Item 8. Financial Statements and Supplementary Data
Cash and cash equivalents include cash and FDIC insured certificates of deposit held at various banks with an original maturity of three months or less.
Accounts receivable represent amounts due from customers for which revenue has been recognized. Generally, the Company does not require collateral or any other security to support its receivables.
The Company reviews purchased intangible assets with finite lives for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable using a two-step impairment test. In step one, we determinethe Company determines the sum of the undiscounted future cash flows of the assets based on management'smanagement’s estimates and compare it to the carrying value of the assets. If the carrying amount is greater than the sum of the undiscounted cash flows, then the asset is impaired and step two is required. In step two, the impairment loss is calculated as the difference between the fair value of the assets and the carrying value of the assets.
Impairment reviews are based on an estimated future cash flow approach that requires significant judgment with respect to future revenue and expense growth rates, selection of appropriate discount rate, asset groupings, and other assumptions and estimates. The Company uses estimates that are consistent with ourits business plans and a market participant view of the assets being evaluated. Actual results may differ from ourthese estimates.
The Company incurs certain legal and related costs in connection with patent applications for tissue based products and processes. The Company capitalizes such costs to be amortized over the expected life of the patent to the extent that an economic benefit is anticipated from the resulting patent or alternative future use is available to the Company. The Company capitalized approximately $842,000$0.5 million, $0.6 million, and $0.3 million of patent costs during 2016, $851,000 of patent costs during 2015for the years ended December 31, 2019, 2018, and $594,000 of patent costs during 2014.2017, respectively.
Research and development costs consist of direct and indirect costs associated with the development of the Company’s technologies. These costs are expensed as incurred.
The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in whichwhereby (1) we determineit determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position, and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognizeit recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities;
Level 2: Quoted prices in active markets for similar assets or liabilities or observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3: Unobservable inputs or valuation techniques that are used when little or no market data is available.
The determination of fair value and the assessment of a measurement’s placement within the hierarchy require judgment. Level 3 valuations often involve a higher degree of judgment and complexity. Level 3 valuations may require the use of various cost, market, or income valuation methodologies applied to unobservable management estimates and assumptions. Management’s assumptions could vary depending on the asset or liability valued and the valuation method used. Such assumptions could include: estimates of prices, earnings, costs, actions of market participants, market factors, or the weighting of various valuation methods. The Company may also engage external advisors to assist it in determining fair value, as appropriate.
Although the Company believes that the recorded fair value of its financial instruments is appropriate, these fair values may not be indicative of net realizable value or reflective of future fair values.
| |
3.4. | Liquidity and Capital ResourcesStability Biologics, LLC |
Net Working Capital
As of December 31, 2016, the Company had approximately $34,391,000 of cash and cash equivalents. The Company reported total current assets of approximately $126,538,000 and current liabilities of approximately $50,732,000 and had net working capital of approximately $75,806,000 as of December 31, 2016.
Overall Liquidity and Capital Resources
The Company's largest cash requirement for the twelve months ended December 31, 2016 was cash for general working capital needs as well as the acquisition of Stability described in Note 4. In addition, the Company's other cash requirements included capital expenditures, and repurchases of the Company's common stock. The Company funded its cash requirements through its existing cash reserves, and its operating activities which generated approximately $25,828,000 during the period. The Company believes that its anticipated cash from operating and financing activities and existing cash and cash equivalents, as well as availability under the Credit Agreement will enable the Company to meet its operational liquidity needs and fund its planned investing activities for the next year.
4. Acquisition of Stability Inc.
On January 13, 2016, the Company completed the acquisition of Stability Inc., d/b/a Stability Biologics ("Stability"), a provider of human tissue products to surgeons, facilities, and distributors serving the surgical, spine, and orthopedic sectors of the healthcare industry. As a result of this transaction, the Company acquired all of the outstanding shares of Stability, Inc. in exchange for
$6,000,000 $6.0 million cash, $3,346,000 in$3.3 million (or 441,009 shares) of the Company’s common stock, represented by 441,009 shares of our common stock,par value $0.001 per share (“Common Stock”), and assumed debt of $1,771,000.$1.8 million. Additional one timeone-time costs incurred in connection with the transaction totaled $1,088,000$1.1 million and arewere included within selling, general and administrative expenses on the consolidated statements of operations. Contingent consideration may bemight have been payable inbased on a formula determined by sales less certain expenses for the years 2016 and 2017. The contingent consideration was valued at $17,450,000$17.5 million as of December 31,January 13, 2016 and is shown in the schedule below as fair value of earn-out. The Company used a third party specialist to assist us with the valuation. The purchase price allocation figures should be attributed to the Company and not to the third party valuation firm. The contingent consideration was classified as a liability.
On September 30, 2017, the Company completed its divestiture of Stability pursuant to the Membership Interest Purchase Agreement by and among the Company, Stability, each person that, as of January 13, 2016, was a stockholder of Stability Inc., a Florida corporation and a predecessor-in-interest to Stability, and Brian Martin, as stockholder representative.
A summary of the assets divested and consideration received follows (in thousands):
|
| | | | |
| | Year ended |
| | December 31, 2017 |
| | |
Assets divested | | |
Trade receivables | | $ | 2,406 |
|
Inventories | | 3,455 |
|
Prepaid expenses and other assets | | 955 |
|
Goodwill (a) | | 227 |
|
Intangible assets | | 11,857 |
|
Property and equipment, net | | 1,446 |
|
Total assets divested | | 20,346 |
|
| | |
Liabilities divested | | |
Accounts payable and accrued liabilities | | 3,488 |
|
Total liabilities divested | | 3,488 |
|
| | |
Total net assets divested | | $ | 16,858 |
|
| | |
Transaction costs | | 400 |
|
| | |
Consideration received | | |
Non-trade receivable (b) | | 150 |
|
Note receivable (c) | | 3,190 |
|
Intangible assets (d) | | 630 |
|
Extinguishment of earn out liability (e) | | 12,240 |
|
Total consideration received | | $ | 16,210 |
|
| | |
Loss on sale | | $ | (1,048 | ) |
The Company has evaluated the contingent consideration for accounting purposes under GAAP and has determined
(a) In accordance with ASC 350-20-35-52 when a portion of a reporting unit is disposed of, goodwill associated with that the contingent consideration is within the scope of ASC 480 "Distinguishing Liabilities from Equity" whereby a financial instrument, other than an outstanding share, that embodies a conditional obligation that the issuer may settle by issuing a variable number of its equity sharesbusiness shall be classified as a liability if, at inception,included in the monetarycarrying amount of the business in determining the gain on disposal. In accordance with ASC 350-20-35-53, the amount of goodwill to be included in that carrying amount shall be based on the relative fair values of the business to be disposed of and the portion of the reporting unit that will be retained. Based on an estimated fair value of Stability of $16.2 million representing a consideration received for the obligation is based solely or
predominantly on variations in something other thanbusiness compared to the fair value of the issuer’s equity shares.
The actual purchase price wasbusiness retained determined based on the market approach, approximately $0.2 million of the total goodwill of $20.2 million residing in the reporting unit was included in the carrying amount of the business sold.
(b) non-trade receivable represents a cash paid,payment due within 60 days of closing.
(c) a promissory note issued by Stability in the principal amount of $3.5 million in favor of the Company recognized at a discounted value of $3.2 million.
(d) a fair value of our stock on$0.5 million for the date of the acquisition,distributor agreements with Stability and direct costs
associated with the acquisition. Thea fair value of stock$0.1 million for the non-compete agreements with the former stockholders of Stability Inc.
(e) a waiver by the former stockholders of Stability Inc. of all claims and rights to earn-out consideration, which was determined as set forth below:
|
| | | | |
Common Share Price at Closing on 1/13/2016 | | $ | 8.43 |
|
Multiplied by: Number of Common Shares Transferred to the Sellers | | 441,009 |
|
Indicated Value of Equity Consideration (on a Freely Tradable Interest Basis) | | $ | 3,717,706 |
|
Less: Marketability Discount @ 10% | [a] | (371,771 | ) |
Fair Value of Equity Consideration Transferred | | $ | 3,345,935 |
|
[a] Shares transferred to the Sellers are restricted securities pursuant to Rule 144. As such, the Sellers are prevented from selling the shares for a period of six months. In addition, they are subject to contractual lockups which restrict sales for up to twelve months following the closing of the transaction. |
The actual purchase price has been allocated as follows (in thousands):
|
| | | | |
Cash paid at closing | | $ | 6,000 |
|
Working capital adjustment | | (480 | ) |
Common stock issued (441,009 shares) | | 3,346 |
|
Assumed debt | | 1,771 |
|
Fair value of earn-out | | 17,450 |
|
Total fair value of purchase price | | $ | 28,087 |
|
| | |
Net assets acquired: | | |
Debt-free working capital | | $ | 2,456 |
|
Other long-term assets | | 199 |
|
Property, plant and equipment | | 1,375 |
|
Deferred tax liability | | (5,896 | ) |
Subtotal | | (1,866 | ) |
Intangible assets: | | |
Customer relationships | | 5,330 |
|
Patents and know-how | | 6,790 |
|
Trade names and trademarks | | 450 |
|
Non compete agreements | | 830 |
|
Licenses and permits | | 390 |
|
Subtotal | | 13,790 |
|
Goodwill | | 16,163 |
|
Total Assets Purchased | | $ | 28,087 |
|
| | |
Working capital and other assets were composed of the following (in thousands): | | |
Working capital | | |
Cash | | $ | 140 |
|
Prepaid Expenses and other current assets | | 100 |
|
Accounts receivable | | 2,001 |
|
Federal and state taxes receivable | | 28 |
|
Inventory | | 9,002 |
|
Accounts payable and accrued expenses | | (8,815 | ) |
Debt-free working capital | | $ | 2,456 |
|
| | |
Current portion of long term debt | | $ | (194 | ) |
Long-term debt | | (560 | ) |
Line of Credit | | (932 | ) |
Shareholder loan | | (85 | ) |
Assumed debt | | $ | (1,771 | ) |
| | |
Net working capital | | $ | 685 |
|
| | |
The acquisition was accounted forrecorded as a purchase business combination as defined by FASB Topic 805 - "Business Combinations".liability at a fair value of $12.2 million immediately prior to the divestiture. The fair value of the contingent considerationearn-out liability was determined based on the income approach and includes the actual realized results of operations and expected future performance over the remaining earn-out period.
The total loss on the Stability Divestiture of $0.5 million is measuredcomprised of a pretax book loss of $1.0 million and an associated tax benefit of $0.5 million.
The earn-out arrangement was classified as a Level 3 instrument. The contingent consideration liability is recordedon the Stability acquisition date of January 13, 2016 and remeasured at fair value each reporting period until the Stability was divested on the acquisition date. Increases or decreasesSeptember 30, 2017. A decrease in the fair value of contingent consideration can result from changes$3.6 million for the year ended December 31, 2017 was included in anticipated revenue levelsSelling, general and changes in assumed discount periods and rates. Asadministration expenses on the fair value measured is based on significant inputs that are not observable in the market, they are categorized as Level 3. The income valuation approach was applied in determining the fair valueconsolidated statements of the contingent consideration using a discounted cashoperations.
flow valuation technique with significant unobservable inputs comprised of projected sales and certain expenses. The values assigned to intangible assets are subject to amortization. The intangible assets were assigned the following lives for amortization purposes:5. Inventory
|
| | |
| | Estimated useful life (in years) |
Intangible asset: | | |
Customer relationships | | 12 |
Patents and know-how | | 20 |
Trade name and Trademarks | | Indefinite |
Non compete agreements | | 4 |
Licenses and permits | | 2 |
GoodwillInventory consists of the excess of the purchase price paid over the identifiable net assets and liabilities acquired at fair value. Goodwill is attributable to the assembled workforce of Stability and the synergies expected to arise following the acquisition. Goodwill is not expected to be deductible for tax purposes. Goodwill was determined using the residual method based on an independent appraisal of the assets and liabilities acquired in the transaction. Goodwill is tested for impairment on an annual basis as defined by FASB Topic 350 - "Intangibles - Goodwill and Other".
Goodwill reconciliation (in thousands):
|
| | | | | | | |
| December 31, |
| 2019 | | 2018 |
Raw materials | $ | 318 |
| | $ | 516 |
|
Work in process | 4,299 |
| | 11,123 |
|
Finished goods | 5,206 |
| | 4,936 |
|
Inventory, gross | 9,823 |
| | 16,575 |
|
Reserve for obsolescence | (719 | ) | | (589 | ) |
Inventory, net | $ | 9,104 |
| | $ | 15,986 |
|
|
| | | | |
Balance at 3/31/16 | | $ | 22,912 |
|
Goodwill Adjustments (a) | | (6,749 | ) |
Balance at 12/31/16 | | $ | 16,163 |
|
(a) Goodwill is the result of a residual calculation |
6. Property and Equipment
The changesProperty and equipment consist of the following (in thousands):
|
| | | | | | | |
| December 31, |
| 2019 | | 2018 |
Leasehold improvements | $ | 5,321 |
| | $ | 4,804 |
|
Laboratory and clean room equipment | 14,894 |
| | 13,787 |
|
Furniture and equipment | 15,118 |
| | 15,145 |
|
Construction in progress | 972 |
| | 1,507 |
|
Property and equipment, gross | 36,305 |
| | 35,243 |
|
Less accumulated depreciation and amortization | (23,977 | ) | | (17,819 | ) |
Property and equipment, net | $ | 12,328 |
| | $ | 17,424 |
|
Depreciation expense for each of the years ended December 31, 2019, 2018, and 2017 was recorded in certain captions of the consolidated statements of operations for those periods in the preliminary fair values of the acquired assets and liabilities were due to adjustments made to the prospective financial information ("PFI") to better reflect an expected case from a market participant's perspective. As the earn-out is limited to the gross profit margin for the first two years after the acquisition, the adjustment to the PFI had a decreasing impact on the estimated fair value of the earn-out at the acquisition date, which resulted in a lower total purchase consideration and a reduction of the estimated fair value of the identifiable intangible assets.
During the measurement period, management determined that the initial PFI should be adjusted to better reflect an expected case from a market participant's perspective. At the time of the acquisition, management believed that certain of the acquired company's products had reached certain marketability milestones. Management subsequently concluded that these milestones had indeed not yet been achieved. Also, at the time of the acquisition Management believed that certain manufacturing processes were at standards aligned with our overall company standards. Management subsequently concluded that the standards required improvements. These factors have resulted in a lower revenue trajectoryamounts shown in the periods that apply to the earn-out thus reducing the fair value of the earn-out.
The measurement period adjustments are as followstable below (in thousands):
|
| | | | | | | | | | | |
| For the year ended December 31, |
| 2019 | | 2018 | | 2017 |
Cost of sales | $ | 1,965 |
| | $ | 1,757 |
| | $ | 1,417 |
|
Selling, general and administrative expenses | 4,223 |
| | 3,760 |
| | 2,354 |
|
Research and development expenses | 358 |
| | 365 |
| | 316 |
|
Total | $ | 6,546 |
| | $ | 5,882 |
| | $ | 4,087 |
|
|
| | | | | | | | | | | | |
| | Provisional Per | | Measurement Period | | |
| | 3/31/2016 Form 10Q | | Adjustments 2016 | | Final |
| | | | | | |
Cash paid at closing | | $ | 6,000 |
| | $ | — |
| | $ | 6,000 |
|
Working capital adjustment | | (480 | ) | | — |
| | (480 | ) |
Common stock issued | | 3,346 |
| | — |
| | 3,346 |
|
Assumed debt | | 1,771 |
| | — |
| | 1,771 |
|
Fair value of earn-out | | 25,620 |
| | (8,170 | ) | | 17,450 |
|
Total fair value of purchase price | | $ | 36,257 |
| | $ | (8,170 | ) | | $ | 28,087 |
|
| | | | | | |
Net assets acquired: | | | | | | |
Debt-free working capital | | $ | 2,179 |
| | $ | 277 |
| | $ | 2,456 |
|
Other assets, net | | 199 |
| | — |
| | 199 |
|
Property, plant and equipment | | 1,375 |
| | — |
| | 1,375 |
|
Deferred tax liability | | (8,268 | ) | | 2,372 |
| | (5,896 | ) |
Subtotal | | $ | (4,515 | ) | | $ | 2,649 |
| | $ | (1,866 | ) |
Intangible assets: | | | | | | |
Customer relationships | | $ | 6,090 |
| | $ | (760 | ) | | $ | 5,330 |
|
Patents and know-how | | 9,170 |
| | (2,380 | ) | | 6,790 |
|
Trade names and trademarks | | 830 |
| | (380 | ) | | 450 |
|
Non compete agreements | | 1,080 |
| | (250 | ) | | 830 |
|
Licenses and permits | | 690 |
| | (300 | ) | | 390 |
|
Subtotal | | 17,860 |
| | (4,070 | ) | | 13,790 |
|
Goodwill | | 22,912 |
| | (6,749 | ) | | 16,163 |
|
Total Assets Purchased | | $ | 36,257 |
| | $ | (8,170 | ) | | $ | 28,087 |
|
Pursuant to the terms of the earn-out arrangement, the Company will pay, for each of the years ending December 31, 2016 and 2017, an amount equal to one times the gross profit margin from (a) the net sales of Stability products sold by Stability's or the Company's sales personnel and (b) the net sales of Company products sold by Stability's sales personnel; provided, however, if the amount of such net sales for either earn-out period is less than $12 million, the earn-out amount will decrease to 0.5 times the gross profit margin for such earn-out period. The full details of the earn-out arrangement are set forth in the acquisition agreement which is filed as Exhibit 2.1 to the Company's Form 8-K filed on January 13, 2016.
The following unaudited pro forma summary financial information presents the consolidated results of operations for the Company as if the acquisition had occurred on January 1, 2015. The pro forma results are shown for illustrative purposes only and do not purport to be indicative of the results that would have been reported if the acquisition had occurred on the date indicated or indicative of the results that may occur in the future.
Unaudited pro forma information for the twelve months ended December 31, 2016 and 2015 (in thousands) is as follows:
|
| | | |
| | Years Ended December 31, |
| | 2016 | 2015 |
Revenue | | $245,563 | $204,481 |
| | | |
Net income | | $12,611 | $24,960 |
| | | |
Income per share, fully diluted | | $0.11 | $0.22 |
The 2016 supplemental pro forma earnings were adjusted to exclude $1,088,000 of acquisition-related legal, audit and other
costs, net of tax. The 2015 supplemental pro forma earnings were adjusted to include $1,176,000 of amortization costs (net of tax) related to recorded intangible assets with defined useful lives, and $1,485,000 of inventory step-up charges (net of tax) as a result of the acquisition for comparability to 2016. The number of shares outstanding used in calculating the income per share for 2015 was adjusted to include 441,009 shares issued as part of the purchase price and assumed to be issued on January 1, 2015.
As the Company is managed and operates in one segment, and since Stability was merged with the Company's existing operations, the Company has determined that disaggregation of the Company's operating results to provide the amount of revenue and earnings for Stability since the acquisition date is impracticable.
| |
5. | Cash Equivalents and Short Term Investments |
Short term investments consisted of approximately $3,000,000 of FDIC insured certificates of deposit held with various financial institutions as of December 31, 2015. The cost of these instruments approximated their fair market value at December 31, 2015. There were no short term investments as of December 31, 2016.
Inventories consisted of the following items as of December 31, 2016 and 2015 (in thousands):
|
| | | | | | | |
| December 31, |
| 2016 | | 2015 |
Raw materials | $ | 1,148 |
| | $ | 602 |
|
Work in process | 6,677 |
| | 3,850 |
|
Finished goods | 10,817 |
| | 3,405 |
|
Inventory, gross | 18,642 |
| | 7,857 |
|
Reserve for obsolescence | (828 | ) | | (397 | ) |
Inventory, net | $ | 17,814 |
| | $ | 7,460 |
|
| |
7. | Property and EquipmentLeases |
PropertyAs discussed in Note 3, on January 1, 2019, the Company adopted new guidance for the accounting and equipment consistreporting of leases. The Company has operating leases primarily for corporate offices, vehicles, and certain equipment. Such leases do not require any contingent rental payments, impose any financial restrictions, or contain any residual value guarantees. The Company determines if an arrangement is or contains a lease at inception.
Under ASC 842 transition guidance, the Company has not elected the hindsight practical expedient to determine the lease term for existing leases, which permits companies to consider available information prior to the effective date of the followingnew guidance as to the actual or likely exercise of December 31, 2016options to extend or terminate the lease. Certain of the Company’s leases include renewal options and 2015 (in thousands):
|
| | | | | | | |
| December 31, |
| 2016 | | 2015 |
Leasehold improvements | $ | 3,274 |
| | $ | 2,684 |
|
Lab and clean room equipment | 8,666 |
| | 4,564 |
|
Furniture and equipment | 7,051 |
| | 4,577 |
|
Construction in Progress | 3,300 |
| | 2,629 |
|
Property and equipment, gross | 22,291 |
| | 14,454 |
|
Less accumulated depreciation | (8,505 | ) | | (4,979 | ) |
Property and equipment, net | $ | 13,786 |
| | $ | 9,475 |
|
Included in property and equipment is approximately $427,000 of capital leases. The corresponding liability of approximately $31,000 isescalation clauses; renewal options have not been included in otherthe calculation of the lease liabilities inand right of use assets as the accompanying consolidated balance sheet. Also includedCompany is approximately $1,000,000 in leasehold improvements paidnot reasonably certain to exercise the options.
Lease expense for by the landlord of our main operating facility withlease payments is recognized on a corresponding liability included in long term liabilities, which is amortizedstraight-line basis over the term of the lease. Operating lease assets and liabilities are recognized based on the present value of lease payments over the lease term. Since most of the Company’s leases do not have a readily determinable implicit discount rate, the Company uses its incremental borrowing rate to calculate the present value of lease payments determined using the rate of interest that the Company would have to pay on collaterialized or secured borrowing over a similar term. As a practical expedient, the Company has made an accounting policy election not to separate lease components from non-lease components in the event that the agreement contains both. The Company includes both the lease and non-lease components for purposes of December 31, 2016calculating the right-of-use asset and 2015, the liabilityrelated lease liability.
The Company does not act as a lessor or have any leases classified as financing leases.
Operating lease cost was $188,000 and $361,000, respectively.
Depreciation expense$1.5 million for the yearsyear ended December 31, 2016, 2015,2019 and 2014 was approximately $3,333,000, $1,799,000,recorded in Selling, general, and $1,197,000, respectively.administrative expenses. Interest on lease obligations was $0.5 million for the year ended December 31, 2019 and was recorded in Selling, general, and administrative expenses. Cash paid for amounts included in the measurement of operating lease liabilities was $1.7 million at December 31, 2019. The amortization of leased assets for the year ended December 31, 2019 was $0.9 million.
Supplemental balance sheet information related to operating leases is as follows (amounts in thousands, except lease term and discount rate):
|
| | | | |
| | December 31, 2019 |
Assets | |
| Right of use asset | $ | 3,397 |
|
| | |
Liabilities | |
| Short term lease liability | $ | 1,168 |
|
| Long term lease liability | $ | 2,919 |
|
| | |
Weighted-average remaining lease term (years) | 3.1 years |
|
Weighted-average discount rate | 11.5 | % |
Maturities of operating leases liabilities are as follows (amounts in thousands):
| |
8. | Intangible Assets and Royalty Agreement |
|
| | | | |
Year ending December 31, | Maturities |
2020 | $ | 1,561 |
|
2021 | 1,528 |
|
2022 | 1,552 |
|
2023 | 196 |
|
2024 | — |
|
Thereafter | — |
|
Total lease payments | 4,837 |
|
Less: imputed interest | (750 | ) |
| | $ | 4,087 |
|
Future minimum lease payments under operating leases at December 31, 2018 and thereafter were as follows (amounts in thousands):
|
| | | | |
Year ending December 31, | |
2019 | $ | 1,640 |
|
2020 | 1,579 |
|
2021 | 1,625 |
|
2022 | 1,673 |
|
2023 | 205 |
|
Thereafter | — |
|
Total lease payments | $ | 6,722 |
|
8. Goodwill and Intangible Assets
Intangible assets are summarized as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 | | December 31, 2018 |
| | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount |
Amortized intangible assets | | | | | | | | |
Licenses | | $ | 1,414 |
| $ | (1,200 | ) | $ | 214 |
| | $ | 1,414 |
| $ | (1,066 | ) | $ | 348 |
|
Patents and know how | | 9,099 |
| (5,070 | ) | 4,029 |
| | 9,180 |
| (4,475 | ) | 4,705 |
|
Customer and supplier relationships | | 3,761 |
| (2,417 | ) | 1,344 |
| | 4,271 |
| (2,202 | ) | 2,069 |
|
Non-compete agreements | | 120 |
| (68 | ) | 52 |
| | 120 |
| (38 | ) | 82 |
|
Total amortized intangible assets | | $ | 14,394 |
| $ | (8,755 | ) | $ | 5,639 |
| | $ | 14,985 |
| $ | (7,781 | ) | $ | 7,204 |
|
| | | | | | | | |
Unamortized intangible assets | | | | | | | | |
Trade names and trademarks | | $ | 1,008 |
| | $ | 1,008 |
| | $ | 1,008 |
| | $ | 1,008 |
|
Patents in process | | 1,130 |
| | 1,130 |
| | 1,396 |
| | 1,396 |
|
Total intangible assets | | $ | 16,532 |
| | $ | 7,777 |
| | $ | 17,389 |
| | $ | 9,608 |
|
|
| | | | | | | | | | |
| | | | December 31, |
| | | | 2016 | | 2015 |
| | Weighted Average Amortization Lives | | Cost | | Cost |
Licenses (a) (b) (c) (d) | | 7 years | | $ | 1,399 |
| | $ | 1,009 |
|
Patents & Know How (b) (d) | | 19 years | | 14,839 |
| | 8,001 |
|
Customer & Supplier Relationships (b) (d) | | 13 years | | 9,091 |
| | 3,761 |
|
Tradenames & Trademarks (d) | | indefinite | | 1,458 |
| | 1,008 |
|
Non-Compete Agreements | | 4 years | | 830 |
| | — |
|
In Process Research & Development (b) | | various | | 25 |
| | 25 |
|
Patents in Process (c) | | various | | 2,618 |
| | 1,823 |
|
Total | | | | 30,260 |
| | 15,627 |
|
Less Accumulated amortization and impairment charges | | | | (6,992 | ) | | (4,864 | ) |
Net | | | | $ | 23,268 |
| | $ | 10,763 |
|
| |
(a) | On January 29, 2007, the Company acquired a license from Shriners Hospitals for Children and University of South Florida Research Foundation, Inc. in the amount of $996,000. Within 30 days after the receipt by the Company of approval by the FDA allowing the sale of the first licensed product, the Company is required to pay an additional $200,000 to the licensor. Due to its contingent nature, this amount is not recorded as a liability. The Company will also be required to pay a royalty of 3% on all commercial sales revenue from the licensed products. The Company is also obligated to pay a $50,000 minimum annual royalty payment over the life of the license. As of December 31, 2016 the license had a remaining net book value of approximately $10,000. |
| |
(b) | On January 5, 2011, the Company acquired Surgical Biologics, LLC. As a result, the Company recorded intangible assets for Customer & Supplier Relationships of $3,761,000, Patents & Know-How of $7,690,000, Licenses of $13,000, Tradenames & Trademarks of $1,008,000 and In-Process Research & Development of $25,000. For the twelve months ended December 31, 2016, approximately $48,000 of costs associated with patents granted during the period were capitalized and included in Patents & Know-How subject to amortization over the life of the patents. |
| |
(c) | Patents in Process consist of capitalized external legal and other registration costs in connection with internally developed tissue-based patents that are pending. Once issued, the costs associated with a given patent will be included in Patents & Know-How under intangible assets subject to amortization. |
| |
(d) | On January 13, 2016, the Company acquired Stability. As a result, the Company recorded intangible assets for Patents & Know - How of $6,790,000, Customer Relationships of $5,330,000, Non - compete agreements of $830,000, Tradenames & Trademarks of $450,000 and Licenses of $390,000. |
Amortization expense for the years ended December 31, 2016, 2015,2019, 2018, and 2014,2017, was approximately $2,127,000, $933,000,$1.0 million. $1.0 million, and $928,000,$1.7 million, respectively. Patents and patents in process related write-downs due to abandonment were $1.3 million, $0.0 million, and $0.6 million during the years ended December 31, 2019, 2018, and 2017, respectively and are recorded in Selling, general and administrative expenses.
Expected future amortization of intangible assets as of December 31, 2016,2019, is as follows (in thousands):
|
| | | |
| Estimated |
| Amortization |
Year ending December 31, | Expense |
2020 | $ | 985 |
|
2021 | 977 |
|
2022 | 955 |
|
2023 | 955 |
|
2024 | 955 |
|
Thereafter | 812 |
|
| $ | 5,639 |
|
|
| | | |
| Estimated |
| Amortization |
Year ending December 31, | Expense |
2017 | $ | 2,034 |
|
2018 | 1,829 |
|
2019 | 1,829 |
|
2020 | 1,622 |
|
2021 | 1,622 |
|
Thereafter | 12,874 |
|
| $ | 21,810 |
|
Goodwill is evaluated for impairment on an annual basis on September 30 and in interim periods when events or changes indicate the carrying value may not be recoverable. The Company operates under 1 reporting unit.
For the year ended December 31, 2019, the Company elected to perform a qualitative analysis to determine whether it was more likely than not that the fair value of its reporting unit was less than their carrying value. As a result of this assessment, the Company determined that it was not necessary to perform a quantitative impairment test and concluded that goodwill was not impaired at December 31, 2019. For the year ended December 31, 2018, the Company performed a quantitative analysis to determine if there was any impairment. As a result of this assessment, the Company determined that there was 0 impairment for the year ended December 31, 2018.
The following represents the changes in the carrying amount of goodwill for 2019 and 2018 (in thousands):
|
| | | |
| Goodwill |
Balance as of January 1, 2018 | $ | 19,976 |
|
Activity | — |
|
Balance as of December 31, 2018 | 19,976 |
|
Activity | — |
|
Balance as of December 31, 2019 | $ | 19,976 |
|
| |
9. | Long-TermAccrued Expenses |
Accrued expenses consist of the following (in thousands):
|
| | | | | | | |
| December 31, |
| 2019 | | 2018 |
Legal costs | $ | 12,202 |
| | $ | 10,056 |
|
Settlement costs | 5,931 |
| | 8,673 |
|
Pricing adjustment settlement with Veterans Affairs | 6,894 |
| | 6,894 |
|
Estimated returns | 2,581 |
| | 2,325 |
|
External commissions | 1,722 |
| | 962 |
|
Accrued clinical trials | 1,076 |
| | 1,233 |
|
Other | 1,755 |
| | 1,699 |
|
Total | $ | 32,161 |
| | $ | 31,842 |
|
Credit Facility
On October 12, 2015, the Company and its subsidiaries entered into a Credit Agreement (the "Credit Agreement"“Credit Agreement”) with certain lenders and Bank of America, N.A., as administrative agent. The Credit Agreement establishesestablished a senior secured revolving credit facility in favor of the Company with a maturity date of October 12, 2018 and an aggregate lender commitment of up to $50 million. In September 2017, the expiration date of the Credit Agreement was extended to October 12, 2019. The Credit Agreement also providesprovided for an uncommitted incremental facility of up to $35 million, which cancould be exercised as one or more revolving commitment increases or new term loans, all subject to certain customary terms and conditions set forth in the Credit Agreement. The obligations of the Company under the Credit Agreement arewere guaranteed by the Company'sCompany’s subsidiaries. The obligations of the loan parties under the Credit Agreement and the other credit documents arewere secured by liens on and security interests in substantially all of the assets of each of the loan parties and a pledge of the equity interests of each subsidiary owned by a loan party, subject to certain customary exclusions. Borrowings under the facility will bearhad an interest at LIBOR plus 1.5% to 2.25%. Fees paid in connection with the initiation of the credit facility totaled approximately $500,000.$0.5 million. These deferred financing costs arewere being amortized to interest expense over the three-year life of the facility. The Credit Agreement containscontained customary representations, warranties, covenants, and events of default, including restrictions on certain payments of dividends by the Company.
On August 31, 2018, the lending parties’ terminated their commitments to make loans and issue letters of credit under the Credit Agreement due to the Company’s failure to timely file its periodic reports with the SEC. Accordingly, since then, the Company has not had the ability to borrow under the Credit Agreement. There were no outstanding borrowings or letters of credit issued under the Credit Agreement at the time of termination, and the Company never drew down any amounts under the credit facility during the entire term of the Credit Agreement. No termination penalties were paid as a result of the termination.
BT Term Loan
On June 10, 2019, the Company entered into a loan agreement (the “BT Loan Agreement”) with Blue Torch Finance LLC (“Blue Torch”), as administrative agent and collateral agent, to borrow funds with a face value of $75.0 million (the “BT Term Loan”), of which the full amount was borrowed and funded. The proceeds from the BT Term Loan were used (i) for working capital and general corporate purposes and (ii) to pay transaction fees, costs and expenses incurred in connection with the BT Term Loan and the related transactions. The BT Loan Agreement provided that the BT Term Loan would mature on June 20, 2022 and was repayable in quarterly installments of $0.9 million, with the balance due on June 20, 2022. Blue Torch maintained a first-priority security interest in substantially all the Company’s assets. The BT Term Loan was issued net of the original issue discount of $2.3 million. The Company also incurred $6.7 million of deferred financing costs. The BT Term Loan was amended on April 22, 2020 and was repaid on July 2, 2020, each of which is addressed in Note 21, “Subsequent Events,” of the consolidated financial statements.
