| Item 1.01. | Entry into a Material Definitive Agreement. |
On December 15, 2022 (the “Closing Date”), Evelo Biosciences, Inc. (the “Company”) entered into a Loan and Security Agreement (the “Loan Agreement”) with Horizon Technology Finance Corporation, as lender and collateral agent (the “Lender”), pursuant to which the Lender agreed to make term loans in an aggregate principal amount of up to $45.0 million, available to the Company on the Closing Date and the Company borrowed $45.0 million. Borrowings under the Loan Agreement are collateralized by substantially all of the Company’s personal property, excluding intellectual property, and the Company pledged its equity interests in its subsidiaries, subject to certain limitations with respect to its foreign subsidiaries.
Interest on the outstanding loan balance will accrue at a variable annual rate equal to the greater of (i) 11% and (ii) rate of interest noted in The Wall Street Journal, Money Rates section, as the “Prime Rate” plus the “Loan Rate Spread” as defined in the Loan Agreement. For $35.0 million of the $45.0 million borrowed on the Closing Date, the Company is required to make interest-only payments on the loans for the first thirty-six monthly payment dates prior to when the loans are scheduled to begin amortizing on February 1, 2026 (the “Amortization Date”), with equal monthly payments of principal plus interest being made by the Company to the Lender in consecutive monthly installments following such interest-only period until the loans mature on January 1, 2028 (the “Maturity Date”). The remaining $10.0 million borrowed on the Closing Date will be due and payable on the Maturity Date. At the Company’s option, the Company may prepay the loans in whole, subject to a prepayment fee of 3% of the amount prepaid if prepaid on or before the Amortization Date, or if the prepayment occurs after less than 12 months after Amortization Date, 2% of the amount prepaid, and if more than 12 months after the Amortization Date but before the Maturity Date, 1%. A final payment equal to 4.25% of the principal borrowed on the Closing Date is due on the Maturity Date (or upon repayment in full of principal, if earlier).
Upon the entry into the Loan Agreement, the Company was required to pay the Lender a commitment fee of $450,000, as well as other customary fees and expenses. The Loan Agreement contains customary representations, warranties and covenants and also includes customary events of default, including payment defaults, breaches of covenants, change of control and occurrence of a material adverse effect. Upon the occurrence and continuation of an event of default, a default interest rate of an additional 5% per annum may be applied to the outstanding loan balances, and the Lender may declare all outstanding obligations immediately due and payable and exercise all of their rights and remedies as set forth in the Loan Agreement and under applicable law. The Company’s subsidiary, Evelo Biosciences Security Corporation, may maintain cash or cash equivalents so long as the Company satisfies certain liquidity requirements.
In addition, in connection with the entry into the Loan Agreement, the Company also issued to the Lender warrants to purchase up to an aggregate 463,915 shares of the Company’s common stock, with an exercise price of $1.94 per share (the “Bank Warrants”). The Bank Warrants are exercisable immediately and expire on December 15, 2032, provided that, under certain circumstances, the Bank Warrants may terminate and expire earlier in connection with the closing of certain acquisition transactions involving the Company. The Bank Warrants provide that the Lender may elect to exercise the warrant on a net “cashless” basis at any time prior to the expiration thereof. The fair market value of one share of the Company’s common stock in connection with any cashless exercise shall be the closing price or last sale price per share of the Company’s common stock on a nationally recognized securities exchange, inter-dealer quotation system or over-the-counter market on which the Company’s common stock is traded on the business day immediately prior to the date the holder elects to exercise the Bank Warrants on a cashless basis.
