UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2017
OR
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 000-52024
ALPHATEC HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware |
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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.) |
5818 El Camino Real
Carlsbad, CA 92008
(Address of principal executive offices, including zip code)
(760) 431-9286
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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(Do not check if a small reporting company) |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒ As of May 10, 2017, there were 10,857,733 shares of the registrant’s common stock outstanding.
QUARTERLY REPORT ON FORM 10-Q
March 31, 2017
Table of Contents
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Page |
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Item 1. |
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3 |
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Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 201 6 |
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3 |
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Condensed Consolidated Statements of Operations for the three months ended
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4 |
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5 |
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Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2017
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6 |
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8 |
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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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22 |
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Item 3. |
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32 |
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Item 4. |
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33 |
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Item 1. |
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34 |
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Item 1A. |
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34 |
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Item 2. |
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34 |
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Item 6. |
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35 |
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36 |
2
PART I. FINANCI AL INFORMATION
ALPHATEC HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands, except for par value data)
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March 31, 2017 |
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December 31, 2016 |
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Assets |
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Current assets: |
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Cash |
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$ |
25,485 |
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$ |
19,593 |
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Accounts receivable, net |
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14,212 |
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18,512 |
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Inventories, net |
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30,088 |
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30,093 |
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Prepaid expenses and other current assets |
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2,451 |
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4,262 |
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Current assets of discontinued operations |
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170 |
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364 |
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Total current assets |
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72,406 |
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72,824 |
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Property and equipment, net |
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15,408 |
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15,076 |
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Intangible assets, net |
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5,477 |
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5,711 |
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Other assets |
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222 |
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516 |
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Noncurrent assets of discontinued operations |
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58 |
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61 |
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Total assets |
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$ |
93,571 |
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$ |
94,188 |
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Liabilities and Stockholders’ Deficit |
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Current liabilities: |
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Accounts payable |
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$ |
4,245 |
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$ |
8,701 |
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Accrued expenses |
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26,173 |
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27,589 |
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Current portion of long-term debt |
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2,616 |
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3,113 |
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Current liabilities of discontinued operations |
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293 |
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732 |
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Total current liabilities |
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33,327 |
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40,135 |
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Long-term debt, less current portion |
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40,017 |
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43,092 |
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Other long-term liabilities |
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25,757 |
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28,862 |
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Redeemable preferred stock, $0.0001 par value; 20,000 authorized at March 31, 2017 and December 31, 2016; 3,319 shares issued and outstanding at both March 31, 2017 and December 31, 2016 |
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23,603 |
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23,603 |
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Commitments and contingencies |
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Stockholders’ deficit: |
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Series A convertible preferred stock, $0.0001 par value; 15 authorized at March 31, 2017 and December 31, 2016; 15 and 0 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively |
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— |
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— |
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Common stock, $0.0001 par value; 200,000 authorized at March 31, 2017 and December 31, 2016; 10,858 and 9,049 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively |
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1 |
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1 |
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Treasury stock, at cost, 2 shares, at both March 31, 2017 and December 31, 2016 |
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(97 |
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(97 |
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Additional paid-in capital |
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437,483 |
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419,787 |
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Shareholder note receivable |
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(5,000 |
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(5,000 |
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Accumulated other comprehensive income |
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1,160 |
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970 |
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Accumulated deficit |
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(462,680 |
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(457,165 |
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Total stockholders’ deficit |
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(29,133 |
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(41,504 |
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Total liabilities and stockholders’ deficit |
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$ |
93,571 |
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$ |
94,188 |
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See accompanying notes to unaudited condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share amounts)
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Three Months Ended |
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March 31, |
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2017 |
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2016 |
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Revenues |
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$ |
27,978 |
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$ |
34,206 |
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Cost of revenues |
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11,199 |
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9,719 |
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Gross profit |
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16,779 |
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24,487 |
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Operating expenses: |
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Research and development |
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1,449 |
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3,641 |
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Sales and marketing |
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11,103 |
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14,940 |
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General and administrative |
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6,223 |
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9,004 |
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Amortization of intangible assets |
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172 |
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255 |
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Restructuring expenses |
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1,231 |
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89 |
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Total operating expenses |
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20,178 |
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27,929 |
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Operating loss |
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(3,399 |
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(3,442 |
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Other income (expense): |
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Interest expense, net |
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(1,981 |
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(981 |
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Other income (expense), net |
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5 |
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198 |
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Total other income (expense) |
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(1,976 |
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(783 |
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Loss from continuing operations before taxes |
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(5,375 |
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(4,225 |
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Income tax provision |
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49 |
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23 |
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Loss from continuing operations |
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(5,424 |
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(4,248 |
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Loss from discontinued operations, net of applicable taxes |
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(91 |
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(2,369 |
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Net loss |
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$ |
(5,515 |
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$ |
(6,617 |
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Net loss per share, basic and diluted: |
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Continuing operations |
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$ |
(0.60 |
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$ |
(0.50 |
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Discontinued operations |
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(0.01 |
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(0.28 |
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Net loss per share, basic and diluted |
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$ |
(0.61 |
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$ |
(0.78 |
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Shares used in calculating basic and diluted net loss per share |
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9,005 |
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8,466 |
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See accompanying notes to unaudited condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
(In thousands)
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Three Months Ended |
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March 31, |
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2017 |
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2016 |
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Net loss |
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$ |
(5,515 |
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$ |
(6,617 |
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Foreign currency translation adjustments related to continuing operations |
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190 |
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792 |
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Comprehensive loss |
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$ |
(5,325 |
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$ |
(5,825 |
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See accompanying notes to unaudited condensed consolidated financial statements.
5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
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Three Months Ended March 31, |
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2017 |
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2016 |
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Operating activities: |
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Net loss |
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$ |
(5,515 |
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$ |
(6,617 |
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Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |
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Depreciation and amortization |
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1,868 |
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3,884 |
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Stock-based compensation |
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516 |
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58 |
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Interest expense related to amortization of debt discount and debt issuance costs |
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717 |
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1,432 |
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Provision for doubtful accounts |
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12 |
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195 |
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Provision for excess and obsolete inventory |
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306 |
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645 |
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Deferred income tax expense |
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— |
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(76 |
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Other non-cash items |
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994 |
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(12 |
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Changes in operating assets and liabilities: |
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Restricted cash |
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— |
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1,100 |
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Accounts receivable |
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4,356 |
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(597 |
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Inventories |
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(254 |
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(3,048 |
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Prepaid expenses and other current assets |
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1,958 |
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889 |
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Other assets |
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291 |
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(20 |
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Accounts payable |
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(5,433 |
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2,904 |
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Accrued expenses and other |
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(5,867 |
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(527 |
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Net cash (used in) provided by operating activities |
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(6,051 |
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210 |
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Investing activities: |
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Purchases of property and equipment |
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(1,977 |
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(1,686 |
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Cash received from sale of assets |
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— |
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516 |
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Net cash used in investing activities |
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(1,977 |
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(1,170 |
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Financing activities: |
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Borrowings under lines of credit |
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24,195 |
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34,879 |
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Repayments under lines of credit |
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(26,426 |
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(33,878 |
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Principal payments on capital lease obligations |
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(159 |
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(198 |
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Proceeds from sale of stock |
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17,472 |
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— |
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Principal payments on notes payable and term loan |
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(1,325 |
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(2,340 |
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Net cash provided by (used in) financing activities |
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13,757 |
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(1,537 |
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Effect of exchange rate changes on cash |
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96 |
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(971 |
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Net increase (decrease) in cash |
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5,825 |
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(3,468 |
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Cash at beginning of period, including discontinued operations |
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19,752 |
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11,229 |
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Cash at end of period, including discontinued operations |
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$ |
25,577 |
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$ |
7,761 |
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See accompanying notes to unaudited condensed consolidated financial statements.
6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)
(UNAUDITED)
(In thousands)
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Three Months Ended March 31, |
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2017 |
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2016 |
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Supplemental disclosure of cash flow information: |
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Cash paid for interest |
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$ |
1,277 |
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$ |
1,918 |
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Cash paid for income taxes |
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$ |
198 |
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$ |
646 |
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Purchases of property and equipment in accounts payable |
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$ |
3,650 |
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$ |
4,495 |
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See accompanying notes to unaudited condensed consolidated financial statements.
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The Company and Basis of Presentation
The Company
Alphatec Holdings, Inc. (the “Company”), through its wholly owned subsidiary, Alphatec Spine, Inc. and its subsidiaries (“Alphatec Spine”), is a medical technology company focused on the design, development and promotion of products for the surgical treatment of spine disorders. The Company has a comprehensive product portfolio and pipeline that addresses the cervical, thoracolumbar and intervertebral regions of the spine and covers a variety of spinal disorders and surgical procedures. The Company’s principal product offerings are focused on the U.S. market for fusion-based spinal disorder solutions.
Prior to September 1, 2016, the Company marketed its products in the U.S. market and in over 50 international markets through the distribution channels of Alphatec Spine and its affiliate, Scient’x S.A.S., and its subsidiaries (“Scient’x”), via a direct sales force in Italy and the United Kingdom and via independent distributors in the rest of Europe, the Middle East and Africa. In South America and Latin America, the Company conducted its operations through its Brazilian subsidiary, Cibramed Productos Medicos. In Japan, the Company marketed its products through its subsidiary, Alphatec Pacific, Inc. and its subsidiaries.
On September 1, 2016, the Company completed the sale of its international distribution operations and agreements to Globus Medical Ireland, Ltd., a subsidiary of Globus Medical, Inc., and its affiliated entities (collectively “Globus”), including the Company’s wholly-owned subsidiaries in Japan, Brazil, Australia and Singapore and substantially all of the assets of the Company’s other sales operations in the United Kingdom and Italy (collectively, the “International Business”), pursuant to a purchase and sale agreement, dated as of July 25, 2016 (as amended, the “Purchase and Sale Agreement”) (the “Globus Transaction”). As a result of the Globus Transaction, the Company's International Business has been excluded from continuing operations for all periods presented in this report and is reported as discontinued operations. See Note 4 for additional information on the divestiture of the International Business. The Company operates in one reportable business segment. The sale of the international operations represents a strategic shift and has a significant impact on the Company's operations and financial results.
Basis of Presentation
The accompanying condensed consolidated balance sheet as of December 31, 2016, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) related to a quarterly report on Form 10-Q. Certain information and note disclosures normally included in annual audited financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made in this quarterly report on Form 10-Q are adequate to make the information not misleading. The interim unaudited condensed consolidated financial statements reflect all adjustments, including normal recurring adjustments which, in the opinion of management, are necessary for a fair statement of the financial position and results of operations for the periods presented. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2016, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 that was filed with the SEC on March 31, 2017.
Operating results for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017, or any other future periods.
On August 24, 2016, the Company filed a certificate of amendment to its certificate of incorporation with the Secretary of State of the state of Delaware to effectuate a 1-for-12 reverse stock split of the Company’s issued and outstanding common stock. The accompanying condensed consolidated financial statements and notes thereto give retrospective effect to the reverse stock split for all periods presented. All issued and outstanding common stock, options exercisable for common stock, warrants exercisable for common stock, restricted stock units, and per share amounts contained in the Company’s condensed consolidated financial statements have been retroactively adjusted to reflect this reverse stock split for all periods presented.
8
As a result of the sale of the International Business, the Company has retrospectively revised the consolidated statements of operations for the three months ended March 31, 2016, to reflect the financial results from the International Business, and the related assets and liabilities, as discontinued operations.
The Company’s Board approved annual operating plan projects that its existing working capital at March 31, 2017 of $39.1 million (including cash of $25.5 million), allows the Company to fund its operations through one year subsequent to the date the financial statements are issued.
The Company has incurred significant net losses since inception and has relied on its ability to fund its operations through revenues from the sale of its products, equity financings and debt financings. As the Company has historically incurred losses, successful transition to profitability is dependent upon achieving a level of revenues adequate to support the Company’s cost structure. This may not occur and, unless and until it does, the Company will continue to need to raise additional capital. Operating losses and negative cash flows may continue for at least the next year as the Company continues to incur costs related to the execution of its operating plan and introduction of new products.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty. A going concern basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of its liabilities in the normal course of business.
2. Summary of Significant Accounting Policies
The Company’s significant accounting policies are described in Note 2 to its audited consolidated financial statements for the year ended December 31, 2016, which are included in the Company’s Annual Report on Form 10-K that was filed with the SEC on March 30, 2017. Except as discussed below, these accounting policies have not significantly changed during the three months ended March 31, 2017.
Warrant Accounting
As more fully described in Note 10, the Company issued warrants to purchase shares of the Company’s common st ock in connection with a private placement transaction that closed on March 29, 2017. These warrants contain a feature that could require the transfer of cash in the event of a Fundamental Transaction, as defined in such warrants (other than a Fundamental Transaction not approved by the Company’s Board of Directors). The warrant holders do not control the Company’s Board of Directors, and therefore, since potential future cash settlement is deemed to be within the Company’s control, the warrants are classified in stockholder’s equity in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 480, Distinguishing Liabilities from Equity.
Recent Accounting Pronouncements
In May 2014, the FASB issued new accounting guidance related to revenue recognition. This new standard replaces all current U.S. GAAP guidance on this topic and eliminates all industry-specific guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. This guidance, including all subsequent clarifications, is effective for the Company for annual and interim reporting periods in fiscal years beginning after December 15, 2017 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company performed a preliminary assessment of the impact of the new standard on the consolidated financial statements, and considered all items outlined in the standard. In assessing the impact, the Company has outlined all revenue generating activities, mapped those activities to performance obligations and traced those performance obligations to the standard. The Company is now assessing what impact the change in standard will have on those performance obligations. The Company will continue to evaluate the future impact and method of adoption of the new standard and related amendments on the consolidated financial statements and related disclosures throughout 2017. The Company will adopt the new standard beginning January 1, 2018.
In July 2015, the FASB issued new accounting guidance, which changes the measurement principle for inventory from the lower of cost or market to lower of cost and net realizable value for entities that do not measure inventory using the last-in, first-out or retail inventory method. The guidance also eliminates the requirement for these entities to consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory. The guidance
9
is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company adopted the standard for reporting periods beginning January 1, 2017.
In February 2016, the FASB issued new accounting guidance, which changes several aspects of the accounting for leases, including the requirement that all leases with durations greater than twelve months be recognized on the balance sheet. The guidance is effective for annual periods and interim periods in fiscal years beginning after December 15, 2018. The Company is evaluating the impact of adopting this new accounting standard on its financial statements.
In March 2016, the FASB issued new accounting guidance, which changes several aspects of the accounting for share-based payment award transactions, including accounting and cash flow classification for excess tax benefits and deficiencies, forfeitures, and tax withholding requirements and cash flow classification. The guidance is effective for annual periods and interim periods in fiscal years beginning after December 15, 2016. The Company adopted the standard for reporting periods beginning January 1, 2017.
In August 2016, the FASB issued new accounting guidance, which eliminates the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows, by adding or clarifying guidance on eight specific cash flow issues. The guidance is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted. The amendments in this update should be applied retrospectively to all periods presented, unless deemed impracticable, in which case, prospective application is permitted. The Company is currently evaluating the new guidance and has not determined the impact this standards update may have on its financial statements.
3. Select Condensed Consolidated Balance Sheet Details
Accounts Receivable, net
Accounts receivable, net consist of the following (in thousands):
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March 31, 2017 |
|
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December 31, 2016 |
|
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Accounts receivable |
|
$ |
15,190 |
|
|
$ |
19,870 |
|
Allowance for doubtful accounts |
|
|
(978 |
) |
|
|
(1,358 |
) |
Accounts receivable, net |
|
$ |
14,212 |
|
|
$ |
18,512 |
|
Inventories, net
Inventories, net consist of the following (in thousands):
|
|
March 31, 2017 |
|
|
December 31, 2016 |
|
||
Raw materials |
|
$ |
5,664 |
|
|
$ |
7,301 |
|
Work-in-process |
|
|
969 |
|
|
|
823 |
|
Finished goods |
|
|
38,538 |
|
|
|
38,469 |
|
|
|
|
45,171 |
|
|
|
46,593 |
|
Less reserve for excess and obsolete finished goods |
|
|
(15,083 |
) |
|
|
(16,500 |
) |
Inventories, net |
|
$ |
30,088 |
|
|
$ |
30,093 |
|
10
Property and equipment, net consist of the following (in thousands except as indicated):
|
|
Useful lives (in years) |
|
|
March 31, 2017 |
|
|
December 31, 2016 |
|
|||
Surgical instruments |
|
|
4 |
|
|
$ |
54,364 |
|
|
$ |
53,095 |
|
Machinery and equipment |
|
|
7 |
|
|
|
5,492 |
|
|
|
5,435 |
|
Computer equipment |
|
|
3 |
|
|
|
3,512 |
|
|
|
3,511 |
|
Office furniture and equipment |
|
|
5 |
|
|
|
2,707 |
|
|
|
2,695 |
|
Leasehold improvements |
|
various |
|
|
|
1,653 |
|
|
|
3,467 |
|
|
Construction in progress |
|
n/a |
|
|
|
- |
|
|
|
445 |
|
|
|
|
|
|
|
|
|
67,728 |
|
|
|
68,648 |
|
Less accumulated depreciation and amortization |
|
|
|
|
|
|
(52,320 |
) |
|
|
(53,572 |
) |
Property and equipment, net |
|
|
|
|
|
$ |
15,408 |
|
|
$ |
15,076 |
|
Total depreciation expense was $1.6 million and $2.3 million for the three months ended March 31, 2017 and 2016, respectively. At March 31, 2017 and December 31, 2016, assets recorded under capital leases of $2.1 million were included in the machinery and equipment balance. Amortization of assets under capital leases is included in depreciation expense.
Intangible Assets, net
Intangible assets, net consist of the following (in thousands except for useful lives):
|
|
Remaining Avg. Useful lives (in years) |
|
|
March 31, 2017 |
|
|
December 31, 2016 |
|
|||
Developed product technology |
|
|
— |
|
|
$ |
13,876 |
|
|
$ |
13,876 |
|
Intellectual property |
|
|
— |
|
|
|
1,004 |
|
|
|
1,004 |
|
License agreements |
|
|
2 |
|
|
|
5,265 |
|
|
|
5,265 |
|
Trademarks and trade names |
|
|
— |
|
|
|
732 |
|
|
|
732 |
|
Customer-related |
|
|
8 |
|
|
|
7,458 |
|
|
|
7,458 |
|
Distribution network |
|
|
8 |
|
|
|
4,027 |
|
|
|
4,027 |
|
|
|
|
|
|
|
|
32,362 |
|
|
|
32,362 |
|
Less accumulated amortization |
|
|
|
|
|
|
(26,885 |
) |
|
|
(26,651 |
) |
Intangible assets, net |
|
|
|
|
|
$ |
5,477 |
|
|
$ |
5,711 |
|
Total amortization expense was $0.2 million and $0.3 million for the three months ended March 31, 2017 and 2016, respectively.
Future amortization expense related to intangible assets as of March 31, 2017 is as follows (in thousands):
Year Ending December 31, |
|
|
|
|
Remainder of 2017 |
|
$ |
702 |
|
2018 |
|
|
750 |
|
2019 |
|
|
688 |
|
2020 |
|
|
688 |
|
2021 |
|
|
688 |
|
Thereafter |
|
|
1,961 |
|
|
|
$ |
5,477 |
|
Accrued Expenses
Accrued expenses consist of the following (in thousands):
11
|
March 31, 2017 |
|
|
December 31, 2016 |
|
|||
Commissions and sales milestones |
|
$ |
4,156 |
|
|
$ |
4,202 |
|
Payroll and payroll related |
|
|
2,419 |
|
|
|
2,384 |
|
Litigation settlements |
|
|
4,400 |
|
|
|
4,400 |
|
Globus related accruals |
|
|
767 |
|
|
|
3,830 |
|
Accrued professional fees |
|
|
2,308 |
|
|
|
3,093 |
|
Royalties |
|
|
1,350 |
|
|
|
1,347 |
|
Restructuring and severance accruals |
|
|
1,619 |
|
|
|
1,328 |
|
Accrued taxes |
|
|
419 |
|
|
|
404 |
|
Guaranteed collaboration compensation, current |
|
|
4,661 |
|
|
|
2,228 |
|
Accrued interest |
|
|
388 |
|
|
|
387 |
|
Other |
|
|
3,686 |
|
|
|
3,986 |
|
Total accrued expenses |
|
$ |
26,173 |
|
|
$ |
27,589 |
|
4. Discontinued Operations
In order to pay down a portion of its debt and improve its liquidity position and future cash flows, on September 1, 2016, the Company closed the Globus Transaction (described in Note 1). Following the closing of the Globus Transaction, the Company only sells its products in the U.S. market and is prohibited from marketing and selling its products outside the United States and its possessions and territories until the date that is two years following the termination of the Supply Agreement (as described below). As a result of the Globus Transaction, the Company has retrospectively revised the condensed consolidated statements of operations and cash flows for the three month periods ended March 31, 2016 to reflect the financial results from the International Business as discontinued operations.
At the closing of the Globus Transaction, Globus paid the Company $80 million in cash, subject to a working capital adjustment. On September 1, 2016, the Company used approximately $66 million of the consideration received to (i) repay in full all amounts outstanding and due under the Company’s Facility Agreement between the Company and Deerfield Private Design Fund II, L.P., Deerfield Private Design International II, L.P., Deerfield Special Situations Fund, L.P. and Deerfield Special Situations International Master Fund, L.P., dated as of March 17, 2014, as amended to date (the “Deerfield Facility Agreement”) and (ii) repay certain of its outstanding indebtedness under the Company’s Amended Credit Facility with MidCap (described in Note 6), in each case, including debt-related costs. Also on September 1, 2016, the Company entered into a five-year term credit, security and guaranty agreement with Globus (the “Globus Facility Agreement”), as further described in Note 6, pursuant to which Globus agreed to loan the Company up to $30 million, subject to the terms and conditions set forth in the Globus Facility Agreement.
The following table summarizes the preliminary calculation of the gain on sale (in thousands):
Consideration received |
|
$ |
80,000 |
|
Cash included in assets sold |
|
|
(4,250 |
) |
Transaction costs |
|
|
(5,960 |
) |
Net cash proceeds |
|
|
69,790 |
|
Less: |
|
|
|
|
Product supply obligation |
|
|
(1,927 |
) |
Working capital adjustment |
|
|
(2,295 |
) |
Carrying value of business and assets sold |
|
|
(57,633 |
) |
Net gain on sale of business |
|
$ |
7,935 |
|
The Company is evaluating certain income tax related items that are pending final resolution.
The results of operations from discontinued operations presented below include certain allocations that management believes fairly reflect the utilization of services provided to the International Business. The allocations do not include amounts related to general corporate administrative expenses. Therefore, the results of operations from the International Business do not necessarily reflect what the results of operations would have been had the International Business operated as a stand-alone entity.
12
In connection with the Globus Transaction, the Company entered into a produ ct manufacture and supply agreement (the “Supply Agreement”) with Globus, pursuant to which the Company agreed to supply to Globus certain of its implants and instruments (the “Products”), previously offered for sale by the Company in international markets at agreed-upon prices for a minimum term of three years, with the option for Globus to extend the term for up to two additional twelve month periods subject to Globus meeting specified purchase requirements. In accordance with authoritative guidance, cert ain intercompany sales transactions have been reported under continuing operations as the Company will have continuing involvement due to future sales to Globus under the Supply Agreement. In connection with the Globus Transaction, Globus received a credit of up to $1.9 million to be applied against Product purchases pursuant to the Supply Agreement during a six-month period commencing one month after the closing of the Globus Transaction, which has been included as a reduction of the consideration received for the sale of the International Business and will be recognized as revenue upon fulfillment by the Company of product purchases by Globus.
The agreements entered into concurrently with the sale of the International Business, including the Transition Services Agreement and Supply Agreement, contain various elements and, as such, are deemed to be an arrangement with multiple deliverables as defined under authoritative accounting guidance. Several non-contingent deliverables were identified within the agreements. The Company identified the International Business, contract supply services, transition services and the Globus Facility as separate non-contingent deliverables within the arrangement. The Company determined the estimated selling price (fair value) for each of the non-contingent deliverables on a standalone basis by utilizing relevant market data and entity-specific factors. Based on the respective standalone fair values of the deliverables, there was no discount to allocate among the deliverables and the consideration received for each deliverable approximated standalone fair value. As such, none of the purchase consideration was allocated to these elements.
Included in the results of continuing operations for the three months ended March 31, 2016 are revenues of $5.0 million and cost of revenue of $4.0 million, respectively, that represent intercompany transactions that, prior to the Globus Transaction, were eliminated in the Company's condensed consolidated financial statements.
During the three months ended March 31, 2017, the Company recorded $4.5 million in revenue and $3.8 million in cost of sales from the Supply Agreement that are included in the continuing operations.
13
In connection with the Globus Transaction, the Company included the interest expense of $2.4 million for the three months ended March 31, 2016 incurred in connection with repayment from the proceeds from the Globus Transaction of all amounts outstanding and due under the Deerfield Facility Agreement and Amended Credit Faci lity in the loss from discontinued operations to the extent these debt facilities were repaid using the proceeds from the Globus Transaction.
The following table summarizes the results of discontinued operations for the periods presented in the condensed consolidated statements of operations and comprehensive income (loss) for the three months ended March 31, 2017 and 2016 (in thousands):
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
Discontinued operations |
|
2017 |
|
|
2016 |
|
||
Revenues |
|
$ |
— |
|
|
$ |
10,555 |
|
Cost of revenues |
|
|
— |
|
|
|
3,813 |
|
Amortization of acquired intangible assets |
|
|
— |
|
|
|
360 |
|
Gross profit |
|
|
— |
|
|
|
6,382 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
Research and development |
|
|
— |
|
|
|
26 |
|
Sales and marketing |
|
|
— |
|
|
|
4,182 |
|
General and administrative |
|
|
73 |
|
|
|
1,643 |
|
Amortization of acquired intangible assets |
|
|
— |
|
|
|
231 |
|
Restructuring expenses |
|
|
— |
|
|
|
597 |
|
Total operating expenses |
|
|
73 |
|
|
|
6,679 |
|
Operating loss |
|
|
(73 |
) |
|
|
(297 |
) |
Other income (expense): |
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
— |
|
|
|
(2,356 |
) |
Other income (expense), net |
|
|
— |
|
|
|
847 |
|
Total other income (expense) |
|
|
— |
|
|
|
(1,509 |
) |
Loss from discontinued operations before taxes |
|
|
(73 |
) |
|
|
(1,806 |
) |
Income tax provision |
|
|
18 |
|
|
|
563 |
|
Loss from discontinued operations, net of applicable taxes |
|
$ |
(91 |
) |
|
$ |
(2,369 |
) |
The following table summarizes the assets and liabilities of discontinued operations as of March 31, 2017 and December 31, 2016 related to the International Business (in thousands):
|
|
March 31, 2017 |
|
|
December 31, 2016 |
|
||
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
92 |
|
|
$ |
159 |
|
Inventories, net |
|
|
— |
|
|
|
48 |
|
Prepaid expenses and other current assets |
|
|
78 |
|
|
|
157 |
|
Total current assets of discontinued operations |
|
|
170 |
|
|
|
364 |
|
Other assets |
|
|
58 |
|
|
|
61 |
|
Total assets of discontinued operations |
|
$ |
228 |
|
|
$ |
425 |
|
Liabilities |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
72 |
|
|
$ |
43 |
|
Accrued expenses |
|
|
206 |
|
|
|
689 |
|
Other current liabilities |
|
|
15 |
|
|
|
— |
|
Total current liabilities of discontinued operations |
|
$ |
293 |
|
|
$ |
732 |
|
14
Included in the cash flows for the three months ended March 31, 2017 and 2016 are the following non-cash adjustments related to the discontinued operations (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2017 |
|
|
2016 |
|
||
Depreciation and amortization |
|
$ |
— |
|
|
$ |
1,396 |
|
Provision for excess and obsolete inventory |
|
$ |
— |
|
|
$ |
77 |
|
Capital expenditures |
|
$ |
— |
|
|
$ |
697 |
|
Interest expense related to amortization of debt discount and debt issuance costs |
|
$ |
— |
|
|
$ |
646 |
|
5. License and Consulting Agreements
The Company’s license and consulting agreements are described in Note 5 to its audited consolidated financial statements for the year ended December 31, 2016, which are included in its Annual Report on Form 10-K which was filed with the SEC on March 31, 2017.
6. Debt
MidCap Facility Agreement
The Company has a credit facility with MidCap Funding IV, LLC (“MidCap”), as amended to date (the “Amended Credit Facility”), that provides for a revolving credit commitment up to $22.5 million and a term loan commitment up to $5 million. As of March 31, 2017, $10.3 million was outstanding under the revolving line of credit and $4.2 million was outstanding under the term loan.
The term loan interest rate is priced at the London Interbank Offered Rate ("LIBOR") plus 8.0%, subject to a 9.5% floor, and the revolving line of credit interest rate remains priced at LIBOR plus 6.0%, reset monthly. At March 31, 2017, the revolving line of credit carried an interest rate of 6.8% and the term loan carries an interest rate of 9.5%. The borrowing base is determined, from time to time, based on the value of domestic eligible accounts receivable and domestic eligible inventory. As collateral for the Amended Credit Facility, the Company granted MidCap a security interest in substantially all of its assets, including all accounts receivable and all securities evidencing its interests in its subsidiaries. In addition to monthly payments of interest, monthly repayments of $0.2 million in 2017 and $0.3 million in 2018 through maturity are due, with the remaining principal due upon maturity. At March 31, 2017, $1.9 million remains as unamortized debt discount related to the Amended Credit Facility within the condensed consolidated balance sheet, which will be amortized over the remaining term of the Amended Credit Facility.
On March 30, 2017, the Company entered into a sixth amendment to the Amended Credit Facility with MidCap (the “Sixth Amendment”). The Sixth Amendment extend the date that the financial covenants of the Amended Credit Facility are effective from April 2017 to April 2018.
The Amended Credit Facility includes traditional lending and reporting covenants including a fixed charge coverage ratio to be maintained by the Company. The Amended Credit Facility also includes several event of default provisions, such as payment default, insolvency conditions and a material adverse effect clause, which could cause interest to be charged at a rate which is up to five percentage points above the rate effective immediately before the event of default or result in MidCap’s right to declare all outstanding obligations immediately due and payable. The financial covenants of the Amended Credit Facility are not effective until April 2018. There is no assurance that the Company will be in compliance with the financial covenants of the Amended Credit Facility in the future.
Globus Facility Agreement
On September 1, 2016, the Company and Globus entered into the Globus Facility Agreement, pursuant to which Globus agreed to loan the Company up to $30 million, subject to the terms and conditions set forth in the Globus Facility Agreement. At the closing of the Globus Transaction, the Company made an initial draw of $25 million under the Globus Facility Agreement with an additional draw of $5 million made in the fourth quarter of 2016. As of March 31, 2017, the outstanding balance under the Globus Facility Agreement was $30.0 million, which becomes due and payable in quarterly payments of $0.8 million starting in September 2018, with a final payment of the remaining amount outstanding due on September 1, 2021. The term loan interest rate is priced at LIBOR plus 8.0% through September 1, 2018, and LIBOR plus
15
13.0%, thereafter. At March 31, 2017, unamortized debt discount related to the Globus Facility Agreement within the condensed consolidated balance sh eet was $1.0 million.
