10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

Form 10-K

(Mark One)

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

For the fiscal year ended December 31, 2019

or

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

For the transition period from             to

Commission file number: 000-52024

ALPHATEC HOLDINGS, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	20-2463898
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
5818 El Camino Real, Carlsbad, California	92008
(Address of Principal Executive Offices)	(Zip Code)

(760) 431-9286

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, par value $0.0001 per share	ATEC	The NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Exchange Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☐    No  ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.    Yes  ☐    No  ☒

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 every Interactive Data File required to be submitted 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 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 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	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☐

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 a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant (without admitting that any person whose shares are not included in such calculation is an affiliate) computed by reference to the price at which the common stock was last sold as of the last business day of the registrant's most recently completed second fiscal quarter (June 30, 2019), was approximately $126.2 million.

The number of outstanding shares of the registrant’s common stock, par value $0.0001 per share, as of March 09, 2020 was 62,994,221.

DOCUMENTS INCORPORATED BY REFERENCE

The following documents (or parts thereof) are incorporated by reference into the following parts of this Form 10-K: Certain information required in Part III of this Annual Report on Form 10-K is incorporated from the Registrant’s Proxy Statement for the 2020 Annual Meeting of Stockholder.

ALPHATEC HOLDINGS, INC.

FORM 10-K—ANNUAL REPORT

For the Fiscal Year Ended December 31, 2019

Table of Contents

		Page
PART I
Item 1.	Business	1
Item 1A.	Risk Factors	19
Item 1B.	Unresolved Staff Comments	41
Item 2.	Properties	41
Item 3.	Legal Proceedings	42
Item 4.	Mine Safety Disclosures	42
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	43
Item 6.	Selected Financial Data	43
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	44
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	55
Item 8.	Financial Statements and Supplementary Data	55
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	55
Item 9A.	Controls and Procedures	55
Item 9B.	Other Information	59
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	60
Item 11.	Executive Compensation	60
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	60
Item 13.	Certain Relationships and Related Transactions, and Director Independence	60
Item 14.	Principal Accounting Fees and Services	60
PART IV
Item 15.	Exhibits, Financial Statement Schedules	61

In this Annual Report on Form 10-K, the terms “we,” “us,” “our,” “Alphatec Holdings” and “Alphatec” mean Alphatec Holdings, Inc., our subsidiaries and their subsidiaries. “Alphatec Spine” refers to our wholly-owned operating subsidiary Alphatec Spine, Inc. “Scient’x” refers to our operating affiliate, Scient’x S.A.S., which is wholly-owned by several of our subsidiaries, and Scient’x’s subsidiaries. “SafeOp” refers to our wholly-owned operating subsidiary SafeOp Surgical, Inc.

PART I

Item 1. Business

We are a medical technology company focused on the design, development, and advancement of technology for better surgical treatment of spinal disorders. Through our wholly-owned subsidiaries, Alphatec Spine, Inc. and SafeOp Surgical, Inc., our mission is to revolutionize the approach to spine surgery through clinical distinction. Our approach-based spine surgery products and solutions integrate seamlessly with our SafeOp Neural InformatiX^TM System to provide real-time, objective nerve information that can enhance the safety and reproducibility of spine surgery.

We have a broad product portfolio designed to address the majority of spinal disorders. We have driven growth by exploiting our collective spine experience and investing in research and development to continually differentiate our solutions and improve spine surgery. We believe our future success will be fueled by introducing market-shifting innovation to the spine market, and we believe that we are well-positioned to capitalize on current spine market dynamics.

We market and sell our products in the U.S. through a network of independent distributors and direct sales representatives. An objective of our leadership team is to deliver increasingly consistent, predictable growth. To accomplish this, we have partnered more closely with new and existing distributors to create a more dedicated and loyal sales channel for the future. We have added, and intend to continue to add, new high-quality distributors to our strategic distribution network to expand future growth. We believe this will allow us to reach an untapped market of surgeons, hospitals, and national accounts across the U.S., as well as better penetrate existing accounts and territories.

Since 2017, we have made significant changes to drive a more strategic (and ultimately, exclusive) sales channel, positioning the Company for durable above-market growth. The decision to cease business with non-core legacy distributors, including non-strategic, stocking, and physician-owned distributors representing more than $30 million in annualized revenues prior to 2017, was our commitment to changing the historic culture of underperformance and refocusing on long-term, sustainable growth. While the decline in legacy revenues clouded overall growth metrics in 2017 and 2018, revenue from our strategic sales channel grew by more than 40% in 2019.  In 2019, our strategic sales channel comprised nearly 90% of our U.S. revenues.

Going forward, we intend to continue to relentlessly drive toward a fully exclusive network of independent and direct sales agents. Recent consolidation in the industry is facilitating the process, as large, seasoned agents are seeking opportunities to re-enter the spine market by partnering with spine-focused companies that have broad, growing product portfolios.

Recent Developments

On February 28, 2020, we announced an agreement to acquire EOS imaging, SA, or EOS. EOS imaging is a leader in outcome-improving orthopedic medical imaging and software solutions, and is globally recognized for its rapid, low dose, biplanar full-body imaging and 3D modeling capabilities.  The EOS technology informs the entire surgical process by capturing a calibrated, full-body image in a standing (weight-bearing) position, enabling precise measurement of anatomical angles and dimensions.  The resulting imaging drives a more accurate understanding of patient alignment during diagnosis, elevates the likelihood of surgical goal fulfillment by integrating a fully informed plan into surgery, and enables a post-operative assessment against the original surgical plan

We believe the addition of EOS imaging will advance our AlphaInformatiX platform, providing capabilities in surgical planning, patient-specific implants, intraoperative alignment reconciliation, and other intraoperative functionalities resulting in a platform distinctively equipped to address the requirements of spine surgery.

We expect the transaction to close in the third quarter of 2020.

Strategy

Our vision is to be the standard bearer in spine. By leveraging our team’s extensive spine experience to create clinically distinct solutions that improve surgical outcomes, we believe that we are positioned to take a greater share of the U.S. spine market, becoming the partner of choice for spine surgeons, hospitals, healthcare systems, and payors.

To achieve our vision and build long-term value, we are committed to attracting, engaging, and retaining the best talent in the industry. We are also driving an organizational transformation by prioritizing the following vital initiatives:

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Create Clinical Distinction

We are committed to the development, launch, and promotion of technologies intended to simplify surgical procedures, provide enhanced information for surgeons, and improve patient outcomes. We offer a broad portfolio of products that address the core spine pathologies.

We continue to make investments to advance the clinical distinction of our product portfolio and accelerate revenue growth. In 2019, our launch of 12 newly developed commercial products contributed to 37% of our total U.S. revenue, with the most recent launch in the fourth quarter of 2019 related to the first installment of our Alpha InformatiX product platform, the SafeOp Neural InformatiX System. We believe surgeons yearn for expanded intra-operative information that can help drive objective decision-making and improve patient outcomes and surgical success. To address this, we have developed, and are continuing to seek to develop, next-generation access systems, implants, and biologics that will provide seamless integration, which will enable elegant, minimally disruptive spine access that achieves clinical success over a wide-range of the surgical approaches.

We expect our revenue mix to continue to shift increasingly toward newly developed solutions as we continue to bring next generation products to market. Looking to 2020 and beyond, we intend to continue to be a leader and pioneer of industry innovation. As such, we expect continued growth as our new solutions drive surgeon adoption of our procedures, increasing the number of our products preferred for use by surgeons and sold into clinical procedures.

Compel Surgeon Adoption

An integral part of our strategy is to lay the groundwork to drive surgeon adoption of the innovative products we have recently introduced, and will continue to introduce over the next several years. A key component of our drive to renew surgeon interest is our “ATEC Experience” educational program for visiting surgeons. The surgeon relationships we are creating through our educational program continue to exhibit strong growth, evidenced by the increase in our surgeon partnerships and surgeon participation in the program, as well as the year-over-year growth of surgeon adoption of our products. Throughout 2019, revenue attributable to new surgeon customers has continued to steadily increase and outpace overall revenue growth.

Revitalize the Sales Channel

Distributors. Currently, we market and sell our products in the U.S. through a network of independent distributors and direct sales representatives. We seek to deliver consistent, predictable growth through a durable brand commitment. To accomplish this, we believe there is significant opportunity for us to partner closely with our distributors to create a more dedicated and focused network. We believe that recent consolidation in the industry is increasingly affording us an opportunity to attract large, experienced distributors and agents seeking partnerships with companies like ours; partners that can offer an innovative and robust product portfolio, with a pipeline of technologies focused solely on spine solutions.

We are bringing higher-volume, more sophisticated distributors on board, and simultaneously terminating non-dedicated distribution relationships that do not serve our long-term vision or strategy. Strategic distribution partners are those that we have, and will continue to build our sustainable business with.  Typically, these represent high-volume distributors we have brought over from major competitors   Legacy, non-strategic distributors are typically long-time non-dedicated, non-exclusive partners who desire to continue selling competitive products.  We have been, and will continue to, actively transition these distributors out of our sales channel.

We believe these efforts will continue to enhance the quality and profile of our distribution channel, allowing us to reach new surgeons, hospitals, and national accounts across the U.S., and more effectively penetrate and serve existing territories. During 2019, we expanded the percentage of U.S. commercial revenue driven by strategic distributors to nearly 90% of our U.S. revenue, up from 80% in 2018 and approximately 60% in 2017.

National Accounts. We employ a national accounts team that is responsible for securing access at hospitals and group purchasing organizations, or GPOs, across the U.S. We have been very successful securing access to hospitals and GPOs, and a majority of our business is achieved through these accounts. We will continue to focus on developing and maintaining relationships with key GPOs and hospital networks to secure favorable contracts and develop strategies to convert or grow business within these existing accounts.

Sales Training and Education. We are also enhancing our sales training and education programs for independent distributors and direct sales representatives to optimize overall sales productivity.

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Spine Anatomy

The spine is the core of the human skeleton and provides important structural support and alignment while remaining flexible to allow movement. The spine is a column of 33 bones that protects the spinal cord and provides the main support for your body. Each bony segment of the spine is referred to as a vertebra (two or more are called vertebrae). The spine has five regions containing groups of similar bones, listed from top to bottom: seven cervical vertebrae in the neck, twelve thoracic vertebrae in the mid-back (each attached to a rib), five lumbar vertebrae in the lower back, five sacral vertebrae fused together to form one bone in the hip region, and four coccygeal bones fused together that form the tailbone. At the front of each vertebra is a block of bone called the vertebral body, Vertebrae are stacked on top of each other and enable people to sit and stand upright. Vertebrae in the cervical, thoracic and lumbar regions are separated from each other and cushioned by a rubbery soft tissue called the intervertebral disc. Strong muscles and bones, flexible tendons and ligaments and sensitive nerves contribute to a healthy spine. Pain can be caused when any of these structures are affected by strain, injury or disease.

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The Alphatec Solution

Our principal procedural offerings include a wide variety of Approach Technologies, designed to achieve clinical success in conditions from degenerative to complex deformity and trauma. Our Approach Technologies are comprised of intra-operative information and neuromonitoring technologies, access systems, interbody implants, fixation systems, and various biologics offerings all designed to improve patient outcomes by achieving the three tenets of spine surgery: (1) decompression, (2) stabilization, and (3) alignment.

Over the past 18 months, we have executed against our communicated product strategy, leveraging both internal and external resources to provide the sales channel with a differentiated cadre of new products (12 in 2019) and a pipeline of 8-10 annually going forward. Products like IdentiTi, a differentiated portfolio of titanium interbody cages, and Invictus, a next generation pedicle screw system, are gaining traction and delivering on management’s goal of driving above market revenue growth. While new products launched since new management took over in late 2017 accounted for less than 10% of total revenue in 2018, that percentage rose to nearly 50% in the fourth quarter of 2019, with full year 2019 U.S. product revenue growth of nearly 30%, well in excess of market growth.

Perhaps the most notable addition to our portfolio has been the2018 acquisitionofSafeOpSurgical. The SafeOp Neural InformatiX System^TM, our first advanced technology release from the AlphaInformatiX platform, delivers real-time, objective, actionable nerve location and health information to the surgeon. Integrating real-time nerve location and health information with our advanced access and implant technologies enables ATEC to provide surgeons with procedural solutions that enhance safety, efficiency, and reproducibility. Based upon early traction, SafeOp is clearly demonstrating the intended clinical value to surgeons andimproving the operativeexperience.

Figure 1: Our portfolio of access systems, implants, technologies and biologics are designed to provide seamless integration and enhance clinical outcomes across multiple pathologies, regardless of a surgeon’s preferred surgical approach.

Current Product Portfolio

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Figure 2: We are creating clinical distinction with our portfolio of procedurally-integrated approach-based products and technologies.

Alpha InformatiX

SafeOp Neural InformatiX System, launched in November 2019, is the first release from our Alpha InformatiX product platform. The Alpha InformatiX product platform is our advanced neuromonitoring solution, which is designed to reduce the risk of intraoperative nerve injury. SafeOp next-gen patented technology automates Somatosensory Evoked Potentials, or SSEPs, and is designed to provide surgeons with objective real-time feedback on an easy-to-use mobile platform, providing the surgeon with improved informaion while performing a surgical procedure, and helping to avoid nerve damage while maintaining nerve health.

Our SafeOp Neural InformatiX System provides surgeons real-time, actionable information to detect and monitor the health of nerves at risk during the entire surgical procedure. Key features of our SafeOp neuromonitoring system include:

• Proprietary peripheral devices designed to seamlessly integrate critical neural information into our approaches.

• Real-time tEMG nerve detection to provide reliable information regarding the location, direction and proximity of relevant neural anatomy

• Validated Response Thresholding (VRT) algorithm designed to deliver industry-leading nerve detection while reducing the incidence of false positive responses due to electrical noise

• Dynamic tEMG technology provides real-time feedback during pedicle preparation and screw placement to reduce the risk of pedicle breach and neural impingement

• Unparalleled ability to monitor femoral nerve health throughout lateral approach procedures through advanced signal processing

• Seamless integration of critical neural information into our Invictus™ posterior fixation instruments, like SingleStep™

Access Systems

Squadron Lateral Retractoris designed to meet the surgeon’s needs and to maximize patient outcomes. The retractor offers multiple features to accommodate any surgical technique, quickly establish access, and minimize retraction time. Key features include:

• Robust construction that provides a stable corridor with the ability to replace blades in-situ

• Independent cranial/caudal blade movement enables a precise surgical aperture

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• Telescoping blades and fourth blade articulation allow the surgeon to traverse challenging anatomy

• LevelToe^TM mechanics provide parallel toe up to 15° to reduce tissue creep

ILLICO Access System is a minimally invasive posterior thoracolumbar access system. Independent blade retraction creates a specialized access site while individual blade toeing of up to 15 degrees minimizes soft tissue trauma. Key features include:

• Simple and intuitive design to allow for ease of use

• Multiple articulating arm connection points to accommodate varying placement positions

• Splay feature to help with visualization of surgical landmarks

Fixation Systems

Invictus Spinal Fixation System^TM, which was introduced in 2019, is a comprehensive thoracolumbar fixation system that is designed to treat a range of pathologies. The Invictus Spinal Fixation System is fully integrated with our SafeOp Electromyography, or EMG, technology and assists surgeons with intraoperative adaptability and surgical efficiency through a variety of surgical approaches or methods including OPEN, MIS or Hybrid approaches. Key features include:

• Helical Flange®: construct confidence provided by the Invictus thread form designed to reduce the potential to cross-thread and eliminate tulip splay

• Seamless adaptability to surgical needs with a variety of implants designed to accept multiple rod diameters and materials

• Instrumentation designed for predictable surgical outcomes in the most challenging procedural scenarios

Invictus MIS SingleStep^TM  is a simplified approach to traditional minimally invasive pedicle screw placement, utilizing an all-in-one driver designed to improve surgical efficiency without compromising accuracy. SingleStep eliminates guidewire management and targeting needles, while reducing instrument passes, procedural steps, screw insertion time, and reliance on fluoroscopy.¹ The Invictus Spinal Fixation System is intended to help provide immobilization and stabilization of spinal segments as an adjunct to fusion of the thoracic, lumbar, and/or sacral spine. Key features include:

• Invictus Extended Tab Reduction Screw is uniquely designed for the SingleStep technique

• Combined with SafeOp™ automated EMG technology, the SingleStep approach offers real-time trajectory and placement confirmation during stylet and screw insertion, providing a predictable fixation solution

Arsenal™ Spinal Fixation System is intended for posterior, non-cervical fixation in skeletally mature patients as an adjunct to fusion for the following indications: degenerative disc disease, spondylolisthesis, trauma (i.e., fracture or dislocation); spinal stenosis; curvatures (i.e., scoliosis, kyphosis and/or lordosis); tumor; pseudarthrosis; and/or failed previous fusion. Key features include:

• A comprehensive system capable of handling the most complex deformity pathologies from T1 to the pelvis

• Ergonomically designed instrumentation

• Multiple screw options

• Modular plate design that allows for anti-migratory fixation

• Multiple pelvic fixation options

• Low-profile screws

Zodiac Degenerative Spinal Fixation System is a comprehensive spinal system that can be used to address both degenerative spinal conditions, as well as deformity correction. The Zodiac Degenerative Spinal Fixation System offers polyaxial pedicle screws, accompanying implants and advanced instruments for the stabilization of the thoracolumbar spine, as well as deformity specific instrumentation and implants that are designed to enable the surgeon to address patient-specific spinal deformity correction procedures.

OsseoScrew System is intended to restore the integrity of the spinal column even in the absence of fusion for a limited time period in patients with advanced stage tumors involving the thoracic and lumbar spine in whom life expectancy is of insufficient duration to permit achievement of fusion. Key features include:

¹  Data on file – LIT-17021

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• 29% greater pull-out strength over conventional pedicle screws²

• Expansion zone location designed to optimize fixation in the pedicle

• Provides stabilization for patients with compromised bone

Trestle Luxe Anterior Cervical Plate System has a large window that enables the surgeon to have improved graft site and end plate visualization, which is designed to allow for better placement of the plate. The Trestle Luxe Anterior Cervical Plate System also has a low-profile design. Low-profile cervical plates are intended to reduce the irritation of the tissue adjacent to the plate following surgery. Other key features of the Trestle Luxe Anterior Cervical Plate System include a self-retaining screw-locking mechanism that is designed to ensure quick and easy locking of the plate and a flush profile after the screws are inserted.

Solanas Posterior Cervico/Thoracic Fixation System and Avalon Occipital Plate consist of rods, polyaxial screws, hooks, and connectors that provide a solution for posterior cervico/thoracic fusion procedures. The Solanas Posterior Cervico/Thoracic System is designed to be used in combination with Zodiac Degenerative Spinal Fixation System and Avalon Occipital Plate, thereby providing surgeons with a solution for occipito-cervico-thoracic fixation. The Avalon Occipital Plate has a unique buttress design for optimal bone graft placement and superior fusion, including three points of plate rotation and translation, which is designed to ease the placement of the plate.

Interbody Systems

IdentiTi Porous Ti Interbody Implants are designed to provide the biological, biomechanical, and imaging characteristics that surgeons seek in a fusion construct. The subtractive process used to manufacture each IdentiTi Implant results in more predictable mechanical performance and enhanced imaging characteristics. IdentiTi implants take advantage of bone’s affinity for titanium and, because of their porosity, have a surface roughness that enhances stability.³  Key features include:

• Commercially-pure titanium

• Multiple lordosis and footprint options to accommodate varying surgical requirements

• Fully interconnected porosity to promote bony on-growth and in-growth (as seen in animal model)⁴,⁵

• Reduced density (60% porous) to enhance intraoperative and postoperative imaging

• Porous titanium has a stiffness similar to bone⁶

Transcend Lateral Interbody Implants have been designed to provide the surgeon with a seamless experience across the Alphatec lateral portfolio. Transcend and IdentiTi™ Lateral Implants are designed to function with the same instrumentation, enabling surgeons to use either implant material without requiring separate instrumentation. The Transcend implant offering provides continuity in lordotic options with a refined design to meet all of the surgeon’s lateral needs. Key features of our Transcend Lateral Interbody Implants include:

• Quick-connect inserter feature that eliminates point loading

• Bulleted distal tip to provide smooth insertion into the disc space

• Directional anti-migration teeth to help resist expulsion

• Tantalum markers for enhanced imaging via fluoroscopy

Battalion PC combines a PEEK body with our patented TiTec™ (titanium) coating technology to take advantage of the characteristics of both materials. The PEEK material allows surgeons to assess fusion through the implant while the titanium-coating provides initial stability due to the roughened surface. Key features include:

• Multiple length options accommodate varying surgical requirements

• Patented TiTec coating improves expulsion strength when compared to PEEK⁷

²  Vishnubhotla S, McGarry WB, Mahar AT, et al. A titanium expandable pedicle screw improves initial pullout strength as compared with standard pedicle screws. Spine J 2011;11:777-81.

³  Data on file – LIT-84895

⁴  Data on file – LIT-84894

⁵  Data on file – LIT-84890

⁶  Data on file – LIT-84898

⁷  Data on file: LIT-84701

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• TiTec coating combines the visualization and stiffness benefits of PEEK with the initial stability characteristics of titanium

• Uncoated nose combats delamination and wear debris issues

Novel SDis a PEEK intervertebral body fusion system consists of varying lengths, widths, and heights to accommodate individual patient anatomies. Key features include:

• Bulleted nose facilitates easy insertion and matches anatomy

• Three footprint options accommodate different anatomy and surgical procedures

• Tooth pattern helps prevent migration and adds stability

• Large contact area resists subsidence

• PEEK: Radiographic markers ease visual assessment of implant placement and fusion process

• Titanium: Color-coding by size simplifies identification

Solus Anterior Lumbar Interbody Fusion System is designed to minimize the surgical exposure size and reduce operative time.  The interbody implant features four points of integrated fixation and a large graft aperture to stabilize and restrict motion in the lumbar spine. Fixation deployment is performed in a single step from a true AP view without requiring angled instruments. Key features include:

• Multiple footprints and lordotic angles accommodate surgical needs

• Counter-rotating blades simultaneously deploy with four points of fixation

• Eliminates the complications with angled screw trajectory

Biologics

AlphaGraft Structural Allograft Spacers. We offer a broad portfolio of allograft spacers available in a wide range of shapes and sizes, each with corresponding instrumentation, which are intended for use in the cervical, thoracic, and lumbar regions of the spine. In addition, many of our allograft spacers are packaged in our vacuum-infusion packaging system, or VIP System. The VIP System is a packaging and fluid delivery system that allows for fast and efficient infusion of the surgeon’s choice of hydration fluid. The VIP System provides rapid and uniform hydration, which may reduce the brittleness of the graft and shorten the length of the surgical procedure.

AlphaGraft ProFuse Demineralized Bone Scaffoldconsists of a sponge-like demineralized bone matrix that has been pre-cut into sizes to fit within a spinal spacer. The AlphaGraft ProFuse Demineralized Bone Scaffold provides a natural scaffold derived entirely from bone that can be placed into a void within a spinal spacer or on top of a spinal spacer. The sponge-like qualities of the scaffold allow a surgeon to compress the scaffold and place it into a small space. Following placement, the scaffold expands for maximum contact between the spinal spacer and the endplate of the vertebral body and is designed to promote fusion. The AlphaGraft ProFuse Demineralized Bone Scaffold is pre-packaged in our proprietary VIP System.

Amnioshield Amniotic Tissue Barrieris an allograft for spinal surgical barrier applications. The composite amniotic membrane reduces inflammation and enhances healing at the surgical site, reduces scar tissue formation and provides an excellent dissection plane.

Alphagraft Demineralized Bone Matrix consists of demineralized human tissue that is mixed with a bioabsorbable carrier and intended for use in surgery for bone grafting.

Neocore Osteoconductive Matrix is designed to provide an effective core environment for bone growth through a synthetic scaffold. When hydrated with patient bone marrow aspirate, or BMA, Neocore becomes a complete bone graft, which possesses all the necessary components of bone growth. Engineered to perform like natural bone, Neocore’s composition and porosity provide the benefits of rapid revascularization throughout graft and supports replacement of three-dimensional matrix with healthy new bone growth. Offering excellent handling characteristics, these pre-formed strips are flexible to conform to adjacent structures, compressible, and moldable.

Products and Technologies Under Development

Internally Developed Products and Technologies

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We are expanding or portfolio of products and technologies to enhance clinical outcomes across multiple pathologies, regardless of a surgeon’s preferred surgical approach.  We expect to launch 8-10 new products during 2020.

EOS imaging

We recently announced an agreement to acquire EOS. EOS is a leader in outcome-improving orthopedic medical imaging and software solutions, and is globally recognized for its rapid, low dose, biplanar full-body imaging and 3D modeling capabilities.  The EOS technology informs the entire surgical process by capturing a calibrated, full-body image in a standing (weight-bearing) position, enabling precise measurement of anatomical angles and dimensions.  The resulting imaging drives a more accurate understanding of patient alignment during diagnosis, elevates the likelihood of surgical goal fulfillment by integrating a fully informed plan into surgery, and enables a post-operative assessment against the original surgical plan

Utilizing advanced predictive analytics, EOS technology is uniquely capable of correlating preoperative and postoperative imaging to assure, from the operating room, the achievement of alignment, the most prognostic factor of long-term successful surgical outcomes. Compared to the conventional spine-imaging modalities, X-Ray and CT, the EOS systems significantly reduce radiation doses and exam times, producing unstitched, full-body, biplanar, high-quality images at lower cost.

Key Features of the EOS portfolio are as follows:

• Standing full-body assessment. Head to toe biplanar exams in the weight-bearing position for accurate assessment of factors causing pain and disability to better guide treatment and surgical decisions.  Surgical planning from a standing position enables alignment parameters that more closely match functional posture.

• Reduced radiation exposure. Driven by the ALARA* principle, the EOS or EOSedge exam delivers a minimal dose of radiation to reduce the long term impact of repeated imaging.

• Precise 3D measurements. Patient-specific measurements, dimensions and angles to make informed clinical decisions at all stages of care.  

• EOSapps and EOSlink for surgical planning and OR integration. Pre-operative planning software to anticipate surgical results and select components for spine surgery; pairs with surgical technologies for precise execution with EOSlink.

We expect the acquisition of EOS to close in the third quarter of 2020.

Research and Development

Our research and development department seeks to continually improve our core product offering and introduce new products to increase our penetration in the U.S. spine market. We are focused on developing technology platforms and products that span the largest market segments addressing degenerative and deformity spine pathologies. We have transformed our development process by focusing our development programs and leveraging integrated teams to reduce the time frame from product concept to market commercialization. We also collaborate with our surgeon partners to design products to enhance the surgeon experience, simplify surgical techniques, and reduce overall costs, while improving patient outcomes. Most of our product development efforts are fully integrated in one facility, allowing us to bring products from concept to market rapidly responding to surgeon and patient needs. Our resources include a technology advancement cell for rapid prototyping, a cadaveric lab, and mechanical testing laboratory.

Sales and Marketing

We market and sell our products through a sales force consisting of dedicated and non-dedicated independent distributors and dedicated employee direct sales representatives. We employ a team of area vice-presidents, or AVP’s, and regional business managers, or RBMs, who are responsible for overseeing the overall sales channel process in their territories. Although surgeons in the U.S. typically make the ultimate decision to use our products, we generally bill the hospital for the products that are used and pay commissions to the sales representative or the sales agent based on payment received from the hospital. We compensate our direct sales employees, AVP’s and RBMs through salaries and incentive bonuses based on performance measures.

We are currently in the process of making significant changes to drive a more dedicated and loyal sales channel, including; (i) eliminating our traditional stocking distributors; (ii) moving many of our existing distributor relationships to more dedicated partnerships; and (iii) attracting new, high-quality dedicated distributors. We believe these changes will provide us with opportunities for future growth as we secure more dedicated distribution partners that can further penetrate existing and new geographic markets.

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We evaluate and select our distribution partners and sales employees based upon their expertise in selling spinal devices, reputation within the surgeon community, geographical coverage and established sales network.

We also employ a national accounts team that is responsible for securing access at hospitals and GPOs, across the U.S. We have had strong success with securing access to hospitals and GPOs. We believe 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 to secure favorable contracts and develop strategies to convert or grow business within existing accounts.

We market our products at various industry conferences, organized surgical training courses, and in industry trade journals and periodicals.

Surgeon Training and Education

We focus our surgeon training efforts on delivering critical technical skills needed on the entire spinal fusion procedure through a peer-to-peer approach to qualified surgeon customers. Well-timed surgeon education programs drive customer conversion and loyalty through leadership and excellence by focusing on delivering value through improved clinical outcomes. We devote significant resources to training and education and are committed to a culture of scientific excellence and ethics.

We believe that one of the most effective ways to introduce and build market demand for our products is by training and educating spine surgeons, independent distributors, and direct sales representatives in the benefits and use of our products. Sales training programs will be a platform for learning and organizational development, ensuring the sales force is clinically competitive and considered an essential resource to all stakeholders. We focus on cross functional collaboration and alignment to deliver timely and relevant programs to meet surgeon and representative needs and positively impact the business.

Our training and education programs are designed to support new product introductions to the market as well as ongoing portfolio advancement. Our resources are nimble and responsive and include field-based engagements to supplement our core curriculum. We believe this is an effective way to increase overall surgeon adoption of our new products.

We believe that surgeons, independent distributors, and direct sales representatives will become exposed to the merits and distinguishing features of our products through our training and education programs, and that such exposure will increase the use and promotion of our products. With a focus on the entire procedure, we expect to build awareness of the breadth of our product offering. We are conscientious in the pursuit of delivering value to all stakeholders. Our goal is to provide surgeon education programs coupled with a growing and comprehensive sales training platform that create a sustainable competitive advantage for our organization.

Manufacture and Supply

We rely on third-party suppliers for the manufacture of all our implants and instruments. Outsourcing implant manufacturing reduces our need for capital investment and reduces operational expense. Additionally, outsourcing provides expertise and capacity necessary to scale up or down based on demand for our products. We select our suppliers to ensure that all of our products are safe, effective, adhere to all applicable regulations, are of the highest quality, and meet our supply needs. We employ a rigorous supplier assessment, qualification, and selection process targeted to suppliers that meet the requirements of the U.S. Food and Drug Administration, or FDA, and International Organization for Standardization, or ISO, and quality standards supported by internal policies and procedures. Our quality assurance process monitors and maintains supplier performance through qualification and periodic supplier reviews and audits.

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The raw materials used in the manufacture of our non-biologic products are principally titanium, titanium alloys, stainless steel, cobalt chrome, ceramic, allograft, and PEEK. With the exception of PEEK, none of our raw material requirements is limited to any significant extent by critical supply. We are subject to the risk that Invibio, one of a limited number of PEEK suppliers, will be unable to supply PEEK in adequate amounts and in a timely manner. We believe our supplier relationships and quality processes will support our potential capacity needs for the foreseeable future.

With respect to biologics products, we are FDA-registered and licensed in the states of California, New York, and Florida, the only states that currently require licenses. Our facility and the facilities of the third-party suppliers we use are subject to periodic unannounced inspections by regulatory authorities and may undergo compliance inspections conducted by the FDA and corresponding state and foreign agencies. Because our biologics products are processed from human tissue, maintaining a steady supply can sometimes be challenging. We have not experienced significant difficulty in locating and obtaining the materials necessary to fulfill our production requirements, and we have not experienced a meaningful disruption to sales orders.

In connection with the sale of our international business to Globus Medical Ireland, Ltd, a subsidiary of Globus Medical, Inc. and its affiliated entities, or collectively Globus, in September 2016, we and Globus entered into a product manufacture and supply agreement, or the Supply Agreement, pursuant to which, at agreed-upon prices, we agreed to supply to Globus certain of our implants and instruments that at the time were being offered for sale by us outside of the United States. Pursuant to the Supply Agreement, we are responsible for ensuring that all of the products delivered to Globus meet all agreed-upon specifications for such products. We have agreed to not market and sell spinal implant products outside of the United States for a period ending two years following the termination of the Supply Agreement. The initial term of the Supply Agreement expired in September 2019, at which point, Globus had the option to extend the term for up to two additional twelve month periods subject to Globus meeting specified purchase requirements. During the first quarter of 2019, Globus notified us that it would exercise the option to extend the agreement an additional twelve months through August 2020.

Competition

Although we believe that our current broad product portfolio and development pipeline is differentiated and has numerous competitive advantages, the spinal implant industry is highly competitive, subject to rapid technological change, and significantly affected by new product introductions. We believe that the principal competitive factors in our market include:

• improved outcomes for spine pathology procedures;

• ease of use, quality and reliability of product portfolio;

• effective and efficient sales, marketing and distribution;

• quality service and an educated and knowledgeable sales network;

• technical leadership and superiority;

• surgeon services, such as training and education;

• responsiveness to the needs of surgeons;

• acceptance by spine surgeons;

• product price and qualification for reimbursement; and

• speed to market.

Both our currently marketed products and any future products we commercialize are subject to intense competition. We believe that our most significant competitors are Medtronic, Johnson & Johnson (DePuy/Synthes), Stryker, NuVasive, Zimmer, Biomet, Globus, K2M Medical and others, many of which have substantially greater financial resources than we do. In addition, these companies may have more established distribution networks, entrenched relationships with physicians and greater experience in developing, launching, marketing, distributing and selling spinal implant products.

Some of our competitors also provide non-operative therapies for spine disorder conditions. While these non-operative treatments are considered to be an alternative to surgery, surgery is typically performed in the event that non-operative treatments are unsuccessful. We believe that, to date, these non-operative treatments have not caused a material reduction in the demand for surgical treatment of spinal disorders.

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Intellectual Property

We rely on a combination of patent, trademark, copyright, trade secret and other intellectual property laws, nondisclosure agreements, proprietary information ownership agreements and other measures to protect our intellectual property rights. We believe that in order to have a competitive advantage, we must develop, maintain and enforce the proprietary aspects of our technologies. We require our employees, consultants, co-developers, distributors and advisors to execute agreements governing the ownership of proprietary information and use and disclosure of confidential information in connection with their relationship with us. In general, these agreements require these individuals and entities to agree to disclose and assign to us all inventions that were conceived on our behalf or which relate to our property or business and to keep our confidential information confidential and only use such confidential information in connection with our business.

Patents. As of December 31, 2019, we and our affiliates owned, or we exclusively owned 194 issued U.S. patents, 39 pending U.S. patent applications and 217 issued or pending foreign patents. We own multiple patents relating to unique aspects and improvements for several of our products. We do not believe that the expiration of any single patent is likely to significantly affect our intellectual property position.

Trademarks. As of December 31, 2019, we and our affiliates owned 26 registered U.S. trademarks and 9 registered trademarks outside of the U.S.

Government Regulation

Our products are subject to extensive regulation by the FDA and other U.S. federal and state regulatory bodies and comparable authorities in other countries. Our products are subject to regulation under the Federal Food, Drug, and Cosmetic Act, or FDCA, and in the case of our tissue products, also under the Public Health Service Act, or PHSA. To ensure that our products are safe and effective for their intended use, the FDA regulates, among other things, the following activities that we or our partners perform and will continue to perform:

• product design and development;

• product testing;

• non-clinical and clinical research;

• product manufacturing;

• product labeling;

• product storage;

• premarket clearance or approval;

• advertising and promotion;

• product marketing, sales and distribution;

• import and export; and

• post-market surveillance, including reporting deaths or serious injuries related to products and certain product malfunctions.

Government Regulation—Medical Devices

FDA’s Premarket Clearance and Approval Requirements. Unless an exemption applies, each medical device we wish to commercially distribute in the United States will require either FDA clearance of a premarket notification requesting permission for commercial distribution under Section 510(k) of the Federal Food, Drug and Cosmetic Act, or FDCA, also referred to as a 510(k) clearance, or approval of a premarket approval application, or PMA. The information that must be submitted to the FDA in order to obtain clearance or approval to market a new medical device varies depending on how the medical device is classified by the FDA. Under the FDCA medical devices are classified into one of three classes -Class I, Class II or Class III-depending on the degree of risk associated with the use of the device and the extent of manufacturer and regulatory controls deemed to be necessary by the FDA to reasonably ensure their safety and effectiveness.

Class I devices are those with the lowest risk to the patient for which safety and effectiveness can be reasonably assured by adherence to a set of regulations, referred to as General Controls, which require compliance with the applicable portions of the FDA’s

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Quality System Regulation, or QSR, facility registration and product listing, reporting of adverse events and malfunctions, and appropriate, truthful and non-misleading labeling and promotional materials. Some Class I devices also require 510(k) clearance by the FDA, though most Class I devices are exempt from the premarket notification requirements. Class II devices are those that are subject to the General Controls, as well as Special Controls, which can include performance standards, product-specific guidance documents and post-market surveillance. Manufacturers of most Class II devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA. Class III devices include devices deemed by the FDA to pose the greatest risk such as life-supporting or life-sustaining devices, or implantable devices, in addition to those deemed not substantially equivalent following the 510(k) process. The safety and effectiveness of Class III devices cannot be reasonably assured solely by compliance with the General Controls and Special Controls described above. Therefore, these devices must be the subject of an approved PMA. Both 510(k)s and PMAs are subject to the payment of user fees at the time of submission for FDA review.

If the FDA determines that the device is not “substantially equivalent” to a predicate device following submission and review of a 510(k) premarket notification, or if the manufacturer is unable to identify an appropriate predicate device and the new device or new use of the device presents a moderate or low risk, the device sponsor may either pursue a PMA approval or seek reclassification of the device through the de novo process. Our current products on the market in the U.S. are Class II devices marketed under FDA 510(k) premarket clearance.

510(k) Clearance Pathway. To obtain 510(k) clearance, we must submit a premarket notification demonstrating that the proposed device is substantially equivalent to a device legally marketed in the United States. A predicate device is a legally marketed device that is not subject to premarket approval, i.e., a device that was legally marketed prior to May 28, 1976 (pre-amendments device) and for which a PMA is not required, a device that has been reclassified from Class III to Class II or I, or a device that was found substantially equivalent through the 510(k) process. To be “substantially equivalent,” the proposed device must have the same intended use as the predicate device, and either have the same technological characteristics as the predicate device or have different technological characteristics and not raise different questions of safety or effectiveness than the predicate device. Clinical data is sometimes required to support substantial equivalence.

The FDA’s goal is to review and act on each 510(k) within 90 days of submission, but the process usually takes from nine to 12 months, and it may take longer if the FDA requests additional information. Most 510(k)s do not require supporting data from clinical trials, but the FDA may request such data. If the FDA agrees that the device is substantially equivalent, it will grant clearance to commercially market the device.

After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a new or major change in its intended use, will require a new 510(k) clearance or, depending on the modification, require premarket approval. The FDA requires each manufacturer to determine whether the proposed change requires the submission of a 510(k) or PMA, but the FDA can review any such decision and can disagree with a manufacturer’s determination. If the FDA disagrees with a manufacturer’s determination, the FDA can require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or PMA is obtained. If the FDA requires us to seek a new 510(k) clearance or PMA for any modifications to a previously cleared product, we may be required to cease marketing or recall the modified device until we obtain this clearance or approval. Also, in these circumstances, we may be subject to significant fines or penalties. We have made and plan to continue to make enhancements to our products for which we have not submitted 510(k)s or PMAs, and we will consider on a case-by-case basis whether a new 510(k) or PMA is necessary.

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The FDA began to consider proposals to reform its 510(k) marketing clearance process in 2011, and such proposals could include increased requirements for clinical data and a longer review period. Specifically, in response to industry and healthcare provider concerns regarding the predictability, consistency and rigor of the 510(k) regulatory pathway, the FDA initiated an evaluation of the 510(k) program, and as part of the Food and Drug Administration Safety and Innovation Act, or FDASIA, Congress reauthorized the Medical Device User Fee Amendments with various FDA performance goal commitments and enacted several “Medical Device Regulatory Improvements” and miscellaneous reforms, which are further intended to clarify and improve medical device regulation both pre- and post-clearance and approval. Further, in December 2016, the 21st Century Cures Act, or Cures Act, was signed into law. The Cures Act, among other things, is intended to modernize the regulation of devices and spur innovation, but its ultimate implementation is unclear.

Premarket Approval Pathway. Class III devices require PMA approval before they can be marketed, although some pre-amendment Class III devices for which the FDA has not yet required a PMA are cleared through the 510(k) process. The PMA process is generally more complex, costly and time consuming than the 510(k) process. A PMA must be supported by extensive data including, but not limited to, extensive technical information regarding device design and development, preclinical and clinical trials, manufacturing and labeling information to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. The PMA application must provide valid scientific evidence that demonstrates to the FDA’s satisfaction reasonable assurance of the safety and effectiveness of the device for its intended use. Following receipt of a PMA, the FDA determines whether the application is sufficiently complete to permit a substantive review. If the FDA accepts the application for review, it has 180 days under the FDCA to complete its review of the PMA, although in practice, the FDA’s review often takes significantly longer, and can take up to several years. During this review period, the FDA may request additional information or clarification of information already provided, and the FDA may issue a major deficiency letter to the applicant, requesting the applicant’s response to deficiencies communicated by the FDA. Also during the review period, an advisory panel of experts from outside the FDA may be convened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not accept the panel’s recommendation. In addition, the FDA will conduct a preapproval inspection of the manufacturing facility to ensure compliance with quality system regulation, or QSR. The PMA process can be expensive, uncertain and lengthy, and a number of devices for which FDA approval has been sought by other companies have never been approved by the FDA for marketing.

Clinical Trials. Clinical trials are almost always required to support a PMA and are sometimes required for a 510(k). All clinical investigations of investigational devices to determine safety and effectiveness must be conducted in accordance with the FDA’s investigational device exemption, or IDE, regulations which govern investigational device labeling, prohibit promotion of the investigational device, and specify an array of recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators. If the device is determined to present a “significant risk” to human health, the manufacturer may not begin a clinical trial until it submits an IDE application to the FDA and obtains approval of the IDE from the FDA. The IDE must be supported by appropriate data, such as animal and laboratory testing results, showing that it is safe to test the device in humans and that the testing protocol is scientifically sound. In addition, the study must be approved by, and conducted under the oversight of, an Institutional Review Board, or IRB, for each clinical site. The IRB is responsible for the initial and continuing review of the IDE, and may pose additional requirements for the conduct of the study. If an IDE application is approved by the FDA and one or more IRBs, human clinical trials may begin at a specific number of investigational sites with a specific number of patients, as approved by the FDA. If the device presents a non-significant risk to the patient, a sponsor may begin the clinical trial after obtaining approval for the trial by one or more IRBs without separate approval from the FDA, but must still follow abbreviated IDE requirements, such as monitoring the investigation, ensuring that the investigators obtain informed consent, and labeling and record-keeping requirements. A clinical trial may be suspended by FDA, the sponsor or an IRB at any time for various reasons, including a belief that the risks to the study participants outweigh the benefits of participation in the trial. Even if a clinical trial is completed, the results may not demonstrate the safety and efficacy of a device to the satisfaction of the FDA, or may be equivocal or otherwise not be sufficient to obtain approval of a device.

Pervasive and Continuing FDA Regulation. After a device is placed on the market, numerous FDA and other regulatory requirements continue to apply. These include:

• registration and listing requirements, which require manufacturers to register all manufacturing facilities and list all medical devices placed into commercial distribution;

• the QSR, which requires manufacturers, including third-party contract manufacturers, to follow stringent design, testing, control, supplier/contractor selection, documentation, record maintenance and other quality assurance controls, during all aspects of the manufacturing process and to maintain and investigate complaints;

• labeling regulations and unique device identification requirements;

• advertising and promotion requirements;

• restrictions on sale, distribution or use of a device;

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• FDA prohibitions against the promotion of products for uncleared or unapproved “off-label” uses;

• medical device reporting obligations, which require that manufacturers submit reports to the FDA of device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to reoccur;

• medical device correction and removal reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health;

• device tracking requirements; and

• other post-market surveillance requirements, which apply when necessary to protect the public health or to provide additional safety and effectiveness data for the device.

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

• warning letters and untitled letters;

• fines, injunctions, consent decrees, and civil penalties;

• recalls, withdrawals, administrative detention, or seizure of products;

• operating restrictions, partial suspension or total shutdown of production;

• withdrawals of 510(k) clearances or PMA approvals that have already been granted;

• refusal to grant 510(k) clearance or PMA approvals of new products; and/or

• criminal prosecution.

Our facilities, records and manufacturing processes are subject to periodic announced and unannounced inspections by the FDA to evaluate compliance with applicable regulatory requirements.

Regulation of Human Cells, Tissues, and Cellular and Tissue-based Products. Certain of our products are regulated as human cells, tissues, and cellular and tissue-based products, or HCT/Ps. Section 361 of the PHSA authorizes the FDA to issue regulations to prevent the introduction, transmission or spread of communicable disease. HCT/Ps regulated as “361” HCT/Ps are subject to requirements relating to registering facilities and listing products with the FDA, screening and testing for tissue donor eligibility, or Good Tissue Practice, when processing, storing, labeling, and distributing HCT/Ps, including required labeling information, stringent record keeping, and adverse event reporting, among other applicable requirements and laws. If the HCT/P is minimally manipulated, is intended for homologous use only and meets other requirements, the HCT/P will not require 510(k) clearance, PMA approval, a Biologics License Applications, or other premarket authorization from the FDA before marketing.

Environmental Matters

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

Compliance with Certain Applicable Statutes

We are subject to various federal and state laws pertaining to healthcare fraud and abuse, including anti-kickback laws, false claims laws, criminal health care fraud laws, physician payment transparency laws, data privacy and security laws and foreign corrupt practice laws. Violations of these laws are punishable by criminal and/or civil sanctions, including, in some instances, fines, imprisonment and, within the United States, exclusion from participation in government healthcare programs, including Medicare,

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Medicaid and Veterans Administration health programs. These laws are administered by, among others, the U.S. Department of Justice, the Office of Inspector General of the Department of Health and Human Services and state attorneys general. Many of these agencies have increased their enforcement activities with respect to medical device manufacturers in recent years.

The federal Anti-Kickback Statute, prohibits persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing, arranging for or recommending a good or service, for which payment may be made in whole or part under federal healthcare programs, such as the Medicare and Medicaid programs. The Anti-Kickback Statute is broad and prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry. For example, the definition of “remuneration” has been broadly interpreted to include anything of value, including, gifts, discounts, the furnishing of supplies or equipment, credit arrangements, payments of cash, waivers of payments, ownership interests and providing anything at less than its fair market value. In addition, the Patient Protection and Affordable Health Care Act, which, as amended by the Health Care and Education Reconciliation Act, and collectively referred to as ACA. ACA, among other things, amends the intent requirement of the federal Anti-Kickback Statute. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, ACA provides that the government may assert that a claim including items or services resulting from a violation of the Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act.

In implementing the Anti-Kickback Statute, the Department of Health and Human Services Office of Inspector General, or OIG, has issued a series of regulations, known as the safe harbors, which began in July 1991. These safe harbors set forth provisions that, in circumstances where all the applicable requirements are met, will assure healthcare providers and other parties that they will not be prosecuted under the Anti-Kickback Statute. The failure of a transaction or arrangement to fit precisely within one or more safe harbors does not necessarily mean that it is illegal or that prosecution will be pursued. However, conduct and business arrangements that do not fully satisfy all requirements of an applicable safe harbor may result in increased scrutiny by government enforcement authorities such as the OIG. Penalties for violations of the Anti-Kickback Statute include criminal penalties and civil sanctions such as fines, imprisonment and possible exclusion from Medicare, Medicaid and other federal healthcare programs. Many states have antikickback laws that are similar to the federal law, some of which apply to the referral of patients for healthcare items or services reimbursed by any source, and may also result in penalties, fines, sanctions for violations, and exclusions from state or commercial programs.

We have entered into various agreements with certain surgeons that perform services for us, including some who make clinical decisions to use our products. Some of our referring surgeons own our stock, which they received from us as consideration for services performed. We frequently review these arrangements to determine whether they are in compliance with applicable laws and regulations. In addition, physician-owned distribution companies, or PODs, have become decreasingly involved in the sale and distribution of medical devices, including products for the surgical treatment of spine disorders. In many cases, these distribution companies enter into arrangements with hospitals that bill Medicare or Medicaid for the furnishing of medical services, and the physician-owners are among the physicians who refer patients to the hospitals for surgery. On March 26, 2013 the OIG issued a Special Fraud Alert entitled “Physician-Owned Entities”, or the Fraud Alert, in which the OIG concluded, among other things, that PODs are “inherently suspect under the anti-kickback statute” and that PODs present “substantial fraud and abuse risk and pose dangers of patient safety.” Since 2013, the OIG has further increased its scrutiny of PODs and the Department of Justice has brought several high-profile cases against physician owners.

The federal False Claims Act prohibits persons from knowingly filing or causing to be filed a false or fraudulent claim to, or the knowing use of false statements to obtain payment from, the federal government. Private suits filed under the False Claims Act, known as qui tam actions, can be brought by individuals on behalf of the government. These individuals, sometimes known as “relators” or, more commonly, as “whistleblowers,” may share in any amounts paid by the entity to the government in fines or settlement. The number of filings of qui tam actions has increased significantly in recent years, causing more healthcare companies to have to defend a False Claim Act action. If an entity is determined to have violated the federal False Claims Act, it may be required to pay up to three times the actual damages sustained by the government, plus civil penalties of between $10,000 to $22,000 for each separate false claim and may be subject to exclusion from Medicare, Medicaid and other federal healthcare programs. Various states have also enacted similar laws modeled after the federal False Claims Act which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.

The Health Insurance Portability and Accountability Act, or HIPAA, created two new federal crimes: healthcare fraud and false statements relating to healthcare matters. The healthcare fraud statute prohibits knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private payors. The ACA changed the intent requirement of the healthcare fraud statute to such that a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. A violation of this statute is a felony and may result in fines, imprisonment or possible exclusion from Medicare, Medicaid and other federal healthcare programs. The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or

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making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. A violation of this statute is a felony and may result in similar sanctions.

ACA also includes various provisions designed to strengthen significantly fraud and abuse enforcement in addition to those changes discussed above. Among these additional provisions include increased funding for enforcement efforts and new “sunshine” provisions to require us to report and disclose to the Centers for Medicare and Medicaid Services, or CMS, any payment or “transfer of value” made or distributed to physicians or teaching hospitals. These sunshine provisions also require certain group purchasing organizations, including physician-owned distributors, to disclose physician ownership information to CMS. We and other device manufacturers are required to collect and annually report specific data on payments and other transfers of value to physicians and teaching hospitals. There are various state laws and initiatives that require device manufacturers to disclose to the appropriate regulatory agency certain payments or other transfers of value made to physicians, and in certain cases prohibit some forms of these payments, with the risk of fines for any violation of such requirements.

HIPAA also includes privacy and security provisions designed to regulate the use and disclosure of “protected health information”, or PHI, which is health information that identifies a patient and that is held by a health care provider, a health plan or health care clearinghouse. We are not directly regulated by HIPAA, but our ability to access PHI for purposes such as marketing, product development, clinical research or other uses is controlled by HIPAA and restrictions placed on health care providers and other covered entities. HIPAA was amended in 2009 by the Health Information Technology for Economic and Clinical Health Act, or HITECH, which strengthened the rule, increased penalties for violations and added a requirement for the disclosure of breaches to affected individuals, the government and in some cases the media. We must carefully structure any transaction involving PHI to avoid violation of HIPAA and HITECH requirements.

Almost all states have adopted data security laws protecting personal information including social security numbers, state issued identification numbers, credit card or financial account information coupled with individuals’ names or initials. We must comply with all applicable state data security laws, even though they vary extensively, and must ensure that any breaches or accidental disclosures of personal information are promptly reported to affected individuals and responsible government entities. We must also ensure that we maintain compliant, written information security programs or run the risk of civil or even criminal sanctions for non-compliance as well as reputational harm for publicly reported breaches or violations.

If any of our operations are found to have violated or be in violation of any of the laws described above and other applicable state and federal fraud and abuse laws, we may be subject to penalties, among them being civil and criminal penalties, damages, fines, exclusion from government healthcare programs, and the curtailment or restructuring of our operations.

Third-Party Reimbursement

In the U.S., healthcare providers generally rely on third-party payors, principally private insurers and governmental payors such as Medicare and Medicaid, to cover and pay for all or part of the cost of a spine surgery in which our medical devices are used. We expect that sales volumes and prices of our products will depend in large part on the continued availability of reimbursement from such third-party payors. These third-party payors may deny reimbursement if they determine that a device used in a procedure was not medically necessary in accordance with cost-effective treatment methods, as determined by the third-party payor, or was used for an unapproved indication. Particularly in the U.S., third-party payors continue to carefully review, and increasingly challenge, the prices charged for procedures and medical products. Medicare coverage and reimbursement policies are developed by CMS, the federal agency responsible for administering the Medicare program, and its contractors. CMS establishes these Medicare policies for medical products and procedures and such policies are periodically reviewed and updated. While private payors vary in their coverage and payment policies, the Medicare program is viewed as a benchmark. Medicare payment rates for the same or similar procedures vary due to geographic location, nature of the facility in which the procedure is performed (i.e., teaching or community hospital) and other factors. We cannot assure you that government or private third-party payors will cover and provide adequate payment for the procedures in which our products are used. ACA and other reform proposals contain significant changes regarding Medicare, Medicaid and other third party payors.

Among these changes was the imposition of a 2.3% excise tax on domestic sales of medical devices that went into effect on January 1, 2013. This tax has resulted in a significant increase in the tax burden on our industry. In December 2015, the U.S. Congress adopted and President Obama signed into law the Consolidated Appropriations Act of 2016. Among other things, this legislation put in place a two-year moratorium on the device tax through the end of 2017. Other elements of the ACA include numerous provisions to limit Medicare spending through reductions in various fee schedule payments and by instituting more sweeping payment reforms, such as bundled payments for episodes of care, the establishment of “accountable care organizations” under which hospitals and physicians will be able to share savings that result from cost control efforts, comparative effectiveness research, value-based purchasing, and the establishment of an independent payment advisory board.

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We expect that political party control of the House of Representatives, the Senate and even State-level elections could shift the trajectory of current health policy, including potential to modify, repeal, or otherwise invalidate all, or certain provisions of, the ACA. Since its enactment, there have also been other judicial and Congressional challenges to certain aspects of the ACA. As a result, there have been delays in the implementation of, and action taken to repeal or replace, certain aspects of the ACA. In March 2017, the United States House of Representatives introduced legislation known as the American Health Care Act, or the AHCA, which, if enacted, would amend or repeal significant portions of the ACA. Among other changes, the AHCA, would repeal the medical device tax, eliminate penalties on individuals and employers that fail to maintain or provide minimum essential coverage and create refundable tax credits to assist individuals in buying health insurance. The AHCA would also make significant changes to Medicaid by, among other things, making Medicaid expansion optional for states, repealing the requirement that state Medicaid plans provide the same essential health benefits that are required by plans available on the exchanges, modifying federal funding, including implementing a per capita cap on federal payments to states, and changing certain eligibility requirements. Given recent changes of political party control of the House of Representatives, it is uncertain when or if the provisions in the AHCA will become law, or the extent to which any such changes may impact our business.

In addition, other legislative changes have been proposed and adopted since the ACA was enacted. These changes include the Budget Control Act of 2011, which resulted in reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and will stay in effect through 2025 unless additional Congressional action is taken, as well as, the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several types of providers, including hospitals and imaging centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. An expansion in government’s role in the U.S. healthcare industry may lower reimbursements for procedures using our products, reduce medical procedure volumes, and adversely affect our business and results of operations, possibly materially.

We believe that the overall escalating cost of medical products and services has led to, and will continue to lead to, increased pressures on the healthcare industry to reduce the costs of products and services. We cannot assure you that government or private third-party payors will cover and provide adequate payment for the procedures using our products. In addition, it is possible that future legislation, regulation, or reimbursement policies of third-party payors will adversely affect the demand for procedures using our products or our ability to sell our products on a profitable basis. The unavailability or inadequacy of third-party payor coverage or reimbursement could have a significant adverse effect on our business, operating results and financial condition.

Employees

As of December 31, 2019, we had 227 employees in the U.S., 190 of which were based in our Carlsbad, California headquarters, covering all of the following functional areas: sales, customer service, marketing, clinical education, advanced manufacturing, quality assurance, regulatory affairs, research and development, human resources, finance, legal, information technology and administration. We have never experienced a work stoppage due to labor difficulties and believe that our relations with our employees are good. We currently have no employees working under collective bargaining agreements.

Corporate and Available Information

We are a Delaware corporation incorporated in March 2005. Our principal executive office is located at 5818 El Camino Real, Carlsbad, California 92008 and our telephone number is (760) 431-9286. Our Internet address is www.atecspine.com. We are not including the information contained on our website as a part of, or incorporating it by reference into, this Annual Report on Form 10-K. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, are available to you free of charge through the Investor Relations section of our website as soon as reasonably practicable after such materials have been electronically filed with, or furnished to, the Securities and Exchange Commission, or SEC.

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Item 1A. Risk Factors

Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors and all other information contained or incorporated by reference in this Annual Report on Form 10-K. The risks and uncertainties described below are not the only risks faced by the Company. Additional risks and uncertainties that we are unaware of, or that we currently deem immaterial may become important factors that affect us. If any of such risks or the risks described below occur, either alone or taken together occur, our business, financial condition or results of operations could be materially and adversely affected. In that case, the trading price of our common stock could decline, and you may lose some or all of your investment.

Risks Related to Our Business and Industry

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

We allocate our design, development, marketing, management and financial resources based on our business plan, which includes assumptions about various demographic trends in the treatment of spine disorders and the resulting demand for our products. However, these trends are uncertain. Our assumptions with respect to an aging population with broad medical coverage and longer life expectancy, which we expect to lead to increased spinal injuries and degeneration, may not be accurate. In addition, an increasing awareness and use of non-invasive means for the prevention and treatment of back pain and rehabilitation purposes may reduce demand for, or slow the growth of sales of, spine fusion products. A significant shift in technologies or methods used in the treatment of back pain or damaged or diseased bone and tissue could adversely affect demand for some or all of our products. For example, pharmaceutical advances could result in non-surgical treatments gaining more widespread acceptance as a viable alternative to spine fusion. The emergence of new biological or synthetic materials to facilitate regeneration of damaged or diseased bone and to repair damaged tissue could increasingly minimize or delay the need for spine fusion surgery and provide other biological alternatives to spine fusion. New surgical procedures could diminish demand for some of our products. The increased acceptance of emerging technologies that do not require spine fusion, such as artificial discs and nucleus replacement, for the surgical treatment of spine disorders would reduce demand for, or slow the growth of sales of, spine fusion products. If our assumptions regarding these factors prove to be incorrect or if alternative treatments to those offered by our products gain further acceptance, then demand for our products could be significantly less than we anticipate and we may not be able to achieve or sustain growth or profitability.

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

The market for spine fusion products and procedures is intensely competitive, subject to rapid technological change and significantly affected by new product introductions and other market activities of industry participants. In 2018, a significant percentage of global spine implant product revenues was generated by Medtronic Sofamor Danek, a subsidiary of Medtronic; Depuy Spine, a subsidiary of Johnson & Johnson; and Stryker. Our competitors also include numerous other publicly-traded companies such as NuVasive, Zimmer, Globus and SeaSpine Holdings Corp.

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

• more established relationships with spine surgeons;

• more established distribution networks;

• broader spine surgery product offerings;

• stronger intellectual property portfolios;

• greater financial and other resources for product research and development, sales and marketing, and patent litigation;

• greater experience in, and resources for, launching, marketing, distributing and selling products;

• greater name recognition as well as more recognizable trademarks for products similar to the products that we sell;

• more established relationships with healthcare providers and payers;

• products supported by more extensive clinical data; and

• greater experience in obtaining and maintaining FDA and other regulatory clearances or approvals for products and product enhancements.

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

A significant percentage of our revenues are derived from the sale of our systems that include polyaxial pedicle screws.

Net sales of our systems that include polyaxial pedicle screws represented approximately 50% our net sales for both 2018 and 2017, and continue to be significant in 2019. A decline in sales of these systems, due to lower market demand, the introduction by a third party of a competitive product, an intellectual property dispute involving these systems, or otherwise, would have a significant adverse impact on our business, financial condition and results of operations. Some of the technology related to our polyaxial pedicle screw systems is licensed to us. We rely on such licenses in order to be able to use various proprietary technologies that are material to these systems. We do not own the patents that underlie these licenses. Our rights to use these technologies and employ the inventions claimed in the licensed patents are subject to the continuation of and our compliance with the terms of those licenses. In some cases, we do not control the prosecution, maintenance or filing of the patents to which we hold licenses. Enforcement of our licensed patents or defense of any claims asserting the invalidity of these patents is often subject to the control or cooperation of our licensors. We cannot be certain that our licensors will prosecute, maintain, enforce and defend the licensed patent rights in a manner consistent with the best interests of our business. We also cannot be certain that drafting or prosecution of the licensed patents and patent applications by the licensors have been or will be conducted in compliance with applicable laws and regulations, will result in valid and enforceable patents and other intellectual property rights, or that any issued patents or patents that may issue in the future will provide any competitive advantage. Certain of our licenses contain provisions that allow the licensor to terminate the license upon specific conditions. Our rights under each of the licenses are subject to our continued compliance with the terms of the license, including certain diligence, disclosure and confidentiality obligations and the payment of royalties and other fees. If we were found to be in breach of any of our license agreements, in certain circumstances our licensors may take action against us, including termination of the applicable license. Because of the complexity of our product and the patents we have licensed, determining the scope of the license and related obligations can be difficult and can lead to disputes between us and the licensor. An unfavorable resolution of such a dispute could lead to an increase in the royalties payable pursuant to the license or termination of the license. Any action that would prevent us from manufacturing, marketing and selling our polyaxial pedicle screw systems or increase the costs associated with manufacturing, marketing and selling our polyaxial pedicle screw systems and would have a significant adverse effect on our business, financial condition and results of operations.

Our sales and marketing efforts are largely dependent upon third parties, many of which are non-exclusive and free to market products that compete with our products.

Most of our independent distributor arrangements are non-exclusive and our distributors are not obligated to buy our products and can represent competing products, and they may be unwilling or unable to dedicate the resources necessary to promote our portfolio of products. Many of our independent distributors also market and sell the products of our competitors, and those competitors may have the ability to influence the products that our independent distributors choose to market and sell. Our competitors may be able, by offering higher commission payments or otherwise, to convince our independent distributors to terminate their relationships with us, carry fewer of our products or reduce their sales and marketing efforts for our products. Our independent distributors have varying expertise in marketing and selling specialty medical devices. They also sell other devices that may result in less focus on our products. Our ability to incentivize and motivate distributors to manage and sell our products is affected by competition from other medical device companies who have greater resources than we do. To the extent that our independent distributors, retailers and brokers are distracted from selling our products or do not employ sufficient efforts in managing and selling our products, our sales and results of operations could be adversely affected. Furthermore, such third parties’ financial position or market share may deteriorate, which could adversely affect the distribution, marketing and sale of our products.

If pricing pressures cause us to decrease prices for our goods and services and we are unable to compensate for such reductions through changes in our product mix or reductions to our expenses, our results of operations will suffer.

We have experienced and may continue to experience decreasing prices for our goods and services we offer due to pricing pressure exerted by our customers in response to increased cost containment efforts from managed care organizations and other third-party payers and increased market power of our customers as the medical device industry consolidates. If we are unable to offset such price reductions through changes in our product mix or reductions in our expenses, our business, financial condition, results of operations and cash flows will be adversely affected.

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

In order for us to sell our products, spine surgeons must be convinced that our products are superior to competing products. Acceptance of our products depends on educating the spine surgeon community as to the distinctive characteristics, perceived benefits, safety and cost-effectiveness of our products compared to our competitors’ products and on training spine surgeons in the proper application of our products. If we are not successful in convincing the spine surgeon community of the merit of our products, our sales will decline and we will be unable to increase or achieve and sustain growth or profitability.

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

We must attract new distributors of our products.

We plan to continue to focus on increasing our network of independent distributors. The establishment and development of a broader distribution network may be expensive and time consuming. Because of the intense competition for their services, we may be unable to recruit or retain additional qualified independent distributors. Often, our competitors enter into distribution agreements with independent distributors that require such distributors to exclusively sell the products of our competitors. Further, we may not be able to enter into agreements with independent distributors on commercially reasonable terms, if at all. Even if we do enter into agreements with additional independent distributors, it often takes 90 to 120 days for new distributors to reach full operational effectiveness and such distributors may not generate revenue as quickly as we expect them to, commit the necessary resources to effectively market and sell our products or ultimately be successful in selling our products. Our business, financial condition and results of operations will be materially adversely affected if we do not attract new, additional independent distributors or if the marketing and sales efforts of our independent distributors and our own direct sales representatives are unsuccessful.

We rely on a limited number of third parties to manufacture and supply our products. Any problems experienced by any of these manufacturers could result in a delay or interruption in the supply of our products to us until such manufacturer cures the problem or until we locate and qualify an alternative source of supply.

We rely on third party suppliers for the manufacture of our implants and instruments. We currently rely on a limited number of third party suppliers and any prolonged disruption in the operations of our third party suppliers could have a significant negative impact on our ability to supply our products to customers and to perform our obligations under the Supply Agreement with Globus, and would cause us to seek additional third-party manufacturing contracts, which may not be available on acceptable terms, if at all. We may suffer losses as a result of business interruptions that exceed coverage under our manufacturer’s insurance policies. Events beyond our control, such as natural disasters, fire, sabotage or business accidents could have a significant negative impact on our operations by disrupting our product development and commercialization efforts until such third-party supplier can repair its facility or put in place third-party contract manufacturers to assume this manufacturing role, which we may not be able to do on reasonable terms, if at all. In addition, if we are required to change manufacturers for any reason, we will be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations and guidelines. The delays associated with the verification of a new manufacturer or the re-verification of an existing manufacturer could negatively affect our ability to develop products or supply products to customers in a timely manner. Any disruption in the manufacture of our products by our third party suppliers could have a material adverse impact on our business, financial condition and results of operations.

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

We use a number of raw materials, including titanium, titanium alloys, stainless steel, PEEK, and human tissue. We rely from time to time on a number of suppliers and in one case on a single source vendor, Invibio. We have a supply agreement with Invibio, pursuant to which it supplies us with PEEK, a biocompatible plastic that we use in some of our spacers. Invibio is one of a limited number of companies approved to distribute PEEK in the United States for use in implantable devices. During 2019, approximately 14% of our revenues were derived from products manufactured using PEEK.

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

Our dependence on a single third-party PEEK supplier and the challenges we may face in obtaining adequate supplies of biologics products involve several risks, including limited control over pricing, availability, quality and delivery schedules. In addition, any supply interruption in a limited or sole sourced component or raw material, such as PEEK or human tissue, could materially harm the ability of our third party manufacturers to manufacture our products until a new source of supply, if any, could be found. We may be unable to find a sufficient alternative supply channel in a reasonable time period or on commercially reasonable terms, if at all, which would have a significant adverse effect on our business, financial condition and results of operations.

Our tissue-based products and related technologies could become subject to significantly greater regulation by the FDA, which could disrupt our business.

The FDA regulates human cells, tissues, and cellular and tissue-based products, or HCT/Ps, but the extent to which they are regulated depends on how they are manufactured and used and whether they meet other criteria for minimal regulation. These criteria include but are not limited to the use of the HCT/Ps for homo-logous use only and minimal manipulation of the HCT/Ps. These HCT/Ps are regulated by the FDA solely under Section 361 of the Public Health Service Act, or PHSA, and are referred to as “Section 361 HCT/Ps,” while other HCT/Ps are subject to FDA’s regulatory requirements applicable to medical devices or biologics. Section 361 HCT/Ps do not require 510(k) clearance, PMA approval, licensure of a biologics license application, or BLA, or other premarket authorization from FDA before marketing. We believe our HCT/Ps are regulated solely under Section 361 of the PHSA, and therefore, we have not sought or obtained 510(k) clearance, PMA approval, or licensure through a BLA. The FDA could disagree with our determination that our tissue-based products are Section 361 HCT/Ps and could determine that these products are biologics requiring a BLA or medical devices requiring 510(k) clearance or PMA approval, and could require that we cease marketing such products and/or recall them pending appropriate clearance, approval or license from the FDA. If the FDA determines that any of our current or future products contain HCT/Ps that do not meet the criteria for regulation as a Section 361 HCT/P, it could subject some of our products to additional review and regulatory oversight. If this were to happen, further distribution of the affected products could be interrupted for a substantial period of time, which would reduce our revenues and hurt our profitability.

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

We and our suppliers are required to comply with the FDA’s Quality System Regulation, or QSR, which covers, among other things, the methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, record keeping, storage and shipping of our products. In addition, suppliers and processors of products derived from HCT must comply with the FDA’s current good tissue practice requirements, or cGTPs, which govern the methods used in and the facilities and controls used for the manufacture of HCT/Ps, record keeping and the establishment of a quality program. The FDA audits compliance with the QSR and cGTPs through inspections of manufacturing and other facilities. If we or our suppliers have significant non-compliance issues or if any corrective action plan is not sufficient, we or our suppliers could be forced to halt the manufacture of our products until such problems are corrected to the FDA’s satisfaction, which could have a material adverse effect on our business, financial condition and results of operations. Further, our products could be subject to recall if the FDA determines, for any reason, that our products are not safe or effective. Any recall or FDA requirement demanding that we seek additional approvals or clearances could result in delays, costs associated with modification of a product, loss of revenue and potential operating restrictions imposed by the FDA, all of which could have a material adverse effect on our business, financial condition and results of operations.

Healthcare policy changes, including recent federal legislation to reform the U.S. healthcare system, may have a material adverse effect on us.

In response to perceived increases in health care costs in recent years, there have been and continue to be proposals by the federal government, state governments, regulators and third-party payers to control these costs and, more generally, to reform the U.S. healthcare system. Certain of these proposals could limit the prices we are able to charge for our products or the amounts of reimbursement available for our products, limit the acceptance and availability of our products, and have a material adverse effect on our financial position and results of operations. An expansion in government’s role in the U.S. healthcare industry may lower reimbursements for procedures using our products, reduce medical procedure volumes and adversely affect our business and results of operations, possibly materially.

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The demand for products and the prices at which customers and patients are willing to pay for our products depend upon the ability of our customers to obtain adequate third-party coverage and reimbursement for their purchases of our products.

Sales of our products depend in part on the availability of adequate coverage and reimbursement from governmental and private payers. In the United States, healthcare providers that purchase our products generally rely on third-party payers, principally Medicare, Medicaid and private health insurance plans, to pay for all or a portion of the costs and fees associated with the use of our products. While procedures using our currently marketed products are eligible for reimbursement in the United States, if surgical procedures utilizing our products are performed on an outpatient basis, it is possible that private payers may no longer provide reimbursement for the procedures using our products without further supporting data on the procedure. Any delays in obtaining, or an inability to obtain, adequate coverage or reimbursement for procedures using our products could significantly affect the acceptance of our products and have a significant adverse effect on our business. Additionally, third-party payers continue to review their coverage policies carefully for existing and new therapies and can, without notice, deny coverage for treatments that include the use of our products. Our business would be negatively impacted if there are any changes that reduce reimbursement for our products.

Furthermore, healthcare costs have risen significantly over the past decade. There have been and may continue to be proposals by legislators, regulators and third-party payers to contain these costs. Several such proposals were enacted as part of the Patient Protection and Affordable Health Care Act, as amended by the Health Care and Education Reconciliation Act, or ACA, and include numerous provisions to limit Medicare spending through reductions in various fee schedule payments and sweeping payment reforms. Other federal and state cost-control measures include prospective payment systems, capitated rates, group purchasing, redesign of benefits, requiring pre-authorizations or second opinions prior to major surgery, encouragement of healthier lifestyles and exploration of more cost-effective methods of delivering healthcare. Some healthcare providers in the United States have adopted or are considering a managed care system in which the providers contract to provide comprehensive healthcare for a fixed cost per person. Healthcare providers may also attempt to control costs by authorizing fewer elective surgical procedures or by requiring the use of the least expensive devices possible. These cost-control methods also potentially limit the amount which healthcare providers may be willing to pay for medical devices. In addition, in the United States, no uniform policy of coverage and reimbursement for medical technology exists among all these payers. Therefore, coverage of and reimbursement for medical technology can differ significantly from payer to payer. The continuing efforts of thirdparty payers, whether governmental or commercial, whether inside or outside the United States, to contain or reduce these costs, combined with closer scrutiny of such costs, could restrict our customers’ ability to obtain adequate coverage and reimbursement from these third-party payers. The cost containment measures contained in ACA and other measures being considered at the federal and state level, as well as internationally, could harm our business by adversely affecting the demand for our products or the price at which we can sell our products.

