DOV unable to buy back any 2.5% convertibles during required offer, causing event of default

By Angela McDaniels

Seattle, Jan. 3 - DOV Pharmaceutical, Inc. said it does not have the capital necessary to repurchase the $67.8 million of its $70 million 2.5% convertible subordinated debentures due 2025 that were tendered during a buyback offer that expired on Tuesday.

Therefore, no debentures will be accepted for payment and all of the debentures will remain outstanding.

DOV was obligated to make the offer under the indenture governing the debentures following the delisting of its common stock from Nasdaq on Oct. 27, and failure to pay for the debentures constitutes an event of default under the indenture, according to a company news release.

In addition, each debentureholder now has the right to require DOV to buy back the debentures at a price of $1,012.50 per $1,000 principal amount.

The company said it entered into a non-binding letter of intent with some members of the ad hoc committee of debentureholders regarding a consensual restructuring of the debentures and that these debentureholders, who hold 66.7% of the debentures, have agreed not to take any actions relating to the failure to buy back the bonds until Jan. 16, unless the company begins any bankruptcy proceeding.

The proposed restructuring is expected to be in the form of an offer to exchange the outstanding debentures for a combination of $212.50 of cash per $1,000 principal amount of debentures, which would total $14.9 million, and shares of convertible preferred stock representing 80% of DOV's outstanding equity following the completion of the offer.

The preferred stock would be convertible into shares of common stock and would automatically convert at specified points in time, according to the release.

Currently, each $1,000 debenture is convertible into 43.9560 shares of DOV's common stock.

The preferred stock would vote with the common stock as a single class on an as-converted basis and would entitle the holders to initially appoint a majority of DOV's board of directors.

In connection with the restructuring, holders of DOV's outstanding common stock would receive warrants to purchase additional shares of common stock making up roughly 20% of the company's outstanding equity following the exchange offer and that the warrant exercise price would be set so as to effectively provide the holders of the preferred stock with an investment value equal to the principal amount of the debentures not returned in cash in the exchange offer.

The company gave no assurance that it will succeed in concluding negotiations of the agreement with the debentureholders or that it will ultimately begin the exchange offer.

If DOV is unable to restructure its obligations under the debentures or otherwise raise sufficient funds to repay the debentures, it warned that it may be forced to seek protection under U.S. bankruptcy laws.

As previously reported, the company has retained Houlihan Lokey Howard & Zukin Capital, Inc. to serve as its financial adviser to assist with its evaluation of strategic alternatives and restructuring efforts.

DOV is a biopharmaceutical company based in Somerset, N.J.

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