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As filed with the Securities and Exchange Commission on April 19, 2006

Registration No. 333-131609



SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549


AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933


ALPHATEC HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  3841
(Primary Standard Industrial
Classification Code Number)
  20-2463898
(IRS Employer
Identification No.)

2051 Palomar Airport Road
Carlsbad, California 92011
(760) 431-9286
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)


Ronald G. Hiscock
Alphatec Holdings, Inc.
2051 Palomar Airport Road
Carlsbad, CA 92011
(760) 431-9286
(Name, address, including zip code, and telephone number,
including area code, of agent for service)


With copies to:

Michael L. Fantozzi, Esq.
Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
(617) 542-6000
  James M. McKnight, Esq.
Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
Chrysler Center
666 Third Avenue
New York, NY 10017
(212) 935-3000
  Stephen T.D. Dixon
Alphatec Holdings, Inc.
2051 Palomar Airport Road
Carlsbad, CA 92011
(760) 431-9286
  Alejandro E. Camacho, Esq.
Clifford Chance US LLP
31 West 52nd Street
New York, NY 10019
(212) 878-8000

        Approximate date of commencement of proposed sale to public:     As soon as practicable after this Registration Statement becomes effective.

        If any of the securities being registered on this Form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box.  o

        If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

        If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering.  o

        If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering.  o


         The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.




The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion, Dated April 19, 2006

LOGO

                    Shares

Common Stock

This is our initial public offering of shares of common stock. No public market currently exists for our common stock. We are offering                           shares of common stock. We intend to apply to have our common stock approved for quotation on the Nasdaq National Market under the symbol "ATEC." We anticipate that the initial public offering price will be between $                        and $                        per share.

Investing in our common stock involves a high degree of risk. See "Risk Factors" beginning on page 10.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

 
  Per Share

  Total

Public offering price   $     $  
Underwriting discount and commissions   $     $  
Proceeds, before expenses   $     $  

We have granted the underwriters a 30-day option to purchase up to    additional shares to cover any over-allotments. The underwriters expect to deliver the shares of common stock to investors on or about                           , 2006.

Joint Book-Running Managers

Deutsche Bank Securities

 

First Albany Capital

Co-Manager

RBC Capital Markets

The date of this prospectus is                    , 2006.


GRAPHIC



SUMMARY

         This summary does not contain all of the information that you should consider before investing in our common stock. Before making an investment decision, you should read the entire prospectus carefully, including "Risk Factors" and our consolidated financial statements, the financial statements of Cortek, Inc., or Cortek, and our unaudited pro forma condensed combined consolidated statements of operations information and the notes to those statements and information included elsewhere in this prospectus.


Alphatec Holdings, Inc.

Our Business

        We are a medical device company focused on the design, development, manufacturing and marketing of products for the surgical treatment of spine disorders. Our principal product offering is primarily focused on the over $2.2 billion U.S. spine fusion market. In addition to our U.S. presence, we also participate in the Japanese spine fusion and orthopedic trauma markets through our subsidiary, Alphatec Pacific.

        We offer a broad range of products to our customer base, which primarily consists of spine surgeons. Our principal product offering includes a variety of spinal implant products and systems comprised of components such as spine screws, spinal spacers, and plates and offers multiple solutions to address patients' needs. In 2005, we acquired substantially all of the assets of Cortek. Through this acquisition, we enhanced our existing portfolio of spine fusion products with a complementary offering of precision milled allograft spacers.

        We believe that our products and systems provide a comprehensive solution for the safe and reproducible surgical treatment of spine disorders. All of our currently marketed products have been cleared by the United States Food and Drug Administration, or FDA. In 2005, our products were used in approximately 4,500 surgical procedures.

Market Opportunity

        The U.S. spine fusion market was approximately $2.2 billion in 2004 and is anticipated to grow to approximately $3.0 billion by 2007. We believe that the spine fusion market will continue to grow as a result of the following market dynamics:

Our Competitive Strengths and Strategy

        Our goal is to be a leading provider of innovative technologies and comprehensive solutions for the surgical treatment of spine disorders. To achieve this goal, we are employing the following business strategies:

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History

        Alphatec Manufacturing, Inc., subsequently renamed Alphatec Spine, was founded in May 1990 by Shunshiro "Roy" Yoshimi, the current Chairman, President and Chief Executive Officer of our Japanese subsidiary Alphatec Pacific. At its inception, Alphatec Spine was a contract manufacturer of medical devices. In July 1991, Alphatec Spine vertically integrated its operations to develop, manufacture, market and sell proprietary orthopedic trauma products.

        In 2003, Alphatec Spine began to develop, manufacture, market and sell spine products in addition to its orthopedic trauma products. Following its initial success in penetrating the spine market, in 2004 Alphatec Spine dedicated a larger percentage of its manufacturing and commercial resources towards the rapidly growing spine fusion market. As a result of this strategic shift, in 2004 Alphatec Spine sought and received numerous product clearances from the FDA for spine fusion products and achieved the highest annual revenues in its history.

        In March 2005, investors led by HealthpointCapital Partners, L.P., or HealthpointCapital, acquired all of the issued and outstanding capital stock of Alphatec Spine via a merger in which a wholly owned subsidiary of Alphatec Holdings, a newly formed corporation, was merged with and into Alphatec Spine, making Alphatec Spine a wholly owned subsidiary of Alphatec Holdings. Alphatec Holdings raised $87.3 million from investors led by HealthpointCapital in its initial financings, of which $70.0 million in cash was paid to the former shareholders of Alphatec Spine. The remaining capital allowed us to enhance our operational capabilities in the areas of management, sales, manufacturing and research and development, and to retire debt. In an effort to broaden our existing spine implant product offering, we acquired substantially all of the assets of Cortek in September 2005. In addition, in August 2005, Alphatec Pacific repurchased the distribution rights to our products from its exclusive Japanese distributor in order to pursue the expansion of sales of our spine fusion products in Japan while Alphatec Pacific continues to sell orthopedic trauma products in Japan.

HealthpointCapital

        Founded in 2002 and headquartered in New York City, HealthpointCapital is a private equity fund affiliated with HealthpointCapital, LLC, a merchant bank focused exclusively on the orthopedic sector

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that provides independent research, private equity management and corporate finance advisory services. HealthpointCapital and its affiliated private equity fund, HealthpointCapital Partners II, L.P., have approximately $500 million under management. HealthpointCapital is our largest stockholder.

Corporate Reorganization

        In connection with the consummation of this offering, we will complete a series of transactions as specified in our certificate of incorporation in order to reorganize our capital structure. These transactions, which we refer to as the reorganization transactions, include:

        As part of the reorganization transactions and pursuant to our certificate of incorporation, we are entitled to retain 50% of the net proceeds from this offering, excluding any proceeds from the exercise of the underwriters' over-allotment option, up to a maximum of $65 million. We are required to use the remaining net proceeds from this offering to satisfy the redemption and dividend obligations to our existing stockholders that are described above. To the extent those obligations exceed the remaining net proceeds from this offering, we are required to issue a combination of common stock and New Redeemable preferred stock to satisfy those obligations. We will not issue more than $30 million of New Redeemable preferred stock. In addition, we are required to use all of the net proceeds from any exercise of the underwriters' over-allotment option to redeem any outstanding shares of New Redeemable preferred stock.

        Immediately after the reorganization transactions, in satisfaction of the foregoing obligations, based on an assumed initial offering price of $    per share, we estimate that we will:

        Payment of a portion of our obligations to our existing stockholders in the form of shares of New Redeemable preferred stock that are not convertible into our common stock enables us to (i) retain for our account additional cash from the net proceeds of this offering and (ii) reduce the number of shares of our common stock that will be outstanding upon consummation of this offering.

        All of our calculations involving the payment in the reorganization transactions of the accrued and unpaid dividends on each of our series of common stock for a combination of cash, common stock and New Redeemable preferred stock are based on the amount of accrued and unpaid dividends on our series of common stock through May 22, 2006. The actual number of shares of common stock and New Redeemable preferred stock issued and cash paid will differ based on the amount of accrued and unpaid dividends through the actual closing date of this offering.

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Risks Affecting Us

        Our business is subject to numerous risks as discussed more fully in the section entitled "Risk Factors" immediately following this prospectus summary. If our assumptions about demographic trends and trends in the treatment of spine disorders are not accurate, we may not be able to sustain growth or achieve profitability. In addition, we have experienced rapid growth in revenues since we acquired Alphatec Spine in March 2005 and our ability to succeed and become profitable is dependent on our ability to manage our growth. We operate in a highly competitive market and our success depends on our ability to compete with numerous competitors, including large, well-established medical device companies with significant resources. From our inception in March 2005 through December 31, 2005, we had an accumulated deficit of approximately $12.9 million and may never become profitable.

Corporate Information

        We were incorporated in Delaware on March 4, 2005. Our principal executive offices are located at 2051 Palomar Airport Road, Carlsbad, California, and our telephone number is (760) 431-9286. Our web site address is www.alphatecspine.com. The information contained in, or that can be accessed through, our web site is not part of this prospectus. We have included our web site address as a factual reference and do not intend it to be an active link to our web site.

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The Offering

Common stock offered                           shares

Common stock outstanding after this offering

 

                        shares

New Redeemable preferred stock to be outstanding after this offering

 

                        shares

Use of proceeds

 

We expect to use the approximately $     million net proceeds from this offering to expand our sales and marketing activities; to fund the clearance or approval and subsequent commercialization of our near-term product candidates; to support our research and development efforts; to pay down and retire debt; for general corporate purposes, including to acquire businesses, products or intellectual property that are complementary to our business, or to obtain the right to use such products and intellectual property; and to pay an advisory fee in connection with this offering. We will use the remaining net proceeds from this offering to satisfy redemption and dividend obligations to our existing stockholders. Approximately $     million of such proceeds will be paid to our affiliates. See "Use of Proceeds."

Proposed Nasdaq National Market symbol

 

ATEC


About this Prospectus

        Unless otherwise indicated, all information contained in this prospectus:

    reflects a 44.036-for-1 split of each series of our common stock declared on August 1, 2005 and a            -for-             split of our common stock to be effected prior to the completion of this offering;

    reflects the consummation of the reorganization transactions described above, in which we estimate that we will issue    shares of common stock and     shares of New Redeemable preferred stock and pay $     million in satisfaction of various redemption and dividend obligations to our existing stockholders, based on accrued and unpaid dividends on shares of our common stock through May 22, 2006;

    reflects the issuance of the common stock offered in this prospectus at an initial public offering price of $    per share, the mid-point of the range set forth on the cover page of this prospectus;

    reflects the effectiveness of our amended and restated certificate of incorporation and restated by-laws upon the completion of this offering;

    excludes 32,707 shares of our common stock issuable upon the exercise of outstanding stock options at a weighted average exercise price of $3.33 per share as of December 31, 2005;

    excludes the sale of 7,564 shares of our Series C common stock that were issued after December 31, 2005;

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    excludes 76,468 shares of our common stock reserved for future issuance under our stock option plan as of December 31, 2005 and an additional 3,400,000 shares of our common stock to be reserved upon consummation of this offering for future issuance under our stock option plan; and

    excludes the possible issuance of up to                additional shares of common stock to the underwriters to cover over-allotments.

        Unless the context otherwise requires, throughout this prospectus:

    "we," "our," and "us" refer to Alphatec Holdings, Inc. and its consolidated subsidiaries, including Alphatec Spine;

    "Alphatec Holdings" refers to Alphatec Holdings, Inc.;

    "Alphatec Spine" refers to Alphatec Spine, Inc. or, prior to its name change, Alphatec Manufacturing, Inc.; and

    "Alphatec Pacific" refers to our Japanese subsidiary Alphatec Pacific, Inc.

        Unless otherwise specified or the context requires, references to "dollars," "U.S. dollars" and "$" are to United States dollars and references to "yen," "¥" and "JPY" are Japanese Yen. Where we specify Japanese Yen amounts in this prospectus, for convenience, we have included approximate U.S. dollar equivalents using an assumed exchange of ¥116.27 for each $1.00.

        This prospectus contains market data and industry forecasts that were obtained from industry publications. These publications generally state that the information contained therein has been obtained from sources believed to be reliable, but the accuracy and completeness of such information is not guaranteed. We have not independently verified, and make no representation as to the accuracy of, this information.

        Throughout this prospectus, when we refer to a product being cleared by the FDA, or clearance from the FDA, we mean that the FDA reviewed the product as presented in a type of pre-market submission referred to as a 510(k) and agreed that the product could be marketed and sold.

        Our logos, Alphatec, Cortek, C, Cortek design/logo, Corlok, Osteocor, Biocarpentry, Dovetome, Deltaloc, Duet, Connect and Polylok are the property of Alphatec Spine. We have trademark applications pending that correspond to the marks Solo, Coreograft, Zodiac, Chorus, Novel, Alphagraft, Osteocore and Alphatec. We also have common-law trademark rights for the following marks: Reveal, Mirage, Tamarack, Zodiac Trauma, Zodiac Deformity, Zodiac M/A, ROC, Solanas, Solo Lumbar, Solo Cervical, Novel PEEK, Novel Titanium and Dense Cancellous. Other trademarks or service marks appearing in this prospectus are the property of their respective holders.

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SUMMARY CONSOLIDATED FINANCIAL DATA

        The following tables summarize our consolidated financial data for the periods presented. We have derived the summary consolidated statements of operations data for the years ended December 31, 2003 and 2004, and the periods from January 1, 2005 to March 17, 2005 and March 18, 2005 to December 31, 2005, and the consolidated balance sheet data as of December 31, 2005, from our audited consolidated financial statements included elsewhere in this prospectus.

        The summary consolidated pro forma as adjusted balance sheet data at December 31, 2005 gives effect to the reorganization transactions and the sale of shares of our common stock at an assumed initial public offering price of $            per share and the application of the net proceeds therefrom as described in "Use of Proceeds" as if such transactions occurred on December 31, 2005.

        Alphatec Predecessor refers to Alphatec Spine prior to its acquisition by Alphatec Holdings on March 18, 2005. Alphatec Combined refers to the combined results of Alphatec Predecessor and Alphatec Holdings.

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        You should read the following information together with "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements, the financial statements of Cortek and our unaudited pro forma condensed combined consolidated statements of operations and the notes to those statements and information included elsewhere in this prospectus.

 
  Alphatec Predecessor
   
   
 
 
  Alphatec Holdings
  Alphatec Combined
 
 
  Years ended December 31,
   
 
 
  Period from
January 1, 2005 to
March 17, 2005

  Period from
March 18, 2005 to
December 31, 2005

  Year ended
December 31, 2005

 
 
  2003
  2004
 
 
   
   
   
   
  (unaudited)

 
Consolidated Statements of Operations Data                                
Revenues   $ 10,890,776   $ 17,821,345   $ 6,050,083   $ 36,275,614   $ 42,325,697  
Cost of revenues:                                
  Product     3,589,548     4,791,639     1,341,869     11,625,490     12,967,359  
  Royalties     113,409     668,853     340,613     2,345,604     2,686,217  
  Amortization of purchased intangibles                 2,068,736     2,068,736  
   
 
 
 
 
 
Gross profit     7,187,819     12,360,853     4,367,601     20,235,784     24,603,385  
   
 
 
 
 
 
Operating expenses:                                
  Research and development     520,506     1,176,671     215,773     751,302     967,075  
  In-process research and development                 3,100,000     3,100,000  
  Selling, general and administrative     7,209,522     11,006,372     5,228,175     30,351,687     35,579,862  
   
 
 
 
 
 
Total operating expenses     7,730,028     12,183,043     5,443,948     34,202,989     39,646,937  
   
 
 
 
 
 
Operating income (loss)     (542,209 )   177,810     (1,076,347 )   (13,967,205 )   (15,043,552 )
Other income (expense), net     (250,016 )   427,771     (110,727 )   (1,937,331 )   (2,048,058 )
   
 
 
 
 
 
Income (loss) before tax     (792,225 )   605,581     (1,187,074 )   (15,904,536 )   (17,091,610 )
Income tax provision (benefit)     41,280     96,127     1,467     (3,038,900 )   (3,037,433 )
   
 
 
 
 
 
Net income (loss)     (833,505 )   509,454     (1,188,541 )   (12,865,636 )   (14,054,177 )
Accretion to redemption value of redeemable convertible preferred, Rolling common and Series C common stock                 (7,600,782 )   (7,600,782 )
   
 
 
 
 
 
Net income (loss) applicable to common stockholders   $ (833,505 ) $ 509,454   $ (1,188,541 ) $ (20,466,418 ) $ (21,654,959 )
   
 
 
 
 
 
Net income (loss) per common share (1) :                                
  Basic   $ (0.09 ) $ 0.06   $ (0.13 ) $ (4.01 )      
   
 
 
 
       
  Diluted   $ (0.09 ) $ 0.05   $ (0.13 ) $ (4.01 )      
   
 
 
 
       
Weighted average shares used in computing net income (loss) per share:                                
  Basic     9,298,149     9,178,904     9,211,003     5,098,220        
   
 
 
 
       
  Diluted     9,298,149     9,620,365     9,211,003     5,098,220        
   
 
 
 
       

(1)
See Note 1 of the notes to our consolidated financial statements for a description of the calculation of the net income (loss) per common share.

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  Alphatec Holdings
As of December 31, 2005

 
  Actual
  Pro Forma
As Adjusted

Consolidated Balance Sheet Data          
Cash and cash equivalents   $ 2,180,366    
Working capital     4,248,763    
Total assets     109,138,786    
Long-term debt, less current portion     1,591,591    
Note payable to related party, less current portion     916,496    
Redeemable convertible preferred, Rolling common and Series C common stock     99,413,339  
New Redeemable preferred stock        
Total stockholders' equity (deficit)     (19,256,657 )  

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RISK FACTORS

         An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below together with all of the other information included in this prospectus, including our consolidated financial statements, the financial statements of Cortek and our unaudited pro forma condensed combined consolidated statement of operations and the notes to those statements and information included elsewhere in this prospectus, before making an investment decision. If any of the following risks actually occurs, our business, financial condition, results of operations and our future growth prospects would be materially and adversely affected. Under these circumstances, the trading price of our common stock could decline, and you may lose all or part of your investment.

Risks Related to Our Business and Industry

Our business plan relies on certain assumptions pertaining to the market for our products that, if incorrect, may adversely affect our growth and profitability.

        We allocate our design, development, manufacturing, marketing, management and financial resources based on our business plan, which includes assumptions about various demographic trends and trends in the treatment of spine disorders and the resulting demand for our products. However, these trends are uncertain. There can be no assurance that our assumptions with respect to an aging population with broad medical coverage and longer life expectancy, which we expect to lead to increased spinal injuries and degeneration, are accurate. In addition, an increasing awareness and use of non-invasive means for the prevention and treatment of back pain and rehabilitation purposes may reduce demand for or slow the growth of sales of spine fusion products. A significant shift in technologies or methods used in the treatment of back pain or damaged or diseased bone and tissue could adversely affect demand for some or all of our products. For example, pharmaceutical advances could result in non-surgical treatments gaining more widespread acceptance as a viable alternative to spine fusion. The emergence of new biological tissue-based or synthetic materials to facilitate regeneration of damaged or diseased bone and to repair damaged tissue could increasingly minimize or delay the need for spine fusion surgery and provide other biological alternatives to spine fusion. New surgical procedures could diminish demand for some of our products. The increased acceptance of emerging technologies that do not require spine fusion, such as artificial discs and nucleus replacement, for the surgical treatment of spine disorders would reduce demand for or slow the growth of sales of spine fusion products. If our assumptions regarding these factors prove to be incorrect or if alternative treatments to those offered by our products gain further acceptance, then the demand we anticipate for our products could be significantly less than actual demand and we may not be able to achieve or sustain growth or profitability.

If we fail to properly manage our anticipated growth, our business could suffer.

        Since March 2005, we have experienced rapid growth in, and we continue to pursue rapid growth in, the number of surgeons using our products, the types of products we offer and the number of states in which we have distributors for our products. Such growth has placed and will continue to place significant demands on our managerial, operational and financial resources and systems. We are currently focused on increasing the size and effectiveness of our sales force, marketing activities, research and development efforts, inventory management systems, management team and corporate infrastructure. If we do not manage our growth effectively, the quality of our products, our relationships with physicians, distributors and hospitals, and our reputation could suffer, which would have a material adverse effect on our business, financial condition and results of operations. We must attract and retain qualified personnel and third-party distributors and manage and train them effectively. Personnel qualified in the design, development, production and marketing of our products are difficult to find and hire, and enhancements of information technology systems to support our growth are difficult to implement. We will also need to carefully monitor and manage our surgeon

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services, our manufacturing capabilities, quality assurance and efficiency, and the quality assurance and efficiency of our suppliers and distributors. This managing, training and monitoring will require allocation of valuable management resources and significant expense. We are also currently implementing new management information systems to assist us in consolidating our enterprise-wide operating and financial performance information. The efficient operation of our business is dependent on our management information systems. We rely on our management information systems to effectively manage accounting and financial functions; manage order entry, order fulfillment and inventory replenishment processes; and maintain our research and development data. Any failure by us to implement our new management information systems or the failure of our management information systems to perform as we anticipate could disrupt our business and product development and could result in decreased sales, increased overhead costs, excess inventory and product shortages, causing our business and results of operations to suffer.

We may not be successful in manufacturing spine fusion products at the levels required to meet future market demand.

        We are seeking to rapidly grow sales of our products and if we are successful, such growth may strain our ability to manufacture an increasingly large supply of our products. We have never produced spine fusion products in quantities significantly in excess of our current production levels. Manufacturers regularly experience difficulties in scaling up production and we may face such difficulties in increasing our production levels. Moreover, we may not be able to manufacture the products with consistent and satisfactory quality or in sufficient quantities to meet demand. Our failure to produce products of satisfactory quality or in sufficient quantities could hurt our reputation, cause hospitals, surgeons or distributors to cancel orders or refrain from placing new orders for our products and reduce or slow growth of sales of our products. Increases in our production volume also could make it harder for us to maintain control over expenses, manage our relationships with our suppliers, maintain good relations with our employees or otherwise manage our business.

We are in a highly competitive market segment, face competition from large, well-established medical device companies with significant resources, and may not be able to compete effectively.

        The market for spine fusion products and procedures is intensely competitive, subject to rapid technological change and significantly affected by new product introductions and other market activities of industry participants. In 2004, 75% of U.S. spine fusion product revenues were generated by DePuy, Inc., a subsidiary of Johnson & Johnson, Medtronic Sofamor Danek, Inc., a subsidiary of Medtronic, Inc., and Synthes, Inc. Our competitors also include numerous other publicly traded companies and privately held companies.

        Several of our competitors enjoy competitive advantages over us, including:

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        In addition, at any time our current competitors or other companies may develop alternative treatments, products or procedures for the treatment of spine disorders that compete directly or indirectly with our products, including ones that prove to be superior to our spine surgery products. For these reasons, we may not be able to compete successfully against our existing or potential competitors. Any such failure could lead us to modify our strategy, lower our prices, increase the commissions we pay on sales of our products and have a material adverse effect on our business, financial condition and results of operations.

A large percentage of our revenues are derived from the sale of our polyaxial pedicle screws.

        In 2005, net sales of our Zodiac polyaxial pedicle screws represented approximately 39.9% of our net sales in that period. A decline in sales of these screws, due to market demand, the introduction by a third party of a competitive product or otherwise, would have a material adverse impact on our business, financial condition and results of operations. Some of the technology related to our polyaxial pedicle screws is licensed to us. The loss of such license would prevent us from manufacturing, marketing and selling our Zodiac polyaxial pedicle screws and other products that may incorporate such technology, which would have a material adverse effect on our business, financial condition and results of operations.

To be commercially successful, we must convince the spine surgeon community that our products are an attractive alternative to our competitors' products. If the spine surgeon community does not use our products, our sales will decline or we will be unable to increase our sales and profits.

        In order for us to sell our products, surgeons must be convinced that they are superior to competing products for use in spine fusion procedures. Acceptance of our products depends on educating the spine surgeon community as to the distinctive characteristics, perceived benefits, safety and cost-effectiveness of our products compared to our competitors' products and on training surgeons in the proper application of our products. If we are not successful in convincing the spine surgeon community of the merit of our products, our sales will decline and we will be unable to increase our sales and will be unable to achieve and sustain growth or profitability. From January 1, 2006 through March 17, 2006, approximately 160 surgeons used our products in surgical procedures.

        There is a learning process involved for spine surgeons to become proficient in the use of our products. Although most spine surgeons may have adequate knowledge on how to use most of our products based on their clinical training and experience, we believe that the most effective way to introduce and build market demand for our products is by directly training spine surgeons in the use of the products. If surgeons are not properly trained, they may misuse or ineffectively use our products. This may also result in unsatisfactory patient outcomes, patient injury, negative publicity or lawsuits against us, any of which could have a material adverse effect on our business, financial condition and results of operations.

Our sales and marketing efforts are largely dependent upon third parties who are free to market products that compete with our products. We will need to expand our sales and marketing organization significantly.

        In the United States, we currently sell our products primarily through a network of approximately 50 independent distributors, who we believe employ approximately 135 sales agents. As a result, we are dependent upon the sales and marketing efforts of our independent distributors. We also employ 37

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direct sales representatives, 23 of whom sell our products in the U.S. and 14 of whom sell our products in Japan. We pay our independent distributors a commission based on their product placements and sales. To date, none of our independent distributors has been required to sell our products exclusively and all may freely sell the products of our competitors. Many of our independent distributors also market and sell the products of our competitors, and those competitors may have the ability to influence the products that our independent distributors choose to market and sell. Our competitors may be able, by offering higher commission payments or otherwise, to convince our independent distributors to terminate their relationships with us, carry fewer of our products or reduce their sales and marketing efforts for our products.

        As we launch new products and increase our marketing efforts with respect to existing products, we will need to expand our sales and marketing organization. We plan to accomplish this by increasing our network of independent distributors and hiring additional direct sales representatives. The establishment and development of a broader sales network and dedicated sales force may be expensive and time consuming. Because of the intense competition for their services, we may be unable to recruit or retain additional qualified independent distributors and to hire additional direct sales representatives to work with us. Often, our competitors enter into distribution agreements with independent distributors that require such distributors to exclusively sell the products of our competitors. Further, we may not be able to enter into agreements with independent distributors on commercially reasonable terms, if at all. Even if we do enter into agreements with additional independent distributors, such distributors may not commit the necessary resources to effectively market and sell our products and may not ultimately be successful in selling our products. Our business, financial condition and results of operations will be materially adversely affected if we do not retain our existing independent distributors and attract new, additional independent distributors or if the marketing and sales efforts of our independent distributors and our own direct sales representatives are unsuccessful.

We depend on various third-party suppliers, and in one case a single third-party supplier, for key raw materials used in our manufacturing processes and the loss of these third-party suppliers, or their inability to supply us with adequate raw materials, could harm our business.

        We use a number of raw materials, including titanium, titanium alloys, stainless steel, polyetheretherketone, or PEEK, and allograft, which is human tissue donated by a third party. We rely from time to time on a number of suppliers and in one case on a single source vendor, Invibio, Inc. We have a supply agreement with Invibio, pursuant to which it supplies us with PEEK, a biocompatible plastic that we use in some of our spacers. Invibio is currently the only company approved to distribute PEEK in the U.S. for use in implantable devices. During 2005, 11.3% of our revenues were derived from products manufactured using PEEK.

        We depend on a limited number of sources of human tissue for use in our allograft implants and a limited number of entities to process the human tissue into allograft for our allograft implants, and any failure to obtain tissue from these sources or to have the tissue processed by these entities for us in a timely manner will interfere with our ability to effectively meet demand for our allograft implants. In 2005, six entities supplied us with human tissue and two entities processed the human tissue into allograft for use in our allograft implants. The processing of human tissue into allograft is very labor intensive and it is therefore difficult to maintain a steady supply stream. In addition, due to seasonal changes in mortality rates, some scarce tissues used for our allograft are at times in particularly short supply. We cannot be certain that our supply of human tissue from our current suppliers and our supply of allograft from our current tissue processors will be available at current levels or will be sufficient to meet our needs.

        Our dependence on a single third-party supplier and the challenges we may face in obtaining adequate supplies of allograft involve several risks, including limited control over pricing, availability, quality and delivery schedules. In addition, any supply interruption in a limited or sole sourced

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component or raw material, such as PEEK or allograft, could materially harm our ability to manufacture our products until a new source of supply, if any, could be found. We may be unable to find a sufficient alternative supply channel in a reasonable time period or on commercially reasonable terms, if at all, which would have a material adverse effect on our business, financial condition and results of operations.

Negative publicity concerning methods of tissue recovery and screening of donor tissue in our industry could reduce demand for allograft and impact the supply of available donor tissue.

        Media reports or other negative publicity concerning both alleged improper methods of tissue recovery from donors and disease transmission from donated tissue could limit widespread acceptance of allograft. Unfavorable reports of improper or illegal tissue recovery practices, both in the U.S. and internationally, as well as incidents of improperly processed tissue leading to the transmission of disease, may broadly affect the rate of future tissue donation and market acceptance of allograft technologies. In addition, such negative publicity could cause the families of potential donors to become reluctant to agree to donate tissue to for-profit tissue processors. For example, there have been recent media reports regarding the Brooklyn, New York district attorney's office's investigation of Biomedical Tissue Services, or BTS, a tissue bank, regarding BTS's alleged illegal harvesting of body parts from cadavers, the FDA's investigation of BTS and order for BTS to cease its tissue operations and the resulting recalls being conducted by certain companies selling allograft that were customers of BTS. Although we believe the tissue used in our allograft implants was not procured from the tissue that was allegedly illegally harvested by BTS, these reports may nevertheless have a negative effect on our allograft business.

If hospitals and other healthcare providers are unable to obtain sufficient reimbursement for procedures performed with our products, it is unlikely that our products will be widely used.

        Successful sales of our products will depend on the availability of adequate reimbursement from third-party payors, including government programs such as Medicare and Medicaid, private insurance plans and managed care programs. Hospitals and other healthcare providers that purchase medical devices such as the ones that we manufacture for treatment of their patients generally rely on third-party payors to pay for all or part of the costs and fees associated with the procedures performed with these devices. The existence of adequate reimbursement for the procedures performed with our products by government and private insurance plans are central to acceptance of our current and future products. We may be unable to sell our products through our distribution channels on a profitable basis if third-party payors deny coverage or reduce their current levels of payment, or if our costs of production increase faster than increases in reimbursement levels. Many private payors use coverage decisions and payment amounts determined by the Centers for Medicare and Medicaid services, or CMS, which administers the Medicare program, as guidelines in setting their reimbursement policies. Future action by CMS or other government agencies may diminish payments to physicians, outpatient centers and hospitals. Those private payors that do not follow the Medicare guidelines may adopt different reimbursement policies for procedures performed with our products. For some governmental programs, such as Medicaid, reimbursement differs from state to state, and some state Medicaid programs may not pay for the procedures performed with our products in an adequate amount, if at all. As the portion of the U.S. population over age 65 and eligible for Medicare continues to grow we may be more vulnerable to reimbursement limitations imposed by CMS. Furthermore, the healthcare industry in the U.S. has experienced a trend toward cost containment as government and private insurers seek to control healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers. Therefore, we cannot be certain that the procedures performed with our products will be adequately reimbursed.

        Continued market acceptance in Japan will depend, in part, upon the availability of reimbursement within its healthcare payment systems. Reimbursement and healthcare payment systems vary

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significantly from country to country, and include both government sponsored healthcare and private insurance. We may not continue to obtain reimbursement approvals in Japan in a timely manner, if at all. Any failure to receive reimbursement approvals would negatively impact market acceptance of our products in Japan and any other international markets in which those approvals are sought.

We may face significant uncertainty in the industry due to government healthcare reform.

        Political, economic and regulatory influences are subjecting the healthcare industry to fundamental changes. Reforms under consideration in the U.S. include mandated basic healthcare benefits, controls on healthcare spending through limitations on the growth of private health insurance premiums and Medicare and Medicaid spending, the creation of large insurance purchasing groups and significant modifications to the healthcare delivery system. We anticipate that Congress and certain state legislatures will continue to review and assess alternative healthcare delivery systems and payment methods. Public debate of these issues will likely continue in the future. Due to uncertainties regarding the ultimate features of reform initiatives and their enactment and implementation, we cannot predict which, if any, of such reform proposals will be adopted, when they may be adopted or what impact they may have on us.

We are subject to substantial governmental regulation that could change and force us to make modifications to how we develop, manufacture and price our products.

        The medical device industry is regulated extensively by governmental authorities, principally the FDA and corresponding state and foreign regulatory agencies. The FDA and other U.S. and foreign governmental agencies regulate, among other things, the development, manufacturing, clinical trials, marketing clearance and approval, promotion and sale of medical devices.

        Compliance with these regulations is, and will continue to be, time consuming, burdensome and expensive. Failure to comply with these regulations could jeopardize our ability to manufacture and sell our products and result in enforcement actions such as warning letters, fines, injunctions, civil penalties, termination of distribution, seizures of products, total or partial suspension of production, refusal of the FDA or other regulatory agencies to grant future clearances or approvals, or withdrawals or suspensions of current clearances or approvals all of which could result in higher than anticipated costs or lower than anticipated revenue and have a material adverse effect on our business, financial condition and results of operations. In the most egregious cases, we could face criminal sanctions, closure of our manufacturing facilities and prohibitions on sales of our products.

        The regulations to which we are subject are complex and have tended to be become more stringent over time. Regulatory changes could result in restrictions on our ability to carry on or expand our operations, higher than anticipated costs or lower than anticipated revenue.

        Foreign governmental authorities that regulate the manufacture and sale of medical devices have become increasingly vigilant and our sales of products in foreign countries are subject to rigorous foreign regulations. We rely on Alphatec Pacific with respect to compliance with Japanese regulations. In Hong Kong, the only other country where we currently sell products, we have and will continue to rely on foreign independent sales agencies that sell our products to comply with local regulations. Any failures on the part of such sales agencies and Alphatec Pacific to comply with applicable regulations could result in restrictions on the sale of our products in foreign countries.

If we fail to obtain, or experience significant delays in obtaining, FDA clearances or approvals for our future products or modifications to our products, our ability to commercially distribute and market our products could suffer.

        Our medical devices are subject to rigorous regulation by the FDA and numerous other federal, state and foreign governmental authorities. The process of obtaining regulatory clearances or approvals to market a medical device, particularly from the FDA, can be costly and time consuming, and there

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can be no assurance that such clearances or approvals will be granted on a timely basis, if at all. In particular, the FDA permits commercial distribution of most new medical devices only after the devices have received clearance under Section 510(k) of the Federal Food, Drug and Cosmetic Act, or 510(k), or are the subject of an approved pre-market approval application, or a PMA. The 510(k) process generally takes three to six months, but can take significantly longer. A PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process or is not exempt from pre-marketing review by the FDA. A PMA must be supported by extensive data, including results of preclinical studies and clinical trials, manufacturing and control data and proposed labeling, to demonstrate to the FDA's satisfaction the safety and effectiveness of the device for its intended use. The PMA process is more costly and uncertain than the 510(k) clearance process, and generally takes between one and three years, if not longer. In addition, any modification to a 510(k)-cleared device that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, design or manufacture, requires a new 510(k) clearance or, possibly, a PMA.

        Our commercial distribution and marketing of any products or product modifications that we develop may be delayed since regulatory clearance or approval is required. In addition, because we cannot assure you that any new products or any product modifications we develop will be subject to the shorter 510(k) clearance process, the regulatory approval process for our new products or product modifications may take significantly longer than anticipated. There is no assurance that the FDA will not require a new product or product modification to go through the lengthy and expensive PMA approval process. Delays in obtaining regulatory clearances and approvals may:

        To date, all of our medical device products have been cleared through the 510(k) process. We have no experience in obtaining approval for a device through the PMA process.

Our allograft implants and related technologies could become subject to significantly greater regulation by the FDA, which could disrupt our business.

        The FDA may regulate certain allografts as medical devices, drugs or biologics if the allograft is deemed to have been more than minimally manipulated or indicated for nonhomologous use. Homologous use is generally interpreted as the use of tissue for the same basic function in the recipient as it fulfilled in the donor. If the FDA decides that any of our current or future allografts are more than minimally manipulated or indicated for nonhomologous use, it would require us to obtain 510(k) clearance or a PMA approval if the allograft is viewed as a medical device or obtain approval as a drug or biologic if it is viewed as a drug or biologic. Depending on the nature and extent of any FDA decision applicable to our allografts, further distribution of the affected products could be interrupted for a substantial period of time, which would reduce our revenues and hurt our profitability.

The safety of our products is not yet supported by long-term clinical data and may therefore prove to be less safe and effective than initially thought.

        We obtained clearance to offer all of our current medical device products through the FDA's 510(k) clearance process. The 510(k) clearance process is based on the FDA's agreement that a new product is substantially equivalent to already marketed products. The FDA's 510(k) clearance process is less rigorous than the PMA process and requires little, if any, supporting clinical data. For these reasons surgeons may be slow to adopt our products, we may not have the comparative data that our competitors have, or are generating, and we may be subject to greater regulatory and product liability risks. Further, future studies or experience may indicate that treatment with our products does not

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improve patient outcomes. Such results would reduce demand for our products and this could cause us to withdraw our products from the market. Moreover, if future studies or experience indicate that our products cause unexpected or serious complications or other unforeseen negative effects, we could be subject to significant legal liability, significant negative publicity, damage to our reputation and a dramatic reduction in sales of our products, all of which would have a material adverse effect on our business, financial condition and results of operations.

If we or our suppliers fail to comply with the FDA's quality system and good tissue practice regulations, the manufacture of our products could be delayed.

        We and our suppliers are required to comply with the FDA's quality system regulations, or QSRs, which cover the methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage and shipping of our products. In addition, suppliers and processors of allograft must comply with the FDA's current good tissue practice regulations, or GTPs, which govern the methods used in and the facilities and controls used for the manufacture of human cell tissue and cellular and tissue-based products, record keeping and the establishment of a quality program. The FDA audits compliance with the QSRs and GTPs through inspections of manufacturing and other facilities. If we or our suppliers have significant non-compliance issues or if any corrective action plan is not sufficient, we or our suppliers could be forced to delay the manufacture of our products until such problems are corrected to the FDA's satisfaction, which could have a material adverse effect on our business, financial condition and results of operations. Further, our products could be subject to recall if the FDA determines, for any reason, that our products are not safe or effective. Any recall or FDA requirement demanding that we seek additional approvals or clearances could result in delays, costs associated with modification of a product, loss of revenue and potential operating restrictions imposed by the FDA, all of which could have a material adverse effect on our business, financial condition and results of operations. In November 2003, the FDA performed a pre-announced inspection of our manufacturing facilities. Minor non-compliance items were cited on an FDA Form 483, which is a notice of inspection observation, that we received following the inspection. Following receipt of the Form 483, we submitted a formal response in which we indicated the steps that we had taken to correct the noted deficiencies and we have not received any further request from the FDA with respect to the Form 483 we received.

We may face difficulties integrating Alphatec Spine and the assets and operations we acquired from Cortek.

        We acquired Alphatec Spine in March 2005 and substantially all of the assets of Cortek in September 2005. Our ability to integrate the business of Alphatec Spine and to integrate the acquired assets and operations of Cortek is subject to various risks, including:

        If any of these risks materialize in the future, we may not be able to realize the operating efficiencies, synergies or other benefits expected from our acquisitions. Our failure to successfully integrate the business of Alphatec Spine and to integrate the acquired assets and operations of Cortek in a timely manner without incurring unexpected costs could have a material adverse effect on our business, financial condition and results of operations.

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If we choose to acquire new and complementary businesses, products or technologies, we may be unable to complete these acquisitions or successfully integrate them in a cost effective and non-disruptive manner.

        Our success depends in part on our ability to continually enhance and broaden our product offering in response to changing customer demands, competitive pressures and technologies and our ability to increase our market share. Accordingly, we may in the future pursue the acquisition of complementary businesses, products or technologies instead of developing them ourselves. We have no current commitments with respect to any acquisition or investment. We do not know if we will be able to successfully complete any acquisitions, or whether we will be able to successfully integrate any acquired business, product or technology into our business or retain any key personnel, suppliers or distributors. Our ability to successfully grow through acquisitions depends upon our ability to identify, negotiate, complete and integrate suitable acquisitions and to obtain any necessary financing. These efforts could be expensive and time consuming, disrupt our ongoing business and distract management. If we are unable to integrate any acquired businesses, products or technologies effectively, our business, financial condition and results of operations will be materially adversely affected. For example, an acquisition could materially impair our operating results by causing us to incur debt or requiring us to amortize significant amounts of expenses, including non-cash acquisition costs, and acquired assets.

We may face additional challenges in our attempts to expand in the Japanese market.

        We believe that many of the primary barriers to success in the market for spinal products in Japan are similar to those in the U.S., including the challenges of increasing market penetration, expanding the direct representative sales force and obtaining regulatory approval for new products. In addition, we may face additional difficulties and challenges in Japan, including that we have historically sold orthopedic trauma products in Japan and will need to expand the scope of our spine product offering, and that Alphatec Pacific's spine fusion product line offering cannot be as extensive as ours is in the U.S. until Alphatec Pacific obtains Japanese regulatory approval for some of our existing products.

We may not be able to timely develop new products or product enhancements that will be accepted by the market.

        We sell our products in a market that is characterized by technological change, product innovation, evolving industry standards, competing patent claims, patent litigation and intense competition. Our success will depend in part on our ability to develop and introduce new products and enhancements or modifications to our existing products, to do so before our competitors and to do so in a manner that does not infringe issued patents of third parties to which we do not have a license. We cannot assure you that we will be able to successfully develop or market new, improved or modified products, or that any of our future products will be accepted by the surgeons who use our current products. Our competitors' product development capabilities could be more effective than our capabilities, and their new products may get to market before our products. In addition, the products of our competitors may be more effective or less expensive than our products. The introduction of new products by our competitors may result in price reductions, reduced margins or loss of market share and may render our products obsolete or noncompetitive. The success of any new product offering or enhancement or modification to an existing product will depend on several factors, including our ability to:

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        Developing products in a timely manner can be difficult, in particular because product designs change rapidly to adjust to patent constraints and to market preferences. As a result, we may experience delays in our product launches which may significantly impede our ability to enter or compete in a given market and may reduce the sales that we are able to generate from these products. We may experience delays in any phase of a product launch, including during research and development, clinical trials, manufacturing, marketing and the surgeon training process. In addition, our suppliers of products or components that we do not manufacture can suffer similar delays, which could cause delays in our product introductions. If we do not develop new products or product enhancements in time to meet market demand or if there is insufficient demand for these new products or enhancements, it could have a material adverse effect on our business financial condition and results of operations.

Our products and product enhancements under development may not be commercially viable.

        While we devote significant resources to research and development, our research and development may not lead to improved or new products that are commercially successful. The research and development process is expensive, prolonged and entails considerable uncertainty. Development of medical devices, from discovery, through testing and registration, to initial product launch, typically takes between three and seven years in the U.S. Each of these periods varies considerably from product to product and country to country. Because of the complexities and uncertainties associated with spine fusion research and development, we may elect to cease development of one or more product candidates if we believe that the product candidate would not be commercially viable.

We are dependent on our senior management team, engineering team, sales and marketing team and key surgeon advisors, and the loss of any of them could harm our business.

        Our continued success depends in part upon the continued availability and contributions of our senior management, engineering and sales and marketing teams and the continued participation of our key surgeon advisors. The Chairman of our Board of Directors, John H. Foster, has obligations outside Alphatec Holdings, including in his capacity as a managing member of HGP, LLC, the general partner of HealthpointCapital, a private equity fund dedicated to growth capital investments in the orthopedic device sector, and as Chairman, Chief Executive Officer, a member of the Board of Managers and a managing director of HealthpointCapital, LLC, a merchant bank focusing exclusively on the orthopedic sector that provides independent research, private equity management and corporate finance advisory services. We have entered into employment agreements with all members of our senior management team, but none of these agreements guarantees the services of the individual for a specified period of time. Our ability to grow or at least maintain our sales levels depends in large part on our ability to attract and retain sales and marketing personnel and for these sales people to maintain their relationships with surgeons directly and through our distributors. We rely on our engineering team to research, design and develop potential products for our product pipeline. We also rely on our surgeon advisors to advise us on our products, our product pipeline, long-term scientific planning, research and development and industry trends. In addition, we currently are seeking a regulatory affairs executive experienced in obtaining clearance through the 510(k) and PMA processes and a quality assurance executive experienced in overseeing our quality control systems. We compete for personnel and advisors with other companies and other organizations, many of which are larger and have greater name recognition and financial and other resources than we do. The loss of members of our senior management team, sales and marketing team, engineering team and key surgeon advisors, or our inability to attract or retain other qualified personnel or advisors could have a material adverse effect

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on our business, financial conditions and results of operations. We have not obtained and do not expect to obtain key man life insurance on any of our senior managers.

We rely on our information technology systems for inventory management, distribution and other functions and to maintain our research and development data. If our information technology systems fail to adequately perform these functions, or if we experience an interruption in their operation, our business, financial condition and results of operations could be adversely affected.

        The efficient operation of our business is dependent on our information technology systems. We rely on our information technology systems to effectively manage accounting and financial functions; manage order entry, order fulfillment and inventory replenishment processes; and maintain our research and development data. The failure of our information technology systems to perform as we anticipate could disrupt our business and product development and could result in decreased sales, increased overhead costs, excess inventory and product shortages, all of which could have a material adverse effect on our business, financial condition and results of operations. In addition, our information technology systems are vulnerable to damage or interruption from:

        Any such interruption could have material adverse effect on our business, financial condition and results of operations.

The majority of our operations and all of our manufacturing facilities are currently conducted in locations that may be at risk of damage from fire, earthquakes or other natural disasters. If a natural disaster strikes, we may be unable to manufacture certain products for a substantial amount of time.

        We currently conduct the majority of our development, manufacturing and management activities in Carlsbad, California near known wildfire areas and earthquake fault zones. We have taken precautions to safeguard our facilities, including obtaining property and casualty insurance, implementing health and safety protocols, storing computer data off-site and having a disaster recovery plan. However, any future natural disaster, such as a fire or an earthquake, could cause substantial delays in our operations, damage or destroy our equipment or inventory and cause us to incur additional expenses. A disaster could seriously harm our business, financial condition and results of operations. Our facilities would be difficult to replace and would require substantial lead time to repair or replace. We do not maintain insurance against earthquakes and floods and the insurance we maintain against fires and other natural disasters would not be adequate to cover a total loss of our manufacturing facilities, may not be adequate to cover our losses in any particular case and may not continue to be available to us on acceptable terms, or at all.

Alphatec Holdings is a holding company with no operations, and unless it receives dividends or other payments from Alphatec Spine, it will be unable to fulfill its cash obligations.

        As a holding company with no business operations, Alphatec Holdings' material assets consist only of the common stock of Alphatec Spine (and any other subsidiaries Alphatec Holdings may own in the future), dividends and other payments received from time to time from Alphatec Spine or such subsidiaries, and the proceeds raised from the sale of debt and equity securities. Alphatec Spine is legally distinct from Alphatec Holdings and has no obligation, contingent or otherwise, to make funds available to Alphatec Holdings. Alphatec Holdings will have to rely upon dividends and other payments from Alphatec Spine (and any other subsidiaries Alphatec Holdings may have in the future) to generate the funds necessary to fulfill its cash obligations. Alphatec Holdings may not be able to access

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cash generated by Alphatec Spine in order to fulfill cash commitments. The ability of Alphatec Spine to make dividend and other payments to Alphatec Holdings is subject to the availability of funds after taking into account Alphatec Spine's funding requirements, the terms of Alphatec Spine's indebtedness and applicable state laws. Alphatec Spine's current credit facility from Bank of the West prohibits Alphatec Spine from declaring or paying dividends, other than dividends payable in capital stock, during the term of the facility, which expires in January 2008.

Risks Related to Our Financial Results and Need for Financing

Our quarterly financial results could fluctuate significantly.

        Our quarterly operating results are difficult to predict and may fluctuate significantly from period to period, particularly because our sales prospects are uncertain. The level of our revenues and results of operations at any given time will be based primarily on the following factors:

        Many of the products we may seek to develop and introduce in the future will require FDA, state and international approval or clearance. We cannot begin to commercialize any such products in the U.S. without FDA approval or clearance or outside of the U.S. without appropriate regulatory approvals and import licenses. As a result, it will be difficult for us to forecast demand for these products with any degree of certainty. In addition, we anticipate that our operating expenses will increase in the foreseeable future as we expand our sales and marketing, manufacturing and other commercial capabilities. We cannot assure you that our revenue will increase or be sustained in future periods or that we will be profitable in any future period. Any shortfalls in revenue or earnings from levels expected by our stockholders or by securities or industry analysts could have an immediate and significant adverse effect on the trading price of our common stock in any given period.

We may need to raise additional funds in the future and such funds may not be available on acceptable terms, if at all.

        We believe that our current cash and cash equivalents, including the net proceeds from this offering, after satisfaction of our redemption and dividend obligations to our existing stockholders, together with our short-term investments, revenues from our operations and Alphatec Spine's ability to draw down on its secured credit facilities, will be sufficient to fund our projected operating requirements for at least the next 12 months. As of September 30 and December 31, 2005, we failed to satisfy certain covenants set forth in our prior credit agreement with Bank of the West. We obtained a waiver for each such non-compliance and in January 2006 entered into a new credit agreement with Bank of the West and paid off our prior credit agreement.

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        We may seek additional funds from public and private stock offerings, borrowings under new debt facilities or other sources. Our capital requirements will depend on many factors, including:


        As a result of these factors, we may need to raise additional funds and such funds may not be available on favorable terms, if at all. Furthermore, if we issue equity or debt securities to raise additional funds, our existing stockholders may experience dilution and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders. In addition, if we raise additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish valuable rights to our potential products or proprietary technologies, or to grant licenses on terms that are not favorable to us. If we cannot raise funds on acceptable terms, we may not be able to develop or enhance our products, execute our business plan, take advantage of future opportunities, or respond to competitive pressures or unanticipated customer requirements. Any of these events could adversely effect our ability to achieve our development and commercialization goals and have a material adverse effect on our business, financial condition and results of operations.

We are subject to certain risks associated with our foreign operations.

        Our operations outside of the United States are primarily in Japan. Certain risks are inherent in international operations, including:

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        If we continue to expand our business outside of the United States, our success will depend, in part, on our ability to anticipate and effectively manage these and other risks. We cannot assure you that these and other factors will not have a material adverse effect on our international operations or our business as a whole.

Our independent registered public accounting firm brought to our attention a material weakness in our internal controls during the most recent audit of our annual consolidated financial statements. Our failure to maintain effective internal controls could have a material adverse effect on our business, operating results and financial condition and cause our stockholders, lenders, suppliers and others to lose confidence in the accuracy or completeness of our financial reports.

        Our independent registered public accounting firm identified and communicated to us a material weakness in our internal control over financial reporting as of December 31, 2005. Management has evaluated this communication and has also concluded that a material weakness existed as of that date.

        A material weakness, as defined by the Public Company Accounting Oversight Board, is a control deficiency, or a combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Our independent registered public accounting firm advised our board of directors and our management that our process for our financial statement year-end close and reporting was insufficiently defined and represented a deficiency in the design and operating effectiveness of our year-end close and reporting controls. One of the primary causes of the deficiency in the financial statement close and reporting process noted by our independent registered public accounting firm was the inadequate staffing in our financial accounting and reporting functions. Our independent registered public accounting firm also indicated that this deficiency brings into question whether we will be able to prevent or detect material misstatements in our interim and annual consolidated financial statements in conformity with accounting principles generally accepted in the United States. Management further believes that the root cause of many of the observed deficiencies result from our transition from a small, private company with immature processes and controls to one that is growing rapidly and must meet the reporting and control standards applicable to public companies.

        We have begun to identify a number of actions to address the items noted by our independent public registered accounting firm, including:

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        While we have begun to take actions to address the items identified, additional measures may be necessary to complete the remediation of our internal controls. We plan to continue to assess our internal controls and procedures and intend to take further action as necessary or appropriate to address any other matters we identify. However, the process of designing and implementing effective internal controls and procedures is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments. We cannot assure you that the steps we have taken, or may subsequently take, have been or will be sufficient to fully remediate the material weakness identified by our independent registered public accounting firm or ensure that our internal controls are effective.

        We may incur substantial expenses relating to the remediation of the material weakness in our internal controls. Our accounting and financial reporting functions may not have, or may be unable to maintain, adequate resources to ensure that we will not have any future control deficiencies or material weaknesses in our system of internal controls. The effectiveness of our internal controls may in the future be limited by a variety of factors including:

        If we fail to achieve and maintain effective internal controls and procedures for financial reporting, we could be unable to provide timely and accurate financial information and therefore be subject to delisting from the Nasdaq National Market, an investigation by the SEC, and civil or criminal sanctions. Additionally, ineffective internal control over financial reporting would place us at increased risk of fraud or misuse of corporate assets and could cause our stockholders, lenders, suppliers and others to lose confidence in the accuracy or completeness of our financial reports.

        Presently, we are not an accelerated filer, as such term is defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and therefore we are not currently subject to the internal control reporting requirements of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. The Sarbanes-Oxley Act requires a company's management to perform an annual assessment of the effectiveness of the company's internal control over financial reporting and for the company's independent registered public accounting firm to express an opinion on management's assessment and on the effectiveness of the company's internal control over financial reporting. These requirements will first apply to our annual report on Form 10-K for our fiscal year ending December 31, 2007.

Our acquisition of Cortek assets may make it difficult for you to evaluate our historical and future performance.

        Our acquisition of substantially all of the assets of Cortek may make it more difficult for you to evaluate and predict our future operating performance because our financial statements only reflect results of operations which include such assets for the period from September 9, 2005, the date we acquired these assets, through December 31, 2005. Consequently, our historical results of operations and the pro forma financial information provided elsewhere in this prospectus may not give you an accurate indication of how we, together with the business we acquired from Cortek, will perform in the future.

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Changes in or interpretations of accounting rules and regulations, such as expensing of stock options, could result in unfavorable accounting charges or require us to change our compensation policies.

        Accounting methods and policies, including policies regarding expensing stock options, are subject to further review, interpretation and guidance from relevant accounting authorities, including the SEC. For example, we are not currently required to record stock-based compensation charges for stock options granted prior to January 1, 2006 if an employee's stock option exercise price is equal to or exceeds the fair value of our common stock at the date of grant. However, a recent change in accounting standards requires all public companies to treat the fair value of stock options granted to employees as an expense effective as of the beginning of the first fiscal year commencing after June 15, 2005. If we had changed our accounting policy to record expense for the fair value of stock options granted in prior periods, our operating expenses would have increased. Through our compensation plan, we rely on grants of stock options and restricted stock to compensate existing employees and attract new employees. Since we currently are required to expense stock options granted on or after January 1, 2006, we may choose to reduce our reliance on stock options as a compensation tool. If we reduce our use of stock options, it may be more difficult for us to attract and retain qualified employees. If we do not reduce our reliance on stock options or if we continue to issue restricted shares, our reported income would decrease. Although we believe that our accounting practices are consistent with current accounting pronouncements, changes to our interpretations of accounting methods or policies in the future may require us to adversely revise how our financial statements are prepared.

A portion of our revenues and expenditures is subject to exchange rate fluctuations that could adversely affect our reported results of operations.

        While a majority of our business is denominated in U.S. dollars, we maintain operations in foreign countries, primarily Japan, that require payments in the local currency. Payments received from customers for goods sold in these countries are typically in the local currency. Consequently, 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 fall relative to the Japanese Yen, the principal foreign currency material to our business, then our reported revenues would increase when we convert the higher valued foreign currency into U.S. dollars. If the value of the U.S. dollar were to increase in relation to the Japanese Yen, then there would be a negative effect on the value of our sales in Japan to the extent our revenues in Japanese Yen are in excess of our Japanese Yen costs at the time that we converted amounts to U.S. dollars in connection with the preparation of our financial statements. We do not currently engage in hedging or similar transactions to reduce these risks.

Risks Related to Our Intellectual Property and Potential Litigation

If our patents and other intellectual property rights do not adequately protect our products, we may lose market share to our competitors and be unable to operate our business profitably.

        Our success depends significantly on our ability to protect our proprietary rights to the technologies used in our products. We rely on patent protection, as well as a combination of copyright, trade secret and trademark laws, and nondisclosure, confidentiality and other contractual restrictions to protect our proprietary technology. However, these legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage. For example, we cannot assure you that any of our pending patent applications will result in the issuance of patents to us. The United States Patent and Trademark Office, or PTO, may deny or require significant narrowing of claims in our pending patent applications, and patents issued as a result of the pending patent applications, if any, may not provide us with significant commercial protection or be issued in a form that is advantageous to us. We could also incur substantial costs in proceedings before the PTO.

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These proceedings could result in adverse decisions as to the priority of our inventions and the narrowing or invalidation of claims in issued patents. Our issued patents and those that may be issued in the future could subsequently be successfully challenged by others and invalidated or rendered unenforceable, which could limit our ability to stop competitors from marketing related products. In addition, our pending patent applications include claims to aspects of our products and procedures that are not currently protected by issued patents.

        Both the patent application process and the process of managing patent disputes can be time consuming and expensive. Competitors may be able to design around our patents or develop products that provide outcomes that are comparable to our products. Although we have entered into confidentiality agreements and intellectual property assignment agreements with certain of our employees, consultants and advisors as one of the ways we seek to protect our intellectual property and other proprietary technology, such agreements may not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements. Furthermore, the laws of some foreign countries may not protect our intellectual property rights to the same extent as the laws of the U.S., if at all. Since most of our issued patents and pending patent applications are for the U.S. only, we lack a corresponding scope of patent protection in other countries, including in Japan. Thus, we may not be able to stop a competitor from marketing products in other countries that are similar to some of our products.

        In the event a competitor infringes upon one of our patents or other intellectual property rights, enforcing those patents and rights may be difficult and time consuming. Even if successful, litigation to defend our patents against challenges or to enforce our intellectual property rights could be expensive and time consuming and could divert management's attention from managing our business. Moreover, we may not have sufficient resources to defend our patents against challenges or to enforce our intellectual property rights.

        In addition, we hold licenses with third parties that are necessary to utilize certain technologies used in the design and manufacturing of some of our products, including our Zodiac polyaxial pedicle screws, net sales of which represented 39.9% of our net sales for 2005. The loss of such licenses would prevent us from manufacturing, marketing and selling these products, which would have a material adverse effect on our business, financial condition and results of operations.

        We license patents relating to the polyaxial feature of our pedicle screw from Biomet, Inc., or Biomet, pursuant to a license agreement, or the 555 license agreement. This polyaxial feature is incorporated into our Zodiac and Solanas pedicle screws and may be incorporated into future products. The 555 license agreement provides that the royalty shall remain in full force and effect without modification regardless of any ruling by any court regarding the scope, validity, or enforceability of the patents covered by the 555 license agreement. The validity of the U.S. patents covered by the 555 license agreement is being challenged by Medtronic in an infringement action brought by Biomet in the U.S. The European patent covered by the 555 license agreement has recently been revoked by the European Patent Office after it was successfully challenged in an opposition proceeding in Europe initiated by Stryker and Synthes. Biomet is appealing this decision. Biomet can terminate the license in the event we fail to make any of the payments required under the license agreement, materially breach the license agreement, or become insolvent.

The medical device industry is characterized by patent and other intellectual property litigation and we could become subject to litigation that could be costly, result in the diversion of management's time and efforts, require us to pay damages, and/or prevent us from marketing our existing or future products.

        The medical device industry is characterized by extensive litigation and administrative proceedings over patent and other intellectual property rights. Determining whether a product infringes a patent

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involves complex legal and factual issues, the determination of which is often uncertain. Our competitors may assert that our products, the components of those products, the methods of using those products, or the methods we employ in processing those products are covered by U.S. or foreign patents held by them. In addition, they may claim that their patents have priority over ours because their patents were issued first. Because patent applications can take many years to issue, there may be applications now pending of which we are unaware, which may later result in issued patents that our products may infringe. There could also be existing patents that one or more components of our products may be inadvertently infringing, of which we are unaware. As the number of participants in the market for spine disorder devices and treatments grows, the possibility of patent infringement claims against us increases.

        Any litigation or claim against us, even those without merit, may cause us to incur substantial costs, and could place a significant strain on our financial resources, divert the attention of management from our core business and harm our reputation. If the relevant patents were upheld as valid and enforceable and we were found to infringe, we could be required to pay substantial damages, including treble, or triple, damages if an infringement is found to be willful, and/or royalties and could be prevented from selling our products unless we could obtain a license or were able to redesign our products to avoid infringement. Any such license may not be available on reasonable terms, if at all, and there can be no assurance that we would be able to redesign our products in a way that would not infringe those patents. If we fail to obtain any required licenses or make any necessary changes to our products or technologies, we may have to withdraw existing products from the market or may be unable to commercialize one or more of our products, all of which could have a material adverse effect on our business, financial condition and results of operations.

If we become subject to product liability claims, we may be required to pay damages that exceed our insurance coverage.

        Our business exposes us to potential product liability claims that are inherent in the testing, design, manufacture and sale of medical devices for spine surgery procedures. Spine surgery involves significant risk of serious complications, including bleeding, nerve injury, paralysis and even death. To date, our products have not been the subject of any material product liability claims. Currently, we carry product liability insurance in the amount of $10 million per occurrence and $10 million in the aggregate. Any product liability claim brought against us, with or without merit, could result in the increase of our product liability insurance rates or our inability to secure coverage in the future on commercially reasonable terms, if at all. In addition, if our product liability insurance proves to be inadequate to pay a damage award, we may have to pay the excess out of our cash reserves, which could harm our financial condition. If longer-term patient results and experience indicate that our products or any component of a product cause tissue damage, motor impairment or other adverse effects, we could be subject to significant liability. Even a meritless or unsuccessful product liability claim could harm our reputation in the industry, lead to significant legal fees and result in the diversion of management's attention from managing our business.

Because allograft products entail a potential risk of communicable disease to human recipients, we may be the subject of product liability claims regarding our allograft products.

        Our allograft business may expose us to additional potential product liability claims. The development of allografts and technologies for human tissue repair and treatment entails a risk of additional product liability claims because of the risk of transmitting disease to human recipients, and substantial product liability claims may be asserted against us. In addition, successful product liability claims made against one of our competitors could cause claims to be made against us or expose us to a perception that we are vulnerable to similar claims. Even a meritless or unsuccessful product liability

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claim could harm our reputation in the industry, lead to significant legal fees and result in the diversion of management's attention from managing our business.

We may be subject to damages resulting from claims that we, our employees or our independent distributors have wrongfully used or disclosed alleged trade secrets of our competitors or are in breach of non-competition agreements with our competitors or non-solicitation agreement.

        Many of our employees were previously employed at other medical device companies, including our competitors or potential competitors. Many of our independent distributors sell, or in the past have sold, products of our competitors. We may be subject to claims that either we, or these employees or independent distributors, have inadvertently or otherwise used or disclosed the trade secrets or other proprietary information of our competitors. In addition, we have been and may in the future be subject to claims that we caused an employee or independent distributor to break the terms of his or her non-competition agreement or non-solicitation agreement. Litigation may be necessary to defend against these claims. For example, Abbott Spine, Inc. has brought a suit against us, which is described under "Business—Legal Proceedings." Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. A loss of key personnel or their work product could hamper or prevent our ability to commercialize product candidates, which could have an adverse effect on our business, financial condition and results of operations.

Any claims relating to our improper handling, storage or disposal of biological, hazardous and radioactive materials could be time consuming and costly.

        The manufacture of certain of our products, including our allograft implants, involves the controlled use of biological, hazardous and/or radioactive materials and waste. Our business and facilities and those of our suppliers are subject to foreign, federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials and waste products. Although we believe that our safety procedures for handling and disposing of these materials comply with legally prescribed standards, we cannot completely eliminate the risk of accidental contamination or injury from these materials. In the event of an accident, we could be held liable for damages or penalized with fines. This liability could exceed our resources and any applicable insurance. In addition, under some environmental laws and regulations, we could also be held responsible for all of the costs relating to any contamination at our past or present facilities and at third-party waste disposal sites even if such contamination was not caused by us. We may incur significant expenses in the future relating to any failure to comply with environmental laws. Any such future expenses or liability could have a significant negative impact on our business, financial condition and results of operations.

We and our independent sales agents must comply with various state, federal anti-kickback, self-referral, false claims and similar laws, the breach of which could cause a material adverse effect on our business, financial condition and results of operations.

        Our relationship with surgeons, hospitals and the marketers of our products are subject to scrutiny under healthcare fraud and abuse regulations. Healthcare fraud and abuse regulations are complex, and even minor, inadvertent irregularities in submissions can potentially give rise to claims that the relevant statute has been violated. Any violations of these laws could result in a material adverse effect on the market price of our common stock, as well as our business, financial condition and results of operations. We cannot assure you that these laws and regulations will not change or be interpreted in the future in a manner which restricts or adversely affects our business activities or relationships with surgeons, hospitals and marketers of our products.

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        Federal anti-kickback laws and regulations prohibit any knowing and willful offer, payment, solicitation or receipt of any form of remuneration by an individual or entity in return for, or to induce:

        Possible sanctions for violation of these anti-kickback laws include monetary fines, civil and criminal penalties, exclusion from Medicare and Medicaid programs and forfeiture of amounts collected in violation of such prohibitions. Certain states in which we market our products have similar anti-kickback, anti-fee splitting and self-referral laws, imposing substantial penalties for violations.

        We have entered into consulting agreements and royalty agreements with certain surgeons who make referrals to us. In addition, some of our referring surgeons own our stock, which they either purchased in an arms' length transaction on terms identical to those offered to non-surgeons or received from us as consideration for consulting services performed. These agreements and stock issuances must be transacted in accordance with the federal ban on physician self-referrals, commonly known as the "Stark Law," state anti-referral laws and other applicable anti-kickback laws since the surgeons make referrals to us. These transactions were structured with the intention of complying with all applicable laws. Despite this intention, however, all of our business arrangements and operations may not always comply with all of the criteria of applicable laws. It is possible that regulatory agencies could view these transactions as prohibited arrangements that must be restructured or for which we could be subject to other significant penalties, or prohibit us from accepting referrals from these surgeons. Consequently, it is possible that regulatory agencies could determine that applicable laws require us to restructure existing relationships with certain of our referring surgeons and to repurchase, or request the sale of, stock held by referring surgeons, to modify or terminate our agreements with referring surgeons, or, alternatively, to refuse to accept referrals from these surgeons. We would be materially impacted if regulatory agencies interpret our financial relationships with certain surgeons who refer our products to be in violation of applicable laws and we were unable to achieve compliance with applicable laws. This could subject us to monetary penalties for non-compliance and the cost of achieving that compliance could be substantial.

        In addition, we must comply with a variety of other laws, such as laws prohibiting false claims for reimbursement under Medicare and Medicaid, which can also be triggered by violations of federal anti-kickback laws; Healthcare Insurance Portability and Accounting Act of 1996, which makes it a federal crime to commit healthcare fraud and make false statements; and the Federal Trade Commission Act and similar laws regulating advertisement and consumer protections. Various federal and state authorities pursue actions for false claims on the basis that manufacturers and distributors are promoting unapproved or off-label uses. Pursuant to FDA regulations, we can only market our products for cleared or approved uses. Although surgeons are permitted to use medical devices for indications other than those cleared or approved by the FDA, we are prohibited from promoting products for such off-label uses. We market our products and provide promotional materials and training programs to surgeons regarding the use of our products. Although we believe our marketing, promotional materials and training programs for surgeons do not constitute promotion of unapproved uses of our products, if it is determined that our marketing, promotional materials or training programs constitute promotion of unapproved uses, we could be subject to significant fines in addition to regulatory enforcement actions, including the issuance of a warning letter, injunction, seizure and criminal penalty.

        The scope and enforcement of these laws is uncertain and subject to rapid change, especially in light of the lack of applicable precedent and regulations. There can be no assurance that federal or state regulatory authorities will not challenge our current or future activities under these laws. Any

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such challenge could have a material adverse effect on our business, financial condition and results of operations. Any state or federal regulatory review of us, regardless of the outcome, would be costly and time consuming. Additionally, we cannot predict the impact of any changes in these laws, whether or not retroactive.

Risks Associated with Owning Our Common Stock

There has been no prior public market for our common stock and an active trading market may not develop.

        Prior to this offering, there has been no public market for our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market on the Nasdaq National Market or otherwise or how liquid that market might become. The lack of an active market may impair the value of your shares and your ability to sell your shares at the time you wish to sell them. An inactive market may also impair our ability to raise capital by selling our common stock and may impair our ability to acquire other companies, products or technologies by using our common stock as consideration.

We expect that the price of our common stock will fluctuate substantially and you may not be able to sell your shares at or above the offering price.

        The initial public offering price for the shares of our common stock sold in this offering will be determined by negotiation between the representatives of the underwriters and us. This price may not reflect the market price of our common stock following this offering. In addition, the market price of our common stock is likely to be highly volatile and may fluctuate substantially due to many factors, including:

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Securities analysts may not initiate coverage of our common stock or may issue negative reports, which may have a negative impact on the market price of our common stock.

        Securities analysts may elect not to provide research coverage of our common stock after the completion of this offering. If securities analysts do not cover our common stock after the completion of this offering, the lack of research coverage may cause the market price of our common stock to decline. The trading market for our common stock may be affected in part by the research and reports that industry or financial analysts publish about our business. If one or more of the analysts who elects to cover us downgrades our stock, our stock price would likely decline rapidly. If one or more of these analysts ceases coverage of us, we could lose visibility in the market, which in turn could cause our stock price to decline. In addition, recently-adopted rules mandated by the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley Act, and a global settlement reached in 2003 between the SEC, other regulatory agencies and a number of investment banks have led to a number of fundamental changes in how analysts are reviewed and compensated. In particular, many investment banking firms are required to contract with independent financial analysts for their stock research. It may be difficult for companies such as ours, with smaller market capitalizations, to attract independent financial analysts that will cover our common stock. This could have a negative effect on the market price of our stock.

Because of their significant stock ownership, our executive officers, directors and principal stockholders will be able to exert control over us and our significant corporate decisions.

        Upon completion of this offering and satisfaction of our redemption and dividend obligations to our existing stockholders, based on shares outstanding at December 31, 2005, our executive officers, directors, and stockholders holding more than 5% of our outstanding common stock and their affiliates will, in the aggregate, beneficially own approximately    % of our outstanding common stock, or approximately    % if the underwriters' over-allotment option is exercised in full. As a result, these persons, acting together, will have the ability to determine the outcome of all matters requiring stockholder approval, including the election and removal of directors and any merger, consolidation, or sale of all or substantially all of our assets. This concentration of ownership may harm the market price of our common stock by, among other things:

        We also plan to reserve up to 5% of the shares offered in this offering under a directed share program in which our executive officers and directors, principal stockholders, employees, business associates and related persons may be able to purchase shares in this offering at the initial public offering price. This program may further increase the percentage of stock held by persons whose interests are aligned with the interests of our executive officers, directors and principal stockholders.

Certain members of our board of directors also serve as officers and directors of HealthpointCapital and its other portfolio companies.

        Four members of our board of directors also serve as officers and directors of our largest stockholder, HealthpointCapital, or its related entities and of other companies in which HealthpointCapital invests, including companies with which we compete or may in the future compete. Upon completion of this offering, HealthpointCapital will own approximately     % of Alphatec Holdings, or    % if the underwriters' over-allotment option is exercised in full. HealthpointCapital is a private equity fund focused on the worldwide orthopedic device industry. HealthpointCapital and its affiliates may make investments and hold interests in businesses that compete directly or indirectly with

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us. For example, HealthpointCapital owns a 33% interest in Scient'x S.A., which sells dynamic stabilization and motion preservation spinal implants. John H. Foster, Chairman of our board of directors, is a managing member of HGP, LLC, which is the general partner of, and has a 20% profits interest in, HealthpointCapital, and the Chairman, Chief Executive Officer, a member of the Board of Managers and a managing director of HealthpointCapital, LLC, which owns a 25% ownership interest in HGP, LLC and is the parent company of the fund manager of HealthpointCapital. He is also a director of Scient'x S.A. Mortimer Berkowitz III, a member of our board of directors, is a managing member of HGP, LLC, the President, a member of the Board of Managers and a managing director of HealthpointCapital, LLC and a director of Scient'x S.A. Our directors R. Ian Molson and Stephen E. O'Neil also serve on the Board of Managers of HealthpointCapital, LLC. Such directors may have obligations to HealthpointCapital, HealthpointCapital, LLC, HGP, LLC and to investors in those companies and other portfolio companies of HealthpointCapital and its affiliates, the fulfillment of which might not be in the best interests of us or our stockholders.

        Our Chairman, John H. Foster, has a 3.2% beneficial capital interest in HealthpointCapital, a 36.6% direct interest in HGP, LLC and a 44.2% direct and beneficial interest in HealthpointCapital, LLC. Our director Mortimer Berkowitz III has a less than 1% direct capital interest in HealthpointCapital, a 24.4% direct interest in HGP, LLC and a 30.5% direct and beneficial interest in HealthpointCapital, LLC. Our director R. Ian Molson has a less than 1% direct capital interest in HealthpointCapital and a 2.2% direct interest in HealthpointCapital, LLC. Our director Stephen E. O'Neil has a 1.5% direct interest in HealthpointCapital, LLC. Our Executive Vice President of Corporate Development, Laszlo Adam, is a director of, and has a less than a 1% direct interest in, HealthpointCapital, LLC.

        Because of these possible conflicts of interest, such directors may direct potential business and investment opportunities to other entities rather than to us or such directors may undertake or otherwise engage in activities or conduct on behalf of such other entities that is not in, or which may be adverse to, our best interests. Whether a director directs an opportunity to us or to another company, our directors may face claims of breaches of fiduciary duty and other duties relating to such opportunities. Our amended and restated certificate of incorporation requires us to indemnify our directors to the fullest extent permitted by law, which may require us to indemnify them against claims of breaches of such duties arising from their service on our board of directors.

        HealthpointCapital or its affiliates may pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us. Furthermore, HealthpointCapital may have an interest in us pursuing acquisitions, divestitures, financings or other transactions that, in its judgment, could enhance its equity investment, even though such transactions might involve risks to us and our stockholders generally. In addition, if we were to seek a business combination with a target business with which one or more of our existing stockholders or directors may be affiliated, conflicts of interest could arise in connection with negotiating the terms of and completing the business combination. Conflicts that may arise may not be resolved in our favor.

At least half of the net proceeds of this offering will be used to satisfy our redemption and dividend obligations to our existing stockholders.

        Pursuant to the terms of our certificate of incorporation, we are required to use approximately $            of the net proceeds from this offering, or $            if the underwriters exercise their over-allotment option in full, to satisfy redemption and dividend obligations to our existing stockholders. In addition, the maximum amount of net proceeds that we may retain from this offering, including any exercise by the underwriters of the over-allotment option, is $65 million. We believe that our current cash and cash equivalents, together with the net proceeds from this offering, after satisfaction of our redemption and dividend obligations to our existing stockholders, together with

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revenues from our operations and Alphatec Spine's ability to draw down on its secured credit facilities, will be sufficient to meet our projected operating requirements for at least the next 12 months.

Our management team may invest or spend the proceeds of this offering in ways in which you may not agree or in ways that may not yield a return, and the use of the proceeds of this offering will be subject to covenants contained in our debt financing agreements.

        We will use certain of the net proceeds from this offering to satisfy redemption and dividend obligations to our existing stockholders and to pay an advisory fee in connection with this offering. We expect to use certain of the net proceeds from this offering that we retain to expand our sales and marketing activities; to fund the clearance or approval and subsequent commercialization of our near-term product candidates; to support our research and development efforts; to repay and retire debt; and for general corporate purposes, including to acquire businesses, products or intellectual property that are complementary to our business, or to obtain the right to use such products and intellectual property. Our management will have considerable discretion in the application of the remaining net proceeds of this offering. Stockholders may not agree with such uses and the remaining net proceeds may be used for corporate purposes that do not increase our operating results or market value. Until the net proceeds are used, they may be placed in investments that do not produce income or that lose value.

Future sales of our common stock in the public market after this offering may depress our stock price and impair our ability to raise future capital through the sale of our equity securities.

        Upon completion of the reorganization transactions, our current stockholders will hold a substantial number of shares of our common stock that they will be able to sell in the public market in the near future. A significant portion of these shares will be held by a small number of stockholders. Sales by our current stockholders of a substantial number of shares after this offering could significantly reduce the market price of our common stock. Moreover, beginning in            , 2006, the holders of approximately            shares of common stock will have rights, subject to some conditions, to require us to include their shares in registration statements that we may file for ourselves or other stockholders. The            shares represent approximately    % of the total number of shares of our common stock to be outstanding immediately after this offering, assuming no exercise of the underwriters' over-allotment option. Please see "Description of Capital Stock—Registration Rights" for a description of the registration rights of these stockholders.

        We also intend to register some or all common stock that we may issue under our existing 2005 Employee, Director and Consultant Stock Plan totaling approximately 4,000,000 shares. In addition, all of such shares, as well as an additional 65,000 shares issued to members of our Scientific Advisory Board and certain of our directors, may be sold pursuant to Rule 701 under the Securities Act of 1933, as amended, or the Securities Act, 90 days after the date of this prospectus. After 90 days, or once we register these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements described in "Underwriting" and, in the case of sales pursuant to Rule 701, subject to limitations described in "Shares Eligible for Future Sale—Rule 701." If any of these holders cause a large number of securities to be sold in the public market, the sales could reduce the trading price of our common stock. These sales also could impede our ability to raise future capital. Please see "Shares Eligible for Future Sale" for a description of sales that may occur in the future.

As a new investor, you will experience substantial dilution as a result of this offering and future equity issuances and, as a result, our stock price could decline.

        The initial public offering price is substantially higher than the pro forma as adjusted net tangible book value per share of our outstanding common stock. For a definition of the term pro forma as adjusted net tangible book value, please see "Dilution." As a result, investors purchasing common stock

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in this offering will incur immediate dilution of $      per share. This dilution is due in large part to earlier investors in our company having paid substantially less than the initial public offering price when they purchased their shares. In addition, pursuant to our certificate of incorporation, we are entitled to retain 50% of the net proceeds from this offering, excluding any proceeds from the exercise of the underwriters' over-allotment option, up to a maximum of $65 million. We are required to use the remaining net proceeds from this offering to satisfy redemption and dividend obligations to our existing stockholders. To the extent those obligations exceed the remaining net proceeds from this offering, we are required to issue a combination of common stock and New Redeemable preferred stock to satisfy those obligations, which will result in further dilution to investors. Investors who purchase shares of common stock in this offering will contribute approximately    % of the total amount we have raised to fund our operations on a pro forma as adjusted basis, as of December 31, 2005, after giving effect to the reorganization transactions upon the closing of this offering, but will own only approximately    % of our common stock based upon the number of shares outstanding as of December 31, 2005. Because we may require additional funds to develop new products and continue to expand our business, we may conduct substantial future offerings of equity securities. The exercise of outstanding options and future equity issuances, including future public offerings or future private placements of equity securities and any additional shares issued in connection with acquisitions, will result in further dilution to investors.

