June 28, 2023 – Further to a February 24th bidding procedures order [Docket No. 854] and absent any further qualified bids, the Debtors notified the Court that an oft-delayed auction had been cancelled and Blast Asset Acquisition LLC* ($362.0 million cash bid) designated as the Successful Bidder for substantially all of the Debtors’ assets [Docket No. 1546, with the asset purchase agreement filed at Exhibit 1].

* Blast Asset Acquisition LLC, a Delaware limited liability company, is an acquisition vehicle that is a subsidiary of Monster Beverage Corporation, is a Qualified Bid for such assets, and that no bids for less than substantially all of the Debtors’ assets are acceptable to the Debtors and the Consultation Parties.

The sale hearing is scheduled for July 13, 2023.

The notice provides: "…the Debtors, in consultation with the Consultation Parties, have determined that only one bid received for substantially all of the Debtors’ assets, from Blast Asset Acquisition LLC, an acquisition vehicle that is a subsidiary of Monster Beverage Corporation, is a Qualified Bid for such assets, and that no bids for less than substantially all of the Debtors’ assets are acceptable to the Debtors and the Consultation Parties.

Therefore, pursuant to the Bidding Procedures, the Debtors are cancelling the Auction and designating Blast Asset Acquisition LLC as the “Successful Bidder….

in the event that the Debtors are unable to pursue and/or consummate the Transactions, including as a result of (i) termination of the APA due to the Transactions not having received the expiration or termination of the applicable waiting period under the HSR Act by June 30, 2023, or (ii) the Debtors being unable to secure necessary funding for these cases pending consummation of the Transactions, the Debtors intend to file immediately a motion seeking to convert the chapter 11 cases to cases under chapter 7 of the Bankruptcy Code in order to effectuate an orderly liquidation."

UPDATE: According to a July 3rd article published by Bloomberg, "Monster Beverage Corp. is moving forward with its $362 million acquisition of its bankrupt rival Bang Energy after a federal antitrust regulator ended its review that could have quashed the proposed deal. The US Federal Trade Commission informed Monster and Bang’s parent Vital Pharmaceuticals Inc. that it’s granting early termination of its merger review process, according to a spokesperson for Monster."

So how much of that $362.0mn of cash will go directly back into Monster Energy's pocket?

The Monster Energy APA provides: "Effective as of the Closing, and subject to entry of the 9019 Order, each of the Selling Entities hereby unconditionally and irrevocably agrees for all purposes that the following claims shall be deemed allowed in the Bankruptcy Case: the California District Court Action Allowed Unsecured Claim, the Trade Dress Action Allowed Unsecured Claim, and the OBI/Monster Matter Allowed Unsecured Claim. MEC agrees to subordinate any recoveries on its 100% share of the California District Court Action Allowed Unsecured Claim and its 50% share of the OBI/Monster Matter Allowed Unsecured Claim until the Selling Entities recover $5 million from the Excluded Assets, including Excluded Estate Claims, for the benefit of their estates. MEC shall not have an allowed administrative claim in the Bankruptcy Case, provided that the DIP Lenders and the Prepetition Secured Parties agree that they also will not have any allowed administrative claims in the Bankruptcy Case….

“OBI/Monster Matter Allowed Unsecured Claim” means an allowed general unsecured claim in the Bankruptcy Case jointly in favor of MEC and Orange Bang, Inc. in the amount of $216,131,658.35, plus accrued interest until the Petition Date; provided, however, that MEC agrees to subordinate any recoveries on its 100% share of the California District Court Action Allowed Unsecured Claim and its 50% share of the OBI/Monster Matter Allowed Unsecured Claim until the Selling Entities recover $5 million from the Excluded Assets, including Excluded Estate Claims, for the benefit of their estates. MEC shall not have an allowed administrative claim in the Bankruptcy Case, provided that the DIP Lenders [Truist owed $100.0mn of new money and allowed $235.0mn roll-up, see below] and the Prepetition Secured Parties [Truist again, owed @$350.0mn, of which $235.0mn is rolled into the DIP] agree that they also will not have any allowed administrative claims in the Bankruptcy Case."

