Item 1.01. Entry into a Material Definitive Agreement.
On September 1, 2016, Alphatec Holdings, Inc. (the “Company”) closed (the “Closing”) the previously announced sale of the Company’s international distribution operations and agreements (the “Globus Transaction”), including the Company’s wholly-owned subsidiaries in Japan, Brazil, Australia and Singapore and substantially all of the assets of the Company’s other sales operations in the United Kingdom and Italy, pursuant to a purchase and sale agreement, dated as of July 25, 2016 (as amended, the “Purchase and Sale Agreement”), with Globus Medical Ireland, Ltd. (the “Buyer”), a subsidiary of Globus Medical, Inc. (“Globus”).
Purchase and Sale Agreement Amendment
In connection with the Closing, on September 1, 2016, the Company and the Buyer entered into an amendment (the “PSA Amendment”) to the Purchase and Sale Agreement, pursuant to which, among other matters, Globus was given the right to market and sell certain additional products lines.
Globus Facility Agreement
At the Closing, the Company and Globus entered into a credit, security and guaranty agreement (the “Globus Facility Agreement”), pursuant to which Globus agreed to loan the Company up to $30 million, subject to the terms and conditions set forth in the Globus Facility Agreement. At the Closing, the Company made an initial draw of $25 million under the Globus Facility Agreement. The remaining amount may be advanced in up to two additional draws, each in an aggregate amount of no less than $2 million, as requested by the Company at any time prior to December 31, 2017.
As collateral for the Globus Facility Agreement, the Company granted Globus a first lien security interest in substantially all of its assets, other than accounts receivable and related assets, which will secure the Globus Facility Agreement on a second lien basis. The relative priorities with respect to collateral securing the Globus Facility Agreement and the Amended and Restated Credit, Security and Guaranty Agreement dated August 30, 2013 by and among the Company, Alphatec Spine, Inc., the other parties thereto and MidCap Funding IV, LLC (“MidCap”), as amended to date (the “MidCap Facility Agreement”) were set forth in the Intercreditor Agreement, dated as of the Closing, between the Buyer and MidCap.
Amendment to Credit Agreement
At the Closing, the Company and MidCap entered into an amendment to the MidCap Facility Agreement that: (a) permitted (i) the Globus Transaction, (ii) the release of Alphatec International LLC and Alphatec Pacific, Inc. as credit parties, (iii) the payment in full of all obligations to Deerfield Private Design Fund II, L.P., Deerfield Private Design International II, L.P., Deerfield Special Situations Fund, L.P. and Deerfield Special Situations International Master Fund, L.P. (collectively, “Deerfield”) under the Facility Agreement between the Company and Deerfield, dated as of March 17, 2014, as amended to date (the “Deerfield Facility Agreement”), and (iv) the incurrence of debt under the Globus Facility Agreement and the granting of liens in favor of Globus, (b) reduced the revolving credit commitment to $22.5 million and the term loan commitment to $5 million, (c) revised the existing financial covenant package, and (d) extended the commitment expiry date from December 31, 2016 to December 31, 2019. In connection with the prepayment of the term loan under the MidCap Facility Agreement, the Company incurred a prepayment fee of $615,000 payable to MidCap.
Product Manufacture and Supply Agreement
At the Closing, the Company and the Buyer also entered into a product manufacture and supply agreement (the “Supply Agreement”), pursuant to which the Company will supply to the Buyer certain of its implants and instruments (the “Products”), currently being offered for sale by the Company outside of the United States at agreed-upon prices. Pursuant to the Supply Agreement and as partial consideration for the Purchase and Sale Agreement, the Buyer will receive up to a $3.9 million credit to be applied against Product purchases pursuant to the Supply
Agreement during a six-month period commencing one month after the Closing, subject to certain restrictions. The Company will be responsible for ensuring that all of the Products delivered to the Buyer meet all agreed-upon specifications for such Products.
Additional information with respect to the Purchase and Sale Agreement, the Globus Facility Agreement and the Supply Agreement is available in the current report on Form 8-K filed by the Company with the U.S. Securities and Exchange Commission (the “SEC”) on July 26, 2016, and is hereby incorporated by reference. The foregoing description does not purport to be complete and is qualified in its entirety by reference to the Purchase and Sale Agreement, a copy of which is filed as Exhibit 2.1 to the current report on Form 8-K filed with the SEC on July 26, 2016, and the PSA Amendment, a copy of which is attached hereto as Exhibit 2.1, the Globus Facility Agreement, the MidCap Amendment and the Supply Agreement, copies of which will be filed with the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2016.