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Item 1.01.
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Entry into a Material Definitive Agreement.
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Securities Purchase Agreement and IP Security Agreement
On April 23, 2020, Evofem Biosciences, Inc. (the “Company”) and its wholly-owned domestic subsidiaries (the “Guarantors”) entered into a Securities Purchase and Security Agreement (the “Securities Purchase Agreement”) with certain institutional investors (the “Purchasers”) and their designated agent (the “Designated Agent”), pursuant to which the Company agreed to issue and sell to the Purchasers and the Purchasers agreed to purchase from the Company (i) convertible senior secured promissory notes (the “Notes”) in an aggregate principal amount of up to $25.0 million (the “Maximum Amount”) and (ii) warrants to purchase shares of common stock (the “Warrants”, and together with the Notes, the “Securities”) in a private placement (the “Private Placement”).
The Notes are secured by a pledge of substantially all of the assets, including intellectual property, of the Company and each of the Guarantors. Also on April 23, 2020, the Company and certain Guarantors, as grantors, entered into an Intellectual Property Security Agreement with the Designated Agent, as the collateral agent for the Purchasers (the “IP Security Agreement”), pursuant to which the grantors granted to the Designated Agent, for the ratable benefit of the Purchasers, a continuing security interest in all of the grantors’ right, title and interest in and to certain intellectual property of the grantors, whether now owned or hereafter acquired, and wherever located, as collateral security for the prompt and complete payment and performance when due of the grantor’s obligations under the Security Purchase Agreement.
Pursuant to the terms of the Securities Purchase Agreement, the Company issued and sold to the Purchasers and the Purchasers purchased from the Company $15.0 million of Notes at an initial closing on April 23, 2020 (the “Initial Closing”). The Company may issue and sell to the Purchasers and the Purchasers may purchase from the Company up to an additional $10.0 million of Notes from time to time at the Purchasers’ discretion (each such closing, a “Subsequent Closing”) at any time prior to the Company receiving at least $100.0 million in aggregate gross proceeds from one or more future sales of equity securities for the principal purpose of raising capital, excluding issuance or conversion of the Notes, exercise of the Warrants, and certain other limited exceptions (the “Funding Threshold”). In addition, the Securities Purchase Agreement provides that upon issuance of a Note, we also issue to the Purchaser of that Note a Warrant to be exercisable for a number of shares of common stock equal to 50% of the aggregate principal amount of the Note divided by the exercise price of the Warrant. As of the Initial Closing, the initial conversion price of the Notes and the initial exercise price of the Warrants was $2.44.
Pursuant to the Securities Purchase Agreement, the Company is required to achieve at least $100.0 million in cumulative net sales of the product PhexxiTM (L-lactic acid, citric acid, and potassium bitartrate), determined in accordance with U.S. generally accepted accounting principles, by no later than June 30, 2022. The Securities Purchase Agreement also includes other customary affirmative and negative covenants for transactions of this type, including a limitation on the Company’s ability to incur certain additional indebtedness. In addition, the Securities Purchase Agreement includes customary representations and warranties made by each of the Company and the Purchasers.
Pursuant to the terms of the Securities Purchase Agreement, for so long as the Purchasers hold at least 50% of the Notes purchased at the Initial Closing (or shares of common stock issuable upon conversion thereof) and at least 1% of the outstanding voting shares of the Company, the Purchasers are entitled to appoint a representative of the Designated Agent to attend all meetings of the Company’s Board of Directors in a non-voting capacity. The Purchasers also have a right from the Initial Closing until the date on which the Funding Threshold is met, to purchase up to 20% of any equity securities that the Company may issue or sell (a “Subsequent Financing”), including any overallotment options, subject to certain limited exceptions. In the event that the Company conducts a Subsequent Financing, the Company must provide at least 10 days’ prior written notice to the Purchasers.
The Securities Purchase Agreement shall terminate automatically upon the conversion of the Notes in full or when the secured obligations under the Securities Purchase Agreement have been paid in full.
