• Filing Date: 2020-11-03
  • Form Type: 10-Q
  • Description: Quarterly report
v3.20.2
Loan Agreements
9 Months Ended
Sep. 30, 2020
Loan Agreements [Abstract]  
Loan Agreements 10. LOAN AGREEMENTS

Hercules Loan Agreement and Related Warrants

In April 2014, Alimera Sciences Limited (Alimera UK), a subsidiary of the Company, entered into a loan and security agreement (Hercules Loan Agreement) with Hercules Capital, Inc. (Hercules) providing for a term loan of up to $35,000,000 (Hercules Loan). The Company amended the Hercules Loan Agreement several times. On January 5, 2018, the Company paid off the Hercules Loan on behalf of Alimera UK, using the proceeds of the 2018 Solar Loan Agreement described below.

In connection with Alimera UK entering into the Hercules Loan Agreement, the Company issued a warrant that granted Hercules the right to purchase up to 19,002 shares of the Company’s common stock at an exercise price of $92.10 per share (the 2014 Warrant). The Company amended the 2014 Warrant a number of times to increase the number of shares issuable upon exercise to 83,933 and decrease the exercise price to $20.85 per share. The right to exercise this warrant expired on November 2, 2020.

In connection with Alimera UK entering into an amendment to the Hercules Loan Agreement on October 20, 2016, the Company agreed to issue a new warrant to Hercules (the 2016 Warrant) that granted Hercules the right to purchase up to 30,582 shares of the Company’s common stock at an exercise price of $16.35 per share. The right to exercise this warrant expires on October 20, 2021.

2019 Solar Capital Loan Agreement

On December 31, 2019, we refinanced our $40.0 million Loan and Security Agreement (the 2018 Solar Loan Agreement) with Solar Capital Ltd. (Solar Capital) and other lenders by entering into a $45.0 million Loan and Security Agreement (the 2019 Solar Loan Agreement) with Solar Capital as Collateral Agent (Agent), and the parties signing the 2018 Solar Loan Agreement from time to time as Lenders, including Solar Capital in its capacity as a Lender. Under the 2019 Solar Loan Agreement, we borrowed $42.5 million on

December 31, 2019 and $2.5 million on February 21, 2020 (the 2019 Solar Loan). The 2019 Solar Loan matures on July 1, 2024. We used the initial proceeds of the 2019 Solar Loan to pay off borrowings under the 2018 Solar Loan Agreement (the 2018 Solar Loan), along with related prepayment, legal and other fees and expenses totaling approximately $2.3 million, which included $2.2 million in fees to Solar Capital. In addition, the Company is obligated to pay a $2,250,000 fee upon repayment of the 2019 Solar Loan.

2018 Exit Fee Agreement

Notwithstanding the repayment of the 2018 Solar Loan, the Company remains obligated to pay additional fees under the Exit Fee Agreement (2018 Exit Fee Agreement) dated as of January 5, 2018 by and among the Company, Solar Capital as Agent, and the Lenders. The 2018 Exit Fee Agreement survived the termination of the 2018 Solar Loan Agreement upon the repayment of the 2018 Solar Loan and has a term of 10 years. The Company is obligated to pay up to, but no more than, $2,000,000 in fees under the 2018 Exit Fee Agreement.

First Amendment to 2019 Solar Capital Loan Agreement

On May 1, 2020, the Company entered into a First Amendment (the Amendment) to its 2019 Solar Loan Agreement with Solar Capital. The Amendment, among other things:

(a)eliminates the previous requirement that the following covenant (the Revenue Covenant) be measured at June 30, 2020 and September 30, 2020: the Company shall not permit revenues (under U.S. GAAP) from the sale of ILUVIEN in the ordinary course of business to third party customers, on a trailing six-month basis, to be less than a specified minimum revenue amount for each such date;

(b)requires that the Revenue Covenant be measured at November 30, 2020 and specifies a new minimum revenue amount in that regard;

(c)requires that the Revenue Covenant be measured at December 31, 2020 and specifies a new minimum revenue amount in that regard; and

(d)requires that the Revenue Covenant be measured at March 31, 2021 and at the last day of each quarter thereafter, with the minimum revenue amount equal to a percentage of the Company’s projected revenues in accordance with an annual plan submitted by the Company to Agent by January 15th of such year, such plan to be approved by the Company’s board of directors and Agent in its sole discretion.

