| Item 1.01 | Entry into a Material Definitive Agreement |
On September 9, 2022, TScan Therapeutics, Inc. (the “Company”) entered into a Loan and Security Agreement (the “Loan and Security Agreement”) 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, and Ankura Trust Company, LLC, as collateral agent for Lenders. Under the Loan and Security Agreement, the Lenders will extend up to $60 million of convertible term loans to the Company, consisting of a first tranche of $30 million fully funded at the original closing (the “First Tranche Term Loan”), a second tranche of $10 million upon the achievement of certain financial and clinical milestones (the “Second Tranche Term Loan”) and an uncommitted third tranche of $20 million (the “Third Tranche Term Loan”) which can be made at the Lenders’ discretion.
The Loan and Security 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, pay dividends or other distributions or repurchase equity, make investments, and enter into certain transactions with affiliates, in each case subject to certain thresholds and exceptions. During the term of the Loan and Security Agreement, the Company must maintain minimum unrestricted cash and cash equivalents equal to 5.0 times the average cash burn measured over the trailing three-month period. As security for its obligations under the Loan and Security Agreement, the Company granted the collateral agent for the benefit of the Lenders a first priority security interest on substantially all of the Company’s assets (other than intellectual property), subject to certain exceptions. The Company’s obligations under the Loan and Security Agreement will be guaranteed by each of the Company’s future direct or indirect subsidiaries, subject to certain exceptions.
The term loans mature on September 1, 2026, and will be subject to interest only payments for 24 months, which can be extended to 36 months upon achievement of certain financial and clinical milestones, following which the term loans will amortize in equal monthly installments until maturity. The term loans are prepayable at the option of the Company, subject to applicable prepayment premium. The term loans will accrue interest at a per annum rate equal to the greater of (i) 8.75% and (ii) the sum of (A) the prime rate (as last quoted in The Wall Street Journal) and (B) 4.75%, provided that such interest rate shall not exceed 9.90%. The term loans will automatically accelerate upon the occurrence of certain bankruptcy or an insolvency events involving the Company.
The Lenders may elect at any time following the closing prior to the payment in full of the term loans to convert any portion of the principal amount of the term loans then outstanding into shares of common stock, par value $0.0001 per share (“Common Stock”), of the Company, in an amount to be determined by dividing (i) the portion of the principal loan amount converted, by (ii) the applicable fixed conversion price (the “Conversion Shares”), subject to specified limitations if necessary to comply with the rules of the Nasdaq Global Market.
Pursuant to the Loan and Security Agreement, the applicable fixed conversion price means: (i) with respect to a conversion of any principal amount of the First Tranche Term Loan, $4.785; (ii) with respect to a conversion of any principal amount of the Second Tranche Term Loan, a price equal to 140% of the lowest of the average value-weighted average price for each consecutive three trading days during the 30-day period immediately preceding the funding date of the Second Tranche Term Loan; and (iii) with respect to a conversion of any principal amount of the Third Tranche Term Loan, a price equal to 140% of the lowest of the average value-weight average price for each consecutive three trading days during the 30-day period immediately preceding the funding date of the Third Tranche Term Loan; provided, that in each case, (i) such price shall be subject to adjustment in accordance with the Loan and Security Agreement, and (ii) such price shall be subject to the applicable conversion price floor and other adjustments in accordance with the Loan and Security Agreement.
The Company may elect to repay or prepay outstanding principal of the term loans and accrued interest and fees thereon upon three days’ notice to the Lenders by delivering a number of shares of Common Stock equal to the sum of principal amount to be repaid or prepaid multiplied by the applicable equity repayment premium, divided by the applicable equity repayment price. The Company shall be entitled to deliver an equity repayment election notice or effect an equity repayment up to once in any trailing four-week period, and subject to satisfaction of certain conditions, including: (i) the equity repayment price with respect to such equity repayment is not less than the equity repayment
