| Notes Payable | 8. Notes Payable 2021 Loan and Security Agreement On December 30, 2021, the Company entered into a Loan and Security Agreement (the "Prior Loan Agreement") with Hercules Capital, Inc. (“Hercules” or the “Lender”) for the issuance of a term loan facility with an aggregate principal amount of up to $ 20.0 million (the “Prior Term Loan”). The Prior Loan Agreement provided for (i) an initial term loan advance of $ 7.0 million, which closed on December 30, 2021, (ii) subject to the achievement of certain clinical milestones (“Clinical Milestone”), a right of the Company to request that the Lender make additional term loan advances to the Company in an aggregate principal amount of up to $ 4.0 million from the achievement of the Clinical Milestone through June 15, 2022, which was drawn in June 2022 , and (iii) subject to the achievement of certain financial milestones (“Financial Milestone”), a right of the Company to request that the Lender make additional term loan advances to the Company in an aggregate principal amount of up to $ 9.0 million from achievement of the Financial Milestone through December 15, 2022, which was not achieved. The Company is required to pay an end of term fee (“Prior Term Loan End of Term Charge”) equal to 6.35 % of the aggregate principal amount of the Prior Term Loan advances upon repayment. The Prior Term Loans were scheduled to mature on July 1, 2025 , with no option for extension (the “Prior Term Loan Maturity Date”). The Prior Term Loan accrued interest at an annual rate equal to the greater of (i) 8.25 % plus the prime rate of interest as reported in the Wall Street Journal minus 3.25 % and (ii) 8.25 % provided, that, from and after the date the Company achieves the financial milestone, as defined within the agreement, the reference to 8.25 % in clauses (i) and (ii) is reduced to 8.15 %. Borrowings under the Prior Term Loan are repayable in monthly interest-only payments through June 2023. After the interest-only payment period, borrowings under the Prior Term Loan are repayable in equal monthly payments of principal and accrued interest until the Maturity Date. At the Company’s option, the Company may elect to prepay all, but not less than all, of the outstanding term loan by paying the entire principal balance and all accrued and unpaid interest thereon plus a prepayment charge equal to the following percentage of the principal amount being prepaid: (i) 3.0 % of the principal amount outstanding if the prepayment occurs in any of the first twelve months following the closing date of the last draw down; (ii) 2.0 % of the principal amount outstanding if the prepayment occurs after the first twelve months following the closing date of the last draw down, but on or prior to twenty-four months following the closing date of the last draw down; and 1.0 % of the principal amount outstanding at any time thereafter but prior to the Maturity Date. In connection with the Prior Term Loan, the Company granted Hercules a security interest senior to any current and future debts and to any security interest, in all of the Company’s right, title, and interest in, to and under all of the Company’s property and other assets, and certain equity interests and accounts of Old enGene, subject to limited exceptions including the Borrower’s intellectual property. The Prior Loan Agreement also contains certain events of default, representations, warranties and non-financial covenants of the Company. The debt discount and issuance costs under the Prior Term Loan were accreted to the principal amount of debt and being amortized from the date of issuance through the Maturity Date to interest expense using the effective-interest rate method. The effective interest rate of the outstanding debt under the Prior Loan Agreement was approximately 18.3 % as of October 31, 2023. The Company borrowed $ 11.0 million under the Prior Loan Agreement and incurred $ 1.1 million of debt discount and issuance costs inclusive of facilities fees, legal fees, Prior Term Loan End of Term Charge and initial fair value of the warrants under the Prior Term Loan. Old Hercules Warrants Under the Prior Loan Agreement, the Company agreed to issue to Hercules warrants (the “Old Hercules Warrants”) to purchase a number of shares of Old enGene’s redeemable convertible preferred shares at the exercise price equal to 2.5 % of the aggregate amount of the Prior Term Loans that are funded, as such amounts are funded. On the first tranche closing, Old enGene issued a warrant to purchase 84,714 Class C Preferred Shares which were determined to have a fair value