The requirements of being a public company may strain our resources and distract management.

        As a public company, we will be subject to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act. These requirements may place a strain on our personnel, information technology systems and resources. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal control over financial reporting and, as part of each of our annual and quarterly reports, that our chief financial officer make certain certifications regarding our disclosure controls and procedures and internal control over financial reporting. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, significant resources and management oversight will be required. This may divert management's attention from other business concerns, which could have a material adverse effect on our business, financial condition and results of operations.

We may incur increased costs as a result of recently enacted and proposed changes in laws and regulations affecting public companies.

        Recently enacted and proposed changes in the laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act and rules implemented by the SEC and by the Nasdaq National Market, have required changes in corporate governance practices of public companies. We expect these new rules and regulations to increase our legal and financial compliance costs significantly and to make some activities more time-consuming and costly. For example, in anticipation of becoming a public company, we have created additional board committees and adopted policies regarding internal controls and disclosure controls and procedures. In addition, we will incur additional costs associated with our public company reporting requirements. We may need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge, and we cannot assure you that we will be able to do so without incurring material costs. The new rules could also make it more difficult or more costly for us to obtain certain types of insurance, including directors' and officers' liability insurance. We, therefore, may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers. We

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are presently evaluating and monitoring developments with respect to these new rules and cannot predict or estimate the amount of the additional costs we may incur or the timing of such costs.

In the quarterly reports on Form 10-Q and the annual reports on Form 10-K that we will be required to file when we become a reporting company, our management may not be able to conclude that we have effective disclosure controls and procedures, and we or our independent registered public accounting firm may not be able to conclude that we have effective internal controls over financial reporting. We will also be exposed to risks relating to evaluations of controls required by Section 404 of the Sarbanes-Oxley Act.

        After the consummation of this offering, we will be subject to the reporting requirements of the Exchange Act that require us to file, among other things, quarterly reports on Form 10-Q and annual reports on Form 10-K. Under Section 302 of the Sarbanes-Oxley Act, as a part of each of these reports, our chief executive officer and chief financial officer will be required to evaluate and report their conclusions regarding the effectiveness of our disclosure controls and procedures and to certify that they have done so. This requirement will apply to our first Form 10-Q for the quarter following effectiveness of the registration statement of which this prospectus is a part. In addition, under Section 404 of the Sarbanes-Oxley Act, we will be required to include a report of management on our internal control over financial reporting in our Form 10-K and the independent registered public accounting firm auditing our financial statements will be required to attest to and report on management's assessment of the effectiveness of our internal control over financial reporting and on the effectiveness of our internal control over financial reporting. This requirement will first apply to our Form 10-K for our fiscal year ending December 31, 2007.

        We will be evaluating our internal controls systems to allow management to report on, and our independent auditors to attest to, our internal controls. We will be performing the system and process evaluation, testing and any necessary remediation required to comply with the management certification and auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. While we anticipate being able to fully implement the requirements relating to internal controls and all other aspects of Section 404, we cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or the impact of the same on our operations since there is presently no precedent available by which to measure compliance adequacy.

        If we are unable to conclude in a timely manner that our disclosure controls and procedures and internal control over financial reporting are effective, or if our independent registered public accounting firm is unable to conclude that our assessment of our internal control over financial reporting is sufficient or is unable to conclude that our internal controls over financial reporting are effective and therefore issues an adverse opinion, we may be subject to sanctions or investigation by regulatory authorities, including the SEC or the Nasdaq National Market. This type of action could adversely affect our financial results or investors' confidence in our company and our ability to access capital markets, and could cause our stock price to decline. In addition, the control and procedures that we will implement may not comply with all of the relevant rules and regulations of the SEC and the Nasdaq National Market. If we fail to develop and maintain effective controls and procedures, we may be unable to provide the required financial information in a timely and reliable manner.

We may become involved in securities class action litigation that could divert management's attention and harm our business.

        The stock market in general, and the Nasdaq National Market and the market for medical device companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Further, the market prices of securities of medical device companies have been particularly volatile. Factors contributing to this volatility include FDA and international actions with respect to the government regulation of medical devices and third-party reimbursement matters, changes in U.S. or international healthcare

35



policies, and changes in the condition of the medical device industry generally. These broad market and industry factors may materially harm the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a particular company's securities, securities class action litigation has often been brought against that company. We may become involved in this type of litigation in the future. Litigation is often expensive and diverts management's attention and resources, which could materially harm our financial condition, results of operations and business.

Change of control provisions in some of our employment agreements and agreements with distributors, in our agreement relating to the repurchase of stock of Alphatec Pacific and in some of our outstanding debt agreements, as well as the terms of our New Redeemable preferred stock, may discourage or prevent a change of control, even if an acquisition would be beneficial to our stockholders, which could affect our stock price adversely.

        Some of our employment agreements and all of our restricted stock agreements and incentive stock option agreements provide for accelerated vesting of benefits, including full vesting of restricted stock and options, upon a change of control. A limited number of our agreements with our distributors include a provision that extends the term of the distribution agreement upon a change in control and makes it more difficult for us or our successor to terminate the agreement. This initial public offering will not constitute a change of control under such agreements. In connection with our sale of 20% of the stock of Alphatec Pacific to Mr. Roy Yoshimi, we entered into a stock purchase agreement pursuant to which we have an obligation to repurchase that stock upon certain changes of control at a purchase price based on revenues of Alphatec Pacific. Alphatec Pacific borrowed ¥350.0 million, or approximately $3.0 million from Mr. Yoshimi, which, along with a fee, is also payable in full upon certain changes in control. We intend to repay this loan out of the net proceeds of this offering. These provisions may discourage or prevent a change of control.

        In addition, in the event of a change of control, we would be required to redeem all outstanding shares of our New Redeemable preferred stock for an aggregate of $     million, assuming an initial public offering price of $     per share. Further, our amended and restated certificate of incorporation permits us to issue additional shares of preferred stock. The terms of our New Redeemable preferred stock or any new preferred stock we may issue could have the effect of delaying, deterring or preventing a change in control.

We do not intend to pay cash dividends.

        We have never declared or paid cash dividends on our capital stock and, with the exception of the dividends payable in connection with the reorganization transactions, we do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain all available funds and any future earnings for use in the operation and expansion of our business. In addition, the terms of any future debt or credit facility may preclude us from paying any dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of potential gain for the foreseeable future.

36



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus contains forward-looking statements that are based on our management's beliefs and assumptions and on information currently available to us. The forward-looking statements are contained principally in the sections entitled "Summary," "Risk Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." When used in this prospectus, the words "anticipate," "believe," "could," "estimate," "will," "may," "plan," "should," "intend," and "expect" and similar expressions identify forward-looking statements. Although we believe that our plans, intentions, and expectations reflected in any forward-looking statements are reasonable, these plans, intentions, or expectations may not be achieved. Our actual results, performance, or achievements could differ materially from those contemplated, expressed, or implied, by the forward-looking statements contained in this prospectus. Important factors that could cause actual results to differ materially from our forward-looking statements are set forth in this prospectus, including under the heading "Risk Factors." Given these factors, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management's beliefs and assumptions only as of the date of this prospectus. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth in this prospectus. These statements include, among other things, statements relating to:

37


        Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

38



USE OF PROCEEDS

        We estimate that our net proceeds from the sale of            shares of common stock in this offering will be approximately $     million, assuming an initial public offering price of $                  per share, after deducting underwriting discounts and commissions and estimated offering costs. If the over-allotment option is exercised in full, we estimate that our net proceeds will be approximately $     million.

        We expect to use $     million of the net proceeds from this offering to expand our sales and marketing activities, to support our research and development efforts, to fund the clearance or approval and subsequent commercialization of our near-term product candidates, and to acquire complementary businesses, products, or technologies, or to obtain the right to use such complementary technologies. We have no present understandings, commitments or agreements to acquire any businesses products or technologies.

        We anticipate using approximately $    million of the net proceeds of this offering to reduce our outstanding indebtedness as follows:

        We will use $1.0 million of the net proceeds from this offering to pay an advisory fee and approximately $        of the net proceeds from this offering to pay out of pocket costs to HealthpointCapital, LLC, an affiliate of HealthpointCapital, in connection with this offering.

        We will use approximately $    million of the net proceeds from this offering to satisfy redemption and dividend obligations to our existing stockholders, which will be $            on May 22, 2006. Of such proceeds, $    million will be used to satisfy our aggregate redemption obligations, and $     million will be used to satisfy our aggregate dividend obligations.

        Pursuant to the terms of our certificate of incorporation, we are entitled to retain 50% of the net proceeds from this offering, excluding any proceeds from the exercise of the underwriters' over-allotment option, up to $65 million. We are required to use the remaining net proceeds from this offering to satisfy redemption and dividend obligations to holders of our outstanding preferred stock, Rolling common stock, Series A common stock, Series A-1 common stock, Series B common stock, and Series C common stock. To the extent those obligations exceed the remaining net proceeds from this offering, we are required to issue a combination of common stock and New Redeemable preferred stock to satisfy those obligations. We will not issue more than $30 million of New Redeemable preferred stock. In addition, we are required to use all of the net proceeds from any exercise of the underwriters' over-allotment option to redeem any outstanding shares of New Redeemable preferred stock.

        The amounts that we actually expend for operating and working capital purposes may vary significantly depending on a number of factors, including the timing and success of any FDA clearances we may seek in the future, the timing of regulatory submissions, the status and timing of our research and development efforts, the amount of proceeds actually raised in this offering, the amount of cash generated by our operations, the amount of competition we face and the success we have with obtaining any required technology or licenses and entering into collaboration arrangements. As a result, management will retain broad discretion over the allocation of the net proceeds from this offering.

        All of our calculations involving the payment in the reorganization transactions of the accrued and unpaid dividends on each of our series of common stock for a combination of cash, common stock and

39



New Redeemable preferred stock are based on the amount of accrued and unpaid dividends on our series of common stock through May 22, 2006. The actual number of shares of common stock and New Redeemable preferred stock issued and cash paid will differ based on the amount of accrued and unpaid dividends through the closing date of this offering.

        Of the net proceeds of this offering to be used to satisfy our redemption and dividend obligations to our existing stockholders, approximately $     million will be paid to our affiliates and key employees as described under "Certain Relationships and Related Transactions."

        Pending use of the net proceeds of this offering, we intend to invest the net proceeds in short-term investment grade and U.S. government securities.

40



DIVIDEND POLICY

        We have never declared or paid any cash dividends on our capital stock and, with the exception of the dividends payable in connection with the reorganization transactions, we do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain all available funds and any future earnings to support operations and finance the growth and development of our business. Any future determination related to our dividend policy will be made at the discretion of our board of directors.

41



CAPITALIZATION

        The following table summarizes our capitalization as of December 31, 2005:

        You should read the following information together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements, the financial statements of Cortek and our unaudited pro forma condensed combined consolidated statements of operations and the notes to those statements and information included elsewhere in this prospectus.

 
  Actual
  Pro Forma
As Adjusted

 
  (in thousands, except share and par value data)

Long-term debt, less current portion   $ 1,592      
Note payable to related party, less current portion     916      

Minority interest

 

 

1,914

 

 

 
Redeemable convertible preferred, Rolling common and Series C common stock, $0.0001 par value; actual—10,929,094 shares authorized; 8,773,447 shares issued and outstanding; pro forma as adjusted—no shares authorized, issued or outstanding     99,413    
New Redeemable preferred stock, $0.0001 par value; actual—no shares authorized, issued or outstanding; pro forma as adjusted—            shares authorized;            shares issued and outstanding          
Stockholder note receivable     (65 )    

Stockholders' equity (deficit):

 

 

 

 

 

 
  Common stock (excluding Rolling and Series C common stock) $0.0001 par value; actual—19,845,616 shares authorized; 5,770,750 shares issued and outstanding; pro forma as adjusted—               shares authorized;               shares issued and outstanding     1      
  Additional paid-in capital     12,016      
  Deferred compensation     (18,296 )    
  Accumulated other comprehensive income     (112 )    
  Accumulated deficit     (12,866 )    
   
 
    Total stockholders' equity (deficit)     (19,257 )    
   
 
      Total capitalization   $ 84,513   $  
   
 

        The number of shares of our common stock to be outstanding immediately after this offering excludes:

42



DILUTION

        If you invest in our common stock, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma net tangible book value per share of our common stock after this offering. We calculate pro forma net tangible book value per share by dividing the net tangible book value, our tangible assets less total liabilities, by the number of outstanding shares of our common stock.

        After giving effect to the    -for-    stock split, the reorganization transactions and the sale of            shares of common stock by us at an assumed initial public offering price of $    per share and the application of the net proceeds therefrom as described under "Use of Proceeds," our pro forma net tangible book value as of December 31, 2005 would be $     million, or $    per share. This represents an immediate increase in the pro forma net tangible book value (deficit) of $    per share to existing stockholders and an immediate dilution of $    per share to new investors purchasing shares in this offering at an assumed initial public offering price of $    per share. The following table illustrates this per share dilution:

Assumed initial public offering price per share         $  

Historical net tangible book value (deficit) per share as of December 31, 2005

 

$

(16.21

)

 

 

Increase per share attributable to new investors purchasing shares in this offering

 

$

 

 

 

 

 

 



 

 

 

Pro forma net tangible book value per share after this offering

 

 

 

 

$

 

 

 

 

 

 



Dilution per share to new investors in this offering

 

 

 

 

$

 

 

 

 

 

 


        If the underwriters exercise their over-allotment option in full, the pro forma net tangible book value per share would increase to $        , and the dilution per share to new investors would be $        . If all outstanding stock options with exercise prices less than the initial public offering price were exercised, the pro forma net tangible book value per share would increase to $                      , and the dilution per share to new investors would be $                      . If the underwriters exercise their over-allotment in full and all outstanding stock options with exercise prices less than the initial public offering price were exercised, the pro forma net tangible book value would increase to $                      , and the dilution per share to new investors would be $                  .

        The following table shows, on a pro forma as adjusted basis, as of December 31, 2005, after giving effect to the reorganization transactions upon the closing of this offering, the differences between our existing stockholders and investors in this offering with respect to the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid by our existing stockholders and the price per share paid by investors in this offering before deducting estimated underwriting discounts and commissions and our estimated offering expenses:

 
  Shares Purchased
  Total Consideration
   
 
  Average
Price
Per Share

 
  Number
  Percent
  Amount
  Percent
Existing stockholders         % $       % $  
New investors         % $       % $  
   
 
 
 
     
  Total       100 % $     100 %    
   
 
 
 
     

43


        Assuming the underwriters' over-allotment option is exercised in full, the percentage of shares of common stock held by existing stockholders will be reduced to     % and the number of shares of common stock held by new investors will be increased to            , or            %. Assuming that all stock options with exercise prices less than the initial public offering price are exercised, the percentage of shares of common stock held by existing stockholders will be increased to    % and the percentage of shares of common stock held by new investors will be reduced to    %. Assuming the underwriters' over-allotment option is exercised in full, and that all stock options with exercise prices less than the initial public offering price are exercised, the percentage of shares of common stock held by existing stockholders will be reduced to    % and the number of shares of common stock held by new investors will be increased to    , or    %.

        The pro forma number of shares of our common stock to be outstanding as of December 31, 2005 excludes:

44



SELECTED CONSOLIDATED FINANCIAL DATA

        The following tables summarize our consolidated financial data for the periods presented. We have derived the summary consolidated financial data as of December 31, 2004 and December 31, 2005 and for the years ended December 31, 2003 and 2004, and the periods from January 1, 2005 to March 17, 2005 and March 18, 2005 to December 31, 2005, from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated financial data for the years ended December 31, 2001 and 2002 are derived from our unaudited consolidated financial statements, which, in the opinion of management, contain all adjustments necessary for a fair presentation of the consolidated financial data.

        Alphatec Predecessor refers to Alphatec Spine prior to its acquisition by Alphatec Holdings on March 18, 2005. Alphatec Combined refers to the combined results of Alphatec Predecessor and Alphatec Holdings.

45



        You should read the following information together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements, the financial statements of Cortek and our unaudited pro forma condensed combined consolidated statements of operations and the notes to those statements and information included elsewhere in this prospectus.

 
  Alphatec Predecessor
  Alphatec Holdings
  Alphatec Combined
 
 
   
   
   
   
  Period from
January 1,
2005 to
March 17,
2005

  Period from
March 18,
2005 to
December 31,
2005

   
 
 
  Years ended December 31,
   
 
 
  Year ended
December 31,
2005

 
 
  2001
  2002
  2003
  2004
 
 
  (unaudited)

  (unaudited)

   
   
   
   
  (unaudited)

 
Consolidated Statements of Operations Data                                            
Revenues   $ 13,961,564   $ 11,336,919   $ 10,890,776   $ 17,821,345   $ 6,050,083   $ 36,275,614   $ 42,325,697  
Cost of revenues:                                            
  Product     5,290,796     4,154,745     3,589,548     4,791,639     1,341,869     11,625,490     12,967,359  
  Royalties     554,771     343,799     113,409     668,853     340,613     2,345,604     2,686,217  
  Amortization of purchased intangibles                         2,068,736     2,068,736  
   
 
 
 
 
 
 
 
Gross profit     8,115,997     6,838,375     7,187,819     12,360,853     4,367,601     20,235,784     24,603,385  
   
 
 
 
 
 
 
 
Operating expenses:                                            
  Research and development     326,147     415,696     520,506     1,176,671     215,773     751,302     967,075  
  In-process research and development                         3,100,000     3,100,000  
  Selling, general and administrative     7,512,638     7,220,692     7,209,522     11,006,372     5,228,175     30,351,687     35,579,862  
   
 
 
 
 
 
 
 
Total operating expenses     7,838,785     7,636,388     7,730,028     12,183,043     5,443,948     34,202,989     39,646,937  
   
 
 
 
 
 
 
 
Operating income (loss)     277,212     (798,013 )   (542,209 )   177,810     (1,076,347 )   (13,967,205 )   (15,043,552 )
Other income (expense), net     (181,429 )   (240,005 )   (250,016 )   427,771     (110,727 )   (1,937,331 )   (2,048,058 )
   
 
 
 
 
 
 
 
Income (loss) before tax     95,783     (1,038,018 )   (792,225 )   605,581     (1,187,074 )   (15,904,536 )   (17,091,610 )
Income tax provision (benefit)     3,900     3,900     41,280     96,127     1,467     (3,038,900 )   (3,037,433 )
   
 
 
 
 
 
 
 
Net income (loss)     91,883     (1,041,918 )   (833,505 )   509,454     (1,188,541 )   (12,865,636 )   (14,054,177 )
Accretion to redemption value of redeemable convertible preferred, Rolling common and Series C common stock                         (7,600,782 )   (7,600,782 )
   
 
 
 
 
 
 
 
Net income (loss) applicable to common stockholders   $ 91,883   $ (1,041,918 ) $ (833,505 ) $ 509,454   $ (1,188,541 ) $ (20,466,418 ) $ (21,654,959 )
   
 
 
 
 
 
 
 

Net income (loss) per common share (1) :

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Basic   $ 0.01   $ (0.11 ) $ (0.09 ) $ 0.06   $ (0.13 ) $ (4.01 )      
   
 
 
 
 
 
       
  Diluted   $ 0.01   $ (0.11 ) $ (0.09 ) $ 0.05   $ (0.13 ) $ (4.01 )      
   
 
 
 
 
 
       

Weighted average shares used in computing net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Basic     9,430,871     9,432,359     9,298,149     9,178,904     9,211,003     5,098,220        
   
 
 
 
 
 
       
  Diluted     9,510,105     9,432,359     9,298,149     9,620,365     9,211,003     5,098,220        
   
 
 
 
 
 
       
 
  Alphatec Predecessor
   
 
 
  Alphatec Holdings
 
 
  As of December 31,
 
 
  As of December 31, 2005
 
 
  2001
  2002
  2003
  2004
 
 
  (unaudited)

  (unaudited)

   
   
   
 
Consolidated Balance Sheet Data                                
Cash and cash equivalents   $ 977,306   $ 1,123,457   $ 753,857   $ 1,556,770   $ 2,180,366  
Working capital     2,856,898     1,459,662     653,235     725,558     4,248,763  
Total assets     9,210,759     7,079,962     6,288,577     11,306,414     109,138,786  
Long-term debt, less current portion     2,749,760     1,310,436     1,326,863     2,437,717     1,591,591  
Note payable to related party, less current portion                     916,496  
Redeemable convertible preferred, Rolling common and Series C common stock                     99,413,339  
Total stockholders' equity (deficit)     3,050,413     2,038,700     997,848     1,828,188     (19,256,657 )

(1)
See Note 1 of the notes to our consolidated financial statements for a description of the calculation of the net income (loss) per common share.

46



UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2005

        The following unaudited pro forma condensed combined consolidated statements of operations are based on the historical consolidated statement of operations of Alphatec Spine, as predecessor, for the period from January 1, 2005 to March 17, 2005, the historical consolidated statement of operations of Alphatec Holdings for the period from March 18, 2005 to December 31, 2005 and the historical statement of operations of Cortek for the period from January 1, 2005 to September 8, 2005, each included in this prospectus. The historical statements of operations have been adjusted to reflect the acquisitions of Alphatec Spine and Cortek as if the acquisitions had occurred on January 1, 2005. The pro forma adjustments are described in the notes to the pro forma statements of operations and are based on available information and assumptions that management believes are reasonable. The pro forma statements of operations are not necessarily indicative of our future results of operations or results of operations that would have actually occurred had the acquisitions been consummated as of January 1, 2005.

        Both the Alphatec Spine and Cortek acquisitions were accounted for under the purchase method of accounting, and accordingly, the purchase price of each acquisition was allocated to the net assets acquired based on estimates of the fair values at the date of acquisition which may be subject to future adjustments.

        You should read the following information together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements, the financial statements of Cortek and the notes to those statements and information included elsewhere in this prospectus.

47




Pro Forma Condensed Combined Consolidated Statement of Operations
Year Ended December 31, 2005

 
  Alphatec Predecessor
  Alphatec Holdings
   
   
   
   
 
 
  Cortek
  Pro forma
adjustments
relating to
acquisition of
Alphatec Predecessor

  Pro forma
adjustments
relating to
acquisition of
Cortek

  Pro forma for
the twelve
months ended
December 31,
2005

 
 
  Period from
January 1, 2005 to March 17, 2005

  Period from
March 18, 2005 to December 31, 2005

  Period from
January 1, 2005 to September 8, 2005

 
 
  (historical)

  (historical)

  (historical)

   
   
   
 
Revenues   $ 6,050,083   $ 36,275,614   $ 6,922,768   $   $ (617,480 ) (4) $ 48,630,985  
Cost of revenues:                                      
  Product     1,341,869     11,625,490     4,174,018     (1,085,000 ) (1)   (617,480 ) (4)   15,234,397  
                              (204,500 ) (1)      
  Royalties     340,613     2,345,604                 2,686,217  
  Amortization of purchased intangibles         2,068,736         684,999 (2)       2,753,735  
   
 
 
 
 
 
 
Gross profit     4,367,601     20,235,784     2,748,750     400,001     204,500     27,956,636  
   
 
 
 
 
 
 
Operating expenses:                                      
  Research and development     215,773     751,302     168,116             1,135,191  
  In-process research and development         3,100,000         (3,100,000 ) (1)        
  Selling, general and administrative     5,228,175     30,351,687     4,176,296             39,756,158  
   
 
 
 
 
 
 
Total operating expenses     5,443,948     34,202,989     4,344,412     (3,100,000 )       40,891,349  
   
 
 
 
 
 
 
Operating income (loss)     (1,076,347 )   (13,967,205 )   (1,595,662 )   3,500,001     204,500     (12,934,713 )
Other income (expense), net     (110,727 )   (1,937,331 )   (3,957 )   64,476 (3)   47,038 (5)   (1,940,501 )
   
 
 
 
 
 
 
Income (loss) before tax     (1,187,074 )   (15,904,536 )   (1,599,619 )   3,564,477     251,538     (14,875,214 )
Income tax provision (benefit)     1,467     (3,038,900 )   (945,071 )   (6)   (6)   (3,982,504 )
   
 
 
 
 
 
 
Net income (loss)     (1,188,541 )   (12,865,636 )   (654,548 )   3,564,477     251,538     (10,892,710 )
Accretion to redemption value of redeemable convertible preferred stock, Rolling common and Series C common stock         (7,600,782 )               (7,600,782 )
   
 
 
 
 
 
 
Net income (loss) applicable to common stockholders   $ (1,188,541 ) $ (20,466,418 ) $ (654,548 ) $ 3,564,477   $ 251,538   $ (18,493,492 )
   
 
 
 
 
 
 
Net income (loss) per common share:                                      
  Basic         $ (4.01 )                   $ (3.63 )
         
                   
 
  Diluted         $ (4.01 )                   $ (3.63 )
         
                   
 
Weighted average shares used in computing net income (loss) per share:                                      
  Basic           5,098,220                       5,098,220  
         
                   
 
  Diluted           5,098,220                       5,098,220  
         
                   
 

(1)
Reflects an adjustment to eliminate charges for purchased in-process research and development and inventory step-up adjustments expensed during the period from March 18, 2005 to December 31, 2005, which are material non-recurring acquisition related charges.

(2)
Reflects an adjustment for amortization of purchased intangible assets as if they had been acquired on January 1, 2005. The amount of the adjustment represents the amortization of $13.7 million of acquired developed product technology from January 1, 2005 to March 17, 2005 on a straight-line basis using a five-year life.

(3)
Reflects an adjustment for interest expense related to $2.7 million of debt paid off by Alphatec Holdings when it acquired Alphatec Spine.

(4)
Reflects the elimination of sales and cost of sales related to Cortek sales to Alphatec Predecessor and Alphatec Holdings during the period from January 1, 2005 to September 8, 2005.

(5)
Reflects an adjustment for interest expense related to debt paid off by Alphatec Holdings when it acquired substantially all of the assets of Cortek.

(6)
There is no tax benefit provided since Alphatec Holdings has losses in excess of its available deferred tax credits.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

         You should read the following discussion in conjunction with the "Selected Consolidated Financial Data" section and our consolidated financial statements, the financial statements of Cortek and our unaudited pro forma condensed combined consolidated statements of operations, and the notes to those statements and information included elsewhere in this prospectus. The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in the "Risk Factors" and "Special Notice Regarding Forward-Looking Statements" sections of this prospectus. Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Overview

        We are a medical device company that designs, develops, manufactures and markets spinal surgery implants used in the treatment of spine disorders. Our principal product offering addresses the U.S. market for spine fusion products, which is estimated at $2.2 billion for 2004 and expected to grow at a compounded annual growth rate of 10.5% to $3.0 billion in 2007. Our principal product offering includes a wide variety of spinal implant products and systems comprised of components such as spine screws, rods, spinal spacers, and plates. We manufacture substantially all of our products in our Carlsbad, California facilities and we market our products primarily in the U.S. and Japan. All of our currently marketed medical device products have been cleared by the FDA. In 2005, our products were used in approximately 4,500 spine fusion surgeries.

        Alphatec Holdings acquired all of the outstanding capital stock of Alphatec Spine on March 18, 2005 for aggregate consideration of approximately $76.5 million (including assumed debt and direct costs). Prior to the acquisition of Alphatec Spine, Alphatec Holdings had no assets other than cash raised to finance the acquisition. Alphatec Holdings raised $87.3 million from HealthpointCapital and other investors in its initial financings to fund the acquisition and ongoing operations and made cash payments totaling $70.0 million to the former stockholders of Alphatec Spine, assumed debt of $5.5 million and incurred direct costs of $1.0 million in connection with the acquisition. In connection with the acquisition, we repaid $2.7 million of the debt we had assumed. We have not achieved profitability since we acquired Alphatec Spine and anticipate that we will continue to incur net losses for the foreseeable future. When we acquired Alphatec Spine, the shareholders of Alphatec Spine agreed to indemnify us pursuant to the merger agreement for one year for certain claims that we might have. We have made a claim for indemnification for $4.5 million primarily in connection with obsolete inventory, tax liabilities and uncollectible accounts receivable.

        To complement our existing spinal implant business, on September 9, 2005 we acquired certain assets and liabilities of Cortek for aggregate consideration of approximately $7.9 million (including assumed debt and direct costs). The Cortek transaction provided us with a broader product offering, including a wide range of precision milled allograft spacers. The procurement and processing of human tissue that we use in our allograft products is performed by third-party tissue suppliers and processors.

        From January 1, 2006 through March 17, 2006, approximately 160 surgeons used our products in surgical procedures. Although our products generally are purchased by hospitals and surgical centers, orders are typically placed at the request of surgeons who want to use our products for a surgical procedure. The ten largest surgeon users of our products accounted for approximately 35.5% and 34.3% of our revenues in the twelve months ended December 31, 2005 and 2004, respectively. During the twelve months ended December 31, 2005 and 2004, respectively, 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.

        As of February 28, 2006, our products were sold in the U.S. through a network of approximately 50 independent distributors, which we believe employ approximately 135 sales agents. We also employ

49



37 direct sales representatives, 23 of whom sell our products in the U.S. and 14 of whom sell our products in Japan.

        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 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 our plant manufacturing capacity requirements.

        Our management also considers several variables associated with the ongoing operations of our business, including surgeon and market demand, product life cycle, scheduled manufacturing, purchasing activity and inventory levels and costs associated therewith, head count, research and development and selling and general and administrative expenses. We are currently focused on increasing the size and effectiveness of our sales force, marketing activities, research and development efforts, inventory management, management team and corporate infrastructure.

Results of Operations

        The table below sets forth certain statements of operations data expressed as a percentage of revenues for the periods indicated. Statements of operations data in the table below include the results of the Cortek business since its acquisition on September 9, 2005. Alphatec Predecessor refers to Alphatec Spine prior to its acquisition by Alphatec Holdings on March 18, 2005. Alphatec Combined refers to the combined results of Alphatec Predecessor and Alphatec Holdings. Our historical results are not necessarily indicative of the operating results that may be expected in the future.

 
  Alphatec Predecessor
  Alphatec Holdings
  Alphatec Combined
 
 
   
   
  Period from January 1, 2005 to March 17, 2005
  Period from March 18, 2005 to December 31, 2005
   
 
 
  Years ended December 31,
   
 
 
  Year ended December 31, 2005
 
 
  2003
  2004
 
Revenues   100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Cost of revenues:                      
  Product   33.0   26.9   22.2   32.0   30.6  
  Royalties   1.0   3.8   5.6   6.5   6.3  
  Amortization of purchased intangibles   0.0   0.0   0.0   5.7   4.9  
   
 
 
 
 
 
Gross profit   66.0   69.4   72.2   55.8   58.1  
   
 
 
 
 
 
Operating expenses:                      
  Research and development   4.8   6.6   3.6   2.1   2.3  
  In-process research and development   0.0   0.0   0.0   8.5   7.3  
  Selling, general and administrative   66.2   61.8   86.4   83.7   84.1  
   
 
 
 
 
 
Total operating expenses   71.0   68.4   90.0   94.3   93.7  
   
 
 
 
 
 
Operating income (loss)   (5.0 ) 1.0   (17.8 ) (38.5 ) (35.5 )
Other income (expense), net   (2.3 ) 2.4   (1.8 ) (5.3 ) (4.8 )
Income (loss) before tax   (7.3 ) 3.4   (19.6 ) (43.8 ) (40.4 )
Income tax provision (benefit)   0.4   0.5   0.0   (8.4 ) (7.2 )
   
 
 
 
 
 
Net income (loss)   (7.7 ) 2.9   (19.6 ) (35.5 ) (33.2 )
Accretion to redemption value of redeemable convertible preferred stock, Rolling common and Series C common stock   0.0   0.0   0.0   (21.0 ) (18.0 )
   
 
 
 
 
 
Net income (loss) applicable to common stockholders   (7.7 )% 2.9 % (19.6 )% (56.4 )% (51.2 )%
   
 
 
 
 
 

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Revenues 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 screws, spinal spacers and plates. 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. Prior to its acquisition by Alphatec Holdings, Alphatec Spine generated a portion of its U.S. revenues from orthopedic trauma products. We expect that our future revenues in the U.S. will be solely generated from spinal surgery products. In Japan, where orthopedic trauma surgeons also perform most spine surgeries, we have sold and will continue to sell orthopedic trauma products in order to introduce our spine fusion products.

        Product costs.     We manufacture substantially all of the products that we sell. Our product costs consist primarily of direct labor, manufacturing overhead, raw materials and components, and depreciation of our surgical instruments. Allograft product costs include the cost of procurement and processing of human tissue.

        Royalties.     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 process. The majority of our royalties relate to payments under the 555 license agreement with Biomet. This agreement relates to the polyaxial feature of our pedicle screws and provides for a fixed rate charge based on the number of products sold that incorporate this technology.

        Amortization of purchased intangibles.     Amortization of purchased intangibles consists of amortization of developed product technology that we purchased in our acquisition of Alphatec Spine. Purchased developed product technology represents the proprietary knowledge that was technologically feasible on March 18, 2005, the date of acquisition, and includes all fully functioning products at that date. We amortize the developed product technology over five years.

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

        In-process research and development.     In-process research and development consists of acquired research and development assets that were not currently technologically feasible on the date we acquired Alphatec Spine, and had no alternative future use at that date.

        Selling, general and administrative.     Our selling, general and administrative expense consists primarily of salaries and related employee benefits, sales commissions and support costs, professional services and fees paid for external service providers, and travel, trade show and marketing costs.

        Other income (expense), net.     We have a stock purchase agreement in place that could require us to repurchase shares of stock of Alphatec Pacific based on the fair market value of those shares. We granted the put right to the Chairman, President and Chief Executive Officer of Alphatec Pacific in connection with a loan he made to Alphatec Pacific to finance the repurchase of Alphatec Pacific's distribution rights in Japan. Other income (expense), net primarily consists of interest expense, including the change in fair value of the put right related to those shares and amortization of the related debt issuance costs, as discussed in Note 7 of our consolidated financial statements included elsewhere in this prospectus.

        Income tax provision (benefit).     Income tax provision (benefit) prior to the period from March 18, 2005 to September 30, 2005 had not been significant. The tax benefit generated during the period from

51



March 18, 2005 to December 31, 2005 primarily results from our net operating loss offset by non-deductible items including in-process research and development, certain stock-based compensation and interest expense resulting from the change in the fair market value of the put right related to shares of Alphatec Pacific subject to the stock purchase agreement. We are able to realize tax benefit on our operating loss to the extent we have deferred tax credits in an equal or greater amount.

        Accretion to redemption value of redeemable convertible preferred stock, Rolling common and Series C common stock.     Accretion to redemption value of redeemable convertible preferred stock, Rolling common and Series C common stock consists of the increase in carrying value of the redeemable convertible preferred, Rolling common and Series C common stock as a result of the periodic accretion to the estimated redemption value as of the earliest redemption date.

Twelve Months Ended December 31, 2005 Compared to the Twelve Months Ended December 31, 2004

        Revenues.     Revenues increased $24.5 million, or 137.5%, to $42.3 million for fiscal 2005 from $17.8 million for fiscal 2004. Approximately 40% of the increase in revenues was due to new spinal implant product introductions, primarily the Novel spacers and the ROC plating system for lumbar fusions. The remaining increase was attributable to continued surgeon adoption of our spine fusion products and expansion of our distribution network. Geographically, our domestic sales reach grew from 11 states to 39 states from January 1, 2005 to December 31, 2005. We expect that revenues for fiscal 2006 will increase due to the planned expansion of our sales force and increased market penetration.

        Product costs.     Product costs increased to $13.0 million in fiscal 2005, from $4.8 million in fiscal 2004. The increase in cost of revenues resulted primarily from increased sales of products and $1.3 million related to the step-up in basis of acquired inventories.

        Royalties.     Royalties increased to $2.7 million in fiscal 2005, from $0.7 million in fiscal 2004. The increase in royalties resulted primarily from increased sales of royalty-bearing products, particularly our Zodiac polyaxial pedicle screw. The mix of products sold in fiscal 2005 also contributed to higher royalty costs as a percentage of revenue. We expect that our Zodiac polyaxial pedicle screw will continue to represent a significant part of our revenues for the foreseeable future.

        Gross profit.     Gross profit of 58.1% of revenues in fiscal 2005 decreased 11.3 percentage points from 69.4% in fiscal 2004. The 11.3 percentage point decrease is comprised of the amortization of purchased intangibles that was not a cost factor in 2004 (4.9%), higher royalty costs as detailed above (4.8%), and higher inventory write-offs and production ramp-up costs in 2005 (1.6%). We anticipate that gross profit as a percentage of revenues will be higher in 2006 because we do not expect significant inventory write-offs and expect lower production ramp-up costs.

        Research and development and in-process research and development.     Research and development and in-process research and development expenses increased $2.9 million to $4.1 million in fiscal 2005, from $1.2 million in fiscal 2004. This increase primarily resulted from the accounting charge associated with purchased in-process research and development related to the acquisition of Alphatec Spine. We expect expenditures for research and development to increase as we continue to expand our product offerings. As a percentage of revenues, research and development and in-process research and development expenses increased to 9.6% for fiscal 2005, from 6.6% in fiscal 2004. As a percentage of revenue, we expect expenditures for research and development will remain stable or decrease.

        Selling, general and administrative.     Selling, general and administrative expenses increased $24.6 million to $35.6 million for fiscal 2005, from $11.0 million for fiscal 2004. The increase was primarily due to an increase of $7.9 million in employee compensation and benefits and related costs, and an increase in sales commissions of $6.5 million related to increased sales volume. As a percentage of revenues, selling, general and administrative expenses increased to 84.1% in fiscal 2005 from 61.8%

52



in fiscal 2004. We expect selling, general and administrative expenditures to increase as we continue to add personnel and incur additional professional fees and insurance costs related to the growth of our business and to our operations as a public company, though we expect such expenses to decrease as a percentage of revenues as we increase our revenues.

        Other income (expense), net.     We recorded net other expense of $2.0 million in fiscal 2005, primarily attributable to $1.5 million of interest expense recorded to accrete the value of the put right to its fair value and amortize the related debt issuance cost. During fiscal 2004, we recorded net other income of $0.4 million primarily consisting of $0.6 million of settlement income related to a lawsuit against a former customer with which we had entered into a distribution agreement in 2001. The settlement income was offset by $0.3 million of interest expense.

        Income tax provision (benefit).     We recorded an income tax benefit of $3.0 million for fiscal 2005, primarily attributable to net losses offset by certain non-deductible expenses including in-process research and development, certain stock-based compensation and interest expense resulting from the change in the fair market value of the put right related to shares of Alphatec Pacific subject to the stock purchase agreement. We are able to realize tax benefit on our operating loss to the extent we have deferred tax credits in an equal or greater amount. During fiscal 2004, we recorded a provision for income taxes of $0.1 million, primarily attributable to state taxes currently payable.

Twelve Months Ended December 31, 2004 Compared to Twelve Months Ended December 31, 2003

        Revenues.     Revenues increased $6.9 million, or 63%, to $17.8 million for fiscal 2004, from $10.9 million in fiscal 2003. This increase resulted primarily from the introduction of several spinal implant products during 2004, including our Zodiac polyaxial pedicle screw for lumbar fusions and the Deltaloc Reveal Anterior cervical plate used in cervical fusions, and the expansion of our distributor network.

        Product costs.     Product costs increased to $4.8 million for fiscal 2004, from $3.6 million in fiscal 2003. The increase in cost of revenues resulted primarily from increased sales of products.

        Royalties.     Royalties increased to $0.7 million for fiscal 2004, from $0.1 million in fiscal 2003. The increase in royalties resulted primarily from increased sales of royalty-bearing products, particularly our Zodiac polyaxial pedicle screw. The mix of products sold in fiscal 2004 also contributed to higher royalty costs as a percentage of revenue.

        Gross profit.     Gross profit of 69.4% of revenues in 2004 increased from 66.0% in 2003 due to lower manufacturing per unit costs associated with higher sales volume.

        Research and development.     Research and development expenses increased to $1.2 million for fiscal 2004, from $0.5 million in fiscal 2003. This increase was the result of an expansion of our research and development team and the continued development of new product initiatives such as the Novel spacers and the ROC Lumbar Plating System. As a percentage of revenues, research and development expenses increased to 6.6% in fiscal 2004, from 4.8% in fiscal 2003.

        Selling, general and administrative.     Selling, general and administrative expenses increased $3.8 million to $11.0 million in fiscal 2004, from $7.2 million in fiscal 2003. This increase primarily consisted of increases in sales and marketing and general and administrative costs, including increases in selling commissions of $1.6 million, employee compensation and benefits of $1.0 million and travel and related costs of $0.3 million. As a percentage of revenues, selling, general and administrative expenses decreased to 61.8% in fiscal 2004, from 66.2% in fiscal 2003.

        Other income (expense), net.     We recorded net other income of $0.4 million in fiscal 2004, primarily attributable to $0.6 million of settlement income related to a lawsuit against a former

53



distributor. The settlement income was partially offset by $0.2 million of interest expense. During fiscal 2003, we recorded net other expense of $0.3 million, primarily attributable to interest expense.

Liquidity and Capital Resources

        Our principal sources of cash have included cash generated from operations, the issuance of equity and bank borrowings. Principal uses of cash have included acquisitions, capital expenditures and working capital. We expect that our principal uses of cash in the future will be for working capital, capital expenditures, debt service and potential acquisitions. We have not achieved profitability since we acquired Alphatec Spine, and anticipate that we will continue to incur net losses for the foreseeable future. We expect that, as our revenues grow, our sales and marketing and general and administrative 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, together with the net proceeds from this offering, after satisfaction of our redemption and dividend obligations to our existing stockholders, together with our short-term investments, revenues from our operations and Alphatec Spine's ability to draw down on its secured credit facilities will be sufficient to fund our projected operating requirements for at least the next 12 months. HealthpointCapital has represented that it has the ability and, if necessary, intends to provide us with the funds to continue to fund our operations throughout 2006 if existing cash, cash equivalents, short-term investments, funds available under credit facilities and other sources, and cash generated from operations are insufficient to satisfy our liquidity requirements. In addition, if we believe it is in our interest to raise additional funds, we may seek to sell additional equity or debt securities or 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.

Operating activities

        We used net cash of $9.4 million in operating activities in fiscal 2005, compared to generating net cash of $1.3 million in operating activities for fiscal 2004. Net cash generated from operating activities for 2003 was insignificant. During fiscal 2005, net cash used in operating activities primarily consisted of a net loss of $14.1 million and an increase in accounts receivable of $4.4 million and other assets of $2.9 million, offset by $3.5 million non-cash depreciation and amortization expense, $3.5 million of non-cash stock-based compensation, $3.1 million related to the non-cash write-off of purchased in-process research and development and growth of $4.0 million in accrued expenses and other. During fiscal 2004, net cash provided by operating activities primarily consisted of net income of $0.5 million in addition to $0.6 million of non-cash depreciation and amortization expense. During fiscal 2003, the breakeven in net cash provided by operating activities primarily consisted of the net loss of $0.8 million offset by $0.6 million of non-cash depreciation expense and a $0.3 million decrease in operating assets and liabilities.

Investing activities

        We used net cash of $81.0 million in investing activities for fiscal 2005, compared to using net cash of $0.6 million in investing activities for fiscal 2004. No significant amounts were used in investing activities in fiscal 2003. During fiscal 2005, net cash used for investing activities primarily consisted of $70.0 million, including direct costs and net of cash acquired, paid for the acquisition of Alphatec Spine; $7.4 million, including direct costs, paid for the acquisition of certain assets of Cortek; and $4.3 million paid for the acquisition of capital equipment. During fiscal 2004, we paid $0.6 million for the acquisition of capital equipment.

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Financing activities

        We generated net cash of $92.2 million from financing activities for fiscal 2005, compared to generating net cash of $0.1 million from financing activities for fiscal 2004. We used net cash of $0.4 million in financing activities for fiscal 2003. In fiscal 2005, the cash provided by financing activities primarily consisted of $91.6 million raised from the sale of our common and preferred stock and $4.3 million from the issuance of notes payable and drawings on our lines of credit, offset by the repayment of $3.8 million of capital lease obligations and notes payable. In fiscal 2004, the cash provided by financing activities primarily consisted of $1.3 million from the issuance of notes payable, offset by the repayment of $1.2 million of capital lease obligations, notes payable and supply agreement obligations. In fiscal 2003, the cash used in financing activities primarily consisted of $0.4 million from the issuance of notes payable, offset by the repayment of $0.8 million of capital lease obligations, notes payable and the issuance of stockholder notes receivable.

Debt and credit facilities and repurchase obligations

        On January 24, 2006, Alphatec Spine entered into a revolving credit facility with Bank of the West for borrowings of up to $10.0 million, subject to borrowing base requirements. The facility is for a term of two years, bears interest at the bank's prime rate or LIBOR plus 2.25%, allows for certain foreign currency advances, is secured by substantially all of the assets and capital stock of Alphatec Spine and is guaranteed by Alphatec Holdings. Under the terms of this credit facility, Alphatec Spine is required to make monthly interest payments and is subject to certain covenants, which include, among other things, prohibiting a net loss (as defined in the credit agreement) for fiscal 2005 in excess of $2.0 million, requiring a specified ratio of debt to cash flow and a specified ratio of debt to tangible net worth plus subordinated debt, requiring certain levels of profitability and restricting certain mergers and acquisitions without prior approval from Bank of the West. In addition, this credit facility prohibits Alphatec Spine from declaring or paying cash dividends. If Alphatec Spine fails to satisfy these covenants and fails to cure any breach of these covenants within a specified number of days after receipt of notice, or fails to pay interest or principal under the credit facility when due, the bank could accelerate the entire amount borrowed and cancel the line of credit. We are currently in compliance with these covenants. As of February 28, 2006, there was a balance of $5.3 million under this credit facility.

        Alphatec Spine entered into a credit facility with Bank of the West in July 2005. This prior facility was paid in full and terminated when we entered into our new credit facility. There was a balance of $3.8 million under this credit facility, which amount was paid in full on January 25, 2006 with funds borrowed under our new credit facility. Alphatec Spine was not in compliance with several of the covenants under this credit facility at September 30, 2005 and December 31, 2005. We obtained a waiver for each such non-compliance.

        We have entered into various capital lease arrangements through December 31, 2005. The leases bear interest at rates ranging from 5.52% to 14.66%, are generally due in monthly principal and interest installments, are collateralized by the related equipment, and have maturity dates ranging from March 2006 to March 2010.

        Alphatec Pacific has a $1.7 million credit facility with Aozora Bank, under which $1.4 million was outstanding at December 31, 2005. Under the terms of the credit facility, borrowings are due six months from the date of borrowing and bear interest at 1.875% and Alphatec Pacific is required to make monthly interest payments. The credit facility is secured by a collateral pledge of approximately $2,000,000 from Mr. Roy Yoshimi, Alphatec Pacific's Chairman, President and Chief Executive Officer. We have agreed to cause Aozora Bank to release the collateral pledged by Mr. Yoshimi upon consummation of this offering and currently expect that we would replace that collateral with a letter of credit or a collateral posting.

        In connection with the repurchase of Alphatec Pacific's distribution rights in Japan, Alphatec Pacific borrowed ¥350.0 million, or approximately $3.0 million, from Mr. Yoshimi. In connection with

55



this transaction, Mr. Yoshimi received an unsecured note and 20% of the stock of Alphatec Pacific. Beginning in December 2005, the note is payable in 18 monthly installments of approximately ¥23.3 million, or approximately $0.2 million, which implies an effective interest rate of 18.46% to its scheduled maturity. The note is payable in full in the event of a change of control of Alphatec Holdings, Alphatec Spine or Alphatec Pacific, upon any termination of Mr. Yoshimi without cause or upon the bankruptcy or insolvency of Alphatec Pacific. If the note becomes payable in full prior to September 1, 2006, Alphatec Pacific will be required to pay ¥385.0 million, or approximately $3.3 million, less amounts previously paid. If the note becomes payable in full on or after September 1, 2006, Alphatec Pacific will be required to pay ¥420.0 million, or approximately $3.6 million, less amounts previously paid. Overdue amounts bear interest at 14% per annum. The note is subordinated to our credit facility with Bank of the West.

        Alphatec Spine has entered into a stock purchase agreement with Mr. Yoshimi pursuant to which we have an obligation to repurchase his Alphatec Pacific shares upon certain changes of control of Alphatec Holdings, Alphatec Spine or Alphatec Pacific or upon termination of Mr. Yoshimi's employment. In addition, beginning 12 months after this offering, Mr. Yoshimi will have the right to require us to repurchase his shares of Alphatec Pacific stock upon written notice. The price we pay to reacquire shares of Alphatec Pacific from Mr. Yoshimi will be based on the revenues of Alphatec Pacific during three full calendar months prior to our obligation to purchase the shares, except in the event of a change of control of Alphatec Pacific, where it will be equal to a proportionate share of the price paid for Alphatec Pacific.

Contractual Obligations and Commercial Commitments

        We are committed to making future cash payments on stockholder notes payable, capital leases (including interest), operating leases and other contractual commitments. We have not guaranteed the debt of any other party. The following table summarizes our contractual obligations as of December 31, 2005 (dollars in thousands):

 
  Total (1)
  Current
  1-3 years
  3-5 years
Lines of credit   $ 3,942   $ 3,942   $   $
Note payable to related party     2,943     2,026     917    
Notes payable to Japanese banks     1,021     628     369     24
Capital lease obligations     2,235     771     1,451     13
Operating lease obligations     3,952     1,449     2,069     434
Supply agreement     75     75        
   
 
 
 
Total   $ 14,168   $ 8,891   $ 4,806   $ 471
   
 
 
 

(1)
The above table does not include any of the contractual obligations with respect to royalties payable upon sales of the related products. None of our license agreements contain minimum royalty payments.

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 United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, we evaluate our estimates, including those related to inventories, bad debts and intangibles. 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 or conditions.

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        While our significant accounting policies are more fully described in Note 1 to our consolidated financial statements included elsewhere in this prospectus, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Revenue recognition

        We recognize revenue when all four of the following criteria are met: (i) persuasive evidence that an arrangement exists; (ii) delivery of the products and/or services has occurred; (iii) the selling price is fixed or determinable; and (iv) collectibility is reasonably assured. In addition, we follow the provisions of the SEC's Staff Accounting Bulletin No. 104, Revenue Recognition , which sets forth guidelines for the timing of revenue recognition based upon factors such as passage of title, installation, payment and customer acceptance. Determination of criteria (iii) and (iv) are based on management's judgment regarding the fixed nature of the fee charged for products delivered and the collectibility of those fees. Specifically, our revenue from sales of medical devices is recognized upon receipt of written acknowledgement that the product has been used in a surgical procedure or upon shipment to third-party customers who immediately accept title and the related risks and rewards that go with it. Should changes in conditions cause management to determine these criteria are not met for certain future transactions, revenues recognized for any reporting period could be adversely impacted.

Inventories

        Inventories are stated at the lower of average cost or market. We review the components of inventory on a periodic basis for excess, obsolete and impaired inventory, and record a reserve for the identified items. We calculate an inventory reserve for estimated obsolescence or excess inventory based upon historical turnover and assumptions about future demand for our products and market conditions. Our allograft implants have a three-year shelf life and are subject to demand fluctuations based on the availability and demand for alternative implant products. Our estimates and assumptions for excess and obsolete inventory are subject to uncertainty. The estimates we use for demand are also used for near-term capacity planning and inventory purchasing. Future product introductions and related inventories may require additional reserves based upon changes in market demand or introduction of competing technologies. Increases in the reserve for excess and obsolete inventory result in a corresponding expense to cost of revenues.

Valuation of goodwill and intangible assets

        We are required to periodically assess the impairment of our goodwill and intangible assets, which requires us to make assumptions and judgments regarding the carrying value of these assets. These assets are considered to be impaired if we determine that their carrying value may not be recoverable based upon our assessment of the following events or changes in circumstances:

    a determination that the carrying value of such assets can not be recovered through undiscounted cash flows;

    loss of legal ownership or title to the assets;

    significant changes in our strategic business objectives and utilization of the assets; or

    the impact of significant negative industry or economic trends

        If the assets are considered to be impaired, the impairment we recognize is the amount by which the carrying value of the assets exceeds the fair value of the assets. In addition, we base the useful lives and the related amortization expense on our estimate of the useful life of the assets. Due to the numerous variables associated with our judgments and assumptions relating to the carrying value of our goodwill and intangible assets and the effects of changes in circumstances affecting these valuations, both the precision and reliability of the resulting estimates are subject to uncertainty, and as additional

57


information becomes known, we may change our estimate, in which case, the likelihood of a material change in our reported results would increase.

Stock-based compensation

        We apply the intrinsic-value-based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees , and related interpretations. Under this method, if the exercise price of the award equals or exceeds the fair value of the underlying stock on the measurement date, no compensation expense is recognized. The measurement date is the date on which the final number of shares and exercise price are known and is generally the grant date for awards to employees and directors. If the exercise price of the award is below the fair value of the underlying stock on the measurement date, then compensation cost is recorded, using the intrinsic- value method, and is generally recognized in the statements of operations over the vesting period of the award.

        Alphatec Spine, as a result of the valuation utilized in its merger with Alphatec Holdings in March 2005, reassessed the fair value of the common stock used to grant equity awards for the period from January 1, 2004 to March 17, 2005. In determining the fair value of Alphatec Spine's common stock, we primarily considered the enterprise valuation utilized in the merger with a subsidiary of Alphatec Holdings. The reassessment of fair value was completed without the use of an unrelated valuation specialist.

        On October 19, 2005, Alphatec Holdings commenced the initial public offering process and, based on information presented by investment bankers, reassessed the fair value of the common stock used to grant equity awards going back to March 18, 2005. Investment bankers were valuing Alphatec Holdings based on its ability to increase sales consistently over prior periods since the date of acquisition. Management, all of whom are related parties, completed the reassessment without the use of an unrelated valuation specialist and concluded that the stock options granted and restricted shares sold to employees were granted and sold at prices that were below the reassessed fair value.

        In connection with the grant of equity awards to employees during the year ended December 31, 2004, Alphatec Spine recorded total deferred employee stock-based compensation within stockholders' equity of $1,326,000, which represents the difference between the weighted average exercise price of $1.50 and the reassessed weighted average fair value of $3.47 on the 674,000 stock options granted. The deferred employee stock-based compensation was amortized over the vesting period of the applicable options on a straight-line basis until March 17, 2005, at which time the remaining $1,138,500 of unamortized stock-based compensation was charged to expense when the change in control provisions of the options caused the options to become fully vested.

        In connection with the issuance of options to purchase 34,257 shares of common stock and the sale of 542,700 shares of common stock to employees during the period from March 18, 2005 to December 31, 2005, we recorded total deferred employee stock-based compensation within stockholders' equity of $20,530,518, which represents the difference between the estimated fair value of the common stock and the option exercise price or stock issuance price at the date of issuance.

        The expected future amortization expense for deferred employee stock-based compensation is as follows as of December 31, 2005 (in thousands):

Year ending December 31,

   
2006   $ 3,915,733
2007     3,915,732
2008     3,926,460
2009     3,915,732
2010     2,622,519
   
    $ 18,296,176
   

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        Equity instruments issued to non-employees are recorded at their fair value as determined in accordance with Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation , and Emerging Issues Task Force (EITF) 96-18, Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods and Services , and are periodically revalued as the equity instruments vest and are recognized as expense over the related service period. In connection with the sale of 33,750 shares of common stock to non-employees during the period from March 18, 2005 to December 31, 2005, we recorded total stock-based compensation within stockholders' equity of $39,353.

Recent Accounting Pronouncements

        In November 2004, the Financial Accounting Standards Board, or FASB, issued SFAS No. 151, Inventory Costs, an amendment of ARB Opinion No. 43, Chapter 4. This statement amends the guidance in Accounting Review Board, or ARB Opinion No. 43, Chapter 4 , Inventory Pricing, to clarify the accounting for abnormal amounts of unallocated overhead resulting from abnormally low production (or idle capacity), freight, handling costs, and wasted material (spoilage). This statement requires that those items be recognized as current-period charges. In addition, this statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this statement will be effective for inventory costs during the fiscal years beginning after June 15, 2005. We do not believe that the adoption of this statement will have a material impact on our financial condition or results of operations.

        On December 16, 2004, the FASB issued SFAS No. 123R, Share-Based Payment. SFAS 123R supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. Generally, the approach in SFAS 123R is similar to the approach described in SFAS 123. However, SFAS 123R requires all share-based payments to employees or directors, including grants of employee and director stock options, to be recognized as an expense on the income statement based on their fair values. Pro forma disclosure is no longer an alternative. SFAS 123R must be adopted no later than January 1, 2006. We adopted SFAS 123R on January 1, 2006.

        As permitted by SFAS 123, we currently account for share-based payments to employees using the intrinsic value method under APB Opinion No. 25 and, as such, we generally recognize no compensation cost for employee stock options issued at fair market value. Accordingly, the adoption of the fair value method under SFAS 123R will have a significant impact on our results of operations, although it will have no impact on our overall financial position. The impact of adoption of SFAS 123R cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted SFAS 123R in prior periods, the impact of that standard would have approximated the impact of SFAS 123 as described in the disclosure of pro forma net loss and loss per share in Note 1 to our consolidated financial statements.

Off-Balance Sheet Arrangements

        We have not engaged in any off-balance sheet activities, including the use of structured finance, special purpose entities or variable interest entities.

Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

        We had a credit facility from Bank of the West, under which we had an outstanding balance of $2.5 million as of December 31, 2005. On January 24, 2006, we entered into a new credit facility with Bank of the West and borrowed $3.8 million, which we used to pay in full our prior credit facility. As of December 31, 2005, our remaining outstanding debt consisted of fixed rate instruments, primarily in the form of capital leases and notes payable. Our borrowings under our credit facility, which bear interest at Bank of the West's prime rate or LIBOR plus 2.25%, expose us to market risk related to changes in interest rates. If applicable interest rates were to increase by 100 basis points, then for every

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$1.0 million outstanding on our line of credit, our income before income taxes would be reduced by approximately $10,000 per year. We are not party to any material derivative financial instruments.

Foreign Currency Risk

        While a majority of our business is denominated in U.S. dollars, we maintain operations in foreign countries, primarily Japan, that require payments in the local currency. In the fiscal 2003, fiscal 2004 and the twelve months ended December 31, 2005, the U.S. dollar equivalent of our revenues denominated in foreign currencies were $3.5 million, $4.2 million, $3.6 million, respectively. Substantially all of such revenues were denominated in Japanese Yen. Payments received from customers for goods sold in these countries are typically in the local currency. Consequently, 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, the principal foreign currency in which most of our revenues outside the U.S. are currently denominated, then our reported revenues would decrease when we convert the lower valued foreign currency into U.S. dollars. We do not currently engage in hedging or similar transactions to reduce these risks. The operational expenses of our foreign subsidiaries reduce the currency exposure we have because our foreign currency revenues are offset in part by expenses payable in foreign currencies. As such, 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 goods sold, we have not experienced any material impact on our results of operations from changes in commodity prices. A 10% change in commodity prices would have an immaterial impact on our results of operations for the twelve months ended December 31, 2005.

Effects of Inflation

        We do not believe that inflation has had a material impact on our business or operating results during the periods presented in this prospectus.

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BUSINESS

Overview

        We are a medical device company focused on the design, development, manufacturing and marketing of products for the surgical treatment of spine disorders. We collaborate and contract with surgeons to design and develop spine fusion products, which we manufacture and market primarily in the U.S. and Japan. Our principal product offering is primarily focused on the over $2.2 billion U.S. market for spine fusion products. This market is expected to grow from $2.2 billion in 2004 to approximately $3.0 billion in 2007, a compounded annual growth rate of 10.5%.

        Our principal product offering includes a wide variety of spinal implant products and systems comprised of components such as spine screws, spinal spacers, and plates. Our spinal implant 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 spacers made of allograft, a precision-milled and processed human bone that surgeons can use in place of metal and synthetic materials in spine fusion procedures. In addition, we design, manufacture and distribute instrument sets used by surgeons to implant our spine fusion products during surgery. We believe that our products and systems have enhanced features and benefits that make them attractive to surgeons and that our broad portfolio of spine fusion products and systems provide a comprehensive solution for the safe and reproducible surgical treatment of spine disorders. All of our currently marketed medical device products have been cleared by the FDA, and these products have been used in over 4,500 spine fusion surgeries in 2005.

Our Competitive Strengths and Strategy

        Our goal is to be a leading provider of innovative technologies and comprehensive solutions for the surgical treatment of spine disorders. We intend to achieve this goal by, among other things, providing unmatched service to, and taking scientific direction from, surgeons. Surgeons make the ultimate decision as to whether our products are used in a surgical procedure. Accordingly, we view our relationship with the surgeon community and our in-house manufacturing capabilities as an integral component of our strategy.

        Our strategy is guided by our values-based corporate culture. Our core corporate values are as follows:

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        Our company and our employees have defined objectives that support and enhance the service level to surgeons. Similarly, we are organized to listen to, and be advised by, surgeons, through our sales force, our surgeon services department, surgeon organizations, advisory boards, universities, teaching hospitals, consulting relationships and our board of directors. We believe this will lead to the successful execution of our strategy.

        The key elements of our strategy are:

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Market Opportunity

        Back pain is the number one cause of healthcare expenditures in the U.S., with a direct cost of more than $25 billion annually for diagnosis, treatment and rehabilitation. The spine fusion market consists of products and devices used in the surgical treatment of spine disorders to stabilize the back and neck by fusing vertebrae together. In 2004, the U.S. spine fusion market generated approximately $2.2 billion in revenues and is anticipated to grow to $3.0 billion by 2007.

        We believe that the spine fusion surgery market will continue to grow as a result of the following market dynamics:

        There are four major categories of spine disorders: degenerative conditions, deformities, trauma and tumors. While our product offering addresses all four categories of spine disorders, the majority of our business is concentrated on products used in the treatment of degenerative conditions of the vertebrae and disc space. These conditions can result in instability and pressure on the nerve roots as they exit the spinal column, causing back pain and/or pain in the arms or legs.

        The prescribed treatment for spine disorders depends on the severity and duration of the disorder. Initially, surgeons will prescribe non-operative procedures including bed rest, medication, lifestyle modification, exercise, physical therapy, chiropractic care and steroid injections. Non-operative treatment options are often effective as a first line therapy, although many patients ultimately require spine surgery. It is estimated that in excess of one million patients undergo spine surgery each year in the U.S., of which over 360,000 were spine fusion procedures in 2004, and the number of spine fusion procedures is expected to grow to over 450,000 per year by 2007. The most common spine surgery procedures are: discectomy, the removal of all or part of a damaged disc; laminectomy, the removal of all or part of a lamina, or thin layer of bone, to relieve pinching of the nerve and narrowing of the spinal canal; and fusion, where two or more adjoining vertebrae are fused together with the use of implants such as spacers and plates to provide stability. In addition to open spine fusion procedures, minimally invasive spine procedures are gaining popularity and receiving increased attention. In both

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traditional and minimally invasive procedures, we believe the use of implants is the standard of care for fusion in the treatment of spine disorders.

The Alphatec Solution

        We design, develop, manufacture and market products used in spine fusion surgery. Our current spine product offering consists of implants and instruments that we believe are highly innovative and have many differentiating features and benefits that make them attractive to surgeons.

        The spine consists of 29 separate bones called vertebrae that are joined together by connective tissues, including a disc, to permit a normal range of motion. Our products are used in various locations in the spinal column, which is depicted below.

ART

        Our principal product offering includes a wide variety of spinal implant products and systems comprised of components such as spine screws, spinal spacers, and plates. Spine screws are inserted into the vertebrae in order to affix rods, plates and other stabilizing devices during spine fusion procedures. Spinal spacers are inserted between vertebrae and are used to provide spinal support in order to restore lost disc space, normal alignment, and weight-bearing function. Plates are attached to adjacent vertebrae to further stabilize the vertebrae and facilitate fusion and healing.

        We sell our spine fusion products as spine systems, categorized by the spinal disorder and the method of treatment. The chart below illustrates our broad portfolio of currently marketed spine systems and our systems under development and includes the distinguishing features and components for our systems. Below the chart are more detailed descriptions of the systems, their benefits and their components.

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Current Product Offering

Category

  Alphatec Spine Systems
  System Features and Components
Lumbar Fusion   Zodiac Lumbar Fixation   Polyaxial pedicle screws, rods and connectors, with instrumentation

 

 

Mirage Spinal Fixation

 

Fixed post pedicle screws with offset connectors, with instrumentation

 

 

ROC Lumbar Plating

 

Fixed post pedicle screws with rigid connector plates, with instrumentation

Deformity

 

Zodiac Deformity

 

Screws, hooks, rods, and connectors, with instrumentation

Trauma/Tumor

 

Tamarack Anterior Thoracolumbar Plating

 

Spinal fusion plates and screws, with instrumentation

 

 

Zodiac Trauma/Tumor Fixation

 

Fixed angle screws, staples, rods and connectors, with instrumentation

Cervical Fusion

 

Deltaloc Anterior Cervical Plate

 

Cervical plates, fixed and variable screws, with instrumentation

 

 

Deltaloc Reveal Anterior Cervical Plate

 

Cervical plates, fixed and variable screws, with instrumentation

Posterior Cervical/Thoracic Fusion

 

Solanas Posterior Cervical/Thoracic Fusion

 

Polyaxial pedicle screws, rods, hooks and connectors, with instrumentation used in posterior surgical procedures

Spinal Spacers

 

Novel PEEK and Titanium Spacers

 

Multiple insertion options, made of PEEK or titanium in various shapes and sizes

Structural Allograft Spacers

 

Solo Cervical Allograft

 

Anterior cervical spinal spacers made of dense allograft tissue shaped into a ring with an enlarged center space, with implant-specific instrumentation

 

 

Chorus Cervical Allograft

 

Anterior cervical spinal spacers made of dense allograft tissue, with implant-specific instrumentation

 

 

Dense Cancellous Cervical Allograft

 

Anterior cervical spinal spacers made of porous allograft tissue, with implant-specific instrumentation

 

 

Connect Cervical Allograft

 

Anterior cervical spinal spacers made of a combination of dense and porous allograft tissue, with implant-specific instrumentation

 

 

Corlok Lumbar Allograft

 

Anterior lumbar interbody allograft spacers in a dovetail geometry shape, with implant-specific instrumentation

 

 

Duet Lumbar Allograft

 

Anterior lumbar interbody allograft spacers with a dense outer core and a raised less dense inner core, with implant-specific instrumentation

 

 

Solo Lumbar Allograft

 

Anterior lumbar interbody allograft spacers in various sizes with various instrumentation, with implant-specific instrumentation

 

 

Coreograft Lumbar Allograft

 

Posterior lumbar interbody allograft spacers in a wedge-shape of dense bone with ridges, with implant-specific instrumentation

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Products in Development

Category

  Alphatec Spine Systems
  System Features and Components
Bone Graft   Synthetic Bone Graft   Bioabsorbable synthetic bone grafting material and related instrumentation

Minimally Invasive Fusion

 

Zodiac Minimally Invasive (MIS)

 

Insertion of cannulated pedicle screws and rods through an MIS retractor

Spacers

 

Mesh Corpectomy Cage

 

Spacer comprised of perforated titanium, that is specifically designed for corpectomy procedures, with multiple insertion angles

 

 

Expandable PEEK Spacer

 

PEEK spacers that can be inserted into the lumbar or cervical spine and expanded during surgery

Plates

 

Solanas Posterior Occipital Plate

 

Occipital plate used with our Solanas Posterior Fusion System

 

 

Anterior Lumbar Interbody Fusion (ALIF) Plate

 

Fusion plating system that enables surgeons to perform anterior spine fusions without accompanying posterior spine procedures

 

 

Dynamic Cervical Plate

 

Dynamic plate that increases vertebrae compression to facilitate the fusion process

Our Current Products

Lumbar Fusion Systems

        Lumbar, or lower back, fixation systems are used to facilitate fusion, the growth of a boney connection between two adjacent vertebrae. The purpose of fusion is to stop the motion caused by the instability between the vertebrae. Our lumbar systems are designed to reduce the motion of the vertebrae during the months it takes for the vertebrae to fuse together. The system consists of multiple components made of titanium or stainless steel, including screws, rods, and locking mechanisms. Pedicle screws are surgically positioned from the posterior, or back, of the spine and are placed into the pedicle. A pedicle is the dense stem-like structure that projects from the posterior of a vertebra. The screws are inserted through the midline of the pedicle and act as anchors for the rods that span two or more vertebrae. Once the rods and screws are put in place, the system provides a fixed environment with corrected alignment into which new bone can grow.

        Because each vertebra varies in size, shape and alignment, screw heads that pivot relative to the post of the screw help surgeons achieve proper screw placement. Most pedicle screws are available with either fixed or polyaxial, or pivoting, head design. The pivoting head of a polyaxial screw makes it possible to implant a straight rod through multiple screw heads, despite the fact that the screws connected to the rod may be out of alignment due to the positioning of the patient's vertebrae. Once the screws and rods are in place, a locking mechanism is used to lock the rod to the head of the screws and simultaneously secure the polyaxial head of the screws.

Zodiac Lumbar Fixation System

        Our Zodiac Lumbar Fixation System is a comprehensive spinal system that offers a wide variety of fixed angle pedicle screws, polyaxial pedicle screws and advanced instrument design. We believe our Zodiac system offers surgeons one of the lowest profiles, or the height that the screw sits above the plane of the rod after insertion, among polyaxial screws currently on the market. This low profile reduces the amount of internal disruption of tissue adjacent to the pedicle and is intended to speed the healing cycle. Additionally, we believe the polyaxial screw head of our Zodiac system has a greater angulation than that of any polyaxial screw currently available on the market. Our Zodiac system is

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top-loading and has a unique closure mechanism that helps to ensure that the assembly is easily constructed during surgery. It also has pre-cut and pre-contoured rods that are available in several sizes, which allow surgeons to customize each system for each patient's needs.

Mirage Spinal Fixation System

        Our Mirage Spinal Fixation System is designed to allow the rod to be placed closer to the center of the patient's body than a traditional polyaxial construct, which provides surgeons with a better view of the patient's anatomy during lumbar fixation surgery. The system is top tightening, which ultimately reduces operating time and increases its ease-of-use for surgeons. Additionally, our Mirage system includes screws that accommodate a variety of connection options for surgeons.

ROC Lumbar Plating System

        Our ROC Lumbar Plating System is a posterior lumbar plating system that provides an alternative to traditional screw and rod constructs. The ROC system is comprised of a rigid pre-contoured plate that is anchored by fixed post pedicle screws. We believe that this plating system makes the ROC system effective in the treatment of spondylolisthesis, the forward movement of one vertebra segment over the lower adjacent vertebra.

Deformity Systems

        Over the past 20 years, screw, hook and rod systems have become the standard of care in the surgical treatment of spinal deformities such as scoliosis. These systems aid in the correction of spinal deformities because they allow movement of the spine into the correct alignment while providing fixation and stability to help achieve fusion.

Zodiac Deformity System

        Our Zodiac Deformity System is designed to be used in conjunction with many of our other products, including our Zodiac Lumbar System, our Zodiac Trauma System and our Novel Spacers. Our Zodiac Deformity System has components such as fixed angle and polyaxial screws and instrumentation which are designed to enable the surgeon to address patient-specific spinal deformities and allow surgical access from the anterior, or front, of the body.

Trauma/Tumor Systems

        Some pathologies in the thoracolumbar, or upper chest region, such as tumors or trauma with burst fractures, or collapsed vertebrae, require surgical access from the anterior of the patient. Systems comprised of rods or plates are affixed with screws and staples to achieve stabilization. In anterior thoracolumbar procedures, these constructs also can be used in some cases to treat degenerative disc disease and other deformities.

Tamarack Anterior Thoracolumbar Plating System

        Our Tamarack Anterior Thoracolumbar Plating System consists of a plate that sits on top of two smaller plates at each of its ends. These smaller plates act as a locking mechanism that prevents post-surgery expulsion of the screw and reduces possible irritation and internal complications. We believe this dual plate design provides a unique solution for trauma or tumor surgery. Our Tamarack plate also has a large interior opening that allows the surgeon to see the graft site during surgery and during an MRI, which permits unrestricted post-operative evaluation of the fusion progress.

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Zodiac Trauma/Tumor Fixation System

        Our Zodiac Trauma/Tumor Fixation System has all of the advanced features of our Zodiac Lumbar Fixation System, but is designed to be used in anterior thoracolumbar fixation for the treatment of tumor, trauma, or anterior deformity.

Cervical Fusion System

        The anterior approach to cervical, or neck, pathology is considered the standard of care in cervical fusion. In cases where surgery is needed to alleviate compression on a nerve or the spinal cord, the surgeon may remove large portions of the disc material or vertebrae. The more disc material that is removed or vertebrae that are affected, the less stable the cervical site becomes, which increases the need to use a cervical plate to stabilize the surgery site. The most common cervical fusion performed is Anterior Cervical Plating, or ACP. In an ACP procedure, a metal plate is inserted across adjacent neck vertebrae and secured in place by interlocking screws following the implantation of a spacer. The cervical plate holds the spacer in place and stabilizes the vertebrae to facilitate fusion.

Deltaloc Anterior Cervical Plate System

        Our Deltaloc Anterior Cervical Plate System is our first generation anterior cervical plate system, which consists of fixed hole plates and a locking mechanism that allow screws to be set at variable angles. This first generation system provides a rigid support when fixed screws are set perpendicular to the plate but also can allow for a semi-rigid base when the screws are set at variable angles. This flexibility accommodates surgeons' preferences with respect to the various plating mechanics.

Deltaloc Reveal Anterior Cervical Plate System

        Our Deltaloc Reveal Anterior Cervical Plate System is our second generation anterior cervical plate system that features a large interior opening, which allows the surgeon to see the graft site during surgery and during an MRI allows unrestricted post-operative evaluation of the fusion progress. The Reveal system's screw locking mechanism reduces the number of steps required by the surgeon to lock the screws to the plate, which saves time during surgery and allows a surgeon to visually confirm whether the mechanism has locked prior to end of surgery. Reveal's low profile design is engineered to reduce the irritation of soft tissue adjacent to the plate. The Reveal system offers the surgeon the option to use self drilling or self tapping screws, which helps to eliminate excessive drilling, tapping and hole preparation steps by the surgeon. The Reveal plates are anatomically contoured and thus eliminate the need to modify the plate during surgery to fit a patient's body.

Posterior Cervical/Thoracic Fusion Systems

Solanas Posterior Cervical/Thoracic Fusion System

        Our Solanas Posterior Cervical/Thoracic Fusion System consists of rods, polyaxial screws and offset connectors and addresses stabilization for posterior cervical/thoracic procedures. Our Solanas system features the benefits of our Zodiac system, including the polyaxial pedicle screw. We also designed the Solanas system to be used in combination with our existing Zodiac and Mirage lumbar systems, thereby providing additional options for surgeons.

Spinal Spacers

        A spinal spacer is intended to be inserted in the space between discs to provide support in order to restore disc space height, the spine's normal alignment, and the spine's weight-bearing function. While the first spinal spacers were principally fabricated from titanium, we and other manufacturers now offer products fabricated from PEEK. PEEK is radiolucent and therefore is not visible during an

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MRI, which allows the surgeon to better assess the progress of the fusion. Allograft spacers can be used in place of metallic and PEEK spacers and instead of autograft, which is bone tissue harvested from the patient undergoing the fusion procedure. In a typical spine fusion procedure, the surgeon will often use a spacer to replace the diseased or damaged space between discs. Spinal spacers are used in combination with traditional screw, rod and plate constructs. All spinal spacers, regardless of composite material, are available in a variety of shapes and sizes to fit the patient's anatomy.

Novel PEEK and Titanium Spacers

        Our family of Novel PEEK and titanium spacers address the surgical need to accommodate varying patient anatomies, surgical approaches and composite material options. We offer five unique implant designs that are available in a number of shapes and heights. Novel spacers are designed to be inserted from several planes of the body and have instrumentation designed to facilitate implantation from each plane to accommodate surgeons' needs. Novel spacers feature sizable central openings that help accommodate bone grafting material inside and around the spacer, which we believe is critical to the promotion of fusion. A ridge pattern on the top and bottom of the Novel spacers helps prevent movement after placement and enhance the stability of the overall construct.

Structural Allograft Spacers

        The use of allograft-derived products appeals to many surgeons, because they believe it allows patients to accelerate the creation of living bone cells and eventually incorporate the allograft into the newly created, living bone. Allograft-derived products are fabricated from cadaver bone and precision-machined into standardized shapes resembling non-tissue spacers. Tissue banks are responsible for recovering and processing donated tissue from cadavers in accordance with standards developed by the American Association of Tissue Banks and the FDA.

        As a result of our acquisition of substantially all of the assets of Cortek in September 2005, we offer a broad portfolio of allograft spacers available in a wide range of shapes and sizes and implant-specific instrumentation. We have a wide range of allograft spacers, which are intended for use in the cervical, thoracic, and lumbar regions of the spine. We have four distinct cervical allograft spacer designs. Additionally, we offer a posterior lumbar allograft spacer. This gives the surgeon several variations of size and shape to choose from during each surgical procedure. Our allograft spacers also come in a variety of densities, which allow surgeons to decide whether to place an emphasis on rigidity, by using a dense allograft, or porosity, by using less-dense allograft, during surgical procedures. Each of our spacer products is complemented by implant-specific instrumentation. Three of our allograft spacer implants are also offered for use in anterior lumbar procedures.

Our Products In Development

        We intend to continue to expand our current spine fusion product offering as well as develop complementary systems and products. During the 24 months ended December 31, 2005, we developed eight new FDA-cleared products, including our Zodiac trauma/tumor system, our Tamarack trauma/tumor system, our Novel Spacers and cannulated screws for minimally invasive surgical procedures. Products that we are currently developing include:

Bone Graft

Synthetic Bone Graft

        In March 2006, we entered into a private label distribution agreement with OsteoBiologics, Inc., or OBI, pursuant to which we have the exclusive right to distribute in the U.S. certain products manufactured by OBI in the field of spine surgery under our own private label. The products that we sell pursuant to this agreement will initially consist of bioabsorbable synthetic granules, films and inserts that act as a bone graft, as well as related instrumentation. These products will be used during surgery

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to fill voids or gaps in bones that are caused by trauma or the surgery procedure. We believe that the addition of these products will compliment our existing product line by offering another bone grafting option to our physicians. Product design and prototyping has been completed with respect to certain of these products. We have not yet submitted the packaging and labeling of such products to the FDA for review.

