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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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20-2463898
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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Large accelerated filer
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o
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Accelerated filer
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x
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Non-accelerated filer
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o
(Do not check if a small reporting company)
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Smaller reporting company
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o
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Page
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Item 1.
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Item 2.
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Management's Discussion and Analysis of Financial Condition and Results of Operations
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Item 3.
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Item 4.
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Item 1.
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Item 1A.
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Item 2.
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Item 6.
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Item 1.
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Financial Statements
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September 30,
2014 |
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December 31,
2013 |
||||
Assets
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash
|
$
|
20,169
|
|
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$
|
21,345
|
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Restricted cash
|
2,001
|
|
|
—
|
|
||
Accounts receivable, net
|
40,053
|
|
|
41,395
|
|
||
Inventories, net
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41,986
|
|
|
41,939
|
|
||
Prepaid expenses and other current assets
|
7,230
|
|
|
7,694
|
|
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Deferred income tax assets
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1,273
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|
|
1,372
|
|
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Total current assets
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112,712
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|
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113,745
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|
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Property and equipment, net
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26,510
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|
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28,030
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|
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Goodwill
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175,089
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|
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183,004
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Intangibles, net
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32,428
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|
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39,064
|
|
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Other assets
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1,863
|
|
|
1,787
|
|
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Total assets
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$
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348,602
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|
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$
|
365,630
|
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Liabilities and Stockholders’ Equity
|
|
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|
||||
Current liabilities:
|
|
|
|
||||
Accounts payable
|
$
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11,333
|
|
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$
|
10,790
|
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Accrued expenses
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34,995
|
|
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62,996
|
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||
Deferred revenue
|
1,142
|
|
|
1,009
|
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||
Common stock warrant liabilities
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10,660
|
|
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—
|
|
||
Current portion of long-term debt
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8,042
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|
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4,924
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|
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Total current liabilities
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66,172
|
|
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79,719
|
|
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Long-term debt, less current portion
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70,617
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|
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49,978
|
|
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Other long-term liabilities
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32,965
|
|
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38,784
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|
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Deferred income tax liabilities
|
1,925
|
|
|
1,870
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|
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Redeemable preferred stock, $0.0001 par value; 20,000 authorized at September 30, 2014 and December 31, 2013; 3,319 shares issued and outstanding at both September 30, 2014 and December 31, 2013
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23,603
|
|
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23,603
|
|
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Stockholders’ equity:
|
|
|
|
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Common stock, $0.0001 par value; 200,000 authorized at September 30, 2014 and December 31, 2013; 98,203 and 97,599 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively
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10
|
|
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10
|
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Treasury stock, 19 shares
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(97
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)
|
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(97
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)
|
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Additional paid-in capital
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412,636
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|
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403,568
|
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Shareholder note receivable
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(5,000
|
)
|
|
—
|
|
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Accumulated other comprehensive (loss) income
|
(5,938
|
)
|
|
3,877
|
|
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Accumulated deficit
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(248,291
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)
|
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(235,682
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)
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Total stockholders’ equity
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153,320
|
|
|
171,676
|
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Total liabilities and stockholders’ equity
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$
