Item 1.01. Entry into a Material Definitive Agreement.
Loan and Security Agreement.
On September 9, 2016, Vericel Corporation (the Company), as borrower, Silicon Valley Bank (the Bank), as lender and Administrative Agent, and MidCap Financial Trust, MidCap Funding III Trust and other lenders listed therein (together, the Lenders), as lenders, entered into a Loan and Security Agreement (the Loan Agreement) providing for a term loan (the Term Loan Facility) and revolving line of credit (together with the Term Loan Facility, the Debt Facility) in an aggregate principal amount of $20,000,000. The Term Loan Facility is structured in three tranches, as follows: (i) the first tranche of $4,000,000 was made available to the Company on September 12, 2016; (ii) the second tranche of $4,000,000 may be made upon the Companys request before the earlier of March 31, 2017 or an event of default; and (iii) the third tranche of $2,000,000 will become available upon the final approval by the United States Food and Drug Administration (the FDA) of the Companys Biologics License Application for MACI, an investigational autologous chondrocyte implant intended to treat cartilage defects of the knee, and may be drawn thereafter, but before the earlier of 120 days after approval by the FDA, September 9, 2017 or an event of default. The available revolving line of credit will be equal to $10,000,000. In the event that the aggregate amount of interest earned by the Lenders from the revolving line of credit in any given month is less than the interest that would have been earned if the Company had outstanding advances in an amount equal to 20% of the average Availability Amount (as defined in the Loan Agreement) under the revolving line of credit, then the Company must pay the Agent the Minimum Interest (as defined in the Loan Agreement) amount less any interest actually earned by the Lenders.
The maturity date for any term loan advances made under the Term Loan Facility is September 9, 2020 (the Term Loan Maturity Date). The maturity date for advances made under the revolving line of credit is September 9, 2020. The effective interest rate for both facilities is dependent on a number of factors, including the current Wall Street Journal Prime Rate. The interest rate for term loan advances made under the Term Loan Facility is a per annum interest rate equal to 1.25% above the Wall Street Journal Prime Rate. The effective interest rate, assuming that both facilities were fully utilized at current market interest rates, would be in the mid to high single digits for each of the Term Loan Facility and revolving line of credit. The Loan Agreement requires the Company to make monthly interest-only payments through September 1, 2017. Thereafter, each term loan advance shall be repaid in thirty-six (36) equal monthly installments of principal, plus accrued interest.
The Companys final payment on the Term Loan Facility, due on the Term Loan Maturity Date, shall include all outstanding principal and accrued and unpaid interest under the Term Loan Facility, plus a final payment (the Final Payment) equal to the original aggregate principal amount of the Term Loan Facility multiplied by 3.60%. Once repaid, amounts borrowed under the Term Loan Facility may not be reborrowed. The Company may prepay the Term Loan Facility, subject to paying the Prepayment Fee (described below) and the Final Payment. The Prepayment Premium is equal to 2.50% of the original principal amount of the term loan advance if the prepayment occurs on or prior to the one (1) year anniversary of the funding date for such term loan advance, 1.50% of the original principal amount of the term loan advance if the prepayment occurs after such one (1) year anniversary, and 0.50% of the original principal amount of the term loan advance if the prepayment occurs after the two (2) year but prior to the three (3) year anniversary of the funding date for such term loan advance,
and 0% thereafter.
The Loan Agreement requires the Company to pay an aggregate non-refundable facility fee of $100,000 on September 9, 2016.
The Loan Agreement requires the Company to make and maintain certain financial covenants, representations and warranties and other agreements that are customary in loan agreements of this type. The Loan Agreement also contains customary events of default, including non-payment of principal or interest, violations of covenants, bankruptcy and material judgments. The Companys obligations to the Bank are secured by substantially all of the Companys assets, excluding intellectual property.
The Company intends to use any proceeds from the Debt Facility for general corporate purposes and the Prior Credit Facility Prepayment (described below).
The foregoing description of the Debt Facility is only a summary and is qualified in its entirety by reference to the Loan Agreement, a copy of which is filed as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated herein by reference.
Warrants.
In connection with the entry into the Loan Agreement, the Company issued the Lenders warrants (the Warrants) to purchase, at an exercise price of $2.25 per share, an aggregate of 146,342 of the Companys common stock, of which 20% shall be exercisable only in the event the Company borrows the third tranche of the Term Loan Facility. The Warrants are exercisable for six years from the day of issuance.
The foregoing description of the terms of the Warrants is only a summary and is qualified in its entirety by reference to the Form of Warrant, a copy of which is filed as Exhibit 10.2 to this Current Report on Form 8-K and is incorporated herein by reference.
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