Harrow Health, Inc. (HROW) - Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K was filed on December 14, 2022, by Harrow Health, Inc. (the "Company"). The filing discloses the entry into material definitive agreements to secure financing for a planned acquisition of assets from Novartis Technology LLC and Novartis Innovative Therapies AG (the "Acquisition").
Key Financial Metrics and Agreements
The filing details two primary financing instruments entered into in December 2022:
- Senior Notes Offering: The Company agreed to sell $35,000,000 in 11.875% Senior Notes due 2027 ("Firm Notes"), with an option to purchase an additional $5,250,000 ("Additional Notes"). The sale of the Firm Notes closed on December 20, 2022. Interest is payable quarterly, commencing January 31, 2023.
- Loan and Security Agreement: The Company entered into a loan facility of up to $100,000,000 with B. Riley Commercial Capital, LLC. The loan carries an interest rate of 10.875% per annum and matures on December 14, 2025. Funding is contingent upon the consummation of the Acquisition.
The filing does not provide specific revenue, profit, cash flow, or margin figures for the reporting period, as this is a transactional filing rather than a periodic financial report.
Material Changes and Terms
The primary material change is the incurrence of significant new debt obligations:
- Debt Structure: The Senior Notes are senior unsecured obligations, ranking equally with other senior unsecured debt but effectively subordinated to secured indebtedness. The Loan is secured by an intellectual property security agreement and a pledge of all assets and equity of the Company and its material subsidiaries.
- Redemption and Prepayment: The Notes may be redeemed prior to December 31, 2024, at 100% of principal plus a make-whole amount. The Loan includes a tiered prepayment fee schedule ranging from 3.00% to 1.00% depending on the timing of repayment, with no fee after 30 months.
- Mandatory Prepayments: The Loan Agreement requires mandatory prepayments of 50% of Consolidated Excess Cash Flow annually and 100% of proceeds from future note offerings.
Outlook, Risks, and Contingencies
Management commentary is limited to the purpose of the financing, which is to fund the Acquisition. Significant risks and contingencies include:
- Acquisition Contingency: The Company is required to redeem the Notes in whole at $25.50 per note if the Acquisition is not completed within 180 calendar days of December 20, 2022, or if a "Material Change" occurs.
- Events of Default: Both agreements contain standard events of default, including failure to make payments, breach of covenants, or bankruptcy. Upon an event of default under the Loan Agreement, the interest rate increases by an additional 3.0%.
- Covenants: The Loan Agreement imposes affirmative and negative covenants restricting the Company's ability to incur liens, make fundamental business changes, or engage in affiliate transactions.
Key Facts for Investor Verification
- Verify the status of the Novartis asset acquisition, as the redemption of the Senior Notes is contingent on its completion within 180 days.
- Confirm the total debt load post-closing, which includes the $35 million in Senior Notes and the potential $100 million secured loan.
- Review the Company's ability to meet the mandatory prepayment requirements tied to Consolidated Excess Cash Flow under the Loan Agreement.
- Assess the impact of the high interest rates (11.875% on Notes and 10.875% on the Loan) on future liquidity and profitability.