Exhibit 10.4
CONSENT AND FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS CONSENT AND FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (this
“Amendment”), dated as of May 3, 2022, is entered into by and among PHATHOM PHARMACEUTICALS, INC., a Delaware corporation, each of its Subsidiaries from time to time party to the Loan Agreement (as defined below) as borrower (individually or collectively, as the context may require, “Borrower”), the several banks and other financial institutions or entities from time to time parties to the Loan Agreement (collectively, referred to as the “Existing Lenders”), SAGARD HEALTHCARE ROYALTY PARTNERS, LP, a Cayman Islands exempted limited partnership (the “Incoming Lender”, and together with the Existing Lenders, the “Lenders”), and HERCULES CAPITAL, INC., a Maryland corporation, in its capacity as administrative agent and collateral agent for itself and the Lenders (together with its successors and assigns, in such capacity, the “Agent”).
SECTION 1 Definitions; Interpretation.
SECTION 2 Consent.
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the RIFA Transaction and the Borrower performing its obligations thereunder and the Lenders authorize the Agent to enter into the RIF Subordination Agreement.
SECTION 3 Amendments to the Loan Agreement.
“First Amendment” means that certain Consent and First Amendment to Loan and Security Agreement, dated as of May 3, 2022, by and among the Borrower, Agent and the Lenders.
“Investor” means (i) NQ Project Pharaoh, L.P., a Delaware limited partnership, (ii) Sagard Healthcare Royalty Partners, LP, a Cayman Islands exempted limited partnership,
(iii) Sagard Healthcare Partners Co-Invest Designated Activity Company, a company incorporated in Ireland, (iv) Hercules Capital, Inc., a Maryland corporation, (v) Hercules Private Global Venture Growth Fund I L.P., a Delaware limited partnership, and (vi) any other entity or entities that become party to the RIF Agreement in accordance with Section 2.1(b)(ii), 2.1(c) or 9.4 of the RIF Agreement.
“Permitted RIF Indebtedness” means Indebtedness of Borrower in favor of Investor that (a) is incurred in accordance with the RIF Agreement, (b) is in an aggregate investment amount not to exceed $300,000,000, (c) consists (in part) of a Royalty Payment for which the Royalty Rate (as defined in the RIF Agreement) is no greater than 10%, (d) includes the other payment obligations of Borrower set forth therein, and (e) is subject to the RIF Subordination Agreement.
“Revenue Interest Collateral” has the meaning given to such term in Section 2.7(a) of the RIF Agreement.
“RIF Agreement” means that certain Revenue Interest Financing Agreement, attached as Exhibit A to the First Amendment, by and among Borrower and Investor dated as of May 3, 2022; provided that the terms of the RIF Agreement may be amended or waived but only to the extent (a) Borrower provides the Agent and Lenders with not less than ten (10) Business Days’ written notice (or such shorter period as consented to by the Agent and the Lenders) and (b) Borrower has received the prior written consent of Agent and the Required Lenders if the amendment or waiver (i) is adverse to the Agent and the Lenders in any material respect (including by modifying the defined terms “Royalty Payments”, “Royalty Rate” and/or the security interests set forth in Section 2.7 therein) or
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“RIF Collateral Account” means the deposit account(s) used exclusively to maintain the Revenue Interest Collateral in accordance with Section 2.7(b) of the RIF Agreement.
“RIF Subordination Agreement” means that certain Subordination Agreement by and among Borrower, Investor and Agent dated as of May 3, 2022.
“Royalty Payments” has the meaning given to such term in Section 1.1 of the RIF Agreement.
“Excluded Account” means (a) prior to the termination of the RIF Agreement in accordance with Article 8 of the RIF Agreement, the RIF Collateral Account (and funds deposited therein or credited thereto), and (b) any of the following accounts which are designated as such in writing to Agent as of the Closing Date or, with respect to any account opened after the Closing Date, in the next Compliance Certificate delivered after such account is opened: (i) accounts used exclusively to maintain cash collateral subject to a Permitted Lien, (ii) any payroll or benefits account, provided that the aggregate balance of all such accounts shall not exceed the amount of all payroll or related benefit payments required to be made in the two next payroll periods, (iii) any zero balance account, and
(iv) any other deposit accounts, so long as the aggregate amount in all such deposit accounts do not exceed $1,000,000 on any day.
