Exhibit 10.7

 

Execution Version

FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT

THIS FIFTH AMENDMENT (this “Amendment”), dated as of March 3, 2017 and effective
as of the Effective Date (as defined below), to the Loan and Security Agreement,
dated as of August 11, 2015 (as amended by the Prior Amendments (as defined
below), the “Loan Agreement”), is made by and among MAST THERAPEUTICS, INC., a
Delaware corporation (“Borrower”), HERCULES CAPITAL, INC. (formerly known as
Hercules Technology Growth Capital, Inc.), a Maryland corporation, as
administrative agent (“Agent”), and the lender party hereto (“Lender”).  

RECITALS

A.Borrower, Agent and Lender are parties to the Loan Agreement as previously
amended by First Amendment to Loan and Security Agreement dated as of September
28, 2015, Second Amendment to Loan and Security Agreement effective as of
December 31, 2015, Third Amendment to Loan and Security Agreement effective as
of February 25, 2016, and Fourth Amendment to Loan and Security Agreement
effective as of July 22, 2016 (collectively, the “Prior Amendments”).

B.Borrower is party to that certain Agreement and Plan of Merger and
Reorganization, dated January 6, 2017, among Borrower, Victoria Merger Corp., a
Delaware corporation (the “Merger Sub”), and Savara Inc., a Delaware corporation
(the “Surviving Corporation”), pursuant to which, among other things, the Merger
Sub will be merged with and into the Surviving Corporation, with the Surviving
Corporation remaining as the surviving entity and a wholly-owned subsidiary of
Borrower, and the Surviving Corporation’s stockholders will receive shares of
Borrower’s common stock in exchange for capital stock held in the Surviving
Corporation (the “Merger Agreement” and such transactions, the “Merger”).

C.Subject to the conditions set forth herein, the parties hereto wish to further
amend the Loan Agreement and for Borrower to waive the applicable covenants and
other restrictions under the Loan Agreement otherwise prohibiting Borrower’s
execution of the Merger Agreement and the consummation of the Merger.

D.The Loan Agreement may be amended pursuant to Section 11.3(b) thereof by the
written agreement of Borrower, Agent and Lender (which, for the avoidance of
doubt, is the Required Lender).

AGREEMENT

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:

SECTION 1.   Effectiveness.  Subject to all of the terms and conditions set
forth in this Amendment, this Amendment shall become effective immediately at
the Effective Time (as defined in the Merger Agreement); provided, however, this
Amendment shall terminate in all respects, and the consent and waiver provided
under Section 3 below shall have no effect, if (a) the Merger Agreement is
terminated prior to the Effective Time, (b) the Merger Agreement is amended, or
any material obligation thereunder is waived, in a manner that adversely affects
the agreements and understandings set forth in this Amendment or the Loan
Agreement or (c) the Merger is not consummated on or prior to April 30, 2017.  

SECTION 2.  Defined Terms. Capitalized terms used but not defined herein
(including in the recitals) shall have the meanings assigned to such terms in
the Loan Agreement and the Prior Amendments.

SECTION 3.  Consent and Waiver. Subject to all of the terms and conditions set
forth in this Amendment, the Lender (which, for the avoidance of doubt, is the
Required Lender) hereby (a) consents to Borrower’s entry into and execution of
the Merger Agreement and the consummation of the transactions contemplated in
the Merger Agreement and (b) waives compliance with the applicable restrictions
and covenants set forth in the Loan Agreement with respect to the Merger to be
consummated pursuant to the Merger Agreement, including, but not limited to (i)
the requirement to pay the Prepayment Charge in connection with a Change in
Control as otherwise required under Section 2.4 of the Loan Agreement, (ii) the
negative covenant in Section 7.9 of the Loan Agreement prohibiting mergers and
consolidations, (iii) the provisions of Section 7.11 of the Loan Agreement
prohibiting changes in

 

 

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Borrower’s name or that Borrower or any Subsidiary suffer a Change in Control,
and (iv) the notice requirements and covenants under Section 7.13 of the Loan
Agreement with respect to the formation of the Merger Sub.  

SECTION 4.  Amendments to Loan Agreement. Subject to all of the terms and
conditions set forth in this Amendment, Borrower, Agent and Lender hereby agree
to the following amendments to the Loan Agreement.

(A)  The Loan Agreement is hereby amended by adding a new Section 7.17 to the
Loan Agreement, such section to read as follows:

“7.17Cash Covenant.

