Item 1.01 Entry into a Material Definitive Agreement.
The information set forth below under Items 1.03 and 2.04 of this Current Report
on Form 8-K regarding the Purchase Agreement and the Settlement Agreement (each
as defined below) is incorporated herein by reference.
Item 1.03 Bankruptcy or Receivership.
Ch. 11 Filing
On February 9, 2020 (the "Petition Date"), Valeritas Holdings, Inc. (the
"Company") and the Company's wholly-owned subsidiaries (each a "Debtor" and
together with the Company, the "Debtors") filed voluntary petitions
(collectively, the "Bankruptcy Petitions") under Chapter 11 of Title 11 of the
United States Code (the "Bankruptcy Code") in the United States Bankruptcy Court
for the District of Delaware (the "Court"), for which joint administration has
been sought (the "Chapter 11 Cases"), under the caption In re Valeritas
Holdings, Inc., et al., Case No. 20-10290. Each Debtor will continue to operate
its business as a "debtor in possession" under the jurisdiction of the Court and
in accordance with the applicable provisions of the Bankruptcy Code and the
orders of the Court. The Debtors expect to continue their operations in the
ordinary course of business without interruption during the pendency of the
Chapter 11 Cases, pending the sale of their assets in a going concern sale
pursuant to a competitive bidding and auction process. To maintain and continue
uninterrupted ordinary course operations during the Chapter 11 Cases, the
Debtors have filed a variety of "first day" motions seeking approval from the
Court for various forms of customary relief, including authority to:
(a) continue using their existing cash management system, (b) pay prepetition
wages, compensation and employee benefits, (c) maintain existing insurance
policies and pay related obligations, (d) pay certain prepetition taxes,
(e) provide adequate assurance of payment to their utility providers, (f) pay
prepetition claims of certain critical vendors, and (g) use cash collateral and
enter into a debtor-in-possession financing facility.
Assuming the Company is able to successfully complete the Auction process, the
Company anticipates that it will delist from Nasdaq and deregister its common
stock under the Securities Exchange Act of 1934, as amended.
The Company cautions that trading in its securities during the pendency of the
Chapter 11 Cases is highly speculative and poses substantial risks. Trading
prices for the Company's securities may bear little or no relationship to the
actual recovery, if any, by holders of the Company's securities in the Chapter
11 Cases. Based upon the current proceeds available from the Asset Sale (as
defined below) pursuant to the Purchase Agreement (as defined below), after
payment to the Lenders (as defined below), the other secured lenders and the
payment of other liabilities, there will not be any proceeds available for
distribution to the holders of the Company's common stock.
DIP Facility
To ensure access to sufficient liquidity throughout their Chapter 11 Cases, the
Debtors filed a motion seeking authority to execute, enter into and perform
under a debtor-in-possession financing facility on the terms set forth in that
certain Senior Secured Superpriority Priming Debtor-in-Possession Credit
Facility Term Sheet (the "DIP Term Sheet"), by and among the Company, as
borrower (the "Borrower"), the Lenders (as defined therein) party thereto, and
HB Fund LLC, as the "DIP Lender," a form of which was filed with the Court on
the Petition Date. The DIP Term Sheet provides for a senior secured
super-priority priming debtor-in-possession term loan financing facility (the
"DIP Facility") in an aggregate amount of up to $12.0 million, which will be
funded in two tranches, as follows: (i) $5.5 million will be funded on a weekly
basis equally over four weeks from the date of Court approval of the DIP
Facility on an interim basis ("Tranche A") and (ii) $6.5 million ("Tranche B")
will be funded upon the satisfaction of certain pre-specified conditions in the
DIP Term Sheet. The DIP Facility and the loans thereunder will be subject to a
borrowing base and become available upon the satisfaction of customary
conditions precedent thereto, including the entry of an order of the Court
approving the DIP Facility on an interim basis.
The proceeds of the DIP Facility will be used by the Company in accordance with
a Court-approved budget for working capital and general corporate purposes of
the Debtors and to pay fees, costs and expenses related to the DIP Facility.
