Item 1.03. Bankruptcy or Receivership.
Voluntary
Petition for Reorganization
On July 7, 2020
(the “Petition Date”), VIVUS, Inc. (“VIVUS,” the “Company” or “we”)
and all of its subsidiaries (the “Filing Subsidiaries and, together with VIVUS, the “Debtors”)
filed voluntary petitions (collectively, the “Bankruptcy Petitions”) under chapter 11 (“Chapter 11”),
of Title 11 of the U.S. Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District
of Delaware (the “Bankruptcy Court”). The Debtors have filed a motion to have their Chapter 11 cases (collectively,
the “Chapter 11 Cases”) jointly administered under the caption In re VIVUS, Inc., et al. Each Debtor
will continue to operate its business and manage its properties as a “debtor in possession” under the jurisdiction
of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy
Court.
On the Petition
Date, the Company also filed the Joint Prepackaged Plan of Reorganization of the Debtors (as may be amended, restated, amended
and restated, supplemented, or otherwise modified from time to time, the “Plan”) and Disclosure Statement thereto,
which sets forth the proposed comprehensive financial restructuring of the Company aimed to address the Company’s funded
debt obligations and capital structure by deleveraging the Company’s balance sheet for longer-term viability upon the effective
date of the Plan (the “Effective Date”). Among other things, the Plan contemplates a settlement with holders
of existing equity interests in VIVUS as of the record date that satisfy certain conditions set forth in the Plan, pursuant to
which such holders of VIVUS equity would receive their pro rata portion of $5 million and a non-transferable contractual
contingent value right to earn an additional $2 per share if the Company meets certain financial milestones in 2021 and 2022.
Under the Plan, all VIVUS equity interests would be cancelled and the holders thereof would neither receive nor retain any property
on account thereof. The Plan also contemplates the payment in full of general unsecured claims, other priority claims, and other
secured claims. The foregoing description of the Plan and the Disclosure Statement thereto is qualified in its entirety by reference
to the full-text of the Plan, the Disclosure Statement and Amendment No. 1 to the Disclosure Statement, which are attached hereto
as Exhibits 99.1, 99.2 and 99.3, respectively.
On the Petition
Date, the Debtors filed a number of motions with the Bankruptcy Court generally designed to stabilize their operations and facilitate
the Debtors’ transition into Chapter 11. Certain of these motions seek approval from the Bankruptcy Court for various forms
of customary relief, including authority to: continue using their existing cash management system; use cash collateral; maintain
and administer customer and sales programs; pay prepetition wages, compensation and employee benefits; pay vendor claims in the
ordinary course, and pay prepetition tax, utilities and insurance obligations.
The Company’s
existing NOL Rights Plan will remain in place until completion of the trading of its shares. The NOL Rights Plan will continue
to provide, subject to certain exceptions that if any person or group acquires 4.9% or more of the Company’s outstanding
common stock, there would be a triggering event potentially resulting in significant dilution in the voting power and economic
ownership of that person or group.
In addition,
the Debtors filed a motion (the “NOL Motion”) seeking entry of an interim and final order establishing certain
procedures (the “Procedures”) with respect to direct and indirect trading and transfers of stock of the Company,
and seeking related relief, in order to protect the potential value of the Company’s net operating loss carryforwards and
certain other tax benefits of the Company.
If the NOL Motion
is granted by the Bankruptcy Court and the Procedures approved, in certain circumstances, the Procedures would, among other things,
restrict transactions on or after today’s date, July 7, 2020, involving, and require notices of the holdings of and proposed
transactions by, any person or group of persons that is or, as a result of such a transaction, would become, a Substantial Stockholder
of the common stock issued by VIVUS (the “Common Stock”). For purposes of the Procedures, a “Substantial
Stockholder” is any person or, in certain cases, group of persons that beneficially own, directly or indirectly (and/or
owns options to acquire) at least 800,000 shares of Common Stock (representing approximately 4.5% of all issued and outstanding
shares of Common Stock as of April 30, 2020). If the Procedures are approved, any prohibited transfer of stock of the Company on
or after today’s date, July 7, 2020, would be null and void ab initio and may lead to contempt, compensatory damages, punitive
damages, or sanctions being imposed by the Bankruptcy Court. A direct or indirect holder of, or prospective holder of, stock issued
by the Debtors should consult the NOL Motion and Procedures proposed therein.
