13D Filing: OrbiMed Advisors and Xtant Medical Holdings Inc. (XTNT)

Assuming that the proposals described in the Special Meeting Proxy Statement (the “Proposals”) are approved by the Issuer’s stockholders and the Tier 2 Transaction is consummated on February 15, 2018, the Remaining Notes would be exchanged for approximately 10.4 million newly-issued Shares (which, on a pre-reverse stock split basis, equates to approximately 124.6 million Shares) in the Tier 2 Transaction. Furthermore, if the Proposals are approved by the Issuer’s stockholders, the OrbiMed Purchasers have also agreed to purchase from the Issuer in a private placement, simultaneously with the consummation of the Tier 2 Transaction, an aggregate of $6,809,887 of Shares at a price per Share of $7.20 (which, on a pre-reverse stock split basis, equates to a price per Share of $0.60) (the “Private Placement” and, together with the Tier 1 Transaction and the Tier 2 Transaction, the “Transactions”). Assuming that the Tier 2 Transaction and the Private Placement are consummated on February 15, 2018, following the consummation of the Transactions, the OrbiMed Purchasers would own, in the aggregate, approximately 70.4%.

In connection with the Transactions, the Issuer is also seeking to raise financing through a rights offering, as described in the Special Meeting Proxy Statement.

Support Agreement

On January 11, 2018, the OrbiMed Purchasers and the Noteholders, the Issuer’s executive officers and directors and certain of the Issuer’s stockholders (collectively the “Support Equityholders”), entered into a support agreement (the “Support Agreement”) simultaneously with the execution of the Restructuring Agreement.  Under the Support Agreement, the Support Equityholders agreed to vote their Shares in favor of the approval of: (i) the amendment to the Issuer’s certificate of incorporation and issuance of Shares pursuant to the exchange of the Notes under the Tier 2 Transaction, (ii) any proposal to adjourn or postpone the Special Meeting to a later date, if there are not sufficient votes for the approval of the such proposals on the date on which such meeting is held, and (iii) any other proposal included in Special Meeting Proxy Statement that relates to the consummation of the transactions contemplated by the Restructuring Agreement that the Board recommended the stockholders approve.  The Support Equityholders also appointed ROS Acquisition and ORO II as attorney-in-fact and proxy to vote all applicable shares of the Support Equityholders consistent with the provisions of the Support Agreement.

Background of the Transactions

Indenture

On July 31, 2015, the Issuer completed an offering of $65 million aggregate principal amount of 6.00% convertible senior unsecured notes in a private offering when it entered into an Indenture (the “Indenture”) with Wilmington Trust, National Association (the “Trustee”).  In connection with the offering, Advisors, pursuant to its authority as investment manager, caused the “OrbiMed Purchasers” to purchase $52 million aggregate principal amount of the convertible notes.  Pursuant to the terms of the notes, at any time prior to the close of business on the second business day immediately preceding July 15, 2021 (the “Maturity Date”), the holders may convert their notes into Shares (together with cash in lieu of fractional Shares) at an initial conversion price of approximately $3.88 per Share.  However, the Indenture included the Blocker, which provided that the notes would not be convertible to the extent that such conversion would result in the holder of that note or any of its affiliates being deemed to beneficially own in excess of 9.99% of the then-outstanding Shares.

As a condition to the closing of the Transactions, the Issuer and the Trustee are required to enter into an amendment to the Indenture (the “Indenture Amendment”) that will amend the Indenture by clarifying that the restriction that prevents any holder or any of its affiliates from effecting a conversion thereof if such conversion would result in such holder or any of its affiliates beneficially owning in excess of 9.99% of the then outstanding Shares shall not be applicable to the Tier 2 Transaction.  The Indenture Amendment is required to enable the OrbiMed Purchasers to convert their Notes pursuant to the Tier 2 Transaction.

 Securities Purchase Agreements

2016 Notes

On April 14, 2016, the Issuer and the OrbiMed Purchasers entered into a securities purchase agreement (the “2016 SPA”), pursuant to which the Issuer issued $2,238,166 aggregate principal amount of convertible senior unsecured notes (the “2016 Notes”) in a private placement to the OrbiMed Purchasers.  The 2016 Notes accrue interest at a rate equal to 6.00% per year and will mature on the Maturity Date.  The OrbiMed Purchasers may convert the 2016 Notes into Shares (together with cash in lieu of fractional Shares) at an initial conversion price of approximately $2.90 per Share.