Item
1.01. Entry into a Material Definitive Agreement.
On
June 15, 2023 (the “Closing Date”), Beyond Air, Inc. (the “Company”) and its wholly owned subsidiary,
Beyond Air Ltd., entered into a Loan and Security Agreement (the “Agreement”) with Avenue Capital Management II, L.P.,
as administrative agent and collateral agent (the “Agent”), Avenue Venture Opportunities Fund, L.P., a Delaware limited
partnership (“Avenue”), and Avenue Venture Opportunities Fund II, L.P, a Delaware limited partnership (“Avenue
2” and, together with Avenue, the “Lenders”). Also on June 15, 2023, the Company entered into a Supplement
to the Agreement (collectively with the Agreement, the “Loan Agreement”) with the Agent and the Lenders. The Loan
Agreement provides for senior secured term loans (the “Loans”) in an aggregate principal amount up to $40 million,
with (i) $17.5 million advanced on the Closing Date (“Tranche 1”), (ii) up to $10 million which may be advanced upon
the request of the Company between April 1, 2024 and September 30, 2024, subject to the Company having achieved total revenue derived
from the sale of LungFit PH (other than licensing revenue) (“Product Revenue”) for the three-month period prior to
funding of not less than 85% of projected Product Revenue for such period (“Tranche 2”), and (iii) up to $12.5 million
which may be advanced after April 1, 2024 (the “Discretionary Tranche”), subject to (a) the Agent and Lenders having
received investment committee approval and (b) the Company and Lenders having mutually agreed to draw and fund, respectively, such amount.
The
Loans are due and payable on June 1, 2027 (the “Maturity Date”). The proceeds of the Loans are to be used to for general
corporate purposes.
The
Loan principal is repayable in equal monthly installments beginning on January 1, 2025, with the possibility of deferring principal payments
an additional 6 to 18 months contingent upon the Company’s achievement of at least $40 million of Product Revenue in the fiscal
year ending March 31, 2025 and whether the Company has fully drawn Tranche 2. The Loans bear interest at a rate per annum (subject to
increase during an event of default) equal to the greater of (i) the prime rate, as published by the Wall Street Journal from time to
time, plus 3.75% and (ii) 12.00%.
The
Company may, subject to certain parameters, voluntarily prepay the Loans, in whole or in part, at any time. If prepayment occurs on or
before the one-year anniversary of the Closing Date, the Company is required to pay a fee equal to the principal amount of the Loans
prepaid multiplied by 3.00%; if prepayment occurs after the one-year anniversary of the Closing Date and on or before the two-year anniversary
of the Closing Date, the Company is required to pay a fee equal to the principal amount of the Loans prepaid multiplied by 2.00%; if
prepayment occurs after the two-year anniversary and on or before the three-year anniversary of the Closing Date, the Company is required
to pay a fee equal to the principal amount of the Loans prepaid multiplied by 1.50%; and if prepayment occurs after the three-year anniversary
of the Closing Date and before the Maturity Date, the Company is required to pay a fee equal to the principal amount of the Loans prepaid
multiplied by 1.00%. A final payment fee of 3.50% of the principal amount of the Tranche 1 and Tranche 2 Loans is also due upon the Maturity
Date or any earlier date of prepayment (in the case of any partial prepayment, solely with respect to the principal amount being prepaid).
The
Loans are guaranteed by the Company’s subsidiaries, Beyond Air Ltd. and Beyond Air Ireland Limited, and certain of the Company’s
future subsidiaries (collectively, the “Guarantors”). The Company’s obligations under the Loan Agreement and the guarantee
of such obligations are secured by a pledge of substantially all of the Company’s assets and will be secured by a pledge of substantially
all of the assets of the Guarantors.
Pursuant
to the Loan Agreement, the Company is subject to a financial covenant requiring the Company to maintain at all times $5,000,000 in unrestricted
cash. The Loan Agreement also contains affirmative and negative covenants customary for financings of this type that, among other things,
limit the ability of the Company and its subsidiaries to (i) incur additional debt, guarantees or liens; (ii) pay any dividends; (iii)
enter into certain change of control transactions; (iv) sell, transfer, lease, license, or otherwise dispose of certain assets; (v) make
certain investments or loans; and (vi) engage in certain transactions with related persons, in each case, subject to certain exceptions.