The interest rate applicable to any borrowings under the BT Term Loan accrued at a rate equal to LIBOR plus a margin of 8.00% per annum. The BT Term Loan had an interest rate equal to 10.46% at the time the BT Loan Agreement was executed. The interest as of December 31, 2019 was 10.11%.
The BT Loan Agreement originally contained financial covenants requiring the Company, on a consolidated basis, to maintain the following:
Maximum Total Leverage Ratio, defined as funded debt divided by consolidated adjusted EBITDA, of not more than 3.0 to 1.0 as of the last day of the previous four consecutive fiscal quarters.
Minimum Liquidity, defined as unrestricted cash and cash equivalents, of less than $40.0 million as of the last business day of each fiscal month following the BT Term Loan closing date through and including the fiscal month ending May 31, 2020. For fiscal months beginning June 30, 2020, the Company was not permitted to have liquidity of less than $30.0 million. Beginning with the fiscal month ending December 31, 2020, if the total leverage ratio was less than 2.50 to 1.0 as of the last business day of any fiscal month, the Company was not permitted to have liquidity of less than $20.0 million.
The BT Loan Agreement also provided that any prepayment of the loan, voluntary or mandatory, as defined in the BT Loan Agreement, would subject MiMedx to a prepayment penalty as of the date of the prepayment with respect to the Term Loan of:
During the period from June 10, 2019 through June 10, 2020, an amount equal to 3% of the principal amount of the BT Term Loan prepaid on such date; and
During the period from June 11, 2020 through June 10, 2021, an amount equal to 2% of the principal amount of the BT Term Loan prepaid on such date.
Principal prepayments after June 10, 2021 were not subject to a prepayment penalty.
The BT Loan Agreement also included events of default customary for facilities of this type, and the BT Loan Agreement provided that upon the occurrence of such events of default, subject to customary cure rights, all outstanding loans under the BT Loan Agreement may be accelerated and/or the lenders’ commitments terminated.
The balances of the BT Term Loan as of December 31, 2019 was as follows (amounts in thousands):
|
| | | | | | | |
| December 31, 2019 |
| Current portion | | Long-term |
Liability component - principal | $ | 3,750 |
| | $ | 69,375 |
|
Original issue discount | — |
| | (1,890 | ) |
Deferred financing cost | — |
| | (5,579 | ) |
Liability component - net carrying value | $ | 3,750 |
| | $ | 61,906 |
|
Interest expense related to the BT Term Loan, included in Interest income (expense), net in the consolidated statements of operations, was as follows (amounts in thousands):
|
| | | |
| For the Year Ended |
| December 31, 2019 |
Interest expense - stated interest rate | $ | 4,331 |
|
Interest expense - amortization of original issue discount | 360 |
|
Interest expense - amortization of deferred financing costs | 1,071 |
|
Total term loan interest expense | $ | 5,762 |
|
The future principal payments for the Company’s BT Term Loan as of December 31, 2019 were as follows (in thousands):
|
| | | |
Year ending December 31, | Principal |
2020 | $ | 3,750 |
|
2021 | 3,750 |
|
2022 | 65,625 |
|
2023 | — |
|
2024 | — |
|
Thereafter | — |
|
Total Long Term Debt | $ | 73,125 |
|
As of December 31, 2016, there2019, the fair value of the Company’s BT Term Loan was $70.6 million. This valuation was calculated based on a series of Level 2 and Level 3 inputs by calculating a discount rate based on the credit risk spread of debt instruments of a similar risk character in reference to U.S. Treasury instruments with identical securities, with an incremental risk premium for Company-specific risk factors. The remaining cash flows associated with the BT Term Loan were nodiscounted to December 31, 2019 with this calculated discount rate to derive the fair value as of that date.
As described below in Note 21, “Subsequent Events,” on July 2, 2020, a portion of the proceeds from the Preferred Stock Transaction (as defined below) and the Hayfin Loan Transaction (as defined below) was used to repay the outstanding revolving loansbalance of principal, accrued but unpaid interest, and prepayment premium under the credit facility. AsBT Loan Agreement. In connection with the repayment of December 31, 2016,the BT Term Loan, the Company was in compliance with all covenants underterminated the CreditBT Loan Agreement.
11. Net (Loss) Income Per Share
Basic net (loss) income per common share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income per common share is computed using the weighted-average number of common and dilutive common equivalent shares from stock options warrants and restricted stock using the treasury stock method.
The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands except for share and per share data):
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2016 | | 2015 | | 2014 |
Net income | $ | 11,974 |
| | $ | 29,446 |
| | $ | 6,220 |
|
Denominator for basic earnings per share - weighted average shares | 105,928,348 |
| | 105,929,205 |
| | 105,793,008 |
|
Effect of dilutive securities: Stock options, warrants, and restricted stock (a) | 6,513,361 |
| | 7,699,277 |
| | 7,502,496 |
|
Denominator for diluted earnings per share - weighted average shares adjusted for dilutive securities | 112,441,709 |
| | 113,628,482 |
| | 113,295,504 |
|
Income per common share - basic | $ | 0.11 |
| | $ | 0.28 |
| | $ | 0.06 |
|
Income per common share - diluted | $ | 0.11 |
| | $ | 0.26 |
| | $ | 0.05 |
|
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
Net (loss) income | $ | (25,580 | ) | | $ | (29,979 | ) | | $ | 64,727 |
|
Denominator for basic earnings (loss) per share - weighted average shares | 106,946,384 |
| | 105,596,256 |
| | 106,121,810 |
|
Effect of dilutive securities: Stock options and restricted stock (a) | 2,135,806 |
| | 3,538,921 |
| | 9,991,926 |
|
Denominator for diluted (loss) earnings per share - weighted average shares adjusted for dilutive securities | 106,946,384 |
| | 105,596,256 |
| | 116,113,736 |
|
(Loss) income per common share - basic | $ | (0.24 | ) | | $ | (0.28 | ) | | $ | 0.61 |
|
(Loss) income per common share - diluted | $ | (0.24 | ) | | $ | (0.28 | ) | | $ | 0.56 |
|
(a)Securities that are included in the computation of the denominator above, utilizing the treasury stock method for the years ended December 31, 2016, 20152019, 2018 and 20142017 are as follows: |
| | | | | | | | |
Effect of dilutive securities: | 2019 | | 2018 | | 2017 |
Stock options | 978,243 |
| | 3,172,943 |
| | 7,813,153 |
|
Restricted stock awards | 1,157,563 |
| | 365,978 |
| | 2,178,773 |
|
| 2,135,806 |
| | 3,538,921 |
| | 9,991,926 |
|
|
| | | | | | | | |
Effect of dilutive securities: | 2016 | | 2015 | | 2014 |
Stock Options | 5,845,377 |
| | 7,121,774 |
| | 7,035,728 |
|
Warrants | — |
| | 33,676 |
| | 226,926 |
|
Restricted Stock Awards | 667,984 |
| | 543,827 |
| | 239,842 |
|
| 6,513,361 |
| | 7,699,277 |
| | 7,502,496 |
|
12. Equity
Stock Incentive Plans
The Company has four2 share-based compensation plans which provide for the granting of equity awards, including qualified incentive and non-qualified stock options, stock appreciation awards and restricted stock awards to employees, directors, consultants and advisors:Common Stock awards: the MiMedx Group, Inc. 2016 Equity and Cash Incentive Plan (the "2016 Plan"“2016 Plan”), which was approved by shareholders on May 18, 2016;2016 and the MiMedx Group, Inc. Assumed 2006 Stock Incentive Plan (the “Assumed 2006 Plan”“Prior Incentive Plan”);. During the MiMedx Inc. 2007 Assumedyears ended December 31, 2019, 2018 and 2017 the Company used only the 2016 Plan to make grants.
The 2016 Plan permits the grant of equity awards to the Company’s employees, directors, consultants and advisors for up to 5,000,000 shares of the Company’s Common Stock plus (i) the number of shares of the Company’s Common Stock that remain available for issuance under the Prior Incentive Plan, (the “Assumed 2007 Plan”); and (ii) the MiMedx Group Inc. Amended and Restated Assumed 2005 Stock Plan (the “Assumed 2005 Plan”).number of shares that are represented by outstanding awards that later become available because of the expiration or forfeiture of the award without the issuance of the underlying shares. The awards are subject to a vesting schedule as set forth in each individual agreement. The Company currently intendsOption awards are generally granted with an exercise price equal to use only the 2016 Plan to make future grants.market price of the Company’s stock at the date of grant, and those option awards generally vest based on three years of continuous service and have 10-year contractual terms. Restricted Common Stock awards generally vest over three years. Certain option and restricted stock awards provide for accelerated vesting if there is a change in control and upon death or disability.
Activity with respect toA summary of stock option activity as of December 31, 2019, and changes during the stock options is summarized as follows:year then ended are presented below:
|
| | | | | | | | | | | | |
| Number of Shares | | Weighted- Average Exercise Price | | Weighted- Average Remaining Contractual Term (in years) | | Aggregate Intrinsic Value |
Outstanding at January 1, 2019 | 3,697,147 |
| | $ | 4.59 |
| | | | |
Granted | — |
| | — |
| | | | |
Exercised | (150,000 | ) | | 0.72 |
| | | | |
Unvested options forfeited | — |
| | — |
| | | | |
Vested options expired | (661,813 | ) | | 6.21 |
| | | | |
Outstanding at December 31, 2019 | 2,885,334 |
| | 4.42 |
| | 2.73 | | $ | 9,191,697 |
|
Exercisable at December 31, 2019 | 2,885,334 |
| | $ | 4.42 |
| | 2.73 | | $ | 9,191,697 |
|
|
| | | | | | | | | | | | |
| Number of Shares | | Weighted- Average Exercise Price | | Weighted- Average Remaining Contractual Term (in years) | | Aggregate Intrinsic Value |
Outstanding at January 1, 2016 | 14,019,629 |
| | $ | 3.62 |
| | | | |
|
Granted | — |
| | $ | — |
| | | | |
|
Exercised | (1,164,138 | ) | | $ | 3.02 |
| | | | |
|
Unvested options forfeited | (154,200 | ) | | $ | 6.77 |
| | | | |
|
Vested options expired | (148,683 | ) | | $ | 6.16 |
| | | | |
|
Outstanding at December 31, 2016 | 12,552,608 |
| | $ | 3.61 |
| | 5.4 | | $ | 66,137,378 |
|
Vested at December 31, 2016 | 11,680,455 |
| | $ | 3.33 |
| | 5.3 | | $ | 64,733,964 |
|
Vested or expected to vest at December 31, 2016 (a) | 12,539,865 |
| | $ | 3.60 |
| | 5.4 | | $ | 66,119,285 |
|
| |
(a) | Includes forfeiture adjusted unvested shares. |
The intrinsic valuevalues of the options exercised during the years ended December 31, 2016, 20152019, 2018 and 20142017 were approximately $6,460,000, $17,181,000,$0.6 million, $7.9 million, and $10,566,000,$18.5 million, respectively. Cash received from option exercise under all share-based payment arrangements for the years ended December 31, 2019, 2018, and 2017, was $0.1 million, $3.6 million, and $12.0 million, respectively. The actual tax benefit for the tax deductions from option exercise of the share-based payment arrangements totaled $0.2 million, $5.9 million, and $12.5 million, respectively, for the years ended December 31, 2019, 2018, and 2017. The Company has a policy of using its available repurchased treasury stock to satisfy option exercises.
The intrinsicfair value of options vested during the years ended December 31, 2016, 20152019, 2018 and 20142017 were approximately $7,378,000, $10,044,000,$1.4 million, $0.1 million, and $6,615,000,$3.7 million, respectively.
Following is a summary of stock There were 0 options outstanding and exercisable atgranted during the years ended December 31, 2016:
|
| | | | | | | | | | | | | | | |
| Options Outstanding | | Options Exercisable |
Range of Exercise Prices | Number outstanding | | Weighted- Average Remaining Contractual Term (in years) | | Weighted- Average Exercise Price | | Number Exercisable | | Weighted- Average Exercise Price |
$0.50 - $0.76 | 441,429 |
| | 2.4 | | $ | 0.72 |
| | 441,429 |
| | $ | 0.72 |
|
$0.87 - $1.35 | 4,385,570 |
| | 4.7 | | 1.19 |
| | 4,385,570 |
| | 1.19 |
|
$1.40 - $2.45 | 1,362,424 |
| | 4.1 | | 1.92 |
| | 1,362,424 |
| | 1.92 |
|
$2.66 - $3.99 | 878,680 |
| | 5.8 | | 3.06 |
| | 878,680 |
| | 3.06 |
|
$4.19 - $6.38 | 3,056,069 |
| | 6.2 | | 5.36 |
| | 2,937,038 |
| | 5.34 |
|
$6.45- $9.78 | 2,324,103 |
| | 7.0 | | 7.30 |
| | 1,610,485 |
| | 7.25 |
|
$9.90 - $10.99 | 104,333 |
| | 7.7 | | 10.42 |
| | 64,829 |
| | 10.46 |
|
| 12,552,608 |
| | 5.4 | | $ | 3.61 |
| | 11,680,455 |
| | $ | 3.33 |
|
A summary of the status of the Company’s unvested stock options as of December 31, 2016 is presented below:
|
| | | | | | |
Unvested Stock Options | Number of Shares | | Weighted- Average Grant Date Fair Value |
Unvested at January 1, 2016 | 3,067,935 |
| | $ | 3.81 |
|
Granted | — |
| | $ | — |
|
Cancelled | (154,200 | ) | | $ | 6.77 |
|
Vested | (2,041,582 | ) | | $ | 3.61 |
|
Unvested at December 31, 2016 | 872,153 |
| | $ | 4.28 |
|
Total2019, 2018 and 2017 and 0 unrecognized compensation expense at December 31, 2016, was approximately $1,064,0002019.
During the year ended December 31, 2019, the Company extended the contractual life of 612,000 fully vested share options held by 7 members of the Board and will be charged to278,916 fully vested share options held by a former employee. As a result of that modification, the Company recognized incremental share-based compensation expense through June 2017.of $0.4 million for the year ended December 31, 2019.
The incremental fair value of the modified options grantedin 2019 was estimated on the modification date of grant using the Black-Scholes-Merton option-pricing model that uses assumptions for expected volatility, expected dividends, expected term, and the risk-free interest rate. Expected volatilities are based onwere the blend of the Company’s historical stock price volatility as well as that of market comparable publicly traded peer companies and other factors estimated over the expected term of the options. The term of employeethe modified options granted is derived usingwas the “simplified method” which computes expected term asremaining time until the midpoint between the weighted average time to vesting andend of the contractual maturity. The simplified method was used due to the Company’s lackmaturity of sufficient historical data to provide a reasonable basis upon which to estimate the expected term due to the limited period of time its equity shares have been publicly traded. The term for non-employee options is generally based upon the contractual term of the option.ten years. The risk-free rate iswas based on the U.S. Treasury yield curve in effect at the time of grantmodification for the period of the expected term or contractual term as described.
The assumptions used in calculating the fair value of options granted using the Black-Scholes-Merton option-pricing model are set forth in the following table:term.
|
| |
2019 Option Modification |
Expected volatility | 65% - 95% |
Expected life (in years) | 0.28 - 5.12 |
Expected dividend yield | — |
Risk-free interest rate | 1.56% - 2.02% |
|
| | | | | | | | |
| Year ended December 31, |
| 2016 | | 2015 | | 2014 |
Expected volatility | — | % | | 54.35 - 58.14% |
| | 58.14 - 64.50% |
|
Expected life (in years) | 0 |
| | 6 |
| | 6 |
|
Expected dividend yield | — |
| | — |
| | — |
|
Risk-free interest rate | 0 |
| | 1.51 - 1.68% |
| | 1.64 - 1.96% |
|
The weighted-average grant date fair value for options granted during the years ended December 31, 2016, 2015 and 2014 were approximately $0.00, $5.15 and $4.18, respectively.
Restricted Stock Awards
Following is summary information for restricted stock awards for the year ended December 31, 2016.2019. Shares vest over a one to three year period. period in equal annual increments and require continuous service.
As of December 31, 2016,2019, there was approximately $21,905,000$11.4 million of total unrecognized stock-based compensation related to time-based, non-vested restricted stock. That expense is expected to be recognized on a straight-line basis over a weighted-average period of 1.9 years.1.8 years, which approximates the remaining vesting period of these grants. All shares noted below as unvested are considered issued and outstanding at December 31, 2019.
Additionally, |
| | | | | | | |
| | Number of Shares | | Weighted-Average Grant Date Fair Value |
Unvested at January 1, 2019 | | 2,999,135 |
| | $ | 8.83 |
|
Granted | | 3,084,875 |
| | 3.35 |
|
Vested | | (1,474,998 | ) | | 8.58 |
|
Forfeited | | (1,084,971 | ) | | 5.31 |
|
Unvested at December 31, 2019 | | 3,524,041 |
| | $ | 5.21 |
|
The total fair value of restricted stock awards vested during the twelve monthsyears ended December 31, 2016, 43,3442019, 2018, and 2017, was $5.2 million, $17.9 million, and $17.3 million, respectively.
During the year ended December 31, 2019, the Company granted a fixed dollar value restricted share unit award to the members of its Board in the amount of $1.6 million. The restricted share unit awards vest upon the earlier of one year or the date of the 2019 Annual Meeting and will be settled in Common Stock with the number of shares of common stock valued at approximately $345,700 were issued underCommon Stock to be determined based on the 2006 Plan to a consultantCompany’s closing share price on the future settlement date. During the year ended December 31, 2019, the Company recognized $0.4 million of share-based compensation expense, with an offsetting liability recorded in return for services performed, and is includedAccrued compensation in the table that follows.consolidated balance sheets.
|
| | | | | | | |
| | Number of Shares | | Weighted-Average Grant Date Fair Value |
Unvested at January 1, 2016 | | 2,613,267 |
| | $ | 9.14 |
|
Granted | | 2,755,426 |
| | $ | 8.05 |
|
Vested | | (1,162,931 | ) | | $ | 8.68 |
|
Forfeited | | (377,317 | ) | | $ | 8.71 |
|
Unvested at December 31, 2016 | | 3,828,445 |
| | $ | 8.53 |
|
For the years ended December 31, 2016, 2015,2019, 2018, and 20142017 the Company recognized stock-basedshare-based compensation as follows (in thousands): |
| | | | | | | | | | | |
| Years Ended December 31, |
| 2016 | | 2015 | | 2014 |
Cost of sales | $ | 426 |
| | $ | 352 |
| | $ | 322 |
|
Research and development | 647 |
| | 790 |
| | 660 |
|
Selling, general and administrative | 16,745 |
| | 15,754 |
| | 10,471 |
|
| $ | 17,818 |
| | $ | 16,896 |
| | $ | 11,453 |
|
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2019 | | 2018 | | 2017 |
| | | | | |
Cost of sales | $ | 477 |
| | $ | 705 |
| | $ | 539 |
|
Research and development | 265 |
| | 584 |
| | 604 |
|
Selling, general and administrative | 11,322 |
| | 13,479 |
| | 20,052 |
|
Total share-based compensation | $ | 12,064 |
| | $ | 14,768 |
| | $ | 21,195 |
|
Income tax benefit | (3,081 | ) | | (3,803 | ) |
| (5,345 | ) |
Total share-based compensation, net of tax benefit | $ | 8,983 |
| | $ | 10,965 |
| | $ | 15,850 |
|
Warrants
On November 18, 2015, 42,400 common stock warrants representing the balance remaining from those granted in connection with equity share purchases by investors as an additional incentive for providing long - term equity capital to the Company and as additional compensation to consultants and advisors were exercised at an exercise price of $1.09. The warrants were granted at negotiated prices in connection with the equity share purchases and at the market price of the common stock in other instances. The warrants were issued for terms of five years.
Treasury Stock
On May 12,8, 2014, ourthe Board of Directors authorized the repurchase of up to $10 million of our common stockshares of Common Stock from time to time through December 31, 2014. The Board subsequently extended the program until December 31, 2017. In December 2014, the Board increased the authorization to $20 million and further increasedduring the authorization inyear ended December 31, 2015 to $60 million. In December 2016, the Board further increased the authorization to $66 million. The timing and amount of repurchases will depend upon the Company's stock price, economic and market conditions, regulatory requirements, and other corporate considerations. The Company may initiate, suspend or discontinue purchases under the stock repurchase program at any time.
Formillion, during the year ended December 31, 2016 to $66 million, and during the year ended December 31, 2017 to $130 million. In January 2018 the Board announced that it had increased the total authorization to $140 million. The share repurchase program subsequently expired during the year ended December 31, 2018.
For the years ended December 31, 2018 and 2017, the Company purchased approximately 1,338,616507,600, and 5,635,077 shares of its common stockCommon Stock, respectively, for an aggregate purchase price of approximately $10,338,000$7.6 million, and $68.3 million, respectively, exclusive of commissions of approximately $40,000. As$0.0 million, and $0.2 million, respectively.
Repurchases of shares of Common Stock in connection with the satisfaction of employee tax withholding obligations upon vesting of restricted stock for the years ended December 31, 2016, the Company had2019, 2018 and 2017 were 429,918, 614,123, and 419,928, respectively, for an aggregate purchase price of approximately $9,936,000 remaining under the repurchase program.$1.5 million, $4.9 million, and $4.1 million, respectively.
13. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):
|
| | | | | | | | |
| | December 31, |
| | 2019 | | 2018 |
Deferred Tax Assets: | | | |
| Accrued expenses | $ | 3,759 |
| | $ | 3,572 |
|
| Deferred revenue | — |
| | 13,719 |
|
| Bad debts | 4,859 |
| | — |
|
| Sales return and allowances | 659 |
| | 2,296 |
|
| Accrued settlement costs | 3,276 |
| | 2,689 |
|
| Research and development and other tax credits | 2,349 |
| | 2,326 |
|
| Net operating loss | 14,350 |
| | 3,118 |
|
| Share-based compensation | 3,439 |
| | 3,425 |
|
| Lease obligation | 1,044 |
| | — |
|
| Other | 2,124 |
| | 971 |
|
Deferred Tax Liabilities: | | | |
| Prepaid expenses | (1,189 | ) | | (1,823 | ) |
| Right of use asset | (868 | ) | | — |
|
| Property and equipment | (1,582 | ) | | (2,519 | ) |
| Unearned insurance refund | (894 | ) | | — |
|
| Deferred costs of goods sold | (322 | ) | | — |
|
| Intangible assets | (389 | ) | | (443 | ) |
Net Deferred Tax Assets | 30,615 |
| | 27,331 |
|
| Less: Valuation allowance | (30,615 | ) | | (27,331 | ) |
Net Deferred Tax Assets after Valuation Allowance | $ | — |
| | $ | — |
|
|
| | | | | | | |
| December 31, |
| 2016 | | 2015 |
Deferred tax assets and liabilities: | | | |
Accruals and prepaids | $ | 4,992 |
| | $ | 4,606 |
|
Intangible assets | (5,130 | ) | | 146 |
|
Property and equipment | (1,338 | ) | | (1,396 | ) |
R&D and other tax credits | 1,219 |
| | 3,293 |
|
Stock Compensation | 7,417 |
| | 7,063 |
|
Net operating loss | 2,395 |
| | 1,763 |
|
Other | 113 |
| | 145 |
|
Net deferred tax assets | $ | 9,668 |
| | $ | 15,620 |
|
| | | |
Valuation allowance | (554 | ) | | (782 | ) |
| $ | 9,114 |
| | $ | 14,838 |
|
The reconciliation of the Federalfederal statutory income tax rate of 21% for 2019 and 2018, and 35% for 2017 to the effective rate is as follows:
|
| | | | | | | | |
| December 31, |
| 2019 | | 2018 | | 2017 |
| | | | | |
Federal statutory rate | 21.00 | % | | 21.00 | % | | 35.00 | % |
State taxes, net of federal benefit | (1.36 | )% | | 3.52 | % | | 0.40 | % |
Nondeductible compensation | (1.49 | )% | | (15.33 | )% | | 0.66 | % |
Meals and entertainment | (2.04 | )% | | (24.16 | )% | | 1.93 | % |
Keyman life insurance | (0.02 | )% | | (0.15 | )% | | 0.02 | % |
Inventory contribution deduction | 0.06 | % | | 0.48 | % | | (0.06 | )% |
Domestic production activities deduction | — | % | | — | % | | (1.54 | )% |
Fair value adjustment | — | % | | — | % | | (2.76 | )% |
Share-based compensation | (5.05 | )% | | 10.82 | % | | (9.90 | )% |
Tax credits | 0.45 | % | | 19.75 | % | | (3.37 | )% |
Uncertain tax position | 1.22 | % | | (2.35 | )% | | 0.46 | % |
Write-off of net operating losses | — | % | | (11.81 | )% | | — | % |
Payable true-up | 0.52 | % | | (2.69 | )% | | 0.65 | % |
Sale of Stability | — | % | | — | % | | (8.86 | )% |
Fixed asset true-up | — | % | | 5.33 | % | | — | % |
Federal provision to return | 0.02 | % | | 1.58 | % | | 0.13 | % |
Impact of federal rate change | — | % | | — | % | | 26.79 | % |
Other | (0.46 | )% | | (0.25 | )% | | (0.03 | )% |
Valuation allowance | (12.83 | )% | | (788.33 | )% | | (83.08 | )% |
| 0.02 | % | | (782.59 | )% | | (43.56 | )% |
|
| | | | | |
| December 31, |
| 2016 | | 2015 |
Federal statutory rate | 35.00 | % | | 34.00 | % |
State taxes, net of federal benefit | 4.78 | % | | 3.33 | % |
Non deductible compensation | 0.04 | % | | 0.63 | % |
Meals & entertainment | 3.82 | % | | 2.27 | % |
Equity Compensation | 5.51 | % | | 6.39 | % |
Domestic Production Activities Deduction | (4.71 | )% | | — | % |
Tax Credits | (8.79 | )% | | (2.84 | )% |
Prior Period Adjustments | (3.79 | )% | | — | % |
Other | 3.27 | % | | (1.74 | )% |
Valuation allowance | (1.26 | )% | | (63.33 | )% |
| 33.87 | % | | (21.29 | )% |
Share-based Compensation had a significant impact on the Company's effective tax rate as of December 31, 2019. Additionally, state taxes, Meals and Entertainment, and Nondeductible Compensation had a significant impact on the Company's effective tax rate.
Meals and Entertainment had a significant impact on the Company's effective tax rate as of December 31, 2018 due to the impact of the Act on the Company's method of calculating this permanent adjustment. Additionally, Federal and state tax credits, mostly related to the Company's Research and Development activities, had a significant impact on the Company's effective rate.
Stock based compensation had a significant impact on the Company’s effective tax rate as of December 31, 2017 due to the Company’s adoption of ASU 2016-09. Additionally, on September 30, 2017, the Company completed the Stability Divestiture, which resulted in a significant reduction in the Company’s effective tax rate. See Note 4 for details regarding the transaction.
Current and deferred income tax expense (benefit) is as follows (in thousands):
|
| | | | | | |
| December 31, 2016 |
| December 31, 2015 |
|
Current: | | |
Federal | $ | 4,700 |
| $ | 8,452 |
|
State | 1,423 |
| 1,218 |
|
Total current | 6,123 |
| 9,670 |
|
| | |
Deferred: | | |
Federal | 26 |
| (13,070 | ) |
State | (16 | ) | (1,768 | ) |
Total deferred | 10 |
| (14,838 | ) |
| | |
Total expense | $ | 6,133 |
| $ | (5,168 | ) |
Income taxes are based on estimates of the annual effective tax rate and evaluations of possible future events and transactions and may be subject to subsequent refinement or revision.
|
| | | | | | | | | | | |
| December 31, |
| 2019 | | 2018 | | 2017 |
Current: | | | | | |
Federal | $ | (53 | ) | | $ | 614 |
| | $ | 5,868 |
|
State | 48 |
| | 427 |
| | 1,163 |
|
Total current | (5 | ) | | 1,041 |
| | 7,031 |
|
| | | | | |
Deferred: | | | | | |
Federal | — |
| | 19,452 |
| | (19,441 | ) |
State | — |
| | 6,089 |
| | (7,229 | ) |
Total deferred | — |
| | 25,541 |
| | (26,670 | ) |
| | | | | |
Total expense (benefit) | $ | (5 | ) | | $ | 26,582 |
| | $ | (19,639 | ) |
Certain items of income and expense are not reported in tax returns and financial statements in the same year. The tax effect of such temporary differences is reported as deferred income taxes. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefit that, based on available evidence, is not expected to be realized. The Company establishes a valuation allowance for deferred tax assets for which realization is not likely. As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets.
As of December 31, 2016, our deferred tax assets were primarily the result of accrued liabilities, equity compensation, tax credits and net operating loss carryforwards. A valuation allowance of $554,000$30.6 million and $782,000$27.3 million was recorded against our grossthe deferred tax asset balance as of December 31, 2016,2019 and December 31, 2015,2018, respectively. To the extent the Company determines that, based on the weight of available evidence, all or a portion of its valuation allowance is no longer necessary, the Company will recognize an income tax benefit in the period such determination is made for the reversal of the valuation allowance. If management determines that, based on the weight of available evidence, it is more-likely-than-not that all or a portion of the net deferred tax assets will not be realized, the Company may recognize income tax expense in the period such determination is made to increase the valuation allowance.
At December 31, 2016,2019 and 2018, the Company had income tax net operating loss ("NOL"(“NOL”) carryforwards for federal and state purposes of $2,327,000$56.8 million and $27,912,000$49.3 million and $11.4 million and $15.6 million, respectively. At December 31, 2015,A portion of the Company has income tax net operating loss ("NOL") carryforwards for federal and state purposes of $579,000 and $27,552,000 respectively. As of December 31, 2016, the Company has recorded a deferred tax asset for both federal and state NOL carryforwards of approximately $815,000 and approximately $1,580,000, respectively. As of December 31, 2015, the Company has recorded a deferred tax asset for both federal and state NOL carryforwards of approximately $197,000 and approximately $1,566,000, respectively. The Company's net operating lossesCompany’s NOLs and tax credits are subject to annual limitations due to ownership change limitations provided by Internal Revenue Code Section 382. If not utilized, the federal and state tax lossNOL carryforwards will expire between 2027 and 2035. A valuation allowance remains2037. As of December 31, 2019, the Company has recorded against thea deferred tax asset for certainboth federal and state net operating loss carryovers in the amountNOL carryforwards of $554,000 that are not expected to be utilized prior to expiration.
As a result of certain realization requirements of ASC 718, Compensation - Stock Compensation, the table of deferred tax assetsapproximately $11.9 million and liabilities shown above does not include certain deferred tax assets that arose directly from (or the use of which was postponed by) tax deductions related to equity compensation that were greater than the compensation recognized for financial reporting. During 2016, deferred tax assets in the amount of $1,170,000 were realized resulting in an increase to equity in the same amount.$3.1 million, respectively. As of December 31, 2016,2018, the Company does not have any remaininghas recorded a deferred tax assets that will result in an increase to equity upon realization. The Company uses ASC 740 ordering when determining when excess tax benefits have been realized.
asset for federal and state NOL carryforwards of $2.4 million and approximately $0.9 million, respectively.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (in thousands):
included in other liabilities in the consolidated balance sheets:
| | | December 31, 2016 | | December 31, 2015 | 2019 | | 2018 | | 2017 |
Unrecognized tax benefits - January 1 | $ | 170 |
| | $ | — |
| $ | 938 |
| | $ | 847 |
| | $ | 336 |
|
| | | | | | | | |
Gross increases - tax positions in current period | 111 |
| | 170 |
| 56 |
| | 91 |
| | 130 |
|
| | | | | | | | |
Gross increases - tax positions in prior period | | — |
| | — |
| | 381 |
|
| | | | | | |
Gross decreases - lapse of statute of limitations | | (367 | ) | | — |
| | — |
|
| | | | | | |
Unrecognized tax benefits - December 31 | $ | 281 |
| | $ | 170 |
| $ | 627 |
| | $ | 938 |
| | $ | 847 |
|
Included in the balance of unrecognized tax benefits as of December 31, 20162019 and December 31, 2015,2018, are $281,000$0.6 million and $170,000,$0.9 million, respectively, of tax benefits that, if recognized, would affect the effective tax rate. Also included in the balance of unrecognized tax benefits as of December 31, 2016 and December 31, 2015, are $281,000 and $170,000, respectively, of tax benefits that, if recognized, would result in adjustments to other tax accounts, primarily deferred taxes. This amount is recorded in Other Liabilities in the accompanying consolidated balance sheets.
The Company recognizes accrued interest accrued related to unrecognized tax benefits and penalties as income tax expense. Related to the unrecognized tax benefits noted above, the Company accrued no penalties or$0.1 million of interest during 2016,2019, and, in total, as of December 31, 20162019 has not recognized any liabilities for penalties or$0.1 million of interest. During 2015, we also did not accrue any penalties orThe Company accrued $0.1 million of interest during 2018, and, in total, as of December 31, 2015,2018 had not recognized any liability for penalties or$0.1 million of interest. The Company accrued $0.1 million of interest during 2017, and, in total, as of December 31, 2017 had recognized $0.1 million of interest.
Certain positions included in the tabular reconciliation above will be reduced as a result of the expiration of statutes of limitations within the next 12 months. The reserve would be reduced by approximately $0.2 million.
The Company is subject to taxation in the USU.S. and various state jurisdictions. As of December 31, 20162019, the Company’s tax returns for 2013, 20142018, 2017 and 2015 are2016 were subject to full examination by the tax authorities. The 2013, 2011, 2010, 2009, and 2008 federal tax returns were open to the extent of the NOL carryovers generated. As of December 31, 2016,2019, the Company iswas generally no longer subject to US federal, state or local examinations by tax authorities for years before 2013.2016, except to the extent of NOLs generated in prior years claimed on a tax return.
