Loan and Security Agreement

3 Months Ended

Mar. 31, 2022

Loan and Security Agreement

Loan and Security Agreement

6. Loan and Security Agreement

Initial Loan Agreement

In November 2019, the Company entered into a loan and security agreement with Pacific Western Bank (“PacWest”), as amended by a first amendment, dated March 12, 2021, and a second amendment, dated May 10, 2021 (the “Initial Loan Agreement”). Pursuant to the Initial Loan Agreement, the Company borrowed $10.0 million under a term loan. Interest on the outstanding initial loan balance accrued at a variable annual rate equal to the greater of (i) the prime rate, as defined in the Initial Loan Agreement, plus 0.25% or (ii) 5.00%. The Company was required to make interest only payments on the loan on a monthly basis through May 21, 2021. Subsequent to the interest-only period, the Company was required to make equal monthly payments of principal plus interest until the scheduled loan maturity on November 21, 2023. In addition, under the Initial Loan Agreement, the Company was obligated to pay a one-time $0.5 million fee to PacWest upon the occurrence of specified liquidation events, including an initial public offering. The fee represented a derivative instrument that the Company bifurcated from the debt arrangement and carried at fair value with any changes in such fair value recorded to other income (expense), net in the Company’s consolidated statements of operations and comprehensive loss. Upon the closing of the loan, the fair value of the debt derivative liability was $0.4 million that, together with certain legal and other fees incurred by the Company and associated with the Initial Loan Agreement, was recognized as a debt discount and reflected as a reduction in the carrying value of the debt. The debt discount has been accreted and recognized as additional interest expense over the term of the Initial Loan Agreement using the effective interest method.

Amended Loan Agreement

On September 17, 2021, the Company entered into a third amendment (the “Third Amendment”) to the Initial Loan Agreement (as amended, and together with the Initial Loan Agreement, the “Loan Agreement”), pursuant to which the Company borrowed $10.0 million under a new term loan and used the proceeds of such new term loan to repay the outstanding balance on the prior term loan. In addition, as a result of the amendment, prior to December 31, 2022, the Company has the ability to request one or more additional term loans in an aggregate principal amount of $10.0 million. Interest on amounts outstanding under the Loan Agreement accrue at a variable annual rate equal to the greater of (i) the prime rate plus 0.25% or (ii) 4.75%. As a result of the Third Amendment, the Company is required to make interest-only payments on any outstanding balances through December 31, 2022. Subsequent to the interest-only period, the Company will be required to make equal monthly payments of principal plus interest until the loan matures on June 30, 2024. In addition, as a result of the Third Amendment, the one-time fee the Company was obligated to pay to PacWest upon the occurrence of specified liquidation events, including an initial public offering, was increased from $0.5 million to an amount between $0.8 million and $1.0 million, depending on the timing and occurrence of specified events, including the closing of the IPO. The Company paid the one-time fee of $0.8 million to PacWest in October 2021 upon the closing of the IPO. As a result of the Third Amendment, the Company is also obligated to pay PacWest a fee of 1.0% of the aggregate principal amounts then outstanding if any term loans are repaid prior to September 17, 2022, which is approximately one year from the date of the Third Amendment. Using the net present value method, the Company concluded the amendment should be accounted for as a debt modification as the present value of the remaining cash flows of the amended term loan are not substantially different from the present value of the remaining cash flows of the initial term loan.

The Loan Agreement contains customary representations, warranties and covenants and also includes customary terms covering events of default, including payment defaults, breaches of covenants, a change of control provision and occurrence of a material adverse effect. As security for its obligations under the Loan Agreement, the Company granted PacWest a first priority security interest on substantially all of the Company’s assets (other than intellectual property), subject to certain exceptions.

The Company has determined that the risk of subjective acceleration under the material adverse effect clause is not probable and therefore has classified the long-term portion of the outstanding principal in non-current liabilities. Upon the occurrence and continuation of an event of default, a default interest rate of an additional 5% per annum may be applied to the outstanding loan balance, and the administrative agent, collateral agent, and lender may declare all outstanding obligations immediately due and payable and exercise all of their rights and remedies as set forth in the Loan Agreement and under applicable law. As of March 31, 2022, the Company was in compliance with all covenants under the Loan Agreement.

The Company has the following minimum aggregate future loan payments under the Loan Agreement at March 31, 2022:

	Minimum Loan
	Payments
2022	$	—
2023		6,667
2024		3,333
Total future principal payments		10,000
Less: unamortized discount		(321)
Total notes payable	$	9,679

The Company recognized $0.2 million of interest expense related to the Loan Agreement during each of the three months ended March 31, 2022 and 2021, respectively, which is reflected in other expense, net on the consolidated statements of operations and comprehensive loss.