Item 1.01 Entry into a Material Definitive Agreement.
On July 25, 2022, Inozyme Pharma, Inc. (the “Company”) entered into a loan and security agreement (the “Loan Agreement”) with K2 HealthVentures LLC (“K2HV”, together with any other lender from time to time party thereto, the “Lenders”), K2HV, as administrative agent for the Lenders, and Ankura Trust Company, LLC, as collateral agent for the Lenders. The Loan Agreement provides up to $70.0 million principal in term loans consisting of (subject to certain customary conditions): (i) a first tranche commitment of $25.0 million, of which $5.0 million was funded at closing and with the remainder available to be drawn at the Company’s option through March 31, 2023 (the “First Tranche Commitment”), (ii) two subsequent tranche commitments totaling $20.0 million in the aggregate to be drawn at the Company’s option during certain availability periods upon the achievement of certain time-based, clinical and regulatory milestones and (iii) a fourth tranche commitment of $25.0 million available to be drawn at the Company’s option through August 31, 2025, subject to use of proceeds limitations and Lender’s consent.
The facility carries a 48-month term with interest only payments for 36 months. The term loan will mature on August 1, 2026 and bears a variable interest rate equal to the greater of (i) 7.85% and (ii) the sum of (A) the prime rate last quoted in The Wall Street Journal (or a comparable replacement rate if The Wall Street Journal ceases to quote such rate) and (B) 3.85%; provided that the interest rate cannot exceed 9.60%. The Company may prepay, at its option, all, but not less than all, of the outstanding principal balance and all accrued and unpaid interest with respect to the principal balance being prepaid of the term loans, subject to a prepayment premium to which the Lenders are entitled and certain notice requirements. The Company is required to pay the Lenders’ certain customary fees and expenses at closing as well as additional fees that may be due upon maturity or prepayment such as final payment fees and prepayment fees.
The Lenders may elect at any time following the closing and prior to the full repayment of the term loans to convert any portion of the principal amount of the term loans then outstanding, up to an aggregate of $5.0 million in principal amount, into shares of the Company’s common stock, $0.0001 par value per share (“Common Stock”), at a conversion price of $6.21, subject to customary adjustments and 9.99% and 19.99% beneficial ownership limitations. The Loan Agreement provides the Lenders with certain piggyback registration rights with respect to the shares issuable upon conversion of term loans under the Loan Agreement.
The Loan Agreement contains customary representations and warranties, events of default and affirmative and negative covenants, including covenants that limit or restrict the Company’s ability to, among other things, dispose of assets, make changes to the Company’s business, management, ownership or business locations, merge or consolidate, incur additional indebtedness, incur additional liens, pay dividends or other distributions or repurchase equity, make investments, and enter into certain transactions with affiliates, in each case subject to certain exceptions. As security for its obligations under the Loan Agreement, the Company granted the Lenders a first priority security interest on substantially all of the Company’s assets (other than intellectual property), subject to certain exceptions.
Subject to certain conditions, the Company granted the Lenders the right, prior to repayment of the term loans, to invest up to $5,000,000 in the aggregate in future offerings of common stock, convertible preferred stock or other equity securities of the Company that are broadly marketed and offered to multiple investors, on the same terms, conditions and pricing afforded to others participating in any such financing.
Item 2.03 Creation of Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
The information set forth in Item 1.01 of this Current Report on Form 8-K is incorporated by reference in this Item 2.03.
Item 8.01 Other Events.
Based upon the Company’s current operating plan, the Company estimates that its existing cash, cash equivalents and short-term investments as of March 31, 2022, together with the net proceeds from the Company’s sale of common stock and pre-funded warrants in an underwritten offering in April 2022 and the First Tranche Commitment, will enable the Company to fund its operating expenses and capital expenditure requirements into the second quarter of 2024. The Company has based this estimate on assumptions that may prove to be wrong, and the Company could use its available capital resources sooner than it currently expects.