The Company expects to use these net proceeds from the Private Placement for clinical research and development purposes, including pre-commercialization activities, and for general corporate purposes, although the Company’s management will have broad discretion in the use of these funds.
Notes
The Notes have a five-year term, with no pre-payment ability. Interest on the unpaid principal balance of the Notes (the “Outstanding Balance”) accrues at 10.0% per annum. Pursuant to the terms of the Securities Purchase Agreement, for a period of one year from the Initial Closing, accrued interest accretes on a quarterly basis to the Outstanding Balance, and after such one-year period, accrued interest shall be paid in arrears on a quarterly basis in cash or in kind, at the Purchasers’ option.
The Notes are callable by the Company on 10 days’ written notice beginning on the third anniversary of the Initial Closing, with a call price at 100% of the Outstanding Balance if the value of the Company’s common stock (measured using a 30-day volume weighted average price (“VWAP”)) is greater than three times the 30-day VWAP ending the day prior to the Initial Closing (the “Closing Price”). If the 30-day VWAP at the time of call is less than three times the Closing Price, then the call price will be 110% of the Outstanding Balance.
The Notes are convertible at any time at the option of each Purchaser at a price equal to the lower of: (i) $2.44, and (ii) the lowest price per share at which the Company sells equity securities through and including the date on which the Funding Threshold is met (the “Floor Price”). In the event that any such equity securities issued by the Company are convertible into or exchangeable for common stock (a “Derivative Security”), the maximum number of shares of common stock issuable upon the exercise or conversion of such Derivative Security, including as a result of any later adjustment to such Derivative Security, shall be used in determining the effective price per share at which the underlying common stock was offering and sold in calculating the Floor Price. In the event a Purchaser elects to convert all or any portion of a Note, such Purchaser shall tender a conversion notice to the Company and surrender such Note to the Company within two trading days. The Company will then be required to deliver common stock to such Purchaser by the later of two trading days after the delivery of the conversion notice or delivery of the Note.
The Notes may not be converted to the extent that, after giving effect to such conversion, the Purchaser, together with its affiliates and any other person acting as a group as defined pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended (the affiliates and such persons, the “Attribution Parties”), would beneficially own in excess of 4.99% of the number of shares of the common stock outstanding immediately prior to, and immediately after giving effect to, the conversion of all or any portion of the Notes, excluding the number of shares of common stock that would be issuable upon (i) exercise or conversion of the non-exercised portion of the Warrants beneficially owned by such Purchaser or the Attribution Parties and (ii) exercise or conversion of any other securities of the Company, in each case subject to a similar conversion limitation (the “Beneficial Ownership Limitation”). The Purchasers may adjust the Beneficial Ownership limitation at any time, upon 61 days’ notice, provided that the Beneficial Ownership Limitation may not be adjusted above 19.99% of the number of shares of the common stock outstanding immediately prior to, and immediately after giving effect to, the conversion of all or any portion of the Notes.
In the event that (i) the Funding Threshold has not been met on or prior to the first anniversary of the Initial Closing, or (ii) at any time after the six-month anniversary of the Initial Closing, the Company is unable to issue the full amount of shares issuable upon conversion of the Notes or upon exercise of the Warrants, the noteholders will have the option to require the Company to repurchase all or any portion of the Notes in cash. In such case, the redemption price will equal 110% of the Outstanding Balance plus accrued and unpaid interest. In the event of an Event of Default or the Company’s Change of Control or liquidation (in each case, as defined in the Securities Purchase Agreement), each Purchaser may elect, at its option, to require the Company to repurchase all or any portion of the Notes in cash at a repurchase price equal to the sum of (x) three times the sum of the Outstanding Balance plus (y) the aggregate value of future interest that would have accrued under the call principal amount from the period commencing on the date on which such amount is declared to be due and payable through the fifth anniversary of the Initial Closing.