Consolidation in the healthcare industry could lead to demands for price concessions or to the exclusion of some suppliers from certain of our markets, which could have an adverse effect on our business, financial condition or results of operations.

Because healthcare costs have risen significantly over the past decade, numerous initiatives and reforms initiated by legislators, regulators and third party payers to curb these costs have resulted in a consolidation trend in the healthcare industry to create new companies with greater market power, including hospitals. As the healthcare industry consolidates, competition to provide products and services to industry participants has become and will continue to become more intense. This in turn has resulted and will likely continue to result in greater pricing pressures and the exclusion of certain suppliers from important market segments as GPOs, independent delivery networks and large single accounts continue to use their market power to consolidate purchasing decisions for some of our customers. We expect that market demand, government regulation, third-party reimbursement policies and societal pressures will continue to change the worldwide healthcare industry, resulting in further business consolidations and alliances among our customers, which may reduce competition, exert further downward pressure on the prices of our products and may adversely impact our business, financial condition or results of operations.

We may be subject to or otherwise affected by federal and state healthcare laws, including fraud and abuse, health information privacy and security, and disclosure laws, and could face substantial penalties if we are unable to fully comply with such laws.

Although we do not provide healthcare services, submit claims for third-party reimbursement, or receive payments directly from Medicare, Medicaid, or other third-party payers for our products or the procedures in which our products are used, healthcare regulation by federal and state governments significantly impacts our business. Healthcare fraud and abuse, health information privacy and security, and disclosure laws potentially applicable to our operations include:

• the federal Anti-Kickback Statute, as well as state analogs, which constrains our marketing practices and those of our independent sales agents and distributors, educational programs, pricing policies, and relationships with healthcare providers by prohibiting, among other things, knowingly and willfully soliciting, receiving, offering or providing remuneration, intended to induce the purchase or recommendation of an item or service reimbursable under a federal (or state or commercial) healthcare program (such as the Medicare or Medicaid programs);

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• the federal ban, as well as state analogs, on physician self-referrals, which prohibits, subject to certain exceptions, physician referrals of Medicare and Medicaid patients to an entity providing certain “designated health services” if the physician or an immediate family member of the physician has any financial relationship with the entity;

• federal false claims laws which prohibit, among other things, knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payers that are false or fraudulent;

• The Health Insurance Portability and Accountability Act, or HIPAA, and its implementing regulations, which created federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;

• the state and federal laws “sunshine” provisions that require detailed reporting and disclosures to the Centers for Medicare and Medicaid Services, or CMS, and applicable states of any payments or “transfer of value” made or distributed to prescribers and other health care providers, and for certain states prohibit some forms of these payments, require the adoption of marketing codes of conduct, require the reporting of marketing expenditures and pricing information and constrain relationships with physicians and other referral sources;

• state laws analogous to each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payer, including commercial insurers, and state laws governing the privacy of certain health information, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts;

• the Administrative Simplification provisions of HIPAA, specifically, privacy and security provisions including recent amendments under the Health Information Technology for Economic and Clinical Health Act, or HITECH, which impose stringent restrictions on uses and disclosures of protected health information such as for marketing or clinical research purposes and impose significant civil and criminal penalties for non-compliance and require the reporting of breaches to affected individuals, the government and in some cases the media in the event of a violation; and

• a variety of state-imposed privacy and data security laws which require the protection of information beyond health information, such as employee information or any class of information combining name with state issued identification numbers, social security numbers, credit card, bank or other financial information and which require reporting to state officials in the event of breach or violation and which impose both civil and criminal penalties.

ACA includes various provisions designed to strengthen significantly fraud and abuse enforcement, such as increased funding for enforcement efforts and the lowering of the intent requirement of the federal Anti-Kickback Statute and criminal healthcare fraud statute such that a person or entity no longer needs to have actual knowledge of these statutes or specific intent to violate them.

If our past or present operations, or those of our independent sales agents and distributors are found to be in violation of any of such laws or any other governmental regulations that may apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from federal healthcare programs and/or the curtailment or restructuring of our operations. Similarly, if the healthcare providers, sales agents, distributors or other entities with which we do business are found to be non-compliant with applicable laws, they may be subject to sanctions, which could also have a negative impact on us. Any penalties, damages, fines, curtailment or restructuring of our operations could adversely affect our ability to operate our business and our financial results. The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Any action against us for violation of these laws, even if we successfully defend against them, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business.

The sales and marketing practices of our industry have been the subject of increased scrutiny from federal and state government agencies, and we believe that this trend will continue. Prosecutorial scrutiny and governmental oversight over some major device companies regarding the retention of healthcare professionals as consultants has affected and may continue to affect the manner in which medical device companies may retain healthcare professionals as consultants. Any precautions we take to detect and prevent noncompliance with applicable laws may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. Any action against us for violation of these laws, even if we successfully defend against them, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business.

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

Our medical devices are subject to extensive regulation by the FDA and numerous other federal, state and foreign governmental authorities. The process of obtaining regulatory clearances or approvals to market a medical device, particularly from the FDA, can be costly and time consuming, and there can be no assurance that such clearances or approvals will be granted on a timely basis, if at all. In particular, the FDA permits commercial distribution of most new medical devices only after the devices have received clearance under Section 510(k) of the Federal Food, Drug and Cosmetic Act, or 510(k), or are the subject of an approved premarket approval application, or a PMA. The 510(k) process generally takes three to nine months, but can take significantly longer, especially if the FDA requires a clinical trial to support the 510(k) application. Currently, we do not know whether the FDA will require clinical data in support of any 510(k)s that we intend to submit for other products in our pipeline. In addition, the FDA continues to re-examine its 510(k) clearance process for medical devices and published several draft guidance documents that could change that process. Any changes that make the process more restrictive could increase the time it takes for us to obtain clearances or could make the 510(k) process unavailable for certain of our products.A PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process or is not exempt from premarket review by the FDA. A PMA must be supported by extensive data, including results of preclinical studies and clinical trials, manufacturing and control data and proposed labeling, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. The PMA process is more costly and uncertain than the 510(k) clearance process, and generally takes between one and three years, if not longer. In addition, any modification to a 510(k)-cleared device that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, design or manufacture, requires a new 510(k) clearance or, possibly, a PMA.

Modifications to products that are approved through a PMA application generally need FDA approval. Similarly, some modifications made to products cleared through a 510(k) may require a new 510(k). Our commercial distribution and marketing of any products or product modifications that we develop will be delayed until regulatory clearance or approval is obtained. In addition, the regulatory approval process for our new products or product modifications may take significantly longer than anticipated. The FDA may not require a new product or product modification to go through the lengthy and expensive PMA approval process. The FDA can delay, limit or deny clearance or approval of a device for many reasons, including:

• our inability to demonstrate to the satisfaction of the FDA or the applicable regulatory entity or notified body that our products are safe or effective for their intended uses;

• the disagreement of the FDA or the applicable foreign regulatory body with the design or implementation of our clinical trials or the interpretation of data from pre-clinical studies or clinical trials;

• serious and unexpected adverse device effects experienced by participants in our clinical trials; the data from our pre-clinical studies and clinical trials may be insufficient to support clearance or approval, where required;

• the data from our pre-clinical studies and clinical trials may be insufficient to support clearance or approval, where required;

• our inability to demonstrate that the clinical and other benefits of the device outweigh the risks;

• the manufacturing process or facilities we use may not meet applicable requirements; or

• potential for approval policies or regulations of the FDA or applicable foreign regulatory bodies to change significantly in a manner rendering our clinical data or regulatory filings insufficient for clearance or approval.

Delays in obtaining regulatory clearances and approvals may:

• delay or prevent commercialization of products we develop;

• require us to perform costly tests or studies;

• diminish any competitive advantages that we might otherwise have obtained; and

• reduce our ability to collect revenues.

To date, all of our non-biologic medical device products that have required FDA review and that are being sold in the United States have been cleared through the 510(k) process without any required clinical trials. However, the FDA may require clinical data in support of any future 510(k)s or PMAs that we intend to submit for products in our pipeline. We have limited experience in performing clinical trials that might be required for a 510(k) clearance or PMA approval. If any of our products require clinical trials, the commercialization of such products could be delayed which could have a material adverse effect on our business, financial condition and results of operations.

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

We obtained clearance to offer all of our current non-biologic medical device products through the 510(k) process. The ability to obtain a 510(k) clearance is generally based on the FDA’s agreement that a new product is substantially equivalent to certain already marketed products. Because most 510(k)-cleared products were not the subject of pre-market clinical trials, spine surgeons may be slow to adopt our 510(k)-cleared products, we may not have the comparative data that our competitors have or are generating, and we may be subject to greater regulatory and product liability risks. With the passage of the American Recovery and Reinvestment Act of 2009, funds have been appropriated for the U.S. Department of Health and Human Services’ Healthcare Research and Quality to conduct comparative effectiveness research to determine the effectiveness of different drugs, medical devices, and procedures in treating certain conditions and diseases. Some of our products or procedures performed with our products could become the subject of such research. It is unknown what effect, if any, this research may have on our business. Further, future research or experience may indicate that treatment with our products does not improve patient outcomes or improves patient outcomes less than we initially expect. Such results would reduce demand for our products and this could cause us to withdraw our products from the market. Moreover, if future research or experience indicate that our products cause unexpected or serious complications or other unforeseen negative effects, we could be subject to significant legal liability, significant negative publicity, damage to our reputation and a dramatic reduction in sales of our products, all of which would have a material adverse effect on our business, financial condition and results of operations.

Failure to comply with post-marketing regulatory requirements could subject us to enforcement actions, including substantial penalties, and might require us to recall or withdraw a product from the market.

Once a medical device is cleared or approved, a manufacturer must notify the FDA of any modifications to the device. Any modification to a device that has received FDA clearance that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, design or manufacture, requires 510(k) clearance or possibly PMA approval. The FDA requires every manufacturer to make the determination in the first instance regarding whether a modification to a cleared or approved device necessitates the filing of a new 510(k) premarket notification or PMA supplement. The FDA may review any manufacturer’s decision and can disagree. If the FDA disagrees with any future determination by us that a new 510(k) clearance or PMA approval is not required, we may need to cease marketing or to recall the modified product until and unless we obtain the clearance or approval. In addition, we could also be subject to significant regulatory fines or penalties. Any of these outcomes would harm our business.

The regulations to which we are subject are complex and have become more stringent over time. Regulatory changes could result in restrictions on our ability to continue or expand our operations, higher than anticipated costs, or lower than anticipated sales. Even after we have obtained the proper regulatory clearance or approval to market a product, we have ongoing responsibilities under FDA regulations and applicable foreign laws and regulations. The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. For example, the 21st Century Cures Act, or Cures Act, was signed into law in December 2016. The Cures Act, among other things, is intended to modernize the regulation of devices and spur innovation, but its ultimate implementation is unclear. The FDA, state and foreign regulatory authorities have broad enforcement powers. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may be subject to enforcement action by the FDA, state or foreign regulatory authorities, which may include any of the following sanctions:

• untitled letters or warning letters;

• fines, injunctions, consent decrees and civil penalties;

• recalls, termination of distribution, administrative detention, or seizure of our products;

• customer notifications or repair, replacement or refunds;

• operating restrictions or partial suspension or total shutdown of production;

• delays in or refusal to grant our requests for future 510(k) clearances, PMA approvals or foreign regulatory approvals of new products, new intended uses, or modifications to existing products;

• withdrawals or suspensions of current 510(k) clearances or PMAs or foreign regulatory approvals, resulting in prohibitions on sales of our products;

• FDA refusal to issue certificates to foreign governments needed to export products for sale in other countries; and/ or

• criminal prosecution.

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Any of these sanctions could result in higher than anticipated costs or lower than anticipated sales and have a material adverse effect on our reputation, business, results of operations and financial condition.

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

Our success depends in part on our ability to continually enhance and broaden our product offering in response to changing customer demands, competitive pressures and technologies and our ability to increase our market share. Accordingly, we have pursued and intend to pursue the acquisition of complementary businesses, products or technologies instead of developing them ourselves. We do not know if we will be able to successfully complete any acquisitions, including the pending acquisition of EOS, or whether we will be able to successfully integrate any acquired business, product or technology into our business or retain any key personnel, suppliers or distributors. Our ability to successfully grow through acquisitions depends upon our ability to identify, negotiate, complete and integrate suitable acquisitions and to obtain any necessary financing. These efforts could be expensive and time consuming, disrupt our ongoing business and distract management. If we are unable to integrate any future or recently acquired businesses, products or technologies effectively, our business, financial condition and results of operations will be materially adversely affected. For example, an acquisition could materially impair our operating results by causing us to incur debt or requiring us to amortize significant amounts of expenses, including non-cash acquisition costs, and acquired assets.

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

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

• properly identify and anticipate surgeon and patient needs;

• develop new products or enhancements in a timely manner;

• obtain the necessary regulatory approvals for new products or product enhancements;

• provide adequate training to potential users of new products;

• receive adequate reimbursement approval of third-party payers such as Medicaid, Medicare and private insurers; and

• develop an effective marketing and distribution network.

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

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

Our continued success depends in part upon the continued availability and contributions of our senior management, sales and marketing team and engineering team and the continued participation of our key surgeon advisors. While we have entered into employment agreements with all members of our senior management team, none of these agreements guarantees the services of the individual for a specified period of time. We would be adversely affected if we fail to adequately prepare for future turnover of our senior management team. Our ability to grow or at least maintain our sales levels depends in large part on our ability to attract and retain sales and marketing personnel and for these sales people to maintain their relationships with spine surgeons directly and through our distributors. We rely on our engineering team to research, design and develop potential products for our product pipeline. We also rely on our surgeon advisors to advise us on our products, our product pipeline, long-term scientific planning, research and development and industry trends. We compete for personnel and advisors with other companies and other organizations, many of which are larger and have greater name recognition and financial and other resources than we do. Over the past 3 years, we have implemented numerous changes in our management team, including in the roles of Chief Executive Officer, Chief Financial Officer, Executive Vice President, People & Culture, and General Counsel, which could have an adverse effect on our retention of our employees, advisors and distributors. Changes to our senior management team, sales and marketing team, engineering team and key surgeon advisors, or our inability to attract or retain other qualified personnel or advisors, could have a significant adverse effect on our business, financial conditions and results of operations.

Compliance with laws and regulations and standards for accounting, corporate governance and public disclosure is time consuming and results in significant expenses.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, other SEC regulations, NASDAQ Stock Market listing rules, and new accounting pronouncements create uncertainty and additional complexities for companies such as ours. Our management and other personnel need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations increase our legal and financial compliance costs and make some activities more time consuming and costly.

Security breaches, loss of data and other disruptions could compromise sensitive information related to our business, prevent us from accessing critical information or expose us to liability, which could adversely affect our business and our reputation.

In the ordinary course of our business, we collect and store sensitive data, including legally protected patient health information, credit card information, personally identifiable information about our employees, intellectual property, and proprietary business information. We manage and maintain our applications and data utilizing on-site systems. These applications and data encompass a wide variety of business critical information including research and development information, commercial information and business and financial information. The secure processing, storage, maintenance and transmission of this critical information is vital to our operations and business strategy, and we devote significant resources to protecting such information.

Although we take measures to protect sensitive information from unauthorized access or disclosure, our information technology and infrastructure may be vulnerable to attacks by hackers, viruses, breaches or interruptions due to employee error or malfeasance, terrorist attacks, earthquakes, fire, flood, other natural disasters, power loss, computer systems failure, data network failure, Internet failure, or lapses in compliance with privacy and security mandates. Any such attack, virus, breach or interruption could compromise our networks and the information stored there could be accessed by unauthorized parties, publicly disclosed, lost or stolen. We have measures in place that are designed to detect and respond to such security incidents and breaches of privacy and security mandates. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, such as HIPAA, government enforcement actions and regulatory penalties. Unauthorized access, loss or dissemination could also interrupt our operations, including our ability to bill our customers, provide customer support services, conduct research and development activities, process and prepare company financial information, manage various general and administrative aspects of our business and damage our reputation, any of which could adversely affect our business.

Nearly all of our operations are currently conducted in locations that may be at risk of damage from fire, earthquakes or other natural disasters.

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

Public health crises, political crises, and other catastrophic events or other events outside of our control may impact our business.

A natural disaster (such as tsunami, power shortage, or flood), public health crisis (such as a pandemic or epidemic), political crisis (such as terrorism, war, political instability or other conflict), or other events outside of our control that may occur and may adversely impact our business and operating results. Moreover, these types of events could negatively impact surgeon or patient spending in the impacted region(s), which could adversely impact our operating results. We monitor such events and take actions that we deem reasonable given the circumstances. In the future other types of crises, may create an environment of business uncertainty around the world, which may hinder sales and/or supplies of our products nationally and internationally.

COVID-19 could adversely impact our business.

      In December 2019, a novel strain of coronavirus, COVID-19, was reported to have surfaced in Wuhan, China. Since then, Covid-19 has spread to multiple countries, including the United States, and several European countries. If COVID-19 continues to spread in the United States, we expect to experience disruptions that could adversely impact our business. The spread of COVID-19 has disrupted the United States’ healthcare and healthcare regulatory systems which could divert healthcare resources away from, or materially delay FDA approval with respect to our products. It is unknown how long these disruptions could continue, were they to occur. Additionally, COVID-19’s spread, which has had a broad global impact, including restrictions on travel and quarantine polices put into place by businesses and governments, may materially affect us economically by causing disruptions in our supply chain or distribution channels, or, by causing delays or cancellations of elective surgical procedures due to lack of hospital resources or staffing. As the global outbreak of COVID-19 continues to rapidly evolve, the extent to which COVID-19 may impact our business will depend on future developments, which are highly uncertain and cannot be predicted.

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

As a holding company with no business operations, Alphatec Holdings’ material assets consist only of the common stock of its subsidiaries, dividends and other payments received from time to time from its subsidiaries, and the proceeds raised from the sale of debt and equity securities. Alphatec Holdings’ subsidiaries are legally distinct from Alphatec Holdings and have no obligation, contingent or otherwise, to make funds available to Alphatec Holdings. Alphatec Holdings will have to rely upon dividends and other payments from its subsidiaries to generate the funds necessary to fulfill its cash obligations. Alphatec Holdings may not be able to access cash generated by its subsidiaries in order to fulfill cash commitments. The ability of Alphatec Spine or SafeOp Surgical to make dividend and other payments to Alphatec Holdings is subject to the availability of funds after taking into account its subsidiaries’ funding requirements, the terms of its subsidiaries’ indebtedness and applicable state laws.

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

We will continue to pursue growth in the number of spine surgeons using our products, the types of products we offer and the geographic regions where our products are sold. Such anticipated growth has placed and will continue to place significant demands on our managerial, operational and financial resources and systems. Future growth would impose significant added responsibilities on members of management, including the need to identify, recruit, maintain, motivate and integrate additional personnel. Also, our management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these anticipated growth activities. We are currently focused on increasing the size and effectiveness of our sales force and distribution network, marketing activities, research and development efforts, inventory management systems, management team and corporate infrastructure. If we do not manage our anticipated growth effectively, the quality of our products, our relationships with physicians, distributors and hospitals, and our reputation could suffer, which would have a significant adverse effect on our business, financial condition and results of operations. We must attract and retain qualified personnel and third-party distributors and manage and train them effectively. Personnel qualified in the design, development, production and marketing of our products are difficult to find and hire, and enhancements of information technology systems to support our growth are difficult to implement. We will also need to carefully monitor and manage our surgeon services, our third-party manufacturing resources, quality assurance and efficiency, and the quality assurance and efficiency of our suppliers and distributors. This managing, training and monitoring will require allocation of valuable management resources and significant expense. If our management is unable to effectively manage our expected growth, our expenses may increase more than expected, our ability to generate and/or grow revenues could be reduced and we may not be able to implement our business strategy.

Risks Relating to the Pending Acquisition of EOS Imaging

The proposed acquisition of EOS may not be consummated on the current terms or at all.

On February 28, 2020, we entered into a tender offer agreement to acquire EOS by means of a public tender offer, or the Offer, pursuant to which we have agreed to make an offer to purchase all of the issued and outstanding ordinary shares, or the Shares, and outstanding convertible bonds, or OCEANEs, of EOS, for a total purchase price of up to $122.0 million, or the Acquisition. The Offer will need to be filed with and cleared by the Autorité des marches financier, or the AMF, which filing is expected to occur in late April 2020, prior to the commencement of the Offer. Our obligation to file the Offer is subject to a number of conditions, including, without limitation, obtaining regulatory clearance from the AMF and certain French foreign investment clearances. Additionally, our obligation to purchase Shares and OCEANEs validly tendered and not properly withdrawn pursuant to the Offer is subject to the satisfaction or waiver of the condition that a number of Shares and OCEANEs have been validly tendered that would allow us to acquire at least two-thirds of the share capital and voting rights of EOS on a fully diluted basis at the end of the acceptance period of the Offer.

Although we expect to complete the Acquisition in the third quarter of 2020, there can be no assurance as to the exact timing of completion of the Acquisition or that the Acquisition will be completed at all.

Termination of the Tender Offer Agreement or failure to otherwise complete the Acquisition could negatively impact our business and financial results.

Termination of the Tender Offer Agreement or any failure to otherwise complete the Acquisition may result in various consequences, including the following:

• our business may have been adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the Acquisition, without realizing any of the anticipated benefits of completing the Acquisition;

• our management has and will continue to expend a significant amount of capital and time and resources on the Acquisition, and a failure to consummate the Acquisition as currently contemplated could have a material adverse effect on our business and results of operations;

• the market price of our common stock may decline to the extent that the market price prior to the termination of the tender offer agreement reflects a market assumption that the Acquisition will be completed;  

• we may be required, under certain circumstances, to pay EOS a reverse break-up fee of up to €2.5 million  under the tender offer agreement, which could adversely affect our financial condition and liquidity; and

• negative reactions from the financial markets may occur if the anticipated return on our investment in EOS is not realized.  

If the Acquisition is not consummated, we cannot assure you that the risks described above will not negatively impact our business or financial results.

While the Acquisition is pending, we and EOS will be subject to business uncertainties that could adversely affect our respective businesses.

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Our success following the announcement of the Acquisition will depend in part upon the ability of us and EOS to maintain our respective business relationships. Uncertainty about the effect of the Acquisition on customers, suppliers, employees and other constituencies may have a material adverse effect on us and EOS. In connection with the pendency of the Acquisition, some customers, suppliers and other persons with whom we have a business relationship may delay or defer certain business decisions or might decide to seek to terminate, change or renegotiate their relationships with us, as the case may be, as a result of the Acquisition, which could negatively affect our revenues, earnings and cash flows, as well as the market price of our common stock, regardless of whether the Acquisition is completed. Such risks may be exacerbated by delays or other adverse developments with respect to the completion of the Acquisition.

EOS may have liabilities that are not known to us.

EOS may have liabilities that we failed, or were unable, to discover in the course of performing our due diligence investigations. Following the completion of the Acquisition, we may learn additional information about EOS that materially adversely affects us, such as unknown or contingent liabilities and liabilities related to compliance with applicable laws. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our business, financial condition and results of operations.

We may be unable to integrate EOS  successfully and realize the anticipated benefits of the Acquisition.

If the Acquisition is completed, the successful integration of the EOS business and operations and our ability to realize the expected synergies and benefits of the Acquisition are subject to a number of risks and uncertainties, many of which are outside of our control. We will also be required to devote significant management attention and resources to integrating business practices, cultures and operations of each business. The risks and uncertainties relating to integrating the two businesses and realizing the anticipated cost synergies include, among other things:

• difficulties in integrating operations, technologies, services and personnel of EOS;

• the inability to resolve potential conflicts that may arise relating to customer, supplier and other important relationships of our business and the EOS business;

• diversion of financial and management resources from existing operations;

• potential loss of key employees;

• integrating personnel with diverse business and cultural backgrounds;

• preserving the development, distribution, marketing and other important relationships of both companies;

• assumption of liabilities of EOS; and

• inability to generate sufficient revenue and cost savings to offset acquisition costs.

We will incur substantial expenses to consummate the proposed Acquisition but may not realize the anticipated cost synergies and other benefits to the extent expected, on the timeline expected, or at all. In addition, even if we are able to integrate the EOS business successfully, the anticipated benefits of the Acquisition may not be realized fully, or at all, or may take longer to realize than expected.

The issuance of our common stock in the Offer to certain holders of EOS Shares and OCEANEs will be dilutive to our shareholders and could depress the market price of our common stock.

The Offer will consist of a cash tender offer price of €2.80 (or approximately $3.08) per Share and €7.01 (or approximately $7.71) per OCEANE, respectively, or the Cash Offer, or at the option of EOS shareholders, 0.50 shares of our common stock per Share, or the Exchange Offer. Following the closing of the Acquisition, former EOS securityholders who elect to participate in the Exchange Offer will own shares of our common stock. The market price of shares of our common stock may drop as a result of the resale of the shares issued in the Exchange Offer.

Our debt following the completion of the Acquisition will be significant and could adversely affect our business and our ability to meet our obligations.

In connection with the Acquisition, we entered into a commitment letter, or the Commitment Letter, with Perceptive Credit Holdings III, LP, or Perceptive, pursuant to which, subject to the terms and conditions set forth therein, Perceptive has committed to provide $130 million in secured debt financing, up to $60 million of which will be made available to retire our existing credit facilities with MidCap Funding IV, LLC and Squadron Medical Finance Solutions, LLC. The remaining commitment by Perceptive to provide an additional $70 million (which may be increased to up to $100 million at our request if agreed by Perceptive in its sole discretion) in secured debt financing will be made available to fund the Cash Offer portion of the Offer, provided we may elect not to incur all or a portion of the Offer portion of such amount to the extent it is unnecessary to fund such Cash Offer amount. In the event we elect not to

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incur the Offer portion of Perceptive’s commitment, Perceptive will make available up to $15 million in secured debt financing to be used for our general corporate and working capital needs. The funding of each of the debt facilities provided for in the Commitment Letter is subject to the satisfaction of customary conditions for facilities of such type that are set forth therein, including entry into definitive documentation reflecting the terms of the Commitment Letter and no material adverse effect with respect to EOS. This debt and other cash needs could have important consequences to us, including:

• requiring a substantial portion of our cash flows from operations to make payments on this debt, thereby limiting the cash we have available to fund future growth opportunities, capital expenditures and acquisitions;

• restrictive covenants in our debt arrangements, which could limit our operations and borrowing;

• increasing our vulnerability to general adverse economic and industry conditions and limiting our flexibility in planning for, or reacting to, changes in our business and industry, due to the need to use our cash to service our outstanding debt;

• placing us at a competitive disadvantage relative to our competitors that are not as highly leveraged with debt and that may therefore be more able to invest in their business or use their available cash to pursue other opportunities, including acquisitions; and

• limiting our ability to borrow additional funds as needed or take advantage of business opportunities as they arise.

In addition, our actual cash requirements in the future may be greater than expected. Our cash flow from operations may not be sufficient to repay all of our outstanding debt as it becomes due, and we may not be able to borrow money, sell assets or otherwise raise funds on acceptable terms, or at all, to refinance our debt.

Risks Related to Our Financial Results, Credit and Certain Financial Obligations and Need for Financing

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

At December 31, 2019, our principal sources of liquidity consisted of cash of $47.1 million, accounts receivable, net of $16.2 million and available borrowings under our revolving credit facility. We believe that our current sources of liquidity will be sufficient to fund our planned expenditures and meet our obligations for at least 12 months.

We will seek additional funds from public and private equity or debt financings, borrowings under new debt facilities or other sources to fund our projected operating requirements. Our capital requirements will depend on many factors, including:

• the payments due in connection with the settlement agreement enter into with Orthotec LLC;

• the revenues generated by sales of our products;

• the costs associated with expanding our sales and marketing efforts;

• the expenses that we incur from the manufacture of our products by third parties and that we incur from selling our products;

• the costs of developing new products or technologies;

• the cost of obtaining and maintaining FDA or other regulatory approval or clearance for our products and products in development;

• the cost of filing and prosecuting patent applications and defending and enforcing our patent and other intellectual property rights;

• the number and timing of acquisitions and other strategic transactions;

• the costs and any payments we may make related to our pending litigation matters;

• the costs associated with increased capital expenditures; and

• the costs associated with our employee retention programs and related benefits.

As a result of these factors, we may need to raise additional funds and such funds may not be available on favorable terms, if at all. In addition, rules and regulations of the SEC may restrict our ability to conduct certain types of financing activities, or may affect the timing of and the amounts we can raise by undertaking such activities. For example, under current SEC regulations, at any time during which the aggregate market value of our common stock held by non-affiliates, or our public float, is less than $75 million, the amount that we can raise through primary public offerings of securities in any twelve-month period using one or more registration statements on Form S-3 will be limited to an aggregate of one-third of our public float.

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

If we default on our obligations to make settlement payments to Orthotec LLC, the amounts due under the settlement agreements accelerate and become due and payable.

Any default of our payment obligation under the settlement agreements we entered into with Orthotec LLC, or Orthotec, would give Orthotec the right to declare all of the future payments to be immediately payable. As of December 31, 2019, the outstanding amount to be paid to Orthotec through January 2024 including future interest was $17.2 million. If acceleration of payments occurs, our business, financial condition and results of operations could be materially and adversely affected.

We have a history of net losses, we expect to continue to incur net losses in the near future, and we may not achieve or maintain profitability.

We have typically incurred net losses from our continuing operations since our inception. As of December 31, 2019, we had an accumulated deficit of $558.9 million. We have incurred significant net losses since inception and have relied on our ability to fund our operations through revenues from the sale of our products, equity financings and debt financings. As we have incurred losses, 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. We may seek additional funds from public and private equity or debt financings, borrowings under new debt facilities or other sources to fund our projected operating requirements. However, we may not be able to obtain further financing on reasonable terms or at all. If we are unable to raise additional funds on a timely basis, or at all, we would be materially adversely affected

We may be unable to comply with the covenants of our credit facilities.

We must comply with certain affirmative and negative covenants, including financial covenants and affirmative and negative covenants under our November 6, 2018, $45.0 million term loan, or the Term Loan, with Squadron Medical Finance Solutions, LLC, or Squadron, and our Amended Credit Facility with MidCap Funding IV, LLC, or MidCap, providing for a revolving credit commitment of up to $22.5 million, or the Amended Credit Facility. We may not be able to satisfy all such financial or other covenants of the Term Loan or the Amended Credit Facility, or obtain any required waiver or amendment, in which event of default the lender could refuse to make further extensions of credit to us and Squadron/MidCap could require all amounts borrowed under the Term Loan and/or the Amended Credit Facility together with accrued interest and other fees, to be immediately due and payable. In addition to allowing the lender to accelerate the loan, several events of default under the Term Loan and the Amended Credit Facility, such as our failure to make required payments of principal and interest and the occurrence of certain bankruptcy or insolvency events, could require us to pay interest at a rate which is up to five percentage points higher than the interest rate effective immediately before the event of default. An event of default under the Term Loan or the Amended Credit Facility could have a material adverse effect on us. Upon an event of default, if the lender under the Term Loan or the Amended Credit Facility accelerate the repayment of all amounts borrowed, together with accrued interest and other fees, or if the lender selects to charge us additional interest, we cannot provide assurance that we will have sufficient cash available to repay the amounts due, and we may be forced to seek to amend the terms of the Term Loan or the Amended Credit Facility or obtain alternative financing, which may not be available to us on acceptable terms, if at all.

An event of default under the Term Loan or the Amended Credit Facility could have a material adverse effect on us. Upon an event of default, if the lender under the Term Loan or the Amended Credit Facility accelerates the repayment of all amounts borrowed, together with accrued interest and other fees, or if the lender selects to charge us additional interest, we may not have sufficient capital available to repay the amounts due, and we may be forced to seek to amend the terms of the Term Loan or the Amended Credit Facility or obtain alternative financing, which may not be available to us on acceptable terms, if at all.

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In addition, if we fail to pay amounts when due under the Term Loan or the Amended Credit Facility or upon the occurrence of another event of default, the lender under the Term Loan or the Amended Credit Facility could proceed against the collateral granted to it pursuant to the agreements governing the Term Loan or the Amended Credit Facility. We have granted to the lender under the Term Loan a first priority security interest in substantially all of our assets, other than all accounts receivable, and all securities evidencing our interests in our subsidiaries, as collateral under the agreement governing the Term Loan. We have granted to the lender under the Amended Credit Facility a first priority security interest in our accounts receivable and a second priority lien on substantially all of our other assets, as collateral under the agreement governing Amended Credit Facility. If either lender proceeds against the collateral, such assets would no longer be available for use in our business, which would have a significant adverse effect our business, financial condition and results of operations.

Our quarterly financial results could fluctuate significantly.

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

• acceptance of our products by spine surgeons, patients, hospitals and third-party payers;

• demand and pricing of our products;

• the mix of our products sold, because profit margins differ among our products;

• timing of new product offerings, acquisitions, licenses or other significant events by us or our competitors;

• our ability to grow and maintain a productive sales and marketing organization and independent distributor network;

• regulatory approvals and legislative changes affecting the products we may offer or those of our competitors;

• the effect of competing technological and market developments;

• levels of third-party reimbursement for our products;

• interruption in the manufacturing or distribution of our products;

• our ability to produce or obtain products of satisfactory quality or in sufficient quantities to meet demand; and

• changes in our ability to obtain FDA, state and international approval or clearance for our products.

In addition until we have a larger base of spine surgeons using our products, occasional fluctuations in the use of our products by individual surgeons or small groups of surgeons will have a proportionately larger impact on our revenues than for companies with a larger customer base.

Many of the products we may seek to develop and introduce in the future will require FDA approval or clearance. We cannot begin to commercialize any such products in the United States without FDA approval or clearance. As a result, it will be difficult for us to forecast demand for these products with any degree of certainty. Our revenue may not increase or be sustained in future periods or that we will be profitable in any future period. Any shortfalls in revenue or earnings from levels expected by our stockholders or by securities or industry analysts could have an immediate and significant adverse effect on the trading price of our common stock in any given period.

Risks Related to Our Intellectual Property; Regulatory Penalties and Litigation

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

Our success depends significantly on our ability to protect our proprietary rights of the technologies used in our products. We rely on patent protection, as well as a combination of copyright, trade secret and trademark laws, and nondisclosure, confidentiality and other contractual restrictions to protect our proprietary technology. However, these legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage. For example, our pending patent applications may not result in the issuance of patents to us. The U.S. Patent and Trademark Office, or PTO, may deny or require significant narrowing of claims in our pending patent applications, and patents issued as a result of the pending patent applications, if any, may not provide us with significant commercial protection or be issued in a form that is advantageous to us. We could also incur substantial costs in proceedings before the PTO. These proceedings could result in adverse decisions as to the priority of our inventions and the narrowing or invalidation of claims in issued patents. Our issued patents and those that may be issued in the future could subsequently be successfully challenged by others and invalidated or rendered unenforceable, which could limit our ability to stop competitors from marketing and selling related products. In addition, our pending patent applications include claims to aspects of our products and procedures that are not currently protected by issued patents.

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Both the patent application process and the process of managing patent disputes can be time consuming and expensive. Competitors may be able to design around our patents or develop products that provide outcomes that are comparable to our products but fall outside of the scope of our patent protection. Although we have entered into confidentiality agreements and intellectual property assignment agreements with certain of our employees, consultants and advisors as one of the ways we seek to protect our intellectual property and other proprietary technology, such agreements may not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements. In the event a competitor infringes upon one of our patents or other intellectual property rights, enforcing those patents and rights may be difficult and time consuming. Even if successful, litigation to defend our patents against challenges or to enforce our intellectual property rights could be expensive and time consuming and could divert management’s attention from managing our business. Moreover, we may not have sufficient resources to defend our patents against challenges or to enforce our intellectual property rights.

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

The medical device industry is characterized by extensive litigation and administrative proceedings over patent and other intellectual property rights. Determining whether a product infringes a patent involves complex legal and factual issues, the determination of which is often uncertain. Our competitors may assert that our products, the components of those products, the methods of using those products, or the methods we employ in manufacturing or processing those products are covered by patents held by them. In addition, they may claim that their patents have priority over ours because their patents were filed first. Because patent applications can take many years to issue, there may be applications now pending of which we are unaware, which may later result in issued patents that our products may infringe. There could also be existing patents that one or more components of our products may be inadvertently infringing, of which we are unaware. As the number of participants in the market for spine disorder devices and treatments increases, the possibility of patent infringement claims against us also increases.

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

In addition, in order to further our product development efforts, from time to time we enter into agreements with spine surgeons to develop new products. As consideration for product development activities rendered pursuant to these agreements, in certain instances we have agreed to pay such surgeons royalties on products developed by cooperative involvement between us and such surgeons. There can be no assurance that surgeons with whom we have entered into such an arrangement will not claim to be entitled to a royalty even if we do not believe that such products were developed by cooperative involvement between us and such surgeons. Any such claim against us, even those without merit, may cause us to incur substantial costs, and could place a significant strain on our financial resources, divert the attention of management from our core business and harm our reputation.

We are currently involved in a patent litigation action involving NuVasive, Inc. and, if we do not prevail in this action, we could be liable for past damages and might be prevented from making, using, selling, offering to sell, importing or exporting certain of our products.

On February 15, 2018, NuVasive filed suit against us in the U.S. District Court for the Southern District of California, alleging that certain of our products infringe, or contribute to the infringement of, United States patents owned by NuVasive. NuVasive is a large, publicly-traded corporation with significantly greater financial resources than us.

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Intellectual property litigation is expensive, complex and lengthy and its outcome is difficult to predict. We may also be subject to negative publicity due to the litigation. Pending or future patent litigation against us or any strategic partners or licensees may force us or any strategic partners or licensees to stop or delay developing, manufacturing or selling potential products that are claimed to infringe a third party’s intellectual property, unless that party grants us or any strategic partners or licensees rights to use its intellectual property, and may significantly divert the attention of our technical and management personnel. In the event that our right to market any of our products is successfully challenged, and if we fail to obtain a required license or are unable to design around a patent, our business, financial condition or results of operations could be materially adversely affected. In such cases, we may be required to obtain licenses to patents or proprietary rights of others in order to continue to commercialize our products. However, we may not be able to obtain any licenses required under any patents or proprietary rights of third parties on acceptable terms, or at all and any licenses may require substantial royalties or other payments by us. Even if any strategic partners, licensees or we were able to obtain rights to the third party’s intellectual property, these rights may be non-exclusive, thereby giving our competitors access to the same intellectual property. Furthermore, if we are found to infringe patent claims of a third party, we may, among other things, be required to pay damages, including up to treble damages and attorney’s fees and costs, which may be substantial.

An unfavorable outcome for us in this patent litigation could significantly harm our business if such outcome makes us unable to commercialize some of our current or potential products or cease some of our business operations. In addition, costs of defense and any damages resulting from the litigation may materially adversely affect our business and financial results. The litigation may also harm our relationships with existing customers and subject us to negative publicity, each of which could harm our business and financial results.

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

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

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

Our biologics products may expose us to additional potential product liability claims. The development of biologics products entails a risk of additional product liability claims because of the risk of transmitting disease to human recipients, and substantial product liability claims may be asserted against us. In addition, successful product liability claims made against one of our competitors could cause claims to be made against us or expose us to a perception that we are vulnerable to similar claims. Even a meritless or unsuccessful product liability claim could harm our reputation in the industry, lead to significant legal fees and result in the diversion of management’s attention from managing our business.

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

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

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

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

Risks Related to Our Common Stock

If we fail to continue to meet all applicable NASDAQ Global Select Market requirements and our common stock is delisted, the delisting could adversely affect the market liquidity of our common stock, impair the value of your investment and harm our business.

Our common stock is currently listed on the NASDAQ Global Select Market. In order to maintain that listing, we must satisfy minimum financial and other requirements. Although we are currently in compliance with applicable NASDAQ Global Select Market requirements, if we fail to continue to meet all such requirements in the future and NASDAQ determines to delist our common stock, the delisting could substantially decrease trading in our common stock and adversely affect the market liquidity of our common stock; adversely affect our ability to obtain financing on acceptable terms, if at all, to continue our operations; and may result in the potential loss of confidence by investors, suppliers, customers and employees and fewer business development opportunities. Additionally, the market price of our common stock may decline further and stockholders may lose some or all of their investment.

Our stock price may fluctuate significantly, particularly if holders of substantial amounts of our stock attempt to sell, and holders may have difficulty selling their shares based on current trading volumes of our stock. In addition, numerous other factors could result in substantial volatility in the trading price of our stock.

Our common stock is currently listed on the NASDAQ Global Select Market. In order to maintain that listing, we must satisfy minimum financial and other requirements.  Although we are currently in compliance with applicable NASDAQ Global Select Market requirements,  if we fail to continue to meet all such requirements in the future and NASDAQ determines to delist our common stock, the delisting could substantially decrease trading in our common stock and adversely affect the market liquidity of our common stock; adversely affect our ability to obtain financing on acceptable terms, if at all, to continue our operations; and may result in the potential loss of confidence by investors, suppliers, customers and employees and fewer business development opportunities. Additionally, the market price of our common stock may decline further and stockholders may lose some or all of their investment.

The market price of our common stock is likely to be highly volatile and may fluctuate substantially due to many factors, including those described elsewhere in this “Risk Factors” section and the following:

• volume and timing of orders for our products;

• quarterly variations in our or our competitors’ results of operations;

• our announcement or our competitors’ announcements regarding new products, product enhancements, significant contracts, number of distributors, number of hospitals and spine surgeons using products, acquisitions, and collaborative or strategic investments;

• announcements of technological or medical innovations for the treatment of spine pathology;

• changes in earnings estimates or recommendations by securities analysts;

• our ability to develop, obtain regulatory clearance or approval for, and market new and enhanced products on a timely basis;

• changes in healthcare policy in the United States;

• product liability claims or other litigation involving us;

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• sales of large blocks of our common stock, including sales by our executive officers, directors and significant stockholders;

• changes in governmental regulations or in the status of our regulatory approvals, clearances or applications;

• disputes or other developments with respect to intellectual property rights;

• changes in the availability of third-party reimbursement in the United States;

• changes in accounting principles; and

• general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors.

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

The stock market in general, The NASDAQ Global Select Market and the market for medical device companies in particular, has experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Further, the market prices of securities of medical device companies have been particularly volatile. In the past, following periods of volatility in the market price of a particular company’s securities, securities class action litigation has often been brought against that company. We may become involved in this type of litigation in the future. Litigation is often expensive and diverts management’s attention and resources, which could materially harm our financial condition, results of operations and business.

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

Securities analysts may not provide research coverage of our common stock. If securities analysts do not cover our common stock, the lack of research coverage may cause the market price of our common stock to decline. The trading market for our common stock may be affected in part by the research and reports that industry or financial analysts publish about our business. If one or more of the analysts who elects to cover us downgrades our stock, our stock price would likely decline rapidly. If one or more of these analysts ceases coverage of us, we could lose visibility in the market, which in turn could cause our stock price to decline. In addition, it may be difficult for companies such as ours, with smaller market capitalizations, to attract independent financial analysts that will cover our common stock. This could have a negative effect on the market price of our stock.

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

Based on shares outstanding at March 9, 2020, our executive officers, directors and stockholders holding more than 5% of our outstanding common stock and their affiliates, in the aggregate, beneficially own approximately 39% of our outstanding common stock. As a result, these persons will have the ability to impact significantly the outcome of all matters requiring stockholder approval, including the election and removal of directors and any merger, consolidation, or sale of all or substantially all of our assets.

This concentration of ownership may harm the market price of our common stock by, among other things:

• delaying, deferring or preventing our change in control;

• impeding a merger, consolidation, takeover or other business combination involving us;

• causing us to enter into transactions or agreements that are not in the best interests of all of our stockholders; or

• reducing our public float held by non-affiliates.

Anti- takeover provisions in our organizational documents and change of control provisions in some of our employment agreements and agreements with distributors, and in some of our outstanding debt agreements, as well as the terms of our redeemable preferred stock, may discourage or prevent a change of control, even if an acquisition would be beneficial to our stockholders, which could affect our stock price adversely.

Certain provisions of our amended and restated certificate of incorporation and restated by-laws could discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which our stockholders might otherwise receive a premium for their shares. These provisions also could limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. Stockholders

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who wish to participate in these transactions may not have the opportunity to do so. Furthermore, these provisions could prevent or frustrate attempts by our stockholders to replace or remove our management. These provisions:

• allow the authorized number of directors to be changed only by resolution of our Board of Directors;

• allow vacancies on our Board of Directors to be filled only by resolution of our Board of Directors;

• authorize our Board of Directors to issue, without stockholder approval, blank check preferred stock that, if issued, could operate as a “poison pill” to dilute the stock ownership of a potential hostile acquirer to prevent an acquisition that is not approved by our Board of Directors;

• require that stockholder actions must be effected at a duly called stockholder meeting and prohibit stockholder action by written consent;

• establish advance notice requirements for stockholder nominations to our Board of Directors and for stockholder proposals that can be acted on at stockholder meetings; and

• limit who may call stockholder meetings.

These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our Board of Directors, which is responsible for appointing the members of our management. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us.

Some of our employment agreements and all of our restricted stock agreements, incentive stock option agreements, performance-based stock units and restricted common stock provide for accelerated vesting of benefits, including full vesting of restricted stock and options, upon a change of control. A limited number of our agreements with our distributors include a provision that extends the term of the distribution agreement upon a change in control and makes it more difficult for us or our successor to terminate the agreement. These provisions may discourage or prevent a change of control.

In addition, in the event of a change of control, we would be required to redeem all outstanding shares of our redeemable preferred stock for an aggregate of $29.9 million, at the price of $9.00 per share. Further, our amended and restated certificate of incorporation permits us to issue additional shares of preferred stock. The terms of our redeemable preferred stock or any new preferred stock we may issue could have the effect of delaying, deterring or preventing a change in control.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or Section 382, if a corporation undergoes an “ownership change,” generally defined as a cumulative change in its equity ownership by “5-percent shareholders” of greater than 50 percentage points (by value) over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards, or NOLs, and certain other pre-change tax attributes (such as research tax credits) to offset its post-change taxable income and taxes, as applicable, may be limited. We have completed multiple rounds of financing and entered into transactions which may have resulted in an ownership change or could result in an ownership change in the future. We have not completed an analysis of our equity shifts pursuant to Section 382. Therefore, it is possible that we have experienced an ownership change pursuant to Section 382. We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership. As a result, our ability to use our NOLs and research and development credit carryforwards to offset our U.S. federal taxable income and taxes, as applicable, may be subject to limitations, which could potentially result in increased future tax liability to us. In addition, at the state level, similar rules may apply and there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.

We could be subject to changes in our tax rates, new tax legislation or additional tax liabilities.

The U.S. government has recently enacted comprehensive tax legislation that includes significant changes to the taxation of business entities. These changes include, among others, (i) a permanent reduction to the corporate income tax rate, (ii) a partial limitation on the deductibility of business interest expense, (iii) a shift of the U.S. taxation of multinational corporations from a tax on worldwide income to a territorial system (along with certain rules designed to prevent erosion of the U.S. income tax base) and (iv) a one-time tax on accumulated offshore earnings held in cash and illiquid assets, with the latter taxed at a lower rate. The overall impact of this tax reform is uncertain, and our business and financial condition could be adversely affected. In addition, it is uncertain if and to what extent various states will conform to the newly enacted federal tax law.

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Our tax returns and other tax matters also are subject to examination by the U.S. Internal Revenue Service and other tax authorities and governmental bodies. We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our provision for taxes. We cannot guarantee the outcome of these examinations. If our effective tax rates were to increase, particularly in the United States, or if the ultimate determination of our taxes owed is for an amount in excess of amounts previously accrued, our financial condition, operating results and cash flows could be adversely affected.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K and, in particular, the description of our "Business" set forth in Item 1, the "Risk Factors" set forth in this Item 1A and our "Management’s Discussion and Analysis of Financial Condition and Results of Operations" set forth in Item 7 contain or incorporate 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, as amended, or the Exchange Act, including statements regarding:

• our estimates regarding anticipated operating losses, future revenue, expenses, capital requirements, uses and sources of cash and liquidity, including our anticipated revenue growth and cost savings;

• our ability to meet the financial covenants under our credit facilities;

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

• our pending Acquisition of EOS, including our plans to commence the Offer, the timing and likelihood of the closing of the Acquisition, the expected consideration to be paid in connection with the Offer, our plans to obtain financing pursuant to the Commitment Letter and the uses therefrom and entry into definitive documentation reflecting the terms of the Commitment Letter, and our ability to successfully integrate the EOS business following the completion of the Acquisition;

• our not realizing the full economic benefit from the sale of the international business, 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;

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

• our beliefs about the features, strengths and benefits of our products;

• our ability to continue to enhance our product offerings, outsource our manufacturing operations and expand the commercialization of our products, and the effect of our strategy;

• our expectations about the timing, costs and benefits of the restructuring and outsourcing of our manufacturing operations;

• our beliefs about the ability of our supplier relationships and quality processes to fulfill our production requirements;

• our ability to successfully integrate, and realize benefits from licenses and acquisitions;

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

• our ability to enhance our U.S. distribution network;

• our ability to increase the use and promotion of our products by training and educating surgeons and our sales network;

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

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

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

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

• the effects of the escalating cost of medical products and services and the effects of market demand, government regulation, third-party reimbursement policies and societal pressures on the healthcare industry and our business;

• our ability to meet or exceed the industry standard in clinical and legal compliance and corporate governance programs;

• our beliefs about our competitors and the principal competitive factors in our market and the effect of non-operative treatments on demand for our products;

• potential liability resulting from litigation;

• our beliefs about our employee relations;

• potential liability resulting from a governmental review of our business practices;

• our beliefs about the usefulness of the non-GAAP financial measures included in this Annual Report on Form 10-K;

• our beliefs with respect to our critical accounting policies and the reasonableness of our estimates and assumptions; and

• other factors discussed elsewhere in this Annual Report on Form 10-K or any document incorporated by reference herein or therein.

Any or all of our forward-looking statements in this Annual Report may turn out to be wrong. They can be affected by inaccurate assumptions by known or unknown risks and uncertainties. Many factors mentioned in our discussion in this Annual Report on Form 10-K 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 Item 1A of this Annual Report. 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,” “may,” “could,” “would,” “seek,”  “intend,” 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 “Item 1A Risk Factors.” In addition, the forward-looking statements contained herein represent our estimate only as of the date of this filing and should not be relied upon as representing our estimate as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements, except as required by applicable law.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our corporate office is located in Carlsbad, California. The table below provides selected information regarding our current material operating location.

Location	Use	Approximate Square Footage		Lease Expiration
Carlsbad, California	Corporate headquarters and product design		76,693	July 2021
Carlsbad, California	Future corporate headquarters		121,541	November 2030

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Item 3. Legal Proceedings

We are and may become involved in various legal proceedings arising from our business activities. While the Company has no material accruals for pending litigation or claims for which accrual amounts are not disclosed in the Company’s consolidated financial statements, 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.

Refer to Note 6 of our Notes to Consolidated Financial Statementsincluded elsewhere in this Annual Report on Form 10-K for further information regarding the NuVasive, Inc. litigation.

Item 4. Mine Safety Disclosures

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock is traded on The NASDAQ Global Select Market under the symbol “ATEC.”

Stockholders

As of March 9, 2020, there were approximately 731 holders of record of an aggregate 62,994,221outstanding shares of our common stock.

Dividend Policy

We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future.  In addition, our ability to pay dividends is currently restricted by the terms of the Amended Credit Facility with MidCap and the Term Loan with Squadron.

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 Plans and are available for future awards under the terms of the Stock Plans. There were no shares of common stock repurchased during the years ended December 31, 2019 or 2018.

Item 6. Selected Financial Data

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this report include the identification of certain trends and other statements that may predict or anticipate future business or financial results that are subject to important factors that could cause our actual results to differ materially from those indicated. See “Item 1A Risk Factors” included elsewhere in this Annual Report on Form 10-K.

Overview

We are a medical technology company focused on the design, development, and advancement of technology for better surgical treatment of spinal disorders. We are dedicated to revolutionizing the approach to spine surgery. We have a broad product portfolio designed to address the majority of U.S. market for fusion-based spinal disorder solutions. We intend to drive growth by exploiting our collective spine experience and investing in the research and development to continually differentiate our solutions and improve spine surgery. We believe our future success will be fueled by introducing market-shifting innovation to the spine market, and that we are well-positioned to capitalize on current spine market dynamics.

We market and sell our products in the U.S. through a network of independent distributors and direct sales representatives. An objective of our leadership team is to deliver increasingly consistent, predictable growth. To accomplish this, we have partnered more closely with new and existing distributors to create a more dedicated and loyal sales channel for the future. We have added, and intend to continue to add, new high-quality dedicated distributors to expand future growth. We believe this will allow us to reach an untapped market of surgeons, hospitals, and national accounts across the U.S., as well as better penetrate existing accounts and territories.

We have continued to make progress in the transition of our sales channel since early 2017, driving the percent of sales contributed by our strategic distribution channel from approximately 80% for the year ended December 31, 2018 to 88% for the year ended December 31, 2019.  Going forward, we intend to continue to relentlessly drive toward a fully exclusive network of independent and direct sales agents.  Recent consolidation in the industry is facilitating the process, as large, seasoned agents are seeking opportunities to re-enter the spine market by partnering with spine-focused companies that have broad, growing product portfolios.  

Recent Developments

On February 28, 2020, we announced an agreement to acquire EOS imaging, SA, or EOS. EOS imaging is a leader in outcome-improving orthopedic medical imaging and software solutions, and is globally recognized for its rapid, low dose, biplanar full-body imaging and 3D modeling capabilities. The EOS technology informs the entire surgical process by capturing a calibrated, full-body image in a standing (weight-bearing) position, enabling precise measurement of anatomical angles and dimensions. The resulting imaging drives a more accurate understanding of patient alignment during diagnosis, elevates the likelihood of surgical goal fulfillment by integrating a fully informed plan into surgery, and enables a post-operative assessment against the original surgical plan

We believe the addition of EOS imaging will advance our AlphaInformatiX platform, providing capabilities in surgical planning, patient-specific implants, intraoperative alignment reconciliation, and other intraoperative functionalities resulting in a platform distinctively equipped to address the requirements of spine surgery.

We expect the transaction to close in the third quarter of 2020.

Revenue and Expense Components

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

Revenues. We derive our revenues primarily from the sale of spinal surgery implants used in the treatment of spine disorders. Spinal implant products include 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.  Currently, most 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 certain.

Cost of revenues. Cost of revenues consists of direct product costs, royalties, milestones and the amortization of purchased intangibles. Our product costs consist primarily of direct labor, overhead, and raw materials and components. The product costs of

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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 expenses. 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 our Scientific Advisory Board and Executive Surgeon Panels.

Sales, general and administrative expenses. Sales, general and administrative expense consists primarily of salaries and related employee benefits, sales commissions and support costs, depreciation of our surgical instruments, regulatory affairs, quality assurance costs, professional service fees, travel, medical education, trade show and marketing costs, insurance and legal expenses.

Litigation-related expenses. Litigation-related expenses are costs incurred for our ongoing litigation, primarily with NuVasive, Inc.

Transaction-related expenses. Reflects the recognition of transaction expense incurred as part of the SafeOp acquisition.

Gain on settlement. Gain on settlement consists of a gain of approximately $6.2 million for the year ended December 31, 2018 as a result of the settlement agreement with Elite Medical Holdings and Pac 3 Surgical, pursuant to which we made a cash payment of $0.4 million as the final and total compensation under the collaboration and related amendment.  The gain reflects the reversal of accrued obligations previously recorded under the collaboration.  

Restructuring expenses. Restructuring expense consists of severance, social plan benefits and related taxes in connection with our ongoing cost rationalization efforts, including the termination of our manufacturing operations in California in 2017.

Other expense, net. Other expense, net includes interest income, interest expense, gains and losses from foreign currency exchanges and other non-operating gains and losses.

Income tax benefit. Income tax benefit from continuing operations primarily consists of release of the valuation allowance from the SafeOp acquisition, partially offset by state taxes.

Sale of International Business

On September 1, 2016, we completed the sale 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, to an affiliate of Globus (“Globus Transaction”). Following the closing of the Globus Transaction, we now operate in the U.S. market only and are restricted 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.

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Results of Operations

The first table below sets forth our statements of operations data for the periods presented. Our historical results are not necessarily indicative of the operating results that may be expected in the future.

	Year Ended December 31,
	2019			2018
	(in thousands)
Revenues:
Revenue from U.S. products	$	108,242		$	83,656
Revenue from international supply agreement		5,185			8,038
Total revenues		113,427			91,694
Cost of revenues		35,833			28,457
Gross profit		77,594			63,237
Operating expenses:
Research and development		13,849			9,853
Sales, general and administrative		101,714			72,640
Litigation-related		8,549			5,683
Amortization of intangible assets		698			738
Transaction-related		—			1,550
Gain on settlement		—			(6,168	)
Restructuring		60			1,381
Total operating expenses		124,870			85,677
Operating loss		(47,276	)		(22,440	)
Other expense:
Other expense, net		(9,865	)		(7,139	)
Loss on debt extinguishment		—			(590	)
Total other expense		(9,865	)		(7,729	)
Loss from continuing operations before taxes		(57,141	)		(30,169	)
Income tax benefit		(239	)		(1,361	)
Loss from continuing operations		(56,902	)		(28,808	)
Loss from discontinued operations, net of applicable taxes		(100	)		(167	)
Net loss		(57,002	)		(28,975	)
Recognition of beneficial conversion feature - Series B Preferred Stock		—			(13,488	)
Net loss attributable to common shareholders	$	(57,002	)	$	(42,463	)

	Year Ended December 31,
	2019			2018
Revenue by source	(in thousands)
Revenue from U.S. products	$	108,242		$	83,656
Revenue from international supply agreement		5,185			8,038
Total revenues	$	113,427		$	91,694
Gross profit by source
Revenue from U.S. products	$	77,235		$	62,740
Revenue from international supply agreement		359			497
Total gross profit	$	77,594		$	63,237
Gross profit margin by source
Revenue from U.S. products		71.4	%		75.0	%
Revenue from international supply agreement		6.9	%		6.2	%
Total gross profit margin		68.4	%		69.0	%

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Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018

Total Revenues. Total revenues increased by $21.7 million, or 23.7%, primarily due to sales growth from strategic distribution channels and new product launches.

Revenue from U.S. products increased by $24.6 million, or 29.4%. The increase in revenue was attributed primarily to the launch of new products and our focus on the strategic distribution channel, as detailed below (in thousands):

	Year Ended December 31,								Increase (Decrease)
	2019				2018				$			%
U.S. revenues by distributor type:
Strategic distribution	$	95,051	88	%	$	67,124	80	%	$	27,927			42	%
Legacy and terminated distribution		13,191	12	%		16,532	20	%		(3,341	)		(20)	%
Total U.S. revenues	$	108,242	100	%	$	83,656	100	%	$	24,586			29	%

Revenue from international supply agreement, which is attributed to sales to Globus under which we supply to Globus certain of its implants and instruments at agreed-upon prices for a minimum term of three years, decreased by $2.9 million. We expect these revenues to continue to decrease over the next several quarters, as Globus continues to register its own products in international markets. Globus has the option to extend the term for up to two additional twelve month periods subject to Globus meeting specified purchase requirements. During the first quarter of 2019, Globus notified us that it would exercise the option to extend the agreement an additional twelve months through August 2020.

Cost of revenues. Total cost of revenues increased by $7.4 million, or 25.9%, primarily due to increased sales and excess and obsolescence expense related to new and legacy products.  

Cost of revenue from U.S. products for the year ended December 31, 2019 increased to $31.0 million compared to $20.9 million for the year ended December 31, 2018. The increase is primarily due to increased sales and excess and obsolescence expense related to the launch of newly developed products and the phase-out of legacy products.

Cost of revenues from international supply agreement for the year ended December 31, 2019 decreased to $4.8 million compared to $7.5 million for the year ended December 31, 2018. The decrease is primarily due to a reduction in sales volume and related costs under the Globus supply agreement.

Gross profit. Total gross profit was $77.6 million for the year ended December 31, 2019 compared to $63.2 million for the year ended December 31, 2018, representing an increase of $14.4 million, or 22.7%.

Gross profit margin from U.S. product revenue for the year ended December 31, 2019 was 71.4% compared to 75.0% for the year ended December 31, 2018. The decrease is primarily due to excess and obsolescence expense related to the launch of newly developed products and the phase-out of legacy products.

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Gross profit margin from international supply agreement revenue for the year ended December 31, 2019 was 6.9% compared to 6.2% for the year ended December 31, 2018. The increase is primarily related to the impact of fixed minimum royalty costs driven by product mix, and a decrease in the average selling price of certain products.

Research and development expense. Research and development expense increased by $4.0 million, or 40.6%, primarily related to product development costs and related expenses associated with our SafeOp neuromonitoring system, and IdentiTi and Invictus product lines. We expect research and development expenses to continue to increase in future periods as we continue to invest in our product pipeline.

Sales, general and administrative expense. Sales, general and administrative expense increased by $29.1 million, or 40.0%, primarily related to commissions and related sales compensation expenses associated with our increase in U.S. revenue, our continued investment in building our strategic distribution channel, as well as increased marketing efforts, and stock based compensation expenses.

Litigation-related expense. Litigation-related expenses increased by $2.9 million, or 50.4%, primarily related to ongoing litigation with NuVasive, Inc.

Amortization of acquired intangible assets. Amortization of acquired intangible assets was $0.7 million for both the year ended December 31, 2019 and for the year ended December 31, 2018. This expense represents amortization in the period for intangible assets associated with general business assets, intellectual property, licenses and other assets obtained in acquisitions and licensing agreements.

Transaction-related expense. Transaction-related expenses of $1.6 million for the year ended December 31, 2018 are attributed to advisory and legal fees and other transaction costs incurred in connection with the SafeOp acquisition.

Gain on settlement. In February 2018, we reached a settlement agreement with Elite Medical Holdings and Pac 3 Surgical, pursuant to which we made a cash payment of $0.4 million as the final and total compensation under a collaboration agreement and related amendment between the Company and these third parties. In addition, the parties agreed to release each other and waive any and all rights and claims arising from the collaboration agreement and amendment.  We recorded a gain of approximately $6.2 million for the year ended December 31, 2018, reflecting the reversal of accrued obligations previously recorded under the collaboration agreement.  

Restructuring expense.  Restructuring expense decreased by $1.3 million, or 95.7%, primarily related to the decrease in severance and other personnel charges associated with the sale of our international business to Globus in 2016.

Other expense, net. Other expense, net increased $2.7 million, or 38.2%, primarily related to new debt arrangements and additional draws on existing agreements.

Income tax benefit. Income tax benefit from continuing operations decreased $1.1 million, or 82.4%, primarily related to a release of the 2018 income tax benefit recognized as part of the acquisition of Safe Op.

Recognition of beneficial conversion feature. The recognition of beneficial conversion feature of $13.5 million is the calculated intrinsic value, which is measured as of the commitment date (i.e., the issuance date) of the Series B Preferred Stock, and required to be recorded as a discount in the Series B Preferred Stock with a corresponding entry to equity upon the Company obtaining stockholder approval of the transaction. Furthermore, due to the fact that the Series B Preferred Stock automatically converted into shares of the Company’s common stock upon obtaining stockholder approval, the full discount in the Series B Preferred Stock that was created by the recognition of the beneficial conversion feature is fully accreted as a deemed dividend which increases the Company’s accumulated deficit and net loss attributable to common shareholders.

Liquidity and Capital Resources

At each reporting period, we evaluate whether there are conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. Our evaluation entails analyzing prospective operating budgets and forecasts for expectations of cash needs and comparing those needs to the current cash and cash equivalent balances, and availability under existing credit facilities. We are required to make certain additional disclosures if it concludes substantial doubt exists and it is not alleviated by our plans or when those plans alleviate substantial doubt about the Company’s ability to continue as a going concern.  

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We have experienced negative operating cash flows for all historical periods presented and we expect these losses to continue into the foreseeable future as we continue to incur costs related to the execution of our operating plan and introduction of new products. Our annual operating plan projects that existing working capital at December 31, 2019 of $71.9 million (including cash of $47.1 million), along with available draws on our working capital credit line with MidCap and an additional $20 million in available borrowings under our credit facility with Squadron Medical Finance Solutions LLC (“Squadron”), allows us to fund our operations through at least one year subsequent to the date the financial statements are issued.

As more fully described in Note 5, our existing credit agreements with MidCap and Squadron (collectively, the “current lenders”) include a financial covenant that requires the Company to maintain a minimum cash balance of $5.0 million. The minimum cash covenant converts to a minimum fixed charge coverage ratio beginning April 30, 2020. We expect that we will be unable to meet the fixed charge covenant at that time. In order to avoid a default on its existing credit agreements, we expect to refinance our existing debt prior to April 30, 2020, pursuant to a binding commitment letter with a new lender, as further described in Note 15. Should such re-financing not occur prior to April 30, 2020 we have entered into letter agreements with the current lenders, agreeing to work together in good faith to amend our existing covenants to extend the minimum cash covenant and defer the fixed charge covenant through at least April 1, 2021.  

The committed refinancing is subject to customary closing conditions, and, therefore, there is no guarantee that we will be able to successfully close such refinancing on or before April 30, 2020, or at all.   In addition, if required, there is no guarantee that we will be able to obtain the necessary waivers or amendments from our current lenders. If we are unable to refinance our existing debt or are unable to secure waivers or amendments from our current lenders, the current lenders have the right to accelerate the repayment of all amounts outstanding. In addition, we would be required to classify its obligations under existing debt agreements in current liabilities on its consolidated balance sheet. These events would negatively impact the our ability to meet ongoing financial obligations. We believe the refinancing of existing debt under our commitment letter with the new lender and/or obtaining waivers or amendments of current debt covenants is probable to occur. These factors alleviate substantial doubt about our ability to continue as a going concern.  

Amended Credit Facility, Squadron Credit Agreement and Other Debt

Our Amended Credit Facility with MidCap provides for a revolving credit commitment up to $22.5 million. As of December 31, 2019, $12.8 million was outstanding under the revolving line of credit.

The revolving line of credit accrues interest at LIBOR plus 6.0%, reset monthly. At December 31, 2019, the revolving line of credit carried an interest rate of 7.69%. The borrowing base is determined based on the value of domestic eligible accounts receivable. As collateral for the Amended Credit Facility, MidCap has a first lien security interest in accounts receivable and a second lien on substantially all other assets. 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, pursuant to which Globus agreed to loan us up to $30 million. We made an initial draw of $25 million under the Globus facility with an additional draw of $5 million made in the fourth quarter of 2016. In November 2018, the $29.2 million outstanding was paid in full.

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On November 6, 2018, we closed the $35.0 million Term Loan with Squadron for net proceeds of approximately $34.1 million, which were partially used to retire our existing $29.2 million term debt with Globus noted above. The debt has a five-year maturity and bears interest at LIBOR plus 8% (10.0% as of December 31, 2019) per annum. The Agreement specifies a minimum interest rate of 10% and a maximum of 13% per year. Interest-only payments are due monthly through May 2021, followed by $10 million in principal payable in 29 equal monthly installments beginning June 2021 and a $25 million lump-sum payment payable at maturity in November 2023. As collateral for the Term Loan, Squadron has a first lien security interest in substantially all assets except for accounts receivable.

We entered into an Inventory Financing Agreement whereby we may draw up to $3.0 million for the purchase of inventory to accrue interest at a rate of LIBOR plus 8% and also includes a 10% floor and 13% ceiling. All principal will become due and payable upon maturity on November 6, 2023 and all interest will be paid monthly. Should we elect to prepay the Squadron credit agreement, all amounts due under the Inventory Financing Agreement will become mandatorily due.

Our various debt agreements include 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 Squadron’s right to declare all outstanding obligations immediately due and payable.Furthermore, the credit agreement contains various covenants, including various negative covenants including a $5 million minimum liquidity requirement through March 31, 2020. The minimum liquidity covenant will be replaced by a fixed charge ratio, pursuant to which operating cash to fixed charges (as defined) must equal at least 1:1 on a rolling 12-month basis, beginning April 2020. We were in compliance with the covenants under the credit agreement at December 31, 2019.

As of December 31, 2019, we have made $40.6 million in Orthotec settlement payments and there remains an aggregate $17.2 million of Orthotec settlement payments (including interest) to be paid by us.

Operating Activities

We used net cash of $33.1 million from operating activities for the year ended December 31, 2019. During this period, net cash used in operating activities consisted of our net loss adjusted for non-cash adjustments including amortization, depreciation, stock-based compensation, amortization of our ASC 842 assets, provision for doubtful accounts, provision for excess and obsolete inventory, interest expense related to amortization of debt discount and issuance costs, beneficial conversion feature related to our Convertible Notes, and contingent consideration fair market value adjustment of $24.7 million and working capital and other assets used cash of $8.4 million.

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Investing Activities

We used cash of $13.0 million in investing activities for the year ended December 31, 2019, primarily for the purchase of surgical instruments to support the commercial launch of new products.

Financing Activities

Financing activities provided net cash of $64.2 million for the year ended December 31, 2019, primarily attributable to the net proceeds of $53.8 million from the Offering, $9.7 million net draw under our Squadron expanded credit facility, $1.9 million from warrant and stock option exercises and purchase of common stock under our employee stock purchase plan, and net borrowings under the lines of credit of $1.8 million, partially offset by principal payments on our term loan totaling $3.0 million.

Contractual obligations and commercial commitments

Total contractual obligations and commercial commitments as of December 31, 2019 are summarized in the following table (in thousands):

	Payment Due by Year
	Total		2020		2021		2022		2023		2024		Thereafter
Amended Credit Facility with MidCap	$	13,386	$	—	$	—	$	13,386	$	—	$	—	$	—
Inventory financing		2,988		—		—		—		2,988		—		—
Squadron Term Loan		45,000		—		4,483		7,685		32,832		—		—
Interest expense		21,216		6,443		6,311		5,612		2,850		—		—
Note payable for software agreements and    insurance premiums		458		458		—		—		—		—		—
Capital lease obligations		111		37		37		37		—		—		—
Facility lease obligations(3)		32,541		1,592		1,555		2,979		3,025		3,116		20,274
Other operating lease obligations		491		302		189		—		—		—		—
Litigation settlement obligations, gross(2)		17,233		4,400		4,000		4,400		4,400		33		—
Guaranteed minimum royalty obligations		5,371		943		918		918		918		918		756
License agreement milestones(1)		2,250		—		700		450		650		250		200
Total	$	141,045	$	14,175	$	18,193	$	35,467	$	47,663	$	4,317	$	21,230

(1) These commitments represent payments in cash, and are subject to attaining certain sales milestones which we believe are reasonably likely to be achieved beginning in 2020.

(2) Represents gross payments due to Orthotec, LLC pursuant to 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. In September 2014, the Company and HealthpointCapital entered into an agreement for joint payment of settlement whereby HealthpointCapital is obligated to pay $5 million of the settlement amount, with payments beginning in the fourth quarter of 2020 and continuing through 2021. See Note 12 of our Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for further information.

(3) Includes our new headquarters building lease commitment anticipated to commence in November 2020.

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Real Property Leases

In January 2016, we entered into a lease agreement, or the Building Lease, for office, engineering, and research and development space in Carlsbad, California with the lease term through July 31, 2021. Under the Building Lease our monthly rent payable is approximately $105,000 per month during the first year and increases by approximately $3,000 each year thereafter.

On December 4, 2019, we entered into a new lease agreement, or new Building Lease, for a new headquarters location which will consist of 121,541 square feet of office, engineering, and research and development space in Carlsbad, California. The term of the new lease is currently anticipated to commence November 15, 2020 and terminate November 30, 2030, subject to two (2) sixty (60) month options to renew. Base rent under the Building Lease for the first twelve months of the term will be $195,000 per month subject to full abatement during months two through ten. Base rent for the second year of the term will be $244,115 per month and thereafter will increase annually by 3%. At the beginning of each exercised option period, base rent will be adjusted to the market rental value, and thereafter will increase annually by 3% through the end of such option period.  

