XML 68 R24.htm IDEA: XBRL DOCUMENT v2.4.0.8
Subsequent Events
12 Months Ended
Dec. 31, 2013
Subsequent Events [Abstract]  
Subsequent Events
Subsequent Events

Orthotec LLC, Litigation Settlement
On March 15, 2014, the Company, Orthotec and certain other parties, including certain directors and affiliates of the Company entered into a binding term sheet to settle the pending litigation in the Orthotec, LLC vs. Surgical S.A.S. legal matter (See Note 7) and all other litigation matters related to the Company and its directors and affiliates. Pursuant to the term sheet, the Company has agreed to pay Orthotec $49 million in cash payments totaling $1.75 million by March 31, 2014 and an additional $15.75 million payment due by within 25 days of the closing of the Facility Agreement (as defined below). The remaining $31.5 million will be paid to Orthotec in 28 quarterly installments of $1.1 million beginning in the fourth quarter of 2014. HealthpointCapital has agreed to contribute $5 million to the $49 million settlement amount. In addition, a 7% simple interest rate will accrue on the unpaid portion of the $31.5 million which will be paid in $1.1 million quarterly payments after the $49 million settlement amount is paid. The Company anticipates to fund a portion of the 2014 payment obligations with proceeds from the Facility Agreement described below. The $49 million settlement was accrued at its present value of $46.2 million as of December 31, 2013.
Deerfield Facility Agreement
On March 17, 2014, the Company entered into a facility agreement (the “Facility Agreement”) with Deerfield Private Design Fund II, L.P., Deerfield Private Design International II, L.P., Deerfield Special Situations Fund, L.P. and Deerfield Special SituationsInternational Master Fund, L.P. (collectively “Deerfield”), pursuant to which Deerfield agreed to loan the Company up to $50 million, subject to the terms and conditions set forth in the Facility Agreement. Under the terms of the Facility Agreement, the Company has the option, but is not required, upon certain conditions to draw the entire amount available under the Facility Agreement, at any time until January 30, 2015 (the “Draw Period”), provided that the initial draw be used for a portion of the payments made in connection with the Orthotec settlement described above. Following such initial draw down, the Company may draw down additional amounts under the Facility Agreement up to an aggregate $15 million for working capital or general corporate purposes in $2.5 million increments until the end of the Draw Period. In addition, in the event the Litigation Satisfaction has not occurred prior to December 15, 2014, the Company may request no later than January 30, 2015 a draw of the entire amount available under the Facility Agreement; provided that such amount will remain in a special deposit account until the Litigation Satisfaction occurs. The Company has agreed to pay Deerfield, upon each disbursement of funds under the Facility Agreement, a transaction fee equal to 2.5% of the principal amount of the funds disbursed. Amounts borrowed under the Facility Agreement bear interest at a rate of 8.75% per annum and are payable on the third, fourth and fifth anniversary date of the first amount borrowed under the Facility Agreement, with the final payment due no later than December 15, 2019.
The Facility Agreement also contains various representations and warranties, and affirmative and negative covenants, customary for financings of this type, including restrictions on the ability of the Company and its subsidiaries to incur additional indebtedness or liens on its assets, except as permitted under the Facility Agreement. As security for our repayment of our obligations under the Facility Agreement, we granted to Deerfield a security interest in substantially all of our property and interests in property that are subordinated to the security interest granted under the Amended Credit Facility.
In connection with the execution of the Facility Agreement, on March 17, 2014, the Company issued to Deerfield warrants to purchase an aggregate of 6,250,000 shares of the Company’s common stock immediately exercisable at an exercise price initially equal to $1.39 (the “Initial Warrants”) expiring on March 17, 2020. The number of shares of common stock into which the Warrants are exercisable and the exercise price will be adjusted to reflect any stock splits, payment of stock dividends, recapitalizations, reclassifications or other similar adjustments in the number of outstanding shares of the Company’s common stock.
Each disbursement borrowing under the Facility Agreement shall be accompanied by the issuance to Deerfield of warrants to purchase up to 10,000,000 shares of the Company’s common stock, at an exercise price equal to the lesser of the Initial Warrant exercise price or the average daily volume weighted average price per share of the Company’s common stock for the 15 days following the request for borrowing (the “Draw Warrants”). The number of Draw Warrants issued for each draw will be in proportion to the amount of draw compared to the total $50 million facility. The number of shares of common stock into which a warrant is exercisable and the exercise price of any warrant will be adjusted to reflect any stock splits, recapitalizations or similar adjustments in the number of outstanding shares of common stock. The warrants have the same dividend rights to the same extent as if the warrants were exercised into shares of common stock.
On March 19, 2014, the Company made an initial draw under the Facility Agreement and received net proceeds of $19.5 million to fund its 2014 Orthotec settlement payment obligations. In connection with this borrowing, the Company issued 4,000,000 Draw Warrants at an exercise price of $1.39.
MidCap Amendment
On March 17, 2014, the Company entered into a first amendment to the Amended Credit Facility (the “First Amendment”) with MidCap. Under the First Amendment, MidCap gave the Company its consent to enter into the Facility Agreement and make settlement payments in connection with the Orthotec Litigation. The First Amendment also added a total leverage ratio financial covenant.