of $ 34 upon issuance. On the second tranche closing, in June 2022, Old enGene issued an additional warrant to purchase 48,978 Class C Preferred Shares which were determined to have a fair value of $ 23 upon issuance. The fair value of the Old Hercules Warrant values were initially recorded as a discount to the Prior Term Loan principal balance and are being amortized to interest expense using the effective interest method over the life of the Prior Term Loan. The Old Hercules Warrants were initially exercisable for a period of ten years from the date of the issuance of each warrant at a per-share exercise price equal to $ 2.632 Canadian dollars, subject to certain adjustments as specified in the warrants. In addition, the Company has granted to the holders of the Old Hercules Warrants certain registration rights on a pari passu basis with the holders of outstanding preferred shares and warrants to purchase preferred shares. The Company accounted for the warrants as a liability prior to the consummation of the Reverse Recapitalization since they were indexed to Old enGene’s redeemable convertible preferred shares that were classified as temporary equity. The Company remeasured the fair value of the warrants at each reporting date with changes being recorded as a change in the fair value of the warrant liabilities. Upon the close of the Reverse Recapitalization, the Old Hercules Warrants, along with all other warrants to purchase shares of Old enGene's redeemable convertible preferred shares, were surrendered for no consideration. Amended Loan and Security Agreement On December 22, 2023 (the "Hercules Closing Date"), the Company entered into an amended and restated loan and security Agreement (the "Amended Loan Agreement”), with Hercules, as agent and lender, and the several banks and other financial institutions or entities from time to time parties thereto (with Hercules, the "Lenders”). The Amended Loan Agreement amends and restates in its entirety the Prior Loan Agreement with Hercules dated December 30, 2021. The Amended Loan Agreement provides for a term loan facility of up to $ 50.0 million available in multiple tranches (the "Term Loan”), as follows: (i) an initial term loan advance (the "Tranche 1 Advance”) that was made on the Tranche 1 Advance closing of $ 22.5 million, approximately $ 8.6 million of which was applied to refinance in full the term loans outstanding under the Prior Loan Agreement, (ii) subject to the achievement of the specified Interim Milestone (the "Interim Milestone”), which includes no default or event of default, delivery of written notice to the Lenders that the Company has conducted an analysis of interim efficacy of data from the clinical evaluation of EG-70 in the Phase 2 clinical study, and satisfaction of certain other conditions precedent, a right of the Company to request that the Lenders make additional term loan advances to us in an aggregate principal amount of up to $ 7.5 million from the date of achievement of the Interim Milestone through the earlier of (x) 60 days following the achievement of the Interim Milestone and (y) March 31, 2025 , and (iii) an uncommitted tranche subject to the Lenders’ investment committee approval and satisfaction of certain other conditions precedent (including payment of a 0.75 % facility charge on the amount borrowed), pursuant to which the Company may request from time to time up to and including the Amortization Date (defined below) that the Lenders make additional term loan advances to the Company in an aggregate principal amount of up to $ 20.0 million. The Company is required to pay upon the earlier of January 1, 2028 ( the “Maturity Date”) or payment in full of the Term Loans, an end of term fee equal to 5.50 % of the aggregate principal amount of the Term Loans (the "End of Term Charge"). The Company is also required to pay on July 1, 2025 or, if earlier, the date the Company prepays the Term Loans, $ 0.7 million representing the Prior Term Loan End of Term Charge (the Prior Term Loan End of Term Charge and End of Term Charge, collectively the "End of Term Charges"). The Term Loans mature on January 1, 2028 , with no option for extension. The Term Loan bears cash interest payable monthly at an annual rate equal to the greater of (a) the prime rate of interest as reported in the Wall Street Journal plus 0.75 % (capped at 9.75 %) and (b) 9.25 %. The Term Loan also bears additional payment-in-kind interest at an annual rate of 1.15 %, which is added to the outstanding principal balance of the Term Loan on each monthly interest payment date. Borrowings under the