The Amendment also adds the following new minimum liquidity requirement that is in effect from May 1, 2020 until the Company notifies Agent that it has met the Revenue Covenant at November 30, 2020: the Company shall not permit the aggregate amount of unrestricted cash and cash equivalents to be less than the sum of (i) $8,500,000 plus (ii) the amount of the Company’s accounts payable that have not been paid within 90 days from the invoice date of the relevant account payable. The Company paid no fees to Solar Capital in connection with the Amendment; however, the Company agreed to reimburse Agent for its legal fees. As of September 30, 2020, the Company was in compliance with the covenants of the Amendment to its 2019 Solar Loan Agreement.

Paycheck Protection Program

On April 22, 2020, the Company received an approximately $1,778,000 loan (the PPP Loan) under the Paycheck Protection Program established by the U.S. Small Business Administration (the SBA) as part of the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act. The PPP Loan is unsecured and is evidenced by a note (the Note) in favor of HSBC Bank USA, National Association (HSBC) as the lender.

The interest rate on the Note is 1.0% per annum. The Note has a two-year term and is payable in 18 equal monthly payments of principal and interest beginning on the 180th day following the disbursement of the loan proceeds, subject to possible full forgiveness and a deferred commencement date for beginning payments as described below. The Paycheck Protection Program provides for forgiveness of up to the full amount borrowed as long as the Company uses the loan proceeds during the 24-week period following disbursement for eligible purposes as described in the CARES Act and related guidance. Under the CARES Act, loan forgiveness is generally available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during the 24-week period. The Company

used all of the proceeds from the PPP Loan to pay expenses during the applicable period that the Company believes were for eligible purposes. On July 21, 2020, the Company submitted an application to HSBC for forgiveness of the PPP Loan. As of the date of this filing, the application for forgiveness is still pending review.

Under the revised rules for the PPP Loan program, the Company will not have to begin principal and interest payments before the date on which the SBA remits the loan forgiveness amount to HSBC (or notifies HSBC that no loan forgiveness is allowed). If no loan forgiveness is allowed, the Company will be required to pay HSBC equal monthly payments of principal and interest based on the principal amount outstanding on the PPP Loan, plus interest outstanding at the end of the deferment period, and taking into account any reductions in the principal amount due to forgiveness, if any. Interest accrued during the deferment period will be capitalized as principal.

In connection with the PPP Loan, the Company entered into a Consent to Loan and Security Agreement (the Consent) under the 2019 Solar Loan Agreement. In the Consent, Solar Capital consented as Collateral Agent and a Lender, and the other Lenders consented as Lenders, to the indebtedness incurred under the PPP Loan, subject to certain conditions, including the Company’s covenant to comply with specified provisions of the CARES Act, the Company’s confirmation of the accuracy of its representations and warranties in the 2019 Solar Loan Agreement and related documents and a release in favor of the Collateral Agent and the Lenders.

The Company has accounted for the PPP Loan in the same manner as it has for its other loan agreements. Payments that are due within 12 months of balance sheet dates are shown as current liabilities and payments due thereafter are shown as non-current liabilities. The Company incurred and capitalized insignificant costs with third parties as deferred financing costs associated with the PPP Loan and is expensing these costs to interest expense over the life of the loan using the effective interest method. If the Company’s application for forgiveness is approved, the Company will recognize a gain on extinguishment of debt at the time of forgiveness.

Modification of Debt

In accordance with the guidance in ASC 470-50, Debt, the Company entered into and accounted for the 2019 Solar Loan Agreement as a modification and capitalized approximately $427,000 of costs as additional deferred financing costs and expensed approximately $76,000 of costs incurred with third parties within the consolidated statements of operations for the year ended December 31, 2019.

In accordance with the guidance in ASC 470-50, Debt, the Company entered into and accounted for the May 1, 2020 Amendment to its 2019 Solar Loan Agreement as a modification, capitalized no additional costs and expensed approximately $76,000 of costs incurred with third parties within the consolidated statements of operations for the nine months ended September 30, 2020.

Fair Value of Debt

The weighted average interest rates of the Company’s notes payable approximate the rate at which the Company could obtain alternative financing. Therefore, the carrying amount of the notes approximated their fair value at September 30, 2020 and December 31, 2019.