(a)Borrower shall, at all times from and after the Effective Time under that
certain Agreement and Plan of Merger and Reorganization, dated January 6, 2017,
among Borrower, Victoria Merger Corp., a Delaware corporation, and Savara Inc.,
a Delaware corporation (“Savara”), maintain in one or more U.S.-domiciled
accounts in the name of Borrower and subject to an Account Control Agreement
unrestricted cash equal to at least $4,000,000 (the “Minimum Cash Amount”);
provided, however, (i) the Minimum Cash Amount shall be reduced to $2,000,000
upon Borrower’s achievement of the First Financing Milestone, and (ii) if
Borrower achieves the Second Financing Milestone, the cash covenant set forth in
this Section 7.17 shall not apply to Borrower from and after the date the Second
Financing Milestone is achieved.

(b)For purposes of the Agreement:

 

(i)

“First Financing Milestone” means the receipt by Borrower, a Qualified
Subsidiary and/or Savara of aggregate net cash proceeds of at least $6,000,000
from the sale and issuance of equity securities and/or Qualified Indebtedness
(or a combination thereof) after January 6, 2017 and on or before April 30,
2017.

 

(ii)

“Qualified Indebtedness” means (x) Subordinated Indebtedness of Borrower and its
Qualified Subsidiaries and (y) Subordinated Indebtedness or Indebtedness of
Savara; provided that any Indebtedness incurred by Savara prior to the Effective
Time that is not Subordinated Indebtedness shall only constitute “Qualified
Indebtedness” if such Indebtedness is subject to a subordination agreement (in a
form acceptable to Agent) that will result in such Indebtedness becoming
Subordinated Indebtedness immediately upon the Effective Time without any
further action required on the part of the applicable lender(s).  

 

(iii)

“Second Financing Milestone” means the receipt by Borrower, a Qualified
Subsidiary and/or Savara of aggregate net cash proceeds of at least $20,000,000
from any or all (including any combination thereof) of (x) the sale and issuance
of equity securities and/or Qualified Indebtedness and/or (y) the receipt of
financing from such other financing sources (including grant amounts) approved
by Agent in its reasonable discretion, and in each case to the extent actually
received by Borrower, a Qualified Subsidiary or Savara after January 6, 2017 and
on or prior to August 31, 2017 (it being agreed that (A) grant amounts shall be
considered actually received if such amounts are fully-committed, irrevocable
and scheduled to be funded during 2017 and (B) the aggregate net cash proceeds
of any offering that satisfies the requirements of the First Financing Milestone
shall be counted in determining whether the Second Financing Milestone has been
met).”   

(B)  Section 2.1(d) of the Loan Agreement is hereby amended by adding a new
sentence at the end of Section 2.1(d) to read as follows:

“Following Borrower’s achievement of the Second Financing Milestone, Lender
shall submit a non-binding proposal to Borrower for the extension of the
Amortization Date or for the restructuring or refinancing of the Term Loan under
the Loan Agreement; provided that any agreement with respect

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thereto shall only be effective upon the execution of a binding written
agreement among Borrower, the Required Lenders and Agent.”  

(C)  Section 6.2 of the Loan Agreement is hereby amended by adding a new
sentence at the end of Section 6.2 to read as follows:

“Upon request by Agent, Borrower shall promptly deliver copies of all insurance
policy binders with respect to the insurance policies required under Section 6.”

(D)  Exhibit D to the Loan Agreement is hereby amended and restated in its
entirety with the form of Exhibit D attached to this Amendment.

SECTION 5.  Conditions to this Amendment. This Amendment shall become effective
only if Borrower has satisfied the following conditions as of the Effective
Time:

(A)  Borrower shall have delivered to Agent an amendment fee of $50,000 as of
the date this Amendment was executed by the parties hereto;

(B)  Borrower shall have delivered to Agent and Lender a duly executed Third
Amendment to Warrant Agreement in the form attached hereto as Exhibit A (the
“Third Warrant Amendment”);

(C)  Borrower shall have delivered to Agent and Lender a duly executed
perfection certificate, in a form reasonably satisfactory to Borrower, for the
Surviving Corporation and its subsidiaries;

(D)  Borrower shall have delivered to Agent duly executed Joinder Agreements for
(i) the Surviving Corporation and (ii) any other Qualified Subsidiaries thereof
or the Surviving Corporation (the Subsidiaries under clause (ii), the “Other
Qualified Subsidiaries”);

