This excerpt taken from the MDT 8-K filed Jan 18, 2008.
Credit and Term Loan Facilities
In October 2006, the Company entered into a syndicated credit facility which provided the Company with a five-year, $300,000,000 revolving line of credit, including a $50,000,000 sublimit for the issuance of standby letters of credit, a $25,000,000 sublimit for swing line loans and a $100,000,000 sublimit for multicurrency borrowings. On January 18, 2007, the Company amended the syndicated credit facility and, in conjunction with the acquisition of St. Francis, the Company, together with certain of its subsidiaries, entered into a Credit Agreement to replace and refinance the above-described syndicated credit facility (the Credit Agreement). The credit facilities thereunder were syndicated to a group of lenders (collectively, the Lenders).
The Credit Agreement provides for a $250,000,000 senior secured revolving credit facility (the Revolving Credit Facility), maturing October 20, 2011, which can be expanded to $300,000,000 under certain circumstances. The Revolving Credit Facility includes a $50,000,000 sublimit for the issuance of standby U.S. dollar letters of credit, a $25,000,000 sublimit for U.S. dollar swingline loans and a $100,000,000 sublimit for multicurrency borrowings. In connection with the Revolving Credit Facility, as amended, the Company has capitalized aggregate debt issuance costs of approximately $3,238,000 as of September 30, 2007 which are being amortized over the term of the facility. The Credit Agreement also provided for a $425,000,000 term loan facility maturing seven years from the closing date (the Term Loan Facility and together with the Revolving Credit Facility, the Facility). The Company may terminate or permanently reduce the commitments available under the Revolving Credit Facility and prepay the Term Loan Facility without premium or penalty at any time.
The Facility was used by the Company to finance the acquisition of St. Francis, (the Acquisition) and may be used for general corporate purposes including acquisitions, capital expenditures, working capital and other purposes. In addition to certain initial fees, the Company is obligated to pay a commitment fee of 0.25-0.50% per annum (such range of limits being related to the consolidated leverage ratio of the Company) based on the total revolving commitment available to be drawn, which is payable quarterly in arrears. In January 2007, in connection with the Acquisition, the Company borrowed $425,000,000 under this Facility. In connection with the Term Loan Facility, the Company incurred underwriting fees and expenses of $7,480,000. These costs were classified as a debt discount and were being accreted to interest expense over the life of the Term Loan Facility. Debt issuance costs of approximately $655,000 were capitalized within Other Assets and were subject to amortization over the term of the facility. In February 2007, the Company repaid the outstanding balance of the Term Loan Facility with the proceeds from the Convertible Senior Notes offering and borrowings under the Revolving Credit Facility. As a result of the full repayment of the Term Loan Facility the Company fully amortized the associated debt issuance costs and debt discount of approximately $8,135,000 to interest expense in the three months ended March 31, 2007.
Under the terms of the Companys merger agreement entered into in connection with its acquisition of St. Francis, the revenue-based contingent payments of up to $200,000,000 became due as a result of the Companys proposed Merger with Medtronic. The Company funded $170,000,000 of the $200,000,000 payment to St. Francis security holders through borrowings under the Companys Credit Agreement. In connection with the Companys draw-down in August 2007, the Company entered into Amendment No. 2 to the Credit Agreement with Bank of America, N.A., in its capacity as agent for the Lenders, pursuant to which the Lenders waived any default arising from such payment to St. Francis security holders.
Borrowings under the Revolving Credit Facility bear interest at Base Rate plus 0.25-1.25% or LIBOR plus 1.25-2.25% (such range of limits being related to the consolidated leverage ratio of the Company). Letter of credit fees are based on the LIBOR loan margins.
The Companys obligations under the Facility are collateralized by substantially all of the assets of the Company.
The Credit Agreement contains customary affirmative covenants regarding the Company and its subsidiaries. Upon the occurrence of an event of default under the Credit Agreement, the Lenders could elect to declare all amounts outstanding under the Facility to be immediately due and payable. Events of default under the Credit Agreement include payment defaults, breaches of covenants and bankruptcy events.
The Credit Agreement contains negative covenants which restrict the Company from: (i) incurring liens other than liens incurred pursuant to the Facility and other customary permitted liens; (ii) making investments, other than customary permitted investments and investments subject to certain baskets; (iii) incurring debt other than indebtedness pursuant to the Credit Agreement, subordinated indebtedness, an unsecured convertible note offering, customary permitted indebtedness and indebtedness subject to certain baskets; (iv) entering into mergers and consolidations other than the Acquisition (as defined in the Credit Agreement), acquisitions paid 100% with equity of the Company or acquisitions not exceeding a certain purchase price, where such limitation on price is based on the consolidated senior secured leverage ratio and other limitations; (v) selling assets, subject to certain customary exceptions; (vi) issuing dividends, stock redemptions and other restricted payments; (vii) incurring capital expenditures exceeding a certain threshold; (viii) certain transactions with affiliates; (ix) paying the earnout obligations of the Company incurred in connection with the Acquisition in cash under certain circumstances; (x) permitting the consolidated interest coverage ratio to fall below a certain threshold and the consolidated leverage ratio and the consolidated senior secured leverage ratio to be greater than a certain threshold; (xi) prepaying subordinated indebtedness, other than prepayments pursuant to a refinancing permitted thereunder or if certain requirements are satisfied and (xi) other actions restricted by other customary negative covenants for a facility of this nature.
As a result of the Companys October 26, 2007 proposed settlement with the U.S. Attorneys Office in connection with the investigation into the Companys sales and marketing practices (see Note 10), the Company has recorded a $75,000,000 loss contingency within operations for the three months ended September 30, 2007. As a result, the Companys consolidated leverage ratio exceeded the maximum leverage ratio permitted under the Credit Agreement at September 30, 2007. The Company has accordingly presented the $170,000,000 in outstanding borrowings at September 30, 2007 as a current liability on the accompanying Condensed Consolidated Balance Sheet as of September 30, 2007. In addition, the Company has presented the related debt issuance costs of $3,238,000 as a current asset on the accompanying Condensed Consolidated Balance Sheet as of September 30, 2007. On November 2, 2007, in connection with the closing of the Merger with Medtronic, the outstanding borrowings were repaid in full and the Company terminated the Credit Agreement. As a result of the termination of the Credit Agreement the Company fully amortized the associated debt issuance costs to interest expense during November 2007.
On November 2, 2007, the Company entered into a new Credit Agreement (the New Credit Agreement) with The Bank of Tokyo-Mitsubishi UFJ, Ltd. (the New Lender). The New Credit Agreement provides for a $300,000,000 unsecured revolving credit facility (the New Facility) maturing November 2, 2010. The Company may terminate or permanently reduce the commitments available under the New Facility and prepay the New Facility without premium or penalty at any time.
All amounts due to the New Lender from the Company under the New Credit Agreement whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise, are guaranteed by Medtronic, pursuant to a Guaranty made as of November 2, 2007 by Medtronic to the New Lender.
The New Facility was used to refinance the Companys current Credit Agreement and will also be used to retire other debt obligations of the Company. In addition to certain initial fees, the Company is obligated to pay a commitment fee based on the total revolving commitment.
Each Revolving Loan under the New Credit Agreement shall be, at the Companys request, either an Alternate Base Rate Loan or a Eurodollar Loan. Each Alternate Base Rate Loan accrues interest at a rate per annum equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus ½ of 1%. The Prime Rate is the rate of interest per annum publicly announced from time to time by the Lender as its base rate in effect at its office in New York, New York. Each Eurodollar Loan accrues interest at a rate per annum equal to the LIBO Rate plus 0.185%. The LIBO Rate is the rate appearing on page 3750 of the Moneyline Telerate Markets screen at approximately 11:00 a.m., London time, two business days prior to the commencement of an interest period, as the rate for dollar deposits with a maturity comparable to such interest period.
The New Credit Agreement contains customary representations and warranties of the Company as well as affirmative covenants regarding the Company. Upon the occurrence of an event of default under the New Credit Agreement, the New Lender could elect to declare all amounts outstanding under the New Facility to be immediately due and payable. Events of default under the New Credit Agreement include payment defaults, breaches of covenants, bankruptcy events and a change in control of the Company.