Minimally Invasive Fusion

Zodiac Minimally Invasive System

        The Zodiac Minimally Invasive System, or Zodiac MIS, that we are currently developing is a posterior pedicle screw and rod system that is designed to be inserted via a minimally invasive surgical procedure. Access to the spine is gained through a small incision. The surgeon is then able to see the site by using a retractor that contains a small canal through which implants are inserted into the patient with a minimum amount of disruption to the surrounding tissue. We believe that our Zodiac MIS will significantly reduce the length of the posterior surgeries using pedicle screws. We also believe that our Zodiac MIS will limit trauma to the tissue surrounding the location of the surgery, thus reducing surgery time and the impact on adjacent soft tissue, which will enable patients to recover faster. Our Zodiac MIS is designed for use with our current line of PEEK, titanium and allograft spacers. The FDA cleared the use of our cannulated screw, which is a pedicle screw that has a hole running the length of the screw so that it can be inserted over a guide wire, that we intend to use in our Zodiac MIS. We are currently in the process of developing the necessary retractor and other instrumentation for our new Zodiac MIS. Prototype development and product design engineering are in process.

Spacers

Mesh Corpectomy Cage

        The mesh corpectomy cage that we are developing is a spine spacer comprised of perforated titanium. The spacer will allow for insertion from an anterior, anterior/lateral and lateral approach. This feature of the spacer will allow it to be used in procedures from the lower lumbar region to the upper thoracic region. It is being developed for use in corpectomy procedures, a procedure in which a diseased or damaged vertebral body is removed, as an alternative to an expandable spacer or non-expandable PEEK spacer. We have developed a prototype, and further engineering of the product design is in process.

Expandable PEEK Spacer

        We believe that the Expandable PEEK Spacer that we are currently developing will offer many differentiating benefits. Our Expandable PEEK Spacer is designed to allow surgeons to insert the spacer and then change size with a simple adjustment. We believe that this expandable feature will reduce time during surgery that would otherwise be required to cut and fit a non-expandable spacer. Furthermore, because our expandable spacer will be made of PEEK, unlike other expandable spacers currently on the market, it will not be visible during MRIs, which we believe allows the surgeon to better assess the progress of the fusion. We have developed a prototype, and further engineering of the product design is in process.

Plates

Solanas Occipital Plate

        We are developing an occipital plate for placement at the base of the skull in posterior fusion procedures. We are designing this plate to be used with our Solanas Posterior Cervical/Thoracic Fusion System to provide additional stabilization in a cervical/thoracic posterior fusion procedure. We have developed a prototype, and further engineering of the product design is in process.

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ALIF Plate System

        Our ALIF Plate System currently under development is designed for anterior lumbar interbody fusion, or ALIF, procedures. The ALIF Plate is to be used in conjunction with a spacer, and is intended to offer comparable stabilization to pedicle screw/rod systems, which are inserted from the posterior. Our ALIF Plate system is designed to provide surgeons with the option of performing a single anterior procedure without having the need for a second posterior procedure in which screws and rods are used to ensure the patient is stabilized. The ALIF Plate is designed to be anatomically shaped and has a low profile, which minimizes the risk of irritation or damage to the adjacent blood vessels. It is being designed to specifically accommodate the vascular anatomy at the point of its insertion. We have developed a prototype, and further engineering of the product design is in process.

Dynamic Cervical Plate System

        We are developing a Dynamic Cervical Plate System to allow us to compete in the dynamic cervical fusion market. The advantage of dynamic plating is that the plate does not provide rigid fixation during the fusion process. As a result, when compared to a traditional cervical plate, more of the natural load on the spine is shared by the bone graft used for fusion, which we believe will reduce the number of procedures in which fusion does not occur. Prototype development and product design engineering are in process.

Sales and Marketing

        Our sales and marketing organization consists of a six-person business development and marketing team and a five-person executive sales team which coordinates our sales force. Our sales force consists of approximately 50 independent distributors in the U.S., which we believe employ approximately 135 sales agents, 23 direct sales representatives in the U.S. and 14 direct sales representatives in Japan. Although surgeons make the ultimate decision to use our products, we invoice products directly to hospitals and pay commissions to our independent distributors based on payments received. We compensate our direct sales representatives through salaries and incentive bonuses based on performance measures in the U.S. and in Japan. We select our independent distributors based on their expertise in selling spinal devices, reputation within the surgeon community, geographical coverage and established sales network. Each of our independent distributors and direct sales representatives is assigned a sales territory and is subject to monthly performance reviews. We believe that some of our larger distributors sell our implant products exclusively, though we do not currently contractually obligate distributors to sell our products exclusively. We offer each of our independent distributors and direct sales representatives periodic sales and product training programs. We market our products at various industry conferences and through organized surgical training courses, and advertise them in industry trade journals and periodicals. We believe that as surgeons become more exposed to the breadth of our product offering and our responsive service culture they will accelerate demand for our products. From January 1, 2005 to December 31, 2005, the number of our independent distributors in the U.S. increased from 11 to 40 and the number of our direct sales representatives in the U.S. increased from 10 to 20.

        In Japan, our sales and marketing are conducted through our subsidiary Alphatec Pacific. We believe that having a direct presence in Japan gives us greater control over the introduction process of our new products into the Japanese market, allows us to be more responsive to our Japanese customers and provides us cost savings by reducing our reliance on third-party importers. Alphatec Pacific reacquired distribution rights to our products in Japan from our former exclusive distributor in August 2005 and acquired a distributor of spine and orthopedic trauma products in November 2005. Alphatec Pacific has increased the number of its sales and marketing employees from one as of April 1, 2005 to 10 as of December 31, 2005. To further our sales and marketing efforts in Japan, we intend to open regional sales offices and continue to build out our direct sales force at Alphatec Pacific.

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Surgeon Training and Education

        We devote significant resources to train and educate surgeons in the proper use of our implants and instrumentation. We believe that the most effective way to introduce and build market demand for our products is by training spine surgeons in the use of our products. We have agreements with medical facilities where we obtain access to cadaver labs to provide training to surgeons. As an example, we have agreed to sponsor development of a new, state-of-the-art cadaver operating theater and training facility at Scripps Memorial Hospital, Encinitas, located 10 miles from our corporate headquarters. This facility will provide us with approximately 24 days each year to provide clinical education and training programs to help drive adoption of our products and products in development at a much lower cost than building our own cadaver lab. We believe that surgeons will become exposed to the merits and distinguishing features of our products through our education and training programs, and in doing so, use and become advocates for our products. In addition, we believe surgeons using our products, who were trained by us, will be instrumental in generating valuable clinical data, providing feedback and demonstrating the benefits of our products to the medical community.

Research and Development

        Our research and development efforts are primarily focused in the near term on developing enhancements to our current product platform and on developing complementary products and technologies for use in spine surgery, such as minimally invasive procedures and dynamic stabilization systems. Our research and development department has extensive experience in developing products to treat spine pathology, and continues to work closely with our Scientific Advisory Board and surgeons to design products that are intended to improve patient care, simplify techniques and reduce overall costs.

Manufacture and Supply

        We conduct our manufacturing operations at our facilities in Carlsbad, California. Excluding our allograft products, we manufacture substantially all of our spine fusion products and a majority of our instrument sets in-house. We believe that in-house production maximizes efficiency, enables rapid prototyping and biomechanical testing, simplifies production scheduling, reduces inventory backlogs and facilitates the customization of products and instruments to meet the needs of surgeons. Our facilities include distinct areas dedicated to the machinery, tooling, quality control, cleaning and labeling of our spine products and instrument sets. From time to time, we outsource some of our manufacturing so we can establish relationships with external sources of production for output redundancy. In addition, from time to time we enter into distribution agreements, such as our agreement with OBI, pursuant to which we distribute products manufactured by a third party under our own private label. Following receipt of products or product components we receive from third parties, we conduct inspection, packaging and labeling, as needed, at our manufacturing facilities.

        We devote significant time and attention to the quality control of our products during the manufacturing process by maintaining a comprehensive quality control program, which, among other things, includes the control and documentation of all material specifications, operating procedures, equipment maintenance and quality control methods. In addition, we inspect all of our raw materials and castings to be used in our spine fusion products throughout the manufacturing process. We control our production orders through the use of bar-codes, controlled prints and routers, which enable use to trace our products during the manufacturing process. Upon completion of the manufacturing process, we package and label our products.

        The raw materials used in the manufacture of our products are principally titanium, titanium alloys, stainless steel, allograft and PEEK. Only one company, Invibio, is currently approved in the U.S. to distribute PEEK for use in implantable devices. In October 2004, we entered into an exclusive supply agreement with Invibio, pursuant to which we agreed to purchase our entire supply of medical quality PEEK in the U.S. from Invibio. As consideration for the PEEK materials, we pay Invibio a

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dollar amount depending on the weight or the length of either the raw material or stock product that Invibio processes for us. The dollar amount of the PEEK may increase over time, but the price increase is capped at a certain percentage annually. Under the terms of the agreement, we are restricted from selling PEEK to third parties, except when it is incorporated into our products, and we are not authorized to alter the chemical structure of the PEEK. The term of the supply agreement is through October 2014. Either we or Invibio may terminate the supply agreement for an uncured material breach of the agreement.

        As of December 31, 2005, we had agreements with six entities to procure tissue for our allograft implants pursuant to agreements, the majority of which do not expire prior to 2008 and most of which provide for automatic renewals unless terminated by written notice. We have contracted with two entities to process such tissue into our allograft implants after procurement pursuant to agreements which expire in 2008 and which provide for automatic renewals unless terminated by written notice.

        With the exception of PEEK and allograft, none of our raw material requirements is limited to any significant extent by critical supply. We are subject to the risk that Invibio will fail to supply PEEK in adequate amounts for our needs on a timely basis. In addition, because allograft implants are processed from human tissue, maintaining a steady supply can sometimes be challenging. Our results of operations are not currently materially dependent on raw material costs.

        Our manufacturing operations and those of the third-party manufacturers we use on a limited basis are subject to extensive regulation by the FDA under its quality systems regulations, or QSRs, and good manufacturing practice regulations, state regulations, such as the regulations promulgated by the California Department of Health Services, and under similar requirements of regulatory authorities in different states and regulations promulgated by the European Union and in Japan. For tissue products, we are FDA registered and licensed in the States of California, New York and Florida, the only states that require licenses. For our implants and instruments, we are FDA registered, California licensed, CE marked and ISO certified. CE is an abbreviation for European Compliance. Our facility and the facilities of the third-party manufacturers we use on a limited basis are subject to periodic unannounced inspections by regulatory authorities, and may undergo compliance inspections conducted by the FDA and corresponding state agencies. In November 2003, the FDA performed a pre-announced inspection of our manufacturing facilities. Minor non-compliance items were cited on an FDA Form 483 that we received following the inspection. Following receipt of the Form 483, we submitted a formal response in which we indicated the steps that we had taken to correct the noted deficiencies and have not received any further request from the FDA with respect to the Form 483 we received.

Intellectual Property

        We rely on a combination of patent, trademark, copyright, trade secret and other intellectual property laws, nondisclosure agreements, proprietary information ownership agreements and other measures to protect our intellectual property rights. We believe that in order to have a competitive advantage, we must develop and maintain the proprietary aspects of our technologies. We require our employees, consultants, co-developers, distributors and advisors to execute ownership of proprietary information and confidentiality agreements in connection with their employment, consulting, co-development, distribution or advisory relationships with us. This agreement requires these people and entities to keep our confidential information confidential and to agree to disclose and assign to us all inventions conceived during the work day, using our property or which relate to our business. Despite any measures taken to protect our intellectual property, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary.

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        As of April 19, 2006, we had 18 issued U.S. patents, one issued foreign patent and 12 pending patent applications, including seven pending U.S. applications, one pending international application and four pending foreign national applications. The subject matter of the issued patents and pending patent applications relate to, among other things:

        Our issued patents begin to expire in 2011. We have multiple patents relating to unique aspects and improvements for several of our products. We do not believe that the expiration of any single patent is likely to significantly affect our intellectual property position.

        We license patents relating to the polyaxial feature of our pedicle screw from Biomet pursuant to a license agreement, or the 555 license agreement. This polyaxial feature is incorporated into our Zodiac and Solanas pedicle screws and may be incorporated into future products. The 555 license agreement is non-exclusive and non-transferable, except upon the written consent of Biomet, which consent shall not be unreasonably withheld, in connection with an assignment to a purchaser of all or substantially all of the assets to which the patents relate. Under the 555 license agreement, we are required to pay a continuing royalty on the polyaxial screw component of any spinal implant products, systems, devices or solutions that we sell. The license agreement provides that the royalty shall remain in full force and effect without modification regardless of any ruling by any court regarding the scope, validity, or enforceability of the patents covered by the 555 license agreement. The term of the license agreement extends until the expiration of the last of the licensed patents which covers the sale of a product, currently 2013. Biomet can terminate the license in the event we fail to make any of the payments required under the license agreement, materially breach the license agreement, or become insolvent. The validity of the U.S. patents covered by the 555 license agreement is being challenged by Medtronic in an infringement action brought by Biomet in the U.S. The European patent covered by the 555 license agreement has recently been revoked by the European Patent Officer after it was successfully challenged in an opposition proceeding in Europe initiated by Stryker and Synthes. Biomet is appealing this decision. We currently have no plans to sell our products in Europe.

        We license from LifeNet the method/system of processing and cleaning of bone and other tissue used by the companies that provide our allograft. This license is a royalty-bearing license and includes a license to current and future LifeNet patents pertaining to this method/system. The license terminates upon the date of expiration of the last-to-expire patents or ten years from the effective date of the agreement, whichever is later.

        The medical device industry is characterized by the existence of a large number of patents and frequent litigation based on allegations of patent infringement. Patent litigation can involve complex factual and legal questions and its outcome is uncertain. Any claim relating to infringement of patents that is successfully asserted against us may require us to pay substantial damages (including treble damages if our infringement is found to be willful) or may require us to remove our infringing product from the market. Even if we were to prevail, any litigation could be costly and time-consuming and would divert the attention of our management and key personnel from our business operations. Our success will also depend in part on our not infringing patents issued to others, including our competitors and potential competitors. If our products are found to infringe the patents of others, our development, manufacture and sale of such potential products could be severely restricted or

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prohibited. In addition, our competitors may independently develop similar technologies. We may lose market share to our competitors if we fail to protect our intellectual property rights.

        As the number of entrants into our market increases, the possibility of a patent infringement claim against us grows. While we make an effort to ensure that our products do not infringe other parties' patents and proprietary rights, our products and methods may be covered by U.S. or foreign patents held by our competitors. In addition, our competitors may assert that future products we may market infringe their patents.

        A patent infringement suit brought against us or any strategic partners, co-developers or licensors may force us or strategic partners, co-developers or licensors to stop or delay developing, manufacturing or selling potential products that are claimed to infringe a third party's intellectual property, unless that party grants us or strategic partners, co-developers or licensors rights to use its intellectual property. In such cases, we may be required to obtain licenses to patents or proprietary rights of others in order to continue to commercialize our products. However, we may not be able to obtain any licenses required under any patents or proprietary rights of third parties on acceptable terms, or at all. Even if strategic partners, co-developers, licensors or we were able to obtain rights to the third party's intellectual property, these rights may be non-exclusive, thereby giving our competitors access to the same intellectual property. Ultimately, we may be unable to commercialize some of our potential products or may have to cease some of our business operations as a result of patent infringement claims, which could severely harm our business financial condition and results of operation.

        We have U.S. trademark registrations corresponding to the following marks: Alphatec, Cortek, C, Cortek design/logo, Corlok, Osteocor, Biocarpentry, Dovetome, Deltaloc, Duet, Connect and Polylok. We currently have U.S. trademark applications pending that correspond to the following marks: Solo, Coreograft, Zodiac, Chorus, Novel, Alphagraft, and Osteocure. We also have common-law trademark rights for the following marks: Reveal, Mirage, Tamarack, Zodiac Trauma, Zodiac Deformity, Zodiac M/A, ROC, Solanas, Solo Lumbar, Solo Cervical, Novel PEEK, Novel Titanium and Dense Cancellous. We have two pending Japanese trademark registrations corresponding to the following marks: Alphatec and Marco.

Competition

        We believe that the principal competitive factors in our markets include:

    responsiveness and ability to customize products to address the needs of surgeons;

    surgeon services, such as training and education;

    manufacturing capabilities;

    improved outcomes for spine pathology procedures;

    acceptance by spine surgeons;

    ease of use and reliability;

    product price and qualification for reimbursement;

    technical leadership and superiority;

    effective marketing and distribution; and

    speed to market.

        Our currently marketed products are, and any future products we commercialize will be, subject to intense competition. Many of our competitors and potential competitors have substantially greater

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financial, technical and marketing resources than we do, and they may succeed in developing products that would render our products obsolete or noncompetitive. In addition, many of these competitors have significantly longer operating histories and established reputations than we do in their respective fields. Our ability to compete successfully will depend on our ability to make available to our customers proprietary products that reach the market in a timely manner, receive adequate reimbursement and are safer and less expensive than alternatives available for the same purpose. Because of the size and growth characteristics of the potential market, we anticipate that companies will dedicate significant resources to developing competing products.

        We believe that our most significant competitors are divisions of large publicly traded medical device companies such as DePuy, Inc., a subsidiary of Johnson & Johnson and Medtronic Sofamor Danek, Inc., a subsidiary of Medtronic, Inc. In 2004, approximately 75% of U.S. spine fusion product revenues were generated by our three largest competitors, Depuy, Medtronic and Synthes, Inc.

        Our other significant competitors include Zimmer Holdings, Inc., Biomet, Abbott Spine, Inc., a division of Abbott Laboratories, NuVasive, Inc., Blackstone Medical, Inc., Scient'x S.A., in which HealthpointCapital has a 33% ownership interest, Globus Medical, Inc. and a host of other smaller companies.

        In recent years there has been an increasing awareness and use of non-invasive means for the prevention and treatment of back pain and rehabilitation. Non-invasive technologies include: (i) pharmaceutical products; (ii) biological, tissue-based or synthetic materials that attempt to facilitate regeneration of damaged or diseased bone and repair damaged tissue; (iii) bracing; and (iv) bone-growth stimulation devices. While these non-invasive treatments are considered to be an alternative to fusion surgery, fusion is the standard of care in the event that non-invasive treatments are unsuccessful. To date, the treatments listed above have not been sufficiently successful in addressing spine disorders such that they have caused a material reduction in the number of spinal fusions.

Government Regulation

        Governmental authorities in the U.S., at the federal, state and local level, and other countries extensively regulate, among other things, the research, development, testing, manufacture, labeling, promotion, advertising, distribution, marketing and export and import of products such as those we sell and are developing. Failure to obtain approval to market our products under development and to meet the ongoing requirements of these regulatory authorities could prevent us from marketing and continuing to market our products.

United States

        In the U.S., the information that must be submitted to the FDA in order to obtain clearance or approval to market a new medical device varies depending on how the medical device is classified by the FDA. Medical devices are classified into one of three classes on the basis of the controls deemed by the FDA to be necessary to reasonably ensure their safety and effectiveness. Class I devices are subject to general controls, including labeling, pre-market notification and adherence to QSRs, which are device-specific good manufacturing practices. Class II devices are subject to general controls and special controls, including performance standards and post-market surveillance. Class III devices are subject to most of the previously identified requirements as well as to pre-market approval. We currently produce Class I and Class II devices.

        Before a new device can be marketed, its manufacturer must obtain either marketing clearance from the FDA through either a pre-market notification under Section 510(k) of the Federal Food, Drug and Cosmetic Act or the FDA's approval of a pre-market approval application, or PMA. Throughout this prospectus, when we refer to a product being cleared by the FDA, or clearance from the FDA, we mean that the FDA reviewed the product as presented in a type of pre-market submission referred to as a 510(k) and agreed that the product could be marketed and sold. User fees, which

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increase each year and which are specific for the type of submission that is made, must be paid to the FDA at the time that the 510(k) or PMA is submitted.

        A 510(k) pre-market notification must demonstrate that the device in question is substantially equivalent to another legally marketed device, or predicate device, that does not require pre-market approval. Class I devices and some Class II devices are exempt from the 510(k) pre-market notification requirement. In evaluating the 510(k), the FDA must determine that the device (i) has the same intended use as the predicate device and (ii) has the same technological characteristics as the predicate device; or that (i) the device has different technological characteristics, (ii) the data submitted establishes that the device is substantially equivalent and contains information, including clinical data if deemed necessary by the FDA, that demonstrates that the device is as safe and as effective as a legally marketed device and (iii) the device does not raise different questions of safety and effectiveness than the predicate device. Most 510(k)s do not require clinical data for clearance. The FDA is required to issue a decision letter within 90 days if it has no additional questions or send a first action letter requesting additional information within 75 days. The FDA may not meet the applicable performance goal review time. In addition, requests for additional data, including clinical information, will increase the time necessary to review the notice. If the FDA does not inform the manufacturer that a 510(k) is not required or agree that a new device is substantially equivalent to a predicate device, the new device will be classified in Class III, and the manufacturer must submit a PMA or, may, depending on the nature of the device, petition the FDA to make a risk-based determination of the new device and reclassify the new device as a Class I or II device. Modifications to 510(k)-cleared medical devices may or may not require the submission of another 510(k) or a PMA depending on whether the changes will affect the safety or effectiveness of the device.

        The PMA process is more complex, costly and time consuming than the 510(k) clearance procedure. A PMA must be supported by more detailed and comprehensive scientific evidence than a 510(k) notice, including clinical data to demonstrate the safety and efficacy of the device. If the device is determined to present a "significant risk," the manufacturer may not begin a clinical trial until it submits an investigational device exemption, or IDE, to the FDA and obtains approval from the FDA. Such clinical trials are also subject to the review, approval and oversight of an institutional review board at each institution at which the clinical trial will be performed. The clinical trials must be conducted in accordance with applicable regulations, including but not limited to the FDA's good clinical practice regulations. Upon completion of the clinical trials, and assuming that the results indicate that the product is safe and effective for its intended purpose, the manufacturer will then submit a PMA. The FDA has 45 days after a PMA is submitted to determine whether it is sufficiently complete to permit a substantive review. If the PMA is complete, the FDA will file the PMA The FDA is subject to performance goal review times for PMAs and may issue a decision letter as a first action on a PMA within 180 days of filing, but if it has questions, it will likely issue a first major deficiency letter within 150 days. It may also refer the PMA to an FDA advisory committee for additional review, and will conduct a pre-approval inspection of the manufacturing facility to ensure compliance with the QSRs. While the FDA's ability to meet its performance goal review times has generally improved during the past few years, it may not meet these goals in the future. A PMA can take several years to complete and there is no assurance that any submitted PMA will ever be approved. Even when approved, the FDA may limit the indication for which the medical device may be marketed or to whom it may be sold. In addition, the FDA may request additional information or request the performance of additional clinical studies as a condition of approval or after the PMA is approved. Changes to the device may require the submission and approval of a supplemental PMA before the modified device may be sold.

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Continuing FDA Regulation

        After a device is placed on the market, numerous regulatory requirements apply. These include:

    registration of the manufacturer with the FDA with a listing of devices in commercial distribution;

    compliance with QSRs, which govern, among other things, the methods used in and the facilities and controls used for the design, manufacture, packaging and complaint handling;

    medical device reporting regulations, which require that manufacturers report to the FDA any incident that may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur;

    periodic inspections; and

    regulation of advertising and promotion by the FDA, the Federal Trade Commission and by some state regulatory agencies.

        Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include any of the following sanctions:

    warning letters;

    fines, injunctions, and civil penalties;

    recall or seizure of our products;

    operating restrictions, partial suspension or total shutdown of production;

    refusal to grant 510(k) clearance or approve PMAs of new products;

    withdrawal of 510(k) clearance or approve PMAs that are already granted; and

    criminal prosecution.

        We maintain a comprehensive quality assurance and quality control program, which includes the control and documentation of all material specifications, operating procedures, equipment maintenance and quality control methods. Our quality control measures begin with an inspection of all raw materials and castings to be used in our spine fusion products, and each piece is inspected at each step of the manufacturing process. All production orders are controlled by a bar-coded lot number, and traceability is maintained until the product is shipped to the initial customer.

        The FDA periodically reconsiders the way in which it regulates tissue, and in 1997 it formulated a comprehensive approach to the regulation of human cellular and tissue-based products. The FDA determined that tissues used for conventional purposes, such as to repair injuries or replace damaged or defective tissues would be subject to very limited oversight as long as they were only minimally processed and used for their normal functions. Tissue processors, such as our suppliers, must register with the FDA and list their tissue products. They are also required to comply with the FDA's current good tissue practice regulations, or CGTPs, that went into effect in May 2005. The CGTP core requirements govern, among other things, donor eligibility determinations, donor screening and donor testing, receipt and distribution of tissues and labeling, processing and process controls. The FDA, and some states with regulations similar to the FDA's, have the authority to inspect human tissue processing facilities.

        The FDA may regulate certain allografts as medical devices, drugs or biologics if the allograft is deemed to have been more than minimally manipulated or indicated for nonhomologous use. Homologous use is generally interpreted as the use of tissue for the same basic function in the recipient as it fulfilled in the donor. If the FDA decides that any of our current or future allograft are

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more than minimally manipulated or indicated for nonhomologous use, it would require us to obtain 510(k) clearance or a PMA approval if the allograft is viewed as a medical device or obtain approval as a drug or biologic if it is viewed as a drug or biologic. Depending on the nature and extent of any FDA decision applicable to our allografts, further distribution of the affected products could be interrupted for a substantial period of time, which would reduce our revenues and hurt our profitability. As of the date of this prospectus, the FDA has not made any such decision, and we are not aware that any such decision is pending.

International Device Regulation

        International sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. The time required to obtain approval by a foreign country may be longer or shorter than that required for FDA approval, and the requirements may differ.

    Japan

        In Japan, certain medical devices classified as "highly controlled" must be approved prior to importation and commercial sale by the Ministry of Health, Labor and Welfare, or MHLW, pursuant to the Japanese Pharmaceutical Affairs Law, or PAL. Manufacturers of medical devices outside of Japan which do not operate through a Japanese entity are required to appoint a contractually bound in-country caretaker who holds a license to market the relevant medical devices to directly submit an application for device approval to the MHLW. The MHLW evaluates each device for safety and efficacy and may require that the product be tested in Japanese laboratories. After a device is approved for importation and commercial sale in Japan, the MHLW continues to monitor sales of approved products for compliance. Failure to comply with applicable regulatory requirements can result in enforcement action by the MHLW, including administrative inspections and recommendations; recall or seizure of products; operating restrictions, including partial suspension or total shut down of marketing activity in Japan; withdrawal of product approvals; and criminal prosecution by a public prosecutor, including criminal fines and/or imprisonment.

        Our devices fall into the "highly controlled" medical device category. Currently, MHLW review times for our device applications range from one year if clinical data is not required, to up to two years if clinical data is required. The review times for our products are expected to be reduced to six months and one year, respectively, and we expect application fees to be reduced as new approval screening standards are established by the MHLW, which has delegated responsibility for these review functions to the Japanese Pharmaceuticals and Medical Devices Agency, for various medical device categories. However, we do not know what performance standards may be adopted by the MHLW. To date, the MHLW has not released any new standards for spinal implants.

Environmental Matters

        Our facilities and operations are subject to extensive federal, state, local and foreign environmental and occupational health and safety laws and regulations. These laws and regulations govern, among other things, air emissions; wastewater discharges; the generation, storage, handling, use and transportation of hazardous materials; the handling and disposal of hazardous wastes; the cleanup of contamination; and the health and safety of our employees. Under such laws and regulations, we are required to obtain permits from governmental authorities for some of our operations. If we violate or fail to comply with these laws, regulations or permits, we could be fined or otherwise sanctioned by regulators. We could also be held responsible for costs and damages arising from any contamination at our past or present facilities or at third-party waste disposal sites. We cannot completely eliminate the risk of contamination or injury resulting from hazardous materials, and we may incur material liability as a result of any contamination or injury.

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Compliance with Fraud and Abuse Laws

        We must comply with various federal and state laws, rules and regulations pertaining to healthcare fraud and abuse, including anti-kickback laws and physician self-referral laws, rules and regulations. Violations of these laws are punishable by criminal and civil sanctions, including, in some instances, exclusion from participation in federal and state healthcare programs, including Medicare, Medicaid, Veterans Administration health programs, workers' compensation programs and TRICARE. We believe that our operations are in material compliance with such laws, rules and regulations. However, because of the far-reaching nature and government authorities' wide discretion in enforcement of these laws, there can be no assurance that we would not be required to alter one or more of our practices to be deemed to be in compliance with these laws. In addition, there can be no assurance that the occurrence of one or more violations of these laws, rules or regulations would not result in a material adverse effect on our business, financial condition and results of operations.

    Anti-Kickback Statute

        The federal Anti-Kickback Statute prohibits persons from knowingly or willfully soliciting, receiving, offering or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing, recommending, or arranging for a good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid. The definition of "remuneration" has been broadly interpreted to include anything of value, including such items as gifts, certain discounts, waiver of payments, and providing anything at less than its fair market value.

        Government officials have focused recent kickback enforcement efforts on, among other things, the sales and marketing activities of healthcare companies, and recently have brought cases against individuals or entities with personnel who allegedly offered unlawful inducements to potential or existing customers in an attempt to procure their business. This trend is expected to continue. Settlements of these cases by healthcare companies have involved significant fines and/or penalties and in some instances criminal pleas. We are also aware of governmental investigations of some of the largest orthopedic device companies reportedly focusing on consulting and service agreements between these companies and orthopedic surgeons. These developments are ongoing and we cannot predict the effects they will have on prices for orthopedic devices.

        The Anti-Kickback Statue is broad and prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry. Recognizing that the Anti-Kickback Statute is broad and may technically prohibit many innocuous or beneficial arrangements, the Office of Inspector General of the Department of Health and Human Services, or OIG, has issued regulations, commonly known as "safe harbors." These safe harbors set forth certain requirements that, if fully met, will assure healthcare providers and other parties that they will not be prosecuted under the Anti-Kickback Statute. Although full compliance with these provisions ensures against prosecution under the Anti-Kickback Statute, full compliance is often difficult and the failure of a transaction or arrangement to fit within a specific safe harbor does not necessarily mean that the transaction or arrangement is illegal or that prosecution under the Anti-Kickback Statute will be pursued. However, conduct and business arrangements that do not fully satisfy each applicable safe harbor may result in increased scrutiny by government enforcement authorities such as the OIG. The statutory penalties for violating the Anti-Kickback Statute include imprisonment for up to five years and fines of up to $25,000 per violation. In addition, through application of other laws, conduct that violates the Anti-Kickback Statute can also give rise to False Claims Act lawsuits, civil monetary penalties and possible exclusion from Medicare and Medicaid and other federal healthcare programs. In addition to the Federal Anti-Kickback Statute, many states have their own kickback laws. Often, these laws closely follow the language of the federal law, although they do not always have the same scope, exceptions or safe

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harbors. In some states, these anti-kickback laws apply not only to payment made by a government health care program but also with respect to other payers, including commercial insurance companies.

        We have entered into consulting agreements and royalty agreements with certain surgeons that make referrals to us. These transactions were structured with the intention of complying with all applicable laws and safe harbors. Despite this intention, the laws in this area are both broad and vague and it is often difficult or impossible to determine precisely how the laws will be applied. Accordingly, there can be no assurance that we would be determined by a particular state agency or court to be in full compliance with such laws. We would be materially impacted if regulatory agencies interpret our relationships with certain surgeons who refer our products to be in violation of applicable laws and we were unable to achieve compliance with applicable laws.

    Physician Self-Referral Laws

        The federal ban on physician self-referrals, commonly known as the "Stark Law," prohibits, subject to certain exceptions, physician referrals of Medicare and Medicaid patients to an entity providing certain "designated health services" if the physician or an immediate family member of the physician has any financial relationship with the entity. The Stark Law also prohibits the entity receiving the referral from billing for any good or service furnished pursuant to an unlawful referral, and any person collecting any amounts in connection with an unlawful referral is obligated to refund such amounts. A person who engages in a scheme to circumvent the Stark Law's referral prohibition may be fined up to $100,000 for each such arrangement or scheme. The penalties for violating the Stark Law also include civil monetary penalties of up to $15,000 per service and possible exclusion from federal healthcare programs. In addition to the Stark Law, many states have their own self-referral laws. Often, these laws closely follow the language of the federal law, although they do not always have the same scope, exceptions or safe harbors. In some states these anti-referral laws apply not only to payment made by a federal health care program but also with respect to other payers, including commercial insurance companies. In addition, some state laws require physicians to disclose any financial interest they may have with a healthcare provider to their patients when referring patients to that provider even if the referral itself is not prohibited.

        We have entered into consulting agreements and royalty agreements with certain surgeons who make referrals to us. In addition, some of our referring surgeons own our stock, which they either purchased in an arms' length transaction on terms identical to those offered to non-surgeons or received from us as consideration for consulting services performed. These agreements and stock issuances must be transacted in accordance with the Stark Law, state anti-referral laws and other applicable laws since the surgeons make referrals to us. These transactions were structured with the intention of complying with all applicable laws. Despite this intention, however, all of our business arrangements and operations may not always comply with all of the criteria of applicable laws. It is possible that regulatory agencies could view these transactions as prohibited arrangements that must be restructured or for which we could be subject to other significant penalties, or prohibit us from accepting referrals from these surgeons. Consequently, it is possible that regulatory agencies could determine that applicable laws require us to restructure existing relationships with certain of our referring surgeons and to repurchase, or request the sale of, stock held by referring surgeons, to modify or terminate our agreements with referring surgeons, or, alternatively, to refuse to accept referrals from these surgeons. We would be materially impacted if regulatory agencies interpret our financial relationships with certain surgeons who refer our products to be in violation of applicable laws and we were unable to achieve compliance with applicable laws. This could subject us to monetary penalties for non-compliance and the cost of achieving that compliance could be substantial.

        We regularly review our practices in an effort to ensure that they comply with the Stark Law and applicable state anti-referral laws but the laws in this area are both broad and vague and it is often difficult or impossible to determine precisely how the laws will be applied. Accordingly, there can be no

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assurance that we would be determined by a particular agency or court to be in full compliance with such laws.

    False Claims Laws

        The federal False Claims Act prohibits any person from knowingly presenting, or causing to be presented, a false claim or knowingly making, or causing to made, a false statement to obtain payment from the federal government. Absent prompt self-reporting, when an entity is determined by a court or jury to have violated the False Claims Act, it must pay three times the actual damages sustained by the government, plus mandatory civil penalties of between $5,500 and $11,000 for each separate false claim. By application of other laws, conduct that violates the False Claims Act can also give rise to exclusion from participation in Medicare, Medicaid and other government health programs. Actions filed under the False Claims Act can be brought by any individual on behalf of the government, a "qui tam" action, and such individual, known as a "relator" or, more commonly, as a "whistleblower," may share in any amounts paid by the entity to the government in damages and penalties or by way of settlement. In addition, certain states have enacted laws modeled after the federal False Claims Act. Qui tam actions have increased significantly in recent years, causing greater numbers of healthcare companies to defend false claim actions, pay damages and penalties or be excluded from Medicare, Medicaid or other federal or state healthcare programs as a result of investigations arising out of such actions.

    Gainsharing

        Medical device companies may be adversely affected by so-called gainsharing programs. While there is no fixed definition of gainsharing, the term has typically referred to an arrangement in which a hospital gives physicians a share of any reduction in the hospital's costs attributable in part to the physician's efforts. Gainsharing can take a number of forms. In some of the proposed gainsharing arrangements, surgeons are offered a percentage of a hospital's cost savings arising from the surgeon's implementation of a number of cost reduction measures in certain surgical procedures, including from such measures as the use of designated supplies or tools that are clinically equivalent and medically appropriate, but also less expensive.

        The OIG has ruled that some gainsharing arrangements may violate the Anti-Kickback Statute and/or the Civil Monetary Penalties Law if payments to physicians constitute an inducement to reduce or limit items or services to Medicare and Medicaid beneficiaries under the physician's direct care. However, the OIG has recently approved several gainsharing arrangements involving cardiac surgeons that did not present risks for patient or program abuse. Hospitals likely will seek to develop analogous gainsharing arrangements with orthopedic surgeons, and such arrangements could impact the hospitals' willingness to use our products. Also, we may be asked to structure gainsharing arrangements consistent with the OIG's gainsharing opinions.

    Fraud on a Health Benefit Plan and False Statements

        The Health Insurance Portability and Accountability Act of 1996, or HIPAA, created two new federal crimes: health care fraud and false statements relating to health care matters. The health care fraud statute prohibits knowingly and willfully executing a scheme to defraud any health care benefit program, including private payors. A violation of this statute is a felony and may result in fines, imprisonment or exclusion from government sponsored programs. The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for health care benefits, items or services. A violation of this statute is a felony and may result in fines or imprisonment.

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    Federal Administrative Sanctions—Exclusion and Civil Monetary Penalties

        The federal government may also bring administrative actions against entities for alleged violations of a number of prohibitions, including the Anti-Kickback Statute and the Stark Law. The authorities authorize the OIG to seek to exclude from the Medicare, Medicaid and certain other government programs, on either a mandatory or permissive basis depending on the underlying conduct, an entity that, or individual who, has violated the Anti-Kickback Statute or the Stark Law, or that has failed to comply with certain other specifically delineated obligations. Typically, exclusions last for five years. The federal government may also bring an administrative action seeking civil monetary penalties against entities that, or individuals who, have violated the Anti-Kickback Statute or the Stark Law or that or who have failed to comply with other specifically delineated obligations. Civil monetary penalties can range from $2,000 to $50,000 for each violation or failure plus, in certain circumstances, three times the amounts claimed in reimbursement.

        We regularly review our practices in an effort to ensure that they comply with the prohibitions and obligations imposed pursuant to the OIG's exclusion and civil monetary penalties authorities, but the laws are both broad and vague, and it is often difficult or impossible to determine precisely how the laws will be applied. Accordingly, there can be no assurance that we would be determined by the OIG or at the end of an administrative proceeding to be in compliance with such prohibitions or obligations.

    Japanese Laws and Regulations

        In Japan, there are no laws or regulations specifically addressing fraud or abuse in the medical device industry. Rather, such behavior is regulated more generally. For example, fraud and willful misconduct are generally treated as violations of Japan's Civil Code. Further, if a company directly or indirectly provides money, gifts or other remuneration to a civil servant employed by the Japanese government (including a doctor working at a national hospital), such conduct is punishable as criminal bribery. In addition, although vendor volume rebates or discounts are generally permitted, the Japanese Antimonopoly Law prohibits a business from tying the amount of a rebate it provides to a customer to the ratio that the customer's purchases from that business bears to the customer's total purchases from all vendors, on the ground that this constitutes an unfair business practice that has the effect of restraining competition. Otherwise, however, payments by private individuals or companies to others for the purpose of facilitating or inducing business transactions do not in general violate Japanese law. Like our U.S. employees, our employees in Japan are subject to our corporate code of conduct, which, among other things, prohibits employees from violating laws applicable to us.

Third-Party Reimbursement

        While we do not rely directly on reimbursement from third-party payors, such as Medicaid, Medicare and private insurers, for any of our products, our business is affected by third-party reimbursement and health industry compliance laws administered by the government, such as Medicare and Medicaid, as well as private payors. For example, our business is indirectly impacted by the ability of a hospital or medical facility to obtain third-party reimbursement coverage for procedures performed using our products. These third-party payors may deny reimbursement if they determine that a device used in a procedure was not medically necessary and used in accordance with cost-effective treatment methods, as determined by the third-party payor, or was used for an unapproved indication. Further, for inpatient and outpatient spine fracture reduction procedures, including those that involve use of our products, Medicare reimburses hospitals at a prospectively determined amount, regardless of the actual cost for such treatment, based primarily on the patient's diagnosis and the nature of the care provided during the hospital stay. Thus, the hospitals do not receive reimbursement based on the costs of our product. Other third-party payors, including commercial insurers and managed care companies, frequently follow Medicare principles in determining their respective payment policies. We receive payment from hospitals and surgical centers and not directly from third-party payors. We believe that

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third-party payors generally cover approximately 85% of the cost of procedures using our products, though the amount covered may vary from state to state and procedure to procedure. In addition, the rate of reimbursement may vary based on the individual contracts that hospitals have negotiated with insurance carriers.

        Establishing reimbursement for any new medical technology is a challenge in the current environment of cost containment and managed care, including for government programs. To successfully establish reimbursement coverage, companies must prove that the proposed new technology improves health outcomes, such as quality of life or functional ability, and, given the usual method of reimbursement, does so in a cost-effective manner.

        Medicare and other third-party payors payments to the hospital or medical facility for the costs of admitting and treating the patient, whether inpatient or outpatient, including the purchase of our products, is based on existing applicable codes. The surgeons and other physicians who perform procedures with our products are reimbursed by Medicare and other third-party payors separately under a different system that is usually based on procedure codes, called current procedural terminology codes.

        Medicare has promulgated seven diagnosis related group, or DRG, codes for inpatient procedures that involve the use of our products. Each of these DRG codes is associated with a level of payment that is adjusted from time to time, usually annually. The payment, or third-party reimbursement, is intended to cover most of the non-physician hospital costs incurred in connection with the applicable diagnosis and related procedures. Implant devices such as those sold by us represent part of the total procedure costs, while labor, hospital room and board and other supplies and services represent the balance of those costs.

        We believe that orthopedic implants have been well received by third-party payors because of their ability to greatly reduce long-term health care costs for sufferers of musculoskeletal ailments. However, reimbursement policies vary from payor to payor and are subject to change. As discussed above, hospitals that purchase medical devices for treatment of their patients generally rely on third-party payors to reimburse all or part of the costs and fees associated with the procedures performed with these devices. Both government and private third-party coverage and reimbursement levels are critical to new product acceptance. Neither hospitals nor spine surgeons are likely to use our products if they do not receive reimbursement adequate to cover the cost of these procedures.

        While it is expected that hospitals will be able to obtain reimbursement for the procedures requiring use of our products, the level of reimbursement available to them for such procedures may change over time. Governmental payors such as Medicare and Medicaid closely regulate provider reimbursement levels and have sought to contain, and sometimes reduce, price levels. Commercial payors and managed care plans frequently follow government payment policies, and are likewise interested in controlling increases in the cost of medical care. These third-party payors may deny reimbursement if they determine that a device used in a procedure was not used in accordance with cost-effective treatment methods, as determined by the third-party payor, or was used for an unapproved indication.

        In addition, some payors are adopting pay-for-performance programs that differentiate payments to health care providers based on the achievement of documented quality-of-care metrics, cost efficiencies, or patient outcomes. These programs are intended to provide incentives to providers to find ways to deliver the same or better results while consuming fewer resources. As a result of these programs, and related payor efforts to reduce reimbursement levels, hospitals and other providers are seeking ways to reduce their costs, including the amounts they pay to medical device suppliers. Adverse changes in reimbursement rates by payors to hospitals could adversely impact our ability to market and sell our products and negatively affect our financial performance.

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        In international markets, reimbursement and healthcare payment systems vary significantly by country and many countries have instituted price ceilings on specific product lines. There can be no assurance that our products will be considered cost-effective by third-party payors, that reimbursement will continue to be available or, if available, that the third-party payors' reimbursement policies will not adversely affect our ability to sell our products profitably.

        A patient's use of our products that has been prescribed by a medical doctor in Japan will generally be covered by the Japanese National Health Insurance. The coverage ratio under the Japanese National Health Insurance varies according to a number of factors, including the patient's age and the type of product used. However, the insurance generally covers between 70% and 90% of the cost of the procedure.

Employees

        As of December 31, 2005, we had 213 employees worldwide in the following areas: sales, surgeon services, marketing, product development, manufacturing, quality assurance, regulatory affairs, research and development, human resources, finance, legal, information technology and administration. Complementing our employees are our approximately 50 independent distributors. We believe that our success will depend, in part, on our ability to attract and retain qualified personnel. We have never experienced a work stoppage due to labor difficulties and believe that our relations with our employees are good. None of our employees is represented by a labor union or is subject to any collective bargaining agreement.

Facilities

        Our corporate office and our manufacturing facilities are located in Carlsbad, California. We believe that our facilities are adequate for our current needs. The table below provides selected information regarding our facilities, all of which are leased.

Location

  Use
  Approximate
Square Footage

  Lease Expiration
Carlsbad, California   Corporate headquarters   19,000   February 2008

Carlsbad, California

 

Product design and manufacturing

 

21,592

 

May 2007

Carlsbad, California

 

Product design and manufacturing

 

3,367

 

February 2007

Carlsbad, California

 

Product design and manufacturing

 

10,080

 

October 2006, option through October 2008

Westwood, Massachusetts

 

Allograft distribution

 

3,354

 

July 2009

Legal Proceedings

        From time to time we may be involved in various disputes and litigation matters that arise in the ordinary course of business. Other than as set forth below, we are not currently a party to any material legal proceedings.

        On or about November 22, 2005, we, among other entities, were served with a complaint by Abbott Spine, Inc., or Abbott, in the United States District Court for the District of Arizona. The complaint alleges that we tortiously interfered with a contract that Abbott had with one of its independent sales agents, Gannon Rice Medical, Inc., or Gannon, and tortiously interfered with

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Abbott's customer relationships in Arizona by hiring two of Gannon's employees. The complaint seeks from us undisclosed monetary damages, punitive damages and attorneys' fees under Arizona law. The case is proceeding in Arizona federal court and expedited discovery was completed in November 2005. A preliminary injunction was upheld that restricts the activities of the former Gannon employees in Arizona. We have appealed the terms of this injunction. We also are in the process of negotiating a settlement to the case.

        On February 2, 2006, we filed a joint complaint with our President and CEO, Ronald Hiscock, in California State Superior Court against Benchmark Medical, Inc. and Benchmark Medical Holdings, Inc., or Benchmark, in connection with Benchmark's failure to pay Mr. Hiscock certain amounts due to him pursuant to his severance agreement with Benchmark. In addition, our complaint seeks a declaratory judgment affirming our ability to recruit and hire former Benchmark employees. In March 2006, Benchmark filed a complaint against Mr. Hiscock and our Chief Administrative Officer, Vice President and Secretary, Vicky Romanoski, in Pennsylvania state court in which it claimed that each of them violated the terms of their respective severance agreements with Benchmark and sought to have the matter litigated in Pennsylvania rather than California. We are indemnifying both Mr. Hiscock and Ms. Romanoski in connection with this matter. See "Certain Relations and Related Transactions—Financial Advisory Service, Rental and Other Payments and Agreements."

        On April 12, 2006, we and HealthpointCapital, 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 surgeons, in the Superior Court of California in the County of Orange, alleging, among other things, that, pursuant to certain contractual arrangements Alphatec Spine entered into with the surgeons, we are required to pay the surgeons quarterly royalties in an aggregate amount of 6% of the net sales of our polyaxial screws, which the surgeons allege were developed with their assistance. We first began to sell polyaxial screws in 2003 and have continued to sell them through the date of this prospectus. We are in the process of preparing an answer to the complaint, and we plan to vigorously defend ourselves in this action.

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MANAGEMENT

Executive Officers, Directors, and Significant Employees

        Set forth below are the name, age, position, and a brief account of the business experience of each of the executive officers, directors and other key employees of Alphatec Holdings, unless otherwise noted, as of March 1, 2006.

Name

  Age
  Position
Executive Officers and Directors:        
John H. Foster   63   Chairman of the Board of Directors
Ronald G. Hiscock   55   President, Chief Executive Officer and Director
Daniel J. Lacienski   57   Executive Vice President, Operations
Stephen T. D. Dixon   46   Chief Financial Officer, Vice President and Treasurer
Trent J. Northcutt   39   Vice President, Sales
Vicky A. Romanoski   46   Chief Administrative Officer, Vice President and Secretary
Scott A. Wiese   41   Vice President, Business Development and Marketing
Steven Reinecke   45   Vice President, Research and Development
Herbert J. Bellucci   56   Vice President, Manufacturing
Ebun S. Garner, Esq.   34   Vice President, Legal Affairs and Compliance
Brian Plotkin   47   Vice President, Information Technology
Kimberly Bradshaw   39   Vice President, Physician Services
Mortimer Berkowitz III   52   Director
R. Ian Molson (1)(2)(3)   50   Director
Stephen E. O'Neil (1)(2)(3)   73   Director
Other key employees:        
Laszlo Adam   55   Executive Vice President, Corporate Development
Shunshiro "Roy" Yoshimi   57   Chairman, President and Chief Executive Officer, Alphatec Pacific

(1)
Member of our Audit Committee

(2)
Member of our Compensation Committee

(3)
Member of our Nominating and Corporate Governance Committee

Executive Officers and Directors:

         John H. Foster has served as Chairman of the Board of Directors of Alphatec Holdings and Alphatec Spine since March 2005. He also served as Chief Executive Officer of Alphatec Holdings and Alphatec Spine from March 2005 to October 2005. He is currently a managing member of HGP, LLC, which is the general partner of HealthpointCapital, and Chairman, Chief Executive Officer, a member of the Board of Managers and a managing director of HealthpointCapital, LLC. He has held the position with HGP, LLC since its formation in August 2002 and the positions with HealthpointCapital, LLC since its formation in July 2002. He founded Foster Management Company and has served as its Chairman and Chief Executive Officer since 1972. From inception to date, Foster Management Company has managed seven private equity funds. Mr. Foster is an experienced operating executive and a 30-year veteran of private equity investing. Mr. Foster has served as Chief Executive Officer of most of Foster Management's portfolio companies, including NovaCare, Inc., a physical rehabilitation services company. Mr. Foster is Chairman of Nexa Orthopedics, Inc. and a director of Scient'x S.A., both medical device companies, on the Dean's Council at the Harvard School of Public Health, a Trustee of the Hospital for Special Surgery in New York, a Trustee of the Burke Rehabilitation Hospital, an Overseer of the Amos Tuck School of Business Administration, and formerly a Board

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Member of Avon, Inc. and Corning Incorporated. Mr. Foster received an MBA from Amos Tuck School Dartmouth and a Bachelor of Arts degree from Williams College.

         Ronald G. Hiscock has served as Chief Executive Officer of Alphatec Holdings and Alphatec Spine since October 2005 and as President and a Director of Alphatec Holdings and Alphatec Spine since June 2005. From June 2005 to October 2005, he also served as Chief Operating Officer of Alphatec Holdings and Alphatec Spine. From November 2004 to June 2005, Mr. Hiscock was a Managing Partner of Trailing Twelve Months, Inc., a consulting firm for emerging, small and mid-market level companies. Mr. Hiscock founded Benchmark Medical, Inc., a domestic provider of outpatient musculoskeletal rehabilitation services, and from January 2000 to November 2004, he served as its Chairman and Chief Executive Officer. Mr. Hiscock was also President and Chief Operating Officer of Hanger Orthopedic Group, Inc. and Chief Executive Officer and Chief Operating Officer of NovaCare Orthotics & Prosthetics, Inc. Mr. Hiscock received a Bachelor of Science in Business Administration from Massachusetts State College.

         Daniel J. Lacienski has served as Executive Vice President, Operations of Alphatec Holdings and Alphatec Spine since February 2006. Prior to that, since January 2001, Mr. Lacienski served as Executive Vice President of Operations of Benchmark Medical, Inc., a domestic provider of outpatient musculoskeletal rehabilitation services. From July 1999 to January 2001, he served as a Regional Vice President of Hanger Orthopedic Group, Inc., a domestic orthotics and prosthetics company. From 1992 to 1999, he served as a Eastern Regional Vice President of the Operations at NovaCare Orthotics & Prosthetics, Inc. Mr. Lacienski has also held senior positions with Glasrock Home Health Care Division of British Oxygen Corporation, and management positions with Baxter International's Respiratory Care Division. Mr. Lacienski received a license in Respiratory Therapy after completing clinical training and course work at Holyoke Hospital School of Respiratory Therapy.

         Stephen T. D. Dixon has served as Chief Financial Officer, Vice President and Treasurer of Alphatec Holdings and Alphatec Spine since February 2006. From December 2002 to February 2006, Mr. Dixon served as Executive Vice President and Chief Financial Officer of Clarient, Inc., a publicly traded medical diagnostics company. From November 2000 until November 2002, Mr. Dixon was Senior Vice President and Chief Financial Officer of The Scully Companies, a group of related transportation services companies. In these positions, he was responsible for financial analysis and reporting, cash and revenue management, information systems, and business and strategic planning. Prior to that, Mr. Dixon held various positions with Bax Global, Inc. from 1998 to 2000, including Vice President and Chief Financial Officer, U.S. and Canada. He also held various positions with Ryder TRS from 1996 to 1998, including Vice President, Revenue Management and Chief Information Officer. Mr. Dixon received a Bachelor of Science in Accounting from Bucknell University and an MBA from the Wharton Graduate School of the University of Pennsylvania. Mr. Dixon is a Certified Public Accountant, a member of the American Institute of Certified Public Accountants and a member of the California Society of Certified Public Accountants.

         Trent J. Northcutt has served as Vice President of Sales of Alphatec Holdings and Alphatec Spine since January 2006. From March 2005 until January 2006 he served as our Western Regional Sales Vice President. From June 2004 until March 2005 he served as Alphatec Spine's Director of Business Development. From February 2000 to March 2004, he served as Vice President and Co-founder of Spine and Sports Medicine Inc., a medical company that sold spinal implants, post-operative care products and rehabilitation facilities. Prior to February 2000, Mr. Northcutt managed a division of Team Surgical, Inc., a distributor of sports medicine implants and post-operative care products. Mr. Northcutt received a Certified Surgical Technologist designation from Glendale University.

         Vicky A. Romanoski has served as Chief Administrative Officer and Vice President of Alphatec Holdings and Alphatec Spine since June 2005. From November 2004 to June 2005, Ms. Romanoski was a Managing Partner of Trailing Twelve Months, Inc., a consulting firm for emerging, small and

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mid-market level companies. Ms. Romanoski founded Benchmark Medical, Inc., a domestic provider of outpatient musculoskeletal rehabilitation services, and from January 2000 to November 2004, she served as it Executive Vice President and Chief Administrative Officer. During this time she was responsible for the leadership, direction and management of logistics, human resources and administration supporting all business groups providing services to Benchmark's 2,000 employees. She was also Vice President of Operations, Support and Logistics at Hanger Orthopedic Group, Inc. and Senior Director of Operations Support and Logistics of NovaCare, Inc. Ms. Romanoski attended an undergraduate program in Business Administration at Ursinus College.

         Scott A. Wiese has served as Vice President of Business Development and Marketing of Alphatec Holdings and Alphatec Spine since July 2005. Prior to that, he was Western Regional Manager of Abbott Spine/SCI, a medical device company, from October 2001 to August 2005 and Area Sales Manager of Medtronic Sofamor Danek, a medical device company, from October 1999 to October 2001. Prior to October 1999, Mr. Wiese worked in sales management for the following companies: BASF Corp./Knoll Pharmaceuticals, Pfizer/Howmedica Surgical Division, field sales for Glaxo Pharmaceuticals and Adria Laboratories. Mr. Wiese received a Bachelor of Science degree from Southern Illinois University and a Masters Degree in Organizational Management from the University of Phoenix.

         Steven Reinecke has served as Vice President of Research and Development of Alphatec Holdings and Alphatec Spine since October 2005. Prior to that, he was Vice President of Research and Development for Orthofix Inc., a medical device company, from December 2001 to October 2005 and Director of Research and Development from August 2000 to December 2001. From September 1996 to August 2000 Mr. Reinecke was Vice President of Research and Development of Kinesis Medical and from 1992 to 1996 he was Co-founder and Vice President of Ergomedics. Mr. Reinecke held several positions from 1983 to 1992 within the Department of Orthopedics at the University of Vermont focusing on low back pain. Mr. Reinecke received a Bachelor of Science degree in Mechanical Engineering and a Masters in Biomedical Engineering from the University of Vermont.

         Herbert J. Bellucci has served as Vice President of Manufacturing of Alphatec Holdings and Alphatec Spine since August 2005. From May 2003 to April 2005, he was Senior Vice President of Operations for Digirad Corp., a medical imaging company. From April 1994 to February 2003, he served as Vice President of Manufacturing for Omnicell, Inc., a healthcare supply chain solution provider, and, from 1993 to 1994, as Vice President of Operations for Vidamed, Inc. Mr. Bellucci worked in various positions, including Senior Vice President of Operations, at Laserscope from 1984 to 1993. Mr. Bellucci received a Bachelor of Science degree in Engineering from Brown University and an MBA from the Stanford Graduate School of Business.

         Ebun S. Garner, Esq. has served as Vice President of Legal Affairs and Compliance of Alphatec Holdings and Alphatec Spine since September 2005. From August 2005 to September 2005, he served as Vice President of Legal Affairs. From July 2000 until he joined us in August 2005, Mr. Garner was a corporate associate in the New York office of the law firm of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. While at Mintz Levin, Mr. Garner provided counsel to a variety of orthopedic device and drug discovery companies. From September 1999 until July 2000, Mr. Garner was a corporate associate in the New York office of the law firm of Squadron, Ellenoff, Plesent and Sheinfeld, LLP. Mr. Garner is admitted to practice law in the State of New York. Mr. Garner received a Bachelor of Arts in Economics from the University of Pennsylvania and a Juris Doctor from New York University School of Law where he was a member of the Review of Law and Social Change.

         Brian Plotkin has served as Vice President of Information Technology of Alphatec Holdings and Alphatec Spine since October 2005. Prior to that, he was Information Services Director of Kyphon Inc., a medical device company, from 2003 to 2005. From 2001 to 2002, Mr. Plotkin was the Chief Operations Officer for Team Play USA, a corporate recreational activities company. He spent ten years

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at Tyco Healthcare Group, a medical device company, from 1991 to 2001 filling various roles including Western Region IT Director and Corporate IS Support Manager. Mr. Plotkin received a Bachelor of Arts degree in Administration from San Diego State University and an MBA from San Francisco State University Graduate School of Business.

         Kimberly Bradshaw has served as Vice President of Physician Services of Alphatec Holdings and Alphatec Spine since October 2005. Ms. Bradshaw has over 17 years of customer service experience, 13 years of which have been in the medical device industry. Prior to joining us, Ms. Bradshaw worked at CardioDynamics Inc., or CDIC, a medical device company, where she held positions of increasing responsibility and authority since 1997. In November 2003 she was named CDIC's Director of Customer Service where she managed CDIC's customer service and support operations. In addition, while in this position Ms. Bradshaw led CDIC's ERP implementation program, acquisition integration, Sarbanes-Oxley compliance, and field automation. Prior to serving as CDIC's Director of Customer Service, she was CDIC's Associate Director of Customer Service from November 2000 until November 2003. Ms. Bradshaw received a certificate in business administration from Dapto Technical College in New South Wales, Australia.

         Mortimer Berkowitz III has served as a Director of Alphatec Holdings and Alphatec Spine since July 2005. He is currently a managing member of HGP, LLC, which is the general partner of HealthpointCapital, and President, a member of the Board of Managers and a managing director of HealthpointCapital, LLC. He has held the position with HGP, LLC since its formation in August 2002, the positions of managing director and member of the Board of Managers of HealthpointCapital, LLC since its formation in July 2002 and the position of President of HealthpointCapital, LLC since February 2005. Prior to joining HealthpointCapital, LLC, Mr. Berkowitz was managing director and co-founder of BPI Capital Partners, LLC, a private equity firm founded in 1990. Prior to 1990, Mr. Berkowitz spent 11 years in the investment banking industry with Goldman, Sachs & Co., Lehman Brothers Incorporated and Merrill Lynch & Co. He is a director of Nexa Orthopedics, Inc. and Scient'x S.A., both medical device companies, a director of Knight Holdings, Inc., a specialty elastics company, a member of the Goelet LLC Private Equity Advisory Board, on the Leadership Council of the Harvard School of Public Health and a trustee of The Buckley School of New York. He received a Bachelor of Arts degree from Harvard College and an MBA from the Columbia Graduate School of Business.

         R. Ian Molson has served as a Director of Alphatec Holdings and Alphatec Spine since July 2005. Mr. Molson has served as a Director of Cayzer Continuation PCC, an investment company, since September 2004. From June 1994 to May 2004, Mr. Molson served as Deputy Chairman for the Board of Directors, Chairman of the Executive Committee and as a member of the Audit and Financial Committee and the Human Resources and Corporate Governance Committee of Molson, Inc., one of the world's largest brewers. Between 1977 and 1997, he was employed by Credit Suisse First Boston in various capacities, including Managing Director. From 1993 to 1997, Mr. Molson served as Head of the Investment Banking Department in Europe, a position which encompassed corporate finance, corporate advisory, mergers and acquisitions businesses in Europe, Russia, Africa and the Middle East. Mr. Molson received a Bachelor of Arts degree from Harvard University.

         Stephen E. O'Neil has served as a Director of Alphatec Holdings and Alphatec Spine since July 2005. In May 1991, he founded The O'Neil Group, which provides legal and financial advice to clients primarily in the areas of mergers and acquisitions, financings and corporate strategy, where he has served as the principal since its inception. Prior to that, Mr. O'Neil formed a law partnership with Paul Mishkin under the name Mishkin, O'Neil for the purpose of engaging in general corporate and business law. Prior to that, he co-founded two corporations, Syntro Corporation and NovaCare, Inc., which have since become public companies. Mr. O'Neil received a Bachelor of Arts from Princeton University and a L.L.B. from Harvard Law School.

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Other Key Employees:

         Laszlo Adam has served as our Executive Vice President of Corporate Development and as a Director of Alphatec Pacific since March 2005. He is currently a Director of HealthpointCapital, LLC and has held that position since its formation in July 2002. Mr. Adam was previously Co-Chairman of the Board of Directors of Erickson Air-Crane Incorporated, an integrated manufacturer and operator of heavy-lift helicopters, from February 1997 until March 2003. Mr. Adam was also the founder and President of the Investment Banking Group of Lepercq, de Neuflize & Co. Mr. Adam received a Bachelor of Arts degree in Biology from Princeton University.

         Shunshiro "Roy" Yoshimi has served as the Chairman, President and Chief Executive Officer of Alphatec Pacific since March 2005. Mr. Yoshimi was the founder of Alphatec Spine and served as the Chairman of the Board of Directors, President and Chief Executive Officer of Alphatec Spine from January 1990 to March 2005. Mr. Yoshimi has had extensive experience in the field of development and sale of orthopedic products. During the 12 years prior to founding Alphatec Spine, Mr. Yoshimi had been actively involved with ACE Medical and DePuy, Inc., two large international orthopedic device manufacturers, as a manager for Eastern Asia and then as a distributor in Japan. His experience includes having established distributors and representatives in Korea, Taiwan, and Hong Kong and sales and distribution networks in Japan for DePuy, Inc. Initially he operated as a distributor in Japan for DePuy, Inc. and later became President of DePuy, Inc.'s Japan subsidiary.

Scientific Advisory Board

        Our Scientific Advisory Board consists of five physicians with demonstrated expertise in spine fusion and other spine surgical treatments who advise us concerning our current products, our product pipeline, long-term scientific planning, research and development and industry trends. The Scientific Advisory Board also evaluates our research programs, recommends personnel to us and advises us on technological matters. In addition to our Scientific Advisory Board, we have established consulting relationships with a number of scientific and medical experts who advise us on a project-specific basis. The following individuals are members of our Scientific Advisory Board:

Name

  Position
Stephen Hochschuler, M.D.   Chairman
Frank Eismont, M.D.   Member
Steven Garfin, M.D.   Member
Frank Phillips, M.D.   Member
James Yue, M.D.   Member

         Stephen Hochschuler, M.D. , Chairman is a Co-Founder of the Texas Back Institute and a Founding Member of the Board of Directors of the Spine Arthroplasty Society. Dr. Hochschuler's surgical practices are conducted in Plano, Texas and Phoenix, Arizona. He is an active member of the Texas Spine Society, the American Board of Spine Surgeons, the American Academy of Orthopedic Surgeons and the American Pain Society. Dr. Hochschuler graduated from Harvard Medical School and completed his internship and general residency at Harvard Surgical Service, Boston City Hospital, Boston, Massachusetts. He completed his orthopedic surgery residency at the University of Texas Southwestern Medical School, Dallas, Texas and Parkland Memorial Hospital, Dallas, Texas.

        Frank Eismont, M.D. is currently a Professor and Co-chairman of the Department of Orthopedics and Rehabilitation, the program director for the orthopedic residency training program and the spine surgery fellowship training program at the Miller School of Medicine at the University of Miami, where he has been employed since 1980. Dr. Eismont is an active member of numerous organizations including the Scoliosis Research Society, the International Society for the Study of the Lumbar Spine, the North American Spine Society, the American Academy of Orthopedic Surgery, where he served for

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five years as the chairman of the Spine Committee, and the Cervical Spine Research Society of which he is a past society president. Dr. Eismont graduated from the University of Rochester School of Medicine in New York, completed his internship, orthopedic residency and one spine surgery fellowship at Case-Western Reserve University in Cleveland, Ohio, and completed a second spine surgery fellowship at Pennsylvania Hospital in Philadelphia.

        Steven Garfin, M.D. is a Professor and Chairman of the Department of Orthopedic Surgery at the University of California, San Diego, where he has been a member of the faculty since 1981. Dr. Garfin is on the Orthopedic Scientific Committee of the California Medical Association's Counsel of Scientific Affairs and is an active member of the American Academy of Orthopedic Surgeons, the Orthopaedic Research Society, the Cervical Spine Research Society, the North American Spine Society, the International Society for the Study of the Lumbar Spine and the Spinal Arthroplasty Society, among other academic societies. He served for many years on the boards of the North American Spine Society and the Cervical Spine Research Society. Dr. Garfin graduated from the University of Minnesota School of Medicine. He completed his internship and orthopedic residency at University of California, San Diego and a spine surgery fellowship at Pennsylvania Hospital in Philadelphia.

        Frank Phillips, M.D. is a spine surgeon at Midwest Orthopaedics and is a Professor of Orthopaedic Surgery at Rush University Medical Center in Chicago where he co-directs the spine fellowship program. Dr. Phillips has served on various committees of the North American Spine Society and has lectured widely in the United States and internationally on various spinal topics. Dr. Phillips graduated from the University of Witwatersrand, completed an orthopedic surgery residency at The University of Chicago Hospitals and completed a spine surgery fellowship at University Hospitals of Cleveland.

        James Yue, M.D. is an Assistant Professor of Orthopedics and Rehabilitation at the Yale University School of Medicine, Co-Director of the Yale Spine Center, and a Director of the Combined Yale Spine Fellowship. He is a member of the North American Spine Society, the Spine Arthroplasty Society, the World Spine Society, and the American Academy of Orthopaedic Surgeons, among other national and international organizations. Dr. Yue completed his internship and residency in orthopedic surgery at Case Western Reserve University Hospitals in Cleveland, a trauma and spine fellowship at the University of Maryland/RA Cowley Shock Trauma Hospital and an additional spinal fellowship at Queen's Medical Centre in Nottingham and London, England.

Scientific Advisory Board Compensation

        The Chairman of our Scientific Advisory Board received 20,000 restricted shares of our Series A-1 common stock as consideration for his service on our Scientific Advisory Board. Each other member of our Scientific Advisory Board received 3,750 restricted shares of our Series A-1 common stock as consideration for his service on our Scientific Advisory Board. All restricted shares sold to the Scientific Advisory Board vest over a five-year period, and become vested immediately upon a change in control or a sale of substantially all of our assets. The Chairman and each other member of the Scientific Advisory Board is paid $3,000 per meeting and is reimbursed for expenses incurred in connection with attendance at the meetings of our Scientific Advisory Board.

Board Composition

        Our amended and restated certificate of incorporation and restated by-laws provide that the authorized number of directors may be changed only by resolution of the board of directors. Upon the closing of this offering,        directors will be authorized. At each annual meeting of stockholders following the offering, the successors to the directors will be elected to serve until the annual meeting following such election.

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        Our board of directors has determined that R. Ian Molson, Stephen E. O'Neil and                        are independent directors, as defined under the rules of the Nasdaq National Market.

Board Committees

        Our board of directors has an audit committee, a compensation committee and a nominating and corporate governance committee, each of which has the composition and responsibilities described below.

        Audit Committee.     Our Audit Committee is composed of R. Ian Molson, Stephen E. O'Neil and            , each of whom satisfies the current standards with respect to independence, financial expertise and experience as established by the rules of the Nasdaq National Market and the required standards with respect to independence as established by the rules of the SEC. Our board of directors has determined that R. Ian Molson meets the SEC's definition of "audit committee financial expert." Our Audit Committee is authorized to:

        Compensation Committee.     Our Compensation Committee is composed of R. Ian Molson, Stephen E. O'Neil and             , each of whom is independent, as defined under the rules of the Nasdaq National Market. Our Compensation Committee is authorized to:

        Nominating and Governance Committee.     Our Nominating and Governance Committee is composed of R. Ian Molson, Stephen E. O'Neil and            , each of whom is independent, as defined under the rules of the Nasdaq National Market. Our Nominating and Governance Committee is authorized to:

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Compensation Committee Interlocks and Insider Participation

        In 2005, compensation for our executive officers was determined by our board of directors. No member of our board of directors has at any time been an employee of ours, other than Messrs. Foster and Hiscock. Mr. Foster did not receive any compensation for his service as an employee. Mr. Hiscock's compensation was determined by our board of directors prior to his joining the board of directors. None of our executive officers serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or Compensation Committee.

        Certain of our directors and their affiliates have participated in transactions with us. For a detailed description of these transactions, see the "Certain Relationships and Related Transactions" section below.

Director Compensation

        Each of our independent directors received 15,000 restricted shares of our Series A-1 common stock as consideration for their service on our board of directors. The restricted shares vest over a five-year period, and become vested immediately upon a change in control or a sale of substantially all of our assets. Each of our directors is reimbursed for expenses incurred in connection with attendance at the meetings of our board of directors.

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Executive Compensation

        The following summary compensation table sets forth summary information as to compensation we paid to our former and current Chief Executive Officers, our four other most highly compensated current executive officers and one former executive officer, each of whose aggregate salary and bonus exceeded $100,000 for the period from March 4, 2005, the date Alphatec Holdings was organized, through December 31, 2005.

Summary Compensation Table

 
   
   
   
  Long-term
Compensation
Awards

   
Name and Principal Position

  Salary
  Bonus (8)
  Other Annual
Compensation (9)

  Restricted
Stock
Awards (10)

  All Other
Compensation (17)

John H. Foster
Former Chief Executive Officer (1)
                 

Ronald G. Hiscock
President, Chief Executive Officer (2)

 

$

230,769

 

$

57,261

 

$

72,434

 


(11)

$

8,313

Scott V. Palka
Former Chief Financial Officer, Vice President and Treasurer (3)

 

$

213,462

 

$

52,809

 

$

25,000

 


(12)

$

5,077

Vicky A. Romanoski
Chief Administrative Officer, Vice President and Secretary (4)

 

$

129,808

 

$

31,901

 

$

56,972

 


(13)

$

3,808

Scott A. Wiese
Vice President, Business Development and Marketing (5)

 

$

95,192

 

$

24,350

 

 


 


(14)

$

3,115

Herbert J. Bellucci
Vice President, Manufacturing (6)

 

$

109,615

 

$

14,576

 

 


 


(15)

$

3,077

Floyd W. Pastor
Former Vice President, Sales and Physician Services (7)

 

$

115,577

 

$

29,672

 

$

34,115

 


(16)

$

4,204

(1)
Mr. Foster served as our Chief Executive Officer from March 18, 2005 through October 24, 2005.

(2)
Mr. Hiscock joined us in June 2005 as our President and Chief Operating Officer and became our Chief Executive Officer on October 24, 2005.

(3)
Mr. Palka served as our Chief Financial Officer, Vice President and Treasurer from April 18, 2005 through February 7, 2006.

(4)
Ms. Romanoski joined us in June 2005 as our Chief Administrative Officer, Vice President and Secretary.

(5)
Mr. Wiese joined us in July 2005 as our Vice President, Business Development and Marketing.

(6)
Mr. Bellucci joined us in August 2005 as our Vice President, Manufacturing.

(7)
Mr. Pastor served as our Vice President, Sales and Physician Services from August 3, 2005 through December 31, 2005, and currently serves as our Vice President of Executive Development.

(8)
The bonus amounts in this column reflect actual amounts paid pursuant to the respective employees' employment agreements. Bonus amounts were determined based on our total revenues for fiscal 2005.

(9)
The compensation in this column includes (a) housing allowances as follows: $14,127 for Mr. Hiscock, $14,302 for Ms. Romanoski and $8,086 for Mr. Pastor, (b) automobile allowances as follows: $15,647 for Mr. Hiscock, $9,354 for Ms. Romanoski and $6,655 for Mr. Pastor, (c) furniture allowances as follows: $12,782 for Mr. Hiscock, $12,782 for Ms. Romanoski and $4,604 for Mr. Pastor, (d) airline ticket allowances as follows: $19,928 for Mr. Hiscock, $18,363 for Ms. Romanoski and $12,684 for Mr. Pastor, (e) car service allowances as follows: $2,402 for Mr. Hiscock, $2,124 for Ms. Romanoski and $2,086 for Mr. Pastor, (f) rental insurance allowances as follows: $49 for Mr. Hiscock and $49 for Ms. Romanoski, (g) relocation allowances as follows: $25,000 for Mr. Palka, and (h) legal fees allowances as follows: $7,500 for Mr. Hiscock.

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(10)
All of our restricted Series A-1 common stock is entitled to dividends to the extent dividends are paid on our Series A-1 common stock generally. All references to restricted shares in footnotes 11-16 are to shares of our Series A-1 common stock.

(11)
Mr. Hiscock paid $240 for 120,000 shares of restricted stock, which represents the aggregate value on the date of grant of those shares. We have certain repurchase rights with respect to such shares. Our repurchase rights with respect to 90,000 of such shares lapse annually in equal installments, beginning on June 7, 2006 and ending on June 7, 2010. In addition, our repurchase rights with respect to 30,000 shares will lapse upon completion of this offering, if the registration statement of which this prospectus forms a part becomes effective on or before December 31, 2006 or such later date as the board of directors determines. In addition, any unvested shares of restricted stock shall become vested immediately upon a sale of us or substantially all of our assets. As of December 31, 2005, based on the fair market value of our Series A-1 common stock, Mr. Hiscock's restricted stock had an aggregate market value of $2.0 million.

(12)
Mr. Palka paid $100 for 50,000 shares of restricted stock, which represents the aggregate value on the date of grant of those shares. We had certain repurchase rights with respect to such shares. Our repurchase rights with respect to 10,000 of such shares were to have lapsed annually in equal installments, beginning on August 12, 2006 and ending on August 12, 2010. In addition, any unvested shares of restricted stock were to have become vested immediately upon a sale of us or substantially all of our assets. As of December 31, 2005, based on the fair market value of our Series A-1 common stock, Mr. Palka's restricted stock had an aggregate market value of $0.9 million. We repurchased all shares of Mr. Palka's restricted stock in February 2006 for an aggregate purchase price of $100.

(13)
Ms. Romanoski paid $50 for 25,000 shares of restricted stock, which represents the aggregate value on the date of grant of those shares. We have certain repurchase rights with respect to such shares. Our repurchase rights with respect to 15,000 of such shares lapse annually in equal installments, beginning on June 8, 2006 and ending on June 8, 2010. Our repurchase rights with respect to an additional 10,000 of such shares lapse annually in equal installments, beginning on August 12, 2006 and ending on August 12, 2010. In addition, any unvested shares of restricted stock shall become vested immediately upon a sale of us or substantially all of our assets. As of December 31, 2005, based on the fair market value of our Series A-1 common stock, Ms. Romanoski's restricted stock had an aggregate market value of $0.4 million.

(14)
Mr. Wiese paid $30 for 15,000 shares of restricted stock, which represents the aggregate value on the date of grant of those shares. We have certain repurchase rights with respect to such shares. Our repurchase rights with respect to 3,000 of such shares lapse annually in equal installments, beginning on August 12, 2006 and ending on August 12, 2010. In addition, any unvested shares of restricted stock shall become vested immediately upon a sale of us or substantially all of our assets. As of December 31, 2005, based on the fair market value of our Series A-1 common stock, Mr. Wiese's restricted stock had an aggregate market value of $0.3 million.

(15)
Mr. Bellucci paid $25 for 12,500 shares of restricted stock, which represents the aggregate value on the date of grant of those shares. We have certain repurchase rights with respect to such shares. Our repurchase rights with respect to 10,000 of such shares lapse annually in equal installments, beginning on August 12, 2006 and ending on August 12, 2010. Our repurchase rights with respect to 2,500 of such shares lapse annually in equal installments, beginning on October 10, 2006 and ending on October 10, 2010. In addition, any unvested shares of restricted stock shall become vested immediately upon a sale of us or substantially all of our assets. As of December 31, 2005, based on the fair market value of our Series A-1 common stock, Mr. Bellucci's restricted stock had an aggregate market value of $0.2 million.

(16)
Mr. Pastor paid $10 for 5,000 shares of restricted stock, which represents the aggregate value on the date of grant of those shares. We have certain repurchase rights with respect to such shares. Our repurchase rights with respect to all 5,000 of such shares lapse on August 12, 2006. In addition, any unvested shares of restricted stock shall become vested immediately upon a sale of us or substantially all of our assets. As of December 31, 2005, based on the fair market value of our Series A-1 common stock, Mr. Pastor's restricted stock had an aggregate market value of $0.1 million.

(17)
The compensation in this column includes (a) our contributions to the accounts of the named executive officers under our retirement and deferred savings plan for our employees as follows: $6,154 for Mr. Hiscock, $5,077 for Mr. Palka, $3,808 for Ms. Romanoski, $4,204 for Mr. Pastor, $3,115 for Mr. Wiese and $3,077 for Mr. Bellucci, and (b) payments of $2,159 by us for the premiums on Mr. Hiscock's life insurance policy.

Employment Agreements and Change of Control Arrangements

        Ronald G. Hiscock.     On June 7, 2005, we entered into and, on July 7, 2005 and December 7, 2005 subsequently amended, an employment agreement with Ronald G. Hiscock to serve as our President and Chief Executive Officer and as a member of the Alphatec Holdings board of directors. He also serves in these same positions for Alphatec Spine. Pursuant to his employment agreement, Mr. Hiscock's base salary is currently $400,000 per year and he is eligible to receive an incentive bonus each fiscal year in an amount up to 50% of his annual base salary for such year. He is also entitled to receive a bonus of $300,000 upon completion of an underwritten initial public offering by us and a bonus of at least $500,000 upon a sale of us or substantially all of our assets. In the event Mr. Hiscock's employment is terminated without cause, we are required to continue paying him his

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annual base salary and any bonus earned for a period of 12 months. If such termination follows a change in control, we are required to continue paying him his annual base salary for a period of 18 months and he will immediately be paid 100% of his target bonus, prorated by the number of weeks he was employed during such fiscal year. Pursuant to the agreement, we sold Mr. Hiscock 120,000 restricted shares of Series A-1 common stock with respect to which we have repurchase rights which lapse as described in the footnotes to the Summary Compensation Table above. The agreement also provides for reimbursement of the one-time and periodic expenses set forth in the Other Annual Compensation column of the Summary Compensation Table above.

