UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FORM 10-K
For the fiscal year ended December 31, 2023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to __________________
Commission file number: 001-34951
XTANT MEDICAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
664 Cruiser Lane
Belgrade, Montana
(Address of principal executive offices)
20-5313323
(I.R.S. Employer
Identification No.)
59714
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
(406) 388-0480
(Registrant’s telephone number, including area code)
Title of each class
Common stock, par value $.000001 per share
Trading Symbol(s)
XTNT
Name of each exchange on which registered
NYSE American LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or
an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer ☐
Emerging growth company ☐
Accelerated filer ☐
Non-accelerated filer ☒
Smaller reporting company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared
or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in
the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the common stock held by non-affiliates as of June 30, 2023 was approximately $25.8 million (based on the closing
price of the Company’s common stock on the last business day of the Company’s most recently completed second fiscal quarter, as reported on the NYSE
American).
The number of shares of the Company’s common stock, $0.000001 par value, outstanding as of March 25, 2024 was 130,216,541.
None.
DOCUMENTS INCORPORATED BY REFERENCE
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 1C.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
PART III
Business
Risk Factors
Unresolved Staff Comments
Cybersecurity
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Reserved
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART IV
Item 15.
Item 16.
Exhibit and Financial Statement Schedules
Form 10-K Summary
SIGNATURES
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This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and are subject to the safe harbor created by those
sections. For more information, see “Cautionary Statement Regarding Forward-Looking Statements.”
As used in this report, the terms “we,” “us,” “our,” “Xtant,” “Xtant Medical,” and the “Company” mean Xtant Medical Holdings, Inc. and our
consolidated wholly-owned subsidiaries, unless the context indicates another meaning.
We own various unregistered trademarks and service marks, including our corporate logo. Solely for convenience, the trademarks and trade names
in this report are referred to without the ® and ™ symbols, but such references should not be construed as any indicator that the owner of such trademarks
and trade names will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend the use or display of other companies’
trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies. We include our website address
throughout this report for reference only.
The information contained on or connected to our website is not incorporated by reference into this report.
We are a “smaller reporting company” as that term is defined in Rule 12b-2 promulgated under the Exchange Act. Accordingly, this report reflects
the scaled reporting requirements of smaller reporting companies as set forth in Regulation S-K, promulgated under the Exchange Act.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The statements contained in this Annual Report on Form 10-K that are not purely historical are forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Our forward-looking statements include, but are not limited to, statements regarding our
“expectations,” “hopes,” “beliefs,” “intentions,” or “strategies” regarding the future. In addition, any statements that refer to projections, forecasts, or other
characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,”
“believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should” and “would,”
as well as similar expressions, may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward
looking.
A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances and those future events or circumstances
may not occur. You should not place undue reliance on forward-looking statements, which speak only as of the date of this Form 10-K. The forward-
looking statements contained in this Form 10-K are based on currently available operating, financial and competitive information and our current
expectations and beliefs concerning future developments and their potential effects on us. These forward-looking statements involve a number of risks,
uncertainties, or assumptions, many of which are beyond our control, which may cause actual results or performance to be materially different from those
expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described in the “Part
I. Item 1.A. Risk Factors” section of this Form 10-K. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove
incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We are including this cautionary statement
to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for forward-looking
statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or
otherwise, except as may be required under applicable securities laws.
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Item 1. Business
Overview
PART I
Xtant Medical Holdings, Inc. is a global medical technology company focused on the design, development, and commercialization of a
comprehensive portfolio of orthobiologics and spinal implant fixation systems to facilitate spinal fusion in complex spine, deformity, and degenerative
procedures. Our products are used by orthopedic spine surgeons and neurosurgeons to treat a variety of spinal disorders in the cervical, thoracolumbar, and
interbody spine.
We promote and sell our products in the United States through independent distributors and stocking agents, supported by direct employees. We
have an extensive distribution channel of commissioned independent agents and stocking agents in the United States representing some or all of our
products. We also maintain a national accounts program to enable our agents to gain access to independent health delivery network hospitals and through
group purchasing organizations (“GPOs”). We have biologics contracts with major GPOs, as well as extensive access to integrated delivery networks
(“IDNs”) across the United States for both our biologics and spine hardware products. We promote and sell our products internationally through direct sales
representatives and distribution partners in Canada, Mexico, Europe, South America, Australia, and certain Pacific region countries.
We have focused and intend to continue to focus primarily on four key growth initiatives: (1) introduce new products; (2) expand our distribution
network; (3) penetrate adjacent markets; and (4) leverage our growth platform with technology and strategic acquisitions. While the intent of these four key
growth initiatives is to increase our future revenues, no assurance can be provided that we will be successful in implementing these growth initiatives or
increasing our future revenues.
Recent Acquisitions
Coflex and CoFix Product Lines
On February 28, 2023, we acquired all of the issued and outstanding capital stock of Surgalign SPV, Inc. (“Surgalign SPV”), a then indirect wholly
owned subsidiary of Surgalign Holdings, Inc. (“Surgalign Holdings”), which held certain intellectual property, contractual rights and other assets related to
the design, manufacture, sale and distribution of the Coflex and CoFix products in the United States, for an aggregate purchase price of $17.0 million in
cash. The Coflex and CoFix products have been approved by the U.S. Food and Drug Administration (the “FDA”) for the treatment of moderate to severe
lumbar spinal stenosis in conjunction with decompression and provide minimally invasive, motion preserving stabilization.
Surgalign Holdings’ Hardware and Biologics Business
On August 10, 2023, we completed the acquisition of certain assets of Surgalign Holdings and its subsidiaries on an as-is, where-is basis,
including specified inventory, intellectual property and intellectual property rights, contracts, equipment and other personal property, records, all
outstanding equity securities of Surgalign Holdings’ international subsidiaries, and intangibles related to the business of designing, developing and
manufacturing hardware medical technology and distributing biologics medical technology, as conducted by Surgalign Holdings and its subsidiaries, and
certain specified liabilities of Surgalign Holdings and its subsidiaries pursuant to an Asset Purchase Agreement, dated June 18, 2023, between Surgalign
Holdings and us (as amended, the “Surgalign Asset Purchase Agreement”). Pursuant to the Surgalign Asset Purchase Agreement, we were able to acquire
Surgalign Holdings’ broad portfolio of spinal hardware implants, including solutions for fusion procedures in the lumbar, thoracic, and cervical spine, and
motion preservation solutions for the lumbar spine. Additionally, we were able to acquire Surgalign Holdings’ biomaterials portfolio of advanced and
traditional orthobiologics. These offerings complement our portfolio of orthobiologics and spinal implant fixation systems. This transaction was conducted
through a process supervised by the United States Bankruptcy Court in connection with Surgalign Holdings’ bankruptcy proceedings. We funded the
purchase price of $5 million with cash on hand.
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RTI Surgical, Inc.’s nanOss Production Operations
On October 23, 2023, we acquired the nanOss production operations owned by RTI Surgical, Inc. (“RTI”) pursuant to an Asset Purchase
Agreement dated October 23, 2023 between us and RTI (the “RTI Asset Purchase Agreement”). Under the terms of the RTI Asset Purchase Agreement, we
acquired certain assets, including equipment and inventory, used in RTI’s synthetic bone graft business and assumed from RTI the lease for the nanOss
production facility located in Greenville, North Carolina. The purchase price for the assets was $2 million in cash plus a low single digit royalty on sales
prior to October 23, 2028 of next generation nanOss products. We previously acquired the nanOss distribution rights and nanOss intellectual property with
the acquisition of assets related to the biologics and spinal fixation business of Surgalign Holdings, as described above.
Industry and Market Overview
The orthopedic biomaterials market consists of materials that are organic, inorganic or synthetic in nature. These materials are implanted or
applied in or near the indicated bone to aid in healing, encourage bone tissue augmentation, compensate in areas where bone tissue is depleted, and restore
structure to allow for repair. These materials are often used as substitutes to autograft materials, which are taken from a harvest site in the patient to patch
or repair the wounded or unhealthy site.
Fixation is often instrumental in allowing the body to heal and regenerate tissue. Fixation provides the constructive support necessary for
reestablishing stability, by immobilizing the regenerative site, and relieving stress. Fixation also can help hold the biomaterial in place in order to achieve a
better outcome. Examples of fixation products can include, but are not limited to, plates, screws, pins, rods, spacers, and staples. Fixation products may be
made from various metals and polymer materials.
Conversely, motion preservation devices are designed predominantly to stabilize the spine and allow for motion of the segments. Spine implants
can be surgically applied via traditional open surgery or via minimally invasive surgery. We provide devices in both the fixation and motion preservation
categories of the spine implant market and via both surgical methodologies.
Our Orthobiologics Products
Our biomaterial products include OsteoSponge, OsteoSponge SC, OsteoSelect DBM putty, OsteoSelect Plus DBM putty, OsteoWrap, and our line
of 3Demin products, as described below, as well as other allografts:
● OsteoSponge is a form of demineralized bone matrix (“DBM”) made from 100% human bone. Derived from trabecular (cancellous) bone,
OsteoSponge is designed to provide a natural scaffold for cellular in-growth and expose bone-forming proteins to the healing environment.
The malleable properties of OsteoSponge are intended to enable it to conform to, and fill, most defects. OsteoSponge’s mechanical and
osteoconductive properties in tandem with its osteoconductive potential are designed to make OsteoSponge an ideal bone graft for use in
various orthopedic practices including spine, neurology, cranial/maxillofacial, trauma, plastic/reconstruction and general procedures where
new bone growth is needed.
● OsteoSelect DBM Putty is designed to be easily molded into any shape and compressed into bony voids. We have validated a low-dose, low-
temperature gamma sterilization process designed to provide maximum osteoinductive potential while still affording device level sterility.
● OsteoSelect PLUS DBM Putty combines the cohesive characteristics of OsteoSelect DBM Putty with demineralized cortical chunks.
OsteoSelect PLUS is designed to deliver differentiated handling properties and ensure patient safety through validated, terminal sterilization.
● 3Demin is a family of allografts that maximizes osteoconductivity and the osteoinductive potential of human bone. They consist of 100%
demineralized cortical bone with malleable handling characteristics, and are distributed as a sterile allograft. Our 3Demin products are easily
hydrated with any biocompatible liquid, making them an option for various bone grafting applications. They are most commonly used in
spinal fusion procedures.
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● OsteoFactor is a processed allograft that contains retained growth factors found within the endosteum layer of allograft bone. Unlike many of
the various growth factor-based products on the market today, OsteoFactor is not limited to a single growth factor but contains a wide array of
naturally occurring proteins and peptides that support bone formation and remodeling.
● OsteoVive Plus is a growth factor enriched cellular bone matrix created through a proprietary processing method. The combination of viable
cells, growth factors and DBM fibers results in an allograft containing higher concentrations of growth factors than other cellular allografts.
● The nanOss family of products provides osteoconductive nano-structured hydroxyapatite and an engineered extracellular matrix bioscaffold
collagen carrier to provide a natural bone growth solution.
We also process and distribute (i) sports allografts which are processed specifically for anterior and posterior cruciate ligament repairs, anterior
cruciate ligament reconstruction and meniscal repair, (ii) milled spinal allografts which are comprised of cortical bone milled to desired shapes and
dimensions, and (iii) traditional allografts for multi-disciplinary applications including orthopedics, neurology, podiatry, oral/maxillofacial, genitourinary
and plastic/reconstructive.
Our Spinal Implant Products
We offer a comprehensive line of products that are used to treat a variety of spinal and sacroiliac conditions, including trauma, degeneration,
deformity and tumor, including use of minimally invasive surgery techniques. Some of our key spinal implant product lines include:
Cervical Products
● The Certex Spinal Fixation System consists of screws, hooks, rods, and cross connectors. It is intended to promote fusion of the subaxial
cervical spine and cervico-thoracic junction (C3 − T3 inclusive).
● The Spider Cervical Plating System consists of simple, single step locking with 3 forms of locking feedback providing confidence in Spider
System construct and performance.
● The Streamline OCT System allows a rigid construct to be created in the occipito-cervico-thoracic spine by offering a broad range of
implants. These implants provide the ability to tailor treatment to a specific patient.
● The CervAlign System is a comprehensive anterior cervical plate system designed to meet the varying clinical needs of surgeons performing
anterior cervical discectomy and fusion procedures. The system is able to accommodate semi-constrained, constrained and hybrid constructs.
Thoracolumbar Products
● The Axle Interspinous Fusion System is a fully modular interspinous device matched to the patient’s individual anatomy and available in
multiple implantable configurations.
● The Xpress Minimally Invasive Pedicle Screw System combines minimally invasive functionality to the most common lumbar fixation
procedures — pedicle screw fixation.
● The Fortex Pedicle Screw System consists of titanium alloy bone screws, rods, cross-connectors and associated instruments. The system is
indicated for attachment to the pedicles of the thoracic, lumbar, and sacral spine.
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● The Axle-X Interspinous Fusion System is an internal fixation device for spinal surgery in the non-cervical spine (T1 − S1 inclusive). It is a
minimally invasive, modular interspinous fusion system with angled spikes that allows for adequate L5 − S1 engagement and other variations
in patient anatomy. The Axle-X Interspinous Fusion System is designed to provide spinal stability for lumbar fusion procedures, including the
treatment of degenerative disc disease, spinal tumors and trauma.
● The Streamline MIS Spinal Fixation System allows a rigid construct to be created in the thoracolumbar spine via a percutaneous or mini-open
approach using cannulated pedicle screws, set screws and rods. The system offers a broad range of implants and instruments, providing the
ability to tailor treatment to a specific patient.
● The Streamline TL Spinal Fixation System allows a rigid construct to be created in the thoracolumbar spine using pedicle screws, set screws,
rods and Streamline TL Crosslinks. The system offers a broad range of implants and instruments, providing the ability to tailor treatment to a
specific patient.
Sacroiliac Joint Products
● The Silex Sacroiliac Joint Fusion System is a sacroiliac fixation system which actively compresses across the SI joint. Sacroiliac dysfunction
is increasingly recognized as a frequent contributor to chronic low back pain.
Interbody Products
● Calix is a family of polyetheretherketone, or PEEK, interbody spacers and precision instruments for both cervical and thoracolumbar
applications. Calix PC is a frictional titanium plasma-coated PEEK implant that provides additional biomechanical performance and end-plate
visualization.
● The Irix-C Cervical Integrated Fusion System consists of an integrated titanium ring, surrounded by an outer PEEK ring and two screws. It is
intended for spinal fusion procedures at one level (C3 − T1 inclusive) in skeletally mature patients for the treatment of degenerative disc
disease.
● The Irix-A Lumbar Integrated Fusion System consists of an integrated titanium ring, surrounded by an outer PEEK ring and three screws. It is
intended for spinal fusion procedures at one or two contiguous levels of the lumbosacral spine (L2 − S1 inclusive) in skeletally mature
patients for the treatment of degenerative disc disease.
● Fortilink is a family of implants used in a variety of fixation procedures. Fortilink implants with TiPlus Technology are manufactured with
selective laser melting and are built from implant grade titanium alloy. Open mesh structure and graft windows are designed to allow bone
ingrowth and facilitate fusion.
● Fortilink implants with TETRAfuse 3D Technology maintain bone-like mechanical properties. The unique features of the 3D printed nano-
rough surface have been shown to allow bone cells to attach to the implant, increasing the potential for fusion.
Interlaminar Stabilization Products
● The Coflex device is a single-piece, U-shaped, titanium implant intended for the treatment of moderate to severe lumbar spinal stenosis in
conjunction with decompression. It provides minimally invasive, motion preserving stabilization. We believe that Coflex device is the only
FDA premarket approval application (“PMA”) approved implant for the treatment of moderate to severe lumbar spinal stenosis in conjunction
with direct decompression. The Coflex device is the first and only posterior lumbar motion preservation solution with Level I evidence, the
highest possible level of clinical data, from two prospective, randomized studies against two treatment options—decompression alone and
decompression with fusion—across two countries, the United States and Germany. The Coflex device has demonstrated long-term clinical
outcomes for durable pain relief and stability.
● The CoFix implant allows minimally invasive, segmental stabilization after microsurgical decompression and serves to support posterior
fusion as an alternative to fixation with pedicle screws. It is intended for use on all levels of the lumbar spine for back pain and intervertebral
disc-related pain due to degenerative processes of the lumbar spine with the occurrence of instability.
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Future Products
In the near term, we plan to introduce a synthetic putty for bone graft applications; the BMAC System, a cell concentration system; and Cortera, a
rod pedical screw system that has both open and minimally invasive modules. We are also in the process of developing other new products, including
OsteoSelect Fiber Putty, a fiber-based putty; the OsteoSelect MIS gun, a bone graft delivery system; 3Demin Fiber Plus, an enhanced loose fiber
formulation; and various growth factor strips and shapes.
Sales and Marketing
We distribute our products in the United States through an extensive distribution network of commissioned independent sales agents and stocking
agents. As a result of our recent acquisitions, we have expanded our network in 2023. As of December 31, 2023, we had over 650 independent sales agents
and stocking agents. We also maintain a national accounts program to enable our agents to gain access to IDN hospitals and through GPOs. We have
biologics contracts with major GPOs, including Vizient, Premier, and HealthTrust Purchasing Group, as well as extensive access to IDNs across the United
States for both biologics and spine hardware systems.
Our international footprint includes direct sales representatives and distribution partners in Canada, Mexico, South America, Australia, and certain
Pacific region countries. Additionally, as a result of our recent acquisitions, we gained distribution partners in the European Union in 2023. Our European
Union business is based in Wurmlingen, Germany. With our presence in the region, we can rely on the large local network of spine manufacturers and the
wider “Medical Valley Community” of spine and medical device experts and talent. Our international warehousing and logistics have been outsourced to a
qualified third-party logistics provider based in the Netherlands that has scalable biomaterials and hardware capabilities and operations.
Donor Procurement
Xtant’s mission with respect to donor procurement is: “Honoring the gift of donation, by helping our patients live as full, and complete a life as
possible.”
In furtherance of our mission, we have agreements with multiple recovery agencies, and we continue to explore options to expand our network for
access to donor tissue in anticipation of increased demand for our biologics products. We expect to be able to continue to build our network for donor tissue
as our processing capabilities and sales increase.
Competition
There are various public and private organizations that offer both fixation and orthobiologics to their customers. Our primary competitors include
Medtronic plc, Johnson and Johnson, Zimmer Biomet Holdings, Inc., Stryker Corporation, Nuvasive, Inc., Bioventus Inc., Globus Medical, Inc., SeaSpine
Holdings Corporation, OrthoFix Medical Inc., Alphatec Holdings, Inc., ZimVie Inc., SI-Bone Inc., as well as dozens of privately-owned companies. We
also compete with tissue banks that do not offer spinal fixation products, such as AlloSource International, Inc., LifeNet Health, and MTF Biologics.
Intellectual Property
We rely upon patents, trademarks, trade secrets and other proprietary rights to maintain and improve our competitive position. We review third-
party proprietary rights, including patents and patent applications, as available, to develop an effective intellectual property strategy, avoid infringement of
third-party proprietary rights, identify licensing opportunities and monitor the intellectual property owned by others.
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We protect our proprietary rights through a variety of methods. As a condition of employment, we generally require employees to execute an
agreement relating to the confidential nature of and company ownership of proprietary information and assigning intellectual property rights to us. We
generally require confidentiality agreements with vendors, consultants, and others who may have access to proprietary information. We generally limit
access to our facilities and review the release of company information in advance of public disclosure. There can be no assurances, however, that
confidentiality agreements with employees, vendors, and consultants will not be breached, adequate remedies for any breach would be available, or
competitors will not discover or independently develop our trade secrets. Litigation also may be necessary to protect trade secrets or techniques we own.
Patents
Although we believe that, in the aggregate, our patents are valuable, and patent protection is beneficial to our business and competitive
positioning, our patent protection will not necessarily deter or prevent competitors from attempting to develop similar products. There can be no assurances
that our patents will provide competitive advantages for our products or that competitors will not challenge or circumvent these rights. In addition, there
can be no assurances that the United States Patent and Trademark Office (“USPTO”) or foreign patent offices will issue any of our pending patent
applications. The USPTO and foreign patent offices may deny or require a significant narrowing of the claims in our pending patent applications and the
patents issuing from such applications. Any patents issuing from the pending patent applications may not provide us with significant commercial
protection. We could incur substantial costs in proceedings before the USPTO or foreign patent offices, including opposition and other post-grant
proceedings. These proceedings could result in adverse decisions as to the patentability, priority of our inventions, and the narrowing or invalidation of
claims in issued patents. Additionally, the laws of some of the countries in which our products are or may be sold may not protect our intellectual property
to the same extent as the laws in the United States or at all.
Our policy is to file patent applications in the United States and other countries when we believe it is commercially advantageous to do so. We do
not consider our business to be materially dependent upon any individual patent. As of December 31, 2023, our biologics patent portfolio included 50
issued patents, 26 of which are issued U.S. patents, and 3 pending U.S. patent applications. Our fixation portfolio is patent protected globally and includes
260 issued patents, 180 of which are issued U.S. patents, and 16 pending patent applications, 7 of which are U.S. patent applications. We expect that
additional patent applications will be filed and prosecuted as inventions are discovered, technological improvements and processes are developed, and
specific applications are identified. There can be no assurance that we will be able to obtain final approval of any patents.
Trademarks
We have registered, and continue to seek registration, of trademarks and continuously monitor and aggressively pursue users of names and marks
that potentially infringe upon our registered trademarks. We currently own the following registered trademarks: OsteoSponge®, OsteoVive®, OsteoWrap®,
OsteoLock®, BacFast®, OsteoSelect®, Elutia®, OsteoSTX®, hMatrix®, 3Demin®, BACTERINSE®, Circle of Life®, Coflex®, CoFixTM, ASPECT®,
BACJAC®, BACFUSE®, BIGFOOT®, CLARITY®, CONTACT®, CROSS-FUSE®, LAT-FUSE®, LOCKED AND LOADED®, NANOSS®,
NUNEC®, PAC PLATE®, QUANTUM®, RELEASE®, SLIMFUSE®, STREAMLINE®, X-LINK®, ELEMAX®, UNISON®, FORTILINK®,
TETRAFUSE®, CERVALIGN®, NANOSS 3D®, DCI®, DSS®, HPS®, OPTISTRAIN®, PARADIGM SPINE®, the Paradigm Spine design logo, THE
MOVEMENT IN SPINE CARE®, DUALITY®, TIPLUS®, FIBREX®, MAXFUSE®, BIOMAX®, and CORTERA®. Under the X-spine name, we own
trademarks: SILEX®, X-SPINE®, IRIX®, CAPLESS®, CERTEX®, CALIX®, H-GRAFT®, SPIDER, X90®,
the following registered
HYDRAGRAFT®, BUTREX®, FORTEX®, AXLE®, FIXCET®, XTANT®, Capless® and X-spine’s square design logo.
Trade Secrets and Other Proprietary Rights
To safeguard our proprietary knowledge and technology, we rely upon trade secret protection and non-disclosure/confidentiality agreements with
employees, consultants and third-party collaboration partners with access to our confidential information. Although we believe our proprietary technology
has value, because of rapid technological changes in the medical industry, we also believe that proprietary protection is of less significance than factors
such as the intrinsic knowledge and experience of our management, advisory board, consultants and personnel and their ability to identify unmet market
needs and to create, invent, develop and market innovative and differentiated products.
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Government Regulation
We are registered with the FDA as a manufacturer of human cellular and tissue products (“HCT/Ps”) as well as medical devices, and we are an
accredited member in good standing of the American Association of Tissue Banks (“AATB”). We meet all licensing requirements for the distribution of
HCT/Ps in states with licensing requirements, including Florida, California, Delaware, Illinois, Louisiana, Maryland, Oregon, and New York. Our industry
is highly regulated, and we cannot predict the impact of future regulations on either us or our customers.
Our fixation products and instrumentation systems are regulated as medical devices and therefore are subject to extensive regulation by the FDA,
as well as by other domestic and international regulatory bodies. These regulations govern multiple activities that Xtant and our suppliers, licensors and
partners perform and will continue to perform. These regulated activities include product design and development, testing, manufacturing, labeling, storage,
safety, premarket clearance, advertising and promotion, product marketing, sales and distribution, post-market surveillance and post-market adverse event
reporting. All products currently marketed by Xtant are regulated as HCT/Ps and/or have received 510(k) clearances.
Human Tissue
Human tissue product regulations are designed to ensure that sound, high quality practices are followed to prevent the introduction, transmission
or spread of communicable disease. Among other things, the regulations require that companies that recover, process, store, label, package or distribute
HCT/Ps register with the FDA. In addition, regulations provide criteria that must be met for donors to be eligible to donate tissues and is referred to as the
“Donor Eligibility” rule. Regulations also govern the processing and distribution of the tissues and are often referred to as the “Current Good Tissue
Practices” (“cGTP”) regulations.
An HCT/P is regulated solely under section 361 of the Public Health Service Act (“PHSA”) and 21 CFR Part 1271 if it meets the following four
criteria:
1) The HCT/P is minimally manipulated;
2) The HCT/P is intended for homologous use only;
3) The manufacture of the HCT/P does not involve the combination of the cells or tissues with another article (with limited exceptions); and
4) The HCT/P does not have a systemic effect and is not dependent upon the metabolic activity of living cells for its primary function; or the
HCT/P has a systemic effect or is dependent upon the metabolic activity of living cells for its primary function and: is for autologous use; is for
allogeneic use in a first-degree or second-degree blood relative; or is for reproductive use.
Several of our products, including OsteoSponge and OsteoWrap, are regulated as HCT/Ps and are therefore subject to the following regulatory
requirements under section 361 of the PHSA and 21 CFR Part 1271:
● Registration and Listing: Establishments that engage in the manufacture of HCT/Ps are required to register annually with the FDA and list
their HCT/Ps. New establishments are required to register and list their HCT/Ps within 5 days after beginning operations.
● Donor Eligibility: HCT/P establishments must screen donors for risk factors for, and clinical evidence of, relevant communicable disease
agents and diseases and communicable disease risks associated with xenotransplantation, as well as test donors for relevant communicable
disease agents.
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● Good Tissue Practices: HCT/P establishments must comport with the regulatory requirements for preventing the introduction, transmission, or
spread of communicable disease. These regulations cover facilities, environmental control, equipment, supplies and reagents, recovery,
processing and process controls, labeling controls, storage, receipt, predistribution shipment, and distribution of HCT/Ps.
● Adverse Reaction Reporting: Establishments are required to investigate any adverse reaction involving a communicable disease related to an
HCT/P that the manufacturer made available for distribution. The regulatory criteria call for reporting such adverse reactions involving a
communicable disease if it is fatal, life-threatening, results in permanent impairment of a body function or permanent damage to a body
structure, or necessitates medical or surgical intervention, including hospitalization.
● Inspections: The FDA has broad post-market and regulatory enforcement powers. HCT/P manufacturers are subject to unannounced
inspections by the FDA and other state, local and foreign regulatory authorities to assess compliance with the cGTP regulations.
● Violative Product: Upon an FDA finding that there are reasonable grounds to believe that an HCT/P is a violative HCT/P because it was
manufactured in violation of applicable regulations; the HCT/P is infected or contaminated so as to be a source of dangerous infection to
humans; or an establishment is in violation of applicable regulations, the FDA may issue an order that the HCT/Ps be recalled, destroyed or
retained, take possession of and/or destroy the violative HCT/Ps, or serve upon the establishment an order to cease manufacturing.
Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include sanctions such as
warning or untitled letters, injunctions, or other action.
There are many HCT/P products that must undergo regulatory review and licensure by the FDA. The approval process for a Biologics License
Application (“BLA”) includes a rigorous review of the safety and efficacy of the biological product. Successful applications typically require testing and
validation through a series of clinical and non-clinical studies taking place over multiple years of product development. We refer to all of our HCT/P
products as biologics.
Medical Devices
The Center for Devices and Radiological Health regulates the clearance and approval of conventional medical devices, such as our spinal
hardware, as well as some of the HCT/Ps that are also regulated as medical devices, such as our OsteoSelect DBM putty. In the United States, medical
devices are subject to extensive regulation by the FDA under the Federal Food, Drug, and Cosmetic Act (“FDCA”) and its implementing regulations, and
certain other federal and state statutes and regulations. The laws and regulations govern, among other things, the design, manufacture, storage,
recordkeeping, approval, labeling, promotion, post-approval monitoring and reporting, distribution and import and export of medical devices. Failure to
comply with applicable requirements may subject a device and/or its manufacturer to a variety of administrative sanctions, such as FDA refusal to approve
pending PMAs, issuance of warning letters, mandatory product recalls, import detentions, civil monetary penalties, and/or judicial sanctions, such as
product seizures, injunctions, and criminal prosecution.
Under the FDCA, medical devices are classified into one of three classes based on the risk associated with the device and the level of control
necessary to provide a reasonable assurance of safety and effectiveness. Class I devices are deemed to be low risk and are subject to the fewest regulatory
controls. Class III devices are generally the highest risk devices and are subject to the highest level of regulatory control to provide reasonable assurance of
safety and effectiveness. Class III devices must typically be approved by the FDA before they are marketed.
Most Class I devices and a minority of Class II devices are completely exempt from premarket review by the FDA. Most Class II devices and a
minority of Class I devices require 510(k) clearance. Devices that pose the highest risk, including life sustaining, life-supporting or implantable devices, or
devices deemed not substantially equivalent to a previously 510(k)-cleared device or a “pre-amendment” Class III device in commercial distribution before
May 28, 1976 for which PMA applications are not required, are placed in Class III requiring PMA approval. A novel device is placed in Class III by
default, but it may be eligible to be placed in Class I or Class II via “de novo” classification if it can be shown to pose only low to moderate risk with
appropriate regulatory controls.
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The PMA approval pathway requires proof of the safety and effectiveness of the device to the FDA’s satisfaction. The 510(k) clearance pathway is
much less burdensome and time-consuming than the PMA approval pathway. The de novo pathway has an enhanced burden compared to the 510(k)
clearance pathway, but is much less burdensome than a PMA approval process.
Under the 510(k) clearance pathway, the applicant must submit to the FDA a premarket notification demonstrating that the medical device is
substantially equivalent to a legally marketed predicate device. A predicate device may be a previously 510(k) cleared device, Class II de novo device, or a
pre-amendment device (unless the FDA has issued a regulation calling for PMA applications for this device type). To be substantially equivalent, the
proposed device must have the same intended use as the predicate device, and either have the same technological characteristics as the predicate device or
have different technological characteristics and be shown to be equally safe and effective and not raise different questions of safety and effectiveness than
the predicate device.
After the FDA accepts the 510(k) premarket notification, it begins a substantive review. By statute, the FDA is required to complete its review
within 90 days of receiving the 510(k) notification. As a practical matter, clearance often takes longer, typically ranging from three to nine months or more,
and clearance is never assured. The FDA’s 510(k) review generally compares a proposed device to a predicate device with respect to intended use and
technology. The information necessary to show substantial equivalence will depend on the differences between the proposed device and the predicate
device, which may include bench, animal, and/or clinical studies. The discussion of what data is needed is sometimes conducted in a voluntary process
called the pre-submission process whereby companies meet with the FDA to discuss the data needed for clearance.
If the FDA finds the applicant’s device is substantially equivalent to the predicate device, it will send a letter to the applicant stating that fact. This
allows the applicant’s device to be commercially distributed in the United States. Otherwise, the applicant must fulfill the much more rigorous
premarketing requirements of the PMA approval process or seek reclassification of the device through the de novo process.
After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a
major change in its intended use, requires a new 510(k) clearance or could require reclassification through the de novo process or a PMA approval. The
FDA requires each manufacturer to make this determination in the first instance, but the FDA can review any such decision. If the FDA disagrees with a
manufacturer’s decision not to seek a new 510(k) clearance, the agency may require the manufacturer to seek 510(k) clearance, de novo classification, or
PMA approval. The FDA can also require a manufacturer to cease marketing and/or recall the modified device until 510(k) clearance, de novo
classification, or PMA approval is obtained.
Another procedure for obtaining marketing authorization for a medical device is the “de novo classification” procedure. Devices of a new type that
the FDA has not previously classified based on risk are automatically classified into Class III, regardless of the level of risk they pose. Additionally, in
response to a 510(k) premarket notification, if the FDA determines that the device is “not substantially equivalent” to a previously cleared device, the
device is automatically designated as a Class III device. The device sponsor must then fulfill more rigorous PMA requirements or can request a risk-based
classification determination for the device in accordance with the de novo process, which is a route to market for novel medical devices that are low to
moderate risk and are not substantially equivalent to a predicate device.
The advantage of the de novo classification is that it generally requires less data than a PMA. The disadvantage is that it may require more data
than a 510(k) and most often will include human clinical data. A request for de novo classification also has a longer review time. If the de novo application
is denied, the device remains in Class III and PMA approval may be required before the device may be legally marketed in the United States. The FDA is
increasingly moving devices with slightly different proposed indication statements or different technological features off the 510(k) path and onto the de
novo path, resulting in more time and expense for the company.
A device not eligible for 510(k) clearance or de novo classification must follow the PMA approval pathway, which requires proof of the safety and
effectiveness of the device to the FDA’s satisfaction. The cost of preparing and submitting a PMA is substantial and a PMA application must provide
extensive preclinical and clinical trial data and also detailed information about the device and its components regarding, among other things, device design,
manufacturing and labeling. Under federal law, the submission of most PMAs is additionally subject to a substantial annually adjusted application user fee.
Satisfaction of FDA PMA requirements typically takes years, and the actual time required may vary substantially based upon the type, complexity, and
novelty of the device or disease. In the future, Xtant may decide to strategically commercialize products in the United States that would require a PMA, but
there are no plans to do so at the present time.
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After a medical device enters commercial distribution, numerous regulatory requirements continue to apply. These include:
● The FDA’s Quality System Regulation (“QSR”) requirements, which require manufacturers, including third-party manufacturers, to follow
stringent design, testing, production, control, supplier/contractor selection, complaint handling, documentation and other quality assurance
procedures during all aspects of the manufacturing process;
● Labeling regulations, unique device identification requirements and FDA prohibitions against the promotion of devices for uncleared,
unapproved or off-label uses;
● Advertising and promotion requirements;
● Restrictions on sale, distribution or use of a device;
● The potential for new 510(k) clearances for certain modifications to previously 510(k) cleared devices;
● Medical device reporting regulations, which require that manufacturers report to the FDA if their device may have caused or contributed to a
death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to
recur;
● Medical device correction and removal reporting regulations, which require that manufacturers report to the FDA their field corrections and
product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA;
● Recall requirements, including a mandatory recall, if there is a reasonable probability that the device would cause serious adverse health
consequences or death;
● An order of repair, replacement or refund;
● Device tracking requirements; and
● Post-market surveillance regulations, which apply when necessary to protect the public health or to provide additional safety and effectiveness
data for the device.
The FDA has broad post-market and regulatory enforcement powers. Medical device manufacturers are subject to unannounced inspections by the
FDA and other state, local and foreign regulatory authorities to assess compliance with the QSR and other applicable regulations, and these inspections
may include the manufacturing facilities of any suppliers. Failure to comply with applicable regulatory requirements can result in enforcement action by the
FDA, which may include sanctions such as: warning letters, fines, injunctions, consent decrees and civil penalties; unanticipated expenditures, repair,
replacement, refunds, recall or seizure of our devices; operating restrictions, partial suspension or total shutdown of manufacturing; the FDA’s refusal of
our requests for 510(k) clearances, de novo classification, or premarket approvals of new devices, new intended uses or modifications to existing devices;
the FDA’s refusal to issue certificates to foreign governments needed to export devices for sale in other countries; and withdrawing 510(k) clearances, de
novo marketing authorization, or premarket approvals that have already been granted; and criminal prosecution.
In February 2024, the FDA issued a final rule replacing the QSR with the Quality Management System Regulation, or QMSR, which incorporates
by reference the quality management system requirements of ISO 13485:2016, as discussed below. The FDA has stated that the standards contained in ISO
13485:2016 are substantially similar to those set forth in the existing QSR. This final rule does not go into effect until February 2026.
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International Regulation
Many foreign countries have regulatory bodies and restrictions similar to the FDA. International sales are subject to foreign government
regulation, the requirements of which vary substantially from country to country. The time required to obtain approval in a foreign country or to obtain a
CE Certificate of Conformity may be longer or shorter than that required for FDA approval and the related requirements may differ. Some third-world
countries accept CE Certificates of Conformity or FDA clearance or approval as part of applications of approval for marketing of medical devices in their
territory. Other countries, including Brazil, Canada, Australia and Japan, require separate regulatory filings.
Healthcare Fraud and Abuse
Healthcare fraud and abuse laws apply to Xtant’s business when a customer submits a claim for an item or service that is reimbursed under
Medicare, Medicaid or most other federally-funded healthcare programs. The Federal Anti-Kickback Statute prohibits, among other things, persons from
knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in cash or in kind, to induce or reward either the
referral of an individual for, or the purchase, order or recommendation of, items or services for which payment may be made, in whole or in part, under
federal health care programs, such as by Medicare or Medicaid. The concerns that the Anti-Kickback Statute addresses are multiple, but primary among
them are, first, that the federal government pays/reimburses health care providers for the true acquisition cost of goods and services provided to patients
served by government programs. The government does not want, for example, health care providers obtaining manufacturer discounts which are not
disclosed to the government on cost report forms submitted for reimbursement to the government. The government wants to be the beneficiary of such
discounts. Second, for that reason, the government wants transparency in the billing process which discloses such discounts to the government. Third, the
government does not want purchasing, prescription or referral decisions for medical devices biased by economics unrelated to the best choices for a patient.
The Federal Anti-Kickback Statute is subject to evolving interpretations and has been applied by government enforcement officials to a number of
common business arrangements in the medical device industry. Remunerative relationships with physicians in which manufacturers give health care
providers gifts or pay for entertainment, sporting events, trips or other perquisites, may be viewed as an attempt to buy loyalty to the manufacturer’s
products. A number of states also have anti-kickback laws that establish similar prohibitions that may apply to items or services reimbursed by government
programs as well as any third-party payors, including commercial insurers. Further, federal legislation, the Patient Protection and Affordable Care Act, as
amended by the Health Care and Education Reconciliation Act (collectively “PPACA”), among other things, clarified the intent requirements of the Federal
Anti-Kickback Statute and the federal criminal statutes governing healthcare fraud. Specifically, a person or entity can be found to have violated the
statutes without actual knowledge of these statutes or specific intent to violate them. In addition, the PPACA amended the Social Security Act to provide
that the government may assert that a claim including items or services resulting from a violation of the Federal Anti-Kickback Statute constitutes a false or
fraudulent claim for purposes of the Federal False Claims Act or federal civil money penalties statute. Amendments to the Federal False Claims Act
provide that a violation of the Federal Anti-Kickback Statute is also a violation of the Federal False Claims Act, subjecting healthcare entities to treble
damages and mandatory penalties for each false claim or statement.
Additionally, the civil Federal False Claims Act prohibits, among other things, knowingly presenting or causing the presentation of a false,
fictitious or fraudulent claim for payment of federal funds, or knowingly making, or causing to be made, a false record or statement material to a false or
fraudulent claim to avoid, decrease or conceal an obligation to pay money to the federal government. The purpose of the Federal False Claims Act is to
prevent manufacturers from causing or inducing inappropriate prescriptions leading to an inappropriate government reimbursement. It often comes into
play where a manufacturer suggests or assists a health care provider to bill for an off-label, uncovered use. It also can occur when the reimbursement advice
given by a manufacturer results in inappropriate reimbursement claims from “upcoding,” miscoding, “stretched” coding, the use of inappropriate modifiers
or inappropriate care settings. These behaviors can result in the government paying for products or procedures that should not be reimbursed by the federal
government. The manufacturer must be truthful and not misleading in the reimbursement advice it gives to customers.
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Actions under the Federal False Claims Act may be brought by the Attorney General or as a qui tam action by a private individual in the name of
the government. Violations of the Federal False Claims Act can result in very significant monetary penalties and treble damages. The federal government is
using the Federal False Claims Act, and the accompanying threat of significant liability, in its investigations of healthcare companies throughout the
country for a wide variety of Medicare billing practices, as well as federal Anti-Kickback Statute violations and certain marketing practices, including off-
label promotion, and has obtained multi-million and multi-billion dollar settlements under the Federal False Claims Act in addition to individual criminal
convictions under applicable criminal statutes. Given the significant size of actual and potential settlements, it is expected that the government will
continue to devote substantial resources to investigating healthcare providers’ and suppliers’ compliance with the healthcare reimbursement rules and fraud
and abuse laws.
The Federal Physician Payments Sunshine Act imposes annual reporting requirements on device manufacturers for payments and other transfers
of value provided by them, directly or indirectly, to physicians (including physician family members) and teaching hospitals, as well as ownership and
investment interests held by physicians. Device manufactures are also required to collect information on payments or transfers of value to physician
assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists, and certified nurse midwives for reporting to the Centers for
Medicare & Medicaid Services (“CMS”). A manufacturer’s failure to submit timely, accurately and completely the required information for all payments,
transfers of value or ownership or investment interests may result in civil monetary penalties. Certain states also mandate implementation of commercial
compliance programs, impose restrictions on device manufacturer marketing practices and require tracking and reporting of gifts, compensation and other
remuneration to healthcare professionals and entities.
Our operations are also subject to the U.S. Foreign Corrupt Practices Act (“FCPA”). We are required to comply with the FCPA, which generally
prohibits covered entities and their intermediaries from engaging in bribery or making other prohibited payments to foreign officials for the purpose of
obtaining or retaining business or other benefits. In addition, the FCPA imposes accounting standards and requirements on publicly traded United States
corporations and their foreign affiliates, which are intended to prevent the diversion of corporate funds to the payment of bribes and other improper
payments, and to prevent the establishment of “off books” slush funds from which such improper payments can be made. We also are subject to similar
anticorruption legislation implemented in certain foreign jurisdictions.
Coverage and Reimbursement
Xtant’s currently approved products are commonly treated as general supplies utilized in spinal and orthopedic surgery and if covered by third-
party payors, are paid for as part of the surgical procedure. Accordingly, healthcare providers in the United States generally rely on third-party payors,
principally private insurers and governmental payors such as Medicare and Medicaid, to cover and reimburse all or part of the cost of a spine surgery in
which Xtant products are used. Sales volumes and fees for Xtant products will continue to depend in large part on the availability of coverage and
reimbursement from such third-party payors. Third-party payors perform analyses on new technologies to determine if they are medically necessary before
providing coverage for them. These third-party payors may still deny reimbursement on covered technologies if they determine that a device used in a
procedure was not used in accordance with the payor’s coverage policy. Particularly in the United States, third-party payors continue to carefully review,
and increasingly challenge, the prices charged for procedures and medical products.
In the United States, a large percentage of insured individuals receive their medical care through managed care programs, which monitor and often
require pre-approval of the services that a member will receive. Some managed care programs pay their providers on a per capita basis, which puts the
providers at financial risk for the services provided to their patients by paying these providers a predetermined payment per member per month and,
consequently, may limit the willingness of these providers to use Xtant products.
The overall escalating cost of medical products and services has led to, and will likely continue to lead to, increased pressures on the healthcare
industry to reduce the costs of products and services. Government or private third-party payors cannot be guaranteed to cover and reimburse the procedures
using Xtant products in whole or in part in the future or that payment rates will be adequate. In addition, it is possible that future legislation, regulation or
coverage and reimbursement policies of third-party payors will adversely affect the demand for Xtant products or the ability to sell them on a profitable
basis.
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Internationally, reimbursement and healthcare payment systems vary substantially from country to country and include single-payor, government-
managed systems as well as systems in which private payors and government managed systems exist side-by-side. Xtant’s ability to achieve market
acceptance or significant sales volume in international markets will be dependent in large part on the availability of reimbursement for procedures
performed using company products under the healthcare payment systems in such markets. A number of countries may require Xtant to gather additional
clinical data before recognizing coverage and reimbursement for its products.
ISO Certification
Xtant is an International Organization for Standardization (“ISO”) certified organization. To obtain ISO 13485:2016 certification, an organization
must demonstrate its ability to provide medical devices that consistently meet applicable customer and regulatory requirements. The primary objective of
ISO 13485:2016 is to facilitate harmonized medical device regulatory requirements for quality management systems. All requirements of ISO 13485:2016
are specific to organizations providing medical devices, regardless of the type or size of the organization. The certification assures our customers and
partners of our commitment to quality, and in the quality of our innovative products and processes. Additionally, we believe that our ISO 13485:2016
certification may offer new markets and business opportunities for our products in the global marketplace.
Human Capital
Mission, Quality Policy and Core Values
Our Mission is to “honor the gift of donation, by allowing our patients to live as full, and complete a life as possible.” Through an effective quality
system, we prioritize our commitment to our patients and donor families. We aim to improve the quality of life for our patients by designing, manufacturing
and distributing medical devices and human tissues for transplant that are safe, effective and meet the needs of our customers. We honor the gift of donation
by enhancing our core competencies and maximizing utilization of the gift.
Our Mission and quality policy reflect our core values of:
● Respect for the individual,
● Responsiveness to our customers, and
● Responsibility to our stakeholders.
Headcount and Employee Demographics
As of December 31, 2023, Xtant had 215 employees, 207 of whom were full time employees, and of whom 70 were in operations, 50 were in sales
and marketing, 13 in research and development and engineering, 26 in regulatory and quality affairs, and 23 were in administrative functions. Of these 215
employees, 33 are located outside the United States, primarily in Germany. In addition, we utilize various outsourced services to manage normal business
cycles.
As of December 31, 2023, of our total workforce, 49% are female and 21% are racially or ethnically diverse. Of our management team, 36% are
female and 15% are racially or ethnically diverse. Of our U.S. workforce, 3% are veterans.
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Turnover
Xtant continually monitors employee turnover rates as its success depends upon retaining highly trained personnel. The average tenure of our
employees is 3.9 years. The average tenure of the members of our management team is 6 years.
Employee Unions, Collective Bargaining Agreements and Work Councils
There are no unions representing our employees, and we believe that our relations with our employees are good.
Code of Conduct
Each employee agrees to follow our Code of Conduct, which is on our corporate website, and covers a wide range of business practices and
procedures. Recognizing that our Code of Conduct may not address every situation our employees may encounter, other resources exist to assist our
employees in their decision-making, including our management team, training and a hotline pursuant to which employees can ask questions or report issues
on an anonymous basis.
Employee Safety, Health and Wellness
We are committed to maintaining a safe workplace and promoting the health and wellness of our employees. We have an employee Health &
Safety Committee that is comprised of employees and recommends improvements in furtherance of employee health and safety. We also have implemented
multiple safety programs and regularly perform safety hazard evaluations within our manufacturing facility. We publish a quarterly Safety Standard
newsletter that reiterates our commitment to safety, highlights actions we have taken and intend to take to improve employee safety, and provides practical
advice to employees to keep them and their families safe. We monitor conditions that could lead to safety incidents and keep track of injuries through
reporting systems in accordance with the laws in the jurisdictions in which we operate.
With respect to health and wellness, we provide our employees a variety of flexible and convenient health and wellness programs designed to
support their physical and mental health. These include, among others, medical, dental and vision coverage, health savings and flexible spending accounts,
flexible work schedules, family leave and care resources, and an employee assistance program.
Compensation and Benefits
We provide competitive compensation and benefits to attract and retain superior talent and to give our employees the tools to succeed both on and
off the job. In addition to salaries, our compensation and benefits, typically include annual bonuses; commission programs; a 401(k) plan with employer
matching opportunities; tuition assistance; and company-sponsored short-term and long-term disability, life and accidental death and dismemberment
insurance, among others.
Our benefit plans are available to full-time employees who work 30 or more hours per week. Eligible employees may select between four medical
plan options: two preferred provider organization plans and two health savings account compatible high deductible plans. We provide contributions to those
participating in a health savings account compatible plans. Additionally, we offer employees traditional and limited purpose flex savings account options.
Pharmacy benefits as well as dental, vision, life, accidental death and disability, long and short-term disability, accident, critical illness, and hospital
indemnity insurance plans are available to our employees. We also offer employees wellbeing benefits through LifeBalance, Noom, and our Employee
Assistance Program.
Xtant prides itself on offering employment arrangements that include competitive time off policies and flexibility. Our employees are eligible for
paid holidays effective immediately upon hire. Paid time off is available to all corporate employees and accrue based on length of service, and sick time is
available for all commercial-sales employees.
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Employee Engagement
We provide all employees with the opportunity to anonymously share their opinions and feedback directly with senior management and human
resources. Submissions are analyzed to enhance the employee experience, promote retention, drive change, and leverage the overall success of our
organization.
Employee Development and Training
We recognize that successful execution of our strategy is dependent on attracting, developing and retaining top talent in all areas of the business.
We have a robust learning management system platform that includes several modules for employee development and training. In addition, we have a
professional development policy intended to promote professional development opportunities and provide support to employees who want to increase the
effectiveness of their performance in their current position. We encourage employees to obtain skills, knowledge and abilities which may improve their
opportunities for career advancement within our Company and the purpose of our professional development policy is to provide our employees with the
requirements for approval, time off, and reimbursement for employee training and professional development activities.
Diversity, Equity and Inclusion
We strive to create a diverse workplace in which all employees feel respected, valued and empowered to reach their full potential. We define
diversity as the range of human differences, including but not limited to race, ethnicity, gender, gender identity, sexual orientation, age, physical ability or
attributes, religious or ethical values system, national origin, and political beliefs.
Community Engagement
Throughout the year, we encourage our employees to engage in community outreach programs and we sponsor various community organizations
in the Belgrade, Montana area. As a company, we work closely with the Donate Life Community to support our industry and promote the gift of donation.
We have been an active sponsor for the Donate Life Rose Parade event since 2012 and sponsor a donor family and select employees to attend that event
each year.
Corporate Information
We began operations in 1998 as a spin out of the Center for Biofilm Engineering at Montana State University, or the CBE, and incorporated as
“Bacterin, Inc.” in the state of Montana in January 2000. Through a series of transactions and corporate events, we eventually became Bacterin
International Holdings, Inc., a Delaware corporation (“Bacterin”). Bacterin’s common stock traded on the NYSE Amex, now known as the NYSE
American, under the ticker symbol “BONE.” On July 31, 2015, we acquired all of the outstanding capital stock of X-spine Systems, Inc. (“X-spine”) for
approximately $60 million in cash, repayment of approximately $13 million of X-spine debt, and approximately 4.24 million shares (0.4 million shares post
reverse split) of Xtant common stock. As a result of this transaction, X-spine became a wholly owned subsidiary of Bacterin International Holdings, Inc.
and we immediately then changed our corporate name to “Xtant Medical Holdings, Inc.” Soon thereafter, we formed a new wholly owned subsidiary, Xtant
Medical, Inc., to facilitate the integration of Bacterin and X-spine. On October 15, 2015, our common stock began trading on the NYSE MKT, now known
as the NYSE American, under the ticker symbol “XTNT.”
Controlled Company Status
As a result of debt restructuring transactions completed in 2018 and 2020, OrbiMed Royalty Opportunities II, LP (“Royalty Opportunities”) and
ROS Acquisition Offshore LP (“ROS”), which are funds affiliated with OrbiMed Advisors LLC (“OrbiMed”), collectively own approximately 56.2% of
our outstanding common stock as of December 31, 2023. Because more than 50% of the combined voting power of all of our outstanding common stock is
beneficially owned by OrbiMed, we are a “controlled company” as defined in section 801(a) of the NYSE American Company Guide. As such, we are
exempt from certain NYSE American rules requiring our Board of Directors to have a majority of independent directors, a compensation committee
composed entirely of independent directors and a nominating committee composed entirely of independent directors. We currently maintain a Board of
Directors with a majority of independent directors and a compensation committee and nominating and corporate governance committee composed entirely
of independent directors.
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Available Information
We make available, free of charge and through our Internet website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K, and any amendments to any such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange
Commission (“SEC”). Reports filed with the SEC also may be viewed at www.sec.gov. We include our website throughout this report for reference only.
The information contained on or connected to our website is not incorporated by reference into this report.
Item 1A. Risk Factors
Our business and an investment in our common stock are subject to a variety of risks. The following risk factors describe some of the material
factors that could have a material adverse effect upon our business, financial condition, results of operations, and the market price for our common stock.
Many of these events are outside of our control. If any of these risks actually occur, our business, financial condition or results of operations may be
materially adversely affected. In such case, the market price of our common stock could decline and investors in our common stock could lose all or part of
their investment.
Risk Factors Summary
This summary is not complete and should be read in conjunction with the risk factors set forth below.
Risks Related to Our Business
● Our dependence on key suppliers of raw materials puts us at risk of interruptions in the availability of our products, which could reduce our sales and
adversely affect our operating results and harm our reputation. We expect our revenues in future periods to be adversely affected by the current stem
cell shortage.
● Our acquisitions of Surgalign SPV, certain assets and liabilities of Surgalign Holdings and certain assets of RTI in 2023 and any future acquisitions or
business combinations we complete involve a number of risks, the occurrence of which could adversely affect our business, reputation, operating
results and financial condition.
● We may be required to incur impairment and other charges resulting from the impairment of goodwill or other intangible assets recorded in connection
with acquisitions.
● We operate in some markets outside the United States that are subject to political, economic, and social instability and expose us to additional risks.
● Operations conducted through our international subsidiaries require management attention and financial resources and exposes us to difficulties and
risks presented by international economic, political, legal, accounting and business factors.
● We have identified material weaknesses in our internal control over financial reporting and cannot provide assurances that these weaknesses will be
effectively remediated or that additional material weaknesses will not occur in the future.
● Biologics products are inherently difficult and time-consuming to manufacture. We have experienced and could continue to experience manufacturing
issues, which could negatively impact our business and results of operations.
● Prolonged inflation and supply chain disruptions could result in delayed product launches, lost revenue, higher costs and decreased profit margins.
● We may not be able to compete successfully because we are smaller and have fewer financial resources and less ability to invest in the development of
new products.
● Our efforts to integrate acquired products with our existing product line may not be favorably received, which could negatively impact our results of
operations and financial condition.
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● If we are unable to innovate, develop, introduce and market new products and technologies, our business and operating results would suffer.
● Our private label and OEM business involves risks and may be subject to significant fluctuation.
● Our growth initiatives designed to increase our revenue and scale may not be successful and involve risks.
● Our biologics business is highly dependent on the availability of human donors and negative publicity could reduce demand for our biologics products
and impact the supply of available donor tissue.
● Substantially all of our revenue is conducted through independent sales agents and distributors who we do not control.
● We depend on a limited number of third-party suppliers for products, components and raw materials.
● We are highly dependent on the continued availability of our facilities.
● We may be party to product liability litigation that could be expensive.
● Our quarterly operating results are subject to substantial fluctuations.
Risks Related to Governmental Regulation
● Our business is subject to extensive governmental regulation, including product approvals and clearances and healthcare fraud and abuse laws, false
claims laws, and physician payment transparency laws.
● Our clinical trials involve risk and expense.
● Governmental regulation could restrict the use of our tissue products or our procurement of tissue.
● Outside of the United States, our medical devices must comply with the laws and regulations of the foreign countries in which they are marketed, and
compliance may be costly and time-consuming.
● Modifications to our products may require new regulatory clearances or approvals or may require us to recall or cease marketing our products until
clearances or approvals are obtained.
● Our manufacturing operations are required to comply with the FDA’s and other governmental authorities’ laws and regulations regarding the
manufacture and production of medical devices.
● Even if our products are cleared or approved by regulatory authorities, they could be subject to restrictions or withdrawal from the market.
● The use, misuse or off-label use of our products may harm our image in the marketplace or result in injuries that lead to product liability suits.
● If our products cause or contribute to a death or serious injury, or malfunction in certain ways, we will be subject to medical device reporting
regulations and likely litigation.
● Any future product recall or voluntary market withdrawal of a product due to defects, enhancements and modifications or other reasons would
significantly increase our costs.
● If we or our suppliers fail to comply with regulations pertaining to human cells, tissues, and cellular and tissue-based products or are deemed to be
biological products requiring approval of a BLA prior to being marketed, these products could be subject to withdrawal from the market or other
enforcement action.
● Loss of AATB accreditation would have a material adverse effect on us.
● Federal regulatory reforms may adversely affect our business and our ability to sell our products.
● Our revenues depend upon prompt and adequate coverage and reimbursement from public and private insurers and national health systems.
● Our business is subject to complex and evolving laws and regulation regarding privacy and data protection.
Risks Related to Human Capital Management
● Our business is dependent on a sufficient number of qualified workers, and competition for such talent is intense.
● We have limited staffing and are dependent upon key employees.
Risks Related to Our Outstanding Indebtedness, Need for Additional Financing and Financial Condition
● We have incurred significant losses, expect to continue to incur losses and may need additional financing to satisfy our anticipated future liquidity
requirements.
● We have indebtedness that we may be unable to extend the maturity date of or replace and which may substantially limit our ability to conduct and
invest in our business.
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Risks Related to Intellectual Property
● We could be required to pay damages or prevented from selling our products due to intellectual property lawsuits.
● We may not be able to obtain or protect our proprietary rights relating to our products which may cause us to lose market share to our competitors and
be unable to operate our business profitably.
Risks Related to Information Technology, Cybersecurity and Data Protection
● We are dependent on various information technology systems, and failures of, interruptions to, or unauthorized tampering with those systems could
have a material adverse effect on our business.
Risks Related to Our Controlled Company Status
● We are a “controlled company” within the meaning of the NYSE American rules since OrbiMed funds own a significant percentage of our common
stock, which means OrbiMed is able to exert significant control over our Company, preventing other stockholders and new investors from influencing
significant corporate decisions.
Risks Related to Our Common Stock
● Shares of our common stock are equity securities and are subordinate to our outstanding indebtedness.
● The market price of our common stock is extremely volatile.
● Our actual operating results may differ significantly from our financial guidance.
● We may issue additional common stock resulting in dilution, and the sale or availability for sale of our common stock could adversely affect the
market price of our common stock.
● Anti-takeover provisions in our organizational documents and agreements may discourage or prevent a change in control.
General Risk Factors
● We are subject to several other general risk factors, including risk regarding worldwide economic instability and social unrest; climate change; changes
in accounting standards; public company requirements; securities litigation and environmental, social and governance practices scrutiny.
Risks Related to Our Business
Our dependence on key suppliers of raw materials puts us at risk of interruptions in the availability of our products, which could reduce our sales and
adversely affect our operating results and harm our reputation. In particular, because of a current stem cell shortage, we expect our revenues in future
periods to be adversely affected by this shortage until such time as we can find additional supply of stem cells or develop internal production of stem
cells.
We rely on key suppliers for certain raw materials used in our products. Among the key suppliers we do business with are the producers of stem
cells used in our OsteoVive viable cell allograft. Our dependence on third-party suppliers involves several risks, including limited control over availability
and pricing. Suppliers of such raw materials may decide, or be required, for reasons beyond our control, to cease supplying such raw materials and
components to us or to raise their prices. Shortages of raw materials, quality control problems, production capacity constraints, or delays by suppliers have
in the past and in the future could negatively affect our ability to meet our production goals. For example, in the third and fourth quarters of fiscal 2023,
stem cells used to produce our OsteoVive viable cell allograft became unavailable and may remain unavailable for the foreseeable future. Elutia Inc.
