Introduction
On January 27, 2017, (the "Petition Date"), Insightra Medical, Inc. and Modulare, Inc. (the "Debtors") filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware.
The Debtors are represented by Bayard, P.A. The cases have been assigned to Judge Kevin Gross. A hearing on the Debtors' first day motions has not yet been scheduled. A meeting to form the Official Committee of Unsecured Creditors has not yet been scheduled.
Background
Headquartered in Irvine, CA, the Debtors are a commercial-stage cardiology and general surgery medical devices company focused on marketing and manufacturing Intra Aortic Balloon Catheter kits and niche surgical products for the inguinal and ventral hernia markets based on its proprietary designs.
Through various court filings, the Debtors indicate that they have encountered financial difficulty due to its efforts on raising capital to commercialize the Debtors' core hernia products. The Debtors raised the first tranche of its Series C Preferred Stock, in the amount of $13 million, with the express purpose of commercializing its core hernia assets in the U.S. This initial tranche of Series C Preferred Stock, however, provided insufficient funds for the Debtors to hire a direct U.S.-based sales force, which is critical to the ultimate success of its products in the U.S.
As of the Petition Date, GPB Life Science Holdings, LLC ("GPB") is owed approximately $6,845,268 under a 13% senior secured promissory note. Various equity holders are owed approximately $1.5 million under an unsecured bridge loan. In addition, the Debtors have unsecured trade debt in the approximate amount of $2.8 million owed to approximately 75-100 trade vendors.
The Debtors' have prepetition litigation of the contingent and unliquidated claim of Giuseppe Amato ("Amato"). Amato's claim arises from a complaint he filed in the Superior Court for the State of California, against the Debtors and certain other defendants (the "Amato Litigation"). Amato alleges claims against the Debtors for fraud, mistake. unfair business practices and declaratory relief; arising primarily from Amato's allegation that the defendants improperly induced him to enter into unfair license and consulting agreements. He is seeking damages in excess of $15 million. In response to the complaint, the Debtors filed a cross-complaint against Amato, alleging claims for intentional misrepresentation, intentional suppression of fact, negligent misrepresentation and fraud. A trial is set to commence on March 20, 2017. The Debtors continue to defend the Amato Litigation and do not expect that they will have any liability to Amato above and beyond the $16,000 they believe is owed on an unsecured basis.
Prepackaged Plan
The Debtors intend to implement a pre-packaged chapter 11 plan that provides for DIP Financing from GPB in the amount of $125,000 on an interim basis, and $750,000 on a final basis. Under the plan, in exchange for the full and final satisfaction of no less than $4.8 million of GPB's promissory note and the DIP Facility, GPB will receive 100% of the common stock issued, $1 million of $100 par value new preferred stock, and a new secured note in an amount up to $2.85 million. The Debtors' unsecured creditors will receive 7.5% of their allowed claims.
The Debtors commenced solicitation of the Prepackaged Plan on December 21, 2016, with an initial voting deadline of January 11, 2017. The voting deadline was subsequently extended, on notice to all parties entitled to vote, to January 25, 2017.
In regards to class 4 general unsecured votes, 24 ballots were received prior to the extended voting deadline, asserting to represent on their face approximately $31,554,847.45 in unsecured claims. Of the twenty-four ballots received, the lone rejecting ballot was submitted by Amato in the amount of $16 million.
The Debtors are disputing Amato's entitlement to vote an unliquidated and contingent claim on account of the unresolved Amato Litigation. If Amato's ballot is counted in the appropriate amount of Amato's claim ($16,000), class 4 will have voted to accept the plan at a 99.9% rate.
If we can be of service, please contact me.
Rafael X. Zahralddin-Aravena
Commercial Bankruptcy and Commercial Restructuring Chair
Elliott Greenleaf, P.C.
The I.M. Pei Building
Wilmington, Delaware 19899
Direct: 302-384-9401
Cell: 302-545-2888