Endologix, Inc. (Nasdaq: ELGX) (“Endologix” or the “Company”), a
developer and marketer of innovative treatments for aortic
disorders, announced today that it has entered into an exchange
agreement with three holders of the Company’s 3.25% Senior
Convertible Notes due 2020 (the “Existing Notes”), pursuant to
which these investors exchanged an aggregate of approximately $11.0
million of the Existing Notes plus accrued interest for
approximately $11.1 million of 5.0% Voluntary Convertible Senior
Secured Notes due 2024 (the “New Notes”). This agreement will
replace the Company’s existing 3.25% Convertible Senior Notes due
2020 for those investors.
The Company and certain funds managed by Deerfield Management
Company, L.P. (collectively, “Deerfield”) also agreed to amend
their existing facility agreement and credit agreement to extend
near-term mandatory amortization payments and provide for certain
conversion rights and obligations pertaining to the Company’s debt
to Deerfield.
“We are very pleased to announce these debt restructuring
transactions, which enables us to address our balance sheet in a
responsible manner, over time. I’m very grateful to our finance and
legal teams and to our supportive partners who worked to build
conversion features that will help us execute against key
milestones, including the Nellix PMA. This agreement allows us to
keep capital on the balance sheet and remain focused on business
execution in pursuit of delivering value to our patients,
customers, and shareholders,” commented John Onopchenko, Chief
Executive Officer of Endologix, Inc.
Vaseem Mahboob, Chief Financial Officer of Endologix, Inc.,
commented, “This debt restructuring addresses our near-term balance
sheet overhang and provides a pathway to significantly deleverage
our debt and achieve operating cash flow breakeven in 2021. As we
continue to execute our commercial evidence-based strategies to
grow and prudently manage our operating costs, we believe that
Endologix is well positioned to achieve its near-term financial
goals while creating a path to long-term profitable growth and
shareholder value.”
DLA Piper and Jefferies LLC served as legal counsel and
financial advisor to the Company, respectively.
Convertible Note Exchange
On February 24, 2020, the Company and three investors holding
approximately $11.0 million of the principal amount of the
Company’s Existing Notes (the “Holders”) entered into an Exchange
Agreement (the “Exchange Agreement”) providing for the exchange of
the Holders’ Existing Notes for the New Notes. The exchanging
Holders are exchanging all outstanding principal plus accrued and
unpaid interest under the Existing Notes into the same amount of
principal of New Notes pursuant to the Exchange Agreement (the
“Exchange”). The New Notes are being issued in a transaction exempt
from the registration requirements of the Securities Act of 1933,
as amended (the “Securities Act”) by virtue of Section 4(a)(2) of
the Securities Act and Rule 506 thereunder.
The New Notes will be governed by an Indenture (the
“Indenture”), by and between the Company and Wilmington Trust,
National Association, as trustee (the “Trustee”). The New Notes
will accrue interest at a rate of 5.00% per year, payable
semi-annually in arrears on April 1 and October 1 of each year,
commencing April 1, 2020. The New Notes will mature on April 3,
2024, unless earlier purchased, redeemed or converted in accordance
with the terms of the Indenture. The Indenture governing the New
Notes will contain customary terms and covenants and events of
default.
