9. Stock Benefit Plans and Stock-Based Compensation

In 2005, the Company adopted its 2005 Employee, Director, and Consultant Stock Plan (the “2005 Plan”). The 2005 Plan expired in April 2016. As of December 31, 2017, there were 0 shares issuable under the 2005 Plan.

In the third quarter of 2016, the Company adopted its 2016 Equity Incentive Plan (the “2016 Plan”), which replaced the 2005 Plan. The 2016 Plan allows for the grant of options, restricted stock, restricted stock unit awards and performance unit awards to employees, directors, and consultants of the Company. Upon its adoption, the 2016 Plan had 1,083,333 shares of common stock reserved for issuance. The Board of Directors determines the terms of the grants made under the 2016 Plan. Options granted under the 2016 Plan expire no later than ten years from the date of grant (five years for incentive stock options granted to holders of more than 10% of the Company’s voting stock). Options generally vest over a four year period and may be immediately exercisable upon a change of control of the Company. The exercise price of incentive stock options may not be less than 100% of the fair value of the Company’s common stock on the date of grant. The exercise price of any option granted to a 10% stockholder may be no less than 110% of the fair value of the Company’s common stock on the date of grant. At December 31, 2017, 449,901 shares of common stock remained available for issuance under the 2016 Plan. The 2016 Plan will expire in May 2026.

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. As of December 31, 2017 the Inducement Plan had 28,356 shares of common stock reserved for issuance, which may only be granted to an employee who has not previously been an employee or member of the board of directors of the Company. The terms of the Inducement Plan are substantially similar to the terms of the Company’s 2016 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. Under the Inducement Plan, the Company granted $0.8 million of value Performance Restricted Share Units ("PRSUs") in 2016. The PRSUs will vest in a dollar amount representing between 0% to 250% of the target value upon the earlier of September 14, 2019 or a change in control of the Company. The actual payout amount will be based on the Company’s market capitalization on the vesting date and the fair-market value of the Company’s common stock on such vesting date and will be paid in shares of the Company's common stock.

The 2005 Plan, the 2016 Plan and the Inducement Plan are collectively referred to as the Plans.

Stock Options

A summary of the Company’s stock option activity under the Plans and related information is as follows (in thousands, except as indicated and per share data), as adjusted for the 1-for-12 reverse stock split:

	Shares			Weighted average exercise price		Weighted average remaining contractual term (in years)		Aggregate intrinsic value
Outstanding at December 31, 2016		1,155		$	12.17		7.75	$	—
Granted		2,878		$	2.00
Forfeited		(877	)	$	7.08
Outstanding at December 31, 2017		3,156		$	4.31		8.28	$	1,841
Options vested and exercisable at December 31, 2017		535		$	14.05		4.55	$	45
Options vested and expected to vest at December 31, 2017		2,776		$	4.59		8.17	$	1,573

The weighted-average grant-date fair value per share of stock options granted during the years ended December 31, 2017 and 2016 was $1.36 and $4.43 , respectively. The aggregate intrinsic value of options at December 31, 2017 is based on the Company’s closing stock price on the last business day of 2017 of $2.66 per share.

As of December 31, 2017, there was $3.2 million of unrecognized compensation expense for stock options which is expected to be recognized on a straight-line basis over a weighted average period of approximately 3.3 years.

Restricted Stock Awards and Units

The following table summarizes information about the restricted stock awards, restricted stock units and performance-based restricted units activity (in thousands, except as indicated and per share data), as adjusted for the 1-for-12 reverse stock split:

	Shares			Weighted average grant date fair value		Weighted average remaining recognition period (in years)
Unvested at December 31, 2016		1,092		$	7.48		3.02
Awarded		1,517		$	2.96
Vested		(258	)	$	5.07
Forfeited		(351	)	$	8.90
Unvested at December 31, 2017		2,000		$	3.65		2.78

The weighted average fair value per share of awards granted during the years ended December 31, 2017 and 2016 was $2.96 and $5.79, respectively.

As of December 31, 2017, there was $4.8 million of unrecognized compensation expense for restricted stock awards and units which is expected to be recognized on a straight-line basis over a weighted average period of approximately 2.8 years.

Elite Medical Holdings and Pac 3 Surgical Collaboration Agreement

In October 2013, the Company entered into a three-year collaboration agreement with Elite Medical Holdings, LLC and Pac 3 Surgical Products, LLC (the "Collaborators") (the "Collaboration Agreement") to provide consultation services to assist the Company in the development of its products and its products in development. Under the terms of the collaboration agreement, the Company will gain exclusive rights to the use of all intellectual property developed by the collaborators. The Company agreed to make three annual payments to the collaborator as sole consideration for services provided, totaling an aggregate of up to $8 million, paid in common stock of Alphatec Holdings 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.