The Debtors also
requested authority to, among other things, schedule a combined hearing to consider approval of the Plan and Disclosure Statement
in light of the prepackaged structure of the Chapter 11 Cases. The Debtors further requested authority to employ Stretto as its
claims and noticing agent.
All of the motions
filed by the Debtors with the Bankruptcy Court, including the NOL Motion and Procedures, are available without charge on the website
maintained by Stretto at https://cases.stretto.com/vivus.
Restructuring
Support Agreement
On July 6, 2020, the Debtors entered into
an Amended and Restated Restructuring Support Agreement (the “Amended RSA”) with IEH Biopharma LLC (the “Supporting
Noteholder”) as the sole holder of 100% of the outstanding principal amount of (i) the 4.50% Convertible Senior Note
due 2020 (the “Convertible Note”) issued pursuant to that certain Indenture, dated as of May 21, 2013 (as amended,
supplemented, or otherwise modified from time to time, the “Convertible Note Indenture”) by and among the Company,
as the issuer, and Deutsche Bank Trust Company Americas, as trustee, and (ii) the secured notes (the “Secured Notes”)
issued under that certain Indenture, dated as of June 8, 2018 (as amended, restated, amended and restated, supplemented or otherwise
modified from time to time, the “Secured Notes Indenture”), by and among VIVUS, U.S. Bank National Association,
as trustee and collateral agent, and the Supporting Noteholder. The Debtors completed solicitation of the Plan prior to filing
voluntary petitions to commence chapter 11 cases, and pursuant to the Amended RSA, the Supporting Noteholder voted its claims
under the Convertible Note and Secured Notes to accept the Plan. The Debtors and the Supporting Noteholder continue to be subject
to certain covenants in support of the Plan from the date of the Amended RSA until the earlier of the date the Amended RSA is
terminated or the Effective Date.
The Amended RSA modified the Restructuring
Support Agreement entered into among the parties on May 31, 2020, including to provide for the Supporting Noteholder’s ownership
of the Secured Notes. The Amended RSA also set forth a modified timeline and milestones for the filing and administration of the
Chapter 11 Cases, including as follows:
·
The Debtors will file the Bankruptcy Petitions by July 7, 2020;
·
The Debtors will, by July 10, 2020, file motions with the Bankruptcy Court to obtain an order from the Bankruptcy Court approving
the assumption of the Amended RSA and the termination fee of $5 million due to the Supporting Noteholder upon the occurrence of
certain Creditor Termination Events (as defined under the Amended RSA and described below), by no later than forty-one (41) calendar
days after the Petition Date, which order shall become final by no later than fifty-five (55) calendar days after the Petition
Date. Under the Amended RSA, the termination payment is triggered upon the following Creditor Termination Events: (i) there is
a material breach by the Debtors of the Amended RSA, the Plan or the Convertible Notes; (ii) the Debtors fail to file the bankruptcy
petitions, the Plan and Disclosure Statement relating to the Plan, and a motion seeking approval of the cash collateral orders
by no later than the Petition Date; (iii) the Debtors file a plan of reorganization or liquidation in respect of the Plan without
prior consent of the Supporting Noteholder; (iv) the Debtors amend or modify definitive documentation not in form and substance
reasonably acceptable to the Supporting Noteholder; (v) the Debtors challenge or fail to defend the validity and enforceability
of the Convertible Notes, Secured Notes or certain obligations thereunder; (vi) the Debtors sell assets outside of the ordinary
course of business without prior written consent from the Supporting Noteholder; (vii) the Debtors seek to terminate the Amended
RSA; (viii) the Debtors fail to pay the Supporting Noteholder’s and trustees’ reasonable and documented fees and expenses
(including attorneys’ fees); (ix) the Debtors seek an alternative restructuring;; (x) the Company loses any right, title
or interest in or to one or more of its material assets; (xi) the occurrence of an event that impairs the value of the Company’s
tax attributes, the Company is determined not to have, loses or is deprived of the right to one or more material assets;
or (xii) the Company fails to provide on July 14, 2020, August 7, 2020 and within three business days before the Effective Date,
an ownership change valuation analysis as provided under the Amended RSA.
