Item 1.01.
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Entry into a Material Definitive Agreement.
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Agreements with Deerfield
Concurrently with the execution of the Purchase Agreement, Melinta entered into a Commitment Letter (the
Deerfield Commitment
Letter
), dated November 28, 2017, with an affiliate of Deerfield Management Company, L.P. (together with certain funds managed by Deerfield Management Company, L.P.,
Deerfield
or the
Deerfield
Funds
), pursuant to which the Deerfield Funds committed, upon the satisfaction of certain conditions set forth therein, to provide $190,000,000 (less the amount of the Deerfield equity investment described below) of senior secured loans,
having an interest rate of 11.75% per annum, to finance the Acquisition, together with, subject to certain conditions, up to $50,000,000 in a senior secured delayed draw term loan facility, having an interest rate of 14.75% per annum. At the closing
of the Acquisition, Melinta entered the Facility Agreement setting forth the definitive terms and conditions of the $147,774,079 principal amount of initial senior secured loans and the $50 million senior secured delayed draw term loan
facility, as further described below.
Deerfield Facility Agreement
On January 5, 2018, Melinta became the borrower under that certain Facility Agreement, dated as of January 5, 2018 (the
Facility Agreement
) by and among Melinta (as borrower), certain of Melintas subsidiaries party thereto as guarantors, the Deerfield Funds (consisting of Deerfield Private Design Fund IV, L.P., Deerfield Private Design Fund
III, L.P. and Deerfield Special Situations Fund, L.P.) , and Cortland Capital Market Services LLC, as agent for the secured parties. Under the Facility Agreement, the lenders made available to Melinta an initial disbursement of $147,774,079 in loan
financing. The Facility Agreement includes provisions for additional subsequent disbursements in an amount of up to $50,000,000, which may be made available upon the satisfaction of certain conditions, such as Melinta having achieved annualized net
sales of at least $75,000,000 during the applicable period.
The initial disbursement under the Facility Agreement bears interest at a
rate of 11.75%, while funds distributed pursuant to any subsequent disbursement will bear interest at a rate of 14.75%. Melinta is also required to pay the lenders an
end-of-term
fee or exit fee of 2% of the amount of any loans on the payment, repayment, redemption or prepayment thereof upon the date of such payment, repayment,
redemption or prepayment thereof. The principal of the initial disbursement must be paid by January 5, 2024. The loans are not permitted to be prepaid prior to January 6, 2021 and are subject to certain prepayment fees for prepayments
occurring on or after such date.
Obligations under the Facility Agreement are secured by liens on substantially all assets of Melinta and
its subsidiaries. The proceeds of the initial loans under the Facility Agreement were used to pay part of the consideration for the Acquisition, pay certain fees and expenses associated with the Acquisition and the transactions contemplated by the
Facility Agreement, pay amounts owed under a certain loan facility with Suchard SA LLC and certain other lenders and the remainder for general corporate purposes. The Facility Agreement has a financial maintenance covenant requiring Melinta and its
subsidiaries to maintain a minimum cash balance of $25,000,000, and further requires the loan parties thereunder to maintain minimum net sales of at least (A) $45,000,000 for the fiscal year ending December 31, 2018, (B) $75,000,000 for the
fiscal year ending December 31, 2019 and (C) $100,000,000 for the fiscal year ending December 31, 2020 and each fiscal year ending thereafter. The Facility Agreement contains customary affirmative covenants, negative covenants (including,
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among others, limitations on indebtedness, liens, advances, equity and debt and other investments, dividends, asset sales, transactions with affiliates, changes in nature of business and mergers
and acquisitions), representations and warranties and events of default (including, among others, a change of control event of default) that are customary for similar financings.
Deerfield Equity Purchase
Under the
Deerfield Commitment Letter, subject to the conditions set forth therein, the Deerfield Funds committed to purchase the Deerfield equity investment, equal to 9.985% of the number of shares of common stock, par value $0.001 per share, of Melinta (the
Common Stock
) outstanding immediately following the Acquisition (inclusive of such shares) for a purchase price per share of $13.50, representing 90% of the closing price for the Common Stock on November 28, 2017, the date on
which the Deerfield Commitment Letter was executed. At the closing of the Acquisition, Melinta and the Deerfield Funds entered into a Securities Purchase Agreement, dated January 5, 2018 (the
Securities Purchase Agreement
),
setting forth the definitive terms of the Deerfield equity investment, pursuant to which the Deerfield Funds purchased 3,127,846 shares of Common Stock for an aggregate purchase price of $42,225,921.00. The Securities Purchase Agreement contains
customary representations, covenants and indemnitees by each of the parties thereto.
