DEFR14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.    )

 

 

Filed by the Registrant  ☒                            Filed by a Party other than the Registrant  ☐

Check the appropriate box:

  Preliminary Proxy Statement
  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement – Revised
  Definitive Additional Materials
  Soliciting Material Under §240.14a-12

MELINTA THERAPEUTICS, INC.

(Name of Registrant as Specified In Its Charter)

 

        

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

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Title of each class of securities to which transaction applies:

 

     

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  Fee paid previously with preliminary materials.
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)  

Amount Previously Paid:

 

     

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Form, Schedule or Registration Statement No.:

 

     

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Date Filed:

 

     

 

 

 


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EXPLANATORY NOTE

This revised definitive proxy statement (this “proxy statement”) of Melinta Therapeutics, Inc. (“Melinta” or the “Company”) amends, restates and supersedes the definitive proxy statement filed by the Company with the Securities and Exchange Commission on November 29, 2018, and amended and supplemented on December 10, 2018 (as so amended and supplemented, the “original proxy statement”). The original proxy statement was filed in connection with the Company’s special meeting of stockholders of Melinta to be held on December 20, 2018, at 10:00 a.m., local time, at 44 Whippany Road, in Morristown, New Jersey, for the Company’s stockholders of record as of close of business on November 26, 2018, to consider and vote upon certain proposals related to the Original Purchase Agreement (as defined below), which special meeting has been adjourned until February 19, 2019 at 10:00 a.m., local time, at the Westin Governor Morris hotel, 2 Whippany Rd, in Morristown, New Jersey (the “Special Meeting”), and which record date has been changed to January 10, 2019.

As further described in this proxy statement, on December 31, 2018, the Company, certain of its subsidiaries, Vatera Healthcare Partners LLC (“VHP”) and Vatera Investment Partners LLC (“VIP” and, together with VHP, “Vatera”) entered into a senior subordinated convertible loan agreement (the “Original Vatera Loan Agreement”) for a senior subordinated convertible loan facility of up to $135 million, which loan agreement was amended and restated on January 14, 2019, a copy of which is attached as Annex C to this proxy statement (the “Vatera Loan Agreement”), to provide for an additional $5 million that will be deemed to have been funded by Deerfield (as defined below) upon the initial funding under the Vatera Loan Agreement (the “Vatera Loan Facility” and, the convertible loans under the Vatera Loan Facility, the “Vatera Convertible Loans”), as further described in this proxy statement. Also, on January 14, 2019, the Company, certain of its subsidiaries, Deerfield and Cortland Capital Market Services LLC entered into an amendment to the Deerfield Facility (as defined below) (the “Deerfield Facility Amendment”).

On December 18, 2018, for the reasons further described in this proxy statement, the Company and VHP terminated their existing Purchase Agreement, dated November 19, 2018 (the “Original Purchase Agreement”), which provided for the sale to VHP of an aggregate of $75 million of Melinta common stock, subject to adjustment as set forth in the Original Purchase Agreement.

This proxy statement is being filed: (1) to add Proposal 1 (to authorize a reverse stock split of the issued and outstanding shares of Melinta common stock); (2) to amend prior Proposal 1 (now Proposal 2) (to increase the number of authorized shares of Melinta common stock from 80,000,000 to 275,000,000, rather than 155,000,000, to accommodate, in part, the conversion of any of the Vatera Convertible Loans, which are convertible into shares of Melinta common stock or shares of Melinta convertible preferred stock, which are then further convertible into shares of Melinta common stock, and to accommodate the conversion of up to $74 million of the Deerfield Convertible Loan (as defined herein) pursuant to the terms of the Deerfield Facility Amendment, which amendment is a condition (among other conditions) to funding the Vatera Convertible Loans (and the effectiveness of such amendment is conditioned on such funding)); (3) to amend and restate prior Proposal 2 (now Proposal 3) (to approve the issuance and sale of the Vatera Convertible Loans, and the issuance of the underlying shares of preferred stock and common stock upon conversion of the Vatera Convertible Loans, for purposes of applicable Nasdaq rules, rather than approval of the issuance of common stock under the Original Purchase Agreement); and (4) to add Proposal 4 (to authorize amendments to the Company’s 2018 Stock Incentive Plan (the “2018 Plan”) to increase the number of shares reserved and available for issuance (a) to the Chief Executive Officer and (b) for general issuances under the 2018 Plan, as amended) for consideration at the Special Meeting. If both Proposal 1 and Proposal 2 are approved by Melinta stockholders and Melinta’s board of directors determines, in its discretion, to implement Proposal 1 (the reverse stock split), then Melinta’s board of directors, subject to its discretion, does not also intend to implement Proposal 2 (the increase to the number of authorized shares of Melinta common stock).

This proxy statement should be read in place of the original proxy statement, and amends, restates and supersedes the original proxy statement in all respects.


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LOGO

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON FEBRUARY 19, 2019

To the Stockholders of Melinta Therapeutics, Inc.:

Notice is hereby given that a special meeting of the stockholders (the “Special Meeting”) of Melinta Therapeutics, Inc., a Delaware corporation (“Melinta,” the “Company” or “we”), which has been adjourned from its originally scheduled meeting date of December 20, 2018, will be reconvened at 10:00 a.m., local time, on February 19, 2019, at the Westin Governor Morris hotel, 2 Whippany Rd, in Morristown, New Jersey, unless postponed or adjourned to a later date.

As further described in this proxy statement, on December 31, 2018, the Company, certain of its subsidiaries, Vatera Healthcare Partners LLC (“VHP”) and Vatera Investment Partners LLC (“VIP” and, together with VHP, “Vatera”) entered into a senior subordinated convertible loan agreement (the “Original Vatera Loan Agreement”) for a senior subordinated convertible loan facility of up to $135 million, which loan agreement was amended and restated on January 14, 2019, a copy of which is attached as Annex C to this proxy statement (the “Vatera Loan Agreement”), to provide for an additional $5 million of convertible loans that will be deemed to have been funded by Deerfield (as defined below) upon the initial funding under the Vatera Loan Agreement (the “Vatera Loan Facility” and, the convertible loans under the Vatera Loan Facility, the “Vatera Convertible Loans”) as further described in this proxy statement. The funding of the initial loans under the Vatera Loan Facility (the “Closing Date”) is subject to several closing conditions as further described in this proxy statement, including, without limitation, the approval of the stockholders of the Company to Proposal 3 and either Proposal 1 or 2 requested herein. The Vatera Convertible Loans will be guaranteed by each of the Company’s direct or indirect subsidiaries that guarantees the Company’s obligations under the Deerfield Facility (as defined herein). On January 14, 2019, the Company, the other loan parties party thereto from time to time, Cortland Capital Market Services LLC, and Deerfield Private Design Fund IV, L.P., Deerfield Private Design Fund III, L.P., and Deerfield Special Situations Fund, as lenders (the lenders being affiliates of Deerfield Management Company, L.P. and referred to herein as “Deerfield”) entered into an amendment (the “Deerfield Facility Amendment”) to the Facility Agreement dated as of January 5, 2018 (together with the Deerfield Facility Amendment, the “Deerfield Facility”).

On December 18, 2018, the Company and VHP terminated their existing Purchase Agreement, dated November 19, 2018 (the “Original Purchase Agreement”), which provided for the sale of an aggregate of $75 million of Melinta common stock, subject to adjustment as set forth in the Original Purchase Agreement.

At the Special Meeting, the Company will ask its stockholders to consider and vote upon proposals (the “Proposals”): (1) to approve an amendment to Melinta’s Certificate of Incorporation to authorize a reverse stock split of the issued and outstanding shares of Melinta common stock; (2) to approve an amendment to Melinta’s Certificate of Incorporation to increase the number of authorized shares of Melinta common stock from 80,000,000 to 275,000,000 to accommodate, in part, the conversion of any of the Vatera Convertible Loans, which are convertible into shares of Melinta common stock or shares of Melinta convertible preferred stock, which are then further convertible into shares of Melinta common stock, and to accommodate the conversion of up to $74 million of the convertible loan under the Deerfield Facility (the “Deerfield Convertible Loan”) as permitted by the Deerfield Facility Amendment, which amendment is a condition (among other conditions) to funding the Vatera Convertible Loans (and the effectiveness of such amendment is conditioned on such funding); (3) to approve the issuance and sale of the Vatera Convertible Loans, and the issuance of the underlying shares of preferred stock and common stock upon conversion of the Vatera Convertible Loans, for purposes of applicable Nasdaq rules; (4) to authorize amendments to the Company’s 2018 Stock Incentive Plan (the “2018 Plan”) to increase the number of shares reserved and available for issuance by (a) 2,000,000 shares specifically for issuance to the Chief Executive Officer and (b) an additional 3,000,000 shares for general issuances under the


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amended 2018 Plan, which together would bring the total number of shares available under the 2018 Plan, as amended, to 9,104,429; and (5) to adjourn the Special Meeting, if necessary, if a quorum is present, to solicit additional proxies, in the event that there are not sufficient votes at the time of the Special Meeting to approve the Proposals above, as well as any other items that may properly come before the meeting. If both Proposal 1 and Proposal 2 are approved by Melinta stockholders and Melinta’s board of directors determines, in its discretion, to implement Proposal 1 (the reverse stock split), then Melinta’s board of directors, subject to its discretion, does not also intend to implement Proposal 2 (the increase to the number of authorized shares of Melinta common stock).

After careful consideration, Melinta’s board of directors (with the two Vatera-related members of the board and, in addition with respect to the amendments to the 2018 Plan, John H. Johnson (our interim Chief Executive Officer and a director), having recused themselves) has unanimously approved the amendments to Melinta’s Certificate of Incorporation, the Vatera Loan Agreement and the amendments to the 2018 Plan and has determined that they are advisable, fair and in the best interests of Melinta and its stockholders. Accordingly, Melinta’s board of directors (with the two Vatera-related members of the board and, in addition with respect to Proposal 4A and Proposal 4B, Mr. Johnson having recused themselves) unanimously recommends that stockholders vote “FOR” the Proposals set forth in this proxy statement.

More information about Melinta and the Proposals to be voted on at the Special Meeting are contained in this proxy statement. Melinta urges you to read this proxy statement carefully and in its entirety.

Your vote is important. Whether or not you expect to attend the Special Meeting in person, please complete, date, sign and promptly return the accompanying proxy card in the enclosed postage paid envelope to ensure that your shares will be represented and voted at the Special Meeting. If you have telephone or internet access, you may submit your proxy by following the instructions provided in this proxy statement, or by following the instructions provided with your proxy materials and on the enclosed proxy card or voting instruction card. All previously cast votes associated with the adjourned special meeting on December 20, 2018, and the proposals described in the definitive proxy statement for that meeting, regardless of which voting method was used, will be completely disregarded for the Special Meeting scheduled for February 19, 2019, and the proposals described in this proxy statement. Provided that you are a holder of record on the new record date, you must re-vote your shares for your vote to be counted at the Special Meeting.

The new record date for the Special Meeting is January 10, 2019. Only stockholders of record as of the close of business on the new record date will be entitled to vote at the Special Meeting. If you were a holder of record on the record date for the adjourned special meeting but are not a holder of record on the new record date for the Special Meeting, you are not entitled to vote with respect to the Proposals set forth in this proxy statement.

Yours sincerely,

By Order of the Board of Directors of Melinta Therapeutics, Inc.

 

LOGO

Peter Milligan

Secretary

January 29, 2019

Morristown, New Jersey

MELINTA’S BOARD OF DIRECTORS (WITH THE TWO VATERA-RELATED MEMBERS OF THE BOARD AND, IN ADDITION WITH RESPECT TO THE AMENDMENTS TO THE 2018 PLAN, MR. JOHNSON, HAVING RECUSED THEMSELVES) HAS UNANIMOUSLY APPROVED THE


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AMENDMENTS TO MELINTA’S CERTIFICATE OF INCORPORATION, THE LOAN AGREEMENT AND THE AMENDMENTS TO THE 2018 PLAN AND HAS DETERMINED THAT THEY ARE ADVISABLE, FAIR AND IN THE BEST INTERESTS OF MELINTA AND ITS STOCKHOLDERS. ACCORDINGLY, MELINTA’S BOARD OF DIRECTORS (WITH THE TWO VATERA-RELATED MEMBERS OF THE BOARD AND, IN ADDITION WITH RESPECT TO PROPOSAL 4A AND PROPOSAL 4B, MR. JOHNSON, HAVING RECUSED THEMSELVES) UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE PROPOSALS SET FORTH IN THIS PROXY STATEMENT.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THE LOAN AGREEMENT OR DETERMINED IF THIS PROXY STATEMENT IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

This proxy statement is dated January 29, 2019, and is first being mailed to stockholders on or about January 30, 2019.


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REFERENCES TO ADDITIONAL INFORMATION

This proxy statement under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules thereunder, contains a notice of meeting with respect to the Special Meeting, which has been adjourned from its originally scheduled meeting date of December 20, 2018, at which Melinta stockholders will consider and vote upon Proposals: (1) to approve an amendment to Melinta’s Certificate of Incorporation to authorize a reverse stock split of the issued and outstanding shares of Melinta common stock; (2) to approve an amendment to Melinta’s Certificate of Incorporation to increase the number of authorized shares of Melinta common stock from 80,000,000 to 275,000,000 to accommodate, in part, the conversion of any of the Vatera Convertible Loans, which are convertible into shares of Melinta common stock or shares of Melinta convertible preferred stock, which are then further convertible into shares of Melinta common stock, and to accommodate the conversion of up to $74 million of the Deerfield Convertible Loan pursuant to the terms of the Deerfield Facility Amendment, which amendment is a condition (among other conditions) to funding the Vatera Convertible Loans (and the effectiveness of such amendment is conditioned on such funding); (3) to approve the issuance and sale of the Vatera Convertible Loans, and the issuance of the underlying shares of preferred stock and common stock upon conversion of the Vatera Convertible Loans, for purposes of applicable Nasdaq rules; (4) to authorize amendments to the 2018 Plan to increase the number of shares reserved and available for issuance by (a) 2,000,000 shares specifically for issuance to the Chief Executive Officer and (b) an additional 3,000,000 shares for general issuances under the amended 2018 Plan, which together would bring the total number of shares available under the 2018 Plan, as amended, to 9,104,429; and (5) to adjourn the Special Meeting, if necessary, if a quorum is present, to solicit additional proxies, in the event that there are not sufficient votes at the time of the Special Meeting to approve the Proposals above, as well as any other items that may properly come before the meeting. If both Proposal 1 and Proposal 2 are approved by Melinta stockholders and Melinta’s board of directors determines, in its discretion, to implement Proposal 1 (the reverse stock split), then Melinta’s board of directors, subject to its discretion, does not also intend to implement Proposal 2 (the increase to the number of authorized shares of Melinta common stock).

Additional business and financial information about Melinta can be found in documents previously filed by Melinta with the U.S. Securities and Exchange Commission (the “SEC”). This information is available to you without charge at the SEC’s website at www.sec.gov.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDERS MEETING TO BE HELD ON FEBRUARY 19, 2019:

In addition to receiving this proxy statement from Melinta in the mail or obtaining the information on the SEC’s website, Melinta stockholders will also be able to obtain this proxy statement, free of charge, from Melinta by requesting copies in writing using the following contact information:

Melinta Therapeutics, Inc.

44 Whippany Road,

Morristown, New Jersey 07963

Attn: Investor Relations

A copy of this proxy statement is also available, free of charge, at www.investorvote.com/MLNT and under the Investors—Financial Information section of Melinta’s website at www.melinta.com.

You may also request additional copies from Melinta’s proxy solicitor, Georgeson, LLC (“Georgeson”), using the following contact information:

1290 Avenue of the Americas, 9th Floor

New York, New York 10104

800-905-7281

IF YOU WOULD LIKE TO REQUEST MATERIALS, PLEASE DO SO BY FEBRUARY 14, 2019, IN ORDER TO RECEIVE THEM BEFORE THE SPECIAL MEETING.

See “Where You Can Find More Information” beginning on page 84 of this proxy statement.


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TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING

     1  

SUMMARY

     20  

The Special Meeting

     20  

Summary of the Amendment to the Certificate of Incorporation to Authorize the Reverse Stock Split

     22  

Summary of the Amendment to the Certificate of Incorporation to Increase the Number of Authorized Shares of Melinta Common Stock

     22  

Summary of the Vatera Loan Agreement, Vatera Loan Facility and Vatera Convertible Loans

     23  

Summary of the Deerfield Facility Amendment and Deerfield Convertible Loan

     28  

Summary of the Amendments to the 2018 Plan

     30  

Interests of Melinta’s Directors and Executive Officers in the Proposals

     31  

FORWARD-LOOKING STATEMENTS

     34  

THE SPECIAL MEETING

     35  

Date, Time and Place

     35  

Purpose of the Special Meeting

     35  

Recommendation of Melinta’s Board of Directors

     35  

Record Date and Stockholders Entitled to Vote

     36  

Voting Procedures

     36  

Revoking Your Proxy Instructions

     37  

Counting Votes

     37  

Solicitation of Proxies

     38  

Adjournments and Postponements

     38  

Assistance

     39  

BACKGROUND OF THE PROPOSALS

     40  

RISK FACTORS

     50  

Risks of Not Approving the Proposals

     50  

Risks of Approving the Proposals

     52  

MATTERS BEING SUBMITTED TO A VOTE OF MELINTA STOCKHOLDERS

     59  

PROPOSAL 1: CHARTER AMENDMENT TO AUTHORIZE THE REVERSE STOCK SPLIT

     59  

PROPOSAL 2: CHARTER AMENDMENT TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK

     65  

PROPOSAL 3: APPROVAL OF THE ISSUANCE OF THE VATERA CONVERTIBLE LOANS, THE PREFERRED STOCK AND THE COMMON STOCK

     68  

PROPOSALS 4A AND 4B: APPROVAL OF AMENDMENTS TO THE 2018 PLAN TO INCREASE THE NUMBER OF SHARES RESERVED AND AVAILABLE FOR ISSUANCE UNDER THE 2018 PLAN

     74  

PROPOSAL 5: APPROVAL OF POSSIBLE ADJOURNMENT OF THE SPECIAL MEETING

     86  

STOCKHOLDER COMMUNICATIONS

     87  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     88  

RECENT CHANGE OF CONTROL OF REGISTRANT

     90  

WHERE YOU CAN FIND MORE INFORMATION

     91  

HOUSEHOLDING

     91  

OTHER MATTERS ARISING AT THE SPECIAL MEETING

     92  

FUTURE STOCKHOLDER PROPOSALS

     92  

DIRECTIONS TO SPECIAL MEETING

     92  

ANNEX A: AMENDMENT TO CERTIFICATE OF INCORPORATION TO AUTHORIZE REVERSE STOCK SPLIT

     A-1  

ANNEX B: AMENDMENT TO CERTIFICATE OF INCORPORATION TO INCREASE COMMON STOCK AUTHORIZATION

     B-1  

ANNEX C: VATERA LOAN AGREEMENT

     C-1  

ANNEX D: MELINTA THERAPEUTICS, INC. AMENDED AND RESTATED 2018 STOCK INCENTIVE PLAN

     D-1  

 

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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING

Except as specifically indicated, the following information and all other information in this proxy statement does not give effect to the reverse stock split described in Proposal 1.

The following section provides answers to frequently asked questions about the Special Meeting. This section, however, only provides summary information. These questions and answers may not address all issues that may be important to you as a stockholder. For a more complete response to these questions and for additional information, please refer to the cross-referenced pages below. You should carefully read this entire proxy statement, including each of the annexes attached hereto.

 

Q:

Why am I receiving this proxy statement?

 

A:

You are receiving this proxy statement because you have been identified as a stockholder of Melinta as of the record date, and thus you are entitled to vote at Melinta’s Special Meeting. This document serves as a proxy statement used to solicit proxies for the Special Meeting. This document contains important information about the Special Meeting of Melinta, and you should read it carefully.

 

Q:

Why was the Special Meeting adjourned from its original meeting date?

 

A:

As further described herein, on December 31, 2018, the Company, certain of its subsidiaries, VHP and VIP entered into the Original Vatera Loan Agreement for the Vatera Loan Facility as further described in this proxy statement, which loan agreement was amended and restated on January 14, 2019, to provide for an additional $5 million that will be deemed to have been funded by Deerfield upon the initial funding under the Vatera Loan Agreement. The Closing Date is subject to several closing conditions as further described in this proxy statement, including, without limitation, the approval of the stockholders of the Company to Proposal 3 and either Proposal 1 or 2 requested herein. On December 18, 2018, the Company and VHP terminated the Original Purchase Agreement, which provided for the sale of an aggregate of $75 million of Melinta common stock, subject to adjustment as set forth in the Original Purchase Agreement.

The special meeting, convened on December 20, 2018 (the “Adjourned Meeting”), was adjourned to allow the Company (1) to add Proposal 1 (to authorize a reverse stock split of the issued and outstanding shares of Melinta common stock); (2) to amend prior Proposal 1 (now Proposal 2) (to increase the number of authorized shares of Melinta common stock from 80,000,000 to 275,000,000, rather than 155,000,000, to accommodate, in part, the conversion of any of the Vatera Convertible Loans, which are convertible into shares of Melinta common stock or shares of Melinta convertible preferred stock, which are then further convertible into shares of Melinta common stock, and to accommodate the conversion of up to $74 million of the Deerfield Convertible Loan pursuant to the terms of the Deerfield Facility Amendment, which amendment is a condition (among other conditions) to funding the Vatera Convertible Loans (and the effectiveness of such amendment is conditioned on such funding)); (3) to amend and restate prior Proposal 2 (now Proposal 3) (to approve the issuance and sale of the Vatera Convertible Loans, and the issuance of the underlying shares of preferred stock and common stock upon conversion of the Vatera Convertible Loans, for purposes of applicable Nasdaq rules, rather than approval of the issuance of common stock under the Original Purchase Agreement); and (4) to add Proposal 4A and/or Proposal 4B (to authorize amendments to the 2018 Plan to increase the number of shares reserved and available for issuance (a) to the Chief Executive Officer and (b) for general issuances under the 2018 Plan, as amended), for consideration at the Special Meeting. If both Proposal 1 and Proposal 2 are approved by Melinta stockholders and Melinta’s board of directors determines, in its discretion, to implement Proposal 1 (the reverse stock split), then Melinta’s board of directors, subject to its discretion, does not also intend to implement Proposal 2 (the increase to the number of authorized shares of Melinta common stock).

 

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Q:

Does this proxy statement supersede the previous proxy materials associated with the Adjourned Meeting on December 20, 2018?

 

A:

Yes. This proxy statement amends and restates in its entirety the Company’s definitive proxy statement dated November 29, 2018, as amended and supplemented on December 10, 2018 (as so amended and supplemented, the “original proxy statement”). Accordingly, you should disregard the original proxy statements as well as the additional definitive proxy soliciting materials related thereto, as they are no longer applicable.

 

Q:

Do I need to re-vote my shares as a result of this new proxy statement?

 

A:

Yes. Due to the nature of the amendments to the Proposals, you will be required to re-vote your shares by using one of the voting methods described herein in order to have your vote counted (provided that you are a holder of record as of the close of business on January 10, 2019, the new record date for the Special Meeting). All previously cast votes associated with the Adjourned Meeting, regardless of which voting method was used, will be completely disregarded.

In addition, the record date for the Special Meeting is now the close of business on January 10, 2019, and not the close of business on November 26, 2018, which was the record date for the Adjourned Meeting. Only stockholders of record as of the close of business on the new record date will be entitled to vote at the Special Meeting. If you were a holder of record on the record date for the Adjourned Meeting but are not a holder of record on the new record date for the Special Meeting, you are not entitled to vote with respect to the Proposals set forth in this proxy statement.

 

Q:

When and where is the Special Meeting?

 

A:

The Special Meeting will be held on February 19, 2019, at 10:00 a.m., local time, at the Westin Governor Morris hotel, 2 Whippany Rd, in Morristown, New Jersey.

 

Q:

Who is entitled to vote at the Special Meeting?

 

A:

Only stockholders of record as of the close of business on January 10, 2019, or the record date, will be entitled to vote at the Special Meeting. As of the close of business on the record date, there were 56,066,169 shares of Melinta common stock issued and outstanding and entitled to vote, held by approximately 160 stockholders of record. Each stockholder is entitled to one vote for each share of Melinta common stock held by such stockholder on the record date on the Proposals presented in this proxy statement.

 

Q:

Did the record date change for the Special Meeting?

 

A:

Yes, the record date for the Special Meeting is now the close of business on January 10, 2019, and not the close of business on November 26, 2018, which was the record date for the Adjourned Meeting.

 

Q:

What proposals will be considered at the Special Meeting?

 

A:

At the Special Meeting, you will be asked to consider and vote upon Proposals: (1) to approve an amendment to Melinta’s Certificate of Incorporation to authorize a reverse stock split of the issued and outstanding shares of Melinta common stock; (2) to approve an amendment to Melinta’s Certificate of Incorporation to increase the number of authorized shares of Melinta common stock from 80,000,000 to 275,000,000 to accommodate, in part, the conversion of any of the Vatera Convertible Loans, which are convertible into shares of Melinta common stock or shares of Melinta convertible preferred stock, which are then further convertible into shares of Melinta common stock, and to accommodate the conversion of up to $74 million of the Deerfield Convertible Loan pursuant to the terms of the Deerfield Facility Amendment, which amendment is a condition (among other conditions) to funding the Vatera Convertible Loans (and the effectiveness of such amendment is conditioned on such funding); (3) to approve the issuance and sale of

 

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  the Vatera Convertible Loans, and the issuance of the underlying shares of preferred stock and common stock upon conversion of the Vatera Convertible Loans, for purposes of applicable Nasdaq rules; (4) to authorize amendments to the 2018 Plan to increase the number of shares reserved and available for issuance by (a) 2,000,000 shares specifically for issuance to the Chief Executive Officer and (b) an additional 3,000,000 shares for general issuances under the amended 2018 Plan, which together would bring the total number of shares available under the 2018 Plan, as amended, to 9,104,429; and (5) to adjourn the Special Meeting, if necessary, if a quorum is present, to solicit additional proxies, in the event that there are not sufficient votes at the time of the Special Meeting to approve the Proposals above, as well as any other items that may properly come before the meeting. If both Proposal 1 and Proposal 2 are approved by Melinta stockholders and Melinta’s board of directors determines, in its discretion, to implement Proposal 1 (the reverse stock split), then Melinta’s board of directors, subject to its discretion, does not also intend to implement Proposal 2 (the increase to the number of authorized shares of Melinta common stock).

 

Q:

How many votes are needed to approve the amendment to the Certificate of Incorporation to authorize the reverse stock split?

 

A:

To approve the Proposal, “FOR” votes from the holders of a majority of the issued and outstanding shares of Melinta common stock are required.

VHP has agreed in the Vatera Loan Agreement to vote the approximately 16 million shares of Melinta common stock, which represents approximately 28.6% of the outstanding shares of common stock as of January 10, 2019, that it owns in favor of this proposal, subject to VHP’s reasonable determination that certain conditions set forth in the Vatera Loan Agreement will be satisfied.

 

Q:

How many votes are needed to approve the amendment to the Certificate of Incorporation to increase the number of authorized shares of Melinta common stock?

 

A:

To approve the Proposal, “FOR” votes from the holders of a majority of the issued and outstanding shares of Melinta common stock are required.

VHP has agreed in the Vatera Loan Agreement to vote the approximately 16 million shares of Melinta common stock, which represents approximately 28.6% of the outstanding shares of common stock as of January 10, 2019, that it owns in favor of this proposal, subject to VHP’s reasonable determination that certain conditions set forth in the Vatera Loan Agreement will be satisfied.

 

Q:

How many votes are needed to approve the issuance and sale of the Vatera Convertible Loans, and the issuance of the preferred stock and the common stock upon conversion of the Vatera Convertible Loans, for purposes of applicable Nasdaq rules?

 

A:

To approve the Proposal, “FOR” votes from the holders of a majority of the shares of Melinta common stock present in person or represented by proxy and entitled to vote on the matter at the Special Meeting are required.

VHP has agreed in the Vatera Loan Agreement to vote the approximately 16 million shares of Melinta common stock, which represents approximately 28.6% of the outstanding shares of common stock as of January 10, 2019, that it owns in favor of this proposal, subject to VHP’s reasonable determination that certain conditions set forth in the Vatera Loan Agreement will be satisfied by the Company.

 

Q:

How many votes are needed to approve each of the amendments to the 2018 Plan to increase the number of shares reserved and available for issuance under the 2018 Plan?

 

A:

To approve Proposal 4A, “FOR” votes from the holders of a majority of the shares of Melinta common stock present in person or represented by proxy and entitled to vote on the matter at the Special Meeting are required.

 

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VHP has informed the Company that it intends to vote the approximately 16 million shares of Melinta common stock, which represents approximately 28.6% of the outstanding shares of common stock as of January 10, 2019, that it owns in favor of this proposal, subject to VHP’s reasonable determination that certain conditions set forth in the Vatera Loan Agreement will be satisfied by the Company.

To approve Proposal 4B, “FOR” votes from the holders of a majority of the shares of Melinta common stock present in person or represented by proxy and entitled to vote on the matter at the Special Meeting are required.

VHP has informed the Company that it intends to vote the approximately 16 million shares of Melinta common stock, which represents approximately 28.6% of the outstanding shares of common stock as of January 10, 2019, that it owns in favor of this proposal, subject to VHP’s reasonable determination that certain conditions set forth in the Vatera Loan Agreement will be satisfied by the Company.

 

Q:

How many votes are needed to approve the adjournment?

 

A:

To approve the adjournment, “FOR” votes from the holders of a majority of the shares of Melinta common stock present in person or represented by proxy and entitled to vote on the matter at the Special Meeting are required. If a quorum is not present, either (i) the chairperson of the meeting or (ii) any officer entitled to preside at or to act as secretary of the meeting may adjourn the meeting.

 

Q:

How does Melinta’s board of directors recommend that Melinta stockholders vote?

 

A:

After careful consideration, Melinta’s board of directors (with the two Vatera-related members of the board and, in addition with respect to the amendments to the 2018 Plan, Mr. Johnson, having recused themselves) has unanimously approved the amendments to Melinta’s Certificate of Incorporation, the Vatera Loan Agreement and the amendments to the 2018 Plan and has determined that they are advisable, fair and in the best interests of Melinta and its stockholders. Accordingly, Melinta’s board of directors (with the two Vatera-related members of the board and, in addition with respect to Proposal 4A and Proposal 4B, Mr. Johnson having recused themselves) unanimously recommends that stockholders vote “FOR” the Proposals set forth in this proxy statement.

 

Q:

What is the reverse stock split and why is it necessary?

 

A:

If the reverse stock split is approved and Melinta’s board of directors has determined, in its discretion, to implement it, upon the effectiveness of the amendment to Melinta’s Certificate of Incorporation effecting the reverse stock split, the outstanding shares of Melinta common stock will be reclassified and combined into a lesser number of shares such that one share of Melinta common stock will be issued for a specified number of shares, which shall be greater than one and equal to or less than 20, of outstanding Melinta common stock, with the exact number within the range to be determined by Melinta’s board of directors prior to the effective time of such amendment and publicly announced by Melinta. The form of the proposed amendment to the Melinta Certificate of Incorporation attached hereto as Annex A will effect the reverse stock split, as more fully described below, but will not change the number of authorized shares (except as described in Proposal 2, if Proposal 2 is approved by Melinta’s stockholders and implemented by Melinta’s board as described below), or the par value, of Melinta common stock.

Melinta’s board of directors approved the Proposal authorizing the reverse stock split for the following reasons:

 

   

the continued listing standards of the Nasdaq Global Market require Melinta to have, among other things, a $1.00 per share minimum bid price, and as such, the reverse stock split may be necessary for the continued listing of the shares of Melinta common stock on the Nasdaq Global Market;

 

   

Melinta’s board of directors believes a higher stock price may help generate investor interest in Melinta and help Melinta attract and retain employees;

 

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if the reverse stock split successfully increases the per share price of Melinta common stock, Melinta’s board of directors believes that this may increase trading volume in Melinta common stock and facilitate future financings by Melinta; and

 

   

the reverse stock split would provide authorized share capital to accommodate, in part, the conversion of any of the Vatera Convertible Loans, which are convertible into shares of Melinta common stock or shares of Melinta convertible preferred stock, which are then further convertible into shares of Melinta common stock, and to accommodate the conversion of up to $74 million of the Deerfield Convertible Loan pursuant to the terms of the Deerfield Facility Amendment, which amendment is a condition (among other conditions) to funding the Vatera Convertible Loans (and the effectiveness of such amendment is conditioned on such funding).

Even if Melinta’s stockholders approve the reverse stock split, Melinta reserves the right not to effect the reverse stock split if Melinta’s board of directors does not deem the reverse stock split to be in the best interests of Melinta and its stockholders. Melinta’s board of directors may determine to effect the reverse stock split, if it is approved by the stockholders, even if the other Proposals to be acted upon at the meeting are not approved.

 

Q:

Does Melinta’s board of directors intend to implement Proposals 1 and 2 if both are approved by Melinta’s stockholders?

 

A:

No. If both Proposal 1 and Proposal 2 are approved by Melinta stockholders and Melinta’s board of directors determines, in its discretion, to implement Proposal 1 (the reverse stock split), then Melinta’s board of directors, subject to its discretion, does not also intend to implement Proposal 2 (the increase to the number of authorized shares of Melinta common stock).

 

Q:

Should Melinta stockholders send in their stock certificates?

 

A:

No. If the reverse stock split is approved by Melinta’s stockholders and Melinta’s board of directors has determined, in its discretion, to implement it, then as soon as practicable after the effective date of the reverse stock split, stockholders will be notified that the reverse stock split has been effected. Those stockholders holding certificated shares will receive a letter of instruction directing them to surrender their certificates in exchange for newly issued certificates reflecting their revised holding. No further action will be required for other stockholders in connection with the reverse stock split as their Melinta common stock is held in book-entry.

Subject to the terms of the Deerfield Facility Amendment, Melinta stockholders will also receive a cash payment for any fractional shares resulting from the reverse stock split.

 

Q:

What are the material federal income tax consequences of the reverse stock split to me?

 

A:

Except as described below with respect to cash received in lieu of a fractional share, Melinta stockholders generally will not recognize gain or loss as a result of the reverse stock split. The aggregate adjusted tax basis in the shares of Melinta common stock received pursuant to the reverse stock split will equal the aggregate adjusted tax basis of the shares of Melinta common stock exchanged therefor (reduced by the amount of such basis that is allocated to any fractional share of Melinta common stock). In general, each Melinta stockholder’s holding period for the shares of Melinta common stock received pursuant to the reverse stock split will include the holding period in the shares of Melinta common stock exchanged therefor. Melinta stockholders that acquired Melinta common stock on different dates and at different prices should consult their tax advisors regarding the allocation of the tax basis and holding period of such shares.

Melinta stockholders that, pursuant to the reverse stock split, receive cash in lieu of a fractional share will recognize capital gain or loss in an amount equal to the difference, if any, between the amount of cash received and the portion of the Melinta stockholder’s aggregate adjusted tax basis in the shares of Melinta common

 

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stock surrendered that is allocated to such fractional share. Such capital gain or loss will generally be long-term capital gain or loss if shares of Melinta common stock surrendered in the reverse stock were split held for more than one year. The deductibility of capital losses is subject to limitations. See “Proposal 1: Charter Amendment to Authorize the Reverse Stock Split—Certain U.S. Federal Income Tax Considerations—Reverse Stock Split” beginning on page 57 of this proxy statement for further information.

 

Q:

What is the Vatera Loan Agreement and the Vatera Loan Facility?

 

A:

On December 31, 2018, the Company entered into the Original Vatera Loan Agreement with VHP and VIP pursuant to which VHP committed to provide up to $100 million, and VIP committed to provide up to $35 million, under the Vatera Loan Facility, subject in each case to the satisfaction (or waiver) of certain conditions precedent set forth therein, which loan agreement was amended and restated on January 14, 2019, to provide for an additional $5 million that will be deemed to have been funded by Deerfield upon the initial funding under the Vatera Loan Agreement. The proceeds of the Vatera Convertible Loans will be used for general corporate purposes.

The Vatera Convertible Loans will be guaranteed by each of the Company’s direct or indirect subsidiaries. These are the same direct and indirect subsidiaries that guarantee the Company’s obligations under the Deerfield Facility. The Vatera Convertible Loans will be senior unsecured obligations of the Company and each guarantor and will be contractually subordinated to the obligations under the Deerfield Facility. Interest on the Vatera Convertible Loans will be paid in arrears at the end of each fiscal quarter, with 50% of such interest paid in cash and the remaining 50% of such interest paid in kind by increasing the principal balance of the outstanding Vatera Convertible Loans in an amount equal thereto (which increase will bear interest once added to such principal balance). If the Company or any guarantor fails to make a required payment of principal or interest with respect to the Vatera Convertible Loans or any other obligation under the Vatera Loan Facility when due, other than to the extent arising from an acceleration (other than an acceleration due, completely or partially, to a payment event of default (other than a payment event of default caused by an automatic acceleration from a bankruptcy or insolvency event of default), or fails to deliver any preferred stock or common stock issuable upon conversion of the Vatera Convertible Loans as described below within five business days of the effective date of such conversion, the Company is required to pay interest in respect of such payment, interest or other obligation or the Conversion Amount (as defined below) as applicable, at a rate per annum equal to 15% for so long as such payment or preferred stock or common stock delivery failure remains outstanding, payable in cash on demand to the extent permitted under the subordination agreement in respect of the Deerfield Facility, and if not so permitted, shall be paid in shares of common stock valued based on the five-trading-day volume weighted average price of the common stock ending on, and including, the trading day immediately preceding the date such preferred stock or common stock was required to be delivered. In addition, at the election of the Required Lenders (as defined in the Vatera Loan Agreement), while any event of default exists (or automatically, in the case of any payment, bankruptcy or insolvency event of default), the Company shall pay interest on the obligations under the Vatera Loan Facility and past due interest thereon, if any, from and after the occurrence of such event of default, at a rate per annum equal to 7%, payable in cash on demand to the extent permitted under the subordination agreement in respect of the Deerfield Facility, and if not so permitted, shall be paid in shares of common stock valued based on the five-trading-day volume weighted average price of the common stock ending on, and including, the trading day immediately preceding the date such event of default occurred.

The maturity date of the Vatera Convertible Loans is January 6, 2025.

The Vatera Convertible Loans will be convertible at the option of each lender into shares of convertible preferred stock of the Company at an initial conversion rate of 6.25 shares of preferred stock per $1,000 of Conversion Amount (as defined below), subject to adjustment as provided herein (the “Loan Conversion Rate”). The conversion price is equal to $1,000 divided by the Loan Conversion Rate or the Common Stock Conversion Rate (as defined below), as applicable (the “Conversion Price”). If Proposal 1 is approved by

 

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Melinta stockholders and implemented by Melinta’s board of directors, the Loan Conversion Rate will be proportionately reduced (and as a result the Conversion Price will proportionately increase) to reflect the reverse stock split. The preferred stock will be further convertible at the option of each lender into shares of common stock of the Company at a rate of 100 shares of common stock per one share of preferred stock (the “Common Stock Conversion Rate”). At the option of a lender, the Vatera Convertible Loans will also be directly convertible into common stock at an initial conversion rate equal to 625 shares of common stock per $1,000 of Conversion Amount (which is the Loan Conversion Rate multiplied by the Common Stock Conversion Rate), which conversion rate is equivalent to a Conversion Price of $1.60, subject to adjustments as described below, including for a reverse stock split. The preferred stock will be non-participating, convertible preferred stock, with no dividend rights (other than to participate in common stock dividends on the Company’s common stock on an as-converted basis) or voting rights, and is senior to the common stock upon liquidation (with a liquidation preference equal to the Conversion Amount for the converted loans, as it may thereafter be adjusted pursuant to the Certificate of Designations (plus, if applicable, the amount of any declared but unpaid dividends on such shares of preferred stock)).

The number of shares of preferred stock issuable upon conversion of the Vatera Convertible Loans will be equal to (i) the Loan Conversion Rate multiplied by (ii) the aggregate principal amount of such Vatera Convertible Loans being converted (including any interest paid in kind that has been added to the principal balance of such Vatera Convertible Loans at the end of a fiscal quarter), plus any accrued and unpaid interest that is to be paid in kind at the end of the next fiscal quarter but has not yet been so paid, plus the portion of any Exit Fee (as defined below) attributable to the committed amount of the Vatera Convertible Loans being so converted (clause (ii), collectively, the “Conversion Amount”) divided by $1,000. The number of shares of common stock issuable upon the further conversion of the preferred stock will be equal to the Common Stock Conversion Rate multiplied by the number of shares of preferred stock.

The Loan Conversion Rate is subject to adjustments customary for convertible notes for (i) splits (including a reverse split) or combinations of the common stock or the preferred stock, (ii) recapitalization or reclassification of the common stock or the preferred stock, (iii) the payment of cash or stock dividends on the common stock, (iv) the distribution of rights, options or warrants to all or substantially all holders of common stock at a price less than the five-trading-day volume weighted average price of the common stock, (v) a spin-off and (vi) any tender offer by the Company for common stock at an amount exceeding the five-trading-day volume weighted average price of the common stock commencing on, and including, the trading day immediately next succeeding the last date on which tenders or exchanges may be made; provided that the Loan Conversion Rate is not subject to adjustment for any dividends or distributions in which the lender participates. The Common Stock Conversion rate is not subject to any adjustments. Except as expressly contemplated above, the issuance of additional shares of common stock or other securities, including pursuant to employee equity plans, warrants or other exercisable or convertible securities, are excluded from such adjustments.

The Loan Conversion Rate will also be subject to increase in the event the lenders convert the Vatera Convertible Loans in connection with a “fundamental change” (defined in the Vatera Loan Agreement), based on a customary make-whole table set forth in the Vatera Loan Agreement with inputs relative to either the five-trading-day volume weighted average price of the common stock ending on, and including, the trading day immediately prior to the effective date of the fundamental change (or the date of the prepayment, as applicable) or the cash price paid per share of common stock in the transaction (the “Stock Price”). The maximum amount of additional shares that could be issued per $1,000 of the Conversion Amount under the make-whole table is 2.445652 shares of preferred stock (244.5652 shares of common stock). These shares would be in addition to those issuable as described in the second preceding paragraph, resulting in a total number of shares issuable upon conversion of 8.695652 shares of preferred stock (869.5652 shares of common stock) per $1,000 of Conversion Amount.

To the extent the Loan Conversion Rate would be increased to an amount (the “Ceiling Rate”) that would cause the number of underlying shares of preferred stock or common stock to exceed the amount of the then available authorized shares, the Company will obtain stockholder approval to increase the number of

 

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authorized shares or, absent such approval, the Loan Conversion Rate will be increased to the Ceiling Rate and the balance of any make-whole amount will be paid in cash rather than settled in stock to the extent permitted under the Deerfield Facility. If such payment in cash is not permitted under the Deerfield Facility, the Company will use commercially reasonable efforts to seek stockholder approval by calling additional meeting(s) of stockholders as necessary.

An exit fee (the “Interim Exit Fee”) of 1% of the aggregate amount of Vatera Convertible Loans funded under the Vatera Loan Facility will be payable upon repayment or conversion of such funded amount (payable in preferred stock in the case of conversion). In addition, an exit fee (the “Final Exit Fee” and, together with the Interim Exit Fee, the “Exit Fee”) of 3% on the portion of the aggregate committed amount of Vatera Convertible Loans not drawn by the Company under the Vatera Loan Facility will be payable on any repayment in full or conversion in full of the Vatera Convertible Loans (payable in preferred stock in the case of conversion).

Upon the occurrence of a Change of Control (as defined in the Vatera Loan Agreement), the lenders will have the right to either convert the Vatera Convertible Loans (as described above) or require payment in full at par plus accrued and unpaid interest. If the lenders, other than VHP, VIP or their respective affiliates, fail to timely deliver notice to the company electing to convert the Vatera Convertible Loans, the Company will pay in cash to such lender the full outstanding amount of the Vatera Convertible Loans. VHP, VIP or their respective affiliates may elect to continue to hold their Vatera Convertible Loans, subject to the following sentence, instead of converting the Vatera Convertible Loans or requiring payment in cash for such Vatera Convertible Loans. The Vatera Convertible Loans may be prepaid in whole or in part, together with accrued and unpaid interest thereon, at any time upon fifteen business days’ prior written notice, subject to the payment of (i) a 5% premium, plus a make-whole payment in the case of any such prepayment made on or prior to July 6, 2022, (ii) a 5% premium in the case of any such prepayment made after July 6, 2022 but on or prior to July 6, 2023, and (iii) a 4% premium in the case of any such prepayment made thereafter; provided, that, except for a prepayment in connection with a Change of Control or a fundamental change in which the consideration to be paid to the holders of outstanding common stock (other than shares held by VHP, VIP or their respective affiliates) consists solely of cash at a per share price in excess of the then current Conversion Price (determined based on the Common Stock Conversion Rate), no voluntary prepayment will be permitted if the volume-weighted average price of the common stock for the five trading days ending on and including the trading day immediately preceding the giving of the prepayment notice exceeds the then applicable Conversion Price (determined based on the Common Stock Conversion Rate). In the event the Company elects to prepay the Vatera Convertible Loans, the lenders will have the right, prior to such prepayment, to convert all or a portion of the Vatera Convertible Loans to be so prepaid at the Loan Conversion Rate that would apply as if such prepayment were a fundamental change, using the Stock Price applicable to such prepayment.

Subject to the satisfaction (or waiver) of the conditions precedent set forth in the Vatera Loan Agreement, $75 million of Vatera Convertible Loans may be drawn in a single draw on or prior to February 25, 2019 (at which time an additional $5 million of convertible loans will be deemed to have been funded under the Vatera Loan Facility by Deerfield), up to $25 million of additional Vatera Convertible Loans may be drawn in a single draw after March 31, 2019, but on or prior to June 30, 2019 and up to $35 million of additional Vatera Convertible Loans may be drawn in a single draw after June 30, 2019 but on or prior to July 10, 2019, subject to the Company obtaining a revolving credit facility with respect to which no less than $10 million is at the time available for drawing on and after such funding date (without giving effect to any repayment on such date with the proceeds of the Vatera Convertible Loans).

The funding of the initial disbursement under the Vatera Loan Facility is subject to the satisfaction (or waiver) of the applicable conditions precedent set forth in the Vatera Loan Agreement, including, without limitation: obtaining an amendment from the requisite lenders to the Deerfield Facility; the absence of a material adverse effect on the Company; the absence of a default or event of default under the Vatera Loan Agreement or the Deerfield Facility and no such default or event of default being reasonably expected to occur; accuracy of the representations and warranties made by the Company and the guarantors in all

 

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material respects; the common stock of the Company remaining listed on Nasdaq or another eligible market; the approval of the stockholders of the Company of a reverse stock split and/or an increase in the number of authorized shares of common stock to accommodate the conversion of the Vatera Convertible Loans as described above, and to approve the issuance of the Vatera Convertible Loans under applicable Nasdaq rules; and John Johnson having been appointed as Chief Executive Officer (as opposed to interim Chief Executive Officer) of the Company.

The funding of each subsequent disbursement under the Vatera Loan Facility will be subject to the satisfaction (or waiver) of the applicable conditions precedent set forth in the Vatera Loan Agreement, including, without limitation: the absence of a material adverse effect on the Company; the absence of a default or event of default under the Vatera Loan Agreement or the Deerfield Facility and no such default or event of default being reasonably expected to occur; accuracy of the representations and warranties made by the Company and the guarantors in all material respects; the common stock of the Company remaining listed on Nasdaq or another eligible market.

The representations and warranties, affirmative and negative covenants and events of default set forth in the Vatera Loan Agreement are substantially similar to those set forth in the Deerfield Facility and otherwise are customary for financing transactions of this type. In addition, the Company will not use any proceeds of the Vatera Convertible Loans to pay liabilities in excess of $15 million other than any indebtedness or other obligations under the Deerfield Facility or in respect of any permitted revolving credit facility, without the prior written consent of the Required Lenders (as defined in the Vatera Loan Agreement).

The Vatera Loan Agreement contains customary indemnification and expense reimbursement provisions in favor of the lenders. Under the Vatera Loan Agreement, the Company has agreed, without the prior written consent of the Required Lenders (as defined in the Vatera Loan Agreement), for a period beginning on the date of the Agreement and ending ninety days after the third disbursement (such date being between September 29, 2019, and October 8, 2019) (unless the facility is terminated prior to such third disbursement, in which case 90 days after such termination), not to sell or otherwise transfer or dispose of, or file a registration statement relating to, any common stock or any securities convertible into or exercisable or exchangeable for common stock, subject to certain exceptions, including, without limitation, that this provision shall not restrict or prohibit negotiations or discussions with respect to, or the entering into any agreement for, or the filing of a registration statement with respect to, a merger or consolidation or any other combination of the Company with, or the acquisition of the Company by, another person (including by tender or exchange offer), any sale or other transfer of all or substantially all of the consolidated assets of the Company or any other acquisition or similar transaction.

Vatera will be entitled to registration rights in respect of the shares of common stock underlying the Vatera Convertible Loans (taking into account the character of the Vatera Convertible Loans and the application of the securities laws) consistent with the Registration Rights Agreement, dated November 3, 2017, among the Company, VHP and the other parties thereto. The Vatera Convertible Loans will be assignable by the lenders to, and the preferred stock and underlying common stock is transferable to, qualified institutional buyers or institutional accredited investors (other than competitors), subject to the Ownership Limitation (as described below). Assignments of the Vatera Convertible Loans will also be subject to all applicable securities laws. No lender under the Vatera Loan Facility (other than VHP, VIP and their respective affiliates from time to time) will be entitled to receive shares of common stock or preferred stock upon conversion of Vatera Convertible Loans (or shares of common stock upon conversion of preferred stock) if the receipt of such common stock or preferred stock would cause (i) such lenders to beneficially own 29.9% of the voting interests in the Company’s stock or (ii) a Major Transaction as defined under the warrants issued by the Company to Deerfield Private Design Fund IV, L.P., Deerfield Private Design Fund III, L.P., and Deerfield Special Situations Fund, L.P. on January 5, 2018 (the “Ownership Limitation”). The ability of Deerfield to convert the $5 million of convertible loans deemed to have been funded under the Vatera Loan Facility also is subject to the 4.985% Ownership Cap (as described below).

 

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The rights and obligations of the Company and the lenders under the Vatera Loan Facility and the Vatera Convertible Loans are subject to the limitations set forth in the subordination agreement with the agent for the lenders under the Deerfield Facility.

The effectiveness of the Vatera Loan Facility and the issuance of the Vatera Convertible Loans on the initial closing date will be subject to several closing conditions as further described in this proxy statement, including, without limitation, the approval of the stockholders of the Company to Proposal 3 and either Proposal 1 or 2 requested herein. The Vatera Loan Facility will terminate if the initial draw thereunder is not made by February 25, 2019.

For a more complete description of the Vatera Loan Agreement, please see the section entitled “Summary of the Vatera Loan Agreement, Vatera Loan Facility and Vatera Convertible Loans” beginning on page 21 of this proxy statement.

 

Q:

What is the Deerfield Facility Amendment and what are the convertible loans being issued to lenders thereunder?

 

A:

The amendment to the Deerfield Facility (the “Deerfield Facility Amendment”) is a condition (among other conditions) to funding the Vatera Convertible Loans (and the effectiveness of such amendment is conditioned on such funding). In order to obtain the Deerfield Facility Amendment, the Company agreed that, among other things, $74 million in principal amount of the loans under the Deerfield Facility (the “Deerfield Convertible Loan”) would be made convertible into shares of Melinta common stock, at Deerfield’s option at any time, subject to the 4.985% Ownership Cap (as defined below). The conversion rate (the “Deerfield Convertible Loan Conversion Rate”) is equal to the amount of the outstanding principal amount of the Deerfield Convertible Loan to be converted, divided by the Deerfield Convertible Loan Conversion Price (as defined below), subject to a restriction that no lender is permitted to convert such loans if it would result in such lender and its affiliates beneficially owning more than 4.985% of the total number of shares of Melinta common stock outstanding (the “4.985% Ownership Cap”). However, that will not prevent Deerfield from periodically converting the loan up to the 4.985% Ownership Cap and then selling the shares such that up to $74 million of the loan is converted over time. However, no lender may, without the approval of a majority of the Company’s board of directors, sell or dispose, in a pre-arranged single transaction or series of related transactions any shares of the Company’s common stock issued upon conversion of the Deerfield Convertible Loan to any person or group if such lender knows, in advance of effecting such transaction or series of related transactions, that such transferee holds, or after giving effect to such sale would hold, in excess of 15% of the issued and outstanding shares of the Company’s common stock. This 15% limitation does not apply if the sale is part of a tender offer or exchange offer made to all stockholders of the Company, or otherwise is in connection with a merger or other business combination transaction and also does not restrict the ability of any lender to transfer all or any portion of the Deerfield Convertible Note in accordance with its terms or to sell any shares of the Company’s common stock that have been issued upon conversion of the Deerfield Convertible Loan in open-market transactions. The conversion price for the Deerfield Convertible Loan (the “Deerfield Convertible Loan Conversion Price”) is the greater of (i) $1.03, which is the minimum initial conversion price, and (ii) 95% of the lesser of (A) the closing price of the Melinta common stock on the trading day immediately preceding the conversion date and (b) the arithmetic average of the volume weighted average price of the Melinta common stock on each of the three trading days immediately preceding the conversion date. Based on the minimum conversion price, the maximum conversion rate for the Deerfield Convertible Loan would be approximately 971 shares per $1,000 principal amount of loan. The Deerfield Convertible Loan Conversion Price is subject to adjustment for any stock split (including a reverse stock split), stock combination, reclassification, payment of stock dividend, recapitalization or other similar transaction of such character that shares of Melinta common stock are changed into or become exchangeable for a larger or smaller number of shares of common stock.

The Deerfield Facility Amendment, upon the satisfaction or waiver of the applicable conditions, will: (i) modify the definition of “change of control” under the Deerfield Facility to permit VHP, VIP and their

 

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respective affiliates to own 50% or more of the equity interests in the Company on a fully diluted basis; (ii) modify the definition of “Indebtedness” under the Deerfield Facility to exclude certain specific payments under (x) the Agreement and Plan of Merger, dated as of December 3, 2013, among the Medicines Company, Rempex Pharmaceuticals, Inc. and the other parties thereto and (y) the Purchase and Sale Agreement, dated as of November 28, 2017, between The Medicines Company and Melinta Therapeutics, Inc.; (iii) modify the definition of “Permitted Indebtedness” under the Deerfield Facility to permit the payment of a certain amount of the interest on the Vatera Convertible Loans in cash; (iv) permit the Company’s audited financial statements for the fiscal year ending December 31, 2018, to be delivered with an explanatory paragraph expressing doubt as to the Company’s status as a going concern; (v) reduce the net sales covenant set forth in the Deerfield Facility for all periods after December 31, 2018, by 15%; (vi) require the Company to hold a minimum cash balance of $40 million through March 31, 2020, and thereafter $25 million (the current requirement); (vii) increase the exit fee under the Deerfield Facility to 4%; and (viii) make certain other technical modifications, including to accommodate the Vatera Facility and the Vatera Convertible Loans.

The Deerfield Facility Amendment must be effective as a condition to funding the initial $75 million disbursement under the Vatera Loan Agreement. Upon such initial funding, $5 million of convertible loans will be deemed to have been funded under the Vatera Loan Facility by Deerfield as consideration for entering into the Deerfield Facility Amendment (such loans will be in addition to the up to $135 million of Vatera Convertible Loans that may be funded under the Vatera Loan Agreement).

For a more complete description of the terms of the Deerfield Facility Amendment and Deerfield Convertible Loan, please see the section entitled “Summary of the Deerfield Facility Amendment and Deerfield Convertible Loan” beginning on page 26 of this proxy statement.

 

Q:

What is the potential dilution of stockholders’ ownership as a result of the Vatera Convertible Loans and the Deerfield Convertible Loan?

 

A:

Melinta stockholders will experience substantial dilution in the event that the respective lenders elect to convert the Vatera Convertible Loans and/or the Deerfield Convertible Loan. Up to a total of approximately 174 million shares of Melinta common stock could be issued under the Vatera Convertible Loans and the Deerfield Convertible Loan if the loans are fully funded (or deemed funded) and ultimately converted based on the initial conversion rate for the Vatera Convertible Loans and the maximum initial conversion rate for the Deerfield Convertible Loan and assuming the Vatera Convertible Loans are held to maturity and the full Conversion Amount (which is the sum of the aggregate principal amount (including any interest paid in kind), plus any accrued and unpaid interest and the applicable amount of any Exit Fee, as further described herein) is then converted (or a total of approximately 214 million shares of Melinta common stock could be issued under the Vatera Convertible Loans and the Deerfield Convertible Loan if such conversion of the Vatera Convertible Loans is in connection with an optional prepayment or a fundamental change and the maximum amount of additional shares are required to be issued upon conversion of the Vatera Convertible Loans under the make-whole table; the conversion rate of the Deerfield Convertible Loan would not be subject to any such make-whole adjustment). There is no assurance that the Vatera Convertible Loans or the Deerfield Convertible Loan will convert.

For illustrative purposes, in the event that the Company draws, and VHP, VIP and their respective affiliates fund, the full $135 million pursuant to the Vatera Loan Facility and an additional $5 million of convertible loans are deemed funded by Deerfield pursuant to the Vatera Loan Facility, and assuming that such Vatera Convertible Loans are fully funded and ultimately converted into shares of Melinta preferred stock and then into Melinta common stock on the maturity date of the Vatera Convertible Loans using the Conversion Amount (which is the sum of the aggregate principal amount (including any interest paid in kind), plus any accrued and unpaid interest and the applicable amount of any Exit Fee, as further described herein), at a Common Stock Conversion Rate of 625 (equivalent to a Conversion Price of $1.60), a total of approximately 102 million shares of Melinta common stock could be issued upon such conversion (or a total

 

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of approximately 142 million shares issued if such conversion of the Vatera Convertible Loans is in connection with an optional prepayment or a fundamental change and the maximum amount of additional shares are required to be issued upon conversion of the Vatera Convertible Loans under the make-whole table; the conversion rate of the Deerfield Convertible Loan would not be subject to any such make-whole adjustment).

In addition, if the full $74 million of the Deerfield Convertible Loan is converted in full at the minimum initial conversion price of $1.03 (a maximum initial conversion rate of approximately 971 shares per $1,000 principal amount), a total of approximately 72 million shares of Melinta common stock could be issued upon such conversion.