13.14. Supplemental Disclosure of Cash Flow and Non-Cash Investing and Financing Activities
Selected cash payments, receipts, and noncash activities are as follows (in thousands):
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2019 | | 2018 | | 2017 |
Cash paid for interest | $ | 4,331 |
| | $ | 197 |
| | $ | 127 |
|
Income taxes paid | 308 |
| | 859 |
| | 12,755 |
|
Non-cash activities: | | | | | |
Purchases of equipment included in accounts payable | 1,184 |
| | 1,168 |
| | 1,343 |
|
Deferred financing costs | 6,650 |
| | — |
| | 30 |
|
Stock issuance in exchange for services performed | — |
| | — |
| | 166 |
|
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2016 | | 2015 | | 2014 |
Cash paid for interest | $ | 162 |
| | $ | 86 |
| | $ | 48 |
|
Income taxes paid | 642 |
| | 2,293 |
| | 384 |
|
Retirement of fixed assets | — |
| | 319 |
| | — |
|
Deferred financing costs | 10 |
| | 504 |
| | — |
|
APIC related tax adjustments | (424 | ) | | 7,757 |
| | — |
|
Stock issuance of 441,009 shares in connection with acquisition of Stability | 3,346 |
| | — |
| | — |
|
Stock issuance of 43,344, 16,493 and 15,958 shares in exchange for services performed in 2016, 2015 and 2014, respectively | 346 |
| | 164 |
| | 117 |
|
15. 401(k) Plan
The Company has a 401(k) plan (the “Plan”“401(k) Plan”) covering all employees who have attained 21 years of age and have completed three monthsone month of service. Under the 401(k) Plan, participants maycould defer up to 100%90% of their eligible wages to a maximum of $18,000$19,000 per year (annual limit for 2015)2019). Employees age 50 or over in 2016 may2018 could make additional pre-tax contributions up to $6,000 above and beyond normal plan and legal limits.$6,000. Annually, the Company maycould elect to match employee contributions up to 6%5% of the employee’s eligible compensation. Additionally, the Company maycould elect to make a discretionary contribution to the 401(k) Plan. The Company did not provide matching contributions for the yearsyear ended December 31, 2016, 2015,2017. The matching contribution for the year ended December 31, 2019 and 2014.2018 was $1.5 million and $1.9 million, respectively.
| |
15. | Related Party Transactions |
On January 13, 2016, when the Company completed the acquisition of Stability Inc., d/b/a Stability Biologics ("Stability") there was an assumed payable of $5,954,555 to a related party. The Company made payments of $1,361,030 during 2016. The payable was further reduced by $3,367,250 as a result of the return or destruction of expired inventory. The outstanding payable at 12/31/16 is $1,226,27516. Commitments and is included in Accounts Payable. The related party is a limited liability company that is controlled by a former stockholder of Stability Inc. who is now an employee of the Company.Contingencies
| |
16. | Commitments and Contingencies |
Contractual Commitments
In addition to the capital leases noted under Property and Equipment (Note 7)Note 7 “Leases,” the Company has entered into operating lease agreementscommitments for facility space and equipment.meeting space. These leases expire over the next eight3 to 3.5 years following December 31, 2019, and generally contain renewal options. The Company anticipates that most of these leases will be renewed or replaced upon expiration. The Company also has commitments for meeting space.
The estimated annual lease payment and meeting space commitments are as follows (in thousands):
|
| | | |
Year ended December 31, | |
2017 | $ | 2,827 |
|
2018 | 3,079 |
|
2019 | 2,023 |
|
2020 | 490 |
|
2021 | 141 |
|
Thereafter | 374 |
|
| $ | 8,934 |
|
|
| | | |
Years Ended December 31, | |
2020 | $ | 2,263 |
|
2021 | 2,259 |
|
2022 | 2,344 |
|
2023 | 205 |
|
2024 | — |
|
Thereafter | — |
|
| $ | 7,071 |
|
Rent expense for the years ended December 31, 2016, 20152019, 2018 and 2014,2017, was approximately $1,764,000, $1,317,000$1.4 million, $1.5 million, and $1,130,000,$1.6 million, respectively, and is allocated among cost of sales, research and development, and selling, general and administrative expenses.
Letters of Credit
AsPreviously, as a condition of the leases for the Company'sCompany’s facilities, we arethe Company was obligated under standby letters of credit in the amount of approximately $103,000. These obligations are reduced at various times over$0.1 million. The Company amended its lease during 2018 to eliminate this obligation.
Separation and Transition Services Agreement of Edward J. Borkowski
On November 18, 2019, the livesCompany entered into a Separation and Transition Services Agreement (“Separation Agreement”) with Edward J. Borkowski, under which Mr. Borkowski resigned as Executive Vice President and Interim Chief Financial Officer of the leases.Company, as well as from any and all officer, director or other positions that he held with the Company and its affiliates, effective November 15, 2019. Pursuant to the Separation Agreement, Mr. Borkowski agreed to perform the duties of the Interim Chief Financial Officer with respect to the Company’s 2018 Form 10-K and assist with the transition of his duties as described in the Separation Agreement from November 15, 2019 through the earlier of the first business day following the Company’s filing of its 2018 Form 10-K with the SEC or December 31, 2019 (the “Transition Period”). From the end of the Transition Period until March 31, 2020, Mr. Borkowski agreed to provide services as may be requested by the Company with respect to matters related to the 2018 Form 10-K and the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The Company has paid Mr. Borkowski the full amount of $4.0 million as of the date of the issuance of these consolidated financial statements payable under the Separation Agreement.
FDA Untitled Letter, Draft GuidanceLitigation and Related LitigationRegulatory Matters
In the ordinary course of business, the Company and its subsidiaries are parties to numerous civil claims and lawsuits and subject to regulatory examinations, investigations, and requests for information. Some of these matters involve claims for substantial amounts. The Company’s experience has shown that the damages alleged by plaintiffs or claimants are often overstated, based on unsubstantiated legal theories, unsupported by facts, and/or bear no relation to the ultimate award that a court might grant. Additionally, the outcome of litigation and regulatory matters and the timing of ultimate resolution are inherently difficult to predict. These factors make it difficult for the Company to provide a meaningful estimate of the range of reasonably possible outcomes of claims in the aggregate or by individual claim. However, on a case-by-case basis, reserves are established for those legal claims in which it is probable that a loss will be incurred and the amount of such loss can be reasonably estimated. The Company's financial statements at December 31, 2019 reflect the Company's current best estimate of probable losses associated with these matters, including costs to comply with various settlement agreements, where applicable. The actual costs of resolving these claims may be substantially higher or lower than the amounts reserved.
The following is a description of certain litigation and regulatory matters:
FDA Untitled Letter
Shareholder Derivative Suits
On December 6, 2018, the United States District Court for the Northern District of Georgia entered an order consolidating 3 shareholder derivative actions (Evans v. Petit, et al. filed September 25, 2018, Georgalas v. Petit, et al. filed September 27, 2018, and Draft Guidance
Roloson v. Petit, et al. filed October 22, 2018) that had been filed in the Northern District of Georgia. On August 28, 2013,January 22, 2019, plaintiffs filed a verified consolidated shareholder derivative complaint. The consolidated action sets forth claims of breach of fiduciary duty, corporate waste and unjust enrichment against certain former officers, and certain current and former directors, of the FDA issued an Untitled Letter allegingCompany: Parker H. Petit, William C. Taylor, Michael J. Senken, John E. Cranston, Alexandra O. Haden, Joseph G. Bleser, J. Terry Dewberry, Charles R. Evans, Larry W. Papasan, Luis A. Aguilar, Bruce L. Hack, Charles E. Koob, Neil S. Yeston and Christopher M. Cashman. The allegations generally involve claims that the Company's micronized allografts do not meetdefendants breached their fiduciary duties by causing or allowing the criteria for regulation solely under Section 361 of the Public Health Service Act and that,Company to misrepresent its financial statements as a result MiMedx would needof improper revenue recognition. The Company filed a biologics licensemotion to lawfully market those micronized products. Sincestay on February 18, 2019, pending the issuancecompletion of the Untitled Letter,investigation by the Company’s Special Litigation Committee. The Special Litigation Committee completed its investigation relating to this action and filed an executive summary of its findings with the Court on July 1, 2019. The parties (together with parties from the Hialeah derivative lawsuit, the Nix and Demaio derivative lawsuit, and the Murphy derivative lawsuit, each described below) held a mediation on February 11, 2020. Following continued discussions, on May 1, 2020, the parties notified the Court that plaintiffs and the Company has beenhad reached an agreement in discussions withprinciple to settle this consolidated derivative action, which settlement also encompasses all claims asserted in the FDAHialeah derivative lawsuit, the Nix and Demaio derivative lawsuit, and the Murphy derivative lawsuit. As of the date of the filing of this Form 10-K, the parties are drafting, and intend to communicate its disagreement withfile, a stipulation of settlement and motion seeking preliminary approval of the FDA's assertionsettlement.
On October 29, 2018, the City of Hialeah Employees Retirement System (“Hialeah”) filed a shareholder derivative complaint in the Circuit Court for the Second Judicial Circuit in and for Leon County, Florida (the “Florida Court”). The complaint alleges claims for breaches of fiduciary duty and unjust enrichment against certain former officers, and certain current and former directors, of the Company: Parker H. Petit, William C. Taylor, Michael J. Senken, John E. Cranston, Alexandra O. Haden, Joseph G. Bleser, J. Terry Dewberry, Charles R. Evans, Bruce L. Hack, Charles E. Koob, Larry W. Papasan, and Neil S. Yeston. The allegations generally involve claims that the Company's allografts are more than minimally manipulated. To date, the FDA has not changed its position that the Company's micronized products are not eligible for marketing solely under Section 361 of the Public Health Service Act. The Company continues to market its micronized products but is also pursuing the Biologics License Application (“BLA”) process for certain of its micronized products.
On December 22, 2014, the FDA issued for comment “Draft Guidance for Industry and FDA Staff: Minimal Manipulation of Human Cells, Tissues, and Cellular and Tissue-Based Products.” Essentially the Minimal Manipulation draft guidance takes the same position with respect to micronized amniotic tissue that it took in the Untitled Letter to MiMedx 16 months earlier. The Company submitted comments asserting that the Minimal Manipulation draft guidance represents agency action that goes far beyond the FDA’s statutory authority, is inconsistent with existing HCT/P regulations and the FDA’s prior positions, and is internally inconsistent and scientifically unsound.
On October 28, 2015, the FDA issued for comment, "Draft Guidance for Industry and FDA Staff: Homologous Use of Human Cells, Tissues, and Cellular and Tissue-Based Products." The Company submitted comments on this Homologous Use draft guidance as well. On September 12 and 13, 2016, the FDA held a public hearing to obtain input on the Homologous Use draft guidance and the previously released Minimal Manipulation draft guidance, as well as other recently issued guidance documents on HCT/Ps. The Company awaits further decision from FDA on the draft guidances, but anticipates this will be a lengthy process.
If the FDA does allowdefendants breached their fiduciary duties by causing or allowing the Company to continuemisrepresent its financial statements as a result of improper revenue recognition. The Company moved to marketstay the action on February 7, 2019, to allow the prior-filed consolidated derivative action in the Northern District of Georgia to be resolved first and to allow the Company’s Special Litigation Committee time to complete its investigation. The Company also filed a micronized form of its sheet allografts without a biologics license either priormotion to or after finalization ofdismiss on April 8, 2019. As discussed above, the draft guidance documents, it may impose conditions, such as labeling restrictions and compliance with cGMP. Althoughplaintiff participated in the Company is preparing for these requirementsmediation that took place in connection with the prior-filed consolidated derivative action in the Northern District of Georgia and is a party to the agreement in principle to settle that consolidated derivative action. The agreement in principle provides that the plaintiff in this action will file a notice of dismissal to dismiss its pursuit of a BLA for certain of its micronized products, earlier complianceaction with these conditions requires significant additional time and cost investmentsprejudice within seven calendar days after the date that the judgment entered by the Company. It is also possibleNorthern District of Georgia becomes final.
On May 15, 2019, 2 individuals purporting to be shareholders of the Company filed a shareholder derivative complaint in the Superior Court for Cobb County, Georgia. (Nix and Demaio v. Evans, et al.) The complaint alleges claims for breaches of fiduciary duty, corporate waste and unjust enrichment against certain current and former directors and officers of the Company: Parker H. Petit, William C. Taylor, Michael J. Senken, John E. Cranston, Alexandra O. Haden, Chris Cashman, Lou Roselli, Mark Diaz, Charles R. Evans, Luis A. Aguilar, Joseph G. Bleser, J. Terry Dewberry, Bruce L. Hack, Charles E. Koob, Larry W. Papasan and Neil S. Yeston. The allegations generally involve claims that the FDA will not allowdefendants breached their fiduciary duties by causing or allowing the Company to market any formmisrepresent its financial statements as a result of a micronized product without a biologics license even prior to finalizationimproper revenue recognition. The Court ordered this matter stayed pending the resolution of the draft guidance documentsconsolidated derivative suit pending in the Northern District of Georgia. As discussed above, the plaintiff participated in the mediation that took place in connection with the prior-filed consolidated derivative action in the Northern District of Georgia and could even requireis a party to the agreement in principle to settle that consolidated derivative action. The agreement in principle provides that the plaintiffs in this action will file a notice of dismissal to dismiss their action with prejudice within seven calendar days after the date that the judgment entered by the Northern District of Georgia becomes final.
On August 12, 2019, John Murphy filed a shareholder derivative complaint in the United States District Court for the Southern District of Florida (Murphy v. Petit, et al.). The complaint alleged claims for breaches of fiduciary duty and unjust enrichment against certain former officers, and certain current and former directors, of the Company: Parker H. Petit, William C. Taylor, Michael J. Senken, John E. Cranston, Alexandra O. Haden, Charles R. Evans, Luis A. Aguilar, Joseph G. Bleser, J. Terry Dewberry, Bruce L. Hack, Charles E. Koob, Larry W. Papasan and Neil S. Yeston. The allegations generally involve claims that the defendants breached their fiduciary duties by causing or allowing the Company to recallmisrepresent its micronized products. Revenues from micronized products comprised approximately 10%financial statements as a result of improper revenue recognition. The Company filed a motion to transfer this action to the Northern District of Georgia. Prior to resolution of that motion, the plaintiff voluntarily dismissed this action without prejudice. As discussed above, the plaintiff participated in the mediation that took place in connection with the prior-filed consolidated derivative action in the Northern District of Georgia and is a party to the agreement in principle to settle that consolidated derivative action. Under the agreement in principle, the plaintiff has agreed that this action shall not be reinstated and, after the judgment entered by the Northern District of Georgia becomes final, this action shall be deemed dismissed with prejudice.
On February 10, 2020, Charles Pike filed a shareholder derivative complaint in the United States District Court for the Southern District of Florida (Pike v. Petit, et al.). The complaint alleges claims for breaches of fiduciary duty against certain former officers, and certain current and former directors, of the Company's revenues in 2016.
Securities Class Action
FollowingCompany: Parker H. Petit, William C. Taylor, Michael J. Senken, John E. Cranston, Charles R. Evans, Luis A. Aguilar, Joseph G. Bleser, J. Terry Dewberry, Bruce L. Hack, Charles E. Koob, Larry W. Papasan and Neil S. Yeston. Similar to the publicationprior-filed actions discussed above, the allegations generally involve claims that the defendants breached their fiduciary duties by causing or allowing the Company to misrepresent its financial statements as a result of the Untitled Letter from the FDA regardingimproper revenue recognition. On May 12, 2020, prior to the Company’s micronized products in September 2013,time to respond to the trading pricecomplaint, the plaintiff filed a notice of the Company’s stock declined and several putativevoluntary dismissal of this action without prejudice.
On February 18, 2020, Bruce Cassamajor filed a shareholder class action lawsuits were filed against the Company and certain of its executive officers asserting violations of the Securities Exchange Act of 1934. The cases were consolidatedderivative complaint in the United States District Court for the Northern District of Georgia. On November 17, 2015,Florida (Cassamajor v. Petit, et al.). The complaint alleges claims for breaches of fiduciary duty against certain former officers, and certain current and former directors, of the parties entered into a stipulation of settlementCompany: Parker H. Petit, William C. Taylor, Michael J. Senken, John E. Cranston, Charles R. Evans, Luis A. Aguilar, Joseph G. Bleser, J. Terry Dewberry, Bruce L. Hack, Charles E. Koob, Larry W. Papasan and Neil S. Yeston. Similar to settle the consolidated case in its entirety. The stipulation of settlement was filed withprior-filed actions discussed above, the Court on November 18, 2015. On November 19, 2015,allegations generally involve claims that the Court preliminarily approved the settlement and confirmed the settlement on April 5, 2016. The settlement amount was paiddefendants breached their fiduciary duties by the Company's insurance carrier.
Former Employee Litigation
On December 13, 2016,causing or allowing the Company filed lawsuits against former employees Jess Kruchoski (in the lawsuit styled MiMedx Group, Inc. v. Academy Medical, LLC, et. al. in the County Courtto misrepresent its financial statements as a result of improper revenue recognition. On May 22, 2020, prior to service of the Fifteenth Judicial Circuit in andcomplaint, the plaintiff filed a notice of voluntary dismissal of this action without prejudice. On May 26, 2020, the court ordered this case to be dismissed for Palm Beach County, Florida (the “Florida Action”)) and Luke Tornquist (in the lawsuit styled MiMedx Group, Inc., v. Luke Tornquist in the Superior Court for Cobb County, Georgia, which was removedfailure to serve process.
Securities Class Action
On January 16, 2019, the United States District Court for the Northern District of Georgia entered an order consolidating 2 purported securities class actions (MacPhee v. MiMedx Group, Inc., et al. filed February 23, 2018 and Kline v. MiMedx Group, Inc., et al. filed February 26, 2018). The order also appointed Carpenters Pension Fund of Illinois as lead plaintiff. On May 1, 2019, the lead plaintiff filed a consolidated amended complaint, naming as defendants the Company, Michael J. Senken, Parker H. Petit, William C. Taylor, Christopher M. Cashman and Cherry Bekaert & Holland LLP. The amended complaint (the “Georgia Action”“Securities Class Action Complaint”) alleged violations of Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Rule 10b-5 promulgated thereunder and Section 20(a) of the Exchange Act. It asserted a class period of March 7, 2013 through June 29, 2018. Following the filing of motions to dismiss by the various defendants, the lead plaintiff was granted leave to file an amended complaint. The lead plaintiff filed its amended complaint against the Company, Michael Senken, Pete Petit, William Taylor, and Cherry Bekaert & Holland (Christopher Cashman was dropped as a defendant) on March 30, 2020; defendants filed motions to dismiss on May 29, 2020.
Investigations
SEC Investigation
On April 4, 2017, the Company received a subpoena from the SEC requesting information related to, among other things, the Company’s recognition of revenue, practices with certain distributors and customers, its internal accounting controls and certain employment actions. The Company cooperated with the SEC in its investigation (the “SEC Investigation”). BothIn November 2019, the Florida and Georgia Actions assertSEC brought claims against Messrs. Kruchoskithe Company and Tornquistthe Company’s former officers Parker H. Petit, Michael J. Senken, and William C. Taylor. The SEC alleged that each of them violated their restrictive covenantsfrom 2013 to 2017, the Company prematurely recognized revenue from sales to its distributors and exaggerated its revenue growth. The SEC’s complaint also alleged that the Company improperly recognized revenue because its former CEO and COO entered into undisclosed side arrangements with certain distributors. These side arrangements allowed distributors to return product to the Company or conditioned distributors’ payment obligations on sales to end users. The SEC complaint further alleged that each of them misappropriated trade secretsthe Company’s former CEO, COO, and CFO allegedly covered up their scheme for years, including after the Company’s former controller raised concerns about the Company’s accounting for specific distributor transactions. The SEC also alleged that the Company’s former CEO, COO, and CFO all misled the Company’s outside auditors, members of the Company, that each of them tortiously interfered with contracts betweenCompany’s Audit Committee, and outside lawyers who inquired about these transactions. The SEC brought claims against the Company and its customersformer CEO, COO, and employees,CFO for violating the antifraud, reporting, books and records, and internal controls provisions of the federal securities laws. The SEC also brought claims against the Company’s former CEO, COO, and CFO for lying to the Company’s outside auditors. In November 2019, without admitting or denying the SEC’s allegations, the Company settled with the SEC by consenting to the entry of a final judgment that eachpermanently restrains and enjoins the Company from violating certain provisions of them breached his dutythe federal securities laws. As part of loyalty owedthe resolution, the Company paid a civil penalty of $1.5 million. The settlement concluded, as to the Company, among other claims. the matters alleged by the SEC in its complaint. The SEC’s litigation continues against the Company’s former officers.
United States Attorney’s Office for the Southern District of New York (“USAO-SDNY”) Investigation
The USAO-SDNY conducted an investigation into topics similar to those at issue in the SEC Investigation. The USAO-SDNY requested that the Company provide it with copies of all information the Company furnished to the SEC and made additional requests for information. The USAO-SDNY conducted interviews of various individuals, including employees and former employees of the Company. The USAO-SDNY issued indictments in November 2019 against former executives Messrs. Petit and Taylor for securities fraud and conspiracy to commit securities fraud, to make false filings with the SEC, and improperly influence the conduct of audits relating to alleged misconduct that resulted in inflated revenue figures for fiscal 2015. The Company is cooperating with the USAO-SDNY.
Department of Veterans’ Affairs Office of Inspector General (“VA-OIG”) and Civil Division of the Department of Justice (“DOJ-Civil”) Subpoenas and/or Investigations
VA-OIG has issued subpoenas to the Company seeking, among other things, information concerning the Company’s financial relationships with VA clinicians. DOJ-Civil has requested similar information. The Company has cooperated fully and produced responsive information to VA-OIG and DOJ-Civil. Periodically, VA-OIG has requested additional documents and information regarding payments to individual VA clinicians. Most recently, on June 3, 2020, the Company received a subpoena from the VA-OIG requesting information regarding the Company’s financial relationships and interactions with two healthcare providers at the VA Long Beach Healthcare System. The Company has continued to cooperate and respond to these requests.
As part of its cooperation, the Company provided documents in response to subpoenas concerning its relationship with 3 now former VA employees in South Carolina, who were ultimately indicted in May 2018. Among other things, the indictment referenced speaker fees paid by the Company to the former VA employees and other interactions between now former Company employees and the former VA employees. In January 2019, prosecution was deferred for 18 months to allow the three former VA employees to enter and complete a Pretrial Diversion Program, the completion of which would result in the dismissal of the indictment. As far as the Company is aware, 2 of the former VA employees have completed the program early and the indictment has been dismissed with respect to them. To date, no actions have been taken against the Company with respect to this matter.
United States Attorney’s Office for the Middle District of North Carolina (“USAO-MDNC”) Investigation
On December 15, 2016, Messrs. Kruchoski and TornquistJanuary 9, 2020, the USAO-MDNC informed the Company that it is investigating the Company’s financial relationships with two former clinicians at the Durham VA Medical Center. The Company is cooperating with the investigation.
Qui Tam Actions
On January 19, 2017, a former employee of the Company filed a lawsuitqui tam False Claims Act complaint in the United States District Court for the District of South Carolina (United States of America, ex rel. Jon Vitale v. MiMedx Group, Inc.) alleging that the Company’s donations to the patient assistance program, Patient Access Network Foundation, violated the Anti-Kickback Statute and resulted in submission of false claims to the government. The government declined to intervene and the complaint was unsealed on August 10, 2018. The Company filed a motion to dismiss on October 1, 2018. The Company’s motion to dismiss was granted in part and denied in part on May 15, 2019. The case is in discovery.
On January 20, 2017, 2 former employees of the Company, filed a qui tam False Claims Act complaint in the United States District Court for the District of Minnesota (the “Minnesota Action”(Kruchoski et. al. v. MiMedx Group, Inc.) against. An amended complaint was filed on January 27, 2017. The operative complaint alleges that the Company failed to provide truthful, complete and accurate information about the pricing offered to commercial customers in connection with the Company’s FSS contract. On May 7, 2019, the Department of Justice (“DOJ”) declined to intervene, and the Company’s Chairman and Chief Executive Officer, Parker Petit. The plaintiffs in this lawsuit each claimed that their employment withcase was unsealed. In April 2020, without admitting the allegations, the Company agreed to pay $6.5 million to the DOJ to resolve this matter.
Former Employee Litigation
On December 13, 2016, the Company filed a complaint in the Circuit Court for Palm Beach County, Florida (MiMedx Group, Inc. v. Academy Medical, LLC et. al.) alleging several claims against a former employee, primarily based on his alleged competitive activities while he was terminated inemployed by the Company (breach of contract, breach of fiduciary duty and breach of duty of loyalty). The former employee countersued for monetary damages and injunctive relief, alleging whistleblower retaliation for their complaints about the Company’s alleged business practices in violation of the Dodd-Frank Wall Street Reform and Consumer Protection Act 15 U.S.C. § 78u-6(h); and was an(the “Dodd-Frank Act”), unlawful discharge and defamation. The Court dismissed the Dodd-Frank Act whistleblower counterclaim, and in violationresponse, the former employee filed an amended complaint on September 11, 2018, adding allegations of Minnesota Statutes Section 181.931 subdivision 1. Mr. Kruchoski also claimed that the termination of his employment with the Company constituted marital status discrimination and familial status discriminationpost-termination retaliation in violation of the Minnesota Human RightsDodd-Frank Act. Messrs. Kruchoski and Tornquist also claimed that Mr. Petit tortiously interfered with their employment relationships withThe court dismissed the Company.former employee’s retaliation counterclaim on January 24, 2019. After this dismissal, only the former employee’s
claims of unlawful discharge and defamation remained pending. The parties resolved this matter and the case was dismissed on September 5, 2019.
On January 26, 2017, the Company and Mr. Petit filed motions to dismiss the Minnesota Action. In response, Messrs. Kruchoski and Tornquist voluntarily dismissed the Minnesota Action without prejudice on February 7, 2017. On February 7, 2017, Mr. Tornquist filed his Answer and Counterclaims in the Georgia Action wherein he asserted claims similar to those he had asserted in the Minnesota Action, with the exception that he did not include a claim of tortious interference against Mr. Petit. On February 15, 2017, Mr. Kruchoski filed a new lawsuit in Georgia against MiMedx and Mr. Petit, making many of the
same allegations in that suit as were made in the Minnesota suit, with the addition of claims against the Company and Mr. Petit for defamation.
The Company intends to vigorously pursue its claims asserted in the Florida and Georgia Actions and also to vigorously defend against the lawsuits and counterclaims asserted against them.
Patent Litigation
MiMedx continues to diligently enforce its intellectual property against several entities. Currently, there are four actions pending, as described below:
The Liventa Action
On April 22, 2014,December 29, 2016, the Company filed a patent infringement lawsuitcomplaint in the United States District Court for the Northern District of GeorgiaIllinois (MiMedx Group, Inc. v. Michael Fox) alleging several claims against Liventa Bioscience,a former employee of the Company, primarily based on his alleged competitive activities while he was employed by the Company (breach of contract, breach of fiduciary duty and breach of duty of loyalty). The former employee countersued the Company for monetary damages and injunctive relief, alleging improper wage rate adjustment, interference with the former employee’s job after his termination from the Company and retaliation. The parties resolved this matter and the case was dismissed on November 4, 2019.
On July 13, 2018, a former employee filed a complaint against the Company in the United States District Court for the Northern District of Texas (Jennifer R. Scott v. MiMedx Group, Inc. ("Liventa"), Medline Industries,alleging sex discrimination and retaliation. The parties resolved this matter, and the case was dismissed on November 6, 2019.
On November 19, 2018, the Company’s former Chief Financial Officer filed a complaint in the Superior Court for Cobb County, Georgia (Michael J. Senken v. MiMedx Group, Inc. ("Medline") in which he claims that the Company has breached its obligations under the Company’s charter and Musculoskeletal Transplant Foundation,bylaws to advance to him, and indemnify him for, his legal fees and costs that he incurred in connection with certain Company internal investigations and litigation. The Company filed its answer denying the plaintiff’s claims on April 19, 2019. To date, no deadlines have been established by the court.
On January 21, 2019, a former employee filed a complaint in the Fifth Judicial Circuit, Richland County, South Carolina (Jon Michael Vitale v. MiMedx Group, Inc. ("MTF"et. al.) against the Company alleging retaliation, defamation and unjust enrichment and seeking monetary damages. The former employee claims he was retaliated against after raising concerns related to insurance fraud and later defamed by comments concerning the indictments of three South Carolina VA employees. On February 19, 2019, the case was removed to the U.S. District Court for permanentthe District of South Carolina. The Company filed a motion to dismiss on April 8, 2019, which was denied by the Court. This case is in discovery.
In December 2019, MiMedx received notice of a complaint filed in July 2018 with the Occupational Safety and Health Administration (“OSHA”) section of the Department of Labor (“DOL”) by Thomas Tierney, a former Regional Sales Director, against MiMedx and the referenced individuals, Tierney v. MiMedx Group, Inc., Parker Petit, William Taylor, Christopher Cashman, Thornton Kuntz, Jr. and Alexandra Haden, DOL No. 4-5070-18-243. Mr. Tierney alleged that he was terminated from MiMedx in retaliation for reporting concerns about revenue recognition practices, compliance issues, and the corporate culture, in violation of the anti-retaliation provisions of the Sarbanes-Oxley Act. The parties settled this matter and OSHA dismissed the complaint on May 20, 2020.
Defamation Claims
On June 4, 2018, Sparrow Fund Management, LP (“Sparrow”) filed a complaint against the Company and Mr. Petit, including claims for defamation and civil conspiracy in the United States District Court for the Southern District of New York (Sparrow Fund Management, L.P. v. MiMedx Group, Inc. et. al.). The complaint seeks monetary damages and injunctive relief and unspecified damages (the "Liventa Action"). In additionalleges the defendants commenced a campaign to publicly discredit Sparrow by falsely claiming it was a short seller who engaged in illegal and criminal behavior by spreading false information in an attempt to manipulate the allegationsprice of infringementour Common Stock. On March 31, 2019, a judge granted defendants’ motions to dismiss in full, but allowed Sparrow the ability to file an amended complaint. The Magistrate has recommended Sparrow’s motion for leave to amend be granted in part and denied in part and the Judge adopted the Magistrate’s recommendation. Sparrow filed its amended complaint against MiMedx (Mr. Petit has been dropped from the lawsuit) on April 3, 2020 and the Company filed its answer. This case is in discovery.
On June 17, 2019, the principals of MiMedx's patents,Viceroy Research (“Viceroy”), filed suit in the Circuit Court for the Seventeenth Judicial Circuit in Broward County, Florida (Fraser John Perring et. al. v. MiMedx Group, Inc. et. al.) against the Company and Mr. Petit, alleging defamation and malicious prosecution based on the defendants’ alleged campaign to publicly discredit Viceroy and the lawsuit asserts that Liventathe Company previously filed against the plaintiffs, but which the Company subsequently dismissed without prejudice. On November 1, 2019, the Court granted Mr. Petit’s motion to dismiss on jurisdictional grounds, denied the Company’s motion to dismiss, and Medline knowingly and willfully made false and misleading representations about their respective productsgranted plaintiffs leave to providers, patients, andfile an amended complaint to address the deficiencies in some cases, prospective investors. Though the terms of the agreement are confidential, the parties have reached a settlement of the false advertisingits claims for an undisclosed sum.against Mr. Petit, which they did on November 21, 2019. The patent infringement claims are still pending as described below.Company filed its answer on December 20, 2019.
MiMedx asserts that Liventa (formerly known as AFCell Medical, Inc.), Medline and MTF infringed and continue to infringe certain of the Company's patents relating to the MiMedx dehydrated human amnion/chorion membrane ("dHACM") allografts. MTF is the tissue processor while Liventa and Medline are the distributors of the allegedly infringing products. On May 30, 2014, defendants filed answers to the Complaint, denying the allegations in the Complaint. They also raised affirmative defenses of non-infringement, invalidity, laches and estoppel. MTF and Medline also filed counterclaims seeking declaratory judgments of non-infringement and invalidity. Defendants filed parallel Inter Partes Review ("IPR") proceedings which are discussed below. We expect the case to go to trial in 2017.
Intellectual Property Litigation
The Bone Bank Action
On May 16, 2014, the Company also filed a patent infringement lawsuit against Transplant Technology, Inc. d/b/a Bone Bank Allografts ("(“Bone Bank"Bank”) and Texas Human Biologics, Ltd. ("Biologics"(“Biologics”) for permanent injunctive relief and unspecified damages (the "Bone Bank Action"). The Bone Bank Action was filed in the United States District Court for the Western District of Texas. This lawsuit similarly assertsTexas (MiMedx Group, Inc. v. Tissue Transplant Technology, LTD. d/b/a/ Bone Bank Allografts et. al.). The Company has asserted that Bone Bank and Biologics infringed certain of the Company'sCompany’s patents through the manufacturing and sale of their placental-derived tissue graft products.products, and the Company is seeking permanent injunctive relief and unspecified damages. On July 10, 2014, DefendantsBone Bank and Biologics filed an answer to the Complaint,complaint, denying the allegations in the Complaint. They also raised affirmative defenses of non-infringement and invaliditycomplaint, and filed counterclaims seeking declaratory judgments of non-infringement and invalidity. Defendants also filed parallel IPR proceedings which are further discussed below. Discovery is closedThe matter settled in 2019 prior to trial, and we expect the case to go to trial in 2017.
was dismissed on April 4, 2019.
