Starts at the bottom of Page 108 on the 10-K posted today
On March 10, 2021, we executed a Loan and Security Agreement with Hercules Capital, Inc., or Hercules, as agent for its affiliates serving as lenders thereunder. The agreement provides a loan in the aggregate principal amount of $80 million (the “Term Loan”). The Term Loan provides us debt with the ability to draw an initial amount of $25.0 million, and the potential for two additional term loans: a second tranche in the amount of $35.0 million or $25.0 million, which we may become entitled to draw through September 15, 2021 subject to our receipt of emergency use authorization for lenzilumab for the treatment of hospitalized patients with COVID-19 pneumonia; and a third tranche, a $20.0 million term loan which we may become entitled to draw through June 15, 2022 in the discretion of Hercules if we have drawn the second term loan and request additional funding in support of our strategic initiatives. We expect to draw the initial $25.0 million term loan in March 2021, at which time we will pay Hercules customary fees and reimburse it for certain of its expenses associated with the establishment of the Term Loan.
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We will be required to repay all amounts borrowed on March 1, 2025, subject to a one-year extension option that we may exercise if we have received FDA approval of a biologics license application (“BLA”) for the use of lenzilumab for the treatment of hospitalized patients with COVID-19 pneumonia, and the FDA-authorized label for lenzilumab is generally consistent with that sought in our BLA filing, and paid Hercules certain fees and expenses associated with the extension.
Amounts drawn will bear interest at a floating rate equal to the greater of either (i) 8.75% plus the prime rate as reported in The Wall Street Journal minus 3.25%, and (ii) 8.75% (such greater amount, the “Base Interest Rate”). Subject to there not having occurred any default or event of default under the loan agreement, the Base Interest Rate will be reduced by 25 basis points upon the occurrence of each of the first three of the four following events to occur:
· if we achieve the protocol-specified primary efficacy endpoint for the pivotal Phase 3 study of lenzilumab for COVID-19, (clinicaltrials.gov identifier NCT04351152), and receive EUA for the use of lenzilumab for the treatment of hospitalized patients with COVID-19 pneumonia; · if we achieve product revenue from lenzilumab that is invoiced and/or recognized as revenue (as determined in accordance with GAAP) solely from the sale of lenzilumab (“Net Lenzilumab Product Revenue”) of at least $100.0 million; · if we achieve Net Lenzilumab Product Revenue of at least $250.0 million; and · if we achieve Net Lenzilumab Product Revenue of at least $350.0 million.
No principal payments will be due during an interest-only period, commencing on the initial borrowing date and continuing to April 1, 2023, subject to extension to April 1, 2024 and potentially October 1, 2024 under certain conditions. Following the interest-only period, the outstanding balance of the loan will be required to be repaid monthly, continuing through the maturity date.
We may prepay amounts drawn under the agreement in full prior to the maturity date then in effect, subject to payment of prepayment charges equal to:
· 2.0% of the amounts borrowed, if the prepayment occurs on or prior to March 10, 2022; · 1.5% of the amounts borrowed, if the prepayment occurs after March 10, 2022 and before March 10, 2023; and · 1.0% of the amounts borrowed, if the prepayment occurs after March 10, 2023 and before March 10, 2024.
In addition, on the earliest to occur of (i) the maturity date, (ii) the date we prepay the outstanding principal amount of the term loans, or (iii) the date the outstanding principal amount of the term loans otherwise becomes due, we will owe Hercules an end of term charge equal to 6.75% of the aggregate amount of term loans funded by Hercules.
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As a condition to obtaining the term loan facility, we granted Hercules a security interest in substantially all of our assets and personal property not otherwise subject to existing or permitted liens. In addition, the loan agreement contains customary representations and warranties and events of default for a term loan facility of this size and type. Under the loan agreement, we also agreed to comply with certain customary affirmative and negative covenants that will become effective upon our initial draw of the first term loan, including covenants to:
· maintain $10.0 million in unrestricted cash, which amount may be increased to $20.0 million if we borrow the second tranche of the term loan; · comply with certain requirements to provide Hercules with financial information and other rights to inspect our books and records and the collateral for the term loans; · refrain from incurring debt that is not expressly subordinated to the term loans; “Rule 144A-style” convertible notes in aggregate principal amount up to $250.0 million; and other permitted indebtedness; · refrain from granting (or permitting to exist) liens on our assets and properties, other than certain permitted liens, including in respect of our patents and other intellectual property; · refrain from making certain investments, other than permitted acquisitions and certain other permitted investments; · refrain from repurchasing our stock or paying dividends, subject to limited exceptions; · refrain from transferring any material portion of our assets; and · refrain from entering into any merger or consolidation in which we are not the surviving entity.
All of these covenants will not apply upon repayment of any borrowings under the Term Loan.
Certain of the baskets for permitted investments and other exceptions to the covenants described above will increase in the event we raise more than $100.0 million in unrestricted net cash proceeds from one or more bona fide equity financings prior to March 31, 2022. Further, the covenants in the loan agreement will not prohibit us from pursuing our strategy of entering into out-bound license agreements for lenzilumab that may be exclusive as to specific geographic regions outside the United States, nor will the covenants prohibit us from entering into co-development or co-promotion or commercialization agreements relating to lenzilumab, so long as such agreements generally are negotiated on arms’-length and commercially reasonable terms.
While the term loans are outstanding, the lenders will have the right to convert a portion of the principal amount outstanding under the term loan (ranging from $5.0 million to $10.0 million in the aggregate) into shares of our common stock at a conversion price equal to $19.57 per share, subject to customary anti-dilution adjustments.
