(4) Capital Facility and Equity Financings

 

(a) Term Loan and Vendor Debt

 

2012 Term Loan

 

In November 2012, the Company entered into a Loan and Security Agreement with Hercules Technology Growth Finance, Inc. (Hercules) and received loan proceeds of $8,500 (the 2012 Term Loan). The 2012 Term Loan bears interest at an annual rate equal to the Wall Street Journal prime rate minus 3.25%, subject to a minimum rate of 9.85%. At September 30, 2013, the 2012 Term Loan bore interest at 9.85%. The Company is required to make interest-only payments for the first twelve months of the 2012 Term Loan’s 42-month term; principal payments will commence in December 2013 and the loan matures in May 2016. As of September 30, 2013, the balance of the 2012 Term Loan, net of the $162 unamortized debt discount discussed below, is $8,338 with $2,536 of the amount being classified as current.

 

In connection with the 2012 Term Loan, NuPathe paid an origination fee to Hercules consisting of a cash payment of $43 and 50,000 shares of common stock. The fair value of the common stock of $146 was recorded as debt issuance costs. The Company also issued Hercules a warrant to purchase 106,631 shares of common stock at an exercise price of $2.79. The warrant has a five year exercise period. The fair value of the warrant was $213, which was recorded as a debt discount at the time of issuance and is being amortized to interest expense over the life of the loan. At the time of final payment of the 2012 Term Loan, the Company will be required to pay a final payment fee of $298.

 

The Company’s obligations under the 2012 Term Loan are secured by a first priority lien on all of the Company’s assets, excluding intellectual property, which is subject to a negative pledge. The Company’s cash and investment accounts are subject to account control agreements with Hercules that give Hercules the right to assume control of the account in the event of a default under the Loan and Security Agreement. The Loan and Security Agreement contains operating covenants including, among others, covenants restricting the Company’s ability to incur additional indebtedness, pay dividends or other distributions, effect a sale of any part of its business or merge with or acquire another company. The 2012 Term Loan also includes customary events of default including, among others, upon the occurrence of a payment default, a covenant default, a material adverse change or insolvency. Upon the occurrence of an event of default, the interest rate will be increased by 3% over the rate that would otherwise be applicable. In addition, the occurrence of an event of default could result in the acceleration of the Company’s payment obligations under the 2012 Term Loan and the ability of Hercules to exercise control over the Company’s cash and investment accounts pursuant to the account control agreements and to proceed against the collateral securing the loan.

 

Vendor Debt

 

In August 2013, the Company entered into two short-term loan agreements with third party vendors to finance insurance premiums. The aggregate amount financed under the agreements was $538. As of September 30, 2013, these short-term loan agreements have a balance of $457, which will be repaid in monthly installments through April 2014.

 

(b) Equity Financing

 

October 2012 Financing

 

In September 2012, the Company entered into a Securities Purchase Agreement (the Purchase Agreement) with certain qualified institutional purchasers and individual investors, pursuant to which the Company sold 14,000,000 units of the Company’s securities (the Units) to investors for an aggregate purchase price of $28,000 (the October 2012 Financing). The per Unit purchase price for the Units was $2.00, and each Unit consisted of one one-thousandth (1/1,000) of a share of the Company’s newly designated Series A Preferred Stock, par value $0.001 per share (the Series A Preferred Stock), and a warrant (the Warrants) to purchase one share of the Company’s common stock, par value $0.001 per share, at an exercise price of $2.00 per share.

 

Each 1/1,000 of a share of Series A Preferred Stock accrued dividends quarterly in arrears at a rate per annum of 8% of $2.00 and was convertible, at the holder’s option, into such number of shares of common stock equal to (i) $2.00 divided by the conversion price then in effect (which conversion price was initially equal to $2.00), plus (ii) an amount equal to all accrued but unpaid dividends on such fractional share divided by the closing price of the Company’s common stock as reported on the NASDAQ Global Market on the trading day immediately preceding the date of conversion, unless the Company elected to pay the dividend amount in cash upon conversion.

 

The terms of the Series A Preferred Stock provided for the automatic conversion into common stock upon (i) the consent of the holders of a majority of the shares of the Series A Preferred Stock, (ii) the conversion of a majority of the shares of Series A Preferred Stock, or (iii) the second to occur of (A) FDA approval of the Company’s Zecuity product candidate and (B) consummation of a financing, licensing, partnership or other corporate collaboration resulting in gross proceeds to the Company of at least $22 million. On February 4, 2013, as a result of the conversion of a majority of the shares of Series A Preferred Stock, the automatic conversion of the remaining shares of Series A Preferred Stock was triggered.

 

During the nine months ended September 30, 2013, the Company issued 8,804,000 shares of common stock in connection with the conversion of Series A Preferred Stock, as well as 87,821 shares of common stock that were issued in satisfaction of the $314 dividend that accrued on outstanding shares of Series A Preferred Stock on January 23, 2013. The value of converted shares of $8,158 was reclassified from Series A Preferred Stock to common stock and additional paid in capital.

 

Warrants sold as part of the October 2012 Financing entitle the holders to purchase one share of common stock at a price of $2.00 per share. The exercise price of the Warrants was subject to “full ratchet” antidilution price protection such that, in the event the Company issued shares of common stock or securities convertible into shares of common stock at an effective per share price less than the exercise price then in effect, the exercise price would have been reduced to the effective price per share for such additional shares of common stock. Because of this antidilution feature, the warrants were liability classified on the Company’s December 31, 2012 balance sheet, and they were re-measured on the Company’s reporting dates with changes in the carrying value reflected in current results of operations.

 

The fair value of the Warrants on the date of issuance was determined to be $14,750 and was recorded as a liability. On February 4, 2013, upon the automatic conversion of the Series A Preferred Stock, the “full ratchet” antidilution feature of the Warrants terminated and the Warrants were marked to market to a fair value of $27,130 and then reclassified to equity. The change in fair value of warrants from January 1, 2013 through February 4, 2013 was $11,110 and the associated expense has been included in the Company’s statement of operations.

 

The fair value of the warrants was determined using a Monte Carlo analysis. The fair value was subjective and was affected by changes in inputs to the valuation model including the price per share of the Company’s common stock, assumptions regarding FDA approval, future stock price activity, the timing of exercise of the warrants, volatility of the Company’s common stock and peer company common stock and risk-free rates based on U.S. Treasury yields.

 

As of September 30, 2013, 3,487,500 of the originally issued 14,000,000 Warrants have been exercised, resulting in the issuance of 2,210,397 shares of common stock and cash proceeds of $2,650.

 

Aspire Capital

 

The Company’s common stock purchase agreement with Aspire Capital expired in August 2013. The Company did not make any sales to Aspire Capital during the term of the agreement, other than 70,721 shares of common stock sold to Aspire Capital upon execution of the agreement and 84,866 shares of common stock issued to Aspire Capital as a commitment fee in consideration for entering into the agreement. Pursuant to terms of the agreement, Aspire Capital was required to pay a termination fee to the Company upon expiration of the agreement, which Aspire Capital satisfied by surrendering 42,433 of the shares that had been issued to Aspire Capital as a commitment fee upon the execution of the agreement. The Company holds these shares in treasury as of September 30, 2013. The Company recorded net expense of $488 during the three months ended September 30, 2013 as a result of the expiration of the agreement.