The NuTech Action
On March 2, 2015, the Company filed a patent infringement lawsuit against NuTech Medical, Inc. ("NuTech"(“NuTech”) and DCI Donor Services, Inc. ("DCI"(“DCI”) for permanent injunctive relief and unspecified damages. This lawsuit was filed in the United States District Court for the Northern District of Alabama.Alabama (MiMedx Group, Inc. v. NuTech Medical, Inc. et. al.). The lawsuit allegesCompany has alleged that NuTech and DCI have infringed and continue to infringe the Company'sCompany’s patents through the manufacture, use, sale and/or offering of their tissue graft product. The lawsuitCompany has also assertsasserted that NuTech knowingly and willfully made false and misleading representations about its products to customers and/orand prospective customers. The caseCompany is currently in the discovery phase.
The Vivex Action
On April 1, 2016, the Company also filed a patent infringement lawsuit against Vivex BioMedical (“Vivex”) forseeking permanent injunctive relief and unspecified damages (the "Vivex Action").damages. The lawsuitcase was filedstayed pending the restatement of the Company’s financial statements. Since the Company has completed its restatement, the case has resumed and discovery has recommenced.
The Osiris Action
On February 20, 2019, Osiris Therapeutics, Inc. (“Osiris”) refiled its trade secret and breach of contract action against the Company (which had been dismissed in a different forum) in the United States District Court for the Northern District of Georgia. The patent at issue isGeorgia (Osiris Therapeutics, Inc. v. MiMedx Group, Inc.). Osiris has alleged that the 8,709,494 patent (the "494" patent). Vivex answered the Company’s complaint and filed counterclaimsCompany acquired Stability, a former distributor of non-infringement and invalidity.Osiris, in order to illegally obtain trade secrets. On January 4, 2017,February 24, 2020, the Court granted a jointissued an order granting in part and denying in party MiMedx’s motion to staydismiss. The Court dismissed Osiris’s claims for tortious interference, conspiracy to breach contract, unfair competition, and conspiracy to commit unfair competition. The Court denied MiMedx’s motion to dismiss with respect to the proceedings pending the outcomeclaim for breach of the Bone Bank Action.contract between Osiris and Stability, finding that there is a question as to whether Osiris can maintain such a claim by piercing the corporate veil between MiMedx and its former subsidiary. If Osiris cannot pierce the corporate veil, the claim against MiMedx fails; if Osiris can pierce the corporate veil, the breach of contract claim must be brought in an arbitration proceeding. MiMedx did not move to dismiss Osiris’s claims for misappropriation of trade secrets and conspiracy to misappropriate trade secrets. MiMedx plans to defend against all remaining claims.
As of December 31, 2019, the Company has accrued approximately $12.8 million related to the legal proceedings discussed above. The Company has paid approximately $9.2 million to settle certain cases noted above.
Pending IPRsAs of December 31, 2018, the Company accrued $15.6 million related to legal proceedings and other matters of litigation.
Other Matters
Under the Florida Business Corporation Act and agreements with its current and former officers and directors, the Company is obligated to indemnify its current and former officers and directors who are made party to a proceeding, including a proceeding brought by or in the right of the corporation, with certain exceptions, and to advance expenses to defend such matters. The Company has already borne substantial costs to satisfy these indemnification and expense advance obligations and expects to continue to do so in the future.
In addition to defending the claimsmatters described above, the Company is a party to a variety of other legal matters that arise in the pending district court litigations, defendants in the Liventa and Bone Bank cases have challenged certainordinary course of the Company's patents in several IPR proceedingsCompany’s business, none of which is deemed to avoid the high burden of proof of proving invalidity by "clear and convincing evidence" in the district court litigations. An inter partes review (or "IPR") is a request for a specialized group within the United States Patent and Trademark Office to review the validity of a plaintiff's patent claims. The defendants in the Bone Bank Action challenged the validity of the Company's 8,597,687 (the "687" patent) and the '494 patent; while the defendants in the Liventa Action challenged the validity of the Company's 8,372,437 and 8,323,701 patents (the "'437" and "'701" patents, respectively).
On June 29, 2015, the Patent Trial and Appeals Board ("PTAB") denied the Bone Bank defendants' request for institution of an IPR with respectbe individually material at this time. Due to the '494 patent (EpiFix) on all seven challenged grounds. On August 18, 2015, the PTAB also denied the Liventa defendants' request for institutioninherent uncertainty of an IPR with respect to the '701 patent (AmnioFix) on all six challenged grounds. That is, the PTAB decided in each caselitigation, there can be no assurance that the defendants failed to establishresolution of any particular claim or proceeding would not have a reasonable likelihood that defendants would prevail in showing anymaterial adverse effect on the Company’s business, results of the challenged claims of the '494operations, financial position or the '701 patent were unpatentable.liquidity.
On July 10, 2015, the PTAB issued an opinion allowing a review of the '687 patent to proceed, although on only two of the five challenged grounds. On July 7, 2016, the PTAB issued an opinion finding that the challenged claims, which relate to embossment and not configuration, were invalid for obviousness. The Company decided not to appeal the decision, as it impacted a non-core patent. On August 18, 2015, the PTAB issued an opinion allowing a review of the '437 patent to proceed, although only on one of the seven challenged grounds. On August 16, 2016, the PTAB issued an opinion finding that the challenged claims were unpatentable. F- 42
17. Revenue Data by Customer Type
MiMedx has filed an appeal of the PTAB’s decision regarding the '437 patent.
| |
17. | Quarterly Financial Data (Unaudited) (in thousands except per share data) |
|
| | | | | | | | | | | | | | | | | | |
| | | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
NET SALES | | 2016 | | $ | 53,367 |
|
| $ | 57,342 |
|
| $ | 64,429 |
|
| $ | 69,877 |
|
| | 2015 | | 40,767 |
| | 45,679 |
| | 49,015 |
| | 51,835 |
|
| | | | | | | | | | |
GROSS MARGIN | | 2016 | | $ | 45,421 |
|
| $ | 49,948 |
|
| $ | 56,432 |
|
| $ | 60,807 |
|
| | 2015 | | 35,619 |
| | 40,590 |
| | 44,036 |
| | 46,849 |
|
| | | | | | | | | | |
NET INCOME | | 2016 | | $ | 1,197 |
|
| $ | 1,975 |
|
| $ | 3,321 |
| | $ | 5,481 |
|
| | 2015 | | 4,087 |
| | 5,430 |
| | 6,551 |
| | 13,378 |
|
| | | | | | | | | | |
NET INCOME PER COMMON SHARE - BASIC | | 2016 | | $ | 0.01 |
| | $ | 0.02 |
| | $ | 0.03 |
| | $ | 0.05 |
|
| | 2015 | | 0.04 |
| | 0.05 |
| | 0.06 |
| | 0.13 |
|
| | | | | | | | | | |
NET INCOME PER COMMON SHARE - DILUTED | | 2016 | | $ | 0.01 |
| | $ | 0.02 |
| | $ | 0.03 |
| | $ | 0.05 |
|
| | 2015 | | 0.04 |
| | 0.05 |
| | 0.06 |
| | 0.11 |
|
18. Product Revenue Data
We group our products into two categories: Wound Care2 primary distribution channels: (1) direct to customers (healthcare professionals and/or facilities) (“Direct Customers”); and Surgical, Sports Medicine & Orthopedics (SSO) for(2) sales through distributors (“Distributors”). For purposes of the required disclosure under ASC 280-10-50-40.606-10-50-5, the Company groups its customers into these two groups. This grouping of productsby customer types does not constitute a basis for resource allocation but is information intended to provide the reader with ability to better understand how the Company's product categories.nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors applicable to each customer type. These groupings also do not meet the criteria under ASC 280-10-50-1 to qualify as separate operating segments. The Company did not have significant foreign operations or a single external customer from which 10% or more of revenues were derived during the years ended December 31, 2019, 2018 and 2017.
Net SalesBelow is a summary of net sales by Categorieseach customer type (in thousands):
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2019 | | 2018 | | 2017 |
| | | | | |
Direct Customers | $ | 288,800 |
| | $ | 343,464 |
| | $ | 286,742 |
|
Distributors | 10,455 |
| | 15,647 |
| | 27,431 |
|
Other(1) | — |
| | — |
| | 6,966 |
|
Total | $ | 299,255 |
| | $ | 359,111 |
| | $ | 321,139 |
|
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2016 | | 2015 | | 2014 |
Wound Care | | $ | 183,984 |
| | $ | 141,096 |
| | $ | 93,623 |
|
Surgical, Sports Medicine & Orthopedics (SSO) | | 61,031 |
| | 46,200 |
| | 24,600 |
|
Total | | $ | 245,015 |
| | $ | 187,296 |
| | $ | 118,223 |
|
(1) The “Other” balances are comprised entirely of the Net Sales generated by Stability while it was a subsidiary of the Company.
| |
18. | Related Party Transactions |
The Company employs Simon Ryan, the brother-in-law of the Company’s former General Counsel, Alexandra O. Haden (who resigned from the Company effective August 12, 2019), as a sales representative. In 2018, the Company paid Mr. Ryan total compensation of $0.2 million, consisting of a salary of $0.1 million and sales commissions, equity and other compensation of $0.1 million. In 2019, the Company paid Mr. Ryan total compensation of $0.2 million, consisting of a salary of $0.1 million and sales commissions, equity and other compensation of $0.1 million.
The Company has employed Thomas Koob as its Chief Scientific Officer (a non-executive officer) since 2006. Thomas Koob is the brother of a director, Charles Koob. Subsequent to the Company’s employment of Thomas Koob, Charles Koob was appointed as a director of the Company in March 2008. In 2018, the Company paid Thomas Koob a salary of $0.2 million and provided equity, incentive compensation and other compensation of $0.3 million. In 2019, the Company paid Thomas Koob an annual salary of $0.2 million and provided equity, incentive compensation and other compensation of $0.2 million.
Set forth below are disclosures relating to restructuring initiatives that resulted in material expenses or cash expenditures during the year ended December 31, 2019, and resulted in material restructuring liabilities at December 31, 2019. Employee retention and certain other employee benefit-related costs related to the Company’s restructuring are expensed ratably over an agreed-upon service period. One-time employee separation and related employee benefit costs are generally expensed as incurred.
In December 2018, the Company announced a reduction of the Company’s workforce by approximately 240 full-time employees, or 24% of its total workforce, of which approximately half were sales personnel as part of the plans to implement a broad-based organizational realignment, cost reduction and efficiency program to better ensure the Company’s cost structure was appropriate given its revenue expectations.
As a result of the December 2018 broad-based organizational realignment, cost reduction and efficiency program, the Company incurred pre-tax charges of $8.5 million and $6.1 million during the years ended December 31, 2019 and 2018, respectively. The charges related to employee retention and other one-time employee separation benefit-related costs. These charges are included in the cost of sales, research and development, and selling, general and administrative expenses in the consolidated statements of operations.
The liability related to restructuring activities during 2019 are included in accrued compensation in the consolidated balance sheets. Changes to this liability during the year ended December 31, 2019 were as follows (in thousands):
|
| | | |
Liability balance as of January 1, 2018 | $ | — |
|
Expenses | 6,055 |
|
Cash distributions | (448 | ) |
Liability balance as of December 31, 2018 | 5,607 |
|
Expenses | 8,543 |
|
Cash distributions | (10,589 | ) |
Liability balance as of December 31, 2019 | $ | 3,561 |
|
| |
20. | Quarterly Financial Data (Unaudited) (in thousands except per share data) |
19. The following table sets forth selected quarterly financial data for 2019 and 2018:
|
| | | | | | | | | | | | | | | | |
| | First Quarter | | Second Quarter | | Third Quarter (1) | | Fourth Quarter |
Net sales | 2019 | $ | 66,555 |
| | $ | 67,437 |
| | $ | 88,863 |
| | $ | 76,400 |
|
| 2018 | 84,149 |
| | $ | 95,417 |
| | 86,959 |
| | 92,586 |
|
| | | | | | | | |
Gross profit | 2019 | $ | 59,137 |
| | $ | 57,688 |
| | $ | 75,658 |
| | $ | 63,691 |
|
| 2018 | 74,791 |
| | $ | 86,147 |
| | $ | 79,604 |
| | 82,183 |
|
| | | | | | | | |
Income tax (provision) benefit | 2019 | $ | (42 | ) | | $ | (42 | ) | | $ | 309 |
| | $ | (220 | ) |
| 2018 | 1,552 |
| | 13 |
| | (650 | ) | | (27,497 | ) |
| | | | | | | | |
Net income (loss) | 2019 | $ | (13,273 | ) | | $ | (17,210 | ) | | $ | 12,379 |
| | $ | (7,476 | ) |
| 2018 | 4,619 |
| | 1,804 |
| | (178 | ) | | (36,224 | ) |
| | | | | | | | |
Net income (loss) per common share - basic | 2019 | $ | (0.12 | ) | | $ | (0.16 | ) | | $ | 0.12 |
| | $ | (0.07 | ) |
| 2018 | 0.04 |
| | 0.02 |
| | 0.00 |
| | (0.34 | ) |
| | | | | | | | |
Net income (loss) per common share - diluted | 2019 | $ | (0.12 | ) | | $ | (0.16 | ) | | $ | 0.11 |
| | $ | (0.07 | ) |
| 2018 | 0.04 |
| | 0.02 |
| | 0.00 |
| | (0.34 | ) |
(1) - Third quarter amounts include the transition adjustment discussed in Note 3.
Coronavirus Aid, Relief and Economic Security (CARES) Act
On March 27, 2020, the “Coronavirus Aid, Relief and Economic Security (CARES) Act” was signed into law. The Act includes provisions relating to refundable payroll tax credits, deferment of the employer portion of certain payroll taxes, loans and grants to certain business, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The Company applied for and received a $10.0 million loan under the Paycheck Protection Program. On May 11, 2020 the Company repaid the PPP loan.
In addition, modifications to the tax rules for carryback of net operating losses are expected to result in an estimated federal tax refund of $11.3 million and a resulting income tax benefit.
The BoardCOVID-19 pandemic and governmental and societal responses thereto have affected the Company’s business, results of Directorsoperations and financial condition. The continuation or a second-wave outbreak of COVID-19 or the outbreak of other health epidemics could harm the Company’s operations and increase the Company’s costs and expenses in February 2017 authorizednumerous ways. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. The Company does not yet know the full extent of delays or impacts on the business, clinical trials, healthcare systems or the global economy as a whole, or how long such effects will endure. The effects of the COVID-19 pandemic or other health epidemics could have an adverse impact on the Company’s business, results of operations and financial condition.
Sublease
On April 1, 2020 the Company successfully subleased its industrial warehouse space that expires on May 31, 2023. The Company performed an asset recovery test comparing the sum of estimated undiscounted future cash flows attributable to the sublease to its carrying amount. The total undiscounted cash flows for the remaining lease term exceed the carrying amount of the asset, therefore there is 0 impairment.
BT Term Loan Amendment
On April 22, 2020, the Company amended its BT Loan Agreement with Blue Torch. The amendment provided for an increase in the maximum Total Leverage Ratio (as defined in the BT Loan Agreement), which was a quarterly test, for the remainder of $202020, and also provided for a reduction in the minimum Liquidity (as defined in the BT Loan Agreement) requirement from April 2020 through and including November 2020. Specifically, the maximum Total Leverage Ratio increased from 3.0 to 1.0 to 5.0 to 1.0 through December 31, 2020. The minimum Liquidity requirement was reduced from $40.0 million to $20.0 million for April and May 2020, and from $30.0 million to $20.0 million for June through November 2020. In connection with the Company's Share Repurchase Program. This action bringsamendment, the totalCompany agreed to pay a one-time fee of approximately $0.7 million, added to the principal balance, and a 1 percentage point increase in the interest rate to LIBOR plus 9%.
Repayment and Termination of BT Loan Agreement
On July 2, 2020, the Company terminated the BT Loan Agreement and repaid the $72.0 million outstanding balance of principal and accrued but unpaid interest under the BT Loan Agreement. As a result of the early repayment of the loans under the BT Loan Agreement, the Company also paid a prepayment premium in the amount authorizedof $1.4 million. The Company paid the outstanding balance, accrued but unpaid interest, and prepayment premium using a portion of the proceeds from the Preferred Stock Transaction and the Hayfin Loan Transaction.
Issuance of $100 Million of Series B Convertible Preferred Stock
On July 2, 2020, the Company issued $100 million of the Company’s Series B Convertible Preferred Stock, par value $0.001 per share (the “Series BPreferred Stock”) to $86an affiliate of EW Healthcare Partners and certain funds managed by Hayfin Capital Management LLP pursuant to a Securities Purchase Agreement with Falcon Fund 2 Holding Company, L.P., an affiliate of EW Healthcare Partners, and certain funds managed by Hayfin Capital Management LLP, dated as of June 30, 2020, for an aggregate purchase price of $100,000,000 (the “Preferred Stock Transaction”). See Item 9B, “Other Information.”
$75 Million Loan Facility with Hayfin
On June 30, 2020, the Company entered into a Loan Agreement with, among others, Hayfin Services, LLP, an affiliate of Hayfin Capital Management LLP (the “Hayfin Loan Agreement”), which was funded on July 2, 2020 (the “Hayfin Loan Transaction”) and provided the Company with a senior secured term loan in an aggregate amount of $50 million since(the “Term Loan”) and an additional $25 million delayed draw term loan (the “DD TL”) in the Share Repurchase Program commencedform of a committed but undrawn facility. The Term Loan and the DD TL mature on July 2, 2025 (the “Maturity Date”). The Term Loan and the DD TL have no fixed amortization (i.e. interest only through the Maturity Date).
Borrowings under the Hayfin Loan Agreement bear interest at a rate equal to LIBOR (subject to a floor of 1.5%) plus a margin of 6.75%. The margin will be eligible to step down to 6.5% or 6.0% based on future Total Net Leverage levels, as defined in May 2014.the Hayfin Loan Agreement. The Company paid an upfront commitment fee of 2% of the aggregate of the Hayfin Term Loan and the DD TL. The DD TL is subject to an additional commitment fee of 1% of the amount undrawn.
The Hayfin Loan Agreement contains certain affirmative covenants that impose certain reporting and/or performance obligations on the Company and its subsidiaries, including (i) Maximum Total Net Leverage of 5.0x through December 31, 2020, stepping
down to 4.5x through June 30, 2021, and to 4.0x thereafter until the Maturity Date; (ii) Cap on Cash Netting for the purposes of calculation Total Net Leverage set at $10,000,000; (iii) DD TL Incurrence Covenant of 3.5x Total Net leverage, tested prior to any drawings under the DD TL; and (iv) Minimum Liquidity of $10M, an at-all-times covenant tested monthly.
Schedule II Valuation and Qualifying Accounts
|
| | | | | | | | | | | | | | | | |
MIMEDX GROUP, INC. AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS |
Years ended December 31, 2019, 2018 and 2017 (in thousands) |
| | | | | | | | |
| | Balance at Beginning of Year | | Additions charged to Expense or Revenue | | Deductions and write-offs | | Balance at End of Year |
| | | | | | | | |
For the Year ended December 31, 2019 | | | | | | | | |
Allowance for product returns | | 8,510 |
| | — |
| | (4,395 | ) | | 4,115 |
|
Allowance for obsolescence | | 589 |
| | 1,204 |
| | (1,074 | ) | | 719 |
|
| | | | | | | | |
For the Year ended December 31, 2018 | | | | | | | | |
Allowance for product returns | | $ | 7,362 |
| | $ | 1,148 |
| | $ | — |
| | $ | 8,510 |
|
Allowance for obsolescence | | 768 |
| | 511 |
| | (690 | ) | | 589 |
|
| | | | | | | | |
For the Year ended December 31, 2017 | | | | | | | | |
Allowance for product returns | | $ | 11,283 |
| | $ | — |
| | $ | (3,921 | ) | | $ | 7,362 |
|
Allowance for obsolescence | | 829 |
| | 1,192 |
| | (1,253 | ) | | 768 |
|
| | | | | | | | |
|
| | | | | | | | | | | | | | | | |
MIMEDX GROUP, INC. AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS |
Years ended December 31, 2016, 2015 and 2014 (in thousands) |
| | | | | | | | |
| | Balance at Beginning of Year | | Additions charged to Expense or Revenue | | Deductions and write-offs | | Balance at End of Year |
| | | | | | | | |
For the Year ended December 31, 2016 | | | | | | | | |
Allowance for doubtful accounts | | $ | 3,270 |
| | $ | 2,127 |
| | $ | (555 | ) | | $ | 4,842 |
|
Allowance for product returns | | 1,262 |
| | 8,319 |
| | (4,687 | ) | | 4,894 |
|
Allowance for obsolescence | | 397 |
| | 2,280 |
| | (1,849 | ) | | 828 |
|
| | | | | | | | |
For the Year ended December 31, 2015 | | | | | | | | |
Allowance for doubtful accounts | | $ | 1,750 |
| | $ | 1,698 |
| | $ | (178 | ) | | $ | 3,270 |
|
Allowance for product returns | | 841 |
| | 3,257 |
| | (2,836 | ) | | 1,262 |
|
Allowance for obsolescence | | 527 |
| | 540 |
| | (670 | ) | | 397 |
|
| | | | | | | | |
For the Year ended December 31, 2014 | | | | | | | | |
Allowance for doubtful accounts | | $ | 407 |
| | $ | 1,357 |
| | $ | (14 | ) | | $ | 1,750 |
|
Allowance for product returns | | 215 |
| | 2,215 |
| | (1,589 | ) | | 841 |
|
Allowance for obsolescence | | 322 |
| | 405 |
| | (200 | ) | | 527 |
|
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain “disclosureManagement maintains a set of disclosure controls and procedures” within the meaning of Ruleprocedures (as defined in Rules 13a-15(e) ofand 15d-15(e) under the Securities Exchange Act of 1934, as amended or the "Exchange Act". Our disclosure controls and procedures are(the “Exchange Act”), designed to provide reasonable assuranceensure that information required to be disclosed by the Companyus in the reports filedthat we file or submit under the Exchange Act such as this Annual Report on Form 10-K, is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission’sSEC's rules and forms. Our disclosure controlsforms, and procedures include controls and procedures designed to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive OfficerCEO and Chief Financial Officer, as appropriate,CFO, to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and no
An evaluation of controls and procedures can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by Rule 13a-15(b) of the Exchange Act, prior to filing this Annual Report on Form 10-K, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e)was performed under the supervision and 15d-15(e)with the participation of the Exchange Act) asour management, including our CEO and CFO. As a result of the end of the period covered by this Annual Report on Form 10-K. Based on their evaluation, our Chief Executive OfficerCEO and Chief Financial OfficerCFO concluded that our reporting and disclosure controls and procedures were not effective as a result of theDecember 31, 2019 because of certain material weaknessweaknesses in our internal control over financial reporting discussed below.
Changes in internal controls: There were no changes in our internal control over financial reporting, as defined in Exchange Act Rules 13a- 15(f) and 15d-15(f) that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Material weakness: In reviewing the Company's tax accounting in preparation for filing this Form 10-K, our management identified a deficiency in our internal control over financial reporting that is described below in Management’s Annual Report on Internal Control Over Financial Reporting. Our management has concluded that this deficiency constitutes a material weakness in our internal control over financial reporting related to our accounting for income taxes. This material weakness did not result in a material misstatement of the Company’s annual financial statements for the year ended December 31, 2016. However, management concluded that this material weakness, if un-remediated, could have resulted in a material misstatement of the Company’s annual or interim consolidated financial statements that would not have been prevented or detected by our internal controls. Accordingly, management determined that this control deficiency constituted a material weakness. We have developed a remediation plan for this material weakness, which isfurther described below.
Management’s AnnualManagement's Report on Internal Control Over Financial Reporting
Our management,Management, including our principal executive officerCEO and principal financial officer,CFO, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act and based upon the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the "COSO framework" ). The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with United States generally accepted accounting principles (“GAAP”).
An effective internal control system, no matter how well designed, has inherent limitations, including the possibility of human error or overriding of controls, and therefore can provide only reasonable assurance with respect to reliable financial reporting. OurBecause of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may demonstrate.
Under the supervision and with the participation of our management, including our CEO and CFO, we have conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework andCOSO framework. Based on evaluation under these criteria, established in Internal Control - Integrated Framework (2013) issued bymanagement determined, based upon the Committee of Sponsoring Organizationsexistence of the Treadway Commission. Based on its evaluation, our management has concludedmaterial weaknesses described below, that ourwe did not maintain effective internal control over financial reporting was not effective as of December 31, 2016, due to the2019.
A material weakness (as defined in our internal control over financial reporting related to our accounting for income taxes. A material weaknessRule 12b-2 under the Exchange Act) is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility exists that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. In reviewing the Company's tax accounting
The Company previously disclosed material weaknesses in preparation for filing this Form 10-K, management concluded the Company had a material weakness in the design of our internal control over financial reporting as of December 31, 2018 in our Annual Report on Form 10-K for the tax accountingyear ended December 31, 2018. The previously disclosed material weaknesses related to an overstatementour control environment, risk assessment, control activities, information and communication, and monitoring activities. The material weaknesses led to the delayed filing of an excess tax benefit which, if undetected could have resulted in an understatement of income taxes payable. Specifically, management did not have adequate supervision and review of certain technical tax accounting performed by a third party tax specialist in 2016. This was identified during the audit process prior to preparation of the Company'sour annual consolidated financial statements for the years ended December 31, 2018 and therefore did not result in a material misstatement2017 and the restatement of the Company’s annualour financial statements for the year ended December 31, 20162016. As described below, while management has developed and implemented certain remediation actions to address the material weaknesses, further actions are still ongoing or anyhave not been implemented for a sufficient amount of our previously issuedtime to test and conclude on the effectiveness of the remediation actions as of December 31, 2019. As a result, the material weaknesses continue to be present as of December 31, 2019. Management has reported to the Audit Committee the status of these remediation actions. These control deficiencies could have resulted in other misstatements in financial statement accounts and disclosures that would result in a material misstatement to the annual or interim consolidated financial
statements. This material weakness, if undetected, could have resulted in an understatement of income taxes payable, resulting in a material misstatement of the Company’s annual consolidated financial statements that wouldmight not have been prevented or detecteddetected.
The Company identified material weaknesses corresponding to the control environment and control activities components of internal control as defined by its internal controls.COSO as described below:
Control Environment
The Company did not maintain an effective control environment based on the criteria established in the COSO framework. Specifically, the Company identified control deficiencies that constitute material weaknesses, either individually or in the aggregate, relating to: (i) appropriate organizational structure, reporting lines, and authority and responsibilities in pursuit of objectives, and (ii) holding individuals accountable for their internal control related responsibilities.
Control Activities
The control deficiencies identified specific to the Control Activities COSO element constitute material weaknesses, either individually or in the aggregate, relating to: (i) the operation of control activities and general information technology controls that contribute to the mitigation of risks and support achievement of objectives for a sufficient period of time during the year ended December 31, 2019 and (ii) deploying control activities through policies that establish what is expected and procedures that put policies into action. Deficiencies in control activities contributed to the potential for there to have been material accounting errors in substantially all financial statements account balances and disclosures, specifically:
Information Technology General Controls (ITGC’s) for certain information technology systems and other ITGCs did not operate effectively for a sufficient period of time for the Company to rely on the accuracy and completeness of information on which certain business process controls (automated and manual) are dependent. As a result, it is possible that the Company’s business process controls that depend on the accuracy and completeness of data or financial reports generated by the information technology system could be adversely affected due to the lack of operating effectiveness of ITGC’s.
There was a lack of robust, established and documented accounting policies and insufficiently detailed Company procedures to ensure controls operated as designed and policies were applied effectively to ensure material transactions were recorded in the financial statements.
The Company did not have adequate management documentation around the completeness and accuracy of data material to financial reporting of certain transactions including revenue recognition and completeness of inventory.
The Company, for certain processes, did not maintain adequate controls around segregation of duties within the revenue process. Other application controls related to revenue were not evaluated because of ineffective ITGCs or failed due to inadequate evidentiary matter or controls did not operate in a consistent manner during the year ended December 31, 2019.
The Company did not design and maintain adequate controls to ensure that accounting for income tax provisions were appropriately recorded in accordance with GAAP.
The Company did not have adequate staffing resources to properly perform review of certain accounting determinations, including (but not limited to) the following: review of significant assumptions for stock-based compensation expense, timely review of consignment inventory, the review of significant assumptions used to estimate accrued expenses.
The Company did not design and maintain adequate controls over the inventory process and related accounting assumptions, to ensure that accounting determinations related to inventory appropriately considered and recorded in accordance with GAAP, that the inventory balance was complete and accurate and that disclosures related to the inventory balance were appropriately reflected within the financial statements.
The Company’s controls over financial close and reporting did not operate effectively for a sufficient period of time to meet a variety of its financial reporting objectives which exposed the financial statements to potential for disclosure that did not meet the requirements of GAAP.
BDO USA, LLP, our independent registered public accounting firm, has audited the effectiveness of our internal control over financial reporting as of December 31, 20162019. BDO USA, LLP has been audited by Cherry Bekaert LLP,expressed an independent registered public accounting firm, as stated in theiradverse report on internal control over financial reporting which appears in Item 8on page F-2 of this Annual Report on Form 10-K.
Remediation Plan: ManagementPlan and Status
Remediation of the identified material weaknesses and strengthening our internal control environment was an identified priority for us throughout 2019 and will continue to be a priority in 2020. We will test the design and ongoing operating effectiveness of the new and existing controls in future periods. The material weaknesses cannot be considered completely remediated until the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. With continued oversight from the Audit Committee, the Company's management has designed and begun implementing a remediation planchanges in processes and controls to address the control deficiency that led to the material weakness. The remediation plan includes the following:
Implementing specific review procedures, including the increased involvement of our CFO and Controller as well as the hiring of an internal tax specialist to oversee the work performed by the third - party tax specialists.
Strengthening our income tax control with improved documentation standards, technical oversight, and training.
When fully implemented and operational, we believe the measures described above will remediate the material weakness we have identifiedweaknesses described above and generally strengthen our internal control over financial reporting. We currently plan to have our enhanced review procedures and documentation standards in place and operating inhas
improved the first quarter of 2017. Our goal is to remediate this material weakness by the end of the first quarter of 2017, subject to there being sufficient opportunities to conclude, through testing, that the enhanced control is operating effectively.
Cherry Bekaert LLP, an independent registered accounting firm, as auditors of our financial statements have issued an attestation report on the effectiveness of the Company’s and its subsidiaries’Company's internal control over financial reporting as follows:
Control Environment
The Board created an Ethics and Compliance Committee consisting solely of independent directors which is responsible for reviewing the status of the Company's ethics and compliance program, reviewing and advising the Board regarding any open cases and trends that may impact the business, and recommending future initiatives to improve compliance performance and effectiveness.
Management reinforced the importance of integrity, accountability, and adherence to the redesigned internal controls, policies, and procedures through the adoption of a revised Code of Business Conduct Policy. All Board members and employees, including executives, newly hired employees and agents are required to certify that they read and understood the policy upon hire and all said individuals then re-certify their reading and understanding of the policy annually thereafter.
The Company enhanced the onboarding training provided to newly hired salespeople to emphasize the importance of compliance with the various regulations specific to the Life Sciences industry to which the Company is subject. The Company is implementing a policy to ensure required trainings are completed by relevant personnel.
Management began, and will continue, to schedule training sessions with the Company's Sales Department to ensure that they are familiar with the Company's current sales related policies and procedures, including those which are significant to the Company's financial reporting objectives. Portions of these training sessions are facilitated by the Chief Accounting Officer (“CAO”), who presents on topics such as the Company's current sales return policy, acceptable credit terms for customers, events that would trigger commission claw-backs, customer credit limit modification approval protocol, and the importance of proper revenue recognition.
The Ethics and Compliance Committee of the Board, and the full Board, have received regular updates of the ethics and compliance efforts of the Company from the SVP and Chief Compliance Officer. This includes an explanation of all the policies and procedures that have either been revised and reissued or newly created. Both the Ethics and Compliance Committee and the Board have also both helped in reviewing, approving and training on the new Code of Business Conduct and Ethics.
The purpose of the whistleblower hotline and the mechanics of its use were formally communicated by the Chief Compliance Officer during numerous meetings with all levels of the sales department during 2019, with an emphasis on the following: (a) each employee's responsibility to report any actual or apparent violations of law or ethical standards and any questionable accounting or auditing matters so that they may be investigated and dealt with appropriately, (b) management's commitment to ensuring that any employees communicating such an issue via the hotline will not be subject to retaliation, and (c) the Board of Directors’ oversight of complaints raised through the hotline to ensure appropriate actions are taken.
In addition to enhancing processes and controls over adoption of new accounting standards and the proper application of existing accounting standards, the Company enhanced the technical capabilities of its accounting department by leveraging third party consultants with expertise in GAAP. As of the date of the filing of this Form 10-K, the Company has hired a new Chief Financial Officer and a Chief Accounting Officer. Furthermore, the Company intends to lessen its reliance on third-party consultants for its technical accounting needs during 2020 by transitioning roles currently assigned to outside consultants to full-time employees with similar technical accounting competencies.
Management plans to develop and implement a contract management policy that defines who is required to review new, extended, or amended contracts (including those with distributors and agents). This policy includes the implementation of a checklist for standard and non-standard contracts to ensure that the revenue recognition criteria are properly considered for each of the standard and non-standard contracts.
Control Activities
We previously disclosed that in 2018, management concluded there to be a material weakness in the application of the Company’s revenue recognition methodology which was not aligned with the Company's customary business practices, resulting in certain revenue events being recorded prior to the time at which all of the sales recognition criteria were met. To remediate the material weakness specific to the revenue recognition methodology, the Company implemented controls in which the customary business practices were aligned to GAAP criteria to determine the point at which revenue recognition is appropriate. See Transition in Revenue Recognition footnote disclosures.