On March 30, 2017, the Company entered into a first amendment to the Globus Facility Agreement with Globus (the “Globus First Amendment”). The Globus First Amendment extended the date that the financial covenants of the Globus Facility Agreement are effective from April 2017 to April 2018.
As collateral for the Globus Facility Agreement, the Company granted Globus a first lien security interest in substantially all of its assets, other than accounts receivable and related assets, which will secure the Globus Facility Agreement on a second lien basis. The Globus Facility Agreement includes traditional lending and reporting covenants including a fixed charge coverage ratio to be maintained by the Company. The financial covenants of the Globus Facility Agreement are not effective until April 2018. There is no assurance that the Company will be in compliance with the financial covenants of the Globus Facility Agreement in the future. The Globus Facility Agreement also includes several event of default provisions, such as payment default, insolvency conditions and a material adverse effect clause, which could cause interest to be charged at a rate which is up to five percentage points above the rate effective immediately before the event of default or result in Globus’s right to declare all outstanding obligations immediately due and payable.
Principal payments on the Company's debt are as follows as of March 31, 2017 (in thousands):
Year Ending December 31, |
|
|
|
|
Remainder of 2017 |
|
$ |
2,689 |
|
2018 |
|
|
4,046 |
|
2019 |
|
|
14,198 |
|
2020 |
|
|
3,333 |
|
2021 and thereafter |
|
|
21,667 |
|
Total |
|
|
45,933 |
|
Add: capital lease principal payments |
|
|
314 |
|
Less: unamortized debt discount and debt issuance costs |
|
|
(3,614 |
) |
Total |
|
|
42,633 |
|
Less: current portion of long-term debt |
|
|
(2,616 |
) |
Long-term debt, net of current portion |
|
$ |
40,017 |
|
7. Commitments and Contingencies
Leases
The Company leases certain equipment under capital leases which expire on various dates through 2017. The leases bear interest at rates ranging from 6.6% to 9.6% per annum, are generally due in monthly principal and interest installments and are collateralized by the related equipment. The Company also leases its buildings and certain equipment and vehicles under operating leases which expire on various dates through 2021. Future minimum annual lease payments under such leases are as follows as of March 31, 2017 (in thousands):
Year Ending December 31, |
|
Operating |
|
|
Capital |
|
||
Remainder of 2017 |
|
$ |
1,205 |
|
|
$ |
261 |
|
2018 |
|
|
1,556 |
|
|
|
68 |
|
2019 |
|
|
1,543 |
|
|
|
— |
|
2020 |
|
|
1,538 |
|
|
|
— |
|
2021 and thereafter |
|
|
971 |
|
|
|
— |
|
|
|
$ |
6,813 |
|
|
|
329 |
|
Less: amount representing interest |
|
|
|
|
|
|
(15 |
) |
Present value of minimum lease payments |
|
|
|
|
|
|
314 |
|
Current portion of capital leases |
|
|
|
|
|
|
(270 |
) |
Capital leases, less current portion |
|
|
|
|
|
$ |
44 |
|
Rent expense under operating leases for the three months ended March 31, 2017 and 2016 was $0.4 million and $0.6 million, respectively.
16
The Company is and may become involved in various legal proceedings arising from its business activities. While management is not aware of any litigation matter that in and of itself would have a material adverse impact on the Company’s consolidated results of operations, cash flows or financial position, litigation is inherently unpredictable, and depending on the nature and timing of a proceeding, an unfavorable resolution could materially affect the Company’s future consolidated results of operations, cash flows or financial position in a particular period. The Company assesses contingencies to determine the degree of probability and range of possible loss for potential accrual or disclosure in the Company's consolidated financial statements. An estimated loss contingency is accrued in the Company’s consolidated financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly subjective and requires judgments about future events. When evaluating contingencies, the Company may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. In addition, damage amounts claimed in litigation against the Company may be unsupported, exaggerated or unrelated to reasonably possible outcomes, and as such are not meaningful indicators of the Company’s potential liability.
Indemnifications
In the normal course of business, the Company enters into agreements under which it occasionally indemnifies third-parties for intellectual property infringement claims or claims arising from breaches of representations or warranties. In addition, from time to time, the Company provides indemnity protection to third-parties for claims relating to past performance arising from undisclosed liabilities, product liabilities, environmental obligations, representations and warranties, and other claims. In these agreements, the scope and amount of remedy, or the period in which claims can be made, may be limited. It is not possible to determine the maximum potential amount of future payments, if any, due under these indemnities due to the conditional nature of the obligations and the unique facts and circumstances involved in each agreement.
Royalties
The Company has entered into various intellectual property agreements requiring the payment of royalties based on the sale of products that utilize such intellectual property. These royalties primarily relate to products sold by Alphatec Spine and are calculated either as a percentage of net sales or in one instance on a per-unit sold basis. Royalties are included on the accompanying condensed consolidated statement of operations as a component of cost of revenues.
8. Orthotec Settlement
On September 26, 2014, the Company entered into a Settlement and Release Agreement, dated as of August 13, 2014, by and among the Company and its direct subsidiaries, including Alphatec Spine, Inc., Alphatec Holdings International C.V., 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, (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the Company agreed to pay Orthotec, LLC $49.0 million in cash, including initial cash payments totaling $1.75 million, which the Company previously paid in March 2014, and an additional lump sum payment of $15.75 million, which the Company previously paid in April 2014. The Company agreed to pay the remaining $31.5 million in 28 quarterly installments of $1.1 million and one additional quarterly installment of $0.7 million, commencing October 1, 2014.
As of March 31, 2017, the Company has made installment payments in the aggregate of $28.5 million, with a remaining outstanding balance of $29.3 million. The Company has the right to prepay the amounts due without penalty. In addition, the unpaid balance of the amounts due accrues interest at the rate of 7% per year beginning May 15, 2014 until the amounts due are paid in full. The accrued but unpaid interest will be paid in quarterly installments of $1.1 million (or the full amount of the accrued but unpaid interest if less than $1.1 million) following the full payment of the $31.5 million in quarterly installments described above. No interest will accrue on the accrued interest. The Settlement Agreement provided for mutual releases of all claims in the Orthotec, LLC v. Surgiview, S.A.S, et al. matter in the Superior Court of California, Los Angeles County and all other related litigation matters involving the Company and its directors and affiliates.
17
Basic earnings per share (“EPS”) is calculated by dividing the net income or loss available to common stockholders by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted EPS is computed by dividing the net income available to common stockholders by the weighted average number of common shares outstanding for the period and the weighted average number of dilutive common stock equivalents outstanding for the period determined using the treasury-stock method. For purposes of this calculation, common stock subject to repurchase by the Company, options, performance-based restricted stock units and warrants are considered to be common stock equivalents and are only included in the calculation of diluted earnings per share when their effect is dilutive.
The following table presents the computation of basic and diluted net loss per share for continuing and discontinued operations (in thousands, except per share amounts):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2017 |
|
|
2016 |
|
||
Numerator: |
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
$ |
(5,424 |
) |
|
$ |
(4,248 |
) |
Loss from discontinued operations |
|
|
(91 |
) |
|
|
(2,369 |
) |
Net loss |
|
$ |
(5,515 |
) |
|
$ |
(6,617 |
) |
Denominator: |
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
9,089 |
|
|
|
8,513 |
|
Weighted average unvested common shares subject to repurchase |
|
|
(84 |
) |
|
|
(47 |
) |
Weighted average common shares outstanding—basic |
|
|
9,005 |
|
|
|
8,466 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
Conversion of preferred stock |
|
|
— |
|
|
|
— |
|
Options |
|
|
— |
|
|
|
— |
|
Warrants |
|
|
— |
|
|
|
— |
|
Weighted average common shares outstanding—diluted |
|
|
9,005 |
|
|
|
8,466 |
|
Net loss per share, basic and diluted: |
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.60 |
) |
|
$ |
(0.50 |
) |
Discontinued operations |
|
|
(0.01 |
) |
|
|
(0.28 |
) |
Net loss per share, basic and diluted |
|
$ |
(0.61 |
) |
|
$ |
(0.78 |
) |
The anti-dilutive securities not included in diluted net loss per share were as follows (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2017 |
|
|
2016 |
|
||
Options to purchase common stock |
|
|
1,164 |
|
|
|
629 |
|
Unvested restricted share awards |
|
|
84 |
|
|
|
47 |
|
Series A Convertible Preferred Stock |
|
|
7,622 |
|
|
|
— |
|
Warrants to purchase common stock |
|
|
9,440 |
|
|
|
962 |
|
Total |
|
|
18,310 |
|
|
|
1,638 |
|
10. Stock Benefit Plans and Equity Transactions
Stock Benefit Plans
On October 4, 2016, the Company’s Board of Directors adopted the 2016 Employment Inducement Award Plan (the “Inducement Plan”). The Inducement Plan allows for the grant of options, restricted stock, restricted stock unit awards and performance unit awards to new employees of the Company by granting an award to such new employee as an inducement for such new employee to begin employment with the Company. The Inducement Plan currently has 1,550,000 shares of common stock reserved for issuance, of which, 600,000 shares of common stock were added on March 30, 2017. Equity awards under the Inducement Plan may only be granted to an employee who has not previously been an employee or member
18
of the board of directors of the Company. The terms of the Inducement Pla n are substantially similar to the terms of the Company’s 2016 Equity Incentive Plan with two principal exceptions: (i) incentive stock options may not be granted under the Inducement Plan; and (ii) the annual compensation paid by the Company to specified executives will be deductible only to the extent that it does not exceed $1.0 million. The Company granted 175,000 Restricted Share Units ("RSUs") and 175,000 stock options under the Inducement Plan in the quarter ended March 31, 2017.
Private Placement Transaction
On March 22, 2017, the Company entered into the Securities Purchase Agreement with certain institutional and accredited investors, including certain directors, executive officers and employees of the Company (collectively, the “Purchasers”), providing for the sale by the Company of 1,809,628 shares of the Company’s common stock at a purchase price of $2.00 per share (the “Common Shares”), 15,245 shares of newly designated Series A Convertible Preferred Stock at a purchase price of $1,000 per share (which shares are convertible into approximately 7,622,372 shares of common stock, subject to limitations on conversion until the approval by the Company’s stockholders (“Stockholder Approval”) as required in accordance with the NASDAQ listing rules), and warrants to purchase up to 9,432,000 shares of the Company’s common stock at an exercise price of $2.00 per share (the “Purchaser Warrants”), in a private placement (the “Private Placement”). The Purchaser Warrants will become exercisable following Stockholder Approval, are subject to certain ownership limitations, and expire five years after the date of such Stockholder Approval. An aggregate of $2.35 million of shares of Series A Convertible Preferred Stock, which shares are convertible into approximately 1,175,000 shares of Common Stock, and Warrants to purchase up to 1,175,000 shares of Common Stock were purchased by certain directors, executive officers and employees of the Company.
The Company also entered into an engagement letter (the “Engagement Letter”) on March 1, 2017 with H.C. Wainwright & Co., LLC (“Wainwright”), pursuant to which Wainwright agreed to serve as exclusive placement agent for the issuance and sale of the securities in the Private Placement. Pursuant to the Engagement Letter, the Company issued to Wainwright and its designees warrants to purchase up to an aggregate of 471,600 shares of the Company’s common stock (the “Wainwright Warrants,” and together with the Purchaser Warrants, the “Common Stock Warrants”). The Wainwright Warrants have substantially the same terms as the Purchaser Warrants, except that the Wainwright Warrants have an exercise price equal $2.50 per share. The Private Placement, including the issuance of the Wainwright Warrants, closed on March 29, 2017, with aggregate gross proceeds to the Company of approximately $18.9 million.
Series A Convertible Preferred Stock
On March 29, 2017, in connection with the closing of the Private Placement, the Company filed a Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock with the Secretary of State of the State of Delaware (the “Certificate of Designation”). The shares of Series A Convertible Preferred Stock have a stated value of $1,000 per share and will be convertible into approximately 500 shares of common stock. Until the date that Stockholder Approval is obtained, the Certificate of Designation limits the number of shares of common stock issuable upon conversion of the Series A Convertible Preferred Stock such that, when aggregated with the shares of common stock issued in the Private Placement, such issuances shall not exceed 19.99% of the Company’s issued and outstanding common stock, as required by NASDAQ listing rules. In addition, the Company’s directors, executive officers and employees who participated in the Private Placement will be unable to convert shares of Series A Convertible Preferred Stock until Stockholder Approval is obtained, pursuant to the NASDAQ listing rules. The Series A Convertible Preferred Stock will be entitled to dividends on an as-if-converted basis in the same form as any dividends actually paid on shares of common stock or other securities. Except as otherwise required by law, the holders of Series A Convertible Preferred Stock will have no right to vote on matters submitted to a vote of the Company’s stockholders. Without the prior written consent of 75% of the outstanding shares of Series A Convertible Preferred Stock, the Company may not: (a) alter or change adversely the powers, preferences or rights given to the Preferred Stock or alter or amend the Certificate of Designation, (b) amend the Company’s certificate of incorporation or other charter documents in any manner that adversely affects any rights of the holders of Series A Convertible Preferred Stock, (c) increase the number of authorized shares of Series A Convertible Preferred Stock, or (d) enter into any agreement with respect to any of the foregoing. In the event of the dissolution and winding up of the Company, the proceeds available for distribution to the Company’s stockholders shall be distributed pari passu among the holders of the shares of common stock and Series A Convertible Preferred Stock, pro rata based upon the number of shares held by each such holder, as if the outstanding shares of Series A Convertible Preferred Stock were convertible, and were converted, into shares of common stock.
Common Stock Warrants
The Common Stock Warrants are exercisable for cash or, solely, if at any time after the six-month anniversary of the closing date of the Private Placement, there is not an effective registration statement or prospectus registering the issuance of shares of the Company’s common stock upon exercise of the Common Stock Warrants, by cashless exercise. The exercise price of the Common Stock Warrants is subject to adjustment in the case of stock dividends or other distributions on shares
19
of common stock or any other equity or equity equivalent securities payable in shares of common stock, stock splits, stock combination s, reclassifications or similar events affecting the Company’s common stock, and also, subject to limitations, upon any distribution of assets, including cash, stock or other property to the Company’s stockholders.
Prior to the exercise, holders of the Common Stock Warrants will not have any of the rights of holders of the common stock purchasable upon exercise, including voting rights; however, the holders of the Common Stock Warrants will have certain rights to participate in distributions or dividends paid on the Company’s common stock to the extent set forth in the Common Stock Warrants.
The Common Stock Warrants may not be exercised by the holder to the extent that the holder, together with its affiliates, would beneficially own, after such exercise more than 4.99% of the shares of the Company’s common stock then outstanding (subject to the right of the holder to increase or decrease such beneficial ownership limitation upon notice to us, provided that such limitation cannot exceed 9.99%) and provided that any increase in the beneficial ownership limitation shall not be effective until 61 days after such notice is delivered.
If the Company effect a fundamental transaction, then upon any subsequent exercise of any Common Stock Warrants, the holder thereof shall have the right to receive, for each share of common stock that would have been issuable upon such exercise immediately prior to the occurrence of such fundamental transaction, the number of shares of the successor’s or acquiring corporation’s common stock or of the Company’s common stock, if the Company is the surviving corporation, and any additional consideration receivable as a result of such fundamental transaction by a holder of the number of shares of common stock into which the Common Stock Warrants were exercisable immediately prior to such fundamental transaction. In addition, in the event of a fundamental transaction (other than a fundamental transaction not approved by the Company’s Board of Directors), the Company or any successor entity shall, at the holder’s option, purchase the holder’s Common Stock Warrants for an amount of cash equal to the value of the Common Stock Warrants as determined in accordance with the Black Scholes option pricing model. A fundamental transaction as described in the Common Stock Warrants generally includes any merger with or into another entity, sale of all or substantially all of the Company’s assets, tender offer or exchange offer, reclassification of the Company’s common stock or the consummation of a transaction whereby another entity acquires more than 50% of the Company’s outstanding voting stock.
In accordance with authoritative guidance, the Purchaser Warrants and the Wainwright Warrants are classified within additional paid in capital on the condensed consolidated balance sheet.
11. Income Taxes
To calculate its interim tax provision, at the end of each interim period the Company estimates the annual effective tax rate and applies that to its ordinary quarterly earnings. In addition, the effect of changes in enacted tax laws or rates or tax status is recognized in the interim period in which the change occurs. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in foreign jurisdictions, permanent and temporary differences between book and tax amounts, and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or the tax environment changes.
Intraperiod tax allocation rules require the Company to allocate the provision for income taxes between continuing operations and other categories of earnings, such as discontinued operations. In periods in which the Company has a year-to-date pre-tax loss from continuing operations and pre-tax income in other categories of earnings, such as discontinued operations, the Company must allocate the tax provision to the other categories of earnings, and then record a related tax benefit in continuing operations.
The Company recognizes interest and penalties related to uncertain tax positions as a component of the income tax provision. The Company’s unrecognized tax benefits increased by less than $0.1 million during the three months ended March 31, 2017. The increase in unrecognized tax benefits during the three months ended March 31, 2017 was primarily related to foreign currency fluctuations and increases in reserves related to U.S. federal and state research credits. The unrecognized tax benefits at March 31, 2017 and December 31, 2016 were $9.4 million and $9.3 million, respectively. With the facts and circumstances currently available to the Company, it is reasonably possible that the amount of reserves that could reverse over the next 12 months is approximately $0.7 million.
The income tax provision from continuing operations consists primarily of income tax provisions related to state income taxes. The Company’s effective tax rate of 0.91% for the three months ended March 31, 2017 differs from the federal statutory rate of 35% primarily due to a full valuation allowance and state income taxes.
20
Due to the equity transactions the Company entered into during the three months ended March 31, 2017, an ownership change may have occurred. Pursuant to Internal Revenue Code, or IRC, Sections 382 and 383, annua l use of the Company’s net operating loss and research and development credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurred within a three-year period. The Company has not completed an IRC Section 382 and 383 analysis regarding the limitation of net operating loss and research and development credit carryforwards. Since there is a full valuation allowance applied to the deferred taxes, an IRC Section 382 limitation will not have an effect on the defer red taxes or the income tax rate.
The Company is not currently under examination by the Internal Revenue Service, or by any foreign, state or local tax authorities, however Scient’x’s 2013 and 2014 tax years are currently under audit by the French tax authorities.
12. Related Party Transactions
For the three months ended March 31, 2017 and 2016, respectively, the Company incurred expenses of less than $0.1 million related to HealthpointCapital, LLC. As of March 31, 2017, the Company also had a liability of less than $0.1 million payable to HealthpointCapital, LLC for travel and administrative expenses.
In July 2016, the Company entered into a forbearance agreement with HealthpointCapital, LLC, HealthpointCapital Partners, L.P., and HealthpointCapital Partners II, L.P. (collectively, "HealthpointCapital"), pursuant to which HealthpointCapital, on behalf of the Company, paid $1.0 million of the $1.1 million payment due and payable by the Company to Orthotec on July 1, 2016 and agreed to not exercise its contractual rights to seek an immediate repayment of such amount. Pursuant to this forbearance agreement, the Company repaid this amount in September 2016. The Company and HealthpointCapital also entered into an agreement for joint payment of settlement whereby HealthpointCapital has agreed to contribute $5 million to the $49 million Orthostec settlement amount.
13. Restructuring
In connection with the Globus Transaction (described in Note 4), the Company terminated employment agreements with several executive officers, including the chief executive officer and the chief financial officer, and commenced an employee headcount reduction program. The Company had additional headcount reductions in February 2017, and recorded restructuring expenses of $1.2 million for the three months ended March 31, 2017, related to severance liability and post-employment benefits.
On July 6, 2015, the Company announced a restructuring of its manufacturing operations in California in an effort to improve its cost structure. The restructuring included a reduction in workforce and closing the California manufacturing facility. The Company incurred expenses of $0.1 million during the three months ended March 31, 2016, related to these restructuring activities.
21
You should read the following management's discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto that appear elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March 31, 2017. In addition to historical information the following management’s discussion and analysis of our financial condition and results of operations includes forward-looking information that involves risks, uncertainties, and assumptions. Our actual results and the timing of events could differ materially from those anticipated by these forward-looking statements as a result of many factors, such as those set forth under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016 and any updates to those risk factors filed from time to time in our subsequent periodic and current reports filed with the SEC. Unless otherwise stated, all shares and price per share numbers set forth in this Form 10-Q for periods prior to August 24, 2016 are presented after giving effect to the reverse stock split.
Overview
We are a medical technology company focused on the design, development and promotion of products for the surgical treatment of spine disorders. Our mission is to improve patient lives by delivering advancements in spinal fusion technologies. We have a comprehensive product portfolio and pipeline that addresses the cervical, thoracolumbar and intervertebral regions of the spine and covers a variety of spinal disorders and surgical procedures. Our principal product offerings are focused on the U.S. market for fusion-based spinal disorder solutions. We believe that our products and systems are attractive to surgeons and patients due to innovative features and benefits that are designed to simplify surgical procedures for the surgeon and improve patient outcomes.
Currently, we market and sell our products in the United States through a network of non-exclusive independent distributors and direct sales representatives. We believe there is significant opportunity for us to partner closely with distributors to create a more dedicated and loyal sales channel for the future. We are eliminating our stocking distributors and are moving our existing distributor relationships to more dedicated and non-competitive partnerships and we intend to add new, high-quality distributors to enable future growth.
We believe this will allow us to reach an untapped market of surgeons, hospitals and national accounts across the United States, as well as further penetrate existing accounts and territories.
We also employ a national accounts team that is responsible for securing access at hospitals and group purchasing organizations, or GPOs, across the United States. We have had strong success with securing access to hospitals and GPOs. We believe that this access is a key differentiator for us, and much of our current business is achieved through these accounts. We will continue to focus our efforts and investment on developing and maintaining relationships with key GPOs and hospital networks in order to secure favorable contracts and develop strategies to convert or grow business within existing accounts.
We are also striving to drive additional revenue by focusing our capital spend on making strategic investments in commercializing our new products. We are focusing our development and commercialization efforts on differentiated products that we can market through our sales channel. These innovative products are designed to drive penetration within specific segments within the overall spine market, including the complex spine, deformity, and lateral markets. We also plan to expand our biologics portfolio through structural allograft, tissue and synthetic bone graft products to support surgeons during the surgical procedure with the goal of achieving high fusion rates.
Recent Developments
On March 29, 2017, we completed a private placement, or the Private Placement, of our securities to certain institutional and accredited investors, including certain of our directors, executive officers and employees, providing for the sale of 1,809,628 shares of our common stock at a purchase price of $2.00 per share, 15,245 shares of newly designated Series A Convertible Preferred Stock, or Series A Convertible Preferred Stock, at a purchase price of $1,000 per share (which shares are convertible into approximately 7,622,372 shares of our common stock, subject to limitations on conversion until the approval by our stockholders as required in accordance with NASDAQ listing rules), and warrants to purchase up to 9,432,000 shares of our common stock at an exercise price of $2.00 per share. We also issued warrants to purchase up to 471,500 shares of our Common Stock at an exercise price of $2.50 per share to H.C. Wainwright & Co., LLC, or Wainwright, and its designees, in connection with serving as exclusive placement agent for the issuance and sale of the
22
securities in the Private Placement. We refer to all 9,903,600 warrants as the Warrants. The Warrants will become exercisable following stockholder approval, are subject to certain ownership limitations, and expire five years after the date of such Stockholder approval. The aggregate gross proceeds for the Private Placement were approximately $18.9 million. We intend to use the net proceeds from the Private Placement for general corporate and working capital purposes.
Between September 1, 2016 and March 31, 2017, we announced several changes to our senior leadership team, including the appointment of Terry Rich as our Chief Executive Officer; Craig Hunsaker as our Executive Vice President, People and Culture and General Counsel; Jon Allen as our Executive Vice President, Commercial Operations; Brian Snider as our Executive Vice President, Strategic Marketing and Product Development; and Jeff Black as our Executive Vice President, Chief Financial Officer.
On September 1, 2016, we completed the sale, or the Globus Transaction, of our international distribution operations and agreements, including our wholly-owned subsidiaries in Japan, Brazil, Australia, China and Singapore and substantially all of the assets of our other sales operations in the United Kingdom and Italy, or collectively the International Business, to an affiliate of Globus. Following the closing of the Globus Transaction, we now operate in the U.S. market only and are prohibited from marketing and selling our products in foreign markets pursuant to the terms and conditions, and for the time periods, set forth in the definitive documents related to the Globus Transaction.
At the closing of the Globus Transaction on September 1, 2016, Globus paid us $80 million in cash, subject to a working capital adjustment. On September 1, 2016, we used approximately $66 million of the consideration received to (i) repay in full all amounts outstanding and due under the Deerfield Facility Agreement, and (ii) repay certain of our outstanding indebtedness under our Amended Credit Facility, in each case, including debt-related costs. Also on September 1, 2016, we entered into the credit, security and guaranty agreement with Globus, or the Globus Facility Agreement, pursuant to which Globus has agreed to loan us up to $30 million, subject to the terms and conditions set forth in the Globus Facility Agreement.
As a result of the sale of our International Business, we have retrospectively revised the consolidated statements of operations for the three months ended March 31, 2016 to reflect the financial results from the International Business as discontinued operations.
On August 24, 2016, we filed a certificate of amendment to our certificate of incorporation with the Secretary of State of the state of Delaware to effectuate a 1-for-12 reverse stock split of our issued and outstanding common stock. The share and per share amounts in the discussion below gives retrospective effect to the 1-for-12 reverse stock split for all periods presented.
Revenue and Expense Components
The following is a description of the primary components of our revenues and expenses. As a result of the Globus Transaction, as of September 1, 2016, we only sell our products in the U.S. market.
Revenues . We derive our revenues primarily from the sale of spinal surgery implants used in the treatment of spine disorders. Spinal implant products include pedicle screws and complementary implants, interbody devices, plates, and tissue-based materials. Our revenues are generated by our direct sales force and independent distributors. Our products are requested directly by surgeons and shipped and billed to hospitals and surgical centers. A majority of our business is conducted with customers within markets in which we have experience and with payment terms that are customary to our business. We may defer revenues until the time of collection if circumstances related to payment terms, regional market risk or customer history indicate that collectability is not reasonably assured.
Cost of revenues . Cost of revenues consists of direct product costs, royalties, milestones, depreciation of our surgical instruments, and the amortization of purchased intangibles. Our product costs consist primarily of direct labor, overhead, and raw materials and components. The product costs of certain of our biologics products include the cost of procuring and processing human tissue. We incur royalties related to the technologies that we license from others and the products that are developed in part by surgeons with whom we collaborate in the product development process. Amortization of purchased intangibles consists of amortization of developed product technology.
Research and development expense . Research and development expense consists of costs associated with the design, development, testing, and enhancement of our products. Research and development expense also includes salaries and related employee benefits, research-related overhead expenses, fees paid to external service providers in both cash and equity, and costs associated with surgeon consultants.
23
Sales and marketing expense . Sales and marketing expense consists primarily of salaries and related employee benefits, sales commissions and support costs, professional service fees, travel, medical education, trad e show and marketing costs.
General and administrative expense . General and administrative expense consists primarily of salaries and related employee benefits, professional service fees and legal expenses.
Restructuring expenses . Restructuring expense consists of severance, social plan benefits and related taxes, facility closing costs, manufacturing transfer costs and severance costs incurred following the sale of our International Business and the termination of our manufacturing operations in California.
Total other income (expense). Total other income (expense) includes interest income, interest expense, changes in the fair value of the warrant liabilities, gains and losses from foreign currency exchanges, and other non-operating gains and losses.
Income tax (benefit) provision . Income tax provision from continuing operations consists primarily of income tax provisions related to state income taxes. ASC 740-20 requires total income tax expense or benefit to be allocated among continuing operations, discontinued operations, extraordinary items, other comprehensive income and items charged directly to shareholders’ equity. This allocation is referred to as intra-period tax allocation. The sale of the Company's international distribution operations and several foreign subsidiaries is reported under discontinued operations in the condensed consolidated financial statements. Accordingly, we are required to allocate the provision for income taxes between continuing operations and discontinued operations.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. On an on-going basis, we evaluate our estimates and assumptions, including those related to revenue recognition, allowances for accounts receivable, inventories and intangible assets, stock-based compensation and income taxes. We base our estimates on historical experience and on various other assumptions that we believe 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 assumption conditions.
Critical accounting policies are those that, in management’s view, are most important in the portrayal of our financial condition and results of operations. Except for the changes disclosed in Note 2 to the Notes to Condensed Consolidated Financial Statements included in Item 1, Part I of this Quarterly Report on Form 10-Q, management believes there have been no material changes during the three months ended March 31, 2017 to the critical accounting policies discussed in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 30, 2017.
24
The tables below set forth certain statements of operations data for the periods indicated (in thousands). Our historical results are not necessarily indicative of the operating results that may be expected in the future.
|
|
Three Months Ended March 31, |
|
|||||
|
|
2017 |
|
|
2016 |
|
||
Revenues |
|
$ |
27,978 |
|
|
$ |
34,206 |
|
Cost of revenues |
|
|
11,199 |
|
|
|
9,719 |
|
Gross profit |
|
|
16,779 |
|
|
|
24,487 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
Research and development |
|
|
1,449 |
|
|
|
3,641 |
|
Sales and marketing |
|
|
11,103 |
|
|
|
14,940 |
|
General and administrative |
|
|
6,223 |
|
|
|
9,004 |
|
Amortization of acquired intangible assets |
|
|
172 |
|
|
|
255 |
|
Restructuring expense |
|
|
1,231 |
|
|
|
89 |
|
Total operating expenses |
|
|
20,178 |
|
|
|
27,929 |
|
Operating loss |
|
|
(3,399 |
) |
|
|
(3,442 |
) |
Other income (expense): |
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(1,981 |
) |
|
|
(981 |
) |
Other income (expense), net |
|
|
5 |
|
|
|
198 |
|
Total other income (expense) |
|
|
(1,976 |
) |
|
|
(783 |
) |
Loss from continuing operations before taxes |
|
|
(5,375 |
) |
|
|
(4,225 |
) |
Income tax provision |
|
|
49 |
|
|
|
23 |
|
Loss from continuing operations |
|
|
(5,424 |
) |
|
|
(4,248 |
) |
Loss from discontinued operations |
|
|
(91 |
) |
|
|
(2,369 |
) |
Net loss |
|
$ |
(5,515 |
) |
|
$ |
(6,617 |
) |
|
Three Months Ended |
|
|||||
|
March 31, |
|
|||||
|
2017 |
|
|
2016 |
|
||
Revenues by source |
|
|
|
|
|
|
|
U.S. commercial revenue |
$ |
23,437 |
|
|
$ |
29,233 |
|
Other |
|
4,541 |
|
|
|
4,973 |
|
Total revenues |
$ |
27,978 |
|
|
$ |
34,206 |
|
|
|
|
|
|
|
|
|
Gross profit by source |
|
|
|
|
|
|
|
U.S. commercial revenue |
$ |
16,015 |
|
|
$ |
23,548 |
|
Other |
|
764 |
|
|
|
939 |
|
Total gross profit |
$ |
16,779 |
|
|
$ |
24,487 |
|
|
|
|
|
|
|
|
|
Gross profit margin by source |
|
|
|
|
|
|
|
U.S. commercial revenue |
|
68.3 |
% |
|
|
80.6 |
% |
Other |
|
16.8 |
% |
|
|
18.9 |
% |
Total gross profit margin |
|
60.0 |
% |
|
|
71.6 |
% |
Three Months Ended March 31, 2017 Compared to the Three Months Ended March 31, 2016
Revenues . Revenues were $28.0 million for the three months ended March 31, 2017 compared to $34.2 million for the three months ended March 31, 2016, representing a decrease of $6.2 million, or 18.2%.
