On March 27, 2022, in connection with the Acquisition (as described above), the Company entered into a Second Amendment to the Loan and Security Agreement (the “Second Amendment”) with Hercules Capital, Inc., or Hercules. The Second Amendment closed on May 9, 2022 concurrently with the closing of the Acquisition.

The Second Amendment amends the terms of that certain Loan and Security Agreement, dated as of September 25, 2020 (as amended by the First Amendment to the Loan and Security Agreement, dated of October 14, 2021) (the “Loan Agreement”). The changes in the Term Loan Advances (as defined in the Loan Agreement) amounts and dates are as follows: (i) increasing the Tranche 1 (as defined in the Loan Agreement) from $60.0 million to $95.0 million, whereby $45.0 million was drawn upon the Second Amendment closing date (ii) changing the Tranche 2 Advances to three sub-tranches of $35.0 million, $35.0 million and $30.0 million, respectively, for a same total value of $100.0 million, which is now accessible at the Company's option upon the achievement of the approval of AXS-05 (iii) changing the Tranche 3 Advance to two sub-tranches of $15.0 million and $5.0 million, respectively, for the same total value of $20.0 million, upon approval of AXS-07 (iv) decreasing the Tranche 4 Advance from $55.0 million to $50.0 million, available upon achievement of certain combined sales and outstanding debt criteria and (v) decreasing the Tranche 5 Advance from $75.0 million to $35.0 million, subject to the approval from Hercules. The outstanding balance of the debt bears interest at a floating rate based on the greater of (a) 8.95% or (b) US WSJ Prime + 5.70%) to not exceed 10.70%.

As collateral for the obligations, the Company has granted to Hercules a senior security interest in all of Company’s right, title, and interest in, to and under all of Company’s property, inclusive of intellectual property, which includes one of the Company’s existing license agreements (the “License Agreement”) with Antecip Bioventures II LLC (“Antecip”), an entity owned by Axsome’s Chief Executive Officer and Chairman of the Board, Herriot Tabuteau, M.D., subject to limited exceptions. Antecip consented to the collateral assignment of the License Agreement, among other things, under a direct agreement (the “Direct Agreement”) with the Company and Hercules.

The Loan Agreement contains customary representations, warranties and covenants, including covenants by the Company limiting additional indebtedness, liens (including a negative pledge on intellectual property and other assets), guaranties, mergers and consolidations, substantial asset sales, investments and loans, certain corporate changes, transactions with affiliates and fundamental changes. At the initial closing, there were no applicable financial covenants contained in the Loan Agreement. Only after additional amounts are drawn down by the Company in the future, if the Company decides to do so, under the terms set forth in the Loan Agreement, there will be certain limited financial covenants that will apply, including:

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Effective upon the (i) the last calendar month of the calendar quarter that is nine months following the earlier of (x) the date that the First Milestone is achieved (y) the date that the Second Milestone is achieved, or (z) the final closing date of the Sunosi acquisition (A) ensure that at all times its market capitalization exceeds $1.0 billion, and that it maintains cash in an account which Hercules has a first priority security interest in an amount not less than 50% of the sum of the outstanding principal amount of the term loan advances plus the Qualified Cash A/P Amount, (B) ensure that at all times that it maintains cash in an account which Hercules has a first priority security interest in an amount not less than 85% of the sum of the outstanding principal amount of the term loan advances plus the Qualified Cash A/P Amount, or (C) achieve at least 60% of the net product revenue per the board of directors approved forecast solely from the sale of AXS-05, AXS-07, and Sunosi (which may include royalty, profit sharing, or sales-based milestone revenue recognized in accordance with GAAP, but will not include any upfront or non-sales-based milestone payments under business development or licensing transactions), measured on a trailing six-month basis as of the date of the Company’s most recent quarterly financial statement, determined on a quarterly basis.

The Company’s obligations under the Loan Agreement are subject to acceleration upon the occurrence of specified events of default, including payment default, insolvency and a material adverse change in the Borrower’s business, operations or financial or other condition.

In addition, the Company is required to pay a final payment fee equal to (A) $2,910,000 in connection with the drawn amount of Tranche 1A plus (B) 4.5% on the draw down of Tranche 1B and the aggregate amount of all term future loan advances. The final payment fee is being accreted and amortized into interest expense using the effective interest rate method over the term of the loan.

The Company may, at its option prepay the term loans in full or in part, subject to a prepayment penalty equal to (i) 2.0% of the principal amount prepaid if the prepayment occurs prior to the first anniversary of the First Amendment Closing Date, (ii) 1.5% of the principal amount prepaid if the prepayment occurs on or after the first anniversary and prior to the second anniversary of the First Amendment Closing Date, and (iii) 1.0% of the principal amount prepaid if the prepayment occurs on or after the second anniversary and prior to the third anniversary of the First Amendment Closing Date. These percentages are unchanged from the First Amendment to the Loan Agreement.

