9. Subsequent Events

 

On November 12, 2014, (the “Signing Date”), AxoGen, Inc. (the “Company” or “AxoGen”), as borrower, and the Company’s wholly owned subsidiary AxoGen Corporation, as guarantor, entered into a term loan agreement (the “Term Loan Agreement”) with the lenders party thereto and Three Peaks Capital S.a.r.l. (“Three Peaks”), an indirect wholly owned subsidiary of Oberland Capital Healthcare Master Fund LP (“Oberland”), as administrative and collateral agent for the lenders. Under the Term Loan Agreement, Three Peaks has agreed to lend to AxoGen a term loan of $25 million (the “Initial Term Loan”) which has a six year term and requires interest only payments and a final principal payment due at the end of the term.  Interest is payable quarterly at 9.00% per annum plus the greater of LIBOR or 1.0% which as of November 13, 2014 (“the Initial Closing Date”) resulted in a 10% rate. Under certain conditions, the Company has the option to draw an additional $7 million (“Subsequent Borrowing” and, together with the Initial Term Loan, the “Term Loan”) during the period of April 1, 2016 through June 29, 2016 (the closing date of each such Subsequent Borrowing, a “Subsequent Closing Date” and, together with the Initial Closing Date, the “Closing Dates”) under similar terms and conditions.  The Company has to maintain certain covenants including limiting new indebtedness, restriction of the payment of dividends and maintain certain levels of revenue. Three peaks has a first perfected security interest in the assets of the Company.

 

As of the Signing Date, the Company also entered into a 10 year Revenue Interest Agreement (“Revenue Interest Agreement”) with Three Peaks. Royalty payments are based on a royalty rate of 3.75% of the Company’s revenues up to a maximum of $30 million in revenues in any 12 month period. In the event the Subsequent Borrowing is drawn, the royalty rate increases proportionally up to a maximum of 4.80%.  The Company has to maintain certain covenants including those covenants under the Term Loan.

 

Under the Term Loan Agreement, the Company has the option at any time to prepay the Term Loan in whole or in part, and the Royalty Interest Agreements by making the following payment, and Three Peaks has the right to demand the following payment upon a change of control of the Company, sale of the majority of the Company’s assets or a material adverse change to the Company or any portion being prepaid: (i) on or prior to the first anniversary of the applicable Closing Date, 120% of the outstanding principal amount of the Term Loan; (ii) after the first anniversary but no later than the second anniversary of the applicable Closing Date, 135% of the outstanding principal amount of the Term Loan or any portion being prepaid; (iii) ) after the second anniversary but no later than the third anniversary of the applicable Closing Date, 150% of the outstanding principal amount of the Term Loan; or any portion being prepaid (iv) ) after the third anniversary of the applicable Closing Date, an amount generating an Internal Rate of Return of 16.25% of the outstanding principal amount of the Term Loan or any portion being prepaid.  In all cases, the amount due is reduced by the sum of interest and principal previously paid and all amounts received under the Revenue Interest Agreement.  In each such case the Company will also owe an additional 3% of the originally advanced Term Loan amount. Upon payment to Three Peaks, the Company would have no further obligations to Three Peaks under the Term Loan or the Revenue Interest Agreement.

 

In addition, on the Initial Closing Date, the Company sold 1,375,969 shares of common stock to Three Peaks for a total of $3.55 million in cash (“Three Peaks Equity Sale”) at a public offering price of $2.58 per share.  The proceeds from the Initial Term Loan, the Three Peaks Equity Sale and $1.75 million of capital from the Company, were used to fully repay the Royalty Contract with PDL.  The Company has no further obligations to PDL under the Royalty Contract.

 

In connection with the Term Loan Agreement, on the Signing Date, the Company and its wholly owned subsidiary, AxoGen Corporation (“AC”), entered into a Security Agreement (“the Security Agreement”) with Three Peaks, pursuant to which each of the Company and AC grants to Three Peaks a security interest in certain collateral as specified in the Security Agreement to guarantee the payment in full when due of the Secured Obligations.

 

Subsequent to the closing of the Term Loan, also on the Initial Closing Date, the Company sold 643,382 shares of common stock for a total of $1.75 million to PDL (“PDL Equity Sale”) at a public offering price of $2.72 per share pursuant to a Securities Purchase Agreement by and between the Company and PDL dated the Signing Date. The Company intends to use the proceeds from the PDL Equity Sale for general corporate purposes.