U.S. Commercial Revenues were $23.4 million for the three months ended March 31, 2017 compared to $29.2 million for the three months ended March 31, 2016, representing a decrease of $5.8 million or 19.8%. The decrease in revenue was attributed to a combination of volume, product mix, and pricing as a result of lost distributors and customers and associated overall change in revenue composition associated with the financial and operational challenges the Company faced in 2016,
25
which led to the sale of the Company’s international b usiness in order to sustain operations. Revenue was also impacted by the Company’s decision to exit the stocking distributor and terminate distributor relationships that are not representative of the Company’s long-term business and rebranding strategy. Revenue from stocking distributors alone represented $1.3 million of the revenue decline.
Other Revenues were $4.5 million for the three months ended March 31, 2017 compared to $5.0 million for the three months ended March 31, 2016. Other revenues in the three months ended March 31, 2017 are primarily attributed to sales to Globus under our supply agreement with Globus, or the Supply Agreement. Other revenues in the three months ended March 31, 2016 are primarily attributed to sales to affiliates. The decrease was primarily related to lower sales to Globus compared to sales to affiliates.
Cost of revenues . Cost of revenues was $11.2 million for the three months ended March 31, 2017 compared to $9.7 million for the three months ended March 31, 2016, representing an increase of $1.5 million, or 15.2%.
Cost of U.S. Commercial Revenues were $7.4 million for the three months ended March 31, 2017 compared to $5.7 million for the three months ended March 31, 2016. Despite a decrease in revenue, cost of revenues increased slightly attributed primarily to increased supply costs from reduced sourcing and manufacturing volumes, and an increase in inventory kit write-offs due to distributor turnover.
Cost of other revenues, which are primarily attributed to sales to Globus under the Supply Agreement, were $3.8 million for the three months ended March 31, 2017 compared to $4.0 million for the three months ended March 31, 2016. The decrease in cost of revenues was primarily related to lower sales to Globus in the three months ended March 31, 2017 compared to the intercompany sales and cost of sales included in continuing operations in the three months ended March 31, 2016.
Gross profit . Gross profit was $16.8 million for the three months ended March 31, 2017 compared to $24.5 million for the three months ended March 31, 2016, representing a decrease of $7.7 million, or 31.5%.
Gross profit from U.S. Commercial Revenues was 68.3% for the three months ended March 31, 2017 compared to 80.6% for the three months ended March 31, 2016. The decrease in gross margin was attributable primarily to increased supply costs from reduced sourcing and manufacturing volumes, and an increase in inventory kit write-offs due to distributor turnover.
Gross profit from Other Revenues was 16.8% for the three months ended March 31, 2017 compared to 18.9% for the three months ended March 31, 2016. The decrease in gross margin was primarily related to sale of our international business to Globus, for which we supply international products at reduced margin over historical levels.
Research and development expense . Research and development expense was $1.4 million for the three months ended March 31, 2017 compared to $3.6 million for the three months ended March 31, 2016, representing a decrease of $2.2 million, or 60.2%. The decrease was related to a decrease in stock compensation expense related to a consulting agreement ($0.5 million), reduction of personnel related costs due to headcount reductions ($0.6 million) and a reduction of development activities ($1.1 million).
Sales and marketing expense. Sales and marketing expense was $11.1 million for the three months ended March 31, 2017 compared to $14.9 million for the three months ended March 31, 2016, representing a decrease of $3.8 million, or 25.7%. The decrease was the result of a reduction in personnel and related expenses due to head-count reductions ($1.6 million), lower commission expense due to lower sales ($1.4 million) and a reduction in general sales and marketing expenses ($0.8 million).
General and administrative expense. General and administrative expense was $6.2 million for the three months ended March 31, 2017 compared to $9.0 million for the three months ended March 31, 2016, representing a decrease of $2.8 million, or 30.9%. The decrease was due to a reduction in legal costs due to legal costs incurred in connection with the Globus transaction in 2016 ($1.4 million), a reduction in personnel related costs due to head-count reductions ($0.9 million) and a reduction in professional services ($0.4 million).
Amortization of acquired intangible assets. Amortization of acquired intangible assets was $0.2 million for the three months ended March 31, 2017 compared to $0.3 million for the three months ended March 31, 2016. This expense represents amortization in the period for intangible assets associated with general business assets obtained in acquisitions.
26
Restructuring expense . Restructuring expense was $1.2 million for the three months ended March 31, 2017 compared to $0.1 million for the three months ended March 31, 2016. Due to the closing of the Globus Transaction, which eliminated substantially all of our international operations we began a corporate downsizing initiative to rationalize our cost structure in line with our reduced op erations. The restructuring costs for the three months ended March 31, 2016 consist primarily of severance charges related to headcount reductions.
Interest expense, net. Interest expense, net, was $2.0 million for the three months ended March 31, 2017 compared to $1.0 million for the three months ended March 31, 2016 representing an increase of $1.0 million. The increase is primarily related to interest expense of $2.4 million related to MidCap and Deerfield debt extinguished in the Globus transaction being included in discontinued operations for the three months ended March 31, 2016 partially offset by interest expense related to the Globus Facility Agreement.
Other income (expense), net . Other income (expense), net was net income of $0.0 million for the three months ended March 31, 2017 compared to net income of $0.2 million for the three months ended March 31, 2016, representing a decrease in income of $0.2 million. The decrease in income was primarily the result of the decrease in warrant valuation ($0.1 million) which was related to the decrease in the value of our common stock in the first quarter of 2016.
Income tax provision. Income tax provision was less than $0.1 million for the three months ended March 31, 2017 and 2016. The 2017 and 2016 income tax provision from continuing operations consists primarily of income tax provisions related to state income taxes. The 2016 income tax benefit from continuing operations consists primarily of the reversal of deferred tax liabilities associated with tax deductible goodwill, partially offset by state income taxes. We are required allocate the provision for income taxes between continuing operations and other categories of earnings, such as discontinued operations.
Discontinued operations . On July 25, 2016, we entered into the Purchase Agreement with Globus whereby we agreed to sell all of our international distribution operations and agreements, including our wholly-owned subsidiaries in Japan and Brazil and substantially all of the assets of our other sales operations in the United Kingdom and Italy, and on September 1, 2016, we completed the sale to Globus. As a result of our strategic decision to sell the International Business and focus on U.S market, our condensed consolidated statements of operations and the condensed consolidated balance sheets reflect the financial results from the International Business as discontinued operations for all periods presented.
For the three months ended March 31, 2016, activity presented under discontinued operations in the condensed consolidated statements of operations represents our commercial operations prior to the sale of the International Business in September 2016. Certain operating expenses were also allocated to the business activities associated with the discontinued operations as well as interest expense related to our debt that we repaid using the proceeds from the sale of the International Business.
Non-GAAP Financial Measures
We utilize certain financial measures that are not calculated based on U.S. generally accepted accounting principles, or GAAP. Certain of these financial measures are considered “non-GAAP” financial measures within the meaning of Item 10 of Regulation S-K promulgated by the SEC. We believe that non-GAAP financial measures reflect an additional way of viewing aspects of our operations that, when viewed with the GAAP results, provide a more complete understanding of our results of operations and the factors and trends affecting our business. These non-GAAP financial measures are unaudited and are also used by our management to evaluate financial results and to plan and forecast future periods. However, non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP. Non-GAAP financial measures used by us may differ from the non-GAAP measures used by other companies, including our competitors.
Adjusted EBITDA represents income (loss) from continuing operations excluding the effects of interest, taxes, depreciation, amortization, stock-based compensation, other income (expense) and other non-recurring income or expense items, such as asset impairments and restructuring and other expenses. We believe that the most directly comparable GAAP financial measure to adjusted EBITDA is income (loss) from continuing operations. Adjusted EBITDA has limitations. Therefore, adjusted EBITDA should not be considered either in isolation or as a substitute for analysis of our results as reported under GAAP. Furthermore, adjusted EBITDA should not be considered as an alternative to operating income (loss) or income (loss) from continuing operations as a measure of operating performance or to net cash provided by operating, investing or financing activities, or as a measure of our ability to meet our cash needs.
27
The following is a reconciliation of adjusted EBITDA to the most comparable GAAP measure, loss from continuing operations, for the three months ended March 31, 2017 and 2016 (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2017 |
|
|
2016 |
|
||
Loss from continuing operations |
|
$ |
(5,424 |
) |
|
$ |
(4,248 |
) |
Stock-based compensation |
|
|
516 |
|
|
|
58 |
|
Depreciation |
|
|
1,634 |
|
|
|
2,254 |
|
Amortization of intangible assets |
|
|
234 |
|
|
|
306 |
|
Stock price guarantee |
|
|
292 |
|
|
|
806 |
|
Interest expense, net |
|
|
1,981 |
|
|
|
981 |
|
Income tax provision |
|
|
49 |
|
|
|
23 |
|
Other (income) expense, net |
|
|
(5 |
) |
|
|
(198 |
) |
Restructuring expenses |
|
|
1,231 |
|
|
|
89 |
|
Adjusted EBITDA |
|
$ |
508 |
|
|
$ |
71 |
|
Liquidity and Capital Resources
We have incurred significant net losses since inception and relied on our ability to fund our operations through revenues from the sale of our products, debt financings and equity financings, including the Private Placement in March 2017. As we have incurred losses, a successful transition to profitability is dependent upon achieving a level of revenues adequate to support our cost structure. This may not occur and, unless and until it does, we will continue to need to raise additional capital. At March 31, 2017, our principal sources of liquidity consisted of cash of $25.5 million and accounts receivable, net of $14.2 million. We believe that our current available cash will be sufficient to fund our planned expenditures and meet our obligations for at least 12 months following our financial statement issuance date.
Historically, our principal sources of cash have included customer payments from the sale of our products, proceeds from the issuance of common and preferred stock and proceeds from the issuance of debt. Our principal uses of cash have included cash used in operations, payments relating to purchases of surgical instruments, repayments of borrowings under the Amended Credit Facility, payments due under the Orthotec settlement agreement and acquisitions of businesses and intellectual property rights. We expect that our principal uses of cash in the future will be these same uses of cash. We expect that, as our revenues grow, our sales and marketing, research and development expenses and our capital expenditures will continue to grow and, as a result, we will need to generate significant net revenues to achieve profitability. Operating losses and negative cash flows may continue for at least the next year as we continue to incur costs related to the execution of our operating plan and introduction of new products.
We may seek additional funds from public and private equity or debt financings, borrowings under new or existing debt facilities or other sources to fund our projected operating requirements. However, there is no guarantee that we will be able to obtain further financing, or do so on reasonable terms. If we are unable to raise additional funds on a timely basis, or at all, we would be materially adversely affected.
On July 25, 2016, we entered into the Purchase and Sale Agreement, with Globus, pursuant to which, and on the terms and subject to the conditions thereof, among other things, Globus agreed to acquire our International Business. Upon the closing, of the Globus Transaction on September 1, 2016, or the Closing, Globus paid us $80 million in cash, subject to a working capital adjustment, or the Closing Payment. Following the Closing, we have used approximately $66 million of the Closing Payment to (i) repay in full all amounts outstanding and due under our credit facility with Deerfield and (ii) repay certain of our outstanding indebtedness under our Amended Credit Facility with MidCap, in each case, including debt-related costs. At the Closing, we also entered into the Globus Facility Agreement pursuant to which Globus agreed to loan us up to $30 million, of which $25 million was drawn at the Closing and an additional $5 million draw in the fourth quarter of 2016, subject to the terms and conditions set forth in the Globus Facility Agreement.
In connection with the Globus Transaction we terminated employment agreements with several executive officers and commenced an employee headcount reduction program. We had additional headcount reductions in February 2017, and have recorded restructuring expenses of $1.2 million for the three months ended March 31, 2017, related to severance liability and post-employment benefits. We have incurred restructuring expenses totaling $3.3 million through March 31, 2017 as a result of this headcount reduction program.
28
A substantial portion of our available cash funds is held in business accounts with reputable financial institutions. At times, however, our deposits, may exceed federally insured limits and thus we may face lo sses in the event of insolvency of any of the financial institutions where our funds are deposited. We did not hold any marketable securities as of March 31, 2017.
Amended Credit Facility and Other Debt
On August 30, 2013, we entered into the Amended Credit Facility, which amended and restated the prior credit facility that we had with MidCap. On September 1, 2016, we entered into a Fifth Amendment to the MidCap Amended Facility Agreement, or the MidCap Fifth Amendment, that: (a) permitted (i) the Globus Transaction, (ii) the release of Alphatec International LLC and Alphatec Pacific, Inc. as credit parties, (iii) the payment in full of all obligations to Deerfield under the Facility Agreement between us and Deerfield, dated as of March 17, 2014, as amended to date, or the Deerfield Facility Agreement, and (iv) the incurrence of debt under the Globus Facility Agreement and the granting of liens in favor of Globus, (b) reduced the revolving credit commitment to $22.5 million and the term loan commitment to $5 million, (c) revised the existing financial covenant package, and (d) extended the commitment expiry date from December 31, 2016 to December 31, 2019. In connection with the prepayment of the term loan under the Amended Credit Facility, we incurred a prepayment fee of $0.6 million payable to MidCap. On March 30, 2017, we entered into a Sixth Amendment to the Amended Credit Facility to extend the date that the financial covenants of the Amended Credit Facility are effective from April 2017 to April 2018.
The term loan interest rate is priced at the London Interbank Offered Rate, or LIBOR, plus 8.0%, subject to a 9.5% floor, and the revolving line of credit interest rate remains priced at LIBOR plus 6.0%, reset monthly. At March 31, 2017, the revolving line of credit carried an interest rate of 6.8% and the term loan carries an interest rate of 9.5%. The borrowing base is determined, from time to time, based on the value of domestic eligible accounts receivable and domestic eligible inventory. As collateral for the Amended Credit Facility, we granted MidCap a security interest in substantially all of its assets, including all accounts receivable and all securities evidencing its interests in our subsidiaries. In addition to monthly payments of interest, monthly repayments of $0.2 million in 2017 and $0.3 million in 2018 through maturity are due, with the remaining principal due upon maturity. As of March 31, 2017, $10.3 million was outstanding under the revolving line of credit and $4.2 million was outstanding under the term loan.
The Amended Credit Facility includes traditional lending and reporting covenants including a fixed charge coverage ratio to be maintained by us. The Amended Credit Facility also includes several event of default provisions, such as payment default, insolvency conditions and a material adverse effect clause, which could cause interest to be charged at a rate which is up to five percentage points above the rate effective immediately before the event of default or result in MidCap’s right to declare all outstanding obligations immediately due and payable.
On September 1, 2016, we entered into the Globus Facility Agreement, pursuant to which Globus agreed to loan us up to $30 million, subject to the terms and conditions set forth in the Globus Facility Agreement. We made an initial draw of $25 million under the Globus Facility Agreement with an additional draw of $5 million made in the fourth quarter of 2016. As of March 31, 2017, the outstanding balance under the Globus Facility Agreement was $30 million, which becomes due and payable in quarterly payments of $0.8 million starting November 2018 and the final payment due on September 30, 2021. The term loan interest rate is priced at LIBOR plus 8.0% through September 1, 2018, and LIBOR plus 13.0%, thereafter.
As collateral for the Globus Facility Agreement, we granted Globus a first lien security interest in substantially all of our assets, other than accounts receivable and related assets, which will secure the Globus Facility Agreement on a second lien basis.
We have various capital lease arrangements. The leases bear interest at rates ranging from 6.6% to 9.6%, are generally due in monthly principal and interest installments, are collateralized by the related equipment, and have various maturity dates through September 2018. As of March 31, 2017, the balance of these capital leases, net of interest totaled $0.7 million.
As of March 31, 2017, we have made $28.5 million in Orthotec settlement payments and there remains aggregate of $29.3 million of Orthotec settlement payments to be paid by us.
Operating Activities
We used net cash of $6.1 million from operating activities for the three months ended March 31, 2017. During this period, net cash provided by operating activities primarily consisted of a net loss of $5.5 million and working capital and other assets used cash of $4.9 million, which were offset by $4.4 million of non-cash costs including amortization,
29
depreciation, stock-based compensation, provision for doubtful accounts, provision fo r excess and obsolete inventory, and interest expense related to amortization of debt discount and issuance costs. Working capital and other assets used cash of $4.7 million primarily consisted of an increase in inventories of $0.3 million and a decrease i n accounts payable of $5.4 million and accrued expenses of $5.9 million, partially offset by decreases in accounts receivable of $4.4 million, prepaid expenses and other current assets of $2.0 million and other assets of $0.3 million.
Investing Activities
We used cash of $2.0 million in investing activities for the three months ended March 31, 2017, primarily for the purchase of surgical instruments.
Financing Activities
Financing activities provided net cash of $13.8 million for the three months ended March 31, 2017, primarily attributable to the Private Placement, which provided net cash proceeds of $17.5 million. Under the MidCap Amended Credit Facility, we made net payments of $2.8 million during the three months ended March 31, 2017. We also made principal payments on notes payable and capital leases totaling $0.9 million in the three months ended March 31, 2017.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Contractual obligations and commercial commitments
Total contractual obligations and commercial commitments as of March 31, 2017 are summarized in the following table (in thousands):
|
|
Payment Due by Year |
|
|||||||||||||||||||||||||
|
|
Total |
|
|
2017 (9 months) |
|
|
2018 |
|
|
2019 |
|
|
2020 |
|
|
2021 |
|
|
Thereafter |
|
|||||||
Amended Credit Facility with MidCap |
|
$ |
15,169 |
|
|
$ |
1,925 |
|
|
$ |
2,379 |
|
|
$ |
10,865 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Facility Agreement with Globus |
|
|
30,000 |
|
|
|
— |
|
|
|
1,667 |
|
|
|
3,333 |
|
|
|
3,333 |
|
|
|
21,667 |
|
|
|
— |
|
Interest expense |
|
|
18,971 |
|
|
|
3,687 |
|
|
|
4,573 |
|
|
|
5,223 |
|
|
|
3,460 |
|
|
|
2,028 |
|
|
|
— |
|
Notes payable for software licenses |
|
|
47 |
|
|
|
47 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Note payable for insurance premiums |
|
|
717 |
|
|
|
717 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Capital lease obligations |
|
|
329 |
|
|
|
261 |
|
|
|
68 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Operating lease obligations |
|
|
6,813 |
|
|
|
1,205 |
|
|
|
1,556 |
|
|
|
1,543 |
|
|
|
1,538 |
|
|
|
971 |
|
|
|
— |
|
Litigation settlement obligations |
|
|
29,333 |
|
|
|
3,300 |
|
|
|
4,400 |
|
|
|
4,400 |
|
|
|
4,400 |
|
|
|
4,000 |
|
|
|
8,833 |
|
Guaranteed minimum royalty obligations |
|
|
8,898 |
|
|
|
1,666 |
|
|
|
2,006 |
|
|
|
1,231 |
|
|
|
943 |
|
|
|
918 |
|
|
|
2,134 |
|
Stock price guarantee (1) |
|
|
7,002 |
|
|
|
2,325 |
|
|
|
2,336 |
|
|
|
2,341 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
New product development milestones (2) |
|
|
400 |
|
|
|
— |
|
|
|
200 |
|
|
|
— |
|
|
|
200 |
|
|
|
— |
|
|
|
— |
|
Total |
|
$ |
117,679 |
|
|
$ |
15,133 |
|
|
$ |
19,185 |
|
|
$ |
28,936 |
|
|
$ |
13,874 |
|
|
$ |
29,584 |
|
|
$ |
10,967 |
|
(1) |
Based on our closing stock price as of March 31, 2017, the last trading date of the quarter, of $2.33 per share. Pursuant to a three-year collaboration agreement, we may be obligated to make three annual payments to the collaborator as sole consideration for services provided, paid in our common stock at a per share price of $23.35, which was equal to the average NASDAQ closing price of the common stock on the five days leading up to and including the date of signing the collaboration agreement. The actual number of shares issued each year will be determined by the fair market value of the services provided over the prior 12 months. The actual amount of potential cash settlement will vary depending on the price of our common stock at the respective settlement dates. |
(2) |
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 during the period from 2017 through 2020. |
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance related to revenue recognition. This new standard replaces all current U.S. GAAP guidance on this topic and eliminates all industry-specific
30
guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. T he core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. This guidance, including all subsequent clarifications, is effective for us for annual and interim reporting periods in fiscal years beginning after December 15, 2017 and can be applied either retrospectively to each period presented or as a cumulative-ef fect adjustment as of the date of adoption. We performed a preliminary assessment of the impact of the new standard on the consolidated financial statements, and considered all items outlined in the standard. In assessing the impact, we outlined all revenu e generating activities, mapped those activities to performance obligations and traced those performance obligations to the standard. We are now assessing what impact the change in standard will have on those performance obligations. We will continue to ev aluate the future impact and method of adoption of the new standard and related amendments on the consolidated financial statements and related disclosures throughout 2017. We will adopt the new standard beginning January 2018.
In July 2015, the FASB issued new accounting guidance, which changes the measurement principle for inventory from the lower of cost or market to lower of cost and net realizable value for entities that do not measure inventory using the last-in, first-out or retail inventory method. The guidance also eliminates the requirement for these entities to consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory. The guidance is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. We adopted the standard for reporting periods beginning January 1, 2017.
In February 2016, the FASB issued new accounting guidance, which changes several aspects of the accounting for leases, including the requirement that all leases with durations greater than twelve months be recognized on the balance sheet. The guidance is effective for annual periods and interim periods in fiscal years beginning after December 15, 2018. We are evaluating the impact of adopting this new accounting standard on our financial statements.
In March 2016, the FASB issued new accounting guidance, which changes several aspects of the accounting for share-based payment award transactions, including accounting and cash flow classification for excess tax benefits and deficiencies, forfeitures, and tax withholding requirements and cash flow classification. The guidance is effective for annual periods and interim periods in fiscal years beginning after December 15, 2016. We adopted the standard for reporting periods beginning January 1, 2017.
In August 2016, the FASB issued new accounting guidance, which eliminates the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows, by adding or clarifying guidance on eight specific cash flow issues. The guidance is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted. The amendments in this update should be applied retrospectively to all periods presented, unless deemed impracticable, in which case, prospective application is permitted. We are currently evaluating the new guidance and has not determined the impact this standards update may have on our financial statements.
Forward Looking Statements
This Quarterly Report on Form 10-Q incorporates a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act, including statements regarding:
|
• |
our estimates regarding anticipated operating losses, future revenue, expenses, cost savings, capital requirements, uses and sources of cash and liquidity, including our anticipated revenue growth and cost savings; |
|
• |
our ability to meet the financial covenants under our credit facilities; |
|
• |
our ability to ensure that we have effective disclosure controls and procedures; |
|
• |
our not realizing the full economic benefit from the Globus Transaction, including as a result of indemnification claims under the definitive agreement and the retention by us of certain liabilities associated with the international business, and our ability to meet our obligations under the Globus supply agreement; |
|
• |
our ability to meet, and potential liability from not meeting, the payment obligations under the Orthotec settlement agreement; |
|
• |
our ability to regain and maintain compliance with the quality requirements of the FDA; |
31
|
• |
our ability to market, improve, gro w, commercialize and achieve market acceptance of any of our products or any product candidates that we are developing or may develop in the future; |
|
• |
our beliefs about the features, strengths and benefits of our products; |
|
• |
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; |
|
• |
our business strategy and our underlying assumptions about market data, demographic trends, reimbursement trends and pricing trends; |
|
• |
our ability to achieve profitability, and the potential need to raise additional funding; |
|
• |
our ability to attract and retain a qualified management team, as well as other qualified personnel and advisors; |
|
• |
our ability to protect our intellectual property, and to not infringe upon the intellectual property of third parties; |
|
• |
our ability to meet or exceed the industry standard in clinical and legal compliance and corporate governance programs; |
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• |
potential liability resulting from litigation; |
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• |
potential liability resulting from a governmental review of our business practices; |
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• |
our beliefs about the usefulness of the non-GAAP financial measures included in this Quarterly Report on Form 10-Q; |
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• |
our beliefs with respect to our critical accounting policies and the reasonableness of our estimates and assumptions; and |
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• |
other factors discussed elsewhere in this Quarterly Report on Form 10-Q or any document incorporated by reference herein or therein. |
Any or all of our forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be wrong. They can be affected by inaccurate assumptions and/or by known or unknown risks and uncertainties. Many factors mentioned in our discussion in this Quarterly Report on Form 10-Q will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially from expected results.
We also provide a cautionary discussion of risks and uncertainties under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016 and any updates to those risk factors filed from time to time in our subsequent periodic and current reports filed with the SEC. These are factors that we think could cause our actual results to differ materially from expected results. Other factors besides those listed there could also adversely affect us.
Without limiting the foregoing, the words “believe,” “anticipate,” “plan,” “expect,” “estimate,” “may,” “will,” “should,” “could,” “would,” “seek,” “intend,” “continue,” “project,” and similar expressions are intended to identify forward-looking statements. There are a number of factors and uncertainties that could cause actual events or results to differ materially from those indicated by such forward-looking statements, many of which are beyond our control, including the factors set forth under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016 and any updates to those risk factors filed from time to time in our subsequent periodic and current reports filed with the SEC. In addition, the forward-looking statements contained herein represent our estimate only as of the date of this filing and should not be relied upon as representing our estimate as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements.
Interest Rate Risk
Our borrowings under our credit facilities expose us to market risk related to changes in interest rates. As of March 31, 2017, our outstanding floating rate indebtedness totaled $44.4 million. The primary base interest rate is the LIBOR rate.
32
Assuming the outstanding balance on our floating rate indebtedness remains constant over a year, a 100 basis point increase in the interest rate would decrease pre-tax income and cash flow by approximately $0.4 million. Other outstanding debt consists o f fixed rate instruments, including debt outstanding under the Amended Credit Facility with MidCap and the Globus Facility Agreement, notes payable and capital leases.
Commodity Price Risk
We purchase raw materials that are processed from commodities, such as titanium and stainless steel. These purchases expose us to fluctuations in commodity prices. Given the historical volatility of certain commodity prices, this exposure can impact our product costs. However, because our raw material prices comprise a small portion of our cost of revenues, we have not experienced any material impact on our results of operations from changes in commodity prices. A 10% change in commodity prices would not have had a material impact on our results of operations for the three months ended March 31, 2017.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in our reports that we file or submit pursuant to the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s, or SEC's, rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation of such internal control that occurred during the quarter ended March 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
33
Litigation
We are and may become involved in various legal proceedings arising from our business activities. While we are not aware of any litigation matter that in and of itself would have a material adverse impact on our consolidated results of operations, cash flows or financial position, litigation is inherently unpredictable, and depending on the nature and timing of a proceeding, an unfavorable resolution could materially affect our future consolidated results of operations, cash flows or financial position in a particular period. We assess contingencies to determine the degree of probability and range of possible loss for potential accrual or disclosure in our consolidated financial statements. An estimated loss contingency is accrued in our consolidated financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly subjective and requires judgments about future events. When evaluating contingencies, we may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. In addition, damage amounts claimed in litigation against us may be unsupported, exaggerated or unrelated to reasonably possible outcomes, and as such are not meaningful indicators of our potential liability.
There have been no material changes to the risk factors described under Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on March 31, 2017.
Unregistered Sales of Equity Securities
None
Issuer Purchases of Equity Securities
Under the terms of our 2016 Equity Incentive Plan and our Amended and Restated 2005 Employee, Director and Consultant Stock Plan, as amended, which we refer to collectively as the Stock Plans, and prior to the expiration of the Stock Plans in May 2026, we are permitted to award shares of restricted stock to our employees, directors and consultants. These shares of restricted stock are subject to a lapsing right of repurchase by us. We may exercise this right of repurchase in the event that a restricted stock recipient’s employment, directorship or consulting relationship with us terminates prior to the end of the vesting period. If we exercise this right, we are required to repay the purchase price paid by or on behalf of the recipient for the repurchased restricted shares. Repurchased shares are returned to the Stock Plan and are available for future awards under the terms of the Stock Plan. There were no shares of common stock repurchased during the quarter ended March 31, 2017.