The ability of Deerfield to convert the $5 million of convertible loans deemed to have been funded pursuant to the Vatera Loan Facility, and the ability of a lender to convert the Deerfield Convertible Loan, are subject to the 4.985% Ownership Cap. However, that will not prevent Deerfield from periodically converting the applicable loan up to the 4.985% Ownership Cap and selling the shares of Melinta common stock received upon conversion such that the full amount of such loan is converted over time. However, no lender may, without the approval of a majority of the Company’s board of directors, sell or dispose, in a pre-arranged single transaction or series of related transactions any shares of the Company’s common stock issued upon conversion of the Deerfield Convertible Loan to any person or group if such lender knows, in advance of effecting such transaction or series of related transactions, that such transferee holds, or after giving effect to such sale would hold, in excess of 15% of the issued and outstanding shares of the Company’s common stock. This 15% limitation does not apply if the sale is part of a tender offer or exchange offer made to all stockholders of the Company, or otherwise is in connection with a merger or other business combination transaction and also does not restrict the ability of any lender to transfer all or any portion of the Deerfield Convertible Note in accordance with its terms or to sell any shares of the Company’s common stock that have been issued upon conversion of the Deerfield Convertible Loan in open-market transactions.

 

Q:

What is the total number of shares of Melinta common stock that could be issued to Vatera under the Vatera Loan Facility upon conversion of the Vatera Convertible Loans and how does this impact Vatera’s percentage ownership?

 

A:

For illustrative purposes, in the event that the Company draws, and VHP, VIP and their respective affiliates fund, the full $135 million pursuant to the Vatera Loan Facility, and assuming that such Vatera Convertible Loans ultimately are converted into shares of Melinta preferred stock and then into Melinta common stock on the maturity date of the Vatera Convertible Loans using the Conversion Amount (which is the sum of the aggregate principal amount (including any interest paid in kind), plus any accrued and unpaid interest and the applicable amount of any Exit Fee, as further described herein) (and assuming no conversion of the Deerfield Convertible Loan or the $5 million of convertible loans deemed funded by Deerfield pursuant to the Vatera Loan Facility), at a Common Stock Conversion Rate of 625 (equivalent to a Conversion Price of $1.60), Vatera Capital (as defined herein), VHP and VIP could collectively beneficially own approximately 73% of the outstanding shares of Melinta common stock (based on 56,066,169 shares of Melinta common stock outstanding as of January 10, 2019), and approximately 69% of the Melinta common stock on a fully-diluted basis (based on 56,066,169 shares of Melinta common stock outstanding on January 10, 2019, 7,442,719 shares of Melinta common stock reserved for issuance upon the exercise of outstanding options and warrants and the vesting of restricted stock units outstanding as of January 10, 2019). Based on the foregoing, up to approximately 98 million shares of Melinta common stock could be issued to VHP, VIP and their respective affiliates upon such conversion.

In addition, under certain circumstances, additional shares of Melinta preferred stock and Melinta common stock ultimately may be required to be issued upon conversion of the Vatera Convertible Loans. For example, if the Vatera Convertible Loans are converted in connection with an optional prepayment by Melinta or a “fundamental change”, up to 2.445652 additional shares of preferred stock (244.5652 shares of common stock) may be required to be issued per $1,000 of the Conversion Amount (which is the sum of the

 

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aggregate principal amount (including any interest paid in kind), plus any accrued and unpaid interest and the applicable amount of any Exit Fee, as further described herein) on conversion based on a customary make-whole table. These shares would be in addition to those issuable as described above, resulting in a total number of shares issuable upon conversion of 8.695652 shares of preferred stock (869.5652 shares of common stock) per $1,000 of Conversion Amount. In the event that the Vatera Convertible Loans are converted in connection with an optional prepayment or a fundamental change and the maximum amount of additional shares are required to be issued, based on the assumptions described in the preceding paragraph, Vatera Capital, VHP and VIP could collectively beneficially own approximately 78% of the outstanding shares of Melinta common stock (based on 56,066,169 shares of Melinta common stock outstanding as of January 10, 2019), and approximately 75% of the Melinta common stock on a fully diluted basis (based on 56,066,169 shares of Melinta common stock outstanding on January 10, 2019, 7,442,719 shares of Melinta common stock reserved for issuance upon the exercise of outstanding options and warrants and the vesting of restricted stock units outstanding as of January 10, 2019). Based on the foregoing, up to approximately 137 million shares of Melinta common stock could be issued to VHP, VIP and their respective affiliates upon such conversion.

This significant concentration of share ownership would enable VHP to exert control over matters submitted to stockholders for approval. See “Proposal 3: Approval of the Issuance of the Vatera Convertible Loans, the Preferred Stock and the Common Stock” beginning on page 62 of this proxy statement.

 

Q:

What is the total number of shares of Melinta common stock that could be issued to Deerfield under the loans deemed funded by Deerfield pursuant to the Vatera Loan Facility and under the Deerfield Convertible Loan and how does this impact Deerfield’s percentage ownership?

 

A:

For illustrative purposes, in the event that the $5 million of convertible loans deemed funded by Deerfield pursuant to the Vatera Loan Facility ultimately is converted into shares of Melinta common stock on the maturity date of the Vatera Convertible Loans using the Conversion Amount at a Common Stock Conversion Rate of 625 (equivalent to a Conversion Price of $1.60), up to approximately 102 million shares of Melinta common stock could be issued upon such conversion. In addition, if the full $74 million of the Deerfield Convertible Loan is converted in full at the minimum initial conversion price of $1.03 (a maximum initial conversion rate of approximately 971 shares per $1,000 principal amount), a total of approximately 72 million shares of Melinta common stock could be issued upon such conversion.

The ability of Deerfield to convert the $5 million of convertible loans deemed to have been funded pursuant to the Vatera Loan Facility, and the ability of a lender to convert the Deerfield Convertible Loan, are subject to the 4.985% Ownership Cap, however, that will not prevent Deerfield from periodically converting the applicable loan up to the 4.985% Ownership Cap and selling the shares of Melinta common stock received upon conversion such that the full amount of such loan is converted over time. However, no lender may, without the approval of a majority of the Company’s board of directors, sell or dispose, in a pre-arranged single transaction or series of related transactions any shares of the Company’s common stock issued upon conversion of the Deerfield Convertible Loan to any person or group if such lender knows, in advance of effecting such transaction or series of related transactions, that such transferee holds, or after giving effect to such sale would hold, in excess of 15% of the issued and outstanding shares of the Company’s common stock. This 15% limitation does not apply if the sale is part of a tender offer or exchange offer made to all stockholders of the Company, or otherwise is in connection with a merger or other business combination transaction and also does not restrict the ability of any lender to transfer all or any portion of the Deerfield Convertible Note in accordance with its terms or to sell any shares of the Company’s common stock that have been issued upon conversion of the Deerfield Convertible Loan in open-market transactions.

 

Q:

Why is the Company seeking up to $135 million of debt financing under the Vatera Loan Agreement, which is an amount greater than the $75 million of equity financing in the original proxy statement?

 

A:

The Original Purchase Agreement provided for the sale by the Company to VHP of an aggregate of $75 million of Melinta common stock, subject to adjustment as set forth in the Original Purchase Agreement.

 

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  Due to circumstances arising after the execution of the Original Purchase Agreement, as further described in this proxy statement, this amount was determined to be less than the amount required to be in compliance with the terms of the Deerfield Facility. And, in addition, the Original Purchase Agreement was terminated because, among other things, as a result of a substantial decline in the price of Melinta common stock, the Company would only be able to issue approximately $55.3 million of Melinta common stock to VHP to avoid a “Change of Control” under the Deerfield facility. The Company has explored other potential alternatives to address the Company’s liquidity needs, and believes that the Vatera Loan Agreement is the only currently available alternative that is likely to help the Company to become cash flow neutral and preserve equity value for non-Vatera Melinta stockholders, even with the potential dilution from the Vatera Convertible Loans and the Deerfield Convertible Loan.

 

Q:

Why is Melinta seeking stockholder approval to issue Vatera Convertible Loans (and the underlying shares of preferred stock and common stock upon conversion thereof) pursuant to the Vatera Loan Facility?

 

A:

Because Melinta common stock is listed on the Nasdaq Global Market, Melinta is subject to the Nasdaq Listing Rules, including Rules 5635(b) and (d). Rule 5635(b) requires stockholder approval prior to the issuance of securities when the issuance or potential issuance will result in a change of control of the company for Nasdaq Listing Rule purposes. Rule 5635(d) requires stockholder approval of certain transactions that may result in the sale, issuance or potential issuance by the company of common stock (or securities convertible into or exercisable for common stock) that equals 20% or more of the outstanding voting power or shares of common stock outstanding before the issuance of stock or securities at a price that is less than the minimum price as determined by the Nasdaq Listing Rules.

Melinta is seeking stockholder approval of this issuance to Vatera under the Nasdaq Listing Rules because (1) more than 20% of the outstanding common stock ultimately may be issued pursuant to conversion of the Vatera Convertible Loans issuable under the Vatera Loan Agreement at a price below the minimum price as determined by the Nasdaq Listing Rules and (2) the potential issuance may be deemed to constitute a change of control for Nasdaq Listing Rule purposes.

 

Q:

Why is Melinta not seeking stockholder approval to issue the Deerfield Convertible Loan under the Deerfield Facility?

 

A:

Melinta is not seeking stockholder approval of this issuance under the Nasdaq Listing Rules because (i) the minimum Deerfield Convertible Loan Conversion Price is equal to the minimum price as determined by the Nasdaq Listing Rules and (ii) under the Deerfield Convertible Loan, no lender can own more than the 4.985% Ownership Cap. However, that will not prevent Deerfield from periodically converting the loan up to the 4.985% Ownership Cap and then selling the shares such that up to $74 million of the loan is converted over time. However, no lender may, without the approval of a majority of the Company’s board of directors, sell or dispose, in a pre-arranged single transaction or series of related transactions any shares of the Company’s common stock issued upon conversion of the Deerfield Convertible Loan to any person or group if such lender knows, in advance of effecting such transaction or series of related transactions, that such transferee holds, or after giving effect to such sale would hold, in excess of 15% of the issued and outstanding shares of the Company’s common stock. This 15% limitation does not apply if the sale is part of a tender offer or exchange offer made to all stockholders of the Company, or otherwise is in connection with a merger or other business combination transaction and also does not restrict the ability of any lender to transfer all or any portion of the Deerfield Convertible Note in accordance with its terms or to sell any shares of the Company’s common stock that have been issued upon conversion of the Deerfield Convertible Loan in open-market transactions.

 

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Q:

Why is Melinta seeking stockholder approval to amend the 2018 Plan to increase the number of shares reserved and available specifically for issuance to the Chief Executive Officer?

 

A:

One of the conditions to the funding of the initial disbursement of $75 million under the Vatera Loan Facility (such funding being a condition to the effectiveness of the Deerfield Facility Amendment) is the appointment of John H. Johnson as the Chief Executive Officer (as opposed to interim Chief Executive Officer) of the Company. Mr. Johnson has accepted the position of Chief Executive Officer subject to the terms of an employment contract and the closing of the Vatera Loan Facility.

The approval of Proposal 4A by Melinta stockholders would result in the immediate availability of 2,000,000 additional shares specifically for issuance to Mr. Johnson under the amended 2018 Plan, as part of the compensation package to Mr. Johnson in connection with his appointment as Chief Executive Officer of the Company. The approval of Proposal 4B by Melinta stockholders would result in the immediate availability of 3,000,000 additional shares for general issuances under the amended 2018 Plan.

If Melinta stockholders do not approve at least one of either Proposal 4A or Proposal 4B (i.e., if both Proposals fail to receive approval), it is unlikely that the Company would be able to provide for the issuance of 2,000,000 shares to Mr. Johnson, in his capacity as Chief Executive Officer, while still retaining sufficient share capacity for grants to other executives and/or employees under the 2018 Plan. As a result, if Melinta stockholders do not approve at least one of either Proposal 4A or Proposal 4B (i.e., if both Proposals fail to receive approval), Mr. Johnson likely would not be willing to serve as Chief Executive Officer of the Company. In that event, unless Vatera waives the condition to funding the initial disbursement of $75 million under the Vatera Loan Facility that Mr. Johnson serve as Chief Executive Officer, the Vatera Loan Facility will not fund and the Deerfield Facility Amendment will not become effective. The failure of the Vatera Loan Facility to fund and the Deerfield Facility Amendment to become effective would have a material adverse effect on the Company and its stockholders.

If Melinta stockholders do not approve both Proposal 4A and Proposal 4B, it is unlikely that the Company would have sufficient share capacity for grants to Company executives and other employees under the 2018 Plan, directly impacting the Company’s ability to retain critical talent and expertise. As a result, if Melinta stockholders do not approve both Proposal 4A and Proposal 4B and the Company is limited in its ability to appropriately incentivize its executives and other employees, the Company may face significant retention challenges, which would have a material impact on its growth.

 

Q:

Why is Melinta seeking stockholder approval to amend the 2018 Plan to increase the number of shares reserved and available for issuance under the 2018 Plan?

 

A:

The approval of this proposal by Melinta’s stockholders, which would result in the immediate availability of 3,000,000 additional shares for general issuances under the amended 2018 Plan, is critical to the furtherance of the Company’s compensation programs and vital to the growth and success of the Company’s business. In particular, an increase in the number of shares reserved for issuance under the Company’s 2018 Plan is necessary for the Company to retain the Company’s key employees, to continue to motivate and incentivize the Company’s employees and to align the interests of the Company’s employees with those of Melinta’s stockholders, particularly given the potential dilution in the event that the Vatera Convertible Loans and/or the Deerfield Convertible Loan are converted. The Company currently would expect to use this additional capacity for issuances to executive officers, allowing the remaining capacity under the 2018 Plan to be available for issuances to other employees and directors.

Consistent with many companies in Melinta’s industry and stage of growth, equity compensation is a key component of Melinta’s compensation programs, both with respect to Melinta’s executives and Melinta’s other employees. The Company believes the grant of equity awards, and the potential that the value of the awards will increase over time as the value of the Company’s common stock increases, is an important element of the compensation package and the overall value proposition Melinta offers employees, and is a key reason they may choose to become or remain employees of the Company. If the Company is unable to

 

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continue to make grants of equity awards to the Company’s employees consistent with their expectations or past practices, or if the Company is required to issue awards with significantly lower values than competitive market practices mandate due to the lack of available shares under the 2018 Plan, the Company could be at significant risk of failing to retain key employees who are important to the Company’s success, to properly motivate employees to achieve the Company’s strategic objectives, or to hire top talent during a time of management transition.

At the current and projected burn rate for equity awards, the Company expects that awards covering the initial share pool of 2,000,000 shares available for issuance under the 2018 Plan (as such pool is increased pursuant to the terms of the 2018 Plan) will be granted prior to the end of fiscal year 2019. Unless both Proposal 4A and 4B are approved, the Company will likely need to grant cash-based or other awards in order to remain competitive, which may not align the interests of the Company’s key employees and non-employee directors as closely with those of Melinta stockholders as equity awards. In addition, the use of cash resources to deliver competitive pay would divert cash from use in running other aspects of the Company’s business and investing in future product development. In particular, Melinta’s board of directors believes that compensation of the type available for grant under the amended 2018 Plan furthers the Company’s goal of promoting long-term value for the Company’s stockholders by fostering an ownership culture that encourages a focus on long-term performance and retention and exposes participants to economic diminishment if the Company’s share performance declines.

 

Q:

When do you expect the initial funding of the Vatera Convertible Loans to be consummated?

 

A:

The Company anticipates that the initial funding of the Vatera Convertible Loans, in the principal amount of $75 million, will occur as soon as practicable after the Special Meeting and following satisfaction or waiver of all closing conditions. However, the exact timing of the consummation of the transaction is not yet known.

 

Q:

May I vote in person?

 

A:

If you are a stockholder of Melinta and your shares of Melinta common stock are registered directly in your name with Melinta’s transfer agent, Computershare Trust Company, N.A., you are considered, with respect to those shares, the stockholder of record, and the proxy materials and proxy card are being sent directly to you by Melinta. If you are a Melinta stockholder of record, you may attend the Special Meeting and vote your shares in person, rather than signing and returning your proxy. If your shares of Melinta common stock are held by a bank, broker or other nominee, you are considered the beneficial owner of shares held in “street name,” and the proxy materials are being forwarded to you together with a voting instruction card by such bank, broker or other nominee. As the beneficial owner, you are also invited to attend the Special Meeting. Since a beneficial owner is not the stockholder of record, you may not vote these shares in person at the Special Meeting unless you obtain a proxy from your broker issued in your name giving you the right to vote the shares at the Special Meeting.

 

Q:

If my Melinta shares are held in “street name” by my broker, will my broker vote my shares for me?

 

A:

Generally, if shares are held in street name, the beneficial owner of the shares is entitled to give voting instructions to the broker or nominee holding the shares. Since the Proposals are considered “non-routine” matters, your broker will not be able to vote your shares of Melinta common stock without specific instructions from you.

If your shares are held by your broker or other agent as your nominee, you will need to obtain a proxy form from the institution that holds your shares and follow the instructions included on that form regarding how to instruct your broker or other agent to vote your shares.

 

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Q:

How do I cast my vote if I am a stockholder of record?

 

A:

If you are a stockholder with shares registered in your name with Melinta’s transfer agent, Computershare Trust Company, N.A., on the record date, you may vote in person at the Special Meeting or vote by proxy by telephone or internet or by mail. Whether or not you plan to attend the Special Meeting, please vote as soon as possible to ensure your vote is counted. You may still attend the Special Meeting and vote in person even if you have already voted by proxy. Please note that all previously cast votes associated with the Adjourned Meeting on December 20, 2018, regardless of which voting method was used, will be completely disregarded for the Special Meeting. Provided that you are a holder of record on the new record date, you must re-vote your shares for your vote to be counted at the Special Meeting. For more detailed instructions on how to vote using one of these methods, please see the section of this proxy statement entitled “The Special Meeting—Voting Procedures” beginning on page 32 of this proxy statement.

 

   

To vote in person. You may attend the Special Meeting and Melinta will give you a ballot when you arrive. If you need directions to the meeting, please refer to page 85 of this proxy statement.

 

   

To vote by proxy by telephone or internet. If you have telephone or internet access, you may submit your proxy by following the instructions provided in this proxy statement, or by following the instructions provided with your proxy materials and on the enclosed proxy card or voting instruction card.

 

   

To vote by proxy by mail. You may submit your proxy by mail by completing and signing the enclosed proxy card and mailing it in the enclosed envelope. Your shares will be voted as you have instructed.

 

Q:

How do I cast my vote if I am a beneficial owner of shares registered in the name of my broker or bank?

 

A:

If you are a beneficial owner of shares registered in the name of your broker, bank, dealer or other similar organization, you should have received a proxy card and voting instructions with these proxy materials from that organization rather than from Melinta. Simply complete and mail the proxy card to ensure that your vote is counted. Alternatively, you may vote by telephone or over the internet as instructed by your broker or other agent. To vote in person at the Special Meeting, you must obtain a valid proxy from your broker or other agent. Follow the instructions from your broker or other agent included with these proxy materials, or contact your broker or bank to request a proxy form. Please note that all previously cast votes associated with the Adjourned Meeting on December 20, 2018, regardless of which voting method was used, will be completely disregarded for the Special Meeting. Provided that you are a holder of record on the new record date, you must re-vote your shares for your vote to be counted at the Special Meeting.

 

Q:

How many votes do I have?

 

A:

On each matter to be voted upon, you have one vote for each share of Melinta common stock you hold as of the record date.

 

Q:

What if I return a proxy card but do not make specific choices?

 

A:

If you return a signed and dated proxy card without marking any voting selection, your shares will be voted “FOR” the Proposals and the adjournment.

 

Q:

What constitutes a quorum for purposes of the Special Meeting?

 

A:

A quorum of stockholders is necessary to hold a valid meeting. A quorum will be present if stockholders holding at least a majority of the issued and outstanding shares entitled to vote are present or represented by

 

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  proxy at the Special Meeting. On the record date, there were 56,066,169 shares of Melinta common stock issued and outstanding and entitled to vote. Accordingly, the holders of 28,033,085 shares must be present at the Special Meeting to have a quorum. Your shares will be counted toward the quorum at the Special Meeting only if you vote in person at the meeting, you submit a valid proxy vote or your broker, bank, dealer or similar organization submits a valid proxy vote.

 

Q:

May I change my vote after I have submitted a proxy or provided proxy instructions?

 

A:

Any Melinta stockholder of record voting by proxy has the right to revoke his, her or its proxy at any time before the polls close at the Special Meeting by sending a written notice stating that he, she or it would like to revoke his, her or its proxy to the Corporate Secretary of Melinta, by providing a duly executed proxy card bearing a later date than the proxy being revoked or by attending the Special Meeting and voting in person. Attendance alone at the Special Meeting will not revoke a proxy. If a stockholder of Melinta has instructed a broker to vote its shares of Melinta common stock that are held in “street name,” the stockholder must follow directions received from its broker to change those instructions.

 

Q:

Can I access these proxy materials on the internet?

 

A:

Yes. The Notice of Special Meeting, this proxy statement and the annexes attached hereto are available for viewing, printing, and downloading at www.melinta.com. All materials will remain posted on www.melinta.com at least until the conclusion of the meeting.

The Notice of Special Meeting, this proxy statement and the annexes attached hereto are also available, free of charge, in PDF and HTML format under the Investor Relations—Financial Information section of Melinta’s website at www.melinta.com and will remain posted on such website at least until the conclusion of the meeting.

 

Q:

Where can I find the voting results of the meeting?

 

A:

Melinta will announce the preliminary voting results at the meeting. Melinta will publish the results in a Form 8-K filed with the SEC within four business days of the meeting.

 

Q:

What do I need to do now?

 

A:

You are urged to read this proxy statement carefully, including each of the annexes attached hereto, and to consider how the Proposals and the adjournment affect you. If your shares are registered directly in your name, you may complete, date and sign the enclosed proxy card and return it by mail in the enclosed postage-paid envelope. Alternatively, you can vote by proxy by telephone or internet, deliver your completed proxy card in person or vote by completing a ballot in person at the Special Meeting. Please note that all previously cast votes associated with the Adjourned Meeting on December 20, 2018, regardless of which voting method was used, will be completely disregarded for the Special Meeting. Provided that you are a holder of record on the new record date, you must re-vote your shares for your vote to be counted at the Special Meeting.

 

Q:

Who is paying for this proxy solicitation?

 

A:

Melinta will bear the cost of soliciting proxies, including the printing, mailing and filing of this proxy statement, the proxy card and any additional information furnished to Melinta stockholders. Melinta has engaged Georgeson, LLC, a proxy solicitation firm, to solicit proxies from Melinta stockholders.

Arrangements will also be made with banks, brokers, nominees, custodians and fiduciaries who are record holders of Melinta common stock for the forwarding of solicitation materials to the beneficial owners of Melinta common stock. Melinta will, upon request, reimburse these banks, brokers, nominees, custodians and fiduciaries for the reasonable out-of-pocket expenses that they incur in connection with the forwarding of solicitation materials.

 

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Q:

Who can provide me with additional information and help answer my questions?

 

A:

If you would like additional copies, without charge, of this proxy statement or if you have questions about the acquisition and the proposals being considered at the Special Meeting, including the procedures for voting your shares, you should contact Georgeson, Melinta’s proxy solicitor, by telephone at 800-905-7281.

 

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SUMMARY

This summary highlights selected information from this proxy statement and may not contain all of the information that is important to you. To better understand the Proposals being considered at the Special Meeting, you should read this entire proxy statement carefully, including the materials attached as annexes hereto. See “Where You Can Find More Information” beginning on page 84 of this proxy statement. Page references are included in parentheses to direct you to a more detailed description of the topics presented in this summary.

This proxy statement includes forward-looking statements within the meaning of Section 21E of the Exchange Act. For this purpose, any statements contained herein, other than statements of historical fact, may be forward-looking statements under the provisions of The Private Securities Litigation Reform Act of 1995. In this proxy statement, words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “should,” “target,” “will,” “would” or other words that convey uncertainty of future events or outcomes are used to identify these forward-looking statements. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors. If one or more of these factors materialize, or if any underlying assumptions prove incorrect, actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements. For more information, see the section entitled “Forward-Looking Statements” beginning on page 30 of this proxy statement.

The Special Meeting

The Special Meeting will be reconvened at 10:00 a.m., local time, on February 19, 2019, at Westin Governor Morris, 2 Whippany Rd, in Morristown, New Jersey, to consider and act upon Proposals: (1) to approve an amendment to Melinta’s Certificate of Incorporation to authorize a reverse stock split of the issued and outstanding shares of Melinta common stock; (2) to approve an amendment to Melinta’s Certificate of Incorporation to increase the number of authorized shares of Melinta common stock from 80,000,000 to 275,000,000 to accommodate, in part, the conversion of any of the Vatera Convertible Loans, which are convertible into shares of Melinta common stock or shares of Melinta convertible preferred stock, which are then further convertible into shares of Melinta common stock, and to accommodate the conversion of up to $74 million of the Deerfield Convertible Loan pursuant to the terms of the Deerfield Facility Amendment, which amendment is a condition (among other conditions) to funding the Vatera Convertible Loans (and the effectiveness of such amendment is conditioned on such funding); (3) to approve the issuance and sale of the Vatera Convertible Loans, and the issuance of the underlying shares of preferred stock and common stock upon conversion of the Vatera Convertible Loans, for purposes of applicable Nasdaq rules; (4) to authorize amendments to the 2018 Plan to increase the number of shares reserved and available for issuance by (a) 2,000,000 shares specifically for issuance to the Chief Executive Officer and (b) an additional 3,000,000 shares for general issuances under the amended 2018 Plan, which together would bring the total number of shares available under the 2018 Plan, as amended, to 9,104,429; and (5) to adjourn the Special Meeting, if necessary, if a quorum is present, to solicit additional proxies, in the event that there are not sufficient votes at the time of the Special Meeting to approve the Proposals above, as well as any other items that may properly come before the meeting. If both Proposal 1 and Proposal 2 are approved by Melinta stockholders and Melinta’s board of directors determines, in its discretion, to implement Proposal 1 (the reverse stock split), then Melinta’s board of directors, subject to its discretion, does not also intend to implement Proposal 2 (the increase to the number of authorized shares of Melinta common stock).

Only stockholders at the close of business on January 10, 2019, the record date, are entitled to notice of, and to vote at, the Special Meeting and any adjournment or postponement thereof. Such stockholders are entitled to one vote on each matter submitted to stockholders at the Special Meeting for each share of Melinta common stock held as of the record date. At the close of business on the record date, there were 56,066,169 shares of Melinta common stock issued and outstanding and entitled to vote at the Special Meeting, held by approximately 160 holders of record.



 

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Provided a quorum is present, the affirmative vote of the holders of a majority of the issued and outstanding shares of Melinta common stock is required for the approval of Proposal 1, to amend Melinta’s Certificate of Incorporation to authorize the reverse stock split of the issued and outstanding shares of Melinta common stock.

Provided a quorum is present, the affirmative vote of the holders of a majority of the issued and outstanding shares of Melinta common stock is required for the approval of Proposal 2, to amend Melinta’s Certificate of Incorporation to increase the number of authorized shares of Melinta common stock from 80,000,000 to 275,000,000.

Provided a quorum is present, the affirmative vote of the holders of a majority of the shares of Melinta common stock present in person or represented by proxy and entitled to vote on the matter at the Special Meeting is required for the approval of Proposal 3, to approve the issuance and sale of the Vatera Convertible Loans, and the issuance of the preferred stock and the common stock upon conversion of the Vatera Convertible Loans, for the purpose of applicable Nasdaq rules.

Provided a quorum is present, the affirmative vote of the holders of a majority of the shares of Melinta common stock present in person or represented by proxy and entitled to vote on the matter at the Special Meeting is required for the approval of Proposal 4A, to authorize an amendment to the 2018 Plan to increase the number of shares reserved and available for issuance under the 2018 Plan by 2,000,000 shares issuable to the Chief Executive Officer.

Provided a quorum is present, the affirmative vote of the holders of a majority of the shares of Melinta common stock present in person or represented by proxy and entitled to vote on the matter at the Special Meeting is required for the approval of Proposal 4B, to authorize an amendment to the 2018 Plan to increase the number of shares reserved and available for general issuances under the amended 2018 Plan by 3,000,000.

Provided a quorum is present, the affirmative vote of the holders of a majority of the shares of Melinta common stock present in person or represented by proxy and entitled to vote on the matter at the Special Meeting is required to approve Proposal 5, to adjourn the Special Meeting, if necessary, if a quorum is present, to solicit additional proxies, in the event that there are not sufficient votes at the time of the Special Meeting to approve the Proposals above.

VHP has agreed in the Vatera Loan Agreement to vote the approximately 16 million shares of Melinta common stock, which represents approximately 28.6% of the outstanding shares of common stock as of January 10, 2019, that it owns in favor of Proposals 1, 2 and 3, subject to VHP’s reasonable determination that certain conditions set forth in the Vatera Loan Agreement will be satisfied.

If you hold shares beneficially in street name and do not provide your broker with voting instructions, your shares may constitute “broker non-votes.” Broker non-votes occur on a matter when a broker is not permitted to vote on that matter without instructions from the beneficial owner and instructions are not given. These matters are referred to as “non-routine” matters. The Proposals and the adjournment are each a “non-routine” matter.

This solicitation is made on behalf of Melinta’s board of directors and Melinta will pay for the costs of solicitation. Copies of solicitation materials will be furnished to banks, brokerage firms and other custodians, nominees and fiduciaries holding shares in their names that are beneficially owned by others so that they may forward the solicitation materials to such beneficial owners upon request. You will need to obtain your own internet access if you choose to access the proxy materials and/or vote over the internet. In addition to soliciting proxies by mail, Melinta’s directors, executive officers and employees might solicit proxies personally and by telephone. None of these individuals will receive any additional compensation for this. Melinta has engaged Georgeson to assist Melinta in the distribution of proxy materials and the solicitation of votes described above



 

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for a fee of $17,500, plus additional fees based on the amount and types of services rendered and reimbursement of reasonable expenses. Melinta will, upon request, reimburse brokers, banks and other nominees for their expenses in sending proxy materials to their principals and obtaining their proxies.

Summary of the Amendment to the Certificate of Incorporation to Authorize the Reverse Stock Split

The amendment to Melinta’s Certificate of Incorporation attached hereto as Annex A would authorize a reverse stock split of the issued and outstanding shares of Melinta common stock. Upon the effectiveness of the amendment to Melinta’s Certificate of Incorporation effecting the reverse stock split, the outstanding shares of Melinta common stock will be reclassified and combined into a lesser number of shares such that one share of Melinta common stock will be issued for a specified number of shares, which shall be greater than one and equal to or less than 20, of outstanding Melinta common stock, with the exact number within the range to be determined by Melinta’s board of directors prior to the effective time of such amendments and publicly announced by Melinta. The principal purpose of the reverse stock split is to increase the per-share market price of Melinta common stock above the minimum bid price requirement under the Nasdaq Listing Rules so that the Melinta common stock would not be delisted from the Nasdaq Global Market. Although Melinta has not received a notice from the Nasdaq Global Market, the bid price of Melinta’s common stock has recently closed, on certain trading days, below the minimum $1.00 per share requirement for continued listing on the Nasdaq Global Market. In addition, as further described below, the amendment would provide authorized share capital to accommodate, in part, the conversion of any of the Vatera Convertible Loans, which are convertible into shares of Melinta common stock or shares of Melinta convertible preferred stock, which are then further convertible into shares of Melinta common stock, and to accommodate the conversion of up to $74 million of the Deerfield Convertible Loan pursuant to the terms of the Deerfield Facility Amendment, which amendment is a condition (among other conditions) to funding the Vatera Convertible Loans (and the effectiveness of such amendment is conditioned on such funding). The reverse stock split would also provide flexibility for future issuances of Melinta common stock if determined by Melinta’s board of directors to be in the best interests of the Company without incurring the risk, delay and potential expense incident to obtaining stockholder approval for a particular issuance.

Summary of the Amendment to the Certificate of Incorporation to Increase the Number of Authorized Shares of Melinta Common Stock

As of January 10, 2019, there were (i) 80,000,000 shares of Melinta common stock authorized and 56,066,169 shares of Melinta common stock issued and outstanding (together with a total of 7,442,719 shares of Melinta common stock reserved for issuance upon the exercise of outstanding options and warrants and the vesting of restricted stock units) and (ii) 5,000,000 shares of Melinta preferred stock authorized and no shares of Melinta preferred stock issued and outstanding. The amendment to Melinta’s Certificate of Incorporation attached hereto as Annex B would increase Melinta’s total number of authorized shares of all classes of capital stock from 85,000,000 shares to 280,000,000 shares, which would consist of (a) 275,000,000 shares of Melinta common stock and (b) 5,000,000 shares of Melinta preferred stock. The amendment is intended to provide authorized share capital to accommodate, in part, the conversion of any of the Vatera Convertible Loans, which are convertible into shares of Melinta common stock or shares of Melinta convertible preferred stock, which are then further convertible into shares of Melinta common stock, and to accommodate the conversion of up to $74 million of the Deerfield Convertible Loan pursuant to the terms of the Deerfield Facility Amendment, which amendment is a condition (among other conditions) to funding the Vatera Convertible Loans (and the effectiveness of such amendment is conditioned on such funding). The amendment would also provide flexibility for future issuances of Melinta common stock if determined by Melinta’s board of directors to be in the best interests of the Company without incurring the risk, delay and potential expense incident to obtaining stockholder approval for a particular issuance. Of the 275,000,000 shares of Melinta common stock to be authorized, approximately 102 million would be reserved for issuance under the Vatera Loan Agreement and approximately 72 million would be reserved for issuance under the Deerfield Convertible Loan.



 

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Up to a total of approximately 174 million shares of Melinta common stock could be issued under the Vatera Convertible Loans and the Deerfield Convertible Loan if the loans are fully funded (or deemed funded) and ultimately converted based on the initial conversion rate for the Vatera Convertible Loans and the maximum initial conversion rate for the Deerfield Convertible Loan and assuming the Vatera Convertible Loans are held to maturity and the full Conversion Amount is then converted (or a total of approximately 214 million shares of Melinta common stock could be issued under the Vatera Convertible Loans and the Deerfield Convertible Loan if such conversion of the Vatera Convertible Loans is in connection with an optional prepayment or a fundamental change and the maximum amount of additional shares are required to be issued upon conversion of the Vatera Convertible Loans under the make-whole table; the conversion rate of the Deerfield Convertible Loan would not be subject to any such make-whole adjustment). There is no assurance that the Vatera Convertible Loans or the Deerfield Convertible Loan will convert.

For illustrative purposes, in the event that the Company draws, and VHP, VIP and their respective affiliates fund, the full $135 million pursuant to the Vatera Loan Facility and an additional $5 million of convertible loans are deemed funded by Deerfield pursuant to the Vatera Loan Facility, and assuming that such Vatera Convertible Loans are fully funded and ultimately converted into shares of Melinta preferred stock and then into Melinta common stock on the maturity date of the Vatera Convertible Loans using the Conversion Amount, at a Common Stock Conversion Rate of 625 (equivalent to a Conversion Price of $1.60), a total of approximately 102 million shares of Melinta common stock could be issued upon such conversion (or a total of approximately 142 million shares issued if such conversion of the Vatera Convertible Loans is in connection with an optional prepayment or a fundamental change and the maximum amount of additional shares are required to be issued upon conversion of the Vatera Convertible Loans under the make-whole table; the conversion rate of the Deerfield Convertible Loan would not be subject to any such make-whole adjustment). The Vatera Loan Agreement also requires that Melinta reserve for issuance upon conversion of the Vatera Convertible Loans (including the $5 million of convertible loans deemed funded by Deerfield pursuant to the Vatera Loan Facility) shares of Melinta preferred stock and Melinta common stock as provided in the Vatera Loan Agreement (assuming all such conversions are settled delivering solely such shares and, except in connection with a fundamental change for which a definitive agreement has been entered into prior to such date, assuming no additional shares under the make-whole adjustment will be necessary to be issued).

In addition, if the full $74 million of the Deerfield Convertible Loan is converted in full at the minimum initial conversion price of $1.03 (a maximum initial conversion rate of approximately 971 shares per $1,000 principal amount), a total of approximately 72 million shares of Melinta common stock could be issued upon such conversion. The Deerfield Facility Amendment requires that Melinta reserve and keep available out of its authorized but unissued shares, solely for the purpose of effecting the conversions of the Deerfield Convertible Loan, such number of shares as shall from time to time be sufficient to effect the conversion in full of the Deerfield Convertible Loan (without giving effect to the 4.985% Ownership Cap).

The ability of Deerfield to convert the $5 million of convertible loans deemed to have been funded pursuant to the Vatera Loan Facility, and the ability of a lender to convert the Deerfield Convertible Loan, also are subject to the 4.985% Ownership Cap. However, that will not prevent Deerfield from periodically converting the applicable loan up to the 4.985% Ownership Cap and selling the shares of Melinta common stock received upon conversion such that the full amount of such loan is converted over time.

Summary of the Vatera Loan Agreement, Vatera Loan Facility and Vatera Convertible Loans

On December 31, 2018, the Company entered into the Original Vatera Loan Agreement with VHP and VIP pursuant to which VHP committed to provide up to $100 million, and VIP committed to provide up to $35 million, under the Vatera Loan Facility, subject in each case to the satisfaction (or waiver) of certain conditions precedent set forth therein, which loan agreement was amended and restated on January 14, 2019, to



 

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provide for an additional $5 million that will be deemed to have been funded by Deerfield upon the initial funding under the Vatera Loan Agreement. The $5 million of senior subordinated convertible loans under the Vatera Loan Facility will have substantially the same terms and conditions, including conversion terms, as the Vatera Convertible Loans that may be funded by Vatera under the Vatera Loan Facility. A lender’s ability to convert its portion of the $5 million of senior subordinated convertible loans originally issued to Deerfield under the Vatera Loan Facility will be subject to the 4.985% Ownership Cap. The proceeds of the Vatera Convertible Loans will be used for general corporate purposes.

The Vatera Convertible Loans will be guaranteed by each of the Company’s direct or indirect subsidiaries. These are the same direct and indirect subsidiaries that guarantee the Company’s obligations under the Deerfield Facility. The Vatera Convertible Loans will be senior unsecured obligations of the Company and each guarantor and will be contractually subordinated to the obligations under the Deerfield Facility. Interest on the Vatera Convertible Loans will be paid in arrears at the end of each fiscal quarter, with 50% of such interest paid in cash and the remaining 50% of such interest paid in kind by increasing the principal balance of the outstanding Vatera Convertible Loans in an amount equal thereto (which increase will bear interest once added to such principal balance). If the Company or any guarantor fails to make a required payment of principal or interest with respect to the Vatera Convertible Loans or any other obligation under the Vatera Loan Facility when due, other than to the extent arising from an acceleration (other than an acceleration due, completely or partially, to a payment event of default (other than a payment event of default caused by an automatic acceleration from a bankruptcy or insolvency event of default), or fails to deliver any preferred stock or common stock issuable upon conversion of the Vatera Convertible Loans as described below within five business days of the effective date of such conversion, the Company is required to pay interest in respect of such payment, interest or other obligation or the Conversion Amount (as defined below) as applicable, at a rate per annum equal to 15% for so long as such payment or preferred stock or common stock delivery failure remains outstanding, payable in cash on demand to the extent permitted under the subordination agreement in respect of the Deerfield Facility, and if not so permitted, shall be paid in shares of common stock valued based on the five-trading-day volume weighted average price of the common stock ending on, and including, the trading day immediately preceding the date such preferred stock or common stock was required to be delivered. In addition, at the election of the Required Lenders (as defined in the Vatera Loan Agreement), while any event of default exists (or automatically, in the case of any payment, bankruptcy or insolvency event of default), the Company shall pay interest on the obligations under the Vatera Loan Facility and past due interest thereon, if any, from and after the occurrence of such event of default, at a rate per annum equal to 7%, payable in cash on demand to the extent permitted under the subordination agreement in respect of the Deerfield Facility, and if not so permitted, shall be paid in shares of common stock valued based on the five-trading-day volume weighted average price of the common stock ending on, and including, the trading day immediately preceding the date such event of default occurred.

The maturity date of the Vatera Convertible Loans is January 6, 2025.

The Vatera Convertible Loans will be convertible at the option of each lender into shares of convertible preferred stock of the Company at the Loan Conversion Rate. The Conversion Price is equal to $1,000 divided by the Loan Conversion Rate or the Common Stock Conversion Rate, as applicable. If Proposal 1 is approved by Melinta stockholders and implemented by Melinta’s board of directors, the Loan Conversion Rate will be proportionately reduced (and as a result the Conversion Price will proportionately increase) to reflect the reverse stock split. The preferred stock will be further convertible at the option of each lender into shares of common stock of the Company at the Common Stock Conversion Rate. At the option of a lender, the Vatera Convertible Loans will also be directly convertible into common stock at an initial conversion rate equal to 625 shares of common stock per $1,000 of Conversion Amount (which is the Loan Conversion Rate multiplied by the Common Stock Conversion Rate), which conversion rate is equivalent to a Conversion Price of $1.60, subject to adjustments as described below, including for a reverse stock split. The preferred stock will be non-participating, convertible preferred stock, with no dividend rights (other than to participate in common stock dividends on the



 

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Company’s common stock on an as-converted basis) or voting rights, and is senior to the common stock upon liquidation (with a liquidation preference equal to the Conversion Amount for the converted loans, as it may thereafter be adjusted pursuant to the Certificate of Designations (plus, if applicable, the amount of any declared but unpaid dividends on such shares of preferred stock)).

The number of shares of preferred stock issuable upon conversion of the Vatera Convertible Loans will be equal to (i) the Loan Conversion Rate multiplied by (ii) the aggregate principal amount of such Vatera Convertible Loans being converted (including any interest paid in kind that has been added to the principal balance of such Vatera Convertible Loans at the end of a fiscal quarter), plus any accrued and unpaid interest that is to be paid in kind at the end of the next fiscal quarter but has not yet been so paid, plus the portion of any Exit Fee (as defined below) attributable to the committed amount of the Vatera Convertible Loans being so converted (clause (ii), collectively, the “Conversion Amount”) divided by $1,000. The number of shares of common stock issuable upon the further conversion of the preferred stock will be equal to the Common Stock Conversion Rate multiplied by the number of shares of preferred stock.

The Loan Conversion Rate is subject to adjustments customary for convertible notes for (i) splits (including a reverse split) or combinations of the common stock or the preferred stock, (ii) recapitalization or reclassification of the common stock or the preferred stock, (iii) the payment of cash or stock dividends on the common stock, (iv) the distribution of rights, options or warrants to all or substantially all holders of common stock at a price less than the five-trading-day volume weighted average price of the common stock, (v) a spin-off and (vi) any tender offer by the Company for common stock at an amount exceeding the five-trading-day volume weighted average price of the common stock commencing on, and including, the trading day immediately next succeeding the last date on which tenders or exchanges may be made; provided that the Loan Conversion Rate is not subject to adjustment for any dividends or distributions in which the lender participates. The Common Stock Conversion rate is not subject to any adjustments. Except as expressly contemplated above, the issuance of additional shares of common stock or other securities, including pursuant to employee equity plans, warrants or other exercisable or convertible securities, are excluded from such adjustments.

The Loan Conversion Rate will also be subject to increase in the event the lenders convert the Vatera Convertible Loans in connection with a “fundamental change” (defined in the Vatera Loan Agreement), based on a customary make-whole table set forth in the Vatera Loan Agreement with inputs relative to either the five-trading-day volume weighted average price of the common stock ending on, and including, the trading day immediately prior to the effective date of the fundamental change (or the date of the prepayment, as applicable) or the cash price paid per share of common stock in the transaction. The maximum amount of additional shares that could be issued per $1,000 of the Conversion Amount under the make-whole table is 2.445652 shares of preferred stock (244.5652 shares of common stock). These shares would be in addition to those issuable as described in the second preceding paragraph, resulting in a total number of shares issuable upon conversion of 8.695652 shares of preferred stock (869.5652 shares of common stock) per $1,000 of Conversion Amount.

To the extent the Loan Conversion Rate would be increased to the Ceiling Rate, the Company will obtain stockholder approval to increase the number of authorized shares or, absent such approval, the Loan Conversion Rate will be increased to the Ceiling Rate and the balance of any make-whole amount will be paid in cash rather than settled in stock to the extent permitted under the Deerfield Facility. If such payment in cash is not permitted under the Deerfield Facility, the Company will use commercially reasonable efforts to seek stockholder approval by calling additional meeting(s) of stockholders as necessary.

An Interim Exit Fee of 1% of the aggregate amount of Vatera Convertible Loans funded under the Vatera Loan Facility will be payable upon repayment or conversion of such funded amount (payable in preferred stock in the case of conversion). In addition, the Final Exit Fee of 3% on the portion of the aggregate committed amount of Vatera Convertible Loans not drawn by the Company under the Vatera Loan Facility will be payable



 

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on any repayment in full or conversion in full of the Vatera Convertible Loans (payable in preferred stock in the case of conversion).

Upon the occurrence of a Change of Control (as defined in the Vatera Loan Agreement), the lenders have the right to either convert the Vatera Convertible Loans (as described above) or require payment in full at par plus accrued and unpaid interest. If the lenders, other than VHP, VIP or their respective affiliates, fail to timely deliver notice to the Company electing to convert the Vatera Convertible Loans, the Company will pay in cash to such lender the full outstanding amount of the Vatera Convertible Loans. VHP, VIP or their respective affiliates may elect to continue to hold their Vatera Convertible Loans, subject to the following sentence, instead of converting the Vatera Convertible Loans or requiring payment in cash for such Vatera Convertible Loans. The Vatera Convertible Loans may be prepaid in whole or in part, together with accrued and unpaid interest thereon, at any time upon fifteen business days’ prior written notice, subject to the payment of (i) a 5% premium, plus a make-whole payment in the case of any such prepayment made on or prior to July 6, 2022, (ii) a 5% premium in the case of any such prepayment made after July 6, 2022, but on or prior to July 6, 2023, and (iii) a 4% premium in the case of any such prepayment made thereafter; provided, that, except for a prepayment in connection with a Change of Control or a fundamental change in which the consideration to be paid to the holders of outstanding common stock (other than shares held by VHP, VIP or their respective affiliates) consists solely of cash at a per share price in excess of the then current Conversion Price (determined based on the Common Stock Conversion Rate), no voluntary prepayment will be permitted if the volume-weighted average price of the common stock for the five trading days ending on and including the trading day immediately preceding the giving of the prepayment notice exceeds the then applicable Conversion Price (determined based on the Common Stock Conversion Rate). In the event the Company elects to prepay the Vatera Convertible Loans, the lenders will have the right, prior to such prepayment, to convert all or a portion of the Vatera Convertible Loans to be so prepaid at the Loan Conversion Rate that would apply as if such prepayment were a fundamental change, using the Stock Price applicable to such prepayment.

Subject to the satisfaction (or waiver) of the conditions precedent set forth in the Vatera Loan Agreement, $75 million of Vatera Convertible Loans may be drawn in a single draw on or prior to February 25, 2019 (at which time an additional $5 million of convertible loans will be deemed to have been funded by Deerfield under the Vatera Loan Facility), up to $25 million of additional Vatera Convertible Loans may be drawn in a single draw after March 31, 2019 but on or prior to June 30, 2019, and up to $35 million of additional Vatera Convertible Loans may be drawn in a single draw after June 30, 2019, but on or prior to July 10, 2019, subject to the Company obtaining a revolving credit facility with respect to which no less than $10 million is at the time available for drawing on and after such funding date (without giving effect to any repayment on such date with the proceeds of the Vatera Convertible Loans).

The funding of the initial disbursement under the Vatera Loan Facility is subject to the satisfaction (or waiver) of the applicable conditions precedent set forth in the Vatera Loan Agreement, including, without limitation: obtaining an amendment from the requisite lenders to the Deerfield Facility; the absence of a material adverse effect on the Company; the absence of a default or event of default under the Vatera Loan Agreement or the Deerfield Facility and no such default or event of default being reasonably expected to occur; accuracy of the representations and warranties made by the Company and the guarantors in all material respects; the common stock of the Company remaining listed on Nasdaq or another eligible market; the approval of the stockholders of the Company of a reverse stock split and/or an increase in the number of authorized shares of common stock to accommodate the conversion of the Vatera Convertible Loans as described above, and to approve the issuance of the Vatera Convertible Loans under applicable Nasdaq rules; and John Johnson having been appointed as Chief Executive Officer (as opposed to interim Chief Executive Officer) of the Company.

The funding of each subsequent disbursement under the Vatera Loan Facility will be subject to the satisfaction (or waiver) of the applicable conditions precedent set forth in the Vatera Loan Agreement, including,



 

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without limitation: the absence of a material adverse effect on the Company; the absence of a default or event of default under the Vatera Loan Agreement or the Deerfield Facility and no such default or event of default being reasonably expected to occur; accuracy of the representations and warranties made by the Company and the guarantors in all material respects; the common stock of the Company remaining listed on Nasdaq or another eligible market.

The representations and warranties, affirmative and negative covenants and events of default set forth in the Vatera Loan Agreement are substantially similar to those set forth in the Deerfield Facility and otherwise are customary for financing transactions of this type. In addition, the Company will not use any proceeds of the Vatera Convertible Loans to pay liabilities in excess of $15 million other than any indebtedness or other obligations under the Deerfield Facility or in respect of any permitted revolving credit facility, without the prior written consent of the Required Lenders (as defined in the Vatera Loan Agreement).

The Vatera Loan Agreement contains customary indemnification and expense reimbursement provisions in favor of the lenders. Under the Vatera Loan Agreement, the Company has agreed, without the prior written consent of the Required Lenders (as defined in the Vatera Loan Agreement), for a period beginning on the date of the Vatera Loan Agreement and ending ninety days after the third disbursement (such date being between September 29, 2019, and October 8, 2019) (unless the facility is terminated prior to such third disbursement, in which case 90 days after such termination), not to sell or otherwise transfer or dispose of, or file a registration statement relating to, any common stock or any securities convertible into or exercisable or exchangeable for common stock, subject to certain exceptions, including, without limitation, that this provision shall not restrict or prohibit negotiations or discussions with respect to, or the entering into any agreement for, or the filing of a registration statement with respect to, a merger or consolidation or any other combination of the Company with, or the acquisition of the Company by, another person (including by tender or exchange offer), any sale or other transfer of all or substantially all of the consolidated assets of the Company or any other acquisition or similar transaction.

Vatera will be entitled to registration rights in respect of the shares of common stock underlying the Vatera Convertible Loans (taking into account the character of the Vatera Convertible Loans and the application of the securities laws) consistent with the Registration Rights Agreement, dated November 3, 2017, among the Company, VHP and the other parties thereto. The Vatera Convertible Loans will be assignable by the lenders to, and the preferred stock and underlying common stock is transferable to, qualified institutional buyers or institutional accredited investors (other than competitors), subject to the Ownership Limitation (as described below). Assignments of the Vatera Convertible Loans will also be subject to all applicable securities laws. No lender under the Vatera Loan Facility (other than VHP, VIP and their respective affiliates from time to time) will be entitled to receive shares of common stock or preferred stock upon conversion of Vatera Convertible Loans (or shares of common stock upon conversion of preferred stock) if the receipt of such common stock or preferred stock would cause (i) such lenders to beneficially own 29.9% of the voting interests in the Company’s stock or (ii) a Major Transaction as defined under the warrants issued by the Company to Deerfield Private Design Fund IV, L.P., Deerfield Private Design Fund III, L.P., and Deerfield Special Situations Fund, L.P. on January 5, 2018. The ability of Deerfield to convert the $5 million of convertible loans deemed to have been funded under the Vatera Loan Facility by the lenders under the Deerfield Facility also is subject to the 4.985% Ownership Cap (as described below).

The Vatera Loan Agreement also requires that the Company reserves for issuance upon conversion of the Vatera Convertible Loans (including the $5 million of convertible loans deemed funded by Deerfield pursuant to the Vatera Loan Facility) shares of the Company’s preferred stock and Company’s common stock as provided in the Vatera Loan Agreement (assuming all such conversions are settled delivering solely such shares and, except in connection with a fundamental change for which a definitive agreement has been entered into prior to such date, assuming no additional shares under the make-whole adjustment will be necessary to be issued).



 

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The rights and obligations of the Company and the lenders under the Vatera Loan Facility and the Vatera Convertible Loans are subject to the limitations set forth in the subordination agreement with the agent for the lenders under the Deerfield Facility.

The Vatera Loan Facility will terminate if the initial draw thereunder is not made by February 25, 2019. The summary of the Vatera Loan Agreement set forth in this proxy statement is qualified in its entirety by reference to the full text of the Vatera Loan Agreement, a copy of which is attached hereto as Annex C.

Summary of the Deerfield Facility Amendment and Deerfield Convertible Loan

On January 14, 2019, the Companies, the other loan parties thereto and Deerfield entered into the Deerfield Facility Amendment. The Deerfield Facility Amendment is a condition (among other conditions) to funding the Vatera Convertible Loans. The amendments set forth in the Deerfield Facility Amendment, except for specified amendments described below which are immediately effective, will become effective, subject to the satisfaction (or waiver) of certain applicable conditions precedent, upon the funding of the initial $75 million disbursement under the Vatera Loan Facility (the “Deerfield Facility Amendment Effective Date”).

In order to obtain the Deerfield Facility Amendment, the Company agreed that, among other things, $74 million in principal amount of the Deerfield Convertible Loan would be made convertible into shares of Melinta common stock, at Deerfield’s option at any time, subject to the 4.985% Ownership Cap. The Deerfield Convertible Loan Conversion Rate is equal to the amount of the outstanding principal amount of the Deerfield Convertible Loan to be converted, divided by the Deerfield Convertible Loan Conversion Price, subject to a restriction that no lender is permitted to convert such loans if it would result in such lender and its affiliates beneficially owning more than the 4.985% Ownership Cap. However, that will not prevent Deerfield from periodically converting the loan up to the 4.985% Ownership Cap and then selling the shares such that up to $74 million of the loan is converted over time. However, no lender may, without the approval of a majority of the Company’s board of directors, sell or dispose, in a pre-arranged single transaction or series of related transactions any shares of the Company’s common stock issued upon conversion of the Deerfield Convertible Loan to any person or group if such lender knows, in advance of effecting such transaction or series of related transactions, that such transferee holds, or after giving effect to such sale would hold, in excess of 15% of the issued and outstanding shares of the Company’s common stock. This 15% limitation does not apply if the sale is part of a tender offer or exchange offer made to all stockholders of the Company, or otherwise is in connection with a merger or other business combination transaction and also does not restrict the ability of any lender to transfer all or any portion of the Deerfield Convertible Note in accordance with its terms or to sell any shares of the Company’s common stock that have been issued upon conversion of the Deerfield Convertible Loan in open-market transactions. The Deerfield Convertible Loan Conversion Price is the greater of (i) $1.03, which is the minimum initial conversion price, and (ii) 95% of the lesser of (A) the closing price of the Melinta common stock on the trading day immediately preceding the conversion date and (b) the arithmetic average of the volume weighted average price of the Melinta common stock on each of the three trading days immediately preceding the conversion date. However, no lender may, without the approval of a majority of the Company’s board of directors, sell or dispose, in a pre-arranged single transaction or series of related transactions any shares of the Company’s common stock issued upon conversion of the Deerfield Convertible Loan to any person or group if such lender knows, in advance of effecting such transaction or series of related transactions, that such transferee holds, or after giving effect to such sale would hold, in excess of 15% of the issued and outstanding shares of the Company’s common stock. This 15% limitation does not apply if the sale is part of a tender offer or exchange offer made to all stockholders of the Company, or otherwise is in connection with a merger or other business combination transaction and also does not restrict the ability of any lender to transfer all or any portion of the Deerfield Convertible Note in accordance with its terms or to sell any shares of the Company’s common stock that have been issued upon conversion of the Deerfield Convertible Loan in open-market transactions. Based on the minimum conversion price, the maximum conversion rate for the Deerfield Convertible Loan would be



 

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approximately 971 shares per $1,000 principal amount of loan. The Deerfield Loan Conversion Price is subject to adjustment for any stock split (including a reverse stock split), stock combination, reclassification, payment of stock dividend, recapitalization or other similar transaction of such character that shares of Melinta common stock are changed into or become exchangeable for a larger or smaller number of shares of common stock. The warrants issued to Deerfield in January 2018 will also be adjusted to reflect the reverse stock split described in Proposal 1 if the reverse stock split is implemented.

The Deerfield Facility Amendment, upon the satisfaction or waiver of the applicable conditions, will: (i) modify the definition of “change of control” under the Deerfield Facility to permit VHP, VIP and their respective affiliates to own 50% or more of the equity interests in the Company on a fully diluted basis; (ii) modify the definition of “Indebtedness” under the Deerfield Facility to exclude certain specific payments under (x) the Agreement and Plan of Merger, dated as of December 3, 2013, among the Medicines Company, Rempex Pharmaceuticals, Inc. and the other parties thereto and (y) the Purchase and Sale Agreement, dated as of November 28, 2017, between The Medicines Company and Melinta Therapeutics, Inc.; (iii) modify the definition of “Permitted Indebtedness” under the Deerfield Facility to permit the payment of a certain amount of the interest on the Vatera Convertible Loans in cash; (iv) permit the Company’s audited financial statements for the fiscal year ending December 31, 2018, to be delivered with an explanatory paragraph expressing doubt as to the Company’s status as a going concern; (v) reduce the net sales covenant set forth in the Deerfield Facility for all periods after December 31, 2018, by 15%; (vi) require the Company to hold a minimum cash balance of $40 million through March 31, 2020, and thereafter $25 million (the current requirement); (vii) increase the exit fee under the Deerfield Facility to 4%; and (viii) make certain other technical modifications, including to accommodate the Vatera Facility and the Vatera Convertible Loans.

The Deerfield Facility Amendment must be effective as a condition to funding the initial $75 million disbursement under the Vatera Loan Agreement, among other conditions. Upon the initial funding under the Vatera Loan Agreement, Deerfield will be issued $5 million of convertible loans under the Vatera Loan Agreement as consideration for entering into the Deerfield Facility Amendment (such convertible loans will be in addition to the up to $135 million of Vatera Convertible Loans that may be funded under the Vatera Loan Agreement).

