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| Item 1.01. | Entry into a Material Definitive Agreement. |
Forbearance Agreements and Subordination Agreement
On September 15, 2022, Evofem Biosciences, Inc. (the “Company”) entered into agreements as described below, pursuant to which it exchanged approximately $24.7 million of its outstanding debt obligations into rights to acquire approximately 117,760,093 shares of its common stock, par value $0.0001 per share (the “Common Stock”), and entered into forbearance arrangements with all its remaining lenders for existing defaults.
On September 15, 2022, the Company entered into a (i) Forbearance Agreement (the “Secured Creditor Forbearance Agreement”) with certain institutional investors (the “Secured Note Purchasers”) and their designated agent (the “Designated Agent”), and (ii) a Forbearance Agreement (the “Adjuvant Forbearance Agreement,” and together with the Secured Creditor Forbearance Agreement, the “Forbearance Agreements”) with Adjuvant Global Health Technology Fund, L.P. and Adjuvant Global Health Technology Fund DE, L.P. (together, the “Adjuvant Purchasers”). Pursuant to the Forbearance Agreements, the Secured Note Purchasers and Adjuvant Purchasers, among other things, agreed to forbear from exercising any of their rights and remedies during the Forbearance Period (as defined below), but solely with respect to the specified events of default provided under the Forbearance Agreements. In exchange for the forbearances and the amendments to the Secured Creditor Purchase Agreement described below, the Company agreed to adjust the aggregate balance of the Secured Notes (as defined below) to $44.1 million, which principal amount includes delinquent interest payments that the Secured Note Purchasers agreed to forego in cash, as well as certain expenses incurred by the Designated Agent. Prior to entering into the Forbearance Agreement, the aggregate balance of the Secured Notes, after giving effect to the Default Notice (defined below), was approximately $97.1 million (or $29.4 million prior to the events of default).
The “Forbearance Period” means the period from September 15, 2022 to the date on which a Forbearance Termination Event first occurs, and the term “Forbearance Termination Event” shall mean the earliest of:
1.the first date after December 31, 2022 on which the Company’s total cash balance falls below $1.0 million,
2.the occurrence of any event of default other than the specified defaults which is not timely cured in accordance with the governing provisions, if any, of the Secured Creditor Purchase Agreement or Adjuvant Purchase Agreement (in each case, as defined below), as applicable,
3.the failure of the Company to timely comply with any term or agreement set forth in the Forbearance Agreements in any material respect,
4.an acceleration by the requisite purchasers or investors, as applicable, under and in accordance with (x) the Adjuvant Purchase Agreement or Secured Creditor Purchase Agreement, (y) the Securities Purchase Agreement, dated as of March 1, 2022, by and among the Company and each investor listed therein, or (z) any other indebtedness for borrowed money incurred or guaranteed by any loan party (collectively, the “Other Note Agreements”), as applicable,
5.the date that the Company enters into any forbearance or similar agreement with the purchasers or investors, as applicable, under any Other Note Agreement solely to the extent such forbearance or similar agreement requires the Company to make any payment to such purchasers or investors in cash (excluding, for the avoidance of doubt, (i) permitted payment of regularly scheduled principal and interest and reimbursement of fees and expenses in the ordinary course of business, (ii) the Secured Creditor Forbearance Agreement or Adjuvant Forbearance Agreement, as applicable, and the Exchange Agreements (as defined below)),
6.the date that the Company first challenges the validity or enforceability of the actions contemplated under the Forbearance Agreements or the validity or enforceability of the rights of the Secured Note Purchasers, Adjuvant Purchasers, or Designated Agent under the Secured Creditor Purchase Agreement or Adjuvant Purchase Agreement, as applicable (and the ancillary agreements thereunder), or in the case of the Secured Creditor Forbearance Agreement,
the warrants issued in connection with that certain Underwriting Agreement, dated as of May 20, 2022, by and between the Company and Piper Sandler & Co.
In addition, on September 15, 2022, the Secured Note Purchasers and Adjuvant Purchasers entered into a Subordination Agreement (the “Subordination Agreement”), which was accepted and agreed to by the Company, for the purposes of subordinating the Adjuvant Purchasers’ right of payment under the Adjuvant Notes to the security interest and right of payment of the Secured Note Purchasers.
Each of the Secured Creditor Forbearance Agreement, Adjuvant Forbearance Agreement and Subordination Agreement contain customary representations, warranties, covenants, releases, and other agreements by the parties thereto. The representations, warranties, covenants, and other agreements made in the Secured Creditor Forbearance Agreement, Adjuvant Forbearance Agreement and Subordination Agreement were made only for purposes of such agreements and as of specific dates, were solely for the benefit of the parties to such agreements and may be subject to limitations agreed upon by the contracting parties.
The foregoing summaries of the Secured Creditor Forbearance Agreement, Adjuvant Forbearance Agreement, and Subordination Agreement do not purport to be complete and are subject to, and qualified in their entirety by, the forms of such documents attached as Exhibits 10.1, 10.2, and 10.3, respectively, to this Report, which are incorporated herein by reference.
Note Exchange Agreements and Common Stock Rights
The Company previously entered into Amendment and Exchange Agreements with certain institutional Investors (the “Investors”), pursuant to which the Investors were issued 5.0% senior subordinated notes with an aggregate principal amount of $22.2 million (the “Existing Investor Notes”) in exchange for certain securities and senior subordinated notes previously held by the Investors. In addition, the Company previously entered into a Securities Purchase Agreement (the “Adjuvant Purchase Agreement”) with the Adjuvant Purchasers, pursuant to which the Company sold unsecured convertible promissory notes in aggregate principal amount of $25 million of (the “Existing Adjuvant Notes”) in a private placement.