(formerly Aziyo Biologics, Inc.), one of our key suppliers of stem cells, recently voluntarily recalled its viable bone matrix products and suspended
shipments of all viable bone matrix products from all donor lots. This recall has led to the American Association of Tissue Banks imposing additional
regulations and has also constrained the overall supply of stem cells, with other stem cell suppliers now favoring larger customers during this shortage. As a
smaller customer, we have encountered difficulties in receiving any supply of stem cells. Stem cells may continue to be unavailable to us or may be
available only at elevated prices. Our revenues during the third and fourth quarters of fiscal 2023 were adversely affected as a result of the stem cell
shortage and we expect our revenues in future periods to continue to be adversely affected by the stem cell shortage until such time as we receive additional
supply of stem cells and complete development of internal production of stem cells. In addition, our sales of other products could be adversely affected by
other similar shortages in the future. Such shortages and constraints adversely affect our revenues and other operating results and may also adversely affect
our reputation.
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Our acquisitions of Surgalign SPV, certain assets and liabilities of Surgalign Holdings and certain assets of RTI in 2023 and any future acquisitions or
business combinations we complete involve a number of risks, the occurrence of which could adversely affect our business, reputation, operating
results and financial condition.
In 2023, we completed acquisitions of Surgalign SPV, certain assets and liabilities of Surgalign Holdings and certain assets of RTI. One of our key
growth initiatives is to add depth to our product offerings through targeted strategic acquisitions in the future. Our ability to complete acquisitions and
business combinations will depend, in part, on the availability of suitable candidates at acceptable prices, terms, and conditions; our ability to compete
effectively for acquisition candidates; and the availability of capital and personnel to complete such acquisitions and run the acquired business effectively.
Any acquisition or business combination could impair our business, reputation, operating results and financial condition. The benefits of an acquisition or
business combination may take more time than expected to develop or integrate into our operations, and we cannot guarantee that previous or future
acquisitions or business combinations will, in fact, produce any benefits. Acquisitions and business combinations may involve a number of risks, the
occurrence of which could adversely affect our business, reputation, operating results and financial condition, including:
● diversion of management’s attention;
● disruption to our existing operations and plans or the inability to effectively manage our expanded operations;
● failure, difficulties or delays in securing, integrating, developing and assimilating information, financial systems, internal controls, operations,
manufacturing processes and products or the distribution channels for acquired product lines;
● potential loss of key employees, customers, distributors, or sales representatives of the acquired businesses or adverse effects on existing business
relationships with suppliers, customers, distributors, and sales representatives;
● adverse impact on overall profitability if our expanded operations do not achieve the efficiencies, growth projections, net sales, earnings, cost or
revenue synergies, or other financial results projected in our valuation models, delays in the realization thereof or costs or charges incurred to
achieve any revenue or cost synergies;
● reallocation of amounts of capital from other operating initiatives and/or an increase in our leverage and debt service requirements to pay
acquisition purchase prices or other business venture investment costs, which could in turn restrict our ability to access additional capital when
needed or pursue other important elements of our business strategy;
● infringement by acquired businesses or other business ventures of intellectual property rights of others;
● violation of confidentiality, intellectual property and non-compete obligations or agreements by employees of an acquired business or lack of or
inadequate formal intellectual property protection mechanisms in place at an acquired business;
● inaccurate assessment of additional post-acquisition investments, undisclosed, contingent, tax or other liabilities or problems, unanticipated costs
associated with an acquisition, and an inability to recover or manage such liabilities and costs;
● incorrect estimates made in the accounting for acquisitions, including those related to the material weaknesses discussed elsewhere in this Annual
Report on Form 10-K, and incurrence of non-recurring charges, including restructuring charges in connection with any future effort to reduce costs
and streamline operations; and
● impacts as a result of accounting adjustments, incorrect estimates made in the accounting for the acquisitions, including those related to the
material weaknesses discussed elsewhere in this Annual Report on Form 10-K, or the potential write-off of significant amounts of goodwill or
other assets as a result of deterioration in the performance of an acquired business or product line, adverse market conditions, changes in the
competitive landscape, changes in laws or regulations that restrict activities of an acquired business or product line, or as a result of a variety of
other circumstances, or other potential financial accounting or reporting impacts, including those resulting from the international subsidiaries we
acquired from Surgalign Holdings.
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In addition, effective internal controls are necessary for us to provide reliable and accurate financial reports and to effectively prevent fraud. The
integration of acquired businesses may result in our systems and controls becoming increasingly complex and more difficult to manage. We devote
significant resources and time to comply with the internal control over financial reporting requirements of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-
Oxley Act”). However, we cannot be certain that these measures will ensure that we design, implement, and maintain adequate control over our financial
processes and reporting in the future, especially in the context of acquisitions of other businesses, regardless of whether such acquired business was
previously privately or publicly held. For example, in connection with the audit of our consolidated financial statements for the fiscal year ended December
31, 2023, we identified certain control deficiencies in the design and implementation of our internal control over financial reporting that related to our
recent acquisitions, which constituted two material weaknesses. Any such difficulties in the assimilation of acquired businesses into our control system
could harm our operating results or cause us to fail to meet our financial reporting obligations. Also, some acquisitions, such as our acquisition of Surgalign
SPV, our acquisition of certain assets and liabilities of Surgalign Holdings, and our acquisition of certain assets of RTI, may require the consent of the
lenders under our credit agreements with MidCap and/or the consent of Royalty Opportunities and ROS under the Investor Rights Agreement. We cannot
predict whether such approvals would be forthcoming or the terms on which the lenders or these investors would approve future acquisitions. These risks,
among others, could be heightened if we complete a large acquisition or other business combination or multiple transactions within a relatively short period
of time or, if such approvals are not obtained, could prevent us from completing acquisitions that we believe would be beneficial to our business.
We may be required to incur impairment and other charges resulting from the impairment of goodwill or other intangible assets recorded in connection
with acquisitions.
In 2023, we completed acquisitions of Surgalign SPV, certain assets and liabilities of Surgalign Holdings and certain assets of RTI. In connection
with acquisitions, applicable accounting standards generally require the net tangible and intangible assets of the acquired business to be recorded on the
balance sheet of the acquiring company at their fair values as of the date of acquisition. Any excess in the purchase price paid by the acquiring company
over the fair value of net tangible and intangible assets of the acquired business is recorded as goodwill. Definite lived-intangible assets other than goodwill
are required to be amortized over their estimated useful lives and this amortization expense may be significant. If it is later determined that the anticipated
future cash flows from the acquired business may be less than the carrying values of the assets and goodwill of the acquired business, the assets, including
both definite-lived and indefinite-lived intangible assets, or goodwill may be deemed to be impaired. In this case, the acquiring company may be required
under applicable accounting rules to write down the value of the assets or goodwill on its balance sheet to reflect the extent of the impairment. This write-
down of assets or goodwill is generally recognized as a non-cash expense in the statement of operations of the acquiring company for the accounting period
during which the write down occurs. As of December 31, 2023, we had goodwill of $7.3 million, including goodwill from the acquisitions described above,
and intangible assets of $10.3 million, which together comprise 19% of our total assets as of December 31, 2023. If we determine that our goodwill and
intangible assets recorded in connection with our acquisitions or any other prior or future acquisitions have become impaired, we will be required to record
a charge resulting from the impairment. Impairment charges could be significant and could adversely affect our consolidated results of operations and
financial position.
We operate in some markets outside the United States that are subject to political, economic, and social instability and expose us to additional risks.
Although our revenue from outside the United States comprised only 5% of our total revenue for the year ended December 31, 2023, we expect
our revenue from outside the United States to comprise a larger percentage of our total revenue in future years as a result of our acquisition of Surgalign
Holdings’ hardware and biologics business in August 2023, which operates in part through international subsidiaries. Our international sales operations and
newly acquired international subsidiaries expose us and our representatives, agents, and distributors to the following risks inherent in operating in foreign
jurisdictions:
● the imposition of additional U.S. and foreign governmental controls or regulations on orthopedic implants and biologic products;
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● withdrawal from or revision to international trade policies or agreements and the imposition or increases in import and export licensing and
other compliance requirements, customs duties and tariffs, import and export quotas and other trade restrictions, license obligations, and other
non-tariff barriers to trade;
● economic instability and currency risk between the U.S. dollar and foreign currencies in our markets;
● political instability, including instability related to the war between Russia and Ukraine and the war between Israel and Hamas;
● the imposition of U.S. or international sanctions against a country, company, person, or entity with whom we do business that would restrict
or prohibit continued business with that country, company, person, or entity;
● the imposition of restrictions on the activities of foreign agents, representatives and distributors;
● scrutiny of foreign tax authorities, which could result in significant fines, penalties and additional taxes being imposed upon us;
● difficulties in managing and staffing international operations and increases in infrastructure costs including legal, tax, accounting and
information technology;
● risks related to complying with accounting rules and regulations in foreign jurisdictions and consolidating the financial statements of our
international subsidiaries in our financial statements;
● a shortage of high-quality international salespeople and distributors;
● loss of any key personnel who possess proprietary knowledge or are otherwise important to our success in international markets;
● changes in third-party reimbursement policy that may require some of the patients who receive our products to directly absorb medical costs
or that may necessitate our reducing selling prices for our products;
● unexpected changes in foreign regulatory requirements;
● differing local product preferences and product requirements;
● changes in tariffs and other trade restrictions, particularly related to the exportation of our biologic products;
● difficulties in protecting, enforcing and defending intellectual property rights;
● foreign currency exchange controls that might prevent us from repatriating cash;
● longer payment cycles and difficulties in enforcing agreements and collecting receivables through certain foreign legal systems;
● transportation delays and interruptions, including due to recent supply chain and shipping disruptions;
● national and international conflicts, including foreign policy changes, acts of war or terrorist acts;
● complex data privacy requirements and labor relations laws; and
● exposure to different legal and political standards.
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Operations conducted through our international subsidiaries require management attention and financial resources and exposes us to difficulties and
risks presented by international economic, political, legal, accounting and business factors.
As a result of our recent acquisition of Surgalign Holdings’ hardware and biologics business, we sell certain products in 33 countries through
international subsidiaries located in Europe and Asia. This recent international expansion and the continued management of business in international
markets requires management attention and financial resources. Additionally, the sale and shipping of products across international borders subjects us to
extensive and complicated trade regulations. Compliance with such regulations is costly and exposes us to penalties for non-compliance. Any failure to
comply with applicable legal and regulatory obligations could impact us in a variety of ways that include, but are not limited to, significant criminal, civil
and administrative penalties. Additionally, the failure to comply with applicable legal and regulatory obligations could result in the disruption of our sales
activities.
Several factors, including changes to international trade agreements, foreign policy changes between countries, weakened international economic
conditions or the impact of sovereign debt defaults, could adversely affect our international net sales. Additionally, our international operations require
significant management attention and financial resources. Our international operations expose us to risks inherent in operating in foreign jurisdictions.
These risks include:
● difficulties in managing and staffing international operations and the required infrastructure costs, including legal, tax, accounting and information
technology;
● the imposition of additional U.S. and foreign government controls or regulations, new trade restrictions and restrictions on the activities of foreign
agents, representatives and distributors;
● the imposition of the U.S. and/or international sanctions against a country, company, person or entity with whom we do business, either directly or
through our international subsidiaries, that would restrict or prohibit continued business with the sanctioned country, company, person or entity;
● international pricing pressure;
● adverse currency exchange rate fluctuations;
● longer payment cycles and difficulties enforcing agreements and collecting receivables through certain foreign legal systems;
● national and international conflicts, including foreign policy changes;
● difficulties in enforcing or defending intellectual property rights; and
● multiple, changing and often inconsistent enforcement of laws and regulations.
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We have identified material weaknesses in our internal control over financial reporting and cannot provide assurances that these weaknesses will be
effectively remediated or that additional material weaknesses will not occur in the future.
If our internal control over financial reporting or its disclosure controls and procedures are not effective, we may not be able to accurately report
our financial results, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price.
Management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-
15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the
United States of America. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of an 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 deteriorate.
In connection with the audit of our consolidated financial statements for the fiscal year ended December 31, 2023, we identified certain control
deficiencies in the design and implementation of our internal control over financial reporting that constituted two material weaknesses. A material
weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a
material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
As of December 31, 2023, our controls designed surrounding the completeness and accuracy of information utilized in determining the open
balance sheet fair value of inventory, which includes the establishment of inventory reserves, related to the acquisition of the hardware and biologics
business of Surgalign Holdings, Inc. were insufficient and did not operate at an appropriate level of precision. The resulting material weaknesses are
described in greater detail under the heading Part II. Item 9A. “Controls and Procedures.”
While we are taking steps to remediate the material weaknesses, we cannot provide any assurance that such remedial measures, or any other
remedial measures we take, will be effective. If we fail to maintain effective internal control over financial reporting, we may not be able to accurately
report our financial results, which may, among other adverse consequences, cause investors to lose confidence in our reported financial information and
lead to a decline in our stock price. In addition, a material weakness will not be considered remediated until the applicable controls operate for a sufficient
period of time and management has concluded, through testing, that these controls are designed and operating effectively.
Biologics products are inherently difficult and time-consuming to manufacture. We have experienced and could continue to experience manufacturing
issues, which could negatively impact our business and results of operations.
Biologics products are inherently difficult and time-consuming to manufacture. Our products are manufactured using technically complex
processes requiring specialized equipment and facilities, highly specific raw materials. Other production constraints, including the number of processors we
are able to hire, the number of clean rooms available in our facilities, and our ability to automate certain processes by implementing labor saving
technology also affect the speed and extent of our production. The complexity of these processes, as well as strict company and government standards for
the manufacture and storage of our products, subjects us to production risks. A shortage of the number of processors or clean rooms or inadequate levels of
automation may cause us to be unable to operate at full production, which has in the past and could continue to negatively impact our business and results
of operations. For example, as a result of the labor shortage we experienced in 2022 and, to a lesser extent, in 2023, we were unable to operate at full
capacity from time to time, which caused us to pass on certain revenue opportunities we otherwise may have been able to pursue. To mitigate this issue in
the future, we have made certain operational changes and continue to implement processes that are intended to automate certain tasks. Additionally, in
2023, we increased our recruiting and onboarding activities and increased our plant capacity. However, no assurance can be provided that these measures
will be successful.
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Prolonged inflation and supply chain disruptions could result in delayed product launches, lost revenue, higher costs and decreased profit margins.
A majority of our products are manufactured and sold inside of the United States, which increases our exposure to domestic inflation and fuel
price increases. Inflationary pressures stemming from supply chain disruptions and increased demand resulted in increased fuel, raw material and other
costs in 2022. Although these conditions improved in 2023, similar issues in the future may adversely affect our results of operations. Additionally, we
have experienced shortages in certain raw materials, suppliers have been unable to meet delivery schedules due to excess demand and labor shortages, and
lead times have lengthened throughout our supply chain. For example, as described elsewhere in these risk factors, in the third and fourth quarters of fiscal
2023, stem cells used to produce our OsteoVive viable cell allograft became unavailable and may remain unavailable for the foreseeable future. Our efforts
to mitigate supply chain weaknesses may not be successful or may have unfavorable effects. For example, efforts to purchase raw materials in advance for
product manufacturing may result in increased storage costs or excess supply. If our costs rise due to continuing supply chain disruptions, we may not be
able to fully offset such higher costs through price increases. In addition, delays in obtaining materials from our suppliers could delay product launches or
result in lost opportunities to sell our products due to their unavailability. Increased costs and decreased product availability due to supply chain issues
could adversely impact our revenue and/or gross margin, and could thereby harm our business, financial condition, and results of operations.
Many competitive products exist, and we expect more will be developed. Our operating results have suffered during the past few years due to intense
competition and we may not be able to compete successfully because we are smaller and have fewer financial resources and less ability to invest in the
development of new products.
The markets for our products are highly competitive and subject to rapid and profound technological change. Our success depends, in part, on our
ability to maintain a competitive position in the development of technologies and products for use by our customers. Many of the companies developing or
marketing competitive products enjoy several competitive advantages over us, including greater financial and human resources for product development
and sales and marketing; greater name recognition; established relationships with surgeons, hospitals and third-party payors; broader product lines and the
ability to offer rebates or bundle products to offer greater discounts or incentives to gain a competitive advantage; and established sales and marketing and
distribution networks. Our competitors may develop and patent processes or products earlier than us, obtain regulatory clearances or approvals for
competing products more rapidly than us, develop more effective or less expensive products or technologies that render our technology or products
obsolete or non-competitive or acquire technologies and technology licenses complementary to our products or advantageous to our business, which could
adversely affect our business and operating results. Not all of our sales and other personnel have non-compete agreements. We also compete with other
organizations in recruiting and retaining qualified sales and management personnel, which may exacerbate the effects of the labor shortages we are
currently experiencing, as described above. If our competitors are more successful than us in these matters, we may be unable to compete successfully
against our existing or future competitors. Our industry has been subject to increasing consolidation. Consolidation in our industry not involving our
Company could result in existing competitors increasing their market share through business combinations and result in stronger competitors, which could
have a material adverse effect on our business, financial condition, and operating results. We may be unable to compete successfully in an increasingly
consolidated industry and cannot predict with certainty how industry consolidation will affect our competitors or us.
Our efforts to integrate acquired products with our existing product line may not be favorably received, which could negatively impact our results of
operations and financial condition.
Following our acquisition of the Coflex and CoFix product lines, Surgalign Holdings’ hardware and biologics business, and the nanOss product
line, we have worked to integrate the products acquired with our existing product line as applicable. However, there can be no assurance that our
integration initiative will be successful, and these changes may not be favorably received by our customers, which could negatively impact our results of
operations and financial condition.
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If we are unable to innovate, develop, introduce and market new products and technologies, we may experience a decrease in market share or revenue
if our products become obsolete, and our business and operating results would suffer.
Due to limited funding, our research and development efforts and ability to develop new products have been constrained during the past several
years. We may be unable to compete effectively with our competitors unless we can keep up with existing or new products and technologies in the markets
in which we compete. If we do not continue to innovate, develop, introduce and market new products and technologies, or if those products and
technologies are not accepted, we may not be successful. Moreover, research and development efforts require a substantial investment of time and
resources before we are adequately able to determine the commercial viability of a new product, technology, material, or innovation and our current and
recent annual operating plans have not provided for any significant investment in new products. Demand for our products also could change in ways we
may not anticipate due to evolving customer needs, changes in customer health insurance coverage, changing demographics, slow industry growth rates,
declines in our markets, the introduction of new products and technologies, evolving surgical philosophies, and evolving industry standards, among others.
Additionally, our competitors’ new products and technologies may beat our products to market, may be more effective or less expensive than our products,
or may render our products obsolete. It is also important that we carefully manage our introduction of new and enhanced products and technologies. If
potential customers delay purchases until new or enhanced products are available, it could negatively impact our revenue. Our new products and
technologies also could reduce demand for or render our existing products obsolete and thus adversely affect sales of our existing products and lead to
increased expense for excess and obsolete inventory.
Our private label and OEM business, which we expect to account for an increasing percentage of our revenue, involves risks and may be subject to
significant fluctuation on a product to product basis from period to period since our customers could decide to use other OEMs.
We expect an increasing portion of our future revenues to be derived from our private label and original equipment manufacturer, or OEM,
business. This expectation is based on our plan to focus on expanding this business. We may not be successful, however, in retaining or expanding our
private label and OEM business. Our private label and OEM business, although not subject to commissions, involves lower gross margins which, if this
business increases as a percentage of our revenue, will reduce our future gross margins. In addition, our private label and OEM business involves other
additional risks. For example, we generally do not have long-term supply agreements covering this business so our customers could periodically decide to
use other OEMs based on cost, quality, delivery time, production capacities, competitive and regulatory considerations or other factors. Thus, revenues
from our private label and OEM customers and the products we provide them are subject to significant fluctuation on a product to product basis from
period to period. The success of our private label and OEM business is dependent upon the success of our private label and OEM customers in creating
demand for and selling the products that we manufacture for them. If our private label and OEM business significantly increases, we may experience
difficulties in staffing our manufacturing facility and meeting demand.
Our growth initiatives designed to increase our revenue and scale may not be successful and involve risks.
During 2022 and 2023, we focused primarily on four key growth initiatives: (1) introduce new products; (2) expand our distribution network; (3)
penetrate adjacent markets; and (4) leverage our growth platform with technology and strategic acquisitions. In 2023, we worked towards these growth
initiatives primarily through our strategic acquisitions of Surgalign SPV, Surgalign Holdings’ hardware and biologics business, and RTI’s nanOss
production operations, which allowed us to add to our existing product line and expand our distribution network. We intend to continue to pursue these key
growth initiatives in 2024. While the intent of these four key growth initiatives is to increase our future revenues, no assurance can be provided that we will
be successful in implementing these growth initiatives or increasing our future revenues. Also our key growth initiatives involve risks, including effects on
our product sales mix, which may adversely affect our gross margins and operating results. For example, a decrease in sales of our hardware products
typically reduces our gross margins. In addition, margins vary among our biologics products, so the current trend towards our fiber-based products as
opposed to our cancellous-based products may also reduce our future gross margins.
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Our biologics business is highly dependent on the availability of human donors. Any disruptions could cause our customers to seek alternative
providers or technologies and harm our business and operating results.
Our mission is, “honoring the gift of donation, by allowing our patients to live as full, and complete a life as possible.” Accordingly, our biologics
business is highly dependent on our ability to obtain donor cadavers as the raw material for many of our biologics products. The availability of acceptable
donors is relatively limited, and we compete with many other companies for this limited availability. The availability of donors is also impacted by
regulatory changes, AATB requirements, general public opinion of the donor process and our reputation for our handling of the donor process. In addition,
due to seasonal changes in the mortality rates, some scarce tissues are at times in short supply. A disruption in the supply of this crucial raw material could
have significant consequences for our revenue, operating results and continued operations.
Negative publicity concerning methods of tissue recovery and screening of donor tissue in our industry could reduce demand for our biologics products
and impact the supply of available donor tissue.
Media reports or other negative publicity concerning both alleged improper methods of tissue recovery from donors and disease transmission from
donated tissue could limit widespread acceptance of some of our biologics products. Unfavorable reports of improper or illegal tissue recovery practices,
both in the United States and internationally, as well as incidents of improperly processed tissue leading to the transmission of disease, may broadly affect
the rate of future tissue donation and market acceptance of technologies incorporating human tissue. In addition, such negative publicity could cause the
families of potential donors to become reluctant to agree to donate tissue to for-profit tissue processors.
Substantially all of our revenue is conducted through independent sales agents and distributors who we do not control.
Substantially all of our revenue is conducted through independent sales agents and distributors. Because the independent sales agent or distributor
often controls the customer relationships within its territory (and, in certain countries outside the United States, the regulatory relationship), there is a risk
that if our relationship with the independent sales agent or distributor ends, our relationship with the customer will be lost (and, in certain countries outside
the United States, that we could experience delays in amending or transferring our product registrations). Also, because we do not control the independent
sales agent or field sales agents of a distributor, there is a risk we will be unable to ensure that our sales processes, compliance, and other priorities will be
consistently communicated and executed by the sales agent or distributor. If we fail to maintain relationships with our key independent sales agents and
distributors or fail to ensure that our independent sales agent and distributors adhere to our sales processes, compliance, and other priorities, this could have
an adverse effect on our operations. Changes to or turnover within our independent sales agent or distributor organization or transitions to direct selling
models also could adversely affect our business if these transitions are not managed effectively. Further, independent sales agents and distributors of
companies we have acquired may decide not to renew or may decide to seek to terminate, change and/or renegotiate their relationships with us. A loss of a
significant number of our sales agent or distributors could have a material adverse effect on our business and results of operations.
In addition, our success is partially dependent upon our ability to retain and motivate our independent sales agents and distributors, and their
representatives to sell our products in certain territories. They may not be successful in implementing our marketing plans. Some of our independent sales
agents and distributors do not sell our products exclusively and may offer similar products from other companies. Our independent sales agents and
distributors may terminate their contracts with us, may devote insufficient sales efforts to our products, or may focus their sales efforts on other products
that produce greater commissions or revenues for them, which could have an adverse effect on our operations and operating results.
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We depend on a limited number of third-party suppliers for products, components and raw materials and losing any of these suppliers, or their inability
to provide us with an adequate supply of materials that meet our quality and other requirements or our failure to order a sufficient supply of products,
components and raw materials, could harm our business and operating results.
Outside suppliers, some of whom are sole-source suppliers, provide us with products and raw materials and components used in manufacturing
our orthobiologics and spinal implant products. We strive to maintain sufficient inventory of products, raw materials and components so that our production
will not be significantly disrupted if a particular product, raw material or component is not available to us for a period of time, including as a result of a
supplier’s loss of its ISO or other certification, long required lead times, or other reasons. Despite our efforts, we sometimes experience an insufficient
inventory of products, raw materials and/or components. If we fail to plan our procurement accordingly or are unable to obtain sufficient quantities of raw
materials and components used in manufacturing our orthobiologics and spinal implant products that meet our quality and other requirements on a timely
basis for any reason, we may not produce sufficient quantities of our products to meet market demand until a new or alternative supply source is identified
and qualified and, as a result, we could lose customers, our reputation could be harmed, and our business could suffer. Furthermore, an uncorrected defect
or supplier’s variation in a component or raw material that is incompatible with our manufacturing, unknown to us, could harm our ability to manufacture
products.
Although we believe there are alternative supply sources, replacing our suppliers may be impractical or difficult in many instances. For example,
we could have difficulty obtaining similar products from other suppliers that are acceptable to the FDA or other foreign regulatory authorities. In addition,
if we are required to transition to new suppliers for certain components or raw materials of our products, the use of components or materials furnished by
these alternative suppliers could require us to alter our operations, and if we are required to change the manufacturer of a critical component of our
products, we will have to verify that the new manufacturer maintains facilities, procedures and operations that comply with our quality and applicable
regulatory requirements, which could further impede our ability to manufacture our products in a timely manner. Transitioning to a new supplier could be
time-consuming and expensive, may result in interruptions in our operations and product delivery, could affect the performance specifications of our
products or could require that we modify the design of those systems.
We are highly dependent on the continued availability of our facilities and would be harmed if they were unavailable for any prolonged period of time.
Any failure in the physical infrastructure of our facilities or services could lead to significant costs and disruptions that could reduce our revenues
and harm our business, reputation and financial results. We are highly reliant on our Belgrade, Montana facilities. Any natural or man-made event that
impacts our ability to utilize these facilities could have a significant impact on our operating results, reputation and ability to continue operations. The
regulatory process for approval of facilities is time-consuming and our ability to rebuild facilities would take a considerable amount of time and expense
and cause a significant disruption in service to our customers. Further, the FDA or some other regulatory agency could identify deficiencies in future
inspections of our facilities or our supplies that could disrupt our business and harm our operating results.
We may be party to product liability litigation that could be expensive, and our insurance coverage may not be adequate in a catastrophic situation.
The manufacture and sale of medical devices and biologics expose us to significant risk of product liability claims, which are made against us
from time to time. We may incur material liabilities relating to product liability claims, including product liability claims arising out of the use of our
products, if the liabilities exceed or are not covered under our insurance program. No assurance can be provided that any amounts that we may be required
to pay to resolve such matters in the future will be within our insurance limits.
We also could experience a material design or manufacturing failure in our products, a quality system failure, other safety issues, or heightened
regulatory scrutiny that would warrant a recall of some of our products. Product liability lawsuits and claims, safety alerts and product recalls, regardless of
their ultimate outcome, could result in decreased demand for our products, injury to our reputation, significant litigation and other costs, substantial
monetary awards to or costly settlements with patients, product recalls, loss of revenue, increased regulatory scrutiny, and the inability to commercialize
new products or product candidates, and otherwise have a material adverse effect on our business and reputation and on our ability to attract and retain
customers.
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Our quarterly operating results are subject to substantial fluctuations, and you should not rely on them as an indication of our annual or future results.
Our quarterly revenue and operating results have varied and in the future may vary significantly, and period-to-period comparisons of our results
of operations are not necessarily meaningful and should not be relied upon as indications of our annual results or future performance. Any shortfalls in
revenue or earnings from levels expected by industry analysts or investors, as a result of such quarterly fluctuations or otherwise, could have an immediate
and significant adverse effect on the market price of our common stock in any given period. Our quarterly operating results may vary significantly due to a
combination of factors, many of which are beyond our control. These factors include, among others:
● demand for our products;
● the effect of labor and staffing shortages at hospitals and other medical facilities on the number of elective procedures in which our products
are used as well as global and local labor shortages and loss of personnel;
● the effect of inflation, increased interest rates and other recessionary indicators and supply chain disruptions;
● the impact of infectious diseases, such as COVID-19, RSV or the flu, and hospital capacity on the number of elective procedures and our
business and operating results;
● the level of competition;
● the number, timing, and significance of new products and product introductions and enhancements by us and our competitors;
● our ability to develop, introduce, and market new and enhanced versions of our products on a timely basis;
● the timing of or failure to obtain regulatory clearances or approvals for our products;
● changes in pricing policies by us and our competitors;
● changes in the treatment practices of our customers;
● changes in independent sales representative or distributor relationships and sales force size and composition;
● the timing of material expense- or income-generating events and the related recognition of their associated financial impact;
● the number and mix of products sold in the quarter and the geographies in which they are sold;
● the number of selling days;
● the availability and cost of components and materials;
● the timing of orders and shipments;
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● ability to obtain reimbursement for our products and the timing of patients’ use of their calendar year medical insurance deductibles;
● work stoppages or strikes in our industry;
● changes in FDA and foreign governmental regulatory policies, requirements, and enforcement practices;
● changes in accounting standards, policies, estimates, and treatments;
● restructuring, impairment, and other special charges;
● costs associated with pending and any future litigation;
● variations in cost of sales due to the amount and timing of excess and obsolete inventory charges and manufacturing variances;
● income tax fluctuations and changes in tax rules;
● general economic, social and other external factors; and
● increases of interest rates, which can increase the cost of borrowings under our credit agreements and generally affect the level of economic
activity.
Our business, operating results and financial condition may be materially adversely affected by COVID-19 and other infectious diseases.
At the onset of, and at various times during, the COVID-19 pandemic, hospitals and other medical facilities cancelled or deferred elective
procedures, diverted resources to patients suffering from infections and limited access for non-patients, including our direct and indirect sales
representatives. Additionally, hospitals and other medical facilities have since experienced high levels of staff turnover. Because of these circumstances,
surgeons and their patients occasionally deferred procedures in which our products otherwise would be used. These circumstances negatively impacted the
number of elective procedures being conducted and the ability of our employees, independent sales representatives and distributors to effectively market
and sell our products, which had a material adverse effect on our revenues. Similar conditions arising from a resurgence of COVID-19 infections, RSV, the
flu, or other infectious diseases could similarly cause surgeons and their patients to defer procedures in which our products otherwise would be used and
limit the ability of our employees, independent representatives and distributors to effectively market and sell our products, which could again have a
material adverse effect on our revenues.
Fluctuations in foreign currency exchange rates could result in declines in our earnings and changes in our foreign currency translation adjustments.
Because the functional currency of our foreign operations is the applicable local currency, we are exposed to foreign currency exchange rate risk
arising from transactions in the normal course of business. Our principal exchange rate exposure is with the Euro, the Swiss franc and the British pound
against the U.S. dollar. Fluctuations in foreign currency exchange rates could result in declines in our earnings. Any changes in foreign currency exchange
rates would be reflected as a foreign currency translation adjustment. We do not hedge against our foreign currency exchange rate risk.
Our ability to deduct interest is limited.
Our ability to deduct interest on indebtedness properly allocable to our trade or business (which excludes investment interest) is limited to an
amount equal to the sum of (i) our business interest income during the taxable year and (ii) 30% of our adjusted taxable income for such taxable year. For
taxable years beginning after 2021, our adjusted taxable income for purposes of computing the 30% limitation will be reduced by depreciation,
amortization and depletion deductions thereby causing a more restrictive limitation than that which existed for taxable years beginning prior to 2022.
Disallowed interest deductions may be carried forward indefinitely and treated as business interest paid or accrued in the succeeding taxable year.
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A shift in performing more procedures in ambulatory surgical centers from hospitals would likely reduce the prices of our products and margins.
We anticipate that more outpatient eligible procedures may be performed in ambulatory surgery centers and that this trend will continue as a cost
control measure within the healthcare system. Because ambulatory surgery center facility fee reimbursement is typically less than facility fee
reimbursement for hospitals and due to surgeons’ potential ownership interests in ambulatory surgery centers, we typically experience reduced pricing of
our products by ambulatory surgery centers than by hospitals, and the average price for which we sell our products to ambulatory surgery centers is less
than the average prices we charge to hospitals. In addition, some surgeons may choose to use fewer implants due to their interest in the profitability of the
ambulatory surgery center. An accelerated shift of procedures using our products to ambulatory surgery centers could adversely impact the average selling
prices of our products and our revenues could suffer as a result.
Risks Related to Governmental Regulation
Our business is subject to extensive regulation, including requirements for regulatory clearances or approvals prior to commercial distribution of our
products. If we fail to maintain regulatory clearances and approvals, or are unable to obtain, or experience significant delays in obtaining, FDA
clearances or approvals for our future products or product enhancements, our ability to commercially distribute and market these products could
suffer.
Our medical device products and operations are subject to extensive regulation by the FDA and various other federal, state and foreign
governmental authorities. Government regulation of medical devices is meant to assure their safety and effectiveness, and includes regulation of, among
other things:
● design, development and manufacturing;
● testing, labeling, packaging, content and language of instructions for use, and storage;
● clinical trials;
● product safety;
● premarket clearance and approval;
● marketing, sales and distribution (including making product claims);
● advertising and promotion;
● product modifications;
● recordkeeping procedures;
● reports of corrections, removals, enhancements, recalls and field corrective actions;
● post-market surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were to recur, could lead to death or
serious injury;
● complying with the federal law and regulations requiring Unique Device Identifiers (“UDI”) on devices and their labeling and also requiring
the submission of certain information about each device to FDA’s Global Unique Device Identification Database (“GUDID”); and
● product import and export.
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Before a new medical device, or a new use of, or claim for, an existing product can be marketed in the United States, it must first receive either
premarket clearance under Section 510(k) of the FDCA, a de novo classification or a PMA, from the FDA, unless an exemption applies. The process of
obtaining regulatory clearances or approvals to market a medical device can be costly and time-consuming, and we may not be able to obtain these
clearances or approvals on a timely basis, if at all.
Most of our currently commercialized products have received premarket clearances under Section 510(k) of the FDCA. In the future, the FDA
may determine that our products will require the more costly, lengthy and uncertain de novo or PMA processes. If the FDA requires us to go through a
lengthier, more rigorous examination for future products or modifications to existing products than we had expected, our product introductions or
modifications could be delayed or canceled, which could adversely affect our revenue. Although we do not currently market any devices under PMA and
have not gone through the de novo classification process for marketing authorization, we cannot assure you that the FDA will not demand that we obtain a
PMA or de novo classification prior to marketing or that we will be able to obtain 510(k) clearances with respect to future products.
The FDA can delay, limit or deny clearance or approval of a device for many reasons, including:
● we may not be able to demonstrate to the FDA’s satisfaction that our products meet the standard of “substantial equivalence” for a 510(k) or
meet the standard for the FDA to grant a petition for de novo classification;
● we may not be able to demonstrate to the FDA’s satisfaction that our products are safe and effective for their intended uses;
● the data from our pre-clinical studies (bench and/or animal) and clinical trials may be insufficient to support clearance or approval in general
or for specific, commercially desirable indications, where required;
● the manufacturing process or facilities we use may not meet applicable requirements; and
● changes in FDA clearance or approval policies or the adoption of new regulations may require additional data.
In addition, even if we do obtain clearance or approval, the FDA may not approve or clear these products for the indications that are necessary or
desirable for successful commercialization. Any delay in, or failure to receive or maintain, clearances or approvals for our products under development
could prevent us from generating revenue from these products or achieving profitability.
Our clinical trials involve risk and expense and may fail to demonstrate competent and reliable evidence of the safety and effectiveness of our products,
which in the case of product in development would prevent or delay their commercialization.
As a result of our acquisition of the Coflex product line, we are required by the FDA to conduct a post-market surveillance study. In addition, we
may be required to conduct other clinical studies that demonstrate competent and reliable evidence that our products are safe and effective before we can
commercialize our products. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. We cannot be
certain that our planned clinical trials or any other future clinical trials will be successful. In addition, even if such clinical trials are successfully completed,
we cannot guarantee that the FDA or foreign regulatory authorities will interpret the results as we do, and more trials could be required before we submit
our products for approval. To the extent that the results of the trials are not satisfactory to the FDA or foreign regulatory authorities for support of a
marketing application, we may be required to expend significant resources, which may not be available to us, to conduct additional trials in support of
potential approval of our products. Even if regulatory approval is secured for any of our products, the terms of such approval may limit the scope and use of
our products, which may also limit their commercial potential. The commencement or completion of any clinical trial may be delayed or halted, or be
inadequate to support approval of a PMA application, for numerous reasons, including, but not limited to, the following:
● The FDA or other regulatory authorities do not approve a clinical trial protocol or a clinical trial, or place a clinical trial on hold;
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● Patients do not enroll in clinical trials at the rate expected;
● Patients do not comply with trial protocols;
● Patient follow-up is not at the rate expected;
● Patients experience adverse events;
● Patients die during a clinical trial, even though their death may not be related to the products that are part of the trial;
● Device malfunctions occur with unexpected frequency or potential adverse consequences;
● Side effects or device malfunctions of similar products already in the market that change the FDA’s view toward approval of new or similar PMAs
or result in the imposition of new requirements or testing;
● Institutional review boards and third-party clinical investigators may delay or reject the trial protocol;
● Third-party clinical investigators decline to participate in a trial or do not perform a trial on the anticipated schedule or consistent with the clinical
trial protocol, investigator agreement, investigational plan, good clinical practices, the IDE regulations, or other FDA or institutional review board
requirements;
● Third-party investigators are disqualified by the FDA;
● We or third-party organizations do not perform data collection, monitoring and analysis in a timely or accurate manner or consistent with the
clinical trial protocol or investigational or statistical plans, or otherwise fail to comply with the investigational device exemption regulations
governing responsibilities, records, and reports of sponsors of clinical investigations;
● Third-party clinical investigators have significant financial interests related to us or our study such that the FDA deems the study results
unreliable, or the company or investigators fail to disclose such interests;
● Regulatory inspections of our clinical trials or manufacturing facilities, which may, among other things, require us to undertake corrective action
or suspend or terminate our clinical trials;
● Changes in government regulations or administrative actions;
● The interim or final results of the clinical trial are inconclusive or unfavorable as to safety or effectiveness; or
● The FDA concludes that our trial design is unreliable or inadequate to demonstrate safety and effectiveness.
We are subject, directly and indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, and physician payment transparency
laws. Failure to comply with these laws may subject us to substantial penalties.
We are subject to federal and state healthcare laws and regulations pertaining to fraud and abuse, and physician payment transparency, including
false claims laws, anti-kickback laws and physician self-referral laws. Many states require compliance with different types of pricing transparency
requirements such as having a code of conduct, as well as reporting remuneration paid to health care professionals or entities in a position to influence
prescribing behavior. Violations of these federal and state laws can result in criminal and/or civil punishment, including fines, imprisonment and, in the
United States, exclusion from participation in government healthcare programs. Greater scrutiny of marketing practices in our industry has resulted in
numerous government investigations, prosecutions and settlements by various government authorities and this industry-wide enforcement activity is
expected to continue. If a governmental authority were to determine that we do not comply with these laws and regulations, the Company and our directors,
officers and employees could be subject to criminal and civil penalties, including exclusion from participation in U.S. federal healthcare reimbursement
programs.
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Many of these healthcare laws inevitably influence company standards of conduct. Other laws tie into these standards as well, such as compliance
with the advertising and promotion regulations under the FDCA, the U.S. Federal Anti-Kickback Statute, the Federal False Claims Act, the Federal
Physician Payments Sunshine Act and other laws. We use many distributors and independent sales representatives in certain territories and thus rely upon
their compliance with applicable laws and regulations, such as with the advertising and promotion regulations or similar laws under countries located
outside the United States and other applicable federal, state or international laws. These laws include:
● the U.S. Federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving,
offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase,
order or recommendation of, any good or service for which payment may be made under federal healthcare programs, such as the Medicare
and Medicaid programs. A person or entity does not need to have actual knowledge of the Federal Anti-Kickback Statute or specific intent to
violate it to have committed a violation. In addition, the government may assert that a claim including items or services resulting from a
violation of the Federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the U.S. Federal False Claims Act; this
may constrain our marketing practices and those of our independent sales agencies, educational programs, pricing, bundling and rebate
policies, grants for physician-initiated trials and continuing medical education, and other remunerative relationships with healthcare providers;
● federal false claims laws (such as the U.S. Federal False Claims Act) which prohibit, among other things, individuals or entities from
knowingly presenting, or causing to be presented, claims seeking payment from Medicare, Medicaid or other federal-funded third-party
payors that are false or fraudulent; this may impact the reimbursement advice we give to our customers as it cannot be inaccurate and must
relate to on-label uses of our products;
● federal criminal laws that prohibit executing a scheme to defraud any federal healthcare benefit program or making false statements relating
to healthcare matters;
● the Federal Physician Payments Sunshine Act, which requires manufacturers of drugs, devices, biologics and medical supplies for which
payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to
CMS, information related to payments or other “transfers of value” made to physicians (defined to include doctors, dentists, optometrists,
podiatrists and chiropractors) and teaching hospitals, and requires applicable manufacturers and group purchasing organizations to report
annually to CMS ownership and investment interests held by the physicians described above and their immediate family members and
payments or other “transfers of value” to such physician owners. We are also required to collect information on payments or transfers of value
to physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists, and certified nurse-midwives for
reporting to CMS;
● analogous state and foreign law equivalents of each of the above federal laws, such as state anti-kickback prohibitions and false claims
prohibitions which may apply to items or services reimbursed by any third-party payor, including commercial insurers; state laws that require
device companies to comply with the industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the
federal government or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws
that require device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare
providers or marketing expenditures; and state laws governing the privacy and security of health information in certain circumstances, many
of which differ from each other and federal law in significant ways and may not have the same effect, thus complicating compliance efforts;
and
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● the Federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), and its implementing regulations, which created federal
criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare
matters and which also imposes certain regulatory and contractual requirements regarding the privacy, security and transmission of
individually identifiable health information.
Certain of these laws have exceptions and “safe harbors” which if met may protect certain arrangements from liability. For example, certain
financial payments that might otherwise implicate the Federal Anti-Kickback Statute will be permitted under the state if they are structured to comply with
one of various statutory exceptions or regulatory safe harbors established by the Office of Inspector General of the U.S. Department of Health and Human
Services. These safe harbors include, for example, the “Discount” safe harbor which allows manufacturers of goods covered by federal payor programs to
provide discounts to their customers in the form of rebates, volume discounts and the like as long as those discounts meet the express requirements of the
safe harbor. Other safe harbors under the Anti-Kickback Statute may also apply to consulting, teaching and other personal service arrangements we may
have with physicians and marketing personnel. These safe harbors are technical in nature and failure to meet any element of a safe harbor will cause an
arrangement to lose safe harbor protection. In addition, there may not be safe harbors or exceptions for every potential financial arrangement we may enter
into and, and even if there are, no assurances can be given that any of our arrangements or relationships will meet an otherwise applicable safe harbor.
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under such laws, it is possible that
some of our business activities, including our relationships with customers, marketing personnel, physicians and other healthcare providers, some of whom
have or may have ownership interests in the Company and recommend and/or use our products, could be subject to challenge under one or more of such
laws. We are also exposed to the risk that our employees, independent contractors, principal investigators, consultants, vendors, and distributors may
engage in fraudulent or other illegal activity. Misconduct by these parties could include, among other infractions or violations, intentional, reckless and/or
negligent conduct or unauthorized activity that violates FDA regulations, manufacturing standards, federal and state healthcare fraud and abuse laws and
regulations, laws that require the true, complete and accurate reporting of financial information or data or other commercial or regulatory laws or
requirements. It is not always possible to identify and deter misconduct by our employees and other third parties, and the precautions we take to detect and
prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or
other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations.
In addition, state and federal healthcare regulations are constantly evolving. Existing laws and regulations are subject to new and sometimes more
restrictive interpretations on a regular basis so that arrangements we believe to be legally compliant could be deemed to be non-compliant under new
interpretations. Similarly, new federal and state health care laws and regulations are being adopted on a regular basis. While we endeavor to identify and
comply with these new laws and regulations, it is possible that we may be unaware of new legal requirements or interpretations which could result in our
violation of these laws and/or regulations.
There is also an increasing trend toward more criminal prosecutions and compliance enforcement activities for noncompliance with the HIPAA
and state data privacy laws as well as for data breaches involving protected health information (“PHI”). In the ordinary course of our business, we may
receive PHI. If we are unable to comply with HIPAA or experience a data breach involving PHI, we could be subject to criminal and civil sanctions and
incur substantial investigation, defense and remediation costs.
If our operations are found to violate any of the laws described above or any other laws and regulations that apply to us, we may be subject to
penalties, including civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, the exclusion from participation in
federal and state healthcare programs and imprisonment, any of which could adversely affect our ability to market our products and materially adversely
affect our business, results of operations and financial condition. Any action against us for violation of these laws, even if we successfully defend against it,
could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business.
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U.S. governmental regulation could restrict the use of our tissue products or our procurement of tissue.
In the United States, the procurement and transplantation of allograft bone tissue is subject to federal law pursuant to the National Organ
Transplant Act (“NOTA”), a criminal statute which prohibits the purchase and sale of human organs used in human transplantation, including bone and
related tissue, for “valuable consideration.” NOTA permits reasonable payments associated with the removal, transportation, processing, preservation,
quality control, implantation and storage of human bone tissue. We provide services in all of these areas in the United States, with the exception of removal
and implantation, and receive payments for all such services. We make payments to certain of our clients and tissue banks for their services related to
recovering allograft bone tissue on our behalf. If NOTA is interpreted or enforced in a manner which prevents us from receiving payment for services we
render, or which prevents us from paying tissue banks or certain of our clients for the services they render for us, our business could be materially and
adversely affected.
We are engaged through our marketing employees, independent sales agents and sales representatives in ongoing efforts designed to educate the
medical community as to the benefits of our products, and we intend to continue our educational activities. Although we believe that NOTA permits
payments in connection with these educational efforts as reasonable payments associated with the processing, transportation and implantation of our
products, payments in connection with such education efforts are not exempt from NOTA’s restrictions and our inability to make such payments in
connection with our education efforts may prevent us from paying our sales representatives for their education efforts and could adversely affect our
business and prospects. No federal agency or court has determined whether NOTA is, or will be, applicable to every allograft bone tissue-based material
which our processing technologies may generate. Assuming that NOTA applies to our processing of allograft bone tissue, we believe that we comply with
NOTA, but there can be no assurance that more restrictive interpretations of, or amendments to, NOTA will not be adopted in the future which would call
into question one or more aspects of our method of operations.
Outside of the United States, our medical devices must comply with the laws and regulations of the foreign countries in which they are marketed, and
compliance may be costly and time-consuming. Failure to obtain and maintain regulatory approvals in jurisdictions outside the United States will
prevent us from marketing our products in such jurisdictions.
We currently market, and intend to continue to market, our products outside the United States. To market and sell our product in countries outside
the United States, we must seek and obtain regulatory approvals, certifications or registrations and comply with the laws and regulations of those countries.
These laws and regulations, including the requirements for approvals, certifications or registrations and the time required for regulatory review, vary from
country to country. Obtaining and maintaining foreign regulatory approvals, certifications or registrations are expensive, and we cannot be certain that we
will receive regulatory approvals, certifications or registrations in any foreign country in which we plan to market our products. The regulatory approval
process outside the United States may include all of the risks associated with obtaining FDA clearance or approval in addition to other risks.
In order to market our products in the Member States of the European Economic Area (“EEA”), our devices are required to comply with the
essential requirements of the EU Medical Devices Regulation 2017/745, which became effective in spring 2020 and implemented stricter control,
transparency, and enforcement and strengthened post market surveillance requirements.
Compliance with these requirements entitles us to affix the CE conformity mark to our medical devices, without which they cannot be
commercialized in the EEA. In order to demonstrate compliance with the essential requirements and obtain the right to affix the CE conformity mark we
must undergo a conformity assessment procedure, which varies according to the type of medical device and its classification. Except for low risk medical
devices (Class I), where the manufacturer can issue an EC Declaration of Conformity based on a self-assessment of the conformity of its products with the
essential requirements of the Medical Devices Directives, a conformity assessment procedure requires the intervention of a “Notified Body”, which is an
organization accredited by a Member State of the EEA to conduct conformity assessments. The Notified Body would typically audit and examine the
quality system for the manufacture, design and final inspection of our devices before issuing a certification demonstrating compliance with the essential
requirements. Based on this certification we can draw up an EC Declaration of Conformity, which allows us to affix the CE mark to our products.
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We may not obtain regulatory approvals or certifications outside the United States on a timely basis, if at all. Clearance or approval by the FDA
does not ensure approval or certification by regulatory authorities or Notified Bodies in other countries, and approval or certification by one foreign
regulatory authority or Notified Body does not ensure approval by regulatory authorities in other countries or by the FDA. We may be required to perform
additional pre-clinical or clinical studies even if FDA clearance or approval, or the right to bear the CE mark, has been obtained. If we fail to obtain or
maintain regulatory approvals, certifications or registrations in any foreign country in which we plan to market our products, our business, financial
condition and operating results could be adversely affected.
In the EEA, we must comply with the EU Medical Device Vigilance System, the purpose of which is to improve the protection of health and
safety of patients, users and others by reducing the likelihood of reoccurrence of incidents related to the use of a medical device. Under this system,
incidents must be reported to the competent authorities of the Member States of the EEA. An incident is defined as any malfunction or deterioration in the
characteristics and/or performance of a device, as well as any inadequacy in the labeling or the instructions for use which, directly or indirectly, might lead
to or might have led to the death of a patient or user or of other persons or to a serious deterioration in their state of health. Incidents are evaluated by the
EEA competent authorities to whom they have been reported, and where appropriate, information is disseminated between them in the form of National
Competent Authority Reports. The Medical Device Vigilance System is further intended to facilitate a direct, early and harmonized implementation of
Field Safety Corrective Actions (“FSCAs”) across the Member States of the EEA where the device is in use. An FSCA is an action taken by a manufacturer
to reduce a risk of death or serious deterioration in the state of health associated with the use of a medical device that is already placed on the market. An
FSCA may include the recall, modification, exchange, destruction or retrofitting of the device. FSCAs must be communicated by the manufacturer or its
legal representative to its customers and/or to the end users of the device through Field Safety Notices.
Further, the advertising and promotion of our products is subject to EEA Member States Medical Device related laws including 2017/745, the new
Medical Device Regulation, or the 2006/114/EC concerning misleading and comparative advertising, as amended, or Directive 2005/29/EC on unfair
commercial practices, as amended, as well as other EEA Member State legislation governing the advertising and promotion of medical devices. These laws
may limit or restrict the advertising and promotion of our products to the general public and may impose limitations on our promotional activities with
healthcare professionals. Our failure to comply with all these laws and requirements may harm our business and operating results.
We may also be required to perform post market clinical follow up studies to periodically evaluate the safety and performance of previously
approved products. The results of these studies may cause us to lose our approvals, to market the product or require us to modify our products to address
deficiencies in order to preserve our approvals to market the product.
Modifications to our products may require new regulatory clearances or approvals or may require us to recall or cease marketing our products until
clearances or approvals are obtained.
Any modification to a 510(k)-cleared device that could significantly affect its safety or effectiveness, including significant changes to a device’s
design, materials, chemical composition, energy source, or manufacturing process, or that would constitute a major change in its intended use, may require
a new 510(k) clearance, a de novo classification, or possibly a PMA. Modifications to our products that were implemented without obtaining clearance or
approval and for which FDA subsequently concludes that clearance or approval was required, may require us to recall or cease marketing the modified
devices until clearance or approval is obtained. The FDA requires device manufacturers to initially make and document a determination of whether or not a
modification requires a new approval, supplement or clearance. To do that, a manufacturer must determine if a change/modification to labeling of the
device is a “major” change to the intended use statement (previously cleared by the FDA) or if a physical change/modification to the device itself “could
significantly affect safety or effectiveness.” If the labeling change is major and/or the physical change significantly affects safety and effectiveness, the
manufacturer must file for an additional 510(k) clearance, de novo classification, or PMA for those changes before the modified device can be lawfully
marketed. If the Company concludes in its own self-determination that the changes do not meet either of the thresholds of “major “or “significantly
affects,” it may simply document those changes by way of an internal letter-to-file as part of the manufacturer’s quality system recording keeping.
However, the FDA can review a manufacturer’s decision and may disagree. The FDA will normally review a decision made by a manufacturer in a letter-
to-file during a routine plant inspection, which FDA targets to conduct every two years for high-risk (Class III) device manufacturers and certain low and
moderate risk (Class I and II) device manufacturers. In such a review the FDA may determine that a new clearance or approval was required before the
device was put into commercial distribution.
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We have made modifications to our products in the past that we concluded did not require a new clearance or approval, and we may make
additional modifications in the future that we believe do not or will not require additional clearances or approvals. No assurance can be given that the FDA
would agree with any of our decisions not to seek 510(k) clearance, de novo classification, or PMA approval. The issue of whether a product modification
requires clearance or approval, as opposed to a “letter-to-file” documenting the change, is not always clear and companies rely on FDA guidance to assist
in making such decisions.
If the FDA requires us to cease marketing and recall a modified device until we obtain a new 510(k) clearance, de novo classification, or PMA,
our business, financial condition, operating results and future growth prospects could be materially and adversely affected. Further, our products could be
subject to recall if the FDA determines, for any reason, that our products are not safe or effective. Any recall or FDA requirement that we seek additional
approvals or clearances could result in significant delays, fines, increased costs associated with modification of a product, loss of revenue and potential
operating restrictions imposed by the FDA. Obtaining clearances and approvals can be a time-consuming process, and delays in obtaining required future
clearances or approvals would adversely affect our ability to introduce new or enhanced products in a timely manner, which in turn would harm our future
growth.
Our manufacturing operations are required to comply with the FDA’s and other governmental authorities’ laws and regulations regarding the
manufacture and production of medical devices, which is costly and could subject us to enforcement action.
We and certain of our third-party manufacturers and suppliers are required to comply with the FDA’s current Good Manufacturing Practices
(“cGMP”) requirements and Quality System Regulations (“QSR”), set to be replaced by the Quality Management System Regulation (“QMSR”) in
February 2026, which cover, among other things, the methods of documentation of the design, testing, production, control, quality assurance, labeling,
packaging, sterilization, storage and shipping of our products. We and certain of our suppliers also are subject to the regulations of foreign jurisdictions
regarding the manufacturing process for our products marketed outside of the United States. The FDA enforces the QSR through periodic announced
(routine) and unannounced (for cause or directed) inspections of manufacturing facilities. The failure by us or one of our third-party manufacturers or
suppliers to comply with applicable statutes and regulations administered by the FDA and other regulatory bodies, or the failure to timely and adequately
respond to any adverse inspectional observations or product safety issues, could result in, among other things, any of the following enforcement actions:
● untitled letters, warning letters, fines, injunctions, consent decrees, disgorgement of profits, criminal and civil penalties;
● customer notifications or repair, replacement, refunds, recall, detention or seizure of our products;
● operating restrictions or partial suspension or total shutdown of production;
● refusing or delaying our requests for 510(k) clearance, de novo classification, or PMA approval of new products or modified products;
● withdrawing 510(k) clearances, de novo classifications, or PMAs that have already been granted;
● refusal to grant export certificates for our products; or
● criminal prosecution.
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Any of these actions could impair our ability to produce our products in a cost-effective and timely manner in order to meet our customers’
demands. We also may be required to bear other costs or take other actions that may have a negative impact on our future revenue and other operating
results. Furthermore, our key component suppliers may not currently be or may not continue to be in compliance with all applicable regulatory
requirements, which could result in our failure to produce our products on a timely basis and in the required quantities, if at all.
Even if our medical device products are cleared or approved by regulatory authorities, if we or our suppliers fail to comply with ongoing FDA or other
foreign regulatory authority requirements, or if we experience unanticipated problems with our products, these products could be subject to restrictions
or withdrawal from the market.
Any product that we market will be subject to continued regulatory review, oversight and periodic inspections by the FDA and other domestic and
foreign regulatory bodies. Such oversight will cover, among other things, the product’s design and manufacturing processes, our quality system and
compliance with reporting requirements, our compliance with post-approval clinical data requirements, and our promotional activities related to our
products.
Even if regulatory clearance or approval of a product is granted, such clearance or approval may be subject to limitations on the intended uses for
which the product may be marketed and reduce our potential to successfully commercialize the product and generate revenue from the product. If the FDA
determines that our promotional materials, labeling, training or other marketing or educational activities constitute promotion of an unapproved use, it
could request that we cease or modify our training or promotional materials or subject us to regulatory enforcement actions. It is also possible that other
federal, state or foreign enforcement authorities might take action if they consider our training or other promotional materials to constitute promotion of an
unapproved use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for
reimbursement.
In addition, we may be required to conduct costly post-market testing and surveillance to monitor the safety or effectiveness of our products. Later
discovery of previously unknown problems with our products, including unanticipated adverse events or adverse events of unanticipated severity or
frequency, manufacturing problems, or failure to comply with regulatory requirements such as QSR or QMSR, may result in, among other things, changes
to labeling, restrictions on such products or manufacturing processes, product corrections, removal of the products from the market, voluntary or mandatory
recalls, a requirement to repair, replace or refund the cost of any medical device we manufacture or distribute, fines, withdrawal of regulatory clearance or
approvals, delays in or refusals of new 510(k)s, de novo requests or PMA applications, untitled letters, warning letters, refusal to grant export certificates
for our products, product seizures, injunctions or the imposition of civil or criminal penalties which would adversely affect our business, operating results
and prospects.
The use, misuse or off-label use of our products may harm our image in the marketplace or result in injuries that lead to product liability suits, which
could be costly to our business or result in FDA sanctions if we are deemed to have engaged in improper promotion of our products.
Our products currently marketed in the United States have been cleared through the FDA’s 510(k) process for use under specific circumstances.
Our promotional materials and training methods must comply with FDA and other applicable laws and regulations, including the prohibition on the
promotion of a medical device for a use that has not been cleared or approved by the FDA. We believe that the specific surgical procedures for which our
products are marketed fall within the general intended use of the surgical applications that have been cleared by the FDA. However, the FDA could
disagree and require us to stop promoting our products for those specific indications/procedures until we obtain FDA clearance or approval for them. Use
of a device outside of its cleared or approved indication is known as “off-label” use. We cannot prevent a surgeon from using our products for off-label use,
as the FDA does not restrict or regulate a physician’s choice of treatment within the practice of medicine. However, if the FDA determines that our
promotional activities, reimbursement advice or training of sales representatives or physicians constitute promotion of an off-label use, the FDA could
request that we modify our training or promotional or reimbursement materials or subject us to regulatory or enforcement actions, including, among other
things, the issuance of an untitled letter, a warning letter, injunction, seizure, disgorgement of profits, a civil fines and criminal penalties. Other federal,
state or foreign governmental authorities also might take action if they consider our promotion or training materials to constitute promotion of an uncleared
or unapproved use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for
reimbursement. For example, the government may take the position that off-label promotion resulted in inappropriate reimbursement for an off-label use in
violation of the Federal False Claims Act for which it might impose a civil fine and even pursue criminal action. In those possible events, our reputation
could be damaged, and adoption of the products would be impaired. Although we train our sales force not to promote our products for off-label uses, and
our instructions for use in all markets specify that our products are not intended for use outside of those indications cleared for use, the FDA or another
regulatory agency could conclude that we have engaged in off-label promotion.
