Eargo, Inc. (Nasdaq: EAR) (the “Company”), a medical device company
on a mission to improve the quality of life of people with hearing
loss, today announced it has signed a definitive agreement with
Patient Square Capital (“Patient Square”) to raise $100 million
through the sale of senior secured convertible notes, with an
additional $25 million future investment subject to certain
conditions. The Company intends to use the net proceeds of Patient
Square’s investment for working capital purposes, to fund the
Company’s omni-channel growth strategy and to repay all of the
Company’s approximately $15 million in existing third-party debt as
well as related pay-off expenses.
Under the agreement, the Company will issue $100 million
aggregate principal amount of senior secured convertible notes to
Patient Square upon closing (the “First Tranche Investment”).
Within 180 days of the issuance of the First Tranche Investment,
the Company expects to undertake a rights offering that will be
registered under the Securities Act of 1933, as amended (the
“Securities Act”), pursuant to which its stockholders as of a
record date to be determined will have the right to purchase their
pro rata share of 375 million shares of newly issued common stock
at a purchase price of $0.50 per share.
Patient Square has agreed to purchase up to an additional $25
million aggregate principal amount of senior secured convertible
notes (the “Second Tranche Investment”) if the rights offering has
not been completed within 150 days after closing of the First
Tranche Investment, or if the rights offering is completed within
150 days after the closing of the First Tranche Investment, and
existing stockholders of the Company subscribe for less than 75
million shares of newly-issued common stock of the Company in such
rights offering.
If the rights offering is completed before 150 days following
closing of the First Tranche Investment, and existing stockholders
subscribe for at least 75 million of shares, total cash proceeds to
Eargo (from both the issuance of the senior secured convertible
notes and the rights offering) increases to $137.5 million.
Any proceeds from the rights offering will be used to redeem the
senior secured convertible notes and for general corporate
purposes. In the event the rights offering is not fully subscribed,
the remaining senior secured convertible notes not redeemed in the
rights offering will convert into 375 million shares of common
stock less the number of shares subscribed for in the rights
offering.
The senior secured convertible notes accrue interest at a rate
of 12.00% per annum payable in kind, and mature 1 year after the
closing of the First Tranche Investment. The senior secured
convertible notes are redeemable at the option of the Company at
any time after issuance. Upon the maturity date, redemption or
conversion, the senior secured convertible notes must be repaid at
an annualized return on their initial face value of no less than
12.00% or, if greater, at 150% of the initial principal amount of
such senior secured convertible notes.
In advance of the rights offering, the Company, at its
discretion, is able but not obligated to seek alternative forms of
capital to pay off the convertible notes or to sell the Company.
The Company expects that in the event it enters into a sale
transaction, then it would not proceed with the rights
offering.
The Company expects to hold a meeting of its stockholders within
120 days of the closing of the First Tranche Investment, seeking
stockholder approval of the issuance of the common stock upon
conversion of the notes and an increase in the number of shares
authorized under the Company’s charter to an amount sufficient to
consummate the rights offering.
Upon closing of the transaction, Patient Square will have a
board observer position on the Company’s Board of Directors.
Following the completion of the rights offering, Patient Square
will have the right to nominate a number of directors to the Board
of Directors that is proportionate to its ownership of the
Company.
Christian Gormsen, President and Chief Executive
Officer, said, “We believe this commitment of up to $125 million in
additional capital from an experienced healthcare investor will
enable us to pursue our omni-channel growth strategy powered by
telecare. This includes further optimizing our cash-pay business,
focusing on potentially regaining insurance coverage of Eargo for
government employees under the FEHB program, and refining and
expanding our physical retail strategy.”
Jim Momtazee, Managing Partner of Patient
Square, said, “With over 40 million people in the U.S. with hearing
loss but only approximately a quarter of them owning a hearing aid,
the hearing care market is significantly underpenetrated. Eargo’s
innovative virtually invisible product and its unique telecare
support infrastructure position the Company well for growth across
multiple channels. We are excited to support Eargo in its mission
to improve quality of life for people with hearing loss.”
Perella Weinberg Partners LP and BofA
Securities, Inc. acted as financial advisors to Eargo.
The offer and sale of the senior secured
convertible notes and any shares of common stock issued upon
conversion are being made in a transaction not involving a public
offering and have not been registered under the Securities Act or
applicable state securities laws and will be sold in a private
placement pursuant to Section 4(a)(2) and/or Regulation D of the
Securities Act. The securities may not be offered or sold in the
United States absent registration or pursuant to an exemption from
the registration requirements of the Securities Act and applicable
state securities laws. The Company has agreed to file a
registration statement covering the resale of the common stock
issuable upon conversion of the senior secured convertible
notes.