Off-Balance Sheet Arrangements

As of December 31, 2019, we did not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. On an on-going basis, we evaluate our estimates and assumptions, including those related to revenue recognition, allowances for accounts receivable, inventories 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.

We believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

The Company recognizes revenue from products sales in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“Topic 606”). The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments.  Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services.  To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Leases

Effective January 1, 2019, we adopted ASC No. 2016‑02, Leases (Topic 842), which supersedes the current accounting for leases, using the modified retrospective transition method. The Company has elected to apply the practical expedients allowed by the standard for existing leases. The new standard, while retaining two distinct types of leases, finance and operating, (i) requires lessees to record a right-of-use (“ROU”) asset and a related liability for the rights and obligations associated with a lease, regardless of lease classification, and recognize lease expense in a manner similar to current accounting, (ii) eliminates current real estate specific lease provisions, (iii) modifies the lease classification criteria and (iv) aligns many of the underlying lessor model principles with those in the new revenue standard. We determined the initial classification and measurement of our ROU, assets and lease liabilities at the lease commencement date, or the adoption date, if later, and thereafter if modified. We recognized a right-of-use asset for our

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operating leases with lease terms greater than 12 months.  The lease term includes any renewal options and termination options that we are reasonably assured to exercise. The present value of lease payments is determined by using the incremental borrowing rate for operating leases determined by using the incremental borrowing rate of interest that we would pay to borrow on a collateralized basis an amount equal to the lease payments in a similar economic environment. We applied the new guidance to our existing facility lease at the time of adoption and recognized a right-of-use asset of $2.4 million and operating lease liability of $2.9 million, during the first period of adoption, and recorded a reversal of the previous deferred rent balance under the previous lease guidance of approximately $0.6 million. We entered into another facility lease for smaller office space during the third quarter of 2019 and also applied this guidance to create an additional ROU asset and operating lease liability. The two leases are presented together on the Company’s consolidated balance sheet.

Rent expense for operating leases is recognized on a straight-line basis over the reasonably assured lease term based on the total lease payments and is included in research and development and general and administrative expenses in the statements of operations and comprehensive loss.

Valuation of Intangible Assets

We assess the impairment of our intangible assets annually in December or whenever business conditions change and an earlier impairment indicator arises. This assessment requires us to make assumptions and judgments regarding the carrying value of these assets. These assets are considered to be impaired if we determine that their carrying value may not be recoverable based upon our assessment of certain events or changes in circumstances, including the following:

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

• loss of legal ownership or title to the assets;

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

• the impact of significant negative industry or economic trends.

If the assets are considered to be impaired, the impairment we recognize is the amount by which the carrying value of the assets exceeds the fair value of the assets. Significant management judgment is required in estimating the fair value of our intangible assets.

Warrants to purchase common stock

Warrants are accounted for in accordance with the applicable accounting guidance provided in ASC 815 - Derivatives and Hedging as either derivative liabilities or as equity instruments depending on the specific terms of the agreements. Liability-classified instruments are recorded at fair value at each reporting period with any change in fair value recognized as a component of change in fair value of derivative liabilities in the consolidated statements of operations. We estimate liability classified instruments using the Black Scholes model, which requires management to develop assumptions and inputs that have significant impact on such valuations. 

During each reporting period, we evaluate changes in facts and circumstances that could impact the classification of warrants from liability to equity, or vice versa.

Stock-Based Compensation

We account for stock-based compensation under provisions which require that share-based payment transactions with employees be recognized in the financial statements based on their fair value and recognized as compensation expense over the vesting period. The amount of expense recognized during the period is affected by subjective assumptions, including estimates of our future volatility, the expected term for our stock options, the number of options expected to ultimately vest, and the timing of vesting for our share-based awards.

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We use a Black-Scholes option-pricing model to estimate the fair value of our stock option awards. The calculation of the fair value of the awards using the Black-Scholes option-pricing model is affected by our stock price on the date of grant as well as assumptions regarding the following:

• Estimated volatility is a measure of the amount by which our stock price is expected to fluctuate each year during the expected life of the award. Our estimated volatility through December 31, 2019 was based on our actual historical volatility. An increase in the estimated volatility would result in an increase to our stock-based compensation expense.

• The expected term represents the period of time that awards granted are expected to be outstanding. Our estimated expected term through December 31, 2019 was calculated using a weighted-average term based on historical exercise patterns and the term from option grant date to exercise for the options granted within the specified date range. An increase in the expected term would result in an increase to our stock-based compensation expense.

• The risk-free interest rate is based on the yield curve of a zero-coupon U.S. Treasury bond on the date the stock option award is granted with a maturity equal to the expected term of the stock option award. An increase in the risk-free interest rate would result in an increase to our stock-based compensation expense.

• The assumed dividend yield is based on our expectation of not paying dividends in the foreseeable future.

We use historical data to estimate the number of future stock option forfeitures. Share-based compensation recorded in our consolidated statements of operations is based on awards expected to ultimately vest and has been reduced for estimated forfeitures. Our estimated forfeiture rates may differ from our actual forfeitures which would affect the amount of expense recognized during the period.

We account for stock option grants to non-employees under provisions which require that the fair value of these instruments be recognized as an expense over the period in which the related services are rendered.

Stock-based compensation expense of awards with performance conditions is recognized over the period from the date the performance condition is determined to be probable of occurring through the time the applicable condition is met. Determining the likelihood and timing of achieving performance conditions is a subjective judgment made by management which may affect the amount and timing of expense related to these share-based awards. Share-based compensation is adjusted to reflect the value of options which ultimately vest as such amounts become known in future periods. As a result of these subjective and forward-looking estimates, the actual value of our share-based awards could differ significantly from those amounts recorded in our financial statements. 

Stock-based awards with market conditions are valued using the Monte Carlo valuation technique which requires management to make significant estimates and assumptions that are not observable from the market. Stock based compensation for awards with both service and market conditions are recognized on a straight line basis over the longer of the derived service period or the requisite service period.  

Income Taxes

We account for income taxes in accordance with provisions which set forth an asset and liability approach that requires the recognition of deferred tax assets and deferred tax liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Valuation allowances are established when necessary to reduce deferred tax assets to the amount that is more likely than not expected to be realized. In making such a determination, a review of all available positive and negative evidence must be considered, including scheduled reversal of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance.

We recognize interest and penalties related to uncertain tax positions as a component of the income tax provision.

54

Recent Accounting Pronouncements

See “Notes to Financial Statements - Note 2 - Recent Accounting Pronouncements” included elsewhere in this Annual Report on Form 10-K.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Other outstanding debt consists of various variable rate instruments, including debt outstanding under the Amended Credit Facility with MidCap and the Term Loan with Squadron.

Our borrowings under our credit facilities expose us to market risk related to changes in interest rates. As of December 31, 2019, our outstanding floating rate indebtedness totaled $60.8 million. The primary base interest rate is the LIBOR rate. Assuming the outstanding balance on our floating rate indebtedness remains constant over a year, a 100 basis point increase in the interest rate would decrease pre-tax income and cash flow by approximately $0.6 million.

Item 8. Financial Statements and Supplementary Data

The consolidated financial statements and supplementary data required by this item are set forth at the pages indicated in Item 15.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to provide reasonable assurance 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 rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required financial disclosures. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures as of the end of the period covered by this Form 10-K. We recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of December 31, 2019, as described below.

55

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our Board of Directors, management and other personnel, 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.

Because of its inherent limitations, internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become ineffective because of changes in conditions or that the degree of compliance with established policies or procedures may deteriorate.

Our management, under the supervision of, our Chief Executive Officer and Chief Financial Officer, has assessed the effectiveness of our internal control over financial reporting using the framework set forth in the report entitled Internal Control—Integrated Framework published by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Management reviewed the results of this evaluation with the Audit Committee of our Board of Directors, and based on this evaluation, management identified the following deficiencies.

Remediation of the Material Weakness identified as of December 31, 2018 during the first quarter 2019

During the preparation process for our 2018 Annual Report on Form 10-K, we identified an error in our previously issued consolidated interim financial statements for the quarterly periods ended June 30, 2018 and September 30, 2018 related to the accounting for a beneficial conversion feature associated with our Series B Convertible Preferred Stock which converted into shares of common stock in May 2018.  Management concluded this error was the result of a material weakness related to a lack of sufficient oversight and review to ensure the complete and proper application of U.S. GAAP associated with complex equity transactions. 

To remediate the material weakness associated with complex equity transactions, described above, and to prevent similar deficiencies in the future, we added additional controls and procedures in the first quarter of 2019, including:

•  Hiring of additional personnel that allows for increased oversight of the accounting and finance processes and additional review of complex and non-routine transactions; and

•  Re-design of internal controls to ensure more timely quarterly reviews of technical accounting positions documented by our staff and our independent external technical accounting consultants

As of December 31, 2019, the material weakness associated with complex equity transactions is considered fully remediated as the applicable controls over unusual or non-recurring and significant transactions operated for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Any actions we have taken to remediate these deficiencies are subject to continued management review supported by testing, as well as oversight by the Audit Committee of our Board of Directors.

Material Weaknesses identified as of December 31, 2019

We identified deficiencies in internal controls over our revenue and inventory cycles whereby the review of sales orders and inventory transfers were not properly applied to a portion of the orders during the year. The control failures also impacted other inventory controls dependent on these controls. While these internal control deficiencies did not result in any identified misstatements to our financial statements, and there were no changes to previously released financial results, it was determined that such deficiencies were material weaknesses in internal controls over financial reporting since the deficiencies resulted in a reasonable possibility that a material misstatement of our revenue and inventory in the annual or interim financial statements may not be prevented or detected on a timely basis.

56

Although several compensating controls in the Company’s revenue and inventory cycles were found to be operating effectively during the year, such controls did not directly address the transactional control risk identified by the deficiencies.

Remediation of 2019 Material Weaknesses

Management has developed, and is implementing, a remediation plan to address the material weaknesses associated with the revenue and inventory described above. The remediation efforts performed during the first quarter of 2020 include the following:

• Improving controls to ensure proper documentation over revenue orders and inventory transfers and ensuring control owners have appropriate training, etc.

The control remediation and implementation efforts described above are designed to provide sufficient assurance over the occurrence and accuracy of revenues and existence and valuation of inventory and are ongoing as of March 13, 2020. Any failure to implement these improvements to our internal control over financial reporting would result in a continued material weakness in our internal controls and could impact our ability to produce reliable financial reports.

Changes in Internal Control over Financial Reporting

As discussed above, the material weakness over complex equity transactions as of December 31, 2018 was remediated during the year. In addition, our plans for remediating the material weaknesses related to revenues and inventory would constitute a change in our internal control over financial reporting prospectively, when such controls are effectively implemented. Other than the continuation of the implementation of measures described above, there were no material changes in our internal control over financial reporting during the quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

57

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Alphatec Holdings, Inc.

Opinion on Internal Control over Financial Reporting

We have audited Alphatec Holdings, Inc.’s (the “Company”) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a control deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses related to revenue and inventory have been identified and included in management’s assessment. The Company’s sales order review control, addressing occurrence and accuracy, did not operate effectively. The Company’s inventory transfer control did not operate effectively, impacting other dependent controls, collectivelyaddressing existence and valuation. These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2019 financial statements, and this report does not affect our report dated March 16, 2020, on those financial statements.

In our opinion, because of the effect of the material weaknesses described above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the balance sheets and the related statements of income, comprehensive income, stockholders’ equity, and cash flows of the Company, and our report dated, March 16, 2020, expressed an unqualified opinion that included an explanatory paragraph regarding the Company's change in method of accounting for leases as a result of the adoption of Accounting Standards Codification Topic 842, Leases, effective January 1, 2019.

/s/ Mayer Hoffman McCann P.C.

San Diego, California

March 16, 2020

58

Item 9B. Other Information

None.

59

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this item is incorporated herein by reference to our Proxy Statement with respect to our 2020 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report on Form 10-K.

Item 11. Executive Compensation

The information required by this item is incorporated herein by reference to our Proxy Statement with respect to our 2020 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report on Form 10-K.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item is incorporated herein by reference to our Proxy Statement with respect to our 2020 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report on Form 10-K.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this item is incorporated herein by reference to our Proxy Statement with respect to our 2020 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report on Form 10-K.

Item 14. Principal Accounting Fees and Services

The information required by this item is incorporated herein by reference to our Proxy Statement with respect to our 2020 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report on Form 10-K.

60

PART IV

Item 15. Exhibits, Financial Statement Schedules

Item 15 (a) The following documents are filed as part of this Annual Report on Form 10-K:

(1) Financial Statements:

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets	F-3
Consolidated Statements of Operations	F-4
Consolidated Statements of Comprehensive Loss	F-5
Consolidated Statements of Stockholders’ Equity	F-6
Consolidated Statements of Cash Flows	F-8
Notes to Consolidated Financial Statements	F-9

Item 15(a)(3) Exhibits List

The following is a list of exhibits filed as part of this Annual Report on Form 10-K.

Exhibit Number	Exhibit Description	Filed with this Report	Incorporated by Reference herein from Form or Schedule	Filing Date	SEC File/ Reg. Number
2.1	Purchase and Sale Agreement, dated as of July 25, 2016, by and between Alphatec Holdings, Inc. and Globus Medical Ireland, Ltd.		Form 8-K (Exhibit 2.1)	07/26/16	000-52024
2.2	First Amendment to Purchase and Sale Agreement, dated as of September 1, 2016, by and between Alphatec Holdings, Inc. and Globus Medical Ireland, Ltd.		Form 8-K (Exhibit 2.1)	09/08/16	000-52024
2.3	Second Amendment to Purchase and Sale Agreement and First Amendment to Product Manufacture and Supply Agreement, dated as of February 9, 2017, by and between Alphatec Holdings, Inc. and Globus Medical Ireland, Ltd.		Form 10-K (Exhibit 2.3)	03/31/17	000-52024
3.1	Amended and Restated Certificate of Incorporation of Alphatec Holdings, Inc.		Amendment No. 2 to Form S-1 (Exhibit 3.2)	04/20/06	333-131609
3.2	Amendment to the Certificate of Incorporation of Alphatec Holdings, Inc.		Form 8-K (Exhibit 3.1(B))	08/24/16	000-52024
3.3	Restated Bylaws of Alphatec Holdings, Inc.		Amendment No. 5 to Form S-1 (Exhibit 3.4)	05/26/06	333-131609
3.4	Form of Certificate of Designation of Preferences, Rights and Limitations of Series A convertible Preferred Stock of Alphatec Holdings, Inc.		Form 8-K (Exhibit 3.1)	03/23/17	000-52024
3.5	Form of Certificate of Designation of Preferences, Rights and Limitations of Series B convertible Preferred Stock of Alphatec Holdings, Inc.		Form 8-K (Exhibit 3.1)	03/12/18	000-52024
4.1	Form of Common Stock Certificate		Form 10-K (Exhibit 4.1)	03/20/14	333-131609

61

Exhibit Number	Exhibit Description	Filed with this Report	Incorporated by Reference herein from Form or Schedule	Filing Date	SEC File/ Reg. Number
4.2	Amended and Restated Registration Rights Agreement, dated April 16, 2018, by and among Alphatec Holdings, Inc. and the other signatories thereto		Form 8-K/A (Exhibit 4.1)	04/16/18	000-52024
4.3	Registration Rights Agreement, dated November 6, 2018, by and among Alphatec Holdings, Inc. and the other signatories thereto		Form S-3/A (Exhibit 4.5)	11/13/18	333-221085
4.4	Warrant with Silicon Valley Bank as the Warrant holder, dated December 16, 2011		Form 10-K (Exhibit 4.8)	03/05/12	000-52024
4.5	Form of Warrant to Purchase Common Stock issued to each of 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. (collectively, “Deerfield”) on each of March 17, 2014 and November 21, 2014.		Form 8-K (Exhibit 4.1)	03/19/14	000-52024
4.6	Form of Warrant issued to certain investors on March 28, 2017		Form 8-K (Exhibit 4.1)	03/23/17	000-52024
4.7	Form of Warrant issued to certain investors on March 8, 2018		Form 8-K (Exhibit 4.1)	03/12/18	000-52024
4.8	Form of Registration Rights Agreement		Form 8-K (Exhibit 4.2)	03/23/17	000-52024
4.9	Form of Warrant to Purchase Common Stock of Alphatec Holdings, Inc. issued to Patrick S. Miles		Form 8-K (Exhibit 4.1)	10/02/17	000-52024
4.10	Form of Warrant to Purchase Common Stock of Alphatec Holdings, Inc. issued in connection with financing dated November 6, 2018		Form S-3/A (Exhibit 4.11)	11/13/18	333-221085
4.11	Form of Warrant to Purchase Common Stock of Alphatec Holdings, Inc. issued in connection with financing dated June 21, 2019		Form 8-K (Exhibit 10.1)	06/27/19	000-52024
4.12	Form of Merger Warrant		Form 8-K (Exhibit 4.3)	03/12/18	000-52024
4.13	Registration Rights Agreement between Alphatec Holdings, Inc., and Squadron Medical Finance Solutions LLC and Tawani Holdings LLC, dated November 6, 2018		Form S-3/A (Exhibit 4.5)	11/13/18	333-221085
4.14	Registration Rights Agreement between Alphatec Holdings, Inc., and Squadron Medical Finance Solutions LLC and Tawani Holdings LLC, dated June 21, 2019		Form 8-K (Exhibit 10.2)	06/27/19	000-52024
4.15	Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities and Exchange Act of 1934	X
10.1	Securities Purchase Agreement dated as of March 8, 2018, between Alphatec Holdings, Inc. and each purchaser named in the signature pages thereto		Form 8-K (Exhibit 10.1)	03/12/18	000-52024
	Real Property Lease Agreements
10.2	Lease Agreement by and between Alphatec Holdings, Inc. and Fenton Property Company., dated as of January 21, 2016		Form 10-K (Exhibit 10.2)	03/15/16	000-52024

62

Exhibit Number	Exhibit Description	Filed with this Report	Incorporated by Reference herein from Form or Schedule	Filing Date	SEC File/ Reg. Number
10.3	Lease Agreement by and between Alphatec Spine, Inc. and RAF Pacifica Group - Real Estate Fund IV, LLC; ARKA Monterey Park, LLC, and 170 Arrowhead Partners, LLC, dated as of December 4, 2019	X
	Loan Agreements
10.4†	Amended and Restated Credit, Security and Guaranty Agreement dated August 30, 2013 by and among Alphatec Holdings, Inc., Alphatec Spine, Inc., Alphatec International LLC, Alphatec Pacific, Inc. and MidCap Funding IV, LLC		Form 10-Q/A (Exhibit 10.1)	10/21/15	000-52024
10.5†	First Amendment to Amended and Restated Credit, Security and Guaranty Agreement, dated March 17, 2014, with MidCap Funding IV, LLC as Administrative Agent and lender and other lenders from time to time a party thereto		Form 8-K/A (Exhibit 10.3)	10/21/15	000-52024
10.6†	Second Amendment to the Amended and Restated Credit, Security and Guaranty Agreement, dated July 10, 2015, with MidCap Funding IV Trust, as a lender and other lenders from time to time a party thereto		Form 10-Q (Exhibit 10.1)	11/03/15	000-52024
10.7†	Third Amendment to the Amended and Restated Credit, Security and Guaranty Agreement, dated March 11, 2016, with MidCap Funding IV Trust, as a lender and other lenders from time to time a party thereto		Form 10-Q (Exhibit 10.1)	05/06/16	000-52024
10.8†	Fourth Amendment to the Amended and Restated Credit, Security and Guaranty Agreement, dated August 9, 2016, with MidCap Funding IV Trust, as a lender and other lenders from time to time a party thereto		Form 10-K (Exhibit 10.6)	3/31/17	000-52024
10.9†	Consent and Fifth Amendment to the Amended and Restated Credit, Security and Guaranty Agreement, dated September 1, 2016 with MidCap Funding IV Trust, as a lender and other lenders from time to time a party thereto		Form 10-Q (Exhibit 10.3)	11/09/16	000-52024
10.10†	Sixth Amendment to the Amended and Restated Credit, Security and Guaranty Agreement, dated March 30, 2017, with MidCap Funding IV Trust, as a lender and other lenders from time to time a party thereto		Form 10-Q (Exhibit 10.1)	05/12/17	000-52024
10.11†	Seventh Amendment to Credit, Security and Guaranty Agreement, dated as of March  8, 2018, with MidCap Funding IV Trust, as a lender and other lenders from time to time a party thereto		Form 8-K (Exhibit 10.5)	03/12/18	000-52024
10.12	Eighth Amendment to Credit, Security and Guaranty Agreement, dated as of November 6, 2018, with MidCap Funding IV Trust, as a lender and other lenders from time to time a party thereto		Form 10-K (Exhibit 10.20)	3/29/19	000-52024
10.13	Omnibus Ninth Amendment to Credit, Security and Guaranty Agreement, dated as of March 27, 2019, with MidCap Funding IV Trust, as a lender and other lenders from time to time a party thereto		Form 10-Q (Exhibit 10.1)	5/10/19	000-52024
10.14	Amended and Restated Term Loan Note, dated July 10, 2015, with MidCap Funding IV Trust		Form 10-Q (Exhibit 10.3)	11/03/15	000-52024
10.15	Amended and Restated Revolving Loan Note, dated March 8, 2018, with MidCap Funding IV Trust		Form 8-K (Exhibit 10.6)	03/12/18	000-52024

63

Exhibit Number	Exhibit Description			Filed with this Report		Incorporated by Reference herein from Form or Schedule		Filing Date		SEC File/ Reg. Number
10.16	Credit, Security and Guaranty Agreement between Alphatec Holdings, Inc., Alphatec Spine, Inc. and SafeOp Surgical, Inc. and Squadron Medical Finance Solutions LLC, dated November 6, 2018					Form 10-K (Exhibit 10.26)		3/29/19		000-52024
10.17	First Amendment to Credit, Security and Guaranty Agreement between Alphatec Holdings, Inc., Alphatec Spine, Inc. and SafeOp Surgical, Inc. and Squadron Medical Finance Solutions LLC, dated March 27, 2019					Form 10-Q (Exhibit 10.2)		5/10/19		000-52024
10.18	Intercreditor Agreement between Alphatec Holdings, Inc., Alphatec Spine, Inc. and SafeOp Surgical, Inc. and Squadron Medical Finance Solutions LLC, dated November 6, 2018					Form 10-K (Exhibit 10.27)		3/29/19		000-52024
10.19	Term Note, dated November 6, 2018, with Squadron Medical Finance Solutions LLC					Form 10-K (Exhibit 10.28)		3/29/19		000-52024
	Agreements with Respect to Product Supply, Collaborations, Licenses, Research and Development
10.20†	Supply Agreement by and between Alphatec Spine, Inc. and Invibio, Inc., dated as of October 18, 2004 and amended by Letter of Amendment in respect of the Supply Agreement, dated as of December 13, 2004					Amendment No. 4 to Form S-1 (Exhibit 10.29)		05/15/06		333-131609
10.21†	Letter Amendment between Alphatec Spine, Inc. and Invibio, Inc., dated November 24, 2010					Form 10-Q (Exhibit 10.3)		05/06/11		000-52024
10.22†	Product Manufacture and Supply Agreement, dated September 1, 2016 with Globus Medical Ireland, Ltd.					Form 10-Q (Exhibit 10.2)		11/09/16		000-52024
	Agreements with Officers and Directors
10.23*	Employment Agreement with Jeffrey G. Black dated February 10, 2017					Form 10-Q (Exhibit 10.3)		05/12/17		000-52024
10.24*	Employment Agreement with Jon Allen dated October December 10, 2016					Form 10-Q (Exhibit 10.4)		05/12/17		000-52024
10.25*	Employment Agreement with Craig E. Hunsaker dated September 14, 2016					Form 10-Q (Exhibit 10.5)		05/12/17		000-52024
10.26*	Employment Agreement with Brian Snider dated February 27, 2017					Form 10-Q (Exhibit 10.6)		05/12/17		000-52024
10.27*	Employment Agreement by and among Patrick S. Miles, Alphatec Spine, Inc., and Alphatec Holdings, Inc., dated, dated October 2, 2017					Form 10-K (Exhibit 10.26)		03/09/18		000-52024
10.28*	Employment Agreement by and among Mark Ojeda, Alphatec Spine, Inc., and Alphatec Holdings, Inc., dated, dated September 17, 2018			X
10.29*	Employment Agreement by and among Eric Dasso, Alphatec Spine, Inc., and Alphatec Holdings, Inc., dated, dated August 2, 2019			X
10.30*	Employment Agreement by and among Kelli Howell, Alphatec Spine, Inc., and Alphatec Holdings, Inc., dated, dated March 10, 2018			X
10.31*		Employment Agreement by and among Dave Sponsel, Alphatec Spine, Inc., and Alphatec Holdings, Inc., dated, dated March 4, 2018 Equity Compensation Plans	X
10.32*		Amended and Restated 2005 Employee, Director and Consultant Stock Plan			Form S-8 (Exhibit 99.1)		03/23/13		333-187190

64

Exhibit Number	Exhibit Description		Filed with this Report		Incorporated by Reference herein from Form or Schedule		Filing Date		SEC File/ Reg. Number
10.33*		Amendment to the Amended and Restated 2005 Employee, Director and Consultant Stock Plan		Schedule 14A (Appendix B)		06/11/13		000-52024
10.34*		Amendment to the Alphatec Holdings, Inc. Amended and Restated 2005 Employee, Director and Consultant Stock Plan		Form 10-Q (Exhibit 10.1)		10/30/14		000-52024
10.35*		Form of Non-Qualified Stock Option Agreement issued under the Amended and Restated 2005 Stock Plan		Form 10-K (Exhibit 10.40)		03/05/13		000-52024
10.36*		Form of Incentive Stock Option Agreement issued under the Amended and Restated 2005 Stock Plan		Form 10-K (Exhibit 10.41)		03/05/13		000-52024
10.37*		Form of Restricted Stock Agreement issued under the Amended and Restated 2005 Stock Plan		Form 10-K (Exhibit 10.42)		03/05/14		000-52024
10.38*		Form of Performance-Based Restricted Unit Agreement issued under the Amended and Restated 2005 Employee, Director and Consultant Stock Plan, as amended.		Form 10-Q (Exhibit 10.2)		10/30/14		000-52024
10.39*		Amended and Restated 2016 Equity Incentive Award Plan		Form 10-Q (Exhibit 10.1)		11/09/18		000-52024
10.40*		First Amendment to Alphatec Holdings, Inc. 2016 Equity Incentive Plan		Form 8-K (Exhibit 10.2)		05/18/18		000-52024
10.41*		Second Amendment to Alphatec Holdings, Inc. 2016 Equity Incentive Plan		Form 10-Q (Exhibit 10.1)		11/09/18		000-52024
10.42*		Third Amendment to Alphatec Holdings, Inc. 2016 Equity Incentive Plan		Form 8-K (Exhibit 10.2)		06/13/19		000-52024
10.43*		Amended and Restated 2007 Equity Stock Purchase Plan		Form 8-K/A (Exhibit 10.2)		06/22/17		000-52024
10.44*		First Amended and Restated 2007 Employee Stock Purchase Plan		Form 8-K (Exhibit 10.1)		06/13/19		000-52024
10.45*		Alphatec Holdings, Inc. 2016 Employment Inducement Plan		Form S-8 (Exhibit 10.2)		10/05/16		333-213981
10.46*		First Amendment to the Alphatec Holdings, Inc. 2016 Employment Inducement Award Plan		Form S-8 (Exhibit 10.2)		12/12/16		333-215036
10.47		Second Amendment to the Alphatec Holdings, Inc. 2016 Employment Inducement Award Plan		Form S-8 (Exhibit 10.2)		03/31/17		333-217055
10.48*		Third Amendment to the Alphatec Holdings, Inc. 2016 Employment Inducement Award Plan, dated October 1, 2017.		Form 8-K (Exhibit 10.4)		10/2/17		000-52024
10.49*		Fourth Amendment to the Alphatec Holdings, Inc. 2016 Employment Inducement Award Plan, dated March 6, 2018.		Form 8-K (Exhibit 10.9)		03/12/18		000-52024
10.50*		Fifth Amendment to the Alphatec Holdings, Inc. 2016 Employment Inducement Award Plan, dated May 13, 2019		Form S-8 (Exhibit 10.11)		07/16/19		333-232661
10.51*		Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement under the Alphatec Holdings, Inc. 2016 Employment Inducement Award Plan		Form S-8 (Exhibit 10.3)		10/05/16		333-213981
10.52*		Form of Stock Option Grant Notice and Stock Option Agreement under the Alphatec Holdings, Inc. 2016 Employment Inducement Award Plan		Form S-8 (Exhibit 10.4)		10/05/16		333-213981

65

Exhibit Number	Exhibit Description			Filed with this Report		Incorporated by Reference herein from Form or Schedule		Filing Date		SEC File/ Reg. Number
10.53*		Form of Performance Stock-Based Award Grant Notice and Performance Stock-Based Award Agreement under the Alphatec Holdings, Inc. 2016 Employment Inducement Award Plan			Form S-8 (Exhibit 10.5)		10/05/16		333-213981
		Settlement Agreements
10.54		Settlement and Release Agreement, dated as of August 13, 2014, by and among Alphatec Holdings, Inc. and its direct and indirect subsidiaries and affiliates, Orthotec, LLC, Patrick Bertranou and the other parties named therein			Form 10-Q (Exhibit 10.3)		10/30/14		000-52024
21.1		Subsidiaries of the Registrant and Wholly Owned Subsidiaries of the Registrant's Subsidiaries			Form 10-K (Exhibit 21.1)		3/29/19		000-52024
23.1		Consent of Independent Registered Public Accounting Firm	X
31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
32		Certification pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X
101.1		XBRL Instance Document
101.2		XBRL Taxonomy Extension Schema Document
101.3		XBRL Taxonomy Extension Calculation Linkbase Document
101.4		XBRL Taxonomy Extension Definition Linkbase Document
101.5		XBRL Taxonomy Extension Label Linkbase Document
101.6		XBRL Taxonomy Extension Presentation Linkbase Document

(*) Management contract or compensatory plan or arrangement.

(†) Confidential treatment has been granted by the Securities and Exchange Commission as to certain portions.

66

SIGNATURES

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.
Dated:	March 16, 2020	By:	/s/    Patrick S. Miles
			Patrick S. Miles
			Chairman and Chief Executive Officer
			(principal executive officer)
Dated:	March 16, 2020	By:	/s/    Jeffrey G. Black
			Jeffrey G. Black
			Executive Vice President and Chief Financial Officer
			(principal financial officer and principal accounting officer)

SIGNATURES AND POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Patrick S. Miles and Jeffrey G. Black, and each of them, as his or her true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact and agents or any of them, or his or her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

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

Signature	Title	Date
/S/ PATRICK S. MILES	Chairman and Chief Executive Officer (Principal Executive Officer)	March 16, 2020
Patrick S. Miles
/S/    MORTIMER BERKOWITZ III	Lead Director	March 16, 2020
Mortimer Berkowitz III
/S/    EVAN BAKST	Director	March 16, 2020
Evan Bakst
/S/   QUENTIN BLACKFORD	Director	March 16, 2020
Quentin Blackford
/S/    JASON HOCHBERG	Director	March 16, 2020
Jason Hochberg
/S/    KAREN K. MCGINNIS	Director	March 16, 2020
Karen K. McGinnis
/S/    DAVID H. MOWRY	Director	March 16, 2020
David H. Mowry
/S/    JAMES L.L. TULLIS	Director	March 16, 2020
James L.L. Tullis
/S/    JEFFREY P. RYDIN	Director	March 16, 2020
Jeffrey  P. Rydin
/S/    DONALD A. WILLIAMS	Director	March 16, 2020
Donald A. Williams

/S/    WARD W. WOODS	Director	March 16, 2020
Ward W. Woods

67

ALPHATEC HOLDINGS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets	F-3
Consolidated Statements of Operations	F-4
Consolidated Statements of Comprehensive Loss	F-5
Consolidated Statements of Stockholders’ Equity	F-6
Consolidated Statements of Cash Flows	F-8
Notes to Consolidated Financial Statements	F-9

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Alphatec Holdings, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Alphatec Holdings, Inc. (“Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity (deficit), and cash flows for each of the two years in the period ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in the 2013 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 16, 2020 expressed an adverse opinion thereon.

Adoption of New Accounting Standard

As discussed in Note 2 to the financial statements, the Company changed its method of accounting for leases as a result of the adoption of Accounting Standards Codification Topic 842, Leases, effective January 1, 2019, under the modified retrospective method.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provides a reasonable basis for our opinion.

/s/ Mayer Hoffman McCann P.C.

We have served as the Company's auditor since 2017.

San Diego, California

March 16, 2020

F-2

ALPHATEC HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value data)

	December 31,
	2019			2018
Assets
Current assets:
Cash	$	47,113		$	29,054
Accounts receivable, net		16,150			15,095
Inventories, net		34,854			28,765
Prepaid expenses and other current assets		9,880			2,030
Withholding tax receivable from officer		—			350
Current assets of discontinued operations		321			242
Total current assets		108,318			75,536
Property and equipment, net		19,722			13,235
Right-of-use asset		1,860			—
Goodwill		13,897			13,897
Intangibles, net		25,605			26,408
Other assets		493			347
Noncurrent assets of discontinued operations		53			54
Total assets	$	169,948		$	129,477
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	7,772		$	4,399
Accrued expenses		26,416			22,316
Current portion of long-term debt		489			3,276
Current portion of lease liability		1,314			—
Current liabilities of discontinued operations		399			621
Total current liabilities		36,390			30,612
Long-term debt, less current portion		53,448			42,299
Operating lease liability, less current portion		925			—
Other long-term liabilities		11,951			15,389
Redeemable preferred stock, $0.0001 par value; 20,000 shares authorized at December 31,    2019 and 2018; 3,319 shares issued and outstanding at December 31, 2019 and 2018		23,603			23,603
Commitments and contingencies
Stockholders’ equity:
Series A convertible preferred stock, $0.0001 par value; 15 shares authorized at    December 31, 2019 and 2018; 0 and 4 shares issued and outstanding at    December 31, 2019 and 2018, respectively		—			—
Series B convertible preferred stock, $0.0001 par value; 45 shares authorized    at December 31, 2019 and 2018; 0 shares issued and outstanding at    December 31, 2019 and 2018		—			—
Common stock, $0.0001 par value; 200,000 authorized; 61,718 shares issued and 61,400 outstanding at December 31, 2019, net of 318 unvested shares and 43,518 shares issued and 43,368 shares outstanding, net of 150 unvested shares at December 31, 2018		6			4
Treasury stock, 2 shares, at cost		(97	)		(97	)
Additional paid-in capital		606,558			523,525
Shareholder note receivable		(5,000	)		(5,000	)
Accumulated other comprehensive income		1,088			1,064
Accumulated deficit		(558,924	)		(501,922	)
Total stockholders’ equity		43,631			17,574
Total liabilities and stockholders’ equity	$	169,948		$	129,477

See accompanying notes to consolidated financial statements.

F-3

ALPHATEC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

	Year Ended December 31,
	2019			2018
Revenues:
Revenue from U.S. products	$	108,242		$	83,656
Revenue from international supply agreement		5,185			8,038
Total revenues		113,427			91,694
Cost of revenues		35,833			28,457
Gross profit		77,594			63,237
Operating expenses:
Research and development		13,849			9,853
Sales, general and administrative		101,714			72,640
Litigation-related		8,549			5,683
Amortization of intangible assets		698			738
Transaction-related		—			1,550
Gain on settlement		—			(6,168	)
Restructuring		60			1,381
Total operating expenses		124,870			85,677
Operating loss		(47,276	)		(22,440	)
Other expense:
Other expense, net		(9,865	)		(7,139	)
Loss on debt extinguishment		—			(590	)
Total other expense		(9,865	)		(7,729	)
Loss from continuing operations before taxes		(57,141	)		(30,169	)
Income tax benefit		(239	)		(1,361	)
Loss from continuing operations		(56,902	)		(28,808	)
Loss from discontinued operations, net of applicable taxes		(100	)		(167	)
Net loss		(57,002	)		(28,975	)
Recognition of beneficial conversion feature - Series B Preferred Stock		—			(13,488	)
Net loss attributable to common shareholders	$	(57,002	)	$	(42,463	)
Loss per share, basic and diluted:
Continuing operations	$	(1.09	)	$	(0.82	)
Discontinued operations		—			—
Net loss per share, basic and diluted	$	(1.09	)	$	(1.20	)
Shares used in calculating basic and diluted net loss per share		52,234			35,315

See accompanying notes to consolidated financial statements.

F-4

ALPHATEC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

	Year Ended December 31,
	2019			2018
Net loss	$	(57,002	)	$	(28,975	)
Foreign currency translation adjustments related to continuing operations		24			(29	)
Comprehensive loss	$	(56,978	)	$	(29,004	)

See accompanying notes to consolidated financial statements.

F-5

ALPHATEC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

	Common stock				Series A Convertible Preferred Stock					Series B Convertible Preferred Stock				Additional		Shareholder						Accumulated other						Total stockholders’
	Shares		Par Value		Shares			Par Value		Shares		Par Value		paid-in capital		note receivable			Treasury stock			comprehensive income (loss)			Accumulated deficit			equity (deficit)
Balance at December 31, 2017		19,857	$	2		5		$	—		—	$	—	$	436,803	$	(5,000	)	$	(97	)	$	1,093		$	(459,459	)	$	(26,658	)
Stock-based compensation		—		—		—			—		—		—		5,649		—			—			—			—			5,649
Issuance of warrants in    conjunction with    Squadron Term Loan		—		—		—			—		—		—		1,708		—			—			—			—			1,708
Issuance and conversion of    preferred stock into common    stock, net of offering costs of    $2.6 million		14,986		2		(1	)		—		—		—		42,608		—			—			—			—			42,610
Recognition of beneficial    conversion feature -Series    B Preferred Stock		—		—		—			—		—		—		13,488		—			—			—			(13,488	)		—
Common stock issued for    employee stock purchase plan    and stock option exercises		258		—		—			—		—		—		666		—			—			—			—			666
Common stock issued for    vesting of restricted stock    awards, net of shares    repurchased for tax    liability		248		—		—			—		—		—		—		—			—			—			—			—
Common stock issued for    warrant exercises, net of    issuance costs of $0.1 million		4,311		—		—			—		—		—		8,628		—			—			—			—			8,628
Issuance of common stock and    warrants for the acquisition    of SafeOp		3,265		—		—			—		—		—		12,529		—			—			—			—			12,529
Issuance of common stock for    acquisition of SafeOp -    Milestone 1		443		—		—			—		—		—		1,446		—			—			—			—			1,446
Foreign currency translation    adjustments		—		—		—			—		—		—		—		—			—			(29	)		—			(29	)
Net loss		—		—		—		0			—	0			—		—			—			—			(28,975	)		(28,975	)
Balance at December 31, 2018		43,368		4		4			—		—		—		523,525		(5,000	)		(97	)		1,064			(501,922	)		17,574
Stock-based compensation		—		—		—			—		—		—		10,294		—			—			—			—			10,294
Common stock issued for    conversion of Series A    preferred stock		1,954		—		(4	)		—		—		—		—		—			—			—			—			—
Recognition of beneficial    conversion feature -    SafeOp Convertible Notes		—		—		—			—		—		—		242		—			—			—			—			242
Distributor equity incentives		75		—		—			—		—		—		322		—			—			—			—			322

F-6

Common Stock issued for    warrant exercises	757		—	—		—	—		—		1,668			—			—			—		—			1,668
Common stock issued for    employee stock purchase plan    and stock option exercises	477		—	—		—	—		—		1,522			—			—			—		—			1,522
Common stock issued for    vesting of performances    and restricted stock units and restricted stock awards,  net of tax liability	1,347		—	—		—	—		—		(1,414	)		—			—			—		—			(1,414	)
Issuance of common stock    warrants	—		—	—		—	—		—		13,664			—			—			—		—			13,664
Issuance of common stock for    public offering, net of    offering costs of $3.8M	12,535		2	—		—	—		—		53,846			—			—			—		—			53,848
Issuance of common stock for    acquisition of SafeOp -    Milestone 2	887		—	—		—	—		—		2,889			—			—			—		—			2,889
Foreign currency translation    adjustments	—		—	—		—	—		—		—			—			—			24		—			24
Net loss	—		—	—		—	—		—		—			—			—			—		(57,002	)		(57,002	)
Balance at December 31, 2019	61,400	$	6	—	$	—	—	$	—	$	606,558		$	(5,000	)	$	(97	)	$	1,088	$	(558,924	)	$	43,631

See accompanying notes to consolidated financial statements.

F-7

ALPHATEC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Year Ended December 31,
	2019			2018
Operating activities:
Net loss	$	(57,002	)	$	(28,975	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		7,578			6,789
Stock-based compensation		10,956			5,304
Amortization of debt discount and debt issuance costs		3,709			2,087
Amortization of right-of-use asset		930			—
Provision for doubtful accounts		242			164
Provision for excess and obsolete inventory		8,624			3,733
Deferred income tax benefit		(438	)		(1,405	)
Gain on settlement		—			(6,168	)
Beneficial conversion feature from convertible notes		242			—
Loss on extinguishment of debt		—			590
Loss on disposal of instruments		127			130
Accretion to contingent consideration		289			846
Changes in operating assets and liabilities:
Accounts receivable, net		(1,298	)		(396	)
Inventories, net		(14,712	)		(5,014	)
Prepaid expenses and other current assets		186			(268	)
Other assets		262			(90	)
Other long-term assets		(3,308	)		—
Accrued expenses and other		6,647			1,677
Accounts payable		6,003			16
Deferred revenue		—			(261	)
Lease liability		2,239			—
Other long-term liabilities		(4,397	)		(4,367	)
Net cash used in operating activities		(33,121	)		(25,608	)
Investing activities:
Purchases of property and equipment		(13,032	)		(6,514	)
Cash paid for acquisition of SafeOp Surgical, Inc.		—			(15,103	)
Cash paid for acquisition of intangible assets		—			(400	)
Cash received from sale of equipment		—			348
Net cash used in investing activities		(13,032	)		(21,669	)
Financing activities:
Proceeds from public offering, net		53,848			—
Proceeds from sale of common stock, net		1,977			51,902
Borrowings under lines of credit		114,710			90,459
Repayments under lines of credit		(112,934	)		(89,993	)
Principal payments on capital lease obligations		(27	)		(96	)
Proceeds from issuance of term debt, net		9,700			34,077
Principal payments on term loan and notes payable		(3,091	)		(32,464	)
Net cash provided by financing activities		64,183			53,885
Effect of exchange rate changes on cash		29			(20	)
Net increase in cash		18,059			6,588
Cash at beginning of year		29,054			22,466
Cash at end of year	$	47,113		$	29,054
Supplemental disclosure of cash flow information:
Cash paid for interest	$	5,969		$	5,141
Cash paid for income taxes	$	161		$	134
Supplemental disclosure of noncash investing and financing activities:
Common stock warrants issued with term loan draw	$	13,664		$	1,708
Common stock and warrants issued for the acquisition of SafeOp	$	—		$	12,529
Common stock issued for achievement of SafeOp contingent consideration	$	2,889		$	1,446
Purchases of property and equipment in accounts payable	$	1,275		$	940

See accompanying notes to consolidated financial statements.

F-8

ALPHATEC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. The Company and Basis of Presentation

The Company

Alphatec Holdings, Inc. (the “Company”), through its wholly owned subsidiaries, Alphatec Spine, Inc. (“Alphatec Spine”) and SafeOp Surgical, Inc. (“SafeOp”), is a medical technology company that designs, develops, and markets technology for the treatment of spinal disorders associated with disease and degeneration, congenital deformities, and trauma. The Company markets its products in the U.S. via independent sales agents and a direct sales force.

On March 6, 2018, the Company and its newly created wholly-owned subsidiary, Safari Merger Sub, Inc (“Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with SafeOp, a Delaware corporation, certain Key Stockholders of SafeOp and a Stockholder Representative. Pursuant to the Merger Agreement, a reverse triangular merger (the “Merger”) was consummated on March 8, 2018, in which Sub was merged into SafeOp, with SafeOp being the surviving corporation and a wholly owned subsidiary of the Company. See Note 8 for further information.

On September 1, 2016, the Company completed the sale of its international distribution operations and agreements (collectively, the “International Business”) to Globus Medical Ireland, Ltd., a subsidiary of Globus Medical, Inc., and its affiliated entities (collectively “Globus”). As a result of this transaction, the International Business has been excluded from continuing operations for all periods presented in the consolidated financial statements and is reported as discontinued operations. See Note 4 for additional information on the divestiture of the International Business.

Basis of Presentation

The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") and include the accounts of the Company, Alphatec Spine and SafeOp. All intercompany balances and transactions have been eliminated in consolidation.  The Company operates in one reportable business segment.

Liquidity

At each reporting period, the Company evaluates whether there are conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. The Company’s evaluation entails analyzing prospective operating budgets and forecasts for expectations of the Company’s cash needs and comparing those needs to the current cash and cash equivalent balances, and availability under existing credit facilities. The Company is required to make certain additional disclosures if it concludes substantial doubt exists and it is not alleviated by the Company’s plans or when its plans alleviate substantial doubt about the Company’s ability to continue as a going concern.  

The Company has experienced negative operating cash flows for all historical periods presented and it expects these losses to continue into the foreseeable future as the Company continues to incur costs related to the execution of its operating plan and introduction of new products. The Company’s annual operating plan projects that its existing working capital at December 31, 2019 of $71.9 million (including cash of $47.1 million), along with available draws on its working capital credit line with MidCap and an additional $20 million in available borrowings under its credit facility with Squadron Medical Finance Solutions LLC (“Squadron”), allows the Company to fund its operations through at least one year subsequent to the date the financial statements are issued.

As more fully described in Note 5, the Company’s existing credit agreements with MidCap and Squadron (collectively, the “current lenders”) include a financial covenant that requires the Company to maintain a minimum cash balance of $5.0 million. The minimum cash covenant converts to a minimum fixed charge coverage ratio beginning April 30, 2020.  The Company expects that it will be unable to meet the fixed charge covenant at that time. In order to avoid a default on its existing credit agreements, the Company expects to refinance its existing debt prior to April 30, 2020, pursuant to a binding commitment letter with a new lender, as further described in Note 15. Should such re-financing not occur prior to April 30, 2020 the Company has entered into letter agreements with the current lenders, agreeing to work together in good faith to amend its existing covenants to extend the minimum cash covenant and defer the fixed charge covenant through at least April 1, 2021.  

The committed refinancing is subject to customary closing conditions, and, therefore, there is no guarantee that the Company will be able to successfully close such refinancing on or before April 30, 2020, or at all.   In addition, if required, there is no guarantee that the Company will be able to obtain the necessary waivers or amendments from its current lenders. If the Company is unable to refinance its existing debt or is unable to secure waivers or amendments from its current lenders, the current lenders have the right to

F-9

accelerate the repayment of all amounts outstanding.  In addition, the Company would be required to classify its obligations under existing debt agreements in current liabilities on its consolidated balance sheet.  These events would negatively impact the Company’s ability to meet its ongoing financial obligations.  The Company believes the refinancing of its existing debt under its commitment letter with the new lender and/or obtaining waivers or amendments of current debt covenants is probable to occur. These factors alleviate substantial doubt about the Company’s ability to continue as a going concern.

Reclassification

Certain amounts in the consolidated financial statements included in our Form 10-K for the year ended December 31, 2018 have been reclassified to conform to current period's presentation. These reclassifications include stock based compensation expense, which was reclassified to correctly present employee expenses consistent with their function, out of research and development and into sales, general and administrative expense on the Company’s consolidated statements of operations. This resulted in a reclassification of $0.1 million of stock compensation expense for the year ended December 31, 2018. In addition, certain amounts in the Consolidated Statement of Cash Flow included in the Form 10-K for the year ended December 31, 2018 have been reclassified to conform to current period's presentation. None of the adjustments had any effect on the prior period net loss.

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of property and equipment, intangibles, allowances for doubtful accounts, the valuation of share based liabilities, deferred tax assets, inventory, stock-based compensation, revenues, restructuring liabilities, income tax uncertainties, and other contingencies.

Concentrations of Credit Risk and Significant Customers

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and accounts receivable. The Company limits its exposure to credit loss by depositing its cash with established financial institutions. As of December 31, 2019, a substantial portion of the Company’s available cash funds is held in business accounts. Although the Company deposits its cash with multiple financial institutions, its deposits, at times, may exceed federally insured limits.

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

Revenue Recognition

The Company recognizes revenue from product sales in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“Topic 606”). The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.  

F-10

The Company derives its revenues primarily from the sale of spinal surgery implants and products used in the treatment of spine disorders. The Company sells its products primarily through its direct sales force and independent distributors. Revenue is recognized when control of the promised goods is transferred to the customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods. Transfer of control generally occurs when the Company receives the written acknowledgment that the product has been used in a surgical procedure or upon shipment to third-party customers who immediately accept title to such product.

The Company’s accounts receivable generally have net 30-day payment terms. The Company generally does not allow returns of products that have been delivered. The Company offers standard quality assurance warranty on its products. As of December 31, 2019, accounts receivable related to products and services were $16.2 million. For the year ended December 31, 2019, the Company had no material bad debt expense and there were no material contract assets, contract liabilities or deferred contract costs recorded on the consolidated balance sheet as of December 31, 2019.

Accounts Receivable, net

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

Inventories, net

Inventories are stated at the lower of cost or net realizable value, with cost primarily determined under the first-in, first-out method. The Company reviews the components of inventory on a periodic basis for excess, obsolete and impaired inventory, and records a reserve for the identified items. The Company calculates an inventory reserve for estimated excess and obsolete inventory based upon historical turnover and assumptions about future demand for its products and market conditions. The Company’s biologics inventories have an expiration based on shelf life and are subject to demand fluctuations based on the availability and demand for alternative implant products. The Company’s estimates and assumptions for excess and obsolete inventory are reviewed and updated on a quarterly basis. Increases in the reserve for excess and obsolete inventory result in a corresponding increase to cost of revenues and establish a new cost basis for the part.

Property and Equipment, net

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

Operating Lease

Effective January 1, 2019, the Company adopted ASC No. 2016‑02, Leases (Topic 842) (“ASC 842”), which supersedes the current accounting for leases, using the modified retrospective transition method. The Company has elected to apply the practical expedients allowed by the standard for existing leases. The new standard, while retaining two distinct types of leases, finance and operating, (i) requires lessees to record a right-of-use (“ROU”) asset and a related liability for the rights and obligations associated with a lease, regardless of lease classification, and recognize lease expense in a manner similar to current accounting, (ii) eliminates current real estate specific lease provisions, (iii) modifies the lease classification criteria and (iv) aligns many of the underlying lessor model principles with those in the new revenue standard. The Company determines the initial classification and measurement of its ROU asset and lease liabilities at the lease commencement date and thereafter, if modified. The Company recognizes a ROU asset for its operating leases with lease terms greater than 12 months. The lease term includes any renewal options and termination options that the Company is reasonably assured to exercise. The present value of lease payments is determined by using the incremental borrowing rate for operating leases determined by using the incremental borrowing rate of interest that the Company would pay to borrow on a collateralized basis an amount equal to the lease payments in a similar economic environment. The Company applied the new guidance to its existing facility lease at the time of adoption and recognized a ROU asset of $2.4 million and operating lease liability of $2.9 million as of March 31, 2019, the initial period of adoption, and removed the previous deferred rent balance under the previous lease guidance of approximately $0.6 million. The Company entered into another facility lease for smaller office space during the third quarter of 2019 and also applied this guidance to create an additional ROU asset and operating lease liability. The two leases are presented together on the Company’s consolidated balance sheet.

F-11

Rent expense for operating leases is recognized on a straight-line basis over the reasonably assured lease term based on the total lease payments and is included in research and development and general and administrative expenses in the consolidated statements of operations.

Goodwill and Intangible Assets

The Company’s goodwill represents the excess of the cost over the fair value of net assets acquired from its business combination with SafeOp. The determination of the value of goodwill and intangible assets arising from its business combination and asset acquisitions requires extensive use of accounting estimates and judgments to allocate the purchase price to the fair value of the net tangible and intangible assets acquired, including capitalized in-process research and development (“IPR&D”). Intangible assets acquired in a business combination that are used for in-process research and development activities are considered indefinite lived until the completion or abandonment of the associated research and development efforts. Upon reaching the end of the relevant research and development project, the Company will amortize the acquired IPR&D over its estimated useful life or expense the acquired in-process research and development should the research and development project be unsuccessful with no future alternative use.

Goodwill and IPR&D are not amortized; however, they are assessed for impairment using fair value measurement techniques on an annual basis or more frequently if facts and circumstance warrant such a review. The goodwill or IPR&D are considered to be impaired if the Company determines that the carrying value of the reporting unit or IPR&D exceeds its respective fair value. 

The Company performs its annual impairment analysis by comparing the Company’s estimated fair value, calculated from the Company’s market capitalization, to its carrying amount. The Company’s annual evaluation for impairment of goodwill consists of one reporting unit. The Company completed its most recent annual evaluation for impairment as of December 31, 2019 and determined that no impairment existed and, consequently, no impairment charge has been recorded during the year.

Intangible assets with a finite life, such as acquired technology, customer relationships, manufacturing know-how, licensed technology, supply agreements and certain trade names and trademarks, are amortized on a straight-line basis over their estimated useful life, ranging from one to twenty-year period. In determining the useful lives of intangible assets, the Company considers the expected use of the assets and the effects of obsolescence, demand, competition, anticipated technological advances, changes in surgical techniques, market influences and other economic factors. For technology based intangible assets, the Company considers the expected life cycles of products which incorporate the corresponding technology. Trademarks and trade names that are related to products are assigned lives consistent with the period in which the products bearing each brand are expected to be sold.

The Company evaluates its intangible assets with finite lives for indications of impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that could trigger an impairment review include significant under-performance relative to expected historical or projected future operating results, significant changes in the manner of the Company’s use of the acquired assets or the strategy for the Company’s overall business or significant negative industry or economic trends. If this evaluation indicates that the value of the intangible asset may be impaired, the Company makes an assessment of the recoverability of the net carrying value of the asset over its remaining useful life. If this assessment indicates that the intangible asset is not recoverable, based on the estimated undiscounted future cash flows of the technology over the remaining amortization period, the Company reduces the net carrying value of the related intangible asset to fair value and may adjust the remaining amortization period. There were no impairment charges in 2019 or 2018.

Impairment of Long-Lived Assets

The Company assesses potential impairment to its long-lived assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized when the carrying amount of the long-lived assets is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Any required impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value and is recorded as a reduction in the carrying value of the related asset and a charge to operating results. There were no impairment charges in 2019 or 2018.

Warrants to Purchase Common Stock

Warrants are accounted for in accordance with the applicable accounting guidance as either derivative liabilities or as equity instruments depending on the specific terms of the agreements. Liability-classified instruments are recorded at fair value at each reporting period with any change in fair value recognized as a component of change in fair value of derivative liabilities in the consolidated statements of operations.

F-12

All warrants issued in 2019 and 2018 qualified for classification within stockholders’ equity and, therefore, did not require liability accounting.

Fair Value Measurements

The carrying amount of financial instruments consisting of cash, trade accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses, accrued compensation and current portion of long-term debt included in the Company’s consolidated financial statements are reasonable estimates of fair value due to their short maturities. Based on the borrowing rates currently available to the Company for loans with similar terms, management believes the fair value of long-term debt approximates its carrying value.

Authoritative guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Aside from the warrants issued alongside the Squadron amendment that are classified within prepaid and other assets on the consolidated balance sheet, the Company does not maintain any financial assets that are considered to be Level 1, Level 2 or Level 3 instruments as of December 31, 2019. The fair value of the contingent consideration liability assumed in the SafeOp acquisition was recorded as part of the purchase price consideration of the acquisition. The contingent consideration related to the SafeOp acquisition was classified within Level 3 of the fair value hierarchy as the Company was using a probability-weighted income approach, utilizing significant unobservable inputs including the probability of achieving each of the potential milestones and an estimated discount rate related to the risks of the expected cash flows attributable to the milestones. All the contingent milestones were achieved as of December 31, 2019. During the second quarter of 2019, the Company issued a liability classified equity award to one of its executive officers. The award will be earned over a 4 year vesting period and upon a specific market condition. As the award will be cash settled, it is classified as a liability within Level 3 of the fair value hierarchy as the Company is using a probability-weighted income approach, utilizing significant unobservable inputs including the probability of achieving the specified market condition with the valuation updated at each reporting period. The full fair value of the cash settled award was $1.7 million as of December 31, 2019 and is being recognized ratably as the underlying service period is provided.

The following table provides a reconciliation of liabilities measured at fair value using significant unobservable inputs (Level 3) for the year ended December 31, 2018 and 2019 (in thousands):

	Level 3 Liabilities
Balance at December 31, 2017	$	—
Contingent consideration liability recorded upon acquisition of    SafeOp		3,200
Settlement of milestone #1		(1,446	)
Change in fair value measurement		846
Balance at December 31, 2018		2,600
Settlement of milestone #2		(2,889	)
Change in fair value measurement- milestone #2		289
Straight line recognition of liability classified equity award		173
Change in fair value measurement- equity award		93
Balance at December 31, 2019	$	266

During the year ended December 31, 2019, the Company achieved the second of the two milestones related to the acquisition of SafeOp, which was settled through the issuance of 886,843 shares of the Company’s common stock. See Note 8 for further information.

Research and Development Expenses

Research and development expense consists of costs associated with the design, development, testing, and enhancement of the Company’s products. Research and development costs also include salaries and related employee benefits, research-related overhead expenses, fees paid to external service providers. Research and development costs are expensed as incurred.

F-13

Transaction-related Expenses

The Company expensed certain costs related to the SafeOp acquisition, which primarily include third-party advisory and legal fees.

Litigation-related Expenses

Litigation-related expenses are costs incurred for the ongoing litigation, primarily with NuVasive, Inc. See Note 6 for further information.

Product Shipment Cost

Product shipment costs are included in sales and marketing expense in the accompanying consolidated statements of operations. Product shipment costs totaled $4.0 million and $2.5 million for the years ended December 31, 2019 and 2018, respectively.

Stock-Based Compensation

The Company accounts for stock-based compensation under provisions which require that share-based payment transactions with employees be recognized in the financial statements based on their fair value and recognized as compensation expense over the vesting period. The amount of expense recognized during the period is affected by subjective assumptions, including estimates of the future volatility of the Company’s stock price, the expected term for its stock options, the number of options expected to ultimately vest, and the timing of vesting for the Company’s share-based awards.

The Company uses a Black-Scholes option pricing valuation model to estimate the fair value of its stock option awards. The calculation of the fair value of the awards using the Black-Scholes option pricing model is affected by the Company’s common stock price on the date of grant as well as assumptions regarding the following:

• Estimated volatility is a measure of the amount by which the Company’s common stock price is expected to fluctuate each year during the expected life of the award. The Company’s estimated volatility through December 31, 2019 was based on a weighted-average volatility of its actual historical volatility over a period equal to the expected life of the awards.

• The expected term represents the period of time that awards granted are expected to be outstanding. Through December 31, 2019, the Company calculated the expected term using a weighted-average term based on historical exercise patterns and the term from option date to full exercise for the options granted within the specified date range.

• The risk-free interest rate is based on the yield curve of a zero-coupon U.S. Treasury bond on the date the stock option award is granted with a maturity equal to the expected term of the stock option award.

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

The Company used historical data to estimate the number of future stock option forfeitures. Stock-based compensation recorded in the Company’s consolidated statements of operations is based on awards expected to ultimately vest and has been reduced for estimated forfeitures. The Company’s estimated forfeiture rates may differ from its actual forfeitures which would affect the amount of expense recognized during the period.

The Company accounts for stock option grants to non-employees in accordance with provisions which require that the fair value of these instruments be recognized as an expense over the period in which the related services are rendered.

Stock-based compensation expense of awards with performance conditions is recognized over the period from the date the performance condition is determined to be probable of occurring through the time the applicable condition is met. Determining the likelihood and timing of achieving performance conditions is a subjective judgment made by management which may affect the amount and timing of expense related to these share-based awards. Share-based compensation is adjusted to reflect the value of options which ultimately vest as such amounts become known in future periods.

Stock-based awards with market conditions are valued using the Monte Carlo valuation technique which requires management to make significant estimates and assumptions that are not observable from the market. Stock based compensation for awards with both service and market conditions that contain one vesting date are recognized on a straight line basis over the longer of the derived service period or the requisite service period.  For awards with both service and market conditions with various vesting dates, stock based compensation is recognized utilizing an accelerated expense model over the longer of the derived service period or the requisite service period.

F-14

Valuation of Stock Option Awards

The weighted average assumptions used to compute the stock-based compensation costs for the stock options granted during the years ended December 31, 2019 and 2018 are as follows:

	Year Ended December 31,
	2019			2018
Risk-free interest rate		2.00	%		2.85	%
Expected dividend yield		—			—
Weighted average expected life (years)		6.09			6.08
Volatility		80.76	%		78.54	%

Stock-Based Compensation Costs

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

	Year Ended December 31,
	2019		2018
Cost of revenues	$	146	$	73
Research and development		752		351
Sales, general and administrative		10,058		4,880
Total	$	10,956	$	5,304

Income Taxes

The Company accounts for income taxes in accordance with provisions which set forth an asset and liability approach that requires the recognition of deferred tax assets and deferred tax liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. In making such determination, a review of all available positive and negative evidence must be considered, including scheduled reversal of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance.

The Company recognizes interest and penalties related to uncertain tax positions as a component of the income tax provision.

Beneficial Conversion Feature – Series B Preferred Stock

In March 2018, the Company completed a private placement of equity securities to certain institutional and accredited investors, providing for the sale by the Company of newly designated Series B Convertible Preferred Stock, which shares of preferred stock were automatically converted into 14.3 million shares of our common stock upon approval by the Company’s stockholders. As the Series B Convertible Preferred Stock provided the holder the benefit to convert to shares of common stock, a beneficial conversion feature (“BCF”) with a calculated intrinsic fair value at issuance of $13.5 million existed as of the date the shares of Series B Convertible Preferred Stock were able to be converted into shares of common stock. This one-time, non-cash deemed dividend impacts net loss attributable to common stockholders and net loss per share on the Company’s consolidated statement of operations for the year ended December 31, 2018.

Beneficial Conversion Feature – SafeOp Convertible Notes

In March 2019, the Company’s convertible notes outstanding reached maturity and allowed for the noteholders to elect settlement in cash or shares of the Company’s common stock. As the Convertible Notes provided the holders the benefit to convert to shares of common stock, a BCF with a calculated intrinsic fair value at issuance of $0.2 million existed as of the date the Convertible Notes were able to be converted into shares of the Company’s common stock. Although the holders elected for cash settlement, the BCF was required to be recognized as interest expense on the Company’s consolidated statement of operations and within additional paid-in-capital within the Company’s consolidated statement of stockholders’ equity for the year ended December 31, 2019.

F-15

Net Loss per Share

Basic earnings per share (“EPS”) is calculated by dividing the net income or loss available to common stockholders by the weighted average number of shares of common stock outstanding for the period without consideration for common stock equivalents. Diluted EPS is computed by dividing the net income or loss available to common stockholders by the weighted average number of shares of common stock 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, common stock issuable upon conversion of preferred shares, options 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 sets forth the computation of basic and diluted loss per share (in thousands, except per share data):

	Year Ended December 31,
	2019			2018
Numerator:
Net loss, basic and diluted	$	(57,002	)	$	(42,463	)
Denominator:
Weighted average common shares outstanding		52,520			35,402
Weighted average unvested common shares subject to repurchase		(286	)		(87	)
Weighted average common shares outstanding - basic and diluted		52,234			35,315
Net loss per share, basic and diluted	$	(1.09	)	$	(1.20	)

The anti-dilutive securities not included in diluted net loss per share were as follows calculated on a weighted average basis (in thousands):

	Year Ended December 31,
	2019		2018
Options to purchase common stock		4,215		4,682
Warrants to purchase common stock		26,557		22,302
Series A convertible preferred stock		67		2,022
Unvested restricted stock awards		6,727		3,270
Convertible notes		—		988
		37,566		33,264

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), 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 and interim reporting periods in fiscal years beginning after December 15, 2018. The Company adopted the guidance effective January 1, 2019 and elected the optional transition method to account for the impact of the adoption with a cumulative-effect adjustment in the period of adoption and did not restate prior periods. The Company elected certain practical expedients permitted under the transition guidance. As part of the adoption, the Company recorded a ROU asset and liability upon adoption of the guidance pertaining to its long-term real estate lease for its corporate facilities. No cumulative-effect adjustment was needed.

Recently Issued Accounting Pronouncements

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other, which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. The standard has tiered effective dates, starting in 2020 for calendar-year public business entities that meet the definition of an SEC filer. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The Company is in the process of determining the impact the adoption will have on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15,Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40), which aligns the accounting for cloud computing implementation costs with that of costs to develop or obtain internal-use software, meaning such costs that are part of the application development stage are capitalized as an asset and amortized over the term of the arrangement, otherwise, such costs are expensed as incurred. It also clarifies the classification of amounts related to capitalized implementation costs in the financial statements. ASC 2018-15 is effective for annual reporting periods beginning after December 15, 2019, including interim reporting periods within those annual reporting periods. Early adoption is permitted.  The Company is in the process of determining the impact the adoption will have on its consolidated financial statements.

F-16

In November 2019, the FASB issued ASU No. 2019-08, Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606), which clarifies that an entity must measure and classify share-based payment awards granted to a customer by applying the guidance in Topic 718. ASC 2019-08 is effective for annual reporting periods beginning after December 15, 2019, including interim reporting periods within those annual reporting periods. The Company is in the process of determining the impact the adoption will have on its consolidated financial statements.

3. Balance Sheet Details

Accounts Receivable, net

Accounts receivable consist of the following (in thousands):

	December 31,
	2019			2018
Accounts receivable	$	16,436		$	15,291
Less allowance for doubtful accounts		(286	)		(196	)
Accounts receivable, net	$	16,150		$	15,095

Inventories, net

Inventories consist of the following (in thousands):

	December 31,
	2019			2018
Raw materials	$	5,822		$	5,813
Work-in-process		1,578			952
Finished goods		51,669			39,758
		59,069			46,523
Less reserve for excess and obsolete		(24,215	)		(17,758	)
Inventories, net	$	34,854		$	28,765

Property and Equipment, net

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

	Useful lives		December 31,
	(in years)		2019			2018
Surgical instruments		4	$	58,502		$	54,848
Machinery and equipment		7		6,038			5,971
Computer equipment		3		3,594			3,104
Office furniture and equipment		5		1,297			1,155
Leasehold improvements	various			1,761			1,765
Construction in progress	n/a			496			92
				71,688			66,935
Less accumulated depreciation and amortization				(51,966	)		(53,700	)
Property and equipment, net			$	19,722		$	13,235

Total depreciation expense was $6.8 million and $6.0 million for the years ended December 31, 2019 and 2018, respectively. At December 31, 2019 and 2018, assets recorded under capital leases of $0.1 million were included in the machinery and equipment balance. Amortization of assets under capital leases is included in depreciation expense.

F-17

Intangible Assets, net

In conjunction with the acquisition of SafeOp in March 2018, the Company recorded $21.6 million of new intangible assets. See Note 8 for further information regarding the acquisition. Intangible assets, net consist of the following (in thousands, except as indicated):

	Remaining Avg. Useful lives		December 31,
	(in years)		2019			2018
Developed product technology		10	$	26,976		$	26,976
Intellectual property		—		1,004			1,004
License agreements		1		5,536			5,536
Trademarks and trade names		—		792			792
Customer-related		5		7,458			7,458
Distribution network		4		4,027			4,027
In process research and development		19		8,800			8,800
				54,593			54,593
Less accumulated amortization				(28,988	)		(28,185	)
Intangible assets, net			$	25,605		$	26,408

Total expense related to amortization of intangible assets was $0.7 million and $0.8 million for the years ended December 31, 2019 and 2018, respectively.

Future amortization expense related to intangible assets as of December 31, 2019 is as follows (in thousands):

Year Ending December 31,
2020	$	1,869
2021		1,888
2022		1,888
2023		1,888
2024		1,785
Thereafter		16,287
Total	$	25,605

Accrued Expenses

Accrued expenses consist of the following (in thousands):

	December 31,
	2019		2018
Commissions and sales milestones	$	5,299	$	3,594
Payroll and payroll related		7,949		3,222
Litigation settlement obligation		4,400		4,400
Professional fees		3,945		2,637
Royalties		1,981		1,354
Restructuring and severance accruals		29		710
Taxes		82		(3	)
Interest		155		261
Acquisition related - contingent consideration		-		2,600
Other		2,576		3,541
Total accrued expenses	$	26,416	$	22,316

F-18

Other Long-Term Liabilities

Other long-term liabilities consist of the following (in thousands):

	December 31, 2019		December 31, 2018
Litigation settlement obligation - long-term portion	$	10,712	$	13,954
Line of credit exit fee		600		600
Tax liabilities		373		835
Other		266		-
Other long-term liabilities	$	11,951	$	15,389

4. Discontinued Operations

In connection with the sale of the International Business, the Company entered into a product manufacture and supply agreement (the “Supply Agreement”) with Globus, pursuant to which the Company supplies 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. During the first quarter of 2019, Globus notified the Company that it will exercise the option to extend the agreement an additional twelve months through August 2020. In accordance with authoritative guidance, sales to Globus are reported under continuing operations as the Company has continuing involvement under the Supply Agreement.

During the year ended December 31, 2019, the Company recorded $5.2 million in revenue and $4.8 million in cost of revenue from the Supply Agreement in continuing operations and during the year ended December 31, 2018, the Company recorded $8.0 million in revenue and $7.5 million in cost of revenue in continuing operations. General and administrative expenses pertaining to discontinued operations on the Company’s consolidated statements of operations were immaterial for the years ended December 31, 2019 and 2018.

5. Debt

MidCap Facility Agreement

The Company’s Amended Credit Facility with MidCap provides for a revolving credit commitment up to $22.5 million and provided for a term loan commitment up to $5 million. As of December 31, 2019, $12.8 million was outstanding under the revolving line of credit. The principal balance outstanding under the revolving line of credit is due in December 2022.

Amounts outstanding under the revolving line of credit accrues interest at the London Interbank Offered Rate ("LIBOR") plus 6.0%, reset monthly. At December 31, 2019, the revolving line of credit carried an interest rate of 7.69%, with interest payable monthly. The borrowing base is determined based on the value of domestic eligible accounts receivable. As collateral for the Amended Credit Facility, MidCap has a first lien security interest in accounts receivable and a second lien security interest on substantially all other assets.

At December 31, 2019, $0.9 million remains as unamortized debt discount related to the Amended Credit Facility on the consolidated balance sheet, which will be amortized over the remaining term of the Amended Credit Facility.

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 March 8, 2018, the Company entered into a Seventh Amendment to the Amended Credit Facility to extend the date that the financial covenants of the Amended Credit Facility are effective from April 2018 to April 2019, and established a minimum liquidity covenant of $5.0 million effective through March 2019. On November 6, 2018, the Company entered into the Eighth Amendment to the Amended Credit Facility to extend the date that the financial covenants of the Amended Credit Facility are effective from April 2019 to April 2020, and extended the minimum liquidity covenant through March 2020. The Company was in compliance with the covenants under the Amended Credit Facility at December 31, 2019.

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Globus Facility Agreement

On September 1, 2016, the Company and Globus entered into the Globus Facility Agreement, pursuant to which Globus loaned the Company $30 million, subject to the terms and conditions set forth in the Globus Facility Agreement. On November 7, 2018, the Company repaid in full all amounts outstanding and due under the Globus Facility Agreement. The Company made a final payment of $29.2 million to Globus, consisting of outstanding principal and accrued interest. All amounts previously recorded as debt issuance costs were recorded as a loss on debt extinguishment on the Company’s consolidated statement of operations for the year ended December 31, 2018.

Squadron Credit Agreement

On November 6, 2018, the Company closed a $35 million Term Loan with Squadron, a provider of debt financing to growing companies in the orthopedic industry. The net proceeds of approximately $34.1 million were used to retire the Company’s existing $29.2 million term debt with Globus. The remainder of the proceeds were used for general corporate purposes.