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There may be increased risk of injury and product liability if surgeons attempt to use our products off-label, misuse our products or do not follow
recommended user techniques and guidelines. Product liability claims are expensive to defend and could divert our management’s attention and result in
substantial damage awards against us. Furthermore, the use of our products for indications other than those indications for which our products have been
cleared by the FDA may not effectively treat such conditions, which could harm our reputation in the marketplace among surgeons and patients. Any of
these events could harm our business and operating results.
If our products cause or contribute to a death or serious injury, or malfunction in certain ways, we will be subject to medical device reporting
regulations, which can result in voluntary corrective actions or agency or other governmental enforcement actions.
Under the FDA medical device reporting regulations and similar foreign governmental regulations, medical device manufacturers are required to
report to the FDA or other governmental agencies information that a device has or may have caused or contributed to a death or serious injury or has
malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction of the device or one of our similar devices were
to recur. Under the FDA’s reporting regulations applicable to HCT/Ps, we are required to report all adverse reactions involving a communicable disease if it
is fatal, life threatening, results in permanent impairment of a body function or permanent damage to body structure, or necessitates medical or surgical
intervention, including hospitalization. If we fail to report these events to the FDA within the required timeframes, or at all, the FDA could take
enforcement action against us. Any such adverse event involving our products also could result in future voluntary corrective actions, such as recalls or
customer notifications, or agency action, such as mandatory recalls, destruction, cessation of manufacturing, inspection or other enforcement action. Any
corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, would require the dedication of our time and capital,
distract management from operating our business, and may harm our reputation and financial results. We are currently subject to certain product liability
litigation, which could harm our business, financial condition or results of operations, especially if this litigation requires payments in amounts that exceed
our product liability insurance coverage.
Any future product recall or voluntary market withdrawal of a product due to defects, enhancements and modifications or other reasons would
significantly increase our costs.
The FDA and similar foreign governmental authorities have the authority to require the recall of commercialized products. In addition, foreign
governmental bodies have the authority to require the recall of our products in the event of material deficiencies or defects in design or manufacture.
Manufacturers may, under their own initiative, recall a product if any material deficiency in a device is found or for other reasons. A government-mandated
or voluntary recall by us or one of our distributors could occur as a result of component failures, manufacturing errors, design or labeling defects or other
deficiencies and issues. Recalls of any of our products would divert managerial and financial resources and could have an adverse effect on our financial
condition and results of operations. The FDA requires that certain recalls undertaken to reduce a risk to health be reported to the FDA within 10 working
days after the recall is initiated. Companies are required to maintain certain records of recalls, even if they are not reportable to the FDA. We may initiate
voluntary recalls involving our products in the future that we determine do not require notification of the FDA. If the FDA disagrees with our
determinations, they could require us to report those actions as recalls. In addition, the FDA could take enforcement action for failing to report the recalls
when they were conducted.
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If we or our suppliers fail to comply with regulations pertaining to human cells, tissues, and cellular and tissue-based products or are deemed to be
biological products requiring approval of a BLA prior to being marketed, these products could be subject to withdrawal from the market or other
enforcement action.
Certain of our products are regulated as HCT/Ps. Section 361 of the PHSA authorizes the FDA to issue regulations to prevent the introduction,
transmission or spread of communicable disease. HCT/Ps regulated as “361” HCT/Ps are subject to requirements relating to registering facilities and listing
products with the FDA; screening and testing for tissue donor eligibility; and current Good Tissue Practice (“cGTPs”), when processing, storing, labeling,
and distributing HCT/Ps, including required labeling information, stringent record keeping, and adverse event reporting, among other applicable
requirements and laws. The FDA regulations also have additional requirements that address sub-contracted tissue services, tracking, and donor records
review. If a tissue-based product is considered human tissue, the FDA requirements focus on preventing the introduction, transmission and spread of
communicable diseases. A product regulated solely as a 361 HCT/P is not required to undergo 510(k) premarket clearance, de novo classification or PMA.
The FDA may inspect facilities engaged in manufacturing 361 HCT/Ps and may issue untitled letters, warning letters, or otherwise authorize
orders of retention, recall, destruction and cessation of manufacturing if the FDA has reasonable grounds to believe that an HCT/P or the facilities where it
is manufactured are in violation of applicable regulations. There also are requirements relating to the import of HCT/Ps that allow the FDA to make a
decision as to the HCT/Ps’ admissibility into the United States.
An HCT/P is eligible for regulation solely as a 361 HCT/P if it is: (i) minimally manipulated; (ii) intended for homologous use as reflected by
labeling, advertising or other indications of the manufacturer’s objective intent; (iii) the manufacture does not involve the combination of the HCT/P with
another article, except for water, crystalloids or a sterilizing, preserving, or storage agent (not raising new clinical safety concerns for the HCT/P); and (iv)
it does not have a systemic effect and is not dependent upon the metabolic activity of living cells for its primary function or, if it has a systemic effect or is
dependent upon the metabolic activity of living cells for its primary function, it is intended for autologous use or allogeneic use in a first or second degree
relative or for reproductive use. If any of these requirements are not met, then the HCT/P is also subject to applicable biologic, device, or drug regulation
under the FDCA or the PHSA. These biologic, device or drug HCT/Ps must comply with the requirements exclusively applicable to 361 HCT/Ps and, in
addition, with requirements applicable to biologics under the PHSA, or devices or drugs under the FDCA, including licensure, clearance or approval, as the
case may be.
Over the course of several years, the FDA issued regulations that address manufacturer activities associated with HCT/Ps. The first requires that
companies that manufacture HCT/Ps register with the FDA. This set of regulations also includes the criteria that must be met in order for the HCT/P to be
eligible for regulation solely under Section 361 of the PHSA and the regulations in 21 CFR Part 1271, rather than under the drug or device provisions of
the FDCA or the biological product licensing provisions of the PHSA. The second set of regulations provides criteria that must be met for donors to be
eligible to donate tissues and is referred to as the “Donor Eligibility” rule. The third rule governs the processing and distribution of the tissues and is often
referred to as the cGTP rule. The cGTP rule covers all stages of allograft processing, from procurement of tissue to distribution of final allografts. Together
these regulations are designed to ensure that sound, high quality practices are followed to reduce the risk of tissue contamination and of communicable
disease transmission.
At the time they came into effect approximately 20 years ago, these regulations increased regulatory scrutiny within the industry in which we
operate and have led to increased enforcement action which affects the conduct of our business. In addition, these regulations can increase the cost of tissue
recovery activities. The FDA periodically inspects tissue processors to determine compliance with these requirements. Allegations of violations of
applicable regulations noted by the FDA during facility inspections could adversely affect the continued marketing of our products. We believe we comply
with all aspects of 21 CFR Part 1271 that we are required to comply with, although there can be no assurance that we will be deemed by FDA to be in
compliance. Entities that provide us with allograft bone tissue are responsible for performing donor recovery, donor screening and donor testing and our
compliance with those aspects of the cGTP regulations that regulate those functions are dependent upon the actions of these independent entities. If our
suppliers fail to comply with applicable requirements, our products and our business could be negatively affected. If the FDA determines that we have
failed to comply with applicable regulatory requirements, it can impose a variety of regulatory actions, or enforcement actions from public warning letters,
fines, injunctions, consent decrees and civil penalties to suspension or delayed issuance of approvals, seizure of our products, total or partial shutdown of
our production, withdrawal of approvals, and criminal prosecutions. If any of these events were to occur, it could materially adversely affect us.
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In addition, the FDA could disagree with our conclusion that one or more of our HCT/Ps meet the criteria for marketing solely under Section 361
of the PHSA, and therefore that one or more of the HCT/Ps require licensure, approval or clearance of a marketing application. The FDA could conclude
that the tissue is more than minimally manipulated, that the product is intended for a non-homologous use, that the product is combined with another
article, or that the product has a systemic effect or is dependent on the metabolic activity of living cells for its primary function. The FDA could also
determine that a modification to an HCT/P makes it ineligible for regulation solely as a 361 HCT/P. If the FDA were to draw these conclusions, it would
likely require clinical studies conducted pursuant to an investigational new drug application (“IND”) and the submission and licensure, approval or
clearance of a marketing application in order for us to continue to market the product. Such an action by the FDA could cause negative publicity, decreased
or discontinued product sales, and significant expense in obtaining required marketing licensure, approval or clearance.
Other regulatory entities with authority over our products and operations include state agencies enforcing statutes and regulations covering tissue
banking. Regulations issued by Florida, New York, California and Maryland are particularly relevant to our business. Most states do not currently have
tissue banking regulations. It is possible that others may make allegations against us or against donor recovery groups or tissue banks about non-
compliance with applicable FDA regulations or other relevant statutes or regulations. Allegations like these could cause regulators or other authorities to
take investigative or other action or could cause negative publicity for our business and the industry in which we operate.
Loss of AATB accreditation would have a material adverse effect on us.
We are accredited with the American Association of Tissue Banks, a private non-profit organization that accredits tissue banks and sets industry
standards. Although AATB accreditation is voluntary and not required by law, as a practical matter, many of our customers would not purchase our
products if we failed to maintain our AATB accreditation. Although we make every effort to maintain our AATB accreditation, the accreditation process is
somewhat subjective and lacks regulatory oversight. There can be no assurance that we will continue to remain accredited with the AATB and any loss of
our AATB accreditation would adversely affect our business and operating results.
Federal regulatory reforms may adversely affect our business and our ability to sell our products.
From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the
regulatory approval, manufacture and marketing of regulated products or the reimbursement thereof. In addition, FDA regulations and guidance are often
revised or reinterpreted by the FDA in ways that may significantly affect our business and our products. For example, the FDA issued a final rule in
February 2024 replacing the QSR with the QMSR, which incorporates by reference the quality management system requirements of ISO 13485:2016. The
FDA has stated that the standards contained in ISO 13485:2016 are substantially similar to those set forth in the existing QSR. This final rule does not go
into effect until February 2026. Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen
review times of future products. FDA regulations and guidance are often revised or reinterpreted by the agency in ways that may significantly affect our
business and our products. Additionally, if the Supreme Court reverses or curtails the Chevron doctrine, which gives deference to regulatory agencies in
litigation against FDA and other agencies, more companies may bring lawsuits against FDA to challenge longstanding decisions and policies of FDA,
which could undermine FDA’s authority, lead to uncertainties in the industry, and disrupt FDA’s normal operations, which could adversely affect our ability
to sell our products. It is impossible to predict whether legislative or other changes will be enacted or FDA regulations, guidance or interpretations
changed, and what the impact of such changes, if any, may be.
Our revenues depend upon prompt and adequate coverage and reimbursement from public and private insurers and national health systems.
The ability of healthcare providers to purchase our products depends in part on the extent to which reimbursement for the costs of such materials
and related treatments is and will continue to be available from governmental health administration authorities, private health coverage insurers and other
organizations. In the United States, healthcare providers who purchase our products generally rely on these third-party payors to pay for all or a portion of
the cost of our products as a component of a single bundled payment amount for the procedures in which the products are used. Because there is often no
separate third-party payor reimbursement to the provider for our products, the additional cost associated with purchasing our products can impact the
provider’s profit margin for delivering the treatment that includes are product as a component. If third-party payor reimbursement to providers for
procedures involving our products is eliminated or reduced, some of our target customers may be unwilling to purchase our products and may choose to
instead purchase less expensive alternatives from our competitors. In addition, third-party payors for hospital services and hospital outpatient services,
including Medicare, Medicaid and private healthcare insurers, typically revise their coverage and payment policies, methodologies and amounts on an
annual basis, which can result in noncoverage, stricter standards for reimbursement of hospital charges for certain medical procedures or the elimination of
or reduction in reimbursement. Further, Medicare, Medicaid and private healthcare insurer cutbacks could create downward price pressure on our products.
Healthcare reform legislation at the federal and state levels could result in changes in coverage of and reimbursement for our products. Finally, our
revenues also depend upon timely reimbursement data input from our independent agents. All of these factors could adversely affect our business.
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Our business is subject to complex and evolving U.S. and international laws and regulation regarding privacy and data protection. Many of these laws
and regulations are subject to change and uncertain interpretation and could result in claims, changes to our business practices, penalties, increased
cost of operations, or otherwise harm our business.
Regulatory authorities around the world have enacted laws and regulations or are considering a number of legislative and regulatory proposals
concerning data protection. The interpretation and application of consumer and data protection laws in the United States, the EU and elsewhere are often
uncertain and subject to change. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our data practices. Failure
to comply with any of these laws and regulations could result in enforcement action against us, including fines, public censure, claims for damages by
affected individuals, damage to our reputation and loss of goodwill, any of which could have a material adverse effect on our business, results of
operations, and financial condition.
Legal developments in Europe have created compliance uncertainty regarding certain transfers of personal data from Europe to the United States.
For example, the General Data Protection Regulation (EU 2016/679) (“GDPR”), which became effective in the EU on May 25, 2018, applies to our
activities conducted from an establishment in the EU or related to products and services that we offer to EU customers. The GDPR created a range of new
compliance obligations, which could cause us to change our business practices, and will significantly increase financial penalties for noncompliance. In
addition, the European Commission in July 2016 and the Swiss Government in January 2017 approved the EU-U.S. and the Swiss-U.S. Privacy Shield
frameworks, respectively, which are designed to allow U.S. companies that self-certify to the U.S. Department of Commerce and publicly commit to
comply with the Privacy Shield requirements to freely import personal data from the EU and Switzerland. However, these frameworks have faced a number
of legal challenges, and their validity remains subject to legal, regulatory and political developments in both the EU and the United States.
Risks Related to Human Capital Management
Our business is dependent upon a sufficient number of qualified workers, and competition for such talent is intense, especially around Belgrade,
Montana, where the population is small and the labor market is tight. If we cannot attract and retain qualified personnel or if we must increase
substantially our labor costs to attract and retain qualified personnel, the growth and success of our business, as well as our operating results and
financial condition, may be adversely affected.
The population around Belgrade, Montana, where our headquarters and production facilities are located, is small, and as a result, there is a limited
number of qualified personnel available in all functional areas, which has made it difficult for us to attract and retain the qualified personnel necessary for
the development, operation and growth of our business. We have been further impacted by the recent labor shortage. Additionally, the rising cost of living
in Belgrade, Montana and surrounding areas has caused some members of the labor force to leave these areas in search of more affordable living
arrangements, which has worsened our local labor shortage. Our ability to maintain our productivity at competitive levels and increase production in the
future may be limited by our ability to employ, train and retain personnel necessary to meet our requirements. Companies in our industry, including us, are
dependent upon an available labor pool of qualified employees. We compete for qualified personnel with other companies, academic institutions,
governmental entities, and other organizations. A shortage in the labor pool of workers, which we believe currently exists in Belgrade, Montana, and which
has worsened in the past year, has made it more difficult for us to attract and retain qualified personnel. We cannot be certain that we will be able to
maintain an adequate qualified labor force necessary to operate efficiently and to support our growth strategy and operations. During 2022 and to a lesser
degree during 2023, these labor shortages contributed to production shortages and, from time to time, an inability for us to operate at full capacity. The tight
labor market in the Belgrade, Montana, area also has required us to enhance our wages and benefit packages to attract a sufficient number of workers, and
it is possible that these increased labor costs may not be effective in recruiting and retaining a sufficient number of qualified personnel. During 2023, we
increased our recruiting and onboarding activities to combat these issues. However, there can be no assurance that we will be successful in retaining our
current personnel or in hiring or retaining a sufficient number of qualified personnel in the future. If we cannot attract and retain qualified personnel or if
we must increase substantially our labor costs to attract and retain qualified personnel, the growth and success of our business, as well as our operating
results and financial condition, will be adversely affected.
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We have limited staffing and are dependent upon key employees.
Our success is dependent upon the efforts of a relatively small management team and staff. We have experienced a high level of employee
turnover in past years, including members of our management team. We have employment arrangements in place with our executive and other officers, but
none of these executive and other officers are bound legally to remain employed with Xtant for any specific term. We do not have key person life insurance
policies covering our executive and other officers or any of our other employees. If key individuals were to leave Xtant, our business could be affected
adversely if suitable replacement personnel are not recruited quickly.
Risks Related to Our Outstanding Indebtedness, Need for Additional Financing and Financial Condition
We have incurred significant losses, expect to continue to incur losses and may not achieve or sustain profitability.
We have a history of incurring net losses, and at December 31, 2023, we had an accumulated deficit of $243.0 million. However, during the year
ended December 31, 2023, we recognized net income of $660 thousand. Our ability to achieve profitability will be influenced by many factors, including,
among others, the level and timing of future revenues and expenditures; development, commercialization, market acceptance and availability and supply of
our products; competing technologies and market developments; our ability to develop and introduce new products; regulatory requirements and delays; the
strength of our relationships with our independent sales agents and distributors; and our ability to attract and retain key personnel. As a result, we may
continue to incur operating losses for the foreseeable future. These losses will continue to have an adverse impact on our stockholders’ equity, and we may
never achieve or sustain profitability.
We may need additional financing to satisfy our anticipated future liquidity requirements, which financing may not be available on favorable terms, or
at all, at the time it is needed and which could reduce our operational and strategic flexibility.
Although it is difficult for us to predict our future liquidity requirements, we believe that our cash and cash equivalents and restricted cash balance
of approximately $5.6 million as of December 31, 2023, together with existing credit availability under our Amended and Restated Credit, Security and
Guarantee Agreement (Term Loan), (the “Term Credit Agreement”), and Amended and Restated Credit, Security and Guaranty Agreement (Revolving
Loan), (the “Revolving Credit Agreement” and, together with the Term Credit Agreement, the “Credit Agreements”), with MidCap Financial Trust and
MidCap Funding IV Trust (together, “MidCap”), each in its respective capacity as agent, will be sufficient to meet our anticipated cash requirements
through at least the end of March 2025. Although we have availability under our Term Credit Agreement, our ability to obtain additional term loans under
this agreement is in the sole and absolute discretion of MidCap and the lenders. Additionally, although we have availability under our Revolving Credit
Agreement, the availability of such funds is determined based on a borrowing base equal to percentages of certain accounts receivable and inventory. These
credit facilities have a maturity date of March 1, 2029, and all of our indebtedness thereunder matures on such date. We may require or we may seek
additional funds to fund our future operations and business strategy prior to March 2025. Accordingly, there is no assurance that we will not need or seek
additional funding at any time. We may elect to raise additional funds even before we need them if market conditions for raising additional capital are
favorable. We may seek to raise additional funds through various sources, such as equity and debt financings, additional debt restructurings or refinancings,
or through strategic collaborations, license agreements or acquisition transactions. We can give no assurances that we will be able to secure additional
sources of funds to support our operations, or if such funds are available to us, that such additional financing will be sufficient to meet our needs or on
terms acceptable to us. This is particularly true if economic and market conditions deteriorate. Any failure by us to raise additional funds on terms
favorable to us, or at all, could result in our inability to pay our expenses as they come due, limit our ability to expand our business operations, and harm
our overall business prospects. If adequate funds are not otherwise available, we could be required to curtail operations significantly, including reducing our
sales and marketing expenses, which could negatively impact product sales, delaying new product initiatives, and we could even be required to cease
operations, liquidate our assets and possibly seek bankruptcy protection.
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To the extent we raise additional financing through the sale of equity or convertible debt securities or the restructuring or refinancing of our
outstanding debt, the interests of our current stockholders may be diluted, and the terms may include discounted equity purchase prices, warrant coverage,
or liquidation or other preferences that adversely affect the rights of our current stockholders. If we issue common stock, we may do so at purchase prices
that represent a discount to our trading price and/or we may issue warrants to purchasers, which could dilute our current stockholders. If we issue preferred
stock, it could affect the rights of our stockholders or reduce the value of our common stock. In particular, specific rights granted to future holders of
preferred stock may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights, sinking fund provisions, and
restrictions on our ability to merge with or sell our assets to a third party. Additional debt financing, if available, may involve agreements that include
covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
Prior to raising additional equity or debt financing, we must obtain the consent of MidCap and ROS and Royalty Opportunities, and no assurance can be
provided that MidCap, ROS or Royalty Opportunities would provide such consent, which could limit our ability to raise additional financing.
We have indebtedness which matures on March 1, 2029. We may not be able to extend the maturity date of or replace our Credit Agreements or
generate enough cash flow from our operations to service our indebtedness, and we may incur additional indebtedness in the future, which could
adversely affect our business, financial condition, and operating results.
As of December 31, 2023, we had $21.6 million of principal outstanding under our Credit Agreements, which indebtedness matures on March 1,
2029. Although we believe that we will be able to refinance or pay off our outstanding indebtedness or extend the maturity date of that facility at the
appropriate time, no assurance can be provided that we will do so on terms that are favorable to us or at all. Our ability to make payments on, and to
refinance, our indebtedness, and our ability to fund planned capital expenditures, contractual cash obligations, known and unknown liabilities, research and
development efforts, working capital, any future acquisitions and business combinations, and other general corporate purposes depends on our ability to
generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory, and other factors, some of
which are beyond our control. If we do not generate sufficient cash flow from operations or if future borrowings are not available to us in an amount
sufficient to pay our indebtedness or to fund our liquidity needs, we may be forced to refinance all or a portion of our indebtedness on or before the
maturity dates thereof, sell assets, reduce or delay capital expenditures, seek to raise additional capital, or take other similar actions. We may not be able to
execute any of these actions on commercially reasonable terms or at all. Our ability to refinance our indebtedness will depend on our financial condition at
the time, the restrictions in the instruments governing our indebtedness, the consent of our lender, and other factors, including market conditions. Our
inability to generate sufficient cash flow to satisfy our debt service obligations, or to refinance or restructure our obligations on commercially reasonable
terms or at all, would likely have an adverse effect, which could be material, on our business, financial condition, and operating results.
In addition, our significant indebtedness, combined with our other financial obligations and contractual commitments, could have other important
consequences. For example, it could:
● make us more vulnerable to adverse changes in general U.S. and worldwide economic, industry, and competitive conditions and adverse
changes in government regulation;
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● limit our flexibility in planning for, or reacting to, changes in our business and our industry;
● restrict our ability to make strategic acquisitions, business combinations or dispositions or to exploit business opportunities;
● place us at a competitive disadvantage compared to our competitors who have less debt; and
● limit our ability to borrow additional amounts or raise financing for working capital, capital expenditures, contractual obligations, research
and development efforts, acquisitions or business combinations, debt service requirements, execution of our business strategy, or other
purposes.
Any of these factors could materially and adversely affect our business, financial condition, and operating results. In addition, we may incur
additional indebtedness, and if we do, the risks related to our business and our ability to service our indebtedness would increase.
A failure to comply with the covenants and other provisions of our Credit Agreements may cause suspension or termination of the Credit
Agreements and/or require the immediate repayment of our outstanding indebtedness. If we are at any time unable to generate sufficient cash flows from
operations to service our indebtedness when payment is due, we may be required to attempt to renegotiate the terms of the Credit Agreements, seek to
refinance all or a portion of the indebtedness, or obtain additional financing. There can be no assurance that we will be able to successfully renegotiate such
terms, that any such refinancing would be possible, or that any additional financing could be obtained on terms that are favorable or acceptable to us.
The terms of our Credit Agreements substantially limit our ability to conduct and invest in our business, take advantage of business opportunities, and
respond to changing business, market, and economic conditions.
Our Credit Agreements include a number of significant financial and operating restrictions. For example, the Credit Agreements require us to
maintain net product revenue at or above minimum levels and to maintain a minimum liquidity threshold, in each case at levels specified in the Credit
Agreements. The Credit Agreements also contain provisions that restrict our ability, subject to specified exceptions, to, among other things:
● create, incur, assume, guarantee or otherwise become or remain directly or indirectly liable with respect to any debt, except for permitted debt;
● create, assume, incur or suffer to exist any contingent obligations, except for permitted contingent obligations;
● purchase, redeem, defease or prepay any principal of, premium, if any, interest or other amount payable in respect of any debt prior to its
scheduled maturity;
● create, assume or suffer to exist any lien on our assets;
● declare, order, pay, make or set apart any sum for any distribution, except for permitted distributions;
● enter into or assume any agreement prohibiting the creation or assumption of any lien upon our properties or assets or create or otherwise
cause or suffer to exist or become effective certain consensual encumbrances or restrictions of any kind;
● declare, pay, make or set aside any amount for payment in respect of subordinated debt;
● engage in mergers or consolidations;
● acquire, make, own, hold or otherwise consummate any investment, other than permitted investments;
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● enter into certain transactions with affiliates;
● amend or otherwise modify any organizational documents; and
● make certain amendments or modifications to certain material contracts.
We may be unable to comply with these covenants, which could result in a default under the Credit Agreements. In addition, these provisions may
limit our ability to conduct and invest in our business, take advantage of business opportunities, and respond to changing business, market, and economic
conditions. In addition, they may place us at a competitive disadvantage relative to other companies that may be subject to fewer, if any, restrictions or may
otherwise adversely affect our business. Transactions that we may view as important opportunities, such as significant acquisitions or business
combinations, may be subject to the consent of the lenders, which consent may be withheld or granted subject to conditions specified at the time that may
affect the attractiveness or viability of the transaction. In addition, our Investor Rights Agreement with ROS and Royalty Opportunities (as amended, the
“Investor Rights Agreement”) further substantially limits the operation of our business and the ability of our management to conduct and invest in our
business.
Our Credit Agreements involve additional risks that may adversely affect our liquidity, results of operations, and financial condition.
Availability of additional term loans under the Term Credit Agreement is based solely on the discretion of MidCap and the lenders, and additional
funds are for the purposes agreed to between us, the borrowers and the lenders in advance of the making of loans under this additional tranche. Availability
of additional funds under the Revolving Credit Agreement is determined based on a borrowing base equal to percentages of certain accounts receivable and
inventory of the borrowers in advance with a formula set forth in the Revolving Credit Agreement. As a result, our access to credit under the Credit
Agreements is subject to the discretion of MidCap and the lenders as well as fluctuations to our accounts receivable and inventory. Our inability to borrow
additional amounts under the Credit Agreements if and when we need them may adversely affect our liquidity, results of operations, and financial
condition.
Our outstanding indebtedness under the Credit Agreements bears interest at variable rates, which subjects us to interest rate risk and could increase
the cost of servicing our indebtedness. The impact of increases in interest rates, such as interest rate increases stemming from the Federal Reserve’s recent
and planned increases to the target range for the federal funds rate, could be more significant for us than it would be for some other companies because of
the amount of our outstanding indebtedness, thereby affecting our profitability.
Upon the occurrence and during the continuance of an event of default under the Credit Agreements, MidCap may terminate its commitments to
lend additional money thereunder and declare all amounts outstanding thereunder to be immediately due and payable. Subject to certain exceptions,
amounts outstanding under the Credit Agreements are secured by a senior first priority security interest in substantially all existing and after-acquired assets
of our Company and each borrower. Accordingly, under certain circumstances, MidCap could seek to enforce security interests in our assets securing our
indebtedness under the Credit Agreements, including restricting our access to collections on our accounts receivable. Any acceleration of amounts due
under our Credit Agreements or the exercise by MidCap of its rights under the security documents, would have a material adverse effect on us.
Risks Related to Intellectual Property
If we lose any future intellectual property lawsuits, a court could require us to pay significant damages or prevent us from selling our products.
The medical device industry is litigious with respect to patents and other intellectual property rights. Companies in the medical device industry
have used intellectual property litigation to gain a competitive advantage. Legal proceedings, regardless of the outcome, could drain our financial resources
and divert the time and effort of our management. If we lose this litigation or any other similar legal proceedings of which we may become subject, a court
could require us to pay significant damages to third parties, indemnify third parties from loss, require us to seek licenses from third parties, pay ongoing
royalties, redesign our products, or prevent us from manufacturing, using, selling, offering for sale, or importing our products. While we do not believe that
any of our products infringe any valid claims of patents or other proprietary rights held by others, we have been subject to patent infringement claims in the
past. There can be no assurances that we do not infringe any patents or other proprietary rights. In addition to being costly, protracted litigation to defend or
prosecute our intellectual property rights could result in our customers or potential customers deferring or limiting their purchase or use of the affected
products until resolution of the litigation.
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If our patents and other intellectual property rights do not adequately protect our products, we may lose market share to our competitors and be unable
to operate our business profitably.
We rely on patents, trade secrets, copyrights, know-how, trademarks, license agreements, and contractual provisions to establish our intellectual
property rights and protect our products. These legal means, however, afford only limited protection and may not completely protect our rights. For
example, competitors may be able to design around some of our intellectual property rights to develop competing but non-infringing technologies. In
addition, we cannot be assured that any of our pending patent applications will issue. The U.S. Patent and Trademark Office (or an applicable foreign
intellectual property office) may deny or require a significant narrowing of the claims in its pending patent applications and the patents issuing from such
applications. Any patents issuing from pending patent applications may not provide us with significant commercial protection or sufficient commercial
protection to prevent competitors from utilizing similar but non-infringing technologies. We could incur substantial costs in proceedings before the U.S.
Patent and Trademark Office. These proceedings could result in adverse decisions as to the priority of our inventions and the narrowing or invalidation of
claims in issued patents. In addition, the laws of some of the countries in which our products are or may be sold may not protect our intellectual property to
the same extent as U.S. laws or at all. We also may be unable to protect our rights in trade secrets and unpatented proprietary technology in these countries.
Additionally, patents and certain other intellectual property rights are not perpetual, and third parties will be able to utilize the subject rights upon
expiration.
In addition, we hold licenses from third parties that are necessary to utilize certain technologies used in the design and manufacturing of some of
our products. The loss of such licenses could prevent us from manufacturing, marketing, and selling these products, which could harm our business. If we,
or the other parties from whom we would license intellectual property, fail to obtain and maintain adequate patent or other intellectual property protection
for intellectual property used in our products, or if any protection is reduced or eliminated, others could use the intellectual property used in our products,
resulting in harm to our competitive business position.
We seek to protect our trade secrets, know-how, and other unpatented proprietary technology, in part, with confidentiality agreements with our
employees, independent distributors, and consultants. We cannot be assured, however, that the agreements will not be breached, adequate remedies for any
breach would be available, or our trade secrets, know-how, and other unpatented proprietary technology will not otherwise become known to or
independently developed by our competitors.
We may not be able to obtain or protect our proprietary rights relating to our products without resorting to costly and time-consuming litigation.
We may not be able to obtain, maintain and protect certain proprietary rights necessary for the development and commercialization of our products
or product candidates. Our commercial success will depend in part on obtaining and maintaining patent protection on our products, successfully asserting
these patents against competitors employing infringing technology, and successfully defending these patents against third-party challenges. Even if our
patents cover a competing technology, a competitor may not accede to our demands to cease and desist or license our patent rights, which will then require
us to pursue costly and time-consuming litigation. Even if we were successful in any such litigation, a court may not issue an injunction, or the infringing
competitor may alter its technology to no longer infringe. Our ability to commercialize our products will also depend in part on the patent positions of third
parties, including those of our competitors. The patent positions of medical device and biotechnology companies can be highly uncertain and involve
complex legal and factual questions. Accordingly, we cannot predict with certainty the scope and breadth of patent claims that may be afforded to other
companies’ patents. We could incur substantial costs in litigation if we are required to defend against patent suits brought by third parties, or if we initiate
suits to protect our patent rights. Such suits that we may need to defend extend beyond suits by our competitors and may include patent assertion entities,
which acquire and assert patents as a means to generate income, due to the expensive nature of patent litigation. In the ordinary course of litigation,
attorney fees are not recoverable.
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In addition to the risks involved with patent protection, we also face the risk that our competitors will infringe on our trademarks. Any
infringement could lead to a likelihood of confusion and could result in lost sales. Similarly, while we are cautious to avoid infringing the rights of third
parties, we cannot control a third party asserting its trademarks against us. There can be no assurance that we will prevail in any claims we make to protect
our intellectual property, or in defense of any claims brought against us.
Future protection for our proprietary rights is uncertain which may impact our ability to successfully compete in our industry. The degree of future
protection for our proprietary rights is uncertain. We cannot ensure that:
● we were the first to make the inventions covered by each of our patent applications;
● we were the first to file patent applications for these inventions;
● others will not independently develop similar or alternative technologies or duplicate any of our technologies;
● any of our pending patent applications will result in issued patents;
● any of our issued patents or those of our licensors will be valid and enforceable;
● any patents issued to us or our collaborators will provide a basis for commercially viable products or will provide us with any competitive
advantages or will not be challenged by third parties;
● any of our patent or other intellectual property rights in the U.S. and the technologies embodied therein will provide or be subject to similar or
any protection in foreign markets;
● we will develop additional proprietary technologies that are patentable;
● the patents of others will not have a material adverse effect on our business rights; or
● the measures we rely on to protect the intellectual property underlying our products will be adequate to prevent third parties from using our
technology, all of which could harm our ability to compete in the market.
Risks Related to Information Technology, Cybersecurity and Data Protection
We are dependent on various information technology (“IT”) systems, and failures of, interruptions to, or unauthorized tampering with those systems
could have a material adverse effect on our business.
We rely extensively on IT systems to conduct business. These systems include, but are not limited to, ordering and managing materials from
suppliers, converting materials to finished products, invoicing and shipping products to customers, processing transactions, summarizing and reporting
results of operations, complying with regulatory, legal or tax requirements, and providing data security and other processes necessary to manage our
business. During 2022, we implemented an upgrade to our enterprise resource planning system. In 2022 and 2023, we installed a new firewall to better
protect from network intrusions, hired a Network and Security Administrator, and engaged a third-party service provider to perform an internal penetration
test in order to identify and address vulnerabilities. Additionally, we introduced always-on VPN in an effort to better restrict off-campus network access in
light of the increase in the number of our employees working remotely in recent years, enhanced our monitoring and control capabilities, and hardened our
cloud computing cyber security footprint. However, if our systems are damaged or cease to function properly due to any number of causes, ranging from
catastrophic events to power outages to security breaches, and our business continuity plans do not effectively compensate for these events on a timely
basis, we may suffer interruptions in our ability to manage operations. Increased global cybersecurity vulnerabilities, threats and more sophisticated and
targeted cybersecurity attacks pose a risk to the security of our systems and networks and those of our customers, suppliers, independent sales agents,
distributors and third-party service providers, and the confidentiality, availability and integrity of any underlying information and data. Our work from
home arrangements, as well as those of our third-party service providers, may increase cybersecurity risks related to phishing, malware, and other similar
cybersecurity attacks. We have programs, processes and technologies in place to prevent, detect, contain, respond to and mitigate security related threats
and potential incidents. We undertake considerable ongoing improvements to our IT systems in order to minimize vulnerabilities, in accordance with
industry and regulatory standards. Because the techniques used to obtain unauthorized access change frequently and can be difficult to detect, anticipating,
identifying or preventing these intrusions or mitigating them if and when they occur may be challenging. Although we have been the target of cyber
incidents in the past, the aggregate impact of these incidents on our operations and financial condition has not been material to date. However, in light of
the fact that cybersecurity threats have been rapidly evolving in sophistication and prevalence, no assurance can be provided that we will not become
subject to future attacks, especially when our cybersecurity protection is dependent at least to some extent on the lack of human error. New SEC rules
related to cybersecurity risk management may further increase our regulatory burden and the cost of compliance in such events.
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Our IT systems require an ongoing commitment of significant resources to maintain, protect and enhance existing systems and develop new
systems to keep pace with continuing changes in information processing technology, evolving systems and regulatory standards. We also outsource certain
elements of our IT systems to third parties that, as a result of this outsourcing, could have access to certain confidential information and whose systems
may also be vulnerable to these types of attacks or disruptions. There can be no assurance that our protective measures or those of these third parties will
prevent or detect security breaches that could have a significant impact on our business, reputation, operating results and financial condition. The failure of
these systems to operate or integrate effectively with other internal, customer, supplier or third-party service provider systems and to protect the underlying
IT system and data integrity, including from cyber-attacks, intrusions or other breaches or unauthorized access of these systems, or any failure by us to
remediate any such attacks or breaches, may also result in damage to our reputation or competitiveness, delays in product fulfillment and reduced
efficiency of our operations, and could require significant capital investments to remediate any such failure, problem or breach, all of which could
adversely affect our business, operating results and financial condition. We maintain cyber liability insurance; however, this insurance may not be sufficient
to cover the financial, legal, business or reputational losses that may result from an interruption or breach of our systems.
Risks Related to Our Controlled Company Status
Funds affiliated with OrbiMed own a significant percentage of our common stock, have the right to designate a majority of our Board of Directors, and
are able to exert significant control over matters subject to stockholder approval, preventing other stockholders and new investors from influencing
significant corporate decisions.
ROS and Royalty Opportunities collectively owned approximately 56.2% of our outstanding common stock as of December 31, 2023. We are
party to the Investor Rights Agreement, under which ROS and Royalty Opportunities are permitted to nominate a majority of the directors and designate
the chairperson of our Board of Directors at subsequent annual meetings, as long as they maintain an ownership threshold in our Company of at least 40%
of our then outstanding common stock. If ROS and Royalty Opportunities are unable to maintain this ownership threshold, the Investor Rights Agreement
contemplates a reduction of nomination rights commensurate with their ownership interests. In addition, under the Investor Rights Agreement, for so long
as the ownership threshold is met, we must obtain the approval of a majority of our common stock held by ROS and Royalty Opportunities to proceed with
the following actions: (i) issue new securities; (ii) incur over $250,000 of debt in a fiscal year; (iii) sell or transfer over $250,000 of our assets or businesses
or our subsidiaries in a fiscal year; (iv) acquire over $250,000 of assets or properties in a fiscal year; (v) make capital expenditures over $125,000
individually, or $1,500,000 in the aggregate during a fiscal year; (vi) approve our annual budget; (vii) appoint or remove the chairperson of our Board of
Directors; and (viii) make loans to, investments in, or purchase, or permit any subsidiary to purchase, any stock or other securities in another entity in
excess of $250,000 in a fiscal year. The Investor Rights Agreement also grants ROS and Royalty Opportunities the right to purchase from us a pro rata
amount of any new securities that we may propose to issue and sell.
Because of their significant share ownership and control, OrbiMed has the ability to exert substantial influence or actual control over our
management and affairs and over substantially all matters requiring action by our stockholders and Board of Directors, including amendments to our
Charter, Third Amended and Restated Bylaws (“Bylaws”), election and removal of directors, future issuances of our common stock or other securities,
payment of dividends, if any, on our common stock, the incurrence or modification of indebtedness by us, any proposed merger, consolidation or sale of all
or substantially all of our assets and other corporate transactions, as well as certain day-to-day decisions involved in operating our business, such as annual
operating plans, capital expenditures and other investments in our business. The interests of OrbiMed may not be aligned with management’s views on the
operation of our business or the interests of our other stockholders. In addition, OrbiMed and their affiliates may have an interest in pursuing acquisitions,
divestitures and other transactions or not pursuing such transactions that, in their judgment, could enhance or reduce their investment, even though such
transactions might involve risks to our other stockholders. For example, OrbiMed could cause us to make acquisitions that increase our indebtedness or
cause us to sell revenue-generating assets. In addition, OrbiMed and their affiliates are able to determine the outcome of all matters requiring stockholder
approval and are able to cause or prevent a change of control of our Company or a change in the composition of our Board of Directors and could preclude
any acquisition of our Company. This concentration of voting control could deprive our other stockholders of an opportunity to receive a premium for their
shares of common stock as part of a sale of our Company and ultimately might affect the market price of our common stock.
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We are a “controlled company” within the meaning of the NYSE American rules and rely on exemptions from various corporate governance
requirements that provide protection to stockholders of other companies.
We are a “controlled company” as defined in section 801(a) of the NYSE American Company Guide because more than 50% of the combined
voting power of all of our outstanding common stock is beneficially owned by OrbiMed Advisors LLC. As a “controlled company,” we are exempt from
certain NYSE American rules requiring our Board of Directors to have a majority of independent members, a compensation committee composed entirely
of independent directors and a nominating committee composed entirely of independent directors. These independence standards are intended to ensure that
directors who meet those standards are free of any conflicting interest that could influence their actions as directors. While we currently have a majority of
independent directors on the Board of Directors, an independent nomination and governance committee or an independent compensation committee, we
may in the future elect to rely on NYSE American’s controlled company exemptions. Accordingly, our stockholders do not have the same protections
afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE American rules.
Risks Related to Our Common Stock
Shares of our common stock are equity securities and are subordinate to our outstanding indebtedness.
Shares of our common stock are common equity interests. This means that our common stock will rank junior to any outstanding shares of our
preferred stock that we may issue in the future or to the indebtedness under our Credit Agreements and any future indebtedness we may incur and to all
creditor claims and other non-equity claims against us and our assets available to satisfy claims on us, including claims in a bankruptcy or similar
proceeding. Additionally, unlike indebtedness, where principal and interest customarily are payable on specified due dates, in the case of our common
stock, (i) dividends are payable only when and if declared by our Board of Directors, and (ii) as a corporation, we are restricted to making dividend
payments and redemption payments out of legally available assets. We have never paid a dividend on our common stock and have no current intention to
pay dividends in the future. In addition, our Credit Agreements preclude us from paying dividends. Furthermore, our common stock places no restrictions
on our business or operations or on our ability to incur indebtedness or engage in any transactions, subject only to the voting rights available to
stockholders generally.
Our inability to comply with the continued listing requirements of the NYSE American could result in our common stock being delisted, which could
affect its market price and liquidity and reduce our ability to raise capital.
We are required to meet certain qualitative and financial tests to maintain the listing of our common stock on the NYSE American. If we do not
maintain compliance with the continued listing requirements for the NYSE American within specified periods and subject to permitted extensions, our
common stock may be recommended for delisting (subject to any appeal we would file). No assurance can be provided that we will continue to comply
with these continued listing requirements. If our common stock were delisted, it could be more difficult to buy or sell our common stock and to obtain
accurate quotations, and the price of our stock could suffer a material decline. Delisting would also impair our ability to raise capital.
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The market price of our common stock is extremely volatile, which may affect our ability to raise capital in the future and may subject the value of the
investment of our stockholders to sudden decreases.
The market price for securities of medical device and biotechnology companies, including ours, historically has been highly volatile, and the
market from time to time has experienced significant price and volume fluctuations that are unrelated to the operating performance of such companies. The
trading volume and prices of our common stock have been and may continue to be volatile and could fluctuate widely due to factors both within and
beyond our control. During 2023, the sale price of our common stock ranged from $0.58 to $1.39 per share, and our daily trading volume ranged from 1
thousand to 790 thousand shares. Such volatility may be the result of broad market and industry factors. Future fluctuations in the trading price or liquidity
of our common stock may harm the value of the investment of our stockholders in our common stock. Factors that may have a significant impact on the
market price and marketability of our common stock include, among others:
● the terms of any potential future transaction(s) related to debt financing, debt restructuring or capital raising;
● our ability to make interest payments under our Credit Agreements;
● our observance of covenants under our Credit Agreements;
● announcements of technological innovations or new commercial products by us or our present or potential competitors;
● developments or disputes concerning patent or other proprietary rights;
● developments in our relationships with employees, suppliers, distributors, sales representatives and customers;
● acquisitions or divestitures;
● litigation and government proceedings;
● adverse legislation, including changes in governmental regulation;
● third-party reimbursement policies;
● additions or departures of key personnel;
● sales of our equity securities by our significant stockholders or management or sales of additional equity securities by our Company;
● changes in securities analysts’ recommendations;
● short selling;
● changes in health care policies and practices;
● the delisting of our common stock or halting or suspension of trading in our common stock by the NYSE American;
● economic, social and other external factors, such as epidemics or pandemics, supply chain disruptions, labor shortages and persistent
inflation; and
● general market conditions.
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In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted.
These lawsuits often seek unspecified damages, and as with any litigation proceeding, one cannot predict with certainty the eventual outcome of pending
litigation. Furthermore, we may have to incur substantial expenses in connection with any such lawsuits and our management’s attention and resources
could be diverted from operating our business as we respond to any such litigation. We maintain insurance to cover these risks for us and our directors and
officers, but our insurance is subject to high deductibles to reduce premium expense, and there is no guarantee that the insurance will cover any specific
claim that we currently face or may face in the future, or that it will be adequate to cover all potential liabilities and damages.
Our actual operating results may differ significantly from our guidance, which could cause the market price of our common stock to decline.
We recently initiated the issuance of guidance regarding our future performance, such as our anticipated annual revenue, that represents our
management’s estimates as of the date of release. This guidance, which consists of forward-looking statements, is prepared by our management and is
qualified by, and subject to, the assumptions and the other information contained or referred to in the release. Our guidance is not prepared with a view
toward compliance with published guidelines of the American Institute of Certified Public Accountants, and neither any independent registered public
accounting firm nor any other independent expert or outside party compiles, examines or reviews the guidance and, accordingly, no such person expresses
any opinion or any other form of assurance with respect thereto.
Guidance is based upon a number of assumptions and estimates that, while presented with numerical specificity, is inherently subject to significant
business, economic and competitive uncertainties and contingencies, many of which are beyond our control and are based upon specific assumptions with
respect to future business decisions, some of which will change. We generally state possible outcomes as high and low ranges which are intended to
provide a sensitivity analysis as variables are changed but are not intended to represent that actual results could not fall outside of these ranges. The
principal reason that we release this data is to provide a basis for our management to discuss our business outlook with analysts and investors. We do not
accept any responsibility for any projections or reports published by any such persons.
Guidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions of the guidance furnished by us will not
materialize or will vary significantly from actual results. Accordingly, our guidance is only an estimate of what management believes is realizable as of the
date of release. Actual results will vary from the guidance and the variations may be material. Investors should also recognize that the reliability of any
forecasted financial data will diminish the farther in the future that the data are forecast. In light of the foregoing, investors are urged to put the guidance in
context and not to place undue reliance on it.
Any failure to successfully implement our operating strategy or the occurrence of any of the events or circumstances set forth in this Annual
Report on Form 10-K could result in the actual operating results being different than our guidance, and such differences may be adverse and material. The
failure to achieve such guidance could disappoint investors and analysts and cause the market price of our common stock to decline.
We may issue additional common stock resulting in stock ownership dilution.
From time to time, we issue equity securities to raise additional financing and in connection with debt restructurings. During 2023, we issued in a
private placement approximately 20.0 million shares of common stock at a purchase price of $0.75 per share. Future dilution may occur due to additional
future equity issuances and/or equity financing events by us, including any potential future restructuring of our outstanding indebtedness. In addition, we
may raise additional capital through the sale of equity or convertible debt securities, which would further dilute the ownership interests of our stockholders.
As of December 31, 2023, we had outstanding warrants to purchase approximately 12,187,470 shares of our common stock, stock options to purchase
1,472,013 shares of our common stock, restricted stock unit awards covering 1,102,473 shares of our common stock and deferred stock unit awards
covering 653,310 shares of our common stock under the Xtant Medical Holdings, Inc. 2023 Equity Incentive Plan, stock options to purchase 3,403,192
shares of our common stock and restricted stock unit awards covering 3,403,192 shares of our common stock under the Xtant Medical Holdings, Inc.
Second Amended and Restated 2018 Equity Incentive Plan, options to purchase 623 shares of our common stock under our prior equity compensation plan,
and 9,968,106 shares available for issuance under the Xtant Medical Holdings, Inc. 2023 Equity Incentive Plan. If these or any future warrants, options or
restricted stock units are exercised or otherwise converted into shares of our common stock, our stockholders will experience additional dilution.
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The sale or availability for sale of substantial amounts of our common stock or other equity securities could adversely affect the market price of our
common stock.
Sales of substantial amounts of our common stock or a preferred stock in the public market, or the perception that these sales could occur, could
adversely affect the market price of our common stock and could materially impair our ability to raise capital through equity offerings in the future. We
cannot predict what effect, if any, market sales of securities beneficially owned by OrbiMed or any other stockholder or the availability of these securities
for future sale will have on the market price of our common stock.
If securities analysts stop publishing research or reports about us or our business, or if they downgrade our common stock, the trading volume and
market price of our common stock could decline.
The market for our common stock relies in part on the research and reports that industry or financial analysts publish about us or our business. We
do not control these analysts. If any analyst who covers us downgrades our stock or lowers its future stock price targets or estimates of our operating
results, our stock price could decline rapidly. Furthermore, if any analyst ceases to cover our Company, we could lose visibility in the market. Each of these
events could, in turn, cause our trading volume and the market price of our common stock to decline.
Anti-takeover provisions in our organizational documents and agreements may discourage or prevent a change in control, even if a sale of the
Company could be beneficial to our stockholders, which could cause our stock price to decline and prevent attempts by our stockholders to replace or
remove our current management.
Several provisions of our Restated Certificate of Incorporation (“Charter”) and Third Amended and Restated Bylaws (“Bylaws”) and our Investor
Rights Agreement could make it difficult for our stockholders to change the composition of our Board of Directors, preventing them from changing the
composition of management. In addition, several provisions of our Charter and Bylaws may discourage, delay or prevent a merger or acquisition that our
stockholders may consider favorable. These provisions include:
● We have shares of common stock and preferred stock available for issuance without stockholder approval. The existence of unissued and
unreserved common stock and preferred stock may enable the Board of Directors to issue shares to persons friendly to current management or
to issue preferred stock with terms that could render more difficult or discourage a third-party attempt to obtain control of us by means of a
merger, tender offer, proxy contest or otherwise, thereby protecting the continuity of our management.
● Shares of our common stock do not have cumulative voting rights in the election of directors, so our stockholders holding a majority of the
shares of common stock outstanding will be able to elect all of our directors.
● Special meetings of the stockholders may be called only by the Board of Directors, the chair of the Board of Directors or the chief executive
officer.
● The Board of Directors may adopt, alter, amend or repeal our Bylaws without stockholder approval.
● Unless otherwise provided by law, any newly created directorship or any vacancy occurring on the Board of Directors for any cause may be
filled by the affirmative vote of a majority of the remaining members of the Board of Directors even if such majority is less than a quorum,
and any director so elected shall hold office until the expiration of the term of office of the director whom he or she has replaced or until his or
her successor is elected and qualified.
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● Prior to July 26, 2030, fixing the number of directors at more than seven directors requires the approval of at least 75% of our directors then
holding office.
● The affirmative vote of the holders of at least two-thirds of the voting power of the then outstanding shares of our capital stock entitled to vote
generally in the election of directors, voting together as a single class, is required to amend or repeal the provisions of our Charter related to
the amendment of our Bylaws, the Board of Directors and our stockholders as well as the general provisions of our Charter.
● Stockholders must follow advance notice procedures to submit nominations of candidates for election to the Board of Directors at an annual
or special meeting of our stockholders, including director election contests subject to the SEC’s universal proxy rules, and must follow
advance notice procedures to submit other proposals for business to be brought before an annual meeting of our stockholders.
● Unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware, (or, if the Court of Chancery of the
State of Delaware does not have subject matter jurisdiction, a state court located within the State of Delaware or, if no state court located
within the State of Delaware has subject matter jurisdiction, the federal district court for the District of Delaware), will be the exclusive forum
for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any
director, officer or other employee to us or our stockholders, (iii) any action asserting a claim arising under any provision of the General
Corporation Law of the State of Delaware (“DGCL”), our Charter or our Bylaws, or (iv) any action asserting a claim governed by the
internal-affairs doctrine; provided, however, that unless we consent in writing to an alternative forum, the federal district courts of the United
States of America shall be, to the fullest extent permitted by applicable law, the exclusive forum for the resolution of any complaint asserting
a cause of action arising under the Securities Act of 1933, as amended.
● The Investor Rights Agreement includes director nomination rights, which provide that so long as the Ownership Threshold (as defined in the
Investor Rights Agreement) is met, Royalty Opportunities and ROS are entitled to nominate such individuals to the Board of Directors
constituting a majority of the directors. In addition, under the Investor Rights Agreement, so long as the Ownership Threshold is met, certain
matters require the approval of Royalty Opportunities and ROS to proceed with such a transaction, including without limitation, the sale,
transfer or other disposition of our assets or businesses or our subsidiaries with a value in excess of $250,000 in the aggregate during any
fiscal year (other than sales of inventory or supplies in the ordinary course of business, sales of obsolete assets (excluding real estate), sale-
leaseback transactions and accounts receivable factoring transactions).
● The Letter Agreement between us and Mr. Stavros Vizirgianakis includes director nomination rights, which terminate on the earlier of (i) the
date on which Mr. Vizirgianakis ceases to hold at least 75% of the shares of common stock purchased by him in our 2022 private placement,
(ii) October 7, 2024, or (iii) upon written notice of Mr. Vizirgianakis to us.
These anti-takeover provisions could substantially impede the ability of our stockholders to benefit from a change in control and, as a result, could
materially adversely affect the market price of our common stock and the ability of our stockholders to realize any potential change-in-control premium.
Our Board of Directors is authorized to issue and designate shares of our preferred stock without stockholder approval.
Our Charter authorizes our Board of Directors, without the approval of our stockholders, to issue up to 10 million shares of our preferred stock,
subject to limitations prescribed by applicable law, rules and regulations and the provisions of our Charter, as shares of preferred stock in series, to establish
from time to time the number of shares to be included in each such series and to fix the designation, powers, preferences and rights of the shares of each
such series and the qualifications, limitations or restrictions thereof. The powers, preferences and rights of these series of preferred stock may be senior to
or on parity with our common stock, which may reduce its value.
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Our Charter designates the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be initiated by our
stockholders, which could limit the ability of our stockholders to obtain a favorable judicial forum for disputes with us.
Our Charter provides that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware, (or, if the Court of
Chancery of the State of Delaware does not have subject matter jurisdiction, a state court located within the State of Delaware or, if no state court located
within the State of Delaware has subject matter jurisdiction, the federal district court for the District of Delaware), will be the exclusive forum for (i) any
derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other
employee to us or our stockholders, (iii) any action asserting a claim arising under any provision of the DGCL, our Charter or our Bylaws, or (iv) any
action asserting a claim governed by the internal-affairs doctrine. Furthermore, unless we consent in writing to an alternative forum, the federal district
courts of the United States of America shall be, to the fullest extent permitted by applicable law, the exclusive forum for the resolution of any complaint
asserting a cause of action arising under the Securities Act. Any person or entity purchasing or otherwise acquiring any interest in any security of Xtant will
be deemed to have notice of and consented to these provisions. This provision may limit the ability of our stockholders to obtain a favorable judicial forum
for disputes with us.
We have never paid dividends and do not expect to do so in the foreseeable future.
We have not declared or paid any cash dividends on our common stock. The payment of dividends in the future will be dependent on our earnings
and financial condition and on such other factors as our Board of Directors considers appropriate. Unless and until we pay dividends, stockholders may not
receive a return on their shares of our common stock. There is no present intention by our Board of Directors to pay dividends on our common stock. We
currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of our Credit
Agreements preclude us from paying dividends. As a result, appreciation, if any, in the market price of our common stock will be the sole source of gain for
our stockholders for the foreseeable future.
General Risk Factors
Worldwide economic and market conditions, including with respect to financial institutions, and social unrest could adversely affect our
revenue, liquidity, financial condition, or results of operations.
The health of the global economy, and the credit markets and the financial services industry in particular, as well as the stability of the social fabric
of our society, affects our business and operating results. Economic slowdowns, periods of high inflation, periods of rising interest rates and recessions, as
well as disruptions in access to bank deposits or lending commitments due to bank failures, could materially and adversely affect our revenue, liquidity,
financial condition and results of operations. For example, the 2023 closures of Silicon Valley Bank, Signature Bank and First Republic Bank and their
placement into receivership with the Federal Deposit Insurance Corporation (“FDIC”) created bank-specific and broader financial institution liquidity risk
and concerns. Although depositors at these institutions continued to have access to their funds, future adverse developments with respect to specific
financial institutions or the broader financial services industry may lead to market-wide liquidity shortages. The failure of any bank with which we deposit
our funds or otherwise do business could reduce the amount of cash we have available for our operations or delay our ability to access such funds. Any
such failure may increase the possibility of a sustained deterioration of financial market liquidity, or illiquidity at clearing, cash management and/or
custodial financial institutions. In the event we have a commercial relationship with a bank that fails or is otherwise distressed, we may experience delays
or other issues in meeting our financial obligations. If other banks and financial institutions enter receivership or become insolvent in the future in response
to financial conditions affecting the banking system and financial markets, our ability to access our cash and cash equivalents and investments may be
threatened and could have a material adverse effect on our business and financial condition. Additionally, the credit and financial markets may be adversely
affected by the war between Russia and Ukraine and measures taken in response thereto, as well as the war between Israel and Hamas. If the credit markets
are not favorable, we may be unable to raise additional financing when needed or on favorable terms. Our customers may experience financial difficulties
or be unable to borrow money to fund their operations, which may adversely impact their ability to purchase our products or to pay for our products on a
timely basis, if at all. In addition, adverse economic conditions, such as the lingering economic impacts of COVID-19, supply chain disruptions, labor
shortages and persistent inflation, and measures taken in response thereto, including interest rate increases, could also adversely impact our suppliers’
ability to provide us with materials and components, which may negatively impact our business. As with our customers and vendors, these economic
conditions make it more difficult for us to accurately forecast and plan our future business activities.
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Climate change, or legal, regulatory or market measures to address climate change, may materially adversely affect our financial condition and
business operations.
Climate change resulting from increased concentrations of carbon dioxide and other greenhouse gases in the atmosphere could present risks to our
future operations from natural disasters and extreme weather conditions, such as hurricanes, tornadoes, wildfires or flooding. Concern over climate change
could result in new legal or regulatory requirements designed to report, reduce or mitigate the effects of greenhouse gases, as well as more stringent
regulation of water rights. For example, in March 2024, the SEC adopted new climate disclosure rules, which require new disclosure in certain SEC filings
about material climate-related risks, activities to mitigate or adapt to such risks, board oversight of climate-related risks and management’s role in
managing material climate-related risks, and climate-related targets and goals. The new climate disclosure rules have been the subject of multiple legal
challenges, so the extent to which the new rules will go into effect remains uncertain. We are currently assessing the impact of the new rules, but at this
time, we cannot predict the costs of implementation or any potential adverse impacts resulting from the new rules. However, we may incur increased costs
relating to the assessment and disclosure of climate-related risks and increased litigation risks related to disclosures made pursuant to the new rules, either
of which could materially and adversely affect our future results of operations and financial condition. Additionally, inconsistency of regulations at the state
level in the states in which we operate may affect the costs of compliance with such legal or regulatory requirements.
In addition, public company stockholders are increasingly sensitive to the climate change impacts and mitigation efforts of companies, are
increasingly seeking enhanced disclosure on the risks, challenges, governance implications, and financial impacts of climate change faced by companies
and are demanding that companies take a proactive approach to addressing perceived environmental risks, including risks associated with climate change,
relating to their operations. Adverse publicity or climate-related litigation that impacts us could have a negative impact on our business.
Changes in accounting standards, policies, or assumptions utilized in determining accounting estimates could adversely affect our financial statements,
including our operating results and financial condition.
In preparing our consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”), we must make
decisions that impact our results of operations and/or financial condition. Such decisions include the selection of the appropriate accounting principles to be
applied and the assumptions on which to base accounting estimates. In reaching such decisions, we apply judgments based on our understanding and
analysis of the relevant circumstances, historical experience, and expert valuations, as appropriate. As a result, actual amounts could differ from those
estimated at the time our consolidated financial statements are prepared. Our critical accounting estimates are described later in this report under Part II.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. In addition, various authoritative accounting or
regulatory entities, including the Financial Accounting Standards Board (“FASB”), and the SEC may amend, expand, and/or eliminate the financial
accounting or reporting standards that govern the preparation of our consolidated financial statements or could reverse their previous interpretations or
positions on how various financial accounting and/or reporting standards should be applied. We disclose the impact of accounting pronouncements that
have been issued but not yet adopted within our Annual and Quarterly Reports on Form 10-K and Form 10-Q, respectively. However, we do not provide an
assessment of proposed accounting pronouncements, as such proposals are subject to change through the exposure process and therefore, we cannot
meaningfully assess their effects on our consolidated financial statements. Future changes to accounting standards could modify the accounting policies and
procedures that are currently utilized in the preparation of our consolidated financial statements. Such changes may be difficult to predict and implement
and could materially, or otherwise, impact how we prepare and report our consolidated financial statements, results of operations, and financial condition.