Amended Loan Agreement are repayable in monthly interest-only payments through the "Amortization Date”, which is either: (x) July 1, 2025 or (y) if the Interim Milestone is achieved and there has been no default, January 1, 2026 , or (z) if the Interim Milestone and certain clinical milestones are achieved and there has been no default, July 1, 2026 . After the Amortization Date, the outstanding Term Loans and interest shall be repayable in equal monthly payments of principal and accrued interest until the Maturity Date. The effective interest rate of the Term Loan was 12.38 % as of April 30, 2024. At the Company's option, the Company may elect to prepay all, but not less than all, of the outstanding Term Loan by paying the entire principal balance and all accrued and unpaid interest thereon plus a prepayment charge equal to the following percentage of the principal amount being prepaid: (i) 3.0 % of the principal amount outstanding if the prepayment occurs in any of the first twelve months following the Closing Date; (ii) 2.0 % of the principal amount outstanding if the prepayment occurs after the first twelve months following the Closing Date but on or prior to twenty-four months following the Closing Date; and (iii) 1.0 % of the principal amount outstanding if prepayment occurs at any time thereafter but prior to the Maturity Date. In connection with the Amended Loan Agreement, the Borrowers granted Hercules a security interest senior to any current and future debts and to any security interest in all of the Borrowers’ right, title, and interest in, to and under all of the Company’s property and other assets, subject to limited exceptions including the Borrowers’ intellectual property. The Amended Loan Agreement contains negative covenants that, among other things and subject to certain exceptions, could restrict the Borrowers’ ability to incur additional liens, incur additional indebtedness, make investments, including acquisitions, engage in fundamental changes, sell or dispose of assets that constitute collateral, including certain intellectual property, pay dividends or make any distribution or payment on or redeem, retire or purchase any equity interests, amend, modify or waive certain material agreements or organizational documents and make payments of certain subordinated indebtedness. The Amended Loan Agreement also contains certain events of default and representations, warranties and non-financial covenants of the Borrowers. The Borrowers have been in compliance with the financial covenants since inception of the Term Loan. The Company accounted for the Amended Loan Agreement as an extinguishment of the Prior Term Loan. As a result of the extinguishment, the Company recorded a loss of $ 0.4 million as a component within other income and expense in the Company's consolidated statement of operations during the three and six months ended April 30, 2024, which represented the difference between the reacquisition price of the debt, including fees and the initial fair value of the warrants paid directly to the lender, and the carrying value of the Prior Term Loan at the time of extinguishment. As of April 30, 2024 , the Company had borrowed $ 22.5 million under the Amended Loan Agreement and incurred $ 2.1 million of debt discount and issuance costs inclusive of legal fees and End of Term Charges under the Term Loan. Hercules Common Share Warrants In connection with the Amended Loan Agreement, the Company also agreed to issue to the Lenders in connection with each advance of Term Loans warrants to purchase that number of the Company’s common shares, as shall be equal to 2 % of the aggregate principal amount of such Term Loan advance divided by the Warrants per share exercise price of $ 7.21 (which exercise price equals the ten-day volume weighted average price for the ten (10) trading days preceding the Hercules Closing Date and is subject to customary adjustments under the terms of the Warrants) (the "Hercules Common Share Warrants"). The Hercules Common Share Warrants are exercisable for a period of seven years from issuance. Under the terms of the Amended Loan Agreement, the maximum number of Hercules Common Share Warrants and underlying Common Shares of the Company that could be issued is 138,696 . On the Hercules Closing Date, the Company issued to the Lenders 62,413 Hercules Common Share Warrants in connection with the Tranche 1 Advance of the Term Loans (the "Closing Date Warrants”). The Closing Date Warrants have been determined to be equity classified as they do not meet the definition of a liability under ASC 480 and are