| Item 1.01 | Entry into a Material Definitive Agreement. |
Loan Agreement
On August 8, 2022 (the “Closing Date”), Rani Therapeutics Holdings, Inc. (“Rani Holdings”) and its subsidiaries, Rani Therapeutics, LLC (“Rani LLC”) and Rani Management Services, Inc. (“RMS”, and collectively with Rani Holdings and Rani LLC, the “Company”), entered into a Loan and Security Agreement and related Supplement (the “Loan Agreement”), by and among Avenue Venture Opportunities Fund, L.P., a Delaware limited partnership (“Avenue”). The Loan Agreement provides for term loans (the “Loans”) in an aggregate principal amount up to $45 million. A Loan of $30 million is committed on the Closing Date, with $15 million to be funded on the Closing Date and $15 million available to be drawn between October 1, 2022 and December 31, 2022. The remaining $15 million of Loans (“Tranche 2”) is uncommitted and is subject to (I) the Company’s written request for Tranche 2; (II) approval by Avenue’s investment committee; (III) the successful completion of an Investigational Device Exemption study or similar repeat dose study or phase 2 clinical study with the Company’s oral delivery technology (the “Milestone Study”); and (IV) the Company’s receipt of net proceeds of at least $50 million from the sale and issuance of its equity securities and/or upfront licensing proceeds. Tranche 2 is available to request until 24 months after the Closing Date, provided that if successful completion of the Milestone Study is achieved, such period shall be extended to 30 months after the Closing Date (such period, the “Interest-only Period”). The purpose of the Loans is for general corporate purposes.
On the Closing Date, the Company is expected to receive $15 million of funds under the Loan Agreement. Pursuant to the Loan Agreement, the maturity date for the Loans is August 1, 2026 (the “Maturity Date”). The Loan principal is repayable in equal monthly installments beginning at the end of the Interest-only Period. The Loans bear interest at a variable rate per annum equal to the greater of (A) the prime rate, as published by the Wall Street Journal from time to time plus 5.60% or (B) 10.35%.
The Company may, subject to certain parameters, voluntarily prepay all, but not less than all, amounts due under the Loan Agreement. If prepayment occurs on or before the one-year anniversary of the Closing Date, the Company shall pay a fee equal to the principal amount of the Loans prepaid multiplied by 3.00%; and if prepayment occurs after the one-year anniversary of the Closing Date but on or before the two-year anniversary of the Closing Date, the Company shall pay a fee equal to the principal amount of the Loans prepaid multiplied by 2.00%; and if prepayment occurs after the two-year anniversary of the Closing Date but before the Maturity Date, the Company shall pay a fee equal to the principal amount of the Loans prepaid multiplied by 1.00%.
The Company will pay a commitment fee of $300,000 as of the Closing Date to Avenue. Upon the repayment in full of the Loans, the Company will pay to Avenue a final payment of 5.50% of the aggregate principal amount of funded Loans.
Pursuant to the Loan Agreement, beginning on the first anniversary of the Closing Date, the Company is subject to a financial covenant that requires the Company to have at least two drug products utilizing its oral delivery technology in clinical development at all times. The financial covenant does not apply if the Company has a market capitalization above $650 million. The Loan Agreement also contains various covenants and restrictive provisions that, among other things, limit the Company’s ability to (i) incur additional debt, guarantees or liens; (ii) pay any dividends; (iii) enter into certain change of control transactions; (iv) sell, transfer, lease, license, or otherwise dispose of certain assets; (v) make certain investments or loans; and (vi) engage in certain transactions with related persons.
An event of default under the Loan Agreement includes, among other events, (i) failure to pay any principal or interest when due and payable; (ii) failure to pay any debts generally as they become due; (iii) sale, transfer or disposition of all or a substantial or material part of our assets; (iv) failure to perform or observe certain covenants contained in the Loan Agreement (subject to certain grace periods); and (v) to create, incur, assume or permit to exist any lien on Company property except certain permitted liens.
The Loan Agreement is collateralized by substantially all of the Company’s assets, in which Avenue is granted continuing security interests.