The debt has a five-year maturity and bears interest at LIBOR plus 8% (10.0% as of December 31, 2019) per annum. The Agreement specifies a minimum interest rate of 10% and a maximum of 13% per year. Interest-only payments are due monthly through May 2021, followed by $10 million in principal payable in 29 equal monthly installments beginning June 2021 and a $25 million lump-sum payment payable at maturity in November 2023. As collateral for the Term Loan, Squadron has a first lien security interest in substantially all assets except for accounts receivable.

The credit 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 Squadron’s right to declare all outstanding obligations immediately due and payable. Furthermore, the credit agreement contains various covenants, including monthly compliance certifications and compliance with government regulations and maintenance of insurance, and prohibitions against certain specified actions, including acquiring any new equipment financings over a specified amount. The credit agreement also contains various negative covenants including a $5 million minimum liquidity requirement through March 31, 2020. The minimum liquidity covenant will be replaced by a fixed charge ratio, pursuant to which operating cash to fixed charges (as defined) must equal at least 1:1 on a rolling 12-month basis, beginning April 2020. The Company was in compliance with the covenants under the credit agreement at December 31, 2019.

In connection with the initial financing, the Company issued warrants to Squadron to purchase 845,000 shares of common stock at an exercise price of $3.15 per share.  The warrants have a seven-year term and are immediately exercisable. See Note 9 for further detail on the warrants.

In March 2019, the Company closed on an expanded credit facility with Squadron for up to $30 million in additional secured financing. This additional financing has been made available under the Company’s existing credit facility with Squadron. The Company accounted for the amendment as a debt modification with continued amortization of the existing and inclusion of the new debt issuance costs of $0.3 million amortized into interest expense utilizing the effective interest rate method. The Company took a draw of $10.0 million of the expanded credit facility in June 2019 to be used for general corporate purposes. The additional borrowings under the credit facility will mature concurrent with the current secured financing from Squadron and bear interest at the same rate and subject to the same 10% floor and 13% ceiling. Interest-only payments are due monthly through May 2021, followed by principal payable in 29 equal monthly installments beginning June 2021 and a lump-sum payment payable at maturity in November 2023. In conjunction with the first draw under the expanded credit facility, the Company issued to Squadron warrants to purchase 4,838,710 shares of the Company’s common stock at an exercise price of $2.17 per share. The warrants have a seven-year term and are immediately exercisable. The warrants were valued utilizing the Monte-Carlo simulation model as described further in Note 9 and are recorded within equity in accordance with authoritative accounting guidance and with a proportional amount, calculated by taking the draw amount divided by the total expanded credit facility, recorded as a debt discount. The total debt discount is amortized into interest expense through maturity of the debt utilizing the effective interest rate method. No additional warrants will be issued upon any future draws. The value of the additional warrants issued that are allocated to the remaining balance available for draw on the expanded credit facility were recorded as a deferred cost asset within prepaid and other assets on the consolidated balance sheet as of December 31, 2019 and are being amortized into interest expense on a ratable basis over the term of the debt.

As of December 31, 2019, the debt is recorded at its carrying value of $38.6 million, net of issuance costs, including all amounts paid to third parties to secure the debt and the fair value of the warrants issued. The debt issuance costs are being amortized into interest expense over the five-year term utilizing the effective interest rate method. The total principal outstanding under the Term Loan as of December 31, 2019 is $45.0 million.

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Inventory Financing

The Company has an Inventory Financing Agreement with a key inventory and instrument components supplier whereby the Company may draw up to $3.0 million for the purchase of inventory to accrue interest at a rate of LIBOR plus 8% subject to the same 10% floor and 13% ceiling. All principal will become due and payable upon maturity on November 6, 2023 and all interest will be paid monthly. The obligation outstanding under the Inventory Financing Agreement as of December 31, 2019 was $3.0 million.

Other Debt Agreements

The Company has one outstanding capital lease arrangement as of December 31, 2019. The lease bears interest at an annual rate of 6.4% and is due in monthly principal and interest installments, collateralized by the related equipment, and matures in December 2022.

Long-term debt consists of the following (in thousands):

	December 31,
	2019			2018
Amended Credit Facility with MidCap	$	12,785		$	11,010
Inventory Financing		2,987			—
Squadron Term Loan		45,000			35,000
Notes payable		457			296
Convertible note		—			3,000
Total		61,229			49,306
Add: capital leases		101			126
Less: debt discount		(7,393	)		(3,857	)
Total		53,937			45,575
Less: current portion of long-term debt		(489	)		(3,276	)
Total long-term debt, net of current portion	$	53,448		$	42,299

Principal payments on debt are as follows as of December 31, 2019 (in thousands):

Year Ending December 31,
2020	$	458
2021		4,483
2022		20,471
2023		35,817
2024 and thereafter		—
Total		61,229
Add: capital lease principal payments		101
Less: debt discount		(7,393	)
Total		53,937
Less: current portion of long-term debt		(489	)
Long-term debt, net of current portion	$	53,448

6. Commitments and Contingencies

Leases

The Company occupies approximately 76,000 square feet of office, engineering, and research and development space in Carlsbad, California. Monthly rent is approximately $111,000 per month for the year ended December 31, 2018 and increases by approximately $3,000 per month each year through expiration of the lease on July 31, 2021. On December 4, 2019, the Company entered into a new lease agreement for a new headquarters location which will consist of 121,541 square feet of office, engineering, and research and development space in Carlsbad, California. The term of the new lease is currently anticipated to commence November 15, 2020 and terminate November 30, 2030, subject to two (2) sixty (60) month options to renew. The Company will recognize a ROU asset and liability upon taking control of the premises, currently anticipated to be the lease commencement date. Base rent under the new building lease for the first twelve months of the term will be $195,000 per month subject to full abatement during months two through ten. Base rent for the second year of the term will be $244,115 per month and thereafter will increase

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annually by 3%. At the beginning of each exercised option period, base rent will be adjusted to the market rental value, and thereafter will increase annually by 3% through the end of such option period.

Capital Lease

The Company has one outstanding capital lease arrangement for the lease of equipment as of December 31, 2019 that matures in 2022. The lease bears interest at a rate of 6.40% per annum, is due in monthly principal and interest installments and is collateralized by the related equipment. The total capital lease commitment outstanding as of December 31, 2019 and December 31, 2018 was $0.1 million.

Operating Lease

The Company leases its buildings and certain equipment under operating leases which expire on various dates through 2021. Upon the Company’s adoption of ASC 842 in January 1, 2019, the Company recognized a ROU asset and lease liability for its building lease, assuming a 10.5% discount rate. Any short-term leases defined as 12 months or less or month-to-month leases were excluded and continue to be expensed each month. Total costs associated with these leases for the year ended December 31, 2019 was immaterial.

The Company determines if an arrangement is a lease at inception. The Company has operating leases for its buildings and certain equipment with lease terms of 1 year to 5.5 years, some of which include options to extend and/or terminate the lease. The exercise of lease renewal options is at the Company’s sole discretion and were not included in the calculation of the Company’s lease liability as the Company is not able to determine without uncertainty if the renewal option will be exercised. The depreciable life of assets and leasehold improvements are limited to the expected term unless there is a transfer of title or purchase option reasonably certain of exercise. The Company’s lease agreements do not contain any variable lease payments, residual value guarantees or any restrictive covenants.

The Company’s ROU asset represents the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date of the lease or the ASC 842 adoption date, whichever is later, based on the present value of lease payments over the lease term. When readily determinable, the Company uses the implicit rate in determining the present value of lease payments, or 10.5% as of the adoption date. When leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date or adoption date, including the lease term. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Future minimum annual undiscounted lease payments under the Company’s operating and capital leases are as follows (in thousands):

Year ending December 31,
2020	$	1,488
2021		921
2022		42
Total undiscounted lease payments		2,451
Less: present value adjustment		(212	)
Operating lease liability		2,239
Less: current portion of operating lease liability		(1,314	)
Operating lease liability, less current portion	$	925

As of December 31, 2019, the Company’s remaining average lease term is 1.7 years. Rent expense under operating leases for the year ended December 31, 2019 and 2018 was $1.3 million and $1.4 million, respectively. The Company paid $1.4 million of cash payments related to its operating lease agreements for the years ended December 31, 2019 and 2018.

Litigation

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

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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.

In February 2018, NuVasive, Inc. filed suit against the Company in the United States District Court for the Southern District of California (NuVasive, Inc. v. Alphatec Holdings, Inc. et al., Case No. 3:18-cv-00347-CAB-MDD (S.D. Cal.)), alleging that certain of the Company’s products (including components of its Battalion™ Lateral System), infringe, or contribute to the infringement of, U.S. Patent Nos. 7,819,801, 8,355,780, 8,439,832, 8,753,270, 9,833,227 (entitled “Surgical access system and related methods”), U.S. Patent No. 8,361,156 (entitled “Systems and methods for spinal fusion”), and U.S. Design Patent Nos. D652,519 (“Dilator”) and D750,252 (“Intervertebral Implant”).  NuVasive seeks unspecified monetary damages and an injunction against future purported infringement.  

In March 2018, the Company moved to dismiss NuVasive’s claims of infringement of its design patents for failure to state a cognizable legal claim.  In May 2018, the Court ruled that NuVasive failed to state a plausible claim for infringement of the asserted design patents and dismissed those claims with prejudice.  The Company filed its answer, affirmative defenses and counterclaims to NuVasive’s remaining claims in May 2018.

Also in March 2018, NuVasive moved for a preliminary injunction.  In March 2018, the Court denied that motion without prejudice for failure to comply with the Court’s chambers rules.  In April 2018, NuVasive again moved for a preliminary injunction.  In July 2018, after a hearing on the matter in June 2018, the Court denied that motion on the grounds that NuVasive failed to establish either likelihood of success on the merits of its remaining claims or that it would suffer irreparable harm absent the preliminary injunction. 

In September 2018, NuVasive filed an Amended Complaint, asserting additional infringement claims of U.S. Patent Nos. 9,924,859, 9,974,531 and 8,187,334. The Company filed its answer, affirmative defenses and counterclaims to these new claims in October 2018.  Also in October 2018, NuVasive moved to dismiss the Company’s counterclaims that NuVasive intentionally had misled the U.S. Patent and Trademark Office as a means of obtaining certain patents asserted against the Company.  In January 2019, the Court denied NuVasive’s motion as to all but one of the Company’s counterclaims, but granted the Company leave to amend its counterclaim to cure the dismissal.  The Company amended that counterclaim in February 2019 and, that same month, NuVasive again moved to dismiss it.  In March 2019, the Court denied NuVasive’s motion.  NuVasive filed its Answer to the amended counterclaim in April 2019.

In December 2018, the Company filed a petition with the Patent Trial and Appeal Board (“PTAB”) challenging the validity of certain claims of the ’156 and ’334 Patents.  In February 2019, upon joint motion of the parties, the Court stayed all proceedings in this matter, except as noted above, pending PTAB’s determination of whether to institute inter partes review (“IPR”) of the asserted claims of the two patents at issue and vacated the trial date. In July 2019, PTAB instituted IPR of the validity of asserted claims of the two patents at issue.  The Company expects PTAB to issue its final decisions regarding the validity of these claims in the second half of 2020. Also in July 2019, the parties submitted a joint statement to the Court regarding PTAB’s decisions and the parties’ respective recommendations regarding the stay of proceedings. In August 2019, the Court vacated the stay as to asserted claims concerning those patents at issue not presently before PTAB and continued the stay as to the ‘156 and ‘334 Patents.

Hearing on the matters was held on March 13, 2020 and taken under submission at that time. Trial, which was originally set for April 27, 2020, has been taken off calendar due to increasing uncertainties surrounding the current public health crisis. A new trial date has not been set.

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The Company believes that the allegations lack merit and intends to vigorously defend all claims asserted. A liability is recorded in the consolidated financial statements if it is believed to be probable that a loss has been incurred and the amount of the loss can be reasonably estimated.It is impossible at this time to assess whether the outcome of this proceeding will have a material adverse effect on the Company’s consolidated results of operations, cash flows or financial position. Therefore, in accordance with authoritative accounting guidance, the Company has not recorded any accrual for a contingent liability associated with this legal proceeding based on its belief that a liability, while possible, is not probable and any range of potential future charge cannot be reasonably estimated at this time.

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.

In October 2017, NuVasive filed a lawsuit in Delaware Chancery Court against Mr. Miles, the Company’s Chairman and CEO, who was a former officer and board member of NuVasive. The Company itself was not initially a named defendant in this lawsuit; however, on June 28, 2018, NuVasive amended its complaint to add the Company as a defendant.  As of December 31, 2019, the Company has not recorded any liability on the consolidated balance sheet related to this matter. On October 12, 2018, the Delaware Court ordered that NuVasive begin advancing legal fees for Mr. Miles’ defense in the lawsuit, as well as Mr. Miles’ legal fees incurred in pursuing advancement of his fees, pursuant to an indemnification agreement between NuVasive and Mr. Miles.

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 based on fixed fees or calculated either as a percentage of net sales or on a per-unit sold basis. Royalties are included on the accompanying consolidated statements of operations as a component of cost of revenues. As of December 31, 2019, the Company is obligated to pay guaranteed minimum royalty payments under these agreements of approximately $5.4 million through 2023 and beyond.

7. 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. The payments set forth above are guaranteed by Stipulated Judgments held against the Company, HealthpointCapital Partners, L.P., HealthpointCapital Partners II, L.P., HealthpointCapital, LLC, John H. Foster and Mortimer Berkowitz III and, in the event of a default, will be entered and enforced against these entities and/or individuals in that order. In September 2014, the Company and HealthpointCapital entered into an agreement for joint payment of settlement whereby HealthpointCapital has agreed to contribute $5 million to the $49 million settlement amount. The $5 million is classified within stockholders’ equity on the Company’s consolidated balance sheets due to the related party nature with HealthpointCapital and its affiliates. See Note 12 for further information.

As of December 31, 2019, the Company has made installment payments in the aggregate of $40.6 million, with a remaining outstanding balance of $17.2 million (including interest). The Company has the right to prepay the amounts due without penalty. The unpaid amounts due accrue interest at the rate of 7% per year until 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 provides 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.

F-24

A reconciliation of the total net settlement obligation is as follows (in thousands):

	December 31, 2019			December 31, 2018
Litigation settlement obligation - short-term portion	$	4,400		$	4,400
Litigation settlement obligation - long-term portion		10,712			13,954
Total		15,112			18,354
Future Interest		2,121			3,279
Total settlement obligation, gross		17,233			21,633
Related party receivable - included in stockholders'    equity		(5,000	)		(5,000	)
Total settlement obligation, net	$	12,233		$	16,633

8.Acquisition of SafeOp Surgical, Inc.

On March 8, 2018, the Company acquired SafeOp, a privately-held provider of neuromonitoring technology designed to enable effective intra-operative nerve health assessment. At the time of the acquisition, SafeOp had FDA 510(k) approval for a somatosensory evoked potential (“SSEP”) monitoring technology. The Company has developed a product that will allow for both free run and triggered specific recording of muscle activity, also known as Electromyography (“EMG”). The Company received FDA clearance for SafeOp’s EMG technology in February 2019 to complement the SSEP solution, and anticipates commercialization of the combined technology solution in mid-2019. In addition to expanding the Company’s market presence in lateral spine surgery, the Company believes that the SafeOp solution will allow it to integrate neuromonitoring into its broader product portfolio and accelerate the transition to procedural integration of the entire portfolio.

Under the term of the definitive merger agreement, the Company paid $15.1 million in cash and issued 3,265,132 shares of common stock. The Company paid the full $15.1 million in cash consideration during the year ended December 31, 2018. On March 8, 2018, the Company issued 2,975,209 shares of common stock valued at $9.8 million, based on the closing share price of $3.30, and issued an additional 115,621 shares of common stock during the second quarter of 2018 and the remaining 174,302 during the third quarter of 2018.

In March 2018, the Company also issued $3.0 million in convertible notes that were convertible into a total of 987,578 shares of common stock, which included total interest incurred, and issued warrants to purchase 2.2 million shares of common stock at an exercise price of $3.50 per share and contain a five year life. The convertible notes matured on March 9, 2019 and were settled in cash. Upon maturity, the Company recognized the value associated with the beneficial conversion feature calculated at issuance of $0.2 million within interest expense on the Company’s consolidated statement of operations for the year ended December 31, 2019. Shares of common stock were issued upon achievement of post-closing milestones as described further below. The warrants remain outstanding as of December 31, 2019.

The first of the two milestones was achieved during the year ended December 31, 2018 and resulted in the issuance of 443,421 shares of common stock as payment. The second milestone pertaining to regulatory approval was achieved and the Company issued 886,843 shares of common stock as payment during the three months ended March 31, 2019. Prior to achievement, the contingent consideration was recorded as a liability and measured at fair value using a probability-weighted income approach, utilizing significant unobservable inputs including the probability of achieving each of the potential milestones and an estimated discount rate related to the risks of the expected cash flows attributable to the milestones. The fair value of the contingent consideration, and the associated liability relating to the contingent consideration at each reporting date, was re-assessed with the changes in fair value reflected in earnings. For the year ended December 31, 2019, the fair value for the contingent consideration increased by $0.3 million due to the proximity of the achievement of the milestone. The amount was recorded within research and development expense on the consolidated statement of operations and a corresponding increase in the liability on the Company’s consolidated balance sheet. The full liability was relieved upon achievement of the remaining milestone during the period.

9. Equity

August 2019 Offering

On August 2, 2019, the Company closed the Offering in which a total of 12,535,000 shares of its common stock, were issued and sold at a price to the public of $4.60 per share. The closing of the Offering included the issuance and sale of 1,635,000 shares of the Company’s common stock, included within the total number of shares above, pursuant to the full exercise of the underwriters’ option to purchase additional shares pursuant to the Purchase Agreement. The net proceeds to the Company from the Offering were approximately $53.9 million, including the net proceeds from the option shares.

F-25

Redeemable Preferred Stock

The Company issued shares of redeemable preferred stock in connection with its initial public offering in June 2006.  As of December 31, 2019 and 2018, the redeemable preferred stock carrying value was $23.6 million and there were 20 million shares of redeemable preferred stock authorized. The redeemable preferred stock is not convertible into common stock but is redeemable at $9.00 per share, (i) upon the Company’s liquidation, dissolution or winding up, or the occurrence of certain mergers, consolidations or sales of all or substantially all of the Company’s assets, before any payment to the holders of the Company’s common stock, or (ii) at the Company’s option at any time. Holders of redeemable preferred stock are generally not entitled to vote on matters submitted to the stockholders, except with respect to certain matters that will affect them adversely as a class, and are not entitled to receive dividends. The carrying value of the redeemable preferred stock was $7.11 per share at December 31, 2019 and 2018. The redeemable preferred stock is presented separately from stockholders’ deficit in the consolidated balance sheets and any adjustments to its carrying value up to its redemption value of $9.00 per share are reported as a dividend.

Series A Convertible Preferred Stock

In March 2017, the Company completed a private placement (the “2017 Private Placement”) 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 and 15,245 shares of newly designated Series A Convertible Preferred Stock at a purchase price of $1,000 per share (which shares were convertible into approximately 7,622,372 shares of common stock). Except as otherwise required by law, the holders of Series A Convertible Preferred Stock have no right to vote on matters submitted to a vote of the Company’s stockholders.

During the years ended December 31, 2019 and 2018, 3,909 and 1,274 shares of Series A Preferred Stock were converted into 1,954,334 and 636,997 shares of common stock, respectively. As of December 31, 2019, there were 135 shares of Series A Convertible Preferred Stock outstanding, which are convertible into 67,338 shares of common stock.

2017 Warrants

In connection with the 2017 Private Placement, the Company issued 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 “2017 Common Stock Warrants”). The Company also issued warrants to purchase common stock to the exclusive placement agents (the “2017 Banker Warrants”). The 2017 Banker Warrants were for the purchase of up to an aggregate of 471,600 shares of the Company’s common stock with substantially the same terms as the 2017 Common Stock Warrants, except that they have an exercise price equal $2.50 per share. The 2017 Common Stock Warrants and the 2017 Banker Warrants (collectively, the “2017 Warrants”) expire on June 15, 2022. The 2017 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 the Company, 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.

In conjunction with the 2018 Private Placement described further below, during the year ended December 31, 2018, a holder of 2.4 million 2017 Warrants exercised all its 2017 Warrants at the original exercise price of $2.00 per warrant in exchange for the issuance of additional warrants. As a result of the warrant exercise, the Company received gross proceeds of $4.8 million during the year ended December 31, 2018.

During the year ended December 31, 2019, there were 0.5 million 2017 Warrant exercises for total cash proceeds of $1.1 million. During the year ended December 31, 2018, excluding the $4.8 million described above, the Company received proceeds of approximately $4.0 million in connection with the exercise of approximately 1.9 million of 2017 Common Stock Warrants. As of December 31, 2019, there were 3,232,000 2017 Common Stock Warrants outstanding.

There were 18,864 2017 Banker Warrant exercises during the year ended December 31, 2019 for total cash proceeds of less than $0.1 million. During the year ended December 31, 2018, 304,182 of the 2017 Banker Warrants were exercised for total cash proceeds upon exercise of $0.8 million during the period. A total of 148,554 2017 Banker Warrants remained outstanding as of December 31, 2019.

All the 2017 Warrants were deemed to qualify for equity classification under authoritative accounting guidance.

Series B Convertible Preferred Stock

F-26

On March 8, 2018, the Company completed the 2018 Private Placementto certain institutional and accredited investors, including certain directors and executive officers of the Company, providing for the sale by the Company at a purchase price of $1,000 per share, 45,200 of newly designated Series B Convertible Preferred Stock, which shares of preferred stock were automatically converted into 14,349,236 shares of the Company’s common stock upon approval by the Company’s stockholders at the 2018 annual meeting of stockholders held in May 2018, and warrants to purchase up to 12,196,851 shares of common stock at an exercise price of $3.50 per share (the “2018 Common Stock Warrants”). The 2018 Common Stock Warrants became exercisable following stockholder approval at the 2018 annual meeting of stockholders, are subject to certain ownership limitations in certain cases, and expire five years after the date of such stockholder approval. The gross proceeds from the 2018 Private Placement were approximately $45.2 million.

Pursuant to the terms of the purchase agreement entered into in connection with the 2018 Private Placement, from the date of the stockholder approval of the 2018 Private Placement, or May 17, 2018, through the first anniversary of the effective date of the resale registration statement related to the 2018 Private Placement, or May 11, 2019, if the Company issues any shares of common stock or common stock equivalents, subject to certain permitted exceptions, at a price below the conversion price on the date stockholder approval was obtained (a “Dilutive Issuance”), the Company is required to issue an additional number of shares of common stock to the purchasers in the 2018 Private Placement in amount equal to the number of shares of common stock such purchasers would have received if the Dilutive Issuance occurred prior to the date the Company’s stockholders approved the 2018 Private Placement. No such Dilutive Issuances occurred prior to the expiration.

2018 Warrants

The 2018 Common Stock Warrants (the “2018 Warrants”) have a five year life and are exercisable for cash or by cashless exercise. Some of the 2018 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 the Company, 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.

In addition to the 12,196,851 warrants issued in the 2018 Private Placement, the Company issued 1,800,000 warrants to an existing holder with identical terms to the 2018 Warrants, including the exercise price of $3.50.

During the year ended December 31, 2019, 0.2 million of the 2018 Warrants were exercised for total proceeds of $0.6 million. No 2018 Warrants were exercised for the year ended December 31, 2018. A total of 13,770,488 of  2018 Warrants remained outstanding as of December 31, 2019.

All the 2018 Warrants were deemed to qualify for equity classification under authoritative accounting guidance.

Squadron Warrants

As further described in Note 5, during the year ended December 31, 2018, in connection with the initial debt financing with Squadron, the Company issued warrants to purchase 845,000 shares of common stock at an exercise price of $3.15 per share. An additional 4,838,710 warrants were issued at an exercise price of $2.17 per share during the second quarter of 2019, in conjunction with the Company’s draw on the expanded credit facility for total warrants outstanding to Squadron of 5,683,710. The warrants have a seven-year term and are immediately exercisable. In accordance with authoritative accounting guidance, the warrants qualified for equity treatment upon issuance and the portion allocated to the outstanding debt was recorded as a debt discount to the face of the debt liability based on fair value to be amortized into interest expense over the life of the debt agreement. The remaining balance of the warrants was recorded as an asset included within prepaid expenses and other current assets on the consolidated balance sheet as of December 31, 2019 and is being amortized into interest expense on a ratable basis. As the warrants provide for partial price protection that allow for a reduction in the price in the event of a lower per share priced issuance, the warrants were valued utilizing a Monte Carlo simulation that considers the probabilities of future financings. The Monte Carlo model simulates the present value of the potential outcomes of future stock prices of the Company over the seven-year life of the warrants. The projection of stock prices is based on the risk-free rate of return and the volatility of the stock price of the Company and correlates future equity raises based on the probabilities provided.

In December 2011, in connection with the third amendment to the Company’s former credit facility with the Silicon Valley 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.

F-27

As mentioned above, the Company issued Common Stock Warrants in connection with the private placement financing in March 2017 and March 2018. The warrants expire on the fifth anniversary of the date on which they were first exercisable. Further, as described in Note 8, the Company issued warrants in conjunction with the acquisition of SafeOp.  

In December 2017 the Company issued warrants to Mr. Miles, the Company’s Chairman and Chief Executive Officer, 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 as the warrants were immediately vested upon issuance.

A summary of all outstanding warrants is as follows:

	Number of Warrants		Strike Price
2017 Common Stock Warrants		3,232,000	$	2.00
2017 Banker Warrants		148,554	$	2.50
2018 Common Stock Warrants		13,770,488	$	3.50
Merger Warrants		2,199,682	$	3.50
Executive		1,327,434	$	5.00
Squadron Capital		845,000	$	3.15
Squadron Capital		4,838,710	$	2.17
Other		195,312	$	3.85
Total		26,557,180

10. Stock Benefit Plans and Stock-Based Compensation

In the third quarter of 2016, the Company adopted its 2016 Equity Incentive Plan (the “2016 Plan”), which replaced the Company’s 2005 Employee, Director and Consultant Stock Plan. On October 25, 2018, the Company’s Board of Directors adopted an amendment to the Company’s 2016 Equity Incentive Award 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, 2019, 666,742 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, 2019 the Inducement Plan had 801,099 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.

In July 2019, the Board of Directors approved and adopted the 2019 Management Objective Strategic Incentive Plan which authorizes the Company to grant restricted stock to individuals or entities that do not qualify under the other existing equity plans. The Board of Directors authorized the grant of up to 500,000 shares of common stock with a maximum grant of 50,000 shares per participant under the plan. As of December 31, 2019, 55,000 restricted shares have been granted under the 2019 Management Objective Strategic Incentive Plan. Total expense for the plan was immaterial for the year ended December 31, 2019.

F-28

The 2016 Plan, the Inducement Plan and the Management Objective Strategic Incentive 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):

	Shares			Weighted average exercise price		Weighted average remaining contractual term (in years)		Aggregate intrinsic value
Outstanding at December 31, 2018		4,723		$	3.64
Granted		195		$	4.41
Exercised		(161	)	$	2.75
Forfeited		(542	)	$	7.00
Outstanding at December 31, 2019		4,215		$	3.27		7.80	$	17,961
Options vested and exercisable at December 31, 2019		2,238		$	3.71		7.40	$	9,438
Options vested and expected to vest at December 31, 2019		4,028		$	3.29		7.77	$	17,177

The weighted-average grant-date fair value per share of stock options granted during the years ended December 31, 2019 and 2018 was $1.92 and $2.00, respectively. The aggregate intrinsic value of options at December 31, 2019 is based on the Company’s closing stock price on the last business day of 2019 of $7.10 per share.

As of December 31, 2019, there was $3.7 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 2.30 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):

	Shares			Weighted average grant date fair value		Weighted average remaining recognition period (in years)
Unvested at December 31, 2018		3,270		$	2.94
Awarded		4,802		$	1.92
Vested		(1,224	)	$	2.83
Forfeited		(121	)	$	3.11
Unvested at December 31, 2019		6,727		$	2.17		2.32

The weighted average fair value per share of awards granted during the years ended December 31, 2019 and 2018 was $1.92 and $2.87, respectively.  

As of December 31, 2019, there was $16.0 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 2.32 years.  

Termination and Settlement of Elite Medical Holdings and Pac 3 Surgical Collaboration Agreement

In February 2018, the Company reached a settlement agreement with Elite Medical Holdings and Pac 3 Surgical, pursuant to which the Company made a cash payment of $0.4 million as the final and total compensation under the original agreement.  In addition, the parties agreed to release each other and waive any and all rights and claims arising from the original agreement.  The

F-29

Company recorded a gain of approximately $6.2 million during the year ended December 31, 2018, reflecting the reversal of accrued obligations previously recorded under the collaboration.  

2017 Distributor Inducement Plan

In December 2017, the Board of Directors approved and adopted the 2017 Distributor Inducement Plan which authorizes the Company to issue to distributors restricted shares of common stock of the Company and/or warrants to purchase the Company’s common stock. The warrants are issuable with an exercise price equal to the fair market value of the common stock on the date of issuance. Each warrant and common stock issuance is subject to a time-based or net sales-based vesting provision. The Board of Directors authorized the grant of up to 1,000,000 shares of common stock under the 2017 Distributor Inducement Plan. As of December 31, 2019, 0.3 million warrants and 92,000 shares of common stock were earned under the 2017 Distributor Inducement Plan. Total expense for the plan was $0.4 and $0.2 million for the years ended December 31, 2019 and December 31, 2018, respectively.

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.

2017 Development Services Plan

In December 2017, the Board of Directors approved and adopted the 2017 Development Services Plan which authorizes the Company to enter into Development Services Agreements with third-party individuals or entities whereby, upon the achievement of certain Company financial and commercial revenue milestones, future royalty payments for product and/or intellectual property development work may be paid in either cash or restricted shares of Company common stock at the option of the developer. Each common stock issuance would be subject to net sales-based vesting provisions and satisfaction of applicable laws and market regulations regarding the issuance of restricted shares to such developers. The Board of Directors authorized the grant of up to 3,000,000 shares of common stock under the 2017 Development Services Plan. As of December 31, 2019, 2.4 million have been designated under the 2017 Development Services Plan, but none are deemed probable of election as of December 31, 2019. In addition, no common stock elections or cash payouts have been made as of December 31, 2019.  

Common Stock Reserved for Future Issuance

Common stock reserved for future issuance consists of the following (in thousands):

	December 31, 2019
Stock options outstanding		4,215
Unvested restricted stock awards		6,727
Employee stock purchase plan		117
Series A convertible preferred stock		67
Warrants outstanding		26,557
Authorized for future grant under the Distributor and Development Services plans		3,908
Authorized for future grant under the Management Objective Strategic Incentive Plan		445
Authorized for future grant under the Plans		1,628
		43,664

11. Income Taxes

The components of the pretax income (loss) are presented in the following table (in thousands):

	Year Ended December 31,
	2019			2018
U.S. Domestic	$	(57,141	)	$	(30,169	)
Foreign		(100	)		(167	)
Pretax loss from operations	$	(57,241	)	$	(30,336	)

F-30

The components of the (benefit) provision for income taxes from continuing operations are presented in the following table (in thousands):

	Year Ended December 31,
	2019			2018
Current income tax (benefit) provision:
Federal	$	—		$	(64	)
State		207			86
Foreign		—			4
Total current		207			26
Deferred income tax benefit:
Federal		(195	)		(1,140	)
State		(251	)		(247	)
Total deferred		(446	)		(1,387	)
Total income tax benefit	$	(239	)	$	(1,361	)

The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to pretax income (loss) from continuing operations as a result of the following differences:

	December 31,
	2019			2018
Federal statutory rate		21.00	%		21.00	%
Adjustments for tax effects of:
State taxes, net		0.12	%		0.47	%
Stock-based compensation		0.26	%		(4.29	)%
R&D credit expiration		(5.96	)%		—
Fair market value adjustments		—			(0.59	)%
Other permanent adjustments		(0.42	)%		(0.56	)%
Foreign partnership liquidation		19.19	%		—
Federal uncertain tax positions		3.25	%		0.30	%
NOL expiration		(3.01	)%		—
Other		1.16	%		(1.57	)%
Valuation allowance		(35.09	)%		(10.25	)%
Effective income tax rate		0.50	%		4.51	%

F-31

Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2019 and 2018 are as follows (in thousands):

	December 31,
	2019			2018
Deferred tax assets:
Accruals and reserves	$	2,730		$	1,133
Income tax credit carryforwards		1,591			3,150
Interest		4,095			1,351
Inventory		8,625			4,959
Legal settlement		3,789			4,693
Net operating losses		53,592			45,092
Stock-based compensation		2,256			1,182
Total deferred tax assets		76,678			61,560
Valuation allowance		(71,159	)		(46,578	)
Total deferred tax assets, net of valuation allowance		5,519			14,982
Deferred tax liabilities:
Property and equipment		(3,117	)		(21	)
Goodwill and intangibles		(2,344	)		(1,972	)
Investment in foreign partnership		—			(13,370	)
Total deferred tax liabilities		(5,461	)		(15,363	)
Net deferred tax assets (liabilities)	$	58		$	(381	)

The realization of deferred tax assets is dependent on the Company’s ability to generate sufficient taxable income in future years in the associated jurisdiction to which the deferred tax assets relate. As of December 31, 2019, a valuation allowance of $71.2 million has been established against the net deferred tax assets, as the Company has determined that it is currently not more likely than not that these assets will be realized. During the year ended December 31, 2019, the federal and state valuation allowances collectively increased by $20.1 million and $4.5 million, respectively.

In determining the need for a valuation allowance, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance. The Company reached technological feasibility with respect to its in-process research and development efforts in 2019, and as such, valuation allowance was decreased as amortization of intangible asset began. There are no indefinite-lived intangible assets as of December 31, 2019. Based on the review of all positive and negative evidence, including a three-year cumulative pre-tax loss, the Company determined that a full valuation allowance should be recorded against its deferred tax assets, with the exception of the Company’s Texas Temporary Credit for Business Loss Carryforwards. There are no indefinite live assets.   

At December 31, 2019, the Company has unrecognized tax benefits of $2.5 million, which will affect the effective tax rate if recognized when the Company no longer has a valuation allowance offsetting its deferred tax assets.

The following table summarizes the changes to unrecognized tax benefits (in thousands):

	Year ended December 31,
	2019			2018
Unrecognized tax benefit at the beginning of the year	$	4,334		$	4,440
Reductions as a result of lapse of applicable statute    of limitations		(1,882	)		(106	)
Unrecognized tax benefits at the end of the year	$	2,452		$	4,334

The Company and its subsidiaries are subject to federal income tax as well as income tax of multiple state and foreign jurisdictions. With few exceptions, the Company is no longer subject to income tax examination by tax authorities in major jurisdictions for years prior to 2015. However, to the extent allowed by law, the taxing authorities may have the right to examine prior periods where net operating losses and tax credits were generated and carried forward and make adjustments up to the amount of the carryforwards. The Company is not currently under examination by the Internal Revenue Service, foreign or state and local tax authorities.

The Company recognizes interest and penalties related to uncertain tax positions as a component of the income tax provision. As of December 31, 2019, there were no accrued interest and penalties.

F-32

At December 31, 2019, the Company had federal and state net operating loss carryforwards of $205.2 million and $128.2 million, respectively, expiring at various dates beginning in 2019 through 2039. Net operating losses generated in years ending after December 31, 2017 can be carried forward indefinitely for federal and some states. At December 31, 2019, the Company had state research and development tax credit carryforwards of $3.2 million. The state research and development tax credits do not have an expiration date, and may be carried forward indefinitely. Utilization of the net operating loss and tax credit carryforwards may become subject to annual limitations due to ownership change limitations that could occur in the future as provided by Section 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), as well as similar state provisions. These ownership changes may limit the amount of the net operating loss and tax credit carryforwards that can be utilized annually to offset future taxable income, if the Company experiences a cumulative change in ownership of more than 50% within a three-year testing period.  The Company completed a formal study through the year ended December 31, 2018 and determined ownership changes within the meaning of IRC Section 382 had occurred. The Company adjusted tax attribute carry forwards and deferred tax assets accordingly.  As the deferred tax assets associated with the tax attribute carry forwards were fully offset by a valuation allowance, a corresponding reduction in the Company’s valuation allowance was also recorded, resulting in no income tax impact.

12. Related Party Transactions

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 Orthotec settlement amount.

During the second quarter of 2018, HealthpointCapital Partners, L.P., and HealthpointCapital Partners II, L.P. distributed its holdings in the Company’s common stock to its limited partners. As a result, the fund is no longer a shareholder of the Company as of December 31, 2018. The $5 million receivable from HealthpointCapital, LLC continues to be classified within stockholders’ equity on the Company’s consolidated balance sheets due to the related party nature with HealthpointCapital affiliates.

Certain of the Company’s board of directors and senior management participated in the March 2017 and 2018 private placements.

Included on the consolidated balance sheet as of December 31, 2018 is a $0.3 million officer receivable for settlement of a tax liability related to the vesting of a restricted stock unit. A corresponding liability for the same amount is also included on the consolidated balance sheet within the accrued expenses line item. Subsequent to December 31, 2018, the amounts were settled and remitted to settle the tax liability.

13. Retirement Plan

The Company maintains an employee savings plan that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the savings plan, participating employees may contribute a portion of their pre-tax earnings, up to the Internal Revenue Service annual contribution limit. Additionally, the Company may elect to make matching contributions into the savings plan at its sole discretion of up to 4% of each individual’s compensation. Matching contributions vest after one year of service. The Company’s total contributions to the 401(k) plan were $0.6 million and $0.4 million for the years ended December 31, 2019 and 2018, respectively.

14. Restructuring Activities

In connection with the sale of the International Business (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.  In conjunction with the restructuring program, the Company recorded restructuring expenses related to severance liabilities and post-employment benefits. A rollforward of the accrued restructuring liability is presented below (in thousands):

Balance at December 31, 2018	$	710
Accrued restructuring charges		60
Payments		(746	)
Balance at December 31, 2019	$	24

F-33

15. Subsequent Event

Tender Offer Agreement

On February 28, 2020, the Company entered into a Tender Offer Agreement (the “Tender Offer Agreement”) with EOS Imaging S.A., a société anonyme organized and existing under the laws of France (“EOS”), pursuant to which the Company or one of its affiliates will commence a public tender offer to purchase all of the issued and outstanding ordinary shares, nominal value €0.01 per share (collectively, the “Shares”), and outstanding convertible bonds (“OCEANEs”), of EOS. The tender offer will consist of a cash tender offer price of €2.80 (or approximately $3.08) per Share and €7.01 (or approximately $7.71) per OCEANE, respectively (the “Cash Offer”), or at the option of EOS shareholders, 0.50 of a share of common stock, par value $0.0001 per share, of the company (“ATEC Common Stock”) per Share (the “Exchange Offer” and, together with the Cash Offer, the “Offer Consideration”). The tender offer will need to be filed with and cleared by the Autorité des marches financiers (the “AMF”), which filing is expected to occur in late April 2020, prior to the commencement of the tender offer. EOS is a leader in outcome-improving orthopedic medical imaging and software solutions that inform the entire surgical process.

Commitment Letter

In connection with entry into the Tender Offer Agreement, the Company entered into a commitment letter, dated February 28, 2020 (the “Commitment Letter”), with Perceptive Credit Holdings III, LP (together with its affiliates, “Perceptive”), pursuant to which, subject to the terms and conditions set forth therein, Perceptive has committed to provide $130 million in secured debt financing, up to $60 million of which (the “Refinancing Portion”) will be made available to retire the Company’s existing credit facilities with MidCap Funding IV, LLC and Squadron Medical Finance Solutions, LLC. The remaining commitment by Perceptive to provide an additional $70 million (which may be increased to up to $100 million at the request of the Company if agreed by Perceptive in its sole discretion) in secured debt financing (the “Tender Offer Portion”) will be made available to fund the Cash Offer portion of the Offer Consideration, provided the Company may elect not to incur all or a portion of such Tender Offer Portion to the extent it is unnecessary to fund such Cash Offer amount. In the event the Company elects not to incur the Tender Offer Portion of Perceptive’s commitment, Perceptive will make available up to $15 million in secured debt financing (the “Supplemental Portion”), in addition to the Refinancing Portion, to be used for the Company’s and its subsidiaries’ general corporate and working capital needs. The funding of each of the debt facilities provided for in the Commitment Letter is subject to the satisfaction of customary conditions for facilities of such type that are set forth therein, including entry into definitive documentation reflecting the terms of the Commitment Letter and no material adverse effect with respect to EOS.

Under the terms of the Commitment Letter, the Company has agreed to issue certain warrants to Perceptive representing the right to acquire ATEC Common Stock in connection with the incurrence of the Refinancing Portion (the “Refinancing Warrants”), the incurrence and use of the Tender Offer Portion to consummate the tender offer (the “Tender Offer Warrants”) and the incurrence of the Supplemental Portion (the “Supplemental Warrants” and, together with the Refinancing Warrants and Tender Offer Warrants, the “Warrants”), as applicable. The price per share for 50% of the Refinancing Warrants shall be the lower of (x) the 5-day volume weighted average price of the ATEC Common Stock (“5-day VWAP”) immediately prior to the date of the Commitment Letter and (y) the 5-day VWAP immediately prior to the closing date of the Refinancing Portion, subject to a floor of $4.60 per share (the “Base Refinancing Warrant Price”). The price per share for the remaining 50% of the Refinancing Warrants shall be equal to the Base Refinancing Warrant Price plus an additional 12.5% premium. The price per share for 50% of the Tender Offer Warrants shall be the lower of (x) the 5-day VWAP immediately prior to the date of the Commitment Letter or (y) the 5-day VWAP immediately prior to the date such Tender Offer Warrants are issued, subject to a floor of $4.60 per share (the “Base Tender Offer Warrant Price”). The price per share for the remaining 50% of the Tender Offer Warrants shall be equal to the Base Tender Offer Warrant Price plus an additional 12.5% premium. The price per share for 50% of the Supplemental Warrants shall be the lower of (x) the 5-day VWAP immediately prior to the date of the Commitment Letter or (y) the 5-day VWAP immediately prior to the date the Supplemental Portion is incurred, subject to a floor of $4.60 per share (the “Base Supplemental Warrant Price”). The price per share for the remaining 50% of the Supplemental Warrants shall be equal to the Base Supplemental Warrant Price plus an additional 12.5% premium. The Refinancing Warrants, Tender Offer Warrants and Supplemental Warrants will be exercisable into a number of shares of ATEC Common Stock representing 18.5% of the aggregate principal amount borrowed in respect of the Refinancing Portion, 9% of the aggregate principal amount borrowed in respect of the Tender Offer Portion and used to consummate the Tender Offer and 9% of the aggregate principal amount borrowed in respect of the Supplemental Portion, respectively, in each case calculated using the Base Refinancing Warrant Price, Base Tender Offer Warrant Price or Base Supplemental Warrant Price, as applicable.

F-34

EX-4.15

Exhibit 4.15

DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934

The following description sets forth certain material terms and provisions of the securities of Alphatec Holdings, Inc. (the “Company”) that are registered under Section 12 of the Securities Exchange Act of 1934 (the “Exchange Act”). This description also summarizes relevant provisions of the Delaware General Corporation Law (the “DGCL”) applicable to such securities. The following description is a summary and does not purport to be complete. It is subject to, and qualified in its entirety by reference to, the applicable provisions of the DGCL and our Amended and Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”) and our Amended and Restated Bylaws, as amended (the “Bylaws”), each of which is incorporated by reference as an exhibit to the Annual Report on Form 10-K to which this Exhibit 4.19 is filed as an exhibit. We encourage you to read the Certificate of Incorporation and Bylaws and the applicable provisions of the DGCL for additional information.

The Company’s authorized capital stock consists of 220,000,000 shares, of which 200,000,000 shares are common stock, par value $0.0001 per share (“common stock”), and 20,000,000 shares are preferred stock, par value $0.0001 per share. By resolution of the Board of Directors (the “Board”), the Company may, without any further vote by its stockholders, issue shares of preferred stock. The Board may by resolution fix the voting rights, if any, designations, powers, preferences and the relative, participation, optional or other rights, if any, and the qualification, limitations or restrictions thereof, of any unissued series and/or class of preferred stock, and may fix the number of shares constituting such series and/or class, and may increase or decrease the number of shares of any such series and/or class (but not below the number of shares thereof then outstanding). The rights of the holders of common stock are subject to the rights and preferences of any series of preferred stock currently outstanding or that the Company may issue.

The following description of our common stock and of certain provisions of Delaware law are summaries, do not purport to be complete and are subject to and qualified in their entirety by reference to our Certificate of Incorporation and Bylaws. Please also refer to the applicable provisions of the DGCL for additional information.

Market Listing

Our common stock trades on the Nasdaq Global Select Market under the symbol “ATEC.”

Dividends; Liquidation

The DGCL permits a corporation to declare and pay dividends upon its shares out of (i) surplus or, (ii) if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets. Subject to the preferences of any outstanding shares of preferred stock, holders of common stock have equal ratable rights to dividends (payable in cash, stock or property) out of funds legally available for that purpose, when, as and if dividends are declared by the Board. Holders of common stock are entitled to share ratably, as a single class, in all of the assets of the Company available for distribution to holders of shares of common stock upon the liquidation or dissolution of the Company or the winding up of the affairs of the Company, after payment of the Company’s liabilities and any amounts to holders of outstanding shares of preferred stock.

Voting Rights

Generally, holders of our common stock will vote together as a single class on every matter acted upon by the stockholders. Holders of common stock are entitled to one vote per share on all matters submitted to a vote of stockholders. Stockholders are not be entitled to cumulate votes in voting for directors. The holders of a majority in voting power of the outstanding shares of stock entitled to vote on a matter, represented in person or by proxy, will constitute a quorum at any meeting of stockholders. If a quorum is present, the affirmative vote of the majority of the votes cast on a matter will be the act of the stockholders, unless the vote of a minimum or other number or

amount is provided for such matter by the DGCL, the Certificate of Incorporation or the Bylaws or the rules and regulations of any stock exchange or other regulatory body, in which case such minimum or other vote will be the required vote of stockholders on such matter. Except as otherwise provided by law, or the Certificate of Incorporation or by the resolution or resolutions adopted by the Board designating the rights, powers and preferences of any series and/or class of preferred stock, the holders of common stock have the exclusive right to vote for the election of directors and for all matters presented to the stockholders.

Absence of Other Rights.

The holders of common stock have no preferences or rights of conversion, exchange, pre-emption or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. Stockholders do not have the right of cumulative voting in the election of directors.

Anti-Takeover Effects of our Certificate of Incorporation and Bylaws and of Delaware Law

Authorized Preferred Shares

Under the Certificate of Incorporation, the Board is authorized to issue 20,000,000 preferred shares. In each case, the Board may issue these preferred shares in one or more series and may establish the designations, preferences and rights, including voting rights, of each series. These preferred shares are available for issuance from time to time to any person for such consideration as the Board may determine without the requirement of further action by our stockholders, except as required by the Nasdaq Stock Market or other exchange on which Company shares are then listed. The Board may decide to issue such preferred stock for a variety of reasons including but not limited to the issuance in a public or private sale for cash as a means of obtaining additional capital for use in the Company’s business and operations, issuance as part or all of the consideration required to be paid for acquisitions of other business properties and issuance as a share dividend to equity holders. Depending on its terms, the issuance of preferred stock may or may not have a dilutive effect on the equity interest or voting power of the then current stockholders of the Company. Although our Board has no present intention to do so, authorized but unissued and undesignated preferred shares may also be issued as a defense to an attempted takeover.

Special Meetings of Stockholders

Limits on the rights of stockholders to call special meetings of stockholders could have an anti-takeover effect as a potential acquirer may wish to call a special meeting of stockholders for the purpose of considering the removal of directors or an acquisition offer. The Bylaws provide that only the Board can call special meetings of stockholders.

EX-10.3

Exhibit 10.3

STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE - NET

(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)

1.Basic Provisions ("Basic Provisions").

1.1Parties. This Lease ("Lease"), dated for reference purposes only December 4, 2019, is made by and between RAF PACIFICA GROUP - REAL ESTATE FUND IV, LLC, a California limited liability company;ARKA MONTEREY PARK, LLC, a Utah limited liability company; and 170 ARROWHEAD PARTNERS, LLC, a California limited liability company(collectively "Lessor") and ALPHATEC SPINE, INC., aCalifornia corporation("Lessee"), (collectively the "Parties," or individually a "Party").

1.2Premises: That certain real property, including all improvements therein or to be provided by Lessor under the terms of this Lease, commonly known as (street address, city, state, zip): 1950 Camino Vida Roble, Carlsbad, CA 92008 ("Premises"). The Premises are located in the County of San Diego, and are generally described as (describe briefly the nature of the property and, if applicable, the "Project," if the property is located within a Project): an approximately121,541 rentable square foot industrial building and associated parking areas, asdepicted on Exhibit A. (See also Paragraph 2)

1.3Term:ten (10)years and -______ months ("Original Term") commencing November 15, 2020 ("Commencement Date") and ending November 30,2030 ("Expiration Date"). (See also Paragraph 3) Notwithstanding the foregoing, the Commencement Date and the Expiration Date shall be subject to the provisions of Section 5.1 (Lessor Delay) in the Work Letter.

1.4Early Possession:If the Premises are available Lessee shall may have non-exclusive possession of the Premises subject to Lessor's entry to perform the Lessor Work and Roof Coating, and subject to the Parking Leases (as those terms are defined herein) commencing upon full execution of this Lease, payment of monies duepursuant to Paragraph 1.6 and Lessee's delivery of the certificates of insurance asrequired by Paragraph 8.5 of this Lease("Early Possession Date"). (See also Paragraphs 3.2 and 3.3)

1.5Base Rent:$195,000.00per month ("Base Rent"), payable on the firstday of each month commencing on the Commencement Date. (See also Paragraph 4 and Paragraph 53)

☑If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted. See Paragraph   51             .

1.6Base Rent and Other Monies Paid Upon Execution:

(a) Base Rent:$195,000.00for the period first calendar month of the Original Term.

(b) Security Deposit:$309,237.70 ("Security Deposit"). (See also Paragraph 5)

(c) Association Fees:  -------   for the period   --------  .

(d) Other:$34,695.00for Operating Expenses (as defined herein) for the firstcalendar month of the Original Term.

(e) Total Due Upon Execution of this Lease:$538,932.70.

1.7Agreed Use:General office, manufacturing, assembly and warehouse for a manufacturerand seller of medical devices and other uses incidental to suchmanufacture and sales tothe extent permitted by Applicable Requirements. (See also Paragraph 6)

1.8Insuring Party. Lessor is the "Insuring Party" unless otherwise stated herein. (See also Paragraph 8)

1.9Real Estate Brokers. (See also Paragraph 15 and 25)

(a)Representation: Each Party acknowledges receiving a Disclosure Regarding Real Estate Agency Relationship, confirms and consents to the following agency relationships in this Lease with the following real estate brokers ("Broker(s)") and/or their agents ("Agent(s)"):

☑Lessor's Brokerage Firm Cushman & WakefieldLicense No. Is the broker of (check one): ☑ the Lessor; or ☐ both the Lessee and Lessor (dual agent).

Lessor's Agent Aric StarckLicense No. is (check one): ☑ the Lessor's Agent (salesperson or broker associate); or ☐ both the Lessee's Agent and the Lessor's Agent (dual agent).

Lessee's Brokerage Firm Savills, Inc.License No. Is the broker of (check one):☑ the Lessee; or ☐ both the Lessee and Lessor (dual agent).

Lessee's Agent (Bob McGriff, Michael Labelle, Bridget Garwitz)License No. is (check one): ☑ the Lessee's Agent (salesperson or broker associate); or ☐ both the Lessee's Agent and the Lessor's Agent (dual agent).

(b)Payment to Brokers.Upon execution and delivery of this Lease by both Parties, Lessor shall pay to the Brokers the brokerage fee agreed to in a separate written agreement (or if there is no such agreement, the sum of--or--% of the total Base Rent) for the brokerage services rendered by the Brokers.(See Paragraph 59)

1.10Guarantor. The obligations of the Lessee under this Lease are to be guaranteed by N/A ("Guarantor"). (See also Paragraph 37)

1.11Attachments. Attached hereto are the following, all of which constitute a part of this Lease:

☑an Addendum consisting of Paragraphs   51              through   67             ;

☑a plot plan depicting the Premises (Exhibit A);

☐a current set of the Rules and Regulations;

☑a Work Letter (Exhibit B);

☑other (specify): Option(s) to Extend (Paragraph 68); Environmental Disclosure Statement (Exhibit C).

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2.Premises.

2.1Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. While the approximate square footage of the Premises may have been used in the marketing of the Premises for purposes of comparison, the Base Rent stated herein is NOT tied to square footage and is not subject to adjustment should the actual size be determined to be different. NOTE: Lessee is advised to verify the actual size prior to executing this Lease.

2.2Condition. Lessor shall deliver the Premises to Lessee broom clean and free of debris on the Commencement Date or the Early Possession Date, whichever first occurs ("Start Date"), and, so long as the required service contracts described in Paragraph 7.1(b) below are obtained by Lessee and in effect within thirty days following the Start Date, warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems ("HVAC"), loading doors, sump pumps, if any, and all other such elements in the Premises, other than those constructed by Lessee or changes made to the existing elements of the Premises by Lessee, shall be in good operating condition on said date, that the structural elements of the roof, bearing walls and foundation of any buildings on the Premises (the "Building") shall be free of material defects, the roof shall be free of leaks (upon Lessor's installation of the Roof Coating as provided in Paragraph 53), and that the Premises do not contain hazardous levels of any mold or fungi defined as toxic under applicable state or federal law. If a non-compliance with said warranty exists as of the Start Date, or if one of such systems or elements should malfunction or fail within the appropriate warranty period, Lessor shall, as Lessor's sole obligation with respect to such matter, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, malfunction or failure, rectify same at Lessor's expense. The warranty periods shall be as follows: (i) 12 months from installation of the Roof Coating as to the roof membrane, 6 months as to the HVAC systems, (ii) 6 months from Start Date as to the existing elevator, and (iii) 6 months from the Commencement Date 30 days as to the remaining systems (including the HVAC systems) and other elements of the Building building on the Premises (the "Building"). If Lessee does not give Lessor the required notice within the appropriate warranty period, correction of any such non-compliance, malfunction or failure shall be the obligation of Lessee at Lessee's sole cost and expense. Lessor also warrants, that unless otherwise specified in writing, Lessor is unaware of (i) any recorded Notices of Default affecting the Premise; (ii) any delinquent amounts due under any loan secured by the Premises; and (iii) any bankruptcy proceeding affecting the Premises.

2.3Compliance. Lessor warrants that to the best of its knowledge the improvements on the Premises comply with the building codes, applicable laws, covenants or restrictions of record including, but not limited to, the Declaration of Covenants, Conditions and Restrictions recorded on September 12, 1986 as Instrument No. 86-401456, as amended by the First Amendment recorded on January 28, 1987 as Instrument No. 87-048040, and as further amended by the Declaration of Annexation of Phase II recorded on October 30, 1990 as Instrument No. 90-589282 (collectively, the "CC&Rs"), regulations, and ordinances including without limitation the Americans with Disabilities Act ("Applicable Requirements") that were in effect at the time that each improvement, or portion thereof, was constructed. Said warranty does not apply to the use to which Lessee will put the Premises, modifications which may be required by the Americans with Disabilities Act or any similar laws as a result of Lessee's specific and unique use (see Paragraph 49), or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee. For purposes of this Lease all references to Lessee's "specific and unique" use shall mean Lessee's operation as manufacturer and seller of medical devices (as compared with general office, research and development and other industrial uses). Lessor shall not unilaterally approve any changes to the CC&Rs that materially and adversely affect Lessee's use of the Premises without Lessee's consent. NOTE: Lessee is responsible for determining whether or not the Applicable Requirements, and especially the zoning, are appropriate for Lessee's intended use, and acknowledges that past uses of the Premises may no longer be allowed. If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within 6 months following the Commencement Start Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. If the Applicable Requirements are hereafter changed so as to require during the term of this Lease the construction of an addition to or an alteration of the Premises and/or Building, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Unit, Premises and/or Building ("Capital Expenditure"), Lessor and Lessee shall allocate the cost of such work as follows:

(a)Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general, Lessee shall be fully responsible for the cost thereof, provided, however, that if such Capital Expenditure is required during the last 2 years of this Lease and the cost thereof exceeds 6 months' Base Rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within 10 days after receipt of Lessee's termination notice that Lessor has elected to pay the difference between the actual cost thereof and an amount equal to 6 months' Base Rent. If Lessee elects termination, Lessee shall immediately cease the use of the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least 90 days thereafter. Such termination date shall, however, in no event be earlier than the last day that Lessee could legally utilize the Premises without commencing such Capital Expenditure.

(b)If such Capital Expenditure is not the result of the specific and unique use of the Premises by Lessee (such as, governmentally mandated seismic modifications), then Lessor shall pay for such Capital Expenditure and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease or any extension thereof, on the date that on which the Base Rent is due, an amount equal to 1/144th of as Operating Expenses, the portion of such costs reasonably attributable to the Premises and amortized over the useful life of the Capital Expenditure as more fully set forth in Paragraph 56. Lessee shall pay Interest interest at the rate of 7.5% per annum on the balance but may prepay its obligation at any time. If, however, such Capital Expenditure is required during the last 2 years 12 months of this Lease or if Lessor reasonably determines that it is not economically feasible to pay its share thereof, Lessor shall have the option to terminate this Lease upon 90 days prior written notice to Lessee unless Lessee notifies Lessor, in writing, within 10 days after receipt of Lessor's termination notice that Lessee will pay for such Capital Expenditure. If Lessor does not elect to terminate, and fails to tender its share of any such Capital Expenditure, Lessee may advance such funds and deduct same, with Interest, from Rent until Lessor's share of such costs have been fully paid. If Lessee is unable to finance Lessor's share, or if the balance of the Rent due and payable for the remainder of this Lease is not sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the right to terminate this Lease upon 30 days written notice to Lessor.

(c)Notwithstanding the above, the provisions concerning Capital Expenditures are intended to apply only to non-voluntary, unexpected, and new Applicable Requirements. If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in use, change in intensity of use, or modification to the Premises then, and in that event, Lessee shall either: (i) immediately cease such changed use or intensity of use and/or take such other steps as may be necessary to eliminate the requirement for such Capital Expenditure, or (ii) complete such Capital Expenditure at its own expense. Lessee shall not, however, have any right to terminate this Lease.

2.4Acknowledgements. Without limiting Lessor's warranties and other obligations set forth herein, Lessee acknowledges that: (a) it has been given an opportunity to inspect and measure the Premises, (b) it has been advised by Lessor and/or Brokers to satisfy itself with respect to the size and condition of the Premises (including but not limited to the electrical, HVAC and fire sprinkler systems, security, environmental aspects, and compliance with Applicable Requirements and the Americans with Disabilities Act), and their suitability for Lessee's intended use, (c) Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor (except as set forth herein) as the same relate to its occupancy of the Premises, (d) it is not relying on any representation as to the size of the Premises made by Brokers or Lessor, (e) the square footage of the Premises was not material to Lessee's decision to lease the Premises and pay the Rent stated herein, and (f) neither Lessor, Lessor's agents, nor Brokers have made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease. In addition, Lessor acknowledges that: (i) Brokers have made no representations, promises or warranties concerning Lessee's ability to honor the Lease or suitability to occupy the Premises, and (ii) it is Lessor's sole responsibility to investigate the financial capability and/or suitability of all proposed tenants.

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2.5Lessee as Prior Owner/Occupant. The warranties made by Lessor in Paragraph 2 shall be of no force or effect if immediately prior to the Start Date Lessee was the owner or occupant of the Premises. In such event, Lessee shall be responsible for any necessary corrective work.

3.Term.

3.1Term. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3.

3.2Early Possession.Any provision herein granting Lessee Early Possession of the Premises is subject to and conditioned upon the Premises being available for such possession prior to the Commencement Date. Any grant of Early Possession only conveys a non-exclusive right to occupy the Premises. If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent, Operating Expenses, Real Property Taxes and insurance premiums shall be abated for the period of such Early Possession. All other terms of this Lease (including but not limited to the obligations to pay Real Property Taxes and insurance premiums and to maintain the Premises) shall be in effect during such period. Any such Early Possession shall not affect the Expiration Date.

3.3Delay In Possession. Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to Lessee by the Commencement Date. If, despite said efforts, Lessor is unable to deliver possession by such date, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease or change the Expiration Date. Lessee shall not, however, be obligated to pay Rent or perform its other obligations until Lessor delivers possession of the Premises and any period of rent abatement that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts or omissions of Lessee. If possession is not delivered within 60 days after the Commencement Date, as the same may be extended under the terms of any Work Letter executed by Parties, Lessee may, at its option, by notice in writing within 10 days after the end of such 60 day period, cancel this Lease, in which event the Parties shall be discharged from all obligations hereunder. If such written notice is not received by Lessor within said 10 day period, Lessee's right to cancel shall terminate. If possession of the Premises is not delivered within 120 days after the Commencement Date, this Lease shall terminate unless other agreements are reached between Lessor and Lessee, in writing.

3.4Lessee Compliance. Lessor shall not be required to tender possession of the Premises to Lessee until Lessee complies with its obligation to provide evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee shall be required to perform all of its obligations under this Lease from and after the Start Date, including the payment of Rent, notwithstanding Lessor's election to withhold possession pending receipt of such evidence of insurance. Further, if Lessee is required to perform any other conditions prior to or concurrent with the Start Date, the Start Date shall occur but Lessor may elect to withhold possession until such conditions are satisfied.

4.Rent.

4.1Rent Defined. All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are deemed to be rent ("Rent"). All rent shall be payable to RAF Pacifica Group - Real Estate Fund IV, LLC, at the address set forth below its signature to this Lease, unless changed in accordance with Paragraph 23.

4.2Payment. Lessee shall cause payment of Rent to be received by Lessor in lawful money of the United States, without offset or deduction (except as specifically permitted in this Lease), on or before the day on which it is due. All monetary amounts shall be rounded to the nearest whole dollar. In the event that any invoice prepared by Lessor is inaccurate such inaccuracy shall not constitute a waiver and Lessee shall be obligated to pay the amount set forth in this Lease. Rent for any period during the term hereof which is for less than one full calendar month shall be prorated based upon the actual number of days of said month. The Base Rent and estimated Operating Expenses paid by Lessee upon execution of this Lease pursuant to Paragraph 1.6 shall be applied to the first such amounts due and owing pursuant to this Lease. Payment of Rent shall be made to Lessor at its address stated herein or to such other persons or place as Lessor may from time to time designate in writing. Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor's rights to the balance of such Rent, regardless of Lessor's endorsement of any check so stating. In the event that any check, draft, or other instrument of payment given by Lessee to Lessor is dishonored for any reason, Lessee agrees to pay to Lessor the sum of $25 in addition to any Late Charge and Lessor, at its option, may require all future Rent be paid by cashier's check. Payments will be applied first to accrued late charges and attorney's fees, second to accrued interest, then to Base Rent, Insurance and Real Property Taxes, and any remaining amount to any other outstanding charges or costs.

4.3Association Fees. In addition to the Base Rent, Lessee shall pay to Lessor each month pursuant to Paragraph 56 an amount equal to any owner's association or condominium fees levied or assessed against the Premises. Said monies shall be paid at the same time and in the same manner as the Base Rent.

5.Security Deposit. Lessee shall deposit with Lessor upon execution hereof the Security Deposit as security for Lessee's faithful performance of its obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults under this Lease, Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount already due Lessor, for Rents which will be due in the future, and/or to reimburse or compensate Lessor for any liability, expense, loss or damage which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of the Security Deposit, Lessee shall within 10 days after written request therefor deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. If- the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional monies with Lessor so that the total amount of the Security Deposit shall at all times bear the same proportion to the increased Base Rent as the initial Security Deposit bore to the initial Base Rent. Should the Agreed Use be amended to accommodate a material change in the business of Lessee or to accommodate a sublessee or assignee, Lessor shall have the right to increase the Security Deposit to the extent necessary, in Lessor's reasonable judgment, to account for any increased wear and tear that the Premises may suffer as a result thereof. If a change in control of Lessee occurs during this Lease and following such change the financial condition of Lessee is, in Lessor's reasonable judgment, significantly reduced, Lessee shall deposit such additional monies with Lessor as shall be sufficient to cause the Security Deposit to be at a commercially reasonable level based on such change in financial condition. Lessor shall not be required to keep the Security Deposit separate from its general accounts. Within 60 90 days after the expiration or termination of this Lease, Lessor shall return that portion of the Security Deposit not used or applied by Lessor. Lessor shall upon written request provide Lessee with an accounting showing how that portion of the Security Deposit that was not returned was applied. No part of the Security Deposit shall be considered to be held in trust, to bear interest or to be prepayment for any monies to be paid by Lessee under this Lease. The Security Deposit shall be deemed to be held by RAF Pacifica Group - Real Estate Fund IV, LLC. THE SECURITY DEPOSIT SHALL NOT BE USED BY LESSEE IN LIEU OF PAYMENT OF THE LAST MONTH'S RENT.

6.Use.

6.1Use. Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs occupants of or causes damage to neighboring premises or properties. Other than guide, signal and seeing eye dogs, Lessee shall not keep or allow in the Premises any pets, animals, birds, fish, or reptiles. Lessor shall not unreasonably withhold or delay its consent to any written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the improvements on the premises or the mechanical or electrical systems therein, and/or is not significantly more burdensome to the Premises. If Lessor elects to withhold consent, Lessor shall within 7 days after such request give written notification of same, which notice shall include an explanation of Lessor's objections to the change in the Agreed Use.

6.2Hazardous Substances.

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(a)Reportable Uses Require Consent. The term "Hazardous Substance" as used in this Lease shall mean any product, substance, or waste whose presence, use, manufacture, disposal, transportation, or release, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substances shall include, but not be limited to, hydrocarbons, petroleum, gasoline, and/or crude oil or any products, by-products or fractions thereof. Except for any such Reportable Uses that are consistent with the Agreed Use, such as the use of industrial solvents typically used in light manufacturing, temporary storage of infectious waste incidental to Lessee’s research and development and sales training activities relating to medical devices, and the storage and use of Hazardous Substances otherwise incidental to those industrial uses included in the Agreed Use and permitted by the Applicable Requirements (collectively, the “Permitted Use”), Lessee shall not engage in any other activity in or on the Premises which constitutes a Reportable Use of Hazardous Substances without the express prior written consent of Lessor and timely compliance (at Lessee's expense) with all Applicable Requirements. Any Permitted Use shall be subject to written disclosure to Lessor of the identity, quantity and location of the Hazardous Substances associated therewith, and evidence of Lessee’s compliance with Applicable Requirements required for the Permitted Use. "Reportable Use" shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and/or (iii) the presence at the Premises of a Hazardous Substance with respect to which any Applicable Requirements requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, in addition to the Permitted Use Lessee may use any ordinary and customary materials reasonably required to be used in the normal course of the Agreed Use, ordinary office supplies (copier toner, liquid paper, glue, etc.) and common household cleaning materials, so long as such use is in compliance with all Applicable Requirements, is not a Reportable Use, and does not expose the Premises or neighboring property to any meaningful risk of contamination or damage or expose Lessor to any liability therefor. In addition, Lessor may condition any Permitted use or its consent to any other Reportable Use upon receiving such additional assurances as Lessor reasonably deems necessary to protect itself, the public, the Premises and/or the environment against damage, contamination, injury and/or liability, including, but not limited to, the installation (and removal on or before Lease expiration or termination) by Lessee of reasonable protective modifications (such as concrete encasements) and/or increasing the Security Deposit.

(b)Duty to Inform Lessor. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor, and provide Lessor with a copy of any report, notice, claim or other documentation which it has concerning the presence of such Hazardous Substance.

(c)Lessee Remediation. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under, or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee's expense, comply with all Applicable Requirements and take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises or neighboring properties, that was caused or materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance brought onto the Premises during the term of this Lease, by or for Lessee, its agents, employees or invitees. or any third party.

(d)Lessee Indemnification. Lessee shall indemnify, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless from and against any and all loss of rents and/or damages (but specifically excluding consequential, special or punitive damages), liabilities, judgments, claims, expenses, penalties, and attorneys' and consultants' fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee, its agents, employees or invitees or any third party (provided, however, that Lessee shall have no liability under this Lease with respect to underground migration of any Hazardous Substance under the Premises from adjacent properties not caused or contributed to by Lessee). Lessee's obligations shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement.

(e)Lessor Indemnification. Except as otherwise provided in paragraph 8.7, Lessor and its successors and assigns shall indemnify, defend, reimburse and hold Lessee, its employees and lenders, harmless from and against any and all environmental damages, including the cost of remediation (but specifically excluding consequential, special or punitive damages), which result from Hazardous Substances which existed on the Premises prior to Lessee's occupancy or which are caused by the gross negligence or willful misconduct of Lessor, its agents or employees. Lessor's obligations, as and when required by the Applicable Requirements, shall include, but not be limited to, the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease.

(f)Investigations and Remediations. Lessor hereby warrants that Lessor has not received any written notice of any Hazardous Substance Condition (as defined in subparagraph 9.1(e) below) on or under the Premises, or any requirement or order for an investigation of any portion of the Project to be taken pursuant to a state or federal environmental response or remediation statute, except as may have been disclosed in the Phase I report provided to Lessee prior to the execution of this Lease. Lessor shall retain the responsibility and pay for any investigations or remediation measures required by governmental entities having jurisdiction with respect to the existence of Hazardous Substances on the Premises prior to Lessee's occupancy, or brought onto the Premises by Lessor or its agents, employees or contractors, unless such remediation measure is required as a result of Lessee's use (including "Alterations", as defined in paragraph 7.3(a) below) of the Premises, in which event Lessee shall be responsible for such payment. Lessee shall cooperate fully in any such activities at the request of Lessor, including allowing Lessor and Lessor's agents to have reasonable access to the Premises at reasonable times in order to carry out Lessor's investigative and remedial responsibilities.

(g)Lessor Termination Option. If a Hazardous Substance Condition (see Paragraph 9.1(e)) occurs during the term of this Lease, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by the Applicable Requirements and this Lease shall continue in full force and effect, but subject to Lessor's rights under Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor's option, either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to remediate such condition exceeds 12 times the then monthly Base Rent or $100,000, whichever is greater, and if the Hazardous Substance Condition was not caused by the negligence or willful misconduct of Lessor or its agents, invitees or contractorss, give written notice to Lessee, within 30 days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of Lessor's desire to terminate this Lease as of the date 60 days following the date of such notice. In the event Lessor elects to give a termination notice, Lessee may, within 10 days thereafter, give written notice to Lessor of Lessee's commitment to pay the amount by which the cost of the remediation of such Hazardous Substance Condition exceeds an amount equal to 12 times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days following such commitment. In such event, this Lease shall continue in full force and effect, and Lessor shall proceed to make such remediation as soon as reasonably possible after the required funds are available. If Lessee does not give such notice and provide the required funds or assurance thereof within the time provided, this Lease shall terminate as of the date specified in Lessor's notice of termination. If Lessee is unable to operate its business from the Premises for a period in excess of three (3) months due to Lessor's work of remediation, then Lessee shall be entitled to terminate this Lease without liability to Lessor, by written notice delivered to Lessor at any time after Lessee's operations have been interrupted for more than three (3) months as a result of such remediation work, with termination being effective 60 days following delivery of such notice.

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6.3Lessee's Compliance with Applicable Requirements. Except as otherwise provided in this Lease, Lessee shall, at Lessee's sole expense, fully, diligently and in a timely manner, materially comply with all Applicable Requirements, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor's engineers and/or consultants which relate in any manner to the Premises, without regard to whether said Applicable Requirements are now in effect or become effective after the Start Date. Lessee shall, within 10 days after receipt of Lessor's written request, provide Lessor with copies of all permits and other documents, and other information evidencing Lessee's compliance with any Applicable Requirements specified by Lessor,and shall immediately upon promptly following receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving the failure of Lessee or the Premises to comply with any Applicable Requirements. Likewise, Lessee shall immediately give written notice to Lessor of: (i) any water damage to the Premises and any suspected seepage, pooling, dampness or other condition conducive to the production of mold; or (ii) any mustiness or other odors that might indicate the presence of mold in the Premises. In addition, Lessee shall provide copies of all relevant material safety data sheets (MSDS) to Lessor within 10 days of the receipt of a written request therefor. In addition, Lessee shall provide Lessor with copies of its business license, certificate of occupancy and/or any similar document within 10 days of the receipt of a written request therefor.

