Alphatec Spine, Inc.
Alphatec Holdings, Inc. (Form: 10-Q, Received: 05/05/2009 17:01:47)
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2009

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 000-52024

ALPHATEC HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   20-2463898
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

5818 El Camino Real

Carlsbad, CA 92008

(Address of principal executive offices, including zip code)

(760) 431-9286

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes   ¨     No   x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨   Accelerated filer   x   Non-accelerated filer   ¨   Small reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes   ¨     No   x

As of May 1, 2009, there were 47,534,515 shares of the registrant’s common stock outstanding.

 

 

 


Table of Contents

ALPHATEC HOLDINGS, INC.

QUARTERLY REPORT ON FORM 10-Q

March 31, 2009

Table of Contents

 

         Page
PART I – FINANCIAL INFORMATION

Item 1.

  Financial Statements (Unaudited)    3
  Condensed Consolidated Balance Sheets as of March 31, 2009 and December 31, 2008    3
  Condensed Consolidated Statements of Operations for the three months ended March 31, 2009 and 2008    4
  Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2009 and 2008    5
  Notes to Condensed Consolidated Financial Statements    6

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations    18

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk    26

Item 4.

  Controls and Procedures    27
PART II – OTHER INFORMATION

Item 1.

  Legal Proceedings    27

Item 1A.

  Risk Factors    28

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds    28

Item 3.

  Defaults Upon Senior Securities    28

Item 4.

  Submission of Matters to a Vote of Security Holders    28

Item 5.

  Other Information    28

Item 6.

  Exhibits    28

SIGNATURES

   29

 

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PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

ALPHATEC HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In thousands, except for par value data)

 

     March 31,
2009
    December 31,
2008
 
Assets     

Current assets:

    

Cash and cash equivalents

   $ 10,087     $ 18,315  

Accounts receivable, net

     23,812       18,759  

Inventories, net

     26,952       24,170  

Prepaid expenses and other current assets

     4,418       3,847  

Deferred income tax assets

     411       418  
                

Total current assets

     65,680       65,509  

Property and equipment, net

     27,170       23,093  

Goodwill

     60,068       60,124  

Intangibles, net

     3,475       4,280  

Other assets

     1,840       2,542  
                

Total assets

   $ 158,233     $ 155,548  
                
Liabilities and Stockholders’ Equity     

Current liabilities:

    

Accounts payable

   $ 13,965     $ 10,504  

Accrued expenses

     18,287       16,739  

Deferred revenue

     2,501       1,858  

Current portion of long-term debt

     3,037       2,109  
                

Total current liabilities

     37,790       31,210  

Long-term debt, less current portion

     26,360       26,488  

Other long-term liabilities

     2,033       1,889  

Deferred income tax liabilities

     915       887  

Redeemable preferred stock, $0.0001 par value; 20,000 authorized at March 31, 2009 and December 31, 2008; 3,319 and 3,320 shares issued and outstanding at March 31, 2009 and December 31, 2008, respectively

     23,605       23,605  

Commitments and contingencies

    

Stockholders’ equity:

    

Common stock, $0.0001 par value; 200,000 authorized at March 31, 2009 and December 31, 2008; 47,552 and 47,411 shares issued and outstanding at March 31, 2009 and December 31, 2008, respectively

     5       5  

Additional paid-in capital

     159,023       158,140  

Accumulated other comprehensive income

     1,056       1,495  

Accumulated deficit

     (92,554 )     (88,171 )
                

Total stockholders’ equity

     67,530       71,469  
                

Total liabilities and stockholders’ equity

   $ 158,233     $ 155,548  
                

See accompanying notes to unaudited condensed consolidated financial statements.

 

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ALPHATEC HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except per share amounts)

 

     Three Months Ended March 31,  
     2009     2008  

Revenues

   $ 30,610     $ 23,197  

Cost of revenues

     10,830       7,887  
                

Gross profit

     19,780       15,310  

Operating expenses:

    

Research and development

     2,867       3,204  

In-process research and development

     1,290       1,300  

Sales and marketing

     12,784       10,103  

General and administrative

     5,963       5,564  

Litigation settlement

     —         11,000  
                

Total operating expenses

     22,904       31,171  
                

Operating loss

     (3,124 )     (15,861 )

Other income (expense):

    

Interest income

     34       201  

Interest expense

     (916 )     (178 )

Other income (expense), net

     (261 )     151  
                

Total other income (expense)

     (1,143 )     174  
                

Loss before taxes

     (4,267 )     (15,687 )

Income tax provision

     116       92  
                

Net loss

   $ (4,383 )   $ (15,779 )
                

Net loss per common share:

    

Basic and diluted

   $ (0.09 )   $ (0.34 )
                

Weighted-average shares used in computing net loss per share:

    

Basic and diluted

     46,503       46,001  
                

See accompanying notes to unaudited condensed consolidated financial statements.

 

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ALPHATEC HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

 

     Three Months Ended March 31,  
     2009     2008  

Operating activities:

    

Net loss

   $ (4,383 )   $ (15,779 )

Adjustments to reconcile net loss to net cash used in operating activities:

    

Depreciation and amortization

     2,601       2,035  

Stock-based compensation

     634       769  

Interest expense related to amortization of debt discount and debt issuance costs

     150       —    

In-process research and development paid in stock

     350       650  

Provision for (recoveries from) doubtful accounts

     (25 )     45  

Provision for excess and obsolete inventory

     210       517  

Deferred income taxes

     35       294  

Changes in operating assets and liabilities:

    

Accounts receivable

     (5,381 )     (719 )

Inventories

     (3,189 )     (1,731 )

Prepaid expenses and other current assets

     (629 )     493  

Other assets

     229       (400 )

Accounts payable

     504       190  

Accrued expenses and other

     1,892       (1,688 )

Accrued litigation settlement

     —         11,000  

Deferred revenues

     643       —    
                

Net cash used in operating activities

     (6,359 )     (4,324 )

Investing activities:

    

Proceeds from sale of Noas investment

     383       —    

Purchases of instruments, property and equipment

     (2,892 )     (2,515 )

Sale of certificate of deposit

     —         2,000  
                

Net cash used in investing activities

     (2,509 )     (515 )

Financing activities:

    

Borrowings under lines of credit

     1,940       8,500  

Repayments under lines of credit

     (500 )     (1,869 )

Principal payments on capital lease obligations

     (98 )     (137 )

Principal payments on notes payable

     (498 )     (497 )

Other

     —         22  
                

Net cash provided by financing activities

     844       6,019  

Effect of exchange rate changes on cash and cash equivalents

     (204 )     (119 )
                

Net increase (decrease) in cash and cash equivalents

     (8,228 )     1,061  

Cash and cash equivalents at beginning of period

     18,315       25,843  
                

Cash and cash equivalents at end of period

   $ 10,087     $ 26,904  
                

Supplemental cash flow information:

    

Cash paid for interest

   $ 527     $ 173  

Cash paid for income taxes

   $ 152     $ 278  

Purchase of instruments, property and equipment in accounts payable

   $ 3,144     $ —    

See accompanying notes to unaudited condensed consolidated financial statements.

 

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ALPHATEC HOLDINGS, INC.

NOTES TO CONDENSED CONOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. The Company and Basis of Presentation

The Company

Alphatec Holdings, Inc. (“Alphatec,” “Alphatec Holdings” or the “Company”), through its wholly-owned subsidiary, Alphatec Spine, Inc. (“Alphatec Spine”) is engaged in the development, manufacturing and sale of medical devices for use in spinal surgeries with a focus on providing solutions for products affecting the aging spine. Alphatec Holdings’ principal operating activities are conducted through Alphatec Spine and its wholly owned and consolidated subsidiaries, Nexmed, Inc. (“Nexmed”), a California corporation, Alphatec Pacific, Inc. (“Alphatec Pacific”), a Japanese corporation, and Milverton Limited, a Hong Kong corporation.

Basis of Presentation

The consolidated financial statements include the accounts of Alphatec and Alphatec Spine and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in the condensed consolidated financial statements.

The accompanying condensed balance sheet as of December 31, 2008, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) related to a quarterly report on Form 10-Q. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. The interim financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results for the periods presented. All such adjustments are of a normal and recurring nature. These unaudited consolidated financial statements should be read in conjunction with the audited financial statements included in Alphatec Holdings’ Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed with the SEC on March 4, 2009.

Operating results for the three months ended March 31, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009, or any other future periods.

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. A going concern basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of its liabilities in the normal course of business. Based on the Company’s updated operating plan, management believes that its existing cash and cash equivalents of $10.1 million and available credit of $2.1 million at March 31, 2009 will be sufficient to fund its cash requirements through at least March 31, 2010.

The Company will need to invest in additional working capital and capitalized surgical instruments in order to support its revenue projections through 2009. Should the Company not be able to achieve its revenue forecast and cash collections, and cash consumption starts to exceed forecasted consumption, management will need to reduce its investment in surgical instruments and manage the amount of its inventory down to a lower level that is in line with the decreased sales volumes. If management does not make these adjustments in a timely manner, there could be an adverse impact on the Company’s financial resources.

In December 2008, the Company entered into a Loan and Security Agreement (the “Credit Facility”) with Silicon Valley Bank and Oxford Finance Corporation (the “Lenders”) (See Note 6). In conjunction with the Credit Facility, the Company is required to maintain compliance with individual quarterly measurement of financial covenants, which include a minimum level of revenues and a minimum level of Adjusted EBITDA (a non-GAAP term defined in Note 6). The minimum covenants escalate each quarter during fiscal 2009. In order to meet the financial covenants for 2009, the Company will need to achieve growth over its historical quarterly revenue and earnings levels. The Company’s 2009 board of directors approved operating plan shows that the Company would meet the quarterly financial covenants and management believes that it will be able to achieve this operating plan. However, if the Company is not able to achieve its planned revenue growth or incurs costs in excess of its forecast, it could be in default of the credit facilities. In addition to the financial covenants described above, there are other clauses including subjective clauses that would allow the Lenders to declare the loan immediately due and payable. (See Note 6). Upon the occurrence of an event of default under the Credit Facility, the lenders could elect to declare all amounts outstanding under the under the Credit Facility to be immediately due and payable and terminate all commitments to extend further credit. If the Lenders were to accelerate the repayment of borrowings under the Credit Facility for any reason, the Company may not have sufficient cash on hand to repay the amounts borrowed under the loan agreement.

If the Company is not able to achieve the minimum targeted revenue growth and related improvements in profitability to meet the quarterly covenants or has other unanticipated expenditures, the Company would be required to attempt to renegotiate its lending arrangement and may be required to seek additional capital and/or to substantially reduce discretionary spending, which could have a

 

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material adverse effect on the Company’s ability to achieve its intended business objectives. The Company may seek additional financing, which may include additional debt and/or equity financing or funding through other third party agreements. There can be no assurance that any additional financing will be available on acceptable terms or available at all. Any equity financing may result in dilution to existing stockholders and any debt financing may include restrictive covenants.

Reclassification

Certain prior year balances have been reclassified in the accompanying condensed consolidated financial statements to conform to the current year presentation. In the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2008 filed with the SEC on May 12, 2008, the Company’s operating expenses in Japan were classified as general and administrative expenses. In this Quarterly Report on Form 10-Q, Alphatec separated the Japanese sales and marketing expenses from the general and administrative expenses. This reclassification has no impact upon total operating expenses and net loss, and resulted in the reclassification of $1.0 million of general and administrative expense to sales and marketing expense for the three months ended March 31, 2008.

2. Summary of Significant Accounting Policies

The Company’s significant accounting policies are described in Note 2 to its audited Consolidated Financial Statements for the fiscal year ended December 31, 2008, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 4, 2009. These accounting policies have not significantly changed during the three months ended March 31, 2009.

Recent Accounting Pronouncements

Effective January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements , which establishes a framework for measuring fair value in generally accepted accounting principles, clarifies the definition of fair value within that framework and expands disclosures about the use of fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. However, in February 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) No. 157-2, Effective Date of FASB Statement No. 157 , which deferred the effective date of SFAS No. 157 for one year for non-financial assets and liabilities, except for certain items, such as the Company’scash equivalents and investments, that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The adoption of SFAS No 157 for non-financial assets and non-financial liabilities on January 1, 2009 did not have a material impact on the Company’s consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141(R) (revised 2007), Business Combinations , which replaces SFAS No 141. The statement retains the purchase method of accounting for acquisitions, but requires an acquiring company to measure all assets acquired and liabilities assumed, including contingent considerations and contractual contingencies, at fair value as of the acquisition date. In addition, an acquiring company is required to capitalize in-process research and development and either amortize it over the life of the product, or expense it upon abandonment or impairment. SFAS No. 141(R) also requires expensing of acquisition-related costs as incurred. SFAS No. 141(R) is effective for the Company beginning January 1, 2009 and will apply to business combinations completed on or after that date.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB 51 , which changes the accounting and reporting for minority interests. Minority interests are characterized as non-controlling interests and are reported as a component of equity separate from the parent’s equity. Purchases or sales of equity interests that do not result in a change in control are accounted for as equity transactions. In addition, net income attributable to the non-controlling interest is included in consolidated net income on the face of the income statement. SFAS No. 160 is effective for the Company beginning January 1, 2009. The adoption of SFAS No. 160 did not have a material impact on the Company’s consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities—An amendment of FASB Statement No. 133 , which requires enhanced qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS No. 161 is effective for the Company beginning January 1, 2009. The adoption of SFAS No. 161 did not have a material impact on the Company’s consolidated financial statements.

In April 2008, the FASB issued FSP No. 142-3, Determination of Useful Life of Intangible Assets . FSP No. 142-3 amends the factors that should be considered in developing the renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets . FSP No. 142-3 also requires expanded disclosure related to the determination of intangible asset useful lives. FSP 142-3 is effective for the Company beginning January 1, 2009. The adoption of FSP No. 142-3 did not have a material impact on the Company’s consolidated financial statements.

 

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In April 2008, the FASB issued Emerging Issues Task Force (“EITF”) 07-05, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock . EITF 07-05 provides guidance on determining what types of instruments or embedded features in an instrument held by a reporting entity can be considered indexed to its own stock for the purpose of evaluating the first criteria of the scope exception in paragraph 11(a) of SFAS No. 133. EITF 07-05 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and early application is not permitted. The adoption of
EITF 07-5 did not have a material impact on the Company’s consolidated financial statements.

In May 2008, the FASB issued FSP Accounting Principals Board, (“APB”), Opinion No. 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion , which clarifies that convertible instruments that may be settled in cash are not addressed under APB Opinion No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants . FSP APB No. 14-1 requires the liability and equity components of these types of instruments to be separately accounted for in a manner that will reflect the non-convertible debt interest rate when interest cost is recognized in subsequent periods. FSP APB No. 14-1 is effective for the Company for convertible debt instruments issued on or after January 1, 2009. The Company does not have any instruments that are within the scope of FSP APB No. 14-1. The adoption of FSP APB No. 14-1 did not have a material impact on the Company’s consolidated financial statements.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles , which identifies the sources of accounting principles and provides entities with a framework for selecting the principles used in preparation of financial statements that are presented in conformity with GAAP. SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AICPA Codification of Auditing Standards, AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles . The adoption of SFAS No. 162 is not expected to have a material impact on the Company’s consolidated financial statements.

In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities . FSP EITF 03-6-1 clarifies that share-based payment awards that entitle their holders to receive non-forfeitable dividends or dividend equivalents before vesting should be considered participating securities. The Company does not have grants of restricted stock that contain non-forfeitable rights to dividends. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008 on a retrospective basis. The adoption of EITF 03-6-1 did not have a material impact on the Company’s consolidated financial statements.

3. Balance Sheet Details

Accounts Receivable

Accounts receivable consist of the following (in thousands):

 

     March 31,
2009
    December 31,
2008
 

Accounts receivable

   $ 24,117     $ 19,092  

Allowance for doubtful accounts

     (305 )     (333 )
                

Accounts receivables, net

   $ 23,812     $ 18,759  
                

Inventories

Inventories consist of the following (in thousands):

 

     March 31, 2009    December 31, 2008
     Gross    Reserve for
excess and
obsolete
    Net    Gross    Reserve for
excess and
obsolete
    Net

Raw materials

   $ 2,756    $ —       $ 2,756    $ 1,814    $ —       $ 1,814

Work-in-process

     1,620      —         1,620      1,208      —         1,208

Finished goods

     32,881      (10,305 )     22,576      32,317      (11,169 )     21,148
                                           

Inventories, net

   $ 37,257    $ (10,305 )   $ 26,952    $ 35,339    $ (11,169 )   $ 24,170
                                           

 

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Property and Equipment

Property and equipment consist of the following (in thousands except as indicated):

 

     Useful lives
(in years)
   March 31,
2009
    December 31,
2008
 

Surgical instruments

   4    $ 26,963     $ 23,505  

Machinery and equipment

   7      8,258       8,209  

Computer equipment

   5      2,446       2,446  

Office furniture and equipment

   5      3,030       3,011  

Leasehold improvements

   various      1,951       1,972  

Building

   39      189       204  

Land

   n/a      14       15  

Construction in progress

   n/a      3,100       787  
                   
        45,951       40,149  

Less accumulated depreciation and amortization

        (18,781 )     (17,056 )
                   

Property and equipment, net

      $ 27,170     $ 23,093  
                   

Total depreciation expense was $1.8 million and $1.0 million for the three months ended March 31, 2009 and 2008, respectively.

The Company has assets under capital leases of $3.0 million at both March 31, 2009 and December 31, 2008, respectively. Accumulated depreciation on these assets totaled $2.3 million and $2.2 million at March 31, 2009 and December 31, 2008, respectively. Depreciation expense for these capital leases was $0.1 million, for the three months ended March 31, 2009 and 2008.

Intangible Assets

Intangibles assets consist of the following (in thousands except as indicated):

 

     Useful lives
(in years)
   March 31,
2009
    December 31,
2008
 

Developed product technology

   5    $ 13,700     $ 13,700  

Distribution rights

   3      3,527       3,787  

Supply agreement

   10      225       225  
                   
        17,452       17,712  

Less accumulated amortization

        (13,977 )     (13,432 )
                   

Intangible assets, net

      $ 3,475     $ 4,280  
                   

Total amortization expense was $0.8 million and $1.0 million for the three months ended March 31, 2009 and 2008, respectively.

The future expected amortization expense related to intangible assets as of March 31, 2009 is as follows (in thousands):

 

Year Ending December 31,

    

Remainder of 2009

   $ 2,328

2010

     873

2011

     100

2012

     100

2013

     55

Thereafter

     19
      

Total

   $ 3,475
      

 

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Accrued Expenses

Accrued expenses consist of the following (in thousands):

 

     March 31,
2009
   December 31,
2008

Commissions

   $ 3,223    $ 2,305

Payroll and related

     3,216      3,522

Royalties

     2,738      3,011

Reserve for litigation costs

     2,200      2,200

Deferred rent

     2,151      1,170

Legal

     559      295

Consumption tax

     296      76

Current portion of severance payable

     170      423

Accrued earnout

     —        316

Other

     3,734      3,421
             

Total accrued expenses

   $ 18,287    $ 16,739
             

Deferred Revenues

During the three months ended March 31, 2009, the Company shipped $0.9 million of product to a European distributor, which included extended payment terms and was secured by an irrevocable letter of credit. As a result of offering payment terms greater than the Company’s customary U.S. business terms and operating in a new market in which it has no prior experience, revenues for purchases by this distributor have been deferred until the earlier of either payments becoming due or until cash is received for such purchases. The balance in deferred revenue relating to this distributor as of March 31, 2009 was $0.9 million.

During the three months ended March 31, 2009, the Company shipped $1.0 million of product to a U.S. distributor, that did not have an extensive credit history. As a result of a lack of extensive credit history, revenues for purchases by this distributor have been deferred until cash is received. The balance in deferred revenue relating to this distributor as of March 31, 2009 was $1.6 million.

4. Comprehensive Loss

Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events, including foreign currency translation adjustments. The following table sets forth the computation of comprehensive loss for the three months ended March 31, 2009 and 2008 (in thousands):

 

     Three Months Ended March 31,  
     2009     2008  

Net loss, as reported

   $ (4,383 )   $ (15,779 )

Foreign currency translation adjustment

     (439 )     769  
                

Comprehensive loss

   $ (4,822 )   $ (15,010 )
                

5. License and Developmental Consulting Agreements

OsseoFix Fracture Reduction System License Agreement

On April 16, 2009 the Company and Stout Medical Group LP (“Stout”) amended the license agreement that the parties had entered into in September 2007 (the “License Amendment”) that provides the Company with a worldwide license to develop and commercialize Stout’s proprietary intellectual property related to a treatment for vertebral compression fractures. The effective date of the License Amendment is March 31, 2009. Pursuant to the License Amendment, Stout is entitled to retain all up-front payments that had been previously paid to it. Under the License Amendment, the timing of the minimum royalty payments has been adjusted and Stout’s ability to terminate the License Amendment was revised. Under the original license agreement, the Company’s minimum royalty obligation began in the year ending December 31, 2009. Pursuant to the License Amendment, the minimum royalty obligation is suspended until a licensed product obtains regulatory approval from the United States Food and Drug Administration (the “FDA”). In addition, under the terms of the License Amendment, Stout has the ability to terminate the License Amendment if the Company is not using commercially reasonably efforts to obtain regulatory approval to market and sell a licensed product; provided that the Company has the right to delay such termination in exchange for making certain payments to Stout. If, during the time period when such payments are made, the Company were to make a regulatory filing for the marketing and sale of a licensed product, such termination will be null and void. The other material terms to the license agreement as disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed with the SEC on March 4, 2009 were not changed.

 

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Expandable VBR License and Consulting Agreement

On April 15, 2009, the Company and Stout amended and restated the license agreement that the parties had entered into in March 2008 (the “Amended and Restated License Agreement”) that provides the Company with a worldwide license to develop and commercialize Stout’s proprietary intellectual property related to an expandable interbody/vertebral body replacement device. The effective date of the Amended and Restated License Agreement is March 31, 2009. Pursuant to the Amended and Restated License Agreement, Stout is entitled to retain all up-front payments that had been previously paid to it. Under the Amended and Restated License Agreement, the timing of the minimum royalty payments has been adjusted and Stout’s ability to terminate the Amended and Restated License Agreement was revised. Under the original license agreement, the Company’s minimum royalty obligation began in the year ending December 31, 2010. Pursuant to the Amended and Restated License Agreement, if the Company is required to initiate a clinical trial to obtain clearance from the FDA for a licensed product, the minimum royalty obligation is suspended until such licensed product obtains regulatory approval. In addition, under the terms of the Amended and Restated License Agreement, Stout has the ability to terminate the Amended and Restated License Agreement if the Company has not filed for regulatory approval to market and sell a licensed product within an allotted time period; provided that the Company has the right to delay such termination in exchange for making certain payments to Stout. If, during the time period when such payments are made, the Company were to make a regulatory filing for the marketing and sale of a licensed product, such termination would be null and void. The other material terms to the original license agreement were not changed in the Amended and Restated License Agreement.

Additionally, effective March 31, 2009 the Company and Stout amended and restated the developmental consulting agreement that the parties had entered into in March 2008 (the “Amended and Restated Consulting Agreement”) pursuant to which Stout agreed to provide consulting services related to the development of an expandable interbody/vertebral body replacement device. Pursuant to the Amended and Restated Consulting Agreement, Stout is entitled to retain the 101,944 shares of restricted stock of the Company that the Company had previously issued to Stout. Such restricted stock would become vested upon the attainment of a development milestone. Under the Amended and Restated Consulting Agreement, the timing and amount of consulting fees has been adjusted. Under the original consulting agreement, the Company was obligated to make ten monthly payments of $50,000 to compensate Stout for providing development services. As of the effective date of the Amended and Restated Consulting Agreement, the Company had paid Stout $0.4 million of such consulting fees, and had expensed $0.2 million of such expenses. Pursuant to the Amended and Restated Consulting Agreement, Stout is obligated to return such $0.4 million to the Company, which was received in April 2009. The terms of the Amended and Restated Consulting Agreement call for the Company to pay consulting fees of $20,000 per month for 12 months beginning in July 2009, provided that the agreement is in full force and effect. The other material terms to the original consulting agreement were not changed in the Amended and Restated Consulting Agreement. As the total cash consideration has been reduced to $0.2 million, the Company will record the remaining amount not yet expensed over the expected development period.

OsseoScrew License Agreement

In December 2007, the Company entered into an exclusive license agreement, or the OsseoScrew License Agreement, with Progressive Spinal Technologies LLC (“PST”), that provides the Company with an exclusive worldwide license to develop and commercialize PST’s technology related to a pedicle screw designed to be used for patients that have osteopenic bone or poor bone density. The financial terms of the OsseoScrew License Agreement include: (i) a cash payment payable following the execution of the agreement; (ii) development and sales milestone payments in cash and the Company’s common stock that began to be achieved and paid in 2008; and (iii) a royalty payment based on net sales of licensed products with minimum annual royalties beginning in 2009. The Company recorded an IPR&D charge of $2.0 million in the fourth quarter of 2007 for the initial payment, as the technological feasibility associated with the IPR&D since the final prototype of the device had not been established and no alternative future use exists. The agreement includes milestone payments of $3.5 million consisting of cash and its common stock upon the completion of the biomechanical testing, which may occur in 2009. Furthermore, the agreement includes milestone payments of $2.5 million consisting of cash and the Company’s common stock upon market launch, which may occur in the second half of 2009.

Assignment Agreement with Spine Vision, S.A.

In January 2009, the Company entered into an assignment agreement (the “Patent and Technology Assignment Agreement”) with Spine Vision, S.A (“Spine Vision”) that assigns the Company all rights, title and interests to certain patents and technology of Spine Vision that relate to a stand-alone locking interbody device. The financial terms of the Patent and Technology Assignment Agreement include: (i) an initial payment of $0.5 million; and (ii) a royalty payment based on the net sales of any product that contains the assigned intellectual property. During the three months ended March 31, 2009, the Company recorded an IPR&D charge of $0.5 million for the initial payment, as the technological feasibility associated with the IPR&D had not been established since the final prototype of the device had not been completed, and no alternative future use exists.

 

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License Agreement with Helix Point, LLC

In February 2009, the Company entered into a License Agreement with Helix Point, LLC (the “Helifuse/Helifix License Agreement”) that provides the Company with a worldwide exclusive license (excluding the People’s Republic of China) to develop and commercialize Helix Point’s proprietary intellectual property related to a device for the treatment of spinal stenosis. The financial terms of the Helifuse/Helifix License Agreement include: (i) a cash payment of $250,000 payable following the execution of the Helifuse/Helifix License Agreement; (ii) the issuance of $350,000 of shares of the Company’s common stock following the execution of the Helifuse/Helifix License Agreement; (iii) development and sales milestone payments in cash and the Company’s common stock that could begin to be achieved and paid in 2009; and (iv) a royalty payment based on net sales of licensed products with minimum annual royalties beginning in the year after the first commercial sale of a licensed product. During the three months ended March 31, 2009, the Company recorded an IPR&D charge of $600,000 for the initial cash and stock payment, as the technological feasibility associated with the IPR&D had not been established since the final prototype of the device had not been completed, and no alternative future use exists.

