Business Context and Reporting Period
Company: Alphatec Holdings, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: July 25, 2016
Event: Entry into a Material Definitive Agreement to sell international distribution operations to Globus Medical Ireland, Ltd. (a subsidiary of Globus Medical, Inc.).
Key Financial Metrics and Transaction Terms
- Purchase Price: $80 million in cash, subject to a working capital adjustment.
- Debt Repayment Plan: Approximately $69 million of the proceeds will be used to repay:
- All outstanding amounts under the credit facility with Deerfield Private Design Fund II and related entities.
- Certain outstanding indebtedness under the credit facility with MidCap Funding IV, LLC.
- New Financing (Globus Facility): A five-year term credit facility of up to $30 million.
- Initial Draw: $20 million to $25 million at closing.
- Interest Rate: LIBOR + 8.0% (with a 9.5% floor) for the first two years; LIBOR + 13% thereafter.
- Repayment: Quarterly principal payments begin on the two-year anniversary; full maturity at five years.
- Collateral: First lien on substantially all assets (excluding accounts receivable); second lien on accounts receivable.
- Supply Agreement Credit: Buyer receives up to a $3.9 million credit against product purchases over six months post-closing.
- Indemnification Limits: Aggregate liability generally limited to $12.0 million, $20.0 million for specific representations, and the full purchase price for certain breaches. Deductible of $500,000 applies in certain cases.
Material Changes and Transaction Scope
The Company is divesting its international distribution operations ("OUS Business"), including:
- Wholly-owned subsidiaries in Japan and Brazil.
- Assets of sales operations in the United Kingdom and Italy.
- Specific subsidiaries: Cibramed Produtos Medicos Ltda, Alphatec Pacific, Inc., Japan Ortho Medical, Inc., Alphatec Medical Device (Shanghai) Co. Ltd., Scient'x Asia Pacific PTE. LTD., and Scient'x Australia PTY. LTD.
Restrictions: The Company agreed not to market and sell spinal implant products outside the U.S. for a period beginning after closing and ending two years following the termination of the Supply Agreement.
Guidance, Outlook, and Risks
- Closing Timeline: Expected by October 2016. Termination rights exist if closing does not occur by October 1, 2016 (extendable to October 15, 2016).
- Conditions Precedent: Closing is subject to regulatory approvals, third-party consents, entry into the Globus Facility and Supply Agreements, and the absence of a material adverse effect.
- Risks:
- Failure to satisfy closing conditions or meet the anticipated timeline.
- Business disruption and management distraction during the transition.
- Retention of certain liabilities associated with the international business.
- Uncertainty regarding new product development.
- Forward-Looking Statements: The filing cautions that actual results may differ materially from projections regarding debt repayment and closing timing.
Investor Verification Checklist
- Verify the final closing date and whether the October 2016 deadline is met or extended.
- Confirm the exact amount of debt repaid to Deerfield and MidCap versus the $69 million estimate.
- Monitor the execution of the $30 million Globus Facility Agreement and the initial draw amount.
- Review the final working capital adjustment to determine the net cash received from the $80 million purchase price.
- Assess the impact of the non-compete restriction on future international revenue growth.