Item
1.01
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Entry
into a Material Definitive Agreement.
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Restructuring
and Exchange Agreement
On
August 7, 2020, Xtant Medical Holdings, Inc. (the “Company,” “we” or “us”) entered into a
Restructuring and Exchange Agreement (the “Restructuring Agreement”) with OrbiMed Royalty Opportunities II, LP (“Royalty
Opportunities”) and ROS Acquisition Offshore LP (“ROS” and together with Royalty Opportunities, the “Lenders”),
pursuant to which the parties thereto agreed, subject to the terms and conditions set forth therein, to take certain actions as
set forth therein and as described below (collectively, the “Restructuring Transactions”) in furtherance of a restructuring
of the Company’s outstanding indebtedness under that certain Second Amended and Restated Credit Agreement, dated as of March
29, 2019, by and among the Company, Bacterin International, Inc., Xtant Medical, Inc., X-spine Systems, Inc., and the Lenders,
as amended (the “Second A&R Credit Agreement”).
Restructuring
Transactions
The
Restructuring Transactions include, among others:
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an
amendment to the Company’s Amended and Restated Certificate of Incorporation, as amended, to increase the number of
authorized shares of common stock, par value $0.000001 per share, of the Company (“Common Stock”) from 75 million
to 300 million (the “Charter Amendment”);
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the
exchange by the Company of shares of Common Stock for approximately $40.8 million of the aggregate outstanding principal amount
of the Loans (as defined in the Second A&R Credit Agreement) outstanding under the Second A&R Credit Agreement, as
well as, without duplication, approximately $21.1 million of the outstanding amount of PIK Interest (as defined in the Second
A&R Credit Agreement) (such loans and PIK Interest, the “Exchanging Loans”), plus all other accrued and unpaid
interest on the Exchanging Loans outstanding as of the closing date, at an exchange price of $1.07 per share, representing
the average closing price of the Common Stock over the 10 trading days immediately prior to the parties entering into the
Restructuring Agreement, and resulting in the issuance of approximately 57.8 million shares of Common Stock (the “Share
Issuance”);
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the
execution of an amendment to the Second A&R Credit Agreement by the parties thereto to change certain provisions therein,
including extinguishing loans in an aggregate principal amount equal to the Exchanging Loans outstanding thereunder together
with all accrued and unpaid interest thereon, adding loans in an aggregate principal amount equal to the prepayment fee payable
thereunder in respect of the Exchanging Loans, reducing the amount of credit availability thereunder, reducing the interest
rate and eliminating certain financial covenants, as described in more detail below; and
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the
launch by the Company of a rights offering to allow stockholders of the Company to purchase up to an aggregate of $15 million
of Common Stock at the same price per share as the $1.07 per share exchange price used to exchange the Exchanging Loans into
Common Stock as part of the Share Issuance (the “Rights Offering”).
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Immediately
after the execution of the Restructuring Agreement by the parties thereto, the Company solicited and obtained the written consent
of Royalty Opportunities and ROS, the holders of an aggregate of 9,248,678 shares of Common Stock, representing a majority of
the outstanding shares of Common Stock as of the record date, August 7, 2020 (collectively, the “Consenting Majority Stockholders”),
for the approval of the Charter Amendment and the Share Issuance, in accordance with applicable provisions of the Delaware General
Corporation Law (the “DGCL”) and the Company’s Second Amended and Restated Bylaws. The written consent of the
Consenting Majority Stockholders was sufficient to approve the Charter Amendment and the Share Issuance. Therefore, no proxies
or additional consents will be solicited by the Company in connection with the Charter Amendment and the Share Issuance.
Pursuant
to Section 14(c) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations
promulgated thereunder, the Company intends to send a definitive information statement to all holders of Common Stock as of the
August 7, 2020 record date (the “Record Date”) for the purpose of informing such stockholders of the written actions
taken by the Consenting Majority Stockholders (the “Information Statement”). In accordance with Exchange Act Rule
14c-2, the stockholder consent of the Consenting Majority Stockholders will become effective no sooner than 20 calendar days following
the mailing of the Information Statement. After the expiration of the 20-day period required under Rule 14c-2 promulgated under
the Exchange Act, and in accordance with the DGCL, the Company intends to file the Charter Amendment with the Secretary of State
of the State of Delaware and, immediately after the Charter Amendment has become effective, in accordance with the rules and regulations
of the NYSE American and the terms of the Restructuring Agreement, the Company intends to issue approximately 57.8 million shares
of Common Stock to the Lenders in the Share Issuance.
Assuming
that the Charter Amendment and Share Issuance are consummated on August 7, 2020, the Lenders as of such date would own, in the
aggregate, approximately 94% of the outstanding Common Stock. Consequently, all other existing stockholders of the Company, who
currently own approximately 30% of the outstanding Common Stock, would own approximately 6% of the outstanding Common Stock following
the consummation of the Charter Amendment and Share Issuance. As previously mentioned, the Company agreed to launch a rights offering
to allow stockholders of the Company to purchase Common Stock at the same price per share as the $1.07 per share exchange price
used in the Share Issuance.