The maturity date of the loans to be made under the DIP Facility is the earliest
to occur of: (i) April 3, 2020, (ii) the date which is thirty (30) days
following the entry of the Interim Order if the Bankruptcy Court has not entered
the Final Order on or prior to such date; (iii) the date the DIP Facility is
accelerated as a result of an Event of Default (as defined in the DIP Term
Sheet), (iv) the date of consummation of a confirmed plan of reorganization in
the Chapter 11 Cases or (v) the filing of a motion by the Debtors seeking
dismissal of any or all of the Chapter 11 Cases, the dismissal of any or all of
the Chapter 11 Cases, the filing of a motion by the Debtors seeking to convert
any or all of the Chapter 11 Cases to a case under chapter 7 of the Bankruptcy
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Code, the conversion of any or all of the Chapter 11 Cases to a case under
chapter 7 of the Bankruptcy Code or the appointment or election of a trustee
under chapter 11 of the Bankruptcy Code, a responsible officer or examiner with
enlarged powers relating to the operation of the Debtors' business (powers
beyond those set forth in section 1106(a)(3) and (4) of the Bankruptcy Code)
under section 1106 of the Bankruptcy Code. The outstanding principal on both the
Tranche A and Tranche B loans under the DIP Facility will bear interest per
annum at a rate of 18%, which interest shall be paid in kind by capitalizing the
amount thereof and adding it to outstanding principal. The DIP Facility will be
subject to a $200,000 origination fee and be subject to commitment fees in an
amount equal to 12.5% for the commitment related to the Tranche A Loans and
12.0% for the commitment related to the Tranche B Loans.
Pursuant to the terms of the DIP Term Sheet, the other Debtors, as subsidiary
guarantors (each, a "Guarantor" and collectively with the Borrower, the "DIP
Loan Parties") will guarantee the obligations of the Borrower under the DIP
Facility. Subject to certain exceptions, the DIP Facility will be secured by a
first priority perfected security interest in all of the assets of the Borrower.
The security interests and liens are subject only to certain carve-outs and
certain permitted liens.
The DIP Facility is subject to certain customary affirmative and negative
covenants and events of default as set forth in the DIP Term Sheet.
The foregoing description of the DIP Term Sheet does not purport to be complete
and is qualified in its entirety by reference to the DIP Term Sheet itself.
Stalking Horse Asset Purchase Agreement
On February 9, 2020, Zealand Pharma A/S, (the "Purchaser"), and the Company and
certain of its subsidiaries (together, the "Sellers") entered into an Asset
Purchase Agreement (the "Purchase Agreement") pursuant to which, subject to the
conditions described below, the Purchaser agreed to purchase substantially all
of the assets of the Company (such assets, the "Assets," and such transaction,
. . .
Notice of Delisting or Failure to Satisfy a Continued Listing
Item 3.01 Rule or Standard; Transfer of Listing.
On February 5, 2020, the Company received a letter (the "Notification Letter")
from the Listing Qualifications Department of the Nasdaq Stock Market ("Nasdaq")
indicating that the Company no longer complies with the minimum bid price
requirements set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing
on The Nasdaq Capital Market. Nasdaq Listing Rule 5550(a)(2) requires listed
securities to maintain a minimum bid price of $1.00 per share, and Nasdaq
Listing Rule 5810(c)(3)(A) provides that a failure to meet the minimum bid price
requirement exists if the deficiency continues for a period of 30 consecutive
business days. Based on the closing bid price of the Company's common stock for
the 30 consecutive business days prior to the date of the Notification Letter,
the Company no longer meets the minimum bid price requirement. The Notification
Letter has no immediate effect on the listing or trading of the Company's common
stock on The Nasdaq Capital Market and, at this time, its common stock will
continue to trade on The Nasdaq Capital Market under the symbol "VLRX."
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The Notification Letter provides that the Company has 180 calendar days, or
until August 3, 2020, to regain compliance with Nasdaq Listing Rule 5550(a)(2).
To regain compliance, the bid price of the Company's common stock must have a
closing bid price of at least $1.00 per share for a minimum of 10 consecutive
business days. If the Company does not regain compliance by August 3, 2020, an
additional 180 days may be granted to regain compliance, so long as the Company
meets The Nasdaq Capital Market continued listing requirements (except for the
bid price requirement) and notifies Nasdaq in writing of its intention to cure
the deficiency during the second compliance period, by effecting a reverse stock
split, if necessary. If the Company does not qualify for the second compliance
period or fails to regain compliance during the second 180-day period, then
Nasdaq will notify the Company of its determination to delist the Company's
common stock, at which point the Company will have an opportunity to appeal the
delisting determination to a Hearings Panel.
Assuming the Company is able to successfully complete the Auction process, the
Company anticipates that it will delist from Nasdaq and deregister its common
stock under the Securities Exchange Act of 1934, as amended.
