Business Context and Reporting Period
This Form 8-K Current Report was filed by SELLAS Life Sciences Group, Inc. on September 26, 2018, regarding events occurring on September 24 and 26, 2018. The filing addresses a significant legal and financial dispute with JGB (Cayman) Newton, Ltd. ("JGB") concerning a Senior Secured Debenture issued in May 2016.
Key Financial Metrics and Obligations
- Senior Secured Debenture: Original principal of $25.5 million; outstanding principal balance as of August 14, 2018, was $6,871,702.
- Interest Rate: 9% per year, payable monthly.
- Maturity Date: November 10, 2018.
- Restricted Account Balance: Exceeded the debenture principal by approximately $1.6 million as of August 14, 2018.
- Assets Liquidated: Approximately $8.5 million in cash was removed from the Restricted Account by JGB Collateral on September 24, 2018.
Material Changes and Events
On September 24, 2018, JGB Collateral unilaterally directed the liquidation of all assets in the Company's Restricted Account, removing approximately $8.5 million. This action was taken without prior written notice of acceleration, despite the account balance exceeding the outstanding debt by roughly $1.6 million. On September 26, 2018, JGB Collateral notified the Company that it had taken possession of these assets, alleging Events of Default under the Senior Secured Debenture related to an ongoing lawsuit filed by JGB in April 2018.
Management Commentary, Risks, and Contingencies
The Company disputes the alleged breaches and Events of Default, asserting that JGB's seizure of the assets violates the Security Agreement and related transaction documents. The Company has requested the return of the funds and, on October 1, 2018, filed an application for a Temporary Restraining Order and Preliminary Injunction in the U.S. District Court for the Southern District of New York. The Company seeks to enjoin JGB from exercising remedies under the Security Agreement and to compel the turnover of the excess $1.6 million to the Court Registry Investment System. A hearing on this application was scheduled for October 4, 2018.
Investor Verification Checklist
- Verify the current status of the Temporary Restraining Order and Preliminary Injunction application filed on October 1, 2018.
- Confirm whether the $8.5 million removed from the Restricted Account has been returned or if the Company has secured alternative liquidity.
- Monitor the progress of the underlying litigation (Case 1:18 - Civ. 3095) regarding the alleged breach of contract and counterclaims.
- Assess the impact of the asset seizure on the Company's ability to meet the November 10, 2018, maturity date of the Senior Secured Debenture.