12. Subsequent Events

 

Public Offering

On October 7, 2016, the Company entered into an underwriting agreement (the “2016 Underwriting Agreement”) with JMP Securities LLC, as representative of the several underwriters (collectively, the “2016 Underwriters”), to issue and sell 2,333,334 shares of the Company’s common stock in an underwritten registered public offering (the “2016 Offering”) at an offering price of $7.50 per share of common stock.  Pursuant to the 2016 Underwriting Agreement, the Company also granted the 2016 Underwriters a 30-day option to purchase up to an additional 350,000 shares of common stock, which the 2016 Underwriters exercised in full on October 7, 2016.  Five of the Company’s directors and officers purchased an aggregate of approximately 32,666 shares of the Company’s common stock in the 2016 Offering and such purchases were made on the same terms and conditions as purchases by the public in the 2016 Offering.

 

The 2016 Offering closed on October 13, 2016, and the Company received net proceeds of approximately $18.62 million from the sale of 2,683,334 shares of its common stock, which includes the additional 350,000 shares pursuant to the over-allotment option, after deducting the underwriting discounts and commissions and estimated offering expenses.  The Company intends to use the net proceeds from the 2016 Offering for general working capital purposes and expanded development of nerve repair markets.  However, the Company’s management will retain broad discretion over the allocation of the net proceeds.

 

Burleson Texas Lease Amendment

On October 25, 2016, AC entered into Commercial Lease Amendment 2 (the “Amendment”), to the Commercial Lease dated April 1, 2016, with Ja-Cole L.P. dated October 25, 2016, as amended. Under the terms of the Amendment, AC leased an additional 2,500 square feet of warehouse/office space in Burleson, Texas (the “Burleson Facility”).  The Burleson Facility will now comprise a total of 10,000 square feet, all of which, pursuant to the Amendment, will be leased until March 31, 2019.  The annual rental cost of the entire Burleson Facility is now approximately $88,000. The Burleson Facility houses raw material storage and product distribution.

 

Debt Refinancing

 

Term Loan

 

On October 25, 2016 (the "Closing Date"), AxoGen and AC, each as borrowers, entered into a Credit and Security Agreement (Term Loan) (the ''MidCap Term Loan Agreement") with the lenders party thereto and MidCap Financial Trust (“MidCap”), as administrative agent and a lender. Under the MidCap Term Loan Agreement, MidCap has agreed to lend to the Company a term loan in the aggregate principal amount of $21 million (the " MidCap Term Loan") which has a maturity date of May 1, 2021 and requires interest only payments through December 1, 2018, and thereafter, 30 monthly payments of principal and interest resulting in the MidCap Term Loan being fully paid by the maturity date. Interest is payable monthly at 8.00% per annum plus the greater of LIBOR or 0.5%, which, as of the Closing Date, resulted in an 8.5% rate. In addition to the interest charged on the MidCap Term Loan, the Company is also obligated to pay certain fees, including an annual agency fee of one quarter of one percent (0.25%) of the aggregate principal amount of the Term Loan.

 

Under the MidCap Term Loan Agreement, the Company has the option at any time to prepay the MidCap Term Loan in whole or in part, provided that prepayments shall be: (i) in an amount equal to $2,500,000 or a higher integral multiple of $1,000,000; and (ii) accompanied by certain prepayment and exit fees.  There can be no more than three (3) partial voluntary prepayments allowed during the term of the MidCap Term Loan Agreement.  MidCap and certain of the lenders have the right to demand prepayment, along with prepayment and exit fees upon an event of default which includes, but is not limited to: (i) default of the Revolving Loan as defined below; (ii) a change of control of the Company; (iii) sale of the majority of the Company's assets; or (iv) a material adverse change to the Company. The prepayment fee is determined by multiplying the amount being prepaid by the following applicable percentage amount: (a) three percent (3.0%) during the first year following the Closing Date; (b) two percent (2.0%) during the second year following the Closing Date, and (c) one percent (1.0%) thereafter.  No Prepayment Fee is due in the event the prepayment is a result of refinancing the MidCap Term Loan and Revolving Loan with MidCap or an affiliate of MidCap.  Upon any repayment of any portion of the MidCap Term Loan (whether voluntary, involuntary or mandatory), other than scheduled amortization payments, and on the final payment of principal of the MidCap Term Loan, an exit fee of five percent (5.0%) of the principal amount of the MidCap Term Loan is also owed based on the portion of any prepayment made and at maturity upon the original principal amount less any prepayments of the MidCap Term Loan.