The New Notes will be convertible at the option of each Holder
into shares of common stock at any time prior to the close of
business on the business day immediately preceding January 1, 2024;
provided that, except if the Company undergoes a fundamental change
(as defined in the Indenture) and for certain other customary
circumstances of conversion, each Holder may not convert more than
30% the initial aggregate principal amount of its outstanding New
Notes per calendar quarter (a “Voluntary Conversion”). Beginning
January 1, 2024, until the close of business on the business day
immediately preceding the maturity date, the New Notes will be
convertible at the option of the holder at any time regardless of
the conditions described in this paragraph. The initial conversion
rate of the New Notes in a Voluntary Conversion is 0.4445 shares of
the Company’s common stock per $1.00 principal amount of the New
Notes, which is equivalent to an initial conversion price per share
equal to $2.25 (the “Conversion Price”). The conversion rate is
subject to adjustment upon the occurrence of certain specified
events. Except if the Company undergoes a fundamental change (as
defined in the Indenture) and for certain other customary
circumstances of conversion, in no event prior to the close of
business on the business day immediately preceding January 1, 2024
may the New Notes be converted in a calendar quarter unless the
closing sale price of the Company’s common stock for at least
twenty (20) trading days during the period of thirty (30)
consecutive trading days ending on the last trading day of the
immediately preceding calendar quarter is greater than or equal to
110% of the Conversion Price (subject to adjustment upon the
occurrence of certain specified events) (the “Voluntary Conversion
Threshold”).
The New Notes will be secured by the Company’s assets pursuant
to a Junior Lien Security Agreement by and between the Company and
Wilmington Trust, National Association, as collateral agent (the
“JLSA”). The JLSA grants a second lien on the Company’s assets that
is second in priority to the security interests granted (i) to
Deerfield (as defined below), as agent, pursuant to the Amended and
Restated Guaranty and Security Agreement, dated August 9, 2018, by
and among Endologix, Inc., its subsidiaries and Deerfield, as
agent, as amended to date and (ii) to Deerfield ELGX Revolver, LLC,
as agent (“Deerfield ELGX”), pursuant to the Guaranty and Security
Agreement, dated as of August 9, 2018, by and among Endologix,
Inc., its subsidiaries and Deerfield ELGX, as agent, as amended to
date. In connection with the issuance of the New Notes, the parties
entered into Subordination and Intercreditor Agreement, dated as of
February 24, 2020, by and among the Company, Deerfield, Deerfield
ELGX and Wilmington Trust, National Association, as collateral
agent (the “Subordination Agreement”). The Subordination Agreement
contains customary provisions associated with the subordination of
the security interest of the New Notes.
The Indenture will provide that in no event may a Holder convert
any portion of the New Notes into shares of common stock if such
conversion would result in the Holder beneficially owning more that
9.5% of the Company’s outstanding common stock.
Exchange Agreement and Fourth Amendment to Facility
Agreement
On February 24, 2020, the Company entered into a February 2020
Exchange Agreement and Fourth Amendment to Amended and Restated
Facility Agreement and Amendment to First Out Waterfall Notes (the
“Facility Amendment”) with Deerfield Private Design Fund IV, L.P.
and certain other funds managed by Deerfield Management Company,
L.P. (collectively, “Deerfield”), dated August 9, 2018 (as amended
to date, the “Facility Agreement”). The Facility Amendment provides
for, among other things, the conversion of certain portions of the
outstanding convertible debt under the Facility Agreement upon the
achievement of certain milestones. In addition, the principal
amortization payment of first out waterfall loans (the “First Out
Waterfall Loans”) currently due on April 2, 2021 (the “First
Amortization Payment”) will be extended to July 1, 2021. In the
event the Company satisfies the Initial Exchange Condition (as
defined below) and provided that the Company reports net revenue of
at least $142.5 million for the year ended December 31, 2020 and
complies with the global excess liquidity requirements (the
“Maturity Extension Conditions”), the maturity date shall be
extended from April 2, 2023 to December 22, 2023 and the Second
Amortization Date (as defined in the Facility Agreement) shall be
extended from April 2, 2022 to April 2, 2023. Further, the Facility
Amendment provides that the interest payment date due April 1, 2020
will be payable in paid-in-kind interest by increasing the
principal amount of the loans by an amount equal to the interest
that has accrued.