On September 15, 2022, the Company entered into Amendment and Exchange Agreements (the “Exchange Agreements”) with (i) each of the Investors (the “Investor Exchange Agreements”), pursuant to which the Investors agreed to exchange the Existing Investor Notes for prepaid rights to receive 104,029,723 shares of Common Stock (such prepaid right, the “Rights” and such underlying shares of Common Stock, the “Right Shares”, collectively with the Rights, the “Securities”) (the “Investor Exchange”) and (ii) the Adjuvant Purchasers (the “Adjuvant Exchange Agreement”), pursuant to which the Adjuvant Purchasers agreed to exchange approximately 10% of the outstanding amount of the Existing Adjuvant Notes for a Right to receive 13,730,370 shares of Common Stock (the “Adjuvant Exchange”, and together with the Investor Exchange, the “Exchanges”). The Investors also waived certain anti-dilution share adjustment provisions with respect to shares underlying warrants held by the Investors.
The Rights obligate the Company to issue to the Investors or Adjuvant Purchasers, as applicable, upon request (without the payment of additional consideration) an aggregate of 117,760,093 shares of Common Stock. The number of Right Shares for each Right is initially fixed, but is subject to certain customary adjustments, and, until the second anniversary of issuance, adjustments for certain dilutive Company equity issuances. The Rights expire on June 28, 2027.
The Investors and Adjuvant Purchasers will not be able to exercise the Rights and receive Right Shares to the extent that after giving effect to such issuance after exercise, the Investors or Adjuvant Purchasers (together with the Investors’ or Adjuvant Purchasers’ affiliates, as applicable), would beneficially own in excess of 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of the Right. The Investors and Adjuvant Purchasers may increase the 4.99% ownership limitation, upon not less than 61 days’ prior notice to the Company, provided that the beneficial ownership limitation may in no event exceed 9.99% of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of the Right.
As provided under the Investor Exchange Agreements, following the initial delivery of the Rights to the Investors, the Existing Investor Notes will be exchanged, with the Company owing no further obligations thereunder. The Company will not receive any cash proceeds from the issuance of the Securities.
The Exchanges are exempt from registration under Section 3(a)(9) of the Securities Act of 1933, as amended. The Exchange Agreements contain customary representations, warranties, covenants, and other agreements by the Company, Investors, and Adjuvant Purchasers. The representations, warranties, covenants, and other agreements made in the Exchange Agreements were made only for purposes of such agreements and as of specific dates, were solely for the benefit of the parties to such agreements and may be subject to limitations agreed upon by the contracting parties.
This Report does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of any securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.
The foregoing summaries of the Investor Exchange Agreements, Adjuvant Exchange Agreements, and the Rights do not purport to be complete and are subject to, and qualified in their entirety by, the forms of such documents attached as Exhibits 10.4, 10.5 and 10.6, respectively, to this Report, which are incorporated herein by reference.
Amendments to Purchase Agreements
On September 15, 2022, the Company entered into a third amendment (the “Secured Creditor Amendment”) to the Securities Purchase and Security Agreement (the “Secured Creditor Purchase Agreement”), by and among the Company, the Secured Note Purchasers and their designated agent (the “Designated Agent”), pursuant to which the Secured Note Purchasers purchased certain convertible promissory notes (the “Secured Notes”). Pursuant to the Secured Creditor Amendment, among other things, the conversion price of the Secured Notes was amended to equal $0.21, subject to adjustment for certain dilutive Company equity issuance adjustments for a two-year period, removal of an interest make-whole payment due in certain circumstances, and certain change of control and liquidation payment amounts were reduced from three times the outstanding amounts of the Secured Notes to two times the outstanding amounts of the Secured Notes. In addition, the Secured Creditor Agreement provides that the Company may make future interest payments to the Secured Note Purchasers in kind or in cash, at the Company’s option.
On September 15, 2022, the Company also entered into a second amendment (the “Adjuvant Amendment”) to the Adjuvant Purchase Agreement. Pursuant to the Adjuvant Amendment, among other things, the conversion price of the Adjuvant Notes was amended to equal $0.21, subject to adjustment for certain dilutive Company equity issuance adjustments for a two-year period.
As set forth in the Secured Creditor Amendment and Adjuvant Amendment, the Company’s obligation to reserve shares of its Common Stock for issuance pursuant to the Secured Notes and Adjuvant Notes was waived until January 31, 2023 and the holders of warrants to purchase shares of Common Stock waived certain anti-dilution share adjustment provisions.
Following the completion of the above transactions on September 15, 2022, approximately $44.1 million remained outstanding pursuant to the Secured Creditor Notes, approximately $26.0 million remained outstanding pursuant to the Adjuvant Notes and no amounts remained outstanding pursuant to the Investor Notes. The first tranche of the Senior Creditor Notes is due on April 24, 2025, and the second tranche is due on June 9, 2025. The Adjuvant Notes are due on October 14, 2025. The Company currently expects its existing cash resources to support its planned operations through mid October 2022.
The foregoing summaries of the Secured Creditor Amendment and Adjuvant Amendment do not purport to be complete and are subject to, and qualified in their entirety by, the forms of such documents attached as Exhibits 10.7 and 10.8, respectively, to this Report, which are incorporated herein by reference.