6.4Inspection; Compliance. Lessor and Lessor's "Lender" (as defined in Paragraph 30) and consultants authorized by Lessor shall have the right to enter into Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable notice, for the purpose of inspecting and/or testing the condition of the Premises and/or for verifying compliance by Lessee with this Lease. 48 hours shall be considered reasonable notice for purposes of this Paragraph 6.4. Lessor shall cooperate with Lessee to arrange the timing of any such inspection and/or testing so as to minimize the interference with Lessee's operation at the Premises. The cost of any such inspections shall be paid by Lessor, unless a violation of Applicable Requirements that is the responsibility of Lessee to cure, or a Hazardous Substance Condition (see paragraph 9.1) that is the responsibility of Lessee to remediate is found to exist or be imminent, or the inspection is requested or ordered by a governmental authority. In such case, Lessee shall upon request reimburse Lessor for the cost of such inspection, so long as such inspection is reasonably related to the violation or contamination. In addition, Lessee shall provide copies of all relevant material safety data sheets (MSDS) to Lessor within 10 days of the receipt of a written request therefor. Lessee acknowledges that any failure on its part to allow such inspections or testing will expose Lessor to risks and potentially cause Lessor to incur costs not contemplated by this Lease, the extent of which will be extremely difficult to ascertain. Accordingly, should the Lessee fail to allow such inspections and/or testing in a timely fashion the Base Rent shall be automatically increased, without any requirement for notice to Lessee, by an amount equal to 10% of the then existing Base Rent or $100, whichever is greater until Lessee complies with such requirements. for the remainder to the Lease. The Parties agree that such increase in Base Rent represents fair and reasonable compensation for the additional risk/costs that Lessor will incur by reason of Lessee's failure to allow such inspection and/or testing. Such increase in Base Rent shall in no event constitute a waiver of Lessee's Default or Breach with respect to such failure nor prevent the exercise of any of the other rights and remedies granted hereunder.

7.Maintenance; Repairs; Utility Installations; Trade Fixtures and Alterations.

7.1Lessee's Obligations.

(a)In General. Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14 (Condemnation) and 55 (Lessor's Maintenance Obligations), Lessee shall, at Lessee's sole expense, keep the Premises, Utility Installations (intended for Lessee's exclusive use, no matter where located), and Alterations and Outdoor Amenities (as defined herein) in good order, condition and repair (whether or not the portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee's use, any prior use, the elements or the age of such portion of the Premises), including, but not limited to, all equipment or facilities, such as plumbing, HVAC equipment, electrical, lighting facilities, boilers, pressure vessels, fire protection system, fixtures, walls (interior and exterior only), foundations, ceilings, roofs, roof drainage systems, floors (including floor coverings), windows, doors, plate glass, skylights, landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways located in, on, or adjacent to the Premises. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices, specifically including the procurement and maintenance of the service contracts required by Paragraph 7.1(b) below. Lessee's obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair. Lessee shall, during the term of this Lease, keep the exterior appearance of the Building in a first-class condition (including, e.g. graffiti removal) consistent with the exterior appearance of other similar facilities of comparable age and size in the vicinity, including, when necessary, the exterior repainting of the Building. (See also Paragraph 55.)

(b)Service Contracts. Lessee shall, at Lessee's sole expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in the maintenance of the following equipment and improvements, if any, if and when installed on the Premises: (i) HVAC equipment, (ii) boiler, and pressure vessels, (iii) fire extinguishing systems, including fire alarm and/or smoke detection, (iv) landscaping and irrigation systems, (v) roof covering and drains, and (vi) clarifiers. However, Lessor reserves the right, upon notice to Lessee in the event that Lessor reasonably determines that any Lessee-retained contractor is not maintaining the applicable equipment in accordance with good maintenance practices, and provided that Lessee has not cured Lessor's objections within thirty (30) days, to procure and maintain any or all of such service contracts, and Lessee shall reimburse Lessor, upon demand, for the cost thereof.

(c)Failure to Perform. If Lessee fails to perform Lessee's obligations under this Paragraph 7.1, Lessor may enter upon the Premises after 10 days' prior written notice to Lessee (except in the case of an emergency, in which case no notice shall be required), perform such obligations on Lessee's behalf, and put the Premises in good order, condition and repair, and Lessee shall promptly pay to Lessor a sum equal to 115% of the cost thereof.

(d)Replacement. Subject to Lessee's indemnification of Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of liability resulting from Lessee's failure to exercise and perform good maintenance practices, if an item described in Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of 50% of the cost of replacing such item, then such item shall be replaced by Lessor, and the cost thereof shall be prorated between the Parties and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease, on the date on which Base Rent is due, an amount equal to the product of multiplying the cost of such replacement by a fraction, the numerator of which is one, and the denominator of which is 144 (ie. 1/144th of the cost per month). Lessee shall pay Interest on the unamortized balance but may prepay its obligation at any time.

7.2Lessor's Obligations. Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance), 9 (Damage or Destruction) and 14 (Condemnation), and 55 (Lessor's Maintenance Obligations), it is intended by the Parties hereto that Lessor have no obligation, in any manner whatsoever, to repair and maintain the Premises, or the equipment therein, all of which obligations are intended to be that of the Lessee. It is the intention of the Parties that the terms of this Lease govern the respective obligations of the Parties as to maintenance and repair of the Premises.

7.3Utility Installations; Trade Fixtures; Alterations.

(a)Definitions. The term "Utility Installations" refers to all floor and window coverings, air and/or vacuum lines, power panels, electrical distribution, security and fire protection systems, communication cabling, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises. The term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be removed without doing material damage to the Premises. The term "Alterations" shall mean any modification of the improvements, other than Utility Installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned Alterations and/or Utility Installations" are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a).

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(b)Consent. Lessee shall not make any Alterations or Utility Installations to the Premises without Lessor's prior written consent. Lessee may, however, make non-structural Alterations or Utility Installations to the interior of the Premises (excluding the roof) without such consent but upon notice to Lessor, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, will not affect the electrical, plumbing, HVAC, and/or life safety systems, do not trigger the requirement for additional modifications and/or improvements to the Premises resulting from Applicable Requirements, such as compliance with Title 24, and the cumulative cost thereof during this Lease as extended does not exceed a sum equal to 3 month's Base Rent in the aggregate or a sum equal to one month's Base Rent in any one year. Notwithstanding the foregoing, Lessee shall not make or permit any roof penetrations and/or install anything on the roof without the prior written approval of Lessor.Lessor may, as a precondition to granting such approval, require Lessee to utilize a contractor chosen and/or approved by Lessor.Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans. Consent shall be deemed conditioned upon Lessee's: (i) acquiring all applicable governmental permits, (ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements in a prompt and expeditious manner. Any Alterations or Utility Installations shall be performed in a workmanlike manner with good and sufficient materials. If Lessor fails to approve or disapprove in writing the request within fifteen (15) days after Lessor's receipt of Lessee's written request (which disapproval may include a notice to Lessee that additional information must be submitted to Lessor as conditions of Lessor's consent as required by this subparagraph 7.3(b)), then Lessor shall be deemed to have approved such Alterations and/or Utility Installations as submitted by Lessee for Lessor's approval. Lessee shall promptly upon completion furnish Lessor with as-built plans and specifications. For work which costs an amount in excess of six months' one month'sBase Rent (other than the initial Lessee Improvements as defined in the Addendum), Lessor may condition its consent upon Lessee providing a lien and completion bond in an amount equal to 150% of the estimated cost of such Alteration or Utility Installation and/or upon Lessee's posting an additional Security Deposit with Lessor.

(c)Liens; Bonds. Subject to Lessee's right to reasonably dispute such claims, Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than 10 days notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility. If Lessee shall contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof. If Lessor shall require, Lessee shall furnish a surety bond in an amount equal to 150% of the amount of such contested lien, claim or demand, indemnifying Lessor against liability for the same. If Lessor elects to participate in any such action, Lessee shall pay Lessor's attorneys' fees and costs.

7.4Ownership; Removal; Surrender; and Restoration.

(a)Ownership. Subject to Lessor's right to require removal or elect ownership as hereinafter provided, all Alterations and Utility Installations made by Lessee shall be the property of Lessee, but considered a part of the Premises. Lessor may, at any time, elect in writing to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations. Unless otherwise instructed per paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or termination of this Lease, become the property of Lessor and be surrendered by Lessee with the Premises.

(b)Removal. By Except to the extent that Lessor notifies Lessee at the time of giving its consent to any Alterations or Utility Installations as provided in Paragraph 7.3(b) or this Paragraph 7.4(b) below, by delivery to Lessee of written notice from Lessor not earlier than 90 and not later than 30 days prior to the end of the term of this Lease, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or termination of this Lease. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent.

If requested by Lessee in writing upon requesting Lessor's consent to any Alterations or Utility Installations, Lessor shall designate whether Lessee shall be required to remove any such Alterations or Utility Installations upon the termination of this Lease.

(c)Surrender; Restoration. Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces thereof broom clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear and Lessor's maintenance and repair obligations hereunder excepted. "Ordinary wear and tear" shall not include any damage or deterioration that would have been prevented by good maintenance practice. Notwithstanding the foregoing and the provisions of Paragraph 7.1(a), if the Lessee occupies the Premises for 12 months or less, then Lessee shall surrender the Premises in the same condition as delivered to Lessee on the Start Date with NO allowance for ordinary wear and tear. Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee owned Alterations and/or Utility Installations, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee. Lessee shall also remove from the Premises any and all Hazardous Substances brought onto the Premises by or for Lessee, or its agents, employees or invitees any third party (except Hazardous Substances which were deposited via underground migration from areas outside of the Premises) to the level specified in Applicable Requirements. Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee. Any personal property of Lessee not removed on or before the later of (i) the Expiration Date or any earlier termination date or (ii) the date on which Lessee vacates and surrenders the Premises in the condition required by this subparagraph 7.4(c), shall be deemed to have been abandoned by Lessee and may be disposed of or retained by Lessor as Lessor may desire. The failure by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 26 below.

8.Insurance; Indemnity.

8.1Payment For Insurance. Lessee shall pay for all insurance required under Paragraph 8 except to the extent of the cost attributable to liability insurance carried by Lessor under Paragraph 8.2(b) in excess of $2,000,000 per occurrence. Premiums for policy periods commencing prior to or extending beyond the Lease term shall be prorated to correspond to the Lease term. Payment for insurance policies carried by Lessor under Paragraph 8.2(b) shall be made by Lessee to Lessor as part of Operating Expenses pursuant to Paragraph 56 of this Lease. within 10 days following receipt of an invoice.

8.2Liability Insurance.

(a)Carried by Lessee. Lessee shall obtain and keep in force a Commercial General Liability policy of insurance protecting Lessee and Lessor as an additional insured against claims for bodily injury, personal injury, owned/non-owned/hired auto liability and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an annual aggregate of not less than $2,000,000. Lessee shall add Lessor as an additional insured by means of an endorsement at least as broad as the Insurance Service Organization's "Additional Insured-Managers and or Lessors of Premises" Endorsement. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an "insured contract" for the performance of Lessee's indemnity obligations under this Lease. The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. Lessee shall provide an endorsement on its liability policy(ies) which provides that its insurance shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only.

(b)Carried by Lessor. Lessor shall maintain liability insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein.

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8.3Property Insurance - Building, Improvements and Rental Value.

(a)Building and Improvements. The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor, with loss payable to Lessor, any ground-lessor, and to any Lender insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full insurable replacement cost of the Premises, as the same shall exist from time to time, or the amount required by any Lender, but in no event more than the commercially reasonable and available insurable value thereof. Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee's personal property shall be insured by Lessee not by Lessor. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for debris removal and the enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $5,000 per occurrence, and Lessee shall be liable for such deductible amount as an Operating Expense in the event of an Insured Loss.

(b)Rental Value. The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor with loss payable to Lessor and any Lender, insuring the loss of the full Rent for one year with an extended period of indemnity for an additional 180 days ("Rental Value insurance"). Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Lessee, for the next 12 month period. Lessee shall be liable for any deductible amount as an Operating Expense in the event of such loss.

(c)Adjacent Premises. If the Premises are part of a larger building, or of a group of buildings owned by Lessor which are adjacent to the Premises, the Lessee shall pay for any increase in the premiums for the property insurance of such building or buildings if said increase is caused by Lessee's acts, omissions, use or occupancy of the Premises.

8.4Lessee's Property; Business Interruption Insurance; Worker's Compensation Insurance.

(a)Property Damage. Lessee shall obtain and maintain insurance coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations. Such insurance shall be full replacement cost coverage with a deductible of not to exceed $251,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property, Trade Fixtures and Lessee Owned Alterations and Utility Installations.

(b)Business Interruption. Lessee shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils.

(c)Worker's Compensation Insurance. Lessee shall obtain and maintain Worker's Compensation Insurance with statutorily-mandated limits. in such amount as may be required by Applicable Requirements. Such policy shall include a 'Waiver of Subrogation' endorsement. Lessee shall provide Lessor with a copy of such endorsement along with the certificate of insurance or copy of the policy required by paragraph 8.5.

(d)No Representation of Adequate Coverage. Lessor makes no representation that the limits or forms of coverage of insurance specified herein are adequate to cover Lessee's property, business operations or obligations under this Lease.

8.5Insurance Policies. Insurance required herein shall be by companies maintaining during the policy term a "General Policyholders Rating" of at least A-, VII, as set forth in the most current issue of "Best's Insurance Guide", or such other rating as may be required by a Lender. Lessee shall not do or permit to be done anything which invalidates the required insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor certified copies of policies of such insurance or certificates with copies of the required endorsements evidencing the existence and amounts of the required insurance. No such policy shall be cancelable or subject to modification except after 30 days prior written notice to Lessor. Lessee shall, at least 10 days prior to the expiration of such policies, furnish Lessor with evidence of renewals or "insurance binders" evidencing renewal thereof, or Lessor may increase his liability insurance coverage and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less. If either Party shall fail to procure and maintain the insurance required to be carried by it, the other Party may, but shall not be required to, procure and maintain the same.

8.6Waiver of Subrogation. Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages against the other, for loss of or damage to its property arising out of or incident to the perils required to be insured against herein. The effect of such releases and waivers is not limited by the amount of insurance carried or required, or by any deductibles applicable hereto. The Parties agree to have their respective property damage insurance carriers waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby.

8.7Indemnity. Subject to the provisions of Paragraph 8.6, except Except for Lessor's gross negligence or willful misconduct or breach of this Lease, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor's master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, reasonable attorneys' and consultants' fees, expenses and/or liabilities arising out of, involving, or in connection with, a Breach of the Lease by Lessee and/or the use and/or occupancy of the Premises and/or Project by Lessee and/or by Lessee's employees, contractors, or invitees or Lessee's Work Parties (as defined in the Work Letter), except to the extent that such claim, etc., is covered by the insurance required to be maintained by Lessor hereunder. If any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be defended or indemnified. Subject to the provisions of Paragraph 8.6, except for Lessee's negligence or willful misconduct or breach of this Lease, Lessor shall, indemnify, defend, and hold harmless Lessee and its agents from and against all claims, damages, liens, judgments, penalties, reasonable attorneys' fees and consultants' fees, expenses and or liabilities arising out of, involving, or in connection with Lessor's breach of this Lease or Lessor's negligence or willful misconduct, except to the extent that such claim, etc., is covered by Lessee's insurance (or would have been covered had Lessee carried such insurance) required under Paragraph 8.2(a) or under 8.4 of this Lease.

8.8Exemption of Lessor and its Agents from Liability. Notwithstanding the negligence or breach of this Lease by Lessor or its agents, but without limiting Lessor's liability for any of its covenants, obligations or warranties expressly set forth in this Lease (nor any of Lessee's releases and waivers set forth in Paragraph 8.6) neither Lessor nor its agents shall be liable under any circumstances for: (i) injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee's employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, indoor air quality, the presence of mold or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources or places, (ii) any damages arising from any act or neglect of any other tenant of Lessor or from the failure of Lessor or its agents to enforce the provisions of any other lease in the Project other than those arising from Lessor's obligation to terminate the Parking Leases and take all necessary actions to remove the tenants/licensees in accordance with Paragraph 63 of this Lease, or (iii) injury to Lessee's business or for any loss of income or profit therefrom. Instead, it is intended that Lessee's sole recourse in the event of such damages or injury be to file a claim on the insurance policy(ies) that Lessee is required to maintain pursuant to the provisions of paragraph 8.

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8.9Failure to Provide Insurance. Lessee acknowledges that any failure on its part to obtain or maintain the insurance required herein will expose Lessor to risks and potentially cause Lessor to incur costs not contemplated by this Lease, the extent of which will be extremely difficult to ascertain. Accordingly, for any month or portion thereof that Lessee does not maintain the required insurance and/or does not provide Lessor with the required binders or certificates evidencing the existence of the required insurance which failure is not cured within 10 days following written notice thereof from Lessor, the Base Rent shall be automatically increased, without any requirement for notice to Lessee, by an amount equal to 10% of the then existing Base Rent or$100, whichever is greater, until Lessee cures such non-compliance. The parties agree that such increase in Base Rent represents fair and reasonable compensation for the additional risk/costs that Lessor will incur by reason of Lessee's failure to maintain the required insurance. Such increase in Base Rent shall in no event constitute a waiver of Lessee's Default or Breach with respect to the failure to maintain such insurance, prevent the exercise of any of the other rights and remedies granted hereunder, nor relieve Lessee of its obligation to maintain the insurance specified in this Lease.

9.Damage or Destruction.

9.1Definitions.

(a)"Premises Partial Damage" shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which can reasonably be repaired in (i) 6 months or less from receipt of insurance proceeds if the damage or destruction is an Insured Loss, or (ii) 6 months or less from the date of damage or destruction if such damage or destruction is not an Insured Loss. the date of the damage or destruction. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total.

(b)"Premises Total Destruction" shall mean damage or destruction to the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which cannot reasonably be repaired in (i) 6 months or less from receipt of insurance proceeds if the damage or destruction is an Insured Loss, or (ii) 6 months or less from the date of damage or destruction if such damage or destruction is not an Insured Loss. the date of the damage or destruction. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total.

(c)"Insured Loss" shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), and for which insurance proceeds are received by Lessor or its Lender (provided that the foregoing limitation shall not apply unless Lessor has maintained the required insurance coverage), less irrespective of any deductible amounts or coverage limits involved.

(d)"Replacement Cost" shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation.

(e)"Hazardous Substance Condition" shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance, in, on, or under the Premises which requires restoration.

9.2Partial Damage - Insured Loss. If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's expense (if Lessor or its Lender receives insurance proceeds, provided that the foregoing limitation shall not apply unless Lessor has maintained the required insurance coverage), repair such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor's election, make the repair of any damage or destruction to any components(s) of the Premises included in the Lessee's maintenance and repair obligations under subparagraph 7.1(a) if the total cost to repair of which such components is $10,000 or less, and, in such event, Lessor shall make any applicable insurance proceeds available to Lessee on a reasonable basis for that purpose. Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds (except as to the deductible which is Lessee's responsibility) as and when required to complete said repairs. In the event, however, such shortage was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within 10 days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said 10 day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If such funds or assurance are not received, Lessor may nevertheless elect by written notice to Lessee within 10 days thereafter to: (i) make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect, or (ii) have this Lease terminate 30 days thereafter. Lessee shall not be entitled to reimbursement of any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party.

9.3Partial Damage - Uninsured Loss. If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense), Lessor may either: (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice to Lessee within 30 days after receipt by Lessor of knowledge of the occurrence of such damage. Such termination shall be effective 60 days following the date of such notice. In the event Lessor elects to terminate this Lease, Lessee shall have the right within 10 days after receipt of the termination notice to give written notice to Lessor of Lessee's commitment to pay for the repair of such damage without reimbursement from Lessor. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days after making such commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available. If Lessee does not make the required commitment, this Lease shall terminate as of the date specified in the termination notice.

9.4Total Destruction. Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate 60 days following such Destruction. If the damage or destruction was caused by the gross negligence or willful misconduct of Lessee, Lessor shall have the right to recover Lessor's damages from Lessee, except as provided in Paragraph 8.6.

9.5Damage Near End of Term. If at any time during the last 12 6 months of this Lease there is damage for which the cost to repair exceeds two months' one month's Base Rent, whether or not an Insured Loss, either Lessor or Lessee may terminate this Lease effective 60 days following the date of occurrence of such damage by giving a written termination notice to the other party Lessee within 30 days after the date of occurrence of such damage. Notwithstanding the foregoing, if Lessor so elects to terminate this Lease and Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, (a) exercising such option and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is 10 days after Lessee's receipt of Lessor's written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires. If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's commercially reasonable expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate on the date specified in the termination notice and Lessee's option shall be extinguished.

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9.6Abatement of Rent; Lessee's Remedies.

(a)Abatement. In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired, but not to exceed the proceeds received from the Rental Value insurance. All other obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability for any such damage, destruction, remediation, repair or restoration except as provided herein.

(b)Remedies. If Lessor is obligated to repair or restore the Premises and does not commence, in a substantial and meaningful way, such repair or restoration within 90 days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of Lessee's election to terminate this Lease on a date not less than 60 days following the giving of such notice. If Lessee gives such notice and such repair or restoration is not commenced within 30 days thereafter, this Lease shall terminate as of the date specified in said notice. If the repair or restoration is commenced within such 30 days, this Lease shall continue in full force and effect. "Commence" shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs. Additionally, in the event that Lessor fails to complete the repair or restoration of the Premises hereunder within nine (9) months of the date of damage or destruction and such failure materially affects the operation of Lessee's business, then Lessee shall have the right at any time thereafter, to give written notice to Lessor of Lessee's election to terminate this Lease 60 days following the giving of such notice. If Lessee gives such notice and such repair or restoration is not completed within 30 days thereafter, this Lease shall terminate as of the date specified in said notice. If the repair or restoration is completed within such 30 days, this Lease shall continue in full force and effect. "Completed" shall mean the completion of the work on the Premises required for Lessee's occupancy and use of the entire Premises in accordance with a certificate of occupancy (or its equivalent), with only minor so-called punch-list repairs outstanding.

9.7Termination; Advance Payments. Upon termination of this Lease pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit as has not been, or is not then required to be, used by Lessor.

9.8Waive Statutes. Lessor and Lessee agree that the terms of the Lease shall govern the effect of any damage to or destruction of the Premises with respect to termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith, including, but not limited to, Section 1932(2) and 1933(4) of the California Civil Code (as may be amended or supplemented from time to time).

10.Real Property Taxes.

10.1Definition. As used herein, the term "Real Property Taxes" shall include any form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal income or estate taxes); improvement bond; and/or license fee imposed upon or levied against any legal or equitable interest of Lessor in the Premises or the Project, Lessor's right to other income therefrom, and/or Lessor's business of leasing, by any authority having the direct or indirect power to tax and where the funds are generated with reference to the Building address. Real Property Taxes shall also include any tax, fee, levy, assessment or charge, or any increase therein: (i) imposed by reason of events occurring during the term of this Lease, including but not limited to, a change in the ownership of the Premises, and (ii) levied or assessed on machinery or equipment provided by Lessor to Lessee pursuant to this Lease.

10.2Payment of Taxes. In addition to Base Rent, Lessee shall pay to Lessor an amount equal to the Real Property Taxes as part of Operating Expenses pursuant to Paragraph 56 of this Lease. Tax installment due at least 20 days prior to the applicable delinquency date. If any such installment shall cover any period of time prior to or after the expiration or termination of this Lease, Lessee's share of such installment shall be prorated. In the event Lessee incurs a late charge on any Rent payment, Lessor may estimate the current Real Property Taxes, and require that such taxes be paid in advance to Lessor by Lessee monthly in advance with the payment of the Base Rent. Such monthly payments shall be an amount equal to the amount of the estimated installment of taxes divided by the number of months remaining before the month in which said installment becomes delinquent. When the actual amount of the applicable tax bill is known, the amount of such equal monthly advance payments shall be adjusted as required to provide the funds needed to pay the applicable taxes. If the amount collected by Lessor is insufficient to pay such Real Property Taxes when due, Lessee shall pay Lessor, upon demand, such additional sum as is necessary. Advance payments may be intermingled with other moneys of Lessor and shall not bear interest. In the event of a Breach by Lessee in the performance of its obligations under this Lease, then any such advance payments may be treated by Lessor as an additional Security Deposit.

10.3Joint Assessment. If the Premises are not separately assessed, Lessee's liability shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be conclusively determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available.

10.4Personal Property Taxes. Lessee shall pay, prior to delinquency, all taxes assessed against and levied upon Lessee Owned Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee. When possible, Lessee shall cause its Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. If any of Lessee's said property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee's property within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee's property.

11.Utilities and Services. Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered or billed to Lessee, Lessee shall pay a reasonable proportion, to be determined by Lessor, of all charges jointly metered or billed. There shall be no abatement of rent and Lessor shall not be liable in any respect whatsoever for the inadequacy, stoppage, interruption or discontinuance of any utility or service due to riot, strike, labor dispute, breakdown, accident, repair or other cause beyond Lessor's reasonable control or in cooperation with governmental request or directions. Notwithstanding the foregoing, if any Essential Services (as hereinafter defined) are interrupted as a result of the gross negligence or willful misconduct of Lessor or any of its members, employees or agents and Lessee is unable to and does not conduct Lessee's business operations in the Premises as a result thereof for a period of more than 3 consecutive business days after written notice from Lessee to Lessor of such interruption, then in addition to any rights that Lessee may have under Paragraph 13.6, Rent payable by Lessee under this Lease shall be abated commencing on the expiration of such notice period and continuing for as long as Lessee is unable to and does not conduct Lessee's business operations in the Premises due to such interruption. As used herein, the term "Essential Services" shall mean the following services: access to the Premises, HVAC serving the laboratory portions of the Premises, water (other than deionized water), electricity, and sewer, but in each case only to the extent that Lessor has an obligation to provide same to Lessee under this Lease.

Within fifteen days of Lessor's written request, Lessee agrees to deliver to Lessor such information, documents and/or authorization as Lessor needs in order for Lessor to comply with new or existing Applicable Requirements relating to commercial building energy usage, ratings, and/or the reporting thereof.

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12.Assignment and Subletting.

12.1Lessor's Consent Required.

(a)Except for Exempt Transfer (made in accordance with Paragraph 58), Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or encumber (collectively, "assign or assignment") or sublet all or any part of Lessee's interest in this Lease or in the Premises without Lessor's prior written consent.

(b)Unless Lessee is a corporation and its stock is publicly traded on a national stock exchange and except as otherwise provided in Paragraph 58, a change in the control of Lessee shall constitute an assignment requiring consent. The transfer, on a cumulative basis, of 5025% or more of the voting control of Lessee shall constitute a change in control for this purpose.

(c)The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee's assets occurs, which results or will result in a reduction of the Net Worth of Lessee by an amount greater than 25% of such Net Worth as it was represented at the time of the execution of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, whichever was or is greater, shall be considered an assignment of this Lease to which Lessor may withhold its consent. "Net Worth of Lessee" shall mean the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles.

(d)An assignment or subletting without Lessor's consent as required herein shall, at Lessor's option, be a Default curable after notice per Paragraph 13.1(d)., or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unapproved assignment or subletting as a noncurable Breach, If Lessee fails to cure the breach within the applicable cure period, Lessor may either: (i) terminate this Lease, or (ii) upon 30 days written notice, increase the monthly Base Rent to 110% of the Base Rent then in effect. Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to 110% of the price previously in effect, and (ii) all fixed and non-fixed rental adjustments scheduled during the remainder of the Lease term shall be increased to 110% of the scheduled adjusted rent.

(e)Lessee's remedy for any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief.

(f)Lessor may reasonably withhold consent to a proposed assignment or subletting if Lessee is in Default at the time consent is requested.

(g)Notwithstanding the foregoing, allowing a de minimis portion of the Premises, i.e. 20 square feet or less, to be used by a third party vendor in connection with the installation of a vending machine or payphone shall not constitute a subletting.

12.2Terms and Conditions Applicable to Assignment and Subletting.

(a)Regardless of Lessor's consent, no assignment or subletting shall: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) be effective until Lessee provides written notice of such to Lessor, or (iv) alter the primary liability of Lessee for the payment of Rent or for the performance of any other obligations to be performed by Lessee.

(b)Lessor may accept Rent or performance of Lessee's obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for Lessee's Default or Breach.

(c)Lessor's consent to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting.

(d)In the event of any Default or Breach by Lessee, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessee's obligations under this Lease, including any assignee or sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefor to Lessor, or any security held by Lessor.

(e)Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor's determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a fee of $500 as consideration for Lessor's considering and processing said request. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested. (See also Paragraph 36)

(f)Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment, entering into such sublease, or entering into possession of the Premises or any portion thereof, be deemed to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented to in writing.

(g)To the extent that Lessor's consent to any assignment or subletting is required under this Paragraph 12, such consent shall not transfer to the assignee or sublessee any Option granted to the original Lessee by this Lease unless such transfer is specifically consented to by Lessor in writing. (See Paragraph 39.2) Notwithstanding the foregoing, Lessee's rights to the Option(s) shall survive any permitted assignment or subletting pursuant to an Exempt Transfer.

12.3Additional Terms and Conditions Applicable to Subletting. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein:

(a)Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all Rent payable on any sublease, and Lessor may collect such Rent and apply same toward Lessee's obligations under this Lease; provided, however, that until a Breach shall occur in the performance of Lessee's obligations, Lessee may collect said Rent. In the event that the amount collected by Lessor exceeds Lessee's then outstanding obligations any such excess shall be refunded to Lessee. Lessor shall not, by reason of the foregoing or any assignment of such sublease, nor by reason of the collection of Rent, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee's obligations under this Lease, to pay to Lessor all Rent due and to become due under the sublease. Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from Lessee to the contrary.

(b)In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any prior Defaults or Breaches of such sublessor.

(c)Any matter requiring the consent of the sublessor under a sublease shall also require the consent of Lessor.

(d)No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent.

(e)Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee.

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13.Default; Breach; Remedies.

13.1Default; Breach. A "Default" is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or Rules and Regulations under this Lease. A "Breach" is defined as the occurrence of one or more of the following Defaults, and the failure of Lessee to cure such Default within any applicable grace period:

(a)The abandonment of the Premises; or the vacating of the Premises without providing a commercially reasonable level of security, or where the coverage of the property insurance described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism.

(b)The failure of Lessee to make any payment of Rent or any Security Deposit required to be made by Lessee hereunder, whether to Lessor or to a third party, when due, to provide reasonable evidence of insurance or surety bond, or to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of 3 business days following written notice to Lessee. THE ACCEPTANCE BY LESSOR OF A PARTIAL PAYMENT OF RENT OR SECURITY DEPOSIT SHALL NOT CONSTITUTE A WAIVER OF ANY OF LESSOR'S RIGHTS, INCLUDING LESSOR'S RIGHT TO RECOVER POSSESSION OF THE PREMISES.

(c)The failure of Lessee to allow Lessor and/or its agents access to the Premises or the commission of waste, act or acts constituting public or private nuisance, and/or an illegal activity on the Premises by Lessee, where such actions continue for a period of 3 business days following written notice to Lessee. In the event that Lessee commits waste, a nuisance or an illegal activity a second time then, the Lessor may elect to treat such conduct as a non-curable Breach rather than a Default.

(d)The failure by Lessee to provide (i) reasonable written evidence of compliance with Applicable Requirements, (ii) the service contracts, (iii) the rescission of an unauthorized assignment or subletting, (iv) an Estoppel Certificate or financial statements, (v) a requested subordination, (vi) evidence concerning any guaranty and/or Guarantor, (vii) any document requested under Paragraph 42, (viii) material safety data sheets (MSDS), or (ix) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of 10 days following written notice to Lessee.

(e)A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof, other than those described in subparagraphs 13.1(a), (b), (c) or (d), above, where such Default continues for a period of 30 days after written notice; provided, however, that if the nature of Lessee's Default is such that more than 30 days are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said 30 day period and thereafter diligently prosecutes such cure to completion.

(f)The occurrence of any of the following events: (i) the making of any general arrangement or assignment for the benefit of creditors; (ii) becoming a "debtor" as defined in 11 U.S.C. § 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within 30 days; provided, however, in the event that any provision of this subparagraph is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions.

(g)The discovery that any financial statement of Lessee or of any Guarantor given to Lessor was materially false.

(h)If the performance of Lessee's obligations under this Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a Guarantor's breach of its guaranty obligation on an anticipatory basis, and Lessee's failure, within 60 days following written notice of any such event, to provide written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the Guarantors that existed at the time of execution of this Lease.

13.2Remedies. If Lessee fails to perform any of its affirmative duties or obligations, within 10 days after written notice where such failure continues following written notice to Lessee for the greater of 10 days or the applicable grace period set forth in Paragraph 13.1 (or in case of an emergency, without notice), Lessor may, at its option, perform such duty or obligation on Lessee's behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. Lessee shall pay to Lessor an amount equal to 115% of the costs and expenses incurred by Lessor in such performance upon receipt of an invoice therefor. In the event of a Breach, Lessor may, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach:

(a)Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys' fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Premises are located at the time of award plus one percent. Efforts by Lessor to mitigate damages caused by Lessee's Breach of this Lease shall not waive Lessor's right to recover any damages to which Lessor is otherwise entitled. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit. If a notice and grace period required under Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required by Paragraph 13.1. In such case, the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute.

(b)Continue the Lease and Lessee's right to possession and recover the Rent as it becomes due, in which event Lessee may sublet or assign, subject only to reasonable limitations. Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Lessor's interests, shall not constitute a termination of the Lessee's right to possession.

(c)Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state wherein the Premises are located. The expiration or termination of this Lease and/or the termination of Lessee's right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee's occupancy of the Premises.

13.3Inducement Recapture. Any agreement for free or abated rent or other charges, the cost of tenant improvements for Lessee paid for or performed by Lessor, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee's entering into this Lease, all of which concessions are hereinafter referred to as "Inducement Provisions," shall be deemed to be amortized into the Base Rent payable by Lessee over the Original Term of this Lease, and conditioned upon Lessee's full and faithful performance of all of the terms, covenants and conditions of this Lease. Upon Breach of this Lease by Lessee that results in the termination of Lessee's right to possession of the Premises, any such Inducement Provision shall automatically be

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deemed deleted from this Lease and of no further force or effect, and the unamortized amount of any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor as additional Rent. ,- notwithstanding any subsequent cure of said Breach by Lessee.The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this paragraph shall not be deemed a waiver by Lessor of the provisions of this paragraph unless specifically so stated in writing by Lessor at the time of such acceptance.

13.4Late Charges. Lessee hereby acknowledges that late payment by Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent shall not be received by Lessor within 5 days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall immediately pay to Lessor a one-time late charge equal to 510% of each such overdue amount or $100, whichever is greater. The Parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such late payment. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's Default or Breach with respect to such overdue amount, nor prevent the exercise of any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for 3 consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary, Base Rent shall, at Lessor's option, become due and payable quarterly in advance. Notwithstanding the foregoing, Lessor waives the late charge for the first occurrence that Rent is not received within 5 days after such amount shall be due during the Original Term.

13.5Interest. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor, when due shall bear interest from the 31st day after it was due. The interest ("Interest") charged shall be computed at the rate of 10% per annum but shall not exceed the maximum rate allowed by law. Interest is payable in addition to the potential late charge provided for in Paragraph 13.4.

13.6Breach by Lessor.

(a)Notice of Breach. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph, a reasonable time shall in no event be less than 30 days after receipt by Lessor, and any Lender whose name and address shall have been furnished to Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor's obligation is such that more than 30 days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such 30 day period and thereafter diligently pursued to completion. Notwithstanding the foregoing, if Lessor's non-performance of such obligation creates an immediate threat to the health or safety of any occupant of the Premises or to Lessee's property or to interrupt Lessee's business operations at the Premises, then, following written notice to Lessor, Lessee shall be entitled to immediately take reasonable steps as may be necessary to appropriately mitigate such threat and Lessor agrees to reimburse Lessee its reasonable out-of-pocket expenses incurred in connection therewith within thirty (30) days after Lessor's receipt of written invoice together with underlying documentation, subject to Lessor's right to review and reasonably dispute such expenses. If Lessor fails to reimburse Lessee in a timely manner, except as to any reasonably disputed expenses, Lessee shall be permitted to offset the unpaid amount against Lessee's installment of Rent next due and payable hereunder.

(b)Performance by Lessee on Behalf of Lessor. In the event that neither Lessor nor Lender cures said breach within 30 days after receipt of said notice, or if having commenced said cure they do not diligently pursue it to completion, then, in addition to Lessee's rights under Paragraph 13.6(a), Lessee may elect to cure said breach at Lessee's expense and offset from Rent the actual and reasonable cost to perform such cure, provided, however, that such offset shall not exceed an amount equal to the greater of two months'one month's Base Rent or the Security Deposit, reserving Lessee's right to seek reimbursement from Lessor for any such expense in excess of such offset. Lessee shall document the cost of said cure and supply said documentation to Lessor.

14.Condemnation. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively "Condemnation"), this Lease shall terminate as to the part taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than 10% of the Building, or more than 25% of that portion of the Premises not occupied by any building, is taken by Condemnation, Lessee may, at Lessee's option, to be exercised in writing within 10 days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within 10 days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in proportion to the reduction in utility of the Premises caused by such Condemnation. Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages; provided, however, that Lessee shall be entitled to any compensation paid by the condemnor for Lessee's relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the provisions of this Paragraph. All Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all compensation which is payable therefor. In the event that this Lease is not terminated by reason of the Condemnation, Lessor shall repair any damage to the Premises caused by such Condemnation.

15.Brokerage Fees.

15.1Additional Commission. In addition to the payments owed pursuant to Paragraph 1.9 above, Lessor agrees that: (a) if Lessee exercises any Option, (b) if Lessee or anyone affiliated with Lessee acquires any rights to the Premises or other premises owned by Lessor and located within the same Project, if any, within which the Premises is located, (c) if Lessee remains in possession of the Premises, with the consent of Lessor, after the expiration of this Lease, or (d) if Base Rent is increased, whether by agreement or operation of an escalation clause herein, then, Lessor shall pay Brokers a fee in accordance with the fee schedule of the Brokers in effect at the time the Lease was executed.

15.2Assumption of Obligations. Any buyer or transferee of Lessor's interest in this Lease shall be deemed to have assumed Lessor's obligation hereunder. Brokers shall be third party beneficiaries of the provisions of Paragraphs 1.9,15, 22 and 31. If Lessor fails to pay to Brokers any amounts due as and for brokerage fees pertaining to this Lease when due, then such amounts shall accrue Interest. In addition, if Lessor fails to pay any amounts to Lessee's Broker when due, Lessee's Broker may send written notice to Lessor and Lessee of such failure and if Lessor fails to pay such amounts within 10 days after said notice, Lessee shall pay said monies to its Broker and offset such amounts against Rent. In addition, Lessee's Broker shall be deemed to be a third party beneficiary of any commission agreement entered into by and/or between Lessor and Lessor's Broker for the limited purpose of collecting any brokerage fee owed.

15.3Representations and Indemnities of Broker Relationships. Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker, agent or finder (other than the Brokers and Agents, if any) in connection with this Lease, and that no one other than said named Brokers and Agents is entitled to any commission or finder's fee in connection herewith. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys' fees reasonably incurred with respect thereto.

16.Estoppel Certificates.

(a)Each Party (as "Responding Party") shall within 15 10 days after written notice from the other Party (the "RequestingParty") execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current "Estoppel Certificate" form published BY AIR CRE, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party.

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(b)If the Responding Party shall fail to execute or deliver the Estoppel Certificate within such 15 10 day period, theRequesting Party may execute an Estoppel Certificate stating that: (i) the Lease is in full force and effect without modification except as may be represented by the Requesting Party, (ii) there are no uncured defaults in the Requesting Party's performance, and (iii) if Lessor is the Requesting Party, not more than one month's rent has been paid in advance. Prospective purchasers and encumbrancers may rely upon the Requesting Party's Estoppel Certificate, and the Responding Party shall be estopped from denying the truth of the facts contained in said Certificate. In addition, Lessee acknowledges that any failure on its part to provide such an Estoppel Certificate will expose Lessor to risks and potentially cause Lessor to incur costs not contemplated by this Lease, the extent of which will be extremely difficult to ascertain. Accordingly, should the Lessee fail to execute and/or deliver a requested Estoppel Certificate in a timely fashion, and if such failure continues for more than 5 business days after delivery of a second notice to Lessee that specifically refers to the increased rent provision in this Paragraph if Lessee fails to deliver the Estoppel Certificate, the monthly Base Rent shall be automatically increased, without any requirement for additional notice to Lessee, by an amount equal to 10% of the then existing Base Rent or $100, whichever is greater until Lessee delivers an executed Estoppel Certificate to Lessor. for remainder of the Lease. The Parties agree that such increase in Base Rent represents fair and reasonable compensation for the additional risk/costs that Lessor will incur by reason of Lessee's failure to provide the Estoppel Certificate. Such increase in Base Rent shall in no event constitute a waiver of Lessee's Default or Breach with respect to the failure to provide the Estoppel Certificate nor prevent the exercise of any of the other rights and remedies granted hereunder.

(c)If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall within 10 days after written notice from Lessor, but not more than twice in any twelve month period, deliver to any potential lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser, including but not limited to Lessee's financial statements for the past 3 years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. So long as Lessee's and/or any Guarantor's stock is publicly traded, such financial statements for such publicly traded entity shall be limited to the financial statements filed with the Securities and Exchange Commission.

17.Definition of Lessor. The term "Lessor" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee's interest in the prior lease. In the event of a transfer of Lessor's title or interest in the Premises or this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor. Upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined.

18.Severability. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.

19.Days. Unless otherwise specifically indicated to the contrary, the word "days" as used in this Lease shall mean and refer to calendar days.

20.Limitation on Liability. The obligations of Lessor under this Lease shall not constitute personal obligations of Lessor, or its partners, members, directors, officers or shareholders, and Lessee shall look to the Premises and the rents, issues, profits and proceeds of sale thereof, and to no other assets of Lessor, for the satisfaction of any liability of Lessor with respect to this Lease, and shall not seek recourse against Lessor's partners, members, directors, officers or shareholders, or any of their personal assets for such satisfaction. Subject to the foregoing limitation, the obligations of Lessor shall be joint and several among the constituent entities. Notwithstanding anything to the contrary in this Lease, neither Lessee nor Lessor shall be liable for consequential damages (including, without limitation, loss of profit, loss of business opportunity or loss of goodwill); provided, however, Lessee shall be responsible for Lessor's lost profits and other consequential damages resulting from Lessee's holdover.

21.Time of Essence. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease.

22.No Prior or Other Agreements; Broker Disclaimer. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the use, nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party.

23.Notices.

23.1Notice Requirements. All notices required or permitted by this Lease or applicable law shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, or by email, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease shall be that Party's address for delivery or mailing of notices. Either Party may by written notice to the other specify a different address for notice, except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for notice. A copy of all notices to Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate in writing.

23.2Date of Notice. Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given 72 hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantees next day delivery shall be deemed given 24 hours after delivery of the same to the Postal Service or courier. Notices delivered by hand, or transmitted by facsimile transmission or by email shall be deemed delivered upon actual receipt. If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day. RAF Pacifica Group - Real Estate Fund IV, LLC, shall be authorized to receive notices and give approvals on behalf of all three entities that comprise Lessor. Any notice given to, and any approval by, RAF Pacifica Group - Real Estate Fund IV, LLC, shall be binding on all three entities that comprise Lessor.

23.3Options. Notwithstanding the foregoing, in order to exercise any Options (see paragraph 39), the Notice must be sent by Certified Mail (return receipt requested), Express Mail (signature required), courier (signature required) or some other methodology that provides a receipt establishing the date the notice was received by the Lessor.

24.Waivers.

(a)No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof. Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent.

(b)The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor on account of monies or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment.

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(c)THE PARTIES AGREE THAT THE TERMS OF THIS LEASE SHALL GOVERN WITH REGARD TO ALL MATTERS RELATED THERETO AND HEREBY WAIVE THE PROVISIONS OF ANY PRESENT OR FUTURE STATUTE TO THE EXTENT THAT SUCH STATUTE IS INCONSISTENT WITH THIS LEASE.

25.Disclosures Regarding The Nature of a Real Estate Agency Relationship.

(a)When entering into a discussion with a real estate agent regarding a real estate transaction, a Lessor or Lessee should from the outset understand what type of agency relationship or representation it has with the agent or agents in the transaction. Lessor and Lessee acknowledge being advised by the Brokers in this transaction, as follows:

(i)Lessor's Agent. A Lessor's agent under a listing agreement with the Lessor acts as the agent for the Lessor only. A Lessor's agent or subagent has the following affirmative obligations: To the Lessor: A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessor. To the Lessee and the Lessor: (a) Diligent exercise of reasonable skills and care in performance of the agent's duties. (b) A duty of honest and fair dealing and good faith. (c) A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.

(ii)Lessee's Agent. An agent can agree to act as agent for the Lessee only. In these situations, the agent is not the Lessor's agent, even if by agreement the agent may receive compensation for services rendered, either in full or in part from the Lessor. An agent acting only for a Lessee has the following affirmative obligations. To the Lessee: A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessee. To the Lessee and the Lessor: (a) Diligent exercise of reasonable skills and care in performance of the agent's duties. (b) A duty of honest and fair dealing and good faith. (c) A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.

(iii)Agent Representing Both Lessor and Lessee. A real estate agent, either acting directly or through one or more associate licenses, can legally be the agent of both the Lessor and the Lessee in a transaction, but only with the knowledge and consent of both the Lessor and the Lessee. In a dual agency situation, the agent has the following affirmative obligations to both the Lessor and the Lessee: (a) A fiduciary duty of utmost care, integrity, honesty and loyalty in the dealings with either Lessor or the Lessee. (b) Other duties to the Lessor and the Lessee as stated above in subparagraphs (i) or (ii). In representing both Lessor and Lessee, the agent may not, without the express permission of the respective Party, disclose to the other Party confidential information, including, but not limited to, facts relating to either Lessee's or Lessor's financial position, motivations, bargaining position, or other personal information that may impact rent, including Lessor's willingness to accept a rent less than the listing rent or Lessee's willingness to pay rent greater than the rent offered. The above duties of the agent in a real estate transaction do not relieve a Lessor or Lessee from the responsibility to protect their own interests. Lessor and Lessee should carefully read all agreements to assure that they adequately express their understanding of the transaction. A real estate agent is a person qualified to advise about real estate. If legal or tax advice is desired, consult a competent professional. Both Lessor and Lessee should strongly consider obtaining tax advice from a competent professional because the federal and state tax consequences of a transaction can be complex and subject to change.

(b)Brokers have no responsibility with respect to any default or breach hereof by either Party. The Parties agree that no lawsuit or other legal proceeding involving any breach of duty, error or omission relating to this Lease may be brought against Broker more than one year after the Start Date and that the liability (including court costs and attorneys' fees), of any Broker with respect to any such lawsuit and/or legal proceeding shall not exceed the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker's liability shall not be applicable to any gross negligence or willful misconduct of such Broker.

(c)—Lessor and Lessee agree to identify to Brokers as "Confidential" any communication or information given Brokers that is considered by such Party to be confidential.

26.No Right To Holdover. Upon written notice given to Lessor not later than 30 days prior to end of the term of this Lease, Lessee shall have the right to retain possession of the Premises for up to one hundred eighty (180) days beyond the expiration of the term of this Lease upon all of the terms and conditions of this Lease, including the Base Rent in effect for the month immediately preceding the expiration of the term of this Lease. Except for the foregoing, Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of this Lease. In the event that Lessee holds over, except as permitted herein, then the Base Rent shall be increased to 125150% of the Base Rent applicable immediately preceding the expiration or termination. Holdover Base Rent shall be calculated on monthly basis. Nothing contained herein shall be construed as consent by Lessor to any holding over by Lessee.

27.Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.

28.Covenants and Conditions;Construction of Agreement. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. In construing this Lease, all headings and titles are for the convenience of the Parties only and shall not be considered a part of this Lease. Whenever required by the context, the singular shall include the plural and vice versa. This Lease shall not be construed as if prepared by one of the Parties, but rather according to its fair meaning as a whole, as if both Parties had prepared it.

29.Binding Effect;Choice of Law. This Lease shall be binding upon the Parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located. Signatures to this Lease accomplished by means of electronic signature or similar technology shall be legal and binding.

30.Subordination; Attornment; Non-Disturbance.

30.1Subordination. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, "Security Device"), now or hereafter placed upon the Premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof. Lessee agrees that the holders of any such Security Devices (in this Lease together referred to as "Lender") shall have no liability or obligation to perform any of the obligations of Lessor under this Lease. Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lessee, whereupon this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof.

30.2Attornment. In the event that Lessor transfers title to the Premises, or the Premises are acquired by another upon the foreclosure or termination of a Security Device to which this Lease is subordinated (i) Lessee shall, subject to the non-disturbance provisions of Paragraph 30.3, attorn to such new owner, and upon request, enter into a new lease, containing all of the terms and provisions of this Lease, with such new owner for the remainder of the term hereof, or, at the election of the new owner, this Lease will automatically become a new lease between Lessee and such new owner, and (ii) Lessor shall thereafter be relieved of any further obligations hereunder (except to the extent that the Security Deposit is not transferred to such new owner) and such new owner shall assume all of Lessor's obligations, except that such new owner shall not: (a) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership; (b) be subject to any offsets or defenses which Lessee might have against any prior lessor, (c) be bound by prepayment of more than one month's rent, or (d) be liable for the return of any security deposit paid to any prior lessor which was not paid or credited to such new owner.

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30.3Non-Disturbance. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee's subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a "Non-Disturbance Agreement") from the Lender which Non-Disturbance Agreement provides that Lessee's possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. Further, within 30 60days after the execution of this Lease, Lessor shall, if requested by Lessee,use its commercially reasonable efforts to obtain a Non-Disturbance Agreement from the holder of any pre-existing Security Device which is secured by the Premises. In the event that Lessor is unable to provide the Non-Disturbance Agreement within said 3060 days, then Lessee may, at Lessee's option, directly contact Lender and attempt to negotiate for the execution and delivery of a Non-Disturbance Agreement and in such event Lessor shall reasonably cooperate with Lessee's efforts to do so.

30.4Self-Executing. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any subordination, attornment and/or Non-Disturbance Agreement provided for herein.

31.Attorneys' Fees. If any Party or Broker brings an action or proceeding involving the Premises whether founded in tort, contract or equity, or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys' fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term, "Prevailing Party" shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorneys' fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys' fees reasonably incurred. In addition, Lessor shall be entitled to attorneys' fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach ($200 is a reasonable minimum per occurrence for such services and consultation).

32.Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable prior notice for the purpose of showing the same to prospective purchasers, lenders, appraisers or tenants, and making such alterations, repairs, improvements or additions to the Premises as Lessor may deem necessary or desirable and the erecting, using and maintaining of utilities, services, pipes and conduits through the Premises and/or other premises as long as there is no material adverse effect on Lessee's use of the Premises. 24 hours shall be considered reasonable notice for purpose of this Paragraph 32. All such activities shall be without abatement of rent or liability to Lessee. Lessor acknowledges that certain portions of the Premises are used for proprietary or confidential activities, including research and development activities ("Restricted Areas"). Any entry by or on behalf of Lessor or Lenders to any Restricted Areas shall be carried out under the supervision of Lessee and in compliance with Lessee's reasonable security regulations, including requiring any parties entering the Restricted Areas to provide a reasonable non-disclosure agreement and limiting access to Restricted Areas to periods outside of Lessee's business hours. Lessor shall take (and shall cause any other party entering the Premises pursuant to this Paragraph to take) reasonable efforts to minimize interference with Lessee's normal business operations during such entry. In the event of any emergency condition arising within the Premises that endangers property or the safety of individuals, Lessor may enter the Premises without such notice, provided that Lessor agrees to give as much notice as is reasonably possible and complies with Lessee's security regulations described above. Lessee shall have the opportunity to have a representative present in connection with any entry by Lessor (except in the case of an emergency).

33.Auctions. Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises without Lessor's prior written consent. Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to permit an auction.

34.Signs. Lessor may place on the Premises ordinary "For Sale" signs at any time and ordinary "For Lease" signs during the last 6 months of the term hereof. Except for ordinary "for sublease" signs, Lessee shall not place any sign upon the Premises without Lessor's prior written consent. All signs must comply with all Applicable Requirements.

35.Termination; Merger. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, that Lessor may elect to continue any one or all existing subtenancies. Lessor's failure within 10 days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor's election to have such event constitute the termination of such interest.

36.Consents. All requests for consent shall be in writing. Except as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld, conditioned or delayed. Lessor's actual reasonable costs and expenses (including but not limited to architects', attorneys', engineers' and other consultants' fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation therefor. Lessor's consent to any act, assignment or subletting shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. The failure to specify herein any particular condition to Lessor's consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. In the event that either Party disagrees with any determination made by the other hereunder and reasonably requests the reasons for such determination, the determining party shall furnish its reasons in writing and in reasonable detail within 10 business days following such request. Notwithstanding the foregoing, if Lessee delivers a written request for consent to any matter and pays any associated fee as expressly provided for in this Lease and Lessor fails to approve or disapprove the request in writing within fifteen (15) days after Lessor's receipt of Lessee's written request (which disapproval may include a notice that additional information must be submitted to Lessor as conditions of Lessor's consent under this Lease), then Lessor shall be deemed to have approved such matter.

37.Guarantor.

37.1Execution. The Guarantors, if any, shall each execute a guaranty in the form most recently published BY AIR CRE, and each such Guarantor shall have the same obligations as Lessee under this Lease.

37.2Default. It shall constitute a Default of the Lessee if any Guarantor fails or refuses, upon request to provide: (a) evidence of the execution of the guaranty, including the authority of the party signing on Guarantor's behalf to obligate Guarantor, and in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, (b) current financial statements, (c) an Estoppel Certificate, or (d) written confirmation that the guaranty is still in effect.

38.Quiet Possession. Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessee's part to be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof.

39.Options. If Lessee is granted any Option, as defined below, then the following provisions shall apply.

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39.1Definition. "Option" shall mean: (a) the right to extend or reduce the term of or renew this Lease or to extend or reduce the term of or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal or first offer to lease either the Premises or other property of Lessor; (c) the right to purchase, the right of first offer to purchase or the right of first refusal to purchase the Premises or other property of Lessor.

39.2Options Personal To Original Lessee. Any Subject to the exception set forth at Paragraph 12.2(g), any Option granted to Lessee in this Lease is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee or an assignee pursuant to an Exempt Transfer is in full possession of at least 75% of the Premises and, if requested by Lessor, with Lessee certifying that Lessee has no intention of thereafter assigning or subletting.

39.3Multiple Options. In the event that Lessee has any multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options have been validly exercised.

39.4Effect of Default on Options.

(a)Lessee shall have no right to exercise an Option: (i) during the period commencing with the giving of any notice of Default and continuing until said Default is cured, (ii) during the period of time any Rent is unpaid (without regard to whether notice thereof is given Lessee), (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has been given 3 or more notices of separate Default, whether or not the Defaults are cured, during the 12 month period immediately preceding the exercise of the Option.

(b)The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of Paragraph 39.4(a).

(c)An Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and prior to the commencement of the extended term or completion of the purchase, (i) Lessee fails to pay Rent for a period of 30 days after such Rent becomes due (without any necessity of Lessor to give notice thereof), or (ii) if Lessee commits a Breach of this Lease.

40.Multiple Buildings. If the Premises are a part of a group of buildings controlled by Lessor, Lessee agrees that it will abide by and conform to all reasonable rules and regulations which Lessor may make from time to time for the management, safety, and care of said properties, including the care and cleanliness of the grounds and including the parking, loading and unloading of vehicles, and to cause its employees, suppliers, shippers, customers, contractors and invitees to so abide and conform. Lessee also agrees to pay its fair share of common expenses incurred in connection with such rules and regulations.

41.Security Measures. Lessee hereby acknowledges that the Rent payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties.

42.Reservations. Lessor reserves to itself the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee, materially and adversely interfere with the access to or visibility of the Premises, or materially increase any of Lessee's obligations or materially reduce any of its rights hereunder. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions.

43.Performance Under Protest. If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay. A Party who does not initiate suit for the recovery of sums paid "under protest" within 6 months shall be deemed to have waived its right to protest such payment.

44.Authority; Multiple Parties; Execution.

(a)If either Party hereto is a corporation, trust, limited liability company, partnership, or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. Each Party shall, within 30 days after request, deliver to the other Party satisfactory evidence of such authority.

(b)If this Lease is executed by more than one person or entity as "Lessor" or "Lessee", each such person or entity shall be jointly and severally liable hereunder. It is agreed that any one of the named Lessees shall be empowered to execute any amendment to this Lease, or other document ancillary thereto and bind all of the named Lessees, and Lessor may rely on the same as if all of the named Lessees had executed such document.

(c)This Lease may be executed by the Parties in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. Scanned (i.e., PDF) signatures shall have the same force and effect as original signatures.

45.Conflict. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions.

46.Offer. Preparation of this Lease by either Party or their agent and submission of same to the other Party shall not be deemed an offer to lease to the other Party. This Lease is not intended to be binding until executed and delivered by all Parties hereto.

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47.Amendments. This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification. As long as they do not materially change Lessee's obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by a Lender in connection with the obtaining of normal financing or refinancing of the Premises.

48.Waiver of Jury Trial. THE PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INVOLVING THE PROPERTY OR ARISING OUT OF THIS AGREEMENT.

49.Arbitration of Disputes. An Addendum requiring the Arbitration of all disputes between the Parties and/or Brokers arising out of this Lease ☐ is ☑ is not attached to this Lease.

50.Accessibility; Americans with Disabilities Act.

(a)The Premises:

☑have not undergone an inspection by a Certified Access Specialist (CASp). Note: A Certified Access Specialist (CASp) can inspect the subject premises and determine whether the subject premises comply with all of the applicable construction-related accessibility standards under state law. Although state law does not require a CASp inspection of the subject premises, the commercial property owner or lessor may not prohibit the lessee or tenant from obtaining a CASp inspection of the subject premises for the occupancy or potential occupancy of the lessee or tenant, if requested by the lessee or tenant. The parties shall mutually agree on the arrangements for the time and manner of the CASp inspection, the payment of the fee for the CASp inspection, and the cost of making any repairs necessary to correct violations of construction-related accessibility standards within the premises.

☐have undergone an inspection by a Certified Access Specialist (CASp) and it was determined that the Premises met all applicable construction-related accessibility standards pursuant to California Civil Code §55.51 et seq. Lessee acknowledges that it received a copy of the inspection report at least 48 hours prior to executing this Lease and agrees to keep such report confidential.

☐have undergone an inspection by a Certified Access Specialist (CASp) and it was determined that the Premises did not meet all applicable construction-related accessibility standards pursuant to California Civil Code §55.51 et seq. Lessee acknowledges that it received a copy of the inspection report at least 48 hours prior to executing this Lease and agrees to keep such report confidential except as necessary to complete repairs and corrections of violations of construction related accessibility standards.

In the event that the Premises have been issued an inspection report by a CASp the Lessor shall provide a copy of the disability access inspection certificate to Lessee within 7 days of the execution of this Lease.

(b)Since compliance with the Americans with Disabilities Act (ADA) and other state and local accessibility statutes are dependent upon Lessee's specific use of the Premises, except as set forth at Paragraph 2.3 of this Lease, Lessor makes no warranty or representation as to whether or not the Premises comply with ADA or any similar legislation. In the event that Lessee's specific and unique use of the Premises requires modifications or additions to the Premises in order to be in compliance with ADA or other accessibility statutes, Lessee agrees to make any such necessary modifications and/or additions at Lessee's expense.

LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.

ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY AIR CRE OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:

1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.

2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.

WARNING: IF THE PREMISES ARE LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES ARE LOCATED.

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The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures.

Executed at:		Executed at:
On:		On:
By LESSOR:		By LESSEE:
RAF PACIFICA GROUP - REAL ESTATE FUND IV,		ALPHATEC SPINE, INC., a California corporation
LLC, a California limited liability company
By:		By:
Name Printed:	Steven C. Leonard	Name Printed:	Patrick S. Miles
Title:	Manager	Title:	President
Phone:		Phone:
Fax:		Fax:
Email:		Email:
By:		By:
Name Printed:	Adam S. Robinson	Name Printed:	Craig E. Hunsaker
Title:	Manager	Title:
Phone:		Phone:
Fax:		Fax:
Email:		Email:
Address:		Address:	5818 El Camino Real
Federal ID No.:		Carlsbad, CA 92008
		Federal ID No.:

ARKA MONTEREY PARK, LLC,
a Utah limited liability company
By:	SMB I Group, L.P.,
	a Delaware limited partnership
	Its: Managing Member
	By:	K Associates,
		a California general partnership
		Its: General Partner
		By:
		Name:
		Title:	Managing General Partner
170 ARROWHEAD PARTNERS, LLC,
a California limited liability company
By:	K Associates,
	a California general partnership
	Its: General Partner
	By:
	Name:
	Title:	Managing General Partner
Address for notice to Lessor:
		c/o RAF Pacifica Group
		315 S. Coast Highway 101, Suite U-12
		Encinitas, CA 92024

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BROKER		BROKER
Cushman & Wakefield		Savills, Inc.
Attn:	Aric Starck	Attn:	(Bob McGriff, Michael Labelle, Bridget
Title:	Vice Chairman		Garwitz)
		Title:
Address:	1000 Aviara Parkway, Suite 100,
	Carlsbad, CA 92011	Address:	3579 Valley Centre Drive, Suite 100,
Phone:	(760) 431-4211		San Diego, CA 92130
Fax:		Phone:	(858) 793-8600
Email:		Fax:
Federal ID No.:		Email:
Broker DRE License #:		Federal ID No.:
Agent DRE License #:		Broker DRE License #:
		Agent DRE License #:

AIR CRE * https://www.aircre.com * 213-687-8777 * contracts@aircre.com

NOTICE: No part of these works may be reproduced in any form without permission in writing.

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ADDENDUM

TO THAT CERTAIN STANDARD

INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-NET

DATED DECEMBER 4, 2019, BY AND BETWEEN

RAF PACIFICA GROUP - REAL ESTATE FUND IV, LLC, etc. ("LESSOR")

AND

ALPHATEC SPINE, INC. ("LESSEE")

This Addendum amends the provisions of the above-referenced lease including any attached exhibits or addenda thereto (collectively, the "Lease"), it being the intent and agreement that the provisions of the Lease are hereby affirmed by the parties, but, to the extent that the provisions of this Addendum conflict with or differ from the terms of the Lease, the provisions of this Addendum shall control. Capitalized terms not defined herein shall have the definitions that are given to such terms in the Lease.

51.Base Rent. During the Original Term, the monthly Base Rent shall be as follows:

Months:	Monthly Base Rent:
Months 1 through 12	$195,000.00
Months 13 through 24	$244,115.10
Months 25 through 36	$251,438.55
Months 37 through 48	$258,981.71
Months 49 through 60	$266,751.16
Months 61 through 72	$274,753.69
Months 73 through 84	$282,996.30
Months 85 through 96	$291,486.19
Months 97 through 108	$300,230.78
Months 109 through 120	$309,237.70

52.Abatement of Rent.

(a) For so long as Lessee is not in Breach under the terms of this Lease, the Base Rent payable by Lessee as scheduled in Paragraph 51 above shall be fully abated for months two (2) through ten (10) of the Original Term, for a total of nine (9) months. Prepaid Base Rent shall be applied to monthly Base Rent payable for the calendar month in which the Commencement Date occurs (which shall be prorated in accordance with Paragraph 4.2 if the Commencement Date occurs after the first day of such calendar month). The first payment of monthly Base Rent by Lessee following the Commencement Date shall be due and payable on the first day of the eleventh (11^th) month of the Original Term (the “Base Rent Commencement Date”); provided that any difference between the amount of the prepaid Base Rent and the monthly Base Rent payable for the calendar month in which the Commencement Date occurs shall be credited against the monthly Base Rent payable by Lessee on the Base Rent Commencement Date. Lessee shall continue to pay Operating Expenses during such abatement period.

(b) The abatements set forth in this Paragraph 52 shall be considered an Inducement Provision subject to the provisions of Paragraph 13.3 of this Lease.

53.Lessor Work, Roof Coating and Condition of Premises. Lessor shall, at Lessor’s sole cost and expense, construct and perform those certain improvements at the Premises described as: (i) exterior improvements to the Building and site improvements, including but not limited to, grading work, installing storm water drainage facilities and new fire water mains, and landscaping, and (ii) outdoor amenities, including but not limited to decking and seating areas, a basketball court and a volleyball court (the “Outdoor Amenities”), all as described in the minor site development plan drawings prepared by SCA Architecture as job number 18034.S02, with a drawing date of September 13, 2019, consisting of 25 pages and submitted to the City of Carlsbad as a Minor Non-Residential Planned Development Permit with application number PUD 2019-0007 and as a Minor Site Development Plan with application number SDP 2019-0012 (collectively, the “Lessor Work”). Lessee acknowledges that the City of Carlsbad may require changes to the scope and description of the Lessor Work as a condition for issuing permits andLessor shall notify Lessee promptly of any changes requested by the City (and before any such changes become effective) and the parties shall thereafter mutually cooperate to ensure that the Outdoor Amenities are approved by the City as closely as possible to the plans described in clause (ii) above. The Lessor Work shall be constructed in a good and workmanlike manner and in compliance with all Applicable Requirements (including, without limitation, the Americans with Disabilities Act) in effect as of the date of issuance of permits for the Lessor Work. Lessor has retained TFW Construction as general contractor to perform the Lessor Work. Lessor shall use commercially reasonable efforts to complete the Lessor Work by September 30, 2020, and in any case by the Commencement Date. In addition to the Lessor Work, Lessor shall, at Lessor’s sole cost and expense, install a new roof coating for the Building, consisting of an elastomeric white roof coating (the “Roof Coating”). Lessor shall commence installation of the Roof Coating within ten (10) business days after Lessee provides written notice to Lessor that all roof penetrations as part of the Lessee Improvements (as described herein) have been completed or such earlier date as Lessee may request in writing and shall proceed diligently to completion; provided, however, that if Lessee causes any roof penetrations to be made as part of the Lessee Improvements after Lessor commences installation of the Roof Coating, Lessee shall be responsible for any work required due to such roof penetrations in order to repair the Roof Coating or to issue or maintain in effect, the warranties applicable to the Roof Coating. Lessor and Lessee shall each (and shall cause their respective contractors and subcontractors to) coordinate the construction of the Lessor Work and the Lessee Improvements and each shall use reasonable efforts to minimize any interference with the construction of the Lessor Work and the Lessee Improvements, respectively. Except for the Lessor Work and the Roof Coating, Lessor shall deliver the Premises to Lessee in its “AS IS” condition, subject only to the express warranties and obligations set forth in the Lease, and Lessor shall not be responsible to construct any additional improvements. If there is any material defect in the Lessor Work or the Roof Coating that is discovered within twelve (12) months after completion of each such item, then Lessor shall repair such defect at its sole cost and expense (except to the extent that Lessee shall be responsible for such as set forth above).

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Upon completion of the Lessor Work, Lessor shall assign to Lessee the contractor’s warranties and all manufacturers’ and/or vendors’ equipment warranties relating to the Outdoor Amenities, to the extent assignable. Lessee shall be responsible for any fees charged by such contractor, manufacturers or vendors in connection with such assignment(s). To the extent that any such warranties are not assignable, Lessor shall use commercially reasonable efforts to enforce such warranties, at Lessee’s sole cost and expense.

54.Lessee Improvements and Allowances. Lessee shall construct and perform certain improvements at the Premises as set forth and pursuant to the Work Letter attached as Exhibit B to the Lease (the “Lessee Improvements”). Lessee may commence and carry out the Lessee Improvements at any time on and after the Early Possession Date. Lessor shall provide an allowance not to exceed Nine Million Seven Hundred Twenty-Three Thousand Two Hundred Eighty and 00/100 Dollars ($9,723,280.00) for the cost of construction of the Improvements (the “Lessee Improvement Allowance”). At Lessee’s option, Lessee may request in writing that Lessor also provide an additional allowance not to exceed Three Million Thirty-Eight Thousand Five Hundred Twenty-Five and 00/100 Dollars ($3,038,525.00) for the cost of construction of the Improvements (the “Amortized Allowance”), and if Lessee requests that Lessor fund an Amortized Allowance, the amount funded shall be treated as a loan from Lessor to Lessee and amortized with interest at the rate of eight percent (8.0%) per annum over the remaining 111 months of the Original Term after the abatement period set forth in Paragraph 52. Lessee shall repay the Amortized Allowance in monthly installments that shall be paid in addition to monthly Rent on the first day of each month beginning after the abatement period set forth in Paragraph 52. The Lessee Improvement Allowance and Amortized Allowance shall be collectively referred to herein as the “Allowances” and shall be subject to the disbursement procedures and other requirements as set forth in the Work Letter. In addition to the Allowances, Lessor has paid an amount up to $14,584.92 to SCA Architecture to prepare a preliminary space plan for the Lessee Improvements (the “Test Fit Fees”). The Test Fit Fees shall not be deducted from the Allowances.

55.Lessor’s Maintenance Obligations. Subject to the provisions of Paragraphs 2.3(a) and (b) (Compliance), 9 (Damage or Destruction) and 14 (Condemnation) of the Lease, and subject to reimbursement pursuant to Paragraph 56 below, Lessor shall maintain, repair and replace as necessary, the landscaping, driveways, parking areas, roof membrane and roof drains, downspouts, gutters and skylights, and exterior of the Building (including painting) at the Premises (collectively, the “Lessor Reimbursable Maintenance Obligations”), all so as to keep the same in good order, condition and repair. Additionally, subject to the provisions of Paragraphs 2.3(a) and (b) (Compliance), 9 (Damage or Destruction) and 14 (Condemnation) of the Lease, Lessor shall, at Lessor’s sole cost and expense and not subject to reimbursement, repair and replace as necessary, the structural components of the Building, including the load-bearing walls, foundations, concrete sub-flooring, and structural elements of the roof at the Premises (the “Structural Components”), except to the extent that any repair or replacement of the Structural Components is required due to damage to the Structural Components caused by the installation of the Lessee Improvements or other Alterations undertaken by or on behalf of the Lessee. Except as expressly set forth herein or in the Lease, Lessor shall not have any other obligation to maintain, repair or replace the Premises, the equipment therein, or the Outdoor Amenities.

56.Additional Rent. Lessee shall pay to Lessor during the term hereof, in addition to Base Rent, all Operating Expenses, as hereinafter defined, during each calendar year of the term of the Lease, in accordance with the following provisions:

(a) “Operating Expenses” are defined, for purposes of this Lease, as all of the following costs incurred by Lessor:

(i) The cost of those items of Lessor’s Reimbursable Maintenance Obligations as set forth at Paragraph 55 above excluding any capital improvements other than (a) those required to comply with Applicable Requirements enacted or becoming effective after the Commencement Date or (b) those made after the Commencement Date with a reasonable expectation of reducing Operating Expenses; provided that, with respect to such capital improvements and other expenses, to the extent that any such item is considered a capital expenditure pursuant to generally accepted accounting principles (GAAP), Lessor shall allocate the cost over the useful life of such improvement or other expense and Lessee shall not be required to pay more than a fraction of the cost, where the fraction equals the number 1 divided by the number of months in the appropriate amortization period, in any given month of the term (as may be extended).

(ii) Any owner’s association dues and fees accruing with respect to the Term under the CC&Rs.

(iii) Property management fees in an amount equal to 3.00% of Base Rent (without taking into account the abatements set forth at Paragraph 52 above) and Operating Expenses.

(iv) The cost of any environmental inspections Lessor pays for that are the responsibility of Lessee.