6. Debt

Loan and Security Agreement

In December 2008, the Company entered into the Credit Facility with the Lenders consisting of a $15.0 million term loan and a $15.0 million working capital line of credit. The term loan carries a fixed interest rate of 11.25% with interest payments due monthly but no principal repayment through September 2009. Thereafter, the Company will be required to repay the principal plus interest in 30 equal monthly installments, ending in April 2012. An additional finance charge of $0.8 million is due in April 2012. The finance charge is being accrued to interest expense through April 2012. The Company will pay a prepayment penalty if the loan is repaid prior to maturity. The Company does not currently anticipate repaying the debt early.

The working capital line of credit carries an interest rate equal to the prime rate plus either 2.5% or 2.0%, depending on the Company’s financial performance. Interest only payments are due monthly and the principal is due at maturity in April 2012. As of March 31, 2009 the Company has $2.1 million remaining available to be drawn under the working capital line of credit.

In connection with this Credit Facility, the Company issued warrants to the Lenders to purchase an aggregate of approximately 476,000 shares of the Company’s common stock. The warrants are immediately exercisable and have an exercise price of $1.89 per share and a ten year term. The Company recorded the value of the warrants of $0.9 million as a debt discount. The value of the warrants was determined on the date of grant using the Black-Scholes valuation method with the following assumptions: risk free interest rate of 2.67%, volatility of 60.9%, a ten year term and no dividend yield.

To secure the repayment of any amounts borrowed under this Credit Facility, the Company granted to the Lenders a first priority security interest in all of its assets, other than its intellectual property and its rights under license agreements granting it rights to intellectual property. The Company also agreed not to pledge or otherwise encumber its intellectual property assets without the consent of the Lenders.

The Company is also required to maintain compliance with financial covenants which include a minimum level of revenues and a minimum level of Adjusted EBITDA (a non-GAAP term defined as net income (loss) excluding the effects of interest, taxes, depreciation, amortization, stock-based compensation and in-process R&D. As of March 31, 2009, the Company was in compliance with its covenants in the Credit Facility.

The Lenders have the right to declare the loan immediately due and payable in an event of default under the Credit Facility, which includes, among other things, the failure to make payments when due, breaches of representations, warranties or covenants, the occurrence of certain insolvency events, the occurrence of a non-appealable legal judgment against the Company that is not satisfied within ten days, or the occurrence of an event which, in the opinion of the Lenders, could have a material adverse effect on the Company.

During the three months ended March 31, 2009, the Company repaid $0.5 million and subsequently drew an additional $1.9 million on the working capital line of credit. As of March 31, 2009 the balance of the line of credit was $12.9 million. The balance on the term loan was $14.2 million, net of the debt discount. Amortization of the debt discount and issuance costs and accretion of the additional finance charge, which are recorded to interest expense, totaled $0.3 million for the three months ended March 31, 2009. Interest expense for the Credit Facility, excluding debt discount and issuance cost amortization and accretion of the additional finance charge, totaled $0.6 million for the three months ended March 31, 2009.

Other Debt Agreements

In September 2008, Alphatec Pacific paid $0.8 million on its Resona Bank line of credit and replaced the line of credit with $0.6 million term debt with Resona Bank, which is payable over 30 months with a 3.75% interest rate. Alphatec Pacific has additional notes payable to Japanese banks and a bond payable, bearing interest at rates ranging from 1.5% to 6.5% and maturity dates through January 2014 which are collateralized by substantially all of the assets of Alphatec Pacific and Japan Ortho Medical, a subsidiary of Alphatec Pacific. As of March 31, 2009, the balance of the notes and the bond totaled $1.6 million.

 

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The Company has various capital lease arrangements. The leases bear interest at rates ranging from 5.52% to 7.46%, are generally due in monthly principal and interest installments, are collateralized by the related equipment, and have various maturity dates through March 2010. As of March 31, 2009, the balance of these capital leases totaled $0.2 million.

The Company has a note payable with Microsoft, Inc. for the purchase of software licenses, bearing interest at a rate of 2.7% and a maturity date of February 2011. The balance of this note as of March 31, 2009 was $0.3 million.

The Company has financing agreements for a product liability insurance policy and a directors and officers insurance policy, both bearing interest at 4.2% payable through May 2009. The balance of these agreements as of March 31, 2009 totaled $0.1 million.

Principal payments on debt (excluding capital leases) are as follows as of March 31, 2009 (in thousands):

 

Year Ending December 31,

    

Remainder of 2009

   $ 1,613

2010

     6,389

2011

     6,558

2012

     16,050

2013

     46

Thereafter

     4
      

Total

   $ 30,660
      

7. Commitments and Contingencies

Leases

The Company leases certain equipment under capital leases which expire on various dates through 2010. The Company also leases its buildings and certain equipment and vehicles under operating leases which expire on various dates through 2017. Future minimum annual lease payments under such leases are as follows (in thousands):

 

Year Ending December 31,

   Operating    Capital  

Remainder of 2009

   $ 1,826    $ 236  

2010

     2,820      13  

2011

     2,510      —    

2012

     2,210      —    

2013

     2,199      —    

Thereafter

     5,829      —    
               
   $ 17,394      249  
         

Less: amount representing interest

        (7 )
           

Present value of minimum lease payments

        242  

Current portion of capital leases

        (242 )
           

Capital leases, less current portion

      $ —    
           

Rent expense under operating leases for the three months ended March 31, 2009 and 2008 was $0.8 million and $0.5 million, respectively.

Litigation

On April 12, 2006, Alphatec Spine and HealthpointCapital, L.P. , the Company’s majority stockholder, and its affiliate, HealthpointCapital, LLC, were served with a complaint by Drs. Darryl Brodke, Alan Hilibrand, Richard Ozuna and Jeffrey Wang, or the “claimant surgeons,” in the Superior Court of California in the County of Orange, claiming, among other things, that, pursuant to certain contractual arrangements Alphatec Spine allegedly entered into with the claimant surgeons in 2001, it was required to pay the claimant surgeons quarterly royalties in an aggregate amount of 6% of the net sales of polyaxial screws (as defined in the alleged contractual arrangement), which the claimant surgeons allege were developed with their assistance prior to the cessation of such development activities in March 2002. Alphatec Spine first began to sell polyaxial screws in 2004 and has continued to sell them through the date of this Quarterly Report on Form 10-Q. In October of 2006, the parties to this litigation initiated a mediation session in an attempt to mediate a resolution to this matter, but were unsuccessful in doing so. The claimant surgeons assert causes of action for breach of contract, fraud, conversion, breach of fiduciary duty, and unjust enrichment, and Alphatec Spine has moved for summary judgment

 

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on certain claims, which motion is scheduled for hearing in the second quarter of 2009. In the first quarter of 2009 the claimant surgeons dismissed all claims against both HealthpointCapital entities. This matter is scheduled to go to trial in the third quarter of 2009. Alphatec Spine does not believe that any of the claimant surgeons are entitled to any royalty amounts, has filed counterclaims against certain of the claimant surgeons, and intends to vigorously defend itself against this complaint; however, Alphatec Spine cannot predict the outcome to this matter or the impact on its financial statements, if any.

A judgment against the Company in excess of the amount accrued and/or legal costs significantly in excess of amounts currently budgeted in the Company’s operating plan may cause an acceleration of the Company’s Credit Facility through a financial covenant violation or a material adverse change claim by the Lenders (See Note 6). While the outcome to the litigation is uncertain, management does not believe that the ultimate outcome of claims against the Company will result in an adverse material impact to the Company.

Royalties

The Company has entered into various intellectual property agreements requiring the payment of royalties based on products sold. These royalties primarily relate to products sold by Alphatec Spine and are calculated either as a percentage of net revenue or on a per unit basis. Royalties are included on the accompanying consolidated statement of operations as a component of cost of revenues.

8. Net Loss Per Share

The Company calculates net loss per share in accordance with SFAS No. 128, Earnings per Share . Basic earnings per share (“EPS”) is calculated by dividing the net income or loss available to common stockholders by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted EPS is computed by dividing the net income available to common stockholders by the weighted average number of common shares outstanding for the period and the weighted average number of dilutive common stock equivalents outstanding for the period determined using the treasury-stock method. For purposes of this calculation, common stock subject to repurchase by the Company and options are considered to be common stock equivalents and are only included in the calculation of diluted earnings per share when their effect is dilutive. (In thousands, except per share data):

 

     Three Months Ended March 31,  
     2009     2008  

Numerator:

    

Net loss

   $ (4,383 )   $ (15,779 )
                

Denominator:

    

Weighted average common shares outstanding

     47,436       47,177  

Weighted average unvested common shares subject to repurchase

     (933 )     (1,176 )
                

Weighted average common shares outstanding - basic

     46,503       46,001  

Effect of dilutive securities:

    

Options

     —         —    
                

Weighted average common shares outstanding - diluted

     46,503       46,001  
                

Net loss per common share:

    

Basic and diluted

   $ (0.09 )   $ (0.34 )
                

As of March 31, 2009 and 2008, the weighted-average anti-dilutive securities not included in diluted net loss per share were as follows (in thousands):

 

     Three Months Ended March 31,
     2009    2008

Options to purchase common stock

   2,539    1,363

Warrants to purchase common stock

   476    —  

Unvested restricted share awards

   933    1,176
         
   3,948    2,539
         

 

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9. Stock-Based Compensation

The Company accounts for stock-based compensation under the provisions of SFAS No. 123(R), Share-Based Payment . SFAS No. 123(R) requires that share-based payment transactions with employees be recognized in the financial statements based on their fair value and recognized as compensation expense over the vesting period. The amount of expense recognized during the period is affected by many complex and subjective assumptions, including: estimates of the Company’s future volatility, the expected term for its stock options, option exercise behavior, the number of options expected to ultimately vest, and the timing of vesting for the Company’s share-based awards.

The Company accounts for stock option grants to non-employees in accordance with SFAS No. 123R and EITF Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services , which require that the fair value of these instruments be recognized as an expense over the period in which the related services are rendered.

Under SFAS No, 123(R), share-based compensation expense of awards with performance conditions is recognized over the period from the date the performance condition is determined to be probable of occurring through the time the applicable condition is met. Determining the likelihood and timing of achieving performance conditions is a subjective judgment made by management which may affect the amount and timing of expense related to these share-based awards. Share-based compensation is adjusted to reflect the value of options which ultimately vest as such amounts become known in future periods.

Valuation of Stock Option Awards

The assumptions used to compute the share-based compensation costs for the stock options granted during the three months ended March 31, 2009 and 2008 are as follows:

 

     Three Months Ended March 31,  
     2009     2008  

Employee Stock Options

    

Risk-free interest rate

   2.00 %   2.67 %

Expected dividend yield

   —   %   —   %

Weighted average expected life (years)

   6.2     6.3  

Volatility

   58 %   46 %

The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future.

Compensation Costs

The compensation cost that has been included in the Company’s consolidated statements of operations for all stock-based compensation arrangements is detailed as follows (in thousands, except per share amounts):

 

     Three Months Ended March 31,  
     2009     2008  

Cost of revenues

   $ 52     $ 68  

Research and development

     64       231  

Sales and marketing

     171       159  

General and administrative

     347       311  
                

Total

   $ 634     $ 769  
                

Effect on basic and diluted net loss per share

   $ (0.01 )   $ (0.02 )
                

 

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Stock Options

A summary of the Company’s stock option activity under its Amended and Restated 2005 Employee, Director and Consultant Stock Plan (the “2005 Plan”) and related information is as follows:

 

     Shares     Weighted
average
exercise
price
   Weighted
average
remaining
contractual
term
(in years)
   Aggregate
intrinsic
value
     (In thousands, except per share data)

Outstanding at December 31, 2008

   2,265     $ 4.23    8.92    $ 97

Granted year to date

   375     $ 1.62    —        —  

Exercised year to date

   —       $ —      —        —  

Forfeited year to date

   (101 )   $ 4.16    —        —  
              

Outstanding at March 31, 2009

   2,539     $ 3.85    8.87    $ 198
                        

Options vested and exercisable at March 31, 2009

   386     $ 3.95    7.70    $ 37
                        

Options vested and expected to vest at March 31, 2009

   2,010     $ 3.86    8.84    $ 157
                        

The weighted-average grant-date fair value of stock options granted during the three months ended March 31, 2009 and 2008 was $1.62 and $2.43, respectively. The aggregate intrinsic value of options at March 31, 2009 is based on the Company’s closing stock price on that date of $1.77 per share.

As of March 31, 2009, there was $4.6 million of unrecognized compensation expense for stock options and awards which is expected to be recognized on a straight-line basis over a weighted average period of approximately 3.1 years. There were no options exercised during the three months ended March 31, 2009. The total intrinsic value of options exercised was immaterial for the three months ended March 31, 2008. At March 31, 2009, approximately 1,871,000 shares of common stock remained available for issuance under the 2005 Plan.

Restricted Stock Awards

The following table summarizes information about the restricted stock awards activity:

 

     Shares     Weighted
average
grant
date fair
value
   Weighted
average
remaining
recognition
period
(in years)
   Aggregate
intrinsic
value
     (In thousands, except per share data)

Outstanding at December 31, 2008

   882     $ 6.40    2.19    $ 5,645

Awarded year to date

   —       $ —        

Released year to date

   (43 )   $ 3.72      

Forfeited year to date

   (14 )   $ 9.19      
              

Outstanding at March 31, 2009

   825     $ 6.49    1.94    $ 5,353
                        

The table above does not include the 101,944 shares of restricted stock granted to Stout in March 2008. There were no restricted awards granted during the three months ended March 31, 2009. The weighted average fair value per share of awards granted during the three months ended March 31, 2008 was $4.88.

Warrants

In December 2008, the Company issued warrants to the Lenders in the Credit Facility to purchase 476,000 shares of the Company’s common stock with an exercise price of $1.89 per share. The warrants are immediately exercisable and have a ten year term. The Company recorded the value of the warrants of $0.9 million as a debt discount. The value of the warrants was determined on the grant date using the Black-Scholes valuation method with the following assumptions: risk free interest rates of 2.67%, volatility of 60.9%, a ten year term and no dividends yield. All of the warrants were outstanding as of March 31, 2009.

10. Income Taxes

The Company calculates its interim tax provision in accordance with Accounting Principles Board Opinion No. 28, Interim Financial Reporting , and FASB Interpretation No. 18, Accounting for Income Taxes in Interim Periods (“FIN No. 18”). At the end of each interim period, the Company estimates the annual effective tax rate and applies that to its ordinary quarterly earnings. In addition, the effect of changes in enacted tax laws or rates or tax status is recognized in the interim period in which the change occurs. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in foreign jurisdictions, permanent and temporary differences between book and tax amounts, and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or as the tax environment changes.

 

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The Company accounts for uncertain tax positions in accordance with Financial Accounting Standards Board Interpretation, or FIN, No. 48, Accounting for Uncertainty in Income Taxes . FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with SFAS No. 109 , Accounting for Income Taxes, and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. The Company recognizes interest and penalties related to uncertain tax positions as a component of the income tax provision. The Company’s unrecognized tax benefits did not change during the three months ended March 31, 2009. The unrecognized tax benefits at March 31, 2009 were $1.9 million. The Company anticipates a $0.1 million decrease to its unrecognized tax benefits within the next 12 months.

The U.S. income tax expense consists primarily of state income taxes and the tax effect of changes in deferred tax liabilities associated with tax deductible goodwill. The foreign income tax expense consists primarily of Japanese provincial and city income taxes.

11. Segment and Geographical Information

The Company applies the provisions of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information . SFAS No. 131 requires public companies to report financial and descriptive information about their reportable operating segments. Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company operates in one reportable business segment.

During the three months ended March 31, 2009, the Company operated in three geographic locations, the U.S., Asia and Europe. During the three months ended March 31, 2008, the Company operated in two geographic locations, the U.S. and Asia. The Company commenced sales in Europe in the second half of 2008. Revenues, attributed to the geographic location of the customer, were as follows (in thousands):

 

     Three Months Ended March 31,
     2009    2008

United States

   $ 23,813    $ 18,647

Asia

     5,830      4,550

Europe

     967      —  
             

Total consolidated revenues

   $ 30,610    $ 23,197
             

Total assets by region were as follows (in thousands):

 

     March 31,
2009
   December 31,
2008

United States

   $ 145,260    $ 141,658

Asia

     12,973      13,890

Europe

     —        —  
             

Total consolidated assets

   $ 158,233    $ 155,548
             

12. Related Party Transactions

For the three months ended March 31, 2009 and 2008, the Company incurred costs of $0.1 million and $0, respectively, to Foster Management Company for travel expenses, including the use of Foster Management Company’s airplane. Foster Management Company is an entity owned by John H. Foster, a member of the Company’s board of directors. John H. Foster is a significant equity holder of HealthpointCapital, LLC, an affiliate of HealthpointCapital, L.P., the Company’s principal stockholder.

Dr. Stephen H. Hochschuler serves as a director of the Company’s and Alphatec Spine’s board of directors and Chairman of Alphatec Spine’s Scientific Advisory Board. The Company, Alphatec Spine and Dr. Hochschuler entered a written consulting agreement on October 13, 2006 (the “Consulting Agreement”). Pursuant to the Consulting Agreement, Dr. Hochschuler is required to provide advisory services related to the spinal implant industry and the Company’s research and development strategies. For the three months ended March 31, 2009 and 2008, the Company incurred costs of $0.1 million and $0.1 million, respectively, for advisory services provided by Dr. Hochschuler.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our management’s discussion and analysis of our financial condition and results of operations include the identification of certain trends and other statements that may predict or anticipate future business or financial results that are subject to important factors, such as those set forth in Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ending December 31, 2008.

Overview

We are a medical technology company focused on the design, development, manufacturing and marketing of products for the surgical treatment of spine disorders, with a focus on products that treat conditions that affect the aging spine. Our broad product portfolio and pipeline includes a variety of spinal disorder products and systems focused on solutions addressing the cervical, thoracolumbar, intervertebral, minimally invasive, vertebral compression fracture, osteoporotic bone, and spinal stenosis markets. Our principal product offerings are focused on the market for orthopedic spinal disorder solution products, which is estimated in the U.S. to be approximately $5.8 billion in revenue in 2008 and is expected to grow more than 10% annually over the next three years. Our “surgeons’ culture” emphasizes collaboration with spinal surgeons to conceptualize, design and co-develop a broad range of products. We have a state-of-the-art, in-house manufacturing facility that provides us with a unique competitive advantage, and enables us to rapidly deliver solutions to meet surgeons’ and patients’ critical needs. Our products and systems are made of titanium, titanium alloy, stainless steel and a strong, heat resistant, radiolucent, biocompatible plastic called polyetheretherketone, or PEEK. We also sell products made of allograft, a precision-milled and processed human bone that surgeons can use in place of metal and synthetic materials. We also sell bone-grafting products that are comprised of both tissue-based and synthetic materials. We believe that our products and systems have enhanced features and benefits that make them attractive to surgeons and that our broad portfolio of products and systems provide a comprehensive solution for the safe and successful surgical treatment of spine disorders. All of our implants that are sold in the U.S. have been cleared by the FDA and these products have been used in over 10,700 and 8,600 spine disorder surgeries in 2008 and 2007, respectively. In addition to selling our products in the U.S., we also sell our products in Japan, the European Union and Hong Kong.

Although our products generally are purchased by hospitals and surgical centers, orders are typically placed at the request of surgeons who then use our products in a surgical procedure. During the three months ended March 31, 2009 and 2008, no single surgeon, hospital or surgical center represented greater than 10% of our consolidated revenues. Additionally, we sell a broad array of products, which diminishes our reliance on any single product or spine disorder.

In 2007, as part of our strategy to focus on disorders affecting the aging spine, we began entering into license agreements with third parties that we believe will enable us to rapidly develop and commercialize unique products for the treatment of spinal disorders that disproportionately affect the aging population. Through March 31, 2009, we licensed or acquired approximately 40 patent and patent applications from third parties. A discussion of our license agreements through December 31, 2008 may be found in
“Item 1—Business-Intellectual Property” included in our Annual Report on Form 10-K for the year ending December 31, 2008.

To assist us in evaluating our product development strategy, we regularly monitor long-term technology trends in the spinal implant industry. Additionally, we consider the information obtained from discussions with the surgeon community and our Scientific Advisory Board in connection with the demand for our products, including potential new product launches. We also use this information to help determine our competitive position in the spinal implant industry and the capacity requirements of our manufacturing facility.

Revenue and Expense Components

The following is a description of the primary components of our revenues and expenses:

Revenues. We derive our revenues primarily from the sale of spinal surgery implants used in the treatment of spine disorders. Spinal implant products include spine screw systems, vertebral body replacement devices, plates and bone grafting materials. Our revenues are generated by our direct sales force and independent distributors. Our products are ordered directly by surgeons and shipped and billed to hospitals or surgical centers. In Japan, where orthopedic trauma surgeons also perform spine surgeries, we have sold and will continue to sell orthopedic trauma products in order to introduce our spine products to Japanese surgeons. In Europe, we use independent distributors that purchase our products and market them to their surgeon customers. As a result of offering payment terms greater than our customary U.S. business terms and operating in a new market in which we have no prior experience, revenues for sales to our European distributors have been deferred until payments become due or cash is received.

Cost of revenues.  Cost of revenues consists of direct product costs, royalties, depreciation of our surgical instruments, and the amortization of purchased intangibles. We manufacture substantially all of the non-allograft implants that we sell. Our product costs consist primarily of direct labor, manufacturing overhead, raw materials and components. Allograft product costs include the cost of procurement and processing of human tissue. We incur royalties related to technology we license from others and products developed in part by surgeons with whom we collaborate in the product development. Amortization of purchased intangibles consists of amortization of developed product technology.

 

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Research and development. Research and development expense consists of costs associated with the design, development, testing, and enhancement of our products. Research and development costs also include salaries and related employee benefits, research-related overhead expenses, fees paid to external service providers, and costs associated with our Scientific Advisory Board and Executive Surgeon Panels.

In-process research and development. In-process research and development, or IPR&D, consists of acquired research and development assets that were not technologically feasible on the date we acquired worldwide licenses for technology related to the dynamic cervical plate and the expandable interbody products and had no alternative future use at that date. At the time of acquisition, we expect all acquired IPR&D will reach technological feasibility, but there can be no assurance that commercial viability of a product will be achieved. The nature of the efforts to develop the acquired technologies into commercially viable products consists principally of planning, designing, and obtaining regulatory clearances. The risks associated with achieving commercialization include, but are not limited to, delays or failures during the development process, delays or failures to obtain regulatory clearances, and intellectual property rights of third parties.

Sales and marketing. Sales and marketing expense consists primarily of salaries and related employee benefits, sales commissions and support costs, professional service fees, travel, medical education, trade show and marketing costs.

General and administrative. General and administrative expense consists primarily of salaries and related employee benefits, professional service fees and legal costs.

Litigation settlement. Litigation settlement expense consists of material settlements of lawsuits.

Total other income (expense). Total other income (expense) includes interest income, interest expense, gains and losses from foreign currency exchanges and other non-operating gains and losses.

Income tax provision. Income tax expense consists primarily of state and foreign income taxes and the tax effect of changes in deferred tax liabilities associated with tax goodwill.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. On an on-going basis, we evaluate our estimates and assumptions, including those related to revenue recognition, allowances for accounts receivable, inventories, goodwill and intangible assets, stock-based compensation and income taxes. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions conditions.

Critical accounting policies are those that, in management’s view, are most important in the portrayal of our financial condition and results of operations. Management believes there have been no material changes during the three months ended March 31, 2009 to the critical accounting policies discussed in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the year ended December 31, 2008, as filed with the SEC on March 4, 2009.

 

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Results of Operations

The table below sets forth certain statements of operations data expressed as a percentage of revenues for the periods indicated. Our historical results are not necessarily indicative of the operating results that may be expected in the future.

 

     Three Months Ended March 31,  
     2009     2008  

Revenue

   100.0 %   100.0 %

Cost of revenues

   35.4     34.0  
            

Gross profit

   64.6     66.0  

Operating expenses:

    

Research and development

   9.4     13.8  

In-process research and development

   4.2     5.6  

Sales and marketing

   41.7     43.6  

General and administrative

   19.5     24.0  

Litigation settlement

   —       47.4  
            

Total operating expenses

   74.8     134.4  
            

Operating loss

   (10.2 )   (68.4 )
            

Other income (expense):

    

Interest income

   0.1     0.9  

Interest expense

   (3.0 )   (0.8 )

Other income (expense), net

   (0.8 )   0.7  
            

Total other income (expense)

   (3.7 )   0.8  
            

Loss before taxes

   (13.9 )   (67.6 )

Income tax provision

   0.4     0.4  
            

Net loss

   (14.3 )%   (68.0 )%
            

Reclassification

Certain prior year balances have been reclassified in the accompanying condensed consolidated financial statements to conform to the current year presentation. In our Quarterly Report on Form 10-Q for the three months ended March 31, 2008 filed with the SEC on May 12, 2008, our operating expenses in Japan were classified as general and administrative expenses. In this Quarterly Report on Form 10-Q, we separated the Japanese sales and marketing expenses from the general and administrative expenses. This reclassification has no impact upon total operating expenses and net loss, and resulted in a reclassification of $1.0 million of general and administrative expense to sales and marketing expense for the three months ended March 31, 2008.

Three Months Ended March 31, 2009 Compared to the Three Months Ended March 31, 2008

Revenues. Revenues were $30.6 million for the three months ended March 31, 2009 compared to $23.2 million for the three months ended March 31, 2008, representing an increase of $7.4 million, or 32.0%. U.S. revenues increased $5.1 million primarily due to increased sales of our Zodiac, Novel, Trestle, Biologics and Solanas product lines, partially offset by a decrease in our Reveal product line. In addition, Asia revenues increased $1.3 million due to both sales volumes and the foreign currency exchange rate. We commenced sales in Europe in the third quarter of 2008. We recognized revenue of $1.0 million in European sales in the three months ended March 31, 2009.

Cost of revenues . Cost of revenues were $10.8 million for the three months ended March 31, 2009 compared to $7.9 million for the three months ended March 31, 2008, representing an increase of $2.9 million, or 37.3%. The increase was primarily due to $1.3 million in higher product costs associated with increased revenue performance, increased royalty payments of $1.0 million due to increased sales volume and the new royalty payments made in connection with the Biedermann/DePuy litigation settlement, as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed with the SEC on March 4, 2009, and increased depreciation costs of $0.7 million based on a larger installed surgical instruments asset base capitalized during 2009.

Gross profit . Gross profit was $19.8 million for the three months ended March 31, 2009 compared to $15.3 million for the three months ended March 31, 2008, representing an increase of $4.5 million, or 29.2%. Gross margin of 64.6% of revenues for the three months ended March 31, 2009 decreased 1.4 percentage points from the three months ended March 31, 2008. The 1.4 percentage point decrease was primarily due to increased royalty payments of 1.9 percentage points and increased instrument depreciation of 1.9 percentage points, offset by a decrease of 1.0 percentage points related to amortization of intangibles and 1.4 percentage points related to improved manufacturing efficiencies.

