| Item 1.01 | Entry into a Material Definitive Agreement. |
On October 1, 2021, Surface Oncology, Inc. (the “Company”) entered into a First Amendment to Loan and Security Agreement (the “Amendment”) with K2 HealthVentures LLC (together with any other lender from time to time party thereto, the “Lenders”), K2 HealthVentures LLC, as administrative agent for Lenders (the “Administrative Agent”), and Ankura Trust Company, LLC, as collateral agent for Lenders (the “Collateral Agent”), which amends the Company’s existing Loan and Security Agreement, dated November 19, 2019, by and among the Company, the Lenders, the Administrative Agent and the Collateral Agent (the “Existing Loan Agreement”). Under the Amendment, the Lenders will extend up to $50.0 million to the Company, consisting of a first tranche of $25.0 million following the closing (including refinancing of the Company’s outstanding amounts under the Existing Loan Agreement), and two subsequent tranches which together total $25.0 million upon the achievement of certain financial and clinical milestones.
The Amendment 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, 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 Amendment, the Company re-affirmed the Lender’s first priority security interest granted under the Existing Loan Agreement on substantially all of the Company’s assets (other than intellectual property), and subject to certain exceptions.
The loan facility carries a 48-month term with interest only payments for approximately 19 months, which can increase to up to approximately 28 months upon achievement of certain financial milestones. The term loan will mature in October 2025 and bears an interest rate of the greater of (i) 8.50% and (ii) the sum of (A) the greater of (x) 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) or (y) 3.25%, plus (B) 5.25%. The term loan is subject to mandatory prepayment provisions that require prepayment upon the occurrence of bankruptcy or an insolvency event.
In addition, the Lenders may elect, at any time following the closing prior to the payment in full of the loans under the Amendment, to convert any portion of the principal amount of the loans then outstanding into shares of common stock, par value $0.0001 per share, of the Company, in an amount up to $4.5 million, at a conversion price of (i) with respect to the first $500,000 converted, $1.56 per share and (ii) with respect to any additional amounts converted in excess of $500,000, $7.81 per share (such shares, the “Conversion Shares”), subject to specified limitations if necessary to comply with the rules of the Nasdaq Global Market.
The Amendment, as with the Existing Loan Agreement, also provides the Lenders with certain registration rights with respect to the Conversion Shares. Pursuant to the terms of the Amendment, the Company is obligated to prepare and file with the Securities and Exchange Commission a registration statement to register the Conversion Shares for resale upon request of the Lenders.
The above description of the Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of the Amendment, a copy of which is filed as Exhibit 10.1 hereto and is incorporated by reference herein.
| Item 2.03 | Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant. |
The information contained in Item 1.01 is hereby incorporated by reference in this Item 2.03.
On October 4, 2021, the Company announced its plans to initiate a randomized Phase 2 clinical study evaluating SRF388 in combination with Roche’s atezolizumab and bevacizumab. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.
The information in Exhibit 99.1 attached hereto is intended to be furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by specific reference in such filing.