“Loan Documents” means this Agreement, the promissory notes (if any), the ACH Authorization, the Account Control Agreements, any Joinder Agreements, all UCC financing statements naming Borrower as debtor and Agent as secured party, the Warrant, the Intellectual Property Security Agreement, the Guaranty (if any), the RIF Subordination Agreement and any other documents executed in connection with the Secured Obligations or the transactions contemplated hereby, as the same may from time to time be amended, modified, supplemented or restated.
“Permitted Indebtedness” means:
(ii) Indebtedness incurred in the ordinary course of business with corporate credit cards in an aggregate amount not to exceed (x) at all times prior to the Approval
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Milestone II Date, $2,000,000, and (y) at all times on an after the Approval Milestone II Date, $5,000,000, in each case outstanding at any time;
(x) at all times prior to the Approval Milestone II Date, $1,500,000, and (y) at all times on an after the Approval Milestone II Date, $2,500,000, in each case at any time outstanding;
$400,000,000 at any one time outstanding;
“Permitted Liens” means:
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“Permitted Transfers” means:
“Qualified Cash” means an amount equal to (a) the amount of Borrower’s Cash held in accounts subject to an Account Control Agreement in favor of Agent, minus (b) the Qualified Cash A/P Amount, and, for the avoidance of doubt, excludes any Cash required to be deposited in or credited to the RIF Collateral Account in accordance with Section 2.7(b) of the RIF Agreement.
“Subordinated Indebtedness” means Indebtedness subordinated to the Secured Obligations (excluding all Indebtedness owing under the RIF Agreement), in amounts and on terms and conditions satisfactory to Agent in its reasonable discretion and subject to a subordination agreement in form and substance satisfactory to Agent in its reasonable discretion.
3.2 Excluded Collateral. Notwithstanding the broad grant of the security interest set forth in Section 3.1, above, the Collateral shall not include (a) more than 65%
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of the presently existing and hereafter arising issued and outstanding Equity Interests owned by Borrower of any Foreign Subsidiary or Foreign Subsidiary Holding Company which Equity Interests entitle the holder thereof to vote for directors or any other matter,
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Indebtedness permitted hereunder, (c) for prepayment (i) by any Loan Party or Subsidiary of intercompany Indebtedness owed to Borrower, or (ii) by any Subsidiary that is not a Loan Party of intercompany Indebtedness owed by such Subsidiary to another Subsidiary that is not a Loan Party, or (d) as may be permitted under any Subordination Agreement,
(e) as otherwise permitted hereunder or approved in writing by Agent, (f) Permitted Indebtedness with the proceeds of other Permitted Indebtedness, and (g) in compliance with Section 7.23.
Notwithstanding anything to the contrary in the foregoing, the issuance of, performance of obligations under (including any payments of interest), and conversion, exercise, repurchase, redemption (including, for the avoidance of doubt, a required repurchase in connection with the redemption of Permitted Convertible Debt upon satisfaction of a condition related to the stock price of Borrower’s common stock), settlement or early termination or cancellation of (whether in whole or in part and including by netting or set- off) (in each case, whether in cash, common stock of Borrower or, following a merger event or other change of the common stock of Borrower, other securities or property), or the satisfaction of any condition that would permit or require any of the foregoing, any Permitted Convertible Debt shall not constitute a prepayment of Indebtedness by Borrower for the purposes of this Section 7.4 provided that principal payments in cash (other than cash in lieu of fractional shares) shall only be allowed with respect to any repurchase in connection with the redemption of Permitted Convertible Debt upon satisfaction of a condition related to the stock price of Borrower’s common stock if the Redemption Conditions are satisfied in respect of such redemption and at all times after such redemption.
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process that is reasonably likely to result in damages, expenses or liabilities in excess of
$500,000.