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The requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and the requirements of the
Sarbanes-Oxley Act and the NYSE American, may strain our resources and divert management’s attention, and we may be unable to comply with these
requirements in a timely or cost-effective manner.
As a public company, we are subject to the reporting requirements of the Exchange Act and the corporate governance standards of the Sarbanes-
Oxley Act and the NYSE American. These requirements place a strain on our management, systems and resources and we will continue to incur significant
legal, accounting, insurance and other expenses. The Exchange Act requires us to file annual, quarterly and current reports with respect to our business and
financial condition within specified time periods and to prepare a proxy statement with respect to our annual meeting of stockholders. The Sarbanes-Oxley
Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting. The NYSE American requires that
we comply with various corporate governance requirements. To maintain and improve the effectiveness of our disclosure controls and procedures and
internal controls over financial reporting and comply with the Exchange Act and NYSE American requirements, significant resources and management
oversight are required. This may divert management’s attention from other business concerns and lead to significant costs associated with compliance,
which could have a material adverse effect on us and the market price of our common stock. Furthermore, as we grow our business both organically and
through acquisitions, our disclosure controls and procedures and internal control over financial reporting will become more complex, and we may require
significantly more resources to ensure that these controls and procedures remain effective. For example, as a result of the control deficiencies in the design
and implementation of our internal control over financial reporting that related to our recent acquisitions, which constituted two material weaknesses, we
will be allocating additional resources to our internal control over financial reporting, as described in greater detail under the heading Part II. Item 9A.
“Controls and Procedures.”
These laws and regulations could also make it more difficult or costly for us to obtain certain types of insurance, including director and officer
liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar
coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors or its
committees or as our executive officers. Advocacy efforts by stockholders and third parties may also prompt even more changes in governance and
reporting requirements. We cannot predict or estimate the amount of additional costs we may incur or the timing of these costs. Furthermore, if we are
unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock, fines, sanctions and other regulatory action
and potentially civil litigation.
Scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our environmental, social and
governance practices may impose additional costs on us or expose us to new or additional risks.
Public companies are facing scrutiny from customers, regulators, investors, and other stakeholders related to their environmental, social and
governance (“ESG”) practices and disclosure. Investor advocacy groups, investment funds and influential investors are also focused on these practices,
especially as they relate to the environment, climate change, health and safety, supply chain management, diversity, labor conditions and human rights, both
in our own operations and in our supply chain. Increased ESG-related compliance costs could result in material increases to our overall operational costs.
Our ESG practices may not meet the standards of all of our stakeholders and advocacy groups may campaign for further changes. A failure, or perceived
failure, to adapt to or comply with regulatory requirements or to respond to investor or stakeholder expectations and standards could negatively impact our
business and reputation and have a negative impact on the trading price of our common stock.
Item 1B. Unresolved Staff Comments
None.
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Item 1C. Cybersecurity
Background
Cybersecurity, data privacy, and data protection are critical to our business. In the ordinary course of our business, we collect and store certain
confidential information such as information about our employees, contractors, vendors, customers, suppliers, independent sales agents and distributors.
We have processes in place for assessing, identifying, and managing material risks from cybersecurity threats, and we monitor the Company’s overall
security score to assess performance and identify areas for improvement. In recent years, we have installed a new firewall to better protect from network
intrusions, hired a Network and Security Administrator, and engaged a third-party service provider to perform an internal penetration test in order to
identify and address vulnerabilities. Additionally, we introduced always-on VPN in an effort to better restrict off-campus network access in light of the
increase in the number of our employees working remotely in recent years, enhanced our monitoring and control capabilities, and hardened our cloud
computing cyber security footprint. Management continually re-assesses the Company’s cybersecurity risk environment based on changing circumstances
and new information identified by its monitoring, scanning and testing as well as third party resources.
Risk Management and Strategy
Our processes for assessing, identifying, and managing cybersecurity threats have been integrated into the our overall risk management processes.
The information provided by these processes facilitates management’s ongoing assessment of our cybersecurity risk environment and provides current and
accurate information regarding cybersecurity risks to management, our Audit Committee and Board of Directors to allow appropriate management of such
risks through remediation or other risk mitigation activities.
We maintain a cybersecurity program that is designed to identify, protect from, detect, respond to, and recover from cybersecurity threats and
risks, and protect the confidentiality, integrity, and availability of its information systems, including the information residing on such systems. The National
Institute of Standards and Technology Cybersecurity Framework helps us inform our cybersecurity agenda and prioritize our cybersecurity activities. We
take a risk-based approach to cybersecurity, which begins with the identification and evaluation of cybersecurity risks or threats that could affect our
operations, finances, legal or regulatory compliance, or reputation. The scope of our evaluation encompasses risks that may be associated with both our
internally managed IT systems and key business functions and sensitive data operated or managed by third-party service providers. Once identified,
cybersecurity risks and related mitigation efforts are prioritized based on their potential impact, likelihood, velocity, and vulnerability, considering both
quantitative and qualitative factors. Risk mitigation strategies are developed and implemented based on the specific nature of each cybersecurity risk. These
strategies include, among others, the application of cybersecurity policies and procedures, implementation of administrative, technical, and physical
controls, and employee training, education, and awareness initiatives.
Role of Management
Management has implemented risk management structures, policies and procedures and is responsible for our day-to-day cybersecurity risk
management. Our Director of Information Technology, Chris Dennis, is responsible for our day-to-day assessment and management of cybersecurity risks.
Mr. Dennis has served as our Director of Information Technology since June 2019. Mr. Dennis additionally is the founder of a data privacy consulting
company and has over 20 years of experience in the data management space. We have implemented a number of processes which allow Mr. Dennis and his
team to be informed about and monitor the prevention, detection, mitigation, and remediation of cybersecurity incidents. These processes include, among
other things, system alerts of potential malicious cyber activity, access to real-time dashboards that monitor and assess our systems, status reports provided
on a daily, weekly and monthly basis, and regular ongoing communications with service providers regarding potential new attack vectors and
vulnerabilities. Mr. Dennis and his team share such information with our management team and reports information about such risks to our Audit
Committee.
Use of Consultants and Advisors
We engage various third-party cybersecurity service providers to assess and enhance our cybersecurity practices and assist with protection and
monitoring of our systems and information, including with respect to protection of our e-mail, system access, network monitoring, endpoint protection,
vulnerability assessments and penetration testing. We engage cybersecurity consultants, auditors, and other third parties to assess and enhance our
cybersecurity practices, such as a third party consulting firm to perform tabletop exercises and evaluate our cyber processes including an assessment of our
incident response procedures.
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Board Oversight
The Board of Directors, both directly and through the delegation of responsibilities to the Audit committee oversees the proper functioning of our
cybersecurity risk management program. In particular, the Audit Committee assists the Board of Directors in its oversight of management’s responsibility
to assess, manage and mitigate risks associated with the Company’s business and operational activities, to administer the Company’s various compliance
programs, in each case including cybersecurity concerns, and to oversee our information technology systems, processes and data. The Audit Committee,
which is comprised entirely of independent directors, is responsible for periodically reviewing and assessing with management (i) the adequacy of controls
and security for our information technology systems, processes and data, and (ii) our contingency plans in the event of a breakdown or security breach
affecting our information technology systems, it being understood that it is not possible to eliminate all such risks and that the Company will necessarily
face a variety of risks with respect to information technology in the conduct of its business. The Audit Committee is additionally responsible for reviewing
the cybersecurity disclosures required to be included in our filings with the SEC.
The Audit Committee reviews a cybersecurity dashboard at its regularly held meetings, which includes certain information about overall security,
employee training, and other statistics. Members of our management team often attend these discussions, and the Audit Committee has requested that Mr.
Dennis provide updates at two of its meetings annually. The management team and/or Audit Committee, in turn, regularly provide data protection and
cybersecurity reports to the full Board of Directors.
Although none of the members of the Audit Committee has any work experience, degree, or certifications related to information security or
cybersecurity, the Audit Committee works closely with members of our employee team with relevant expertise, and we have engaged third-party service
providers to further enhance our cybersecurity efforts.
Risks from Material Cybersecurity Threats
Although we have taken steps to prevent and mitigate data security threats, there can be no assurance that our protective measures and those of our
third party service providers will prevent or detect security breaches that could have a significant impact on our business, reputation, operating results and
financial condition. We maintain cyber liability insurance; however, this insurance may not be sufficient to cover the financial, legal, business or
reputational losses that may result from an interruption or breach of our systems. As of the date of this filing, we have not identified any cybersecurity
threats that have materially affected or are reasonably anticipated to have a material effect on our business strategy, results of operations or financial
condition. Although we have not experienced cybersecurity incidents that are individually, or in the aggregate, material, we have experienced cyberattacks
in the past, which we believe have thus far been mitigated by preventative, detective, and responsive measures we have put in place. See the factors
described in the “Part I. Item 1.A. Risk Factors” section of this Form 10-K for further detail about the cybersecurity risks we face. Maintaining a robust
information security system is an ongoing priority for us and we plan to continue to identify and evaluate new, emerging risks to data protection and
cybersecurity both within our Company and through our engagement of third-party service providers.
Item 2. Properties
Our headquarters and manufacturing facility are located at 664 Cruiser Lane, Belgrade, Montana 59714. We also have two other facilities on the
Montana campus, located at 600 Cruiser Lane, Belgrade, Montana 59714, and at 732 Cruiser Lane, Belgrade, Montana 59714. All our properties are leased.
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We lease an approximately 14,000 square foot facility at 664 Cruiser Lane, Belgrade, Montana, which expires in October 2025. This building is an
FDA registered facility with a Class 10,000 (ISO 7) environmentally controlled area. The validated manufacturing areas and laboratory facilities located in
this facility provide processing, final packaging and testing space to manufacture medical devices pursuant to FDA, GMP regulations, and ISO
13485:2003. The facility is registered with the FDA for device design, device manufacture, and contract manufacture, as well as for screening, testing,
storing, and distributing biological tissues. We also lease approximately 17,700 square feet in a building located at 600 Cruiser Lane, Belgrade, Montana.
This space includes six Class 100 (ISO 5) clean rooms, a fully equipped diagnostics laboratory, microbiology laboratory and testing laboratory. We lease
the building under a ten-year operating lease which expires in October 2025 and has a ten-year renewal option. We also lease approximately 21,000 square
feet in a building located at 732 Cruiser Lane, Belgrade, Montana, where one Class 1,000 (ISO 6) clean room is located, which expires in October 2025.
We also lease an approximately 2,000 square foot facility in San Diego, California, which houses certain innovation and design functions and other
corporate functions, which expires in December 2026.
In connection with our acquisition of certain assets of Surgalign Holdings and its subsidiaries, we acquired a lease for a 13,000 square foot facility
in Wurmlingen, Germany, which is used for marketing, distribution, product development and general administrative functions of the international
subsidiaries we acquired from Surgalign Holdings. The lease for our Wurmlingen, Germany, facility expires in February 2025.
In connection with our acquisition of the nanOss production operations from RTI, we acquired the lease for the approximately 15,000 square foot
nanOss production facility located in Greenville, North Carolina. The lease expires in June 2024.
Item 3. Legal Proceedings
Our legal proceedings are discussed in Note 14 – Commitments and Contingencies in the notes to our consolidated financial statements in this
Form 10-K.
Item 4. Mine Safety Disclosures
Not applicable.
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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
PART II
Our common stock is listed on the NYSE American under the ticker symbol “XTNT.” The closing sale price to our common stock on March 25,
2024 was $1.04 per share.
Holders of Record
As of March 25, 2024, we had 166 holders of record.
Dividends
We have not paid any cash dividends and do not expect to do so in the foreseeable future. In addition, our credit agreements with MidCap preclude
us from paying dividends.
Recent Sales of Unregistered Securities
We did not sell any unregistered equity securities of our Company during the quarter ended December 31, 2023.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
We did not purchase any shares of our common stock or other equity securities of our Company during the quarter ended December 31, 2023.
Item 6. Reserved
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis provides material historical and prospective disclosures intended to enable investors and other users
to assess our financial condition and results of operations. The following discussion should be read in conjunction with our consolidated financial
statements and accompanying notes included in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion
and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Some of the numbers included herein have been
rounded for the convenience of presentation. Our actual results may differ materially from those anticipated in these forward-looking statements as a result
of many factors, including those discussed in the “Cautionary Statement Regarding Forward-Looking Statements” and under the heading “Part I. Item 1A.
Risk Factors.”
Business Overview
We develop, manufacture and market regenerative medicine products and medical devices for domestic and international markets. Our products
serve the specialized needs of orthopedic and neurological surgeons, including orthobiologics for the promotion of bone healing, implants and
instrumentation for the treatment of spinal disease. We promote our products in the United States through independent distributors and stocking agents,
supported by direct employees.
We have an extensive sales channel of independent commissioned agents and stocking distributors in the United States representing some or all of
our products. We also maintain a national accounts program to enable our agents to gain access to integrated delivery network hospitals (“IDNs”) and
through group purchasing organizations (“GPOs”). We have biologics contracts with major GPOs, as well as extensive access to IDNs across the United
States for both biologics and spine hardware systems. While our focus is the United States market, we promote and sell our products internationally
through direct sales representatives and stocking distribution partners in Canada, Mexico, South America, Australia, and certain Pacific region countries.
We have focused and intend to continue to focus primarily on four key growth initiatives: (1) introduce new products; (2) expand our distribution
network; (3) penetrate adjacent markets; and (4) leverage our growth platform with technology and strategic acquisitions. While the intent of these four key
growth initiatives is to increase our future revenues, no assurance can be provided that we will be successful in implementing these growth initiatives or
increasing our future revenues.
Recent Acquisitions
Coflex and CoFix Product Lines
On February 28, 2023, we acquired all of the issued and outstanding capital stock of Surgalign SPV, Inc. (“Surgalign SPV”), a then indirect wholly
owned subsidiary of Surgalign Holdings, Inc. (“Surgalign Holdings”), which held certain intellectual property, contractual rights and other assets related to
the design, manufacture, sale and distribution of the Coflex and CoFix products in the United States, for an aggregate purchase price of $17.0 million in
cash. The Coflex and CoFix products have been approved by the U.S. Food and Drug Administration (the “FDA”) for the treatment of moderate to severe
lumbar spinal stenosis in conjunction with decompression and provide minimally invasive, motion preserving stabilization.
Surgalign Holdings’ Hardware and Biologics Business
On August 10, 2023, we completed the acquisition of certain additional assets of Surgalign Holdings and its subsidiaries on an as-is, where-is
basis, including specified inventory, intellectual property and intellectual property rights, contracts, equipment and other personal property, records, all
outstanding equity securities of Surgalign Holdings’ international subsidiaries, and intangibles related to the business of designing, developing and
manufacturing hardware medical technology and distributing biologics medical technology, as conducted by Surgalign Holdings and its subsidiaries, and
certain specified liabilities of Surgalign Holdings and its subsidiaries pursuant to an Asset Purchase Agreement, dated June 18, 2023, between Surgalign
Holdings and us (as amended, the “Surgalign Asset Purchase Agreement”). Pursuant to the Surgalign Asset Purchase Agreement, we were able to acquire
Surgalign Holdings’ broad portfolio of spinal hardware implants, including solutions for fusion procedures in the lumbar, thoracic, and cervical spine,
motion preservation solutions for the lumbar spine, and a minimally invasive surgical implant system for fusion of the sacroiliac joint. Additionally, we
were able to acquire Surgalign Holdings’ biomaterials portfolio of advanced and traditional orthobiologics. These offerings complement our portfolio of
orthobiologics and spinal implant fixation systems. This transaction was conducted through a process supervised by the United States Bankruptcy Court in
connection with Surgalign Holdings’ bankruptcy proceedings. We funded the purchase price of $5 million with cash on hand. This transaction resulted in a
gain on bargain purchase due to the estimated fair value of the identifiable net assets acquired exceeding the purchase consideration transferred by $11.7
million and is shown as a gain on bargain purchase on our consolidated statement of operations for the year ended December 31, 2023. The bargain
purchase was primarily attributable to the transaction occurring as part of bankruptcy proceedings.
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RTI Surgical, Inc.’s nanOss Production Operations
On October 23, 2023, we acquired the nanOss production operations from RTI Surgical, Inc. (“RTI”) pursuant to an Asset Purchase Agreement
dated October 23, 2023 between us and RTI (the “RTI Asset Purchase Agreement”). Under the terms of the RTI Asset Purchase Agreement, we acquired
certain assets, including equipment and inventory, used in RTI’s synthetic bone graft business and assumed from RTI the lease for the nanOss production
facility located in Greenville, North Carolina. The purchase price for the assets was $2 million in cash plus a low single digit royalty on sales prior to
October 23, 2028 of next generation nanOss products. We previously acquired the nanOss distribution rights and nanOss intellectual property with the
acquisition of assets related to the biologics and spinal fixation business of Surgalign Holdings, as described above.
Results of Operations
Comparison of Years Ended December 31, 2023 and December 31, 2022
The following table sets forth our results of operations for 2023 and 2022 (dollars in thousands):
Year Ended December 31,
2023
% of
Revenue
Amount
2022
% of
Revenue
Amount
Total Revenue
Cost of Sales
Gross Profit
Operating Expenses
General and administrative
Sales and marketing
Research and development
Total Operating Expenses
Loss from Operations
Other Income (Expense)
Interest expense
Interest income
Unrealized foreign currency translation gain
Bargain purchase gain
Other expense
Total Other Income (Expense)
Net Loss from Operations Before Provision for Income
Taxes
Benefit (Provision) for Income Taxes
Current and Deferred
Net Income (Loss)
$
91,303
35,836
55,467
25,850
38,439
1,336
65,625
(10,158)
(2,938)
149
265
11,694
(49)
9,121
(1,037)
1,697
660
64
100.0%
39.2%
60.8%
28.3%
42.1%
1.5%
71.9%
(11.1)%
(3.2)%
0.2%
0.3%
12.8%
(0.1)%
10.0%
(1.1)%
1.9%
0.7% $
57,969
25,832
32,137
15,462
22,515
915
38,892
(6,755)
(1,692)
31
—
—
—
(1,661)
(8,416)
(69)
(8,485)
100.0%
44.6%
55.4%
26.7%
38.8%
1.6%
67.1%
(11.7)%
(2.9)%
0.1%
0.0%
0.0%
0.0%
(2.9)%
(14.5)%
(0.1)%
(14.6)%
Revenue
Total revenue for the year ended December 31, 2023 increased 58% to $91.3 million compared to $58.0 million for the prior year. This increase is
attributed primarily to the contribution of additional sales resulting from the acquisition of the Surgalign Holdings’ hardware and biologics business,
greater independent agent sales, the additional Coflex and CoFix product sales and opportunistic private label sales, in each case during the year ended
December 31, 2023.
Cost of Sales
Cost of sales consists primarily of manufacturing cost, product purchase costs and depreciation of surgical instruments. Cost of sales also includes
reserves for estimated excess inventory, inventory on consignment that may be missing and not returned, and reserves for estimated missing and damaged
consigned surgical instruments. Cost of sales increased by 39%, or $10.0 million, to $35.8 million for the year ended December 31, 2023 from $25.8
million for the year ended December 31, 2022. This increase is primarily due to higher sales levels.
Gross profit as a percentage of revenue increased to 60.8% for the year ended December 31, 2023 compared to 55.4% for the year ended
December 31, 2022. Of this increase, 620 basis points were due to greater scale and improved production efficiency, 290 basis points were due to sales mix,
partially offset by 340 basis points due to higher production costs.
General and Administrative
General and administrative expenses consist primarily of personnel costs for corporate employees, cash-based and stock-based compensation
related costs, amortization, and corporate expenses for legal, accounting and other professional fees, as well as occupancy costs. General and administrative
expenses increased 67%, or $10.4 million, to $25.9 million for the year ended December 31, 2023 compared to $15.5 million for the year ended December
31, 2022. This increase is primarily attributable to additional expense of $4.3 million related to various compensation plans, $2.0 million of additional legal
and other professional fees resulting primarily from acquisition related activities, $1.4 million of additional amortization of intangible assets associated
with the Coflex and CoFix product lines and $1.1 million of consulting fees resulting primarily from acquisition related activities.
Sales and Marketing
Sales and marketing expenses consist primarily of sales commissions, personnel costs for sales and marketing employees, costs for trade shows,
sales conventions and meetings, travel expenses, advertising and other sales and marketing related costs. Sales and marketing expenses increased 71%, or
$15.9 million, to $38.4 million for the year ended December 31, 2023 compared to $22.5 million for the year ended December 31, 2022. This increase was
due primarily to additional independent agent commissions expense of $9.8 million resulting from higher sales, $5.1 million of additional expense
associated with various compensation plans and additional expense of $0.9 million associated with trade shows and travel.
Research and Development
Research and development expenses consist primarily of internal costs for the development of new product technologies. Research and
development expenses increased 46%, or $0.4 million, to $1.3 million for year ended December 31, 2023 compared to $0.9 million for the year end
December 31, 2022. This increase resulted primarily from increased headcount due to additional personnel hired in connection with our acquisitions.
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Interest Expense
Interest expense for the year ended December 31, 2023 increased $1.2 million to $2.9 million as compared to $1.7 million for the year ended
December 31, 2022. This increase resulted primarily from increases to the base interest rate applied to our debt instruments and the additional borrowing of
$5.0 million under our term loan agreement in February 2023 in connection with our acquisition of Surgalign SPV and the Coflex and CoFix product lines.
We expect that our annualized interest expense will increase approximately $0.1 million for every 50 basis points of increase to the reference rate
associated with our credit agreements.
Benefit (Provision) for Income Taxes Current and Deferred
Income tax benefit for the year ended December 31, 2023 was $1.7 million compared to income tax expense of $0.1 million for the year ended
December 31, 2022. This change resulted primarily from the tax benefit associated with the release of the valuation allowance resulting from recognition of
deferred tax liabilities in purchase accounting.
Net Income (Loss)
We recognized net income of $660 thousand during the year ended December 31, 2023 as compared to a net loss of $8.5 million during the year ended
December 31, 2022 primarily due to the $11.7 million gain on bargain purchase recognized as a result of our acquisition of Surgalign Holdings’ hardware
and biologics business in connection with bankruptcy proceedings.
Liquidity and Capital Resources
Working Capital
Since our inception, we have financed our operations primarily through operating cash flows, private placements of equity securities and
convertible debt, debt facilities, common stock rights offerings, and other debt transactions. The following table summarizes our working capital as of
December 31, 2023 and December 31, 2022 (in thousands):
Cash and cash equivalents
Accounts receivable, net
Inventories
Total current assets
Accounts payable
Accrued liabilities
Line of credit
Current portion of long-term debt
Total current liabilities
Net working capital
Cash Flows
$
December 31,
2023
2022
5,923 $
20,731
36,885
64,899
7,054
10,419
4,622
—
22,990
41,879
20,507
10,853
17,285
49,318
3,490
5,496
3,379
2,333
15,218
34,100
Net cash used in operating activities for the year ended December 31, 2023 was $9.5 million compared to $5.3 million provided by operating
activities for the year ended December 31, 2022. This increase in net cash used in operating activities relates primarily to the increase in accounts
receivable balance.
Net cash used in investing activities for the years ended December 31, 2023 and 2022 was $24.8 million and $1.6 million, respectively. This
increase relates primarily to the use of $17.0 million of cash for the acquisition of Surgalign SPV, $5.6 million of cash for the acquisition of Surgalign
Holdings’s hardware and biologics business and $2.0 million of cash for the acquisition of nanOss production operations from RTI Surgical, Inc.
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Net cash provided by financing activities was $19.7 million for the year ended December 31, 2023, which was primarily attributable to $14.0
million of net proceeds resulting from our July 2023 private placement of common stock and $4.7 million of net proceeds from the issuance of long term
debt, net of issuance costs. Net cash provided by financing activities was $9.0 million for the year ended December 31, 2022, which was primarily
attributable to $9.3 million of proceeds from the private placement of common stock and common stock warrants, net of issuance costs.
Current and Prior Credit Facilities
On March 7, 2024, the Company, as guarantor, and certain of our subsidiaries, as borrowers (collectively, the “Borrowers”), entered into an
Amended and Restated Credit, Security and Guaranty Agreement (Term Loan) (the “Term Credit Agreement”) and an Amended and Restated Credit,
Security and Guaranty Agreement (Revolving Loan) (the “Revolving Credit Agreement” and, together with the Term Credit Agreement, the “Credit
Agreements”) with MidCap Financial Trust and MidCap Funding IV Trust, each in its respective capacity as agent, and lenders from time to time party
thereto. These Credit Agreements amend and restate the Credit, Security and Guaranty Agreement, dated as of May 6, 2021 (Term Loan), as amended (the
“Prior Term Credit Agreement”), and the Credit, Security and Guaranty Agreement, dated as of May 6, 2021 (Revolving Loan), as amended (the “Prior
Revolving Credit Agreement” and, together with the Prior Term Credit Agreement, the “Prior Credit Agreements”), in each case, by and among the
Borrowers, the Company and MidCap Financial Trust and MidCap Funding IV Trust, as respective agents, and the lenders from time to time party thereto.
The Term Credit Agreement provides for a secured term loan facility (the “Term Facility”) in an aggregate principal amount of $17.0 million (the
“Term Loan Commitment”), which was previously funded under the Prior Term Credit Agreement, and an additional $10.0 million tranche available solely
at the discretion of MidCap Financial Trust and the lenders, for the purposes agreed to between the Company, the Borrowers and the lenders in advance of
the making of loans under such additional tranche. The Revolving Credit Agreement provides for a secured revolving credit facility (the “Revolving
Facility,” and, together with the Term Facility, the “Facilities”) under which the Borrowers may borrow up to $17.0 million (such amount, the “Revolving
Loan Commitment”) at any one time, the availability of which is determined based on a borrowing base equal to percentages of certain accounts receivable
and inventory of the Borrowers in accordance with a formula set forth in the Revolving Credit Agreement. All borrowings under the Revolving Facility are
subject to the satisfaction of customary conditions, including the absence of default, the accuracy of representations and warranties in all material respects
and the delivery of an updated borrowing base certificate.
The Facilities have a maturity date of March 1, 2029 (the “Maturity Date”). Each of the Borrowers, and the Company, as guarantor, are jointly and
severally liable for all of the obligations under the Facilities on the terms set forth in the Credit Agreements. The Borrowers’ obligations, and the
Company’s obligations as a guarantor, under the Credit Agreements are secured by first-priority liens on substantially all of their assets, including, without
limitation, all inventory, equipment, accounts, intellectual property and other assets of the Company and the Borrowers. As of December 31, 2023, we had
$4.0 million outstanding and $3.3 million of availability under the Prior Revolving Credit Agreement.
The loans and other obligations pursuant to the Credit Agreements will bear interest at a per annum rate equal to the sum of the SOFR Interest
Rate, as such term is defined in the Credit Agreements, plus the applicable margin of 6.50% in the case of the Term Credit Agreement, and an applicable
margin of 4.50% in the case of the Revolving Credit Agreement, subject in each case to a floor of 2.50%. As of December 31, 2023, the effective rate of the
Prior Term Credit Agreement, inclusive of authorization of debt issuance costs and accretion of the final payment, was 14.42%, and the effective rate of the
Prior Revolving Credit Agreement was 9.94%.
The Credit Agreements contain affirmative and negative covenants customarily applicable to senior secured credit facilities, including covenants
that, among other things, limit or restrict the ability of the Borrowers, subject to negotiated exceptions, to incur additional indebtedness and additional liens
on their assets, engage in mergers or acquisitions or dispose of assets, pay dividends or make other distributions, voluntarily prepay other indebtedness,
enter into transactions with affiliated persons, make investments, and change the nature of their businesses. In addition, the Credit Agreements require the
Borrowers and the Company to maintain net product revenue at or above minimum levels and to maintain a certain minimum liquidity level, in each case
as specified in the Credit Agreements. As of December 31, 2023, we were in compliance with all covenants under the Prior Credit Agreements.
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Cash Requirements
We believe that our $5.9 million of cash and cash equivalents as of December 31, 2023, together with amounts available under the Facilities, will
be sufficient to meet our anticipated cash requirements through at least March 2025. However, we may require or seek additional capital to fund our future
operations and business strategy prior to March 2025. Accordingly, there is no assurance that we will not need or seek additional financing prior to such
time.
We may elect to raise additional financing even before we need it if market conditions for raising additional capital are favorable. We may seek to
raise additional financing through various sources, such as equity and debt financings, additional debt restructurings or refinancings, or through strategic
collaborations and license agreements. We can give no assurances that we will be able to secure additional sources of funds to support our operations, or if
such funds are available to us, that such additional financing will be sufficient to meet our needs or on terms acceptable to us. This is particularly true if
economic and market conditions deteriorate.
To the extent that we raise additional capital through the sale of equity or convertible debt securities or the restructuring or refinancing of our debt,
the interests of our current stockholders may be diluted, and the terms may include discounted equity purchase prices, warrant coverage, liquidation or
other preferences or rights that would adversely affect the rights of our current stockholders. If we issue common stock, we may do so at purchase prices
that represent a discount to our trading price and/or we may issue warrants to the purchasers, which could further dilute our current stockholders. If we
issue preferred stock, it could adversely affect the rights of our stockholders or reduce the value of our common stock. In particular, specific rights or
preferences granted to future holders of preferred stock may include voting rights, preferences as to dividends and liquidation, conversion and redemption
rights, sinking fund provisions, and restrictions on our ability to merge with or sell our assets to a third party. Additional debt financing, if available, may
involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital
expenditures or declaring dividends. Prior to raising additional equity or debt financing, we may be required to obtain the consent of MidCap under our
Credit Agreements and/or ROS and Royalty Opportunities under our Investor Rights Agreement with them, and no assurance can be provided that they
would provide such consent, which could limit our ability to raise additional financing and the terms thereof.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is included in Note 1 to our consolidated financial statements in “Item 8. Financial
Statements and Supplementary Data.”
Critical Accounting Estimates
All of our significant accounting policies and estimates are described in Note 1 to our consolidated financial statements in “Item 8. Financial
Statements and Supplementary Data.” Certain of our more critical accounting estimates require the application of significant judgment by management in
selecting the appropriate assumptions in determining the estimate. By their nature, these judgments are subject to an inherent degree of uncertainty. We
develop these judgments based on our historical experience, terms of existing contracts, our observance of trends in the industry, information provided by
our customers, and information available from other outside sources, as appropriate. Actual results may differ from these estimates under different
assumption conditions.
We believe that the following financial estimates are both important to the portrayal of our financial condition and results of operations and require
subjective or complex judgments. Further, we believe that the items discussed below are properly recorded in our consolidated financial statements for all
periods presented. Our management has discussed the development, selection, and disclosure of our most critical financial estimates with the Audit
Committee of the Board of Directors and with our independent registered public accounting firm. The judgments about those financial estimates are based
on information available as of the date of our financial statements. Those financial estimates include:
68
Business Combinations
When applicable, we account for the acquisition of a business in accordance with the accounting standards codification guidance for business
combinations, whereby the total consideration transferred is allocated to the assets acquired and liabilities assumed, including amounts attributable to non-
controlling interests, when applicable, based on their respective estimated fair values as of the date of acquisition. Goodwill represents the excess of
consideration transferred over the estimated fair value of the net assets acquired in a business combination.
Assigning estimated fair values to the net assets acquired requires the use of significant estimates, judgments, inputs, and assumptions regarding
the fair value of domestic and international assets and liabilities, including intangible assets that are separately identifiable from goodwill, inventory, and
property, plant, and equipment. While the ultimate responsibility for determining estimated fair values of the acquired net assets resides with management,
for material acquisitions, we may retain the services of certified valuation specialists to assist with assigning estimated fair values to certain acquired assets
and assumed liabilities, including intangible assets that are separately identifiable from goodwill, inventory, and property, plant, and equipment. Estimated
fair values of acquired intangible assets that are separately identifiable from goodwill, inventory, and property, plant, and equipment are generally based on
available historical information, future expectations, available market data, and assumptions determined to be reasonable but are inherently uncertain with
respect to future events, including economic conditions, competition, technological obsolescence, the useful life of the acquired assets, and other factors.
These significant estimates, judgments, inputs, and assumptions include, when applicable, the selection of an appropriate valuation method depending on
the nature of the respective asset, such as the income approach, the market or sales comparison approach, or the cost approach; estimating future cash flows
based on projected revenues and/or margins that we expect to generate subsequent to the acquisition; applying an appropriate discount rate to estimate the
present value of those projected cash flows we expect to generate; selecting an appropriate terminal growth rate and/or royalty rate or estimating a customer
attrition or technological obsolescence factor where necessary and appropriate given the nature of the respective asset; assigning an appropriate
contributory asset charge where needed; determining an appropriate useful life and the related depreciation or amortization method for the respective asset;
and assessing the accuracy and completeness of other historical financial metrics of the acquiree used as standalone inputs or as the basis for determining
estimated projected inputs such as margins, customer attrition, and costs to hold and sell product.
In determining the estimated fair value of intangible assets that are separately identifiable from goodwill, we typically utilize the income approach,
which discounts the projected future cash flows using a discount rate that appropriately reflects the risks associated with the projected cash flows.
Generally, we estimate the fair value of acquired customer relationships using the relief from royalty method under the income approach, which is based on
the hypothetical royalty stream that would be received if we were to license the acquired trade name. For most other acquired intangible assets, we estimate
fair value using the excess earnings method under the income approach, which is typically applied when cash flows are not directly generated by the asset,
but rather, by an operating group that includes the particular asset. In certain instances, particularly in relation to developed technology or patents, we may
utilize the cost approach depending on the nature of the respective intangible asset and the recency of the development or procurement of such technology.
The useful lives and amortization methods for the acquired intangible assets that are separately identifiable from goodwill are generally determined based
on the period of expected cash flows used to measure the fair value of the acquired intangible assets and the nature of the use of the respective acquired
intangible asset, adjusted as appropriate for entity-specific factors including legal, regulatory, contractual, competitive, economic, and/or other factors such
as customer attrition rates and product or order lifecycles that may limit the useful life of the respective acquired intangible asset. In determining the
estimated fair value of acquired inventory, we typically utilize the cost approach for raw materials and the sales comparison approach for work in process,
finished goods, and service parts. In determining the estimated fair value of acquired property, plant, and equipment, we typically utilize the sales
comparison approach or the cost approach depending on the nature of the respective asset and the recency of the construction or procurement of such asset.
69
We may refine the estimated fair values of assets acquired and liabilities assumed, if necessary, over a period not to exceed one year from the date
of acquisition by taking into consideration new information that, if known as of the date of acquisition, would have affected the estimated fair values
ascribed to the assets acquired and liabilities assumed. The judgments made in determining the estimated fair value assigned to assets acquired and
liabilities assumed, as well as the estimated useful life and depreciation or amortization method of each asset, can materially impact the net earnings of the
periods subsequent to an acquisition through depreciation and amortization, and in certain instances through impairment charges, if the asset becomes
impaired in the future. During the measurement period, any purchase price allocation changes that impact the carrying value of goodwill will affect any
measurement of goodwill impairment taken during the measurement period, if applicable. If necessary, purchase price allocation revisions that occur
outside of the measurement period are recorded within cost of sales, selling expenses or general and administrative expenses within our consolidated
statements of operations depending on the nature of the adjustment.
As of December 31, 2023, our controls designed surrounding the completeness and accuracy of information utilized in determining the open
balance sheet fair value of inventory, which includes the establishment of inventory reserves, related to the acquisition of the hardware and biologics
business of Surgalign Holdings, Inc. were insufficient and did not operate at an appropriate level of precision. The resulting material weaknesses are
described in greater detail under the heading Part II. Item 9A. “Controls and Procedures.”
Inventory Valuation
Inventories are stated at the lower of cost or net realizable value. Cost is determined using the specific identification method and includes
materials, labor and overhead. We calculate an inventory reserve for estimated obsolescence and excess inventory based on historical usage and sales, as
well as assumptions about anticipated future demand for products. A significant sustained decrease in demand could result in an increase in the amount of
excess inventory quantities on hand. Additionally, our industry is characterized by regular new product development and introductions that could result in
an increase in the amount of obsolete inventory quantities on hand due to cannibalization of existing products. Our estimates for excess and obsolete
inventory are reviewed and updated on a quarterly basis. Our estimates of anticipated future product demand may prove to be inaccurate in which case we
may be required to incur charges for excess and obsolete inventory. Increases in our inventory reserves result in a corresponding expense, which is recorded
to cost of sales. We believe the total reserve at December 31, 2023 is adequate.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
This Item 7A is inapplicable to Xtant as a smaller reporting company.
70
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firms (PCAOB ID Number 248)
Reports of Independent Registered Public Accounting Firms (PCAOB ID Number 166)
Consolidated Statements of Operations
Consolidated Balance Sheets
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
71
72
74
75
76
77
78
79
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Xtant Medical Holdings, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheet of Xtant Medical Holdings, Inc. (a Montana corporation) and subsidiaries (the “Company”)
as of December 31, 2023, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for the year ended
December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in
all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year ended
December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or
required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical
audit matter or on the accounts or disclosures to which it relates.
72
Opening balance sheet inventory fair values over the acquisition of Surgalign Holdings, Inc.’s Hardware and Biologics business
As described further in Note 3 to the consolidated financial statements, on August 10, 2023 the Company completed the acquisition (the “Transaction”) of
the assets of Surgalign Holdings, Inc. (“Surgalign Holdings”), and its subsidiaries previously used in Surgalign Holdings, Inc’s hardware and biologics
business, for $5 million in cash consideration. The Transaction was accounted for using the acquisition method of accounting under Accounting Standards
Codifications (“ASC”) 805, Business Combinations. The fair values assigned to inventories at the acquisition date were $15,300,000. We identified the
determination of saleable inventory quantities on acquisition date, which is a critical input used to determine the fair value of inventory, as a critical audit
matter.
The principal considerations for our determination that the fair value of inventories acquired in the Transaction is a critical audit matter are that there are
significant judgments, estimates, and assumptions made by management to estimate their fair values. This required a high degree of auditor judgment and
increased extent of effort when performing audit procedures to evaluate the reasonableness of the recorded fair values of inventories.
Our audit procedures related to the fair value of inventory recorded in the Transaction included the following, among others.
● We obtained an understanding and evaluated the design of management’s relevant controls to estimate the fair value of inventory as of the acquisition
date.
● We evaluated the reasonableness of identified inventory items that management determined were not saleable and to which no value was assigned by
inspecting subsequent sales of nonsaleable units identified by management.
● For saleable inventory acquired we performed an independent estimate of the Company’s adjustment to fair value by using actual sales data subsequent
to acquisition to estimate future sales demand compared to inventory quantities on hand as of the acquisition date and compared our independent
estimate to management’s recorded values.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2023.
Minneapolis, Minnesota
April 1, 2024
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Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of
Xtant Medical Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Xtant Medical Holdings, Inc. (the “Company”) as of December 31, 2022 and the related
consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended; and the related notes (collectively referred to as the
“financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2022 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.
Basis for Opinion
The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on the Company’s financial
statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (the
“PCAOB”) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Plante & Moran, PLLC
We served as the Company’s auditor from 2011 to 2023.
Denver, Colorado
March 7, 2023
74
XTANT MEDICAL HOLDINGS, INC.
Consolidated Statements of Operations
(In thousands, except number of shares and per share amounts)
Year Ended December 31,
2023
2022
Revenue
Orthopedic product sales
Cost of Sales
Gross Profit
Operating Expenses
General and administrative
Sales and marketing
Research and development
Total Operating Expenses
Loss from Operations
Other Income (Expense)
Interest expense
Interest income
Unrealized foreign currency translation gain
Bargain purchase gain
Other expense
Total Other Income (Expense)
Net Loss from Operations Before Provision for Income Taxes
Benefit (Provision) for Income Taxes Current and Deferred
Net Income (Loss)
Net Income (Loss) Per Share:
Basic
Dilutive
Shares used in the computation:
Basic
Dilutive
$
$
$
$
91,303 $
35,836
55,467
25,850
38,439
1,336
65,625
(10,158)
(2,938)
149
265
11,694
(49)
9,121
(1,037)
1,697
660 $
0.01 $
0.01 $
57,969
25,832
32,137
15,462
22,515
915
38,892
(6,755)
(1,692)
31
—
—
—
(1,661)
(8,416)
(69)
(8,485)
(0.09)
(0.09)
119,093,687
126,793,318
94,085,197
94,085,197
See notes to consolidated financial statements.
XTANT MEDICAL HOLDINGS, INC.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
Net Income (Loss)
Other Comprehensive Income (Loss)
Foreign currency translation adjustments
Comprehensive Income (Loss)
Year Ended December 31,
2023
2022
$
660 $
29
689
(8,485)
—
(8,485)
See notes to consolidated financial statements.
75
XTANT MEDICAL HOLDINGS, INC.
Consolidated Balance Sheets
(In thousands, except number of shares and par value)
As of
December 31, 2023
As of
December 31, 2022
ASSETS
Current Assets:
Cash and cash-equivalents
Restricted cash
Trade accounts receivable, net of allowance for credit losses of $920 and $515, respectively
Inventories
Prepaid and other current assets
Total current assets
Property and equipment, net
Right of use asset, net
Goodwill
Intangible assets, net
Other assets
Total Assets
LIABILITIES & STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable
Accrued liabilities
Current portion of lease liability
Current portion of finance lease obligations
Line of credit
Current portion of long-term debt
Total current liabilities
Long-term Liabilities:
Lease liability, net
Financing lease obligations, net
Long-term debt, plus premium and less issuance costs
Accrued earnout liabilities
Deferred tax liability
Total Liabilities
Commitments and Contingencies (Note 14)
Stockholders’ Equity:
Preferred stock, $0.000001 par value; 10,000,000 shares authorized; no shares issued and
outstanding
Common stock, $0.000001 par value; 300,000,000 shares authorized; 130,180,031 shares issued
and outstanding as of December 31, 2023; 108,874,803 shares issued and outstanding as of
December 31, 2022
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total Stockholders’ Equity
Total Liabilities & Stockholders’ Equity
See notes to consolidated financial statements.
76
$
$
$
$
5,715 $
208
20,731
36,885
1,330
64,869
8,692
1,523
7,302
10,085
141
92,612 $
7,054 $
10,419
830
65
4,622
—
22,990
759
116
17,167
210
21
41,263
20,298
209
10,853
17,285
673
49,318
5,785
1,380
3,205
344
197
60,229
3,490
5,496
458
62
3,379
2,333
15,218
972
181
9,687
—
—
26,058
—
—
—
294,330
29
(243,010)
51,349
92,612 $
—
277,841
—
(243,670)
34,171
60,229
XTANT MEDICAL HOLDINGS, INC.
Consolidated Statements of Changes in Stockholders’ Equity
(In thousands, except number of shares and par value)
Balance at December 31, 2021
Private placement of common stock, net of
issuance costs of $436
Warrants issued in connection with the private
placement
Common stock issued on vesting of restricted
stock units
Stock-based compensation
Net loss
Balance at December 31, 2022
Private placement of common stock, net of
issuance costs of $175
Common stock issued on vesting of restricted
stock units
Withholding on common stock upon vesting of
restricted stock units
Stock-based compensation
Foreign currency translation adjustment
Net income
Balance at December 31, 2023
Common Stock
Additional
Paid-In-
Accumulated
Other
Comprehensive Accumulated
Total
Stockholders’
Shares
87,068,980 $
Total
Capital
— $ 266,068
Loss
— $
Deficit
Equity
(235,185) $ 30,883
20,305,429
—
1,500,394
—
—
108,874,803 $
20,000,000
1,536,251
(231,023)
—
—
—
130,180,031 $
—
—
7,681
1,628
—
—
2,464
—
—
—
— $ 277,841
—
—
14,011
—
—
—
—
—
— $ 294,330 $
(261)
2,739
—
—
See notes to consolidated financial statements.
77
—
—
—
—
—
—
—
— $
—
—
(8,485)
(243,670) $
—
—
—
—
29
—
29 $
—
—
—
—
—
660
(243,010) $
7,681
1,628
—
2,464
(8,485)
34,171
14,011
—
(261)
2,739
29
660
51,349
XTANT MEDICAL HOLDINGS, INC.
Consolidated Statements of Cash Flows
(In thousands)
Operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization
Non-cash interest
Non-cash rent
Gain on sale of fixed assets
Stock-based compensation
Provision for reserve on accounts receivable
Provision for excess and obsolete inventory
Release of deferred tax asset valuation allowance
Gain on bargain purchase
Changes in operating assets and liabilities, net of the effects of acquisitions:
Trade accounts receivable
Inventories
Prepaid and other assets
Accounts payable
Accrued liabilities
Net cash used in operating activities
Investing activities:
Purchases of property and equipment
Proceeds from sale of fixed assets
Acquisition of Surgalign SPV, Inc.
Acquisition of Surgalign Holdings, Inc.’s hardware and biologics business, net of cash acquired
Acquisition of nanOss Production Operations from RTI Surgical Inc.
Net cash used in investing activities
Financing activities:
Borrowings on line of credit
Repayments on line of credit
Payments on financing leases
Proceeds from issuance of common stock, net of issuance costs
Proceeds from issuance of long term debt, net of issuance costs
Payment of taxes from withholding of common stock on vesting of restricted stock units
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents and restricted cash
Year Ended December 31,
2023
2022
$
660 $
(8,485)
3,174
386
16
(115)
2,739
497
357
(1,901)
(11,694)
(8,736)
(1,886)
220
2,980
3,788
(9,515)
(1,456)
175
(17,000)
(4,503)
(2,000)
(24,784)
78,219
(76,976)
(63)
14,011
4,761
(261)
19,691
24
1,292
233
4
(93)
2,464
243
1,812
—
—
(3,941)
(1,152)
261
875
1,146
(5,341)
(1,764)
205
—
—
—
(1,559)
54,229
(54,470)
(50)
9,311
—
—
9,020
—
2,120
18,387
20,507
20,298
209
20,507
Net change in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash at beginning of year
Cash and cash equivalents and restricted cash at end of year
Reconciliation of cash and cash equivalents and restricted cash reported in the consolidated balance
sheets
Cash and cash equivalents
Restricted cash
Total cash and cash equivalents and restricted cash reported in the consolidated balance sheets
$
$
$
(14,584)
20,507
5,923 $
5,715 $
208
5,923 $
See notes to consolidated financial statements.
78
(1) Business Description and Summary of Significant Accounting Policies
Business Description
Notes to Consolidated Financial Statements
The accompanying consolidated financial statements include the accounts of Xtant Medical Holdings, Inc., a Delaware corporation, and its wholly
owned subsidiaries, are jointly referred to herein as “Xtant” or the “Company”). The terms “we,” “us” and “our” also refer to Xtant.
All intercompany balances and transactions have been eliminated in consolidation.
Xtant products serve the combined specialized needs of orthopedic and neurological surgeons, including orthobiologics for the promotion of bone
healing, implants and instrumentation for the treatment of spinal disease, tissue grafts for the treatment of orthopedic disorders to promote healing
following spine, cranial and foot surgeries and the development, manufacturing and sale of medical devices for use in orthopedic spinal surgeries.
At December 31, 2023, the Company had cash and cash equivalents and restricted cash of $5.9 million, and an accumulated deficit of $243.0
million and has incurred significant losses from operations in the current and prior periods.
Management’s evaluation of going concern was conducted as part of its discussions with the Xtant Board of Directors’ review of the 2024 Annual
Operating Plan. Management believes that our $5.9 million of cash and cash equivalents as of December 31, 2023, together with amounts available under
our line of credit, will be sufficient to meet our anticipated cash requirements through at least March 2025.
Investor Rights Agreement
We are party to an Investor Rights Agreement (as amended, the “Investor Rights Agreement”) with ROS Acquisition Offshore (“ROS”) and
OrbiMed Royalty Opportunities II, LP (“Royalty Opportunities”), which are funds affiliated with OrbiMed Advisors LLC (“OrbiMed”). Under the Investor
Rights Agreement, Royalty Opportunities and ROS are permitted to nominate a majority of the directors and designate the chairperson of our Board of
Directors at subsequent annual meetings, as long as they maintain an ownership threshold in our Company of at least 40% of our then outstanding common
stock (the “Ownership Threshold”). If Royalty Opportunities and ROS are unable to maintain the Ownership Threshold, the Investor Rights Agreement
contemplates a reduction of nomination rights commensurate with our ownership interests. In addition, for so long as the Ownership Threshold is met, we
must obtain the approval of a majority of our common stock held by Royalty Opportunities and ROS to proceed with the following actions: (i) issue new
securities; (ii) incur over $250,000 of debt in a fiscal year; (iii) sell or transfer over $250,000 of our assets or businesses or our subsidiaries in a fiscal year;
(iv) acquire over $250,000 of assets or properties in a fiscal year; (v) make capital expenditures over $125,000 individually, or $1.5 million in the aggregate
during a fiscal year; (vi) approve our annual budget; (vii) appoint or remove the chairperson of our Board of Directors; and (viii) make, loans to,
investments in, or purchase, or permit any subsidiary to purchase, any stock or other securities in another entity in excess of $250,000 in a fiscal year.
The Investor Rights Agreement grants Royalty Opportunities and ROS the right to purchase from us a pro rata amount of any new securities that
we may propose to issue and sell. The Investor Rights Agreement may be terminated (a) upon the mutual written agreement of all the parties, (b) upon our
written notice, ROS or Royalty Opportunities if the ownership percentage of our then outstanding common stock of ROS and Royalty Opportunities is less
than 10%, or (c) upon written notice of ROS and Royalty Opportunities.
Use of Estimates
The preparation of the financial statements requires management of the Company to make a number of estimates and assumptions relating to the
reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the period. Estimates and assumptions relating to receivables, inventories, goodwill, deferred income tax assets
and liabilities, lease obligations and corresponding right-of-use asset, fair value of long-term debt, stock option grants and other equity awards are made at
the end of each reporting period by management. Actual results could differ from those estimates.
79
Cash, Cash Equivalents, and Restricted Cash
The Company considers all highly liquid investments purchased with an original maturity date of three months or less to be cash equivalents. Cash
equivalents are recorded at cost, which approximates market value. At times, the Company maintains deposits in financial institutions in excess of federally
insured limits.
Cash and cash equivalents classified as restricted cash on our consolidated balance sheets are restricted as to withdrawal or use under the terms of
certain credit agreements. The December 31, 2023 balance included lockbox deposits that are temporarily restricted due to timing at the period end. The
lockbox deposits are applied against our line of credit the next business day.
Trade Accounts Receivable
Accounts receivable represents amounts due from customers for which revenue has been recognized. Normal terms on trade accounts receivable
are net 30 days, and some customers are offered discounts for early pay. The Company performs credit evaluations when considered necessary, but
generally does not require collateral to extend credit. The Company applies the practical expedient for contacts with payment terms of one year or less
which does not consider the effect of the time value of money.
The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing receivables.
The Company determines the allowance based on factors such as historical collection experience, customers’ current creditworthiness, customer
concentration, age of accounts receivable balance, general economic conditions that may affect a customer’s ability to pay, and management judgment. In
addition, we include provision for current expected credit loss based on historical collection experience adjusted for current economic conditions affecting
collectability. Actual customer collections could differ from estimates. Account balances are charged to the allowance after all means of collection have
been exhausted and the potential for recovery is considered remote. Provisions to the allowance for doubtful accounts are charged to expense. The
Company does not have any off-balance sheet credit exposure related to its customers.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined using the specific identification method and includes
materials, labor and overhead. The Company calculates an inventory reserve for estimated obsolescence and excess inventory based on historical usage and
sales, as well as assumptions about future demand for its products. These estimates for excess and obsolete inventory are reviewed and updated on a
quarterly basis. Increases in the inventory reserves result in a corresponding expense, which is recorded to cost of sales.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, generally three to seven years for computers and equipment and five years for surgical instruments. Leasehold
improvements are depreciated over the shorter of their estimated useful life or the remaining term of the lease. Repairs and maintenance are expensed as
incurred.
Intangible Assets
Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and
reviewed for impairment whenever events or circumstances indicate their carrying amount may not be recoverable. Intangible assets include tradenames,
customer relationships and patents and include costs to acquire and protect Company patents. Intangible assets are carried at cost less accumulated
amortization. The Company amortizes these assets on a straight-line basis over their estimated useful lives.
80
Other Assets
Other assets consist of the short-term and the long-term portion of prepaid expenses and security deposits.
Long-Lived Asset Impairment
Long-lived assets, including property and equipment and intangible assets, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the
assets.
Goodwill
Goodwill represents the excess of costs over fair value of assets of businesses acquired. Goodwill and intangible assets acquired in a business
combination and determined to have indefinite useful lives are not amortized, instead they are tested for impairment at least annually and whenever events
or circumstances indicate the carrying amount of the asset may not be recoverable. The Company conducts its impairment test on an annual basis and
reviews the assumptions on a quarterly basis. We test goodwill for impairment at the reporting unit level, which is an operating segment or one level below
an operating segment, referred to as a component. A component of an operating segment is a reporting unit if the component constitutes a business for
which discrete financial information is available and segment management regularly reviews the operating results of that component.
Foreign Currency
The Company generates revenues outside the United States in multiple foreign currencies including euros, Swiss francs, British pounds and in
U.S. dollar-denominated transactions conducted with customers who generate revenue in currencies other than the U.S. dollar. The Company also incurs
operating expenses in euros, Swiss francs and British pounds. All assets and liabilities of foreign subsidiaries which have a functional currency other than
the U.S. dollar are translated at the rate of exchange at period-end, while elements of the income statement are translated at the average exchange rates in
effect during the period. The net effect of these translation adjustments is shown as a component of accumulated other comprehensive income. Foreign
currency transaction gains and losses are reported in other income, net.
Revenue Recognition
In the United States, the Company generates most of its revenue from independent commissioned sales agents. The Company consigns its
orthobiologics products to hospitals and consign or loans its spinal implant sets to independent sales agents. The spinal implant sets typically contain the
instruments, disposables, and spinal implants required to complete a surgery. Consigned sets are managed by the sales agent to service hospitals that are
high volume users for multiple procedures. The Company ships replacement inventory to independent sales agents to replace the consigned inventory used
in surgeries. Loaned sets are returned to the Company’s distribution center, replenished, and made available to sales agents for the next surgical procedure.
For each surgical procedure, the sales agent reports use of the product by the hospital and, as soon as practicable thereafter, ensures that the
hospital provides a purchase order to the Company. Revenue is recognized upon utilization of product.
81
Additionally, the Company sells product directly to domestic and international stocking resellers, original equipment manufacturer resellers and
private label resellers. Upon receipt and acceptance of a purchase order from a stocking reseller, the Company ships product and invoices the reseller. The
Company recognizes revenue when the control is transferred upon shipment or upon delivery, based on the contract terms and legal requirements, and the
transfer of title and risk of loss occurs. There is generally no customer acceptance or other condition that prevents the Company from recognizing revenue
in accordance with the delivery terms for these sales transactions. In the normal course of business, the Company accepts returns of product that have not
been implanted. Product returns are not material to the Company’s consolidated statements of operations. The Company accounts for shipping and handling
activities as a fulfillment cost rather than a separate performance obligation. The Company’s policy is to record revenue net of any applicable sales, use, or
excise taxes. Payment terms are generally net 30 days from invoice date and some customers are offered discounts for early pay. The consideration for
goods or services reflects any fixed amount stated per the contract and estimates for any variable consideration, such as returns, discounts or rebates, to the
extent that it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable
consideration is resolved. For certain sales transactions, we incur GPO fees that are based on a contractual percentage of applicable sales and are treated as
consideration payable to a customer and recorded as a reduction of revenue.
Disaggregation of revenue
The Company operates in one reportable segment with its net revenue derived primarily from the sale of orthobiologics and spinal implant
products across North America. Sales are reported net of returns, discounts and rebates. The following table presents revenues from these product lines for
the years ended December 31, 2023 and 2022 (dollars in thousands):
Orthobiologics
Spinal implant
Total revenue
Research and Development
Year Ended
December 31,
2023
$
$
58,605
32,698
91,303
Percentage of
Total Revenue
Year Ended
December 31,
2022
Percentage of
Total Revenue
64% $
36%
100% $
47,143
10,826
57,969
81%
19%
100%
Research and development costs, which are principally related to internal costs for the development of new products, are expensed as incurred.
Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding.
Shares issued during the period and shares reacquired during the period are weighted for the portion of the period that they were outstanding. Diluted net
income (loss) per share is computed in a manner consistent with that of basic earnings per share while giving effect to all potentially dilutive shares of
common stock outstanding during the period, which include the assumed exercise of stock options and warrants using the treasury stock method.
Fair Value of Financial Instruments
The carrying values of financial instruments, including trade accounts receivable, accounts payable, accrued liabilities and long-term debt,
approximate their fair values based on terms and related interest rates.
The Company follows a framework for measuring fair value. The framework provides a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.
Level 2: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are
observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value
measurement. During the years ended December 31, 2023 and 2022, there was no reclassification in financial assets or liabilities between Level 1, 2 or 3
categories.
82
Recently Issued Accounting Pronouncements
In December 2023, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2023-09, Income Taxes (Topic
740): Improvement to Income Tax Disclosures to enhance the transparency of income tax disclosures. The guidance in ASU No. 2023-09 allows for a
prospective method of transition, with the option to apply the standard retrospectively. The standard is effective for fiscal years beginning after December
15, 2024, with early adoption permitted. The Company does not intend to early adopt the standard and is in the process of assessing the impact on its
consolidated financial statements and related disclosures.
(2) Acquisition of Coflex and CoFix Product Lines
On February 28, 2023, the Company entered into an Equity Purchase Agreement (the “Equity Purchase Agreement”) with Surgalign SPV, Inc.
(“Surgalign SPV”), a wholly owned subsidiary of Surgalign Spine Technologies, Inc., (“Seller”), Seller and Surgalign Holdings, Inc., pursuant to which the
Company purchased all of the issued and outstanding shares of common stock of Surgalign SPV, which shares constituted all of the outstanding equity of
Surgalign SPV, for an aggregate purchase price of $17.0 million in cash (the “Purchase Price”). The closing contemplated by the Equity Purchase
Agreement occurred on February 28, 2023 (the “Closing”).
Immediately prior to the Closing, Seller and its affiliates transferred and assigned to Surgalign SPV, a newly formed entity wholly owned by
Seller, certain intellectual property, contractual rights and other assets related to the design, manufacture, sale and distribution of Seller’s Coflex and CoFix
products in the United States (the “Coflex Business”). The Coflex and CoFix products have been approved by the U.S. Food and Drug Administration for
the treatment of moderate to severe lumbar spinal stenosis in conjunction with decompression and provide minimally invasive, motion preserving
stabilization.
In conjunction with the Equity Purchase Agreement, on February 28, 2023, the Company entered into a Transition Services Agreement with
Surgalign SVP and Seller, whereby Seller agreed to provide, or cause to be provided, to the Company on and after the effective date of the Equity Purchase
Agreement, after giving effect to the Closing, certain transitional services related to the transition of the Coflex Business.
The Company funded the Purchase Price with cash on hand and approximately $5.0 million of indebtedness incurred under our term loan, refer to
Note 10, “Debt,” for additional information.