Management collaborated with outside consultants possessing significant financial reporting and internal control expertise to perform an extensive review of the design of the Company's internal controls over financial reporting. This review included the identification of internal control deficiencies and the development of remediation plans for each identified deficiency. These
internal control deficiencies identified included (but were not limited to) the following: improvements to the financial close and reporting process, accounting for satisfaction of performance obligations related to revenue recognition, calculation of inventory costing and related accuracy of inventory, accounting for income taxes, accurate calculation of stock-based compensation expense, timely review of consignment inventory and the development of quality estimates related to accrued expenses.
The Company is enhancing its financial close process by formalizing its accounting policies, introducing additional layers of independent reviews by appropriately qualified individuals, improving the precision and timeliness of reviews applied to various financial result analyses, and providing required education and training to the members of the finance department.
The Company is enhancing the design and adherence to controls addressing the accuracy and completeness of the accounting for income taxes, including retention of evidence of review and review of significant judgements to ensure proper application of GAAP.
Management is enhancing its oversight of the completeness and accuracy of data material to financial reporting by establishing criteria in the performance of controls to evaluate the accuracy and completeness of data. Management is implementing required training for control owners specific to the evaluation of the accuracy and completeness of data used in control activities.
The Company continues to conduct required training and education for control owners in critical financial reporting roles.
The Company has enhanced its review of salesperson activity which may indicate noncompliance with the Company's sales policies, such as a quarterly review of data by the CFO, CAO, and SVP of Sales and other key metrics both by region and at the individual salesperson level and has added controls to monitor potential instances of noncompliance.
Management has gained a better understanding of system functionality through a comprehensive review of permissions and profiles within each IT application that is significant to the Company's financial reporting objectives, and subsequently reconfigured profiles with appropriate permissions to better align with job responsibilities and enforce segregation of duties. Once user profiles and their associated permissions were reconfigured, management employed procedures to ensure the continued appropriateness of all applicable system and network access. This objective was achieved through the performance of periodic user access reviews and the enhancement of procedures related to the granting and removing of system and network access, however, these controls have not operated for a sufficient period of time for management to evaluate the effectiveness of these remediated controls.
Management modified its policy regarding the periodic review of sales to involve the Finance Department in an effort to enhance the Finance Department's awareness and oversight of sales activities in order to verify the validity and proper accounting treatment of sales transactions.
Risk Assessment
We previously disclosed that in 2018, management concluded there to be a material weakness in the Risk Assessment specific to the lack of an appropriate risk assessment, the lack of processes for communicating changes to risks throughout the organization and lack of policy to ensure the accounting department was aware of sales practices. Through the completion of the following activities, the previously disclosed material weaknesses related to risk assessment have been remediated:
The Compliance function, led by the SVP and Chief Compliance Officer, has conducted several enterprise-wide risk assessments since 2018. The results of those audits have been shared with the Ethics and Compliance Committee initially and regular updates have been provided on the Company’s risk assessment program.
Management developed a process to prepare and did prepare an annual comprehensive fraud risk assessment designed to evaluate risks related to fraudulent financial reporting, management override, potential loss of assets, and corruption. The methodology adopted within this assessment is designed to evaluate the impact and likelihood of various fraud risks susceptible to the Company. Such risks, if relevant, are then mapped to controls within the current risk environment.
Management developed a set of controls to identify and define its population of related parties, identify transactions with those related parties, and analyze such transactions to determine whether additional approval or financial statement disclosure is required.
The Company established a Disclosure Committee comprised of senior management representatives from all relevant departments within the organization. Members of this committee were and are responsible for reviewing quarterly and annual SEC filings to ensure that the disclosures within the filings are reflective of the knowledge of the Company and the Company’s operations that each member of the committee brings to the review process. The members of the committee met prior to each filing to discuss the completeness and accuracy of the document being filed, if applicable, suggest
additional disclosure, and once the Committee believed the disclosure to be appropriate, approved the draft filing for audit committee consideration.
The Company designed and implemented a variety of new controls, including monthly operational meetings amongst senior management that are attended by members of the accounting department, to ensure that the accounting department is aware of operational changes that may affect the Company's accounting policies.
On an annual basis (or more frequently, should a significant triggering event occur), the Company now performs a risk assessment designed to ensure that the scope of its Sarbanes-Oxley compliance program adequately reflects changes to the business and its operations. If a significant triggering event occurs, the Company evaluates the key control activities related to the transaction or activity and determines that the related controls are within the scope of the Sarbanes-Oxley compliance program.
Information and Communication
We previously disclosed that in 2018, management concluded there to be a material weakness in the Company’s Information and Communications activities specific to the generation and provision of quality information as established under the requirements of COSO. Through the completion of the following activities, the previously disclosed material weaknesses related to information and Communication have been remediated:
Management conducted required internal training courses over Sarbanes-Oxley regulations, the Company's internal control over financial reporting program and documentation evidencing the operation of controls for Company personnel and management involved in the execution of controls.
Management developed a regular cadence for reporting the results of control testing to the board of directors of the Company.
Management implemented quarterly required communications amongst relevant members of senior management in the form of certification surveys. A control certification survey is distributed to obtain information regarding any internal control related issues or concerns that control owners may have, and additional certification surveys are distributed to Disclosure Committee members and key members of the sales department which address (to the best of their knowledge) whether the period's financial statements are free from either material misstatements, material misclassifications, or material omissions.
Monitoring Activities
We previously disclosed that in 2018, management concluded there to be a material weakness in the Company’s monitoring activities specific to the assessment of controls, the competency of those monitoring the control environment and the lack of adequate procedures to monitor when controls are overridden. Through the completion of the following activities, the previously disclosed material weaknesses related to monitoring activities have been remediated:
Established its Internal Audit Department, led by a VP of Internal Audit under the direction of the audit committee. The Internal Audit Department identified and hired internal resources with the appropriate level of competency, who are tasked with continually evaluating and monitoring the effectiveness of the Company's internal controls over financial reporting.
Management established a framework for identifying, communicating and remediating internal control deficiencies, which includes appropriate escalation of issues to appropriate stakeholders in the internal control framework and communication of remediation status, as relevant, to the board of directors on a regular basis.
Management led required training sessions with the Company's Sales Department to ensure that they are familiar with the Company's current sales related policies and procedures, including those which are significant to the Company's financial reporting objectives. Portions of these training sessions were facilitated by the CAO, who presents on topics such as the Company's current sales return policy, acceptable credit terms for customers, events that would trigger commission claw-backs, customer credit limit modification approval protocol, and the importance of proper revenue recognition.
Changes in Internal Control Over Financial Reporting
Other than the changes described above in “Remediation Plan and Status,” there were no changes during the quarter ended December 31, 2016. Cherry Bekaert LLP's report2019 in our internal control over financial reporting (as such term is includeddefined in this report.the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.Item 1.01 Entry into a Material Definitive Agreement.
Item 3.02 Unregistered Sales of Equity Securities.
Item 3.03 Material Modification to Rights of Security Holders.
Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.
Issuance of $100 Million of Series B Convertible Preferred Stock
On June 30, 2020, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement” or “Securities Purchase Agreement”) with Falcon Fund 2 Holding Company, L.P. (the “EW Purchaser”), an affiliate of EW Healthcare Partners, and certain funds managed by Hayfin Capital Management LLP (the “Hayfin Purchasers” and together with the EW Purchaser, the “Purchasers”), in connection with the offering, issuance, and sale of (1) 90,000 shares of the Company’s Series B Convertible Preferred Stock, par value $0.001 per share (the “Series BPreferred Stock”) to the EW Purchaser for an aggregate purchase price of $90,000,000, and (2) 10,000 shares of Series B Preferred Stock in the aggregate to the Hayfin Purchasers for an aggregate purchase price of $10,000,000, in each case on the terms and subject to the conditions of the Purchase Agreement (such shares, the “Purchased Shares” and such transaction, the “Preferred Stock Transaction”).
Pursuant to the Purchase Agreement, the Company has filed an amendment to its articles of incorporation, as amended, setting forth the terms of the Series B Preferred Stock (the “Preferred Stock Amendment”). The Company completed the closing of the sale and purchase of the Purchased Shares (the “Preferred Stock Closing”) on July 2, 2020. The offering and sale of the Purchased Shares was exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(a)(2) of the Securities Act and certain rules and regulations thereunder. The shares of Common Stock issuable upon conversion of the shares of Series B Preferred Stock will be issued in reliance upon the exemption from registration in Section 3(a)(9) of the Securities Act.
The proceeds from the sale of the Purchased Shares have been or will be used to repay outstanding debt, as further described below, for working capital and general corporate purposes and to pay transaction fees, costs and expenses incurred in connection with the transactions contemplated by the Purchase Agreement.
Terms of the Purchase Agreement
The Purchase Agreement contains representations, warranties and covenants of the Company and the Purchasers customary for transactions of this type. In addition, certain specific terms and conditions of the Purchase Agreement are described below.
Purchaser Director and Nominees
On the terms and subject to the conditions of the Purchase Agreement and the Preferred Stock Amendment, for so long as the EW Purchaser and its affiliates have beneficial ownership of (i) at least 10.0% of the total number of outstanding shares of common stock of the Company, par value $0.001 per share (“Common Stock”) (calculated on a fully-diluted, as converted basis) (a “10% Holder”), the EW Purchaser will be entitled to designate two individuals to serve on the Board, and (ii) at least 5.0% but less than 10% of the total number of outstanding shares of Common Stock (calculated on a fully-diluted, as converted basis) (a “5% Holder”), the EW Purchaser will be entitled to designate one individual to serve on the Board (such appointed directors, the “Preferred Directors”). The Preferred Directors will not be members of any class of directors that is elected by the holders of shares of Common Stock (a “Common Director”). However, the Board may, by notice to the EW Investor, either appoint such Preferred Director as a Common Director or nominate such director for election as a Common Director, provided that (i) no such appointment or nomination takes place such that such director would be up for election as a Common Director prior to the 2022 annual meeting of shareholders of the Company, and (ii) if anyone the EW Purchaser has designated to serve on the Board has been appointed or nominated as a Common Director prior to July 2, 2022, then no other person designated by the EW Purchaser to serve on the Board may be appointed or nominated as a Common Director prior to July 2, 2022. From and after the time that no Series B Preferred Stock remains outstanding, the EW Purchaser’s right to designate directors in accordance with the preceding sentence will convert into a right, subject to the same ownership thresholds described above, to designate up to two individuals to be nominated by the Company to serve on the Board. The initial Preferred Directors are Martin P. Sutter and William A. Hawkins, III, who were appointed to the Board of Directors effective as of July 2, 2020.
Lock-Up Period
The Purchasers may not transfer any of the Purchased Shares (or any Common Stock into which the Purchased Shares are convertible) for a period of two years after the Preferred Stock Closing (the “Lock-Up Period”), subject to certain customary exceptions. After the Lock-Up Period, the Purchasers may transfer the Purchased Shares (or shares of Common Stock into which the Purchased Shares are convertible) to any person subject to certain limited restrictions designed to prevent transfers to competitors of the Company.
Standstill
Subject to certain customary exceptions, the Purchasers are subject to a standstill provision which restricts them and their affiliates from taking certain actions without the consent of the board of directors (acting upon a majority vote of the directors other than the designees of the EW Purchaser to the board) including (i) acquiring any securities or material assets or businesses of the Company or its subsidiaries, (ii) proposing any merger, business combination, recapitalization, restructuring or other extraordinary transaction with the Company or its subsidiaries, (iii) initiating shareholder proposals or convening a shareholder’s meeting of the Company or its subsidiaries, (iv) soliciting proxies or otherwise seeking to influence, advise or direct the voting of capital stock of the Company, (v) influencing, advising, changing or controlling the management, board of directors, governing instruments, affairs or policies of the Company or any of its subsidiaries, and (vi) forming, joining or participating in any “group” (within the meaning of Section 13(d)(3) of the Exchange Act), until (1) in the case of the EW Purchaser, the later of (x) July 2, 2023, and (y) the date on which the EW Purchaser is no longer a 10% Holder nor a 5% Holder, and (2) in the case of the Hayfin Purchaser, July 2, 2023.
Preemptive Rights
Subject to customary exceptions, so long as the EW Purchaser is a 10% Holder, if the Company intends to issue and sell equity securities to any person, then the EW Purchaser has the right to participate in such equity offering up to its pro-rata percentage of such equity securities (calculated on a fully-diluted, as converted basis).
Terms of the Series B Preferred Stock
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Ranking and Liquidation Preference: | The Series B Preferred Stock ranks senior to Common Stock with respect to dividends and distributions on liquidation, winding-up, and dissolution. Upon a liquidation, dissolution, or winding-up of the Company, each share of Series B Preferred Stock will be entitled to receive $1,000 per share (the “Purchase Price Per Share”), plus any accrued and unpaid dividends (the “Liquidation Preference”). |
Conversion at Purchaser’s Option: | Each holder of Series B Preferred Stock (each a “Holder” and collectively, the “Holders”) will have the right, at its option, to convert its Series B Preferred Stock, in whole or in part, into a number of fully paid and non-assessable shares of Common Stock equal to the Purchase Price Per Share, plus any accrued and unpaid dividends, divided by $3.85 (the “Conversion Price”). No Holder may convert its shares of Series B Preferred Stock into shares of Common Stock if such conversion would result in the Holder, together with its affiliates, holding more than 19.9% of the votes entitled to be cast at any stockholders meeting or beneficially owning in excess of 19.9% of the then-outstanding shares of Common Stock (the “Beneficial Ownership Cap”). |
Mandatory Conversion: | The Series B Preferred Stock (including any accrued and unpaid dividends) will, subject to the Beneficial Ownership Cap, automatically convert into Common Stock at any time after July 2, 2023, provided that the Common Stock has traded at 200% or more of the Conversion Price for 20 out of 30 consecutive trading days and as of the close of trading on the trading day immediately prior to the date of conversion, the Common Stock has traded at 200% or more of the Conversion Price. To the extent any Series B Preferred Stock cannot be converted due to operation of the Beneficial Ownership Cap, it shall remain outstanding and automatically convert at such time as such conversion would be permitted under the Beneficial Ownership Cap. |
Dividends: | The Holders will be entitled to cumulative dividends at a rate of 4.0% per annum for the period ending June 30, 2021 and 6.0% per annum thereafter, in each case compounding quarterly in arrears. The dividends are payable quarterly in whole or in part, in cash. However, the Company may, at its option, elect to not pay such dividend and to instead accrue the amount of such dividend. Accrued and unpaid dividends will be paid in cash or included in the conversion of the Series B Preferred Stock upon the occurrence of the Mandatory Conversion or the Company’s redemption of the Series B Preferred Stock. |
Voting: | Subject to certain exceptions, each share of Series B Preferred Stock is entitled to be voted on by the Holders and will vote on an as-converted basis as a single class with the Common Stock, subject to certain limitations on voting set forth in the related Articles of Amendment. |
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Consent Rights: | The following matters will require the approval of the majority of the outstanding Series B Preferred Stock, voting as a separate class: - any changes to the rights, preferences, or privileges of the Series B Preferred Stock;
- amendments or restatements of any organizational document of the Company or its subsidiaries in a manner that materially, adversely and disproportionately affects the rights, preferences and privileges of the Series B Preferred Stock as compared to Common Stock;
- the authorization or creation of any class or series of senior or parity equity securities;
- the declaration of any dividends or any other distributions, or the repurchase or redemption, of any equity securities of the Company ranking junior to or on parity with the Series B Preferred Stock (subject to certain exceptions);
- prior to January 2, 2023 the sale, transfer, or other disposition of any assets, business, or operations for $25 million or more (other than sales of inventory in the ordinary course of business), or the purchase or acquisition of any assets, business, or operations for $75 million or more;
- prior to January 2, 2023, the merger or consolidation of the Company unless either (x) the surviving company will have no class of equity securities ranking superior in parity with the Series B Preferred Stock or (y) the Holders of the Series B Preferred Stock will receive in connection therewith consideration per share of Series B Preferred Stock valued at 200% or more of the Purchase Price Per Share;
- prior to January 2, 2023, commencing a voluntary case under any applicable bankruptcy, insolvency, or other similar law or consenting to the entry of an order for relief in an involuntary case under any such law, or effectuating any general assignment for the benefit of creditors; and
- prior to the January 2, 2023, enter into any settlement agreement regarding the Company’s securities class action litigation.
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Change of Control: | If the Company undergoes a Change of Control (as defined in the Preferred Stock Amendment), the Company will have the option to repurchase any or all of a Holder’s then-outstanding shares of Series B Preferred Stock for cash in an amount equal to the Liquidation Preference, plus all accrued and unpaid dividends, subject to the right of each Holder to convert its Series B Preferred Stock into Common Stock. If the Company does not exercise such repurchase right, the Holder will have the option to (i) require the Company to repurchase any or all of its then-outstanding shares of Series B Preferred Stock for cash in an amount equal to the Liquidation Preference or (ii) convert its Series B Preferred Stock (including accrued and unpaid dividends) into Common Stock and receive its pro rata consideration thereunder. |
Anti-dilution | The Conversion Price is subject to certain customary anti-dilution adjustments if the Company issues shares of Common Stock as a dividends or distribution on the Common Stock or effects a stock split or stock combination of the Common Stock. The Conversion Price is also subject to a weighted average anti-dilution adjustment if the Company issues Common Stock (or securities convertible into Common Stock) at a price per share less than the Conversion Price within two years after Preferred Stock Closing but such adjustment may not result in a Conversion Price of less than $3.47.
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Registration Rights Agreement
On July 2, 2020, the Company and the EW Purchaser also entered into a registration rights agreement obligating the Company to register for resale shares of Common Stock issued upon conversion of its Series B Preferred Stock, which rights may be exercised from and after the date 90 days prior to the expiration of the Lock-Up Period. In general, the Registration Rights Agreement provides the EW Purchaser with the right to request a shelf registration in respect of such resales (including up to two underwritten shelf takedowns (but no more than one in any twelve month period)), up to two demand registrations (but only if no shelf registration is then in effect covering the resale of all securities held by the EW Purchaser) and unlimited piggyback registration rights.
The foregoing descriptions of the Purchase Agreement, the terms of the Series B Preferred Stock, and the Registration Rights Agreement are not complete and are qualified in their entirety by reference to the full text of the Purchase Agreement and the Preferred Stock Amendment, and the Registration Rights Agreement, copies of which are filed as Exhibits 10.38, 3.3, and 10.39 to this Annual Report on Form 10-K and are incorporated herein by reference.
The Purchase Agreement contains representations and warranties by each of the parties to the Purchase Agreement, which were made only for purposes of that agreement and as of specified dates. The representations, warranties, and covenants in the Purchase Agreement were made solely for the benefit of the parties to the Purchase Agreement; are subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosure schedules; may have been made for the purposes of allocating contractual risk between the parties to the Purchase Agreement instead of establishing these matters as facts; and are
subject to standards of materiality applicable to the contracting parties that may differ from those applicable to investors. Investors should not rely on the representations, warranties, and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the Company or any of its subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations, warranties, and covenants may change after the date of the Purchase Agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures.
$75 Million Loan Facility with Hayfin
The Company entered into a Loan Agreement, dated as of June 30, 2020, (the “Hayfin Loan Agreement”), by and among the Company, certain of the Company’s subsidiaries, Hayfin Services LLP, as administrative agent and collateral agent, and other funds managed by Hayfin Capital Management LLP, that provides the Company with a senior secured term loan in an aggregate principal amount of $50 million (the “HayfinTerm Loan”), which was funded on July 2, 2020 (the “Hayfin Loan Closing Date”), and an additional $25 million delayed draw term loan (the “DD TL” and together with the Hayfin Term Loan, the “Loans”) in the form of a committed facility that is available for drawdown from the Hayfin Loan Closing Date (as defined below) to the first anniversary thereof (the “Hayfin Loan Transaction”).
The Hayfin Loan Agreement does not provide for the issuance of warrants or other equity interests in the Company.
The proceeds of the Loans are permitted to be used for (i) working capital and general corporate purposes (including, without limitation, the funding of forecasted growth, compliance and capital expenditures initiatives), (ii) to consummate the refinancing of the BT Loan Agreement as defined and described below, and (iii) to pay transaction fees, costs and expenses incurred in connection with the Loan Agreement and related transactions.
Repayment; Maturity. The Loans, including any DD TL, if borrowed, mature on July 2, 2025 (the “Maturity Date”). The Hayfin Term Loan and the DD TL have no fixed amortization (i.e. accrued interest only is payable through the Maturity Date).
Interest Rate; Fees. The Loans will bear interest at a per annum rate equal to LIBOR (subject to a “floor” of 1.5%) plus a margin of 6.75%. Such margin is subject to step down after December 31, 2020 to 6.5% or 6.0% based on Total Net Leverage Ratio levels, as defined in the Hayfin Loan Agreement. The Company paid an upfront fee of 2% of the aggregate amount of the Loans on the Hayfin Loan Closing Date. The DD TL is subject to a commitment fee of 1% of the undrawn DD TL commitments, payable quarterly in arrears on the first day of each fiscal quarter.
Mandatory Prepayments. A mandatory prepayment of the Loans is required upon (i) the incurrence of any indebtedness in breach of the Hayfin Loan Agreement, in an amount equal to 100% of the proceeds of such indebtedness, (ii) the occurrence of an event of default under the Hayfin Loan Agreement that results in an acceleration of the Loans, in an amount equal to the portion of the Loans accelerated together with all related outstanding amounts under the Hayfin Loan Agreement, (iii) a change of control, in an amount equal to the aggregate Loans together with all related outstanding amounts under the Hayfin Loan Agreement, and (iv) the receipt of proceeds for certain asset dispositions or insurance events, in an amount equal to the net proceeds thereof. In addition, 50% of Excess Cash Flow, as defined in the Hayfin Loan Agreement, for any year is required to be applied to prepay the Loans, with step-downs to (i) 25% based on Total Net Leverage Ratio levels of less than 1.00:1.00, but greater than or equal to 0.50:1.00, and (ii) 0% based on Total Net Leverage Ratio levels of less than 0.50:1.00 as set out and defined in the Hayfin Loan Agreement.
Prepayment Penalties. The Hayfin Loan Agreement imposes the following penalties with respect to any voluntary prepayment and any mandatory prepayment (other than pursuant to the Excess Cash Flow sweep or resulting from insurance events and, with respect to disposal actions, only to the extent they relate to a sale of all or substantially all of the assets and properties of the Company and its subsidiaries): (i) make-whole during the first year after the Hayfin Loan Closing Date; (ii) 102% after the first year but on or before the end of the second year after the Hayfin Loan Closing Date; (iii) 101% after the second year but on or before the end of the third year after the Hayfin Loan Closing Date and (iii) par thereafter.
Representations; Covenants; Events of Default.
The Hayfin Loan Agreement contains customary representations and warranties by the Company and its subsidiaries, subject, in certain instances, to customary materiality, material adverse effect or knowledge qualifiers. The Hayfin Loan Agreement also contains (a) certain affirmative and financial covenants that impose certain reporting and/or performance obligations on the Company and its subsidiaries, including (i) maximum Total Net Leverage Ratio (as defined in the Hayfin Loan Agreement) of 5.0x through December 31, 2020, stepping down to 4.5x through June 30, 2021, stepping down to 4.0x through the Maturity Date, in each case tested quarterly; and (ii) minimum Liquidity (as defined in the Hayfin Loan Agreement) of $10 million, an at-all-times covenant tested monthly; (b) certain negative covenants that generally limit, subject to various exceptions, the Company and its subsidiaries from taking certain actions, including, without limitation, incurring indebtedness (including with respect to the incurrence of DD TL if the Total Net Leverage Ratio (pro forma for such DD TL) exceed 3.5x), making investments, incurring
liens, paying dividends and engaging in mergers and consolidations, sale and leaseback transactions and asset dispositions, and (c) customary events of default for financings of this type. The Loans and other obligations under the Hayfin Loan Agreement may be declared due and payable upon the occurrence and during the continuance of any event of default and become automatically due and payable upon the occurrence of customary bankruptcy or insolvency events of default.
The summary set forth above is not intended to be complete and is qualified in its entirety by reference to the full text of the Hayfin Loan Agreement, which is filed as Exhibit 10.36 to this Annual Report.
The Hayfin Loan Agreement contains representations and warranties by each of the Company and its subsidiaries that are parties to the Hayfin Loan Agreement, which were made only for purposes of that agreement and as of specified dates. The representations, warranties and covenants in the Hayfin Loan Agreement were made solely for the benefit of the lenders and agents parties to the Hayfin Loan Agreement; are subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosure schedules; may have been made for the purposes of allocating contractual risk between the parties to the Hayfin Loan Agreement instead of establishing these matters as facts; and are subject to standards of materiality applicable to the applicable contracting parties that may differ from those applicable to investors. Investors should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the Company or any of its subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the Hayfin Loan Agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures.
Repayment and Termination of the Blue Torch Loan Agreement
Item 1.02 Termination of a Material Definitive Agreement.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
Item 2.04 Trigger Events That Accelerate or Increase a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement.
On July 2, 2020, the Company terminated the BT Loan Agreement and repaid the $72,013,859 outstanding balance of principal and accrued but unpaid interest under the BT Loan Agreement. As a result of the early repayment of the loans under the BT Loan Agreement, the Company also paid a prepayment premium in the amount of $1,439,438. The Company paid the outstanding balance, accrued but unpaid interest, and prepayment premium using a portion of the proceeds from the Preferred Stock Transaction and the Hayfin Loan Transaction.
Appointment of Two Directors
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Effective July 2, 2020, pursuant to the terms of the Purchase Agreement and the Preferred Stock Amendment, the Company increased the size of the Board of Directors and appointed Martin P. Sutter and William A. Hawkins III to serve as Preferred Directors. It is expected that each will serve on at least one committee of the Board of Directors, which have yet to be determined. Each will have the same compensation arrangement as the Company’s other non-employee directors.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Board of Directors
Set forth below is certain information regarding our current directors. There are no family relationships among any of our directors or executive officers.
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Name | | Age | | Since | | Tenure | | Independent | | Committees |
Richard J. Barry | | 61 | | 2019 | | 1 | | ü | | CC* |
M. Kathleen Behrens | | 67 | | 2019 | | 1 | | ü | | COB, EC |
James L. Bierman | | 67 | | 2019 | | 1 | | ü | | AC, CC |
J. Terry Dewberry | | 76 | | 2009 | | 11 | | ü | | AC, NCG |
Charles R. Evans | | 73 | | 2012 | | 8 | | ü | | AC, NCG* |
William A. Hawkins III | | 66 | | 2020 | | NA | | TBD | | TBD |
Charles E. Koob | | 75 | | 2008 | | 12 | | | | — |
K. Todd Newton | | 57 | | 2019 | | 1 | | ü | | AC*, EC |
Martin P. Sutter | | 65 | | 2020 | | N/A | | TBD | | TBD |
Timothy R. Wright | | 62 | | 2019 | | 1 | | | | — |
Neil S. Yeston | | 77 | | 2012 | | 8 | | ü | | CC, EC*, SL |
* = Chair; AC = Audit Committee; CC = Compensation Committee; COB = Chairperson of the Board; EC = Ethics & Compliance Committee; NCG = Nominating and Corporate Governance Committee; SL = Science and Research Liaison; TBD = to be determined.
Pursuant to the terms of the Purchase Agreement and the Preferred Stock Amendment, the Company increased the size of the Board of Directors and appointed Martin P. Sutter and William A. Hawkins III to serve as Preferred Directors effective July 2, 2020. It is expected that each will serve on at least one committee of the Board of Directors, which have yet to be determined. The Board has not yet made a determination regarding the independence under the Nasdaq listing standards for director independence with respect to Mr. Hawkins or Mr. Sutter.
Richard J. Barry, age 61. Mr. Barry has served as a director of Sarepta Therapeutics, Inc. (SRPT), a genetic medicine company, since June 2015, and he has been a Partner and Advisory Board member of the San Diego Padres since 2009. Earlier in his career, he was a founding member of Eastbourne Capital Management LLC, a large equity hedge fund investing in a variety of industries, including health care, and served as the Managing General Partner and Portfolio Manager from 1999 to its close in 2010. Prior to that, he was a Portfolio Manager and Managing Director of Robertson Stephens Investment Management, an investment company, from 1995 until 1999. Before that, Mr. Barry spent over 13 years in various roles in institutional equity and investment management firms, including Lazard Frères, Legg Mason and Merrill Lynch. Mr. Barry has served as a Managing Member of GSM Fund, LLC, a fund established for the sole purpose of investing in Elcelyx Therapeutics, and previously served as a director of Elcelyx Therapeutics, Inc., a private pharmaceutical company, from 2013 until 2019. Mr. Barry previously served as a director of Cluster Wireless, LLC, a software company, from 2011 until 2014, and of BlackLight Power, Inc. (n/k/a Brilliant Light Power, Inc.), an energy research company, from 2009 until 2010. Mr. Barry holds a B.A. from Pennsylvania State University and is a member of its Shreyer’s Honors College Advisory Board. Mr. Barry has served on the Board since June 2019 and was nominated as a director because of his substantial experience, including in the healthcare and biotechnology sectors.
M. Kathleen Behrens, Ph.D., age 67. Dr. Behrens has worked as an independent life sciences consultant and investor since December 2009. Dr. Behrens served as the Co-Founder, President and Chief Executive Officer, and as a director, of the KEW Group Inc., a private oncology services company, from January 2012 until June 2014. Earlier in her career, Dr. Behrens served as a general partner for selected venture funds for RS Investments, a mutual fund firm, from 1996 until December 2009. While Dr. Behrens worked at RS Investments, from 1996 to 2002, she served as a managing director at the firm and, from 2003 to December 2009, she served as a consultant to the firm. During that time, Dr. Behrens also served as a member of the President’s Council of Advisors on Science and Technology (PCAST) from 2001 to 2009 and as chairwoman of PCAST’s Subcommittee on Personalized Medicine, as well as the President, director and chairwoman of the National Venture Capital Association, an organization that advocates for public policy that supports the American entrepreneurial ecosystem, from 1993 until 2000. Prior to that, she served as a general partner and managing director for Robertson Stephens & Co., an investment company, from 1983 through 1996. Dr. Behrens has served as a member of the board of directors of each of Sarepta Therapeutics, Inc. (NASDAQ:
SRPT), a medical research and drug development company, since March 2009 (Chairwoman of the Board since April 2015) and IGM Biosciences, Inc. (NASDAQ: IGMS), a clinical stage biotechnology company focused on creating and developing IgM antibodies, since January 2019. She served as a director of Amylin Pharmaceuticals, Inc. (formerly NASDAQ: AMLN), a biopharmaceutical company, from 2009 until its sale in 2012 to Bristol-Myers Squibb Co. Prior to that, she served on the board of directors of Abgenix, Inc. (formerly NASDAQ: ABGX), a biopharmaceutical company, from 2001 until the company was sold to Amgen, Inc. in 2006. From 1997 to 2005, Dr. Behrens was a director of Science, Technology and Economic Policy for the National Research Council. Dr. Behrens was also a Co-Founder of the Coalition for 21st Century Medicine, a trade association for new generation diagnostics companies. Dr. Behrens holds a B.S. in biology and a Ph.D. in microbiology from the University of California, Davis. Dr. Behrens has served on the Board since June 2019 and was nominated as a director because of her substantial experience in the financial services and biotechnology sectors, as well as in healthcare policy.
James L. Bierman, age 67. Mr. Bierman served as President and Chief Executive Officer and as a member of the board of directors of Owens & Minor, Inc. (NYSE: OMI), a Fortune 500 company and a leading distributor of medical and surgical supplies, from September 2014 to June 2015. Previously, he served in various other senior roles at Owens & Minor, including President and Chief Operating Officer from August 2013 to September 2014, Executive Vice President and Chief Operating Officer from March 2012 to August 2013, Executive Vice President and Chief Financial Officer from April 2011 to March 2012, and Senior Vice President and Chief Financial Officer from June 2007 to April 2011. Earlier in his career Mr. Bierman served as Executive Vice President and Chief Financial Officer at Quintiles Transnational Corp. (formerly NASDAQ: QTRN). Quintiles was a market leader in providing product development and commercialization solutions to the pharmaceutical, biotech, and medical device industries. As a member of management, he helped lead the successful privatization of the company in 2004. Before joining Quintiles, Mr. Bierman was a partner with Arthur Andersen LLP from 1988 to 1998. Mr. Bierman currently serves on the board of directors of Tenet Healthcare Corporation (NYSE: THC), a Fortune 100 company and a diversified healthcare services company operating more than 500 facilities, acute care hospitals and outpatient centers, throughout the United States. He previously served on the board of directors of Team Health Holdings, Inc. (formerly NYSE: TMH) where as Independent Lead Director, he helped lead the successful privatization of the company in 2017. Team Health is one of the largest suppliers of outsourced healthcare professional staffing and administrative services to hospitals and other healthcare providers in the United States. Mr. Bierman earned his B.A. from Dickinson College and his M.B.A. at Cornell University’s Johnson Graduate School of Management. Mr. Bierman has served on the Board since June 2019 and was nominated as a director because of his substantial operational and financial experience in the healthcare sector.
J. Terry Dewberry, age 76. Mr. Dewberry is a private investor with significant experience at both the management and board levels in the healthcare industry. He has extensive experience in corporate mergers and takeovers on both the buy and sell sides for consideration up to $5 billion. Mr. Dewberry has served on the boards of directors of several publicly traded healthcare products and services companies, including Respironics, Inc. (Nasdaq: RESP) (1998-2008), Matria Healthcare, Inc. (Nasdaq: MATR) (2006-2008), Healthdyne Information requiredEnterprises, Inc. (1996-2002), Healthdyne Technologies, Inc. (1993-1997), Home Nutritional Services, Inc. (1989-1994) and Healthdyne, Inc. (1981-1996). From March 1992 until March 1996, Mr. Dewberry was Vice Chairman of Healthdyne, Inc. From 1984 to 1992, he served as President and Chief Operating Officer, and Executive Vice President of Healthdyne, Inc. Mr. Dewberry received a Bachelor of Electrical Engineering from Georgia Institute of Technology in 1967 and a Master of Professional Accountancy from Georgia State University in 1972. Mr. Dewberry has served on the Board since 2009 and was nominated as a director due to his extensive business and financial background and experience as a member of the boards of directors of other publicly traded companies and a member of the audit committee of at least one other public company.
