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November 9, 2021 – The Debtors, a New Jersey-based specialty generic pharmaceutical company, filed a motion requesting approval for procedures relating to the private sale (the “Sale”) of $3.0mn of R&D credits and unused carryforward net operating losses ("NOLs" and together with the R&D credits, "Tax Attributes") that it believes it can sell under a State of New Jersey program established to assist loss-making, technology-related businesses in that state [Docket No. 159].
The Debtors' application to participate in the 2021 iteration of the program was approved by the NJEDA (defined below) prior to filing and the Debtors are now working with a specialized broker to sell those credits. The Debtors "expect to select a purchaser and close on a sale of the Tax Attributes in December 2021."
According to the Debtors, the New Jersey program allows for a qualifying holder of these Tax Attributes to sell/transfer them to a "profitable unrelated entity for at least 80%* of the value of those tax attributes." Amongst a number of potential hurdles for the Debtors' estates to fully capitalize on any sale of Tax Attributes is the requirement that proceeds be used for "Allowable Expenditures"… which include "expenses of fixed assets, such as the construction, acquisition and development of real estate, materials, start-up, tenant fit-out, working capital, salaries, and research and development expenditures."
The New Jesey program is clearly aimed at providing struggling technology and biotechnology companies with a way to monetize losses to see them through to better, going-concern times; times which these Debtors (who filed Chapter 11 to pursue a 363 sale process) will never see.
Will the fact that the bankrupt Debtors do not squarely fit that "going concern" profile impact a potential sale? Not something that the Debtors are expressing any concern over. The ability to use the money, however, is clearly being considered with the Debtors noting that: "If the sale proceeds are not used for ‘Allowable Expenditures,’ the Debtors may be ‘subject to the recapture of up to the [f]ace [v]alue of the [Tax Attributes]'."
* The NJEDA provides as to the program: "[It] Enables tech and life sciences companies to sell their New Jersey net operating losses and/or research and development tax credits for cash. The market price for the benefit is generally 88-94 cents on the dollar."
The form of asset purchase agreement is filed at Docket No. 159.2.
The Court scheduled a hearing to consider the motion for November 30, 2021, with objections due by November 23, 2021.
The motion explains, “The NOL Program and the Tax Attributes: In the ordinary course of their business, the Debtors generate various valuable tax attributes on a state and federal level. The New Jersey Economic Development Authority (the ‘NJEDA’), has established a program, the Technology Business Tax Certificate Transfer Program (the ‘NOL Program’), through which a qualifying entity may sell its unused carryforward net operating losses (the ‘NOLs’) and research and development tax credits (the ‘R&D Credits’) to a profitable unrelated entity for at least 80% of the value of those tax attributes. To be eligible for participation in the NOL Program, a company must meet the following criteria:
- The company has fewer than 225 employees (including parent company and subsidiaries);
- The company is a technology or biotechnology company whose primary business involves the provision of a scientific process, product or service;
- The company owns, has filed for, or has a license to use a patent or registered copyright
- The company has not had positive net operating income on either of its last two full-year GAAP income statements, nor has any parent company, and the applicant company is not a member of a consolidated group of affiliates with positive net operating income.
- The company has at least (i) one full-time employee working in New Jersey if incorporated or formed in the last three years; (ii) five full-time employees in New Jersey if incorporated or formed more than three but less than five years; or (iii) ten full-time employees in New Jersey if incorporated or formed more than five years ago; and
- Healthcare coverage must be available and offered to all full-time New Jersey employees.
The Debtors are a qualifying entity, and have approximately $2.95 million in qualifying Tax Attributes. Specifically, approximately $2.65 million of the Tax Attributes are R&D Credits, and approximately $300,000 are NOLs. Historically, the Debtors have had limited or no taxable income or tax liabilities at the New Jersey state level against which the NOLs or R&D Credits could be applied. By participating in the NOL Program, the Debtors have the ability to monetize and maximize the value associated with the Tax Attributes. As allowed by the NOL Program and New Jersey state law, the Tax Attributes cover a seven-year lookback period. Accordingly, through the NOL Program, the Debtors have the ability to realize no less than approximately $2,360,000 (80% of $2.95 million) on account of a sale of the Tax Attributes through the NOL Program.
The NOL Program also places certain restrictions on how a seller may use sale proceeds. Under New Jersey law and the Purchase Agreement, the funds may only be used for ‘Allowable Expenditures,’ which include ‘expenses of fixed assets, such as the construction, acquisition and development of real estate, materials, start-up, tenant fit-out, working capital, salaries, and research and development expenditures.’ If the sale proceeds are not used for ‘Allowable Expenditures,’ the Debtors may be ‘subject to the recapture of up to the [f]ace [v]alue of the [Tax Attributes].’
Before the Petition Date, the Debtors submitted an application to participate in the NOL Program for the 2021 program year. The NJEDA approved the application before the Petition Date, and the Debtors have been working with a broker, Tax Credits US, that specializes in connecting NOL Program participants with buyers (the ‘Broker’). The Debtor and the Broker are in the process of compiling and finalizing the documentation necessary to facilitate the Sale of the Tax Attributes through the NOL Program, and expect to select a purchaser and close on a sale of the Tax Attributes in December 2021.”
On October 14, 2021, Teligent, Inc. and three affiliated debtors (Nasdaq: TLGT, “Teligent” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 21-11332. At filing, the Debtors, a New Jersey-based specialty generic pharmaceutical company, noted estimated assets of $85.0mn and estimated liabilities of $135.8mn.
In a press release announcing the filing, Teligent advised that it had: “filed…to pursue a sale process that is intended to maximize the value of the Company. The Company began a marketing process ahead of the Chapter 11 filing to determine the level of market interest and is in ongoing discussions with several interested parties. The Company expects to consummate a sale of the entire business or its core assets by early 2022. Meanwhile, Teligent's Canadian affiliate, Teligent Canada, will be pursuing an out-of-court sale process.”
In a September 27th 8-K, the Debtors disclosed that their CFO Ernest R. De Paolantonio had resigned as of September 21st and that two Board members, R. Carter Pate and William R. Marth, had followed suit over the next 48 hours.
As of the Petition Date, the Debtors’ outstanding obligations in connection with the foregoing are estimated at no less than the following amounts:
About the Debtors
According to the Debtors: “Teligent is a specialty generic pharmaceutical company. Our mission is to be a leading player in the specialty generic prescription drug market."
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