The Company recorded the purchase of this acquisition using the acquisition method of accounting and, accordingly, recognized the assets
acquired at their fair values as of the date of acquisition. The table below represents the allocation of the total consideration for Surgalign SPV’s assets and
liabilities based on management’s estimates of their respective fair values as of February 28, 2023 (in thousands):
Inventories
Equipment
Intangible assets
Net assets acquired
Goodwill
Total purchase consideration
83
$
$
1,589
947
10,940
13,476
3,524
17,000
The acquisition was recorded by allocating the costs of the net assets acquired based on their estimated fair values at the acquisition date. The fair
values were based on management’s analysis, including work performed by third-party valuation specialists.
The acquisition strengthened the Company’s spine portfolio with the addition of the Coflex Business. Coflex is a differentiated and minimally
invasive motion preserving stabilization implant that is FDA PMA-approved for the treatment of moderate to severe lumbar spinal stenosis in conjunction
with decompression. This potential benefit resulted in the Company paying a premium for the acquisition resulting in the recognition of $3.5 million in
goodwill. For tax purposes, goodwill is deductible.
(3) Acquisition of Surgalign Holdings, Inc.’s Hardware and Biologics Business
On August 10, 2023, the Company completed the acquisition (the “Transaction”) of the assets of Surgalign Holdings, Inc. (“Surgalign Holdings”),
and its subsidiaries used in Surgalign Holding’s hardware and biologics business. The acquired assets included specified inventory, intellectual property
and intellectual property rights, contracts, equipment and other personal property, records, the outstanding equity securities of Surgalign Holdings’s
international subsidiaries, and intangibles that were related to Surgalign Holding’s hardware and biologics business (collectively, the “Assets”). As part of
the Transaction, the Company assumed and certain specified liabilities of Surgalign Holdings (collectively, the “Liabilities”), all pursuant to the Asset
Purchase Agreement, dated June 18, 2023, between Surgalign Holdings and us (as amended, the “Asset Purchase Agreement”).
The Transaction was conducted through a process supervised by the United States Bankruptcy Court for the Southern District of Texas, Houston
Division (the “Bankruptcy Court”) in connection with Surgalign Holdings’ bankruptcy proceedings; and therefore, the Company acquired the Assets with
limited representations and warranties. The Bankruptcy Court issued a Sale Order on August 9, 2023 approving and authorizing the Transaction. The
Company funded the purchase price of $5.0 million, plus Liabilities, with cash on hand.
The Company recorded the purchase of the Transaction using the acquisition method of accounting and, accordingly, recognized the assets
acquired at their fair values as of the date of acquisition. The table below represents the preliminary allocation of the total consideration for Surgalign
Holdings’ assets and liabilities based on management’s estimates of their respective fair values as of August 10, 2023 (in thousands):
Cash
Accounts receivable
Inventories
Prepaids and other current assets
Equipment
Right-of-use asset
Accounts payable
Accrued liabilities
Current portion of lease liability
Lease liability, less current portion
Net assets acquired
Bargain purchase gain
Deferred tax liability
Total purchase consideration
$
$
1,087
1,627
15,300
825
2,067
576
(530)
(1,170)
(238)
(338)
19,206
(11,694)
(1,922)
5,590
The Transaction was recorded by allocating the costs of the net assets acquired based on their estimated fair values at the acquisition date. The fair
values were based on management’s analysis, including work performed by third-party valuation specialists. These values changed from those previously
reported in our Form 10-Q for the three and nine months ended September 30, 2023 for adjustments to the valuation related to assumed future cash flows
and inventory utilization which ultimately affected values associated with inventories and equipment.
84
Accounting Standards Codification (“ASC”) 805, Business Combinations, requires that any excess of purchase price over the fair value of assets
acquired, including identifiable intangibles and liabilities assumed, be recognized as goodwill and any excess of fair value of acquired net assets, including
identifiable intangible assets over the acquisition consideration, results in a gain from bargain purchase. Prior to recording a gain, the acquiring entity must
reassess whether all assets acquired and assumed liabilities have been identified and recognized and perform re-measurements to verify that the
consideration paid, assets acquired and liabilities assumed have been properly valued. The Transaction resulted in a gain on bargain purchase due to the
estimated fair value of the identifiable net assets acquired exceeding the purchase consideration transferred by $11.7 million and is shown as a gain on
bargain purchase on our consolidated statement of operations. Upon completion of our assessment, the Company concluded that recording a gain on
bargain purchase was appropriate and required under ASC 805. The bargain purchase was primarily attributable to the Transaction occurring as part of
bankruptcy proceedings.
The Company believes that the Transaction will strengthen our growing orthobiologics and spinal fusion device portfolio, while expanding the
Company’s commercial footprint with new contracts and distributors.
(4) Acquisition of NanOss Production Operations
On October 23, 2023, the Company acquired the nanOss production operations from RTI Surgical, Inc. (“RTI”) pursuant to an Asset Purchase
Agreement dated October 23, 2023 between the Company and RTI (the “Asset Purchase Agreement”). Under the terms of the Asset Purchase Agreement,
the Company acquired certain assets, including equipment and inventory, used in RTI’s synthetic bone graft business and assumed from RTI the lease for
the nanOss production facility located in Greenville, North Carolina. The purchase price for the assets was $2 million in cash on hand plus $0.2 million of
contingent payments based on future sales of next generation nanOss products. The Company previously acquired nanOss distribution rights and certain
nanOss intellectual property with the acquisition of assets related to the biologics and spinal fixation business of Surgalign Holdings, Inc. in August 2023.
The potential benefit associated with the improved economics of internal production of nanOss products resulted in the Company paying a premium for the
acquisition resulting in the recognition of $0.6 million of goodwill. For tax purposes, goodwill is deductible.
85
The Company recorded the purchase of this acquisition using the acquisition method of accounting and, accordingly, recognized the assets
acquired at their fair values as of the date of acquisition. The table below represents the allocation of the total consideration for certain RTI assets based on
management’s estimates of their respective fair values as of October 23, 2023 (in thousands):
Inventories
Fixed assets
Intangible assets
Net assets acquired
Goodwill
Total purchase consideration
$
$
1,150
267
220
1,637
573
2,210
The following unaudited pro forma combined financial information summarizes the results of operations for the periods indicated as if the
acquisition of the assets of Surgalign Holdings, Inc., the acquisition of Surgalign SPV, Inc. and the acquisition of nanOss production operations from RTI
Surgical, Inc. had been completed as of January 1, 2022 (in thousands):
Revenues
Net income (loss)
Year Ended
December 31,
2023
2022
$
125,950 $
9,940
139,686
(17,963)
Pro forma information reflects adjustments that are expected to have a continuing impact on the Company’s results of operations and are directly
attributable to the acquisition of the assets of Surgalign Holdings, Inc., the acquisition of Surgalign SPV, Inc. and the acquisition of nanOss production
operations from RTI Surgical, Inc. The unaudited pro forma results include adjustments to reflect the amortization of the inventory step-up and the
incremental intangible asset amortization to be incurred based on the preliminary values of each identifiable intangible asset. The pro forma amounts do not
purport to be indicative of the results that would have actually been obtained if the transactions had occurred as of January 1, 2022 or that may be obtained
in the future, and do not reflect future synergies, integration costs, or other such costs or savings.
(5) Receivables
The Company’s provision for current expected credit loss is determined based on historical collection experience adjusted for current economic
conditions affecting collectability. Actual customer collections could differ from estimates. Account balances are charged to the allowance after all means
of collection have been exhausted and the potential for recovery is considered remote. Provisions to the allowance for credit losses are charged to expense.
Activity within the allowance for credit losses was as follows for years ended December 31, 2023 and 2022 (in thousands):
Balance at January 1
Provision for current expected credit losses
Write-offs against allowance
(6) Inventories
Inventories consist of the following (in thousands):
Raw materials
Work in process
Finished goods
December 31,
2023
December 31,
2022
515 $
497
(92)
920 $
552
243
(280)
515
December 31,
2023
December 31,
2022
7,269 $
1,562
28,054
36,885 $
5,628
798
10,859
17,285
$
$
$
$
86
(7) Property and Equipment, Net
Property and equipment, net are as follows (in thousands):
Equipment
Computer equipment
Computer software
Leasehold improvements
Surgical instruments
Assets not yet in service
Total cost
Less: accumulated depreciation
December 31,
2023
December 31,
2022
6,858 $
1,330
230
4,347
14,648
959
28,372
(19,680)
8,692 $
5,598
1,043
230
4,105
11,266
1,507
23,749
(17,964)
5,785
$
$
Depreciation expense related to property and equipment, including property under finance lease, for the years ended December 31, 2023 and 2022
was $1.8 million and $1.2 million, respectively.
(8) Goodwill and Intangible Assets
The results of the Company’s annual goodwill impairment tests for the years ended December 31, 2023 and 2022 indicated that no goodwill
impairment existed as of the test date.
The change in the carrying amount of goodwill during the year ended December 31, 2023 included the following (in thousands):
December 31, 2022
Goodwill acquired during the year
December 31, 2023
$
3,205
4,097
7,302
The following table sets forth information regarding intangible assets (in thousands):
December 31, 2023:
Patents
Customer List
Tradenames
December 31, 2022:
Patents
Weighted
Average Life
11 years
6 years
10 years
Weighted
Average Life
15 years
Cost
Accumulated
Amortization
2,777 $
8,000
1,190
11,967 $
(672) $
(1,111)
(99)
(1,882) $
Cost
Accumulated
Amortization
2,105
6,889
1,091
10,085
Net
Net
807 $
(463) $
344
$
$
$
Amortization expense was $1.4 million and $0.1 million for the years ended December 31, 2023 and 2022. The following is a summary of
estimated future amortization expense for intangible assets as of December 31, 2023 (in thousands):
2024
2025
2026
2027
2028
Thereafter
Total
$
$
1,729
1,727
1,713
1,680
1,679
1,557
10,085
87
(9) Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
Wages/commissions payable
Other accrued liabilities
Accrued liabilities
(10) Debt
Long-term debt consists of the following (in thousands):
Amounts due under the Term Facility
Accrued end-of-term payments
Less: unamortized debt issuance costs
Less: current maturities
Long-term debt, less issuance costs
December 31,
2023
December 31,
2022
8,890 $
1,529
10,419 $
4,464
1,032
5,496
December 31,
2023
December 31,
2022
17,000 $
456
(289)
—
17,167 $
12,000
216
(196)
(2,333)
9,687
$
$
$
$
On May 6, 2021, the Company, as guarantor, and certain of our subsidiaries, as borrowers (collectively, the “Borrowers”), entered into a Credit,
Security and Guaranty Agreement (Term Loan) (the “Term Credit Agreement”) and Credit, Security and Guaranty Agreement (Revolving Loan) (the
“Revolving Credit Agreement” and, together with the Term Credit Agreement, the “Credit Agreements”) with MidCap Financial Trust and MidCap
Funding IV Trust, as respective agents (“MidCap”).
The Term Credit Agreement provides for a secured term loan facility (the “Term Facility”) in an aggregate principal amount of $12.0 million (the
“Term Loan Commitment”), which was funded to the Borrowers immediately, and an additional $5.0 million tranche available solely at the discretion of
MidCap and the lenders, for the purposes agreed to between the Company, the Borrowers and the lenders in advance of the making of loans under such
additional tranche. The Revolving Credit Agreement provides for a secured revolving credit facility (the “Revolving Facility,” and, together with the Term
Facility, the “Facilities”) under which the Borrowers may borrow up to $8.0 million (such amount, the “Revolving Loan Commitment”) at any one time,
the availability of which is determined based on a borrowing base equal to percentages of certain accounts receivable and inventory of the Borrowers in
accordance with a formula set forth in the Revolving Credit Agreement. All borrowings under the Revolving Facility are subject to the satisfaction of
customary conditions, including the absence of default, the accuracy of representations and warranties in all material respects and the delivery of an
updated borrowing base certificate.
On March 7, 2022, the Credit Agreements were amended to, among other things, (i) provide for a waiver of compliance with respect to the
Company’s minimum adjusted EBITDA requirement if and so long as the Company’s liquidity (as specifically defined in the Credit Agreements) is in
excess of $14 million and there is not otherwise an event of default under the Credit Agreements, commencing with the next delivery of the compliance
certificate required under the Credit Agreements, and (ii) re-set the date certain fees payable in connection with optional prepayments are determined to the
date the amendment was executed and consequently extend such fees’ original expiration. In addition, the exit fees were increased by 25 basis points to
4.00% of the principal amount borrowed under the Term Facility.
88
On February 28, 2023, in connection with the acquisition of Surgalign SPV, the Term Credit Agreement was amended pursuant to an Amendment
No. 3 to Credit, Security and Guarantee Agreement (Term Loan) (“Term Amendment No. 3”) to provide approximately $5.0 of funding for such
acquisition. In addition to the Term Amendment No. 3., we entered into an Amendment No. 3 to Credit, Security and Guarantee Agreement (Revolving
Loan) (together with the Term Amendment No. 3, the “Amendments No. 3”), which amends the Revolving Credit Agreement. Additionally, the
Amendments No. 3 (i) re-set the date certain fees payable in connection with optional prepayments under the Term Credit Agreement and the Revolving
Credit Agreement are determined to the date the amendments were executed and consequently extended such fees’ original expiration and (ii) increased the
minimum amount of interest payable under the Term Credit Agreement and the Revolving Credit Agreement from 1% to 2.5%.
On August 10, 2023, in connection with the acquisition certain assets and liabilities of Surgalign Holdings, Inc. that were related to Surgalign
Holding, Inc.’s hardware and biologics business, the Company entered into a Limited Consent and Amendment No. 4 to Credit, Security and Guarantee
Agreement (Term Loan) (“Term Amendment No. 4”), which amends the Term Credit Agreement, and a Limited Consent and Amendment No. 4 to Credit,
Security and Guarantee Agreement (Revolving Loan) (“Revolving Amendment No. 4” and, together with Term Amendment No. 4, the “Amendments No.
4”), which amends the Revolving Credit Agreement.
The Amendments No. 4 permits the acquisition certain assets and liabilities of Surgalign Holdings, Inc., as described above, and provide the
Company with additional flexibility with respect to holding international subsidiaries. The Amendments No. 4 contain standard covenants regarding
holding international subsidiaries. The terms of borrowing under the Credit Agreements otherwise remain unchanged.
The Facilities have a maturity date of May 1, 2026 (the “Maturity Date”). In May 2023, the Company extended its interest only period on the
Term Facility until June 2024 when the Company is required to make monthly principal payments of approximately $0.7 million on the Term Facility
through the Maturity Date. Each of the Borrowers, and the Company, as guarantor, are jointly and severally liable for all of the obligations under the
Facilities on the terms set forth in the Credit Agreements. The Borrowers’ obligations, and the Company’s obligations as a guarantor, under the Credit
Agreements are secured by first-priority liens on substantially all of their assets, including, without limitation, all inventory, equipment, accounts,
intellectual property and other assets of the Company and the Borrowers.
As of December 31, 2023, the Company had $4.6 million outstanding and $3.4 million of availability under the Revolving Facility.
The loans and other obligations pursuant to the Credit Agreements bear interest at a per annum rate equal to the sum of the SOFR rate, as such
term is defined in the Credit Agreements, plus 0.11%, plus the applicable margin of 7.00% in the case of the Term Credit Agreement, and 4.50% in the case
of the Revolving Credit Agreement, subject in each case to a floor of 2.50%. As of December 31, 2023, the effective rate of the Term Facility, inclusive of
amortization of debt issuance costs and accretion of the final payment, was 14.88%, and the effective rate of the Revolving Facility was 9.96%.
The Credit Agreements contain affirmative and negative covenants customarily applicable to senior secured credit facilities, including covenants
that, among other things, limit or restrict the ability of the Borrowers, subject to negotiated exceptions, to incur additional indebtedness and additional liens
on their assets, engage in mergers or acquisitions or dispose of assets, pay dividends or make other distributions, voluntarily prepay other indebtedness,
enter into transactions with affiliated persons, make investments, and change the nature of their businesses. In addition, the Credit Agreements require the
Borrowers and the Company to maintain net product revenue at or above minimum levels and to maintain a minimum adjusted EBITDA and a minimum
liquidity, in each case at levels specified in the Credit Agreements. As of December 31, 2023, we were in compliance with all covenants under the Credit
Agreements.
On March 7, 2024, the Term Credit Agreement was amended and restated to, among other things, extend the maturity date to March 1, 2029.
Accordingly, principal amounts outstanding as of December 31, 2023 have been presented as long-term liabilities on our consolidated balance sheet. In
addition, an additional $10.0 million tranche, available solely at the discretion of MidCap and the lenders, was added to the Term Credit Agreement and the
applicable margin used to determine the per annum interest rate was reduced from 7.00% to 6.50%. The date of certain fees payable in connection with
optional prepayments were also reset by the amendment to be determined based on the date the amendment. The Revolving Credit Agreement was also
amended and restated on March 7, 2024, to among other things, increase the commitment amount from $8.0 million to $17.0 million. The maturity of the
Revolving Credit Agreement was also extended to March 1, 2029. Minimum net product revenue requirements specified in the Credit Agreements were
reset and minimum adjusted EBITDA requirements were removed.
89
(11) Equity
Private Placement
2023 Private Placement
On July 3, 2023, the Company entered into a securities purchase agreement pursuant to which the Company issued an aggregate of 20,000,000
shares of common stock to accredited investors in a private placement at a per share purchase price of $0.75 at a closing held on July 6, 2023. The gross
proceeds to the Company from the private placement were $15.0 million, before deducting estimated offering fees and expenses payable by us. We expect
to use the $14.0 million net proceeds from the private placement for working capital and other general corporate purposes.
2022 Private Placement
On August 25, 2022, the Company closed the first tranche of a private placement (the “First Closing”) with several accredited investors (the
“Private Placement”). At the First Closing, the Company sold approximately 14.1 million shares of common stock of the Company and warrants to
purchase approximately 3.5 million shares of common stock for an aggregate purchase price of approximately $6.75 million. We received net cash
proceeds of approximately $6.3 million, after deducting fees and other offering expenses, from the First Closing.
The closing of the second tranche of the Private Placement (the “Second Closing”) occurred on October 7, 2022. At the Second Closing, the
Company sold an additional approximately 6.2 million shares of common stock of the Company and warrants to purchase approximately 1.6 million shares
of common stock for an aggregate purchase price of approximately $3.0 million.
The warrants, described in more detail in Note 13, “Warrants,” have an exercise price of $0.48 per share, are subject to customary anti-dilution,
but not price protection, adjustments, are immediately exercisable and expire on the five-year anniversary of the First Closing.
(12) Stock-Based Compensation
Xtant Medical Holdings, Inc. 2023 Equity Incentive Plan
On July 26, 2023, our stockholders approved and adopted the Xtant Medical Holdings, Inc. 2023 Equity Incentive Plan (the “2023 Plan”), which
replaced the Xtant Medical Holdings, Inc. 2018 Equity Incentive Plan (the “2018 Plan”) with respect to future grants of equity awards, although the 2018
Plan continues to govern equity awards granted under the 2018 Plan. The 2023 Plan permits the Board of Directors, or a committee thereof, to grant to
eligible employees, non-employee directors, and consultants of the Company non-statutory and incentive stock options, stock appreciation rights, restricted
stock awards, restricted stock units, deferred stock units, performance awards, non-employee director awards, and other stock-based awards. The Board of
Directors may select 2023 Plan participants and determine the nature and amount of awards to be granted. The maximum number of shares of our common
stock available for issuance under the 2023 Plan, subject to adjustment pursuant to the terms of the 2023 Plan, is (i) 5,500,000 shares of common stock; (ii)
7,695,812 shares of common stock remaining available for issuance under the 2018 Plan but not subject to outstanding awards under the 2018 Plan as of
July 26, 2023; and (iii) up to 6,686,090 shares of common stock subject to awards outstanding under the 2018 Plan as of July 26, 2023 but only to the
extent such awards are subsequently forfeited, cancelled, expire, or otherwise terminate without the issuance of such shares of common stock after such
date. 9,968,106 shares remained available for grant under the 2023 Plan as of December 31, 2023. Under the 2023 Plan, shares of our common stock
related to awards granted under the plan that terminate by expiration, forfeiture, cancellation, or otherwise without the issuance of the shares become
available again for grant under the plan.
Total stock-based compensation expense recognized for employees and directors was $2.7 million and $2.5 million for the years ended December
31, 2023 and 2022, respectively, and was recognized as general and administrative expense.
Stock Options
Stock options granted under the 2023 Plan may be either incentive stock options to employees, as defined in Section 422A of the Internal Revenue
Code of 1986, or non-qualified stock options. The exercise price of all stock options granted under the 2023 Plan must be at least equal to the fair market
value of the shares of common stock on the date of the grant. The 2023 Plan is administered by the Board. Stock options granted under the 2023 Plan are
generally not transferable, vest in installments over the requisite service period, and are exercisable during the stated contractual term of the option only by
the optionee.
90
Stock option activity, including options granted under the 2023 Plan, the 2018 Plan and the prior plan was as follows:
2023
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contract
Term
(years)
1.51
1.16
6.58
1.31
1.51
7.97
6.93
Shares
3,201,666
602,123
(443,125)
3,360,664
1,314,560
2022
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contract
Term
(years)
1.80
0.64
2.39
1.51
2.03
8.19
7.67
Shares
3,360,664
1,602,013
(86,849)
4,875,828
2,116,957
Outstanding at January 1
Granted
Cancelled or expired
Outstanding at December 31
Exercisable at December 31
As of December 31, 2023, total compensation expense related to unvested employee stock options not yet recognized was $2.4 million, which is
expected to be allocated to expenses over a weighted-average period of 2.6 years. The weighted average grant date fair value of options granted during the
years ended December 31, 2023 and 2022 was $0.99 and $0.55, respectively. The aggregated intrinsic value of options exercisable at December 31, 2023
was $0.1 million. The estimated fair value of stock options granted is determined using the Black-Scholes-Merton method applied to individual grants. Key
assumptions used to estimate the fair value of stock awards are as follows:
Risk free interest rate
Dividend yield
Expected term
Expected volatility
Deferred Stock Units and Restricted Stock Units
Year Ended
December 31,
2023
2022
4.3%
0%
6.2 years
111%
3.5%
0%
6.3 years
112%
Under our non-employee director compensation program, non-employee directors may elect to receive restricted stock units, or RSUs, or deferred
stock units, or DSUs, in lieu of all or a portion of the annual cash retainers payable to such director. Each RSU or DSU represents the right to receive one
share of our common stock. Deferred stock unit and restricted stock unit activity for awards granted under the 2023 Plan and 2018 Plan was as follows:
Outstanding at January 1
Granted
Vested
Cancelled
Outstanding at December 31
2023
2022
Weighted Average
Fair Value at
Grant Date Per
Share
0.88
1.15
0.90
0.54
1.07
Shares
3,612,433
1,942,614
(1,536,251)
(494,121)
3,524,675
Weighted Average
Fair Value at
Grant Date Per
Share
1.39
0.55
1.26
1.32
0.88
Shares
2,970,104
2,461,528
(1,500,394)
(318,805)
3,612,433
Total compensation expense related to unvested deferred stock units and restricted stock units not yet recognized was $3.0 million as of December
31, 2023, which is expected to be allocated to expenses over a weighted-average period of 2.1 years.
91
(13) Warrants
As noted in Note 11, “Equity,” on August 25, 2022, the Company issued warrants to purchase approximately 3.5 million shares of common stock.
The Warrants meet all the requirements to be classified as equity awards in accordance with ASC 815-40. The number of shares of Company common
stock issuable upon exercise of the Warrants is subject to standard and customary anti-dilution provisions for stock splits, stock dividends, or similar
transactions. In addition, the Warrants include a buy-out right whereby the holders of such warrants may put the warrants back to the Company or its
successor in the event of a purchase, tender or exchange offer accepted by 50% or more of the Company’s holders of common stock and not approved by
the Company’s board of directors. The buy-out amount is equal to the Black-Scholes value of the warrants on the date the triggering transaction is
consummated based on certain inputs as defined in the Warrant agreement. The consideration to be paid if the buy-out provision is triggered shall be in the
same type or form of consideration that is being offered and paid to the holders of Company common stock in connection with the triggering transaction.
While the Warrants are classified as a component of equity, we were required to allocate the proceeds of the Private Placement between the shares
of common stock and the Warrants issued based on their relative fair values. The fair value of the Warrants, $0.47 per warrant, issued in connection with
the Private Placement was determined using a Black Scholes model. Significant assumptions in the model included contractual term (5 years) and the
estimated volatility factor of the Company’s stock (107%).
The following table summarizes our warrant activities for the years ended December 31, 2023 and 2022:
Outstanding as of January 1, 2022
Issued
Outstanding as of December 31, 2022
Issued
Outstanding as of December 31, 2023
Common Stock
Warrants
Weighted Average
Exercise Price
7,111,112
5,076,358
12,187,470
—
12,187,470
2.29
0.48
1.53
0.00
1.53
As of December 31, 2023, the weighted average remaining contractual term of outstanding warrants was 2.8 years.
(14) Commitments and Contingencies
Operating Leases
We currently lease various office facilities. These leases are under non-cancelable operating lease agreements with expiration dates in 2025 and
2026. We have the option to extend certain leases to five or ten-year term(s) and we have the right of first refusal on any sale.
The Company records lease liabilities within current liabilities or long-term liabilities based upon the length of time associated with the lease
payments. The Company records its long-term operating leases as right-of-use assets. Upon initial adoption, using the modified retrospective transition
approach, no leases with terms less than 12 months have been capitalized to the consolidated balance sheet consistent with ASC 842. Instead, these leases
are recognized in the consolidated statement of operations on a straight-line expense throughout the lives of the leases. No Company leases contain
common area maintenance or security agreements.
We have made certain assumptions and judgments when applying ASC 842, the most significant of which is that we elected the package of
practical expedients available for transition, which allow us to not reassess whether expired or existing contracts contain leases under the new definition of
a lease, lease classification for expired or existing leases, and whether previously capitalized initial direct costs would qualify for capitalization under ASC
842. Additionally, we did not elect to use hindsight when considering judgments and estimates such as assessments of lessee options to extend or terminate
a lease or purchase the underlying asset.
92
As of December 31, 2023, the weighted-average remaining lease term was 2.0 years. Lease expense related to operating leases was $0.7 million
and $0.6 million for the years ended December 31, 2023 and 2022. The Company’s lease agreements do not provide a readily determinable implicit rate nor
is it available to the Company from its lessors. Instead, during the year ended December 31, 2023, the Company estimates the weighted-average discount
rate for its operating leases to be between 5.64% and 12.46% to discount future cash flows to present value based on the incremental borrowing rate.
Future minimum payments as of December 31, 2023 under these long-term operating leases are as follows (in thousands):
2024
2025
2026
Total future minimum lease payments
Less: amount representing interest
Present value of obligations under operating leases
Less: current portion
Long-term operating lease obligations
Litigation
$
$
918
680
119
1,717
(128)
1,589
(830)
759
We may be subject to potential liabilities under government regulations and various claims and legal actions that are pending but we believe are
immaterial at this time or may be asserted in the future from time to time.
These matters arise in the ordinary course and conduct of our business and may include, for example, commercial, product liability, intellectual
property, and employment matters. We intend to continue to defend the Company vigorously in such matters and when warranted, take legal action against
others. Furthermore, we regularly assess contingencies to determine the degree of probability and range of possible loss for potential accrual in our
financial statements. An estimated loss contingency is accrued in our financial statements if it is probable that a liability has been incurred and the amount
of the loss can be reasonably estimated. Based on our assessment, we have adequately accrued an amount for contingent liabilities currently in existence.
We do not accrue amounts for liabilities that we do not believe are probable or that we consider immaterial to our overall financial position. Litigation is
inherently unpredictable, and unfavorable resolutions could occur. As a result, assessing contingencies is highly subjective and requires judgment about
future events. The amount of ultimate loss may exceed the Company’s current accruals, and it is possible that its cash flows or results of operations could
be materially affected in any particular period by the unfavorable resolution of one or more of these contingencies.
Indemnifications
Our indemnification arrangements generally include limited warranties and certain provisions for indemnifying customers against liabilities if our
products or services infringe a third-party’s intellectual property rights. To date, we have not incurred any material costs as a result of such warranties or
indemnification provisions and have not accrued any liabilities related to such obligations in the accompanying consolidated financial statements.
We have also agreed to indemnify our directors and executive officers for costs associated with any fees, expenses, judgments, fines, and
settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by
reason of the person’s service as a director or officer, including any action by us, arising out of that person’s services as our director or officer or that
person’s services provided to any other company or enterprise at our request.
(15) Income Taxes
The Company’s (benefit) provision for income taxes differs from applying the statutory U.S. Federal income tax rate to income before taxes. The
primary difference results from providing for state income taxes and from deducting certain expenses for financial statement purposes but not for federal
income tax purposes.
93
The components of income (loss) before (benefit) provision for income taxes consist of the following (in thousands):
United States
Foreign
Total
Year Ended December 31,
2023
2022
$
$
$
(1,099) $
62 $
(1,037) $
(8,416)
—
(8,416)
The components of the income tax (benefit) provision are as follows (in thousands):
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Total deferred
Year Ended December 31,
2023
2022
$
— $
93
111
204
(1,422)
(479)
(1,901)
Total (benefit) provision for income taxes
$
(1,697) $
—
69
—
69
—
—
—
69
The reconciliation of income tax attributable to operations computed at the U.S. Federal statutory income tax rate of 21% to income tax expense is
as follows (in thousands):
Statutory Federal tax rate
Valuation allowance
State income taxes, net of Federal benefit
Bargain purchase gain
Permanent differences
Change in state income tax rate
Stock compensation adjustment and other reconciling items
Nondeductible executive compensation
Total (benefit) provision for income taxes
Year Ended December 31,
2023
2022
(218) $
501
(764)
(2,456)
403
242
275
320
(1,697) $
(1,767)
1,510
(323)
—
—
(22)
640
31
69
$
$
94
Deferred tax components are as follows (in thousands):
At December 31,
2023
2022
Deferred tax assets:
Accrued liability for vacation
Accrued commissions and bonuses / compensation
Accrued contingencies
Amortization
Bad debt reserve
Capitalized R&D expenses
Charitable contributions carryforward
Lease liability
Interest expense
Inventory reserve
Net operating loss carryovers
Stock option compensation
UNICAP
Other
Total deferred tax assets
Deferred tax liabilities:
Depreciation
Right of use asset
Prepaids
Total deferred tax liabilities
Valuation allowance
Net deferred tax liabilities
$
160 $
641
29
358
242
567
15
371
3,027
1,661
18,626
730
44
100
26,571
(448)
(306)
(51)
(805)
(25,787)
$
(21) $
78
320
55
22
139
287
15
385
2,391
3,059
13,721
677
76
55
21,280
(62)
(372)
(56)
(490)
(20,790)
—
The ultimate realization of deferred tax assets is dependent upon the existence, or generation, of taxable income in the periods when those
temporary differences and net operating loss carryovers are deductible. Management considers the scheduled reversal of deferred tax liabilities, taxes paid
in carryover years, projected future taxable income, available tax planning strategies, and other factors in making this assessment. Based on available
evidence, management does not believe it is more likely than not that all of the deferred tax assets will be realized. Accordingly, the Company has
established a valuation allowance equal to the net realizable deferred tax assets. The valuation allowance increased by $5.0 million in 2023 and by $1.5
million in 2022.
At December 31, 2023 and 2022, the Company had total domestic Federal, state and foreign net operating loss carryovers of approximately $54.3
million, $57.4 million and $16.1 million, respectively. Federal net operating losses generated prior to 2018 and State net operating loss carryovers expire at
various dates between 2024 and 2043. Federal net operating losses generated after 2017 have an indefinite carryforward and are only available to offset
80% taxable income beginning in 2021. Foreign net operating losses begin expiring in 2026.
The Company has completed a study to assess whether an ownership change, as defined by Section 382 of the Code, had occurred from the
Company’s formation through December 31, 2019. Based upon this study, the Company determined that an ownership change occurred during 2018.
Accordingly, the Company reduced its deferred tax assets related to the federal NOL carryforwards that are anticipated to expire unused as a result of these
ownership changes. These tax attributes were excluded from deferred tax assets with a corresponding reduction of the valuation allowance with no net
effect on income tax expense or the effective tax rate. Future ownership changes may further limit the Company’s ability to utilize its remaining tax
attributes.
The 2021 through 2023 tax years remain open to examination by the Internal Revenue Service and various other state tax agencies. These taxing
authorities have the authority to examine those tax years until the applicable statute of limitations expire. Foreign tax years remain open from 2019 to 2023.
As of December 31, 2023, we have no unrecognized tax benefits in long-term liabilities.
The Company did not recognize any material interest or penalties related to income taxes for the years ended December 31, 2023 and 2022.
95
(16) Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock
outstanding. Shares issued during the period and shares reacquired during the period are weighted for the portion of the period that they were outstanding.
Diluted net income (loss) per share is computed in a manner consistent with that of basic earnings per share while giving effect to all potentially dilutive
shares of common stock outstanding during the period, which include the assumed exercise of stock options and warrants using the treasury stock method.
Diluted net income (loss) per share was the same as basic net income (loss) per share for the year ended December 31, 2022, as shares issuable upon the
exercise of stock options and warrants were anti-dilutive as a result of the net loss incurred for the period.
The table below sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):
Numerator:
Net income (loss)
Denominator:
Basic – weighted average shares outstanding
Effect of dilutive securities:
Employee restricted stock units
Warrants
Diluted – weighted average shares outstanding
Basic earnings per share
Diluted earnings per share
Year Ended December 31,
2023
2022
$
660 $
(8,485)
119,093,687
94,085,197
2,447,519
5,252,112
126,793,318
0.01
0.01
—
—
94,085,197
(0.09)
(0.09)
For the years ended December 31, 2023 and 2022, 9,363,668 and 19,160,567 stock options, restricted stock units and warrants were excluded for
the diluted earnings per share calculation as they were anti-dilutive.
(17) Employee Benefit Plans
The Company has a 401(k) plan for our employees. The 401(k) plan is a defined contribution plan covering substantially all of our employees.
Employees are eligible to participate in the plan on the first day of any month after starting employment. Employees are allowed to contribute a percentage
of their wages to the 401(k) plan, subject to statutorily prescribed limits and are subject to a discretionary employer match of 100% of their wage deferrals
not in excess of 4% of their wages. The Company contributed $0.5 million and $0.4 million as part of the employer match program for the years ended
December 31, 2023 and 2022, respectively.
(18) Supplemental Disclosure of Cash Flow Information
Supplemental cash flow information is as follows (in thousands):
Cash paid during the period for:
Interest
Non-cash activities:
Fixed assets acquired under finance lease
Revaluation of lease liability and right of use asset
Operating lease liabilities arising from obtaining right-of-use assets
(19) Related Party Transactions
Year Ended
December 31,
2023
2022
$
$
$
$
2,552 $
1,454
— $
— $
260 $
159
234
—
As described in more detail under Note 1, “Business Description and Summary of Significant Accounting Policies,” we are party to an Investor
Rights Agreement and Registration Rights Agreement with Royalty Opportunities and ROS. Transactions between the Company and Royalty Opportunities
and ROS are conducted under the provisions of the Investor Rights Agreement and the Registration Rights Agreement, as noted above.
All related party transactions are reviewed and approved by the Audit Committee or the disinterested members of the full Board.
96
(20) Segment and Geographic Information
The Company operates in one segment based upon the Company’s organizational structure, the way in which the operations and investments are
managed and evaluated by the chief operating decision maker (“CODM”). The Company shares common, centralized support functions which report
directly to the CODM and decision-making regarding the Company’s overall operating performance and allocation of Company resources is assessed on a
consolidated basis.
The Company attributes revenues to geographic areas based on the location of the customer. Approximately 94% and 99% of revenue was in the
United States for the years ended December 31, 2023 and 2022, respectively. Total revenue by major geographic area is as follows (in thousands):
United States
Rest of World
Total
Year Ended
December 31,
$
$
2023
2022
85,862 $
5,441
91,303 $
57,162
807
57,969
(21) Immaterial Correction to Prior Period Financial Statements
Prior to fourth quarter of 2023, the Company recognized GPO fees in sales and marketing expense based on interpretation of accounting guidance
instead of recognizing as a reduction to revenue.
The Company considered both the quantitative and qualitative factors within the provisions of SEC Staff Accounting Bulletin No. 99, Materiality,
and Staff Accounting Bulletin No. 108, Considering the Effect of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements. Based on evaluation of the misstatements on an individual and aggregate basis, the Company concluded the prior period misstatements were
immaterial to its previously issued consolidated financial statements. As such, the Company has elected to correct the identified misstatement prospectively
within the current consolidated financial statements and not to revise prior period financial statements.
The correction of the misstatement would have resulted in a decrease to revenue and a decrease to sales and marketing expense of $1.0 million for
the year ended December 31, 2022.
97
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
During the last two fiscal years, we have had no disagreements with our accountants on accounting and financial disclosure. On August 15, 2023,
our Audit Committee appointed Grant Thornton LLP as the Company’s independent registered public accounting firm. The Company’s financial statements
had previously been audited by Plante & Moran, PLLC.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management with the participation of our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of December 31, 2023. Based upon that evaluation, and because of the
material weaknesses in our control over financial reporting as described below, our Chief Executive Officer and Chief Financial Officer concluded that as
of December 31, 2023, our disclosure controls and procedures were not effective. Additional information regarding the material weaknesses that existed as
of December 31, 2023 is set forth below. Notwithstanding these material weaknesses, management has concluded that the consolidated financial statements
included in this Annual Report on Form 10-K present fairly, in all material respects, our financial position, results of operations and cash flows in
conformity with accounting principles generally accepted in the United States of America.
Management’s Report on Internal Control over Financial Reporting
Inherent Limitations on Effectiveness of Controls
Management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-
15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the
United States of America. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of an 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 deteriorate.
Material Weaknesses in Internal Control over Financial Reporting
In connection with the audit of our consolidated financial statements for the fiscal year ended December 31, 2023, we identified certain control
deficiencies in the design and implementation of our internal control over financial reporting, which constituted two material weaknesses. A material
weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a
material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
More specifically, our controls surrounding the completeness and accuracy of information utilized in determining the open balance sheet fair value
of inventory, which includes the establishment of inventory reserves, related to the acquisition of the hardware and biologics business of Surgalign
Holdings, Inc. were insufficient and did not operate at an appropriate level of precision. Our review of certain data and assumptions utilized in our
valuation of opening balance sheet inventory failed to identify inconsistent assumptions related to inventory utilization and inventory costing. This
constituted a material weakness. In addition to the foregoing material weakness, due to insufficient time and resources, we did not appropriately design,
implement and execute sufficient controls and procedures to verify the existence of inventory on consignment that was acquired in connection with our
acquisitions of Surgalign SPV, Inc. and the hardware and biologics business of Surgalign Holdings, Inc. during the year ended December 31, 2023,
resulting in a second material weakness.
The material weaknesses described above, if not remediated, could result in a material misstatement of one or more disclosures in our annual or
interim consolidated financial statements that would not be prevented or detected in a timely manner.
98
Remediation Plan and Status
Our management, under the oversight of the Audit Committee of the Board of Directors, is implementing measures designed to improve our
internal control over financial reporting to remediate the identified material weaknesses. The remediation actions we are taking, and expect to take, include
the following:
● Precision of Controls Related to Completeness and Accuracy of Information Utilized in Determining the Opening Balance Sheet Fair Value of
Inventory. Management has identified and corrected the inputs and assumptions utilized in the valuation of opening balance sheet inventory and
believes that the consolidated balance sheet as of December 31, 2023 fairly presents in all material respects the acquired inventory in conformity
with accounting principles generally accepted in the United States of America. To prevent similar occurrences in the future, we plan to add
additional accounting personnel to allow for more robust review of nonrecurring, complex transactions. We expect to have additional headcount in
place by end of fiscal 2024. Additionally, if necessary, we may utilize external accounting resources to review future valuations of acquired
inventory.
● Insufficient Procedures to Confirm the Existence of Acquired Consigned Inventory. Prior to the issuance of the consolidated financial statements
contained in this report, management conducted certain procedures to confirm the existence of its consigned inventory as of December 31, 2023
that was acquired during the year then ended. Beginning in the first quarter of 2024, we began subjecting our acquired consigned inventory to our
ongoing inventory field audits, with the goal of verifying all consigned inventory acquired during the year ended December 31, 2024. We expect
this process to be completed by the end of fiscal 2024.
As management continues to evaluate and work to remediate the material weaknesses, we may determine to take additional measures to address
the material weaknesses. However, we cannot provide assurance that the measures we have taken to date, or that we may take in the future, will be
sufficient to remediate the material weaknesses or avoid potential future material weaknesses.
99
Management’s Annual Report on Internal Control over Financial Reporting
Under the supervision and with the participation of senior and executive management, we conducted an evaluation of our internal control over
financial reporting based upon the framework Internal Control - Integrated Framework (2013) as outlined by COSO, the Committee of Sponsoring
Organizations of the Treadway Commission. In accordance with guidance issued by the Securities and Exchange Commission, companies are permitted to
exclude acquisitions from their final assessment of internal control over financial reporting for the first fiscal year in which the acquisition occurred.
Management’s evaluation of our internal control over financial reporting as of December 31, 2023 excluded the internal control activities of Surgalign SPV,
Inc., the hardware and biologics business of Surgalign Holdings, Inc. and the nanOss production operations from RTI Surgical, Inc., which we acquired on
February 28, 2023, August 10, 2023 and October 23, 2023, respectively.
Based on that evaluation and the foregoing, management concluded that due to the two material weaknesses described above, our internal control
over financial reporting was not effective as of December 31, 2023.
Attestation Report of Independent Registered Public Accounting Firm
This report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the Securities and
Exchange Commission that permit us to provide only management’s report in this report.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the fourth quarter ended December 31, 2023 that have
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, other than changes implemented to integrate the
internal controls of Surgalign SPV, Inc. and the internal controls of the hardware and biologics business of Surgalign Holdings, Inc. with our internal
controls.
Item 9B. Other Information
Rule 10b5-1 Plan and Non-Rule 10b5-1 Trading Arrangement Adoptions, Terminations, and Modifications
During the three months ended December 31, 2023, none of our directors or “officers” (as defined in Rule 16a-1(f) under the Exchange Act)
adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of SEC
Regulation S-K.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
100
Item 10. Directors, Executive Officers and Corporate Governance
Directors and Executive Officers
PART III
The table below sets forth certain information concerning our current directors and executive officers as of March 25, 2024. No family
relationships exist among our directors or executive officers. We sometimes refer to the Board of Directors of Xtant as the “Board.”
Name
Stavros G. Vizirgianakis(3)
Sean E. Browne
John K. Bakewell(1)(3)
Jonn R. Beeson(2)(3)
Robert E. McNamara(1)(2)
Lori D. Mitchell-Keller(1)(2)
Kevin D. Brandt
Scott C. Neils
Mark A. Schallenberger
Age
53
58
62
55
67
57
58
40
38
Position
Chair of the Board and Director
President and Chief Executive Officer and Director
Director
Director
Director
Director
Chief Commercial Officer
Chief Financial Officer
Chief Operations Officer
(1)
(2)
(3)
Member of the Audit Committee
Member of the Compensation Committee
Member of the Nominating and Corporate Governance Committee
The business experience of each director and executive officer is summarized below.
Director/Officer Since
2022
2019
2018
2023
2018
2023
2018
2022
2023
Stavros G. Vizirgianakis has served as a member of our Board since August 2022. Mr. Vizirgianakis was elected to the Board in connection with
our private placement in August 2022. Mr. Vizirgianakis is the former Chief Executive Officer of Misonix, Inc., a medical device company that Bioventus
Inc. acquired in 2021. Mr. Vizirgianakis has a distinguished career in the medical devices field having worked for United States Surgical Corporation as
director of sales for sub-Saharan Africa and later Tyco Healthcare in the capacity of General Manager South Africa. In 2006, Mr. Vizirgianakis co-founded
Surgical Innovations, which has become one of the largest privately owned medical device distributors in the African region, and now part of the
Johannesburg Stock Exchange listed entity Ascendis Health. Mr. Vizirgianakis was Managing Director of Ascendis Medical from January 2014 through
July 2016. Mr. Vizirgianakis served as the President and Chief Executive Officer of Misonix from September 2016 through October 2021. Mr.
Vizirgianakis currently serves on the board of Medinotec, Inc. (OTCQX: MDNC), a medical device company. He also served on the board of Bioventus
Inc. and Tenaxis Medical and is a strategic investor and advisor to numerous medical device startups and established companies in this field. Mr.
Vizirgianakis has a Degree in Commerce from the University of South Africa. Mr. Vizirgianakis’s extensive experience as a senior executive of a publicly
traded medical technology company, as well as his experience serving on the board of directors of other companies contributes valuable experience to our
Board.
Sean E. Browne has served as our President and Chief Executive Officer since October 2019 and as a member of our Board since October 2019.
Prior to this, Mr. Browne served as Chief Revenue Officer of CCS Medical, Inc., a provider of home delivery medical supplies, from September 2014 to
June 2019. Prior to CCS Medical, Mr. Browne served as Chief Operating Officer of The Kini Group, an integrated cloud-based software analytics and
advisory firm, from March 2013 to August 2014. From November 2007 to March 2016, Mr. Browne served as President and Chief Executive Officer and a
director of Neuro Resource Group, a venture start-up medical device company that was sold to a strategic buyer. In other roles, Mr. Browne served as
President, Miltex Surgical Instrument Division for Integra LifeSciences Holdings Corporation, a publicly held medical device company that acquired
Miltex Holdings, Inc. Mr. Browne served as Vice President, Sales and Marketing of Esurg.com, an e commerce company serving physician and ambulatory
surgery markets. Prior to Esurg.com, Mr. Browne served as Senior Vice President, Health Systems Division of McKesson Corporation, a drug company,
and prior to McKesson, served in various positions with increasing responsibility at Baxter Healthcare. Mr. Browne holds a Master of Business
Administration from the Kellogg School of Management at Northwestern University and a Bachelor of Science degree, with a major in Finance and minor
in Statistics, from Boston University. We believe that Mr. Browne’s day-to-day operations experience as a result of his role as our President and Chief
Executive Officer enable him to make valuable contributions to the Board of Directors. In addition, in his role as President and Chief Executive Officer,
Mr. Browne provides unique insight into our business strategies, opportunities and challenges, and serves as the unifying element between the leadership
and strategic direction provided by the Board of Directors and the implementation of our business strategies by management.
101
John K. Bakewell has served as a member of our Board since February 2018. He was initially elected to the Board in connection with our
restructuring in February 2018. Mr. Bakewell is a strategic executive with more than 30 years of experience in senior executive roles and as a board
member of several medical technology companies. He currently serves on the board of directors of Treace Medical Concepts, Inc. (NASDAQ: TMCI) and
Neuronetics, Inc. (NASDAQ: STIM), both public medical device companies. Mr. Bakewell most recently held the position of Chief Financial Officer of
Exact Sciences Corporation (NASDAQ: EXAS), a molecular diagnostics company, and previously Chief Financial Officer of Lantheus Holdings, Inc.
(NASDAQ: LNTH), a diagnostic medical imaging company. Mr. Bakewell has also served in Chief Financial Officer positions at Interline Brands, Inc.,
RegionalCare Hospital Partners, Wright Medical Group, Inc., which was acquired by Stryker Corporation (NYSE: SYK) in November 2020, Cyberonics,
Inc., now part of LivaNova PLC (NASDAQ: LIVN), Altra Energy Technologies, Inc. and ZEOS International, Ltd. He began his career in the public
accounting profession, serving seven years, collectively, with Ernst & Young and KPMG Peat Marwick. Mr. Bakewell previously served on the board of
directors of Entellus Medical, Inc., a public ENT-focused medical device company, until its acquisition by Stryker Corp.; ev3 Inc., a public endovascular
medical device company, until its acquisition by Covidien plc; and Corindus Vascular Robotics, Inc., a public cardiovascular robotics medical technology
company and now a Siemens Healthineers company. Mr. Bakewell holds a Bachelor of Arts in Accounting from the University of Northern Iowa and is a
certified public accountant (current status inactive). Mr. Bakewell’s financial expertise and extensive managerial experience as a senior executive of several
publicly traded medical technology companies, as well as his experience serving on the board of directors of other companies contributes valuable
experience to our Board.
Jonn R. Beeson has served as a member of our Board since May 1, 2023. Mr. Beeson is a partner with Jones Day, a global law firm, and has been
practicing corporate law since 1996. His practice focuses on mergers and acquisitions, divestitures, takeovers, capital raising, securities transactions,
corporate governance and stockholder activism matters. Mr. Beeson represents a variety of corporate clients and is most active in the life sciences,
technology and software industries, with significant experience working with a wide range of medical device companies. Mr. Beeson holds a Bachelor of
Science degree from the University of California, Irvine, and a Juris Doctor from the University of Pennsylvania. Mr. Beeson’s extensive experience in
mergers and acquisitions, corporate governance matters and working with medical device companies contributes valuable experience to our Board.
Robert E. McNamara has served as a member of our Board since February 2018. He has over 25 years experience in the medical device industry.
Mr. McNamara was initially elected to the Board in connection with our restructuring in February 2018. He also serves as Audit Committee Chairman of
Axonics, Inc. (AXNX) and as Audit Committee Chairman and member of the Nominating and Governance Committee of AVITA Medical, Inc. (RCEL).
From January 2013 to July 2016, Mr. McNamara served as Executive Vice President and from April 2012 to July 2016 as the Chief Financial Officer for
LDR Holding Corporation, a publicly held medical device (spinal implants) company acquired by Zimmer Biomet Holdings, Inc. In addition, Mr.
McNamara has previously served as the Senior Vice President and Chief Financial Officer for publicly traded medical device companies including Accuray
Inc., a stereotactic radiation company focused on treating cancer using AI robotics, Somnus Medical Technologies Inc., a RF energy company focused on
treating upper airway breathing disorders, and Target Therapeutics, Inc., a minimally invasive catheter and device company treating vascular diseases of the
brain. Mr. McNamara has been a member of the board of directors of Northstar Neurosciences Inc. and is the former Mayor of Menlo Park, California. Mr.
McNamara began his career in public accounting and is a certified public accountant (current status inactive). Mr. McNamara holds a Bachelor of Science
in Accounting from the University of San Francisco and a Master of Business Administration in Finance from The Wharton School at the University of
Pennsylvania. Mr. McNamara brings valuable finance and accounting experience in the medical device industry to the Board.
102
Lori D. Mitchell-Keller has served as a member of our Board since May 16, 2023. Ms. Mitchell-Keller has over 30 years of experience in the
software, consumer goods, wholesale distribution and retail industries, including more than 15 years focused on market strategy and market development.
From May 2020 to November 2022, she served as Vice President and Global General Manager, Industry Solutions, at Google Cloud, a company offering a
suite of cloud computing services. From June 2018 to May 2020, Ms. Mitchell-Keller served as the President and Global General Manager, SAP Industries,
at SAP Labs, LLC, a software company, where she previously served in several other roles since 2007, including EVP and Global General Manager,
Consumer Industries; SVP and Global Head, Retail Industry Business Unit; SVP, LoB Solution Management Idea-to-Delivery; SVP, Suite Solution
Management, Supply Chain, Product Lifecycle Management and Manufacturing; and SVP, Business Suite Applications. Prior to SAP, Ms. Mitchell-Keller
held a variety of executive positions at Manugistics, a software company, and Baxter/Allegiance Healthcare. Ms. Mitchell-Keller currently serves as a
member of the board of directors of Mitratech, a software company; Madison House Autism Foundation and The Neighborhood Of Maryland, Inc. She
previously served on the boards of directors of the Food Marketing Institute and the National Retail Federation. Ms. Mitchell-Keller holds a Master of
Business Administration in Management/Strategy and Marketing from the J.L. Kellogg Graduate School of Management at Northwestern University, a
Master of Science in Operations Research from Stanford University, and a Bachelor of Science in Industrial Engineering from Iowa State University. Ms.
Mitchell-Keller brings valuable market strategy, market development, operations and supply chain management experience to the Board.
Kevin D. Brandt has served as our Chief Commercial Officer since July 2018. From January 2017 to June 2018, Mr. Brandt served as Executive
Vice President, Chief Commercial Officer – Domestic Direct of RTI Surgical, Inc., a surgical implant company. Mr. Brandt joined RTI as Vice President
and General Manager, Emerging Technologies Commercialization in June 2012 and assumed additional responsibilities in January 2013 as head of RTI’s
direct spine business. Following the acquisition of Pioneer Surgical, from July 2013 to December 2016, Mr. Brandt assumed additional responsibility when
he began overseeing all North American and Canadian spine hardware and spine biologics portfolios. Mr. Brandt has over 32 years of commercial
leadership experience in the global orthopedic industry focusing on building sustainable growth and value. Mr. Brandt’s expertise includes experience in
sales, marketing, business development, mergers and acquisitions and integration leadership. Prior to joining RTI, Mr. Brandt held various senior leadership
roles over an 18-year period in the orthopedic and spinal divisions at Stryker Corporation. In his most recent position at Stryker, he was President of
Osteokinetics Corp. from January 2002 to June 2012. From June 2000 to December 2001, Mr. Brandt was Senior Director, US Spinal Sales, in which he
was responsible for divesting and subsequently leading the Stryker Spine US Sales organization. Prior to joining Stryker, Mr. Brandt was a sales leader at
Zimmer in a flagship office piloting a direct sales model from January 1990 to April 1994. Mr. Brandt earned a master’s degree in business administration
in corporate finance and investments with distinction from Adelphi University, a bachelor of science degree in business administration from New York
Institute of Technology, and has taken executive education courses at the Wharton School of Business, US Naval Academy and the Gallup organization.
Scott C. Neils has served as our Chief Financial Officer since June 2022 and prior to that served as our Interim Chief Financial Officer from
January 2022 to June 2022 and as our Controller from August 2019 until January 2022. Mr. Neils’ has over 15 years of experience focused on public
accounting and corporate finance. In this role, Mr. Neils gained extensive experience managing our finance and accounting functions. Prior to joining
Xtant, Mr. Neils served as Audit Senior Manager at Baker Tilly US, LLP (formerly Baker Tilly Virchow Krause, LLP), an advisory, tax and assurance firm,
from November 2015 to August 2019. Prior to that position, Mr. Neils was at Grant Thornton LLP, an accounting and advisory organization, from
September 2007 to November 2015, most recently as Audit Manager. Mr. Neils is a Certified Public Accountant. He holds a Bachelor of Science in
Business in Accounting and a Master of Accountancy from the Carlson School of Management at the University of Minnesota.
Mark A. Schallenberger was appointed our Chief Operations Officer effective as of January 16, 2023. Prior to this, Mr. Schallenberger served as
Chief Operations Officer of Surgenex LLC, a medical technology manufacturer, from June 2019 to January 2023. Prior to Surgenex, Mr. Schallenberger
served as Senior Director of Marketing & Product Development of DCI Donor Services Tissue Bank, a tissue bank, from February 2016 to June 2019. Prior
to DCI Donor Services Tissue Bank, Mr. Schallenberger served as various roles with increasing responsibility from September 2010 to February 2016
culminating with Director of Scientific Affairs with Xtant Medical Holdings, Inc. formerly Bacterin International Holdings, Inc. Mr. Schallenberger holds a
Master of Science in Chemical Biology from The Scripps Research Institute and a Bachelor of Science degree in Chemistry from the University of
Montana.
103
Controlled Company Status
Because more than 50% of the combined voting power of all of our outstanding common stock is beneficially owned by OrbiMed Advisors LLC,
we are a “controlled company” as defined in section 801(a) of the NYSE American Company Guide. As such, we are exempt from certain NYSE American
rules requiring our Board of Directors to have a majority of independent directors, a compensation committee composed entirely of independent directors
and a nominating committee composed entirely of independent directors. We currently maintain a Board of Directors with a majority of independent
directors and a compensation committee and nominating and corporate governance committee composed entirely of independent directors.
Investor Rights Agreement
We are party to an Investor Rights Agreement with OrbiMed Royalty Opportunities II, LP and ROS Acquisition Offshore LP, which are funds
affiliated with OrbiMed Advisors LLC. Under the Investor Rights Agreement, as amended, Royalty Opportunities and ROS are permitted to nominate a
majority of the directors and designate the chairperson of our Board of Directors at subsequent annual meetings, as long as they maintain an ownership
threshold in our Company of at least 40% of our then outstanding common stock. If Royalty Opportunities and ROS are unable to maintain the Ownership
Threshold, as defined in the Investor Rights Agreement, the Investor Rights Agreement contemplates a reduction of nomination rights commensurate with
our ownership interests. For so long as the Ownership Threshold is met, we must obtain the approval of a majority of our common stock held by Royalty
Opportunities and ROS to proceed with the following actions: (i) issue new securities; (ii) incur over $250,000 of debt in a fiscal year; (iii) sell or transfer
over $250,000 of our assets or businesses or our subsidiaries in a fiscal year; (iv) acquire over $250,000 of assets or properties in a fiscal year; (v) make
capital expenditures over $125,000 individually, or $1,500,000 in the aggregate during a fiscal year; (vi) approve our annual budget; (vii) appoint or
remove the chairperson of our Board of Directors; and (viii) make, loans to, investments in, or purchase, or permit any subsidiary to purchase, any stock or
other securities in another entity in excess of $250,000 in a fiscal year.
The Investor Rights Agreement grants Royalty Opportunities and ROS the right to purchase from us a pro rata amount of any new securities that
we may propose to issue and sell. The Investor Rights Agreement may be terminated (a) upon the mutual written agreement of all the parties, (b) upon our
written notice or the written notice of ROS or Royalty Opportunities if the ownership percentage of our then outstanding common stock of ROS and
Royalty Opportunities is less than 10%, or (c) upon written notice of ROS and Royalty Opportunities.
Royalty Opportunities and ROS collectively beneficially own approximately 56.2% of our common stock.
Director Independence
The Board has affirmatively determined that John K. Bakewell, Jonn R. Beeson, Robert E. McNamara, Lori D. Mitchell-Keller and Stavros G.
Vizirgianakis are “independent directors,” as defined under the independence standards of the NYSE American.
Board Leadership Structure
Under the terms of the Investor Rights Agreement, Royalty Opportunities and ROS have the right to designate the Chair of the Board. However,
following waiver of this provision by Royalty Opportunities and ROS, Stavros G. Vizirgianakis was appointed Chair of the Board in August 2022 in
connection with our private placement. Accordingly, Mr. Vizirgianakis serves as Chair of the Board. Sean E. Browne serves as our President and Chief
Executive Officer. We believe this leadership structure is in the best interests of the Company and our stockholders and strikes the appropriate balance
between the Chief Executive Officer’s responsibility for the strategic direction, day-to-day leadership, and performance of the Company and the Chair of
the Board’s responsibility to guide the overall strategic direction of the Company, provide oversight of our corporate governance and guidance to our Chief
Executive Officer, and to set the agenda for and preside over Board meetings. We recognize that different leadership structures may be appropriate for
companies in different situations and believe that no one structure is suitable for all companies. We believe that we are currently well-served by this
leadership structure.
104
In connection with our August 2022 private placement, we entered into an agreement with Stavros G. Vizirgianakis, as the lead investor of the
private placement, pursuant to which we agreed to provide Mr. Vizirgianakis certain director nomination rights. Pursuant to the terms of the agreement, we
agreed to and expanded the size of the Board by one position and elected Mr. Vizirgianakis as a director to fill the vacancy created as a result of the
increase, effective upon completion of the closing of the first tranche of securities in the private placement. In addition, we agreed to and elected Mr.