Research and development.  Research and development expenses were $2.9 million for the three months ended March 31, 2009 compared to $3.2 million for the three months ended March 31, 2008, representing a decrease of $0.3 million, or 10.5%. The decrease was primarily due to decreases in outsourced prototype and other development activities.

 

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In-process research and development. In-process research and development expenses were $1.3 million for the three months ended March 31, 2009 compared to $1.3 million for the three months ended March 31, 2008, representing substantially no change. In the three months ended March 31, 2009, we incurred costs related to our acquisition of technology related to a stand-alone interbody device of $0.5 million, $0.6 million related to our acquisition of technology related to a device for the treatment of spinal stenosis ($0.25 million in cash and $0.35 million in stock (174,129 shares)), and $0.2 million combined for three smaller in-process research and development collaborations with third parties. In the three months ended March 31, 2008, we incurred costs for the licenses for the technology related to the expandable VBR license of $1.0 million and a dynamic cervical plate of $0.3 million.

Sales and marketing . Sales and marketing expenses were $12.8 million for the three months ended March 31, 2009 compared to $10.1 million for the three months ended March 31, 2008, representing an increase of $2.7 million, or 26.5%. The increase was primarily due to higher commission expense of $1.8 million due to the higher sales volume and an increase of $0.9 million in Asia as we increase our product mix towards Alphatec’s spinal products.

General and administrative . General and administrative expenses were $6.0 million for the three months ended March 31, 2009 compared to $5.6 million for the three months ended March 31, 2008, representing an increase of $0.4 million, or 7.2%. The increase was primarily due to an increase in legal fees, as well as fees and expenses related to the prosecution of our patent portfolio.

Litigation Settlement. Litigation settlement was $11.0 million for the three months ended March 31, 2008. The expense was due to a settlement agreement we entered into in May 2008 with Biedermann and DePuy, and the corresponding one-time settlement payment. This one-time settlement payment was paid in May 2008. There was no corresponding litigation settlement expense during the three months ended March 31, 2009.

Interest Income. Interest income was $0 for the three months ended March 31, 2009 compared to $0.2 million for the three months ended March 31, 2008, representing a decrease of $0.2 million, or 83.1%. The decrease was primarily due to lower cash and cash equivalent balances as a result of the cash used in operating activities.

Interest Expense. Interest expense was $0.9 million for the three months ended March 31, 2009 compared to $0.2 million for the three months ended March 31, 2008, representing an increase of $0.7 million, or 414.6%. The increase was primarily due to increased interest expense for our loan agreement and line of credit with Silicon Valley Bank and Oxford Finance Corporation. We repaid our line of credit with General Electric Capital Corporation in the fourth quarter of 2008.

Other income (expense), net.  Other income (expense), net was $(0.3) million for the three months ended March 31, 2009 compared to $0.1 million for the three months ended March 31, 2008, representing a decrease in income of $0.4 million or 272.8%. The decrease was due to greater foreign currency exchange losses realized in 2009 as compared to 2008.

Income tax provision. Income tax provision was $0.1 million for the three months ended March 31, 2009 compared to $0.1 million for the three months ended March 31, 2008, representing substantially no change. The U.S. income tax expense consists primarily of state income taxes and the tax effect of changes in deferred tax liabilities associated with tax deductible goodwill. The foreign income tax expense consists primarily of Japanese provincial and city income taxes.

Liquidity and Capital Resources

At March 31, 2009, our principal sources of liquidity consisted of cash and cash equivalents of $10.1 million, accounts receivable, net of $23.8 million, and remaining amounts available under our credit facilities of $2.1 million. We believe such amounts will be sufficient to fund our projected operating requirements through at least March 31, 2010. We will need to invest in working capital and capitalized surgical instruments in order to support our revenue projections through 2009. Should we not be able to achieve our revenue forecast and customer collections, and cash consumption starts to exceed forecasted consumption, management will need to adjust our investment in surgical instruments and manage our inventory to the decreased sales volumes. If management does not make these adjustments in a timely manner, there could be an adverse impact on our financial resources.

Historically, our principal sources of cash have included customer payments from the sale of our products, proceeds from the issuance of common and preferred stock and proceeds from the issuance of debt. Our principal uses of cash have included cash used in operations, acquisitions of businesses and intellectual property rights, payments relating to purchases of property and equipment and repayments of borrowings. We expect that our principal uses of cash in the future will be for operations, working capital, capital expenditures, and potential acquisitions. We expect that, as our revenues grow, our sales and marketing and research and development expenses will continue to grow and, as a result, we will need to generate significant net revenues to achieve profitability. We believe that our current cash and cash equivalents, revenues from our operations, and our ability to draw down on secured credit facilities will be sufficient to fund our projected operating requirements including potential R&D license milestone obligations through at least April 1, 2010. If we believe it is in our interest to raise additional funds, we may seek to sell additional equity or debt securities or

 

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borrow additional money. The sale of additional equity or convertible debt securities could result in dilution to our stockholders. If additional funds are raised through the issuance of equity or debt securities, these securities could have rights senior to those associated with our common stock and could contain covenants that would restrict our operations. Any additional financing may not be available in amounts or on terms acceptable to us, or at all. If we are unable to obtain this additional financing, we may be required to reduce the scope of our planned product development and marketing efforts.

As of March 31, 2009, we had $10.1 million in cash and cash equivalents. A substantial portion of our available cash funds is in business accounts with reputable financial institutions. However, our deposits, at times, may exceed federally insured limits. The capital markets have recently been highly volatile and there has been a lack of liquidity for certain financial instruments, especially those with exposure to mortgage-backed securities and auction rate securities. This lack of liquidity has made it difficult for the fair value of these types of instruments to be determined. We do not hold any marketable securities as of March 31, 2009.

As a result of recent volatility in the capital markets, the cost and availability of credit has been and may continue to be adversely affected by illiquid credit markets and wider credit spreads. Concern about the stability of the markets generally and the strength of counterparties specifically has led many lenders and institutional investors to reduce, and in some cases, cease to provide funding to borrowers. Continued turbulence in the U.S. and international markets and economies may adversely affect our ability to obtain additional financing on terms acceptable to us, or at all. If these market conditions continue, they may limit our ability to timely replace maturing liabilities and to access the capital markets to meet liquidity needs.

Operating activities

We used net cash of $6.4 million in operating activities for the three months ended March 31, 2009. During this period, net cash used in operating activities primarily consisted of a net loss of $4.4 million, a decrease in working capital and other assets of $5.9 million, primarily due to increases in accounts receivable of $5.4 million and inventory of $3.2 million in support of the higher sales volume, partially offset by increases in accounts payable, accrued expenses and deferred revenues of $3.0 million, and offset by $4.0 million of non-cash costs including amortization, depreciation, deferred income taxes, stock-based compensation, in-process research and development that was purchased using our common stock and interest expense related to amortization of debt discount and issue costs.

Investing activities

We used net cash of $2.5 million in investing activities for the three months ended March 31, 2009 primarily for the purchase of $2.9 million in instruments, computer equipment, leasehold improvements and manufacturing equipment, partially offset by the $0.4 million proceeds from the sale of our prior investment in Noas Medical Company, a Japanese spinal and orthopedic implant distributor.

Financing activities

We generated net cash of $0.8 million from financing activities for the three months ended March 31, 2009. Net proceeds from borrowings under our line of credit totaled $1.4 million. We made a payment on our line of credit and made other principal payments on notes payable and capital lease obligations totaling $0.6 million.

Credit Facility and other debt

In December 2008, we entered into a loan agreement with Silicon Valley Bank and Oxford Finance Corporation, or the Lenders, consisting of a $15.0 million term loan and a $15.0 million working capital line of credit. The term loan carries a fixed interest rate of 11.25% with interest payments due monthly but no principal repayment through September 2009. Thereafter, we will be required to repay the principal plus interest in 30 equal monthly installments, ending in April 2012. An additional finance charge of $0.8 million is due in April 2012. We will pay a prepayment penalty if the loan is repaid prior to maturity. We do not currently anticipate repaying the debt early.

The working capital line of credit carries a variable interest rate equal to the prime rate plus either 2.5% or 2.0%, depending on our financial performance. Interest only payments are due monthly and the principal is due at maturity in April 2012.

In connection with the term loan, we issued warrants to the Lenders to purchase an aggregate of approximately 476,000 shares of our common stock. The warrants are immediately exercisable and have an exercise price of $1.89 per share and a ten year term. We recorded the value of the warrants of $0.9 million as a debt discount.

We are also required to maintain compliance with financial covenants in our Credit Facility, which include a minimum level of revenues and a minimum level of earnings before interest, taxes, depreciation, amortization, and non-cash charges related to equity-based compensation and in-process R&D. The Credit Facility also contains customary affirmative and negative covenants for loan agreements of this type, including, but not limited to, limitations on the incurrence of indebtedness, asset dispositions, acquisitions, investments, dividends and other restricted payments, liens and transactions with affiliates. As of March 31, 2009, we were in compliance with the financial covenants in the Credit Facility. To secure the repayment of any amounts borrowed under the loan agreement, we granted the Lenders a first priority security interest in all of our assets, other than our intellectual property and our rights under license agreements granting us the right to intellectual property. We also agreed not to pledge or otherwise encumber our intellectual property assets without the consent of the Lenders.

 

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The Lenders have the right to declare the loan immediately due and payable in an event of default under the Credit Facility, which includes, among other things, the failure to make payments when due, breaches of representations, warranties or covenants, the occurrence of certain insolvency events, or the occurrence of an event which could have a material adverse effect on us.

During the three months ended March 31, 2009, we repaid $0.5 million and subsequently drew an additional $1.9 million on the working capital line of credit. The balance of the line of credit as of March 31, 2009 was $12.9 million. The balance on the term loan was $14.2 million, net of the debt discount. Amortization of the debt discount and issuance costs and accretion of the additional finance charge, which are recorded to interest expense, totaled $0.3 million for the three months ended March 31, 2009. Interest expense for the Credit Facility, excluding debt discount and issuance cost amortization and accretion of the additional finance charge, totaled $0.6 million for the three months ended March 31, 2009.

In September 2008, Alphatec Pacific paid $0.8 million on its Resona Bank line of credit and replaced the line of credit with $0.6 million term debt with Resona Bank, which is payable over 30 months with a 3.75% interest rate. Alphatec Pacific has additional notes payable to Japanese banks and a bond payable, bearing interest at rates ranging from 1.5% to 6.5% and maturity dates through January 2014 which are collateralized by substantially all of the assets of Alphatec Pacific and Japan Ortho Medical. As of March 31, 2009, the balance of the notes and the bond totaled $1.6 million.

We have various capital lease arrangements. The leases bear interest at rates ranging from 5.52% to 7.46%, are generally due in monthly principal and interest installments, are collateralized by the related equipment, and have various maturity dates through March 2010. As of March 31, 2009, the balance of these capital leases totaled $0.2 million.

In April 2008, we entered into a note payable with Microsoft, Inc. for the purchase of software licenses, bearing interest at a rate of 2.7% and a maturity date of February 2011. The balance of this note as of March 31, 2009 was $0.3 million.

We have financing agreements for a product liability insurance policy and a directors and officers insurance policy, both bearing interest at 4.2% payable through May 2009. The balance of these agreements as of March 31, 2009 totaled $0.1 million.

Contractual obligations and commercial commitments

Total contractual obligations and commercial commitments as of March 31, 2009 are summarized in the following table (in thousands):

 

     Payment Due by Year
     Total    2009
(9 months)
   2010    2011    2012    2013    Thereafter

Line of Credit with SVB/Oxford

   $ 12,939    $ —      $ —      $ —      $ 12,939    $ —      $ —  

Term loan with SVB/Oxford

     15,000      875      5,605      6,269      2,251      —        —  

Term loan final payment

     750      —        —        —        750      —        —  

Notes payable to Microsoft

     321      129      177      15      —        —        —  

Notes payable for insurance premiums

     99      99      —        —        —        —        —  

Notes and bond payable to Japanese banks

     1,551      510      607      274      110      46      4

Capital lease obligations

     242      229      13      —        —        —        —  

Operating lease obligations

     17,394      1,826      2,820      2,510      2,210      2,199      5,829

New product development milestones (1)

     4,900      3,400      1,500      —        —        —        —  
                                                

Total

   $ 53,196    $ 7,068    $ 10,722    $ 9,068    $ 18,260    $ 2,245    $ 5,833
                                                

 

(1) This commitment represents payments in cash, and is subject to attaining certain development milestones such as FDA approval, product design and functionality testing requirements, which we believe are reasonably likely to be achieved in 2009 and 2010.

Real Property Leases

During the first quarter of fiscal year 2008, we entered into a lease agreement and sublease agreement in order to consolidate the use and occupation of our five existing premises into two adjacent facilities. In February 2008, we entered into a sublease agreement, or the Sublease, for 76,693 square feet of office, engineering, and research and development space, or Building 1. The Sublease term commenced May 2008 and ends on January 31, 2016. We are obligated under the Sublease to pay base rent and certain operating costs and taxes for Building 1. Monthly base rent payable by us is approximately $80,500 during the first year of the Sublease, increasing annually at a fixed annual rate of 2.5% to approximately $93,500 per month in the final year of the Sublease. Our rent

 

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is abated for months one through seven of the Sublease. Under the Sublease, we are required to provide the sublessor with a security deposit in the amount of approximately $93,500. Building 1 will consolidate all corporate, marketing, finance, administrative, and research and development activities into one building.

In March 2008, we entered into another lease agreement, or the Lease, for 73,480 square feet of office, engineering, research and development and warehouse and distribution space, or Building 2. The Lease term commenced on December 1, 2008 and ends on January 31, 2017. We are obligated under the Lease to pay base rent and certain operating costs and taxes for Building 2. The monthly base rent payable for Building 2 is approximately $73,500 during the first year of the Lease, increasing annually at a fixed annual rate of 3.0% to approximately $93,000 per month in the final year of the Lease. Our rent shall be abated for the months two through eight of the term of the Lease in the amount of $38,480. Under the Lease, we are required to provide the lessor with a security deposit in the amount of $293,200, consisting of cash and/or one or more letters of credit. Following our achievement of certain financial milestones, the lessor is obligated to return a portion of the security deposit to us. The lessor is providing a tenant improvement allowance of $1.1 million and $0.5 million of reimbursable tenant improvement allowances to assist with the configuration of the facility to meet our business needs. We consolidated all manufacturing, distribution and warehousing activities into Building 2 in April 2009.

Stock-based Compensation

Stock-based compensation has been classified as follows in the accompanying condensed consolidated statements of operations (in thousands, except per share data):

 

     Three Months Ended March 31,  
     2009     2008  

Cost of revenues

   $ 52     $ 68  

Research and development

     64       231  

Sales and marketing

     171       159  

General and administrative

     347       311  
                

Total

   $ 634     $ 769  
                

Effect on basic and diluted net loss per share

   $ (0.01 )   $ (0.02 )
                

Recent Accounting Pronouncements

Effective January 1, 2008, we adopted SFAS No. 157, Fair Value Measurements , which establishes a framework for measuring fair value in generally accepted accounting principles, clarifies the definition of fair value within that framework and expands disclosures about the use of fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. However, in February 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) No. 157-2, Effective Date of FASB Statement No. 157 , which deferred the effective date of SFAS No. 157 for one year for non-financial assets and liabilities, except for certain items, such as our cash equivalents and investments, that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The adoption of SFAS No 157 for non-financial assets and non-financial liabilities on January 1, 2009 did not have a material impact on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141(R) (revised 2007), Business Combinations , which replaces SFAS No 141. The statement retains the purchase method of accounting for acquisitions, but requires an acquiring company to measure all assets acquired and liabilities assumed, including contingent considerations and contractual contingencies, at fair value as of the acquisition date. In addition, an acquiring company is required to capitalize in-process research and development and either amortize it over the life of the product, or expense it upon abandonment or impairment. SFAS No. 141(R) also requires expensing of acquisition-related costs as incurred. SFAS No. 141(R) is effective for us beginning January 1, 2009 and will apply to business combinations completed on or after that date.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB 51 , which changes the accounting and reporting for minority interests. Minority interests are characterized as non-controlling interests and are reported as a component of equity separate from the parent’s equity. Purchases or sales of equity interests that do not result in a change in control are accounted for as equity transactions. In addition, net income attributable to the non-controlling interest are included in consolidated net income on the face of the income statement. SFAS No. 160 is effective for us beginning January 1, 2009. The adoption of SFAS No. 160 did not have a material impact on our consolidated financial statements.

 

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In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities—An amendment of FASB Statement No. 133 , which requires enhanced qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS No. 161 is effective for us beginning January 1, 2009. The adoption of SFAS No. 161 did not have a material impact on our consolidated financial statements.

In April 2008, the FASB issued FSP No. 142-3, Determination of Useful Life of Intangible Assets . FSP No. 142-3 amends the factors that should be considered in developing the renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets . FSP No. 142-3 also requires expanded disclosure related to the determination of intangible asset useful lives. FSP 142-3 is effective for us beginning January 1, 2009. The adoption of FSP No. 142-3 did not have a material impact on our consolidated financial statements.

In April 2008, the FASB issued Emerging Issues Task Force, or EITF, 07-05, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock . EITF 07-05 provides guidance on determining what types of instruments or embedded features in an instrument held by a reporting entity can be considered indexed to its own stock for the purpose of evaluating the first criteria of the scope exception in paragraph 11(a) of SFAS No. 133. EITF 07-05 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and early application is not permitted. The adoption of EITF 07-5 did not have a material impact on our consolidated financial statements.

In May 2008, the FASB issued FSP Accounting Principals Board, or APB, Opinion No. 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion , which clarifies that convertible instruments that may be settled in cash are not addressed under APB Opinion No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants . FSP APB No. 14-1 requires the liability and equity components of these types of instruments to be separately accounted for in a manner that will reflect the non-convertible debt interest rate when interest cost is recognized in subsequent periods. FSP APB No. 14-1 is effective for us for convertible debt instruments issued on or after January 1, 2009. We do not have any instruments that are within the scope of FSP APB No. 14-1. The adoption of FSP APB No. 14-1 did not have a material impact on our consolidated financial statements.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles , which identifies the sources of accounting principles and provides entities with a framework for selecting the principles used in preparation of financial statements that are presented in conformity with GAAP. SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AICPA Codification of Auditing Standards, AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles . The adoption of SFAS No. 162 is not expected to have a material impact on our consolidated financial statements.

In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities . FSP EITF 03-6-1 clarifies that share-based payment awards that entitle their holders to receive non-forfeitable dividends or dividend equivalents before vesting should be considered participating securities. The Company does not have grants of restricted stock that contain non-forfeitable rights to dividends. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008 on a retrospective basis. The adoption of EITF 03-6-1 did not have a material impact on our consolidated financial statements.

Forward Looking Statements

This Quarterly Report on Form 10-Q and, in particular, the Risk Factors set forth in Item 1A in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and our Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 2 herein contain or incorporate a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act, including but not limited to, statements regarding:

 

   

our ability to market, commercialize and achieve market acceptance of any of our products or any product candidates that we are developing or may develop in the future;

 

   

our estimates of market sizes and anticipated uses of our products, including without limitation the market size of the aging spine market and our ability to successfully penetrate such market;

 

   

our business strategy and our underlying assumptions about market data, demographic trends, reimbursement trends, pricing trends, and trends relating to customer collections;

 

   

trends related to the treatment of spine disorders, including without limitation the aging spine market;

 

   

our estimates regarding anticipated operating losses, future revenue, expenses, capital requirements, and liquidity;

 

   

our ability to control our costs, achieve profitability, and the potential need to raise additional funding;

 

   

our ability to successfully develop, commercialize and introduce new products into the market, and the acceptance of such products;

 

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our ability to maintain an adequate sales network for our products, including to attract and retain independent distributors;

 

   

our ability to enhance our Japanese and European sales networks and obtain and maintain the necessary approvals to sell our products in Japan and Europe;

 

   

our ability to attract and retain a qualified management team, as well as other qualified personnel and advisors;

 

   

our ability to enter into licensing and business combination agreements with third parties and to successfully integrate the acquired technology and/or businesses;

 

   

our management team’s ability to accommodate growth and manage a larger organization;

 

   

our ability to protect our intellectual property, and to not infringe upon the intellectual property of third parties;

 

   

our ability to meet the financial covenants under our Credit Facility with Silicon Valley Bank and Oxford Finance Corporation;

 

   

our ability to conclude that we have effective disclosure controls and procedures; and

 

   

our ability to establish the industry standard in clinical and legal compliance and corporate governance programs.

Any or all of our forward-looking statements in this Quarterly Report may turn out to be inaccurate. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Many factors mentioned in our discussion in this Quarterly Report will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially.

We also provide a cautionary discussion of risks and uncertainties under “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2008 filed with the SEC on March 4, 2009. These are factors that we think could cause our actual results to differ materially from expected results. Other factors besides those listed there could also adversely affect us.

Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects” and similar expressions are intended to identify forward-looking statements. There are a number of factors that could cause actual events or results to differ materially from those indicated by such forward-looking statements, many of which are beyond our control, including the factors set forth under “Item 1A—Risk Factors.” In addition, the forward-looking statements contained herein represent our estimate only as of the date of this filing and should not be relied upon as representing our estimate as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Our borrowings under our line of credit expose us to market risk related to changes in interest rates. As of March 31, 2009, our outstanding floating rate indebtedness totaled $12.9 million. The primary base interest rate is the Prime rate. Assuming the outstanding balance on our floating rate indebtedness remains constant over a year, a 100 basis point increase in the interest rate would decrease pre-tax income and cash flow by approximately $0.1 million. Other outstanding debt consists of fixed rate instruments, including the term loan and capital leases.

Foreign Currency Risk

While a majority of our business is denominated in U.S. dollars, we maintain operations in foreign countries, primarily Japan and Europe, that require payments in the local currency. Fluctuations in the rate of exchange between the U.S. dollar and certain other currencies may affect our results of operations and period-to-period comparisons of our operating results. For example, if the value of the U.S. dollar were to increase relative to the Japanese Yen, then our reported revenues would decrease when we convert the Japanese Yen into U.S. dollars. We do not currently engage in hedging or similar transactions to reduce these risks. However, the currency exposure in our foreign currency revenues is mitigated because foreign subsidiaries expenses are payable in foreign currencies. We do not believe we have a material exposure to foreign currency rate fluctuations at this time.

Commodity Price Risk

We purchase raw materials that are processed from commodities, such as titanium and stainless steel. These purchases expose us to fluctuations in commodity prices. Given the historical volatility of certain commodity prices, this exposure can impact our product costs. However, because our raw material prices comprise a small portion of our cost of revenues, we have not experienced any material impact on our results of operations from changes in commodity prices. A 10% change in commodity prices would not have a material impact on our results of operations for the three months ended March 31, 2009.

 

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Item 4. Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports pursuant to the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in SEC Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were: (1) designed to ensure that material information relating to us is made known to our Chief Executive Officer and Chief Financial Officer by others within our company, particularly during the period in which this report was being prepared and (2) effective, in that they provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Control over Financial Reporting

There has been no change in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

(a)  Evaluation of Disclosure Controls and Procedures . Our principal executive officer and principal financial and accounting officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q, have concluded that, based on such evaluation, our disclosure controls and procedures were adequate and effective. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

(b)  Changes in Internal Controls . There were no changes in our internal control over financial reporting, identified in connection with the evaluation of such internal control that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

On April 12, 2006, Alphatec Spine and HealthpointCapital, L.P., our majority stockholder, and its affiliate, HealthpointCapital, LLC, were served with a complaint by Drs. Darryl Brodke, Alan Hilibrand, Richard Ozuna and Jeffrey Wang, or the “claimant surgeons,” in the Superior Court of California in the County of Orange, claiming, among other things, that, pursuant to certain contractual arrangements Alphatec Spine allegedly entered into with the claimant surgeons in 2001, it was required to pay the claimant surgeons quarterly royalties in an aggregate amount of 6% of the net sales of polyaxial screws (as defined in the alleged contractual arrangement), which the claimant surgeons allege were developed with their assistance prior to the cessation of such development activities in March 2002. Alphatec Spine first began to sell polyaxial screws in 2004 and has continued to sell them through the date of this Quarterly Report on Form 10-Q. In October of 2006, the parties to this litigation initiated a mediation session in an attempt to mediate a resolution to this matter, but were unsuccessful in doing so. The claimant surgeons assert causes of action for breach of contract, fraud, conversion, breach of fiduciary duty, and unjust enrichment, and Alphatec Spine has moved for summary judgment on certain claims, which motion is scheduled for hearing in the second quarter of 2009. In the first quarter of 2009 the claimant surgeons dismissed all claims against both HealthpointCapital entities. This matter is scheduled to go to trial in the third quarter of 2009. Alphatec Spine does not believe that any of the claimant surgeons are entitled to any royalty amounts, has filed counterclaims against certain of the claimant surgeons, and intends to vigorously defend itself against this complaint; however, we cannot predict the outcome to this matter or the impact on our financial statements, if any.

 

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Item 1A. Risk Factors

Investing in our common stock involves a high degree of risk, and you should carefully consider the risks and uncertainties described under Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2008. If any of the risks set forth therein actually occurs, our business, financial condition or results of operations would likely suffer, possibly materially. In that case, the trading price of our common stock could fall.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

Under the terms of our 2005 Plan, we may award shares of restricted stock to our employees, directors and consultants. These shares of restricted stock are subject to a lapsing right of repurchase by us. We may exercise this right of repurchase in the event that a restricted stock recipient’s employment, directorship or consulting relationship with us terminates prior to the end of the vesting period. If we exercise this right, we are required to repay the purchase price paid by or on behalf of the recipient for the repurchased restricted shares. Repurchased shares are returned to the 2005 Plan and are available for future awards under the terms of the 2005 Plan. Shares repurchased during the three months ended March 31, 2009 were as follows:

 

Month/Year

   Total Number
of Shares
Purchased (1)
   Average Price
Paid per
Share
   Total Number of
Shares Purchased
as part of Publicly
Announced Plans
or Programs
   Maximum Number
of Shares that may
Yet be Purchased
Under Plans or
Programs

January 2009

   15,237    $ 0.0005    —      —  

February 2009

   —      $ —      —      —  

March 2009

   —      $ —      —      —  

 

(1) Not included in the table above are 18,068 forfeited and retired shares in connection with the payment of minimum statutory withholding taxes due upon the vesting of certain stock awards or the exercise of certain stock options. In lieu of making a cash payment with respect to such withholding taxes, the holders of such stock forfeited a number of shares at the then current fair market value to pay such taxes.

 

Item 3. Defaults Upon Senior Securities

None.

 

Item 4. Submission of Matters to a Vote of Security Holders

None.

 

Item 5. Other Information

None.