(E)  Borrower shall have delivered to Agent (i) an amended and restated Exhibit
B to the Loan Agreement reflecting all information required to be disclosed
therein under the Loan Agreement as of the Effective Time, as well as duly
executed Account Control Agreements for the accounts listed on Exhibit B (as so
amended and restated) for the Surviving Corporation and the Other Qualified
Subsidiaries and (ii) an amended and restated Exhibit C to the Loan Agreement
reflecting all information required to be disclosed therein under the Loan
Agreement as of the Effective Time, as well as the landlord consents and bailee
waivers listed on Exhibit C (as so amended and restated) for the Surviving
Corporation and the Other Qualified Subsidiaries;

(F)  all of Borrower’s representations and warranties contained in the Agreement
and all schedules thereto were true in all material respects as of the date of
this Amendment and shall be true and correct in all material respects as of the
Effective Time (and assuming the consummation of the Merger) as though made on
and as of such date, except to the extent that such representations and
warranties relate expressly to an earlier date;

(G)  Borrower was in compliance as of the date of this Amendment with all of the
terms and provisions set forth in each Loan Document, and Borrower shall be in
compliance with all of the terms and provisions set forth in each Loan Document
as of the Effective Time (and assuming the consummation of the Merger and after
giving effect to this Amendment), and there shall be no fact or condition that
would (or would, with the passage of time, the giving of notice or both)
constitute an Event of Default as of the date of this Amendment or the Effective
Time (and assuming the consummation of the Merger);

(H)  Borrower shall have delivered Agent a certificate, dated as of the Closing
Date under the Merger Agreement and signed on behalf of Borrower by a duly
authorized officer thereof, certifying the satisfaction of the conditions in
Sections 5(F) and 5(G); and

(I)  Borrower shall have delivered, or caused the Surviving Corporation to
deliver, one or more subordination agreements, in a form acceptable to Agent,
with respect to any indebtedness for borrowed money of the Surviving Corporation
and its Subsidiaries that is not Subordinated Indebtedness, each such
subordination agreement

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to become effective immediately upon the Effective Time without any further
action required on the part of the applicable lender(s).

SECTION 6.  Effect on Loan Documents. Except as specifically amended herein, the
Third Warrant Amendment, the Prior Amendments and any prior amendments to the
Warrant as agreed in writing between Lender and Borrower, all Loan Documents
shall continue to be in full force and effect and are ratified and confirmed in
all respects. The execution, delivery and effectiveness of this Amendment shall
not operate as a waiver of any right, power or remedy of any Lender or Agent
under any of the Loan Documents, and it shall not constitute a waiver of any
provision of the Loan Documents except as expressly set forth in Section 3
above. Any reference to the Loan Agreement in any other Loan Document shall be a
reference to the Loan Agreement as amended by this Amendment and the Prior
Amendments. Borrower hereby consents and agrees to any amendments that the Agent
determines are necessary or appropriate to make to the financing statement
previously filed by Agent with respect to the Collateral in light of the Merger,
including the addition of Savara Inc. as an additional debtor and amendments to
the description of the Collateral.

SECTION 7.  Representations and Warranties. Borrower represents and warrants to
Agent and Lender as follows:

(a)  Borrower’s execution, delivery and performance of this Amendment and the
Third Warrant Amendment (i) have been duly authorized by all necessary corporate
action of Borrower, (ii) will not result in the creation or imposition of any
Lien upon the Collateral or the Intellectual Property, other than Permitted
Liens and the Liens created by the Loan Documents, (iii) do not violate any
provisions of Borrower’s Certificate of Incorporation, bylaws, or any law,
regulation, order, injunction, judgment, decree or writ to which Borrower is
subject, and (iv) except as described on Schedule 5.3 to the Loan Agreement, do
not violate any contract or agreement or require the consent or approval of any
other Person which has not already been obtained. The individual or individuals
executing this Amendment and the Third Warrant Amendment are duly authorized to
do so.

(b)  This Amendment and the Third Warrant Amendment have been duly executed and
delivered on Borrower’s behalf by a duly authorized officer thereof, and
constitute legal, valid and binding obligations of Borrower, enforceable in
accordance with their terms, subject to bankruptcy, reorganization, insolvency,
moratorium and other similar laws affecting the enforcement of creditors’ rights
generally and the exercise of judicial discretion in accordance with general
principles of equity.

SECTION 8.  Governing Law. This Amendment shall be governed by, and construed in
accordance with, the law of the State of California.

SECTION 9.  Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Delivery by facsimile,
.pdf or other electronic imaging means of an executed counterpart of a signature
page to this Amendment shall be effective as delivery of an original executed
counterpart of this Amendment. Agent may also require that any such documents
and signatures delivered by facsimile, .pdf or other electronic imaging means be
confirmed by a manually signed original thereof; provided that the failure to
request or deliver the same shall not limit the effectiveness of any document or
signature delivered by facsimile, .pdf or other electronic imaging means.

