SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
Exhibit 10.3
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
This SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (this “Amendment”), dated as of April 13, 2020 (the “Second Amendment Date”), is by and among METUCHEN PHARMACEUTICALS LLC, a Delaware limited liability company (“Metuchen”), Pos-T-Vac, LLC, a Delaware limited liability company (“PTV”), and Xxxx Medical Technologies, Inc., a Delaware corporation (“Xxxx”, and together with Metuchen and PTV, collectively, jointly and severally, the “Borrower”), the several banks and other financial institutions or entities party hereto as lenders (collectively, referred to as “Lender”) and HERCULES CAPITAL, INC., a Maryland corporation, in its capacity as administrative agent and collateral agent for itself and Lender (in such capacity, the “Agent”).
WHEREAS, in accordance with Section 11.3 of the Loan Agreement, Borrower, Lender and the Agent desire to amend the Loan Agreement as provided herein.
NOW THEREFORE, in consideration of the mutual agreements contained in the Loan Agreement and herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
(a) The Loan Agreement shall be amended by inserting the following new definitions to appear alphabetically in Section 1.1 thereof:
“Amortization Date II” means May 1, 2020.
“End of Term Charge I” shall have the meaning assigned to such term in Section 2.6.
“End of Term Charge II” shall have the meaning assigned to such term in Section 2.6.
“Financing Milestone I” shall have the meaning assigned to such term in Section 8.1.
“Financing Milestone II” means (i) no default or Event of Default shall have occurred and be continuing and (ii) Borrower shall have received, after March 31, 2020 and on or prior to September 30, 2020, unrestricted (including not subject to any clawback, redemption, escrow or similar contractual restriction) net cash proceeds in an aggregate amount of at least $20,000,000, which proceeds shall be immediately deposited in a Deposit Account or Investment Account of Borrower subject to an Account Control Agreement in favor of Agent, from (A) the sale of equity interests of Metuchen and/or Subordinated Indebtedness (inclusive of amounts raised to satisfy Financing Milestone I) and (B) a merger, acquisition or similar transaction involving Borrower.
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“Net Revenue” means the net revenue earned by Borrower and its Subsidiaries in accordance with GAAP, and excluding (i) returns, (ii) coupon redemptions, (iii) contract rebates, (iv) Medicaid rebates, (v) Medicare rebates, (vi) chargebacks, (vii) cash discounts, and (vii) distribution service fees.
“Second Amendment” means that Second Amendment to Loan and Security Agreement dated the Second Amendment Date by and among Borrower, Lender and Agent.
“Second Amendment Date” means April 13, 2020.
(b) The Loan Agreement shall be amended by amending and restating the following definitions in Section 1.1 thereof to read as follows:
“EBITDA” means with respect to Borrower and its consolidated Subsidiaries for any period, (a) the sum, without duplication, of the amounts for such period of (i) Net Income, plus (ii) Interest Expense, plus (iii) provisions for taxes based on income, plus (iv) total depreciation expense, plus (v) total amortization expense, plus (vi) nonrecurring cash fees, costs and expenses incurred in connection with the closing of the Transactions (including fees and expenses paid pursuant to and in connection with the closing of the transactions contemplated by this Agreement), but only to the extent included in Net Income.
“Term Loan Cash Interest Rate” means for any day a per annum rate of interest equal to the greater of either (i) the prime rate as reported in the Wall Street Journal plus 11.50% minus 4.25% and (ii) 11.50%.
“Term Loan Maturity Date” means April 1, 2021, provided that, if Borrower shall have achieved Financial Milestone II, then the Term Loan Maturity Date shall be extended to December 1, 2021.
“Term Loan PIK Interest Rate” means (i) prior to the Second Amendment Date, 1.35%; and (ii) on and after the Second Amendment Date, 0.00%.
(c) The Loan Agreement shall be amended by amending and restating the second sentence of Section 2.2(d) in its entirety, and inserting in lieu thereof the following:
“Borrower shall repay the aggregate Term Loan principal balance that is outstanding on the day immediately preceding the Amortization Date (excluding all accrued PIK Interest added to such principal balance prior to such date), in equal monthly installments of principal and interest (mortgage style) based on a 36-month amortization period (the “Monthly Installments”) beginning on the Amortization Date and continuing on the first Business Day of each month thereafter until the Second Amendment Date. Commencing on the Second Amendment Date, Borrower shall repay the remaining Term Loan principal balance (including all accrued PIK Interest added to such principal balance as of the Second Amendment Date) in equal monthly installments of principal and interest (mortgage style) based on a 20-month amortization period (the “Monthly Installments”) beginning on Amortization Date II and continuing on the first Business Day of each month thereafter until the Secured Obligations (other than inchoate indemnity obligations) are repaid (which for the avoidance of doubt, may include a bullet payment of the remaining outstanding principal balance (including all accrued PIK Interest added to the principal balance) on the Term Loan Maturity Date).”
