Acerus Pharmaceuticals Corporation and its wholly-owned subsidiary, Acerus Pharmaceuticals USA, entered into a $2 million secured loan agreement with First Generation Capital, a company affiliated with the chairman of the board of directors of Acerus. Funds under the loan agreement will be made available to the borrowers by way of one or more advances under the loan agreement. The company’s other subsidiaries are guarantors under the loan agreement.
The loan agreement bears interest at a rate of 8% per annum, subject to the approval of the Toronto Stock Exchange. The loan agreement is repayable in full on Dec. 31, 2024. The proceeds of the loan will be used by the company to fund ordinary course working capital and for other general corporate purposes.
The loan agreement is supplementary to the secured loan facility entered into with First Generation on April 30, 2021 which has been amended on several occasions to increase the amount available to the company. At Dec. 21, 2022, $47.9 million of principal was outstanding under the loan facility and it is fully-drawn.
Under the loan agreement, the borrowers are required to make mandatory prepayments upon the occurrence of certain events including:
- Upon the sale of any collateral other than in the ordinary course
- Upon the sale of any equity interests
- Upon the incurrence of subsequent indebtedness
- Upon the receipt of any insurance proceeds.
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The net proceeds (excluding certain fees and expenses) from any of these events would be required to be applied by the borrowers towards repayment of the indebtedness owing under the loan agreement and/or the loan facility, as more particularly set out in the loan agreement.
The company’s previously announced strategic review of capital and business alternatives is still underway. The company has implemented additional cash conservation measures, including, without limitation, laying off its U.S. sales force and not replacing staff who have since left the company.
With the proceeds under the loan agreement, and absent additional financing being secured, management anticipates that the company will run out of cash approximately around the end of January 2023. These circumstances create material uncertainties that cast doubt as to the ability of the company to meet its obligations as they come due.
As noted, First Generation is an entity affiliated with the chairman of the board of directors of Acerus and it owns approximately 90% of the issued and outstanding common shares of the company. In light of First Generation’s relationship to the chairman of the board of directors of Acerus, the independent members of the board of directors met separately to consider and discuss the loan agreement. Following the review of such independent members of the board of directors, it was unanimously determined that entering into the loan agreement was in the best interests of Acerus.
The loan agreement triggers the requirement for shareholder approval pursuant to Part V of the TSX company manual, unless an exemption is applicable, because Acerus is a “non-exempt” issuer for purposes of Part V of the manual, First Generation is an insider of the company, and the interest payable pursuant to the loan agreement together with the interest paid pursuant to the loan facility within the past six months, in aggregate, is greater than 10% of the company’s current market capitalization. The company has applied to the TSX pursuant to Section 604(f) of the manual for an exemption from the shareholder approval requirement on the basis that First Generation owns approximately 90% of the issued and outstanding common shares of the company. Listed issuers relying on this exemption are required to issue a press release at least ten business days in advance of the closing of the transaction. If the company’s application is approved by the TSX, then the loan agreement will commence bearing interest at the rate of 8% per annum.
