Term Loan Payable

3 Months Ended

Mar. 31, 2019

13.

TERM LOAN PAYABLE

On August 31, 2018, the Company, and its wholly owned subsidiaries, Icagen Corp., Caldera Discovery, Inc., and XRPro Sciences, Inc., (collectively, the “Subsidiaries”) entered into a Credit Agreement and Guaranty (the “Icagen Credit Agreement”) with the banks and other financial institutions from time to time party thereto, as lenders (collectively, the “Icagen Lenders”) and Perceptive Credit Holdings II, LP, a Delaware limited partnership (“Perceptive”), as administrative agent for the Icagen Lenders (in such capacity, the “Administrative Agent”).

In addition, on August 31, 2018, Icagen-T, Inc., a Delaware corporation, as borrower (“Icagen-T”), the Company, Icagen Corp., Caldera Discovery, and XRPro Sciences entered into a Credit Agreement and Guaranty (the “Icagen-T Credit Agreement” and together with the Icagen Credit Agreement, the “Credit Agreements”) with the banks and other financial institutions from time to time party thereto, as lenders, and Perceptive, as administrative agent for the lenders (in such capacity, the “Icagen-T Administrative Agent”).

The Icagen Credit Agreement provides for a $7,250,000 term loan (the “Icagen Term Loan”), which was drawn in full on August 31, 2018 (the “Closing Date”). The Icagen-T Credit Agreement provides for an $8,000,000 term loan (the “Icagen-T Term Loan” and together with the Icagen Term Loan, the “Term Loans”), which was drawn in full on the Closing Date.

The Company and Icagen-T used the proceeds from the respective Term Loans (i) for general working capital purposes, including, without limitation, business development and licensing purposes, (ii) to repay the convertible debt disclosed in note 14 below; and (iii) to pay fees, costs and expenses incurred in connection with the transactions contemplated by the Credit Agreements.

Commencing on the last day of each month after August 31, 2020, the Term Loans amortize in an amount equal to 1.0% of the aggregate principal amount of the Term Loans borrowed on the Closing Date.

The Term Loans mature on August 31, 2022 (the “Maturity Date”) unless accelerated pursuant to an event of default, as described below. All amounts outstanding under the Term Loans will be due and payable upon the earlier of the Maturity Date or the acceleration of the loans and commitments upon an event of default.

Amounts borrowed under the Credit Agreements bear interest at a rate per annum equal to the sum of the greater of: (i) the London Interbank Offered Rate (LIBOR) for one month periods and (ii) two and one-quarter percent (2.25%), plus an applicable margin rate of 9.75% per annum (the “Interest Rate”). Furthermore, interest is payable on a monthly basis.

On August 31, 2018, the Company and Icagen-T each paid a non-refundable closing fee of 2% of the Term Loans (or a total of $305,000) pursuant to the terms of the respective Credit Agreements.

Prepayments of the Term Loans (other than certain mandatory prepayments) prior to the Maturity Date are subject to the following prepayment premium based on the aggregate principal amount of the Term Loans as of the date of any such prepayment: (i) on or prior to the first anniversary of the Closing Date, 12% of the aggregate outstanding principal amount of the Term Loan being prepaid, (ii) following the first anniversary or the Closing Date, but on or prior to the second anniversary of the Closing Date, 8% of the aggregate outstanding principal amount of the Term Loan being prepaid, and (iii) at any time after the second anniversary of the Closing Date and on or prior to the third anniversary of the Closing Date, 3% of the aggregate outstanding principal amount of the Term Loan being prepaid.

The repayment of the Term Loans and the Company’s and Icagen-T’s other obligations under the Icagen Credit Agreement or Icagen-T Credit Agreement, as applicable, are guaranteed by each of the Company’s subsidiaries (excluding Icagen-T with respect to the Icagen Credit Agreement).