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348,602
|
|
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$
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365,630
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|
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Three Months Ended
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Nine Months Ended
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||||||||||||
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September 30,
|
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September 30,
|
||||||||||||
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2014
|
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2013
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2014
|
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2013
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||||||||
Revenues
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$
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51,013
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|
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$
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50,196
|
|
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$
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153,353
|
|
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$
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151,659
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Cost of revenues
|
14,272
|
|
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25,532
|
|
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46,305
|
|
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61,303
|
|
||||
Amortization of acquired intangible assets
|
435
|
|
|
432
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|
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1,328
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|
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1,289
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||||
Gross profit
|
36,306
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24,232
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|
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105,720
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|
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89,067
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|
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Operating expenses:
|
|
|
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||||||||
Research and development
|
4,423
|
|
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3,028
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13,138
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|
|
10,376
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|
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In-process research and development
|
527
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|
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—
|
|
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527
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|
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—
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Sales and marketing
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18,649
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|
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18,149
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|
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56,545
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55,804
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||||
General and administrative
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10,213
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|
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11,443
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|
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33,676
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|
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34,018
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|
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Amortization of acquired intangible assets
|
742
|
|
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741
|
|
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2,257
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|
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2,255
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|
||||
Restructuring expenses
|
20
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|
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4,045
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|
706
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|
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4,045
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|
||||
Total operating expenses
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34,574
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|
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37,406
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|
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106,849
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|
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106,498
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|
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Operating income (loss)
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1,732
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|
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(13,174
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)
|
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(1,129
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)
|
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(17,431
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)
|
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Other income (expense):
|
|
|
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Interest income
|
2
|
|
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2
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|
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8
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|
|
4
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|
||||
Interest expense
|
(3,875
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)
|
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(1,048
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)
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(9,310
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)
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(2,670
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)
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Other income (expense), net
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(928
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)
|
|
210
|
|
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(1,230
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)
|
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(840
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)
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||||
Total other income (expense)
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(4,801
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)
|
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(836
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)
|
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(10,532
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)
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(3,506
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)
|
||||
Pretax net loss
|
(3,069
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)
|
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(14,010
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)
|
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(11,661
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)
|