The
Loan Agreement also contains representations and warranties of the Company and the Guarantors customary for financings of this type.
Such representations and warranties (i) are intended not as statements of fact, but rather as a way of allocating the risk between the
parties to the Loan Agreement, (ii) have been qualified by reference to confidential disclosures made by the parties in connection with
the Loan Agreement and (iii) may apply standards of materiality in a way that is different from what may be viewed as material by stockholders
of, or other investors in, the Company. Accordingly, the Loan Agreement is included with this filing only to provide investors with information
regarding the terms of the transaction, and not to provide stockholders or other investors with any other factual information regarding
the Company. Stockholders should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations
of the actual state of facts or condition of the Company or any of its subsidiaries or affiliates. Moreover, information concerning the
subject matter of the representations and warranties may change after the date of the Loan Agreement, which subsequent information may
or may not be fully reflected in public disclosures.
The
Loan Agreement also includes events of default customary for financings of this type, in certain cases subject to customary periods to
cure, following which the Agent may accelerate all amounts outstanding under the Loans.
Pursuant
to the Supplement, Avenue also has the right to convert up to $3 million of the outstanding principal of the Loans into shares of Company
common stock (the “Conversion Right”) at a price per share equal to 130% of the exercise price of the Warrants (further
discussed below) at any time while the Loans are outstanding, subject to certain terms and conditions, including ownership limitations.
In
addition, subject to applicable law and specified provisions set forth in the Supplement and solely to the extent permitted under applicable
stock exchange rules without requiring stockholder approval, the Lenders may participate in certain equity financing transactions of
the Company in an aggregate amount of up to $1,000,000 on the same terms, conditions and pricing offered by the Company to other investors
participating in such financing transactions (such right, the “Participation Right”). The Participation Right automatically
terminates upon the earliest of (i) the 18 month anniversary of the Closing Date, (ii) such time that the Lenders have purchased $1,000,000
of the Company’s equity securities in the aggregate pursuant to the Participation Right, and (iii) the repayment in full of all
of the obligations under the Loan Agreement.
The
foregoing description of the Loan Agreement does not purport to be complete and is qualified in its entirety by reference to the text
of the Agreement and the Supplement, which are filed as Exhibit 10.1 and Exhibit 10.2, respectively, to this Current Report on Form 8-K
and are incorporated herein by reference.
Warrants
On
the Closing Date and pursuant to the funding of Tranche 1 of the Loan Agreement, the Company issued to each of Avenue and Avenue 2 (collectively,
the “Warrantholders”) warrants to purchase up to 93,537 and 140,306 shares, respectively, of Company common stock
(each, a “Warrant” and collectively, the “Warrants”). The Warrants expire on June 15, 2028 (the
“Expiration Date”) and have an exercise price per share equal to the lesser of (i) $5.88 and (ii) the price per share
of the Company’s next bona fide round of equity financing after the Closing Date and before June 30, 2024 in which the Company
sells or issues shares of its common stock, excluding certain excluded issuances as defined in the Supplement.
The
Warrantholders may exercise the Warrants at any time, or from time to time up to and including the Expiration Date, by making a cash
payment equal to the exercise price multiplied by the quantity of shares. The Warrantholders may also exercise the Warrants on a cashless
basis by receiving a net number of shares calculated pursuant to the formula set forth in the Warrants. The Warrants are subject to anti-dilution
adjustments for stock dividends, stock splits, and reverse stock splits.
The
Company agreed to file, within 60 days of the Closing Date, with the U.S. Securities and Exchange Commission a registration statement
registering the resale of all of the shares of Company common stock issuable upon exercise of the Conversion Right and upon exercise
of the Warrants.
The
foregoing description of the Warrants does not purport to be complete and is qualified in its entirety by reference to the text of the
Warrants, which are filed as Exhibit 4.1 and Exhibit 4.2 to this Current Report on Form 8-K and are incorporated herein by reference.