        Scott V. Palka.     On July 13, 2005, we entered into an employment agreement with Scott V. Palka to serve as our Chief Financial Officer and Vice President effective as of April 18, 2005. He served in these same positions for Alphatec Spine. Pursuant to his employment agreement, Mr. Palka's base salary was $300,000 per year and he was eligible to receive a cash bonus each fiscal year in an amount up to 50% of his annual base salary for such year. He was eligible to receive a bonus of not less than $200,000 upon a sale of us or substantially all of our assets. Pursuant to his employment agreement, in the event Mr. Palka's employment was terminated without cause, we were required to continue paying him his annual base salary and any bonus earned for a period of 12 months. If such termination followed a change in control, we were required to continue paying him his annual base salary for a period of 18 months and he would have immediately been paid 100% of his target bonus, prorated by the number of weeks he was employed during such fiscal year. Pursuant to the agreement, we sold Mr. Palka 50,000 restricted shares of Series A-1 common stock with respect to which we have repurchase rights which lapse as described in the footnotes to the Summary Compensation Table above. The agreement also provided for reimbursement of the one-time expenses set forth in the Other Annual Compensation column of the Summary Compensation Table above. On January 26, 2006, we entered into a separation and release agreement with Mr. Palka, effective as of February 7, 2006. Pursuant to this agreement, Mr. Palka continued to fulfill his duties and earn salary as set forth in his employment agreement through February 7, 2006. Mr. Palka received payment of all his accrued and unpaid salary and accrued but unused vacation through February 7, 2006. He also received severance benefits including (i) 52 weeks of salary, payable weekly; (ii) a lump-sum payment equal to the bonus he is entitled to under his employment agreement; and (iii) continuing medical insurance benefits for 52 weeks. In February 2006, we exercised our right to repurchase all of the shares of restricted Series A-1 common stock owned by Mr. Palka for an aggregate purchase price of $100.

        Vicky A. Romanoski.     On June 8, 2005, we entered into and, on July 7, 2005 and July 26, 2005, subsequently amended, an employment agreement with Vicky A. Romanoski to serve as our Chief Administrative Officer and Vice President. She also serves in these same positions for Alphatec Spine. Pursuant to her employment agreement, Ms. Romanoski's base salary is currently $225,000 per year and she is eligible to receive a cash bonus each fiscal year in an amount up to 50% of her annual base salary for such year. In the event Ms. Romanoski's employment is terminated without cause, we are required to continue paying her annual base salary for a period of 12 months. If such termination follows a change in control, we are required to continue paying Ms. Romanoski her annual base salary for a period of 18 months and she will immediately be paid 100% of her target bonus, prorated by the number of weeks she was employed during such fiscal year. Pursuant to the agreement, we sold Ms. Romanoski 25,000 restricted shares of Series A-1 common stock with respect to which we have repurchase rights which lapse as described in the footnotes to the Summary Compensation Table above. The agreement also provides for reimbursement of the one-time and periodic expenses set forth in the Other Annual Compensation column of the Summary Compensation Table above.

        Scott A. Wiese.     On July 11, 2005, we entered into an employment agreement with Scott A. Wiese to serve as our Vice President of Business Development and Marketing. He also serves in this same position for Alphatec Spine. Pursuant to his employment agreement, Mr. Wiese's base salary is currently $225,000 per year and he is eligible to receive a cash bonus each fiscal year in an amount up to 50% of his annual base salary for such year. Pursuant to the agreement, we sold Mr. Wiese 15,000

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restricted shares of Series A-1 common stock with respect to which we have repurchase rights which lapse as described in the footnotes to the Summary Compensation Table above. In the event Mr. Wiese's employment is terminated without cause, we are required to continue paying his annual base salary for a period of three months.

        Herbert J. Bellucci.     On August 1, 2005, we entered into an employment agreement with Herbert J. Bellucci to serve as our Vice President of Manufacturing. He also serves in this same position for Alphatec Spine. Pursuant to his employment agreement, Mr. Bellucci's base salary is currently $200,000 per year and he is eligible to receive a cash bonus each fiscal year in an amount up to 20% of his annual base salary for such year. Pursuant to the agreement, we sold Mr. Bellucci 10,000 restricted shares of Series A-1 common stock with respect to which we have repurchase rights which lapse as described in the Summary Compensation Table above. In addition, on October 10, 2005 we issued 2,500 restricted shares of our Series A-1 common stock to Mr. Bellucci with respect to which we have repurchase rights which lapse as described in the footnotes to the Summary Compensation Table above. In the event Mr. Bellucci's employment is terminated without cause, we are required to continue paying his annual base salary for a period of three months.

        Floyd W. Pastor.     On August 3, 2005, we entered into an employment agreement with Floyd W. Pastor to serve as our Vice President of Sales and Physician Services. He also served in this same position for Alphatec Spine. On November 30, 2005, we amended Mr. Pastor's employment agreement such that on December 31, 2005, Mr. Pastor transitioned from his prior position to the role of Vice President of Executive Development. Pursuant to his amended employment agreement, Mr. Pastor's base salary is $285,000 per year and he is eligible to receive a cash bonus in an amount up to 50% of his annual base salary for such year. Pursuant to the agreement, we sold Mr. Pastor 5,000 restricted shares of Series A-1 common stock with respect to which we have repurchase rights which lapse as described in the footnotes to the Summary Compensation Table above. The agreement also provides for reimbursement of the one-time and periodic expenses set forth in the Other Annual Compensation column of the Summary Compensation Table above.

Stock Plan

2005 Employee, Director and Consultant Stock Plan

        Our 2005 Employee, Director and Consultant Stock Plan was approved by our board of directors in August 2005 and our stockholders in August 2005. Under this plan, we may grant incentive stock options, non-qualified stock options and restricted stock awards. A maximum of 600,000 shares of Series A-1 common stock has been reserved for issuance under this plan as of December 31, 2005. In                        , 2006, our stockholders and our board of directors authorized an increase of the maximum number of shares available for grant to 4,000,000, effective upon consummation of this offering. As of December 31, 2005, there were options to purchase 32,707 shares of Series A-1 common stock outstanding under the plan having a weighted average exercise price of $3.33 per share, no shares of Series A-1 common stock issued as a result of previously exercised options, and net restricted stock awards totaling 490,825 shares of our Series A-1 common stock outstanding under the plan. Thus, as of December 31, 2005, 76,468 shares were available for future grant. Upon consummation of this offering, our outstanding options will be exercisable for shares of common stock rather than Series A-1 common stock.

        Upon completion of this offering, this plan shall be administered by our Compensation Committee. The Compensation Committee will determine the terms of options and restricted stock awards granted pursuant to this plan, including:

    the exercise price and number of shares subject to each option;

    the purchase price and number of shares subject to each restricted stock award;

    when the option becomes exercisable;

98


    when the restricted stock award becomes unrestricted and no longer subject to our repurchase rights;

    the termination or cancellation provisions applicable to options or restricted stock awards; and

    the conditions relating to our right to reacquire shares subject to options or restricted stock awards.

The maximum term of options granted under this plan is ten years.

        If we are acquired, the Compensation Committee will provide that outstanding options and restricted stock awards under this plan shall be: (1) assumed by the successor or acquiring company; (2) exercised or accepted within a specified number of days or the options or restricted stock awards will terminate; or (3) terminated in exchange for a cash payment equal to the value of the option or restricted stock award at the time we are acquired. If we are acquired, the Compensation Committee may also provide that all outstanding options fully vest, and that all outstanding restricted stock awards are no longer subject to repurchase rights.

401(k) Plan

        We maintain a retirement and deferred savings plan for our employees. The retirement and deferred savings plan is intended to qualify as a tax-qualified plan under Section 401 of the United States Internal Revenue Code of 1986, as amended. The retirement and deferred savings plan provides that each participant may contribute up to a statutory limit, which for most employees is $14,000 in 2005. Under the plan, each employee is fully vested in his or her deferred salary contributions. Employee contributions are held and invested by the plan's trustee. The retirement and deferred savings plan also permits us to make discretionary contributions and matching contributions, subject to established limits and a vesting schedule. We currently provide employees with a 4% matching contribution under our retirement and deferred savings plan. To date, we have not made any discretionary contributions to the retirement and deferred savings plan on behalf of participating employees.

Limitation of Directors' Liability and Indemnification

        The Delaware General Corporation Law authorizes corporations to limit or eliminate, subject to certain conditions, the personal liability of directors to corporations and their stockholders for monetary damages for breach of their fiduciary duties. Our amended and restated certificate of incorporation limits the liability of our directors to the fullest extent permitted by Delaware law.

        Our amended and restated certificate of incorporation and restated by-laws also provide that we will indemnify any of our directors and officers who, by reason of the fact that he or she is one of our directors or officers, is involved in a legal proceeding of any nature. We will repay certain expenses incurred by a director or officer in connection with any civil or criminal action or proceeding, specifically including actions by us or in our name (derivative suits). Such identifiable expenses include, to the maximum extent permitted by law, attorney's fees, judgments, civil or criminal fines, settlement amounts and other expenses customarily incurred in connection with legal proceedings. A director or officer will not receive indemnification if he or she is found not to have acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, our best interest.

        Such limitation of liability and indemnification does not affect the availability of equitable remedies. In addition, we have been advised that in the opinion of the SEC, indemnification for liabilities arising under the Securities Act is against public policy as expressed in the Securities Act and is therefore unenforceable.

        We have obtained director and officer liability insurance to cover liabilities our directors and officers may occur in connection with their services to us, including matters arising under the Securities Act.

        Other than as described in "Certain Relationships and Related Transactions," there is no pending litigation or proceeding involving any of our directors, officers, employees or agents in which indemnification will be required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for such indemnification.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Corporate Reorganization

        In connection with the consummation of this offering, we will complete the reorganization transactions described under "Description of Capital Stock" below.

        In addition, prior to the consummation of this offering, we expect to effect a    -for-    split of our common stock.

        In the reorganization transactions, our directors, executive officers, key employees and security holders who beneficially own more than five percent of any class of our voting securities that will receive a combination of cash, common stock and New Redeemable preferred stock are as follows:

 
  Shares of Common Stock
  Cash
  Shares of New Redeemable Preferred Stock
Directors and Executive Officers            
John H. Foster (1)            
Ronald G. Hiscock (2)            
Trent J. Northcutt (3)            
Vicky A. Romanoski (4)            
Scott A. Wiese (5)            
Herbert J. Bellucci (6)            
Ebun S. Garner, Esq. (7)            
Steven Reinecke (8)            
Brian Plotkin (9)            
Kimberly Bradshaw (10)            
Mortimer Berkowitz III (11)            
R. Ian Molson (12)            
Stephen E. O'Neil (13)            

Other Key Employees

 

 

 

 

 

 
Laszlo Adam (14)            
Shunshiro "Roy" Yoshimi (15)            

Five Percent Stockholders

 

 

 

 

 

 
HealthpointCapital (16)            
Federal Insurance Company (17)            

(1)
Chairman of our Board of Directors.

(2)
President, Chief Executive Officer and director.

(3)
Vice President, Sales.

(4)
Chief Administrative Officer, Vice President and Secretary.

(5)
Vice President, Business Development and Marketing.

(6)
Vice President, Manufacturing.

(7)
Vice President, Legal Affairs and Compliance.

(8)
Vice President, Research and Development.

(9)
Vice President, Information Technology.

(10)
Vice President, Physician Services.

(11)
Director.

(12)
Director.

(13)
Director.

(14)
Executive Vice President, Corporate Development.

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(15)
Chairman, President and Chief Executive Officer of Alphatec Pacific.

(16)
5% stockholder. John H. Foster, our Chairman, is a managing member of HGP, LLC, which is the general partner of, and has a 20% profits interest in, HealthpointCapital. Mr. Foster is also the Chairman, Chief Executive Officer, a member of the Board of Managers and a managing director of HealthpointCapital, LLC, which has a 25% ownership interest in HGP, LLC and is the parent company of the fund manager of HealthpointCapital. Mortimer Berkowitz III, one of our directors, is a managing member of HGP, LLC and the President, a member of the Board of Managers and a managing director of HealthpointCapital, LLC. Two of our other directors, R. Ian Molson and Stephen E. O'Neil, serve on the Board of Managers of HealthpointCapital, LLC, and our Executive Vice President of Corporate Development, Lazlo Adam, is a director of HealthpointCapital, LLC.

(17)
5% stockholder.

Purchases of Common Stock and Preferred Stock Prior to This Offering

        The following table summarizes the purchases of Series A preferred stock, Series A common stock, Series A-1 preferred stock, Series A-1 common stock, Series B preferred stock, Series B common stock and Rolling common stock of Alphatec Holdings by our directors, executive officers and security holders who beneficially own more than five percent of any class of our voting securities in amounts that exceed $60,000.

Name

  Type of Shares
  Number
of Shares

  Aggregate Purchase Price
  Date of
Purchase

HealthpointCapital   Series B common   3,258,664   $ 4,000   03/17/05
    Series B preferred   4,000,000   $ 39,996,000   03/17/05

Federal Insurance Company

 

Series A-1 common

 

660,540

 

$

1,500

 

03/17/05
    Series A-1 preferred   1,500,000   $ 14,998,500   03/17/05

Ronald G. Hiscock

 

Series A-1 common

 

4,403

 

$

10

 

06/01/05
    Series A-1 preferred   10,000   $ 99,900   06/01/05

Swiftsure Trust (1)

 

Series A common

 

44,036

 

$

100

 

03/17/05
    Series A preferred   100,000   $ 999,900   03/17/05

(1)
One of our directors, R. Ian Molson, controls Nantel Investments, Ltd., which is a beneficial owner of the Swiftsure Trust.

Issuance of Rolling Common Stock in the Acquisition of Alphatec Spine

        On March 18, 2005, we acquired all of the issued and outstanding stock of Alphatec Spine via a merger in which a wholly owned subsidiary of Alphatec Holdings was merged with and into Alphatec Spine. The following table summarizes the exchanges of shares of Alphatec Spine common stock for shares of our Rolling common stock, in connection with such acquisition, by certain of our key employees and related persons in amounts that exceed $60,000.

Name

  Number
of Shares
Received

  Value of
Shares
Exchanged

  Date of
Exchange

Eleanor Adam (1)   32,806   $ 745,000   03/18/05
Trust FBO Nicholas J. Adam (2)   3,743   $ 85,000   03/18/05
Trust FBO Alexander Jay Adam (2)   3,743   $ 85,000   03/18/05
Trust FBO Richard Mortimer Adam (2)   3,743   $ 85,000   03/18/05
Shunshiro "Roy" Yoshimi   44,036   $ 1,000,000   03/18/05
Gen Yoshimi (3)   22,018   $ 500,000   03/18/05

(1)
Spouse of Laszlo Adam, Executive Vice President of Corporate Development.

(2)
Trusts for benefit of minor children of Laszlo Adam, Executive Vice President of Corporate Development.

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(3)
Brother of Roy Yoshimi, Chairman, President and Chief Executive Officer of Alphatec Pacific.

        In addition, stockholders of Alphatec Spine who did not exchange their shares of Alphatec Spine common stock received cash payments for their shares. Trent Northcutt, our Vice President of Sales, received a cash payment of $490,000 for 70,000 shares of Alphatec Spine common stock.

Sales of Restricted Stock

        The following table summarizes our sales of restricted shares of Series A-1 common stock as of December 31, 2005 to our directors, executive officers, other key employees named above and security holders who beneficially own more than five percent of any class of our voting securities.

Name

  Number
of Shares

  Date of
Purchase (1)

  Aggregate
Purchase
Price

Executive Officers and Directors              
Ronald G. Hiscock   120,000   6/7/05   $ 240
Trent J. Northcutt   10,000
2,000
  8/12/05
10/7/05
  $
$
20
4
Vicky A. Romanoski   15,000
10,000
  6/8/05
8/12/05
  $
$
30
20
Scott A. Wiese   15,000   8/12/05   $ 30
Herbert J. Bellucci   10,000
2,500
  8/12/05
10/10/05
  $
$
20
5
Ebun S. Garner, Esq.   5,000
2,500
  8/12/05
10/10/05
  $
$
10
5
Steven Reinecke   12,500   10/16/05   $ 25
Brian Plotkin   5,000   10/7/05   $ 10
Kimberly Bradshaw   2,000
1,000
  10/7/05
10/10/05
  $
$
4
2
R. Ian Molson   15,000   11/3/05   $ 30
Stephen E. O'Neil   15,000   11/3/05   $ 30
Other key employees:              
Laszlo Adam   75,000   4/6/05   $ 150

(1)
Represents the date each party became entitled to the shares, subject to issuance.

Stockholders' Agreement

        On March 17, 2005, we and all our stockholders entered into a stockholders' agreement. All our current stockholders are parties to the stockholders' agreement, as amended or modified from time to time. The agreement grants the parties thereto piggyback registration rights with respect to all registrations by us and we will pay all expenses related to such piggyback registrations. See "Description of Capital Stock—Registration Rights." The agreement further provides for certain restrictions on transfer and tag-along, bring-along and preemptive rights, all of which will terminate upon the completion of this offering.

Employment Agreements

        We have entered into employment agreements with certain of our executive officers as described in the section of this prospectus entitled "Management—Employment Agreements and Change of Control Agreements." In addition, we have entered into letter agreements and change of control agreements with each of our other executive officers regarding their employment.

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Financial Advisory Service, Rental and Other Payments and Agreements

        In March 2005, the selling stockholders of Alphatec Spine paid Mr. Laszlo Adam, our Executive Vice President of Corporate Development, $2.1 million as compensation for financial advisory services rendered by Mr. Adam to Alphatec Spine in connection with its merger into a wholly-owned subsidiary of Alphatec Holdings. Such financial advisory services included analysis of the merger as compared to other strategic alternatives, structuring advice as to the proposed terms of the merger and assistance in the preparation of the merger-related documentation. The financial advisory fees paid to Mr. Adam were for services performed prior to his employment by Alphatec Holdings. Mr. Adam is a director of HealthpointCapital, LLC.

        We pay HealthpointCapital $9,748 per quarter to rent office space in their offices in New York, NY for Laszlo Adam, our Executive Vice President of Corporate Development. In addition, from time to time, Mr. Adam provides corporate finance and acquisition services including marketing and investor relations services to HealthpointCapital, for which he is not paid by HealthpointCapital.

        On March 18, 2005, we made a loan to Eleanor Adam, the wife of Laszlo Adam, in the initial principal amount of $203,839, at an interest rate equal to the federal funds rate, to finance in part her purchase of shares of our Rolling common stock. The loan was payable out of the proceeds of any escrow proceeds received by Eleanor Adam or her family member in connection with the merger of Alphatec Spine into a wholly-owned subsidiary of Alphatec Holdings. Any loan balance was payable in full on March 18, 2006 or the closing of this offering, whichever was earlier. The outstanding principal balance as of December 31, 2005 was $39,517. The loan was paid in full in February 2006.

        In March 2005, we paid an advisory fee to HealthpointCapital Advisors, LLC, a registered broker dealer that is an affiliate of HealthpointCapital, of $1.1 million related to the financing of the acquisition of Alphatec Spine. In September 2005, Alphatec Spine paid HealthpointCapital $500,000 as compensation for financial advisory services rendered by HealthpointCapital in connection with the acquisition by Alphatec Spine of the allograft business of Cortek. Such financial advisory services included initiating, researching, negotiating and closing each such transaction. In addition, we have agreed to pay an advisory fee of $1.0 million plus out of pocket expenses to HealthpointCapital, LLC, an affiliate of HealthpointCapital, for services provided in connection with this offering. John H. Foster, our Chairman, is a managing member of HGP, LLC, which is the general partner of, and has a 20% profits interest in, HealthpointCapital. Mr. Foster is also the Chairman, Chief Executive Officer, a member of the Board of Managers and a managing director of HealthpointCapital, LLC, which has a 25% ownership interest in HGP, LLC and is the parent company of the fund manager of HealthpointCapital. Mortimer Berkowitz III, one of our directors, is the President, a member of the Board of Managers and a managing member of HealthpointCapital, LLC and a managing member of HGP, LLC. Laszlo Adam, our Executive Vice President of Corporate Development, is a director of HealthpointCapital, LLC. Our directors R. Ian Molson and Stephen E. O'Neil also serve on the Board of Managers of HealthpointCapital, LLC. Our Chairman, John H. Foster, has a 3.2% beneficial capital interest in HealthpointCapital, a 36.6% direct interest in HGP, LLC and a 44.2% direct and beneficial interest in HealthpointCapital, LLC. Our director Mortimer Berkowitz III has a less than 1% direct capital interest in HealthpointCapital, a 24.4% direct interest in HGP, LLC and a 30.5% direct and beneficial interest in HealthpointCapital, LLC. Our director R. Ian Molson has a less than 1% direct capital interest in HealthpointCapital and a 2.2% direct interest in HealthpointCapital, LLC. Our director Stephen E. O'Neil has a 1.5% direct interest in HealthpointCapital, LLC. Our Executive Vice President of Corporate Development, Laszlo Adam, is a director of, and has a less than 1% direct interest in, HealthpointCapital, LLC.

        Our board of directors has agreed to reimburse Foster Management Company, which is owned by our Chairman, $4,000 per flight hour for the use of its aircraft when our Chairman travels for our business purposes. Based upon a competitive analysis of comparable leased aircraft, our board of

103



directors determined that this hourly reimbursement rate is at or below market rates for the charter of similar aircraft. We reimbursed approximately $290,000 for such travel in 2005.

        On February 2, 2006, we filed a joint complaint with our President and CEO, Ronald Hiscock, in California State Superior Court against Benchmark. This action arose out of Benchmark's alleged default under its contractual obligation to make certain payments to Mr. Hiscock pursuant to a severance agreement entered into between Mr. Hiscock and Benchmark. In the complaint, Mr. Hiscock is seeking damages based on the severance payments that have not been paid to him, and we are seeking a declaratory judgment that we are not bound by the restrictive covenants of Mr. Hiscock's severance agreement (which provides that Mr. Hiscock will not compete with Benchmark or solicit or employ Benchmark employees) provided that Mr. Hiscock is not involved in the solicitation of Benchmark employees. In March 2006, Benchmark filed a complaint in the Chester County, Pennsylvania Court of Common Pleas against each of Mr. Hiscock and our Chief Administrative Officer, Vice President and Secretary, Vicky Romanoski, in which it alleged that both of them breached the terms of their respective severance agreements with Benchmark. In the complaint, Benchmark seeks to recoup aggregate severance payments paid to both Mr. Hiscock and Ms. Romanoski of approximately $720,000. In addition, the complaint sought to have all matters related to such alleged breaches litigated in Pennsylvania rather than California. We have agreed to indemnify and hold harmless each of Mr. Hiscock and Ms. Romanoski, against any expense, loss or liability arising from any alleged breach of their respective severance agreements, including legal expenses related to the suit against Benchmark and Benchmark's complaint, and approximately $300,000 in unpaid severance payments due to Mr. Hiscock from Benchmark. Pursuant to our agreement to indemnify Mr. Hiscock, we have paid him $72,000 to compensate him for lost severance payments from January through March 2006. In addition, we have paid all legal fees for our joint litigation with Mr. Hiscock and approximately $25,000 through March 2006 for legal fees associated with Benchmark's suit against Mr. Hiscock. We have not yet paid any amounts in connection with our agreement to indemnify Ms. Romanoski.

        In connection with the repurchase of Alphatec Pacific's distribution rights in Japan, Alphatec Pacific borrowed ¥350.0 million, or approximately $3.0 million, from Mr. Roy Yoshimi. In connection with this transaction, Mr. Yoshimi received an unsecured note and 20% of the stock of Alphatec Pacific. Beginning in December 2005, the note is payable in 18 monthly installments of approximately

¥23.3 million, or approximately $0.2 million. The note is payable in full in the event of a change of control of Alphatec Holdings, Alphatec Spine or Alphatec Pacific, upon any termination of Mr. Yoshimi without cause or upon the bankruptcy or insolvency of Alphatec Pacific. If the note becomes payable prior to maturity and before September 1, 2006, Alphatec Pacific will be required to pay ¥385.0 million, or approximately $3.3 million, less amounts paid. If the note becomes payable prior to maturity and on or after September 1, 2006, Alphatec Pacific will be required to pay ¥420.0 million, or approximately $3.6 million, less amounts paid. Overdue amounts bear interest at 14% per annum. The note is subordinated to our credit facility with Bank of the West. We will use approximately $         million of the net proceeds of this offering to repay the loan from Mr. Yoshimi.

        Alphatec Spine has entered into a stock purchase agreement with Mr. Yoshimi pursuant to which we have an obligation to repurchase his Alphatec Pacific shares upon certain changes of control of Alphatec Holdings, Alphatec Spine or Alphatec Pacific or upon termination of Mr. Yoshimi's employment. In addition, 12 months after this offering, Mr. Yoshimi will have the right to require us to repurchase his shares of Alphatec Pacific stock upon written notice. The price we pay to reacquire shares of Alphatec Pacific from Mr. Yoshimi will be based on the revenues of Alphatec Pacific during three full calendar months prior to our obligation to purchase the shares, except in the event of a change of control of Alphatec Pacific, where it will be equal to a proportionate share of the price paid for Alphatec Pacific.

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        In addition, Mr. Yoshimi has pledged collateral to secure two credit facilities to Alphatec Pacific. We have agreed to cause Aozora Bank to release the collateral pledged by Mr. Yoshimi upon consummation of this offering and currently expect that we would replace that collateral with a letter of credit or a similar collateral posting.

        When we acquired Alphatec Spine, the shareholders of Alphatec Spine agreed to indemnify us pursuant to the merger agreement for one year for certain claims that we might have. We have made a claim for indemnification for $4.5 million primarily in connection with obsolete inventory, tax liabilities and uncollectable accounts receivable. Roy Yoshimi owned approximately 40% of the issued and outstanding stock of Alphatec Spine at the time we acquired Alphatec Spine and, accordingly, his pro rata share of any amounts paid to satisfy our indemnification claim pursuant the merger agreement would be approximately 40%.

Related Party Transaction Policies

        Our audit committee charter will require officers, directors and affiliates to obtain audit committee approval for any proposed related party transactions. In addition, our code of conduct requires that each director, officer and employee must do everything he or she reasonably can to avoid conflicts of interest or the appearance of conflicts of interest. The code of conduct states that a conflict of interest exists when an individual's private interest interferes in any way with our interests and sets forth a list of broad categories of the types of transactions that must be reported to our compliance officer. Under the code of conduct, we reserve the right to determine when an actual or potential conflict of interest exists and then to take any action we deem appropriate to prevent the conflict of interest from occurring.

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PRINCIPAL STOCKHOLDERS

        The following table sets forth certain information regarding the beneficial ownership of our common stock as of March 31, 2006, and as adjusted to reflect the sale of our common stock offered in this offering by:

        Percentage of ownership is based on            shares of common stock outstanding on March 31, 2006, adjusted to reflect the reorganization transactions and the issuance of shares of common stock in this offering.

        Except as indicated in footnotes to this table, we believe that the stockholders named in this table have sole voting and investment power with respect to all shares of common stock shown to be beneficially owned by them, based on information provided to us by such stockholders. Unless otherwise indicated, the address for each director, executive officer and key employee listed is: c/o Alphatec Holdings, Inc., 2051 Palomar Airport Road, Carlsbad, California, 92011.

 
   
  Percentage of Common Stock Beneficially Owned
 
Beneficial Owner

  Number of Shares
Beneficially Owned (1)

  Before Offering
  After Offering
 
Directors and Executive Officers              
John H. Foster (2)         %    
Ronald G. Hiscock (3)         %    
Daniel J. Lacienski     *      
Stephen T. D. Dixon     *      
Vicky A. Romanoski (4)   25,000   *      
Scott A. Wiese (5)   15,000   *      
Herbert J. Bellucci (6)   12,500   *      
Floyd W. Pastor (7)       *      
Mortimer Berkowitz III (8)         %    
R. Ian Molson (9)       *      
Stephen E. O'Neil (10)   15,000   *      
All executive officers and directors as a group (15 persons) (11)         %    

Five Percent Stockholders

 

 

 

 

 

 

 
HealthpointCapital, 505 Park Avenue, 12 th Floor New York, NY 10022         %    
Federal Insurance Company, 15 Mountain View Road Warren, NJ 07059         %    

*
Represents beneficial ownership of less than 1% of the shares of common stock.

(1)
Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. Shares of common stock that may be acquired by an individual or group within 60 days of March 31, 2006, pursuant to the exercise of options, are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table.

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(2)
Consists of 3,258,664 shares of common stock held by HealthpointCapital. John H. Foster, our Chairman, is a managing member of HGP, LLC, which is the general partner of, and has a 20% profits interest in, HealthpointCapital, and Chairman, Chief Executive Officer, a member of the Board of Managers and a managing director of HealthpointCapital, LLC, which has a 25% ownership interest in HGP, LLC, which exercises voting, investment and dispositive rights with respect to the shares of stock owned by HealthpointCapital. Mr. Foster disclaims beneficial ownership of the shares identified in this footnote except as to his proportionate pecuniary interest in such shares.

(3)
Includes 120,000 shares of restricted common stock subject to vesting provisions.

(4)
Consists of 25,000 shares of restricted common stock subject to vesting provisions.

(5)
Consists of 15,000 shares of restricted common stock subject to vesting provisions.

(6)
Consists of 12,500 shares of restricted common stock subject to vesting provisions.

(7)
Includes 5,000 shares of restricted common stock subject to vesting provisions.

(8)
Consists of 3,258,664 shares of common stock held by HealthpointCapital. Mortimer Berkowitz III, a director of Alphatec Holdings, is a managing member of HGP, LLC, which is the general partner of, and has a 20% profits interest in, HealthpointCapital, and President, a member of the Board of Managers and a managing director of HealthpointCapital, LLC, which has a 25% ownership interest in HGP, LLC, which exercises voting, investment and dispositive rights with respect to the shares of stock owned by HealthpointCapital. Mr. Berkowitz disclaims beneficial ownership of the shares identified in this footnote except as to his proportionate pecuniary interest in such shares.

(9)
Consists of 15,000 shares of restricted common stock subject to vesting provisions and            shares of common stock held by the Swiftsure Trust. Mr. Molson controls Nantel Investment, Ltd., which is a beneficial owner of the Swiftsure Trust.

(10)
Consists of 15,000 shares of restricted common stock subject to vesting provisions.

(11)
See footnotes 2 through 11. Also includes            shares of common stock held by four executive officers not named in the table.

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DESCRIPTION OF CAPITAL STOCK

        Upon the completion of this offering, after giving effect to the reorganization transactions and the effectiveness of our amended and restated certificate of incorporation, our authorized capital stock will consist of 200,000,000 shares of common stock, $0.0001 par value per share, 15,000,000 shares of New Redeemable preferred stock, $0.0001 par value per share and 5,000,000 shares of undesignated preferred stock, $0.0001 par value per share. The following description summarizes the most important terms of our capital stock. Because it is only a summary, it does not contain all the information that may be important to you. For a complete description you should refer to our amended and restated certificate of incorporation and restated bylaws, effective upon completion of this offering, copies of which have been filed as exhibits to the registration statement of which this prospectus is a part, and to the applicable provisions of the Delaware General Corporation Law.

        In                        2006, our stockholders approved an amendment to our certificate of incorporation to modify our capitalization, without raising cash, by providing that certain payment obligations with respect to our capital stock could be satisfied in part with payment in the form of New Redeemable preferred stock. Payment of a portion of our obligations to our existing stockholders in the form of shares of New Redeemable preferred stock that are not convertible into our common stock enables us to (i) retain for the our account additional cash from the net proceeds of this offering and (ii) reduce the number of shares of our common stock that will be outstanding upon consummation of this offering.

Common Stock

        As of December 31, 2005, we had issued and outstanding:

        In addition, we issued an aggregate of 7,564 shares of our Series C common stock to 14 stockholders of record in January 2006.

        After consummation of the reorganization transactions described below and the    -for-    split of our common stock to be effected prior to the completion of this offering, we estimate that        shares of common stock will be outstanding. No other series of common stock will be outstanding.

        Holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders, and do not have cumulative voting rights. Subject to preferences that may be applicable to any outstanding shares of preferred stock, holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by our board of directors out of funds legally available for dividend payments. All shares of common stock to be issued in connection with the reorganization transactions and upon completion of this offering will be fully paid and nonassessable. The holders of common stock have no preferences or rights of conversion, exchange, pre-emption or other subscription rights. There are no redemption or sinking fund provisions applicable to our common stock. In the event of any liquidation, dissolution or winding-up of our affairs, holders of common stock will be entitled to share ratably in our assets that are remaining after payment or provision for payment of all of our debts and obligations, subject to the prior rights of any holders of our New Redeemable preferred stock and any other preferred stock then outstanding.

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Preferred Stock

        As of December 31, 2005, we had issued and outstanding:

        After consummation of the reorganization transactions described below, we estimate that        shares of New Redeemable preferred stock will be outstanding, assuming a public offering price of $        per share. No other series of preferred stock will be outstanding, although        shares of preferred stock will be undesignated, which means that our board of directors has the authority, without further stockholder authorization, to issue from time to time shares of preferred stock in one or more series and to fix the terms, limitations, relative rights and preferences and variations of each series.

        Holders of shares of New Redeemable preferred stock are entitled to be redeemed at $        per share, the initial public offering price for this offering, (i) upon our liquidation, dissolution or winding up, or the occurrence of certain mergers, consolidations or sales of all or substantially all of our assets, before any payment to the holders of our common stock, (ii) if the underwriters exercise their over-allotment option to purchase additional shares of our common stock, in which case, all of the proceeds will be used to redeem such shares of New Redeemable preferred stock, or (iii) at our option at any time. Holders of New Redeemable preferred stock are generally not entitled to vote on matters submitted to the stockholders, except with respect to certain matters that will affect them adversely as class, and are not entitled to receive dividends.

        Although we have no present plans to issue any additional shares of preferred stock, any future issuance of shares of preferred stock, or the issuance of rights to purchase such shares, could decrease the amount of earnings and assets available for distribution to the holders of common stock, could adversely affect the rights and powers, including voting rights, of the holders of common stock, and could have the effect of delaying, deterring or preventing a change in control of us or an unsolicited acquisition proposal. Preferred stock, if issued, would have priority over the common stock with respect to dividends and other distributions, including the distribution of assets upon liquidation, dissolution or winding up of our company.

Reorganization Transactions

        In connection with the consummation of this offering, we will complete a series of transactions as specified in our certificate of incorporation in order to reorganize our capital structure. These transactions, which we refer to as the reorganization transactions, include:

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        Immediately after the reorganization transactions, in satisfaction of the foregoing obligations, based on an assumed initial offering price of $    per share, we estimate that we will:

        All of our calculations involving the payment in the reorganization transactions of the accrued and unpaid dividends on each of our Series A, Series A-1, Series B and Rolling common stock for a combination of cash, common stock and New Redeemable preferred stock are based on the amount of accrued and unpaid dividends on these series of common stock, through May 22, 2006. The actual number of shares of common stock and New Redeemable preferred stock issued and cash paid will differ based on the amount of accrued and unpaid dividends through the closing date of this offering.

        Our certificate of incorporation provides that we are entitled to retain 50% of the net proceeds from this offering, excluding any proceeds from the exercise of the underwriters' over-allotment option, up to a maximum amount of $65 million. We are required to use the remaining net proceeds from this offering to satisfy the redemption and dividend obligations to holders of our existing Series A, Series A-1, Series B, Series C and Rolling common stock and Series A, Series A-1 and Series B preferred stock. To the extent those obligations exceed the remaining net proceeds from this offering, we are required to issue a combination of common stock and New Redeemable preferred stock to satisfy those obligations as follows:


        In addition, we are required to use all of the net proceeds from any exercise of the underwriters' over-allotment option to redeem any outstanding shares of New Redeemable preferred stock.

Options

        As of December 31, 2005, options to purchase a total of 32,707 shares of Series A-1 common stock were outstanding. As of December 31, 2005, options to purchase a total of 76,468 shares of Series A-1 common stock remained available for future issuance under our 2005 Employee Director and Consultant Stock Plan. Upon consummation of this offering and the reorganization transactions, our outstanding options will be exercisable for shares of common stock rather than Series A-1 common stock.

Registration Rights

        Pursuant to a stockholders' agreement, following the completion of this offering, the holders of                        shares of common stock and shares of common stock issuable upon the exercise of outstanding options will have piggyback registration rights that entitle them to cause us to register those shares under the Securities Act. If we propose to register any of our common stock under the Securities Act, the holders of these registrable securities are entitled to include their common stock in the registration, subject to the certain conditions and limitations.

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        Registration of any of the shares of common stock held by stockholders with registration rights would result in such shares becoming freely tradable without restriction under the Securities Act immediately upon effectiveness of such registration.

        These registration rights are subject to the terms and conditions of the stockholders' agreement, including the right of the underwriters of an offering to limit the number of shares included in any such registration under certain circumstances. We are generally required to pay all expenses of each such registration, including the fees and disbursements of one legal counsel for the holders of registrable securities, but excluding underwriters' discounts and commissions. We have agreed to indemnify holders whose shares are registered pursuant to such registration rights against liabilities under the Securities Act.

Transfer Agent and Registrar

        The transfer agent and registrar for the common stock will be CIBC Mellon Trust Company.

Nasdaq National Market Quotation

        At present, there is no established trading market for our common stock. We intend to apply to have our common stock approved for quotation on the Nasdaq National Market under the symbol "ATEC."

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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS TO NON-U.S. HOLDERS

        The following discussion describes the material U.S. federal income tax considerations with respect to the ownership and disposition of our common stock by a non-U.S. holder (as defined below) as of the date hereof. Except where noted, this summary deals only with a non-U.S. holder that holds our common stock as a capital asset.

        For purposes of this summary, a "non-U.S. holder" means a beneficial owner of our common stock that is not any of the following for U.S. federal income tax purposes: (i) a citizen or resident of the U.S., (ii) a corporation created or organized in or under the laws of the U.S., any state thereof, or the District of Columbia, (iii) a partnership, (iv) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (v) a trust if (1) its administration is subject to the primary supervision of a court within the U.S. and one or more U.S. persons have the authority to control all of its substantial decisions, or (2) it has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

        This summary is based upon provisions of the Internal Revenue Code of 1986, as amended, and regulations, rulings and judicial decisions as of the date hereof. Those authorities may be changed, perhaps retroactively, or be subject to differing interpretations, so as to result in U.S. federal income tax consequences different from those summarized below. This summary does not represent a detailed description of the U.S. federal income tax consequences to you in light of your particular circumstances. In addition, it does not represent a description of the U.S. federal income tax consequences to you if you are subject to special treatment under the U.S. federal income tax laws (including if you are a U.S. expatriate, "controlled foreign corporation" or "passive foreign investment company"). We cannot assure you that a change in law will not alter significantly the tax considerations that we describe in this summary.

        If an entity classified as a partnership for U.S. federal income tax purposes holds our common stock, the tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. If you are a partnership holding our common stock, or a partner in such a partnership, you should consult your tax advisors.

         If you are considering the purchase of our common stock, you should consult your own tax advisers concerning the particular U.S. federal tax consequences to you of the ownership and disposition of the common stock, as well as the consequences to you arising under the laws of any other taxing jurisdiction, including any state, local or foreign income tax consequences.

Dividends

        We have never declared or paid cash dividends on our common stock and, with the exception of the dividends payable in connection with the reorganization transactions, we do not intend to declare or pay cash dividends on our common stock in the foreseeable future. If we were to pay dividends in the future on our common stock, they would be subject to U.S. federal income tax in the manner described below.

        Dividends paid to a non-U.S. holder of our common stock generally will be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. However, dividends that are effectively connected with the conduct of a trade or business by a non-U.S. holder within the U.S. and, where an income tax treaty applies, are attributable to a U.S. permanent establishment of the non-U.S. holder, are not subject to this withholding tax, but instead are subject to U.S. federal income tax on a net income basis at applicable individual or corporate rates. Certain certification and disclosure requirements must be complied with in order for effectively connected income to be exempt from this withholding tax. Any such effectively connected dividends received by a foreign corporation may, under certain circumstances, be subject to an

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additional "branch profits tax" at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.

        A non-U.S. holder of our common stock who wishes to claim the benefit of an applicable treaty rate (and avoid backup withholding as discussed below) for dividends will be required to (a) complete Internal Revenue Service, or IRS, Form W-8BEN (or successor form) and certify under penalty of perjury that such holder is not a U.S. person or (b) if the common stock is held through certain foreign intermediaries, satisfy the relevant certification requirements of applicable Treasury regulations. Special certification and other requirements apply to certain non U.S. holders that are entities rather than individuals.

        A non-U.S. holder of our common stock eligible for a reduced rate of U.S. federal withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS.

Gain on Disposition of Common Stock

        A non-U.S. holder generally will not be subject to U.S. federal income tax with respect to gain recognized on a sale or other disposition of our common stock unless (i) the gain is effectively connected with a trade or business of the non-U.S. holder in the U.S. (in which case, for a non-U.S. holder that is a foreign corporation, the branch profits tax described above may also apply), and, where a tax treaty applies, is attributable to a U.S. permanent establishment of the non-U.S. holder, (ii) in the case of a non-U.S. holder who is an individual and holds the common stock as a capital asset, such holder is present in the U.S. for 183 or more days in the taxable year of the sale or other disposition and certain other conditions are met, or (iii) we are or have been a "U.S. real property holding corporation" for U.S. federal income tax purposes.

        We believe we currently are not, and do not anticipate becoming, a "U.S. real property holding corporation" for U.S. federal income tax purposes. If we are or become a U.S. real property holding corporation, then if our common stock is regularly traded on an established securities market at any time during the calendar year, only a non-U.S. holder who holds or held (at any time during the shorter of the five year period preceding the date of disposition or the holder's holding period) more than five percent of the common stock will be subject to U.S. federal income tax on the disposition of the common stock.

Federal Estate Tax

        Common stock held by and individual non-U.S. holder at the time of death will be included in such holder's gross estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty provides otherwise.

Information Reporting and Backup Withholding

        We must report annually to the IRS and to each non-U.S. holder the amount of dividends paid to such holder and the tax withheld (if any) with respect to such dividends, regardless of whether withholding was required. Copies of the information returns reporting such dividends and any withholding may also be made available to the tax authorities in the country in which the non-U.S. holder resides under the provisions of an applicable income tax treaty. In addition, dividends paid to a non-U.S. holder generally will be subject to backup withholding unless applicable certification requirements are met.

        Payment of the proceeds of a sale of our common stock within the U.S. or conducted through certain U.S. related financial intermediaries is subject to both backup withholding and information reporting unless the beneficial owner certifies under penalties of perjury that it is not a U.S. person (and the payor does not have actual knowledge or reason to know that the beneficial owner is a U.S. person) or the holder otherwise establishes an exemption.

        Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against such holder's U.S. federal income tax liability provided the required information is furnished to the IRS.

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SHARES ELIGIBLE FOR FUTURE SALE

        Prior to this offering, there has been no public market for our common stock, and we cannot assure you that a significant public market for our common stock will develop or be sustained after this offering. Future sales of significant amounts of our common stock, including shares of our outstanding common stock and shares of our common stock issued upon exercise of outstanding options, in the public market after this offering could adversely affect the prevailing market price of our common stock and could impair our ability to raise additional capital through the sale of our equity securities at a time and price favorable to us.

Sale of Restricted Shares

        Upon completion of this offering and the reorganization transactions, we will have an aggregate of approximately            shares of common stock outstanding (                        shares if the underwriters' over-allotment option is exercised in full), assuming no exercise of any outstanding options. Of these shares,             shares sold in this offering, plus any shares sold as a result of the underwriters' exercise of the over-allotment option, will be freely transferable without restriction or registration under the Securities Act, except for any shares purchased by one of our existing "affiliates," as that term is defined in Rule 144 under the Securities Act. Upon completion of this offering, we also will have outstanding options to purchase    shares of common stock. The remaining                        shares of common stock were issued and sold by us in private transactions, and are eligible for public sale if registered under the Securities Act or sold in accordance with Rules 144, 144(k) or 701 of the Securities Act. Of these remaining shares of common stock                         are held by officers, directors, and existing stockholders who are subject to the lock-up agreements described below for a period of 180 days after the date of this prospectus without prior written consent. All or any portion of the common stock held by our officers, directors and existing stockholders subject to these lock-up agreements may be released at any time without notice.

        Beginning 180 days after the date of this prospectus,                        of these remaining shares will be eligible for sale in the public market, although                        shares will be subject to certain volume limitations.

Rule 144

        In general, Rule 144 allows a stockholder (or stockholders where shares are aggregated) who has beneficially owned shares of our common stock for at least one year and who files a Form 144 with the SEC to sell within any three-month period commencing 90 days after the date of this prospectus a number of those shares that does not exceed the greater of:


        Sales under Rule 144, however, are subject to specific manner of sale provisions, notice requirements, and the availability of current public information about us.              shares of our common stock will qualify for resale under Rule 144 beginning 90 days after the date of this prospectus; however, such shares will be subject to the lock-up agreements described below.

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Rule 144(k)

        Under Rule 144(k), in general, a stockholder who has beneficially owned shares of our common stock for at least two years and who is not deemed to have been our affiliate at any time during the immediately preceding three months may sell shares without complying with the manner of sale provisions, notice requirements, public information requirements, or volume limitations of Rule 144. Affiliates of our company, however, must always sell pursuant to Rule 144, even after the otherwise applicable Rule 144(k) holding periods have been satisfied.         shares of our common stock will qualify for resale under Rule 144(k) beginning on the date of this prospectus; however, such shares will be subject to the lock-up agreements described below.         shares will qualify for resale under Rule 144(k) within 180 days after the date of this prospectus.

Rule 701

        Rule 701 generally allows a stockholder who purchased shares of our common stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of our company during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation, or notice provisions of Rule 144. Rule 701 also permits our affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required to wait until 90 days after the date of this prospectus before selling such shares pursuant to Rule 701.

        No shares of our outstanding common stock have been issued in reliance on Rule 701 as a result of exercises of stock options. Any shares that are issued upon the exercise of stock options prior to the expiration of the lock-up period, however, are subject to lock-up agreements as discussed below. As a result, these shares will only become eligible for sale at the earlier of the expiration of the 180 day lock-up period or, beginning 90 days after the date of this prospectus, upon obtaining prior written consent to release all or any portion of the shares subject to these lock-up agreements.

Registration Rights

        As described above in "Description of Capital Stock—Registration Rights," upon completion of this offering and the reorganization transactions, the holders of approximately            shares of our common stock will have the right, subject to various conditions and limitations, to include their shares in registration statements relating to our securities, subject to the 180 day lock-up arrangement described below. By exercising their registration rights and causing a large number of shares to be registered and sold in the public market, these holders could cause the price of the common stock to fall. In addition, any demand to include such shares in our registration statements could have a material adverse effect on our ability to raise needed capital.

Options

        In addition to the            shares of common stock outstanding immediately after this offering, as of December 31, 2005, there were outstanding options to purchase 32,707 shares of our common stock.

        As soon as practicable after the completion of this offering, we intend to file a registration statement on Form S-8 under the Securities Act covering shares of our common stock issued or reserved for issuance under our 2005 Employee, Director and Consultant Stock Plan. Accordingly, shares of our common stock registered under such registration statement will be available for sale in the open market upon exercise by the holders, subject to vesting restrictions with us, Rule 144 limitations applicable to our affiliates and the contractual lock-up agreements provisions described below.

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Lock-up Agreements

        We, our officers, directors, substantially all of our stockholders and option holders, have agreed with the underwriters, subject to limited exceptions, not to offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, or enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any shares of common stock or any securities convertible into or exercisable or exchangeable for shares of common stock held prior to the offering for a period of 180 days after the date of this prospectus, without prior written consent. Any or all of the shares subject to the lock-up agreements may be released from these restrictions at any time without notice prior to the expiration of the 180-day period.

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UNDERWRITING

        We are offering the shares of our common stock through the underwriters named below. We expect our common stock to be approved for quotation on the Nasdaq National Market under the symbol "ATEC."

The Underwriters and the Underwriting Agreement

        We and the underwriters named below have entered into an underwriting agreement relating to this offering. Deutsche Bank Securities Inc., First Albany Capital Inc. and RBC Capital Markets Corporation are the representatives of the underwriters. The underwriters have severally agreed, subject to the terms and conditions of the underwriting agreement, to purchase from us the number of shares indicated in the following table:

Underwriters

  Number
of Shares

Deutsche Bank Securities Inc.    
First Albany Capital Inc.    
RBC Capital Markets Corporation    
   

                                            Total

 

 
   

        Except for the underwriters' over-allotment option described below, the underwriters must take and pay for all of the shares, if they take any shares.

        We have granted to the underwriters the option to purchase from us an additional         shares of our common stock to cover over-allotments, if any, made in connection with this offering. The representatives, on behalf of the underwriters, may exercise this option at any time, on or before the 30th day after the date of this prospectus. If the representatives exercise this option, the underwriters will each severally purchase shares in approximately the same proportion as set forth in the table above. The underwriters are not obligated to purchase any of these additional shares if they do not exercise their over-allotment option.

        We have agreed to indemnify the underwriters and their partners, directors, officers and controlling persons against certain liabilities, including liabilities under the Securities Act. If we are unable to provide this indemnification, we will contribute to payments the underwriters and these persons may be required to make in respect of those liabilities.

Public Offering Price, Commissions and Discounts and Offering Expenses

        The underwriters will initially offer the shares to the public at the public offering price set forth on the cover of this prospectus. If all the shares are not sold at this public offering price, the representative may change the public offering price or any other selling term.

        Shares sold by the underwriters to securities dealers may be sold at a discount of up to $             per share from the public offering price. Any of these securities dealers may resell any shares purchased from the underwriters to other brokers or dealers at a discount of up to $         per share from the public offering price.

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        The table below shows the per share and total underwriting discounts and commissions we will pay to the underwriters, assuming both no exercise and full exercise of the underwriters' option to purchase up to an additional        shares:

 
  No Exercise
  Full Exercise
Per share   $     $  
  Total   $     $  

        We estimate that the total expenses of this offering payable by us, not including the underwriting discounts and commissions, will be approximately $            .

Lock-Up Agreements

        We, our directors and executive officers, all of our existing stockholders and all of our option holders have entered into lock-up agreements with the underwriters. Under these agreements, subject to exceptions, we may not issue any new shares of common stock, and those holders of stock and options may not, directly or indirectly, offer, sell, contract to sell, pledge or otherwise dispose of or hedge any common stock or securities convertible into or exchangeable for shares of common stock, or publicly announce the intention to do any of the foregoing, without prior written consent for a period of 180 days from the date of this prospectus. This consent may be given at any time without public notice. In addition, during this 180 day period, we have also agreed not to file any registration statement for, and each of our officers and stockholders has agreed not to make any demand for, or exercise any right of, the registration of, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock without prior written consent.

Stabilization and Short Positions

        In connection with this offering, the underwriters may engage in activities that stabilize, maintain or otherwise affect the price of our common stock. These activities include stabilizing transactions, syndicate short covering and penalty bids. The underwriters may carry out these activities on the Nasdaq National Market, in the over-the-counter market or otherwise. As a result of these activities, the price of our common stock may be higher than the price that may otherwise exist in the open market. If these activities are commenced, they may be discontinued by the underwriters at any time.

        Stabilizing transactions consist of placing a bid or effecting a purchase for the purpose of pegging, fixing or maintaining the price of a security. Stabilizing activities may include purchases to cover short positions created by short sales. Short sales are sales by the underwriters in excess of the number of shares they are obligated to purchase from us in this offering. Short sales create short positions that can be either "covered" or "naked." A covered short position is a short position in an amount that does not exceed the number of shares the underwriters may purchase from us by exercising their over-allotment option described above. A naked short position is a short position in excess of that amount.

        The underwriters may close out a covered short position either by exercising their over-allotment option, in whole or in part, or by purchasing shares in the open market. In determining the source of shares to close out a covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market compared to the price at which the underwriters may purchase shares by exercising their over-allotment option. The underwriters must close out a naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market that could adversely affect investors who purchased shares in this offering.

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        The underwriters may impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of the underwriter in stabilizing or short covering transactions.

Discretionary Accounts

        The underwriters have informed us that they do not expect to make sales to accounts over which they exercise discretionary authority in excess of 5% of the shares of common stock being offered.

IPO Pricing

        Prior to this offering, there has been no public market for our common stock. The initial public offering price will be negotiated between us and the representatives of the underwriters. Among the factors to be considered in these negotiations are:

        The estimated initial public offering price range set forth on the cover of this preliminary prospectus is subject to change as a result of market conditions and other factors.

Directed Share Program

        At our request, the underwriters have reserved for sale to our employees, directors and families of employees and directors at the initial public offering price up to 5% of the shares being offered by this prospectus. The sale of the reserved shares to these purchasers will be made by First Albany Capital Inc. The purchasers of these shares will not be subject to a lock-up except as required by the Conduct Rules of the NASD, which require a 90-day lock-up if they are affiliated with or associated with NASD members or if they or members of their immediate families hold senior positions at financial institutions, or to the extent the purchasers are subject to a lock-up agreement with the underwriters as described above. We do not know if our employees, directors and families of employees and directors will choose to purchase all or any portion of the reserved shares, but any purchases they do make will reduce the number of shares available to the general public. If all of these reserved shares are not purchased, the underwriters will offer the remainder to the general public on the same terms as the other shares offered by this prospectus.

Compliance with Non-U.S. Laws and Regulations

        Each underwriter has represented and agreed that (i) it has not offered or sold and, prior to the expiration of the period of six months from the closing date of this offering, will not offer or sell any shares of our common stock to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and

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will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (ii) it has complied with and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the shares of our common stock in, from or otherwise involving the United Kingdom; and (iii) it has only issued or passed on and will only issue or pass on in the United Kingdom, any document received by it in connection with the issue of the shares of our common stock to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such document may otherwise lawfully be issued or passed on.

Affiliations

        Certain of the underwriters and their respective affiliates have from time to time performed and may in the future perform various commercial banking, financial advisory and investment banking services for us for which they have received or will receive fees.


LEGAL MATTERS

        Certain legal matters with respect to the validity of the issuance of the common stock offered us in this offering will be passed upon for us by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston, Massachusetts . As of the date of this prospectus, a member of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. owns an aggregate of 1.25 preferred units and 15 common units in HealthpointCapital, LLC, which has a 25% ownership interest in HGP, LLC, which is the general partner of, and has a 20% profits interest in, HealthpointCapital. Upon the completion of this offering, HealthpointCapital will own    % of the outstanding common stock of Alphatec Holdings, or      % if the underwriters' over-allotment option is exercised in full. Certain legal matters in connection with this offering will be passed upon for the underwriters by Clifford Chance US LLP, New York, New York.


EXPERTS

        Ernst & Young LLP, independent registered public accounting firm, has audited our consolidated financial statements at December 31, 2004 and December 31, 2005, for the two years ended December 31, 2003 and 2004 and for the period from January 1, 2005 through March 17, 2005 and the period from March 18, 2005 through December 31, 2005, as set forth in their report included in this prospectus. We have included our consolidated financial statements in this prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing.

        The financial statements for the year ended December 31, 2004 of Cortek, Inc. included in this prospectus have been so included in reliance on the report (which contains an explanatory paragraph relating to Cortek's ability to continue as a going concern as described in Note 1 to the financial statements) of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in accounting and auditing.

        The financial statements as of September 8, 2005 and for the period from January 1, 2005 to September 8, 2005 of Cortek, Inc. included in this prospectus have been so included in reliance on the report of UHY LLP, independent auditors, given on the authority of said firm as experts in accounting and auditing.


WHERE YOU CAN FIND ADDITIONAL INFORMATION

        We have filed with the SEC a registration statement on Form S-1, including exhibits and schedules, under the Securities Act with respect to the shares of common stock offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules filed therewith. For further information with respect to us and the common stock offered hereby, reference is made to the registration statement and the exhibits and schedules filed therewith. Statements contained in this prospectus regarding the

120



contents of any contract, agreement or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract, agreement or other document filed as an exhibit to the registration statement.

        A copy of the registration statement and the exhibits and schedules filed therewith may be inspected without charge at the public reference room maintained by the SEC, located at 100 F Street, N.E., Washington, D.C. 20549, and copies of all or any part of the registration statement may be obtained from such offices upon the payment of the fees prescribed by the SEC. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room. The SEC also maintains an Internet website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the site is www.sec.gov .

        Upon completion of this offering, we will become subject to the information and periodic reporting requirements of the Exchange Act, and, in accordance therewith, will file periodic reports, proxy statements and other information with the SEC. Such periodic reports, proxy statements and other information will be available for inspection and copying at the public reference room and website of the SEC referred to above. We also intend to furnish our stockholders with annual reports containing our consolidated financial statements audited by an independent public accounting firm and quarterly reports containing our consolidated unaudited financial information. We maintain a website at www.alphatecspine.com . You may access our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act with the SEC free of charge at our website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The reference to our web address does not constitute incorporation by reference of the information contained at this site.

121



INDEX TO FINANCIAL STATEMENTS

 
  Page
Alphatec Holdings, Inc.    
Report of independent registered public accounting firm   F-2
Consolidated balance sheets as of December 31, 2004 (Predecessor) and December 31, 2005 (Successor)   F-3
Consolidated statements of operations for the years ended December 31, 2003 (Predecessor), December 31, 2004 (Predecessor), the period from January 1, 2005 to March 17, 2005 (Predecessor) and the period from March 18, 2005 to December 31, 2005 (Successor)   F-4
Consolidated statements of stockholders' equity (deficit) for the years ended December 31, 2003 (Predecessor), December 31, 2004 (Predecessor), the period from January 1, 2005 to March 17, 2005 (Predecessor) and the period from March 18, 2005 to December 31, 2005 (Successor)   F-5
Consolidated statements of cash flows for the years ended December 31, 2003 (Predecessor), December 31, 2004 (Predecessor), the period from January 1, 2005 to March 17, 2005 (Predecessor) and the period from March 18, 2005 to December 31, 2005 (Successor)   F-7
Notes to consolidated financial statements   F-8

Cortek, Inc.

 

 
Report of independent auditors (PricewaterhouseCoopers LLP)   F-40
Statement of operations for the year ended December 31, 2004   F-41
Statement of redeemable convertible preferred stock and stockholders' equity   F-42
Statement of cash flows for the year ended December 31, 2004   F-43
Notes to financial statements   F-44

Report of independent auditors (UHY LLP)

 

F-50
Statement of operations for the period from January 1, 2005 to September 8, 2005   F-51
Statement of cash flows for the period from January 1, 2005 to September 8, 2005   F-52
Notes to financial statements   F-53

F-1



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Alphatec Holdings, Inc.

        We have audited the accompanying consolidated balance sheet of Alphatec Holdings, Inc. (the "Successor") as of December 31, 2005 and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for the period from March 18, 2005 to December 31, 2005. We have also audited the accompanying consolidated balance sheet of Alphatec Manufacturing, Inc. (the "Predecessor") as of December 31, 2004 and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for the years ended December 31, 2003 and 2004 and the period from January 1, 2005 to March 17, 2005. These consolidated financial statements are the responsibility of the Successor's and Predecessor's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Successor's or Predecessor's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Successor's or the Predecessor's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Successor at December 31, 2005, and the consolidated results of its operations and its cash flows for the period from March 18, 2005 to December 31, 2005, and the consolidated financial position of the Predecessor at December 31, 2004, and the consolidated results of its operations and its cash flows for the years ended December 31, 2003 and 2004 and the period from January 1, 2005 to March 17, 2005, in conformity with generally accepted accounting principles in the United States.

                        /s/ Ernst & Young LLP

San Diego, California
March 10, 2006

F-2



ALPHATEC HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

 
  Predecessor
  Successor
 
 
  December 31, 2004
  December 31, 2005
 
ASSETS              

Current assets:

 

 

 

 

 

 

 
  Cash and cash equivalents   $ 1,556,770   $ 2,180,366  
  Accounts receivable, net     2,841,930     9,360,818  
  Inventories, net     2,614,942     8,457,777  
  Prepaid expenses and other current assets     206,689     979,187  
  Deferred income taxes         3,056,853  
  Income taxes receivable     53,165     70,535  
   
 
 
Total current assets     7,273,496     24,105,536  
Property and equipment, net     3,705,654     7,205,588  
Goodwill         60,946,455  
Intangibles, net     221,250     13,643,694  
Other assets     106,014     3,237,513  
   
 
 
Total assets   $ 11,306,414   $ 109,138,786  
   
 
 

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 
  Accounts payable   $ 1,582,149   $ 4,102,435  
  Accrued expenses     1,798,157     8,735,552  
  Income taxes payable     62,750     95,835  
  Line of credit         3,942,291  
  Current portion of long-term debt     3,104,882     954,180  
  Current portion of note payable to related party         2,026,480  
   
 
 
Total current liabilities     6,547,938     19,856,773  
Obligations under supply agreement, less current portion     75,000      
Long-term debt, less current portion     2,437,717     1,591,591  
Note payable to related party, less current portion         916,496  
Other long-term liabilities     417,571     1,711,176  
Deferred income taxes         3,056,853  
Commitments and contingencies              
Minority interest         1,914,088  
Redeemable convertible preferred, Rolling common and Series C common stock, $0.0001 par value; 10,929,094 shares authorized at December 31, 2005; 8,773,447 shares issued and outstanding at December 31, 2005; Liquidation value—$96,463,898 at December 31, 2005         99,413,339  
Stockholder note receivable         (64,873 )

Stockholders' equity (deficit):

 

 

 

 

 

 

 
  Common stock:              
    Predecessor: $0.01 par value; 15,000,000 authorized at December 31, 2004; 9,235,303 shares issued and outstanding at December 31, 2004     92,353      
    Successor: $0.0001 par value; 19,845,616 shares authorized at December 31, 2005; 5,770,750 shares issued and outstanding at December 31, 2005         577  
  Additional paid-in capital     8,045,705     12,016,656  
  Deferred compensation     (1,138,500 )   (18,296,176 )
  Notes receivable from stockholders     (36,678 )    
  Accumulated other comprehensive income     (120,385 )   (112,078 )
  Accumulated deficit     (5,014,307 )   (12,865,636 )
   
 
 
Total stockholders' equity (deficit)     1,828,188     (19,256,657 )
   
 
 
Total liabilities and stockholders' equity   $ 11,306,414   $ 109,138,786  
   
 
 

See accompanying notes.

F-3



ALPHATEC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 
  Predecessor
   
   
 
 
  Predecessor
  Successor
 
 
  Years ended December 31,
 
 
  Period from
January 1, 2005 to
March 17, 2005

  Period from March 18, 2005 to
December 31, 2005

 
 
  2003
  2004
 
Revenues   $ 10,890,776   $ 17,821,345   $ 6,050,083   $ 36,275,614  
Cost of revenues:                          
  Product     3,589,548     4,791,639     1,341,869     11,625,490  
  Royalties     113,409     668,853     340,613     2,345,604  
  Amortization of purchased intangibles                 2,068,736  
   
 
 
 
 
Gross profit     7,187,819     12,360,853     4,367,601     20,235,784  
   
 
 
 
 
Operating expenses:                          
  Research and development     520,506     1,176,671     215,773     751,302  
  In-process research and development                 3,100,000  
  Selling, general and administrative     7,209,522     11,006,372     5,228,175     30,351,687  
   
 
 
 
 
Total operating expenses     7,730,028     12,183,043     5,443,948     34,202,989  
   
 
 
 
 
Operating income (loss)     (542,209 )   177,810     (1,076,347 )   (13,967,205 )
Other income (expense):                          
  Interest expense     (280,289 )   (311,514 )   (115,611 )   (1,812,972 )
  Other income (expense)     30,273     739,285     4,884     (124,359 )
   
 
 
 
 
Total other income (expense), net     (250,016 )   427,771     (110,727 )   (1,937,331 )
   
 
 
 
 
Income (loss) before tax     (792,225 )   605,581     (1,187,074 )   (15,904,536 )
Income tax provision (benefit)     41,280     96,127     1,467     (3,038,900 )
   
 
 
 
 
Net income (loss)     (833,505 )   509,454     (1,188,541 )   (12,865,636 )
Accretion to redemption value of redeemable convertible preferred stock, Rolling common and Series C common stock                 (7,600,782 )
   
 
 
 
 
Net income (loss) applicable to common stockholders   $ (833,505 ) $ 509,454   $ (1,188,541 ) $ (20,466,418 )
   
 
 
 
 
Net income (loss) per common share:                          
  Basic   $ (0.09 ) $ 0.06   $ (0.13 ) $ (4.01 )
   
 
 
 
 
  Diluted   $ (0.09 ) $ 0.05   $ (0.13 ) $ (4.01 )
   
 
 
 
 
Weighted-average shares used in computing net income (loss) per share:                          
  Basic     9,298,149     9,178,904     9,211,003     5,098,220  
   
 
 
 
 
  Diluted     9,298,149     9,620,365     9,211,003     5,098,220  
   
 
 
 
 

See accompanying notes.

F-4


ALPHATEC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

 
  Common stock
   
   
   
   
   
   
 
 
  Additional paid
in capital

  Deferred
compensation

  Notes receivable
from
stockholders

  Accumulated other
comprehensive
income (loss)

  Accumulated
deficit

  Total
stockholders'
equity (deficit)

 
 
  Shares
  Amount
 
Predecessor:                                                
Balance at December 31, 2002   9,432,359   $ 94,324   $ 6,803,769   $   $   $ (169,137 ) $ (4,690,256 ) $ 2,038,700  
  Issuance of notes receivable for the purchase of stock                   (265,500 )           (265,500 )
  Reacquisition of common stock   (28,864 )   (289 )   (25,904 )       26,193              
  Repayment of notes receivable from stockholders                   23,921             23,921  
  Comprehensive loss:                                                
    Foreign currency translation adjustments                       34,232         34,232  
    Net loss                           (833,505 )   (833,505 )
                                           
 
  Total comprehensive loss                               (799,273 )
   
 
 
 
 
 
 
 
 
Balance at December 31, 2003   9,403,495     94,035     6,777,865         (215,386 )   (134,905 )   (5,523,761 )   997,848  
  Issuance of common stock   10,000     100     9,900                       10,000  
  Reacquisition of common stock   (178,192 )   (1,782 )   (160,410 )       162,192              
  Repayment of notes receivable from stockholders and related stock-based compensation expense (Note 4)           92,350         16,516             108,866  
  Deferred employee stock-based compensation           1,326,000     (1,326,000 )                
  Amortization of deferred employee stock-based compensation               187,500                 187,500  
  Comprehensive income:                                                
    Foreign currency translation adjustments                       14,520         14,520  
    Net income                           509,454     509,454  
                                           
 
  Total comprehensive income                               523,974  
   
 
 
 
 
 
 
 
 
Balance at December 31, 2004   9,235,303     92,353     8,045,705     (1,138,500 )   (36,678 )   (120,385 )   (5,014,307 )   1,828,188  
  Issuance of common stock                                
  Reacquisition of common stock   (9,939 )   (99 )   (8,687 )       8,786              
  Repayment of notes receivable from stockholders and related stock-based compensation expense (Note 4)           189,117         1,686             190,803  
  Stock-based compensation related to sale of stock to employees           832,000                     832,000  
  Amortization of deferred employee stock-based compensation               1,138,500                 1,138,500  
  Comprehensive loss:                                                
    Foreign currency translation adjustments                       (4,356 )       (4,356 )
    Net loss                           (1,188,541 )   (1,188,541 )
                                           
 
  Total comprehensive loss                                 (1,192,897 )
   
 
 
 
 
 
 
 
 
Balance at March 17, 2005   9,225,364   $ 92,254   $ 9,058,135   $   $ (26,206 ) $ (124,741 ) $ (6,202,848 ) $ 2,796,594  
   
 
 
 
 
 
 
 
 

See accompanying notes.

F-5


 
  Common stock
   
   
  Notes
receivable
from
stockholders

  Accumulated
other
comprehensive
income (loss)

   
   
 
 
  Additional
paid-
in capital

  Deferred
compensation

  Accumulated
deficit

  Total
stockholders'
equity (deficit)

 
 
  Shares
  Amount
 
Successor:                                                
  Issuance of restricted stock, net of repurchases   555,825   $ 55   $ (55 ) $   $   $   $   $  
  Issuance of common stock in conjunction with preferred stock sale   5,214,925     522     (522 )                              
  Deferred employee stock-based compensation           20,530,518     (20,530,518 )                
  Cancellation of deferred employee stock-based compensation           (951,856 )   951,856                  
  Amortization of deferred employee stock-based compensation               1,282,486                 1,282,486  
  Non-employee stock-based compensation           39,353                     39,353  
  Accretion to redemption value of redeemable convertible preferred, Rolling common and Series C common stock           (7,600,782 )                   (7,600,782 )
  Comprehensive loss:                                                
    Foreign currency translation adjustments                       (112,078 )       (112,078 )
    Net loss                           (12,865,636 )   (12,865,636 )
                                           
 
  Total comprehensive loss                               (12,977,714 )
   
 
 
 
 
 
 
 
 
Balance at December 31, 2005   5,770,750   $ 577   $ 12,016,656   $ (18,296,176 ) $   $ (112,078 ) $ (12,865,636 ) $ (19,256,657 )
   
 
 
 
 
 
 
 
 

See accompanying notes.

F-6



ALPHATEC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 
  Predecessor
   
   
 
 
  Predecessor
  Successor
 
 
  Years ended December 31,
 
 
  Period from
January 1, 2005 to
March 17, 2005

  Period from
March 18, 2005 to
December 31, 2005

 
 
  2003
  2004
 
Operating activities:                          
  Net income (loss)   $ (833,505 ) $ 509,454   $ (1,188,541 ) $ (12,865,636 )
  Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:                          
    Depreciation and amortization     580,066     633,847     158,659     3,381,726  
    Stock-based compensation         279,850     2,159,617     1,321,839  
    Write-off of purchased in-process research and development                 3,100,000  
    Interest expense related to amortization of debt discount and revaluation of put right                 1,452,118  
    Deferred income taxes                 (3,074,778 )
    Changes in operating assets and liabilities:                          
      Accounts receivable     (2,817 )   (1,366,562 )   (1,401,247 )   (3,026,153 )
      Inventories     274,600     (741,951 )   (83,725 )   430,124  
      Prepaid expenses and other current assets     5,024     (26,871 )   (240,908 )   (264,833 )
      Income taxes receivable     (5,240 )   18,604         (17,370 )
      Other assets     (29,800 )   12,554     6,500     (2,953,512 )
      Accounts payable     115,296     964,448     85,523     (366,142 )
      Accrued expenses and other     (77,911 )   998,401     298,510     3,653,959  
   
 
 
 
 
Net cash provided by (used in) operating activities     25,713     1,281,774     (205,612 )   (9,228,658 )
   
 
 
 
 
Investing activities:                          
  Acquisition of Alphatec Manufacturing, Inc., net of cash acquired                 (69,990,284 )
  Acquisition of certain assets and liabilities of Cortek, Inc., net of cash acquired                 (7,398,381 )
  Acquisition of Ishibe Medical Co. Ltd, net of cash acquired                 651,860  
  Purchases of property and equipment     (4,030 )   (598,467 )   (59,769 )   (4,198,122 )
   
 
 
 
 
Net cash used in investing activities     (4,030 )   (598,467 )   (59,769 )   (80,934,927 )
   
 
 
 
 
Financing activities:                          
  Proceeds from issuance of common stock         10,000          
  Proceeds from issuance of Rolling common, Series C common and preferred stock                 91,608,718  
  Net borrowings under lines of credit                 3,078,537  
  Principal payments on capital lease obligations     (304,353 )   (522,137 )   (154,810 )   (578,796 )
  Proceeds from issuance of notes payable     400,000     1,293,497         1,192,100  
  Principal payments on notes payable     (255,853 )   (612,917 )   (80,333 )   (2,943,408 )
  Repayment of supply agreement obligation         (75,000 )       (75,000 )
  Repayment (issuance) of stockholder notes receivable     (241,579 )   16,516     1,686     138,966  
   
 
 
 
 
Net cash (used in) provided by financing activities     (401,785 )   109,959     (233,457 )   92,421,117  
   
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents     10,502     9,647     (2,037 )   (77,166 )
   
 
 
 
 
Net (decrease) increase in cash and cash equivalents     (369,600 )   802,913     (500,875 )   2,180,366  
Cash and cash equivalents at beginning of period     1,123,457     753,857     1,556,770      
   
 
 
 
 
Cash and cash equivalents at end of period   $ 753,857   $ 1,556,770   $ 1,055,895   $ 2,180,366  
   
 
 
 
 
Supplemental disclosure of cash flow information:                          
  Cash paid for interest   $ 248,589   $ 268,449   $ 102,152   $ 431,125  
   
 
 
 
 
  Accretion to redemption value of redeemable stock   $   $   $   $ 7,600,782  
   
 
 
 
 
  Repurchase of distribution rights   $   $   $   $ 3,097,850  
   
 
 
 
 
  Revaluation of put right   $   $   $   $ 597,844  
   
 
 
 
 
  Purchases of property and equipment through capital leases   $ 396,018   $ 1,921,078   $   $ 246,478  
   
 
 
 
 
  Issuance (forgiveness) of notes receivable from stockholders   $ (26,193 ) $ (162,192 ) $ (8,786 ) $ 203,839  
   
 
 
 
 
  Issuance of supply agreement obligation   $   $ 225,000   $   $  
   
 
 
 
 

See accompanying notes.

F-7



ALPHATEC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization, Basis of Presentation and Summary of Significant Accounting Policies

The Company

        Alphatec Holdings, Inc. ("Alphatec," the "Successor" or the "Company") was incorporated in the state of Delaware in March 2005 in order to acquire 100% of the outstanding common stock of the Predecessor (as hereinafter defined) on March 18, 2005, as more fully described in Note 2.

        Alphatec Spine, Inc., formerly known as Alphatec Manufacturing, Inc., (the "Predecessor"), is a California corporation organized in May 1990 and is engaged in the development, manufacturing, and sale of medical devices for use in orthopedic trauma, spinal, and reconstructive surgeries. The Predecessor's principal operating activities are conducted through Alphatec Spine, Inc. and its consolidated subsidiaries, Nexmed, Inc. ("Nexmed"), a California corporation, Alphatec Pacific, Inc. ("Alphatec Pacific"), a Japanese corporation, and Milverton Limited ("Milverton"), a Hong Kong corporation.

Basis of Presentation

        The consolidated financial statements of the Predecessor include the accounts of Alphatec Spine, Inc. and its wholly owned subsidiaries, Alphatec Pacific, Milverton and Nexmed.

        The consolidated financial statements of the Successor include the accounts of Alphatec and Alphatec Spine, Inc. and its wholly owned subsidiaries, Nexmed and Milverton and its 80% owned subsidiary, Alphatec Pacific. Intercompany balances and transactions have been eliminated in consolidation.

        Nexmed did not have significant activity during any of the periods presented.

        The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Successor has not been profitable, and while management believes that the Company will significantly increase revenues in 2006, the Company will not be profitable in the foreseeable future. Management believes that absent the proceeds from the offering contemplated by this Prospectus, that its existing resources, and the additional resources available under its new credit facility (see Note 6), it can fund its operations through 2006. In the event these funds are insufficient to adequately fund its operations, the Company's principal investor has represented that it has the ability and, if necessary, intends to provide the funds necessary to enable the Company to operate at least through 2006.

        On August 1, 2005, a 44.036-for-1 stock split was approved by the Company's Board of Directors. The accompanying consolidated financial statements give retroactive effect to the stock split for all periods presented.

Foreign Currency Translation and Transactions

        The Company's primary functional currency is the U.S. dollar, while the functional currency of the Company's Japanese and Hong Kong subsidiaries is the Japanese yen and the Hong Kong dollar, respectively. Assets and liabilities denominated in foreign currencies are translated at the rate of exchange on the balance sheet date. Revenues and expenses are translated using the average exchange rate for the period. Gains and losses on foreign currency transactions are recognized as incurred.

F-8



Use of Estimates

        The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Fair Value of Financial Instruments

        The carrying value of accounts receivable, accounts payable, accrued expenses and current portion of debt are considered to be representative of their respective fair values because of the short-term nature of those instruments. Based on the borrowing rates currently available to the Company for loans with similar terms, management believes the fair value of notes payable, capital leases and other long-term debt approximates their carrying values.

Concentration of Credit Risk and Significant Customers

        Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents and accounts receivable. The Company limits its exposure to credit loss by depositing its cash and cash equivalents with high credit quality financial institutions.

        The Company's customers are primarily hospitals or surgical centers and no single customer represented greater than 10 percent of consolidated revenues for any of the periods presented. Credit to customers is granted based on an analysis of the customers' credit worthiness and credit losses have not been significant.

Revenue Recognition

        The Company recognizes revenue when all four of the following criteria are met: (i) persuasive evidence that an arrangement exists; (ii) delivery of the products has occurred; (iii) the selling price is fixed or determinable; and (iv) collectibility is reasonably assured. In addition, the Company follows the provisions of the Securities and Exchange Commission's Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition , which sets forth guidelines for the timing of revenue recognition based upon factors such as passage of title, installation, payment and customer acceptance.

        The Company's revenue from sales of spinal and other surgical implants is recognized upon receipt of written acknowledgement that the product has been used in a surgical procedure or upon shipment to third-party customers who immediately accept title.

Impairment of Long-Lived Assets

        In accordance with Statement of Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets , if indicators of impairment exist, the Company assesses the recoverability of the affected long-lived assets by determining whether the carrying value of such assets can be recovered through undiscounted future operating cash flows. If impairment is indicated, the Company measures the amount of such impairment by comparing the carrying value of the asset to the undiscounted cash flows associated with the use of the asset. The Company believes the future cash flows to be received from the long-lived assets will exceed the assets' carrying value, and accordingly the Company has not recognized any impairment losses through December 31, 2005.

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Cash and Cash Equivalents

        The Company considers all investments with an original maturity of three months or less when purchased to be cash equivalents. Cash equivalents primarily represent funds invested in money market funds whose cost equals fair market value.

Accounts Receivable and Related Valuation Account

        Accounts receivable are presented net of allowance for doubtful accounts. The Company makes judgments as to its ability to collect outstanding receivables and provides allowance for a portion of receivables when collection becomes doubtful. Provisions are made based upon a specific review of all significant outstanding invoices and the overall quality and age of those invoices not specifically reviewed. In determining the provision for invoices not specifically reviewed, the Company analyzes historical collection experience and current economic trends. If the historical data used to calculate the allowance provided for doubtful accounts does not reflect the Company's future ability to collect outstanding receivables or if the financial condition of customers were to deteriorate, resulting in impairment of their ability to make payments, an increase in the provision for doubtful accounts may be required.

Inventories

        Inventories are stated at the lower of average cost or market and include material, labor and overhead costs. The Company reviews the components of its inventory on a periodic basis for excess, obsolete and impaired inventory, and records a reserve for the identified items.

Property and Equipment

        Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, generally ranging from two to seven years. Leasehold improvements and assets acquired under capital leases are amortized over the shorter of their useful lives or the terms of the leases.

        During the fourth quarter of 2005, management reviewed its use of surgical instruments and concluded that it should reduce the depreciable life of surgical instruments from three to two years. Fourth quarter results include approximately $111,500 of additional depreciation resulting from this reduction in the estimated life of surgical instruments.