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(20,937
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)
|
||||
Income tax (benefit) provision
|
(28
|
)
|
|
500
|
|
|
948
|
|
|
883
|
|
||||
Net loss
|
$
|
(3,041
|
)
|
|
$
|
(14,510
|
)
|
|
$
|
(12,609
|
)
|
|
$
|
(21,820
|
)
|
|
|
|
|
|
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|
||||||||
Net loss per basic share
|
$
|
(0.03
|
)
|
|
$
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(0.15
|
)
|
|
$
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(0.13
|
)
|
|
$
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(0.23
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)
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Net loss per diluted share
|
$
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(0.04
|
)
|
|
$
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(0.15
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)
|
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$
|
(0.13
|
)
|
|
$
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(0.23
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)
|
|
|
|
|
|
|
|
|
||||||||
Shares used in calculating basic net loss per share
|
97,391
|
|
|
96,381
|
|
|
97,040
|
|
|
96,046
|
|
||||
Shares used in calculating diluted net loss per share
|
98,329
|
|
|
96,381
|
|
|
97,258
|
|
|
96,046
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Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
Net loss
|
$
|
(3,041
|
)
|
|
$
|
(14,510
|
)
|
|
$
|
(12,609
|
)
|
|
$
|
(21,820
|
)
|
Foreign currency translation adjustments
|
(9,093
|
)
|
|
4,737
|
|
|
(9,815
|
)
|
|
1,970
|
|
||||
Comprehensive income (loss)
|
$
|
(12,134
|
)
|
|
$
|
(9,773
|
)
|
|
$
|
(22,424
|
)
|
|
$
|
(19,850
|
)
|
|
Nine Months Ended September 30,
|
||||||
|
2014
|
|
2013
|
||||
Operating activities:
|
|
|
|
||||
Net loss
|
$
|
(12,609
|
)
|
|
$
|
(21,820
|
)
|
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
|
|
|
|
||||
Depreciation and amortization
|
14,006
|
|
|
19,964
|
|
||
Stock-based compensation
|
3,641
|
|
|
2,832
|
|
||
Interest expense related to amortization of debt discount and debt issuance costs
|
4,354
|
|
|
285
|
|
||
Provision for doubtful accounts
|
443
|
|
|
225
|
|
||
Provision for excess and obsolete inventory
|
2,553
|
|
|
10,842
|
|
||
Deferred income tax expense (benefit)
|
338
|
|
|
(269
|
)
|
||
Non-cash in-process research and development expenses
|
102
|
|
|
—
|
|
||
Other non-cash items
|
2,655
|
|
|
1,252
|
|
||
Changes in operating assets and liabilities:
|
|
|
|
||||
Restricted cash
|
(2,001
|
)
|
|
—
|
|
||
Accounts receivable
|
373
|
|
|
(1,704
|
)
|
||
Inventories
|
(3,134
|
)
|
|
(4,720
|
)
|
||
Prepaid expenses and other current assets
|
4,143
|
|
|
1,627
|
|
||
Other assets
|
(202
|
)
|
|
57
|
|
||
Accounts payable
|
(261
|
)
|
|
(1,921
|
)
|
||
Accrued expenses and other
|
(34,684
|
)
|
|
172
|
|
||
Deferred revenues
|
(1
|
)
|
|
(153
|
)
|
||
Net cash (used in) provided by operating activities
|
(20,284
|
)
|
|
6,669
|
|
||
Investing activities:
|
|
|
|
||||
Purchases of property and equipment
|
(7,751
|
)
|
|
(10,975
|
)
|
||
Purchase of intangible assets
|
—
|
|
|
(750
|
)
|
||
Cash paid for acquisitions
|
—
|
|
|
(4,000
|
)
|
||
Cash received from sale of assets
|
300
|
|
|
—
|
|
||
Net cash used in investing activities
|
(7,451
|
)
|
|
(15,725
|
)
|
||
Financing activities:
|
|
|
|
||||
Borrowings under lines of credit
|
122,066
|
|
|
109,283
|
|
||
Repayments under lines of credit
|
(115,068
|
)
|
|
(130,017
|
)
|
||
Principal payments on capital lease obligations
|
(605
|
)
|
|
(1,705
|
)
|
||
Proceeds from notes payable
|
24,500
|
|
|
28,000
|
|
||
Principal payments on notes payable
|
(3,836
|
)
|
|
—
|
|
||
Net cash provided by financing activities
|
27,057
|
|
|
5,561
|
|
||
Effect of exchange rate changes on cash
|
(498
|
)
|
|
(92
|
)
|
||
Net decrease in cash
|
(1,176
|
)
|
|
(3,587
|
)
|
||
Cash at beginning of period
|
21,345
|
|
|
22,241
|
|
||
Cash at end of period
|
$
|
20,169
|
|
|
$
|
18,654
|
|
|
Nine Months Ended September 30,
|
||||||
|
2014
|
|
2013
|
||||
Supplemental disclosure of cash flow information:
|
|
|
|
||||
Cash paid for interest
|
$
|
4,074
|
|
|
$
|
2,759
|
|
Cash paid for income taxes
|
$
|
487
|
|
|
$
|
804
|
|
Purchases of property and equipment in accounts payable
|
$
|
2,217
|
|
|
$
|
2,087
|
|
Non-cash debt discount
|
$
|
500
|
|
|
$
|
—
|
|
Initial fair value of warrant liability
|
$
|
10,368
|
|
|
$
|
—
|
|
Purchase of property and equipment through capital lease
|
$
|
759
|
|
|
$
|
—
|
|
Level 1:
|
Observable inputs such as quoted prices in active markets;
|
Level 2:
|
Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
|
Level 3:
|
Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
|
|
Common Stock Warrant Liabilities
|
||
Balance at December 31, 2013
|
$
|
—
|
|
Issuance
|
10,368
|
|
|
Changes in fair value
|
292
|
|
|
Balance at September 30, 2014
|
$
|
10,660
|
|
|
September 30, 2014
|
|
December 31, 2013
|
||||
Accounts receivable
|
$
|
41,062
|
|
|
$
|
42,443
|
|
Allowance for doubtful accounts
|
(1,009
|
)
|
|
(1,048
|
)
|
||
Accounts receivable, net
|
$
|
40,053
|
|
|
$
|
41,395
|
|
|
September 30, 2014
|
|
December 31, 2013
|
||||||||||||||||||||
|
Gross
|
|
Reserve for
excess and
obsolete
|
|
Net
|
|
Gross
|
|
Reserve for
excess and
obsolete
|
|
Net
|
||||||||||||
Raw materials
|
$
|
4,526
|
|
|
$
|
—
|
|
|
$
|
4,526
|
|
|
$
|
4,375
|
|
|
$
|
—
|
|
|
$
|
4,375
|
|
Work-in-process
|
1,017
|
|
|
—
|
|
|
1,017
|
|
|
531
|
|
|
—
|
|
|
531
|
|
||||||
Finished goods
|
57,317
|
|
|
(20,874
|
)
|
|
36,443
|
|
|
60,979
|
|
|
(23,946
|
)
|
|
37,033
|
|
||||||
Inventories
|
$
|
62,860
|
|
|
$
|
(20,874
|
)
|
|
$
|
41,986
|
|
|
$
|
65,885
|
|
|
$
|
(23,946
|
)
|
|
$
|
41,939
|
|
|
Useful lives
(in years)
|
|
September 30, 2014
|
|
December 31, 2013
|
||||
Surgical instruments
|
4
|
|
$
|
63,019
|
|
|
$
|
62,636
|
|
Machinery and equipment
|
7
|
|
15,461
|
|
|
14,692
|
|
||
Computer equipment
|
3
|
|
3,193
|
|
|
3,357
|
|
||
Office furniture and equipment
|
5
|
|
3,823
|
|
|
3,703
|
|
||
Leasehold improvements
|
various
|
|
3,719
|
|
|
4,161
|
|
||
Building
|
39
|
|
72
|
|
|
52
|
|
||
Land
|
n/a
|
|
10
|
|
|
10
|
|
||
Construction in progress
|
n/a
|
|
1,016
|
|
|
1,228
|
|
||
|
|
|
90,313
|
|
|
89,839
|
|
||
Less accumulated depreciation and amortization
|
|
|
(63,803
|
)
|
|
(61,809
|
)
|
||
Property and equipment, net
|
|
|
$
|
26,510
|
|
|
$
|
28,030
|
|
|
Useful lives
(in years)
|
|
September 30, 2014
|
|
December 31, 2013
|
||||
Developed product technology
|
3-8
|
|
$
|
22,880
|
|
|
$
|
23,633
|
|
Distribution rights
|
3
|
|
2,270
|
|
|
2,343
|
|
||
Intellectual property
|
5
|
|
1,004
|
|
|
1,004
|
|
||
License agreements
|
1-7
|
|
16,716
|
|
|
17,686
|
|
||
Core technology
|
10
|
|
4,740
|
|
|
5,137
|
|
||
Trademarks and trade names
|
3-9
|
|
3,674
|
|
|
3,920
|
|
||
Customer-related
|
12-15
|
|
21,026
|
|
|
22,161
|
|
||
Distribution network
|
10-12
|
|
4,027
|
|
|
4,027
|
|
||
Physician education programs
|
10
|
|
2,916
|
|
|
3,160
|
|
||
Supply agreement
|
10
|
|
225
|
|
|
225
|
|
||
|
|
|
79,478
|
|
|
83,296
|
|
||
Less accumulated amortization
|
|
|
(47,050
|
)
|
|
(44,232
|
)
|
||
Intangible assets, net
|
|
|
$
|
32,428
|
|
|
$
|
39,064
|
|
|
September 30, 2014
|
|
December 31, 2013
|
||||
Legal
|
$
|
570
|
|
|
$
|
2,139
|
|
Accounting
|
949
|
|
|
928
|
|
||
Severance
|
459
|
|
|
297
|
|
||
Restructuring
|
730
|
|
|
9,170
|
|
||
Sales milestones
|
96
|
|
|
1,828
|
|
||
Accrued taxes
|
811
|
|
|
1,120
|
|
||
Deferred rent
|
884
|
|
|
1,163
|
|
||
Royalties
|
2,443
|
|
|
2,347
|
|
||
Commissions
|
5,275
|
|
|
6,180
|
|
||
Payroll and related
|
8,013
|
|
|
9,369
|
|
||
Litigation settlements
|
8,386
|
|
|
22,600
|
|
||
Accrued interest
|
887
|
|
|
416
|
|
||
Other
|
5,492
|
|
|
5,439
|
|
||
Total accrued expenses
|
$
|
34,995
|
|
|
$
|
62,996
|
|
|
|
||
Balance at December 31, 2013
|
$
|
183,004
|
|
Effect of foreign exchange rate on goodwill
|
(7,915
|
)
|
|
Balance at September 30, 2014
|
$
|
175,089
|
|
|
|
||
Year Ending December 31,
|
|
||
Remainder of 2014
|
$
|
2,018
|
|
2015
|
6,869
|
|
|
2016
|
54,894
|
|
|
2017
|
6,667
|
|
|
2018
|
6,667
|
|
|
Thereafter
|
6,666