The Deerfield Facility Amendment also amends, effective immediately, the warrants issued to Deerfield in connection with entering into the Deerfield Facility (the “Deerfield Warrants”) to replace the 9.985% ownership cap set forth therein with a 4.985% Ownership Cap. As a result, 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 4.985% of the outstanding shares of the Company’s common stock. The Deerfield Facility Amendment also amends, effective immediately, the share payment provisions described in Exhibit 2.7 of the Deerfield Facility to replace the 9.985% ownership cap set forth therein with a 4.985% Ownership Cap. As a result, the Company is subject to a restriction on its ability to satisfy interest due and payable through the issuance of the Company’s common stock to the extent that, upon such issuance, a holder, its affiliates and any “group” of which such holder is a member would beneficially own greater than 4.985% of the outstanding shares of the Company’s common stock.

The Deerfield Facility Amendment also provides that the Registration Rights Agreement entered into by the Company and Deerfield, dated January 5, 2018, will cover the shares of the Company’s common stock issuable upon conversion of the $5 million of convertible loans that will be deemed funded by Deerfield upon the initial funding under the Vatera Loan Agreement.

In addition to the funding of the initial $75 million disbursement under the Vatera Loan Facility, the effectiveness of the Deerfield Facility Amendment also is subject to the satisfaction (or waiver) of other conditions, including, without limitation, the absence of a default or event of default under the Deerfield Facility;



 

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the accuracy of the representations and warranties made by the Company in the Deerfield Facility Amendment; the payment of all fees and all expenses incurred by Deerfield in connection with the Deerfield Facility Amendment; the Vatera Loan Facility and loan documents related thereto and the subordination agreement entered into by the Company, the other loan parties thereto, and Deerfield remain in full force and effect and all conditions under the Vatera Loan Facility to the effectiveness thereof have been satisfied (or waived); the Company obtains the Stockholder Approval (as defined in the Vatera Loan Agreement) and files the applicable amendment to the Certificate of Incorporation of the Company and the Certificate of Designations for the preferred stock with the Secretary of State of the State of Delaware; the common stock of the Company issuable upon conversion of the Deerfield Convertible Loan has been approved for listing on the Nasdaq Global Select Market or another eligible market; and the delivery to Deerfield of the Deerfield Convertible Note and notes evidencing the $5 million of senior subordinated convertible loans under the Vatera Facility deemed to be funded by Deerfield as consideration for entering into the Deerfield Facility Amendment).

In addition, the Company is required at all times after the effective date of the Deerfield Facility Amendment to reserve and keep available a sufficient number of shares of common stock for the purpose of enabling the Company to issue all of the underlying shares of common stock issuable pursuant to the Deerfield Convertible Note.

Summary of the Amendments to the 2018 Plan

The amendments to the 2018 Plan will increase the number of shares reserved and available for issuance under the 2018 Plan by (a) 2,000,000 shares specifically for issuance to the Chief Executive Officer and (b) an additional 3,000,000 shares for general issuances under the amended 2018 Plan, which together would bring the total number of shares available under the 2018 Plan, as amended, to 9,104,429. The approval of these proposals by the Company’s stockholders would result in the immediate availability of additional shares for issuance under the Company’s amended 2018 Plan. The availability of additional shares is critical to the furtherance of the Company’s compensation programs and vital to the growth and success of the Company’s business.

The purpose of the amendment described in clause (a) is to provide the Company with additional flexibility to offer a mutually acceptable compensation package to Mr. Johnson in connection with his employment contract and his appointment as Chief Executive Officer (as opposed to interim Chief Executive Officer) of the Company.

The purpose of the amendment described in clause (b) is to allow the Company to retain its key employees, to continue to motivate and incentivize its employees and to align the interests of its employees with those of Melinta’s stockholders. The Company currently would expect to use this additional capacity for issuances to executive officers, allowing the remaining capacity under the 2018 Plan to be available for issuances to other employees and directors.

One of the conditions to the funding of the initial disbursement of $75 million under the Vatera Loan Facility (such funding being a condition to the effectiveness of the Deerfield Facility Amendment) is the appointment of John H. Johnson as the Chief Executive Officer (as opposed to interim Chief Executive Officer) of the Company. Mr. Johnson has accepted the position of Chief Executive Officer subject to the terms of an employment contract and the closing of the Vatera Loan Facility. If Melinta stockholders do not approve at least one of either Proposal 4A or Proposal 4B (i.e., if both Proposals fail to receive approval), it is unlikely that the Company would be able to provide for the issuance of 2,000,000 shares to Mr. Johnson, in his capacity as Chief Executive Officer, while still retaining sufficient share capacity for grants to other executives and/or employees under the 2018 Plan. As a result, if Melinta stockholders do not approve at least one of either Proposal 4A or Proposal 4B (i.e., if both Proposals fail to receive approval), Mr. Johnson likely would not be willing to serve as Chief Executive Officer of the Company. In that event, unless Vatera waives the condition to funding the initial disbursement of $75 million under the Vatera Loan Facility that Mr. Johnson serve as Chief Executive Officer,



 

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the Vatera Loan Facility will not fund and the Deerfield Facility Amendment will not become effective. The failure of the Vatera Loan Facility to fund and the Deerfield Facility Amendment to become effective would have a material adverse effect on the Company and its stockholders.

If Melinta stockholders do not approve both Proposal 4A and Proposal 4B, it is unlikely that the Company would have sufficient share capacity for grants to Company executives and other employees under the 2018 Plan, directly impacting the Company’s ability to retain critical talent and expertise. As a result, if Melinta stockholders do not approve both Proposal 4A and Proposal 4B and the Company is limited in its ability to appropriately incentivize its executives and other employees, the Company may face significant retention challenges, which would have a material impact on its growth.

At the current and projected burn rate for equity awards, the Company expects that awards covering the initial share pool of 2,000,000 shares available for issuance under the 2018 Plan (as such pool is increased pursuant to the terms of the 2018 Plan) will be granted prior to the end of fiscal year 2019. In addition, if the amendment described in clause (b) above to the 2018 Plan is not approved, the Company will need to grant cash-based or other awards in order to remain competitive, which may not align the interests of the Company’s key employees and non-employee directors as closely with those of Melinta stockholders as equity awards. In addition, the use of cash resources to deliver competitive pay would divert cash from use in running other aspects of the Company’s business and investing in future product development. In particular, Melinta’s board of directors believes that compensation of the type available for grant under the amended 2018 Plan furthers the Company’s goal of promoting long-term value for the Company’s stockholders by fostering an ownership culture that encourages a focus on long-term performance and retention, and exposes participants to economic diminishment if the Company’s share performance declines.

The summary of the 2018 Plan set forth in this proxy statement is qualified in its entirety by reference to the full text of the 2018 Plan, as proposed to be amended, a copy of which is attached hereto as Annex D.

Interests of Melinta’s Directors and Executive Officers in the Proposals

In considering the recommendation of Melinta’s board of directors with respect to the Proposals to be acted upon by Melinta stockholders at the Special Meeting, Melinta stockholders should be aware that certain members of the board of directors and executive officers of Melinta have interests in the Vatera Loan Agreement, Vatera Loan Facility and the increase in the number of shares authorized and reserved specifically for issuance to the Chief Executive Officer that may be different from, or in addition to, interests they may have as Melinta stockholders.

As noted under “Security Ownership of Certain Beneficial Owners and Management” beginning on page 81 of this proxy statement, as of January 10, 2019, Vatera Capital Management LLC (“Vatera Capital”) beneficially owned approximately 29.6% of the outstanding shares of Melinta common stock; Kevin Ferro, a current director and Chairman of Melinta’s board, is the Chief Executive Officer and the managing member of Vatera Capital, the manager of VHP; and Thomas Koestler, a current director of Melinta, is a consultant to VHP. VHP has agreed in the Vatera Loan Agreement to vote the approximately 16 million shares, which represents approximately 28.6% of the outstanding shares of common stock as of January 10, 2019, of Melinta common stock that it owns in favor of Proposals 1, 2 and 3, subject to VHP’s reasonable determination that certain conditions set forth in the Vatera Loan Agreement will be satisfied.

For illustrative purposes, in the event that the Company draws, and VHP, VIP and their respective affiliates fund, the full $135 million pursuant to the Vatera Loan Facility, and assuming that such Vatera Convertible Loans ultimately are converted into shares of Melinta preferred stock and then into Melinta common stock on the maturity date of the Vatera Convertible Loans using the Conversion Amount (and assuming no conversion of the



 

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Deerfield Convertible Loan or the $5 million of convertible loans deemed funded by Deerfield pursuant to the Vatera Loan Facility), at a Common Stock Conversion Rate of 625 (equivalent to a Conversion Price of $1.60), Vatera Capital, VHP and VIP could collectively beneficially own approximately 73% of the outstanding shares of Melinta common stock (based on 56,066,169 shares of Melinta common stock outstanding as of January 10, 2019), and approximately 69% of the Melinta common stock on a fully-diluted basis (based on 56,066,169 shares of Melinta common stock outstanding on January 10, 2019, 7,442,719 shares of Melinta common stock reserved for issuance upon the exercise of outstanding options and warrants and the vesting of restricted stock units outstanding as of January 10, 2019). Based on the foregoing, up to approximately 98 million shares of Melinta common stock could be issued to VHP, VIP and their respective affiliates upon such conversion.

In addition, under certain circumstances, additional shares of Melinta preferred stock and Melinta common stock ultimately may be required to be issued upon conversion of the Vatera Convertible Loans. For example, if the Vatera Convertible Loans are converted in connection with an optional prepayment by Melinta or a “fundamental change”, up to 2.445652 additional shares of preferred stock (244.5652 shares of common stock) may be required to be issued per $1,000 of the Conversion Amount on conversion based on a customary make-whole table. These shares would be in addition to those issuable as described above, resulting in a total number of shares issuable upon conversion of 8.695652 shares of preferred stock (869.5652 shares of common stock) per $1,000 of Conversion Amount. In the event that the Vatera Convertible Loans are converted in connection with an optional prepayment or a fundamental change and the maximum amount of additional shares are required to be issued, based on the assumptions described in the preceding paragraph, Vatera Capital, VHP and VIP could collectively beneficially own approximately 78% of the outstanding shares of Melinta common stock (based on 56,066,169 shares of Melinta common stock outstanding as of January 10, 2019), and approximately 75% of the Melinta common stock on a fully diluted basis (based on 56,066,169 shares of Melinta common stock outstanding on January 10, 2019, 7,442,719 shares of Melinta common stock reserved for issuance upon the exercise of outstanding options and warrants and the vesting of restricted stock units outstanding as of January 10, 2019). Based on the foregoing, up to approximately 137 million shares of Melinta common stock could be issued to VHP, VIP and their respective affiliates upon such conversion.

This significant concentration of share ownership would enable VHP to exert control over matters submitted to stockholders for approval. See “Proposal 3: Approval of the Issuance of the Vatera Convertible Loans, the Preferred Stock and the Common Stock” beginning on page 62 of this proxy statement.

The terms of the Vatera Loan Agreement were reviewed and unanimously approved by Melinta’s board of directors (with the two Vatera-related members of the board having recused themselves). See “Background of the Proposals” beginning on page 36 of this proxy statement for further information.

In addition, Mr. Johnson and the two Vatera-related directors have an interest in Proposal 4A and Proposal 4B because those Proposals impact the Company’s ability to offer a compensation package to John H. Johnson, the current interim Chief Executive Officer of the Company, and, as a result, Mr. Johnson’s appointment as the Chief Executive Officer of the Company (as opposed to interim Chief Executive Officer). If Melinta stockholders do not approve at least one of either Proposal 4A or Proposal 4B (i.e., if both Proposals fail to receive approval), it is unlikely that the Company would be able to provide for the issuance of 2,000,000 shares to Mr. Johnson, in his capacity as Chief Executive Officer, while still retaining sufficient share capacity for grants to other executives and/or employees under the 2018 Plan. As a result, if Melinta stockholders do not approve at least one of either Proposal 4A or Proposal 4B (i.e., if both Proposals fail to receive approval), Mr. Johnson likely would not be willing to serve as Chief Executive Officer of the Company.

Mr. Johnson’s appointment as the Chief Executive Officer of the Company is a condition to funding the initial disbursement under the Vatera Loan Agreement. If the Company is unable to appoint Mr. Johnson as the Chief Executive Officer of the Company, the Company will fail to satisfy the conditions to funding the initial



 

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disbursement of $75 million under the Vatera Loan Facility. In that event, unless Vatera waives this condition to funding, the Vatera Loan Facility will not fund and the Deerfield Facility Amendment will not become effective. VHP has informed the Company that it intends to vote the approximately 16 million shares of Melinta common stock, which represents approximately 28.6% of the outstanding shares of common stock as of January 10, 2019, that it owns in favor of Proposal 4A and Proposal 4B, subject to VHP’s reasonable determination that certain conditions set forth in the Vatera Loan Agreement will be satisfied by the Company. See “Proposals 4A and 4B: Approval of Amendments to the 2018 Plan to Increase the Number of Shares Reserved and Available for Issuance Under the 2018 Plan” beginning on page 68 of this proxy statement.



 

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FORWARD-LOOKING STATEMENTS

Certain statements in this communication constitute “forward-looking statements” within the meaning of Section 21E of the Exchange Act and are usually identified by the use of words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “seeks,” “should,” “will,” and variations of such words or similar expressions. Melinta intends these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act and are making this statement for purposes of complying with those safe harbor provisions. These forward-looking statements reflect Melinta’s current views about its plans, intentions, expectations, strategies and prospects, which are based on the information currently available to Melinta and on assumptions Melinta has made, and includes, without limitation, statements about the Proposals, the Vatera Loan Agreement (including conditions to funding), the Deerfield Facility Amendment (including conditions with respect thereto), any potential conversions of the Vatera Convertible Loans and/or Deerfield Convertible Loan, and the 2018 Plan, expectations regarding future cash balances, liquidity, other financial measures and future financing needs, initiatives or plans, and future equity award grants. Although Melinta believes that its plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward- looking statements are reasonable, Melinta can give no assurance that the plans, intentions, expectations, strategies or prospects will be attained or achieved. Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond Melinta’s control.

Risks and uncertainties for Melinta include, but are not limited to, the fact that Melinta has incurred significant operating losses since inception and will incur continued losses for the foreseeable future; Melinta’s limited operating history; Melinta’s need for future capital and risks related to its ability to obtain additional capital to fund future operations; risks related to the satisfaction of the closing conditions under the Vatera Loan Agreement, including receipt of stockholder approval and appointment of Mr. Johnson as Chief Executive Officer of the Company, and the effectiveness of the amendment of the Deerfield Facility; uncertainties of cash flows and inability to meet working capital needs as well as other milestone, royalty and payment obligations; the fact that Melinta’s independent registered public accounting firm’s report on the Company’s 2016 and 2017 financial statements contains (and that the report on the Company’s 2018 financial statements may contain) an explanatory paragraph that states that the Company’s recurring losses from operations and its need to obtain additional capital raises substantial doubt about Melinta’s ability to continue as a going concern; Melinta’s substantial indebtedness; risks related to Melinta’s commercial launches of its products and its inexperience as a company in marketing drug products; the degree of market acceptance of Melinta’s products among physicians, patients, health care payors and the medical community; the pricing Melinta is able to achieve for its products; and the other risks referenced in the paragraph below. Many of these factors that will determine actual results are beyond Melinta’s ability to control or predict.

Other risks and uncertainties are more fully described in Melinta’s Annual Report on Form 10-K for the year ended December 31, 2017, and in other filings that Melinta makes and will make with the SEC. Existing and prospective investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The statements made in this press release speak only as of the date stated herein, and subsequent events and developments may cause Melinta’s expectations and beliefs to change. While Melinta may elect to update these forward-looking statements publicly at some point in the future, Melinta specifically disclaims any obligation to do so, whether as a result of new information, future events or otherwise, except as required by law. These forward-looking statements should not be relied upon as representing Melinta’s views as of any date after the date stated herein.

 

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THE SPECIAL MEETING

Melinta is furnishing this proxy statement to its stockholders as part of the solicitation of proxies by Melinta’s board of directors for use at the Special Meeting and at any adjournments or postponements thereof.

Date, Time and Place

The Special Meeting will be held at 10:00 a.m., local time, on February 19, 2019, at the Westin Governor Morris hotel, 2 Whippany Rd, in Morristown, New Jersey.

If you are a holder of record and plan to attend the Special Meeting, please bring your proxy or a photo identification to confirm your identity. If you are a beneficial owner of common stock held by a bank or broker, i.e., in “street name,” you will need proof of ownership to be admitted to the meeting. A recent brokerage statement or letter from a bank or broker are examples of proof of ownership. If you want to vote in person your common stock held in “street name,” you must get a proxy in your name from the registered holder.

Purpose of the Special Meeting

The purpose of the Special Meeting is to consider and act upon Proposals: (1) to approve an amendment to Melinta’s Certificate of Incorporation to authorize a reverse stock split of the issued and outstanding shares of Melinta common stock; (2) to approve an amendment to Melinta’s Certificate of Incorporation to increase the number of authorized shares of Melinta common stock from 80,000,000 to 275,000,000 to accommodate, in part, the conversion of any of the Vatera Convertible Loans, which are convertible into shares of Melinta common stock or shares of Melinta convertible preferred stock, which are then further convertible into shares of Melinta common stock, and to accommodate the conversion of up to $74 million of the Deerfield Convertible Loan pursuant to the terms of the Deerfield Facility Amendment, which amendment is a condition (among other conditions) to funding the Vatera Convertible Loans (and the effectiveness of such amendment is conditioned on such funding); (3) to approve the issuance and sale of the Vatera Convertible Loans, and the issuance of the underlying shares of preferred stock and common stock upon conversion of the Vatera Convertible Loans, for purposes of applicable Nasdaq rules; (4) to authorize amendments to the 2018 Plan to increase the number of shares reserved and available for issuance by (a) 2,000,000 shares specifically for issuance to the Chief Executive Officer and (b) an additional 3,000,000 shares for general issuances under the amended 2018 Plan, which together would bring the total number of shares available under the 2018 Plan, as amended, to 9,104,429; and (5) to adjourn the Special Meeting, if necessary, if a quorum is present, to solicit additional proxies, in the event that there are not sufficient votes at the time of the Special Meeting to approve the Proposals above, as well as any other items that may properly come before the meeting. If both Proposal 1 and Proposal 2 are approved by Melinta stockholders and Melinta’s board of directors determines, in its discretion, to implement Proposal 1 (the reverse stock split), then Melinta’s board of directors, subject to its discretion, does not also intend to implement Proposal 2 (the increase to the number of authorized shares of Melinta common stock).

Recommendation of Melinta’s Board of Directors

After careful consideration, Melinta’s board of directors (with the two Vatera-related members of the board and, in addition with respect to Proposal 4A and Proposal 4B, Mr. Johnson having recused themselves) unanimously recommends that Melinta stockholders vote “FOR” the Proposals: (1) to approve an amendment to Melinta’s Certificate of Incorporation to authorize a reverse stock split of the issued and outstanding shares of Melinta common stock; (2) to approve an amendment to Melinta’s Certificate of Incorporation to increase the number of authorized shares of Melinta common stock from 80,000,000 to 275,000,000 to accommodate, in part, the conversion of any of the Vatera Convertible Loans, which are convertible into shares of Melinta common stock or shares of Melinta convertible preferred stock, which are then further convertible into shares of Melinta common stock, and to accommodate the conversion of up to $74 million of the Deerfield Convertible Loan pursuant to the terms of the Deerfield Facility Amendment, which amendment is a condition (among other conditions) to funding the Vatera Convertible Loans (and the effectiveness of such amendment is conditioned on

 

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such funding); (3) to approve the issuance and sale of the Vatera Convertible Loans, and the issuance of the underlying shares of preferred stock and common stock upon conversion of the Vatera Convertible Loans, for purposes of applicable Nasdaq rules; (4) to authorize amendments to the 2018 Plan to increase the number of shares reserved and available for issuance by (a) 2,000,000 shares specifically for issuance to the Chief Executive Officer and (b) an additional 3,000,000 shares for general issuances under the amended 2018 Plan, which together would bring the total number of shares available under the 2018 Plan, as amended, to 9,104,429; and (5) to adjourn the Special Meeting, if necessary, if a quorum is present, to solicit additional proxies, in the event that there are not sufficient votes at the time of the Special Meeting to approve the Proposals above, as well as any other items that may properly come before the meeting.

Record Date and Stockholders Entitled to Vote

Only holders of record of shares of Melinta common stock at the close of business on January 10, 2019, the record date for the Special Meeting, are entitled to vote the shares of Melinta common stock they held on the record date at the Special Meeting. At the close of business on the record date, there were 56,066,169 shares of common stock outstanding and entitled to vote at the Special Meeting, held by approximately 160 stockholders of record. Each holder of record is entitled to one vote for each share of Melinta common stock held by such stockholder on the record date on the proposals presented in this proxy statement.

The new record date for the Special Meeting is January 10, 2019. Only stockholders of record as of the close of business on the new record date will be entitled to vote at the Special Meeting. If you were a holder of record on the record date for the adjourned special meeting but are not a holder of record on the new record date for the Special Meeting, you are not entitled to vote with respect to the Proposals set forth in this proxy statement.

Voting Procedures

Due to the nature of the amendments to the Proposals contained in this proxy statement, all previously cast votes associated with the Adjourned Meeting on December 20, 2018, regardless of which voting method was used, will be completely disregarded for the Special Meeting. Provided that you are a holder of record on the new record date, you must re-vote your shares for your vote to be counted at the Special Meeting.

If your common stock is held by a broker, bank or other nominee, they should send you instructions that you must follow in order to have your shares voted. If you are a stockholder with shares registered in your name with Melinta’s transfer agent, Computershare Trust Company, N.A., on the record date, you may vote (i) in person at the Special Meeting; (ii) by proxy; (iii) by phone using the toll-free number provided on your proxy card; (iv) via the internet using the secure website provided on your proxy card; or (v) by sending in your proxy card using the included return envelope. Whether or not you plan to attend the Special Meeting, please vote as soon as possible to ensure your vote is counted. You may still attend the Special Meeting and vote in person even if you have already voted by proxy.

The internet and telephone voting procedures are designed to authenticate stockholders’ identities by use of a control number to allow stockholders to vote their shares and to confirm that stockholders’ instructions have been properly recorded. Voting via the internet or telephone must be completed by 11:59 p.m., local time on February 14, 2019. Of course, you can always come to the meeting and vote your shares in person. If you submit or return a proxy card without giving specific voting instructions, your shares will be voted as recommended by Melinta’s board of directors.

Melinta is not aware of any other matters to be presented at the meeting, except for those described in this proxy statement. If any matters not described in this proxy statement are presented at the meeting, your proxyholder (one of the individuals named on your proxy card) will use their own judgment to determine how to vote your shares. If the meeting is adjourned, your proxyholder may vote your shares on the new meeting date as well, unless you revoke your proxy instructions before then.

 

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Revoking Your Proxy Instructions

If you are a stockholder of record, you can revoke your proxy before your shares are voted at the meeting by:

 

   

Filing a written notice of revocation bearing a later date than the proxy with Melinta’s Corporate Secretary at Melinta Therapeutics, Inc., 44 Whippany Road, Morristown, New Jersey 07963, Attn: Investor Relations at or before the taking of the vote at the meeting;

 

   

Duly executing a later-dated proxy relating to the same shares and delivering it to Melinta’s Corporate Secretary at Melinta Therapeutics, Inc., 44 Whippany Road, Morristown, New Jersey 07963, Attn: Investor Relations at or before the taking of the vote at the meeting; or

 

   

Attending the meeting and voting in person (although attendance at the meeting will not in and of itself constitute a revocation of a proxy).

If you are a beneficial owner of shares held in “street name,” you may submit new voting instructions by contacting your bank, broker, nominee or trustee. You may also vote in person at the meeting if you obtain a legal proxy from them.

Counting Votes

Consistent with state law and Melinta’s bylaws, the presence, in person or by proxy, of at least a majority of the shares outstanding and entitled to vote at the meeting will constitute a quorum for purposes of voting on a particular matter at the meeting. On the record date, there were 56,066,169 shares of common stock outstanding and entitled to vote. Accordingly, the holders of 28,033,085 shares must be present at the Special Meeting to have a quorum. Once a share is represented for any purpose at the meeting, it is deemed present for quorum purposes for the remainder of the meeting and any adjournment thereof unless a new record date is set for the adjournment. Shares held of record by stockholders or their nominees who do not vote by proxy or attend the meeting in person will not be considered present or represented and will not be counted in determining the presence of a quorum. Signed proxies that withhold authority or reflect abstentions or “broker non-votes” will be counted for purposes of determining whether a quorum is present. “Broker non-votes” are proxies received from brokerage firms or other nominees holding shares on behalf of their clients who have not been given specific voting instructions from their clients with respect to non-routine matters. If there is no quorum, the chairperson of the meeting or any officer entitled to preside at or to act as secretary of the meeting may adjourn the Special Meeting to another date.

Assuming the presence of a quorum at the meeting: (1) the approval of the amendment to Melinta’s Certificate of Incorporation to authorize a reverse stock split of the issued and outstanding shares of Melinta common stock requires the affirmative vote of the holders of a majority of the issued and outstanding shares of Melinta common stock, (2) the approval of the amendment to Melinta’s Certificate of Incorporation to increase the number of authorized shares of Melinta common stock from 80,000,000 to 275,000,000 to accommodate, in part, the conversion of any of the Vatera Convertible Loans, which are convertible into shares of Melinta common stock or shares of Melinta convertible preferred stock, which are then further convertible into shares of Melinta common stock, and to accommodate the conversion of up to $74 million of the Deerfield Convertible Loan pursuant to the terms of the Deerfield Facility Amendment, which amendment is a condition (among other conditions) to funding the Vatera Convertible Loans (and the effectiveness of such amendment is conditioned on such funding), requires the affirmative vote of the holders of a majority of the issued and outstanding shares of Melinta common stock, (3) the issuance and sale of the Vatera Convertible Loans, and the issuance of the underlying shares of preferred stock and common stock upon conversion of the Vatera Convertible Loans, for purposes of applicable Nasdaq rules requires the affirmative vote of the holders of a majority of the shares of Melinta common stock present in person or represented by proxy and entitled to vote on the matter at the Special Meeting, (4) the approval of the amendments to the 2018 Plan to increase the number of shares reserved and available for issuance by (a) 2,000,000 shares specifically for issuance to the Chief Executive Officer and (b) an additional 3,000,000 shares for general issuances under the amended 2018 Plan, which together would bring the

 

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total number of shares available under the 2018 Plan, as amended, to 9,104,429, and (5) the adjournment of the Special Meeting, if necessary, if a quorum is present, to solicit additional proxies, in the event that there are not sufficient votes at the time of the Special Meeting to approve the Proposals above, requires the affirmative vote of the holders of a majority of the shares of Melinta common stock present in person or represented by proxy and entitled to vote on the matter at the Special Meeting or such other threshold as required by any such other items. VHP has agreed in the Vatera Loan Agreement to vote the approximately 16 million shares of Melinta common stock, which represents approximately 28.6% of the outstanding shares of common stock as of January 10, 2019, that it owns in favor of Proposals 1, 2 and 3, subject to VHP’s reasonable determination that certain conditions set forth in the Vatera Loan Agreement will be satisfied.

An abstention will have the same effect as a vote “AGAINST” the approval of the Proposals. A “broker non-vote” will have no effect on Proposal 3 (to approve the issuance and sale of Vatera Convertible Loans, and the issuance of the preferred stock and the common stock upon conversion of the Vatera Convertible Loans, for the purpose of applicable Nasdaq rules), Proposal 4A and/or Proposal 4B (to authorize amendments to the 2018 Plan to increase the number of shares reserved and available for issuance (a) to the Chief Executive Officer and (b) for general issuances under the 2018 Plan, as amended) or Proposal 5 (to adjourn the Special Meeting, if necessary, to solicit additional proxies). A “broker non-vote” will have the same effect as a vote “AGAINST” the approval of Proposals 1 and 2 (the amendments to Melinta’s Certificate of Incorporation).

With respect to “non-routine” matters, a bank, brokerage firm, or other nominee is not permitted under the SRO rules to vote its clients’ shares if the clients do not provide instructions. The bank, brokerage firm, or other nominee will so note on the voting instruction form, and this constitutes a “broker non-vote.” “Broker non-votes” will be counted for purposes of establishing a quorum to conduct business at the meeting, but not for determining the number of shares voted “FOR,” “AGAINST,” “ABSTAINING” or “WITHHELD FROM” with respect to such non-routine matters.

In summary, if you do not vote your proxy, your bank, brokerage firm, or other nominee may either:

 

   

cast a “broker non-vote” on non-routine matters; or

 

   

leave your shares unvoted altogether.

Melinta encourages you to provide instructions to your bank, brokerage firm, or other nominee by voting your proxy. This action ensures that your shares will be voted in accordance with your wishes at the meeting.

Solicitation of Proxies

Melinta will pay the cost of this proxy solicitation. You will need to obtain your own internet access if you choose to access the proxy materials and/or vote over the internet. In addition to soliciting proxies by mail, Melinta’s directors, executive officers and employees might solicit proxies personally and by telephone. None of these individuals will receive any additional compensation for this. Melinta has engaged Georgeson to assist Melinta in the distribution of proxy materials and the solicitation of votes described above for a fee of $17,500, plus additional fees based on the amount and types of services rendered and reimbursement of reasonable expenses. Melinta will, upon request, reimburse brokers, banks and other nominees for their expenses in sending proxy materials to their principals and obtaining their proxies.

Adjournments and Postponements

The Special Meeting may be adjourned, recessed or postponed if a quorum is not present.

If the time, date and place of an adjourned meeting are announced at the original convening of the Special Meeting, no notice of an adjourned meeting need be given unless, after the adjournment, a new record date is fixed for the adjourned meeting, in which case notice of the adjourned meeting will be given to each stockholder

 

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of record entitled to vote at the meeting. At any subsequent reconvening of the Special Meeting at which a quorum is present in person or represented by proxy, any business may be transacted that might have been transacted at the original meeting, and, unless Melinta announces otherwise, all proxies will be voted in the same manner as they would have been voted at the original convening of the Special Meeting, except for any proxies that have been validly revoked or withdrawn prior to the reconvened meeting.

However, please note that all previously cast votes associated with the Adjourned Meeting on December 20, 2018, regardless of which voting method was used, will be completely disregarded for the Special Meeting. Provided that you are a holder of record on the new record date, you must re-vote your shares for your vote to be counted at the Special Meeting.

Assistance

If you need assistance in completing your enclosed proxy card or have questions regarding the Special Meeting, please contact Georgeson, which is acting as Melinta’s proxy solicitation agent in connection with the merger, toll free at 800-905-7281.

 

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BACKGROUND OF THE PROPOSALS

The Company is subject to financial-related covenants under the Deerfield Facility, under which the lenders made an initial disbursement of $147.8 million in loan financing to the Company in January 2018, including requirements that the Company (i) file an Annual Report on Form 10-K for the year ending December 31, 2018, with an audit opinion without a going concern qualification and (ii) maintain a minimum cash balance of $25 million. As reported in the Company’s Form 10-Q for the quarter ended September 30, 2018 (the “Form 10-Q”), the Company’s cash balances may not be sufficient to support compliance with the Deerfield Facility covenants in the first quarter of 2019, after giving effect to net cash outflows from the Company’s operations and potential non-operational payments relating to the IDB acquisition, which include, subject to the terms of the applicable agreements, a $30 million milestone payable in the fourth quarter of 2018 in connection with receiving approval of Vabomere for European commercialization and two $25 million payments potentially due to The Medicines Company on January 7, 2019, and July 5, 2019, respectively. The Company has not yet made the $30 million milestone payment or the January 7, 2019, payment. On December 18, 2018, the Company filed a complaint in the Delaware Court of Chancery against The Medicines Company in connection with the IDB acquisition, seeking damages of more than $68 million and other relief as the Court may deem appropriate.

As reported in the Form 10-Q, the Company’s cash balances as of September 30, 2018, and the Company’s third quarter net revenues were as follows:

 

In USD thousands

   September 30,
2018
 

Cash and cash equivalents

   $ 83,795  

Restricted cash (included in Other Assets)

   $ 200  
  

 

 

 

Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows

   $ 83,995  
  

 

 

 

 

in USD millions

   Q3 2018  

Product sales, net

   $ 11.0  

License revenue

   $ 20.0 (1) 

Contract revenue

     3.0  
  

 

 

 

Total net revenue*

   $ 34.1
  

 

 

 
(1)

The license revenue relates to the licensing of Vabomere, Orbactiv and Minocin to Menarini, as described below.

*

Excludes BARDA grant funding included in Other Income of $0.5 million in Q3 2018

The Company’s management and board have been focused on several initiatives to reduce the Company’s risk of default under the Deerfield Facility and reduce cash outflows, including cost reductions, strategic licensing and partnership opportunities, potential capital raising activities and options to modify the terms of certain liabilities in order to increase the Company’s liquidity both in the near term and over the next 12 to 18 months.

On September 28, 2018, the Company entered into a license agreement with A. Menarini Industrie Farmaceutiche Riunite S.R.L. (“Menarini”), under which Menarini acquired the exclusive rights to co-develop and commercialize Vabomere, Orbactiv and Minocin in 68 countries in Europe, Asia-Pacific and the Commonwealth of Independent States. Under the license agreement, Menarini agreed to pay the Company an upfront licensing fee of €17 million (paid in October 2018), royalties on annual net sales of the products in the licensed territory, and regulatory, launch, and sales milestone payments that could exceed €100 million in the aggregate, including €15 million payable upon approval of the marketing authorization application for Vabomere by the European Commission (which was obtained in the fourth quarter of 2018).

 

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In respect of capital raising activities, the Company’s board determined that, given the restrictions on incurring additional debt in the Deerfield Facility and the Company’s recently completed public offering in May 2018, the issuance of equity in a private investment in public equity (PIPE) transaction represented the most viable capital raising option to raise money on terms favorable to the Company by the first quarter of 2019. Following several initial discussions in the spring and summer of 2018, during September and October of 2018, the Company discussed a potential PIPE transaction with Party A. The Company’s chairman delivered a draft term sheet to Party A on September 7, 2018, providing for a PIPE of approximately 28 million (in brackets) shares of common stock in two tranches, with one tranche subject to receipt of stockholder approval, with pricing terms left blank. The Company’s legal counsel delivered an updated draft term sheet to Party A’s advisors on October 9, 2018, providing for a PIPE of approximately 28 million (in brackets) shares of common stock in two equal tranches, with one tranche subject to receipt of stockholder approval, with pricing terms left blank. The Company indicated it was aiming to execute a transaction in the fourth quarter of 2018. Soon thereafter, Party A indicated that, despite the Company’s exigent need for financing, it would not be able to complete a financing until 2019. The board and the Company did not engage a financial advisor for purposes of these discussions.

At a meeting of the board of directors on October 10, 2018, the board and management reviewed the current liquidity situation of the Company, including the status of discussions with Party A. At this meeting, the board determined that the Company needed to implement a plan to access and preserve capital in order to avoid a default under the Deerfield Facility in the first quarter of 2019.

Background of Original $75 Million Equity Commitment Letter and Original Purchase Agreement

On October 19, 2018, Vatera sent an e-mail to the board indicating that Vatera may be willing to make available to the Company up to $75 million of funding (for purposes of this “Background of Original $75 Million Equity Commitment Letter and Original Purchase Agreement” section, references to Vatera refer to VHP only, the Vatera party to the Original Purchase Agreement). After discussion, and in advance of the Company’s quarterly board meeting on November 2, 2018, John H. Johnson, the Company’s interim Chief Executive Officer and a member of the Company’s board of directors, asked Kevin Ferro, a director of Melinta and, as of such date, the Chief Executive Officer, Chief Investment Officer and the managing member of Vatera Holdings, the manager of Vatera, to have Vatera make a formal proposal to the non-Vatera directors of the board, referred to hereafter as the independent directors.

As of late October 2018, Bank A made an expression of interest to lend the company up to $20 million depending upon Company’s account receivables; accessing such financing is still under consideration by the Company.

On November 2, 2018, Vatera delivered a draft equity commitment letter (together with accompanying term sheet) to management providing for up to $75 million in common stock financing, drawable at the Company’s option, with pricing terms subject to further discussion but based on market price. Vatera made clear that the offer would be structured as an option, to allow the Company to accept the option and have the security of a committed source of financing, while still having time to complete an appropriate review process by independent directors. In addition, Vatera made clear that their financing would not include any warrants, anti-dilution adjustments or other features commonplace for PIPE financings completed by companies similar to the Company.

At a meeting of the board of directors on November 2, 2018, the board and management reviewed the current liquidity situation of the Company and the Company’s financing needs in light of the Company’s projected cash outflows and covenants under the Deerfield Facility, including requirements that the Company file an Annual Report on Form 10-K for the year ending December 31, 2018, with an audit opinion without a going concern qualification and maintain a minimum cash balance of $25 million. The board and management discussed possible initiatives to reduce the Company’s risk of default under the Deerfield Facility and reduce cash outflows, including potential capital raising activities and options to modify the terms of certain liabilities in

 

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order to increase the Company’s liquidity both in the near term and over the next 12 to 18 months. As part of this discussion, the board considered the draft equity commitment letter delivered by Vatera, at which point Messrs. Ferro and Koestler, whom are referred to hereafter as the Vatera-related directors, recused themselves from the meeting. The independent directors discussed the proposed terms in the draft equity commitment letter and determined to meet again at a later date to review the terms again once they were more definite.

In connection with the Company’s exploration of financial alternatives, Willkie Farr & Gallagher LLP (“Willkie”), who also serves as legal counsel to Vatera pursuant to a previously granted waiver of any potential conflict of interest, initially served as legal counsel to the Company. When Vatera submitted its financing proposal to the Company, Willkie ceased representing the Company in this matter and the Company retained Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”) as corporate counsel for the Company.

Between November 3, 2018, and November 6, 2018, Willkie, legal counsel to Vatera, and Skadden, legal counsel to the Company, negotiated the terms of the equity commitment letter, including the purchase price per share, the minimum notice period required for the board to exercise the option, whether Vatera would have the right to reduce its investment in the event the Company identified other investors willing to participating in the financing alongside Vatera, whether Vatera would have the right to invest in the event of an acquisition of the Company prior to funding of the commitment and the length of the clear market period (as defined below).

On November 6, 2018, at a meeting of the independent directors of the board, the final terms of the equity commitment letter were reviewed. A representative of an investment bank attended the meeting as a courtesy to answer any questions the independent directors may have had on the financial markets. The representative was never asked to provide any formal opinion, materials, analysis or formal advice to the independent directors, and never did so. An attorney from Skadden advised the independent directors on their fiduciary duties and responsibilities in connection with their evaluation of the equity commitment letter. The independent directors considered the terms of the equity commitment letter, the financial position of the Company, the independent directors’ view of the likelihood of the Company obtaining third party financing without initial support from Vatera, the likelihood that other financing would be on terms significantly more onerous to the Company than the Vatera proposal, the fact that the financing, if completed, would make Vatera nearly a majority holder of the Company’s outstanding shares on a fully diluted basis and a majority holder on a non-fully diluted basis, the fact that the terms of the Company’s Deerfield Facility provide for acceleration in the event of a “Change of Control” (as defined in that agreement), and the fact that the Vatera proposal would require stockholder approval to be consummated. The independent directors approved the equity commitment letter, but instructed management to seek to improve the terms on which the Company could draw under the equity commitment letter, in particular to increase the Company’s ability to bring in additional third party financing without Vatera’s consent, and to negotiate to remove Vatera’s proposed investment rights in the event of an acquisition of the Company. Given the terms of the equity commitment letter proposal, the financial position of the Company, and the independent directors’ discussion (based on their own independent knowledge) of the financial markets, available financing options and likely financing terms, the independent directors did not engage an investment banker to advise on issues related to the equity commitment letter and Company financing because it would not provide a material benefit to the Company.

Later on November 6, 2018, the Company and Vatera entered into the equity commitment letter, a copy of which is filed as Exhibit 10.1 to the Company’s Form 8-K filed with the SEC on November 7, 2018.

On November 7, 2018, the Company publicly announced the execution of the equity commitment letter and filed its third quarter 2018 results with the SEC on Form 10-Q. The public announcement also disclosed that the Company implemented a plan to significantly reduce the Company’s operating expenses by more than $50 million from current spending levels, principally through an approximately 20% reduction in headcount and the curtailment of the Company’s early-stage research.

Between November 6, 2018, and November 12, 2018, legal counsel to Vatera and legal counsel to the Company discussed and negotiated the issues raised by the independent directors.

 

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After the filing of the Form 10-Q on November 7, 2018, three Company stockholders independently inquired about providing financing to the Company. Management responded to each stating that it was willing to discuss terms of a potential financing proposal with each interested party. After multiple discussions, and before any confidential information was provided, one of the three parties declined to proceed because of internal constraints, and not because of any expressed concerns about the Company. The other two parties have not yet agreed to an initial meeting, though the Company is actively pursuing these potential interests.

At a meeting of the board of directors on November 12, 2018, the board considered whether to submit for approval of the stockholders a proposal to increase the authorized shares of the Company. Management informed the board that the Company had approximately 16 million shares authorized but not issued at that point (accounting for shares reserved under outstanding options, warrants and restricted stock units). Management stated that it was possible that, unless the number of authorized shares was increased, the independent directors would not be able to authorize the full $75 million option, should they decide to do so. In addition, without additional shares, the Company would be restricted in its ability to raise capital in the future via equity issuances. As a result, management recommended increasing the number of authorized shares. The board discussed these issues. After discussion, the board resolved to approve an increase in the number of authorized shares, with the final number not to exceed 155 million total shares authorized (the final amount subject to the determination of the interim Chief Executive Officer and the Chief Financial Officer).

After the board meeting concluded, the independent directors held a meeting. They were briefed by Skadden on the discussions with Vatera since the last meeting and the outcome of those discussions, in particular Vatera’s position that any equity financing during the period between the execution of the Original Purchase Agreement and continuing until 90 days after closing (the “clear market period”) would require their consent. The independent directors discussed this issue, including that, notwithstanding the indications of potential interest from three stockholders about exploring an offer to provide some financing for the Company, third parties would be unlikely to finance the Company without Vatera’s support. They then discussed again their view as to the risks faced by the Company, the favorable terms of the proposed Vatera financing, and the absence of any viable capital raising alternatives to address the Company’s risk of a default under its Deerfield Facility (which could be as early as the first quarter of 2019). Following this discussion, the independent directors resolved to draw an aggregate of $75 million of shares under the equity commitment letter, subject to adjustment as set forth in the Original Purchase Agreement.

On November 13, 2018, legal counsel to Vatera delivered an initial draft of the Original Purchase Agreement to the Company. Between November 13, 2018, and November 16, 2018, legal counsel to Vatera and legal counsel to the Company negotiated the terms of the Original Purchase Agreement.

On November 16, 2018, the independent directors met to discuss the terms of the Original Purchase Agreement. The independent directors discussed the feasibility of other funding options and the Company’s anticipated liquidity needs in 2019. The independent directors agreed to reconvene at a later date to continue deliberating on the terms of the Original Purchase Agreement.

Between November 16, 2018, and November 18, 2018, legal counsel to Vatera and legal counsel to the Company continued to negotiate the Original Purchase Agreement, focusing on the issues raised by the independent directors.

On November 18, 2018, the independent directors met again to discuss the terms of the Original Purchase Agreement. Skadden explained that Vatera had held firm on having consent rights as to any equity financing during the clear market period. Skadden explained that Vatera did not oppose further third party equity financing during this period, but instead that Vatera maintained that it needed to be involved in such discussions given their willingness to further finance the Company at this time and the Company’s financial circumstances. The independent directors then revisited the Company’s financial position and the risks faced by the Company, the view of the independent directors both as to the absence of any alternative source of financing and the favorable

 

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financial terms of the Vatera financing, including the absence of any warrant coverage, anti-dilution provision or other onerous terms, the fact that the Original Purchase Agreement capped the number of shares issued to Vatera such that the issuance of shares could not result in a “Change of Control” under the Deerfield Facility, the fact that the Original Purchase Agreement provided consent rights for Vatera over Company equity financings during the clear market period, and the view of the independent directors that as a practical matter Vatera currently had some influence over the Company’s financing. Following this discussion, the independent directors resolved to enter into the Original Purchase Agreement and to recommend that the stockholders vote to approve the issuance of shares to Vatera under the terms of the Original Purchase Agreement. On November 19, 2018, the Company and Vatera executed the Original Purchase Agreement. On that same day, the board of directors held a meeting to approve the calling of the special meeting and the filing of the original proxy statement, including the recommendations included therein.

Background of the Vatera Loan Agreement and Deerfield Facility

Between November 6, 2018, the date of the execution of the original equity commitment letter, and December 14, 2018, the closing price of Melinta common stock fell from $2.66 per share to $1.18 per share. As a result of this substantial decline, the Company would, under the terms of the Original Purchase Agreement, only be able to issue approximately $55.3 million, and not the full $75 million, of Melinta common stock to Vatera to avoid a “Change of Control” under the Deerfield Facility.

On December 10, 2018, the board of directors held a meeting. At the meeting, management reminded the directors that the Vatera-related directors had recused themselves from board meetings in which the Original Purchase Agreement or other potential Vatera funding options would be discussed, and as a result were not attending this meeting or similar future meetings. Management updated the directors on the status of the Company’s commercial performance related to its net product sales, including the status of meeting the minimum net sales target under the Deerfield Facility, and the impact of the recent drop in stock price on the ability of the Company to issue shares allowing the Company to receive the full $75 million under the Original Purchase Agreement. As a result of the performance of the Company’s shares, management stated that the Company could not issue a sufficient number of shares to receive the full $75 million without the issuance constituting a “Change in Control” under the Deerfield Facility. Management also reminded the independent directors of the liquidity

concerns facing the Company, how those impacted the Deerfield Facility and certain alternatives that management was considering to help address these liquidity concerns. Management noted that it had discussions with Deerfield about Deerfield accelerating access to the additional $50 million that is available to the Company under the Deerfield Facility upon the achievement of certain sales thresholds that the Company anticipates achieving in the future. However, Deerfield would only make such additional funding available subject to the Company’s achievement of the sales thresholds set forth in the Deerfield Facility, which the Company could not meet at this time. Management also noted that discussions had occurred around possible liquidity alternatives with respect to the potential non-operational payments related to the IDB acquisition but that such discussions had not progressed and were not likely to lead to resolution. Management stated the Original Purchase Agreement was conditioned on the Company representing to Vatera that it could not reasonably expect an “event of default” to occur under the Deerfield Facility, and that because the Company may not be able to meet this closing condition, other potential alternatives should be considered. The independent directors, who have extensive combined experience evaluating alternatives for the Company and similar companies, discussed the various potential alternatives available to the Company in light of its liquidity and other financial constraints, but did not resolve to pursue any one particular alternative over others.

On December 10, 2018, representatives of the Company reached out to representatives of Deerfield to discuss a potential amendment of the Deerfield Facility, which would be designed to help the Company avoid potential breaches of the Deerfield Facility as discussed above. Between December 10, 2018 and December 13, 2018, representatives of the Company and Deerfield discussed proposed terms of the amendment.

On December 16, 2018, legal counsel to Vatera informed legal counsel to the Company that Vatera believed that it did not appear that the conditions to closing under the Original Purchase Agreement would be satisfied at

 

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the time of the proposed closing of issuance, including in respect of the conditions relating to the Deerfield Facility. Vatera’s counsel noted that Vatera would likely instead propose a restructured transaction involving up to $135 million of senior subordinated convertible loans that Vatera believed would provide Melinta with additional liquidity. Later in the day on December 16, 2018, legal counsel to Vatera delivered an initial draft of a commitment letter and a related term sheet for the senior subordinated convertible loans (together, the “Debt Commitment Letter”) to legal counsel to the Company.

Also on December 16, 2018, the board of directors held a meeting. Because of their earlier recusals, Messrs. Ferro and Koestler did not attend the meeting. Management provided the independent directors with an update on the potential alternatives the Company was exploring to help address the Company’s liquidity concerns, and informed the independent directors of a new proposal from Vatera to loan the Company up to $135 million of senior subordinated convertible loans under the Debt Commitment Letter. Management noted that there had been discussions with Deerfield earlier in the month about modifications to certain requirements under the Deerfield Facility to seek to avoid an event of default under the Deerfield Facility, but that the economics of Deerfield’s proposal, which included, in addition to providing for conversion of up to $74 million of debt into Melinta stock, additional warrants, an increase in interest rate and fees, and other requirements, were not attractive to the Company. Management then stated that, as a result of the lack of progress on amending the Deerfield Facility requirements and the resolution of potential non-operational payments, the closing conditions to the Original Purchase Agreement were not going to be met and that the Company still needed liquidity to continue operations and satisfy the requirements under the Deerfield Facility. Management also said that, given the Company’s financial status, Vatera wanted to structure any revised investment in the Company to be senior in the capital structure to the common stock. Management noted that Vatera would also condition the new senior subordinated convertible loans on the Company obtaining the needed modifications to the Deerfield Facility. Management then stated that a new agreement with Vatera would be subject to stockholder approval, and that the meeting of Company stockholders scheduled for December 20, 2018 would need to be adjourned if the board were to approve a new agreement with Vatera. Management then outlined the Company’s potential alternatives, and there was a discussion among the independent directors of the benefits, drawbacks and timing of each. Management then provided the independent directors with additional detail regarding the Debt Commitment Letter. Management stated that it viewed the Vatera debt proposal as the best option for the Company at this time given the Company’s current financial position and market conditions, lack of resolution on the potential non-operational payments related to the IDB acquisition and the requirements and restrictions under the Deerfield Facility. Management outlined for the independent directors the renegotiation required to modify certain terms of the Deerfield Facility, and outlined the potential costs of such modifications. The independent directors then asked questions of management and discussed the potential alternatives available to the Company. The independent directors concluded that pursuing an agreement with Vatera appeared to be the only currently available potential alternative most likely to preserve the Company’s value while addressing the Company’s liquidity needs. Management proposed a plan that included continuing negotiations with Vatera regarding the Debt Commitment Letter and with certain counterparties regarding potential non-operational payments. After discussion, the independent directors approved the plan.

On December 17, 2018, legal counsel to the Company delivered a revised draft of the Debt Commitment Letter to legal counsel to Vatera. Between December 17 and December 18, 2018, legal counsel to Vatera and legal counsel to the Company continued to negotiate the Debt Commitment Letter, focusing on the issues raised by the independent directors, including with respect to the timing of disbursements of the Vatera Convertible Loan, the conditions to obtaining such disbursements and the amount of the fees payable in respect of the Vatera Loan Facility.

On December 17, 2018, representatives of the Company reached out to representatives of Deerfield to resume discussions regarding a potential amendment to the Deerfield Facility given the terms of the Debt Commitment Letter.

On December 18, 2018, Deerfield delivered to the Company a list of non-binding terms reflecting these discussions, indicating that Deerfield would be prepared to negotiate and enter into a definitive agreement for the

 

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amendment, subject to the closing of the initial $75 million funding with Vatera as contemplated by the Debt Commitment Letter. In addition to those changes necessary to facilitate the funding under the Debt Commitment Letter, the list contemplated amendments to the Deerfield Facility to provide that: (i) the Company be permitted to deliver financial statements for the fiscal year ending December 31, 2018, with a paragraph expressing doubt as to the Company’s status as a going concern; (ii) the net sales covenant for the fiscal years ending after December 31, 2018 be decreased by 15%; (iii) the exit fee under the Deerfield Facility be increased to 4%; (iv) the Company be required to hold a minimum cash balance of $40 million through March 31, 2020; (v) Deerfield be permitted to convert up to $74 million of debt under the Deerfield Facility into common stock, subject to the 4.985% Ownership Cap; and (vi) Deerfield be entitled to receive $5 million of value, in the same form as the Vatera Convertible Loans to be made by Vatera under the Debt Commitment Letter.

On December 18, 2018, the board of directors held a meeting. Because of their earlier recusals, Messrs. Ferro and Koestler did not attend the meeting. Management updated the independent directors on conversations with Deerfield about the terms of the Deerfield Facility and reviewed with independent directors the current terms of Vatera’s Debt Commitment Letter. Management also reviewed with the independent directors the potential alternatives for the Company to address its current financial conditions, the feasibility of each alternative and the steps management had taken to pursue the potential alternatives. Management noted that no other major sources of financing for the Company were readily apparent at this time. Management then informed the independent directors that Vatera had conditioned its willingness to offer the debt commitment on Mr. Johnson assuming the role of Chief Executive Officer on a non-interim basis. Mr. Johnson noted that he did not seek this, but that he would be willing to accept the role so long as his appointment complied with all appropriate governance processes. Mr. Johnson then left the meeting and the independent directors continued in executive session without Mr. Johnson. Skadden then addressed the appropriate process for considering Vatera’s condition that Mr. Johnson assume the CEO role on a non-interim basis. The independent directors asked questions and a discussion ensued with counsel. The independent directors indicated their support for Mr. Johnson’s appointment as CEO on a non-interim basis. Mr. Johnson then returned to the meeting. The independent directors then reviewed the other terms of the Vatera Debt Commitment Letter, including the amount of interest and forms that interest payments could take, the exit fees Vatera was requesting, the conversion terms and the prepayment terms. They also reviewed the recent commercial progress of the Company related to its net product sales, including the status of meeting the minimum net sales target under the Deerfield Facility. The board agreed to reconvene later that night to continue their review of the Debt Commitment Letter and to decide whether to approve it. The board instructed management and Skadden to attempt to obtain more favorable terms for the debt commitment, but that, given the Company’s financial condition, the priority was to finalize the Debt Commitment Letter.

Later on December 18, 2018, the board of directors held a meeting. Because of their earlier recusals, Messrs. Ferro and Koestler did not attend the meeting. Skadden updated the independent directors on recent conversations with Vatera and the most recent terms of the Debt Commitment Letter. The independent directors asked questions about the proposed final terms of the Debt Commitment Letter. Management provided an update on its discussions with Deerfield about the terms of the amendment to the Deerfield Facility, noting that discussions with Deerfield on that amendment had been positive. Management updated the independent directors on the status of discussions with Mr. Ferro regarding the condition that Mr. Johnson assume the Company’s CEO role on a non-interim basis. Management noted that Mr. Ferro stated that this condition was non-negotiable. Management then reviewed with the independent directors the current financial condition of the Company, the lack of capital in the current operating plan, and the potential impact on the operation of the business. After questions from the independent directors and further discussion, upon motion duly made, the board voted to approve the terms of the Debt Commitment Letter. On that same day, the board of directors also voted to approve the adjournment of the Special Meeting.

On December 18, 2018, the Company and Vatera executed the Debt Commitment Letter.

 

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Between December 18, 2018, and December 31, 2018, legal counsel to the Company and legal counsel to Vatera negotiated the Original Vatera Loan Agreement, focusing on the issues raised by independent directors, including the prepayment terms and the conversion terms, including the call premium and the make-whole table.

On December 31, 2018, the board of directors held a meeting. Because of their earlier recusals, Messrs. Ferro and Koestler did not attend the meeting. Management stated that the objective of the meeting was to review the draft of the Original Vatera Loan Agreement, which had been circulated to the independent directors prior to the meeting. Management updated the independent directors on its conversations with Mr. Ferro regarding the prepayment terms of the agreement. The independent directors asked questions about the ability of the Company to prepay the Vatera Convertible Loans and the potential effects of the debt financing on the Company and the Company’s stock, and a discussion ensued. Management then reiterated for the independent directors the potential alternatives that the Company had explored and stated its opinion that, given the Company’s liquidity needs and other constraints, there were no other alternatives that were preferable to the Original Vatera Loan Agreement. Management reiterated the advice received from legal counsel to the Company earlier in the process related to the likelihood of recovery by equity holders in a bankruptcy. Management’s view was that the Original Vatera Loan Agreement was the only currently available option likely to help the Company become cash flow neutral and preserve equity value for the non-Vatera stockholders, even with the potential dilution from the Vatera Convertible Loans and the Deerfield Convertible Loan under the Deerfield Facility Amendment. The independent directors then reviewed the terms of the Original Vatera Loan Agreement, including how the terms in the Original Vatera Loan Agreement differed from the Debt Commitment Letter approved by the board on December 18, 2018 and how the terms compared to the terms in the Deerfield Facility. Skadden then reviewed additional terms of the Original Vatera Loan Agreement, and discussed the impact of the Original Vatera Loan Agreement, as well as the covenants under the Deerfield Facility, on the Company’s authorized shares. The independent directors also had a discussion about their duties to the non-Vatera Melinta stockholders in connection with evaluating the Original Vatera Loan Agreement. Thereafter, the independent directors considered whether, given the Company’s current stock price, it was advisable that the Company also pursue a reverse stock split. Skadden advised the board on the potential considerations when considering whether to approve a reverse stock split. Skadden also advised the board on the impact on the Company, the Deerfield Facility and the proposed Original Vatera Loan Agreement, if the Company were to receive a delisting notice from Nasdaq. The independent directors were also informed that another action of the board would be needed before the filing of the preliminary proxy statement to authorize the final terms of the reverse split proposal and the other proposals to be included in the proxy statement and related matters. The independent directors asked questions and discussed the terms of the Original Vatera Loan Agreement and the need for a reverse stock split. The independent directors questioned management and Skadden on the impact of a restructuring on the value for the non-Vatera stockholders of the Company. Evaluating the limited options available to the Company, the board concluded that the proposed Original Vatera Loan Agreement and the reverse stock split were advisable and in the best interests of the Company and its stockholders. Management then moved for the board to vote to authorize management to execute the Original Vatera Loan Agreement and to authorize the reverse stock split. Upon motion duly made, the board (with the independent directors voting unanimously) voted to authorize management to execute the Original Vatera Loan Agreement and to authorize management to pursue the reverse stock split. The board also instructed management to attempt to obtain more favorable terms for the Original Vatera Loan Agreement, if possible, particularly with respect to prepayment flexibility and conversion terms, but that given the Company’s current financial condition, the priority was to finalize the Original Vatera Loan Agreement.

Following the meeting of the board on December 31, 2018, the Company sought to negotiate more favorable terms to the Original Vatera Loan Agreement in response to the issues raised by the independent directors and certain modifications were made.

On December 31, 2018, the Company and Vatera executed the definitive Original Vatera Loan Agreement, and the Company, Vatera and the agent for the lenders under the Deerfield Facility executed the related subordination agreement.

 

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Between January 4, 2019, and January 14, 2019, legal counsel to the Company, legal counsel to Vatera and legal counsel to Deerfield negotiated the Deerfield Facility Amendment, including the form of note that would evidence the Deerfield Convertible Loan at such time as the Deerfield Facility Amendment became effective (such effectiveness being conditioned on the funding of the Vatera Convertible Loans), and the amended and restated Vatera Loan Agreement which revised the Original Vatera Loan Agreement to reflect the additional $5 million that will be deemed to have been funded by Deerfield upon the initial funding under the Vatera Loan Agreement. Negotiations focused on those terms set forth in the December 18 list of non-binding terms delivered by Deerfield to the Company and, in addition, the conversion price formula of the Deerfield Convertible Loan. The parties also negotiated certain other technical modifications in both the Deerfield Facility Amendment and the Vatera Loan Agreement to accommodate the respective loans.