Goodwill and Other Intangible Assets

        SFAS No. 142, Goodwill and Other Intangible Assets, requires goodwill to be tested for impairment on an annual basis and between annual tests in certain circumstances, and written down when impaired. Furthermore, SFAS No. 142 requires purchased intangible assets other than goodwill to be amortized over their useful lives unless these lives are determined to be indefinite.

        The Company is amortizing its intangible assets, other than goodwill, on a straight-line basis over a three to ten-year period. No amortization of goodwill has been recorded. Instead, the Company performs an impairment assessment by applying a fair-value based test in the fourth quarter of each year, or more frequently if changes in circumstances or the occurrence of events suggest the remaining value is not recoverable.

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Other Assets

        Other assets consist of costs incurred in connection with the initial public offering contemplated by this prospectus and certain deposits. Upon completion of the initial public offering, the related offering costs will be reclassified to stockholders equity and netted against the gross proceeds of the offering. In the event the initial public offering is not successful, such costs will be charged to expense.

Other Long-term Liabilities

        Other long-term liabilities consist of accruals for potential payroll withholding, property and sales taxes and the long-term portion of severance payable.

Research and Development

        Research and development expenses consist of costs incurred to further the Company's research and development activities and are expensed as incurred.

Advertising Costs

        Advertising costs are expensed as incurred. Total advertising costs for the years ended December 31, 2003 and 2004 and the period from January 1, 2005 to March 17, 2005 were not significant. Advertising costs for the period from March 18, 2005 to December 31, 2005 totaled $106,270.

Income Taxes

        In accordance with SFAS No. 109, Accounting for Income Taxes , a deferred tax asset or liability is determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. The Company provides a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized.

Stock-Based Compensation

        The Company applies the intrinsic-value-based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees , and related interpretations including Financial Accounting Standards Board (FASB) Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation—an interpretation of APB Opinion No. 25 , to account for its equity-based awards to employees and directors. Under this method, if the exercise price of the award equals or exceeds the fair value of the underlying stock on the measurement date, no compensation expense is recognized. The measurement date is the date on which the final number of shares and exercise price are known and is generally the grant date for awards to employees and directors. If the exercise price of the award is below the fair value of the underlying stock on the measurement date, then compensation cost is recorded, using the intrinsic-value method, and is generally recognized in the statements of operations over the vesting period of the award.

        The following table illustrates the effect on net income (loss) as if the fair-value-based method had been applied to all outstanding and unvested awards in each period. For purposes of disclosures required by SFAS No. 123, Accounting for Stock-Based Compensation , the estimated fair value of the

F-11



options is amortized on a straight-line basis over the vesting period. Because additional option grants are expected in the future, the pro forma disclosures below are not representative of the effects of option grants on reported net operating results in future periods. The period from March 18, 2005 to December 31, 2005 is not presented below since the pro forma net loss does not materially differ from the reported net loss.

 
  Predecessor
   
 
 
  Years ended December 31,
  Predecessor
 
 
  Period from
January 1, 2005 to March 17, 2005

 
 
  2003
  2004
 
Net income (loss) attributable to common stockholders as reported   $ (833,505 ) $ 509,454   $ (1,188,541 )
Add: Stock-based employee compensation expense included in net income (loss)         187,500     1,970,500  
Deduct: Stock-based employee compensation expense determined under fair value method for all awards     (26,263 )   (253,512 )   (2,003,512 )
   
 
 
 
Pro forma net loss attributable to common stockholders   $ (859,768 ) $ 443,442   $ (1,221,553 )
   
 
 
 
Basic net income (loss) per share as reported   $ (0.09 ) $ 0.06   $ (0.13 )
   
 
 
 
Basic net income (loss) per share pro forma   $ (0.09 ) $ 0.05   $ (0.13 )
   
 
 
 
Diluted net income (loss) per share as reported   $ (0.09 ) $ 0.05   $ (0.13 )
   
 
 
 
Diluted net income (loss) per share pro forma   $ (0.09 ) $ 0.05   $ (0.13 )
   
 
 
 

        The fair value above was estimated at the date of grant using the Minimum Value pricing model with the following weighted average assumptions:

 
  Predecessor
 
 
  Year ended
December 31,

 
 
  2003
  2004
 
Dividend yield      
Risk-free interest rate   2.27 % 3.50 %
Volatility      
Expected life   5 years   5 years  

        No weighted average assumptions are listed for the period from January 1, 2005 to March 17, 2005 due to the fact that no equity instruments were issued during that period. No weighted average assumptions are listed for the period from March 18, 2005 to December 31, 2005 since no significant equity instruments issued to employees during the period were issued with exercise prices greater than $0.002, and as such, use of the Minimum Value pricing model did not result in significant additional stock-based compensation expense over the amount recorded.

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        The Predecessor issued 577,000 and 674,000 employee equity awards in 2003 and 2004, respectively. The weighted average grant date fair value of these awards was $0.16 and $2.21, respectively.

        Equity instruments issued to non-employees are recorded at their fair value as determined in accordance with SFAS No. 123, Accounting for Stock-Based Compensation , and Emerging Issues Task Force (EITF) 96-18, Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods and Services , and are periodically revalued as the equity instruments vest and are recognized as expense over the related service period. In connection with the sale of 33,750 shares of common stock to non-employees during the period from March 18, 2005 to December 31, 2005, the Company recorded total stock-based compensation within stockholders' equity of $39,353.

Deferred Stock-Based Compensation

        No employee stock-based compensation expense was recorded in the Predecessor's reported net loss for the year ended December 31, 2003, as all equity awards granted had an exercise price equal to or greater than the estimated fair value of the underlying common stock on the date of grant.

        The Predecessor, as a result of the valuation utilized in its merger with the Successor in March 2005, reassessed the fair value of the common stock used to grant equity awards for the period from January 1, 2004 to March 17, 2005. In determining the fair value of the Predecessor's common stock, the Board of Directors considered, among other factors, (i) the advancement of the Company's technology, (ii) the Company's financial position, (iii) industry specific and general market conditions and (iv) the enterprise valuation utilized in the merger with the Successor.

        On October 19, 2005, the Successor commenced the initial public offering process and, based on the estimated valuation of the Company presented by investment bankers, reassessed the fair value of the common stock used to grant equity awards going back to March 18, 2005. Upon formation of the Successor in March 2005, the common stock was valued at zero since the Company had not yet commenced its intended operations via the acquisition of the Predecessor and the redemption value of the preferred stock sold with the common stock was equal to the purchase price of the preferred stock and common stock together. Investment bankers were valuing the Company based on its ability to increase sales consistently over prior periods since the date of acquisition and forecasted revenues which demonstrated continued growth. The Company increased the valuation of the common stock on a straight-line basis from zero on March 18, 2005 to $48 on October 19, 2005 since no significant positive or negative events occurred during this period, other than progressive growth in revenues, which would indicate other than a linear increase in the reassessed valuation of the common stock. The value of $48 on October 19, 2005 represented the low end of the valuation presented by the investment bankers at that time. Management, all of whom are related parties, completed the reassessment without the use of an unrelated valuation specialist and concluded that the stock options granted and restricted shares sold to employees were granted and sold at prices that were below the reassessed fair value.

        In connection with the grant of equity awards to employees during the year ended December 31, 2004, the Predecessor recorded total deferred employee stock-based compensation within stockholders' equity of $1,326,000, which represents the difference between the weighted average exercise price of $1.50 and the reassessed weighted average fair value of $3.47 on the 674,000 stock options granted. The deferred employee stock-based compensation was amortized over the vesting period of the applicable options on a straight-line basis until March 17, 2005, at which time the remaining $1,138,500 of

F-13



unamortized stock-based compensation was charged to expense when the change in control provisions of the options caused the options to become fully vested.

        In connection with the grant of equity awards to employees during the period from March 18, 2005 to December 31, 2005, the Successor recorded total deferred employee stock-based compensation within stockholders' equity of $20,530,518, which represented the difference between the exercise price and the reassessed fair value of 34,257 stock options granted and 542,700 restricted shares sold.

        A summary of activity and related fair and intrinsic value information for the year ended December 31, 2004 under the Predecessor Plan (as defined in Note 8, "Stock Options") and for the period from March 18, 2005 to December 31, 2005 under the 2005 Plan (as defined in Note 9, "Stock Options") is as follows:

 
  Equity
awards

  Exercise
price

  Fair value of
common
stock on date
of grant

  Intrinsic
value per
share

  Deferred
stock-based
compensation

Predecessor Plan:                            
Employee grants:                            
  January 2004   150,000   $ 1.50   $ 1.50   $   $
  May 2004   329,000     1.50     3.50     2.00     658,000
  July 2004   40,000     1.50     4.30     2.80     112,000
  August 2004   5,000     1.50     4.70     3.20     16,000
  September 2004   150,000     1.50     5.10     3.60     540,000
   
                   
Total   674,000                     $ 1,326,000
   
                   

Successor 2005 Plan:

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Employee grants:                            
  August 2005   454,275   $ 0.002   $ 32.82   $ 32.82   $ 14,908,397
  September 2005   10,500     0.002     42.89     42.89     450,358
  October 1, 2005   500     0.002     43.98     43.98     12,094
  October 7, 2005   26,175     0.002     45.32     45.32     1,186,199
  October 10, 2005   7,000     0.002     45.99     45.99     321,916
  October 17, 2005   17,825     0.002     47.55     47.55     847,543
  October 31, 2005   325     0.002     48.00     48.00     15,599
  November 2005   53,950     0.002     48.00     48.00     2,589,492
  November 2005   3,000     17.000     48.00     31.00     93,000
  December 2005   3,407     17.000     48.00     31.00     105,920
   
                   
Total   576,957                     $ 20,530,518
   
                   

Net Loss Per Share

        The Company calculated 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

F-14



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.

 
  Predecessor
   
   
 
 
  Years ended December 31,
  Predecessor
  Successor
 
 
  Period from
January 1, 2005
to March 17, 2005

  Period from
March 18, 2005 to December 31,
2005

 
 
  2003
  2004
 
Numerator:                          
Net income (loss)   $ (833,505 ) $ 509,454   $ (1,188,541 ) $ (12,865,636 )
Accretion to redemption value of redeemable convertible preferred, Rolling common and Series C common stock                 (7,600,782 )
   
 
 
 
 
Net income (loss) applicable to common stockholders   $ (833,505 ) $ 509,454   $ (1,188,541 ) $ (20,466,418 )
   
 
 
 
 
Denominator:                          
Weighted average common shares outstanding     9,417,808     9,318,939     9,231,380     5,336,195  
Weighted average unvested common shares subject to repurchase                 (237,975 )
Vested common shares outstanding purchased with promissory notes and subject to variable accounting     (119,659 )   (140,035 )   (20,377 )    
   
 
 
 
 
Weighted average common shares outstanding—basic     9,298,149     9,178,904     9,211,003     5,098,220  
Effect of dilutive securities:                          
  Options         441,461          
  Other                  
   
 
 
 
 
Weighted average common shares outstanding—diluted     9,298,149     9,620,365     9,211,003     5,098,220  
   
 
 
 
 
Net income (loss) per common share:                          
  Basic   $ (0.09 ) $ 0.06   $ (0.13 ) $ (4.01 )
   
 
 
 
 
  Diluted   $ (0.09 ) $ 0.05   $ (0.13 ) $ (4.01 )
   
 
 
 
 

        Upon the occurrence of any Significant Transaction, as described in Note 9 below, including the proposed initial public offering contemplated by this prospectus:

    the preferred and common stockholders are entitled to be paid the Liquidation and Redemption Value (as defined in Note 9) in cash, except that upon the approval of the holders of at least 51% of the outstanding shares of Series B common stock, such Liquidation and Redemption Value shall be paid in common stock, valued at its fair market value, as determined in good

F-15


      faith by the Board of Directors (other than upon the occurrence of a liquidation, dissolution or winding up of the Company or an exercise of the Series A Put Right (as defined in Note 9)), and

    each share of Rolling common stock and each share of Series A, Series A-1, Series B and Series C common stock is mandatorily convertible into one share of undesignated common stock.

        As of December 31, 2005, assuming all the outstanding preferred stock was converted to common stock, 2,009,665 shares would be excluded from the basic and diluted earnings per share calculations because of their anti-dilutive effect.

Comprehensive Income

        The Company has adopted SFAS No. 130, Reporting Comprehensive Income , which requires that all components of comprehensive income, including net income, be reported in the consolidated financial statements in the period in which they are recognized. Comprehensive income is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Net income and other comprehensive income, including foreign currency translation adjustments and unrealized gains and losses on investments, are reported, net of their related tax effect, to arrive at comprehensive income.

Segment Information

        The Company has adopted 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. The Company identifies its operating segments based on how management internally evaluates separate financial information, business activities and management responsibility. The Company believes it operates in a single business segment.

Recent Accounting Pronouncements

        In November 2004, the FASB issued SFAS No. 151, Inventory Cost—an amendment of ARB No. 43, Chapter 4. This statement amends the guidance in Accounting Research Bulletin (ARB) No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of unallocated overhead resulting from abnormally low production (or idle capacity), freight, handling costs, and wasted material (spoilage). This statement requires that those items be recognized as current-period charges. In addition, this statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this statement will be effective for inventory costs during the fiscal years beginning after June 15, 2005. The Company does not believe that the adoption of this statement will have a material impact on its consolidated financial condition or consolidated results of operations.

        On December 16, 2004, the FASB issued SFAS No. 123R, Share-Based Payment (SFAS No. 123R). SFAS No. 123R supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows. SFAS No. 123R requires all share-based payments to employees or directors, including grants of employee and director stock options, to be recognized as an expense on the income statement based on their fair values. Pro forma disclosure is no longer an alternative. SFAS 123R must be adopted no later than January 1, 2006. The Company expects to adopt SFAS No. 123R on January 1, 2006.

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        As permitted by SFAS No. 123, the Company currently accounts for share-based payments to employees using the intrinsic value method under APB Opinion No. 25 and, as such, generally recognize no compensation cost for employee stock options issued at fair market value. Accordingly, the adoption of the fair value method under SFAS 123R will have a significant impact on the Company's consolidated results of operations, although it will have no impact on the Company's overall consolidated financial position. The impact of adoption of SFAS 123R cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had the Company adopted SFAS 123R in prior periods, the impact of that standard would have approximated the impact of SFAS 123 as described in the disclosure of pro forma net loss and loss per share in this Note 1 to the consolidated financial statements.

2.  Acquisitions

Alphatec Spine, Inc.

        On March 18, 2005, the Successor acquired all of the outstanding common stock of Alphatec Spine, Inc. The acquisition was funded out of the net proceeds from the Company's initial capitalization in March 2005. The results of operations of Alphatec Spine, Inc. have been included in the consolidated financial statements of the Successor from the date of acquisition. The total cost of the acquisition is as follows:

Cash paid for common stock and stock options   $ 70,000,000
Debt assumed as a result of acquisition     5,457,456
Direct costs     1,046,176
   
Total purchase price   $ 76,503,632
   

        The purchase price allocation is shown below:

Cash and cash equivalents   $ 1,055,895  
Accounts receivable     4,243,177  
Inventories     4,206,192  
Prepaid expenses and other current assets     483,079  
Income taxes receivable     53,165  
Property and equipment, net     3,606,764  
Other assets     99,514  
Accounts payable     (1,667,672 )
Accrued and other expenses     (4,529,857 )
Deferred income taxes     (3,074,778 )
   
 
Net tangible assets     4,475,479  
Developed product technology     13,700,000  
Supplier agreement     221,250  
In-process research and development ("IPR&D")     3,100,000  
Goodwill     55,006,903  
   
 
Total purchase price   $ 76,503,632  
   
 

F-17


        In connection with this transaction, the Company conducted a valuation of the acquired assets and assumed liabilities in order to allocate the purchase price in accordance with SFAS No. 141, " Business Combinations " ("SFAS 141"). Unless otherwise noted below, the fair value of the acquired tangible assets, assumed liabilities and supplier agreement was equal to the Predecessor's carrying value on the date of acquisition. The Company allocated the excess purchase price over the fair value of acquired net tangible and intangible assets to goodwill. A strong scientific employee base having existing relationships with prominent orthopedic surgeons and operations in an attractive market niche were among the factors that contributed to a purchase price resulting in the recognition of goodwill. Goodwill recorded for the acquisition of Alphatec Spine, Inc. is not deductible for income tax purposes.

        The developed product technology represented proprietary knowledge that was technologically feasible as of the valuation date, and included all fully functioning products at the date of the valuation. Specifically, developed product technology represented proprietary knowledge related to the following products of the Company: Zodiac Lumbar Fusion and Deformity System, Mirage Spinal Fixation System, ROC Lumbar Plating System, Deltaloc Reveal Anterior Cervical Plate, Solanas Posterior Cervical/Thoracic Fusion, and various Cage and Bone products. The amount allocated to the developed product technology was assigned based on the estimated net discounted cash flows (income approach) from the related product line on the date of acquisition. The developed product technology is being amortized over a useful life of five years.

        In accordance with SFAS No. 2, Accounting for Research and Development Costs , as clarified by FIN No. 4, Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method, an Interpretation of FASB Statement No. 2 , the amounts allocated to IPR&D were determined through established valuation techniques and were expensed upon acquisition as it was determined that the underlying projects had not reached technological feasibility and had no alternative future uses.

        The fair value of the IPR&D was determined using the income approach. Under the income approach, the expected future cash flows from each project under development were estimated and discounted to their net present values at an appropriate risk-adjusted rate of return. Significant factors considered in the calculation of the rate of return were the weighted-average cost of capital and return on assets, as well as the risks inherent in the development process, including the likelihood of achieving technological success and market acceptance. Each project was analyzed to determine the unique technological innovations, the existence and reliance on core technology, the existence of any alternative future use or current technological feasibility, and the complexity, cost and time to complete the remaining development. Future cash flows for each project were estimated based on forecasted revenue and costs, taking into account product life cycles, and market penetration and growth rates.

        The IPR&D charge includes only the fair value of IPR&D performed as of the respective acquisition dates. The fair value of developed technology was included in identifiable purchased intangible assets. The Company believes the amounts recorded as IPR&D, as well as developed technology, represented the fair values and approximated the amounts an independent party would pay for these projects at the time of the respective acquisition dates.

        There were six projects identified as IPR&D. The Company assigned discount rates of 22% to the in-process technologies, giving consideration to the risk associated with these assets relative to developed product technologies and future products. For purposes of the IPR&D fair value

F-18



calculations, cash flows were assumed to commence in 2006 and pricing and margins were assumed to remain essentially flat at levels consistent with the Company's historical profit margins.

        All of these products, except the Minimal Access System, started shipping product toward the end of 2005. The Minimal Access System is currently scheduled to start shipping product in the third quarter of fiscal 2006.

        The following table summarizes the significant assumptions at the acquisition dates underlying the valuations for the Company's significant acquisitions completed in 2005 with estimated costs to complete as of December 31, 2005:

Development Projects

  Estimated percent
complete at
acquisition

  Estimated time
to complete
as of
December 31, 2005

  Estimated cost
to complete
as of December 31, 2005

  Risk Adjusted
Discount Rate

  IPR&D
Polyaxial system   50 % Complete   $   22 % $ 1,800,000
Minimal Access System   15 % Six months     200,000   22 %   100,000
Posterior Cervical (Solanas)   30 % Complete       22 %   200,000
Cages   60 % Complete       22 %   700,000
Bone Products   80 % Complete       22 %   200,000
Anterior Lumbar Plates (Tamarack)   25 % Complete       22 %   100,000
                     
                      $ 3,100,000
                     

        As a result of the required adjustment of acquired assets and liabilities to fair value at the date of purchase, using the income approach, the Company increased inventory by $1,085,000 over the historical cost. The inventory adjustment resulted in Successor cost of goods sold of $1,085,000 over what would have been recorded by the Predecessor.

        Pursuant to the acquisition agreement, $3 million has been put in escrow as a potential indemnification for Losses (as defined) incurred by the Company. The Company has filed a claim for indemnification for $4.5 million primarily in connection with obsolete inventory, tax liabilities and uncollectible accounts receivable. However, there is no assurance whether the claim will be successful. Any amounts recovered will be accounted for as a reduction to goodwill.

Cortek, Inc.

        On September 9, 2005, the Successor acquired certain assets and assumed certain liabilities of Cortek, Inc. ("Cortek"). The acquisition was funded out of the net proceeds from the Company's initial capitalization in March 2005. The acquisition of Cortek is an investment aimed at broadening the Company's product portfolio. The results of operations of Cortek have been included in the

F-19



consolidated financial statements of the Successor from the date of acquisition. The total cost of the acquisition is as follows:

Cash consideration   $ 6,500,000
Debt assumed as a result of acquisition     550,100
Direct costs     801,971
   
Total purchase price   $ 7,852,071
   

        The purchase price allocation is shown below:

Accounts receivable   $ 1,608,548  
Inventories     2,212,641  
Prepaid expenses and other current assets     100,392  
Property and equipment, net     265,553  
Other assets     56,984  
Accounts payable     (955,046 )
Accrued expenses     (1,376,553 )
   
 
Net tangible assets     1,912,519  
Goodwill     5,939,552  
   
 
Total purchase price   $ 7,852,071  
   
 

        In connection with this transaction, the Company conducted a valuation of the acquired assets and assumed liabilities in order to allocate the purchase price in accordance with SFAS No. 141, " Business Combinations " ("SFAS 141"). The Company has allocated the excess purchase price over the fair value of acquired net tangible assets to goodwill. The enhancement of the Company's existing portfolio of spine fusion products with a complementary offering of precision milled allograft products was the primary factor that contributed to a purchase price resulting in the recognition of goodwill. Goodwill recorded for this acquisition will be deducted on a straight-line basis for income tax purposes over 15 years.

        As a result of the required adjustment of acquired assets and liabilities to fair value at the date of purchase, using the income approach, the Company increased inventory by $409,000 over the historical cost. The increased inventory value will be recorded as a component of cost of revenues as the related products are sold. As of December 31, 2005, $204,500 of this amount remained in ending inventory.

        During the fourth quarter of 2005 the Company finalized the purchase price allocation and reduced inventory by $891,699 to conform Cortek's accounting for inventory to Alphatec's accounting for inventory.

Ishibe Medical Co, Ltd.

        On November 1, 2005, Alphatec Pacific acquired all of the outstanding common stock of Ishibe Medical Co, Ltd, a medical devices distributor headquartered in Sapporo, Japan. The direct cost of the acquisition was less than $300,000. The acquisition resulted in an increase to intangibles of

F-20



approximately $1,100,000 for Distribution Rights that are being amortized over three years. The results of operations have been included in the consolidated financial statements from the date of acquisition.

Pro forma Statements of Operations

        The unaudited pro forma financial information reflects the consolidated results of operations as if the acquisition of Alphatec Spine, Inc. and Cortek, Inc. had occurred at the beginning of the period presented. The unaudited pro forma financial data presented are not necessarily indicative of the Company's results of operations that might have occurred had the transactions been completed at the beginning of the period presented, and do not purport to represent what the Company's consolidated results of operations might be for any future period.

 
  Year ended
December 31, 2004

  Year ended
December 31, 2005

 
Revenues   $ 28,035,290   $ 48,630,985  
   
 
 
Net loss   $ (4,140,252 ) $ (15,282,210 )
Accretion to redemption value of redeemable convertible preferred, Rolling common and Series C common stock         (7,600,782 )
   
 
 
Net loss applicable to common stockholders   $ (4,140,252 ) $ (22,882,992 )
   
 
 
Net loss per share:              
  Basic   $ (0.45 ) $ (4.49 )
   
 
 
  Diluted   $ (0.43 ) $ (4.49 )
   
 
 
Weighted average shares outstanding:              
  Basic     9,178,904     5,098,220  
   
 
 
  Diluted     9,620,365     5,098,220  
   
 
 

        The pro forma results for both 2004 and 2005 include nonrecurring charges for the write-off of in process research and development ($3.1 million) and the step up in the basis of the inventory ($1.1 million) directly related to the acquisition as if they had occurred at the beginning of each period presented.

Buyback of Distribution Rights

        On August 11, 2005, Alphatec Pacific paid $3,097,850 to repurchase its distribution rights in Japan. The transaction was financed by $3,097,850 provided by Alphatec Pacific's current Chairman, President and Chief Executive Officer in return for the issuance of a note payable that is to be repaid in 18 equal monthly installments of $206,523 (18.46% effective interest rate to scheduled maturity), beginning December 1, 2005. As additional compensation for making the loan to Alphatec Pacific, the Successor granted Alphatec Pacific's Chairman, President and Chief Executive Officer a 20% interest in Alphatec Pacific, which had an estimated value of $597,844. This amount was recorded as debt issuance cost in the accompanying balance sheet. Also see Notes 4 and 7.

F-21



3.  Balance Sheet Details

Accounts Receivable

        Accounts receivable consist of the following:

 
  Predecessor
  Successor
 
 
  December 31,
2004

  December 31,
2005

 
Accounts receivable   $ 3,002,096   $ 10,145,031  
Allowance for doubtful accounts     (160,166 )   (784,213 )
   
 
 
    $ 2,841,930   $ 9,360,818  
   
 
 

Inventories

        Inventories consist of the following:

 
  Predecessor
  Successor
 
 
  December 31,
2004

  December 31,
2005

 
Raw materials   $ 776,263   $ 1,482,256  
Work-in process     419,712     681,471  
Finished goods     4,754,713     14,379,837  
   
 
 
      5,950,688     16,543,564  
Less reserves for excess and obsolete inventory     (3,335,746 )   (8,085,787 )
   
 
 
    $ 2,614,942   $ 8,457,777  
   
 
 

Property and Equipment

        Property and equipment consist of the following:

 
   
  Predecessor
  Successor
 
 
  Useful lives
(in years)

  December 31,
2004

  December 31,
2005

 
Machinery and equipment   7   $ 5,821,429   $ 4,313,354  
Surgical Instruments   2-3     2,831,151     1,701,445  
Computer equipment   5     463,142     497,921  
Office furniture and equipment   5     91,715     1,293,307  
Leasehold improvements   various     247,350     441,988  
       
 
 
          9,454,787     8,248,015  
Less accumulated depreciation and amortization         (5,749,133 )   (1,042,427 )
       
 
 
        $ 3,705,654   $ 7,205,588  
       
 
 

        The Company has assets under capital leases of $4,284,256 and $2,943,120 at December 31, 2004 and 2005, respectively. Accumulated depreciation on these assets totaled $1,553,548 and $456,341 at December 31, 2004 and 2005, respectively.

F-22



Acquired Intangibles

        Acquired intangibles consist of the following:

 
   
  Predecessor
  Successor
 
 
  Useful lives
(in years)

  December 31,
2004

  December 31,
2005

 
Developed product technology   5   $   $ 13,700,000  
Distribution rights   3         2,037,856  
Supply agreement   10     225,000     225,000  
       
 
 
          225,000     15,962,856  
Less accumulated amortization         (3,750 )   (2,319,162 )
       
 
 
        $ 221,250   $ 13,643,694  
       
 
 

        Aggregate amortization expense for intangible assets for the period from March 18, 2005 to December 31, 2005 was $2,316,468. The Company had no significant amortization expense for the years ended December 31, 2003 and 2004 and the period from January 1, 2005 to March 17, 2005.

        The future expected amortization expense related to intangible assets as of December 31, 2005 is as follows:

Year ending
December 31,

   
2006   $ 3,536,144
2007     3,522,131
2008     3,029,156
2009     2,762,496
2010     707,517
Thereafter     86,250
   
    $ 13,643,694
   

F-23


Accrued Expenses

        Accrued expenses consist of the following:

 
  Predecessor
  Successor
 
  December 31, 2004
  December 31, 2005
Current portion of severance payable   $   $ 986,857
Commissions     453,883     1,028,007
Royalties     521,051     869,461
Payroll and related     239,613     1,716,353
Legal         1,495,778
Reserve for litigation settlements         640,000
Other     583,610     1,999,096
   
 
    $ 1,798,157   $ 8,735,552
   
 

        Included in the current portion of severance payable balance at December 31, 2005 is $570,000 which is the result of the termination of two employees who had employment agreements with the Predecessor. The employees were terminated by the Successor in 2005 and will be paid out in periodic installments through March 2008. The long-term portion of $690,577 of severance payable is classified as other long-term liabilities in the accompanying balance sheet.

4.  Related Party Transactions

Predecessor Transactions

        During 2003, the Predecessor loaned seven employees $265,500 to purchase an aggregate of 295,000 shares of common stock from the Predecessor's majority stockholder. The repayment of the loans was due to the Predecessor in weekly installments over four years, bearing interest at 6%. If the employee ceased to be employed, the unpaid shares were returnable to the Predecessor. The loans were secured by the underlying common stock and therefore the notes were considered to be non-recourse and the common stock underlying the notes was accounted for as variable. In accordance with SEC SAB No. 79, transactions entered into by majority stockholders are accounted for as if transacted by the company. Since the shares essentially vested as they were paid for, expense was recorded on the date shares were paid for based on the difference between the purchase price and the fair value. Two of the employees were terminated during 2003 resulting in 28,864 shares reverting to the Predecessor at a cost of $26,193. Three of these employees were terminated during 2004 resulting in 178,192 shares of common stock reverting to the Predecessor at a cost of $162,192. One of the employees was terminated during the period from January 1, 2005 to March 17, 2005, resulting in 9,939 shares of common stock reverting to the Predecessor at a cost of $8,786. The total outstanding balance of these loans was $36,678, $26,206 and $0 at December 31, 2004, March 17, 2005 and December 31, 2005, respectively. The amount of the expense recorded in 2004 and for the period from January 1, 2005 to March 17, 2005 was $92,350 and $189,117, respectively.

        During the period from January 1, 2005 to March 17, 2005, the Predecessor's majority stockholder and Chief Executive Officer sold 160,000 shares of common stock to certain employees at $1.50 per

F-24



share which was subsequently determined to be less than the reassessed fair value of $6.70 at the date of the transaction. Accordingly, the Company recorded a stock-based compensation charge of $832,000 in the accompanying statement of operations.

        A Predecessor stockholder and employee and stockholder and employee of the Successor was paid $2,100,000 directly by the Predecessor's stockholders for financial advisory services provided in conjunction with the acquisition of the Predecessor.

Successor Transactions

        The Company paid an advisory fee to HealthpointCapital Advisors, LLC of $1,110,000 related to the financing of the acquisition of the Predecessor during the period ended December 31, 2005. In addition, the Company incurred a finders' fee to HealthpointCapital Partners, L.P. of $500,000 during the period ended December 31, 2005. HealthpointCapital Partners, L.P. is the majority stockholder of the Successor. The Company incurred costs of $597,964 to Foster Management Company (an entity owned by the Company's Chairman and also a significant stockholder of HealthpointCapital, LLC, which owns an interest in HealthpointCapital Partners, L.P. and its general partner, HGP, LLC) for travel expenses including the use of Foster Management Company's airplane for the period ended December 31, 2005.

        In connection with the Successor's repurchase of certain distribution rights in Japan, the Company borrowed $3,097,850 from Alphatec Pacific's Chairman, President and Chief Executive Officer in exchange for a note payable which bears an effective interest rate to scheduled maturity of 18.46% and a 20% ownership interest in Alphatec Pacific. For the period March 18, 2005 to December 31, 2005, the Company recorded interest expense totaling approximately $221,000 under this note, of which $17,322 remains unpaid at December 31, 2005.

5.  Supply Agreement

        In October 2004, the Predecessor entered into a ten-year agreement with one of its principal suppliers. This agreement fixes the price of materials with the supplier for the first 18 months and limits the annual price increase to eight percent for the remainder of the term of the agreement in return for three payments totaling $225,000. The Predecessor made a $75,000 payment in November 2004 and the Company made a $75,000 payment in September 2005 and will make one additional annual payment of $75,000 in 2006. The $225,000 was recorded as an intangible asset in the accompanying balance sheet.

6.  Debt

        In July 2005, Alphatec Spine, Inc. entered into a $4.0 million credit facility with a bank. The facility is for a term of one year, bears interest at the bank's prime rate and is secured by substantially all of the Alphatec Spine, Inc.'s assets. Under the terms of this credit line, Alphatec Spine is required to make monthly interest payments and is subject to certain covenants, which include, among other things, a specified ratio of current assets to current liabilities, a specified ratio of cash flow to debt, a specified minimum tangible net worth and debt to tangible net worth and a covenant to maintain profitability. If Alphatec Spine fails to satisfy these covenants and fails to cure any breach of these covenants within a specified number of days after receipt of notice, the bank could accelerate the entire amount borrowed and cancel the line of credit. At December 31, 2005, borrowings outstanding under

F-25



this line totaled $2,500,000. Alphatec Spine was not in compliance with several of the covenants under this credit facility at December 31, 2005. In January 2006, the Company obtained waivers of these covenant breaches which occurred prior to January 1, 2006. This credit facility was replaced with a new borrowing facility in January 2006.

        On January 24, 2006, the Company entered into a $10 million revolving line of credit with a bank to provide the working capital necessary to support the expansion of distribution channels. Borrowing under the financing arrangement will bear interest at the bank's prime rate or LIBOR plus 2.25%, with interest payable monthly. Availability under the revolving line of credit is subject to a borrowing base equal to 80% of eligible accounts receivable and 20% to 50% of eligible inventory, subject to certain limitations. Under the terms of this credit facility, Alphatec Spine is required to make monthly interest payments and is subject to certain covenants, which include among other things, prohibiting a net loss (as defined in the credit agreement) for fiscal 2005 in excess of $2.0 million, requiring a specified ratio of debt to cash flow and a specified ratio of debt to tangible net worth plus subordinated debt, requiring certain levels of profitability (as defined in the credit agreement) and restricting certain mergers and acquisitions without prior approval of the bank. In addition, this credit facility prohibits Alphatec Spine from declaring or paying cash dividends. The financing is collateralized by substantially all of the assets and capital stock of the Company.

        Alphatec Pacific has a $1,696,813 credit facility with a Japanese bank, under which $1,442,291 is outstanding at December 31, 2005. Under the terms of the line of credit, borrowings are due six months from the date of borrowing and bear interest at 1.875%. Under the terms of the credit facility, Alphatec Pacific is required to make monthly interest payments. The credit facility is secured by a deposit in the lending bank of approximately $2,000,000 by Alphatec Pacific's Chairman, President and Chief Executive Officer.

F-26



        Long-term debt and note payable to related party consists of the following:

 
  Predecessor
  Successor
 
 
  December 31,
2004

  December 31,
2005

 
Notes payable to U.S. institutions, bearing variable interest, generally due in monthly principal and interest installments, maturity dates through August 2009, collateralized by substantially all assets of the Company   $ 2,661,701   $  
Notes payable to Japanese Banks, bearing interest at rates ranging from 1.88% to 5.0%, maturity dates through June, 2010, collateralized by substantially all assets of Alphatec Pacific     281,370     1,020,741  
Note payable to related party, bearing interest at an effective rate to scheduled maturity of 18.46%, 18 equal monthly principal and interest payments of $197,962 from December 2005 through May 2007         2,942,976  
Capital leases, bearing interest at rates ranging from 5.52% to 14.66%, generally due in monthly principal and interest installments, maturity dates through March 2010, collateralized by the related equipment (Note 7)     2,465,248     1,987,000  
Other loans, interest rates ranging from 2.90% to 6.95%, due in monthly principal and interest installments, collateralized by the related automobiles     134,280      
Debt issuance costs on note payable to related party (Note 7)         (461,970 )
   
 
 
      5,542,599     5,488,747  
Less: current portion     (3,104,882 )   (2,980,660 )
   
 
 
    $ 2,437,717   $ 2,508,087  
   
 
 

        Principal payments on long-term debt and note payable to related party (excluding capital leases) are as follows as of December 31, 2005:

Year ending
December 31,

   
2006   $ 2,654,410
2007     1,123,508
2008     114,549
2009     47,024
2010     24,226
   
    $ 3,963,717
   

F-27


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 2010. Future minimum annual lease payments under such leases as of December 31, 2005 are as follows:

Year ending
December 31,

  Operating
  Capital
 
2006   $ 1,449,293   $ 771,267  
2007     1,026,961     606,223  
2008     582,304     504,627  
2009     460,058     339,859  
2010     433,259     12,809  
   
 
 
    $ 3,951,875     2,234,785  
   
       
Less: amount representing interest           (247,785 )
         
 
Present value of minimum lease payments           1,987,000  
Current portion of capital leases           (652,350 )
         
 
Capital leases, less current portion         $ 1,334,650  
         
 

        Rent expense under operating leases for the years ended December 31, 2003 and 2004 the period from January 1, 2005 to March 17, 2005 and the period from March 18, 2005 to December 31, 2005 was $333,800, $335,103, $124,253, and $1,004,381, respectively.

Litigation

        The Company is involved from time to time in litigation or claims arising in the ordinary course of its business. While the ultimate liability, if any, arising from these claims cannot be predicted with certainty, the Company believes that the resolution of these matters will not likely have a material adverse effect on the Company's consolidated financial statements. The Company has accrued $640,000 at December 31, 2005 primarily related to two litigation matters involving issues related to past and current employees. The accrual amount is based on either a settlement offer from the plaintiff in the matter or the agreed upon settlement.

Litigation Settlement

        During 2003, the Predecessor filed a lawsuit against a former customer with which the Predecessor had entered into a distribution agreement in 2001. The suit was for breach of contract and related claims and the former customer filed a counterclaim.

        This lawsuit was settled in September 2004. As a result of the settlement, the Predecessor was awarded $900,000 and the former customer returned all of the inventory and instruments associated with the original distribution agreement.

F-28



        In 2004, the Predecessor also received $367,424 of instruments and $600,000 in cash as a result of this settlement offset by $341,877 of legal costs. The net settlement of $625,547 is included in other income in the 2004 statement of operations.

Put Right

        On August 11, 2005, the Company entered into a Stock Purchase Agreement with Alphatec Pacific's Chairman, President and Chief Executive Officer in connection with the financing to repurchase certain distribution rights in Japan. The Stock Purchase Agreement provided the related party with the option to purchase 40 shares of the then outstanding 200 shares of Alphatec Pacific for $1.00, which was exercised on August 11, 2005. Under the terms of the Stock Purchase Agreement, Alphatec Pacific's Chairman, President and Chief Executive Officer has the right to require the Company to repurchase the shares beginning one year from the completion of an initial public offering by the Company. In addition, the Company has an obligation to repurchase those shares upon certain changes of control of Alphatec Holdings, Alphatec Spine or Alphatec Pacific or upon termination of the employment of the stockholder. The repurchase price is equal to the sum of 60% of annualized revenue from the sale of spine products and 20% of annualized revenues from the sales of other orthopedic device revenues by Alphatec Pacific, except in the event of a change of control of Alphatec Pacific, where it will be equal to a proportionate share of the price paid for Alphatec Pacific.

        The fair value of the 40 shares was established on August 11, 2005 in the amount of $597,844 and was recorded as minority interest and as debt issuance cost for the note payable to Alphatec Pacific's Chairman, President and Chief Executive Officer. The debt issuance cost is being amortized using the interest method over the life of the related note to interest expense. Interest expense of $135,874 was recorded for amortization of debt issuance cost during the period from March 18, 2005 to December 31, 2005.

        Subsequent to the original valuation on August 11, 2005, the value of the put right is being accounted for under SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity . In accordance with SFAS No. 150, the put right is classified as a liability and is represented by the minority interest in the accompanying consolidated balance sheet at December 31, 2005. The value of the put right at any reporting date is remeasured at the amount of cash that would be paid under the terms of the agreement as if the settlement occurred on that reporting date and recognizes the amount of the change from the previous reporting date as interest cost. In addition to the interest cost recorded for the change in the value of the put right, the Company consolidates 100% of Alphatec Pacific's operations. Interest expense of $1,316,244 was recorded during the period from August 12, 2005 to December 31, 2005.

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.

F-29



8.  Predecessor Stockholders' Equity

Stock Options

        The Predecessor had an incentive stock option and nonqualified stock option plan (the "Predecessor Plan"). The Predecessor Plan was revised in 2002 and provided for the granting of options to selected employees, directors, and consultants of the Predecessor to purchase up to 2,000,000 shares of the Predecessor's common stock at prices not less than the fair market value of the stock at the date of grant. The option expiration dates were determined at the date of grant, were not to exceed 10 years, and the options generally became exercisable over a three-year period.

        Stock option activity for the years ended December 31, 2003 and 2004 and the period ended March 17, 2005 was as follows:

 
  Number of
options

  Weighted
average
exercise price

Outstanding at December 31, 2002   687,000   $ 2.66
  Granted   577,000   $ 1.50
  Cancelled   (289,000 ) $ 2.98
  Exercised     $
   
     
Outstanding at December 31, 2003   975,000   $ 1.92
  Granted   674,000   $ 1.50
  Cancelled   (293,000 ) $ 1.98
  Exercised   (10,000 ) $ 1.00
   
     
Outstanding at December 31, 2004   1,346,000   $ 1.70
  Granted     $
  Cancelled     $
  Exercised     $
   
     
Outstanding at March 17, 2005   1,346,000   $ 1.70
   
     

        On March 17, 2005, when the Company acquired the Predecessor and the change in control provisions of the outstanding stock options were triggered, the outstanding unvested stock options became fully vested.

9.  Successor Redeemable Convertible Preferred and Rolling Common Stock and Stockholders' Equity

        In March 2005, the Company was capitalized through the sale of preferred stock units, consisting of shares of preferred stock and common stock, and the sale of Rolling common stock. The immediate redemption value of the preferred shares was equal to the unit price of the preferred stock unit and accordingly, none of the proceeds were allocated to the shares of common stock. In November and December 2005, the Company sold 130,781 shares of Series C common stock at $33.33 per share, resulting in $4,325,445 of net proceeds. The table below summarizes the number of shares of preferred stock and common stock comprising each unit, as well as the number of shares of Rolling common and

F-30



Series C common stock, and the gross proceeds received for, and the aggregate carrying value of, the redeemable convertible preferred stock, Rolling common and Series C common stock:

Unit

  Preferred shares
  Common shares
  Gross proceeds
 
Series A   1,539,000   677,712   $ 15,390,000  
Series A-1   2,903,500   1,278,549     29,035,000  
Series B   4,000,000   3,258,664     40,000,000  
Rolling common   200,166       4,545,612  
Series C common   130,781       4,359,363  
   
 
 
 
    8,773,447   5,214,925     93,329,975  
   
 
       
Gross issuance costs             (1,517,418 )
Accretion to redemption value through December 31, 2005             5,682,228  
Beneficial conversion feature of Series C common stock             1,918,554  
           
 
Carrying value at December 31, 2005           $ 99,413,339  
           
 

        Upon the earlier of (i) the election of any holder of Series A preferred stock, which election cannot occur until after March 15, 2015 (sometimes referred to as the "Series A Put Right"), (ii) the liquidation of the Company, (iii) an initial public offering of the Company's common stock, (iv) the occurrence of certain changes in control of the Company or (v) the sale of all or substantially all of the Company's assets (each, a "Significant Transaction"), the Company is required to:

        The aggregate amount of the foregoing dividend, liquidation and redemption payments are referred to herein as the "Liquidation and Redemption Value." The Company is accreting the carrying value of these securities to their Liquidation and Redemption Value at March 15, 2015, the earliest date on which Series A preferred stockholders can unconditionally require the payment of such amounts. Had a Significant Transaction occurred on December 31, 2005, the Liquidation and Redemption Value would have been $96,463,898. The difference between the Liquidation and Redemption Value and the carrying value of these securities consists of the beneficial conversion feature of Series C common stock of $1,918,554, the $2,424,680 of Series C common stock cost in excess of its liquidation value and the issuance costs remaining to be accreted, which were $1,393,793 at December 31, 2005.

F-31


Redeemable Convertible Preferred Stock, Rolling Common and Series C Common Stock

        The authorized, issued and outstanding shares of preferred stock, Rolling common and Series C common stock at December 31, 2005 are as follows:

 
  Shares
authorized

  Shares issued
and
outstanding

  Carrying
value

  Liquidation
and redemption
value(1)

Series A preferred   1,800,020   1,539,000   $ 16,125,896     16,358,131
Series A-1 preferred   3,941,603   2,903,500     30,367,167     30,814,338
Series B preferred   4,687,300   4,000,000     41,913,220     42,524,742
Rolling common   200,171   200,166     4,763,053     4,832,436
Series C common   300,000   130,781     6,244,003     1,934,251
   
 
 
 
    10,929,094   8,773,447   $ 99,413,339   $ 96,463,898
   
 
 
 

(1)
Represents the Liquidation and Redemption Value of the outstanding preferred stock, Rolling common and Series C common stock as of December 31, 2005 as if a Significant Transaction had occurred on December 31, 2005.

Dividends

        Each share of Rolling common stock accrues dividends at a per annum rate of 0.18167 shares of Series A preferred stock. Each share of Series A, Series A-1 and Series B preferred stock and each share of Series C common stock is entitled to dividends when, as and if declared by the Board of Directors.

Liquidation, dissolution or winding up

        Upon the liquidation, dissolution or winding up of the Company, each share of Rolling common stock is entitled to receive a payment of $22.71 plus an amount equal to $1.8167 per annum, each share of Series C common stock is entitled to receive a payment of $14.79 and each share of Series A and Series A-1 preferred stock is entitled to receive a payment of $10, pari passu with the liquidation payments described below due on the Series A and Series A-1 common stock and prior to and in preference to the liquidation payments described below due on the Series B common stock and the Series B preferred stock and all other payments due on the common stock. Each share of Series B preferred stock is entitled to receive a payment equal to $10 per share, pari passu with the liquidation payments described below due on the Series B common stock and prior to and in preference to all other payments due on the common stock. After payment of the foregoing preferences, the Rolling common and Series C common stock, together with the Series A, Series A-1, Series B and undesignated common stock are entitled to be paid the remaining assets of the Company available for distribution to its stockholders.

Other Significant Transactions: the Series A Put Right, an IPO or Change in Control

        Upon the occurrence of any Significant Transaction other than a liquidation, dissolution or winding up of the Company, each share of Rolling common stock is entitled to receive a dividend payment equal to $22.71 plus an amount equal to $1.8167 per annum, and each share of Series A, Series A-1

F-32



and Series B preferred stock is entitled to be redeemed for $10 and each share of Series C common stock is entitled to receive a dividend payment equal to $14.79 per annum, pari passu with the dividend payments described below due on the Series A, Series A-1 and Series B common stock. Upon the occurrence of any Significant Transaction, other than a liquidation, dissolution or winding up of the Company or an exercise of the Series A Put Right, the holders of at least 51% of the outstanding shares of Series B common stock may require that the Company pay the foregoing dividend and redemption amounts in common stock, valued at its fair market value as determined in good faith by the Board of Directors.

Conversion

        Upon the occurrence of a Significant Transaction, each share of Rolling common and Series C common stock is mandatorily convertible into one share of undesignated common stock.

Voting

        The Series A, Series A-1 and Series B preferred stock, Rolling common and Series C common stock are generally non-voting. In any vote requiring the approval of the holders of all preferred stock, the Series B preferred stock has two votes per share and all other series of preferred stock has one vote per share.

Beneficial Conversion Feature on Sale of Series C common stock

        The Series C common stock was sold at a price per share below the anticipated IPO price. Accordingly, pursuant to EITF Issue No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features , the Company recorded a deemed dividend on the Series C common stock of $1.9 million, which is equal to the number of shares of Series C common stock sold multiplied by the difference between the estimated fair value of the underlying common stock and the Series C common stock conversion price per share. The deemed dividend increased the net loss applicable to common stockholders in the calculation of basic and diluted net loss per common share and was reported as an increase to the Series C common stock and a credit to additional paid-in capital.

Series A, Series A-1, Series B and Undesignated Common Stock

        The authorized, issued and outstanding shares of common stock by series at December 31, 2005 are as follows:

 
  Shares authorized
  Shares issued and
outstanding

Series A common   677,715   677,712
Series A-1 common   1,978,767   1,834,374
Series B common   3,258,764   3,258,664
Common   13,930,370  
   
 
    19,845,616   5,770,750
   
 

F-33


        The Liquidation and Redemption Value relating to the Series A, Series A-1 and Series B common stock is included in the Liquidation and Redemption Value in the table under "Redeemable Convertible Preferred Stock and Rolling Common Stock" above.

Dividends

        Each share of Series A and Series A-1 common stock accrues dividends at a per annum rate of 0.18167 shares of Series A and Series A-1 preferred stock, respectively. Each share of Series B common stock accrues dividends at a per annum rate of 0.09819 shares of Series B preferred stock.

Liquidation, dissolution or winding up

        Upon the liquidation, dissolution or winding up of the Company, each share of Series A common stock and Series A-1 common stock is entitled to receive a payment equal to $1.8167 per annum, pari passu with the liquidation payments described above on the Rolling common stock and the Series A and Series A-1 preferred stock and prior to and in preference to the liquidation payments described below on the Series B common stock, the liquidation payments described above on the Series B preferred stock and all other payments due on the undesignated common stock. Each share of Series B common stock is entitled to receive a payment equal to $0.9819 per annum, pari passu with the liquidation payments described above on the Series B preferred stock and prior to and in preference to all other payments due on the undesignated common stock. After payment of the foregoing preferences, the Series A, Series A-1, Series B and undesignated common stock, together with the Rolling common and Series C common stock, are entitled to be paid the remaining assets of the Company available for distribution to its stockholders.

Other Significant Transactions: the Series A Put Right, an IPO or Change in Control

        Upon the occurrence of any Significant Transaction other than a liquidation, dissolution or winding up of the Company, each share of Series A and Series A-1 common stock is entitled to receive a dividend payment equal to $1.8167 per annum, and each share of Series B common stock is entitled to receive a dividend payment equal to $0.9818 per annum. These payments on each of these series of common stock are pari passu with the dividend and redemption payments due on the Rolling common and Series C common stock and the Series A, Series A-1 and Series B preferred stock. Upon the occurrence of any Significant Transaction, other than a liquidation, dissolution or winding up of the Company or an exercise of the Series A Put Right, the holders of at least 51% of the outstanding shares of Series B common stock, may require that the Company pay the foregoing dividend and redemption amounts in common stock, valued at its fair market value, as determined in good faith by the Board of Directors.

Conversion

        Upon the occurrence of a Significant Transaction, each share of Series A, Series A-1 and Series B common stock is mandatorily convertible into one share of undesignated common stock.

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Voting

        The Series A, Series A-1 and undesignated common stock are generally non-voting. The Series B common stock is entitled to one vote per share. Upon the occurrence of a Significant Transaction and conversion of the Series B common stock into undesignated common stock, the undesignated common stock is entitled to one vote per share.

Stockholder Loan

        In March 2005, the Company loaned the spouse of an employee stockholder $203,839 for the purchase of Rolling common stock. Interest on the outstanding principal balance accrues at the federal funds rate with both principal and interest due at the earlier of: (i) the first anniversary of the note or (ii) an initial public offering of the shares of capital stock of the Company. The note is secured by certain funds held in escrow. As of December 31, 2005, the balance of the note was $64,873. The loan was paid in full in February 2006.

Stock Options

        In 2005, the Company adopted its 2005 Employee, Director, and Consultant Stock Plan (the "2005 Plan"). The 2005 Plan allows for the grant of options and restricted stock awards to employees, directors, and consultants of the Company. The 2005 Plan has 600,000 shares of Series A-1 common stock reserved for issuance. The Board of Directors determines the terms of the restricted stock and the term of each option, option price, number of shares for which each option is granted, whether restrictions will be imposed on the shares subject to options, and the rate at which each option is exercisable. Options granted under the 2005 Plan expire no later than 10 years from the date of grant (five years for incentive stock options granted to holders of more than 10% of the Company's voting stock). Options generally vest over a five year period and may be immediately exercisable upon a change of control of the Company. The exercise price of incentive stock options may not be less than 100% of the fair value of the Company's common stock on the date of grant. The exercise price of any option granted to a 10% stockholder may be no less than 110% of the fair value of the Company's common stock on the date of grant. At December 31, 2005, a total of 76,468 shares of Series A-1 common stock remained available for issuance under the 2005 Plan.

        A summary of the Company's stock option activity under the 2005 Plan and related information are as follows:

 
  Number of
options

  Weighted
average
exercise price

  Granted   34,257   $ 3.18
  Cancelled   (1,550 ) $ 0.002
   
     
Outstanding at December 31, 2005   32,707   $ 3.33
   
     

F-35


 
  Options outstanding
  Options exercisable
Exercise
price

  Number
outstanding

  Weighted
average
remaining
contractual
Life (in years)

  Weighted
average
exercise
price

  Number
exercisable

  Weighted
average
exercise
price

$ 0.002   26,300   9.66   $ 0.002     $
$ 17.00   6,407   9.92   $ 17.00     $
     
                   
      32,707   9.71   $ 3.33     $
     
                   

        In connection with the issuance of options to purchase 34,257 shares of Series A-1 common stock and the sale of 542,700 shares of Series A-1 common stock to employees during the period from March 18, 2005 to December 31, 2005, the Company recorded total deferred employee stock-based compensation within stockholders' equity of $20,530,518, which represents the difference between the estimated fair value of the common stock and the option exercise price or stock issuance price at the date of issuance. The deferred employee stock-based compensation is amortized over the vesting period of the applicable equity instrument on a straight-line basis.

        The expected future amortization expense for deferred employee stock-based compensation is as follows as of December 31, 2005:

Year ending
December 31,

   
2006   $ 3,915,733
2007     3,915,732
2008     3,926,460
2009     3,915,732
2010     2,622,519
   
    $ 18,296,176
   

Common Stock Reserved for Future Issuance

        Common stock reserved for future issuance consists of the following:

 
  Successor
 
  December 31,
2005

Stock options outstanding   32,707
Authorized for future grant under 2005 Plan   76,468
   
    109,175
   

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10. Income Taxes

      The components of the (benefit) provision for income taxes for the years ended December 31, 2003 and 2004, the period from January 1, 2005 to March 17, 2005 and the period from March 18, 2005 to December 31, 2005 are presented in the following table:

 
  Predecessor
  Successor
 
 
  Year ended
December 31,
2003

  Year ended
December 31,
2004

  Period from
January 1,
2005 to
March 17,
2005

  Period from
March 18,
2005 to
December 31,
2005

 
Current:                          
  Federal   $   $   $   $ 47,942  
  State     (3,103 )   95,058          
  Foreign     44,383     1,069     1,467     1,949  
   
 
 
 
 
      41,280     96,127     1,467     49,891  
   
 
 
 
 
Deferred:                          
  Federal                 (2,480,571 )
  State                 (594,207 )
  Foreign                 (14,013 )
   
 
 
 
 
                  (3,088,791 )
   
 
 
 
 
    $ 41,280   $ 96,127   $ 1,467   $ (3,038,900 )
   
 
 
 
 

        The (benefit) provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to pretax income as a result of the following differences:

 
  Predecessor
  Successor
 
 
  Year ended December 31,
2003

  Year ended December 31,
2004

  Period from
January 1, 2005
to March 17,
2005

  Period from
March 18, 2005
to December 31,
2005

 
Federal statutory rate   (34.0 )% 34.0 % (34.0 )% (35.0 )%
Adjustments for tax effects of:                  
  State taxes, net   (3.0 )% 9.7 % (3.7 )% (2.4 )%
  In-process research and development   0.0 % 0.0 % 0.0 % 6.8 %
  Stock based compensation   0.0 % 5.2 % 5.4 % 2.9 %
  Foreign tax   2.0 % 4.1 % 1.1 % (1.1 )%
  Fair value change of put option   0.0 % 0.0 % 0.0 % 2.9 %
  Other   4.2 % 7.9 % 0.9 % 1.2 %
  Valuation allowance   36.0 % (45.0 )% 30.4 % 5.5 %
   
 
 
 
 
    5.2 % 15.9 % 0.1 % (19.2 )%
   
 
 
 
 

F-37


        Significant components of the deferred tax assets and liabilities at December 31, 2004 and December 31, 2005, are as follows:

 
  Predecessor
  Successor
 
 
  December 31,
2004

  December 31,
2005

 
Deferred Tax Assets:              
  Allowances and reserves   $ 64,661   $ 349,703  
  Accrued expenses     126,773     857,257  
  Inventory     1,516,041     1,778,606  
  Intangible assets     27,693      
  Stock based compensation     72,413      
  Net operating loss carryforwards     107,236     3,254,075  
  Income tax credit carryforwards     36,442     36,442  
   
 
 
      1,951,259     6,276,083  
  Valuation allowance     (1,604,168 )   (880,424 )
   
 
 
  Total deferred tax assets, net of valuation allowance     347,091     5,395,659  
   
 
 

Deferred Tax Liabilities:

 

 

 

 

 

 

 
  Property and equipment     347,091     356,996  
  Intangible assets         5,038,663  
   
 
 
  Total deferred tax liabilities     347,091     5,395,659  
   
 
 
  Net deferred tax liabilities   $   $  
   
 
 

        The realization of deferred tax assets may be dependent on the Company's ability to generate sufficient income in future years. As of December 31, 2005, a valuation allowance of $880,424 has been established against the net deferred tax assets as realization is uncertain.

        At December 31, 2005, the Company had federal, state, and foreign tax loss carryforwards of approximately $5,066,426, $6,997,308, and $2,835,241, respectively. If unused, the federal, state and foreign tax loss carryforwards begin to expire in 2020, 2010 and 2010, respectively.

        The utilization of net operating loss carryforwards and tax credit carryforwards is dependent on the future profitability of the Company. Furthermore, the Internal Revenue Code imposes substantial restriction on the utilization of net operating loss and tax credit carryforwards in the event of an "ownership change" of more than 50 percentage points during any three year period. Due to prior ownership changes as defined by IRC Section 382, a portion of the Company's net operating loss and tax credit carryforwards may be limited in their annual utilization.

11.  Employee Retirement Plans

        The Predecessor had a 401(k) Plan for the benefit of its employees. The 401(k) Plan covered all eligible employees. All employees who had a minimum of six months of service could elect to contribute to the 401(k) Plan up to 20% of their compensation to the annual maximum limit established by the IRS. The Predecessor did not make any contributions to the 401(k) Plan from

F-38



inception to March 17, 2005. The Successor assumed the 401(k) Plan upon acquisition of the Predecessor and amended the 401(k) Plan on August 1, 2005 to reflect the following changes: (i) all eligible employees may participate in the plan immediately with no waiting period, (ii) the Successor may make discretionary matches to the 401(k) Plan of up to 4% of each individual's compensation, and (iii) Successor match amounts are immediately vested. The Successor made matching contributions to the 401(k) Plan of $177,692 for the period from March 18, 2005 to December 31, 2005.

F-39



REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of
Cortek, Inc.

        In our opinion, the accompanying statements of operations, redeemable convertible preferred stock and stockholders' equity and cash flows present fairly, in all material respects, the results of operations and cash flows of Cortek, Inc. (the "Company") for the year ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

        The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred losses and negative cash flows from operations since inception, which raises doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

                        /s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
June 27, 2005

F-40


CORTEK, INC.

STATEMENTS OF OPERATIONS

Year Ended December 31, 2004

 
  2004
 
Revenue   $ 10,363,000  
Cost of goods sold     5,775,000  
   
 
  Gross profit     4,588,000  
   
 
Operating expenses        
Research and development     1,005,000  
Selling and marketing     4,258,000  
General and administrative     1,453,000  
   
 
  Total operating expenses     6,716,000  
   
 
  Loss from operations     (2,128,000 )
Interest income (expense), net     (114,000 )
   
 
  Net loss     (2,242,000 )
Accretion of redeemable convertible preferred stock     (2,906,000 )
   
 
  Net loss attributable to common stockholders   $ (5,148,000 )
   
 

The accompanying notes are an integral part of these financial statements.

F-41


CORTEK, INC.

STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

Year Ended December 31, 2004

 
  Series D-2
Redeemable Convertible
Preferred Stock

  Series D
Redeemable Convertible
Preferred Stock

  Series C
Redeemable Convertible
Preferred Stock

  Series B
Redeemable Convertible
Preferred Stock

  Series A
Redeemable Convertible
Preferred Stock

   
   
   
   
   
   
 
 
  Common Stock
  Treasury Stock
   
   
 
 
  Accumulated
Deficit

   
 
 
  Shares
  Amount
  Shares
  Amount
  Shares
  Amount
  Shares
  Amount
  Shares
  Amount
  Shares
  Amount
  Shares
  Amount
  Total
 
Balance at December 31, 2003   4,436,631   $ 7,277,000   7,575,757   $ 13,602,000   5,516,458   $ 11,033,000   2,700,000   $ 2,700,000   1,546,288   $ 1,546,000   4,119,249   $ 42,000   166,667   $ (2,000 ) $ (29,996,000 ) $ (29,956,000 )
Accretion of redeemable preferred stock to redemption value         1,508,000         1,398,000                                                       (2,906,000 )   (2,906,000 )
Net loss                                                                           (2,242,000 )   (2,242,000 )
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2004   4,436,631   $ 8,785,000   7,575,757   $ 15,000,000   5,516,458   $ 11,033,000   2,700,000   $ 2,700,000   1,546,288   $ 1,546,000   4,119,249   $ 42,000   166,667   $ (2,000 ) $ (35,144,000 ) $ (35,104,000 )
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

The accompanying notes are an integral part of these financial statements.

F-42



CORTEK, INC.

STATEMENTS OF CASH FLOWS

Year Ended December 31, 2004

 
  2004
 
Cash flows from operating activities        
Net loss   $ (2,242,000 )
Adjustments to reconcile net loss to net cash used in operating activities        
  Depreciation and amortization expense     340,000  
  Loss on disposal of fixed assets     12,000  
  Noncash expense related to stock options      
  Changes in operating assets and liabilities        
    Accounts receivable     266,000  
    Inventories     (25,000 )
    Prepaid expenses and other current assets     96,000  
    Other assets     (5,000 )
    Accounts payable     (581,000 )
    Accrued expenses     88,000  
   
 
      Net cash used in operating activities     (2,051,000 )
   
 
Cash flows from investing activities        
Purchases of fixed assets     (35,000 )
Proceeds from restricted cash     300,000  
   
 
      Net cash provided by (used in) investing activities     265,000  
   
 
Cash flows from financing activities        
Proceeds from issuance of common stock      
Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs      
Proceeds from borrowings under line of credit     550,000  
   
 
Net cash provided by financing activities     550,000  
   
 
Net decrease in cash and cash equivalents     (1,236,000 )
   
 
Cash and cash equivalents at beginning of year     1,311,000  
   
 
Cash and cash equivalents at end of year   $ 75,000  
   
 

The accompanying notes are an integral part of these financial statements.

F-43



CORTEK, INC.

NOTES TO FINANCIAL STATEMENTS

December 31, 2004

1.    Nature of the Business

        Cortek, Inc. (the "Company") was incorporated in Delaware on February 5, 1998 under the name Cortek Spine, Inc. Concurrent with the Company's private financing in August 1998, the Board of Directors authorized the changing of the Company's name to Cortek, Inc. The Company was established to develop and produce interbody fusion implants for sale to the spinal implant market. Since inception, the Company has concentrated its efforts on developing prototypes of its spinal fusion implants in addition to developing its customer base and its means of production.

        The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred losses from operations and negative cash flows since inception and has an accumulated deficit of $35,144,000 at December 31, 2004. To date, the Company has been funded primarily by issuing equity securities and from sales transactions with customers. Management intends to continue to seek additional customers for its products and to generate additional revenue to fund operations. There is no assurance that the Company will be successful in generating sufficient revenues to fund operations. This raises doubt about the Company's ability to continue as a going concern. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.

2.    Summary of Significant Accounting Policies

Financial and Credit Risk

        Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of temporary cash equivalents and accounts receivable. The Company invests primarily in money market funds of major financial institutions. The Company provides credit to customers in the normal course of business. Collateral is not required for accounts receivable, but evaluation of customers' credit and financial condition is performed periodically. During 2004, revenues derived from that customer represented 14% of total revenues for the year.

Inventories

        Inventories, principally allograft spinal implants, are stated at the lower of cost (determined on a first-in, first-out basis) or market value. Cost components include manufacturing overhead, labor and amounts paid to suppliers of materials and products as well as freight costs. Rapid technological change and new product introductions and enhancements could result in excess or obsolete inventory. To minimize this risk, the Company evaluates inventory levels and expected usage on a periodic basis and records adjustments as considered necessary to state inventories at their appropriate net realizable value.

Fixed Assets

        Fixed assets are recorded at cost and depreciated using the straight-line method over their estimated useful lives. Leasehold improvements are amortized over the shorter of the asset life or the lease term. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the

F-44



determination of net income or loss. Expenditures for repairs and maintenance are expensed as incurred. Depreciation expense was $340,000 for the year ending December 31, 2004.

Revenue Recognition

        The Company negotiates contracts and establishes pricing with hospitals on an individual basis. Revenue from sales of the allograft spinal and cervical implants is recognized upon completion of the implant surgery.

Research and Development Costs

        Research and development costs are expensed as incurred. Included in research and development costs are wages, benefits and other operational costs related to the Company's research and development and employees.

Income Taxes

        The Company uses the liability method of accounting for income taxes. Under the liability method, deferred tax assets and liabilities reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured under enacted tax laws. A valuation allowance is required to offset any net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

Accounting for Stock-Based Compensation

        The Company accounts for stock-based awards to employees using the intrinsic value method as prescribed by Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees , and related interpretations. The Company has adopted the provisions of SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), through disclosure only. All stock-based awards to nonemployees are accounted for at their fair value in accordance with SFAS 123 and Emerging Issues Task Force ("EITF") No. 96-18, Accounting for Equity Instruments that Are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services . The Company has adopted the disclosure provisions of SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of SFAS 123 , for all stock-based awards as of December 31, 2002.

        The following illustrated the effect on net loss had the Company applied the fair value recognition provisions of SFAS 123.

 
  2004
 
Net loss, as reported   $ (2,242,000 )
Deduct: Stock-based compensation expense under the fair value-based method for all awards     (19,000 )
   
 
  Pro forma net loss   $ (2,261,000 )
   
 

F-45


        The fair value of each stock option is estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions:

 
  2004
 
Expected life   6 years  
Expected volatility   0 %
Dividend yield   0 %
Weighted average risk-free interest rate   4 %

Use of Estimates

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

3.    Redeemable Convertible Preferred Stock

        In March 1998, the Company authorized and designated 2,000,000 shares as Series A redeemable convertible preferred stock (the "Series A preferred"), and issued 1,546,288 shares of Series A preferred at a per share price of $1.00, for gross proceeds of $1,546,000, less $27,000 of issuance costs.

        In August 1998, the Company authorized and designated 2,700,000 shares as Series B redeemable convertible preferred stock (the "Series B preferred"), and issued 2,700,000 shares of Series B preferred at a per share price of $1.00, for gross proceeds of $2,700,000, less $56,000 of issuance costs.

        In November 1999, the Company authorized and designated 5,250,000 shares as Series C redeemable convertible preferred stock (the "Series C preferred"), and issued 5,003,958 shares of Series C preferred at a per share price of $2.00, for gross proceeds of $10,008,000, less $20,000 of issuance costs. In February 2000, the Company authorized and designated an additional 280,000 shares of Series C preferred, and issued 525,000 shares of Series C preferred at a per share price of $2.00, for gross proceeds of $1,050,000.

        In June 2001, the Company authorized and designated 7,575,800 shares as Series D redeemable convertible preferred stock (the "Series D preferred") and issued 5,454,545 shares of Series D preferred at a per share price of $1.32, for gross proceeds of $7,200,000, less $208,000 of issuance costs. In July 2001, the Company issued an additional 2,121,212 shares of Series D preferred at a per share price of $1.32, for gross proceeds of $2,800,000.

        In December 2002, the Company authorized and designated 5,303,030 shares as Series D-2 redeemable convertible preferred stock (the "Series D-2 preferred") and issued 2,882,615 shares of Series D preferred at a per share price of $1.32, for gross proceeds of $3,805,000, less $18,000 of issuance costs. In March 2003, the Company issued 1,554,016 shares of Series D-2 at a per share price of $1.32, for gross proceeds of $2,066,299 less $131,352 of issuance costs.

F-46



        The Series A, Series B, Series C, Series D and Series D-2 preferred have the following characteristics:

Voting

        Holders of Series A, Series B, Series C, Series D and Series D-2 preferred are entitled to vote upon any matter submitted to the stockholders for vote. Each share of Series A, Series B, Series C, Series D and Series D-2 preferred shall have one vote for each full share of common stock into which the respective share of Series A, Series B, Series C, Series D and Series D-2 preferred would be convertible on the record date of the vote.

Dividends

        Holders of Series A, Series B, Series C, Series D and Series D-2 preferred shall receive, out of funds legally available, noncumulative dividends when and if declared by the Board of Directors in preference to holders of common stock. In the event of a declaration and payment of dividends on common stock, dividends on the Series A, Series B, Series C, Series D and Series D-2 preferred (determined by the number of common shares into which the preferred are convertible) are payable in an amount equal to the per share amount of the dividend to the common stockholders.

Liquidation Preference

        In the event of any liquidation, dissolution or winding-up of the affairs of the Company, the holders of the Series D and D-2 preferred are entitled to receive, prior to and in preference to holders of the Series A, Series B and Series C preferred, and common stock, $1.98 per share, plus any declared but unpaid dividends. The holders of Series C preferred are entitled to receive, prior to and in preference to holders of Series A and Series B preferred, and common stock, an amount equal to $2.00 per share, plus any declared but unpaid dividends. The holders of Series A and Series B preferred are entitled to receive, prior to and in preference to holders of common stock, an amount equal to $1.00 per share, plus any declared but unpaid dividends. If assets to be distributed are insufficient to permit full payment, the assets will be distributed proportionate to each holder's investment.

Conversion

        Each Series A, Series B, Series C, Series D and Series D-2 preferred share is convertible, at the option of the holder, into one share of common stock, subject to certain anti-dilution adjustments.

        Each share of Series A, Series B, Series C, Series D and Series D-2 preferred will automatically convert into common stock upon the closing of an initial public offering with net proceeds of at least $20,000,000 and with a price per common share of at least $5.00, or upon conversion of ninety percent or more of the voting power of the outstanding preferred.

Redemption

        All shares of Series A preferred are callable at any time, at the option of the Company, at a price of $1.00 per share, plus any declared but unpaid dividends on the call date. From November 30, 2004, subject to their majority vote as a single class, holders of outstanding shares of Series B, Series C, Series D and Series D-2 preferred have the ability to require the Company to redeem the

F-47



then-outstanding shares. The Series B, Series C, Series D and Series D-2 preferred are redeemable for cash consideration equal to $1.00, $2.00, $1.98 and $1.98, respectively, per share, plus any declared but unpaid dividends. The consideration is payable in three equal annual installments beginning on the date of redemption. As of December 31, 2004 all shares of preferred stock are stated at redemption value.

4.    Common Stock

        Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company's stockholders. Common stockholders are entitled to receive dividends, if any, as may be declared by the Board of Directors, subject to the preferential dividend rights of the Series A, Series B, Series C, Series D and Series D-2 preferred stockholders. As of December 31, 2004, no dividends have been declared.

        At December 31, 2004, the Company reserved 24,025,301 shares of common stock for issuance upon conversion of the preferred stock (Note 3) and for the exercise of outstanding common stock options (Note 5).

Treasury Stock

        During 1998, the Company repurchased 166,667 unvested shares of common stock from an ex-officer at the price of $0.01 per share. The shares will be held by the Company for future grants of stock awards or exercise of stock options.

Restricted Stock Agreements

        In December 2000, 600,000 shares of restricted common stock were purchased by employees at $0.50 per share through the issuance of $300,000 of promissory notes issued by the employees to a bank. In the case of default with the bank, the Company will act as guarantor. The guaranty was secured by a $300,000 certificate of deposit that was redeemed and the proceeds were used to settle the promissory notes on behalf of the employees. A compensation charge of $300,000 was recorded in 2004 relative to this redemption. The charge was recorded within the sales, general and administrative expenses.

5.    Stock Option Plan

        During 1998, the Board of Directors adopted and the stockholders approved the 1998 Stock Option and Restricted Stock Purchase Plan (the "Plan"). The Plan provides for the grant of incentive stock options (ISOs), nonqualified stock options, and common stock. The Board of Directors administers the Plan and has sole discretion to grant options and awards to purchase shares of the Company's common stock by employees, officers, consultants or advisors and directors of the Company. The Board of Directors determines the term of each option, option price, number of shares for which each option is granted, whether restrictions will be imposed on the shares subject to options, and the rate at which each option is exercisable. ISOs may be granted to any officer or employee at an exercise price per share of not less than fair value on the date of the grant (not less than 110% of fair value in the case of holders of more than 10% of the Company's voting stock) and with a term not to exceed ten years from the date of grant (five years for ISOs granted to holders of more than 10% of the Company's voting stock). Options granted under the Plan typically vest between one and four years.

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        A summary of the status of the company's stock options activity during the year ended December 31, 2004 is presented below:

 
  Shares
  Weighted Average Exercise Price
Outstanding at beginning of period     2,277,667   $ 0.33
Granted     30,000     0.32
Exercised        
Canceled     (57,500 )   0.33
   
     
Outstanding at end of period     2,250,167   $ 0.33
   
     
Options exercisable at end of period     1,028,875   $ 0.33
   
     
Weighted-average fair value of options granted during the period   $ 0.06      
   
     

6.    Commitments

      The Company leases its primary office space under a noncancelable operating lease which expires in August 2006. The Company additionally leases space at one of their third-party manufacturing facilities. The Company also rents certain office equipment under operating leases. Rent expense under these commitments was approximately $388,211 for the year ended December 31, 2004.

7.    Income Taxes

        As of December 31, 2004, Cortek, Inc. had federal net operating loss ("NOL") and research and experimentation credit carryforwards of approximately $24,377,000 and $156,000, respectively, which may be available to offset future federal income tax liabilities and begin to expire in 2018. As required by Statement of Financial Accounting Standards No. 109, management of Cortek, Inc. has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Management has determined that it is more likely than not that Cortek, Inc. will not recognize the benefits of federal and state deferred tax assets and, as a result, a valuation allowance of approximately $10,538,000 has been established at December 31, 2004. During 2004, the valuation allowance increased by $868,000.

        Ownership changes, as defined in the Internal Revenue Code, may have limited the amount of net operating loss carryforwards that can be utilized annually to offset future taxable income. Subsequent ownership changes could further affect the limitation in future years.

8.    401(k) Plan

        In 2000, the Company adopted a 401(k) Plan for all employees. This Plan covers substantially all employees who meet minimum age requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. Company contributions to the Plan may be made at the discretion of the Board of Directors. The Company has not made any contributions to the Plan through December 31, 2004.

F-49



REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders
Cortek, Inc.

        We have audited the accompanying statements of operations and cash flows of Cortek, Inc. for the period from January 1, 2005 through September 8, 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

        We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the results of Cortek, Inc.'s operations and cash flows for the period January 1, 2005 through September 8, 2005 in conformity with accounting principles generally accepted in the United States of America.

        The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred losses and negative cash flows from operations since inception, which raises doubt about the Company's ability to continue as a going concern. As further discussed in Note 6, the Company sold substantially all the assets and property related to the Company's business subsequent to September 8, 2005.

UHY LLP

Boston, Massachusetts
December 29, 2005

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CORTEK, INC.

STATEMENT OF OPERATIONS

Period from January 1, 2005 through September 8, 2005

Revenue   $ 6,922,768  
Cost of goods sold     4,174,018  
   
 
  Gross profit     2,748,750  
   
 
Operating expenses        
Research and development     168,116  
Selling and marketing     2,132,929  
Regulatory     198,592  
General and administrative     1,653,847  
Other Expense     190,928  
   
 
  Total operating expenses     4,344,412  
   
 
  Loss from operations     (1,595,662 )
   
 
Interest expense     3,957  
Income tax benefit     (945,071 )
   
 
  Net Loss   $ (654,548 )
   
 

See notes to financial statements

F-51



CORTEK, INC.

STATEMENT OF CASH FLOWS

Period from January 1, 2005 to September 8, 2005

Operating activities        
Net loss   $ (654,548 )
Adjustments to reconcile net loss to net cash provided by in operating activities        
  Depreciation and amortization expense     258,402  
  Provision for deferred income taxes     (953,130 )
  Loss on disposal of fixed assets     (1,030 )
  Changes in assets and liabilities:        
    Accounts receivable     (9,548 )
    Inventories     1,006,092  
    Prepaid expenses and other current assets     (54,376 )
    Accounts payable     (279,757 )
    Accrued expenses     1,006,502  
   
 
      Net cash provided by operating activities     318,607  
   
 
Net increase in cash and cash equivalents     318,607  
Cash and cash equivalents, beginning     75,000  
   
 
Cash and cash equivalents, ending   $ 393,607  
   
 

Cash paid for interest during the period was $6 and for income taxes $4,059.

See notes to financial statements

F-52



CORTEK, INC.

NOTES TO FINANCIAL STATEMENTS

Note 1—Operations and Significant Accounting Policies

Nature of Operations

        Cortek, Inc. (the Company) was incorporated in Delaware on February 5, 1998 under the name Cortek Spine, Inc. Concurrent with the Company's private financing in August 1998, the Board of Directors authorized the changing of the Company's name to Cortek, Inc. The Company was established to develop and produce interbody fusion implants for sale to the spinal implant market. Since inception, the Company has concentrated its efforts on developing prototypes of its spinal fusion implants in addition to developing its customer based and its means of production.

        The accompanying statements of operations, and cash flows have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred losses from operations and negative cash flows since inception and has an accumulated deficit of $35,805,875 at September 8, 2005. To date, the Company has been funded primarily by issuing equity securities and from sales transactions with customers. As discussed in Note 6, the Company sold substantially all the assets and property related to its existing business to Alphatec Spine, Inc. subsequent to September 8, 2005.

        The net loss in the accompanying statement of operations is less than the net loss reported in the unaudited statement of operations included in the previously filed Form S-1 registration statement by $656,000. The difference results primarily from the accrual of severance charges of $290,000 offset by tax benefits of $945,000 (see Note 4). In addition, the previous unaudited statement of operations reported the accretion of redeemable preferred stock of $1,998,000, which was not applicable.

Significant Accounting Policies

Concentrations

        The Company derived 14 percent of total revenues from one customer during the period from January 1 through September 8, 2005.

Depreciation, Amortization and Gain/(Loss) on Disposal of Assets

        Fixed assets are recorded at cost and depreciated using the straight-line method over their estimated useful lives. Leasehold improvements are amortized over the shorter of the asset life or the lease term. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the determination of net income or loss. Expenditures for repairs and maintenance are expensed as incurred. Depreciation expense was $258,402 for the period from January 1 to September 8, 2005.

Revenue Recognition

        The Company negotiates contracts and establishes pricing with hospitals on an individual basis. Credit is extended without a requirement for collateral. Revenue from sales of the allograft spinal and cervical implants is recognized upon completion of the implant surgery.