34
Exhibit Number |
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Exhibit Description |
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|
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3.1 |
|
Form of Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock of Alphatec Holdings, Inc. (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 23, 2017 and incorporated herein by reference). |
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|
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4.1 |
|
Form of Warrant (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 23, 2017 and incorporated herein by reference). |
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4.2 |
|
Form of Registration Rights Agreement (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 23, 2017 and incorporated herein by reference). |
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10.1 * |
|
Sixth Amendment to the Amended and Restated Credit, Security and Guaranty Agreement dated March 30, 2017 with MidCap Funding Trust IV, as lender and other lenders. |
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10.2 * |
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First Amendment to the Credit, Security and Guaranty Agreement, dated March 30, 2017 with Globus Medical, Inc. |
|
|
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10.3 |
|
Employment Agreement with Jeffery G. Black dated February 10, 2017. |
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|
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10.4 |
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Employment Agreement with Jon Allen dated October December 10, 2016. |
|
|
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10.5 |
|
Employment Agreement with Craig E. Hunsaker dated September 14, 2016. |
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|
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10.6 |
|
Employment Agreement with Brian Snider dated February 27, 2017. |
|
|
|
10.7 |
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Resignation and Transition Agreement, as amended, by and among Alphatec Holdings, Inc., Alphatec Spine, Inc. and Ebun S. Garner, dated January 23, 2017. |
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|
|
10.8 |
|
Securities Purchase Agreement dated as of March 22, 2017, between Alphatec Holdings, Inc. and each purchaser named in the signature pages thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 23, 2017 and incorporated herein by reference). |
|
|
|
10.9 |
|
Engagement Letter between Alphatec Holdings, Inc. and Rodman & Renshaw, a unit of H.C. Wainwright & Co., LLC, dated as of March 1, 2017 (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 23, 2017 and incorporated herein by reference). |
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|
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10.10 |
|
Form of Support Agreement (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on March 23, 2017 and incorporated herein by reference). |
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|
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31.1 |
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Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
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31.2 |
|
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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|
|
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 March 31, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets (Unaudited) as of March 31, 2017 and December 31, 2016, (ii) Condensed Consolidated Statements of Operations (Unaudited) for the three months ended March 31, 2017 and 2016, (iii) Condensed Consolidated Statements of Comprehensive Loss (Unaudited) for the three months ended March 31, 2017 and 2016, (iv) Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2017 and 2016, and (v) Notes to Condensed Consolidated Financial Statements (Unaudited). |
* |
Confidential treatment has been requested for portions of this exhibit. These portions have been omitted and filed separately with the Securities and Exchange Commission. |
35
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ALPHATEC HOLDINGS, INC. |
|
|
|
By: |
/s/ Terry M. Rich |
|
Terry M. Rich |
|
Director and Chief Executive Officer |
|
(principal executive officer) |
|
|
By: |
/s/ Jeffrey G. Black |
|
Jeffrey G. Black |
|
Executive Vice President and Chief Financial Officer |
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(principal financial officer and principal accounting officer) |
Date: May 11, 2017
36
Exhibit Number |
|
Exhibit Description |
|
|
|
3.1 |
|
Form of Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock of Alphatec Holdings, Inc. (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 23, 2017 and incorporated herein by reference). |
|
|
|
4.1 |
|
Form of Warrant (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 23, 2017 and incorporated herein by reference). |
|
|
|
4.2 |
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Form of Registration Rights Agreement (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 23, 2017 and incorporated herein by reference). |
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|
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10.1 * |
|
Sixth Amendment to the Amended and Restated Credit, Security and Guaranty Agreement dated March 30, 2017 with MidCap Funding Trust IV, as lender and other lenders. |
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|
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10.2 * |
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First Amendment to the Credit, Security and Guaranty Agreement, dated March 30, 2017 with Globus Medical, Inc. |
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10.3 |
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Employment Agreement with Jeffery G. Black dated February 10, 2017. |
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10.4 |
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Employment Agreement with Jon Allen dated October December 10, 2016. |
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|
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10.5 |
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Employment Agreement with Craig E. Hunsaker dated September 14, 2016. |
|
|
|
10.6 |
|
Employment Agreement with Brian Snider dated February 27, 2017. |
|
|
|
10.7 |
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Resignation and Transition Agreement, as amended, by and among Alphatec Holdings, Inc., Alphatec Spine, Inc. and Ebun S. Garner, dated January 23, 2017. |
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|
|
10.8 |
|
Securities Purchase Agreement dated as of March 22, 2017, between Alphatec Holdings, Inc. and each purchaser named in the signature pages thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 23, 2017 and incorporated herein by reference). |
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|
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10.9 |
|
Engagement Letter between Alphatec Holdings, Inc. and Rodman & Renshaw, a unit of H.C. Wainwright & Co., LLC, dated as of March 1, 2017 (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 23, 2017 and incorporated herein by reference). |
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|
|
10.10 |
|
Form of Support Agreement (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on March 23, 2017 and incorporated herein by reference). |
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|
|
31.1 |
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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 March 31, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets (Unaudited) as of March 31, 2017 and December 31, 2016, (ii) Condensed Consolidated Statements of Operations (Unaudited) for the three months ended March 31, 2017 and 2016, (iii) Condensed Consolidated Statements of Comprehensive Loss (Unaudited) for the three months ended March 31, 2017 and 2016, (iv) Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2017 and 2016, and (v) Notes to Condensed Consolidated Financial Statements (Unaudited). |
* |
Confidential treatment has been requested for portions of this exhibit. These portions have been omitted and filed separately with the Securities and Exchange Commission. |
37
Exhibit 10.1
CERTAIN INFORMATION INDICATED BY [***] HAS BEEN DELETED FROM THIS EXHIBIT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT UNDER RULE 24B-2.
SIXTH Amendment to AMENDED AND RESTATED CREDIT, SECURITY AND GUARANTY AGREEMENT
SIXTH AMENDMENT TO AMENDED AND RESTATED CREDIT, SECURITY AND GUARANTY AGREEMENT (this “ Agreement ”) is made as of this 30th day of March, 2017 (the “ Sixth Amendment Effective Date ”), by and among ALPHATEC HOLDINGS, INC., a Delaware corporation (“ Alphatec Holdings ”) and ALPHATEC SPINE, INC., a California corporation (“ Alphatec Spine ”; together with Alphatec Holdings, each being referred to herein individually as a “ Borrower ”, and collectively as “ Borrowers ”), MIDCAP FUNDING IV TRUST (as Agent for Lenders, “ Agent ”), and MIDCAP FUNDING IV TRUST, individually, as a Lender, and the other financial institutions or other entities from time to time parties to the Credit Agreement referenced below, each as a Lender.
RECITALS
A. Agent, Lenders and Borrowers are parties to that certain Amended and Restated Credit, Security and Guaranty Agreement, dated as of August 30, 2013, as amended by the First Amendment to Amended and Restated Credit, Security and Guaranty Agreement, dated as of March 17, 2014, the Second Amendment to Amended and Restated Credit, Security and Guaranty Agreement, dated as of July 10, 2015, the Third Amendment and Waiver to Amended and Restated Credit, Security and Guaranty Agreement, dated as of March 11, 2016, by the Fourth Amendment and Waiver to Amended and Restated Credit, Security and Guaranty Agreement, dated as of August 9, 2016 and by the Consent and Fifth Amendment to Amended and Restated Credit, Security and Guaranty Agreement, dated as of September 1, 2016 (and as further amended, modified, supplemented and restated from time to time prior to the date hereof, the “ Original Credit Agreement ” and as the same is amended hereby and as it may be further amended, modified, supplemented and restated from time to time, the “ Credit Agreement ”), pursuant to which the Lenders have agreed to make certain advances of money and to extend certain financial accommodations to Borrowers and certain of their Affiliates in the amounts and manner set forth in the Credit Agreement .
B. Borrowers have requested, and Agent and Lenders have agreed, to amend the Original Credit Agreement to, among other things, revise the Fixed Charge Coverage Ratio set forth in Section 6 of the Original Credit Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, the terms and conditions set forth in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Agent, Lenders and Borrowers hereby agree as follows:
1. Recitals . This Agreement shall constitute a Financing Document and the Recitals and each reference to the Credit Agreement in the Original Credit Agreement, unless otherwise expressly noted, will be deemed to reference the Credit Agreement as amended hereby. The Recitals set forth above shall be construed as part of this Agreement as if set forth fully in the body of this Agreement and capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Original Credit Agreement (including those capitalize terms used in the Recitals hereto).
2. Amendments to Original Credit Agreement . Subject to the terms and conditi ons of this Agreement, including, without limitation, the conditions to effectiveness set forth in Section 5 below, the Original Credit Agreement is hereby amended as follows:
(a) Section 6.1 of the Original Credit Agreement is hereby amended by amending and restating the definition of “ Defined Period ” in its entirety, to read as follows:
Defined Period ” means, for purposes of calculating the Fixed Charge Coverage Ratio, for (a) [***], and (b) [***].
(b) Section 6.3 of the Original Credit Agreement is hereby amended by replacing the date of [***] contained therein with the date of [***].
(c) Exhibit B (Compliance Certificate) to the Original Credit Agreement is hereby amended by replacing the date “April 30, 2017” in footnote 1 thereof, with the date “April 30, 2018”.
3. Representations and Warranties; Reaffirmation of Security Interest; Updated Schedules . Each Borrower hereby (a) confirms that all of the representations and warranties set forth in the Credit Agreement are true and correct in all material respects (without duplication of any materiality qualifier in the text of such representation or warranty) with respect to such Borrower as of the date hereof except to the extent that any such representation or warranty relates to a specific date in which case such representation or warranty shall be true and correct as of such earlier date, and (b) covenants to perform its respective obligations under the Credit Agreement. Each Borrower confirms and agrees that all security interests and Liens granted to Agent continue in full force and effect, and all Collateral remains free and clear of any Liens, other than those granted to Agent and Permitted Liens. Except as specifically provided in this Agreement, nothing herein is intended to impair or limit the validity, priority or extent of Agent’s security interests in and Liens on the Collateral. Each Borrower acknowledges and agrees that the Credit Agreement, the other Financing Documents and this Agreement constitute the legal, valid and binding obligation of each Borrower, and are enforceable against each Borrower in accordance with their terms, except as the enforceability thereof may be limited by bankruptcy, insolvency or other similar laws relating to the enforcement of creditors’ rights generally and by general equitable principles.
4. Costs and Fees . Borrowers shall be responsible for the payment of all reasonable and documented out-of-pocket costs and fees of Agent’s counsel incurred in connection with the preparation of this Agreement and any related documents. If Agent or any Lender uses in-house counsel for any of these purposes, Borrowers further agree that the Obligations include reasonable charges for such work commensurate with the fees that would otherwise be charged by outside legal counsel selected by Agent or such Lender for the work performed.
5. Conditions to Effectiveness . This Agreement shall become effective as of the date on which each of the following conditions has been satisfied, as determined by Agent in its sole discretion:
(a) Borrowers shall have delivered to Agent (i) this Agreement and (ii) that certain Sixth Amendment Fee Letter, dated as of the Sixth Amendment Effective Date, in each case, duly executed by an authorized officer of each Borrower;
(b) Agent shall have received a corresponding fully executed amendment to the Globus Facility Agreement, in form and substance satisfactory to Agent, which amendment is in full force and effect;
(c) Borrowers shall have delivered to Agent a copy of the fully executed Securities Purchase Agreement dated as of March 22, 2017, by and among Alphatec Holdings and the purchasers party thereto, together with any other documentation ancillary thereto, which shall be in form and substance satisfactory to Agent;
2
(d) Borrowers shall have delivered to Agent evidence satisfactory to Agent that Borrowers have received unrestricted net cash proceeds (after underwriting discounts) from the issuance by Alphatec Holdings of its common or preferred shares on or prior to the Sixth Amendment Effective Date, in an aggregate amount equal to or greater than $17,000,000;
(e) all of the representations and warranties of Borrowers set forth in the herein and in the other Financing Documents are true and correct in all material respects (without duplication of any materiality qualifier in the text of such representation or warranty) with respect to such Borrower as of the date hereof except to the extent that any such representation or warranty relates to a specific date in which case such representations and warranties were true and correct in all material respects (without duplication of any materiality qualifier in the text of such representation or warranty) on and as of such date (and such parties’ delivery of their respective signatures hereto shall be deemed to be its certification thereof);
(f) no Default or Event of Default shall exist under any of the Financing Documents (and such parties’ delivery of their respective signatures hereto shall be deemed to be its certification thereof);
(g) Borrowers shall have delivered such other documents, information, certificates, records, permits, and filings as the Agent may reasonably request; and
(h) Agent shall have received from Borrowers all of the fees owing pursuant to this Agreement, including without limitation, Agent’s reasonable out-of-pocket legal fees and expenses pursuant to Section 4 of this Agreement.
6. Release . In consideration of the agreements of Agent and Required Lenders contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, each Borrower, voluntarily, knowingly, unconditionally and irrevocably, with specific and express intent, for and on behalf of itself and all of its respective parents, subsidiaries, affiliates, members, managers, predecessors, successors, and assigns, and each of their respective current and former directors, officers, shareholders, agents, and employees, and each of their respective predecessors, successors, heirs, and assigns (individually and collectively, the “ Releasing Parties ”) does hereby fully and completely release, acquit and forever discharge each of Agent, Lenders, and each their respective parents, subsidiaries, affiliates, members, managers, shareholders, directors, officers and employees, and each of their respective predecessors, successors, heirs, and assigns (individually and collectively, the “ Released Parties ”), of and from any and all actions, causes of action, suits, debts, disputes, damages, claims, obligations, liabilities, costs, expenses and demands of any kind whatsoever, at law or in equity, whether matured or unmatured, liquidated or unliquidated, vested or contingent, choate or inchoate, known or unknown that the Releasing Parties (or any of them) has against the Released Parties or any of them (whether directly or indirectly), based in whole or in part on facts, whether or not now known, existing on or before the Effective Date, that relate to, arise out of or otherwise are in connection with: (i) any or all of the Financing Documents or transactions contemplated thereby or any actions or omissions in connection therewith or (ii) any aspect of the dealings or relationships between or among any or all of the Borrowers, on the one hand, and any or all of the Released Parties, on the other hand, relating to any or all of the documents, transactions, actions or omissions referenced in clause (i) hereof. Each Borrower acknowledges that the foregoing release is a material inducement to Agent’s and Required Lender’s decision to enter into this Agreement and agree to the modifications contemplated hereunder, and has been relied upon by Agent and Required Lenders in connection therewith.
3
7. No Waiver or Novation . The ex ecution, delivery and effectiveness of this Agreement shall not, except as expressly provided in this Agreement, operate as a waiver of any right, power or remedy of Agent, nor constitute a waiver of any provision of the Credit Agreement, the Financing Doc uments or any other documents, instruments and agreements executed or delivered in connection with any of the foregoing. Nothing herein is intended or shall be construed as a waiver of any existing Defaults or Events of Default under the Credit Agreement or other Financing Documents or any of Agent’s rights and remedies in respect of such Defaults or Events of Default. This Agreement (together with any other document executed in connection herewith) is not intended to be, nor shall it be construed as, a n ovation of the Credit Agreement.
8. Affirmation . Except as specifically amended pursuant to the terms hereof, each Borrower hereby acknowledges and agrees that the Credit Agreement and all other Financing Documents (and all covenants, terms, conditions and agreements therein) shall remain in full force and effect, and are hereby ratified and confirmed in all respects by Borrowers. Each Borrower covenants and agrees to comply with all of the terms, covenants and conditions of the Credit Agreement and the Financing Documents, notwithstanding any prior course of conduct, waivers, releases or other actions or inactions on Agent’s or any Lender’s part which might otherwise constitute or be construed as a waiver of or amendment to such terms, covenants and conditions. Each Borrower hereby agrees that (i) all representations and warranties of Borrowers contained in the Original Credit Agreement and the other Financing Documents are true and correct in all material respects (without duplication of any materiality qualifier in the text of such representation or warranty) as of the date hereof (and such parties’ delivery of their respective signatures hereto shall be deemed to be its certification thereof), except to the extent such representations and warranties expressly relate to a specific date, in which case such representations and warranties were true and correct in all material respects (without duplication of any materiality qualifier in the text of such representation or warranty) on and as of such date and (ii) no Default or Event of Default shall exist under any of the Financing Documents (and each Borrower’s delivery of its signatures hereto shall be deemed to be its certification thereof);
9. Confidentiality . No Borrower will disclose the contents of this Agreement, the Credit Agreement or any of the other Financing Documents to any third party (including, without limitation, any financial institution or intermediary) without Agent’s prior written consent, other than to Borrowers’ officers and advisors on a need-to-know basis or as otherwise may be required by Law, including to any court or regulatory agency having jurisdiction over such Borrower. Each Borrower agrees to inform all such persons who receive information concerning this Agreement, the Credit Agreement and the other Financing Documents that such information is confidential and may not be disclosed to any other person except as may be required by Law, including to any court or regulatory agency having jurisdiction over such Borrower.
10. Miscellaneous .
(a) Reference to the Effect on the Credit Agreement . Upon the effectiveness of this Agreement, each reference in the Credit Agreement to “this Agreement,” “hereunder,” “hereof,” “herein,” or words of similar import shall mean and be a reference to the Credit Agreement, as amended by this Agreement. Except as specifically amended above, the Credit Agreement, and all other Financing Documents (and all covenants, terms, conditions and agreements therein), shall remain in full force and effect, and are hereby ratified and confirmed in all respects by Borrowers.
(b) Incorporation of Credit Agreement Provisions . The provisions contained in Section 11.6 (Indemnification), Section 12.8 (Governing Law; Submission to Jurisdiction) and Section 12.9 (Waiver of Jury Trial) of the Credit Agreement are incorporated herein by reference to the same extent as if reproduced herein in their entirety.
4
(c) Headings . Section headings in this Agreement are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.
(d) Counterparts . This Agreement may be signed in any number of counterparts, each of which shall be deemed an original and all of which when taken together shall constitute one and the same instrument. Delivery of an executed counterpart of this Agreement by facsimile or by electronic mail delivery of an electronic version (e.g., .pdf or .tif file) of an executed signature page shall be effective as delivery of an original executed counterpart hereof and shall bind the parties hereto.
(e) Entire Agreement . This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof.
(f) Severability . In case any provision of or obligation under this Agreement shall be invalid, illegal or unenforceable in any applicable jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.
(g) Successors/Assigns . This Agreement shall bind, and the rights hereunder shall inure to, the respective successors and assigns of the parties hereto, subject to the provisions of the Credit Agreement and the other Financing Documents.
[SIGNATURES APPEAR ON FOLLOWING PAGES]
5
IN WITNESS WHEREOF , intending to be legally bound, and intending that this document constitute an agreement executed under seal, the undersign ed have executed this Agreement under seal as of the day and year first hereinabove set forth.
AGENT: |
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MIDCAP FUNDING IV TRUST, |
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a Delaware statutory trust |
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By: |
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Apollo Capital Management, L.P., |
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its investment manager |
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By: |
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Apollo Capital Management GP, LLC, |
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its general partner |
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By: |
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/S/ Maurice Amsellem (SEAL) |
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Name: |
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Maurice Amsellem |
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Title: |
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Authorized Signatory |
LENDERS |
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MIDCAP FUNDING IV TRUST, |
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a Delaware statutory trust |
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By: |
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Apollo Capital Management, L.P., |
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its investment manager |
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By: |
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Apollo Capital Management GP, LLC, |
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its general partner |
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By: |
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/S/ Maurice Amsellem (SEAL) |
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Name: |
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Maurice Amsellem |
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Title: |
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Authorized Signatory |
[Signatures Continue on Following Page]
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BORROWERS: |
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ALPHATEC HOLDINGS, INC. , |
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a Delaware corporation |
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By: |
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/S/ Jeffrey G. Black (SEAL) |
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Name: |
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Jeffrey G. Black |
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Title: |
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CFO |
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ALPHATEC SPINE, INC. , |
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a California corporation |
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By: |
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/S/ Jeffrey G. Black (SEAL) |
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Name: |
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Jeffrey G. Black |
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Title: |
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CFO |
7
Exhibit 10.2
CERTAIN INFORMATION INDICATED BY [***] HAS BEEN DELETED FROM THIS EXHIBIT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT UNDER RULE 24B-2.
FIRST Amendment to CREDIT, SECURITY AND GUARANTY AGREEMENT
FIRST AMENDMENT TO CREDIT, SECURITY AND GUARANTY AGREEMENT (this “ Agreement ”) is made as of this 30th day of March, 2017 (the “ First Amendment Effective Date ”), by and among ALPHATEC HOLDINGS, INC., a Delaware corporation and ALPHATEC SPINE, INC., a California corporation (each individually as a “Borrower” , and collectively as “Borrowers” ), the other Credit Parties listed on the signature pages hereof, and GLOBUS MEDICAL, INC., a Delaware corporation, being referred to herein individually as “Lender” .
RECITALS
A. Lender and Borrowers are parties to that certain Credit, Security and Guaranty Agreement, dated as of September 1, 2016 (and as further amended, modified, supplemented and restated from time to time prior to the date hereof, the “ Original Credit Agreement ” and as the same is amended hereby and as it may be further amended, modified, supplemented and restated from time to time, the “ Credit Agreement ”), pursuant to which the Lender has agreed to make certain advances of money and to extend certain financial accommodations to Borrowers and certain of their Affiliates in the amounts and manner set forth in the Credit Agreement .
B. Borrowers have requested, and Lender has agreed, to amend the Original Credit Agreement to, among other things, revise the Fixed Charge Coverage Ratio set forth in Section 6 of the Original Credit Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, the terms and conditions set forth in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lender and Borrowers hereby agree as follows:
1. Recitals . This Agreement shall constitute a Financing Document and the Recitals and each reference to the Credit Agreement in the Original Credit Agreement, unless otherwise expressly noted, will be deemed to reference the Credit Agreement as amended hereby. The Recitals set forth above shall be construed as part of this Agreement as if set forth fully in the body of this Agreement and capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Original Credit Agreement (including those capitalize terms used in the Recitals hereto).
2. Amendments to Original Credit Agreement . Subject to the terms and conditions of this Agreement, including, without limitation, the conditions to effectiveness set forth in Section 5 below, the Original Credit Agreement is hereby amended as follows:
(a) Section 6.1 of the Original Credit Agreement is hereby amended by amending and restating the definition of “ Defined Period ” in its entirety, to read as follows:
“ Defined Period ” means, for purposes of calculating the Fixed Charge Coverage Ratio, for (a) [***], and (b) [***].
(b) Section 6.3 of the Original Credit Agreement is hereby amended by replacing the date of [***] contained therein with the date of [***].
(c) Exhibit B (Compliance Certificate) to the Original Credit Agreement is hereby amended by replacing the date “April 30, 2017” in the parenthetical therein, w ith the date “April 30, 2018”.
3. Representations and Warranties; Reaffirmation of Security Interest; Updated Schedules . Each Credit Party hereby (a) confirms that all of the representations and warranties set forth in the Credit Agreement are true and correct in all material respects (without duplication of any materiality qualifier in the text of such representation or warranty) with respect to such Credit Party as of the date hereof except to the extent that any such representation or warranty relates to a specific date in which case such representation or warranty shall be true and correct as of such earlier date, and (b) covenants to perform its respective obligations under the Credit Agreement. Each Credit Party confirms and agrees that all security interests and Liens granted to Lender continue in full force and effect, and all Collateral remains free and clear of any Liens, other than those granted to Lender and Permitted Liens. Except as specifically provided in this Agreement, nothing herein is intended to impair or limit the validity, priority or extent of Lender’s security interests in and Liens on the Collateral. Each Credit Party acknowledges and agrees that the Credit Agreement, the other Financing Documents and this Agreement constitute the legal, valid and binding obligation of each Credit Party, and are enforceable against each Credit Party in accordance with their terms, except as the enforceability thereof may be limited by bankruptcy, insolvency or other similar laws relating to the enforcement of creditors’ rights generally and by general equitable principles.
4. Costs and Fees . Borrowers shall be responsible for the payment of all fees, costs and expenses as provided in Section 12.14(a) of the Credit Agreement.
5. Conditions to Effectiveness . This Agreement shall become effective as of the date on which each of the following conditions has been satisfied, as determined by Lender in its sole discretion:
(a) Lender shall have received a corresponding fully executed amendment to the Midcap Facility Agreement, in form and substance satisfactory to Lender, which amendment is in full force and effect;
(b) Borrowers shall have delivered to Lender a copy of the fully executed Equity Documents, which shall be in form and substance satisfactory to Lender;
(c) Borrowers shall have delivered to Lender evidence satisfactory to Lender that Borrowers have received unrestricted net cash proceeds (net of underwriting discount) from the issuance by Alphatec Holdings of its common or preferred shares on or prior to the First Amendment Effective Date, in an aggregate amount equal to or greater than $17,000,000 pursuant to the transaction documents delivered to the Lender (the “Equity Documents” );
(d) all of the representations and warranties of Borrowers set forth in the herein and in the other Financing Documents are true and correct in all material respects (without duplication of any materiality qualifier in the text of such representation or warranty) with respect to such Borrower as of the date hereof except to the extent that any such representation or warranty relates to a specific date in which case such representations and warranties were true and correct in all material respects (without duplication of any materiality qualifier in the text of such representation or warranty) on and as of such date (and such parties’ delivery of their respective signatures hereto shall be deemed to be its certification thereof);
(e) no Default or Event of Default shall exist under any of the Financing Documents (and such parties’ delivery of their respective signatures hereto shall be deemed to be its certification thereof);
(f) Borrowers shall have delivered such other documents, information, certificates, records, permits, and filings as the Lender may reasonably request; and
(g) Lender shall have received from Borrowers all of the fees owing pursuant to this Agreement, including without limitation, Lender’s reasonable out-of-pocket legal fees and expenses pursuant to Section 4 of this Agreement.
6. Release . In consideration of the agreements of Lender contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, each Credit Party, voluntarily, knowingly, unconditionally and irrevocably, with specific and express intent, for and on behalf of itself and all of its respective parents, subsidiaries, affiliates, members, managers, predecessors, successors, and assigns, and each of their respective current and former directors, officers, shareholders, agents, and employees, and each of their respective predecessors, successors, heirs, and assigns (individually and collectively, the “ Releasing Parties ”) does hereby fully and completely release, acquit and forever discharge Lender, and each its respective parents, subsidiaries, affiliates, members, managers, shareholders, directors, officers and employees, and each of their respective predecessors, successors, heirs, and assigns (individually and collectively, the “ Released Parties ”), of and from any and all actions, causes of action, suits, debts, disputes, damages, claims, obligations, liabilities, costs, expenses and demands of any kind whatsoever, at law or in equity, whether matured or unmatured, liquidated or unliquidated, vested or contingent, choate or inchoate, known or unknown that the Releasing Parties (or any of them) has against the Released Parties or any of them (whether directly or indirectly), based in whole or in part on facts, whether or not now known, existing on or before the Effective Date, that relate to, arise out of or otherwise are in connection with: (i) any or all of the Financing Documents, or (ii) any aspect of the dealings or relationships between or among any or all of the Credit Parties, on the one hand, and any or all of the Released Parties, on the other hand, relating to any or all of the documents, transactions, actions or omissions referenced in clause (i) hereof. Each Credit Party acknowledges that the foregoing release is a material inducement to Lender’s decision to enter into this Agreement and agree to the modifications contemplated hereunder, and has been relied upon by Lender in connection therewith.
7. No Waiver or Novation . The execution, delivery and effectiveness of this Agreement shall not, except as expressly provided in this Agreement, operate as a waiver of any right, power or remedy of Lender, nor constitute a waiver of any provision of the Credit Agreement, the Financing Documents or any other documents, instruments and agreements executed or delivered in connection with any of the foregoing. Nothing herein is intended or shall be construed as a waiver of any existing Defaults or Events of Default under the Credit Agreement or other Financing Documents or any of Lender’s rights and remedies in respect of such Defaults or Events of Default. This Agreement (together with any other document executed in connection herewith) is not intended to be, nor shall it be construed as, a novation of the Credit Agreement.
8. Affirmation . Except as specifically amended pursuant to the terms hereof, each Credit Party hereby acknowledges and agrees that the Credit Agreement and all other Financing Documents (and all covenants, terms, conditions and agreements therein) shall remain in full force and effect, and are hereby ratified and confirmed in all respects by the Credit Parties. Each Credit Party covenants and agrees to comply with all of the terms, covenants and conditions of the Credit Agreement and the Financing Documents, notwithstanding any prior course of conduct, waivers, releases or other actions or inactions on Lender’s part which might otherwise constitute or be construed as a waiver of or amendment to such terms, covenants and conditions. Each Credit Party hereby agrees that (i) all representations and warranties of the Credit Parties contained in the Original Credit Agreement and the other Financing Documents are true and correct in all material respects (without duplication of any materiality qualifier in the text of such representation or warranty) as of the date hereof (and such parties’ delivery of their respective signatures hereto shall be deemed to be its certification thereof), except to the extent such representations and warranties expressly relate to a specific date, in which case such representations and warranties were true and correct in all material respects (without duplication of any materiality qualifier in the text of such representation or warranty) on and as of such date and (ii) no Default or Event of Default shall exist under any of the Financing Documents (and each Credit Party’s delivery of its signatures hereto shall be deemed to be its certification thereof);
9. Confidentiality . No Credit Party will disclose the contents of this Agreement, the Credit Agreement or any of the other Financing Documents to any third party (including, without limitation, any financial institution or intermediary) without Lender’s prior written consent, other than to such Credit Party’s officers and advisors on a need-to-know basis or as otherwise may be required by Law, including to any court or regulatory agency having jurisdiction over such Credit Party. Each Credit Party agrees to inform all such persons who receive information concerning this Agreement, the Credit Agreement and the other Financing Documents that such information is confidential and may not be disclosed to any other person except as may be required by Law, including to any court or regulatory agency having jurisdiction over such Credit Party.
10. Miscellaneous .
(a) Reference to the Effect on the Credit Agreement . Upon the effectiveness of this Agreement, each reference in the Credit Agreement to “this Agreement,” “hereunder,” “hereof,” “herein,” or words of similar import shall mean and be a reference to the Credit Agreement, as amended by this Agreement. Except as specifically amended above, the Credit Agreement, and all other Financing Documents (and all covenants, terms, conditions and agreements therein), shall remain in full force and effect, and are hereby ratified and confirmed in all respects by Borrowers.
(b) Incorporation of Credit Agreement Provisions . The provisions contained in Section 12.14 (Indemnification), Section 12.8 (Governing Law; Submission to Jurisdiction) and Section 12.9 (Waiver of Jury Trial) of the Credit Agreement are incorporated herein by reference to the same extent as if reproduced herein in their entirety.
(c) Headings . Section headings in this Agreement are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.
(d) Counterparts . This Agreement may be signed in any number of counterparts, each of which shall be deemed an original and all of which when taken together shall constitute one and the same instrument. Delivery of an executed counterpart of this Agreement by facsimile or by electronic mail delivery of an electronic version (e.g., .pdf or .tif file) of an executed signature page shall be effective as delivery of an original executed counterpart hereof and shall bind the parties hereto.
(e) Entire Agreement . This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof.
(f) Severability . In case any provision of or obligation under this Agreement shall be invalid, illegal or unenforceable in any applicable jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.
(g) Successors/Assigns . This Agreement shall bind, and the rights hereunder shall inure to, the respective successors and assigns of the parties hereto, subject to the provisions of the Credit Agreement and the other Financing Documents.
[SIGNATURES APPEAR ON FOLLOWING PAGES]
IN WITNESS WHEREOF , intending to be legally bound, and intending that this document constitute an agreement executed under seal, the undersigned have executed this Agreement under seal as of the day and year first hereinabove set forth.
LENDER |
GLOBUS MEDICAL, INC. |
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By: |
/s/ Dan T. Scavilla |
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Name: |
Dan T. Scavilla |
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Title: |
CFO |
[Signatures Continue on Following Page]
BORROWERS: |
ALPHATEC HOLDINGS, INC. , |
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a Delaware corporation |
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By: |
/s/ Jeffrey G. Black |
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Name: |
Jeffrey G. Black |
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Title: |
EVP, CFO |
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ALPHATEC SPINE, INC. , |
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a California corporation |
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By: |
/s/ Jeffrey G. Black |
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Name: |
Jeffrey G. Black |
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Title: |
EVP, CFO |
EXHIBIT 10.3
February 10, 2017
Jeffrey G. Black
7281 Calle Conifera
Carlsbad, CA 92009
Re: Employment Terms
Dear Jeff:
This letter (the “ Agreement ”) will confirm the terms of your employment by Alphatec Holdings, Inc. (“ Alphatec ” or the “ Company ”).