(v) Real Property Taxes (as defined in Paragraph 10); provided, however, that during the first two (2) years after the Commencement Date, Real Property Taxes shall exclude any increase in Real Property Taxes due to a reassessment caused by a change in ownership of all or any part of the Project, except for any reassessment due to Lessor’s acquisition of the Premises during calendar year 2019.

(vi) The cost of the premiums for the insurance maintained by Lessor pursuant to Paragraph 8.

(vii) Any commercially reasonable deductible portion of an insured loss concerning the Building or the Premises; provided that if such deductible exceeds $50,000, then such deductible amount shall be considered a capital expenditure and shall be allocated over the appropriate amortization period for the applicable repairs, with Lessee’s monthly liability limited in accordance with clause (i) of this Paragraph 56(a).

(viii) Lessor’s reasonable out-of-pocket fees and costs payable to auditors, accountants and attorneys related to the Operating Expenses.

(ix) Any other services to be provided by Lessor that are stated elsewhere in this Lease to be paid by Lessor and reimbursed by Lessee.

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Notwithstanding the foregoing, the following shall be excluded from Operating Expenses payable by Lessee:

(i) the cost of improvements and/or renovations to the Project performed prior to the Commencement Date and costs of correcting defects in the design or construction of such improvements and/or renovations;

(ii) costs and fees incurred in the sale or ground lease, or any financing or refinancing, of the Project or any portion thereof, including without limitation, ground lease payments, interest and principal payments, any points and fees payable to any lender, arranger or servicer, any fees and costs payable to brokers, lawyers or accountants pursuant to any such sale, ground lease or financing transaction, amounts payable for any forbearance or defeasance, and any late charges, interest or penalties;

(iii) depreciation of the Project (except for the amortization of capital expenditures which are includable in Operating Expenses);

(iv) general organizational, administrative and overhead costs relating to maintaining the existence of any person or legal entity included in the Lessor or any of its affiliates, either as a corporation, partnership, or other entity, including general corporate, legal and accounting expenses;

(v) costs (including attorneys' fees and costs of settlement, judgments and payments in lieu thereof) incurred in connection with disputes among partners or members of Lessor, or in connection with negotiations or disputes between Lessor and its brokers, lenders, architects, contractors, consultants, management agents, or any equity investor, purchaser or ground lessor of the any portion of the Project;

(vi) costs incurred by Lessor due to any violation of the CC&Rs or any other Applicable Requirements caused by acts or omissions of Lessor or any of its members, agents, employees or contractors (as opposed to any such violations caused by acts or omissions of Lessee or any of its officers, directors, agents, employees or contractors);

(vii) penalties, fines or interest incurred as a result of Lessor’s failure to make timely payment of any installment of Real Property Taxes prior to delinquency, and/or to file any tax or informational returns when due;

(viii) except for the property management fees described in clause (a)(iii) above, any overhead or profit increment paid to any of the members or affiliates of Lessor for goods and/or services to the Project to the extent that the costs of such goods and/or services exceed the costs payable to unaffiliated third parties on a competitive basis;

(ix) any expenses otherwise includable within Operating Expenses to the extent actually reimbursed by any insurance carrier or any other third party;

(x) rentals for equipment ordinarily considered to be of a capital nature except if such equipment is customarily leased in the operation of first class industrial building in the Carlsbad market;

(xi) replacement costs attributable to any Structural Components, except to the extent set forth in Paragraph 56;

(xii) costs of repairing or replacing the roof membrane attributable to any penetrations or other damage caused by the negligence or willful misconduct of Lessor or any of its agents, employees or contractors in performing the Lessor’s obligations under this Lease, or caused by the installation or maintenance of the Solar Electric System (defined below) or any improvements, alterations, fixtures or equipment otherwise installed on or attached to the roof of the Building by or on behalf of Lessor;

(xiii) costs incurred to remove, study, test, remediate or otherwise related to the presence of Hazardous Substances in or about the Building or Project (i) to the extent existing as of the Start Date, or (ii) which are not brought upon, kept used, stored, handled, treated, generated in, or disposed of from, the Premises by Lessee or any of its agents, employees or invitees;

(xiv) legal costs and fees relating to Lessor’s defense of its title to the Project or any portion thereof, including, without limitation, all appurtenant rights of Lessee under this Lease;

(xv) reserves of any kind; and

(xvi) any other cost or expense that is expressly payable by Lessor, at its sole cost and expense, or otherwise expressly excluded from Operating Expenses under this Lease.

(b) Operating Expenses are payable monthly on the same day as the Base Rent is due hereunder. Lessor shall give Lessee a yearly expense estimate statement (the “Estimate Statement”) which Lessor shall use reasonable efforts to provide by January 1 of each year (and in any case shall provide by no later than March 31 of each year) that shall set forth Lessor’s reasonable estimate (the “Estimate”) of the total amount of Operating Expenses for the then-current calendar year. Lessee shall pay an amount equal to one-twelfth (1/12) of the Estimate to Lessor each month (the “Estimated Payment”). The failure of Lessor to timely furnish the Estimate Statement for any calendar year shall not preclude Lessor from enforcing its rights to collect any Estimated Payment, nor shall Lessor be prohibited from revising any Estimate Statement theretofore delivered to the extent necessary. In the event that Lessor submits a revised Estimate Statement, Lessee shall pay with its next installment of Base Rent due, a fraction of the Estimate for the then-current calendar year (reduced by any amounts paid pursuant to the last sentence of this Paragraph 56(b)). Such fraction shall have as its numerator the number of months which have elapsed in such current calendar year, including the month of such payment, and twelve (12) as its denominator. Until a new Estimate Statement is furnished (which Lessor shall have the right to deliver to Lessee at any time), Lessee shall pay monthly, with the monthly Base Rent installments, an amount equal to one-twelfth (1/12) of the total Estimate set forth in the previous Estimate Statement delivered by Lessor to Lessee.

(c) Within 180 days after the expiration of each calendar year, Lessor shall deliver to Lessee a reasonably detailed statement showing the actual Operating Expenses incurred during the preceding year (a “Reconciliation”). If Lessee’s Estimated Payments during such year exceed the actual Operating Expenses, Lessor shall credit the amount of such over-payment

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against Lessee’s future payments next due under this Lease. If Lessee’s Estimated Payments during such year were less than the actual Operating Expenses, Lessee shall pay to Lessor the amount of deficiency within thirty (30) days after delivery by Lessor to Lessee of the Reconciliation. If the term of the Lease has expired or the Lease has been terminated, Lessee shall pay the balance due to Lessor or, alternatively, Lessor shall refund the overpayment to Lessee, whichever the case may be, within thirty (30) days after Lessor’s delivery of the Reconciliation to Lessee.

(d) Lessor will keep and maintain records of the Operating Expenses for a period of three (3) years from the date such Operating Expenses are incurred. Lessee shall have the right, at its sole cost and expense, and upon written notice given to Lessor no later than ninety (90) days after Lessee's receipt of a Reconciliation to make an audit of all of Lessor’s bills, records, receipts, insurance certificates and policies relating to Operating Expenses for the preceding calendar year, using the services of an independent certified public accountant that is not retained by Lessee on a contingency fee basis. Within fifteen (15) business days of Lessor's receipt of such written request of Lessee, Lessor shall make available to Lessee and/or any such auditor, during normal business hours, at the location where Lessor’s books and records are kept, such information as Lessee shall reasonably request (which request may be made as part of an audit or for Lessee’s separate review). Lessor shall cooperate with Lessee in its explanation of its bills and records. Lessee shall diligently complete any such audit of Operating Expenses and shall deliver to Lessor the written results of such audit within fifteen (15) business days after Lessee receives the same. If Lessor disagrees with the results of Lessee’s audit, Lessor and Lessee shall meet and attempt, in good faith, to resolve the dispute. If Lessor and Lessee are unable to resolve the dispute within thirty (30) days after Lessor's receipt of Lessee's audit results, then Lessee shall have the right to submit the dispute to arbitration; this right shall be exercised, if at all, by delivering a written notice of election to arbitrate to Lessor not later than 180 days after receipt of the Reconciliation. Lessor and Lessee shall agree, within 15 days after Lessee’s delivery of the arbitration election, to retain an arbitrator, who shall be a mutually acceptable independent certified public accountant with experience in operating expenses for commercial/industrial buildings in San Diego County, who shall make a determination as to the correct amount of Operating Expenses. The decision shall be delivered simultaneously to Lessor and Lessee and shall be final and binding on Lessor and Lessee. If the arbitrator determines that the amount of the Operating Expenses billed to the Lessee was incorrect, the appropriate party shall pay to the other party the deficiency or overpayment, as applicable, within thirty (30) days following delivery of the arbitrator’s decision, without interest. All costs and expenses of the arbitration shall be paid by Lessee unless the final determination in the arbitration is that Lessor overstated Operating Expenses by more than five percent (5%) of the originally reported Operating Expenses, in which case Lessor shall pay all such costs and expenses of the arbitration. Lessee and its auditor shall keep all of Lessor's records strictly confidential and shall not disclose any information gained from its review of Lessor's records to any third party, except as required by law or in connection with any dispute with Lessor.

(e) Lessor estimates that the Operating Expenses for the first year will initially be $34,695.00 per month. Lessee understands that this is an estimate only and the actual amount may vary from the estimate.

57.Signage. Lessee, with the approval of Lessor (which approval shall not be unreasonably withheld, conditioned or delayed) and subject to the requirements of the City of Carlsbad and any Applicable Requirements, shall be allowed to install (a) building top signage, (b) exterior identity signage adjacent to the main entrance to the Building, the exact location and size of any signs to be approved by Lessor, and (c) signage on any existing or future monument sign at the Project. Lessee shall be responsible to construct, install and maintain such signage at its sole cost, and shall remove such signage upon expiration or earlier termination of the Lease and repair any damage caused by such removal. Subject to the foregoing requirements and Lessor’s signage rights set forth at paragraph 34 of the Lease, Lessee’s right to install signage at the Premises shall be exclusive during the term of the Lease.

58.Assignment and Subletting. Notwithstanding anything to the contrary in Paragraph 12 of the Lease, the following additional term shall apply to assignment and subletting:

58.1An assignment or subletting of all or a portion of the Premises to an affiliate ("Affiliate") of Lessee (an entity which is controlled by, controls, or is under common control with, Lessee, or that becomes a parent, successor or affiliate of Lessee, or is a successor of Lessee by reason of merger, consolidation, public offering, reorganization, dissolution, or sale of all or more than an aggregate of fifty percent (50%) of Lessee’s stock, membership or partnership interests or assets) shall not be deemed a transfer under Paragraph 12 of this Lease (each, an “Exempt Transfer”), provided that (i) Lessee notifies Lessor of any such assignment or sublease prior to the effective date thereof and promptly supplies Lessor with any reasonable documents or information requested by Lessor regarding such assignment or sublease to such Affiliate (including, in the event of an assignment, evidence of the assignee's assumption of Lessee's obligations under this Lease or, in the event of a sublease, evidence of the sublessee's assumption, in full, of the obligations of Lessee with respect to the portion of the Premises so subleased, other than the payment of rent), (ii) such assignment or sublease is not a subterfuge by Lessee to avoid its obligations under this Lease, (iii) such assignment or sublease does not cause Lessor to be in default under any existing lease at the Building, and (iv) the net worth of such Affiliate is equal to or greater than the net worth of Lessee immediately prior to such transfer as reasonably determined by Lessor after review of financial information for Lessee and such Affiliate. An assignee of Lessee's entire interest in this Lease pursuant to the immediately preceding sentence may be referred to herein as an "Affiliated Assignee." "Control," as used in this Paragraph 58 shall mean the ownership, directly or indirectly, of greater than fifty percent (50%) of the voting securities of, or possession of the right to vote, in the ordinary direction of its affairs, of greater than fifty percent (50%) of the voting interest in, an entity. Nothing contained in this Paragraph 58 shall be deemed to release Lessee from its obligations under the Lease.

58.2In the event Lessee sells, sublets, assigns or transfers this Lease (except for an Exempt Transfer), Lessee shall pay to Lessor as additional rent an amount equal to fifty percent (50%) of any consideration received by Lessee in connection with such subletting or assignment and fifty percent (50%) of any Increased Rent (as defined below), less the Costs Component (as defined below), when and as such Increased Rent is received by Lessee. As used in the Paragraph, “Increased Rent” shall mean the excess of (i) all rent and other consideration which Lessee is entitled to receive by reason of any sale, sublease, assignment or other transfer of this Lease, over (ii) the rent otherwise payable to Lessee under this Lease at such time. For purposes of the foregoing, any consideration received by Lessee in form other than cash shall be valued at its fair market value as determined by Lessor in good faith. The “Costs Component” is that

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amount which, if paid monthly, would fully amortize on a straight-line basis, over the entire period for which Lessee is to receive Increased Rent, the reasonable costs incurred by Lessee for leasing commissions, tenant improvements, and any Rent attributable to Lessee’s keeping any portion of the Premises vacant after the date Lessee commences marketing such portion of the Premises in order to facilitate a sublease, assignment or other transfer, and other reasonable expenses incurred in connection with such sublease, assignment or other transfer.

58.3Lessee shall have the right to sublease or license, on a month-to-month basis, individual rooms or other minor portions of the Premises not exceeding one thousand (1,000) square feet per user to physicians, consultants and vendors working with Lessee in its business operations without Lessor’s prior written consent.

59.Payment to Brokers. Lessor shall pay to the Brokers for the brokerage services rendered by the Brokers in connection with the Lease pursuant to a separate agreement. Such amounts shall be paid fifty percent (50%) upon full execution of this Lease and fifty percent (50%) on the Commencement Date.

60.Lessee Access. Lessee shall have access to the Building and use of the parking spaces situated at the Premises seven days a week, 24 hours per day, subject to any reasonable Rules and Regulations established by Lessor. Lessee shall have control over the hours of operation of the HVAC serving the Premises.

61.Security System. Lessee shall have the right to install a security system for the perimeter and interior of the Premises. Lessee shall be responsible to construct, install and maintain such security system at its sole cost, and shall remove such security system upon expiration or earlier termination of the Lease and repair any damage caused by such removal.

62.Environmental Disclosure Statement. Prior to the Start Date, Lessee shall complete and deliver to Lessor a Lessee Environmental Questionnaire (“Environmental Questionnaire”), the form of which is attached to the Lease as Exhibit C. Lessee covenants, represents and warrants to Lessor that the information in any Environmental Questionnaire is true and correct and accurately describes any Hazardous Substances that Lessee proposes to use and store at the Premises. Lessee shall deliver an updated Environmental Questionnaire if the information in the initial Environmental Questionnaire materially changes.

63.Parking. Lessee shall be entitled to use all of the parking spaces available at the Premises without additional charge during the term of the Lease. Lessee acknowledges and agrees that the number of parking spaces at the Premises shall be reduced as part of the Lessor Work, but only to the extent shown in the plans for the Lessor Work described in Paragraph 53, as the same may be modified by the City as described in Paragraph 53. Lessor makes no representation or warranty regarding the number of parking stalls available at the Premises or the sufficiency of the parking for Lessee’s proposed use of the Premises; provided, however, that except in connection with the Lessor Work as provided above, Lessor shall not cause or agree to decrease the number of parking spaces available for Lessee’s use. Additionally, Lessee acknowledges that Lessor has leased or licensed portions of the parking area of the Premises for use by Tesla, Inc. and Amazon.com Services, Inc. (the “Parking Leases”) and that the Parking Leases may only be terminated by Lessor upon thirty (30) days advance written notice. Within five (5) business days after full execution of this Lease, Lessor shall provide written notices to terminate the Parking Leases and shall use reasonable efforts to cause the tenants/licensees pursuant to the Parking Leases to cease using the parking areas that are the subject of the Parking Leases after the expiration of such 30-day notice period and Lessor shall take all necessary actions to remove the tenants/licensees and their property, including towing vehicles to the extent allowed by law.

64.Roof Mounted Solar Electric System and Roof Lease. Lessor shall have the right (but not the obligation) to install or cause to be installed a roof-mounted solar electric system for the Building (the “Solar Electric System”). Any such Solar Electric System shall be installed at Lessor’s sole cost and expense, and not as an Operating Expense, in a manner and at times coordinated with Lessee in advance to avoid material adverse effects on Lessee’s business operations if such installation occurs during the term of this Lease. Lessor shall also be solely liable for any damage to or penetration of the roof membrane attributable to such installation, at Lessor’s sole cost and expense, and not as an Operating Expense. After such Solar Electric System has been installed, Lessee shall purchase from Lessor (or any third party that owns the Solar Electric System) pursuant to an agreement reasonably acceptable to Lessor and Lessee the electricity consumed at the Premises, at rates that are at or below the rates otherwise payable from time to time by Lessee to San Diego Gas & Electric (or the then-current utility provider), during those times that the Solar Electric System produces electricity. Payment shall be due within ten (10) days after Lessor sends an invoice for such to Lessee. Additionally, Lessor shall have the right to enter into a lease or license agreement with any third party for any portion of the roof of the Premises in connection with the installation and/or operation of the Solar Electric System subject to Lessee’s rights under the Lease.

65.Emergency Generator. If Lessee elects to include an emergency back-up generator and/or UPS system as part of the Improvements, then such Improvements shall include the installation of a dedicated concrete pad and screening in a location outside the Building that is reasonably acceptable to Lessor (and in a location that does not adversely affect the Amenities, as defined in the Work Letter), and all Utility Installations required to connect such Improvements to the main electrical room of the Building. Lessor hereby agrees that such emergency electrical equipment shall exclusively provide electrical service to the Premises and that any such emergency generator shall be permitted to have a capacity load of not less than 1,000 KW. Lessee agrees to obtain a Service Contract with a third party to maintain any such emergency generator installed as part of the Improvements, and to obtain any permits required by Applicable Requirements for Lessee’s operation of such emergency generator. If requested by Lessor, Lessee shall remove such emergency generator, concrete pad, screening and electrical services and restore all affected areas of the Project to their original use and condition upon the expiration or earlier termination of this Lease Lessor shall have no obligation to replace, repair or maintain the emergency generator, nor to provide Lessee with an alternative backup generator or generators or alternative sources of backup power; provided that if there is a power outage at the Premises and any emergency generator fails for more than 48 consecutive hours, Lessee shall have the right to bring in a mobile emergency generator to provide electricity to the Premises in accordance with Applicable Requirements.

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66.Storage Yard. Subject to Lessee’s compliance with Applicable Requirements in doing so, Lessee shall have the right, either as Improvements or as Alterations, to construct and/or install, from time to time, an exterior storage facility adjacent to the Building (the “Storage Yard”), with size and location that is reasonably acceptable to Lessor (and in a location that does not adversely affect the Amenities, as defined in the Work Letter), which may be used by Lessee for storage of any Hazardous Substances, storage of liquid or compressed gas storage tanks, installation and operation of supplemental equipment serving the Building systems, temporary storage of equipment, materials and supplies, dumpsters and other trash containers, and other storage facilities associated with Lessee’s agreed use of the Premises, without any increase in the Base Rent payable by Lessee for the use of such Storage Yard facilities. Lessee shall have the right to reduce the number of parking spaces of the Project to accommodate the Storage Yard improvements, in Lessee’s reasonable discretion, so long as the remaining parking areas comply in all respects with Applicable Requirements. All Storage Yard fencing and screening shall be of a design and type acceptable to Lessor, in Lessor’s reasonable discretion. Lessor shall remove any such Storage Yard improvements and restore all affected areas of the Project to their original use and condition upon the expiration or earlier termination of this Lease. Lessor shall have no obligation to maintain or repair the Storage Yard improvements and Lessee shall maintain the same, at Lessee’s sole cost and expense, in good repair and condition during the term of this Lease as though they were a part of the Premises.

67.EV Charging Stations. Lessee may install vehicle electric charging stations (“Vehicle Charging Station”) in portions of the parking areas of the Project (the “Charging Station Area”) for providing electric vehicle charging (the “Vehicle Charging Parking Spaces”). The Vehicle Charge Station equipment (the “Vehicle Charging Equipment”) shall be in accordance with the plans and specifications approved by Lessor, which approval shall not be unreasonably withheld. The Vehicle Charging Equipment shall be used solely by Lessee’s and its subtenants’ employees and any visitors conducting business at the Premises in accordance with the Agreed Use, and shall draw electricity from Lessor’s roof mounted solar system if and when Lessor constructs such. Lessee shall secure and maintain in force and effect all governmental licenses, permits and approvals required for the installation and use of the Vehicle Charging Equipment. Lessee shall be solely responsible for all costs to purchase, construct, install, repair, maintain, replace, operate, and remove the Vehicle Charging Equipment, including the costs for all hard and soft costs in connection therewith. Lessee shall also be responsible for payment of all costs for the operation of the Vehicle Charging Equipment. The Vehicle Charging Equipment shall remain the personal property of Lessee during the Lease Term, and Lessee shall be entitled to remove the Vehicle Charging Equipment at end of the Lease Term, subject to Lessee’s restoration of the Charging Station Area to its condition and use prior to such installation.

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IN WITNESS THEREOF, Lessor and Lessee have executed this Addendum concurrently with the Lease of even date herewith.

LESSOR:				LESSEE:
RAF PACIFICA GROUP - REAL ESTATE FUND IV, LLC,				ALPHATEC SPINE, INC.,
a California limited liability company				a California corporation
				By:	/s/ Patrick S. Miles
By:	/s/ Steven C. Leonard				Patrick S. Miles, President
	Steven C. Leonard, Manager
					By:	/s/ Craig E. Hunsaker
By:	/s/ Adam S. Robinson					Craig E. Hunsaker, Secretary
	Adam S. Robinson, Manager
ARKA MONTEREY PARK, LLC,
a Utah limited liability company
By:	SMB I Group, L.P.,
	a Delaware limited partnership
	Its: Managing Member
	By:	K Associates,
		a California general partnership
		Its: General Partner
		By:	/s/ Bonnie L. Fein
		Name:	Bonnie L. Fein
		Title:	Managing General Partner
170 ARROWHEAD PARTNERS, LLC,
a California limited liability company
By:	K Associates,
	a California general partnership
	Its: sole and Managing Member
	By:	/s/ Bonnie L. Fein
	Name:	Bonnie L. Fein
	Title:	Managing General Partner

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OPTION(S) TO EXTEND

STANDARD LEASE ADDENDUM

Dated:	December 4, 2019
By and Between
Lessor:	RAF PACIFICA GROUP - REAL ESTATE FUND IV, LLC, a California limited liability company; ARKA MONTEREY PARK, LLC, a Utah limited liabilitycompany; and 170 ARROWHEAD PARTNERS, LLC, a California limited liabilitycompany
Lessee:	ALPHATEC SPINE, INC., a California corporation
Property Address:		1950 Camino Vida Roble, Carlsbad, CA 92008
		(street address, city, state, zip)

Paragraph:       68

A.OPTION(S) TO EXTEND:

Lessor hereby grants to Lessee the option to extend the term of this Lease for two (2)additional sixty (60)month period(s) commencing when the prior term expires upon each and all of the following terms and conditions:

(i)In order to exercise an option to extend, Lessee must give written notice of such election to Lessor and Lessor must receive the same at least    9    but not more than    12    months prior to the date that the option period would commence, time being of the essence. If proper notification of the exercise of an option is not given and/or received, such option shall automatically expire. Options (if there are more than one) may only be exercised consecutively.

(ii)The provisions of paragraph 39, including those relating to Lessee's Default set forth in paragraph 39.4 of this Lease, are conditions of this Option.

(iii)Except for the provisions of this Lease granting an option or options to extend the term, all of the terms and conditions of this Lease except where specifically modified by this option shall apply.

(iv)This Option is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee except as provided in Paragraph 12.2(g) and only while the original Lessee is in full possession of the Premises and without the intention of thereafter assigning or subletting.

(v)The monthly rent for each month of the option period shall be calculated as follows, using the method(s) indicated below: (Check Method(s) to be Used and Fill in Appropriately)

☐_{I.Cost of Living Adjustment(s) (COLA)}

a.—On (Fill in COLA Dates): the Base Rent shall be adjusted by the change, if any, from the Base Month specified below, in the Consumer Price Index of the Bureau of Labor Statistics of the U.S. Department of Labor for (select one): ☐ CPI W (Urban Wage Earners and Clerical Workers) or ☐ CPI U (All Urban Consumers), for (Fill in Urban Area): All Items (1982-1984 - 100), herein referred to as "CPI".

b.—The monthly Base Rent payable in accordance with paragraph A.I.a. of this Addendum shall be calculated as follows: the Base Rent set forth in paragraph 1.5 of the attached Lease, shall be multiplied by a fraction the numerator of which shall be the CPI of the calendar month 2 months prior to the month(s) specified in paragraph A.I.a. above during which the adjustment is to take effect, and the denominator of which shall be the CPI of the calendar month which is 2 months prior to (select one): ☐ the first month of the term of this Lease as set forth in paragraph 1.3 ("Base Month") or ☐ (Fill in Other "Base Month"): . The sum so calculated shall constitute the new monthly Base Rent hereunder, but in no event, shall any such new monthly Base Rent be less than the Base Rent payable for the month immediately preceding the rent adjustment.

c.—In the event the compilation and/or publication of the CPI shall be transferred to any other governmental department or bureau or agency or shall be discontinued, then the index most nearly the same as the CPI shall be used to make such calculation. In the event that the Parties cannot agree on such alternative index, then the matter shall be submitted for decision to the American Arbitration Association in accordance with the then rules of said Association and the decision of the arbitrators shall be binding upon the parties. The cost of said Arbitration shall be paid equally by the Parties.

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☑_{II.Market Rental Value Adjustment(s) (MRV)}

a.On (Fill in MRV Adjustment Date(s)) the date on which each option period commencesthe Base Rent shall be adjusted to the "Market Rental Value" of the property as follows:

1)Four months prior to each Market Rental Value Adjustment Date described above, the Parties shall attempt to agree upon what the new MRV will be on the adjustment date. If agreement cannot be reached, within thirty days, then:

(a)Lessor and Lessee shall immediately appoint a mutually acceptable appraiser or broker to establish the new MRV within the next 30 days. Any associated costs will be split equally between the Parties, or

(b)Both Lessor and Lessee shall each immediately make a reasonable determination of the MRV and submit such determination, in writing, to arbitration in accordance with the following provisions:

(i)Within 15 days thereafter, Lessor and Lessee shall each select an independent third party ☐ appraiser or ☑ broker ("Consultant" - check one) of their choice to act as an arbitrator (Note: the parties may not select either of the Brokers that was involved in negotiating the Lease). The two arbitrators so appointed shall immediately select a third mutually acceptable Consultant to act as a third arbitrator.

(ii)The 3 arbitrators shall within 30 days of the appointment of the third arbitrator reach a decision as to what the actual MRV for the Premises is, and whether Lessor's or Lessee's submitted MRV is the closest thereto. The decision of a majority of the arbitrators shall be binding on the Parties. The submitted MRV which is determined to be the closest to the actual MRV shall thereafter be used by the Parties to determine the Base Rent. The arbitrators must accept either Lessor's or Lessee's submitted MRV without making any changes thereto.

(iii)If either of the Parties fails to appoint an arbitrator within the specified 15 days, the arbitrator timely appointed by one of them shall reach a decision on his or her own, and said decision shall be binding on the Parties.

(iv)The entire cost of such arbitration shall be paid by the party whose submitted MRV is not selected, ie. the one that is NOT the closest to the actual MRV.

2)The MRV shall be the average base rent then being charged for new leases of comparable quality office and warehouse space, in comparable buildings, and comparably located in the Carlsbad market, with comparable concessions and terms. The improvements in the Premises shall only be valued for purposes of MRV at their value to the tenant population in general, rather than to Lessee, and the improvements installed by Lessee (or pay for or reimbursed by Lessee) shall be excluded from the determination of MRV. When determining MRV, the Lessor, Lessee and Consultants shall consider the terms of comparable market transactions which shall include, but not limited to, rent, rental adjustments, abated rent, lease term and financial condition of tenants.

3)—Notwithstanding the foregoing, the new Base Rent shall not be less than the rent payable for the month immediately preceding the rent adjustment.

b.Upon the establishment of each New Market Rental Value:

1)the new MRV will become the new "Base Rent" for the purpose of calculating any further Adjustments, and

2)the first month of each Market Rental Value term shall become the new "Base Month" for the purpose of calculating any further Adjustments.

3)the Base Rent shall increase three (3%) percent annually during each option period.

☐_{III.Fixed Rental Adjustment(s) (FRA)}

The Base Rent shall be increased to the following amounts on the dates set forth below:

On (Fill in FRA Adjustment Date(s)): The New Base Rent shall be:

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☐_{IV.—Initial Term Adjustments}

The formula used to calculate adjustments to the Base Rate during the original Term of the Lease shall continue to be used during the extended term.

B.—NOTICE:

Unless specified otherwise herein, notice of any rental adjustments, other than Fixed Rental Adjustments, shall be made as specified in paragraph 23 of the Lease.

C.BROKER'S FEE:

The Brokers shall be paid a Brokerage Fee for each adjustment specified above in accordance with paragraph 15 of the Lease or if applicable, paragraph 9 of the Sublease.

AIR CRE * https://www.aircre.com * 213-687-8777 * contracts@aircre.com

NOTICE: No part of these works may be reproduced in any form without permission in writing.

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OE-6.02, Revised 06-10-2019		Page 3 of 3

EXHIBIT A

PLOT PLAN DEPICTING THE PREMISES

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EXHIBIT B

WORK LETTER

This Work Letter shall set forth the terms and conditions relating to the construction of the Lessee Improvements in the Premises. This Work Letter is essentially organized chronologically and addresses the issues of Lessee’s construction of the Lessee Improvements, in sequence, as such issues will arise during the actual construction of the Lessee Improvements. All references in this Work Letter to Sections of “the Lease” shall mean the relevant portion of the sections of the Lease to which this Work Letter is attached as Exhibit B and of which this Work Letter forms a part, and all references in this Work Letter to Sections of “this Work Letter” shall mean the relevant portion of Sections 1 through 5 of this Work Letter.

SECTION 1

EXISTING BASE, SHELL AND CORE OF THE PREMISES

1.1Base, Shell and Core of the Premises as Constructed by Lessor. Lessor’s predecessor has constructed the base, shell, and core (i) of the Premises and (ii) of the floor of the Building on which the Premises is located (collectively, the “Base, Shell, and Core”). The Base, Shell and Core shall consist of those portions of the Premises and the floor of the Building on which the Premises is located which were in existence prior to the Start Date. Lessee shall accept the Premises and Base, Shell and Core in their “AS IS” condition, without representation, warranty or any improvements by Lessor except as expressly set forth in the Lease.

SECTION 2

LESSEE IMPROVEMENTS

2.1Allowances. Lessee shall be entitled to the one-time Allowances as set forth in Paragraph 53 of the Lease for the costs relating to the initial design and construction of Lessee’s improvements which are permanently affixed to the Premises (the “Lessee Improvements”). In no event shall Lessor be obligated to make disbursements pursuant to this Work Letter in a total amount which exceeds the Allowances. In the event that the actual cost of the Lessee Improvements is less than the Allowances, Lessee shall not be entitled to such excess or any credit, deduction or offset against rent or any other amounts due under the terms of the Lease, except that Lessee shall not be obligated to repay any part of the Amortized Allowance that is not disbursed. Notwithstanding the foregoing, Lessee shall have the right to use the Allowances in an amount not to exceed $607,705.00 to (i) pay for Lessee's costs incurred in connection with installing cabling in the Premises, and (ii) purchase and install furniture, fixtures and equipment at the Premises (collectively, the “Other Costs”). Lessor shall also pay to Lessee’s workplace program manager (as designated by Lessee) a fee in an amount not to exceed $91,155.75 (the “Workplace Program Manager Fee”), one-half of which shall be in addition to and not as part of the Allowances and shall be paid on the Start Date.

2.2Disbursement of the Allowances.

2.2.1Allowance Items. Except as otherwise set forth in this Work Letter, the Allowances shall be disbursed by Lessor for costs related to the construction of the Lessee Improvements, the Other Costs, and for the following items and costs (collectively, the “Allowance Items”): (i) payment of the fees of the “Architect” and the “Engineers,” as those terms are defined in Section 3.1 of this Work Letter in connection with the preparation and review of the “Construction Drawings,” as that term is defined in Section 3.1 of this Work Letter; (ii) the costs of any permits required in connection with the Lessee Improvements; (iii) the cost of any changes in the Base, Shell and Core when such changes are required by the Construction Drawings; (iv) the cost of any changes to the Construction Drawings or Lessee Improvements required by all applicable building codes (the “Code”); (v) payment of one-half of the Workplace Program Manager Fee; (vi) fees to Lessee’s construction manager; and (vii) payment to Lessor’s project manager a management fee in an amount not to exceed two and one-half percent (2-¹/₂%) of the Allowances (which shall be paid to Lessor’s project manager by Lessor withholding such amount from all disbursements of the Allowances, including the Final Retention).

2.2.2Disbursements. Lessee shall deliver to Lessor from time to time: (i) a request for payment from the Contractor (as defined below) on the form substantially equivalent to the latest AIA application and certification for payment; (ii) invoices evidencing the labor rendered and materials delivered to the Premises; (iii) executed conditional mechanics’ lien releases from those “Lessee’s Work Parties”, as that term is hereinafter defined (provided that laborers are not included for purposes of this subsection 2.2.2 or subsection 2.2.3) who have performed the Lessee Improvements for which payment is requested, which releases shall comply California Civil Code Section 8132, and (iv) executed unconditional mechanics’ lien releases from those Lessee’s Work Parties who have performed the Lessee Improvements for amounts disbursed by Lessor at least 30 days prior to submission of the current request for payment, which releases shall comply with the applicable California Civil Code Section 8134. Within ten (10) business days after submission of a request for payment, Lessor shall deliver a check to Lessee made payable to Lessee, or Lessee’s general contractor if requested by Lessee, in payment of the lesser of: (A) the amounts so requested by Lessee, as set forth in this Section 2.2.2, less a ten percent (10%) retention (the aggregate amount of such retentions to be known as the “Final Retention”), and (B) the balance of any remaining available portion of the Allowances (not including the Final Retention), provided that Lessor does not reasonably dispute any request for payment based on non-compliance of any work with the “Approved Working Drawings”, as that term is defined in Section 3.4 below, or due to any defective work. If Lessor disputes any request (including a payment request pursuant to Section 2.2.3), Lessor shall, within five (5) business days after submission of a request for payment, deliver to Lessee a written notice stating in reasonable detail the basis of such dispute and the actions that Lessor believes are needed to resolve the dispute and Lessor shall pay to Lessee the undisputed portion of the request. Notwithstanding the foregoing, the Final Retention shall not apply to any design costs, permit fees, fees of Lessee’s construction manager or the Lessee’s workplace program manager’s management fee. Lessor’s payment of such amounts shall not be deemed Lessor’s approval or acceptance of the work furnished or materials supplied as set forth in Lessee’s payment request.

2.2.3Final Retention. Subject to the provisions of this Work Letter, a check for the Final Retention payable to Lessee shall be delivered by Lessor to Lessee after the Lessee Improvements are substantially complete and within ten (10) business days following Lessee’s receipt of the following (i) a request for payment from the Contractor on the form substantially equivalent to the latest AIA application and certification for payment; (ii) invoices as defined in Section 2.2.2 above, together with previously submitted invoices

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totaling the amount of the payment request (but not to exceed the amount of the Allowances), (iii) properly executed conditional mechanics’ lien releases in compliance with California Civil Code section 8136; (iv) Lessee has satisfied its obligations under Section 4.4 below (except as to clauses (i) and (ii) of Section 4.4), and (v) Lessor has determined that no substandard work by Lessee exists which materially and adversely affects the mechanical, electrical, plumbing, heating, ventilating and air conditioning, life safety or other systems of the Building, the curtain wall of the Building, or the structure of the Building (and issuance by the City of Carlsbad of a certificate of occupancy or similar sign-off shall be conclusively deemed to be satisfaction of the requirement of this clause (v)). Notwithstanding the foregoing, Lessee shall deliver to Lessor final unconditional lien releases in compliance with California Civil Code section 8138 for all Lessee Improvements after completion of the Lessee Improvements and within twenty (20) business days after Lessee’s receipt of the Final Retention and any unpaid disbursements of the Allowances pursuant to pending payment requests.

2.2.4Refusal Notice. If Lessor does not timely respond to any request for payment as set forth in Section 2.2.2 or 2.2.3 above, then Lessee shall be entitled to deliver a second written notice thereof to Lessor requesting such payment (each, a “Second Notice”), which Second Notice shall be sent to the following email addresses: adam@rafpacificagroup.com, edward@rafpacificagroup.com and jim@rafpacificagroup.com. If Lessor objects to any such request for payment, Lessor shall deliver written notice within five (5) business days after delivery of a Second Notice explaining Lessor's good faith reasons that the amounts described in the payment request are not due and payable by Lessor ("Refusal Notice"). If Lessor timely delivers a Refusal Notice, Lessor shall fund any undisputed portion of the requested payment and if Lessor and Lessee are not able to agree on the amounts to be so paid by Lessor, if any, within five (5) business days after Lessee's receipt of a Refusal Notice, then Lessor or Lessee shall have such dispute resolved by final and binding arbitration before a licensed architect mutually acceptable to the parties, with at least five (5) years of experience in the design and construction of similar commercial tenant improvements. If the parties cannot agree on the arbitrator within ten (10) business days after Lessee's receipt of a Refusal Notice, then either party may apply to the Chief Judge of the San Diego County Superior Court to appoint an arbitrator meeting such requirements. If Lessee prevails in any such arbitration, Lessor shall pay the outstanding amount of the requested payment within five (5) business days. The cost of such arbitration (including attorneys’ fees and costs of the prevailing party) shall be paid by the non-prevailing party in connection with such arbitration process. If such arbitration determines that the applicable amounts were due to Lessee, then Lessor shall be liable to Lessee for all Third Party Claims due to such non-payment. “Third Party Claims” means any claims, damages, liabilities, costs and expenses arising from any claims by the Lessee Work Parties, including additional costs to complete the Lessee Improvements and any mechanics lien claims.

2.2.5Forfeiture of Allowances. Lessee agrees that any portion of the Allowances that remains undisbursed eighteen (18) months after the Commencement Date shall be deemed forfeited by Lessee, and thereafter, Lessor shall have no further obligation to distribute the Allowances to Lessee, and Lessee shall have no further rights to such Allowances, provided that Lessor shall be obligated to disburse the Allowances to Lessee to the extent that a request for payment has been submitted to Lessor on or before the date that is eighteen (18) months after the Commencement Date. Lessor shall have no obligation to notify Lessee if any portion of the Allowances remains unpaid and Lessee has not submitted a request for payment of such prior to the expiration of such eighteen (18) month period.

2.2.6Failure to Pay Allowances. If Lessor fails to timely fund any portion of the Allowances within the time periods set forth above and fails to timely serve a Refusal Notice after receipt of a Second Notice, then Lessee shall be entitled to fund such amount(s) itself and to offset such amount(s) against Lessee's first obligations to pay monthly Rent until such amount has been fully recouped.

SECTION 3

CONSTRUCTION DRAWINGS

3.1Selection of Architect/Construction Drawings. Lessee shall retain an architect, subject to Lessor’s prior approval, which approval shall not be unreasonably withheld, conditioned or delayed (the “Architect”) to prepare the “Construction Drawings,” as that term is defined in this Section 3.1. Lessee shall retain the engineering consultants approved by Lessor which approval shall not be unreasonably withheld, conditioned or delayed (the “Engineers”) to prepare all plans and engineering working drawings relating to the structural, mechanical, electrical, plumbing, HVAC, life safety, and sprinkler work of the Lessee Improvements. Lessor hereby approves the following Architects and Engineers: Contractors: Smith Consulting Architects, Wiseman & Rohy Structural Engineering, Marino Design Consultants and MPE Consulting. Lessor shall approve or disapprove any other Architect or Engineer proposed by Lessee within ten (10) business days after receipt of the written request therefor. The plans and drawings to be prepared by Architect and the Engineers hereunder shall be known collectively as the “Construction Drawings.” All Construction Drawings shall be subject to Lessor’s and Lessee’s approval, which approval shall not be unreasonably withheld, conditioned or delayed. Lessee and Architect shall verify, in the field, the dimensions and conditions as shown on the relevant portions of the base Building plans, and Lessee and Architect shall be solely responsible for the same, and Lessor shall have no responsibility in connection therewith. Lessor’s review of the Construction Drawings as set forth in this Section 3, shall be for its sole purpose and shall not imply Lessor’s review of the same, or obligate Lessor to review the same, for quality, design, Code compliance or other like matters. Accordingly, notwithstanding that any Construction Drawings are reviewed by Lessor or its space planner, architect, engineers and consultants, and notwithstanding any advice or assistance which may be rendered to Lessee by Lessor or Lessor’s space planner, architect, engineers, and consultants, Lessor shall have no liability whatsoever in connection therewith and shall not be responsible for any omissions or errors contained in the Construction Drawings.

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3.2Preliminary Drawings. Lessee shall supply Lessor with its preliminary design drawings and specifications for the Lessee Improvements (the “Preliminary Drawings”) which shall include a layout and designation of all offices, rooms and other partitioning, and equipment to be contained therein. Lessor may request clarification or more specific drawings for special use items not included in the Preliminary Drawings. Lessor shall send notification to Lessee that it approves or disapproves of the Preliminary Drawings, no later than ten (10) business days after receipt thereof, such approval not to be unreasonably withheld, conditioned or delayed. If Lessor disapproves of the Preliminary Drawings, Lessor shall specify in reasonable detail the reasons for this disapproval and the changes requested by Lessor, as appropriate. If Lessor disapproves of the Preliminary Drawings, Lessee shall, within a reasonable time after receipt of Lessor's comments, send Lessor revised Preliminary Drawings addressing Lessor's comments. This procedure shall be repeated until Lessor has approved the Preliminary Drawings, except that Lessor shall send notification to Lessee that it approves or disapproves of any revisions to the Preliminary Drawings no later than five (5) business days after receipt thereof, and provided, that Lessor’s review of each revised issue of the Preliminary Drawings will be limited to the changes made to the previous issue thereof reviewed and approved by Lessor and any other portions of the Preliminary Drawings materially affected by such changes.

3.3Final Working Drawings. Upon the approval of the Preliminary Drawings by Lessor, Lessee shall, within a reasonable time period after such approval, cause the Architect and the Engineers to complete the architectural and engineering drawings for the Lessee Improvements, and the final architectural working drawings in a form which is complete to allow subcontractors to bid on the work and to obtain all applicable permits (collectively, the “Final Working Drawings”) and shall submit the same to Lessor for Lessor’s approval. Lessor shall send notification to Lessee that it approves or disapproves of the Final Working Drawings, no later than ten (10) business days after receipt thereof, such approval not to be unreasonably withheld, conditioned or delayed. If Lessor disapproves of the Final Working Drawings, Lessor shall specify in reasonable detail the reasons for this disapproval. If Lessor disapproves of the Final Working Drawings, Lessee shall, within a reasonable time period after receipt of Lessor's comments, send Lessor revised Final Working Drawings addressing Lessor's comments. This procedure shall be repeated until Lessor has approved the Final Working Drawings, except that Lessor shall send notification to Lessee that it approves or disapproves of any revisions to the Final Working Drawings no later than five (5) business days after receipt thereof, and provided, that Lessor’s review of each revised issue of the Final Working Drawings will be limited to the changes made to the previous issue thereof reviewed and approved by Lessor and any other portions of the Final Working Drawings materially affected by such changes.

3.4Permits. Promptly after approval by Lessor of the Final Working Drawings (the “Approved Working Drawings”) or, at Lessee’s election, such earlier date as permitted by the City, Lessee shall promptly submit the Approved Working Drawings to the appropriate municipal authorities for all applicable building permits necessary to allow “Contractor,” as that term is defined in Section 4.1, below, to commence and substantially complete the construction of the Lessee Improvements (the “Permits”), and, in connection therewith, Lessee shall coordinate with Lessor in order to allow Lessor, at its option, to take part in all phases of the permitting process and shall supply Lessor, with all plan check numbers and dates of submittal and obtain the Permits. Notwithstanding anything to the contrary set forth in this Section 3.4, Lessee hereby agrees that neither Lessor nor Lessor’s consultants shall be responsible for obtaining any building permit or certificate of occupancy for the Lessee Improvements and that the obtaining of the same shall be Lessee’s responsibility; provided however that Lessor shall, in any event, cooperate with Lessee in executing permit applications and performing other ministerial acts reasonably necessary to enable Lessee to obtain any such permit or certificate of occupancy.

3.5Revisions to Approved Working Drawings. No material changes, modifications or alterations in the Approved Working Drawings (each, a “TI Change”) may be made without the prior written consent of Lessor, which consent shall not be unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing, Lessor’s consent shall not be required for (i) immaterial or purely cosmetic changes to the Approved Working Drawings as long as such change would not require a building permit or (ii) any changes required by any municipal authorities. Lessor shall review and either approve or disapprove the TI Change within ten (10) business days after receipt of the written request therefor. If Lessor disapproves a TI Change, Lessor shall advise Lessee thereof within such ten (10) business day period, which written disapproval shall specify, in reasonable detail, the reasons for Lessor’s disapproval. It shall be reasonable for Lessor to disapprove a TI Change that would materially and detrimentally affect any of the Building utilities, systems or structure, or the value, use, or appearance of the Premises.

3.6Reasonable Efforts. Lessee shall use commercially reasonable efforts to cause the Architect and the Engineers to complete all phases of the Construction Drawings and the permitting process and to receive the permits promptly after the execution of the Lease,

3.7Meeting; Cooperate. Lessee shall meet with Lessor on a scheduled basis to be determined by the parties, to discuss Lessee’s progress in connection with completion of all phases of the Construction Drawings and the permitting process. Lessee and Lessor and their respective representatives and consultants shall exchange information and cooperate with each other on an ongoing basis in connection with the design and construction of the Building. If Lessee requires information, plans or other matters within the knowledge or control of Lessor reasonably necessary to complete plans and specifications (or any progress submission thereof) or to perform the Lessee Improvements, Lessor shall furnish such information within ten (10) business days after request therefor.

SECTION 4

CONSTRUCTION OF THE LESSEE IMPROVEMENTS

4.1Contractor. A general contractor shall be retained by Lessee to construct the Lessee Improvements. Such general contractor (“Contractor”) shall be approved in writing by Lessor, such approval not to be unreasonably withheld, conditioned or delayed. Lessee may, but is not obligated to, retain TFW Construction as its general contractor to construct the Lessee Improvements. Lessor hereby approves any of the following contractors as Lessee’s Contractor: Pacific Building Group, Bycor General Contractors or TFW Construction. Lessor shall approve or disapprove the proposed Lessee’s Contractor within ten (10) business days after receipt of the written request therefor. Promptly after approval by Lessor of the Contractor, Lessee shall cause the Contractor to prepare a construction schedule and Lessee shall submit the same to Lessor.

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4.2Lessee’s Work Parties. All subcontractors, laborers, materialmen, and suppliers used by Lessee and the Contractor are to be known collectively as “Lessee’s Work Parties.” All Lessee’s Work Parties that are performing Lessee Improvements to the Building electrical, mechanical, plumbing or fire life-safety systems or the Building structure must be approved by Lessor, which approval shall not be unreasonably withheld, conditioned or delayed. Lessor shall approve or disapprove the proposed Lessee’s Work Parties within ten (10) business days after receipt of the written request therefore. If Lessor does not approve any of Lessee’s proposed subcontractors, laborers, materialmen or suppliers that Lessor has the right to approve, Lessee shall submit other proposed subcontractors, laborers, materialmen or suppliers for Lessor’s written approval.

4.3Construction of Lessee Improvements.

4.3.1Lessee’s Work Parties.

4.3.1.1Lessor’s General Conditions for Lessee’s Work Parties andLessee Improvement Work. The Lessee Improvements shall be constructed substantially in accordance with the Approved Working Drawings.

4.3.1.2Indemnity. Lessee shall indemnify Lessor for any costs, losses or damages incurred in connection with Lessee’s non-payment of any amount arising out of the Lessee Improvements, unless due to Lessor’s failure to pay the Allowances when and as due.

4.3.1.3Requirements of Contractor. The Contractor shall guarantee to Lessee and for the benefit of Lessor that the Lessee Improvements shall be free from any defects in workmanship and materials for a period of not less than one (1) year from the date of completion thereof. The Contractor shall be responsible for the replacement or repair, without additional charge, of all work done or furnished in accordance with its contract and any of its subcontracts that shall become defective within one (1) year after the completion of the work. The correction of such work shall include, without additional charge, all additional expenses and damages incurred in connection with such removal or replacement of all or any part of the Lessee Improvements, and/or the Premises that may be damaged or disturbed thereby. All such warranties or guarantees as to materials or workmanship of or with respect to the Lessee Improvements shall be contained in the Contract and shall be written such that such guarantees or warranties shall inure to the benefit of both Lessor and Lessee, as their respective interests may appear, and can be directly enforced by either. Lessee covenants to give to Lessor any assignment or other assurances which may be necessary to effect such right of direct enforcement.

4.3.1.4Insurance Requirements.

4.3.1.4.1General Coverages. The Contractor shall carry worker’s compensation insurance covering all of their respective employees, and shall also carry commercial general liability insurance, including property damage, all with limits, in form and with companies as are required by be carried by Lessee as set forth in this Lease. The Contractor shall submit to Lessor a Certificate of Insurance naming Lessor as additional insured.

4.3.1.4.2Special Coverages. Lessee shall carry “Builder’s All Risk” insurance in an amount to be approved by Lessor covering the construction of the Lessee Improvements. Such insurance shall be in amounts and shall include such extended coverage endorsements as may be reasonably required by Lessor including, but not limited to, the requirement that all of Lessee’s Work Parties (excluding laborers, materialmen, and suppliers) shall carry liability insurance and Contractor shall carry Products and Completed Operation Coverage insurance, in amounts, in form and with companies as are required to be carried by Lessee as set forth in this Lease.

4.3.1.4.3General Terms. Certificates for all insurance carried pursuant to this Section 4.3.1.4 shall be delivered to Lessor before the commencement of construction of the Lessee Improvements and before the Contractor’s equipment is moved onto the site. No such policy shall be cancelable or subject to modification except after 30 days prior written notice to Lessor. In the event that the Lessee Improvements are damaged by any cause during the course of the construction thereof, Lessee shall repair the same at Lessee’s sole cost and expense. The Contractor shall maintain all of the foregoing insurance coverage in force until the Lessee Improvements are completed in substantial conformance with the Approved Working Drawings and accepted by Lessor, except for any Products and Completed Operation Coverage insurance required by Lessor, which is to be maintained for ten (10) years following completion of the work and acceptance by Lessor and Lessee. All policies carried under this Section 4.3.1.4 shall insure Lessor and Lessee, as their interests may appear as well as Contractor and Lessee’s Work Parties. All insurance, except Worker’s Compensation, maintained by Lessee’s Work Parties shall preclude subrogation claims by the insurer against anyone insured thereunder. Such insurance shall provide that it is primary insurance as respects the owner and that any other insurance maintained by owner is excess and noncontributing with the insurance required hereunder. The requirements for the foregoing insurance shall not derogate from the provisions for indemnification of Lessor by Lessee under Section 4.3.1.2 of this Work Letter and Paragraph 8.7 of the Lease.

4.3.2Governmental Compliance. The Lessee Improvements shall comply in all respects with the following: (i) the Applicable Requirements, as defined in the Lease; (ii) applicable standards of the American Insurance Association (formerly, the National Board of Fire Underwriters) and the National Electrical Code; and (iii) building material manufacturer’s specifications.

4.3.3Inspection by Lessor. Lessor shall have the right to inspect the Lessee Improvements at all times during construction, with prior notice to Lessee of no less than one (1) business day (except in case of emergency); provided however, that Lessor’s failure to inspect the Lessee Improvements shall in no event constitute a waiver of any of Lessor’s rights hereunder nor shall Lessor’s inspection of the Lessee Improvements constitute Lessor’s approval of the same. Lessor shall exercise reasonable efforts to perform such inspections in a manner that is reasonably designed to minimize interference with the performance of the Lessee Improvements and the operation of Lessee’s business in the Premises. Should Lessor disapprove any portion of the Lessee Improvements, Lessor shall promptly notify Lessee in writing of such disapproval and shall specify the items disapproved. Any defects or deviations in, and/or disapproval by Lessor of, the Lessee Improvements shall be rectified by Lessee at no expense to Lessor, subject to Lessee’s right to reasonably

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contest Lessor’s disapproval, provided however, that in the event Lessor reasonably determines that a defect or deviation exists or disapproves of any matter in connection with any portion of the Lessee Improvements and such defect, deviation or matter adversely affects the mechanical, electrical, plumbing, heating, ventilating and air conditioning or life-safety systems of the Premises or the Building, unless Lessee rectifies the same within ten (10) business days after receipt of written notice thereof from Lessor, Lessor may take such action as Lessor reasonably deems necessary, at Lessee’s expense and without incurring any liability on Lessor’s part, to correct any such defect, deviation and/or matter, including, without limitation, causing the cessation of performance of the construction of the Lessee Improvements until such time as the defect, deviation and/or matter is corrected to Lessor’s reasonable satisfaction.

4.4Notice of Completion; Copy of Record Set of Plans. Within ten (10) business days after completion of construction of the Lessee Improvements, Lessee shall cause a Notice of Completion to be recorded in the office of the Recorder of the county in which the Building is located in accordance with Section 8182 of the California Civil Code, and shall furnish a copy thereof to Lessor upon such recordation. If Lessee fails to do so, Lessor may execute and file the same on behalf of Lessee as Lessee’s agent for such purpose, at Lessee’s sole cost and expense. At the conclusion of construction, (i) Lessee shall cause the Architect and Contractor (A) to update the Approved Working Drawings as necessary to reflect all changes made to the Approved Working Drawings during the course of construction, (B) to certify to their actual knowledge that the “record-set” of as-built drawings are true and correct, without time limitations as to such certification, and (C) to deliver to Lessor two (2) sets of copies of such record set of drawings within ninety (90) days following issuance of a certificate of occupancy for the Premises, (ii) Lessee shall deliver to Lessor a copy of all warranties, guaranties, and operating manuals and information relating to the improvements, equipment, and systems in the Premises, and (iii) Lessee shall deliver to Lessor the original signed permit card, indicating final approval by all applicable departments.

SECTION 5

MISCELLANEOUS

5.1Lessor Delay. The term “Lessor Delay” shall mean the length of any actual delay in the substantial completion of the Lessee Improvements due to (i) the failure of Lessor to timely approve or disapprove any matter requiring Lessor’s approval relating to this Work Letter, (ii) any other failure by Lessor to perform its obligations under this Work Letter, (iii) the failure of Lessor to timely complete those portion of the Lessor Work consisting of creating openings in the Building and installing glass roll-up doors in such openings and any other portions of the Lessor Work that affects the shell of the Building, or (iv) interference by Lessor or its agents, employees, representative or contractors with completion of the Lessee Improvements. The Commencement Date and the Expiration Date of the Lease shall be extended by one (1) day for each full day of any Lessor Delay. Notwithstanding the foregoing, no Lessor Delay shall be deemed to have occurred unless and until Lessee has provided written notice to Lessor’s Representative specifying the action or inaction that Lessee contends constitutes a Lessor Delay. If such action or inaction is not cured within one (1) business day after receipt of such notice, then a Lessor Delay, as set forth in such notice, shall be deemed to have occurred commencing as of the date such notice is received and continuing for the number of days that substantial completion of the Lessee Improvements was in fact delayed as a result of such action or inaction.

5.2Lessee’s Representative. Lessee has designated Mike Dendinger as its sole representative with respect to the matters set forth in this Work Letter, who, until further notice to Lessor, shall have full authority and responsibility to act on behalf of the Lessee as required in this Work Letter.

5.3Lessor’s Representative. Prior to the commencement of construction of the Lessee Improvements, Lessor shall designate a representative with respect to the matters set forth in this Work Letter, who, until further notice to Lessee, shall have full authority and responsibility to act on behalf of the Lessor as required in this Work Letter.

5.4Time of the Essence in This Work Letter. Unless otherwise indicated, all references herein to a “number of days” shall mean and refer to business days. In all instances where Lessor or Lessee is required to approve or deliver an item, if no written notice of disapproval is given or the item is not delivered within the stated time period, at Lessor’s or Lessee’s (as the case may be) sole option, at the end of such period the item shall automatically be deemed approved or delivered by Lessee or Lessee (as the case may be) and the next succeeding time period shall commence.

5.5Lessee’s Lease Default. Notwithstanding any provision to the contrary contained in this Lease, if a Breach as described in the Lease, has occurred and is continuing at any time on or before the substantial completion of the Premises, then (i) in addition to all other rights and remedies granted to Lessor pursuant to the Lease, Lessor shall have the right to withhold payment of all or any portion of the Allowances, and (ii) all other obligations of Lessor under the terms of this Work Letter shall be forgiven until such time as such Breach is cured pursuant to the terms of the Lease.

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EXHIBIT C

FORM OF ENVIRONMENTAL QUESTIONNAIRE

LESSEE ENVIRONMENTAL QUESTIONNAIRE

The purpose of this form is to obtain information regarding the use or proposed use of hazardous materials at the Premises. Prospective lessees should answer the questions in light of their proposed operations at the Premises. Existing lessees should answer the questions as they relate to ongoing operations at the Premises and should update any information previously submitted. If additional space is needed to answer the questions, you may attach separate sheets of paper to this form.

Your cooperation in this matter is appreciated.

1. GENERAL INFORMATION

Name of Responding Company:
Check the Applicable Status: Prospective Lessee			Existing Lessee
Mailing Address:
Contact Person and Title:
Telephone Number:	(	)
Address of Leased Premises:
Length of Lease Term:
Describe the proposed operations to take place on the Premises, including principal products manufactured or services to be conducted. Existing lessees should describe any proposed changes to ongoing operations.

2. STORAGE OF HAZARDOUS MATERIALS

2.1.Will any hazardous materials be used or stored on-site?

Wastes	Yes	No
Chemical Products	Yes	No

2.2. Attach a list of any hazardous materials to be used or stored, the quantities that will be on-site at any given time, and the location and method of storage (e.g., 55-gallon drums on concrete pad).

3. STORAGE TANKS AND SUMPS

3.1 Is any above or below ground storage of gasoline, diesel or other hazardous substances in tanks or sumps proposed or currently conducted at the Premises?

Yes No

If yes, describe the materials to be stored, and the type, size and construction of the sump or tank. Attach copies of any permits obtained for the storage of such substances.

3.2 Have any of the tanks or sumps been inspected or tested for leakage?

Yes No

If so, describe.

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3.3 Have any spills or leaks occurred from such tanks or sumps?

Yes No

3.4 Were any regulatory agencies notified of the spill or leak?

Yes No

If so, attach copies of any spill reports filed, any clearance letters or other correspondence from regulatory agencies relating to the spill or leak.

3.5 Have any underground storage tanks or sumps been taken out of service or removed?

Yes No

If yes, attach copies of any closure permits and clearance obtained from regulatory agencies relating to closure and removal of such tanks.

4. SPILLS

4.1 During the past year, have any spills occurred at the premises?

Yes No

If yes, please describe the location of the spill.

4.2 Were any agencies notified in connection with such spills?

Yes No

If yes, attach copies of any spill reports or other correspondence with regulatory agencies.

4.3 Were any clean-up actions undertaken in connection with the spills?

Yes No

Attach copies of any clearance letters obtained from any regulatory agencies involved and the results of any final soil or groundwater sampling done upon completion of the clean-up work.

5. WASTE MANAGEMENT

5.1 Has your company been issued an EPA Hazardous Waste Generator I.D. Number?

Yes No

5.2 Has your company filed a biennial report as a hazardous waste generator?

Yes No

If so, attach a copy of the most recent report filed.

5.3 Attach a list of the hazardous wastes, if any, generated or to be generated at the Premises, its hazard class and the quantity generated on a monthly basis.

5.4 Describe the methods of disposal for each waste. Indicate where and how often disposal will take place.

On-site treatment or recovery

Discharged to sewer

Transported and disposed of off-site

Incinerator

5.5 Indicate the name of the person(s) responsible for maintaining copies of hazardous waste manifests completed for off-site shipments of hazardous waste.

BLF	10	CEH
Initials		Initials

5.6 Is any treatment of processing of hazardous wastes currently conducted or proposed to be conducted at the Premises:

Yes No

If yes, please describe any existing or proposed treatment methods.

5.7 Attach copies of any hazardous waste permits or licenses issued to your company with respect to its operations at the Premises.

6. WASTEWATER TREATMENT/DISCHARGE

6.1 Do you discharge wastewater to:

Storm drain?	Sewer?
Surface water?	No industrial discharge

6.2 Is your wastewater treated before discharge?

Yes No

If yes, describe the type of treatment conducted.

6.3 Attach copies of any wastewater discharge permits issued to your company with respect to its operations at the Premises.

7. AIR DISCHARGES

7.1 Do you have any filtration systems or stacks that discharge into the air?

Yes No

7.2 Do you operate any of the following types of equipment or any other equipment requiring an air emissions permit?

Spray booth

Dip tank

Drying oven

Incinerator

Other (please describe)

No equipment requiring air permits

7.3 Are air emissions from your operations monitored?

Yes No

If so, indicate the frequency of monitoring and a description of the monitoring results.

7.4 Attach copies of any air emissions permits pertaining to your operations at the Premises.

8. HAZARDOUS MATERIALS DISCLOSURES

8.1 Does your company handle hazardous materials in a quantity equal to or exceeding an aggregate of 500 pounds, 55 gallons or 200 cubic feet per month?

Yes No

BLF	11	CEH
Initials		Initials

8.2 Has your company prepared a hazardous materials management plan pursuant to any applicable requirements of a local fire department or governmental agency?

Yes No

If so, attach a copy of the business plan.

8.3 Has your company adopted any voluntary environmental, health or safety program?

Yes No

If so, attach a copy of the program.

9. ENFORCEMENT ACTIONS, COMPLAINTS

9.1 Has your company ever been subject to any agency enforcement actions, administrative orders, or consent decrees?

Yes No

If so, describe the actions and any continuing compliance obligations imposed as a result of these actions.

9.2 Has your company ever received requests for information, notice or demand letters, or any other inquiries regarding its operations?

Yes No

9.3 Have there ever been, or are there now pending, any lawsuits against the company regarding any environmental or health and safety concerns?

Yes No

9.4 Has an environmental audit ever been conducted at your company’s current facility?

Yes No

If so, identify who conducted the audit and when it was conducted.

ALPHATEC SPINE, INC.,

a California corporation

By:

Name:

Title:

By:

Name:

Title:

BLF	12	CEH
Initials		Initials

EX-10.28

Exhibit 10.28

September 17, 2018

Mark Ojeda

4436 Shorepointe Way

San Diego, California 92130

Re: Offer of Employment with Alphatec Spine, Inc.

Dear Mark:

I am very pleased to provide you with the following offer of employment with Alphatec

Spine, Inc. ("Alphatec" or the "Company"), a wholly owned subsidiary of Alphatec Holdings, Inc.

("AHI" or "Holdings").

1. Term.The term of this Agreement will commence on September 17,2018 (the "Effective

Date") and will continue until terminated, according to the terms of this Agreement.

2. Position.On the Effective Date, you will begin to serve as Executive Vice President,

Cervical & Biologics of the Company. In this capacity, you will report directly to Pat

Miles, the Company's Chairman and Chief Executive Officer ("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

yow• working 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.

3. Annual Compensation. Your initial compensation package will be as follows:

a. Base Cash Salary. Your initial base cash salary will be at a rate of $290,000 per year.

b. Annual Cash Bonus. If you remain employed through the date that annual bonuses

are paid by the Company, you will be eligible to participate in the Company's

discretionary annual bonus program with your annual target bonus opp01tunity equal

to fifty percent (50%) of base salary, which may be prorated according to your start

date for Fiscal Year 2018. The Compensation Committee (the "Conm1ittee") of the

Board of Directors of Holdings (the "Board") will detetmine the amount of your

award based on its assessment of a nwnber of factors including Company and

individual performance, in consultation with the CEO.

c. Long Tem1 Incentive. Conm1encing with the Company's fiscal year starting Januar•y

1, 2019, 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 Committee, in its discretion, consistent with your role and

responsibilities as an Executive Vice President of the Company.

4. Benefits. You will be eligible to participate in the employee welfare and benefit programs

of the Company at the level available to other members of the Company's executive

management. Pmiicipation in Company benefits programs is subject to meeting the

relevant eligibility requirements, payment of the required premiums, and the terms of the

plans themselves.

5. Equity Compensation. In addition to your eligibility for regulm• grants of long-term

incentives, you will be granted the equity award defined and described below. All awards

described in this Section 5 will in all cases be subject to actual grant to you by the

Committee in its sole discretion, would be pursuant to the applicable plan document and

would be subject to terms and conditions established by the Committee in its discretion,

which would be detailed in sepm•ate agreements you would receive after any awm•d is

actually made. You acknowledge that these equity awards 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).

a. Sign-On RSUs. You will be granted a one-time sign-on award of one hundred

thousand (1 00,000) restricted stock units of Holdings (the "Sign-On RSUs"). Your

Sign-On RSUs will vest ratably over four (4) years, with vesting upon a Change in

Control of the Company (as defined in Exhibit B hereto).

b. Sign-On Option. You will be granted a one-time, sign-on option to purchase twenty-five

thousand (25,000) shares of Holdings stock (the "Sign-On Option"), with the

exercise price per share equaling the price of a share of Holdings stock after market

close on the date of the grant. The Sign-On Option will vest according to the

following schedule: 25% of the shm•es subject to the Sign-On Option shall vest on the

one-year anniversary of the Effective Date, and 1136111 of the remaining shares subj ect

to the Sign-On Option shall vest monthly thereafter, subject to your continued

employment by the Company, with vesting upon a Change in Control of the

Company (as defined in Exhibit B hereto).

6. Severance. Your eligibility for severance upon a te1mination 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 Exhibit A and Exhibit B.

7. Certain Post-Employment Covenants. During your employment with the Company, and

for a period of one year following the te1mination 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 yom employment, the Company will

indemnify you in yom capacity as an officer, employee or agent of the Company to the

fullest extent required by applicable law and the Company's charter and by-laws, and will

provide you with director and officer liability insmance coverage (including posttermination

tail coverage) on the same basis as the Company's other executive officers.

You agree (whether dming 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, petiaining to the Company and with

respect to which you may have relevant knowledge.

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 Tem1. Your employment

will be on an "at-will" basis, meaning that you and the Company may terminate yom

employment at any time and for any reason during the Term, with or without prior notice,

subject to the provisions of this Agreement (including Exhibit A and Exhibit B).

11. Entire Agreement.This Agreement (including Exhibit A and Exhibit 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.

12. Miscellaneous Representations.You confirm and represent to the Company, by signing

this letter, that: (a) you are under no obligation or anangement (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 retmn) any confidential information belonging to yom prior employer or any other

entity, and, to the extent you remain in possession of any such information, you will neither

bring such information to the Company, nor use or disclose such infonnation to the

Company or any of its employees, agents or affiliates; and (c) you understand and accept

all of the terms and conditions ofthis offer.

13. Offer Contingencies. This offer is contingent upon (i) you successful completion of a

background check; (ii) your execution ofthe Company's cmrent form of Mutual

Agreement to Arbitrate Claims, Confidential and Proprietary Information Agreement, and

those other fom1s that the Company requests all of its employees to execute prior to the

initiation of their employment.

You may accept this offer of employment by signing this letter. Your signature on this

letter and your submission of a signed copy to the Company will evidence your agreement set

forth herein.

We are pleased to offer you the opportunity to join the Company's Senior Leadership Tean1,

and we look forward to having you aboard. We are confident that you will make an important

contribution to our unique and exciting enterprise.

Sincerely,

/s/ Craig E. Hunsaker___________________

Craig E. Hunsaker

Executive Vice President, People & Culture

I agree with and accept the foregoing terms.

/s/ Mark Ojeda__________________________

Mark Ojeda

EX-10.29

Exhibit 10.29

August 2, 2019

Eric Dasso

7936 Paseo Membrillo

Carlsbad, California 92009

Re:  Offer of Employment with Alphatec Spine, Inc.

Dear Eric:

I am very pleased to provide you with the following offer of employment with Alphatec Spine, Inc. (“Alphatec” or the “Company”), a wholly owned subsidiary of Alphatec Holdings, Inc. (“AHI” or “Holdings”).

1. Term.  The term of this Agreement will commence on August 5, 2019 (the “Effective Date”) and will continue until terminated, according to the terms of this Agreement.

2. Position.  On the Effective Date, you will begin to serve as Executive Vice President, Adjunctive Technologies of the Company.  In this capacity, you will report directly to Pat Miles, the Company’s Chairman and Chief Executive Officer (“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 working 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.

3. Annual Compensation.Your initial compensation package will be as follows:

a. Base Cash Salary.  Your initial base cash salary will be at a rate of $300,000 per year, payable in accordance with the Company’s customary payroll process.

b. Signing Bonus.  You will receive a one-time signing bonus of twenty-five thousand dollars ($25,000), payable in a single lump-sum check on the next regularly scheduled pay date following the Effective Date.  The signing bonus is taxable, and all regular payroll taxes will be withheld.  In the event you voluntarily resign from the Company within twelve (12) months of the Effective Date, you will be responsible for reimbursing the Company for the full signing bonus. By signing this Agreement, you authorize the Company to withhold some or all of the signing bonus amount, $25,000, from any final pay for which you may be eligible, should repayment be required under this Section 3.b.

c. Annual Cash Bonus.  If you remain employed through the date that annual bonuses are paid by the Company, you will be eligible to participate in the Company’s discretionary annual bonus program with your annual target bonus opportunity equal

to fifty percent (50%) of base salary, which may be prorated according to your start date for Fiscal Year 2019.  The Compensation Committee (the “Committee”) of the Board of Directors of Holdings (the “Board”) will determine the amount of your award based on its assessment of a number of factors including Company and individual performance, in consultation with the CEO.

d. Long Term Incentive.  Commencing with the Company’s fiscal year starting January 1, 2020, 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 Committee, in its discretion, consistent with your role and responsibilities as an Executive Vice President of the Company.

4. Benefits.You will be eligible to participate in the 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.

5. Equity Compensation.  In addition to your eligibility for regular grants of long-term incentives, you will be granted the equity award defined and described below.  All awards described in this Section 5 will in all cases be subject to actual grant to you by the Committee in its sole discretion, would be pursuant to the applicable plan document and would be subject to terms and conditions established by the Committee in its discretion, which would be detailed in separate agreements you would receive after any award is actually made.  You acknowledge that these equity awards 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).

a. Sign-On RSUs.  You will be granted a one-time sign-on award of one hundred thousand (100,000) restricted stock units of Holdings (the “Sign-On RSUs”).  Your Sign-On RSUs will vest ratably over four (4) years, with vesting upon a Change in Control of the Company (as defined in Exhibit B hereto).

b. Sign-On Option.  You will be granted a one-time, sign-on option to purchase twenty-five thousand (25,000) shares of Holdings stock (the “Sign-On Option”), with the exercise price per share equaling the price of a share of Holdings stock after market close on the date of the grant.  The Sign-On Option will vest according to the following schedule: 25% of the shares subject to the Sign-On Option shall vest on the one-year anniversary of the Effective Date, and 1/36^th of the remaining shares subject to the Sign-On Option shall vest monthly thereafter, subject to your continued employment by the Company, with vesting upon a Change in Control of the Company (as defined in Exhibit B hereto).

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 Exhibit A and Exhibit B.

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 an officer, employee or agent of the Company to the fullest extent required 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 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.  

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 Exhibit A and Exhibit B).

11. Entire Agreement.This Agreement (including Exhibit A and Exhibit 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.  

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 neither bring such information to the Company, nor 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.

13. Offer Contingencies.  This offer is contingent upon (i) you successful completion of a background check; (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.

You may accept this offer of employment by signing this letter.  Your signature on this letter and your submission of a signed copy to the Company will evidence your agreement set forth herein. 

We are pleased to offer you the opportunity to join the Company’s Senior Leadership Team, and we look forward to having you aboard.  We are confident that you will make an important contribution to our unique and exciting enterprise.

Sincerely,

/s/ Craig E. Hunsaker_______________________

Craig E. Hunsaker

Executive Vice President, People & Culture

I agree with and accept the foregoing terms.

