsequently modified, Judge Silverstein said, "stockholders were actively discouraged from challenging in any way the value of the company or the plan."
Vivus and the stockholders who challenged the company's plan did not respond to requests for comment Friday.
Judge Silverstein said she would keep the record open on the case for subsequent proceedings.
Vivus is represented by Mark D. Collins, Brett M. Haywood and Zachary I. Shapiro of Richards Layton & Finger PA and Matthew S. Barr, Gabriel A. Morgan and Natasha S. Hwangpo of Weil Gotshal & Manges LLP.
The case is In Re: Vivus Inc. et al., case number 1:20-bk-11779, in the U.S. Bankruptcy Court for the District of Delaware.
--Additional reporting by Dorothy Atkins and Rose Krebs. Editing by Alyssa Miller.
Update: This story has been updated with more details from the ruling.
For a reprint of this article, please contact reprints@law360.com.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): April 1, 2020
VIVUS, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware
001-33389
94-3136179
(State or Other Jurisdiction
of Incorporation)
(Commission
File Number)
(I.R.S. Employer
Identification No.)
900 E. Hamilton Avenue, Suite 550
Campbell, CA 95008
(Address of Principal Executive Offices, and Zip Code)
(650) 934-5200
Registrant’s Telephone Number, Including Area Code
N/A
(Former Name or Former Address, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
VVUS
The Nasdaq Global Select Market
Preferred Share Purchase Rights
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Item 1.01 Entry into a Material Definitive Agreement.
Registered Direct Offering
On April 1, 2020, VIVUS, Inc. (the “Company”) entered into a securities purchase agreement (the “Purchase Agreement”) with certain institutional investors (the “Purchasers”), pursuant to which the Company agreed to sell and issue, in a registered direct offering, 7,218,750 of the Company’s shares of common stock, par value $0.001 (the “Common Stock”) at a purchase price per share of $1.60 for aggregate gross proceeds to the Company of approximately $11.55 million, before deducting fees payable to the placement agent and other estimated offering expenses payable by the Company. The offering is expected to close on or about April 2, 2020.
The Purchase Agreement contains representations, warranties, indemnification and other provisions customary for transactions of this nature.
Pursuant to an engagement agreement (the “Engagement Agreement”) between the Company and H.C. Wainwright & Co., LLC (“Wainwright”), Wainwright agreed to serve as the exclusive placement agent for the Company in connection with the offering. The Company agreed to pay Wainwright a cash placement fee equal to 7.0% of the aggregate purchase price for the shares of Common Stock sold in the offering, a management fee of 1.0% of the aggregate purchase price for the shares of Common Stock sold in the offering, up to $12,900 for the clearing expenses of the placement agent, $30,000 for non-accountable expenses, and to reimburse the placement agent for its legal fees and other accountable expenses up to $50,000. The net proceeds received by the Company from the transaction will be used for working capital, general corporate purposes, research and development, and satisfaction of corporate debts.
In addition, the Company has issued to affiliates of Wainwright warrants (“Placement Agent Warrants”) to purchase up to 6.0% of the aggregate number of shares of Common Stock sold in the offering, or 433,125 shares. The Placement Agent Warrants will be exercisable immediately for five years from the date of the Prospectus Supplement, with an exercise price equal to $2.00 per share. A copy of the form of Placement Agent Warrant is filed as an exhibit to this Current Report on Form 8-K and is incorporated by reference herein.
The shares in the registered direct offering were issued pursuant to a prospectus supplement dated as of April 1, 2020 which was filed with the SEC (the “Prospectus Supplement”), in connection with a takedown from the Company’s shelf registration statement on Form S-3 (File No. 333-227353), which became effective on September 27, 2018, and the base prospectus included therein (the “Base Prospectus”). This Current Report on Form 8-K does not constitute, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy, any securities by any person in any jurisdiction in which it is unlawful for the person to make the offer or solicitation.
The foregoing descriptions of the Purchase Agreement, the Engagement Agreement and the Placement Agent Warrants are not complete and are qualified in their entireties by reference to the full text of such documents, copies of which are filed as exhibits to this Current Report on Form 8-K and are incorporated by reference herein.
A copy of the opinion of Hogan Lovells US LLP relating to the validity of the shares of Common Stock issued in the offering is attached as Exhibit 5.1 hereto.
Item 8.01 Other Events.
Pursuant to the Equity Distribution Agreement (the “Equity Distribution Agreement”), dated March 6, 2020, between the Company and Piper Sandler & Co. ("Piper") the Company may offer and sell, from time to time, its Common Stock through Piper, as sales agent, in an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended (the “ATM Offering”). On March 6, 2020, in connection with the ATM Offering, the Company filed a prospectus supplement pursuant to which the Company may offer and sell, from time to time, shares of its Common Stock having an aggregate offering price of up to $11.5 million through Piper (the “ATM Prospectus Supplement”). The Company has not issued any shares of its Common Stock under the ATM Prospectus Supplement. The Company suspended the ATM Prospectus Supplement on April 1, 2020, but the Equity Distribution Agreement remains in full force and effect.
2
Item 9.01. Financial Statements and Exhibits
(d) Exhibits.
Exhibit No.
Description
4.1
Form of Placement Agent Warrant.
5.1
Opinion of Hogan Lovells US LLP
10.1
Form of Securities Purchase Agreement, dated April 1, 2020, by and between the Company and the Purchasers
10.2
Engagement Agreement, dated April 1, 2020, by and between the Company and H.C. Wainwright & Co., LLC
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
VIVUS, INC.
/s/ John L. Slebir
John L. Slebir
Senior Vice President, Business Development and General Counsel
Date: April 2, 2020
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