Term and Repayment. The term of the Loan Agreement is 54 months, with interest only payments on the Term Loan Facility for the first 24 months, which period can be extended to up to 36 months, depending on the achievement of certain performance milestones. The Company may prepay the principal of the Term Loan Facility at any time subject to a prepayment charge (the “Prepayment Charge”) equal to: 3.0% of amounts prepaid on or prior to June 15, 2023; 2.0% of amounts prepaid during the period from June 15, 2023 to June 15, 2024; and 1% of amounts prepaid on and after June 15, 2024.
Representations and Warranties and Other Covenant and Provisions. The Loan Agreement includes customary representations and warranties and other covenants associated with a secured loan facility. Such terms include (1) covenants concerning financial reporting obligations, and (2) certain limitations on indebtedness, liens, investments, distributions (including dividends), collateral, investments, distributions, transfers, mergers or acquisitions, taxes, corporate changes, and deposit accounts. The Loan Agreement includes customary events of default, including payment defaults, breaches of covenants following any applicable cure period and the occurrence of certain events that could reasonably be expected to have a “material adverse effect” as set forth in the Loan Agreement (each, a “Material Adverse Effect”). In addition, the Loan Agreement includes affirmative and restrictive covenants, including maintenance of a minimum cash, cash equivalents and liquid funds covenant that applies beginning on April 1, 2023.
Security; Other Terms. The Company’s obligations under the Loan Agreement are secured by a security interest in substantially all of their respective assets, other than intellectual property. The Company paid Hercules an initial facility charge of $100,000 in respect of the initial $20.0 million first tranche commitment. The second, third and fourth tranches, if drawn, are each subject to a facility charge, payable as future amounts are drawn, equal to 0.50% of the principal amount of the draw.
Warrant. In addition, in connection with the entry into the Loan Agreement, the Company issued Hercules a warrant (the “Warrant”) to acquire a number of shares of Common Stock at an exercise price of $8.17 per share (the “Warrant Shares”). The Warrant may be exercised through the earlier of (i) the seventh anniversary of June 15, 2022 and (ii) the consummation of certain acquisition transactions involving the Company, as set forth in the Warrant. The number of Warrant Shares for which the Warrant is exercisable and the associated exercise price are subject to certain customary proportional adjustments for fundamental events, including stock splits and reverse stock splits, as set forth in the Warrant. Within six (6) months following the exercise of the Warrant, the Company shall prepare and file with the SEC a registration statement covering the resale of the Warrant Shares issued pursuant to such exercise notice for an offering to be made on a continuous basis and shall use best efforts to cause such registration statement to be declared effective. Notwithstanding the foregoing, the Company shall not be required to register the Warrant Shares in the event that the Warrant Shares issued pursuant to the exercise of the Warrant may be sold under Rule 144 or another similar exemption under the Securities Act.
The foregoing summary does not purport to be complete and is qualified in its entirety by reference.
The foregoing descriptions of the Loan Agreement and the Warrant contained herein do not purport to be complete and are qualified in their entirety by reference to the complete text of the Loan Agreement and the Warrant Agreement to be filed with the SEC in connection with the Company’s second quarter 2022 Form 10-Q filing.
Cash Runway
If the Term Loans are fully drawn, proceeds from the Offering and the Term Loans together, along with budget optimization efforts, are expected to fund the Company’s current operating plan until the third quarter of 2024.
Forward-Looking Statements
Statements contained under this Item 1.01 regarding matters that are not historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements, including, but not limited to, statements regarding the Company’s cash runway, including its extension to the third quarter of 2024, statements about the completion and timing of the registered offering of the Company’s common stock to Pfizer Inc., the Company’s business plans and objectives, including future plans or expectations for EFX, upcoming milestones, and therapeutic effects of EFX, as well as the dosing, safety and tolerability of EFX; and expectations regarding the Company’s use of capital, expenses and other future financial results and the potential impact of COVID-19 on strategy, future operations, manufacturing, and clinical trial enrollment and data collection.
