8-K: Celularity Secures $21 Million in Financing Through Private Placement and Amended Loan Agreement

Celularity Inc. has entered into a series of agreements to secure $21 million in funding through a private placement and an amended loan agreement, aimed at addressing debt and operational needs.

Summary

• Celularity Inc. has secured approximately $6 million through a private placement with Dragasac Limited, involving the issuance of 21,410,983 shares of Class A common stock and warrants to purchase 5,352,746 additional shares.
• The company also amended its senior secured loan agreement with Resorts World Inc Pte Ltd, obtaining an additional $15 million, net of an original issue discount of $3,750,000.
• The private placement shares were priced at $0.24898 per share, and the accompanying warrants at $0.125 each.
• The amended loan bears an interest rate of 12.5% per year, with the first year's interest paid in kind, and matures on July 16, 2025.
• As part of the loan agreement, Celularity issued warrants to RWI to acquire up to 16,500,000 shares of Class A common stock at an exercise price of $0.24898 per share and warrants to acquire up to 13,500,000 shares of Class A common stock at an exercise price equal to the Minimum Price (as determined pursuant to Nasdaq 5635(d)) on the date it becomes exercisable.
• The net proceeds from both the private placement and the amended loan are earmarked for paying off debt to Yorkville, settling invoices with critical vendors, and making a payment to Palantir Technologies, Inc., with any remaining funds for working capital.
• Celularity's executive leadership team will equitize 15% of their wages or salaries for the year ended December 31, 2024, and Dr. Hariri will accept 85% of his compensation in equity and not increase his compensation for the year ended December 31, 2024.
• Dr. Hariri will not take any deferred compensation in cash unless Celularity raises at least $21 million in additional equity at a valuation equal to or greater than the Dragasac private placement.

Sentiment

Score: 4

Explanation: The document indicates a necessary but potentially dilutive financing event. While the company secures needed capital, the terms, including the high interest rate and equity dilution, suggest a challenging financial position. The equitization of executive compensation and the requirement to apply net revenues from the distribution agreement as a prepayment towards the loan are also concerning.

Positives

• The financing provides Celularity with immediate capital to address its debt obligations and operational needs.
• The amended loan agreement provides additional funding while deferring cash interest payments for the first year.
• The equitization of executive compensation aligns management's interests with those of shareholders.
• The warrant repricing for Dragasac reduces the exercise price from $6.77 to $0.24898 per share.

Negatives

• The loan includes customary negative covenants restricting the company's ability to pay dividends, incur other debt, or grant security interests.
• The company is required to apply net revenues from its distribution and manufacturing agreement with Genting Innovation Pte Ltd as a prepayment towards the loan.
• The company is required to file a proxy statement to seek stockholder approvals for the securities issued to RWI and any reverse stock split necessary to regain compliance with Nasdaq listing rules.
• The company is required to equitize 15% of executive leadership team wages or salaries for the year ended December 31, 2024.

Risks

• The company is subject to customary negative covenants restricting its ability to pay dividends, incur other debt, or grant security interests.
• The company is required to apply net revenues from its distribution and manufacturing agreement with Genting Innovation Pte Ltd as a prepayment towards the loan.
• The company is required to file a proxy statement to seek stockholder approvals for the securities issued to RWI and any reverse stock split necessary to regain compliance with Nasdaq listing rules.
• The company is required to equitize 15% of executive leadership team wages or salaries for the year ended December 31, 2024.
• The company's ability to raise additional cash through equity offerings is contingent on achieving a valuation at least equal to the Dragasac private placement.

Future Outlook

Celularity is required to file a proxy statement to seek stockholder approvals for the securities issued to RWI and any reverse stock split necessary to regain compliance with Nasdaq listing rules. The company's ability to raise additional cash through equity offerings is contingent on achieving a valuation at least equal to the Dragasac private placement.

Management Comments

• Dr. Hariri has agreed to accept 85% of his compensation in equity, not to increase his compensation for the year ended December 31, 2024, and not to take any deferred compensation due to him in cash unless Celularity raises additional cash through offerings of equity securities with aggregate net proceeds equal or greater to $21.0 million at a valuation at least equal to the valuation, cost per security or exercise/conversion price, as applicable, of the Class A common stock and PIPE Warrant purchased by Dragasac Limited.

Industry Context

The financing activities reflect a common strategy for biotech companies to secure funding for operations and debt obligations. The use of private placements and amended loan agreements is a typical approach for companies seeking capital while navigating market conditions and regulatory requirements.

Comparison to Industry Standards

• The private placement structure, involving shares and warrants, is a common method for raising capital in the biotech sector, similar to transactions by companies like XBiotech Inc. and Agenus Inc.
• The interest rate of 12.5% on the amended loan is relatively high, reflecting the risk associated with lending to a company in Celularity's stage, comparable to rates seen in other high-risk biotech financings.
• The requirement to equitize executive compensation is a less common but not unheard of measure, often seen in companies facing financial challenges, similar to some restructuring efforts in the pharmaceutical industry.
• The use of warrants with variable exercise prices tied to future events is a common practice in biotech financings, similar to structures used by companies like Sorrento Therapeutics and Ocugen Inc.

Related Party Transactions

• The private placement was with an existing investor, Dragasac Limited.
• The amended loan agreement was with Resorts World Inc Pte Ltd, an affiliate of Dragasac Limited.
• Celularity entered into an amendment to an amended and restated distribution and manufacturing agreement with an affiliate of Dragasac.

Stakeholder Impact

• Shareholders will experience dilution due to the issuance of new shares and warrants.
• Employees will have 15% of their wages or salaries equitized for the year ended December 31, 2024.
• Creditors, particularly Yorkville, will be paid off using the proceeds from the financing.
• Suppliers will receive payment for outstanding invoices.

Next Steps

• Celularity is required to file a proxy statement to seek stockholder approvals for the securities issued to RWI and any reverse stock split necessary to regain compliance with Nasdaq listing rules.
• The company needs to execute agreements with the executive leadership team to equitize 15% of their wages or salaries for the year ended December 31, 2024.
• The company needs to execute an agreement with Dr. Robert Hariri to reflect his compensation arrangement for the year ended December 31, 2024.

Key Dates

Keywords

private placement, loan agreement, warrants, equity, debt, financing, capital raise, Nasdaq, executive compensation, reverse stock split