Line of credit

On November 13, 2018, the Company and its subsidiaries entered into a Loan and Security Agreement (the “SVB Loan Agreement”) with Silicon Valley Bank (“SVB”), providing for up to $4.0 million of debt financing consisting of a term loan (the “Term Loan”) of up to $850,000 and a revolving line of credit based on its outstanding accounts receivable (the “Revolving Line”) of up to $4.0 million. The available amount of the Revolving Line will be reduced by the outstanding amount of the Term Loan. The Company intends to use the proceeds of the Term Loan for capital expenditures in connection with its laboratory expansion and the proceeds of the Revolving Line for working capital purposes.

The Term Loan may be borrowed in up to two advances until March 31, 2019, unless there has been an event of default. Term Loan outstanding amounts bear interest at a rate per annum equal to the greater of the Wall Street Journal Prime Rate (the “Prime Rate”) and 5.00% and are repayable in 36 equal monthly installments of principal commencing on June 3, 2019 through and including April 1, 2022. In addition, the Company is required to pay a Term Loan final payment to SVB (the “Term Loan Final Payment”) equal to 5.0% of the original principal amount of all Term Loan advances at the earliest to occur of the maturity of the Term Loan, the prepayment of the Term Loan, or the acceleration of the Term Loan upon an event of default.

The Company may prepay outstanding amounts of the Term Loan in whole, but not in part. Prepayment of the Term Loan requires payment of the Term Loan Final Payment and a Term Loan prepayment fee equal to 3.0% of the original principal amount of all Term Loan advances if prepaid in the first year of the SVB Loan Agreement, 2.0% of the original principal amount of the Term Loan advances if prepaid in the second year of the SVB Loan Agreement and 1.0% of the original principal amount of the Term Loan advances if paid in the third year of the SVB Loan Agreement.

The amount that may be borrowed under the Revolving Line is the lower of 80% of the Company’s eligible accounts receivable (as adjusted by SVB) and the aggregate amount of cash collections with respect to accounts receivable during the three prior calendar months. Revolving Line outstanding amounts incur interest at a rate per annum equal to the Prime Rate plus 0.5%. The Company is also required to pay an unused Revolving Line facility fee monthly in arrears in an amount equal to 0.35% per annum of the average unused but available portion of the Revolving Line. The Revolving Line has a three year maturity. If the Company’s accounts receivable fail to satisfy certain financial requirements specified by the terms of the Revolving Loan, the Company may be required to repay the Revolving Loan in whole or in part.

Upon termination of the SVB Loan Agreement or the termination of the Revolving Line for any reason prior to the Revolving Line maturity date, in addition to the payment of any other amounts then-owing, the Company is required to pay a Revolving Line termination fee in an amount equal to 3.0% of the Revolving Line if the termination occurs in the first year of the SVB Loan Agreement, 2.0% of the Revolving Line if the termination occurs in the second year of the SVB Loan Agreement and 1.0% of the Revolving Line if the termination occurs in the third year of the SVB Loan Agreement.

The Revolving Line and the Term Loan are both secured by a first priority lien on all assets of the Company and its subsidiaries, except for intellectual property. The Company’s intellectual property may not be sold or encumbered without the Bank’s prior written consent (a negative pledge).

The SVB Loan Agreement contains a number of affirmative and negative restrictive covenants that are applicable whether or not any amounts are outstanding under the SVB Loan Agreement. These restrictive covenants could adversely affect our ability to conduct our business. The SVB Loan Agreement also contains a number of customary events of default.