On January 8, 2019, the board of directors held a meeting. Because of their earlier recusals, Messrs. Ferro and Koestler did not attend the meeting. The independent directors reviewed the proposals to be included in the proxy statement, including considering further the reasons for the reverse stock split and considering further the proposals in light of the conversion terms of the Deerfield Convertible Loan. After discussion, and upon motion duly made, the board (with the independent directors voting unanimously) voted to approve the calling of the Special Meeting and the filing of the revised proxy statement, including the recommendations included therein.

On January 14, 2019, the board of directors held a meeting. Because of their earlier recusals, Messrs. Ferro and Koestler did not attend the meeting. Management stated that the objective of the meeting was to review the drafts of the Vatera Loan Agreement and the Deerfield Facility Amendment, including the form of note that would evidence the Deerfield Convertible Loan, which drafts had been circulated to the independent directors prior to the meeting. Management summarized for the independent directors the key terms of the Vatera Loan Agreement and the Deerfield Facility Amendment, including the form of note that would evidence the Deerfield Convertible Loan. Skadden then reviewed additional terms of the Deerfield Facility Amendment and the Deerfield Convertible Loan, including the conversion price formula and the operation of the 4.985% Ownership Cap, and the changes made in the Vatera Loan Agreement from what was in the Original Vatera Loan Agreement. The independent directors also reviewed the proposals to be included in the proxy statement, including considering further the proposals in light of the final conversion terms of the Deerfield Convertible Loan. After discussion, and upon motion duly made, the board (with the independent directors voting unanimously) voted to authorize management to execute the Vatera Loan Agreement and the Deerfield Facility Amendment.

On January 14, 2019, the Company, certain of its subsidiaries, VHP and Deerfield executed the Vatera Loan Agreement, and the Company, certain of its subsidiaries, Deerfield and Cortland Capital Market Services LLC executed the Deerfield Facility Amendment.

On January 23, 2019, the compensation committee of Melinta’s board of directors (the “Compensation Committee”) held a meeting to discuss and approve the proposed amendments to the 2018 Plan. The Compensation Committee reviewed the reports prepared by management and the Compensation Committee’s consultants and discussed the availability of shares under the existing 2018 Plan. The Compensation Committee noted that equity awards are an important element of the compensation package offered to executives and other employees, both to appropriately incentivize them and to retain them, and also acknowledged that all of the Company’s outstanding stock options are currently underwater and do not provide any retentive value to the Company. The Compensation Committee also discussed that a significant equity grant will need to be made to Mr. Johnson to reach a mutually acceptable compensation package for Mr. Johnson to serve as the Chief Executive Officer (as opposed to interim Chief Executive Officer) and to properly incentivize him as a full-time Chief Executive Officer. Management explained that at the current and projected burn rate for equity awards, the Company expects that awards covering the initial share pool, as increased on January 1, 2019 pursuant to the 2018 Plan’s evergreen provision, will be granted prior to the end of fiscal year 2019. In addition, without the amendments, there would be insufficient shares available for issuance under the 2018 Plan to bring Mr. Johnson onboard as Chief Executive Officer, while still retaining sufficient share capacity for grants to other executives and employees under the 2018 Plan. After discussion, the Compensation Committee approved an increase of up to seven million shares under the 2018 Plan, with the allocation of those shares to be subsequently determined by the board, subject to management’s further discussions with the board.

 

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On January 27, 2019, the board of directors held a meeting to discuss and approve the proposed amendments to the 2018 Plan. Because of their earlier recusals, Messrs. Ferro and Koestler did not attend the meeting. Mr. Johnson also did not attend the meeting given that the proposed amendments impact the Company’s ability to offer a compensation package to Mr. Johnson. All other directors were in attendance. The board reviewed the factors considered by the Compensation Committee in approving the proposed amendments to the 2018 Plan and also received updates from management on share availability under the 2018 Plan if the amendments are not approved. In addition, the board discussed that without the amendments, there would be insufficient shares available for issuance under the 2018 Plan to bring Mr. Johnson onboard as Chief Executive Officer, while still retaining sufficient share capacity for grants to other executives and employees under the 2018 Plan. After discussion, and upon motion duly made, the board (with the directors in attendance voting unanimously) voted to approve the proposed amendments to the 2018 Plan.

 

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RISK FACTORS

The effectiveness of the Vatera Loan Facility and the issuance of the Vatera Convertible Loans on the initial closing date are subject to several closing conditions as further described in this proxy statement, including, without limitation, the approval of the stockholders of the Company to Proposal 3 and either Proposal 1 or 2.

Risks of Not Approving the Proposals

The failure of Melinta stockholders to approve Proposals 1, 2 and 3 would have a material adverse effect on the Company and its stockholders because the Vatera Loan Facility will not fund, the Deerfield Facility Amendment will not become effective, the Company may not be able to comply with the covenants under the Deerfield Facility and the Company may not be able to continue as a going concern.

The effectiveness of the Vatera Loan Facility and the issuance of the Vatera Convertible Loans on the initial closing date are conditioned on the approval of the stockholders of the Company of Proposal 3 and either Proposal 1 or 2. In addition, it is a condition to funding the initial $75 million disbursement under the Vatera Loan Agreement that the Deerfield Facility Amendment be effective.

The Company is subject to financial-related covenants under the Deerfield Facility, including requirements that the Company (i) file an Annual Report on Form 10-K for the year ending December 31, 2018, with an audit opinion without a going concern qualification and (ii) maintain a minimum cash balance of $25 million. As reported in the Company’s Form 10-Q for the quarter ended September 30, 2018, the Company’s cash balances may not be sufficient to support compliance with the Deerfield Facility covenants in the first quarter of 2019, after giving effect to net cash outflows from the Company’s operations and the payment of potential non-operational payments relating to the IDB acquisition. Upon an event of default under the Deerfield Facility, among other things, the lenders could accelerate the Company’s obligation to repay the outstanding principal plus accrued interest and, because the Company does not have sufficient cash resources to repay such amount, the lender could exercise their full remedies under the Deerfield Facility and the other loan and security documents related thereto. The Deerfield Facility Amendment, among other things: (i) permits the Company’s audited financial statements for the fiscal year ending December 31, 2018, to be delivered with an explanatory paragraph expressing doubt as to the Company’s status as a going concern; (ii) requires the Company to hold a minimum cash balance of $40 million through March 31, 2020, and $25 million thereafter; and (iii) reduces the net sales covenant set forth in the Deerfield Facility for all periods after December 31, 2018, by 15%.

In addition, without the benefit of the Vatera Loan Agreement, the Company may not have sufficient cash resources or liquidity to continue as a going concern. As described herein, the Company has explored other potential alternatives to address the Company’s liquidity needs, and believes that the Vatera Loan Facility is the only currently available alternative that is likely to help the Company to become cash flow neutral and preserve equity value for the non-Vatera stockholders, even with the potential dilution from the Vatera Convertible Loans and the Deerfield Convertible Loan, including because, as a general matter, equity holders typically do not receive any recovery in a bankruptcy. Accordingly, the failure of Melinta stockholders to approve Proposals 1, 2 and 3, and as a result the failure of the Vatera Loan Facility to fund and the Deerfield Facility Amendment to become effective, would have a material adverse effect on the Company and its stockholders.

If the Company’s common stock is delisted from the Nasdaq Global Market, the Company’s business, financial condition, results of operations and stock price could be adversely affected, and the liquidity of the Company’s stock and the Company’s ability to obtain financing could be impaired.

Melinta common stock is listed on the Nasdaq Global Market, which imposes continued listing requirements with respect to listed shares. If the Company fails to meet the continued listing standards of the Nasdaq Global Market, the Company’s common stock could be delisted and its stock price could suffer. Although the Company has not received a notice from the Nasdaq Global Market, the bid price of the Company’s

 

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common stock has recently closed below the minimum $1.00 per share requirement for continued listing on the Nasdaq Global Market on certain trading days. The reverse stock split contemplated by Proposal 1 is intended to increase the per-share market price of Melinta common stock above the minimum bid price requirement under the Nasdaq Listing Rules so that the Melinta common stock would not be delisted from the Nasdaq Global Market. The failure of the stockholders to approve Proposal 1 could result in Melinta being delisted from the Nasdaq Global Market.

A delisting of the Melinta common stock could negatively impact the Company by further reducing the liquidity and market price of the Melinta common stock and the number of investors willing to hold or acquire the Melinta common stock, which could negatively impact the Company’s ability to raise equity financing. The delisting of Melinta common stock from the Nasdaq Global Market would constitute a “fundamental change” under the Vatera Loan Agreement, which may require Melinta to increase the Conversion Rate for a lender who elects to convert the Vatera Convertible Loans in connection therewith. Such delisting may also affect Melinta’s compliance with its affirmative covenants under the Vatera Loan Agreement and Deerfield Facility.

Melinta may not have sufficient shares of common stock available for issuance for future financings and other purposes.

As of January 10, 2019, there were (i) 80,000,000 shares of Melinta common stock authorized and 56,066,169 shares of Melinta common stock issued and outstanding (together with a total of 7,442,719 shares of Melinta common stock reserved for issuance upon the exercise of outstanding options and warrants and the vesting of restricted stock units) and (ii) 5,000,000 shares of Melinta preferred stock authorized and no shares of Melinta preferred stock issued and outstanding.

In addition to providing authorized shares to accommodate conversion, in part, of the Vatera Convertible Loans and the Deerfield Convertible Loan, Proposals 1 and 2 also would provide the Company with additional capacity to issue shares of common stock for future financings and other purposes.

If the Company does not have sufficient available shares of common stock for issuance, it will not be able to fund its capital needs through the issuance of common stock or securities convertible, exchangeable or otherwise giving the holder the right to acquire shares of common stock. In addition, the Company is subject to covenants under the Vatera Loan Agreement and the Deerfield Facility that restrict its ability to incur additional indebtedness, limiting access to additional debt capital to fund its operations. As a result, subject to the Vatera Loan Agreement which provided for a clear market period at the time of signing, the Company may not be able to obtain funding that may be necessary in the future for its continued operations on acceptable terms, or at all. In the event that the Company is not able to fund any future need for capital, the Company would not be able to continue its operations.

If Melinta stockholders do not approve at least one of either Proposal 4A or Proposal 4B (i.e., if both Proposals fail to receive approval), Melinta will likely be unable to complete the appointment of John H. Johnson as Chief Executive Officer of the Company, which appointment is a condition to the funding of the initial disbursement of $75 million under the Vatera Loan Facility (such funding being a condition to the effectiveness of the Deerfield Facility Amendment).

One of the conditions to the funding of the initial disbursement of $75 million under the Vatera Loan Facility (such funding being a condition to the effectiveness of the Deerfield Facility Amendment) is the appointment of John H. Johnson as the Chief Executive Officer (as opposed to interim Chief Executive Officer) of the Company. Mr. Johnson has accepted the position of Chief Executive Officer subject to the terms of an employment contract and the closing of the Vatera Loan Facility.

The approval of Proposal 4A by Melinta stockholders would result in the immediate availability of 2,000,000 additional shares specifically for issuance to Mr. Johnson under the amended 2018 Plan, as part of the

 

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compensation package to Mr. Johnson in connection with his appointment as Chief Executive Officer of the Company. The approval of Proposal 4B by Melinta stockholders would result in the immediate availability of 3,000,000 additional shares for general issuances under the amended 2018 Plan.

If Melinta stockholders do not approve at least one of either Proposal 4A or Proposal 4B (i.e., if both Proposals fail to receive approval), it is unlikely that the Company would be able to provide for the issuance of 2,000,000 shares to Mr. Johnson, in his capacity as Chief Executive Officer, while still retaining sufficient share capacity for grants to other executives and/or employees under the 2018 Plan. As a result, if Melinta stockholders do not approve at least one of either Proposal 4A or Proposal 4B (i.e., if both Proposals fail to receive approval), Mr. Johnson likely would not be willing to serve as Chief Executive Officer of the Company. In that event, unless Vatera waives the condition to funding the initial disbursement of $75 million under the Vatera Loan Facility that Mr. Johnson serve as Chief Executive Officer, the Vatera Loan Facility will not fund and the Deerfield Facility Amendment will not become effective. The failure of the Vatera Loan Facility to fund and the Deerfield Facility Amendment to become effective would have a material adverse effect on the Company and its stockholders.

If Melinta stockholders do not approve both Proposal 4A and Proposal 4B, it is unlikely that the Company would have sufficient share capacity for grants to Company executives and other employees under the 2018 Plan, directly impacting the Company’s ability to retain critical talent and expertise. Accordingly, unless both Proposal 4A and 4B are approved, the Company will likely need to grant cash-based or other awards in order to remain competitive, which may not align the interests of the Company’s key employees and non-employee directors as closely with those of Melinta stockholders as equity awards. In addition, the use of cash resources to deliver competitive pay would divert cash from use in running other aspects of the Company’s business and investing in future product development. As a result, if Melinta stockholders do not approve both Proposal 4A and Proposal 4B and the Company is limited in its ability to appropriately incentivize its executives and other employees, the Company may face significant retention challenges, which would have a material impact on its growth.

Melinta may have to issue cash-based incentives and other awards to remain competitive in hiring and retaining key employees and non-employee directors.

If the Company is unable to continue to make grants of equity awards to its employees consistent with their expectations or past practices, or if the Company is required to issue awards with significantly lower values than competitive market practices mandate due to the lack of available shares under the 2018 Plan, the Company could be at significant risk of failing to retain key employees who are important to its success, to properly motivate employees to achieve the Company’s strategic objectives, or to hire top talent during a time of management transition. At the current and projected burn rate for equity awards, the Company expects that awards covering the initial share pool of 2,000,000 shares available for issuance under the 2018 Plan (as such pool is increased pursuant to the terms of the 2018 Plan) will be granted prior to the end of fiscal year 2019. Unless both Proposal 4A and 4B are approved, the Company likely will need to grant cash-based or other awards in order to remain competitive, which may not align the interests of its key employees and non-employee directors as closely with those of Melinta stockholders as equity awards. In addition, the use of cash resources to deliver competitive pay would divert cash from use in running other aspects of the Company’s business and investing in future product development.

Risks of Approving the Proposals

The reverse stock split may not increase Melinta’s stock price over the long-term.

The principal purpose of Proposal 1 (the reverse stock split) is to increase the per-share market price of Melinta common stock above the minimum bid price requirement under the Nasdaq Listing Rules so that the Melinta common stock would not be delisted from the Nasdaq Global Market. It cannot be assured, however, that the reverse stock split will accomplish this objective for any meaningful period of time. The history of similar stock split combinations for companies in like circumstances is varied. There is no assurance that:

 

   

the market price per share of Melinta common stock after the reverse stock split will appropriately reflect the proportionate reduction in the number of shares of Melinta common stock outstanding before the reverse stock split;

 

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the reverse stock split will result in a per share price that will attract brokers and investors who do not trade in lower priced stocks;

 

   

the reverse stock split will result in a per share price that will increase Melinta’s ability to attract and retain employees; or

 

   

the market price per share will either exceed or remain in excess of the $1.00 minimum bid price as required by Nasdaq for continued listing, or that Melinta will otherwise meet the requirements of Nasdaq for inclusion for trading on the Nasdaq Global Market.

The market price of Melinta common stock also will be based on Melinta’s performance and other factors, some of which are unrelated to the number of shares outstanding including Melinta’s business and financial performance, general market conditions, and prospects for future success. If the reverse stock split is effected and the market price of Melinta common stock declines, the percentage decline as an absolute number and as a percentage of Melinta’s overall market capitalization may be greater than would occur in the absence of a reverse stock split. Thus, while the stock price after the reverse stock split might meet the continued listing requirements for the Nasdaq Global Market initially, it cannot be assured that it will continue to do so.

The reverse stock split may decrease the liquidity of the common stock.

Although an increase in the market price of the Melinta common stock following the reverse stock split could encourage interest in Melinta common stock and possibly promote greater liquidity for Melinta’s stockholders, such liquidity could also be adversely affected by the reduced number of shares outstanding after the reverse stock split. The reduction in the number of outstanding shares may lead to reduced trading and a smaller number of market makers for Melinta common stock.

The reverse stock split may lead to a decrease in Melinta’s overall market capitalization.

Should the market price of Melinta common stock decline after the reverse stock split, the percentage decline may be greater, due to the smaller number of shares outstanding, than it would have been prior to the reverse stock split. A reverse stock split is often viewed negatively by the market and, consequently, can lead to a decrease in Melinta’s overall market capitalization. If the per share market price does not increase in proportion to the reverse stock split ratio, then the value of the Company, as measured by its stock capitalization, will be reduced. In some cases, the per-share stock price of companies that have effected reverse stock splits subsequently declined back to pre-reverse split levels, and accordingly, it cannot be assured that the total market value of Melinta common stock will remain the same after the reverse stock split is effected, or that the reverse stock split will not have an adverse effect on Melinta’s stock price due to the reduced number of shares outstanding after the reverse stock split.

Approval of the Proposals may result in dilution of stockholders’ ownership and have related adverse effects on stockholders.

Approval of the Proposals may have certain disadvantages for Melinta’s stockholders, including:

 

   

Further dilution of stockholders’ ownership. Melinta stockholders will experience substantial dilution in the event that the respective lenders elect to convert the Vatera Convertible Loans and/or the Deerfield Convertible Loan. Up to a total of approximately 174 million shares of Melinta common stock could be issued under the Vatera Convertible Loans and the Deerfield Convertible Loan if the loans are fully funded (or deemed funded) and ultimately converted based on the initial conversion rate for the Vatera Convertible Loans and the maximum initial conversion rate for the Deerfield Convertible Loan and assuming the Vatera Convertible Loans are held to maturity and the full Conversion Amount is then converted (or a total of approximately 214 million shares of Melinta common stock could be issued under the Vatera Convertible Loans and the Deerfield Convertible Loan

 

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if such conversion of the Vatera Convertible Loans is in connection with an optional prepayment or a fundamental change and the maximum amount of additional shares are required to be issued upon conversion of the Vatera Convertible Loans under the make-whole table; the conversion rate of the Deerfield Convertible Loan would not be subject to any such make-whole adjustment). The ability of Deerfield to convert the $5 million of convertible loans deemed to have been funded under the Vatera Loan Facility, and the ability of a lender to convert the Deerfield Convertible Loan, are subject to the 4.985% Ownership Cap, however, that will not prevent Deerfield from periodically converting the applicable loan up to the 4.985% Ownership Cap and selling the shares of Melinta common stock received upon conversion such that the full amount of such loan is converted over time. In addition, a total of 9,104,429 shares of Melinta common stock would be issuable under the 2018 Plan, as amended, and the remaining authorized shares would be issuable by the Company for capital raising or other matters.

 

   

The reverse stock split will free up authorized share capacity, which would allow for the future issuance of common stock that may have a dilutive effect on the earnings per share, voting power and other interests of existing stockholders of the Company.

 

   

Stockholders do not have any preemptive or similar rights to subscribe for or purchase any additional shares of common stock or securities that are convertible or exchangeable into common stock that may be issued in the future (including upon conversion of to the Vatera Convertible Loans or the Deerfield Convertible Loan), and therefore, future issuances of common stock may have a dilutive effect on the earnings per share, voting power and other interests of existing stockholders of the Company.

 

   

Other than the Vatera Convertible Loans, the Deerfield Convertible Loan and our employee stock plans, the Company has no arrangements, agreements, or understandings in place at the present time for the issuance or use of the additional shares of common stock to be made available out of authorized share capital as a result of Proposal 1 or to be authorized by Proposal 2; however, the Company may require additional capital in the future to fund its operations, and, in addition to the Vatera Convertible Loans, the Deerfield Convertible Loan and the employee stock plans, it is foreseeable that the Company may seek to issue additional shares of common stock or preferred stock or other securities that are convertible or exchangeable into common stock or preferred stock in connection with any such capital raising activities, subject to the terms of the Vatera Loan Agreement, including the clear market period described herein. Melinta’s board of directors does not intend to issue any such additional shares of common stock, preferred stock or other securities convertible or exchangeable into common stock except on terms that the board deems to be in the best interests of the Company and its stockholders. The Company is also subject to certain covenants under the Vatera Loan Agreement and the Deerfield Facility that restrict its ability to take on additional indebtedness, limiting access to additional debt capital to fund its operations.

 

   

It is possible that the financing under the Vatera Loan Agreement and the amendments to the Deerfield Facility, even when combined with the Company’s other efforts to retain cash, will not result in compliance with the covenants under the Vatera Loan Agreement and/or the Deerfield Facility.

 

   

The issuance of authorized but unissued stock could be used to deter a potential takeover of the Company that may otherwise be beneficial to stockholders by diluting the shares held by a potential suitor or issuing shares to a stockholder that will vote in accordance with the desires of Melinta’s board of directors. Provisions in the Vatera Loan Agreement and the Deerfield Facility also may deter or prevent a business combination that may be favorable to Melinta stockholders. A takeover may be beneficial to independent stockholders because, among other reasons, a potential suitor may offer such stockholders a premium for their shares of stock compared to the then-existing market price.

 

   

The Vatera Convertible Loans issuable pursuant to the Vatera Loan Facility are convertible, at the option of each lender, into shares of Melinta preferred stock, which have rights on liquidation senior to the rights of the Melinta common stockholders.

 

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The Vatera Loan Agreement restricts the Company’s access to additional financing.

The Company is subject to certain covenants under the Vatera Loan Agreement that restrict its ability to incur additional indebtedness in the near future, limiting access to additional debt capital to fund its operations. The Deerfield Facility also imposes limitations on debt incurrence. In addition, under the terms of the Vatera Loan Agreement, if the Company has received a bona fide offer from a third party to acquire 19% or more of the capital stock of the Company (whether through merger, purchase or otherwise) and, as of the date of such offer, the aggregate amount of loans funded under the Vatera Loan Facility does not equal or exceed $75 million, VHP (or its permitted assignees) shall have the right (but not the obligation) to make a Vatera Convertible Loan in an amount up to such unfunded amount prior to the consummation of such transaction. Further under the Vatera Loan Agreement, the Company has agreed, without the prior written consent of the Required Lenders (as defined in the Vatera Loan Agreement), for a period beginning on the date of the Vatera Loan Agreement and ending ninety days after the third disbursement (such date being between September 29, 2019, and October 8, 2019) (unless the facility is terminated prior to such third disbursement, in which case 90 days after such termination), not to sell or otherwise transfer or dispose of, or file a registration statement relating to, any common stock or any securities convertible into or exercisable or exchangeable for common stock, subject to certain exceptions, including, without limitation, that this provision shall not restrict or prohibit negotiations or discussions with respect to, or the entering into any agreement for, or the filing of a registration statement with respect to, a merger or consolidation or any other combination of the Company with, or the acquisition of the Company by, another person (including by tender or exchange offer), any sale or other transfer of all or substantially all of the consolidated assets of the Company or any other acquisition or similar transaction. Accordingly, the ability of the Company to enter into additional forms of financing may be limited.

The issuance of Vatera Convertible Loans pursuant to the Vatera Loan Facility (Proposal 3) may result in Vatera beneficially owning a significant percentage of Melinta common stock and, as a result, Vatera will be able to exert control over matters submitted to the stockholders for approval.

As noted under “Security Ownership of Certain Beneficial Owners and Management” beginning on page 81 of this proxy statement, as of January 10, 2019, Vatera Capital Management LLC (“Vatera Capital”) beneficially owned approximately 29.6% of the outstanding shares of Melinta common stock; Kevin Ferro, a current director and Chairman of Melinta’s board, is the Chief Executive Officer and the managing member of Vatera Capital, the current manager of VHP; and Thomas Koestler, a current director of Melinta, is a consultant to VHP. VHP has agreed in the Vatera Loan Agreement to vote the approximately 16 million shares of Melinta common stock, which represents approximately 28.6% of the outstanding shares of common stock as of January 10, 2019, that it owns in favor of Proposals 1, 2 and 3, subject to VHP’s reasonable determination that certain conditions set forth in the Vatera Loan Agreement will be satisfied.

For illustrative purposes, in the event that the Company draws, and VHP, VIP and their respective affiliates fund, the full $135 million pursuant to the Vatera Loan Facility, and assuming that such Vatera Convertible Loans ultimately are converted into shares of Melinta preferred stock and then into Melinta common stock on the maturity date of the Vatera Convertible Loans using the Conversion Amount (and assuming no conversion of the Deerfield Convertible Loan or the $5 million of convertible loans deemed funded by Deerfield under the Vatera Loan Facility), at a Common Stock Conversion Rate of 625 (equivalent to a Conversion Price of $1.60), Vatera Capital (as defined herein), VHP and VIP could collectively beneficially own approximately 73% of the outstanding shares of Melinta common stock (based on 56,066,169 shares of Melinta common stock outstanding as of January 10, 2019), and approximately 69% of the Melinta common stock on a fully-diluted basis (based on 56,066,169 shares of Melinta common stock outstanding on January 10, 2019, 7,442,719 shares of Melinta common stock reserved for issuance upon the exercise of outstanding options and warrants and the vesting of restricted stock units outstanding as of January 10, 2019). Based on the foregoing, up to approximately 98 million shares of Melinta common stock could be issued to VHP, VIP and their respective affiliates upon such conversion.

 

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In addition, under certain circumstances, additional shares of Melinta preferred stock and Melinta common stock ultimately may be required to be issued upon conversion of the Vatera Convertible Loans. For example, if the Vatera Convertible Loans are converted in connection with an optional prepayment by Melinta or a “fundamental change”, up to 2.445652 additional shares of preferred stock (244.5652 shares of common stock) may be required to be issued per $1,000 of the Conversion Amount on conversion based on a customary make-whole table. These shares would be in addition to those issuable as described above, resulting in a total number of shares issuable upon conversion of 8.695652 shares of preferred stock (869.5652 shares of common stock) per $1,000 of Conversion Amount. In the event that the Vatera Convertible Loans are converted in connection with an optional prepayment or a fundamental change and the maximum amount of additional shares are required to be issued, based on the assumptions described in the preceding paragraph, Vatera Capital, VHP and VIP could collectively beneficially own approximately 78% of the outstanding shares of Melinta common stock (based on 56,066,169 shares of Melinta common stock outstanding as of January 10, 2019), and approximately 75% of the Melinta common stock on a fully diluted basis (based on 56,066,169 shares of Melinta common stock outstanding on January 10, 2019, 7,442,719 shares of Melinta common stock reserved for issuance upon the exercise of outstanding options and warrants and the vesting of restricted stock units outstanding as of January 10, 2019). Based on the foregoing, up to approximately 137 million shares of Melinta common stock could be issued to VHP, VIP and their respective affiliates upon such conversion.

This significant concentration of share ownership would enable VHP to exert control over matters submitted to stockholders for approval. See “Proposal 3: Approval of the Issuance of the Vatera Convertible Loans, the Preferred Stock and the Common Stock” beginning on page 62 of this proxy statement.

In the event that Vatera acquires more than 50% of the outstanding shares of Melinta common stock through conversion of all or a portion of its Vatera Convertible Loans or otherwise, Vatera will be able to exert control over matters requiring approval by the stockholders. For example, Vatera would be able to control elections of directors, amendments of Melinta’s organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. In addition, although Vatera and its affiliates can acquire 30% or more of Melinta common stock, upon exercise of the Vatera Convertible Loans or otherwise, without it being a change of control under the Deerfield Facility and the Vatera Loan Facility, in the event that a third person acquires from Vatera or otherwise shares of Melinta common stock and, as a result, beneficially owns 30% or more of the Melinta common stock, a “change of control” would occur under the Deerfield Facility and the Vatera Loan Facility. As a result, the lenders under the Vatera Convertible Loans would have the right to seek repayment or convert their Vatera Convertible Loans (including with the fundamental change make-whole adjustment if such change of control also constitutes a fundamental change), and the change of control also would constitute an Event of Default under the Deerfield Facility. This may prevent or discourage certain acquisition proposals or offers for Melinta common stock, which could limit the opportunity for Melinta’s stockholders to receive a premium for their shares and could also affect the price that some investors are willing to pay for Melinta common stock. Accordingly, Vatera’s interests may not always coincide with the interests of other stockholders.

Melinta stockholders will experience dilution as a consequence of the issuance of shares of common stock upon ultimate conversion of the Vatera Convertible Loans and the Deerfield Convertible Loan. Having a minority share position may reduce the influence that Melinta’s current stockholders have on the management of Melinta.

Melinta stockholders will experience substantial dilution in the event that the respective lenders elect to convert the Vatera Convertible Loans and/or the Deerfield Convertible Loan. Up to a total of approximately 174 million shares of Melinta common stock could be issued under the Vatera Convertible Loans and the Deerfield Convertible Loan if the loans are fully funded (or deemed funded) and ultimately converted based on the initial conversion rate for the Vatera Convertible Loans and the maximum initial conversion rate for the Deerfield Convertible Loan and assuming the Vatera Convertible Loans are held to maturity and the full Conversion Amount is then converted (or a total of approximately 214 million shares of Melinta common stock could be issued under the Vatera Convertible Loans and the Deerfield Convertible Loan if such conversion of the

 

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Vatera Convertible Loans is in connection with an optional prepayment or a fundamental change and the maximum amount of additional shares are required to be issued upon conversion of the Vatera Convertible Loans under the make-whole table; the conversion rate of the Deerfield Convertible Loan would not be subject to any such make-whole adjustment). There is no assurance that the Vatera Convertible Loans or the Deerfield Convertible Loan will convert.

For illustrative purposes, in the event that the Company draws, and VHP, VIP and their respective affiliates fund, the full $135 million pursuant to the Vatera Loan Facility and an additional $5 million of convertible loans are deemed funded by Deerfield pursuant to the Vatera Loan Facility, and assuming that such Vatera Convertible Loans are fully funded and ultimately converted into shares of Melinta preferred stock and then into Melinta common stock on the maturity date of the Vatera Convertible Loans using the Conversion Amount, at a Common Stock Conversion Rate of 625 (equivalent to a Conversion Price of $1.60), a total of approximately 102 million shares of Melinta common stock could be issued upon such conversion (or a total of approximately 142 million shares issued if such conversion of the Vatera Convertible Loans is in connection with an optional prepayment or a fundamental change and the maximum amount of additional shares are required to be issued upon conversion of the Vatera Convertible Loans under the make-whole table; the conversion rate of the Deerfield Convertible Loan would not be subject to any such make-whole adjustment).

In addition, if the full $74 million of the Deerfield Convertible Loan is converted in full at the minimum initial conversion price of $1.03 (a maximum initial conversion rate of approximately 971 shares per $1,000 principal amount), a total of approximately 72 million shares of Melinta common stock could be issued upon such conversion.

The ability of Deerfield to convert the $5 million of loans deemed to have been funded pursuant to the Vatera Loan Facility, and the ability of a lender to convert the Deerfield Convertible Loan, are subject to the 4.985% Ownership Cap. However, that will not prevent Deerfield from periodically converting the applicable loan up to the 4.985% Ownership Cap and selling the shares of Melinta common stock received upon conversion such that the full amount of such loan is converted over time.

Such dilution could, among other things, limit the ability of current stockholders (other than Vatera) to influence management of Melinta, including through the election of directors.

Provisions in the Vatera Loan Agreement and the Deerfield Facility may deter or prevent a business combination that may be favorable to Melinta stockholders.

Certain provisions in the Vatera Loan Agreement and the Deerfield Facility could have an adverse impact on a potential acquisition of the Company:

 

   

If Melinta enters into a transaction that constitutes a “fundamental change” under the Vatera Loan Agreement and a lender elects to convert the Vatera Convertible Loans in connection therewith, the Company may be required to increase the Conversion Rate depending on the then applicable Stock Price. The substantial number of shares that are issuable upon conversion of the Vatera Convertible Loans and the Deerfield Convertible Loan may negatively impact the per share price that a third party may be willing to pay for the Company.

 

   

Furthermore, upon the occurrence of a Change of Control (as defined in the Vatera Loan Agreement), the lenders have the right to either convert the Vatera Convertible Loans (including at the fundamental change conversion price if the Change of Control also constitutes a fundamental change) or require payment in full at par plus accrued and unpaid interest. If the lenders, other than VHP, VIP or their respective affiliates, fail to timely deliver notice to the Company electing to convert the Vatera Convertible Loans, the Company will pay in cash to such lender the full outstanding amount of the Vatera Convertible Loans. VHP, VIP or their respective affiliates may elect to continue to hold their Vatera Convertible Loans, instead of converting the Vatera Convertible Loans or requiring payment in

 

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cash for such Vatera Convertible Loans, except that the Company may elect to prepay the Vatera Convertible Loans held by VHP, VIP or their respective affiliates in connection with a Change of Control or a fundamental change in which the consideration to be paid to the holders of outstanding common stock (other than shares held by VHP, VIP or their respective affiliates) consists solely of cash at a per share price in excess of the then current Conversion Price (determined based on the Common Stock Conversion Rate).

 

   

Upon a Change of Control (as defined in the Deerfield Facility), the lenders have the right to require payment in full at par plus accrued and unpaid interest.

These and other provisions in the Vatera Loan Agreement could deter or prevent a third party from acquiring the Company, or adversely impact the price that an acquirer is willing to pay, even when the acquisition may be favorable to Melinta stockholders.

Melinta has substantial indebtedness.

As of December 31, 2018, Melinta had total indebtedness of $148 million and, subject to the terms and conditions of the Vatera Loan Agreement, has the ability to access an additional $135 million in debt, plus $5 million of convertible loans that will be deemed to have been funded by Deerfield under the Vatera Loan Agreement upon the initial funding under the Vatera Loan Agreement. Having a substantial amount of leverage may have important consequences, including:

 

   

requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on indebtedness, thereby reducing the ability to use cash flow from operations to fund operations, capital expenditures, and future business opportunities;

 

   

limiting Melinta’s ability to obtain additional financing for working capital, capital expenditures, product and service development, debt service requirements, acquisitions, and general corporate or other purposes including equipment financing at reasonable rates, which is vital to Melinta’s business;

 

   

increasing the risks of adverse consequences resulting from a breach of any indebtedness agreement, including, for example, a failure to make required payments of principal or interest due to failure of Melinta’s business to perform as expected;

 

   

increasing vulnerability to general economic and industry conditions;

 

   

restricting Melinta’s ability to make strategic acquisitions or requiring non-strategic divestitures;

 

   

subjecting Melinta’s operations to restrictive covenants that may limit operating flexibility; and

 

   

placing Melinta’s operations at a competitive disadvantage compared to competitors that are less highly leveraged.

 

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MATTERS BEING SUBMITTED TO A VOTE OF MELINTA STOCKHOLDERS

PROPOSAL 1: CHARTER AMENDMENT TO AUTHORIZE THE REVERSE STOCK SPLIT

At the Special Meeting, Melinta stockholders will be asked to approve an amendment to Melinta’s Certificate of Incorporation to effect a reverse stock split of the issued and outstanding shares of Melinta common stock. Upon the effectiveness of the amendment to Melinta’s Certificate of Incorporation effecting the reverse stock split, the outstanding shares of Melinta common stock will be reclassified and combined into a lesser number of shares such that one share of Melinta common stock will be issued for a specified number of shares, which shall be greater than one and equal to or less than 20, of outstanding Melinta common stock, with the exact number within the range to be determined by Melinta’s board of directors prior to the effective time of such amendment and publicly announced by Melinta. The form of the proposed amendment to the Melinta Certificate of Incorporation attached hereto as Annex A will effect the reverse stock split, as more fully described below, but will not change the number of authorized shares (except as described in Proposal 2, if Proposal 2 is approved by Melinta’s stockholders and implemented by Melinta’s board as described below), or the par value, of Melinta common stock.

Even if Melinta’s stockholders approve the reverse stock split, Melinta reserves the right not to effect the reverse stock split if Melinta’s board of directors does not deem the reverse stock split to be in the best interests of Melinta and its stockholders. Implementation of Proposal 1 is not conditioned on stockholder approval of any other Proposals. Melinta’s board of directors may determine to effect the reverse stock split, if it is approved by the stockholders, even if the other Proposals to be acted upon at the meeting are not approved.

By approving this Proposal 1, Melinta stockholders are also approving the amendment to Melinta’s Certificate of Incorporation, attached hereto as Annex A, reflecting the amendments contemplated by this Proposal 1. All Melinta stockholders are encouraged to read the amendment to Melinta’s Certificate of Incorporation in its entirety.

Purpose

Melinta’s board of directors approved the Proposal authorizing the reverse stock split for the following reasons:

 

   

the continued listing standards of the Nasdaq Global Market require Melinta to have, among other things, a $1.00 per share minimum bid price, and as such, the reverse stock split may be necessary for the continued listing of the shares of Melinta common stock on the Nasdaq Global Market;

 

   

Melinta’s board of directors believes a higher stock price may help generate investor interest in Melinta and help Melinta attract and retain employees;

 

   

if the reverse stock split successfully increases the per share price of Melinta common stock, Melinta’s board of directors believes that this may increase trading volume in Melinta common stock and facilitate future financings by Melinta; and

 

   

the reverse stock split would provide authorized share capital to accommodate, in part, the conversion of any of the Vatera Convertible Loans, which are convertible into shares of Melinta common stock or shares of Melinta convertible preferred stock, which are then further convertible into shares of Melinta common stock, and to accommodate the conversion of up to $74 million of the Deerfield Convertible Loan pursuant to the terms of the Deerfield Facility Amendment, which amendment is a condition (among other conditions) to funding the Vatera Convertible Loans (and the effectiveness of such amendment is conditioned on such funding).

Nasdaq Requirements for Listing on the Nasdaq Global Market

Melinta common stock is currently listed on the Nasdaq Global Market under the symbol “MLNT.”

 

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The continued listing standards of the Nasdaq Global Market require Melinta to have, among other things, a $1.00 per share minimum bid price. Because the current price of Melinta common stock has on certain trading days recently traded at less than the required minimum bid price, the reverse stock split is necessary for the continued listing of the shares of Melinta common stock on the Nasdaq Global Market.

Additionally, Melinta’s board of directors believes that maintaining its listing on the Nasdaq Global Market may provide a broader market for Melinta common stock and facilitate the use of Melinta common stock in financing and other transactions. Melinta’s board of directors (with the two Vatera-related members of the board having recused themselves) unanimously approved the reverse stock split partly as a means of maintaining the share price of Melinta common stock above $1.00 per share.

Potential Increased Investor Interest

On January 14, 2019, Melinta common stock closed at $1.03 per share. In approving the Proposal authorizing the reverse stock split, Melinta’s board of directors considered that Melinta common stock may not appeal to brokerage firms that are reluctant to recommend lower priced securities to their clients. Investors may also be dissuaded from purchasing lower priced stocks because the brokerage commissions, as a percentage of the total transaction, tend to be higher for such stocks. Moreover, the analysts at many brokerage firms do not monitor the trading activity or otherwise provide coverage of lower priced stocks. Also, Melinta’s board of directors believes that most investment funds are reluctant to invest in lower priced stocks.

Risks of the Reverse Stock Split

There are risks associated with the reverse stock split, including that the reverse stock split may not result in an increase in the per share price of Melinta common stock. In addition, one of the effects of the reverse stock split will be to effectively increase the proportion of authorized shares which are unissued relative to those which are issued. This could result in the Company being able to issue more shares without further stockholder approval. Melinta currently has no plans to issue shares, other than in connection with the Vatera Loan Facility and the Deerfield Convertible Loan and to satisfy obligations under Melinta’s employee stock options, restricted stock units and warrants from time to time as these options and warrants are exercised. If both Proposal 1 and Proposal 2 are approved by Melinta stockholders and Melinta’s board of directors determines, in its discretion, to implement Proposal 1 (the reverse stock split), then Melinta’s board of directors, subject to its discretion, does not also intend to implement Proposal 2 (the increase to the number of authorized shares of Melinta common stock).

Melinta cannot predict whether the reverse stock split will increase the market price for Melinta common stock. The history of similar stock split combinations for companies in like circumstances is varied. There is no assurance that:

 

   

the market price per share of Melinta common stock after the reverse stock split will rise in proportion to the reduction in the number of shares of Melinta common stock outstanding before the reverse stock split;

 

   

the reverse stock split will result in a per share price that will attract brokers and investors who do not trade in lower priced stocks;

 

   

the reverse stock split will result in a per share price that will increase Melinta’s ability to attract and retain employees; or

 

   

the market price per share will either exceed or remain in excess of the $1.00 minimum bid price as required by Nasdaq for continued listing, or that Melinta will otherwise meet the requirements of Nasdaq for inclusion for trading on the Nasdaq Global Market.

The market price of Melinta common stock will also be based on Melinta’s performance and other factors, some of which are unrelated to the number of shares outstanding. If the reverse stock split is effected and the

 

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market price of Melinta common stock declines, the percentage decline as an absolute number and as a percentage of Melinta’s overall market capitalization may be greater than would occur in the absence of a reverse stock split. Furthermore, the liquidity of Melinta common stock could be adversely affected by the reduced number of shares that would be outstanding after the reverse stock split.

For further information on the risk factors associated with the reverse stock split, please see the section entitled “Risk Factors” beginning on page 45 of this proxy statement.

Principal Effects of the Reverse Stock Split

If the stockholders approve the Proposal to implement the reverse stock split and Melinta’s board of directors implements the reverse stock split, Melinta will amend Melinta’s Certificate of Incorporation to effect the reverse stock split. The text of the form of the proposed amendment to Melinta’s Certificate of Incorporation to effect the reverse stock split is attached to this proxy statement as Annex A.

The reverse stock split will be effected simultaneously for all outstanding shares of Melinta common stock. The reverse stock split will affect all of Melinta stockholders uniformly and will not affect any stockholder’s percentage ownership interests in Melinta, except to the extent that the reverse stock split results in any of Melinta stockholders owning a fractional share. Common stock issued pursuant to the reverse stock split will remain fully paid and nonassessable. After the reverse stock split, Melinta will continue to be subject to the periodic reporting requirements of the Exchange Act.

As of the effective date of the reverse stock split, adjustments also will be made under Melinta’s stock plans (including the 2018 Plan), including with respect to the aggregate number of shares of Melinta common stock that may be delivered in connection with awards under the plan, the numerical share limits under the plan, the number of shares covered by each outstanding award under the plan, the price per share underlying each such award, and, if applicable, the performance objectives that must be achieved before such award will become earned, to proportionately reflect the reverse stock split. In the event that Proposal 4A and/or Proposal 4B is also approved and implemented, the number of shares referenced with respect thereto would also be similarly adjusted.

The reverse stock split will also adjust the Loan Conversion Rate (and as a result the Conversion Price) under the Vatera Loan Agreement and the Deerfield Convertible Loan Conversion Price (and as a result the Deerfield Convertible Loan Conversion Rate) under the Deerfield Facility based on the formula provided therein. The warrants issued to Deerfield in January 2018 will also be adjusted to reflect the reverse stock split if the reverse stock split is implemented.

Procedure for Effecting Reverse Stock Split

If Melinta stockholders approve the Proposal to effect the reverse stock split, and if Melinta’s board of directors still believes that a reverse stock split is in the best interests of Melinta and its stockholders, Melinta will file the amendment to Melinta’s Certificate of Incorporation with the Secretary of State of the State of Delaware. Melinta’s board of directors may delay effecting the reverse stock split without resoliciting stockholder approval. Beginning on the effective date of the reverse stock split, each book-entry entitlement representing pre-split shares will be deemed for all corporate purposes to evidence ownership of post-split shares.

As soon as practicable after the effective date of the reverse stock split, stockholders will be notified that the reverse stock split has been effected. Those stockholders holding certificated shares will receive a letter of instruction directing them to surrender their certificates in exchange for newly issued certificates reflecting their revised holding. No further action will be required for other stockholders in connection with the reverse stock split as their Melinta common stock is held in book-entry.

 

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Fractional Shares

No certificates or scrip representing fractional shares of Melinta common stock will be issued in connection with the reverse stock split. Subject to the terms of the Deerfield Facility Amendment, each holder of Melinta common stock who would otherwise have been entitled to receive a fraction of a share of Melinta common stock shall be entitled to receive, in lieu thereof, cash (without interest) from the transfer agent in lieu of such fractional shares. The cash payment is subject to applicable U.S. federal and state income tax and state abandoned property laws. Stockholders will not be entitled to receive interest for the period of time between the effective time of the reverse stock split and the date payment is received.

The Company currently anticipates that, in lieu of issuing fractional shares, the aggregate of all fractional shares otherwise issuable to the holders of record of common stock shall be issued to the transfer agent for the common stock, as agent, for the accounts of all holders of record of common stock otherwise entitled to have a fraction of a share issued to them. The sale of all fractional interests will be effected by the transfer agent as soon as practicable after the effective time of the reverse stock split on the basis of prevailing market prices for the Melinta common stock. After such sale, the transfer agent will pay to such holders of record their pro rata share of the net proceeds derived from the sale of the fractional interests.

By authorizing the reverse stock split, stockholders will be approving the combination of a specified number of shares, which shall be greater than one and equal to or less than 20, into one share.

Melinta stockholders should be aware that, under the escheat laws of the various jurisdictions where stockholders reside, where Melinta is domiciled, and where the funds will be deposited, sums due for fractional interests that are not timely claimed after the effective date of the split may be required to be paid to the designated agent for each such jurisdiction, unless correspondence has been received by Melinta or the exchange agent concerning ownership of such funds within the time permitted in such jurisdiction. Thereafter, stockholders otherwise entitled to receive such funds will have to seek to obtain them directly from the state to which they were paid.

Accounting Matters

The reverse stock split will not affect the common stock capital account on Melinta’s balance sheet. However, because the par value of Melinta common stock will remain unchanged on the effective date of the split, the components that make up the common stock capital account will change by offsetting amounts. The stated capital component will be reduced and the additional paid-in capital component will be increased with the amount by which the stated capital is reduced. The per share net income or loss and net book value of Melinta will be increased because there will be fewer shares of Melinta common stock outstanding. Prior periods’ per share amounts will be restated to reflect the reverse stock split.

Potential Anti-Takeover Effect

Although the increased proportion of unissued authorized shares to issued shares could, under certain circumstances, have an anti-takeover effect, for example, by permitting issuances that would dilute the stock ownership of a person seeking to effect a change in the composition of Melinta’s board of directors or contemplating a tender offer or other transaction for the combination of Melinta with another company, the reverse stock split Proposal is not being proposed in response to any effort of which Melinta is aware to accumulate shares of Melinta common stock or obtain control of Melinta, nor is it part of a plan by management to recommend a series of similar amendments to Melinta’s board of directors and stockholders. Other than the Proposals being submitted to Melinta stockholders for their consideration at the Special Meeting, Melinta’s board of directors does not currently contemplate recommending the adoption of any other actions that could be construed to affect the ability of third parties to take over or change control of Melinta.

 

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No Appraisal Rights

Under the DGCL, Melinta stockholders are not entitled to appraisal rights with respect to the reverse stock split, and Melinta will not independently provide stockholders with any such right.

Certain U.S. Federal Income Tax Considerations—Reverse Stock Split

The following is a summary of certain U.S. federal income tax considerations relating to the reverse stock split applicable to U.S. persons (as defined below) who hold Melinta common stock as “capital assets” (generally, assets held for investment purposes). For purposes of this summary, the term “U.S. person” means any beneficial owner which is a citizen or individual resident of the United States, a corporation or other entity taxable as a corporation for U.S. federal income tax purposes created in or organized under the laws of the United States or any political subdivision thereof, an estate the income of which is subject to U.S. federal income tax without regard to its source, or a trust that (1) is subject to the supervision of a court within the United States and the control of one or more U.S. persons or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

This summary does not purport to address all U.S. federal income tax consequences relating to the reverse stock split, nor does it take into account the specific circumstances of any particular Melinta stockholder, some of which may be subject to special tax rules (including, but not limited to, tax-exempt organizations (including private foundations)), banks or other financial institutions, insurance companies, broker- dealers, traders in securities that elect to use a mark-to-market method of accounting for their securities holdings, regulated investment companies, real estate investment trusts, U.S. expatriates, stockholders subject to the alternative minimum tax, partnerships and other pass- through entities and investors in such entities, persons that own or are treated as owning (or owned or are treated as having owned) 5% or more of the voting shares of Melinta common stock, persons that hold Melinta common share as part of a straddle, hedge, conversion or constructive sale transaction or other integrated transaction, and stockholders whose functional currency is not the U.S. dollar.

If a partnership, or other entity or arrangement treated as a partnership for U.S. federal income tax purposes, is a Melinta stockholder, the tax treatment of a partner in the partnership will depend upon the status of that partner and the activities of the partnership. A partner in a partnership that is a Melinta stockholder should consult its own tax advisors regarding the tax consequences of the reverse stock split to it.

This summary is based on the Code, U.S. Treasury regulations promulgated under the Code, administrative pronouncements and rulings of the U.S. Internal Revenue Service, and judicial decisions, all as in effect on the date hereof, and all of which are subject to change (possibly with retroactive effect) and to differing interpretations. This summary does not describe any state, local or foreign tax law considerations, or any aspect of U.S. federal tax law other than income taxation (e.g., estate or gift tax or the Medicare contribution tax).

Each Melinta stockholder should consult its own tax advisers regarding the U.S. federal, state, local and foreign tax consequences of the reverse stock split to it under its particular circumstances.

Except as described below with respect to cash received in lieu of a fractional share, Melinta stockholders generally will not recognize gain or loss as a result of the reverse stock split. The aggregate adjusted tax basis in the shares of Melinta common stock received pursuant to the reverse stock split will equal the aggregate adjusted tax basis of the shares of Melinta common stock exchanged therefor (reduced by the amount of such basis that is allocated to any fractional share of Melinta common stock). In general, each Melinta stockholder’s holding period for the shares of Melinta common stock received pursuant to the reverse stock split will include the holding period in the shares of Melinta common stock exchanged therefor. Melinta stockholders that acquired Melinta common stock on different dates and at different prices should consult their tax advisors regarding the allocation of the tax basis and holding period of such shares.

 

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Melinta stockholders that, pursuant to the reverse stock split, receive cash in lieu of a fractional share will recognize capital gain or loss in an amount equal to the difference, if any, between the amount of cash received and the portion of the Melinta stockholder’s aggregate adjusted tax basis in the shares of Melinta common stock surrendered that is allocated to such fractional share. Such capital gain or loss will generally be long-term capital gain or loss if shares of Melinta common stock surrendered in the reverse stock were split held for more than one year. The deductibility of capital losses is subject to limitations.

Voting by Proxyholder

Your proxyholder (one of the individuals named on your proxy card) will vote your common stock in accordance with your instructions. Unless you give specific instructions to the contrary, your common stock will be voted “FOR” the amendment of Melinta’s Certificate of Incorporation to effect the reverse stock split.

Required Vote; Recommendation of Board of Directors

The affirmative vote of the holders of a majority of the outstanding shares of Melinta common stock as of the record date for the Special Meeting is required for approval of the amendment of Melinta’s Certificate of Incorporation to effect the reverse stock split. A failure to submit a proxy card or vote at the Special Meeting, an abstention or a “broker non-vote” will have the same effect as a vote “AGAINST” the approval of this Proposal.

VHP has agreed in the Vatera Loan Agreement to vote the approximately 16 million shares of Melinta common stock, which represents approximately 28.6% of the outstanding shares of common stock as of January 10, 2019, that it owns in favor of this proposal, subject to VHP’s reasonable determination that certain conditions set forth in the Vatera Loan Agreement will be satisfied.

MELINTA’S BOARD OF DIRECTORS (WITH THE TWO VATERA-RELATED MEMBERS OF THE BOARD HAVING RECUSED THEMSELVES) UNANIMOUSLY RECOMMENDS THAT MELINTA STOCKHOLDERS VOTE “FOR” PROPOSAL 1 TO AMEND MELINTA’S CERTIFICATE OF INCORPORATION TO EFFECT THE REVERSE STOCK SPLIT.

 

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PROPOSAL 2: CHARTER AMENDMENT TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK

General

As of January 10, 2019, there were (i) 80,000,000 shares of Melinta common stock authorized and 56,066,169 shares of Melinta common stock issued and outstanding (together with a total of 7,442,719 shares of Melinta common stock reserved for issuance upon the exercise of outstanding options and warrants and the vesting of restricted stock units) and (ii) 5,000,000 shares of Melinta preferred stock authorized and no shares of Melinta preferred stock issued and outstanding. The amendment would increase Melinta’s total number of authorized shares of all classes of capital stock from 85,000,000 shares to 280,000,000 shares, which would consist of (a) 275,000,000 shares of Melinta common stock and (b) 5,000,000 shares of preferred stock. Of the 275,000,000 shares of Melinta common stock to be authorized, approximately 102 million would be reserved for issuance under the Vatera Loan Agreement and approximately 72 million would be reserved for issuance under the Deerfield Convertible Loan.

The amendment is intended to provide adequate authorized share capital to: (i) accommodate, in part, the conversion of any of the Vatera Convertible Loans, which are convertible into shares of Melinta common stock or shares of Melinta convertible preferred stock, which are then further convertible into shares of Melinta common stock, and to accommodate the conversion of up to $74 million of the Deerfield Convertible Loan pursuant to the terms of the Deerfield Facility Amendment, which amendment is a condition (among other conditions) to funding the Vatera Convertible Loans (and the effectiveness of such amendment is conditioned on such funding), and (ii) to provide flexibility for future issuances of Melinta common stock or securities convertible or exchangeable into Melinta common stock if determined by Melinta’s board of directors to be in the best interests of the Company without incurring the risk, delay and potential expense incident to obtaining stockholder approval for a particular issuance.

Melinta stockholders will experience substantial dilution in the event that the respective lenders elect to convert the Vatera Convertible Loans and/or the Deerfield Convertible Loan. Up to a total of approximately 174 million shares of Melinta common stock could be issued under the Vatera Convertible Loans and the Deerfield Convertible Loan if the loans are fully funded (or deemed funded) and ultimately converted based on the initial conversion rate for the Vatera Convertible Loans and the maximum initial conversion rate for the Deerfield Convertible Loan and assuming the Vatera Convertible Loans are held to maturity and the full Conversion Amount is then converted (or a total of approximately 214 million shares of Melinta common stock could be issued under the Vatera Convertible Loans and the Deerfield Convertible Loan if such conversion of the Vatera Convertible Loans is in connection with an optional prepayment or a fundamental change and the maximum amount of additional shares are required to be issued upon conversion of the Vatera Convertible Loans under the make-whole table; the conversion rate of the Deerfield Convertible Loan would not be subject to any such make-whole adjustment). There is no assurance that the Vatera Convertible Loans or the Deerfield Convertible Loan will convert.

For illustrative purposes, in the event that the Company draws, and VHP, VIP and their respective affiliates fund, the full $135 million pursuant to the Vatera Loan Facility and an additional $5 million of convertible loans are deemed funded by Deerfield pursuant to the Vatera Loan Facility, and assuming that such Vatera Convertible Loans are fully funded and ultimately converted into shares of Melinta preferred stock and then into Melinta common stock on the maturity date of the Vatera Convertible Loans using the Conversion Amount, at a Common Stock Conversion Rate of 625 (equivalent to a Conversion Price of $1.60), a total of approximately 102 million shares of Melinta common stock could be issued upon such conversion (or a total of approximately 142 million shares issued if such conversion of the Vatera Convertible Loans is in connection with an optional prepayment or a fundamental change and the maximum amount of additional shares are required to be issued upon conversion of the Vatera Convertible Loans under the make-whole table; the conversion rate of the Deerfield Convertible Loan would not be subject to any such make-whole adjustment).

The Vatera Loan Agreement also requires that Melinta reserve for issuance upon conversion of the Vatera Convertible Loans (including the $5 million of convertible loans deemed funded by Deerfield pursuant to the

 

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Vatera Loan Facility) shares of Melinta preferred stock and Melinta common stock as provided in the Vatera Loan Agreement (assuming all such conversions are settled delivering solely such shares and, except in connection with a fundamental change for which a definitive agreement has been entered into prior to such date, assuming no additional shares under the make-whole adjustment will be necessary to be issued).

In addition, if the full $74 million of the Deerfield Convertible Loan is converted in full at the minimum initial conversion price of $1.03 (a maximum initial conversion rate of approximately 971 shares per $1,000 principal amount), a total of approximately 72 million shares of Melinta common stock could be issued upon such conversion.

The Deerfield Facility Amendment requires that Melinta reserve and keep available out of its authorized but unissued shares, solely for the purpose of effecting the conversions of the Deerfield Convertible Loan, such number of shares as shall from time to time be sufficient to effect the conversion in full of the Deerfield Convertible Loan (without giving effect to the 4.985% Ownership Cap).

The ability of Deerfield to convert the $5 million of loans deemed to have been funded pursuant to the Vatera Loan Facility, and the ability of a lender to convert the Deerfield Convertible Loan, are subject to the 4.985% Ownership Cap. However, that will not prevent Deerfield from periodically converting the applicable loan up to the 4.985% Ownership Cap and selling the shares of Melinta common stock received upon conversion such that the full amount of such loan is converted over time.

By approving this Proposal 2, Melinta stockholders are also approving the amendment to Melinta’s Certificate of Incorporation, attached hereto as Annex B, reflecting the amendments contemplated by this Proposal 2. All Melinta stockholders are encouraged to read the amendment to Melinta’s Certificate of Incorporation in its entirety.

The effectiveness of the Vatera Loan Facility and the issuance of the Vatera Convertible Loans on the initial closing date are subject to several closing conditions as further described in this proxy statement, including, without limitation, the approval of the stockholders of the Company to either Proposal 3 and Proposal 1 or 2.

If both Proposal 1 and Proposal 2 are approved by Melinta stockholders and Melinta’s board of directors determines, in its discretion, to implement Proposal 1 (the reverse stock split), then Melinta’s board of directors, subject to its discretion, does not also intend to implement Proposal 2 (the increase to the number of authorized shares of Melinta common stock).

Voting by Proxyholder

Your proxyholder (one of the individuals named on your proxy card) will vote your common stock in accordance with your instructions. Unless you give specific instructions to the contrary, your common stock will be voted “FOR” the amendment to Melinta’s Certificate of Incorporation to increase the number of authorized shares of common stock from 80,000,000 to 275,000,000.

Required Vote; Recommendation of Board of Directors

The affirmative vote of the holders of a majority of the outstanding shares of Melinta common stock as of the record date is required for approval of the amendment to Melinta’s Certificate of Incorporation to increase the number of authorized shares of Melinta common stock from 80,000,000 to 275,000,000. A failure to submit a proxy card or vote at the Special Meeting, an abstention or a “broker non-vote” will have the same effect as a vote “AGAINST” the approval of this Proposal 2.