Covenants
In
furtherance of the completion of the Restructuring Transactions, the Company and the other parties to the Restructuring Agreement
agreed to take certain actions prior to the closing of the Restructuring Transactions (the “Closing”), including,
among others, the following:
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The
Company agreed to make certain public disclosures and required filings with the Securities and Exchange Commission (the “SEC”),
including, among others, the filing of a preliminary and definitive Information Statement with the SEC, and to mail the definitive
Information Statement to all stockholders of the Company as of the Record Date.
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The
Lenders agreed to make certain required filings with the SEC.
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The
Company agreed to provide certain required notices to the NYSE American.
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The
Company agreed to submit written consent of the Charter Amendment and Share Issuance to the Consenting Majority Stockholders
for adoption in order to obtain stockholder approval.
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The
Company agreed to file with the SEC a registration statement relating to the Rights Offering.
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The
Company and the other parties to the Restructuring Agreement agreed to take the following actions at the Closing but only in the
event stockholder approval of the Charter Amendment and Share Issuance had been obtained:
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The
Company agreed to execute and file the Charter Amendment with the Secretary of State of the State of Delaware.
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After
the filing of the Charter Amendment, the Company agreed to issue the shares of Common Stock to the Lenders upon exchange of
the Exchanging Loans.
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The
Company and certain of its subsidiaries and the Lenders agreed to enter into the Second Amendment to the Second Amended and
Restated Credit Agreement, described in more detail below.
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The
Company and the Lenders agreed to enter into a Registration Rights Agreement, described in more detail below.
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The
Company and the other parties to the Restructuring Agreement agreed to take the following actions promptly after the Closing:
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The
Company agreed to make certain public disclosures and required filings with the SEC.
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The
Lenders agreed to make certain required filings with the SEC.
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The
Company agreed to provide certain required notices to the NYSE American.
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The
Company agreed to use its reasonable best efforts to cause the registration statement filed by the Company in connection with
the Rights Offering to become effective as promptly as practicable after the Closing and to commence and close the Rights
Offering.
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In
addition to the covenants described above, the Restructuring Agreement includes customary covenants of the Company and the Lenders,
including, among others, the following covenants of the Company: (i) to operate its businesses in the ordinary course based on
historic practices and operations contemplated pursuant to the Company’s business plans, but also taking into account the
Restructuring Transactions and the other transactions contemplated under the Restructuring Agreement, during the interim period
between the execution of the Restructuring Agreement and the Closing; (ii) not to engage in specified types of transactions during
this period unless agreed to in writing by the Lenders; (iii) to indemnify certain officers and representatives of the Company
and certain affiliates and representatives of the Lenders for all costs, expenses, loss, damage or liability arising from any
losses based upon any act or omission, transaction or other occurrence or circumstances arising from or related in any way to
the Company, the Restructuring Transactions, the Restructuring Agreement or any related documents; and (iv) to pay all reasonable
costs and expenses incurred by the Company and certain costs incurred by the Lenders in connection with the Restructuring Agreement
and the transactions contemplated thereby.
Representations
and Warranties
The
Restructuring Agreement also includes customary representations and warranties of the Company and the Lenders. These representations
and warranties were made only for purposes of the Restructuring Agreement and as of specific dates, are solely for the benefit
of the parties to the Restructuring Agreement, may be subject to limitations agreed upon by the parties (including being qualified
by confidential disclosures made for the purposes of allocating contractual risk between the parties to the Restructuring Agreement
instead of establishing these matters as facts), and may be subject to standards of materiality applicable to the parties that
differ from those applicable to investors.
Investors
should not rely on the representations or warranties or any description thereof as characterizations of the actual state of facts
or condition of the Company or any of its subsidiaries or affiliates. The representations and warranties made in the Restructuring
Agreement by the Company and the Lenders were made solely by the parties to, and for the purposes of, the Restructuring Agreement
and as of specific dates and were qualified and subject to important limitations agreed to by the Company and the Lenders in connection
with negotiating the terms of the Restructuring Agreement. In particular, in your review of the representations and warranties
contained in the Restructuring Agreement and described in this summary, it is important to bear in mind that the representations
and warranties were negotiated with the principal purpose of establishing the circumstances in which a party to the Restructuring
Agreement may have the right not to consummate the Restructuring Transactions if the representations and warranties of another
party prove to be untrue due to a change in circumstance or otherwise, and allocating risk among the parties to the Restructuring
Agreement, rather than establishing matters as facts. The representations and warranties may also be subject to a contractual
standard of materiality different from those generally applicable to stockholders and reports and documents filed with the SEC
and in some cases were qualified by the matters contained in the confidential disclosure schedule that the Company provided to
the Lenders in connection with the Restructuring Agreement, which disclosures were not reflected in the Restructuring Agreement.
Moreover,
information concerning the subject matter of the representations and warranties may change after the date of the Restructuring
Agreement, which subsequent information may or may not be fully reflected in public disclosures by the Company or its subsidiaries
or affiliates. The provisions of the Restructuring Agreement, including the representations and warranties, should not be read
alone, but instead should only be read together with all periodic and current reports and statements that the Company files with
the SEC.
