Item 1.01 Entry into Material Definitive Agreement
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On March 13, 2019, Catasys, Inc. (the “Company”), Anxiolitix, Inc. (“Anxiolitix”) and Catasys Health, Inc. (“Catasys Health” and together with the Company and Anxiolitix, the “Borrowers”) entered into an amended and restated venture loan and security agreement (as so amended and restated, the “Loan Agreement”) with Horizon Technology Finance Corporation (“Horizon”), which provides for up to $15.0 million in loans to the Borrowers, including initial term loans in the amount of $7.5 million previously funded under the original Loan Agreement entered into June 2018 and an additional up to $7.5 million loan in three revolving tranches of $2.5 million in availability, subject to the Company’s achievement of trailing three month billings exceeding $5 million, $7 million and $8 million, respectively. An initial advance of $2.5 million was funded upon the execution and delivery of the amendment and restatement, subject to repayment if the foregoing $5 million threshold is not reached by July 1, 2019. The Borrowers concurrently entered into an amendment to the previously disclosed $2.5 million receivables financing facility (the “Facility Agreement”) with Corporate Finance, a division of Heritage Bank of Commerce (“Heritage”) intended primarily to reflect the amendment and restatement of the Loan Agreement, including reference to the remaining months liquidity requirements thereof.
The Company issued a press release on March 14, 2019 announcing its entry into the Loan Agreement and the amendment to the Facility Agreement, which press release is attached as Exhibit 99.1 to this report.
Repayment of the term loans is on an interest-only basis through September 1, 2019, followed by monthly payments of principal and accrued interest for the balance of the term until maturity on September 30, 2022, subject to the Borrowers’ ability to extend the interest-only period to March 1, 2020 in the event the Company’s billings for the first six months of 2019 exceed $20 million. Repayment of the revolving loans is on an interest-only basis through September 30, 2020, followed by monthly payments of principal and accrued interest until maturity on September 30, 2022. Until the Company receives cash proceeds of $10 million from the sale of its equity securities, the Borrowers are required to maintain reserve cash on deposit for Horizon in an amount equal to the net operating loss of the Company for the trailing three month calendar period, plus all amounts required to repaid in respect of all outstanding indebtedness for the following three months, plus $4 million. From and after the receipt of $10 million in cash proceeds from the sale of its equity securities, the Borrowers are required to maintain reserve cash on deposit for Horizon in an amount equal to the net operating loss of the Company for the trailing three month calendar period, plus all amounts required to repaid in respect of all outstanding indebtedness for the following three months.
The loans bear interest at a floating coupon rate of the amount by which one-month LIBOR exceeds 2.00% plus 9.75%. A final payment equal to 6% of each loan tranche will be due on the scheduled maturity date for such loan. In addition, the Borrowers are required to pay Horizon revenue based payments equal to 0.20% of the Company’s quarterly revenue (as determined in accordance with GAAP) within 60 days of the end of each quarter during the term, subject to increase to 0.40% when the Company is EBITDA positive. If the Borrowers repay all or a portion of a loan prior to the applicable maturity date, they will pay Horizon a prepayment revenue based make-whole payment plus a prepayment penalty fee, based on a percentage of the then outstanding principal balance, equal to 3% if the prepayment occurs during the interest-only payment period and 2% thereafter.
The Borrowers’ obligations under the Loan Agreement are secured by a first priority security interest in all of their assets, with the exception of intellectual property and are subordinated to all borrowings under the an accounts receivable based facility agreement pursuant to an amended and restated intercreditor agreement. The Borrowers agreed not to pledge or otherwise encumber their intellectual property assets, subject to certain exceptions.
The Loan Agreement includes customary affirmative and restrictive covenants, excluding any covenants to attain or maintain certain financial metrics, and also includes customary events of default, including for payment failures, breaches of covenants, change of control and material adverse changes. Upon the occurrence of an event of default and following any applicable cure periods, a default interest rate of an additional 5% may be applied to the outstanding loan balances, certain minimum revenue based payment guarantees become due and Horizon may declare all outstanding obligations immediately due and payable and take such other actions as set forth in the Loan Agreement.
The foregoing description of the Loan Agreement is not complete and is qualified in its entirety by reference to the full text of the Loan Agreement, a copy of which is filed as Exhibit 10.1 to this report and is incorporated by reference herein.
In connection with the amended and restated Loan Agreement, the Company issued Horizon warrants as described below in Item 3.02 of this report.