7.12 Deposit Accounts. Other than Excluded Accounts, neither Borrower nor any Subsidiary (other than an Excluded Subsidiary) shall maintain any Deposit Accounts, or accounts holding Investment Property, except with respect to which Agent has an Account Control Agreement. Borrower shall at all times (a) maintain the RIF Collateral Account in accordance with the applicable terms of the RIF Agreement in all material respects, (b) ensure that any deposits into and withdrawals from the RIF Collateral Account are made for no purpose other than to comply with its requirements under Section 2.7 of the RIF Agreement in amounts not to exceed what is required under Article 2 of the RIF Agreement, and (c) ensure that each Compliance Certificate shall set out (i) the balance of the RIF Collateral Account as of the final day of the month ended immediately prior to the date of such Compliance Certificate, and (ii) a transaction report including all deposits into and withdrawals from the RIF Collateral Account, if any, for the month ended immediately prior to the date of such Compliance Certificate.
7.23 RIF Agreement. Borrower shall (a) not, without the consent of Agent, make any payment under the RIF Agreement other than (i) the Royalty Payments pursuant to Section 2.2 of the RIF Agreement, (ii) the True Up Payments (as defined in the RIF Agreement) pursuant to Section 2.3(a) and 2.3(b) of the RIF Agreement, (iii) costs and expenses pursuant to Section 9.3 of the RIF Agreement, and (iv) subject to the following proviso, other payments due to the Investors under the RIF Agreement (whether or not initially to the RIF Collateral Account); provided, however, that (a) Borrower may not, without the written consent of the Agent, make any payment under the RIF Agreement (x) if an Event of Default exists under the Loan Agreement immediately prior to such payment or would result immediately after giving effect to such payment, (y) constituting the payment of any Pre-Regulatory Milestone Change of Control Price or Post-Regulatory Milestone Change of Control Price or (z) pursuant to Section 2.3(c) of the RIF Agreement, in the case of each of clause (x), (y) or (z), until such time as the Secured Obligations (other than contingent indemnity obligations) are fully paid, and the Lenders have no commitment or obligation to lend any further funds to Borrower under this Agreement, and (b) give prompt written notice to the Agent of any amendment, modification, waiver or termination of the RIF Agreement.
9.7 Other Obligations.
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any condition giving rise to the foregoing is met, in each case, with respect to which Borrower or its Affiliates is the “defaulting party” under the terms of such Warrant,
Permitted Bond Hedge Transaction or Permitted Warrant Transaction; or
attached hereto:
(b) References Within Loan Agreement. Each reference in the Loan Agreement to “this Agreement” and the words “hereof,” “herein,” “hereunder”, or words of like import, shall mean and be a reference to the Loan Agreement as amended by this Amendment. This Amendment shall be a Loan Document.
SECTION 4 Conditions of Effectiveness. The effectiveness of this Amendment (the “First Amendment Effective Date”) shall be subject to Agent’s receipt of the following documents, in form and substance satisfactory to Agent, or, as applicable, the following conditions being met:
SECTION 5 Transfer of Commitments. Pursuant to Section 11.7 of the Loan Agreement: (a) Agent, in its capacity as a Lender, has (i) prior to the date hereof, transferred certain Term Commitments to Hercules Private Credit Fund 1 L.P. and (ii) on the date hereof shall transfer certain Term Commitments to the Incoming Lender, in each case, the same which are reflected on Schedule 1.1(a), and (b) the Incoming Lender hereby confirms that, on and with effect from the date hereof, it will assume the rights and obligations as a “Lender” under the Loan Documents. No transfer fee shall be payable in respect of this Section. Each Existing Lender agrees that Agent will distribute to each Existing Lender the pro rata amount of any fees payable in respect of the Term Commitments set out opposite its name in Schedule 1.1 for the period from when such fee began to accrue until the date hereof. Incoming Lender agrees to the terms and conditions set forth on Addendum 1 and Addendum 3 of the Loan Agreement.
