0001104659-11-015003.txt : 20110317 0001104659-11-015003.hdr.sgml : 20110317 20110317090535 ACCESSION NUMBER: 0001104659-11-015003 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 20110317 DATE AS OF CHANGE: 20110317 GROUP MEMBERS: BRADLEY P. BAUER GROUP MEMBERS: CAROL B. BAUER GROUP MEMBERS: GEORGE P. BAUER GROUP MEMBERS: GUY SHANON GROUP MEMBERS: KINGSTOWN CAPITAL MANAGEMENT L.P. GROUP MEMBERS: KINGSTOWN MANAGEMENT GP LLC GROUP MEMBERS: KINGSTOWN PARTNERS II, L.P. GROUP MEMBERS: KINGSTOWN PARTNERS MASTER LTD. GROUP MEMBERS: KTOWN, LP GROUP MEMBERS: MICHAEL BLITZER SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CPEX Pharmaceuticals, Inc. CENTRAL INDEX KEY: 0001418919 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 261172076 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-84092 FILM NUMBER: 11693721 BUSINESS ADDRESS: STREET 1: 2 HOLLAND WAY CITY: EXETER STATE: NH ZIP: 03833 BUSINESS PHONE: (603) 658-6100 MAIL ADDRESS: STREET 1: 2 HOLLAND WAY CITY: EXETER STATE: NH ZIP: 03833 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: KINGSTOWN CAPITAL PARTNERS, LLC CENTRAL INDEX KEY: 0001418673 IRS NUMBER: 743125312 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 535 MADISON AVENUE STREET 2: 30TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 212-319-1309 MAIL ADDRESS: STREET 1: 535 MADISON AVENUE STREET 2: 30TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 SC 13D/A 1 a11-7981_1sc13da.htm SC 13D/A

 

 

UNITED STATES

 

 

SECURITIES AND EXCHANGE COMMISSION

 

 

Washington, D.C. 20549

 

 

 

 

 

SCHEDULE 13D

(Rule 13d-101)

 

 

INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT

TO § 240.13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO

§ 240.13d-2(a)

(Amendment No. 1)

 

CPEX Pharmaceuticals, Inc.

(Name of Issuer)

 

Common Stock, par value $0.01 per share

(Title of Class of Securities)

 

12620N104

(CUSIP Number)

 

Michael Blitzer

Kingstown Capital Partners, LLC

11 East 44th Street, 7th Floor

New York, NY 10017

(212)319-1309

(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)

 

March 14, 2011

(Date of Event Which Requires Filing of this Statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§ 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box. x (See explanatory note to this Schedule 13D)

 

Note:  Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits.  See § 240.13d-7 for other parties to whom copies are to be sent.

 

* The remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

 

The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).

 


 

CUSIP No.   12620N104

 

 

1

Name of Reporting Person
KINGSTOWN PARTNERS MASTER LTD.

 

 

2

Check the Appropriate Box if a Member of a Group

 

 

(a)

 x

 

 

(b)

 o

 

 

3

SEC Use Only

 

 

4

Source of Funds
WC

 

 

5

Check box if Disclosure of Legal Proceedings Is Required Pursuant to Item 2(d) or 2(e)     o

 

 

6

Citizenship or Place of Organization
CAYMAN ISLANDS

 

Number of
Shares
Beneficially
Owned by
Each
Reporting
Person With

7

Sole Voting Power
139,214

 

8

Shared Voting Power
139,214

 

9

Sole Dispositive Power
139,214

 

10

Shared Dispositive Power
- 0 -

 

 

11

Aggregate Amount Beneficially Owned by Each Reporting Person
139,214

 

 

12

Check box if the Aggregate Amount in Row (11) Excludes Certain Shares   o

 

 

13

Percent of Class Represented by Amount in Row (11)
5.3%

 

 

14

Type of Reporting Person
CO

 

2


 

CUSIP No.   12620N104

 

 

1

Name of Reporting Person
KINGSTOWN PARTNERS II, L.P.