(d) The Loan Agreement shall be amended by amending and restating the first sentence of Section 2.5 thereof (Prepayment) in its entirety, and inserting in lieu thereof the following:
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(f) The Loan Agreement shall be amended by amending and restating Section 2.6 thereof (End of Term Charge) in its entirety, and inserting in lieu thereof the following:
(a) On the earliest to occur of (i) October 1, 2020, (ii) the date that Borrower prepays the outstanding Secured Obligations (other than any inchoate indemnity obligations and any other obligations which, by their terms, are to survive the termination of this Agreement) in full, or (iii) the date that the Secured Obligations become due and payable, Borrower shall pay Lender a charge of $534,375.00 (the “End of Term Charge I”).
(b) On the earliest to occur of (i) February 1, 2021, (ii) the date that Borrower prepays the outstanding Secured Obligations (other than any inchoate indemnity obligations and any other obligations which, by their terms, are to survive the termination of this Agreement) in full, or (iii) the date that the Secured Obligations become due and payable, Borrower shall pay Lender a charge of $534,375.00 (the “End of Term Charge II” and, together with the End of Term Charge I, the “End of Term Charge”). Notwithstanding the required payment date of such charge, (i) $787,500.00 of the End of Term Charge shall be deemed earned by Lender as of the Closing Date and (ii) $281,250.00 of the End of Term Charge shall be deemed earned by Lender as of the First Amendment Date.”
(g) The Loan Agreement shall be amended by adding the following new Section 2.9 after Section 2.8:
(h) The Loan Agreement shall be amended by amending and restating Section 8 to read as follows:
“SECTION 8. FINANCIAL COVENANTS.
8.1 Minimum Financing. Borrower shall have received, after March 31, 2020 and prior to April 30, 2020, unrestricted (including not subject to any clawback, redemption, escrow or similar contractual restriction) net cash proceeds in an aggregate amount of at least $3,000,000, which proceeds shall be immediately deposited in a Deposit Account of Borrower subject to an Account Control Agreement in favor of Agent, from the sale of equity interests of Metuchen and/or Subordinated Indebtedness (inclusive of amounts raised to satisfy the condition precedent set forth in Section 5(a) of the Second Amendment), subject to verification by Agent (including supporting documentation requested by Agent) (“Financing Milestone I”).
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8.2 Minimum Cash. Borrower shall be required to maintain unrestricted Cash in a Deposit Account or Investment Account subject to an Account Control Agreement in favor of Agent, at all times during the applicable “Minimum Cash Covenant Period” set forth in the schedule below, subject to Borrower’s achievement of the “Minimum Net Revenue” and “Minimum EBITDA” for the applicable Test Period, in the following amounts: (i) if Borrower fails to achieve both the Minimum Net Revenue and Minimum EBITDA for a given Test Period, an amount greater than or equal to 100% of the Secured Obligations then outstanding during such Minimum Cash Covenant Period; (ii) if Borrower achieves either the Minimum Net Revenue or Minimum EBITDA for a given Test Period, an amount greater than or equal to 50% of the Secured Obligations then outstanding during such Minimum Cash Covenant Period; and (iii) if Borrower achieves both the Minimum Net Revenue and Minimum EBITDA for a given Test Period, $0.
Test Period | Minimum Net Revenue | Minimum EBITDA | Minimum Cash Covenant Period | |||||||
Three-month period ended June 30, 2020 | $ | 3,813,000 | $ | (1,343,000 | ) | August 1, 2020 through September 30, 2020 | ||||
Six-month period ended September 30, 2020 | $ | 8,572,000 | $ | (2,936,000 | ) | October 1, 2020 through December 31, 2020 | ||||
Six-month period ended December 31, 2020 | $ | 10,244,000 | $ | (2,563,000 | ) | January 1, 2021 through March 31, 2021 | ||||
Six-month period ended March 31, 2021 | $ | 10,098,000 | $ | (1,599,000 | ) | April 1, 2021 through June 30, 2021 | ||||
Six-month period ended June 30, 2021 | $ | 11,259,000 | $ | (867,000 | ) | July 1, 2021 through September 30, 2021 | ||||
Six-month period ended September 30, 2021 | $ | 12,125,000 | $ | (47,000 | ) | October 1, 2021 through December 31, 2021 |
Notwithstanding the foregoing, the effective date of the minimum cash covenant set forth in this Section 8.2 may be extended by Agent, in its sole discretion, from August 1, 2020 to September 1, 2020, subject to Borrower’s satisfactory progress toward achieving Financial Milestone II; and provided further, such date may be further extended to November 1, 2020 upon Borrower’s achievement of Financial Milestone II.