|
|
|
Total
|
83,781
|
|
|
Add: capital lease principal payments
|
1,491
|
|
|
Less: debt discount
|
(6,613
|
)
|
|
Total
|
78,659
|
|
|
Less: current portion of long-term debt
|
(8,042
|
)
|
|
Long-term debt, net of current portion
|
$
|
70,617
|
|
Year Ending December 31,
|
Operating
|
|
Capital
|
||||
Remainder of 2014
|
$
|
877
|
|
|
$
|
181
|
|
2015
|
3,228
|
|
|
662
|
|
||
2016
|
1,827
|
|
|
623
|
|
||
2017
|
377
|
|
|
183
|
|
||
2018
|
68
|
|
|
—
|
|
||
Thereafter
|
4
|
|
|
—
|
|
||
|
$
|
6,381
|
|
|
1,649
|
|
|
Less: amount representing interest
|
|
|
(158
|
)
|
|||
Present value of minimum lease payments
|
|
|
1,491
|
|
|||
Current portion of capital leases
|
|
|
(586
|
)
|
|||
Capital leases, less current portion
|
|
|
$
|
905
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
Numerator:
|
|
|
|
|
|
|
|
||||||||
Net loss for basic earnings per share
|
$
|
(3,041
|
)
|
|
$
|
(14,510
|
)
|
|
$
|
(12,609
|
)
|
|
$
|
(21,820
|
)
|
Decrease in fair value of warrants
|
(513
|
)
|
|
—
|
|
|
(520
|
)
|
|
—
|
|
||||
Diluted net loss applicable to common stockholders
|
$
|
(3,554
|
)
|
|
$
|
(14,510
|
)
|
|
$
|
(13,129
|
)
|
|
$
|
(21,820
|
)
|
Denominator:
|
|
|
|
|
|
|
|
||||||||
Weighted average common shares outstanding
|
98,126
|
|
|
97,318
|
|
|
97,864
|
|
|
96,940
|
|
||||
Weighted average unvested common shares subject to repurchase
|
(735
|
)
|
|
(937
|
)
|
|
(824
|
)
|
|
(894
|
)
|
||||
Weighted average common shares outstanding—basic
|
97,391
|
|
|
96,381
|
|
|
97,040
|
|
|
96,046
|
|
||||
Effect of dilutive securities:
|
|
|
|
|
|
|
|
||||||||
Conversion of preferred stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Options
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Warrants
|
938
|
|
|
—
|
|
|
218
|
|
|
—
|
|
||||
Weighted average common shares outstanding—diluted
|
98,329
|
|
|
96,381
|
|
|
97,258
|
|
|
96,046
|
|
||||
Net loss per share:
|
|
|
|
|
|
|
|
||||||||
Basic
|
$
|
(0.03
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.23
|
)
|
Diluted
|
$
|
(0.04
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.23
|
)
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||
Options to purchase common stock
|
6,904
|
|
|
2,383
|
|
|
7,199
|
|
|
4,355
|
|
Unvested restricted share awards
|
735
|
|
|
937
|
|
|
824
|
|
|
894
|
|
Warrants to purchase common stock
|
594
|
|
|
594
|
|
|
6,844
|
|
|
594
|
|
Total
|
8,233
|
|
|
3,914
|
|
|
14,867
|
|
|
5,843
|
|
|
September 30, 2014
|
|
Risk-free interest rate
|
1.9
|
%
|
Dividend yield
|
—
|
%
|
Expected volatility
|
63
|
%
|
Expected life (years)
|
5.5
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
United States
|
$
|
34,808
|
|
|
$
|
33,696
|
|
|
$
|
101,376
|
|
|
$
|
99,249
|
|
International
|
16,205
|
|
|
16,500
|
|
|
51,977
|
|
|
52,410
|
|
||||
Total consolidated revenues
|
$
|
51,013
|
|
|
$
|
50,196
|
|
|
$
|
153,353
|
|
|
$
|
151,659
|
|
|
September 30,
2014 |
|
December 31,
2013 |
||||
United States
|
$
|
200,012
|
|
|
$
|
196,383
|
|
International
|
148,590
|
|
|
169,247
|
|
||
Total consolidated assets
|
$
|
348,602
|
|
|
$
|
365,630
|
|
|
Accrued Balance at
|
|
Expensed
|
|
Paid and
|
|
Accrued Balance at
|
|
Total Costs
|
||||||||||
|
December 31, 2013
|
|
September 30, 2014
|
|
Other
|
|
September 30, 2014
|
|
Incurred
|
||||||||||
Social plan costs
|
$
|
9,170
|
|
|
$
|
197
|
|
|
$
|
(8,637
|
)
|
|
$
|
730
|
|
|
$
|
9,450
|
|
Other restructuring costs
|
—
|
|
|
509
|
|
|
(509
|
)
|
|
—
|
|
|
921
|
|
|||||
Total
|
$
|
9,170
|
|
|
$
|
706
|
|
|
$
|
(9,146
|
)
|
|
$
|
730
|
|
|
$
|
10,371
|
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
Revenues
|
$
|
51,013
|
|
|
$
|
50,196
|
|
|
$
|
153,353
|
|
|
$
|
151,659
|
|
Cost of revenues
|
14,272
|
|
|
25,532
|
|
|
46,305
|
|
|
61,303
|
|
||||
Amortization of acquired intangible assets
|
435
|
|
|
432
|
|
|
1,328
|
|
|
1,289
|
|
||||
Gross profit
|
36,306
|
|
|
24,232
|
|
|
105,720
|
|
|
89,067
|
|
||||
Operating expenses:
|
|
|
|
|
|
|
|
||||||||
Research and development
|
4,423
|
|
|
3,028
|
|
|
13,138
|
|
|
10,376
|
|
||||
In-process research and development
|
527
|
|
|
—
|
|
|
527
|
|
|
—
|
|
||||
Sales and marketing
|
18,649
|
|
|
18,149
|
|
|
56,545
|
|
|
55,804
|
|
||||
General and administrative
|
10,213
|
|
|
11,443
|
|
|
33,676
|
|
|
34,018
|
|
||||
Amortization of acquired intangible assets
|
742
|
|
|
741
|
|
|
2,257
|
|
|
2,255
|
|
||||
Restructuring expense
|
20
|
|
|
4,045
|
|
|
706
|
|
|
4,045
|
|
||||
Total operating expenses
|
34,574
|
|
|
37,406
|
|
|
106,849
|
|
|
106,498
|
|
||||
Operating income (loss)
|
1,732
|
|
|
(13,174
|
)
|
|
(1,129
|
)
|
|
(17,431
|
)
|
||||
Other income (expense):
|
|
|
|
|
|
|
|
||||||||
Interest income
|
2
|
|
|
2
|
|
|
8
|
|
|
4
|
|
||||
Interest expense
|
(3,875
|
)
|
|
(1,048
|
)
|
|
(9,310
|
)
|
|
(2,670
|
)
|
||||
Other income (expense), net
|
(928
|
)
|
|
210
|
|
|
(1,230
|
)
|
|
(840
|
)
|
||||
Total other income (expense)
|
(4,801
|
)
|
|
(836
|
)
|
|
(10,532
|
)
|
|
(3,506
|
)
|
||||
Pretax net loss
|
(3,069
|
)
|
|
(14,010
|
)
|
|
(11,661
|
)
|
|
(20,937
|
)
|
||||
Income tax (benefit) provision
|
(28
|
)
|
|
500
|
|
|
948
|
|
|
883
|
|
||||
Net loss
|
$
|
(3,041
|
)
|
|
$
|
(14,510
|
)
|
|
$
|
(12,609
|
)
|
|
$
|
(21,820
|
)
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
Net loss
|
$
|
(3,041
|
)
|
|
$
|
(14,510
|
)
|
|
$
|
(12,609
|
)
|
|
$
|
(21,820
|
)
|
Stock-based compensation
|
1,502
|
|
|
853
|
|
|
3,641
|
|
|
2,832
|
|
||||
Depreciation
|
2,895
|
|
|
3,677
|
|
|
9,247
|
|
|
10,852
|
|
||||
Amortization of intangible assets
|
379
|
|
|
2,525
|
|
|
1,174
|
|
|
5,568
|
|
||||
Amortization of acquired intangible assets
|
1,177
|
|
|
1,173
|
|
|
3,585
|
|
|
3,544
|
|
||||
In-process research and development
|
527
|
|
|
—
|
|
|
527
|
|
|
—
|
|
||||
Interest expense, net
|
3,873
|
|
|
1,046
|
|
|
9,302
|
|
|
2,666
|
|
||||
Income tax (benefit) provision
|
(28
|
)
|
|
500
|
|
|
948
|
|
|
883
|
|
||||
Other income (expense), net
|
928
|
|
|
(210
|
)
|
|
1,230
|
|
|
840
|
|
||||
Restructuring and other expense
|
20
|
|
|
11,666
|
|
|
742
|
|
|
12,321
|
|
||||
Litigation expenses and trial costs
|
—
|
|
|
—
|
|
|
4,779
|
|
|
—
|
|
||||
Adjusted EBITDA
|
$
|
8,232
|
|
|
$
|
6,720
|
|
|
$
|
22,566
|
|
|
$
|
17,686
|
|
|
Payment Due by Year
|
||||||||||||||||||||||||||
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
Total
|
|
(3 months)
|
|
2015
|
|
2016
|
|
2017
|
|
2018
|
|
Thereafter
|
||||||||||||||
Amended Credit Facility with MidCap
|
$
|
61,828
|
|
|
$
|
1,402
|
|
|
$
|
5,609
|
|
|
$
|
54,817
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Credit Facility with Deerfield
|
20,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,667
|
|
|
6,667
|
|
|
6,666
|
|
|||||||
Interest expense
|
17,726
|
|
|
1,970
|
|
|
6,808
|
|
|
5,011
|
|
|
1,750
|
|
|
1,750
|
|
|
437
|
|
|||||||
Notes payable for software licenses
|
308
|
|
|
73
|
|
|
158
|
|
|
77
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Note payable for insurance premiums
|
1,645
|
|
|
543
|
|
|
1,102
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Capital lease obligations
|
1,649
|
|
|
181
|
|
|
662
|
|
|
623
|
|
|
183
|
|
|
—
|
|
|
—
|
|
|||||||
Operating lease obligations
|
6,381
|
|
|
877
|
|
|
3,228
|
|
|
1,827
|
|
|
377
|
|
|
68
|
|
|
4
|
|
|||||||
Litigation settlement obligations
|
44,333
|
|
|
2,100
|
|
|
7,400
|
|
|
4,400
|
|
|
4,400
|
|
|
4,400
|
|
|
21,633
|
|
|||||||
Minimum purchase commitments
|
33,770
|
|
|
4,520
|
|
|
5,850
|
|
|
5,850
|
|
|
5,850
|
|
|
5,850
|
|
|
5,850
|
|
|||||||
Guaranteed minimum royalty obligations
|
12,554
|
|
|
1,858
|
|
|
2,496
|
|
|
2,546
|
|
|
2,218
|
|
|
2,218
|
|
|
1,218
|
|
|||||||
New product development milestones (1)
|
200
|
|
|
—
|
|
|
—
|
|
|
200
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Total
|
$
|
200,394
|
|
|
$
|
13,524
|
|
|
$
|
33,313
|
|
|
$
|
75,351
|
|
|
$
|
21,445
|
|
|
$
|
20,953
|
|
|
$
|
35,808
|
|
(1)
|
This commitment represents payments in cash, and is subject to attaining certain sales milestones, development milestones such as U.S. Food and Drug Administration approval, product design and functionality testing requirements, which we believe are reasonably likely to be achieved in
2014
through 2016.