VHP has agreed in the Vatera Loan Agreement to vote the approximately 16 million shares of Melinta common stock, which represents approximately 28.6% of the outstanding shares of common stock as of January 10, 2019, that it owns in favor of this proposal, subject to VHP’s reasonable determination that certain conditions set forth in the Vatera Loan Agreement will be satisfied.

 

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MELINTA’S BOARD OF DIRECTORS (WITH THE TWO VATERA-RELATED MEMBERS OF THE BOARD HAVING RECUSED THEMSELVES) UNANIMOUSLY RECOMMENDS THAT MELINTA STOCKHOLDERS VOTE “FOR” THIS PROPOSAL 2 TO APPROVE THE AMENDMENT TO MELINTA’S CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM 80,000,000 TO 275,000,000.

 

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PROPOSAL 3: APPROVAL OF THE ISSUANCE OF THE VATERA CONVERTIBLE LOANS, THE PREFERRED STOCK AND THE COMMON STOCK

General

At the Special Meeting, Melinta stockholders will be asked to approve the issuance and sale of the Vatera Convertible Loans, and the issuance of the underlying shares of preferred stock and common stock upon conversion of the Vatera Convertible Loans, for purposes of applicable Nasdaq rules.

On December 31, 2018, the Company entered into the Original Vatera Loan Agreement with VHP and VIP pursuant to which VHP committed to provide up to $100 million, and VIP committed to provide up to $35 million, under the Vatera Loan Facility, subject in each case to the satisfaction (or waiver) of certain conditions precedent set forth therein, which loan agreement was amended and restated on January 14, 2019 to provide for an additional $5 million that will be deemed to have been funded by Deerfield upon the initial funding under the Vatera Loan Agreement. The proceeds of the Vatera Convertible Loans will be used for general corporate purposes.

The Vatera Convertible Loans will be guaranteed by each of the Company’s direct or indirect subsidiaries. These are the same direct and indirect subsidiaries that guarantee the Company’s obligations under the Deerfield Facility. The Vatera Convertible Loans will be senior unsecured obligations of the Company and each guarantor and will be contractually subordinated to the obligations under the Deerfield Facility. Interest on the Vatera Convertible Loans will be paid in arrears at the end of each fiscal quarter, with 50% of such interest paid in cash and the remaining 50% of such interest paid in kind by increasing the principal balance of the outstanding Vatera Convertible Loans in an amount equal thereto (which increase will bear interest once added to such principal balance). If the Company or any guarantor fails to make a required payment of principal or interest with respect to the Vatera Convertible Loans or any other obligation under the Vatera Loan Facility when due, other than to the extent arising from an acceleration (other than an acceleration due, completely or partially, to a payment event of default (other than a payment event of default caused by an automatic acceleration from a bankruptcy or insolvency event of default), or fails to deliver any preferred stock or common stock issuable upon conversion of the Vatera Convertible Loans as described below within five business days of the effective date of such conversion, the Company is required to pay interest in respect of such payment, interest or other obligation or the Conversion Amount (as defined below) as applicable, at a rate per annum equal to 15% for so long as such payment or preferred stock or common stock delivery failure remains outstanding, payable in cash on demand to the extent permitted under the subordination agreement in respect of the Deerfield Facility, and if not so permitted, shall be paid in shares of common stock valued based on the five-trading-day volume weighted average price of the common stock ending on, and including, the trading day immediately preceding the date such preferred stock or common stock was required to be delivered. In addition, at the election of the Required Lenders (as defined in the Vatera Loan Agreement), while any event of default exists (or automatically, in the case of any payment, bankruptcy or insolvency event of default), the Company shall pay interest on the obligations under the Vatera Loan Facility and past due interest thereon, if any, from and after the occurrence of such event of default, at a rate per annum equal to 7%, payable in cash on demand to the extent permitted under the subordination agreement in respect of the Deerfield Facility, and if not so permitted, shall be paid in shares of common stock valued based on the five-trading-day volume weighted average price of the common stock ending on, and including, the trading day immediately preceding the date such event of default occurred.

The maturity date of the Vatera Convertible Loans is January 6, 2025.

The Vatera Convertible Loans will be convertible at the option of each lender into shares of convertible preferred stock of the Company at the Loan Conversion Rate. The Conversion Price is equal to $1,000 divided by the Loan Conversion Rate or the Common Stock Conversion Rate, as applicable. If Proposal 1 is approved by Melinta stockholders and implemented by Melinta’s board of directors, the Loan Conversion Rate will be proportionately reduced (and as a result the Conversion Price will proportionately increase) to reflect the reverse

 

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stock split. The preferred stock will be further convertible at the option of each lender into shares of common stock of the Company at the Common Stock Conversion Rate. At the option of a lender, the Vatera Convertible Loans will also be directly convertible into common stock at an initial conversion rate equal to 625 shares of common stock per $1,000 of Conversion Amount (which is the Loan Conversion Rate multiplied by the Common Stock Conversion Rate), which conversion rate is equivalent to a Conversion Price of $1.60, subject to adjustments as described below, including for a reverse stock split. The preferred stock will be non-participating, convertible preferred stock, with no dividend rights (other than to participate in common stock dividends on the Company’s common stock on an as-converted basis) or voting rights, and is senior to the common stock upon liquidation (with a liquidation preference equal to the Conversion Amount for the converted loans, as it may thereafter be adjusted pursuant to the Certificate of Designations (plus, if applicable, the amount of any declared but unpaid dividends on such shares of preferred stock)).

The number of shares of preferred stock issuable upon conversion of the Vatera Convertible Loans is equal to (i) the Loan Conversion Rate multiplied by (ii) the aggregate principal amount of such Vatera Convertible Loans being converted (including any interest paid in kind that has been added to the principal balance of such Vatera Convertible Loans at the end of a fiscal quarter), plus any accrued and unpaid interest that is to be paid in kind at the end of the next fiscal quarter but has not yet been so paid, plus the portion of any Exit Fee (as defined below) attributable to the committed amount of the Vatera Convertible Loans being so converted (clause (ii), collectively, the “Conversion Amount”) divided by $1,000. The number of shares of common stock issuable upon the further conversion of the preferred stock is equal to the Common Stock Conversion Rate multiplied by the number of shares of preferred stock.

The Loan Conversion Rate is subject to adjustments customary for convertible notes for (i) splits (including a reverse split) or combinations of the common stock or the preferred stock, (ii) recapitalization or reclassification of the common stock or the preferred stock, (iii) the payment of cash or stock dividends on the common stock, (iv) the distribution of rights, options or warrants to all or substantially all holders of common stock at a price less than the five-trading-day volume weighted average price of the common stock, (v) a spin-off and (vi) any tender offer by the Company for common stock at an amount exceeding the five-trading-day volume weighted average price of the common stock commencing on, and including, the trading day immediately next succeeding the last date on which tenders or exchanges may be made; provided that the Loan Conversion Rate is not subject to adjustment for any dividends or distributions in which the lender participates. The Common Stock Conversion rate is not subject to any adjustments. Except as expressly contemplated above, the issuance of additional shares of common stock or other securities, including pursuant to employee equity plans, warrants or other exercisable or convertible securities, are excluded from such adjustments.

The Loan Conversion Rate will also be subject to increase in the event the lenders convert the Vatera Convertible Loans in connection with a “fundamental change” (defined in the Vatera Loan Agreement), based on a customary make-whole table set forth in the Vatera Loan Agreement with inputs relative to either the five-trading-day volume weighted average price of the common stock ending on, and including, the trading day immediately prior to the effective date of the fundamental change (or the date of the prepayment, as applicable) or the cash price paid per share of common stock in the transaction. The maximum amount of additional shares that could be issued per $1,000 of the Conversion Amount under the make-whole table is 2.445652 shares of preferred stock (244.5652 shares of common stock). These shares would be in addition to those issuable as described in the second preceding paragraph, resulting in a total number of shares issuable upon conversion of 8.695652 shares of preferred stock (869.5652 shares of common stock) per $1,000 of Conversion Amount.

To the extent the Loan Conversion Rate would be increased to the Ceiling Rate, the Company will obtain stockholder approval to increase the number of authorized shares or, absent such approval, the Loan Conversion Rate will be increased to the Ceiling Rate and the balance of any make-whole amount will be paid in cash rather than settled in stock to the extent permitted under the Deerfield Facility. If such payment in cash is not permitted under the Deerfield Facility, the Company will use commercially reasonable efforts to seek stockholder approval by calling additional meeting(s) of stockholders as necessary.

 

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An Interim Exit Fee of 1% of the aggregate amount of Vatera Convertible Loans funded under the Vatera Loan Facility will be payable upon repayment or conversion of such funded amount (payable in preferred stock in the case of conversion). In addition, the Final Exit Fee of 3% on the portion of the aggregate committed amount of Vatera Convertible Loans not drawn by the Company under the Vatera Loan Facility will be payable on any repayment in full or conversion in full of the Vatera Convertible Loans (payable in preferred stock in the case of conversion).

Upon the occurrence of a Change of Control (as defined in the Vatera Loan Agreement), the lenders have the right to either convert the Vatera Convertible Loans (as described above) or require payment in full at par plus accrued and unpaid interest. If the lenders, other than VHP, VIP or their respective affiliates, fail to timely deliver notice to the Company electing to convert the Vatera Convertible Loans, the Company will pay in cash to such lender the full outstanding amount of the Vatera Convertible Loans. VHP, VIP or their respective affiliates may elect to continue to hold their Vatera Convertible Loans, subject to the following sentence, instead of converting the Vatera Convertible Loans or requiring payment in cash for such Vatera Convertible Loans. The Vatera Convertible Loans may be prepaid in whole or in part, together with accrued and unpaid interest thereon, at any time upon fifteen business days’ prior written notice, subject to the payment of (i) a 5% premium, plus a make-whole payment in the case of any such prepayment made on or prior to July 6, 2022, (ii) a 5% premium in the case of any such prepayment made after July 6, 2022, but on or prior to July 6, 2023, and (iii) a 4% premium in the case of any such prepayment made thereafter; provided, that, except for a prepayment in connection with a Change of Control or a fundamental change in which the consideration to be paid to the holders of outstanding common stock (other than shares held by VHP, VIP or their respective affiliates) consists solely of cash at a per share price in excess of the then current Conversion Price (determined based on the Common Stock Conversion Rate), no voluntary prepayment will be permitted if the volume-weighted average price of the common stock for the five trading days ending on and including the trading day immediately preceding the giving of the prepayment notice exceeds the then applicable Conversion Price (determined based on the Common Stock Conversion Rate). In the event the Company elects to prepay the Vatera Convertible Loans, the lenders will have the right, prior to such prepayment, to convert all or a portion of the Vatera Convertible Loans to be so prepaid at the Loan Conversion Rate that would apply as if such prepayment were a fundamental change, using the Stock Price applicable to such prepayment.

Subject to the satisfaction (or waiver) of the conditions precedent set forth in the Vatera Loan Agreement, $75 million of Vatera Convertible Loans may be drawn in a single draw on or prior to February 25, 2019 (at which time an additional $5 million of convertible loans will be deemed to have been funded by Deerfield pursuant to the Vatera Loan Facility), up to $25 million of additional Vatera Convertible Loans may be drawn in a single draw after March 31, 2019, but on or prior to June 30, 2019, and up to $35 million of additional Vatera Convertible Loans may be drawn in a single draw after June 30, 2019, but on or prior to July 10, 2019, subject to the Company obtaining a revolving credit facility with respect to which no less than $10 million is at the time available for drawing on and after such funding date (without giving effect to any repayment on such date with the proceeds of the Vatera Convertible Loans).

The funding of the initial disbursement under the Vatera Loan Facility will be subject to the satisfaction (or waiver) of the applicable conditions precedent set forth in the Vatera Loan Agreement, including, without limitation: obtaining an amendment from the requisite lenders to the Deerfield Facility; the absence of a material adverse effect on the Company; the absence of a default or event of default under the Vatera Loan Agreement or the Deerfield Facility and no such default or event of default being reasonably expected to occur; accuracy of the representations and warranties made by the Company and the guarantors in all material respects; the common stock of the Company remaining listed on Nasdaq or another eligible market; the approval of the stockholders of the Company of a reverse stock split and/or an increase in the number of authorized shares of common stock to accommodate the conversion of the Vatera Convertible Loans as described above, and to approve the issuance of the Vatera Convertible Loans under applicable Nasdaq rules; and John Johnson having been appointed as Chief Executive Officer (as opposed to interim Chief Executive Officer) of the Company.

 

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The funding of each subsequent disbursement under the Vatera Loan Facility will be subject to the satisfaction (or waiver) of the applicable conditions precedent set forth in the Vatera Loan Agreement, including, without limitation: the absence of a material adverse effect on the Company; the absence of a default or event of default under the Vatera Loan Agreement or the Deerfield Facility and no such default or event of default being reasonably expected to occur; accuracy of the representations and warranties made by the Company and the guarantors in all material respects; the common stock of the Company remaining listed on Nasdaq or another eligible market.

The representations and warranties, affirmative and negative covenants and events of default set forth in the Vatera Loan Agreement are substantially similar to those set forth in the Deerfield Facility and otherwise are customary for financing transactions of this type. In addition, the Company will not use any proceeds of the Vatera Convertible Loans to pay liabilities in excess of $15 million other than any indebtedness or other obligations under the Deerfield Facility or in respect of any permitted revolving credit facility, without the prior written consent of the Required Lenders (as defined in the Vatera Loan Agreement).

The Vatera Loan Agreement contains customary indemnification and expense reimbursement provisions in favor of the lenders. Under the Vatera Loan Agreement, the Company has agreed, without the prior written consent of the Required Lenders (as defined in the Vatera Loan Agreement), for a period beginning on the date of the Vatera Loan Agreement and ending ninety days after the third disbursement (such date being between September 29, 2019, and October 8, 2019) (unless the facility is terminated prior to such third disbursement, in which case 90 days after such termination), not to sell or otherwise transfer or dispose of, or file a registration statement relating to, any common stock or any securities convertible into or exercisable or exchangeable for common stock, subject to certain exceptions, including, without limitation, that this provision shall not restrict or prohibit negotiations or discussions with respect to, or the entering into any agreement for, or the filing of a registration statement with respect to, a merger or consolidation or any other combination of the Company with, or the acquisition of the Company by, another person (including by tender or exchange offer), any sale or other transfer of all or substantially all of the consolidated assets of the Company or any other acquisition or similar transaction.

Vatera will be entitled to registration rights in respect of the shares of common stock underlying the Vatera Convertible Loans (taking into account the character of the Vatera Convertible Loans and the application of the securities laws) consistent with the Registration Rights Agreement, dated November 3, 2017, among the Company, VHP and the other parties thereto. The Vatera Convertible Loans will be assignable by the lenders to, and the preferred stock and underlying common stock is transferable to, qualified institutional buyers or institutional accredited investors (other than competitors), subject to the Ownership Limitation (as described below). Assignments of the Vatera Convertible Loans will also be subject to all applicable securities laws. No lender under the Vatera Loan Facility (other than VHP, VIP and their respective affiliates from time to time) will be entitled to receive shares of common stock or preferred stock upon conversion of Vatera Convertible Loans (or shares of common stock upon conversion of preferred stock) if the receipt of such common stock or preferred stock would cause (i) such lenders to beneficially own 29.9% of the voting interests in the Company’s stock or (ii) a Major Transaction as defined under the warrants issued by the Company to Deerfield Private Design Fund IV, L.P., Deerfield Private Design Fund III, L.P., and Deerfield Special Situations Fund, L.P. on January 5, 2018. The ability of Deerfield to convert the $5 million of convertible loans deemed to have been funded under the Vatera Loan Facility also will be subject to the 4.985% Ownership Cap (as described below).

The rights and obligations of the Company and the lenders under the Vatera Loan Facility and the Vatera Convertible Loans are subject to the limitations set forth in a subordination agreement with the agent for the lenders under the Deerfield Facility.

The Vatera Loan Facility will terminate if the initial draw thereunder is not made by February 25, 2019.

The summary of the Vatera Loan Agreement set forth in this proxy statement is qualified in its entirety by reference to the full text of the Vatera Loan Agreement, a copy of which is attached hereto as Annex C. The

 

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effectiveness of the Vatera Loan Facility and the issuance of the Vatera Convertible Loans on the initial closing date are subject to several closing conditions as further described in this proxy statement, including, without limitation, the approval of the stockholders of the Company to Proposal 3 and either Proposal 1 or 2.

Reasons for the Recommendation

In evaluating the proposed Debt Commitment Letter and corresponding Vatera Loan Agreement, the independent directors consulted with the Company’s management and legal advisors. In the course of reaching its determination to enter into the Debt Commitment Letter and the Vatera Loan Agreement and to recommend that the Company’s stockholders vote in favor of the matters described in the proxy statement, the independent directors considered numerous factors, including the following material factors and benefits of the Debt Commitment Letter and the Vatera Loan Agreement, each of which the independent directors believed supported their unanimous determination and recommendation:

 

   

Business and financial condition of the Company. The Company has determined that its cash balances may not be sufficient to support compliance with its Deerfield Facility covenants in the first quarter of 2019, after giving effect to anticipated net cash outflows from operations and the payment of potential contractual obligations. The independent directors determined that, absent the financing opportunity from Vatera, the Company would face a material risk of an event of default under the Deerfield Facility in the first quarter of 2019 and may not be able to continue as a going concern, which would have a material adverse effect on the Company and its stockholders.

 

   

No other alternatives. The Company has explored other potential alternatives to address the Company’s liquidity needs, and believes that the Vatera Loan Agreement is the only currently available alternative that is likely to help the Company to become cashflow neutral and preserve equity value for non-Vatera Melinta stockholders, even with the potential dilution from the Vatera Convertible Loans and the Deerfield Convertible Loan. The Company is restricted in its ability to obtain alternative debt financing, especially in the time frame necessary to comply with the Company’s potential near-term obligations, as well as its near-term covenants under the Deerfield Facility. The Company is subject to significant restrictions on incurring additional debt under the Deerfield Facility and the Company’s additional secured debt capacity, to the extent any exists at all currently, is not sufficient to cover the Company’s potential near-term obligations and covenants or to materially contribute to such coverage. The Company cannot pay interest on unsecured debt until the Deerfield Facility matures, limiting access to the unsecured debt markets.

 

   

Terms of the Debt Commitment Letter and the Vatera Loan Agreement. The independent directors, several of whom are experienced in the terms of financing companies similar to the Company, believed that options that would provide more favorable terms than the terms of the Debt Commitment Letter and the Vatera Loan Agreement were unavailable.

 

   

Opportunity to work to improve Company’s liquidity. With the benefit of the Vatera financing, the Company would be able to seek to improve the Company’s liquidity with respect to its current obligations. The independent directors believed that the Vatera Loan Agreement was the only then available option that would preserve any equity value for stockholders, even with the potential dilution from the Vatera Loan Agreement and the Deerfield Facility Amendment.

Voting by Proxyholder

Your proxyholder (one of the individuals named on your proxy card) will vote your common stock in accordance with your instructions. Unless you give specific instructions to the contrary, your common stock will be voted “FOR” the issuance and sale of the Vatera Convertible Loans, and the issuance of the underlying shares of preferred stock and common stock upon the conversion of the Vatera Convertible Loans, for purposes of applicable Nasdaq rules.

 

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Required Vote; Recommendation of Board of Directors

The affirmative vote of the holders of a majority of the shares of Melinta common stock present in person or represented by proxy and entitled to vote on such matter at the Special Meeting is required for approval of this Proposal 3. A “broker non-vote” will have no effect on the outcome of this Proposal 3, while an abstention will have the same effect as a vote “AGAINST” the approval of this Proposal 3.

VHP has agreed in the Vatera Loan Agreement to vote the approximately 16 million shares of Melinta common stock, which represents approximately 28.6% of the outstanding shares of common stock as of January 10, 2019, that it owns in favor of this proposal, subject to VHP’s reasonable determination that certain conditions set forth in the Vatera Loan Agreement will be satisfied.

MELINTA’S BOARD OF DIRECTORS (WITH THE TWO VATERA-RELATED MEMBERS OF THE BOARD HAVING RECUSED THEMSELVES) UNANIMOUSLY RECOMMENDS THAT MELINTA STOCKHOLDERS VOTE “FOR” THIS PROPOSAL 3 TO APPROVE THE ISSUANCE OF THE CONVERTIBLE LOANS, THE MELINTA PREFERRED STOCK AND THE MELINTA COMMON STOCK PURSUANT TO THE VATERA LOAN AGREEMENT.

 

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PROPOSALS 4A and 4B: APPROVAL OF AMENDMENTS TO THE 2018 PLAN TO INCREASE THE

NUMBER OF SHARES RESERVED AND AVAILABLE FOR ISSUANCE UNDER THE 2018 PLAN

General

On January 27, 2019, Melinta’s board of directors unanimously approved and adopted amendments to the 2018 Plan to increase the number of shares reserved and available for issuance under the 2018 Plan by (a) 2,000,000 shares specifically for issuance to the Chief Executive Officer and (b) an additional 3,000,000 shares for general issuances under the amended 2018 Plan, which together would bring the total number of shares available under the 2018 Plan, as amended, to 9,104,429 (the “2018 Plan Amendment”), subject to approval of Melinta’s stockholders.

Proposal 4A represents an increase in the number of shares reserved and available for issuance under the 2018 Plan by 2,000,000 shares which are specifically issuable to the Chief Executive Officer. Proposal 4B represents an increase in the number of shares reserved and available for issuance under the 2018 Plan by 3,000,000 which are available for general issuances under the 2018 Plan, as amended. The approval of Proposal 4A is not dependent on the approval of Proposal 4B, and the approval of Proposal 4B is not dependent on the approval of Proposal 4A.

Purpose of 2018 Plan

The 2018 Plan allows the Company to offer equity-based compensation to the Company’s eligible full-time employees, executive officers and non-employee directors. Like other similarly-situated biotech and pharmaceutical companies, which the Company competes with for talent, equity-based compensation is, and the Company expects it to continue to be, an important part of the Company’s compensation program. The Company’s ability to continue granting equity-based awards is crucial to ensure that it can continue to attract, motivate, reward and retain key talent to position it to be able to deliver strong performance.

As of December 31, 2018, there were approximately 291 full-time employees, executive officers, non-employee directors and other individuals eligible to participate in the 2018 Plan.

Principal Reasons for Requested Share Increase

One of the conditions to the funding of the initial disbursement of $75 million under the Vatera Loan Facility (such funding being a condition to the effectiveness of the Deerfield Facility Amendment) is the appointment of John H. Johnson as the Chief Executive Officer (as opposed to interim Chief Executive Officer) of the Company. Mr. Johnson has accepted the position of Chief Executive Officer subject to the terms of an employment contract and the closing of the Vatera Loan Facility.

The approval of Proposal 4A by Melinta stockholders would result in the immediate availability of 2,000,000 additional shares specifically for issuance to Mr. Johnson under the amended 2018 Plan, as part of the compensation package to Mr. Johnson in connection with his appointment as Chief Executive Officer of the Company.

The approval of Proposal 4B by Melinta stockholders would result in the immediate availability of 3,000,000 additional shares for general issuances under the amended 2018 Plan, which is critical to the furtherance of the Company’s compensation programs and vital to the growth and success of the Company’s business. In particular, an increase in the number of shares reserved for issuance under the Company’s amended 2018 Plan is necessary for the Company to retain the Company’s key employees, to continue to motivate and incentivize the Company’s employees, and to align the interests of the Company’s employees with those of Melinta’s stockholders, particularly given the potential dilution in the event that the Vatera Convertible Loans and/or the Deerfield Convertible Loan are converted. The Company currently would expect to use this additional capacity for issuances to executive officers, allowing the remaining capacity under the 2018 Plan to be available for issuances to other employees and directors.

 

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If Melinta stockholders do not approve at least one of either Proposal 4A or Proposal 4B (i.e., if both Proposals fail to receive approval), it is unlikely that the Company would be able to provide for the issuance of 2,000,000 shares to Mr. Johnson, in his capacity as Chief Executive Officer, while still retaining sufficient share capacity for grants to other executives and/or employees under the 2018 Plan. As a result, if Melinta stockholders do not approve at least one of either Proposal 4A or Proposal 4B (i.e., if both Proposals fail to receive approval), Mr. Johnson likely would not be willing to serve as Chief Executive Officer of the Company. In that event, unless Vatera waives the condition to funding the initial disbursement of $75 million under the Vatera Loan Facility that Mr. Johnson serve as Chief Executive Officer, the Vatera Loan Facility will not fund and the Deerfield Facility Amendment will not become effective. The failure of the Vatera Loan Facility to fund and the Deerfield Facility Amendment to become effective would have a material adverse effect on the Company and its stockholders. If Melinta stockholders do not approve both Proposal 4A and Proposal 4B, it is unlikely that the Company would have sufficient share capacity for grants to Company executives and other employees under the 2018 Plan, directly impacting the Company’s ability to retain critical talent and expertise. Accordingly, unless both Proposal 4A and 4B are approved, the Company will likely need to grant cash-based or other awards in order to remain competitive, which may not align the interests of the Company’s key employees and non-employee directors as closely with those of Melinta stockholders as equity awards. In addition, the use of cash resources to deliver competitive pay would divert cash from use in running other aspects of the Company’s business and investing in future product development. As a result, if Melinta stockholders do not approve both Proposal 4A and Proposal 4B and the Company is limited in its ability to appropriately incentivize its executives and other employees, the Company may face significant retention challenges, which would have a material impact on its growth.

Additionally, consistent with many companies in Melinta’s industry and stage of growth, equity compensation is a key component of Melinta’s compensation programs, both with respect to Melinta’s executives and Melinta’s other employees. The Company believes the grant of equity awards, and the potential that the value of the awards will increase over time as the value of the Company’s common stock increases, is an important element of the compensation package and the overall value proposition Melinta offers employees, and is a key reason they may choose to become or remain employees of the Company. If the Company is unable to continue to make grants of equity awards to the Company’s employees consistent with their expectations or past practices, or if the Company is required to issue awards with significantly lower values than competitive market practices mandate due to the lack of available shares under the 2018 Plan, the Company could be at significant risk of failing to retain key employees who are important to the Company’s success, to properly motivate employees to achieve the Company’s strategic objectives, or to hire top talent during a time of management transition.

At the current and projected burn rate for equity awards, the Company expects that awards covering the initial share pool of 2,000,000 shares available for issuance under the 2018 Plan (as such pool is increased pursuant to the terms of the 2018 Plan) will be granted prior to the end of fiscal year 2019. In addition, unless both Proposal 4A and 4B are approved, the Company likely will need to grant cash-based or other awards in order to remain competitive, which may not align the interests of the Company’s key employees and non-employee directors as closely with those of Melinta stockholders as equity awards. In addition, the use of cash resources to deliver competitive pay would divert cash from use in running other aspects of the Company’s business and investing in future product development. In particular, Melinta’s board of directors believes that compensation of the type available for grant under the amended 2018 Plan furthers the Company’s goal of promoting long-term value for the Company’s stockholders by fostering an ownership culture that encourages a focus on long-term performance and retention and exposes participants to economic diminishment if the Company’s share performance declines.

The Company recognizes the need to balance stockholder concerns over the potentially dilutive effects of the increased number of authorized shares under the amended 2018 Plan with the Company’s ability to attract, motivate, reward and retain the Company’s employees and non-employee directors, who are critical to driving the Company’s business plan and increasing stockholder value. The Company believes the dilutive effect of the Company’s equity awards has been reasonable and consistent with these essential requirements. The Company is managing the Company’s equity awards closely, and intends to continue doing so.

 

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Key Features of the 2018 Plan (as proposed to be amended)

The 2018 Plan and its related governance practices and policies include many features that are designed to protect stockholder interests. A summary of these features follows, and a more detailed description of the features is included under the heading “Summary of the 2018 Plan” below. The summaries in this proposal do not provide a complete description of all the provisions of the 2018 Plan and are qualified in their entirety by reference to the full text of the 2018 Plan, as proposed to be amended by these Proposals, which is attached to this proxy statement as Annex D.

 

   

No Repricing. The 2018 Plan prohibits the repricing of awards, including cash buyouts, without stockholder approval.

 

   

Limits on Share “Recycling. The 2018 Plan includes a prohibition against regranting shares used to pay stock option exercise prices or stock appreciation right base prices, shares purchased in the open market using option proceeds, or shares withheld to pay taxes on awards.

 

   

No Liberal Definition of “Change in Control. The change in control definition contained in the 2018 Plan is not a “liberal” definition that would be triggered on mere stockholder approval of a transaction.

 

   

No Discounted Stock Options or Stock Appreciation Rights. Except with respect to substitute awards granted in connection with a corporate transaction, all stock options and stock appreciation rights must have an exercise price or base price equal to or greater than the fair market value of the underlying shares of common stock on the date of grant.

 

   

Limitation on Term of Stock Options and Stock Appreciation Rights. The maximum term of a stock option or stock appreciation right under the 2018 Plan is 10 years.

 

   

No Dividends or Dividend Equivalents on Unearned Awards. If dividends are declared during the period that an equity award is outstanding, such dividends (or dividend equivalents) will either (i) not be paid or credited with respect to such award or (ii) be accumulated but remain subject to vesting requirement(s) to the same extent as the applicable award and will only be paid at the time or times such vesting requirement(s) are satisfied. No dividends or dividend equivalents will be paid on stock options or stock appreciation rights.

 

   

Clawback. Awards granted under the 2018 Plan are subject to the Company’s clawback and/or recoupment policies in effect from time to time or as otherwise required by applicable law.

 

   

No Automatic Grants. The 2018 Plan does not provide for automatic grants to any participant.

 

   

Independent Compensation Committee. The 2018 Plan is administered by a committee of the Company’s board of directors or a subcommittee thereof.

 

   

No Tax Gross-Ups. The 2018 Plan does not provide for any tax gross-ups.

 

   

Double-Trigger Vesting. The 2018 Plan provides that the vesting of awards that are assumed or substituted in connection with a change in control only accelerates as a result of the change in control if a participant experiences a qualifying termination within one year following the change in control.

 

   

Future Increases to Share Reserve Require Stockholder Approval. The 2018 Plan provides that any increase in the share reserve available under the plan must be approved by the Company’s stockholders.

 

   

Non-Employee Director Compensation Limits. The 2018 Plan generally provides that the maximum value of any awards granted to a non-employee director of the Company in any one calendar year, including any cash fees paid to such non-employee director during such calendar year, may not exceed $650,000.

 

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Summary of the 2018 Plan (as proposed to be amended)

The following is a summary of certain material features of the 2018 Plan, as proposed to be amended by this proposal.

Introduction. On April 20, 2018, the Company’s Compensation Committee adopted the 2018 Plan, which was approved by Melinta’s stockholders on June 12, 2018. The 2018 Plan authorizes the grant of stock options, restricted stock awards, restricted stock units, stock appreciation rights, performance awards and other awards that may be settled in or based upon Melinta’s common stock.

Purpose. The purpose of the 2018 Plan is to give the Company the ability to attract, retain, motivate and reward certain officers, employees, directors and consultants and to provide a means whereby officers, employees, directors and/or consultants can acquire and maintain ownership of the Company’s common stock or be paid incentive compensation measured by reference to the value of Melinta’s common stock, thereby strengthening their commitment to the Company’s welfare and that of its affiliates and promoting an identity of interest between Melinta’s stockholders and these persons and encouraging such eligible persons to expend maximum effort in the creation of stockholder value.

The following summary does not provide a complete description of all provisions of the 2018 Plan, as proposed to be amended by this proposal, and is qualified in its entirety by reference to the full text of the 2018 Plan, as proposed to be amended by these proposals, which is attached to this proxy statement as Annex D.

Plan Administration. The 2018 Plan is administered by Melinta’s Compensation Committee. The Compensation Committee has the authority, among other things, to select participants, grant awards, determine types of awards and terms and conditions of awards for participants, prescribe rules and regulations for the administration of the plan and make all decisions and determinations as deemed necessary or advisable for the administration of the 2018 Plan. The Compensation Committee may delegate certain of its authority as it deems appropriate, pursuant to the terms of the 2018 Plan and to the extent permitted by applicable law, to the Company’s officers or employees, although any award granted to any person who is not an employee, or who is subject to Section 16 of the Exchange Act must be expressly approved by the Compensation Committee. The Compensation Committee’s actions will be final, conclusive and binding.

Authorized Stock. A total of 4,104,429 shares of common stock are currently reserved and available for issuance under the 2018 Plan, which includes 3,129,516 shares added to the share reserve pursuant to the 2018 Plan’s evergreen and recycling provisions on January 1, 2019. If these Proposals are adopted, an additional (a) 2,000,000 shares specifically for issuance to the Chief Executive Officer and (b) 3,000,000 shares for general issuances under the amended 2018 Plan, would be added to the share reserve under the 2018 Plan, which together would bring the total number of shares available under the 2018 Plan, as amended, to 9,104,429. The number of shares of common stock reserved and available for issuance under the 2018 Plan is subject to adjustment, as described below. In addition, in the event that Proposal 1 (the reverse stock split) is approved and implemented, as of the effective date of the reverse stock split, adjustments will be made under the 2018 Plan, including with respect to the aggregate number of shares of Melinta common stock that may be delivered in connection with awards under the 2018 Plan, the numerical share limits under the 2018 Plan, the number of shares covered by each outstanding award under the 2018 Plan, the price per share underlying each such award, and, if applicable, the performance objectives that must be achieved before such award will become earned, to proportionately reflect the reverse stock split.

The total number of shares of common stock reserved and available for issuance under the 2018 Plan will increase on the first day of each fiscal year commencing on the first day of the Company’s fiscal year following the effective date of the 2018 Plan and ending on the first day of the third fiscal year following the effective date of the 2018 Plan, in an amount equal to the lesser of (i) 4% of the outstanding shares of common stock on the last day of the immediately preceding fiscal year or (ii) such number of shares of common stock determined by the

 

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Compensation Committee. The maximum number of shares of common stock that may be issued in respect of incentive stock options will be 2,000,000. Common stock issued under the 2018 Plan may consist of authorized but unissued stock or previously issued common stock. Common stock underlying awards that are settled in cash, expire or are canceled, forfeited, or otherwise terminated without delivery to a participant will again be available for issuance under the 2018 Plan. Common stock withheld or surrendered in connection with the payment of an exercise price of an award or to satisfy tax withholding will not become available for issuance under the 2018 Plan. In addition, shares purchased in the open market using option proceeds will not become available under the 2018 Plan.

Limitation on Compensation to Non-Employee Directors. The maximum value of any awards granted to any non-employee director of the Company in any one calendar year, taken together with any cash fees paid to such non-employee director during such calendar year, may not exceed $650,000 (calculating the value of any such awards based on the grant date fair value of such awards for financial reporting purposes and excluding, for this purpose, the value of any dividend equivalent payments paid pursuant to any award granted in a previous year).

Types of Awards. The types of awards that may be available under the 2018 Plan are described below. All of the awards described below will be subject to the terms and conditions determined by the Compensation Committee in its sole discretion, subject to certain limitations provided in the 2018 Plan. Each award granted under the 2018 Plan will be evidenced by an award agreement, which will govern that award’s terms and conditions.

Non-qualified Stock Options. A non-qualified stock option is an option that is not intended to meet the qualifications of an incentive stock option, as described below. An award of a non-qualified stock option grants a participant the right to purchase a certain number of shares of Melinta common stock during a specified term in the future, or upon the achievement of performance or other conditions, at an exercise price set by the Compensation Committee on the grant date. The term of a non-qualified stock option will be set by the Company’s Compensation Committee but may not exceed 10 years from the grant date. The exercise price may be paid using any of the following payment methods: (i) immediately available funds in U.S. dollars or by certified or bank cashier’s check, (ii) by delivery of common stock having a value equal to the exercise price, (iii) a broker assisted cashless exercise, or (iv) by any other means approved by the Compensation Committee. The 2018 Plan provides that unless otherwise specifically determined by the Compensation Committee, vesting of non-qualified stock options will not be suspended during the period of any approved leave of absence by a participant. The 2018 Plan also provides that participants terminated for “cause” (as such term is defined in the 2018 Plan) will forfeit all of their non-qualified stock options, whether or not vested. Participants terminated for any other reason will forfeit their unvested non-qualified stock options, retain their vested non-qualified stock options, and will have one year (in the case of a termination by reason of death or disability) or 90 days (in all other cases) following their termination date to exercise their vested non-qualified stock options, unless such non-qualified stock option expires sooner. The 2018 Plan authorizes the Compensation Committee to provide for different treatment of non-qualified stock options upon termination than that described above, as determined in its discretion.

Incentive Stock Options. An incentive stock option is a stock option that meets the requirements of Section 422 of the Code. Incentive stock options may be granted only to Melinta’s employees or employees of certain of the Company’s subsidiaries and must have an exercise price of no less than 100% of the fair market value (or 110% with respect to a 10% stockholder) of a share of common stock on the grant date and a term of no more than 10 years (or 5 years with respect to a 10% stockholder). If the aggregate fair market value, determined at the time of grant, of Melinta’s common stock subject to incentive stock options that are exercisable for the first time by a participant during any calendar year exceeds $100,000, such excess incentive stock options shall be treated as non-qualified stock options. The 2018 Plan provides that unless otherwise specifically determined by the Compensation Committee, vesting of incentive stock options will not be suspended during the period of any approved leave of absence by a participant. The 2018 Plan also provides that participants terminated for

 

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“cause” will forfeit all of their incentive stock options, whether or not vested. Participants terminated for any other reason will forfeit their unvested incentive stock options, retain their vested incentive stock options, and will have one year (in the case of a termination by reason of death or disability) or 90 days (in all other cases) following their termination date to exercise their vested incentive stock options, unless such incentive stock option expires sooner. The 2018 Plan authorizes the Company’s Compensation Committee to provide for different treatment of incentive stock options upon termination than that described above, as determined in its discretion. The 2018 Plan, as amended, authorizes the Compensation Committee to limit the maximum number of shares of authorized stock that may be issued or transferred upon exercise or settlement of incentive stock options.

Restricted Stock. A restricted stock award is an award of restricted shares of common stock that does not vest until a specified period of time has elapsed, and/or upon the achievement of performance or other conditions determined by the Company’s Compensation Committee, and which will be forfeited if the conditions to vesting are not met. During the period that any restrictions apply, transfer of the restricted shares of common stock is generally prohibited. Unless otherwise specified in their award agreement, participants generally have all of the rights of a stockholder as to the restricted shares of common stock, including the right to vote such common stock. The 2018 Plan provides that unless otherwise specifically determined by the Compensation Committee, vesting of restricted stock awards will not be suspended during the period of any approved leave of absence by a participant. Except as otherwise provided by the Compensation Committee, in the event a participant is terminated for any reason, the vesting with respect to the participant’s restricted stock will cease, and as soon as practicable following the termination, the Company will repurchase all of such participant’s unvested restricted stock at a purchase price equal to the original purchase price paid for the restricted stock, or if the original purchase price is equal to $0, the unvested restricted stock will be forfeited by the participant to the Company for no consideration.

Stock Appreciation Rights. A stock appreciation right entitles the participant to receive an amount equal to the difference between the fair market value of Melinta’s common stock on the exercise date and the base price of the stock appreciation right that is set by the Compensation Committee on the grant date, multiplied by the number of shares of common stock subject to the stock appreciation right. The term of a stock appreciation right will be set by the Company’s Compensation Committee but may not exceed 10 years from the grant date. Payment to a participant upon the exercise of a stock appreciation right may be either in cash, stock or property as specified in the award agreement or as determined by the Compensation Committee. The 2018 Plan provides that unless otherwise specifically determined by the Compensation Committee, vesting of stock appreciation rights will not be suspended during the period of any approved leave of absence by a participant. The 2018 Plan also provides that participants terminated for “cause” will forfeit all of their stock appreciation rights, whether or not vested. Participants terminated for any other reason will forfeit their unvested stock appreciation rights, retain their vested stock appreciation rights, and will have one year (in the case of a termination by reason of death or disability) or 90 days (in all other cases) following their termination date to exercise their vested stock appreciation rights, unless such appreciation right expires sooner. The 2018 Plan authorizes the Company’s Compensation Committee to provide for different treatment of stock appreciation rights upon termination than that described above, as determined in its discretion.

Restricted Stock Units. A restricted stock unit is an unfunded and unsecured obligation to issue shares of common stock (or an equivalent cash amount) to the participant in the future. Restricted stock units become payable on terms and conditions determined by the Company’s Compensation Committee and will vest and be settled at such times in cash, common stock, or other specified property, as determined by the Company’s Compensation Committee. Participants have no rights of a stockholder as to the restricted stock units, including no voting rights or rights to dividends, until the underlying shares of common stock are issued or become payable to the participant. The 2018 Plan provides that unless otherwise specifically determined by the Compensation Committee, vesting of restricted stock units will not be suspended during the period of any approved leave of absence by a participant. Except as otherwise provided by the Compensation Committee, in the event a participant is terminated for any reason, the vesting with respect to the participant’s restricted stock units will

 

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cease, each of the participant’s outstanding unvested restricted stock units will be forfeited for no consideration as of the date of such termination, and any shares of common stock remaining undelivered with respect to the participant’s vested restricted stock units will be delivered on the delivery date specified in the applicable award agreement.

Performance Awards. Performance awards (which may be classified as performance stock or performance units) represent the right to receive certain amounts based on the achievement of pre-determined performance objectives during a designated performance period. The performance objectives that must be achieved before performance award is earned will be set forth in the applicable award agreement and the Compensation Committee will be responsible for setting the applicable performance objectives.

Performance goals may be established on a company-wide basis, project or geographical basis or, as the context permits, with respect to one or more the Company’s business units, divisions, lines of business or business segments, subsidiaries, products, regions, or other operational units or administrative departments (or in combination thereof) or may be related to the performance of an individual participant and may be expressed in absolute terms, or relative or comparative to (i) current internal targets or budgets, (ii) the Company’s past performance (including the performance of one or more of its subsidiaries, divisions, or operating units), (iii) the performance of one or more similarly situated companies, (iv) the performance of an index covering multiple companies, or (v) other external measures of the selected performance criteria.

The Compensation Committee will make appropriate adjustments in the method of calculating the attainment of applicable performance goals to provide for objectively determinable adjustments, modifications or amendments, as determined in accordance with “generally accepted accounting principles,” to any of the business criteria described above for one or more of the following items of gain, loss, profit or expense: (i) determined to be items of an unusual nature or of infrequency of occurrence or non-recurring items; (ii) related to changes in accounting principles under “generally accepted accounting principles” or tax laws; (iii) related to currency fluctuations; (iv) related to financing activities (e.g., effect on earnings per share of issuing convertible debt securities); (v) related to restructuring, divestitures, productivity initiatives or new business initiatives; (vi) related to discontinued operations that do not qualify as a segment of business under “generally accepted accounting principles”; (vii) attributable to the business operations of any entity acquired by the Company during the fiscal year; (viii) non-operating items; and (ix) acquisition or divestiture expenses.

Performance awards which have been earned as a result of the relevant performance goals being achieved may be paid in the form of cash, common stock or other awards under the 2018 Plan (or some combination thereof). The 2018 Plan provides that unless otherwise specifically determined by the Compensation Committee, vesting of performance awards will not be suspended during the period of any approved leave of absence by a participant. Except as otherwise provided by the Compensation Committee, if a participant is terminated for any reason, the participant will forfeit all performance awards held by such participant.

Other Stock-Based Compensation. Under the 2018 Plan, the Compensation Committee may grant other types of equity-based awards subject to such terms and conditions as the Compensation Committee may determine.

Treatment of Dividends and Dividend Equivalents on Unvested Awards. The 2018 Plan provides that, with respect to any award that provides for or includes a right to dividends or dividend equivalents, if dividends are declared during the period that an equity award is outstanding, such dividends (or dividend equivalents) will either (i) not be paid or credited with respect to such award or (ii) be accumulated but remain subject to vesting requirement(s) to the same extent as the applicable award and will only be paid at the time or times such vesting requirement(s) are satisfied. Except as otherwise determined by the Compensation Committee, no interest will accrue or be paid on the amount of any cash dividends withheld. No dividends or dividend equivalents will be paid on stock options or stock appreciation rights.

 

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Adjustments. The aggregate number of shares of common stock reserved and available for issuance under the 2018 Plan, the individual limitations, the number of shares of common stock covered by each outstanding award, and the price per share of common stock underlying each outstanding award will be equitably and proportionally adjusted or substituted, as determined by the Compensation Committee in its sole discretion, as to the number, price or kind of stock or other consideration subject to such awards in connection with stock dividends, extraordinary cash dividends, stock splits, reverse stock splits (including the reverse stock split contemplated by Proposal 1 if it is approved and implemented), recapitalizations, reorganizations, mergers, amalgamations, consolidations, combinations, exchanges, or other relevant changes in the Company’s capitalization affecting the Company’s common stock or the Company’s capital structure which occurs after the date of grant of any award, in connection with any extraordinary dividend declared and paid in respect of common stock or in the event of any change in applicable law or circumstances that results in or could result in, as determined by the Compensation Committee in its sole discretion, any substantial dilution or enlargement of the rights intended to be granted to, or available for, participants in the 2018 Plan.

Corporate Events. In the event of a merger, amalgamation, or consolidation involving the Company in which it is not the surviving corporation or in which it is the surviving corporation but the holders of Melinta’s common stock receive securities of another corporation or other property or cash, a “change in control” (as defined in the 2018 Plan), or a reorganization, dissolution, or liquidation of us, the Company’s Compensation Committee may, in its discretion, provide for the assumption or substitution of outstanding awards, accelerate the vesting of outstanding awards not assumed or substituted in connection with such event, cash-out outstanding awards not assumed or substituted in connection with such event or replace outstanding awards with a cash incentive program that preserves the value of the awards so replaced. With respect to any award that is assumed or substituted in connection with a “change in control,” except as provided in any agreement between the participant and the Company, the vesting, payment, purchase or distribution of such award will not be accelerated by reason of the “change in control” for any participant unless the participant’s employment is involuntarily terminated as a result of the “change in control” during the one-year period commencing on the “change in control.”

Transferability. Awards under the 2018 Plan may not be sold, transferred, pledged, or assigned other than by will or by the applicable laws of descent and distribution, unless (for awards other than incentive stock options) otherwise provided in an award agreement or determined by the Compensation Committee.

Amendment. The Company’s board of directors or the Company’s Compensation Committee may amend the 2018 Plan or outstanding awards at any time. Melinta’s stockholders must approve any amendment if their approval is required pursuant to applicable law or the applicable rules of each national securities exchange on which the Company’s common stock are traded. No amendment to the 2018 Plan or outstanding awards which materially impairs the right of a participant is permitted unless the participant consents in writing.

Termination. The 2018 Plan will terminate on the day before the tenth anniversary of the date Melinta’s stockholders approved the 2018 Plan, although incentive stock options may not be granted following the earlier of the tenth anniversary of (i) the date the 2018 Plan is adopted by Melinta’s board of directors and (ii) the date Melinta’s stockholders approve the 2018 Plan. In addition, the Company’s board of directors or the Company’s Compensation Committee may suspend or terminate the 2018 Plan at any time. Following any such suspension or termination, the 2018 Plan will remain in effect to govern any then outstanding awards until such awards are forfeited, terminated or otherwise canceled or earned, exercised, settled or otherwise paid out, in accordance with their terms.

Clawback; Sub-Plans. All awards under the 2018 Plan are subject to any incentive compensation clawback or recoupment policy currently in effect, or as may be adopted by the Company’s board of directors (or any committee or subcommittee thereof) and, in each case, as may be amended from time to time. In addition, the Company’s Compensation Committee may adopt such procedures and sub-plans as are necessary or appropriate to permit participation in the 2018 Plan by individuals who are non-U.S. nationals or are primarily employed or

 

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providing services outside the U.S., and may modify the terms of any awards granted to such participants in a manner deemed by the Company’s Compensation Committee to be necessary or appropriate in order that such awards conform with the laws of the country or countries where such participants are located.

No Repricing of Awards. No awards under the 2018 Plan may be repriced without stockholder approval. For purposes of the 2018 Plan, “repricing” means any of the following (or any other action that has the same effect as any of the following): (i) changing the terms of the award to lower its exercise price or base price (other than on account of capital adjustments resulting from stock splits), (ii) any other action that is treated as a repricing under generally accepted accounting principles, and (iii) repurchasing for cash or canceling an award in exchange for another award at a time when its exercise price or base price is greater than the fair market value of the underlying shares of common stock.

Certain U.S. Federal Income Tax Consequences

The following is a brief discussion of certain U.S. federal income tax consequences for awards granted under the 2018 Plan. The 2018 Plan is not subject to the requirements of the Employee Retirement Income Security Act of 1974, as amended, and it is not, nor is it intended to be, qualified under Section 401(a) of the Code. This discussion is based on current law, is not intended to constitute tax advice, and does not address all aspects of U.S. federal income taxation that may be relevant to a particular participant in light of his or her personal circumstances and does not describe foreign, state, or local tax consequences, which may be substantially different. Holders of awards under the 2018 Plan are encouraged to consult with their own tax advisors.

Non-Qualified Stock Options and Stock Appreciation Rights. With respect to non-qualified stock options and stock appreciation rights, (i) no income is realized by a participant at the time the award is granted; (ii) generally, at exercise, ordinary income is realized by the participant in an amount equal to the difference between the exercise or base price paid for the shares of common stock and the fair market value of the shares of common stock on the date of exercise (or, in the case of a cash-settled stock appreciation right, the cash received), and the participant’s employer is generally entitled to a tax deduction in the same amount subject to applicable tax withholding requirements; and (iii) upon a subsequent sale of the common stock received on exercise, appreciation (or depreciation) after the date of exercise is treated as either short-term or long-term capital gain (or loss) depending on how long the shares of common stock have been held, and no deduction will be allowed to such participant’s employer.

Incentive Stock Options. No income is realized by a participant upon the grant or exercise of an incentive stock option, however, such participant will generally be required to include the excess of the fair market value of the shares of common stock at exercise over the exercise price in his or her alternative minimum taxable income. If shares of common stock are issued to a participant pursuant to the exercise of an incentive stock option, and if no disqualifying disposition of such shares is made by such participant within two years after the date of grant or within one year after the transfer of such shares to such participant, then (i) upon sale of such shares, any amount realized in excess of the exercise price will be taxed to such participant as a long-term capital gain, and any loss sustained will be a long-term capital loss, and (ii) no deduction will be allowed to the participant’s employer for federal income tax purposes.

If shares of common stock acquired upon the exercise of an incentive stock option are disposed of prior to the expiration of either holding period described above, generally (i) the participant will realize ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair market value of such shares at exercise (or, if less, the amount realized on the disposition of such shares) over the exercise price paid for such shares and (ii) the participant’s employer will generally be entitled to deduct such amount for federal income tax purposes. Any further gain (or loss) realized by the participant will be taxed as short-term or long-term capital gain (or loss), as the case may be, and will not result in any deduction by the employer.

 

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Subject to certain exceptions for disability or death, if an incentive stock option is exercised more than three months following termination of employment, the exercise of the stock option will generally be taxed as the exercise of a non-qualified stock option.

Other Stock-Based Awards. The tax effects related to other stock-based awards under the 2018 Plan are dependent upon the structure of the particular award.

Withholding. At the time a participant is required to recognize ordinary compensation income resulting from an award, such income will be subject to federal (including, except as described below, Social Security and Medicare tax) and applicable state and local income tax and applicable tax withholding requirements. If such participant’s year-to-date compensation on the date of exercise exceeds the Social Security wage base limit for such year ($128,400 in 2018), such participant will not have to pay Social Security taxes on such amounts. The Company is required to report to the appropriate taxing authorities the ordinary income received by the participant, together with the amount of taxes withheld to the Internal Revenue Service and the appropriate state and local taxing authorities.

Section 162(m). Section 162(m) of the Code denies a publicly held corporation a deduction for federal income tax purposes for compensation in excess of $1 million per year paid to the corporation’s “covered employees.” “Covered employees” include the corporation’s chief executive officer, chief financial officer and three next most highly compensated executive officers. If an individual is determined to be a covered employee for any year beginning after December 31, 2016, then that individual will continue to be a covered employee for future years, regardless of changes in the individual’s compensation or position.

Section 409A. Certain awards under the 2018 Plan may be subject to Section 409A of the Code, which regulates “nonqualified deferred compensation” (as defined in Section 409A of the Code). If an award under the 2018 Plan (or any other Company plan) that is subject to Section 409A of the Code is not administered in compliance with Section 409A of the Code, then all compensation under the 2018 Plan that is considered “nonqualified deferred compensation” (and awards under any other Company plan that are required pursuant to Section 409A of the Code to be aggregated with the award under the 2018 Plan) will be taxable to the participant as ordinary income in the year of the violation, or if later, the year in which the compensation subject to the award is no longer subject to a substantial risk of forfeiture. In addition, the participant will be subject to an additional tax equal to 20% of the compensation that is required to be included in income as a result of the violation, plus interest from the date that the compensation subject to the award was required to be included in taxable income.

Certain Rules Applicable to “Insiders.” As a result of the rules under Section 16(b) of the Exchange Act, depending upon the particular exemption from the provisions of Section 16(b) utilized, “insiders” (as defined in Section 16(b)) may not receive the same tax treatment as set forth above with respect to the grant and/or exercise or settlement of awards. Generally, insiders will not be subject to taxation until the expiration of any period during which they are subject to the liability provisions of Section 16(b) with respect to any particular award. Insiders should check with their own tax advisors to ascertain the appropriate tax treatment for any particular award.

New Plan Benefits

Awards granted under the 2018 Plan are at the discretion of the Compensation Committee. With the exception of grants that have already been made and except as set forth in the table below with respect to the amendments to the 2018 Plan, it is not possible to determine the benefits or the amounts to be received under the 2018 Plan by eligible participants.

The following table sets forth the anticipated number of shares with respect to awards that may be granted to the indicated individuals and groups in connection with the proposed amendments to the 2018 Plan, subject to and contingent upon stockholder approval of Proposals 4A and 4B.

 

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Anticipated number of shares with respect to awards that may be granted under the 2018 Plan, as amended, if Proposal 4A and Proposal 4B are approved

 

John H. Johnson

  

Chief Executive Officer

     2,000,000  

Executive Officer Group and Non-Executive Officer Employee Group(1)

     3,000,000  

 

(1)

Proposal 4B allows for 3,000,000 shares to be authorized for general issuances. The board of directors currently intends to utilize the additional 3,000,000 shares for grants of equity awards to the Company’s executive officers.

Equity Compensation Plan Information

The following table sets forth the indicated information as of December 31, 2018, with respect to the Company’s equity compensation plans:

 

     Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights

(a)
     Weighted average
exercise price of
outstanding
options, warrants
and rights(1)

(b)
     Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column
(a))(2)

(c)
 

Plan Category

        

Equity compensation plans approved by the Company’s stockholders(3)(4)

     3,201,264      $ 13.80        1,677,289  

Equity compensation plans not approved by the Company’s stockholders(5)

     370,000      $ 4.50        —    
  

 

 

    

 

 

    

 

 

 

Total

     3,571,264           1,677,289  

 

(1)

Represents the weighted average exercise price of outstanding stock options and is calculated without taking into account the shares of common stock subject to outstanding restricted stock units that become issuable without any cash payment required for such shares.

(2)

Includes only shares remaining available for future issuance under the 2018 Plan. No shares are reserved for future issuance under the 2011 Plan, the Melinta Therapeutics, Inc. 2011 Equity Incentive Plan, as amended, or the Cempra, Inc. 2006 Stock Option and Incentive Plan, other than shares issuable upon exercise of equity awards outstanding under such plans. In addition, the 2018 Plan contains an “evergreen” provision pursuant to which the number of shares reserved for issuance under the 2018 Plan automatically increases on January 1 of each year, continuing through January 1, 2021, by 4% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year (unless the Compensation Committee determines to increase the number of shares subject to the 2018 Plan by a lesser amount). The number of shares of common stock reported in this column does not include the 2,240,810 shares of common stock that became available for issuance as of January 1, 2019, pursuant to the evergreen provision of the 2018 Plan.

(3)

Includes the 2018 Plan, the 2011 Plan, the Melinta Therapeutics, Inc. 2011 Equity Incentive Plan, and the Cempra, Inc. 2006 Stock Option and Incentive Plan. Of these 3,571,264 securities outstanding, there were options to purchase 3,114,464 shares of common stock and 86,800 restricted stock units.

(4)

The amounts reported in this table do not reflect the share reserve increase under the proposed amendments to the 2018 Plan.

(5)

Represents the inducement grant to Peter J. Milligan, the Company’s Chief Financial Officer, of an option to purchase 370,000 shares of common stock, at a strike price of $4.50. This grant was not granted under any of the stock plans.

As of January 28, 2019, the closing price of the Company’s common stock was $0.90 per share.

 

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Voting by Proxyholder

Proposal 4A

Your proxyholder (one of the individuals named on your proxy card) will vote your common stock in accordance with your instructions. Unless you give specific instructions to the contrary, your common stock will be voted “FOR” the amendment to the 2018 Plan to increase the number of shares reserved and available for issuance under the 2018 Plan by 2,000,000 shares specifically for issuance to the Chief Executive Officer.

Proposal 4B

Your proxyholder (one of the individuals named on your proxy card) will vote your common stock in accordance with your instructions. Unless you give specific instructions to the contrary, your common stock will be voted “FOR” the amendment to the 2018 Plan to increase the number of shares reserved and available by 3,000,000 shares for general issuances under the amended 2018 Plan.

Required Vote; Recommendation of Board of Directors

Proposal 4A

The affirmative vote of the holders of a majority of the shares of Melinta common stock present in person or represented by proxy and entitled to vote on such matter at the Special Meeting is required for approval of the amendment to the 2018 Plan to increase the number of shares reserved and available for issuance under the 2018 Plan by 2,000,000 shares specifically for issuance to the Chief Executive Officer. A “broker non-vote” will have no effect on the outcome of this Proposal 4A, while an abstention will have the same effect as a vote “AGAINST” the approval of this Proposal 4A.

VHP has informed the Company that it intends to vote the approximately 16 million shares of Melinta common stock, which represents approximately 28.6% of the outstanding shares of common stock as of January 10, 2019, that it owns in favor of this proposal, subject to VHP’s reasonable determination that certain conditions set forth in the Vatera Loan Agreement will be satisfied by the Company.

Proposal 4B

The affirmative vote of the holders of a majority of the shares of Melinta common stock present in person or represented by proxy and entitled to vote on such matter at the Special Meeting is required for approval of the amendment to the 2018 Plan to increase the number of shares reserved and available by 3,000,000 shares for general issuances under the amended 2018 Plan. A “broker non-vote” will have no effect on the outcome of this Proposal 4B, while an abstention will have the same effect as a vote “AGAINST” the approval of this Proposal 4B.