Warrants
The Warrants issued in the Private Placement will be exercisable for a number of shares of common stock equal to 50% of the aggregate principal amount of the Notes divided by the exercise price of the Warrants. The exercise price of the Warrants will always equal the conversion price of the Notes, which as of the Initial Closing Date was $2.44, but is subject to adjustment as described above. The Warrants have a five-year term with customary exercise blockers (mirroring the conversion blocker under the Notes) and have other customary terms, including a cashless exercise provision and buy-in remedy.
Registration Rights Agreement
In addition, pursuant to the Securities Purchase Agreement, the Company and the Purchasers may, at the request of the Designated Agent, enter into a Registration Rights Agreement (the “Registration Rights Agreement”) pursuant to which the Company will grant to the Purchasers certain demand resale registration rights with respect to the common stock issuable upon conversion of the Note, exercise of the Warrants or any common stock acquired by the Purchasers hereafter (the “Registrable Securities”). Pursuant to the Registration Rights Agreement, if and only if executed, the Company will be required, subject to limited exceptions, to file a registration statement covering the resale of the Registrable Securities by the Purchasers within 60 days following the request by a Purchaser. The Company, the Purchasers and certain of our and their affiliates will have reciprocal indemnification obligations under the Registration Rights Agreement. The rights under the Registration Rights Agreement will terminate automatically once all Registrable Securities cease to be Registrable Securities because of any of the following reasons (i) all Registrable Securities have been sold pursuant to an effective registration statement, (ii) all Registrable Securities have been sold by the Purchasers pursuant to Rule 144 as promulgated under the Securities Act (“Rule 144”), (iii) all Registrable Securities may be resold by the Purchasers without limitations as to volume or manner or sale pursuant to Rule 144, or (iv) ten years have the date of the Registration Rights Agreement.
The foregoing summaries of certain of the material terms of the Securities Purchase Agreement, the IP Security Agreement, the form of Note, the form of Warrant and the Registration Rights Agreement do not purport to be complete and are qualified in their entirety by reference to the documents attached hereto as exhibits 10.1, 10.2, 10.3, 4.1 and 10.4, respectively.
IMPORTANT ADDITIONAL INFORMATION WILL BE FILED WITH THE SEC
The Company plans to file with the SEC and mail to its stockholders a proxy statement in connection with the approval of the issuance of certain common stock upon conversion of the Notes and exercise of the Warrants. The proxy statement will contain important information about the Company, the transaction and related matters. Investors and security holders are urged to read the proxy statement carefully when it is available. Investors and security holders will be able to obtain free copies of the proxy statement and other documents filed with the SEC by the Company through the SEC’s the website at www.sec.gov. In addition, investors and security holders will be able to obtain free copies of the proxy statement from the Company by contacting the Corporate Secretary at Evofem Biosciences, Inc., 12400 High Bluff Drive, Suite 600, San Diego, CA 92130.
This release does not constitute an offer to sell or the solicitation of an offer to buy any security. The shares offered have not been registered under the Securities Act or applicable state securities laws and may not be offered or sold in the United States or any state thereof absent registration under the Securities Act and applicable state securities laws or an applicable exemption from registration requirements.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
Statements in this report regarding the Private Placement and any other statements about the Company’s future expectations, beliefs, goals, plans or prospects constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements that are not statements of historical fact (including statements containing the words “believes,” “plans,” “anticipates,” “expects,” “estimates” and similar expressions) should also be considered to be forward-looking statements. There are a number of important factors that could cause actual results or events to differ materially from those indicated by such forward-looking statements. Important factors that might cause such a difference include, but are not limited to: the Company’s ability to obtain stockholder approval with respect to the issuance of common stock upon conversion of the Notes and exercise of the Warrants and other events and factors disclosed previously and described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 12, 2020. The Company disclaims any intention or obligation to update any forward-looking statements as a result of developments occurring after the date of this report.
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Item 2.03.
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Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant
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The information set forth under Items 1.01 of this Current Report on Form 8-K regarding the issuance of the Notes is incorporated into this Item 2.03 by reference.