 

The Company must maintain certain covenants including limiting new indebtedness, restrictions on the payment of dividends and maintaining certain levels of revenue. MidCap, on behalf of the lenders under the MidCap Term Loan Agreement, has a perfected security interest in the assets of the Company to guarantee the payment in full of the MidCap Term Loan. Upon the payment in full to MidCap and the lenders of the MidCap Term Loan, the Company would have no further obligations to MidCap or the lenders under the MidCap Term Loan Agreement.

 

Revolving Loan

 

On the Closing Date, AxoGen and AC, each as borrowers, also entered into a Credit and Security Agreement (Revolving Loan) (the ''Revolving Loan Agreement") with the lenders party thereto and MidCap, as administrative agent and a lender.  Under the Revolving Loan Agreement, MidCap has agreed to lend to the Company up to $10 million under a revolving credit facility (the "Revolving Loan") which amount may be drawn down by the Company based upon an available borrowing base which includes certain accounts receivable and inventory.  The Revolving Loan may be increased to up to $15 million at the Company’s request and with the approval of MidCap. As of the Closing Date, the Company’s borrowing base under the Revolving Loan provided availability of approximately $5.4 million of which the Company borrowed $4 million.   The maturity date of the Revolving Loan is May 1, 2021. Interest is payable monthly at 4.5% per annum plus the greater of LIBOR or 0.5% on outstanding advances, which, as of the Closing Date, resulted in an 5.0% rate. In addition to the interest charged on the Revolving Loan, the Company is also obligated to pay certain fees, including a collateral management fee of one-half percent (0.5%) per annum of the principal amount outstanding on the Revolving Loan from time to time and an unused line fee of one-half percent (0.5%) per annum on the difference between the average amount outstanding on the Revolving Loan minus the total amount of the Revolving Loan commitment amount.  The Revolving Loan is subject to a minimum balance, such that the Company pays the greater of: (i) interest accrued on the actual amount drawn under the Revolving Loan Facility; and (ii) interest accrued on 30% of the average Borrowing Base.  If the Revolving Loan is terminated or permanently reduced prior to the maturity date, MidCap is owed a deferred revolving loan origination fee determined by multiplying the agreed total lending amount by the following applicable percentage amount: (a) three percent (3.0%) during the first year following the Closing Date; (b) two percent (2.0%) during the second year following the Closing Date, and (c) one percent (1.0%) thereafter.  No deferred revolving loan origination fee is due in the event the Revolving Loan is paid in full or the termination of the revolving credit facility is a result of refinancing the MidCap Term Loan and Revolving Loan with MidCap or an affiliate of MidCap.  Termination of the Revolving Loan may occur, at the option of MidCap and certain of the lenders, upon an event of default which includes, but is not limited to: (i) default in payment of the MidCap Term Loan; (ii) a change of control of the Company; (iii) sale of the majority of the Company's assets; or (iv) a material adverse change to the Company.

 

The Company must maintain certain covenants including limiting new indebtedness, restrictions on the payment of dividends and maintaining certain levels of revenue. MidCap, on behalf of the lenders under the Revolving Loan Agreement, has a first perfected security interest in the assets of the Company to guarantee the payment in full of the Revolving Loan. Upon the payment in full to MidCap and the lenders of the Revolving Loan, the Company would have no further obligations to MidCap or the lenders under the Revolving Loan or the Revolving Loan Agreement.

 

Use of Proceeds

 

The Company used the aggregate proceeds of $25 million from the MidCap Term Loan and the Revolving Loan to pay the outstanding indebtedness owed to Three Peaks and the other lenders to terminate the Term Loan Agreement and the Revenue Interest Agreement.  Expenses and fees of approximately $700,000 to complete the negotiation and documentation of the MidCap Term Loan and the Revolving Loan and prepayment fees of approximately $2.3 million owed to Three Peaks were paid from the Company’s own funds.

 

Pro Forma

 

After giving effect to the 2016 Offering and Midcap debt refinancing, the pro forma cash and debt, excluding accounts payable, of the Company as of September 30, 2016 was approximately $31.7 million and $25 million, respectively.  This unaudited pro forma financial information of the Company is derived from applying the net proceeds from the 2016 Offering, Term Loan and Revolving Loan as described above, to the balance sheet of the Company as of September 30, 2016.  In the opinion of the Company's management, all adjustments necessary to present fairly such unaudited pro forma financial information have been made based on the terms and structure of the transactions and in certain cases the estimated expenses of such transactions.  This pro forma information is presented for illustrative purposes only and is not necessarily indicative of the actual results that would have occurred had the transactions taken place at September 30, 2016