/s/ Eric Dasso

Eric Dasso

EX-10.30

Exhibit 10.30

March 10, 2018

Kelli Howell

11410 Cypress Terrace Place

San Diego, CA 92131

Re:  Offer of EmploymentWith Alphatec Spine,Inc. Dear Kelli:

Iam verypleasedtoprovideyouwiththefollowingofferofemploymentwithAlphatec Spine,Inc.(“Alphatec”orthe“Company”),awhollyownedsubsidiaryofAlphatecHoldings,Inc. (“AHI” or “Holdings”).

1.Term.  The termof this Agreement will commence on March 12, 2018 (the “Effective

Date”) and will continue until terminated, according to the terms ofthis Agreement.

2. Position.  On the Effective Date, youwill begin to serve as Executive Vice President, Clinical Execution of the Company.  In thiscapacity, you will report directly to Pat Miles, the Company’s Chairman and Chief Executive Officer (“CEO”) and have all of the customary authorities, duties and responsibilitiesthat accompany your position. Throughout your employment with the Company, you agree to devote substantiallyallof your working time and attentionto 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.

3.Annual Compensation.  Your initial compensation package will be as follows:

a.Base Cash Salary.  Your initial base cash salary will be at a rate of $315,000 per year.

b. Annual Cash Bonus.  If you remain employed through the date that annual bonuses are paid by the Company, you will be eligible to participate in the Company’s discretionary annual bonus programwithyour annual target bonus opportunity equal to 70% of base salary, which may be prorated according toyour start date for Fiscal Year 2018.  The Compensation Committee (the “Committee”) of the Board of Directors of Holdings (the “Board”) will determine the amount of your award based on its assessment of a number of factors including Companyandindividual performance, which assessment shall be formed in consultation with the CEO.

c.Long TermIncentive.  Commencing with the Company’s fiscal year starting January

1, 2018, you will be eligible, subject to your continued employment by the Company, to participate in such long-termincentive programs that are made available at the

level determined by the Committee, in its discretion, consistent with your role and responsibilities as anExecutive Vice President of the Company.

4. Benefits.  You will be eligible to participate inthe employee welfare and benefit programs ofthe Company at the level availabletoother 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.

5. Equity Compensation.  In addition to your eligibilityfor regular grants of long-term incentives, you will be granted the equity award defined and described below.  All awards described in this Section 5 will in all cases be subject to actual grant to youby the Committee in its sole discretion, would be pursuant to the applicable plan document and would be subject to terms and conditions established by the Committee in its discretion, which would be detailedin separate agreements you would receiveafter any award is actually made.  You acknowledge that theseequity awards are “employment inducement awards” that will be granted to you outside of the Company’s 2016 EquityIncentive Plan pursuanttoNASDAQ Listing Rule 5635(c)(4).

a. Sign-On RSUs.  You will be granted a one-time sign-on award of fifty thousand (50,000) restricted stock units of Holdings (the “Sign-On RSUs”).  Your Sign-On RSUs will vest ratably over four (4) years, with vesting upon a Change in Control of the Company (as defined in Exhibit B hereto).

b. Sign-On Option.  You will be granted a one-time, sign-on option to purchase fifty thousand (50,000) shares of Holdings stock (the “Sign-On Option”), with the exercise price per share equaling the price of a share of Holdings stock after market close on the date of the grant.  The Sign-On Option will vest according to the following schedule: 25% of the shares subject to the Sign-On Option shall vest on the one-year anniversary of the Effective Date, and 1/36thof the remaining shares subject to the Sign-On Option shall vest monthly thereafter, subject to your continuedemployment by the Company, with vesting upon a Changein Control of the Company (as defined in Exhibit B hereto).

6. Severance.Your eligibility for severance upon atermination 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 Exhibit A and Exhibit B.

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, thebusiness

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 an officer, employee or agent of the Company to the fullest extent required byapplicable law and the Company’s charter and by-laws, andwill provide you with director and officer liability insurance coverage (including post- termination tail coverage) on the same basisas 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 withany 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.

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 employmentat any time and for any reason during the Term, with or without prior notice, subject to the provisions ofthis Agreement (including Exhibit A and Exhibit B).

11. Entire Agreement.This Agreement (including ExhibitA and Exhibit B) constitutes the Company’s only statement relating to its offer of employmentto you and supersedes any previous communications or representations, oral or written, fromor on behalf of the Company or any ofits affiliates.

12. Miscellaneous Representations.  You confirmand represent to the Company, by signing this letter, that: (a) you areunder 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 performthe 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 possessionof any such information, you will neither bring such information to the Company, nor 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.

13. Offer Contingencies.This offer is contingent upon (i) you successful completion of a backgroundcheck;(ii)yourexecution of the Company’scurrent formof Mutual Agreement to Arbitrate Claims, Confidentialand Proprietary Information Agreement, and those other forms that the Company requests all of its employees to execute prior to the initiation of their employment.

You may accept this offer of employment by signing this letter.  Your signature on this letter and your submission of a signed copy to the Company will evidence your agreement set forth herein.

WearepleasedtoofferyoutheopportunitytojointheCompany’sSeniorLeadershipTeam, andwelookforwardtohavingyouaboard. Weareconfidentthatyouwillmakeanimportant contribution to our unique and exciting enterprise.

Sincerely,

/s/ Craig E. Hunsaker_______________________

Craig E. Hunsaker

Executive Vice President, People & Culture

I agree with and accept the foregoingterms.

/s/ Kelli Howell____________________________

Kelli Howell

EX-10.31

Exhibit 10.31

March4,2019

DavidSponsel

6708StallionRanchRoad

Frisco,Texas75034

Re: NewRolewithAlphatecSpine,Inc. DearDavid:

Iamverypleasedtoprovideyou withthefollowingnewrolewith AlphatecSpine,Inc. ("ATEC" orthe"Company"),awhollyownedsubsidiaryofAlphatecHoldings,Inc.("AHI"or "Holdings").

1.Term. ThetermofthisAgreementwillcommenceonApril1,2019(the"Effective Date")

andwillcontinueuntilterminated,accordingtothetermsofthisAgreement.

2. Position. OntheEffectiveDate,youwillbegintoserveasExecutiveVicePresident,Sales oftheCompany. Inthiscapacity,youwillreportdirectlytoPatMiles,theCompany's ChairmanandChiefExecutiveOfficer("CEO")  andhaveallofthecustomaryauthorities, dutiesandresponsibilities  thataccompany yourposition. Throughoutyouremployment withtheCompany,youagreetodevotesubstantiallyallofyourworkingtimeandattention tothebusinessandaffairsoftheCompanyandtoperformyourdutiesinadiligent, competent,professionalandskillfulmannerandin accordancewithapplicable  lawandthe Company'spoliciesandprocedures.

3.AnnualCompensation.  Inyournewrole,yourcompensationpackagewillbeasfollows:

a.BaseCashSalary. Yourbasecashsalarywillbeatarateof$350,000 peryear.

b. AnnualCashBonus. YouwillbeeligibletoreceiveaquarterlybonusforQ12019, underthetermsofyourexistingAVPBonusPlan. BeginningontheEffectiveDate, ifyouremainemployedthroughthedatethatannualbonusesarepaidbythe Company,youwillbeeligibletoparticipatein theCompany'sdiscretionaryannual bonusprogramwithyourannualtargetbonusopportunityequaltoseventypercent (70%)ofbasesalary,withtheopportunitytoearnuptoonehundredpercent(100%) uponattainmentofquota. TheCompensationCommittee(the"Committee")ofthe BoardofDirectorsofHoldings(the"Board") willdeterminetheamountofyour awardbasedonitsassessmentofanumberoffactorsincludingCompanyand individualperformance,inconsultation withtheCEO.

c.LongTermIncentive. Commencing withtheCompany'sfiscalyearstartingJanuary

1,2019,youwillbeeligible,subjecttoyourcontinuedemploymentbytheCompany, toparticipateinsuchlong-termincentiveprogramsthataremadeavailableatthe

leveldetermined bytheCommittee, initsdiscretion,consistentwithyourroleand responsibilitiesasanExecutiveVicePresidentoftheCompany.

4. Benefits. Youwillbeeligibletoparticipatein theemployeewelfareandbenefitprograms oftheCompanyatthelevelavailabletoothermembersoftheCompany'sexecutive management. Participation inCompanybenefitsprogramsissubjecttomeetingthe relevanteligibility requirements,paymentoftherequiredpremiums,andthetermsofthe plansthemselves.

5. Severance.  Youreligibilityforseveranceuponaterminationofemploymentwillbe governedbythetermsoftheATECSeveranceAgreementandATECChangein Control Agreement,formsofwhichareattachedheretoasExhibitAandExhibitB.

6. Relocation.  YouhaveagreedtorelocateyourresidencefromTexastotheCarlsbad, Californiaarea,wheretheCompany'sheadquartersislocated. Inconnectionwithyour relocation,ATECwillprovideyouwithasetrelocationamountofupto$100,000,which willeitherbereimbursedbytheCompany,orpaiddirectlybytheCompanytocover miscellaneouscostsrelatedtosuchrelocation,including:temporaryliving,tworound-trip airfaresbetweenyourcurrentresidenceandSanDiego,CA,ahome-findingtripofupto five(5)daysforyouandyourspouse(includingair,carrentalandhotel),moving

expenses,carrental,cartransport,realestatebuying/closingcostsandspousalemployment assistances. Anyamountincurredinexcessof$50,000willbepayablebyATECatthe discretionoftheExecutiveVicePresident,People&CultureandGeneralCounsel. You willbeentitledtoafull"gross up"foralltaxesincurredinconnectionwiththeRelocation Expenses. If,priortothefirstanniversary oftheEffectiveDate,youremploymentwiththe Company  is terminatedfor"Cause"(asdefinedinExhibitAhereto)orbyyourvoluntary resignation,youagree,withinthirty(30)daysofthedateofsuchterminationof employment,torepaytotheCompanyonehundredpercent(100%)oftheRelocation Expensespreviouslyreimbursedtoyou.

7. CertainPost-Emolovment Covenants. DuringyouremploymentwiththeCompany,and foraperiodofoneyearfollowingthetermination ofyouremploymentwiththeCompany, youshallnot,withoutthepriorwrittenconsentoftheCompany:(i)eitherindividuallyor

onbehalfoforthroughanythirdparty,directlyorindirectly,solicit,enticeorpersuadeor attempttosolicit,enticeorpersuadeanyemployee,agent,consultantorcontractorofthe Companyoranyofitsaffiliates(the"Company Group")toleavetheserviceofthe CompanyGroupforanyreason;or(ii)inamannerthatisdependentupontheuse ofthe Company'sproprietaryinformation,eitherindividuallyoronbehalfoforthroughanythird party,directlyorindirectly,interferewith,orattempttointerferewith,thebusiness relationship betweentheCompanyGroupandanyvendor,supplier,surgeonorhospital

withwhichyouhaveinteractedduringthecourseofyouremploymentwiththeCompany.

8. IndemnificationandCooperation.  Duringandafteryouremployment, theCompanywill indemnifyyouinyourcapacityasanofficer,employeeoragentoftheCompanytothe fullestextentrequiredbyapplicablelawandtheCompany'scharterandby-laws,andwill

provideyouwithdirectorandofficerliabilityinsurancecoverage(includingpost­ terminationtailcoverage)onthesamebasisastheCompany'sotherexecutiveofficers. Youagree(whetherduringorafteryouremployment withtheCompany)toreasonably cooperatewiththeCompanyin connectionwithanylitigationorregulatorymatterorwith anygovernmentauthorityonanymatter,ineachcase,pertainingtotheCompanyandwith respecttowhichyoumayhaverelevantknowledge.

9.Withholding.  TaxwillbewithheldbytheCompanyasappropriate  underapplicable

FederaltaxrequirementsforanypaymentsordeliveriesunderthisAgreement.

10. NoGuaranteeofEmploymentorFixedCompensation.  ThisAgreementisnota guaranteeofemploymentoraguaranteeofcompensationfortheTerm. Youremployment willbeonan"at-will"basis,meaningthatyouandtheCompanymayterminateyour employmentatanytimeandforanyreasonduringtheTerm,withorwithoutpriornotice, subjecttotheprovisionsofthisAgreement(includingExhibitAandExhibitB).

11. EntireAgreement.   ThisAgreement(includingExhibitAandExhibitB)constitutesthe Company'sonlystatementrelatingtoitsofferofemploymenttoyouandsupersedesany previouscommunications orrepresentations,oralorwritten,fromoronbehalfofthe Companyoranyofitsaffiliates.

12. MiscellaneousRepresentations.  YouconfirmandrepresenttotheCompany,bysigning thisletter,that:(a)youareundernoobligationorarrangement(includinganyrestrictive covenantswithanyprioremployeroranyotherentity)thatwouldpreventyoufrom becominganemployeeoftheCompanyorthatwouldadverselyimpactyourabilityto performtheexpectedservicesonbehalfoftheCompany;(b)youhavenottaken(orfailed toreturn)anyconfidential informationbelongingtoyourprioremployeroranyother

entity,and,totheextentyouremaininpossessionofanysuchinformation,youwillneither

bringsuchinformationtotheCompany,noruseordisclosesuchinformationtothe Companyoranyofits employees,agentsoraffiliates;and(c)youunderstandandaccept allofthetermsandconditionsofthisoffer.

Youmayacceptthisnewrolebysigningthisletter. Yoursignatureonthisletterandyour submissionofasignedcopytotheCompanywillevidenceyouragreementsetforthherein.

WearepleasedtoofferyouthisopportunitytojointheCompany'sSeniorLeadershipTeam, andwelookforwardtohavingyouaboard.  Weareconfidentthatyouwillmakeanimportant contribution toouruniqueandexcitingenterprise.

Sincerely,

/s/ Craig E. Hunsaker___________________

CraigE.Hunsaker

ExecutiveVicePresident,People&Culture

Iagreewithandaccepttheforegoingterms.

I agree with and accept the foregoing terms.

/s/ David Sponsel__________________________

David Sponsel

-4

 

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration Statements:

1. Registration Statement (Form S-8 No. 333-144293) pertaining to the Alphatec Holdings, Inc. 2005 Employee, Director and Consultant Stock Plan,

2. Registration Statement (Form S-8 No. 333-147212) pertaining to the Alphatec Holdings, Inc. 2007 Employee Stock Purchase Plan,

3. Registration Statement (Form S-8 No. 333-187189) pertaining to the Alphatec Holdings, Inc. 2007 Employee Stock Purchase Plan,

4. Registration Statement (Form S-8 No. 333-187190) pertaining to the Amended and Restated Alphatec Holdings, Inc. 2005 Employee, Director and Consultant Stock Plan,

5. Registration Statement, as amended (Form S-3 No. 333-195604) of Alphatec Holdings, Inc.,

6. Registration Statement (Form S-8 No. 333-196616) pertaining to the Alphatec Holdings, Inc. Amended 2007 Employee Stock Purchase Plan,

7. Registration Statement (Form S-8 No. 333-196617) pertaining to the Amended and Restated Alphatec Holdings, Inc. 2005 Employee, Director and Consultant Stock Plan,

8. Registration Statement (Form S-3 No. 333-200869) of Alphatec Holdings, Inc.,

9. Registration Statement (Form S-8 No. 333-202504) pertaining to the Alphatec Holdings, Inc. Amended 2007 Employee Stock Purchase Plan,

10. Registration Statement (Form S-8 No. 333-202505) pertaining to the Amended and Restated Alphatec Holdings, Inc. 2005 Employee, Director and Consultant Stock Plan,

11. Registration Statement (Form S-8 No. 333-211182) pertaining to the Alphatec Holdings, Inc. Amended 2007 Employee Stock Purchase Plan,

12. Registration Statement (Form S-8 No. 333-213981) pertaining to the Alphatec Holdings, Inc. 2016 Equity Incentive Plan and the Alphatec Holdings, Inc. 2016 Employment Inducement Award Plan,

13. Registration Statement (Form S-8 No. 333-215036) pertaining to the Alphatec Holdings, Inc. 2016 Employment Inducement Award Plan,

14. Registration Statement (Form S-8 No. 333-217055) pertaining to the Alphatec Holdings, Inc. 2016 Employment Inducement Award Plan and the Alphatec Holdings, Inc. Amended 2007 Employee Stock Purchase Plan,

15. Registration Statement (Form S-3 No. 333-217444) of Alphatec Holdings, Inc.,

16. Registration Statement (Form S-8 No. 333-217907) pertaining to the Alphatec Holdings, Inc. Amended 2007 Employee Stock Purchase Plan,

17. Registration Statement (Form S-8 No. 333-221084) pertaining to the Alphatec Holdings, Inc. 2016 Employment Inducement Award Plan,

18. Registration Statement (Form S-3 No. 333-221085) of Alphatec Holdings, Inc.,

19. Registration Statement (Form S-3 No. 333-224304) of Alphatec Holdings, Inc.

20. Registration Statement (Form S-8 No. 333-225080) pertaining to the Alphatec Holdings, Inc. 2016 Employment Inducement Award Plan,

21. Registration Statement (Form S-8 No. 333-232661) pertaining to the Alphatec Holdings, Inc. 2016 Employment Inducement Award Plan,

Exhibit 23.1

22. Registration Statement (Form S-3 No. 333-222664) of Alphatec Holdings, Inc. of our report dated March 16, 2020, with respect to the financial statements of Alphatec Holdings, Inc. included in this Annual Report (Form 10-K) of Alphatec Holdings, Inc. for the year ended December 31, 2019.

/s/ Mayer Hoffman McCann P.C

San Diego, California

March 16, 2020

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

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

I, Patrick S. Miles, certify that:

1.I have reviewed this Annual Report on Form 10-K 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:	/s/ Patrick S. Miles
	Patrick S. Miles
	Chairman and Chief Executive Officer
	(principal executive officer)
	March 16, 2020

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

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

I, Jeffrey G. Black, certify that:

1.I have reviewed this Annual Report on Form 10-K 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:	/s/ Jeffrey G. Black
	Jeffrey G. Black
	Chief Financial Officer
	(principal financial and accounting officer)
	March 16, 2020

EX-32

Exhibit 32

CERTIFICATION UNDER

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Alphatec Holdings, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Patrick S. Miles, Chairman 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:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:	March 16, 2020	/s/ Patrick S. Miles
		Patrick S. Miles
		Chairman and Chief Executive Officer
		(principal executive officer of the Company)

In connection with the Annual Report of Alphatec Holdings, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeffrey 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:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:	March 16, 2020	/s/ Jeffrey G. Black
		Jeffrey G. Black
		Chief Financial Officer
		(principal financial and accounting officer of the Company)

XML

Document and Entity Information - USD ($)
$ in Millions

12 Months Ended

Dec. 31, 2019

Mar. 09, 2020

Jun. 30, 2019

Cover [Abstract]

Entity Registrant Name

ALPHATEC HOLDINGS, INC.

Entity Central Index Key

0001350653

Current Fiscal Year End Date

--12-31

Entity Filer Category

Accelerated Filer

Document Type

10-K

Trading Symbol

ATEC

Document Period End Date

Dec. 31, 2019

Document Fiscal Year Focus

2019

Document Fiscal Period Focus (Q1,Q2,Q3,FY)

FY

Amendment Flag

false

Entity Well-known Seasoned Issuer

No

Entity Current Reporting Status

Yes

Entity Voluntary Filers

No

Entity Common Stock, Shares Outstanding

62,994,221

Entity Public Float

$ 126.2

Entity Emerging Growth Company

false

Entity Small Business

true

Entity Shell Company

false

Entity File Number

000-52024

Entity Tax Identification Number

20-2463898

Entity Address, Address Line One

5818 El Camino Real

Entity Address, City or Town

Carlsbad

Entity Address, State or Province

CA

Entity Address, Postal Zip Code

92008

City Area Code

760

Local Phone Number

431-9286

Document Annual Report

true

Document Transition Report

false

Entity Incorporation, State or Country Code

DE

Entity Interactive Data Current

Yes

Title of 12(b) Security

Common Stock, par value $0.0001 per share

Security Exchange Name

NASDAQ

Documents Incorporated by Reference

DOCUMENTS INCORPORATED BY REFERENCE

The following documents (or parts thereof) are incorporated by reference into the following parts of this Form 10-K: Certain information required in Part III of this Annual Report on Form 10-K is incorporated from the Registrant’s Proxy Statement for the 2020 Annual Meeting of Stockholder.

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Statement Of Income And Comprehensive Income [Abstract]
Net loss	$ (57,002)	$ (28,975)
Foreign currency translation adjustments related to continuing operations	24	(29)
Comprehensive loss	$ (56,978)	$ (29,004)

XML

The Company and Basis of Presentation

12 Months Ended

Dec. 31, 2019

Organization Consolidation And Presentation Of Financial Statements [Abstract]

The Company and Basis of Presentation

1. The Company and Basis of Presentation

The Company

Alphatec Holdings, Inc. (the “Company”), through its wholly owned subsidiaries, Alphatec Spine, Inc. (“Alphatec Spine”) and SafeOp Surgical, Inc. (“SafeOp”), is a medical technology company that designs, develops, and markets technology for the treatment of spinal disorders associated with disease and degeneration, congenital deformities, and trauma. The Company markets its products in the U.S. via independent sales agents and a direct sales force.

On March 6, 2018, the Company and its newly created wholly-owned subsidiary, Safari Merger Sub, Inc (“Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with SafeOp, a Delaware corporation, certain Key Stockholders of SafeOp and a Stockholder Representative. Pursuant to the Merger Agreement, a reverse triangular merger (the “Merger”) was consummated on March 8, 2018, in which Sub was merged into SafeOp, with SafeOp being the surviving corporation and a wholly owned subsidiary of the Company. See Note 8 for further information.

On September 1, 2016, the Company completed the sale of its international distribution operations and agreements (collectively, the “International Business”) to Globus Medical Ireland, Ltd., a subsidiary of Globus Medical, Inc., and its affiliated entities (collectively “Globus”). As a result of this transaction, the International Business has been excluded from continuing operations for all periods presented in the consolidated financial statements and is reported as discontinued operations. See Note 4 for additional information on the divestiture of the International Business.

Basis of Presentation

The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") and include the accounts of the Company, Alphatec Spine and SafeOp. All intercompany balances and transactions have been eliminated in consolidation.  The Company operates in one reportable business segment.

Liquidity

At each reporting period, the Company evaluates whether there are conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. The Company’s evaluation entails analyzing prospective operating budgets and forecasts for expectations of the Company’s cash needs and comparing those needs to the current cash and cash equivalent balances, and availability under existing credit facilities. The Company is required to make certain additional disclosures if it concludes substantial doubt exists and it is not alleviated by the Company’s plans or when its plans alleviate substantial doubt about the Company’s ability to continue as a going concern.  

The Company has experienced negative operating cash flows for all historical periods presented and it expects these losses to continue into the foreseeable future as the Company continues to incur costs related to the execution of its operating plan and introduction of new products. The Company’s annual operating plan projects that its existing working capital at December 31, 2019 of $71.9 million (including cash of $47.1 million), along with available draws on its working capital credit line with MidCap and an additional $20 million in available borrowings under its credit facility with Squadron Medical Finance Solutions LLC (“Squadron”), allows the Company to fund its operations through at least one year subsequent to the date the financial statements are issued.

As more fully described in Note 5, the Company’s existing credit agreements with MidCap and Squadron (collectively, the “current lenders”) include a financial covenant that requires the Company to maintain a minimum cash balance of $5.0 million. The minimum cash covenant converts to a minimum fixed charge coverage ratio beginning April 30, 2020.  The Company expects that it will be unable to meet the fixed charge covenant at that time. In order to avoid a default on its existing credit agreements, the Company expects to refinance its existing debt prior to April 30, 2020, pursuant to a binding commitment letter with a new lender, as further described in Note 15. Should such re-financing not occur prior to April 30, 2020 the Company has entered into letter agreements with the current lenders, agreeing to work together in good faith to amend its existing covenants to extend the minimum cash covenant and defer the fixed charge covenant through at least April 1, 2021.  

The committed refinancing is subject to customary closing conditions, and, therefore, there is no guarantee that the Company will be able to successfully close such refinancing on or before April 30, 2020, or at all.   In addition, if required, there is no guarantee that the Company will be able to obtain the necessary waivers or amendments from its current lenders. If the Company is unable to refinance its existing debt or is unable to secure waivers or amendments from its current lenders, the current lenders have the right to accelerate the repayment of all amounts outstanding.  In addition, the Company would be required to classify its obligations under existing debt agreements in current liabilities on its consolidated balance sheet.  These events would negatively impact the Company’s ability to meet its ongoing financial obligations.  The Company believes the refinancing of its existing debt under its commitment letter with the new lender and/or obtaining waivers or amendments of current debt covenants is probable to occur. These factors alleviate substantial doubt about the Company’s ability to continue as a going concern.

Reclassification

Certain amounts in the consolidated financial statements included in our Form 10-K for the year ended December 31, 2018 have been reclassified to conform to current period's presentation. These reclassifications include stock based compensation expense, which was reclassified to correctly present employee expenses consistent with their function, out of research and development and into sales, general and administrative expense on the Company’s consolidated statements of operations. This resulted in a reclassification of $0.1 million of stock compensation expense for the year ended December 31, 2018. In addition, certain amounts in the Consolidated Statement of Cash Flow included in the Form 10-K for the year ended December 31, 2018 have been reclassified to conform to current period's presentation. None of the adjustments had any effect on the prior period net loss.

XML

Restructuring Activities

12 Months Ended

Dec. 31, 2019

Restructuring And Related Activities [Abstract]

Restructuring Activities

14. Restructuring Activities

In connection with the sale of the International Business (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.  In conjunction with the restructuring program, the Company recorded restructuring expenses related to severance liabilities and post-employment benefits. A rollforward of the accrued restructuring liability is presented below (in thousands):

Balance at December 31, 2018	$	710
Accrued restructuring charges		60
Payments		(746	)
Balance at December 31, 2019	$	24

XML

Balance Sheet Details (Tables)

12 Months Ended

Dec. 31, 2019

Balance Sheet Related Disclosures [Abstract]

Accounts receivable, net

Accounts receivable consist of the following (in thousands):

	December 31,
	2019			2018
Accounts receivable	$	16,436		$	15,291
Less allowance for doubtful accounts		(286	)		(196	)
Accounts receivable, net	$	16,150		$	15,095

Inventories, net

Inventories consist of the following (in thousands):

	December 31,
	2019			2018
Raw materials	$	5,822		$	5,813
Work-in-process		1,578			952
Finished goods		51,669			39,758
		59,069			46,523
Less reserve for excess and obsolete		(24,215	)		(17,758	)
Inventories, net	$	34,854		$	28,765

Property and equipment, net

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

	Useful lives		December 31,
	(in years)		2019			2018
Surgical instruments		4	$	58,502		$	54,848
Machinery and equipment		7		6,038			5,971
Computer equipment		3		3,594			3,104
Office furniture and equipment		5		1,297			1,155
Leasehold improvements	various			1,761			1,765
Construction in progress	n/a			496			92
				71,688			66,935
Less accumulated depreciation and amortization				(51,966	)		(53,700	)
Property and equipment, net			$	19,722		$	13,235

Intangible assets, net

In conjunction with the acquisition of SafeOp in March 2018, the Company recorded $21.6 million of new intangible assets. See Note 8 for further information regarding the acquisition. Intangible assets, net consist of the following (in thousands, except as indicated):

	Remaining Avg. Useful lives		December 31,
	(in years)		2019			2018
Developed product technology		10	$	26,976		$	26,976
Intellectual property		—		1,004			1,004
License agreements		1		5,536			5,536
Trademarks and trade names		—		792			792
Customer-related		5		7,458			7,458
Distribution network		4		4,027			4,027
In process research and development		19		8,800			8,800
				54,593			54,593
Less accumulated amortization				(28,988	)		(28,185	)
Intangible assets, net			$	25,605		$	26,408

Schedule of intangible assets, future expected amortization expense

Future amortization expense related to intangible assets as of December 31, 2019 is as follows (in thousands):

Year Ending December 31,
2020	$	1,869
2021		1,888
2022		1,888
2023		1,888
2024		1,785
Thereafter		16,287
Total	$	25,605

Accrued expenses

Accrued expenses consist of the following (in thousands):

	December 31,
	2019		2018
Commissions and sales milestones	$	5,299	$	3,594
Payroll and payroll related		7,949		3,222
Litigation settlement obligation		4,400		4,400
Professional fees		3,945		2,637
Royalties		1,981		1,354
Restructuring and severance accruals		29		710
Taxes		82		(3	)
Interest		155		261
Acquisition related - contingent consideration		-		2,600
Other		2,576		3,541
Total accrued expenses	$	26,416	$	22,316

Schedule of Other Long-Term Liabilities

Other long-term liabilities consist of the following (in thousands):

	December 31, 2019		December 31, 2018
Litigation settlement obligation - long-term portion	$	10,712	$	13,954
Line of credit exit fee		600		600
Tax liabilities		373		835
Other		266		-
Other long-term liabilities	$	11,951	$	15,389

XML

Balance Sheet Details - Accrued Expenses (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Balance Sheet Related Disclosures [Abstract]
Commissions and sales milestones	$ 5,299	$ 3,594
Payroll and payroll related	7,949	3,222
Litigation settlement obligation	4,400	4,400
Professional fees	3,945	2,637
Royalties	1,981	1,354
Restructuring and severance accruals	29	710
Taxes	82	(3)
Interest	155	261
Acquisition related - contingent consideration		2,600
Other	2,576	3,541
Total accrued expenses	$ 26,416	$ 22,316

XML

Balance Sheet Details - Property and Equipment, Net (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 71,688	$ 66,935
Less accumulated depreciation and amortization	(51,966)	(53,700)
Property and equipment, net	$ 19,722	13,235
Surgical instruments
Property, Plant and Equipment [Line Items]
Useful lives	4 years
Property and equipment, gross	$ 58,502	54,848
Machinery and equipment
Property, Plant and Equipment [Line Items]
Useful lives	7 years
Property and equipment, gross	$ 6,038	5,971
Computer equipment
Property, Plant and Equipment [Line Items]
Useful lives	3 years
Property and equipment, gross	$ 3,594	3,104
Office furniture and equipment
Property, Plant and Equipment [Line Items]
Useful lives	5 years
Property and equipment, gross	$ 1,297	1,155
Leasehold improvements
Property, Plant and Equipment [Line Items]
Various useful lives of leasehold improvements	various
Property and equipment, gross	$ 1,761	1,765
Construction in progress
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 496	$ 92

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Orthotec Settlement - Schedule of Reconciliation of Total Net Settlement Obligation (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Commitments And Contingencies Disclosure [Abstract]
Litigation settlement obligation - short-term portion	$ 4,400	$ 4,400
Litigation settlement obligation - long-term portion	10,712	13,954
Total	15,112	18,354
Future Interest	2,121	3,279
Total settlement obligation, gross	17,233	21,633
Related party receivable - included in stockholders' equity	(5,000)	(5,000)
Total settlement obligation, net	$ 12,233	$ 16,633

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Stock Benefit Plans and Stock-Based Compensation - Additional Information (Details) - USD ($)	1 Months Ended		3 Months Ended	12 Months Ended
	Jul. 31, 2019	Feb. 28, 2018	Sep. 30, 2016	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock reserved for future issuance				43,664,000
Stock-based compensation				$ 10,956,000	$ 5,304,000
Collaborative Arrangement | Elite Medical Holdings L L C And Pac3 Surgical Products L L C
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Payments of settlement		$ 400,000
Gain Loss On Contract Termination					$ 6,200,000
Common Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock issued				12,535,000
Employee Stock Option
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock reserved for future issuance				4,215,000
Weighted-average grant-date fair value of stock options granted				$ 1.92	$ 2.00
Share price				$ 7.10
Unrecognized compensation expense for stock options and awards expected to be recognized				$ 3,700,000
Straight-line basis over a weighted average period				2 years 3 months 18 days
Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock reserved for future issuance				6,727,000
Restricted shares granted under the plan				4,802,000
Straight-line basis over a weighted average period				2 years 3 months 25 days
Weighted average fair value of awards granted				$ 1.92	$ 2.87
Unrecognized compensation expense for restricted stock and awards expected to be recognized				$ 16,000,000
2016 Equity Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock reserved for future issuance			1,083,333
Number of shares available for grant				666,742
2016 Equity Incentive Plan | Employee Stock Option
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expiration period			10 years
Award vesting period			4 years
Exercise price minimum percentage of market price on grant date			100.00%
2016 Equity Incentive Plan | Employee Stock Option | 10 Percent Stockholder
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expiration period			5 years
Exercise price minimum percentage of market price on grant date			110.00%
Inducement Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock reserved for future issuance				801,099
Maximum award to be deductible other than options				$ 1,000,000
2019 Management Objective Strategic Incentive Plan | Board of Directors Chairman | Common Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share authorized grant of warrants	500,000
Maximum grant of shares per participant	50,000
2019 Management Objective Strategic Incentive Plan | Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted shares granted under the plan				55,000
Two Thousand Seventeen Distributor Inducement Plan | Common Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of warrants issued (in shares)				300,000
Common stock issued				92,000
Stock-based compensation				$ 400,000	$ 200,000
Number of warrants available to be granted						50,000
Two Thousand Seventeen Distributor Inducement Plan | Board of Directors Chairman | Common Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share authorized grant of warrants						1,000,000
Two Thousand Seventeen Distributor Inducement Plan | Restricted Stock Units | Common Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares available for grant						75,000
2017 Development Services Plan | Board of Directors Chairman | Common Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share authorized grant of warrants				2,400,000	3,000,000
Common stock issued				0
Issuance of shares granted to distributors was vested				0

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Income Taxes - Components of Pretax Income (Loss) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Income Tax Disclosure [Abstract]
U.S. Domestic	$ (57,141)	$ (30,169)
Foreign	(100)	(167)
Pretax loss from operations	$ (57,241)	$ (30,336)

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Debt - Squadron Credit Agreement (Details) - USD ($)			3 Months Ended
	Mar. 27, 2019	Nov. 06, 2018	Mar. 31, 2019	Dec. 31, 2019	Dec. 31, 2018	Sep. 01, 2016
Squadron Credit Agreement
Line of Credit Facility [Line Items]
Current interest rate		10.00%
Debt instrument, aggregate principal to be paid on installments		$ 10,000,000
Debt instrument, frequency of periodic payment	29 equal monthly installments	29 equal monthly installments
Debt instrument payment at maturity		$ 25,000,000
Debt instrument, maturity date	Nov. 30, 2023	Nov. 30, 2023
New debt issuance costs			$ 300,000
Additional warrants for future				0
Debt carrying amount, net of issuance cost		$ 38,600,000
Debt issuance cost, amortization period		5 years
Squadron Credit Agreement | Expanded Credit Facility
Line of Credit Facility [Line Items]
Maximum borrowing capacity	$ 30,000,000			$ 45,000,000
Squadron Credit Agreement | Common Stock
Line of Credit Facility [Line Items]
Number of warrants issued (in shares)	4,838,710	845,000
Exercise price of warrants	$ 2.17	$ 3.15
Warrants term	7 years	7 years
Squadron Credit Agreement | Maximum
Line of Credit Facility [Line Items]
Current interest rate		13.00%
Squadron Credit Agreement | Minimum [Member]
Line of Credit Facility [Line Items]
Current interest rate		10.00%
Globus facility agreement
Line of Credit Facility [Line Items]
Maximum borrowing capacity						$ 30,000,000
Term Loan | Squadron Credit Agreement
Line of Credit Facility [Line Items]
Secured debt agreement		$ 35,000,000		45,000,000	$ 35,000,000
Proceeds from secured term loan		34,100,000
Line of Credit | Squadron Credit Agreement
Line of Credit Facility [Line Items]
Line of credit				$ 10,000,000
Minimum liquidity covenant amount		$ 5,000,000
Fixed Charge Coverage Ratio		100.00%
Floor on interest rate	10.00%
Ceiling on interest rate	13.00%
Line of Credit | Squadron Credit Agreement | Maximum
Line of Credit Facility [Line Items]
Debt default, interest rate increase		5.00%
Line of Credit | Squadron Credit Agreement | LIBOR
Line of Credit Facility [Line Items]
Maturity Term		5 years
Interest rate description		LIBOR plus 8%
Line of Credit | Globus facility agreement
Line of Credit Facility [Line Items]
Line of credit		$ 29,200,000

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Debt - Principal Payments on Debt (Detail) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Debt Disclosure [Abstract]
2020	$ 458
2021	4,483
2022	20,471
2023	35,817
Total	61,229
Add: capital lease principal payments	101	$ 126
Less: debt discount	(7,393)	(3,857)
Total	53,937	45,575
Less: current portion of long-term debt	(489)	(3,276)
Long-term debt, net of current portion	$ 53,448	$ 42,299

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Retirement Plan - Additional Information (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Defined Contribution Plan Disclosure [Line Items]
Matching contributions by employer	4.00%
Employer matching contribution, vesting period	1 year
Section 401(k) plan
Defined Contribution Plan Disclosure [Line Items]
Total contributions	$ 0.6	$ 0.4

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Income Taxes - Significant Components of Company's Deferred Tax Assets and Liabilities (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Deferred tax assets:
Accruals and reserves	$ 2,730	$ 1,133
Income tax credit carryforwards	1,591	3,150
Interest	4,095	1,351
Inventory	8,625	4,959
Legal settlement	3,789	4,693
Net operating losses	53,592	45,092
Stock-based compensation	2,256	1,182
Total deferred tax assets	76,678	61,560
Valuation allowance	(71,159)	(46,578)
Total deferred tax assets, net of valuation allowance	5,519	14,982
Deferred tax liabilities:
Property and equipment	(3,117)	(21)
Goodwill and intangibles	(2,344)	(1,972)
Investment in foreign partnership		(13,370)
Total deferred tax liabilities	(5,461)	(15,363)
Net deferred tax assets	$ 58
Net deferred tax (liabilities)		$ (381)

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Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2019

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of property and equipment, intangibles, allowances for doubtful accounts, the valuation of share based liabilities, deferred tax assets, inventory, stock-based compensation, revenues, restructuring liabilities, income tax uncertainties, and other contingencies.

Concentrations of Credit Risk and Significant Customers

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and accounts receivable. The Company limits its exposure to credit loss by depositing its cash with established financial institutions. As of December 31, 2019, a substantial portion of the Company’s available cash funds is held in business accounts. Although the Company deposits its cash with multiple financial institutions, its deposits, at times, may exceed federally insured limits.

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

Revenue Recognition

The Company recognizes revenue from product sales in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“Topic 606”). The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.  

The Company derives its revenues primarily from the sale of spinal surgery implants and products used in the treatment of spine disorders. The Company sells its products primarily through its direct sales force and independent distributors. Revenue is recognized when control of the promised goods is transferred to the customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods. Transfer of control generally occurs when the Company receives the written acknowledgment that the product has been used in a surgical procedure or upon shipment to third-party customers who immediately accept title to such product.

The Company’s accounts receivable generally have net 30-day payment terms. The Company generally does not allow returns of products that have been delivered. The Company offers standard quality assurance warranty on its products. As of December 31, 2019, accounts receivable related to products and services were $16.2 million. For the year ended December 31, 2019, the Company had no material bad debt expense and there were no material contract assets, contract liabilities or deferred contract costs recorded on the consolidated balance sheet as of December 31, 2019.

Accounts Receivable, net

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

Inventories, net

Inventories are stated at the lower of cost or net realizable value, with cost primarily determined under the first-in, first-out method. The Company reviews the components of inventory on a periodic basis for excess, obsolete and impaired inventory, and records a reserve for the identified items. The Company calculates an inventory reserve for estimated excess and obsolete inventory based upon historical turnover and assumptions about future demand for its products and market conditions. The Company’s biologics inventories have an expiration based on shelf life and are subject to demand fluctuations based on the availability and demand for alternative implant products. The Company’s estimates and assumptions for excess and obsolete inventory are reviewed and updated on a quarterly basis. Increases in the reserve for excess and obsolete inventory result in a corresponding increase to cost of revenues and establish a new cost basis for the part.

Property and Equipment, net

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

Operating Lease

Effective January 1, 2019, the Company adopted ASC No. 2016‑02, Leases (Topic 842) (“ASC 842”), which supersedes the current accounting for leases, using the modified retrospective transition method. The Company has elected to apply the practical expedients allowed by the standard for existing leases. The new standard, while retaining two distinct types of leases, finance and operating, (i) requires lessees to record a right-of-use (“ROU”) asset and a related liability for the rights and obligations associated with a lease, regardless of lease classification, and recognize lease expense in a manner similar to current accounting, (ii) eliminates current real estate specific lease provisions, (iii) modifies the lease classification criteria and (iv) aligns many of the underlying lessor model principles with those in the new revenue standard. The Company determines the initial classification and measurement of its ROU asset and lease liabilities at the lease commencement date and thereafter, if modified. The Company recognizes a ROU asset for its operating leases with lease terms greater than 12 months. The lease term includes any renewal options and termination options that the Company is reasonably assured to exercise. The present value of lease payments is determined by using the incremental borrowing rate for operating leases determined by using the incremental borrowing rate of interest that the Company would pay to borrow on a collateralized basis an amount equal to the lease payments in a similar economic environment. The Company applied the new guidance to its existing facility lease at the time of adoption and recognized a ROU asset of $2.4 million and operating lease liability of $2.9 million as of March 31, 2019, the initial period of adoption, and removed the previous deferred rent balance under the previous lease guidance of approximately $0.6 million. The Company entered into another facility lease for smaller office space during the third quarter of 2019 and also applied this guidance to create an additional ROU asset and operating lease liability. The two leases are presented together on the Company’s consolidated balance sheet.

Rent expense for operating leases is recognized on a straight-line basis over the reasonably assured lease term based on the total lease payments and is included in research and development and general and administrative expenses in the consolidated statements of operations.

Goodwill and Intangible Assets

The Company’s goodwill represents the excess of the cost over the fair value of net assets acquired from its business combination with SafeOp. The determination of the value of goodwill and intangible assets arising from its business combination and asset acquisitions requires extensive use of accounting estimates and judgments to allocate the purchase price to the fair value of the net tangible and intangible assets acquired, including capitalized in-process research and development (“IPR&D”). Intangible assets acquired in a business combination that are used for in-process research and development activities are considered indefinite lived until the completion or abandonment of the associated research and development efforts. Upon reaching the end of the relevant research and development project, the Company will amortize the acquired IPR&D over its estimated useful life or expense the acquired in-process research and development should the research and development project be unsuccessful with no future alternative use.

Goodwill and IPR&D are not amortized; however, they are assessed for impairment using fair value measurement techniques on an annual basis or more frequently if facts and circumstance warrant such a review. The goodwill or IPR&D are considered to be impaired if the Company determines that the carrying value of the reporting unit or IPR&D exceeds its respective fair value. 

The Company performs its annual impairment analysis by comparing the Company’s estimated fair value, calculated from the Company’s market capitalization, to its carrying amount. The Company’s annual evaluation for impairment of goodwill consists of one reporting unit. The Company completed its most recent annual evaluation for impairment as of December 31, 2019 and determined that no impairment existed and, consequently, no impairment charge has been recorded during the year.

Intangible assets with a finite life, such as acquired technology, customer relationships, manufacturing know-how, licensed technology, supply agreements and certain trade names and trademarks, are amortized on a straight-line basis over their estimated useful life, ranging from one to twenty-year period. In determining the useful lives of intangible assets, the Company considers the expected use of the assets and the effects of obsolescence, demand, competition, anticipated technological advances, changes in surgical techniques, market influences and other economic factors. For technology based intangible assets, the Company considers the expected life cycles of products which incorporate the corresponding technology. Trademarks and trade names that are related to products are assigned lives consistent with the period in which the products bearing each brand are expected to be sold.

The Company evaluates its intangible assets with finite lives for indications of impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that could trigger an impairment review include significant under-performance relative to expected historical or projected future operating results, significant changes in the manner of the Company’s use of the acquired assets or the strategy for the Company’s overall business or significant negative industry or economic trends. If this evaluation indicates that the value of the intangible asset may be impaired, the Company makes an assessment of the recoverability of the net carrying value of the asset over its remaining useful life. If this assessment indicates that the intangible asset is not recoverable, based on the estimated undiscounted future cash flows of the technology over the remaining amortization period, the Company reduces the net carrying value of the related intangible asset to fair value and may adjust the remaining amortization period. There were no impairment charges in 2019 or 2018.

Impairment of Long-Lived Assets

The Company assesses potential impairment to its long-lived assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized when the carrying amount of the long-lived assets is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Any required impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value and is recorded as a reduction in the carrying value of the related asset and a charge to operating results. There were no impairment charges in 2019 or 2018.

Warrants to Purchase Common Stock

Warrants are accounted for in accordance with the applicable accounting guidance as either derivative liabilities or as equity instruments depending on the specific terms of the agreements. Liability-classified instruments are recorded at fair value at each reporting period with any change in fair value recognized as a component of change in fair value of derivative liabilities in the consolidated statements of operations.

All warrants issued in 2019 and 2018 qualified for classification within stockholders’ equity and, therefore, did not require liability accounting.

Fair Value Measurements

The carrying amount of financial instruments consisting of cash, trade accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses, accrued compensation and current portion of long-term debt included in the Company’s consolidated financial statements are reasonable estimates of fair value due to their short maturities. Based on the borrowing rates currently available to the Company for loans with similar terms, management believes the fair value of long-term debt approximates its carrying value.

Authoritative guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Aside from the warrants issued alongside the Squadron amendment that are classified within prepaid and other assets on the consolidated balance sheet, the Company does not maintain any financial assets that are considered to be Level 1, Level 2 or Level 3 instruments as of December 31, 2019. The fair value of the contingent consideration liability assumed in the SafeOp acquisition was recorded as part of the purchase price consideration of the acquisition. The contingent consideration related to the SafeOp acquisition was classified within Level 3 of the fair value hierarchy as the Company was using a probability-weighted income approach, utilizing significant unobservable inputs including the probability of achieving each of the potential milestones and an estimated discount rate related to the risks of the expected cash flows attributable to the milestones. All the contingent milestones were achieved as of December 31, 2019. During the second quarter of 2019, the Company issued a liability classified equity award to one of its executive officers. The award will be earned over a 4 year vesting period and upon a specific market condition. As the award will be cash settled, it is classified as a liability within Level 3 of the fair value hierarchy as the Company is using a probability-weighted income approach, utilizing significant unobservable inputs including the probability of achieving the specified market condition with the valuation updated at each reporting period. The full fair value of the cash settled award was $1.7 million as of December 31, 2019 and is being recognized ratably as the underlying service period is provided.

The following table provides a reconciliation of liabilities measured at fair value using significant unobservable inputs (Level 3) for the year ended December 31, 2018 and 2019 (in thousands):

	Level 3 Liabilities
Balance at December 31, 2017	$	—
Contingent consideration liability recorded upon acquisition of    SafeOp		3,200
Settlement of milestone #1		(1,446	)
Change in fair value measurement		846
Balance at December 31, 2018		2,600
Settlement of milestone #2		(2,889	)
Change in fair value measurement- milestone #2		289
Straight line recognition of liability classified equity award		173
Change in fair value measurement- equity award		93
Balance at December 31, 2019	$	266

During the year ended December 31, 2019, the Company achieved the second of the two milestones related to the acquisition of SafeOp, which was settled through the issuance of 886,843 shares of the Company’s common stock. See Note 8 for further information.

Research and Development Expenses

Research and development expense consists of costs associated with the design, development, testing, and enhancement of the Company’s products. Research and development costs also include salaries and related employee benefits, research-related overhead expenses, fees paid to external service providers. Research and development costs are expensed as incurred.

Transaction-related Expenses

The Company expensed certain costs related to the SafeOp acquisition, which primarily include third-party advisory and legal fees.

Litigation-related Expenses

Litigation-related expenses are costs incurred for the ongoing litigation, primarily with NuVasive, Inc. See Note 6 for further information.

Product Shipment Cost

Product shipment costs are included in sales and marketing expense in the accompanying consolidated statements of operations. Product shipment costs totaled $4.0 million and $2.5 million for the years ended December 31, 2019 and 2018, respectively.

Stock-Based Compensation

The Company accounts for stock-based compensation under provisions which require that share-based payment transactions with employees be recognized in the financial statements based on their fair value and recognized as compensation expense over the vesting period. The amount of expense recognized during the period is affected by subjective assumptions, including estimates of the future volatility of the Company’s stock price, the expected term for its stock options, the number of options expected to ultimately vest, and the timing of vesting for the Company’s share-based awards.

The Company uses a Black-Scholes option pricing valuation model to estimate the fair value of its stock option awards. The calculation of the fair value of the awards using the Black-Scholes option pricing model is affected by the Company’s common stock price on the date of grant as well as assumptions regarding the following:

• Estimated volatility is a measure of the amount by which the Company’s common stock price is expected to fluctuate each year during the expected life of the award. The Company’s estimated volatility through December 31, 2019 was based on a weighted-average volatility of its actual historical volatility over a period equal to the expected life of the awards.

• The expected term represents the period of time that awards granted are expected to be outstanding. Through December 31, 2019, the Company calculated the expected term using a weighted-average term based on historical exercise patterns and the term from option date to full exercise for the options granted within the specified date range.

• The risk-free interest rate is based on the yield curve of a zero-coupon U.S. Treasury bond on the date the stock option award is granted with a maturity equal to the expected term of the stock option award.

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

The Company used historical data to estimate the number of future stock option forfeitures. Stock-based compensation recorded in the Company’s consolidated statements of operations is based on awards expected to ultimately vest and has been reduced for estimated forfeitures. The Company’s estimated forfeiture rates may differ from its actual forfeitures which would affect the amount of expense recognized during the period.

The Company accounts for stock option grants to non-employees in accordance with provisions which require that the fair value of these instruments be recognized as an expense over the period in which the related services are rendered.

Stock-based compensation expense of awards with performance conditions is recognized over the period from the date the performance condition is determined to be probable of occurring through the time the applicable condition is met. Determining the likelihood and timing of achieving performance conditions is a subjective judgment made by management which may affect the amount and timing of expense related to these share-based awards. Share-based compensation is adjusted to reflect the value of options which ultimately vest as such amounts become known in future periods.

Stock-based awards with market conditions are valued using the Monte Carlo valuation technique which requires management to make significant estimates and assumptions that are not observable from the market. Stock based compensation for awards with both service and market conditions that contain one vesting date are recognized on a straight line basis over the longer of the derived service period or the requisite service period.  For awards with both service and market conditions with various vesting dates, stock based compensation is recognized utilizing an accelerated expense model over the longer of the derived service period or the requisite service period.

Valuation of Stock Option Awards

The weighted average assumptions used to compute the stock-based compensation costs for the stock options granted during the years ended December 31, 2019 and 2018 are as follows:

	Year Ended December 31,
	2019			2018
Risk-free interest rate		2.00	%		2.85	%
Expected dividend yield		—			—
Weighted average expected life (years)		6.09			6.08
Volatility		80.76	%		78.54	%

Stock-Based Compensation Costs

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

	Year Ended December 31,
	2019		2018
Cost of revenues	$	146	$	73
Research and development		752		351
Sales, general and administrative		10,058		4,880
Total	$	10,956	$	5,304

Income Taxes

The Company accounts for income taxes in accordance with provisions which set forth an asset and liability approach that requires the recognition of deferred tax assets and deferred tax liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. In making such determination, a review of all available positive and negative evidence must be considered, including scheduled reversal of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance.

The Company recognizes interest and penalties related to uncertain tax positions as a component of the income tax provision.

Beneficial Conversion Feature – Series B Preferred Stock

In March 2018, the Company completed a private placement of equity securities to certain institutional and accredited investors, providing for the sale by the Company of newly designated Series B Convertible Preferred Stock, which shares of preferred stock were automatically converted into 14.3 million shares of our common stock upon approval by the Company’s stockholders. As the Series B Convertible Preferred Stock provided the holder the benefit to convert to shares of common stock, a beneficial conversion feature (“BCF”) with a calculated intrinsic fair value at issuance of $13.5 million existed as of the date the shares of Series B Convertible Preferred Stock were able to be converted into shares of common stock. This one-time, non-cash deemed dividend impacts net loss attributable to common stockholders and net loss per share on the Company’s consolidated statement of operations for the year ended December 31, 2018.

Beneficial Conversion Feature – SafeOp Convertible Notes

In March 2019, the Company’s convertible notes outstanding reached maturity and allowed for the noteholders to elect settlement in cash or shares of the Company’s common stock. As the Convertible Notes provided the holders the benefit to convert to shares of common stock, a BCF with a calculated intrinsic fair value at issuance of $0.2 million existed as of the date the Convertible Notes were able to be converted into shares of the Company’s common stock. Although the holders elected for cash settlement, the BCF was required to be recognized as interest expense on the Company’s consolidated statement of operations and within additional paid-in-capital within the Company’s consolidated statement of stockholders’ equity for the year ended December 31, 2019.

Net Loss per Share

Basic earnings per share (“EPS”) is calculated by dividing the net income or loss available to common stockholders by the weighted average number of shares of common stock outstanding for the period without consideration for common stock equivalents. Diluted EPS is computed by dividing the net income or loss available to common stockholders by the weighted average number of shares of common stock 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, common stock issuable upon conversion of preferred shares, options 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 sets forth the computation of basic and diluted loss per share (in thousands, except per share data):

	Year Ended December 31,
	2019			2018
Numerator:
Net loss, basic and diluted	$	(57,002	)	$	(42,463	)
Denominator:
Weighted average common shares outstanding		52,520			35,402
Weighted average unvested common shares subject to repurchase		(286	)		(87	)
Weighted average common shares outstanding - basic and diluted		52,234			35,315
Net loss per share, basic and diluted	$	(1.09	)	$	(1.20	)

The anti-dilutive securities not included in diluted net loss per share were as follows calculated on a weighted average basis (in thousands):

	Year Ended December 31,
	2019		2018
Options to purchase common stock		4,215		4,682
Warrants to purchase common stock		26,557		22,302
Series A convertible preferred stock		67		2,022
Unvested restricted stock awards		6,727		3,270
Convertible notes		—		988
		37,566		33,264

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), 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 and interim reporting periods in fiscal years beginning after December 15, 2018. The Company adopted the guidance effective January 1, 2019 and elected the optional transition method to account for the impact of the adoption with a cumulative-effect adjustment in the period of adoption and did not restate prior periods. The Company elected certain practical expedients permitted under the transition guidance. As part of the adoption, the Company recorded a ROU asset and liability upon adoption of the guidance pertaining to its long-term real estate lease for its corporate facilities. No cumulative-effect adjustment was needed.

Recently Issued Accounting Pronouncements

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other, which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. The standard has tiered effective dates, starting in 2020 for calendar-year public business entities that meet the definition of an SEC filer. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The Company is in the process of determining the impact the adoption will have on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15,Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40), which aligns the accounting for cloud computing implementation costs with that of costs to develop or obtain internal-use software, meaning such costs that are part of the application development stage are capitalized as an asset and amortized over the term of the arrangement, otherwise, such costs are expensed as incurred. It also clarifies the classification of amounts related to capitalized implementation costs in the financial statements. ASC 2018-15 is effective for annual reporting periods beginning after December 15, 2019, including interim reporting periods within those annual reporting periods. Early adoption is permitted.  The Company is in the process of determining the impact the adoption will have on its consolidated financial statements.

In November 2019, the FASB issued ASU No. 2019-08, Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606), which clarifies that an entity must measure and classify share-based payment awards granted to a customer by applying the guidance in Topic 718. ASC 2019-08 is effective for annual reporting periods beginning after December 15, 2019, including interim reporting periods within those annual reporting periods. The Company is in the process of determining the impact the adoption will have on its consolidated financial statements.

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2019

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

6. Commitments and Contingencies

Leases

The Company occupies approximately 76,000 square feet of office, engineering, and research and development space in Carlsbad, California. Monthly rent is approximately $111,000 per month for the year ended December 31, 2018 and increases by approximately $3,000 per month each year through expiration of the lease on July 31, 2021. On December 4, 2019, the Company entered into a new lease agreement for a new headquarters location which will consist of 121,541 square feet of office, engineering, and research and development space in Carlsbad, California. The term of the new lease is currently anticipated to commence November 15, 2020 and terminate November 30, 2030, subject to two (2) sixty (60) month options to renew. The Company will recognize a ROU asset and liability upon taking control of the premises, currently anticipated to be the lease commencement date. Base rent under the new building lease for the first twelve months of the term will be $195,000 per month subject to full abatement during months two through ten. Base rent for the second year of the term will be $244,115 per month and thereafter will increase annually by 3%. At the beginning of each exercised option period, base rent will be adjusted to the market rental value, and thereafter will increase annually by 3% through the end of such option period.

Capital Lease

The Company has one outstanding capital lease arrangement for the lease of equipment as of December 31, 2019 that matures in 2022. The lease bears interest at a rate of 6.40% per annum, is due in monthly principal and interest installments and is collateralized by the related equipment. The total capital lease commitment outstanding as of December 31, 2019 and December 31, 2018 was $0.1 million.

Operating Lease

The Company leases its buildings and certain equipment under operating leases which expire on various dates through 2021. Upon the Company’s adoption of ASC 842 in January 1, 2019, the Company recognized a ROU asset and lease liability for its building lease, assuming a 10.5% discount rate. Any short-term leases defined as 12 months or less or month-to-month leases were excluded and continue to be expensed each month. Total costs associated with these leases for the year ended December 31, 2019 was immaterial.

The Company determines if an arrangement is a lease at inception. The Company has operating leases for its buildings and certain equipment with lease terms of 1 year to 5.5 years, some of which include options to extend and/or terminate the lease. The exercise of lease renewal options is at the Company’s sole discretion and were not included in the calculation of the Company’s lease liability as the Company is not able to determine without uncertainty if the renewal option will be exercised. The depreciable life of assets and leasehold improvements are limited to the expected term unless there is a transfer of title or purchase option reasonably certain of exercise. The Company’s lease agreements do not contain any variable lease payments, residual value guarantees or any restrictive covenants.

The Company’s ROU asset represents the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date of the lease or the ASC 842 adoption date, whichever is later, based on the present value of lease payments over the lease term. When readily determinable, the Company uses the implicit rate in determining the present value of lease payments, or 10.5% as of the adoption date. When leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date or adoption date, including the lease term. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Future minimum annual undiscounted lease payments under the Company’s operating and capital leases are as follows (in thousands):

Year ending December 31,
2020	$	1,488
2021		921
2022		42
Total undiscounted lease payments		2,451
Less: present value adjustment		(212	)
Operating lease liability		2,239
Less: current portion of operating lease liability		(1,314	)
Operating lease liability, less current portion	$	925

As of December 31, 2019, the Company’s remaining average lease term is 1.7 years. Rent expense under operating leases for the year ended December 31, 2019 and 2018 was $1.3 million and $1.4 million, respectively. The Company paid $1.4 million of cash payments related to its operating lease agreements for the years ended December 31, 2019 and 2018.

Litigation

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.

In February 2018, NuVasive, Inc. filed suit against the Company in the United States District Court for the Southern District of California (NuVasive, Inc. v. Alphatec Holdings, Inc. et al., Case No. 3:18-cv-00347-CAB-MDD (S.D. Cal.)), alleging that certain of the Company’s products (including components of its Battalion™ Lateral System), infringe, or contribute to the infringement of, U.S. Patent Nos. 7,819,801, 8,355,780, 8,439,832, 8,753,270, 9,833,227 (entitled “Surgical access system and related methods”), U.S. Patent No. 8,361,156 (entitled “Systems and methods for spinal fusion”), and U.S. Design Patent Nos. D652,519 (“Dilator”) and D750,252 (“Intervertebral Implant”).  NuVasive seeks unspecified monetary damages and an injunction against future purported infringement.  

In March 2018, the Company moved to dismiss NuVasive’s claims of infringement of its design patents for failure to state a cognizable legal claim.  In May 2018, the Court ruled that NuVasive failed to state a plausible claim for infringement of the asserted design patents and dismissed those claims with prejudice.  The Company filed its answer, affirmative defenses and counterclaims to NuVasive’s remaining claims in May 2018.

Also in March 2018, NuVasive moved for a preliminary injunction.  In March 2018, the Court denied that motion without prejudice for failure to comply with the Court’s chambers rules.  In April 2018, NuVasive again moved for a preliminary injunction.  In July 2018, after a hearing on the matter in June 2018, the Court denied that motion on the grounds that NuVasive failed to establish either likelihood of success on the merits of its remaining claims or that it would suffer irreparable harm absent the preliminary injunction. 

In September 2018, NuVasive filed an Amended Complaint, asserting additional infringement claims of U.S. Patent Nos. 9,924,859, 9,974,531 and 8,187,334. The Company filed its answer, affirmative defenses and counterclaims to these new claims in October 2018.  Also in October 2018, NuVasive moved to dismiss the Company’s counterclaims that NuVasive intentionally had misled the U.S. Patent and Trademark Office as a means of obtaining certain patents asserted against the Company.  In January 2019, the Court denied NuVasive’s motion as to all but one of the Company’s counterclaims, but granted the Company leave to amend its counterclaim to cure the dismissal.  The Company amended that counterclaim in February 2019 and, that same month, NuVasive again moved to dismiss it.  In March 2019, the Court denied NuVasive’s motion.  NuVasive filed its Answer to the amended counterclaim in April 2019.

In December 2018, the Company filed a petition with the Patent Trial and Appeal Board (“PTAB”) challenging the validity of certain claims of the ’156 and ’334 Patents.  In February 2019, upon joint motion of the parties, the Court stayed all proceedings in this matter, except as noted above, pending PTAB’s determination of whether to institute inter partes review (“IPR”) of the asserted claims of the two patents at issue and vacated the trial date. In July 2019, PTAB instituted IPR of the validity of asserted claims of the two patents at issue.  The Company expects PTAB to issue its final decisions regarding the validity of these claims in the second half of 2020. Also in July 2019, the parties submitted a joint statement to the Court regarding PTAB’s decisions and the parties’ respective recommendations regarding the stay of proceedings. In August 2019, the Court vacated the stay as to asserted claims concerning those patents at issue not presently before PTAB and continued the stay as to the ‘156 and ‘334 Patents.

Hearing on the matters was held on March 13, 2020 and taken under submission at that time. Trial, which was originally set for April 27, 2020, has been taken off calendar due to increasing uncertainties surrounding the current public health crisis. A new trial date has not been set.

The Company believes that the allegations lack merit and intends to vigorously defend all claims asserted. A liability is recorded in the consolidated financial statements if it is believed to be probable that a loss has been incurred and the amount of the loss can be reasonably estimated. It is impossible at this time to assess whether the outcome of this proceeding will have a material adverse effect on the Company’s consolidated results of operations, cash flows or financial position. Therefore, in accordance with authoritative accounting guidance, the Company has not recorded any accrual for a contingent liability associated with this legal proceeding based on its belief that a liability, while possible, is not probable and any range of potential future charge cannot be reasonably estimated at this time.

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.

In October 2017, NuVasive filed a lawsuit in Delaware Chancery Court against Mr. Miles, the Company’s Chairman and CEO, who was a former officer and board member of NuVasive. The Company itself was not initially a named defendant in this lawsuit; however, on June 28, 2018, NuVasive amended its complaint to add the Company as a defendant.  As of December 31, 2019, the Company has not recorded any liability on the consolidated balance sheet related to this matter. On October 12, 2018, the Delaware Court ordered that NuVasive begin advancing legal fees for Mr. Miles’ defense in the lawsuit, as well as Mr. Miles’ legal fees incurred in pursuing advancement of his fees, pursuant to an indemnification agreement between NuVasive and Mr. Miles.

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 based on fixed fees or calculated either as a percentage of net sales or on a per-unit sold basis. Royalties are included on the accompanying consolidated statements of operations as a component of cost of revenues. As of December 31, 2019, the Company is obligated to pay guaranteed minimum royalty payments under these agreements of approximately $5.4 million through 2023 and beyond.

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Stock Benefit Plans and Stock-Based Compensation

12 Months Ended

Dec. 31, 2019

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock Benefit Plans and Stock-Based Compensation

10. Stock Benefit Plans and Stock-Based Compensation

In the third quarter of 2016, the Company adopted its 2016 Equity Incentive Plan (the “2016 Plan”), which replaced the Company’s 2005 Employee, Director and Consultant Stock Plan. On October 25, 2018, the Company’s Board of Directors adopted an amendment to the Company’s 2016 Equity Incentive Award 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, 2019, 666,742 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, 2019 the Inducement Plan had 801,099 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.

In July 2019, the Board of Directors approved and adopted the 2019 Management Objective Strategic Incentive Plan which authorizes the Company to grant restricted stock to individuals or entities that do not qualify under the other existing equity plans. The Board of Directors authorized the grant of up to 500,000 shares of common stock with a maximum grant of 50,000 shares per participant under the plan. As of December 31, 2019, 55,000 restricted shares have been granted under the 2019 Management Objective Strategic Incentive Plan. Total expense for the plan was immaterial for the year ended December 31, 2019.

The 2016 Plan, the Inducement Plan and the Management Objective Strategic Incentive 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):

	Shares			Weighted average exercise price		Weighted average remaining contractual term (in years)		Aggregate intrinsic value
Outstanding at December 31, 2018		4,723		$	3.64
Granted		195		$	4.41
Exercised		(161	)	$	2.75
Forfeited		(542	)	$	7.00
Outstanding at December 31, 2019		4,215		$	3.27		7.80	$	17,961
Options vested and exercisable at December 31, 2019		2,238		$	3.71		7.40	$	9,438
Options vested and expected to vest at December 31, 2019		4,028		$	3.29		7.77	$	17,177

The weighted-average grant-date fair value per share of stock options granted during the years ended December 31, 2019 and 2018 was $1.92 and $2.00, respectively. The aggregate intrinsic value of options at December 31, 2019 is based on the Company’s closing stock price on the last business day of 2019 of $7.10 per share.

As of December 31, 2019, there was $3.7 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 2.30 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):

	Shares			Weighted average grant date fair value		Weighted average remaining recognition period (in years)
Unvested at December 31, 2018		3,270		$	2.94
Awarded		4,802		$	1.92
Vested		(1,224	)	$	2.83
Forfeited		(121	)	$	3.11
Unvested at December 31, 2019		6,727		$	2.17		2.32

The weighted average fair value per share of awards granted during the years ended December 31, 2019 and 2018 was $1.92 and $2.87, respectively.  

As of December 31, 2019, there was $16.0 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 2.32 years.  

Termination and Settlement of Elite Medical Holdings and Pac 3 Surgical Collaboration Agreement

In February 2018, the Company reached a settlement agreement with Elite Medical Holdings and Pac 3 Surgical, pursuant to which the Company made a cash payment of $0.4 million as the final and total compensation under the original agreement.  In addition, the parties agreed to release each other and waive any and all rights and claims arising from the original agreement.  The Company recorded a gain of approximately $6.2 million during the year ended December 31, 2018, reflecting the reversal of accrued obligations previously recorded under the collaboration.  

2017 Distributor Inducement Plan

In December 2017, the Board of Directors approved and adopted the 2017 Distributor Inducement Plan which authorizes the Company to issue to distributors restricted shares of common stock of the Company and/or warrants to purchase the Company’s common stock. The warrants are issuable with an exercise price equal to the fair market value of the common stock on the date of issuance. Each warrant and common stock issuance is subject to a time-based or net sales-based vesting provision. The Board of Directors authorized the grant of up to 1,000,000 shares of common stock under the 2017 Distributor Inducement Plan. As of December 31, 2019, 0.3 million warrants and 92,000 shares of common stock were earned under the 2017 Distributor Inducement Plan. Total expense for the plan was $0.4 and $0.2 million for the years ended December 31, 2019 and December 31, 2018, respectively.

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.

2017 Development Services Plan

In December 2017, the Board of Directors approved and adopted the 2017 Development Services Plan which authorizes the Company to enter into Development Services Agreements with third-party individuals or entities whereby, upon the achievement of certain Company financial and commercial revenue milestones, future royalty payments for product and/or intellectual property development work may be paid in either cash or restricted shares of Company common stock at the option of the developer. Each common stock issuance would be subject to net sales-based vesting provisions and satisfaction of applicable laws and market regulations regarding the issuance of restricted shares to such developers. The Board of Directors authorized the grant of up to 3,000,000 shares of common stock under the 2017 Development Services Plan. As of December 31, 2019, 2.4 million have been designated under the 2017 Development Services Plan, but none are deemed probable of election as of December 31, 2019. In addition, no common stock elections or cash payouts have been made as of December 31, 2019.  