Key Terms of Blast Asset Acquisition APA:

• Seller: Vital Pharmaceuticals, Inc. and certain of its Debtor affiliates
• Successful Bidder: Blast Asset Acquisition LLC, a subsidiary of Monster Beverage Corporation.
• Purchase Price:The aggregate consideration for all or substantially all of the assets of the Selling Entities will be up to $362.0mn, which shall be inclusive of the full amount of the following:
  • an amount in cash equal to the Cash Purchase Price
  • the Deposit (i.e., $25,000,000)
  • the assumption of the Assumed Liabilities by execution of the Assignment and Assumption Agreement.
• Purchased Assets: The assets shall include substantially all of the Selling Entities’ assets related to the Business.
• Guarantor: Monster Beverage Corporation.

Case Evolution

On October 10, 2022, privately held Vital Pharmaceuticals, Inc. and six affiliate debtors (dba Bang Energy, “VPX” or the “Debtors”) filed for Chapter 11 protection noting estimated assets between $500.0mn and $1.0bn; and estimated liabilities between $500.0mn and $1.0bn. At filing, the Debtors, a manufacturer of “performance beverages, supplements, and workout products to fuel high-energy lifestyles,” characterized their Chapter 11 filings as “a restorative action to help the company recover from recent challenges, including multiple lawsuits that impacted the Company’s short-term outlook and the cost impact of reconstituting the company’s national distribution network that resulted in a summer revenue gap.”

On October 14, 2022, the Court hearing the Vital Pharmaceuticals cases issued an order authorizing the Debtors to access $34.0mn in new money, debtor-in-possession (“DIP”) financing being provided by prepetition lender Truist Bank (“Truist”) on an interim basis. On January 12, 2023, the Court issued a final DIP order authorizing the Debtors to access a further $66.0mn of new money of DIP financing and roll-up $235.0mn (reduced by $120.0mn) of amounts owed to Truist under an August 2020 Revolving Credit and Term Loan Facility.

On May 5, 2023, the Court hearing the Vital Pharmaceuticals cases has extended (for a second time) the periods during which the Debtors have an exclusive right to file a Plan and solicit acceptances thereof, through and including August 4, 2023 and October 6, 2023, respectively [Docket No. 1324]. Absent the relief, the Plan filing and solicitation periods are scheduled to expire on May 8, 2023 and July 10, 2023, respectively.

Sale Background

Bidding Procedures Motion

The Debtors’ January 27th bidding procedures motion [Docket No. 707] states, “The Debtors submit that the proposed Bidding Procedures are reasonably designed to promote a competitive sale and auction process and yield top dollar for the Debtors and/or their assets. The Bidding Procedures afford potential bidders sufficient time for diligence and documentation (particularly in light of the Debtors’ marketing process having been underway for several months now), as well as flexibility with respect to the structure of a potential transaction (e.g., asset sales, or equity/debt financing transactions to be implemented through a plan). The Bidding Procedures will also facilitate the Debtors’ efforts to secure a stalking horse bid – which the Debtors believe would maximize value by setting a ‘floor’ for competitive bidding – by permitting the Debtors to grant bid protections (subject to certain notice and objection requirements) as an inducement. And at the same time, the Bidding Procedures ensure that all parties in interest (including parties asserting interests in the Debtors’ assets and contract and lease counterparties) will be afforded sufficient notice of the relief the Debtors seek as part of the marketing process, and opportunities to object thereto. Finally, the Bidding Procedures were developed with input from the Debtors’ DIP/Prepetition Lenders (as defined below) as well as the Committee, both of whom support the relief requested herein and, in fact, required the Debtors to seek this relief as part of the global settlement of certain objections to the Debtors’ DIP Facility.”

Marketing

The motion continues: “While this Motion seeks entry of an order formally establishing procedures for a competitive sale and auction process, the Debtors’ marketing process is already well underway, and is robust. As part of that process, the Debtors have solicited proposals from financial and strategic investors/acquirers for a sale, financing, or other transaction that will maximize the value of the Debtors’ assets. Specifically, at the direction of the Debtors’ boards of directors, the Debtors’ investment banker, Rothschild & Co. U.S. Inc. (‘Rothschild’), has contacted almost 150 potential counterparties, roughly 40 of whom entered into non-disclosure agreements to obtain access to diligence….In mid-January, the Debtors received non-binding indications of interest from certain potential bidders, with whom the Debtors continue to negotiate while they continue their efforts to create the most competitive dynamic possible and bring additional bidders to the table.”