VHP has informed the Company that it intends to vote the approximately 16 million shares of Melinta common stock, which represents approximately 28.6% of the outstanding shares of common stock as of January 10, 2019, that it owns in favor of this proposal, subject to VHP’s reasonable determination that certain conditions set forth in the Vatera Loan Agreement will be satisfied by the Company.

MELINTA’S BOARD OF DIRECTORS (WITH THE TWO VATERA-RELATED MEMBERS OF THE BOARD AND MR. JOHNSON HAVING RECUSED THEMSELVES) UNANIMOUSLY RECOMMENDS THAT MELINTA STOCKHOLDERS VOTE “FOR” PROPOSAL 4A AND PROPOSAL 4B TO AMEND THE 2018 PLAN TO INCREASE THE NUMBER OF SHARES RESERVED AND AVAILABLE FOR ISSUANCE UNDER THE 2018 PLAN BY (A) 2,000,000 SHARES SPECIFICALLY ISSUABLE TO THE CHIEF EXECUTIVE OFFICER AND (B) AN ADDITIONAL 3,000,000 SHARES FOR GENERAL ISSUANCES UNDER THE AMENDED 2018 PLAN.

 

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PROPOSAL 5: APPROVAL OF POSSIBLE ADJOURNMENT OF THE SPECIAL MEETING

General

If Melinta fails to receive a sufficient number of votes to approve the other Proposals, Melinta may propose to adjourn the Special Meeting, if a quorum is present, for a period of not more than 30 days for the purpose of soliciting additional proxies to approve the other Proposals. Melinta currently does not intend to propose adjournment at the Special Meeting if there are sufficient votes to approve the other Proposals.

Voting by Proxyholder

Your proxyholder (one of the individuals named on your proxy card) will vote your common stock in accordance with your instructions. Unless you give specific instructions to the contrary, your common stock will be voted “FOR” the adjournment of the Special Meeting, if necessary, to solicit additional proxies, in the event that there are not sufficient votes at the time of the Special Meeting to approve the other Proposals above.

Required Vote; Recommendation of Board of Directors

The affirmative vote of the holders of a majority of the shares of Melinta common stock present in person or represented by proxy and entitled to vote on the matter at the Special Meeting is required to approve the adjournment of the Special Meeting for the purpose of soliciting additional proxies to approve the other Proposals. A “broker non-vote” will have no effect on the outcome of this Proposal 5, while an abstention will have the same effect as a vote “AGAINST” the approval of this Proposal 5.

MELINTA’S BOARD OF DIRECTORS (WITH THE TWO VATERA-RELATED MEMBERS OF THE BOARD HAVING RECUSED THEMSELVES) UNANIMOUSLY RECOMMENDS THAT MELINTA STOCKHOLDERS VOTE “FOR” THE PROPOSAL TO ADJOURN THE SPECIAL MEETING, IF NECESSARY, IF A QUORUM IS PRESENT, TO SOLICIT ADDITIONAL PROXIES IF THERE ARE NOT SUFFICIENT VOTES IN FAVOR OF THE OTHER PROPOSALS.

 

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STOCKHOLDER COMMUNICATIONS

Stockholders may send any communications regarding Melinta business to Melinta’s board of directors in care of Melinta’s Corporate Secretary at Melinta’s offices located at Melinta Therapeutics, Inc., 44 Whippany Road, Morristown, New Jersey 07963. Melinta’s Corporate Secretary will forward all such communications to the addressee.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Principal Stockholders

The table below sets forth information as of January 10, 2019, regarding the beneficial ownership of Melinta common stock by:

 

   

Each person known by the Company to beneficially own more than 5% of its outstanding common stock;

 

   

Each of the Company’s directors;

 

   

Each of the Company’s named executive officers; and

 

   

All of the Company’s directors and executive officers as a group

 

Name of Beneficial Owner

   Total
Beneficial
Ownership
     Percentage
of
Common
Stock
Beneficially
Owned
 

5% and Greater Stockholders

     

Vatera Capital Management LLC(1)

     16,607,959        29.6

Stonepine Capital Management, LLC(2)

     3,474,761        6.2

The Medicines Company(3)

     3,313,702        5.9

Deerfield Management Company, L.P.(4)

     4,126,770        6.9

FMR LLC(5)

     3,139,262        4.985

NEOs, Executive Officers and Directors

     

John H. Johnson(6)

     83,339        *  

Peter J. Milligan

     —          *  

David Gill(7)

     28,583        *  

Garheng Kong, M.D., Ph.D.(8)

     35,505        *  

Sue Cammarata, M.D.(9)

     46,861        *  

David Zaccardelli, Pharm.D.(10)

     99,082        *  

Erin Duffy, Ph.D.(11)

     56,524        *  

Kevin T. Ferro(1)(12)

     16,615,542        29.7

Jay Galeota (13)

     7,583        *  

Bruce Downey

     —          *  

Thomas P. Koestler, Ph.D.(14)

     24,174        *  

Paul Estrem(15)

     66,583        *  

Daniel Wechsler(16)

     80,143        *  

All directors and executive officers as a group (11 persons)

     16,997,193        30.1

 

*

Indicates beneficial ownership of less than 1%.

(1)

Based on the Schedule 13D/A filed with the SEC on January 3, 2019. Consists of 16,007,237 shares held directly by VHP and 600,722 shares held directly by VHPM Holdings LLC. Vatera Capital Management LLC is the manager of VHP and VHPM Holdings LLC. The address for Vatera Capital Management LLC is 400 Royal Palm Way, Suite 212, Palm Beach, FL 33480. Kevin Ferro presently serves on the Company’s board of directors and is Chairman of the board. Mr. Ferro is the Chief Executive Officer and managing member of Vatera Capital Management LLC, the manager of VHP and VHPM Holdings LLC, and by virtue of that position, may be deemed to have beneficial ownership of the shares held by VHP and VHPM Holdings LLC. Other than for purposes of Rule 13d-3 of the Exchange Act, Mr. Ferro disclaims beneficial ownership of the shares held by VHP and VHPM Holdings LLC except to the extent of his pecuniary interest therein.

(2)

Based on Schedule 13G filed with the SEC on November 2, 2018. The address of Stonepine Capital Management LLC is 919 NW Bond Street, Suite 204, Bend, Oregon 97703.

 

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(3)

Based on Schedule 13G filed with the SEC on January 11, 2018. The address of The Medicines Company is 8 Sylvan Way, Parsippany, New Jersey 07054.

(4)

Consists of (i) 229,558 shares of common stock and warrants to purchase 2,607,597 shares of common stock held by Deerfield Private Design Fund IV, L.P., (ii) 69,552 shares of common stock held by Deerfield Private Design Fund III, L.P. and warrants to purchase 790,054 shares of common stock, and (iii) 34,792 shares of common stock and warrants to purchase 395,217 shares of common stock held by Deerfield Special Situations Fund, L.P. Deerfield Mgmt IV, L.P. is the general partner of Deerfield Private Design Fund IV, L.P., Deerfield Mgmt III, L.P. is the general partner of Deerfield Private Design Fund III, L.P., and Deerfield Mgmt, L.P. is the general partner of Deerfield Special Situations Fund, L.P. Deerfield Management Company, L.P. is the investment manager of each of Deerfield Private Design Fund IV, L.P., Deerfield Private Design Fund III, L.P. and Deerfield Special Situations Fund, L.P. Mr. James E. Flynn is the sole member of the general partner of each of Deerfield Mgmt IV, L.P., Deerfield Mgmt III, L.P., Deerfield Mgmt, L.P. and Deerfield Management Company, L.P. As a result of the execution of the Deerfield Facility Amendment, the provisions of the warrants restrict the exercise of such securities to the extent that, upon such exercise, the number of shares then beneficially owned by the holder and its affiliates and any other person or entities with which such holder would constitute a Section 13(d) “group” would exceed 4.985% of the total number of shares of common stock then outstanding. The share numbers above and in the table do not give effect to such restriction, but the percentage of common stock beneficially owned by Deerfield Management Company does reflect such restriction. The address of each of the Deerfield related persons is c/o Deerfield Management Company, L.P., 780 Third Avenue, 37th Floor, New York, New York 10017.

(5)

Based on the Schedule 13G filed with the SEC on September 9, 2018. The address of FMR LLC is 245 Summer Street, Boston, Massachusetts 02210.

(6)

Consists of 2,000 shares owned by Mr. Johnson and 81,339 shares issuable upon the exercise of stock options exercisable within 60 days of January 10, 2019.

(7)

Consists of 1,000 shares owned by Mr. Gill and 27,583 shares issuable upon the exercise of stock options exercisable within 60 days of January 10, 2019.

(8)

Consists of 566 shares owned by Mr. Kong and 34,939 shares issuable upon the exercise of stock options exercisable within 60 days of January 10, 2019.

(9)

Consists of 4,000 shares owned by Ms. Cammarata and 42,861 shares issuable upon the exercise of stock options exercisable within 60 days of January 10, 2019.

(10)

Consists of 46,500 shares owned by Mr. Zaccardelli, 42,582 shares issuable upon the exercise of stock options exercisable within 60 days of January 10, 2019 and 10,000 restricted stock units

(11)

Consists of 4,000 shares owned by Ms. Duffy and 52,524 shares issuable upon the exercise of stock options exercisable within 60 days of January 10, 2019.

(12)

Includes 6,825 shares issuable upon the exercise of stock options exercisable within 60 days of January 10, 2019.

(13)

Consists of 7,583 shares issuable upon the exercise of stock options exercisable within 60 days of January 10, 2019.

(14)

Consists of 24,174 shares issuable upon the exercise of stock options exercisable within 60 days of January 10, 2019. Dr. Koestler is a consultant to VHP.

(15)

Consists of 10,000 shares owned by Mr. Estrem and 56,583 shares issuable upon the exercise of stock options exercisable within 60 days of January 10, 2019. Mr. Estrem departed from the Company effective October 1, 2018, as reported on Form 8-K filed September 19, 2018.

(16)

Mr. Wechsler departed from the Company on October 18, 2018, as reported on Form 8-K filed October 24, 2018.

 

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RECENT CHANGE OF CONTROL OF REGISTRANT

On November 3, 2017, Cempra, Inc., a Delaware corporation (“Cempra”), merged with then privately-held Melinta Therapeutics, Inc. (“Private Melinta”) in a reverse triangular merger, wherein Private Melinta became a subsidiary of Cempra, in accordance with the terms of an Agreement and Plan of Merger and Reorganization, dated as of August 8, 2017, as amended on each of September 6, 2017, and October 24, 2017 (as so amended, the “Merger Agreement”) by and among Cempra, Private Melinta and Castle Acquisition Corp., a Delaware corporation and wholly owned subsidiary of Cempra (“Merger Sub”). On November 3, 2017, pursuant to the Merger Agreement, Merger Sub merged with and into Private Melinta, with Private Melinta surviving the merger and becoming a wholly owned subsidiary of Cempra (the “Merger”). As a result of the Merger and after giving effect to a 5-to-1 reverse stock split effected immediately prior to the effective time of the Merger, each outstanding share of Private Melinta’s common stock automatically converted into the right to receive approximately 0.0229 shares of Cempra common stock. Concurrently with the effectiveness of the Merger, Cempra changed its name to Melinta Therapeutics, Inc. and Private Melinta changed its name to Melinta Subsidiary Corp.

Following the closing of the Merger, pre-closing Private Melinta stockholders owned, on a fully-diluted basis as calculated under the treasury stock method, approximately 51.6% of Company common stock and pre-closing Cempra stockholders owned approximately 48.4% of Company common stock. Pursuant to the terms of the Merger Agreement, prior to the closing of the Merger but effective at the effective time of the Merger, the board of directors of the Company increased the size of the board of directors to nine directors. On November 3, 2017, effective at the effective time of the Merger, Michael Dougherty, Dov A. Goldstein, M.D., Richard Kent, M.D. and P. Sherrill Neff resigned from the Company’s board of directors, and Kevin T. Ferro, Jay Galeota, Cecilia Gonzalo and Thomas P. Koestler, Ph.D., were appointed to the Company’s board of directors. The directors presently serving on the board of directors of the Company are Bruce L. Downey, Mr. Ferro, Mr. Galeota, David Gill, John H. Johnson, Dr. Koestler, Garheng Kong, M.D., Ph.D., and David Zaccardelli, Pharm. D.

 

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WHERE YOU CAN FIND MORE INFORMATION

Melinta files reports, proxy statements and other information with the SEC as required by the Exchange Act. You can find, copy and inspect information Melinta files at the SEC’s public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You can call the SEC at 1-800-SEC-0330 for further information about the public reference room. You can review Melinta’s electronically filed reports, proxy and information statements on the SEC’s website at http://www.sec.gov or on Melinta’s website at http://www.melinta.com. Information included on, hyperlinked to or accessible from Melinta’s website is not a part of this proxy statement.

You should rely only on the information contained in this proxy statement or on information to which Melinta has referred you. Melinta has not authorized anyone else to provide you with any information.

HOUSEHOLDING

Melinta has adopted a procedure, approved by the SEC, called “householding.” Under this procedure, stockholders of record who have the same address and last name will receive only one copy of the proxy statement and accompanying materials, unless Melinta is notified that one or more of these stockholders wishes to continue receiving individual copies. This procedure will reduce Melinta’s printing costs and postage fees. Stockholders who participate in householding will continue to receive separate proxy cards.

If you are eligible for householding, but you and other stockholders of record with whom you share an address currently receive multiple copies of the proxy materials, or if you hold Melinta stock in more than one account, and in either case you wish to receive only a single copy of each of these documents for your household, please contact Computershare Trust Company, N.A. by mail at P.O. Box 505008, Louisville, Kentucky 40233- 9814, Attn: Computershare Investor Services.

If you participate in householding and wish to receive a separate copy of the proxy statement and accompanying materials, or if you do not wish to continue to participate in householding and prefer to receive separate copies of these documents in the future, please contact Computershare Trust Company, N.A., as indicated above.

If you are a beneficial owner, you can request information about householding from the organization that holds your shares.

 

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OTHER MATTERS ARISING AT THE SPECIAL MEETING

The matters referred to in the Notice of Special Meeting and described in this proxy statement are, to the knowledge of Melinta’s board of directors, the only matters that will be presented for consideration at the Special Meeting. If any other matters should properly come before the Special Meeting, the persons appointed by the accompanying proxy will vote on such matters in accordance with their best judgment pursuant to the discretionary authority granted to them in the proxy.

FUTURE STOCKHOLDER PROPOSALS

Proposals of stockholders intended to be presented at Melinta’s annual meeting of stockholders to be held in 2019 must be received by Melinta no later than January 11, 2019, in order to be included in Melinta’s proxy statement and form of proxy relating to that meeting, unless the date of the 2019 annual meeting of stockholders is changed by more than 30 days from the anniversary of Melinta’s 2018 Annual Meeting, in which case the deadline for such proposals will be a reasonable time before Melinta begins to print and send Melinta’s proxy materials. These proposals must comply with the requirements as to form and substance established by the SEC for such proposals in order to be included in the proxy statement. Under Melinta’s bylaws, stockholder proposals to be considered at Melinta’s next annual meeting must be received by Melinta not later than April 13, 2019 and not earlier than March 14, 2019. All submissions must comply with all of the requirements of Melinta’s bylaws and Rule 14a-8 of the Exchange Act. Proposals should be mailed to Peter Milligan, Corporate Secretary, Melinta Therapeutics, Inc., 44 Whippany Road, Morristown, New Jersey 07963.

DIRECTIONS TO SPECIAL MEETING

Take I-78 W to exit 48, NJ-24 W; take NJ-24 W toward I-287/Springfield/Morristown. Continue onto NJ-24 W; take exit 1A toward Morris County 511 S/Morristown. Turn right onto Whippany Rd. Destination will be on the right.

 

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ANNEX A

AMENDMENT TO CERTIFICATE OF INCORPORATION

CERTIFICATE OF AMENDMENT

TO THE

CERTIFICATE OF INCORPORATION

OF

MELINTA THERAPEUTICS, INC.

 

 

Pursuant to Section 242 of the General

Corporation Law of the State of Delaware

 

 

Melinta Therapeutics, Inc., a Delaware corporation (hereinafter called the “Corporation”), does hereby certify as follows:

FIRST: The first paragraph of Article IV of the Corporation’s Certificate of Incorporation, as amended to date, is hereby amended to read in its entirety as set forth below:

“That, at 5:00 p.m., Eastern time, on the date of filing of this Certificate of Amendment of the Certificate of Incorporation with the Secretary of State of the State of Delaware (the “Effective Time”), each [●] (the “Conversion Number”) shares of the Corporation’s common stock, par value $0.001 (the “Common Stock”) (including treasury shares) issued and outstanding as of the Effective Time shall be reclassified and combined into one validly issued, fully paid and non-assessable share of Common Stock, automatically and without any action by the holder thereof (the “Reverse Stock Split”). The par value of the Common Stock following the Reverse Stock Split shall remain at $0.001 per share. No fractional shares of Common Stock shall be issued as a result of the Reverse Stock Split. In lieu of any fractional shares to which a stockholder would otherwise be entitled (after taking into account all fractional shares of Common Stock otherwise issuable to such holder), the Corporation shall, with no further action required on the part of the holder, pay cash in an amount equal to such fractional shares of Common Stock multiplied by the average last reported sales price of the Common Stock at 4:00 p.m., Eastern time, end of regular trading hours on the Nasdaq Global Market during the ten consecutive trading days ending on the last trading day prior to the effective date of the Reverse Stock Split.”

IN WITNESS WHEREOF, the Corporation has caused this Certificate to be duly executed in its corporate name this [●] day of [●], 2019.

 

MELINTA THERAPEUTICS, INC.
By:    
Name:  
Title:  

 

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ANNEX B

AMENDMENT TO CERTIFICATE OF INCORPORATION

CERTIFICATE OF AMENDMENT

TO THE

CERTIFICATE OF INCORPORATION

OF

MELINTA THERAPEUTICS, INC.

 

 

Pursuant to Section 242 of the General

Corporation Law of the State of Delaware

 

 

Melinta Therapeutics, Inc., a Delaware corporation (hereinafter called the “Corporation”), does hereby certify as follows:

FIRST: The third paragraph of Article IV of the Corporation’s Certificate of Incorporation, as amended to date, is hereby amended to read in its entirety as set forth below:

“The total number of shares that the Corporation will have authority to issue is two hundred eighty million (280,000,000), consisting of (i) two hundred seventy-five million (275,000,000) shares of common stock, $0.001 par value per share, and (ii) five million (5,000,000) shares of preferred stock, $0.001 par value per share.”

SECOND: The foregoing amendment was duly adopted in accordance with Section 242 of the General Corporation Law of the State of Delaware.

IN WITNESS WHEREOF, the Corporation has caused this Certificate to be duly executed in its corporate name this [●] day of [●], 2019.

 

MELINTA THERAPEUTICS, INC.
By:    
Name:  
Title:  

 

B-1


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ANNEX C

 

C-1


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EXECUTION VERSION

This Amended and Restated Senior Subordinated Convertible Loan Agreement (and the indebtedness and obligations evidenced hereby) are subordinate in the manner, and to the extent, set forth in that certain Subordination Agreement dated as of December 31, 2018 (as amended, restated, supplemented or otherwise modified from time to time, the “Subordination Agreement”) by and among Melinta Therapeutics, Inc., a Delaware corporation, the other “Obligors” from time to time parties thereto, Vatera Healthcare Partners LLC, Vatera Investment Partners, LLC and the other “Subordinated Creditors” from time to time parties thereto, and Cortland Capital Market Services LLC, as Agent, to the Senior Debt (as defined in the Subordination Agreement); and each lender under this Amended and Restated Senior Subordinated Convertible Loan Agreement (and the indebtedness and obligations evidenced hereby), by its acceptance hereof, shall be bound by the terms and provisions of the Subordination Agreement. Notwithstanding anything to the contrary herein, in the event of any conflict between the terms and provisions of the Subordination Agreement, on the one hand, and this Amended and Restated Senior Subordinated Convertible Loan Agreement, on the other hand, the terms and provisions of the Subordination Agreement shall govern and control.

AMENDED AND RESTATED SENIOR SUBORDINATED CONVERTIBLE LOAN AGREEMENT

originally dated as of December 31, 2018 and as amended and restated as of January 14, 2019

by and among

Melinta Therapeutics, Inc.,

as the Borrower,

the other Loan Parties party hereto from time to time

and

the Lenders


Table of Contents

Table of Contents

 

ARTICLE 1 DEFINITIONS      1  

Section 1.1

 

General Definitions

     1  

Section 1.2

 

Interpretation

     27  

Section 1.3

 

Business Day Adjustment

     28  

Section 1.4

 

Loan Records

     28  

Section 1.5

 

Accounting Terms and Principles

     29  

Section 1.6

 

Officers

     29  
ARTICLE 2 AGREEMENT FOR THE LOAN      29  

Section 2.1

 

Use of Proceeds

     29  

Section 2.2

 

Disbursements

     29  

Section 2.3

 

Payments; Prepayments; Exit Fees; Prepayment Fee; No Call

     32  

Section 2.4

 

Payment Details

     34  

Section 2.5

 

Taxes

     34  

Section 2.6

 

Costs, Expenses and Losses

     35  

Section 2.7

 

Interest

     36  

Section 2.8

 

Interest on Late Payments; Default Interest

     36  

Section 2.9

 

Conversion Feature

     36  

Section 2.10

 

[Reserved]

     49  

Section 2.11

 

Adjustments Upon a Fundamental Change

     49  

Section 2.12

 

Borrower May Consolidate, Merge or Sell Its Assets Only on Certain Terms

     51  

Section 2.13

 

Successor Substituted

     51  

Section 2.14

 

Ownership Limitation

     51  

Section 2.15

 

Section 16 Approvals

     52  
ARTICLE 3 REPRESENTATIONS AND WARRANTIES      52  

Section 3.1

 

Representations and Warranties of the Loan Parties

     52  

Section 3.2

 

Loan Parties Acknowledgment

     64  

Section 3.3

 

Representations and Warranties of the Lenders

     64  
ARTICLE 4 CONDITIONS OF EFFECTIVENESS AND DISBURSEMENT      66  

Section 4.1

 

Conditions to the Agreement Date and the Disbursement Commitments

     66  

Section 4.2

 

Conditions to the Initial Disbursement

     67  

Section 4.3

 

Conditions to the Subsequent Disbursements

     68  

Section 4.4

 

Conditions to the Amendment Date

     69  

Section 4.5

 

Determination by Required Lenders

     69  
ARTICLE 5 PARTICULAR COVENANTS AND EVENTS OF DEFAULT      69  

Section 5.1

 

Affirmative Covenants

     70  

Section 5.2

 

Negative Covenants

     76  

Section 5.3

 

[Reserved]

     79  

Section 5.4

 

General Acceleration Provision upon Events of Default

     79  

Section 5.5

 

Additional Remedies

     81  

Section 5.6

 

Recovery of Amounts Due

     82  
ARTICLE 6 MISCELLANEOUS      82  

Section 6.1

 

Notices

     82  

Section 6.2

 

Waiver of Notice

     83  

Section 6.3

 

Cost and Expense Reimbursement

     83  

 

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Section 6.4

 

Governing Law

     83  

Section 6.5

 

Successors and Assigns

     84  

Section 6.6

 

Entire Agreement; Amendments

     85  

Section 6.7

 

Severability

     86  

Section 6.8

 

Counterparts

     86  

Section 6.9

 

Survival

     86  

Section 6.10

 

No Waiver

     87  

Section 6.11

 

Indemnity

     87  

Section 6.12

 

No Usury

     88  

Section 6.13

 

Specific Performance

     88  

Section 6.14

 

Further Assurances

     89  

Section 6.15

 

USA Patriot Act

     89  

Section 6.16

 

Placement Agent

     89  

Section 6.17

 

Independent Nature of Lenders

     89  

Section 6.18

 

Joint and Several

     89  

Section 6.19

 

No Third Parties Benefited

     89  

Section 6.20

 

Binding Effect

     90  

Section 6.21

 

Marshaling; Payments Set Aside

     90  

Section 6.22

 

No Waiver; Cumulative Remedies

     90  

Section 6.23

 

Right of Setoff

     90  

Section 6.24

 

Sharing of Payments, Etc

     90  

Section 6.25

 

Other Services

     91  

Section 6.26

 

Effect of Amendment and Restatement

     91  

Section 6.27

 

Senior Facility Subordination Agreement

     91  

Annexes

 

Annex A

 

Disbursement Commitments

Schedules

Schedule P-1

 

Existing Investments

Schedule 2.4

 

List of Amendment Date Lenders and Such Lenders’ Wire Instructions and Information for Notices

Schedule 3.1(d)

 

Existing Liens

Schedule 3.1(f)

 

Existing Indebtedness

Schedule 3.1(m)

 

Real Estate

Schedule 3.1(q)

 

Exclusive Rights Related to Services

Schedule 3.1(w)

 

Borrower’s Subsidiaries

Schedule 3.1(x)

 

Dividends

Schedule 3.1(y)

 

Borrower’s Outstanding Shares of Stock, Options and Warrants

Schedule 3.1(z)

 

Margin Stock

Schedule 3.1(cc)

 

Environmental

Schedule 3.1(ee)

 

Labor Relations

Schedule 3.1(ff)

 

Jurisdiction of Organization, Legal Name, Organizational Identification Number and Chief Executive Office

Schedule 3.1(uu)

 

Registrations

Schedule 3.1(aaa)

 

Exclusive Rights Related to Products

Schedule 3.1(ww)

 

Regulatory Matters

Schedule 3.1(xx)

 

Inspections and Investigations

Schedule 3.1(bbb)

 

Products

 

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Exhibits

Exhibit A

 

Form of Note

Exhibit B

 

Form of Guaranty

Exhibit C

 

Form of Compliance Certificate

Exhibit D

 

Form of Assignment and Assumption

Exhibit E

 

Form of Conversion Notice

Exhibit F-1

 

Form of Reverse Split Amendment

Exhibit F-2

 

Form of Authorized Shares Amendment

Exhibit G   Form of Certificate of Designations
Exhibit H   Closing Checklist

 

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AMENDED AND RESTATED SENIOR SUBORDINATED CONVERTIBLE LOAN AGREEMENT

AMENDED AND RESTATED SENIOR SUBORDINATED CONVERTIBLE LOAN AGREEMENT (this “Agreement”), originally dated as of December 31, 2018 and as amended and restated as of January 14, 2019, by and among Melinta Therapeutics, Inc., a Delaware corporation (the “Borrower”), the other Loan Parties (as defined below) party hereto from time to time and the lenders party hereto from time to time (together with their successors and permitted assigns, the “Lenders”).

WITNESSETH:

WHEREAS, the Borrower has requested that the Lenders extend credit under this Agreement in the form of senior subordinated convertible loans in an aggregate principal amount of up to $140,000,000, the proceeds of which shall be used by the Borrower for the purposes set forth herein;

WHEREAS, the Lenders are willing to extend such credit to the Borrower on the terms and subject to the conditions set forth herein;

WHEREAS, the Borrower, the other Loan Parties and the Lenders entered into a Senior Subordinated Convertible Loan Agreement, dated as of the Agreement Date (the “Existing Loan Agreement”); and

WHEREAS, the Borrower, the other Loan Parties and the Lenders set forth on the signature page of this Agreement, who collectively constitute the Required Lenders, desire to amend and restate the Existing Loan Agreement in its entirety pursuant to this Agreement.

NOW, THEREFORE, in consideration of the mutual agreements set forth herein, the Parties hereby agree as follows:

ARTICLE 1

DEFINITIONS

Section 1.1 General Definitions. Wherever used in this Agreement, the Exhibits or the Schedules attached hereto, unless the context otherwise requires, the following terms have the following meanings:

Acquisition” means any transaction or series of related transactions for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of any business or division of a Person, (b) the acquisition of in excess of fifty percent (50%) of the Stock of any Person or otherwise causing any Person to become a Subsidiary of the Borrower, or (c) a merger or consolidation or any other combination with another Person.

4.985% Cap” has the meaning set forth in Section 2.9(l).

Additional Amounts” has the meaning set forth in Section 2.5(a).

Additional Permitted Debt” has the meaning set forth in clause (n) of the definition of “Permitted Indebtedness.”

Additional Permitted Debt Documents” means the agreements, instruments and documents evidencing any Additional Permitted Debt permitted by clause (n) of the definition of “Permitted Indebtedness.”

Additional Shares” has the meaning set forth in Section 2.11(a).

 

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Affiliate” means, with respect to any Person, any other Person that directly or indirectly:

(a) controls, or is controlled by, or is under common control with, such Person; or

(b) is a general partner, manager or managing member of such Person.

Without limiting the foregoing, a Person shall be deemed to be “controlled by” any other Person if such Person possesses, directly or indirectly, power to vote ten percent (10%) or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors or managers or power to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. Unless expressly stated otherwise herein, no Lender shall be deemed an Affiliate of the Borrower or any of its Subsidiaries. With respect to any Specified Lender, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Specified Lender will be deemed to be an Affiliate of such Specified Lender.

Agreement” has the meaning set forth in the preamble to this Agreement.

Agreement Date” means December 31, 2018.

Amendment Date” means January 14, 2019.

Anti-Corruption Laws” has the meaning set forth in Section 3.1(ii).

Anti-Money Laundering Laws” has the meaning set forth in Section 3.1(ii).

Applicable Laws” means, with respect to any Person, the common law and any federal, state, local, foreign, multinational or international laws, statutes, codes, treaties, standards, rules and regulations, guidelines, ordinances, orders, judgments, writs, injunctions, decrees (including administrative or judicial precedents or authorities) and the interpretation or administration thereof by, and other determinations, directives, requirements or requests of, any Governmental Authority, in each case whether or not having the force of law and that are applicable to or binding upon such Person or any of its property or Products or to which such Person or any of its property or Products is subject.

Applicable Premium” means, with respect to any Loan on any date of prepayment, the greater of (i) 1.0% of the principal amount of such Loan and (ii) the excess of (A) the present value at such date of prepayment of (1) 105.0% of the principal amount of such Loan, plus (2) all remaining required interest payments due on such Loan through July 6, 2022 (excluding accrued but unpaid interest to the date of prepayment), computed using a discount rate equal to the Treasury Rate plus 50 basis points, over (B) the principal amount of such Loan.

Approval Conditions” means the entering into by the Borrower and the other parties thereto of the Senior Facility Amendment, the receipt of the Stockholder Approval and any additional stockholder approval required to be able to issue the Full Conversion Share Amount and the shares necessary to satisfy the conversion of the convertible loans and notes under the Senior Facility Documents, the filing and effectiveness of the applicable Certificate(s) of Amendment and the Certificate of Designations and any amendment to the charter for any additional stockholder approval so required and the approval of the Common Stock into which the Conversion Shares or the convertible loans or notes under the Senior Facility Documents are convertible for listing on an Eligible Market.

Assignment and Assumption” means, an assignment and assumption agreement entered into by a Lender and an assignee, substantially in the form of Exhibit D or any other form reasonably approved by the Required Lenders.

Authorization” means, with respect to any Person, any permit, approval, authorization, license, registration, certificate, clearance, concession, grant, franchise, variance or permission from, and any other contractual

 

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obligations with, any Governmental Authority, in each case whether or not having the force of law and applicable to or binding upon such Person or any of its property or Products or to which such Person or any of its property or Products is subject (including all Registrations), and any supplements or amendments with respect to the foregoing.

Authorized Officer” means the chief executive officer, the president or the chief financial officer of the Borrower or any other officer having substantially the same authority and responsibility.

Authorized Shares Amendment” has the meaning set forth in Section 4.2(l).

Board of Directors” means the board of directors (or other equivalent governing body) of the Borrower.

Borrower” has the meaning set forth in the preamble to this Agreement.

Borrower Stock Plans” has the meaning set forth in Section 5.1(aa).

Business Day” means a day other than Saturday or Sunday on which banks are open for business in New York, New York.

Capital Lease” means, with respect to any Person, any lease of or other arrangement conveying the right to use, any property by such Person as lessee that has been or should be accounted for as a capital lease on a balance sheet of such Person prepared in accordance with GAAP.

Capital Lease Obligations” means, at any time, with respect to any Capital Lease, any lease entered into as part of any sale leaseback transaction of any Person or any synthetic lease, the amount of all obligations of such Person that is (or that would be, if such synthetic lease or other lease were accounted for as a Capital Lease) capitalized on a balance sheet of such Person prepared in accordance with GAAP.

Cash Equivalents” means (a) any readily-marketable securities (i) issued by, or directly, unconditionally and fully guaranteed or insured by the United States federal government or (ii) issued by any agency of the United States federal government the obligations of which are fully backed by the full faith and credit of the United States federal government, (b) any readily-marketable direct obligations issued by any other agency of the United States federal government, any state of the United States or any political subdivision of any such state or any public instrumentality thereof, in each case having a rating of at least “A-1” from Standard & Poor’s or at least “P-1” from Moody’s Investor Services, (c) any commercial paper rated at least “A-1” by Standard & Poor’s or “P-1” by Moody’s Investor Services and issued by any Person organized under the laws of any state of the United States, (d) any United States dollar-denominated time deposit, insured certificate of deposit, overnight bank deposit or bankers’ acceptance issued or accepted by (i) any Lender or (ii) any commercial bank that is (A) organized under the laws of the United States, any state thereof or the District of Columbia, (B) “adequately capitalized” (as defined in the regulations of its primary federal banking regulators) and (C) has Tier 1 capital (as defined in such regulations) in excess of $250,000,000 and (e) shares of any United States money market fund that (i) has substantially all of its assets invested continuously in the types of investments referred to in clause (a), (b), (c) or (d) above with maturities as set forth in the proviso below, (ii) has net assets in excess of $500,000,000 and (iii) has obtained from either Standard & Poor’s or Moody’s Investor Services the highest rating obtainable for money market funds in the United States; provided, however, that the maturities of all obligations specified in any of clauses (a), (b), (c) or (d) above shall not exceed one year.

Ceiling Rate” has the meaning set forth in Section 2.11(f).

Certificate Amendment” has the meaning set forth in Section 4.2(l).

Certificate of Designations” has the meaning set forth in Section 4.2(l).

 

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Change of Control” means (a) except as otherwise expressly permitted under this Agreement, at any time the Borrower shall cease to own, directly or indirectly, one hundred percent (100%) of the issued and outstanding Stock of any of its Subsidiaries (measured both on a fully diluted basis and not on a fully diluted basis), (b) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act, but excluding any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan), other than VHP, VIP and their respective Affiliates from time to time, is or shall at any time become the “beneficial owner” (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act except that a person or group shall be deemed to have “beneficial ownership” of all Stock that such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time (such right, an “Option Right”)), directly or indirectly, of 30% or more on an issued and outstanding basis of the voting interests in the Borrower’s Stock (taking into account all such securities that such person or group has the right to acquire pursuant to any Option Right), (c) a sale of all or substantially all of the assets of the Borrower (including, for the avoidance of doubt, the sale of all or substantially all of the assets of the Subsidiaries of the Borrower) or of the Borrower’s Stock shall occur or be consummated, (d) the consummation of a purchase, tender or exchange offer made to and accepted by the holders of more than 50% of the outstanding Stock of the Borrower; provided, however, that none of the transactions contemplated by this Agreement, the Senior Facility Documents or the Certificate of Designations, including a repayment, repurchase, redemption or conversion (or a deemed repayment, repurchase, redemption or conversion) of any Loans or Preferred Stock or any loans or notes under the Senior Facility Documents, or any adjustment in the Conversion Price or the Conversion Rate in accordance with the terms of this Agreement, or of the conversion price or the conversion rate in accordance with the terms of the Preferred Stock or the Senior Facility Documents, shall constitute a purchase, tender offer or exchange offer for purposes of this clause (d), or (e) a “change of control” however so defined in any document, agreement or instrument governing or evidencing any Indebtedness or, in each case, any term of similar effect, shall occur.

Change of Control Conversion Notice” has the meaning set forth in Section 2.3(b).

Change of Control Notice” has the meaning set forth in Section 2.3(b).

Change of Control Repayment Notice” has the meaning set forth in Section 2.3(b).

Clause A Distribution” has the meaning set forth in Section 2.9(f)(iii).

Clause B Distribution” has the meaning set forth in Section 2.9(f)(iii).

Clause C Distribution” has the meaning set forth in Section 2.9(f)(iii).

Code” means the Internal Revenue Code of 1986, as amended, and any Treasury Regulations promulgated thereunder.

Commitment Letter” means that certain commitment letter dated as of December 18, 2018, by and between the Borrower, VHP and VIP.

Common Stock” means the common stock of the Borrower, $0.001 par value per share.

Common Stock Conversion Rate” has the meaning set forth in Section 2.9(c)(iii).

Competitor” means any Person that commercially markets antibiotic products in the United States, but excluding any Person that is party to any licensing, distribution or other similar partnership agreement with the Borrower or any of its Subsidiaries.

Compliance Certificate” means a certificate in substantially the form of Exhibit C signed by the chief executive officer (or Person with equivalent duties) of the Borrower that is reasonably satisfactory to the Required Lenders.

 

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Conversion Amount” means the aggregate principal amount of the Loans being converted (the “Converted Loans”) (including any interest paid in kind that has been added to the principal balance of the Converted Loans at the end of a fiscal quarter in accordance with Section 2.7), plus any accrued and unpaid interest that is to be paid (including any interest to be paid in kind in accordance with Section 2.7) but has not yet been so paid on the aggregate principal amount of the Converted Loans, plus the portion of any Interim Exit Fee or Final Exit Fee attributable to the Converted Loans.

Conversion Date” has the meaning set forth in Section 2.9(c)(i).

Conversion Delivery Deadline” has the meaning set forth in Section 2.9(c)(ii).

Conversion Effective Date” has the meaning set forth in Section 2.9(c)(i).

Conversion Notice” has the meaning set forth in Section 2.9(c)(i).

Conversion Price” means, at any time, (i) $1,000 divided by (ii) the Conversion Rate in effect at such time.

Conversion Rate” means, initially, 6.25 shares of Preferred Stock per $1,000 of Conversion Amount, subject to adjustment as provided herein.

Conversion Shares” has the meaning set forth in Section 2.9(a).

Convertible Securities” means any Stock or securities (other than Options) directly or indirectly convertible into or exchangeable or exercisable for shares of Common Stock.

Deerfield Registration Rights Agreement” means that certain Registration Rights Agreement, dated as of January 5, 2018, entered into by the Borrower and the lenders under the Senior Facility Agreement, as amended, supplemented or otherwise modified from time to time.

Default” means any event which, with the giving of notice, lapse of time or fulfillment of any other applicable condition (or any combination of the foregoing), would constitute an Event of Default.

Disbursement” means the Initial Disbursement and/or any Subsequent Disbursement.

Disbursement Commitment” means the commitment of a Lender to provide a Disbursement under this Agreement, and “Disbursement Commitments” means all of them, collectively; provided that, notwithstanding anything to the contrary in the Loan Documents and for the avoidance of doubt, as of the Amendment Date, no Specified Lender has any prior, present or future commitment or obligation to fund any Disbursement or other amount under the Loan Documents at any time.

Disbursement Date” means the date that any Disbursement is funded by the applicable Lenders.

Dispose” and “Disposition” mean (a) the sale, lease, conveyance or other disposition of any assets or property (including any transfer or conveyance of any assets or property pursuant to a division or split of a limited liability company or other entity or Person into two or more limited liability companies or other entities or Persons) and (b) the sale or Transfer by the Borrower or any Subsidiary of the Borrower of any Stock issued by any Subsidiary of the Borrower.

Disqualified Stock” means any Stock which, by its terms (or by the terms of any security or other Stock into which it is convertible or for which it is exchangeable), or upon the happening of any event or condition, (a) matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is one year and one day following

 

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the Maturity Date (excluding any provisions requiring redemption upon a “change of control” or similar event; provided that such “change of control” or similar event results in the occurrence of the Facility Termination Date), (b) is convertible into or exchangeable for (i) debt securities or (ii) any Stock referred to in (a) above, in each case, at any time on or prior to the date that is one year and one day following the Maturity Date at the time such Stock was issued, or (c) is entitled to receive scheduled dividends or distributions in cash prior to the date that is one year and one day following the Maturity Date. For the avoidance of doubt, the Preferred Stock shall not constitute “Disqualified Stock.”

Dollars” and the “$” sign mean the lawful currency of the United States of America.

Domestic Subsidiary means any Subsidiary of the Borrower incorporated, organized or otherwise formed under the laws of the United States, any state thereof or the District of Columbia.

DTC” has the meaning set forth in Section 3.1(pp).

EBITDA” means, for any period, net income (or loss) for the applicable period of measurement of any Person and any applicable Subsidiaries (together with the other Persons whose income or loss is taken into account as provided below in determining EBITDA) (such Person, such Subsidiaries and such other Persons, collectively, the “Subject Persons”) on a consolidated basis, determined in accordance with GAAP, without duplication of any item described below (and the term “duplication” shall include any cash reimbursement for any loss or expense or other item for which an add-back is provided below), to the extent taken into account in the calculation of net income (or loss) for such period:

(a) less the income (or plus the loss) of any Person which is not a Subsidiary of a Subject Person, except to the extent of the amount of dividends or other distributions actually paid to the Subject Persons in cash or Cash Equivalents by such Person, provided the payment of dividends or similar distributions by that Person was not at the time subject to the consent of a third party or prohibited by operation of the terms of that Person’s charter or of any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Person,

(b) except in connection with determining whether a Target’s EBITDA will be accretive to, and will not have a negative impact on, the EBITDA of the Borrower and its Subsidiaries pursuant to clause (h) of the definition of “Permitted Acquisition”, less the income (or plus the loss) of any Person accrued prior to the date it becomes a Subsidiary of a Subject Person or is merged into or consolidated with a Subject Person or that Person’s assets are acquired by a Subject Person,

(c) less the proceeds of any insurance,

(d) less gains (or plus losses) from the Disposition of assets or property not in the ordinary course of business of such Subject Persons, and related tax effects in accordance with GAAP,

(e) less any other extraordinary gains (or plus any other extraordinary losses) of such Subject Persons, and related tax effects, in accordance with GAAP (as defined in GAAP prior to the effectiveness of Financial Accounting Standards Board ASU 2015-01),

(f) less income tax refunds received in excess of income tax liabilities,

(g) less income (or plus the loss) from the early extinguishment of Indebtedness, net of related tax effects,

(h) plus, without duplication, solely to the extent already taken into account in the calculation of net income (or loss) for such period:

(i) depreciation and amortization,

(ii) Net Interest Expense,

 

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(iii) all Taxes on or measured by income (excluding income tax refunds), and

(iv) all non-cash losses or charges (or minus non-cash income or gain), including non-cash adjustments resulting from the application of purchase accounting, non-cash expenses arising from grants of Stock appreciation rights, Stock options or restricted Stock, non-cash impairment of good will and other long term intangible assets, unrealized non-cash losses (or minus unrealized non-cash gains) under Swap Contracts, unrealized non-cash losses (or minus unrealized non-cash gains) in such period due solely to fluctuations in currency values, but excluding any non-cash loss or non-cash charge (A) where there were cash losses or charges with respect to such losses or charges in past periods (B) that is an accrual of a reserve for a cash loss, charge, expenditure or payment to be made, or anticipated to be made, in a future period or there is a reasonable expectation that there will be cash losses or charges with respect to such losses or charges in future periods or (C) relating to a write-down, write off or reserve with respect to accounts receivable, inventory or current assets.

Notwithstanding anything to the contrary in the Loan Documents, EBITDA shall be calculated to give effect to any asset sales, divestitures or other Disposition at any time on or after the first day of the measurement period and prior to the date of determination, as if such asset sales, divestitures or other Disposition had been effected on the first day of such measurement period.

EDGAR” has the meaning set forth in Section 3.1(s).

Effective Date” means the first date on which shares of the Common Stock trade on the applicable exchange or in the applicable market, regular way, reflecting the relevant share split or share combination, as applicable.

Eligible Market” means the New York Stock Exchange, Inc., the NYSE American, the NASDAQ Capital Market, the NASDAQ Global Market or the NASDAQ Global Select Market or, in each case, any successor thereto.

Employee” means any employee of any Loan Party, any Subsidiary of any Loan Party or any Target.

Employee Benefit Plan” means any “employee benefit plan” within the meaning of Section 3(3) of ERISA (other than a Multiemployer Plan), which any Loan Party maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any Loan Party (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be an employee benefit plan of such Loan Party) or for which it has or could reasonably be expected to have liability (including as an ERISA Affiliate).

Environmental Laws” means all Applicable Laws, Authorizations and permits imposing liability or standards of conduct for or relating to the regulation and protection of human health, safety, the workplace, the environment and natural resources, and including public notification requirements and environmental transfer of ownership, notification or approval statutes.

Environmental Liabilities” means all Liabilities (including costs of removal and remedial actions, natural resource damages and costs and expenses of investigation and feasibility studies, including the cost of environmental consultants and attorneys’ costs) that may be imposed on, incurred by or asserted against any Loan Party or any Subsidiary of any Loan Party as a result of, or related to, any claim, suit, action, investigation, proceeding or demand by any Person, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute or common law or otherwise, arising under any Environmental Law resulting from the ownership, lease, sublease or other operation or occupation of property by any Loan Party or any Subsidiary of any Loan Party, whether on, prior or after the Agreement Date.

ERISA” means the Employee Retirement Income Security Act of 1974, as amended and applicable published guidance thereunder.

 

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ERISA Affiliate” means with respect to any Loan Party, any Loan Party and any trade or business which, together with such Loan Party, is treated as a single employer within the meaning of Code Section 414 (b) or (c) or Section 4001 of ERISA or, solely for purposes of Sections 302 and 303 of ERISA or Code Section 412 or Section 430, is treated as a single employer within the meaning of Code Section 414(b), (c), (m) or (o).

ERISA Event” means any of the following: (a) a reportable event described in Section 4043(c) of ERISA (unless the 30-day notice requirement has been duly waived under the applicable regulations) with respect to a Title IV Plan; (b) the withdrawal of any ERISA Affiliate from a Title IV Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (c) the complete or partial withdrawal of any ERISA Affiliate, within the meaning of Section 4201 of ERISA, from any Multiemployer Plan; (d) with respect to any Multiemployer Plan, the filing of a notice of insolvency or termination, or treatment of a plan amendment as termination, under Section 4041A of ERISA; (e) the filing of a notice of intent to terminate a Title IV Plan, or treatment of a plan amendment as termination, under Section 4041 of ERISA; (f) the institution of proceedings to terminate a Title IV Plan or Multiemployer Plan by the PBGC; (g) the failure by any ERISA Affiliate to make any required contribution to any Title IV Plan or Multiemployer Plan when due; (h) the imposition of a Lien under Section 412 or 430(k) of the Code or Section 303 or 4068 of ERISA on any property (or rights to property, whether real or personal) of any ERISA Affiliate; (i) the failure of an Employee Benefit Plan or any trust thereunder intended to qualify for tax exempt status under Section 401 or 501 of the Code or other Applicable Law to qualify thereunder; (j) a Title IV plan is in “at risk” status within the meaning of Code Section 430(i); (k) a Multiemployer Plan is in “endangered status” or “critical status” within the meaning of Section 432(b) of the Code; and (l) any other event or condition that constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Title IV Plan or Multiemployer Plan or for the imposition of any Liability upon any ERISA Affiliate under Title IV of ERISA other than for contributions to Title IV Plans and Multiemployer Plans in the ordinary course and PBGC premiums due but not delinquent.

Event of Default” has the meaning set forth in Section 5.4.

Ex-Dividend Date” means the first date on which shares of the Common Stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive the issuance, dividend or distribution in question, from the Borrower or, if applicable, from the seller of the Common Stock on such exchange or market (in the form of due bills or otherwise) as determined by such exchange or market.

Exchange Act” means the Securities Exchange Act of 1934, as amended, including the rules and regulations promulgated thereunder.

Excluded Foreign Subsidiary” means (a) any Foreign Subsidiary which is a controlled foreign corporation (as defined in the Code) that has not guaranteed any Indebtedness (other than the Obligations) of a Loan Party or (b) a Foreign Subsidiary owned by a Foreign Subsidiary described in clause (a).

Excluded Taxes” means with respect to any Lender, (a) Taxes imposed on (or measured by) such Lender’s net income, franchise Taxes and branch profits Taxes, in each case (i) imposed as a result of such Lender being organized under the laws of, or having its principal office, or applicable lending office located in the jurisdiction imposing such Tax (or any political subdivision thereof), or (ii) that are Other Connection Taxes, (b) any United States federal withholding Tax imposed on amounts payable to such Lender under the laws in effect at the time such Lender becomes a party to this Agreement or such Lender changes its lending office, except to the extent such Lender acquired its interest in the Loan from a transferor that was entitled, immediately before such Transfer, to receive Additional Amounts with respect to such withholding Tax pursuant to Section 2.5(a) or was itself so entitled immediately before changing its lending office, (c) any United States federal withholding Tax imposed on amounts payable to such Lender directly as a result of such Lender’s failure to comply with Section 2.5(d) other than as a result of a change in law occurring subsequent to the date such Lender became a party to this Agreement, or (d) any United States federal withholding Tax imposed on amounts payable to such Lender under FATCA.

 

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Existing Loan Agreement” has the meaning set forth in the recitals to this Agreement.

Facility Termination Date” has the meaning set forth in Section 2.3(a).

FATCA” means Sections 1471 through 1474 of the Code as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Code and any applicable intergovernmental agreements entered into with respect to the foregoing.

FDA” means the United States Food and Drug Administration and any successor thereto.

Federal Reserve Board” means the Board of Governors of the Federal Reserve System or any entity succeeding to any of its principal functions.

Final Exit Fee” has the meaning set forth in Section 2.3(c).

First Subsequent Disbursement” has the meaning set forth in Section 2.2(b).

First Subsequent Disbursement Commitment” means the commitment of a Lender to provide a First Subsequent Disbursement under this Agreement, and “First Subsequent Disbursement Commitments” means all of them, collectively; provided that, notwithstanding anything to the contrary in the Loan Documents and for the avoidance of doubt, as of the Amendment Date, no Specified Lender has any prior, present or future commitment or obligation to fund any First Subsequent Disbursement or other amount under the Loan Documents at any time.

Foreign Benefit Plan” means any Employee Benefit Plan that is subject to the laws or a jurisdiction outside the United States, including those mandated by a government other than the United States of America.

Foreign Lender” has the meaning set forth in Section 2.5(d).

Foreign Subsidiary” means, with respect to any Person, a Subsidiary of such Person that is not a Domestic Subsidiary.

Form 10-K” means an annual report on Form 10-K (or successor form thereto), as required to be filed pursuant to the Exchange Act.

Form 10-Q” means a quarterly report on Form 10-Q (or successor form thereto), as required to be filed pursuant to the Exchange Act.

Full Conversion Share Amount” has the meaning set forth in Section 5.1(x).

Fundamental Change” means an event that will be deemed to occur at the time any of the following occurs:

(a) a “person” or “group” within the meaning of Section 13(d) of the Exchange Act (other than (x) VHP, VIP and their respective Affiliates from time to time, (y) the Borrower, its Subsidiaries, and/or (z) the Borrower and its Subsidiaries’ employee benefit plans, any employee benefit plan of such person or its Subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) files a Schedule TO or any schedule, form or report under the Exchange Act disclosing that such person or group has become the direct or indirect “beneficial owner” (as defined below) of shares of the Borrower’s Common Stock representing more than 50% of the voting power of the Borrower’s Common Stock other than as a result of a Disbursement hereunder;

 

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(b) the consummation of:

(i) any recapitalization, reclassification or change of the Common Stock or Preferred Stock (other than changes resulting from a subdivision, stock split, reverse stock split or share combination) as a result of which the Common Stock or Preferred Stock would be converted into, or exchanged for, other capital stock, other securities, other property or assets;

(ii) any share exchange, consolidation, merger, or combination of the Borrower pursuant to which the Common Stock or Preferred Stock would be converted into cash, securities or other property or assets (provided, however, that a transaction in which the holders of the Borrower’s common equity immediately prior to such transaction beneficially own, directly or indirectly, more than 50% of the common equity of the continuing or surviving corporation or transferee or the parent thereof immediately after such transaction in substantially the same proportions as such ownership immediately prior to such transaction shall not be a Fundamental Change pursuant to this clause (ii); provided that, for the avoidance of doubt, the immediately preceding proviso shall not be satisfied solely because VHP, VIP and their respective Affiliates or permitted assignees beneficially own more than, directly or indirectly, 50% of the Borrower’s common equity immediately prior to such transaction and continue to beneficially own, directly or indirectly, more than 50% of the common equity of the continuing or surviving corporation or transferee or the parent thereof immediately after such transaction in substantially the same proportions as such ownership immediately prior to such transaction, if substantially all other holders of the Borrower’s common equity immediately prior to such transaction cease to beneficially own any common equity of the continuing or surviving corporation or transferee of the parent thereof immediately after such transaction); or

(iii) any sale of all or substantially all of the consolidated assets of the Borrower and its Subsidiaries, taken as a whole, to any person other than one of the Borrower’s Subsidiaries;

(c) the Borrower’s stockholders approve any plan or proposal for the liquidation or dissolution of the Borrower; or

(d) the Common Stock ceases to be listed or quoted on any Eligible Market;

provided, that, for the purposes of this definition of “Fundamental Change,” (x) any transaction or event that constitutes a Fundamental Change under both clause (a) and clause (b) above will be deemed to constitute a Fundamental Change solely under clause (b) of this definition of “Fundamental Change,” (y) whether a person is a “beneficial owner” will be determined in accordance with Rule 13d-3 under the Exchange Act and (z) none of the transactions contemplated by this Agreement or the Certificate of Designations, including a repayment, repurchase, redemption or conversion (or a deemed repayment, repurchase, redemption or conversion) of any Loans or Preferred Stock, or any adjustment in the Conversion Price or the Conversion Rate in accordance with the terms of this Agreement, or of the conversion price or the conversion rate in accordance with the terms of the Preferred Stock, or any issuance of Stock upon conversion of the Loans or the Preferred Stock, shall constitute a “Fundamental Change.”

Fundamental Change Conversion Notice” has the meaning set forth in Section 2.11(a).

Fundamental Change Effective Date” has the meaning set forth in Section 2.11(b).

Fundamental Change Notice” has the meaning set forth in Section 2.9(g)(i).

Fundamental Change Period” has the meaning set forth in Section 2.11(a).

GAAP” means generally accepted accounting principles consistently applied, as set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the accounting profession), in each case, subject to the provisions of Section 1.5.

 

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Governmental Authority” means any nation, sovereign, government, quasi-governmental agency, governmental department, ministry, cabinet, commission, board, bureau, agency, court, tribunal, regulatory authority, instrumentality, judicial, legislative, fiscal or administrative or public body or entity, whether domestic or foreign, federal, state, local or other political subdivision thereof, having jurisdiction over the matter or matters and Person or Persons in question or having the authority to exercise executive, legislative, taxing, judicial, regulatory or administrative functions of or pertaining to government, including any central bank, securities exchange, regulatory body, arbitrator, public sector entity, supra-national entity and any self-regulatory organization. The term “Governmental Authority” shall further include any institutional review board, ethics committee, data monitoring committee or other committee or Person with defined authority to oversee Regulatory Matters.

Guarantor” means each Subsidiary of the Borrower (other than any Excluded Foreign Subsidiary) or other Person who provides a guaranty of the Obligations under the Guaranty.

Guaranty” means the guaranty of the Obligations made by the Guarantors in favor of the Lenders, substantially in the form of Exhibit B, together with any guaranty supplement delivered pursuant thereto.

Hazardous Material” means any substance, material or waste that is classified, regulated or otherwise characterized under any Environmental Law as hazardous, toxic, a contaminant or a pollutant or by other words of similar meaning or regulatory effect, including petroleum or any fraction thereof, asbestos, polychlorinated biphenyls and radioactive substances.

Indebtedness” means the following with respect to any Person:

(a) all indebtedness for borrowed money of such Person;

(b) the deferred purchase price of assets or services (other than trade payables entered into in the ordinary course of business and which are not more than 90 days past due) of such Person, including earn-outs, which in accordance with GAAP should be shown to be a liability on the balance sheet and have not been paid on or prior to the date due;

(c) all guarantees of Indebtedness by such Person;

(d) the face amount of all letters of credit issued or acceptance facilities established for the account of such Person (or for which such Person is liable), including without duplication, all drafts drawn thereunder;

(e) all Capital Lease Obligations of such Person;

(f) all indebtedness (including Indebtedness of other types covered by the other clauses of this definition) of such Person or another Person secured by any Lien on any assets or property of such Person, whether or not such indebtedness has been assumed or is recourse (with the amount thereof, in the case of any such indebtedness that has not been assumed by such Person, being measured as the lower of (y) fair market value of such property and (z) the amount of the indebtedness secured);

(g) indebtedness created or arising under any conditional sale or title retention agreement, or incurred as financing, in either case with respect to assets or property acquired by such Person (even if the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such assets or property);

(h) all obligations of such Persons evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses;

(i) all obligations of such Person, whether or not contingent, in respect of Disqualified Stock, valued at, in the case of redeemable preferred Stock, the greater of the voluntary liquidation preference and the involuntary liquidation preference of such Stock plus accrued and unpaid dividends;

 

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(j) all direct or indirect liability, contingent or otherwise, of such Person with respect to any Indebtedness of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such Indebtedness that such Indebtedness will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such Indebtedness will be protected (in whole or in part) against loss with respect thereto;

(k) all direct or indirect liability, contingent or otherwise, of such Person under Swap Contracts (to the extent such amount can actually be calculated or determined with certainty at the time of any such determination, calculated on a net basis);

(l) all direct or indirect liability, contingent or otherwise, of such Person to make take-or-pay or similar payments if required regardless of nonperformance by any other party or parties to an agreement; and

(m) all direct or indirect liability, contingent or otherwise, of such Person for the Indebtedness of another Person through any agreement to purchase, repurchase or otherwise acquire such Indebtedness or any assets or property constituting security therefor, to provide funds for the payment or discharge of such Indebtedness or to maintain the solvency, financial condition or any balance sheet item or level of income of another Person;

provided that, notwithstanding the foregoing, the term “Indebtedness” shall exclude any payment obligations arising under (a) the Agreement and Plan of Merger, dated as of December 3, 2013, among The Medicines Company, Rempex Pharmaceuticals, Inc. and the other parties thereto or (b) the Purchase and Sale Agreement, dated as of November 28, 2017, between The Medicines Company and Melinta Therapeutics, Inc., in each case of clauses (a) and (b), so long as such documents and the payment obligations arising thereunder are not amended, restated, supplemented, changed, increased, accelerated or otherwise modified in any manner after the Amendment Date that (1) increases the aggregate amount payable by the Loan Parties and their Subsidiaries in respect of such obligations (other than (x) payments that are made in the form of Stock of the Borrower (other than Disqualified Stock) and (y) payments made in consideration for any extension of the due dates of any such obligations in the form of interest and fees on the extended amounts in an amount not to exceed five percent (5%) per annum while such amounts remain outstanding), (2) provides that any of such obligations are secured by Liens on any asset or property of any Loan Party or any of its Subsidiaries, (3) provides that any Subsidiary of any Loan Party shall guarantee, or otherwise become obligated (whether unconditionally or upon any condition) to make any payment of or in respect of, or have any other direct or indirect liability for, any of such obligations or provide any asset or property or distribution therefor, (4) shortens the weighted average life to maturity (or otherwise shortens the maturity) of any of such obligations, unless the aggregate outstanding amount of such obligations is permanently reduced in connection therewith in a manner where the shorter maturity (and/or the shorter weighted average life to maturity, as applicable) is reasonable (as determined in good faith by the Board of Directors) in relation to such reduced aggregate amount provided in exchange therefor, (5) restricts any Loan Party or any Subsidiary from performing, or otherwise adversely affects the performance by any Loan Party or any of its Subsidiaries of, any of its material obligations (including the Obligations) under the Loan Documents, (6) has the effect of putting the Loan Parties in a worse (or less favorable) position than such obligations in effect on the Amendment Date, as determined in good faith by the Board of Directors, (7) results in a Material Adverse Effect, or (8) results in any breach of, or Default or Event of Default under, any of the Loan Documents; provided, further, that if such obligations are amended, restated, supplemented, changed, increased, accelerated, waived, consented to or otherwise modified in any manner that is not permitted by the immediately preceding proviso, then such obligations shall automatically on the date of such amendment, restatement, supplement, change, increase, acceleration or modification be deemed to have been Indebtedness retroactively to and from the date such obligations were first incurred.