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed and delivered by their respective proper and duly authorized officers
as of the day and year first above written.

BORROWER:

 

MAST THERAPEUTICS, INC.

 

By:

/s/ Brandi Roberts

 

Name:

Brandi Roberts

 

Title:

Chief Financial Officer

 

AGENT:

 

HERCULES CAPITAL, INC.

 

By:

/s/ Jennifer Choe

 

Name: Jennifer Choe

 

Title: Assistant General Counsel

 

LENDER:

 

HERCULES TECHNOLOGY III, L.P.

 

By:

Hercules Technology SBIC Management, LLC, its General Partner

 

By:

Hercules Capital, Inc., its Manager

 

By:

/s/ Jennifer Choe

 

Name: Jennifer Choe

 

Title: Assistant General Counsel

 

 

 

[Signature Page to Fifth Amendment to Loan and Security Agreement]

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Exhibit A

 

Third Warrant Amendment

 

(See attached)

 

 

 

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Exhibit D

 

The Exhibit D of the Loan Agreement is amended and restated in its entirety with
the following Form of Compliance Certificate.

 

COMPLIANCE CERTIFICATE

Hercules Capital, Inc. (as “Agent”)

400 Hamilton Avenue, Suite 310

Palo Alto, CA 94301

 

Reference is made to that certain Loan and Security Agreement dated August 11,
2015 and the Loan Documents (as defined therein) entered into in connection with
such Loan and Security Agreement all as may be amended from time to time
(hereinafter referred to collectively as the “Loan Agreement”) by and among Mast
Therapeutics, Inc.1 (the “Company”) as Borrower, the several banks and other
financial institutions or entities from time to time party thereto
(collectively, the “Lender”) and Hercules Capital, Inc., as agent for the Lender
(the “Agent”). All capitalized terms not defined herein shall have the same
meaning as defined in the Loan Agreement.

The undersigned is an Officer of the Company, knowledgeable of all Company
financial matters, and is authorized to provide certification of information
regarding the Company; hereby certifies, in such capacity, that in accordance
with the terms and conditions of the Loan Agreement, the Company is in
compliance for the period ending [●] of all covenants, conditions and terms and
hereby reaffirms that all representations and warranties contained therein are
true and correct on and as of the date of this Compliance Certificate with the
same effect as though made on and as of such date, except (i) to the extent such
representations and warranties expressly relate to an earlier date, after giving
effect in all cases to any standard(s) of materiality contained in the Loan
Agreement as to such representations and warranties, and (ii) as otherwise
disclosed in the letter dated as of the date of the Loan Agreement and provided
by Borrower to Agent and Lender.  Attached are the required documents supporting
the above certification.  The undersigned further certifies that these are
prepared in accordance with GAAP (except for the absence of footnotes with
respect to unaudited financial statement and subject to normal year-end
adjustments) and are consistent from one period to the next except as explained
below.

REPORTING REQUIREMENT

REQUIRED

CHECK IF ATTACHED

Interim Financial Statements

Monthly within 30 days

 

Interim Financial Statements

Quarterly within 45 days

 

Audited Financial Statements

FYE within 90 days

 

 

The undersigned hereby also confirms the below disclosed accounts represent all
depository accounts and securities accounts presently open in the name of each
Borrower or Borrower Subsidiary/Affiliate, as applicable.

 

 

1  Compliance Certificate subject to conforming changes depending on timing of
delivery, as it may need to be revised to state “by and among Savara Inc.
(formerly, Mast Therapeutics, Inc.) (the “Company”) as Borrower….”  Borrower’s
name will be changed from Mast Therapeutics, Inc. to “Savara Inc.” immediately
following consummation of the Merger.

 

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Depository AC #

Financial Institution

Account Type (Depository / Securities)

Last Month Ending Account Balance

Purpose of Account

BORROWER Name/Address:

 

 

1

 

 

 

 

 

2

 

 

 

 

 

3

 

 

 

 

 

4

 

 

 

 

 

 

BORROWER SUSIDIARY / AFFILIATE COMPANY Name/Address

 

 

1

 

 

 

 

 

2

 

 

 

 

 

3

 

 

 

 

 

4

 

 

 

 

 

 

 

Very Truly Yours,

 

MAST THERAPEUTICS, INC.1

 

By:

 

 

Name:

 

 

Its:

 

 

 

 

 

 

1  Subject to revision based on delivery date of compliance certificate.