KemPharm, Inc. (NASDAQ:KMPH) Files An 8-K Entry into a Material Definitive Agreement
Item 1.01 Entry into a Material Definitive Agreement.
December 2020 Exchange Agreement and Amendment to Facility Agreement, Notes and Investors Rights Agreement
On December 20, 2020, KemPharm, Inc., a Delaware corporation (the Company), entered into a December 2020 Exchange Agreement and Amendment to Facility Agreement, Notes and Investors Rights Agreement (the December 2020 Exchange Agreement) with Deerfield Private Design Fund III, L.P. (DPDF) and Deerfield Special Situations Fund, L.P. (together with DPDF, the Deerfield Holders). Under the December 2020 Exchange Agreement, the Company and the Deerfield Holders have agreed that (a) the Company will make a cash pre-payment of a portion of principal amount of the Companys senior secured convertible notes (the Notes) issued under the Facility Agreement(as defined below) to the Deerfield Holders and other holders (collectively, Holders) of the Notes that elect to participate in the exchange transaction in an aggregate amount (the Cash Payment Amount) equal to $25.0 million, plus accrued interest if such payment is made on or after January 1, 2021, provided that such amount may be increased on a pro rata basis if any Holders, other than the Deerfield Holders, choose to participate in the transactions contemplated under the December 2020 Exchange Agreement or with the prior written consent of the Company and the Deerfield Holders, and (b) subject to the satisfaction or waiver of certain conditions specified in the December 2020 Exchange Agreement, including the making of the Deerfield Holders debt repayment, issue shares of its Series B-2 Preferred Stock, par value $0.0001 per share (the Series B-2 Preferred Stock), and warrants exercisable for shares of its common stock (the Exchange Warrants), in exchange for the cancellation of the principal amount of the Notes owned by the Holders party to the December 2020 Exchange Agreement in an aggregate amount equal to the Cash Payment Amount, plus the Q4 PIK Interest Payment (as defined in the December 2020 Exchange Agreement) (such transaction, the Exchange). Upon payment of the Cash Payment Amount and completion of the Exchange, the Company anticipates that the aggregate principal amount of the outstanding Notes held by the Holders will be no greater than approximately $18.3 million.
The December 2020 Exchange Agreement provides that the Company must give each Holder, other than the Deerfield Holders, notice of and the opportunity to participate in the transactions contemplated under the December 2020 Exchange Agreement on the same basis as, and subject to the same conditions that apply in respect of, the Deerfield Holders. Any Holder who agrees to participate in the transactions contemplated under the December 2020 Exchange Agreement must return a joinder thereto on or before December 23, 2020.
Subject to the occurrence of the prepayment and exchange transactions described above and other conditions specified in the December 2020 Exchange Agreement, the December 2020 Exchange Agreement will amend that certain Facility Agreement dated as of June 2, 2014, as amended (the Facility Agreement), by and among the Company and the Holders in order to, among other things, (i) extend the maturity date of the Notes to March 31, 2023, (ii) provide for cash payments of interest on the Loans (as defined in the Facility Agreement) for the periods following July 1, 2021, and (iii) provide for specified prepayment terms on the Loans.
The December 2020 Exchange Agreement amends the Notes to provide that the failure of the Companys common stock to remain listed on an eligible securities market will not constitute a Major Transaction unless such failure occurs after March 31, 2023.
The December 2020 Exchange Agreement amends that certain Amended and Restated Investors Rights Agreement, dated as of February 19, 2015 (the IRA), by and among the Company, DPDF and the other parties signatory thereto in order to, among other things, add Deerfield Special Situations Fund, L.P. as a party thereto and to give effect to the issuance of the Exchange Warrants and the Companys registration obligations under the December 2020 Exchange Agreement (as described in more detail below).
The Exchange Warrants to be issued to the December 2020 Exchange Agreement will be exercisable for a number of shares of the Companys common stock equal to 75% of the shares of common stock issuable upon conversion of the Series B-2 Preferred Stock issued in the Exchange (without regard for any beneficial ownership limitations included therein). The Exercise Warrants will be subject to substantially the same terms and conditions as the warrants issued to the public in the public offering of the Companys securities contemplated to a registration statement on Form S-1, file no. 333-250945 (the Public Offering), with an exercise price equal to the exercise price per share of the warrants issued in the Public Offering and will provide that the Holders will be limited from exercising such Exchange Warrants if, as a result of such exercise, such holders (together with certain affiliates and group members of such holders) would beneficially own more than 4.985% of the total number of shares of the Companys common stock then issued and outstanding.