 

Item 6. Exhibits

 

10.1*    Summary Description of Alphatec Holdings, Inc 2009 Bonus Plan for Named Executive Officers.
10.2†    Amended and Restated License Agreement effective March 31, 2009, by and among the Company, Alphatec Spine, Inc. and Stout Medical Group LP.
10.3†    Amended and Restated Developmental Consulting Agreement, effective March 31, 2009, by and among the Company, Alphatec Spine, Inc. and Stout Medical Group LP.
10.4†    First Amendment to the Exclusive License Agreement, effective March 31, 2009 between Alphatec Spine, Inc. and Stout Medical Group LP.
10.5      Form of Indemnification Agreement entered into with each of the Company’s non-employee directors.
31.1      Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2      Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32         Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

* Management contract or compensatory plan or arrangement.

 

Confidential treatment has been requested with respect to portions of this document.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

 

 

Signature

  

Title

 

Date

/s/ Dirk Kuyper

Dirk Kuyper

  

President and Chief Executive Officer

(principal executive officer)

  May 5, 2009

/s/ Peter C. Wulff

Peter C. Wulff

   Chief Financial Officer, Vice President and Treasurer (principal financial and accounting officer)   May 5, 2009

 

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Exhibit Index

 

No.     
10.1*    Summary Description of Alphatec Holdings, Inc 2009 Bonus Plan for Named Executive Officers.
10.2†    Amended and Restated License Agreement effective March 31, 2009, by and among the Company, Alphatec Spine, Inc. and Stout Medical Group LP.
10.3†    Amended and Restated Developmental Consulting Agreement, effective March 31, 2009, by and among the Company, Alphatec Spine, Inc. and Stout Medical Group LP.
10.4†    First Amendment to the Exclusive License Agreement, effective March 31, 2009 between Alphatec Spine, Inc. and Stout Medical Group LP.
10.5      Form of Indemnification Agreement entered into with each of the Company’s non-employee directors.
31.1     Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2     Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32         Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

* Management contract or compensatory plan or arrangement.

 

Confidential treatment has been requested with respect to portions of this document.

 

30

Exhibit 10.1

Summary Description of the Alphatec Holdings, Inc. 2009 Bonus Plan For Named Executive Officers

Under the Alphatec Holdings, Inc. (the “Company”) 2009 Bonus Plan (the “2009 Plan”), each of the Named Executive Officers (as such term is defined in the Company’s 2009 Proxy Statement on Schedule 14A, as filed with the Securities and Exchange Commission on April 30, 2009), based on the recommendation of the President and Chief Executive Officer of the Company and approval by the Compensation Committee of the board of directors (the “Board”), is eligible for cash bonuses after its 2009 fiscal year end as further described below. One of the executives listed below, Stephen Lubischer, the Company’s Vice President, Sales, is also eligible for cash bonuses during the 2009 fiscal year.

Except with respect to Mr. Lubischer and Mitsuo Asai, the President of the Company’s subsidiary, Alphatec Pacific, Inc. (“API”), each Named Executive Officer is eligible to receive a cash bonus based on the Company’s achievement of certain EBITDA goals, which comprises 100% of the potential award. The EBITDA goals have been determined by the Compensation Committee of the Board.

2009 Plan for Messrs. Kuyper, Wulff, and Garner

With respect to each of Dirk Kuyper, Peter Wulff and Ebun Garner, the target cash bonuses will be determined according to a formula expressed as percentages of the respective Named Executive Officer’s base salary, and will be subject to adjustments based on the percentage to which the targeted applicable performance criteria is achieved. In the event the Company exceeds a certain threshold, the Named Executive Officers listed below will be entitled to receive cash bonuses based on higher percentages of their respective base salaries. The bonuses will be payable after the end of the Company’s 2009 fiscal year. The Compensation Committee of the Board approved the applicable EBITDA targets. The table below sets forth for each of the Named Executive Officers listed therein, the percentage of the base salary that such Named Executive Officer is eligible to receive as a cash bonus under the 2009 Plan upon the achievement of the target level of EBITDA.

 

Name and Title

   2009 Base
Salary
   Bonus Percentage Upon 100%
Achievement of EBITDA
Performance Criteria
 

Dirk Kuyper, President and CEO

   $ 375,000    100 %

Peter Wulff, Chief Financial Officer and VP

   $ 260,000    50 %

Ebun Garner, Esq., General Counsel and VP

   $ 230,000    50 %


2009 Plan with Respect to Mr. Asai

With respect to Mitsuo Asai, the target cash bonus will be determined according to a formula expressed as up to 35% of his base salary of 26 million Japanese Yen, and will be subject to adjustments based on the percentage to which the targeted applicable performance criteria is achieved. Mr. Asai is eligible to receive a cash bonus based on the achievement of the following goals: (i) a goal based upon API’s total consolidated sales (which represents 50% of such bonus amount); (ii) a goal based upon API’s total spine sales (which represents 25% of such bonus amount); and (iii) a goal based upon API’s profits before taxes (which represents 25% of such bonus amount). In the event that API’s profits before taxes exceed certain target levels, Mr. Asai will be entitled to receive a cash bonus based on a higher percentage of his base salary. The bonus will be payable after the end of the Company’s 2009 fiscal year. The Compensation Committee of the Board approved the applicable total sales, spine sales and profits before taxes targets with respect to Mr. Asai.

2009 Plan with Respect to Mr. Lubischer

With respect to Mr. Lubischer, the target cash bonus amount will be determined based upon the Company’s achievement of certain sales goals in the U.S. Upon 100% achievement of all of such sales targets, Mr. Lubischer’s bonus would be equal to approximately 100% of his base salary of $245,000. In the event that U.S. sales exceed certain target levels, Mr. Lubischer will be entitled to receive a cash bonus that is higher then the percentage of his base salary set forth above. Two-thirds of Mr. Lubischer’s bonus is payable quarterly, based on the achievement of quarterly sales targets and one-third of Mr. Lubishcer’s bonus is payable following the end of the Company’s 2009 fiscal year, based on the achievement of annual sales targets. The Compensation Committee of the Board approved the applicable sales targets with respect to Mr. Lubischer.

For all Named Executive Officers, the Company (or API, with respect to Mr. Asai) must first achieve a threshold of financial performance that has been established by the Compensation Committee of the Board, before an eligible Named Executive Officer may receive any cash bonuses under the 2009 Plan. In addition, an eligible Named Executive Officer must be employed by the Company at the time the payment is made in order to receive any bonus payment.

Exhibit 10.2

AMENDED AND RESTATED LICENSE AGREEMENT

This Amended and Restated License Agreement (the “Agreement”) is made effective as of March 31, 2009 (the “Amendment Date”) by and among Alphatec Spine, Inc., a Delaware corporation with a principal place of business at 2051 Palomar Airport Road, Suite 100, Carlsbad, California 92008 (“Licensee”), Stout Medical Group LP, a limited partnership company organized under the laws of the state of Delaware, and having a place of business at 410 East Walnut Street, Suite #8, Perkasie, Pennsylvania 18944 (“Licensor”) and for purposes of Section 7.2 and Section 11.15 hereof only Alphatec Holdings, Inc., a Delaware corporation with a principal place of business at 2051 Palomar Airport Road, Suite 100, Carlsbad, California 92008 (“Holdings”). Licensee and Licensor are each hereafter referred to individually as a “Party” and together as the “Parties”.

WHEREAS, Reference is made to that certain License Agreement dated March 3, 2008 (the “Effective Date”) between the parties to this Amendment (the “Original Agreement”); and

WHEREAS, The Parties desire to amend and restate the Original Agreement as set forth herein.

Now, therefore, in consideration of the mutual promises set forth herein and for other good and valuable consideration, the receipt and sufficiency of which is acknowledged by the Parties hereto, the Parties hereto agree that the Original Agreement is hereby amended and restated in its entirety as follows:

1. DEFINITIONS

Whenever used in the Agreement with an initial capital letter, the terms defined in this Article 1 shall have the meanings specified.

1.1 “ Affiliate ” shall mean any company, corporation, partnership, limited liability company, trust, or other business entity that directly or indirectly controls, is controlled by, or is under common control with a designated person or entity, and for such purpose “control” shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of the entity, whether through the ownership of voting securities, by contract or otherwise.

1.2 “ Common Stock ” shall mean the common stock of Holdings, and any securities into which such common stock may hereafter be reclassified, converted or exchanged.

1.3 “ Confidential Information ” shall mean with respect to a Party (the “Receiving Party”), all information which is disclosed by the other Party (the “Disclosing Party”) to the Receiving Party hereunder or to any of its employees, consultants, Affiliates, licensees or sublicensees, except to the extent that the Receiving Party can demonstrate by written record or

 

1

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


other suitable physical evidence that such information, (a) as of the date of disclosure is demonstrably known to the Receiving Party or its Affiliates other than by virtue of a prior confidential disclosure to such Party or its Affiliates; (b) as of the date of disclosure is in, or subsequently enters, the public domain, through no fault or omission of the Receiving Party; (c) is obtained from a Third Party having a lawful right to make such disclosure free from any obligation of confidentiality to the Disclosing Party; or (d) is independently developed by or for the Receiving Party without reference to or reliance upon any Confidential Information of the Disclosing Party. Any information in relation to the subject matter of this Agreement disclosed by a Party under that certain Mutual Confidentiality Agreement between the parties dated the 2nd day of July 2007 shall, subject to the foregoing exceptions, be considered Confidential Information for purpose of this Agreement.

1.4 “ Exclusive Patent Rights ” shall have the meaning set forth in Subsection 2.1.2 hereof.

1.5 “ First Commercial Sale ” shall mean the date of the first transaction, transfer or disposition for value by or on behalf of Licensee or any Affiliate or Sublicensee of Licensee to a Third Party of a Licensed Product in the United States following the applicable regulatory clearance by the FDA (as defined below).

1.6 “ FDA ” shall mean the United States Food and Drug Administration and any successor agency or authority thereto.

1.7 “ Guarantee and Agreement ” shall mean the guarantee and agreement of Holdings set forth in Section 11.15 hereof.

1.8 “ Licensor Indemnitees ” and “ Licensee Indemnitees ” (each individually an “ Indemnitee ”) shall have the meaning given in Section 8.1.

1.9 Licensed Field ” shall mean: [***].

1.10 “ Licensed Patent Rights ” shall mean any of the patent applications described in Schedule A and Schedule B attached hereto, and any divisional, continuation, continuation-in-part (to the extent that the continuation-in-part is entitled to the priority date of an initial patent or patent application which is the subject of this Agreement), reissue, reexamination, registration, renewal, or extension, or any patent issuing therefrom or any supplementary protection certificates related thereto, and any foreign counterparts to any of the foregoing.

1.11 “ Licensed Product ” shall mean any product sold by Licensee, its Affiliates or Sublicensees that embodies or uses any aspect of the Licensed Patent Rights and/or the Licensed Technology.

 

2

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


1.12 “ Licensed Technology ” shall mean all Technology which:

1.12.1 Licensor controls as of the Effective Date and which (i) is described in or related to any patent or patent application included in the Licensed Patent Rights and (ii) is necessary or useful for Licensee to practice the license granted to it hereunder;

1.12.2 Licensor controls after the Effective Date but during the Term and which (i) it has the right to disclose and license without the payment of royalties or other consideration to any Third Party and (ii) constitutes an improvement to the subject matter of the Licensed Patent Rights or Licensed Technology as it exists on the date of determination,; and/or

1.12.3 Licensee controls after the Effective Date but during the Term and which constitutes an improvement to the subject matter of the Licensed Patent Rights or Licensed Technology as it exists on the date of determination.

1.13 “ Market Launch ” shall mean the first national commercial launch of any Licensed Product.

1.14 “ Net Sales ” shall mean the gross amount invoiced by or otherwise payable to Licensee, any of its Affiliates or any Sublicensee on account of sales or other transfers of a Licensed Product anywhere in the Territory during a designated period, less to the extent otherwise then or previously included in amounts invoiced for such Licensed Products and in respect of which no previous deduction was taken:

1.14.1 trade, cash and quantity discounts or rebates actually allowed or taken on Licensed Products, including discounts or rebates to governmental or managed care organizations;

1.14.2 credits or allowances actually given or made for rejection of, and for uncollectible amounts (except to the extent later collected) on, or return of previously sold Licensed Products;

1.14.3 any charges for insurance, freight, and other transportation costs directly related to the delivery of Licensed Product to the extent included in the gross invoiced sales price;

1.14.4 any tax, tariff, duty or governmental charge levied on the sales, transfer, transportation or delivery of a Licensed Product (including any tax such as a value added or similar tax or government charge), other than franchise or income tax of any kind whatsoever; and

1.14.5 any import or export duties or their equivalent borne.

In addition, should Licensee be required, in order to lawfully exercise its rights as to a Licensed Product, obtain additional rights in a country to patents of any Third Parties which are not Affiliates of Licensee, which patents are (i) pending or issued on the Effective Date, and (ii) required for Licensee to practice the inventions described in the Licensed Patent Rights or Licensed Technology

 

3

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


or exercise the license granted under this Agreement for reasons not attributable to a design selection made by Licensee for which alternative design selections not requiring such additional rights are available, then Licensee may also deduct from Net Sales with respect to a designated period the amount of the royalty Licensee is required to pay to such Third Party or Parties for such necessary rights to such patents with respect to such Licensed Product; provided that in no event (i) shall the amount of Net Sales for any designated period be reduced by more than [***] on account of royalties paid to Third Parties, and any amount so disallowed shall be lost and not carried forward and (ii) no such reduction shall be permitted with respect to additional rights obtained more than [***] after the First Commercial Sale in such country.

“Net Sales” shall not include amounts invoiced by or otherwise payable to Licensee, any of its Affiliates and/or any Sublicensees for Licensed Products sold or otherwise transferred to Licensee or any of its Affiliates and/or its Sublicensees, unless the Licensed Product is consumed by the invoiced entity.

1.15 “ Non-Exclusive Patent Rights ” shall have the meaning set forth in Subsection 2.1.1 hereof.

1.16 “ Shares ” shall have the meaning set forth in Paragraph 4.4.1(a) hereof.

1.17 “ Sublicensee ” shall mean any Third Party to whom Licensee grants a sublicense of some or all of the rights granted to Licensee under this Agreement.

1.18 “ Technology ” shall mean all of the following intangible legal rights, whether or not filed, perfected, registered or recorded, applicable to the Licensed Field: (i) inventions, patents, patent disclosures, patent rights, including any and all continuations, continuations-in-part, divisionals, reissues, reexaminations, utility models, industrial designs and design patents or any extensions thereof, (ii) rights associated with works of authorship, including without limitation, copyrights, copyright applications and copyright registrations and (iii) any and all proprietary ideas, inventions, discoveries, Confidential Information, data, results, formulae, designs, specifications, methods, processes, techniques, ideas, know-how, technical information (including, without limitation, structural and functional information), process information, pre-clinical information, clinical information, and any and all proprietary control and manufacturing data and materials, whether or not patentable.

1.19 “ Term ” shall have the meaning given in Section 9.1.

1.20 “ Territory ” shall mean all countries and jurisdictions of the world.

1.21 “ Third Party ” shall mean any person or entity other than Licensee, Licensor and their respective Affiliates.

 

4

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


2. GRANT OF RIGHTS

2.1 License to Licensee .

2.1.1 Grant of Non-Exclusive License . Licensor hereby grants to Licensee a non-exclusive, royalty-bearing license, including the right to grant sublicenses in accordance with Subsection 2.1.3, under the Licensed Patent Rights set forth on Schedule A and the corresponding Licensed Technology (the “Non-Exclusive Patent Rights”): (i) to conduct research and development in support of the licensed uses described in clause (ii) of this Subsection, and (ii) to make, have made, import, export, use, offer for sale or sell Licensed Products in the Licensed Field, subject to the terms and conditions of this Agreement.

2.1.2 Grant of Exclusive License . Licensor hereby grants to Licensee an exclusive, royalty-bearing license, including the right to grant sublicenses in accordance with Subsection 2.1.3, under the Licensed Patent Rights set forth on Schedule B attached hereto and the corresponding Licensed Technology (the “Exclusive Patent Rights”): (i) to conduct research and development in support of the licensed uses described in clause (ii) of this Subsection, and (ii) to make, have made, import, export, use, offer for sale or sell Licensed Products in the Licensed Field, subject to the terms and conditions of this Agreement.

2.1.3 Right to Sublicense . Licensee shall have the right to grant sublicenses, subject to the terms of this Agreement, to all or any portion of its rights under the license granted pursuant to this Section.

3. DEVELOPMENT AND COMMERCIALIZATION OF LICENSED PRODUCTS.

3.1 Commercialization .

3.1.1 Control of Development . From and after the Effective Date, Licensee shall have full control and authority over the development and commercialization of Licensed Products in the Licensed Field in the Territory. Licensee shall own all Technology resulting solely from the efforts of its agents, Affiliates and employees as a part of such development and commercialization, but for such purposes (or any other purpose of this Agreement) Licensor shall not be considered an agent of Licensee. All activities relating to development and commercialization under this Agreement shall be undertaken at Licensee’s sole cost and expense.

3.1.2 Diligence . After the Effective Date, Licensee will exercise commercially reasonable efforts to develop a Licensed Product which will pass Required Testing, and thereafter cause the Market Launch of the first Licensed Product as soon as practicable, such commercially reasonable efforts to take into account the competitiveness of the marketplace, the proprietary position of the Licensed Product, the relative potential safety and efficacy of the Licensed Product, the cost of goods and availability of capacity to manufacture and supply the Licensed Product at commercial scale, the profitability of the applicable Licensed Product, and other relevant factors including, without limitation, technical, legal, scientific or medical factors.

 

5

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


3.2 Intentionally Deleted .

3.3 Intentionally Deleted .

3.4 Licensee License Grant . Licensee hereby grants to Licensor a non-exclusive, fully-paid and royalty-free, perpetual license, including the right to grant sublicenses, under all Technology owned by Licensee as a result of the activities set forth in Section 3.1: (i) to conduct research and development in support of the licensed uses describe in clause (ii) of this Subsection, and (ii) to make, have made, import, export, use, offer for sale or sell any component or product for indications outside of the treatment of spinal disorders, subject to the terms and conditions of this Agreement.

4. PAYMENTS AND ROYALTIES

4.1 Initial Payment; Milestone Payments, Payment of Royalties; Royalty Rates; and Minimum Royalties;

4.1.1 Initial Payment . Licensee shall pay Licensor a lump-sum, payment of (i) five-hundred thousand dollars ($500,000), and (ii) five-hundred thousand dollars ($500,000) in shares of Common Stock, with a price per share of Common Stock for such purpose equal to the average per share NASDAQ Close/NASDAQ Official Closing Price (as defined by NASDAQ) or a defined successor closing price (designated by NASDAQ) on the fifteen (15) trading days prior to the date of issuance; provided that if on any such trading day the Common Stock shall not be listed on the NASDAQ national exchange or a similar national securities exchange, then Licensor shall receive five-hundred thousand dollars ($500,000) in cash in lieu of such shares of Common Stock (collectively the “Initial Payment”), with the cash portion of the Initial Payment being due and payable within ten (10) business days of the Effective Date, and the Common Stock portion of the Initial Payment being due and payable within thirty (30) business days of the Effective Date. The Initial Payment shall be fully-earned and non-refundable. The Parties agree and acknowledge that the Initial Payment has been paid by the Licensee and is therefore no longer due and payable.

4.1.2 Initial Milestone Payments . Licensee shall pay milestone payments (or in the case of the Common Stock cause the issuance thereof by Holdings) to Licensor (each such payment or issuance a “Milestone Payment”) as specified below no more than thirty (30) days after the occurrence of the corresponding event designated below, unless this Agreement has been terminated prior to such due date. No Milestone Payments described in this Subsection 4.1.2 shall be credited against or otherwise reduce any other amounts payable hereunder.

 

6

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


Event

 

Milestone Payment

[***]   [***]
[***]   [***]
[***]   [***]

4.1.3 Royalty Payments . During the Term, Licensee shall pay to Licensor within thirty (30) days of the end of each calendar quarter earned royalties of [***] of Net Sales during such calendar quarter, which payment obligations shall accrue as of the last day of such quarter. Each royalty payment shall (i) be accompanied by a report specifying: the Net Sales (including an accounting of deductions taken in the calculation of Net Sales) and (ii) state the applicable exchange rate used in conversion from any foreign country’s currency to United States Dollars (which conversion shall be determined in accordance with Subsection 4.2.2). Earned royalties described in this Subsection 4.1.3 shall only be credited against minimum royalties which would otherwise be due as contemplated by Subsection 4.1.4 and shall not be credited against or otherwise reduce any other amounts payable hereunder.

4.1.4 Minimum Royalties . Licensee shall pay Licensor the following minimum annual royalty amounts in each calendar year listed next to such amount. No minimum annual royalty described in this Subsection 4.1.4 shall be credited against or otherwise reduce any other amounts payable hereunder. For a particular calendar year, in the event that the sum of the earned royalties on Net Sales timely paid in accordance with Subsection 4.1.3 above with respect to the four calendar quarters of such calendar year are less than the minimum annual royalty for such year designated below, the obligation to pay the difference to Licensor shall accrue on the last day of such calendar year and be payable by Licensee no later than forty-five (45) days following the end of such calendar year:

 

Twelve (12) Months Ending

 

Minimum Annual Royalty

[***]   [***]
[***]   [***]
[***]   [***]
[***]   [***]

 

7

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


By way of illustration, if Licensee pays to Licensor during calendar year [***] a running royalty of [***], then not later than [***], Licensee shall pay to Licensor [***] to avoid being in breach of this Agreement.

If but only if the FDA requires a clinical trial, either as part of a 510(k) application or an Investigational Device Exemption application, and provided Licensee is using commercially reasonable efforts to pursue such approval, the minimum royalties set forth in this Section 4.1.4 shall not be in effect until a Licensed Product is cleared or approved for marketing or sale, as the case may be. In the event that such clearance or approval occurs prior to the end of a year, the minimum royalty amount due for such year shall be pro rated based on [***] of the number of days in such year remaining following such clearance or approval. As an example, if a clinical trial is required and approval or clearance of a Licensed Product does not occur until October 1, 2011, the minimum royalty payable pursuant to Section 4.1.4 shall be [***], and the minimum royalty amount in 2012 shall be [***], and so forth.

4.1.5 One Royalty . Only one royalty shall be payable to Licensor hereunder for each sale of a Licensed Product, notwithstanding that more than one patent or patent claim reads upon such Licensed Product and/or such Licensed Product embodies or was made using one or more aspects of Licensed Technology.

4.2 Payment, Conversion and Withholding .

4.2.1 Payment . All payments hereunder shall originate in the United States and be made in United States dollars. Licensor hereby directs that all payments due to it be divided as follows and paid by wire transfer or other means reasonably selected by the payee to the following persons or as they shall direct from time to time:

 

[***]    [***]
[***]    [***]

4.2.2 Conversion . Conversion of foreign currency to United States dollars shall be made at the conversion rate existing in the United States (as reported in The Wall Street Journal ) on the last business day of the quarter immediately preceding the applicable calendar quarter. If The Wall Street Journal ceases to be published, then the rate of exchange to be used shall be that reported in such other business publication of national circulation in the United States as the Parties reasonably agree.

4.2.3 Tax Withholding; Restrictions on Payment . All taxes, assessments and fees of any nature levied or incurred on account of any payments from Licensee to Licensor accruing under this Agreement, by national, state or local governments, will be assumed and paid by Licensee, except taxes levied thereon as income to Licensor and if such taxes are required by applicable law to be withheld by Licensee they will be deducted from payments due to Licensor and will be timely paid by Licensee to the proper taxing authority for the account of Licensor, a receipt or other proof of payment therefore secured and sent to Licensor as soon as practicable. Licensee shall remit all payments to Licensor hereunder from within the United States.

 

8

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


4.3 Records Retention; Review .

4.3.1 Royalties . Licensee shall keep accurate books and accounts of the computation of the number of Licensed Products sold and the Net Sales of Licensee, its Affiliates and Sublicensees of Licensed Products, and shall cause such Affiliates and Sublicensees to keep such records of their respective sales of Licensed Products and Net Sales of Licensed Products, in sufficient detail to permit accurate determination of all figures necessary for verification of payments required to be paid hereunder, which books and accounts shall be maintained for at least three (3) years from the end of the calendar year to which they pertain.

4.3.2 Review . At the request of Licensor, which shall not be made more frequently than once per calendar year during the Term, on a business day designated by Licensor upon at least thirty (30) days’ prior written notice to Licensee, Licensee shall permit, under confidentiality obligations with terms substantially the same as those hereunder, an independent certified public accountant reasonably selected by Licensor and reasonably acceptable to Licensee to inspect (during regular business hours) the relevant records required to be maintained by Licensee under Subsection 4.3.1. In the event such inspection reveals an underpayment, such underpayment shall be due and payable by Licensee within thirty (30) days of the date of such inspection, together with interest thereon from the date the amount due but unpaid was first due until the date paid, at the lower of [***] per annum or the maximum rate permitted by applicable law. Such inspection shall be at the expense of Licensor unless there is an underpayment that differs by greater than [***] from the amount that was otherwise due, in which event Licensee shall also pay the reasonable costs of the inspection. The foregoing is without prejudice to the right of Licensee to dispute the conclusion of the accountant, but such dispute shall not relieve Licensee of its obligation to pay interest and, under the circumstances described, costs of inspection as to amount actually due.

4.4 Matters Related to the Issuance of Common Stock.

4.4.1 Representations, Warranties and Certain Covenants of the Licensee . The Licensee represents, warrants and covenants that:

(a) Assuming the covenant of Licensor contained in Subsection 4.4.2 of this Agreement is complied with, the issuance to Licensor of each share of Common Stock (all shares so issued the “Shares”) will be in compliance with all applicable federal and state securities laws in connection with the offer, issuance and sale of the securities.

(b) The execution, delivery and performance of this Agreement by Holdings, the issuance and sale of the Shares and the consummation by Holdings of the other transactions by it contemplated hereby do not and will not on the date of the issuance and sale of the Shares(i) conflict with or violate any provision of Holdings’ or any of its

 

9

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


subsidiaries certificates or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any lien or encumbrance upon any of the properties or assets of Holdings or any of its subsidiaries, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument or other understanding to which Holdings or any of its subsidiaries is a party or by which any property or asset of Holdings or any such subsidiary is bound or affected, in each case with respect to this Subsection (ii), to a degree that would have a material adverse effect on the assets or results of operations of Holdings or its subsidiaries when considered as a whole (a “Material Adverse Effect”), or (iii) conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which Holdings or any such subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of Holdings or any such subsidiary is bound or affected, in each case with respect to this Subsection (iii), to a degree that would have a Material Adverse Effect.

(c) Prior to the issuance of the Shares, Holdings shall obtain all consents, approvals, orders, authorizations or registrations, qualifications, designations, declarations, and make all filings or registrations with any court or other federal, state, local or other governmental authority or other person that is required in order to issue the Shares.

(d) The Shares, when issued in accordance herewith, will be (i) duly authorized, (ii) duly and validly issued, (iii) fully paid and nonassessable, and (iv) free and clear of all liens imposed by Holdings, other than restrictions on transfer provided for herein.