Vizirgianakis as Chair of the Board, effective upon completion of the first closing. The director nomination rights set forth in the agreement will terminate
on the earlier of (i) the date on which Mr. Vizirgianakis ceases to hold at least 75% of the shares of our common stock purchased by him in the private
placement; (ii) October 7, 2024; or (iii) upon written notice of Mr. Vizirgianakis to the Company.
Board Committees
We currently maintain three Board committees, an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance
Committee. Our Nominating and Corporate Governance Committee was formed on May 1, 2023.
The table below summarizes the current membership of each of our three standing board committees as of March 25, 2024.
Director
John K. Bakewell
Jonn R. Beeson
Sean E. Browne
Robert E. McNamara
Lori D. Mitchell-Keller
Stavros G. Vizirgianakis
Audit Committee
Audit Committee
Chair
Compensation Committee
●
●
●
Chair
●
Nominating and Corporate
Governance Committee
●
Chair
●
The organization and primary responsibilities of the Audit Committee are set forth in its charter, posted on our website at www.xtantmedical.com
(click “Investors” and “Corporate Governance”), and include various matters with respect to the oversight of our accounting and financial reporting process
and audits of our financial statements. The primary purposes of the Audit Committee include:
● to oversee the accounting and financial reporting processes of the Company and audits of the financial statements of the Company;
● to provide assistance to the Board with respect to its oversight of the following:
○ integrity of the Company’s financial statements and internal controls;
○ the Company’s compliance with legal and regulatory requirements;
○ the qualifications and independence of the Company’s independent registered public accounting firm; and
○ the performance of the Company’s internal audit function, if any, and independent registered public accounting firm; and
● to prepare the report required to be prepared by the Audit Committee pursuant to the rules of the Securities and Exchange Commission.
The Audit Committee currently consists of Mr. Bakewell (Chair), Mr. McNamara and Ms. Mitchell-Keller. From January 2023 and until May
2023, the Audit Committee consisted of Mr. Bakewell (Chair) and Mr. McNamara. The Audit Committee met five times during fiscal 2023. Under the
NYSE American listing standards, all Audit Committee members must be independent directors and meet heightened independence requirements under the
federal securities laws. In addition, all Audit Committee members must be financially literate, and at least one member must be financially sophisticated.
Further, under SEC rules, the Board must determine whether at least one member of the Audit Committee is an “audit committee financial expert,” as
defined by the SEC’s rules. The Board has determined that Mr. Bakewell, Mr. McNamara and Ms. Mitchell-Keller are independent and financially literate
and that Mr. Bakewell and Mr. McNamara are financially sophisticated and qualify as “audit committee financial experts” in accordance with the
applicable rules and regulations of the SEC.
105
Compensation Committee
The organization and responsibilities of the Compensation Committee are set forth in its charter, which is posted on our website at
www.xtantmedical.com (click “Investors” and “Corporate Governance”). The primary purposes of the Compensation Committee include:
● recommending to the Board all compensation for the Company’s Chief Executive Officer and approving all compensation for the Company’s
other executive officers;
● administering the Company’s equity-based compensation plans;
● reviewing, assessing, and approving overall strategies for attracting, developing, retaining, and motivating Company management and
employees;
● overseeing the development and implementation of succession plans for the Chief Executive Officer and other key executive officers and
employees;
● reviewing, assessing, and approving overall compensation structure on an annual basis; and
● recommending and leading a process for the determination of non-employee director compensation.
The Compensation Committee currently consists of Mr. McNamara (Chair), Mr. Beeson and Ms. Mitchell-Keller. From January 2023 and until
May 2023, the Compensation Committee consisted of Mr. McNamara (Chair) and Michael J. Eggenberg and Matthew S. Rizzo, both former directors. The
Compensation Committee met five times during fiscal 2023. The Board has determined that each of Mr. McNamara, Mr. Beeson and Ms. Mitchell-Keller
satisfies the heightened independence criteria for compensation committee members under the NYSE American listing standards. In addition, each
Compensation Committee member is a “non-employee director” within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as
amended.
As described above, the Compensation Committee is responsible for recommending to the Board all compensation for the Company’s Chief
Executive Officer and approving all compensation for the Company’s other executive officers. Although the Compensation Committee may delegate any or
all of its responsibilities to a subcommittee of the Compensation Committee, it has not done so. The Company’s Chief Executive Officer provides his
recommendations to the Compensation Committee regarding compensation to be paid to the executive officers and bonus plan performance objectives and
goals. The Compensation Committee may engage and obtain advice and assistance from outside advisors as it deems necessary to carry out its duties. In
2023, the Compensation Committee engaged Mercer (US) Inc. to serve as its independent compensation consultant and to assist with the assessment of our
executive and non-employee director compensation programs. Mercer (US) Inc. does not provide any services to the Company unrelated to executive or
director compensation.
106
Nominating and Corporate Governance Committee
The organization and responsibilities of the Nominating and Corporate Governance Committee are set forth in its charter, which is posted on our
website at www.xtantmedical.com (click “Investors” and “Corporate Governance”). The primary purposes of the Nominating and Corporate Governance
Committee include:
● identifying individuals qualified to become Board members consistent with criteria approved by the Board and recommending to the Board
director nominees for election at each annual meeting of stockholders and the persons to be elected by the Board to fill any vacancies on the
Board; and
● developing and recommending to the Board a set of corporate governance guidelines and overseeing corporate governance issues.
The Nominating and Corporate Governance Committee consists of Mr. Beeson (Chair), Mr. Bakewell and Mr. Vizirgianakis. The Nominating and
Corporate Governance Committee met three times during fiscal 2023. The Board has determined that Mr. Beeson, Mr. Bakewell and Mr. Vizirgianakis are
independent directors under the NYSE American listing standards.
In connection with its primary responsibilities set forth above, the Nominating and Corporate Governance Committee is responsible for
developing and overseeing an orientation process for new directors and to review our policies and programs with respect to the continuing education of
directors. Accordingly, the Nominating and Corporate Governance Committee has adopted a new director orientation process, pursuant to which new
directors will be provided with access to information about the Company to assist the director in better understanding the business as well as the
responsibilities and culture of the Board and its committees. New directors will be provided with suggested reading materials, an initial orientation session,
follow-up one-on-one meetings, and sponsorship by an existing director. The Nominating and Corporate Governance Committee has additionally adopted a
director education reimbursement policy to encourage existing directors to seek additional education opportunities regarding corporate governance and
other subject matters relevant to their service.
Director Nomination Process
Until the creation of a Nominating and Corporate Governance Committee in May 2023, the Board oversaw our director nomination process. In
identifying and evaluating candidates for membership on the Board, the Board took into account all factors it considered appropriate, including strength of
character, mature judgment, career specialization, relevant technical skills, diversity (including, but not limited to, gender, race, ethnicity, age, experience,
and skills), and the extent to which the candidate would fill a present need on the Board. Pursuant to its charter, the Nominating and Corporate Governance
Committee, in evaluating candidates for nomination to the Board, will take into account the independence and other requirements, applicable pursuant to
law, SEC rules, the requirements of any stock exchange on which securities of the Company are listed, or otherwise. At a minimum, the Nominating and
Corporate Governance Committee will consider (i) whether each such nominee has demonstrated, by significant accomplishment in such nominee’s field,
an ability to make a meaningful contribution to the Board’s oversight of the business and affairs of the Company and (ii) the nominee’s reputation for
honesty and ethical conduct in such nominee’s personal and professional activities. Additional factors which the Nominating and Corporate Governance
Committee may consider include a candidate’s judgment, skill, objectivity, independence, leadership, integrity, diversity, business or other experience,
financial or other expertise, time availability in light of other commitments and conflicts of interest. The Nominating and Corporate Governance Committee
will consider candidates recommended by stockholders and others, as it deems appropriate. In considering candidates submitted by stockholders, the
Nominating and Corporate Governance Committee will take into consideration the needs of the Board and the qualifications of the candidate. We do not
have a formal diversity policy for directors.
The Nominating and Corporate Governance Committee identifies, and prior to the creation of the Nominating and Corporate Governance
Committee, the Board identified, director candidates based on input provided by a number of sources, including Board members, stockholders,
management, and third parties. For example, Mr. Beeson, who was appointed to the Board effective as of May 1, 2023, was identified by another member
of the Board, and Ms. Mitchell-Keller, who was appointed to the Board effective as of May 16, 2023, was identified by a member of management. The
Nominating and Corporate Governance Committee does not distinguish between nominees recommended by our stockholders and those recommended by
other parties. Any stockholder recommendation must be sent to our Corporate Secretary at Xtant Medical Holdings, Inc., 664 Cruiser Lane, Belgrade,
Montana 59714, and must include certain information concerning the nominee as specified in our Bylaws.
Code of Ethics and Code of Conduct
We have adopted a Code of Ethics for the CEO and Senior Financial Officers as well as a Code of Conduct that applies to all directors, officers,
and employees. Our corporate governance materials, including our Code of Ethics for the CEO and Senior Financial Officers and Code of Conduct, are
available on our website at www.xtantmedical.com (click “Investors” and “Corporate Governance”). We intend to disclose on our corporate website any
amendment to, or waiver from, a provision of our Code of Ethics for the CEO and Senior Financial Officers that applies to directors and executive officers
and that is required to be disclosed pursuant to the rules of the SEC and the NYSE American.
107
Item 11. Executive Compensation
Executive Compensation
Overview
This section describes the compensation of the executive officers named in the Summary Compensation Table below, which individuals consist of
our President and Chief Executive Officer and the two most highly compensated executive officers for the year ended December 31, 2023:
● Sean E. Browne, our President and Chief Executive Officer and principal executive officer (CEO or PEO);
● Kevin D. Brandt, our Chief Commercial Officer; and
● Mark Schallenberger, our Chief Operations Officer.
These executive officers are collectively referred to as our named executive officers.
When reading this Executive Compensation Overview, please note we are a small reporting company and are not required to provide a
“Compensation Discussion and Analysis” of the type required by Item 402 of SEC Regulation S-K. This Overview is intended to supplement the SEC-
required disclosure, which is included in this section, and it is not a Compensation Discussion and Analysis.
Compensation Philosophy
We generally target executive compensation at the 50th percentile of our peer group as discussed below.
Use of Market Data
We strive to compensate our executive officers competitively relative to other companies that are similar to us primarily from an industry, revenue
and revenue growth perspective. To ensure reasonableness and competitiveness of our executive compensation packages relative to our peer companies, the
Compensation Committee evaluates our peer group with the aid of our independent compensation consultant and with input from management. Our current
peer group is as follows.
Anika Therapeutics, Inc.
NeuroPace, Inc.
Rockwell Medical, Inc.
Sientra, Inc.
Surmodics, Inc.
AxoGen, Inc.
OrthoPediatrics Corp.
Sanara MedTech Inc.
Sight Sciences, Inc.
TELA Bio, Inc.
Zynex, Inc.
IRadimed Corporation
Pulmonx Corporation
SI-BONE, Inc.
Silk Road Medical, Inc.
Treace Medical Concepts, Inc.
Data from this peer group, therefore, is considered in the compensation benchmarking process as one input in helping us determine appropriate
pay levels.
Use of Consultants
The Compensation Committee has the authority to engage the services of outside experts and advisors as it deems necessary or appropriate to carry out its
duties and responsibilities, and prior to doing so, assesses the independence of such experts and advisors from management. The Compensation Committee
retained Mercer (US) Inc. in August 2023 and updated its executive officer and non-employee director compensation analyses shortly thereafter. Mercer
(US) Inc. did not provide any services to our company other than those for which it was retained by the Compensation Committee.
108
Elements of Our Executive Compensation Program
During 2023, our executive compensation program consisted of several key elements, which are described in the table below, along with the key
characteristics of, and the purpose for, each element and key 2023 changes.
Element
Base Salary
(Fixed, Cash)
Key Characteristics
A fixed amount, paid in cash
periodically throughout the year and
reviewed annually and, if appropriate,
adjusted.
Short-Term Incentive (STI)
(Variable, Cash)
A variable, short-term, discretionary
element of compensation that is
payable in cash based on achievement
of key pre-established annual
corporate objectives.
Purpose
Key 2023 Changes
Provides a source of fixed
income that is market
competitive and reflects scope
and responsibility of the
position held.
No changes, except establishing an initial base
salary of $400,000 for Mr. Schallenberger.
Motivates and rewards our
No changes to target bonus percentages,
executives for achievement of
annual corporate objectives.
except establishing a target bonus percentage
at 50% for Mr. Schallenberger.
The pre-established corporate objectives for
the 2023 STI plan were Xtant revenue (64%
weighting), Coflex revenue (11% weighting),
total revenue (15% weighting), gross margin
(5% weighting) and adjusted EBITDA (5%
weighting).
Achievement was determined to be at
110.76% of target.
Our named executive officers received stock
option awards, with 25% vesting on the one-
year anniversary of the grant date and the
remaining 75% vesting in 12 quarterly
installments thereafter, and restricted stock
unit awards vesting annually over four years.
Long-Term Incentives (LTI)
A variable, long-term element of
Aligns the interests of our
(Variable, Equity-Based
Awards)
compensation that is provided in the
form of time-vested stock option
awards and restricted stock unit
awards.
executives with our
stockholders; encourages our
executives to focus on our long-
term performance; promotes
retention; and encourages
significant stock ownership.
Retirement Benefits
A defined contribution retirement plan
with a discretionary company match.
Provides an opportunity for
No changes.
employees to save and prepare
financially for retirement.
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Summary Compensation Table
The table below provides summary information concerning all compensation awarded to, earned by, or paid to our named executive officers for
the year ended December 31, 2023.
Name and Principal Position Year
Sean E. Browne
President and Chief Executive
Officer
Kevin D. Brandt
Chief Commercial Officer
Mark A. Schallenberger
Chief Operations Officer(6)
2022
2023
2022
2023
Salary Bonus(1)
Stock
Awards(2)
Option
Awards(3)
Non-Equity
Incentive Plan
Compensation(4)
All Other
Compensation(5)
Total
2023 $ 600,000 $
— $ 209,059 $ 209,266 $
664,560 $
29,273 $ 1,712,158
600,000
415,000
415,000
400,000
—
—
—
—
—
144,599
213,241
205,144
—
144,743
—
208,263
416,400
229,827
144,005
221,520
44,162
13,200
6,250
139,696
1,060,562
947,369
778,496
1,174,623
(1)
(2)
(3)
(4)
(5)
We generally do not pay any discretionary bonuses or bonuses that are subjectively determined and did not pay any such bonuses to any named
executive officers in 2023. Annual cash incentive bonus payouts based on performance against pre-established corporate performance goals are
reported in the “Non-equity incentive plan compensation” column.
Amounts reported represent the aggregate grant date fair value for restricted stock unit (“RSU”) awards granted to each named executive officer
computed in accordance with FASB ASC Topic 718. The grant date fair value is determined based on the per share closing sale price of our
common stock on the grant date for 2023 and 2022.
Amounts reported represent the aggregate grant date fair value for option awards granted to each named executive officer computed in accordance
with FASB ASC Topic 718. The grant date fair value is determined based on our Black-Scholes option pricing model. The table below sets forth
the specific assumptions used in the valuation of each such option award:
Grant Date
08/15/2023
02/15/2023
$
$
Grant Date Fair
Value
Per Share
Risk Free Interest
Rate
Expected
Life
Expected
Volatility
1.20
0.77
4.35%
3.98%
6.25 years
6.25 years
111.12%
111.60%
Expected
Dividend Yield
—
—
Amounts reported represent payouts under our annual bonus plan and for each year reflect the amounts earned for that year but paid during the
following year.
The table below provides information concerning amounts reported in the “All Other Compensation” column of the Summary Compensation
Table for 2023 with respect to each named executive officer.
Name
Sean E. Browne
Kevin D. Brandt
Mark A. Schallenberger
401(k) Match
Commuting
Expenses
Relocation
Expenses
$
13,200 $
13,200
8,000
16,073 $
—
—
— $
—
131,696
Total
29,273
13,200
139,696
(6)
Mr. Schallenberger was appointed as our Chief Operations Officer effective January 16, 2023.
110
Executive Employment and Other Agreements
Employment Agreements
Effective October 7, 2019, we entered into an employment agreement with Sean E. Browne, our President and Chief Executive Officer, which
provides for an annual base salary $600,000 and a target annual bonus opportunity equal to 100% of his annual base salary. We agreed to reimburse his
reasonable travel and business expenses. In addition, we agreed to grant him an option to purchase 329,044 shares of our common stock and an RSU unit
award covering 329,044 shares of our common stock under the Xtant Medical Holdings, Inc. 2018 Equity Incentive Plan, as amended (the “2018 Plan”),
effective as of October 15, 2019, consistent with our equity grant policy. The total number of shares subject to these equity awards represented 5% of our
then outstanding common stock. We also agreed to grant Mr. Browne additional stock options and RSU awards, in the same proportionate split, in the event
OrbiMed (including its affiliates) converts any of our outstanding indebtedness into equity of the Company within five years. Accordingly, in response to
the completion of our October 2020 debt restructuring, on November 15, 2020, we granted Mr. Browne an additional option to purchase 1,468,859 shares
of our common stock and an RSU award covering 1,468,859 shares of our common stock. The terms of these awards are described under “Outstanding
Equity Awards at Fiscal Year-End.” Our agreement with Mr. Browne also contains standard confidentiality, non-competition, non-solicitation and
assignment of intellectual property provisions, as well as standard severance and change in control provisions, which are described under “—Potential
Payments upon Termination or Change in Control.”
Effective July 9, 2018, we entered into an employment agreement with Kevin D. Brandt, our Chief Commercial Officer, which provided for an
initial annual base salary of $400,000 (which was subsequently increased to $415,000 in April 2019) with a target annual bonus of 50% of his annual base
salary, and a $90,000 signing bonus, which was required to be paid back if Mr. Brandt terminated his employment with Xtant prior to the one-year
anniversary of his hire date. In addition, the agreement provided for the grant of an RSU award covering 40,000 shares of our common stock, which vested
in full on July 9, 2021, the three-year anniversary date of Mr. Brandt’s hire date, assuming continued employment. The agreement also provides that Mr.
Brandt is eligible to receive an annual equity award, subject to the approval of the Board, provided that the grant value of such equity award shall not be
less than 50% of his annual base salary. This agreement contains standard confidentiality, non-competition, non-solicitation, and assignment of intellectual
property provisions, as well as standard severance and change in control provisions, which are described under “—Potential Payments upon Termination or
Change in Control.”
Effective January 16, 2023, we entered into an employment agreement with Mark A. Schallenberger, our Chief Operations Officer, which provides
for an annual base salary $400,000 and a target annual bonus opportunity equal to 50% of his annual base salary. In addition, the agreement provided for
the grant of an option to purchase 105,000 shares of our common stock and an RSU award covering 89,000 shares of our common stock under the 2018
Plan, effective as of February 15, 2023, consistent with our equity grant policy. The options have a 10-year term and a per share exercise price equal to the
“fair market value” (as defined in the 2019 Plan) of our common stock on the grant date. The options vest with respect to 25% of the shares on the one-year
anniversary of the grant date and quarterly thereafter, and the RSUs vest in four equal annual installments, in each case assuming continued employment.
Our agreement with Mr. Schallenberger also contains standard confidentiality, non-competition, non-solicitation and assignment of intellectual property
provisions, as well as standard severance and change in control provisions, which are described under “—Potential Payments upon Termination or Change
in Control.”
Indemnification Agreements
We have entered into indemnification agreements with our executive officers that require us to indemnify them against certain liabilities that may
arise by reason of their status or service as directors or executive officers to the fullest extent permitted by applicable law.
111
401(k) Retirement Plan
We have a 401(k) plan for our employees. The 401(k) plan is a defined contribution plan covering substantially all of our employees. Employees
are eligible to participate in the plan on the first day of any month after starting employment. Employees are allowed to contribute a percentage of their
wages to the 401(k) plan, subject to statutorily prescribed limits and are subject to a discretionary employer match of 100% of their wage deferrals not in
excess of 4% of their wages.
Outstanding Equity Awards at Fiscal Year-End
The table below provides information regarding unexercised option awards and unvested stock awards held by each of our named executive
officers that remained outstanding at our fiscal year-end, December 31, 2023. All of the outstanding equity awards described below were either granted
under the Xtant Medical Holdings, Inc. 2023 Equity Incentive Plan (the “2023 Plan”) or the 2018 Plan.
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
263,235
1,101,644
—
30,770
40,527
89,956
112,229
—
—
—
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
Option
Exercise Price
65,809(3)
367,215(5)
203,252(7)
—
—
29,986(11)
87,290(13)
140,583(7)
105,000(14)
135,501(7)
2.70
1.26
1.20
6.20
2.76
1.13
1.27
1.20
0.77
1.20
Option
Expiration
Date(1)
10/15/2029
11/15/2030
08/15/2033
08/15/2028
08/15/2029
08/15/2030
08/15/2031
08/15/2033
02/15/2033
08/15/2033
Number of
Shares or Units
of Stock that
Have Not
Vested
Market Value
of Shares or
Units of Stock
that Have Not
Vested(2)
65,809(4) $
367,215(6)
174,216(8)
23,796(9)
81,055(10)
307,560(12)
120,499(8)
89,000(15)
116,144(8)
74,364
414,953
196,864
26,889
91,592
347,543
136,164
100,570
131,243
Name
Sean E. Browne
Kevin D. Brandt
Mark A. Schallenberger
(1)
(2)
(3)
(4)
(5)
(6)
All options awards have a 10-year term, but may terminate earlier if the recipient’s employment or service relationship with the Company
terminates.
Based on the closing price of our common stock on December 29, 2023 ($1.13), as reported by the NYSE American.
This stock option vests in nearly equal installments annually over a five-year period beginning on October 15, 2020. In addition, this option will
vest in full immediately in the event that it is discontinued upon a change in control or up to one year following a change in control and a pro rata
percentage will vest immediately if Mr. Browne dies.
This RSU award vests in nearly equal installments annually over a five-year period beginning on October 15, 2020. In addition, this RSU award
will vest in full immediately in the event that it is discontinued upon a change in control or up to one year following a change in control and a pro
rata percentage will vest immediately if Mr. Browne dies.
This stock option vests in nearly equal installments annually over a four-year period beginning on October 15, 2021. In addition, this option will
vest in full immediately in the event that it is discontinued upon a change in control or up to one year following a change in control and a pro rata
percentage will vest immediately if Mr. Browne dies.
This RSU award vests in nearly equal installments annually over a four-year period beginning on October 15, 2021. In addition, this RSU award
will vest in full immediately in the event that it is discontinued upon a change in control or up to one year following a change in control and a pro
rata percentage will vest immediately if Mr. Browne dies.
112
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
This stock option vests with respect to 25% of the shares on August 15, 2024 and with respect to the remaining 75% of such shares over the three-
year period thereafter in 12 as nearly equal as possible quarterly installments. In addition, this option will vest in full immediately in the event that
it is discontinued upon a change in control or up to one year following a change in control and a pro rata percentage will vest immediately if the
executive dies.
This RSU award vests in nearly equal installments annually over a four-year period beginning on August 15, 2024. In addition, this RSU award
will vest in full immediately in the event that it is discontinued upon a change in control or up to 12 months following a change in control and a
pro rata percentage will vest immediately if the executive dies.
This RSU award vests in nearly equal installments annually over a four-year period beginning on August 15, 2021. In addition, this RSU award
will vest in full immediately in the event that it is discontinued upon a change in control or up to 12 months following a change in control and a
pro rata percentage will vest immediately if the executive dies.
This RSU award vests in nearly equal installments annually over a four-year period beginning on August 15, 2022. In addition, this RSU award
will vest in full immediately in the event that it is discontinued upon a change in control or up to 12 months following a change in control and a
pro rata percentage will vest immediately if the executive dies.
This stock option vests with respect to 25% of the shares on August 15, 2021 and with respect to the remaining 75% of such shares over the three-
year period thereafter in 12 as nearly equal as possible quarterly installments. In addition, this option will vest in full immediately in the event that
it is discontinued upon a change in control or up to one year following a change in control and a pro rata percentage will vest immediately if the
executive dies.
This RSU award vests in nearly equal installments annually over a four-year period beginning on August 15, 2023. In addition, this RSU award
will vest in full immediately in the event that it is discontinued upon a change in control or up to 12 months following a change in control and a
pro rata percentage will vest immediately if the executive dies.
This stock option vests with respect to 25% of the shares on August 15, 2022 and with respect to the remaining 75% of such shares over the three-
year period thereafter in 12 as nearly equal as possible quarterly installments. In addition, this option will vest in full immediately in the event that
it is discontinued upon a change in control or up to one year following a change in control and a pro rata percentage will vest immediately if the
executive dies.
This stock option vests with respect to 25% of the shares on February 15, 2024 and with respect to the remaining 75% of such shares over the
three-year period thereafter in 12 as nearly equal as possible quarterly installments. In addition, this option will vest in full immediately in the
event that it is discontinued upon a change in control or up to one year following a change in control and a pro rata percentage will vest
immediately if the executive dies.
This RSU award vests in nearly equal installments annually over a four-year period beginning on February 15, 2024. In addition, this RSU award
will vest in full immediately in the event that it is discontinued upon a change in control or up to 12 months following a change in control and a
pro rata percentage will vest immediately if the executive dies.
113
Xtant Medical Holdings, Inc. 2023 Equity Incentive Plan
In 2023, the Board and the Company’s stockholders approved and adopted the 2023 Plan. The purpose of the 2023 Plan is to advance the interests
of the Company and our stockholders by enabling us to attract and retain qualified individuals to perform services, provide incentive compensation for such
individuals in a form that is linked to the growth and profitability of our company and increases in stockholder value, and provide opportunities for equity
participation that align the interests of participants with those of our stockholders.
The 2023 Plan replaced the 2018 Plan. However, the terms of the 2018 Plan continue to govern awards outstanding under the 2018 Plan until
exercised, expired, paid, or otherwise terminated or canceled.
The 2023 Plan permits the Board, or a committee or subcommittee thereof, to grant to eligible employees, non-employee directors, and consultants
of the Company non-statutory and incentive stock options, stock appreciation rights, restricted stock awards, RSUs, DSUs, performance awards, non-
employee director awards, and other stock-based awards. Subject to adjustment, the maximum number of shares of our common stock authorized for
issuance under the 2023 Plan is 19,881,902 shares. To date, the Company has granted stock options, RSUs and DSUs under the 2023 Plan. As of December
31, 2023, 9,968,016 shares of Xtant common stock remained available for issuance under the 2023 Plan.
Potential Payments upon Termination or Change in Control
Executive Employment Agreements
Under the terms of the employment agreements we have entered into with our named executive officers, if the executive’s employment is
terminated by the Company without “cause” (as defined in the agreement), the executive will be entitled to receive a severance payment equal to 12 months
of his annual base salary, payable as salary continuation, reimbursement of COBRA payments for up to 12 months, and the prorated amount of any unpaid
bonus for the calendar year in which his termination of employment occurs, if earned pursuant to the terms thereof. If the executive’s employment is
terminated by the Company without “cause” or by the executive for “good reason” in connection with or within 12 months after a “change in control” (as
such terms are defined in the agreement), the executive’s severance payment, as previously described, will be paid in one lump sum, and in the case of Mr.
Brandt, will equal two times his base salary. To be eligible to receive these payments, the executive will be required to execute and not revoke a release of
claims against the Company.
Equity Award Agreements
All equity awards held by our named executive officers have been granted under 2018 Plan or the 2023 Plan. Under the terms of the 2018 Plan
and the 2023 Plan and the award agreements governing these awards, if an executive’s employment or other service with the Company is terminated for
cause, then all outstanding awards held by such executive will be terminated and forfeited. In the event an executive’s employment or other service with the
Company is terminated by reason of death, then:
● All outstanding stock options will vest and become exercisable immediately as to a pro rata percentage of the unvested portion of the option
scheduled to vest on the next applicable vesting date, and the vested portion of the options will remain exercisable for a period of one year
after the date of such termination (but in no event after the expiration date).
● The outstanding unvested RSU awards will vest and become immediately issuable as to a pro rata percentage of the unvested portion of the
RSU awards scheduled to vest on the next applicable vesting date and the unvested portion of the RSU awards will terminate.
In the event an executive’s employment or other service with the Company is terminated by reason of disability, then:
● All outstanding stock options will remain exercisable to the extent exercisable on the termination date for a period of one year after the date of
such termination (but in no event after the expiration date).
● All outstanding unvested RSU awards will terminate.
114
In the event an executive’s employment or other service with the Company is terminated for any other reason, then:
● All outstanding stock options will remain exercisable to the extent exercisable on the termination date for a period of 90 days after the date of
such termination (but in no event after the expiration date).
● All outstanding unvested RSU awards will terminate.
In addition, the equity award agreements governing the equity awards held by our named executive officers contain “change in control”
provisions. Under the award agreements, without limiting the authority of the Compensation Committee to adjust awards, if a “change in control” of the
Company (as defined in the 2018 Plan and the 2023 Plan) occurs, then, unless otherwise provided in the award or other agreement, if an award is
continued, assumed, or substituted by the successor entity, the award will not vest or lapse solely as a result of the change in control but will instead remain
outstanding under the terms pursuant to which it has been continued, assumed, or substituted and will continue to vest or lapse pursuant to such terms. If
the award is continued, assumed, or substituted by the successor entity and within one year following the change in control, the executive is either
terminated by the successor entity without “cause” or, if the executive resigns for “good reason,” each as defined in the award agreement, then the
outstanding option will vest and become immediately exercisable as of the termination or resignation and will remain exercisable until the earlier of the
expiration of its full specified term or the first anniversary of the date of such termination or resignation, and the outstanding RSU award will be fully
vested and will be converted into shares of our common stock immediately thereafter. If an award is not continued, assumed, or substituted by the successor
entity, then the outstanding option will be fully vested and exercisable, and the Compensation Committee will either give the executive a reasonable
opportunity to exercise the option prior to the change in control transaction or will pay the difference between the exercise price of the option and the per
share consideration paid to similarly situated stockholders. Under these conditions, the outstanding RSU award will be fully vested and will be converted
into shares of our common stock immediately thereafter.
Director Compensation
Director Compensation Program
Our director cash compensation consists of an annual cash retainer paid to each non-employee director and an additional annual cash retainer paid
to the Chair of the Board, Chair of each of our Board Committees and Board Committee members, and initial and annual equity grants.
We revised our non-employee director compensation program in April 2023 to provide for an annual cash retainer to be paid to the Chair of our
then newly formed Nominating and Corporate Governance Committee and then revised the program again effective as of July 1, 2023 to provide for annual
cash retainers to be paid to Board Committee members in addition to Board Committee Chairs.
The table below sets forth the annual cash retainers for 2023, effective through June 30, 2023:
Description
Annual Cash Retainer
Non-Employee Director
Chair of the Board Premium
Audit Committee Chair Premium
Compensation Committee Chair Premium
Nominating and Corporate Governance Committee Chair Premium
115
$
50,000
32,500
32,500
32,500
20,000
The table below sets forth the annual cash retainers for 2023, effective as of July 1, 2023:
Description
Annual Cash Retainer
Non-Employee Director (other than Board Chair)
Board Chair
Audit Committee Chair
Audit Committee Member (other than Chair)
Compensation Committee Chair
Compensation Committee Member (other than Chair)
Nominating and Corporate Governance Committee Chair
Nominating and Corporate Governance Committee Member (other than Chair)
$
55,000
110,000
22,500
11,250
16,250
8,125
10,000
5,000
In addition to annual cash retainers, our non-employee director compensation program provides for initial and annual equity grants. Each of our
two new directors, Jonn Beeson and Lori Mitchell-Keller, received a pro rata portion of the 2022 annual non-employee director RSU awards (initially
valued at $112,016), covering 52,049 shares of our common stock in the case of Mr. Beeson and 45,782 shares of our common stock in the case of Ms.
Mitchell-Keller, in connection with joining the Board. The number of shares underlying these initial RSU awards was based not only on the passage of time
since the then most recent annual grant, but also the fair market value of our common stock at the time these initial RSU awards were approved by the
Board. Consistent with our equity grant policy, these initial RSU awards were granted on the 15th day of the month after the election of the new director.
With respect to our annual equity grants, we revised our non-employee director compensation program in 2023 to provide for annual equity grants
of stock options and RSUs (or, at the election of the non-employee director, DSUs), with a value equal to $125,000 per non-employee director, except in
the case of our Chair of the Board, where the value is equal to $187,500. Consistent with our equity grant policy, these equity grants were granted on
August 15, 2023. The number of stock options and RSUs granted to each non-employee director was based on assumed grant date fair values using our
closing price of $0.86 per share of our common stock on June 25, 2023, which is a date immediately prior to the date of the Compensation Committee
action related to these awards. Accordingly, on August 15, 2023, each of our non-employee directors at that time received a stock option under the 2023
Plan to purchase 28,230 (42,345, in the case of the Chair of the Board) shares of our common stock at a per share exercise price equal to the fair market
value of our common stock on that date and an RSU award (or, at the election of the non-employee director, a DSU award) covering 145,180 (217,770, in
the case of the Chair of the Board) shares of our common stock. Because the value of our common stock increased between the date of the Compensation
Committee action related to these awards and the grant date of these awards, the grant date fair value of these awards is different than the value we used in
determining the number of stock options and RSUs.
In 2023, we also adopted a director education reimbursement policy, pursuant to which we will reimburse directors for all reasonable costs of
attending director education programs in order to encourage continuing director education. Amounts reimbursed include costs associated with attending
each program, including tuition, travel, lodging and meals. In addition, we will reimburse directors for the reasonable cost of subscriptions to periodicals or
online information services relating to corporate governance and other subject matters relevant to board service, as well as membership fees of
organizations which promote corporate governance and board education. Directors serving on multiple boards are encouraged to obtain pro rata
reimbursement of their director education expenses from each corporation that they serve, but we will nonetheless reimburse 100% of the costs if this is not
practicable.
Pursuant to the 2023 Plan, the sum of any cash compensation, or other compensation, and the value of awards granted to a non-employee director
as compensation for services as a non-employee director during any fiscal year may not exceed $400,000 (increased to $600,000 with respect to any non-
employee director serving as the Chair of the Board or lead independent director or in the fiscal year of a non-employee director’s initial service as a non-
employee director).
116
Director Compensation Table for Fiscal 2023
The table below describes the compensation earned by individuals who served as directors during fiscal 2023, other than Sean E. Browne, our
President and Chief Executive Officer. Mr. Browne is not compensated separately for his service as a director, and his compensation is discussed under
“Executive Compensation.”
Name
John K. Bakewell
Jonn R. Beeson(5)
Michael J. Eggenberg(6)
Robert E. McNamara
Lori D. Mitchell-Keller(7)
Matthew S. Rizzo(6)
Stavros G. Vizirgianakis
Fees Earned
or Paid in
Cash
$
82,500
53,229
16,801
82,500
43,505
16,801
98,750
$
Stock
$
Awards(1)(2)
174,216
205,966
—
174,216
205,806
—
261,324
Option
Awards(3)(4)
All Other
Compensation
Total
27,594 $
27,594
—
27,594
27,594
—
41,390
— $
—
—
—
—
—
—
284,310
286,789
16,801
284,310
276,905
16,801
401,464
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Amounts reported in the “Stock Awards” column represent the aggregate grant date fair value for the RSU awards or DSU awards granted to each
non-employee director in 2023 computed in accordance with FASB ASC Topic 718. The grant date fair value is determined based on the closing
price of our common stock on the grant date. These grant date fair value amounts may differ from the amounts provided in our non-employee
director compensation program since the number of RSU or DSU awards is determined based on our stock price as of a date prior to the actual
grant date.
On August 15, 2023, each non-employee director serving at the time, other than Mr. Vizirgianakis, received a RSU or DSU award covering 28,230
shares of our common stock, and Mr. Vizirgianakis, as Chair of the Board, received a DSU award covering 42,345 shares of our common stock. In
addition, on May 15, 2023, Mr. Beeson received a RSU award covering 52,049 shares of our common stock and on June 15, 2023, Ms. Mitchell-
Keller received a RSU award covering 45,782 shares of our common stock. As of December 31, 2023, the non-employee directors held the
following unvested stock awards: Mr. Bakewell (145,180); Mr. Beeson (145,180); Mr. Eggenberg (0); Mr. McNamara; (145,180); Ms. Mitchell-
Keller (145,180); Mr. Rizzo (0); and Mr. Vizirgianakis (217,770).
Amounts reported in the “Option Awards” column represent the aggregate grant date fair value for option awards granted to each non-employee
director in 2023 computed in accordance with FASB ASC Topic 718. The grant date fair value is determined based on our Black-Scholes option
pricing model. The table below sets forth the specific assumptions used in the valuation of the option awards:
Grant Date
Grant Date Fair
Value
Per Share
Risk Free
Interest Rate
Expected
Life
Expected
Volatility
08/15/2023
$
0.98
4.3%
5.5 years
107.00%
Expected
Dividend Yield
—
These grant date fair value amounts may differ from the amounts provided in our non-employee director compensation program since the number
of option awards is determined based on our Black-Scholes option pricing model as of a date prior to the actual grant date.
On August 15, 2023, each non-employee director serving at the time, other than Mr. Vizirgianakis, received an option to purchase 28,230 shares of
our common stock, and Mr. Vizirgianakis, as Chair of the Board, received an option to purchase 42,345 shares of our common stock. These
options were granted at an exercise price of $1.20 per share, were granted under the Xtant Medical Holdings, Inc. 2023 Equity Incentive Plan, the
material terms of which are described in more detail under “Executive Compensation—Stock Incentive Plans,” vest in full on August 15, 2024 and
will expire on August 15, 2033 or earlier in the case of a director whose service as a director is terminated prior to such date. As of December 31,
2023, the non-employee directors held the following unexercised stock options: Mr. Bakewell (28,230); Mr. Beeson (28,230); Mr. Eggenberg (0);
Mr. McNamara; (28,230); Ms. Mitchell-Keller (28,230); Mr. Rizzo (0); and Mr. Vizirgianakis (42,345).
Mr. Beeson joined our Board of Directors effective May 1, 2023.
Each of Messrs. Eggenberg and Rizzo resigned as a director of the Company effective May 1, 2023.
Ms. Mitchell-Keller joined our Board of Directors effective May 16, 2023.
117
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Significant Beneficial Owners
The table below sets forth information as to beneficial owners that have reported to the SEC or have otherwise advised us that they are a beneficial
owner, as defined by the SEC’s rules and regulations, of more than 5% of our outstanding common stock.
Title of Class
Name and Address of
Beneficial Owner
Amount and Nature of
Beneficial Ownership
Percent of Class(1)
Common Stock
Common Stock
Common Stock
OrbiMed Advisors LLC(2)
601 Lexington Avenue, 54th Floor
New York, NY 10022
Altium Capital Management, LP(3)
152 West 57th Street, Floor 20
New York, NY 10019
Stavros G. Vizirgianakis(5)
664 Cruiser Lane
Belgrade, MT 59714
73,114,592
14,525,511(4)
7,440,339
56.1%
10.6%(4)
5.7%
(1)
(2)
(3)
(4)
(5)
Percent of class is based on 130,216,541 shares of our common stock outstanding as of March 25, 2024.
Based in-part on information contained in a Schedule 13D/A filed with the SEC on August 3, 2023. Includes 56,004,974 shares of common stock
held of record by ROS Acquisition Offshore LP (“ROS Acquisition”). OrbiMed Advisors LLC (“Advisors”), a registered investment adviser
under the Investment Advisors Act of 1940, as amended, is the investment manager of ROS Acquisition. By virtue of such relationships, Advisors
may be deemed to have voting and investment power with respect to the securities held by ROS Acquisition as noted above and as a result may be
deemed to have beneficial ownership over such securities. Advisors exercises its voting and investment power through a management committee
comprised of Carl L. Gordon, Sven H. Borho, and W. Carter Neild, each of whom disclaims beneficial ownership of the securities held by ROS
Acquisition.
Also includes 17,109,618 shares of common stock held of record by OrbiMed Royalty Opportunities II, LP (“ORO II”). OrbiMed ROF II LLC
(“ROF II”) is the general partner of ORO II, and Advisors is the managing member of ROF II. By virtue of such relationships, Advisors and ROF
II may be deemed to have voting and investment power with respect to the securities held by ORO II as noted above and as a result may be
deemed to have beneficial ownership over such securities. Advisors exercises its voting and investment power through a management committee
comprised of Carl L. Gordon, Sven H. Borho, and W. Carter Neild, each of whom disclaims beneficial ownership of the securities held by ORO II.
Based on information contained in a Schedule 13G filed with the SEC on February 13, 2024 and other information known to the Company. Altium
Growth Fund, LP (the “Fund”), Altium Capital Management, LP, and Altium Growth GP, LLC each have shared dispositive power and voting
power over the shares. The Fund is the record and direct beneficial owner of the shares. Altium Capital Management, LP is the investment adviser
of, and may be deemed to beneficially own the shares owned by the Fund. Altium Growth GP, LLC is the general partner of, and may be deemed
to beneficially own the shares owned by the Fund. The number of shares consists of 8,027,593 shares of our common stock and 6,497,918 shares
of our common stock issuable upon exercise of a warrant (the “Investor Warrant”).
While the total number of shares of our common stock issuable upon exercise of the Investor Warrant is reflected in this table, the Fund is not
permitted to exercise such Investor Warrant to the extent that such exercise would result in the Fund and its affiliates beneficially owning more
than 9.99% of the number of shares of our common stock outstanding immediately after giving effect to the issuance of shares of common stock
issuable upon exercise of such warrants. The Fund has the right to increase this beneficial ownership limitation in its discretion on 61 days’ prior
written notice to us.
Based in part on information contained in a Schedule 13D filed with the SEC on September 6, 2022 and other information available to the
Company. The number of shares consists of 5,995,355 shares of our common stock and 1,444,984 shares of our common stock issuable upon
exercise of warrants.
118
Security Ownership of Management
The table below sets forth information relating to the beneficial ownership of our common stock as of March 25, 2024, by:
● each of our directors;
● each of our named executive officers; and
● all directors and executive officers as a group.
The number of shares beneficially owned by each person is determined in accordance with the SEC’s rules and regulations, and the information is
not necessarily indicative of beneficial ownership for any other purpose. Under the SEC’s rules and regulations, beneficial ownership includes any shares
over which the individual has sole or shared voting power or investment power as well as any shares that the individual has the right to acquire within 60
days of March 25, 2024, through the exercise of any stock option, warrants, or other rights or the vesting of any RSU awards. Except as otherwise
indicated, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all
shares of common stock held by that person.
The percentage of shares beneficially owned is computed on the basis of 130,216,541 shares of our common stock outstanding as of March 25,
2024. Shares of our common stock that a person has the right to acquire within 60 days of March 25, 2024, are deemed outstanding for purposes of
computing the percentage ownership of the person holding such rights, but are not deemed outstanding for purposes of computing the percentage
ownership of any other person.
Title of Class
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Name of Beneficial Owner
John K. Bakewell
Jonn R. Beeson
Sean E. Browne
Robert E. McNamara
Lori D. Mitchell-Keller
Stavros G. Vizirgianakis(2)
Kevin D. Brandt
Mark A. Schallenberger
All current executive officers and directors as a group (9 persons)
Amount and Nature
of Beneficial
Ownership(1)
Percent of Class
448,546
1,321,139
2,332,997
446,809
—
7,440,339
581,372
55,062
12,919,615
*
1.0%
1.8%
*
—
5.7%
*
*
9.7%
*
(1)
Less than 1% of outstanding shares of common stock.
Includes for the persons listed below the following shares subject to options and RSUs held by that person that are currently exercisable or become
exercisable within 60 days of March 25, 2024:
Name
Jonn R. Beeson
Sean E. Browne
Stavros G. Vizirgianakis
Kevin D. Brandt
Mark A. Schallenberger
All current directors and executive officers as a group (9 persons)
Warrants
Options
RSUs
253,818
—
1,444,984
—
—
1,698,802
—
1,364,879
—
298,422
32,812
1,824,475
52,049
—
—
—
—
52,049
119
(2)
Based in part on information contained in a Schedule 13D filed with the SEC on September 6, 2022 and other information available to the
Company. The number of shares consists of 5,995,355 shares of our common stock and 1,444,984 shares of our common stock issuable upon
exercise of warrants.
Securities Authorized for Issuance under Equity Compensation Plans
The table below provides information about our common stock that may be issued under our equity compensation plans as of December 31, 2023.
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
Number of
Securities to Be
Issued upon
Exercise of
Outstanding
Options, Warrants
and Rights
(a)
Weighted Average
Exercise Price of
Outstanding
Options, Warrants
and Rights
(b)
Number of
Securities
Remaining
Available for
Future Issuance
under Equity
Compensation
Plans
8,400,503
—
8,400,503
$
$
1.31
—
1.31
9,968,016
—
9,968,016
(1)
(2)
(3)
Amount includes 1,472,013 shares of our common stock issuable upon the exercise of stock options granted under the 2023 Plan; 3,403,192 shares
of our common stock issuable upon the exercise of stock options granted under the 2018 Plan, 623 shares of our common stock issuable upon the
exercise of stock options granted under the Amended and Restated Xtant Medical Equity Incentive Plan (the “prior plan”), 1,755,783 shares of our
common stock issuable upon the vesting of RSU awards granted under the 2023 Plan and 1,768,892 shares of our common stock issuable upon the
vesting of RSU awards granted under the 2018 Plan.
Not included in the weighted-average exercise price calculation are 2,871,365 RSU awards and 653,310 DSU awards.
Amount includes 9,968,106 shares of our common stock remaining available for future issuance under the 2023 Plan. No shares remain available
for grant under the 2018 Plan or prior plan since such plans have been terminated with respect to future grants.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Policies and Procedures for Review and Approval of Related Party Transactions
Pursuant to its charter, the Audit Committee reviews and approves all related party transactions and makes recommendations to the full Board
regarding approval of such transactions, unless the Board specifically delegates this responsibility to the Compensation Committee. The Audit Committee
reviewed the transactions described below and determined that they were fair, just, and reasonable to the Company and in the best interests of the Company
and its stockholders.
120
Related Party Transactions
Below is a description of transactions that have occurred during the past two fiscal years, or any currently proposed transactions, to which we were
or are a participant and in which:
● the amounts involved exceeded or will exceed the lesser of: $120,000 or one percent (1%) of the average of our total assets at year end for the
last two completed fiscal years; and
● a related person (including any director, director nominee, executive officer, holder of more than 5% of our common shares or any member of
their immediate family) had or will have a direct or indirect material interest.
Investor Rights Agreement
We are party to an Investor Rights Agreement with OrbiMed Royalty Opportunities II, LP and ROS Acquisition Offshore LP pursuant to which
Royalty Opportunities and ROS are permitted to nominate a majority of the directors and designate the chairperson of our Board of Directors at subsequent
annual meetings, as long as they maintain an ownership threshold in our Company of at least 40% of our then outstanding common stock. If Royalty
Opportunities and ROS are unable to maintain the Ownership Threshold, as defined in the Investor Rights Agreement, the Investor Rights Agreement
contemplates a reduction of nomination rights commensurate with our ownership interests. For so long as the Ownership Threshold is met, we must obtain
the approval of a majority of our common stock held by Royalty Opportunities and ROS to proceed with the following actions: (i) issue new securities; (ii)
incur over $250,000 of debt in a fiscal year; (iii) sell or transfer over $250,000 of our assets or businesses or our subsidiaries in a fiscal year; (iv) acquire
over $250,000 of assets or properties in a fiscal year; (v) make capital expenditures over $125,000 individually, or $1,500,000 in the aggregate during a
fiscal year; (vi) approve our annual budget; (vii) appoint or remove the chairperson of our Board of Directors; and (viii) make loans to, investments in, or
purchase, or permit any subsidiary to purchase, any stock or other securities in another entity in excess of $250,000 in a fiscal year.
The Investor Rights Agreement grants Royalty Opportunities and ROS the right to purchase from us a pro rata amount of any new securities that
we may propose to issue and sell. The Investor Rights Agreement may be terminated (a) upon the mutual written agreement of all the parties, (b) upon our
written notice or the written notice of ROS or Royalty Opportunities if the ownership percentage of our then outstanding common stock of ROS and
Royalty Opportunities is less than 10%, or (c) upon written notice of ROS and Royalty Opportunities.
2022 Private Placement and Securities Purchase Agreement
On August 23, 2022, we entered into a securities purchase agreement (the “Securities Purchase Agreement”) with several accredited investors,
including Stavros G. Vizirgianakis and his brother, and Jonn R. Beeson, who invested through The Platinum Legacy Trust, dated February 24, 2017, of
which Jonn R. Beeson serves as Trustee, pursuant to which we agreed to issue an aggregate of 20,305,429 shares of our common stock and warrants to
purchase up to an aggregate of 5,076,358 shares of our common stock in a private placement (the “Private Placement”), at a per unit (each unit consisting
of one share and a warrant to purchase 0.25 of a share) purchase price of $0.48, which represented a 2.5% discount to the 10-day volume-weighted average
price of our common stock ending August 19, 2022. The closing of the Private Placement was structured to occur in two tranches in order to comply with
the continued listing requirements of the NYSE American, which requires stockholder approval of the sale, issuance, or potential issuance by listed
companies of common stock (or securities convertible into common stock) at a price less than the greater of book or market value which equals 20% or
more of outstanding common stock prior to the transaction. Neither Mr. Vizirgianakis nor Mr. Beeson was a director of the Company when we entered into
the Securities Purchase Agreement.
On August 25, 2022, we closed the first tranche of the Private Placement (the “First Closing”). At the First Closing, we sold an aggregate of
14,060,315 shares and warrants to purchase an aggregate of 3,515,079 shares, for an aggregate purchase price of approximately $6.75 million. Of these
shares and warrants, we sold 3,515,079 shares and warrants to purchase 878,770 shares to Stavros G. Vizirgianakis in exchange for approximately $1.7
million and sold 3,515,077 shares and warrants to purchase 878,769 shares to the brother of Stavros G. Vizirgianakis in exchange for approximately $1.7
million. Additionally, we sold 703,016 shares and warrants to purchase 175,754 shares to The Platinum Legacy Trust, dated February 24, 2017, in
exchange for approximately $337.4 thousand.
121
Immediately after the execution of the Securities Purchase Agreement by the parties thereto, we obtained the written consent of Royalty
Opportunities and ROS, the holders of an aggregate of 73,114,592 shares of our common stock as of August 23, 2022, representing greater than a majority
of the outstanding shares of our common stock as of such date, for the approval of the issuance of Shares and Warrants at the second closing of the Private
Placement (the “Second Closing”) pursuant to the continued listing requirements of the NYSE American and in accordance with applicable provisions of
the Delaware General Corporation Law and our Second Amended and Restated Bylaws. The written consent of Royalty Opportunities and ROS was
sufficient to approve the issuance of Shares and Warrants at the Second Closing. Therefore, no proxies or additional consents were solicited by us in
connection with this issuance. Pursuant to Section 14(c) of the Exchange Act, and the rules and regulations promulgated thereunder, on September 9, 2022,
we sent a definitive information statement to all holders of our common stock as of August 23, 2022 for the purpose of informing such stockholders of the
written actions taken by Royalty Opportunities and ROS. The Second Closing occurred on October 7, 2022. At the Second Closing, we sold an aggregate
of 6,245,114 shares and warrants to purchase an aggregate of 1,561,279 shares, for an aggregate purchase price of approximately $3.0 million. Of these
shares and warrants, we sold 2,264,861 shares and warrants to purchase 566,214 shares to Stavros G. Vizirgianakis in exchange for approximately $1.1
million and sold 857,696 shares and warrants to purchase 214,425 shares to the brother of Stavros G. Vizirgianakis in exchange for approximately $0.4
million. Additionally, we sold 312,256 shares and warrants to purchase 78,064 shares to The Platinum Legacy Trust, dated February 24, 2017, in exchange
for approximately $150.0 thousand.
2022 Lock-Up Agreements
Under the terms of the Securities Purchase Agreement, each of the accredited investors party thereto executed a lock-up agreement with the
Company, pursuant to which each such investor agreed to a lock-up on any sale or other disposition of our common stock, subject to certain exceptions.
The lock-up period had a three-month duration, except in the case of Stavros G. Vizirgianakis who agreed to a 12-month lock-up period.
Lead Investor Agreement
Under the terms of the Securities Purchase Agreement, we entered into an agreement with Stavros G. Vizirgianakis, as the lead investor of the
Private Placement, pursuant to we agreed to provide certain director nomination rights to Mr. Vizirgianakis. Pursuant to the terms of the agreement, we
expanded the size of our Board by one position and elected Mr. Vizirgianakis as a director to fill the vacancy created as a result of the increase, effective
upon completion of the First Closing. In addition, we elected Mr. Vizirgianakis as Chair of the Board, effective upon completion of the First Closing. The
director nomination rights set forth in the agreement will terminate on the earlier of (i) the date on which Mr. Vizirgianakis ceases to hold at least 75% of
the shares of our common stock to be purchased by him in the Private Placement; (ii) October 7, 2024; or (iii) upon written notice of Mr. Vizirgianakis to
the Company.
2022 Registration Rights Agreement
Under the terms of the Securities Purchase Agreement, we entered into a Registration Rights Agreement with Stavros G. Vizirgianakis, his
brother, The Platinum Legacy Trust, dated February 24, 2017, and the other accredited investors party to the Securities Purchase Agreement, which
required us, among other things, to file a shelf resale registration statement with the SEC within 60 days of the date of the First Closing for purposes of
registering the resale of the shares of our common stock sold in the Private Placement and the shares of our common stock issuable upon exercise of the
warrants and use our commercially reasonable best efforts to cause the shelf resale registration statement to become effective under the Securities Act of
1933, as amended, within 75 days of the date of the First Closing, subject to certain exceptions. We filed this registration statement on October 11, 2022
and it became effective on October 20, 2022.
122
Family Relationships
There are no family relationships between or among our directors, executive officers, or persons nominated or chosen by the Company to become
directors or executive officers.
Director Independence
The Board has affirmatively determined that John K. Bakewell, Jonn R. Beeson, Robert E. McNamara, Lori D. Mitchell-Keller and Stavros G.
Vizirgianakis are “independent directors,” as defined under the independence standards of the NYSE American.
Item 14. Principal Accountant Fees and Services
Change in Independent Registered Public Accounting Firm
As previously disclosed, on August 15, 2023, the Audit Committee appointed Grant Thornton LLP (“Grant Thornton”) as the Company’s
independent registered public accounting firm, and in connection therewith dismissed Plante & Moran, PLLC (“Plante Moran”), as the Company’s
independent registered public accounting firm, subject to Grant Thornton’s standard client acceptance procedures, which were completed on August 18,
2023. The decision to appoint Grant Thornton as the Company’s new independent registered public accounting firm was the result of a request for proposal
process after Plante Moran notified the Audit Committee that Plante Moran is evaluating whether to continue its Securities and Exchange Commission
audit practice in the Company’s primary industry.
During the fiscal years ended December 31, 2022 and 2021, and through the subsequent interim period preceding the Company’s appointment of
Grant Thornton as the Company’s independent registered public accounting firm, neither the Company, nor anyone on its behalf, consulted Grant Thornton
regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might
be rendered with respect to the consolidated financial statements of the Company, and no written report or oral advice was provided to the Company by
Grant Thornton that was an important factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issue;
or (ii) any matter that was the subject of a “disagreement” (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or a “reportable
event” (as that term is defined in Item 304(a)(1)(v) of Regulation S-K).
The audit reports of Plante Moran on the Company’s consolidated financial statements as of and for the fiscal years ended December 31, 2022 and
2021 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting
principles.
During the fiscal years ended December 31, 2022 and 2021, and through the subsequent interim period preceding Plante Moran’s dismissal, (1)
there were no disagreements (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) between the Company and Plante Moran on
any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Plante Moran, would have caused Plante Moran to make reference thereto in its report on the Company’s consolidated financial statements
for the years ended December 31, 2022 and 2021, and (2) there were no “reportable events” as such term is defined in Item 304(a)(1)(v) of Regulation S-K.
The Company previously disclosed this information in its Current Report on Form 8-K filed with the SEC on August 18, 2023, provided Plant
Moran with a copy of the disclosures, and requested that Plant Moran furnish it with a letter addressed to the SEC stating whether or not it agrees with the
Company’s statements therein. A copy of the letter dated August 18, 2023 was filed as an exhibit to such Form 8-K.
123
Audit and Non-Audit Fees
The following table represents aggregate fees billed to the Company for the fiscal year ended December 31, 2023 and December 31, 2022 by the
Company’s independent registered accounting firms during such fiscal years.
Audit fees
Audit-related fees
Tax fees
All other fees
Total fees
2023
2022
$
$
840,000 $
45,000
—
—
885,000 $
320,158
7,000
—
—
327,158
In the above table, “audit fees” are fees billed for services provided related to the audit of our annual financial statements, quarterly reviews of our
interim financial statements, and services normally provided by the independent accountant in connection with statutory and regulatory filings or
engagements for those fiscal periods. “Audit-related fees” are fees not included in audit fees that are billed by the independent accountant for assurance and
related services that are reasonably related to the performance of the audit or review of our financial statements. These audit-related fees also consist of the
review of our registration statements filed with the SEC and related services normally provided in connection with statutory and regulatory filings or
engagements. “Tax fees” are fees billed by the independent accountant for professional services rendered for tax compliance, tax advice, and tax planning.
“All other fees” are fees billed by the independent accountant for products and services not included in the foregoing categories.
Pre-Approval Policy
It is the Audit Committee’s policy to approve in advance the types and amounts of audit, audit-related, tax, and any other services to be provided
by our independent registered public accounting firm. In situations where it is not practicable to obtain full Audit Committee approval, the Audit
Committee has delegated authority to the Chair of the Audit Committee to grant pre-approval of auditing, audit-related, tax, and all other services up to
$25,000. Any pre-approved decisions by the Chair are required to be reviewed with the Audit Committee at its next scheduled meeting. The Audit
Committee approved 100% of all services provided by Plante Moran during 2023 and 2022 and services provided by Grant Thornton during 2023.
124
Item 15. Exhibit and Financial Statement Schedules
Financial Statements
PART IV
Our consolidated financial statements are included in “Part II, Item 8. Financial Statements and Supplementary Data.”
Financial Statement Schedules
All financial statement schedules are omitted because they are inapplicable since we are a smaller reporting company.
Exhibits
The exhibits being filed or furnished with this report are listed below, along with an indication as to each management contract or compensatory
plan or arrangement.
A copy of any exhibits listed or referred to herein will be furnished at a reasonable cost to any person who is a stockholder upon receipt from any
such person of a written request for any such exhibit. Such request should be sent to: Scott Neils, Chief Financial Officer, Xtant Medical Holdings, Inc.,
664 Cruiser Lane, Belgrade, MT 59714, Attn: Stockholder Information.
Exhibit No.
2.1†
Description
Equity Purchase Agreement, dated February 28, 2023, among Xtant Medical Holdings, Inc, Surgalign SPV, Inc., Surgalign Spine
Technologies, Inc., and Surgalign Holdings, Inc. (filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on
March 1, 2023 (SEC File No. 001-34951) and incorporated by reference herein)
2.2†
2.3†
Asset Purchase Agreement, dated as of June 18, 2023, between Surgalign Holdings, Inc. and Xtant Medical Holdings, Inc. (filed as Exhibit
2.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on June 20, 2023 (SEC File No. 001-34951) and incorporated by
reference herein)
First Amendment to Asset Purchase Agreement, dated as of July 10, 2023, between Xtant Medical Holdings, Inc. and Surgalign Holdings,
Inc. (filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 11,
2023 (SEC File No. 001-34591) and incorporated by reference herein)
2.4*†
Second Amendment to Asset Purchase Agreement, dated as of July 20, 2023, between Xtant Medical Holdings, Inc. and Surgalign
Holdings, Inc.