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Term . The term of this Agreement will commence on February 28, 2016 (the “ Effective Date ”), or such other date to which we mutually agree, and will continue until terminated, subject to the terms of this Agreement. |
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Position. On the Effective Date, you will begin to serve as Executive Vice President & Chief Financial Officer of the Company. In this capacity, you will report directly to the Chief Executive Officer of the Company (the “CEO”) and have all of the customary authorities, duties and responsibilities that accompany your position. Throughout your employment with the Company, you agree to devote substantially all of your business time and attention to the business and affairs of the Company and to perform your duties in a diligent, competent, professional and skillful manner and in accordance with applicable law and the Company’s policies and procedures. |
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Annual Compensation. Your initial annual compensation will be as follows: |
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Base Cash Salary . Your initial base cash salary will be at a rate of $350,000 per year. |
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Long Term Incentive . Commencing with the Company’s fiscal year starting January 1, 2017, you will be eligible, subject to your continued employment by the Company, to participate in such long-term incentive programs that are made available at the level determined by the Board, in its discretion, consistent with your role and responsibilities as Executive Vice President & Chief Financial Officer of the Company. |
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Benefits. You will be eligible to participate in employee welfare and benefit programs of the Company at the level available to other members of the Company’s executive management. Participation in Company benefits programs is subject to meeting the relevant eligibility requirements, payment of the required premiums, and the terms of the plans themselves. |
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Sign-On RSUs . You will be granted a one-time sign-on award of seventy-five thousand (75,000) restricted stock units (the “Sign-On RSUs”). Your Sign-On RSUs will vest ratably over four (4) years, with automatic vesting upon a Change in Control of the Company (as defined in the Company’s 2016 Equity Incentive Plan). |
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Sign-On Options . You will be granted a one-time sign-on award of seventy-five thousand (75,000) stock options (the “Sign-On Options”), with the exercise price per share equaling the price of a share of Company stock after market close on the date of the grant. The Sign-On Options will vest according to the following schedule: 25% of the shares subject to the Sign-On Option shall vest upon the one-year anniversary of the Effective Date, and 1/36 of the shares subject to the Sign-On Option shall vest each month thereafter, subject to your continued employment by the Company, with automatic vesting upon a Change in Control of the Company (as defined in the Company’s 2016 Equity Incentive Plan). |
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Certain Post-Employment Covenants . During your employment with the Company, and for a period of one year following the termination of your employment with the Company, you shall not, without the prior written consent of the Company: (i) either individually or on behalf of or through any third party, directly or indirectly, solicit, entice or persuade or attempt to solicit, entice or persuade any employee, agent, consultant or contractor of the Company or any of its affiliates (the “ Company Group” ) to leave the service of the Company Group for any reason; or (ii) in a manner that is dependent upon the use of the Company’s proprietary information, either individually or on behalf of or through any third party, directly or indirectly, interfere with, or attempt to interfere with, the business relationship between the Company Group and any vendor, supplier, surgeon or hospital with which you have interacted during the course of your employment with the Company. |
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Indemnification and Cooperation. During and after your employment, the Company will indemnify you in your capacity as a director, officer, employee or agent of the Company to the fullest extent permitted by applicable law and the Company’s charter and by-laws, and will provide you with director and officer liability insurance coverage (including post-termination/post-director service tail coverage) on the same basis as the Company’s other executive officers. |
You agree (whether during or after your employment with the Company) to reasonably cooperate with the Company in connection with any litigation or regulatory matter or with any government authority on any matter, in each case, pertaining to the Company and with respect to which you may have relevant knowledge.
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Withholding . Tax will be withheld by the Company as appropriate under applicable Federal tax requirements for any payments or deliveries under this Agreement. |
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No Guarantee of Employment or Fixed Compensation. This Agreement is not a guarantee of employment or a guarantee of compensation for the Term. Your employment will be on an “at-will” basis, meaning that you and the Company may terminate your employment at any time and for any reason during the Term, with or without prior notice, subject to the provisions of this Agreement (including Annex A and Annex B). |
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Entire Agreement. This Agreement (including Annex A and Annex B ) constitutes the Company’s only statement relating to its offer of employment to you and supersedes any previous communications or representations, oral or written, from or on behalf of the Company or any of its affiliates. |
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Miscellaneous Representations. You confirm and represent to the Company, by signing this letter, that: (a) you are under no obligation or arrangement (including any restrictive covenants with any prior employer or any other entity) that would prevent you from becoming an employee of the Company or that would adversely impact your ability to perform the expected services on behalf of the Company; (b) you have not taken (or failed to return) any confidential information belonging to your prior employer or any other entity, and, to the extent you remain in possession of any such information, you will never use or disclose such information to the Company or any of its employees, agents or affiliates; and (c) you understand and accept all of the terms and conditions of this offer. |
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Offer Contingencies. This offer is contingent upon (i) your successful completion of a background check and drug screen; (ii) your execution of the Company’s current form of Mutual Agreement to Arbitrate Claims, Confidential and Proprietary Information Agreement, and those other forms that the Company requests all of its employees to execute prior to the initiation of their employment. |
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We look forward to having you join the Alphatec leadership team.
Sincerely, |
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By: |
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/S/ Craig E. Hunsaker |
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Craig E. Hunsaker |
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Executive Vice President, People & Culture |
I agree with and accept the foregoing terms.
/S/ Jeffrey G. Black |
Jeffrey G. Black |
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ANNEX A
ALPHATEC SEVERANCE AGREEMENT
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INTRODUCTION |
This Severance Agreement (the “Agreement”) is entered into as of February __, 2017 by and between Alphatec Holdings, Inc. (the “Company”) and Jeffrey G. Black (the “Executive”) to provide severance benefits to the Executive in the event his employment is terminated involuntarily under certain circumstances. All benefit determinations under this Severance Agreement and any interpretation of provisions in this Severance Agreement will be made by the Board of Directors of the Company (the “Board”) or its designee in its sole discretion. The Agreement is described in further detail below .
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ELIGIBILITY |
In the event Executive is terminated involuntarily he will be eligible for severance benefits described in Section III of this Agreement, PROVIDED each of the following requirements is met:
A. The termination of employment is involuntary.
B. The termination is not due to retirement, death or disability of the Executive.
C. The termination of employment is not for “cause” (as defined below). For purposes of the Agreement, “cause” shall mean the following:
A. Executive’s repeated failure to satisfactorily perform executive’s job duties;
B. refusal or failure to follow the lawful directions of Executive’s direct supervisor, the Company’s Chief Executive Officer or Board, as applicable;
C. conviction of, or plea of guilty or nolo contendere to a crime involving moral turpitude; or
D. engaging in acts or omissions constituting gross negligence, recklessness or willful misconduct on the part of the Executive with respect to his/her obligations or otherwise relating to the business of the Company, its affiliates or customers.
The Executive must be provided a period of at least thirty (30) days following receipt of written notice outlining with specificity all acts or omissions that the Company alleges give rise to a termination for cause pursuant to Section II, C.1 or C.2 immediately above, during which period he may effect a cure of any curable actions or omissions forming the basis for the termination for cause. The Board, will, in its sole discretion, apply the definitions of “cause” herein to determine if a termination of employment is for “cause”.
D. The Executive is not a temporary employee or a new hire who has not yet started to work on a regular, full-time or part-time basis (as appropriate).
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E. The Executive is not covered under any other severance-type plan, policy, arrangement or agree ment that provides severance payments and benefits more favorable in the aggregate to those provided herein. If any such plan, policy, arrangement or agreement exists, the Executive will receive payments and benefits pursuant to that plan, policy, arrange ment or agreement and shall not receive any of the severance payments and benefits described herein. In no case will the Executive receive severance payments and benefits under any other such severance-type plan, policy, arrangement or agreement and this Agreement.
F. In the event that the Executive is party to a “Change in Control” Agreement with Company that also provides for severance benefits, in the event of a “Change in Control” (as defined therein) the Executive shall not receive benefits under this Agreement, but instead shall receive only the severance benefits provided under such “Change in Control” Agreement (i.e., there shall be no “double-dipping” and only the “Change in Control” Agreement shall apply in such an event).
G. The Executive has not agreed in writing to waive severance benefits under this Agreement or otherwise payable from the Company.
H. The Executive (or, in the event of the executive’s death or incapacity, the Executive’s executor, representative or guardian, as applicable) signs and does not revoke a separation agreement and general release of all claims in such form as the Company may from time-to-time reasonably require (“Separation Agreement”).
I. The Executive has returned all Company property and equipment that was assigned to, or taken general control of by, her or him during his tenure with the Company.
If terminated, the Executive must satisfy all of the requirements set forth above in order to receive severance benefits under this Agreement. Eligibility for severance benefits under this Agreement will be determined by the Company upon the Executive’s termination of employment. The Company has full power and authority to interpret the provisions of this Agreement and render decisions on eligibility for benefits. If the Company determines that the Executive satisfies all of the eligibility conditions described above, the Executive will receive severance benefits calculated in accordance with Section III below. The severance benefits will be paid following the Executive’s termination of employment in accordance with the terms set forth below and in the respective Separation Agreement.
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SEVERANCE BENEFITS |
A. Severance Pay and Benefits. The following severance pay and benefits are payable under this Agreement:
A. Severance Pay. The severance pay provided to the Executive if involuntarily terminated under the terms of this Agreement consists of an amount equal to one times (1x) his regular annual base salary.
The amount of severance pay to the Executive shall be based upon the Executive’s regular annual base salary in effect immediately before the Executive’s termination of employment, determined without regard to any overtime, bonuses, fringe benefits, reimbursements or other irregular payments. The Executive’s general release of all claims referred to in Section II.H. must be effective the sixtieth (60th) day following the Executive’s termination of employment in order for the Executive to receive any severance pay or benefits under the Agreement. Severance pay will be paid in a single cash lump-sum on the sixtieth (60th) day following the Executive’s termination of employment (or as soon as administratively practicable after such sixtieth (60th) day).
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B. Benefits Continuation. Upon an involuntary termination of employment pursua nt to which the Executive is entitled to severance pay under Section III.A.1., subject to the Executive’s timely election of continuation coverage under the Consolidated Budget Omnibus Reconciliation Act of 1985, as amended (“COBRA”), the Company will pay the premiums for the Executive for a period of eighteen (18) months based on the level of coverage in effect as of the date of the Executive’s termination. Notwithstanding the foregoing, in the event that the Executive becomes eligible to receive substant ially similar or improved medical, dental or vision benefits from a subsequent employer (whether or not the Executive accepts such benefits), the Company’s obligations under this Section III.A.2. shall immediately cease. The Executive will notify the Comp any of his eligibility for such benefits from a subsequent employer within thirty (30) days of such eligibility.
In the event that the Company’s making payments under this Section III.A.2 would violate nondiscrimination rules or result in the imposition of penalties under the Patient Protection and Affordable Care Act of 2010 (“PPACA”) and related regulations and guidance promulgated thereunder, the parties agree to reform this Section III.A.2. in such manner as is necessary to comply with tax laws and the PPACA, as applicable.
C. Equity Awards . Upon an involuntary termination of employment pursuant to which the Executive is entitled to severance pay under Section III.A.1., any vested stock option awards held by Executive at the time of his termination will remain exercisable by the Executive for the greater of (i) 90 days following the effective date of the Executive’s termination and (ii) the remaining term of such option award, and all other Company equity awards held by Executive that remain unvested upon the effective date of his termination will be forfeited for no consideration.
IV. |
OTHER PROVISIONS |
A. No Separate Fund. All severance benefits payable under this Agreement are payable from the Company’s general assets. There is no separate trust or fund established for the payment of severance benefits under this Agreement. All amounts payable hereunder shall be less all appropriate deductions, including federal, state and local withholding taxes.
B. Section 409A.
1. It is the intent of the parties that the payments and benefits provided hereunder are exempt from Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), and should be interpreted and construed in such a manner.
2. “Termination of employment”, “resignation”, “separation from service”, or correlative phrases or terms, as used in this Agreement means, for purposes of any payments under this Agreement that are payments of deferred compensation, has the same meaning as “separation from service” as defined in Section 409A.
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3. If a payment o bligation under this Agreement arises on account of the Executive’s separation from service while the Executive is a “specified employee” (as defined under Section 409A and determined in good faith by the Board), any payment of “deferred compensation” (as defined under Treasury Regulation Section 1.409A-1(b)(1), after giving effect to the exemptions in Treasury Regulation Sections 1.409A-1(b)(3) through (b)(12)) that is scheduled to be paid within six (6) months after such separation from service shall accr ue with interest and shall be paid within 15 days after the end of the six-month period beginning on the date of such separation from service or, if earlier, within 15 days after the appointment of the personal representative or executor of the Executive’s estate following his death.
4. Each payment and benefit payable under this Agreement, and each other benefit required to be aggregated with the payment and benefits under this Agreement pursuant to Section 409A, is hereby designated as a separate payment, as provided in Treasury Regulation section 1.409A-2(b)(2)(iii), and will not collectively be treated as a single payment.
C. Amendment or Waiver. No provisions of this Agreement may be amended, modified, waived or discharged unless Executive and the Company agree to such amendment, modification, waiver or discharge in writing.
D. Entire Agreement . This Agreement represents the entire agreement between Executive and the Company with respect to the matters set forth herein and supersedes and replaces any prior agreements in their entirety. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter of this Agreement will be made by either party which are not set forth expressly herein. No future agreement between Executive and the Company may supersede this Agreement, unless it is in writing and specifically makes reference to this Section IV.D.
E. Executive’s Successors. This Agreement shall inure to the benefit of and be enforceable by Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive dies while any amounts are still payable hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive’s devisee, legatee, or other designee or, if there be no such designees, to Executive’s estate.
F. Headings. All captions and section headings used in this Agreement are for convenient reference only and do not form a part of this Agreement.
G. Counterparts; Electronic Signatures. This Agreement may be executed (including via electronic signature) in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.
[SIGNATURE PAGE TO FOLLOW]
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IN WITNESS WHEREOF , this Agreement is executed effective as of the date set forth above.
Alphatec Holdings, Inc. |
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By: |
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/S/Craig E. Hunsaker |
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Craig E. Hunsaker Executive Vice President, People & Culture |
ACCEPTED AND AGREED TO AS OF THE DATE FIRST SET FORTH ABOVE: |
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/S/ Jeffrey G. Black |
Jeffrey G. Black |
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ANNEX B
ALPHATEC CHANGE IN CONTROL AGREEMENT
This Change in Control Agreement (“Agreement”), dated as of December 10, 2016, is by and between Alphatec Holdings, Inc. (the “Company”) and Jeffrey G. Black (the “Executive”) (each a “Party”, and, collectively, the “Parties”).
1. Term of Agreement. This Agreement shall commence on the date hereof and continue in effect until the earlier of (a) Executive’s Separation from Service other than within twenty-four (24) months following a Change in Control (each as defined below); (b) the Company’s satisfaction of all of its obligations under this Agreement; or (c) the execution of a written agreement between the Company and Executive terminating this Agreement.
2. Definitions. As used in this Agreement:
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A. |
“Annual Compensation” means the sum of the following: |
A. one year of Executive’s base salary, the highest rate at which Executive was paid at any time during the twelve (12)-month period prior to the Executive’s Separation from Service; plus
B. the greater of (A) the Executive’s target annual bonus amount for the year in which the Separation from Service occurs, or (B) the highest annual bonus paid to the Executive out of the three (3) prior bonuses paid to the Executive prior to the Executive’s Separation from Service.
B. “Cause” means (i) Executive’s wi llful and repeated failure to satisfactorily perform his or her material duties which is not remedied within thirty (30) days’ written notice from the Company specifying such failure; (ii) Executive’s repeated and willful failure to follow the lawful directions of the Company’s Board of Directors which is not remedied within thirty (30) days’ written notice from the Company specifying such failure; (iii) Executive’s conviction of or plea of guilty or nolo contendre to a crime involving moral turpitude; (iv) Executive engaging, or in any manner participating, in any activity which is directly competitive and materially and demonstrably injurious to the Company; or (v) commission of an intentional act of fraud, embezzlement or theft by the Executive in the course of Executive’s employment by the Company.
C. “Change in Control” has the meaning set forth in the Company’s 2016 Equity Incentive Plan.
D. “COBRA” means the Consolidated Budget Omnibus Reconciliation Act of 1985, as amended.
E. “Code” means the Interna l Revenue Code of 1986, as amended from time-to-time.
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F. “Disability” means that, at the time Executive Separates from Service, Executive has been unable to perform the duties of Executive’s position for a period of 180 consecutive days as the result of an incapacity due to physical or mental illness.
G. “Good Reason” means the occurrence of one of the following which occurs within twenty-four (24) months following a Change in Control and without Executive’s express, written consent: (i) a significant redu ction of Executive’s duties, position or responsibilities (including, without limitation, any negative change in reporting hierarchy involving the Executive or the person to whom he or she directly reports), or Executive’s removal from such position and responsibilities; (ii) a material reduction by the Company in Executive’s base salary or target annual bonus as in effect immediately prior to such reduction; (iii) a material reduction by the Company in the kind or aggregate level of employee benefits to which Executive is entitled immediately prior to such reduction with the result that Executive’s overall benefits package is significantly reduced; (iv) Executive is requested to relocate (except for office relocations that would not increase Executive’s one way commute to more than fifty (50) miles); or (v) the failure of the Company to obtain the assumption of this Agreement pursuant to Section 7. For avoidance of doubt (as examples and not an exhaustive list), a significant reduction of duties, position or responsibilities shall have occurred if the Executive was a Section 16 reporting officer immediately prior to the Change in Control and is no longer a Section 16 reporting officer immediately following the Change in Control. The Executive may terminate his employment for “Good Reason” within 90 days after Executive has actual knowledge of the occurrence, without the written consent of Executive, of one of the above events that has not been cured within 30 days after written notice thereof has been given by Executive to the Company setting forth in reasonable detail the basis of the event (provided that such notice must be given to the Company within 30 days of the Executive becoming aware of such condition).
H. “Long-term Incentive Award Value” means the highest grant date fair value of any long-term incentive award (cash and/or equity-based incentive) granted to Executive in the three (3) calendar year period prior to the calendar year of the Separation from Service.
I. “PPACA” means the Patient Protect ion and Affordable Care Act of 2010 and related regulations and guidance promulgated thereunder.
J. “Separation from Service” or “Separates from Service” means a termination of employment with the Company that qualifies as a separation from service in acco rdance with Section 409A of the Code.
K. “Specified Employee” means an employee who is determined by the Company to be a Specified Employee in accordance with Section 409A of the Code.
3. Severance Payments and Benefits.
A. If a Change in Control occurs an d within a period of twenty-four (24) months thereafter, Executive incurs a Separation from Service on account of (i) an involuntary termination by the Company for reasons other than death, Disability or Cause, or (ii) a voluntary
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termination elected by th e Executive for Good Reason, then subject to (A) Executive signing and not revoking a separation and general release agreement (the “Release”) in a form provided by the Company as may be in use from time to time, and (B) Section 4 below, Executive shall re ceive (and the Company (or any successor thereto) shall pay, award and/or provide):
(1) a lump-sum cash severance payment in an amount equal to the sum of (a) one times (1x) Executive’s Annual Compensation; (b) the product of (x) Executive’s Long-term Ince ntive Award Value, multiplied by (y) a fraction, the numerator of which is the number of full and partial calendar months between January 1 of the year of Separation from Service and the date of the Executive’s Separation from Service (provided, however, that such numerator shall not exceed six (6)) and the denominator of which is twelve (12); and (c) the product of (x) the greater of (A) Executive’s target annual bonus amount for the year in which the Separation from Service occurs, or (B) the highest annual bonus paid to the Executive out of the three (3) prior bonuses paid to the Executive prior to the Executive’s Separation from Service, multiplied by (y) a fraction, the numerator of which is the number of full and partial calendar months between January 1 of the year of Separation from Service and the date of the Executive’s Separation from Service and the denominator of which is twelve (12); and
(2) twelve (12) months of continued coverage under the Company’s group health plans (based on the level of th e Executive’s coverage in effect on the date of the Executive’s Separation from Service), at the Company’s expense, subject to the Executive’s timely election of continuation coverage under the COBRA, it being understood that (a) in the event that the Executive becomes eligible to receive substantially similar or improved medical, dental or vision benefits from a subsequent employer (whether or not the Executive accepts such benefits), the Company’s obligations under this Section 3(a)(2) shall immediately cease, (b) the Executive will notify the Company of his eligibility for such benefits from a subsequent employer within thirty (30) days of such eligibility and (c) in the event that the Company’s making payments under this Section 3(a)(2) would violate nondiscrimination rules or result in the imposition of penalties under the PPACA, the parties agree to reform this Section 3(a)(2) in such manner as is necessary to comply with tax laws and the PPACA, as applicable.
(3) full vesting in all Company equity and long-term incentive awards granted to Executive (including, but not limited to, and all stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, and all other stock and cash-based long-term incentive awards) to the extent that such vesting is based on service with the Company. With respect to any performance shares and performance unit awards, (a) the final number of units and/or shares payable under such awards shall only be determined in accordance with the terms and conditions of the respective grant agreement governing such award, and accordingly, (b) distribution of such awards can only take place following such share and/or unit amount determination. Notwithstanding the foregoing, the full and immediate vesting of any restricted stock units, performance shares, performance units, shall not change the payment date thereof or otherwise apply to the extent it would result in adverse tax consequences under Section 409A of the Code; and
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(4) notwithstanding anything to the contrary in the respective award agreement(s), entitlement to exercise any stock options or stock appreciation rights until the expiration of twenty-four (24) months following Executive’s Separation from Service (or until su ch later date as may be applicable under the terms of the award agreement governing the stock option or stock appreciation right upon termination of employment), subject to the maximum full term of the stock option or stock appreciation right; provided, ho wever, that, if any stock option or stock appreciation right is terminated or cashed-out in connection with a Change in Control, the Executive shall receive a lump-sum cash payment equal to the time value (i.e., under the Black Scholes option pricing model ) of such stock options or stock appreciation rights inclusive of the economic value for the period of twenty-four (24) months following Executive’s Separation from Service (or until such later date as may be applicable under the terms of the award agreeme nt governing the stock option or stock appreciation right upon termination of employment), subject to the maximum full term of the stock option or stock appreciation right.
B. If Executive is not a Specified Employee, all payments made to Executive under S ection 3(a) immediately above shall be made on the sixtieth (60th) calendar day following Executive’s Separation from Service, provided that Executive’s Release must be effective and not revocable on the date payment is to be made in order to receive such payments. If Executive is a Specified Employee, to the extent required to comply with Section 409A of the Code, payments made under Section 3(a) immediately above shall be made within ten (10) calendar days following the date following the first (1st) day of the seventh (7th) month after the date of Executive’s Separation from Service, provided that no such payment shall be made to Executive if the Release has not become effective as of the six (6)-month anniversary of the date of Executive’s Separation from Service.
4. Parachute Payments. In the event that any of the severance payments and other benefits provided by this Agreement or otherwise payable to Executive (a) constitute “parachute payments” within the meaning of Section 280G of the Code, and (b) but for this Section, would be subject to the excise tax imposed by Section 4999 of the Code (“Excise Tax”), then Executive’s severance payments and benefits under this Agreement or otherwise shall be payable either in full or in such lesser amount which would result in no portion of such severance payments or benefits being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state and local income and employment taxes and the Excise Tax, results in the receipt by Executive, on an after-tax basis, of the greatest amount of severance payments and benefits under this Agreement or otherwise, notwithstanding that all or some portion of such severance payments or benefits may be taxable under Section 4999 of the Code. Any reduction in the severance payments and benefits required by this Section shall be made in the following order: (i) reduction of cash payments; (ii) reduction of accelerated vesting of equity awards other than stock options; (iii) reduction of accelerated vesting of stock options; and (iv) reduction of other benefits paid or provided to Executive. The calculations in Section 4 will be performed by the professional firm engaged by the Company for general tax purposes as of the day prior to the date of the event that might reasonably be anticipated to result in severance payments and benefits that would otherwise be subject to the Excise Tax. If the tax firm so engaged by the Company is serving as accountant or auditor for the acquiring company, the Company shall appoint a nationally recognized tax firm to make the determinations required by this Section. The Company shall bear all expenses with respect to the determinations by such firm required to be made by this Section 4. The Company and Executive shall furnish such tax
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firm such information and documents as the tax firm may reasonably request in order to make its required determination. The tax firm will provide its calculations, together with detailed supporting documentation, to the Company and Executive as soon as practicable following its engagement. Any good faith determinations of the tax firm made hereunder shall be final, binding and conclusive upon the Company and Executive. As a result of the uncertainty in the application of Sections 409A, 280G or 4999 of the Code at the time of the initial determination by the professional tax firm described in this Section 4, it is possible that the Internal Revenue Service (the “IRS”) or other agency will claim that an Excise Tax greater than that amount, if any, determined by such professional firm for the purposes of Section 4 is due (the “Additional Excise Tax”). Executive shall notify the Company in writing of any claim by the IRS or other agency that, if successful, would require pa yment of Additional Excise Tax. Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to payments made or due to Executive. The Company shall pay all reasonable fees, expenses and penalties of Executive relating to a claim by the IRS or other agency. In the event it is finally determined that a further reduction would have been required under Section 4 to place Executive in a better after-tax position, Executive shall repay the Company such amount within 30 days thereof in order to effect such result.
5. No Mitigation. Executive shall not be required to mitigate the amount of any payment or benefit provided for in Section 3 hereof by seeking other employment or otherwise, nor shall the amount of such payment be reduced by reason of compensation or other income Executive receives for services rendered after Executive’s Separation from Service from the Company.
6. Exclusive Remedy. In the event of Executive’s Separation from Service on account of an involuntary termination without Cause or a voluntary termination for Good Reason within twenty-four (24) months following a Change in Control, the provisions of Section 3 are intended to be and are exclusive and in lieu of any other rights or remedies to which Executive or the Company may otherwise be entitled (including any contrary provisions in any employment agreement Executive may have with the Company), whether at law, tort or contract, in equity, or under this Agreement. Payments made to or on behalf of Executive under any other severance plan, policy, contract or arrangement with the Company shall reduce amounts payable under this Agreement on a dollar for dollar basis.
7. Company’s Successors. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, to expressly assume and agree to perform the obligations under this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. As used in this Section 7, Company includes any successor to its business or assets as aforesaid which executes and delivers this Agreement or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law.
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8. Notice. Notices and all other communications provided for in this Agreement s hall be in writing and shall be deemed to have been duly given when personally delivered or five (5) days after deposit with postal authorities transmitted by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first or last page of this Agreement, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.
9. Amendment or Waiver. No provisions of this Agreement may be amended, modified, waived or discharged unless Executive and the Company agree to such amendment, modification, waiver or discharge in writing. No amendment, modification, waiver or discharge of this Agreement shall result in the accelerated payment of any benefit or payment provided for in Section 3. No waiver by either party at any time of the breach of, or lack of compliance with, any conditions or provisions of this Agreement shall be deemed a waiver of the provisions or conditions hereof.
10. Entire Agreement. This Agreement represents the entire agreement between Executive and the Company with respect to the matters set forth herein and supersedes and replaces any prior agreements in their entirety. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter of this Agreement will be made by either party which are not set forth expressly herein. No future agreement between Executive and the Company may supersede this Agreement, unless it is in writing and specifically makes reference to this Section 10.
11. Executive’s Successors. This Agreement shall inure to the benefit of and be enforceable by Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive dies while any amounts are still payable hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive’s devisee, legatee, or other designee or, if there be no such designees, to Executive’s estate.
12. No Funding Obligation. This Agreement shall be unfunded. Any payment made under this Agreement shall be made from the Company’s general assets, and the Executive’s rights shall be no greater than those of general unsecured creditor of the Company.
13. Legal Fees. In the event of any dispute or controversy arising out, relating to, or in connection with this Agreement, the Company shall reimburse Executive for reasonable attorney fees, costs and expenses incurred with respect thereto if Executive substantially prevails on the merits with respect to any breach of this Agreement by the Company.
14. Headings. All captions and section headings used in this Agreement are for convenient reference only and do not form a part of this Agreement.
15. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect.
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16. Withholding. All payments made pursuant to this Agreement will be subject to withholding of applicable income, employment and excise taxes.
17. Applicable Law. This Agreement shall be interpreted and enforced in accordance with the laws of the State of California (with the exception of its conflict of law provisions). This Agreement is intended to comply with or be exempt from Section 409A of the Code and the regulations promulgated thereunder.
18. Counterparts; Electronic Signatures. This Agreement may be executed (including via electronic signature) in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement is executed effective as of the date set forth above.
Alphatec Holdings, Inc. |
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By: |
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/S/ Craig E. Hunsaker |
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Craig E. Hunsaker Executive Vice President, People & Culture |
ACCEPTED AND AGREED TO AS OF THE DATE FIRST SET FORTH ABOVE: |
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/S/ Jeffrey G. Black |
Jeffrey G. Black |
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EXHIBIT 10.4
December 10, 2016
Jon Allen
3613 E. Flintlock Dr.
Queen Creek, AZ 85142
Re: Employment Terms
Dear Jon:
This letter (the “ Agreement ”) will confirm the terms of your employment by Alphatec Holdings, Inc. (“ Alphatec ” or the “ Company ”).