(e) At all times prior to the second anniversary of the last issuance of the Shares during which there are Shares outstanding which have not been previously (i) sold or transferred to or through a broker or dealer or underwriter in a public distribution, or (ii) sold or transferred in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act of 1933, as amended (the “Securities Act”), in the case of either Subsection (i) or Subsection (ii) in such a manner that, upon the consummation of such sale or transfer, all transfer restrictions and restrictive legends with respect to such Shares are removed upon the consummation of such sale or transfer, Holdings shall use its commercially reasonable efforts to: (1) comply with the requirements of Rule 144(c) under the Securities Act with respect to current public information about Holdings, and (2) furnish to the Licensor such non-publicly available reports and documents of Holdings as Licensor may reasonably request to avail itself of Rule 144 of the Securities Act, or any similar rule or regulation of the United States Securities Exchange Commission allowing Licensor to sell the Shares without registration.

4.4.2 Representations and Warranties of the Licensor . The Licensor represents and warrants that (i) it is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D of the Securities Act; (ii) it is acquiring the Shares for investment for the Licensor’s own account and not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, without prejudice, however, to Licensor’s right to at all times to sell or otherwise dispose

 

10

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


of any or all of the Shares so issued in compliance with applicable federal and state securities laws and (iii) it does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to such person or to any third person, with respect to any of such Shares.

4.4.3 Restrictions on the Shares . Licensor understands and agrees that the Shares may not be sold, transferred, or otherwise disposed of without registration under the Securities Act or an exemption therefrom, and that in the absence of an effective registration statement covering the Shares or any available exemption from registration under the Securities Act, the Shares must be held indefinitely. The Licensor agrees and acknowledges that the following legend will be placed on the back of any certificate evidencing the Shares:

“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE CORPORATION RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE CORPORATION, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.”

4.4.4 Limitation on the Number of Shares Issued . Notwithstanding anything to the contrary in this Agreement, in no event shall the aggregate number of Shares issued pursuant to this Agreement be greater than 9.9% of the number of shares of Common Stock outstanding on the Effective Date. In the event that an issuance of Shares pursuant to this Agreement would cause an aggregate issuance of Shares that is more than 9.9% of the number of shares Common Stock outstanding on the Effective Date, the Licensee shall make a cash payment to the Licensor equal to the difference between cash value of the Shares that were scheduled to be issued pursuant to this Agreement, and the value of the Shares that were actually issued after giving effect to the limitation set forth in this Section 4.4.4.

 

11

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


5. TREATMENT OF CONFIDENTIAL INFORMATION

5.1 Confidential Obligations . Licensor and Licensee each recognize that the other Party’s Confidential Information constitutes highly valuable and proprietary confidential information. Licensor and Licensee each agree that during the Term and for five (5) years thereafter, it will keep confidential, and will cause its employees, consultants, Affiliates and sublicensees to keep confidential, all Confidential Information of the other Party. Neither Licensor nor Licensee nor any of their respective employees, consultants, Affiliates or sublicensees shall use Confidential Information of the other Party for any purpose whatsoever other than exercising any rights granted to it or reserved by it hereunder. Without limiting the foregoing, each Party may disclose information to the extent such disclosure is reasonably necessary to (a) file, prosecute or defend litigation in accordance with the provisions of this Agreement or (b) comply with applicable laws, regulations (including those of the United States Securities Exchange Commission) or court orders; provided, however, that if a Party is required to make any such disclosure of the other Party’s Confidential Information in connection with any of the foregoing, it will give reasonable advance notice to the other Party of such disclosure requirement and will use reasonable efforts to cooperate with such other Party in efforts to secure confidential treatment of such information required to be disclosed. Each Party agrees that any Confidential Information disclosed by a Party under that certain Mutual Confidentiality Agreement between the Parties dated the 2nd day of July 2007 shall be protected by the obligations set forth therein through the date hereof and from and after the date hereof shall be protected by the obligations as to Confidential Information set forth herein so as to be continuously protected.

5.2 Limited Disclosure and Use . Licensor and Licensee each agree that any disclosure of the other Party’s Confidential Information to any officer, employee, consultant or agent of the other Party or any of its Affiliates or Sublicensees shall be made only if and to the extent necessary to carry out its rights and responsibilities under this Agreement, shall be limited to the maximum extent possible consistent with such rights and responsibilities and shall only be made to the extent any such persons are bound by written confidentiality obligations to maintain the confidentiality thereof and not to use such Confidential Information except as expressly permitted by this Agreement. Licensor and Licensee each further agree not to disclose or transfer the other Party’s Confidential Information to any Third Parties under any circumstance without the prior written approval from the other Party (such approval not to be unreasonably withheld), except as otherwise required by law, and except as otherwise expressly permitted by this Agreement. Each Party shall take such action, and shall cause its Affiliates or Sublicensees to take such action, to preserve the confidentiality of each other’s Confidential Information as it would customarily take to preserve the confidentiality of its own Confidential Information, using, in all such circumstances, not less than reasonable care. Each Party, upon the request of the other Party, will return all the Confidential Information disclosed or transferred to it by the other Party pursuant to this Agreement, including all copies and extracts of documents and all manifestations in whatever form, within sixty (60) days of such request or, if earlier, the termination or expiration of this Agreement; provided however, that a Party may retain (i) any Confidential Information of the other Party relating to any license which expressly survives such termination, and (ii) one (1) copy of all other Confidential Information in inactive archives in legal counsel’s files solely for the purpose of establishing the contents thereof.

 

12

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


5.3 Publicity . Neither Party may publicly disclose the existence or terms or any other matter of fact regarding this Agreement without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed; provided, however, that either Party may make such a disclosure (i) to the extent required by law or by the requirements of any nationally recognized securities exchange, quotation system or over-the-counter market on which such Party has its securities listed or traded, or (ii) with respect to Licensee, to any prospective Sublicensees, or to investors, prospective investors, lenders and other potential financing sources, who are obligated to keep such information confidential. The Parties, upon the execution of this Agreement, will mutually agree to a press release with respect to this transaction for publication. Once such press release or any other written statement is approved for disclosure by both Parties, neither Party may make subsequent public disclosure of the contents of such statement without the further approval of the other Party.

5.4 Use of Name . Neither Party shall employ or use the name of the other Party in any promotional materials or advertising without the prior express written permission of the other Party.

6. PROVISIONS CONCERNING THE FILING, PROSECUTION AND MAINTENANCE OF PATENT RIGHTS

6.1 Patent Filing, Prosecution and Maintenance as to Non-Exclusive Patent Rights . Subject to its right of abandonment or other forfeiture, Licensor shall be responsible, at its cost, for preparing, filing and prosecuting the Non-Exclusive Patent Rights set forth on Schedule A , and available foreign counterparts to such patent applications in the [***] using patent counsel reasonably chosen by Licensor (which in any event includes Levine Bagade Han LLP), and for maintaining any patents obtained thereon. Licensor shall keep Licensee reasonably appraised as to the preparation, filing, prosecution and maintenance (collectively, the “Prosecution”) of each such patent application. Licensor agrees to send Licensee copies of all file histories and Prosecution documents for each of the patent applications of such Non-Exclusive Patent Rights, within thirty (30) days of receipt by Licensor. Licensor shall have the right in its discretion to abandon or otherwise cause or allow to be forfeited, any such Non-Exclusive Patent Rights (each a “Non-Exclusive Discontinued Patent”). Licensor shall give Licensee at least sixty (60) days written notice (a “Non-Exclusive Discontinuation Notice”) prior to abandonment or other forfeiture of any such Non-Exclusive Discontinued Patent (the “Non-Exclusive Discontinuation Notice Period”) so as to permit Licensee to exercise its rights under Section 6.3.

6.2 Requests for Other Patent Filing, Prosecution and Maintenance . Licensee may reasonably request that Licensor seek patent protection of the Non-Exclusive Patent Rights in addition to that contemplated by Section 6.1 by written notice to Licensor.

6.3 Right to Effect Other Patent Filing, Prosecution and Maintenance . Subject to any right of another licensee with respect to all or part of the Non-Exclusive Patent Rights existing as of the Effective Date, as to any Non-Exclusive Discontinued Patent or as to any Non-Exclusive Patent Right with respect to which Licensor refuses in its discretion to seek such additional

 

13

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


patent protection in response to a request from Licensee in accordance with Section 6.2 (a “Refused Non-Exclusive Patent”), Licensee shall have the right, but not the obligation, to give Licensor notice of its intent to continue the Prosecution of such Non-Exclusive Discontinued Patent or Refused Non-Exclusive Patent. Subject to any right of another licensee with respect to all or part of the Non-Exclusive Licensed Patent Rights, if Licensee gives such notice to Licensor, Licensor shall continue to Prosecute the Non-Exclusive Discontinued Patent or Non-Exclusive Refused Patent at the reasonable direction of Licensee. Licensee shall pay to Licensor its pro rata share of Prosecution costs (based on the number of licensees after the Effective Date, including the Licensee and any licensees that acquire rights to the Non-Exclusive Patent Rights after the Effective Date, but specifically not including any licensee of the Non-Exclusive Patent Rights prior to the Effective Date, or any licensee that opts out of making its pro-rata payment to Prosecute a Non-Exclusive Discontinued Patent or Non-Exclusive Refused Patent), which will be divided equally between Licensee and all such non-excluded licensees that have acquired rights to exploit such Non-Exclusive Discontinued Patent or Non-Exclusive Refused Patent and have not opted out. Other than with respect to any licensee of the Non-Exclusive Patents that has entered into a license agreement prior to the Effective Date, if any licensee to the Non-Exclusive Discontinued Patent or Non-Exclusive Refused Patent, including Licensee, opts not to support continued Prosecution or does not pay its pro rata share of the costs of Prosecution (based on the number of licensees after the Effective Date, including the Licensee and any licensees that acquire rights to the Non-Exclusive Patent Rights after the Effective Date, but specifically not including any licensee of the Non-Exclusive Patent Rights prior to the Effective Date, or any licensee that opts out of making its pro-rata payment to Prosecute a Non-Exclusive Discontinued Patent or Non-Exclusive Refused Patent), such licensee shall have no further rights or licenses to exploit the Non-Exclusive Discontinued Patent or Non-Exclusive Refused Patent. The Licensor shall covenant that any licenses granted to exploit the Non-Exclusive Patent Rights after the Effective Date shall contain language regarding Non-Exclusive Discontinued Patents or Non-Exclusive Refused Patents that is materially identical to the foregoing language set forth in this Section 6.3. Licensee shall have the right to deduct from Net Sales, on a country-by-country basis, [***] of the amount of such costs paid to Licensor by Licensee to Prosecute each such Non-Exclusive Discontinued Patents and Non-Exclusive Refused Patents that Licensee has filed in such country in the name of Licensor. All such Non-Exclusive Discontinued Patents or Non-Exclusive Refused Patents filed by Licensee in the name of Licensor shall be included in the Licensed Technology. Nothing in this Section 6.3 shall be deemed to limit Licensor’s right to file, Prosecute or maintain patent applications at its own expense in any country.

6.4 Notice of Infringement or Claims . If, during the Term, either Party learns of any (i) actual, alleged or threatened infringement by a Third Party of any Licensed Patent Rights or Licensed Technology, (ii) attack on the enforceability or validity of any Licensed Patent Rights or Licensed Technology, or (iii) claim by a Third Party alleging that the development or commercialization of a Licensed Product infringes or otherwise violates the intellectual property rights of such Third Party, then such Party shall promptly notify the other Party of the same and shall provide such other Party with available details as to and evidence of such infringement, suit or claim.

 

14

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


6.5 Infringement . Licensor shall have the exclusive right but not the obligation to claim and take legal action against, in its own name to the extent permissible by law, third parties for infringement or misappropriation of any Non-Exclusive Patent Rights. If Licensee is requested by Licensor to join a lawsuit under this subparagraph, whether or not Licensee is considered to be an indispensable party, it shall so join.

6.6 Certain Patent Filing, Prosecution and Maintenance as to Exclusive Patent Rights . Subject to its right of abandonment or other forfeiture, Licensor shall be responsible, at its cost, for preparing, filing and Prosecuting the patent applications as it determines, after consultation with Licensee, is commercially reasonable in relation to technology associated with the Exclusive Patent Rights using patent counsel reasonably chosen by Licensor (which in any event includes Levine Bagade Han LLP), and for maintaining any patents obtained thereon. Licensor shall keep Licensee reasonably apprised as to the prosecution of each such patent application. Licensor agrees to send Licensee copies of all file histories and prosecution documents for each of the patent applications of the Exclusive Patent Rights, within thirty (30) days of receipt by Licensor. Licensor shall have the right in its discretion to abandon or otherwise cause or allow to be forfeited, any patent or application therefore in relation to technology associated with the Exclusive Patent Rights (each an “Exclusive Discontinued Patent”). Licensor shall give Licensee at least sixty (60) days written notice prior to abandonment or other forfeiture of any such Exclusive Discontinued Patent so as to permit Licensee to exercise its rights under Section 6.8.

6.7 Requests for Other Patent Filing, Prosecution and Maintenance . Licensee may reasonably request that Licensor seek patent protection as to the Exclusive Patent Rights in addition to that contemplated by Section 6.6 by written notice to Licensor.

6.8 Right to Effect Other Patent Filing, Prosecution and Maintenance . As to any Exclusive Discontinued Patent or as to any patent with respect to which Licensor refuses in its discretion to seek such additional patent protection in response to a request from Licensee in accordance with Section 6.7 (an “Exclusive Refused Patent”), Licensee shall have the right, but not the obligation, to file, in the name of Licensor, for protection as to such Exclusive Discontinued Patent or Exclusive Refused Patent. Licensee shall bear all costs associated with the preparation, filing, Prosecuting and maintenance of all such Exclusive Discontinued Patents and Exclusive Refused Patents; provided that Licensee shall have the right to deduct from Net Sales, on a country-by-country basis, [***] of the amount of such costs borne by Licensee with respect to each such Exclusive Discontinued Patents and Exclusive Refused Patents that Licensee has filed in such country in the name of Licensor. All such Exclusive Discontinued Patents or Exclusive Refused Patents filed by Licensee in the name of Licensor shall be included in the Licensed Technology. Nothing in this Section 6.8 shall be deemed to limit Licensor’s right to file, prosecute or maintain patent applications at its own expense in any country.

 

15

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


6.9 Notice of Infringement or Claims . If, during the Term, either Party learns of any (i) actual, alleged or threatened infringement by a Third Party of any Exclusive Patent Right, (ii) attack on the enforceability or validity of any Exclusive Patent Right, or (iii) claim by a Third Party alleging that the development or commercialization of a Licensed Product infringes or otherwise violates the intellectual property rights of such Third Party, then such Party shall promptly notify the other Party of the same and shall provide such other Party with available details as to and evidence of such infringement, suit or claim.

6.10 Infringement of Exclusive Patent Rights . Licensee shall have the first right (but not the obligation), at its own expense and with legal counsel of its own choice, to bring suit (or take other appropriate legal action) against any actual, alleged or threatened infringement of any Exclusive Patent Rights. Such right includes the right to settle the infringement claim, provided that such settlement may not encompass matters beyond the scope of the license grant set forth in Section 2.1.2 and if such settlement would include Licensee’s agreement to the invalidity or unenforceability of any claim within any Exclusive Patent Rights, Licensor must first approve in writing such settlement, which approval shall not be unreasonably withheld. Any damages, monetary awards or other amounts recovered, whether by judgment or settlement, pursuant to any suit, proceeding or other legal action taken by Licensee under this Section 6.10, shall applied as follows:

(a) first, to reimburse the cost of Licensee for its reasonable costs and expenses (including reasonable attorneys’ fees and costs) incurred in prosecuting such enforcement action;

(b) second, to reimburse the costs of Licensor for its reasonable costs and expenses (including reasonable attorneys’ fees and costs) incurred in such enforcement action;

(c) third, to Licensee in reimbursement for lost sales associated with Licensed Products and to Licensor in reimbursement for lost royalties, it being agreed that for such purpose such lost sales shall equate to Net Sales; and

(d) fourth, any amounts remaining shall be allocated to each Party on a pro rata basis based on each Party’s losses attributable to the infringement.

If Licensee brings any such action or proceeding hereunder, Licensor agrees to be joined as party plaintiff if necessary to prosecute such action or proceeding, and to give Licensee reasonable assistance and authority to file and prosecute the suit. Licensee shall bear Licensor’s costs, including costs of responding to discovery, arising from involvement in such action or proceeding as and when incurred, subject to clause (a) of this Section 6.10; provided that in the event Licensor elects to actively participate in such action by counsel of Licensor’s own choice, the incremental expense thereof shall be Licensor’s, subject to clause (b) of this Section 6.10. In no event shall Licensor being a party to or represented in any such action by Licensee affect the right of Licensee to control the suit as described in the first sentence of this Section 6.10. If Licensee fails to take any action it is permitted to take by this Section 6.10

 

16

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


to obtain a discontinuance of such infringement or to bring suit against the infringer within four (4) months of having knowledge of such infringement, Licensor shall have the right but not the obligation to enforce the Exclusive Patent Rights at its expense and for its sole benefit. For the avoidance of doubt, neither Licensee’s nor Licensor’s failure to enforce any Exclusive Patent Rights in any way affects the rights granted to or responsibilities of Licensee under the Agreement.

7. REPRESENTATIONS AND WARRANTIES

7.1 Representations and Warranties of Licensor . As of the Effective Date and the Amendment Date, Licensor represents and warrants to Licensee as follows:

7.1.1 it owns and controls the Licensed Patents Rights and Licensed Technology and has the right to grant the licenses within the Licensed Field free and clear of all encumbrances (excluding any licenses granted by the Licensor with respect to the Non-Exclusive Patent Rights), and no Third Party has notified Licensor that the Third Party is claiming any ownership of or right to the Licensed Patents Rights or Licensed Technology;

7.1.2 it has not received any notice of invalidity or infringement of any of the Licensed Patent Rights or Licensed Technology; and

7.1.3 it is not a party to any agreements which would be inconsistent with the licenses granted herein or the exercise of the license granted under this Agreement.

7.2 Representations and Warranties of each Party and Holdings . As of the Effective Date and the Amendment Date, each Party and Holdings represents and warrants as follows:

7.2.1 the execution, delivery and performance of this Agreement will not constitute a violation, be in conflict with, or result in a breach of any agreement or contract to which it is bound;

7.2.2 it is a corporation or entity duly organized and validly existing under the laws of the state or other jurisdiction of incorporation or formation;

7.2.3 the execution, delivery and performance of this Agreement by it has been duly authorized by all requisite corporate action and do not require any shareholder action or approval;

7.2.4 it has the power and authority to execute and deliver this Agreement and to perform its obligations hereunder; and

7.2.5 it shall at all times comply with all applicable material laws and regulations relating to its activities under the Agreement

 

17

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


7.3 No Warranties . Nothing in this Agreement is or shall be construed as a warranty or representation that anything made, used, sold or otherwise disposed of under any license granted pursuant to this Agreement is or will be free from infringement of patents, copyrights, and other rights of Third Parties. EXCEPT AS EXPRESSLY SET FORTH IN THIS ARTICLE 7, EACH PARTY EXCLUDES ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, INCLUDING AMONG SUCH EXCLUDED REPRESENTATIONS AND WARRANTIES ANY AND ALL REPRESENTATIONS OR WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

8. INDEMNIFICATION

8.1 Indemnification .

8.1.1 Licensee Indemnity . Licensee shall indemnify, defend and hold harmless Licensor, its Affiliates and their respective directors, officers, employees, stockholders and agents and their respective successors, heirs and assigns (the “Licensor Indemnitees”) from and against any claims, liability, damage, loss or expense (including reasonable attorneys’ fees and expenses of litigation) incurred by or imposed upon such Licensor Indemnitee, or any of them, in connection with any Third Party claims, suits, actions, demands or judgments to the extent arising out of or related to (i) the design, development, testing, production, manufacture, supply, promotion, marketing, importation, sale, use or instructions for use of any Licensed Product (or any component thereof) manufactured or sold by Licensee or any Affiliate or Sublicensee under this Agreement, including without limitation any claims that (a) the design of any Licensed Product by Licensee infringed the intellectual property right of any Third Party or (b) any Licensed Product manufactured or sold by Licensee or any Affiliate or Sublicensee under this Agreement caused the death of any person or any injury to any person or property, (ii) any material breach of any representation or warranty by Licensee in Article 7 of this Agreement.

8.1.2 Licensor Indemnity . Licensor shall indemnify, defend and hold harmless Licensee, its Affiliates and their respective directors, officers, employees, stockholders and agents and their respective successors, heirs and assigns (the “Licensee Indemnitees”) from and against any claims, liability, damage, loss or expense (including reasonable attorneys’ fees and expenses of litigation) incurred by or imposed upon such Licensee Indemnitee, or any of them, in connection with any Third Party claims, suits, actions, demands or judgments to the extent arising out of any material breach of any representation or warranty by Licensor in Article 7 of this Agreement.

8.2 Indemnification Procedures . In the event that any Indemnitee is seeking indemnification under Section 8.1 above from a Party (the “Indemnifying Party”), the Indemnitee shall notify the Indemnifying Party of such claim with respect to such Indemnitee as soon as reasonably practicable after the Indemnitee receives notice of the claim, and the Party seeking indemnification, on behalf of itself and such Indemnitee, shall permit the Indemnifying Party to assume direction and control of the defense of the claim (including the right to settle the claim solely for monetary consideration) and shall cooperate as

 

18

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


requested (at the expense of the Indemnifying Party) in the defense of the claim. The indemnification obligations under Article 8 shall not apply to any harm suffered as a direct result of any delay in notice to the Indemnifying Party hereunder or to amounts paid in settlement of any claim, demand, action or other proceeding if such settlement is effected without the consent of the Indemnifying Party, which consent shall not be withheld or delayed unreasonably. The Indemnitee, its employees and agents, shall reasonably cooperate with the Indemnifying Party and its legal representatives in the investigation of any claim, demand, action or other proceeding covered by Section 8.1.

9. TERM AND TERMINATION

9.1 Expiration . The term of this Agreement shall commence on the Effective Date and expire twenty (20) years after the First Commercial Sale (the “Term”). Following the Term, Licensee shall have a fully paid-up, irrevocable, freely transferable and sublicensable license in the Territory under the Licensed Patent Rights and Licensed Technology, to develop, have developed, make, have made, use, have used, sell, have sold, offer for sale, import and have imported any and all Licensed Products in the Licensed Field.

9.2 Termination Rights for Breach and Voluntary Termination .

9.2.1 Termination for Breach . Subject to the other terms of this Agreement, this Agreement and the rights granted herein may be terminated by either Party upon any material breach by the other Party of any material obligation or condition, effective ninety (90) days after giving written notice to the breaching Party of such termination, which notice shall describe such breach in reasonable detail. The foregoing notwithstanding, if such material breach is cured or remedied or shown to be non-existent or not to be material within the aforesaid ninety (90) day period, the notice shall be automatically withdrawn and of no effect.

9.2.2 Licensor’s First Termination Right Based on Lack of Development Progress . In the event that the Licensee has failed by [***] to (i) file a 510(k) application with the FDA with respect to a Licensed Product, or (ii) initiate an Investigational Device Exemption with the FDA with respect to a Licensed Product, and the cause of such failure is other than a breach of this Agreement giving the Licensee a right of termination under Section 9.2.1 hereof, then Licensor shall be entitled to terminate the Agreement following [***] written notice to the Licensee; provided that if during such [***] written notice period Licensee gives Licensor written notice that it desires to continue this license, such termination shall be ineffective and void ab initio . In the event Licensee sends such notice it hereby agrees to make the following payments to Licensor (each of which shall be credited against any amounts due to the Licensor pursuant to Section 4.1.4.

(a) [***] on or before [***] (credited against amounts due in [***] pursuant to Section 4.1.4);

(b) [***] on or before [***] (credited against amounts due in [***] pursuant to Section 4.1.4);

 

19

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


(c) [***] on or before [***] (credited against amounts due in [***] pursuant to Section 4.1.4); and

(d) [***] on or before [***] (credited against amounts due in [***] pursuant to Section 4.1.4).

If but only if the FDA requires a clinical trial, either as part of a 510(k) application or an Investigational Device Exemption Application, and provided Licensee is using commercially reasonable efforts to pursue such approval, the payment amounts set forth in this Section 9.2.2 shall not be in effect following the date that the FDA imposes such clinical trial requirement. For the avoidance of doubt, the foregoing is without prejudice to any other obligations of Licensee hereunder, including payment obligations arising under Subsection 4.1.4.

9.2.3 Licensor’s Second Termination Right Based on Lack of Development Progress . In the event that the Licensee has failed by [***] to (i) file a 510(k) application with the FDA with respect to a Licensed Product, or (ii) initiate an Investigational Device Exemption with the FDA with respect to a Licensed Product, and the cause of such failure is other than a breach of this Agreement giving the Licensee a right of termination under Section 9.2.1 hereof, then Licensor shall be entitled to terminate the Agreement upon written notice to the Licensee.

9.2.4 Voluntary Termination . Licensee shall have the right to terminate this Agreement effective as of the first day of any calendar year upon not less than ninety (90) days prior written notice to Licensor.

9.3 Effects of Termination .

9.3.1 Certain Effects of Termination . Upon any termination of this Agreement: (i) as of the effective date of such termination all relevant licenses and sublicenses granted by Licensor to Licensee hereunder, and any sublicense granted by Licensee to any Sublicensee, shall terminate automatically, (ii) all payment or other rights or obligations accrued hereunder prior to termination shall survive the expiration or termination of the Term; (iii) except in respect of a termination by Licensor under Subsection 9.2.1, Licensee and its Affiliates and Sublicensees shall have the right, for nine (9) months or such longer time period as upon which the Parties mutually agree in writing, to sell or otherwise dispose of all finished Licensed Products then on hand, with royalties to be paid to Licensor on all Net Sales of such Licensed Products as provided for in this Agreement; and (iv) by Licensor under Subsection 9.2.1 or by Licensee under Subsection 9.2.4 (other than because Licensee shall have reasonably concluded that notwithstanding its commercially reasonable efforts, no commercially viable Licensed Product is developable and marketable) Licensee shall not, nor shall it permit its Affiliates to, for a period of [***] following such termination in the event such termination is effective prior to the First Commercial Sale and for a period of [***] following such termination in the event such termination is effective on or after the First Commercial Sale, engage in any business anywhere in the Territory, whether as a sole proprietor, partner, shareholder, consultant, agent, independent contractor, trustee or otherwise, to hold any beneficial interest in any business,

 

20

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


incorporated or otherwise, which designs, develops, tests, produces, manufactures, supplies, promotes, markets, imports or sells any product in the Licensed Field that has a product that is similar to the product described in the Exclusive Patent Rights (a “Competing Business”), derive any income from any interest in a Competing Business, or provide any service or assistance to a Competing Business; provided that the foregoing will not restrict Licensee from owning a passive interest of less than five percent (5.0%) of the outstanding stock of a corporation engaged in a Competing Business.

