Item 1.01 Entry into a Material Definitive Agreement
Exchange and Subscription Agreements
On November 12, 2019, Verastem, Inc. (the “Company”) entered into privately negotiated agreements (the “Agreements”) with a limited number of investors who are accredited investors (within the meaning of Rule 501 promulgated under the Securities Act of 1933, as amended (the “Securities Act”)) and/or qualified institutional buyers (as defined in Rule 144A under the Securities Act) who are holders of the Company’s 5.00% Convertible Senior Notes due 2048 (the “Existing Notes”) to exchange approximately $114.3 million aggregate principal amount of Existing Notes for approximately $62.9 million aggregate principal amount of newly issued 5.00% Convertible Senior Second Lien Notes due 2048 (the “Notes”). Each exchanging investor will also receive a cash payment equal to 10.0% of the principal amount of Existing Notes exchanged, together with together with accrued and unpaid interest on the Existing Notes (plus, if applicable, an adjustment in lieu of issuing fractional Notes). The issuance of the Notes is expected to close on November 14, 2019, subject to customary closing conditions. The Notes will be issued pursuant to an indenture by and between the Company and Wilmington Trust, National Association, as trustee and collateral agent (the “Indenture”).
The Company will have the right, exercisable at its option, to cause all Notes then outstanding to be converted automatically if the “Daily VWAP” (as defined in the Indenture) per share of the Company’s common stock equals or exceeds 121% of the conversion price on each of at least 20 “VWAP Trading Days” (as defined in the Indenture), whether or not consecutive, during any 30 consecutive VWAP Trading Day period commencing on or after the date the Company first issued the Notes.
The initial conversion rate for the Notes is 606.0606 shares of the Company’s common stock per $1,000 principal amount of the Notes, which is equivalent to an initial conversion price of approximately $1.65 per share, representing an approximately 52.8% premium to the last reported sale price of $1.08 per share of the Company’s common stock on November 11, 2019, as reported on the Nasdaq Global Market. The conversion rate is subject to adjustment from time to time upon the occurrence of certain events, including, but not limited to, the issuance of stock dividends and payment of cash dividends, but will not be adjusted for any accrued and unpaid interest.
Prior to November 1, 2022, the Company will not have the right to redeem the Notes. On or after November 1, 2022, the Company may elect to redeem the Notes, in whole or in part, at a cash redemption price equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any.
Unless the Company has previously called all outstanding Notes for redemption, the Notes will be subject to repurchase by the Company at the holders’ option on each of November 1, 2023, November 1, 2028, November 1, 2033, November 1, 2038 and November 1, 2043 (or, if any such date is not a business day, on the next business day) at a cash repurchase price equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any.
If a “Fundamental Change” (as defined in the Indenture) occurs at any time, subject to certain conditions, holders may require the Company to purchase all or any portion of their Notes at a purchase price equal to 100% of the principal amount of the Notes to be purchased, plus accrued and unpaid interest, if any, to, but excluding, the “Fundamental Change Repurchase Date” (as defined in the Indenture). If a “Make-Whole Fundamental Change” (as defined in the Indenture) occurs on or before November 1, 2022 and a holder elects to convert its Notes in connection with such Make-Whole Fundamental Change, such holder may be entitled to an increase in the conversion rate in certain circumstances as set forth in the Indenture.
Upon conversion of the Notes, holders will receive a cash payment equal to the accrued and unpaid interest on the converted Notes. In addition, if the Notes are converted with a conversion date that is on or prior to November 1, 2020 (or, if such date is not a business day, on the next business day), other than in connection with the Company’s exercise of the “Company Mandatory Conversion Right” (as defined in the Indenture), then the consideration due upon any such conversion will also include a cash interest make-whole payment for all future scheduled interest payments on the converted Notes through November 1, 2020.
The Notes are the Company’s senior, secured obligations and will be senior in right of payment to the Company’s future indebtedness that is expressly subordinated in right of payment to the Notes, and equal in right of payment with the Company’s existing and future indebtedness that is not so subordinated. The Notes are structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and (to the extent the Company is not a holder thereof) preferred equity, if any, of the Company’s subsidiaries.
The Indenture includes a grant of a security interest in and second lien on the assets of the Company securing indebtedness issued under its existing senior secured credit facility, as well as customary covenants, and sets forth certain events of default after which the Notes may be declared immediately due and payable and sets forth certain types of bankruptcy or insolvency events of default involving the Company or certain of its subsidiaries after which the Notes become automatically due and payable.