Indemnified Person” has the meaning set forth in Section 6.11(a).

Indemnified Taxes” means (a) any Tax imposed on or with respect to any payments made by or on account of any Obligation of any Loan Party under any Loan Document, other than an Excluded Tax, and (b) to the extent not otherwise described in clause (a) above in this definition, Other Taxes.

 

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Indemnity” has the meaning set forth in Section 6.11(a).

Initial Disbursement” has the meaning set forth in Section 2.2(a).

Initial Disbursement Commitment” means the commitment of a Lender to provide the Initial Disbursement under this Agreement, and “Initial Disbursement Commitments” means all of them, collectively; provided that, notwithstanding anything to the contrary in the Loan Documents and for the avoidance of doubt, as of the Amendment Date, no Specified Lender has any prior, present or future commitment or obligation to fund any Initial Disbursement or other amount under the Loan Documents at any time.

Initial Disbursement Date” means the Disbursement Date of the Initial Disbursement.

Intellectual Property” has the meaning set forth in Section 3.1(n).

Interest Payment Date” has the meaning set forth in Section 2.7.

Interest Rate” means 5.00% per annum for the principal amount of any Disbursement and any overdue interest thereon.

Interim Exit Fee” has the meaning set forth in Section 2.3(c).

Internal Controls” has the meaning set forth in Section 3.1(u).

Investments” has the meaning set forth in Section 5.2(e).

Investment Company Act” means the Investment Company Act of 1940, as amended.

IP” has the meaning set forth in Section 3.1(n).

IRS” means the United States Internal Revenue Service.

Last Reported Sale Price” of a security on any date means the closing sale price per share (or, if no closing sale price is reported, the average of the last bid and ask prices or, if more than one in either case, the average of the average last bid and the average last ask prices) on such date as reported in composite transactions for the principal U.S. national or regional securities exchange on which the relevant security is traded. If the security is not listed for trading on a U.S. national or regional securities exchange on such date, the “Last Reported Sale Price” of the security will be the last quoted bid price per share for the security in the over-the-counter market on such date as reported by OTC Markets Group Inc. or a similar organization. If the relevant security is not so quoted, the “Last Reported Sale Price” will be the average of the mid-point of the last bid and ask prices per share for the relevant security on the relevant date from at least three nationally recognized independent investment banking firms selected by the Borrower for this purpose. The “Last Reported Sale Price” shall be determined without regard to after-hours trading or any other trading outside of regular trading session hours.

Latest Balance Sheet Date” has the meaning set forth in Section 3.1(t).

Lenders” has the meaning set forth in the preamble to this Agreement.

Liabilities” means all claims, actions, suits, judgments, damages, losses, liabilities, obligations, responsibilities, fines, penalties, sanctions, costs, fees, Taxes, commissions, charges, disbursements and expenses (including those incurred upon any appeal or in connection with the preparation for and/or response to any subpoena or request for document production relating thereto), in each case of any kind or nature (including interest accrued thereon or as a result thereto and fees, charges and disbursements of financial, legal and other advisors and consultants), whether joint or several, whether or not indirect, contingent, consequential, actual, punitive, treble or otherwise.

 

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Lien” means any lien, pledge, preferential arrangement, mortgage, security interest, deed of trust, charge, assignment, hypothecation, title retention or other encumbrance on or with respect to property or interest in property having the practical effect of constituting a security interest, in each case with respect to the payment of any obligation with, or from the proceeds of, any asset or revenue of any kind.

Loan” means any loan made available from time to time by the Lenders to the Borrower pursuant to this Agreement or any other Loan Document or, as the context may require, the principal amount thereof from time to time outstanding. Any references in this Agreement to the “principal amount” of a Loan shall include any interest paid in kind that has previously been added to the principal balance of the Loans at the end of a fiscal quarter in accordance with Section 2.7. “Loan” shall include any funded Disbursement.

Loan Documents” means this Agreement, the Notes, the Guaranty, each Compliance Certificate, the Senior Facility Subordination Agreement, any solvency certificate and other documents, agreements and instruments delivered in connection with any of the foregoing and dated the Agreement Date or subsequent thereto, whether or not specifically mentioned herein or therein, in each case, as amended, restated, supplemented or otherwise modified from time to time.

Loan Parties” means the collective reference to the Borrower and all of the Guarantors.

Loss” has the meaning set forth in Section 6.11(a).

LTM Net Sales” means, without duplication, for the trailing four fiscal quarter period ending as of the end of each fiscal year of the Borrower, the sum of (a) the aggregate gross amount invoiced by or on behalf of the Borrower or any of its Subsidiaries for products sold globally in bona fide, arm’s length transactions; less: (b) (i) deductions for trade, (ii) discounts, rebates, chargebacks and credits, (iii) allowances, (iv) taxes, (v) duties, (vi) governmental tariffs, (vii) freight, shipping and freight insurance costs and charges, (viii) returns and (ix) recalls.

Major Transaction” has the meaning set forth in the Warrants.

Margin Stock” means “margin stock” as such term is defined in Regulation T, U or X of the Federal Reserve Board.

Market Disruption Event” means, for the purposes of determining amounts due upon conversion (a) a failure by the primary U.S. national or regional securities exchange or market on which the Common Stock is listed or admitted for trading to open for trading during its regular trading session or (b) the occurrence or existence prior to 1:00 p.m., New York City time, on any Trading Day for the Common Stock for more than one half-hour period in the aggregate during regular trading hours of any suspension or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the relevant stock exchange or otherwise) in the Common Stock or in any options contracts or futures contracts traded on any U.S. exchange relating to the Common Stock.

Material Adverse Effect” means a material adverse effect on (a) the business, results of operations, financial condition or assets of the Loan Parties and their Subsidiaries, taken as a whole, (b) the validity or enforceability of any material provision of this Agreement, the Notes, the Guaranty or any other material Loan Document, (c) the ability of the Loan Parties to timely perform the Obligations or, solely for purposes of Sections 3.1(t), 4.1(e), 4.2(c) and 4.3(b), the Obligations (as defined in the Senior Facility Agreement), or (d) any of the rights and remedies of the Lenders under the Loan Documents.

Material Environmental Liabilities” means Environmental Liabilities exceeding $550,000 in the aggregate.

Maturity Date” means January 6, 2025.

 

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Merger Event” has the meaning set forth in Section 2.9(i).

Multiemployer Plan” means any multiemployer plan, as defined in Section 3(37) or 4001(a)(3) of ERISA, as to which any ERISA Affiliate incurs or otherwise has, or could reasonably be expected to have, any obligation or Liabilities (including under Section 4212 of ERISA).

Multi-Clause Distribution” has the meaning set forth in Section 2.9(f)(iii).

Necessary Documents” has the meaning set forth in Section 3.1(l).

Net Interest Expense” means for the Subject Persons for any period:

(a) gross interest expense (including that attributable to Capital Lease Obligations) for such period paid or required to be paid in cash (including all commissions, discounts, fees and other charges in connection with letters of credit and similar instruments and net amounts paid or payable and/or received or receivable under permitted Swap Contracts in respect of interest rates) for the Borrower and its Subsidiaries on a consolidated basis, less

(b) interest income for such period.

Note” means, with respect to any Lender, a promissory note (a) issued by the Borrower to such Lender evidencing the Obligations to such Lender and, with respect to all Lenders other than the Specified Lenders, the Disbursements funded by such Lender pursuant to the Disbursement Commitments, and (b) held by such Lender in the form attached hereto as Exhibit A, in each case, as amended, restated, supplemented or otherwise modified from time to time, and “Notes” means all of them, collectively.

Obligations” means all Loans and Disbursements, interest, fees (including any Prepayment Fees), expenses, costs, liabilities, indebtedness and other obligations (monetary (including post-petition interest, costs, fees, expenses and other amounts, whether allowed or not) or otherwise) of (or owed by) the Borrower and the other Loan Parties under or in connection with the Loan Documents, in each case howsoever created, arising or evidenced, whether direct or indirect (including those acquired by assignment), absolute or contingent, now or hereafter existing, or due or to become due.

Open of Business” means 9:00 a.m., New York City time.

Option Right” has the meaning set forth in the definition of “Change of Control”.

Options” means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.

Organizational Documents” means (a) for any corporation, the certificate or articles of incorporation, the bylaws, any certificate of determination or instrument relating to the rights of preferred shareholders of such corporation, and any shareholder rights agreement, (b) for any partnership, the partnership agreement and, if applicable, certificate of limited partnership, (c) for any limited liability company, the operating agreement and articles or certificate of formation or (d) for any other entity, any other document setting forth the manner of election or duties of the officers, directors, managers or other similar or equivalent persons or Persons, or the designation, amount or relative rights, limitations and preference of the Stock of such entity.

Other Connection Taxes” means with respect to any Lender, Taxes imposed as a result of a present or former connection between such Lender and the jurisdiction imposing such Tax (except a connection arising solely from such Lender having executed, delivered, become a party to, performed its obligations or received a payment under, received or perfected a security interest under, engaged in any transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan Document).

 

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Other Taxes” means any and all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes arising from any payment made hereunder or from the execution, delivery, registration, Transfer or enforcement of, or otherwise with respect to, any Loan Document.

Ownership Limitation” means, other than with respect to VHP, VIP and their respective Affiliates from time to time (who shall not be subject to the Ownership Limitation), the “beneficial ownership” (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act except that a person or group shall be deemed to have “beneficial ownership” of all Stock that such person or group has the right to acquire pursuant to an Option Right), directly or indirectly, by a Lender and its Affiliates and any other Persons whose beneficial ownership of Common Stock would be aggregated with such Lender’s or any such Affiliate’s for purposes of Section 13(d) of the Exchange Act (including shares held by any “group” of which such Lender is a member, but excluding shares beneficially owned by virtue of the ownership of securities or rights to acquire securities that have limitations on the right to convert, exercise or purchase similar to the limitation set forth herein) of 29.9% on an issued and outstanding basis of the voting interests in the Borrower’s Stock.

Parties” means the Borrower, the other Loan Parties and the Lenders.

PBGC” means the United States Pension Benefit Guaranty Corporation or any successor thereto.

Permitted Acquisition” means any Acquisition by a Loan Party of all of the Stock of a Target (subject to any local law requirements regarding qualifying shares) or all or substantially all of the assets of a Target, in each case, to the extent that each of the following conditions shall have been satisfied:

(a) the Borrower shall have delivered each of the following to the Lenders:

(i) as soon as available, executed copies of the Acquisition agreement and all material agreements and documents pursuant to which such Acquisition is to be consummated; provided that, no later than the third (3rd) Business Day following the date of such Acquisition documents, the Borrower shall file a current report on Form 8-K with the SEC describing the terms of the transaction contemplated by such Acquisition documents, including such Acquisition documents as exhibits thereto and disclosing any other material non-public information provided to any of the Lenders in connection with such Acquisition (or otherwise); and

(ii) to the extent required to be delivered to (and permitted to be shared by) a Loan Party pursuant to the applicable Acquisition agreement, all required material regulatory and third party approvals;

(b) such Acquisition shall not be hostile and shall have been approved by the board of directors (or other similar body) and/or the holders of Stock of the Target;

(c) no Default or Event of Default shall exist at the time of the consummation of such Acquisition or after giving effect to such Acquisition and all other transactions contemplated by the applicable Acquisition documents;

(d) the total consideration paid or payable (including all transaction costs, Indebtedness incurred, assumed and/or reflected on a consolidated balance sheet of the Loan Parties and their Subsidiaries after giving effect to such Acquisition and the maximum amount of all deferred payments, including earn-outs) for all Acquisitions consummated during the term of this Agreement shall not exceed $55,000,000 in the aggregate for all such Acquisitions;

(e) (i) the Target, the Target’s Subsidiaries and their respective assets and properties and the Stock of the Target and the Target’s Subsidiaries shall be in compliance with Section 5.1(l) and the provisions of the Guaranty and the other Loan Documents and all actions in connection therewith shall have been taken and completed in a manner reasonably acceptable to the Required Lenders, (ii) to the extent required by the Loan Documents, the Target and its Subsidiaries shall have become Guarantors under the Loan Documents and have executed and delivered such documents reasonably requested by the Required Lenders in connection therewith and (iii) all other actions shall have been taken that are necessary or reasonably requested by the Required Lenders to effectuate the foregoing in this clause (e);

 

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(f) all transactions in connection with such Acquisition shall be consummated, in all material respects, in accordance with all Applicable Laws and all applicable Authorizations shall have been obtained;

(g) the Target shall be in the same business or lines of business in which the Borrower and its Subsidiaries are engaged as of the Agreement Date or a business or line of business substantially related thereto or reasonably complementary thereof;

(h) immediately prior to, at the time of, and after giving effect to, such Acquisition and all other transactions contemplated by the applicable Acquisition documents, the Target and its Subsidiaries that are being acquired in such Acquisition have (i) positive EBITDA for the most recent twelve month period ending prior to the date of the consummation of such Acquisition for the later of (A) the period for which financial statements are available to the Loan Parties and their Affiliates or the Lenders and (B) the period that ended at least one year prior to the consummation of such Acquisition of the Target, (ii) such Acquisition is, on a pro forma basis, accretive to the EBITDA of the Borrower and its Subsidiaries and (iii) EBITDA that will not have a negative impact on the EBITDA of the Borrower and its Subsidiaries;

(i) at the time of, and after giving effect to, such Acquisition and all other transactions contemplated by the applicable Acquisition documents, all representations and warranties in the Loan Documents and in the applicable Acquisition documents shall be true, correct and complete in all material respects (without duplication of any materiality qualifier contained therein);

(j) after giving effect to such Acquisition and all other transactions contemplated by the applicable Acquisition documents, the Borrower and its Subsidiaries shall be in pro forma compliance with the financial covenants set forth in Section 5.1(v); and

(k) a certificate, in form reasonably satisfactory to the Required Lenders, that (i) has an Authorized Officer certify that all the conditions set forth in this definition of “Permitted Acquisition” have been satisfied and (ii) includes financial statements and documentation evidencing and supporting that clauses (h) and (j) of this definition of “Permitted Acquisition” have been satisfied.

Permitted Dispositions” means each of the following:

(a) (i) Dispositions of inventory, goods or services, (ii) Dispositions of worn-out, obsolete, damaged or surplus equipment, and (iii) Dispositions or abandonment of Intellectual Property no longer useful or material to the business of the Loan Parties or any of their Subsidiaries, all in the ordinary course of business;

(b) (i) Dispositions of Cash Equivalents in the ordinary course of business made to a Person that is not an Affiliate of any Loan Party and (ii) conversions of Cash Equivalents into cash or other Cash Equivalents;

(c) (i) transactions permitted under clause (i)(ii) of the definition of “Permitted Liens” and (ii) the granting of Permitted Liens;

(d) Permitted Investments, to the extent any such Investment constitutes a Disposition;

(e) the sale or issuance of the Stock in the Borrower to any direct equity holder of the Borrower or pursuant to the Loan Documents, the Senior Facility Documents or any Borrower Stock Plans;

(f) the Transfer of any assets or property (i) by a Loan Party (other than the Borrower) to another Loan Party or (ii) by a Subsidiary that is not a Loan Party to (A) a Loan Party for no more than fair market value or (B) any other Subsidiary that is not a Loan Party;

(g) the issuance by any Foreign Subsidiary of Stock to qualified directors where required by or to satisfy any Applicable Law, including any Applicable Law with respect to ownership of Stock in Foreign Subsidiaries;

(h) transactions permitted by Section 5.2(a) or Section 5.2(b);

(i) Dispositions of past due accounts receivable in the ordinary course of business (including any discount and/or forgiveness thereof) or, in the case of accounts receivable in default, in connection with the collection or compromise thereof and, in any event, not involving any securitization thereof;

 

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(j) (i) any termination of any lease in the ordinary course of business, (ii) any expiration of any option agreement in respect of real or personal property and (iii) any surrender or waiver of contractual rights or the settlement, release or surrender of contractual rights or litigation claims (including in tort) in the ordinary course of business;

(k) Dispositions of any assets or property subject to foreclosure, casualty, eminent domain or condemnation proceedings (including in lieu thereof or any similar proceeding); and

(l) other Dispositions for fair market value of assets for aggregate consideration not to exceed $550,000 in any fiscal year; provided that such Dispositions do not (i) involve assets material to the conduct of the business of the Loan Parties and their Subsidiaries or (ii) cause a Material Adverse Effect to occur or exist.

Permitted Indebtedness” means each of the following:

(a) Indebtedness existing as of the Agreement Date and set forth on Schedule 3.1(f) attached hereto;

(b) the Obligations;

(c) Indebtedness not to exceed $55,000 in the aggregate at any time outstanding, consisting of Capital Lease Obligations or secured by Liens permitted by clauses (k) and (l) of the definition of “Permitted Liens”;

(d) Indebtedness in respect of netting services, overdraft protections and other similar and customary services in connection with deposit accounts incurred in the ordinary course of business;

(e) Indebtedness to employees in respect of benefit plans and employment and severance arrangements;

(f) Indebtedness arising under guaranties made in the ordinary course of business of obligations of any Loan Party that are otherwise permitted hereunder; provided that if such obligation is subordinated to the Obligations, such guaranty shall be subordinated to the same extent;

(g) Indebtedness owed by (i) any Loan Party to another Loan Party, (ii) any Loan Party to one of its Subsidiaries that is not a Loan Party so long as such Indebtedness is unsecured and subordinated to the Obligations in a manner reasonably satisfactory to the Required Lenders;

(h) unsecured obligations of any Loan Party under any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to alter the risks of that Person arising from fluctuations in the value of certain currencies entered into in the ordinary course of business; provided that any such agreement or arrangement shall be entered into for bona fide hedging purposes and not for speculation;

(i) Indebtedness under the Senior Facility Agreement in an aggregate principal amount not to exceed the Senior Debt Cap (as defined in the Senior Facility Subordination Agreement);

(j) Indebtedness arising with respect to customary indemnification obligations and purchase price adjustments in favor of sellers in connection with Permitted Acquisitions;

(k) endorsements for collection or deposit in the ordinary course of business;

(l) Indebtedness consisting of the financing of insurance premiums in the ordinary course of business;

(m) Indebtedness in respect of a revolving credit facility in an aggregate principal amount not to exceed $22,000,000 (the “Revolving Credit Facility”), so long as (i) no Subsidiary of the Borrower that is not a Loan Party shall be the borrower, a guarantor, obligor or otherwise obligated thereunder, (ii) the lenders providing the Revolving Credit Facility are third parties that are not Affiliates of (A) any Loan Party or (B) any Subsidiary of any Loan Party and (iii) only one Revolving Credit Facility can be in effect or exist at any time; and

(n) other unsecured Indebtedness not exceeding $71,500,000 in the aggregate at any time outstanding (the “Additional Permitted Debt”), which Indebtedness shall (i) bear interest not in excess of then applicable market rates, (ii) have a maturity no earlier than the earlier of (A) the payment in full of the Obligations and (B) the Maturity Date, (iii) shall not provide for any cash payments of any type before the earlier of (A) the payment in

 

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full of the Obligations and (B) the Maturity Date, other than cash interest payments in an amount sufficient to cover any income taxes that would otherwise be payable by the lenders with respect to such Indebtedness in respect of “phantom income” on paid-in-kind interest, and (iv) be payment subordinated to the Indebtedness under the Senior Facility Agreement on substantially the same terms and conditions as the Obligations are payment subordinated to the Indebtedness under the Senior Facility Agreement.

Permitted Investments” means each of the following:

(a) Investments in cash and Cash Equivalents;

(b) Investments consisting of (i) extensions of credit or capital contributions by any Loan Party to or in any other then existing Loan Party and (ii) extensions of credit or capital contributions by a Subsidiary of the Borrower which is not a Loan Party to or in another then existing Subsidiary of the Borrower which is not a Loan Party;

(c) travel advances to employees, officers and directors of the Loan Parties in the ordinary course of business not to exceed $27,500 in the aggregate at any time outstanding;

(d) Investments acquired in connection with the settlement of delinquent accounts receivable in the ordinary course of business or in connection with the bankruptcy or reorganization of suppliers or customers;

(e) Investments consisting of non-cash loans made by the Borrower to officers, directors and employees of a Loan Party which are used by such Persons to simultaneously purchase Stock of the Borrower in accordance with the Borrower’s Organizational Documents;

(f) Investments existing on the Agreement Date and set forth on Schedule P-1;

(g) Investments comprised of guarantees of Indebtedness permitted in the definition of “Permitted Indebtedness”;

(h) Subsidiaries of the Borrower established or created, so long as the Loan Parties and any such Subsidiary comply with the applicable provisions of Section 5.1(l);

(i) [Reserved];

(j) Permitted Acquisitions; and

(k) other Investments not to exceed $660,000 in the aggregate at any time outstanding; provided that immediately before, at the time of and after giving effect to such Investment, no Default or Event of Default has occurred and is continuing.

Permitted Liens” means each of the following:

(a) Liens existing on the Agreement Date and set forth on Schedule 3.1(d);

(b) Liens securing Indebtedness incurred pursuant to the Senior Facility Agreement, solely to the extent permitted under clause (i) of the definition of “Permitted Indebtedness”;

(c) carriers’, warehousemen’s, mechanics’, landlords’, materialmen’s, repairmen’s or other similar Liens arising in the ordinary course of business which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the assets or property subject thereto and for which adequate reserves in accordance with GAAP are being maintained;

(d) Liens for Taxes, assessments or governmental charges or levies not past due or payable or that are being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP are being maintained;

(e) (A) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default and (B) pledges or cash deposits made in lieu of, or to secure the performance of, judgment or appeal bonds in respect to such judgments and proceedings mentioned in clause (e)(A) above;

 

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(f) Liens in favor of financial institutions arising in connection with the Borrower’s or its Subsidiaries’ deposit accounts maintained in the ordinary course held at such institutions to secure standard fees for services charged by, but not financing made available by, such institutions;

(g) Liens (other than any Lien imposed by ERISA) consisting of pledges or deposits required in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other social security legislation or to secure the performance of tenders, statutory obligations, surety, stay, customs and appeals bonds, bids, leases, governmental contract, trade contracts, performance and return of money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money or other funded Indebtedness) or to secure liability to insurance carriers;

(h) easements, rights of way, restrictions and other similar encumbrances affecting real property which, in the aggregate, are not substantial in amount, do not affect the value or marketability of such real property and which do not in any case materially interfere with the conduct of the business of any Loan Party or its Subsidiaries;

(i) (i) any interest or title of a lessor or sublessor under any lease not prohibited by this Agreement or (ii) non-exclusive licenses and sublicenses granted by a Loan Party or any Subsidiary of a Loan Party and leases and subleases (by a Loan Party or any Subsidiary of a Loan Party as lessor or sublessor) to third parties in the ordinary course of business not interfering with the business of the Loan Parties or any of their Subsidiaries;

(j) Liens of a collection bank arising under Section 4-210 of the UCC (or equivalent in foreign jurisdictions) on items in the course of collection;

(k) Liens on any assets or property acquired or held by any Loan Party or any Subsidiary of any Loan Party securing Indebtedness incurred or assumed for the purpose of financing (or refinancing) all or any part of the cost of acquiring such assets or property and permitted under clause (c) of the definition of “Permitted Indebtedness,” provided that (i) such Lien attaches solely to the assets or property so acquired in such transaction and the proceeds thereof and (ii) the principal amount of the Indebtedness secured thereby does not exceed 100% of the cost of such assets or property;

(l) Liens securing Capital Lease Obligations permitted under clause (c) of the definition of “Permitted Indebtedness”;

(m) Liens arising from the filing of precautionary uniform commercial code financing statements with respect to any lease not prohibited by this Agreement;

(n) Liens arising out of consignment or similar arrangements for the sale of goods entered into by the Borrower or any Subsidiary of the Borrower in the ordinary course of business;

(o) Liens in favor of customs and revenue authorities arising as a matter of law which secure payment of customs duties in connection with the importation of goods in the ordinary course of business;

(p) Liens on unearned insurance premiums securing the financing thereof to the extent permitted under clause (l) of the definition of “Permitted Indebtedness”;

(q) Liens solely on cash earnest money deposits made by the Borrower or any of its Subsidiaries in connection with any letter of intent or purchase agreement for a Permitted Acquisition; and

(r) Liens securing the Revolving Credit Facility, solely to the extent permitted under clause (m) of the definition of “Permitted Indebtedness”.

Person” means and includes any natural person, individual, partnership, joint venture, corporation, trust, limited liability company, limited company, joint stock company, unincorporated organization, government entity or any political subdivision or agency thereof, or any other entity.

Portfolio Interest Certificate” has the meaning set forth in Section 2.5(d).

 

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Preferred Stock” means the Series A Convertible Preferred Stock, par value $0.001 per share, of the Borrower.

Prepayment Fee” has the meaning set forth in Section 2.3(c).

Prepayment Notice” has the meaning set forth in Section 2.3(c).

Principal Market” means the NASDAQ Global Market (or any successor to the foregoing), or if after the Initial Disbursement Date the Common Stock is listed on another Eligible Market, such other Eligible Market.

Pro Rata First Subsequent Disbursement Share” means, with respect to any Lender (other than the Specified Lenders), in respect of unfunded First Subsequent Disbursement Commitments, the applicable percentage (as adjusted from time to time in accordance with the terms hereof and as decreased as such First Subsequent Disbursement Commitments are funded) specified opposite such Lender’s (other than the Specified Lenders’) name on Annex A under the column “First Subsequent Disbursement Commitment.” Notwithstanding anything to the contrary in the Loan Documents and for the avoidance of doubt, as of the Amendment Date, each Specified Lender’s Pro Rata First Subsequent Disbursement Share is 0%.

Pro Rata Initial Disbursement Share” means, with respect to any Lender (other than the Specified Lenders), in respect of unfunded Initial Disbursement Commitments, the applicable percentage (as adjusted from time to time in accordance with the terms hereof and as decreased as such Initial Disbursement Commitments are funded) specified opposite such Lender’s (other than the Specified Lenders’) name on Annex A under the column “Pro Rata Initial Disbursement Share.”

Pro Rata Second Subsequent Disbursement Share” means, with respect to any Lender (other than the Specified Lenders), in respect of unfunded Second Subsequent Disbursement Commitments, the applicable percentage (as adjusted from time to time in accordance with the terms hereof and as decreased as such Second Subsequent Disbursement Commitments are funded) specified opposite such Lender’s (other than the Specified Lenders’) name on Annex A under the column “Second Subsequent Disbursement Commitment.”

Pro Rata Share” means, with respect to any Lender, the applicable percentage (as adjusted from time to time in accordance with the terms hereof) obtained by dividing (a) the sum of (i) such Lender’s Pro Rata Initial Disbursement Share of the Initial Disbursement Commitments (to the extent not terminated or used in its entirety), (ii) such Lender’s Pro Rata First Subsequent Disbursement Share of the First Subsequent Disbursement Commitments (to the extent not terminated or used in its entirety), (iii) such Lender’s Pro Rata Second Subsequent Disbursement Share of the Second Subsequent Disbursement Commitments (to the extent not terminated or used in its entirety), and (iv) the outstanding amount of Loans held by such Lender, by (b) the sum of (i) the total amount of remaining Disbursement Commitments held by all Lenders, and (ii) the total outstanding amount of Loans held by all Lenders.

Products” means any item or any service that is designed, created, manufactured, managed, performed or otherwise used, offered or handled by or on behalf of the Loan Parties or any of their Subsidiaries.

Proxy Statement” has the meaning set forth in Section 5.1(x).

Public Health Laws” means all Applicable Laws relating to the procurement, development, manufacture, production, analysis, distribution, dispensing, importation, exportation, use, handling, quality, sale or promotion of any drug, medical device, food, dietary supplement or other product (including any ingredient or component of the foregoing products) subject to regulation under the Federal Food, Drug, and Cosmetic Act (21 U.S.C. et seq.) and similar state laws, controlled substances laws, pharmacy laws or consumer product safety laws.

Real Estate” means any real property owned, leased, subleased or otherwise operated or occupied by any Loan Party or any Subsidiary of any Loan Party.

 

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Reference Property” has the meaning set forth in Section 2.9(i).

Register” has the meaning set forth in Section 1.4(b).

Registration Rights Agreement” means that certain Registration Rights Agreement dated as of November 3, 2017 (as amended, supplemented or otherwise modified from time to time) by and among the Borrower, VHP and the other parties thereto.

Registrations” means all Authorizations and exemptions issued or allowed by any Governmental Authority (including new drug applications, abbreviated new drug applications, biologics license applications, investigational new drug applications, over-the-counter drug monograph, device pre-market approval applications, device pre-market notifications, investigational device exemptions, product recertifications, manufacturing approvals and authorizations, CE Marks, pricing and reimbursement approvals, labeling approvals or their foreign equivalent, controlled substance registrations, and wholesale distributor permits) held by, or applied by contract to, any Loan Party or any of its Subsidiaries, that are required for the research, development, manufacture, distribution, marketing, storage, transportation, use and sale of the Products of any Loan Party or any of its Subsidiaries.

Regulation D” means Regulation D of the Board of Governors of the Federal Reserve System as in effect from time to time and any successor to all or a portion thereof establishing reserve requirements.

Regulatory Matters” means, collectively, activities and Products that are subject to Public Health Laws.

Release” means any release, threatened release, spill, emission, leaking, pumping, pouring, emitting, emptying, escape, injection, deposit, disposal, discharge, dispersal, dumping, leaching or migration of Hazardous Material into or through the environment.

Remaining First Subsequent Disbursement Commitment Termination Date” has the meaning set forth in Section 2.2(b).

Remaining Initial Disbursement Commitment Termination Date” has the meaning set forth in Section 2.2(a).

Remaining Second Subsequent Disbursement Commitment Termination Date” has the meaning set forth in Section 2.2(c).

Reorganization Event” has the meaning set forth in Section 2.12.

Reorganization Successor Corporation” has the meaning set forth in Section 2.12(a)(ii).

Reporting Period” has the meaning set forth in Section 5.1(h).

Required Lenders” means, at any time, (i) prior to the first date on which VHP, VIP and their respective Affiliates no longer hold outstanding Loans and/or unfunded Disbursement Commitments in an aggregate amount equal to or greater than 25% of the unfunded Disbursement Commitments held by VHP and VIP on the Agreement Date, VHP, and (ii) Lenders (including VHP for so long as it or one of its Affiliates is a Lender, but excluding the Specified Lenders or any assignee or transferee thereof) having Pro Rata Shares of which the aggregate Dollar equivalent amount exceeds 50% of the outstanding Loans (excluding any Loans held by the Specified Lenders or any assignee or transferee thereof) and the unfunded Disbursement Commitments, collectively.

Reservation Date” has the meaning set forth in Section 2.9(d).

 

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Restricted Payments” means, with respect to any Person, (i) the declaration or making of any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities, in each case on account of any of its Stock, other than a payment or other distribution made solely in Stock (other than Disqualified Stock) of such Person, (ii) the purchasing, redemption or other acquisition for value of any of its Stock now or hereafter outstanding or (iii) the making of any payment or prepayment of principal of, premium, if any, interest, fees, redemption, exchange, purchase, retirement, defeasance, sinking fund or similar payment with respect to, any Indebtedness subordinated to the Obligations as to right and time of payment or as to other rights and remedies thereunder; provided that any such payment or prepayment described in this clause (iii) that is permitted by the subordination agreement with respect to such Indebtedness shall not constitute a “Restricted Payment” within the meaning of this Agreement.

Reverse Split Amendment” has the meaning set forth in Section 4.2(l).

Reverse Stock Split” has the meaning set forth in Section 5.1(x).

Revolving Credit Facility” has the meaning set forth in clause (m) of the definition of “Permitted Indebtedness.”

Revolving Credit Facility Documents” means the agreements, instruments and documents evidencing the Revolving Credit Facility permitted by clause (m) of the definition of “Permitted Indebtedness.”

Sanctioned Country” has the meaning set forth in Section 3.1(ii).

Sanctions” has the meaning set forth in Section 3.1(ii).

Sarbanes-Oxley” has the meaning set forth in Section 3.1(jj).

SDN List” has the meaning set forth in Section 3.1(ii).

SEC” means the United States Securities and Exchange Commission.

SEC Documents” means all reports, schedules, forms, statements and other documents filed by any Loan Party or any of its Subsidiaries with the SEC pursuant to the Securities Act or the Exchange Act after December 31, 2015 (including, in each case, all financial statements and schedules and pro forma financial information included therein, all exhibits thereto and all documents incorporated by reference therein).

Second Subsequent Disbursement” has the meaning set forth in Section 2.2(c).

Second Subsequent Disbursement Commitment” means the commitment of a Lender to provide a Second Subsequent Disbursement under this Agreement, and “Second Subsequent Disbursement Commitments” means all of them, collectively; provided that, notwithstanding anything to the contrary in the Loan Documents and for the avoidance of doubt, as of the Amendment Date, no Specified Lender has any prior, present or future commitment or obligation to fund any Second Subsequent Disbursement or other amount under the Loan Documents at any time.

Securities” means the Loans, the Disbursement Commitments, the Notes and the related guaranties set forth in the Guaranty of the Guarantors.

Securities Act” means the Securities Act of 1933, as amended, including the rules and regulations promulgated thereunder.

Securities Act Legends” has the meaning set forth in Section 2.9(c)(vii)(b).

 

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Senior Facility Agent” has the meaning set forth in the definition of “Senior Facility Agreement.”

Senior Facility Agreement” means the Facility Agreement dated as of January 5, 2018 (as amended, restated, supplemented, changed, extended, replaced or otherwise modified from time to time) by and among the Borrower, certain of its Subsidiaries, the lenders from time to time party thereto and Cortland Capital Market Services LLC, as agent (in such capacity, the “Senior Facility Agent”).

Senior Facility Amendment” has the meaning set forth in Section 6.27.

Senior Facility Documents” means the Loan Documents (as defined in the Senior Facility Agreement).

Senior Facility Subordination Agreement” means the Subordination Agreement dated as of the Agreement Date (as amended, restated, supplemented, changed, extended, replaced or otherwise modified from time to time) by and among the Borrower, certain of its Subsidiaries, the Lenders and the Senior Facility Agent.

Social Security Act” means the Social Security Act of 1965 as set forth in Title 42 of the United States Code, as amended, and any successor statute thereto, as interpreted by the rules and regulations issued thereunder, in each case as in effect from time to time.

Specified Lender” means any of the Lenders that is managed on a discretionary basis by, or is otherwise an Affiliate of, Deerfield Management Company, L.P. (including each of Deerfield Private Design Fund IV, L.P., Deerfield Private Design Fund III, L.P. or Deerfield Special Situations Fund, L.P.) and each of their successors and permitted assigns and transferees, and “Specified Lenders” means all of them, collectively (but, for the avoidance of doubt, not jointly and severally).

Spin-Off” has the meaning set forth in Section 2.9(f)(iii)(B).

Stock” means (a) all shares of capital stock (whether denominated as common stock or preferred stock), equity interests, beneficial, partnership or membership interests, joint venture interests, participations or other ownership or profit interests in or equivalents (regardless of how designated) of or in a Person (other than an individual), whether voting or non-voting; and (b) all securities convertible into or exchangeable for any other Stock and all warrants, options or other rights to purchase, subscribe for or otherwise acquire any other Stock, whether or not presently convertible, exchangeable or exercisable. The term “Stock” shall not include any Loans, Notes or Disbursements hereunder, nor any “Loans”, “Notes” or “Disbursements” under the Senior Facility Agreement (as such terms are defined therein).

Stock Price” means, for (x) any Fundamental Change, (i) if the holders of the Common Stock receive only cash in consideration for their shares of Common Stock in such Fundamental Change and such Fundamental Change is of the type described in sub-clause (ii) of clause (b) of the definition of Fundamental Change, the amount of cash paid per share of the Common Stock in such Fundamental Change, (ii) in all other cases, the Volume Weighted Average Price of the Common Stock over the five (5) consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the Fundamental Change Effective Date for such Fundamental Change, or for (y) any prepayment in connection with Section 2.3(c), the Volume Weighted Average Price of the Common Stock over the five (5) consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the effective date of the prepayment.

Stockholder Approval” has the meaning set forth in Section 5.1(x).

Stockholder Meeting” has the meaning set forth in Section 5.1(x).

Subject Foreign Subsidiaries” means Rib-X Ltd., Rempex London Limited and Rempex Australia Pty Limited.

 

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Subject Persons” has the meaning set forth in the definition of “EBITDA.”

Subsequent Disbursement” means a First Subsequent Disbursement or a Second Subsequent Disbursement, and “Subsequent Disbursements” means all of them, collectively.

Subsequent Disbursement Commitments” means the commitments of the Lenders to provide Subsequent Disbursements under this Agreement; provided that, notwithstanding anything to the contrary in the Loan Documents and for the avoidance of doubt, as of the Amendment Date, no Specified Lender has any prior, present or future commitment or obligation to fund any Subsequent Disbursement or other amount under the Loan Documents at any time.

Subsequent Stockholder Approval” has the meaning set forth in Section 5.1(x).

Subsidiary” or “Subsidiaries” means, as to any Person, any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person. Unless the context otherwise requires, each reference to Subsidiaries herein shall be a reference to Subsidiaries of the Borrower.

Successor Major Transaction” means either a Change of Control or a Fundamental Change that constitutes a Merger Event in which the shares of Common Stock are converted into the right to receive cash, securities of another entity and/or other assets.

Successive Conversion Period” means the period beginning upon receipt by the Specified Lenders of a Change of Control Notice, Fundamental Change Notice or Prepayment Notice, as applicable, and ending on the one-year anniversary of the effective date of the Change of Control, Fundamental Change or prepayment, as applicable.

Swap Contract” means any agreement, contract or transaction that constitutes a “swap” within the meaning of Section 1a(47) of the Commodity Exchange Act.

Target” means any other Person incorporated or organized under the laws of any state in the United States or the District of Columbia or a business unit, product line, division or asset group of any such Person acquired or proposed to be acquired in an Acquisition.

Tax Affiliate” means (a) the Borrower and its Subsidiaries and (b) any Affiliate of the Borrower with which the Borrower files or is required to file consolidated, combined or unitary tax returns.

Tax Distributions” means distributions from any Subsidiary to the Borrower in the aggregate amount necessary to permit the Borrower to pay all or a portion of the U.S. federal, state and local income tax liabilities attributable to the Borrower’s ownership of the Subsidiaries; provided that the amount of such distributions in any taxable period shall not exceed the amount of U.S. federal, state and local income tax the Subsidiaries would be required to pay with respect to such taxable period if they filed as a separate consolidated, combined, unitary or other similar group for income tax purposes with the Borrower as the common parent of such group.

Tax Returns” has the meaning set forth in Section 3.1(p).

Taxes” means all present or future taxes, levies, imposts, stamp or other duties, deductions, charges or withholdings imposed by an Governmental Authority, together with any interest, additions to tax, penalties or other Liabilities with respect thereto.

Title IV Plan” means an Employee Benefit Plan subject to Title IV of ERISA, other than a Multiemployer Plan, to which any ERISA Affiliate incurs or otherwise has or could reasonably be expected to have any obligation or Liabilities (including under Section 4069 of ERISA).

 

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Trading Day” means, except for determining amounts due upon conversion as set forth below, a day on which (i) trading in the Common Stock (or other security for which a closing sale price must be determined) generally occurs on the NASDAQ Global Market or, if the Common Stock (or such other security) is not then listed on the NASDAQ Global Market, on the principal other U.S. national or regional securities exchange on which the Common Stock (or such other security) is then listed or, if the Common Stock (or such other security) is not then listed on a U.S. national or regional securities exchange, on the principal other market on which the Common Stock (or such other security) is then traded and (ii) a Last Reported Sale Price for the Common Stock (or closing sale price for such other security) is available on such securities exchange or market; provided that if the Common Stock (or such other security) is not so listed or traded, “Trading Day” means a Business Day; and provided, further, that for purposes of determining amounts due upon conversion only, “Trading Day” means a day on which (x) there is no Market Disruption Event and (y) trading in the Common Stock generally occurs on the NASDAQ Global Market or, if the Common Stock is not then listed on the NASDAQ Global Market, on the principal other U.S. national or regional securities exchange on which the Common Stock is then listed or, if the Common Stock is not then listed on a U.S. national or regional securities exchange, on the principal other market on which the Common Stock is then listed or admitted for trading, except that if the Common Stock is not so listed or admitted for trading, “Trading Day” means a Business Day.

Transactions” means (a) the funding of the Disbursements, (b) the providing of the Disbursement Commitments, (c) the execution and delivery of the Loan Documents and (d) the payment of fees, commissions, costs and expenses in connection with each of the foregoing.

Transfer” means directly or indirectly, sell, give, assign, hypothecate, pledge, encumber, grant a security interest in or otherwise dispose of (whether by operation of law or otherwise).

Transfer Agent” has the meaning set forth in Section 2.9(c)(ii).

Treasury Rate” means, on any date of prepayment, the yield to maturity as of such prepayment date of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two Business Days prior to such prepayment date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from such prepayment date to July 6, 2022; provided, however, that if the period from such prepayment date to July 6, 2022 is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used.

Trigger Event” has the meaning set forth in Section 2.9(f)(iii).

UCC” means the Uniform Commercial Code of any applicable jurisdiction and, if the applicable jurisdiction shall not have any Uniform Commercial Code, the Uniform Commercial Code as in effect from time to time in the State of New York.

unit of Reference Property” has the meaning set forth in Section 2.9(i).

United States” and “U.S.” each means the United States of America.

USA Patriot Act” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, P.L. 107-56, as amended from time to time.

Valuation Period” has the meaning set forth in Section 2.9(f)(iii)(B).

VHP” means Vatera Healthcare Partners LLC.

VIP” means Vatera Investment Partners LLC (to be re-named Oikos Investment Partners LLC after the date hereof).

 

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Volume Weighted Average Price” means the volume weighted average price per share of the relevant securities over the relevant period (as reported by Bloomberg L.P. or, if not reported thereby, by another authoritative source mutually agreed by the Loan Parties and the Required Lenders).

Warrants” means such warrants issued by the Borrower to Deerfield Private Design Fund IV, L.P., Deerfield Private Design Fund III, L.P., and Deerfield Special Situations Fund, L.P. on January 5, 2018 (as amended, supplemented or otherwise modified from time to time) to purchase an aggregate of 3,792,868 shares of Common Stock of the Borrower.

Section 1.2 Interpretation. In this Agreement and the other Loan Documents, unless the context otherwise requires, all words and personal pronouns relating thereto shall be read and construed as the number and gender of the party or parties requires and the verb shall be read and construed as agreeing with the required word and pronoun. The division of this Agreement and the other Loan Documents into Articles and Sections and the use of headings and captions is for convenience of reference only and shall not modify or affect the interpretation or construction of this Agreement or any of its provisions. The words “herein,” “hereof,” “hereunder,” “hereinafter” and “hereto” and words of similar import refer to this Agreement (or other applicable Loan Document) as a whole and not to any particular Article or Section hereof (or thereof). The term “or” has, except where otherwise indicated, the inclusive meaning represented by the phrase “and/or.” The term “documents” and “agreements” include any and all instruments, documents, agreements, certificates, indentures, notices and other writings, however evidenced. The use in any of the Loan Documents of the word “include” or “including,” when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not non-limiting language (such as “without limitation” or “but not limited to” or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that fall within the broadest possible scope of such general statement, term or matter. References to a specified Article, Exhibit, Section or Schedule shall be construed as a reference to that specified Article, Exhibit, Section or Schedule of this Agreement (or other applicable Loan Document). Unless specifically stated otherwise, any reference to any of the Loan Documents means such document as the same shall be amended, restated, supplemented or otherwise modified and from time to time in effect. The references to “asset” (or “assets”) and “property” (or “properties”) in the Loan Documents are meant to be mean the same and are used throughout the Loan Documents interchangeably, and such words shall be deemed to refer to any and all tangible and intangible assets and properties, including cash, securities, Stock, accounts and contract rights. Unless otherwise specified herein or therein, all terms defined in any Loan Document shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto or thereto. The meanings of defined terms shall be equally applicable to the singular and plural forms of the defined terms. Terms (including uncapitalized terms) not otherwise defined herein and that are defined in the UCC shall have the meanings therein described. In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including,” the words “to” and “until” each mean “to but excluding,” and the word “through” means “to and including.” If any provision of this Agreement or any other Loan Document refers to any action taken or to be taken by any Person, or which such Person is prohibited from taking, unless otherwise expressly stated, such provision shall be interpreted to encompass any and all means, direct or indirect, of taking, or not taking, such action. References to any statute or regulation may be made by using either the common or public name thereof or a specific cite reference and, except as otherwise provided with respect to FATCA, are to be construed as including all statutory and regulatory provisions related thereto or consolidating, amending, replacing, supplementing or interpreting the statute or regulation, and any reference to any law or regulation, shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time. Whenever any reference is made in any Loan Document to any Person such reference shall be construed to include such Person’s permitted successors and permitted assigns. Any financial ratios required to be satisfied in order for a specific action to be permitted under any Loan Document shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein or therein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number). Unless otherwise specified, all references in any Loan Document to

 

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times of day shall be references to New York City time. Notwithstanding anything to the contrary in any Loan Document, any reference to “Organizational Document” or “Organizational Documents” of any Loan Party or any of its Subsidiaries in any Loan Document shall mean such written documents, agreements and arrangements that are in effect on the Agreement Date after giving effect to the Transactions occurring on the Agreement Date that have been approved by the Required Lenders, without giving effect to any amendment, restatement, change, supplement, waiver or other modification thereto or thereof that is not expressly permitted by Section 5.2(j). Any reference to “payment in full”, “paid in full”, “repaid in full”, “prepaid in full”, “redeemed in full” or any other term or word of similar effect used in this Agreement or any other Loan Document with respect to the Loans or the Obligations shall mean all Obligations (including any Prepayment Fees) (excluding contingent claims for indemnification to the extent no claim giving rise thereto has been asserted) have been repaid in full in cash or through the issuance of Conversion Shares or a combination of cash and Conversion Shares and have been fully performed. Notwithstanding anything to the contrary in this Agreement or in any other Loan Document, (a) no action or inaction is permitted (and any such action or inaction shall be and is expressly prohibited) under this Agreement and/or any other Loan Document to the extent such action or inaction is prohibited by the Senior Facility Subordination Agreement, (b) all terms and provisions in this Agreement and the other Loan Documents shall be deemed to be (i) qualified and modified by the terms and provisions of the Senior Facility Subordination Agreement and (ii) subject to the Senior Facility Subordination Agreement without having to expressly include language stating that such terms and provisions are “subject to the Senior Facility Subordination Agreement,” and (c) with respect to any conflict between the terms and provisions of this Agreement and/or any other Loan Document, on the one hand, and the Senior Facility Subordination Agreement, on the other hand, the Senior Facility Subordination Agreement shall govern and control.

Section 1.3 Business Day Adjustment. Except as otherwise expressly stated herein or in any other Loan Document (and except on the Maturity Date or any date of acceleration of any of the Obligations, which in each such case, such payment or performance shall be due and payable or performed on or prior to such day regardless of whether such day is a Business Day), if the day by which any payment or other performance is due to be made is not a Business Day, that payment or performance shall be made by the next succeeding Business Day unless that next succeeding Business Day falls in a different calendar month, in which case that payment or other performance shall be made by the Business Day immediately preceding the day by which such payment or other performance is due to be made; provided that interest will continue to accrue each additional day in connection therewith.

Section 1.4 Loan Records.

(a) The Borrower will record on its books and records the amount of the Loans, the unfunded amount of the Disbursement Commitments, the interest rate applicable thereto, all payments of principal and interest thereon and the principal balance thereof from time to time outstanding.

(b) The Borrower shall establish and maintain at its address referred to in Section 6.1, (i) a record of ownership (the “Register”) of the interests (including any rights to receive payment hereunder) of each Lender in the Loans and the unfunded Disbursement Commitments, and any assignment of any such interest or interests, and (ii) accounts in the Register in which it shall record (1) the names and addresses of the Lenders (and any change thereto pursuant to this Agreement), (2) the amount of the Loans and the unfunded Disbursement Commitments and each funding of any participation therein, (3) the amount of any principal, interest, fee or other amount due and payable or paid, and (4) any other payment received by the Lenders from the Borrower and its application to the Loans and the unfunded Disbursement Commitments. The Register of the Borrower shall be absolute, binding and conclusive absent manifest error.

(c) The Loans made by each Lender are evidenced by this Agreement. Additionally, the Borrower shall execute and deliver to each Lender (and/or, if applicable and if so requested by any assignee Lender pursuant to the assignment provisions of Section 6.5) on each Disbursement Date (or, if such assignment is made after the applicable Disbursement Date, promptly after such Lender’s request) a Note payable to such Lender in an amount equal to the unpaid principal amount of the outstanding Loans held by such Lender (which, at the request

 

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of such Lender, may provide separate Notes for separate or different parts of the outstanding Loans held by such Lender). Notwithstanding anything to the contrary contained in this Agreement, the Loans and the unfunded Disbursement Commitments (including any Notes evidencing the such outstanding Loans) are registered obligations, the right, title and interest of the Lenders and their successors and assignees in and to the Loan and any Disbursement Commitments shall be transferable only upon notation of such Transfer in the Register and no assignment thereof shall be effective until recorded therein. This Section 1.4 shall be construed so that the Loan is at all times maintained in “registered form” within the meaning of Sections 163(f), 871(h)(2) and 881(c)(2) of the Code.

(d) The Borrower and the Lenders shall treat each Person whose name is recorded in the Register as a Lender for all purposes of this Agreement. Information contained in the Register with respect to any Lender shall be available for access by the Borrower or such Lender at any reasonable time and from time to time upon reasonable prior written notice.

Section 1.5 Accounting Terms and Principles. All accounting determinations required to be made pursuant hereto shall, unless expressly otherwise provided herein, be made in accordance with GAAP. No change in the accounting principles used in the preparation of any financial statement hereafter adopted by the Borrower or its Subsidiaries (including, with respect to GAAP, any change in GAAP that would require leases that would be classified as operating leases under GAAP on the Agreement Date to be reclassified as Capital Leases) shall be given effect for purposes of measuring compliance with any provision of this Agreement or otherwise determining any relevant ratios and baskets which govern whether any action is permitted hereunder unless the Borrower and the Required Lenders agree to modify such provisions to reflect such changes in GAAP, and unless such provisions are modified, all financial statements and similar documents provided hereunder shall be provided together with a reconciliation between the calculations and amounts set forth therein before and after giving effect to such change in GAAP. Notwithstanding any other provision contained herein or in any other Loan Document, all terms of an accounting or financial nature used herein and in the other Loan Documents shall be construed, and all computations of amounts and ratios referred to herein and in the other Loan Documents shall be made, without giving effect to any election under Statement of Financial Accounting Standards No. 159 (Codification of Accounting Standards 825-10) to value any Indebtedness or other liabilities of any Loan Party or any Subsidiary at “fair value,” as defined therein. A breach of any financial covenant set forth in Section 5.1(v) shall be deemed to have occurred as of the last day of any specified measurement period, regardless of when the financial statements reflecting such breach are delivered to any Lender.

Section 1.6 Officers. Any document, agreement or instrument delivered under the Loan Documents that is signed by an Authorized Officer or another officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Authorized Officer or other officer shall be conclusively presumed to have acted on behalf of such Loan Party in such person’s capacity as an officer of such Loan Party and not in any individual capacity.

ARTICLE 2

AGREEMENT FOR THE LOAN

Section 2.1 Use of Proceeds. The proceeds of each Disbursement will be used for working capital and other general corporate purposes of the Borrower, including Permitted Acquisitions; provided, however, that the proceeds of each Disbursement shall not be used to pay all or any portion of any liability in excess of $15,000,000 (other than any Indebtedness or other obligations under the Senior Facility Documents or the Revolving Credit Facility Documents) in the aggregate without the prior written consent of the Required Lenders in their sole discretion.

Section 2.2 Disbursements.

(a) Initial Disbursement. Subject to the satisfaction (or waiver by the Required Lenders) of the conditions set forth in Section 4.1, Section 4.2 and this Section 2.2(a) and subject to the terms in this Agreement

 

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and in reliance on the representations and warranties in the Loan Documents, the Borrower shall provide a written notice to each Lender (other than the Specified Lenders) holding an Initial Disbursement Commitment in form and substance reasonably satisfactory to each such Lender from an Authorized Officer of the Borrower (certifying that all such aforementioned conditions in this Section 2.2(a) are satisfied or are expected to be satisfied on the proposed date of the funding of the Initial Disbursement) requesting each such Lender fund in a single advance its Pro Rata Initial Disbursement Share of the Initial Disbursement at least five (5) Business Days in advance of the proposed date of the funding of the Initial Disbursement amount by such Lender (or such shorter period agreed to by all such Lenders in their sole discretion) with the proposed date of funding being required to be a single Business Day during the period commencing on (and including) the Agreement Date and ending on (and including) February 25, 2019 (or such earlier date set forth in the proviso of the first sentence of Section 2.3(a) or caused by the Facility Termination Date occurring or any earlier date of termination based on remedies available upon (or at the time of) the occurrence of an Event of Default) (such end date of the Initial Disbursement Commitments, the “Remaining Initial Disbursement Commitment Termination Date”), whereupon each Lender (other than the Specified Lenders) holding an Initial Disbursement Commitment severally but not jointly agrees to lend to the Borrower in a single advance on the proposed date of funding, the principal amount (but not less than the principal amount) of the total Initial Disbursement Commitment amount multiplied by the percentage set forth opposite such Lender’s name in Annex A under the heading “Pro Rata Initial Disbursement Share.” Following receipt of such written notice from Borrower pursuant to the above terms in this Section 2.2(a), each Lender (other than the Specified Lenders) holding an Initial Disbursement Commitment with a Pro Rata Initial Disbursement Share greater than 0% shall make its Pro Rata Initial Disbursement Share of the Initial Disbursement requested by the Borrower pursuant to such written notice available to the Borrower on the proposed date of funding of the Initial Disbursement covered by such written notice to the extent that the conditions set forth in Section 4.1, Section 4.2 and this Section 2.2(a) have been satisfied for the Initial Disbursement. Amounts borrowed under this Section 2.2(a) are referred to as the “Initial Disbursement.” Upon the funding by any Lender (other than the Specified Lenders) of its Pro Rata Initial Disbursement Share of the Initial Disbursement, the Initial Disbursement Commitment of such Lender shall immediately and automatically terminate and the Borrower shall provide notation thereof in the Register of such termination and the holding of the Initial Disbursement by such Lender. Upon the funding by each Lender (other than the Specified Lenders) of its Pro Rata Initial Disbursement Share of the Initial Disbursement, each of the Specified Lenders shall be deemed for all purposes of this Agreement to have funded its Pro Rata Initial Disbursement Share of the Initial Disbursement, the Initial Disbursement Commitment of such Specified Lender shall immediately and automatically terminate and the Borrower shall provide notation thereof in the Register of such termination and the holding of the Initial Disbursement by such Specified Lender; provided that no Specified Lender shall have any duty or obligation to fund (and has made no commitment to fund) any Initial Disbursement Commitment, or any amounts or obligations under this Agreement or the other Loan Documents. Any Initial Disbursement Commitments that are still available as of the Remaining Initial Disbursement Commitment Termination Date shall immediately and automatically terminate without any action or notice by any Person. Notwithstanding anything to the contrary in the Loan Documents or otherwise, as consideration for agreeing to the terms and provisions set forth in the Senior Facility Amendment (which it is understood and agreed by all Parties to this Agreement would have not been agreed to by the lenders (including the Specified Lenders) party to the Senior Facility Amendment without the receipt and benefit thereof), on and after the date any Initial Disbursement of any amount is funded or made by any Lender or any other Person, the Specified Lenders shall hold (and be deemed to hold for all purposes) $5,000,000 in Initial Disbursements in the percentages set forth on Annex A under the heading “% of Total Initial Disbursement Commitment” (with such changes to such amount and such percentages from any permitted assignments or transfers thereof, or any prepayments, repayments, conversions or other reductions thereof in accordance with the terms and provisions of this Agreement, from time to time).

