NAME OF REPORTING PERSON
|
|
1.
|
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
|
The Mangrove Partners Fund, L.P.
|
|
2
|
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
|
(a) x
|
|
(b) ¨
|
|
3
|
SEC USE ONLY
|
4
|
SOURCE OF FUNDS
|
WC, OO
|
|
5
|
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) ¨
|
6.
|
CITIZENSHIP OR PLACE OF ORGANIZATION
|
Delaware
|
NUMBER OF
|
7
|
SOLE VOTING POWER - 0
|
SHARES
|
||
BENEFICIALLY
|
8
|
SHARED VOTING POWER - 149,373
|
OWNED BY
|
||
EACH
|
9
|
SOLE DISPOSITIVE POWER - 0
|
REPORTING
|
||
PERSON WITH
|
10
|
SHARED DISPOSITIVE POWER - 149,373
|
11
|
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
|
149,373
|
|
12
|
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES ¨
|
13
|
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
|
5.7%*
|
|
14
|
TYPE OF REPORTING PERSON
|
PN
|
1
|
NAME OF REPORTING PERSON
|
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
|
|
Mangrove Partners
|
|
2
|
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
|
(a) x
|
|
(b) ¨
|
|
3
|
SEC USE ONLY
|
4
|
SOURCE OF FUNDS
|
AF
|
|
5
|
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) ¨
|
6
|
CITIZENSHIP OR PLACE OF ORGANIZATION
|
Cayman Islands
|
NUMBER OF
|
7
|
SOLE VOTING POWER - 0
|
SHARES
|
||
BENEFICIALLY
|
8
|
SHARED VOTING POWER - 149,373
|
OWNED BY
|
||
EACH
|
9
|
SOLE DISPOSITIVE POWER - 0
|
REPORTING
|
||
PERSON WITH
|
10
|
SHARED DISPOSITIVE POWER - 149,373
|
11
|
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
|
149,373
|
|
12
|
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES ¨
|
13
|
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
|
5.7%*
|
|
14
|
TYPE OF REPORTING PERSON
|
OO
|
1
|
NAME OF REPORTING PERSON
|
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
|
|
Mangrove Capital
|
|
2
|
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
|
(a) x
|
|
(b) ¨
|
|
3
|
SEC USE ONLY
|
4
|
SOURCE OF FUNDS
|
AF
|
|
5
|
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) ¨
|
6
|
CITIZENSHIP OR PLACE OF ORGANIZATION
|
Cayman Islands
|
NUMBER OF
|
7
|
SOLE VOTING POWER - 0
|
SHARES
|
||
BENEFICIALLY
|
8
|
SHARED VOTING POWER - 149,373
|
OWNED BY
|
||
EACH
|
9
|
SOLE DISPOSITIVE POWER - 0
|
REPORTING
|
||
PERSON WITH
|
10
|
SHARED DISPOSITIVE POWER - 149,373
|
11
|
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
|
149,373
|
|
12
|
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES o
|
13
|
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
|
5.7%*
|
|
14
|
TYPE OF REPORTING PERSON
|
OO
|
ITEM 4.
|
Purpose of Transaction.
|
ITEM 7.
|
Material to be Filed as Exhibits.
|
Exhibit No.
|
Document
|
|
99.1
|
Letter to CPEX Pharmaceuticals, Inc., dated March 16, 2011
|
THE MANGROVE PARTNERS FUND, L.P.
|
|||
MANGROVE PARTNERS
|
|||
MANGROVE CAPITAL
|
|||
By:
|
/s/ Nathaniel August
|
||
Nathaniel August, for himself, as Director of Mangrove Capital (for itself and The Mangrove Partners Fund, L.P.) and as a Director of Mangrove Partners
|
Exhibit No.