The Facility Amendment provides for the exchange of the existing
notes representing the First Out Waterfall Loans for amended notes
(the “Amended First Out Waterfall Notes”). The Amended First Out
Waterfall Notes reduce the fixed conversion price under the
existing notes from $6.625 to $2.00 (the “Fixed Conversion Price”),
provided that if the Initial Exchange Condition (as defined below)
is not met by June 30, 2020, then such price shall revert to
$6.625. The Amended First Out Waterfall Notes provide that the
Company may require Deerfield to convert up to $40,000,000 of
principal amount (the “Forced Conversion Cap”) provided that the
arithmetic average of the volume weighted average price of the
Company’s common stock on each of the fifteen (15) consecutive
trading days ending on the conversion date (the “Forced Conversion
15 Day VWAP”), and the closing price on the conversion date is
greater than 200% of the Fixed Conversion Price into shares of the
Company’s newly created Series DF-1 Preferred Stock, par value
$0.001 per share (the “Preferred Stock”), at a price per share
equal to the product of (i) the Preferred Exchange Rate (as defined
below) and (ii) and 85% of the lesser of the closing price of the
common stock on such conversion date (the “Closing Price”) and the
Forced Conversion 15 Day VWAP, provided that such lesser price is
greater than or equal to 170% of the Fixed Conversion Price and
other conditions are met (each such conversion, a “Forced
Conversion”). A Forced Conversion may only occur once every 31
calendar days and any individual Forced Conversion may not exceed
the lesser of (i) $3,500,000 or (ii) the Forced Conversion Cap less
any prior Forced Conversions or Discretionary Conversions (as
defined below).
Deerfield also has the option to convert up to $60.0 million
(less any amounts converted pursuant to Forced Conversions) of the
Company’s outstanding debt (any such conversion, a “Discretionary
Conversion”) into, at Deerfield’s option and subject to the
Ownership Cap, shares of Common Stock at a rate equal to the
greater of the Fixed Conversion Price and 85% of the arithmetic
average of the volume weighted average price of the Company’s
common stock on each of the fifteen (15) consecutive trading days
prior to the conversion date (the “15 Day VWAP”), provided that
such conversion price is not less than the Floor Price (the
“Discretionary Common Conversion Rate”) or shares of Preferred
Stock at a rate (the “Discretionary Preferred Conversion Rate”)
equal to the product of (i) the Preferred Exchange Rate (as defined
below) multiplied by (ii) the Discretionary Common Conversion
Rate.
The Preferred Stock is convertible into common stock at an
initial rate of 100 shares of common stock for each share of
Preferred Stock, as may be adjusted pursuant to the Certificate of
Designation of Preferences, Rights and Limitations of Series DF-1
Preferred Stock (the “Certificate of Designation”) (the “Preferred
Exchange Rate”). Pursuant to the Certificate of Designation,
1,150,000 shares of Preferred Stock have been authorized for
issuance. The Preferred Stock does not possess any voting rights.
The Preferred Stock is subject to customary adjustments for stock
events. The Preferred Stock provides that in no event may Deerfield
convert the Preferred Stock into shares of common stock if such
conversion would result in Deerfield beneficially owning more that
4.985% of the Company’s outstanding common stock (the “Ownership
Cap”).
The Amended First Out Waterfall Notes also revises Deerfield’s
existing right to convert a portion of the outstanding principal
amount of the First Out Waterfall Loan into a maximum of 1,430,000
shares of the Company’s common stock at the current conversion
price to Deerfield may, at its option, convert such portion of the
First Out Waterfall Loans into 1,430,000 shares of common stock at
the Discretionary Common Conversion Rate, or the equivalent number
of shares of Preferred Stock at the Discretionary Preferred
Conversion Rate.