Conditions
to Closing
The
obligations of the Company and the Lenders to effect the Restructuring Transactions are subject to customary closing conditions,
including, among others, the following mutual conditions to the obligations of the parties: (i) the receipt of all governmental
and regulatory approvals and consents necessary to effectuate the Restructuring Transactions; (ii) no legal restraints or prohibitions
preventing the consummation of the Restructuring Transactions have occurred; (iii) the truth and accuracy of the other party’s
representations and warranties in the Restructuring Agreement, subject in certain cases to materiality; and (iv) the performance
and compliance in all material respects with all agreements and covenants contained in the Restructuring Agreement to be performed
by them prior to or at the Closing. The obligations of the Lenders are further subject to the absence of any Material Adverse
Effect, which is defined in the Restructuring Agreement as any event, change, effect, circumstance or condition that, individually
or in the aggregate with other such events, changes, effects, circumstances or conditions, (i) is, or is reasonably likely to
be, materially adverse to the business, operations, results of operations, properties, condition (financial or otherwise), assets,
liabilities (actual or contingent) or prospects of the Company and its subsidiaries, taken as a whole or (ii) could reasonably
be expected to materially interfere with the consummation of the transactions contemplated by the Restructuring Agreement, excluding
a change in the listing status of the Company’s Common Stock from the NYSE American to an over-the-counter market.
Termination
The
Restructuring Agreement includes customary termination provisions for both the Company and the Lenders, including, among others,
(i) if the closing of the Restructuring Transactions is not consummated by October 4, 2020; provided that the terminating party
has not been a principal cause of the failure to close due to its failure to perform any of its obligations under the Restructuring
Agreement, and (ii) by written consent of the Company and the Lenders. In addition, the Restructuring Agreement provides the ability
of the Lenders in their sole discretion to terminate the Restructuring Agreement, the Restructuring Transactions and the other
transactions contemplated thereby in the event a potential transaction involving the Company and its subsidiaries is pending.
Second
Amendment to Second Amended and Restated Credit Agreement
As
a condition to the closing of the Restructuring Transactions, the Company and the Lenders are required to enter into a Second
Amendment to Second Amended and Restated Credit Agreement (the “Credit Agreement Amendment”) which will amend the
Second A&R Credit Agreement as follows:
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extinguishing
loans in an aggregate principal amount equal to the Exchanging Loans outstanding thereunder on the closing date of the Credit
Agreement Amendment, immediately prior to the Closing, together with all accrued and unpaid interest thereon;
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adding
loans in an aggregate principal amount equal to the prepayment fee payable thereunder in respect of the Exchanging Loans;
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removing
the availability of the Additional Delayed Draw Loans and reducing the Additional Second Delayed Draw Commitment Amount (as
such terms are defined in the Second A&R Credit Agreement) to $5.0 million;
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providing
that beginning on October 1, 2020 through the maturity date of the Second A&R Credit Agreement, interest payable in cash
will accrue on the loans thereunder at a rate per annum equal to the sum of (i) 7.00% plus (ii) the higher of (x) the LIBO
Rate (as such term is defined in the Second A&R Credit Agreement) and (y) 1.00%; and
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eliminating
the Revenue Base financial covenant.
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Registration
Rights Agreement
As
a condition to the closing of the Restructuring Transactions, the Company is required to enter into a Registration Rights Agreement
(the “Registration Rights Agreement”) with the Lenders. The proposed Registration Rights Agreement will require the
Company to, among other things, file with the SEC a shelf registration statement covering the resale, from time to time, of the
Common Stock issuable upon exchange of the Exchanging Loans no later than the 90th day after the date of Closing and use its best
efforts to cause the shelf registration statement to become effective under the Securities Act of 1933, as amended (the “Securities
Act”), no later than the 180th day after the date of Closing.
It
is anticipated that the Credit Agreement Amendment and the Registration Rights Agreement will be entered into by the parties thereto
immediately prior to the Closing.
The
Lenders, which collectively own approximately 70% of the outstanding Common Stock, and beneficially own, with their warrants,
approximately 78% of the Common Stock, are the sole holders of the Company’s outstanding long-term debt, all of which is
outstanding under the Second A&R Credit Agreement. In addition, as described in more detail in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on March 5, 2020, the Company is a party to an Investor
Rights Agreement and Registration Rights Agreement with the Lenders in addition to the Second A&R Credit Agreement. Pursuant
to the director nomination provisions in the Investor Rights Agreement, three of the current five members of the Board of Directors
of the Company are affiliated with the Lenders.
The
foregoing summary description of the Restructuring Agreement does not purport to be complete and is qualified in its entirety
by reference to the full text of the Restructuring Agreement which is filed as Exhibit 10.1 to this Current Report on Form 8-K
and incorporated herein by reference. The foregoing summary descriptions of the Credit Agreement Amendment and Registration Rights
Agreement do not purport to be complete and are qualified in their entirety by reference to the full text of the Credit Agreement
Amendment and Registration Rights Agreement, which will be filed as exhibits to a Current Report on Form 8-K to be filed by the
Company within four business days after the completion of the Closing and incorporated herein by reference.