Cell Genesys to buy back most 3.125% convertibles, considers options

By Angela McDaniels

Tacoma, Wash., June 23 - Cell Genesys, Inc. said it received tenders for $67 million, or more than 98%, of its $68.3 million outstanding principal amount of 3.125% convertible senior notes due Nov. 1, 2011 during an exchange offer that ended at 5 p.m. ET on June 22.

The exchange offer is part of the company's restructuring plan. Cell Genesys said it continues to explore strategic alternatives, including a merger with or acquisition by another company, additional restructuring, the allocation of its remaining resources toward other biopharmaceutical product areas and the liquidation of the company.

For each $1,000 principal amount of the existing convertibles, holders will receive $500 in cash plus accrued interest; $140 worth of common stock, or about 221 shares; and $310 principal amount of new 3.125% convertible senior notes due May 1, 2013.

Upon settlement of the exchange offer, about $1 million of the original 3.125% convertibles will remain outstanding and $20.8 million of new 3.125% convertibles will be issued.

In total, offer participants will receive $33.5 million in cash, $0.3 million of accrued interest and 13.8 million new shares.

Completion of the offer was subject to at least 87.5% of the existing convertibles being tendered. When the offer began on May 22, Cell Genesys said a holder owning 67.6% of the existing convertibles had committed to tender.

As previously reported, Tang Capital Partners, LLC filed a creditor derivative lawsuit in the Court of Chancery of the State of Delaware on May 5 against Cell Genesys seeking a declaration that the company is insolvent and an injunction prohibiting previously disclosed executive retention payments.

Tang Capital agreed to tender into the exchange offer and withdraw the lawsuit once the exchange offer is completed.

Restructuring

Lazard Freres & Co., LLC is helping to evaluate the company's strategic alternatives.

According to a company news release, Cell Genesys has taken the following steps so far:

• Eliminated all research and development, manufacturing, clinical and regulatory activities and personnel, reducing its staff to nine employees who maintain financial and corporate records;

• Relocated corporate operations to short-term office space in South San Francisco, Calif., and vacated all other facilities, including the head office;

• Entered into an exchange agreement with a warrant holder that resulted in the issuance of 8 million shares and the elimination of about 93% of the shares issuable upon the exercise of this warrant;

• Terminated a committed equity financing facility with Kingsbridge Capital, Ltd. signed in 2007 due to a substantial fall in Cell Genesys' stock price below the minimum purchase price of $1.75 per share; and

• Repurchased $76.7 million of the 3.125% convertibles at a 60% discount to par through private transactions and a previously completed tender offer.

The South San Francisco, Calif.-based company develops treatments for cancer.

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