The Facility Amendment provides that, in the event that on or
prior to the ninetieth (90th) day following the receipt of
regulatory approval to sell the Company’s Ovation Alto Abdominal
Stent Graft System (“Alto”) in the United States, but in any event
no later than June 30, 2020, net sales of Alto shall be in excess
of $1,000,000 (the “Initial Exchange Condition”), Deerfield will
exchange 8.333% of the principal amount of the First Out Waterfall
Notes, including any such principal that has resulted from
payment-in-kind (“PIK”) interest payments made on or prior to such
date, plus any accrued PIK interest thereon through such exchange
date into shares of Preferred Stock (the “Initial Exchange”) at a
rate equal to the Preferred Exchange Rate multiplied by $0.8282
(the “Floor Price”). In addition, upon consummation of the Initial
Exchange and provided that the Company reports net revenue of at
least $142.5 million for the year ended December 31, 2020 and
complies with the global excess liquidity requirement, payment of
the remaining portion of the First Amortization Payment will be
extended until the Second Amortization Date and maturity date in
accordance with the Facility Agreement.
In addition, in the event that the Initial Exchange has occurred
and the Company completes the first submission to the FDA of a full
PMA application with respect to the Nellix EVAS System on or prior
to September 30, 2021, Deerfield will exchange $2,500,000 into
shares of Preferred Stock (the “Nellix Submission Exchange”) at a
rate (the “Conditional Exchange Rate”) equal to the product of the
(i) Preferred Exchange Rate multiplied by (ii) the 85% of the
lesser of (x) the Closing Price and (y) the 15 Day VWAP (the
“Conditional Price”). In the event that the Initial Exchange and
the Nellix Submission Exchange have occurred and the Company
receives the PMA from the FDA with respect to the Nellix EVAS
System as shall be necessary for the sale of the Nellix EVAS System
in the United States on or prior to June 30, 2022 (the “Nellix
Approval Exchange Condition”), Deerfield will exchange $7,500,000
into shares of Preferred Stock (the “Nellix Approval Exchange”) at
the Conditional Exchange Rate. In the event that the Initial
Exchange, the Nellix Submission Exchange and the Nellix Approval
Exchange have occurred and net sales of the Nellix EVAS System are
in excess of $10,000,000 within nine months of satisfaction of the
Nellix Approval Exchange Condition, Deerfield will exchange
$10,000,000 into shares of Preferred Stock (the “Nellix Sales
Exchange”) at the Conditional Exchange Rate. Notwithstanding the
above, none of the foregoing exchanges shall take place if the
Conditional Price at the time of such exchange is less than the
Floor Price.
The Facility Amendment provides that if, during the period
beginning on the first business day following satisfaction of the
Initial Exchange Condition and ending on the date that is three
months thereafter, the Company completes an equity financing
resulting in net proceeds to the Company of at least $5,000,000,
and subject to certain other conditions set forth in the Facility
Amendment, then Deerfield will exchange $0.50 of principal of First
Out Waterfall Notes for each $1 of net proceeds up to an aggregate
of $20 million in net proceeds into shares of Preferred Stock at a
rate equal to the Preferred Exchange Rate multiplied by the lowest
price per share of common stock purchased in such financing,
provided that such price per share is not less than the Floor
Price. Deerfield would also receive the number of such other
securities, if any, issued with each share of common stock sold in
such financing for each as-converted share of Common Stock issued
to Deerfield.
Further, the Facility Amendment also provides, upon signing, the
Company shall pay a restructuring fee of $2,000,000 in cash or a
combination of shares of common stock at the Floor Price and shares
of Preferred Stock at a rate equal to the product of the Floor
Price multiplied by the Preferred Exchange Rate. The Company
elected to satisfy the fee by issuing 950,000 shares of common
stock and 14,648.75 shares of Preferred Stock at signing.
The Facility Amendment provides that, upon the satisfaction of
the Initial Exchange Condition, the Company will amend the
outstanding warrants (the “Warrant Amendment”) to purchase 647,001
shares of common stock previously issued to Deerfield pursuant to
the Company’s prior facility agreement with Deerfield dated April
3, 2017 (as amended, the “2017 Warrants”) and warrants to purchase
875,001 shares of common stock previously issued to Deerfield
pursuant to the Facility Agreement (as amended, the “2018 Warrants”
and, together with the 2017 Warrants, the “Warrants”) to reduce the
exercise price of the Warrants to $1.50. All other material terms
and conditions of the Warrants remain the same.