9.4 Remedies . Except as otherwise expressly set forth in this Agreement, the termination provisions of this Article 9 are in addition to any other relief and remedies available to either Party at law.

9.5 Surviving Provisions . Notwithstanding any provision herein to the contrary, the rights and obligations of the Parties set forth in Subsections 3.1.1 (with respect to Licensee's ownership of Technology), Sections 3.4, 4.3, 7.3, 9.3, 9.4, 9.5 and Articles 5, 8, 10, and 11 (to the extent relevant) shall survive the expiration or termination of this Agreement.

10. DISPUTES

10.1 Negotiation . The Parties recognize that a bona fide dispute as to certain matters may from time to time arise during the term of this Agreement that relates to either Party’s rights and/or obligations hereunder. In the event of the occurrence of such a dispute, either Party may, by written notice to the other Party, have such dispute referred to their respective senior officials designated below or their successors, for attempted resolution by good faith negotiations within sixty (60) days after such notice is received. Said designated senior officials are as follows:

For Licensee: President and Chief Executive Officer

For Licensor: Chief Executive Officer

In the event the designated senior officials are not able to resolve such dispute within the sixty (60) day period, either Party may invoke the provisions of Section 10.2.

10.2 Arbitration . Subject to Section 10.1, any dispute, controversy or claim initiated by either Party arising out of, resulting from or relating to this Agreement, or the performance by either Party of its obligations under this Agreement (other than bona fide Third Party actions or proceedings filed or instituted in an action or proceeding by a Third Party against a Party), whether before or after termination of this Agreement, shall be finally resolved by binding arbitration. Whenever a Party shall decide to institute arbitration proceedings, it shall give written notice to that effect to the other Party. Any such arbitration shall be conducted under the Commercial Arbitration Rules of the American Arbitration Association by one arbitrator appointed in accordance with such rules. Any such arbitration shall be held in New York, New York. The method and manner of discovery in any such arbitration proceeding shall be governed by the laws of the State of New York. The arbitrator shall have the authority

 

21

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


to grant injunctions and/or specific performance and to allocate between the parties the costs of arbitration in such equitable manner as they determine. Judgment upon the award so rendered may be entered in any court having jurisdiction or application may be made to such court for judicial acceptance of any award and an order of enforcement, as the case may be. In no event shall a demand for arbitration be made after the date when institution of a legal or equitable proceeding based upon such claim, dispute or other matter in question would be barred by the applicable statute of limitations. Notwithstanding the foregoing, either Party shall have the right, without waiving any right or remedy available to such Party under this Agreement or otherwise, to seek and obtain from any court of competent jurisdiction any interim or provisional relief that is necessary or desirable to protect the rights or property of such Party, pending the selection of the arbitrators hereunder or pending the arbitrators’ determination of any dispute, controversy or claim hereunder.

11. MISCELLANEOUS

11.1 Notification . All notices, requests and other communications hereunder shall be in writing, shall be addressed to the receiving Party’s address set forth below or to such other address as a Party may designate by notice hereunder, and shall be either (i) delivered by hand, (ii) sent by nationally-recognized overnight courier service providing evidence of receipt, or (iii) sent by registered or certified mail, return receipt requested, postage prepaid. The addresses and other contact information for the parties are as follows:

 

If to Licensor:   

Stout Medical Group LP

410 East Walnut Street, Suite #8,

Perkasie, Pennsylvania 18944

(215) 450-8860 (ext. 102)

Attn: Chief Executive Officer

With a copy to:    [***]
With a copy to:   

Oppenheimer Wolff & Donnelly

Plaza VII Building, Suite 3300

45 South Seventh Street

Minneapolis, Minnesota 55402

(612) 607-7397

Attn: Dennis P. Whelpley

If to Licensee:   

Alphatec Spine, Inc.

5818 El Camino Real

Carlsbad, CA 92008

(760) 431-9286

Attn: President and CEO

 

22

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


All notices, requests and other communications hereunder shall be deemed to have been given either (i) if by hand, at the time of the delivery thereof to the receiving Party at the address of such Party set forth above, (ii) if made by telecopy or facsimile transmission, at the time that receipt thereof has been acknowledged by the recipient, (iii) if sent by nationally-recognized overnight courier, on the day such notice is delivered to the recipient, or (iv) if sent by registered or certified mail, on the fifth (5 th ) business day following the day such mailing is made.

11.2 Governing Law . This Agreement will be construed and interpreted in accordance with the laws of the State of New York.

11.3 Limitations . Except as expressly set forth in this Agreement, neither Party grants to the other Party any right or license to any of its intellectual property.

11.4 Entire Agreement . This is the entire Agreement between the Parties with respect to the subject matter hereof and supersedes all prior representations, understandings and agreements between the Parties with respect to the subject matter hereof. No modification shall be effective unless in writing with specific reference to this Agreement and signed by the Parties. No modification shall be effective unless in writing with specific reference to this Agreement and signed by the Parties. No modification shall be effective unless in writing with specific reference to this Agreement and signed by the Parties; provided that no modification to this Agreement may be made without the prior written consent of Hawk Healthcare, LLC if such modification both: (i) will materially and adversely affect the stream of payments made directly to Hawk Healthcare, LLC under Subsection 4.1 hereof and (ii) does not proportionately effect the parallel payments made to Licensor under such Subsection.

11.5 Waiver . The terms or conditions of this Agreement may be waived only by a written instrument executed by the Party waiving compliance. The failure of either Party at any time or times to require performance of any provision hereof shall in no manner affect its rights at a later time to enforce the same. No waiver by either Party of any condition or term shall be deemed as a continuing waiver of such condition or term or of another condition or term.

11.6 Headings . Section, Subsection and Paragraph headings are inserted for convenience of reference only and do not form part of this Agreement.

11.7 Assignment . Neither this Agreement nor any right or obligation hereunder may be assigned, delegated or otherwise transferred, in whole or part, by either Party without the prior express written consent of the other Party; provided that a Party may freely assign this Agreement, including all rights and obligations hereunder, at any time to any entity acquiring in the same transaction substantially all of such Party’s business and assets, including those to which this Agreement relates, whether by way of sale, merger, consolidation or other transaction without the prior written consent of the other Party. Any permitted assignee shall assume all obligations of its assignor under this Agreement. Any purported assignment in violation of this Section 11.7 shall be void. The terms and conditions of this Agreement shall be binding upon and inure to the benefit of the permitted successors and assigns of the parties.

 

23

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


11.8 Force Majeure . Neither Party shall be liable for failure of or delay in performing obligations set forth in this Agreement, and neither shall be deemed in breach of its obligations, for so long as and to the extent that such failure or delay is due to natural disasters or any causes beyond the reasonable control of such Party. In event of such force majeure, the Party affected thereby shall use reasonable efforts to cure or overcome the same and resume performance of its obligations hereunder.

11.9 Construction . The Parties hereto acknowledge and agree that: (i) each Party and its counsel reviewed and negotiated the terms and provisions of this Agreement and have contributed to its revision; (ii) the rule of construction to the effect that any ambiguities are resolved against the drafting Party shall not be employed in the interpretation of this Agreement; and (iii) the terms and provisions of this Agreement shall be construed fairly as to all Parties hereto and not in favor of or against any Party, regardless of which Party was generally responsible for the preparation of this Agreement.

11.10 Severability . If any provision(s) of this Agreement are or become invalid, are ruled illegal by any court of competent jurisdiction or are deemed unenforceable under then current applicable law from time to time in effect during the Term hereof, it is the intention of the Parties that the remainder of this Agreement shall not be affected thereby provided that a Party’s rights under this Agreement are not thereby materially diminished. The Parties hereto covenant and agree to renegotiate any such term, covenant or application thereof in good faith in order to provide a reasonably acceptable alternative to the term, covenant or condition of this Agreement or the application thereof that is invalid, illegal or unenforceable, it being the intent of the Parties that the basic purposes of this Agreement are to be effectuated.

11.11 Status . Nothing in this Agreement is intended or shall be deemed to constitute a partner, agency, employer-employee, or joint venture relationship between the Parties.

11.12 Section 365(n) . All licenses granted under this Agreement are deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of right to “intellectual property” as defined in Section 101 of such Code. The Parties agree that Licensee may fully exercise all of its rights and elections under the U.S. Bankruptcy Code, regardless of whether either Party files for bankruptcy in the United States or other jurisdiction.

11.13 Further Assurances . Each Party agrees to execute, acknowledge and deliver such further instructions, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.

 

24

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


11.14 Counterparts . This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

11.15 Guarantee and Agreement of Alphatec Holding, Inc. By its signature below, Holdings hereby guarantees the full and timely payment and performance of all obligations of Licensee under this Agreement and agrees to issue shares to Licensor consistent with the terms of this Agreement, including without limitation Section 4.4 hereof.

[remainder of page intentionally left blank]

 

25

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


IN WITNESS WHEREOF, the Parties and Holdings have caused this Agreement to be executed by their duly authorized representative.

 

ALPHATEC SPINE, INC.       STOUT MEDICAL GROUP, LP:
      By: Stout Medical Group, Inc.
      Its: General Partner
By:    /s/ Dirk Kuyper     By:    /s/ Tom Molz
  Name:   Dirk Kuyper       Name:   Tom Molz
  Title:   President and CEO       Title:   President and CEO
ALPHATEC HOLDINGS, INC.      
By:    /s/ Dirk Kuyper      
  Name:   Dirk Kuyper        
  Title:   President and CEO        

 

26

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


Schedule A

Non-Exclusive Patent Rights

 

Docket #

  

Invention Name

  

Application No.

  

Filing Date

  

Application Type

  

Inventors

[***]    [***]    [***]    [***]    [***]    [***]

 

27

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


Schedule B

Exclusive Patent Rights

 

Docket #

  

Invention Name

  

Application No.

  

Filing Date

  

Application Type

  

Inventors

[***]    [***]    [***]    [***]    [***]    [***]

 

28

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

Exhibit 10.3

AMENDED AND RESTATED DEVELOPMENTAL CONSULTING AGREEMENT

This Amended and Restated Developmental Consulting Agreement (the “Agreement”) is entered into as of March 31, 2009 (the “Amendment Date”), by and among Alphatec Spine, Inc., a Delaware corporation with a principal place of business at 2051 Palomar Airport Road, Suite 100, Carlsbad, California 92011 (the “Company”), Stout Medical Group LP, a limited partnership company organized under the laws of the state of Delaware, and having a place of business at 410 East Walnut Street, Suite #8, Perkasie, Pennsylvania 18944 (“Service Provider”) and for purposes of Sections 3.2, 3.3, 11.14 and Article 7 hereof only Alphatec Holdings, Inc., a Delaware corporation with a principal place of business at 2051 Palomar Airport Road, Suite 100, Carlsbad, California 92008 (“Holdings”). Company and Service Provider are each hereafter referred to individually as a “Party” and together as the “Parties”.

WHEREAS, Reference is made to that certain Developmental Consulting Agreement dated March 3, 2008 (the “Effective Date”) between the parties to this Amendment (the “Original Agreement”); and

WHEREAS, The Parties desire to amend and restate the Agreement as set forth herein.

Now, therefore, in consideration of the mutual promises set forth herein and for other good and valuable consideration, the receipt and sufficiency of which is acknowledged by the Parties hereto, the Parties hereto agree that the Original Agreement is hereby amended and restated in its entirety as follows:

1. DEFINITIONS

Whenever used in the Agreement with an initial capital letter, the terms defined in this Article 1 shall have the meanings specified.

1.1 “Affiliate” shall mean any company, corporation, partnership, limited liability company, trust, or other business entity that directly or indirectly controls, is controlled by, or is under common control with a designated person or entity, and for such purpose “control” shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of the entity, whether through the ownership of voting securities, by contract or otherwise.

1.2 “Common Stock” shall mean the common stock of Holdings, and any securities into which such common stock may hereafter be reclassified, converted or exchanged.

1.3 “Company Indemnitees” and “Service Provider Indemnitees” (each individually an “Indemnitee”) shall have the meaning given in Article 8.

1.4 “Confidential Information” shall mean with respect to a Party (the “Receiving Party”), all information which is disclosed by the other Party (the “Disclosing Party”) to the Receiving Party hereunder or to any of its employees, consultants, Affiliates, licensees or sublicensees, except to the extent that the Receiving Party can demonstrate by written record or other suitable physical evidence

 

1

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


that such information, (a) as of the date of disclosure is demonstrably known to the Receiving Party or its Affiliates other than by virtue of a prior confidential disclosure to such Party or its Affiliates; (b) as of the date of disclosure is in, or subsequently enters, the public domain, through no fault or omission of the Receiving Party; (c) is obtained from a Third Party having a lawful right to make such disclosure free from any obligation of confidentiality to the Disclosing Party; or (d) is independently developed by or for the Receiving Party without reference to or reliance upon any Confidential Information of the Disclosing Party. Any information in relation to the subject matter of this Agreement disclosed by a Party under that certain Mutual Confidentiality Agreement between the parties dated the 2nd day of July, 2007 shall, subject to the foregoing exceptions, be considered Confidential Information for purpose of this Agreement.

1.5 “FDA” shall mean the United States Food and Drug Administration and any successor agency or authority thereto.

1.6 “Guarantee and Agreement” shall mean the guarantee and agreement of Holdings set forth in Section 11.14 hereof.

1.7 “In-Field Products” shall have the meaning given in Section 5.3.

1.8 “Joint Inventions” shall have the meaning given in Section 5.3.

1.9 “License Agreement” shall mean that certain Amended and Restated License Agreement as of even date herewith between the Parties relating to Company’s license of Technology in the Licensed Field from the Service Provider.

1.10 “Licensed Field” shall mean: (i) [***]; or (ii) [***].

1.11 “Licensed Product” shall mean any product sold by Company, its Affiliates or Sublicensees that embodies or uses any aspect of the Licensed Patent Rights and/or the Licensed Technology (as such terms are defined in the License Agreement).

1.12 “Net Sales” shall mean the gross amount invoiced by or otherwise payable to the Company, any of its Affiliates or any Sublicensee on account of sales or other transfers of an In-Field Products anywhere in the Territory during a designated period less to the extent otherwise then or previously included in amounts invoiced for such In-Field Products and in respect of which no previous deduction was taken):

 

  1.12.1  trade, cash and quantity discounts or rebates actually allowed or taken on In-Field Products, including discounts or rebates to governmental or managed care organizations;

 

2

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


  1.12.2  credits or allowances actually given or made for rejection of, and for uncollectible amounts (except to the extent later collected) on, or return of previously sold In-Field Products;

 

  1.12.3  any charges for insurance, freight, and other transportation costs directly related to the delivery of In-Field Products to the extent included in the gross invoiced sales price;

 

  1.12.4  any tax, tariff, duty or governmental charge levied on the sales, transfer, transportation or delivery of an In-Field Products (including any tax such as a value added or similar tax or government charge), other than franchise or income tax of any kind whatsoever; and

 

  1.12.5  any import or export duties or their equivalent borne.

“Net Sales” shall not include amounts invoiced by or otherwise payable to the Company, any of its Affiliates and/or any Sublicensees for In-Field Products sold or otherwise transferred to the Company or any of its Affiliates and/or its Sublicensees, unless the In-Field Products is consumed by the invoiced entity.

1.13 “Restricted Stock Agreement” shall have the meaning set forth in Section 3.2 hereof.

1.14 “Services” shall have the meaning set forth in Section 2.1 hereof.

1.15 “Shares” shall have the meaning set forth in Paragraph. 3.4.1(a) hereof.

1.16 “Statement of Work” shall have the meaning set forth in Section 2.1 hereof.

1.17 “Sublicensee” shall mean any Third Party to whom Company grants a sublicense of some or all of the rights granted to Company under this Agreement.

1.18 “Technology” shall mean all of the following intangible legal rights, whether or not filed, perfected, registered or recorded, applicable to the Licensed Field: (i) inventions, patents, patent disclosures, patent rights, including any and all continuations, continuations-in-part, divisionals, reissues, reexaminations, utility models, industrial designs and design patents or any extensions thereof, (ii) rights associated with works of authorship, including without limitation, copyrights, copyright applications and copyright registrations and (iii) any and all proprietary ideas, inventions, discoveries, Confidential Information, data, results, formulae, designs, specifications, methods, processes, techniques, ideas, know-how, technical information (including, without limitation, structural and functional information), process information, pre-clinical information, clinical information, and any and all proprietary control and manufacturing data and materials, whether or not patentable.

1.19 “Term” shall have the meaning given in Section 9.1.

 

3

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


1.20 “Territory” shall mean all countries and jurisdictions of the world.

1.21 “Third Party” shall mean any person or entity other than Company, Service Provider and their respective Affiliates.

1.22 “Triggering Event” shall mean (i) the filing of a 510(k) application with the FDA (as defined below) with respect to a Licensed Product, or (ii) the initiation of an Investigational Device Exemption with the FDA with respect to a Licensed Product.

2. PROFESSIONAL SERVICES

2.1 Statement of Work . The Company hereby engages the Service Provider to provide professional services (the “Services”) set forth on Schedule A attached hereto (the “Statement of Work”), and the Service Provider hereby accepts such engagement. The Service Provider agrees to perform for the Company the Services, and to provide to the Company the work product set forth in Schedule A attached hereto. Schedule A may only be amended by mutual written agreement of the Parties.

2.2 Location and Access . Except as otherwise stated in the Statement of Work, the Service Provider shall perform the Services at the Service Provider’s premises or such other premises that the Company and the Service Provider may agree in writing.

2.3 Records and Reports . The Service Provider shall keep accurate written records of its activities under this Agreement and shall make such records available to the Company upon request. Unless otherwise stated in the Statement of Work, the Service Provider shall provide the Company with periodic written reports on such activities. The Service Provider shall also provide the Company with such other reports that the Company may periodically request during the term of this Agreement.

3. PAYMENTS

3.1 Cash Remuneration To the Service Provider . The Company shall pay the Service Provider two-hundred forty thousand dollars ($240,000) in cash in twelve (12) monthly payments of twenty thousand dollars ($20,000) each (with the first such first retainer payment due July 30, 2009, and each subsequent retainer payment due thirty (30) days thereafter) (the “Cash Retainer”); provided however, that in the event that a Triggering Event occurs prior to the date that all such monthly payments shall have been made, all then unpaid amounts of the Cash Retainer shall become due and payable when scheduled or if earlier within thirty (30) days of the occurence of the Triggering Event.

3.2 Issuance of Restricted Common Stock to the Service Provider . The Service Provider and the Company agree and acknowledge that prior to the Effective Date, the Company issued to the Service Provider a stock certificate representing 101,944 shares of restricted Common Stock, represented by stock certificate number ATEC-00585, dated April 15, 2008 (the “Restricted Common Stock”). The Restricted Common Stock shall be subject to an Amended and Restated Restricted Stock Agreement between the parties dated on or about the date hereof (the “Amended and Restated Restricted Stock Agreement”).

 

4

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


3.3 Matters Related to the Issuance of Common Stock .

 

  3.3.1  Representations, Warranties and Certain Covenants of the Company. The Company represents, warrants and covenants that:

(a) Assuming the covenant of Service Provider contained in Subsection 3.3.2 of this Agreement is complied with, the issuance to Service Provider of each share of Common Stock (all shares so issued the “Shares”) will be in compliance with all applicable federal and state securities laws in connection with the offer, issuance and sale of the securities.

(b) The execution, delivery and performance of this Agreement by Holdings, the issuance and sale of the Shares and the consummation by Holdings of the other transactions by it contemplated hereby do not and will not on the date of the issuance and sale of the Shares (i) conflict with or violate any provision of Holdings’ or any of its subsidiaries certificates or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any lien or encumbrance upon any of the properties or assets of Holdings or any of its subsidiaries, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument or other understanding to which Holdings or any of its subsidiaries is a party or by which any property or asset of Holdings or any such subsidiary is bound or affected, in each case with respect to this Subsection (ii), to a degree that would have a material adverse effect on the assets or results of operations of Holdings or its subsidiaries when considered as a whole (a “Material Adverse Effect”), or (iii) conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which Holdings or any such subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of Holdings or any such subsidiary is bound or affected, in each case with respect to this Subsection (iii), to a degree that would have a Material Adverse Effect.

(c) Prior to the issuance of the Shares, Holdings shall obtain all consents, approvals, orders, authorizations or registrations, qualifications, designations, declarations, and make all filings or registrations with any court or other federal, state, local or other governmental authority or other person that is required in order to issue the Shares.

(d) The Shares, when issued in accordance herewith, will be (i) duly authorized, (ii) duly and validly issued, (iii) fully paid and nonassessable, and (iv) free and clear of all liens imposed by Holdings, other than restrictions on transfer provided for herein.

 

5

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


(e) At all times prior to the second anniversary of the issuance of the Shares during which there are Shares outstanding which have not been previously (i) sold or transferred to or through a broker or dealer or underwriter in a public distribution, or (ii) sold or transferred in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act of 1933, as amended (the “Securities Act”), in the case of either Subsection (i) or Subsection (ii) in such a manner that, upon the consummation of such sale or transfer, all transfer restrictions and restrictive legends with respect to such Shares are removed upon the consummation of such sale or transfer, Holdings shall use its commercially reasonable efforts to: (1) comply with the requirements of Rule 144(c) under the Securities Act with respect to current public information about Holdings, and (2) furnish to the Service Provider such non-publicly available reports and documents of Holdings as Service Provider may reasonably request to avail itself of Rule 144 of the Securities Act, or any similar rule or regulation of the United States Securities Exchange Commission allowing Service Provider to sell the Shares without registration.

 

  3.3.2  Representations and Warranties of the Service Provider . The Service Provider represents and warrants that (i) it is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D of the Securities Act; (ii) it is acquiring the Shares for investment for the Service Provider’s own account and not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, without prejudice, however, to Service Provider’s right to at all times to sell or otherwise dispose of any or all of the Shares so issued in compliance with applicable federal and state securities laws and (iii) it does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to such person or to any third person, with respect to any of such Shares.

 

  3.3.3  Restrictions on the Shares . Service Provider understands and agrees that the Shares may not be sold, transferred, or otherwise disposed of without registration under the Securities Act or an exemption therefrom, and that in the absence of an effective registration statement covering the Shares or any available exemption from registration under the Securities Act, the Shares must be held indefinitely. The Service Provider agrees and acknowledges that the following legend will be placed on the back of any certificate evidencing the Shares:

“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE CORPORATION RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE CORPORATION, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.

 

6

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO RESTRICTIONS SET FORTH IN A RESTRICTED STOCK AGREEMENT WITH THIS CORPORATION, A COPY OF WHICH AGREEMENT IS AVAILABLE FOR INSPECTION AT THE OFFICES OF THE CORPORATION OR WILL BE MADE AVAILABLE UPON REQUEST.”

 

  3.3.4  Limitation on the Number of Shares Issued . Notwithstanding anything to the contrary in this Agreement, in no event shall the aggregate number of Shares issued pursuant to this Agreement be greater than nine and nine-tenths percent (9.9%) of the number of shares of Common Stock outstanding on the Effective Date. In the event that an issuance of Shares pursuant to this Agreement would cause an aggregate issuance of Shares that is more than nine and nine-tenths percent (9.9%) of the number of shares of Common Stock outstanding on the Effective Date, the Company shall make a cash payment to the Service Provider equal to the difference between cash value of the Shares that were scheduled to be issued pursuant to this Agreement, and the value of the Shares that were actually issued after giving effect to the limitation set forth in this Section 3.3.4.

3.4 Service Provider Expenses . Company will also pay all out-of-pocket costs incurred by the Service Provider in connection with the provision of the Services, including costs of any materials utilized, [***]. Company and Service Provider shall equally split any travel costs incurred by Service Provider in connection with any development meetings that occur in the Carlsbad, CA area; provided that prior to such meeting the Company and Service Provider shall mutually agree on which representatives of the Service Provider shall attend such meetings. Company shall reimburse the Service Provider for all travel costs incurred at the request of the Company, provided that such travel is requested by the Company. The foregoing sentence shall specifically exclude all development meetings in the Carlsbad, CA area. All reimbursement described in this Section 3.4 will be invoiced monthly by the Service Provider and invoices and are payable net 45 days.

3.5 Payments to the Company . The Service Provider shall refund to Company four-hundred thousand dollars ($400,000) (the “Company Refund”) that had been paid to the Service Provider pursuant to the Original Agreement, with the such Company Refund being due and payable on April 15, 2009.

 

7

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


4. PROTECTED INFORMATION

4.1 Confidential Information . Each Party recognizes that the other Party’s Confidential Information constitutes highly valuable and proprietary confidential information. Each Party agrees that during the Term and for five (5) years thereafter, it will keep confidential, and will cause its employees, consultants, Affiliates and sublicensees to keep confidential, all Confidential Information of the other Party. Neither Party nor any of their respective employees, consultants, Affiliates or sublicensees shall use Confidential Information of the other Party for any purpose whatsoever other than exercising any rights granted to it or reserved by it hereunder. Without limiting the foregoing, each Party may disclose information to the extent such disclosure is reasonably necessary to (a) file, prosecute or defend litigation in accordance with the provisions of this Agreement or (b) comply with applicable laws, regulations (including those of the United States Securities Exchange Commission) or court orders; provided, however, that if a Party is required to make any such disclosure of the other Party’s Confidential Information in connection with any of the foregoing, it will give reasonable advance notice to the other Party of such disclosure requirement and will use reasonable efforts to cooperate with such other Party in efforts to secure confidential treatment of such information required to be disclosed. Each Party agrees that any Confidential Information disclosed by a Party under that certain Mutual Confidentiality Agreement between the Parties dated the 2nd day of July 2007 shall be protected by the obligations set forth therein through the date hereof and from and after the date hereof shall be protected by the obligations as to Confidential Information set forth herein so as to be continuously protected.

4.2 Limited Disclosure and Use . Each Party agrees that any disclosure of the other Party’s Confidential Information to any officer, employee, consultant or agent of the other Party or any of its Affiliates or Sublicensees shall be made only if and to the extent necessary to carry out its rights and responsibilities under this Agreement, shall be limited to the maximum extent possible consistent with such rights and responsibilities and shall only be made to the extent any such persons are bound by written confidentiality obligations to maintain the confidentiality thereof and not to use such Confidential Information except as expressly permitted by this Agreement. Each Party further agrees not to disclose or transfer the other Party’s Confidential Information to any Third Parties under any circumstance without the prior written approval from the other Party (such approval not to be unreasonably withheld), except as otherwise required by law, and except as otherwise expressly permitted by this Agreement. Each Party shall take such action, and shall cause its Affiliates or Sublicensees to take such action, to preserve the confidentiality of each other’s Confidential Information as it would customarily take to preserve the confidentiality of its own Confidential Information, using, in all such circumstances, not less than reasonable care. Each Party, upon the request of the other Party, will return all the Confidential Information disclosed or transferred to it by the other Party pursuant to this Agreement, including all copies and extracts of documents and all manifestations in whatever form, within sixty (60) days of such request or, if earlier, the termination or expiration of this Agreement; provided however, that a Party may retain (i) any Confidential Information of the other Party relating to any license which expressly survives such termination, and (ii) one (1) copy of all other Confidential Information in inactive archives in legal counsel’s files solely for the purpose of establishing the contents thereof.