F-53



Losses on Accounts Receivable

        The Company provides for losses on accounts receivable using the allowance method. The Company reviews the collectibility of its receivables on a continuing basis taking into account a combination of factors. The Company reviews potential problems, such as past due accounts or a deterioration in the customer's financial condition, to insure that the Company is adequately accrued for potential loss. Accounts are considered past due based on when payment was originally due. The Company will write off accounts receivable after reasonable collection efforts have been made and the accounts are deemed uncollectible.

Research and Development Costs

        Research and development costs are expensed as incurred. Included in research and development costs are wages, benefits and other operational costs related to the Company's research and development and employees.

Income Taxes

        The Company uses the liability method of accounting for income taxes. Under the liability method, deferred tax assets and liabilities reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured under enacted tax laws. A valuation allowance is required to offset any net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

Accounting for Stock-Based Compensation

        The Company accounts for stock-based awards to employees using the intrinsic value method as prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees , and related interpretations. The Company has adopted the provisions of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123), through disclosure only. All stock-based awards to nonemployees are accounted for at their fair value in accordance with SFAS 123 and Emerging Issues Task Force (EITF) No. 96-18, Accounting for Equity Instruments that Are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services . The Company has adopted the disclosure provisions of SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of SFAS 123 , for all stock-based awards as of December 31, 2002.

        The following illustrated the effect on net loss had the Company applied the fair value recognition provisions of SFAS 123 for the period from January 1 to September 8, 2005.

Net loss, as reported   $ (654,548 )
Deduct: Stock-based compensation expense under the fair value-based method for all awards     (10,000 )
   
 
Pro forma net loss   $ (664,548 )
   
 

F-54


        The fair value of each stock option is estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions:

Expected life   6 years  
Expected volatility   0 %
Dividend yield   0 %
Weighted average risk-free interest rate   4 %

Use of Estimates

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Note 2—Stock Option Plan

        During 1998, the Board of Directors adopted and the stockholders approved the 1998 Stock Option and Restricted Stock Purchase Plan (the Plan). The Plan provides for the grant of incentive stock options (ISOs), nonqualified stock options, and common stock. The Board of Directors administers the Plan and has sole discretion to grant options and awards to purchase shares of the Company's common stock by employees, officers, consultants or advisors and directors of the Company. The Board of Directors determines the term of each option, option price, number of shares for which each option is granted, whether restrictions will be imposed on the shares subject to options, and the rate at which each option is exercisable. ISOs may be granted to any officer or employee at an exercise price per share of not less than fair value on the date of the grant (not less than 110 percent of fair value in the case of holders of more than 10 percent of the Company's voting stock) and with a term not to exceed ten years from the date of grant (five years for ISOs granted to holders of more than 10 percent of the Company's voting stock). Options granted under the Plan typically vest between one and four years.

F-55



        A summary of the status of the Company's stock options activity as of September 8, 2005 is presented below:

 
  Shares
  Weighted
Average
Exercise
Price

Outstanding at beginning of period     2,250,167   $ 0.33
Granted        
Exercised        
Cancelled     (174,750 )   0.29
   
     
Outstanding at end of period     2,075,417   $ 0.33
   
     
Options exercisable at end of period     1,468,018   $ 0.33
   
     
Weighted-average fair value of options granted during the period   $      
   
     

        During 2003, the Company granted options to purchase 70,000 shares of common stock to consultants and advisors in exchange for services rendered. In November 1997, the Emerging Issues Task Force of the Financial Accounting Standards Board finalized Issue No. 96-18. Under EITF 96-18, the compensation expense that will ultimately be recognized for these options will be measured at the vesting dates of the underlying options. As the options issued to advisors vest over as many as four years, the Company will be required to remeasure the fair value of these options at each reporting period prior to vesting and then finally at the vesting dates. Changes in the estimated fair value of these options will be recognized as compensation expense in the period of the change. During the period from January 1 to September 8, 2005, the value of these options was de minimus.

        In July 2002, the Company granted an executive the option to purchase 566,417 shares of common stock at an exercise price of $0.32 per share which was equal to the fair market value of the Company's common stock on the date of grant. Of the total options granted, 266,417 vested immediately on the date of grant and the remaining 300,000 options vest upon the attainment of certain financial performance metrics by the Company. As of September 8, 2005, none of the performance metrics had been achieved and, therefore, the Company has not recorded any compensation expense associated with this option grant. The Company may be subject to compensation expense charges in the future if these metrics are achieved.

Note 3—Leases

        The Company leases its primary office space under a noncancellable operating lease that expires in August 2006. The Company additionally leases space at one of their third party manufacturing facilities. The Company also rents certain office equipment under operating leases. Rent expense under these commitments was approximately $193,205 for the period from January 1 to September 8, 2005.

Note 4—Income Taxes

        As of September 8, 2005, Cortek, Inc. had federal net operating loss (NOL) and research and experimentation credit carryforwards of approximately $26,501,103 and $295,704, respectively, which

F-56



may be available to offset future federal income tax liabilities and begin to expire in 2018. As required by Statement of Financial Accounting Standards No. 109, management of Cortek, Inc. has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Management has determined that it is more likely than not that Cortek, Inc. will not recognize the benefits of federal and state deferred tax assets and, as a result, a valuation allowance of approximately $10,197,601 has been established at September 8, 2005. In prior years, 100 percent of the deferred tax benefit had been reserved.

        Because the subsequent sale of substantially all of the Company's assets (See Note 6) resulted in a gain, a portion of the previously recorded reserve of deferred tax benefits was no longer required, resulting in an income tax benefit of $945,071 in the period from January 1 through September 8, 2005.

        Ownership changes, as defined in the Internal Revenue Code, may have limited the amount of net operating loss carryforwards that can be utilized annually to offset future taxable income. Subsequent ownership changes could further affect the limitation in future years.

Note 5—401(k) Plan

        In 2000, the Company adopted a 401(k) Plan for all employees. This Plan covers substantially all employees who meet minimum age requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. Company contributions to the Plan may be made at the discretion of the Board of Directors. The Company has not made any contributions to the Plan through September 8, 2005.

Note 6—Subsequent Event

        Pursuant to an asset purchase agreement by and between the Company and Alphatec Spine, Inc. dated July 29, 2005, the Company sold substantially all its assets related to the business for $6,500,000 and the assumption of certain liabilities of the Company as defined in the agreement.

F-57


GRAPHIC


You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized anyone to provide information different from that contained in this prospectus. We are not making offers to sell or seeking offers to buy shares of our common stock in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock. Our business, financial condition, results of operations and prospects may have changed since the date of this prospectus.

TABLE OF CONTENTS

 
  Page
Summary   1
Risk Factors   10
Special Note Regarding Forward-Looking Statements   37
Use of Proceeds   39
Dividend Policy   41
Capitalization   42
Dilution   43
Selected Consolidated Financial Data   45
Unaudited Pro Forma Condensed Combined Statements of Operations for the Year Ended December 31, 2005   47
Management's Discussion and Analysis of Financial Condition and Results of Operations   49
Business   61
Management   87
Certain Relationships and Related Transactions   100
Principal Stockholders   106
Description of Capital Stock   108
Material U.S. Federal Income Tax Considerations to Non-U.S. Holders   112
Shares Eligible for Future Sale   114
Underwriting   117
Legal Matters   120
Experts   120
Where You Can Find Additional Information   120
Index to Financial Statements   F-1

Through and including                           , 2006 (25 days after the date of this prospectus), all dealers that buy, sell or trade our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

LOGO

                           Shares

Common Stock

Joint Book-Running Managers

Deutsche Bank Securities

First Albany Capital

Co-Manager

RBC Capital Markets

Prospectus

                           , 2006



PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

        The following table sets forth an itemization of the various costs and expenses, all of which we will pay, in connection with the issuance and distribution of the securities being registered. All of the amounts shown are estimated except the SEC registration fee, the Nasdaq National Market listing fee and the NASD filing fee.

SEC registration fee   $ 15,997
Nasdaq National Market listing fee     100,000
NASD filing fee     15,450
Printing and engraving fees     *
Legal fees and expenses     *
Accounting fees and expenses     *
Blue Sky fees and expenses     *
Transfer Agent and Registrar fees     *
Miscellaneous     *
   
  Total   $ *
   

*
To be filed by amendment.


Item 14. Indemnification of Directors and Officers.

        Our amended and restated certificate of incorporation provides that we shall indemnify, to the fullest extent authorized by the Delaware General Corporation Law, each person who is involved in any litigation or other proceeding because such person is or was our director or officer or is or was serving as an officer or director of another entity at our request, against all expense, loss or liability reasonably incurred or suffered in connection therewith. Our amended and restated certificate of incorporation provides that the right to indemnification includes the right to be paid expenses incurred in defending any proceeding in advance of its final disposition, provided, however, that such advance payment will only be made upon delivery to us of an undertaking, by or on behalf of the director or officer, to repay all amounts so advanced if it is ultimately determined that such director is not entitled to indemnification. If we do not pay a proper claim for indemnification in full within 60 days after we receive a written claim for such indemnification, our amended and restated certificate of incorporation and our restated by-laws authorize the claimant to bring an action against us and prescribe what constitutes a defense to such action.

        Section 145 of the Delaware General Corporation Law permits a corporation to indemnify any director or officer of the corporation against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with any action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in right of the corporation) brought by reason of the fact that such person is or was a director or officer of the corporation, if such person acted in good faith and in a manner that he reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, if he or she had no reason to believe his or her conduct was unlawful. In a derivative action, ( i.e ., one brought by or on behalf of the corporation), indemnification may be provided only for expenses actually and reasonably incurred by any director or officer in connection with the defense or settlement of such an action or suit if such person acted in good faith and in a manner that he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, except that no indemnification shall be provided if such person shall have been adjudged to be liable to the

II-1



corporation, unless and only to the extent that the court in which the action or suit was brought shall determine that the defendant is fairly and reasonably entitled to indemnity for such expenses despite such adjudication of liability.

        Pursuant to Section 102(b)(7) of the Delaware General Corporation Law, Article Tenth of our amended and restated certificate of incorporation eliminates the liability of a director to us or our stockholders for monetary damages for such a breach of fiduciary duty as a director, except for liabilities arising:

    from any breach of the director's duty of loyalty to us or our stockholders;

    from acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;

    under Section 174 of the Delaware General Corporation Law; and

    from any transaction from which the director derived an improper personal benefit.

        As permitted by Section 145 of the Delaware General Corporation Law, we carry insurance policies insuring our directors and officers against certain liabilities that they may incur in their capacity as directors and officers.

        We have agreed to indemnify and hold harmless our President and Chief Executive Officer, Ronald G. Hiscock and our Chief Administrative Officer, Vice President and Secretary, Vicky Romanoski, against any expense, loss or liability arising from any alleged breach of their separation agreements with their former employer.

        Additionally, reference is made to the Underwriting Agreement filed as Exhibit 1.1 hereto, which provides for indemnification by our underwriters of our directors and officers who sign the registration statement and persons who control us, under certain circumstances.


Item 15. Recent Sales of Unregistered Securities.

        Since our organization on March 4, 2005, we have sold the following securities that were not registered under the Securities Act. The following information gives effect to a 44.036-for-1 split of each series of our common stock declared on August 1, 2005 and a            -for-             split of our common stock to be effected prior to the completion of this offering.

        Set forth below is information regarding shares of our capital stock issued and options granted by us since March 4, 2005. Also included is the consideration, if any, received by us for such shares and options.

1.
On March 18, 2005, in connection with our acquisition of Alphatec Manufacturing, Inc., we issued an aggregate of 200,166 shares of our Rolling common stock to 13 former stockholders of Alphatec, Manufacturing, Inc. The Rolling common stock was issued for an aggregate cash equivalent sale price of approximately $4,545,613;

2.
Between March 17, 2005 and December 31, 2005, in connection with an equity financing, we issued the following securities:

(i)
an aggregate of 677,712 shares of our Series A common stock to five accredited investors for an aggregate purchase price of $1,539;

(ii)
an aggregate of 1,539,000 shares of our Series A preferred stock to five accredited investors for an aggregate purchase price of $15,388,461;

(iii)
an aggregate of 1,278,549 shares of our Series A-1 common stock to 85 accredited investors for an aggregate purchase price of $2,903.50;

II-2


    (iv)
    an aggregate of 2,903,500 shares of our Series A-1 preferred stock to 85 accredited investors for an aggregate purchase price of $29,032,096.50;

    (v)
    an aggregate of 3,258,664 shares of our Series B common stock to HealthpointCapital for an aggregate purchase price of $4,000; and

    (vi)
    an aggregate of 4,000,000 shares of Series B preferred stock to HealthpointCapital for an aggregate purchase price of $39,996,000.

3.
From April 4, 2005 to November 18, 2005, we issued the following securities:

(i)
options to purchase an aggregate of 27,850 shares of our Series A-1 common stock to 88 employees under our 2005 Employee, Director and Consultant Stock Plan at a weighted average per share exercise price of $0.002;

(ii)
an aggregate of 436,450 restricted shares of our Series A-1 common stock to 83 employees under our 2005 Employee, Director and Consultant Stock Plan;

(iii)
an aggregate of 30,000 restricted shares of our Series A-1 common stock to two directors; and

(iv)
an aggregate of 35,000 restricted shares of our Series A-1 common stock to the Chairman of and the four members of our Scientific Advisory Board.

4.
From November 19, 2005 to April 1, 2006, we issued options to purchase an aggregate of 117,757 shares of our Series A-1 common stock to 56 employees under our 2005 Employee, Director and Consultant Stock Plan at a weighted average per share exercise price of $17.00 per share.

5.
From November 19, 2005 to January 20, 2006, in connection with an equity financing, we issued 138,345 shares of our Series C common stock to 49 accredited investors for an aggregate purchase price of $4,611,472.

        Except for the items noted above in paragraphs 3 and 4, all of the issuances described above were made in reliance on Section 4(2) of the Securities Act or Regulation D promulgated thereunder. The recipients of securities in each of such issuances represented their intentions to acquire the securities for investment purposes only and not with a view to, or for sale in connection with, any distribution thereof and appropriate legends were affixed to the instruments representing such securities issued in such transactions. All recipients of securities in such issuances either received adequate information about us or had, through their relationship with us, adequate access to such information. The issuances noted above in paragraph 3 and 4 were made in reliance on Rule 701 of the Securities Act.


Item 16. Exhibits and Financial Statement Schedules.

(a)   Exhibits

Exhibit
Number

  Description of Exhibit
*1.1   Form of Underwriting Agreement.

**2.1

 

Agreement and Plan of Merger among AMI Acquisition I Corp., AMI Merger Corp. and Alphatec Manufacturing, Inc., dated as of March 10, 2005.

**2.2

 

Asset Purchase Agreement by and between Cortek, Inc. and Alphatec Manufacturing, Inc. dated as of July 29, 2005. Pursuant to Item 601(b)(2) of Regulation S-K, the disclosure schedules to this exhibit were omitted. The Registrant hereby undertakes to furnish supplementally a copy of such omitted schedules to the Commission upon request.
     

II-3



**3.1

 

Certificate of Incorporation of the Registrant.

3.1(a)

 

Amended and Restated Certificate of Incorporation of the Registrant providing for New Redeemable preferred stock to be effective prior to completion of this offering.

3.2

 

Amended and Restated Certificate of Incorporation of the Registrant to be effective upon completion of this offering.

**3.3

 

By-laws of the Registrant.

*3.4

 

Restated By-laws of the Registrant to be effective upon completion of this offering.

*4.1

 

Form of Common Stock Certificate.

***†4.2

 

Stockholders' Agreement by and among the Registrant, HealthpointCapital Partners, L.P. and the stockholders of the Registrant, dated as of March 17, 2005.

*5.1

 

Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., counsel to the Registrant, with respect to the legality of securities being registered.

**10.1

 

2005 Employee, Director and Consultant Stock Plan.

**10.2

 

Form of Non-Qualified Stock Option Agreement issued under the 2005 Stock Plan.

**10.3

 

Form of Incentive Stock Option Agreement issued under the 2005 Stock Plan.

**10.4

 

Form of Restricted Stock Agreement issued under the 2005 Stock Plan.

10.5

 

Amended and Restated 2005 Employee, Director and Consultant Stock Plan to be effective upon completion of this offering.

10.6

 

Form of Non-Qualified Stock Option Agreement issued under the Amended and Restated 2005 Stock Plan to be effective upon completion of this offering.

10.7

 

Form of Incentive Stock Option Agreement issued under the Amended and Restated 2005 Stock Plan to be effective upon completion of this offering.

10.8

 

Form of Restricted Stock Agreement issued under the Amended and Restated 2005 Stock Plan to be effective upon completion of this offering.

**10.9

 

Employment Agreement by and between the Registrant, Alphatec Manufacturing, Inc. and Ronald G. Hiscock, dated as of June 7, 2005 and amended by Amendment No. 1 to Employment Agreement, dated as of July 7, 2005 and Amendment No. 2 to Employment Agreement, dated as of December 7, 2005.

**10.10

 

Employment Agreement by and between the Registrant, Alphatec Spine, Inc. and Daniel J. Lacienski dated January 23, 2006.

**10.11

 

Employment Agreement by and among the Registrant, Alphatec Spine, Inc. and Stephen T. D. Dixon, effective as of February 6, 2006 and amended by Amendment to the Employment Agreement, dated as of February 6, 2006.

**10.12

 

Employment Agreement by and between the Registrant, Alphatec Manufacturing, Inc. and Scott V. Palka, dated as of July 13, 2005.

**10.13

 

Separation and Release Agreement by and among the Registrant, Alphatec Spine, Inc. and Scott V. Palka, dated as of January 26, 2006.
     

II-4



**10.14

 

Employment Letter by and between the Registrant, Alphatec Spine, Inc. and Trent J. Northcutt dated as of January 9, 2006.

**10.15

 

Employment Agreement by and between the Registrant, Alphatec Manufacturing, Inc. and Vicky A. Romanoski, dated as of June 8, 2005 and amended by Amendment No. 1 to the Employment Agreement, dated as of July 7, 2005 and Amendment No. 2 to the Employment Agreement, dated as of July 26, 2005.

**10.16

 

Employment Letter by and between the Registrant, Alphatec Manufacturing, Inc. and Floyd W. Pastor, dated as of August 3, 2005, as amended November 30, 2005.

**10.17

 

Employment Letter by and between Alphatec Manufacturing, Inc. and Scott A. Wiese, dated as of July 11, 2005.

**10.18

 

Employment Letter by and between Alphatec Spine, Inc. and Herbert J. Bellucci, dated as of August 1, 2005.

**10.19

 

Executive Services Agreement by and between Alphatec Spine, Inc. and Shunshiro Yoshimi, dated as of August 11, 2005.

**10.20

 

Credit Agreement by and between Alphatec Spine, Inc. and Bank of the West, dated as of January 24, 2006 and amended by the First Amendment to Credit Agreement, dated as of March 7, 2006.

**10.21

 

Security Agreement by and between Alphatec Holdings, Inc. and Bank of the West, dated as of January 24, 2006.

**10.22

 

Continuing Guaranty by Alphatec Holdings, Inc. in favor of Bank of the West, dated as of January 24, 2006.

**10.23

 

Loan Agreement by and between Alphatec Pacific, Inc. and Shunshiro Yoshimi dated as of August 11, 2005.

**10.24

 

Lease Agreement by and between Alphatec Manufacturing, Inc. and El Cedro LLC, dated as of March 31, 2001 and amended by the First Amendment to the Lease Agreement, dated as of February 23, 2004.

**10.25

 

Lease Agreement by and between Alphatec Manufacturing, Inc. and Roy P. Josepho and Roberta B. Josepho, Trustees, dated as of December 11, 2003.

**10.26

 

Lease Agreement by and between Alphatec Manufacturing, Inc. and Roger D. Anderson Trust, dated as of September 3, 2004.

**10.27

 

Sublease Agreement by and between Alphatec Manufacturing, Inc. and K2, Inc., dated as of July 29, 2005.

**10.28

 

Sublease Agreement by and between Alphatec Manufacturing, Inc. and K2, Inc., dated as of August 26, 2005.

†10.29

 

Supply Agreement by and between Alphatec Spine, Inc. and Invibio, Inc., dated as of October 18, 2004 and amended by Letter of Amendment in respect of the Supply Agreement, dated as of December 13, 2004.

**†10.30

 

License Agreement by and between Alphatec Spine, Inc. and Cross Medical Products, Inc. dated as of April 24, 2003.
     

II-5



**10.31

 

Stock Purchase Agreement by and between Alphatec Spine, Inc. and Shunshiro Yoshimi, dated as of August 11, 2005.

**†10.32

 

Sales Agency Agreement by and between Alphatec Spine, Inc. and Jeff Toedtmann Enterprises, LLC d/b/a Spectrum Medical, dated as of July 1, 2005.

**†10.33

 

Sales Agency Agreement by and between Alphatec Spine, Inc. and Axial Systems, Inc., dated as of August 1, 2005.

**†10.34

 

Sales Agency Agreement by and between Alphatec Spine, Inc. and Spinal Alliance, LLC, dated as of October 1, 2005.

**†10.35

 

Sales Agency Agreement by and between Alphatec Spine, Inc. and Keystone Surgical, LLC, dated as of October 1, 2005.

**10.36

 

Translation of Agreement for Transfer of Business Right by K.K. Mac and K.K. Alpha Tech Pacific, dated as of August 1, 2005.

**†10.37

 

Private Label Distribution Agreement by and between Alphatec Spine, Inc. and OsteoBiologics, Inc., dated as of March 15, 2006.

*10.38

 

Summary of agreement by and between the Registrant and HealthpointCapital, LLC regarding payment to be made in connection with this offering.

**21.1

 

List of subsidiaries of the Registrant.

**23.1

 

Consent of Ernst & Young LLP.

**23.2

 

Consent of PricewaterhouseCoopers LLP.

*23.3

 

Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (see Exhibit 5.1).

**23.4

 

Consent of UHY LLP.

**24.1

 

Powers of Attorney.

*
To be filed by amendment.

**
Previously filed.

***
Replaces Exhibit of same number as filed with the Company's Registration Statement on Form S-1, dated February 6, 2006.

Confidential treatment has been requested for portions of this exhibit.

(b)   Financial Statement Schedules

        Financial Statement Schedules are omitted because the information is included in our consolidated financial statements or notes to those consolidated financial statements.


Item 17. Undertakings.

        The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

        Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described under Item 14 above, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore,

II-6



unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

        The undersigned registrant hereby undertakes that:

    (1)
    For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

    (2)
    For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-7



SIGNATURES

        Pursuant to the requirements of the Securities Act, the registrant certifies that it has duly caused this Amendment No. 2 to this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Carlsbad, California on April 19, 2006 .

    By:   /s/   RONALD G. HISCOCK           
Ronald G. Hiscock
President and Chief Executive Officer

        Pursuant to the requirements of the Securities Act, this Amendment No. 2 to this registration statement has been signed by the following persons in the capacities held on the dates indicated.

Signature
  Title
  Date

 

 

 

 

 
*    
John H. Foster
  Chairman   April 19, 2006

/s/  
RONALD G. HISCOCK           
Ronald G. Hiscock

 

President, Chief Executive Officer and Director (principal executive officer)

 

April 19, 2006

/s/  
STEPHEN T.D. DIXON           
Stephen T.D. Dixon

 

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

 

April 19, 2006

*    

Mortimer Berkowtiz III

 

Director

 

April 19, 2006

*    

R. Ian Molson

 

Director

 

April 19, 2006

*    

Stephen E. O'Neil

 

Director

 

April 19, 2006

*By:

 

/s/  
RONALD G. HISCOCK           
Attorney-in-fact

 

 

 

 

II-8


(a)   Exhibits

Exhibit
Number

  Description of Exhibit
  *1.1   Form of Underwriting Agreement.

**2.1

 

Agreement and Plan of Merger among AMI Acquisition I Corp., AMI Merger Corp. and Alphatec Manufacturing, Inc., dated as of March 10, 2005.

**2.2

 

Asset Purchase Agreement by and between Cortek, Inc. and Alphatec Manufacturing, Inc. dated as of July 29, 2005. Pursuant to Item 601(b)(2) of Regulation S-K, the disclosure schedules to this exhibit were omitted. The Registrant hereby undertakes to furnish supplementally a copy of such omitted schedules to the Commission upon request.

**3.1

 

Certificate of Incorporation of the Registrant.

  3.1(a)

 

Amended and Restated Certificate of Incorporation of the Registrant providing for New Redeemable preferred stock to be effective prior to completion of this offering.

  3.2

 

Amended and Restated Certificate of Incorporation of the Registrant to be effective upon completion of this offering.

**3.3

 

By-laws of the Registrant.

*3.4

 

Restated By-laws of the Registrant to be effective upon completion of this offering.

  *4.1

 

Form of Common Stock Certificate.

***†4.2

 

Stockholders' Agreement by and among the Registrant, HealthpointCapital Partners, L.P. and the stockholders of the Registrant, dated as of March 17, 2005.

  *5.1

 

Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., counsel to the Registrant, with respect to the legality of securities being registered.

**10.1

 

2005 Employee, Director and Consultant Stock Plan.

**10.2

 

Form of Non-Qualified Stock Option Agreement issued under the 2005 Stock Plan.

**10.3

 

Form of Incentive Stock Option Agreement issued under the 2005 Stock Plan.

**10.4

 

Form of Restricted Stock Agreement issued under the 2005 Stock Plan.

10.5

 

Amended and Restated 2005 Employee, Director and Consultant Stock Plan to be effective upon completion of this offering.

10.6

 

Form of Non-Qualified Stock Option Agreement issued under the Amended and Restated 2005 Stock Plan to be effective upon completion of this offering.

10.7

 

Form of Incentive Stock Option Agreement issued under the Amended and Restated 2005 Stock Plan to be effective upon completion of this offering.

10.8

 

Form of Restricted Stock Agreement issued under the Amended and Restated 2005 Stock Plan to be effective upon completion of this offering.

**10.9

 

Employment Agreement by and between the Registrant, Alphatec Manufacturing, Inc. and Ronald G. Hiscock, dated as of June 7, 2005 and amended by Amendment No. 1 to Employment Agreement, dated as of July 7, 2005 and Amendment No. 2 to Employment Agreement, dated as of December 7, 2005.

**10.10

 

Employment Agreement by and between the Registrant, Alphatec Spine, Inc. and Daniel J. Lacienski dated January 23, 2006.
     


**10.11

 

Employment Agreement by and among the Registrant, Alphatec Spine, Inc. and Stephen T. D. Dixon, effective as of February 6, 2006 and amended by Amendment to the Employment Agreement, dated as of February 6, 2006.

**10.12

 

Employment Agreement by and between the Registrant, Alphatec Manufacturing, Inc. and Scott V. Palka, dated as of July 13, 2005.

**10.13

 

Separation and Release Agreement by and among the Registrant, Alphatec Spine, Inc. and Scott V. Palka, dated as of January 26, 2006.

**10.14

 

Employment Letter by and between the Registrant, Alphatec Spine, Inc. and Trent J. Northcutt dated as of January 9, 2006.

**10.15

 

Employment Agreement by and between the Registrant, Alphatec Manufacturing, Inc. and Vicky A. Romanoski, dated as of June 8, 2005 and amended by Amendment No. 1 to the Employment Agreement, dated as of July 7, 2005 and Amendment No. 2 to the Employment Agreement, dated as of July 26, 2005.

**10.16

 

Employment Letter by and between the Registrant, Alphatec Manufacturing, Inc. and Floyd W. Pastor, dated as of August 3, 2005, as amended November 30, 2005.

**10.17

 

Employment Letter by and between Alphatec Manufacturing, Inc. and Scott A. Wiese, dated as of July 11, 2005.

**10.18

 

Employment Letter by and between Alphatec Spine, Inc. and Herbert J. Bellucci, dated as of August 1, 2005.

**10.19

 

Executive Services Agreement by and between Alphatec Spine, Inc. and Shunshiro Yoshimi, dated as of August 11, 2005.

**10.20

 

Credit Agreement by and between Alphatec Spine, Inc. and Bank of the West, dated as of January 24, 2006 and amended by the First Amendment to Credit Agreement, dated as of March 7, 2006.

**10.21

 

Security Agreement by and between Alphatec Holdings, Inc. and Bank of the West, dated as of January 24, 2006.

**10.22

 

Continuing Guaranty by Alphatec Holdings, Inc. in favor of Bank of the West, dated as of January 24, 2006.

**10.23

 

Loan Agreement by and between Alphatec Pacific, Inc. and Shunshiro Yoshimi, dated as of August 11, 2005.

**10.24

 

Lease Agreement by and between Alphatec Manufacturing, Inc. and El Cedro LLC, dated as of March 31, 2001 and amended by the First Amendment to the Lease Agreement, dated as of February 23, 2004.

**10.25

 

Lease Agreement by and between Alphatec Manufacturing, Inc. and Roy P. Josepho and Roberta B. Josepho, Trustees, dated as of December 11, 2003.

**10.26

 

Lease Agreement by and between Alphatec Manufacturing, Inc. and Roger D. Anderson Trust, dated as of September 3, 2004.

**10.27

 

Sublease Agreement by and between Alphatec Manufacturing, Inc. and K2, Inc., dated as of July 29, 2005.

**10.28

 

Sublease Agreement by and between Alphatec Manufacturing, Inc. and K2, Inc., dated as of August 26, 2005.
     


†10.29

 

Supply Agreement by and between Alphatec Spine, Inc. and Invibio, Inc., dated as of October 18, 2004 and amended by Letter of Amendment in respect of the Supply Agreement, dated as of December 13, 2004.

**†10.30

 

License Agreement by and between Alphatec Spine, Inc. and Cross Medical Products, Inc., dated as of April 24, 2003.

**10.31

 

Stock Purchase Agreement by and between Alphatec Spine, Inc. and Shunshiro Yoshimi, dated as of August 11, 2005.

**†10.32

 

Sales Agency Agreement by and between Alphatec Spine, Inc. and Jeff Toedtmann Enterprises, LLC d/b/a Spectrum Medical, dated as of July 1, 2005.

**†10.33

 

Sales Agency Agreement by and between Alphatec Spine, Inc. and Axial Systems, Inc., dated as of August 1, 2005.

**†10.34

 

Sales Agency Agreement by and between Alphatec Spine, Inc. and Spinal Alliance, LLC, dated as of October 1, 2005.

**†10.35

 

Sales Agency Agreement by and between Alphatec Spine, Inc. and Keystone Surgical, LLC, dated as of October 1, 2005.

**10.36

 

Translation of Agreement for Transfer of Business Right by K.K. Mac and K.K. Alpha Tech Pacific, dated as of August 1, 2005.

**†10.37

 

Private Label Distribution Agreement by Alphatec Spine, Inc. and OsteoBiologics, Inc., dated as of March 15, 2006.

*10.38

 

Summary of agreement by and between the Registrant and HealthpointCapital, LLC regarding payment to be made in connection with this offering.

**21.1

 

List of subsidiaries of the Registrant.

**23.1

 

Consent of Ernst & Young LLP.

**23.2

 

Consent of PricewaterhouseCoopers LLP.

  *23.3

 

Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (see Exhibit 5.1).

**23.4

 

Consent of UHY LLP.

**24.1

 

Powers of Attorney.

*
To be filed by amendment.

**
Previously filed.

***
Replaces Exhibit of same number as filed with the Company's Registration Statement on Form S-1, dated February 6, 2006.

Confidential treatment has been requested for portions of this exhibit.



QuickLinks

SUMMARY
Alphatec Holdings, Inc.
The Offering
About this Prospectus
SUMMARY CONSOLIDATED FINANCIAL DATA
RISK FACTORS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
USE OF PROCEEDS
DIVIDEND POLICY
CAPITALIZATION
DILUTION
SELECTED CONSOLIDATED FINANCIAL DATA
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2005
Pro Forma Condensed Combined Consolidated Statement of Operations Year Ended December 31, 2005
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS
MANAGEMENT
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PRINCIPAL STOCKHOLDERS
DESCRIPTION OF CAPITAL STOCK
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS TO NON-U.S. HOLDERS
SHARES ELIGIBLE FOR FUTURE SALE
UNDERWRITING
LEGAL MATTERS
EXPERTS
WHERE YOU CAN FIND ADDITIONAL INFORMATION
INDEX TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ALPHATEC HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS
ALPHATEC HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
ALPHATEC HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
ALPHATEC HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT AUDITORS
CORTEK, INC. STATEMENTS OF CASH FLOWS Year Ended December 31, 2004
CORTEK, INC. NOTES TO FINANCIAL STATEMENTS December 31, 2004
REPORT OF INDEPENDENT AUDITORS
CORTEK, INC. STATEMENT OF OPERATIONS Period from January 1, 2005 through September 8, 2005
CORTEK, INC. STATEMENT OF CASH FLOWS Period from January 1, 2005 to September 8, 2005
CORTEK, INC. NOTES TO FINANCIAL STATEMENTS
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
SIGNATURES

Exhibit 3.1 (a)

 

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

ALPHATEC HOLDINGS, INC.

 

(Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware)

 

Alphatec Holdings, Inc., a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the “ General Corporation Law ”),

 

DOES HEREBY CERTIFY:

 

1.                                       The name of the corporation is “Alphatec Holdings, Inc.” (the “ Corporation ”).

 

2.                                       The Corporation’s original Certificate of Incorporation was filed in the office of the Secretary of State of Delaware on March 4, 2005.

 

3.                                       This Amended and Restated Certificate of Incorporation restates, integrates and amends the Certificate of Incorporation.

 

4.                                       This Amended and Restated Certificate of Incorporation was duly adopted by written consent of the directors and stockholders of the Corporation in accordance with the applicable provisions of Sections 242 and 245 of the Delaware General Corporation Law.

 

5.                                       The text of the Certificate of Incorporation is hereby amended and restated to read in full as follows:

 

FIRST :  The name of this corporation is Alphatec Holdings, Inc. (the “ Corporation ”).

 

SECOND :  The address of the registered office of the Corporation in the State of Delaware is 2711 Centerville Road, Suite 400, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is Corporation Service Company.

 

THIRD :  The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law.

 

FOURTH:   The total number of shares of all classes of stock which the Corporation shall have authority to issue is (i) 128,075,975 shares of a class of common stock, $0.0001 par value per share, of which (a) 200,171 shares are designated “ Rolling Common Stock ”, (b) 677,715 shares are designated “ Series A Common Stock ”, (c) 1,979,867 shares are designated “ Series A-1 Common Stock ”, (d) 3,258,764 shares are designated “ Series B Common Stock ”, (e) 300,000 shares are designated “Series C Common Stock” and (f)

 



 

95,993,390 shares are designated as “ Common Stock ”, and (ii) 25,431,423 shares of a class of Preferred Stock, $0.0001 par value per share (“ Preferred Stock ”), of which (a) 1,800,020 shares are designated “ Series A Preferred Stock ”, (b) 3,941,603 shares are designated “ Series A-1 Preferred Stock” , (c) 4,687,300 shares are designated “ Series B Preferred Stock ” and (d) 15,000,000 shares are designated “ New Redeemable Preferred Stock .”

 

Except as may be otherwise required by the provisions herein establishing such class of stock, the number of authorized shares of any class of capital stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote (or written consent in lieu thereof) of the holders of shares of stock of the Corporation representing a majority of the votes represented by all outstanding shares of capital stock of the Corporation entitled to vote, without a vote of the holders of any such class of capital stock voting as a separate class, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law. There shall be no cumulative voting.

 

The following is a statement of the designations and the powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each class or series of capital stock of the Corporation. Unless otherwise indicated, references to “ Sections ” or “ Subsections ” in this Article refer to sections and subsections of this Article Fourth.

 

A.            COMMON STOCK

 

1.             General . Common Stock may be issued from time to time in one or more series, each of such series to consist of such number of shares and to have such terms, rights, powers and preferences, and the qualifications and limitations with respect thereto, as stated or expressed herein. The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights, powers and preferences of the holders of the Preferred Stock set forth herein.

 

2.             Dividends .

 

(a)(i)        From and after the date of the issuance of any shares of Series A Common Stock, dividends shall accrue at the rate per annum of .18167 shares of Series A Preferred Stock per share of Series A Common Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares) (such amount referred to as the “ Series A Dividends ”). Series A Dividends shall, whether or not earned or declared, accrue from day to day.

 

(a)(ii)       From and after the date of the issuance of any shares of Series A-1 Common Stock, dividends shall accrue at the rate per annum of .18167 shares of Series A-1 Preferred Stock per share of Series A-1 Common Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares) (such amount referred to as the “ Series A-1 Dividends ”). Series A-1 Dividends shall, whether or not earned or declared, accrue from day to day.

 

(a)(iii)      From and after the date of the issuance of any shares of Series B Common Stock, dividends shall accrue at the rate per annum of .09819 shares of Series B Preferred Stock

 

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per share of Series B Common Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares) (such amount referred to as the “ Series B Dividends ”). Series B Dividends shall, whether or not earned or declared, accrue from day to day.

 

(a)(iv)     From and after the date of issuance of any Rolling Common Stock, dividends shall accrue at the rate of .18167 shares of Series A-1 Preferred Stock per share of Rolling Common Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, contribution or other recapitalization affecting such shares) (such amount referred to as the “ Rolling Dividends ”). Rolling Dividends shall, whether or not earned or declared, accrue from day to day.

 

The Series A Dividends, the Series A-1 Dividends, the Series B Dividends and the Rolling Dividends shall collectively be referred to hereafter as the “ Accruing Dividends .”

 

(a)(v)       Dividends shall be payable on shares of Common Stock and Series C Common Stock outstanding when, as and if declared by the Corporation’s Board of Directors.

 

3.             Liquidation; Payments to Holders of Common Stock .

 

(a)           Payments to Holders of Rolling Common Stock, Series A Common Stock, Series A-1 Common Stock, Series B Common Stock and Series C Common Stock . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation and certain other events, the holders of shares of Rolling Common Stock, Series A Common Stock, Series A-1 Common Stock, Series B Common Stock and Series C Common Stock shall be entitled to be paid amounts specified in Section B.3 below.

 

(b)           Payments to Holders of Common Stock, Rolling Common Stock, Series A Common Stock, Series A-1 Common Stock, Series B Common Stock and Series C Common Stock . After payment of the Senior Liquidation Amount and Junior Liquidation Amount required under Section B.3 below, the holders of shares of Common Stock, Rolling Common Stock, Series A Common Stock, Series A-1 Common Stock, Series B Common Stock and Series C Common Stock then outstanding shall be entitled to be paid the remaining assets of the Corporation available for distribution to its stockholders as otherwise set forth in this Amended and Restated Certificate of Incorporation. Payments under this Subsection A.3 shall be made on the basis of the number of shares of common stock owned by each stockholder without regard to series.

 

4.             Voting . The holders of Series B Common Stock are entitled to one vote per share of Series B Common Stock held on all matters to be voted on by the stockholders of the Corporation. Unless otherwise required by law, the shares of Series C Common Stock shall be non-voting. Except as required by law, no other series of common stock shall have any voting rights, provided , however, that if at such time as all shares of Series B Common Stock have been converted to Common Stock as provided in Section B.6 , the holders of the Common Stock shall be entitled to one vote for each share of Common Stock held on all matters to be voted on by the stockholders of the Corporation.

 

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5.             Other Provisions . The Common Stock, Rolling Common Stock, Series A Common Stock, Series A-1 Common Stock, Series B Common Stock and Series C Common Stock shall be subject to other provisions set forth in Section B below.

 

B.            PREFERRED STOCK AND PREFERRED PAYMENTS TO COMMON STOCK

 

1.             Issuance and Reissuance .

 

Preferred Stock may be issued from time to time in one or more series, each of such series to consist of such number of shares and to have such terms, rights, powers and preferences, and the qualifications and limitations with respect thereto, as stated or expressed herein.

 

2.             Dividends . Dividends shall be payable on shares of Series A Preferred Stock, Series A-1 Preferred Stock and Series B Preferred Stock outstanding when, as and if declared by the Corporation’s Board of Directors. No dividends of any kind shall be payable on shares of New Redeemable Preferred Stock.

 

3.             (A) Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales Prior to the Closing of a Qualified IPO .

 

(a)           Payments to Holders of Series A Preferred Stock, Series A-1 Preferred Stock, Rolling Common Stock, Series A Common Stock, Series A-1 Common Stock and Series C Common Stock . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation prior to the initial closing date of a Qualified IPO, as defined below, the Corporation shall pay the following amounts to the following holders of its capital stock, pari passu, out of the assets available for distribution to the Corporation’s stockholders before any payment shall be made to the holders of the Series B Preferred Stock, Series B Common Stock and Common Stock, by reason of their ownership thereof:

 

(i) the holders of shares of Series A Preferred Stock and Series A-1 Preferred Stock then outstanding shall be entitled to an amount equal to $10 per share in the case of Series A Preferred Stock and Series A-1 Preferred Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares) (the aggregate amount payable pursuant to this clause is the “ A and A-1 Preferred Liquidation Amount ”),

 

(ii) the holders of Series A Common Stock, Series A-1 Common Stock and Rolling Common Stock then outstanding shall be entitled to an amount equal to $10 multiplied by the number of shares of Series A Preferred Stock and Series A-1 Preferred Stock, as applicable, that have accrued as dividends thereon, but not been paid (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares) (the aggregate amount payable pursuant to this clause is the “ Senior Common Stock Dividend Amount ”),

 

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(iii) the holders of shares of Rolling Common Stock then outstanding shall be entitled to an amount equal to $22.71 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares) (the aggregate amount payable pursuant to this clause is the “ Rolling Common Liquidation Amount ”), and

 

(iv) the holders of shares of Series C Common Stock then outstanding shall be entitled to an amount equal to $14.79 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares) (the aggregate amount payable pursuant to this clause is the “ C Liquidation Amount ”).

 

IPO ” means an underwritten public offering of the Common Stock pursuant to an effective registration statement under the Securities Act of 1933, as amended. “ Qualified IPO ” means the IPO filed on registration statement no. 333-131609. The Series A Preferred Stock, Series A-1 Preferred Stock, Rolling Common Stock, Series A Common Stock, Series A-1 Common Stock and Series C Common Stock are sometimes collectively referred to herein as the “ Senior Preferred and Common Stock. ” The A and A-1 Preferred Liquidation Amount, Senior Common Stock Dividend Amount, Rolling Common Liquidation Amount and C Liquidation Amount are sometimes collectively referred to herein as the “ Senior Liquidation Amount. ”  If upon any such liquidation, dissolution or winding up of the Corporation, the remaining assets available for distribution to the Corporation’s stockholders shall be insufficient to pay the holders of shares of Senior Preferred and Common Stock and the Senior Liquidation Amount, the holders of shares of Senior Preferred and Common Stock shall share ratably in any distribution of the remaining assets available for distribution in proportion to the respective amounts which would otherwise be payable under this Subsection B.3(A)(a) in respect of the shares held by them upon such distribution as if all amounts payable under this Subsection B.3(A)(a) on or with respect to such shares were paid in full.

 

(b)           Payments to Holders of Series B Preferred Stock and Series B Common Stock . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation prior to the initial closing date of an IPO, after the payment of all preferential amounts required to be paid to the holders of Senior Preferred and Common Stock pursuant to Subsection B.3(A)(a) , the Corporation shall pay the following amounts to the following holders of its capital stock, pari passu, out of the assets available for distribution to the Corporation’s stockholders before any additional payment shall be made to the holders of the Common Stock, by reason of their ownership thereof:

 

(i) the holders of shares of Series B Preferred Stock then outstanding shall be entitled to an amount equal to $10 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares) (the aggregate amount payable pursuant to this clause is the “ B Preferred Liquidation Amount ”), and

 

(ii) the holders of Series B Common Stock then outstanding shall be entitled to an amount equal to $10 multiplied by the number of shares of Series B Preferred

 

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Stock that have accrued as dividends thereon, but not been paid (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares) (the aggregate amount payable pursuant to this clause is the “B Common Stock Dividend Amount ”),

 

The Series B Preferred Stock and the Series B Common Stock are sometimes collectively referred to herein as the “ Junior Preferred and Common Stock. ” The B Preferred Liquidation Amount and B Common Stock Dividend Amount are sometimes collectively referred to herein as the “ Junior Liquidation Amount. ” If upon any such liquidation, dissolution or winding up of the Corporation, the remaining assets of the Corporation shall be insufficient to pay holders of shares of Junior Preferred and Common Stock the amounts due under this Subsection B.3(A)(b) , the holders of Junior Preferred and Common Stock shall share ratably in any distribution of the remaining assets available for distribution in proportion to the respective amounts which would otherwise be payable under this Subsection B.3(A)(b) in respect of the shares held by them upon such distribution as if all amounts payable under this Subsection B.3(A)(b) on or with respect to such shares were paid in full.

 

(c)           Deemed Liquidation Events .

 

(i)            The following events constitute a “ Deemed Liquidation Event ”, unless the holders of not less than fifty-one percent (51%) of the Series B Preferred Stock elect otherwise by written notice given to the Corporation at least ten (10) days prior to the effective date of any such event:

 

(A)          a merger or consolidation in which
 
(I)                                     the Corporation is a constituent party, or
 
(II)                                 a subsidiary of the Corporation is a constituent party and the Corporation issues shares of its capital stock pursuant to such merger or consolidation,
 

except any such merger or consolidation involving the Corporation or a subsidiary in which the shares of capital stock of the Corporation outstanding immediately prior to such merger or consolidation continue to represent, or are converted or exchanged for shares of capital stock which represent, immediately following such merger or consolidation at least a majority, by voting power, of the capital stock of (1) the surviving or resulting corporation or (2) if the surviving or resulting entity is a wholly owned subsidiary of another corporation immediately following such merger or consolidation, the ultimate parent corporation of such surviving or resulting entity ( provided that , for the purpose of this Subsection B.3(A)(c)(i)(A) , all shares of capital stock issuable upon conversion of convertible securities, or any rights to receive capital stock, outstanding immediately prior to such merger or consolidation shall be deemed to be outstanding immediately prior to such merger or consolidation and, if applicable, converted or exchanged in such merger or consolidation on the same terms as the actual outstanding shares of capital stock are converted or exchanged); or

 

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(B)           the sale, lease, transfer or other disposition, in a single transaction or series of related transactions, by the Corporation or any subsidiary of the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole except where such sale, lease, transfer or other disposition is to a wholly owned subsidiary of the Corporation.
 

(ii)           The Corporation shall not have the power to effect any transaction constituting a Deemed Liquidation Event pursuant to Subsection B.3(A)(c)(i)(A) above unless the agreement or plan of merger or consolidation provides that the consideration payable to the stockholders of the Corporation shall be allocated among the holders of capital stock of the Corporation in accordance with Section A.3 and Subsections B.3(A)(a) and B.3(A)(b) above.

 

(iii)          In the event of a Deemed Liquidation Event pursuant to Subsection B.3(A)(c)(i)(B) above, if the Corporation does not effect a dissolution of the Corporation under the General Corporation Law within sixty (60) days after such Deemed Liquidation Event, then (A) the Corporation shall deliver a written notice to each holder of outstanding shares of Series A Preferred Stock, Series A-1 Preferred Stock and Series B Preferred Stock no later than the sixtieth (60 th ) day after the Deemed Liquidation Event advising such holders of their right (and the requirements to be met to secure such right) pursuant to the terms of the following clause (B) to require the redemption of such shares of Preferred Stock, and (B) if the holders of at least fifty-one percent (51%) of the then outstanding shares of Preferred Stock so request in a written instrument delivered to the Corporation not later than seventy-five (75) days after such Deemed Liquidation Event, the Corporation shall, on the ninetieth (90 th ) day after such Deemed Liquidation Event (the “ Liquidation Redemption Date ”), use the consideration received by the Corporation for such Deemed Liquidation Event (net of any retained liabilities associated with the assets sold or technology licensed, as determined in good faith by the Board of Directors of the Corporation):

 

(A) to redeem the then outstanding shares of Series A Preferred Stock and Series A-1 Preferred Stock at a price equal to the A and A-1 Preferred Liquidation Amount per share,

 

(B) to redeem the then outstanding shares of Series B Preferred Stock at a price equal to the B Preferred Liquidation Amount per share,

 

(C) to pay to the holders of Series A Common Stock, Series A-1 Common Stock and Rolling Common Stock then outstanding a dividend equal to the Senior Common Stock Dividend Amount per share,

 

(D) to pay to the holders of Series B Common Stock then outstanding a dividend equal to the B Common Stock Dividend Amount per share,

 

(E) to pay to the holders of shares of Rolling Common Stock then outstanding a dividend equal to the Rolling Common Liquidation Amount per share, and

 

(F) to pay to the holders of shares of Series C Common Stock then outstanding a dividend equal to the C Liquidation Amount per share,

 

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pari passu, out of funds legally available therefor. “ Redemption Price” means collectively the amounts set forth in Subsection B.3(A)(c)(iii)(A) and (B) above. “ Redemption Dividends ” means the dividends set forth in Subsection B.3(A)(c)(iii)(C) through (F) above. If on the Liquidation Redemption Date the Corporation does not have sufficient funds legally available to redeem all shares of Series A Preferred Stock, Series A-1 Preferred Stock and Series B Preferred Stock and to pay the full amount of the Redemption Dividends, the Corporation shall redeem such shares and pay such dividends on a pro rata basis, redeeming and paying an equal percentage of such shares and dividends (a “ Pro Rata Percentage ”). The Corporation’s obligation to pay the Redemption Price and the Redemption Dividends is subject to the second paragraph of Subsection B.5(a). In addition, the provisions of Subsections B.5(b) through B.5(d) and B.5(f) below shall apply to any Deemed Liquidation Event, with such necessary changes in the details thereof as are necessitated by the context, to the redemption of the Preferred Stock pursuant to this Subsection B.3(A)(c)(iii) . Prior to the distribution or redemption provided for in this Subsection B.3(A)(c)(iii) , the Corporation shall not expend or dissipate the consideration received for such Deemed Liquidation Event, except to discharge expenses incurred in the ordinary course of business. The payment of any Redemption Dividend shall result in a corresponding reduction in the accrued Accruing Dividends, the Rolling Common Liquidation Amount and the C Liquidation Amount (a “ Corresponding Reduction ”).

 

(iv)          The amount deemed paid or distributed to the holders of capital stock of the Corporation upon any such merger, consolidation, sale, transfer, exclusive license, other disposition or redemption shall be the cash or the value of the property, rights or securities paid or distributed to or retained by such holders by the Corporation or the acquiring person, firm or other entity. The value of such property, rights or securities shall be determined in good faith by the Board of Directors of the Corporation.

 

3.             (B) Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales On or After a Qualified IPO .

 

(a)           Payments to Holders of New Redeemable Preferred Stock . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation on or after the initial closing date of a Qualified IPO (the “Qualified IPO Closing Date”), the holders of shares of New Redeemable Preferred Stock then outstanding shall be entitled to be paid out of the assets available for distribution to the Corporation’s stockholders before any payment shall be made to the holders of any Common Stock, by reason of their ownership thereof, in a per share amount equal to the Qualified IPO price to the public (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares) (the aggregate amount payable pursuant to this sentence is the “ New Redeemable Liquidation Amount ”). If upon any such liquidation, dissolution or winding up of the Corporation the remaining assets available for distribution to the Corporation’s stockholders shall be insufficient to pay the holders of shares of New Redeemable Preferred Stock the full New Redeemable Liquidation Amount, the holders of shares of New Redeemable Preferred Stock shall share ratably in any distribution of the remaining assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution as if all amounts payable on or with respect to such shares were paid in full.

 

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In the event that the underwriters of the Qualified IPO exercise their option to purchase additional shares of Common Stock in order to cover over-allotments at any time or from time to time after the Qualified IPO Closing Date (each, an “ Over-Allotment Stock Sale ”), the Corporation shall in each case redeem the New Redeemable Preferred Stock for an amount equal to the New Redeemable Liquidation Amount, pari passu, out of the net proceeds of the Over-Allotment Stock Sale.

 

(b)           New Redeemable Deemed Liquidation Events .

 

(i)            The following events constitute a “ New Redeemable Deemed Liquidation Event ”:

 

(A)          a merger or consolidation in which
 
(I)                                     the Corporation is a constituent party, or
 
(II)                                 a subsidiary of the Corporation is a constituent party and the Corporation issues shares of its capital stock pursuant to such merger or consolidation,
 

except any such merger or consolidation involving the Corporation or a subsidiary in which the shares of capital stock of the Corporation outstanding immediately prior to such merger or consolidation continue to represent, or are converted or exchanged for shares of capital stock which represent, immediately following such merger or consolidation at least a majority, by voting power, of the capital stock of (1) the surviving or resulting corporation or (2) if the surviving or resulting entity is a wholly owned subsidiary of another corporation immediately following such merger or consolidation, the ultimate parent corporation of such surviving or resulting entity (provided that, for the purpose of this Subsection B.3(B)(b)(i)(A) , all shares of capital stock issuable upon conversion of convertible securities, or any rights to receive capital stock, outstanding immediately prior to such merger or consolidation shall be deemed to be outstanding immediately prior to such merger or consolidation and, if applicable, converted or exchanged in such merger or consolidation on the same terms as the actual outstanding shares of capital stock are converted or exchanged); or

 

(B)           the sale, lease, transfer or other disposition, in a single transaction or series of related transactions, by the Corporation or any subsidiary of the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole except where such sale, lease, transfer or other disposition is to a wholly owned subsidiary of the Corporation.
 

(ii)           The Corporation shall not, without the consent of the holders of a majority of the New Redeemable Preferred Stock, effect any transaction constituting a New Redeemable Deemed Liquidation Event pursuant to Subsection B.3(B)(b)(i)(A) above unless the agreement or plan of merger or consolidation provides that the consideration payable to the stockholders of the Corporation shall be allocated among the holders of capital stock of the Corporation in accordance with Subsection B.3(B)(a) above.

 

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(iii)          In the event of a New Redeemable Deemed Liquidation Event pursuant to Subsection B.3(B)(b)(i)(B) above, if the Corporation does not effect a dissolution of the Corporation under the General Corporation Law within sixty (60) days after such New Redeemable Deemed Liquidation Event, then (A) the Corporation shall deliver a written notice to each holder of outstanding shares of New Redeemable Preferred Stock no later than the sixtieth (60 th ) day after the New Redeemable Deemed Liquidation Event advising such holders of their right (and the requirements to be met to secure such right) pursuant to the terms of the following clause (B) to require the redemption of such shares of New Redeemable Preferred Stock, and (B) if the holders of at least fifty-one percent (51%) of the then outstanding shares of New Redeemable Preferred Stock so request in a written instrument delivered to the Corporation not later than seventy-five (75) days after such New Redeemable Deemed Liquidation Event, the Corporation shall, on the ninetieth (90 th ) day after such New Redeemable Deemed Liquidation Event (the “ New Redeemable Liquidation Redemption Date ”), use the consideration received by the Corporation for such New Redeemable Deemed Liquidation Event (net of any retained liabilities associated with the assets sold or technology licensed, as determined in good faith by the Board of Directors of the Corporation) (the “ New Redeemable Net Proceeds ”) to redeem, to the extent there are funds legally available therefor, all outstanding shares of New Redeemable Preferred Stock at a price per share equal to the New Redeemable Liquidation Amount. If, on the New Redeemable Liquidation Redemption Date, the New Redeemable Net Proceeds are not sufficient to redeem all outstanding shares of New Redeemable Preferred Stock, or if the Corporation does not have sufficient legally available funds to effect such redemption, the Corporation shall redeem and pay the New Redeemable Liquidation Amount on a pro rata portion of each holder’s shares of New Redeemable Preferred Stock to the fullest extent of such New Redeemable Net Proceeds or such legally available funds, as the case may be, and, where such redemption and payment is limited by the amount of legally available funds, the Corporation shall redeem the remaining shares as soon as practicable after the Corporation has funds legally available therefor. Prior to the redemption provided for in this Subsection B.3(B)(b)(iii) , the Corporation shall not expend or dissipate the consideration received for such Deemed Liquidation Event, except to discharge expenses incurred in the ordinary course of business.

 

(iv)          The amount deemed paid or distributed to the holders of capital stock of the Corporation upon any such merger, consolidation, sale, transfer, exclusive license, other disposition or redemption shall be the cash or the value of the property, rights or securities paid or distributed to or retained by such holders by the Corporation or the acquiring person, firm or other entity. The value of such property, rights or securities shall be determined in good faith by the Board of Directors of the Corporation.

 

(c)           Optional Cash Redemption . The Corporation shall have the right, at any time and from time to time, to redeem for cash, out of funds legally available therefor, all or any portion of the outstanding shares of New Redeemable Preferred Stock, pro rata, based on the number of such shares held by each holder thereof, at a per share amount on the New Redeemable Liquidation Amount. On the redemption date, each of the shares of New Redeemable Preferred Stock

 

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to be redeemed on the redemption date shall be deemed to have automatically been surrendered and redeemed if on the redemption date the New Redeemable Liquidation Amount payable upon redemption of the shares of New Redeemable Preferred Stock to be redeemed on such redemption date is paid or tendered for payment or deposited with an independent payment agent so as to be available therefor whether or not certificates representing such shares are surrendered to the Corporation and upon such surrender, the New Redeemable Liquidation Amount for such shares shall be payable to the order of the person whose name appears on the Corporation’s records as the owner thereof, and each surrendered share shall be canceled and retired.

 

4.             Put Right; Mandatory Redemption . The holders of Series A Preferred Stock shall have the right to require the Corporation to redeem for cash all or any portion of such holders shares at any time after March 15, 2015, at $10 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares), plus any dividends declared but unpaid thereon. If the holder of any shares of Series A Preferred Stock shall exercise the put right set forth in this Section B.4 (the “ Put Right ”), the Corporation shall be required to pay the Redemption Price, in each case pursuant to Section B.5(a) below.

 

5.             Redemption .

 

(a)           Redemption Upon the Closing of a Deemed Liquidation Event or Exercise of the Put Right . On the earlier to occur of either (A) the closing of an IPO (other than a Qualified IPO, which is governed by Subsection B.5(e) hereof ), or (B) the exercise of a Put Right by any holder of Series A Preferred Stock pursuant to Section B.4 (the earlier of clause (A) and (B) hereinafter referred to as the “ Redemption Date ”), the Corporation shall redeem the Series A Preferred Stock, Series A-1 Preferred Stock and Series B Preferred Stock for the Redemption Price and pay the Redemption Dividends, pari passu, out of funds legally available therefor. If on the Redemption Date the Corporation does not have sufficient funds legally available to redeem all shares of Series A Preferred Stock, Series A-1 Preferred Stock and Series B Preferred Stock and to pay the full amount of the Redemption Dividends, the Corporation shall redeem a Pro Rata Percentage of each holder’s Series A Preferred Stock, Series A-1 Preferred Stock and Series B Preferred Stock and pay a Pro Rata Percentage of the Redemption Dividends. In the event of a Forced Conversion as described in the next paragraph, on the Redemption Date, the Corporation shall redeem in cash in accordance with this Subsection B.5(a) each holder’s Series A Preferred Stock, Series A-1 Preferred Stock and Series B Preferred Stock that was not converted into Common Stock and pay in cash in accordance with this Subsection B.5(a) the remaining Redemption Dividends that were not paid in the form of Common Stock.

 

In the event of an IPO (other than a Qualified IPO) or a Deemed Liquidation Event (but not the exercise of the Put Right), all or a Pro Rata Percentage of the Redemption Price or Redemption Dividends may be paid in shares of Common Stock upon the vote of not less than fifty-one percent (51%) of the outstanding shares of Series B Common Stock (the “ Forced Conversion ”). In the event of a Forced Conversion, immediately prior to the closing of an IPO or the Deemed Liquidation Event, shares of Series A Preferred Stock, Series A-1 Preferred Stock and Series B Preferred Stock that are to be exchanged and any Redemption Dividends that are to be paid shall, in the case of preferred stock, be converted into Common Stock, and in the case of the unpaid Redemption Dividends, be paid as a dividend in Common Stock, out of funds legally available therefor, at a rate equal to (i) such share’s Redemption Price or the Redemption Dividend, divided by (ii) by the fair market value (determined in good faith

 

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by the Board of Directors of the Corporation) of the Common Stock. The payment of any Redemption Dividend shall result in a Corresponding Reduction.

 

(b)           Redemption Notice . Written notice of the mandatory redemption pursuant to Subsection B.5(a) (the “ Redemption Notice ”) shall be mailed, postage prepaid, to each holder of record of Preferred Stock, at its post office address last shown on the records of the Corporation, or given by electronic communication in compliance with the provisions of the General Corporation Law, not less than forty (40) days prior to any anticipated Redemption Date. Each Redemption Notice shall state:

 

(I)                                     the anticipated number of shares of Preferred Stock held by the holder that the Corporation shall redeem on the Redemption Date specified in the Redemption Notice; and
 
(II)                                 the anticipated Redemption Date and the anticipated Redemption Price.
 

(c)           Automatic Surrender of Shares . On the Redemption Date, each of the shares of preferred stock to be redeemed on the Redemption Date shall be deemed to have automatically been surrendered and redeemed if on the Redemption Date the Redemption Price payable upon redemption of the shares of preferred stock to be redeemed on such Redemption Date is paid or tendered for payment or deposited with an independent payment agent so as to be available therefor whether or not certificates representing such shares are surrendered to the Corporation and upon such surrender, the Redemption Price for such shares shall be payable to the order of the person whose name appears on the Corporation’s records as the owner thereof, and each surrendered share shall be canceled and retired.

 

(d)           Rights Subsequent to Redemption . If the Redemption Notice shall have been duly given, and if on the Redemption Date the Redemption Price payable upon redemption of the shares of Preferred Stock to be redeemed on such Redemption Date is paid or tendered for payment or deposited with an independent payment agent so as to be available therefor, then dividends with respect to such shares of Preferred Stock shall cease to accrue after such Redemption Date and all rights with respect to such shares shall forthwith after the Redemption Date terminate, except only the right of the holders to receive the Redemption Price without interest.

 

(e)           Redemption and Dividends upon the Closing of a Qualified IPO . On the Qualified IPO Closing Date, the Corporation shall redeem the Series A Preferred Stock, Series A-1 Preferred Stock and Series B Preferred Stock for the Redemption Price and pay the Redemption Dividends, pari passu, out of Adjusted IPO Net Proceeds, to the extent of funds legally available therefor. “ Adjusted Net IPO Proceeds ” means an amount equal to (A) the net proceeds of the Qualified IPO minus (B) an amount equal to the lesser of (I) fifty percent (50%) of the net proceeds of the Qualified IPO and (II) $65 million. If on the Qualified IPO Closing Date the Adjusted IPO Net Proceeds are not sufficient to redeem all shares of Series A Preferred Stock, Series A-1 Preferred Stock and Series B Preferred Stock and to pay the full amount of the Redemption Dividends, the Corporation shall redeem a Pro Rata Percentage of each holder’s

 

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Series A Preferred Stock, Series A-1 Preferred Stock and Series B Preferred Stock and pay a Pro Rata Percentage of the Redemption Dividends.

 

Any shares of Series A Preferred Stock, Series A-1 Preferred Stock and Series B Preferred Stock (or fractions thereof) that remain unredeemed and any Redemption Dividends that have not been paid shall, in the case of unredeemed preferred stock, be converted into New Redeemable Preferred Stock, and in the case of the unpaid Redemption Dividends, be paid as a dividend in New Redeemable Preferred Stock (a “ Conversion Dividend ”), out of funds legally available therefor, on the Qualified IPO Closing Date at a rate equal to (i) such share’s Redemption Price or the unpaid Redemption Dividend, divided by (ii) the New Redeemable Liquidation Amount; provided, however, that the aggregate New Redeemable Liquidation Amount of such shares so converted into New Redeemable Preferred Stock and dividends paid in the form of New Redeemable Preferred Stock under this paragraph shall not exceed $20 million. If the aggregate New Redeemable Liquidation Amount of the shares converted into New Redeemable Preferred Stock and dividends paid in the form of New Redeemable Preferred Stock under this paragraph on the Qualified IPO Closing Date would exceed $20 million, the Corporation shall convert a Pro Rata Percentage of each holder’s Series A Preferred Stock, Series A-1 Preferred Stock and Series B Preferred Stock and pay a Pro Rata Percentage of the Conversion Dividend.

 

Any shares of Series A Preferred Stock, Series A-1 Preferred Stock or Series B Preferred Stock (or fractions thereof) that have not been converted into New Redeemable Preferred Stock and any Redemption Dividends that have not been paid as a Conversion Dividend pursuant to the preceding paragraph shall, in the case of unredeemed preferred stock, be converted into equal amounts of New Redeemable Preferred Stock and Common Stock, and in the case of the unpaid Redemption Dividends, be paid as a dividend in equal amounts of New Redeemable Preferred Stock and Common Stock (“ Common and Preferred Conversion Dividends ”), out of funds legally available therefor on the Qualified IPO Closing Date at a rate equal to (i) such share’s Redemption Price or the unpaid Redemption Dividend divided by the New Redeemable Liquidation Amount, in the case of each share of New Redeemable Preferred Stock and (ii) such share’s Redemption Price or the unpaid Redemption Dividend divided by the Qualified IPO price to the public, in the case of each share of Common Stock; provided, however, that the aggregate New Redeemable Liquidation Amount of such shares so converted into New Redeemable Preferred Stock and Redemption Dividends paid in the form of New Redeemable Preferred Stock under this paragraph shall not exceed $10 million. If the aggregate New Redeemable Liquidation Amount of the shares converted into New Redeemable Preferred Stock and Redemption Dividends paid in the form of New Redeemable Preferred Stock under this paragraph on the Qualified IPO Closing Date would exceed $10 million, the Corporation shall convert or pay the remaining unredeemed preferred stock and unpaid Redemption Dividends into Common Stock at the Qualified IPO price to the public. No fractional shares of New Redeemable Preferred Stock or Common Stock shall be issued upon conversion of the Series A Preferred Stock, Series A-1 Preferred Stock and Series B Preferred Stock and payment of the Common and Preferred Conversion Dividends. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay as promptly as possible cash equal to any unpaid Redemption Price or Redemption Dividends.

 

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After the closing of an IPO, a Qualified IPO, a Deemed Liquidation Event or the Put (i) all shares of Series A Preferred Stock, Series A-1 Preferred Stock and Series B Preferred Stock shall no longer be outstanding, and shall automatically be cancelled and retired and cease to exist, (ii) the Series A Common Stock, Series A-1 Common Stock and Rolling Common Stock shall not be entitled to any further Senior Common Stock Dividend Amount, (iii) the Series B Common Stock shall not be entitled to any further B Common Dividend Amount, (iv) the Rolling Common Stock shall not be entitled to any further Rolling Common Liquidation Amount and (v) the Series C Common Stock shall not be entitled to any further C Liquidation Amount. Each holder of any such shares shall thereupon cease to have the forgoing rights with respect thereto, except the right to receive the applicable cash payments, New Redeemable Preferred Stock and/or Common Stock to be issued in consideration therefor, without interest.

 

(f)            Redeemed or Otherwise Acquired Shares . Any shares of Preferred Stock which are redeemed or otherwise acquired by the Corporation or any of its subsidiaries shall be automatically and immediately canceled and shall not be reissued, sold or transferred. Neither the Corporation nor any of its subsidiaries may exercise any voting or other rights granted to the holders of Preferred Stock following redemption.

 

6.             Mandatory Conversion .

 

(a)           Immediately prior to the closing of an IPO, a Qualified IPO, a Deemed Liquidation Event or the Put (the “ Mandatory Conversion Date ”), and immediately after the payment of the full amount of the Redemption Dividends in cash, Common Stock, Conversion Dividends and the Common and Preferred Conversion Dividends, as applicable, each share of Rolling Common Stock, Series A Common Stock, Series A-1 Common Stock, Series B Common Stock and Series C Common Stock shall be converted into one share of Common Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares).

 

(b)           All holders of record of shares of common stock converted as aforesaid (“ Converted Common Stock ”) shall be given written notice of the Mandatory Conversion Date and the place designated for mandatory conversion of all such shares of Converted Common Stock pursuant to this Section B.6 . Such notice need not be given in advance of the occurrence of the Mandatory Conversion Date. Such notice shall be sent by first class or registered mail, postage prepaid, or given by electronic communication in compliance with the provisions of the General Corporation Law, to each record holder of Converted Common Stock. On the Mandatory Conversion Date, all outstanding shares of Converted Common Stock shall be deemed to have been converted into shares of Common Stock, which shall be deemed to be outstanding of record, and all rights with respect to the Converted Common Stock so converted, including the rights, if any, to receive notices and vote (other than as a holder of Common Stock), will terminate, except only the rights of the holders thereof to receive certificates for the number of shares of Common Stock, and payment of any declared but unpaid dividends thereon.

 

7.             Voting . Unless specifically provided herein, or otherwise required by law, the shares of Preferred Stock shall be non-voting. In any vote requiring approval of the holders of

 

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all Preferred Stock, Series B Preferred Stock shall have two votes per share and holders of all other series of Preferred Stock shall have one vote per share.

 

8.             Waiver. Any of the rights, powers or preferences of the holders of Preferred Stock set forth herein may be defeased by the affirmative consent or vote of the holders of at least fifty-one percent (51%) of the shares of Preferred Stock then outstanding.

 

FIFTH :  Subject to any additional vote required by this Amended and Restated Certificate of Incorporation, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of the Corporation.

 

SIXTH :  Subject to any additional vote required by this Amended and Restated Certificate of Incorporation, the number of directors of the Corporation shall be determined in the manner set forth in the Bylaws of the Corporation.

 

SEVENTH :  Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.

 

EIGHTH :  Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws of the Corporation may provide. The books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation.

 

NINTH :  To the fullest extent permitted by law, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the General Corporation Law or any other law of the State of Delaware is amended after approval by the stockholders of this Article Ninth to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law as so amended.

 

Any repeal or modification of the foregoing provisions of this Article Ninth by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of, or increase the liability of any director of the Corporation with respect to any acts or omissions of such director occurring prior to, such repeal or modification.

 

TENTH :  To the fullest extent permitted by applicable law, the Corporation is authorized to provide indemnification of (and advancement of expenses to) directors, officers and agents of the Corporation (and any other persons to which General Corporation Law permits the Corporation to provide indemnification) through Bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the General Corporation Law.

 

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Any amendment, repeal or modification of the foregoing provisions of this Article Tenth shall not adversely affect any right or protection of any director, officer or other agent of the Corporation existing at the time of, or increase the liability of any director of the Corporation with respect to any acts or omissions of such director, officer or other agent occurring prior to, such amendment, repeal or modification.

 

ELEVENTH :  Subject to any additional vote required by this Amended and Restated Certificate of Incorporation, the Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.

 

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IN WITNESS WHEREOF, this Restated Certificate of Incorporation, which restates and integrates and further amends the provisions of the Certificate of Incorporation of this Corporation, and which has been duly adopted in accordance with Sections 228, 242 and 245 of the General Corporation Law, has been executed by its duly authorized President and Chief Executive Officer this day          of April, 2006.

 

 

 

ALPHATEC HOLDINGS, INC.

 

 

 

 

 

By:

 

 

 

 

Ronald G. Hiscock

 

 

President and Chief Executive Officer

 

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Exhibit 3.2

 

RESTATED

 

CERTIFICATE OF INCORPORATION

 

OF

 

ALPHATEC HOLDINGS, INC.

 

(Pursuant to Sections 242 and 245 of the

General Corporation Law of the State of Delaware)

 

Alphatec Holdings, Inc., a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the “General Corporation Law”),

 

DOES HEREBY CERTIFY:

 

1.                                       The name of the corporation is “Alphatec Holdings, Inc.” (the “Corporation”).

 

2.                                       The Corporation’s original Certificate of Incorporation was filed in the office of the Secretary of State of Delaware on March 4, 2005.

 

3.                                       This Amended and Restated Certificate of Incorporation restates, integrates and amends the Certificate of Incorporation.

 

4.                                       This Amended and Restated Certificate of Incorporation was duly adopted by written consent of the directors and stockholders of the Corporation in accordance with the applicable provisions of Sections 242 and 245 of the General Corporation Law.

 

5.                                       The text of the Certificate of Incorporation is hereby amended and restated to read in full as follows:

 

FIRST:  The name of the corporation (hereinafter called the “Corporation”) is

 

ALPHATEC HOLDINGS, INC.

 

SECOND:  The name and address of the Corporation’s registered agent in the State of Delaware is Corporation Service Company, 2711 Centerville Road, City of Wilmington, County of New Castle.

 

THIRD:   The purpose of the Corporation is to engage in any lawful act or activity or carry on any business for which corporations may be organized under the General Corporation Law or any successor statue.

 



 

FOURTH:

 

A.            Designation and Number of Shares.

 

The total number of shares of all classes of stock which the Corporation shall have the authority to issue is 220,000,000 shares, consisting of 200,000,000 shares of common stock, par value $0.0001 per share (the “Common Stock”) and 20,000,000 shares of Preferred Stock, par value $0.0001 per share (the “Preferred Stock”).  Of such 20,000,000 shares of Preferred Stock, 15,000,000 shares shall be designated as “New Redeemable Preferred Stock.”

 

The term “Restated Certificate of Incorporation” as used herein shall mean the Restated Certificate of Incorporation of the Corporation as amended from time to time.  The number of authorized shares of Common Stock or Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of all of the outstanding shares of capital stock then entitled to vote thereon, voting together as a single class, without a separate class vote of the holders of the Common Stock or Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to the terms of any Preferred Stock designation.

 

B.            Preferred Stock

 

1.             Shares of Preferred Stock may be issued in one or more series at such time or times and for such consideration as the Board of Directors may determine.

 

2.             Authority is hereby expressly granted to the Board of Directors to fix from time to time, by resolution or resolutions providing for the establishment and/or issuance of any series of Preferred Stock, the designation and number of the shares of such series and the powers, preferences and rights of such series, and the qualifications, limitations or restrictions thereof, to the fullest extent such authority may be conferred upon the Board of Directors under the General Corporation Law.  Without limiting the generality of the foregoing, the resolutions providing for issuance of any series of Preferred Stock may provide that such series shall be superior or rank equally or be junior to the Preferred Stock of any other series to the extent permitted by law.

 

C.            New Redeemable Preferred Stock

 

1.             Dividends .  No dividends of any kind shall be payable on shares of New Redeemable Preferred Stock.

 

2.             Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales .

 

(a)            In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of shares of New Redeemable Preferred Stock then outstanding shall be entitled to be paid out of the assets available for distribution to the Corporation’s stockholders before any payment shall be made to the holders of any Common Stock, by reason of their ownership thereof, in a per share amount equal to the price to the public of the Common Stock pursuant to the initial public offering filed with the U.S. Securities and Exchange Commission on Registration Statement No. 333-131609 (the “Qualified IPO”) (subject

 

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to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares) (the aggregate amount payable pursuant to this sentence is the “New Redeemable Liquidation Amount”).  If upon any such liquidation, dissolution or winding up of the Corporation the remaining assets available for distribution to the Corporation’s stockholders shall be insufficient to pay the holders of shares of New Redeemable Preferred Stock the full New Redeemable Liquidation Amount, the holders of shares of New Redeemable Preferred Stock shall share ratably in any distribution of the remaining assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution as if all amounts payable on or with respect to such shares were paid in full.

 

In the event that the underwriters of the Qualified IPO exercise their option to purchase additional shares of Common Stock in order to cover over-allotments at any time or from time to time after the Qualified IPO Closing Date (each, an “Over-Allotment Stock Sale”), the Corporation shall in each case redeem the New Redeemable Preferred Stock for an amount equal to the New Redeemable Liquidation Amount, pari passu, out of the net proceeds of the Over-Allotment Stock Sale.

 

(b)           New Redeemable Deemed Liquidation Events .

 

(i)            The following events constitute a “New Redeemable Deemed Liquidation Event”:

 

(A)          a merger or consolidation in which

 

(I)                                     the Corporation is a constituent party, or

 

(II)                                 a subsidiary of the Corporation is a constituent party and the Corporation issues shares of its capital stock pursuant to such merger or consolidation,

 

except any such merger or consolidation involving the Corporation or a subsidiary in which the shares of capital stock of the Corporation outstanding immediately prior to such merger or consolidation continue to represent, or are converted or exchanged for shares of capital stock which represent, immediately following such merger or consolidation at least a majority, by voting power, of the capital stock of (1) the surviving or resulting corporation or (2) if the surviving or resulting entity is a wholly owned subsidiary of another corporation immediately following such merger or consolidation, the ultimate parent corporation of such surviving or resulting entity (provided that, for the purpose of this Subsection C.2(b)(i)(A) , all shares of capital stock issuable upon conversion of convertible securities, or any rights to receive capital stock, outstanding immediately prior to such merger or consolidation shall be deemed to be outstanding immediately prior to such merger or consolidation and, if applicable, converted or exchanged in such merger or consolidation on the same terms as the actual outstanding shares of capital stock are converted or exchanged); or

 

(B)           the sale, lease, transfer or other disposition, in a single transaction or series of related transactions, by the Corporation or any subsidiary of the

 

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Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole except where such sale, lease, transfer or other disposition is to a wholly owned subsidiary of the Corporation.

 

(ii)           The Corporation shall not, without the consent of the holders of a majority of the New Redeemable Preferred Stock, effect any transaction constituting a New Redeemable Deemed Liquidation Event pursuant to Subsection C.2(b)(i)(A) above unless the agreement or plan of merger or consolidation provides that the consideration payable to the stockholders of the Corporation shall be allocated among the holders of capital stock of the Corporation in accordance with Subsection C.2(a) above.

 

(iii)          In the event of a New Redeemable Deemed Liquidation Event pursuant to Subsection C.2(b)(i)(B) above, if the Corporation does not effect a dissolution of the Corporation under the General Corporation Law within sixty (60) days after such New Redeemable Deemed Liquidation Event, then (A) the Corporation shall deliver a written notice to each holder of outstanding shares of New Redeemable Preferred Stock no later than the sixtieth (60 th ) day after the New Redeemable Deemed Liquidation Event advising such holders of their right (and the requirements to be met to secure such right) pursuant to the terms of the following clause (B) to require the redemption of such shares of New Redeemable Preferred Stock, and (B) if the holders of at least fifty-one percent (51%) of the then outstanding shares of New Redeemable Preferred Stock so request in a written instrument delivered to the Corporation not later than seventy-five (75) days after such New Redeemable Deemed Liquidation Event, the Corporation shall, on the ninetieth (90 th ) day after such New Redeemable Deemed Liquidation Event (the “New Redeemable Liquidation Redemption Date”), use the consideration received by the Corporation for such New Redeemable Deemed Liquidation Event (net of any retained liabilities associated with the assets sold or technology licensed, as determined in good faith by the Board of Directors of the Corporation) (the “New Redeemable Net Proceeds”) to redeem, to the extent there are funds legally available therefor, all outstanding shares of New Redeemable Preferred Stock at a price per share equal to the New Redeemable Liquidation Amount.  If, on the New Redeemable Liquidation Redemption Date, the New Redeemable Net Proceeds are not sufficient to redeem all outstanding shares of New Redeemable Preferred Stock, or if the Corporation does not have sufficient legally available funds to effect such redemption, the Corporation shall redeem and pay the New Redeemable Liquidation Amount on a pro rata portion of each holder’s shares of New Redeemable Preferred Stock to the fullest extent of such New Redeemable Net Proceeds or such legally available funds, as the case may be, and, where such redemption and payment is limited by the amount of legally available funds, the Corporation shall redeem the remaining shares as soon as practicable after the Corporation has funds legally available therefor.  Prior to the redemption provided for in this Subsection C.2(b)(iii) , the Corporation shall not expend or dissipate the consideration received for such Deemed Liquidation Event, except to discharge expenses incurred in the ordinary course of business.