The Facility Amendment also provides that, upon completion of
the Initial Exchange, the remaining interest payments on the First
Out Waterfall Notes will be due monthly. For 18 months beginning
with the first calendar month following completion of the Initial
Exchange the Company will, subject to certain conditions precedent,
make such interest payments in shares of Preferred Stock at a rate
equal to the product of (i) the Preferred Exchange Rate as of the
interest payment date multiplied by (ii) ninety percent (90%) of
the lesser of (a) the closing price on the date immediately
preceding the interest payment date and (b) the 15 Day VWAP
immediately preceding the interest payment date.
Fourth Amendment to Credit Agreement
On February 24, 2020, the Company entered into a Fourth
Amendment to Credit Agreement (the “Credit Amendment”) with
Deerfield ELGX Revolver, LLC and certain funds managed by Deerfield
Management Company, L.P., dated as of August 9, 2018 (as amended to
date, the “Credit Agreement”). The Credit Amendment includes
conforming revisions to reflect the changes in the Facility
Amendment. In addition, the Credit Amendment provides that if the
Company satisfies the Maturity Extension Conditions, the Credit
Agreement maturity date will extend to the earlier of (i) December
22, 2023 or (ii) the date the loans pursuant to the Facility
Agreement have been repaid in full.
About Endologix, Inc.
The Company develops and manufactures minimally invasive
treatments for aortic disorders. The Company's focus is in
endovascular stent grafts for the treatment of abdominal aortic
aneurysms (AAA). AAA is a weakening of the wall of the aorta, the
largest artery in the body, resulting in a balloon-like
enlargement. Once an AAA develops, it continues to enlarge and, if
left untreated, becomes increasingly susceptible to rupture. The
overall patient mortality rate for ruptured AAA is approximately
80%, making it a leading cause of death in the U.S. For more
information, visit www.endologix.com.
The Nellix® EndoVascular Aneurysm Sealing System and Ovation
Alto® Abdominal Stent Graft System the Company's next generation
Ovation system device, are approved only as investigational devices
and are not currently approved for commercial purposes in any
market.
Cautionary Note Regarding Forward-Looking Statements
This press release contains “forward-looking statements” within
the meaning of the Private Securities Litigation Reform Act of 1995
and other federal securities laws. Any statements contained in this
press release that are not statements of historical fact, including
but not limited to statements regarding the proposed offering of
common stock and the intended use of proceeds of the common stock
offering, are forward-looking statements. Words such as “believes,”
“anticipates,” “plans,” “expects,” “will,” “intends,” “potential,”
“possible” and similar expressions are intended to identify
forward-looking statements. These forward-looking statements
include our expectations regarding the convertible note exchange
and the amendments to the Deerfield agreements and are based on
information available to us as of the date they were made.
Forward-looking statements involve risks, uncertainties and other
factors related to our business and the general economic
environment, many of which are beyond our control. These risks,
uncertainties and other factors could cause our actual results to
differ materially and adversely from those projected in
forward-looking statements. Although we believe that the
forward-looking statements contained herein are reasonable, we can
give no assurance that our expectations are correct. All
forward-looking statements are expressly qualified in their
entirety by this cautionary statement. For a detailed description
of our risks and uncertainties, you are encouraged to review the
Company’s Annual Report on Form 10-K for the year ended December
31, 2018 and the other documents that the Company files with the
SEC. The Company does not undertake any obligation to publicly
update its forward-looking statements based on events, conditions
or circumstances after the date hereof, except as required by
law.
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version on businesswire.com: https://www.businesswire.com/news/home/20200224005564/en/
INVESTOR: Endologix, Inc. Vaseem Mahboob, CFO (949) 595-7200
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