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Debt
6 Months Ended
Jun. 30, 2017
Debt Disclosure [Abstract]  
Debt

7. Debt

Loan and Security Agreement and Warrant Agreement

On June 11, 2015, Pulmatrix Operating entered into a Loan and Security Agreement (“LSA”) with Hercules Technology Growth Capital, Inc. (“Hercules”), for a term loan in the original principal amount of $7,000 (“Term Loan”). The term loan is secured by substantially all of the Company’s assets, excluding intellectual property. As of June 30, 2017, the outstanding principal balance of the term loan was $4,639.

The term loan bears interest at a floating annual rate equal to the greater of (i) 9.50% and (ii) the sum of (a) the prime rate as reported by The Wall Street Journal minus 3.25% plus (b) 8.50%. The Company is required to make interest payments in cash on the first business day of each month, beginning on July 1, 2015. Beginning on August 1, 2016, the Company began to make monthly payments on the first business day of each month consisting of principal and interest based upon a 30-month amortization schedule, and any unpaid principal and interest is due on the maturity date of July 1, 2018. Upon repayment of the term loan, the Company is also required to pay an end of term charge to the Lenders equal to $245. As of June 30, 2017, the Company has accrued $195 of the total $245 end of term charge, of which $40 and $51 accrued during the six months ended June 30, 2017 and 2016, respectively.

The Company may elect to prepay all, but not less than all, of the outstanding principal balance of the term loan, subject to a prepayment fee of 1% – 3%, depending on the date of repayment. Contingent on the occurrence of several events, including that the Company’s closing stock price exceed $11.73 per share for the seven days preceding a payment date, the Company may elect to pay, in whole or in part, any regularly scheduled installment of principal up to an aggregate maximum amount of $1,000 by converting a portion of the principal into shares of the Company’s common stock at a price of $11.73 per share. Hercules may elect to receive payments in the Company common stock by requiring the Company to effect a conversion option whereby Hercules can elect to receive a principal installment payment in shares of the Company common stock based on a price of $11.73 per share, subject to an aggregate maximum principal amount of $1,000.

The Company determined that the Company’s provisions allowing conversion of all or a portion of the LSA contained a beneficial conversion feature (“BCF”). The BCF is contingent upon the occurrence of certain events and as such, the Company will not record the BCF until the contingency is resolved. Through June 30, 2017 the contingency was not resolved.

The credit facility includes affirmative and negative covenants. The affirmative covenants include, among others, covenants requiring the Company to maintain its legal existence and governmental approvals deliver certain financial reports and maintain insurance coverage. The negative covenants include, among others, restrictions on transferring collateral, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other distributions, making investments, creating liens, selling assets, and undergoing a change in control, in each case subject to certain exceptions. In general, the Term Loan prohibits the Company from (i) repurchasing or redeeming any class of capital stock, including common stock or (ii) declaring or paying any cash dividend or making cash distribution on any class of capital stock, including common stock.

The LSA includes provisions requiring the embedded interest rate reset upon an event of default and the put option upon an event of default or qualified change of control each represent an embedded derivative instrument requiring bifurcation from the loan. The embedded derivatives were bundled and valued as one compound derivative in accordance with the applicable accounting guidance for derivatives and hedging. The fair value of the compound derivative at issuance of $11 was recorded as a derivative liability and as a discount to the debt. The derivative liability is remeasured at fair value at each reporting date, with changes in fair value being recorded as other income (expense) in the statements of operations (Note 12). At June 30, 2017 and December 31, 2016, the fair value of the derivative liability was valued at $35. The net debt discounts resulting from the embedded compound derivative and lender fees are being amortized as interest expense from the date of issuance through the maturity date using the effective interest method. The Company incurred interest expense of $172 and $359 during the three and six months ended June 30, 2017 and $34 and $34 during the three and six months ended June 30, 2016. Of the total interest expense, $126 and $265 was payable in cash during the three and six months ended June 30, 2017 and $27 and $27 was payable in cash during the three and six months ended June 30, 2016.

The carrying amounts of the Company’s Term Loan as of June 30, 2017 and January 1, 2017 were as follows:

 

    Hercules Term
Loan
    Debt
Discount
    Issuance
Costs
    Total  

Balance — January 1, 2017

  $ 5,954     $ (136   $ (15   $ 5,803  

Accretion of debt discount

      54         54  

Accretion of issuance costs

        7       7  

Principal payments

    (1,315         (1,315
 

 

 

   

 

 

   

 

 

   

 

 

 

Balance — June 30, 2017

  $ 4,639     $ (82   $ (8     4,549  
 

 

 

   

 

 

   

 

 

   

Current portion of debt, net of debt discount and issuance costs

          2,745  
       

 

 

 

Long term portion of debt, net of current portion

        $ 1,804  
       

 

 

 

 

Future principal payments in connection with the Term Loan are as follows:

 

Remainder of 2017

   $  1,380  

2018

     3,259  
  

 

 

 
   $ 4,639