 

 

2

Check the Appropriate Box if a Member of a Group

 

 

(a)

 x

 

 

(b)

 o

 

 

3

SEC Use Only

 

 

4

Source of Funds
WC

 

 

5

Check box if Disclosure of Legal Proceedings Is Required Pursuant to Item 2(d) or 2(e)     o

 

 

6

Citizenship or Place of Organization
DELAWARE

 

Number of
Shares
Beneficially
Owned by
Each
Reporting
Person With

7

Sole Voting Power
13,357

 

8

Shared Voting Power
13,357

 

9

Sole Dispositive Power
13,357

 

10

Shared Dispositive Power
- 0 -

 

 

11

Aggregate Amount Beneficially Owned by Each Reporting Person
13,357

 

 

12

Check box if the Aggregate Amount in Row (11) Excludes Certain Shares   o

 

 

13

Percent of Class Represented by Amount in Row (11)
0.5%

 

 

14

Type of Reporting Person
PN

 

3


 

CUSIP No.   12620N104

 

 

1

Name of Reporting Person
KTOWN, LP

 

 

2

Check the Appropriate Box if a Member of a Group

 

 

(a)

 x

 

 

(b)

 o

 

 

3

SEC Use Only

 

 

4

Source of Funds
WC

 

 

5

Check box if Disclosure of Legal Proceedings Is Required Pursuant to Item 2(d) or 2(e)     o

 

 

6

Citizenship or Place of Organization
DELAWARE

 

Number of
Shares
Beneficially
Owned by
Each
Reporting
Person With

7

Sole Voting Power
6,585

 

8

Shared Voting Power
6,585

 

9

Sole Dispositive Power
6,585

 

10

Shared Dispositive Power
- 0 -

 

 

11

Aggregate Amount Beneficially Owned by Each Reporting Person
6,585

 

 

12

Check box if the Aggregate Amount in Row (11) Excludes Certain Shares   o

 

 

13

Percent of Class Represented by Amount in Row (11)
0.3%

 

 

14

Type of Reporting Person
PN

 

4


 

CUSIP No.   12620N104

 

 

1

Name of Reporting Person
KINGSTOWN CAPITAL PARTNERS, LLC

 

 

2

Check the Appropriate Box if a Member of a Group

 

 

(a)

 x

 

 

(b)

 o

 

 

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)     o

 

 

6

Citizenship or Place of Organization
DELAWARE

 

Number of
Shares
Beneficially
Owned by
Each
Reporting
Person With

7

Sole Voting Power
159,156

 

8

Shared Voting Power
159,156

 

9

Sole Dispositive Power
159,156

 

10

Shared Dispositive Power
- 0 -

 

 

11

Aggregate Amount Beneficially Owned by Each Reporting Person
159,156

 

 

12

Check box if the Aggregate Amount in Row (11) Excludes Certain Shares   o

 

 

13

Percent of Class Represented by Amount in Row (11)
6.1%

 

 

14

Type of Reporting Person
OO

 

5


 

CUSIP No. 12620N104

 

 

1

Name of Reporting Person
KINGSTOWN CAPITAL MANAGEMENT L.P.

 

 

2

Check the Appropriate Box if a Member of a Group

 

 

(a)

 x

 

 

(b)

 o

 

 

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)     o

 

 

6

Citizenship or Place of Organization
DELAWARE

 

Number of
Shares
Beneficially
Owned by
Each
Reporting
Person With

7

Sole Voting Power
159,156

 

8

Shared Voting Power
159,156

 

9

Sole Dispositive Power
159,156

 

10

Shared Dispositive Power
- 0 -

 

 

11

Aggregate Amount Beneficially Owned by Each Reporting Person
159,156

 

 

12

Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares  o

 

 

13

Percent of Class Represented by Amount in Row (11)
6.1%

 

 

14

Type of Reporting Person
PN

 

6


 

 