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
Cost of revenues
|
$
|
94
|
|
|
$
|
58
|
|
|
$
|
240
|
|
|
$
|
167
|
|
Research and development
|
699
|
|
|
48
|
|
|
1,809
|
|
|
136
|
|
||||
Sales and marketing
|
141
|
|
|
125
|
|
|
351
|
|
|
335
|
|
||||
General and administrative
|
568
|
|
|
622
|
|
|
1,241
|
|
|
2,194
|
|
||||
Total
|
$
|
1,502
|
|
|
$
|
853
|
|
|
$
|
3,641
|
|
|
$
|
2,832
|
|
Effect on basic and diluted net loss per share
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
•
|
our estimates regarding anticipated operating losses, future revenue, expenses, capital requirements, uses and sources of cash and liquidity, including our anticipated revenue growth and cost savings;
|
•
|
our ability to market, improve, grow, commercialize and achieve market acceptance of any of our products or any product candidates that we are developing or may develop in the future;
|
•
|
the effect of our strategy to streamline our organization and lower our costs, including the effect of the restructuring of our French operations, on the financial condition and operations of our business, and the timing of such effects;
|
•
|
our beliefs about the attractiveness of the features and benefits of our products;
|
•
|
our ability to successfully integrate, and realize benefits from acquisitions;
|
•
|
our ability to successfully achieve and maintain regulatory clearance or approval for our products in applicable jurisdictions and in a timely manner;
|
•
|
the effect of any existing or future federal, state or international regulations on our ability to effectively conduct our business;
|
•
|
our estimates of market sizes and anticipated uses of our products, including the market size of the aging spine market and our ability to successfully penetrate such market;
|
•
|
our business strategy and our underlying assumptions about market data, demographic trends, reimbursement trends, pricing trends, and trends relating to customer collections;
|
•
|
our ability to achieve profitability, and the potential need to raise additional funding;
|
•
|
our ability to maintain an adequate sales network for our products, including to attract and retain independent distributors;
|
•
|
our ability to enhance our U.S. and international sales networks and product penetration;
|
•
|
our ability to attract and retain a qualified management team, as well as other qualified personnel and advisors;
|
•
|
our ability to enter into licensing and business combination agreements with third parties and to successfully integrate the acquired technology and/or businesses;
|
•
|
our beliefs with respect to the attainment of sales milestones, development milestones, and product design and functionality testing requirements;
|
•
|
our management team’s ability to accommodate growth and manage a larger organization;
|
•
|
our ability to protect our intellectual property, and to not infringe upon the intellectual property of third parties;
|
•
|
our ability to maintain compliance with the quality requirements of the FDA and similar regulatory authorities outside of the U.S.;
|
•
|
our ability to meet the financial covenants under our credit facilities;
|
•
|
our ability to conclude that we have effective disclosure controls and procedures;
|
•
|
our ability to meet or exceed the industry standard in clinical and legal compliance and corporate governance programs;
|
•
|
potential liability resulting from litigation and its potential effects on our results of operations, cash flows and financial position;
|
•
|
potential liability resulting from a governmental review of our business practices;
|
•
|
our beliefs about the usefulness of the non-GAAP financial measures included in this Quarterly Report on Form 10-Q;
|
•
|
our ability to meet and potential liability from not meeting the payment obligations under either the Cross Medical or Orthotec settlements;
|
•
|
our beliefs with respect to our critical accounting policies and the reasonableness of our estimates and assumptions;
|
•
|
our expectations about the technological and commercial feasibility of our acquired in-process research and development assets and our plans in the event any such IPR&D assets are not technologically or commercially feasible; and
|
•
|
other factors discussed elsewhere in this Quarterly Report on Form 10-Q or any document incorporated by reference herein or therein.
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
Item 4.
|
Controls and Procedures
|
Item 1.
|
Legal Proceedings
|
Item 1A.
|
Risk Factors
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
Period
|
Total Number
of Shares
Purchased
|
|
Average Price
Paid per
Share
|
|
Total Number of
Shares Purchased
as part of Publicly
Announced Plans
or Programs
|
|
Maximum Number
of Shares That May
Yet Be Purchased
Under the Plans or
Programs
|
|||||
July 1, 2014 through July 31, 2014
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
August 1, 2014 through August 31, 2014
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
September 1, 2014 through September 30, 2014
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
Item 6.
|
Exhibits
|
Exhibit Number
|
Exhibit Description
|
|
|
10.1*
|
Amendment to the Alphatec Holdings, Inc. Amended and Restated 2005 Employee, Director and Consultant Stock Plan.
|
|
|
10.2*
|
Form of Performance-Based Restricted Unit Agreement issued under the Amended and Restated 2005 Employee, Director and Consultant Stock Plan, as amended.
|
|
|
10.3
|
Settlement and Release Agreement, dated as of August 13, 2014, by and among Alphatec Holdings, Inc. and its direct and indirect subsidiaries and affiliates, including Alphatec Spine, Inc. and its direct and indirect subsidiaries and affiliates, and Alphatec Holdings International C.V. and its direct and indirect subsidiaries and affiliates, including Scient'x S.A.S. and Surgiview S.A.S.; HealthpointCapital, LLC, HealthpointCapital Partners, L.P., HealthpointCapital Partners II, L.P., John H. Foster and Mortimer Berkowitz III; and Orthotec, LLC and Patrick Bertranou.
|
|
|
10.4†
|
Third Amendment to the Exclusive License Agreement dated August 1, 2014 between Alphatec Spine, Inc. and Stout Medical Group, L.P.
|
|
|
31.1
|
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
31.2
|
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
32
|
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
101
|
The following materials from the Alphatec Holdings, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets (Unaudited) as of September 30, 2014 and December 31, 2013, (ii) Condensed Consolidated Statements of Operations (Unaudited) for the three and nine months ended September 30, 2014 and 2013, (iii) Condensed Consolidated Statements of Comprehensive Loss (Unaudited) for the three and nine months ended September 30, 2014 and 2013, (iv) Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2014 and 2013, and (v) Notes to Condensed Consolidated Financial Statements (Unaudited).
|
†
|
Confidential treatment has been requested from the Securities and Exchange Commission as to certain portions of this document.
|
ALPHATEC HOLDINGS, INC.
|
|
|
|
By:
|
/s/ James M. Corbett
|
|
James M. Corbett
President and Chief Executive Officer
(principal executive officer)
|
|
|
By:
|
/s/ Michael O’Neill
|
|
Michael O’Neill
Chief Financial Officer, Vice President and Treasurer
(principal financial officer and principal accounting officer)
|
Exhibit Number
|
Exhibit Description
|
|
|
10.1*
|
Amendment to the Alphatec Holdings, Inc. Amended and Restated 2005 Employee, Director and Consultant Stock Plan.
|
|
|
10.2*
|
Form of Performance-Based Restricted Unit Agreement issued under the Amended and Restated 2005 Employee, Director and Consultant Stock Plan, as amended.
|
|
|
10.3
|
Settlement and Release Agreement, dated as of August 13, 2014, by and among Alphatec Holdings, Inc. and its direct and indirect subsidiaries and affiliates, including Alphatec Spine, Inc. and its direct and indirect subsidiaries and affiliates, and Alphatec Holdings International C.V. and its direct and indirect subsidiaries and affiliates, including Scient'x S.A.S. and Surgiview S.A.S.; HealthpointCapital, LLC, HealthpointCapital Partners, L.P., HealthpointCapital Partners II, L.P., John H. Foster and Mortimer Berkowitz III; and Orthotec, LLC and Patrick Bertranou.
|
|
|
10.4†
|
Third Amendment to the Exclusive License Agreement dated August 1, 2014 between Alphatec Spine, Inc. and Stout Medical Group, L.P.
|
|
|
31.1
|
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
31.2
|
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
32
|
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
101
|
The following materials from the Alphatec Holdings, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets (Unaudited) as of September 30, 2014 and December 31, 2013, (ii) Condensed Consolidated Statements of Operations (Unaudited) for the three and nine months ended September 30, 2014 and 2013, (iii) Condensed Consolidated Statements of Comprehensive Loss (Unaudited) for the three and nine months ended September 30, 2014 and 2013, (iv) Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2014 and 2013, and (v) Notes to Condensed Consolidated Financial Statements (Unaudited).
|
†
|
Confidential treatment has been requested from the Securities and Exchange Commission as to certain portions of this document.
|
1.
|
The definition of the term “Stock Grant” set forth in Paragraph 1 of the Plan is hereby deleted in its entirety and replaced with the following:
|
2.
|
The following new paragraph is hereby interested at the end of Paragraph 7 as a new subparagraph 7(d) of the Plan:
|
3.
|
Paragraph 10 of the Plan entitled “Rights as a Shareholder” is hereby deleted in its entirety and replaced with the following:
|
4.
|
The following sentence is hereby inserted at the end of Paragraph 22 of the Plan:
|
5.
|
The following new paragraph is hereby interested at the end of Paragraph 23 as a new subparagraph 23(e) of the Plan:
|
6.
|
Miscellaneous
. Except as specifically amended hereby, the Plan shall continue to remain in full force and effect as before this Amendment, and this Amendment shall be effective with respect to any issuances made under the Plan following the effective date of this Amendment.
|
ALPHATEC HOLDINGS, INC
.
|
|
|
|
By:
|
|
|
|
PARTICIPANT
:
|
|
|
|
|
|
1.
|
RECITALS
|
1.1.
|
The
Alphatec
Action.
