Item 1.01 Entry into a Material Definitive Agreement.
On March 30, 2020 (the “Effective Date”), Aclaris Therapeutics, Inc. (the “Company”) and its wholly owned subsidiary Confluence Discovery Technologies, Inc. (together, the “Borrowers”) entered into a Loan and Security Agreement (the “Loan and Security Agreement”) with Silicon Valley Bank, a California corporation (“SVB”). The Loan and Security Agreement provides for $11.0 million in term loans (the “Term Loan Facility”). The Company borrowed the entire amount available under the Term Loan Facility on the Effective Date.
The term loan repayment schedule provides for interest only payments beginning April 1, 2020 and continuing through March 1, 2022, followed by 24 consecutive equal monthly installments of principal, plus monthly payments of accrued interest, starting on April 1, 2022 and continuing through the maturity date of March 1, 2024. All outstanding principal and accrued and unpaid interest will be due and payable on the maturity date. The Loan and Security Agreement provides for an annual interest rate equal to the greater of (i) the prime rate then in effect as reported in The Wall Street Journal plus 2% and (ii) 6.75%.
The Borrowers have the option to prepay the outstanding balance of the term loans in full, subject to a prepayment premium of (i) 3% of the original principal amount of the aggregate term loans drawn for any prepayment on or prior to the first anniversary of the Effective Date, (ii) 2% of the original principal amount of the aggregate term loans drawn for any prepayment after the first anniversary and on or before the second anniversary of the Effective Date or (iii) 1% of the original principal amount of the aggregate term loans drawn for any prepayment after the second anniversary of the Effective Date but before March 1, 2024.
The Loan and Security Agreement also provides for a final payment equal to $550,000 (5% of the original principal amount of the term loans drawn under the Term Loan Facility), which final payment is due on March 1, 2024 or upon the prepayment of the facility, the termination of the Loan and Security Agreement or the acceleration of amounts due under the facility as a result of an event of default.
The Term Loan Facility is secured by substantially all of the Borrowers’ assets, except that the collateral does not include the Borrowers’ intellectual property. However, the Borrowers have agreed not to encumber any of their intellectual property without SVB’s consent. The Loan and Security Agreement contains customary representations, warranties and covenants by the Borrowers, which covenants, among other things, limit the Borrowers’ ability, subject to specified exceptions, to convey, sell, lease, transfer, assign or otherwise dispose of their assets; engage in any business other than the businesses currently engaged in by the Borrowers or reasonably related thereto; liquidate or dissolve; undergo specified change of control events; create, incur, assume or be liable for indebtedness; create, incur, allow or suffer any liens on their property; pay dividends and make other restricted payments; make investments; or enter into any material transactions with their affiliates.
The Loan and Security Agreement also contains customary indemnification obligations and customary events of default, including, among other things, the Borrowers’ failure to fulfill their obligations under the Loan and Security Agreement, the occurrence of a material adverse change, and specified defaults by the Borrowers. In the event of default by the Borrowers under the Loan and Security Agreement, SVB would be entitled to exercise its remedies thereunder, including the right to accelerate the debt, upon which the Borrowers may be required to repay all amounts then outstanding under the Loan and Security Agreement.
In connection with the Loan and Security Agreement, the Company issued SVB a warrant, dated March 30, 2020 (the “Warrant”), to purchase up to 460,251 shares of common stock of the Company, $0.00001 par value per share (“Common Stock”), at an initial exercise price of $0.956 per share, subject to adjustment as provided in the Warrant. The Warrant became immediately exercisable in full upon the funding of the Term Loan Facility. The Warrant will terminate, if not earlier exercised, on the earlier of March 29, 2030 and the closing of certain merger or other transactions in which the consideration is cash, stock of a publicly-traded acquirer or a combination thereof.