Item 1.01. Entry into a Material Definitive Agreement.
On April 23, 2019 (the “Amendment Date”), Verastem, Inc. (the “Company”) entered into the Fourth Amendment (the “Amendment”) to the Loan and Security Agreement with Hercules Capital, Inc. (“Hercules”), as administrative agent. The Amendment amends that certain Loan and Security Agreement, dated March 21, 2017, among the Company, Hercules and the Lenders party thereto, as amended on January 4, 2018, March 6, 2018 and October 11, 2018 (the “Original Loan Agreement” and, together with the Amendment, the “Amended Loan Agreement”). Per the terms of the Amended Loan Agreement, the Company may borrow up to an aggregate of $75.0 million, of which $35.0 million was outstanding as of the Amendment Date (“2019 Term A Loan”) as a result of the existing outstanding principal of term loans of $25.0 million under the Original Loan Agreement being converted into the 2019 Term A Loan, and an additional $10.0 million being drawn by the Company on the Amendment Date. The remaining $40.0 million of borrowing capacity may be drawn by the Company in multiple tranches comprised of (i) a term loan in an amount of up to $15.0 million upon the Company generating cumulative net product revenues (as defined in the Amended Loan Agreement) of either (a) $37.5 million on or before April 30, 2020 or (b) $50.0 million on or before June 30, 2020 (“2019 Term B Loan”), and (ii) a term loan in an amount of up to $25.0 million available through December 31, 2021, subject to Hercules’ approval and certain other conditions specified in the Amended Loan Agreement (“2019 Term C Loan”, and together with the 2019 Term A Loan and 2019 Term B Loan, the “2019 Term Loan”).
The 2019 Term Loan will mature on December 1, 2022. Each advance accrues interest at a floating per annum rate equal to the greater of (a) 9.75% or (b) the lesser of (i) 12.00% and (ii) the sum of (x) 9.75% plus (y) (A) the prime rate minus (B) 5.50%. The 2019 Term Loan provides for interest-only payments until April 1, 2021, which may be extended to December 1, 2021 pursuant to the Company generating $40.0 million in net product revenue on a trailing six-month basis on or prior to December 31, 2020 provided that no event of default has occurred. Thereafter, amortization payments will be payable monthly in equal installments of principal and interest (subject to recalculation upon a change in prime rates).
The 2019 Term Loan is secured by a lien on substantially all of the assets of the Company, other than intellectual property, and contains customary covenants and representations, including a liquidity covenant, minimum net revenue covenant, financial reporting covenant and limitations on dividends, indebtedness, collateral, investments, distributions, transfers, mergers or acquisitions, taxes, corporate changes, deposit accounts, and subsidiaries.
On the Amendment Date, the Company was required to pay any outstanding accrued interest as well as the final payment fee equal to 4.5% of $25,000,000, the outstanding principal amount of the term loans immediately prior to the Amendment. No prepayment charges were due as a result of executing the Amendment or the conversion of the existing term loans into 2019 Term A Loans.
The foregoing description of the principal terms of the Amendment is a general description only, does not purport to be complete, and is qualified in its entirety by reference to the terms of the Amendment, which is attached as Exhibit 10.1 to this Current Report on Form 8-K and incorporated herein by reference.