Company: HCWB
Filing Date: 2025-03-28
Form Type: 10-K
Source: 0000950170-25-046724
Chunk: 304

Company: HCW Biologics Inc.
Filing Date: 2025-03-28
Form: 10-K
Item: Item 1B
Chunk 304
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ended and Restated Note Purchase Agreement shall be due and payable. The Company pledged its equity ownership interest in Wugen, which was equivalent to a 5.6% ownership stake in that company as of December 31, 2024 (“Pledged Collateral”). The Pledged Collateral will be held and released according to the terms of the Escrow Agreement, as security for the Secured Notes. The Secured Notes have a Mandatory Prepayment provision, according to which the Company is required to prepay the Secured Notes before the Maturity Date under certain circumstances. In the event of a Mandatory Prepayment, Secured Notes may receive a bonus payment based on the gross proceeds of the sale of the Pledged Collateral. If the Secured Notes are repaid on the Maturity Date, holders will receive their pro rata share of a fixed bonus payment of $3.4 million in addition to payment of outstanding 

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principal and accrued and unpaid interest.  If a bonus payment is paid, then there is no prepayment penalty. The Amended and Restated Note Purchase Agreement also contains default provisions, according to which, following an event of default, the Company may be required to distribute the Pledged Collateral to the Purchasers on a pro rata basis based on a $10.0 million issuance of Secured Notes, in full satisfaction of the indebtedness evidenced by the Secured Notes.  As of December 31, 2024, the fair value of the embedded derivative, which incorporated the likelihood of certain events occurring, was immaterial.  Thus, as of December 31, 2024, the Company did not recognize the embedded derivative in the accompanying condensed financial statements.  See Note 18.  Subsequent Events.The Company accounts for the bonus payment to be paid if the Secured Notes are repaid on the Maturity Date by accreting the bonus payment to the full amount due on the Maturity Date, utilizing the effective interest rate method.  As of December 31, 2024, the Company recognized $527,304 for the accretion of the fixed bonus payment.   Five-Year Maturities The Company classifies the total undiscounted contractual payments that are due in the next 12 months as current.  The loan was initially measured on a present value basis. An amortization schedule is used to determine how much of each payment is applied to interest and principal each period. The payment is first applied to interest, and the remainder reduces the principal