2.5*†
Third Amendment to Asset Purchase Agreement, dated as of July 24, 2023, between Xtant Medical Holdings, Inc. and Surgalign Holdings,
Inc.
3.1
3.2
Restated Certificate of Incorporation of Xtant Medical Holdings, Inc. (filed as Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-
Q for the quarterly period ended September 30, 2023 (SEC File No. 001-34591) and incorporated by reference herein)
Third Amended and Restated Bylaws of Xtant Medical Holdings, Inc. (Effective as of June 1, 2023) (filed as Exhibit 3.1 to the Registrant’s
Current Report on Form 8-K filed with the SEC on May 19, 2023 (SEC File No. 001-34951) and incorporated by reference herein)
125
Exhibit No.
4.1*
Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934
Description
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
Form of Common Stock Certificate (filed as Exhibit 4.2 to the Registrant’s Annual Report on Form 10-K for the year ended December 31,
2021 (SEC File No. 001-34951) and incorporated by reference herein)
Investor Rights Agreement, dated as of February 14, 2018, among Xtant Medical Holdings, Inc., OrbiMed Royalty Opportunities II, LP,
ROS Acquisition Offshore LP, Park West Partners International, Limited and Park West Investors Master Fund, Limited (filed as Exhibit
10.3 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 16, 2018 (SEC File No. 001-34951) and incorporated
by reference herein)
Amendment No. 1 to Investor Rights Agreement, dated as of May 2, 2023, among Xtant Medical Holdings, Inc., OrbiMed Royalty
Opportunities II, LP and ROS Acquisition Offshore LP (filed as Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2023 (SEC File No. 001-34951) and incorporated by reference herein)
Registration Rights Agreement (for Common Stock underlying the Indenture Notes), dated January 17, 2017, among Xtant Medical
Holdings, Inc., ROS Acquisition Offshore LP and OrbiMed Royalty Opportunities II, LP. (filed as Exhibit 10.9 to the Registrant’s Current
Report on Form 8-K filed with the SEC on January 20, 2017 (SEC File No. 001-34951) and incorporated by reference herein)
Registration Rights Agreement (for Common Stock underlying the PIK Notes), dated January 17, 2017, among Xtant Medical Holdings,
Inc., ROS Acquisition Offshore LP and OrbiMed Royalty Opportunities II, LP. (filed as Exhibit 10.13 to the Registrant’s Current Report on
Form 8-K filed with the SEC on January 20, 2017 (SEC File No. 001-34951) and incorporated by reference herein)
Registration Rights Agreement (for Common Stock issued upon the exchange of the Notes and pursuant to the Private Placement), dated
February 14, 2018, among Xtant Medical Holdings, Inc., OrbiMed Royalty Opportunities II, LP, ROS Acquisition Offshore LP, Telemetry
Securities, L.L.C., Bruce Fund, Inc., Park West Investors Master Fund, Limited, and Park West Partners International, Limited (filed as
Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 16, 2018 (SEC File No. 001-34951) and
incorporated by reference herein)
Registration Rights Agreement, dated October 1, 2020, among Xtant Medical Holdings, Inc., OrbiMed Royalty Opportunities II, LP, and
ROS Acquisition Offshore LP (filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on October 1, 2020
(SEC File No. 001-34951) and incorporated by reference herein)
Registration Rights Agreement, dated as of February 24, 2021, between Xtant Medical Holdings, Inc. and the investor party thereto (filed as
Exhibit 4.4 to the Registrant’s Registration Statement on Form S-3 filed with the SEC on April 6, 2021 (Sec File No. 333-255074) and
incorporated by reference herein)
4.10
Registration Rights Agreement, dated as of August 25, 2022, among Xtant Medical Holdings, Inc. and the investors party thereto (filed as
Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on August 31, 2022 (SEC File No. 001-34951) and
incorporated by reference herein)
4.11
Form of Investor Warrant (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 22, 2021
(SEC File No. 001-34951) and incorporated by reference herein)
4.12
Form of Placement Agent Warrant (filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 22,
2021 (SEC File No. 001-34951) and incorporated by reference herein)
126
Exhibit No.
4.13
Description
Form of Warrant (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on August 24, 2022 (SEC File No.
001-34951) and incorporated by reference herein)
4.14
Registration Rights Agreement, dated as of July 6, 2023, among Xtant Medical Holdings, Inc. and the investors party thereto (filed as
Exhibit 4.9 to the Registrant’s Registration Statement on Form S-3 filed with the SEC on July 7, 2023 (SEC File No. 333-273169) and
incorporated by reference herein)
10.1●
Amended and Restated Xtant Medical Equity Incentive Plan (filed as Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2015 (SEC File No. 001-34951) and incorporated by reference herein)
10.2●
Xtant Medical Holdings, Inc. 2018 Equity Incentive Plan (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with
the SEC on August 3, 2018 (SEC File No. 001-34951) and incorporated by reference herein)
10.3●
Xtant Medical Holdings, Inc. Amended and Restated 2018 Equity Incentive Plan (filed as Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K filed with the SEC on October 28, 2020 (SEC File No. 001-34951) and incorporated by reference herein)
10.4●
Xtant Medical Holdings, Inc. Second Amended and Restated 2018 Equity Incentive Plan (filed as Exhibit 10.1 to the Registrant’s Current
Report on Form 8-K filed with the SEC on October 28, 2022 (SEC File No. 001-34951) and incorporated by reference herein)
10.5●
10.6●
10.7●
Form of Employee Stock Option Award Agreement for use with the Xtant Medical Holdings, Inc. 2018 Equity Incentive Plan (filed as
Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on August 3, 2018 (SEC File No. 001-34951) and
incorporated by reference herein)
Form of Employee Restricted Stock Unit Award Agreement for use with the Xtant Medical Holdings, Inc. 2018 Equity Incentive Plan (filed
as Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed with the SEC on August 3, 2018 (SEC File No. 001-34951) and
incorporated by reference herein)
Form of Non-Employee Director Restricted Stock Unit Award Agreement for use with the Xtant Medical Holdings, Inc. 2018 Equity
Incentive Plan (filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 (SEC File
No. 001-34951) and incorporated by reference herein)
10.8●
Xtant Medical Holdings, Inc. 2023 Equity Incentive Plan (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with
the SEC on July 28, 2023 (SEC File No. 001-34951) and incorporated by reference herein)
10.9●
10.10●
10.11●
10.12●
Form of Employee Stock Option Award Agreement for use with the Xtant Medical Holdings, Inc. 2023 Equity Incentive Plan (filed as
Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on July 28, 2023 (SEC File No. 001-34951) and
incorporated by reference herein)
Form of Employee Restricted Stock Unit Award Agreement for use with the Xtant Medical Holdings, Inc. 2023 Equity Incentive Plan (filed
as Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed with the SEC on July 28, 2023 (SEC File No. 001-34951) and
incorporated by reference herein)
Form of Non-Employee Director Restricted Stock Unit Award Agreement for use with the Xtant Medical Holdings, Inc. 2023 Equity
Incentive Plan (filed as Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed with the SEC on July 28, 2023 (SEC File No. 001-
34951) and incorporated by reference herein)
Form of Non-Employee Director Deferred Stock Unit Award Agreement for use with the Xtant Medical Holdings, Inc. 2023 Equity
Incentive Plan (filed as Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed with the SEC on July 28, 2023 (SEC File No. 001-
34951) and incorporated by reference herein)
127
Exhibit No.
10.13●*
Form of Employee Performance Share Unit Award Agreement for use with the Xtant Medical Holdings, Inc. 2023 Equity Incentive Plan
Description
10.14●*
Form of Indemnification Agreement for Directors and Officers
10.15●
10.16●
10.17●
10.18●
10.19●
10.20
10.21
10.22
10.23
10.24
10.25
Employment Agreement, effective as of October 7, 2019, between Xtant Medical Holdings, Inc. and Sean E. Browne (filed as Exhibit 10.1
to the Registrant’s Current Report on Form 8-K filed with the SEC on October 7, 2019 (SEC File No. 001-34951) and incorporated by
reference herein)
Employment Agreement, effective as of July 9, 2018, between Xtant Medical Holdings, Inc. and Kevin D. Brandt (filed as Exhibit 10.18 to
the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018 (SEC File No. 001-34951) and incorporated by
reference herein)
Employment Agreement, effective as of June 1, 2022, between Xtant Medical Holdings, Inc. and Scott Neils (filed as Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K filed with the SEC on May 2, 2022 (SEC File No. 001-34951) and incorporated by reference
herein)
Employment Agreement, effective as of January 16, 2023, between Xtant Medical Holdings, Inc. and Mark A. Schallenberger (filed as
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on January 9, 2023 (SEC File No. 001-34951) and
incorporated by reference herein)
Letter Agreement, dated August 25, 2022, between Xtant Medical Holdings, Inc. and Stavros Vizirgianakis (filed as Exhibit 10.3 to the
Registrant’s Current Report on Form 8-K filed with the SEC on August 31, 2022 (SEC File No. 001-34951) and incorporated by reference
herein)
Restructuring and Exchange Agreement, dated as of January 11, 2018, among Xtant Medical Holdings, Inc., OrbiMed Royalty
Opportunities II, LP, ROS Acquisition Offshore LP, Bruce Fund, Inc., Park West Partners International, Limited, Park West Investors Master
Fund, Limited, and Telemetry Securities, L.L.C. (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on
January 12, 2018 (SEC File No. 001-34951) and incorporated by reference herein)
Restructuring and Exchange Agreement, dated as of August 7, 2020, among Xtant Medical Holdings, Inc., OrbiMed Royalty Opportunities
II, LP and ROS Acquisition Offshore LP (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on
August 10, 2020 (SEC File No. 001-34951) and incorporated by reference herein)
Securities Purchase Agreement, dated as of February 14, 2018, among Xtant Medical Holdings, Inc., OrbiMed Royalty Opportunities II, LP
and ROS Acquisition Offshore LP. (filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 16,
2018 (SEC File No. 001-34951) and incorporated by reference herein)
Securities Purchase Agreement, dated as of February 22, 2021, between Xtant Medical Holdings, Inc. and the investor party thereto (filed as
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 22, 2021 (SEC File No. 001-34951) and
incorporated by reference herein)
Placement Agent Agreement, dated February 22, 2021, between Xtant Medical Holdings, Inc. and A.G.P./Alliance Global Partners (filed as
Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 22, 2021 (SEC File No. 001-34951) and
incorporated by reference herein)
Securities Purchase Agreement, dated as of August 23, 2022, among Xtant Medical Holdings, Inc. and the investors party thereto (filed as
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on August 24, 2022 (SEC File No. 001-34951) and
incorporated by reference herein)
128
Exhibit No.
10.26
Description
Securities Purchase Agreement, dated as of July 3, 2023, among Xtant Medical Holdings, Inc. and the investors party thereto (filed as
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on July 3, 2023 (SEC File No. 001-34951) and incorporated
by reference herein)
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
21.1*
23.1*
23.2*
31.1*
Transition Services Agreement, dated February 28, 2023, among Surgalign SPV, Inc., Surgalign Spine Technologies, Inc., and Xtant
Medical Holdings, Inc. (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on March 1, 2023 (SEC
File No. 001-34951) and incorporated by reference herein)
Amended and Restated Credit, Security and Guaranty Agreement (Term Loan), dated as of March 7, 2024, among Xtant Medical, Inc.,
Bacterin International, Inc., X-spine Systems, Inc., Surgalign SPV, Inc., and any additional borrower that hereafter becomes party thereto,
Xtant Medical Holdings, Inc., and any additional guarantor that hereafter becomes party thereto, and MidCap Financial Trust, as agent, and
the lenders from time to time party thereto (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on
March 7, 2024 (SEC File No. 001-34951) and incorporated by reference herein)
Amended and Restated Credit, Security and Guaranty Agreement (Revolving Loan), dated as of March 7, 2024, among Xtant Medical, Inc.,
Bacterin International, Inc., X-spine Systems, Inc., Surgalign SPV, Inc., and any additional borrower that hereafter becomes party thereto,
Xtant Medical Holdings, Inc., and any additional guarantor that hereafter becomes party thereto, and MidCap Funding IV Trust, as agent,
and the lenders from time to time party thereto (filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on
March 7, 2024 (SEC File No. 001-34951) and incorporated by reference herein)
Commercial Lease, dated February 1, 2012, between Cruiser Lane, LLC and Bacterin International Holdings, Inc. (filed as Exhibit 10.30 To
the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2022 (SEC File No. 001-34951) and incorporated by
reference herein)
Addendum to Commercial Lease, dated December 3, 2018, between Cruiser Lane, LLC and Bacterin International Holdings, Inc. (filed as
Exhibit 10.31 To the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2022 (SEC File No. 001-34951) and
incorporated by reference herein)
Addendum to Commercial Lease, dated July 29, 2022, between Cruiser Lane, LLC and Bacterin International Holdings, Inc. (filed as
Exhibit 10.32 To the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2022 (SEC File No. 001-34951) and
incorporated by reference herein)
Lease Agreement, dated August 7, 2013, between McClellan Farm and Bacterin International, Inc. (filed as Exhibit 10.33 To the
Registrant’s Annual Report on Form 10-K for the year ended December 31, 2022 (SEC File No. 001-34951) and incorporated by reference
herein)
Triple Net Commercial Lease, dated October 23, 2015, between Shep Does Stuff LLC and Bacterin International, Inc. (filed as Exhibit
10.34 To the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2022 (SEC File No. 001-34951) and incorporated
by reference herein)
Subsidiaries of the Registrant
Consent of Independent Registered Public Accounting Firm, Grant Thornton LLP
Consent of Independent Registered Public Accounting Firm, Plante & Moran, PLLC
Certification of Chief Executive Officer Pursuant to SEC Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
129
Exhibit No.
31.2*
Description
Certification of Chief Financial Officer Pursuant to SEC Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
32.1**
Certification of Chief Executive Officer Pursuant to Rule 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
32.2**
Certification of Chief Financial Officer Pursuant to Rule 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
97.1*
Xtant Medical Holdings, Inc. Clawback Policy
101.INS*
Inline XBRL INSTANCE DOCUMENT (the instance document does not appear in the interactive data file because its XBRL tags are
embedded within the inline XBRL document)
101.SCH*
Inline XBRL TAXONOMY EXTENSION SCHEMA
101.CAL*
Inline XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
101.DEF*
Inline XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
101.LAB*
Inline XBRL TAXONOMY EXTENSION LABEL LINKBASE
101.PRE*
Inline XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE
104
Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)
●
*
**
†
Indicates a management contract or compensatory plan
Filed herewith
Furnished herewith
All exhibits and schedules to this exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish the omitted
exhibits and schedules to the SEC upon request by the SEC.
Item 16. Form 10-K Summary
Optional disclosure, not included in this Annual Report on Form 10-K.
130
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.
SIGNATURES
April 1, 2024
XTANT MEDICAL HOLDINGS, INC.
/s/ Sean E. Browne
By:
Name: Sean E. Browne
Title: President and Chief Executive Officer
(principal executive officer)
/s/ Scott C. Neils
By:
Name: Scott C. Neils
Title: Chief Financial Officer
(principal financial and accounting officer)
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 indicated on April 1, 2024.
Signature
/s/ Sean E. Browne
Sean E. Browne
/s/ Scott C. Neils
Scott C. Neils
/s/ John K. Bakewell
John K. Bakewell
/s/ Jonn R. Beeson
Jonn R. Beeson
/s/ Robert E. McNamara
Robert E. McNamara
/s/ Lori D. Mitchell-Keller
Lori D. Mitchell-Keller
/s/ Stavros G. Vizirgianakis
Stavros G. Vizirgianakis
Title
President and Chief Executive Officer
(principal executive officer)
Chief Financial Officer
(principal financial and accounting officer)
Director
Director
Director
Director
Director
131
SECOND AMENDMENT TO
ASSET PURCHASE AGREEMENT
Exhibit 2.4
This Second Amendment to Asset Purchase Agreement (this “Amendment No. 2”) is made as of this 20th day of July 2023, by and between
Xtant Medical Holdings, Inc., a Delaware corporation (the “Purchaser”), and Surgalign Holdings, Inc., a Delaware corporation (“Seller” and together with
Purchaser, the “Parties”).
WITNESSETH:
WHEREAS, Purchaser and Seller entered into that certain Asset Purchase Agreement, dated June 18, 2023 (as amended by the First Amendment
thereto dated July 10, 2023, the “Agreement”) that provides for, among other things, the purchase by Purchaser of certain assets of Seller and its
Subsidiaries predominantly used in or related to Seller’s and its Subsidiaries hardware and biologics business, and Purchaser assuming from Seller and its
Subsidiaries, certain specified liabilities related thereto, in each case as set forth in the Agreement;
WHEREAS, clause (B) of Section 7.1(d)(iv) of the Agreement, as amended by the First Amendment, provides that Purchaser may terminate the
Agreement by providing to Seller written notice of termination no later than 5:00 p.m. CT on July 20, 2023 if any of the Disclosure Schedules, or any
matter, fact, item of information, circumstance, event, Liability or other disclosure set forth on, or described or referred to in, any of the Disclosure
Schedules, shall not be acceptable to Purchaser in its sole discretion;
WHEREAS, Purchaser and Seller wish to amend the Agreement to extend the time by which Purchaser may terminate the Agreement under
clause (B) of Section 7.1(d)(iv) to 5:00 p.m. CT on July 24, 2023; and
WHEREAS, Section 7.12 of the Agreement provides that the Agreement may be amended by the written agreement of Seller and Purchaser.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Parties, being all of the parties to the Agreement, hereby agree as follows:
1. Defined Terms. Capitalized terms used in this Amendment and not otherwise defined shall have the meaning given such terms in the Agreement.
2. Amendment to the Agreement. Effective as of the date of this Amendment No. 2:
a. Section 7.1(d)(iv) is amended and restated in its entirety as provided below:
(A) Seller has not provided complete copies of all of the Disclosure Schedules (other than Schedule 5.7) to Purchaser by 1:00 p.m. CT on the
date that is fourteen (14) days after the date of this Agreement; or (B) if any of the Disclosure Schedules, or any matter, fact, item of
information, circumstance, event, Liability or other disclosure set forth on, or described or referred to in, any of the Disclosure Schedules,
shall not be acceptable to Purchaser in its sole discretion; provided, however, that to terminate this Agreement under this clause (B), Purchaser
must provide to Seller notice of termination no later than 5:00 p.m. CT on July 24, 2023; provided, further, that Purchaser shall not be
permitted to terminate this Agreement pursuant to this Section 7.1(d)(iv) after the date that is the later of (A) one (1) day prior to the hearing
before the Bankruptcy Court seeking entry of the Bid Procedures Order and (B) July 24, 2023.
3. No Other Amendments. Except as specifically deemed amended as set forth herein, the Agreement shall remain in full force and effect in
accordance with its terms. The amendments provided in this Amendment No. 2 shall be applicable solely with respect to those matters expressly provided
herein and no other amendments, waivers or consents may be construed or implied. This Amendment No. 2, together with all documents (including the
Agreement) referenced herein, the other Ancillary Agreements and the Confidentiality Agreement, constitutes the entire agreement between the Parties,
and merges and supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions, both written and oral, between the
Parties with respect to the subject matter hereof and thereof.
4. Counterparts. This Amendment No. 2 may be executed in one or more counterparts, each of which when executed shall be deemed to be an
original but all of which taken together shall constitute one and the same agreement.
5. Miscellaneous. The provisions of Section 7.6 (Governing Law; Jurisdiction; WAIVER OF JURY TRIAL), Section 7.7 other than the first sentence
thereof (Interpretation), Section 7.8 (Notices), Section 7.12 (Amendment), Section 7.14 (Specific Performance), Section 7.15 (Severability), Section 7.16
(Waivers), Section 7.17 (Binding Effect; Third Party Beneficiaries; Assignment), and Section 7.18(a) (Non-Recourse) of the Agreement shall apply to this
Amendment mutatis mutandis.
[SIGNATURE PAGE FOLLOWS]
2
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed as of the date first written above.
SELLER:
PURCHASER:
SURGALIGN HOLDINGS, INC.
XTANT MEDICAL HOLDINGS, INC.
/s/ David Lyle
By:
Name: David Lyle
Title: Chief Financial Officer
/s/ Sean Browne
By:
Name: Sean Browne
Title: President & Chief Executive Officer
THIRD AMENDMENT TO
ASSET PURCHASE AGREEMENT
Exhibit 2.5
This Third Amendment to Asset Purchase Agreement (this “Amendment No. 3”) is made as of this 24th day of July 2023, by and between Xtant
Medical Holdings, Inc., a Delaware corporation (the “Purchaser”), and Surgalign Holdings, Inc., a Delaware corporation (“Seller” and together with
Purchaser, the “Parties”).
WITNESSETH:
WHEREAS, Purchaser and Seller entered into that certain Asset Purchase Agreement, dated June 18, 2023 (as amended by the First Amendment
thereto dated July 10, 2023 and the Second Amendment thereto dated July 20, 2023, the “Agreement”) that provides for, among other things, the purchase
by Purchaser of certain assets of Seller and its Subsidiaries predominantly used in or related to Seller’s and its Subsidiaries hardware and biologics
business, and Purchaser assuming from Seller and its Subsidiaries, certain specified liabilities related thereto, in each case as set forth in the Agreement;
WHEREAS, Section 7.12 of the Agreement provides that the Agreement may be amended by the written agreement of Seller and Purchaser.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Parties, being all of the parties to the Agreement, hereby agree as follows:
1. Defined Terms. Capitalized terms used in this Amendment and not otherwise defined shall have the meaning given such terms in the Agreement.
2. Amendment to the Agreement. Effective as of the date of this Amendment No. 3:
a. The Agreement is hereby amended by adding the following Section 2.1(i):
(i)
all accounts receivable (including any trade payables) of Seller or any of its Subsidiaries (other than the Acquired Subsidiaries or any
Subsidiary of an Acquired Subsidiary (collectively, the “Acquired Subsidiary Group”) owed from any member of the Acquired
Subsidiary Group and any other intercompany obligations of any member of the Acquired Subsidiary Group owed to Seller or any of
its Subsidiaries (other than the Acquired Subsidiary Group) (the “Intercompany Receivables”).
b. Section 2.2(k) of the Agreement is hereby amended and restated in its entirety as provided below (with the amended portions underlined for
ease of reference):
(k) All Accounts Receivable (other than the Intercompany Receivables);
c. Section 2.2(l) of the Agreement is hereby amended and restated in its entirety as provided below (with the amended portions underlined for
ease of reference):
(l)
All accounts payable (or other amounts payable) and other intercompany obligations of the members of the Parent Group (for the
avoidance of doubt, other than the Acquired Subsidiary Group) owed to Seller or any of its Subsidiaries;
d. Section 2.4 of the Agreement is hereby amended and restated in its entirety as provided below (with the amended portions underlined for
ease of reference):
Notwithstanding anything to the contrary in this Agreement, other than the Intercompany Receivables (which constitute Purchased Assets),
none of the Purchased Assets, Excluded Assets, Assumed Liabilities or Excluded Liabilities shall include any assets or Liabilities of any of
the Acquired Subsidiaries.
e. Section 7.18(c) is hereby amended and restated in its entirety as provided below (with the amended portions underlined for ease of
reference)::
Without limiting the foregoing, effective as of the Closing Date, Seller, on behalf of itself and its respective officers, directors, equityholders,
Subsidiaries (excluding, for the avoidance of doubt, the Acquired Subsidiary Group) and Affiliates, and each of their respective successors
and assigns (“Seller Releasor”), hereby releases, acquits and forever discharges, to the fullest extent permitted by Law, Purchaser and its past,
present or future officers, managers, directors, equityholders, partners, members, Affiliates, employees, counsel and agents (each, a
“Purchaser Releasee”) of, from and against any and all Liabilities, actions, causes of action, Claims, demands, damages, judgments, debts,
dues and suits of every kind, nature and description whatsoever, which such Seller Releasor or its successors or assigns ever had, now has or
may have on or by reason of any matter, cause or thing whatsoever to the Closing Date, in each case in respect of any cause, matter or thing
relating to the Purchased Assets, the Business or any action taken or failed to be taken by any Purchaser Releasee in any capacity related to
Purchaser, the Purchased Assets or the Business occurring or arising on or prior to the Closing Date (a “Seller Released Claim”), and the
Seller Released Claims specifically includes any rights of the Seller Releasors to the Intercompany Receivables effective as of the Closing
(which, for the avoidance of doubt, constitutes Purchased Assets, and shall, effective as of the Closing, be enforceable by Purchaser against
the applicable members of the Acquired Subsidiary Group). Each Seller Releasor agrees not to, and agrees to cause its respective officers,
directors, equityholders, Subsidiaries and Affiliates, and each of their respective successors and assigns not to, assert any Seller Released
Claim against the Purchaser Releasees. Notwithstanding the foregoing, each Seller Releasor and its respective officers, directors,
equityholders, Subsidiaries and Affiliates, and each of their respective successors and assigns retain, and do not release, their rights and
interests under the terms and conditions of this Agreement, the Confidentiality Agreement and the Ancillary Agreements
3. Disclosure Schedules. The Parties hereby acknowledge and agree that (i) complete copies of all of the Disclosure Schedules have been delivered to
Purchaser, and (ii) Purchaser’s right to terminate the Agreement pursuant to Section 7.1(d)(iv) of the Agreement has expired and Purchaser shall no longer
be permitted to terminate this Agreement pursuant to Section 7.1(d)(iv) of the Agreement.
2
4. No Other Amendments. Except as specifically deemed amended as set forth herein, the Agreement shall remain in full force and effect in
accordance with its terms. The amendments provided in this Amendment No. 3 shall be applicable solely with respect to those matters expressly provided
herein and no other amendments, waivers or consents may be construed or implied. This Amendment No. 3, together with all documents (including the
Agreement) referenced herein, the other Ancillary Agreements and the Confidentiality Agreement, constitutes the entire agreement between the Parties,
and merges and supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions, both written and oral, between the
Parties with respect to the subject matter hereof and thereof.
5. Counterparts. This Amendment No. 3 may be executed in one or more counterparts, each of which when executed shall be deemed to be an
original but all of which taken together shall constitute one and the same agreement.
6. Miscellaneous. The provisions of Section 7.6 (Governing Law; Jurisdiction; WAIVER OF JURY TRIAL), Section 7.7 other than the first sentence
thereof (Interpretation), Section 7.8 (Notices), Section 7.12 (Amendment), Section 7.14 (Specific Performance), Section 7.15 (Severability), Section 7.16
(Waivers), Section 7.17 (Binding Effect; Third Party Beneficiaries; Assignment), and Section 7.18(a) (Non-Recourse) of the Agreement shall apply to this
Amendment mutatis mutandis.
[SIGNATURE PAGE FOLLOWS]
3
IN WITNESS WHEREOF, the parties have caused this Amendment No. 3 to be executed as of the date first written above.
SELLER:
SURGALIGN HOLDINGS, INC.
/s/ David Lyle
By:
Name: David Lyle
Title: Chief Financial Officer
PURCHASER:
XTANT MEDICAL HOLDINGS, INC.
/s/ Sean Browne
By:
Name: Sean Browne
Title: President & Chief Executive Officer
XTANT MEDICAL HOLDINGS, INC.
Exhibit 4.1
DESCRIPTION OF SECURITIES REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934
Xtant Medical Holdings, Inc., a Delaware corporation (Xtant, we, us and our), has only one class of securities registered under Section 12 of the Securities
Exchange Act of 1934, as amended: our common stock, par value $0.000001 (common stock).
The following description summarizes the material terms and provisions of our common stock and does not purport to be complete. It is subject to and
qualified in its entirety by reference to the provisions of our Restated Certificate of Incorporation (Certificate of Incorporation), Third Amended and
Restated Bylaws (Bylaws), the Investor Rights Agreement dated as of February 14, 2018 by and among Xtant and certain stockholders (as amended, the
Investor Rights Agreement), and the agreement between Xtant and Stavros G. Vizirgianakis (the Lead Investor Agreement), which are filed as exhibits to
our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and are incorporated by reference herein. We encourage you to read our
Certificate of Incorporation, Bylaws, the Investor Rights Agreement, the Lead Investor Agreement and the applicable provisions of the General Corporation
Law of the State of Delaware (DGCL) for additional information.
Authorized Shares
Our Certificate of Incorporation provides that we have authority to issue 300,000,000 shares of common stock and 10,000,000 shares of preferred stock,
par value $0.000001 per share (preferred stock).
Our preferred stock may be issued from time to time in one or more series. The Board of Directors of Xtant (the Board) is authorized, by resolution or
resolutions, to fix the number of shares of any series of preferred stock and to determine the designation, powers, rights, preferences, qualifications,
limitations, privileges and restrictions, if any, of any wholly unissued series of preferred stock, including without limitation, authority to fix by resolution or
resolutions the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions),
redemption price or prices and liquidation preferences of any such series, and the number of shares constituting any such series and the designation thereof,
or any of the foregoing.
We may amend from time to time our Certificate of Incorporation to increase the number of authorized shares of common stock or preferred stock. Any
such amendment would require the approval of the holders of a majority of the voting power of the shares entitled to vote thereon. In addition, pursuant to
our Certificate of Incorporation, the Board is authorized to increase (but not above the total number of authorized shares of the class) or decrease (but not
below the number of shares of any such series then outstanding) the number of shares of any series (including a series of preferred stock), the number of
which was fixed by it, subsequent to the issuance of shares of such series then outstanding, subject to certain limitations, without the vote of our
stockholders.
Voting Rights
Each holder of our common stock is entitled to one vote per share on each matter submitted to a vote at a meeting of stockholders, including in all elections
for directors. Stockholders are not entitled to cumulative voting in the election of directors. Subject to applicable law and the rights, if any, of the holders of
outstanding shares of any series of preferred stock we may designate and issue in the future, holders of our common stock are entitled to vote on all matters
on which stockholders are generally entitled to vote.
Our stockholders may vote either in person or by proxy. At all meetings of stockholders for the election of directors at which a quorum is present, a
plurality of the votes cast shall be sufficient to elect. All other elections and questions presented to the stockholders at a meeting at which a quorum is
present shall, unless otherwise provided by our Certificate of Incorporation, our Bylaws, the rules or regulations of any stock exchange applicable to us or
applicable law or pursuant to any regulation applicable to us or our securities, be decided by the affirmative vote of the holders of a majority in voting
power of the shares of our stock that are present in person or by proxy and entitled to vote thereon.
Dividends
The Board may authorize, and we may make, distributions to our stockholders, subject to any restriction in our Certificate of Incorporation and to those
limitations prescribed by law and contractual restrictions. Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the
holders of our common stock will be entitled to share equally, identically and ratably in any dividends that the Board may determine to issue from time to
time.
Liquidation Rights
Upon liquidation, dissolution or winding up, all holders of our common stock are entitled to participate pro rata in our assets available for distribution,
subject to applicable law and the rights, if any, of the holders of any class of preferred stock then outstanding.
Other Rights and Preferences
Under the terms of our Certificate of Incorporation and Bylaws, holders of our common stock have no preemptive rights, conversion rights or subscription
rights, and there are no redemption or sinking fund provisions applicable to our common stock. The rights, preferences and privileges of the holders of our
common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that the Board may
designate and issue in the future. Our Certificate of Incorporation and Bylaws do not restrict the ability of a holder of our common stock to transfer his, her
or its shares of common stock. All shares of our common stock currently outstanding are fully paid and non-assessable.
Transfer Agent
The transfer agent for our common stock is Broadridge Corporate Issuer Solutions, Inc.
Exchange Listing
Our common stock is listed on NYSE American under the symbol “XTNT.”
Anti-Takeover Effects of Certain Provisions of our Certificate of Incorporation, Bylaws, the Investor Rights Agreement and the Lead Investor
Agreement, Our Status as a Controlled Company and under the DGCL
Anti-takeover provisions in our Certificate of Incorporation, Bylaws, the Investor Rights Agreement and the Lead Investor Agreement, our status as a
controlled company and under the DGCL may discourage or prevent a change in control, even if such a sale could be beneficial to our stockholders.
Certificate of Incorporation and Bylaws
Our Certificate of Incorporation and Bylaws contain the following anti-takeover provisions that may have an anti-takeover effect of delaying, deferring or
preventing a change in control of Xtant:
● We have shares of common stock and preferred stock available for issuance without stockholder approval. The existence of unissued and
unreserved common stock and preferred stock may enable the Board to issue shares to persons friendly to current management or to issue
preferred stock with terms that could render more difficult or discourage a third-party attempt to obtain control of us by means of a merger, tender
offer, proxy contest or otherwise, thereby protecting the continuity of our management.
● Shares of our common stock do not have cumulative voting rights in the election of directors, so our stockholders holding a majority of the shares
of common stock outstanding will be able to elect all of our directors.
● Special meetings of the stockholders may be called only by the Board, the Chair of the Board or the Chief Executive Officer.
● The Board may adopt, alter, amend or repeal our Bylaws without stockholder approval.
● Unless otherwise provided by law, any newly created directorship or any vacancy occurring on the Board for any cause may be filled by the
affirmative vote of a majority of the remaining members of the Board, even if such majority is less than a quorum, and any director so elected
shall hold office until the expiration of the term of office of the director whom he or she has replaced or until his or her successor is elected and
qualified.
● Prior to July 26, 2030, fixing the number of directors at more than seven directors requires the approval of at least 75% of our directors then
holding office.
● The affirmative vote of the holders of at least two-thirds of the voting power of the then outstanding shares of our capital stock entitled to vote
generally in the election of directors, voting together as a single class, is required to amend or repeal the provisions of our Certificate of
Incorporation related to the amendment of our Bylaws, the Board and our stockholders as well as the general provisions of our Certificate of
Incorporation.
● Stockholders must follow advance notice procedures to submit nominations of candidates for election to the Board at an annual or special meeting
of our stockholders, including director election contests subject to the Securities and Exchange Commission’s universal proxy rules, and must
follow advance notice procedures to submit other proposals for business to be brought before an annual meeting of our stockholders.
● Unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware, (or, if the Court of Chancery of the State of
Delaware does not have subject matter jurisdiction, a state court located within the State of Delaware or, if no state court located within the State
of Delaware has subject matter jurisdiction, the federal district court for the District of Delaware), will be the exclusive forum for (i) any
derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer
or other employee to us or our stockholders, (iii) any action asserting a claim arising under any provision of the DGCL, our Certificate of
Incorporation or our Bylaws, or (iv) any action asserting a claim governed by the internal-affairs doctrine; provided, however, that unless we
consent in writing to an alternative forum, the federal district courts of the United States of America shall be, to the fullest extent permitted by
applicable law, the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as
amended.
Investor Rights Agreement
We are party to an Investor Rights Agreement, which includes certain provisions that may have an anti-takeover effect of delaying, deferring or preventing
a change in control of Xtant. The Investor Rights Agreement includes director nomination rights, which provide that so long as the Ownership Threshold
(as defined in the Investor Rights Agreement) is met, OrbiMed Royalty Opportunities II, LP and ROS Acquisition Offshore LP (collectively, the Investors)
are entitled to nominate such individuals to the Board constituting a majority of the directors. In addition, under the Investor Rights Agreement, so long as
the Ownership Threshold is met, certain matters require the approval of the Investors to proceed with such a transaction, including without limitation, the
sale, transfer or other disposition of assets or businesses of Xtant or its subsidiaries with a value in excess of $250,000 in the aggregate during any fiscal
year (other than sales of inventory or supplies in the ordinary course of business, sales of obsolete assets (excluding real estate), sale-leaseback transactions
and accounts receivable factoring transactions).
Lead Investor Agreement
In connection with our 2022 private placement, we entered into the Lead Investor Agreement with Stavros G. Vizirgianakis, as the lead investor of the 2022
private placement, pursuant to we agreed to provide certain director nomination rights to Mr. Vizirgianakis. Pursuant to the terms of the Lead Investor
Agreement, we expanded the size of our Board by one position and elected Mr. Vizirgianakis as a director to fill the vacancy created as a result of the
increase, effective upon completion of the first closing of the 2022 private placement. In addition, we elected Mr. Vizirgianakis as Chair of the Board,
effective upon completion of the first closing. The director nomination rights set forth in the Lead Investor Agreement will terminate on the earlier of (i) the
date on which Mr. Vizirgianakis ceases to hold at least 75% of the shares of our common stock to be purchased by him in the 2022 private placement; (ii)
October 7, 2024; or (iii) upon written notice of Mr. Vizirgianakis to Xtant.
Controlled Company Status
We are a “controlled company” as defined in section 801(a) of the NYSE American Company Guide because more than 50% of the combined voting power
of all of our outstanding common stock is beneficially owned by OrbiMed Advisors LLC. Our status as a controlled company may have an anti-takeover
effect of delaying, deferring or preventing a change in control of Xtant.
Section 203 of the DGCL
We have elected to be subject to Section 203 of the DGCL, and we are prohibited from engaging in any business combination with any interested
stockholder for a period of three years after the date that such stockholder became an interested stockholder, with the following exceptions:
● before such date, the Board approved either the business combination or the transaction that resulted in the stockholder becoming an interested
stockholder;
● upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least
85% of the voting shares outstanding at the time the transaction began, excluding for purposes of determining the voting shares outstanding (but
not the outstanding voting shares owned by the interested stockholder) those shares owned (i) by persons who are directors and also officers and
(ii) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer; or
● on or after such date, the business combination is approved by the Board and authorized at an annual or special meeting of the stockholders, and
not by written consent, by the affirmative vote of at least 66-2/3% of the outstanding voting shares that are not owned by the interested
stockholder.
In general, Section 203 of the DGCL defines business combination to include the following:
● any merger or consolidation involving the company and the interested stockholder;
● any sale, transfer, pledge or other disposition of 10% or more of the assets of the company involving the interested stockholder;
● subject to certain exceptions, any transaction that results in the issuance or transfer by the company of any shares of the company to the interested
stockholder;
● any transaction involving the company that has the effect of increasing the proportionate share of the shares or any class or series of shares of the
company beneficially owned by the interested stockholder; or
● the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits by or through the
company.
In general, by reference to Section 203 of the DGCL, an “interested stockholder” is an entity or person who, together with the person’s affiliates and
associates, beneficially owns, or within three years prior to the time of determination of interested stockholder status owned, 15% or more of the
outstanding voting shares of the company.
Exhibit 10.13
[Employee – Performance Stock Units]
NOTICE OF PERFORMANCE STOCK UNIT GRANT UNDER THE
XTANT MEDICAL HOLDINGS, INC. 2023 EQUITY INCENTIVE PLAN
Xtant Medical Holdings, Inc., a Delaware corporation (the “Company”), pursuant to the Xtant Medical Holdings, Inc. 2023 Equity Incentive Plan
(as may be amended from time to time, the “Plan”), hereby grants to the individual named below (the “Participant”) the number of performance stock units,
a form of Restricted Stock Units (as defined in the Plan) and Performance Awards (as defined in the Plan), set forth below (collectively, the “Performance
Stock Units”). The Performance Stock Units are subject to all of the terms and conditions set forth in this Notice of Performance Stock Unit Grant (this
“Grant Notice”), in the Performance Stock Unit Award Agreement attached hereto (the “Award Agreement”), and in the Plan, all of which are incorporated
herein in their entirety. Capitalized terms not otherwise defined herein will have the meaning set forth in the Plan. This Performance Stock Unit award grant
has been made as of the grant date indicated below, which shall be referred to as the “Grant Date.”
Participant:
Grant Date:
[Insert Participant Name]
[Insert Grant Date]
Threshold Potential Payout:
50% of the Target Potential Payout
Target Potential Payout:
[Insert Target Number of Shares] shares of Common Stock, subject to adjustment as provided in the Plan
Maximum Potential Payout:
200% of the Target Potential Payout
Performance Goal:
Relative Total Stockholder Return, as described in Award Agreement
Performance Period:
January 1, 2024 – December 31, 2026
* * * * *
The Participant must accept this Performance Stock Unit grant by executing this Grant Notice in the space provided below and returning
such original execution copy to the Company or otherwise indicating affirmative acceptance of the Performance Stock Unit grant electronically
pursuant to procedures established by the Company and/or its third party administrator. The undersigned Participant acknowledges that he or
she has received a copy of this Grant Notice, the Award Agreement, the Plan and the Plan Prospectus. As an express condition to the grant of the
Performance Stock Units hereunder, the Participant agrees to be bound by the terms of this Grant Notice, the Award Agreement and the Plan.
The Participant has read carefully and in its entirety the Award Agreement and specifically the acknowledgements in Section 11.9 thereof. This
Grant Notice, the Award Agreement and the Plan set forth the entire agreement and understanding of the Company and the Participant with
respect to the grant, vesting and administration of this Performance Stock Unit award and supersede all prior agreements, arrangements, plans
and understandings. This Grant Notice (which includes the attached Award Agreement) may be executed in two counterparts each of which will
be deemed an original and both of which together will constitute one and the same instrument.
XTANT MEDICAL HOLDINGS, INC.
PARTICIPANT
* * * * *
By:
Title:
[Name of Officer]
[Title of Officer]
[Name of Participant]
PERFORMANCE STOCK UNIT AWARD AGREEMENT
Pursuant to the Notice of Performance Stock Unit Grant (the “Grant Notice”) to which this Performance Stock Unit Award Agreement (this
“Agreement”) is attached and which Grant Notice is included in and part of this Agreement, and subject to the terms of this Agreement and the Xtant
Medical Holdings, Inc. 2023 Equity Incentive Plan (as may be amended from time to time, the “Plan”), Xtant Medical Holdings, Inc., a Delaware
corporation (the “Company”), and the Participant named in the Grant Notice (the “Participant”) agree as follows:
1. Incorporation of Plan; Definitions. The provisions of the Plan are hereby incorporated herein by reference. Except as otherwise expressly set forth herein,
this Agreement will be construed in accordance with the provisions of the Plan and any capitalized terms not otherwise defined in this Agreement or in the
Grant Notice will have the same meanings as set forth in the Plan. The provisions of this Agreement will be interpreted as to be consistent with the Plan
and any ambiguities in this Agreement will be interpreted by reference to the Plan. In the event that any provision of this Agreement is not authorized by or
is inconsistent with the terms of the Plan, the terms of the Plan will prevail. Pursuant to and in accordance with the terms of the Plan, the Committee will
have final authority to interpret and construe the Plan and this Agreement and to make any and all determinations thereunder, and its decision will be final,
binding and conclusive upon the Participant and his or her legal representatives in respect of any questions arising under the Plan or this Agreement. A
copy of the Plan and the Plan Prospectus have been delivered to the Participant together with this Agreement.
2. Grant of Performance Stock Units. The Company hereby grants to the Participant a target number of Performance Stock Units, as set forth in the Grant
Notice, subject to adjustment as provided in this Agreement and the Plan, and each of which, once vested and earned pursuant to this Agreement, will be
settled in one (1) share of Common Stock, subject to the terms, conditions, restrictions and adjustments set forth herein and in the Plan. The Performance
Stock Units will not accrue or be paid any Dividend Equivalents.
3. Performance and Time-Based Vesting; Determination of Amount of Earned Performance Stock Units.
3.1 Performance and Time-Based Vesting. Except as otherwise provided in this Section 3, Section 6 of this Agreement, the Plan or an Individual
Agreement, the actual number of Performance Stock Units that will be eligible to vest will be determined based on the achievement of the Company’s Total
Stockholder Return (“TSR”) versus the Peer Companies (as defined in Section 3.2 of this Agreement), as measured over the three-year performance period
set forth in the Grant Notice (the “Performance Period”). Any Performance Stock Units that become eligible to vest after satisfaction of the applicable TSR
goals with respect to the Performance Period are referred to herein as the “Earned Performance Stock Units.” In order to vest in any Earned Performance
Stock Units, the Participant must remain an Employee (as defined in the Plan) or a Consultant (as defined in the Plan) through the Certification Date (as
defined in the Plan).
3.2 Performance Goal: Relative Company TSR Versus Benchmark Companies. The number of Earned Performance Stock Units will be
determined based on the level of achievement of TSR by the Company during the Performance Period, as compared to the TSR achieved by the companies
comprising the Benchmark Companies. For purposes of this Agreement, the “Benchmark Companies” shall mean the 72 companies listed on Exhibit A
attached hereto, provided that a company shall be removed from the list of Benchmark Companies to the extent the stock of such company is not publicly
traded on an established stock exchange or national market system at the end of the Performance Period.
1
3.3 Determination of Amount of Earned Performance Stock Units. The percentage of the target Performance Stock Units, as set forth in the Grant
Notice (the “Target Performance Stock Units”), that become Earned Performance Stock Units (if any) will be determined by the percentage derived from
the table below, which percentage depends on the percentile ranking of the Company’s TSR in relation to the TSR of each of the Benchmark Companies.
To the extent that the Company’s TSR results for the Performance Period fall between any levels set forth in the table below, the percentage of applicable
Target Performance Stock Units that will become Earned Performance Stock Units with respect to the Performance Period will be determined based on
linear interpolation using the Company TSR percentile rank amount in the table that is greater than but closest to the Company’s results and the amount in
the table that is less than but closest to the Company’s results, and their corresponding percentages. For example and the avoidance of doubt, if the
percentile ranking of the Company’s TSR in relation to the TSR of the Benchmark Companies for the Performance Period is 67.5%, then 170% of the
applicable Target Performance Stock Units for the Performance Period will become Earned Performance Stock Units. This is determined by interpolating
on a linear basis between the TSR Percentile Rank levels of 65% and 70% and their corresponding percentages of attainment of 160% and 180%.
Company TSR Percentile Rank in Relation to Benchmark Companies
for Performance Period
<25%
25%
30%
35%
40%
45%
50%
55%
60%
65%
70%
75%
80%
85%
90%
95%
100%
Earned Performance Stock Units as a Percentage of Target
Performance Stock Units(1)
0%
50%
60%
70%
80%
90%
100%
120%
140%
160%
180%
200%
200%
200%
200%
200%
200%
(1) If TSR is negative, the number of Earned Performance Stock Units will be capped at 100% of the number of Target Performance Stock Units.
For purposes of the TSR calculations, the following rules shall apply. The beginning and ending prices for the Company’s Common Stock and
each stock of the Benchmark Companies shall be the average closing stock price during the thirty (30) calendar days ending on December 31, 2023 and the
last thirty (30) calendar days of the Performance Period, respectively. The prices for the Company’s Common Stock and each stock of the Benchmark
Companies will be adjusted for stock dividends, stock splits, spin-offs and other corporate changes having a similar effect.
All determinations regarding TSR shall be made by the Committee in its sole discretion and all such determinations shall be final and binding on
all parties. For the avoidance of doubt, the Committee may make equitable adjustments to the TSR calculations with respect to the Company and each of
the Benchmark Companies to account for changes in the capitalization of each such entity. Target Performance Stock Units, if any, will be deemed to have
become Earned Performance Stock Units as of the date on which the Committee has certified in writing as to the level of achievement of the TSR goal.
This certification shall be made no later than sixty (60) days following the end of the Performance Period (the date of such certification with respect to the
Performance Period, the “Certification Date”).
2
Any Target Performance Stock Units that fail to become Earned Performance Stock Units on the Certification Date related to the Performance
Period will terminate on the Certification Date for no consideration. Notwithstanding the foregoing, the number of Earned Performance Stock Units arising
from achievement of the TSR goal may not result in more than the Maximum Potential Payout subject to this Award Agreement becoming Earned
Performance Stock Units.
4. Settlement; Issuance of Common Stock. Earned Performance Stock Units will be converted to whole shares of Common Stock (no fractional shares will
be issued) which the Company will issue and deliver to the Participant (either by delivering one or more certificates for such shares or by entering such
shares in book entry form in the name of the Participant or depositing such shares for the Participant’s benefit with any broker with which the Participant
has an account relationship or the Company has engaged to provide such services under the Plan, as determined by the Company in its sole discretion)
within seventy four (74) days following the end of the Performance Period, except to the extent that shares of Common Stock are withheld to pay tax
withholding obligations pursuant to Section 8 of this Agreement or the Participant has properly elected to defer income that may be attributable to such
Earned Performance Stock Units under a Company deferred compensation plan or arrangement.
5. Committee Discretion.
5.1 Adjustment Events. As provided in Section 9.6 of the Plan, any evaluation of performance by the Committee may include or exclude any of
the following events that occurs during the Performance Period: (a) items related to a change in accounting principles; (b) items relating to financing
activities; (c) expenses for restructuring or productivity initiatives; (d) other non-operating items; (e) items related to acquisitions; (f) items attributable to
the business operations of any entity acquired by the Company during the Performance Period; (g) items related to the disposal of a business or segment of
a business; (h) items related to discontinued operations that do not qualify as a segment of a business under applicable accounting standards; (i) items
attributable to any stock dividend, stock split, combination or exchange of stock occurring during the Performance Period; (j) any other items of significant
income or expense which are determined to be appropriate adjustments; (k) items relating to unusual or extraordinary corporate transactions, events or
developments; (l) items related to amortization of acquired intangible assets; (m) items that are outside the scope of the Company’s core, on-going business
activities; (n) items related to acquired in-process research and development; (o) items relating to changes in tax laws; (p) items relating to major licensing
or partnership arrangements; (q) items relating to asset impairment charges; (r) items relating to gains or losses for litigation, arbitration and contractual
settlements; (s) foreign exchange gains and losses; or (t) items relating to any other unusual or nonrecurring events or changes in applicable laws,
accounting principles or business conditions. In addition, the Committee may amend or modify the vesting criteria (including any Performance Goals or
Performance Period) of the Performance Stock Units based in whole or in part on the financial performance of the Company (or any Subsidiary or division,
business unit, station, service group, region, territory or other sub-unit thereof) in recognition of unusual or nonrecurring events (including the events
described above) affecting the Company or the financial statements of the Company or of changes in applicable laws, regulations or accounting principles,
whenever the Committee determines that such adjustments are appropriate in order to prevent unintended dilution or enlargement of the benefits or
potential benefits intended to be made available under the Performance Stock Units. The determination of the Committee as to the foregoing adjustments, if
any, will be final, conclusive and binding on the Grantee.
3
5.2 Discretion. The Committee may decide, in its absolute discretion, to accelerate the vesting on the balance, or some lesser portion of the
balance, of the Performance Stock Units at any time. If so accelerated, the Performance Stock Units will be considered to have vested as of the date
specified by the Committee. If Participant is a U.S. taxpayer, the payment of shares of Common Stock vesting pursuant to this Section 5.2 shall in all cases
be paid at a time or in a manner that ensures the Performance Stock Units are exempt from, or comply with, Section 409A of the Code. The prior sentence
may be superseded in a future agreement or amendment to this Award Agreement only by direct and specific reference to such sentence.
6. Effect of Termination of Employment or Service.
6.1 Effect of Termination of Employment or Other Service Other Than Death or Disability. Except as otherwise provided in an Individual
Agreement, as of the date of termination of the Participant’s employment or other service with the Company or one of its Subsidiaries or Affiliates, in
either case, for any reason other than death or Disability of the Participant, then the Participant shall forfeit his or her rights to receive the shares of
Common Stock subject to the Performance Stock Units that have not vested pursuant to Section 3, 5 or 7 of this Agreement and been issued as of the date
the Participant’s employment or other service with the Company or one of its Subsidiaries or Affiliates terminates.
6.2 Effect of Termination of Employment or Other Service Due to Death or Disability. If the Participant dies or his or her employment or other
service with the Company or one of its Subsidiaries or Affiliates is terminated by reason of his or her Disability while he or she is employed or providing
other service to the Company or one of its Subsidiaries or Affiliates within one (1) year of the Grant Date, the Participant shall forfeit his or her rights to
receive the shares of Common Stock subject to the Performance Stock Units that have not vested pursuant to Section 3, 5, 6.1 or 7 of this Agreement as of
the date the Participant’s employment or other service with the Company or one of its Subsidiaries or Affiliates terminates. If the Participant dies or his or
her employment or other service with the Company or one of its Subsidiaries or Affiliates is terminated by reason of his or her Disability while he or she is
employed by or providing other service to the Company or one of its Subsidiaries or Affiliates, in each case one (1) year or more after the Grant Date, the
Performance Stock Units will become immediately vested with respect to that number of underlying shares of Common Stock subject to the Performance
Stock Units the rights to which would have vested based on the assumption that the Performance Goal was satisfied at the target level, prorated for the
number of full months of the Participant’s employment or other service during the Performance Period and such vested Performance Stock Units shall be
settled in shares of Common Stock as provided in Section 4 of this Agreement. The Participant shall forfeit his or her rights to receive all of the remaining
shares of Common Stock subject to the Performance Stock Units that have not vested.
6.3 Effect of Change in Employee/Consultant Status. The change in the Participant’s status from that of an Employee to that of a Consultant will,
for purposes of this Agreement, be deemed to result in a termination of such Participant’s employment with the Company or one of its Subsidiaries or
Affiliates, unless the Committee otherwise determines in its sole discretion. The change in the Participant’s status from that of a Consultant to that of an
Employee will not, for purposes of this Agreement, be deemed to result in a termination of such Participant’s service as a Consultant, and such Participant
will thereafter be deemed to be an Employee for purposes of this Agreement. Unless the Committee otherwise determines in its sole discretion, a
Participant’s employment or other service will, for purposes of this Agreement, be deemed to have terminated on the date recorded on the personnel or
other records of the Company or one of its Subsidiaries or Affiliates for which the Participant provides employment or other service, as determined by the
Committee in its sole discretion based upon such records. Notwithstanding the foregoing, if payment of the Performance Stock Units is subject to Section
409A of the Code and payment is triggered by a termination of the Participant’s employment or other service, such termination must also constitute a
“separation from service” within the meaning of Section 409A of the Code, and any change in employment status that constitutes a “separation from
service” under Section 409A of the Code will be treated as a termination of employment or termination of other service, as the case may be.
4
6.4 Effect of Actions Constituting Cause or Adverse Action; Forfeiture or Clawback. The Performance Stock Units are subject to the forfeiture
provisions set forth in Section 13.5 of the Plan, including those applicable if the Participant is determined by the Committee to have taken any action that
would constitute Cause or an Adverse Action and any forfeiture or clawback requirement under Applicable Law or any policy adopted from time to time by
the Company.
7. Effect of Change in Control. Except as otherwise provided in an Individual Agreement between the Company and the Participant, if a Change in Control
(as defined in an Individual Agreement between the Participant and the Company or if there is no such Individual Agreement or if it does not define
Change in Control, then as defined in the Plan) occurs while the Participant is employed by or providing services to the Company or any Subsidiary and
before the last day of the Performance Period, the following rules will apply:
(a) A number of Performance Stock Units will become Earned Performance Stock Units as of the date of the Change in Control (the “Change in
Control Date”) by treating the Change in Control Date as the last date of the Performance Period, and determining the degree of attainment of the TSR goal
with respect to the Performance Period based on the standard terms set forth above, provided that the ending price for the Company’s Common Stock for
purposes of this calculation will be equal to the Transaction Value Per Share, as defined below.
(b) 100% of the Earned Performance Stock Units outstanding on the Change in Control Date will vest on the Change in Control Date if these
Performance Stock Units are not continued, assumed or substituted with equivalent awards (with such adjustments as may be required or permitted by
Section 4.4 of the Plan) by the surviving or successor organization (or a parent or subsidiary thereof) (the “Successor”) and such Earned Performance Stock
Units shall be settled in shares of Common Stock as provided in Section 4 of this Agreement as if the end of the Performance Period was amended to be the
Change in Control Date. A substitute equivalent award must (i) have a value at least equal to the value of the Performance Stock Units being substituted;
(ii) be the same type of award as the Performance Stock Units being substituted; (iii) be earned to the extent earned at the time of and as a result of the
Change in Control and have the same service-based condition through the end of the Performance Period; and (iv) have other terms and conditions
(including vesting and effect of termination within one (1) year following a Change in Control) that are not less favorable to the Participant than the terms
and conditions of the Performance Stock Units being substituted, in each case, as determined by the Committee (as constituted prior to the Change in
Control) in its sole discretion. If the Performance Stock Units are continued, assumed or substituted by the Successor and within one (1) year following a
Change in Control the Participant (i) is terminated by the Successor (or an Affiliate thereof) without Cause or (ii) the Participant resigns for Good Reason
(as defined below), the Earned Performance Stock Units will vest and such vested Earned Performance Stock Units will be converted to Common Stock
immediately thereafter as set forth in Section 4 of this Agreement and in the Plan as of the termination or resignation. For purposes of this Section 7(b),
“Good Reason” means as defined in an Individual Agreement between the Participant and the Company but only if and to the extent such Good Reason
constitutes “good reason” under Treas. Reg. Section 1.409A-1(n), or if there is no such Individual Agreement or if it does not define Good Reason, Good
Reason means the assignment to the Participant of any duties materially inconsistent in any respect with the Participant’s position (including a material
negative change regarding the Participant’s status, offices, titles or reporting requirements), authority, duties or responsibilities, or any other action by the
Company which results in a material diminution in such position, authority, duties or responsibilities (but not occurring solely as a result of the Company’s
ceasing to be a publicly traded entity) existing immediately prior to the date of the Change in Control, excluding for this purpose an isolated, insubstantial
and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Participant;
provided, however, “Good Reason” will not be deemed to exist unless (a) written notice of termination on account thereof is given by the Participant to the
Company no later than sixty (60) days after the time at which the event or condition purportedly giving rise to Good Reason first occurs or arises; (b) if
there exists (without regard to this clause (b)) an event or condition that constitutes Good Reason, the Company will have thirty (30) days from the date
notice of such a termination is given to cure such event or condition and, if the Company does so, such event or condition will not constitute Good Reason
hereunder and (c) if not cured, the Participant must resign from employment for a Good Reason event or condition within sixty (60) days following the last
day of the Company’s cure period. Any good faith determination of “Good Reason” made by the Committee will be conclusive. The Participant’s mental or
physical incapacity following the occurrence of an event described in above clauses will not affect the Participant’s ability to terminate employment for
Good Reason.
5
(c) Any Performance Stock Units that fail to become Earned Performance Stock Units in connection with a Change in Control will terminate as of
the Change in Control Date for no consideration.
(d) For purposes of this Award Agreement, “Transaction Value Per Share” means the sum of the value of all consideration that is distributable with
respect to one share of Common Stock (factoring in the aggregate exercise price of outstanding stock options and warrants where such exercise price is not
included in the value of consideration distributable to holders of capital stock in such Change in Control), assuming that all “milestone” or other
“contingent consideration” that is eligible to be received by the holders of the Company’s capital stock is deemed earned and paid out at the maximum level
of achievement as of the date of such Change in Control, as such value is determined by the Board in good faith at the time of the Change in Control.
8. Section 409A. If any shares of Common Stock shall be issuable with respect to the Performance Stock Units as a result of the Participant’s “separation
from service” at such time as the Participant is a “specified employee” within the meaning of Section 409A of the Code, then no shares shall be issued,
except as permitted under Section 409A of the Code, prior to the earlier of (i) the date immediately after the end of the six-month period following the
Participant’s “separation from service”, or (ii) the Participant’s death. Payment of amounts under this Agreement (by issuance of shares of Common Stock
or otherwise) is intended to comply with the requirements of Section 409A of the Code, and this Agreement shall in all respects be administered and
construed to give effect to such intent. The Committee in its sole discretion may accelerate or delay the distribution of any payment under this Agreement
to the extent allowed under Section 409A of the Code.
