Business Context and Reporting Period
This Form 8-K Current Report was filed by CareDx, Inc. on July 1, 2017. The filing details the entry into material definitive agreements regarding the restructuring of deferred purchase consideration related to the acquisition of Allenex AB (now CareDx International AB). The Company is an emerging growth company.
Key Financial Metrics and Obligations
- Deferred Obligation: Approximately $5.7 million owed to Former Majority Shareholders (Midroc Invest AB, FastPartner AB, and Xenella Holding AB) as deferred purchase consideration.
- Debt Conversion: Approximately $1.1 million of the Deferred Obligation was converted into 1,022,544 shares of Common Stock at a price of $1.12 per share.
- Cash Payment: Approximately $500,000 paid in cash to Former Majority Shareholders on or about July 1, 2017.
- Interest Rate: Interest on the remaining Deferred Obligation begins accruing at 10% per annum commencing July 1, 2017.
- Foreign Currency Obligation: CareDx International deferred repayment of SEK 34,332,296 to Noteholders (FastPartner AB and Mohammed Al Amoudi) until March 31, 2019, with interest accruing at 10% per annum.
- Existing Debt: The Company holds 9.5% Original Issue Discount Senior Secured Debentures due February 28, 2020, issued to JGB Collateral LLC.
Material Changes and Agreement Terms
The Company entered into Third Amendments to Conditional Share Purchase Agreements and Conversion Agreements. Key changes include:
- Extension of Maturity: The due date for the remainder of the Deferred Obligation was extended to March 31, 2019.
- Partial Acceleration: Approximately $2.0 million of the Deferred Obligation (Additional Repayment Amount) becomes payable on December 31, 2017, unless converted into shares.
- Stockholder Approval Requirement: The Company must solicit stockholder approval to issue approximately 1,791,755 Additional Repayment Shares upon conversion of the Additional Repayment Amount.
- Repayment Ratio: If the Company repays principal on its Debentures to JGB Collateral LLC in cash, it must repay the Former Majority Shareholders at a ratio of $13 for every $63 paid to JGB. This does not apply if the Debentures are refinanced with Replacement Debt under specific terms.
- Warrant Adjustments: Former Majority Shareholders waived anti-dilution provisions regarding the Conversion Shares but amended warrant terms to reduce the exercise price if the Company issues stock below the Conversion Price or current warrant exercise price.
- Lock-up Period: Former Majority Shareholders agreed not to sell Conversion Shares for 180 days following issuance.
Outlook, Risks, and Contingencies
- Registration Rights: The Company must file a registration statement with the SEC by September 1, 2017, to allow the resale of Conversion Shares and potential Additional Repayment Shares.
- Unregistered Sales: The Conversion Shares were issued under Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D. They cannot be sold in the U.S. absent registration or an exemption.
- Contingent Liabilities: Future cash outflows are contingent on the Company's ability to repay JGB Collateral LLC and the outcome of stockholder votes regarding the issuance of Additional Repayment Shares.
- Financial Statements: The filing does not provide specific revenue, profit, or cash flow metrics for the period; it focuses solely on the restructuring of specific debt obligations.
Investor Verification Checklist
- Verify the status of the stockholder vote required to issue the 1,791,755 Additional Repayment Shares.
- Confirm the filing of the registration statement by the September 1, 2017 deadline.
- Monitor the Company's cash position relative to the $2.0 million payment due December 31, 2017, and the $500,000 cash payment already made.
- Review the terms of any potential "Replacement Debt" to understand how it might alter the repayment ratio obligations to Former Majority Shareholders.
- Check the Company's 10-Q for the quarter ended June 30, 2017, for the full text of the Conversion Agreements and Registration Rights Agreement.