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1. |
Term . The term of this Agreement will commence on December 10, 2016 (the “ Effective Date ”) and will continue until terminated, subject to the terms of this Agreement. |
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2. |
Position. On the Effective Date, you will begin to serve as Executive Vice President, Commercial Operations of the Company. In this capacity, you will report directly to the Chief Executive Officer of the Company (the “CEO”) and have all of the customary authorities, duties and responsibilities that accompany your position. Throughout your employment with the Company, you agree to devote substantially all of your business time and attention to the business and affairs of the Company and to perform your duties in a diligent, competent, professional and skillful manner and in accordance with applicable law and the Company’s policies and procedures. |
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3. |
Annual Compensation. Your initial annual compensation will be as follows: |
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A. |
Base Cash Salary . Your initial base cash salary will be at a rate of $350,000 per year. |
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C. |
Long Term Incentive . Commencing with the Company’s fiscal year starting January 1, 2017, you will be eligible, subject to your continued employment by the Company, to participate in such long-term incentive programs that are made available at the level determined by the Board, in its discretion, consistent with your role and responsibilities as Executive Vice President, Commercial Operations, of the Company. |
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4. |
Benefits. You will be eligible to participate in employee welfare and benefit programs of the Company at the level available to other members of the Company’s executive management. Participation in Company benefits programs is subject to meeting the relevant eligibility requirements, payment of the required premiums, and the terms of the plans themselves. |
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be detailed in separate agreements you would receive after any award is actually made. You acknowledge that the equity award are “employment inducement awards” that will be granted to you outside of the Company’s 2016 Equity Incentive Plan pursuant to NAS DAQ Listing Rule 5635(c)(4). |
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A. |
Sign-On RSUs . You will be granted a one-time sign-on award of seventy-five thousand (75,000) restricted stock units (the “Sign-On RSUs”). Your Sign-On RSUs will vest ratably over four (4) years, with automatic vesting upon a Change in Control of the Company (as defined in the Company’s 2016 Equity Incentive Plan). |
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B. |
Sign-On Options . You will be granted a one-time sign-on award of seventy-five thousand (75,000) stock options (the “Sign-On Options”), with the exercise price per share equaling the price of a share of Company stock after market close on the date of the grant. The Sign-On Options will vest according to the following schedule: 25% of the shares subject to the Sign-On Option shall vest upon the one-year anniversary of the Effective Date, and 1/36 of the shares subject to the Sign-On Option shall vest each month thereafter, subject to your continued employment by the Company, with automatic vesting upon a Change in Control of the Company (as defined in the Company’s 2016 Equity Incentive Plan). |
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7. |
Relocation. You have agreed to relocate your residence from Arizona to the Carlsbad, California area, which is where the Company’s headquarters is located. In connection with your relocation, the Company will provide you with a set relocation amount of up to $50,000, which will either be reimbursed by the Company or paid directly by the Company to cover miscellaneous costs related to such relocation including: temporary living, two round trip airfares between your current residence and San Diego, CA, a home-finding trip of up to five days for you and your spouse (including air, car rental and hotel), moving expenses, car rental, car transport, real estate buying/closing costs, and spousal employment assistance. Any amount in excess of $50,000 will be at the discretion of the Executive Vice President, People & Culture. You will be entitled to a full "gross-up" for all taxes incurred in connection with the Relocation Expenses. If, prior to the first anniversary of the Effective Date, your employment with the Company is terminated for "Cause" (as defined below) or by your voluntary resignation, you agree, within 30 days of the date of such termination of employment, to repay to the Company 100% of the Relocation Expenses previously reimbursed to you. If prior to the second anniversary of the Effective Date, your employment with the Company is terminated for "Cause" (as defined below) or by your voluntary resignation, you agree, within 30 days of the date of such termination of employment, to repay to the Company 50% of the Relocation Expenses previously reimbursed to you. |
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9. |
Indemnification and Cooperation. During and after your employment, the Company will indemnify you in your capacity as a director, officer, employee or agent of the Company to the fullest extent permitted by applicable law and the Company’s charter and by-laws, and will provide you with director and officer liability insurance coverage (including post-termination/post-director service tail coverage) on the same basis as the Company’s other executive officers. |
You agree (whether during or after your employment with the Company) to reasonably cooperate with the Company in connection with any litigation or regulatory matter or with any government authority on any matter, in each case, pertaining to the Company and with respect to which you may have relevant knowledge.
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10. |
Withholding . Tax will be withheld by the Company as appropriate under applicable Federal tax requirements for any payments or deliveries under this Agreement. |
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11. |
No Guarantee of Employment or Fixed Compensation. This Agreement is not a guarantee of employment or a guarantee of compensation for the Term. Your employment will be on an “at-will” basis, meaning that you and the Company may terminate your employment at any time and for any reason during the Term, with or without prior notice, subject to the provisions of this Agreement (including Annex A and Annex B). |
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12. |
Entire Agreement. This Agreement (including Annex A and Annex B ) constitutes the Company’s only statement relating to its offer of employment to you and supersedes any previous communications or representations, oral or written, from or on behalf of the Company or any of its affiliates. |
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13. |
Miscellaneous Representations. You confirm and represent to the Company, by signing this letter, that: (a) you are under no obligation or arrangement (including any restrictive covenants with any prior employer or any other entity) that would prevent you from becoming an employee of the Company or that would adversely impact your ability to perform the expected services on behalf of the Company; (b) you have not taken (or failed to return) any confidential information belonging to your prior employer or any other entity, and, to the extent you remain in possession of any such information, you will never use or disclose such information to the Company or any of its employees, agents or affiliates; and (c) you understand and accept all of the terms and conditions of this offer. |
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14. |
Offer Contingencies. This offer is contingent upon (i) your successful completion of a background check and drug screen; (ii) your execution of the Company’s current form of Mutual Agreement to Arbitrate Claims, Confidential and Proprietary Information Agreement, and those other forms that the Company requests all of its employees to execute prior to the initiation of their employment. |
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We look forward to having you join the Alphatec lea dership team.
Sincerely, |
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By: |
/S/ Craig E. Hunsaker |
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Craig E. Hunsaker |
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Executive Vice President, People & Culture |
I agree with and accept the foregoing terms.
/S/ Jon Allen |
Jon Allen |
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ANNEX A
ALPHATEC SEVERANCE AGREEMENT
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1. |
INTRODUCTION |
This Severance Agreement (the “ Agreement ”) is entered into as of December 10, 2016 by and between Alphatec Holdings, Inc. (the “ Company ”) and Jon Allen (the “ Executive ”) to provide severance benefits to the Executive in the event his employment is terminated involuntarily under certain circumstances. All benefit determinations under this Severance Agreement and any interpretation of provisions in this Severance Agreement will be made by the Board of Directors of the Company (the “ Board ”) or its designee in its sole discretion. The Agreement is described in further detail below.
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2. |
ELIGIBILITY |
In the event Executive is terminated involuntarily he will be eligible for severance benefits described in Section III of this Agreement, PROVIDED each of the following requirements is met:
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A. |
The termination of employment is involuntary. |
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B. |
The termination is not due to retirement, death or disability of the Executive. |
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C. |
The termination of employment is not for “cause” (as defined below). For purposes of the Agreement, “cause” shall mean the following: |
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A. |
Executive’s repeated failure to satisfactorily perform executive’s job duties; |
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B. |
refusal or failure to follow the lawful directions of Executive’s direct supervisor, the Company’s Chief Executive Officer or Board, as applicable; |
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C. |
conviction of, or plea of guilty or nolo contendere to a crime involving moral turpitude; or |
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D. |
engaging in acts or omissions constituting gross negligence, recklessness or willful misconduct on the part of the Executive with respect to his/her obligations or otherwise relating to the business of the Company, its affiliates or customers. |
The Executive must be provided a period of at least thirty (30) days following receipt of written notice outlining with specificity all acts or omissions that the Company alleges give rise to a termination for cause pursuant to Section II, C.1 or C.2 immediately above, during which period he may effect a cure of any curable actions or omissions forming the basis for the termination for cause. The Board, will, in its sole discretion, apply the definitions of “cause” herein to determine if a termination of employment is for “cause”.
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D. |
The Executive is not a temporary employee or a new hire who has not yet started to work on a regular, full-time or part-time basis (as appropriate). |
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E. |
The Executive is not covered under any other severance-type plan, policy, arrangement or agreement that provides severance payments and benefits more favorable in the aggregate to those provided herein. If any such plan, policy, arrangement or agreement exists, the Executive will receive payments and benefits pursuant to that plan, policy, arrangement or agreement and shall not receive any of the severance payments and benefits described herein. In no case will the Executive receive severance payments and benefits under any other such severance-type plan, policy, arrangement or agreement and this Agreement. |
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F. |
In the event that the Executive is party to a “Change in Control” Agreement with Company that also provides for severance benefits, in the event of a “Change in Control” (as defined therein) the Executive shall not receive benefits under this Agreement, but instead shall receive only the severance benefits provided under such “Change in Control” Agreement (i.e., there shall be no “double-dipping” and only the “Change in Control” Agreement shall apply in such an event). |
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G. |
The Executive has not agreed in writing to waive severance benefits under this Agreement or otherwise payable from the Company. |
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H. |
The Executive (or, in the event of the executive’s death or incapacity, the Executive’s executor, representative or guardian, as applicable) signs and does not revoke a separation agreement and general release of all claims in such form as the Company may from time-to-time reasonably require (“Separation Agreement”). |
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I. |
The Executive has returned all Company property and equipment that was assigned to, or taken general control of by, her or him during his tenure with the Company. |
If terminated, the Executive must satisfy all of the requirements set forth above in order to receive severance benefits under this Agreement. Eligibility for severance benefits under this Agreement will be determined by the Company upon the Executive’s termination of employment. The Company has full power and authority to interpret the provisions of this Agreement and render decisions on eligibility for benefits. If the Company determines that the Executive satisfies all of the eligibility conditions described above, the Executive will receive severance benefits calculated in accordance with Section III below. The severance benefits will be paid following the Executive’s termination of employment in accordance with the terms set forth below and in the respective Separation Agreement.
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3. |
SEVERANCE BENEFITS |
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A. |
Severance Pay and Benefits . The following severance pay and benefits are payable under this Agreement: |
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A. |
Severance Pay. The severance pay provided to the Executive if involuntarily terminated under the terms of this Agreement consists of an amount equal to one times (1x) his regular annual base salary. |
The amount of severance pay to the Executive shall be based upon the Executive’s regular annual base salary in effect immediately before the Executive’s termination of employment, determined without regard to any overtime, bonuses, fringe benefits, reimbursements or other irregular payments. The Executive’s general release of all claims referred to in Section II.H. must be effective the sixtieth (60th) day following the Executive’s termination of employment in order for the Executive to receive any severance pay or benefits under the Agreement. Severance pay will be paid in a single cash lump-sum on the sixtieth (60th) day following the Executive’s termination of employment (or as soon as administratively practicable after such sixtieth (60th) day).
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B. |
Benefits Continuation . Upon an involuntary termination of employment pursuant to which the Executive is entitled to severance pay under Section III.A.1., subject to the Executive’s timely election of continuation coverage under the Consolidated Budget Omnibus Reconciliation Act of 1985, as amended (“ COBRA ”), the Company will pay the premiums for the Executive for a period of eighteen (18) months based on the level of coverage in effect as of the date of the Executive’s termination. Notwithstanding the foregoing, in the event that the Executive becomes eligible to receive substantially similar or improved medical, dental or vision benefits from a subsequent employer (whether or not the Executive accepts such benefits), the Company’s obligations under this Section III.A.2. shall immediately cease. The Executive will notify the Company of his eligibility for such benefits from a subsequent employer within thirty (30) days of such eligibility. |
In the event that the Company’s making payments under this Section III.A.2 would violate nondiscrimination rules or result in the imposition of penalties under the Patient Protection and Affordable Care Act of 2010 (“ PPACA ”) and related regulations and guidance promulgated thereunder, the parties agree to reform this Section III.A.2. in such manner as is necessary to comply with tax laws and the PPACA, as applicable.
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C. |
Equity Awards . Upon an involuntary termination of employment pursuant to which the Executive is entitled to severance pay under Section III.A.1., any vested stock option awards held by Executive at the time of his termination will |
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remain exercisable by the Executive for the greater of (i) 90 days following the effective date of the Executive’s termination and (ii) the remaining term of such option award, and al l other Company equity awards held by Executive that remain unvested upon the effective date of his termination will be forfeited for no consideration. |
IV. |
OTHER PROVISIONS |
A. No Separate Fund . All severance benefits payable under this Agreement are payable from the Company’s general assets. There is no separate trust or fund established for the payment of severance benefits under this Agreement. All amounts payable hereunder shall be less all appropriate deductions, including federal, state and local withholding taxes.
B. Section 409A .
1. It is the intent of the parties that the payments and benefits provided hereunder are exempt from Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), and should be interpreted and construed in such a manner.
2. “Termination of employment”, “resignation”, “separation from service”, or correlative phrases or terms, as used in this Agreement means, for purposes of any payments under this Agreement that are payments of deferred compensation, has the same meaning as “separation from service” as defined in Section 409A.
3. If a payment obligation under this Agreement arises on account of the Executive’s separation from service while the Executive is a “specified employee” (as defined under Section 409A and determined in good faith by the Board), any payment of “deferred compensation” (as defined under Treasury Regulation Section 1.409A-1(b)(1), after giving effect to the exemptions in Treasury Regulation Sections 1.409A-1(b)(3) through (b)(12)) that is scheduled to be paid within six (6) months after such separation from service shall accrue with interest and shall be paid within 15 days after the end of the six-month period beginning on the date of such separation from service or, if earlier, within 15 days after the appointment of the personal representative or executor of the Executive’s estate following his death.
4. Each payment and benefit payable under this Agreement, and each other benefit required to be aggregated with the payment and benefits under this Agreement pursuant to Section 409A, is hereby designated as a separate payment, as provided in Treasury Regulation section 1.409A-2(b)(2)(iii), and will not collectively be treated as a single payment.
C. Amendment or Waiver . No provisions of this Agreement may be amended, modified, waived or discharged unless Executive and the Company agree to such amendment, modification, waiver or discharge in writing.
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D. Entire Agreement . This Agreement represents the entire agreement between Executive and the Company with r espect to the matters set forth herein and supersedes and replaces any prior agreements in their entirety. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter of this Agreement will be made by either party which are not set forth expressly herein. No future agreement between Executive and the Company may supersede this Agreement, unless it is in writing and specifically makes reference to this Section IV.D.
E. Executive’s Successors . This Agreement shall inure to the benefit of and be enforceable by Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive dies while any amounts are still payable hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive’s devisee, legatee, or other designee or, if there be no such designees, to Executive’s estate.
F. Headings . All captions and section headings used in this Agreement are for convenient reference only and do not form a part of this Agreement.
G. Counterparts; Electronic Signatures . This Agreement may be executed (including via electronic signature) in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.
IN WITNESS WHEREOF , this Agreement is executed effective as of the date set forth above.
Alphatec Holdings, Inc. |
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By: |
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/S/ Craig Hunsaker |
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Craig E. Hunsaker |
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Executive Vice President, People & Culture |
ACCEPTED AND AGREED TO AS OF THE DATE FIRST SET FORTH ABOVE: |
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/S/ Jon Allen |
Jon Allen |
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ANNEX B
ALPHATEC CHANGE IN CONTROL AGREEMENT
This Change in Control Agreement (“Agreement”), dated as of December 10, 2016, is by and between Alphatec Holdings, Inc. (the “Company”) and Jon Allen (the “Executive”) (each a “Party”, and, collectively, the “Parties”).
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1. |
Term of Agreement . This Agreement shall commence on the date hereof and continue in effect until the earlier of (a) Executive’s Separation from Service other than within twenty-four (24) months following a Change in Control (each as defined below); (b) the Company’s satisfaction of all of its obligations under this Agreement; or (c) the execution of a written agreement between the Company and Executive terminating this Agreement. |
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2. |
Definitions . As used in this Agreement: |
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A. |
“Annual Compensation” means the sum of the following: |
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A. |
one year of Executive’s base salary, the highest rate at which Executive was paid at any time during the twelve (12)-month period prior to the Executive’s Separation from Service; plus |
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B. |
the greater of (A) the Executive’s target annual bonus amount for the year in which the Separation from Service occurs, or (B) the highest annual bonus paid to the Executive out of the three (3) prior bonuses paid to the Executive prior to the Executive’s Separation from Service. |
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B. |
“Cause” means (i) Executive’s willful and repeated failure to satisfactorily perform his or her material duties which is not remedied within thirty (30) days’ written notice from the Company specifying such failure; (ii) Executive’s repeated and willful failure to follow the lawful directions of the Company’s Board of Directors which is not remedied within thirty (30) days’ written notice from the Company specifying such failure; (iii) Executive’s conviction of or plea of guilty or nolo contendre to a crime involving moral turpitude; (iv) Executive engaging, or in any manner participating, in any activity which is directly competitive and materially and demonstrably injurious to the Company; or (v) commission of an intentional act of fraud, embezzlement or theft by the Executive in the course of Executive’s employment by the Company. |
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C. |
“Change in Control” has the meaning set forth in the Company’s 2016 Equity Incentive Plan. |
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D. |
“COBRA” means the Consolidated Budget Omnibus Reconciliation Act of 1985, as amended. |
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E. |
“Code” means the Internal Revenue Code of 1986, as amended f rom time-to-time. |
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F. |
“Disability” means that, at the time Executive Separates from Service, Executive has been unable to perform the duties of Executive’s position for a period of 180 consecutive days as the result of an incapacity due to physical or mental illness. |
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G. |
“Good Reason” means the occurrence of one of the following which occurs within twenty-four (24) months following a Change in Control and without Executive’s express, written consent: (i) a significant reduction of Executive’s duties, position or responsibilities (including, without limitation, any negative change in reporting hierarchy involving the Executive or the person to whom he or she directly reports), or Executive’s removal from such position and responsibilities; (ii) a material reduction by the Company in Executive’s base salary or target annual bonus as in effect immediately prior to such reduction; (iii) a material reduction by the Company in the kind or aggregate level of employee benefits to which Executive is entitled immediately prior to such reduction with the result that Executive’s overall benefits package is significantly reduced; (iv) Executive is requested to relocate (except for office relocations that would not increase Executive’s one way commute to more than fifty (50) miles); or (v) the failure of the Company to obtain the assumption of this Agreement pursuant to Section 7. For avoidance of doubt (as examples and not an exhaustive list), a significant reduction of duties, position or responsibilities shall have occurred if the Executive was a Section 16 reporting officer immediately prior to the Change in Control and is no longer a Section 16 reporting officer immediately following the Change in Control. The Executive may terminate his employment for “Good Reason” within 90 days after Executive has actual knowledge of the occurrence, without the written consent of Executive, of one of the above events that has not been cured within 30 days after written notice thereof has been given by Executive to the Company setting forth in reasonable detail the basis of the event (provided that such notice must be given to the Company within 30 days of the Executive becoming aware of such condition). |
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H. |
“Long-term Incentive Award Value” means the highest grant date fair value of any long-term incentive award (cash and/or equity-based incentive) granted to Executive in the three (3) calendar year period prior to the calendar year of the Separation from Service. |
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I. |
“PPACA” means the Patient Protection and Affordable Care Act of 2010 and related regulations and guidance promulgated thereunder. |
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J. |
“Separation from Service” or “Separates from Service” means a termination of employment with the Company that qualifies as a separation from service in accordance with Section 409A of the Code. |
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K. |
“Specified Employee” means an employee who is determined by the Company to be a Specified Employee in accordance with Section 409A of the Code. |
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3. |
Severance Payments and Benefits. |
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A. |
If a Change in Control occurs and within a period of twenty-four (24) months thereafter, Executive incurs a Separation from Service on account of (i) an involuntary termination by the Company for reasons other than death, Disability or Cause, or (ii) a voluntary termination elected by the Executive for Good Reason, then subject to (A) Executive signing and not revoking a separation and general release agreement (the “Release”) in a form provided by the Company as may be in use from time to time, and (B) Section 4 below, Executive shall (and the Company (or any successor thereto) shall pay, award and/or provide): |
(1) receive a lump-sum cash severance payment in an amount equal to the sum of (a) one times (1x) Executive’s Annual Compensation; (b) the product of (x) Executive’s Long-term Incentive Award Value, multiplied by (y) a fraction, the numerator of which is the number of full and partial calendar months between January 1 of the year of Separation from Service and the date of the Executive’s Separation from Service (provided, however, that such numerator shall not exceed six (6)) and the denominator of which is twelve (12); and (c) the product of (x) the greater of (A) Executive’s target annual bonus amount for the year in which the Separation from Service occurs, or (B) the highest annual bonus paid to the Executive out of the three (3) prior bonuses paid to the Executive prior to the Executive’s Separation from Service, multiplied by (y) a fraction, the numerator of which is the number of full and partial calendar months between January 1 of the year of Separation from Service and the date of the Executive’s Separation from Service and the denominator of which is twelve (12); and
(2) receive twelve (12) months of continued coverage under the Company’s group health plans (based on the level of the Executive’s coverage in effect on the date of the Executive’s Separation from Service), at the Company’s expense, subject to the Executive’s timely election of continuation coverage under the COBRA, it being understood that (a) in the event that the Executive becomes eligible to receive substantially similar or improved medical, dental or vision benefits from a subsequent employer (whether or not the Executive accepts such benefits), the Company’s obligations under this Section 3(a)(2) shall immediately cease, (b) the Executive will notify the Company of his eligibility for such benefits from a subsequent employer within thirty (30) days of such eligibility and (c) in the event that the Company’s making payments under this Section 3(a)(2) would violate nondiscrimination rules or result in the imposition of penalties under the PPACA, the parties agree to reform this Section 3(a)(2) in such manner as is necessary to comply with tax laws and the PPACA, as applicable.
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(3) become fully vested in all Company equity and long-term incentive awards gra nted to Executive (including, but not limited to, and all stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, and all other stock and cash-based long-term incentive awards) to the exten t that such vesting is based on service with the Company. With respect to any performance shares and performance unit awards, (a) the final number of units and/or shares payable under such awards shall only be determined in accordance with the terms and c onditions of the respective grant agreement governing such award, and accordingly, (b) distribution of such awards can only take place following such share and/or unit amount determination. Notwithstanding the foregoing, the full and immediate vesting of any restricted stock units, performance shares, performance units, shall not change the payment date thereof or otherwise apply to the extent it would result in adverse tax consequences under Section 409A of the Code; and
(4) notwithstanding anything to the contrary in the respective award agreement(s), be entitled to exercise any stock options or stock appreciation rights until the expiration of twenty-four (24) months following Executive’s Separation from Service (or until such later date as may be applicable under the terms of the award agreement governing the stock option or stock appreciation right upon termination of employment), subject to the maximum full term of the stock option or stock appreciation right; provided, however, that, if any stock option or stock appreciation right is terminated or cashed-out in connection with a Change in Control, the Executive shall receive a lump-sum cash payment equal to the time value (i.e., under the Black Scholes option pricing model) of such stock options or stock appreciation rights inclusive of the economic value for the period of twenty-four (24) months following Executive’s Separation from Service (or until such later date as may be applicable under the terms of the award agreement governing the stock option or stock appreciation right upon termination of employment), subject to the maximum full term of the stock option or stock appreciation right.
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B. |
If Executive is not a Specified Employee, all payments made to Executive under Section 3(a) immediately above shall be made on the sixtieth (60th) calendar day following Executive’s Separation from Service, provided that Executive’s Release must be effective and not revocable on the date payment is to be made in order to receive such payments. If Executive is a Specified Employee, to the extent required to comply with Section 409A of the Code, payments made under Section 3(a) immediately above shall be made within ten (10) calendar days following the date following the first (1st) day of the seventh (7th) month after the date of Executive’s Separation from Service, provided that no such payment shall be made to Executive if the Release has not become effective as of the six (6)-month anniversary of the date of Executive’s Separation from Service. |
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4. |
Parachute Payments . In the event that any of the severance payments and other benefits provided by this Agreement or otherwise payable to Executive (a) constitute “parachute payments” within the meaning of Section 280G of the Code, and (b) but for this Section, would be subject to the excise tax imposed by Section 4999 of the Code (“Excise Tax”), then Executive’s severance payments and |
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benefits under this Agreement or otherwise shall be payable either in full or in such lesser amount which would result in no portion of such severance payments or benefits being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state and local income and employment taxes and the Excise Tax, results in the receipt by Executive, on an after-tax basis, of the greatest amount of severance payments and benefits under this Agreement or otherwise, notwithstanding that all or some portion of such severance payments or benefits may be taxable under Section 4999 of the Code. Any reduction in the severance payments and benefits required by this Section shall be made in the following order: (i) reduction of cash payments; (ii) reduction of accelerated vesting of equity awards other than stock options; (iii) reduction of accelerated vesting of s tock options; and (iv) reduction of other benefits paid or provided to Executive. The calculations in Section 4 will be performed by the professional firm engaged by the Company for general tax purposes as of the day prior to the date of the event that mi ght reasonably be anticipated to result in severance payments and benefits that would otherwise be subject to the Excise Tax. If the tax firm so engaged by the Company is serving as accountant or auditor for the acquiring company, the Company shall appoin t a nationally recognized tax firm to make the determinations required by this Section. The Company shall bear all expenses with respect to the determinations by such firm required to be made by this Section 4. The Company and Executive shall furnish suc h tax firm such information and documents as the tax firm may reasonably request in order to make its required determination. The tax firm will provide its calculations, together with detailed supporting documentation, to the Company and Executive as soon as practicable following its engagement. Any good faith determinations of the tax firm made hereunder shall be final, binding and conclusive upon the Company and Executive. As a result of the uncertainty in the application of Sections 409A, 280G or 4999 of the Code at the time of the initial determination by the professional tax firm described in this Section 4, it is possible that the Internal Revenue Service (the “IRS”) or other agency will claim that an Excise Tax greater than that amount, if any, det ermined by such professional firm for the purposes of Section 4 is due (the “Additional Excise Tax”). Executive shall notify the Company in writing of any claim by the IRS or other agency that, if successful, would require payment of Additional Excise Tax . Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to payments made or due to Executive. The Company shall pay all reasonable fees, expenses and penalties of Executive relating to a claim by the IRS or other agency. In the event it is finally determined that a further reduction would have been required under Section 4 to place Executive in a bet ter after-tax position, Executive shall repay the Company such amount within 30 days thereof in order to effect such result. |
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5. |
No Mitigation . Executive shall not be required to mitigate the amount of any payment or benefit provided for in Section 3 hereof b y seeking other employment or otherwise, nor shall the amount of such payment be reduced by reason of compensation or other income Executive receives for services rendered after Executive’s Separation from Service from the Company. |
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6. |
Exclusive Remedy . In the event of Executive’s Separation from Service on account of an involuntary termination without Cause or a voluntary termination for Good Reason within twenty-four (24) months following a Change in Control, the provisions of Section 3 are intended to be and are exclusive and in lieu of any other rights or remedies to which Executive or the Company may otherwise be entitled (including any contrary provisions in any employment agreement Executive may have with the Company), whether at law, tort or contract, in equity, or under this Agreement. Payments made to or on behalf of Executive under any other severance plan, policy, contract or arrangement with the Company shall reduce amounts payable under this Agreement on a dollar for dollar basis. |
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7. |
Company’s Successors. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, to expressly assume and agree to perform the obligations under this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. As used in this Section 7, Company includes any successor to its business or assets as aforesaid which executes and delivers this Agreement or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. |
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8. |
Notice . Notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or five (5) days after deposit with postal authorities transmitted by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first or last page of this Agreement, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. |
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9. |
Amendment or Waiver . No provisions of this Agreement may be amended, modified, waived or discharged unless Executive and the Company agree to such amendment, modification, waiver or discharge in writing. No amendment, modification, waiver or discharge of this Agreement shall result in the accelerated payment of any benefit or payment provided for in Section 3. No waiver by either party at any time of the breach of, or lack of compliance with, any conditions or provisions of this Agreement shall be deemed a waiver of the provisions or conditions hereof. |
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10. |
Entire Agreement . This Agreement represents the entire agreement between Executive and the Company with respect to the matters set forth herein and supersedes and replaces any prior agreements in their entirety. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter of this Agreement will be made by either party which are not set forth expressly herein. No future agreement between Executive and the Company may supersede this Ag reement, unless it is in writing and specifically makes reference to this Section 10. |
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11. |
Executive’s Successors. This Agreement shall inure to the benefit of and be enforceable by Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive dies while any amounts are still payable hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive’s devisee, legatee, or other designee or, if there be no such designees, to Executive’s estate. |
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12. |
No Funding Obligation . This Agreement shall be unfunded. Any payment made under this Agreement shall be made from the Company’s general assets, and the Executive’s rights shall be no greater than those of general unsecured creditor of the Company. |
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13. |
Legal Fees . In the event of any dispute or controversy arising out, relating to, or in connection with this Agreement, the Company shall reimburse Executive for reasonable attorney fees, costs and expenses incurred with respect thereto if Executive substantially prevails on the merits with respect to any breach of this Agreement by the Company. |
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14. |
Headings. All captions and section headings used in this Agreement are for convenient reference only and do not form a part of this Agreement. |
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15. |
Validity . The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect. |
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16. |
Withholding. All payments made pursuant to this Agreement will be subject to withholding of applicable income, employment and excise taxes. |
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17. |
Applicable Law . This Agreement shall be interpreted and enforced in accordance with the laws of the State of California (with the exception of its conflict of law provisions). This Agreement is intended to comply with or be exempt from Section 409A of the Code and the regulations promulgated thereunder. |
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18. |
Counterparts; Electronic Signatures. This Agreement may be executed (including via electronic signature) in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument. |
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IN WITNESS WHEREOF, this Agreement is executed effective as of t he date set forth above.
Alphatec Holdings, Inc. |
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By: |
/S/ Craig E. Hunsaker |
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Craig E. Hunsaker Executive Vice President, People & Culture |
ACCEPTED AND AGREED TO AS OF THE DATE FIRST SET FORTH ABOVE: |
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/S/ Jon Allen |
Jon Allen |
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Exhibit 10.5
EXECUTION VERSION
September 14, 2016
Craig E. Hunsaker
212 El Sueno
Solana Beach, CA 92075
Re: Employment Terms
Dear Craig:
This letter (the “ Agreement ”) will confirm the terms of your employment by Alphatec Holdings, Inc. (“ Alphatec ” or the “ Company ”).
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1. |
Term
. The term of this Agreement will commence on September 14, 2016 (the “
Effective Date
”) and will continue for three years thereafter. Upon expiration of the initial term, the Agreement will automatically renew for one year periods unless either party notifies the other party of nonrenewal at
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|
2. |
Position . On the Effective Date, you will begin to serve as Executive Vice President, People & Culture of the Company. In this capacity, you will report directly to the Chief Executive Officer of the Company and have all of the customary authorities, duties and responsibilities that accompany your position. Throughout your employment with the Company, you agree to devote substantially all of your business time and attention to the business and affairs of the Company and to perform your duties in a diligent, competent, professional and skillful manner and in accordance with applicable law and the Company's policies and procedures. |
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3. |
Annual Compensation . Your initial annual compensation will be as follows: |
|
A. |
Base Cash Salary . Your initial base cash salary will be at a rate of $350,000 per year. |
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B. |
Annual Cash Bonus . You will be eligible to participate in the Company's discretionary annual bonus program with your annual target bonus opportunity equal to 70% of base salary. The Board of Directors of the Company (the “ Board ”) will determine the amount of your award based on its assessment of a number of factors including Company and individual performance which shall be established in consultation with you. For the avoidance of doubt, you will be eligible to receive an annual cash bonus in respect of the Company's full 2016 fiscal year ( e.g. , without pro-ration to account for the portion of the year you were employed following the Effective Date) in an amount not less than 70% of base salary. |
SCI:4226117.2A
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4. |
Benefits . You will be eligible to participate in employee welfare and benefit programs of the Company at the level available to other members of the Company's executive management. Participation in Company benefits programs is subject to meeting the relevant eligibility requirements, payment of the required premiums, and the terms of the plans themselves. |
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5. |
Equity Compensation . In addition to your eligibility for regular grants of long-term incentives, you will be granted the Sign-On RSUs and the PSP RSUs, in each case, as defined and described below. All awards described in this Section 5 will in all cases be subject to actual grant to you by the compensation committee of the Board (the “ Compensation Committed ”) in its sole discretion, would be pursuant to the applicable plan document and would be subject to terms and conditions established by the Compensation Committee in its sole discretion that would be detailed in separate agreements you would receive after any award is actually made. You acknowledge that the Sign-On RSUs and the PSP RSUs are “employment inducement awards” that will be granted to you outside of the Company's 2016 Equity Incentive Plan pursuant to NASDAQ Listing Rule 5635(c)(4). |
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A. |
Sign-On RSUs . You will be granted a one-time sign-on award of restricted stock units with an aggregate target value of $750,000 (the “ Sign-On RSUs ”), determined based the volume weighted average price for the Company's common stock for the ten day period prior to the Effective Date. Your Sign-On RSUs will vest ratably over three years, with automatic vesting upon a Change in Control of the Company (as defined in the Company's 2016 Equity Incentive Plan). |
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B. |
PSP RSUs . You will be granted a one-time special performance stock plan award of restricted stock units, with an aggregate target value of $750,000 (the “ PSP RSUS ”). The number of PSP RSUs will be settled upon the earlier of (i) the third anniversary of the Effective Date and (ii) a Change in Control of the Company (the “Settlement Date”), at which time the PSP RSUs will cliff vest in the dollar amount of 0% to 250% of the target value, and will be settled in shares of Company common stock based on the fair market value of such shares on the Settlement Date in accordance with the table and terms set forth on Annex A . |
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6. |
Severance . Your eligibility for severance upon a termination of employment will be governed by the terms of the Alphatec Severance Agreement and Alphatec Change in Control Agreement, forms of which are attached hereto as Annex B and Annex C , respectively. |
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SCI:4226117.2A
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7. |
Certain Post-Employment Covenants . During your employment with the Company, and for a period of one year following the termination of your employment with the Company, you shall not, without the prior written consent of the Company: (i) either individually or on behalf of or through any third party, directly or indirectly, solicit, entice or persuade or attempt to solicit, entice or persuade any employee, agent, consultant or contractor of the Company or any of its affiliates (the “ Company Group ”) to leave the service of the Company Group for any reason; or (ii) in a manner that is dependent upon the use of the Company's proprietary information, either individually or on behalf of or through any third party, directly or indirectly, interfere with, or attempt to interfere with, the business relationship between the Company Group and any vendor, supplier, surgeon or hospital with which you have interacted during the course of your employment with the Company. |
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8. |
Indemnification and Cooperation . During and after your employment, the Company will indemnify you in your capacity as a director, officer, employee or agent of the Company to the fullest extent permitted by applicable law and the Company's charter and by-laws, and will provide you with director and officer liability insurance coverage (including post-termination/post-director service tail coverage) on the same basis as the Company's other executive officers. |
You agree (whether during or after your employment with the Company) to reasonably cooperate with the Company in connection with any litigation or regulatory matter or with any government authority on any matter, in each case, pertaining to the Company and with respect to which you may have relevant knowledge.