 

8

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


4.3 Publicity . Neither Party may publicly disclose the existence or terms or any other matter of fact regarding this Agreement without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed; provided, however, that either Party may make such a disclosure (i) to the extent required by law or by the requirements of any nationally recognized securities exchange, quotation system or over-the-counter market on which such Party has its securities listed or traded, or (ii) with respect to Company, to any prospective Sublicensees, or to investors, prospective investors, lenders and other potential financing sources, who are obligated to keep such information confidential. The Parties, upon the execution of this Agreement, will mutually agree to a press release with respect to this transaction for publication. Once such press release or any other written statement is approved for disclosure by both Parties, neither Party may make subsequent public disclosure of the contents of such statement without the further approval of the other Party.

4.4 Use of Name . Neither Party shall employ or use the name of the other Party in any promotional materials or advertising without the prior express written permission of the other Party.

5. OWNERSHIP OF IDEAS, COPYRIGHTS AND PATENTS

5.1 Company Inventions . All Technology, whether patentable, copyrightable or not, which is solely conceived, reduced to practice or developed by the Company, its employees, agents (it being agreed to by the Parties that the Service Provider shall not be deemed to be an agent of the Company with respect to this Section 5.1) or its Affiliates (the “Company Inventions”) is the sole and exclusive property of the Company, and the Service Provider shall not exploit any of the Company Inventions.

5.2 Service Provider Inventions . All Technology, whether patentable, copyrightable or not, which is solely conceived, reduced to practice or developed by the Service Provider, its Affiliates or any of their employees, agents (it being agreed to by the Parties that the Company shall not be deemed to be an agent of the Company or any if its Affiliates with respect to this Section 5.2) is the sole and exclusive property of the Service Provider. With respect to Technology described in the preceding sentence which is developed in the course of performance of the Services (the “Service Provider Inventions”), the Service Provider hereby grants to the Company, subject to the terms and conditions of this Agreement, an exclusive (even as to Service Provider and its Affiliates), worldwide, license, including the right to grant sublicenses, under such Service Provider Inventions: (a) to conduct research and development in support of the licensed uses describe in clause (b) of this Section, and (b) to make, have made, import, export, use, offer for sale or sell products in the Licensed Field. The foregoing license shall be granted without an obligation to pay royalties to Service Provider, except as provided in the License Agreement.

5.3 Joint Inventions . All Technology conceived, developed or reduced to practice jointly by employees or consultants of both Parties in the course of performance of the Services shall be jointly owned by them (“Joint Inventions”). For purposes of this Section 5.3 Technology that is the subject of a patent application shall be deemed to have been developed jointly by employees or consultants of Company and Service Provider, and thus be a Joint Invention, if at least one employee or consultant of each of

 

9

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


Company and Service Provider is required to be named as an inventor in such application in order for such patent to be valid, and a comparable concept shall apply to Technology not the subject of a patent application. Service Provider hereby grants to the Company, subject to the terms and conditions of this Agreement, an exclusive (even as to Service Provider and its Affiliates), worldwide, license, including the right to grant sublicenses, under Joint Inventions:

 

  5.3.1  (i) to conduct research and development in support of the licensed uses describe in subclause (ii) of this pargrapgh 5.3.1, and (ii) to make, have made, import, export, use, offer for sale or sell Licensed Products which embody such Joint Inventions, all without obligations to pay royalties to Service Provider except as provided in the License Agreement; and

 

  5.3.2  (i) to conduct research and development in support of the licensed uses describe in subclause (ii) of this paragraph 5.3.2, and (ii) to make, have made, import, export, use, offer for sale or sell products other than Licensed Products but in the Licensed Field which embody such Joint Inventions (“In-Field Products”), subject to the royalty payment obligations as set forth herein.

The Company hereby grants to Service Provider, subject to the terms and conditions of this Agreement, an exclusive (even as to the Company and its Affiliates), worldwide, royalty-free, fully paid-up, license, including the right to grant sublicenses, under Joint Inventions: (y) to conduct research and development in support of the licensed uses describe in clause (z) of this Section, and (z) to make, have made, import, export, use, offer for sale or sell products other than products for the treatment of spinal disorders.

5.4 Exploitation of Joint Inventions (i) as to the Treatment of Spinal Disorders Outside of Licensed Field; and (ii) if One or More Licenses no Longer Exists under Section 5.3 . The Parties agree neither Party may practice, sell, license or otherwise grant rights to or exploit, or pursue infringers of, Joint Inventions: (i) [***] without the prior written consent of the other Party, which consent may not be unreasonably withheld. It is agreed that it shall not be unreasonable for a Party to refuse its consent to any such practice, sale, license or other grant of rights or exploitation, or pursuit of infringers, if the other Party Provider does not propose to share the economic benefits of such practice, sale, license or other grant of rights or exploitation equally with the Party whose consent is required.

5.5 Royalties . The Company shall pay to Service Provider within thirty (30) days of the end of each calendar quarter earned royalties of [***] of Net Sales during such calendar quarter. Each royalty payment shall (i) be accompanied by a report specifying: the Net Sales (including an accounting of deductions taken in the calculation of Net Sales) and (ii) state the applicable exchange rate used in conversion from any foreign country’s currency to United States Dollars (which conversion shall be determined in accordance with Section 5.6). All payments hereunder shall originate in the United States and be made in United States dollars.

 

10

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


5.6 Conversion . Conversion of foreign currency to United States dollars shall be made at the conversion rate existing in the United States (as reported in The Wall Street Journal ) on the last business day of the quarter immediately preceding the applicable calendar quarter. If The Wall Street Journal ceases to be published, then the rate of exchange to be used shall be that reported in such other business publication of national circulation in the United States as the Parties reasonably agree.

5.7 Tax Withholding; Restrictions on Payment . All taxes, assessments and fees of any nature levied or incurred on account of any payments from the Company to Service Provider accruing under this Agreement, by national, state or local governments, will be assumed and paid by the Company, except taxes levied thereon as income to Service Provider and if such taxes are required by applicable law to be withheld by the Company they will be deducted from payments due to Service Provider and will be timely paid by the Company to the proper taxing authority for the account of Service Provider, a receipt or other proof of payment therefore secured and sent to Service Provider as soon as practicable. The Company shall remit all payments to Service Provider hereunder from within the United States.

5.8 Records . The Company shall keep accurate books and accounts of the computation of the number of In-Field Products sold and the Net Sales of the Company, its Affiliates and Sublicensees of In-Field Products, and shall cause such Affiliates and Sublicensees to keep such records of their respective sales of In-Field Products and Net Sales, in sufficient detail to permit accurate determination of all figures necessary for verification of payments required to be paid hereunder, which books and accounts shall be maintained for at least three (3) years from the end of the calendar year to which they pertain.

5.9 Review . At the request of Service Provider, which shall not be made more frequently than once per calendar year during the Term, on a business day designated by Service Provider upon at least thirty (30) days’ prior written notice to the Company, the Company shall permit, under confidentiality obligations with terms substantially the same as those hereunder, an independent certified public accountant reasonably selected by Service Provider and reasonably acceptable to the Company to inspect (during regular business hours) the relevant records required to be maintained by the Company under Section 5.8. In the event such inspection reveals an underpayment, such underpayment shall be due and payable by the Company within thirty (30) days of the date of such inspection, together with interest thereon from the date the amount due but unpaid was first due until the date paid, at the lower of 12 percent (12%) per annum or the maximum rate permitted by applicable law. Such inspection shall be at the expense of Service Provider unless there is an underpayment that differs by greater than five percent (5%) from the amount that was otherwise due, in which event the Company shall also pay the reasonable costs of the inspection. The foregoing is without prejudice to the right of the Company to dispute the conclusion of the accountant, but such dispute shall not relieve the Company of its obligation to pay interest and, under the circumstances described, costs of inspection as to amount actually due.

 

11

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


5.10 Prosecution of Patents as to Service Provider Inventions and Joint Inventions . Service Provider shall be responsible for, and shall use reasonable efforts in, preparing, applying for and filing, prosecuting, obtaining and maintaining (collectively “Prosecuting”, with “Prosecution” having a corresponding meaning) in the name of Service Provider any patents that may be available with respect to Service Provider Inventions and in the name of the Parties any patents that may be available with respect to Joint Inventions, in each case in the [***](and elsewhere as it may elect), using patent counsel reasonably chosen by Service Provider (which in any event includes Levine Bagade Han LLP), and for maintaining any patents obtained thereon. Company shall reimburse Service Provider against invoices issued no more often than monthly for reasonable costs, including attorney’s fees, incurred by Service Provider in all such Prosecution. Service Provider shall keep the Company reasonably appraised as to the Prosecution of each such patent application. Service Provider agrees to send Company copies of all file histories and prosecution documents for each of the patent applications related to the Service Provider Inventions within thirty (30) days of receipt by Service Provider.

5.11 Requests for Prosecuting Other Patents as to Service Provider Inventions and Joint Inventions . Company may reasonably request that Service Provider at Company’s expense seek patent protection of the Service Provider Inventions or Joint Inventions in addition to that contemplated by Section 5.10 by written notice to Service Provider. Service Provider shall have the right in its discretion to refuse to seek any additional patent protection in response to a request from Service Provider in accordance with this Section 5.11 (a “Refused Patent”) by giving prompt written notice to Company. Company shall be permitted, but not obligated, to assume Prosecution, in its name, as to any Refused Patent, at its cost and expense, and Service Provider shall have no license to such Refused Patents.

5.12 Abandonment, Refusal and Rights as to Prosecuting Other Patents as to Service Provider Inventions and Joint Inventions . Company shall have the right in its discretion to cease to pay for the Prosecution of patent protection as to any Service Provider Inventions or Joint Inventions then being paid for by it as contemplated by Section 5.10 or 5.11 by giving written notice to Service Provider at least sixty (60) days prior to ceasing such payment (“Discontinued Patents”), and in such event need not pay for expenses of Prosecution incurred after the end of such sixty (60) day period. Service Provider shall be permitted, but not obligated, to assume Prosecution as to any Discontinued Patent, at its cost and expense, and Company shall have no license to such Discontinued Patents and as to Discontinued Patents with respect to Joint Inventions all interests of the Company therein shall be and hereby are assigned to Service Provider effective as of the end of such sixty (60) day notice period.

5.13 Cooperation . In any event each Party will, and will cause its employees and consultants to, provide any assistance and executed agreements and instruments as are reasonably requested by a Party which is seeking to obtain in accordance herewith patents or other protection with respect to any Service Provider Inventions or Joint Inventions or otherwise to give effect to the terms of this Agreement.

 

12

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


5.14 Notice of Infringement or Claims . If, during the Term, either Party learns of any (i) actual, alleged or threatened infringement by a Third Party of any Service Provider Inventions and Joint Inventions or (ii) attack on the enforceability or validity of any to Service Provider Inventions and Joint Inventions, then such Party shall promptly notify the other Party of the same and shall provide such other Party with available details as to and evidence of such infringement, suit or claim.

5.15 Service Provider Inventions and Joint Invention Intellectual Property Enforcement . Company shall have the first right (but not the obligation), at its own expense and with legal counsel of its own choice, to bring suit (or take other appropriate legal action) against any actual, alleged or threatened infringement of Service Provider Inventions and/or Joint Inventions to the extent an applicable exclusive license under Sections 5.2 or 5.3 with respect to such Service Provider Inventions and/or Joint Inventions remains in effect. Such right includes the right to settle the infringement claim, provided that if such settlement would include Company’s agreement to the invalidity or unenforceability of any claim within such intellectual property rights, Service Provider must first approve in writing such settlement, which approval shall not be unreasonably withheld. Any damages, monetary awards or other amounts recovered, whether by judgment or settlement, pursuant to any suit, proceeding or other legal action taken by Company under this Section 5.15, shall be applied as follows:

(a) first, to reimburse the cost of the Company for its reasonable costs and expenses (including reasonable attorneys’ fees and costs) incurred in prosecuting such enforcement action;

(b) second, to reimburse the costs of Service Provider for its reasonable costs and expenses (including reasonable attorneys’ fees and costs) incurred in such enforcement action;

(c) third, to the Company in reimbursement for lost sales associated with Licensed Products and to Service Provider in reimbursement for lost royalties, it being agreed that for such purpose such lost sales shall equate to Net Sales; and

(d) fourth, any amounts remaining shall be allocated to each Party on a pro rata basis based on each Party’s losses attributable to the infringement.

If Company brings any such action or proceeding hereunder, Service Provider agrees to be joined as party plaintiff if necessary to prosecute such action or proceeding, and to give Company reasonable assistance and authority to file and prosecute the suit. In no event shall Service Provider being a party to or represented in any such action by Company affect the right of Company to control the suit as described in the first sentence of this Section 5.15. If Company fails to take any action it is permitted to take by this Section 5.15 to obtain a discontinuance of such infringement or to bring suit against the infringer within four (4) months of having knowledge of such infringement, Service Provider shall have the right but not the obligation to enforce such Service Provider Inventions and/or Joint Inventions at its expense and for its sole benefit. For the avoidance of doubt, neither Company’s nor Service Provider’s failure to enforce the rights set forth in this Section 5.15 in any way affects the rights granted to or responsibilities of either Party under the Agreement.

 

13

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


5.16 Joint Invention Intellectual Property Enforcement . Service Provider shall have the first right (but not the obligation), at its own expense and with legal counsel of its own choice, to bring suit (or take other appropriate legal action) against any actual, alleged or threatened infringement of Joint Inventions to the extent the exlcusive license in its favor under Section 5.3 with respect to such Joint Inventions remains in effect. Such right includes the right to settle the infringement claim, provided that if such settlement would include Service Provider’s agreement to the invalidity or unenforceability of any claim within such intellectual property rights, Company must first approve in writing such settlement, which approval shall not be unreasonably withheld. Any damages, monetary awards or other amounts recovered, whether by judgment or settlement, pursuant to any suit, proceeding or other legal action taken by Service Provider under this Section 5.16, shall be applied as follows:

(a) first, to reimburse the cost of the Company for its reasonable costs and expenses (including reasonable attorneys’ fees and costs) incurred in prosecuting such enforcement action;

(b) second, to reimburse the costs of Service Provider for its reasonable costs and expenses (including reasonable attorneys’ fees and costs) incurred in such enforcement action; and

(c) third, any amounts remaining shall be allocated to each Party on a pro rata basis based on each Party’s losses attributable to the infringement.

If Service Provider brings any such action or proceeding hereunder, Company agrees to be joined as party plaintiff if necessary to prosecute such action or proceeding, and to give Service Provider reasonable assistance and authority to file and prosecute the suit. In no event shall Company being a party to or represented in any such action by Service Provider affect the right of Service Provider to control the suit as described in the first sentence of this Section 5.16. If Service Provider fails to take any action it is permitted to take by this Section 5.16 to obtain a discontinuance of such infringement or to bring suit against the infringer within four (4) months of having knowledge of such infringement, Company shall have the right but not the obligation to enforce such Joint Inventions at its expense and for its sole benefit. For the avoidance of doubt, neither Company’s nor Service Provider’s failure to enforce the rights set forth in this Section 5.16 in any way affects the rights granted to or responsibilities of either Party under the Agreement.

5.17 Other Service Provider Inventions and Joint Patent Enforcement . Except to the extent the right to bring suit (or take other appropriate legal action) against any actual, alleged or threatened infringement of Service Provider Inventions or Joint Inventions as set forth in Sections 5.4, 5.15 and 5.16, Service Provider shall have the sole right (but not the obligation), at its own expense and

 

14

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


with legal counsel of its own choice, to bring suit (or take other appropriate legal action) against any actual, alleged or threatened infringement of any intellectual property rights that are based on Service Provider Inventions or Joint Inventions. Such right includes the right to settle the infringement claim, provided that if such settlement would include Company’s agreement to the invalidity or unenforceability of any claim within such intellectual property rights, Company must first approve in writing such settlement, which approval shall not be unreasonably withheld.

6. REPRESENTATIONS AND WARRANTIES OF SERVICE PROVIDER . As of the Effective Date and the Amendment Date, Service Provider represents and warrants to Company as follows:

6.1 it has the right to grant the licenses set forth herein free and clear of all encumbrances; and

6.2 it is not a party to any agreements which would prevent the performance of the obligations of the Service Provider contained in this Agreement.

7. REPRESENTATIONS AND WARRANTIES OF EACH PARTY AND HOLDINGS . As of the Effective Date, each Party and Holdings represents and warrants as follows:

7.1 the execution, delivery and performance of this Agreement will not constitute a violation, be in conflict with, or result in a breach of any agreement or contract to which it is bound;

7.2 it is a corporation or entity duly organized and validly existing under the laws of the state or other jurisdiction of incorporation or formation;

7.3 the execution, delivery and performance of this Agreement by it has been duly authorized by all requisite corporate action and do not require any shareholder action or approval;

7.4 it has the power and authority to execute and deliver this Agreement and to perform its obligations hereunder; and

7.5 it shall at all times comply with all applicable material laws and regulations relating to its activities under the Agreement.

8. INDEMNITY

8.1 Company Indemnity . Company shall indemnify, defend and hold harmless Service Provider, its Affiliates and their respective directors, officers, employees, stockholders and agents and their respective successors, heirs and assigns (the “Service Provider Indemnitees”) from and against any claims, liability, damage, loss or expense (including reasonable attorneys’ fees and

 

15

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


expenses of litigation) incurred by or imposed upon such Service Provider Indemnitee, or any of them, in connection with any Third Party claims, suits, actions, demands or judgments to the extent arising out of or related to (i) the design, development, testing, production, manufacture, supply, promotion, marketing, importation, sale, use or instructions for use of any Licensed Product or In-Field Products (or any component thereof) manufactured or sold by Company or any Affiliate or Sublicensee under this Agreement, including without limitation any claims that (a) the design of any Licensed Product or In-Field Products by Company or a Sublicensee that incorporates the Technology developed pursuant to this Agreement infringed the intellectual property right of any Third Party, or (b) any Licensed Products sold by Company or any Affiliate or Sublicensee that incorporates the Technology developed pursuant to this Agreement caused the death of any person or any injury to any person or property, (ii) any material breach of any representation or warranty by Company in Article 7 of this Agreement.

8.2 Service Provider Indemnity . Service Provider shall indemnify, defend and hold harmless Company, its Affiliates and their respective directors, officers, employees, stockholders and agents and their respective successors, heirs and assigns (the “Company Indemnitees”) from and against any claims, liability, damage, loss or expense (including reasonable attorneys’ fees and expenses of litigation) incurred by or imposed upon such Company Indemnitee, or any of them, in connection with any Third Party claims, suits, actions, demands or judgments to the extent arising out of any claims that any material breach of any representation or warranty by Service Provider in Articles 6 and 7 of this Agreement.

8.3 Indemnification Procedures . In the event that any Indemnitee is seeking indemnification under Sections 8.1 or 8.2 above from a Party (the “Indemnifying Party”), the Indemnitee shall notify the Indemnifying Party of such claim with respect to such Indemnitee as soon as reasonably practicable after the Indemnitee receives notice of the claim, and the Party seeking indemnification, on behalf of itself and such Indemnitee, shall permit the Indemnifying Party to assume direction and control of the defense of the claim (including the right to settle the claim solely for monetary consideration) and shall cooperate as requested (at the expense of the Indemnifying Party) in the defense of the claim. The indemnification obligations under Article 8 shall not apply to any harm suffered as a direct result of any delay in notice to the Indemnifying Party hereunder or to amounts paid in settlement of any claim, demand, action or other proceeding if such settlement is effected without the consent of the Indemnifying Party, which consent shall not be withheld or delayed unreasonably. The Indemnitee, its employees and agents, shall reasonably cooperate with the Indemnifying Party and its legal representatives in the investigation of any claim, demand, action or other proceeding covered by Article 8.

9. TERM AND TERMINATION

9.1 Term . This Agreement shall be effective on the Effective Date and shall continue in full force and effect until terminated as permitted herein.

 

16

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


9.2 Termination for Breach . If (i) one Party defaults in the performance of, or fails to perform, any of its material obligations under this Agreement, and such default is not remedied within ten (10) days of the receipt of written notice from the non-defaulting Party; or (ii) one Party defaults in the performance of, or fails to perform, any of its material obligations under the License Agreement, and such default is not remedied within the cure period permitted by the License Agreement, and the non-defaulting party terminates the License Agreement by reason thereof, then the non-defaulting Party shall have the right to terminate this Agreement upon written notice and avail itself of any and all rights and remedies to which it may be entitled in accordance with the applicable provisions of this Agreement.

9.3 Return of Materials . Upon expiration or termination of this Agreement for any reason each Party shall immediately return to the receiving Party all property belonging to the other Party, including without limitation all Confidential Information in the receiving Party’s possession or control, any and all notes, drawings, lists, memoranda, magnetic disks or tapes, or other recording media containing such Confidential Information, whether alone or together with nonconfidential information, all documents, reports, files, memoranda, records, software, credit cards, door and file keys, computer access codes, disks and instructional manuals, or any other physical or personal property that the receiving Party received during the Term. If any such property is not in the receiving Party’s possession and control, the receiving Party shall use its best efforts to obtain and return the same. The receiving Party will be entitled to retain one (1) copy of all Confidential Information received in an archived format for recordkeeping and legal purposes.

9.4 Certain Effects of Termination . Upon any termination of this Agreement by:

(a) Service Provider pursuant to Section 9.2 hereof, as of the effective date of such termination: (i) all relevant licenses and sublicenses granted by Service Provider to Company hereunder with respect to the Service Provider Inventions, and any sublicense granted by Company to any Sublicensee with respect to the Service Provider Inventions, shall terminate automatically, (ii) the unmade payments under Section 3.1 will survive such termination and become immediately due and payable; (iii) all relevant licenses and sublicenses granted by Service Provider to Company hereunder with respect to the Joint Inventions, and any permitted sublicense granted by Company to any Sublicensee with respect to the Joint Inventions, shall terminate automatically, (iv) all relevant licenses and sublicenses granted by Company to Service Provider hereunder with respect to the Joint Inventions, and any permitted sublicense granted by Service Provider to any Sublicensee with respect to the Joint Inventions, shall continue in full force and effect, and (v) with respect to any Joint Invention, the rights and obligations of the Parties set forth in Section 5.4, Sections 5.5 through 5.9 (inclusive) (with respect to any Net Sales before the date of such termination), Sections 5.10 through 5.14 (inclusive), Section 5.16 and 5.17 shall survive such termination, and

(b) Company pursuant to Section 9.2 hereunder, as of the effective date of such termination: (i) all relevant licenses and sublicenses granted by Service Provider to Company hereunder with respect to the Service Provider Inventions, and any sublicense granted by Company to any Sublicensee with respect to the Service Provider Inventions, shall terminate

 

17

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


automatically, (ii) all relevant licenses and sublicenses granted by Service Provider to Company hereunder with respect to the Joint Inventions, and any permitted sublicense granted by Company to any Sublicensee with respect to the Joint Inventions, shall terminate automatically; (iii) notwithstanding the terminations set forth in subsections (i) and (ii) above, Company and its Affiliates and Sublicensees shall have the right, for nine (9) months or such longer time period as upon which the Parties mutually agree in writing, to sell or otherwise dispose of all finished Licensed Products then on hand, with royalties to be paid as provided for in the License Agreement, (iv) all relevant licenses and sublicenses granted by Company to Service Provider hereunder with respect to the Joint Inventions, and any permitted sublicense granted by Service Provider to any Sublicensee with respect to the Joint Inventions, shall survive, and (v) with respect to any Joint Invention, the rights and obligations of the Parties set forth in Section 5.4, Sections 5.5 through 5.9 (inclusive) (with respect to any Net Sales before the date of such termination), Sections 5.10 through 5.14 (inclusive), Section 5.16 and 5.17 shall survive such termination.

10. NOTICES

All notices, requests and other communications hereunder shall be in writing, shall be addressed to the receiving Party’s address set forth below or to such other address as a Party may designate by notice hereunder, and shall be either (i) delivered by hand, (ii) sent by nationally-recognized overnight courier service providing evidence of receipt, or (iii) sent by registered or certified mail, return receipt requested, postage prepaid. The addresses and other contact information for the parties are as follows:

 

If to Service Provider:   

Stout Medical Group LP

410 East Walnut Street, Suite #8,

Perkasie, Pennsylvania 18944

(215) 450-8860 (ext. 102)

Attn: Chief Executive Officer

With a copy to:   

Oppenheimer Wolff & Donnelly

Plaza VII Building, Suite 3300

45 South Seventh Street

Minneapolis, Minnesota 55402

(612) 607-7397

Attn: Dennis P. Whelpley

If to Company:   

Alphatec Spine, Inc.

5818 El Camino Real

Carlsbad, CA 92008

(760) 431-9286

Attn: President and CEO

 

18

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


All notices, requests and other communications hereunder shall be deemed to have been given either (i) if by hand, at the time of the delivery thereof to the receiving Party at the address of such Party set forth above, (ii) if made by telecopy or facsimile transmission, at the time that receipt thereof has been acknowledged by the recipient, (iii) if sent by nationally-recognized overnight courier, on the day such notice is delivered to the recipient, or (iv) if sent by registered or certified mail, on the fifth (5 th ) business day following the day such mailing is made.

11. GENERAL

11.1 Governing Law . This Agreement will be construed and interpreted in accordance with the laws of the State of New York.

11.2 Limitations . Except as expressly set forth in this Agreement, neither Party grants to the other Party any right or license to any of its intellectual property.

11.3 Entire Agreement . This is the entire Agreement between the Parties with respect to the subject matter hereof and supersedes all prior representations, understandings and agreements between the Parties with respect to the subject matter hereof. No modification shall be effective unless in writing with specific reference to this Agreement and signed by the Parties. No modification shall be effective unless in writing with specific reference to this Agreement and signed by the Parties. No modification shall be effective unless in writing with specific reference to this Agreement and signed by the Parties.

11.4 Waiver . The terms or conditions of this Agreement may be waived only by a written instrument executed by the Party waiving compliance. The failure of either Party at any time or times to require performance of any provision hereof shall in no manner affect its rights at a later time to enforce the same. No waiver by either Party of any condition or term shall be deemed as a continuing waiver of such condition or term or of another condition or term.

11.5 Headings . Section, Subsection and Paragraph headings are inserted for convenience of reference only and do not form part of this Agreement.

11.6 Assignment . Neither this Agreement nor any right or obligation hereunder may be assigned, delegated or otherwise transferred, in whole or part, by either Party without the prior express written consent of the other Party; provided that a Party may freely assign this Agreement, including all rights and obligations hereunder, at any time to any entity acquiring in the same transaction substantially all of such Party’s business and assets, including those to which this Agreement relates, whether by way of sale, merger, consolidation or other transaction without the prior written consent of the other Party. Any permitted assignee shall assume all obligations of its assignor under this Agreement. Any purported assignment in violation of this Section 11.7 shall be void. The terms and conditions of this Agreement shall be binding upon and inure to the benefit of the permitted successors and assigns of the parties.

