| Item 1.01. | Entry into a Material Definitive Agreement. |
| | (a) | Growth Capital Term Loan |
On August 6, 2021, Delcath Systems, Inc. (the “Company”) entered into a Loan and Security Agreement and the Supplement to the Loan and Security Agreement (together, the “Loan Agreement”) with Avenue Venture Opportunities Fund, L.P. (the “Lender,” or “Avenue”) for a term loan in an aggregate principal amount of up to $20,000,000 (the “Loan”). The Loan bears interest at an annual rate equal to the greater of (a) the sum of 7.70% plus the prime rate as reported in The Wall Street Journal and (b) 10.95%. The Loan is secured by a lien upon and security interest in all of the Company’s assets globally, including intellectual property. The Loan maturity date is August 1, 2024.
The initial tranche of the Loan is $15,000,000, including $4,000,000 which has been funded into a restricted account and will be released upon achievement of (a)(x) positive FOCUS trial efficacy per the trial’s predefined Statistical Analysis Plan (SAP) (specifically the Overall Response Rate exceeds the pre-specified threshold for success defined in the SAP by a statistically significant amount); and (y) based on data contained within the FOCUS trial database and appropriate for use with the U.S. Food and Drug Administration, safety and tolerability among FOCUS trial participants is within the range of currently approved and commonly used cytotoxic chemotherapeutic agents; and (b) raising subsequent net equity proceeds of at least $20,000,000. The Company may request an additional $5,000,000 of gross proceeds between October 1, 2022 and December 31, 2022, with funding subject to the approval of Avenue’s Investment Committee.
In connection with the Loan, the Company issued to the Lender warrants to purchase 127,755 shares of common stock of the Company at an exercise price per share equal to $0.01. The warrants, which are exercisable until August 31, 2026, were offered and sold by the Company in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended.
Up to $3,000,000 of the principal amount of the Loan outstanding may be converted, at the option of the Lender, into shares of the Company’s common stock at a conversion price of $11.98 per share.
Pursuant to the Loan Agreement, the Company will make monthly interest-only payments during the first fifteen months of the term of the Loan, which could be increased to up to twenty-four months upon the achievement of specified performance milestones. Following the interest-only period, the Company will make equal monthly payments of principal, plus accrued interest, until the Loan’s maturity date when all remaining principal and accrued interest must be paid. If the Company prepays the Loan, it will be required to pay (a) a prepayment fee of 3% if the Loan is prepaid during the interest-only period; and (b) a prepayment fee of 1% if the Loan is prepaid after the interest-only period. On the Loan’s maturity date or on the date of the prepayment of the Loan, the Company must also make an incremental final payment equal to 4.25% of the aggregate funding.
The Company paid an aggregate commitment fee of $150,000 at closing of the Loan. Upon a second tranche, the Lender will earn a 1.0% fee on the $5,000,000 of incremental committed capital, for a total commitment fee of $200,000.
The Loan Agreement contains certain representations and warranties by the Company and other agreements that are customary in loan agreements of this type. The Loan Agreement also contains customary events of default, including non-payment of principal or interest, violations of covenants, bankruptcy and material judgments.
The Company intends to use the proceeds of the Loan for general corporate purposes.
The foregoing descriptions of the Loan and Security Agreement, the Supplement to the Loan and Security Agreement and the Warrant do not purport to be complete and are qualified in their entirety by the