OrthoTec filed a lawsuit against various parties in California on or about May 8, 2008, entitled
OrthoTec, LLC. v. Surgiview, S.A.S., Scient’x, S.A., Olivier Carli, Alain Tornier, Guy Viart, Healthpoint Capital, LLC, John Foster, Mortimer Berkowitz III
,
Case No. BC390346, in the Los Angeles Superior Court and added Alphatec Holdings as a party to that case on or about January 20, 2012 (hereafter, the “
Alphatec
Action”).
|
1.2.
|
The
Healthpoint
Action.
OrthoTec filed a lawsuit against various parties in New York on or about May 7, 2008, entitled
OrthoTec, LLC, v. Healthpoint Capital, LLC, John Foster and Mortimer Berkowitz, III
, Case No. 08601377, in the Supreme Court of New York and filed an amended complaint on or about May 13, 2009, naming as additional parties
Healthpoint Capital Partners, LP, HealthpointCapital Partners II, LP
and
Scient’x, S.A.
(hereafter, the “
Healthpoint
Action”).
|
1.3.
|
The
Carli
Action:
OrthoTec filed a lawsuit against Olivier Carli in California on or about January 22, 2014, entitled
OrthoTec, LLC v. Olivier Carli
, Case No. BC533849, in the Los Angeles Superior Court (hereafter, the “
Carli
Action.”).
|
1.4.
|
The
Weissberg
Action:
OrthoTec filed a lawsuit against Kenneth Weissberg in California on or about June 25, 2013, entitled
Patrick Bertranou v. Kenneth Weissberg and SELARL Weissberg
, Case No. BC513436, in the Los Angeles Superior Court (hereafter, the “
Weissberg
Action”).
|
1.5.
|
Claims asserted:
The complaints in the
Alphatec
,
Healthpoint
and
Carli
Actions purport to assert various claims, including allegations of fraudulent conveyance, interference with contract, and negligence, resulting in damage to OrthoTec’s business and a decrease in its value, and seek monetary damages as well as declaratory and injunctive relief relating to the production of plans for certain products. The complaint in the
Weissberg
Action purports to assert claims for malicious prosecution in connection with certain proceedings in France. As further provided below, this Agreement resolves all such claims and any other claims that could have been asserted against the Released Parties (defined below) based on facts or circumstances, known or unknown, occurring up to and including the
|
2.
|
PARTIES
|
2.1.
|
The parties to this Agreement are Alphatec, Healthpoint and OrthoTec.
|
(a)
|
Alphatec Parties:
The Alphatec Parties shall include Alphatec Holdings, Inc., acting for itself and for the benefit of all of its direct and indirect subsidiaries and affiliates, including Alphatec Spine, Inc. and its direct and indirect subsidiaries and affiliates; and Alphatec Holdings International C.V., and its direct and indirect subsidiaries and affiliates, including Scient’x S.A.S. and Surgiview S.A.S.
|
(b)
|
Healthpoint Parties:
The Healthpoint Parties shall include HealthpointCapital, LLC, John H. Foster and Mortimer Berkowitz III, acting on their own behalf and for the express benefit of Healthpoint Capital Partners, L.P. and HealthpointCapital Partners II, L.P.
|
(c)
|
OrthoTec Parties.
The OrthoTec Parties shall include OrthoTec, LLC and Patrick Bertranou.
|
3.
|
SETTLEMENT PAYMENT
|
3.1.
|
Alphatec Holdings, Inc. and Healthpoint Capital, LLC will cause the amounts specified in this Settlement and Release Agreement, as specifically set forth in
Attachment A
hereto, to be paid to OrthoTec, LLC.
|
4.
|
STIPULATED JUDGMENTS
|
4.1.
|
The payments set forth in
Attachment A
will be guaranteed by Stipulated Judgments against (i) Alphatec Holdings, Inc., (ii) HealthpointCapital Partners, L.P., HealthpointCapital Partners II, L.P., (iii) HealthpointCapital, LLC, and (iv) John H. Foster and Mortimer Berkowitz, III. The Stipulated Judgments will reflect the total amounts set forth in
Attachment A
and be in the form attached as Attachment B. The Stipulated Judgments will be held and entered only in the event of a default and will be entered and enforced against the judgment debtors in the order specified above. In the event of a default in the payment terms, OrthoTec’s sole remedy for such default will be to enter and pursue collection on the Stipulated Judgments for the principal and interest as set forth in Attachment A, less the amounts already paid, plus all reasonable attorneys’ fees and costs incurred in pursuing collection.
|
5.
|
DISMISSALS
|
5.1.
|
Upon payment of the lump-sum payment pursuant to
Attachment A
($15.75 million), the parties will execute and file dismissals with prejudice of the
Alphatec
Action, the
Healthpoint
Action, the
Carli
Action, and the
Weissberg
Action.
|
5.2.
|
Such notices of dismissal shall be delivered to counsel for Alphatec and Healthpoint upon execution.
|
6.
|
RELEASED PARTIES
|
6.1.
|
Defendant Released Parties
: The Defendant Released Parties shall mean:
|
(a)
|
Alphatec Released Parties
: The Alphatec Released Parties shall include:
|
(i)
|
Alphatec Holdings, Inc., and all of its direct and indirect subsidiaries throughout the world, including, without limitation, Alphatec Spine, Inc., Alphatec Pacific Inc., Alphatec Spine GmbH, Millerton Ltd., Japan Ortho Medical; Alphatec Holdings International CV, Cooperatie Alphatec Holdings Europa U.A., Alphatec International, LLC., Scient’x S.A.S., Cibramed Productos Medicos Ltda., Scient’x UK Ltd., Scient’x Australia, Scient’s USA, Inc., Scientx Asia Pacific, Scient’x Italia, Surgiview S.A.S., and each of their direct and indirect subsidiaries and affiliates.
|
(ii)
|
All current or former successors, partners, associates, officers, directors, employees, insurers, agents, advisors, attorneys (including, without limitation, Alphatec’s General Counsel Ebun Garner; Munger Tolles & Olson, LLP; Brad Brian; Mike Doyen; Susan Nash; Alissa Branham; Jordan Segall; DLA Piper; Jeff Rosenfeld; and Keara Gordon) and representatives of or for any of the Alphatec Entities. It is understood that such terms may vary from country to country, and this Agreement releases all claims against entities and individuals whose liability would be predicated on any action or inaction on their part that was in any manner connected to the individual or entity’s affiliation with one or more of the Alphatec Entities, or whose action or inaction could give rise to any liability (direct or indirect, whether by way of
respondeat superior
, indemnity, contribution, or any other basis) on the part of the Alphatec Released Parties.