On November 2, 2015, the Company entered into a first amendment (the "First Amendment") to the Collaboration Agreement. Pursuant to the First Amendment, in exchange for a "lock up" restriction on selling or transferring each tranche of shares issued to the Collaborators and a maximum value cap, as discussed below, the Company has agreed to make a cash payment to the Collaborators in the event that the shares in such tranche do not have a minimum amount of value based on the market value of the Company’s common stock at the end of the lock up period applicable to such tranche of shares. In addition, in the event that at the end of a lock up period the value of a tranche of shares issued to the Collaborators exceeds a certain amount, the Collaborators have agreed to forfeit shares back to the Company, so as to limit the maximum amount of value derived from such shares at the end of a lock up period. Pursuant to the First Amendment, the shares issued to the Collaborators in each of 2014, 2015 and 2016 are subject to a lock up that lasts until the first quarter of 2017, 2018 and 2019, respectively. The valuation of each tranche of shares occurs at the end of the applicable lock up period.

Based on the closing price of the Company’s common stock on December 31, 2017, the Company has recorded a guaranteed compensation liability of $6.8 million for shares of the Company’s common stock previously issued under the Collaboration Agreement, with $2.2 million payable in 2018 and 2019. The amount payable in 2017 is included in accrued expenses and the amounts payable in 2018 and 2019 are presented under other long-term liabilities in the consolidated balance sheet and represent the cash settlement amounts. If the Collaborators elect to sell, assign or transfer: (i) more than 20% of the shares issued to the Collaborators prior to the first valuation date; or (ii) any of the Collaborator shares still subject to a lockup after the first valuation date, all of the aforementioned restrictions on transfer and valuation minimums and maximums are null and void.

As of December 31, 2017, the Company has issued 342,356 shares of its common stock under this agreement and recorded an immaterial amount of expenses and $2.1 million in the years ended December 31, 2017 and 2016, respectively, which is included in research and development expenses.

As described in more detail in Note 14, the Company and the Collaborators reached an agreement to settle the Collaboration Agreement in February 2018.

Warrants

In December 2011, in connection with the third amendment to the Company’s former credit facility with the SiliconValley Bank ("SVB"), finance charges totaling $0.2 million were waived in exchange for the issuance to SVB of warrants to purchase 7,812 shares of the Company’s common stock. The warrants are immediately exercisable, can be exercised through a cashless exercise, have an exercise price of $19.20 per share and have a 10-year term.

As mentioned in Note 8, the Company issued Common Stock Warrants in connection with the private placement financing in March 2017. The warrants have a 5 year term from the issuance date. As of December 31, 2017, warrants to purchase 7,763,582 shares of the Company’s common stock for $2.00 per share and warrants to purchase 471,600 shares of the Company’s common stock for $2.50 per share were outstanding.

As further described in Note 8, in December 2017 the Company issued warrants to Mr. Miles, the Company’s executive chairman, to purchase 1,327,434 shares of the Company’s common stock for $5 per share. The warrants have a five year term. The warrants issued to Mr. Miles were accounted for as share based compensation, and the fair value of the warrants of approximately $1.4 million were recognized in full in the statement of operations for the year ended December 31, 2017 because the warrants were immediately vested upon issuance. The following inputs were used to estimate the fair value of warrants issued to Mr. Miles: risk free interest rate of 1.9%, volatility of 99.5%, expected term of 2.3 years and dividend yield of 0%.

2017 Distributor Inducement Plan

In December 2017, the Company adopted the 2017 Distributor Inducement Plan which authorizes the Company’s Chief Executive Officer to issue distributors common stock of the Company and/or warrants to purchase the Company’s common stock. The warrants are issued with exercise price as the fair market value on the date of issuance. Each warrant and common stock issuance is subject to vesting provision that is either time based and/or net sales based. As of December 31, 2017, 100,000 warrants and 17,000 shares of common stock were issued under the 2017 Distributor Inducement Plan, with 300,000 warrants and 583,000 shares of common stock available to be granted.

In December 2017, the Board of Directors also authorized grant of warrants to purchase 50,000 of the Company’s common stock, and 75,000 restricted stock units to a distributor. These warrants and restricted stock units are subject to time based and net sales based vesting conditions.

None of the outstanding warrants and common stock issuances granted to distributors was vested as of December 31, 2017.

2018 Development Services Plan

In December 2017, the Company adopted the 2018 Development Services Plan which authorizes the Company’s Executive Chairman to issue the Company’s common stock to reward innovative developmental work. Issuance under the 2018 Development Services Plan will be subject to a vesting provision that is either developmental services based or royalty based, or both.

As of December 31, 2017, 3,000,000 shares were authorized to be issued under the 2018 Development Services Plan, and none has been issued or vested.

Common Stock Reserved for Future Issuance

Common stock reserved for future issuance consists of the following (in thousands), as adjusted for the 1-for-12 reverse stock split:

	December 31, 2017
Stock options outstanding		3,156
Unvested restricted stock award		2,000
Employee stock purchase plan		411
Series A convertible preferred stock		2,659
Warrants outstanding		9,570
Authorized for future grant under the Plans		478
		18,274