Item 1.01
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Entry into a Material Definitive Agreement.
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Debt Financing
On March 29, 2019 (the “Closing Date”),
Mustang Bio, Inc. (the “Company”) entered into a $20.0 million venture debt financing agreement (the “Loan Agreement”)
with Horizon Technology Finance Corporation (“Horizon”), the proceeds of which will provide the Company with additional
working capital to continue development of its gene and cell therapies. In accordance with the Loan Agreement, $15.0 million of
the $20.0 million loan was funded on the Closing Date, with the remaining $5.0 million fundable upon Mustang achieving certain
predetermined milestones.
Each advance of the loan will mature 42 months
from the first day of the month following the funding of the advance. The first three advances will mature on October 1, 2022 (the
“Loan Maturity Date”). Each advance accrues interest at a per annum rate of interest equal to 9.00% plus the amount
by which the one month LIBOR Rate, as reported in the Wall Street Journal, exceeds 2.50%. The Loan Agreement provides for interest-only
payments commencing May 1, 2019 through and including October 1, 2020. The interest-only period may be extended to April 1, 2021
if the Company satisfies the Interest Only Extension Milestone (as defined in the Loan Agreement). Thereafter, commencing May 1,
2021, amortization payments will be payable monthly in eighteen installments of principal and interest. At its option, upon ten
business days’ prior written notice to Horizon, the Company may prepay all or any portion greater than or equal to $500,000
of each of the outstanding advances by paying the entire principal balance (or portion thereof) and all accrued and unpaid interest,
subject to a prepayment charge of 4.0% of the then outstanding principal balance of each advance if such advance is prepaid on
or before the Loan Amortization Date (as defined in the Loan Agreement), 3% if such advance is prepaid after the Loan Amortization
Date applicable to such Loan, but on or prior to twelve months following the Loan Amortization Date, and 2% thereafter. In addition,
a final payment equal to $250,000 for each advance (i.e., $750,000 in aggregate with respect to the initial $15.0 million) is due
on the maturity date or other date of payment in full. Amounts outstanding during an event of default shall be payable on demand
and shall accrue interest at an additional rate of 5.0% per annum of the past due amount outstanding.
Each advance of the loan is secured by a lien
on substantially all of the assets of the Company, other than Intellectual Property and Excluded Collateral (in each case as defined
in the Loan Agreement), and contains customary covenants and representations, including a liquidity covenant, financial reporting
covenant and limitations on dividends, indebtedness, collateral, investments, distributions, transfers, mergers or acquisitions,
taxes, corporate changes, deposit accounts, and subsidiaries.
The events of default under the Loan Agreement
include, among other things, without limitation, and subject to customary grace periods, (1) the Company’s failure to make
any payments of principal or interest under the Loan Agreement, promissory notes or other loan documents, (2) the Company’s
breach or default in the performance of any covenant under the Loan Agreement, (3) the occurrence of a material adverse change,
(4) the Company making a false or misleading representation or warranty in any material respect, (5) the Company’s insolvency
or bankruptcy, (6) certain attachments or judgments on the Company’s assets, or (7) the occurrence of any material default
under certain agreements or obligations of the Company involving indebtedness in excess of $250,000. If an event of default occurs,
Horizon is entitled to take enforcement action, including acceleration of amounts due under the Loan Agreement.
The Loan Agreement also contains warrant coverage
of 5% of the total amount funded. Four warrants (the “Warrants”) were issued by the Company to Horizon to purchase
a combined 288,184 shares of the Company’s common stock with an exercise price of $3.47. The Warrant is exercisable for ten
years from the date of issuance. Horizon may exercise the Warrant either by (a) cash or check or (b) through a net issuance conversion.
The shares of the Company’s common stock will, upon request by Horizon, be registered and freely tradeable following a period
of six months after issuance.