|
(b)
|
Healthpoint Released Parties:
The Healthpoint Released Parties shall include
|
(i)
|
HealthpointCapital, LLC; HealthpointCapital Partners, L.P.; HealthpointCapital Partners II, L.P.; Healthpoint Partners II-A, L.P.; HCM, LLC; HGP, LLC; HGPII, LLC; John H. Foster and Mortimer Berkowitz, III.
|
(ii)
|
All current or former successors, affiliates, members, subsidiaries, partners, associates, officers, directors, employees, insurers, agents, advisors, attorneys (including, without limitation, Mintz Levin Cohn Ferris Glovsky and Popeo; and Stephen C. Curley) and representatives (and each of their respective predecessors, successors, assigns, and, as applicable, heirs) throughout the world of or for any of the Healthpoint Parties. It is understood that such terms may vary from country to country, and this Agreement releases all claims against individuals or entities whose liability would be predicated on any action or inaction on their part that was in any manner connected to the individual or entity’s affiliation with one or more of the Healthpoint Parties, or whose action or inaction could give rise to any liability (direct or indirect, whether by way of
respondeat superior
, indemnity, contribution, or any other basis) of the Healthpoint Released Parties.
|
(c)
|
The Carli Released Parties:
The Carli Released Parties shall include Olivier Carli, members of his family, heirs, advisors, attorneys (including, without limitation, Berenthal & Associates; James Berenthal; Kendall Brill & Klieger LLP; Bert Deixler; and Jean Charles Bensussan) and representatives of Mr. Carli or his family, and any person or entity with which Mr. Carli has or has had or may in the future have an affiliation of any sort, including without limitation ownership (direct or indirect) or serving as an officer, director, advisor, or employee of any sort.
|
(d)
|
The Weissberg Released Parties.
The Weissberg Released Parties shall include Kenneth Weissberg and SELARL Weissberg and their partners, associates, officers, directors, employees, successors, affiliates, heirs, advisors, attorneys (including, without limitation, Daar & Newman) and representatives, and any other person or entity allegedly involved in any matter with the French proceedings at issue in the Weissberg Action or the Weissberg Action.
|
(e)
|
The OrthoTec Released Parties:
The OrthoTec Released Parties shall include OrthoTec, LLC, Patrick Bertranou, and all current or former members, successors, partners, associates, officers, directors, employees, insurers, agents, advisors, attorneys (including without limitation Browne George Ross LLP, Peter Ross, Benjamin Scheibe, Gerard Soussan, Michael Perry, and the Law Offices of Michael Perry) and all representatives of or for OrthoTec. It is understood that such terms may vary from country to country, and this Agreement releases all claims against individuals or entities whose liability would be predicated on any
|
7.
|
RELEASES
|
7.1.
|
Release by Alphatec and Healthpoint of OrthoTec Released Parties.
|
(a)
|
Except as expressly set forth in this Agreement, Alphatec and Healthpoint hereby release, effective as of the date of this Agreement, the OrthoTec Released Parties, and each of them, from any and all claims, demands, and causes of action, whether known or unknown, in contract or tort, arising out of or incurred in connection with any facts or circumstances existing prior to the date of this Agreement.
|
(b)
|
By way of limitation, it is agreed that as to Alphatec’s and Healthpoint’s release of unnamed current or former associates, outside insurers, agents, advisors, attorneys, and representatives, Alphatec’s and Healthpoint’s release shall be of claims, demands, or causes of action that related in any way to the claims or allegations in the
Alphatec
Action, the
Healthpoint
Action, the
Carli
Action, and the
Weissberg
Action. For clarity, releases of such unnamed persons or entities shall not include unknown claims. For the purpose of this Section 7.1(b), “unknown” shall be defined as not known as per the knowledge of the Alphatec Parties or Healthpoint Parties, including their officers and employees; provided that if a reasonable person in the position of the Alphatec Parties or the Healthpoint Parties should know such information, such information shall not be deemed to be unknown.
|
7.2.
|
Release by OrthoTec of the Alphatec Released Parties, the Healthpoint Released Parties, the Carli Released Parties and the Weissberg Released Parties.
|
(a)
|
Except as expressly set forth in this Agreement, OrthoTec hereby releases, effective as of the time of this Agreement, the Alphatec Released Parties, the Healthpoint Released Parties, the Carli Released Parties and the Weissberg Released Parties and each of them, from any and all claims, demands, and causes of action, whether known or unknown, in contract or in tort, arising out of or incurred in connection with any action, conduct, or omission or other facts or circumstance existing or occurring from the beginning of time up to the date of this Agreement, including, without limitation, the allegations made or that could have been made in the
Alphatec
Action, the
Healthpoint
Action, the
Carli
Action, and the
Weissberg
action.
|
(b)
|
By way of limitation, it is agreed that as to OrthoTec’s release of unnamed affiliates, associates, outside insurers, agents, advisors, attorneys, and representatives, OrthoTec’s release shall be of claims, demands, or causes of
|
7.3.
|
Waiver of Civil Code Section 1542.
|
(a)
|
Alphatec, Healthpoint and OrthoTec, and each of them, expressly understand that there may be unknown or unanticipated damages, injuries, or losses resulting from conduct, acts, omissions or other circumstances occurring prior to the date of this Agreement, including matters alleged in (or related to) the
Alphatec
Action, the
Healthpoint
Action, the
Carli
Action, and the
Weissberg
action, and that such damages, injuries, and losses may not be discovered until after execution of this Agreement or after the time of this Agreement. Except as expressly set forth in this Agreement, Alphatec, Healthpoint and OrthoTec, and each of them, hereby expressly agree that the releases contained herein nevertheless shall apply to all such unknown or unanticipated damages, injuries or losses. Alphatec, Healthpoint and OrthoTec, and each of them, further expressly understand that a damage, injury or loss of which they are now aware may be more serious than now known or understood, or may have future consequences that are not now anticipated or suspected. Except as expressly set forth in this Agreement, Alphatec, Healthpoint and OrthoTec, hereby expressly agree that the releases contained herein nevertheless shall apply to such unknown or unanticipated consequences.
|
(b)
|
Alphatec, Healthpoint and OrthoTec, and each of them, have read California Civil Code section 1542, which provides as follows:
|
(c)
|
Except as expressly limited in this Agreement, Alphatec, Healthpoint and OrthoTec, and each of them, acknowledge that they understand this statute, and expressly waive any and all rights and benefits of California Civil Code section 1542, as well as all rights and benefits of any similar law of any other jurisdiction for unknown or unanticipated damages, injuries, or losses arising out of conduct, acts, omissions or other circumstances occurring prior to the date of this Agreement, including matters alleged in or related to the
Alphatec
Action, the
Healthpoint
Action, the
Carli
Action and/or the
Weissberg
Action.
|
8.
|
NO ADMISSION OF LIABILITY
|
8.1.
|
Alphatec Holdings, Healthpoint Capital, Healthpoint Capital Partners, LP, Healthpoint Capital Partners II, LP, John H. Foster, and Mortimer Berkowitz, III deny any and all allegations made by OrthoTec in the above-referenced actions. This Agreement contains no admission of liability.
|
9.
|
CONTINUING JURISDICTION OVER SETTLEMENT
|
9.1.
|
The Superior Court of Los Angeles and the Supreme Court of New York retain such jurisdiction as they have previously determined they have over the respective parties to California and New York Courts, in order to enforce the settlement in this Agreement, pursuant to California Code of Civil Procedure Section 664.6 and any New York laws of similar effect.
