Item 1.01. Entry into a Material Definitive Agreement.
On September 30, 2020 (the “Closing Date”), Geron Corporation (the “Company”) entered into a loan and security agreement (the “Loan Agreement”) with Hercules Capital, Inc., as administrative agent and collateral agent (in such capacity, the “Agent”) and a lender, and Silicon Valley Bank, as a lender (collectively with Hercules Capital, Inc., the “Lenders”) for an aggregate principal amount of $75.0 million (the “Term Loan”). Pursuant to the Loan Agreement, the Term Loan is available to the Company in three tranches, subject to certain terms and conditions.
The first tranche of the Term Loan of up to $35.0 million, of which $25.0 million was received by the Company on the Closing Date, is available to the Company through June 15, 2021. The second tranche of the Term Loan, consisting of up to an additional $15.0 million, is available to the Company from January 1, 2021 through December 15, 2021, subject to achievement of certain clinical milestones. The third tranche of the Term Loan, consisting up to an additional $25.0 million, is available to the Company through December 31, 2022, subject to the Lenders’ approval.
The Term Loan bears interest at a variable annual rate equal to the greater of: (i) 9.0%, or (ii) the sum of (A) the Prime Rate (as reported in The Wall Street Journal) minus 3.25%, plus (B) 9.0% (the “Interest Rate”). The Company is required to make interest only payments through November 1, 2022, which may be extended to May 1, 2023 upon achievement of certain clinical milestones and which is further extendable to November 1, 2023 upon achievement of certain regulatory and financial milestones (the “interest-only period”). After the interest-only period, the principal balance and related interest will be required to be repaid in equal monthly installments and continuing until the Maturity Date (as defined below).
The Term Loan matures on October 1, 2024; which may be extended to April, 1, 2025 upon achievement of certain regulatory and financial milestones, and which is further extendable to October 1, 2025, upon achievement of certain additional regulatory and financial milestones (collectively, the “Maturity Date”). The Company is entitled to prepay the Term Loan in whole or in increments of $5.0 million, and any prepayment made in the first 36 months from the Closing Date will be subject to a prepayment charge equal to 1.5% of the principal amount prepaid. No prepayment charge will be assessed for any prepayment occurring more than 36 months after the Closing Date. Upon full repayment of the Term Loan, the Company is obligated to pay an end-of-term charge equal to 6.55% of the principal amount of the Term Loan actually borrowed.
Upon the Closing Date, the Company is required to pay the Lenders a facility fee of $395,000 for the first tranche. In addition, a facility fee of $105,000 is due upon the drawdown of the second tranche and a facility fee of $250,000 is due upon the drawdown of the third tranche.
Subject to certain exceptions, the Company’s obligations under the Loan Agreement are secured by a first priority security interest on substantially all of the Company’s personal property, other than intellectual property.
The Loan Agreement contains customary representations, warranties and covenants, including covenants by the Company limiting additional indebtedness, liens, mergers and acquisitions, dispositions, investments, distributions, subordinated debt, transactions with affiliates and fundamental changes, without the Lenders’ consent. The Loan Agreement also contains financial covenants requiring the Company to maintain a cash balance in an amount greater than or equal to $25.0 million, commencing June 1, 2022. Such minimum cash covenant is reduced to $20.0 million if the Company achieves certain regulatory milestones. If certain licensing transactions are entered by the Company, the cash covenant requirement would increase to $30.0 million, and such increased cash covenant would remain in place until the Maturity Date.
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The Loan Agreement provides for events of default (subject, in certain instances, to specified grace periods) customary for a loan of this type, including but not limited to non-payment, defaults on other debt, misrepresentation, breach of covenants or representations and warranties, insolvency, bankruptcy, certain uncured judgments and the occurrence of a material adverse effect on the Company. After the occurrence of an event of default and for so long as such an event of default continues without cure, all outstanding obligations under the Loan Agreement shall accrue interest at the Interest Rate plus 5%. Upon the occurrence and continuation of any event of default, the Agent may accelerate payment of all obligations and terminate the Lenders’ commitments under the Loan Agreement. Upon the occurrence of certain bankruptcy and insolvency events, the obligations under the Loan Agreement would automatically become due and payable.
The descriptions of the Loan Agreement contained herein do not purport to be complete and are qualified in their entirety by reference to the complete text of the Loan Agreement which will be filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ending September 30, 2020.