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Note 8 - Notes Payable
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12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2014
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| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Text Block] |
8. Notes Payable
Notes payable consist of the following:
On September 29, 2014, the Company entered into a venture loan and security agreement (the “Loan Agreement”) with Horizon Technology Finance Corporation and Fortress Credit Co LLC (together, the “Lenders”) under which the Company may borrow up to $25.0 million in two tranches of $12.5 million each (the “Loan Facility”).
The Company borrowed the first tranche of $12.5 million upon the closing of the transaction on September 29, 2014. Subject to certain other funding conditions, the second tranche of $12.5 million will be available for drawdown at any time commencing on the date the Company completes the enrollment and randomization of patients in the Company’s phase 3 clinical trial of AGS-003 and continuing until September 30, 2015. The per annum interest rate for each tranche will be a floating rate equal to 9.25% plus the amount by which the one-month London Interbank Offered Rate (“LIBOR”) exceeds 0.50% (effectively a floating rate equal to 8.75% plus the one-month LIBOR Rate). The total per annum interest rate shall not exceed 10.75%.
The Company incurred $449,796 for costs in connection with the closing of the Loan Agreement. These costs were capitalized as deferred financing costs and amortized to interest expense over the terms of the related debt.
The Company has agreed to repay the first tranche of $12.5 million on an interest only basis monthly until September 30, 2016, followed by monthly payments of principal and accrued interest through the scheduled maturity date for the first tranche loan on September 30, 2018. In addition, a final payment for the first tranche loan equal to $625,000 will be due on September 30, 2018, or such earlier date specified in the Loan Agreement. The Company has agreed to repay any amounts advanced under the second tranche of $12.5 million in 18 monthly payments of interest only followed by 24 monthly payments of principal and accrued interest through the scheduled maturity date for the second tranche loan, which is 42 months following the date the Company draws down the second tranche loan. In addition, a final payment equal to 5.0% of the amount drawn down under the second tranche loan will
be due on the scheduled maturity date for such loan, or such earlier date specified in the Loan Agreement. In addition, if the Company repays all or a portion of the loan prior to the applicable maturity date, it will pay the Lenders a prepayment penalty fee, based on a percentage of the then outstanding principal balance, equal to 3% if the prepayment occurs on or before 24 months after the funding date, 2% if the prepayment occurs more than 24 months after, but on or before 36 months after, the funding date thereof, or 1% if the prepayment occurs more than 36 months after the funding date thereof.
The Company’s obligations under the Loan Agreement are secured by a first priority security interest in substantially all of its assets other than its intellectual property. The Company also has agreed not to pledge or otherwise encumber its intellectual property assets, subject to certain exceptions.
The Loan Agreement includes customary affirmative and restrictive covenants, but does not include any covenants to attain or maintain certain financial metrics, and also includes customary events of default, including payment defaults, breaches of covenants, change of control and a material adverse change default. Upon the occurrence of an event of default and following any applicable cure periods, a default interest rate of an additional 5% may be applied to the outstanding loan balances, and the Lenders may declare all outstanding obligations immediately due and payable and take such other actions as set forth in the Loan Agreement.
In connection with the Loan Agreement, the Company issued to the Lenders and their affiliates warrants to purchase a total of 82,780 shares of Common Stock at a per share exercise price of $9.06 (the “Warrants”). The Lenders may not exercise the warrants for more than 41,390 of such shares of Common Stock until the earliest to occur of (i) a merger or consolidation of the Company, or a sale of all or substantially all of its assets, (ii) the Company’s satisfaction of the conditions precedent to the making of the second tranche loan, and (iii) the funding of the second tranche loan. The Warrants will terminate on September 29, 2021 or such earlier date as specified in the Warrants. The Company recorded a debt discount of $338,673 equal to the value of these warrants. This debt discount is offset against the note payable balance and
included in additional paid-in capital on the Company's balance sheet.
In December 2013, in connection with the license agreement with Medinet, as described in Note 9, the Company borrowed $9.0 million pursuant to an unsecured promissory note that bears interest at a rate of 3.0% per annum. The principal and interest under the note are due and payable on December 31, 2018. Under the terms of the note and the license agreement, any milestone payments related to the developmental and regulatory milestones that become due will be applied first to the repayment of the loan. The Company has the right to prepay the loan at any time. If the Company has not repaid the loan by December 31, 2018, then the Company has agreed to grant to Medinet a non-exclusive, royalty-bearing license to make and sell Arcelis products in Japan for the treatment of cancer. In such event, the amounts owing under the loan as of December 18, 2018 may constitute pre-paid royalties under the license or
would be due and payable. Royalties under this license would be paid until the expiration of the licensed patent rights in Japan at a rate to be negotiated. If the Company and Medinet cannot agree on the royalty rate, they have agreed to submit the matter to arbitration. Because the $9.0 million promissory note was issued at a below market interest rate, the Company allocated the proceeds of the loan between the license agreement and the debt at the time of issuance. Accordingly, as of December 31, 2013, the Company recorded $6.9 million to notes payable, based upon an effective interest rate of 8.0%, and $2.1 million as a deferred liability. As of December 31, 2014, the Company recorded $7.6 million to notes payable, including $0.7 million accrued interest recorded during the year ended December 31, 2014. The total deferred liability was $3.1 million as of December 31, 2014 including the $1.0 million received by the Company for a manufacturing license (see Note 10).
The Company entered into a Master Lease Agreement in July 2012 with a lending institution, which provides for the Company to borrow funds up to $100,000 to finance computer equipment. Through December 31, 2014, the Company has borrowed $95,756 under this agreement, of which $48,429 and $16,356 was outstanding as of December 31, 2013 and December 31, 2014, respectively. Borrowings are collateralized by substantially all of the computer equipment financed under the agreement, bear interest at a rate of 0.98% per annum and are to be repaid in 36 equal monthly installments commencing on the date of borrowing.
During November 2013, the Company borrowed $77,832 from a lending institution to finance the purchase of additional computer equipment, of which $74,658 and $61,284 in principal was outstanding as of December 31, 2013 and December 31, 2014, respectively. Borrowings are collateralized by substantially all of the computer equipment financed under the agreement, bear interest at a rate of 8.31% per annum and are to be repaid in 60 equal monthly installments commencing on the date of borrowing.
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