Charles R. Evans, age 73. The Board named Mr. Evans Lead Director on March 9, 2018, and he served as Chairman from July 2, 2018 through June 2019. Mr. Evans has over 40 years of experience in the healthcare industry. He is currently President of the International Health Services Group, an organization he founded to support health services development in underserved areas of the world. Since 2009, he has served as a senior adviser with Jackson Healthcare, a consortium of companies that provide physician and clinical staffing, anesthesia management and information technology solutions for hospitals, health systems and physician groups. In addition, Mr. Evans is a Fellow in the American College of Healthcare Executives having previously served as Governor of the College from 2004 to 2007 and as Chairman Officer from 2008 to 2011. In 2012, he attained the Board Leadership Fellow credential of the National Association of Corporate Directors. Previously, Mr. Evans was a senior officer with Hospital Corporation of America (HCA), having managed various HCA divisions and completing his service with the responsibility for operations in the Eastern half of the country. Mr. Evans currently serves on the board of directors of Jackson Healthcare and WellStreet Urgent Care. Mr. Evans also serves on the boards of nonprofit organizations including American International Health Alliance and FaithBridge Foster Care. Mr. Evans has served on the Board since 2012 and was nominated as a director due to his healthcare management expertise.
William A. Hawkins III, age 66. Mr. Hawkins serves as a Senior Advisor to EW Healthcare Partners, a life sciences private equity firm. Mr. Hawkins is the former Chairman and CEO of Medtronic, Inc., a global leader in medical technology. He was at
Medtronic from 2002 until 2011. After retiring from Medtronic, he served as President and Chief Executive Officer of Immucor, Inc., a private equity backed global leader in transfusion and transplant medicine from October 2011 to July 2015. From 1998 to 2001 Mr. Hawkins served as President and Chief Executive Officer of Novoste Corporation (NASDAQ:NOVST), an interventional cardiology company. Prior to that, Mr. Hawkins served in a variety of senior roles at American Home Products, a consumer, pharma and medical device company, Johnson & Johnson, a healthcare company, Guidant Corporation, a medical products company, and Eli Lilly and Company, a global pharmaceutical company. Mr. Hawkins also serves as a director of Biogen Inc. (NASDAQ: BIIB), a biopharmaceutical company; Avanos Medical, Inc. (NYSE:AVNS), a medical technology company; as Chairman of Bioventus, LLC; as Chairman of 4 Tech; and as a director of AskBio, Cirtec, Virtue Labs, Immucor, Inc., Cereius, Inc. and Baebies, Inc., all of which are life science companies. He previously served on the board of Thoratec Corporation. Mr. Hawkins is Vice Chair of the Duke University Board of Trustees and is Chair of the Duke University Health System. Mr. Hawkins was elected as a member of the AIMBE College of Fellows and the National Academy of Engineering. He has a dual B.S.E.E. degree in Electrical and Biomedical Engineering from Duke University and a M.B.A. from the University of Virginia’s Darden School of Business. Mr. Hawkins has significant leadership experience as a chief executive officer, significant knowledge of, and experience in, the healthcare industry and significant international experience. He also has extensive governance and public company board experience.
Charles E. (“Chuck”) Koob, age 75. In 2007, Mr. Koob retired as a partner in the law firm of Simpson Thacher & Bartlett, LLP. While at that firm, Mr. Koob was the co-head of the Litigation Department and served on the firm’s Executive Committee. Mr. Koob specialized in competition, trade regulation and antitrust issues. Throughout his 37-year tenure, he represented clients before the Federal Trade Commission, the Antitrust Division of the Department of Justice, and numerous state and foreign competition authorities. He received his B.A. from Rockhurst College in 1966 and his J.D. from Stanford Law School in 1969. Mr. Koob serves on the board of Stanford Hospital and Clinics. He previously served on the board of a private drug development company and MRI Interventions (OTCBB: MRIC), a publicly traded medical device company. Mr. Koob has served on the Board since 2008 and was nominated as a director due to his extensive legal expertise in representing both publicly traded and privately held businesses.
K. Todd Newton, age 57. Mr. Newton has served as Chief Executive Officer and as a member of the board of directors of Apollo Endosurgery, Inc. (NASDAQ: APEN), a medical device company, since July 2014. Earlier in his career, Mr. Newton served as Executive Vice President, Chief Financial Officer and Chief Operating Officer at ArthroCare Corporation (formerly NASDAQ: ARTC), a medical device company, from 2009 to June 2014. Prior to that, Mr. Newton served in a number of executive officer roles, including President and Chief Executive Officer and as a director, at Synenco Energy, Inc., a Canadian oil sands company, from 2004 until 2008. Mr. Newton was a Partner at Deloitte & Touche LLP, a professional services network and accounting organization, from 1994 to 2004. Mr. Newton holds a B.B.A. in accounting from The University of Texas at San Antonio. Mr. Newton has served on the Board since June 2019 and was nominated as a director because of his significant experience in the medical device sector as well as strong executive leadership experience.
Martin P. Sutter, age 65. Since 1985, Mr. Sutter has been the Co-Founder and a Managing Director of EW Healthcare Partners, previously known as Essex Woodlands Health Ventures, a healthcare-focused growth equity firm. Mr. Sutter has been directly involved with more than 30 of EW Healthcare Partners’ portfolio company investments. Educated in chemical engineering and finance, Mr. Sutter has more than 35 years of management experience in operations, marketing, finance and venture capital. Mr. Sutter holds a Bachelor of Science degree from Louisiana State University and a Master of Business Administration from the University of Houston. He currently serves on the Boards of Abiomed, Inc. (NASDAQ: ABMD), Bioventus LLC and Prolacta Bioscience. He previously served on the boards of directors of the following EW Healthcare Partners’ portfolio investments: ATS Medical (later acquired by this Item will be containedMedtronic, Inc.); BioForm Medical (later acquired by Merz GmbH & Co KGaA); LifeCell (later acquired by Kinetic Concepts); St. Francis Medical (later acquired by Kyphon, Inc./Medtronic, Inc.); Confluent Surgical (later acquired by Tyco International/Covidien); and Rinat Neurosciences (later acquired by Pfizer, Inc.). We believe that Mr. Sutter’s in-depth knowledge of the medical device industry, his skills as an investor in developing medical device companies, his extensive board experience and his position as a representative of a large stockholder in our definitive proxy statement relatingCompany qualify him to serve as a member of our Board of Directors.
Timothy R. Wright, age 62, joined the Company as its Chief Executive Officer on May 13, 2019. Mr. Wright has more than 30 years of experience in the pharmaceutical, biotech and medical devices industries. Most recently, Mr. Wright served as a Partner at Signal Hill Advisors, LLC, a consulting practice, since February 2011. Mr. Wright served as President and Chief Executive Officer of M2Gen Corp., a privately held cancer and health informatics company, between July 2017 Annual Meetingand September 2018. Prior to M2Gen Corp., Mr. Wright served as Executive Vice President, Mergers and Acquisitions, Strategy and Innovation for Teva Pharmaceutical Industries Ltd. (“Teva”), a pharmaceutical company specializing in generic medicines, from April 2015 until August 2017. Before Teva, Mr. Wright was the founding partner of Shareholders underThe Ohio State University Comprehensive Cancer Drug Development Institute. Mr. Wright also served as Chairman, Interim Chief Executive Officer and a director of Curaxis Pharmaceutical Corporation (“Curaxis”), a pharmaceutical company specializing in the captions “Executive Officers,” “Electiondevelopment of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance,” or similar captions which are incorporated herein by reference.drugs for the treatment
We have adopted our “Code
of Alzheimer’s disease and various cancers, from July 2011 to July 2012. Curaxis had been experiencing financial difficulties prior to Mr. Wright’s tenure and, as a result, the company filed for Chapter 11 bankruptcy in July 2012. Mr. Wright has been a director of Agenus, Inc. (NASDAQ: AGEN), an immune oncology company, since 2006 and its lead director since 2009. Mr. Wright also serves as Chairperson of The Ohio State University Comprehensive Cancer Center Drug Development Institute, serves as director of The Ohio State Innovation Foundation and sits on The Ohio State University College of Pharmacy Dean’s Corporate Council. Over his career, Mr. Wright has served on boards of directors in North America, Europe and Asia. Mr. Wright earned a Bachelor’s of Science in Marketing from The Ohio State University. Mr. Wright has served on the Board since June 2019 and was nominated as a director to bring the perspective of the Chief Executive Officer on the Board and also for the benefit of his many years of experience in the healthcare and pharmaceutical industry.
Neil S. Yeston, M.D., age 77 Dr. Yeston is the Past President of the New England Surgical Society and currently serves as Active Senior Staff, Department of Surgery at Hartford Hospital. During his association with Hartford Hospital, Dr. Yeston previously served in various roles including Vice President of Academic Affairs, Director of Corporate Compliance, Vice President of Quality Management and Director of the Section on Critical Care Medicine, Department of Surgery. In addition, Dr. Yeston was responsible for the enterprise wide acquisition of all biomedical engineering technology. Dr. Yeston has formerly served as Professor of Surgery at the University of Connecticut and the Assistant Dean, Medical Education at the University of Connecticut School of Medicine. Prior to his associations with Hartford Hospital and the University of Connecticut, Dr. Yeston served in various positions with the Boston University Medical Center including the Vice Chairman of the Department of Surgery, Associate Professor of Anesthesiology, Director Progressive Care Unit, and Associate Professor of Surgery. Dr. Yeston has served on the Board since 2012 and was nominated as a director because of his in-depth understanding of healthcare issues from the perspective of the practitioner, academician, administrator and executive.
Audit Committee and Audit Committee Financial Expert
The following directors serve on the Audit Committee: K. Todd Newton (Chair), James L. Bierman, J. Terry Dewberry, and Charles R. Evans, each of whom satisfies NASDAQ’s independence standards for audit committee members. The Board has determined that each of Messrs. Bierman, Dewberry, and Newton is an “audit committee financial expert” as that term is defined by the SEC in Item 407(d)(5)(ii) of Regulation S-K.
Code of Business Conduct and Ethics”Ethics
We have adopted a Code of Business Conduct and Ethics that applies to all of our employees, officers and directors, a copy of which is posted on our website at www.mimedx.com. In the event that we amend anyhttps://mimedx.gcs-web.com/corporate-governance/highlights. Any amendments to or waivers of the provisions of this Code of Business Conduct and Ethics that require disclosure under applicable law SEC rules or listing standards we intend to disclose such amendment on our website.
Any waiver of the Code of Business Conduct and Ethics for any executive officer or director must be approved by the Board and will be disclosed on our website at www.mimedx.com. We undertake to provide a copy to any person, without charge, upon written request to Secretary, MiMedx Group, Inc., 1775 West Oak Commons Court, NE Marietta, Georgia 30062.
Procedures by which Security Holders May Nominate Individuals for Election to the Board
To nominate a person for election as a director at an annual meeting of shareholders, the Company’s Amended and Restated Bylaws require that timely notice of the nomination in proper written form, including all required information as specified in the Amended and Restated Bylaws, be mailed to the Secretary, at 1775 West Oak Commons Court, NE, Marietta, Georgia 30062. The Nominating and Corporate Governance Committee will consider for nomination candidates recommended by shareholders on the same basis as candidates recommended by members of the Board or other sources. Any proposed director candidate shall satisfy the criteria for Board membership set forth in the charter of the Nominating and Corporate Governance Committee or otherwise approved by the Nominating and Corporate Governance Committee and the Board from time to time.
Cooperation Agreement
The Company entered into a Cooperation Agreement, dated as of May 29, 2019 (the “Cooperation Agreement”), with M. Kathleen Behrens, K. Todd Newton, Richard J. Barry, Prescience Partners, LP, a Delaware limited partnership (“Prescience Partners”), its affiliates and Eiad Asbahi (Prescience Partners, together with Prescience Point Special Opportunity LP, Prescience Capital, LLC, Prescience Investment Group, LLC d/b/a Prescience Point Capital Management LLC and Mr. Asbahi, “Prescience Point”; Prescience Point, Dr. Behrens, Mr. Barry and Mr. Newton collectively, the “Investor Group”). With certain exceptions relating to breaches of the Cooperation Agreement, the Cooperation Agreement terminates at least five business days after the Company or the Investor Group delivers notice of termination (the “Termination Date”) following the date of the 2020 Annual Meeting. Pursuant to the Cooperation Agreement, the Company nominated Dr. Behrens, Mr. Newton and Mr. Wright as three Class II director candidates for election to the Board at the 2018 Annual Meeting. The 2018 Annual Meeting was duly held on June 17, 2019, and Dr. Behrens, Mr. Newton, and Mr. Wright were elected to the Board. The Board also appointed Mr. Barry and
Mr. Bierman as Class III directors pursuant to the Cooperation Agreement. The Cooperation Agreement further provides for the Company and Prescience Point to identify and mutually agree upon an individual (the “Mutual Designee”) to stand for election as a Class III director at the 2019 Annual Meeting. As of the date of this Form 8-K filed10-K, the Board and Prescience Point have yet to identify the Mutual Designee for election as Class III directors at the 2019 Annual Meeting (which will be held in 2020).
The Cooperation Agreement provides Prescience Point with certain other rights with respect to designating replacement Board nominees and with respect to the designated directors’ service on certain Board committees, as long as Prescience Point holds more than 5.0% of the outstanding shares of Common Stock. The Cooperation Agreement contains customary standstill restrictions, and through the Termination Date and subject to certain exceptions, Prescience Point is required to vote all of its shares of Common Stock at any annual or special meeting, and any consent solicitation of the Company’s shareholders, in accordance with the SEC, alongrecommendations of the Board. Pursuant to the Cooperation Agreement, the Company reimbursed Prescience Point for $500,000 of its reasonable, documented out-of-pocket fees and expenses incurred in connection with the reasonsmatters related to the 2018 Annual Meeting.
Executive Officers
The following persons currently serve as our executive officers:
Timothy R. Wright, 62, became the Company’s Chief Executive Officer in May 2019. The biography for Mr. Wright can be found under the heading “Board of Directors” above.
Peter M. Carlson, age 56, was appointed Chief Financial Officer in March 2020. He joined the Company as Executive Vice President - Finance in December 2019. From 2017 to 2018, Mr. Carlson served as Chief Operating Officer at Brighthouse Financial, Inc., where he helped establish the $200 billion (assets) U.S. life and annuity insurance company as a separate entity following its August 2017 spin-off from MetLife, Inc., one of the world’s leading financial services companies. He was the Chief Accounting Officer at MetLife, Inc. from 2009 to 2017 where his global responsibilities included accounting, financial planning, tax, and investment finance. Prior to joining MetLife in 2009, Carlson was the Corporate Controller at Wachovia Corporation. He currently serves as a director of White Mountains Insurance Company (NYSE: WTM). Mr. Carlson holds a Bachelor of Science from Wake Forest University and is a trustee of the university. He is licensed as a certified public accountant in North Carolina and New York.
Mark P. Graves, age 55, was appointed Chief Compliance Officer in July 2018. Prior to joining the Company, he served as the U.S. leader for the waiver.global Patient Experience & Value function in the neurology division of UCB, Inc., a biopharmaceutical company. From 2011 to 2015, he was UCB’s Deputy Compliance Officer involved in all aspects of compliance including the implementation and management of the company’s corporate integrity agreement. Prior to that, Graves was Senior Director in the Office of Ethics and Compliance for the Pharmaceutical Products Division of Abbott Laboratories, as well as Deputy Ethics & Compliance Officer for Takeda Pharmaceuticals North America, Inc. and TAP Pharmaceutical Products, Inc. Prior to his pharmaceutical and biotech career, he practiced labor and employment law. Mr. Graves holds a B.A. in Criminology and Law, and a J.D., from the University of Florida as well as an MBA from the University of Chicago Booth School of Business.
William F. “Butch” Hulse IV, age 47, has served as General Counsel since December 2019. Prior to joining the Company, Mr. Hulse was a member of Dykema Gossett, PLLC, a national law firm since 2017. Prior thereto, he was with Acelity, LP, Inc. (formerly Kinetic Concepts, Inc.), a global medical technology company with leadership positions in advanced wound care, surgical solutions and regenerative medicine, from 2008 to 2017 in a variety of roles of increasing responsibility. From 2013 to 2017, he served as Acelity’s Chief Compliance Officer and Senior Vice President for Enterprise Risk Management, Quality, and Regulatory. Prior to that, he served as Division General Counsel for Acelity’s advanced wound care business unit and as Associate General Counsel for litigation matters. Mr. Hulse holds a Bachelor of Arts from Angelo State University and a J.D. from the Baylor University School of Law.
Scott M. Turner, age 55, has served as Senior Vice President, Operations and Procurement since April 2017. Mr. Turner oversees supply chain including donor recovery services, procurement, processing, and facilities. Mr. Turner joined the Company in April 2016 as Vice President, Procurement. Prior to joining the Company, Mr. Turner served as a director with Alvarez & Marsal North America, LLC in their Corporate Performance Improvement group from October 2015 until March 2016. Prior thereto, Mr. Turner served as Vice President, Supply Chain, with Larson-Juhl, a Berkshire Hathaway company, from June 2013 until September 2015. Additionally, Mr. Turner has more than 20 years of Supply Chain and Procurement leadership in life sciences at Shionogi and Johnson & Johnson, spanning the consumer, medical device, and pharmaceutical sectors domestically and overseas. Mr. Turner holds a Bachelor of Science in Commerce & Engineering from Drexel University and a President / Key Executives MBA from Pepperdine University.
Item 11. Executive Compensation
Information requiredCOMPENSATION DISCUSSION AND ANALYSIS
The Compensation Committee is responsible for evaluating and determining the compensation paid to the executive officers who are listed in the Summary Compensation Table (the “NEOs”). All components of compensation for the NEOs are then recommended by the Compensation Committee for approval by the Board. This Compensation Discussion and Analysis (“CD&A”) pertains to 2019 compensation.
For 2019, the Company’s NEOs were:
Timothy R. Wright. Mr. Wright joined MiMedx as Chief Executive Officer on May 13, 2019.
David Coles. Mr. Coles served as Interim Chief Executive Officer from July 2, 2018 until May 13, 2019. He was an employee of Alvarez & Marsal North America, LLC. We paid Alvarez & Marsal for Mr. Cole’s services, as described below under “Agreements with Our Executive Officers-Agreement with Alvarez & Marsal to Employ Mr. Coles.”
Edward Borkowski. Mr. Borkowski served as Executive Vice President and Interim Chief Financial Officer from June 7, 2018 until his resignation on November 15, 2019. Subsequently, he served as Acting Chief Financial Officer through March 17, 2020 pursuant to a Separation and Transition Services Agreement, as described below under “Agreements with Our Executive Officers - Agreement with Mr. Borkowski.”
Peter M. Carlson. Mr. Carlson joined the Company as Executive Vice President - Finance in December 2019. He became Chief Financial Officer in March 2020.
I. Mark Landy. Mr. Landy served as Executive Vice President and Chief Strategy Officer from December 5, 2018 until the Company eliminated this Itemrole effective September 16, 2019 (which terminated his employment).
Scott M. Turner. Mr. Turner has served as Senior Vice President—Operations & Procurement since December 5, 2018 and continues to serve in such role.
Prior Say-on-Pay Proposal and Shareholder Support
The Company conducted an advisory say-on-pay vote at the 2016 annual meeting of shareholders, where approximately 95% of the votes cast were in favor of the proposal. The Board and Compensation Committee reviewed these final vote results together with the other factors and data discussed in this Compensation Discussion and Analysis and determined that, given the significant level of support of the Company’s approach to compensation by its shareholders, no changes to its executive compensation policies and related decisions were necessary at such time.
The next shareholder vote with respect to say-on-pay and the frequency of the say-on-pay vote will occur at the 2019 Annual Meeting, which will be containedheld in 2020. The Board intends to recommend annual say-on-pay votes to allow for more timely shareholder feedback.
Compensation Philosophy
MiMedx’s executive compensation philosophy is based on the belief that competitive compensation is essential to attract and retain highly-qualified executives and incentivize them to achieve the Company’s operational and financial goals. In line with this philosophy, the Company’s practice is to provide total compensation that is competitive with comparable positions at peer organizations. The compensation program is based on individual and organizational performance and includes components that reinforce the Company’s incentive and retention-related compensation objectives.
The principal components of compensation for MiMedx’s NEOs are base salary, annual cash incentives and long-term equity incentives. Cash incentives are included to encourage and reward effective performance relative to the Company’s near-term plans and objectives. Equity incentives are included to promote longer-term focus, to help retain key contributors and to align the interests of the Company’s executives and shareholders.
Pay-Setting Process
Compensation Consultant
Beginning in mid-2018, the Compensation Committee engaged an independent executive compensation consulting firm, Meridian Compensation Partners, LLC (“Meridian”), to provide compensation consulting services relating to (1) NEO compensation, (2) peer group composition and practices, (3) incentives design, (4) compensation governance, (5) amount and form of director compensation and (6) alternatives to equity compensation. Meridian’s services were provided only to the Compensation Committee, and the Compensation Committee determined that Meridian’s work did not raise any conflict of interest.
In October, 2019, following changes in the membership of the Compensation Committee and the Board, the Compensation Committee engaged a new, independent executive compensation consulting firm, Aon Consulting, Inc. through its Radford subdivision (“Radford”), to replace Meridian and to provide compensation consulting services relating to (1) NEO compensation, (2) peer group composition and practices, (3) incentives design, (4) compensation governance, (5) amount and form of director compensation and (6) alternatives to equity compensation. Radford’s services were provided only to the Compensation Committee, and the Compensation Committee determined that Radford’s work did not raise any conflict of interest.
Use of a Peer Group
In making compensation decisions, the Compensation Committee has considered the recommendations of the CEO and of a senior HR executive, which, in turn, have been informed by a compensation analysis of the practices of peer group companies, which are publicly-traded companies in the medical device, pharmaceuticals, biotechnology and life sciences sectors of the healthcare industry. The peer group was determined primarily using organizational criteria, revenue, market capitalization, and industry sector. Organizational criteria include number of employees as well as qualitative factors such as industry, markets, and development stage. The data from the peer group companies for the NEOs provides the Compensation Committee with a benchmark that it views as a point of reference, but not as a determining factor, for the compensation of the NEOs. In 2019, the Company’s peer group was as follows:
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Abiomed, Inc. | | Geron Corporation | | LivaNova PLC |
Acorda Therapeutics, Inc. | | Halozyme Therapeutics, Inc. | | Momenta Pharmaceuticals, Inc. |
AMAG Pharmaceuticals, Inc. | | ImmunoGen, Inc. | | Newlink Genetics Corp. |
Array BioPharma, Inc. | | Infinity Pharmaceuticals, Inc. | | OPKO Health, Inc. |
CryoLife, Inc. | | Insulet Corporation | | Osiris Therapeutics, Inc. |
DexCom, Inc. | | Insys Therapeutics, Inc. | | Seattle Genetics, Inc. |
Exelixis, Inc | | Ionis Pharmaceuticals, Inc. | | Spectrum Pharmaceuticals, Inc. |
Genomic Health, Inc. | | Ironwood Pharmaceuticals, Inc. | | Vanda Pharmaceuticals, Inc. |
| | | | Wright Medical Group, Inc. |
In order to compete effectively for top executive-level talent, the Compensation Committee generally targets cash compensation for the NEOs between the 50th and 60th percentile and long-term equity compensation between the 60th and 75th percentile of compensation paid to similarly-situated executives of the companies comprising the peer group. However, in practice and in the case of 2019, total compensation actually awarded by the Compensation Committee has generally lagged these targets primarily due to the award of below-median long-term incentives. Although peer data and compensation survey data are useful guides for comparative purposes, the Compensation Committee believes that a successful compensation program also requires the application of judgment and subjective determinations of individual performance. In that regard, the Compensation Committee applies its judgment in reconciling the program’s objectives with the realities of attracting and retaining key employees.
2019 Compensation Components
Base Salaries
MiMedx employees, including its NEOs, are paid a base salary commensurate with the responsibilities of their positions, the skills and experience required for the position, their individual performance, business performance, labor market conditions, and with reference to peer company salary levels. Base salaries may be increased depending on the compensation of comparable positions within the peer group companies and published compensation surveys, the executive’s responsibilities, skills, expertise, experience and performance, the executive’s contributions to the Company’s results, and the overall performance of the Company compared to its peer group and other participants within the industry. In determining the increases, the Compensation Committee relies on judgment about each individual, as well as on recommendations from its compensation consultant and senior management, rather than applying a stated formula. Base salaries to the NEOs in 2019 were as follows:
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NEO | Base Salary | Revised Base Salary(1) |
Mr. Wright | $750,000 | n/a |
Mr. Borkowski | $550,000 | $600,000 |
Mr. Carlson | $525,000 | n/a |
Mr. Landy | $425,000 | $455,000 |
Mr. Turner | $340,000 | $355,000 |
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(1) | During 2019, in recognition of Mr. Borkowski’s assumption of the duties of Interim Chief Financial Officer, the Board increased Mr. Borkowski’s base salary to $600,000. The Board also increased Mr. Landy’s base salary to $455,000 and Mr. Turner’s to $355,000 during 2019 following their assumption of increased responsibilities. |
Annual Non-Equity Incentive Awards
Historically, the Company has adopted an annual non-equity incentive plan in which the NEOs participate. Through this plan, the Company delivers a target bonus opportunity expressed as a percentage of each executive’s base salary as shown below. During 2019, following Mr. Borkowski’s assumption of the duties of Interim Chief Financial Officer, the Board increased Mr. Borkowski’s target annual incentive from 60% to 65% of his base salary.
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NEO | Base Salary | Target Annual Incentive as a Percent of Base Salary | Target Annual Incentive | Bonus Paid in 2019 |
Mr. Wright | $750,000 | 100% | $750,000 | $720,000 |
Mr. Borkowski | $600,000 | 65% | $390,000 | n/a(1) |
Mr. Carlson | $525,000 | 55% | $288,750 | n/a(2) |
Mr. Landy | $455,000 | 50% | $227,500 | n/a(3) |
Mr. Turner | $355,000 | 40% | $142,000 | $136,320 |
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(1) | The Company made payments to Mr. Borkowski pursuant to Separation and Transition Services Agreement in lieu of, among other things, his annual incentive. |
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(2) | Mr. Carlson joined the Company effective December 16, 2019 and therefore was not eligible for an annual incentive for 2019. |
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(3) | The Company eliminated Mr. Landy’s role during 2019 and made payments to him in 2020 equal to one times his base salary and target annual incentive. |
However, 2019 was a year of rapid and significant change for the Company. Ultimately, the Board did not approve an annual incentive plan for 2019 due to the following factors:
a rapidly changing financial forecast following adverse insurance coverage decisions relating to the Company’s products in late 2018 and the reduction in force in December 2018;
the failure to complete the audit of the financial statements for the year ended December 31, 2018, which also affected the Company’s ability to establish meaningful quantitative goals for 2019;
the adoption of a new strategic plan which addressed the changing regulatory landscape for several of the Company’s products and investments related to future BLA products; and
•changes in several of the Company’s key officers, including its CEO and CFO.
Nevertheless, the Board determined that it was important to grant bonuses for 2019 in recognition of extraordinary efforts during the year, to retain key leaders during a period of significant change and risk, and for internal pay equity. For 2019, the Board authorized the Company to pay discretionary bonuses to each of the NEOs who was still employed by the Company at the end of the year equal to 96% of each NEO’s target annual incentive as follows: Mr. Wright - $720,000; and Mr. Turner - $136,320. Mr. Carlson joined the Company on December 15, 2019 and was not eligible for an annual incentive award in 2019.
For 2020, the Committee and the Board have adopted a managing incentive plan (“MIP”), which is an annual cash incentive plan designed to incentivize and reward achievement of the current year’s financial and operational goals with three equally-weighted performance criteria - revenue, Adjusted EBITDA, and individual performance goals. Potential payouts under the 2020 MIP are capped at 1.5 times an executive’s target bonus.
Long-Term Equity Incentives
All equity incentive awards are granted under the Company’s 2016 Equity and Cash Incentive Plan (the “2016 Plan”), which was approved by shareholders in 2016. The 2016 Plan is designed to align the interests of the Company’s Named Executive Officers and other MiMedx officers, members of management and key employees with the interests of the Company’s shareholders, and serve as a key retention tool. Restricted stock vests over a period of time, generally pro rata annually over three years. The Company generally makes its an annual equity grant to a broad group of its management employees, including the NEOs in February or March of each year. The Company also typically grants restricted stock to certain newly-hired executive officers in connection with the commencement of their employment by the Company.
The Committee believes that equity grants are a positive motivator for the Company’s officers, management and key employees to focus their strategy and efforts on the Company’s long-term goals. Working toward the long-term growth of the price of the Company’s stock produces the ultimate financial gain for the executives’ equity awards and increase in value for the Company’s shareholders.
In recent years, the Compensation Committee has granted only restricted stock awards, rather than a mix of stock and stock options to conserve the number of shares available under the 2016 Plan. The Compensation Committee believes that restricted stock awards are an effective form of equity compensation because the vesting period is a strong retention tool for NEOs and other key executives. Restricted stock awards increase in value as the Company’s stock price increases over time, but they also continue to have value in the event of a stock price decline. Thus, unlike stock options, restricted stock does not lose its retention value in the event of a decline in stock price.
All awards of restricted stock granted to Named Executive Officers in 2019 were approved by the Compensation Committee for recommendation to the full Board for approval. All awards of restricted stock granted to all other eligible participants in the 2016 Plan were determined and approved by the Compensation Committee.
In determining the approved level of equity grants, the Compensation Committee considers the individual’s target annual long-term incentive value, the Company’s overall option “overhang,” the employee’s level of responsibility and performance, prior equity awards, comparative compensation information, and the anticipated expense to the Company. For 2019, all awards of restricted stock were dated and priced as follows:
All awards of restricted stock to current employees were granted and priced as of the close of the business day on which the Committee approved the grant.
All awards of restricted stock granted to newly-hired employees were granted and priced as of the later of the business day on which the Board approved such grants or the date of employment.
The Committee establishes vesting schedules for awards under the 2016 Plan at the time of the grant. To optimize the retention value of the awards and to orient recipients to the achievement of longer-term goals, objectives and success, awards typically vest in three equal installments on the first, second and third anniversaries of the Grant Date. The Company generally makes its an annual equity grant to a broad group of its management employees, including the Named Executive Officers, in February or March of each year. In 2019, all equity-based awards were issued under plans previously approved by the Company’s shareholders.
2019 Restricted Stock Grants to Named Executive Officers
The Compensation Committee’s philosophy with respect to annual grants is to benchmark long-term equity incentive awards at the 60th to 75th percentile of awards to similarly-situated executives of companies in the peer group. However, the actual amount of equity awards granted to the NEOs in 2019 was less than the benchmark target grant value in order to conserve the number of shares available for awards under the 2016 Plan. In general, in determining the level of equity grants, the Compensation Committee considers the individual’s target annual long-term incentive value, the Company’s unexercised and unvested grants, the employee’s level of responsibility and performance, prior equity awards, comparative compensation information, and the anticipated expense to the Company.
Grants to Current Officers
On February 21, 2019, the Company granted Mr. Borkowski 203,305 shares of restricted stock that were required to be granted to him pursuant to the Company’s agreement with him. On April 26, 2019, the Company granted each of Messrs. Landy and Turner 279,271 and 52,067 shares of restricted stock, respectively. It made no grant to its then-CEO, Mr. Coles, because he was an employee of Alvarez & Marsal. The grant to Mr. Turner vest pro rata annually over three years.
Grants to Newly-Hired Officers
In addition to the annual grants described above, the Company made certain grants of restricted stock to newly-hired employees during 2019. On May 6, 2019, the Company granted Mr. Wright 681,818 shares of restricted stock upon his appointment as Chief Executive Officer, scheduled to vest pro rata annually over three years; refer to the discussion “Agreement with Mr. Wright” below. In addition, in connection with the commencement of Mr. Carlson’s employment with the Company, the Company made a $350,000 restricted stock grant to Mr. Carlson on December 16, 2019 that vests pro rata annually over three years, and a $1 million restricted stock grant that vests upon the achievement of each of four discrete performance goals; refer to the discussion “Agreement with Mr. Carlson” below. Each of these awards will be settled in a number of shares of common stock based on our definitivestock 30 days after the Company first becomes current with its SEC reporting obligations.
Agreements with our Executive Officers
Agreement with Alvarez & Marsal to employ Mr. Coles
The Board appointed Mr. Coles as Interim Chief Executive Officer of the Company, effective as of July 2, 2018. In connection with his appointment, the Company entered into an engagement letter with Alvarez & Marsal North America, LLC (“A&M”), where Mr. Coles had been employed since 1997, providing for Mr. Coles’ services and the services of additional A&M employees as needed to assist Mr. Coles in the execution of his duties. Under the terms of the engagement letter, during his service at the Company, Mr. Coles continued to be employed by A&M and was not entitled to receive any compensation directly from the Company or participate in any of the Company’s employee benefit plans. The Company instead paid A&M an hourly rate of $975 per hour for Mr. Coles’ services. In 2019, the Company paid A&M $908,663 for Mr. Coles’ services. Mr. Coles resigned on May 13, 2019 upon the hiring of Mr. Wright as our permanent Chief Executive Officer.