Departure of Directors or Certain Officers; Election of
Directors; Appointment of Certain Officers; Compensatory
Item 5.02 Arrangements of Certain Officers.
On February 8, 2020, the Company's Board of Directors (the "Board"), based on
the recommendation of the Company's Compensation Committee, a committee of the
Board (the "Committee"), approved the adoption of a key employee incentive
program ("KEIP") for the benefit of ten of the Company's executive officers
and/or senior level management (collectively, the "KEIP Participants"), whose
continued dedication and performance is critical to the Company's success. In
approving the KEIP, the Board relied upon the market analysis and advice of the
Company's restructuring advisors. The KEIP provides incentive payments of
between 10% to 55% of each KEIP Participant's base salary based on the aggregate
value of the asset sale, unless he or she voluntarily resigns or is terminated
by the Company for cause prior to the consummation of the sale of the Company's
assets.
On February 8, 2020, the Board, based on the recommendation of the Committee,
also approved the adoption of a key employee retention plan ("KERP") which is
designed to retain key employees in their current roles over the near term while
providing them with financial stability. The KERP covers certain non-insider
employees of the Company as of the Petition Date (the "KERP Participants") and
awards each KERP Participant a payment equal to a percentage of his or her base
salary, unless he or she voluntarily resigns or is terminated by the Company for
cause prior to the consummation of the sale of the Company's assets.
Item 8.01 Other Events.
Cautionary Note Regarding Forward-Looking Statements
This Current Report on Form 8-K contains certain statements that are, or may be
deemed to be, "forward-looking statements" within the meaning of Section 27A of
the Securities Act and Section 21E of the Exchange Act. Statements including
words such as "estimate," "plan," "project," "forecast," "intend," "expect,"
"anticipate," "believe," "seek," "target" or similar expressions are
forward-looking statements. These statements reflect the Company's current
views, expectations and beliefs concerning future events. In addition, any
statements related to the Company's plans to sell all of its assets pursuant to
Chapter 11 of the U.S. Bankruptcy Code; the Company's intention to continue
operations while the Company works to complete its sale and restructuring
process; the Company's intended use of the proceeds from the DIP financing; the
Company's belief that the restructuring and sale process will be in the best
interest of the Company and its stakeholders; timing for completion of the sale
process; the continued uninterrupted access to the Company's drug delivery
device and patient support services during the Chapter 11 proceedings; and other
statements regarding the Company's strategy and future operations, performance
and prospects are forward-looking statements. Such plans, expectations and
statements are as to future events and are not to be viewed as facts, and
reflect various assumptions of management of the Company and are subject to
significant business, financial, economic, operating, competitive, litigation
and other risks and uncertainties and contingencies (many of which are difficult
to predict and beyond the control of the Company) that could cause actual
results to differ materially from the statements included herein, including,
without limitation: the potential adverse impact of the Chapter 11 filings on
the Company's liquidity and results of operations; changes in the Company's
ability to meet its financial obligations during the Chapter 11 process and to
maintain contracts that are critical to its operations; the outcome and timing
of the Chapter 11 process and the proposed auction and asset sale; the effect of
the Chapter 11 filings and proposed asset sale on the Company's relationships
with vendors, regulatory authorities, employees and other third parties;
possible proceedings that may be brought by third parties in connection with the
Chapter 11 process or the proposed asset sale; uncertainty regarding obtaining
bankruptcy court approval of a sale of the Company's assets or other conditions
to the proposed asset sale; and the timing or
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amount of any distributions, if any, to the Company's stakeholders. The
inclusion of forward-looking statements should not be regarded as a
representation by the Company that any of its plans will be achieved. Investors
should note that many factors, including those more fully described in the
Company's filings with the Securities and Exchange Commission ("SEC")
(including, but not limited to, its Annual Report on Form 10-K for the year
ended December 31, 2018 and its subsequent quarterly and periodic reports),
could affect the Company's future financial results and could cause actual
results to differ materially from those expressed in forward-looking statements,
such as those contained in this Current Report on Form 8-K. The forward-looking
statements in this Current Report on Form 8-K are qualified by risk factors
identified by the Company. These risk factors, individually or in the aggregate,
could cause our actual results to differ materially from expected and historical
results. You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company assumes no
obligation to publicly update any forward-looking statements, whether as a
result of new information, future developments or otherwise.
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Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
Exhibit No. Description
99.1 Press release dated February 9, 2020.
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