On December 31, 2020 (the "Closing Date"), Paratek Pharmaceuticals, Inc. (the "Company"), through its wholly-owned subsidiary PRTK SPV2 LLC, a Delaware limited liability company (the "Subsidiary"), reported that it entered into a royalty and revenue interest-backed loan agreement (the "Loan Agreement") with an affiliate of R-Bridge Healthcare Investment Advisory, Ltd. (the "Lender") (Filing, 8-K, Paratek Pharmaceuticals, DEC 31, 2020, View Source [SID1234573411]). Pursuant to the terms of the Loan Agreement, the Subsidiary borrowed a $60.0 million term loan, secured by, and repaid with proceeds from, (i) royalties from the Company’s license agreement with Zai Labs (Shanghai) Co., Ltd. (the "License Agreement", and such royalties, the "Royalty Interest") and (ii) a revenue interest based on the Company’s United States sales of NUZYRA in an initial amount of two and a half percent (2.5%), which amount may adjust under certain circumstances up to five percent (5%), of the Company’s net United States sales, subject to an annual cap of $10.0 million, which may adjust under certain circumstances to $12.0 million (the "Revenue Interest").
Under the Loan Agreement, the outstanding principal balance will bear interest at an annual rate of 7.0%. Payments of the obligations outstanding under the Loan Agreement will be made quarterly, beginning with the payment due in respect of the quarter ending March 31, 2021, out of the Royalty Interest payments and Revenue Interest payments received by the Subsidiary during such quarter (the "Collection Amount"). On each payment date, after payment of certain expenses, the Collection Amount shall be applied first to accrued interest, with any excess up to $15.0 million per annum applied to repay principal until the balance is fully repaid. Amounts in excess of the $15.0 million annual cap shall be shared between the Company and the Lender based on a formula set out in the Loan Agreement. Following repayment in full of the loan, the first $15.0 million per annum in Collection Amount shall be paid to the Company and any amounts in excess shall be shared between the Company and the Lender based on a formula set out in the Loan Agreement.
Prior to the eighth (8th) anniversary of the Closing Date, the Loan Agreement will automatically terminate once the Subsidiary has paid to the Lender, in the form of regularly scheduled payments or as a voluntary prepayment, a capped amount of up to 190% of the $60.0 million the loan commitment amount. After the eighth (8th) anniversary of the Closing Date, the Revenue Interest can be terminated but the Royalty Interest payments shall continue until maturity of the Loan Agreement on December 31, 2032, at which time, the outstanding principal amount of the loan, together with any accrued and unpaid interest, and all other obligations then outstanding, shall be due and payable in cash by the Subsidiary.
The Company’s subsidiary, PRTK SPV1 LLC, a Delaware limited liability company and owner of the Subsidiary’s capital stock, has entered into a Pledge and Security Agreement in favor of the Lender, pursuant to which the Subsidiary’s obligations under the Loan Agreement are secured by PRTK SPV1 LLC’s pledge of all of the Subsidiary’s capital stock.
The Loan Agreement contains certain customary affirmative covenants, including those relating to: use of proceeds; maintenance of books and records; financial reporting and notification; compliance with laws; and protection of Company intellectual property. The Loan Agreement also contains certain customary negative covenants, barring the Subsidiary from: certain fundamental transactions; issuing dividends and distributions; incurring additional indebtedness outside of the ordinary course of business; engaging in any business activity other than related to the License Agreement; and permitting any additional liens on the collateral provided to the Lender under the Loan Agreement.
The Revenue Interest Purchase Agreement contains negative covenants applicable to the Company, including restrictions on the sale or transfer of the assets of the Company related to NUZYRA and giving rise to the Revenue Interest, each subject to the exceptions set forth therein.
The Loan Agreement contains customary defined events of default, upon which any outstanding principal and unpaid interest shall be immediately due and payable by the Subsidiary. These include: failure to pay any principal or interest when due; any uncured breach of a representation, warranty or covenant; any uncured failure to perform or observe covenants; any uncured cross default under a material contract; any uncured breach of the Company’s representations, warranties or covenants under its Contribution and Servicing Agreement with the Subsidiary; any termination of the License Agreement; and certain bankruptcy or insolvency events.
The net proceeds of the term loan were used by the Subsidiary to purchase from the Company the Royalty Interest and Revenue Interest, pursuant to the terms of the Revenue Interest Purchase Agreement and the Contribution and Servicing Agreement, respectively. The Company has used the proceeds from the sale of the Royalty Interest and Revenue Interest, together with cash on hand, to prepay in full all obligations of the Company outstanding under its Amended and Restated Loan and Security Agreement dated as of June 27, 2019, as amended, with Hercules Technology III, L.P., certain other lenders and Hercules Capital, Inc. (as agent).
The foregoing description of the terms of the Loan Agreement, the Revenue Interest Purchase Agreement and the Contribution and Servicing Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Loan Agreement, the Revenue Interest Purchase Agreement and the Contribution and Servicing Agreement, copies of which are filed herewith and incorporated herein by reference.