 

(iv)          The amount deemed paid or distributed to the holders of capital stock of the Corporation upon any such merger, consolidation, sale, transfer, exclusive license, other disposition or redemption shall be the cash or the value of the property, rights or securities paid or distributed to or retained by such holders by the Corporation or the acquiring person, firm

 

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or other entity.  The value of such property, rights or securities shall be determined in good faith by the Board of Directors of the Corporation.

 

(c)           Optional Cash Redemption .  The Corporation shall have the right, at any time and from time to time, to redeem for cash, out of funds legally available therefor, all or any portion of the outstanding shares of New Redeemable Preferred Stock, pro rata, based on the number of such shares held by each holder thereof, at a per share amount on the New Redeemable Liquidation Amount. On the redemption date, each of the shares of New Redeemable Preferred Stock to be redeemed on the redemption date shall be deemed to have automatically been surrendered and redeemed if on the redemption date the New Redeemable Liquidation Amount payable upon redemption of the shares of New Redeemable Preferred Stock to be redeemed on such redemption date is paid or tendered for payment or deposited with an independent payment agent so as to be available therefor whether or not certificates representing such shares are surrendered to the Corporation and upon such surrender, the New Redeemable Liquidation Amount for such shares shall be payable to the order of the person whose name appears on the Corporation’s records as the owner thereof, and each surrendered share shall be canceled and retired.

 

3.             Voting .

 

(a)           Except as provided by law and as set forth in Subsection C.3(b) , the holders of the New Redeemable Preferred Stock shall have no voting rights with respect to any matters to be voted on by the Corporation’s stockholders.

 

(b)           Any of the rights, powers or preferences of the holders of New Redeemable Preferred Stock set forth herein may be defeased by the affirmative consent or vote of the holders of at least fifty-one percent (51%) of the shares of New Redeemable Preferred Stock then outstanding.

 

4.             Conversion .  The holders of the New Redeemable Preferred Stock shall have no conversion rights.

 

5.             Redeemed or Otherwise Acquired Shares .  Any shares of New Redeemable Preferred Stock which are redeemed or otherwise acquired by the Corporation or any of its subsidiaries shall be automatically and immediately canceled and shall not be reissued, sold or transferred.  Neither the Corporation nor any of its subsidiaries may exercise any voting or other rights granted to the holders of New Redeemable Preferred Stock following redemption.

 

D.            Common Stock.

 

1.             Dividends .             Dividends may be declared and paid on the Common Stock from funds lawfully available therefore if, as and when determined by the Board of Directors in their sole discretion, subject to provisions of law, any provision of this Restated Certificate of Incorporation, as amended from time to time, and subject to the relative rights and preferences of any shares of Preferred Stock authorized, issued and outstanding hereunder.

 

2.             Voting . The holders of the Common Stock are entitled to one vote for each share held; provided , however , that, except as otherwise required by law, holders of Common Stock

 

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shall not be entitled to vote on any amendment to this Restated Certificate of Incorporation (including any certificate of designation relating to Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together as a class with the holders of one or more other such series, to vote thereon by law or pursuant to this Restated Certificate of Incorporation (including any certificate of designation relating to Preferred Stock).

 

FIFTH:   The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders:

 

A.            The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authority expressly conferred upon them by statute or by this Restated Certificate of Incorporation or the Bylaws of the Corporation as in effect from time to time, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation.

 

B.            The directors of the Corporation need not be elected by written ballot unless the Bylaws so provide.

 

C.            Any action required or permitted to be taken by the stockholders of the Corporation may be effected only at a duly called annual or special meeting of stockholders of the Corporation and not by written consent.

 

D.            Special meetings of the stockholders may only be called by the Board of Directors acting pursuant to a resolution adopted by a majority of the Whole Board.  For the purposes of this Restated Certificate of Incorporation, the term “Whole Board” shall mean the total number of authorized directors whether or not there exist any vacancies in previously authorized directorships.  Business transacted at any special meeting of stockholders shall be limited to matters relating to the purpose or purposes stated in the notice of meeting.

 

SIXTH:

 

A.            Subject to the rights of the holders of shares of any series of Preferred Stock then outstanding to elect additional directors under specified circumstances, the number of directors shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the Whole Board.

 

B.            Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause shall, unless otherwise required by law or by resolution of the Board of Directors, be filled only by a majority vote of the directors then in office even though less than a quorum, or by a sole remaining director, and not by stockholders, and directors so chosen shall serve for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been chosen expires or until such director’s successor shall have been duly elected and qualified, subject to their earlier death, resignation or

 

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removal.  No decrease in the authorized number of directors shall shorten the term of any incumbent director.

 

C.            Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the Bylaws of the Corporation.

 

D.            At any meeting of the Board of Directors, a majority of the Whole Board shall constitute a quorum for all purposes.  At any meeting of the Board of Directors duly held at which a quorum is present, all matters shall be determined by the vote of a majority of the directors present, except as otherwise provided herein or required by law.  If at any meeting of the Board of Directors there shall be less than a quorum, a majority of the directors present may adjourn the meeting from time to time without further notice other than announcement at the meeting, until a quorum shall be present.

 

SEVENTH:   The Board of Directors is expressly empowered to adopt, amend or repeal Bylaws of the Corporation.  Any adoption, amendment or repeal of the Bylaws of the Corporation by the Board of Directors shall require the approval of a majority of the Whole Board.

 

EIGHTH:  The Corporation shall not be governed by Section 203 of the General Corporation Law.

 

NINTH:

 

A.            Each person who was or is made a party or is threatened to be made a party to or is otherwise involved (including, without limitation, as a witness) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or an officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, or trustee of another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an “Indemnitee”), whether the basis of such proceeding is alleged action in an official capacity as a director, officer or trustee or in any other capacity while serving as a director, officer or trustee, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such Indemnitee in connection therewith; provided, however, that, except with respect to proceedings to enforce rights to indemnification or an advancement of expenses or as otherwise required by law, the Corporation shall not be required to indemnify or advance expenses to any such Indemnitee in connection with a proceeding (or part thereof) initiated by such Indemnitee unless such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation.

 

B.            In addition to the right to indemnification conferred in Section A of this Article NINTH, an Indemnitee shall also have the right to be paid by the Corporation the expenses

 

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(including attorney’s fees) incurred in defending any such proceeding in advance of its final disposition (an “advancement of expenses”); provided, however, that, if the General Corporation Law requires, an advancement of expenses incurred by an Indemnitee in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such Indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter an “undertaking”), by or on behalf of such Indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a “final adjudication”) that such Indemnitee is not entitled to be indemnified for such expenses under this Section B or otherwise.

 

C.            The indemnification and advancement of expenses provided by, or granted pursuant to, this Article NINTH shall not be deemed exclusive of any other rights to which a person seeking indemnification or advancement of expenses may be entitled under any Bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office.

 

D.            The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, trustee, employee or agent of another corporation, or of a partnership, joint venture, trust or other enterprise, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the Corporation would have the power to indemnify such person against such liability under this Article NINTH.

 

E.             The indemnification and advancement of expenses provided by, or granted pursuant to, this Article NINTH 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 person.  No repeal or amendment of this Article NINTH shall adversely affect any rights of any person pursuant to this Article NINTH which existed at the time of such repeal or amendment with respect to acts or omissions occurring prior to such repeal or amendment.

 

TENTH:  No director shall be personally liable to the Corporation or its stockholders for any monetary damages for breaches of fiduciary duty as a director; provided that this provision shall not eliminate or limit the liability of a director, to the extent that such liability is imposed by applicable law, (i) for any breach of the director’s duty of loyalty to the Corporation or its stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under Section 174 of the General Corporation Law; or (iv) for any transaction from which the director derived an improper personal benefit.  No amendment to or repeal of this provision shall apply to or have any effect on the liability or alleged liability of any director for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal.  If the General Corporation Law is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law, as so amended.

 

ELEVENTH:  The Corporation reserves the right to amend or repeal any provision contained in this Restated Certificate of Incorporation in the manner prescribed by the General

 

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Corporation Law and all rights conferred upon stockholders are granted subject to this reservation.

 

TWELFTH:   Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs.  If a majority in number representing three-fourths (3/4) in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation.

 

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IN WITNESS WHEREOF, this Restated Certificate of Incorporation, which restates and integrates and further amends the provisions of the Certificate of Incorporation of this Corporation, and which has been duly adopted in accordance with Sections 228, 242 and 245 of the General Corporation Law, has been executed by its duly authorized President and Chief Executive Officer this      day of May, 2006.

 

 

 

ALPHATEC HOLDINGS, INC.

 

 

 

 

 

By:

 

 

 

 

Ronald G. Hiscock

 

 

President and Chief Executive Officer

 

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Exhibit 4.2

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Company's application requesting confidential treatment under Rule 406 of the Securities Act. Asterisks denote omissions.


STOCKHOLDERS' AGREEMENT

ALPHATEC HOLDINGS, INC.
formerly known as
AMI ACQUISITION I CORP.

         THIS STOCKHOLDERS' AGREEMENT , originally dated as of March 17, 2005 (this " Agreement "), is by and among Alphatec Holdings, Inc. (formerly know as AMI Acquisition I Corp.), a Delaware corporation (the " Company "), HealthpointCapital Partners, LP (the " Fund "), and the investors as may from time to time be listed on Schedule I attached hereto (the Fund and such investors are collectively referred to herein as the " Investors ").

RECITALS

         WHEREAS, the Investors are beneficial owners of the capital stock of the Company; and

         WHEREAS, the Investors desire to enter into this Agreement to regulate their relationships with regard to the Company and to regulate their relationships among themselves as shareholders of the Company.

         NOW, THEREFORE , in consideration of the premises and the mutual agreements contained herein, the parties hereto agree as follows:

         SECTION 1.     Definitions.     

        1.01.     Certain Definitions.     

        (a)   As used herein, the following capitalized terms shall have the following meanings:


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        (b)   References herein to the Common Stock outstanding "on a fully diluted basis" at any time means, without duplication, the number of shares of Common Stock then issued and outstanding, assuming full conversion, exercise and exchange of all securities of any type that shall be (or may become) exchangeable for, or exercisable or convertible into, Common Stock.

        (c)   References to "include" and "including" shall be construed as if followed by the phrase ", without being limited to,".

        1.02.     General Principles of Construction.     Unless otherwise specified herein, (a) "Section" shall refer to a section or subsection of this Agreement, as the context shall require, (b) "herein", "hereunder", "hereby", "hereof" and words of similar import shall refer to this Agreement and any schedules and exhibits hereto taken as a whole, and not just to the specific section in which such term appears, and (c) terms defined in the singular have the appropriate correlative meaning when used in the plural and vice versa.

         SECTION 2.     Corporate Governance.     

        2.01.     Number and Identity of Directors.     

        (a)   The number of directors of the Company shall initially be one (1). Such number may be increased or decreased, at any time, by the Board.

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        (b)   Each Holder agrees that all directors of the Company shall be person nominated, from time to time, by the Holders of a majority of outstanding Fund Shares.

        2.02.     Further Assurances.     Each of the Holders agrees to vote, in person or by proxy, all of the Shares owned by such Holders, at any annual or special meeting of the stockholders of the Company called for the purpose of voting on the election of directors, or by consensual action of Holders without a meeting with respect to the election of directors, in favor of the election of the directors nominated in accordance with this Section. Each Holder shall vote the Shares owned by such Holder and shall take all other actions necessary to ensure that the Certificate of Incorporation and By-laws of the Company do not at any time conflict with the provisions of this Agreement.

         SECTION 3.     Certificate of Incorporation.     

        3.01.     Amended Certificate.     The parties hereto acknowledge and agree that in connection with the execution of this Agreement, the Certificate of Incorporation shall be amended to read in its entirety as set forth in Exhibit A hereto.

         SECTION 4.     Transfers of Restricted Securities.     

        4.01.     Restrictions on Transfers; Permitted Transferees     

        (a)   Each Holder, severally and not jointly, agrees and acknowledges that such Holder will not, directly or indirectly, offer, sell, assign, pledge, encumber or otherwise transfer any Restricted Securities or solicit any offers to purchase or otherwise acquire or make a pledge of any Restricted Securities, except in the case of (i) a sale of Restricted Securities pursuant to an effective registration statement under the Securities Act, (ii) a Tag-Along Sale or (iii) a Bring-Along Sale, in each case otherwise in accordance with this Agreement.

        (b)   Except as specifically contemplated hereby, no Holder shall grant any proxy or enter into or agree to be bound by any voting trust with respect to any Restricted Securities nor shall any Holder enter into any stockholder agreements or arrangements of any kind with any Person with respect to any Restricted Securities inconsistent with the provisions of this Agreement (whether or not such agreements and arrangements are with other Holders of Restricted Securities who are not parties to this Agreement), including but not limited to, agreements or arrangement with respect to the acquisition, disposition or voting of Restricted Securities, nor shall any Holder act, for any reason, as a member of a group or in concert with any other Persons in connection with the acquisition, disposition or voting of Restricted Securities in any manner which is inconsistent with the provisions of this Agreement.

        (c)   None of the restrictions contained in this Agreement with respect to transfers of Restricted Securities shall apply with respect to any transfer or assignment by a Holder to an Affiliate of such Holder, provided such Holder obtains the prior written of the Company to such transfer or assignment (which consent shall not be unreasonably withheld), and provided further that such transferee or assignee (a " Permitted Transferee ") shall have executed and delivered to the Company, as a condition precedent to any acquisition of Restricted Securities, a Joinder Agreement substantially in the form of Exhibit B hereto (a " Joinder Agreement ") confirming that such Permitted Transferee takes such Restricted Securities subject to all the terms and conditions of this Agreement and agrees to be bound by the terms thereof. The Company shall not transfer upon its books any Restricted Securities to any Person except in accordance with this Agreement. For purposes hereof, the Permitted Transferees of a Holder shall include the Permitted Transferees of such Holder's Permitted Transferees.

        4.02.     Tag-Along Right.     

        (a)   If any Holder, or group of Holders, of Fund Shares proposes in a single transaction or a series of related transactions to sell, dispose of or otherwise transfer (except a transfer pursuant to Section 4.01(c) or Rule 144) any Restricted Securities then outstanding (on a fully diluted basis), such

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Holder or group of Holders shall refrain from effecting such transaction unless, prior to the consummation thereof, the other Holders shall have been afforded the opportunity to join in such transfer as provided in Section 4.02(b).

        (b)   Prior to the consummation of any transaction subject to the terms of this Section 4.02, the Person or group of Persons (the " Proposed Purchaser ") that proposes to acquire Restricted Securities in a transaction subject to Section 4.02(a) (the " Tag-Along Sale ") shall offer (the " Tag-Along Purchase Offer ") in writing to the other Holders the right to sell out of the total number of Restricted Securities proposed to be acquired in the Tag-Along Sale the same proportion (a " Proportionate Share ") of the number of Restricted Securities to be sold as the total number of Restricted Securities owned by the other Holders bears to the total number of Restricted Securities held on such date by the other Holders and the selling Holder or group of Holders, at the some price and on the same terms and conditions as the Proposed Purchaser has offered to such original selling Holder or group of Holders. Each other Holder shall have fifteen (15) days from the receipt of the Tag-Along Purchase Offer in which to accept the Tag-Along Purchase Offer. In the event that a transfer subject to Section 4.02(a) is to be made to a Person other than a Holder, the original selling Holder shall notify the Proposed Purchaser that the transfer is subject to Section 4.02(a) and shall ensure that no transfer is consummated without the Proposed Purchaser first complying with this Section 4.02(b). It shall be the responsibility of each Holder to determine whether any transaction to which it is a party is subject to Section 4.02(a).

        4.03.     Bring-Along Right.     From and after the date forty-five (45) days after the date hereof, if any Holder of Fund Shares proposes to make a bona fide sale (a " Bring-Along Sale ") of any Restricted Securities held by such Holder to a third party that is not, and following such sale will not be, an Affiliate of the Fund, and such sale is at a price that, in such Holder's reasonable judgment, is a fair market value price, such Holder shall have the right, exercisable upon fifteen (15) days' prior written notice to the each of other Holders, to require each of such other Holders to sell such Holder's Proportionate Share of Restricted Securities to such third party on the same terms as the Holder of Fund Shares.

        4.04.     Legend on Certificates.     Each outstanding certificate representing Restricted Securities shall bear endorsements reading substantially as follows:

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        4.05.     Preemptive Rights.     

        (a)   The Company hereby grants to each Holder a right of first refusal to purchase, with respect to the issuance by the Company or any of its Subsidiaries of new or additional equity securities or securities convertible or exchangeable into, or exercisable for, any such equity securities (collectively, "equity securities"), that portion of such new or additional equity securities as may be necessary in order to permit such Holder to maintain its relative direct or indirect ownership of the aggregate amount of the total equity securities of Company or any of its Subsidiaries then outstanding ("Pro Rata Share"). Such rights of first refusal would be offered to the Holders (such offer, the "Preemptive Rights Offer") pursuant to a written notice from the Company offering the Holders such securities on the same terms and conditions as offered to the other offeree(s) (such written notice, the "Preemptive Rights Notice"). The right of first refusal granted in this Section 4.05 shall not apply to equity securities issued under a Plan or in connection with a Financing or a Public Offering.

        (b)   Each of the Holders would have 10 days from the date of the Company's delivery of the Preemptive Rights Notice to notify the Company in writing of its binding acceptance of such Preemptive Rights Offer with respect to all or any portion of the equity securities which are offered to such party pursuant to such Preemptive Rights Offer.

         SECTION 5.     Piggyback Registrations     

        5.01     Right to Include Registrable Securities.     Notwithstanding any limitation contained in Section 4 , if the Company at any time proposes after the date hereof to effect a Piggyback Registration, it will each such time give prompt written notice to the Holders of its intention to do so, including a description of the intended method of disposition of the shares of capital stock. Upon the written request of any Holder, the Company shall use commercially reasonable efforts to include in the registration statement relating to such Piggyback Registration all Registrable Securities which the Company has been so requested to register, subject, however, to Section 5.03. Notwithstanding the foregoing, a Holder shall not have a right to effect a Piggyback Registration if such Holder's Registrable Securities are immediately distributable pursuant to Rule 144 or another exemption under the Securities Act.

        5.02.     Registration Expenses.     The Company shall pay all Registration Expenses incurred in connection with each Piggyback Registration.

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        5.03.     Priority in Cutback Registrations.     If a Piggyback Registration becomes a Cutback Registration, the Company shall include in such registration, to the extent of the amount of the shares of capital stock which the managing underwriter advises the Company can be sold in such offering, first , the shares of capital stock proposed by the Company to be sold for its own account, and second , any shares of capital stock requested to be included in the registration by holders of such shares, p ro rata on the basis of the total number of such shares held by holders thereof. Any shares of capital stock so excluded shall be withdrawn from and shall not be included in such Piggyback Registration.

        5.04.     Underwritten Piggyback Offerings.     If the Company at any time proposes to register any of its shares of capital stock in a Piggyback Registration and such securities are to be distributed by or through one or more underwriters, the Company shall, subject to the provisions of Section 5.03, use commercially reasonable efforts to arrange for such underwriters to include the Registrable Securities to be offered and sold by any Holder among the shares of capital stock to be distributed by such underwriters. Such Holder shall be a party to the underwriting agreement between the Company and such underwriter or underwriters and may, at its option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters also be made to and for the benefit of such Holder and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement also be conditions precedent to the obligations of such Holder. No Holder may participate in such underwritten offering unless such Holder agrees to sell its Registrable Securities on the basis provided in such underwriting agreement and completes and executes all questionnaires, powers of attorney, indemnities and other documents reasonably required under the terms of such underwriting agreement. If any Holder disapproves of the terms of an underwriting, such Holder may elect to withdraw therefrom and from such registration by notice to the Company and the managing underwriter.

        5.05.     Cross-Indemnifications.     

        (a)     Indemnification by the Company.     The Company shall, to the full extent permitted by law, indemnify and hold harmless each Holder and its Affiliates, and their respective managing directors, officers, directors, managers, officers, employees and agents (each, a " Holder Indemnified Party "), against any losses, claims, damages, expenses or liabilities, joint or several (collectively, " Losses "), to which such Holder Indemnified Party may become subject under the Securities Act or otherwise, insofar as such Losses (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement of the Company, any preliminary prospectus of the Company, final prospectus of the Company or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus, in the light of the circumstances under which they were made) not misleading, and the Company shall reimburse each Holder Indemnified Party for any legal or any other expenses reasonably incurred by them in connection with investigating or defending any such Loss (or action or proceeding in respect thereof); provided, however, that the Company shall not be liable to the extent that any such Loss (or action or proceeding in respect thereof) arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to the Company for use in the preparation thereof. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of any Holder or any such Holder Indemnified Party, and shall survive the transfer of Shares by a Holder. The Company shall also indemnify each other Person that participates (including as an underwriter) in the offering or sale of Registrable Securities, and such Person's Affiliates, and their respective managing directors, officers, directors, managers, officers, employees and agents, to the same extent as provided above with respect to each Holder.

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        (b)     Indemnification by the Holders.     Each Holder shall, to the full extent permitted by law, indemnify and hold harmless the Company and its Affiliates, and their respective managing directors, officers, directors, managers, officers, employees and agents (each, a " Company Indemnified Party ") against any Losses to which the Company or any such Company Indemnified Party may become subject under the Securities Act or otherwise, insofar as such Losses (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement of the Company, any preliminary prospectus of the Company, final prospectus of the Company or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus, in the light of the circumstances under which they were made) not misleading, if such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company or any Company Indemnified Party and shall survive the transfer of such shares by such seller. Such Holder shall also indemnify each other Person that participates (including as an underwriter) in the offering or sale of Registrable Securities, and such Person's Affiliates, and their respective managing directors, officers, directors, managers, officers, employees and agents, to the same extent as provided above with respect to the Company.

        (c)     Notices of Claims. Etc.     Promptly after receipt by an Indemnified Party of notice of the commencement of any action or proceeding involving a claim referred to in Section 5.05(a) or 5.05(b), such Indemnified Party will, if a claim in respect thereof is to be made against an Indemnifying Party pursuant to such Sections, give written notice to the latter of the commencement of such action; provided, however, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under the Section 5.05(a) or 5.05(b), except to the extent that the Indemnifying Party is actually prejudiced by such failure to give notice. In case any such action is brought against an Indemnified Party, the Indemnifying Party shall be entitled to participate in and to assume the defense thereof, with counsel reasonably satisfactory to such Indemnified Party, and after notice from the Indemnifying Party to such Indemnified Party of its election so to assume the defense thereof, the Indemnifying Party shall not be liable to such Indemnified Party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation. No Indemnifying Party shall be subject to any liability for any settlement made without its consent, which consent shall not be unreasonably withheld.

        (d)     Contribution.     If the indemnity and reimbursement obligation provided for in this Section 5 is unavailable or insufficient to hold harmless an Indemnified Party in respect of any Losses (or actions or proceedings in respect thereof) referred to therein, then the Indemnifying Party shall contribute to the amount paid or payable by the Indemnified Party as a result of such Losses (or actions or proceedings in respect thereof) in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and the Indemnified Party on the other hand in connection with statements or omissions which resulted in such Losses, as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Indemnifying Party or the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 5.05(d) were to be determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the first sentence of this Section 5.05(d). The amount paid by an Indemnified Party as a result of the Losses referred to in the first sentence of this Section 5.05(d) shall be deemed to include any legal and other expenses

8



reasonably incurred by such Indemnified Party in connection with investigating or defending any Loss which is the subject of this Section 5.04(d). No Indemnified Party guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from the Indemnifying Party if the Indemnifying Party was not guilty of such fraudulent misrepresentation.

        (e)     Other Indemnification.     Indemnification similar to that specified in this Section 5.05 (with appropriate modifications) shall be given by the Company and each Holder with respect to any required registration or other qualification of shares of capital stock under any federal or state law or regulation of any governmental authority other than the Securities Act. The provisions of this Section 5.05 shall be in addition to any other rights to indemnification or contribution which an Indemnified Party may have pursuant to law, equity, contract or otherwise.

        (f)     Indemnification Payments.     The indemnification required by this Section 5.05 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Losses are incurred.

         SECTION 6.     Access and Information     

        6.01.     Information and Access.     

        (a)   The Company shall furnish to each Holder the following:

        (b)   The Company shall (i) afford each Holder or its authorized agents access, at reasonable times, upon reasonable prior notice, to inspect the books and records (including the stock books and records) of the Company and to discuss with senior management of the Company the business and affairs of the Company, and (ii) provide each Holder or its authorized agents with additional information on the financial condition, operations and business of the Company as such Holder shall reasonably request.

         SECTION 7.     Miscellaneous.     

        7.01.     Remedies.     The parties to this Agreement acknowledge and agree that the covenants and agreements of the Company and the Holders set forth in this Agreement may be enforced in equity by a decree requiring specific performance or injunctive relief. Such remedies shall be cumulative and nonexclusive and shall be in addition to any other rights and remedies the parties may have under this Agreement or otherwise.

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        7.02.     Complete Agreement.     This Agreement represents the complete agreement among the parties hereto as to all matters covered hereby or thereby, and supersedes any prior agreements or understandings (oral or written) between the parties with respect to such matters.

        7.03.     Amendments.     Any provision of this Agreement may be amended or waived only in writing and shall require the written consent of all Holders. In the event that any Holder or the Company shall be required, as a result of the enactment, amendment or modification, subsequent to the date hereof, of any applicable law or regulation, or by the order of any governmental authority, to take any action which is inconsistent with or which would constitute a violation or breach of any terms of this Agreement, then the Holders and the Company shall use commercially reasonable efforts to negotiate an appropriate amendment or modification of, or waiver of compliance with, such terms.

        7.04.     Captions.     Captions appearing in this Agreement are for convenience only and shall not be deemed to explain, limit or amplify the provisions hereof.

        7.05.     Severability.     The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if the invalid or unenforceable provision were omitted.

        7.06.     No Waiver.     No failure on the part of any party hereunder to exercise, and no delay in exercising, and no course of dealing with respect to, any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power of privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

        7.07.     Notices.     

        (a)   All notices under this Agreement must be in writing and may be given by personal delivery, telex, telegram, private courier service or registered or certified mail.

        (b)   A notice is deemed to have been given:

        (c)   Notices must be sent to:

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        7.08.     Successors and Assigns.     This Agreement shall be binding upon and inure to the benefit of the parties hereto and to their respective transferees, successors, assigns, legal representatives, heirs and administrators; provided, however, that neither this Agreement nor any rights or duties hereunder may be assigned by any of the parties hereto except in accordance with the express terms and conditions of this Agreement.

        7.09.     Governing Law.     This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without giving effect to the conflict of law principled thereof.

        7.10.     JURISDICTION.     

        (a)   ANY SUIT, ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER RESTRUCTURING DOCUMENT AND ANY ACTION OR PROCEEDING TO EXECUTE OR OTHERWISE ENFORCE ANY JUDGMENT OBTAINED IN CONNECTION HEREWITH OR THEREWITH MAY BE INSTITUTED IN THE SUPREME COURT OF THE STATE OF NEW YORK, COUNTY OF NEW YORK, OR IN THE U.S. DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMITS GENERALLY (BUT NON-EXCLUSIVELY) TO THE JURISDICTION OF EACH SUCH COURT OF ANY SUIT, ACTION OR PROCEEDING. EACH OF THE PARTIES HERETO HEREBY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING IN SAID COURTS BY THE MAILING THEREOF BY ANY OTHER PARTY BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH PARTY AT ITS ADDRESS FOR NOTICES SPECIFIED PURSUANT TO SECTION 7.07.

        (b)   EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT NAY NOW OR HEREAFTER HAVE TO LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE ENFORCEMENT OF THIS AGREEMENT OR ANY OTHER RESTRUCTURING DOCUMENT BROUGHT IN THE SUPREME COURT OF THE STATE OF NEW YORK, COUNTY OF NEW YORK, OR THE U.S. DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

        (c)   EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THISAGREEMENT OR ANY OTHER RESTRUCTURING DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

        7.11.     Termination; Survival.     This Agreement shall terminate, as between any Holder and the other parties hereto, upon disposition of all Restricted Securities held by such Holder pursuant to Section 4 or upon a Public Offering (except that the registration rights granted under Section 5 shall survive a Public Offering). The representations, warranties, covenants and agreements of any Holder contained in Section 5.05(b), and of the Company contained in Section 5.05(a), shall survive any such termination.

        7.12.     Counterparts.     This Agreement may be executed with counterpart signature pages or in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Agreement by signing any such counterpart signature page or counterpart.

(Continued on Next Page)

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         IN WITNESS WHEREOF, the parties hereto have executed, or cause to be executed by their duly authorized officers, this Agreement as of the date first above written.

    ALPHATEC HOLDINGS, INC.*

 

 

By:

 

/s/  
JOHN H. FOSTER       
Name: John H. Foster
Title: Chairman and CEO

 

 

HEALTHPOINTCAPITAL PARTNERS, LP

 

 

By:

 

HGP, LLC, its general partner

 

 

 

 

By:

 

/s/  
JOHN H. FOSTER       
Name: John H. Foster
Title: Managing Director

*
On its own behalf and as attorney-in-fact for the investors listed on Schedule I hereto.

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SCHEDULE I

Names of Investors

Schedule I to Exhibit 4.2


Alphatec Holdings Inc.
Schedule I to
Stockholders' Agreement


Stockholders

Series A Preferred

1 Federal Insurance Company (Chubb)
2 [***]
3 [***]
4 [***]
Sub-Total Series A

Series A-1 Preferred

5

[***]
  [***]
6 [***]
7 [***]
8 [***]
9 [***]
10 [***]
11 [***]
12 [***]
13 [***]
14 [***]
  [***]
15 [***]
16 [***]
17 [***]
  [***]
18 [***]
19 [***]
20 [***]
21 [***]
22 [***]
23 [***]
24 [***]
25 [***]
26 [***]
27 [***]
28 [***]
29 [***]
30 Ian Molson
31 [***]
  [***]
32 [***]

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Company's application requesting confidential treatment under Rule 406 of the Securities Act. Asterisks denote omissions.


2 [***]
33 [***]
34 [***]
35 [***]
37 [***]
38 [***]
39 [***]
39 [***]
40 [***]
41 [***]
43 [***]
44 [***]
45 [***]
46 [***]
47 [***]
48 [***]
49 [***]
50 [***]
51 Hiscock, Ronald
52 [***]
53 [***]
54 [***]
55 [***]
56 [***]
57 [***]
58 [***]
59 [***]
60 [***]
61 [***]
62 [***]
63 [***]
64 [***]
65 [***]
  [***]
66 [***]
67 [***]
68 Northcutt, Trent
69 [***]
70 [***]
71 [***]
72 [***]
  [***]
74 [***]
75 [***]
76 [***]
77 [***]
78 [***]
79 [***]
80 [***]
81 [***]
82 [***]
3 [***]
4 [***]
  [***]

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Company's application requesting confidential treatment under Rule 406 of the Securities Act. Asterisks denote omissions.


83 [***]
84 [***]
85 [***]
Sub-Total Series A

Exchange Stockholders (no preferred)
  Equity Rollover — Stockholders
86 [***]
87 [***]
88 [***]
89 [***]
90 [***]
91 Eleanor Adam
92 Nicholas J. Adam
93 Alexander Jay Adam
94 Richard Mortimer Adam
  Equity Rollover — Employees
95 [***]
96 [***]
97 Gen Yoshimi
98 Shunshiro Yoshimi
Sub-Total Exchange Stockholders
Series B Preferred
99 HealthpointCapital Partners, L.P.
Sub-Total Series B

TOTAL
  Management Pool (shares & options)

Series C

 

100

[***]
Series C   101 [***]
Series C   102 [***]
Series C   103 [***]
Series C   104 [***]
Series C   105 [***]
Series C   106 [***]
Series C   107 [***]
Series C   108 [***]
Series C   109 [***]
Series C   110 [***]
Series C   111 [***]

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Company's application requesting confidential treatment under Rule 406 of the Securities Act. Asterisks denote omissions.



Series C

 

112

[***]
Series C   113 [***]
Series C   114 [***]
Series C   115 [***]
Series C   116 [***]
Series C   117 [***]
Series C   118 [***]
Series C   119 [***]
Series C   120 [***]
Series C   121 [***]
Series C   122 Floyd Pastor
Series C   123 [***]
Series C   124 [***]
Series C   125 [***]
Series C   126 [***]
Series C   127 [***]
Series C   128 [***]
Series C   129 [***]
Series C   131 [***]
Series C   132 [***]
Series C   133 [***]
Series C   134 [***]
Series C   135 [***]
Series C Total
(1)
[***] is related to [***]

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Company's application requesting confidential treatment under Rule 406 of the Securities Act. Asterisks denote omissions.

        TRA 2142883v.1


EXHIBIT A

Certificate of Incorporation


EXHIBIT B

Form of Joinder Agreement

        In consideration of issuance to him/her/it of shares of capital stock of Alphatec Holdings, Inc. (the "Company"),                         (the "Additional Holder") and the Company hereby agree that, as of the date written below, the Additional Holder shall become a party as a Holder to the Stockholders' Agreement (the "Stockholders' Agreement") dated as of March     , 2005 by and among the Company, HealthpointCapital Partners, L.P. and the other investors signatory thereto. The Additional Holder agrees to be bound by the terms and provisions of the Stockholders' Agreement as though he/she/it were an original party thereto and were included in the definition of "Holders" as used therein.

Dated:

 
   
   
    ALPHATEC HOLDINGS, INC.

 

 

By:

 

 
       
        Name:
        Title:

 

 

 

 


        Additional Holder



QuickLinks

STOCKHOLDERS' AGREEMENT ALPHATEC HOLDINGS, INC. formerly known as AMI ACQUISITION I CORP.
Alphatec Holdings Inc. Schedule I to Stockholders' Agreement
Stockholders

Exhibit 10.5

 

ALPHATEC HOLDINGS, INC.

 

2005 EMPLOYEE, DIRECTOR AND CONSULTANT STOCK PLAN

(As Amended and Restated on April       , 2006)

 

1.                                        DEFINITIONS .

 

Unless otherwise specified or unless the context otherwise requires, the following terms, as used in this Alphatec Holdings, Inc. 2005 Employee, Director and Consultant Stock Plan, have the following meanings:

 

Administrator means the Board of Directors, unless it has delegated power to act on its behalf to the Committee, in which case the Administrator means the Committee.

 

Affiliate means a corporation which, for purposes of Section 424 of the Code, is a parent or subsidiary of the Company, direct or indirect.

 

Agreement means an agreement between the Company and a Participant delivered pursuant to the Plan, in such form as the Administrator shall approve.

 

Board of Directors means the Board of Directors of the Company.

 

Change of Control shall occur on the date that: (i) any one person, entity or group acquires ownership of capital stock of the Company that, together with the capital stock of the Company already held by such person, entity or group, constitutes more than 50% of the total fair market value or total voting power of the capital stock of the Company; provided, however, if any one person, entity or group is considered to own more than 50% of the total fair market value or total voting power of the capital stock of the Company, the acquisition of additional capital stock by the same person, entity or group shall not be deemed to be a Change of Control; (ii) a majority of members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election; or (iii) any one person, entity or group acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person, entity or group) assets from the Company that have a total gross fair market value at least equal to 80% of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions; provided, however, a transfer of assets by the Company shall not deemed to be a Change of Control if the assets are transferred to (A) a shareholder of the Company (immediately before the asset transfer) in exchange for or with respect to its capital stock in the Company, (B) an entity, 50% or more of the total value or voting power of which is owned, directly or indirectly, by the Company, (C) a

 



 

person, entity or group that owns, directly or indirectly, 50% or more of the total value or voting power of all the outstanding capital stock of the Company, or (D) an entity, at least 50% of the total value or voting power of which is owned, directly or indirectly, by a person, entity or group described in subparagraph (C) above. In all respects, the definition of “Change of Control” shall be interpreted to comply with Section 409A of the Internal Revenue Code of 1986, as amended, and the provisions of Treasury Notice 2005-1, and any successor statute, regulation and guidance thereto.

 

Code means the United States Internal Revenue Code of 1986, as amended.

 

Committee means the committee of the Board of Directors to which the Board of Directors has delegated power to act under or pursuant to the provisions of the Plan.

 

Common Stock means shares of the Company’s Common Stock, $.0001 par value per share.

 

Company means Alphatec Holdings, Inc., a Delaware corporation.

 

Disability or Disabled means permanent and total disability as defined in Section 22(e)(3) of the Code.

 

Employee means any employee of the Company or of an Affiliate (including, without limitation, an employee who is also serving as an officer or director of the Company or of an Affiliate), designated by the Administrator to be eligible to be granted one or more Stock Rights under the Plan.

 

Fair Market Value of a Share of Common Stock means:

 

(a)                                   If the Common Stock is listed on a national securities exchange or traded in the over-the-counter market and sales prices are regularly reported for the Common Stock, the closing or last price of the Common Stock on the composite tape or other comparable reporting system for the trading day immediately preceding the applicable date;

 

(b)                                  If the Common Stock is not traded on a national securities exchange but is traded on the over-the-counter market, if sales prices are not regularly reported for the Common Stock for the trading day referred to in clause (a), and if bid and asked prices for the Common Stock are regularly reported, the mean between the bid and the asked price for the Common Stock at the close of trading in the over-the-counter market for the trading day on which Common Stock was traded immediately preceding the applicable date; and

 

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(c)                                   If the Common Stock is neither listed on a national securities exchange nor traded in the over-the-counter market, such value as the Administrator, in good faith, shall determine.

 

ISO means an option meant to qualify as an incentive stock option under Section 422 of the Code.

 

Non-Qualified Option means an option which is not intended to qualify as an ISO.

 

Option means an ISO or Non-Qualified Option granted under the Plan.

 

Option Agreement means an agreement between the Company and a Participant delivered pursuant to the Plan, in such form as the Administrator shall approve.

 

Participant means an Employee, director or consultant of the Company or an Affiliate to whom one or more Stock Rights are granted under the Plan. As used herein, “Participant” shall include “Participant’s Survivors” where the context requires.

 

Plan means this Alphatec Holdings, Inc. 2005 Employee, Director and Consultant Stock Plan.

 

Shares means shares of the Common Stock as to which Stock Rights have been or may be granted under the Plan or any shares of capital stock into which the Shares are changed or for which they are exchanged within the provisions of Paragraph 3 of the Plan. The Shares issued under the Plan may be authorized and unissued shares or shares held by the Company in its treasury, or both.

 

Stock Grant means a grant by the Company of Shares under the Plan.

 

Stock Grant Agreement means an agreement between the Company and a Participant delivered pursuant to the Plan, in such form as the Administrator shall approve.

 

Stock Right means a right to Shares of the Company granted pursuant to the Plan — an ISO, a Non-Qualified Option or a Stock Grant.

 

Survivor means a deceased Participant’s legal representatives and/or any person or persons who acquired the Participant’s rights to a Stock Right by will or by the laws of descent and distribution.

 

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2.                                        PURPOSES OF THE PLAN .

 

The Plan is intended to encourage ownership of Shares by Employees and directors of and certain consultants to the Company in order to attract and retain such people, to induce them to work for the benefit of the Company or of an Affiliate and to provide additional incentive for them to promote the success of the Company or of an Affiliate. The Plan provides for the granting of ISOs, Non-Qualified Options and Stock Grants.

 

3.                                        SHARES SUBJECT TO THE PLAN .

 

(a)                                   The number of Shares which may be issued from time to time pursuant to this Plan shall be 4,000,000, or the equivalent of such number of Shares after the Administrator, in its sole discretion, has interpreted the effect of any stock split, stock dividend, combination, recapitalization or similar transaction in accordance with Paragraph 23 of the Plan. All Shares reserved under this Plan may be granted as ISOs, Non-Qualified Options or Stock Grants.

 

(b)                                  Notwithstanding Subparagraph (a) above, on the first day of each fiscal year of the Company during the period beginning in fiscal year 2007, and ending on the second day of fiscal year 2015, the number of Shares that may be issued from time to time pursuant to the Plan, shall be increased by an amount equal to the lesser of (i) 1,000,000 or the equivalent of such number of Shares after the Administrator, in its sole discretion, has interpreted the effect of any stock split, stock dividend, combination, recapitalization or similar transaction in accordance with Paragraph 24 of the Plan; (ii) 5% of the number of outstanding shares of Common Stock on such date; and (iii) an amount determined by the Board.

 

(c)                                   If an Option ceases to be “outstanding”, in whole or in part (other than by exercise), or if the Company shall reacquire (at not more than its original issuance price) any Shares issued pursuant to a Stock Grant or Stock-Based Award, or if any Stock Right expires or is forfeited, cancelled, or otherwise terminated or results in any Shares not being issued, the unissued Shares which were subject to such Stock Right shall again be available for issuance from time to time pursuant to this Plan.

 

4.                                        ADMINISTRATION OF THE PLAN .

 

The Administrator of the Plan will be the Board of Directors, except to the extent the Board of Directors delegates its authority to the Committee, in which case the Committee shall be the Administrator. Subject to the provisions of the Plan, the Administrator is authorized to:

 

(a)                                   Interpret the provisions of the Plan or of any Option or Stock Grant and to make all rules and determinations which it deems necessary or advisable for the administration of the Plan;

 

4



 

(b)                                  Determine which Employees, directors and consultants shall be granted Stock Rights;

 

(c)                                   Determine the number of Shares for which a Stock Right or Stock Rights shall be granted, provided, however, that in no event shall Stock Rights with respect to more than 200,000 Shares be granted to any Participant in any fiscal year;

 

(d)                                  Specify the terms and conditions upon which a Stock Right or Stock Rights may be granted;

 

(e)                                   Make changes to any outstanding Stock Right, including, without limitation, to reduce or increase the exercise price or purchase price, accelerate the vesting schedule or extend the expiration date, provided that no such change shall impair the rights of a Participant under any grant previously made without such Participant’s consent;

 

(f)                                     Buy out for a payment in cash or Shares, a Stock Right previously granted and/or cancel any such Stock Right and grant in substitution therefor other Stock Rights, covering the same or a different number of Shares and having an exercise price or purchase price per share which may be lower or higher than the exercise price or purchase price of the cancelled Stock Right, based on such terms and conditions as the Administrator shall establish and the Participant shall accept; and

 

(g)                                  Adopt any sub-plans applicable to residents of any specified jurisdiction as it deems necessary or appropriate in order to comply with or take advantage of any tax laws applicable to the Company or to Plan Participants or to otherwise facilitate the administration of the Plan, which sub-plans may include additional restrictions or conditions applicable to Options or Shares acquired upon exercise of Options.

 

provided, however, that all such interpretations, rules, determinations, terms and conditions shall be made and prescribed in the context of preserving the tax status under Section 422 of the Code of those Options which are designated as ISOs. Subject to the foregoing, the interpretation and construction by the Administrator of any provisions of the Plan or of any Stock Right granted under it shall be final, unless otherwise determined by the Board of Directors, if the Administrator is the Committee. In addition, if the Administrator is the Committee, the Board of Directors may take any action under the Plan that would otherwise be the responsibility of the Committee.

 

To the extent permitted under applicable law, the Board of Directors or the Committee may allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any portion of its responsibilities and powers to any other person selected by it. The Board of Directors or the Committee may revoke any such allocation or delegation at any time.

 

5



 

5.                                        ELIGIBILITY FOR PARTICIPATION .

 

The Administrator will, in its sole discretion, name the Participants in the Plan, provided, however, that each Participant must be an Employee, director or consultant of the Company or of an Affiliate at the time a Stock Right is granted. Notwithstanding the foregoing, the Administrator may authorize the grant of a Stock Right to a person not then an Employee, director or consultant of the Company or of an Affiliate; provided, however, that the actual grant of such Stock Right shall be conditioned upon such person becoming eligible to become a Participant at or prior to the time of the execution of the Agreement evidencing such Stock Right. ISOs may be granted only to Employees. Non-Qualified Options and Stock Grants may be granted to any Employee, director or consultant of the Company or an Affiliate. The granting of any Stock Right to any individual shall neither entitle that individual to, nor disqualify him or her from, participation in any other grant of Stock Rights.

 

6.                                        TERMS AND CONDITIONS OF OPTIONS .

 

Each Option shall be set forth in writing in an Option Agreement, duly executed by the Company and, to the extent required by law or requested by the Company, by the Participant. The Administrator may provide that Options be granted subject to such terms and conditions, consistent with the terms and conditions specifically required under this Plan, as the Administrator may deem appropriate including, without limitation, subsequent approval by the shareholders of the Company of this Plan or any amendments thereto. The Option Agreements shall be subject to at least the following terms and conditions:

 

(a)                                   Non-Qualified Options :  Each Option intended to be a Non-Qualified Option shall be subject to the terms and conditions which the Administrator determines to be appropriate and in the best interest of the Company, subject to the following minimum standards for any such Non-Qualified Option:

 

(i)                                      Option Price: Each Option Agreement shall state the option price (per share) of the Shares covered by each Option, which option price shall be determined by the Administrator but shall not be less than the Fair Market Value per share of Common Stock.

 

(ii)                                   Number of Shares:  Each Option Agreement shall state the number of Shares to which it pertains;

 

(iii)                                Option Periods:  Each Option Agreement shall state the date or dates on which it first is exercisable and the date after which it may no longer be exercised, and may provide that the Option rights accrue or become exercisable in installments over a period of months or years, or upon the occurrence of certain conditions or the attainment of stated goals or events; and

 

(iv)                               Option Conditions:  Exercise of any Option may be conditioned upon the Participant’s execution of a share purchase agreement in form satisfactory

 

6



 

to the Administrator providing for certain protections for the Company and its other shareholders, including requirements that:

 

(A)                               The Participant’s or the Participant’s Survivors’ right to sell or transfer the Shares may be restricted; and

 

(B)                                 The Participant or the Participant’s Survivors may be required to execute letters of investment intent and must also acknowledge that the Shares will bear legends noting any applicable restrictions.

 

(b)                                  ISOs :  Each Option intended to be an ISO shall be issued only to an Employee and be subject to the following terms and conditions, with such additional restrictions or changes as the Administrator determines are appropriate but not in conflict with Section 422 of the Code and relevant regulations and rulings of the Internal Revenue Service:

 

(i)                                      Minimum standards:  The ISO shall meet the minimum standards required of Non-Qualified Options, as described in Paragraph 6(a) above, except clause (i) thereunder.

 

(ii)                                   Option Price:  Immediately before the ISO is granted, if the Participant owns, directly or by reason of the applicable attribution rules in Section 424(d) of the Code:

 

(A)                               10% or less of the total combined voting power of all classes of stock of the Company or an Affiliate, the Option price per share of the Shares covered by each ISO shall not be less than 100% of the Fair Market Value per share of the Shares on the date of the grant of the Option; or

 

(B)                                 More than 10% of the total combined voting power of all classes of stock of the Company or an Affiliate, the Option price per share of the Shares covered by each ISO shall not be less than 110% of the said Fair Market Value on the date of grant.

 

(iii)                                Term of Option:  For Participants who own:

 

(A)                               10% or less of the total combined voting power of all classes of stock of the Company or an Affiliate, each ISO shall terminate not more than ten years from the date of the grant or at such earlier time as the Option Agreement may provide; or

 

(B)                                 More than 10% of the total combined voting power of all classes of stock of the Company or an Affiliate, each ISO shall terminate not more than five years from the date of the grant or at such earlier time as the Option Agreement may provide.

 

7



 

(iv)                               Limitation on Yearly Exercise:  The Option Agreements shall restrict the amount of ISOs which may become exercisable in any calendar year (under this or any other ISO plan of the Company or an Affiliate) so that the aggregate Fair Market Value (determined at the time each ISO is granted) of the stock with respect to which ISOs are exercisable for the first time by the Participant in any calendar year does not exceed $100,000.

 

7.                                        TERMS AND CONDITIONS OF STOCK GRANTS .

 

Each offer of a Stock Grant to a Participant shall state the date prior to which the Stock Grant must be accepted by the Participant, and the principal terms of each Stock Grant shall be set forth in a Stock Grant Agreement, duly executed by the Company and, to the extent required by law or requested by the Company, by the Participant. The Stock Grant Agreement shall be in a form approved by the Administrator and shall contain terms and conditions which the Administrator determines to be appropriate and in the best interest of the Company, subject to the following minimum standards:

 

(a)                                   Each Stock Grant Agreement shall state the purchase price (per share), if any, of the Shares covered by each Stock Grant, which purchase price shall be determined by the Administrator but shall not be less than the minimum consideration required by the Delaware General Corporation Law on the date of the grant of the Stock Grant;

 

(b)                                  Each Stock Grant Agreement shall state the number of Shares to which the Stock Grant pertains; and

 

(c)                                   Each Stock Grant Agreement shall include the terms of any right of the Company to restrict or reacquire the Shares subject to the Stock Grant, including the time and events upon which such rights shall accrue and the purchase price therefor, if any.

 

8.                                        EXERCISE OF OPTIONS AND ISSUE OF SHARES .

 

An Option (or any part or installment thereof) shall be exercised by giving written notice to the Company or its designee, together with provision for payment of the full purchase price in accordance with this Paragraph for the Shares as to which the Option is being exercised, and upon compliance with any other condition(s) set forth in the Option Agreement. Such notice shall be signed by the person exercising the Option, shall state the number of Shares with respect to which the Option is being exercised and shall contain any representation required by the Plan or the Option Agreement. Payment of the purchase price for the Shares as to which such Option is being exercised shall be made (a) in United States dollars in cash or by check, or (b) at the discretion of the Administrator, through delivery of shares of Common Stock having a Fair Market Value equal as of the date of the exercise to the cash exercise price of the Option, or (c)  at the discretion of the Administrator, by having the Company retain from the Shares otherwise

 

8



 

issuable upon exercise of the Option, a number of Shares having a Fair Market Value equal as of the date of exercise to the exercise price of the Option, or (d) at the discretion of the Administrator, by delivery of the grantee’s personal recourse note bearing interest payable not less than annually at market rate on the date of exercise and at no less than 100% of the applicable Federal rate, as defined in Section 1274(d) of the Code, or (e) at the discretion of the Administrator, in accordance with a cashless exercise program established with a securities brokerage firm, and approved by the Administrator, (f) at the discretion of the Administrator, by any combination of (a), (b), (c), (d) and (e) above, or (g) at the discretion of the Administrator, payment of such other lawful consideration as the Administrator may determine. Notwithstanding the foregoing, the Administrator shall accept only such payment on exercise of an ISO as is permitted by Section 422 of the Code.

 

The Company shall then reasonably promptly deliver the Shares as to which such Option was exercised to the Participant (or to the Participant’s Survivors, as the case may be). In determining what constitutes “reasonably promptly,” it is expressly understood that the issuance and delivery of the Shares may be delayed by the Company in order to comply with any law or regulation (including, without limitation, state securities or “blue sky” laws) which requires the Company to take any action with respect to the Shares prior to their issuance. The Shares shall, upon delivery, be fully paid, non-assessable Shares.

 

The Administrator shall have the right to accelerate the date of exercise of any installment of any Option; provided that the Administrator shall not accelerate the exercise date of any installment of any Option granted to an Employee as an ISO (and not previously converted into a Non-Qualified Option pursuant to Paragraph 26) if such acceleration would violate the annual vesting limitation contained in Section 422(d) of the Code, as described in Paragraph 6(b)(iv).

 

The Administrator may, in its discretion, amend any term or condition of an outstanding Option provided (i) such term or condition as amended is permitted by the Plan, (ii) any such amendment shall be made only with the consent of the Participant to whom the Option was granted, or in the event of the death of the Participant, the Participant’s Survivors, if the amendment is adverse to the Participant, and (iii) any such amendment of any ISO shall be made only after the Administrator determines whether such amendment would constitute a “modification” of any Option which is an ISO (as that term is defined in Section 424(h) of the Code) or would cause any adverse tax consequences for the holder of such ISO.

 

9.                                        ACCEPTANCE OF STOCK GRANT AND ISSUE OF SHARES .

 

A Stock Grant (or any part or installment thereof) shall be accepted by executing the Stock Grant Agreement and delivering it to the Company or its designee, together with provision for payment of the full purchase price, if any, in accordance with this Paragraph for the Shares as to which such Stock Grant is being accepted, and upon compliance with any other conditions set forth in the Stock Grant Agreement. Payment of the purchase price for the Shares as to which such Stock Grant is being accepted shall be made (a) in United States dollars in cash or by check, or (b) at the discretion of the Administrator, through delivery of shares of Common Stock and having a Fair Market Value equal as of the date of acceptance of the Stock Grant to the purchase

 

9



 

price of the Stock Grant, or (c) at the discretion of the Administrator, by delivery of the grantee’s personal recourse note bearing interest payable not less than annually at no less than 100% of the applicable Federal rate, as defined in Section 1274(d) of the Code, or (d) at the discretion of the Administrator, by any combination of (a), (b) and (c) above, or (e) at the discretion of the Administrator, payment of such other lawful consideration as the Administrator may determine.

 

The Company shall then reasonably promptly deliver the Shares as to which such Stock Grant was accepted to the Participant (or to the Participant’s Survivors, as the case may be), subject to any escrow provision set forth in the Stock Grant Agreement. In determining what constitutes “reasonably promptly,” it is expressly understood that the issuance and delivery of the Shares may be delayed by the Company in order to comply with any law or regulation (including, without limitation, state securities or “blue sky” laws) which requires the Company to take any action with respect to the Shares prior to their issuance.

 

The Administrator may, in its discretion, amend any term or condition of an outstanding Stock Grant or Stock Grant Agreement provided (i) such term or condition as amended is permitted by the Plan, and (ii) any such amendment shall be made only with the consent of the Participant to whom the Stock Grant was made, if the amendment is adverse to the Participant.

 

10.                                  RIGHTS AS A SHAREHOLDER .

 

No Participant to whom a Stock Right has been granted shall have rights as a shareholder with respect to any Shares covered by such Stock Right, except after due exercise of the Option or acceptance of the Stock Grant and tender of the full purchase price, if any, for the Shares being purchased pursuant to such exercise or acceptance and registration of the Shares in the Company’s share register in the name of the Participant.

 

11.                                  ASSIGNABILITY AND TRANSFERABILITY OF STOCK RIGHTS .

 

By its terms, a Stock Right granted to a Participant shall not be transferable by the Participant other than (a) by will or by the laws of descent and distribution, or (b) as approved by the Administrator in its discretion and set forth in the applicable Option Agreement or Stock Grant Agreement. Notwithstanding the foregoing, an ISO transferred except in compliance with clause (a) above shall no longer qualify as an ISO. The designation of a beneficiary of a Stock Right by a Participant, with the prior approval of the Administrator and in such form as the Administrator shall prescribe, shall not be deemed a transfer prohibited by this Paragraph. Except as provided above, a Stock Right shall only be exercisable or may only be accepted, during the Participant’s lifetime, only by such Participant (or by his or her legal representative) and shall not be assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. Any attempted transfer, assignment, pledge, hypothecation or other disposition of any Stock Right or of any rights granted thereunder contrary to the provisions of this Plan, or the levy of any attachment or similar process upon a Stock Right, shall be null and void.

 

10



 

12.                                  EFFECT ON OPTIONS OF TERMINATION OF SERVICE OTHER THAN “FOR CAUSE” OR DEATH OR DISABILITY .

 

Except as otherwise provided in a Participant’s Option Agreement, in the event of a termination of service (whether as an employee, director or consultant) with the Company or an Affiliate before the Participant has exercised an Option, the following rules apply:

 

(a)                                   A Participant who ceases to be an employee, director or consultant of the Company or of an Affiliate (for any reason other than termination “for cause”, Disability, or death for which events there are special rules in Paragraphs 13, 14, and 15, respectively), may exercise any Option granted to him or her to the extent that the Option is exercisable on the date of such termination of service, but only within such term as the Administrator has designated in a Participant’s Option Agreement.

 

(b)                                  Except as provided in Subparagraph (c) below, or Paragraph 14 or 15, in no event may an Option intended to be an ISO, be exercised later than three months after the Participant’s termination of employment.

 

(c)                                   The provisions of this Paragraph, and not the provisions of Paragraph 14 or 15, shall apply to a Participant who subsequently becomes Disabled or dies after the termination of employment, director status or consultancy, provided, however, in the case of a Participant’s Disability or death within three months after the termination of employment, director status or consultancy, the Participant or the Participant’s Survivors may exercise the Option within one year after the date of the Participant’s termination of service, but in no event after the date of expiration of the term of the Option.

 

(d)                                  Notwithstanding anything herein to the contrary, if subsequent to a Participant’s termination of employment, termination of director status or termination of consultancy, but prior to the exercise of an Option, the Board of Directors determines that, either prior or subsequent to the Participant’s termination, the Participant engaged in conduct which would constitute “cause”, then such Participant shall forthwith cease to have any right to exercise any Option.

 

(e)                                   A Participant to whom an Option has been granted under the Plan who is absent from work with the Company or with an Affiliate because of temporary disability (any disability other than a Disability as defined in Paragraph 1 hereof), or who is on leave of absence for any purpose, shall not, during the period of any such absence, be deemed, by virtue of such absence alone, to have terminated such Participant’s employment, director status or consultancy with the Company or with an Affiliate, except as the Administrator may otherwise expressly provide.

 

(f)                                     Except as required by law or as set forth in a Participant’s Option Agreement, Options granted under the Plan shall not be affected by any change of a Participant’s status within or among the Company and any Affiliates, so long as the Participant continues to be an employee, director or consultant of the Company or any Affiliate.

 

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13.                                  EFFECT ON OPTIONS OF TERMINATION OF SERVICE “FOR CAUSE” .

 

Except as otherwise provided in a Participant’s Option Agreement, the following rules apply if the Participant’s service (whether as an employee, director or consultant) with the Company or an Affiliate is terminated “for cause” prior to the time that all his or her outstanding Options have been exercised:

 

(a)                                   All outstanding and unexercised Options as of the time the Participant is notified his or her service is terminated “for cause” will immediately be forfeited.

 

(b)                                  For purposes of this Plan, “cause” shall include (and is not limited to) dishonesty with respect to the Company or any Affiliate, insubordination, substantial malfeasance or non-feasance of duty, unauthorized disclosure of confidential information, breach by the Participant of any provision of any employment, consulting, advisory, nondisclosure, non-competition or similar agreement between the Participant and the Company, and conduct substantially prejudicial to the business of the Company or any Affiliate. The determination of the Administrator as to the existence of “cause” will be conclusive on the Participant and the Company.

 

(c)                                   “Cause” is not limited to events which have occurred prior to a Participant’s termination of service, nor is it necessary that the Administrator’s finding of “cause” occur prior to termination. If the Administrator determines, subsequent to a Participant’s termination of service but prior to the exercise of an Option, that either prior or subsequent to the Participant’s termination the Participant engaged in conduct which would constitute “cause”, then the right to exercise any Option is forfeited.

 

(d)                                  Any provision in an agreement between the Participant and the Company or an Affiliate, which contains a conflicting definition of “cause” for termination and which is in effect at the time of such termination, shall supersede the definition in this Plan with respect to that Participant.

 

14.                                  EFFECT ON OPTIONS OF TERMINATION OF SERVICE FOR DISABILITY .

 

Except as otherwise provided in a Participant’s Option Agreement, a Participant who ceases to be an employee, director or consultant of the Company or of an Affiliate by reason of Disability may exercise any Option granted to such Participant:

 

(a)                                   To the extent that the Option has become exercisable but has not been exercised on the date of Disability; and

 

(b)                                  In the event rights to exercise the Option accrue periodically, to the extent of a pro rata portion through the date of Disability of any additional vesting rights that would have accrued on the next vesting date had the Participant not become

 

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Disabled. The proration shall be based upon the number of days accrued in the current vesting period prior to the date of Disability.

 

A Disabled Participant may exercise such rights only within the period ending one year after the date of the Participant’s termination of employment, directorship or consultancy, as the case may be, notwithstanding that the Participant might have been able to exercise the Option as to some or all of the Shares on a later date if the Participant had not become Disabled and had continued to be an employee, director or consultant or, if earlier, within the originally prescribed term of the Option.

 

The Administrator shall make the determination both of whether Disability has occurred and the date of its occurrence (unless a procedure for such determination is set forth in another agreement between the Company and such Participant, in which case such procedure shall be used for such determination). If requested, the Participant shall be examined by a physician selected or approved by the Administrator, the cost of which examination shall be paid for by the Company.

 

15.                                  EFFECT ON OPTIONS OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT .

 

Except as otherwise provided in a Participant’s Option Agreement, in the event of the death of a Participant while the Participant is an employee, director or consultant of the Company or of an Affiliate, such Option may be exercised by the Participant’s Survivors:

 

(a)                                   To the extent that the Option has become exercisable but has not been exercised on the date of death; and

 

(b)                                  In the event rights to exercise the Option accrue periodically, to the extent of a pro rata portion through the date of death of any additional vesting rights that would have accrued on the next vesting date had the Participant not died. The proration shall be based upon the number of days accrued in the current vesting period prior to the Participant’s date of death.

 

If the Participant’s Survivors wish to exercise the Option, they must take all necessary steps to exercise the Option within one year after the date of death of such Participant, notwithstanding that the decedent might have been able to exercise the Option as to some or all of the Shares on a later date if he or she had not died and had continued to be an employee, director or consultant or, if earlier, within the originally prescribed term of the Option.

 

16.                                  EFFECT OF TERMINATION OF SERVICE ON STOCK GRANTS .

 

In the event of a termination of service (whether as an employee, director or consultant) with the Company or an Affiliate for any reason before the Participant has accepted a Stock Grant, such offer shall terminate.

 

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For purposes of this Paragraph 16 and Paragraph 17 below, a Participant to whom a Stock Grant has been offered and accepted under the Plan who is absent from work with the Company or with an Affiliate because of temporary disability (any disability other than a Disability as defined in Paragraph 1 hereof), or who is on leave of absence for any purpose, shall not, during the period of any such absence, be deemed, by virtue of such absence alone, to have terminated such Participant’s employment, director status or consultancy with the Company or with an Affiliate, except as the Administrator may otherwise expressly provide.

 

In addition, for purposes of this Paragraph 16 and Paragraph 17 below, any change of employment or other service within or among the Company and any Affiliates shall not be treated as a termination of employment, director status or consultancy so long as the Participant continues to be an employee, director or consultant of the Company or any Affiliate.

 

17.                                  EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE OTHER THAN “FOR CAUSE” OR DEATH OR DISABILITY .

 

Except as otherwise provided in a Participant’s Stock Grant Agreement, in the event of a termination of service (whether as an employee, director or consultant), other than termination “for cause,” Disability, or death for which events there are special rules in Paragraphs 18, 19, and 20, respectively, before all Company rights of repurchase shall have lapsed, then the Company shall have the right to repurchase that number of Shares subject to a Stock Grant as to which the Company’s repurchase rights have not lapsed.

 

18.                                  EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE “FOR CAUSE” .

 

Except as otherwise provided in a Participant’s Stock Grant Agreement, the following rules apply if the Participant’s service (whether as an employee, director or consultant) with the Company or an Affiliate is terminated “for cause”:

 

(a)                                   All Shares subject to any Stock Grant shall be immediately subject to repurchase by the Company at the purchase price, if any, thereof.

 

(b)                                  For purposes of this Plan, “cause” shall include (and is not limited to) dishonesty with respect to the employer, insubordination, substantial malfeasance or non-feasance of duty, unauthorized disclosure of confidential information, breach by the Participant of any provision of any employment, consulting, advisory, nondisclosure, non-competition or similar agreement between the Participant and the Company, and conduct substantially prejudicial to the business of the Company or any Affiliate. The determination of the Administrator as to the existence of “cause” will be conclusive on the Participant and the Company.

 

(c)                                   “Cause” is not limited to events which have occurred prior to a Participant’s termination of service, nor is it necessary that the Administrator’s finding of “cause” occur prior to termination. If the Administrator determines, subsequent to a Participant’s termination of service, that either prior or subsequent to the Participant’s termination the Participant engaged in conduct which would

 

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constitute “cause,” then the Company’s right to repurchase all of such Participant’s Shares shall apply.

 

(d)                                  Any provision in an agreement between the Participant and the Company or an Affiliate, which contains a conflicting definition of “cause” for termination and which is in effect at the time of such termination, shall supersede the definition in this Plan with respect to that Participant.

 

19.                                  EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE FOR DISABILITY .

 

Except as otherwise provided in a Participant’s Stock Grant Agreement, the following rules apply if a Participant ceases to be an employee, director or consultant of the Company or of an Affiliate by reason of Disability:  to the extent the Company’s rights of repurchase have not lapsed on the date of Disability, they shall be exercisable; provided, however, that in the event such rights of repurchase lapse periodically, such rights shall lapse to the extent of a pro rata portion of the Shares subject to such Stock Grant through the date of Disability as would have lapsed had the Participant not become Disabled. The proration shall be based upon the number of days accrued prior to the date of Disability.

 

The Administrator shall make the determination both of whether Disability has occurred and the date of its occurrence (unless a procedure for such determination is set forth in another agreement between the Company and such Participant, in which case such procedure shall be used for such determination). If requested, the Participant shall be examined by a physician selected or approved by the Administrator, the cost of which examination shall be paid for by the Company.

 

20.                                  EFFECT ON STOCK GRANTS OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT .

 

Except as otherwise provided in a Participant’s Stock Grant Agreement, the following rules apply in the event of the death of a Participant while the Participant is an employee, director or consultant of the Company or of an Affiliate:  to the extent the Company’s rights of repurchase have not lapsed on the date of death, they shall be exercisable; provided, however, that in the event such rights of repurchase lapse periodically, such rights shall lapse to the extent of a pro rata portion of the Shares subject to such Stock Grant through the date of death as would have lapsed had the Participant not died. The proration shall be based upon the number of days accrued prior to the Participant’s death.

 

21.                                  PURCHASE FOR INVESTMENT .

 

Unless the offering and sale of the Shares to be issued upon the particular exercise or acceptance of a Stock Right shall have been effectively registered under the Securities Act of 1933, as now in force or hereafter amended (the “1933 Act”), the Company shall be under no

 

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obligation to issue the Shares covered by such exercise unless and until the following conditions have been fulfilled:

 

(a)                                   The person(s) who exercise(s) or accept(s) such Stock Right shall warrant to the Company, prior to the receipt of such Shares, that such person(s) are acquiring such Shares for their own respective accounts, for investment, and not with a view to, or for sale in connection with, the distribution of any such Shares, in which event the person(s) acquiring such Shares shall be bound by the provisions of the following legend which shall be endorsed upon the certificate(s) evidencing their Shares issued pursuant to such exercise or such grant:

 

“The shares represented by this certificate have been taken for investment and they may not be sold or otherwise transferred by any person, including a pledgee, unless (1) either (a) a Registration Statement with respect to such shares shall be effective under the Securities Act of 1933, as amended, or (b) the Company shall have received an opinion of counsel satisfactory to it that an exemption from registration under such Act is then available, and (2) there shall have been compliance with all applicable state securities laws.”

 

(b)                                  At the discretion of the Administrator, the Company shall have received an opinion of its counsel that the Shares may be issued upon such particular exercise or acceptance in compliance with the 1933 Act without registration thereunder.

 

22.                                  DISSOLUTION OR LIQUIDATION OF THE COMPANY .

 

Upon the dissolution or liquidation of the Company, all Options granted under this Plan which as of such date shall not have been exercised and all Stock Grants which have not been accepted will terminate and become null and void; provided, however, that if the rights of a Participant or a Participant’s Survivors have not otherwise terminated and expired, the Participant or the Participant’s Survivors will have the right immediately prior to such dissolution or liquidation to exercise or accept any Stock Right to the extent that the Stock Right is exercisable or subject to acceptance as of the date immediately prior to such dissolution or liquidation.

 

23.                                  ADJUSTMENTS .

 

Upon the occurrence of any of the following events, a Participant’s rights with respect to any Stock Right granted to him or her hereunder shall be adjusted as hereinafter provided, unless otherwise specifically provided in a Participant’s Option Agreement or Stock Grant Agreement:

 

(a)                                   Stock Dividends and Stock Splits . If (i) the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if the Company shall issue any shares of Common Stock as a stock dividend on its outstanding Common Stock, or (ii) additional shares or new or different shares or other securities of the Company or other non-cash assets are distributed with respect to such shares of Common Stock, the number of shares of

 

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Common Stock deliverable upon the exercise or acceptance of such Stock Right may be appropriately increased or decreased proportionately, and appropriate adjustments may be made including, in the purchase price per share, to reflect such events. The number of Shares subject to the limitation in Paragraph 4(c) shall also be proportionately adjusted upon the occurrence of such events.

 

(b)                                  Corporate Transactions . If the Company is to be consolidated with or acquired by another entity in a merger, sale of all or substantially all of the Company’s assets other than a transaction to merely change the state of incorporation (a “Corporate Transaction”), the Administrator or the board of directors of any entity assuming the obligations of the Company hereunder (the “Successor Board”), shall, as to outstanding Options, either (i) make appropriate provision for the continuation of such Options by substituting on an equitable basis for the Shares then subject to such Options either the consideration payable with respect to the outstanding shares of Common Stock in connection with the Corporate Transaction or securities of any successor or acquiring entity; or (ii) upon written notice to the Participants, provide that all Options must be exercised (either to the extent then exercisable or, at the discretion of the Administrator, all Options being made fully exercisable for purposes of this Subparagraph), within a specified number of days of the date of such notice, at the end of which period the Options shall terminate; or (iii) terminate all Options in exchange for a cash payment equal to the excess of the Fair Market Value of the Shares subject to such Options (either to the extent then exercisable or, at the discretion of the Administrator, all Options being made fully exercisable for purposes of this Subparagraph) over the exercise price thereof.

 

With respect to outstanding Stock Grants, the Administrator or the Successor Board, shall either (i) make appropriate provisions for the continuation of such Stock Grants by substituting on an equitable basis for the Shares then subject to such Stock Grants either the consideration payable with respect to the outstanding Shares of Common Stock in connection with the Corporate Transaction or securities of any successor or acquiring entity; or (ii) terminate all Stock Grants in exchange for a cash payment equal to the excess of the Fair Market Value of the Shares subject to such Stock Grants over the purchase price thereof, if any. In addition, in the event of a Corporate Transaction, the Administrator may waive any or all Company repurchase rights with respect to outstanding Stock Grants.

 

(c)                                   Recapitalization or Reorganization . In the event of a recapitalization or reorganization of the Company other than a Corporate Transaction pursuant to which securities of the Company or of another corporation are issued with respect to the outstanding shares of Common Stock, a Participant upon exercising or accepting a Stock Right after the recapitalization or reorganization shall be entitled to receive for the purchase price paid upon such exercise or acceptance the number of replacement securities which would have been received if such Stock Right had been exercised or accepted prior to such recapitalization or reorganization.

 

(d)                                  Modification of ISOs . Notwithstanding the foregoing, any adjustments made pursuant to Subparagraph (a), (b) or (c) above with respect to ISOs shall be made only after the Administrator determines whether such adjustments would constitute a “modification” of such ISOs (as that term is defined in Section 424(h) of the Code) or would cause any adverse tax

 

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consequences for the holders of such ISOs. If the Administrator determines that such adjustments made with respect to ISOs would constitute a modification of such ISOs, it may refrain from making such adjustments, unless the holder of an ISO specifically requests in writing that such adjustment be made and such writing indicates that the holder has full knowledge of the consequences of such “modification” on his or her income tax treatment with respect to the ISO.

 

24.                                  ISSUANCES OF SECURITIES .

 

Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares subject to Stock Rights. Except as expressly provided herein, no adjustments shall be made for dividends paid in cash or in property (including without limitation, securities) of the Company prior to any issuance of Shares pursuant to a Stock Right.

 

25.                                  FRACTIONAL SHARES .

 

No fractional shares shall be issued under the Plan and the person exercising a Stock Right shall receive from the Company cash in lieu of such fractional shares equal to the Fair Market Value thereof.

 

26.                                  CONVERSION OF ISOs INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOs .

 

The Administrator, at the written request of any Participant, may in its discretion take such actions as may be necessary to convert such Participant’s ISOs (or any portions thereof) that have not been exercised on the date of conversion into Non-Qualified Options at any time prior to the expiration of such ISOs, regardless of whether the Participant is an employee of the Company or an Affiliate at the time of such conversion. At the time of such conversion, the Administrator (with the consent of the Participant) may impose such conditions on the exercise of the resulting Non-Qualified Options as the Administrator in its discretion may determine, provided that such conditions shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to give any Participant the right to have such Participant’s ISOs converted into Non-Qualified Options, and no such conversion shall occur until and unless the Administrator takes appropriate action. The Administrator, with the consent of the Participant, may also terminate any portion of any ISO that has not been exercised at the time of such conversion.

 

27.                                  WITHHOLDING .

 

In the event that any federal, state, or local income taxes, employment taxes, Federal Insurance Contributions Act (“F.I.C.A.”) withholdings or other amounts are required by applicable law or governmental regulation to be withheld from the Participant’s salary, wages or other remuneration in connection with the exercise or acceptance of a Stock Right or in connection with a Disqualifying Disposition (as defined in Paragraph 28) or upon the lapsing of any right of repurchase, the Company may withhold from the Participant’s compensation, if any,

 

18



 

or may require that the Participant advance in cash to the Company, or to any Affiliate of the Company which employs or employed the Participant, the statutory minimum amount of such withholdings unless a different withholding arrangement, including the use of shares of the Company’s Common Stock or a promissory note, is authorized by the Administrator (and permitted by law). For purposes hereof, the fair market value of the shares withheld for purposes of payroll withholding shall be determined in the manner provided in Paragraph 1 above, as of the most recent practicable date prior to the date of exercise. If the fair market value of the shares withheld is less than the amount of payroll withholdings required, the Participant may be required to advance the difference in cash to the Company or the Affiliate employer. The Administrator in its discretion may condition the exercise of an Option for less than the then Fair Market Value on the Participant’s payment of such additional withholding.

 

28.                                  NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION .

 

Each Employee who receives an ISO must agree to notify the Company in writing immediately after the Employee makes a Disqualifying Disposition of any shares acquired pursuant to the exercise of an ISO. A Disqualifying Disposition is defined in Section 424(c) of the Code and includes any disposition (including any sale or gift) of such shares before the later of (a) two years after the date the Employee was granted the ISO, or (b) one year after the date the Employee acquired Shares by exercising the ISO, except as otherwise provided in Section 424(c) of the Code. If the Employee has died before such stock is sold, these holding period requirements do not apply and no Disqualifying Disposition can occur thereafter.

 

29.                                  TERMINATION OF THE PLAN .

 

The Plan will terminate on April     , 2016. The Plan may be terminated at an earlier date by vote of the shareholders or the Board of Directors of the Company; provided, however, that any such earlier termination shall not affect any Agreements executed prior to the effective date of such termination.

 

30.                                  AMENDMENT OF THE PLAN AND AGREEMENTS .

 

The Plan may be amended by the shareholders of the Company. The Plan may also be amended by the Administrator, including, without limitation, to the extent necessary to qualify any or all outstanding Stock Rights granted under the Plan or Stock Rights to be granted under the Plan for favorable federal income tax treatment (including deferral of taxation upon exercise) as may be afforded incentive stock options under Section 422 of the Code, and to the extent necessary to qualify the shares issuable upon exercise or acceptance of any outstanding Stock Rights granted, or Stock Rights to be granted, under the Plan for listing on any national securities exchange or quotation in any national automated quotation system of securities dealers. Any amendment approved by the Administrator which the Administrator determines is of a scope that requires shareholder approval shall be subject to obtaining such shareholder approval. Any modification or amendment of the Plan shall not, without the consent of a Participant, adversely affect his or her rights under a Stock Right previously granted to him or her. With the consent of the Participant affected, the Administrator may amend outstanding Agreements in a manner which may be adverse to the Participant but which is not inconsistent with the Plan. In the

 

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discretion of the Administrator, outstanding Agreements may be amended by the Administrator in a manner which is not adverse to the Participant.

 

31.                                  EMPLOYMENT OR OTHER RELATIONSHIP .

 

Nothing in this Plan or any Agreement shall be deemed to prevent the Company or an Affiliate from terminating the employment, consultancy or director status of a Participant, nor to prevent a Participant from terminating his or her own employment, consultancy or director status or to give any Participant a right to be retained in employment or other service by the Company or any Affiliate for any period of time.

 

32.                                  GOVERNING LAW .

 

This Plan shall be construed and enforced in accordance with the law of the State of Delaware.

 

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Exhibit 10.6

 

NON-QUALIFIED STOCK OPTION AGREEMENT

 

ALPHATEC HOLDINGS, INC.

 

AGREEMENT made as of the     day of                   200  , between Alphatec Holdings, Inc. (the “Company”), a Delaware corporation, and                               (the “Participant”).

 

WHEREAS, the Company desires to grant to the Participant an Option to purchase shares of its Common Stock, $.0001 par value per share (the “Shares”), under and for the purposes set forth in the Company’s 2005 Employee, Director and Consultant Stock Plan, as amended (the “Plan”);

 

WHEREAS, the Company and the Participant understand and agree that any terms used and not defined herein have the same meanings as in the Plan; and

 

WHEREAS, the Company and the Participant each intend that the Option granted herein shall be a Non-Qualified Option.

 

NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the parties hereto agree as follows:

 

1.              GRANT OF OPTION .

 

The Company hereby grants to the Participant the right and option to purchase all or any part of an aggregate of                                Shares, on the terms and conditions and subject to all the limitations set forth herein, under United States securities and tax laws, and in the Plan, which is incorporated herein by reference. The Participant acknowledges receipt of a copy of the Plan.

 

2.              PURCHASE PRICE .

 

The purchase price of the Shares covered by the Option shall be $           per Share, subject to adjustment, as provided in the Plan, in the event of a stock split, reverse stock split or other events affecting the holders of Shares after the date hereof (the “Purchase Price”). Payment shall be made in accordance with Paragraph 8 of the Plan.

 

3.              EXERCISABILITY OF OPTION .

 

Subject to the terms and conditions set forth in this Agreement and the Plan, the Option granted hereby shall become exercisable as follows:

 

On the first anniversary of the date of this Agreement

 

up to                          Shares

 

 

 

On the second anniversary of the date of this Agreement

 

an additional                      Shares

 



 

On the third anniversary of the date of this Agreement

 

an additional                      Shares

 

 

 

On the fourth anniversary of the date of this Agreement

 

an additional                      Shares

 

 

 

On the fifth anniversary of the date of this Agreement

 

an additional                      Shares

 

The foregoing rights are cumulative and are subject to the other terms and conditions of this Agreement and the Plan.

