|9 Months Ended|
Sep. 30, 2022
Note 7 – Notes Payable
On March 4, 2022 (the “Closing Date”), the Company entered into a $75.0 million long-term debt facility with Runway Growth Finance Corp. (the “Term Loan”). Under the Term Loan, $30.0 million of the $75.0 million loan was funded on the Closing Date, with the remaining $45.0 million fundable if the Company achieves certain predetermined milestones.
The Term Loan matures on April 15, 2027 (the “Maturity Date”). Starting March 15, 2022, the Company will make monthly payments of interest only until April 1, 2024 (the “Amortization Date”). The Amortization Date may be extended to April 1, 2025 if the Company achieves certain predetermined milestones based on equity raises and the initiation of
certain clinical trials. After that, the Company will make monthly payments of interest and principal. If the Amortization Date is extended to April 1, 2025, the monthly payments will be recalculated in equal amounts according to the remaining number of payment dates through the Maturity Date. All unpaid outstanding principal and accrued and unpaid interest will be due and payable in full on the Maturity Date.
The Term Loan accrues interest at a variable annual rate equal to 8.75% plus the greater of (i) 0.50% and (ii) the three month LIBOR Rate for U.S. dollar deposits or the rate otherwise reasonably determined by the Lender to be the rate at which U.S. dollar deposits with a term of three months would be offered by banks in London, England to major banks in the London or other offshore interbank market (the “Applicable Rate”); provided that the Applicable Rate will not be less than 9.25%. The Applicable Rate at September 30, 2022 was 11.69%. For the three and nine months ended September 30, 2022, the Company made interest payments of $0.8 million and $1.8 million, respectively, recorded in interest expense in the Unaudited Statements of Operations.
Pursuant to the terms of the Term Loan on the Closing Date the Company paid the Lender upfront fees out of proceeds of $0.4 million consisting of a 1% commitment fee and a deposit of $75,000. In addition, the Company paid other cash fees directly to third parties comprising of an advisory fee and legal fees totaling $2.3 million.
Also, in connection with the Term Loan, on March 4, 2022, the Company issued a warrant to the Lender to purchase 748,036 shares of the Company’s common stock with an exercise price of $0.8021 (the “Warrant”) via a warrant agreement (the “Warrant Agreement”). The Warrant is exercisable for ten years from the date of issuance. The Lender may exercise the Warrant with cash or through a net issuance conversion. The shares of the Company’s common stock will be registered at the Company’s first opportunity after the date of the exercise of the Warrant. In addition, the provisions of the Warrant Agreement provide for additional warrants to be issued upon funding of the term loan tranches. The fair value of the warrant at the grant date was determined utilizing a Black Scholes Model with the following assumptions: risk free rate of return 1.74%, volatility of 57.3%,life yielding a value of approximately $0.4 million as of March 4, 2022. The fair value of the warrant was also recorded in debt discount and will be amortized over the life of the Term Loan.
(1) Balance includes $1.1 million final payment fee.
Amortization of the debt discount associated with the Term Loan was approximately $0.1 million and $0.3 million for the three and nine months ended September 30, 2022, respectively, and was recorded in interest expense in the Unaudited Statements of Operations. The Company had no expense related to debt discount amortization in 2021.
The Company has the option to prepay all of the outstanding Term Loan but not less. Prepayment would include outstanding principal, accrued interest, prepayment fee and final payment which is equal to the original principal amount of the Term Loan times 3.5% or $1.1 million and is accreted over the life of the Term Loan.
In addition, the Term Loan is secured by a lien on substantially all of our assets other than certain intellectual property assets and certain other excluded collateral, and it contains a minimum liquidity covenant and other covenants that include among other items: (i) limits on indebtedness, repurchase of stock from employees, officers and directors. The Company was in compliance with all applicable covenants as of September 30, 2022.
The Term Loan contains customary events of default, in certain circumstances subject to customary cure periods. Following an event of default and any cure period, if applicable, Runway will have the right upon notice to accelerate all amounts outstanding under the Term Loan, in addition to other remedies available to the lenders as secured creditors of the Company.
No definition available.
The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef