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Attachment 1
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
___________
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
Date of
Report (Date of earliest event reported): March 30, 2009
ARTHROCARE
CORPORATION
_________________________________________
(Exact
name of registrant as specified in its charter)
|
Delaware
(State
or other jurisdiction of Incorporation)
|
0-027422
(Commission
File Number)
|
94-3180312
(I.R.S.
Employer Identification
Number)
|
|
7500
Rialto Blvd., Building Two, Suite 100
Austin, TX 78735
(Address
of principal executive offices, including zip code)
|
|
(512) 391-3900
(Registrant’s
telephone number, including area code)
Not Applicable
(Former
name or former address, if changed since last report)
|
Check
the appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General
Instruction A.2 below):
o
Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 14e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item
1.01. Amendment to a Material Definitive Agreement.
On April 1, 2009, ArthroCare Corporation
(the “Company”) received a letter (the “Letter”) from the Agent under its credit
agreement dated as of January 13, 2006, as amended, (the “Credit Agreement) with
a syndicate of banks (the “Lenders”) and Bank of America, N.A., as
Administrative Agent, Swing Line Lender and L/C Issuer (the
“Agent”). The Letter notified the Company that as a result of the
existence of certain Events of Default under, and pursuant to Section 8.02 of,
the Credit Agreement, the Administrative Agent, at the request of the Lenders,
terminated the commitments of the Lenders to make additional loans and the Agent
to make credit extensions including letters of credit under the Credit
Agreement, effective as of close of business on March 31, 2009. A
copy of the Letter is
attached hereto as Exhibit
10.73 and is incorporated herein by
reference.
Under previously disclosed waivers to
the Credit Agreement, the Company had agreed not to request draws from the
commitment under the Credit Agreement. The Company does not believe
that this amendment will affect its liquidity either in the short or long
term.
Additionally, while the Letter stated
that neither the Agent nor the Lenders are presently exercising any other
rights, powers, or remedies available to them (which include the right to accelerate
the maturity of the $45 million of indebtedness outstanding under the Credit
Agreement), all such
rights, powers and remedies were expressly reserved.
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
The
information provided herein includes forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934. Statements that
are not historical facts are forward-looking statements. These statements are
based on beliefs and assumptions by management, and on information currently
available to management. Forward-looking statements speak only as of the date
they are made, and the Company undertakes no obligation to update any of them
publicly in light of new information or future events. A number of important
factors could cause actual results to differ materially from those contained in
any forward-looking statement. Examples of these factors include, but
are not limited to: unanticipated accounting issues or audit issues regarding
the financial data for the periods being restated in the Company’s previously
announced restatement; the ability of the Company and its independent registered
public accounting firm to confirm information or data identified in the review
of the Company’s internal controls and the review of insurance billing and
healthcare fraud-and-abuse compliance practices being conducted under the
supervision of the Audit Committee of the Board of Directors (the reviews of
internal controls and insurance reimbursement practices are collectively
referred to herein as the “Reviews”); the likelihood that deficiencies in the
Company’s internal controls constitute material weaknesses in the Company’s
internal control over financial reporting; the impact on the Company’s liquidity
resulting from the Lenders termination of the commitment of each Lender to make
Loans and the Agent to make other credit extensions under the Company’s Credit
Agreement; the Company’s ability to cure or otherwise resolve any Events of
Default under the Credit Agreement; unanticipated issues regarding the Reviews
that prevent or delay the Company’s independent registered public auditing firm
from relying upon the Reviews or that require additional efforts, documentation,
procedures, review or investigation; the response from the Company’s lenders to
the results of the Reviews; the reactions of payors to the results of the review
of insurance billing and healthcare fraud-and-abuse compliance practices; the
Company’s ability to design or improve internal controls to address issues
detected in the Reviews or by management in its reassessment of the Company’s
internal controls; the impact upon the Company’s operations of the Reviews,
legal compliance matters or internal controls, improvement and remediation;
difficulties in controlling expenses, including costs of the Reviews, legal
compliance matters or internal controls review, improvement and remediation; the
Company’s ability to become current in its SEC periodic reporting requirements;
the outcome of pending litigation and the anticipated arbitration proceeding;
the Company’s ability to cure or otherwise resolve any Events of Default under
the Credit Agreement; the results of the investigations being conducted by the
SEC and the United States Attorneys’ offices in Florida and North Carolina; the
impact on the Company of additional civil and criminal investigations by state
and federal agencies and civil suits by private third parties involving the
Company's financial reporting and its previously announced restatement and its
insurance billing and healthcare fraud-and-abuse compliance practices; general
business, economic and political conditions; competitive developments in the
medical devices market; changes in applicable legislative or regulatory
requirements; the Company’s ability to effectively and successfully implement
its financial and strategic alternatives, as well as business strategies, and
manage the risks in its business; and the reactions of the marketplace to the
foregoing.
2
Item 5.02. Departure of Directors or
Certain Officers; Election of Directors; Appointment of Certain Officers,
Compensatory Arrangements of Certain Officers.
Employment Agreement of
Acting President and Chief Executive Officer
On March 30, 2009, ArthroCare Corporation (the “Company”)
entered into an employment agreement with David Fitzgerald, the Company’s Acting President
and Chief Executive Officer. The
following is a brief description of the material terms and conditions of the
Mr. Fitzgerald’s
Employment
Agreement.
Pursuant to the terms of Mr.
Fitzgerald’s Employment Agreement,
Mr. Fitzgerald will be paid a base salary of $480,000 per year, which will
be retroactive to February 18, 2009. The base salary will be
reviewed annually and may be increased by the Company’s Board of Directors or
Compensation Committee (the
“Base Salary”). Mr. Fitzgerald is also eligible for
an annual performance-based bonus (the “Annual Bonus”) that will
include cash (in an amount
up to 75% of the Base
Salary) and equity awards (having, with respect to stock options and stock
appreciation rights, a Black-Scholes value and, with respect to restricted stock
and restricted stock units, underlying shares with a fair market value
on the date of grant of up
to 25% of the Base
Salary). The exact amount and composition of the Annual Bonus will be
determined by the Board of Directors in consultation with Mr. Fitzgerald, based
upon mutually agreed performance objectives, both personal and
corporate.
If Mr. Fitzgerald’s employment is
terminated involuntarily without cause or he resigns due to a constructive
termination of his employment (an “Involuntary Termination”, as defined in Mr.
Fitzgerald’s Employment Agreement) within 24 months after a Change of
Control (as defined in
Mr.
Fitzgerald’s Employment
Agreement), and subject to Mr. Fitzgerald executing and not revoking a
general mutual release of claims in a form acceptable to the Company, Mr.
Fitzgerald shall receive certain severance benefits. Following the
date of such termination, Mr. Fitzgerald shall receive an amount equal to
the sum of (i) Mr. Fitzgerald’s base salary (on a monthly basis) multiplied by
the length of the “Continuation Period,” which in the case of an Involuntary
Termination within 24 months of a Change of Control means, “a duration equal to
two months for each full month of Mr. Fitzgerald’s employment as Acting
President and Chief Executive Officer of the Company, up to a maximum of 24
months,” plus (ii) an
amount equal to the cash portion of Mr. Fitzgerald’s target Annual Bonus for the
fiscal year in which the termination occurs (with it deemed that all performance
goals have been met at
100% of budget or plan)
multiplied by the length of
the Continuation Period,
divided by 12. Such severance payments will be made periodically in
the same amounts and at the same intervals as the payments of base salary were
made immediately prior to termination of employment. In addition,
during the Continuation Period, the Company shall continue to make
available to Mr. Fitzgerald and his spouse and dependents any group health
plans, life insurance plans and other benefit plans and programs of the Company
which were available to such individuals on the date of such termination of
employment to the extent permitted by law and subject to the terms and
conditions of the relevant plan or program. During the Continuation Period, Mr. Fitzgerald will also be
eligible to receive a
payment of $1,500 per
month, which is intended to
reimburse him for the
amount of his premium payment for group health coverage he elects pursuant to the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended (“COBRA”).
3
Additionally, the vesting and
exercisability of all of Mr. Fitzgerald’s outstanding equity awards shall be
automatically accelerated and any transfer or forfeiture restrictions on such
equity awards automatically
lapse as to 100% of the
unvested shares subject thereto at the time of any Change of
Control.
If Mr. Fitzgerald’s employment with the
Company is terminated as a
result of an Involuntary Termination at any time prior to a Change of Control
or after the 24-month period following a Change of Control, then, subject to his
executing and not revoking a general release of claims against the Company, Mr.
Fitzgerald shall be entitled to a lump sum payment equal to the sum of (i)
Mr. Fitzgerald’s base salary (on a monthly basis) multiplied by the
length of the “Continuation Period”, which in the case of an Involuntary
Termination apart from a Change of Control means, “a duration equal to two
months for each full month of Mr. Fitzgerald’s employment as Acting President
and Chief Executive Officer of the Company, up to a maximum of 18 months,”
plus (ii) an amount equal
to the cash portion of Mr. Fitzgerald’s target Annual Bonus for the fiscal year
in which the termination occurs (with it deemed that all performance goals have
been met at 100% of budget or plan) multiplied by the length of the Continuation
Period, divided by
12. In addition, during the Continuation Period the Company shall continue to make
available to Mr. Fitzgerald and his spouse and dependents any group health
plans, life insurance plans and other benefit plans and programs of the Company
which were available to such individuals on the date of such termination of
employment to the extent permitted by law and subject to the terms and
conditions of the relevant plan or program. During the Continuation Period, Mr. Fitzgerald will also be
eligible to receive a
payment of $1,500 per
month, which is intended to
reimburse him for the
amount of his premium payment for group health coverage he elects pursuant to COBRA.
4
In addition to the benefits described
above, Mr. Fitzgerald is also eligible to receive discretionary grants of stock
options and other equity awards including stock appreciation rights, restricted
stock and restricted stock units.
The foregoing description of
Mr.
Fitzgerald’s Employment
Agreement does not purport to be complete and is qualified in its entirety by
reference to the full text of Mr. Fitzgerald’s Employment Agreement, a copy of which
is attached hereto as
Exhibit 10.74 and is incorporated herein by
reference.
Appointment and Employment
Agreement of Chief Financial Officer
On April 2, 2009, ArthroCare Corporation (the
“Company”) announced that Todd Newton was appointed as the Company’s Senior Vice
President and Chief Financial Officer, effective as of April 2,
2009. Mr. Newton
will report directly to David Fitzgerald, the Company’s Acting President and
Chief Executive Officer. There are no relationships between Mr. Newton and the Company or its subsidiaries
that would require disclosure pursuant to Item 404(a) of Regulation
S-K. A copy of the Company’s press release announcing Mr. Newton’s
appointment is attached
hereto as Exhibit 99.1 and is incorporated herein by
reference.
On April 2, 2009, the Company and Mr.
Newton entered into an employment agreement whereby Mr. Newton will serve
as the Company’s Senior Vice President and Chief Financial
Officer. Pursuant to the terms of Mr. Newton’s Employment Agreement,
Mr. Newton will be paid a base salary of $285,000 per year (the “Base
Salary”), which will be reviewed annually and may be increased by the Board of
Directors or Compensation Committee. Mr. Newton is also eligible
for an annual performance-based bonus (the “Annual Bonus”) in an amount up to
60% of the Base Salary.
If Mr. Newton’s employment is
terminated involuntarily without cause or he resigns due to a constructive
termination of his employment (an “Involuntary Termination”, as defined in Mr.
Newton’s Employment Agreement) within 24 months after a Change of Control (as
defined in Mr. Newton’s Employment Agreement), and subject to Mr. Newton
executing and not revoking a general release of claims in a form acceptable to
the Company, Mr. Newton shall receive certain severance
benefits. Following the date of such termination,
Mr. Newton shall receive an amount equal to the sum of (i) Mr. Newton’s
base salary (on a monthly basis) multiplied by the length of the “Continuation
Period,” which in the case of Mr. Newton’s
Involuntary Termination within 24 months of a Change of Control is defined as “a
duration equal to two months for each full month of Mr. Newton’s employment as
Senior Vice President and Chief Financial Officer of the Company, up to a
maximum of 24 months,” plus
(ii) an amount equal to the cash portion of Mr. Newton’s target Annual Bonus for the fiscal year
in which the termination occurs (with it deemed that all performance goals have been met at
100% of budget or plan)
multiplied by the length of
the Continuation Period,
divided by 12. Such severance payments
will be made periodically in the same amounts and at the same intervals as the
payments of Base Salary were made immediately prior to termination of
employment. In addition, during the Continuation Period, the Company
shall continue to make available to Mr. Newton and his spouse and
dependents any group health plans, life insurance plans and other benefit plans
and programs of the Company which were available to such individuals on the date
of such termination of employment to the extent permitted by law and subject to
the terms and conditions of the relevant plan or
program. During
the Continuation Period, Mr. Newton will also be eligible to receive a
payment of $1,500 per month, which is intended to reimburse him for the amount
of his premium payment for group health coverage he elects pursuant to
COBRA.
5
Additionally, the vesting and
exercisability of all of Mr. Newton’s outstanding equity awards shall be
automatically accelerated and any transfer or forfeiture restrictions on such
equity awards automatically lapse as to 50% of the unvested shares subject
thereto at the time of any Change of Control. The vesting and exercisability of
all of Mr. Newton’s outstanding equity awards shall be automatically
accelerated and any transfer or forfeiture restrictions on such equity awards
automatically lapse as to 100% of the unvested shares subject thereto at the
time of any Change of Control that meets the definition of a Hostile Takeover
(as defined in Mr. Newton’s Employment Agreement).
If Mr. Newton’s employment with the Company is
terminated as a result of
an Involuntary Termination at any time prior to a Change of Control
or after the 24-month period following a Change of Control, then, subject to his
executing and not revoking a general release of claims against the Company, Mr.
Newton shall be entitled to a lump sum payment
equal to the sum of (i) Mr. Newton’s base salary (on a monthly basis)
multiplied by the length of the “Continuation Period”, which in the case of Mr. Newton’s
Involuntary Termination apart from a Change of Control is defined as “a duration
equal to two months for each full month of Mr. Newton’s employment as Senior
Vice President and Chief Financial Officer of the Company, up to a maximum of 12
months”, plus (ii) an
amount equal to the cash portion of Mr. Newton’s target Annual Bonus for the fiscal year
in which the termination occurs (with it deemed that all performance goals have been met at
100% of budget or plan)
multiplied by the length of
the Continuation Period,
divided by 12. In addition, during the Continuation Period the Company shall continue to make
available to Mr. Newton and his spouse and dependents any group
health plans, life insurance plans and other benefit plans and programs of the
Company which were available to such individuals on the date of such termination
of employment to the extent permitted by law and subject to the terms and
conditions of the relevant plan or program. During the Continuation Period, Mr.
Newton will also be eligible to receive a
payment of $1,500 per month, which is intended to reimburse him for the amount
of his premium payment for group health coverage he elects pursuant to
COBRA.
Under the terms of Mr. Newton’s
Employment Agreement, Mr. Newton is also eligible to receive discretionary
grants of stock options and other equity awards including stock appreciation
rights, restricted stock and restricted stock units.
The foregoing description of Mr. Newton’s
Employment Agreement does not purport to be complete and is qualified in its
entirety by reference to the full text of Mr. Newton’s Employment Agreement, a
copy of which is attached hereto as Exhibit 10.75 and is incorporated herein by
reference.
In addition to the benefits described in
Mr. Newton’s Employment Agreement, Mr. Newton is eligible to receive benefits
under the Restatement Bonus Plan, a copy of which is attached hereto as Exhibit
10.76 and herein incorporated by
reference. The purpose of the Restatement Bonus Plan is to provide
additional incentive for selected employees to facilitate the process of the
restatement of the Company’s financial statements by providing the opportunity for such employees to
receive the right to receive a bonus in the form of additional options to
purchase shares of the Company’s stock after the date the Company files with the
Securities and Exchange Commission all reports and other materials to evidence
the restatement (the “Restatement Date”). Under the Restatement Bonus Plan, Mr.
Newton has the right to be granted an option to purchase Company stock (the
“Option”) on the date five business days after the Restatement Date (the “Grant
Date”). The number of shares of the Company’s stock subject to the
Option shall be equal to 50% of the Mr. Newton’s Base Salary divided by
the estimated fair value per share of the Company's common stock, as of the
Grant Date, as calculated in accordance with Statement of Financial Accounting
Standards No. 123(R) for purposes of recognizing the amount of stock-based
compensation expense in the Company’s financial statements, rounded down to the
nearest whole share. The Option shall be granted
pursuant to the Company’s Amended and Restated 2003 Incentive Stock Plan (the
“2003 Plan”), and shall have an exercise price per share equal to the fair
market value (as defined in the 2003 Plan) of a share of the Company’s common
stock on the Grant Date. The Option shall be subject to the terms and
conditions of the 2003 Plan and the Company’s standard form of stock option
agreement to evidence grants thereunder, which Mr. Newton must execute as a
condition to receiving the Option.
6
In connection with Mr. Newton’s
employment by the Company, Mr. Newton and the Company entered into an
indemnification agreement with the Company pursuant to which the Company will,
among other things indemnify Mr. Newton in connection with certain proceedings,
a copy of which is attached
hereto as Exhibit 10.77 and is incorporated herein by
reference.
Item
9.01Financial Statements and Exhibits.
(d) Exhibits.
|
Exhibit No.
|
Description
|
|
|
10.73
|
Letter dated April 1, 2009, from
Bank of America, N.A., as Administrative Agent under the Credit Agreement
dated as of January 13, 2006, as amended, by and among ArthroCare
Corporation, the Subsidiaries thereof party thereto, the Lenders party
thereto and Bank of America, N.A., as Administrative Agent, Swing Line
Lender, and L/C Issuer.
|
|
|
10.74
|
Employment Agreement of
David
Fitzgerald
|
|
|
10.75
|
Employment Agreement of Todd
Newton
|
|
|
10.76
|
Restatement Bonus Plan
|
|
|
10.77
|
Indemnification Agreement of Todd
Newton
|
|
|
99.1
|
Press release Dated April 2,
2009
|
7
SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934, as amended, the registrant has duly caused this
report to be signed on its
behalf by the undersigned hereunto duly authorized.
| ARTHROCARE CORPORATION | |||
|
Date:
April 3, 2009
|
By:
|
/s/ David Fitzgerald | |
| David Fitzgerald | |||
| Acting President and Chief Executive Officer | |||
8