Business Context and Reporting Period
This Form 8-K, filed on September 6, 2018, reports on events occurring on September 5, 2018, for Amedica Corporation (the "Company"). The Company is an emerging growth company incorporated in Delaware. The filing details the entry into a Material Definitive Agreement with CTL Medical Corporation ("CTL") regarding the sale of specific business assets.
Key Financial Metrics and Transaction Terms
The filing does not provide standard financial metrics such as revenue, profit, cash flow, or margins for a reporting period. Instead, it outlines the financial structure of the Asset Purchase Agreement:
- Total Consideration: Up to $10.0 million.
- Debt Assumption: CTL assumes the Company's $2.5 million note with North Stadium Investments, LLC (controlled by the Company's CEO).
- Promissory Note: CTL issues an interest-free $6.0 million promissory note to the Company.
- Earn-out: Up to $1.5 million contingent on CTL achieving specific sales revenues for the sold assets over three years.
- Security: CTL's obligations are secured by a second lien on the sold assets and a personal guarantee from CTL's President.
Material Changes and Transaction Details
The Company entered into an agreement to sell, transfer, and assign assets related to its spinal implant business, including silicon nitride, metal-based, and PEEK products, as well as biologics and the "Amedica" name. Key operational changes include:
- Asset Sale: Transfer of spinal implant assets to CTL.
- Continued Operations: The Company will retain rights to silicon nitride products for non-spinal applications and will continue to manufacture silicon nitride spinal products for CTL for ten years under an exclusive arrangement.
- Intellectual Property: The Company retains ownership of patents and know-how for manufacturing both the sold spinal products and retained non-spinal products.
- Restrictive Covenants: The Company agreed to a five-year non-solicit period for sold assets in specific US territories and a five-year non-poaching agreement for employees. CTL has a right of first negotiation for ten years if the Company sells its manufacturing technology or facility.
Guidance, Risks, and Contingencies
The filing does not provide forward-looking financial guidance or management commentary on future earnings. However, it highlights several risks and contingencies:
- Closing Conditions: The transaction is subject to customary closing conditions and must be completed by October 1, 2018, or either party may terminate.
- Termination Fee: If the Company terminates the agreement to accept a superior proposal, it must pay CTL a $300,000 termination fee.
- Debt Refinancing Risk: If CTL cannot refinance the assumed $2.5 million note within five months of closing, the note terms change to a 36-month term with 15% simple annual interest.
- Brokerage Commission: For ten years, CTL is appointed as the exclusive broker for the Company's manufacturing services to third parties, requiring the Company to pay a commission on resulting revenues.
Investor Verification Checklist
- Verify the status of the $2.5 million North Stadium Note and the relationship between the lender and the Company's CEO.
- Confirm the specific sales revenue thresholds required to trigger the $1.5 million earn-out payment.
- Review the full Asset Purchase Agreement (Exhibit 2.1) for detailed representations, warranties, and omitted schedules.
- Assess the impact of the five-year non-solicit and non-poaching covenants on the Company's future growth and talent retention.
- Monitor the October 1, 2018 deadline for the completion of closing conditions.