Rothschild adds in a declaration [Docket No. 834]: “Since June 2022, the Debtors, together with Rothschild & Co, have been engaged in a marketing process in furtherance of a sale or financing transaction, and since the Debtors’ chapter 11 filing on October 10, 2022, have continued to pursue such a sale, financing, or other transaction that will maximize the value of the Debtors’ Assets. Since June 2022 and continuing after the Debtors’ petition date, in total, Rothschild & Co has contacted over 140 potential transaction counterparties, over 40 of which have executed non-disclosure agreements in order to obtain certain diligence information related to the Debtors’ Assets. Following the petition date, Rothschild & Co, in concert with the Debtors and their other advisors, has engaged with prospective counterparties to potentially serve as a Stalking Horse Bidder in connection with the Debtors’ sale process, and also has engaged in regular dialogue with interested parties and the Debtors’ key stakeholders, responded to numerous diligence requests, and held multiple management presentations and expert diligence sessions to assist potential bidders in their evaluation of a Transaction….On behalf of the Debtors, Rothschild & Co will continue working with potential bidders, with the intent of identifying a Stalking Horse Bidder to set a ‘floor’ for competitive bidding with the ultimate goal of maximizing the value of the Debtors’ Assets.”

General Background

Events Leading to the Chapter 11 Filings

At the end of September 2022, Monster Energy Co. ("Monster") was awarded $293.0mn ($272.0mn for a false advertising claim, $18.0mn for tortious interference, and $3.0mn for a trade secret claim) by a California federal jury that agreed with Monster that VPX's "super" creatine was in fract a standard water-soluble creatine and not based on a proprietary “new” compound as claimed. NB: In late late February 2023, the Debtors asked asked a Los Angeles federal court for a new jury trial or reduced damages in respect of the Monster $293.0mn award. 

In a declaration in support of first day filings (the “DiDonato Declaration”) [Docket No. 26], John C. DiDonato, the Debtors' Chief Transformation Officer, makes it clear that "VPX’s esteemed syndicate lenders" Truist are not remotely happy with their almost $400.0mn (principal, interest and fees) predicament and have no motivation to continue their relationship with the Debtors beyond "repayment in full of the obligations owed to them." The Debtors have been in default in respect of the Truist Prepetition Credit Agreement since March of 2022, with Truist agreeing to enter into forbearance agreements from that date and eventually to supply the Debtors with an additional $60.0mn of critical funding. Without that funding, and now Truist's proferred DIP financing, the Debtors (with what their investment bank Rothschild & Co US Inc. characterizes as zero possibility of sourcing alternative financing arrangements) had no ability to continue operations, with or without 1,000 social media influencers.

DiDonato provides: “The Company commenced these cases in order to (a) obtain "breathing room" from pending litigation, including the OBI Judgment and FAA Verdict, as well as consequences of pending defaults under the Prepetition Credit Agreement; (b) obtain an essential infusion of liquidity totaling $100 million to help stabilize the Company's operations at a critical juncture in the Company's business cycle (i.e., on the precipice of launching its new distribution network) through the DIP Facility (as defined and described below); and (c) pursue a recapitalization, a replacement financing, or other transaction that will result in the payment in full of the Company's outstanding obligations under the Prepetition Credit Agreement and position the Company for success upon its emergence from chapter 11.

Since March 2022, the Company has been in default under the Prepetition Credit Agreement because of, among other things, failure to satisfy certain financial maintenance covenants. From March 2022 through September 30, 2022, the Prepetition Secured Parties agreed to forbear from exercising their rights and remedies in respect of those defaults pursuant to five forbearance agreements entered into with the Company. Since June 2022, the Secured Lenders have also advanced critical funding (totaling approximately $60 million) to the Company to enable it to continue operations, transition away from its distribution arrangement with Pepsi and to its new best-in-class distribution network, pursue a capital raise process, and engage in contingency planning around a potential filing. At all times since June 2022, the Secured Lenders have made clear that such accommodations were to assist the Company in achieving their desired outcome: repayment in full of the obligations owed to them.