 

CUSIP No. 12620N104

 

 

1

Name of Reporting Person
KINGSTOWN MANAGEMENT GP LLC

 

 

2

Check the Appropriate Box if a Member of a Group

 

 

(a)

 x

 

 

(b)

 o

 

 

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)     o

 

 

6

Citizenship or Place of Organization
DELAWARE

 

Number of
Shares
Beneficially
Owned by
Each
Reporting
Person With

7

Sole Voting Power
159,156

 

8

Shared Voting Power
159,156

 

9

Sole Dispositive Power
159,156

 

10

Shared Dispositive Power
- 0 -

 

 

11

Aggregate Amount Beneficially Owned by Each Reporting Person
159,156

 

 

12

Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares  o

 

 

13

Percent of Class Represented by Amount in Row (11)
6.1%

 

 

14

Type of Reporting Person
OO

 

7


 

 

CUSIP No. 12620N104

 

 

1

Name of Reporting Person
MICHAEL BLITZER

 

 

2

Check the Appropriate Box if a Member of a Group

 

 

(a)

 x

 

 

(b)

 o

 

 

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)     o

 

 

6

Citizenship or Place of Organization
USA

 

Number of
Shares
Beneficially
Owned by
Each
Reporting
Person With

7

Sole Voting Power
159,156

 

8

Shared Voting Power
159,156

 

9

Sole Dispositive Power
159,156

 

10

Shared Dispositive Power
- 0 -

 

 

11

Aggregate Amount Beneficially Owned by Each Reporting Person
159,156

 

 

12

Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares  o

 

 

13

Percent of Class Represented by Amount in Row (11)
6.1%

 

 

14

Type of Reporting Person
IN

 

8


 

 

CUSIP No. 12620N104

 

 

1

Name of Reporting Person
GUY SHANON

 

 

2

Check the Appropriate Box if a Member of a Group

 

 

(a)

 x

 

 

(b)

 o

 

 

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)     o

 

 

6

Citizenship or Place of Organization
USA

 

Number of
Shares
Beneficially
Owned by
Each
Reporting
Person With

7

Sole Voting Power
159,156

 

8

Shared Voting Power
159,156

 

9

Sole Dispositive Power
159,156

 

10

Shared Dispositive Power
- 0 -

 

 

11

Aggregate Amount Beneficially Owned by Each Reporting Person
159,156

 

 

12

Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares  o

 

 

13

Percent of Class Represented by Amount in Row (11)
6.1%

 

 

14

Type of Reporting Person
IN

 

9


 

 

CUSIP No. 12620N104

 

 

1

Name of Reporting Person
GEORGE P. BAUER

 

 

2

Check the Appropriate Box if a Member of a Group

 

 

(a)

 x

 

 

(b)

 o

 

 

3

SEC Use Only

 

 

4

Source of Funds
PF

 

 

5

Check Box if Disclosure of Legal Proceedings Is Required Pursuant to Item 2(d) or 2(e)     o

 

 

6

Citizenship or Place of Organization
USA

 

Number of
Shares
Beneficially
Owned by
Each
Reporting
Person With

7

Sole Voting Power
- 0 -

 

8

Shared Voting Power
164,372

 

9

Sole Dispositive Power
- 0 -

 

10

Shared Dispositive Power
5,216

 

 

11

Aggregate Amount Beneficially Owned by Each Reporting Person
164,372

 

 

12

Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares  o

 

 

13

Percent of Class Represented by Amount in Row (11)
6.3%

 

 

14

Type of Reporting Person
IN

 

10


 

CUSIP No.   12620N104

 

 

1

Name of Reporting Person
CAROL B. BAUER

 

 

2

Check the Appropriate Box if a Member of a Group

 

 

(a)

 o

 

 

(b)

x

 

 

3

SEC Use Only

 

 

4

Source of Funds
PF

 

 

5

Check Box if Disclosure of Legal Proceedings Is Required Pursuant to Item 2(d) or 2(e)     o