 

19

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


11.7 Force Majeure . Neither Party shall be liable for failure of or delay in performing obligations set forth in this Agreement, and neither shall be deemed in breach of its obligations, for so long as and to the extent that such failure or delay is due to natural disasters or any causes beyond the reasonable control of such Party. In event of such force majeure, the Party affected thereby shall use reasonable efforts to cure or overcome the same and resume performance of its obligations hereunder.

11.8 Construction . The Parties hereto acknowledge and agree that: (i) each Party and its counsel reviewed and negotiated the terms and provisions of this Agreement and have contributed to its revision; (ii) the rule of construction to the effect that any ambiguities are resolved against the drafting Party shall not be employed in the interpretation of this Agreement; and (iii) the terms and provisions of this Agreement shall be construed fairly as to all Parties hereto and not in favor of or against any Party, regardless of which Party was generally responsible for the preparation of this Agreement.

11.9 Severability . If any provision(s) of this Agreement are or become invalid, are ruled illegal by any court of competent jurisdiction or are deemed unenforceable under then current applicable law from time to time in effect during the Term hereof, it is the intention of the Parties that the remainder of this Agreement shall not be affected thereby provided that a Party’s rights under this Agreement are not thereby materially diminished. The Parties hereto covenant and agree to renegotiate any such term, covenant or application thereof in good faith in order to provide a reasonably acceptable alternative to the term, covenant or condition of this Agreement or the application thereof that is invalid, illegal or unenforceable, it being the intent of the Parties that the basic purposes of this Agreement are to be effectuated.

11.10 Status . Nothing in this Agreement is intended or shall be deemed to constitute a partner, agency, employer-employee, or joint venture relationship between the Parties.

11.11 Section 365(n) . All licenses granted under this Agreement are deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of right to “intellectual property” as defined in Section 101 of such Code. The Parties agree that Company may fully exercise all of its rights and elections under the U.S. Bankruptcy Code, regardless of whether either Party files for bankruptcy in the United States or other jurisdiction.

11.12 Further Assurances . Each Party agrees to execute, acknowledge and deliver such further instructions, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.

11.13 Counterparts . This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

20

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


11.14 Surviving Provisions . Notwithstanding any provision herein to the contrary, the rights and obligations of the Parties set forth in Sections 9.3, 9.4 and Articles 4, 8, 10, and 11 (to the extent relevant) shall survive the expiration or termination of this Agreement.

11.15 Guarantee and Agreement of Alphatec Holdings, Inc . By its signature below, Holdings hereby guarantees the full and timely payment and performance of all obligations of Company under this Agreement and agrees to issue shares to Service Provider consistent with the terms of this Agreement, including without limitation Section 3.2 hereof.

[Signature Page Follows]

 

21

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


IN WITNESS WHEREOF, the Parties and Holdings have caused this Agreement to be executed by their duly authorized representative.

 

ALPHATEC SPINE, INC.     STOUT MEDICAL GROUP, LP:
      By:   Stout Medical Group, Inc.
      Its: General Partner
By:   /s/ Dirk Kuyper     By:   /s/ Tom Molz
Name: Dirk Kuyper     Name: Tom Molz
Title: President and CEO     Title: President and CEO
ALPHATEC HOLDINGS, INC.    
By:   /s/ Dirk Kuyper      
Name: Dirk Kuyper      
Title: President and CEO      

 

22

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


SCHEDULE A

STATEMENT OF WORK

[***]

 

23

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

Exhibit 10.4

FIRST AMENDMENT TO THE EXCLUSIVE LICENSE AGREEMENT

This First Amendment to the Exclusive License Agreement (this “Amendment”) is made effective as of March 31, 2009 (the “Effective Date”) between Alphatec Spine, Inc., a Delaware corporation with a principal place of business at 5818 El Camino Real, Carlsbad, California 92008 (“Licensee”) and Stout Medical Group LP, a limited partnership company organized under the laws of the state of Delaware, and having a place of business at 410 East Walnut Street, Suite #8, Perkasie, Pennsylvania 18944 (“Licensor”). Licensee and Licensor are each hereafter referred to individually as a “Party” and together as the “Parties”.

WHEREAS, Reference is made to that certain Exclusive License Agreement dated September 11, 2007, between the Parties (the “Agreement”).

WHEREAS, The Parties desire to amend the Agreement as set forth herein.

NOW, THEREFORE, in consideration of the mutual promises set forth herein and for other good and valuable consideration, the receipt and sufficiency of which is acknowledged by the Parties hereto, the Parties hereto agree as follows:

 

1. AMENDMENTS

1.1 Amendment and Restatement of Section 4.1.4 . Section 4.1.4 of the Agreement is hereby deleted and replaced in its entirety with the following language:

“4.1.4 Minimum Royalties . Licensee shall pay Licensor the following minimum annual royalty amounts with respect to Licensed Products in each twelve (12)-month period listed next to such amount. No minimum annual royalty described in this Subsection 4.1.4 shall be credited against or otherwise reduce any other amounts payable hereunder. In the event that the sum of the earned royalties on Net Sales timely paid in accordance with Subsection 4.1.3 above with respect to any twelve (12)-month period determined in accordance with the table below is less than the minimum annual royalty for such twelve (12)-month period as also determined in accordance with the table below, the obligation to pay the difference to Licensor shall accrue on the last day of such twelve (12)-month period and shall be payable by Licensee no later than [***] days following the end of such twelve (12)-month period:

 

Twelve (12)-Month Period

 

Minimum Annual Royalty

[***]   [***]
[***]   [***]
[***]   [***]

 

1

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


(a) It is the agreement of the Parties that Licensee will make interim minimum royalty payments with respect to the first twelve (12)-month period following the Minimum Trigger Date as follows: with respect to each of the first three (3)-month periods during the twelve (12)-month period commencing on the Minimum Trigger Date (e.g. if the Minimum Trigger Date is January 1, 2010, the first such three (3)-month period would commence on January 1, 2010 and end March 31, 2010, the second would commence April 1, 2010 and end June 30, 2010, etc.), if the royalty amounts paid to Licensor pursuant to Section 4.1.3 for such three (3)-month period are less than [***], then within thirty (30) days of the end of such a three (3)-month period Licensee shall pay to Licensor the difference (it being anticipated that the payments under this paragraph and under Section 4.1.3 shall be coordinated and made at the same time).

(b) Licensor shall make the royalty payment contemplated by Section 4.1.3 following the last three (3)-month period during the twelve (12)-month period commencing on the Minimum Trigger Date. After making such payment:

(i) if all amounts then previously paid pursuant to paragraph (a) of this Section plus such Section 4.1.3 payment with respect to the last three (3)-month period during the twelve (12)-month period commencing on the Minimum Trigger Date (the aggregate amount of such payments the “Prior Payments”) are less than [***] then within forty five (45) days of the end of such last three (3)-month period Licensee shall pay to Licensor the difference; and

(ii) if the Prior Payments are in excess of both: (i) the amounts paid pursuant to Section 4.1.3 for all four three (3)-month period during the twelve (12)-month period commencing on the Minimum Trigger Date and (ii) [***], then within forty five (45) days of the end of such last three (3)-month period Licensor shall pay to Licensee whichever excess is smaller.”

1.2 Amendment and Restatement of Subsection 9.2.2 . Subsection 9.2.2 of the Agreement is hereby deleted and replaced in their entirety with the following language:

“9.2.2 Licensor’s Termination Rights Based on Non-pursuit of Regulatory Filing . In the event that the Licensee (i) fails to use commercially reasonable efforts to as promptly as possible obtain approval of a Licensed Product under its current 510(k) application with the FDA (other than by reason of the FDA imposing an impracticable clinical trial requirement in connection with the grant of such approval) or (ii) terminates or permits to lapse its current 510(k) application with the FDA with respect to a Licensed Product, and Licensee thereafter fails either (1) to use commercially reasonable efforts to as promptly as possible thereafter (a) to file a new 510(k) application with the FDA with respect to a Licensed Product, or (b) to initiate an Investigational Device Exemption with the FDA with respect to a Licensed Product (a “Regulatory Filing”); or (2) to make a Regulatory Filing within [***] of the date that the Licensee terminates or permits to lapse its current 510(k) application with the FDA with respect to a Licensed Product, and such failure, termination or lapse is not caused by a breach of this Agreement by Licensor giving the Company a right of termination under Section 9.2.1 hereof, then Licensor shall be entitled to terminate the Agreement by giving Licensee [***] written notice; provided that if during such [***] notice period the Licensee (i) makes a Regulatory Filing, or (ii) gives Licensor written notice that it desires to continue this license (the Continuation Notice”)

 

2

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


such termination shall be ineffective and void ab initio . In the event Licensee sends the Continuation Notice, Licensee hereby agrees to make the following payments to Licensor (each of which shall be credited against any amounts due to the Licensor pursuant to Section 4.1.4):

(a) [***], within thirty (30) days of the end of the first three (3)-month period following the date of the Continuation Notice;

(b) [***], within thirty (30) days of the end of the second three (3)-month period following the date of the Continuation Notice;

(c) [***], within thirty (30) days of the end of the third three (3)-month period following the date of the Continuation Notice; and

(d) [***], within thirty (30) days of the end of the fourth three (3)-month period following the date of the Continuation Notice.

If during the period following the delivery of the Continuation Notice, the Licensee makes a Regulatory Filing, and provided Licensee is using commercially reasonable efforts to obtain approval from the FDA of the Licensed Product covered by such Regulatory Filing, the payment amounts set forth in Sections 9.2.2(a)-(d) shall not be in effect following the date of such Regulatory Filing.

If within [***] after the date of the Continuation Notice, the Company has not made a Regulatory Filing, the termination of this Agreement shall be effective without further action by the Parties as of the end of such fourteen (14)-month period.”

1.3 Addition of new Subsection 9.2.3 . A new Subsection 9.2.3 of the Agreement are hereby added as follows:

“9.2.3 Voluntary Termination . Licensee shall have the right to terminate this Agreement effective as of the first day of any calendar year upon not less than ninety (90) days prior written notice to Licensor.”

 

2. MISCELLANEOUS

In the event of any conflict between the provisions of this Amendment and the Agreement, the provisions of this Amendment shall prevail. Other than as set forth in this Amendment, the remainder of the Agreement shall remain in full force and effect.

[Signatures Follow]

 

3

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


IN WITNESS WHEREOF, the Parties have caused this Amendment to be executed by their duly authorized representative.

 

ALPHATEC SPINE, INC.     STOUT MEDICAL GROUP, LP:
    By: Stout Medical Group, Inc.
    Its: General Partner
By:    /s/ Dirk Kuyper     By:    /s/ Tom Molz
Name:   Dirk Kuyper     Name:   Tom Molz
Title:   President and CEO     Title:   President and CEO

 

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Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

Exhibit 10.5

INDEMNIFICATION AGREEMENT

This Indemnification Agreement (“ Agreement ”) is made as of [                      ] by and between Alphatec Holdings, Inc., a Delaware corporation (the “ Company ”), and [                      ] (“ Indemnitee ”).

RECITALS

WHEREAS , highly competent persons have become more reluctant to serve corporations as directors or in other capacities unless they are provided with adequate protection through insurance and adequate indemnification 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 certificate of incorporation and bylaws of the Company 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 (“ DGCL ”). The certificate of incorporation, 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, 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’s 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 certificate of incorporation and bylaws of the Company and any resolutions adopted pursuant thereto and shall not be deemed a substitute therefore, nor to limit, diminish or abrogate any rights of Indemnitee thereunder; and

 

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WHEREAS , Indemnitee does not regard the protection available under the Company’s certificate of incorporation, bylaws and insurance as adequate in the present circumstances, and may not be willing to serve as an officer or director without adequate protection, and the Company desires Indemnitee to serve in such capacity. Indemnitee is willing to serve, continue to serve and to take an additional service for or on behalf of the Company on the condition that he or she be so indemnified.

AGREEMENT

NOW, THEREFORE , in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

1. Services to the Company . Indemnitee will serve or continue to serve as an officer, director or key employee of the Company for so long as Indemnitee is duly elected or appointed or until Indemnitee tenders his or her resignation.

2. Definitions . As used in this Agreement:

(a) “ 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 of the Company with another entity.

(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, directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company’s then outstanding securities;

(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;

 

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(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 50.1% 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) Liquidation . The approval by the stockholders of the Company of a complete liquidation of the Company or an agreement or services of agreements for the sale or disposition by the Company of all or substantially all of the Company’s assets; or

(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.

(c) “ Corporate Status ” describes the status of a person who is or was a director, officer, trustee, general partner, managing member, fiduciary, employee or agent of the Company or of any other Enterprise (as defined below) which such person is or was serving at the request of the Company.

(d) “ Disinterested Director ” means 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, employee benefit plan or other enterprise of which Indemnitee is or was serving at the request of the Company as a director, officer, trustee, general partner, managing member, fiduciary, employee or agent.

(f) “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended.

(g) “ Expenses ” shall include all reasonable attorneys’ feeds, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees and all other disbursements or expenses of the type 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 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. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.

(h) “ Independent Counsel ” means 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 with respect to matters concerning Indemnitee under this agreement, or of other

 

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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 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.

(i) “ Person ” shall have the meaning set forth in Sections 13(d) and 14(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.

(j) The term “ Proceeding ” shall include any threatened, pending or completed action, suite, arbitration, alternate dispute resolution mechanism, investigation, formal or informal inquiry, administrative hearing, request for documents or information, subpoena, 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 or investigative nature, in which Indemnitee was, is or will be involved as a 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 (or failure to act) by him or her or of any action (or failure to act) on his or her part while acting as a director or officer of the Company, or by reason of the fact that he or she is or was serving at the request of the Company as a director, officer, trustee, general partner, managing member, fiduciary, employee or agent of any Enterprise, in each case whether or not serving in such capacity at the time any liability or Expenses are incurred for which indemnification, reimbursement or advancement of Expenses can be provided under this Agreement.

(k) References to “ other enterprise ” shall include employee benefit plans; 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 or she 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 a manner “ not opposed to the best interests of the Company ” as referred to in this Agreement.

3. Indemnity in Third-Party Proceedings . The Company shall indemnify Indemnitee in accordance with the provisions of this Section 3 if Indemnitee is, or is threatened to be made, a party to or a participant (as a witness or otherwise) 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, Indemnitee shall be indemnified against all Expenses, judgments, fines, penalties 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, penalties and amounts paid in settlement) actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonable believed to be in or not opposed to the best interests of the Company and, in the case of a criminal proceeding, he or she had no reasonable cause to believe that his or her conduct was unlawful.

 

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4. Indemnity in Proceedings by or in the Right of the Company . The Company shall indemnify Indemnitee in accordance with the provisions of this Section 4 if Indemnitee is, or is threatened to be made, a party to or a participant (as a witness or otherwise) in any Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 4, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonable believed to be in or not opposed to the best interests of the Company. No indemnification for Expenses shall be made under this Section 4 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 any court in which the Proceeding was brought or the Delaware Court of Chancery shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonable entitled to indemnification.

5. Indemnification for Expenses of a Party Who is Wholly or Partly Successful . Not withstanding any other provisions of this Agreement, 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 or her in connection therewith. In 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 her or on his or her behalf in connection with each successfully resolved claim, issue or matter. If Indemnitee is not wholly successful in such Proceeding, the Company also shall indemnify Indemnitee against all Expenses reasonably incurred in connection with a claim, issue or matter related to any claim, issue or matter on which Indemnitee was successful. For purposes of this Section and without limitation, the termination of any claim, issue or matter n such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

6. Indemnification for Expenses of a Witness . Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith.

7. Additional Indemnification .

(a) Notwithstanding any limitation in Sections 3, 4 or 5, the Company shall indemnify Indemnitee to the fullest extent permitted by 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, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such

 

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Expenses, judgments, fines, penalties and amounts paid in settlement) actually and reasonably incurred by Indemnitee in connection with the Proceeding. No indemnity shall be made under this Section 7(a) on account of Indemnitee’s conduct which is finally determined by a court of competent jurisdiction to constitute a breach of Indemnitee’s duty of loyalty to the Company or its stockholders or to be an act or omission not in good faith or which involves intentional misconduct or a knowing violation of the law.

(b) For purposes of Section 7(a), the meaning of the phrase “ to the fullest extent permitted by 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.

8. Exclusions . Notwithstanding any other provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee:

(a) for which payment has actually been received by or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount actually received under any insurance policy or other indemnity provision;

(b) for 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 or similar provisions of state statutory law or common law; or

(c) except as otherwise provided in Sections 13(d)-(f) hereof, in connection with any Proceeding (9or 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 of Directors of the Company 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.

9. Advances of Expenses; Defense of Claim .

(a) Notwithstanding any provision of this Agreement to the contrary, the Company shall advance the Expenses incurred by Indemnitee in connection with any Proceeding within ten (10) 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. Advances

 

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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. Indemnitee shall qualify for advances solely upon the execution and delivery to the Company of an undertaking providing that Indemnitee undertakes to repay the advance to the extent that it is ultimately determined by a final decision by a court of competent jurisdiction that Indemnitee is not entitled to be indemnified by the Company. This Section 9(a) shall not apply to any claim made by Indemnitee for which indemnity is excluded pursuant to Section 8.

(b) The Company will be entitled to participate in the Proceeding at its own expense.

(c) The Company shall not settle any action, claim or Proceeding (in whole or in part) which would impose any Expense, judgment, fine, penalty or limitation on Indemnitee without Indemnitee’s prior written consent.

10. Procedure for Notification and Application for Indemnification .

(a) Within sixty (60) days after the actual receipt by Indemnitee of notice that he or she is a party to or a participant (as a witness or otherwise) in any Proceeding, Indemnitee shall submit to the Company a written notice identifying the Proceeding. The omission by Indemnitee to notify the Company will not relieve the Company from any liability which it may have to Indemnitee (i) otherwise than under this Agreement and (ii) under this Agreement unless and only to the extent that the Company can establish that such omission to notify resulted in actual prejudice to the Company.

(b) Indemnitee shall thereafter deliver to the Company a written application to indemnify Indemnitee in accordance with this Agreement. Such application(s) may be delivered from time to time and at such time(s) as Indemnitee deems appropriate in his or her sole discretion. Following such a written application for indemnification by Indemnitee, Indemnitee’s entitlement to indemnification shall be determined in accordance with Section 11(a) of this Agreement.

11. Procedure Upon Application for Indemnification .

(a) Upon written request by Indemnitee for indemnification pursuant to Section 10(b), a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall be made in the specific case: (i) by a majority vote of the Disinterested Directors, even though less than a quorum of the Board; or (ii) if so requested by Indemnitee, in his or her sole discretion, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee. 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 reasonably 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.

 

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(b) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 11(a) hereof, the Independent Counsel shall be selected as provided in this Section 11(b). If a Change in Control shall not have occurred, the Independent Counsel shall be selected by the Board of Directors, and the Company shall give written notice to Indemnitee advising him of the identity of the Independent Counsel so selected and the basis for the Board of Directors’ determination that such counsel qualified as Independent Counsel. The Board of Directors and Independent Counsel shall respond promptly to any inquiries by or on behalf of the Indemnitee as to any acts and circumstances relating to such counsels’ qualification to Independent Counsel as defined in Section 2 of this Agreement. 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 of Directors, 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 10 days after such written notice of selection shall have been received, 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 a court of competent jurisdiction has determined that such objection is without merit. If, within 20 days after submission by Indemnitee of a written request for indemnification pursuant to Section 10(b) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition a court of competent jurisdiction (the “ 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 the Court or by such other person as the 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 11(a) hereof. Any costs of Expenses incurred by Indemnitee in so petitioning a court pursuant to this Section 11(b) shall be borne by the Company (irrespective of the resolution of such petition and irrespective of the determination as to Indemnitee’s entitlement to Indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 13(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).

(c) The Company agrees to pay the reasonable fees of Independent Counsel and to fully indemnify such Independent Counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

 

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12. 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 presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 10(b) of this Agreement, and the Company shall 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 the Board 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 the Board 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) If the person, persons or entity empowered or selected under Section 11 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, the requisite determination of entitlement to indemnification shall 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 shall 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.

(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 or she 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 or her 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 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 by the Enterprise. The provisions of this Section 12(d) shall not be deemed to be exclusive or to limit in any way the other circumstances in which Indemnitee may be deemed or found 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 other director, trustee, partner, managing member, fiduciary, officer, agent, advisor or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.

 

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13. Remedies of Indemnitee .

(a) In the event that (i) a determination is made pursuant to Section 11 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 9 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 11(a) of this Agreement within the time period specified in Section 12(b) of this Agreement, (iv) payment of indemnification is not made pursuant to Section 5, 6, 7 or the last sentence of Section 11(a) of this Agreement within ten (10) days after receipt by the Company of a written request therefor or (v) payment of indemnification pursuant to Section 3 or Section 4 of this Agreement is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication by a court of his or her entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at his or her 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. 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 11(a) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 13 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 13 the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be, and the Company may not refer to or introduce into evidence any determination pursuant to Section 11(a) of this Agreement adverse to Indemnitee for any purpose. If Indemnitee commences a judicial proceeding or arbitration pursuant to this Section 13, Indemnitee shall not be required to reimburse the Company for any advances pursuant to Section 9 until a final determination is made with respect to Indemnitee’s entitlement to indemnification (as to which all rights of appeal have been exhausted or lapsed).

(c) If a determination shall have been made pursuant to Section 11(a) of this Agreement that Indemnittee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 13, 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) In the event that Indemnitee, pursuant to this Section 13, seeks a judicial adjudication of or an award in arbitration to enforce his or her rights under, or to recover damages for breach of, this Agreement, Indemnitee shall, subject to the further provisions of this paragraph (d), be entitled to recover from the Company, and shall be indemnified by the Company against, any and all Expenses actually and reasonably incurred by him or her in such judicial adjudication or arbitration. If it shall be determined in said judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the indemnification or advancement of Expenses sought, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the

 

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Company against, that portion of the Expenses reasonably incurred by Indemnitee in connection with such judicial adjudication or arbitration that are related to the recovered Expenses. If it shall be determined in said judicial adjudication or arbitration that Indemnitee is not entitled to the indemnification or advancement of Expenses sought, Indemnitee shall not be entitled to indemnification for Expenses in connection with such judicial adjudication or arbitration.

(e) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 13 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.

(f) The Company shall indemnify Indemnitee to the fullest extent permitted by law against all Expenses and, if requested by Indemnitee, shall (within ten (10) days after the Company’s receipt of such written request) advance such Expenses to Indemnitee, which are incurred by Indemnitee in connection with any judicial proceeding or arbitration brought by Indemnitee for (i) indemnification or advances of Expenses by the Company under this Agreement or any other agreement or provision of the Company’s certificate of incorporation or bylaws now or hereafter in effect or (ii) recovery or advances under any insurance policy maintained by any person for the benefit of Indemnitee, solely upon the execution and delivery to the Company of an undertaking providing that Indemnitee undertakes to repay the advance to the extent that it is finally determined by a Court of competent jurisdiction that Indemnitee is not entitled to be indemnified by the Company.

14. 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 Company’s certificate of incorporation, the Company’s bylaws, any agreement, a vote of stockholders, a resolution of directors or otherwise, and this Agreement shall in no way limit, diminish or abrogate any such other rights to indemnification or advancement of Expenses. 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 Company’s 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, 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.

(b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, trustees, partners, managing members, fiduciaries, employees or agents of the Company or of any other Enterprise which such person serves at the request of the Company, Indemnitee shall be covered by such policy or policies in accordance

 

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with its or their terms to the maximum extent of the coverage available for any such director, trustee, partner, managing member, fiduciary, officer, employee or agent under such policy or policies. If, at the time the Company receives notice from any source of a Proceeding as to which Indemnitee is a party or a participant (as a witness or otherwise), the Company has director and officer liability insurance in effect, the Company shall give prompt notice of such Proceeding 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 Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies.

(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 hereunder (or for which advancement is provided 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 Enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of expenses from such Enterprise.

15. Duration of Agreement . This Agreement shall continue until and terminate upon the later of: (a) ten (10) years after the date that Indemnitee shall have ceased to serve as a director or officer of the Company or as a director, officer, trustee, partner, managing member, fiduciary, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which Indemnitee served at the request of the Company; or (b) one (1) year after the final termination of any Proceeding (including any rights of appeal thereto) then pending in respect of which Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any Proceeding commenced by Indemnitee pursuant to Section 13 of this Agreement relating thereto (including any rights of appeal of any Section 13 Proceeding).

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.

 

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17. Enforcement and Binding Effect .

(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, officer or key employee of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director, officer or key employee 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 understanding, oral, written and implied, between the parties hereto with respect to the subject matter hereof.

(c) The indemnification and advancement of expenses provided by or granted pursuant to this Agreement shall apply to Indemnitee’s service as an officer, director or key employee of the Company prior to the date of this Agreement.

(d) The indemnification and advancement of expenses provided by or granted pursuant to this Agreement shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

18. Modification and Waiver . No supplement, modification or amendment of this agreement shall be binding unless executed in writing 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.

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 Indemnitee under this Agreement or otherwise.

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 (a) if delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed or (b) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed:

(a) If to Indemnitee, at the address indicated on the signature page of this Agreement, or such other address as Indemnitee shall provide in writing to the Company.

 

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(b) If to the Company to:

Alphatec Holdings, Inc.

2051 Palomar Airport Road

Carlsbad, CA 92075

Attn.: General Counsel

or to any other address as may have been furnished to Indemnitee in writing by the Company.

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, 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 transactions(s) giving rise 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).

22. Applicable Law ad Consent to Jurisdiction . This Agreement and the legal relations among the parties 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 with respect to any arbitration commenced by Indemnitee pursuant to Section 13(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 a resident of the State of Delaware, irrevocably Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808, as its agent in the State of Delaware as such party’s agent 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.

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.

 

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24. Miscellaneous . Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate. The headings of the sections and paragraphs 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]

 

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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first above written.

 

ALPHATEC HOLDINGS, INC.,     INDEMNITEE
a Delaware corporation    
By:          
Name:   Dirk Kuyper     [NAME]
Title:   President and CEO    
      Address    
       
       

 

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Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Dirk Kuyper, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Alphatec 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 Acts 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 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.

 

By:   /s/ Dirk Kuyper
  Dirk Kuyper
  President and Chief Executive Officer
  May 5, 2009

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Peter C. Wulff, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Alphatec 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 Acts 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 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.

 

By:   /s/ Peter C. Wulff
  Peter C. Wulff
  Chief Financial Officer, Vice President and Treasurer
  May 5, 2009

Exhibit 32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of Alphatec Holdings, Inc., a Delaware corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:

The Quarterly Report for the period ended March 31, 2009 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated:   May 5, 2009       /s/ Dirk Kuyper
        Dirk Kuyper
        President and Chief Executive Officer
        (principal executive officer of the Company)
Dated:   May 5, 2009       /s/ Peter C. Wulff
        Peter C. Wulff
        Chief Financial Officer, Vice President and Treasurer
        (principal financial and accounting officer of the Company)