Deerfield Warrants
In accordance with the Deerfield Commitment Letter and pursuant to the Facility Agreement, on the closing date of the Acquisition, Melinta
issued to Deerfield Private Design Fund IV, L.P. a Warrant to purchase 2,607,597 shares of Common Stock, to Deerfield Private Design Fund III, L.P. a Warrant to purchase 790,054 shares of Common Stock, and to Deerfield Special Situations Fund, L.P.
a Warrant to purchase 395,217 shares of Common Stock (collectively, the
Deerfield Warrants
), in the aggregate representing a number of shares of Common Stock equal to 38.5% of the $147,774,079 principal amount of the senior
secured loans, divided by $15.00, representing the closing price for the Common Stock on November 28, 2017, the date on which the Deerfield Commitment Letter was executed. The Deerfield Warrants are exercisable for a duration of 7 years at a
strike price of $16.50. The number of shares with respect to which the Deerfield Warrants are exercisable and the strike price of the Deerfield Warrants are subject to adjustment to reflect certain events relating to the shares of Common Stock, such
as any subdivision, combination, reclassification or similar transaction with respect to the shares of Common Stock. The Deerfield Warrants are subject to a restriction on the exercise thereof to the extent that, upon such exercise, a holder, its
affiliates and any group of which such holder is a member would beneficially own greater than 9.985% of the outstanding shares of Common Stock. In its capacity as the holder of a Deerfield Warrant, each of the Deerfield Funds is entitled
to receive dividends paid, and distributions made, to holders of shares of Common Stock as if such Deerfield Warrant had been exercised in full on the applicable record date for such dividend or distribution. In addition, Melinta has reserved for
issuance a number of authorized and unissued shares of Common Stock sufficient for the exercise of the Deerfield Warrants in full (assuming a cash exercise and disregarding any limitations on exercise). Other than with respect to dividends and
distributions, the Deerfield Warrants do not entitle the Deerfield Funds, prior to the exercise of the Deerfield Warrants, to rights as a Melinta stockholder.
The Deerfield Warrants also provide that, in the event of a major transaction as described in clause (i) or (ii) below where shares of
Common Stock are converted into the right to receive cash or other assets or in which Melinta has announced its intention to liquidate and distribute its assets to its stockholders, each of the Deerfield Funds will be entitled to convert the
Deerfield Warrants into an amount of the transaction consideration equal to the Black-Scholes value of the Deerfield Warrants following such major transaction. With respect to all other major transactions, each of the Deerfield Funds are entitled to
exercise the Deerfield Warrants for a number of shares of Common Stock (calculated in accordance with the terms of the Deerfield Warrants) equal to the Black-Scholes value of its Deerfield Warrant. Alternatively, if the successor entity is publicly
traded, each of the Deerfield Funds may require that its Deerfield Warrant be assumed by the successor entity (or its parent company) in a major transaction. The documentation reflecting any such assumption must provide that the Deerfield Warrants
will be exercisable for the appropriate number of shares of the successor entity.
The Deerfield Warrants also provide that in the case of
certain transactions in which holders of Common Stock are entitled to receive stock, securities or assets in respect of their Common Stock (including certain major transactions in which the successor entity is not publicly traded and the holder of a
Deerfield Warrant does not exercise its right to receive the amounts described above), the documentation reflecting the transaction will provide that the Deerfield Warrants will be exercisable for the kind and amount of securities, cash and/or other
property which a holder of shares of Common Stock would have been entitled to receive in such transaction.
The Black-Scholes value of the
Deerfield Warrants for purposes of a major transaction will be determined based on, among other things, a risk-free interest rate corresponding to the US$ LIBOR/Swap rate (or, to the extent LIBOR ceases to be determined, a successor interest rate
determined in accordance with the Deerfield Warrants) for a period equal to the
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remaining term of the Deerfield Warrants, zero borrowing cost, the arithmetic mean of the historical volatility of the shares of Common Stock for the 10, 30 and 50 trading day periods prior to
the public announcement of such major transaction and a stock price equal to the greater of (1) the closing price of the Common Stock on the trading day immediately preceding the consummation of such major transaction, (2) the first
closing market price following the first public announcement of such major transaction or (3) the closing market price of the date immediately prior to the first public announcement of such major transaction.
