Item
1.01. Entry into a Material Definitive Agreement.
On
August 9, 2017, Synergy CHC Corp. (the “Company”) entered into an Amended and Restated Loan Agreement (the “Loan
Agreement”) with Knight Therapeutics (Barbados) Inc. (“Knight”), pursuant to which Knight agreed to loan the
Company up to an aggregate of $30.0 million. That same day (the “Closing”), the Company borrowed $10.0 million under
the Loan Agreement (the “Third Tranche” with the remaining $20.0 million, “Additional Tranches”) and paid
Knight an origination fee of $200,000, a work fee of $100,000, and $100,000 for Knight’s costs and expenses incurred in
connection with the Loan Agreement.
The
Loan Agreement amends and restates the original loan agreement that the Company and Knight entered into in January 2015 and subsequently
amended (as amended, the “Original Loan Agreement”). As of August 9, 2017, the Company had borrowed an aggregate of
$11.5 million under the Original Loan Agreement in two tranches, of which the remaining balance on the first tranche was $1,687,500
(the “First Tranche”) and on the second tranche was $1,375,000 (the “Second Tranche”). The First Tranche
and Second Tranche are subject to the terms and conditions of the Loan Agreement.
Additional
Tranches under the Loan Agreement are available to the Company until August 9, 2022 provided that no event of default exists.
Each Additional Tranche must be for a minimum amount of $1.0 million, may only be used to finance qualified acquisitions (as defined
in the Loan Agreement), and can be denied in Knight’s absolute discretion. If an Additional Tranche is denied, the Company
can effect a qualified acquisition through a special purpose entity with such special purpose entity being entitled to obtain
financing from third parties so long as such financing does not adversely affect Knight or Knight’s rights under the Loan
Agreement. Upon the closing of any Additional Tranche, the Company will pay Knight an origination fee equal to 2% of the Additional
Tranche, a work fee equal to 1% of the amount of the Additional Tranche, and reimburse Knight for its expenses incurred in connection
with its consideration of any Additional Tranche (whether or not advanced).
The
First Tranche and Second Tranche bear interest at a rate of 15% per year compounded quarterly, provided that upon the occurrence
of an equity financing (as defined in the Loan Agreement) the interest rate on the First Tranche drops to 13% per year compounded
quarterly. Interest on the First Tranche is payable in arrears on March 31, June 30, September 30, and December 31 in each
year. Interest on the Second Tranche is payable in arrears on the eleventh day of each month. The Third Tranche and Additional
Tranches of the Loan bear interest at a rate of 10.5% per year compounded quarterly, with the interest payable in arrears
on the same schedule as the First Tranche and beginning on September 30, 2017.
All
outstanding principal and accrued and unpaid interest on the outstanding loans under the Loan Agreement are due on the earliest
to occur of either (a) January 20, 2018 (with respect to the First Tranche), November 11, 2017 (with respect to the Second Tranche),
August 9, 2020 (with respect to the Third Tranche), and the third anniversary of the date of the advance of any Additional Tranches
(with respect to the Additional Tranches), and (b) the date that Knight, in its discretion, accelerates the Company’s obligations
due to an event of default. Principal payments on the Third Tranche commence in November 2017 and continue quarterly as set forth
on the Repayment Schedule to the Loan Agreement along with the repayment schedules of the First Tranche and Second Tranche. The
Company may not prepay the outstanding principal on any loans under the Loan Agreement without the prior written consent of Knight,
which may be withheld or conditioned in Knight’s absolute discretion.
On
the Maturity Date of the Third Tranche and every Additional Tranche (or upon the acceleration of each such loan), the Company
must pay Knight a success fee (the “Success Fee”) of that number of Company common shares equal to 10% of the loan,
divided by the lesser of (a) $1.50, (b) the lowest price at which any common shares were issued by the Company in any offering
or equity financing or other transaction between the Closing Date and the date the Success Fee is due, and (c) the current market
price on the date the Success Fee is due. The Company may also pay the Success Fee in cash pursuant to the terms of the Loan Agreement.
The
Loan Agreement includes customary representations, warranties, and affirmative and restrictive covenants, including covenants
to attain and maintain certain financial metrics, and to not merge or dispose of assets, acquire other businesses (except for
businesses substantially similar or complementary to the Company’s business, and provided that the aggregate consideration
to be paid does not exceed $100,000 and the acquired business guarantees the Company’s obligations under the Loan Agreement)
or make capital expenditures in excess of $500,000. The Loan Agreement also includes customary events of default, including payment
defaults, breaches of covenants, change of control and material adverse effect defaults. Upon the occurrence of an event of default
and during the continuation thereof, the principal amount of all loans under the Loan Agreement will bear a default interest rate
of an additional 5%.
The
Company’s obligations and liabilities under the Loan Agreement are secured and unconditionally guaranteed by certain of
the Company’s wholly-owned subsidiaries as provided in 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
Loan Agreement, which will be filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ending September 30, 2017.