 

 

6

Citizenship or Place of Organization
USA

 

Number of
Shares
Beneficially
Owned by
Each
Reporting
Person With

7

Sole Voting Power
- 0 -

 

8

Shared Voting Power
5,216

 

9

Sole Dispositive Power
- 0 -

 

10

Shared Dispositive Power
5,216

 

 

11

Aggregate Amount Beneficially Owned by Each Reporting Person
5,216

 

 

12

Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares   o

 

 

13

Percent of Class Represented by Amount in Row (11)
0.2%

 

 

14

Type of Reporting Person
IN

 

11


 

CUSIP No.   12620N104

 

 

1

Name of Reporting Person
BRADLEY P. BAUER

 

 

2

Check the Appropriate Box if a Member of a Group

 

 

(a)

 o

 

 

(b)

x

 

 

3

SEC Use Only

 

 

4

Source of Funds
PF

 

 

5

Check Box if Disclosure of Legal Proceedings Is Required Pursuant to Item 2(d) or 2(e)     o

 

 

6

Citizenship or Place of Organization
USA

 

Number of
Shares
Beneficially
Owned by
Each
Reporting
Person With

7

Sole Voting Power
- 0 -

 

8

Shared Voting Power
- 0 -

 

9

Sole Dispositive Power
- 0 -

 

10

Shared Dispositive Power
- 0 -

 

 

11

Aggregate Amount Beneficially Owned by Each Reporting Person
- 0 -

 

 

12

Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares   o

 

 

13

Percent of Class Represented by Amount in Row (11)
0%

 

 

14

Type of Reporting Person
IN

 

12


 

CUSIP No.   12620N104

 

EXPLANATORY NOTE

 

This Amendment No. 1 to Schedule 13D (this “Amendment No. 1”) is being filed with respect to the beneficial ownership of common stock, par value $0.01 per share (the “Common Stock”), of CPEX Pharmaceuticals, Inc. (the “Issuer” or the “Company”).  This Amendment No. 1 supplements Items 4 and 7 of the Schedule 13D originally filed on February 24, 2011.

 

Item 4.          Purpose of Transaction.

 

On March 14, 2011, Kingstown Capital Partners, LLC was listed as a rights issue backstop participant in a proposal delivered by Mangrove Partners to the board of directors of the Issuer (the “Board”), an updated version of which was delivered to the Board on March 16, 2011 (as updated, the “Term Sheet”).  A copy of the Term Sheet from Mangrove Partners is attached hereto as Exhibit 99.1 and is incorporated herein by reference.  The description herein of the Term Sheet is qualified in its entirety by reference to the Term Sheet.

 

All of the shares of Common Stock reported herein as being beneficially owned by the Reporting Persons were acquired for investment purposes.  No Reporting Person and, to the best of the Reporting Persons’ knowledge, none of the persons listed on Schedule A, who are not also Reporting Persons, has any present plan or proposal which would relate to or result in any of the matters set forth in subparagraphs (a) - (j) of Item 4 of Schedule 13D except as set forth herein or such as would occur upon completion of any of the actions discussed herein, including in any Exhibits hereto.  The Reporting Persons intend to review their investment in the Issuer on a continuing basis.  Depending on various factors including, without limitation, the Issuer’s financial position and investment strategy, the price levels of the Shares, conditions in the securities markets and general economic and industry conditions, the Reporting Persons may in the future take such actions with respect to their investment in the Issuer as they deem appropriate including, without limitation, communications with management and the Board of the Issuer regarding, among other things, the strategic direction and capital allocation of the Issuer, engaging in discussions with third parties, including other stockholders of the Issuer, about the Issuer and the Reporting Persons’ investment, making proposals to the Issuer concerning changes to the capitalization, ownership structure, board structure (including seeking board representation) or operations of the Issuer, purchasing additional Shares, selling some or all of their Shares, engaging in short selling of or any hedging or similar transaction with respect to the Shares, or changing their intention with respect to any and all matters referred to in Item 4; provided that the Reporting Persons expressly disclaim any intention of engaging in a control transaction or a contested election of directors of the Issuer’s Board.

