Item 1.01 Entry Into a Material Definitive Agreement.
Senior
Notes Offering
As
previously discussed, on December 15, 2022, Harrow Health, Inc. (the “Company”) entered into an underwriting agreement
with B. Riley Securities, Inc., as representative of the several underwriters named therein (collectively the “Underwriters”),
pursuant to which the Company agreed to sell to the Underwriters $35,000,000 aggregate principal amount of 11.875% Senior Notes due 2027
(the “Firm Notes”) plus up to an additional $5,250,000 aggregate principal amount of 11.875% Senior Notes due 2027
pursuant to the option to purchase additional Notes (the “Additional Notes”, and together with the Firm Notes, the
“Notes”). The sale of the Firm Notes closed on December 20, 2022.
On
December 20, 2022, the Company entered into a Second Supplemental Indenture (the “Second Supplemental Indenture”)
to the indenture dated as of April 20, 2021 (the “Base Indenture” and, together with the Second Supplemental Indenture,
the “Indenture”) with U.S. Bank Trust Company, National Association (as successor to U.S. Bank National Association),
as trustee (the “Trustee”). The Indenture establishes the form, and provides for the issuance, of the Notes.
The
Notes are senior unsecured obligations of the Company and rank equally in right of payment with all of the Company’s other existing
and future senior unsecured and unsubordinated indebtedness. The Notes are effectively subordinated in right of payment to all of the
Company’s existing and future secured indebtedness and structurally subordinated to all existing and future indebtedness of the
Company’s subsidiaries, including trade payables. The Notes bear interest at the rate of 11.875% per annum. Interest on the Notes
is payable quarterly in arrears on January 31, April 30, July 31 and October 31 of each year, commencing on January 31, 2023. The Notes
will mature on December 31, 2027.
At
any time prior to December 31, 2024, the Company may, at its option, redeem the Notes, in whole at any time or in part from time to time,
at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus a make-whole amount that is further described
in the Second Supplemental Indenture, if any, plus accrued and unpaid interest to, but excluding, the date of redemption. The Company
may redeem the Notes for cash in whole or in part at any time at its option (i) on or after December 31, 2024 and prior to December 31,
2025, at a price equal to $25.50 per note, plus accrued and unpaid interest to, but excluding, the date of redemption, (ii) on or after
December 31, 2025 and prior to December 31, 2026, at a price equal to $25.25 per note, plus accrued and unpaid interest to, but excluding,
the date of redemption, and (iii) on or after December 31, 2026 and prior to maturity, at a price equal to 100% of their principal amount,
plus accrued and unpaid interest to, but excluding, the date of redemption. In addition, the Company is required to redeem the Notes,
for cash, in whole but not in part, at the price of $25.50 per note, plus accrued and unpaid interest to, but excluding, the date of
redemption, upon occurrence of certain events including (i) a failure by the Company to complete the Acquisition (as defined below),
subject to certain exceptions, within 180 calendar days after December 20, 2022, or (ii) the occurrence of a Material Change, as defined
in the Second Supplemental Indenture.
The
Indenture contains customary events of default and cure provisions. If an uncured default occurs and is continuing, the Trustee or the
holders of at least 25% of the principal amount of the Notes may declare the entire amount of the Notes, together with accrued and unpaid
interest, if any, to be immediately due and payable. In the case of an event of default involving the Company’s bankruptcy, insolvency
or reorganization, the principal of, and accrued and unpaid interest on, the principal amount of the Notes, together with accrued and
unpaid interest, if any, will automatically, and without any declaration or other action on the part of the Trustee or the holders of
the Notes, become due and payable.
The
foregoing description of the Base Indenture, the Second Supplemental Indenture and the Notes does not purport to be complete and is qualified
in its entirety by reference to the full text of the Base Indenture, the Second Supplemental Indenture and the form of Note, copies of
which are filed hereto, or incorporated by reference herein, as Exhibit 4.1, Exhibit 4.2 and Exhibit 4.3 and incorporated
by reference herein.
The
Notes were offered pursuant to the Company’s shelf registration statement on Form S-3 (Registration No. 333-265244), which was
declared effective by the Securities and Exchange Commission on June 6, 2022 (the “Registration Statement”). Attached
as Exhibit 5 to this report and incorporated herein by reference is a copy of the opinion of Waller Lansden Dortch & Davis,
LLP, relating to the validity of the Notes that may be sold in the offering (the “Legal Opinion”). The Legal Opinion
is also filed with reference to, and is hereby incorporated by reference into, the Registration Statement.