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9. |
Withholding . Tax will be withheld by the Company as appropriate under applicable Federal tax requirements for any payments or deliveries under this Agreement. |
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10. |
No Guarantee of Employment or Fixed Compensation . This Agreement is not a guarantee of employment or a guarantee of compensation for a fixed term. Your employment will be on an “at-will” basis, meaning that you and the Company may terminate your employment at any time and for any reason, with or without prior notice, subject to the terms and conditions in the agreements attached hereto as Annex B and Annex C. |
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11. |
Entire Agreement . This Agreement (including Annex A , Annex B and Annex C ) constitutes the Company's only statement relating to its offer of employment to you and supersedes any previous communications or representations, oral or written, from or on behalf of the Company or any of its affiliates. |
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SCI:4226117.2A
|
12. |
Miscellaneous Representations . You confirm and represent to the Company, by signing this letter, that: (a) you are under no obligation or arrangement (including any restrictive covenants with any prior employer or any other entity) that would prevent you from becoming an employee of the Company or that would adversely impact your ability to perform the expected services on behalf of the Company; (b) you have not taken (or failed to return) any confidential information belonging to your prior employer or any other entity, and, to the extent you remain in possession of any such information, you will never use or disclose such information to the Company or any of its employees, agents or affiliates; and (c) you understand and accept all of the terms and conditions of this offer. |
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SCI:4226117.2A
We look forward to having you as a member of Alphatec's leadership team.
Sincerely,
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SCI:4226117.2A
Market Cap* (in millions) |
Vesting ** (in dollar amount of target value) |
$100 |
40% |
$150 |
60% |
$200 |
80% |
$250 |
100% |
$300 |
120% |
$350 |
140% |
$400 |
160% |
$450 |
180% |
$500 |
200% |
$550 |
220% |
$600 |
240% |
$625 |
260% |
* Market Cap calculated upon the earlier of (i) the third anniversary of the Effective Date and (ii) a Change in Control of the Company, and shall equal the product of (a) the fair market value of a share of Company common stock (which, in the event of a Change in Control of the Company shall be the fair market value of the consideration received by a holder of a share of Company common stock in connection with the Change in Control of the Company) and (b) the number of shares of Company common stock outstanding. Notwithstanding the foregoing, in the event of a Change in Control of the Company occurring before the first anniversary of the Effective Date, the Market Cap shall equal the greater of (1) $100 million and (2) the product of (x) the fair market value of the consideration received by a holder of a share of Company common stock in connection with the Change in Control of the Company and (y) the number of shares of Company common stock outstanding; and in the event of a Change in Control of the Company occurring after the first anniversary of the Effective Date, the Market Cap shall equal the greater of (1) $250 million and (2) the product of (x) the fair market value of the consideration received by a holder of a share of Company common stock in connection with the Change in Control of the Company and (y) the number of shares of Company common stock outstanding.
**Linear interpolation between points (for both Market Cap and Vesting — e.g., a Market Cap of $275 million yields a vesting percentage of 110%).
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SCI:4226117.2A
D. The Executive is not a temporary employee or a new hire who has not yet started to work on a regular, full-time or part-time basis (as appropriate).
E. The Executive is not covered under any other severance-type plan, policy, arrangement or agreement that provides severance payments and benefits more favorable in the aggregate to those provided herein. If any such plan, policy, arrangement or agreement exists, the Executive will receive payments and benefits pursuant to that plan, policy, arrangement or agreement and shall not receive any of the severance payments and benefits described herein. In no case will the Executive receive severance payments and benefits under any other such severance-type plan, policy, arrangement or agreement and this Agreement.
F. In the event that the Executive is party to a “Change in Control” Agreement with Company that also provides for severance benefits, in the event of a “Change in Control” (as defined therein) the Executive shall not receive benefits under this Agreement, but instead shall receive only the severance benefits provided under such “Change in Control” Agreement (i.e., there shall be no “double-dipping” and only the “Change in Control” Agreement shall apply in such an event).
G. The Executive has not agreed in writing to waive severance benefits under this Agreement or otherwise payable from the Company.
H. The Executive (or, in the event of the executive's death or incapacity, the Executive's executor, representative or guardian, as applicable) signs and does not revoke a separation agreement and general release of all claims in such form as the Company may from time-to-time reasonably require (“Separation Agreement”).
I. The Executive has returned all Company property and equipment that was assigned to, or taken general control of by, her or him during his tenure with the Company.
If terminated, the Executive must satisfy
all
of the requirements set forth above in order to receive severance benefits under this Agreement. Eligibility for severance benefits under this Agreement will be determined by the Company upon the Executive's termination of employment. The Company has full power and authority to interpret the provisions of this
Agreement and render decisions on eligibility for benefits. If the Company determines that the Executive satisfies all of the eligibility conditions described above, the Executive will receive severance benefits calculated in accordance with Section III below. The severance benefits will be paid following the Executive's termination of employment in accordance with the terms set forth below and in the respective Separation Agreement.
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SCI:4226008.2A
Severance Pay and Benefits . The following severance pay and benefits are payable under this Agreement:
1. Severance Pay . The severance pay provided to the Executive if involuntarily terminated under the terms of this Agreement consists of an amount equal to the sum of one times (1x) his regular annual base salary.
The amount of severance pay to the Executive shall be based upon the Executive's regular annual base salary in effect immediately before the Executive's termination
of employment, determined without regard to any overtime, bonuses, fringe benefits, reimbursements or other irregular payments. The Executive's general release of all claims
referred to in Section II.H. must be effective the sixtieth (60
th
) day following the Executive's termination of employment in order for the Executive to receive any severance pay or benefits under the Agreement. Severance pay will be paid in a single cash lump-sum on the sixtieth (60
th
) day following the Executive's termination of employment (or as soon as administratively practicable after such sixtieth (60
th
) day).
Benefits Continuation . Upon an involuntary termination of employment pursuant to which the Executive is entitled to severance pay under Section III.A.1., subject to the Executive's timely election of continuation coverage under the Consolidated Budget Omnibus Reconciliation Act of 1985, as amended (“ COBRA ”), the Company will pay the premiums for the Executive for a period of twelve (12) months based on the level of coverage in effect as of the date of the Executive's termination. Notwithstanding the foregoing, in the event that the Executive becomes eligible to receive substantially similar or improved medical, dental or vision benefits from a subsequent employer (whether or not the Executive accepts such benefits), the Company's obligations under this Section III.A.2. shall immediately cease. TheExecutive will notify the Company of his eligibility for such benefits from a subsequent employer within thirty (30) days of such eligibility.
In the event that the Company's making payments under this Section III.A.2 would violate nondiscrimination rules or result in the imposition of penalties under the Patient Protection and Affordable Care Act of 2010 (“ PPACA ”) and related regulations and guidance promulgated thereunder, the parties agree to reform this Section III.A.2. in such manner as is necessary to comply with tax laws and the PPACA, as applicable.
3.
Equity Awards
. Upon an involuntary termination of employment pursuant to which the Executive is entitled to severance pay under Section III.A.1., any vested stock option awards held by Executive at the time of his termination will remain exercisable by the Executive for the greater of (i) 90 days following the effective date of
the Executive's termination and (ii) the remaining term of such option award, and all
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SCI:4226008.2A
other Company equity awards held by Executive that remain unvested upon the effective date of his termination will be forfeited for no consideration.
IV. OTHER PROVISIONS
A. No Separate Fund . All severance benefits payable under this Agreement are payable from the Company's general assets. There is no separate trust or fund established for the payment of severance benefits under this Agreement. All amounts payable hereunder shall be less all appropriate deductions, including federal, state and local withholding taxes.
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B. |
Section 409A . |
1. It is the intent of the parties that the payments and benefits provided hereunder are exempt from Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), and should be interpreted and construed in such a manner.
2. “Termination of employment”, “resignation”, “separation from service”, or correlative phrases or terms, as used in this Agreement means, for purposes of any payments under this Agreement that are payments of deferred compensation, has the same meaning as “separation from service” as defined in Section 409A.
3.
If a payment obligation under this Agreement arises on account of the Executive's separation from service while the Executive is a “specified employee” (as defined under Section 409A and determined in good faith by the Board), any payment of “deferred compensation” (as defined under Treasury Regulation Section 1.409A-1(b)(1),
after giving effect to the exemptions in Treasury Regulation Sections 1.409A-1(b)(3) through (b)(12)) that is scheduled to be paid within six (6) months after such separation
from service shall accrue with interest and shall be paid within 15 days after the end of the six-month period beginning on the date of such separation from service or, if earlier, within 15 days after the appointment of the personal representative or executor of the Executive's estate following his death.
4. Each payment and benefit payable under this Agreement, and each other benefit required to be aggregated with the payment and benefits under this Agreement pursuant to Section 409A, is hereby designated as a separate payment, as provided in Treasury Regulation section 1.409A-2(b)(2)(iii), and will not collectively be treated as a single payment.
C. Amendment or Waiver . No provisions of this Agreement may be amended, modified, waived or discharged unless Executive and the Company agree to such amendment, modification, waiver or discharge in writing.
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SCI:4226008.2A
IN WITNESS WHEREOF
, this Agreement is executed effective as of the date set forth above.
Alphatec Holdings, Inc.
By:
Chairman of the Board of Directors
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SCI:4226008.2A
ALPHATEC CHANGE IN CONTROL AGREEMENT
This Change in Control Agreement (“Agreement”), dated as of September 14, 2016, is by and between Alphatec Holdings, Inc. (the “Company”) and Craig E. Hunsaker (the “Executive”) (each a “Party”, and, collectively, the “Parties”).
1. Term of Agreement . This Agreement shall commence on the date hereof and continue in effect until the earlier of (a) Executive's Separation from Service other than within twenty-four (24) months following a Change in Control (each as defined below); (b) the Company's satisfaction of all of its obligations under this Agreement; or (c) the execution of a written agreement between the Company and Executive terminating this Agreement.
|
2. |
Definitions . As used in this Agreement: |
(a) “ Annual Compensation” means the sum of the following:
(i) one year of Executive's base salary, the highest rate at which Executive was paid at any time during the twelve (12)-month period prior to the Executive's Separation from Service; plus
(ii) the greater of (A) the Executive's target annual bonus amount for the year in which the Separation from Service occurs, or (B) the highest annual bonus paid to the Executive out of the three (3) prior bonuses paid to the Executive prior to the Executive's Separation from Service.
(b) “ Cause” means (i) Executive's willful and repeated failure to satisfactorily perform his or her material duties which is not remedied within thirty (30) days' written notice from the Company specifying such failure; (ii) Executive's repeated and willful failure to follow the lawful directions of the Company's Board of Directors which is not remedied within thirty (30) days' written notice from the Company specifying such failure; (iii) Executive's conviction of or plea of guilty or nolo contrende to a crime involving moral turpitude; (iv) Executive engaging, or in any manner participating, in any activity which is directly competitive and materially and demonstrably injurious to the Company; or (v) commission of an intentional act of fraud, embezzlement or theft by the Executive in the course of Executive's employment by the Company.
(c) “Change in Control” has the meaning set forth in the Company's 2016 Equity Incentive Plan.
(d) “COBRA” means the Consolidated Budget Omnibus Reconciliation Act of 1985, as amended.
(e) “Code” means the Internal Revenue Code of 1986, as amended from time-to-time.
SCI:4226014.2
(f) “ Disability ” means that, at the time Executive Separates from Service, Executive has been unable to perform the duties of Executive's position for a period of 180 consecutive days as the result of an incapacity due to physical or mental illness.
(g) “Good Reason” means the occurrence of one of the following which occurs within twenty-four (24) months following a Change in Control and without Executive's express, written consent: (i) a significant reduction of Executive's duties, position or responsibilities (including, without limitation, any negative change in reporting hierarchy involving the Executive or the person to whom he or she directly reports), or Executive's removal from such position and responsibilities; (ii) a material reduction by the Company in Executive's base salary or target annual bonus as in effect immediately prior to such reduction; (iii) a material reduction by the Company in the kind or aggregate level of employee benefits to which Executive is entitled immediately prior to such reduction with the result that Executive's overall benefits package is significantly reduced; (iv) Executive is requested to relocate (except for office relocations that would not increase Executive's one way commute to more than fifty (50) miles); or (v) the failure of the Company to obtain the assumption of this Agreement pursuant to Section 7. For avoidance of doubt (as examples and not an exhaustive list), a significant reduction of duties, position or responsibilities shall have occurred if the Executive was a Section 16 reporting officer immediately prior to the Change in Control and is no longer a Section 16 reporting officer immediately following the Change in Control. The Executive may terminate his employment for “Good Reason” within 90 days after Executive has actual knowledge of the occurrence, without the written consent of Executive, of one of the above events that has not been cured within 30 days after written notice thereof has been given by Executive to the Company setting forth in reasonable detail the basis of the event (provided that such notice must be given to the Company within 30 days of the Executive becoming aware of such condition).
(h) “Long-term Incentive Award Value” means the highest grant date fair value of any long-term incentive award (cash and/or equity-based incentive) granted to Executive in the three (3) calendar year period prior to the calendar year of the Separation from Service.
(i) “PPACA” means the Patient Protection and Affordable Care Act of 2010 and related regulations and guidance promulgated thereunder.
(j) “Separation from Service” or “Separates from Service” means a termination of employment with the Company that qualifies as a separation from service in accordance with Section 409A of the Code.
(k) “ Specified Employee” means an employee who is determined by the Company to be a Specified Employee in accordance with Section 409A of the Code.
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3. |
Severance Payments and Benefits . |
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SCI:4226014.2
(a) If a Change in Control occurs and within a period of twenty-four (24) months thereafter, Executive incurs a Separation from Service on account of (i) an involuntary termination by the Company for reasons other than death, Disability or Cause, or (ii) a voluntary termination elected by the Executive for Good Reason, then subject to (A) Executive signing and not revoking a separation and general release agreement (the “ Release ” ) in a form provided by the Company as may be in use from time to time, and (B) Section 4 below, Executive shall (and the Company (or any successor thereto) shall pay, award and/or provide):
(1) receive a lump-sum cash severance payment in an amount equal to the sum of (a) two times (2x) Executive's Annual Compensation; (b) the product of (x) Executive's Long-term Incentive Award Value, multiplied by (y) a fraction, the numerator of which is the number of full and partial calendar months between January 1 of the year of Separation from Service and the date of the Executive's Separation from Service (provided, however, that such numerator shall not exceed six (6)) and the denominator of which is twelve (12); and (c) the product of (x) the greater of (A) Executive's target annual bonus amount for the year in which the Separation from Service occurs, or (B) the highest annual bonus paid to the Executive out of the three (3) prior bonuses paid to the Executive prior to the Executive's Separation from Service, multiplied by (y) a fraction, the numerator of which is the number of full and partial calendar months between January 1 of the year of Separation from Service and the date of the Executive's Separation from Service and the denominator of which is twelve (12); and
(2) receive eighteen (18) months of continued coverage under the Company's group health plans (based on the level of the Executive's coverage in effect on the date of the Executive's Separation from Service), at the Company's expense, subject to the Executive's timely election of continuation coverage under the COBRA, it being understood that (a) in the event that the Executive becomes eligible to receive substantially similar or improved medical, dental or vision benefits from a subsequent employer (whether or not the Executive accepts such benefits), the Company's obligations under this Section 3(a)(2) shall immediately cease, (b) the Executive will notify the Company of his eligibility for such benefits from a subsequent employer within thirty (30) days of such eligibility and (c) in the event that the Company's making payments under this Section 3(a)(2) would violate nondiscrimination rules or result in the imposition of penalties under the PPACA, the parties agree to reform this Section 3(a)(2) in such manner as is necessary to comply with tax laws and the PPACA, as applicable.
(3) become fully vested in all Company equity and long-term incentive awards granted to Executive (including, but not limited to, and all stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, and all other stock and cash-based long-term incentive awards) to the extent that such vesting is based on service with the Company. With respect to any performance shares and performance unit awards, (a) the final number of units and/or
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SCI:4226014.2
shares payable under such awards shall only be determined in accordance with the terms and conditions of the respective grant agreement governing such award, and accordingly, (b) distribution of such awards can only take place following such share and/or unit amount determination. Notwithstanding the foregoing, the full and immediate vesting of any restricted stock units, performance shares, performance units, shall not change the payment date thereof or otherwise apply to the extent it would result in adverse tax consequences under Section 409A of the Code; and
(4) notwithstanding anything to the contrary in the respective award agreement(s), be entitled to exercise any stock options or stock appreciation rights until the expiration of twenty-four (24) months following Executive's Separation from Service (or until such later date as may be applicable under the terms of the award agreement governing the stock option or stock appreciation right upon termination of employment), subject to the maximum full term of the stock option or stock appreciation right; provided, however, that, if any stock option or stock appreciation right is terminated or cashed-out in connection with a Change in Control, the Executive shall receive a lump-sum cash payment equal to the time value (i.e., under the Black Scholes option pricing model) of such stock options or stock appreciation rights inclusive of the economic value for the period of twenty-four (24) months following Executive's Separation from Service (or until such later date as may be applicable under the terms of the award agreement governing the stock option or stock appreciation right upon termination of employment), subject to the maximum full term of the stock option or stock appreciation right.
(b) If Executive is not a Specified Employee, all payments made to Executive under Section 3(a) immediately above shall be made on the sixtieth (60 th ) calendar day following Executive's Separation from Service, provided that Executive's Release must be effective and not revocable on the date payment is to be made in order to receive such payments. If Executive is a Specified Employee, to the extent required to comply with Section 409A of the Code, payments made under Section 3(a) immediately above shall be made within ten (10) calendar days following the date following the first (1 st ) day of the seventh (7 th ) month after the date of Executive's Separation from Service, provided that no such payment shall be made to Executive if the Release has not become effective as of the six (6)-month anniversary of the date of Executive's Separation from Service.
Parachute Payments . In the event that any of the severance payments and other benefits provided by this Agreement or otherwise payable to Executive (a) constitute “parachute payments” within the meaning of Section 280G of the Code, and (b) but for this Section, would be subject to the excise tax imposed by Section 4999 of the Code (“Excise Tax”), then Executive's severance payments and benefits under this Agreement or otherwise shall be payable either in full or in such lesser amount which would result in no portion of such severance payments or benefits being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state and local income and employment taxes and the Excise Tax, results in the receipt by
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SCI:4226014.2
Executive, on an after-tax basis, of the greatest amount of severance payments and benefits under this Agreement or otherwise, notwithstanding that all or some portion of such severance payments or benefits may be taxable under Section 4999 of the Code. Any reduction in the severance payments and benefits required by this Section shall be made in the following order: (i) reduction of cash payments; (ii) reduction of accelerated vesting of equity awards other than stock options; (iii) reduction of accelerated vesting of stock options; and (iv) reduction of other benefits paid or provided to Executive. The calculati
ons in Section 4 will be perform
ed by the professional firm engaged by the Company for general tax purposes as of the day prior to the date of the event that might reasonably be anticipated to result in severance payments and benefits that would otherwise be subject to the Excise Tax. If the tax firm so engaged by the Company is serving as accountant or auditor for the acquiring company, the Company shall appoint a nationally recognized tax firm to make the determinations required by this Section. The Company shall bear all expenses with respect to the determinations by such firm required to be made by this Section 4. The Company and Executive shall furnish such tax firm such information and documents as the tax firm may reasonably request in order to make its required determination. The tax firm will provide its calculations, together with detailed supporting documentation, to the Company and Executive as soon as practicable following its engagement. Any good faith determinations of the tax firm made hereunder shall be final, binding and conclusive upon the Company and Executive. As a result of the uncertainty in the application of Sections 409A, 280G or 4999 of the Code at the time of the initial determination by the professional tax firm described in this Section 4, it is possible that the
Internal Revenue Service (the “
IRS
”
) or other agency will claim that an Excise Tax greater than that amount, if any, determined by such professional firm for the pur
poses of Section 4 is due (the “
Additional Excise Tax
”
). Executive shall notify the Company in
wr
iting of any claim by the IRS or other agency that, if successful, would require payment of Additional Excise Tax. Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to
payments made or due to Executive. The Company shall pay all reasonable fees, expenses and penalties of Executive relating to a claim by the IRS or other agency.
In the event it is finally determ
ined that a further reduction would have been required under Section 4 to place Executive in a better after-tax position, Executive shall repay the Company such amount within 30 days thereof in order to effect such result.
No Mitigation . Executive shall not be required to mitigate the amount of any payment or benefit provided for in Section 3 hereof by seeking other employment or otherwise, nor shall the amount of such payment be reduced by reason of compensation or other income Executive receives for services rendered after Executive's Separation from Service from the Company.
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6. |
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SCI:4226014.2
Reason within twenty-four (24) months following a Change in Control, the provisions of Section 3 are intended to be and are exclusive and in lieu of any other rights or remedies to which Executive or the Company may otherwise be entitled (including any contrary provisions in any employment agreement Executive may have with the Company), whether at law, tort or contract, in equity, or under this Agreement. Payments made to or on behalf of Executive under any other severance plan, policy, contract or arrangement with the Company shall reduce amounts payable under this Agreement on a dollar for dollar basis.
Company's Successors . The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, to expressly assume and agree to perform the obligations under this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. As used in this Section 7, Company includes any successor to its business or assets as aforesaid which executes and delivers this Agreement or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law.
Notice . Notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or five (5) days after deposit with postal authorities transmitted by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first or last page of this Agreement, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.
Amendment or Waiver . No provisions of this Agreement may be amended, modified, waived or discharged unless Executive and the Company agree to such amendment, modification, waiver or discharge in writing. No amendment, modification, waiver or discharge of this Agreement shall result in the accelerated payment of any benefit or payment provided for in Section 3. No waiver by either party at any time of the breach of, or lack of compliance with, any conditions or provisions of this Agreement shall be deemed a waiver of the provisions or conditions hereof.
Entire Agreement . This Agreement represents the entire agreement between Executive and the Company with respect to the matters set forth herein and supersedes and replaces any prior agreements in their entirety. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter of this Agreement will be made by either party which are not set forth expressly herein. No future agreement between Executive and the Company may supersede this Agreement, unless it is in writing and specifically makes reference to this Section 10.
Executive's Successors . This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators,
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SCI:4226014.2
successors, heirs, distributees, devisees and legatees. If Executive dies while any amounts are still payable hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee, or other designee or, if there be no such designees, to Executive's estate.
No Funding Obligation . This Agreement shall be unfunded. Any payment made under this Agreement shall be made from the Company's general assets, and the Executive's rights shall be no greater than those of general unsecured creditor of the Company.
Legal Fees . In the event of any dispute or controversy arising out, relating to, or in connection with this Agreement, the Company shall reimburse Executive for reasonable attorney fees, costs and expenses incurred with respect thereto if Executive substantially prevails on the merits with respect to any breach of this Agreement by the Company.
Headings . All captions and section headings used in this Agreement are for convenient reference only and do not form a part of this Agreement.
Validity . The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect.
Withholding . All payments made pursuant to this Agreement will be subject to withholding of applicable income, employment and excise taxes.
Applicable Law . This Agreement shall be interpreted and enforced in accordance with the laws of the State of California (with the exception of its conflict of law provisions). This Agreement is intended to comply with or be exempt from Section 409A of the Code and the regulations promulgated thereunder.
Counterparts; Electronic Signatures . This Agreement may be executed (including via electronic signature) in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.
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SCI:4226014.2
IN WITNESS WHEREOF , this Agreement is executed effective as of the date set forth above.
Alphatec Holdings, Inc.
By:
Chairman of the Board of Directors
-8-
SCI:4226014.2
EXHIBIT 10.6
February 27, 2017
Brian R. Snider
16227 Oak Creek Trail
Poway, CA 92064
Re: Employment Terms
Dear Brian:
This letter (the “ Agreement ”) will confirm the terms of your employment by Alphatec Holdings, Inc. (“ Alphatec ” or the “ Company ”).
|
1. |
Term . The term of this Agreement will commence on March 20, 2017 (the “ Effective Date ”), or on such other date as you and the Company shall mutually agree upon, and will continue until terminated, subject to the terms of this Agreement. |
|
2. |
Position. On the Effective Date, you will begin to serve as Executive Vice President, Strategic Marketing & Product Development. In this capacity, you will report directly to the Chief Executive Officer of the Company (the “CEO”) and have all of the customary authorities, duties and responsibilities that accompany your position. Throughout your employment with the Company, you agree to devote substantially all of your business time and attention to the business and affairs of the Company and to perform your duties in a diligent, competent, professional and skillful manner and in accordance with applicable law and the Company’s policies and procedures. |
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3. |
Annual Compensation. Your initial annual compensation will be as follows: |
|
A. |
Base Cash Salary . Your initial base cash salary will be at a rate of $300,000 per year. |
|
C. |
Long Term Incentive . Commencing with the Company’s fiscal year starting January 1, 2017, you will be eligible, subject to your continued employment by the Company, to participate in such long-term incentive programs that are made available at the level determined by the Board, in its discretion, consistent with your role and responsibilities as Executive Vice President, Strategic Marketing & Product Development, of the Company. |
|
4. |
Benefits. You will be eligible to participate in employee welfare and benefit programs of the Company at the level available to other members of the Company’s executive management. Participation in Company benefits programs is subject to meeting the relevant eligibility requirements, payment of the required premiums, and the terms of the plans themselves. |
|
A. |
Sign-On RSUs . You will be granted a one-time sign-on award of seventy-five thousand (75,000) restricted stock units (the “Sign-On RSUs”). Your Sign-On RSUs will vest ratably over four (4) years, with automatic vesting upon a Change in Control of the Company (as defined in the Company’s 2016 Equity Incentive Plan). |
|
B. |
Sign-On Options . You will be granted a one-time sign-on award of seventy-five thousand (75,000) stock options (the “Sign-On Options”), with the exercise price per share equaling the price of a share of Company stock after market close on the date of the grant. The Sign-On Options will vest according to the following schedule: 25% of the shares subject to the Sign-On Option shall vest upon the one-year anniversary of the Effective Date, and 1/36 of the shares subject to the Sign-On Option shall vest each month thereafter, subject to your continued employment by the Company, with automatic vesting upon a Change in Control of the Company (as defined in the Company’s 2016 Equity Incentive Plan). |
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7. |
Certain Post-Employment Covenants . During your employment with the Company, and for a period of one year following the termination of your employment with the Company, you shall not, without the prior written consent of the Company: (i) either individually or on behalf of or through any third party, directly or indirectly, solicit, entice or persuade or attempt to solicit, entice or persuade any employee, agent, consultant or contractor of the Company or any of its affiliates (the “ Company Group” ) to leave the service of the Company Group for any reason; or (ii) in a manner that is dependent upon the use of the Company’s proprietary information, either individually or on behalf of or through any third party, directly or indirectly, interfere with, or attempt to interfere with, the business relationship between the Company Group and any vendor, supplier, surgeon or hospital with which you have interacted during the course of your employment with the Company. |
|
8. |
Indemnification and Cooperation. During and after your employment, the Company will indemnify you in your capacity as a director, officer, employee or agent of the Company to the fullest extent permitted by applicable law and the Company’s charter and by-laws, and will provide you with director and officer liability insurance coverage (including post-termination/post-director service tail coverage) on the same basis as the Company’s other executive officers. |
You agree (whether during or after your employment with the Company) to reasonably cooperate with the Company in connection with any litigation or regulatory matter or with any government authority on any matter, in each case, pertaining to the Company and with respect to which you may have relevant knowledge.
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9. |
Withholding . Tax will be withheld by the Company as appropriate under applicable Federal tax requirements for any payments or deliveries under this Agreement. |
|
10. |
No Guarantee of Employment or Fixed Compensation. This Agreement is not a guarantee of employment or a guarantee of compensation for the Term. Your employment will be on an “at-will” basis, meaning that you and the Company may terminate your employment at any time and for any reason during the Term, with or without prior notice, subject to the provisions of this Agreement (including Annex A and Annex B). |
|
11. |
Entire Agreement. This Agreement (including Annex A and Annex B ) constitutes the Company’s only statement relating to its offer of employment to you and supersedes any previous communications or representations, oral or written, from or on behalf of the Company or any of its affiliates. |
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12. |
Miscellaneous Representations. You confirm and represent to the Company, by signing this letter, that: (a) you are under no obligation or arrangement (including any restrictive covenants with any prior employer or any other entity) that would prevent you from becoming an employee of the Company or that would adversely impact your ability to perform the expected services on behalf of the Company; (b) you have not taken (or failed to return) any confidential information belonging to your prior employer or any other entity, and, to the extent you remain in possession of any such information, you will never use or disclose such information to the Company or any of its employees, agents or affiliates; and (c) you understand and accept all of the terms and conditions of this offer. |
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13. |
Offer Contingencies. This offer is contingent upon (i) your successful completion of a background check and drug screen; (ii) your execution of the Company’s current form of Mutual Agreement to Arbitrate Claims, Confidential and Proprietary Information Agreement, and those other forms that the Company requests all of its employees to execute prior to the initiation of their employment. |
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We look forward to having you join the Alphatec leadership team.