Pursuant to the terms and conditions of the Security Agreement, dated August 31, 2018, among the Company, the Subsidiaries (excluding Icagen-T with respect to the Icagen Credit Agreement) and Perceptive (the “Icagen Security Agreement”), the Company’s and the Subsidiaries’ obligations under the Icagen Credit Agreement are secured by (i) a first priority lien on all of the existing and after acquired tangible and intangible assets, including intellectual property, of the Company and the Subsidiaries, and (ii) a pledge of 100% of the Company’s equity interests in the Subsidiaries (excluding Icagen-T with respect to the Icagen Credit Agreement). In addition, pursuant to the terms and conditions of the Security Agreement, dated August 31, 2018, among Icagen-T, the Company, the Subsidiaries and Perceptive (the “Icagen-T Security Agreement”), Icagen-T’s, the Company’s and the Subsidiaries’ obligations under the Icagen-T Credit Agreement are secured by (i) a first priority lien on all of the existing and after acquired tangible and intangible assets, including intellectual property, of the Company and the Subsidiaries other than real estate for which they have a second priority lien, and (ii) a pledge of 100% of the Company’s equity interests in the Subsidiaries.

The Credit Agreements contain customary representations, warranties and covenants, including covenants by each of the Company and Icagen-T limiting additional indebtedness, liens, guaranties, mergers and consolidations, substantial asset sales, investments and loans, sale and leasebacks, transactions with affiliates and fundamental changes and acquisitions. The Credit Agreements also contain covenants requiring that the Company and its subsidiaries maintain cash and cash equivalents held in one or more accounts subject to the first priority perfected security interests of the lenders under the Credit Agreements of not less than (a) $1,000,000 following the Closing Date until March 31, 2019, and (b) $1,500,000 at all times thereafter. In addition, the Credit Agreements provide for specified quarterly minimum consolidated net revenue covenants of the Company and its subsidiaries for the trailing twelve month period ended on each such calculation date during the term of the Credit Agreements.

The Credit Agreements provide for events of default customary for credit facilities of this type, including but not limited to non-payment of principal and interest, defaults on other debt, misrepresentations, breach of covenants, representations and warranties, change of control, insolvency, bankruptcy and the occurrence of a material adverse effect on the Company and its subsidiaries. After the occurrence of an event of default and for so long as it continues, all outstanding obligations under the Credit Agreements shall accrue interest at the Interest Rate plus 4% per annum. Upon an event of default relating to insolvency, bankruptcy or receivership, the amounts outstanding under the Credit Agreements will become immediately due and payable. Upon the occurrence and continuation of any other event of default, lenders holding a majority of the outstanding loans and commitments may accelerate payment of all obligations and terminate the Lenders’ commitments under the Credit Agreements.

On May 15, 2017, the Company and Icagen-T entered into a Securities Purchase Agreement with GPB Debt Holdings II, LLC (“GPB”), pursuant to which (i) the Company issued to GPB a three year Senior Secured Convertible Note maturing on May 15, 2020, bearing interest at the rate of 13% per annum in the aggregate principal amount of $2,000,000; and (ii) Icagen-T issued to GPB a three year Senior Secured Convertible Note maturing on May 15, 2020, bearing interest at the rate of 13% per annum, in the aggregate principal amount of $8,000,000. The Company and Icagen-T, respectively, used a portion of the proceeds from their Term Loans to repay all amounts due (principal, accrued and unpaid interest and other charges) as of the Closing Date under the GPB Senior Secured Convertible Notes. The Company and Icagen-T paid a total of $10,308,333, which satisfied all outstanding amounts due to GPB, terminated the loan facility with GPB and terminated all commitments of GPB to extend credit under the notes and the other transaction documents.

In addition, on August 31, 2018, the Company issued to GPB a second amended and restated warrant to purchase 857,143 shares of Common Stock (the “GPB Warrant”), pursuant to which, among other things, GPB was granted piggyback registration rights upon the same terms as the Warrant issued to Perceptive (described below).

In connection with the entry of the Credit Agreements, on August 31, 2018, the Company issued to Perceptive, or its registered assigns, a warrant (the “Warrant”) to purchase 723,550 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”). The Warrant is exercisable for a period of seven years from the Closing Date and the per-share exercise price of $3.50, subject to certain adjustments as specified in the Warrant (the “Exercise Price”). Upon any exercise of the Warrant, the Exercise Price is payable in cash or, at Perceptive’s option, by withholding a number of shares of Common Stock then issuable upon exercise of the Warrant with an aggregate fair market value equal to the aggregate Exercise Price. The Warrant also contains customary anti-dilution adjustments and price protection.