A major transaction is defined in the Deerfield Warrants to include: (i) a consolidation, merger, business consolidation, reorganization,
recapitalization or similar transaction that results in a change in control of Melinta (i.e., its current shareholders no longer holding at least 50% of the shares of Common Stock or no longer having the ability to elect a majority of its board of
directors), (ii) a sale or transfer of assets for a purchase price of more than 50% of Melintas enterprise value or a sale or all or substantially all of its assets, (iii) a purchase, tender or exchange offer resulting in a change in
control of Melinta, (iv) any issuance or series of issuances of shares of Common Stock equal to 50% or more of the shares of Common Stock outstanding as of such issuance, (v) any liquidation, bankruptcy, insolvency, dissolution or winding
up affecting Melinta, (vi) any cessation of the Common Stock to be listed, traded or publicly quoted on the NASDAQ Global Market (without prompt
re-listing
or requoting on the New York Stock Exchange, the
NYSE American, the NASDAQ Global Select Market or the NASDAQ Capital Market), or (vii) the Common Stock ceasing to be registered under Section 12 of the Exchange Act.
Upon certain failures by Melinta to comply with its obligations under the Deerfield Warrants or the Deerfield registration rights agreement
described below, Melinta may be required to pay to the holders of the Deerfield Warrants as partial liquidated damages an amount equal to 15% per annum (or the maximum rate permitted by law, whichever is less) of the Black-Scholes value of the
Deerfield Warrants in cash or, at Melintas option (but subject to a 9.985% ownership limitation), in shares of Common Stock (valued based on the volume weighted average price of the Common Stock as of such time). If such failure remains
uncured and the holders of the Deerfield Warrants deliver notice of a default under the Deerfield Warrants, Melinta will be entitled to redeem the Deerfield Warrants for cash in an amount equal to the Black-Scholes value of the Deerfield Warrants
and, if following such notice of default Melinta does not redeem the Deerfield Warrants, the holders may elect to exercise the Deerfield Warrants for a number of shares (valued at the arithmetic average of the volume weighted average price of the
Common Stock for the 5 trading days immediately prior to the date of the applicable default notice) equal to the greater of (x) the Black-Scholes value of the Deerfield Warrants as of the date of the notice of default and (y) the
Black-Scholes value of the Deerfield Warrants on the trading day immediately prior to the date that such shares are issued to Deerfield.
The Black-Scholes value of the Deerfield Warrants for purposes of such events of default or failures will be determined based on, among other
things, a risk-free interest rate corresponding to the US$ LIBOR/Swap rate (or, to the extent LIBOR ceases to be determined, a successor interest rate determined in accordance with the Deerfield Warrants) for a period equal to the remaining term of
the warrant, zero borrowing cost, the arithmetic mean of the historical volatility of the Common Stock for the 10, 30 and 50 trading day periods ending on the date of determination and a stock price equal to the volume weighted average price of the
Common Stock on the date of such calculation.
Deerfield Registration Rights
Pursuant to the Facility Agreement and Securities Purchase Agreement, Melinta and Deerfield Private Design Fund IV, L.P., Deerfield Private
Design Fund III, L.P., and Deerfield Special Situations Fund, L.P. entered into a registration rights agreement on January 5, 2018 (the
Deerfield Registration Rights Agreement
), the date of the closing of the Acquisition, in
respect of the shares of Common Stock issued pursuant to the Securities Purchase Agreement and issuable upon exercise of, or otherwise pursuant to, the Deerfield Warrants. Under the Deerfield Registration Rights Agreement, Melinta is obligated to
file, by January 9, 2018, a shelf registration statement on Form
S-3
(the
Deerfield Shelf Registration Statement
) providing for the resale by the Deerfield Funds of the 3,127,846 shares of
Common Stock issued to them pursuant to the Securities Purchase Agreement and the shares of Common Stock issuable pursuant to the Deerfield Warrants and Melinta is required to use its best efforts to cause the Deerfield Registration Statement to be
declared effective by the SEC within 90 days of the initial filing, subject to a grace period beginning on February 14, 2018 and ending on March 16, 2018 to account for Melintas status as a loss corporation under
applicable SEC regulations and to permit Melinta to file its Form
10-K
for the fiscal year December 31, 2017 in accordance with the filing deadline for such filer status. The Deerfield Registration Rights
Agreement includes customary
black-out
and suspension periods related to the Deerfield Funds use of the Registration Statement. Under the Deerfield Registration Rights Agreement, the Deerfield Funds are
also entitled to two demand registrations within a
12-month
period (subject to a minimum proceeds requirement of $10 million) and customary piggy back registration rights, subject to customary grace periods
and, in connection with an underwritten public offering in which the Deerfield Funds participate,
lock-up
periods.