Agreement with Mr. Wright
In connection with his appointment as Chief Executive Officer in May 2019, Mr. Wright entered into a letter agreement (the “Letter Agreement”) with the Company that provides for an annual base salary of $750,000. The Company agreed in the Letter Agreement that he will be eligible to participate in the MIP with an annual target cash bonus amount equal to one hundred percent (100%) of his base salary. The Letter Agreement also provided for a special one-time signing bonus of $500,000, which was subject to repayment in full in the event that Mr. Wright resigned without “good reason” or had his employment terminated by the Company for “cause,” in each case within 12 months following the commencement of his employment with the Company. The Letter Agreement also provides that Mr. Wright’s MIP bonus would not be prorated for 2019, and that the Compensation Committee of the Board had approved and recommended to the Board for approval a minimum payout of not less than fifty percent (50%) of what his target bonus would have been if the Board had adopted the 2019 MIP. For 2019, the Company paid Mr. Wright a discretionary bonus in lieu of his target MIP bonus, as discussed above under “Annual Non-Equity Incentive Awards.”
In addition, pursuant to the Letter Agreement, the Company granted Mr. Wright a restricted stock award with a value of $3,375,000 as of the date that Mr. Wright commenced employment with the Company, which vests pro rata annually over three years and is subject to the terms and conditions of the 2016 Plan. In addition, the Letter Agreement provides that, following 2019, Mr. Wright will have a target long-term incentive award in an amount equal to four hundred and fifty percent (450%) of his then-current annual base salary.
The Letter Agreement further provided that in the event of the termination of Mr. Wright’s employment by the Company other than for “cause” or by Mr. Wright for “good reason,” Mr. Wright will be eligible to receive the following, subject to the execution and non-revocation of a release of claims (and continued compliance with any applicable restrictive covenant obligations): (i) a severance payment equal to 24 months of his then-current annual base salary plus two times his then-current annual target bonus amount and (ii) provided that Mr. Wright timely elects continued coverage under COBRA, continued participation in applicable Company benefit plans for him and his eligible dependents at active employee rates for 24 months following the termination of Mr. Wright’s employment. Notwithstanding the foregoing, in the event that Mr. Wright’s employment with the Company is terminated following a “change in control” for reasons other than death, disability, retirement, termination by the Company for “cause” or termination by Mr. Wright without “good reason,” Mr. Wright will be eligible to receive the following, subject to the execution and non-revocation of a release of claims (and continued compliance with any applicable restrictive covenant obligations): (i) a severance payment equal to 30 months of his then-current annual base salary plus 2.5 times his then-current annual target bonus amount, (ii) provided that Mr. Wright timely elects continued coverage under COBRA, continued participation in applicable Company benefit plans for him and his eligible dependents at active employee rates for 30 months following the termination of Mr. Wright’s employment and (iii) continued participation in life or other similar insurance or death benefit plans (excluding short-term or long-term disability insurance) for 30 months following the termination of Mr. Wright’s employment and at the Company’s expense.
The Letter Agreement also entitles Mr. Wright to certain relocation and commuting benefits.
Agreements with Mr. Borkowski
The Board appointed Mr. Borkowski, an Executive Vice President of the Company, as interim Chief Financial Officer effective June 6, 2018. In 2018, Mr. Borkowski received an annual salary of $550,000 and a target annual performance bonus of 60% of his base salary. The Board increased his salary and target bonus to $600,000 and 65%, respectively, during 2019.
The Company awarded Mr. Borkowski two restricted stock grants on February 21, 2019: one for 100,000 shares, one-third of which vested immediately and the other two-thirds were to vest ratably over a two-year period from the date of grant; and the other for 103,305 shares was to vest ratably over a two-year period from the date of grant. These awards were contemplated, but not granted, at the time Mr. Borkowski joined the Company. The Company made these grants with an abbreviated vesting schedule to approximate the result as if they had been granted as originally agreed because the grants were made nearly a year later than agreed.
In addition, the Company agreed to provide Mr. Borkowski severance, both in connection with a change in control and other than in connection with a change in control. The Company entered into a double-trigger Change in Control Severance Agreement with Mr. Borkowski, which provided for severance payments equal to 1.75 times his base salary and target bonus; and continuation of benefits for the period for which the severance is computed. The Company also entered into a severance agreement with Mr. Borkowski that was not conditioned upon a change in control and which provided for severance payments equal to 1.0 times his annual base salary plus target bonus, plus continuation of benefits for the period for which the severance is computed, if his employment was terminated for qualifying reasons. Mr. Borkowski was also eligible for relocation benefits.
On November 18, 2019, the Company entered into a Separation and Transition Services Agreement (the “Transition Agreement”) with Mr. Borkowski pursuant to which (i) he resigned as Executive Vice President and Interim Chief Financial Officer of the Company, as well as from any and all officer, director or other positions that he held with the Company and its affiliates, effective November 15, 2019, (ii) he agreed to perform the duties of the Acting Chief Financial Officer with respect to filing the 2018 Form 10-K and assist with the transition of his duties, and (iii) until March 31, 2020, he agreed to provide services as may be requested by the Company with respect to matters related to the 2018 Form 10-K and the Company’s Annual Report on Form 10-K for the fiscal year ending December 31, 2019. The Agreement provided for the Company to make special payments to Mr. Borkowski in installments as follows: (i) $1,700,000, which was paid within seven business days following the Transition Agreement, (ii) $1,750,000 which was paid following the filing of the 2018 Form 10-K with the SEC; and (iii) after March 31, 2020, $500,000 which was paid following the execution and delivery of a supplemental release by Mr. Borkowski. These payments were, among other things, in lieu of his equity grant and annual incentive for 2019. Mr. Borkowski forfeited all restricted stock owned by him which had not already vested, and all other claims to stock and other benefits. The Agreement also includes terms and conditions governing the Company’s and Mr. Borkowski’s general release of claims and other customary provisions.
Agreement with Mr. Carlson
The Company entered into an agreement with Mr. Carlson effective December 16, 2019 to employ him as Executive Vice President - Finance. The Company later named Mr. Carlson Chief Financial Officer effective March 18, 2020. Pursuant to the Company’s agreement with Mr. Carlson, he receives an annual base salary of $525,000 and will be eligible for a target annual incentive of fifty-five percent (55%) of his base salary and a target long-term incentive equal to two hundred percent (200%) of his base salary. In addition, he received (i) a special one-time signing bonus of $50,000 (which is subject to repayment in full in the event that he resigns or has his employment terminated by the Company within 12 months following the commencement of his employment with the Company), (ii) a restricted stock grant with a value of $350,000 which vests pro rata annually over three years, and (iii) a restricted stock grant with a value of $1,000,000, which vests upon the achievement of each of four discrete performance goals.
Agreement with Mr. Landy
On September 16, 2019, the Company eliminated the position of Chief Strategy Officer and terminated the employment of Mr. Landy without cause. Effective April 23, 2020, the Company entered into a Termination Agreement with Mr. Landy pursuant to which the Company will pay Mr. Landy twelve (12) months of his salary ($425,000) and target bonus (50%) that was in effect on the day his position was eliminated.
Additional Compensation Practices and Policies
Perquisites
The Company generally does not provide executive officers with perquisites and other personal benefits beyond the Company benefits offered to similarly situated employees, with the following exception: when the Company hosts performance incentive trips for its best-performing sales people, it requires certain executives to attend and assumes the incremental cost if the executive’s spouse attends, and when this occurs the Company reports the aggregate incremental travel expenses of the spouse as a perquisite. Also, during the Company’s transition, when its ability to attract and retain executives was reduced, the Company agreed to reimburse certain executives (Messrs. Wright and Borkowski) for commuting and transportation expenses between their respective homes and our corporate headquarters, temporary lodging, relocation and rental car expenses, and paid a tax-gross up on these amounts.
Stock Ownership Guidelines
The Board has adopted stock ownership guidelines that apply to the NEOs. Under the guidelines, covered persons are required to own stock, including unvested time-based restricted stock, equal to certain multiples of their annual cash compensation:
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| | | | | |
Person Subject to Policy | | Requirement |
CEO | | | | 3.0X | |
CFO | | | | 2.0X | |
General Counsel | | | | 1.5X | |
Until such time as the NEO reaches his or her applicable threshold and subject to certain exceptions, the NEOs are required to hold 100% of the shares of Common Stock awarded to him/her from the Company or received upon vesting of restricted stock and upon exercise of stock options (net of any shares utilized to pay for tax withholding and any exercise price).
However, the Board has suspended the stock ownership guidelines until the Company becomes current in its SEC reporting obligations since subject persons may be prohibited by applicable insider trading laws from buying or selling Company securities. We expect to implement similar requirements once the Company’s officers are permitted to buy Company stock.
Recoupment of Compensation
The Board adopted a recoupment (clawback) policy, effective April 1, 2016, covering executive officers of the Company. The policy provides that if the Company is required to restate its financial results due to material noncompliance with financial reporting requirements under the securities laws, the Compensation Committee may seek reimbursement of any cash or equity-based bonus or other incentive compensation paid or awarded to the officer or effect cancellation of previously granted equity awards to the extent the bonus or incentive compensation was based on erroneous financial data and was in excess of what would have been paid to the officer under the restatement.
With the completion of the restatement of Company’s previously issued consolidated financial statements and financial information, the Compensation Committee has reviewed the annual non-equity incentive awards paid to executive officers based on financial performance for the years 2015 and 2016, and the amounts that would have been paid to such officers under the restated financial statements. In addition, the Compensation Committee has reviewed the annual non-equity incentive awards paid to executive officers for 2017 and 2018 (which had never been published and therefore technically not restated), and the amounts that would have been paid to such officers under the corrected financial statements. This review determined that the Company paid annual non-equity incentive awards between 2015 and 2018 to the following persons in excess of what would have been paid to such executive officers under the restated or revised financial metrics, by the following, aggregate amounts: our former Chief Executive Officer, Mr. Petit - $468,504; our former Chief Financial Officer, Mr. Senken - $215,550; our former President, Mr. Taylor - $356,555; our former General Counsel, Ms. Haden - $183,725; our former Interim Chief Financial Officer, Mr. Borkowski - $88,000; our former Chief Strategy Officer, Mr. Landy - $31,267; and Mr. Turner - $28,933.(The Company did not grant any equity awards based on incorrect financial metrics.)
The Compensation Committee notes that the Company effectively recovered $26.3 million of vested, unexercised options and unvested restricted stock as a result of the Board’s determination in September 2018 that the terminations of employment of Messrs. Petit, Senken and Taylor were “for cause,” which resulted in the forfeiture of those awards. Under the Plans, all unvested restricted stock awards and vested and unvested stock option awards were forfeited, as follows:
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| | | | | | | | | | | | |
Former NEO | | Options Forfeited | | Value on 9/20/2018 at $6.20 per share | | Unvested Restricted Stock Forfeited | | Value on 9/20/2018 at $6.20 per share | | Total Value of Equity Forfeited |
Petit | | 2,867,820 |
| | $12.1 million | | 361,667 |
| | $2.2 million | | $14.3 million |
Senken | | 887,107 |
| | $3.7 million | | 120,368 |
| | $0.7 million | | $4.4 million |
Taylor | | 1,558,221 |
| | $6.2 million | | 229,234 |
| | $1.4 million | | $7.6 million |
TOTAL | | 5,313,148 |
| | $22.0 million | | 711,269 |
| | $4.3 million | | $26.3 million |
(The value of forfeited options is based on the closing price of Common Stock on the date of forfeiture, which was $6.20 per share on September 20, 2018, less the exercise price. The value of forfeited restricted stock is based on the closing price of Common Stock on the date of forfeiture.)
The Compensation Committee also notes that on November 26, 2019, the SEC filed suit against Messrs. Petit, Senken and Taylor in the U.S. District Court for the Southern District of New York, including claims for relief as to Messrs. Petit and Senken for the disgorgement of all bonuses and all incentive-based and equity-based compensation pursuant to Section 304 of the Sarbanes-Oxley Act of 2002, among other claims for relief. The Committee further notes that Messrs. Landy and Turner only became executive officers in December 2018 and therefore were subject to the policy for less than one month.
In view of the pending criminal trials against Messrs. Petit and Taylor, and the SEC’s civil claims against Messrs. Petit, Taylor, and Senken, the Compensation Committee has not yet reached a final determination as to whether or how to recoup the amounts previously paid to these executives or to the other executives.
Anti-Hedging and Anti-Pledging Policies
Hedging transactions may permit the ownership of Company securities without the full risks and rewards of ownership. If a director, officer or employee engages in hedging transactions with respect to Company securities, he or she may no longer have the same objectives as the Company’s other shareholders. For this reason, the Company prohibits directors, officers and employees from engaging in hedging transactions in Company securities, subject to exceptions that may be granted in the sole discretion of the Company’s General Counsel in limited circumstances.
Securities held in a margin account as collateral for a margin loan may be sold by the broker without the customer’s consent if the customer fails to meet a margin call. Similarly, securities pledged as collateral for a loan may be sold if the borrower defaults on the loan, including at a time when the pledgor is aware of material nonpublic information or otherwise is not permitted to trade in Company securities. For these reasons, the Company prohibits directors, officers and other employees from holding Company securities in a margin account or otherwise pledging Company securities as collateral for a loan.
Compensation Risk Assessment
On an ongoing basis, the Compensation Committee considers the risks inherent in the Company’s compensation programs. With the change in the structure of the annual non-equity incentive compensation awards in late 2018, which de-emphasized revenue, the Compensation Committee believes that our compensation policies and practices do not encourage excessive and unnecessary risk-taking, and that the level of risk that they do encourage is not reasonably likely to have a material adverse effect on the Company. The Compensation Committee believes that the design of our compensation policies and practices encourages our employees to remain focused on both our short- and long-term goals.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed the Compensation Discussion and Analysis in this Annual Report and discussed it with management. Based on its review and discussions with management, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Annual Report and in the proxy statement relatingfor the Company’s 2019 annual meeting of shareholders. This report is provided by the following independent directors, who comprise the Compensation Committee:
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Richard J. Barry, Chair (member of the Committee since June 2019) |
James L. Bierman (member of the Committee since July 2019) |
Neil S. Yeston (member of the Committee since September 2012) |
July 6, 2020
CEO Pay Ratio
In 2019, we paid total annual compensation to our 2017 Annual Meetingmedian employee of Shareholders$62,995. The annual total compensation of our CEO in 2019, as reported in the Summary Compensation Table, was $5,069,353. Based on this information, for 2019 the ratio of the annual total compensation of our CEO to the median annual total compensation of all employees was 80 to 1. (We note that the compensation paid to our CEO for 2019 was for a partial year, and we estimate that he would have received approximately$5,372,238 over the course of a full year, which equates to a ratio of 85 to 1.) We determined our median employee using all income as shown in Form W-2 box 1 for all employees other than our CEO, based on information as of December 31, 2019. As permitted by SEC rules, we excluded all non-U.S. employees in determining the median employee, which consisted of a single employee in Canada. The total number of U.S. and non-U.S. employees as of December 31, 2019 was 696.
2019 SUMMARY COMPENSATION TABLE
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| | | | | | | | | | | | | | | | |
Name and Principal Position | | Period | | Salary | | Bonus(6) | | Stock(7) Awards | | Option Awards | | Non-Equity Incentive Plan Compensation Awards | | All Other(8) Compensation | | Total |
Timothy R. Wright,(1) Chief Executive Officer | | 2019 | | $447,115 | | $1,220,000 | | $3,375,000 | | $0 | | $0 | | $27,239 | | $5,069,354 |
David Coles,(2) Former Interim Chief Executive Officer | | 2019 | | $0 | | $0 | | $0 | | $0 | | $0 | | $0 | | $0 |
| 2018 | | $0 | | $0 | | $0 | | $0 | | $0 | | $0 | | $0 |
Edward Borkowski,(3) EVP and Interim Chief Financial Officer | | 2019 | | $597,885 | | $0 | | $610,014 | | $0 | | $0 | | $4,095,931 | | $5,303,830 |
| 2018 | | $363,846 | | $150,000 | | $0 | | $0 | | $330,000 | | $47,294 | | $891,140 |
Peter M. Carlson,(4) EVP - Finance | | 2019 | | $24,231 | | $0 | | $1,349,994 | | $0 | | $0 | | $0 | | $1,374,225 |
I. Mark Landy,(5) EVP and Chief Strategy Officer | | 2019 | | $367,001 | | $0 | | $673,043 | | $0 | | $0 | | $690,924 | | $1,730,968 |
| 2018 | | $327,788 | | $100,000 | | $199,824 | | $0 | | $117,250 | | $0 | | $744,862 |
Scott M. Turner, SVP, Operations & Procurement | | 2019 | | $351,596 | | $136,320 | | $125,481 | | $0 | | $0 | | $6,059 | | $619,456 |
| 2018 | | $302,788 | | $0 | | $156,592 | | $0 | | $108,500 | | $9,978 | | $577,858 |
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(1) | The Board appointed Mr. Wright as Chief Executive Officer effective May 13, 2019. |
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(2) | Mr. Coles served as Interim Chief Executive Officer from July 2, 2018 until May 12, 2019. The Company paid his employer, A&M, $908,663 and $1,147,751 for Mr. Coles’ services in 2019 and 2018, respectively. |
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(3) | Mr. Borkowski served as Interim Chief Financial Officer from June 6, 2018 until his resignation effective November 15, 2019. Subsequently, he served as Acting Chief Financial Officer. |
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(4) | The Board appointed Mr. Carlson EVP - Finance effective December 16, 2019. The Company later named Mr. Carlson Chief Financial Officer effective March 18, 2020. |
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(5) | Mr. Landy served as Executive Vice President and Chief Strategy Officer from December 5, 2018 until the Company eliminated this position on September 16, 2019. |
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(6) | Reflects a one-time $500,000 cash signing bonus. Messrs. Wright and Turner also received discretionary bonuses in 2020 in lieu of their 2019 annual incentive in the amounts of $720,000 and $136,320, respectively. |
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(7) | Represents the aggregate grant date fair value of awards of restricted stock made to the executive officer in accordance with FASB ASC Topic 718. The restricted stock awards vest pro rata annually over a three-year period. |
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(8) | Represents the following amounts: (a) commuting expenses: Wright - $18,135; Borkowski - $43,733; (b) reimbursement for travel expenses for their spouses to attend certain work-related events: Borkowski - $5,098; Landy - $3,924; (c) severance: Borkowski - $4,000,000 (including $2,250,000 to be paid to him or on his behalf in 2020); Landy - $687,750 (paid in 2020); (c) 401(k) match: Wright - $1,442; Borkowski - $4,659; Turner - $6,059; and (d) tax gross-up on commuting expenses: Wright $7,662; Borkowski $42,441. Does not include $2,250,000 paid to Mr. Borkowski in 2020 pursuant to the Separation and Transition Services Agreement between the Company and him. See “Compensation, Discussion & Analysis - Agreements with Mr. Borkowski, above.” |
GRANTS OF PLAN-BASED AWARDS FOR 2019
The following table provides information regarding grants of plan-based awards to the Company’s NEOs during 2019.
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| | | | | | | | | | | | | | | | | | | | |
| | | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) | | All Other Stock Awards: Number of Shares of Stock or Units(2) | | All Other Option Awards: Number of Securities Underlying Options | | Exercise or Base Price of Option Awards | | Grant Date Fair Value of Stock and Option Awards(3) |
Name | | Grant Date | | Threshold | | Target | | Maximum | |
Wright | | 6/7/2019 |
| | $0 | | $0 | | $0 | | 681,818 |
| | | | | | $3,374,999 |
Coles | | — |
| | $0 | | $0 | | $0 | | — |
| | — |
| | — |
| | $0 |
Borkowski | | 2/21/2019 |
| | $0 | | $0 | | $0 | | 203,305 |
| (4) | | | | | $616,014 |
Carlson | | 12/16/2019 |
| | $0 | | $0 | | $0 | | 49,295 |
| | | | | | $349,995 |
Carlson | | 12/16/2019 |
| | $0 | | $0 | | $0 | | 140,845 |
| (5) | | | | | $1,000,000 |
Landy | | 4/26/2019 |
| | $0 | | $0 | | $0 | | 279,271 |
| (4) | | | | | $673,043 |
Turner | | 4/26/2019 |
| | $0 | | $0 | | $0 | | 52,067 |
| | | | | | $125,481 |
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(1) | The Board never formally approved the annual incentive plan in 2019. Refer to discussion of “annual incentive plan” in the Compensation Discussion & Analysis, above. |
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(2) | Represents restricted stock awards granted under the 2016 Plan. The shares of restricted stock generally vest ratably over three years from the grant date. |
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(3) | The amounts shown reflect the grant date fair market values of the awards computed in accordance with FASB ASC Topic 718—“Compensation-Stock compensation.” |
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(4) | As discussed under “Compensation Discussion and Analysis,” Messrs. Landy and Borkowski forfeited all unvested restricted stock held by them upon the termination of their employment during 2019. |
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(5) | Represents performance-based restricted stock units. |
OUTSTANDING EQUITY AWARDS ON DECEMBER 31, 2019
The following table shows the number of shares covered by exercisable and un-exercisable options and unvested restricted stock awards held by the Company’s NEOs on December 31, 2019. As discussed in the CD&A, Messrs. Landy and Borkowski forfeited all unvested restricted stock held by them upon the termination of their employment during 2019.
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| | Option Awards | | Stock Awards |
Name | | Number of Securities Underlying Unexercised Options (#) Exercisable | | Number of Securities Underlying Unexercised Options (#) Unexercisable | | Option Exercise Price | | Option Expiration Date | | Number of Securities Unvested | | | | Market Value of Unvested Securities(1) |
Wright | | — |
| | — |
| | | | | | 681,818 |
| | (2) | | $ | 5,168,180 |
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Coles | | — |
| | — |
| | | | | | — |
| | | | $0 |
Borkowski | | — |
| | — |
| | | | | | — |
| | | | $0 |
Carlson | | — |
| | — |
| | | | | | 190,140 |
| | (3) | | $ | 1,441,261 |
|
Landy | | — |
| | — |
| | | | | | — |
| | | | $0 |
Turner | | — |
| | — |
| | | | | | 10,000 |
| | (4) | | $75,800 |
| | | | | | | | | | 10,600 |
| | (5) | | $80,348 |
| | | | | | | | | | 6,667 |
| | (6) | | $50,536 |
| | | | | | | | | | 52,067 |
| | (7) | | $394,668 |
| |
(1) | Calculated based on a closing stock price of $7.58 per share on December 31, 2019. |
| |
(2) | A portion vested on June 7, 2020, and the remaining balance is scheduled to vest on June 7, 2021 and 2022. |
| |
(3) | Reflects (a) a time-vested restricted stock grant with a value of $350,000 which vests pro rata annually over three years on December 16, 2020, 2021, and 2022; and (b) a performance-vested restricted stock unit grant with a value of $1,000,000, which vests upon the achievement of each of four discrete performance goals. |
| |
(4) | The remaining balance vested on February 22, 2020. |
| |
(5) | The remaining balance is scheduled to vest on February 22, 2021. |
| |
(6) | The remaining balance is scheduled to vest in two installments on December 11, 2020 and 2021. |
| |
(7) | A portion vested on April 26, 2020, and the remaining balance is scheduled to vest in on April 26, 2021 and 2022. |
2019 OPTION EXERCISES AND STOCK VESTED TABLE
The following table provides information concerning each exercise of stock options and each vesting of restricted stock during 2019, on an aggregated basis with respect to each of the Company’s NEOs.
|
| | | | | | | | | | | |
| | | Option Awards | | Stock Awards |
Name | | | Number of Securities Acquired on Exercise | | Value Realized on Exercise | | Number of Securities Acquired on Vesting | | Value Realized on Vesting(1) |
Wright | | | — |
| | $0 | | — |
| | $0 |
Coles | | | — |
| | $0 | | — |
| | $0 |
Borkowski | | | — |
| | $0 | | 33,333 |
| | $100,999 |
Carlson | | | — |
| | $0 | | — |
| | $0 |
Landy | | | — |
| | $0 | | 25,433 |
| | $103,193 |
Turner | | | — |
| | $0 | | 25,800 |
| | $71,411 |
| |
(1) | Represents the number of shares acquired on vesting multiplied by the closing price of Common Stock on the vesting date. |
2019 POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
This section describes additional payments that the Company would make to the NEOs assuming a hypothetical termination of employment occurred on December 31, 2019 under various scenarios. We did not include Messrs. Coles or Borkowski in the table below because they voluntarily resigned their employment before December 31, 2019. See “Compensation Discussion and Analysis - Agreements with Our Executive Officers” for a discussion of certain severance payments to and arrangements made with Messrs. Borkowski and Landy.
The Company’s agreement with Mr. Wright provides for, and its agreement with Mr. Landy provided for, compensation to the executive in the event the executive’s employment with the Company is terminated involuntarily without “Cause” (as defined in the agreement), or if the executive voluntarily terminates employment for “Good Reason” (as defined in the agreement). The compensation payable under the caption “Executiveagreements is a lump sum severance payment equal to a multiple of two times in the case of Mr. Wright, or one time in the case of Mr. Landy, the executive’s annual base salary and targeted base bonus as of the date of termination. In addition, following termination of employment, he is entitled to receive life, health insurance coverage (subject to a COBRA election), and certain other fringe benefits equivalent to those in effect at the date of termination for period of 24 months in the case of Mr. Wright, or 12 months in the case of Mr. Landy.
The Company’s agreements with Messrs. Wright and Turner provide for compensation to the executive in the event the executive’s employment with the Company is terminated following the consummation of a “change-in-control” for reasons other than the executive’s death, disability or for “Cause” (as defined in the respective agreements), or if the executive voluntarily terminates employment for “Good Reason” (as defined in the respective agreements). The compensation payable under the agreements is a lump sum severance payment equal to a multiple of the executive’s annual base salary and targeted base bonus as of the date of the change-in-control. The multiples are 2.5 and 0.5 Messrs. Wright and Turner, respectively. In addition, following termination of employment, these executives are entitled to receive life, health insurance coverage (subject to a COBRA election), and certain other fringe benefits equivalent to those in effect at the date of termination for periods of 30 months and 6 months for Messrs. Wright and Turner, respectively. The agreements require the executive to comply with certain covenants that preclude the executive from competing with the Company or soliciting customers or employees of the Company for a period following termination of employment equal to the period for which fringe benefits are continued under the applicable agreement. The agreements expire three years after a change in control of the Company or any successor to the Company.
Upon a “change in control,” as defined in the 2006 Plan and subject to any requirements of Section 409A of the Internal Revenue Code of 1986, as amended, all outstanding awards vest and become exercisable. The Compensation Committee has discretion whether to provide that awards granted under the 2016 Plan will vest upon a “change in control.” or similar caption which is incorporated herein by reference.Thus far, the Committee has exercised such discretion and provided for full vesting upon a change in control for all awards granted under the 2016 Plan to NEOs to date.
2019 POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
|
| | | | | | | | | | | | | |
Executive | | Involuntary Without Cause or for Good Reason | | | | Involuntary or for Good Reason with Change in Control | | | | Death or Disability | | |
Wright | | | | | | | | | | | | |
cash severance | | 3,000,000 |
| | (1) | | $3,750,000 | | (1)(2) | | $0 | | |
estimated benefits | | $24,881 | | (3) | | $31,101 | | (2)(3) | | $0 | | |
estimated value of accelerated equity awards | | — |
| | | | $5,168,180 | | (4) | | $5,168,180 | | (5) |
Carlson | | | | | | | | | | | | |
cash severance | | $0 | | | | $0 | | | | $0 | | |
estimated benefits | | $0 | | | | $0 | | | | $0 | | |
estimated value of accelerated equity awards | | $0 | | | | $0 | | | | $1,441,261 | | (5) |
Turner | | | | | | | | | | | | |
cash severance | | $0 | | | | $248,500 | | (1)(2) | | $0 | | |
estimated benefits | | $0 | | | | $8,644 | | (2)(3) | | $0 | | |
estimated value of accelerated equity awards | | $0 | | | | $601,352 | | (4) | | $601,352 | | (5) |
Landy | | | | | | | | | | | | |
cash severance | | $687,750 | | | | n/a | | (6) | | n/a | | (6) |
estimated benefits | | $55 | | | | n/a | | (6) | | n/a | | (6) |
estimated value of accelerated equity awards | | $0 | | | | n/a | | (6) | | n/a | | (6) |
| |
(1) | Includes (a) annual base salary as of December 31, 2019, plus (b) annual targeted bonus for the year ended December 31, 2019, times the multiple applicable to the NEO. |
| |
(2) | Payable only in the event the executive’s employment is terminated without cause or for “good reason” within three years following a change in control. |
| |
(3) | Includes (a) the estimated value of medical, dental, vision and life insurance, plus (b) the employer’s cost of FICA for the duration of the severance period. |
| |
(4) | Includes the value of unvested restricted stock based on the December 31, 2019 stock price, the vesting of which is deemed accelerated to December 31, 2019. |
| |
(5) | If the Participant’s employment with the Company terminated on account of the Participant’s death or disability, the shares shall become vested and non-forfeitable on termination of the Participant’s employment with the Company on account of the Participant’s death or disability. |
| |
(6) | Mr. Landy’s employment actually terminated on September 16, 2009 when the Company eliminated his position. |
2019 DIRECTOR COMPENSATION
The Company compensates non-employee directors with a mix of equity and cash. Directors who are full-time Company employees do not receive any compensation for their service as directors or as members of Board committees. The Company compensates non-employee directors at approximately the median of peer practices. The 2016 Plan imposes limits on awards to directors for their service as directors of (i) 125,000 shares granted during any calendar year and (ii) a maximum of $300,000 for any consecutive 12-month period for awards stated with reference to a specific dollar amount.
Equity Compensation
Upon initial election or appointment to the Board, each non-employee director receives a one-time grant of restricted shares of Common Stock valued at $50,000, plus a prorated portion of the prior year’s annual grant (based on the number of months between the date of appointment to the Board and targeted date for the next annual meeting of shareholders). This grant vests on the first anniversary of the grant date. In addition, each non-employee director receives an annual grant of restricted shares of Common Stock valued at $175,000. The Board usually makes this grant on the date of the annual meeting of shareholders, and it vests on the earlier of the next annual meeting or the first anniversary of the grant date. Because, in 2019, the Restatement was incomplete and there was incomplete information publicly available about the Company, the Board made its annual grants in the form of restricted stock units, initially denominated in cash but which will be converted to a number of shares of common stock based on the stock price on the date thirty (30) days following the date the Company first becomes current with its SEC reporting obligations. The Board altered its grant practices in an attempt to ensure that the grants are based on a reliable price for the Company’s stock and which reflects all available information and current financial statements, to prevent the possibility of a windfall, and to ensure alignment with shareholders.
Due to the pending Audit Committee investigation in early 2018 and the expectation that the Company’s financial statements might need to be restated, the Board did not make the expected $175,000 equity grant to directors in 2018. Instead, on June 13, 2019 (prior to the election or appointment of Dr. Behrens and Messrs. Barry, Bierman and Newton to the Board), the Board, in its capacity as Administrator of the 2006 Plan, modified all options then outstanding held by non-employee directors under the Company’s Assumed 2006 Stock Incentive Plan, as amended and restated as of February 25, 2014 (the “2006 Plan”), such that all options held by incumbent directors who served on the Board prior to the Company’s 2018 annual meeting of shareholders would expire on the original expiration date of such options, rather than on the first to occur of (i) three months following the date of termination of a director’s service on the Board for any reason and (ii) the expiration date of the option. The modification resulted in an incremental expense charge under GAAP, which varied by director based upon the number of outstanding options then held by the director as well as other factors. The incremental fair value of such modified options has been included in the table below in the column, “Options.”
The Nominating and Corporate Governance Committee has adopted stock ownership guidelines for the Company’s non-employee directors to better align the interests of non-employee directors with shareholders. The guidelines require non-employee directors to own shares of Common Stock with a value equal to or greater than three times their annual gross cash compensation. Newly elected directors have three years from the date of election to the Board to comply with the ownership guidelines. Shares must be owned directly by the director or the director’s immediate family members residing in the same household, held in trust for the benefit of the non-employee director or the director’s immediate family or owned by a partnership, limited liability company or other entity to the extent of the director’s interest therein (including the interests of the director’s immediate family members residing in the same household) provided that the individual has the power to vote or dispose of the shares. Unvested shares of restricted stock and unexercised stock options (vested or unvested) do not count toward satisfaction of the guidelines. The Board has suspended application of these stock ownership guidelines because the Company is not current in its SEC reporting obligations and the Company’s insider trading policy prevents the non-employee directors from buying or selling shares of Common Stock at this time.
