8-K: Tevogen Bio Secures $10 Million Convertible Note and Amends Terms for SPAC Merger

Tevogen Bio Inc. has entered into a $10 million convertible promissory note agreement and subsequently amended it to facilitate a potential SPAC transaction and extend the maturity date.

Summary

• Tevogen Bio Inc. secured a $10 million convertible promissory note from HMP Partners, LLC on January 22, 2021, with a 6% annual interest rate.
• The note's maturity date was initially set for January 22, 2024, but was later extended to July 22, 2024.
• The note can be converted into common stock upon maturity if a qualified financing or change of control does not occur, at a price three times the fair market value.
• The note will automatically convert into preferred stock upon a qualified financing of at least $25 million, at a price equal to the lesser of 80% of the financing price or a price calculated by dividing $200 million by the number of shares used to calculate the financing price.
• In the event of a change of control, the holder is entitled to 150% of the conversion amount or the amount they would receive if the note converted to common stock, whichever is greater.
• The company amended the note to include a conversion clause for a SPAC transaction, where the note converts into shares of the SPAC based on a formula involving the conversion amount, a conversion price, and the exchange ratio of the SPAC transaction.
• The conversion price for a SPAC transaction is the lesser of 80% of the SPAC price per share or $200 million divided by the number of pre-closing outstanding shares.
• The company also assumed $24 million in convertible promissory notes, which were converted into 10,337,419 shares of common stock immediately following the closing of the business combination.
• The company may issue up to 20,000,000 shares of common stock to former Tevogen Bio stockholders and up to 4,500,000 shares of common stock to the sponsor over 36 months upon the occurrence of certain triggering events.

Sentiment

Score: 6

Explanation: The document is neutral in tone, outlining the terms of a financial agreement and a merger. While the company is securing funding, there are also risks and potential dilution for existing shareholders. The sentiment is therefore moderately positive.

Positives

• The convertible note provides a significant capital infusion of $10 million.
• The extension of the maturity date provides additional time for the company to achieve a qualified financing or change of control.
• The automatic conversion feature upon a qualified financing ensures the note holder participates in the company's growth.
• The SPAC transaction conversion clause provides a clear path for conversion in the event of a merger with a SPAC.
• The assumption of $24 million in convertible notes and their conversion into common stock simplifies the company's capital structure.
• The potential issuance of additional shares to former stockholders and the sponsor provides further incentives for their continued support.

Negatives

• The note carries a 6% interest rate, which represents a cost of capital for the company.
• The conversion price upon maturity is set at three times the fair market value, which could be dilutive to existing shareholders if no qualified financing or change of control occurs.
• The maximum number of shares issuable upon conversion of the note is capped at 7% of the total issued and outstanding shares, which could limit the holder's upside potential.
• The company is obligated to provide high-level oral updates to the note holder on a quarterly basis, which could be a burden on management.
• The company may be required to pay 150% of the conversion amount in the event of a change of control, which could be costly.
• The company has a history of significant losses and may never achieve or maintain profitability.

Risks

• The company has a limited operating history and no products approved for commercial sale.
• The company will require substantial additional financing to pursue its business objectives, which may not be available on acceptable terms, or at all.
• The regulatory landscape that applies to cellular therapy product candidates is rigorous, complex, uncertain, and subject to change.
• The company has limited experience designing and implementing clinical trials, and has never conducted pivotal clinical trials.
• The company may encounter substantial delays and disruptions in completing the development of its product candidates.
• The FDA regulatory approval process is lengthy and time-consuming, and may lead to significant delays in the clinical development and regulatory approval of product candidates.
• The company's business is highly dependent on its first product candidate, TVGN 489.
• The company's approach to the development of product candidates using its ExacTcell platform is unproven and may not result in marketable products.
• The company may depend on third-party collaborators for the development and commercialization of certain of its current and future product candidates.
• The manufacture of cell therapies is subject to a multitude of manufacturing risks.
• The company's efforts to establish manufacturing capabilities may not be successful.
• The company may be unable to obtain and maintain patent protection for its product candidates or ExacTcell.
• The company may become involved in lawsuits to protect or enforce its intellectual property.
• The company is highly dependent on its key personnel.
• The company may face competition, which may result in others discovering, developing, or commercializing products before or more successfully than the company.
• The price of the common stock and warrants may fluctuate significantly and investors could lose all or part of their investment.
• An active, liquid trading market for the company's securities may not develop.
• The company's management team has no experience managing a public company.

Future Outlook

The document outlines the terms for potential future conversion of the note into equity, either upon a qualified financing, a change of control, or a SPAC transaction. It also mentions the potential issuance of additional shares to former stockholders and the sponsor upon the occurrence of certain triggering events.

Management Comments

• The document includes no direct quotes from management, but it does include the names and titles of key personnel involved in the agreements.

Industry Context

This announcement is relevant to the biotechnology industry, where companies often rely on convertible notes and SPAC mergers for funding and growth. The terms of the note and the SPAC conversion clause are typical for early-stage biotech companies seeking capital.

Comparison to Industry Standards

• The 6% interest rate on the convertible note is within the typical range for early-stage biotech companies.
• The conversion terms, including the discount on the qualified financing price and the change of control payment, are also common in the industry.
• The SPAC transaction conversion clause is becoming increasingly prevalent as more biotech companies explore this route to go public.
• The lock-up agreements and registration rights are standard for companies going public through a SPAC merger.
• The indemnification agreements for directors and officers are also standard practice for public companies.

Related Party Transactions

• The convertible note is with HMP Partners, LLC, which is related to Manmohan Patel, MD, who is also a beneficial owner of the company.
• The company assumed convertible notes from HBP Investors LLC and The Patel Family, LLP, which are also related parties.

Stakeholder Impact

• Shareholders may experience dilution if the note converts to common stock.
• Shareholders may benefit from the company's growth if a qualified financing or change of control occurs.
• Employees may be affected by the company's performance and the success of its product candidates.
• Creditors may be affected by the company's ability to repay its debts.
• Customers may benefit from the company's development of new therapies.

Next Steps

• The company needs to achieve a qualified financing or a change of control by the maturity date of the note.
• The company needs to complete the SPAC transaction.
• The company needs to file a shelf registration statement within 60 days of the closing date.
• The company needs to maintain the effectiveness of the shelf registration statement.
• The company needs to comply with the lock-up agreements.
• The company needs to comply with the non-competition and non-solicitation agreements.

Key Dates

Keywords

convertible note, SPAC transaction, qualified financing, change of control, preferred stock, common stock, maturity date, biotechnology, capital raise, promissory note