·
The Debtors will file with the Bankruptcy Court a motion seeking entry of a cash collateral order, pursuant to which they will
be permitted to use cash collateral to effect the restructuring transactions contemplated by the Plan (as further described below)
subject to an agreed budget, as may be amended from time to time, and the NOL Motion, pursuant to which trading in VIVUS common
stock would be subject to the Procedures during the pendency of the Chapter 11 Cases to preserve the value of the Company’s
tax attributes (as described above), each of which would be entered by the Bankruptcy Court no later than 41 calendar days after
the Petition Date, and the final order would be entered within 55 calendar days after the Petition Date.
·
The Debtors will enter into a commitment letter with respect to exit financing by July 13, 2020 from IEH.
·
The approval of the Disclosure Statement and Confirmation Order no later than 41 calendar days after the Petition Date and the
occurrence of the Effective Date of the Plan no later than 45 calendar days after the Petition Date.
The Amended RSA also modified the prior
RSA to provide for certain covenants of the Debtors relating to the timing of the payment of the Supporting Noteholder’s
reasonable and documented fees and expenses and restricting the Debtors from placing, amending or supplementing the Debtors’
insurance policies other than ordinary course renewals (excluding directors’ and officers’ insurance).
The Amended RSA provides that as of the
Effective Date of the Plan, the Common Stock will be delisted, VIVUS will not be a Securities and Exchange Commission (“SEC”)
reporting company and that any restructuring transactions to be effected pursuant to the Plan, will, to the extent possible, be
structured to preserve the value of the Company’s tax attributes in a tax efficient manner beneficial to the Supporting
Noteholder, and the Company will not take any action inconsistent with treatment provided under Section 382(l)(5) of the
Internal Revenue Code.
As under the prior RSA, the Amended RSA
will terminate automatically upon the completion of an alternative restructuring or the effective date of the Plan or three business
days following the delivery of written notice of a Company Termination Event or a Creditor Termination Event (as described above),
in either case, as provided under the Amended RSA. The Amended RSA modified the Creditor Termination Events, in addition to those
events listed above that result in a termination payment by the Debtors, to provide that the Supporting Noteholder may terminate
the Amended RSA in the event that the Debtors do not satisfy the milestones described above and set forth in the Amended RSA,
if the Debtors fail to take commercially reasonable efforts to object to the appointment of an equity committee in the Chapter
11 Cases, the Bankruptcy Court order confirming the Plan does not expressly approve the Existing Stock Settlement and settlement
of Indemnification Claims (each as defined under the Amended RSA), or the occurrence of any breach under the Secured Notes Indenture
not caused by or related to the Chapter 11 Cases or the failure to comply with certain provisions of the Secured Notes Indenture.
The Amended RSA also provides that if the Amended RSA is terminated or the support period ends prior to the Plan becoming effective,
the votes of the Supporting Noteholder will be deemed votes to reject the Plan and opt-outs of releases in the Plan.
This description of the Amended RSA is
qualified in its entirety by reference to the full text of the Amended RSA attached hereto as Exhibit 10.1.
Exit Financing
The Plan provides that the Supporting
Noteholder will provide a loan facility of approximately $90 million to the Debtors in connection with the effectiveness of the
Plan. The proceeds of the exit facility will be used by the reorganized Debtors to (i) effect the Plan, (ii) refinance, in cash
or by exchange, the Secured Notes, (iii) fund working capital requirements, and (iv) pay fees and expenses related to the transactions
contemplated under the Plan. The exit facility will be provided on the terms and conditions set forth in an agreement and related
documentation, which provide the Supporting Noteholder’s commitment to enter into the exit facility agreement will be included
as part of a Plan Supplement filed with the Bankruptcy Court no later than seven calendar days prior to the deadline to object
to the Plan.