considered indexed to the Company’s common shares as prescribed by ASC 815. Upon entering into the Amended Loan Agreement, $ 0.3 million of the total $ 22.5 million Tranche 1 Advance was allocated to the warrants, on a relative fair value basis, and recorded within additional paid in capital. Subsequently issued Hercules Common Share Warrants shall be substantially in the form of the Closing Date Warrants. Under the terms of the Amended Loan Agreement, the maximum number of Hercules Common Share Warrants and resultant underlying common shares of the Company that could be issued is 138,696 (i.e. 2 % of the $ 50.0 million total commitment amount divided by the exercise price of $ 7.21 price specified in the Closing Date Warrant), assuming no adjustments are made under the terms of the Hercules Common Share Warrants and further assuming the full amount of Term Loans are drawn. As of April 30, 2024 and October 31, 2023, the carrying value of the term loans consisted of the following:
April 30, 2024 October 31, 2023
Note payable, including End of Term Charge $ 24,530 $ 10,144
Debt discount, net of accretion ( 1,974 ) ( 474 )
Accrued interest 174 108
Note payable, net of discount $ 22,730 $ 9,778 As of October 31, 2023, the Company classified $ 0.6 million of the note payable as current, which represents the principal payments due and amortization of the debt discount between October 31, 2023 and the date the Prior Term Loan was amended in December 2023, as the debt was refinanced on a long-term basis in the subsequent period. During the three months ended April 30, 2024 and 2023 , the Company recognized $ 0.7 million and $ 0.4 million of interest expense, respectively, related to the term loans, of which $ 0.1 million and $ 0.1 million was related to the amortization of the debt discounts, respectively. During the six months ended April 30, 2024 and 2023 , the Company recognized $ 1.3 million and $ 0.9 million of interest expense, respectively, related to the term loans, of which $ 0.3 million and $ 0.2 million was related to the amortization of the debt discounts, respectively. Estimated future principal payments due under the Term Loan, including the contractual End of Term Charges and paid in kind interest are as follows as of April 30, 2024:
Note Principal
2024 $ —
2025 3,285
2026 8,254
2027 9,047
2028 4,617
Total principal payments, including End of Term Charge 25,203 As of April 30, 2024, based on borrowing rates available to the Company for loans with similar terms and consideration of the Company’s credit risk, the carrying value of the Company’s variable interest rate debt, excluding unamortized debt issuance costs, approximates fair value. April 2023 Notes On April 4, 2023, Old enGene entered into a note purchase agreement (the “April 2023 Notes”) for a principal amount of $ 8.0 million with Merck Lumira Biosciences Fund, L.P., Merck Lumira Biosciences Fund (Quebec), L.P., Lumira Ventures III, L.P., Lumira Ventures III (International), L.P., Lumira Ventures IV, L.P., Lumira Ventures IV (International), L.P., Fond de solidarité des travailleurs du Québec (F.T.Q.), and Forbion Capital Fund III Cooperatief U.A. (collectively the “April 2023 Investors”). The April 2023 Notes had an interest free period of 45 days from the date of issuance, and commencing on the 46th day, began to accrue interest at a rate of 15 % per annum. The April 2023 Notes were classified as current as they matured on the earlier of (i) July 31, 2023; or (ii) the date the Company completes a qualified financing, as defined within the April 2023 Notes as a financing pursuant to which the Company sells convertible promissory notes, warrants, preferred shares, common shares, or a combination thereof of the Company for an aggregate amount of at least $ 20.0 million. Upon the completion of the 2023 Financing (as defined below) in May 2023, Old enGene issued convertible debentures and warrants of Old enGene to the April 2023 Note investors, on the same terms and conditions of the convertible debentures and warrants that were issued to the investors of the 2023 Financing, as repayment of the April 2023 Notes. The Company elected the fair value option of accounting for the April 2023 Notes. The Company recorded the April 2023 Notes at fair value upon the date of issuance, which was determined to be $ 8.0 million. Given the short period of time that the April 2023 Notes were outstanding, no change in fair value was recorded during the three months ended April 30, 2023. The April 2023 Notes were extinguished in May 2023 as part of the issuance of the May 2023 Notes (see Note 9). |
