Item 1.01. Entry into a Material Definitive Agreement.
Divestiture of Cardiothoracic Closure Business
On
August 3, 2017, RTI Surgical, Inc. (the Company), completed the sale of substantially all of the assets related to its Cardiothoracic closure business (the CT Business) to A&E Advanced Closure Systems, LLC (a
subsidiary of A&E Medical Corporation) (A&E). The sale was completed pursuant to an Asset Purchase Agreement between the Company and A&E, dated August 3, 2017 (the Asset Purchase Agreement). As a part of the
transaction, the Company also entered into a multi-year Contract Manufacturing Agreement with A&E (the Contract Manufacturing Agreement). Under the Contract Manufacturing Agreement, the Company agreed to continue to support the CT
Business by manufacturing existing products and engineering, developing, and manufacturing potential future products for A&E.
The total consideration
received by the Company under the Asset Purchase Agreement was composed of $54.0 million in cash consideration, $3.0 million of which is being held in escrow for up to twelve months to satisfy possible indemnification obligations, if any, plus an
additional $6.0 million in contingent cash consideration (the Contingent Consideration). Payment of the Contingent Consideration is subject to two conditions: (1) if the Company obtains certain FDA regulatory clearance, then it will
be paid $1.0 million of the Contingent Consideration; and (2) if A&E reaches certain revenue milestones, then the Company will be paid $5.0 million of the Contingent Consideration. The Company used $22.0 million of the proceeds from the
sale of the CT Business to partially pay down amounts owed under the 2013 Loan Agreement (as defined below).
Both the Company and A&E have agreed to
indemnify the other party for losses arising from certain breaches of the Asset Purchase Agreement and for certain other liabilities, subject to certain limitations. An affiliate of A&E has also agreed to guarantee certain obligations to the
Company under the Asset Purchase Agreement.
In connection with the Asset Purchase Agreement, the Company and A&E have entered into certain additional
ancillary agreements including the Contract Manufacturing Agreement, a transition services agreement, an intellectual property retention and license agreement, and product quality agreements.
The above description of the Asset Purchase Agreement and the Contract Manufacturing Agreement are qualified in their entirety by reference to the complete
terms and conditions of the Asset Purchase Agreement and the Contract Manufacturing Agreement both of which will be filed as exhibits to the Quarterly Report on Form 10-Q for the quarter ending September 30, 2017.
Credit Facility
Also, on August 3, 2017 the Company
entered into a Third Amended and Restated Loan Agreement, dated as of August 3, 2017 (the 2017 Loan Agreement), among the Company, TD Bank, N.A. and First Tennessee Bank National Association, as Lenders (together with the various
financial institutions as in the future may become parties thereto, the Lenders), and TD Bank, N.A., as administrative agent for the Lenders. The 2017 Loan Agreement represents a restructuring of the Companys former loan agreement
with TD Bank, N.A. and another lender under the Second Amended and Restated Loan Agreement dated July 16, 2013 between the Company, TD Bank, N.A. and Regions Bank (as amended, the 2013 Loan Agreement).
The 2017 Loan Agreement provides for a revolving credit facility (the Revolving Credit Facility), in the aggregate principal amount of $42.5
million. A total of $35.0 million currently is outstanding on the Revolving Credit Facility. The 2017 Loan Agreement also contains a term loan facility in the aggregate principal amount of $25.4 million (the Term Loan Facility and,
together with the Revolving Credit Facility the Facility). The Facility is secured by substantially all the assets of the Company and its domestic subsidiaries and is guaranteed by the Companys domestic subsidiaries, as well as 65%
of the stock of the Companys foreign subsidiaries.
Borrowings made under the 2017 Loan Agreement initially will bear interest at a rate per annum equal to monthly
LIBOR plus a margin of up to 3.50%. Interest is payable quarterly in arrears, and principal on the Term Loan Facility is payable in quarterly payments of $1.1 million, each commencing October 1, 2017. The maturity date of the Facility is
September 15, 2019. The Company may make optional prepayments on the Facility without penalty at the end of any LIBOR interest period.
The Company
was required to pay certain customary closing costs and bank fees upon entering into the 2017 Loan Agreement. The Company is subject to certain affirmative and negative covenants including (but not limited to) maintaining: a minimum fixed charge
coverage ratio of 1.25:1.00; a maximum senior debt to EBITDA ratio of 3.00:1.00 (net of unrestricted cash in excess of $10.0 million); and a minimum liquidity of $10.0 million. The amounts owed under the 2017 Loan Agreement may be accelerated upon
the occurrence of certain events of default customary for similar facilities for similarly rated borrowers.
The Lenders and their affiliates under the
2017 Loan Agreement have various other relationships with the Company involving the provision of financial services, including cash management and credit cards.
The above description of the 2017 Loan Agreement is qualified in its entirety by reference to the complete terms and conditions of the 2017 Loan Agreement,
which will be filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter ending September 30, 2017.