Sincerely, |
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By: |
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/S/ Craig E. Hunsaker |
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Craig E. Hunsaker |
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Executive Vice President, People & Culture |
I agree with and accept the foregoing terms.
/S/ Brian Snider |
Brian Snider |
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ANNEX A
ALPHATEC SEVERANCE AGREEMENT
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1. |
INTRODUCTION |
This Severance Agreement (the “Agreement”) is entered into as of March 20, 2017 (the “Commencement Date”), by and between Alphatec Holdings, Inc. (the “Company”) and Brian Snider (the “Executive”) to provide severance benefits to the Executive in the event his employment is terminated involuntarily under certain circumstances. All benefit determinations under this Severance Agreement and any interpretation of provisions in this Severance Agreement will be made by the Board of Directors of the Company (the “Board”) or its designee in its sole discretion. The Agreement is described in further detail below.
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2. |
ELIGIBILITY |
In the event Executive is terminated involuntarily he will be eligible for severance benefits described in Section III of this Agreement , PROVIDED each of the following requirements is met:
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A . |
The termination of employment is involuntary. |
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B. |
The termination is not due to retirement, death or disability of the Executive. |
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C. |
The termination of employment is not for “cause” (as defined below). For purposes of the Agreement, “cause” shall mean the following: |
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A. |
Executive’s repeated failure to satisfactorily perform executive’s job duties; |
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B. |
refusal or failure to follow the lawful directions of Executive’s direct supervisor, the Company’s Chief Executive Officer or Board, as applicable; |
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C. |
conviction of, or plea of guilty or nolo contendere to a crime involving moral turpitude; or |
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D. |
engaging in acts or omissions constituting gross negligence, recklessness or willful misconduct on the part of the Executive with respect to his/her obligations or otherwise relating to the business of the Company, its affiliates or customers. |
The Executive must be provided a period of at least thirty (30) days following receipt of written notice outlining with specificity all acts or omissions that the Company alleges give rise to a termination for cause pursuant to Section II, C.1 or C.2 immediately above, during which period he may effect a cure of any curable actions or omissions forming the basis for the termination for cause. The Board, will, in its sole discretion, apply the definitions of “cause” herein to determine if a termination of employment is for “cause”.
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D. |
The Executive is not a temporary employee or a new hire who has not yet started to work on a regular, full-time or part-time basis (as appropriate). |
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|
E. |
The Executive is not covered under any other severance-type plan, policy, arrangement or agreement that provides severance payments and benefits more favorable in the aggregate to those provided herein . If any such plan, policy, arrangement or agreement exists, the Executive will receive payments and benefits pursuant to that plan, policy, arrangement or agreement and shall not receive any of the severance payments and benefits described herein. In no case will the Executive receive severance payments and benefits under any other such severance-type plan, policy, arrangement or agreement and this Agreement. |
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F. |
In the event that the Executive is party to a “Change in Control” Agreement with Company that also provides for severance benefits, in the event of a “Change in Control” (as defined therein) the Executive shall not receive benefits under this Agreement, but instead shall receive only the severance benefits provided under such “Change in Control” Agreement (i.e., there shall be no “double-dipping” and only the “Change in Control” Agreement shall apply in such an event). |
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G. |
The Executive has not agreed in writing to waive severance benefits under this Agreement or otherwise payable from the Company. |
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H. |
The Executive (or, in the event of the executive’s death or incapacity, the Executive’s executor, representative or guardian, as applicable) signs and does not revoke a separation agreement and general release of all claims in such form as the Company may from time-to-time reasonably require (“Separation Agreement”). |
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I. |
The Executive has returned all Company property and equipment that was assigned to, or taken general control of by, her or him during his tenure with the Comp any. |
If terminated, the Executive must satisfy all of the requirements set forth above in order to receive severance benefits under this Agreement. Eligibility for severance benefits under this Agreement will be determined by the Company upon the Executive’s termination of employment. The Company has full power and authority to interpret the provisions of this Agreement and render decisions on eligibility for benefits. If the Company determines that the Executive satisfies all of the eligibility conditions described above, the Executive will receive severance benefits calculated in accordance with Section III below. The severance benefits will be paid following the Executive’s termination of employment in accordance with the terms set forth below and in the respective Separation Agreement.
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3. |
SEVERANCE BENEFITS |
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A. |
Severance Pay and Benefits . The following severance pay and benefits are payable under this Agreement: |
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A. |
Severance Pay . The severance pay provided to the Executive if involuntarily terminated under the terms of this Agreement consists of an amount equal to one times (1x) his regular annual base salary. |
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The amount of severance pay to the Executive shall be based upon the Executive’s regular annual base salary in effect immediately before the Executive’s termination of employment, determined without regard to any overtime, bonuses, fringe benefits, reimbursements or other irregular payments. The Executive’s general release of all claims referred to in Section II.H. must be effective the sixtieth (60th) day following the Executive’s termination of employment in order for the Executive to receive any severance pay or benefits under the Agreement. Severance pay will be paid in a single cash lump-sum on the sixtieth (60th) day following the Executive’s termination of employ ment (or as soon as administratively practicable after such sixtieth (60th) day).
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B. |
Benefits Continuation . Upon an involuntary termination of employment pursuant to which the Executive is entitled to severance pay under Section III.A.1., subject to the Executive’s timely election of continuation coverage under the Consolidated Budget Omnibus Reconciliation Act of 1985, as amended (“COBRA”), the Company will pay the premiums for the Executive for a period of eighteen (18) months based on the level of coverage in effect as of the date of the Executive’s termination. Notwithstanding the foregoing, in the event that the Executive becomes eligible to receive substantially similar or improved medical, dental or vision benefits from a subsequent employer (whether or not the Executive accepts such benefits), the Company’s obligations under this Section III.A.2. shall immediately cease. The Executive will notify the Company of his eligibility for such benefits from a subsequent employer within thirty (30) days of such eligibility. |
In the event that the Company’s making payments under this Section III.A.2 would violate nondiscrimination rules or result in the imposition of penalties under the Patient Protection and Affordable Care Act of 2010 (“PPACA”) and related regulations and guidance promulgated thereunder, the parties agree to reform this Section III.A.2. in such manner as is necessary to comply with tax laws and the PPACA, as applicable.
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C. |
Equity Awards . Upon an involuntary termination of employment pursuant to which the Executive is entitled to severance pay under Section III.A.1., any vested stock option awards held by Executive at the time of his termination will remain exercisable by the Executive for the greater of (i) 90 days following the effective date of the Executive’s termination and (ii) the remaining term of such option award, and all other Company equity awards held by Executive that remain unvested upon the effective date of his termination will be forfeited for no consideration. |
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IV . |
OTHER PROVI SIONS |
A. No Separate Fund . All severance benefits payable under this Agreement are payable from the Company’s general assets. There is no separate trust or fund established for the payment of severance benefits under this Agreement. All amounts payable hereunder shall be less all appropriate deductions, including federal, state and local withholding taxes.
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B. |
Section 409A . |
1. It is the intent of the parties that the payments and benefits provided hereunder are exempt from Section 409A of the Internal Rev enue Code of 1986, as amended (“Section 409A”), and should be interpreted and construed in such a manner.
2. “Termination of employment”, “resignation”, “separation from service”, or correlative phrases or terms, as used in this Agreement means, for purpos es of any payments under this Agreement that are payments of deferred compensation, has the same meaning as “separation from service” as defined in Section 409A.
3. If a payment obligation under this Agreement arises on account of the Executive’s separatio n from service while the Executive is a “specified employee” (as defined under Section 409A and determined in good faith by the Board), any payment of “deferred compensation” (as defined under Treasury Regulation Section 1.409A-1(b)(1), after giving effect to the exemptions in Treasury Regulation Sections 1.409A-1(b)(3) through (b)(12)) that is scheduled to be paid within six (6) months after such separation from service shall accrue with interest and shall be paid within 15 days after the end of the six-month period beginning on the date of such separation from service or, if earlier, within 15 days after the appointment of the personal representative or executor of the Executive’s estate following his death.
4. Each payment and benefit payable under this A greement, and each other benefit required to be aggregated with the payment and benefits under this Agreement pursuant to Section 409A, is hereby designated as a separate payment, as provided in Treasury Regulation section 1.409A-2(b)(2)(iii), and will not collectively be treated as a single payment.
C. Amendment or Waiver . No provisions of this Agreement may be amended, modified, waived or discharged unless Executive and the Company agree to such amendment, modification, waiver or discharge in writing.
D. Entire Agreement . This Agreement represents the entire agreement between Executive and the Company with respect to the matters set forth herein and supersedes and replaces any prior agreements in their entirety. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter of this Agreement will be made by either party which are not set forth expressly herein. No future agreement between Executive and the Company may supersede this Agreement, unless it is in writing and specifically makes reference to this Section IV.D.
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E. Executive’s Successors . This Agreement shall inure to the benefit of and be enforceable by Executive’s personal or legal representatives, executors, administrators, successors, heirs, di stributees, devisees and legatees. If Executive dies while any amounts are still payable hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive’s devisee, legatee, or other designee or, if there be no such designees, to Executive’s estate.
F. Headings . All captions and section headings used in this Agreement are for convenient reference only and do not form a part of this Agreement.
G. Counterparts; Electronic Signatures . This Agreement may be executed (including via electronic signature) in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.
IN WITNESS WHEREOF , this Agreement is executed effective as of the date set forth above.
Alphatec Holdings, Inc. |
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By: |
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/S/ Craig E. Hunsaker |
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Craig E. Hunsaker |
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Executive Vice President, People & Culture |
ACCEPTED AND AGREED TO AS OF THE DATE FIRST SET FORTH ABOVE: |
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/S/ Brian Snider |
Brian Snider |
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ANNEX B
ALPHATEC CHANGE IN CONTROL AGREEMENT
This Change in Control Agreement (“Agreement”), dated as of March 20, 2017 (the “Commencement Date”), is by and between Alphatec Holdings, Inc. (the “Company”) and Brian Snider (the “Executive”) (each a “Party”, and, collectively, the “Parties”).
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1. |
Term of Agreement . This Agreement shall commence on the date hereof and continue in effect until the earlier of (a) Executive’s Separation from Service other than within twenty-four (24) months following a Change in Control (each as defined below); (b) the Company’s satisfaction of all of its obligations under this Agreement; or (c) the execution of a written agreement between the Company and Executive terminating this Agreement. |
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2. |
Definitions . As used in this Agreement: |
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A. |
“Annual Compensation” means the sum of the following: |
|
A. |
one year of Executive’s base salary, the highest rate at which Executive was paid at any time during the twelve (12)-month period prior to the Executive’s Separation from Service; plus |
|
B. |
the greater of (A) the Executive’s target annual bonus amount for the year in which the Separation from Service occurs, or (B) the highest annual bonus paid to the Executive out of the three (3) prior bonuses paid to the Executive prior to the Executive’s Separation from Service. |
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B. |
“Cause” means (i) Executive’s willful and repeated failure to satisfactorily perform his or her material duties which is not remedied within thirty (30) days’ written notice from the Company specifying such failure; (ii) Executive’s repeated and willful failure to follow the lawful directions of the Company’s Board of Directors which is not remedied within thirty (30) days’ written notice from the Company specifying such failure; (iii) Executive’s conviction of or plea of guilty or nolo contendre to a crime involving moral turpitude; (iv) Executive engaging, or in any manner participating, in any activity which is directly competitive and materially and demonstrably injurious to the Company; or (v) commission of an intentional act of fraud, embezzlement or theft by the Executive in the course of Executive’s employment by the Company. |
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C. |
“Change in Control” has the meaning set forth in the Company’s 2016 Equity Incentive Plan. |
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D. |
“COBRA” means the Consolidated Budget Omnibus Reconciliation Act of 1985, as amended. |
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E. |
“Code” means the Internal Revenue Code of 1986, as amended from time-to-time. |
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F. |
“Disability” means that, at the time Executive Separates from Service, Executive has been unable to perform the duties of Executive’s position for a period of 180 consecutive days as the result of an incapacity due to physical or mental illness. |
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G. |
“Good Reason” means the occurrence of one of the following which occurs within twenty-four (24) months following a Change in Control and without Executive’s express, written consent: (i) a significant reduction of Executive’s duties, position or responsibilities (including, without limitation, any negative change in reporting hierarchy involving the Executive or the person to whom he or she directly reports), or Executive’s removal from such position and responsibilities; (ii) a material reduction by the Company in Executive’s base salary or target annual bonus as in effect immediately prior to such reduction; (iii) a material reduction by the Company in the kind or aggregate level of employee benefits to which Executive is entitled immediately prior to such reduction with the result that Executive’s overall benefits package is significantly reduced; (iv) Executive is requested to relocate (except for office relocations that would not increase Executive’s one way commute to more than fifty (50) miles); or (v) the failure of the Company to obtain the assumption of this Agreement pursuant to Section 7. For avoidance of doubt (as examples and not an exhaustive list), a significant reduction of duties, position or responsibilities shall have occurred if the Executive was a Section 16 reporting officer immediately prior to the Change in Control and is no longer a Section 16 reporting officer immediately following the Change in Control. The Executive may terminate his employment for “Good Reason” within 90 days after Executive has actual knowledge of the occurrence, without the written consent of Executive, of one of the above events that has not been cured within 30 days after written notice thereof has been given by Executive to the Company setting forth in reasonable detail the basis of the event (provided that such notice must be given to the Company within 30 days of the Executive becoming aware of such condition). |
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H. |
“Long-term Incentive Award Value” means the highest grant date fair value of any long-term incentive award (cash and/or equity-based incentive) granted to Executive in the three (3) calendar year period prior to the calendar year of the Separation from Service. |
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I. |
“PPACA” means the Patient Protection and Affordable Care Act of 2010 and related regulations and guidance promulgated thereunder. |
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J. |
“Separation from Service” or “Separates from Service” means a termination of employment with the Company that qualifies as a separation from service in accordance with Section 409A of the Code. |
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|
K. |
“Specified Employee” means an employee who is determined by the Company to be a Specified Employee in accordance with Section 409A of the Code. |
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3. |
Severance Payments and Benefits. |
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A. |
If a Change in Control occurs and within a period of twenty-four (24) months thereafter, Executive incurs a Separation from Service on account of (i) an involuntary termination by the Company for reasons other than death, Disability or Cause, or (ii) a voluntary termination elected by the Executive for Good Reason, then subject to (A) Executive signing and not revoking a separation and general release agreement (the “Release”) in a form provided by the Company as may be in use from time to time, and (B) Section 4 below, Executive shall (and the Company (or any successor thereto) shall pay, award and/or provide): |
(1) receive a lump-sum cash severance payment in an amount equal to the sum of (a) one times (1x) Executive’s Annual Compensation; (b) the product of (x) Executive’s Long-term Incentive Award Value, multiplied by (y) a fraction, the numerator of which is the number of full and partial calendar months between January 1 of the year of Separation from Service and the date of the Executive’s Separation from Service (provided, however, that such numerator shall not exceed six (6)) and the denominator of which is twelve (12); and (c) the product of (x) the greater of (A) Executive’s target annual bonus amount for the year in which the Separation from Service occurs, or (B) the highest annual bonus paid to the Executive out of the three (3) prior bonuses paid to the Executive prior to the Executive’s Separation from Service, multiplied by (y) a fraction, the numerator of which is the number of full and partial calendar months between January 1 of the year of Separation from Service and the date of the Executive’s Separation from Service and the denominator of which is twelve (12); and
(2) receive twelve (12) months of continued coverage under the Company’s group health plans (based on the level of the Executive’s coverage in effect on the date of the Executive’s Separation from Service), at the Company’s expense, subject to the Executive’s timely election of continuation coverage under the COBRA, it being understood that (a) in the event that the Executive becomes eligible to receive substantially similar or improved medical, dental or vision benefits from a subsequent employer (whether or not the Executive accepts such benefits), the Company’s obligations under this Section 3(a)(2) shall immediately cease, (b) the Executive will notify the Company of his eligibility for such benefits from a subsequent employer within thirty (30) days of such eligibility and (c) in the event that the Company’s making payments under this Section 3(a)(2) would violate nondiscrimination rules or result in the imposition of penalties under the PPACA, the parties agree to reform this Section 3(a)(2) in such manner as is necessary to comply with tax laws and the PPACA, as applicable.
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(3) become fully vested in all Company equity and long-term incentive awards granted to Executive (including, but not limited to, and all stock options, stock appreciation rights, restricted stock, restricted stock units, pe rformance shares, performance units, and all other stock and cash-based long-term incentive awards) to the extent that such vesting is based on service with the Company. With respect to any performance shares and performance unit awards, (a) the final num ber of units and/or shares payable under such awards shall only be determined in accordance with the terms and conditions of the respective grant agreement governing such award, and accordingly, (b) distribution of such awards can only take place following such share and/or unit amount determination. Notwithstanding the foregoing, the full and immediate vesting of any restricted stock units, performance shares, performance units, shall not change the payment date thereof or otherwise apply to the extent it would result in adverse tax consequences under Section 409A of the Code; and
(4) notwithstanding anything to the contrary in the respective award agreement(s), be entitled to exercise any stock options or stock appreciation rights until the expiration of twenty-four (24) months following Executive’s Separation from Service (or until such later date as may be applicable under the terms of the award agreement governing the stock option or stock appreciation right upon termination of employment), subject to the maximum full term of the stock option or stock appreciation right; provided, however, that, if any stock option or stock appreciation right is terminated or cashed-out in connection with a Change in Control, the Executive shall receive a lump-sum cash payment equal to the time value (i.e., under the Black Scholes option pricing model) of such stock options or stock appreciation rights inclusive of the economic value for the period of twenty-four (24) months following Executive’s Separation from Service (or until such later date as may be applicable under the terms of the award agreement governing the stock option or stock appreciation right upon termination of employment), subject to the maximum full term of the stock option or stock appreciation right.
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B . |
If Executive is not a Specified Employee, all payments made to Executive under Section 3(a) immediately above shall be made on the sixtieth (60th) calendar day following Executive’s Separation from Service, provided that Executive’s Release must be effective and not revocable on the date payment is to be made in order to receive such payments. If Executive is a Specified Employee, to the extent required to comply with Section 409A of the Code, payments made under Section 3(a) immediately above shall be made within ten (10) calendar days following the date following the first (1st) day of the seventh (7th) month after the date of Executive’s Separation from Service, provided that no such payment shall be made to Executive if the Release has not become effective as of the six (6)-month anniversary of the date of Executive’s Separation from Service. |
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4. |
Parachute Payments . In the event that any of the severance payments and other benefits provided by this Agreement or otherwise payable to Executive (a) constitute “parachute payments” within the meaning of Section 280G of the Code, and (b) but for this Section, would be subject to the excise tax imposed by Section 4999 of the Code (“Excise Tax”), then Executive’s severance payments and |
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|
benefits under this Agr eement or otherwise shall be payable either in full or in such lesser amount which would result in no portion of such severance payments or benefits being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable fed eral, state and local income and employment taxes and the Excise Tax, results in the receipt by Executive, on an after-tax basis, of the greatest amount of severance payments and benefits under this Agreement or otherwise, notwithstanding that all or some portion of such severance payments or benefits may be taxable under Section 4999 of the Code. Any reduction in the severance payments and benefits required by this Section shall be made in the following order: (i) reduction of cash payments; (ii) reducti on of accelerated vesting of equity awards other than stock options; (iii) reduction of accelerated vesting of stock options; and (iv) reduction of other benefits paid or provided to Executive. The calculations in Section 4 will be performed by the profes sional firm engaged by the Company for general tax purposes as of the day prior to the date of the event that might reasonably be anticipated to result in severance payments and benefits that would otherwise be subject to the Excise Tax. If the tax firm s o engaged by the Company is serving as accountant or auditor for the acquiring company, the Company shall appoint a nationally recognized tax firm to make the determinations required by this Section. The Company shall bear all expenses with respect to the determinations by such firm required to be made by this Section 4. The Company and Executive shall furnish such tax firm such information and documents as the tax firm may reasonably request in order to make its required determination. The tax firm will provide its calculations, together with detailed supporting documentation, to the Company and Executive as soon as practicable following its engagement. Any good faith determinations of the tax firm made hereunder shall be final, binding and conclusive u pon the Company and Executive. As a result of the uncertainty in the application of Sections 409A, 280G or 4999 of the Code at the time of the initial determination by the professional tax firm described in this Section 4, it is possible that the Internal Revenue Service (the “IRS”) or other agency will claim that an Excise Tax greater than that amount, if any, determined by such professional firm for the purposes of Section 4 is due (the “Additional Excise Tax”). Executive shall notify the Company in wri ting of any claim by the IRS or other agency that, if successful, would require payment of Additional Excise Tax. Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concer ning the existence or amount of liability for Excise Tax with respect to payments made or due to Executive. The Company shall pay all reasonable fees, expenses and penalties of Executive relating to a claim by the IRS or other agency. In the event it is finally determined that a further reduction would have been required under Section 4 to place Executive in a better after-tax position, Executive shall repay the Company such amount within 30 days thereof in order to effect such result. |
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|
5. |
No Mitigation . Executive shall not be required to mitigate the amount of any payment or benefit provided for in Section 3 hereof by seeking other employment or otherwise, nor shall the amount of such payment be reduced by reason of compensation or other income Executive receives for services rendered after Executive’s Separation from Service from the Company. |
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6. |
Exclusive Remedy . In the event of Executive’s Separation from Service on account of an involuntary termination without Cause or a voluntary termination for Good Reason within twenty-four (24) months following a Change in Control, the provisions of Section 3 are intended to be and are exclusive and in lieu of any other rights or remedies to which Executive or the Company may otherwise be entitled (including any contrary provisions in any employment agreement Executive may have with the Company), whether at law, tort or contract, in equity, or under this Agreement. Payments made to or on behalf of Executive under any other severance plan, policy, contract or arrangement with the Company shall reduce amounts payable under this Agreement on a dollar for dollar basis. |
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7. |
Company’s Successors . The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, to expressly assume and agree to perform the obligations under this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. As used in this Section 7, Company includes any successor to its business or assets as aforesaid which executes and delivers this Agreement or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. |
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8. |
Notice . Notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or five (5) days after deposit with postal authorities transmitted by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first or last page of this Agreement, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. |
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9. |
Amendment or Waiver . No provisions of this Agreement may be amended, modified, waived or discharged unless Executive and the Company agree to such amendment, modification, waiver or discharge in writing. No amendment, modification, waiver or discharge of this Agreement shall result in the accelerated payment of any benefit or payment provided for in Section 3. No waiver by either party at any time of the breach of, or lack of compliance with, any conditions or provisions of this Agreement shall be deemed a waiver of the provisions or conditions hereof. |
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|
10. |
Entire Agreement . This Agreement represents the entire agreement between Executive and the Company wit h respect to the matters set forth herein and supersedes and replaces any prior agreements in their entirety. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter of this Agreement will be made by eit her party which are not set forth expressly herein. No future agreement between Executive and the Company may supersede this Agreement, unless it is in writing and specifically makes reference to this Section 10. |
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11. |
Executive’s Successors . This Agreement shall inure to the benefit of and be enforceable by Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive dies while any amounts are still payable hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive’s devisee, legatee, or other designee or, if there be no such designees, to Executive’s estate. |
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12. |
No Funding Obligation . This Agreement shall be unfunded. Any payment made under this Agreement shall be made from the Company’s general assets, and the Executive’s rights shall be no greater than those of general unsecured creditor of the Company. |
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13. |
Legal Fees . In the event of any dispute or controversy arising out, relating to, or in connection with this Agreement, the Company shall reimburse Executive for reasonable attorney fees, costs and expenses incurred with respect thereto if Executive substantially prevails on the merits with respect to any breach of this Agreement by the Company. |
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14. |
Headings . All captions and section headings used in this Agreement are for convenient reference only and do not form a part of this Agreement. |
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15. |
Validity . The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect. |
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16. |
Withholding . All payments made pursuant to this Agreement will be subject to withholding of applicable income, employment and excise taxes. |
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17. |
Applicable Law . This Agreement shall be interpreted and enforced in accordance with the laws of the State of California (with the exception of its conflict of law provisions). This Agreement is intended to comply with or be exempt from Section 409A of the Code and the regulations promulgated thereunder. |
|
18. |
Counterparts; Electronic Signatures . This Agreement may be executed (including via electronic signature) in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument. |
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IN WITNESS WHEREOF , this Agreement is executed effective as of the date set forth above.
Alphatec Holdings, Inc. |
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By: |
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/S/ Craig E. Hunsaker |
|
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Craig E. Hunsaker |
|
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Executive Vice President, People & Culture |
ACCEPTED AND AGREED TO AS OF THE DATE FIRST SET FORTH ABOVE: |
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/S/ Brian Snider |
Brian Snider |
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EXHIBIT 10.7
January 23, 2017
Ebun Garner
6936 Brass Place
Carlsbad, CA 92009
Re: Resignation and Transition Agreement
Dear Ebun,
This letter confirms your resignation from Alphatec Spine, Inc. (the “Company”). You have been a long-term, valued member of the Company and its leadership team, and we desire your continued employment for a transition period, followed by ongoing consulting services for a term thereafter. This letter contains the terms and conditions of your employment transition and consulting services (together, “the Services”).
Continuing Employment
You will remain a full-time employee of the Company through February 28, 2017 (the “Employment Term”). During the Employment Term, you will retain your current title (Senior Vice President, General Counsel & Corporate Secretary) and monthly rate of pay ($23,333.33), and all other employee benefits to which you are entitled, and will continue to perform the full responsibilities of this role, while engaging in any and all necessary activities to successfully transition all matters, procedural and substantive, to me, or any other designated subject matter successor. The details and scheduling of transition activities will be determined mutually by us the week of January 23.
Consulting Services
After the Employment Term, you agree to provide consulting services through December 31, 2017 (the “Consulting Term”). The consulting services will include the following material terms:
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Scope of Services: As reasonably requested, but including ongoing knowledge transfer regarding Company historical practices, processes and decision-making; assistance with factual development for existing litigation (actual and threatened); advice and counsel regarding corporate governance, Board meeting preparation and management; preparation, revision and review of public filings, etc.; and healthcare compliance initiatives and training. |
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Time Commitment: Not to exceed 10 hours per month. |
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Location for Performance of Services: The Consulting Services shall be provided via telephone conference or email, whenever practicable. If circumstances reasonably require your presence at the Company, we will agree to a mutually acceptable date and time. |
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Consulting Fee: $10,000 per month, payable on the 15 th day of each month, through the Consulting Term. You agree that this Consulting Fee is conditioned upon your continuing ability to provide the Consulting Services, as needed, and that in the event you take an opportunity that prevents you from being able to provide the Consulting Services, the Consulting Fee payments will cease. |
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Competitive Restriction and Additional Covenants: During the term of the Services, you agree that you will not, on your own behalf or on behalf of any other person, partnership, association, corporation or other entity, use confidential and/or proprietary Company information to directly or indirectly solicit (either verbally or in writing), or in any manner influence or induce (or attempt to influence or induce) any surgeon, hospital, surgery center, supplier or agent of the Company to terminate, modify or amend its then-current relationship with the Company. In addition, you further agree to honor the non-disclosure, non-solicitation and non-disparagement provisions as set forth in Sections 7.1, 7.2(b) and 7.2(c) of your Amended and Restated Employment Agreement, dated July 17, 2006 (the “Employment Agreement”), for the post-employment periods specified therein. |
Release of Claims and Related Consideration
In exchange for your remaining through the Employment Term, and your execution of a release of claims (the Company’s standard form of agreement, with changes necessary to effectuate this letter), the Company shall provide you with the following consideration: (i) $23,333.33 per month, payable bi-weekly, subject to all tax withholdings, through December 31, 2017; (ii) healthcare, vision and dental coverage for yourself and your family (should you make a timely COBRA election) through December 31, 2017 (with a “gross-up” payment being made for any tax liabilities you incur related to such payments being made by the Company); and (iii) all of your outstanding stock options shall convert to non-qualified stock options and shall remain exercisable until each such stock option’s expiration date (as set forth in each option agreement). In connection with this additional consideration, you agree to waive any right to, and immediately return to the Company, the option grant dated December 10, 2016.
This letter supersedes and replaces all other agreements, written or verbal, regarding the terms and conditions of your employment with the Company (except for Sections 7.1, 7.2(b), and 7.2(c) referenced above and incorporated herein). Please sign and date this letter below, indicating your understanding and acceptance of this transitional role, and return the signed letter to me no later than Tuesday, January 24, 2017.
We thank you for your long, dedicated career with Alphatec Spine, and look forward to your continued engagement with the Company during the full term of the Services.
Sincerely, |
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/S/ Craig E. Hunsaker |
Craig E. Hunsaker |
Executive Vice President, People & Culture |
Understood and accepted. |
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/S/ Ebun S. Garner |
Ebun S. Garner |
Ebun Garner
6936 Brass Place
Carlsbad, CA 92009
Dear Ebun,
This letter (the “Amendment Letter”) amends the terms of the Resignation and Transition Agreement (the “Agreement”), entered into by and among Alphatec Holdings, Inc. and Alphatec Spine, Inc. (collectively, the “Company”) and you, dated January 23, 2017, as follows:
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In consideration for you making yourself available during the month of March 2017, for hours in excess of the ten (10) hours per month envisioned in the Agreement, in order to provide consulting services and perform activities in connection with the Company’s public filings and potential capital raise, the Company agrees to extend the term of the Consulting Services in the Agreement from December 31, 2017 to February 28, 2018. |
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In the event the Company terminates the Consulting Services in the Agreement prior to February 28, 2018, the Company will make a payment to you in the amount of $20,000, within five (5) days of such termination. |
All other aspects of the Agreement remain unaffected by this Amendment Letter.
Sincerely, |
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/S/ Craig E. Hunsaker |
Craig E. Hunsaker |
EVP, People & Culture and General Counsel |
Understood and accepted. |
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/S/ Ebun Garner |
Ebun Garner |
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Terry Rich, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Alphatec Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
By: |
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/S/ Terry M. Rich |
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Terry M. Rich |
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President and Chief Executive Officer |
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(principal executive officer) |
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May 11, 2017 |
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jeffrey Black, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Alphatec Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
By: |
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/S/ Jeffrey G. Black |
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Jeffrey G. Black |
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Chief Financial Officer |
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(principal financial and accounting officer) |
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May 11, 2017 |
CERTIFICATION UNDER
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Alphatec Holdings, Inc. (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Terry M. Rich, President and Chief Executive Officer, certify, to my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: |
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May 11, 2017 |
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/S/ Terry M. Rich |
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Terry M. Rich |
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President and Chief Executive Officer |
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(principal executive officer of the Company) |
In connection with the Quarterly Report of Alphatec Holdings, Inc. (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeffery G. Black, Chief Financial Officer, certify, to my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: |
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May 11, 2017 |
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/S/ Jeffrey G. Black |
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Jeffrey G. Black |
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Chief Financial Officer |
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(principal financial and accounting officer of the Company) |