The Company also granted Perceptive customary demand and piggy-back registration rights with respect to the shares of Common Stock issuable upon exercise of the Warrant. At any time commencing nine months following the closing of a Qualifying PO (as defined in the Warrant) if the Company is not qualified to register securities under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to a registration statement on Form S-3 (or any successor form), then upon the request of the holder(s) of at least 51% of the Warrants and/or shares of Common Stock issuable thereunder (the “Majority Holders”), the Company is obligated, among other things, to (i) file a registration statement on Form S-1 with the U.S. Securities and Exchange Commission (the “SEC”) within 90 days following the date on which the request is given for purposes of registering the shares of Common Stock issuable upon exercise of the Warrants, (ii) use its commercially reasonable efforts to have the registration statement declared effective by the SEC as soon as practicable after filing, subject to any cut backs requested by the SEC, and (iii) maintain the registration until all registerable securities may be sold pursuant to Rule 144 under the Securities Act, without restriction as to volume. In addition, at all times after a Qualifying PO, the Company shall use its commercially reasonable efforts to qualify and remain qualified to register securities under the Securities Act pursuant to a registration statement on Form S-3 or any successor form thereto. At any time commencing nine (9) months after such time as the Company shall have qualified for the use of a registration statement on Form S-3, the Majority Holder(s) shall have the right to request registration on Form S-3 or any similar short-form registration. Further, whenever the Company proposes to register any shares of its Common Stock under the Securities Act (with certain exceptions), the Company shall also include in such registration statement, Perceptive’s shares of Common Stock issuable upon exercise of the Warrant, provided that cut backs may apply in certain situations.

In connection with the entry into of the Credit Agreements, on August 31, 2018, each of the holders of the Company’s 10% Subordinated Promissory Note, entered into an Amended and Restated 10% Subordinated Promissory Notes, to clarify that the subordination provisions of the Notes that were applicable to the note holder of the May 2017 notes were applicable to the lenders under the Credit Agreements and Perceptive.

In connection with the entry into of the Credit Agreements, effective August 31, 2018 (i) each holder of the Company’s Series C Convertible Redeemable Preferred Stock entered into a Subordination Agreement with the lenders under the Credit Agreement and Perceptive prohibiting declaration of and payment of accrued dividends on the Company’s Series C Convertible Redeemable Preferred Stock until payment in full of all amounts owing under the Credit Agreements and (ii) holders of a majority of the Company’s Series C Convertible Redeemable Preferred Stock effected an amendment to the Securities Purchase Agreements executed by the holders of the Company’s Series C Convertible Redeemable Preferred Stock that clarified that references in the Securities Purchase Agreements to the prior lender now included Perceptive and that the registration rights of such holders was subject to approval of each of the prior lender and Perceptive until the shares underlying the warrants to each had been sold or registered on a registration statement that had been declared effective by the Securities and Exchange Commission.

The movement on the term loans is as follows:

	March 31, 2019			December 31, 2018
Term Loan
Opening balance	$	15,408,897		$	-
Term loan issued		-			15,250,000
Interest accrued		467,281			627,330
Repayments		(465,443	)		(468,433	)
Closing balance		15,410,735			15,408,897

Debt discount
Opening balance		(2,544,304	)		-
Debt issuance costs		5,319			(1,006,944	)
Fair value of warrants		-			(1,746,065	)
Amortization of debt discount		158,812			208,705
Closing balance		(2,380,173	)		(2,544,304	)

Term Loan, net	$	13,030,562		$	12,864,593

Disclosed as follows:
Accrued interest	$	160,735		$	158,897
Long-term portion		12,869,827			12,705,696
	$	13,030,562		$	12,864,593

Subsequent to March 31, 2019, the Company paid the accrued interest of $160,735.

Icagen, Inc. 10-Q