INSTIL BIO, INC. : Entering into a Material Definitive Agreement, Creating a Direct Financial Obligation or an Obligation Under an Off-Balance Sheet Arrangement of a Registrant (Form 8-K)

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Section 1.01 Entering into a Material Definitive Agreement.

On June 10, 2022, Mezzanine LLC Therapeutic Complexa Delaware with limited liability (“Mezzanine Borrower”) and wholly-owned subsidiary of Instill Bio, Inc. (the “Company”), and Complex Therapeutics LLCa Delaware limited liability (the “Mortgage Borrower” and, together with the Mezzanine Borrower, the “Borrowers”) and wholly-owned subsidiary of the Mezzanine Borrower and indirect wholly-owned subsidiary of the Company, have entered into loan agreements ( collectively, the “Loan Agreements”) with OPG Hermes Investment (DE) LLCa Delaware limited liability company, subsidiary of Oxford Property Group (collectively, the “Lenders”), for a construction mortgage loan and a construction mezzanine loan (collectively, the “Construction Loans”) in an initial combined principal amount of up to $85.0 million. The Company intends to use the proceeds from the construction loans for the construction and development of its manufacturing plant in Los Angeles, California (the “Property”), which belongs directly to the Mortgage Borrower. The construction loans were closed on June 10, 2022 (the “Closing Date”).

Construction loans provide an initial advance of $51.5 million reimburse the Borrowers for the construction and development costs of the Property up to the Completion Date, with future advances of up to $32.9 million to finance the remaining construction and development costs of the property in accordance with the construction budget approved by the lenders, subject to certain conditions. Construction loans require a monthly interest payment based on a blended rate equal to one-month forward SOFR plus 5.25%, subject to a floor of one-month forward SOFR equal to the greater of (i) the one-month forward SOFR from the Closing Date and (ii) 0.05%. The construction loans have an initial term of three years, with two one-year extension options, subject to certain conditions, including the absence of any default, payment of an extension fee of 0.25% and the property’s achievement of a specified minimum return on debt. The Borrowers have also purchased interest rate cap agreements with a blended strike rate not exceeding 3.0%.

Construction loans may be prepaid, in whole but not in part, but, if prepaid before 18 months from the closing date, subject to a prepayment premium equal to the interest that would have accrued (at the interest rate prevailing at the time of prepayment) from the date of prepayment until the date which falls 18 months after the closing date, or in the event that the property is sold to a third party unaffiliated and the construction loans are prepaid within the first 12 months from the closing date, the interest that would have accrued (at the interest rate in effect at the time of prepayment) from the date of prepayment until the date which falls 12 months after the closing date. No prepayment premium is due if the construction loans are prepaid following the sale of the property to an affiliate of Oxford Property Group.

The security securing payment and performance of obligations under the Construction Loans consists of a first lien and charge on (i) substantially all of the Mortgage Borrower’s assets, including its rights of fees on the property, an assignment of leases and rents, as well as an assignment of certain contracts and (ii) the pledge of 100% of the shares of the Mortgage Borrower by the Mezzanine Borrower. Certain obligations of the borrowers under the loan agreements will be guaranteed by the company, including the obligation to complete the construction of the project and to contribute a specified amount of capital for such purposes.

Loan agreements include customary representations and covenants and events of default for financing transactions of this nature.

The foregoing description of the Loan Agreements does not purport to be complete and is qualified in its entirety by reference to the full text of the Loan Agreements, copies of which will be filed as exhibits to the Company’s Quarterly Report on Form 10-Q. for the quarterly period ending June 30, 2022.

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Item 2.03 Creation of a Direct Financial Obligation or Obligation Under an Off-Balance Sheet Arrangement of a Registrant.

The description presented above under point 1.01 is incorporated herein by reference.

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