Borrower shall provide Agent evidence of compliance with the financial covenant under this Section 8.2 upon request in form and substance reasonably acceptable to Agent and supporting documentation requested by Agent.
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(a) Borrower shall have received after March 31, 2020 and prior to April 13, 2020, unrestricted (including not subject to any clawback, redemption, escrow or similar contractual restriction) net cash proceeds of at least $2,000,000 from the sale by Borrower of equity securities of Metuchen and/or Subordinated Indebtedness, which condition Agent confirms Borrower has satisfied as of April 1, 2020;
(b) The Agent and Lender shall have received a fully-executed counterpart of this Amendment signed by Borrower;
(c) Borrower shall have paid to the Agent, for the account of Lender, a fee (the “Second Amendment Facility Charge”) of Fifty Thousand Dollars ($50,000.00). The Second Amendment Facility Charge shall be deemed earned on the effective date of this Amendment; and
(d) The Agent shall have received payment for all reasonable and documented fees and expenses incurred by Lender and the Agent in connection with this Amendment, including, but not limited to, all legal fees and expenses, payable pursuant to Section 11.11 of the Loan Agreement.
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8. Release. In consideration of the agreements of Agent and each Lender contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower, on behalf of itself and its successors, assigns, and other legal representatives, hereby fully, absolutely, unconditionally and irrevocably releases, remises and forever discharges Agent and each Lender, and its successors and assigns, and its present and former shareholders, affiliates, subsidiaries, divisions, predecessors, directors, officers, attorneys, employees, agents and other representatives (Agent, Lenders and all such other persons being hereinafter referred to collectively as the “Releasees” and individually as a “Releasee”), of and from all demands, actions, causes of action, suits, covenants, contracts, controversies, agreements, promises, sums of money, accounts, bills, reckonings, damages and any and all other claims, counterclaims, defenses, rights of set-off, demands and liabilities whatsoever of every name and nature, known or unknown, suspected or unsuspected, both at law and in equity, which Borrower, or any of its successors, assigns, or other legal representatives may now or hereafter own, hold, have or claim to have against the Releasees or any of them for, upon, or by reason of any circumstance, action, cause or thing whatsoever which arises at any time on or prior to the day and date of this Amendment, for or on account of, or in relation to, or in any way in connection with the Loan and Security Agreement, or any of the other Loan Documents or transactions thereunder or related thereto. Borrower understands, acknowledges and agrees that the release set forth above may be pleaded as a full and complete defense and may be used as a basis for an injunction against any action, suit or other proceeding which may be instituted, prosecuted or attempted in breach of the provisions of such release. Borrower agrees that no fact, event, circumstance, evidence or transaction which could now be asserted or which may hereafter be discovered shall affect in any manner the final, absolute and unconditional nature of the release set forth above.
10. Miscellaneous.
(a) THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE s STATE OF NEW YORK (INCLUDING SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW, BUT EXCLUDING ALL OTHER CHOICE OF LAW AND CONFLICTS OF LAW RULES).
(b) The captions in this Amendment are for convenience of reference only and shall not define or limit the provisions hereof.
(c) This Amendment expresses the entire understanding of the parties with respect to the transactions contemplated hereby. No prior negotiations or discussions shall limit, modify, or otherwise affect the provisions hereof.
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(d) Any determination that any provision of this Amendment or any application hereof is invalid, illegal or unenforceable in any respect and in any instance shall not affect the validity, legality, or enforceability of such provision in any other instance, or the validity, legality or enforceability of any other provisions of this Amendment.
[Signature Pages to Follow.]
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IN WITNESS WHEREOF, Borrower, Lender and the Agent have duly executed and delivered this Amendment as of the day and year first above written.
BORROWER: | ||
METUCHEN PHARMACEUTICALS LLC | ||
Signature: | /s/ J. Xxxxxxx Xxxx | |
Print Name: | J. Xxxxxxx Xxxx | |
Title: | President and CEO |
POS-T-VAC, LLC | ||
Signature: | /s/ J. Xxxxxxx Xxxx | |
Print Name: | J. Xxxxxxx Xxxx | |
Title: | President and CEO |
XXXX MEDICAL TECHNOLOGIES, INC. | ||
Signature: | /s/ J. Xxxxxxx Xxxx | |
Print Name: | J. Xxxxxxx Xxxx | |
Title: | President and CEO |
Accepted in Palo Alto, California: | ||
AGENT: | ||
HERCULES CAPITAL, INC. | ||
Signature: | /s/ Xxxxxxxx Xxxx | |
Print Name: | Xxxxxxxx Xxxx | |
Title: | Associate General Counsel | |
LENDER: | ||
HERCULES FUNDING II, LLC | ||
Signature: | /s/ Xxxxxxxx Xxxx | |
Print Name: | Xxxxxxxx Xxxx | |
Title: | Associate General Counsel |