 

Notwithstanding the foregoing, in the event of a Change of Control, 100% of the Shares which would have vested in each vesting installment remaining under this Option will be vested for purposes of Section 23(b) of the Plan unless this Option has otherwise expired or been terminated pursuant to its terms or the terms of the Plan.

 

4.                                        TERM OF OPTION .

 

The Option shall terminate ten years from the date of this Agreement, but shall be subject to earlier termination as provided herein or in the Plan.

 

If the Participant ceases to be an employee, director or consultant of the Company or of an Affiliate (for any reason other than the death or Disability of the Participant or termination of the Participant for Cause (as defined in the Plan)), the Option may be exercised, if it has not previously terminated, within three months after the date the Participant ceases to be an employee, director or consultant of the Company or an Affiliate, or within the originally prescribed term of the Option, whichever is earlier, but may not be exercised thereafter. In such event, the Option shall be exercisable only to the extent that the Option has become exercisable and is in effect at the date of such cessation of employment, directorship or consultancy.

 

Notwithstanding the foregoing, in the event of the Participant’s Disability or death within three months after the termination of employment, directorship or consultancy, the Participant or the Participant’s Survivors may exercise the Option within one year after the date of the Participant’s termination of employment, directorship or consultancy, but in no event after the date of expiration of the term of the Option.

 

In the event the Participant’s employment, directorship or consultancy is terminated by the Company or an Affiliate for Cause, the Participant’s right to exercise any unexercised portion of this Option shall cease immediately as of the time the Participant is notified his or her employment, directorship or consultancy is terminated for Cause, and this Option shall thereupon terminate. Notwithstanding anything herein to the contrary, if subsequent to the Participant’s termination, but prior to the exercise of the Option, the Board of Directors of the Company determines that, either prior or subsequent to the Participant’s termination, the Participant engaged in conduct which would constitute Cause, then the Participant shall immediately cease to have any right to exercise the Option and this Option shall thereupon terminate.

 

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In the event of the Disability of the Participant, as determined in accordance with the Plan, the Option shall be exercisable within one year after the Participant’s termination of service or, if earlier, within the term originally prescribed by the Option. In such event, the Option shall be exercisable:

 

(a)                                   to the extent that the Option has become exercisable but has not been exercised as of the date of Disability; and

 

(b)                                  in the event rights to exercise the Option accrue periodically, to the extent of a pro rata portion through the date of Disability of any additional vesting rights that would have accrued on the next vesting date had the Participant not become Disabled. The proration shall be based upon the number of days accrued in the current vesting period prior to the date of Disability.

 

In the event of the death of the Participant while an employee, director or consultant of the Company or of an Affiliate, the Option shall be exercisable by the Participant’s Survivors within one year after the date of death of the Participant or, if earlier, within the originally prescribed term of the Option. In such event, the Option shall be exercisable:

 

(x)                                    to the extent that the Option has become exercisable but has not been exercised as of the date of death; and

 

(y)                                  in the event rights to exercise the Option accrue periodically, to the extent of a pro rata portion through the date of death of any additional vesting rights that would have accrued on the next vesting date had the Participant not died. The proration shall be based upon the number of days accrued in the current vesting period prior to the Participant’s date of death.

 

5.                                        METHOD OF EXERCISING OPTION .

 

Subject to the terms and conditions of this Agreement, the Option may be exercised by written notice to the Company or its designee, in substantially the form of Exhibit A attached hereto. Such notice shall state the number of Shares with respect to which the Option is being exercised and shall be signed by the person exercising the Option. Payment of the purchase price for such Shares shall be made in accordance with Paragraph 8 of the Plan. The Company shall deliver such Shares as soon as practicable after the notice shall be received, provided, however, that the Company may delay issuance of such Shares until completion of any action or obtaining of any consent, which the Company deems necessary under any applicable law (including, without limitation, state securities or “blue sky” laws). The Shares as to which the Option shall have been so exercised shall be registered in the Company’s share register in the name of the person so exercising the Option (or, if the Option shall be exercised by the Participant and if the Participant shall so request in the notice exercising the Option, shall be registered in the name of the Participant and another person jointly, with right of survivorship) and shall be delivered as provided above to or upon the written order of the person exercising the Option. In the event the Option shall be exercised, pursuant to Section 4 hereof, by any person other than the Participant, such notice shall be accompanied by appropriate proof of the right of

 

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such person to exercise the Option. All Shares that shall be purchased upon the exercise of the Option as provided herein shall be fully paid and nonassessable.

 

6.                                        PARTIAL EXERCISE .

 

Exercise of this Option to the extent above stated may be made in part at any time and from time to time within the above limits, except that no fractional share shall be issued pursuant to this Option.

 

7.                                        NON-ASSIGNABILITY .

 

The Option shall not be transferable by the Participant otherwise than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act or the rules thereunder. Except as provided in the previous sentence, the Option shall be exercisable, during the Participant’s lifetime, only by the Participant (or, in the event of legal incapacity or incompetency, by the Participant’s guardian or representative) and shall not be assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. Any attempted transfer, assignment, pledge, hypothecation or other disposition of the Option or of any rights granted hereunder contrary to the provisions of this Section 7, or the levy of any attachment or similar process upon the Option shall be null and void.

 

8.                                        NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE .

 

The Participant shall have no rights as a stockholder with respect to Shares subject to this Agreement until registration of the Shares in the Company’s share register in the name of the Participant. Except as is expressly provided in the Plan with respect to certain changes in the capitalization of the Company, no adjustment shall be made for dividends or similar rights for which the record date is prior to the date of such registration.

 

9.                                        ADJUSTMENTS .

 

The Plan contains provisions covering the treatment of Options in a number of contingencies such as stock splits and mergers. Provisions in the Plan for adjustment with respect to stock subject to Options and the related provisions with respect to successors to the business of the Company are hereby made applicable hereunder and are incorporated herein by reference; provided, however, that in the event of a Change of Control 100% of the Shares which would have vested in each vesting installment remaining under this Option will be vested for purposes of Section 23(b) of the Plan.

 

10.                                  TAXES .

 

The Participant acknowledges that upon exercise of the Option the Participant will be deemed to have taxable income measured by the difference between the then fair market value of the Shares received upon exercise and the price paid for such Shares pursuant to this Agreement. The Participant acknowledges that any income or other taxes due from him or her with respect to this Option or the Shares issuable pursuant to this Option shall be the Participant’s responsibility.

 

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The Participant agrees that the Company may withhold from the Participant’s remuneration, if any, the minimum statutory amount of Federal, state and local withholding taxes attributable to such amount that is considered compensation includable in such person’s gross income. At the Company’s discretion, the amount required to be withheld may be withheld in cash from such remuneration, or in kind from the Shares otherwise deliverable to the Participant on exercise of the Option. The Participant further agrees that, if the Company does not withhold an amount from the Participant’s remuneration sufficient to satisfy the Company’s income tax withholding obligation, the Participant will reimburse the Company on demand, in cash, for the amount under-withheld.

 

11.                                  PURCHASE FOR INVESTMENT .

 

Unless the offering and sale of the Shares to be issued upon the particular exercise of the Option shall have been effectively registered under the Securities Act of 1933, as now in force or hereafter amended (the “1933 Act”), the Company shall be under no obligation to issue the Shares covered by such exercise unless and until the following conditions have been fulfilled:

 

(a)                                   The person(s) who exercise the Option shall warrant to the Company, at the time of such exercise, that such person(s) are acquiring such Shares for their own respective accounts, for investment, and not with a view to, or for sale in connection with, the distribution of any such Shares, in which event the person(s) acquiring such Shares shall be bound by the provisions of the following legend which shall be endorsed upon any certificate(s) evidencing the Shares issued pursuant to such exercise:

 

“The shares represented by this certificate have been taken for investment and they may not be sold or otherwise transferred by any person, including a pledgee, unless (1) either (a) a Registration Statement with respect to such shares shall be effective under the Securities Act of 1933, as amended, or (b) the Company shall have received an opinion of counsel satisfactory to it that an exemption from registration under such Act is then available, and (2) there shall have been compliance with all applicable state securities laws;” and

 

(b)                                  If the Company so requires, the Company shall have received an opinion of its counsel that the Shares may be issued upon such particular exercise in compliance with the 1933 Act without registration thereunder. Without limiting the generality of the foregoing, the Company may delay issuance of the Shares until completion of any action or obtaining of any consent, which the Company deems necessary under any applicable law (including without limitation state securities or “blue sky” laws).

 

12.                                  RESTRICTIONS ON TRANSFER OF SHARES .

 

12.1          If, in connection with a registration statement filed by the Company pursuant to the 1933 Act, the Company or its underwriter so requests, the Participant will agree not to sell any Shares for a period not to exceed 180 days following the effectiveness of such registration.

 

5



 

12.2          The Participant acknowledges and agrees that neither the Company, its shareholders nor its directors and officers, has any duty or obligation to disclose to the Participant any material information regarding the business of the Company or affecting the value of the Shares before, at the time of, or following a termination of the employment of the Participant by the Company, including, without limitation, any information concerning plans for the Company to make a public offering of its securities or to be acquired by or merged with or into another firm or entity.

 

13.                                  NO OBLIGATION TO MAINTAIN RELATIONSHIP .

 

The Company is not by the Plan or this Option obligated to continue the Participant as an employee, director or consultant of the Company or an Affiliate. The Participant acknowledges:  (a) that the Plan is discretionary in nature and may be suspended or terminated by the Company at any time; (b) that the grant of the Option is a one-time benefit which does not create any contractual or other right to receive future grants of options, or benefits in lieu of options; (c) that all determinations with respect to any such future grants, including, but not limited to, the times when options shall be granted, the number of shares subject to each option, the option price, and the time or times when each option shall be exercisable, will be at the sole discretion of the Company; (d) that the Participant’s participation in the Plan is voluntary; (e) that the value of the Option is an extraordinary item of compensation which is outside the scope of the Participant’s employment contract, if any; and (f) that the Option is not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments.

 

14.                                  NOTICES .

 

Any notices required or permitted by the terms of this Agreement or the Plan shall be given by recognized courier service, facsimile, registered or certified mail, return receipt requested, addressed as follows:

 

If to the Company:

 

Alphatec Holdings, Inc.
2051 Palomar Airport Road
Carlsbad, CA 92011

 

 

 

If to the Participant:

 

 

 

 

 

 

or to such other address or addresses of which notice in the same manner has previously been given. Any such notice shall be deemed to have been given upon the earlier of receipt, one business day following delivery to a recognized courier service or three business days following mailing by registered or certified mail.

 

15.                                  GOVERNING LAW .

 

This Agreement shall be construed and enforced in accordance with the law of the State of Delaware , without giving effect to the conflict of law principles thereof. For the purpose of

 

6



 

litigating any dispute that arises under this Agreement, the parties hereby consent to exclusive jurisdiction in Delaware and agree that such litigation shall be conducted in the state courts of Delaware or the federal courts of the United States for the District of Delaware.

 

16.                                  BENEFIT OF AGREEMENT .

 

Subject to the provisions of the Plan and the other provisions hereof, this Agreement shall be for the benefit of and shall be binding upon the heirs, executors, administrators, successors and assigns of the parties hereto.

 

17.                                  ENTIRE AGREEMENT .

 

This Agreement, together with the Plan, embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof. No statement, representation, warranty, covenant or agreement not expressly set forth in this Agreement shall affect or be used to interpret, change or restrict, the express terms and provisions of this Agreement, provided, however, in any event, this Agreement shall be subject to and governed by the Plan.

 

18.                                  MODIFICATIONS AND AMENDMENTS .

 

The terms and provisions of this Agreement may be modified or amended as provided in the Plan.

 

19.                                  WAIVERS AND CONSENTS .

 

Except as provided in the Plan, the terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by written document executed by the party entitled to the benefits of such terms or provisions. No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar. Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent.

 

20.                                  DATA PRIVACY .

 

By entering into this Agreement, the Participant:  (a) authorizes the Company and each Affiliate, and any agent of the Company or any Affiliate administering the Plan or providing Plan record keeping services, to disclose to the Company or any of its Affiliates such information and data as the Company or any such Affiliate shall request in order to facilitate the grant of options and the administration of the Plan; (b) waives any data privacy rights he or she may have with respect to such information; and (c) authorizes the Company and each Affiliate to store and transmit such information in electronic form.

 

 

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7



 

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Participant has hereunto set his or her hand, all as of the day and year first above written.

 

 

 

ALPHATEC HOLDINGS, INC.

 

 

 

 

 

By:

 

 

Name:

 

Title:

 

 

 

 

 

 

 

Participant

 

8



 

Exhibit A

 

NOTICE OF EXERCISE OF NON-QUALIFIED STOCK OPTION

 

TO:          Alphatec Holdings, Inc.

 

Ladies and Gentlemen:

 

I hereby exercise my Non-Qualified Stock Option to purchase                    shares (the “Shares”) of the Common Stock, $.0001 par value, of Alphatec Holdings, Inc. (the “Company”), at the exercise price of $                 per share, pursuant to and subject to the terms of that certain Non-Qualified Stock Option Agreement between the undersigned and the Company dated                               , 200  .

 

I understand the nature of the investment I am making and the financial risks thereof. I am aware that it is my responsibility to have consulted with competent tax and legal advisors about the relevant Federal, state and local income tax and securities laws affecting the exercise of the Option and the purchase and subsequent sale of the Shares.

 

I am paying the option exercise price for the Shares as follows:

 

 

Please issue the Shares (check one):

 

o to me; or

 

o to me and                                                        , as joint tenants with right of survivorship,

 

at the following address:

 

 

 

 

My mailing address for shareholder communications, if different from the address listed above, is:

 

 

 

 

B-1



 

 

Very truly yours,

 

 

 

 

 

 

 

Participant (signature)

 

 

 

 

 

 

 

Print Name

 

 

 

 

 

 

 

Date

 

 

 

 

 

 

 

Social Security Number

 

B-2




Exhibit 10.7

 

INCENTIVE STOCK OPTION AGREEMENT

 

ALPHATEC HOLDINGS, INC.

 

AGREEMENT made as of the        day of              200  , between Alphatec Holdings, Inc. (the “Company”), a Delaware corporation, and                                     , an employee of the Company (the “Employee”).

 

WHEREAS, the Company desires to grant to the Employee an Option to purchase shares of its Common Stock, $.0001 par value per share (the “Shares”), under and for the purposes set forth in the Company’s 2005 Employee, Director and Consultant Stock Plan, as amended (the “Plan”);

 

WHEREAS, the Company and the Employee understand and agree that any terms used and not defined herein have the same meanings as in the Plan; and

 

WHEREAS, the Company and the Employee each intend that the Option granted herein qualify as an ISO.

 

NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the parties hereto agree as follows:

 

1.             GRANT OF OPTION .

 

The Company hereby grants to the Employee the right and option to purchase all or any part of an aggregate of                                Shares, on the terms and conditions and subject to all the limitations set forth herein, under United States securities and tax laws, and in the Plan, which is incorporated herein by reference. The Employee acknowledges receipt of a copy of the Plan.

 

2.             PURCHASE PRICE .

 

The purchase price of the Shares covered by the Option shall be $    per Share, subject to adjustment, as provided in the Plan, in the event of a stock split, reverse stock split or other events affecting the holders of Shares after the date hereof (the “Purchase Price”). Payment shall be made in accordance with Paragraph 8 of the Plan.

 

3.             EXERCISABILITY OF OPTION .

 

Subject to the terms and conditions set forth in this Agreement and the Plan, the Option granted hereby shall become exercisable as follows:

 



 

On the first anniversary of the date of this Agreement

 

up to                    Shares

 

 

 

 

 

On the second anniversary of the date of this Agreement

 

an additional                    Shares

 

 

 

 

 

On the third anniversary of the date of this Agreement

 

an additional                    Shares

 

 

 

 

 

On the fourth anniversary of the date of this Agreement

 

an additional                    Shares

 

 

 

 

 

On the fifth anniversary of the date of this Agreement

 

an additional                    Shares

 

 

 

The foregoing rights are cumulative and are subject to the other terms and conditions of this Agreement and the Plan.

 

Notwithstanding the foregoing, in the event of a Change of Control, 100% of the Shares which would have vested in each vesting installment remaining under this Option will be vested for purposes of Section 23(b) of the Plan unless this Option has otherwise expired or been terminated pursuant to its terms or the terms of the Plan.

 

4.             TERM OF OPTION .

 

The Option shall terminate ten years from the date of this Agreement or, if the Employee owns as of the date hereof more than 10% of the total combined voting power of all classes of capital stock of the Company or an Affiliate, five years from the date of this Agreement, but shall be subject to earlier termination as provided herein or in the Plan.

 

If the Employee ceases to be an employee of the Company or of an Affiliate (for any reason other than the death or Disability of the Employee or termination of the Employee’s employment for Cause (as defined in the Plan)), the Option may be exercised, if it has not previously terminated, within three months after the date the Employee ceases to be an employee of the Company or an Affiliate, or within the originally prescribed term of the Option, whichever is earlier, but may not be exercised thereafter. In such event, the Option shall be exercisable only to the extent that the Option has become exercisable and is in effect at the date of such cessation of employment.

 

Notwithstanding the foregoing, in the event of the Employee’s Disability or death within three months after the termination of employment, the Employee or the Employee’s Survivors may exercise the Option within one year after the date of the Employee’s termination of employment, but in no event after the date of expiration of the term of the Option.

 

In the event the Employee’s employment is terminated by the Employee’s employer for Cause, the Employee’s right to exercise any unexercised portion of this Option shall cease immediately as of the time the Employee is notified his or her employment is terminated for Cause, and this Option shall thereupon terminate. Notwithstanding anything herein to the contrary, if subsequent to the Employee’s termination as an employee, but prior to the exercise of the Option, the Board of Directors of the Company determines that, either prior or subsequent

 

2



 

to the Employee’s termination, the Employee engaged in conduct which would constitute Cause, then the Employee shall immediately cease to have any right to exercise the Option and this Option shall thereupon terminate.

 

In the event of the Disability of the Employee, as determined in accordance with the Plan, the Option shall be exercisable within one year after the Employee’s termination of employment or, if earlier, within the term originally prescribed by the Option. In such event, the Option shall be exercisable:

 

(a)                                   to the extent that the Option has become exercisable but has not been exercised as of the date of Disability; and

 

(b)                                  in the event rights to exercise the Option accrue periodically, to the extent of a pro rata portion through the date of Disability of any additional vesting rights that would have accrued on the next vesting date had the Employee not become Disabled. The proration shall be based upon the number of days accrued in the current vesting period prior to the date of Disability.

 

In the event of the death of the Employee while an employee of the Company or of an Affiliate, the Option shall be exercisable by the Employee’s Survivors within one year after the date of death of the Employee or, if earlier, within the originally prescribed term of the Option. In such event, the Option shall be exercisable:

 

(x)                                    to the extent that the Option has become exercisable but has not been exercised as of the date of death; and

 

(y)                                  in the event rights to exercise the Option accrue periodically, to the extent of a pro rata portion through the date of death of any additional vesting rights that would have accrued on the next vesting date had the Employee not died. The proration shall be based upon the number of days accrued in the current vesting period prior to the Employee’s date of death.

 

5.             METHOD OF EXERCISING OPTION .

 

Subject to the terms and conditions of this Agreement, the Option may be exercised by written notice to the Company or its designee, in substantially the form of Exhibit A attached hereto. Such notice shall state the number of Shares with respect to which the Option is being exercised and shall be signed by the person exercising the Option. Payment of the purchase price for such Shares shall be made in accordance with Paragraph 8 of the Plan. The Company shall deliver such Shares as soon as practicable after the notice shall be received, provided, however, that the Company may delay issuance of such Shares until completion of any action or obtaining of any consent, which the Company deems necessary under any applicable law (including, without limitation, state securities or “blue sky” laws). The Shares as to which the Option shall have been so exercised shall be registered in the Company’s share register in the name of the person so exercising the Option (or, if the Option shall be exercised by the Employee and if the Employee shall so request in the notice exercising the Option, shall be registered in the name of the Employee and another person jointly, with right of survivorship) and shall be delivered as provided above to or upon the written order of the person exercising the

 

3



 

Option. In the event the Option shall be exercised, pursuant to Section 4 hereof, by any person other than the Employee, such notice shall be accompanied by appropriate proof of the right of such person to exercise the Option. All Shares that shall be purchased upon the exercise of the Option as provided herein shall be fully paid and nonassessable.

 

6.             PARTIAL EXERCISE .

 

Exercise of this Option to the extent above stated may be made in part at any time and from time to time within the above limits, except that no fractional share shall be issued pursuant to this Option.

 

7.             NON-ASSIGNABILITY .

 

The Option shall not be transferable by the Employee otherwise than by will or by the laws of descent and distribution. The Option shall be exercisable, during the Employee’s lifetime, only by the Employee (or, in the event of legal incapacity or incompetency, by the Employee’s guardian or representative) and shall not be assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. Any attempted transfer, assignment, pledge, hypothecation or other disposition of the Option or of any rights granted hereunder contrary to the provisions of this Section 7, or the levy of any attachment or similar process upon the Option shall be null and void.

 

8.             NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE .

 

The Employee shall have no rights as a stockholder with respect to Shares subject to this Agreement until registration of the Shares in the Company’s share register in the name of the Employee. Except as is expressly provided in the Plan with respect to certain changes in the capitalization of the Company, no adjustment shall be made for dividends or similar rights for which the record date is prior to the date of such registration.

 

9.             ADJUSTMENTS .

 

The Plan contains provisions covering the treatment of Options in a number of contingencies such as stock splits and mergers. Provisions in the Plan for adjustment with respect to stock subject to Options and the related provisions with respect to successors to the business of the Company are hereby made applicable hereunder and are incorporated herein by reference; provided, however, that in the event of a Change of Control, 100% of the Shares which would have vested in each vesting installment remaining under this Option will be vested for purposes of Section 23(b) of the Plan.

 

10.           TAXES .

 

The Employee acknowledges that any income or other taxes due from him or her with respect to this Option or the Shares issuable pursuant to this Option shall be the Employee’s responsibility.

 

4



 

In the event of a Disqualifying Disposition (as defined in Section 15 below) or if the Option is converted into a Non-Qualified Option and such Non-Qualified Option is exercised, the Company may withhold from the Employee’s remuneration, if any, the minimum statutory amount of Federal, state and local withholding taxes attributable to such amount that is considered compensation includable in such person’s gross income. At the Company’s discretion, the amount required to be withheld may be withheld in cash from such remuneration, or in kind from the Shares otherwise deliverable to the Employee on exercise of the Option. The Employee further agrees that, if the Company does not withhold an amount from the Employee’s remuneration sufficient to satisfy the Company’s income tax withholding obligation, the Employee will reimburse the Company on demand, in cash, for the amount under-withheld.

 

11.           PURCHASE FOR INVESTMENT .

 

Unless the offering and sale of the Shares to be issued upon the particular exercise of the Option shall have been effectively registered under the Securities Act of 1933, as now in force or hereafter amended (the “1933 Act”), the Company shall be under no obligation to issue the Shares covered by such exercise unless and until the following conditions have been fulfilled:

 

(a)                                   The person(s) who exercise the Option shall warrant to the Company, at the time of such exercise, that such person(s) are acquiring such Shares for their own respective accounts, for investment, and not with a view to, or for sale in connection with, the distribution of any such Shares, in which event the person(s) acquiring such Shares shall be bound by the provisions of the following legend which shall be endorsed upon any certificate(s) evidencing the Shares issued pursuant to such exercise:

 

“The shares represented by this certificate have been taken for investment and they may not be sold or otherwise transferred by any person, including a pledgee, unless (1) either (a) a Registration Statement with respect to such shares shall be effective under the Securities Act of 1933, as amended, or (b) the Company shall have received an opinion of counsel satisfactory to it that an exemption from registration under such Act is then available, and (2) there shall have been compliance with all applicable state securities laws;” and

 

(b)                                  If the Company so requires, the Company shall have received an opinion of its counsel that the Shares may be issued upon such particular exercise in compliance with the 1933 Act without registration thereunder. Without limiting the generality of the foregoing, the Company may delay issuance of the Shares until completion of any action or obtaining of any consent, which the Company deems necessary under any applicable law (including without limitation state securities or “blue sky” laws).

 

5



 

12.           RESTRICTIONS ON TRANSFER OF SHARES .

 

12.1         If, in connection with a registration statement filed by the Company pursuant to the 1933 Act, the Company or its underwriter so requests, the Employee will agree not to sell any Shares for a period not to exceed 180 days following the effectiveness of such registration.

 

12.2         The Employee acknowledges and agrees that neither the Company, its shareholders nor its directors and officers, has any duty or obligation to disclose to the Employee any material information regarding the business of the Company or affecting the value of the Shares before, at the time of, or following a termination of the employment of the Employee by the Company, including, without limitation, any information concerning plans for the Company to make a public offering of its securities or to be acquired by or merged with or into another firm or entity.

 

13.           NO OBLIGATION TO EMPLOY .

 

The Company is not by the Plan or this Option obligated to continue the Employee as an employee of the Company or an Affiliate. The Employee acknowledges: (a) that the Plan is discretionary in nature and may be suspended or terminated by the Company at any time; (b) that the grant of the Option is a one-time benefit which does not create any contractual or other right to receive future grants of options, or benefits in lieu of options; (c) that all determinations with respect to any such future grants, including, but not limited to, the times when options shall be granted, the number of shares subject to each option, the option price, and the time or times when each option shall be exercisable, will be at the sole discretion of the Company; (d) that the Employee’s participation in the Plan is voluntary; (e) that the value of the Option is an extraordinary item of compensation which is outside the scope of the Employee’s employment contract, if any; and (f) that the Option is not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments.

 

14.           OPTION IS INTENDED TO BE AN ISO .

 

The parties each intend that the Option be an ISO so that the Employee (or the Employee’s Survivors) may qualify for the favorable tax treatment provided to holders of Options that meet the standards of Section 422 of the Code. Any provision of this Agreement or the Plan which conflicts with the Code so that this Option would not be deemed an ISO is null and void and any ambiguities shall be resolved so that the Option qualifies as an ISO. Nonetheless, if the Option is determined not to be an ISO, the Employee understands that neither the Company nor any Affiliate is responsible to compensate him or her or otherwise make up for the treatment of the Option as a Non-Qualified Option and not as an ISO. The Employee should consult with the Employee’s own tax advisors regarding the tax effects of the Option and the requirements necessary to obtain favorable tax treatment under Section 422 of the Code, including, but not limited to, holding period requirements.

 

15.           NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION .

 

The Employee agrees to notify the Company in writing immediately after the Employee makes a Disqualifying Disposition of any of the Shares acquired pursuant to the exercise of the Option. A Disqualifying Disposition is defined in Section 424(c) of the Code and includes any

 

6



 

disposition (including any sale) of such Shares before the later of (a) two years after the date the Employee was granted the Option or (b) one year after the date the Employee acquired Shares by exercising the Option, except as otherwise provided in Section 424(c) of the Code. If the Employee has died before the Shares are sold, these holding period requirements do not apply and no Disqualifying Disposition can occur thereafter.

 

16.           NOTICES .

 

Any notices required or permitted by the terms of this Agreement or the Plan shall be given by recognized courier service, facsimile, registered or certified mail, return receipt requested, addressed as follows:

 

If to the Company:

 

Alphatec Holdings, Inc.

 

 

21051 Palomar Airport Road

 

 

Carlsbad, CA 92011

 

 

 

 

 

 

If to the Participant:

 

 

 

or to such other address or addresses of which notice in the same manner has previously been given. Any such notice shall be deemed to have been given upon the earlier of receipt, one business day following delivery to a recognized courier service or three business days following mailing by registered or certified mail.

 

17.           GOVERNING LAW .

 

This Agreement shall be construed and enforced in accordance with the law of the State of Delaware, without giving effect to the conflict of law principles thereof. For the purpose of litigating any dispute that arises under this Agreement, the parties hereby consent to exclusive jurisdiction in Delaware and agree that such litigation shall be conducted in the state courts of Delaware or the federal courts of the United States for the District of Delaware.

 

18.           BENEFIT OF AGREEMENT .

 

Subject to the provisions of the Plan and the other provisions hereof, this Agreement shall be for the benefit of and shall be binding upon the heirs, executors, administrators, successors and assigns of the parties hereto.

 

19.           ENTIRE AGREEMENT .

 

This Agreement, together with the Plan, embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof. No statement, representation, warranty, covenant or agreement not expressly set forth in this Agreement shall affect or be used to interpret, change or restrict, the express terms and provisions of this Agreement, provided, however, in any event, this Agreement shall be subject to and governed by the Plan.

 

7



 

20.           MODIFICATIONS AND AMENDMENTS .

 

The terms and provisions of this Agreement may be modified or amended as provided in the Plan.

 

21.           WAIVERS AND CONSENTS .

 

Except as provided in the Plan, the terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by written document executed by the party entitled to the benefits of such terms or provisions. No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar. Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent.

 

22.           DATA PRIVACY .

 

By entering into this Agreement, the Employee: (a) authorizes the Company and each Affiliate, and any agent of the Company or any Affiliate administering the Plan or providing Plan recordkeeping services, to disclose to the Company or any of its Affiliates such information and data as the Company or any such Affiliate shall request in order to facilitate the grant of options and the administration of the Plan; (b) waives any data privacy rights he or she may have with respect to such information; and (c) authorizes the Company and each Affiliate to store and transmit such information in electronic form.

 

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8



 

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Employee has hereunto set his or her hand, all as of the day and year first above written.

 

 

 

ALPHATEC HOLDINGS, INC.

 

 

 

 

 

By:

 

 

 

Name:

 

Title:

 

 

 

 

 

 

 

 

Employee

 

9



 

Exhibit A

 

NOTICE OF EXERCISE OF INCENTIVE STOCK OPTION

 

TO:         Alphatec Holdings, Inc.

 

Ladies and Gentlemen:

 

I hereby exercise my Incentive Stock Option to purchase                    shares (the “Shares”) of Common Stock, $.0001 par value, of Alphatec Holdings, Inc. (the “Company”), at the exercise price of $per share, pursuant to and subject to the terms of that certain Incentive Stock Option Agreement between the undersigned and the Company dated                               , 200   .

 

I understand the nature of the investment I am making and the financial risks thereof. I am aware that it is my responsibility to have consulted with competent tax and legal advisors about the relevant Federal, state and local income tax and securities laws affecting the exercise of the Option and the purchase and subsequent sale of the Shares.

 

I am paying the option exercise price for the Shares as follows:

 

Please issue the Shares (check one):

 

o to me; or

 

o to me and                                            , as joint tenants with right of survivorship,

 

at the following address:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

A-1



 

My mailing address for shareholder communications, if different from the address listed above, is:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Very truly yours,

 

 

 

 

 

 

 

 

Employee (signature)

 

 

 

 

 

 

Print Name

 

 

 

 

 

 

Date

 

 

 

 

 

 

Social Security Number

 

A-2




Exhibit 10.8

 

RESTRICTED STOCK AGREEMENT

 

ALPHATEC HOLDINGS, INC.

 

AGREEMENT made as of the     day of             , 200   (the “Grant Date”), between Alphatec Holdings, Inc. (the “Company”), a Delaware corporation, and                (the “Participant”).

 

WHEREAS, the Company has adopted the Alphatec Holdings, Inc. 2005 Employee, Director and Consultant Stock Plan, as amended (the “Plan”) to promote the interests of the Company by providing an incentive for employees, directors and consultants of the Company or its Affiliates;

 

WHEREAS, pursuant to the provisions of the Plan, the Company desires to offer for sale to the Participant shares of the Company’s Common Stock, $.0001 par value per share (“Common Stock”), in accordance with the provisions of the Plan, all on the terms and conditions hereinafter set forth;

 

WHEREAS, Participant wishes to accept said offer; and

 

WHEREAS, the parties hereto understand and agree that any terms used and not defined herein have the meanings ascribed to such terms in the Plan and that any and all references herein to employment of the Participant by the Company shall include the Participant’s employment or service as an employee, director or consultant of the Company or any Affiliate.

 

NOW, THEREFORE, in consideration of the promises and the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

 

1.                                        Terms of Purchase . The Participant hereby accepts the offer of the Company to issue to the Participant, in accordance with the terms of the Plan and this Agreement,                          Shares of the Company’s Common Stock (such shares, subject to adjustment pursuant to Section 23 of the Plan and Subsection 2.1(g) hereof, the “Granted Shares”) at a purchase price per share of $       (the “Purchase Price”), receipt of which is hereby acknowledged by the Participant’s prior service to the Company and which amount will be reported as income on the Participant’s W-2 for this calendar year .

 

2.1.                               Company’s Lapsing Repurchase Right .

 

(a)                                   Lapsing Repurchase Right . Except as set forth in Subsections 2.1(b) and 2.1(c) hereof, in the event that for any reason the Participant no longer is an employee, director or consultant of the Company or an Affiliate prior to the fifth (5) anniversary of the Grant Date (the Termination”), the Participant (or the Participant’s Survivor) shall, on the date of Termination, immediately forfeit to the Company (or its designee), all or any part of the Granted Shares which have not yet lapsed in accordance with the schedule set forth in clauses (i), (ii) and (iii) below (the “Lapsing Repurchase Right”).

 



 

(i)                                      If the Participant’s Termination is prior to the first anniversary of the Grant Date, all of the Granted Shares acquired by the Participant hereunder shall be forfeited to the Company.

 

(ii)                                   If the Participant’s Termination is on or after the first anniversary of the Grant Date, all of the Granted Shares less 20% of the Granted Shares for each full 12-month period elapsed after the Grant Date that the Participant continues to serve as an employee, director or consultant of the Company or an Affiliate shall be forfeited to the Company.

 

(iii)                                Notwithstanding anything to the contrary contained in this Agreement, in the event the Company or an Affiliate terminates the Participant’s employment or service for Cause (as defined in the Plan) or in the event the Administrator determines, within 90 days after the Participant’s Termination, that either prior or subsequent to the Participant’s Termination the Participant engaged in conduct that would constitute Cause, all of the Granted Shares then held by the Participant shall be forfeited to the Company immediately as of the time the Participant is notified that he or she has been terminated for Cause or that he or she engaged in conduct which would constitute Cause.

 

(b)                                  Effect of Termination for Disability or upon Death . Except as otherwise provided in Subsection 2.1(a)(iii) above, the following rules apply if the Participant’s Termination is by reason of Disability or death:  to the extent the Company’s Lapsing Repurchase Right has not lapsed as of the date of Disability or death, as case may be, the Participant shall forfeit to the Company any or all of the Granted Shares subject to such Lapsing Repurchase Right; provided, however, that the Company’s Lapsing Repurchase Right shall be deemed to have lapsed to the extent of a pro rata portion of the Granted Shares through the date of Disability or death, as would have lapsed had the Participant not become Disabled or died, as the case may be. The proration shall be based upon the number of days accrued in such current vesting period prior to the Participant’s date of Disability or death, as the case may be.

 

(c)                                   Effect of Change in Control . Except as otherwise provided in Subsection 2.1(a)(iii) above, the Company’s Lapsing Repurchase Right shall terminate, and the Participant’s ownership of all Granted Shares then owned by the Participant shall become vested, in the event of a Change of Control of the Company .

 

(d)                                  Escrow . The certificates representing all Granted Shares acquired by the Participant hereunder which from time to time are subject to the Lapsing Repurchase Right shall be delivered to the Company and the Company shall hold such Granted Shares in escrow as provided in this Subsection 2.1(d). Promptly following receipt by the Company of a written request from the Participant, the Company shall release from escrow and deliver to the Participant a certificate for the whole number of Granted Shares, if any, as to which the Company’s Lapsing Repurchase Right has lapsed. In the event of a forfeiture to the Company of Granted Shares subject to the Lapsing Repurchase Right, the Company shall release from escrow and cancel a certificate for the number of Granted Shares so forfeited. Any securities distributed in respect of the Granted Shares held in escrow, including, without limitation, shares issued as a result of stock splits, stock dividends or other recapitalizations, shall also be held in escrow in the same manner as the Granted Shares.

 

2



 

(e)                                   Prohibition on Transfer . The Participant recognizes and agrees that all Granted Shares which are subject to the Lapsing Repurchase Right may not be sold, transferred, assigned, hypothecated, pledged, encumbered or otherwise disposed of, whether voluntarily or by operation of law, other than to the Company (or its designee). The Company shall not be required to transfer any Granted Shares on its books which shall have been sold, assigned or otherwise transferred in violation of this Subsection 2.1(e), or to treat as the owner of such Granted Shares, or to accord the right to vote as such owner or to pay dividends to, any person or organization to which any such Granted Shares shall have been so sold, assigned or otherwise transferred, in violation of this Subsection 2.1(e).

 

(f)                                     Failure to Deliver Granted Shares to be Repurchased . In the event that the Granted Shares to be forfeited to the Company under this Agreement are not in the Company’s possession pursuant to Subsection 2.1(d) above or otherwise and the Participant or the Participant’s Survivor fails to deliver such Granted Shares to the Company (or its designee), the Company may immediately take such action as is appropriate to transfer record title of such Granted Shares from the Participant to the Company (or its designee) and treat the Participant and such Granted Shares in all respects as if delivery of such Granted Shares had been made as required by this Agreement. The Participant hereby irrevocably grants the Company a power of attorney which shall be coupled with an interest for the purpose of effectuating the preceding sentence.

 

(g)                                  Adjustments . The Plan contains provisions covering the treatment of Shares in a number of contingencies such as stock splits and mergers. Provisions in the Plan for adjustment with respect to the Shares and the related provisions with respect to successors to the business of the Company are hereby made applicable hereunder and are incorporated herein by reference.

 

2.2                                  Other Restrictions .

 

(a)                                   If, in connection with a registration statement filed by the Company pursuant to the Securities Act of 1933, as amended (the “1933 Act”), the Company or its underwriter so requests, the Participant will agree not to sell any of his or her Granted Shares whether or not the Lapsing Repurchase Right has lapsed for a period not to exceed the lesser of: (i) 180 days following the effectiveness of such registration statement or (ii) such period as the officers and directors of the Company agree not to sell their Common Stock of the Company.

 

(b)                                  The Participant acknowledges and agrees that neither the Company, its shareholders nor its directors and officers, has any duty or obligation to disclose to the Participant any material information regarding the business of the Company or affecting the value of the Shares before, at the time of, or following a Termination, including, without limitation, any information concerning plans for the Company to make a public offering of its securities or to be acquired by or merged with or into another firm or entity.

 

3.                                        Legend . In addition to any legend required pursuant to the Plan, all certificates representing the Granted Shares to be issued to the Participant pursuant to this Agreement shall have endorsed thereon a legend substantially as follows:

 

3



 

“The shares represented by this certificate are subject to restrictions set forth in a Restricted Stock Agreement dated as of             , 200   with this Company, a copy of which Agreement is available for inspection at the offices of the Company or will be made available upon request.”

 

4.                                        Securities Law Compliance . The Participant specifically acknowledges and agrees that any sales of Granted Shares shall be made in accordance with the requirements of the Securities Act of 1933, as amended.

 

5.                                        Rights as a Stockholder . The Participant shall have all the rights of a stockholder with respect to the Granted Shares, including voting and dividend rights, subject to the transfer and other restrictions set forth herein and in the Plan.

 

6.                                        Incorporation of the Plan . The Participant specifically understands and agrees that the Granted Shares issued under the Plan are being sold to the Participant pursuant to the Plan, a copy of which Plan the Participant acknowledges he or she has read and understands and by which Plan he or she agrees to be bound. The provisions of the Plan are incorporated herein by reference.

 

7.                                        Tax Liability of the Participant and Payment of Taxes . The Participant acknowledges and agrees that any income or other taxes due from the Participant with respect to the Granted Shares issued pursuant to this Agreement, including, without limitation, the Lapsing Repurchase Right, shall be the Participant’s responsibility. Without limiting the foregoing, the Participant agrees that, to the extent that the lapsing of restrictions on disposition of any of the Granted Shares or the declaration of dividends on any such shares before the lapse of such restrictions on disposition results in the Participant’s being deemed to be in receipt of earned income under the provisions of the Code, the Company shall be entitled to immediate payment from the Participant of the amount of any tax required to be withheld by the Company.

 

Upon execution of this Agreement, the Participant may file an election under Section 83 of the Code in substantially the form attached as Exhibit A . The Participant acknowledges that if he does not file such an election, as the Granted Shares are released from the Lapsing Repurchase Right in accordance with Section 2.1, the Participant will have income for tax purposes equal to the fair market value of the Granted Shares at such date, less the price paid for the Granted Shares by the Participant.

 

8.                                        Equitable Relief . The Participant specifically acknowledges and agrees that in the event of a breach or threatened breach of the provisions of this Agreement or the Plan, including the attempted transfer of the Granted Shares by the Participant in violation of this Agreement, monetary damages may not be adequate to compensate the Company, and, therefore, in the event of such a breach or threatened breach, in addition to any right to damages, the Company shall be entitled to equitable relief in any court having competent jurisdiction. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for any such breach or threatened breach.

 

9.                                        No Obligation to Maintain Relationship . The Company is not by the Plan or this Agreement obligated to continue the Participant as an employee, director or consultant of the

 

4



 

Company or an Affiliate. The Participant acknowledges:  (a) that the Plan is discretionary in nature and may be suspended or terminated by the Company at any time; (b) that the grant of the Shares is a one-time benefit which does not create any contractual or other right to receive future grants of shares, or benefits in lieu of shares; (c) that all determinations with respect to any such future grants, including, but not limited to, the times when shares shall be granted, the number of shares to be granted, the purchase price, and the time or times when each share shall be free from a lapsing repurchase right, will be at the sole discretion of the Company; (d) that the Participant’s participation in the Plan is voluntary; (e) that the value of the Shares is an extraordinary item of compensation which is outside the scope of the Participant’s employment contract, if any; and (f) that the Shares are not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments.

 

10.                                  Notices . Any notices required or permitted by the terms of this Agreement or the Plan shall be given by recognized courier service, facsimile, registered or certified mail, return receipt requested, addressed as follows:

 

If to the Company:

 

Alphatec Holdings, Inc.
2051 Palomar Airport Road
Carlsbad, CA 92011

 

 

 

If to the Participant:

 

 

 

or to such other address or addresses of which notice in the same manner has previously been given. Any such notice shall be deemed to have been given on the earliest of receipt, one business day following delivery by the sender to a recognized courier service, or three business days following mailing by registered or certified mail.

 

11.                                  Benefit of Agreement . Subject to the provisions of the Plan and the other provisions hereof, this Agreement shall be for the benefit of and shall be binding upon the heirs, executors, administrators, successors and assigns of the parties hereto.

 

12.                                  Governing Law . This Agreement shall be construed and enforced in accordance with the laws of the State of Delaware, without giving effect to the conflict of law principles thereof. For the purpose of litigating any dispute that arises under this Agreement, whether at law or in equity, the parties hereby consent to exclusive jurisdiction in Delaware and agree that such litigation shall be conducted in the state courts of Delaware or the federal courts of the United States for the District of Delaware.

 

13.                                  Severability . If any provision of this Agreement is held to be invalid or unenforceable by a court of competent jurisdiction, then such provision or provisions shall be modified to the extent necessary to make such provision valid and enforceable, and to the extent that this is impossible, then such provision shall be deemed to be excised from this Agreement, and the validity, legality and enforceability of the rest of this Agreement shall not be affected thereby.

 

5



 

14.                                  Entire Agreement . This Agreement, together with the Plan, constitutes the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof. No statement, representation, warranty, covenant or agreement not expressly set forth in this Agreement shall affect or be used to interpret, change or restrict the express terms and provisions of this Agreement provided, however, in any event, this Agreement shall be subject to and governed by the Plan.

 

15.                                  Modifications and Amendments; Waivers and Consents . The terms and provisions of this Agreement may be modified or amended as provided in the Plan. Except as provided in the Plan, the terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by written document executed by the party entitled to the benefits of such terms or provisions. No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar. Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent.

 

16.                                  Counterparts . This Agreement may be executed in one or more counterparts, and by different parties hereto on separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

17.                                  Data Privacy . By entering into this Agreement, the Participant:  (a) authorizes the Company and each Affiliate, and any agent of the Company or any Affiliate administering the Plan or providing Plan record keeping services, to disclose to the Company or any of its Affiliates such information and data as the Company or any such Affiliate shall request in order to facilitate the grant of Shares and the administration of the Plan; (b) waives any data privacy rights he or she may have with respect to such information; and (c) authorizes the Company and each Affiliate to store and transmit such information in electronic form.

 

[THE NEXT PAGE IS THE SIGNATURE PAGE]

 

6



 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

 

 

ALPHATEC HOLDINGS, INC.

 

 

 

 

 

By:

 

 

Name:

 

Title:

 

 

 

 

 

PARTICIPANT:

 

 

 

 

 

 

 

Print name:

 

7



 

EXHIBIT A

 

Election to Include Gross Income in Year

of Transfer Pursuant to Section 83(b)

of the Internal Revenue Code of 1986, as amended

 

In accordance with Section 83(b) of the Internal Revenue Code of 1986, as amended (the “Code”), the undersigned hereby elects to include in his gross income as compensation for services the excess, if any, of the fair market value of the property (described below) at the time of transfer over the amount paid for such property.

 

The following sets for the information required in accordance with the Code and the regulations promulgated hereunder:

 

1.                                        The name, address and social security number of the undersigned (the “Taxpayer”) are:

 

Name:

Address:

Social Security No.:

 

2.                                        The description of the property with respect to which the election is being made is as follows:

 

             (   ) shares (the “Shares”) of Common Stock, $.0001 par value per share, of Alphatec Holdings, Inc., a Delaware corporation (the “Company”).

 

3.                                        This election is made for the calendar year     , with respect to the transfer of the property to the Taxpayer on                   (the “Grant Date”).

 

4.                                        Description of restrictions:  The property is subject to the following restrictions:

 

In the event the Taxpayer’s employment with the Company or an Affiliate is terminated, the Company may repurchase all or any portion of the Shares determined as set forth below at the acquisition price paid by the Taxpayer:

 

A.                                    If the termination takes place on or prior to              , 200 , the Company’s purchase option will apply to all of the Shares.

 

B.                                      If the termination takes place after           , 200 , the number of Shares to which the Company’s purchase option applies shall be                (   ) Shares less                      (   ) Shares for each full twelve (12) month period elapsed after the Grant Date if the Taxpayer is employed by the Company or an Affiliate.

 

A-1



 

5.                                        The fair market value at time of transfer (determined without regard to any restrictions other than restrictions which by their terms will never lapse) of the property with respect to which this election is being made was not more than $     per Share.

 

6.                                        The amount paid by the Taxpayer for said property was $    per Share.

 

7.                                        A copy of this statement has been furnished to the Company.

 

Signed this      day of         , 200 .

 

 

 

 

 

 

Print Name:

 

A-2


 



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Exhibit 10.29

    Invibio
biomaterial solutions
13 December 2004    
    Building III
    Calendon Wood Professional Park
[***]   3 Calendon Court
Alphatec Manufacturing Inc   Greenville
6110 Corte Del Cedro   SC29615
Carlsbad    
CA 92009    
USA    

Dear [***]

         Letter of Amendment in respect of Supply Agreement between Invibio Inc. and Alphatec Manufacturing Inc. dated October 18, 2004 (the "Agreement")

        Following discussions, we are writing to confirm that pursuant to section 4.1 of the Agreement, we have agreed to make the following amendments to the Agreement.

1.
Supplier agrees to supply and Buyer agrees to purchase the following additional grades of rod stock LT1R25 at a price of $[***] per meter, LT1R30 at a price of $[***] per meter and LT1R40 at a price of $[***] per meter. For the first order only Buyer may order a minimum of 1 meter for all grades, any subsequent orders shall be for not less than a minimum of 4 meters for LT1R25, 3 meters for LT1R30 and 1 meter for LT1R40, in accordance with the terms and conditions as set out in the Agreement.

2.
Exhibit 2 of the Agreement shall be amended to incorporate the Supply Manufacturing Definitions for the 25mm diameter rod stock (LT1R25) the 30mm diameter rod stock (LT1R30) and the 40mm diameter rod stock (LT1R40), as per the attached Supply Manufacturing Definitions.

        Except as expressly provided in this letter of amendment, all other terms, conditions, and provisions of the Agreement shall continue in full force and effect as provided therein.

        This letter shall be governed by and construed in accordance with the laws of the state of Colorado without regard to the conflict of law provisions thereof.

        IN WITNESS WHEREOF, the parties have confirmed their acceptance of the contents of this letter.

 
  [***]
For and on behalf of Invibio, Inc.   For and on behalf of Alphatec Manufacturing Inc.

 


 

12-14-04

Date   Date

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Company's application requesting confidential treatment under Rule 406 of the Securities Act. Asterisks denote omissions.


PEEK-OPTIMA®   GRADE: PEEK-OPTIMA LT1R25
SPECIFICATION   Page 1 of 1
MANUAL   Revision 3
ISSUE 1   Date: 17th Spetember 2001

Supply Manufacturing Definition

PEEK-OPTIMA LT1 Extruded Rod.
Grade LT1R25
Diameter 25mm +0.2mm/+1.2mm

Sampling and testing:

        The tests shown below shall be performed by supplier on material taken from the start and end of each production batch. The batch shall meet the requirements of this Supply Manufacturing Definition when the results of these tests agree with the values shown below.

Property

  Test Method
  Units
  Value
Tensile strength (at Yield)   [***]   [***]   [***]
Tensile Elongation   [***]   [***]   [***]
Flexural strength   [***]   [***]   [***]
Flexural modulus   [***]   [***]   [***]
Notched impact strength   [***]   [***]   [***]
Density   [***]   [***]   [***]
DSC
T g (Onset)
T c (Recrystallistion)
T m (Melt)
 
[***]
 
[***]
 
[***]

Notes:

[***]

[***]   Date: 17 th September 2001

Quality Assurance and Laboratory Manager.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Company's application requesting confidential treatment under Rule 406 of the Securities Act. Asterisks denote omissions.

1


PEEK-OPTIMA LT1 Extruded Rod.
Grade LT1R30
Diameter 30mm +0.2mm/+1.2mm

Sampling and testing:

        The tests shown below shall be performed by supplier on material taken from the start and end of each production batch. The batch shall meet the requirements of this Supply Manufacturing Definition when the results of these tests agree with the values shown below.

Property

  Test Method
  Units
  Value
Tensile strength (at Yield)   [***]   [***]   [***]
Tensile Elongation   [***]   [***]   [***]
Flexural strength   [***]   [***]   [***]
Flexural modulus   [***]   [***]   [***]
Notched impact strength   [***]   [***]   [***]
Density   [***]   [***]   [***]
DSC
T g (Onset)
T c (Recrystallistion)
T m (Melt)
 
[***]
 
[***]
 
[***]

Notes:

[***]

[***]   Date: 17 th September 2001

Quality Assurance and Laboratory Manager.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Company's application requesting confidential treatment under Rule 406 of the Securities Act. Asterisks denote omissions.

2


PEEK-OPTIMA LT1 Extruded Rod.
Grade LT1R40
Diameter 40mm +0.2mm/+1.2mm

Sampling and testing:

        The tests shown below shall be performed by supplier on material taken from the start and end of each production batch. The batch shall meet the requirements of this Supply Manufacturing Definition when the results of these tests agree with the values shown below.

Property

  Test Method
  Units
  Value
Tensile strength (at Yield)   [***]   [***]   [***]
Tensile Elongation   [***]   [***]   [***]
Flexural strength   [***]   [***]   [***]
Flexural modulus   [***]   [***]   [***]
Notched impact strength   [***]   [***]   [***]
Density   [***]   [***]   [***]
DSC
T g (Onset)
T c (Recrystallistion)
T m (Melt)
 
[***]
 
[***]
 
[***]

Notes:

[***]

[***]   Date: 17 th September 2001

Quality Assurance and Laboratory Manager.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Company's application requesting confidential treatment under Rule 406 of the Securities Act. Asterisks denote omissions.

3


        THIS AGREEMENT is entered into as of 10-18-04 (the " Effective Date "), by and between Invibio, Inc., a Delaware corporation with offices at 3A Caledon Court, Greenville, South Carolina 29615 (" Supplier "), and Alphatec [please complete corporate details                        , a California corporation with offices at 6110 CORETE DEL CEDRO, CARLSBAD, CA 92009 (" Buyer ").

        WHEREAS, Supplier is engaged in the manufacture and sale of Materials (as defined below).

        WHEREAS, Buyer wishes to purchase Materials from Supplier and Supplier is willing to supply Buyer with Materials, both on the terms and conditions set out in this Agreement.

        NOW THEREFORE, in consideration of the foregoing and the mutual promises set forth below and other good and valid consideration, the sufficiency of which is acknowledged by the parties, Supplier and Buyer agree as follows:

1.1    Definitions

Confidential

         Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Company's application requesting confidential treatment under Rule 406 of the Securities Act. Asterisks denote omissions.

1


        " Standard Conditions " shall mean Supplier's standard conditions of sale set out in Exhibit D;

        " Stock Shape " shall mean extruded rod stock composed of Biomaterials that have been melt processed so as to conform with the Supply Manufacturing Definition;

        " Subsidiary " of a party shall mean a company in respect of which such party owns or controls in excess of 50% of the issued and outstanding voting capital stock, or otherwise has the power to control such company's general activities;

        " Supply Manufacturing Definition " shall mean the dimensional, mechanical and physical properties of the Stock Shape, as set forth in Exhibit C. Such Supply Manufacturing Definition may be changed or modified, amended or supplemented from time to time by Supplier upon giving not less than three months notice to Buyer;

        " Year " shall mean each successive period of 12 months commencing on the Effective Date.

1.1    Interpretation.

        In this Agreement, unless the context requires otherwise, a reference to:

        (a)   an agreement (including this Agreement) is to such agreement as amended, supplemented or novated from time to time and includes a reference to any document which amends, supplements or novates the relevant agreement;

        (b)   any statute or statutory provisions shall be construed as a reference to the same as it may have been, or may from time to time be, amended, modified or re-enacted; and

        (c)   Sections and Exhibits is a reference to a section of, or exhibit to, this Agreement.

1.3    Exhibits.

        The Exhibits form part of this Agreement and shall have the same force and effect as if expressly set out in the body of this Agreement, and any reference to this Agreement shall include the Exhibits.

1.4    Captions.

        The captions in this Agreement are for convenience only and do not affect its interpretation.

2.      SUPPLY OF MATERIALS

         2.1    Supply . Buyer shall purchase from Supplier and Supplier shall sell to Buyer Materials pursuant to an order placed by Buyer with Supplier in accordance with the terms of this Agreement. The Standard Conditions shall apply to all sales made under this Agreement.

         2.2    Use . Buyer shall purchase Materials from Supplier and Supplier shall sell Materials to Buyer for use solely in connection with the manufacture, distribution and sale by Buyer of Buyer Products to third parties.

         2.3    Price . The initial price to be paid by Buyer to Supplier for all consignments of Materials delivered in the first [***] after the Effective Date is US$[***] per kilogram for Suppliers grade of Biomaterials PEEK-OPTIMA LT1 and US$[***] per meter for Suppliers grade of Stock Shape LT1R20. Buyer shall pay each invoice in full within 30 days of the date of the invoice in cleared funds in U.S. dollars to the bank account notified from time to time by Supplier. Time shall be of the essence for payment of invoices. Interest is payable on overdue amounts at the rate of [***]% over the US Prime Rate as published in the Wall Street Journal, Eastern Edition from time to time, to run from the due date for payment until receipt by Supplier of the full amount (including any accrued interest) whether before or after judgment. Supplier may suspend the supply of Materials to Buyer where any amounts are overdue in respect of an order until all such amounts have been paid. All sums payable in respect of an order shall be payable in full by Buyer without deduction of any kind, whether by way of set-off, counterclaim or otherwise howsoever. Buyer shall not be entitled to set-off an amount owing or alleged to be owing to it by

Confidential

         Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Company's application requesting confidential treatment under Rule 406 of the Securities Act. Asterisks denote omissions.

2


Supplier against amounts owing by it to Supplier. Supplier shall be entitled to increase the price per kilogram and/or meter for Materials, by no more than [***]%, once each Year, after the initial [***] period, upon providing thirty (30) days written notice.

         2.4    Milestone Payments . Subject to Standard Condition 3, in consideration for Supplier's provision of [***], other information relating to the general performance and/or other general physical characteristics of the Biomaterials and the Stock Shape, and [***], and in addition to any other payments required to be made to Supplier by Buyer under this Agreement, Buyer shall pay to Supplier the amount of U.S. $[***] said amount to be paid in three (3) installments as follows: (a) U.S. $[***] shall be due and payable upon signing of the agreement; (b) U.S. $[***] shall be due and payable by [***]; (c) U.S. $[***] shall be due and payable by [***] (the " Milestone Payments ").

        In the event that this Agreement is terminated for any reason other than for material breach by Supplier, Buyer shall immediately pay to Supplier all Milestone Payments that would have been due to Supplier under the full term of this Agreement as set forth in Section 3.1

3.      TERM AND TERMINATION

         3.1    Term . This Agreement has a term of ten (10) Years (the " Term ") from the Effective Date, unless terminated earlier in accordance with its terms.

         3.2    Termination by Mutual Agreement . This Agreement may be terminated upon mutual written agreement between the parties. In addition to any other rights of termination which Supplier may have under this Agreement, a party (the " Initiating Party ") may terminate this Agreement with immediate effect by written notice to the other party (the " Breaching Party ") on or at any other time after the Breaching Party being in breach of a material obligation under this Agreement and, if the breach is capable of remedy, failing to remedy the breach within 30 days starting on the day after receipt of written notice from the Initiating Party. That written notice shall contain details of the breach and shall further require the Breaching Party to remedy the breach and state that a failure to remedy the breach may give rise to termination under this Section 3.2. For the purposes of this Section 3.2 a breach is capable of remedy if time is not of the essence in performance of the obligation and if the Breaching Party can comply with obligation within the 30 day period;

3.3    Consequences of Termination .

Confidential

         Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Company's application requesting confidential treatment under Rule 406 of the Securities Act. Asterisks denote omissions.

3


         3.4    Bankruptcy . Buyer shall inform Supplier of the commencement of any bankruptcy insolvency, or administration proceedings by or against Buyer, or the occurrence of any analogous event in the country of incorporation of Buyer if Buyer is not incorporated in the United States of America at least thirty (30) calendar days prior to the date of the commencement of such proceedings. Buyer's failure to timely provide such notice shall be deemed a material, pre-petition incurable breach and shall result in immediate termination of this Agreement, notwithstanding any provision to the contrary contained within this Agreement. Supplier, at its sole discretion, may terminate this Agreement upon becoming aware of such proceedings.

4.      GENERAL PROVISIONS

         4.1    Entire Agreement . This Agreement contains the entire agreement of the parties regarding the subject matter hereof and supersedes all prior agreements, understandings and negotiations regarding the same. Each party acknowledges that is has not relied on or been induced to enter this Agreement by a representation other than those expressly set out in this Agreement. This Agreement may not be changed, modified, amended or supplemented expect by a written instrument signed by both parties. Furthermore, it is the intention of the parties that this Agreement be controlling over additional or different terms of any order, confirmation, invoices or similar document, even if accepted in writing by both parties, and that waivers and amendments shall be effective only if made by non-preprinted agreements clearly understood by both parties to be an amendment or waiver hereof.

         4.2    Confidentiality .

         4.3    Assignment . Neither party may assign or transfer or purport to assign or transfer a right or obligation under this Agreement without having first obtained the other party's written consent, with such written consent not to be unreasonably withheld.

Confidential

         Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Company's application requesting confidential treatment under Rule 406 of the Securities Act. Asterisks denote omissions.

4


         4.4    Severability . If a provision of this Agreement is invalid, illegal or unenforceable, the parties shall promptly enter into good faith negotiations to agree a mutually satisfactory provision to be substituted for that provision and which as nearly as possible gives effect to their intentions as expressed in this Agreement. This Agreement shall terminate automatically without notice if the parties fail to agree on a substitute provision within one month of the start of those negotiations. During those negotiations, the parties' obligations under this Agreement are suspended.

4.5
Rights and Remedies . Except where this Agreement provides otherwise, the rights and remedies contained in this Agreement are cumulative and not exclusive of rights or remedies provided by law.

4.6
Further Assurances . Each party shall at its own cost do and execute, or arrange for the doing and executing of, each necessary act, document and thing reasonably within its power to implement this Agreement.

4.7
Notice and Reports . All notices, consents or approvals required by this Agreement shall be in writing to a party at its address or number and for the attention of the individual set out below:

Name of Individual
  Address
  Facsimile Number
  E-mail address
[***]   6110 CORTE DEL CEDRO   (760) 431-1573   [***]

         4.8    Relationships of the Parties . No provision of this Agreement creates a partnership between the parties or makes one party the agent of the other for any purpose. Neither party has the authority or power to bind, to contract in the name of or to create a liability for the other in any way for any purpose. There is not, as at the Effective Date, and never has been, any form of common ownership, common control, common management or any other affiliation between the parties. Supplier and its Affiliates have not and will not participate in the design, manufacture, sale or distribution of any Buyer Products.

         4.9    Waiver . A failure to exercise or delay in exercising a right or remedy provided by this Agreement or by law does not constitute a waiver of the right or remedy or a waiver of other rights or remedies. No single or partial exercise of a right or remedy provided by this Agreement or by law prevents further exercise of the rights or remedy or the exercise of another right or remedy.

         4.10  Applicable Law . This Agreement shall be governed by and construed in accordance with the laws of the state of Colorado without regard to the conflict of law provisions thereof.

         4.11  Dispute Resolution . Any dispute between the parties arising out of or related to this Agreement shall, in the first instance, be the subject of a meeting between the parties to negotiate a resolution of such dispute. The meeting shall be conducted by at least one individual form each party who has full decision making authority with respect to the dispute at issue. Should the negotiations not lead to a settlement of the dispute within thirty (30) calendar days of the date of the meeting, either party may then initiate binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the " Rules "). In the event that a party refuses to participate in the meeting, then the other party may immediately initiate binding arbitration as otherwise provided in this Section. A single arbitrator shall be appointed in accordance with the Rules. The arbitrator shall be a person experienced in the area of supply and licensing of biomaterials and/or medical implant components or devices. The arbitration shall take place in Denver, Colorado and be based upon Colorado law pursuant to Section 4.10. No written opinion shall be prepared by the arbitrator, other than the arbitrator's ruling and any award thereon.

Confidential

         Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Company's application requesting confidential treatment under Rule 406 of the Securities Act. Asterisks denote omissions.

5


The party prevailing in the arbitration proceedings conducted pursuant to this Section shall be immediately reimbursed by the other party for all reasonable costs, including reasonable attorneys' fees, incurred relating to such arbitration proceeding. No party has a right to appeal the arbitrator's ruling, to any court or otherwise. Judgement upon arbitrator's ruling may be entered in any court of competent jurisdiction.

Confidential

         Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Company's application requesting confidential treatment under Rule 406 of the Securities Act. Asterisks denote omissions.

6


        IN WITNESS WHEREOF, and by their signatures below, the undersigned persons represent that they have the requisite authority to bind their respective companies to the terms and conditions set forth herein.


SUPPLIER: INVIBIO, INC.

 

BUYER:

By: [***]

 

By: [***]

Print Name [***]

 

Print Name [***]

Title Vice President

 

Title President

Confidential

         Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Company's application requesting confidential treatment under Rule 406 of the Securities Act. Asterisks denote omissions.

7


PEEK-OPTIMA®   PEEK-OPTIMA® LT1
SPECIFICATIONS   PAGE 1 of 1
MANUAL   Rev: 0
ISSUE 1   Date: 23 rd October 2001

        GRADE PEEK-OPTIMA® LT1              SPECIFICATION Ref. INV 01

PROPERTY

  TEST METHOD
  UNITS
  SPECIFICATION
Melt Viscosity   [***]   [***]   [***]
Melt Stability   [***]   [***]   [***]
Colour   [***]   [***]   [***]
Black Speck (sized film)   [***]   [***]   [***]
Black Speck (Granule)
Average
  [***]   [***]   [***]
MF1   [***]   [***]   [***]
Tensile Strength (at yield)   [***]   [***]   [***]
Tensile Elongation (at break)   [***]   [***]   [***]
Impact Strength
Notched Izod
  [***]   [***]   [***]
Flexural Modulus   [***]   [***]   [***]
Flexural Strength   [***]   [***]   [***]
Specific Gravity   [***]   [***]   [***]
Moisture Content 1   [***]   [***]   [***]
Extraneous Contam   [***]   [***]   [***]
Granule Cut 2   [***]   [***]   [***]
Glass Transition Temperature   [***]   [***]   [***]
Melting Point   [***]   [***]   [***]
Re-crystallisation Temperature   [***]   [***]   [***]

Notes:

[***]

SPECIFICATION APPROVAL

Quality Assurance & Laboratory Manager: ....../s/[***]

Date: 23 rd October 2001

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Company's application requesting confidential treatment under Rule 406 of the Securities Act. Asterisks denote omissions.


PEEK-OPTIMA®   GRADE: PEEK-OPTIMA LT1R25
SPECIFICATION   PAGE 1 of 1
MANUAL   Revision 3
ISSUE 1   Date: 17 th September 2001

Supply Manufacturing Definition

PEEK-OPTIMA LT1 Extruded Rod.
Grade LT1R20
Diameter 20mm +0.2mm/+1.1mm

Sampling and testing:

        The tests shown below shall be performed by supplier on material taken from the start and end of each production batch. The batch shall meet the requirements of this Supply Manufacturing Definition when the results of these tests agree with the values shown below.

Property

  Test Method
  Units
  Value
Tensile strength (at Yield)   [***]   [***]   [***]
Tensile Elongation   [***]   [***]   [***]
Flexural strength   [***]   [***]   [***]
Flexural modulus   [***]   [***]   [***]
Notched impact strength   [***]   [***]   [***]
Density   [***]   [***]   [***]
DSC            
T g (Onset)   [***]   [***]   [***]
T c (Recrystallistion)            
T m (Melt)            

Notes:

[***]

[***]                                                                                    Date: 17 th September 2001

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Company's application requesting confidential treatment under Rule 406 of the Securities Act. Asterisks denote omissions.



EXHIBIT D STANDARD CONDITIONS OF SALE

        1.     ORDERS, DELIVERY AND RISK—Buyer shall place orders for Materials with a lead time of at least sixty (60) days. Each order shall be in full until quantities and shall be for not less then a minimum quantity of 10 kilograms for Biomaterials or 10 meters for Stock Shape. Supplier shall, as soon as reasonably practicable after receipt, notify Buyer of the anticipated delivery date for that order. All orders shall be deemed to incorporate and be subject to the terms and conditions of this Agreement (including the Standard Conditions).

        All materials delivered to Buyer shall be F.O.B. Supplier's shipping point, and upon delivery to the proper carrier, title and risk of loss and delay shall pass to Buyer. Buyer may reject all or part of any consignment of Materials only on the grounds that it, or part of it, does not conform to the Specification or Supply Manufacturing Definition (as the case may be) applicable on the date of manufacture and only by giving Supplier written notice of such rejection immediately on discovery of such lack of conformity, including full details of the reason for such rejection, and in any event no later than 30 days after delivery of the consignment. If Buyer fails to give such notice of rejection, it shall be deemed to have accepted the consignment in full and acknowledged such Biomaterials conformance with the Specification or such Stock Shape's conformance with the Supply Manufacturing Definition (as the case may be).

        Risk in Materials passes from Supplier to Buyer on delivery as provided in this Condition. Notwithstanding delivery and passing of risk, Materials will remain the property of Supplier until Buyer pays to Supplier the price payable for Materials (together with any accrued interest) and until no further sums whatever are due from Buyer to Supplier in respect of Materials. From delivery until property in Materials passes to Buyer, Buyer shall insure Materials for their full value with a reputable insurer and, upon request, shall use reasonable endeavors to have Supplier's interest in Materials noted on the insurance policy. Until property in Materials passes to Buyer, Buyer shall hold the proceeds of any claim on the insurance policy on trust for Supplier and shall immediately account to Supplier for any proceeds.

        2.     CERTAIN ADDITIONAL COVENANTS Buyer shall not use any form of polyaryletherketone, or any products containing polyaryletherketone, other than Materials, in Buyer Products. Buyer shall not sell, supply or otherwise make Materials available to third parties, except when incorporated into Buyer Products sold in the normal course of business.

        Buyer shall not make any alterations to the chemical structure of Materials, including, but not limited to the following: alteration of the bulk particle size; alteration by addition of extenders, colorants, or plasticizers; alteration by addition of additives that have a biological function; alteration by addition of any other additives not specifically mentioned herein; alteration to the molecular weight or chain branching; alteration to the solution of melt viscosity; or, alteration to the thermal stability or other thermal properties.

        Supplier shall be entitled to discontinue the supply of materials if Supplier has reasonable grounds for concluding (based on documentary evidence) that Buyer has acted or is acting in Breach of this Condition. Buyer shall have one month from the date of receipt of such notice to prove to Supplier's reasonable satisfaction that it has not acted or is not acting in breach of this Condition. If Buyer fails so to satisfy Supplier, Supplier shall be entitled to terminate this Agreement with immediate effect.

        Supplier and Buyer shall give each other prompt written notice after such party or any of its Affiliates becomes aware of any adverse facts or issues relating to the safety of efficacy of any Materials sold hereunder. It shall be Buyer's ultimate responsibility to determine the efficacy and safety of use of Materials for Buyer Products. Notwithstanding any other provision of this Agreement, in the event that Supplier reasonably believes that any adverse facts or issues relating to the safety or efficacy of the Materials may result in liability to Supplier, Supplier may, at its sole discretion, immediately terminate this Agreement. This condition shall survive termination of this Agreement.

         Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Company's application requesting confidential treatment under Rule 406 of the Securities Act. Asterisks denote omissions.


        3.     WARRANTY—Supplier warrants to Buyer that Materials when manufactured shall conform in all material respects to the Specification or Supply Manufacturing Definition (as the case may be) as then in effect. Supplier warrants, to its current knowledge and belief, that Materials do not infringe any patent right of any third party.

        EXCEPT FOR THE FOREGOING WARRANTIES, SUPPLIER MAKES NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, A WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE OR OF INTELLECTUAL PROPERTY NON-INFRINGEMENT, INCLUDING, BUT NOT LIMITED TO PATENT NON-INFRINGEMENT, AND ANY SUCH WARRANTIES WHETHER EXPRESS OR IMPLIED, IN FACT OR BY LAW, ARE EXPRESSLY DISCLAIMED AND SUPPLIER SHALL HAVE NO FURTHER OBLIGATION OR LIABILITY WITH RESPECT TO MATERIALS. SUPPLIER DOES NOT MAKE ANY WARRANTY TO BUYER'S CUSTOMERS OR AGENTS. SUPPLIER HAS NOT AUTHORIZED ANYONE TO MAKE ANY REPRESENTATION OR WARRANTY OTHER THAN AS PROVIDED ABOVE. SUPPLIER SHALL IN NO EVENT BE LIABLE FOR ANY GENERAL, INDIRECT, SPECIAL CONSEQUENTIAL, PUNITIVE, INCIDENTAL OR SIMILAR DAMAGES, INCLUDING WITHOUT LIMITATION, DAMAGES FOR HARM TO BUSINESS, LOST PROFITS OR LOST SAVINGS, EVEN IF SUPPLIER HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, REGARDLESS OF THE FORM OF ACTION.

        Notwithstanding anything to the contrary contained herein, if Buyer receives any Materials which do not generally conform to the Specification of Supply Manufacturing Definition (as the case may be) and Buyer notifies Supplier in writing of such failure within the time period provided in Condition 1, the Buyer's exclusive remedy shall be, and is limited to, the repayment of any applicable purchase price paid to Supplier for such Materials or at the option of Buyer, the provision of replacement Materials in like quantity as soon as reasonably practicable after receipt of written notice of such failure. Buyer's exclusive remedy and Supplier's sole liability under this warranty shall, in any event, be expressly limited under this Agreement. EXCEPT AS PROVIDED ABOVE, SUPPLIER SHALL NOT BE LIABLE TO BUYER FOR ANY DAMAGES UNDER THIS WARRANTY OR THIS AGREEMENT, INCLUDING, BUT NOT LIMITED TO, DAMAGES CONVERED IN THIS CONDITION ABOVE, FOR ANY CLAIM INVOLVING MATERIALS. This Condition shall survive termination of this Agreement.

        4.     BUYER INDEMNITY Buyer agrees to indemnify, defend and hold harmless Supplier and its Affiliates (including without limitation its and their directors, officers, employees, agents, representatives and shareholders) from and against any and all claims by any third party, including any claims, actions, suits, proceedings, liabilities, obligations, losses, damages (including any fines, penalties or punitive damages), settlement, interest, costs and expenses (including attorneys' fees, court costs and other reasonable out-of-pocket expenses incurred in investigating, preparing or defending any of the foregoing or in enforcing rights hereunder) resulting therefrom by reason of or in connection with or arising out of or relating to any sale, transfer, or use by any person of any Buyer Products or services sold or otherwise made available by Buyer or any related persons or entities (including without limitation any current or former direct or indirect Parent or Subsidiary or any Affiliate of associate thereof) in which Materials are incorporated or otherwise involved, except the extent arising or resulting from (i) any liability of Supplier, subject to the limitations provided in Condition 3, for the failure of the Stock Shape to conform with the Supply Manufacturing Definition where such failure is proved to be the actual and proximate cause off the claimed personal injury of property damage, or (ii) any liability of Supplier, subject to the limitations provided in Condition 3, for the failure of the Biomaterials to conform with the Specification where such failure is proved to be the actual and proximate cause of the claimed personal injury or property damage, or (iii) any liability of Supplier, subject to the limitations provided in Condition 3, for the infringement by Materials of the patents or other intellectual property rights of any person or entity other than Supplier, such patents and intellectual property rights limited to compositions and excluding any methods of manufacture or devices or use thereof. Any person or entity seeking indemnification hereunder must promptly notify Buyer with sixty (60) calendar days of the date of actual notice of any claim for which it seeks indemnification, provided that any such failure shall not relieve Buyer of its obligations hereunder except to the extent that Buyer is actually prejudiced by such failure to notify. In the event that Buyer

         Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Company's application requesting confidential treatment under Rule 406 of the Securities Act. Asterisks denote omissions.


shall be called upon to provide the indemnification set forth herein, Buyer shall control the defense, litigation and/or settlement of such claim (except to the extent that any settlement involves some commitments, responsibilities and/or obligations on the part of Supplier, in which case such settlement shall require the prior written consent of Supplier), action or proceeding with attorneys of its choosing, and Suppler and all other indemnified persons or entities shall cooperate as may reasonably be required by Buyer (but at Buyer's expense in such defense, litigation and/or settlement). Supplier reserves the right to participate at its own cost in any proceedings with counsel of its own choosing, provided that if Buyer fails to appoint suitably qualified counsel, Buyer shall be responsible for all attorney's fees and costs incurred by or charged to Supplier. Supplier, buyer and their respective counsel will cooperate fully and make available all books, records, information and witnesses under their control and reasonably necessary or useful in connection with the defense of any such claim. Buyer shall not, in the defense of any such claim or proceeding, except with the prior written consent of Supplier, consent to the entry of any judgment or enter into any settlement which would be to the financial or other detriment of Supplier. Buyer shall confer promptly with Supplier concerning the terms of any proposed settlement or judgment arising in the court of such defense prior to consenting to the entry of any judgment or entering into any settlement. Buyer shall use all reasonable efforts to prevent Supplier from being added as a defendant to any lawsuit involving or relating to Buyer Products, and to seek immediate dismissal or summary judgment of non-liability of Supplier for any lawsuit involving or relating to Buyer Products in which Supplier is a named defendant, by employing defense mechanisms including, but not limited to, those set forth in the Biomaterials Access Assurance Act of 1998, as codified in 21 U.S.C. § 1601 et seq., and the bulk suppler and/or learned intermediary doctrines. This Condition shall survive termination of this Agreement.

        5.     INSURANCE—Buyer shall maintain, during the entire term of its indemnification obligations hereunder, comprehensive liability insurance, including medical implant product liability coverage, in the minimum amounts of $5,000,000 per occurrence for damage, injury and/or death to persons (the " Insurance Policy "). Buyer shall provide Supplier with a certificate of insurance indicating the existence and coverage of the Insurance Policy, that all outstanding periodical premiums have been paid, and indicating that the coverage shall not be canceled nor modified unless at least thirty (30) calendar days prior written notice thereof has been provide to Supplier. Such certificate of insurance shall be provided on the Effective Date and on each anniversary thereof during the entire term of Buyer's indemnification obligations hereunder. In the event that the Insurance Policy is canceled, or modified such that it does not include all requirements of this Section, such cancellation or modification shall constitute a material default and Supplier shall have the right to immediately terminate this Agreement without prior written notice as otherwise required under Section 3.2. This condition shall survive termination of this Agreement.

        6.     INTELLECTUAL PROPERTY—All intellectual property (including, but not limited to patents, trade marks, service marks, rights in designs, copyrights, database rights (whether or not any of these is registered and including applications for registration of the foregoing) and all rights and forms of protection of a similar nature or which have equivalent or similar effect to any of the foregoing which may subsist anywhere in the world) rights in or to Materials which vest in Supplier or its Affiliates shall remain vested in Supplier or its Affiliates and buyer acknowledges that this Agreement does not operate to vest in Buyer and right, title or interest in or to any such rights, Buyer shall not at any time assert any rights in the goodwill attaching to any of Supplier's trademarks (including, without limitation, Supplier's "Invibio", "PEEK-OPTIMA" and "OPTIMA" trademarks, (the "Trademarks")) and all such rights shall vest in and ensure exclusively for the benefit of Supplier. If Buyer challenges the validity of Supplier's rights in or to, or the validity of any of the Trademarks (or any applications or registrations thereof) or any other intellectual property of Supplier, then Supplier shall be entitled to terminate this Agreement immediately. This Condition shall survive termination of this Agreement.

         Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Company's application requesting confidential treatment under Rule 406 of the Securities Act. Asterisks denote omissions.


        7.     FORCE MAJEURE—If Supplier is prevented, hindered or delayed from or in supplying Materials by an event or circumstance beyond the reasonable control of Supplier including, without limitation, strikes, lockouts, and other industrial disputes relating to Supplier's workforce, accidents, act of God, war, riot, civil commotion, malicious damage, compliance with a law or governmental order, rule, regulation or direction, reduction in or unavailability of power at manufacturing plant, breakdown of plant or machinery, or shortage or unavailability of raw materials from normal sources or routes of supple; Supplier may, at its option and without any liability for any loss or damage suffered by Buyer (a) suspend deliveries while the Force Majeure Event (or its effects) continues (or continue); or (b) terminate any order so affected with immediate effect by written notice to Buyer.

         Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Company's application requesting confidential treatment under Rule 406 of the Securities Act. Asterisks denote omissions.

        TRA 2142763v.1




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EXHIBIT D STANDARD CONDITIONS OF SALE