|
10.
|
ENTIRE AGREEMENT AND MODIFICATION
|
10.1.
|
This Agreement, together with the provisions in Attachments A and B hereto, constitutes the full and complete agreement between the Parties regarding the matters set forth herein. Except for the “Agreement Regarding the Production of Certain Plans,” dated March 15, 2014, which shall remain in full force and effect, this Agreement supersedes all prior or contemporaneous oral or written agreements and understandings, including the Binding Term Sheet. There are no representations, warranties, agreements or undertakings, oral or written, between the Parties relating to the subject matter of this Agreement, which are not fully expressed herein. This Agreement may only be amended in writing, signed by all Parties.
|
10.2.
|
Any waiver of any part of this Agreement must be in writing and duly executed by the Party against whom such waiver is asserted.
|
10.3.
|
Neither OrthoTec, Alphatec, nor Healthpoint are entering into this Agreement in reliance, in whole or in part, based on any representation, warranty, statement or promise of any kind outside the express terms of this Agreement.
|
11.
|
NO ASSIGNMENT OR TRANSFER OF CLAIMS
|
11.1.
|
Each Party hereby represents and warrants to each other Party that it is the sole and lawful owner of all right, title, and interest in and to every claim which is being released by such Party in this Agreement, and each further represents and warrants that it has not assigned or transferred, or purported to assign or transfer, and will not assign or transfer to any person or entity, any claim which is being released by such Party in this Agreement. OrthoTec represents and warrants that neither it, nor any OrthoTec Released Party, has asserted claims relating to the subject matter of the
Alphatec
Action, the
Healthpoint
Action, the
Carli
Action or the
Weissberg
Action.
|
12.
|
AUTHORITY TO ENTER AGREEMENT
|
12.1.
|
Each of the signatories to this Agreement warrants and represents that he or she is authorized to execute and deliver this Agreement on behalf of the party for whom he or she purports to sign.
|
13.
|
JOINT PARTICIPATION IN PREPARATION OF AGREEMENT
|
13.1.
|
This Agreement is the product of arms-length negotiations between and among the Parties, and no Party shall be deemed to be the drafter of this Agreement, nor shall any part of this Agreement be construed against any Party on the basis of that Party’s identity as a drafter of any portion of this Agreement.
|
14.
|
SECTION HEADINGS
|
14.1.
|
Section headings in this Agreement are included for convenience of reference only and shall not be a part of this Agreement or its interpretation for any other purpose.
|
15.
|
GOVERNING LAW
|
15.1.
|
This Agreement is entered into in the State of California and will be governed and interpreted under the laws of California. Any action to enforce this Agreement will be brought in the Los Angeles County Superior Court (if the dispute is between OrthoTec, on the one hand, and Alphatec Holdings, on the other) or in the Supreme Court of New York (if the dispute is between OrthoTec, on the one hand, and Healthpoint Capital LLC, John H. Foster, and/or Mortimer Berkowitz III on the other).
|
16.
|
SEVERABILITY
|
16.1.
|
If any provision or term of this Agreement is declared or determined by a court of competent jurisdiction to be invalid or unenforceable, then in all other respects this Agreement shall nonetheless remain binding and in effect.
|
17.
|
COUNTERPARTS
|
17.1.
|
This Agreement may be executed in counterparts, and so executed, shall constitute a single agreement binding on all Parties, notwithstanding that the signatures of all Parties’ designated representatives do not necessarily appear on the same page.
|
Dated: _________________________
|
MUNGER, TOLLES & OLSON LLP,
Counsel for Alphatec
/s/ Susan Nash
By: Susan Nash
|
Dated: _________________________
|
MINTZ LEVIN COHN FERRIS GLOVSKY AND POPEO PC,
Counsel for Healthpoint
/s/ Stephen Curley
By: Stephen Curley
|
Dated: _________________________
|
BROWNE GEORGE ROSS LLP
Counsel for OrthoTec
/s/ Peter Ross
By: Peter W. Ross
|
1.
|
ATTACHMENT PART OF BINDING TERM SHEET
|
1.1.
|
Reference is herein made to that certain Binding Term Sheet (the “Agreement”) by and among the Alphatec Holdings, Inc., the Healthpoint Parties, and the OrthoTec Parties (each as defined in the Agreement).
|
2.
|
PAYMENT TERMS
|
2.1.
|
Alphatec shall pay to OrthoTec the following sums:
|
2.2.
|
Lump sum payment: By March 24, 2014, Alphatec shall make a payment of $1 million ($1,000,000.00) and by March 31 will pay an additional $750,000.00. Within 25 days of Alphatec closing a suitable credit facility, but in no event later than June 15, 2014, Alphatec shall pay $15.75 million ($15,750,000.00).
|
2.3.
|
Quarterly payments: $31.5 million ($31,500,000.00) payable in 29 quarterly installments of $1.1 million and then one additional quarterly payment of $600,000.00. Each such quarterly payment shall be due on the first day of the quarter, commencing October 1, 2014.
|
2.4.
|
Interest: Simple Interest of 7% will accrue beginning May 15, 2014, on the unpaid balance of the $31.5 million ($31,500,000.00) until such amount has been paid in full. Following the full payment of the $31.5 million ($31,500.000.00), the accrued interest will be paid in quarterly installments of $1.1 million ($1,100,000.00) until the accrued interest amount is paid (for clarity, it is understood that the final quarterly payment of interest may be less than $1.1 million ($1,100,00.00), but shall be sufficient to pay the accrued interest in full). No interest shall accrue on the accrued interest. In the event that $31.5 million ($31,500,000.00) is prepaid, interest shall not accrue on such prepaid amount.
|
Calendar Quarter Ending
|
Royalty Payments
|
September 30, 2014
|
[***]
|
December 31, 2014
|
[***]
|
March 31, 2015
|
[***]
|
June 30, 2015
|
[***]
|
September 30, 2015
|
[***]
|
December 31, 2015
|
[***]
|
March 31, 2016
|
[***]
|
June 30, 2016
|
[***]
|
September 30, 2016
|
[***]
|
December 31, 2016
|
[***]
|
Period Ending
|
Minimum Six-Month Royalty
|
June 30, 2017
|
[***]
|
December 31, 2017
|
[***]
|
June 30, 2018
|
[***]
|
December 31, 2018
|
[***]
|
June 30, 2019
|
[***]
|
December 31, 2019
|
[***]
|
June 30, 2020, and each six-month period thereafter
|
[***]
|
ALPHATEC SPINE, INC.
|
STOUT MEDICAL GROUP, LP:
|
By:
|
/s/ James M. Corbett
|
|
James M. Corbett
President and Chief Executive Officer (principal executive officer)
|
|
October 30, 2014
|
By:
|
/s/ Michael O’Neill
|
|
Michael O’Neill
Chief Financial Officer, Vice President and Treasurer
(principal financial officer)
|
|
October 30, 2014
|
1.
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
2.
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Dated:
|
October 30, 2014
|
/s/ James M. Corbett
|
|
|
James M. Corbett
President and Chief Executive Officer
(principal executive officer)
|
1.
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
2.
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Dated:
|
October 30, 2014
|
/s/ Michael O’Neill
|
|
|
Michael O’Neill
Chief Financial Officer, Vice President and Treasurer
(principal financial officer and principal accounting officer of the Company)
|