Although the Company remained in discussions regarding potential financing transactions with numerous parties as of the Petition Date, in connection with the most recent forbearance, the Secured Lenders indicated that they would not continue to forbear past September 30, or advance additional funding outside of chapter 11. The Secured Lenders did, however, offer to provide sufficient funding for a chapter 11 process through the proposed facility under the DIP Credit Agreement, and afford the Company an opportunity to continue their efforts to recapitalize their balance sheet and refinance or otherwise repay the obligations under the Prepetition Credit Facility. To avail themselves of this opportunity and mitigate the jeopardy to VPX's assets following entry of the OBI Judgment and FAA Verdict, the Company commenced these Chapter 11 Cases.

Prepetition Indebtedness

Debtor Vital Pharmaceuticals, as borrower, and certain subsidiaries and affiliates of Vital Pharmaceuticals, as guarantors, are parties to an August 2020 Revolving Credit and Term Loan Facility with Truist Bank serving as administrative agent, swingline lender and issuing bank.

The Credit Agreement provides two separate credit facilities, each maturing on August 14, 2025: (a) a revolving credit facility (the “Prepetition Revolving Credit Facility”) and (b) a term loan A (the “Prepetition Term Loan” and together with the Prepetition Revolving Credit Facility and all other obligations arising under the Prepetition Credit Agreement, the “Prepetition Loans”).

As of the Petition Date, the Prepetition Lenders are owed on account of the Prepetition Loans:

1. $240,000,000.00 in revolving loan principal obligations, 
2. $104,190,218.45 in term loan principal obligations, 
3. $6,349,912.27 in respect of unpaid interest accrued through October 9, 2022, 
4. $4,188,187.51 in respect of unpaid forbearance fees accrued through October 9, 2022, and 
5. $41,883.33 in respect of unpaid commitment fees accrued through October 9, 2022.

The Debtors have no funded unsecured debt and incur trade debt in connection with the operation of their businesses. In the ordinary course, the Debtors also incur trade debt with certain vendors and suppliers in connection with the operation of their businesses. As of the Petition date, the Debtors have approximately $83.0mn in trade payables outstanding.

About the Debtors

According to the Debtors: “Since 1993, Florida-based Vital Pharmaceuticals, Inc., d/b/a Bang Energy and as VPX Sports, has developed delicious performance beverages, supplements, and workout products to fuel high-energy lifestyles. In addition to one of the top three energy drink brands in the U.S., Bang Energy, the company’s premium quality products include keto-friendly Meltdown®, Quash®, Vooz™ and Redline®. All of the company’s products are personally designed and approved for taste and effectiveness by founder and CEO, Jack Owoc, who started the family-owned company with one goal in mind: to produce the highest-quality sports supplements and performance beverages in the world backed by university scientific research. Since its founding 29 years ago, Jack Owoc has commissioned 30 gold standard university research studies using human test subjects to prove the efficacy and quality of the company’s products by sports nutrition PhD researchers at prestigious institutions of higher learning including but not limited to: UCLA, University of South Alabama, Florida State, Baylor University, University of Southern Maine, University of Memphis, Florida International University and College of New Jersey, among others. The company’s products and supplements are available in grocery and convenience stores around the world. Jack Owoc and his team continuously innovate new products that deliver on taste, optimal performance benefits and nutrition needs.”

The DiDonato Declaration adds: "Established in 1993 and headquartered in Weston, Florida, the Company is a frontrunner in sports nutrition and a pioneer in the performance energy drink industry.  The Company produces novel and great tasting beverages without sugar, calories, carbohydrates, or artificial flavors, and with caffeine, electrolytes, and other performance ingredients. The Company's leading product is Bang energy drink ('Bang'), which was launched by the Company in 2012 and was the fastest growing beverage in the U.S. non-alcoholic beverage sector in 2018. Bang is the third best-selling energy drink in the United States as measured by retail sales and market share data, in each case, as of April 2022.

The Company deploys a unique marketing strategy utilizing (a) digital marketing, including social media (e.g., TikTok, Facebook, Instagram, and YouTube), (b) influencers and brand ambassadors, and (c) in-store promotion. Taken together, the Company's marketing strategy has resulted in the Company becoming a dominant brand on social media, with over 4 million followers across its various social media accounts. As of September 30, 2022, the Company works with approximately 1,000 influencers. In total, the Company's marketing efforts on social media reach approximate!y 1.3 billion followers through the Company's contracted influencers and brand ambassadors."

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