|
Document
|
|
99.1
|
Letter to CPEX Pharmaceuticals, Inc., dated March 16, 2011
|
Value to Existing Shareholders
|
Value per Right
|
Value per Share after Recapitalization
|
||||||||||||
Special Dividend
|
$ | 28.00 |
Value per Share
|
$ | 4.51 |
2012 Estimated Revenue
|
$ | 29.8 | ||||||
Value per Right
|
2.22 |
Noteholder Warrants
|
1.7 |
General & Administrative
|
(4.5 | ) | ||||||||
Value per Remaining Share
|
4.51 |
Total Warrant Value
|
$ | 7.7 |
Depreciation & Amortization
|
(0.7 | ) | |||||||
Total Value
|
$ | 34.73 |
Rights Issued
|
3.0 |
Estimated Interest Expense
|
(11.9 | ) | |||||||
Value per Right of Warrants
|
$ | 2.58 |
Taxes at 40%
|
(5.1 | ) | |||||||||
OID Value in Debt
|
6.29 |
Net Income
|
$ | 7.6 | ||||||||||
Total Value per Right
|
$ | 8.86 |
Pro Forma Diluted Shares
|
8.4 | ||||||||||
Pro Rata Participation
|
25 | % |
Earnings per Share
|
$ | 0.90 | |||||||||
Value per Right
|
$ | 2.22 |
P/E Multiple
|
5.0 | x | |||||||||
Value per Share
|
$ | 4.51 |
Summary of Proposed Transaction
|
Dividend recapitalization of $28.00 per share to be funded by new notes, existing cash on CPEX Balance Sheet, and options proceeds
|
|
Amount of Notes
|
$85,256,000 (approximately)
|
|
New Debt Funding
|
Funding via tradable rights issue to existing shareholders to subscribe for new debt and shares
|
|
Funding Date
|
July 1, 2011 targeted
|
|
Rights issue backstop participants
|
Kingstown Capital $28,000,000
Nantahala Capital Management $15,500,000
Weiss Asset Management $10,400,000
Mangrove Partners $7,099,658
KVO Capital Management, LLC $5,500,000
|
|
Interest Rate on Notes
|
LIBOR + 14%
|
|
LIBOR Floor
|
1%
|
|
LIBOR Definition
|
90-Day LIBOR
|
|
Maturity
|
December 31, 2024
|
|
Interest Payments
|
Quarterly in arrears
|
|
Rights Description
|
1 right issued for each Share/Option/Restricted Share. 35 rights plus $780 can be exchanged for a 1 new note and 20 new 12-year warrants struck at $0.01 each and immediately exercisable. Warrants to be registered and rights to be freely tradable
|
|
Par Value of Notes
|
$1,000
|
|
Share consideration
|
Shares that do not participate in the tax-free exchange option will receive a $28.00 special dividend
|
|
Backstop Fees
|
|
2% cash fee plus 3,750,000 new European style 10-year warrants struck at $0.01 each and exercisable only at expiration. Warrants to be registered
|
Prepayment Penalty
|
None
|
|||
Change of Control Put
|
None
|
|||
Debt / legal service account
|
6-months of interest based on quarterly ending debt balance
|
|||
Royalty Stream Placement
|
Royalty Stream to be placed into Special Purpose Vehicle (SPV) whereby 100% of SPV equity owned by CPEX
|
|||
Security
|
Senior secured obligation of SPV and CPEX Pharmaceuticals including CPEX guaranty
|
|||
Limitation on Indebtedness
|
No additional debt allowed at SPV. Basket for $2.5 million unsecured or pari passu debt at CPEX Corporate
|
|||
Quarterly Cash Flow Sweep Mechanism
|
100% excess cash flow at SPV to repay debt. Cash flow shall be paid as follows:
|
|||
1.
|
First, revenue shall be added to the debt service reserve to create starting SPV cash balance
|
|||
2.
|
From starting SPV cash balance interest due to note holders shall be paid
|
|||
3.
|
From remaining cash after payment of interest, debt service reserve shall be replenished
|
|||
4.
|
From cash after debt service reserve replenishment, cash taxes for CPEX (the consolidated filer) shall be paid. Checks to be issued directly to U.S. Treasury and state(s), as appropriate
|
|||
5.
|
From remaining cash after payment of cash taxes, funds to reimburse prior quarter G&A at CPEX shall be released in an amount not to exceed $1.25 million per quarter
|
|||
6.
|
From remaining cash after reimbursement of G&A, prior quarter capex is reimbursed, not to exceed the available amount in the capex basket
|
|||
7.
|
All remaining cash after capex reimbursement to be applied to principal of then outstanding notes through a lottery system
|
SPV Change of Control
|
Automatic change of control with equity conveyance to trustee/lenders in event that SPV is unable to fully replenish debt service account or in event that CPEX files for bankruptcy
|
|
SPV Dissolution
|
SPV to be dissolved when all note principal repaid
|
|
Legal expenses for royalty
|
CPEX to pay all legal expenses as part of G&A. Responsibility for legal expenses to transfer to SPV in event SPV change of control occurs
|
|
Management Options and Restricted Shares
|
Rights to be issued to options and restricted shareholders. Restricted shares and options to receive special dividend net of options strike price. Cashless exercise allowed for pro rata participation in new securities
|
|
Board Representation
|
Board expanded to 8 members with 2 new shareholder representatives TBD by vote of note holders in consultation with existing Board
|
|
Public Reporting
|
CPEX shall include a full accounting of cash flow sweeps with quarterly financials
|
|
Capex basket
|
Starting capex basket of $250,000 to increase quarterly by the amount by which incurred capex is below $50,000 and to decline by the amount by which prior quarter capex exceeds $50,000
|
|
Related Party Transactions
|
CPEX to covenant not to engage in any related party transactions without the express approval of a majority of shares voted at a special or annual meeting of stockholders
|
|
Tax refunds
|
Any tax refunds received shall be paid into SPV and shall become part of quarterly starting cash balance in quarter tax refund received
|
|
Change of Control
|
|
A change of control shall not have taken place as a result of this transaction per preliminary legal review
|
Minimum backstop allowance
|
In the event that more than 25% of the rights are subscribed for, investor demand will be prorated such that the backstop parties purchase 75% of the new securities. Shares and rights not accepted due to proration will receive $28.00 in cash
|
|
Tax-free exchange option
|
To the extent allowable, an alternative will be given to shareholders to make a tax free exchange of rights plus shares for new notes, new shares, new warrants, and a pro rata share of excess cash (to be confirmed)
|
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