(b) First Subsequent Disbursement. Subject to the satisfaction (or waiver by the Required Lenders) of the conditions set forth in Section 4.1, Section 4.3 and this Section 2.2(b) and subject to the terms in this Agreement and in reliance on the representations and warranties in the Loan Documents, to the extent the Borrower provides a written notice to each Lender holding a First Subsequent Disbursement Commitment in form and substance reasonably satisfactory to each such Lender from an Authorized Officer of the Borrower

 

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(certifying that all such aforementioned conditions in this Section 2.2(b) are satisfied or are expected to be satisfied on the proposed date of the funding of such First Subsequent Disbursement) requesting each such Lender fund in a single advance its Pro Rata First Subsequent Disbursement Share of the First Subsequent Disbursement at least twelve (12) Business Days in advance of the proposed date of the funding of such First Subsequent Disbursement amount by such Lender (or such shorter period agreed to by all such Lenders in their sole discretion) with the proposed date of funding being required to be a single Business Day during the period commencing on (and including) the first Business Day after March 31, 2019 and ending on (and including) June 30, 2019 (or such earlier date set forth in the proviso of the first sentence of Section 2.3(a) or caused by the Facility Termination Date occurring or any earlier date of termination based on remedies available upon (or at the time of) the occurrence of an Event of Default) (such end date of the First Subsequent Disbursement Commitments, the “Remaining First Subsequent Disbursement Commitment Termination Date”), each Lender holding a First Subsequent Disbursement Commitment severally but not jointly agrees to lend to the Borrower in a single advance on the proposed date of funding, up to the principal amount set forth opposite such Lender’s name in Annex A under the heading “First Subsequent Disbursement Commitment.” Following receipt of such written notice from Borrower pursuant to the above terms in this Section 2.2(b), each Lender holding a First Subsequent Disbursement Commitment shall make its Pro Rata First Subsequent Disbursement Share of such First Subsequent Disbursement requested by the Borrower pursuant to such written notice available to the Borrower on the proposed date of funding of such First Subsequent Disbursement covered by such written notice to the extent that the conditions set forth in Section 4.1, Section 4.3 and this Section 2.2(b) have been satisfied for such First Subsequent Disbursement. Amounts borrowed under this Section 2.2(b) are referred to as the “First Subsequent Disbursement.” Upon the funding by any Lender of its Pro Rata First Subsequent Disbursement Share of the First Subsequent Disbursement, the First Subsequent Disbursement Commitment of such Lender shall immediately and automatically terminate and the Borrower shall provide notation thereof in the Register of such termination and the holding of the First Subsequent Disbursement by such Lender. Any First Subsequent Disbursement Commitments that are still available as of the Remaining First Subsequent Disbursement Commitment Termination Date shall immediately and automatically terminate without any action or notice by any Person.

(c) Second Subsequent Disbursement. Subject to the satisfaction (or waiver by the Required Lenders) of the conditions set forth in Section 4.1, Section 4.3 and this Section 2.2(c) and subject to the terms in this Agreement and in reliance on the representations and warranties in the Loan Documents, to the extent the Borrower provides a written notice to each Lender holding a Second Subsequent Disbursement Commitment in form and substance reasonably satisfactory to each such Lender from an Authorized Officer of the Borrower (and with such written notice certifying that all such aforementioned conditions in this Section 2.2(c) are satisfied or are expected to be satisfied on the proposed date of the funding of such Second Subsequent Disbursement) requesting each such Lender fund in a single advance its Pro Rata Second Subsequent Disbursement Share of the Second Subsequent Disbursement at least twelve (12) Business Days in advance of the proposed date of the funding of such Second Subsequent Disbursement amount by such Lender (or such shorter period agreed to by all such Lenders in their sole discretion) with the proposed date of funding being required to be a single Business Day during the period commencing on (and including) the first Business Day after June 30, 2019 and ending on (and including) July 10, 2019 (or such earlier date set forth in the proviso of the first sentence of Section 2.3(a) or caused by the Facility Termination Date occurring or any earlier date of termination based on remedies available upon (or at the time of) the occurrence of an Event of Default) (such end date of the Second Subsequent Disbursement Commitments, the “Remaining Second Subsequent Disbursement Commitment Termination Date”), each Lender holding a Second Subsequent Disbursement Commitment severally but not jointly agrees to lend to the Borrower in a single advance on the proposed date of funding, up to the principal amount set forth opposite such Lender’s name in Annex A under the heading “Second Subsequent Disbursement Commitment.” Following receipt of such written notice from Borrower pursuant to the above terms in this Section 2.2(c), each Lender holding a Second Subsequent Disbursement Commitment shall make its Pro Rata Second Subsequent Disbursement Share of such Second Subsequent Disbursement requested by the Borrower pursuant to such written notice available to the Borrower on the proposed date of funding of such Second Subsequent Disbursement covered by such written notice to the extent that the conditions set forth in Section 4.1, Section 4.3

 

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and this Section 2.2(c) have been satisfied for such Second Subsequent Disbursement. Amounts borrowed under this Section 2.2(c) are referred to as the “Second Subsequent Disbursement.” Upon the funding by any Lender of its Pro Rata Second Subsequent Disbursement Share of the Second Subsequent Disbursement, the Second Subsequent Disbursement Commitment of such Lender shall immediately and automatically terminate and the Borrower shall provide notation thereof in the Register of such termination and the holding of the Second Subsequent Disbursement by such Lender. Any Second Subsequent Disbursement Commitments that are still available as of the Remaining Second Subsequent Disbursement Commitment Termination Date shall immediately and automatically terminate without any action or notice by any Person.

(d) No Re-Borrowing of Disbursements or Loans. Amounts borrowed as an Initial Disbursement or a Subsequent Disbursement which are paid, repaid, redeemed and/or prepaid may not be re-borrowed under any circumstances.

Section 2.3 Payments; Prepayments; Exit Fees; Prepayment Fee; No Call.

(a) The Borrower shall pay in cash to each Lender (based on its respective Pro Rata Share) the outstanding principal amount of the Obligations on the earlier (such earlier date, the “Facility Termination Date”) of (i) the Maturity Date and (ii) the date the principal amount of the Obligations are declared to be or automatically become due and payable upon (or at the time of) the occurrence of an Event of Default; provided that, notwithstanding anything to the contrary in the Loan Documents, to the extent the Remaining Initial Disbursement Commitment Termination Date, the Remaining First Subsequent Disbursement Commitment Termination Date and/or the Remaining Second Subsequent Disbursement Commitment Termination Date would occur after such earlier date of clauses (i) – (ii) above in this sentence, then the Remaining Initial Disbursement Commitment Termination Date, the Remaining First Subsequent Disbursement Commitment Termination Date and/or the Remaining Second Subsequent Disbursement Commitment Termination Date, as applicable, shall automatically be moved to the same earliest date without any action or notice of any Person.

(b) At least fifteen (15) calendar days prior to the anticipated occurrence of any Change of Control, the Borrower shall notify the Lenders of the applicable Change of Control (a “Change of Control Notice”). Subject to Section 2.9(l), any Lender may notify the Borrower, in such Lender’s sole discretion, by delivering written notice to the Borrower at least five (5) calendar days prior to the anticipated occurrence of such Change of Control, that such Lender elects to either (i) convert all or a portion of its outstanding Loans into Preferred Stock at the applicable Conversion Rate in accordance with Section 2.9 and, if applicable, Section 2.11 (a “Change of Control Conversion Notice”) or (ii) in the case of VHP, VIP, any Specified Lender or their respective Affiliates only, for any amounts not elected to be converted pursuant to clause (i), have the Borrower pay in cash to such Lender (based on its respective Pro Rata Share) the outstanding Obligations substantially concurrently with the occurrence of such Change of Control (a “Change of Control Repayment Notice”). In the event (x) a Lender (other than VHP, VIP, any Specified Lender and their respective Affiliates) fails to timely deliver a Change of Control Conversion Notice or (y) a Change of Control Repayment Notice is timely received by the Borrower from VHP, VIP, each Specified Lender or their respective Affiliates pursuant to this Section 2.3(b), the Borrower shall pay in cash to such Lender (based on its respective Pro Rata Share) the outstanding Obligations substantially concurrently with the occurrence of such Change of Control. For the avoidance of doubt, VHP, VIP, any Specified Lender or their respective Affiliates may elect to deliver neither a Change of Control Conversion Notice nor a Change of Control Repayment Notice for any of their Loans, in which case such Lenders shall continue to hold their respective Loans which are not elected for conversion or repayment following such Change of Control, unless such Loans are subject to prepayment pursuant to and in accordance with Section 2.3(c).

(c) Except as provided below in this Section 2.3(c), the Loans may, at the option of the Borrower, be prepaid in cash, in whole or in part, together with accrued and unpaid interest thereon, at any time upon fifteen (15) Business Days’ prior written notice to the Lenders (any such notice, a “Prepayment Notice”) subject to the payment by the Borrower to each Lender (based on its respective Pro Rata Share of such Loans) in accordance with Section 2.3(d) and Section 2.4 of (i) the Interim Exit Fee or Final Exit Fee, as applicable, set

 

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forth in the last paragraph of this Section 2.3(c), and (ii) the fees outlined below (any such fee outlined below, a “Prepayment Fee”) to be paid in cash, if paid, repaid, redeemed or prepaid:

(i) on or prior to July 6, 2022, upon cash payment of a premium equal to the Applicable Premium as of the date of prepayment;

(ii) after July 6, 2022 but on or prior to July 6, 2023, upon cash payment of a premium equal to 5.0% of the principal of the applicable Loans being paid, repaid, redeemed or prepaid (without giving effect to the principal payment, repayment, redemption or prepayment when calculating the 5.0%); and

(iii) after July 6, 2023 but on or prior to January 5, 2025, upon cash payment of a premium equal to 4.0% of the principal of the applicable Loans being paid, repaid, redeemed or prepaid (without giving effect to the principal payment, repayment, redemption or prepayment when calculating the 4.0%).

Notwithstanding the foregoing or anything to the contrary in the Loan Documents, (i) except for a prepayment in connection with a Change of Control or a Fundamental Change in which the consideration to be paid to the holders of outstanding Common Stock (other than shares held by VHP, VIP or their respective Affiliates) consists solely of cash at a per share price in excess of the then current Conversion Price (determined based on the Common Stock Conversion Rate), the Loans shall not be permitted to be prepaid at any time that the Volume Weighted Average Price of the Common Stock for the five-trading-day period ending on and including the Trading Day immediately preceding the delivery of any Prepayment Notice exceeds then current Conversion Price (determined based on the Common Stock Conversion Rate) and (ii) upon receipt of any Prepayment Notice, each Lender shall have the right, prior to the applicable prepayment, to convert all or a portion of the Loans to be so prepaid (but including, for the avoidance of doubt, any Interim Exit Fee or Final Exit Fee and excluding, for the avoidance of doubt, any Prepayment Fee) into Preferred Stock at the Conversion Rate in accordance with Section 2.9 and Section 2.11 that would apply as if such prepayment were a Fundamental Change, using the Stock Price applicable to such prepayment. Upon receipt of any Prepayment Notice, the Borrower shall, if requested in writing by a Lender that is VHP, VIP or their respective Affiliates, disclose to such Lender any material non-public information regarding the Borrower (as such term is defined under U.S. federal securities laws), subject to execution by such Lender of a customary confidentiality agreement (with a trading restriction on the Lender and no “cleansing” requirement by the Borrower) with the Borrower.

The Parties acknowledge and agree that, in light of the impracticality and extreme difficulty of ascertaining actual damages, the Prepayment Fee set forth in this Section 2.3(c) is intended to be a reasonable calculation of the actual damages that would be suffered by the Lenders as a result of any such payment, repayment, redemption or prepayment. The parties hereto further acknowledge and agree that the Prepayment Fee set forth in this Section 2.3(c) is not intended to act as a penalty or to punish the Borrower or any other Loan Party for any such payment, repayment, redemption or prepayment.

Notwithstanding anything to the contrary in the Loan Documents, at any time that (i) any of the Loans (including any Loans held by the Specified Lenders) are paid, repaid, redeemed or prepaid or converted into Preferred Stock in accordance with Section 2.9 (whether before, at the time of or after the Maturity Date or any acceleration, bankruptcy or otherwise), the Borrower shall pay to each Lender (based on its respective Pro Rata Share of such Loans) a non-refundable exit fee (the “Interim Exit Fee”) equal to 1% of the aggregate principal amount of such Loans so paid, repaid, redeemed, prepaid or converted, which Interim Exit Fee shall be (A) due and payable in cash upon any such payment, repayment, redemption or prepayment of such Loans or (B) converted into Preferred Stock (assuming such Interim Exit Fee were principal) in accordance with Section 2.9 upon any such conversion of such Loans into Preferred Stock, and (ii) all (but not less than all) of the Loans are paid, repaid, redeemed or prepaid or converted into Preferred Stock in accordance with Section 2.9 (whether before, at the time of or after the Maturity Date or any acceleration, bankruptcy or otherwise), the Borrower shall pay to each Lender (based on its respective Pro Rata Share of such Loans) a non-refundable exit fee (the “Final Exit Fee”) equal to 3% of the aggregate principal amount of the Disbursement Commitments that

 

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were not drawn by the Borrower in accordance with Section 2.2(a), (b) or (c), as applicable, prior to such time, which Final Exit Fee (A) shall be due and payable in cash upon any such payment, repayment, redemption or prepayment of all (but not less than all) the Loans or (B) be converted into Preferred Stock (assuming such Final Exit Fee were principal) in accordance with Section 2.9 and, if applicable, Section 2.11 upon any such conversion of all (but not less than all) the Loans into Preferred Stock.

(d) Each payment, repayment, redemption and prepayment by the Borrower or any other Loan Party shall be applied (i) first, ratably to all fees, costs and expenses (including any attorneys’ fees) owed to any Lender under the Loan Documents, (ii) second, ratably to accrued and unpaid interest owed to the Lenders under the Loan Documents, (iii) third, ratably to the principal amount of the Loans owed to the Lenders (including any Prepayment Fee), and, (iv) fourth, to all other Obligations owing to any Lender; provided that notwithstanding the foregoing or anything else to the contrary in the Loan Documents, (1) any acceleration payments, repayments, redemptions or prepayments shall be applied as determined by the Required Lenders and the Specified Lenders in their sole discretion and, with respect to any such Obligations owed to the Lenders, shall be allocated among the Lenders in accordance with and in proportion to their respective Pro Rata Shares and (2) the Borrower shall not be able to direct the application of any payments during the continuance of a Default or an Event of Default, in which case such payments shall be applied as determined by the Required Lenders and the Specified Lenders in their sole discretion.

Section 2.4 Payment Details. All payments of the Obligations by the Borrower or any other Loan Party hereunder and under any of the other Loan Documents shall be made without setoff or counterclaim and shall be paid in cash in Dollars and applied in accordance with Section 2.3(d). Payments of any amounts and other Obligations due to the Lenders under this Agreement or the other Loan Documents shall be made in Dollars in immediately available funds prior to 11:00 a.m. (New York City time) on such date that any such payment is due, using such wire information or address for such applicable Lender that is set forth on Schedule 2.4 or at such other bank or place as such applicable Lenders shall from time to time designate in writing at least prior to the date such payment is due. Any payment received by any Lender after 11:00 a.m. (New York City time) may in such Lender’s discretion be deemed to have been made on the following Business Day. The Borrower shall pay all and any fees, costs and expenses (administrative or otherwise) imposed by banks, clearing houses or any other financial institutions in connection with making any payments under any of the Loan Documents.

Section 2.5 Taxes.

(a) Any and all payments hereunder or under any other Loan Document shall be made, in accordance with this Section 2.5, free and clear of and without deduction for any and all present or future Taxes except as required by Applicable Law. If any Loan Party shall be required by Applicable Law to deduct any Taxes from or in respect of any sum payable hereunder or under any other Loan Document, (i) such Loan Party shall make such deductions, (ii) such Loan Party shall pay the full amount deducted to the relevant Governmental Authority in accordance with Applicable Law, and (iii) to the extent that the deduction is made on account of Indemnified Taxes, the sum payable shall be increased by as much as shall be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.5), each Lender shall receive an amount equal to the sum it would have received had no such deductions been made (any and all such additional amounts payable shall hereafter be referred to as the “Additional Amounts”). Within thirty (30) days after the date of any payment of such Taxes, the Borrower shall furnish to the applicable Lender the original or a certified copy of a receipt evidencing payment thereof or other evidence of such payment reasonably satisfactory to such Lender.

(b) In addition, the Loan Parties agree to pay and authorize each Lender to pay in their name, all Other Taxes. Within 30 days after the date of any payment of Other Taxes by any Loan Party, the Borrower shall furnish to the applicable Lender the original or a certified copy of a receipt evidencing payment thereof or other evidence of such payment reasonably satisfactory to such Lender.

(c) The Borrower shall reimburse and indemnify, within ten (10) days after receipt of demand therefor, each Lender for all Indemnified Taxes (including all Indemnified Taxes imposed on amounts payable under this

 

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Section 2.5(c)) paid or payable by such Lender, and any Liabilities arising therefrom or relating thereto, whether or not such Indemnified Taxes were correctly or legally asserted. A certificate of the applicable Lender(s) setting forth the amounts to be paid thereunder and delivered to the Borrower shall be absolute, conclusive and binding, absent manifest error.

(d) Each Lender that is a United States person (as such term is defined in Section 7701(a)(30) of the Code) shall, on or before the date on which the Lender becomes a party to this Agreement, provide to Borrower a properly completed and executed IRS Form W-9 certifying that such Lender is not subject to backup withholding tax. Each Lender that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) (a “Foreign Lender”) and is entitled to an exemption from or reduction of U.S. federal withholding tax with respect to payments under this Agreement shall, on or before the date on which such Lender becomes a party to this Agreement, provide Borrower with a properly completed and executed IRS Form W-8ECI, W-8BEN-E, W-8IMY or other applicable forms (together with any required supporting documentation), or any other applicable certificate or document reasonably requested by the Borrower, and, if such Foreign Lender is relying on the portfolio interest exception of Section 871(h) or Section 881(c) of the Code (or any successor provision thereto), shall also provide the Borrower with a certificate (the “Portfolio Interest Certificate”) representing that such Foreign Lender is not a “bank” for purposes of Section 881(c) of the Code (or any successor provision thereto), is not a 10% holder of the Borrower described in Section 871(h)(3)(B) of the Code (or any successor provision thereto), and is not a controlled foreign corporation receiving interest from a related person (within the meaning of Sections 881(c)(3)(C) and 864(d)(4) of the Code or any successor provisions thereto). If the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a Portfolio Interest Certificate on behalf of such partners. Each Lender shall provide new forms (or successor forms) as reasonably requested by the Borrower from time to time and shall notify the Borrower in writing within a reasonable time after becoming aware of any event requiring a change in the most recent forms previously delivered by such Lender to the Borrower.

(e) If a payment to a Lender under this Agreement would be subject to U.S. federal withholding tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA, such Lender shall deliver to the Borrower, at the times prescribed by law or as reasonably requested by Borrower, such documentation as is required in order for the Borrower to comply with its obligations under FATCA, to determine that such Lender has or has not complied with its obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this Section 2.5(e), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.

(f) If a Lender determines, in its sole discretion exercised in good faith, that it has received a refund of any Indemnified Taxes as to which it has been indemnified pursuant to this Section 2.5, such Lender shall promptly pay such refund (but only to the extent of indemnity payments made under this Section 2.5 with respect to the Taxes refund) to the Borrower, net of all out-of-pocket expense (including any Taxes imposed thereon) of such Lender incurred in obtaining such refund or making such payment, provided that the Borrower, upon the request of such Lender, agrees to repay the amount paid over to the Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to such Lender if such Lender is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this Section 2.5(f), in no event shall a Lender be required to pay any amount to the Borrower pursuant to this Section 2.5(f), the payment of which would place such Lender in a less favorable net after-Tax position than such Lender would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted or otherwise imposed and the indemnification payments with respect to such Tax had never been paid. Nothing in this Section 2.5(f) shall require any Lender to disclose any information it deems confidential (including its tax returns) to any Person, including the Borrower.

Section 2.6 Costs, Expenses and Losses. If, as a result of any failure by the Borrower or any other Loan Party to pay any sums or Obligations due under this Agreement or any other Loan Document on the due date therefor (after the expiration of any applicable grace periods, but without giving effect to any grace period after the occurrence of an Event of Default of the type set forth in Section 5.4(d)), any Lender shall incur costs, expenses and/or losses, by reason of the liquidation or redeployment of deposits from third parties or in

 

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connection with obtaining funds to make or maintain any Disbursement or Loan or provide the Disbursement Commitments, the Borrower shall pay to such Lender upon request by the Lenders, the amount of such costs, expenses and/or losses within fifteen (15) days after receipt by it of a certificate from the Lenders setting forth in reasonable detail such costs, expenses and/or losses, along with supporting documentation. For the purposes of the preceding sentence, “costs, expenses and/or losses” shall include any interest paid or payable to carry any unpaid amount and any loss, premium, penalty or expense which may be incurred in obtaining, liquidating or employing deposits of or borrowings from third parties in order to make, maintain or fund any Disbursement or Loan (or provide the Disbursement Commitments) or any portion thereof.

Section 2.7 Interest. From and after the Agreement Date, the outstanding principal amount of the Loans and any overdue interest thereon shall bear interest at the Interest Rate (calculated on the basis of the actual number of days elapsed in each month based on a year of 360 days). Interest shall be paid quarterly in arrears on the last Business Day of each calendar quarter commencing on March 29, 2019 (each, an “Interest Payment Date”), with fifty percent (50%) of such interest paid in cash and the remaining fifty percent (50%) of such interest paid in kind by increasing the principal balance of the outstanding Loans in an amount equal to the amount of interest then due, which increased principal amount shall, from and after such Interest Payment Date, constitute Loans hereunder and bear interest in accordance with this Section 2.7.

Section 2.8 Interest on Late Payments; Default Interest.

(a) Without limiting the remedies available to the Lenders under the Loan Documents or otherwise, to the maximum extent permitted by Applicable Law, if the Borrower or any other Loan Party fails to make a required payment of principal or interest with respect to the Loan or any other Obligations when due, other than to than to the extent arising from an acceleration (except for an acceleration due (completely or partially) to an Event of Default under Section 5.4(a) that is not caused by an automatic acceleration from an Event of Default under Section 5.4(d)) or bankruptcy, or fails to deliver any Conversion Shares by the Conversion Delivery Deadline, the Borrower shall pay, in respect of such principal, interest and other Obligations, or Conversion Amount as applicable, at the rate per annum equal to the Interest Rate plus ten percent (10%) for so long as such payment or Conversion Share delivery failure remains outstanding. In the event a Lender revokes its Conversion Notice pursuant to Section 2.9(i), such Conversion Share delivery failure shall no longer be outstanding as of and following the date of such revocation. Such interest shall be payable in cash on demand to the extent permitted under the Senior Facility Subordination Agreement and, if not so permitted, shall be paid in shares of Common Stock valued based on the Volume Weighted Average Price of the Common Stock for the five (5) consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the Conversion Delivery Deadline.

(b) At the election of the Required Lenders, while any Event of Default exists (or automatically, in the case of any Event of Default under Section 5.4(a) or Section 5.4(d)), the Borrower shall pay interest (after as well as before entry of judgment thereon to the extent permitted by Applicable Law) on the Obligations and past due interest thereon, if any, from and after the date of occurrence of such Event of Default, at a rate per annum equal to the Interest Rate plus two percent (2%). To the extent permitted by Applicable Law, such additional interest rate shall retroactively apply to the first day of existence of such Event of Default. Such interest shall be payable in cash on demand to the extent permitted under the Senior Facility Subordination Agreement and, if not so permitted, shall be paid in shares of Common Stock valued based on the Volume Weighted Average Price of the Common Stock for the five (5) consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the Conversion Delivery Deadline.

Section 2.9 Conversion Feature. The Loans may be converted into Preferred Stock on the terms and conditions set forth in this Section 2.9 and, as applicable, Section 2.11.

(a) Conversion at Option of the Lenders. Each Lender shall be entitled in its sole discretion to convert at any time all or any part of its Loans into Preferred Stock (the “Conversion Shares”), in accordance with this Section 2.9, at the Conversion Rate (subject to the 4.985% Cap, as applicable, and the Ownership Limitation, as

 

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applicable). The Borrower shall not issue any fractional shares of Preferred Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Preferred Stock, then the Borrower shall round such fraction of a share of Preferred Stock up or down to the nearest whole share (with 0.5 rounded up).

(b) Conversion Rate. The number of Conversion Shares issuable upon a conversion of all or any portion of the Loans pursuant to this Section 2.9 shall be determined according to the following formula:

Number of shares of Preferred Stock = Conversion Rate * (Conversion Amount / $1,000)

The Conversion Rate shall be subject to adjustment pursuant to this Section 2.9 and pursuant to Section 2.11 in connection with a Fundamental Change.

(c) Mechanics of Conversion. The conversion of any Loans shall be conducted in the following manner:

(i) Lender Delivery Requirements. To convert a Conversion Amount into Conversion Shares on any date (the “Conversion Date”), the applicable Lender shall (x) provide written notice, substantially in the form of Exhibit E hereto (and, in the case of a Change of Control or a Fundamental Change, as applicable, shall indicate whether such conversion is being made in connection with such Change of Control pursuant to Section 2.3(b) or a Fundamental Change pursuant to Section 2.11) (any such notice, a “Conversion Notice”), to the Borrower setting forth the Conversion Amount and, if any portion of the Conversion Amount is required to be paid in cash pursuant to Section 2.4, wire transfer instructions for the payment of such cash, and to the extent that any Conversion Shares are to be issued in a name other than the Lender’s name, the names and addresses of such Person and the number of shares issuable in the name of such Person and (y) surrender to the Borrower for cancellation any Note certificate representing the Converted Loans. For purposes of this Section 2.9, subject to any Subsequent Stockholder Approval pursuant to Section 5.1(x) (which, if not obtained, shall be subject to the last paragraph of Section 2.11), conversion shall occur immediately prior to the close of business on the date (the “Conversion Effective Date”) that the Borrower receives both the Conversion Notice or, in the case of a Change of Control Conversion Notice or a Fundamental Change Conversion Notice, immediately prior to the effectiveness of such Change of Control or Fundamental Change with respect to which such notice was delivered, as applicable, and the certificate (if any) representing the Converted Loans.

(ii) Borrower’s Response. Following receipt by the Borrower of the Conversion Notice and, if applicable, the Note certificate(s) representing the Converted Loans, the Borrower (x) shall promptly send a confirmation of receipt of such Conversion Notice to the applicable Lender and the Borrower’s designated transfer agent (the “Transfer Agent”), which confirmation shall constitute an instruction to the Transfer Agent to process such Conversion Notice in accordance with the terms herein, and (y) shall use commercially reasonable efforts to, (A) on or before the second (2nd) Business Day (and in any event on or before the fifth (5th) Business Day (such fifth (5th) Business Day, the “Conversion Delivery Deadline”)) following the Conversion Effective Date or, (B) in the case of a Change of Control Conversion Notice or a Fundamental Change Conversion Notice, immediately prior to the effectiveness of such Change of Control or Fundamental Change with respect to which such notice was delivered, as applicable, issue and deliver to the address specified in the Conversion Notice, a stock certificate, registered in the name of such Lender or its designee, for the number of Conversion Shares to which such Lender shall be entitled.

(iii) Conversion into Common Stock. In the event a Lender seeks to convert any Loan directly into shares of Common Stock instead of Preferred Stock, such Lender shall be entitled to indicate the Conversion Amount to be converted directly into Common Stock in its Conversion Notice and, in connection with any such conversion, all references herein to “Conversion Shares” or “Preferred Stock” in connection with the conversion of such Conversion Amount shall instead refer to “Common Stock” (and any other provisions of this Agreement shall be similarly interpreted, mutatis mutandis).

 

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The Conversion Rate for any such conversion directly into Common Stock (the “Common Stock Conversion Rate”) will be based on the Conversion Rate that would apply to the conversion of such Loans into Preferred Stock and the conversion rate that would apply to the conversion of such Preferred Stock into Common Stock as set forth in the Certificate of Designations.

(iv) Record Holder. The Person or Persons entitled to receive the Conversion Shares issuable upon a conversion of any Loan shall be treated for all purposes as the legal and record holder or holders of such Preferred Stock upon delivery of the Conversion Notice in accordance with the terms hereof.

(v) [Reserved].

(vi) Taxes. The Borrower shall pay any and all Other Taxes that may be payable with respect to the issuance and delivery of Conversion Shares upon the conversion of any Loan, except to the extent the Other Tax is due because the Lender requests any such shares to be issued in a name other than the Lender’s name (other than due to a name change of Lender), in which case the Lender will pay such Other Tax (and the Borrower shall not be required to issue or deliver any such Conversion Shares unless and until the Lender shall have paid to the Borrower such Other Tax). For greater certainty, the provisions of Section 2.5 shall apply with respect to any and all Taxes with respect to payments by the Borrower (or any other applicable credit party) hereunder, including with respect to the delivery of Conversion Shares upon the conversion of any Loan.

(vii) Legends.

(A) Restrictive Legend. Each Lender understands that the Conversion Shares (including book-entry notations) shall bear a restrictive legend in the form set forth in the Certificate of Designations (and a stop-transfer order will be placed against Transfer of the certificates for such securities), subject to clause (B) below. In addition, each Lender understands that until such time as the shares of Common Stock issuable upon conversion of the Conversion Shares have been registered under the Securities Act and applicable state securities laws as contemplated by the Registration Rights Agreement or otherwise may be sold pursuant to Rule 144 under the Securities Act or an exemption from registration under the Securities Act, in each case without any restriction as to the number of securities as of a particular date that can then be immediately sold, all certificates or other instruments (including book-entry notations) representing any such shares of Common Stock shall bear a restrictive legend substantially in the form set forth below (and a stop-transfer order shall be placed against Transfer of the certificates for such shares).

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE DIRECTLY OR INDIRECTLY OFFERED, SOLD, TRANSFERRED, ENCUMBERED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE TRANSFER RESTRICTIONS SET FORTH IN THE CERTIFICATE OF DESIGNATIONS AND PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, OR (II) AN APPLICABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, INCLUDING RULE 144, SUBJECT TO THE COMPANY’S AND THE TRANSFER AGENT’S RIGHT PRIOR TO ANY SUCH OFFER, SALE, TRANSFER, ENCUMBRANCE, ASSIGNMENT OR OTHER DISPOSITION TO REQUIRE THE DELIVERY OF REASONABLE AND CUSTOMARY CERTIFICATIONS, OPINIONS OF COUNSEL AND/OR OTHER INFORMATION REASONABLY SATISFACTORY TO EACH OF THEM.

(B) Removal of Restrictive Legend. Upon the request of a Lender and upon receipt by the Borrower of an opinion of counsel reasonably satisfactory to the Borrower to the effect that such

 

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legend is no longer required under the Securities Act and applicable state laws, the Borrower shall as promptly as practicable, subject to such applicable policies and procedures of the Borrower’s Transfer Agent, cause (i) the Securities Act restrictive legend or electronic legend set forth in clause (B) of the legend set forth in the Certificate of Designations and set forth on any Conversion Shares to be removed and (ii) the Securities Act restrictive legend or electronic legend on shares of Common Stock to be removed. The legends referred to in the immediately preceding clauses (i) and (ii), the “Securities Act Legends.”

(C) Sale of Unlegended Shares. Each Lender agrees that the removal of the Securities Act Legend from any certificates representing securities as set forth in Section 2.9(c)(vii)(A) above is predicated upon the Borrower’s reliance that such Lender will sell any Conversion Shares (or the shares of Common Stock into which the Conversion Shares are convertible) pursuant to either the registration requirements of the Securities Act and applicable state securities laws, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if such securities are sold pursuant to a registration statement, they will be sold in compliance with the plan of distribution set forth therein.

(d) While any Loan is outstanding, on or prior to the Initial Disbursement and as of each June 30 thereafter (each a “Reservation Date”) the Borrower shall have reserved out of its authorized but unissued shares of Common Stock and Preferred Stock, for delivery upon conversion of the Loans, a number of shares of Common Stock and Preferred Stock equal to the Full Conversion Share Amount that would be issuable if the then outstanding Loans (and the underlying shares of Preferred Stock) were converted in full at any time during the twelve (12) months following such Reservation Date.

(e) Any shares of Preferred Stock delivered upon the conversion of the Loans will be newly issued shares or treasury shares, duly and validly issued, fully paid, nonassessable, free from preemptive rights and free of any Lien or adverse claim (except to the extent of any Lien or adverse claim created by the action or inaction of any Lender, or otherwise created by the Lender holding the applicable Loans).

(f) Adjustment of Conversion Rate. The Borrower will adjust the Conversion Rate from time to time as described in this Section 2.9(f) for any applicable events occurring after the Agreement Date, except that the Borrower will not make an adjustment to the Conversion Rate if each Lender participates (other than in a share split or share combination), at the same time and upon the same terms as holders of the Common Stock, and solely as a result of holding the Loans, in the relevant transaction described in this Section 2.9(f) without having to convert its Loans and as if it held a number of shares of the Common Stock equal to the product of (i) the Conversion Rate in effect on the applicable record date, Ex-Dividend Date, Effective Date or expiration date, and (ii) the aggregate Conversion Amount (expressed in thousands) as would apply to the Loans held by such Lender on such date, rounded up or down to the nearest whole share (with 0.5 rounded up).

(i) Stock Dividends and Share Splits. If the Borrower exclusively issues to all or substantially all holders of the Common Stock shares of Common Stock as a dividend or distribution on shares of the outstanding Common Stock, or if the Borrower effects a share split of the Common Stock (including, if applicable, the Reverse Stock Split) or a share combination of the Common Stock, the Conversion Rate will be adjusted based on the following formula:

 

CR= CR0   x    OS1
   OS0

where

 

CR0    =    the Conversion Rate in effect immediately prior to the Open of Business on the Ex-Dividend Date of such dividend or distribution, or immediately prior to the Open of Business on the Effective Date of such share split or share combination, as applicable;
CR1    =    the Conversion Rate in effect immediately after the Open of Business on the Ex-Dividend Date of such dividend or distribution or the Open of Business on such Effective Date;

 

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OS0    =    the number of shares of Common Stock outstanding immediately prior to the Open of Business on the Ex-Dividend Date of such dividend or distribution or Effective Date (before giving effect to any such dividend, distribution, share split or share combination); and
OS1    =    the number of shares of Common Stock outstanding immediately after giving effect to such dividend, distribution, share split or share combination.

Any adjustment made under this Section 2.9(f)(i) shall become effective immediately after the Open of Business on the Ex-Dividend Date for such dividend or distribution, or immediately after the Open of Business on the Effective Date for such share split or share combination, as applicable. If any dividend or distribution of the type described in this Section 2.9(f)(i) is declared, but not so paid or made, the Conversion Rate will be immediately readjusted, effective as of the date the Borrower determines not to pay such dividend or distribution, to the Conversion Rate that would then be in effect if such dividend or distribution had not been declared.

(ii) Rights, Options and Warrants. If the Borrower issues to all or substantially all holders of its outstanding Common Stock, rights, options or warrants entitling such holders, for a period of not more than sixty (60) calendar days after the record date of such issuance, to subscribe for, or purchase, shares of Common Stock, at a price per share less than the average of the Volume Weighted Average Price of the Common Stock for the five (5) consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the date of announcement of such issuance, the Conversion Rate will be increased based on the following formula:

 

CR= CR0   x    OS0+X
   OS0+Y

where

 

CR0    =    the Conversion Rate in effect immediately prior to the Open of Business on the Ex-Dividend Date of such issuance;
CR1    =    the Conversion Rate in effect immediately after the Open of Business on the Ex-Dividend Date of such issuance;
OS0    =    the number of shares of Common Stock outstanding immediately prior to the Open of Business on the Ex-Dividend Date of such issuance;
X    =    the total number of shares of Common Stock issuable pursuant to such rights, options or warrants; and
Y    =    the number of shares of Common Stock equal to (i) the aggregate price payable to exercise such rights, options or warrants, divided by (ii) the Volume Weighted Average Price of the Common Stock over the five (5) consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the date of announcement of the issuance of such rights, options or warrants.

Any increase made under this Section 2.9(f)(ii) shall become effective immediately after the Open of Business on the Ex-Dividend Date of such issuance. To the extent that shares of Common Stock are not delivered after the expiration of such rights, options or warrants, including because the issued rights, options or warrants were not exercised, the Conversion Rate will be decreased to the Conversion Rate that would then be in effect had the increase with respect to the issuance of such rights, options or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered. If such rights, options or warrants are not so issued, the Conversion Rate will be decreased to the Conversion Rate that would then be in effect if such Ex-Dividend Date for such issuance had not occurred.

For purposes of this Section 2.9(f)(ii), in determining whether any rights, options or warrants entitle holders of the Common Stock to subscribe for, or purchase, shares of Common Stock at a price per share less than the

 

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Volume Weighted Average Price of the Common Stock for the five (5) consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the date of announcement for an issuance, and in determining the aggregate price payable to exercise such rights, options or warrants, there will be taken into account any consideration received by the Borrower for such rights, options or warrants and any amount payable on exercise thereof, the value of such consideration, if other than cash, to be determined by the Board of Directors.

(iii) Spin-Offs and Other Distributed Property.

(A) If the Borrower distributes shares of its Common Stock, evidences of its Indebtedness or other assets or property of the Borrower, or rights, options or warrants to acquire Stock of the Borrower or other securities of the Borrower, to all or substantially all holders of the Common Stock, excluding:

(1) dividends, distributions and issuances described in Section 2.9(f)(i) hereof or Section 2.9(f)(ii) hereof, as applicable;

(2) dividends or distributions paid exclusively in cash described in Section 2.9(f)(iv) hereof;

(3) Spin-Offs for which the provisions set forth in Section 2.9(f)(iii)(B) hereof will apply; or

(4) distributions of Reference Property in a transaction described in Section 2.9(i).

then the Conversion Rate will be increased based on the following formula:

 

CR=CR0   x    SP0
   SP–FMV

where

 

CR0    =    the Conversion Rate in effect immediately prior to the Open of Business on the Ex-Dividend Date of such distribution;
CR1    =    the Conversion Rate in effect immediately after the Open of Business on the Ex-Dividend Date of such distribution;
SP0    =    the Volume Weighted Average Price of the Common Stock over the five (5) consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the Ex-Dividend Date of such distribution; and
FMV    =    the fair market value (as determined by the Board of Directors) of the shares of Stock, evidences of indebtedness, assets, property, rights, options or warrants distributed with respect to each outstanding share of Common Stock on the Ex-Dividend Date of such distribution.

Notwithstanding the foregoing, if “FMV” (as defined above) is equal to or greater than the “SP0” (as defined above), in lieu of the foregoing increase, each Lender will receive, for each $1,000 principal amount of the aggregate Conversion Amount as would apply to the Loans held by such Lender on the record date for the distribution, at the same time and upon the same terms as holders of the Common Stock, the amount and kind of shares of Stock, evidences of Indebtedness, assets or property, rights, options or warrants to acquire Stock of the Borrower or other securities that such Lender would have received if such Lender had owned a number of shares of Common Stock equal to the Conversion Rate in effect on the Ex-Dividend Date for such distribution.

Any increase made under this Section 2.9(f)(iii)(A) shall become effective immediately after the Open of Business on the Ex-Dividend Date for such distribution. If such distribution is not so paid or made, the

 

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Conversion Rate will be decreased to be the Conversion Rate that would then be in effect if such distribution had not been declared. To the extent that shares of Common Stock are not delivered after the expiration of such rights, options or warrants, including because the issued rights, options or warrants were not exercised, the Conversion Rate will be decreased to the Conversion Rate that would then be in effect had the increase with respect to the issuance of such rights, options or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered.

(B) With respect to an adjustment pursuant to this Section 2.9(f)(iii) where there has been a payment of a dividend or other distribution on the Common Stock of shares of Stock of any class or series, or similar equity interest, of or relating to a Subsidiary or other business unit of the Borrower, and such Stock or similar equity interest is listed or quoted (or will be listed or quoted upon the consummation of the transaction) on a U.S. national securities exchange or a reasonably comparable non-U.S. equivalent (as determined by the Borrower) (a “Spin-Off”), the Conversion Rate will be increased based on the following formula:

 

CR=CR0   x    FMV+ MP0
   MP0

where

 

CR0    =    the Conversion Rate in effect immediately prior to the end of the Valuation Period;
CR1    =    the Conversion Rate in effect immediately after the end of the Valuation Period;
FMV0    =    the Volume Weighted Average Price of the Stock or similar equity interest distributed to holders of the Common Stock applicable to one share of Common Stock (determined for purposes of the definition of the Volume Weighted Average Price as if such Stock or similar equity interest were the Common Stock) over the first ten (10) consecutive Trading Day period after, and including, the Ex-Dividend Date of such Spin-Off (the “Valuation Period”); and
MP0    =    the Volume Weighted Average Price of the Common Stock over the Valuation Period.

The adjustment to the Conversion Rate under this Section 2.9(f)(iii) will occur as of the close of business on the last Trading Day of the Valuation Period; provided that for any Trading Day that falls within the Valuation Period, references to “10” in the portion of this Section 2.9(f)(iii) related to Spin-Offs shall be deemed replaced with such lesser number of Trading Days as have elapsed between the Ex-Dividend Date of such Spin-Off and such Trading Day in determining the Conversion Rate as of such Trading Day. If any dividend or distribution that constitutes a Spin-Off is declared but not so paid or made, the Conversion Rate shall be immediately decreased, effective as of the date the Borrower determines not to pay or make such dividend or distribution, to the Conversion Rate that would then be in effect if such dividend or distribution had not been declared or announced.

For purposes of this Section 2.9(f) (and subject in all respect to Section 2.9(f)(ix)), rights, options or warrants distributed by the Borrower to all holders of the Common Stock entitling them to subscribe for or purchase shares of the Borrower’s capital stock, including Common Stock (either initially or under certain circumstances), which rights, options or warrants, until the occurrence of a specified event or events (“Trigger Event”): (i) are deemed to be Transferred with such shares of the Common Stock; (ii) are not exercisable; and (iii) are also issued in respect of future issuances of the Common Stock, shall be deemed not to have been distributed for purposes of this Section 2.9(f)(iii) (and no adjustment to the Conversion Rate under this Section 2.9(f)(iii) will be required) until the occurrence of the earliest Trigger Event, whereupon such rights, options or warrants shall be deemed to have been distributed and an appropriate adjustment (if any is required) to the Conversion Rate shall be made under this Section 2.9(f)(iii). If any such right, option or warrant, including any such existing rights, options or warrants distributed prior to the date of this Agreement, are subject to events, upon the occurrence of which such rights, options or warrants become exercisable to purchase different securities, evidences of indebtedness or other assets, then the date of the occurrence of any and each such event

 

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shall be deemed to be the date of distribution and Ex-Dividend Date with respect to new rights, options or warrants with such rights (in which case the existing rights, options or warrants shall be deemed to terminate and expire on such date without exercise by any of the holders thereof). In addition, in the event of any distribution (or deemed distribution) of rights, options or warrants, or any Trigger Event or other event (of the type described in the immediately preceding sentence) with respect thereto that was counted for purposes of calculating a distribution amount for which an adjustment to the Conversion Rate under this Section 2.9(f)(iii) was made, (1) in the case of any such rights, options or warrants that shall all have been redeemed or purchased without exercise by any holders thereof, upon such final redemption or purchase (x) the Conversion Rate shall be readjusted as if such rights, options or warrants had not been issued and (y) the Conversion Rate shall then again be readjusted to give effect to such distribution, deemed distribution or Trigger Event, as the case may be, as though it were a cash distribution, equal to the per share redemption or purchase price received by a holder or holders of Common Stock with respect to such rights, options or warrants (assuming such holder had retained such rights, options or warrants), made to all holders of Common Stock as of the date of such redemption or purchase, and (2) in the case of such rights, options or warrants that shall have expired or been terminated without exercise by any holders thereof, the Conversion Rate shall be readjusted as if such rights, options and warrants had not been issued.

For the purposes of Section 2.9(f)(i), Section 2.9(f)(ii), and this Section 2.9(f)(iii), if any dividend or distribution to which this Section 2.9(f)(iii) applies also includes one or both of:

(1) a dividend or distribution of shares of Common Stock to which Section 2.9(f)(i) hereof applies (a “Clause A Distribution”); or

(2) a dividend or distribution of rights, options or warrants to which Section 2.9(f)(ii) hereof applies (a “Clause B Distribution”)

(any such distribution, a “Multi-Clause Distribution”), then (i) the portion of such Multi-Clause Distribution that is not a Clause A Distribution or a Clause B Distribution will be deemed to be a dividend or distribution to which this Section 2.9(f)(iii) applies (a “Clause C Distribution”), and any Conversion Rate adjustment required by this Section 2.9(f)(iii) with respect to such Clause C Distribution shall then be made, (ii) the Clause A Distribution and Clause B Distribution shall be deemed to immediately follow the Clause C Distribution and any Conversion Rate adjustment required by Section 2.9(f)(i) and Section 2.9(f)(ii) with respect thereto shall then be made, except that, if determined by the Borrower (I) the “Ex-Dividend Date” of the Clause A Distribution and the Clause B Distribution shall be deemed to be the Ex-Dividend Date of the Clause C Distribution and (II) any shares of Common Stock included in the Clause A Distribution or Clause B Distribution shall be deemed not to be “outstanding immediately prior to the Open of Business on such Ex-Dividend Date or Effective Date” within the meaning of Section 2.9(f)(i) or “outstanding immediately prior to the Open of Business on such Ex-Dividend Date” within the meaning of Section 2.9(f)(ii).

(iv) Cash Dividends or Distributions. If any cash dividend or distribution is made to all or substantially all holders of the Common Stock, the Conversion Rate will be adjusted based on the following formula:

 

CR=CR0   x    SP0
   SP– C

where

 

CR0    =    the Conversion Rate in effect immediately prior to the Open of Business on the Ex-Dividend Date for such dividend or distribution;
CR1    =    the Conversion Rate in effect immediately after the Open of Business on the Ex-Dividend Date for such dividend or distribution;

 

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SP0    =    the Last Reported Sale Price of the Common Stock on the Trading Day immediately preceding the Ex-Dividend Date for such dividend or distribution; and
C    =    the amount in cash per share the Borrower distributes to all or substantially all holders of Common Stock.

Any increase pursuant to this Section 2.9(f)(iv) shall become effective immediately after the Open of Business on the Ex-Dividend Date for such dividend or distribution. Notwithstanding the foregoing, if “C” (as defined above) is equal to or greater than “SP0” (as defined above), in lieu of the foregoing increase, each Lender will receive, for each $1,000 principal amount of the aggregate Conversion Amount as would apply to the Loans held by such Lender on the record date for such cash dividend or distribution, at the same time and upon the same terms as holders of the Common Stock, the amount of cash that such Lender would have received if such Lender had owned a number of shares of Common Stock equal to the Conversion Rate in effect on such Ex-Dividend Date. If any such dividend or distribution is declared but not so paid or made, the Conversion Rate will be readjusted, effective as of the date the Borrower determines not to pay such dividend or distribution, to the Conversion Rate that would then be in effect if such dividend or distribution had not been declared.

(v) Tender Offers or Exchange Offers. If the Borrower or any of its Subsidiaries makes a payment in respect of a tender offer or exchange offer for the Common Stock (other than an odd lot tender offer), to the extent that the cash and value of any other consideration included in the payment per share of Common Stock exceeds the Volume Weighted Average Price of the Common Stock for the five (5) consecutive Trading Day period commencing on, and including, the Trading Day immediately next succeeding the last date on which tenders or exchanges may be made pursuant to such tender offer or exchange offer (as it may be amended), the Conversion Rate will be increased based on the following formula:

 

CR=CR0   x    AC + (SPx OS1)
   OS0 x SP1

where

 

CR0    =    the Conversion Rate in effect immediately prior to the close of business on the 10th Trading Day immediately following, and including, the Trading Day next succeeding the date such tender or exchange offer expires;
CR1    =    the Conversion Rate in effect immediately after the close of business on the 10th Trading Day immediately following, and including, the Trading Day next succeeding the date such tender or exchange offer expires;
AC    =    the aggregate value of all cash and any other consideration (as determined by the Board of Directors) paid or payable for shares of Common Stock purchased in such tender or exchange offer;
OS0    =    the number of shares of Common Stock outstanding immediately prior to the date such tender or exchange offer expires (prior to giving effect to the purchase of all shares of Common Stock accepted for purchase or exchange in such tender or exchange offer);
OS1    =    the number of shares of Common Stock outstanding immediately after the date such tender or exchange offer expires (after giving effect to the purchase of all shares of Common Stock accepted for purchase or exchange in such tender or exchange offer); and
SP1    =    the Volume Weighted Average Price of the Common Stock over the 10 consecutive Trading Day period commencing on, and including, the Trading Day next succeeding the date such tender or exchange offer expires.

The adjustment to the Conversion Rate under this Section 2.9(f)(v) shall occur at the close of business on the 10th Trading Day immediately following, and including, the Trading Day next succeeding the date such

 

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tender or exchange offer expires; provided that for any Trading Day that falls within the 10 Trading Days immediately following, and including, the Trading Day next succeeding the expiration date of any tender or exchange offer, references to “10” or “10th” in this Section 2.9(f)(v) shall be deemed replaced with such lesser number of Trading Days as have elapsed between the expiration date of such tender or exchange offer and such Trading Day in determining the Conversion Rate as of such Trading Day.

(vi) Successive Adjustments. After an adjustment to the Conversion Rate under this Article II having been made, any subsequent event requiring an adjustment under this Article II will cause an adjustment to the Conversion Rate as so adjusted, without duplication.

(vii) Adjustments Not Yet Effective. If a Lender converts a Loan and, as of the Conversion Date for such Loan, any distribution or transaction that requires an adjustment to the Conversion Rate pursuant to Sections 2.9(f)(i) through (vi) hereof has occurred but has not yet resulted in an adjustment to the Conversion Rate and the shares of Common Stock, if any, that such Lender will receive upon settlement of its converted Loan are not entitled to participate in the relevant distribution or transaction (because they were not held on a related record date or otherwise), then the Borrower will adjust the number of shares of Common Stock that it delivers to such Lender to reflect the relevant distribution or transaction.

(viii) Conversion Rate Adjustments where Converting Lenders Participate in the Relevant Dividend, Distribution or other Transaction. Notwithstanding anything to the contrary herein, if a Conversion Rate adjustment becomes effective on any date pursuant to this Section 2.9(f), and a Lender that has converted its Loans on or after such date and on or prior to the related record date would be treated, on such record date, as the record holder of the shares of Common Stock, if any, issuable upon such conversion based on an adjusted Conversion Rate for such date, then the Conversion Rate adjustment relating to such date will not be made for such converting Lender. Instead, such Lender will be treated as if such Lender were, as of such record date, the record owner of such shares of Common Stock on an unadjusted basis and will participate in the related dividend, distribution or other event giving rise to such adjustment.

(ix) Stockholder Rights Plans. If the Borrower has a rights plan in effect when a Lender converts a Loan, the Borrower will deliver to such Lender, in addition to any shares of Preferred Stock otherwise issuable to such Lender upon conversion of such Loan, any rights that, under the rights plan, would be applicable to a share of Preferred Stock or Common Stock, unless prior to the Conversion Date for such Loan, the rights have separated from the Preferred Stock or Common Stock, in which case, and only in such case, the Conversion Rate will be adjusted pursuant to Section 2.9(f)(iii)(B) as if, at the time of such separation, the Borrower had distributed to all holders of the Preferred Stock or Common Stock shares of its Stock, evidences of its Indebtedness, other assets or property of the Borrower or rights, options or warrants to acquire its Stock, subject to readjustment in the event of the expiration, termination or redemption of such rights.

(x) Other Adjustments. Whenever any provision of this Agreement requires the calculation of the Last Reported Sale Price, a Volume Weighted Average Price or a function thereof over a period of multiple days (including the Stock Price for purposes of a Fundamental Change), the Borrower will make appropriate adjustments to the Last Reported Sale Price, the Volume Weighted Average Price or such function thereof to account for any adjustment to the Conversion Rate that becomes effective, or any event requiring an adjustment to the Conversion Rate where dividend, Spin-Off or distribution date, Effective Date or expiration date of the event occurs, at any time during such period.

(xi) In addition to those adjustments required by clauses (i), (ii), (iii), (iv) or (v) of this Section 2.9(f), and subject to the applicable listing standards of the applicable Eligible Market, the Borrower is permitted to increase the Conversion Rate by any amount for a period of at least 20 business days if the Borrower determines that such increase would be in the Borrower’s best interest. Subject to the applicable listing standards of the applicable Eligible Market, the Borrower may also (but is not required to) increase the applicable Conversion Rate to avoid or diminish income tax to

 

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holders of the Common Stock or rights to purchase shares of our Common Stock in connection with a dividend or distribution of shares (or rights to acquire shares) or similar event.

(xii) Notwithstanding anything to the contrary in this Article 2, the Conversion Rate shall not be adjusted:

(A) upon the issuance (except as expressly set forth in clause (i), (ii) or (iii) of Section 2.9(f)) or sale of shares of the Common Stock or any securities convertible into or exchangeable for shares of the Common Stock or the right to purchase shares of the Common Stock or such convertible or exchangeable securities, except to the extent such issuance or sale constitutes a Fundamental Change and the Conversion Rate is subject to adjustment under Section 2.11;

(B) upon the issuance of any shares of Common Stock pursuant to any option, warrant, right or exercisable, exchangeable or convertible security not described in clause (A) of this subsection and outstanding as of the date the Notes were first issued;

(C) upon the repurchase of shares of Common Stock pursuant to an open-market share repurchase program or other buy-back transaction that is not a tender offer or exchange offer of the nature described in Section 2.9(f)(v);

(D) solely for a change in the par value of the Common Stock so long as the Conversion Shares would be fully paid and nonassessable following the issuance hereunder; or

(E) for accrued and unpaid interest, if any.

(xiii) The Borrower shall not be required to make an adjustment pursuant to clauses (i), (ii), (iii), (iv) or (v) of this Section 2.9(f) unless such adjustment would result in a change of at least 0.5% of the then effective Conversion Rate. However, the Borrower shall carry forward any adjustment that the Borrower would otherwise have to make and take that adjustment into account in any subsequent adjustment. Notwithstanding the foregoing, all such carried-forward adjustments shall be made with respect to the Loans where the aggregate of all such carried-forward adjustments equals or exceeds 0.5% of the Conversion Rate. All calculations and other determinations under this Article 2 shall be made by the Borrower and shall be made to the nearest one-ten thousandth (1/10,000th) of a share.

(g) Notices. The Borrower will deliver to each Lender a written notice:

(i) promptly following the public announcement of any event that will require the Borrower to make an adjustment to the Conversion Rate pursuant to this Section 2.9, which notice will include (i) a brief description of such event, (ii) the date on which the Borrower anticipates that such event will occur, (iii) the date on which the Borrower anticipates that the adjustment to the Conversion Rate will become effective, and (iv) if any record date, expiration date or Effective Date is applicable to such event, such record date, expiration date, or Effective Date. Neither the failure to give such notice, nor any defect therein, will affect the legality or validity of such action by the Borrower;

(ii) in the case of an anticipated Fundamental Change, promptly following the entry into a definitive agreement relating to a Fundamental Change (and in any event on or before the 20th calendar day immediately preceding the effective date of a Fundamental Change, a “Fundamental Change Notice”), which notice will include (i) a brief description of such event, (ii) the date on which the Borrower anticipates that such event will occur, (iii) the date on which the Borrower anticipates that the adjustment to the Conversion Rate will become effective, (iv) the last date on which a Lender may exercise its right to require the Borrower to convert its Loans as a result of such Fundamental Change (which date shall be not more than 3 Business Days preceding the effective date of the applicable Fundamental Change); (v) the procedures that a Lender must follow to require the Borrower to convert its Loan; (vi) the Conversion Rate and Conversion Price as in effect on the date of such notice; and (vii) any adjustments that will be made to the Conversion Rate as a result of such Fundamental Change, including, if applicable, any Additional Shares by which the Conversion Rate will be increased pursuant to Section 2.11 hereof for a Lender that converts a Loan in connection with such Fundamental Change; and

 

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(iii) following such time as the Borrower adjusts the Conversion Rate pursuant to this Section 2.9, which notice will include (i) a brief description of the event requiring adjustment to the Conversion Rate pursuant to this Section 2.9, (ii) the effective time of such adjustment, (iii) the Conversion Rate in effect immediately after such adjustment is made and (iv) a schedule explaining, in reasonable detail, how the Borrower calculated such adjustment. The failure to deliver such notice will not affect the legality or validity of any such adjustment.

(h) In the event that the Borrower provides both a Prepayment Notice to the Lenders and a Fundamental Change Notice to the Lenders, the Lenders who have elected to convert their Loans shall be entitled to a single adjustment to the Conversion Rate in connection therewith, with respect to the first to occur of the effective date of the relevant prepayment or Fundamental Change, and the later event will be deemed not to have occurred for purposes of the adjustment to the Conversion Rate; provided that, to the extent the Borrower delivers a Prepayment Notice and the relevant prepayment is part of the transaction underlying the Fundamental Change, the Conversion Rate will be adjusted based on the effective date of the Fundamental Change.

(i) Effect of Recapitalizations; Reclassifications; and Changes of the Preferred Stock or Common Stock.

(i) In the case of:

(A) any recapitalization, reclassification or change of the Preferred Stock and/or Common Stock (other than changes resulting from a subdivision, split, reverse split or combination),

(B) any consolidation, merger or combination involving the Borrower,

(C) any sale of all or substantially all of the consolidated assets of the Borrower and its Subsidiaries, taken as a whole, to any person other than one of the Borrower’s Subsidiaries or

(D) any statutory share exchange,

in each case, as a result of which the Preferred Stock and/or Common Stock would be converted into, or exchanged for, stock, other securities, other property or assets (including cash or any combination thereof) (any such event, a “Merger Event”), then, at and after the effective time of such Merger Event, the right to convert each $1,000 principal amount of Loans (without regard to the Ownership Limitation or any other restriction or limitation on exercise) shall be changed into a right to convert such principal amount of Loans into the kind and amount of shares of stock, other securities or other property or assets (including cash or any combination thereof) that a holder of a number of shares of Preferred Stock (or, if so elected by the Required Lenders, Common Stock) equal to the Conversion Rate (including, as applicable, as adjusted pursuant to Section 2.11) immediately prior to such Merger Event would have owned or been entitled to receive (without regard to the Ownership Limitation or any other restriction or limitation on exercise) (the “Reference Property”, with each “unit of Reference Property” meaning the kind and amount of Reference Property that a holder of one share of Preferred Stock (or Common Stock, if applicable) is entitled to receive) upon such Merger Event and to receive such Reference Property at the same times as the holders of Preferred Stock (or Common Stock, if applicable); provided, however, that at and after the effective time of the Merger Event any Conversion Shares that the Borrower would have been required to deliver upon conversion of the Loans in accordance with Section 2.9(c) shall instead be deliverable in the amount and type of Reference Property that a holder of that number of shares of Preferred Stock (or, if so elected by the Required Lenders, Common Stock) would have received in such Merger Event and the Volume Weighted Average Price shall be calculated based on the value of a unit of Reference Property.