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Subject to the Deerfield Funds compliance with certain covenants in the Deerfield
Registration Rights Agreement, if a Registration Failure (as defined in the Deerfield Registration Rights Agreement) occurs then the Company is required to pay additional damages to Deerfield for each
30-day
period (prorated for any partial period) after the date of such Registration Failure in a cash payment equal to one percent (1.00%) of the aggregate purchase price for all Registrable Securities (as set forth in the Deerfield Registration Rights
Agreement) as of the date such Registration Failure occurs. Such payments shall accrue until the earlier of (i) such time as the Registration Failure has been cured and (ii) the date on which all of the Registrable Securities may be
disposed of for the holders own account without restriction under Rule 144 of the Securities Act of 1933, as amended (the Securities Act).
The Deerfield Funds are entitled to registration rights until the earlier of (1) such time as all of the registrable securities under the
Deerfield Registration Rights Agreement have been sold and (2) assuming the Deerfield Warrants will be exercised for cash, the date on which all of the shares of Common Stock issuable under the Deerfield Warrants may be immediately sold to the
public without limitation, restriction or condition (including any current public information requirement) pursuant to Rule 144 of the Securities Act (as defined below).
Deerfield Royalty Agreement
The
disclosure set forth under Item 2.03 of this Current Report on Form
8-K
under Deerfield Royalty Agreement is hereby incorporated by reference.
Agreements with Medicines
Medicines Registration
Rights
On the Closing Date, Melinta entered into a Registration Rights Agreement with Medicines (the
Medicines Registration
Rights Agreement
). Under the Medicines Registration Rights Agreement, Melinta is obligated to file, by January 9, 2018, a shelf registration statement on Form
S-3
(the
Medicines Shelf
Registration Statement
) providing for the resale by Medicines of the 3,313,702 shares of Common Stock issued to Medicines pursuant to the Purchase Agreement and Melinta is required to use its best efforts to cause the Medicines Shelf
Registration Statement to be declared effective by the SEC within 90 days of the initial filing, subject to a grace period beginning on February 14, 2018 and ending on March 16, 2018, to account for Melintas status as a loss
corporation under applicable SEC regulations and to permit Melinta to file its Form
10-K
for the fiscal year December 31, 2017 in accordance with the filing deadline for such filer status. Under the
Medicines Registration Rights Agreement Medicines is entitled to four underwritten offerings under the Medicines Shelf Registration Statement, subject to customary
black-out
and suspension periods related to
Medicines use of the Medicines Shelf Registration Statement.
In addition, if Melinta registers shares of Common Stock on a
registration statement for public sale, Medicines will have the right, subject to certain limitations, to include its Registrable Securities (as defined in the Medicines Registration Rights Agreement) in such registration statement, subject to
customary cutbacks as advised by the managing underwriter engaged in the public sale of Common Stock by Melinta.
Further, the Medicines
Registration Rights Agreement provides for a (i) 180 day
lock-up
expiring July 5, 2018 covering 50% of the shares of Common Stock (1,656,851 shares) issued to Medicines pursuant to the Purchase Agreement,
subject to certain customary exceptions including, but not limited to hedging transactions, and (ii) covenant requiring Medicines to enter into underwriter
lock-up
agreements under certain circumstances
in connection with an underwritten public offering of Common Stock by Melinta.
Subject to Medicines compliance with certain covenants in
the Medicines Registration Rights Agreement, if a Registration Failure (as defined in the Medicines Registration Rights Agreement) occurs then the Company is required to pay additional damages to Medicines for each
30-day
period (prorated for any partial period) after the date of such Registration Failure in a cash payment equal to one percent (1.00%) of the aggregate purchase price for all Registrable Securities (as set
forth in the Purchase Agreement) as of the date such Registration Failure occurs. Such payments shall accrue until the earlier of (i) such time as the Registration Failure has been cured and (ii) the date on which all of the Registrable
Securities may be disposed of for the holders own account without restriction under Rule 144 of the Securities Act.
The Medicines
Registration Rights Agreement includes customary indemnification and expense reimbursement provisions. The registration rights provided in the Medicines Registration Rights Agreement terminate upon the date on which Medicines ceases to own any
Registrable Securities (as defined in the Registration Rights Agreement), but in no event later than the fifth anniversary of the effective date of the Medicines Shelf Registration Statement. The foregoing summaries of the Deerfield Facility,
Securities Purchase Agreement, Deerfield Warrants, Deerfield Registration Rights Agreement and the Medicines Registration Rights Agreement are qualified in their entireties by reference to the complete text of such agreements, copies of which are
filed as Exhibits 10.2, 10.1, 4.3, 4.4, 4.5, 4.2, and 4.1, respectively.
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