Loan
and Security Agreement
On
December 14, 2022 (the “Effective Date”), the Company and its material subsidiaries entered into a Loan and Security
Agreement (the “Loan Agreement”) with B. Riley Commercial Capital, LLC, as Administrative Agent for the Lenders from
time to time party thereto. The proceeds of the Loan Agreement are expected to be used to finance the Acquisition (as defined below).
The
Loan Agreement provides for a loan facility of up to $100,000,000 to the Company (the “Loan”) with a maturity date
of December 14, 2025 (the “Maturity Date”), at an interest rate of 10.875% per annum. The Loan will be funded at a
later date simultaneously with the consummation of the acquisition by the Company and certain of its subsidiaries of certain of the assets
of Novartis Technology LLC and Novartis Innovative Therapies AG (the “Acquisition”). The Loan is secured by an intellectual
property security agreement (the “IP Security Agreement) entered into in connection with the Loan, and by all assets of
the Company and its material subsidiaries (including a pledge of the equity of the material subsidiaries): ImprimisRx, LLC, a Delaware
limited liability company, Imprimis NJOF, LLC, a New Jersey limited liability company, ImprimisRx NJ, LLC, a New Jersey limited liability
company, Harrow Eye, LLC, a Delaware limited liability company, Harrow IP, LLC, a Delaware limited liability company, Visionology Equity,
LLC, a Delaware limited liability company, Visionology, Inc., a Delaware corporation and Visionology MSO, Inc., a Delaware corporation
(collectively, the “Guarantors”). Each of the Guarantors is a guarantor of the Loan. The outstanding balance of the
Loan is due in full on the Maturity Date. The Loan Agreement provides for voluntary prepayment subject to a prepayment fee of $0 if no
Loan has been funded or the prepayment or repayment occurs (other than as a result of acceleration of the Loan) on or prior to the date
that is 90 days following the Effective Date, 3.00% of the amount of the Loan accelerated on or prior to the date that is 90 days following
the Effective Date, 3.00% of the amount of the Loan prepaid, repaid or accelerated after the date that is 90 days following the Effective
Date but on or prior to the first anniversary of the Effective Date, 2.00% of the amount of the Loan prepaid, repaid or accelerated after
the first anniversary of the Effective Date but on or prior to the second anniversary of the Effective Date, 1.00% of the amount of the
Loan prepaid, repaid or accelerated after the second anniversary of the Effective Date but on or prior to the date that is 30 months
after the Effective Date and $0 if such prepayment, repayment or acceleration occurs after the date that is 30 months after the Effective
Date but prior to the Maturity Date, and in the event the Loan is prepaid, repaid or accelerated during the period commencing on the
date that is 90 days following the Effective Date to and including the first anniversary of the Effective Date, the make-whole amount,
which the Administrative Agent has agreed to waive (subject to certain conditions and exceptions) pursuant to that certain Side Letter,
dated as of the Effective Date.
The
Loan Agreement also provides for mandatory prepayments upon the occurrence of any of the following events: (i) acceleration of the Loan,
(ii) within 100 days after the end of each fiscal year of the Company, commencing with the fiscal year ending December 31, 2023, an amount
equal to 50% of Consolidated Excess Cash Flow (as defined in the Loan Agreement) for such fiscal year, (iii) an amount equal to 100%
of the proceeds of any indebtedness of Company incurred pursuant to one or more note offerings on or after the Effective Date, subject
to certain conditions and exceptions and (iv) receipt of proceeds from casualty insurance policies, subject to certain conditions and
exceptions. The Company agreed to pay all of the lenders’ reasonable expenses in connection with the Loan.
The
Loan Agreement contains customary representations and warranties, covenants and events of default. The covenants set forth in the Loan
Agreement include certain affirmative and negative operational and financial covenants, including, among other things, restrictions on
the Company’s ability to incur certain liens, make fundamental changes to its business or engage in transactions with affiliates.
The
Loan Agreement also provides for certain events of default, the occurrence of which could result in the acceleration of the Company’s
obligations under the Loan Agreement. Events of default include, but are not limited to failure by the Company (i) to make any payment
of principal or interest when due, (ii) to perform its obligations under the Loan Agreement, or abide by its covenants, or agreements
in the Loan Agreement, subject to applicable cure periods, (iii) certain breaches of representations or warranties, or (iv) the initiation
of bankruptcy proceedings. Upon an event of default, the interest rate will be increased by an additional 3.0% on all amounts owed under
the Loan Agreement.
The
foregoing description of the Loan Agreement does not purport to be complete and is qualified in its entirety by reference to the full
text of the Loan Agreement, which the Company expects to file as an exhibit to its Annual Report on Form 10-K for the year ended December
31, 2022.