 

Item 7.          Material to be Filed as Exhibits.

 

99.1         Term Sheet, dated March 16, 2011

 

13


 

CUSIP No.  12620N104

 

SIGNATURES

 

After reasonable inquiry and to the best of his knowledge and belief, each of the undersigned certifies that the information set forth in this statement is true, complete and correct.

 

Date: March 17, 2011

KINGSTOWN CAPITAL MANAGEMENT L.P.

 

 

 

 

 

 

 

By:

Kingstown Management GP LLC

 

 

its general partner

 

 

 

 

 

 

 

By:

/s/ Michael Blitzer

 

 

Michael Blitzer

Managing Member

 

 

 

 

 

 

 

KINGSTOWN MANAGEMENT GP LLC

 

 

 

 

 

 

 

By:

/s/ Michael Blitzer

 

 

Michael Blitzer

Managing Member

 

 

 

 

 

 

 

KINGSTOWN CAPITAL PARTNERS, LLC

 

 

 

 

 

 

 

By:

/s/ Michael Blitzer

 

 

Michael Blitzer

Managing Member

 

 

 

 

 

 

 

KINGSTOWN PARTNERS MASTER LTD.

 

 

 

 

 

 

 

By:

/s/ Michael Blitzer

 

 

Michael Blitzer

Director

 

 

 

 

 

 

 

KINGSTOWN PARTNERS II, L.P.

 

 

 

 

 

 

 

By:

Kingstown Capital Partners LLC

 

 

its general partner

 

 

 

 

 

 

 

By:

/s/ Michael Blitzer

 

 

Michael Blitzer

Managing Member

 

14


 

 

KTOWN, LP

 

 

 

 

 

 

 

By:

Kingstown Capital Partners, LLC

 

 

its general partner

 

 

 

 

 

 

 

By:

/s/ Michael Blitzer

 

 

Michael Blitzer

Managing Member

 

 

 

 

 

 

 

/s/ Michael Blitzer

 

MICHAEL BLITZER

 

 

 

 

 

/s/ Guy Shanon

 

GUY SHANON

 

 

 

 

 

/s/ George P. Bauer

 

GEORGE P. BAUER

 

 

 

 

 

/s/ Carol B. Bauer

 

CAROL B. BAUER

 

 

 

 

 

/s/ Bradley P. Bauer

 

BRADLEY P. BAUER

 

15


 

CUSIP No.  12620N104

 

SCHEDULE A

 

Directors and Officers of Kingstown Partners Master Ltd.

 

Name and Position

 

Principal Occupation

 

Principal Business Address

 

Citizenship

 

 

 

 

 

 

 

Michael Blitzer

Director

 

Managing Member,

Kingstown Management GP LLC

 

11 East 44th Street, 7th Floor,

New York, New York 10017

 

United States

 

 

 

 

 

 

 

Guy Shanon

Director

 

Managing Member,

Kingstown Management GP LLC

 

11 East 44th Street, 7th Floor,

New York, New York 10017

 

United States

 

 

 

 

 

 

 

Warren Keens

Director

 

Director of Close Brothers (Cayman) Limited

and Managing Director of Close Fund Services

 

Harbour Place, 4th Floor

103 South Church Street

Grand Cayman, Cayman Islands

 

United Kingdom

 

16

 EX-99.1 2 a11-7981_1ex99d1.htm EX-99.1

 

Exhibit 99.1

 

Proposed Funding Term Sheet, March 16, 2011

CPEX Dividend Recapitalization via Rights Issue for new Notes

 

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)

 

This is an indicative term sheet only. It is not a binding proposal or offer or agreement. No party shall have any obligation to proceed with a transaction unless and until definitive transaction documents have been agreed and signed by the parties.