The Company evaluated whether the Hercules Term Loan entered into in March 2022 represented a debt modification or extinguishment in accordance with ASC 470-50, Debt – Modifications and Extinguishments. As the present value of the cash flows under the terms of the Second Amendment to the Hercules Agreement is less than 10% different from the remaining cash flows under the terms of the First amendment, the Second Amendment was accounted for as a debt modification. The unamortized balance of debt discount costs incurred in connection with those loans and additional debt discount costs incurred in connection with entry into the Hercules Second Amendment to the Loan Agreement, are being amortized through maturity in October 2026 utilizing the effective interest rate method.

In January 2023, the Company entered into a Third Amendment (the "Third Amendment") to its Loan and Security Agreement (the “Loan Agreement”) with Hercules. The Third Amendment increases the size of the Term Loan Advance (as defined in the Loan Agreement) to $350,000,000, reduces the interest rate, and extends the maturity and interest-only period of the Loan Agreement. $55.0 million was drawn upon the Third Amendment closing date. See Note 18 - Subsequent Events for further information.

The Third Amendment amended the terms of the Loan Agreement to, among other things, (i) extend the maturity date to January 1, 2028, unless the Company meets certain revenue targets as described in the Loan Agreement, in which case the Company can extend the maturity date to January 1, 2029; (ii) increase the aggregate principal amount under the Loan Agreement from $300,000,000 to $350,000,000; (iii) subject to the terms and conditions in the Loan Agreement, change the Term Loan Advance amounts and dates available under the Tranche 1 Advance (as defined in the Loan Agreement) through Tranche 5 Advance (as defined in the Loan Agreement), including increasing the Tranche 1 Advance from one tranche of $95,000,000 to five sub-tranches of $95,000,000, $55,000,000, $30,000,000, $35,000,000 and $35,000,000, respectively, changing the Tranche 2 Advance (as defined in the Loan Agreement) from three sub-tranches of $35,000,000, $35,000,000 and $30,000,000 to one tranche of $25,000,000, changing the Tranche 3 Advance (as defined in the Loan Agreement) from two sub-tranches of $15,000,000 and $5,000,000 to one tranche of $75,000,000, and removing the Tranche 4 Advance (as defined in the Loan Agreement) and Tranche 5 Advance entirely; (iv) revise the interest rate applicable to extensions of credit under the Loan Agreement to equal the greater of 9.95% per annum or the prime rate plus 2.20% per annum, to not exceed 10.70% (v) increase the minimum cash requirement of the Company to $30,000,000; and (vi) require the Company to pay a facility fee equal to 0.75% of the amount of principal actually funded pursuant to the Tranche 1B Advance (as defined in the Loan Agreement), Tranche 1C Advance (as defined in the Term Loan), Tranche 1D Advance (as defined in the Loan Agreement), Tranche 1E Advance (as defined in the Term Loan), Tranche 2 Advance and Tranche 3 Advance.

In March 2019, the Company entered into a $24.0 million growth capital term loan facility (the “2019 Term Loan”) with Silicon Valley Bank, or SVB and West River Innovation Lending Fund VIII, L.P., or WestRiver. In September 2020, the Company used a portion of the 2020 Term Loan to terminate and repay all amounts outstanding under the 2019 Term Loan and recorded a loss on extinguishment of the 2019 Term Loan.

Further information on warrants issued related to the debt financings and amendments are disclosed in Note 13 - Warrants.

Long-term debt and unamortized debt discount balances are as follows:


	December 31, 2022			December 31, 2021
Total Outstanding Debt	$	95,000,000		$	50,000,000
Add: accreted liability of final payment fee		1,362,733			706,407
Less: unamortized debt discount, long-term		(2,103,845	)		(1,616,885	)
Less: current portion of long-term debt		—			—
Loan payable, long-term	$	94,258,888		$	49,089,522

The book value of debt approximates its fair value given its variable interest rate.


	Year ended December 31,
	2022		2021		2020
Interest Expense	$	8,176,264	$	4,616,597	$	2,362,083
Amortization of final payment fee		668,051		554,493		469,676
Amortization of debt discount related issuance costs and warrants		814,627		522,522		317,074

Scheduled Principal Payments on Outstanding Debt, as of December 31, 2022, are as follows:


2022		—
2023		—
2024		—
2025		15,202,884
2026		79,797,116
Total principal payments outstanding	$	95,000,000