Mesoblast Limited (Nasdaq:MESO; ASX:MSB), a developer of allogeneic cellular medicines for inflammatory diseases, announced on Wednesday that it has entered into convertible note subscription agreements with SurgCenter principals and existing Mesoblast shareholders, Gregory George and William Gueck, to issue, at its sole discretion, up to USD50.0m (AUD76.8m) of unsecured convertible notes.

The funding is available at Mesoblast's option, following shareholder approval, to repay or reduce the amount owing to its secured lenders under the existing loan agreements and for general working capital purposes.

Mesoblast chief executive Silviu Itescu said: "We appreciate the ongoing support from our major shareholders in ensuring that the company can optimise its capital structure and support our ongoing pipeline growth opportunities."

Under the agreements Mesoblast may issue up to USD50m of unsecured convertible notes in tranches of USD10m to the investors. The maturity date of the convertible notes will be five years after the first issuance of notes (unless redeemed or converted earlier).

At any time up to the maturity date, the investors may elect to convert the notes issued into fully paid ordinary shares or ADRs (American Depositary Receipts) of Mesoblast at the conversion price of USD16.25 per ADR equivalent to AUD2.501 per ASX-listed share, representing 126% of Mesoblast's last closing price on Nasdaq and a 29% premium to the last closing price on the ASX. The convertible notes have a coupon of 5% per annum on the face value of issued notes.

As consideration, the investors collectively will receive a commitment fee of USD100,000 and, subject to shareholder approval, of 2 million warrants over 2 million ordinary shares (or 200,000 Mesoblast ADRs) for entering into the convertible note option, and a further 3 million warrants over 3 million ordinary shares (or 300,000 Mesoblast ADRs) should Mesoblast exercise this option. The warrants will have the same exercise price as the conversion price of the notes and a maturity date of four years from the date of first issuance of the warrants.

The conversion price is subject to adjustment mechanisms in the event of future share issues, capital reductions, share consolidations and other corporate actions in accordance with customary adjustment rules.