Item 1.01 Entry into a Material Definitive Agreement.
Securities Purchase Agreement
On August 7, 2019, Apollo Endosurgery, Inc. entered into a Securities Purchase Agreement, or the Purchase Agreement, with certain purchasers named therein, or the Purchasers, pursuant to which we agreed to sell and issue $20.0 million aggregate principal amount of our 6.0% Convertible Debentures due 2024, or the Notes, referred to herein as the Financing. The Financing is expected to close on or about August 12, 2019, subject to customary closing conditions. The Purchase Agreement contains customary representations, warranties, covenants, closing conditions, and indemnification of the Purchasers by us. We will also be required to pay certain liquidated damages to the Purchasers in the event we fail to satisfy the current public information requirements of Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, until such time that satisfaction of such requirements is no longer required for the sale of common stock underlying the Notes pursuant to Rule 144.
The Notes will be guaranteed on an unsecured basis by our existing subsidiaries that guarantee our term loan facility under our loan and security agreement with Solar Capital, Ltd., or the Term Loan Facility, and, in certain circumstances, the Notes will become guaranteed by certain of our future subsidiaries that become loan parties under the Term Loan Facility. The Notes will be our senior unsecured obligations and rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment to any of our unsecured indebtedness that is not so subordinated; effectively junior to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness, including the Term Loan Facility; and structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries. The Notes will have an initial conversion price of $3.25, subject to adjustments.
Craig-Hallum Capital Group LLC, or the Placement Agent, acted as placement agent in connection with the Financing. We have agreed to pay the Placement Agent an aggregate cash fee equal to 6.0% of the aggregate gross proceeds from the Financing plus reimbursement of certain expenses not to exceed $60,000 in the aggregate.
The Notes will not be registered under the Securities Act or any state securities laws. We have relied on the exemption from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof and Rule 506 of Regulation D thereunder. In connection with the Purchasers’ execution of the Purchase Agreement, the Purchasers represented to us that they are each an “accredited investor” as defined in Regulation D of the Securities Act and that the Notes to be purchased by them will be acquired solely for their own account and for investment purposes and not with a view to the future sale or distribution.
We expect to file a copy of the Purchase Agreement in a subsequent Current Report on Form 8-K or our Quarterly Report on Form 10-Q for the quarter ending September 30, 2019 to provide security holders with information regarding its terms. It is not intended to provide any other factual information about us. The representations, warranties and covenants contained in the Purchase Agreement were made solely for purposes of the Financing and as of specific dates, were solely for the benefit of the parties to the Purchase Agreement, may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the Purchase Agreement instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to security holders. Security holders are not third-party beneficiaries under the Purchase Agreement and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of our company. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Purchase Agreement, which subsequent information may or may not be fully reflected in our public disclosures.
Registration Rights Agreement
In connection with the Financing, on August 7, 2019, we entered into a Registration Rights Agreement with the Purchasers, or the Registration Rights Agreement. Pursuant to the Registration Rights Agreement, we agreed to (i) file one or more registration statements with the Securities and Exchange Commission, or the SEC, within 30 days of the date of the Registration Rights Agreement to cover the resale of the shares of our common stock that are issuable to the Purchasers upon any conversion of the Notes, or the Shares, (ii) use our reasonable best efforts to have all such registration statements declared effective within the time frames set forth in the Registration Rights Agreement, and (iii) use our commercially reasonable efforts to keep such registration statements effective during the time frames set forth in the Registration Rights Agreement. In the event that such registration statements are not filed or declared effective within the timeframes set forth in the Registration Rights Agreement, any such effective registration statements subsequently become unavailable, or use of the prospectus contained in such registration statements is suspended for certain periods of time, we would be required to pay certain liquidated damages to the Purchasers.
Amendment to Solar Capital Ltd. Loan and Security Agreement
In connection with the Financing, on August 7, 2019, we and Solar Capital, Ltd. entered into the Second Amendment to the Term Loan Facility, which (i) allows for the Financing as well as the exchange transaction described under Item 8.01 to this report under the Term Loan Facility and (ii) amends the events of default under the Term Loan Facility.
The foregoing descriptions of the Purchase Agreement, the Registration Rights Agreement and the Amendment are not complete and are qualified in their entirety by reference to the full text of the Purchase Agreement, the Registration Rights Agreement and the Amendment, copies of which we expect to file as exhibits to a subsequent Current Report on Form 8-K or our Quarterly Report on Form 10-Q for the quarter ending September 30, 2019.