Business Context and Reporting Period
This Form 8-K Current Report was filed by Imprimis Pharmaceuticals, Inc. (noted as Harrow, Inc. in metadata) on January 22, 2016. The filing discloses the entry into a material definitive agreement involving the issuance of debt securities and amendments to existing loan and warrant agreements.
Key Financial Metrics and Transaction Details
- New Debt Issuance: The Company issued an 8.00% Convertible Senior Secured Note with a principal amount of $3,000,000 to IMMY Funding LLC.
- Interest Rate: Fixed per-annum rate of 8.00%, payable monthly in cash.
- Maturity Date: Full principal repayment is due on May 11, 2021.
- Conversion Terms: Convertible at any time into 169.4915 shares of Common Stock per $1,000 of principal (approx. $5.90 per share), subject to anti-dilution adjustments.
- Existing Debt: The transaction includes an amendment to a prior term loan agreement with an aggregate principal amount of $10,000,000.
- Use of Proceeds: Working capital and general corporate purposes.
- Collateral: The Note is secured by substantially all personal property, rights, and assets of the Company and its subsidiaries, including intellectual property.
Material Changes and Agreements
The filing details significant modifications to the Company's capital structure and existing obligations:
- Loan Agreement Amendment: Modified the May 11, 2015 Loan Agreement to eliminate the potential for a second term loan and to permit the issuance of the new Note.
- Warrant Amendment: Reduced the exercise price of an existing warrant for 125,000 shares to $5.90 and added anti-dilution provisions consistent with the new Note.
- Redemption Rights: The Company may redeem the Note after March 1, 2018, at a premium ranging from 105% to 109% of the outstanding principal depending on the redemption date.
- Covenants: The Note includes negative covenants restricting additional indebtedness, asset dispositions, mergers, and dividends without consent.
Outlook, Risks, and Contingencies
- Change of Control: In the event of a change of control, the holder may require the Company to repurchase the Note for the greater of 105% of the principal or the value of the shares issuable upon conversion.
- Events of Default: Include bankruptcy, failure to make payments, material adverse changes in business, regulatory enforcement actions, or defaults under the existing Loan Agreement.
- Unregistered Securities: The Note and associated warrants were sold under Section 4(a)(2) of the Securities Act of 1933 as unregistered securities to an accredited investor.
- Liquidity Impact: The filing does not provide specific cash flow or liquidity metrics beyond the receipt of $3,000,000 in cash proceeds.
Investor Verification Checklist
- Verify the Company's ability to service the monthly 8% interest payments on the new $3M note and the existing $10M term loan.
- Review the full text of the Note Purchase Agreement (Exhibit 10.2) for specific definitions of "Material Adverse Change" and cure periods.
- Assess the dilution impact of the conversion rate ($5.90) and the anti-dilution provisions if a future equity financing occurs at a lower price.
- Confirm the status of the Company's intellectual property and assets pledged as collateral for the secured debt.
- Monitor for any future equity financings that trigger the anti-dilution adjustment on the Note and Warrant.