9. Rights of Participant.
9.1 Employment or Other Service. Nothing in this Agreement will interfere with or limit in any way the right of the Company or any Subsidiary to
terminate the employment or service of the Participant at any time, nor confer upon the Participant any right to continue employment or service with the
Company or any Subsidiary.
9.2 Rights as a Stockholder. The Participant will have no rights as, or privileges of, a stockholder of the Company, with respect to shares of
Common Stock covered by the Performance Stock Units unless and until the Participant becomes the holder of record of such shares of Common Stock
issued in settlement of the Performance Stock Units (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company). The Performance Stock Units will not accrue or be paid any Dividend Equivalents.
6
9.3 Restrictions on Transfer. Except pursuant to testamentary will or the laws of descent and distribution or as otherwise expressly permitted by
the Plan, no right or interest of the Participant in the Performance Stock Units prior to the vesting, issuance or settlement of the Performance Stock Units
will be assignable or transferable, or subjected to any lien, during the lifetime of the Participant, either voluntarily or involuntarily, directly or indirectly, by
operation of law or otherwise. Any attempt to transfer, assign or encumber the Performance Stock Units other than in accordance with this Agreement and
the Plan will be null and void and the Performance Stock Units for which the restrictions have not lapsed will be forfeited and immediately returned to the
Company.
10. Withholding Taxes. The Company is entitled to (a) withhold and deduct from future wages of the Participant (or from other amounts that may be due
and owing to the Participant from the Company or a Subsidiary), or make other arrangements for the collection of, all amounts the Company reasonably
determines are necessary to satisfy any and all federal, foreign, state and local withholding and employment related tax requirements attributable to the
Performance Stock Units, or (b) require the Participant promptly to remit the amount of such withholding to the Company before taking any action,
including issuing any shares of Common Stock, with respect to the Performance Stock Units. The Committee may, in its sole discretion and upon terms and
conditions established by the Committee, permit or require the Participant to satisfy, in whole or in part, any withholding or employment related tax
obligation in connection with the settlement of the Performance Stock Units by withholding shares of Common Stock issuable upon settlement of the
Performance Stock Units. When withholding shares of Common Stock for taxes is effected under this Agreement and the Plan, it will be withheld only up
to an amount based on the maximum statutory tax rates in the Participant’s applicable tax jurisdiction or such other rate that will not trigger a negative
accounting impact on the Company.
11. Miscellaneous.
11.1 Governing Law. The validity, construction, interpretation, administration and effect of this Agreement and any rules, regulations and actions
relating to this Agreement will be governed by and construed exclusively in accordance with the laws of the State of Delaware, notwithstanding the
conflicts of laws principles of any jurisdictions.
11.2 Interpretation. Any dispute regarding the interpretation of this Agreement will be submitted by the Participant or by the Company forthwith
to the Committee for review. The resolution of such a dispute by the Committee will be final and binding on all parties.
11.3 Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement
will inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement will be binding
upon the Participant and his or her heirs, executors, administrators, successors and assigns.
11.4 Notices. All notices, requests or other communications provided for in this Agreement must be made, if to the Company, to Xtant Medical
Holdings, Inc., Attn: Chief Financial Officer, 664 Cruiser Lane, Belgrade, MT 59714, and if to the Participant, to the last known mailing address of the
Participant contained in the records of the Company. All notices, requests or other communications provided for in this Agreement must be made in writing
either (a) by personal delivery, (b) by facsimile or electronic mail with confirmation of receipt, (c) by mailing in the United States mails or (d) by express
courier service. The notice, request or other communication will be deemed to be received upon personal delivery, upon confirmation of receipt of
facsimile or electronic mail transmission or upon receipt by the party entitled thereto if by United States mail or express courier service; provided, however,
that if a notice, request or other communication sent to the Company is not received during regular business hours, it will be deemed to be received on the
next succeeding business day of the Company.
7
11.5 Electronic Delivery and Acceptance. The Company may, in its sole discretion, deliver any documents related to the Performance Stock Units
by electronic means or request the Participant’s consent to participate in the Plan by electronic means. The Participant hereby consents to receive all
applicable documentation by electronic delivery and to participate in the Plan through an on-line system established and maintained by the Company or a
third party vendor designated by the Company.
11.6 Other Laws. The Company will have the right to refuse to issue to the Participant or transfer any shares of Common Stock subject to the
Performance Stock Units if the Company acting in its absolute discretion determines that the issuance or transfer of such shares might violate any
Applicable Law.
11.7 Investment Representation. The Participant hereby represents and covenants that (a) any share of Common Stock acquired upon the
settlement of the Performance Stock Units will be acquired for investment and not with a view to the distribution thereof within the meaning of the
Securities Act of 1933, as amended (the “Securities Act”), unless such acquisition has been registered under the Securities Act and any applicable state
securities laws; (b) any subsequent sale of any such shares will be made either pursuant to an effective registration statement under the Securities Act and
any applicable state securities laws, or pursuant to an exemption from registration under the Securities Act and such state securities laws; and (c) if
requested by the Company, the Participant will submit a written statement, in form satisfactory to the Company, to the effect that such representation (x) is
true and correct as of the date of issuance of any shares of Common Stock hereunder or (y) is true and correct as of the date of any sale of any such share,
as applicable. As a further condition precedent to the delivery to the Participant of any shares of Common Stock subject to the Performance Stock Units,
the Participant will comply with all regulations and requirements of any regulatory authority having control of or supervision over the issuance or delivery
of the shares and, in connection therewith, will execute any documents which the Company will in its sole discretion deem necessary or advisable.
11.8 Non-Negotiable Terms. The terms of this Agreement and the Performance Stock Units are not negotiable, but the Participant may refuse to
accept the Performance Stock Units by notifying the Company’s Chief Financial Officer in writing within thirty (30) day after the Grant Date set forth in
the Grant Notice.
11.9 Acknowledgement by the Participant. In accepting the Performance Stock Units, the Participant hereby acknowledges that:
(a) The Plan is established voluntarily by the Company, it is discretionary in nature, and it may be modified, amended, suspended or
terminated by the Company at any time, unless otherwise provided in the Plan.
(b) The grant of the Performance Stock Units is voluntary and occasional and does not create any contractual or other right to receive
future awards of Performance Stock Units, or benefits in lieu of Performance Stock Units, even if Performance Stock Units have been granted
repeatedly in the past.
(c) All decisions with respect to future Performance Stock Unit award grants, if any, will be at the sole discretion of the Company.
(d) The Participant is voluntarily participating in the Plan.
8
(e) The award of Performance Stock Units is an extraordinary item that does not constitute compensation of any kind for services of any
kind rendered to the Company, and which is outside the scope of the Participant’s employment contract, if any.
(f) The grant of Performance Stock Units is not part of normal or expected compensation or salary for any purposes, including, but not
limited to, calculating any severance, resignation, termination, redundancy, end of service payments, bonuses, long-service, pension or retirement
benefits or similar payments and in no event should be considered as compensation for, or relating in any way to, past services for the Company or
any Subsidiary.
(g) The Performance Stock Units or this Agreement will not be interpreted to form an employment contract with the Company or any
Subsidiary.
(h) The future value of the shares of Common Stock subject to the Performance Stock Units is unknown and cannot be predicted with
certainty and if the Performance Stock Units vest and the shares of Common Stock become issuable in accordance with the terms of this
Agreement, the value of those shares of Common Stock may increase or decrease.
(i) In consideration of the grant of the Performance Stock Units, no claim or entitlement to compensation or damages shall arise from
termination of the Performance Stock Units or diminution in value of the Performance Stock Units or shares of Common Stock acquired upon
settlement of the Performance Stock Units resulting from termination of employment by the Company (for any reason whatsoever and whether or
not in breach of applicable labor laws) and the Participant hereby irrevocably releases the Company and its Subsidiaries from any such claim that
may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, then, by acceptance of the
Performance Stock Units, the Participant shall be deemed irrevocably to have waived his or her entitlement to pursue such claim.
(j) Except as otherwise provided in an Individual Agreement, in the event of termination of the Participant’s employment with the
Company (whether or not in breach of local labor laws), the Participant’s right to receive the Performance Stock Units and vest in the Performance
Stock Units under the Plan, if any, will terminate effective as of the date of termination of his or her active employment as determined in the sole
discretion of the Committee and will not be extended by any notice of termination of employment or severance period provided to the Participant
by contract or practice of the Company or any Subsidiary or mandated under local law and the Committee will have the sole discretion to
determine the date of termination of the Participant’s active employment for purposes of the Performance Stock Units.
(k) Neither the Company nor any Subsidiary is providing any tax, legal or financial advice, nor is the Company or any Subsidiary making
any recommendations regarding the Participant’s participation in the Plan, acceptance of the Performance Stock Units, acquisition of shares of
Common Stock upon settlement of the Performance Stock Units or any sale of such shares.
(l) The Participant has been advised to consult with his or her own personal tax, legal and financial advisors regarding his or her
participation in the Plan before taking any action related to the Plan.
* * * * *
9
1. Omnicell, Inc.
2. AtriCure, Inc.
3. NovoCure Limited
4. STAAR Surgical Company
5. RxSight, Inc.
6. UFP Technologies, Inc.
7. LeMaitre Vascular, Inc.
8. Embecta Corp.
9. Avanos Medical, Inc.
10. Paragon 28, Inc.
11. SI-BONE, Inc.
12. Varex Imaging Corporation
13. Treace Medical Concepts, Inc.
14. Nevro Corp.
15. OrthoPediatrics Corp.
16. Artivion, Inc.
17. Pulse Biosciences, Inc.
18. Atrion Corporation
19. CVRx, Inc.
20. OraSure Technologies, Inc.
21. IRadimed Corporation
22. Surmodics, Inc.
23. Orthofix Medical Inc.
24. Pulmonx Corporation
25. Silk Road Medical, Inc.
26. ZimVie Inc.
27. Cerus Corporation
28. Zynex, Inc.
29. Sanara MedTech Inc.
30. Tactile Systems Technology, Inc.
31. Bioventus Inc.
32. Orchestra BioMed Holdings, Inc.
33. AngioDynamics, Inc.
34. Utah Medical Products, Inc.
35. Tandem Diabetes Care, Inc.
36. Senseonics Holdings, Inc.
37. Semler Scientific, Inc.
EXHIBIT A
Benchmark Companies
38. AxoGen, Inc.
39. Accuray Incorporated
40. Outset Medical, Inc.
41. NeuroPace, Inc.
42. Sight Sciences, Inc.
43. Butterfly Network, Inc.
44. Zomedica Corp.
45. ClearPoint Neuro, Inc.
46. TELA Bio, Inc.
47. Myomo, Inc.
48. Stereotaxis, Inc.
49. FONAR Corporation
50. Inogen, Inc
51. KORU Medical Systems, Inc.
52. Electromed, Inc.
53. Delcath Systems, Inc.
54. Apyx Medical Corporation
55. Kewaunee Scientific Corporation
56. Asensus Surgical, Inc.
57. Neuronetics, Inc.
58. Hyperfine, Inc.
59. Cutera, Inc.
60. enVVeno Medical Corporation
61. Vicarious Surgical Inc.
62. Lucid Diagnostics Inc.
63. Beyond Air, Inc.
64. Pro-Dex, Inc.
65. HeartBeam, Inc.
66. Cytosorbents Corporation
67. Accelerate Diagnostics, Inc.
68. VolitionRx Limited
69. Rockwell Medical, Inc.
70. Eargo, Inc.
71. Milestone Scientific Inc.
72. Vivani Medical, Inc.
1
INDEMNIFICATION AGREEMENT
Exhibit 10.14
This Indemnification Agreement (“Agreement”) is made as of _______________ by and between Xtant Medical Holdings, Inc., a Delaware
corporation (the “Company”), and _______________, a resident of the State of _______________ (“Indemnitee”). This Agreement supplements any and
all previous Agreements between the Company and Indemnitee covering the subject matter of this Agreement. Any conflict between this and any other
agreement shall be construed in favor of indemnification.
RECITALS
WHEREAS, highly competent persons have become more reluctant to serve publicly-held corporations as directors and officers unless they are
provided with adequate protection through insurance or adequate indemnification or both against inordinate risks of claims and actions against them arising
out of their service to and activities on behalf of the corporation;
WHEREAS, the Board of Directors of the Company (the “Board”) has determined that, in order to attract and retain qualified individuals, the
Company will attempt to maintain on an ongoing basis, at its sole expense, liability insurance to protect persons serving the Company and its subsidiaries
from certain liabilities. Although the furnishing of such insurance has been a customary and widespread practice among United States-based corporations
and other business enterprises, the Company believes that, given current market conditions and trends, such insurance may be available to it in the future
only at higher premiums and with more exclusions. At the same time, directors, officers, and other persons in service to corporations or business enterprises
are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been
brought only against the Company or business enterprise itself. The Second Amended and Restated Bylaws of the Company (as currently existing and as
may be further amended, the “Bylaws”) require indemnification of the officers and directors of the Company. Indemnitee may also be entitled to
indemnification pursuant to the General Corporation Law of the State of Delaware (the “DGCL”). The Bylaws and the DGCL expressly provide that the
indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and
members of the board of directors, officers and other persons with respect to indemnification;
WHEREAS, the uncertainties relating to such insurance and to indemnification have increased the difficulty of attracting and retaining such
persons;
WHEREAS, the Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of
the Company and its stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the
future;
WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on
behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern
that they will not be so indemnified;
WHEREAS, this Agreement is a supplement to and in furtherance of the Bylaws, and shall not be deemed a substitute therefor, nor to diminish or
abrogate any rights of Indemnitee thereunder;
WHEREAS, Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition
that he or she be so indemnified; and
NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and
agree as follows:
Section 1. Survival. This Agreement shall continue in force after Indemnitee has ceased to serve as an officer or director of the Company, as
provided in Section 14 hereof.
Section 2. Definitions. As used in this Agreement:
(a) References to “agent” shall mean any person who is or was a director, officer, or employee of the Company or a subsidiary of the Company or
other person authorized by the Company to act for the Company, to include such person serving in such capacity as a director, officer, employee, fiduciary
or other official of another corporation, partnership, limited liability company, joint venture, trust or other Enterprise at the request of, for the convenience
of, or to represent the interests of the Company or a subsidiary of the Company.
(b) A “Change in Control” shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:
(i) Acquisition of Stock by Third Party. Any Person (as defined below) is or becomes the Beneficial Owner (as defined below), directly or
indirectly, of securities of the Company representing thirty-three percent (33%) or more of the combined voting power of the Company’s then
outstanding securities unless the change in relative Beneficial Ownership of the Company’s securities by any Person results solely from a
reduction in the aggregate number of outstanding shares of securities entitled to vote generally in the election of directors;
(ii) Change in Board of Directors. During any period of two (2) consecutive years (not including any period prior to the execution of this
Agreement), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a
Person who has entered into an agreement with the Company to effect a transaction described in Sections 2(b)(i), 2(b)(iii) or 2(b) (iv)) whose
election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then
still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority of the members of the Board;
(iii) Corporate Transactions. The effective date of a merger or consolidation of the Company with any other entity, other than a merger or
consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation
continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 51% of the
combined voting power of the voting securities of the surviving entity outstanding immediately after such merger or consolidation and with the
power to elect at least a majority of the board of directors or other governing body of such surviving entity;
(iv) Insolvency. The approval by the stockholders of the Company of a restructuring pursuant to title 11 of the United States Code, a
complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s
assets; and
(v) Other Events. There occurs any other event of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A
of Regulation 14A (or a response to any similar item on any similar schedule or form) promulgated under the Exchange Act (as defined below),
whether or not the Company is then subject to such reporting requirement.
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For purposes of this Section 2(b), the following terms shall have the following meanings:
(A) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.
(B) “Person” shall have the meaning as set forth in Sections 11(d) and 13(d) of the Exchange Act; provided, however, that
Person shall exclude (i) the Company, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the
Company, and (iii) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company.
(C) “Beneficial Owner” shall have the meaning given to such term in Rule 13d-3 under the Exchange Act; provided, however,
that Beneficial Owner shall exclude any Person otherwise becoming a Beneficial Owner by reason of the stockholders of the Company
approving a merger or other transaction of the Company with another entity.
(c) “Corporate Status” describes the status of a person who is or was a director, officer, employee or agent of the Company or of any other
corporation, limited liability company, partnership or joint venture, trust or other Enterprise which such person is or was serving at the request of the
Company.
(d) “Disinterested Director” shall mean a director of the Company who is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee.
(e) “Enterprise” shall mean the Company and any other corporation, limited liability company, partnership, joint venture, trust or other enterprise
of which Indemnitee is or was serving at the request of the Company as a director, officer, trustee, partner, managing member, employee, agent or fiduciary.
(f) “Expenses” shall include all reasonable attorneys’ fees, retainers, court costs, transcript costs, fees of experts and other professionals, witness
fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, any federal, state, local or foreign
taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement, ERISA excise taxes and penalties, and all
other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend,
investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding. Expenses also shall include (i) Expenses incurred in
connection with any appeal resulting from any Proceeding, including without limitation the premium, security for, and other costs relating to any cost bond,
supersedeas bond, or other appeal bond or its equivalent, and (ii) for purposes of Section 12(d) only, Expenses incurred by Indemnitee in connection with
the interpretation, enforcement or defense of Indemnitee’s rights under this Agreement, by litigation or otherwise. The parties agree that for the purposes of
any advancement of Expenses for which Indemnitee has made written demand to the Company in accordance with this Agreement, all Expenses included
in such demand that are certified by affidavit of Indemnitee’s counsel as being reasonable shall be presumed conclusively to be reasonable. Expenses,
however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.
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(g) “Independent Counsel” shall mean a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither
presently is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than
as Independent Counsel with respect to other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to
a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the
applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an
action to determine Indemnitee’s rights under this Agreement. The Company agrees to pay the reasonable fees and expenses of the Independent Counsel
referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto.
(h) The term “Proceeding” shall include any threatened, pending or completed action, suit, claim, counterclaim, cross claim, arbitration,
mediation, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding,
whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative, legislative, or investigative (formal or informal)
nature, including any appeal therefrom, in which Indemnitee was, is or will be involved as a party, potential party, non-party witness or otherwise by reason
of the fact that Indemnitee is or was a director or officer of the Company, by reason of any action taken by Indemnitee (or a failure to take action by
Indemnitee) or of any action (or failure to act) while acting pursuant to Indemnitee’s Corporate Status, in each case whether or not serving in such capacity
at the time any liability or Expense is incurred for which indemnification, reimbursement, or advancement of Expenses can be provided under this
Agreement. If the Indemnitee believes in good faith that a given situation may lead to or culminate in the institution of a Proceeding, this shall be
considered a Proceeding under this paragraph.
(i) Reference to “other Enterprise” shall include employee benefit plans; references to “fines” shall include any excise tax assessed with respect to
any employee benefit plan; references to “serving at the request of the Company” shall include any service as a director, officer, employee or agent of the
Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the best interests of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in manner “not opposed to the best interests of the Company” as referred to in this
Agreement.
Section 3. Indemnity of Indemnitee. The Company agrees to hold harmless and indemnify the Indemnitee to the fullest extent permitted by law, as
such may be amended from time to time. In furtherance of the foregoing indemnification, and without limiting the generality thereof:
(a) Indemnity in Third-Party Proceedings. The Company shall hold harmless and indemnify Indemnitee in accordance with the provisions of this
Section 3(a) if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding, other than a Proceeding by or in the right of the
Company to procure a judgment in its favor. Pursuant to this Section 3(a), Indemnitee shall be indemnified to the fullest extent permitted by applicable law
against all Expenses, judgments, fines and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection
with or in respect of such Expenses, judgments, fines and amounts paid in settlement) actually and reasonably incurred by Indemnitee or on his behalf in
connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the Company and, in the case of a criminal Proceeding had no reasonable cause to believe that his conduct was unlawful.
The parties hereto intend that this Agreement shall provide to the fullest extent permitted by law for indemnification in excess of that expressly permitted
by statute, including, without limitation, any indemnification provided by the Certificate of Incorporation, the Bylaws, vote of its stockholders or
disinterested directors or applicable law.
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(b) Indemnity in Proceedings by or in the Right of the Company. The Company shall hold harmless and indemnify Indemnitee in accordance with
the provisions of this Section 3(b) if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding by or in the right of the
Company to procure a judgment in its favor, including but not limited to derivative claims asserted by creditors or shareholders of the Company or asserted
by others. Pursuant to this Section 3(b), Indemnitee shall be indemnified to the fullest extent permitted by applicable law against all Expenses actually and
reasonably incurred by him or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests of the Company. No indemnification for Expenses shall be made under this
Section 3(b) in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court to be liable to the Company, unless
and only to the extent that the Delaware Court (as hereinafter defined) or any court in which the Proceeding was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification.
(c) Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provisions of this Agreement, to the
fullest extent permitted by applicable law and to the extent that Indemnitee is a party to (or a participant in) and is successful, on the merits or otherwise, in
any Proceeding or in defense of any claim, issue or matter therein, in whole or in part, the Company shall indemnify Indemnitee against all Expenses
actually and reasonably incurred by him in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits
or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses
actually and reasonably incurred by him or on his behalf in connection with or related to each successfully resolved claim, issue or matter to the fullest
extent permitted by law. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by
dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.
Section 4. Indemnification For Expenses of a Witness. Notwithstanding any other provision of this Agreement, to the fullest extent permitted by
applicable law and to the extent that Indemnitee is, by reason of his Corporate Status, a witness or otherwise asked to participate in any Proceeding to
which Indemnitee is not a party, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s
behalf in connection therewith.
Section 5. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or
a portion of Expenses, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to
which Indemnitee is entitled.
Section 6. Additional Indemnification.
(a) Notwithstanding any limitation in Section 3, the Company shall indemnify Indemnitee to the fullest extent permitted by applicable law if
Indemnitee is a party to or threatened to be made a party to any Proceeding (including a Proceeding by or in the right of the Company to procure a
judgment in its favor) against all Expenses, judgments, fines and amounts paid in settlement (including all interest, assessments and other charges paid or
payable in connection with or in respect of such Expenses, judgments, fines and amounts paid in settlement) actually and reasonably incurred by
Indemnitee in connection with the Proceeding.
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(b) For purposes of Section 6(a), the meaning of the phrase “to the fullest extent permitted by applicable law” shall include, but not be limited to:
(i) to the fullest extent permitted by the provision of the DGCL that authorizes or contemplates additional indemnification by agreement,
or the corresponding provision of any amendment to or replacement of the DGCL, and
(ii) to the fullest extent authorized or permitted by any amendments to or replacements of the DGCL adopted after the date of this
Agreement that increase the extent to which a corporation may indemnify its officers and directors.
Section 7. Exclusions. Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any
indemnification payment in connection with any claim made against Indemnitee:
(a) for which payment has actually been made to or on behalf of Indemnitee under any insurance policy or other indemnity provision provided by
the Company, except with respect to any excess beyond the amount paid under any insurance policy or such other indemnity provision; or
(b) for (i) an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the
meaning of Section 16(b) of the Exchange Act (as defined in Section 2(b) hereof) or similar provisions of state statutory law or common law, (ii) any
reimbursement of the Company by the Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by the
Indemnitee from the sale of securities of the Company, as required in each case under the Exchange Act (including any such reimbursements that arise from
an accounting restatement of the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (as amended, the “Sarbanes-Oxley Act”), or the
payment to the Company of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act) or
(iii) any reimbursement of the Company by Indemnitee of any compensation pursuant to any compensation recoupment or clawback policy adopted by the
Board or the Compensation Committee of the Board, including but not limited to any such policy adopted to comply with stock exchange listing
requirements implementing Section 10D of the Exchange Act;
(c) except as provided in Section 12(d) of this Agreement, in connection with any Proceeding (or any part of any Proceeding) initiated by
Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees or
other indemnitees, unless (i) the Board authorized the Proceeding (or any part of any Proceeding) prior to its initiation or (ii) the Company provides the
indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law; or
(d) in any circumstance where such indemnification has been determined to be prohibited by law by a final (not interlocutory) judgment or other
adjudication of a court or arbitration or administrative body of competent jurisdiction as to which there is no further right or option of appeal or the time
within which an appeal must be filed has expired without such filing.
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Section 8. Advances of Expenses. Notwithstanding any provision of this Agreement to the contrary (other than Section 12(d)), the Company shall
advance, to the extent not prohibited by law, the Expenses incurred by Indemnitee in connection with any Proceeding (or any part of any Proceeding) not
initiated by Indemnitee, and such advancement shall be made within thirty (30) days after the receipt by the Company of a statement or statements
requesting such advances from time to time, whether prior to or after final disposition of any Proceeding. Advances shall be unsecured and interest free.
Advances shall be made without regard to Indemnitee’s ability to repay the Expenses and without regard to Indemnitee’s ultimate entitlement to
indemnification under the other provisions of this Agreement. In accordance with Section 12(d), advances shall include any and all reasonable Expenses
incurred pursuing an action to enforce this right of advancement, including Expenses incurred preparing and forwarding statements to the Company to
support the advances claimed. The Indemnitee shall qualify for advances upon the execution and delivery to the Company of this Agreement, which shall
constitute an undertaking providing that the Indemnitee undertakes to repay the amounts advanced (without interest) to the extent that it is ultimately
determined that Indemnitee is not entitled to be indemnified by the Company. No other form of undertaking shall be required other than the execution of
this Agreement. This Section 8 shall not apply to any claim made by Indemnitee for which indemnity is excluded pursuant to Section 7.
Section 9. Procedure for Notification and Defense of Claim.
(a) Indemnitee shall notify the Company in writing of any matter with respect to which Indemnitee intends to seek indemnification or
advancement of Expenses hereunder as soon as reasonably practicable following the receipt by Indemnitee of written notice thereof. The written
notification to the Company shall include a description of the nature of the Proceeding and the facts underlying the Proceeding. To obtain indemnification
under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is
reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification following
the final disposition of such Proceeding. The omission by Indemnitee to notify the Company hereunder will not relieve the Company from any liability
which it may have to Indemnitee hereunder or otherwise than under this Agreement, and any delay in so notifying the Company shall not constitute a
waiver by Indemnitee of any rights under this Agreement, unless, and only to the extent that, the Company did not otherwise learn of such action or
request, as the case may be, and such failure results in forfeiture by the Company of substantial defenses, rights or insurance. The Secretary of the
Company shall, promptly upon receipt of such a request for indemnification, advise the Board in writing that Indemnitee has requested indemnification.
(b) The Company will be entitled to participate in the Proceeding at its own expense, provided that Indemnitee provides signed, written consent to
such participation, which shall not be unreasonably withheld.
(c) Except as otherwise provided below, the Company may, at its option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume defense of the Proceeding, with counsel reasonably satisfactory to Indemnitee, provided that Indemnitee provides
signed, written consent to such assumption, which shall not be unreasonably withheld. Upon the Company delivering to Indemnitee written notice of its
election to assume such defense, and Indemnitee providing signed, written consent thereto, the Company will not be liable to Indemnitee under this
Agreement for any legal or other expenses subsequently incurred by Indemnitee in connection with the defense thereof, except as provided in subsections
9(c)(i)-(iv) below. Indemnitee shall have the right to employ separate counsel in such Proceeding but the fees and expenses of such counsel incurred after
notice from the Company of its assumption of the defense thereof, and Indemnitee’s signed, written consent thereto, shall be at the expense of Indemnitee
unless (i) the employment of counsel by Indemnitee has been authorized by the Company, (ii) it is reasonably determined at any time before or during the
course of the Proceeding that the use of counsel chosen by the Company to represent Indemnitee would present or presents, as the case may be, such
counsel with an actual or potential conflict, (iii) it is reasonably determined at any time before or during the course of the Proceeding that the use of counsel
chosen by the Company to represent Indemnitee would be or is, as the case may be, precluded under the applicable standards of professional conduct then
prevailing, or (iv) the Company shall not in fact have employed counsel to assume the defense of such Proceeding, or fails to continue to retain such
counsel to assume the defense of such Proceeding, in each of which cases the fees and expenses of Indemnitee’s separate counsel shall be at the expense of
the Company.
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(d) The Company shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any action or claim
effected without its prior written consent, which shall not be unreasonably withheld. The Company shall be permitted to settle any action except that it shall
not settle any action or claim in any manner that would impose any expenses, losses, liabilities, judgments, fines, or penalties (whether civil or criminal,)
on Indemnitee, including without limitation a prohibition against Indemnitee serving as an officer or a director of a listed company, without Indemnitee’s
prior written consent.
Section 10. Procedure Upon Application for Indemnification.
(a) Upon written request by Indemnitee for indemnification pursuant to Section 9(a), a determination, if required by applicable law, with respect to
Indemnitee’s entitlement thereto shall be made in the specific case: (i) if a Change in Control shall have occurred, by Independent Counsel in a written
opinion to the Board, a copy of which shall be delivered to Indemnitee; or (ii) if a Change in Control shall not have occurred, (A) by a majority vote of the
Disinterested Directors, even though less than a quorum of the Board, (B) by a committee of Disinterested Directors designated by a majority vote of the
Disinterested Directors, even though less than a quorum of the Board, (C) if there are no such Disinterested Directors or, if such Disinterested Directors so
direct, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee or (D) if so directed by the Board, by the
stockholders of the Company; and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten (10)
days after such determination. Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee’s
entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information
which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such
determination. Any costs or Expenses (including attorneys’ fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or
entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and
the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom. The Company promptly will advise Indemnitee in writing with respect
to any determination that Indemnitee is or is not entitled to indemnification, including a description of any reason or basis for which indemnification has
been denied.
(b) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 10(a) hereof, the
Independent Counsel shall be selected as provided in this Section 10(b). If a Change in Control shall not have occurred, the Independent Counsel shall be
selected by the Board, and the Company shall give written notice to Indemnitee advising him of the identity of the Independent Counsel so selected. If a
Change in Control shall have occurred, the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be
made by the Board, in which event the preceding sentence shall apply), and Indemnitee shall give written notice to the Company advising it of the identity
of the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within ten (10) days after such written notice
of selection shall have been given, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection; provided, however,
that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel”
as defined in Section 2 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely
objection, the person so selected shall act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so
selected may not serve as Independent Counsel unless and until such objection is withdrawn or the Delaware Court has determined that such objection is
without merit. If, within twenty (20) days after the later of submission by Indemnitee of a written request for indemnification pursuant to Section 9(a)
hereof and the final disposition of the Proceeding, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee
may petition the Delaware Court for resolution of any objection which shall have been made by the Company or Indemnitee to the other’s selection of
Independent Counsel and/or for the appointment as Independent Counsel of a person selected by such court or by such other person as such court shall
designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section
10(a) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 12(a) of this Agreement, Independent Counsel
shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).
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Section 11. Presumptions and Effect of Certain Proceedings.
(a) In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination
shall, to the fullest extent not prohibited by law, presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a
request for indemnification in accordance with Section 9(a) of this Agreement, and the Company shall, to the fullest extent not prohibited by law, have the
burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that
presumption. Neither the failure of the Company (including by its directors or Independent Counsel) to have made a determination prior to the
commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable
standard of conduct, nor an actual determination by the Company (including by its directors or Independent Counsel) that Indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.
(b) Subject to Section 12(e), if the person, persons or entity empowered or selected under Section 10 of this Agreement to determine whether
Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefor, or
if the determination is to be made by Independent Counsel pursuant to Section 10(a) of this Agreement, within sixty (60) days after (i) the Independent
Counsel shall have been selected and not objected to or (ii) all objections to the appointment of a selected Independent Counsel have been resolved by the
Delaware Court or agreement between the Company and Indemnitee, or (iii) the Independent Counsel has been appointed by the Delaware Court or a
person designated to do so by the Delaware Court, the requisite determination of entitlement to indemnification shall, to the fullest extent not prohibited by
law, be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or
an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or
(ii) a prohibition of such indemnification under applicable law; provided, however, that such 60-day period may be extended for a reasonable time, not to
exceed an additional thirty (30) days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith
requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto; and provided, further, that the foregoing
provisions of this Section 11(b) shall not apply if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section
10(a) of this Agreement and if (A) within fifteen (15) days after receipt by the Company of the request for such determination the Board has resolved to
submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within seventy-five (75) days after such
receipt and such determination is made thereat, or (B) a special meeting of stockholders is called within fifteen (15) days after such receipt for the purpose
of making such determination, such meeting is held for such purpose within sixty (60) days after having been so called and such determination is made
thereat.
9
(c) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to
indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was
unlawful.
(d) For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action is based on the
records or books of account of the Enterprise, including financial statements, or on information supplied to Indemnitee by the directors or officers of the
Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the
Enterprise by an independent certified public accountant or by an appraiser or other expert selected with the reasonable care by the Enterprise. The
provisions of this Section 11(d) shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed
to have met the applicable standard of conduct set forth in this Agreement.
(e) The knowledge and/or actions, or failure to act, of any director, officer, trustee, partner, managing member, fiduciary, agent or employee of the
Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.
Section 12. Remedies of Indemnitee.
(a) Subject to Section 12(e), in the event that (i) a determination is made pursuant to Section 10 of this Agreement that Indemnitee is not entitled
to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 8 of this Agreement, (iii) no determination
of entitlement to indemnification shall have been made pursuant to Section 10(a) of this Agreement within ninety (90) days after receipt by the Company of
the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 3, or Section 5 or the last sentence of Section 10(a) of this
Agreement within ten (10) days after receipt by the Company of a written request therefor, (v) payment of indemnification pursuant to Section 3 or 6 of this
Agreement is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification, or (vi) in the event that the
Company or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other
action or Proceeding designed to deny, or to recover from, the Indemnitee the benefits provided or intended to be provided to the Indemnitee hereunder,
Indemnitee shall be entitled to an adjudication by the Delaware Court of his entitlement to such indemnification or advancement of Expenses. Alternatively,
Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the
American Arbitration Association and in such event the Company and Indemnitee agree to fully and finally resolve by such arbitration the matter subject to
the demand for arbitration, and the award of the arbitrator shall be final and binding on both parties and may be enforced in any court having jurisdiction
over the parties hereto. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date
on which Indemnitee first has the right to commence such proceeding pursuant to this Section 12(a); provided, however, that the immediately preceding
clause in this sentence shall not apply in respect of a proceeding brought by Indemnitee to enforce his rights under Section 3(c) of this Agreement. The
Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.
(b) In the event that a determination shall have been made pursuant to Section 10(a) of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 12 shall be conducted in all respects as a de novo trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration
commenced pursuant to this Section 12 the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement of
Expenses, as the case may be.
10
(c) If a determination shall have been made pursuant to Section 10(a) of this Agreement that Indemnitee is entitled to indemnification, the
Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 12, absent (i) a misstatement
by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with
the request for indemnification, or (ii) a prohibition of such indemnification under applicable law.
(d) The Company shall, to the fullest extent not prohibited by law, be precluded from asserting in any judicial proceeding or arbitration
commenced pursuant to this Section 12 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in
any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement. It is the intent of the Company that, to the
fullest extent permitted by law, the Indemnitee not be required to incur legal fees or other Expenses associated with the interpretation, enforcement or
defense of Indemnitee’s rights under this Agreement by litigation, arbitration or otherwise because the cost and expense thereof would substantially detract
from the benefits intended to be extended to the Indemnitee hereunder. The Company shall, to the fullest extent permitted by law, indemnify Indemnitee
against any and all Expenses and, if requested by Indemnitee, shall (within ten (10) days after receipt by the Company of a written request therefor)
advance, to the extent not prohibited by law, such Expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by
Indemnitee for indemnification or advance of Expenses from the Company under this Agreement or under any directors’ and officers’ liability insurance
policies maintained by the Company if, in the case of indemnification, Indemnitee is wholly successful on the underlying claims; if Indemnitee is not
wholly successful on the underlying claims, then such indemnification shall be only to the extent Indemnitee is successful on such underlying claims or
otherwise as permitted by law, whichever is greater.
(e) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement of Indemnitee to indemnification under this
Agreement shall be required to be made prior to the final disposition of the Proceeding.
Section 13. Non-exclusivity; Survival of Rights; Insurance; Subrogation.
(a) The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable law, the Certificate of Incorporation, the Bylaws, any agreement (subject to
Section 17(b) of this Agreement), a vote of stockholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of this Agreement or
of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in
his Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in Delaware law, whether by statute or judicial decision,
permits greater indemnification or advancement of Expenses than would be afforded currently under the Bylaws and this Agreement, it is the intent of the
parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is
intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy
given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise,
shall not prevent the concurrent assertion or employment of any other right or remedy.
11
(b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or
agents of the Enterprise, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage
available for any such director, officer, employee or agent under such policy or policies. If, at the time of the receipt of a notice of a claim pursuant to the
terms hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of such claim or of the
commencement of a Proceeding, as the case may be, to the insurers in accordance with the procedures set forth in the respective policies. The Company
shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such
Proceeding in accordance with the terms of such policies. Nothing in this Section 13 shall be construed to permit the Company to delay advancement of
Expenses or payment of amounts in indemnification, to which Indemnitee is otherwise entitled under this Agreement, because such insurance coverage is
in place and a claim has been made and is pending under such policies of insurance.
(c) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as
are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable (or for which advancement is
provided hereunder) hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract,
agreement or otherwise.
(e) The Company’s obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as
a director, officer, trustee, partner, managing member, fiduciary, employee or agent of any other corporation, limited liability company, partnership, joint
venture, trust, employee benefit plan or other Enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or
advancement of Expenses from such other corporation, limited liability company, partnership, joint venture, trust or other Enterprise.
Section 14. Duration of Agreement. All agreements and obligations of the Company contained herein shall continue during the period Indemnitee
is a director, officer, employee or agent of the Company and thereafter so long as Indemnitee shall be subject to any possible Proceeding or any possible
action to interpret, enforce or defend Indemnitee’s rights under this Agreement by litigation, arbitration or otherwise. The indemnification and advancement
of Expenses rights provided by or granted pursuant to this Agreement shall be binding upon and be enforceable by the parties hereto and their respective
successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business
or assets of the Company), shall continue as to an Indemnitee who has ceased to be a director, officer, employee or agent of the Company or of any other
Enterprise, and shall inure to the benefit of Indemnitee and his spouse, assigns, heirs, devisees, executors and administrators and other legal representatives.
Section 15. Injunctive Relief. The Company, and the Indemnitee agree herein that a monetary remedy for breach of this Agreement, at some later
date, may be inadequate, impracticable and difficult of proof, and further agree that such breach may cause the Indemnitee and the Company irreparable
harm. Accordingly, the parties hereto agree that the parties may enforce this Agreement by seeking injunctive relief and/or specific performance hereof,
without any necessity of showing actual damage or irreparable harm and that by seeking injunctive relief and/or specific performance, they shall not be
precluded from seeking or obtaining any other relief to which they may be entitled. The Company and the Indemnitee further agree that they shall be
entitled to such specific performance and injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions,
without the necessity of posting bonds or other undertaking in connection herewith. The Company and the Indemnitee acknowledge that in the absence of a
waiver, a bond or undertaking may be required by the Chancery Court of the State of Delaware, and they hereby waive any such requirement of such a
bond or undertaking.
12
Section 16. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any
Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be
deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the
fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent
manifested thereby.
Section 17. Enforcement.
(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order
to induce Indemnitee to serve as a director or officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in
serving as a director or officer of the Company.
(b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof, including any
indemnification agreement previously entered into by and between the Indemnitee and the Company; provided, however, that this Agreement is a
supplement to and in furtherance of the Certificate of Incorporation, the Bylaws and applicable law, and shall not be deemed a substitute therefor, nor to
diminish or abrogate any rights of Indemnitee thereunder.
Section 18. Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless expressed in writing
stating the express intent to amend, modify or supplement this Agreement and executed by the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver.
Section 19. Notice by Indemnitee. Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation,
subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification or
advancement of Expenses covered hereunder. The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it
may have to the Indemnitee under this Agreement or otherwise, unless, and only to the extent that, the Company did not otherwise learn of such action or
request, as the case may be, and such failure results in forfeiture by the Company of substantial defenses, rights or insurance.
13
Section 20. Notices. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to
have been duly given if (a) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, on the
date so delivered and receipted for, (b) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so
mailed, (c) dispatched by reputable overnight courier and receipted for by the party to whom said notice or other communication shall have been directed,
on the date receipted for or (d) sent by facsimile transmission, with receipt of oral confirmation that such transmission has been received, on the date of
such transmission:
(a) If to Indemnitee, at the address indicated on the signature page of this Agreement, or such other address as Indemnitee shall provide to the
Company.
(b) If to the Company to
Xtant Medical Holdings Inc.
Attn: _______________________
664 Cruiser Lane
Belgrade, MT 59714
With a copy to:
Fox Rothschild LLP
City Center, Suite 3700
33 South Sixth Street
Minneapolis, MN 55402
Attention: Amy E. Culbert, Esq.
or to any other address as may have been furnished to Indemnitee by the Company.
Section 21. Contribution. To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is
unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by
Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any
claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of
such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving
cause to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with
such event(s) and/or transaction(s).
14
Section 22. Applicable Law and Consent to Jurisdiction. This Agreement and the legal relations between the parties hereto shall be governed by,
and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules, except the provisions of
Section 14(a) providing for arbitration of disputes which shall be governed by, and construed and enforced in accordance with, the Federal Arbitration Act.
Except with respect to any arbitration commenced by Indemnitee pursuant to Section 12(a) of this Agreement, the Company and Indemnitee hereby
irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the
Chancery Court of the State of Delaware (the “Delaware Court”), and not in any other state or federal court in the United States of America or any court in
any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in
connection with this Agreement, (iii) appoint, to the extent such party is not otherwise subject to service of process in the State of Delaware, irrevocably
Corporation Service Company, 251 Little Falls Drive, Wilmington DE 19808 as its agent in the State of Delaware for acceptance of legal process in
connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the
State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to
plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum. The
parties hereto, for purposes only of enforcement of any arbitration award resulting from arbitration under the provisions of Section 12(a), (a) consent to the
personal jurisdiction of the state and federal courts sitting in the State of Delaware, provided such court then also would have subject matter jurisdiction
over such enforcement action, (b) appoint, to the extent such party is not otherwise subject to service of process in the State of Delaware, irrevocably
Corporation Service Company, 251 Little Falls Drive, Wilmington DE 19808 as its agent in the State of Delaware for acceptance of legal process in
connection with any such action to enforce such arbitration award with the same legal force and validity as if served upon such party personally within the
State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in any such federal or Delaware state court, and (v)
waive, and agree not to plead or to make, any claim that any such action or proceeding brought in any such federal or Delaware state court has been
brought in an improper or inconvenient forum.
Section 23. Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed
to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this Agreement.
Section 24. Miscellaneous. Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate. The
headings of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction
thereof.
[Remainder of page intentionally left blank; signature page follows]
15
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first above written.
XTANT MEDICAL HOLDINGS, INC.
INDEMNITEE:
By:
Title:
Address: 664 Cruiser Lane, Belgrade, MT 59714
Address:
16
Entity Name
Bacterin International, Inc.
Surgalign SPV, Inc.
X-spine Systems, Inc.
Xtant Medical, Inc.
RTI Surgical Holdings Luxembourg SARL
Surgalign UK Limited
RTI Surgical – Singapore Pte. Ltd.
Paradigm Spine GmbH
Fourth Dimension Spine GmbH
RTI Surgical GmbH(1)
Pioneer Surgical Technology B.V.(1)
RTI Surgical Australia Pty. Ltd.(1)
Surgalign Spain SL(2)
Paradigm Spine Switzerland AG(3)
Paradigm Spine Austria GmbH(3)
Subsidiaries
Exhibit 21.1
State or Other Jurisdiction of Incorporation or Organization
Nevada
Delaware
Ohio
Delaware
Luxembourg
United Kingdom
Singapore
Germany
Germany
Germany
Netherlands
Australia
Spain
Switzerland
Austria
(1) RTI Surgical GmbH, Pioneer Surgical Technology B.V. and RTI Surgical Australia Pty. Ltd. are wholly owned subsidiaries of RTI Surgical
Holdings Luxembourg SARL and, therefore, are indirectly owned by Xtant Medical Holdings, Inc.
(2) Surgalign Spain SL is a wholly owned subsidiary of Pioneer Surgical Technology B.V. and, therefore, is indirectly owned by Xtant Medical
Holdings, Inc.
(3) Paradigm Spine Switzerland AG and Paradigm Spine Austria GmbH are wholly owned subsidiaries of Paradigm Spine GmbH and, therefore, are
indirectly owned by Xtant Medical Holdings, Inc.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our report dated April 1, 2024, with respect to the consolidated financial statement included in the Annual report of Xtant Medical
Holdings, Inc on Form 10-k for the year ended December 31, 2023. We consent to the incorporation by reference of said report in the Registration
Statements of Xtant Medical Holdings, Inc. on Form S-3 (File Nos. 333-255074, 333-255988, 333-267817, and 333-273169), Form S-1 (File Nos. 333-
224940 and 333-251515) and on Forms S-8 (File Nos. 333-172891, 333-187563, 333-191248, 333-212510, 333-226588, 333-234595, 333-249762, 333-
268052, and 333-273528).
Exhibit 23.1
/s/ GRANT THORNTON LLP
Minneapolis, Minnesota
April 1, 2024
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Xtant Medical Holdings, Inc.’s Registration Statements on Form S-3 (File Nos. 333-255988 and 333-
255074), Form S-1 (File Nos. 333-224940, 333-251515 and 333-267817) and on Form S-8 (File Nos. 333-172891, 333-187563, 333-191248, 333-212510,
333-226588, 333-234595, 333-249762 and 333-268052) of our report dated March 7, 2023, relating to the December 31, 2022 consolidated financial
statements which appears in this Annual Report on Form 10-K.
Exhibit 23.2
/s/ Plante & Moran, PLLC
Denver, Colorado
April 1, 2024
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO EXCHANGE ACT RULES 13a-14(a)/15d-14(a), AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Sean E. Browne, certify that:
1.
I have reviewed this annual report on Form 10-K of Xtant Medical Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: April 1, 2024
By: /s/ Sean E. Browne
Sean E. Browne
President and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO EXCHANGE ACT RULES 13a-14(a)/15d-14(a), AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Scott C. Neils, certify that:
1.
I have reviewed this annual report on Form 10-K of Xtant Medical Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: April 1, 2024
By: /s/ Scott C. Neils
Scott C. Neils
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K for the year ended December 31, 2023 of Xtant Medical Holdings, Inc. (the “Company”), as filed with
the Securities and Exchange Commission on the date hereof (the “Report”), I, Sean E. Browne, President and Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and
belief:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Exhibit 32.1
Company.
April 1, 2024
/s/ Sean E. Browne
Sean E. Browne
President and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K for the year ended December 31, 2023 of Xtant Medical Holdings, Inc. (the “Company”), as filed with
the Securities and Exchange Commission on the date hereof (the “Report”), I, Scott C. Neils, Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Exhibit 32.2
Company.
April 1, 2024
/s/ Scott C. Neils
Scott C. Neils
Chief Financial Officer
(Principal Financial Officer)
Exhibit 97.1
XTANT MEDICAL HOLDINGS, INC.
CLAWBACK POLICY
This Xtant Medical Holdings, Inc. Clawback Policy (this “Policy”) was approved effective as of October 2, 2023 (the “Effective Date”) by the
Compensation Committee (the “Committee”) of the Board of Directors (the “Board”) of Xtant Medical Holdings, Inc. (the “Company”). This Policy is
adopted pursuant to and intended to comply with Section 811 (Erroneously Awarded Compensation) of the NYSE American Company Guide (“NYSE
American”) so long as the Company’s securities are listed on the NYSE American.
Purpose and Policy Statement
The Company is committed to conducting business with integrity in accordance with high ethical standards and in compliance with all applicable laws,
rules and regulations. This includes the Company’s commitment to comply with all laws, rules and regulations applicable to the presentation of the
Company’s financial information to the public and to the recovery of erroneously awarded incentive-based compensation.
As a result, the Committee has adopted this Policy to provide that, in the event the Company is required to prepare an accounting restatement due to the
material noncompliance of the Company with any financial reporting requirement under the securities laws, including any required accounting restatement
to correct an error in previously issued financial statements that is material to the previously issued financial statements, or that would result in a material
misstatement if the error were corrected in the current period or left uncorrected in the current period (each, as applicable, a “Restatement”), the Company
will recover reasonably promptly the amount of any “erroneously awarded incentive-based compensation” “received” by an “executive officer,” in each
case as such terms are defined in this Policy, if and to the extent required by any federal or state law, rule or regulation, or rule, regulation, policy or listing
standard of the Securities and Exchange Commission (“SEC”) or any securities exchange on which the Company’s securities are listed, including without
limitation, Section 811 (Erroneously Awarded Compensation) of the NYSE American Company Guide.
In the event of any change in any federal or state law, rule or regulation, or rule, regulation, policy or listing standard of the SEC or any securities exchange
on which the Company’s securities are listed after the Effective Date, which requires the Company to recover compensation from an executive officer, the
Company will seek recovery under this Policy to the extent required by such laws, rules, regulations or listing standards.
Administration
The Committee has full power, authority, and sole and exclusive discretion to reasonably construe, interpret and administer this Policy. The Committee will
construe, interpret and administer this Policy consistent with Section 811 (Erroneously Awarded Compensation) of the NYSE American Company Guide
and any guidance issued thereunder, the rules and regulations of the SEC, and any other applicable laws, rules or regulations governing the mandatory
recovery of compensation, as such laws, rules or regulations may change, be interpreted or evolve from time to time. All determinations and decisions
made by the Committee will be made in its reasonable discretion and will be final, conclusive and binding on all affected individuals.
The term “Committee” as used in this Policy means the Compensation Committee of the Board, or in the absence of such a committee, a majority of the
“independent directors” (as defined under Section 803(A)(2) of the NYSE American Company Guide) serving on the Board.
Applicability
This Policy applies to all “incentive-based compensation” “received” by a person, in each case as such terms are defined in this Policy:
●
After beginning service as an “executive officer”;
● Who served as an executive officer at any time during the performance period for that incentive-based compensation;
● While the Company has a class of securities listed on NYSE American or another national securities exchange or a national securities association;
and
●
During the three completed fiscal years immediately preceding the date that the Company is required to prepare the Restatement, plus any
transition period (that results from a change in the Company’s fiscal year) within or immediately following those three completed fiscal years as
required under Section 811 (Erroneously Awarded Compensation) of the NYSE American Company Guide; however, a transition period between
the last day of the Company’s previous fiscal year end and the first day of its fiscal year that comprises a period of nine to twelve months would be
deemed a completed fiscal year. The Company’s obligation to recover erroneously awarded incentive-based compensation is not dependent on if
or when the restated financial statements are filed.
For purpose of determining the relevant recovery period, the date that the Company is required to prepare a Restatement is the earlier to occur of: (i) the
date the Company’s Board, a committee of the Board, or the officer or officers of the Company authorized to take such action if Board action is not
required, concludes, or reasonably should have concluded, that the Company is required to prepare a Restatement; or (ii) the date a court, regulator or other
legally authorized body directs the Company to prepare a Restatement.
Executive Officers Covered by Policy
This Policy covers the Company’s current and former executive officers who received erroneously awarded incentive-based compensation regardless of
whether the executive officer committed misconduct or contributed to the error.
The term “executive officer” as used in this Policy means the Company’s:
●
●
president;
principal financial officer;
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●
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●
principal accounting officer (or if there is no such accounting officer, the controller);
any vice-president of the Company in charge of a principal business unit, division or function (such as sales, administration or finance);
any other officer who performs a policy-making function;
any other person who performs similar policymaking functions for the Company; or
executive officers of the Company’s parents or subsidiaries if such individuals perform such policy making functions for the Company.
Policy-making function is not intended to include policy-making functions that are not significant.
Identification of an executive officer for purposes of this Policy would include at a minimum executive officers identified by the Company pursuant to Item
401(b) of SEC Regulation S-K.
Authority and Obligation to Recover Erroneously Awarded Incentive-Based Compensation; Exceptions
In the event of a Restatement, the Company must reasonably promptly recover any “erroneously awarded incentive-based compensation,” as such term is
defined in this Policy, in compliance with this Policy, except to the extent one of the three conditions below is met and the Committee has made a
determination that recovery would be impracticable.
1.
2.
3.
The direct expense paid to a third party to assist in enforcing this Policy would exceed the amount to be recovered and the Company has made a
reasonable attempt to recover any amount of erroneously awarded incentive-based compensation, has documented such reasonable attempt(s) to
recover and provided that documentation to NYSE American before the Committee concludes it would be impracticable to recover any
“erroneously awarded incentive-based compensation.”
Recovery would violate home country law where that law was adopted prior to November 28, 2022, and the Company has obtained an opinion of
home country counsel, acceptable to NYSE American, that recovery would result in such a violation and has provided such opinion to NYSE
American.
Recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to employees of the Company,
to fail to meet the requirements of Section 401(a)(13) or 411(a) of the U.S. Internal Revenue Code and regulations thereunder.
Erroneously Awarded Incentive-Based Compensation
The term “erroneously awarded incentive-based compensation” as used in this Policy means that amount of “incentive-based compensation” received that
exceeds the amount of “incentive-based compensation” that otherwise would have been received had it been determined based on the restated amounts, and
must be computed without regard to any taxes paid.
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For incentive-based compensation based on stock price or total shareholder return, where the amount of erroneously awarded incentive-based
compensation is not subject to mathematical recalculation directly from the information in a Restatement,
●
●
the amount must be based on a reasonable estimate of the effect of the Restatement on the stock price or total shareholder return upon which the
incentive-based compensation was received; and
the Company must maintain documentation of the determination of that reasonable estimate and provide such documentation to the NYSE
American.
The term “incentive-based compensation” as used in this Policy means any compensation that is granted, earned or vested based wholly or in part upon the
attainment of a financial reporting measure.
The term “financial reporting measure” as used in this Policy means measure that are determined and presented in accordance with the accounting
principles used in preparing the Company’s financial statements, and any measures that are derived wholly or in part from such measures. Financial
reporting measures include, without limitation, stock price and total shareholder return, and may include non-GAAP financial measures. A financial
reporting measure need not be presented within the Company’s financial statements or included in an SEC filing to constitute a financial reporting measure
for this purpose.
Incentive-based compensation is deemed “received” as such term is used in this Policy by an executive officer in the Company’s fiscal period during which
the financial reporting measure specified in the incentive-based compensation award is attained, even if the payment or grant of the incentive-based
compensation occurs after the end of that period.
Notwithstanding the generality of the foregoing, “incentive-based compensation” is intended to be interpreted and construed broadly and includes with
respect to any plan that takes into account incentive-based compensation (other than a tax-qualified plan) any amount contributed to a notional account
based on erroneously awarded incentive-based compensation and any earnings accrued to date on that notional account. Such plans include without
limitation long-term disability plans, life insurance plans, supplemental executive retirement plans and other compensation, if it is based on incentive-based
compensation.
For clarity and the avoidance of doubt, “incentive-based compensation” does not include the following:
●
●
●
base salary (other than any base salary increase earned wholly or in part based on the attainment of a financial reporting measure, which increase
is subject to recovery as incentive-based compensation hereunder);
bonuses paid solely at the discretion of the Committee or Board that are not paid from a “bonus pool” that is determined by satisfying a financial
reporting measure performance goal;
bonuses paid solely upon satisfying one or more subjective standards (e.g. demonstrated leadership) and/or completion of a specified employment
period;
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●
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non-equity incentive plan awards earned solely upon satisfying one or more strategic measures (e.g., consummating a merger or divestiture), or
operational measures (e.g., completion of a project); and
equity awards for which the grant is not contingent upon achieving any financial reporting measure performance goal, and vesting is contingent
solely upon completion of a specified employment period and/or attaining one or more non-financial reporting measures.
Method of Recovery
The Committee will determine, in its reasonable discretion, the method for recovering incentive-based compensation hereunder, which may include,
without limitation, any one or more of the following so long as the Committee does not settle for less than the full recovery amount unless the Committee
demonstrates that a full recovery is impracticable:
●
●
●
●
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●
requiring reimbursement of cash incentive-based compensation previously paid;
seeking recovery of any gain realized on the vesting, exercise, settlement, sale, transfer or other disposition of any equity-based awards;
cancelling or rescinding some or all outstanding vested or unvested equity-based awards;
adjusting or withholding from unpaid compensation, deferred compensation or other set-off;
cancelling or setting-off against planned future grants of equity-based awards; and/or
any other method required or authorized by applicable law or contract.
Enforceability
In addition to the adoption of this Policy, the Company will take steps to implement an agreement to this Policy by all current and future executive officers.
In furtherance of the foregoing, each executive officer subject to this Policy is required to sign and return to the Company the Acknowledgement Form
attached hereto as Exhibit A pursuant to which such executive officer will agree to be bound by the terms and comply with this Policy.
Policy Not Exclusive
Any recovery under this Policy is in addition to, and not in lieu of, any other remedies or rights of recovery that may be available to the Company pursuant
to the terms of any other clawback or recovery policy or any similar policy in any employment agreement, incentive or equity compensation plan or award
or other agreement and any other legal rights or remedies available to the Company.
Notwithstanding the generality of the foregoing, to the extent that the requirements under the provisions of Section 304 of the Sarbanes-Oxley Act of 2002
are broader than the provisions in this Policy, the provisions of such law will apply to the Company’s Chief Executive Officer and Chief Financial Officer.
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No Indemnification
The Company will not indemnify or agree to indemnify any executive officer or former executive officer against the loss of erroneously awarded incentive-
based compensation nor will the Company pay or agree to pay any insurance premium to cover the loss of erroneously awarded incentive-based
compensation.
Effective Date
This Policy is effective as of the Effective Date and applies to all incentive-based compensation received by the Company’s current and former executive
officers on or after the Effective Date.
Required Disclosures
The Company will file all disclosures with respect to this Policy in accordance with the requirements of the federal securities laws, including the disclosure
required by the applicable SEC filings and will provide all required SEC and other disclosures regarding this Policy and in the event of a Restatement.
Amendment and Termination
The Committee may amend, modify or terminate this Policy in whole or in part at any time in its sole discretion and may adopt such rules and procedures
that it deems necessary or appropriate to implement this Policy or to comply with Section 811 (Erroneously Awarded Compensation) of the NYSE
American Company Guide and any other applicable laws, rules and regulations.
Successors
This Policy shall be binding and enforceable against all current and former executive officers of the Company and their respective beneficiaries, heirs,
executors, administrators, or other legal representatives.
Adopted by the Compensation Committee
of the Board of Directors of Xtant Medical Holdings, Inc.
Effective as of October 2, 2023
* * * * * *
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XTANT MEDICAL HOLDINGS, INC.
CLAWBACK POLICY
ACKNOWLEDGEMENT FORM
By signing below, the undersigned acknowledges and confirms that the undersigned has received and reviewed a copy of the Xtant Medical Holdings, Inc.
Clawback Policy (the “Policy”).
By signing this Acknowledgement Form, the undersigned acknowledges and agrees that the undersigned is and will continue to be subject to the Policy and
that the Policy will apply both during and after the undersigned’s employment with Xtant Medical Holdings, Inc. and its direct and indirect subsidiaries.
The undersigned further acknowledges and agrees that the Policy will apply without respect to any indemnification arrangement(s) the undersigned has
entered into with Xtant Medical Holdings, Inc. and/or its direct and indirect subsidiaries.
Further, by signing below, the undersigned agrees to abide by the terms of the Policy, including, without limitation, by returning any erroneously awarded
incentive-based compensation (as defined in the Policy) to Xtant Medical Holdings, Inc. and its direct and indirect subsidiaries to the extent required by,
and in a manner permitted by, the Policy.
Signature:
Name:
Date:
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