Term Loan

6 Months Ended

Jun. 30, 2022

Debt Disclosure [Abstract]

Term Loan

7. Term Loan

In September 2019, the Company entered into a Loan and Security Agreement (the Loan Agreement) with Silicon Valley Bank (SVB) providing for a term loan (the Term Loan). In April 2020, the Company and SVB entered into an agreement (the Deferral Agreement) whereby the parties agreed to extend the interest-only period and repayment dates of all monthly payments of principal due and the maturity date with respect to the Term Loan by six months. All other terms under the Loan Agreement remained unchanged at that time. The Deferral Agreement was determined to be a debt modification, resulting in a prospective yield adjustment based on the revised terms.

In connection with the Loan Agreement, the Company issued a warrant to purchase up to an aggregate of 49,609 shares of common stock at $1.44 per share. The Company determined the initial fair value of the warrant to be $0.1 million using the Black-Scholes option-pricing model. The fair value of the warrant was recorded to equity and as a debt discount, which was being amortized to interest expense using the effective interest method over the term of the Term Loan. In November 2020, the warrant was net-exercised for 46,358 shares of common stock.

In March 2021, the Company entered into a First Amendment to Loan and Security Agreement (the First Amendment), pursuant to which the Company and SVB amended the Loan Agreement. The First Amendment increased the aggregate principal amount of the Term Loan commitment by SVB to up to $30.0 million. Up to $20.0 million was available under the first tranche of the Term Loan (First Tranche), $5.0 million of which was advanced immediately to repay the outstanding obligations under the Term Loan prior to the First Amendment with the remainder of the First Tranche commitment available through December 31, 2021, and up to $10.0 million is available under the second tranche (Second Tranche), subject to the completion of certain clinical or financial milestones, which Second Tranche commitment is available through December 31, 2022. Pursuant to the First Amendment, the Term Loan will mature on January 1, 2026. The First Amendment was determined to be a debt modification.

Pursuant to the First Amendment, the Company is required to make monthly payments of interest only commencing on the first day of the month following the funding date of each respective tranche and continuing thereafter through December 31, 2022 to the extent that the Company does not borrow any part of the Second Tranche or December 31, 2023 if the Company has borrowed some or all of the Second Tranche. Outstanding principal balances under the Term Loan, as amended by the First Amendment, bear interest at a floating per annum rate equal to (A) if the Company does not borrow under the Second Tranche, the greater of (x) 1% above the prime rate or (y) 4.25%; or (B) if the Company does borrow under the Second Tranche, the greater of (x) 3% above the prime rate or (y) 6.25%.

In May 2022, the Company entered into a Second Amendment to Loan and Security Agreement (the Second Amendment), which amended the milestones upon which the Second Tranche commitment of $10.0 million would become available. The Second Amendment was determined to be a debt modification.

The Second Amendment reduced the interest rate on the outstanding First Tranche Term Loan of $5.0 million and any advances that occur under the Second Tranche to a floating per annum rate equal to the greater of (A) one-half of one percent (0.50%) above the Prime Rate (as defined in the Loan Agreement) or (B) three and three-quarters of one percent (3.75%), and, in the event that the Supplemental Term Loans (as defined in the Loan Agreement) under the Second Tranche become available and the Company obtains an advance thereunder, the interest only period for all Term Loans (as defined in the Loan Agreement) will be extended from December 31, 2022, to June 30, 2023.

Further, in the event that the Supplemental Term Loans under the Second Tranche become available and the Company obtains an advance thereunder, the Company will be required to comply with a new liquidity covenant of at least $50.0 million at all times. If the Company does not comply with the foregoing liquidity covenant, a springing cash pledge will occur, pursuant to which the Company must maintain a cash secured blocked account with SVB with a cash balance in an amount equal to the outstanding SVB obligations at such time (excluding Bank Services (as defined in the Loan Agreement)). The foregoing cash collateral requirement will terminate upon a certain additional equity raise, which must occur on or before September 30, 2024.

The Loan Agreement, as amended by the Deferral Agreement, the First Amendment, and the Second Amendment, provides for monthly cash interest-only payments following the funding date of each respective tranche and continuing thereafter through December 31, 2022 to the extent that the Company does not borrow any part of the Second Tranche or June 30, 2023 if the Company has borrowed some or all of the Second Tranche.

Following the interest-only period, the outstanding Term Loan balance will be payable in (i) 37 consecutive monthly payments (or 31 if the Company borrows under the Second Tranche) after the end of the interest-only period and continuing on the same day of each month thereafter, in amounts that would fully amortize such Term Loan balance, as of the first business day of the first month following the amended interest-only period, over the repayment period, plus (ii) monthly payments of accrued but unpaid interest. The Second Amendment amended the Second Tranche Final Payment due on the maturity date, which payments shall include all outstanding principal and all accrued unpaid interest and an end of term payment totaling (x) 6.0% of the original funded principal amount of the First Tranche, and (y) 4.0% of the total original funded principal amount under the Second Tranche if the Company does borrow under the Second Tranche (the Supplemental Final Payment). The Second Amendment also amended the prepayment amounts, so that the Company may prepay amounts outstanding under the Term Loan at any time provided certain notification conditions are met, in which case, all outstanding principal plus accrued and unpaid interest, the Supplemental Final Payment, a prepayment fee of 1% or 2% of the principal amount of the first and second tranches, and any bank expenses become due and payable.

The Company incurred $10.0 thousand of debt issuance costs in connection with the First Amendment and $15.6 thousand of debt issuance costs in connection with the Second Amendment. The Company recorded these costs, including the unaccreted portion of the final payment obligation under the Loan Agreement as a discount from the carrying value of the Term Loan, which are being amortized using the effective interest method over the life of the First Amendment. The unamortized debt issuance costs and debt discount balance was $0.1 million as of June 30, 2022.

The Term Loan and unamortized discount and debt issuance costs balances as of June 30, 2022 are shown below (in thousands):

	June 30, 2022
Total Term Loan debt	$	5,000
Less: unamortized discount and debt issuance costs		(112	)
Total Term Loan, net		4,888
Less: Term Loan, current portion		(811	)
Term loan, net of current portion	$	4,077

The Company is subject to customary affirmative and restrictive covenants under the Loan Agreement, as amended. The Company’s obligations under the Loan Agreement, as amended, are secured by a first priority security interest in substantially all of its current and future assets, other than intellectual property. The Company also agreed not to encumber its intellectual property assets, except as permitted by the Loan Agreement, as amended.

The Loan Agreement, as amended, also contains customary indemnification obligations and customary events of default, including, among other things, the Company’s failure to fulfill certain obligations under the Loan Agreement, as amended, and the occurrence of a material adverse change in its business, operations, or condition (financial or otherwise), a material impairment of the prospect of repayment of any portion of the loan, or a material impairment in the perfection or priority of lender’s lien in the collateral or in the value of such collateral. In the event of default by the Company under the Loan Agreement, as amended, the lender would be entitled to exercise their remedies thereunder, including the right to accelerate the debt, upon which the Company may be required to repay all amounts then outstanding under the Loan Agreement, as amended. As of June 30, 2022, management believes that the Company was in compliance with all financial covenants under the Loan Agreement, as amended, and there had been no material adverse change.

The Company made interest payments on the Term Loan of $57 thousand and $110 thousand during the three and six months ended June 30, 2022, respectively. The Company made interest payments on the Term Loan of $43 thousand and $97 thousand during the three and six months ended June 30, 2021, respectively.