Item 1.01. Entry into a Material Definitive Agreement.
Loan and Security Agreement
On February 2, 2022 (the “Closing Date”), Tarsus Pharmaceuticals, Inc. (the “Company”), as borrower, entered into a Loan and Security Agreement (the “Loan and Security Agreement”) with each of Hercules Capital, Inc. (“Hercules”), Silicon Valley Bank, and the several banks and other financial institutions or entities that from time to time become parties to the Loan and Security Agreement as lenders (collectively, the “Lenders”) and Hercules, in its capacity as administrative agent and collateral agent for itself and the Lenders (in such capacity, the “Agent”).
Amount. The Loan and Security Agreement provides for term loans in an aggregate principal amount of up to $175 million to be delivered in up to five tranches (the “Term Loans”). The tranches consist of (i) a term loan advance to the Company in an aggregate principal amount of $20 million on the Closing Date, with up to an additional $20 million in availability, (ii) additional availability in the aggregate principal amount of up to $25 million, subject to the Company filing a New Drug Application (“NDA”) with the U.S. Food and Drug Administration (the “FDA”) for TP-03 for the treatment of Demodex Blepharitis, (iii) additional availability in the aggregate principal amount of up to $35 million, subject to the Company obtaining FDA approval of the NDA for TP-03 for the treatment of Demodex Blepharitis, (iv) additional availability in the aggregate principal amount of up to $50 million, subject to the Company meeting certain financial metrics, and (v) subject to the Lenders’ approval, additional availability in the aggregate principal amount of up to $25 million. Each of the tranches may be drawn down in increments. The Company intends to use the proceeds of the Term Loans for working capital and other general corporate purposes.
Maturity. The Term Loans mature on February 2, 2027 (the “Maturity Date”).
Interest Rate and Amortization. The principal balance of each Term Loan bears interest at an annual rate equal to the greater of (a) the sum of 5.20% and the prime rate as reported in The Wall Street Journal and (b) 8.45%. Borrowings under the Loan and Security Agreement are repayable in monthly interest-only payments through February 2, 2026, subject to a 12-month extension until the Maturity Date under certain circumstances.
Facility Fee. The Company paid a facility fee of $200,000 on the Closing Date and has agreed to pay a facility fee equal to 0.50% of the original principal amount of each subsequent funding under the facility.
End of Term Charge and Prepayment Fee. The Company will pay 4.75% of the advanced amount of the Term Loans, due upon the earliest of the Maturity Date or termination of the loan facility. The Company may, at its option at any time, prepay all or a portion of the Term Loans by paying the principal balance, plus accrued and unpaid interest, subject to a prepayment premium equal to a range of 2.0% to 0.0% based on when the prepayment occurs.
Security. The Company’s obligations are secured by a first priority lien granted to the Agent on substantially all assets of the Company other than the Company’s intellectual property, with a negative pledge on the Company’s intellectual property.
Covenants; Representations and Warranties; Other Provisions. The Loan and Security Agreement contains customary representations, warranties and covenants, including covenants limiting the ability of the Company, subject to certain exceptions, to, among other things: incur additional indebtedness (subject to certain exceptions with respect to issuing convertible indebtedness); incur additional liens (including a negative pledge on intellectual property); engage in mergers, acquisitions and consolidations; conduct asset sales or exclusively license the Company’s assets in a transaction that constitutes legal transfer to such licensee; make investments and loans; engage in certain corporate changes; transact with affiliates; declare dividends and make other distributions; and make payments on certain other indebtedness. The Loan and Security Agreement also contains customary affirmative covenants, subject to certain exceptions, requiring the Company to, among other things, deliver certain financial reports to the Lender, maintain compliance with certain financial requirements, and maintain compliance with applicable laws and regulations and maintain customary insurance policies.
Default Provisions. The Loan and Security Agreement provides for events of default (subject, in certain instances, to specified grace periods and exceptions) customary for a loan of this type, including but not limited to non-payment, defaults on other debt, misrepresentation, breach of covenants or representations and warranties, insolvency, bankruptcy, certain uncured judgments and the occurrence of a material adverse effect on the Company. Upon the occurrence and continuation of any event of default, the Agent may accelerate payment of all obligations and terminate the Lenders’ commitments under the Loan and Security Agreement. Upon the occurrence of certain bankruptcy and insolvency events, the obligations under the Loan and Security Agreement would automatically become due and payable.
The foregoing description of the Loan and Security Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Loan and Security Agreement, a copy of which, subject to any applicable confidential treatment, will be filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ending March 31, 2022.