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SECTION 6 Representations and Warranties. To induce Agent and Lenders to enter into this Amendment, Borrower hereby confirms, as of the date hereof, (a) that the representations and warranties made by it in Section 5 of the Loan Agreement and in the other Loan Documents are true and correct in all material respects; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; provided, further, that to the extent such representations and warranties by their terms expressly relate only to a prior date such representations and warranties shall be true and correct as of such prior date, and (a) that no Event of Default has occurred and is continuing; (b) that there has not been and there does not exist a Material Adverse Effect; (c) Lenders have and shall continue to have valid, enforceable and perfected first-priority liens, subject only to Permitted Liens, on and security interests in the Collateral and all other collateral heretofore granted by Borrower to Lenders (subject to the release of the security interest in and lien on the Revenue Interest Collateral in Section 7 of this Amendment below), pursuant to the Loan Documents or otherwise granted to or held by Lenders; (d) the agreements and obligations of Borrower contained in the Loan Documents and in this Amendment constitute the legal, valid and binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms, except as the enforceability thereof may be limited by bankruptcy, insolvency or other similar laws of general application affecting the enforcement of creditors’ rights or by the application of general principles of equity; and (e) the execution, delivery and performance of this Amendment by Borrower will not violate any law, rule, regulation, order, contractual obligation or organizational document of Borrower and will not result in, or require, the creation or imposition of any lien, claim or encumbrance of any kind on any of its properties or revenues. For the purposes of this Section 5, each reference in Section 5 of the Loan Agreement to “this Agreement,” and the words “hereof”, “herein”, “hereunder”, or words of like import in such Section, shall mean and be a reference to the Loan Agreement as amended by this Amendment.
SECTION 7 Release of Security Interests in Revenue Interest Collateral. Notwithstanding anything to the contrary contained herein or otherwise, effective immediately upon the entry into the RIF Agreement, without further action on the part of the parties hereto all security interests and other liens of every type at any time granted to or held by the Agent for the benefit of the Lenders with respect to the Revenue Interest Collateral as security for the obligations under the Loan Agreement and any other Loan Documents shall be automatically terminated and automatically released without further action by any Lender or the Agent. In furtherance of the foregoing, the Agent and the Lenders, as applicable, agree to execute and deliver to the Borrower any and all documents, certificates, agreements or filings necessary to evidence the release of the Agent’s security interests in the Revenue Interest Collateral (such documents and filings to be prepared by the Borrower at Borrower’s sole expense), including the filing of any UCC-3 amendments to financing statements solely related to the release of the Revenue Interest Collateral.
SECTION 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 to the extent possible under applicable law 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
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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 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.
SECTION 9 Miscellaneous.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment, as of the date first above written.
BORROWER:
PHATHOM PHARMACEUTICALS, INC.
Signature: /s/ Terrie Curran
Print Name: Terrie Curran
Title: President and Chief Executive Officer
[SIGNATURES CONTlNUE ON THE NEXT PAGE]
AGENT:
HERCULES CAPITAL, INC.
Signature: /s/ Seth Meyer
Print Name: Seth Meyer
Title: Chief Financial Officer
LENDERS:
HERCULES CAPITAL, INC.
Signature: /s/ Seth Meyer
Print Name: Seth Meyer
Title: Chief Financial Officer
HERCULES CAPITAL IV, L.P.
By: Hercules Technology SBIC Management, LLC, its General Partner
By: Hercules Capital, Inc., its Manager
Signature: /s/ Seth Meyer
Print Name: Seth Meyer
Title: Chief Financial Officer
HERCULES PRIVATE CREDIT FUND 1 L.P.
By: Hercules Adviser LLC, its Investment Adviser
By: /s/ Seth Meyer
Print Name: Seth Meyer
Title: Authorized Signatory
HERCULES PRIVATE GLOBAL VENTURE GROWTH FUND I L.P.
By: Hercules Adviser LLC, its Investment Adviser
Signature: /s/ Seth Meyer
Print Name: Seth Meyer
Title: Authorized Signatory
INCOMING LENDER:
SAGARD HEALTHCARE ROYALTY PARTNERS, LP
By: Sagard Healthcare Royalty Partners GP LLC, its general partner
Signature: /s/ Jason Sneah
Print Name: Jason Sneah Title: Manager
Signature: /s/ Adam Vigna
Print Name: Adam Vigna
Title: Chief Investment Officer