Cash Compensation
In 2019, the Company also paid the following cash amounts to non-employee directors:
|
| | | | |
| | Chairman | | Non-Chair Member |
Board | | $71,000 | | $42,000 |
Audit Committee | | $21,000 | | $11,000 |
Compensation Committee | | $16,000 | | $8,500 |
Nominating and Corporate Governance | | $11,000 | | $6,000 |
Science and Research Liaison | | $15,000 | | n/a |
Ethics and Compliance Committee | | $12,500 | | $6,500 |
Special Litigation Committee (ad hoc) | | $15,000 | | $7,500 |
In addition, for 2019, the Board paid excess meeting fees, subject to a cap, once the number of meetings for a particular body exceeded a threshold, as follows:
|
| | | |
Supplemental Meeting Fees | Threshold # of Meetings | Per Meeting Fee | Supplemental Meeting Fee Cap |
Board Meetings | 12 meetings | $2,500 Chair $1,250 Member | $30,000 Chair $15,000 Member |
Audit Committee | 15 meetings | $2,000 Chair $1,000 Member | $24,000 Chair $12,000 Member
|
Compensation; Science & Research liaison; Special Litigation (ad hoc) | 12 meetings |
Nominating & Governance; Ethics & Compliance | 10 meetings |
The following table provides information concerning compensation of the Company’s non-employee directors who served in 2019.
|
| | | | | | | | |
Name | | Fees Earned or Paid in Cash | | Stock Awards(1) | | Options | | Total |
Luis A. Aguilar(2) | | $113,250 | | $0 | | $0 | | $113,250 |
Richard J. Barry | | $14,500 | | $225,000 | (6)(7) | $0 | | $239,500 |
M. Kathleen Behrens | | $34,471 | | $225,000 | (6)(7) | $0 | | $259,471 |
James L. Bierman | | $18,038 | | $225,000 | (6)(7) | $0 | | $243,038 |
Joseph G. Bleser(3) | | $78,750 | | $0 | | $89,437 | (5) | $168,187 |
J. Terry Dewberry | | $108,000 | | $175,000 | (6) | $82,019 | (5) | $365,019 |
Charles R. Evans | | $152,925 | | $175,000 | (6) | $0 | (5) | $327,925 |
Bruce L. Hack(3) | | $51,000 | | $0 | | $89,437 | (5) | $140,437 |
Charles E. Koob | | $57,000 | | $175,000 | (6) | $0 | | $232,000 |
K. Todd Newton | | $15,913 | | $225,000 | (6)(7) | $0 | | $240,913 |
Larry W. Papasan(4) | | $61,125 | | $0 | | $105,073 | (5) | $166,198 |
Neil S. Yeston(8) | | $107,125 | | $175,000 | (6) | $0 | (5) | $282,119 |
| |
1. | The following directors had stock options outstanding as of December 31, 2019: Papasan - 87,000; Koob - 75,000; and Bleser, Dewberry, Evans, Hack, Koob, and Yeston—each with 60,000. In addition, on December 31, 2019 each of Messrs. Barry, Bierman, and Newton, and Ms. Behrens, had restricted stock units with a value of $225,000, and each of Messrs. Dewberry, Evans, Koob and Yeston had restricted stock units with a value of $175,000. |
| |
2. | Mr. Aguilar resigned from the Board on September 19, 2019. |
| |
3. | The terms of Mr. Bleser and Mr. Hack expired on June 17, 2019 following the 2018 Annual Meeting. |
| |
4. | Mr. Papasan resigned from the Board on June 17, 2019 following the 2018 Annual Meeting. |
| |
5. | Reflects incremental fair value of options as a result of modifications effective on June 13, 2019: Bleser - $89,437; Dewberry - $82,019; Hack $89,437; Papasan $105,073; Evans, Koob and Yeston - $0. |
| |
6. | Reflects grant of $175,000 restricted stock unit award to all directors serving after June 17, 2019. |
| |
7. | Reflects grant of $50,000 restricted stock unit award to new directors. |
| |
8. | Mr. Yeston serves as the Science and Research liaison to the Board and as the Chairman of the ad hoc special litigation committee. |
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related ShareholderStockholder Matters
EQUITY COMPENSATION PLAN INFORMATION
Information requiredThe following table provides information about the Company’s equity compensation plans as of December 31, 2019. |
| | | | | | | | | |
Plan Category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | Weighted average exercise price of outstanding options, warrants and rights | | Number of securities remaining available for future issuance under equity compensation plans |
Equity compensation plans approved by security holders | | 2,885,334 |
| | $4.42 | | 6,334,170 |
|
Equity compensation plans not approved by security holders | | — |
| | — |
| | — |
|
Total | | 2,885,334 |
| | $4.42 | | 6,334,170 |
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables sets forth certain information regarding the Company’s capital stock, beneficially owned by this Item will be containedeach person known to the Company to beneficially own more than 5% of the outstanding shares of Common Stock, each NEO, each director, and all directors and executive officers as a group. Unless otherwise indicated below the address of those identified in our definitive proxy statement relating to our 2017 Annual Meeting of Shareholders under the captions “Stock Ownership"table is c/o MiMedx Group, Inc.,” “Executive Compensation,” and “Equity Compensation Plan Information,” or similar captions which are incorporated herein by reference. 1775 West Oak Commons Court, NE, Marietta, Georgia 30062.
|
| | | | | | | |
SERIES B CONVERTIBLE PREFERRED STOCK
|
Name of Beneficial Owner | | Number of Shares of Series B Convertible Preferred Stock | | Number of Shares of Common Stock Into Which They May Convert(b) | | Voting Percentage(c) |
EW Healthcare Partners(a) | | 90,000 |
| | 23,376,623 | | 16.9% |
| |
(a) | Represents shares of Common Stock issuable upon conversion of 90,000 shares of Series B Preferred Stock owned by Falcon Fund 2 Holding Company, L.P., a partnership controlled by EW Healthcare Partners. EW Healthcare Partners Fund 2-UGP, LLC, the general partner of Falcon Fund 2 Holding Company, L.P., may also be deemed to have sole voting and investment power with respect to such shares of Common Stock. EW Healthcare Partners Fund 2-UGP, LLC disclaims beneficial ownership of such shares of Common Stock except to the extent of its pecuniary interest therein. Martin P. Sutter, Scott Barry, Ronald W. Eastman, Petri Vainio and Steve Wiggins are each a manager and collectively the managers of EW Healthcare Partners Fund 2-UGP, LLC. Each of the managers may be deemed to exercise shared voting and investment power with respect to such shares. Each manager disclaims beneficial ownership of such shares of Common Stock except to the extent of his pecuniary interest therein. Martin P. Sutter is a member of the Company’s Board of Directors. The principal address of the EW Healthcare Partners entities and each of the managers is 21 Waterway Avenue, Suite 225, The Woodlands, Texas 77380. |
| |
(b) | Each holder of Series B Preferred Stock (each a “Holder” and collectively, the “Holders”) will have the right, at its option, to convert its Series B Preferred Stock, in whole or in part, into a number of fully paid and non-assessable shares of Common Stock equal to the Purchase Price Per Share, plus any accrued and unpaid dividends, at the conversion price. For purposes of this table the conversion price is presumed to be $3.85. No Holder may convert its shares of Series B Preferred Stock into shares of Common Stock if such conversion would result in the Holder, together with its affiliates, holding more than 19.9% of the votes entitled to be cast at any stockholders meeting or beneficially owning in excess of 19.9% of then-outstanding shares of Common Stock. |
| |
(c) | Subject to certain exceptions, each share of Series B Preferred Stock is entitled to be voted on by the Holders and will vote on an as-converted basis as a single class with the Common Stock, subject to certain limitations on voting set forth in the related Articles of Amendment. Percentage ownership set forth in the table is based on 110,328,875 shares of Common Stock outstanding on June 25, 2020, plus 2,359,043 shares deemed outstanding pursuant to Rule 13d-3 under the Exchange Act, which includes 25,022,299 shares of Common Stock to be issued upon conversion of the Series B Stock. |
|
| | | | | | | |
Name of Beneficial Owner | | Number of Shares | | | | Percentage Ownership(1) |
Prescience Investment Group, LLC(2) | | 7,618,335 |
| | | | 5.5% |
Group One Trading, LP(3) | | 6,379,103 |
| | | | 4.6% |
| | | | | | |
NEOs, Executive Officers, and Directors | | Number of Shares | | | | Percentage Ownership(1) |
Richard J. Barry(4)(5) | | 3,300,000 |
| | | | 2.4% |
M. Kathleen Behrens, Ph.D.(4) | | — |
| | | | * |
James L. Bierman(5) | | — |
| | | | * |
Edward J. Borkowski(6) | | 21,194 |
| | | | * |
Peter M. Carlson(7) | | 49,295 |
| | | | * |
David Coles(8) | | — |
| | | | * |
J. Terry Dewberry(9)(10) | | 187,126 |
| | | | * |
Charles R. Evans(10)(11) | | 125,460 |
| | | | * |
William A. Hawkins(17) | | — |
| | | | * |
Charles E. Koob(10)(12) | | 1,520,628 |
| | | | 1.1% |
I. Mark Landy(13) | | 33,529 |
| | | | * |
K. Todd Newton(4) | | — |
| | | | * |
Martin P. Sutter(17) | | 23,376,623 |
| | | | 16.9% |
Scott M. Turner(14) | | 104,843 |
| | | | * |
Timothy R. Wright(15) | | 592,227 |
| | | | * |
Neil S. Yeston(10)(16) | | 130,460 |
| | | | * |
Total Directors and Executive Officers(18) (15 persons) | | 29,232,524 |
| | | | 21.1% |
| |
(1) | The beneficial ownership set forth in the table is determined in accordance with SEC rules. The percentage of beneficial ownership is based on 110,328,875 shares of Common Stock outstanding on June 25, 2020, plus 2,359,043 shares deemed outstanding pursuant to Rule 13d-3 under the Exchange Act and 25,974,026 shares deemed outstanding upon conversion of the Company’s Series B Preferred Stock at $3.85 per share. See notes (b) and (c), above. |
| |
(2) | On May 30, 2019, Prescience Investment Group, LLC filed an amendment to its Schedule 13D indicating shared voting power and dispositive power over 7,618,335 shares, shared voting power and dispositive power over 4,888,652 shares by Prescience Partners, LP, shared voting power and dispositive power over 1,845,539 shares by Prescience Point Special Opportunity LP, and shared voting power and dispositive power over 6,734,191 shares by Prescience Capital, LLC. The address for Prescience Investment Group, LLC is 1670 Lobdell Avenue, Suite 200, Baton Rouge, LA 70806. |
| |
(3) | According to the most recent Schedule 13G filed with the SEC on January 31, 2019, Group One Trading, LP had sole voting and dispositive power with respect to 6,379,103 shares. The address for Group One Trading, LP is 440 South LaSalle St, Ste. 3232, Chicago, IL 60605 |
| |
(4) | Does not include restricted stock units granted on October 22, 2019 with a value of $225,000 which will be settled in Common Stock based on a stock price determined after the 2019 annual meeting of shareholders and after the Company becomes current in its reporting obligations. |
| |
(5) | Reflects beneficial ownership of shares held by the Richard and Susan Barry Family Trust. |
| |
(6) | Mr. Borkowski resigned as Executive Vice President and Interim Chief Financial Officer effective November 15, 2019. |
| |
(7) | Mr. Carlson joined the Company as Executive Vice President, Finance, on December 16, 2019. Does not include 140,844 restricted stock units granted on December 16, 2019 that will vest based upon the achievement of certain performance criteria. |
| |
(8) | Mr. Coles served as Interim Chief Executive Officer until May 13, 2019. |
| |
(9) | Includes 60,000 shares issuable upon the exercise of options. |
| |
(10) | Does not include restricted stock units granted on October 22, 2019 with a value of $175,000 which will be settled in Common Stock based on a stock price determined after the 2019 annual meeting of shareholders and after the Company becomes current in its reporting obligations. |
| |
(11) | Includes 60,000 shares issuable upon the exercise of options. |
| |
(12) | Includes 1,375,627 shares held by a trust and 60,000 shares issuable upon the exercise of options. |
| |
(13) | The Company eliminated Mr. Landy's position of Chief Strategy Officer effective September 16, 2019. |
| |
(14) | Does not include restricted stock units granted on February 18, 2020 with a value of $284,000 which will be settled in Common Stock based on a stock price determined after the Company becomes current in its reporting obligations. |
| |
(15) | Does not include restricted stock units granted on February 18, 2020 with a value of $3,375,000 which will be settled in Common Stock based on a stock price determined after the Company becomes current in its reporting obligations. |
| |
(16) | Includes 60,000 shares issuable upon the exercise of options. |
| |
(17) | For purposes of this table all shares of Series B Preferred Stock are deemed to have converted to Common Stock at $3.85 per share. Effective July 2, 2020, pursuant to the terms of the Purchase Agreement and the Preferred Stock Amendment, the Company increased the size of the Board of Directors and appointed Martin P. Sutter and William A. Hawkins III to serve as Preferred Directors. Mr. Sutter is deemed to own beneficially shares controlled by EW Healthcare Partners. See notes (b), (c) and (1), above. No Holder may convert its shares of Series B Preferred Stock into shares of Common Stock if such conversion would result in the Holder, together with its affiliates, holding more than 19.9% of the votes entitled to be cast at any stockholders meeting or beneficially owning in excess of 19.9% of then-outstanding shares of Common Stock. |
| |
(18) | Represents the ownership of only those persons currently serving as a director or executive officer of the Company. |
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required by this Item will be contained in our definitive proxy statement relating to our 2017 Annual MeetingPolicies and Procedures for Approval of Shareholders under the captions “Certain Relationships and Related Party Transactions”
Under its charter, the Audit Committee is responsible for reviewing and "Electionapproving all transactions or arrangements between the Company and Section 16 reporting persons and any of Directors"their respective affiliates, associates or similar captionsrelated parties. In determining whether to approve or ratify a related party transaction, the Audit Committee considers all relevant facts and circumstances available to it, such as:
•Whether the terms of the transaction are fair to the Company and at least as favorable to the Company as would apply if the transaction did not involve a related party;
•Whether there are demonstrable business reasons for the Company to enter into the transaction;
•Whether the transaction would impair the independence of an outside director; and
| |
• | Whether the transaction would present an improper conflict of interest for any director or executive officer, taking into account the size of the transaction, the direct or indirect nature of the related party’s interest in the transaction and the ongoing nature of any proposed relationship, and any other factors the Audit Committee deems relevant. |
Related Party Transactions
The Company has employed Thomas Koob as its Chief Scientific Officer (a non-executive officer) since 2006. Thomas Koob is the brother of a director, Charles Koob. Subsequent to the Company’s employment of Thomas Koob, Charles Koob was appointed as a director of the Company in March 2008. In 2019, the Company paid Thomas Koob an annual salary of $235,210 and provided equity, incentive compensation and other compensation of $155,957.
The Company employs Simon Ryan, the brother-in-law of its former General Counsel, Alexandra O. Haden (who resigned from the Company effective August 12, 2019), as a sales representative. In 2019, the Company paid Mr. Ryan total compensation of $152,126, consisting of a salary of $95,000 and sales commissions, equity and other compensation of $57,126.
Director Independence
Although the Common Stock is no longer listed on NASDAQ due to the Company’s failure to timely file periodic reports, the Board continues to comply with NASDAQ’s listing standards with respect to Board independence. NASDAQ listing standards require that a majority of the members of the Board be independent, which means that they are incorporated herein by reference.not officers or employees of the Company and are free of any relationship that would interfere with the exercise of their independent judgment. The Board has determined that Dr. Behrens and Messrs. Barry, Bierman, Dewberry, Evans, Newton, and Yeston are “independent” under NASDAQ listing standards.
Compensation Committee Interlocks and Insider Participation
During 2019, the following persons served on the Compensation Committee: Richard J. Barry, James L. Bierman, Joseph G. Bleser, Larry W. Papasan, and Neil S. Yeston. No member of the Compensation Committee is or has been an officer or employee of the Company. During 2019, none of the Company’s executive officers served on the board of directors or compensation committee of any other entity that had an executive officer that serves on the Company’s Board or Compensation Committee.
Item 14. Principal Accounting Fees and Services
Audit Firm Fees
Information requiredThe Audit Committee’s duties include pre-approving audit and non-audit services provided to the Company by this Item will be containedthe Company’s independent registered public accounting firm, BDO USA, LLP (“BDO”). All of the services in our definitive proxy statement relating to our 2017 Annual Meetingrespect of Shareholders2019 and 2018 under the captions “Ratification of Appointment of Independent Registered Public Accounting Firm”Audit Fees, Audit-Related Fees, Tax Fees and “Election of Directors,” or similar captions which are incorporated hereinAll Other Fees categories below were pre-approved by reference.the Audit Committee.
|
| | | |
Type of Fee | Year Ended December 31, 2019 | | Year Ended(1) December 31, 2018 |
Audit Fees(2) | $3,875,000 | | $2,433,333 |
Audit-Related Fees(3) | $19,000 | | $21,400 |
Tax Fees | $0 | | $0 |
All Other Fees | $0 | | $0 |
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(1) | The Company engaged BDO in May 2019 to audit its financial statements for the years ended December 31, 2018, 2017, and 2016. Total fees incurred by BDO were $7.3 million and were apportioned equally to each of the three years for the purposes of this tabular presentation. The Company paid or incurred these fees in 2019. |
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(2) | This category includes fees for the audit of the Company’s annual financial statements and review of financial statements included in its quarterly reports on Form 10-Q. |
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(3) | This relates to BDO’s audit of the Company’s 401(k) plan. |
PART IV
Item 15. Exhibits, Financial Statement Schedules
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(a) | Documents filed as part of this report: |
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(2) | Financial Statement Schedule: |
The following Financial Statement Schedule is filed as part of this Report:
Schedule II Valuation and Qualifying Accounts for the years ended December 31, 2016, 20152019, 2018 and 20142017
See Item 15(b) below. Each management contract or compensation plan has been identified.identified with an asterisk.
Notes
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* | Indicates a management contract or compensatory plan or arrangement |
# | Filed herewith |
## | Certain exhibits and schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K, but a copy will be furnished supplementally to the Securities and Exchange Commission upon request.
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Exhibit Number | | Description |
2.1##3.1 | | Agreement and PlanArticles of Merger dated December 22, 2010 by and among MiMedx Group, Inc., MP Holdings Acquisition Sub, LLC, ORCI Acquisition Sub, LLC, Membrane Products Holdings, LLC, Onramp Capital Investments, LLC,Incorporation, together with Articles of Amendment effective each of the OnRamp Members (as defined therein); John R. Daniel, in his capacity as the representative of the MembersMay 14, 2010; August 8, 2012, November 8, 2012; and Surgical Biologics, LLC (IncorporatedMay 15, 2015 (incorporated by reference to Exhibit 2.2 filed with Registrant's3.1 to the Registrant’s Form 10-K filed on March 31, 2011)1, 2017). |
2.2##3.2 | | Agreement and PlanArticles of Merger dated January 10, 2016, by and among MiMedx Group, Inc., Titan Acquisition Sub I, Inc., Titan Acquisition Sub II, LLC, Stability Inc., certain stockholdersAmendment to the Articles of Stability Inc. and Brian Martin as representative of the Stability stockholders (IncorporatedIncorporation effective November 6, 2018 (incorporated by reference to Exhibit 2.1 filed with Registrant's3.1 to the Registrant’s Form 8-K8-A filed on January 13, 2016)November 7, 2018). |
3.1#3.3# | | Articles of Amendment to the Articles of Incorporation of MiMedx Group, Inc., as amended by Articles of Amendment to Articles of Incorporation filed on May 14, 2010, Articles of Amendment to Articles of Incorporation filed on August 8, 2012, Articles of Amendment to Articles of Incorporation filed on November 8, 2012, and Articles of Amendment to Articles of Incorporation filed on May 15, 2015effective July 1, 2020.
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3.2#3.4 | | |
10.1*4.1# | | |
10.1 | | |
10.2 | | |
10.3 | | |
10.4 | | Second Amendment to Lease made as of August 29, 2018 for real property and improvements located at 1775 West Oak Commons Court, Marietta, Georgia between RE Fields, LLC, successor in interest to HUB Properties GA, LLC, and CPVF II West Oak LLC, and MiMedx Group, Inc., dated January 25, 2013, as amended March 7, 2017 (incorporated by reference to Exhibit 10.4 to Annual Report on Form 10-K filed March 17, 2020). |
10.5* | | |
10.2*10.6* | | |
10.7* | | |
10.8* | | |
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10.3* | | |
Exhibit Number | | Description |
10.9* | | |
10.4* | | Form of Incentive Stock Option Agreement under the MiMedx Group, Inc. 2006 Assumed Stock Incentive Plan (Incorporated by reference to Exhibit 10.4 to the Registrant's Form 10-K filed on March 4, 2014) |
10.5* | | Form of Nonqualified Stock Option Agreement under the MiMedx Group, Inc. 2006 Assumed Stock Incentive Plan (Incorporated by reference to Exhibit 10.5 to the Registrant's Form 10-K filed on March 4, 2014) |
10.6* | | MiMedx, Inc. 2005 Assumed Stock Plan, formerly the SpineMedica Corp. 2005 Employee, Director and Consultant Stock Plan (Incorporated by reference to Exhibit 10.5 filed with the Registrant's Form 8-K filed February 8, 2008) |
10.7* | | Declaration of Amendment to the MiMedx, Inc. 2005 Assumed Stock Plan (formerly the SpineMedica Corp. 2005 Employee, Director and Consultant Stock Plan) (Incorporated by reference to Exhibit 10.6 filed with the Registrant's Form 8-K filed February 8, 2008) |
2014).
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10.8* | | Form of Incentive Stock Option Award Agreement under the MiMedx, Inc. Assumed 2005 Stock Plan (formerly the SpineMedica Corp. 2005 Employee, Director and Consultant Stock Plan), including a list of officers and directors receiving options thereunder (Incorporated by reference to Exhibit 10.7 filed with the Registrant's Form 8-K filed February 8, 2008) |
10.9* | | Form of Nonqualified Stock Option Award Agreement under the MiMedx, Inc. Assumed 2005 Stock Plan (formerly the SpineMedica Corp. 2005 Employee, Director and Consultant Stock Plan) (Incorporated by reference to Exhibit 10.8 filed with the Registrant's Form 8-K filed February 8, 2008) |
10.10* | | MiMedx, Inc. Assumed 2007 Stock Plan (formerly the SpineMedica Corp. 2007 Stock Incentive Plan) (Incorporated by reference to Exhibit 10.9 filed with the Registrant's Form 8-K filed February 8, 2008) |
10.11* | | Declaration of Amendment to the MiMedx, Inc. Assumed 2007 Stock Plan (formerly the SpineMedica Corp. 2007 Stock Incentive Plan) (Incorporated by reference to Exhibit 10.10 filed with the Registrant's Form 8-K filed February 8, 2008) |
10.12* | | Form of Incentive Stock Option Award Agreement under the MiMedx, Inc. Assumed 2007 Stock Plan (formerly the SpineMedica Corp. 2007 Stock Incentive Plan) (Incorporated by reference to Exhibit 10.11 filed with the Registrant's Form 8-K filed February 8, 2008) |
10.13* | | Form of Nonqualified Stock Option Award Agreement under the MiMedx, Inc. Assumed 2007 Stock Plan (formerly the SpineMedica Corp. 2007 Stock Incentive Plan) (Incorporated by reference to Exhibit 10.12 filed with the Registrant's Form 8-K filed February 8, 2008) |
10.14* | | Form of Indemnification Agreement (Incorporated by reference to Exhibit 10.65 filed with the Registrant's Form 8-K filed July 15, 2008) |
10.15* | | MiMedx Group, Inc. Amended and Restated Assumed 2005 Stock Plan (Incorporated by reference to Exhibit 10.4 filed with the Registrant's Form S-8 filed August 29, 2008) |
10.16* | | Form of Incentive Stock Option Award Agreement under MiMedx Group, Inc. Amended and Restated Assumed 2005 Stock Plan (Incorporated by reference to Exhibit 10.68 filed with the Registrant's Form 8 -K filed September 4, 2008) |
10.17* | | Form of Nonqualified Stock Option Award Agreement under MiMedx Group, Inc. Amended and Restated Assumed 2005 Stock Plan (Incorporated by reference to Exhibit 10.69 filed with the Registrant's Form 8 -K filed September 4, 2008) |
10.18 | | Form of MiMedx, Inc. Employee Proprietary Information and Inventions Assignment Agreement (Incorporated by reference to Exhibit 10.13 filed with the Registrant's Form 8-K filed February 8, 2008) |
10.19 | | Technology License Agreement between MiMedx, Inc., Shriners Hospitals for Children, and University of South Florida Research Foundation dated January 29, 2007 (Incorporated by reference to Exhibit 10.32 filed with the Registrant's Form 8-K filed February 8, 2008) |
10.20 | | Form of Amended and Restated Security and Intercreditor Agreement (Incorporated by reference to Exhibit 10.6 filed with Registrant’s Form 8-K filed January 3, 2012) |
10.21* | | Change of Control Agreement Severance Compensation and Restrictive Covenant Agreement dated November 11, 2011, between MiMedx Group, Inc. and Parker H. Petit (Incorporated by reference to Exhibit 10.91 filed with Registrant’s Form 10-Q filed on November 14, 2011) |
10.22* | | Change of Control Agreement Severance Compensation and Restrictive Covenant Agreement dated November 11, 2011, between MiMedx Group, Inc. and with William C. Taylor (Incorporated by reference to Exhibit 10.92 filed with Registrant’s Form 10-Q filed on November 14, 2011) |
10.23* | | First Amendment to Change in Control Severance Compensation and Restrictive Covenant Agreement dated May 9, 2013 by and between MiMedx Group, Inc., and William C. Taylor (Incorporated by reference to Exhibit 10.1 to the Registrant's Form 8-K filed on May 15, 2013) |
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10.24* | | Change of Control Agreement Severance Compensation and Restrictive Covenant Agreement dated November 11, 2011, between MiMedx Group, Inc., and Michael J. Senken (Incorporated by reference to Exhibit 10.93 filed with Registrant’s Form 10-Q filed on November 14, 2011) |
10.25* | | First Amendment to Change in Control Severance Compensation and Restrictive Covenant Agreement dated May 9, 2013 by and between MiMedx Group, Inc., and Michael J. Senken (Incorporated by reference to Exhibit 10.2 to the Registrant's Form 8-K filed on May 15, 2013) |
10.26* | | Change in Control Severance Compensation and Restrictive Covenant Agreement dated May 20, 2016 by and between MiMedx Group, Inc., and Alexandra O. Haden (Incorporated by reference to Exhibit 10.1 to the Registrant's Form 8-K filed on May 25, 2016) |
10.27* | | 2013 Management Incentive Plan and 2013 Operating Incentive Plan (Incorporated by reference to Exhibit 10.1 filed with Registrant’s Form 8-K filed March 12, 2013) |
10.28* | | 2014 Management Incentive Plan and 2014 Operating Incentive Plan (Incorporated by reference to Exhibit 10.1 filed with Registrant's Form 8-K filed March 3, 2014) |
10.29* | | 2015 Management Incentive Plan (Incorporated by reference to Exhibit 10.1 to the Registrant's Form 10-Q filed on May 1, 2015) |
10.30* | | 2016 Management Incentive Plan |
10.31** | | Product Distribution Agreement by and between AvKARE, Inc. and MiMedx Group, Inc. dated April 19, 2012 (Incorporated by reference to Exhibit 10.56 to the Registrant’s Form 10-K filed March 15, 2013) |
10.32 | | First Amendment to Product Distribution Agreement amending that certain Product Distribution Agreement that was effective April 19, 2012 (Incorporated by reference to Exhibit 10.56 filed with the Registrant’s Form 10-Q filed on November 8, 2013) |
10.33** | | Second Amendment to Product Distribution between MiMedx Group, Inc. and AvKARE, Inc. (Incorporated by reference to Exhibit 10.58 filed with the Registrant’s Form 10-Q filed on November 8, 2013) |
10.34** | | Third Amendment to Product Distribution Agreement dated April 17, 2015 between MiMedx Group, Inc. and AvKARE, Inc. (Incorporated by reference to Exhibit 10.2 to the Company's 10-Q filed on August 7, 2015) |
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10.35** | | Fourth Amendment to Product Distribution Agreement dated January 1, 2016 between MiMedx Group, Inc. and AvKARE, Inc. (Incorporated by reference to Exhibit 10.2 to the Company's 10-Q filed on May 10, 2016) |
10.36 | | Lease by and between Hub Properties of GA, LLC and MiMedx Group, Inc., effective May 1, 2013 (Incorporated by reference to Exhibit 10.1 to the Registrant's Form 10-Q filed May 10, 2013) |
10.37 | | Credit Agreement dated October 12, 2015, among MiMedx Group, Inc., the Guarantors identified therein, Bank of America, N.A., and the other Lenders party thereto (Incorporated by reference to Exhibit 10.1 to the Registrant's Form 8-K filed on October 13, 2015) |
10.38 | | First Amendment to the Credit Agreement dated October 12, 2015, by and among MiMedx Group, Inc., the Guarantors identified therein, Bank of America, N.A. and the other Lenders party thereto (Incorporated by reference to Exhibit 10.1 to the Registrant's Form 8-K filed on January 13, 2016 |
10.39 | | Security and Pledge Agreement dated October 12, 2015, among MiMedx Group, Inc., the Guarantors identified therein and Bank of America, N.A., as administrative agent (Incorporated by reference to Exhibit 10.2 to the Registrant's Form 8-K filed on October 13, 2015) |
10.40* | | 2016 Equity and Cash Incentive Plan (Incorporated herein(incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on April 12, 2016). |
10.41*10.11* | | |
10.42*10.12* | | |
10.13* | | |
10.43*10.14* | | |
10.15* | | |
10.16* | | |
10.17* | | |
10.18* | | Cooperation Agreement dated as of May 29, 2019 among MiMedx Group, Inc., M. Kathleen Behrens Wilsey, K. Todd Newton, Richard J. Barry, Prescience Partners, LP, Prescience Point Special Opportunity LP, Prescience Capital LLC, Prescience Investment Group, LLC d/b/a Prescience Point Capital Management LLC and Eiad Asbahi (incorporated by reference to Exhibit 10.32 to the Registrant’s Form 8-K filed on May 30, 2019). |
10.19## | | |
10.20 | | First Amendment, dated as of April 22, 2020, to Loan Agreement, dated June 10, 2019, by and between MiMedx Group, Inc., the other guarantors party thereto, the lenders party thereto and Blue Torch Finance LLC, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed April 27, 2020). |
10.21* | | |
10.22* | | |
10.23* | | |
10.24* | | |
10.25* | | |
10.26* | | |
10.27* | | |
10.28* | | |
10.29*# | | |
10.30*# | | |
10.31* | | |
10.32* | | |
10.33*# | | |
10.34*# | | |
10.35*# | | |
10.36# ## | | Loan Agreement dated as of June 30, 2020 by and among MiMedx Group, Inc., certain subsidiaries of MiMedx Group, Inc. parties thereto, the Lenders from time to time party hereto, Hayfin Services LLP, as administrative agent for the Lenders and as collateral agent for the Secured Parties. |
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Exhibit Number | | Description |
10.37*# | | |
10.38# ## | | |
10.39# | | |
16.1 | | |
16.2 | | |
21.1# | | |
23.1# | | |
24.1# | | Power of Attorney (included on the signature page to this Report). |
31.1# | | |
31.2# | | |
32.1# | | |
32.2# | | |
101.INS# | | XBRL Instance Document |
101.SCH# | | XBRL Taxonomy Extension Schema Document |
101.CAL
# 101.CAL# | | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF# | | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB# | | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE# | | XBRL Taxonomy Extension Presentation Linkbase Document |
Notes
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* | Indicates a management contract or compensatory plan or arrangement |
# | Filed herewith |
** | Certain confidential material appearing in this document, marked by [*****], has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under rule 24b-2 promulgated under the Securities Exchange Act of 1934, as amended.
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## | Certain exhibits and schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K, but a copy will be furnished supplementally to the Securities and Exchange Commission upon request.
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Item 16. Form 10-K Summary
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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March 1, 2017July 6, 2020 | MIMEDX GROUP, INC. |
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| By: | /s/ Michael J. SenkenPeter M. Carlson |
| | Michael J. SenkenPeter M. Carlson |
| | Chief Financial Officer |
| | and Principal Financial Officer |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints William F. Hulse IV and David A. Wisniewski and each of them acting individually, as his or her true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him or her in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K for the year ended December 31, 2019, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorney to any and all amendments to said Annual Report on Form 10-K.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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Signature / Name | | Title | | Date |
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/s/: Parker H. Petit Timothy R. Wright | | Chief Executive Officer and ChairmanDirector | | March 1, 2017July 6, 2020 |
Parker H. PetitTimothy R. Wright | | (principal executive officer)Principal Executive Officer) | | |
| | | | |
/s/: Michael J. Senken Peter M. Carlson | | Chief Financial Officer | | March 1, 2017July 6, 2020 |
Michael J. SenkenPeter M. Carlson | | (principal financial and accounting officer)Principal Financial Officer) | | |
| | | | |
/s/: Joseph G. Bleser William L. Phelan | | DirectorSenior Vice President and Chief Accounting Officer | | March 1, 2017July 6, 2020 |
Joseph G. BleserWilliam L. Phelan | | (Principal Accounting Officer) | | |
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/s/ M. Kathleen Behrens | | Chair of the Board (Director) | | July 6, 2020 |
M. Kathleen Behrens | | | | |
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/s/: Richard J. Barry | | Director | | July 6, 2020 |
Richard J. Barry | | | | |
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/s/ James L. Bierman | | Director | | July 6, 2020 |
James L. Bierman | | | | |
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/s/ J. Terry Dewberry | | Director | | March 1, 2017July 6, 2020 |
J. Terry Dewberry | | | | |
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/s/: Charles R. Evans | | Director | | March 1, 2017July 6, 2020 |
Charles R. Evans
| | | | |
| | | | |
| | Director | | |
William A. Hawkins III | | | | |
| | | | |
/s/: Bruce Hack | | Director | | March 1, 2017 |
Bruce Hack | | | | |
| | | | |
/s/: Charles E. Koob | | Director | | March 1, 2017July 6, 2020 |
Charles E. Koob | | | | |
| | | | |
/s/: Larry W. Papasan K. Todd Newton | | Director | | March 1, 2017July 6, 2020 |
Larry W. PapasanK. Todd Newton | | | | |
| | | | |
| | Director | | |
Martin P. Sutter | | | | |
| | | | |
/s/: William C. Taylor | | Director | | March 1, 2017 |
William C. Taylor | | | | |
| | | | |
/s/: Neil S. Yeston | | Director | | March 1, 2017July 6, 2020 |
Neil S. Yeston | | | | |