This press release does not constitute an offer
to sell or the solicitation of an offer to buy the securities, nor
shall there be any sale of the securities in any state or
jurisdiction in which such offer or sale would be unlawful prior to
the registration or qualification under the securities laws of such
state or jurisdiction.
Conference Call and Webcast InformationEargo
will host a conference call to discuss the transaction before
market open on Monday, June 27, 2022, at 5 a.m. Pacific Time / 8
a.m. Eastern Time. The conference call can be accessed live over
the phone at (833) 649-1234 for U.S. callers or (914) 987-7293 for
international callers, using conference ID: 9639369. The live
webcast can be accessed at ir.eargo.com.
About EargoEargo is a medical
device company dedicated to improving the quality of life of people
with hearing loss. Our innovative product and go-to-market approach
address the major challenges of traditional hearing aid adoption,
including social stigma, accessibility and cost. We believe our
Eargo hearing aids are the first virtually invisible, rechargeable,
completely-in-canal, FDA regulated, exempt Class I or Class II
devices indicated to compensate for mild to moderate hearing loss.
Our differentiated, consumer-first solution empowers consumers to
take control of their hearing. Consumers can purchase online or
over the phone and get personalized and convenient consultation and
support from hearing professionals via phone, text, email or video
chat. The Eargo device is offered to consumers at approximately
half the cost of competing hearing aids purchased through
traditional channels in the United States.
Eargo’s sixth generation device, Eargo 6, is an
FDA Class II exempt hearing device featuring Sound Adjust
technology that automatically optimizes the soundscape as the user
moves between environments. Eargo 6 is available for purchase
here.
Related Linkshttp://eargo.com
About Patient Square
CapitalPatient Square Capital
(www.patientsquarecapital.com) is a dedicated health care
investment firm that partners with best-in-class management teams
whose products, services and technologies improve health. Patient
Square utilizes deep industry expertise, a broad network of
relationships and a true partnership approach to make investments
in companies that will grow and thrive. Patient Square invests in
businesses that strive to improve patient lives, strengthen
communities and create a healthier world. Patient Square’s team of
industry-leading executives is differentiated by the depth of focus
in health care, the breadth of health care investing experience,
and the network it can activate to drive differentiated
outcomes.
Forward-Looking StatementsThis
press release contains forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other
than statements of historical fact contained in this press release
are forward-looking statements, including statements regarding the
notes transaction; the rights offering; the Company’s plans to
optimize its cash-pay business, focus on potentially regaining
insurance coverage of Eargo for government employees under the
Federal Employees Health Benefits (FEHB) program, and refine and
expand its physical retail strategy; and Eargo’s market position
and strategy. Forward-looking statements are not guarantees of
future performance and are subject to risks, uncertainties and
assumptions that could cause actual results and events to differ
materially from those anticipated, including, but not limited to,
risks, uncertainties and assumptions related to: the closing of the
notes transaction; completion of the rights offering; the extent to
which we may be able to validate processes to support the
submission of claims for reimbursement from the FEHB program in the
future, if at all, and our ability to maintain or increase
insurance coverage of our hearing aids; the timing or results of
ongoing claims audits and medical records reviews by third-party
payors; the extent of losses from hearing aids delivered to
customers from September 21, 2021 until December 8, 2021; the
impact of third-party payor audits and the regulatory landscape for
hearing aid devices on our business and results of operations; our
expectations concerning additional orders by existing customers;
our expectations regarding the potential market size and size of
the potential consumer populations for our products and any future
products, including insurance coverage of our hearing aids; our
ability to release new hearing aids and the anticipated features of
any such hearing aids; developments and projections relating to our
competitors and our industry, including competing products; our
ability to maintain our competitive technological advantages
against new entrants in our industry; the pricing of our hearing
aids; our expectations regarding the ability to make certain claims
related to the performance of our hearing aids relative to
competitive products; our expectations with regard to changes in
the regulatory landscape for hearing aid devices, including the
anticipated implementation of a pending over-the-counter hearing
aid regulatory framework; and our estimates regarding the COVID-19
pandemic, including but not limited to, its duration and its impact
on our business and results of operations. These and other risks
are described in greater detail under the section titled “Risk
Factors” contained in our Annual Report on Form 10-K and Quarterly
Reports on Form 10-Q and our other filings with the Securities and
Exchange Commission. Any forward-looking statements in this press
release are made pursuant to the Private Securities Litigation
Reform Act of 1995, as amended, are based on current expectations,
forecasts and assumptions, and speak only as of the date of this
press release. Except as required by law, we undertake no
obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or
otherwise.
Investor ContactNick LaudicoSenior Vice
President of Corporate Strategy and Investor
Relationsir@eargo.com
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