Common Stock Reserved for Future Issuance

Common stock reserved for future issuance consists of the following (in thousands):

	December 31, 2019
Stock options outstanding		4,215
Unvested restricted stock awards		6,727
Employee stock purchase plan		117
Series A convertible preferred stock		67
Warrants outstanding		26,557
Authorized for future grant under the Distributor and Development Services plans		3,908
Authorized for future grant under the Management Objective Strategic Incentive Plan		445
Authorized for future grant under the Plans		1,628
		43,664

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Summary of Significant Accounting Policies - Summary of Weighted Average Assumptions Used to Compute Stock-Based Compensation Costs for Stock Options Granted (Detail) - Options to purchase common stock	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk-free interest rate	2.00%	2.85%
Expected dividend yield		0.00%
Weighted average expected life	6 years 1 month 2 days	6 years 29 days
Volatility	80.76%	78.54%

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Restructuring Activities (Tables)

12 Months Ended

Dec. 31, 2019

Restructuring And Related Activities [Abstract]

Rollforward of accrued restructuring liability

A rollforward of the accrued restructuring liability is presented below (in thousands):

Balance at December 31, 2018	$	710
Accrued restructuring charges		60
Payments		(746	)
Balance at December 31, 2019	$	24

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Debt - Inventory Financing Agreement (Details) - Inventory Financing Agreement	12 Months Ended
	Dec. 31, 2019 USD ($)
Line of Credit Facility [Line Items]
Maximum borrowing capacity	$ 3,000,000
Line of Credit
Line of Credit Facility [Line Items]
Debt instrument, maturity date	Nov. 06, 2023
Debt instrument, frequency of periodic payment	monthly
Obligation outstanding under inventory financing agreement	$ 3,000,000
LIBOR | Line of Credit
Line of Credit Facility [Line Items]
Interest rate description	LIBOR plus 8%
Basis spread	8.00%
Floor on interest rate	10.00%
Ceiling on interest rate	13.00%

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Commitments and Contingencies - Additional Information (Details)		12 Months Ended
	Dec. 04, 2019 USD ($) ft²	Dec. 31, 2019 USD ($)	Dec. 31, 2018 USD ($) ft²	Jan. 01, 2019
Loss Contingencies [Line Items]
Lease interest rate		6.40%
Capital lease commitment outstanding		$ 100,000	$ 100,000
Remaining operating lease term		1 year 8 months 12 days
Rent expense		$ 1,300,000	1,400,000
Cash payments related to operating lease		1,400,000	$ 1,400,000
Liability in connection with lawsuit		0
Alphatec Spine, Inc.
Loss Contingencies [Line Items]
Guaranteed obligated minimum royalty payments through 2022 and beyond		$ 5,400,000
Maximum
Loss Contingencies [Line Items]
Operating lease term		5 years 6 months
Minimum
Loss Contingencies [Line Items]
Operating lease term		1 year
Building lease
Loss Contingencies [Line Items]
Area for facility of office, engineering and research and development space | ft²	121,541		76,000
Lease agreement expiry date	Nov. 30, 2030		Jul. 31, 2021
Lease agreement commencement date	Nov. 15, 2020
Lease renewal term	260 months
Annual increase in base rent	3.00%
Operating lease discount rate				10.50%
First year | Building lease
Loss Contingencies [Line Items]
Lease rent payable per month			$ 111,000
Each year thereafter | Building lease
Loss Contingencies [Line Items]
Lease rent payable increase per month			$ 3,000
First year | Building lease
Loss Contingencies [Line Items]
Lease base rent payment per month	$ 195,000
First year | Building lease | Maximum
Loss Contingencies [Line Items]
Abatement period	10 years
First year | Building lease | Minimum
Loss Contingencies [Line Items]
Abatement period	2 years
Second year | Building lease
Loss Contingencies [Line Items]
Lease base rent payment per month	$ 244,115

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Related Party Transactions - Additional Information (Details) - USD ($) $ in Thousands			1 Months Ended			12 Months Ended
	Jul. 01, 2016	Aug. 13, 2014	Sep. 30, 2014	Apr. 30, 2014	Mar. 31, 2014	Dec. 31, 2019	Dec. 31, 2018
Related Party Transaction [Line Items]
Settlement amount to be contributed						$ 5,000	$ 5,000
Withholding tax receivable from officer							350
Restricted Stock Units
Related Party Transaction [Line Items]
Withholding tax receivable from officer							300
Orthotec LLC, litigation settlement
Related Party Transaction [Line Items]
Payments of settlement				$ 15,750	$ 1,750	40,600
Judgment assessed by court for (against) company		$ (49,000)
Orthotec LLC, litigation settlement | HealthpointCapital, LLC
Related Party Transaction [Line Items]
Payments of settlement	$ 1,000					1,100
Judgment assessed by court for (against) company			$ (5,000)
Settlement amount to be contributed						$ 5,000	$ 5,000

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Income Taxes - Schedule of Effective Income Tax Rate Reconciliation (Details)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Income Tax Disclosure [Abstract]
Federal statutory rate	21.00%	21.00%
Adjustments for tax effects of:
State taxes, net	0.12%	0.47%
Stock-based compensation	0.26%	(4.29%)
R&D credit expiration	(5.96%)
Fair market value adjustments		(0.59%)
Other permanent adjustments	(0.42%)	(0.56%)
Foreign partnership liquidation	19.19%
Federal uncertain tax positions	3.25%	0.30%
NOL expiration	(3.01%)
Other	1.16%	(1.57%)
Valuation allowance	(35.09%)	(10.25%)
Effective income tax rate	0.50%	4.51%

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Income Taxes

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

11. Income Taxes

The components of the pretax income (loss) are presented in the following table (in thousands):

	Year Ended December 31,
	2019			2018
U.S. Domestic	$	(57,141	)	$	(30,169	)
Foreign		(100	)		(167	)
Pretax loss from operations	$	(57,241	)	$	(30,336	)

The components of the (benefit) provision for income taxes from continuing operations are presented in the following table (in thousands):

	Year Ended December 31,
	2019			2018
Current income tax (benefit) provision:
Federal	$	—		$	(64	)
State		207			86
Foreign		—			4
Total current		207			26
Deferred income tax benefit:
Federal		(195	)		(1,140	)
State		(251	)		(247	)
Total deferred		(446	)		(1,387	)
Total income tax benefit	$	(239	)	$	(1,361	)

The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to pretax income (loss) from continuing operations as a result of the following differences:

	December 31,
	2019			2018
Federal statutory rate		21.00	%		21.00	%
Adjustments for tax effects of:
State taxes, net		0.12	%		0.47	%
Stock-based compensation		0.26	%		(4.29	)%
R&D credit expiration		(5.96	)%		—
Fair market value adjustments		—			(0.59	)%
Other permanent adjustments		(0.42	)%		(0.56	)%
Foreign partnership liquidation		19.19	%		—
Federal uncertain tax positions		3.25	%		0.30	%
NOL expiration		(3.01	)%		—
Other		1.16	%		(1.57	)%
Valuation allowance		(35.09	)%		(10.25	)%
Effective income tax rate		0.50	%		4.51	%

Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2019 and 2018 are as follows (in thousands):

	December 31,
	2019			2018
Deferred tax assets:
Accruals and reserves	$	2,730		$	1,133
Income tax credit carryforwards		1,591			3,150
Interest		4,095			1,351
Inventory		8,625			4,959
Legal settlement		3,789			4,693
Net operating losses		53,592			45,092
Stock-based compensation		2,256			1,182
Total deferred tax assets		76,678			61,560
Valuation allowance		(71,159	)		(46,578	)
Total deferred tax assets, net of valuation allowance		5,519			14,982
Deferred tax liabilities:
Property and equipment		(3,117	)		(21	)
Goodwill and intangibles		(2,344	)		(1,972	)
Investment in foreign partnership		—			(13,370	)
Total deferred tax liabilities		(5,461	)		(15,363	)
Net deferred tax assets (liabilities)	$	58		$	(381	)

The realization of deferred tax assets is dependent on the Company’s ability to generate sufficient taxable income in future years in the associated jurisdiction to which the deferred tax assets relate. As of December 31, 2019, a valuation allowance of $71.2 million has been established against the net deferred tax assets, as the Company has determined that it is currently not more likely than not that these assets will be realized. During the year ended December 31, 2019, the federal and state valuation allowances collectively increased by $20.1 million and $4.5 million, respectively.

In determining the need for a valuation allowance, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance. The Company reached technological feasibility with respect to its in-process research and development efforts in 2019, and as such, valuation allowance was decreased as amortization of intangible asset began. There are no indefinite-lived intangible assets as of December 31, 2019. Based on the review of all positive and negative evidence, including a three-year cumulative pre-tax loss, the Company determined that a full valuation allowance should be recorded against its deferred tax assets, with the exception of the Company’s Texas Temporary Credit for Business Loss Carryforwards. There are no indefinite live assets.   

At December 31, 2019, the Company has unrecognized tax benefits of $2.5 million, which will affect the effective tax rate if recognized when the Company no longer has a valuation allowance offsetting its deferred tax assets.

The following table summarizes the changes to unrecognized tax benefits (in thousands):

	Year ended December 31,
	2019			2018
Unrecognized tax benefit at the beginning of the year	$	4,334		$	4,440
Reductions as a result of lapse of applicable statute    of limitations		(1,882	)		(106	)
Unrecognized tax benefits at the end of the year	$	2,452		$	4,334

The Company and its subsidiaries are subject to federal income tax as well as income tax of multiple state and foreign jurisdictions. With few exceptions, the Company is no longer subject to income tax examination by tax authorities in major jurisdictions for years prior to 2015. However, to the extent allowed by law, the taxing authorities may have the right to examine prior periods where net operating losses and tax credits were generated and carried forward and make adjustments up to the amount of the carryforwards. The Company is not currently under examination by the Internal Revenue Service, foreign or state and local tax authorities.

The Company recognizes interest and penalties related to uncertain tax positions as a component of the income tax provision. As of December 31, 2019, there were no accrued interest and penalties.

At December 31, 2019, the Company had federal and state net operating loss carryforwards of $205.2 million and $128.2 million, respectively, expiring at various dates beginning in 2019 through 2039. Net operating losses generated in years ending after December 31, 2017 can be carried forward indefinitely for federal and some states. At December 31, 2019, the Company had state research and development tax credit carryforwards of $3.2 million. The state research and development tax credits do not have an expiration date, and may be carried forward indefinitely. Utilization of the net operating loss and tax credit carryforwards may become subject to annual limitations due to ownership change limitations that could occur in the future as provided by Section 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), as well as similar state provisions. These ownership changes may limit the amount of the net operating loss and tax credit carryforwards that can be utilized annually to offset future taxable income, if the Company experiences a cumulative change in ownership of more than 50% within a three-year testing period.  The Company completed a formal study through the year ended December 31, 2018 and determined ownership changes within the meaning of IRC Section 382 had occurred. The Company adjusted tax attribute carry forwards and deferred tax assets accordingly.  As the deferred tax assets associated with the tax attribute carry forwards were fully offset by a valuation allowance, a corresponding reduction in the Company’s valuation allowance was also recorded, resulting in no income tax impact.

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Balance Sheet Details

12 Months Ended

Dec. 31, 2019

Balance Sheet Related Disclosures [Abstract]

Balance Sheet Details

3. Balance Sheet Details

Accounts Receivable, net

Accounts receivable consist of the following (in thousands):

	December 31,
	2019			2018
Accounts receivable	$	16,436		$	15,291
Less allowance for doubtful accounts		(286	)		(196	)
Accounts receivable, net	$	16,150		$	15,095

Inventories, net

Inventories consist of the following (in thousands):

	December 31,
	2019			2018
Raw materials	$	5,822		$	5,813
Work-in-process		1,578			952
Finished goods		51,669			39,758
		59,069			46,523
Less reserve for excess and obsolete		(24,215	)		(17,758	)
Inventories, net	$	34,854		$	28,765

Property and Equipment, net

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

	Useful lives		December 31,
	(in years)		2019			2018
Surgical instruments		4	$	58,502		$	54,848
Machinery and equipment		7		6,038			5,971
Computer equipment		3		3,594			3,104
Office furniture and equipment		5		1,297			1,155
Leasehold improvements	various			1,761			1,765
Construction in progress	n/a			496			92
				71,688			66,935
Less accumulated depreciation and amortization				(51,966	)		(53,700	)
Property and equipment, net			$	19,722		$	13,235

Total depreciation expense was $6.8 million and $6.0 million for the years ended December 31, 2019 and 2018, respectively. At December 31, 2019 and 2018, assets recorded under capital leases of $0.1 million were included in the machinery and equipment balance. Amortization of assets under capital leases is included in depreciation expense.

Intangible Assets, net

In conjunction with the acquisition of SafeOp in March 2018, the Company recorded $21.6 million of new intangible assets. See Note 8 for further information regarding the acquisition. Intangible assets, net consist of the following (in thousands, except as indicated):

	Remaining Avg. Useful lives		December 31,
	(in years)		2019			2018
Developed product technology		10	$	26,976		$	26,976
Intellectual property		—		1,004			1,004
License agreements		1		5,536			5,536
Trademarks and trade names		—		792			792
Customer-related		5		7,458			7,458
Distribution network		4		4,027			4,027
In process research and development		19		8,800			8,800
				54,593			54,593
Less accumulated amortization				(28,988	)		(28,185	)
Intangible assets, net			$	25,605		$	26,408

Total expense related to amortization of intangible assets was $0.7 million and $0.8 million for the years ended December 31, 2019 and 2018, respectively.

Future amortization expense related to intangible assets as of December 31, 2019 is as follows (in thousands):

Year Ending December 31,
2020	$	1,869
2021		1,888
2022		1,888
2023		1,888
2024		1,785
Thereafter		16,287
Total	$	25,605

Accrued Expenses

Accrued expenses consist of the following (in thousands):

	December 31,
	2019		2018
Commissions and sales milestones	$	5,299	$	3,594
Payroll and payroll related		7,949		3,222
Litigation settlement obligation		4,400		4,400
Professional fees		3,945		2,637
Royalties		1,981		1,354
Restructuring and severance accruals		29		710
Taxes		82		(3	)
Interest		155		261
Acquisition related - contingent consideration		-		2,600
Other		2,576		3,541
Total accrued expenses	$	26,416	$	22,316

Other Long-Term Liabilities

Other long-term liabilities consist of the following (in thousands):

	December 31, 2019		December 31, 2018
Litigation settlement obligation - long-term portion	$	10,712	$	13,954
Line of credit exit fee		600		600
Tax liabilities		373		835
Other		266		-
Other long-term liabilities	$	11,951	$	15,389

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Orthotec Settlement

12 Months Ended

Dec. 31, 2019

Commitments And Contingencies Disclosure [Abstract]

Orthotec Settlement

7. 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. The payments set forth above are guaranteed by Stipulated Judgments held against the Company, HealthpointCapital Partners, L.P., HealthpointCapital Partners II, L.P., HealthpointCapital, LLC, John H. Foster and Mortimer Berkowitz III and, in the event of a default, will be entered and enforced against these entities and/or individuals in that order. In September 2014, the Company and HealthpointCapital entered into an agreement for joint payment of settlement whereby HealthpointCapital has agreed to contribute $5 million to the $49 million settlement amount. The $5 million is classified within stockholders’ equity on the Company’s consolidated balance sheets due to the related party nature with HealthpointCapital and its affiliates. See Note 12 for further information.

As of December 31, 2019, the Company has made installment payments in the aggregate of $40.6 million, with a remaining outstanding balance of $17.2 million (including interest). The Company has the right to prepay the amounts due without penalty. The unpaid amounts due accrue interest at the rate of 7% per year until 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 provides 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.

A reconciliation of the total net settlement obligation is as follows (in thousands):

	December 31, 2019			December 31, 2018
Litigation settlement obligation - short-term portion	$	4,400		$	4,400
Litigation settlement obligation - long-term portion		10,712			13,954
Total		15,112			18,354
Future Interest		2,121			3,279
Total settlement obligation, gross		17,233			21,633
Related party receivable - included in stockholders'    equity		(5,000	)		(5,000	)
Total settlement obligation, net	$	12,233		$	16,633

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Summary of Significant Accounting Policies - Reconciliation of Liabilities (Details) - Fair value, inputs, level 3 - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Roll Forward]
Beginning balance	$ 2,600
Settlement of milestone #1 and #2	(2,889)	$ (1,446)
Change in fair value measurement and milestone #2	289
Straight line recognition of liability classified equity award	173
Change in fair value measurement- equity award	93
Change in fair value measurement		846
Ending balance	$ 266	2,600
SafeOp Surgical, Inc.
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Roll Forward]
Contingent consideration liability recorded upon acquisition of SafeOp		$ 3,200

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Components of Pretax Income (Loss)

The components of the pretax income (loss) are presented in the following table (in thousands):

	Year Ended December 31,
	2019			2018
U.S. Domestic	$	(57,141	)	$	(30,169	)
Foreign		(100	)		(167	)
Pretax loss from operations	$	(57,241	)	$	(30,336	)

Components of (Benefit) Provision for Income Taxes from Continuing Operations

The components of the (benefit) provision for income taxes from continuing operations are presented in the following table (in thousands):

	Year Ended December 31,
	2019			2018
Current income tax (benefit) provision:
Federal	$	—		$	(64	)
State		207			86
Foreign		—			4
Total current		207			26
Deferred income tax benefit:
Federal		(195	)		(1,140	)
State		(251	)		(247	)
Total deferred		(446	)		(1,387	)
Total income tax benefit	$	(239	)	$	(1,361	)

Schedule of Effective Income Tax Rate Reconciliation

The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to pretax income (loss) from continuing operations as a result of the following differences:

	December 31,
	2019			2018
Federal statutory rate		21.00	%		21.00	%
Adjustments for tax effects of:
State taxes, net		0.12	%		0.47	%
Stock-based compensation		0.26	%		(4.29	)%
R&D credit expiration		(5.96	)%		—
Fair market value adjustments		—			(0.59	)%
Other permanent adjustments		(0.42	)%		(0.56	)%
Foreign partnership liquidation		19.19	%		—
Federal uncertain tax positions		3.25	%		0.30	%
NOL expiration		(3.01	)%		—
Other		1.16	%		(1.57	)%
Valuation allowance		(35.09	)%		(10.25	)%
Effective income tax rate		0.50	%		4.51	%

Significant Components of Company's Deferred Tax Assets and Liabilities

Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2019 and 2018 are as follows (in thousands):

	December 31,
	2019			2018
Deferred tax assets:
Accruals and reserves	$	2,730		$	1,133
Income tax credit carryforwards		1,591			3,150
Interest		4,095			1,351
Inventory		8,625			4,959
Legal settlement		3,789			4,693
Net operating losses		53,592			45,092
Stock-based compensation		2,256			1,182
Total deferred tax assets		76,678			61,560
Valuation allowance		(71,159	)		(46,578	)
Total deferred tax assets, net of valuation allowance		5,519			14,982
Deferred tax liabilities:
Property and equipment		(3,117	)		(21	)
Goodwill and intangibles		(2,344	)		(1,972	)
Investment in foreign partnership		—			(13,370	)
Total deferred tax liabilities		(5,461	)		(15,363	)
Net deferred tax assets (liabilities)	$	58		$	(381	)

Summary of Changes to Unrecognized Tax Benefits

The following table summarizes the changes to unrecognized tax benefits (in thousands):

	Year ended December 31,
	2019			2018
Unrecognized tax benefit at the beginning of the year	$	4,334		$	4,440
Reductions as a result of lapse of applicable statute    of limitations		(1,882	)		(106	)
Unrecognized tax benefits at the end of the year	$	2,452		$	4,334

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Operating activities:
Net loss	$ (57,002)	$ (28,975)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	7,578	6,789
Stock-based compensation	10,956	5,304
Amortization of debt discount and debt issuance costs	3,709	2,087
Amortization of right-of-use asset	930
Provision for doubtful accounts	242	164
Provision for excess and obsolete inventory	8,624	3,733
Deferred income tax benefit	(438)	(1,405)
Gain on settlement		(6,168)
Beneficial conversion feature from convertible notes	242
Loss on extinguishment of debt		590
Loss on disposal of instruments	127	130
Accretion to contingent consideration	289	846
Changes in operating assets and liabilities:
Accounts receivable, net	(1,298)	(396)
Inventories, net	(14,712)	(5,014)
Prepaid expenses and other current assets	186	(268)
Other assets	262	(90)
Other long-term assets	(3,308)
Accrued expenses and other	6,647	1,677
Accounts payable	6,003	16
Deferred revenue		(261)
Lease liability	2,239
Other long-term liabilities	(4,397)	(4,367)
Net cash used in operating activities	(33,121)	(25,608)
Investing activities:
Purchases of property and equipment	(13,032)	(6,514)
Cash paid for acquisition of SafeOp Surgical, Inc.		(15,103)
Cash paid for acquisition of intangible assets		(400)
Cash received from sale of equipment		348
Net cash used in investing activities	(13,032)	(21,669)
Financing activities:
Proceeds from public offering, net	53,848
Proceeds from sale of common stock, net	1,977	51,902
Borrowings under lines of credit	114,710	90,459
Repayments under lines of credit	(112,934)	(89,993)
Principal payments on capital lease obligations	(27)	(96)
Proceeds from issuance of term debt, net	9,700	34,077
Principal payments on term loan and notes payable	3,091	32,464
Net cash provided by financing activities	64,183	53,885
Effect of exchange rate changes on cash	29	(20)
Net increase in cash	18,059	6,588
Cash at beginning of year	29,054	22,466
Cash at end of year	47,113	29,054
Supplemental disclosure of cash flow information:
Cash paid for interest	5,969	5,141
Cash paid for income taxes	161	134
Supplemental disclosure of noncash investing and financing activities:
Common stock warrants issued with term loan draw	13,664	1,708
Purchases of property and equipment in accounts payable	1,275	940
SafeOp Surgical, Inc.
Adjustments to reconcile net loss to net cash used in operating activities:
Accretion to contingent consideration	300
Supplemental disclosure of noncash investing and financing activities:
Common stock and warrants issued for the acquisition of SafeOp		12,529
Common stock issued for achievement of SafeOp contingent consideration	$ 2,889	$ 1,446

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CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Revenues:
Revenues	$ 113,427	$ 91,694
Cost of revenues	35,833	28,457
Gross profit	77,594	63,237
Operating expenses:
Research and development	13,849	9,853
Sales, general and administrative	101,714	72,640
Litigation-related	8,549	5,683
Amortization of intangible assets	698	738
Transaction-related		1,550
Gain on settlement		(6,168)
Restructuring	60	1,381
Total operating expenses	124,870	85,677
Operating loss	(47,276)	(22,440)
Other expense:
Other expense, net	(9,865)	(7,139)
Loss on debt extinguishment		(590)
Total other expense	(9,865)	(7,729)
Loss from continuing operations before taxes	(57,141)	(30,169)
Income tax benefit	(239)	(1,361)
Loss from continuing operations	(56,902)	(28,808)
Loss from discontinued operations, net of applicable taxes	(100)	(167)
Net loss	(57,002)	(28,975)
Recognition of beneficial conversion feature - Series B Preferred Stock		(13,488)
Net loss attributable to common shareholders	$ (57,002)	$ (42,463)
Loss per share, basic and diluted:
Continuing operations	$ (1.09)	$ (0.82)
Net loss per share, basic and diluted	$ (1.09)	$ (1.20)
Shares used in calculating basic and diluted net loss per share	52,234	35,315
United States Product
Revenues:
Revenues	$ 108,242	$ 83,656
International Supply Agreement
Revenues:
Revenues	$ 5,185	$ 8,038

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Subsequent Event

12 Months Ended

Dec. 31, 2019

Subsequent Events [Abstract]

Subsequent Event

15. Subsequent Event

Tender Offer Agreement

On February 28, 2020, the Company entered into a Tender Offer Agreement (the “Tender Offer Agreement”) with EOS Imaging S.A., a société anonyme organized and existing under the laws of France (“EOS”), pursuant to which the Company or one of its affiliates will commence a public tender offer to purchase all of the issued and outstanding ordinary shares, nominal value €0.01 per share (collectively, the “Shares”), and outstanding convertible bonds (“OCEANEs”), of EOS. The tender offer will consist of a cash tender offer price of €2.80 (or approximately $3.08) per Share and €7.01 (or approximately $7.71) per OCEANE, respectively (the “Cash Offer”), or at the option of EOS shareholders, 0.50 of a share of common stock, par value $0.0001 per share, of the company (“ATEC Common Stock”) per Share (the “Exchange Offer” and, together with the Cash Offer, the “Offer Consideration”). The tender offer will need to be filed with and cleared by the Autorité des marches financiers (the “AMF”), which filing is expected to occur in late April 2020, prior to the commencement of the tender offer. EOS is a leader in outcome-improving orthopedic medical imaging and software solutions that inform the entire surgical process.

Commitment Letter

In connection with entry into the Tender Offer Agreement, the Company entered into a commitment letter, dated February 28, 2020 (the “Commitment Letter”), with Perceptive Credit Holdings III, LP (together with its affiliates, “Perceptive”), pursuant to which, subject to the terms and conditions set forth therein, Perceptive has committed to provide $130 million in secured debt financing, up to $60 million of which (the “Refinancing Portion”) will be made available to retire the Company’s existing credit facilities with MidCap Funding IV, LLC and Squadron Medical Finance Solutions, LLC. The remaining commitment by Perceptive to provide an additional $70 million (which may be increased to up to $100 million at the request of the Company if agreed by Perceptive in its sole discretion) in secured debt financing (the “Tender Offer Portion”) will be made available to fund the Cash Offer portion of the Offer Consideration, provided the Company may elect not to incur all or a portion of such Tender Offer Portion to the extent it is unnecessary to fund such Cash Offer amount. In the event the Company elects not to incur the Tender Offer Portion of Perceptive’s commitment, Perceptive will make available up to $15 million in secured debt financing (the “Supplemental Portion”), in addition to the Refinancing Portion, to be used for the Company’s and its subsidiaries’ general corporate and working capital needs. The funding of each of the debt facilities provided for in the Commitment Letter is subject to the satisfaction of customary conditions for facilities of such type that are set forth therein, including entry into definitive documentation reflecting the terms of the Commitment Letter and no material adverse effect with respect to EOS.

Under the terms of the Commitment Letter, the Company has agreed to issue certain warrants to Perceptive representing the right to acquire ATEC Common Stock in connection with the incurrence of the Refinancing Portion (the “Refinancing Warrants”), the incurrence and use of the Tender Offer Portion to consummate the tender offer (the “Tender Offer Warrants”) and the incurrence of the Supplemental Portion (the “Supplemental Warrants” and, together with the Refinancing Warrants and Tender Offer Warrants, the “Warrants”), as applicable. The price per share for 50% of the Refinancing Warrants shall be the lower of (x) the 5-day volume weighted average price of the ATEC Common Stock (“5-day VWAP”) immediately prior to the date of the Commitment Letter and (y) the 5-day VWAP immediately prior to the closing date of the Refinancing Portion, subject to a floor of $4.60 per share (the “Base Refinancing Warrant Price”). The price per share for the remaining 50% of the Refinancing Warrants shall be equal to the Base Refinancing Warrant Price plus an additional 12.5% premium. The price per share for 50% of the Tender Offer Warrants shall be the lower of (x) the 5-day VWAP immediately prior to the date of the Commitment Letter or (y) the 5-day VWAP immediately prior to the date such Tender Offer Warrants are issued, subject to a floor of $4.60 per share (the “Base Tender Offer Warrant Price”). The price per share for the remaining 50% of the Tender Offer Warrants shall be equal to the Base Tender Offer Warrant Price plus an additional 12.5% premium. The price per share for 50% of the Supplemental Warrants shall be the lower of (x) the 5-day VWAP immediately prior to the date of the Commitment Letter or (y) the 5-day VWAP immediately prior to the date the Supplemental Portion is incurred, subject to a floor of $4.60 per share (the “Base Supplemental Warrant Price”). The price per share for the remaining 50% of the Supplemental Warrants shall be equal to the Base Supplemental Warrant Price plus an additional 12.5% premium. The Refinancing Warrants, Tender Offer Warrants and Supplemental Warrants will be exercisable into a number of shares of ATEC Common Stock representing 18.5% of the aggregate principal amount borrowed in respect of the Refinancing Portion, 9% of the aggregate principal amount borrowed in respect of the Tender Offer Portion and used to consummate the Tender Offer and 9% of the aggregate principal amount borrowed in respect of the Supplemental Portion, respectively, in each case calculated using the Base Refinancing Warrant Price, Base Tender Offer Warrant Price or Base Supplemental Warrant Price, as applicable.

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Debt (Tables)

12 Months Ended

Dec. 31, 2019

Debt Disclosure [Abstract]

Long-Term Debt

Long-term debt consists of the following (in thousands):

	December 31,
	2019			2018
Amended Credit Facility with MidCap	$	12,785		$	11,010
Inventory Financing		2,987			—
Squadron Term Loan		45,000			35,000
Notes payable		457			296
Convertible note		—			3,000
Total		61,229			49,306
Add: capital leases		101			126
Less: debt discount		(7,393	)		(3,857	)
Total		53,937			45,575
Less: current portion of long-term debt		(489	)		(3,276	)
Total long-term debt, net of current portion	$	53,448		$	42,299

Principal Payments on Debt

Principal payments on debt are as follows as of December 31, 2019 (in thousands):

Year Ending December 31,
2020	$	458
2021		4,483
2022		20,471
2023		35,817
2024 and thereafter		—
Total		61,229
Add: capital lease principal payments		101
Less: debt discount		(7,393	)
Total		53,937
Less: current portion of long-term debt		(489	)
Long-term debt, net of current portion	$	53,448

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Balance Sheet Details - Schedule of Intangible Assets, Future Expected Amortization Expense (Details) $ in Thousands	Dec. 31, 2019 USD ($)
Balance Sheet Related Disclosures [Abstract]
2020	$ 1,869
2021	1,888
2022	1,888
2023	1,888
2024	1,785
Thereafter	16,287
Total	$ 25,605

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Balance Sheet Details - Inventories, Net (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Balance Sheet Related Disclosures [Abstract]
Raw materials	$ 5,822	$ 5,813
Work-in-process	1,578	952
Finished goods	51,669	39,758
Inventory, gross, total	59,069	46,523
Less reserve for excess and obsolete	(24,215)	(17,758)
Inventories, net	$ 34,854	$ 28,765

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Income Taxes - Components of (Benefit) Provision for Income Taxes from Continuing Operations (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Current income tax (benefit) provision:
Federal		$ (64)
State	$ 207	86
Foreign		4
Total current	207	26
Deferred income tax benefit:
Federal	(195)	(1,140)
State	(251)	(247)
Total deferred	(446)	(1,387)
Total income tax benefit	$ (239)	$ (1,361)

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Acquisition of SafeOp Surgical, Inc. - Additional Information (Details) - USD ($) $ / shares in Units, $ in Thousands		1 Months Ended	3 Months Ended			12 Months Ended
	Mar. 08, 2018	Mar. 31, 2019	Mar. 31, 2019	Sep. 30, 2018	Jun. 30, 2018	Dec. 31, 2019	Dec. 31, 2018	Mar. 31, 2018
Business Acquisition [Line Items]
Convertible note convertible to common stock								14,300,000
Recognition of beneficial conversion feature SafeOp convertible notes		$ 200
Accretion to contingent consideration						$ 289	$ 846
SafeOp Surgical, Inc.
Business Acquisition [Line Items]
Business acquisition date	Mar. 08, 2018
Cash paid	$ 15,100						$ 15,100
Stock issued for acquisition, value	$ 9,800
Closing share price	$ 3.30
Convertible notes issued	$ 3,000
Convertible note convertible to common stock	987,578
Number of warrants issued	2,200,000
Exercise price of warrants per share	$ 3.50
Convertible note, maturity date	Mar. 09, 2019
Warrant issued to purchase of common stock and purchase of common stock period	5 years
Accretion to contingent consideration						$ 300
SafeOp Surgical, Inc. | Interest Expense
Business Acquisition [Line Items]
Recognition of beneficial conversion feature SafeOp convertible notes	$ 200
SafeOp Surgical, Inc. | Common Stock
Business Acquisition [Line Items]
Number of shares of common stock issued	3,265,132
Stock issued for acquisition	2,975,209		886,843	174,302	115,621	886,843	443,421

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Stock Benefit Plans and Stock-Based Compensation - Summary of Stock Option Activity (Detail) $ / shares in Units, shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2019 USD ($) $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Shares Outstanding, Beginning balance | shares	4,723
Shares, Granted | shares	195
Shares, Exercised | shares	(161)
Shares, Forfeited | shares	(542)
Shares Outstanding, Ending balance | shares	4,215
Shares, Options vested and exercisable | shares	2,238
Shares, Options vested and expected to vest | shares	4,028
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Abstract]
Weighted average exercise price, Outstanding, Beginning balance | $ / shares	$ 3.64
Weighted average exercise price, Granted | $ / shares	4.41
Weighted average exercise price,Exercised | $ / shares	2.75
Weighted average exercise price, Forfeited | $ / shares	7.00
Weighted average exercise price, Outstanding, Ending balance | $ / shares	3.27
Weighted average exercise price, Options vested and exercisable | $ / shares	3.71
Weighted average exercise price, Options vested and expected to vest | $ / shares	$ 3.29
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]
Weighted average remaining contractual term, Outstanding, balance	7 years 9 months 18 days
Weighted average remaining contractual term, Options vested and exercisable	7 years 4 months 24 days
Weighted average remaining contractual term, Options vested and expected to vest	7 years 9 months 7 days
Aggregate intrinsic value, Outstanding, Beginning balance | $	$ 0
Aggregate intrinsic value, Outstanding, Ending balance | $	17,961
Aggregate intrinsic value, Options vested and exercisable | $	9,438
Aggregate intrinsic value, Options vested and expected to vest | $	$ 17,177

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Restructuring Activities - Rollforward of accrued restructuring liability (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Restructuring And Related Activities [Abstract]
Beginning balance	$ 710
Accrued restructuring charges	60	$ 1,381
Payments	(746)
Ending balance	$ 24	$ 710

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Income Taxes - Additional Information (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Income Tax [Line Items]
Deferred tax asset, valuation allowance	$ 71,159,000	$ 46,578,000
Number of years cumulative pre-tax loss	3 years
Indefinite-lived intangible assets	$ 0
Unrecognized tax benefits	2,452,000	$ 4,334,000	$ 4,440,000
Accrued interest and penalties	0
Operating loss carryforwards state	205,200,000
Operating loss carryforwards federal	128,200,000
Federal and state net operating loss carryforwards, expiring year		2039
State research and development tax credit carryforwards	$ 3,200,000
Cumulative change in ownership percentage	50.00%
Period for cumulative change in ownership	3 years
Federal
Income Tax [Line Items]
Deferred tax asset, valuation allowance increase (decrease)	$ 20,100,000
State
Income Tax [Line Items]
Deferred tax asset, valuation allowance increase (decrease)	$ 4,500,000

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Debt - Globus Facility Agreement (Details) - USD ($)		12 Months Ended
	Nov. 07, 2018	Dec. 31, 2019	Dec. 31, 2018	Sep. 01, 2016
Debt Instrument [Line Items]
Final settlement under agreement	$ 29,200,000	$ 112,934,000	$ 89,993,000
Globus facility agreement
Debt Instrument [Line Items]
Maximum borrowing capacity				$ 30,000,000

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Debt - Long-Term Debt (Detail) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018	Nov. 06, 2018
Debt Instrument [Line Items]
Inventory Financing	$ 2,987
Notes payable	457	$ 296
Convertible note		3,000
Total	61,229	49,306
Add: capital leases	101	126
Less: debt discount	(7,393)	(3,857)
Total	53,937	45,575
Less: current portion of long-term debt	(489)	(3,276)
Total long-term debt, net of current portion	53,448	42,299
Term Loan | Squadron Credit Agreement
Debt Instrument [Line Items]
Squadron Term Loan	45,000	35,000	$ 35,000
Amended Credit Facility And Term Loan With Mid Cap
Debt Instrument [Line Items]
Maximum borrowing capacity	$ 12,785	$ 11,010

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Orthotec Settlement - Additional Information (Details)				1 Months Ended			12 Months Ended
	Jul. 01, 2016 USD ($)	Oct. 01, 2014 USD ($)	Aug. 13, 2014 USD ($) installment	Sep. 30, 2014 USD ($)	Apr. 30, 2014 USD ($)	Mar. 31, 2014 USD ($)	Dec. 31, 2019 USD ($)	Dec. 31, 2018 USD ($)
Loss Contingencies [Line Items]
Settlement amount to be contributed							$ 5,000,000	$ 5,000,000
Litigation settlement, remaining outstanding balance including interest							0
Orthotec LLC, litigation settlement
Loss Contingencies [Line Items]
Judgment assessed by court for (against) company			$ 49,000,000
Payments of settlement					$ 15,750,000	$ 1,750,000	40,600,000
Number of quarterly installments | installment			28
Litigation settlement interest, quarterly installments, amount			$ 1,100,000
Litigation settlement, final installment amount			700,000
Litigation settlement, remaining outstanding balance including interest							17,200,000
Orthotec LLC, litigation settlement | HealthpointCapital, LLC
Loss Contingencies [Line Items]
Judgment assessed by court for (against) company				$ 5,000,000
Payments of settlement	$ 1,000,000						1,100,000
Settlement amount to be contributed							$ 5,000,000	$ 5,000,000
Beginning fourth quarter of 2014 | Orthotec LLC, litigation settlement
Loss Contingencies [Line Items]
Settlement amount, remaining balance		$ 31,500,000
Litigation settlement interest, quarterly installments, amount			$ 1,100,000
Litigation settlement interest rate			7.00%
Litigation settlement payments, quarterly payment amount			$ 1,100,000
Final installment | Orthotec LLC, litigation settlement
Loss Contingencies [Line Items]
Number of quarterly installments | installment			1

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Summary of Significant Accounting Policies - Summary of Compensation Cost for Stock-Based Compensation Arrangements (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 10,956	$ 5,304
Cost of revenues
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	146	73
Research and development
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	752	351
Sales, General and Administrative
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 10,058	$ 4,880

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The Company and Basis of Presentation - Additional Information (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2019 USD ($) segment	Dec. 31, 2018 USD ($)
Company And Basis Of Presentation [Line Items]
Number of reportable segments | segment	1
Working capital	$ 71,900
Cash	47,113	$ 29,054
Stock-based compensation	10,956	5,304
Reclassification
Company And Basis Of Presentation [Line Items]
Stock-based compensation		$ 100
Current Lenders
Company And Basis Of Presentation [Line Items]
Minimum financial covenant cash balance	5,000
Term Loan | Squadron Credit Agreement
Company And Basis Of Presentation [Line Items]
Available additional debt	$ 20,000

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Equity (Tables)

12 Months Ended

Dec. 31, 2019

Equity [Abstract]

Summary of Outstanding Warrants

A summary of all outstanding warrants is as follows:

	Number of Warrants		Strike Price
2017 Common Stock Warrants		3,232,000	$	2.00
2017 Banker Warrants		148,554	$	2.50
2018 Common Stock Warrants		13,770,488	$	3.50
Merger Warrants		2,199,682	$	3.50
Executive		1,327,434	$	5.00
Squadron Capital		845,000	$	3.15
Squadron Capital		4,838,710	$	2.17
Other		195,312	$	3.85
Total		26,557,180

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Debt

12 Months Ended

Dec. 31, 2019

Debt Disclosure [Abstract]

Debt

5. Debt

MidCap Facility Agreement

The Company’s Amended Credit Facility with MidCap provides for a revolving credit commitment up to $22.5 million and provided for a term loan commitment up to $5 million. As of December 31, 2019, $12.8 million was outstanding under the revolving line of credit. The principal balance outstanding under the revolving line of credit is due in December 2022.

Amounts outstanding under the revolving line of credit accrues interest at the London Interbank Offered Rate ("LIBOR") plus 6.0%, reset monthly. At December 31, 2019, the revolving line of credit carried an interest rate of 7.69%, with interest payable monthly. The borrowing base is determined based on the value of domestic eligible accounts receivable. As collateral for the Amended Credit Facility, MidCap has a first lien security interest in accounts receivable and a second lien security interest on substantially all other assets.

At December 31, 2019, $0.9 million remains as unamortized debt discount related to the Amended Credit Facility on the consolidated balance sheet, which will be amortized over the remaining term of the Amended Credit Facility.

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 March 8, 2018, the Company entered into a Seventh Amendment to the Amended Credit Facility to extend the date that the financial covenants of the Amended Credit Facility are effective from April 2018 to April 2019, and established a minimum liquidity covenant of $5.0 million effective through March 2019. On November 6, 2018, the Company entered into the Eighth Amendment to the Amended Credit Facility to extend the date that the financial covenants of the Amended Credit Facility are effective from April 2019 to April 2020, and extended the minimum liquidity covenant through March 2020. The Company was in compliance with the covenants under the Amended Credit Facility at December 31, 2019.

Globus Facility Agreement

On September 1, 2016, the Company and Globus entered into the Globus Facility Agreement, pursuant to which Globus loaned the Company $30 million, subject to the terms and conditions set forth in the Globus Facility Agreement. On November 7, 2018, the Company repaid in full all amounts outstanding and due under the Globus Facility Agreement. The Company made a final payment of $29.2 million to Globus, consisting of outstanding principal and accrued interest. All amounts previously recorded as debt issuance costs were recorded as a loss on debt extinguishment on the Company’s consolidated statement of operations for the year ended December 31, 2018.

Squadron Credit Agreement

On November 6, 2018, the Company closed a $35 million Term Loan with Squadron, a provider of debt financing to growing companies in the orthopedic industry. The net proceeds of approximately $34.1 million were used to retire the Company’s existing $29.2 million term debt with Globus. The remainder of the proceeds were used for general corporate purposes.

The debt has a five-year maturity and bears interest at LIBOR plus 8% (10.0% as of December 31, 2019) per annum. The Agreement specifies a minimum interest rate of 10% and a maximum of 13% per year. Interest-only payments are due monthly through May 2021, followed by $10 million in principal payable in 29 equal monthly installments beginning June 2021 and a $25 million lump-sum payment payable at maturity in November 2023. As collateral for the Term Loan, Squadron has a first lien security interest in substantially all assets except for accounts receivable.

The credit 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 Squadron’s right to declare all outstanding obligations immediately due and payable. Furthermore, the credit agreement contains various covenants, including monthly compliance certifications and compliance with government regulations and maintenance of insurance, and prohibitions against certain specified actions, including acquiring any new equipment financings over a specified amount. The credit agreement also contains various negative covenants including a $5 million minimum liquidity requirement through March 31, 2020. The minimum liquidity covenant will be replaced by a fixed charge ratio, pursuant to which operating cash to fixed charges (as defined) must equal at least 1:1 on a rolling 12-month basis, beginning April 2020. The Company was in compliance with the covenants under the credit agreement at December 31, 2019.

In connection with the initial financing, the Company issued warrants to Squadron to purchase 845,000 shares of common stock at an exercise price of $3.15 per share.  The warrants have a seven-year term and are immediately exercisable. See Note 9 for further detail on the warrants.

In March 2019, the Company closed on an expanded credit facility with Squadron for up to $30 million in additional secured financing. This additional financing has been made available under the Company’s existing credit facility with Squadron. The Company accounted for the amendment as a debt modification with continued amortization of the existing and inclusion of the new debt issuance costs of $0.3 million amortized into interest expense utilizing the effective interest rate method. The Company took a draw of $10.0 million of the expanded credit facility in June 2019 to be used for general corporate purposes. The additional borrowings under the credit facility will mature concurrent with the current secured financing from Squadron and bear interest at the same rate and subject to the same 10% floor and 13% ceiling. Interest-only payments are due monthly through May 2021, followed by principal payable in 29 equal monthly installments beginning June 2021 and a lump-sum payment payable at maturity in November 2023. In conjunction with the first draw under the expanded credit facility, the Company issued to Squadron warrants to purchase 4,838,710 shares of the Company’s common stock at an exercise price of $2.17 per share. The warrants have a seven-year term and are immediately exercisable. The warrants were valued utilizing the Monte-Carlo simulation model as described further in Note 9 and are recorded within equity in accordance with authoritative accounting guidance and with a proportional amount, calculated by taking the draw amount divided by the total expanded credit facility, recorded as a debt discount. The total debt discount is amortized into interest expense through maturity of the debt utilizing the effective interest rate method. No additional warrants will be issued upon any future draws. The value of the additional warrants issued that are allocated to the remaining balance available for draw on the expanded credit facility were recorded as a deferred cost asset within prepaid and other assets on the consolidated balance sheet as of December 31, 2019 and are being amortized into interest expense on a ratable basis over the term of the debt.

As of December 31, 2019, the debt is recorded at its carrying value of $38.6 million, net of issuance costs, including all amounts paid to third parties to secure the debt and the fair value of the warrants issued. The debt issuance costs are being amortized into interest expense over the five-year term utilizing the effective interest rate method. The total principal outstanding under the Term Loan as of December 31, 2019 is $45.0 million.

Inventory Financing

The Company has an Inventory Financing Agreement with a key inventory and instrument components supplier whereby the Company may draw up to $3.0 million for the purchase of inventory to accrue interest at a rate of LIBOR plus 8% subject to the same 10% floor and 13% ceiling. All principal will become due and payable upon maturity on November 6, 2023 and all interest will be paid monthly. The obligation outstanding under the Inventory Financing Agreement as of December 31, 2019 was $3.0 million.

Other Debt Agreements

The Company has one outstanding capital lease arrangement as of December 31, 2019. The lease bears interest at an annual rate of 6.4% and is due in monthly principal and interest installments, collateralized by the related equipment, and matures in December 2022.

Long-term debt consists of the following (in thousands):

	December 31,
	2019			2018
Amended Credit Facility with MidCap	$	12,785		$	11,010
Inventory Financing		2,987			—
Squadron Term Loan		45,000			35,000
Notes payable		457			296
Convertible note		—			3,000
Total		61,229			49,306
Add: capital leases		101			126
Less: debt discount		(7,393	)		(3,857	)
Total		53,937			45,575
Less: current portion of long-term debt		(489	)		(3,276	)
Total long-term debt, net of current portion	$	53,448		$	42,299

Principal payments on debt are as follows as of December 31, 2019 (in thousands):

Year Ending December 31,
2020	$	458
2021		4,483
2022		20,471
2023		35,817
2024 and thereafter		—
Total		61,229
Add: capital lease principal payments		101
Less: debt discount		(7,393	)
Total		53,937
Less: current portion of long-term debt		(489	)
Long-term debt, net of current portion	$	53,448

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Equity

12 Months Ended

Dec. 31, 2019

Equity [Abstract]

Equity

9. Equity

August 2019 Offering

On August 2, 2019, the Company closed the Offering in which a total of 12,535,000 shares of its common stock, were issued and sold at a price to the public of $4.60 per share. The closing of the Offering included the issuance and sale of 1,635,000 shares of the Company’s common stock, included within the total number of shares above, pursuant to the full exercise of the underwriters’ option to purchase additional shares pursuant to the Purchase Agreement. The net proceeds to the Company from the Offering were approximately $53.9 million, including the net proceeds from the option shares.

Redeemable Preferred Stock

The Company issued shares of redeemable preferred stock in connection with its initial public offering in June 2006.  As of December 31, 2019 and 2018, the redeemable preferred stock carrying value was $23.6 million and there were 20 million shares of redeemable preferred stock authorized. The redeemable preferred stock is not convertible into common stock but is redeemable at $9.00 per share, (i) upon the Company’s liquidation, dissolution or winding up, or the occurrence of certain mergers, consolidations or sales of all or substantially all of the Company’s assets, before any payment to the holders of the Company’s common stock, or (ii) at the Company’s option at any time. Holders of redeemable preferred stock are generally not entitled to vote on matters submitted to the stockholders, except with respect to certain matters that will affect them adversely as a class, and are not entitled to receive dividends. The carrying value of the redeemable preferred stock was $7.11 per share at December 31, 2019 and 2018. The redeemable preferred stock is presented separately from stockholders’ deficit in the consolidated balance sheets and any adjustments to its carrying value up to its redemption value of $9.00 per share are reported as a dividend.

Series A Convertible Preferred Stock

In March 2017, the Company completed a private placement (the “2017 Private Placement”) 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 and 15,245 shares of newly designated Series A Convertible Preferred Stock at a purchase price of $1,000 per share (which shares were convertible into approximately 7,622,372 shares of common stock). Except as otherwise required by law, the holders of Series A Convertible Preferred Stock have no right to vote on matters submitted to a vote of the Company’s stockholders.

During the years ended December 31, 2019 and 2018, 3,909 and 1,274 shares of Series A Preferred Stock were converted into 1,954,334 and 636,997 shares of common stock, respectively. As of December 31, 2019, there were 135 shares of Series A Convertible Preferred Stock outstanding, which are convertible into 67,338 shares of common stock.

2017 Warrants

In connection with the 2017 Private Placement, the Company issued 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 “2017 Common Stock Warrants”). The Company also issued warrants to purchase common stock to the exclusive placement agents (the “2017 Banker Warrants”). The 2017 Banker Warrants were for the purchase of up to an aggregate of 471,600 shares of the Company’s common stock with substantially the same terms as the 2017 Common Stock Warrants, except that they have an exercise price equal $2.50 per share. The 2017 Common Stock Warrants and the 2017 Banker Warrants (collectively, the “2017 Warrants”) expire on June 15, 2022. The 2017 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 the Company, 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.

In conjunction with the 2018 Private Placement described further below, during the year ended December 31, 2018, a holder of 2.4 million 2017 Warrants exercised all its 2017 Warrants at the original exercise price of $2.00 per warrant in exchange for the issuance of additional warrants. As a result of the warrant exercise, the Company received gross proceeds of $4.8 million during the year ended December 31, 2018.

During the year ended December 31, 2019, there were 0.5 million 2017 Warrant exercises for total cash proceeds of $1.1 million. During the year ended December 31, 2018, excluding the $4.8 million described above, the Company received proceeds of approximately $4.0 million in connection with the exercise of approximately 1.9 million of 2017 Common Stock Warrants. As of December 31, 2019, there were 3,232,000 2017 Common Stock Warrants outstanding.

There were 18,864 2017 Banker Warrant exercises during the year ended December 31, 2019 for total cash proceeds of less than $0.1 million. During the year ended December 31, 2018, 304,182 of the 2017 Banker Warrants were exercised for total cash proceeds upon exercise of $0.8 million during the period. A total of 148,554 2017 Banker Warrants remained outstanding as of December 31, 2019.

All the 2017 Warrants were deemed to qualify for equity classification under authoritative accounting guidance.

Series B Convertible Preferred Stock

On March 8, 2018, the Company completed the 2018 Private Placement to certain institutional and accredited investors, including certain directors and executive officers of the Company, providing for the sale by the Company at a purchase price of $1,000 per share, 45,200 of newly designated Series B Convertible Preferred Stock, which shares of preferred stock were automatically converted into 14,349,236 shares of the Company’s common stock upon approval by the Company’s stockholders at the 2018 annual meeting of stockholders held in May 2018, and warrants to purchase up to 12,196,851 shares of common stock at an exercise price of $3.50 per share (the “2018 Common Stock Warrants”). The 2018 Common Stock Warrants became exercisable following stockholder approval at the 2018 annual meeting of stockholders, are subject to certain ownership limitations in certain cases, and expire five years after the date of such stockholder approval. The gross proceeds from the 2018 Private Placement were approximately $45.2 million.

Pursuant to the terms of the purchase agreement entered into in connection with the 2018 Private Placement, from the date of the stockholder approval of the 2018 Private Placement, or May 17, 2018, through the first anniversary of the effective date of the resale registration statement related to the 2018 Private Placement, or May 11, 2019, if the Company issues any shares of common stock or common stock equivalents, subject to certain permitted exceptions, at a price below the conversion price on the date stockholder approval was obtained (a “Dilutive Issuance”), the Company is required to issue an additional number of shares of common stock to the purchasers in the 2018 Private Placement in amount equal to the number of shares of common stock such purchasers would have received if the Dilutive Issuance occurred prior to the date the Company’s stockholders approved the 2018 Private Placement. No such Dilutive Issuances occurred prior to the expiration.

2018 Warrants

The 2018 Common Stock Warrants (the “2018 Warrants”) have a five year life and are exercisable for cash or by cashless exercise. Some of the 2018 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 the Company, 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.

In addition to the 12,196,851 warrants issued in the 2018 Private Placement, the Company issued 1,800,000 warrants to an existing holder with identical terms to the 2018 Warrants, including the exercise price of $3.50.

During the year ended December 31, 2019, 0.2 million of the 2018 Warrants were exercised for total proceeds of $0.6 million. No 2018 Warrants were exercised for the year ended December 31, 2018. A total of 13,770,488 of  2018 Warrants remained outstanding as of December 31, 2019.

All the 2018 Warrants were deemed to qualify for equity classification under authoritative accounting guidance.

Squadron Warrants

As further described in Note 5, during the year ended December 31, 2018, in connection with the initial debt financing with Squadron, the Company issued warrants to purchase 845,000 shares of common stock at an exercise price of $3.15 per share. An additional 4,838,710 warrants were issued at an exercise price of $2.17 per share during the second quarter of 2019, in conjunction with the Company’s draw on the expanded credit facility for total warrants outstanding to Squadron of 5,683,710. The warrants have a seven-year term and are immediately exercisable. In accordance with authoritative accounting guidance, the warrants qualified for equity treatment upon issuance and the portion allocated to the outstanding debt was recorded as a debt discount to the face of the debt liability based on fair value to be amortized into interest expense over the life of the debt agreement. The remaining balance of the warrants was recorded as an asset included within prepaid expenses and other current assets on the consolidated balance sheet as of December 31, 2019 and is being amortized into interest expense on a ratable basis. As the warrants provide for partial price protection that allow for a reduction in the price in the event of a lower per share priced issuance, the warrants were valued utilizing a Monte Carlo simulation that considers the probabilities of future financings. The Monte Carlo model simulates the present value of the potential outcomes of future stock prices of the Company over the seven-year life of the warrants. The projection of stock prices is based on the risk-free rate of return and the volatility of the stock price of the Company and correlates future equity raises based on the probabilities provided.

In December 2011, in connection with the third amendment to the Company’s former credit facility with the Silicon Valley 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 above, the Company issued Common Stock Warrants in connection with the private placement financing in March 2017 and March 2018. The warrants expire on the fifth anniversary of the date on which they were first exercisable. Further, as described in Note 8, the Company issued warrants in conjunction with the acquisition of SafeOp.  

In December 2017 the Company issued warrants to Mr. Miles, the Company’s Chairman and Chief Executive Officer, 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 as the warrants were immediately vested upon issuance.

A summary of all outstanding warrants is as follows:

	Number of Warrants		Strike Price
2017 Common Stock Warrants		3,232,000	$	2.00
2017 Banker Warrants		148,554	$	2.50
2018 Common Stock Warrants		13,770,488	$	3.50
Merger Warrants		2,199,682	$	3.50
Executive		1,327,434	$	5.00
Squadron Capital		845,000	$	3.15
Squadron Capital		4,838,710	$	2.17
Other		195,312	$	3.85
Total		26,557,180

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Retirement Plan

12 Months Ended

Dec. 31, 2019

Compensation And Retirement Disclosure [Abstract]

Retirement Plan

13. Retirement Plan

The Company maintains an employee savings plan that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the savings plan, participating employees may contribute a portion of their pre-tax earnings, up to the Internal Revenue Service annual contribution limit. Additionally, the Company may elect to make matching contributions into the savings plan at its sole discretion of up to 4% of each individual’s compensation. Matching contributions vest after one year of service. The Company’s total contributions to the 401(k) plan were $0.6 million and $0.4 million for the years ended December 31, 2019 and 2018, respectively.

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Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2019

Accounting Policies [Abstract]

Reconciliation of liabilities measured at fair value using significant unobservable inputs

The following table provides a reconciliation of liabilities measured at fair value using significant unobservable inputs (Level 3) for the year ended December 31, 2018 and 2019 (in thousands):

	Level 3 Liabilities
Balance at December 31, 2017	$	—
Contingent consideration liability recorded upon acquisition of    SafeOp		3,200
Settlement of milestone #1		(1,446	)
Change in fair value measurement		846
Balance at December 31, 2018		2,600
Settlement of milestone #2		(2,889	)
Change in fair value measurement- milestone #2		289
Straight line recognition of liability classified equity award		173
Change in fair value measurement- equity award		93
Balance at December 31, 2019	$	266

Summary of weighted average assumptions used to compute stock-based compensation costs for stock options granted

The weighted average assumptions used to compute the stock-based compensation costs for the stock options granted during the years ended December 31, 2019 and 2018 are as follows:

	Year Ended December 31,
	2019			2018
Risk-free interest rate		2.00	%		2.85	%
Expected dividend yield		—			—
Weighted average expected life (years)		6.09			6.08
Volatility		80.76	%		78.54	%

Summary of compensation cost for stock-based compensation arrangements

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

	Year Ended December 31,
	2019		2018
Cost of revenues	$	146	$	73
Research and development		752		351
Sales, general and administrative		10,058		4,880
Total	$	10,956	$	5,304

Computation of Basic and Diluted Loss Per Share

The following table sets forth the computation of basic and diluted loss per share (in thousands, except per share data):

	Year Ended December 31,
	2019			2018
Numerator:
Net loss, basic and diluted	$	(57,002	)	$	(42,463	)
Denominator:
Weighted average common shares outstanding		52,520			35,402
Weighted average unvested common shares subject to repurchase		(286	)		(87	)
Weighted average common shares outstanding - basic and diluted		52,234			35,315
Net loss per share, basic and diluted	$	(1.09	)	$	(1.20	)

Weighted-average anti-dilutive securities not included in diluted net loss per share

The anti-dilutive securities not included in diluted net loss per share were as follows calculated on a weighted average basis (in thousands):

	Year Ended December 31,
	2019		2018
Options to purchase common stock		4,215		4,682
Warrants to purchase common stock		26,557		22,302
Series A convertible preferred stock		67		2,022
Unvested restricted stock awards		6,727		3,270
Convertible notes		—		988
		37,566		33,264

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Orthotec Settlement (Tables)

12 Months Ended

Dec. 31, 2019

Commitments And Contingencies Disclosure [Abstract]

Schedule of Reconciliation of Total Net Settlement Obligation

A reconciliation of the total net settlement obligation is as follows (in thousands):

	December 31, 2019			December 31, 2018
Litigation settlement obligation - short-term portion	$	4,400		$	4,400
Litigation settlement obligation - long-term portion		10,712			13,954
Total		15,112			18,354
Future Interest		2,121			3,279
Total settlement obligation, gross		17,233			21,633
Related party receivable - included in stockholders'    equity		(5,000	)		(5,000	)
Total settlement obligation, net	$	12,233		$	16,633

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CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Current assets:
Cash	$ 47,113	$ 29,054
Accounts receivable, net	16,150	15,095
Inventories, net	34,854	28,765
Prepaid expenses and other current assets	9,880	2,030
Withholding tax receivable from officer		350
Current assets of discontinued operations	321	242
Total current assets	108,318	75,536
Property and equipment, net	19,722	13,235
Right-of-use asset	1,860
Goodwill	13,897	13,897
Intangibles, net	25,605	26,408
Other assets	493	347
Noncurrent assets of discontinued operations	53	54
Total assets	169,948	129,477
Current liabilities:
Accounts payable	7,772	4,399
Accrued expenses	26,416	22,316
Current portion of long-term debt	489	3,276
Current portion of lease liability	1,314
Current liabilities of discontinued operations	399	621
Total current liabilities	36,390	30,612
Long-term debt, less current portion	53,448	42,299
Operating lease liability, less current portion	925
Other long-term liabilities	11,951	15,389
Redeemable preferred stock, $0.0001 par value; 20,000 shares authorized at December 31, 2019 and 2018; 3,319 shares issued and outstanding at December 31, 2019 and 2018	23,603	23,603
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.0001 par value; 200,000 authorized; 61,718 shares issued and 61,400 outstanding at December 31, 2019, net of 318 unvested shares and 43,518 shares issued and 43,368 shares outstanding, net of 150 unvested shares at December 31, 2018	6	4
Treasury stock, 2 shares, at cost	(97)	(97)
Additional paid-in capital	606,558	523,525
Shareholder note receivable	(5,000)	(5,000)
Accumulated other comprehensive income	1,088	1,064
Accumulated deficit	(558,924)	(501,922)
Total stockholders’ equity	43,631	17,574
Total liabilities and stockholders’ equity	169,948	129,477
Series A Convertible Preferred Stock
Stockholders’ equity:
Convertible preferred stock
Series B Convertible Preferred Stock
Stockholders’ equity:
Convertible preferred stock

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) $ in Thousands	Total	SafeOp Surgical, Inc.	SafeOp Surgical, Inc. Milestone 1 and Milestone 2	Series A Convertible Preferred Stock	Series B Convertible Preferred Stock	Common stock	Common stock SafeOp Surgical, Inc.	Common stock SafeOp Surgical, Inc. Milestone 1 and Milestone 2	Additional paid-in capital	Additional paid-in capital SafeOp Surgical, Inc.	Additional paid-in capital SafeOp Surgical, Inc. Milestone 1 and Milestone 2	Shareholder note receivable	Treasury stock	Accumulated other comprehensive income (loss)	Accumulated deficit
Balance at Dec. 31, 2017	$ (26,658)					$ 2			$ 436,803			$ (5,000)	$ (97)	$ 1,093	$ (459,459)
Balance, shares at Dec. 31, 2017				5,000		19,857,000
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation	5,649								5,649
Common stock issued for conversion of Series A preferred stock, shares				(1,000)		14,986,000
Issuance of warrants in conjunction with Squadron Term Loan	1,708								1,708
Issuance and conversion of preferred stock into common stock, net of offering costs	42,610					$ 2			42,608
Recognition of beneficial conversion feature -Series B Preferred Stock and SaleOp Convertible Notes									13,488						(13,488)
Common stock issued for employee stock purchase plan and stock option exercises	666								666
Common stock issued for employee stock purchase plan and stock option exercises, shares						258,000
Common stock issued for vesting of restricted stock awards, net of shares repurchased for tax liability, shares						248,000
Common stock issued for warrant exercises, net of issuance costs	8,628								8,628
Common stock issued for warrant exercises, net of issuance costs. shares						4,311,000
Issuance of common stock and warrants for the acquisition of SafeOp		$ 12,529								$ 12,529
Issuance of common stock and warrants for the acquisition of SafeOp, shares							$ 3,265
Issuance of common stock for acquisition			$ 1,446								$ 1,446
Issuance of common stock for acquisition, shares							443,421	443,000
Foreign currency translation adjustments	(29)													(29)
Net loss	(28,975)			$ 0	$ 0										(28,975)
Balance at Dec. 31, 2018	17,574					$ 4			523,525			(5,000)	(97)	1,064	(501,922)
Balance, shares at Dec. 31, 2018				4,000		43,368,000
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation	10,294								10,294
Common stock issued for conversion of Series A preferred stock				$ (4)
Common stock issued for conversion of Series A preferred stock, shares						1,954,000
Recognition of beneficial conversion feature -Series B Preferred Stock and SaleOp Convertible Notes	242								242
Distributor equity incentives	322								322
Distributor equity incentives, shares						75,000
Common stock issued for employee stock purchase plan and stock option exercises	1,522								1,522
Common stock issued for employee stock purchase plan and stock option exercises, shares						477,000
Common stock issued for warrant exercises, net of issuance costs	1,668								1,668
Common stock issued for warrant exercises, net of issuance costs. shares						757,000
Common stock issued for vesting of performances and restricted stock units and restricted stock awards,net of tax liability	(1,414)								(1,414)
Common stock issued for vesting of performance and restricted stock units and restricted stock awards, net of tax liability, shares						1,347,000
Issuance of common stock warrants	13,664								13,664
Issuance of common stock for public offering, net of offering costs	53,848					$ 2			53,846
Issuance of stock offering, net of offering costs, shares						12,535,000
Issuance of common stock for acquisition			$ 2,889								$ 2,889
Issuance of common stock for acquisition, shares							886,843	887,000
Foreign currency translation adjustments	24													24
Net loss	(57,002)														(57,002)
Balance at Dec. 31, 2019	$ 43,631					$ 6			$ 606,558			$ (5,000)	$ (97)	$ 1,088	$ (558,924)
Balance, shares at Dec. 31, 2019						61,400,000

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Equity - Summary of Outstanding Warrants (Details)	Dec. 31, 2019 $ / shares shares
Class Of Warrant Or Right [Line Items]
Number of Warrants	26,557,180
2017 Common Stock Warrants
Class Of Warrant Or Right [Line Items]
Number of Warrants	3,232,000
Exercise price of warrants per share | $ / shares	$ 2.00
2017 Banker Warrants
Class Of Warrant Or Right [Line Items]
Number of Warrants	148,554
Exercise price of warrants per share | $ / shares	$ 2.50
2018 Common Stock Warrants
Class Of Warrant Or Right [Line Items]
Number of Warrants	13,770,488
Exercise price of warrants per share | $ / shares	$ 3.50
Merger Warrants
Class Of Warrant Or Right [Line Items]
Number of Warrants	2,199,682
Exercise price of warrants per share | $ / shares	$ 3.50
Executive Warrants
Class Of Warrant Or Right [Line Items]
Number of Warrants	1,327,434
Exercise price of warrants per share | $ / shares	$ 5.00
Squadron Capital Warrant Exercise Price at $3.15
Class Of Warrant Or Right [Line Items]
Number of Warrants	845,000
Exercise price of warrants per share | $ / shares	$ 3.15
Squadron Capital Warrant Exercise Price at $2.17
Class Of Warrant Or Right [Line Items]
Number of Warrants	4,838,710
Exercise price of warrants per share | $ / shares	$ 2.17
Other Warrants
Class Of Warrant Or Right [Line Items]
Number of Warrants	195,312
Exercise price of warrants per share | $ / shares	$ 3.85

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Stock Benefit Plans and Stock-Based Compensation - Summary Common Stock Reserved for Future Issuance (Detail) shares in Thousands	Dec. 31, 2019 shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock reserved for future issuance	43,664
Employee Stock Option
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock reserved for future issuance	4,215
Unvested restricted stock awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock reserved for future issuance	6,727
Employee Stock Purchase Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock reserved for future issuance	117
Series A Convertible Preferred Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock reserved for future issuance	67
Warrants Outstanding
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock reserved for future issuance	26,557
Authorized for Future Grant Under the Distributor and Development Services Plans
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock reserved for future issuance	3,908
Authorized for Future Grant Under the Management Objective Strategic Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock reserved for future issuance	445
Authorized for Future Grant Under the Plans
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock reserved for future issuance	1,628

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Balance Sheet Details - Schedule of Other Long-Term Liabilities (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Balance Sheet Related Disclosures [Abstract]
Litigation settlement obligation - long-term portion	$ 10,712	$ 13,954
Line of credit exit fee	600	600
Tax liabilities	373	835
Other	266
Other long-term liabilities	$ 11,951	$ 15,389

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Balance Sheet Details - Intangible Assets - Additional Information (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Mar. 31, 2018
Property, Plant and Equipment [Line Items]
Depreciation	$ 6.8	$ 6.0
Amortization of intangible assets	0.7	0.8
SafeOp Surgical, Inc.
Property, Plant and Equipment [Line Items]
Business acquisition, intangible assets recorded			$ 21.6
Machinery and equipment
Property, Plant and Equipment [Line Items]
Capital leased assets, gross	$ 0.1	$ 0.1

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Summary of Significant Accounting Policies - Weighted-Average Anti-Dilutive Securities Not Included in Diluted Net Loss Per Share (Details) - shares shares in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Anti-dilutive securities not included in diluted net loss per share (in shares)	37,566	33,264
Convertible notes
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Anti-dilutive securities not included in diluted net loss per share (in shares)		988
Series A Convertible Preferred Stock
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Anti-dilutive securities not included in diluted net loss per share (in shares)	67	2,022
Options to purchase common stock
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Anti-dilutive securities not included in diluted net loss per share (in shares)	4,215	4,682
Warrants to purchase common stock
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Anti-dilutive securities not included in diluted net loss per share (in shares)	26,557	22,302
Unvested restricted stock awards
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Anti-dilutive securities not included in diluted net loss per share (in shares)	6,727	3,270

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Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2019

Commitments And Contingencies Disclosure [Abstract]

Future minimum annual lease payments

Future minimum annual undiscounted lease payments under the Company’s operating and capital leases are as follows (in thousands):

Year ending December 31,
2020	$	1,488
2021		921
2022		42
Total undiscounted lease payments		2,451
Less: present value adjustment		(212	)
Operating lease liability		2,239
Less: current portion of operating lease liability		(1,314	)
Operating lease liability, less current portion	$	925

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Related Party Transactions

12 Months Ended

Dec. 31, 2019

Related Party Transactions [Abstract]

Related Party Transactions

12. Related Party Transactions

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 Orthotec settlement amount.

During the second quarter of 2018, HealthpointCapital Partners, L.P., and HealthpointCapital Partners II, L.P. distributed its holdings in the Company’s common stock to its limited partners. As a result, the fund is no longer a shareholder of the Company as of December 31, 2018. The $5 million receivable from HealthpointCapital, LLC continues to be classified within stockholders’ equity on the Company’s consolidated balance sheets due to the related party nature with HealthpointCapital affiliates.

Certain of the Company’s board of directors and senior management participated in the March 2017 and 2018 private placements.

Included on the consolidated balance sheet as of December 31, 2018 is a $0.3 million officer receivable for settlement of a tax liability related to the vesting of a restricted stock unit. A corresponding liability for the same amount is also included on the consolidated balance sheet within the accrued expenses line item. Subsequent to December 31, 2018, the amounts were settled and remitted to settle the tax liability.

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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2019

Use of Estimates

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of property and equipment, intangibles, allowances for doubtful accounts, the valuation of share based liabilities, deferred tax assets, inventory, stock-based compensation, revenues, restructuring liabilities, income tax uncertainties, and other contingencies.

Concentrations of Credit Risk and Significant Customers

Concentrations of Credit Risk and Significant Customers

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and accounts receivable. The Company limits its exposure to credit loss by depositing its cash with established financial institutions. As of December 31, 2019, a substantial portion of the Company’s available cash funds is held in business accounts. Although the Company deposits its cash with multiple financial institutions, its deposits, at times, may exceed federally insured limits.

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

Revenue Recognition

Revenue Recognition

The Company recognizes revenue from product sales in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“Topic 606”). The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.  

The Company derives its revenues primarily from the sale of spinal surgery implants and products used in the treatment of spine disorders. The Company sells its products primarily through its direct sales force and independent distributors. Revenue is recognized when control of the promised goods is transferred to the customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods. Transfer of control generally occurs when the Company receives the written acknowledgment that the product has been used in a surgical procedure or upon shipment to third-party customers who immediately accept title to such product.

The Company’s accounts receivable generally have net 30-day payment terms. The Company generally does not allow returns of products that have been delivered. The Company offers standard quality assurance warranty on its products. As of December 31, 2019, accounts receivable related to products and services were $16.2 million. For the year ended December 31, 2019, the Company had no material bad debt expense and there were no material contract assets, contract liabilities or deferred contract costs recorded on the consolidated balance sheet as of December 31, 2019.

Accounts Receivable, net

Accounts Receivable, net

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

Inventories, net

Inventories, net

Inventories are stated at the lower of cost or net realizable value, with cost primarily determined under the first-in, first-out method. The Company reviews the components of inventory on a periodic basis for excess, obsolete and impaired inventory, and records a reserve for the identified items. The Company calculates an inventory reserve for estimated excess and obsolete inventory based upon historical turnover and assumptions about future demand for its products and market conditions. The Company’s biologics inventories have an expiration based on shelf life and are subject to demand fluctuations based on the availability and demand for alternative implant products. The Company’s estimates and assumptions for excess and obsolete inventory are reviewed and updated on a quarterly basis. Increases in the reserve for excess and obsolete inventory result in a corresponding increase to cost of revenues and establish a new cost basis for the part.

Property and Equipment, net

Property and Equipment, net

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

Operating Lease

Operating Lease

Effective January 1, 2019, the Company adopted ASC No. 2016‑02, Leases (Topic 842) (“ASC 842”), which supersedes the current accounting for leases, using the modified retrospective transition method. The Company has elected to apply the practical expedients allowed by the standard for existing leases. The new standard, while retaining two distinct types of leases, finance and operating, (i) requires lessees to record a right-of-use (“ROU”) asset and a related liability for the rights and obligations associated with a lease, regardless of lease classification, and recognize lease expense in a manner similar to current accounting, (ii) eliminates current real estate specific lease provisions, (iii) modifies the lease classification criteria and (iv) aligns many of the underlying lessor model principles with those in the new revenue standard. The Company determines the initial classification and measurement of its ROU asset and lease liabilities at the lease commencement date and thereafter, if modified. The Company recognizes a ROU asset for its operating leases with lease terms greater than 12 months. The lease term includes any renewal options and termination options that the Company is reasonably assured to exercise. The present value of lease payments is determined by using the incremental borrowing rate for operating leases determined by using the incremental borrowing rate of interest that the Company would pay to borrow on a collateralized basis an amount equal to the lease payments in a similar economic environment. The Company applied the new guidance to its existing facility lease at the time of adoption and recognized a ROU asset of $2.4 million and operating lease liability of $2.9 million as of March 31, 2019, the initial period of adoption, and removed the previous deferred rent balance under the previous lease guidance of approximately $0.6 million. The Company entered into another facility lease for smaller office space during the third quarter of 2019 and also applied this guidance to create an additional ROU asset and operating lease liability. The two leases are presented together on the Company’s consolidated balance sheet.

Rent expense for operating leases is recognized on a straight-line basis over the reasonably assured lease term based on the total lease payments and is included in research and development and general and administrative expenses in the consolidated statements of operations.

Goodwill and Intangible Assets

Goodwill and Intangible Assets

The Company’s goodwill represents the excess of the cost over the fair value of net assets acquired from its business combination with SafeOp. The determination of the value of goodwill and intangible assets arising from its business combination and asset acquisitions requires extensive use of accounting estimates and judgments to allocate the purchase price to the fair value of the net tangible and intangible assets acquired, including capitalized in-process research and development (“IPR&D”). Intangible assets acquired in a business combination that are used for in-process research and development activities are considered indefinite lived until the completion or abandonment of the associated research and development efforts. Upon reaching the end of the relevant research and development project, the Company will amortize the acquired IPR&D over its estimated useful life or expense the acquired in-process research and development should the research and development project be unsuccessful with no future alternative use.

Goodwill and IPR&D are not amortized; however, they are assessed for impairment using fair value measurement techniques on an annual basis or more frequently if facts and circumstance warrant such a review. The goodwill or IPR&D are considered to be impaired if the Company determines that the carrying value of the reporting unit or IPR&D exceeds its respective fair value. 

The Company performs its annual impairment analysis by comparing the Company’s estimated fair value, calculated from the Company’s market capitalization, to its carrying amount. The Company’s annual evaluation for impairment of goodwill consists of one reporting unit. The Company completed its most recent annual evaluation for impairment as of December 31, 2019 and determined that no impairment existed and, consequently, no impairment charge has been recorded during the year.

Intangible assets with a finite life, such as acquired technology, customer relationships, manufacturing know-how, licensed technology, supply agreements and certain trade names and trademarks, are amortized on a straight-line basis over their estimated useful life, ranging from one to twenty-year period. In determining the useful lives of intangible assets, the Company considers the expected use of the assets and the effects of obsolescence, demand, competition, anticipated technological advances, changes in surgical techniques, market influences and other economic factors. For technology based intangible assets, the Company considers the expected life cycles of products which incorporate the corresponding technology. Trademarks and trade names that are related to products are assigned lives consistent with the period in which the products bearing each brand are expected to be sold.

The Company evaluates its intangible assets with finite lives for indications of impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that could trigger an impairment review include significant under-performance relative to expected historical or projected future operating results, significant changes in the manner of the Company’s use of the acquired assets or the strategy for the Company’s overall business or significant negative industry or economic trends. If this evaluation indicates that the value of the intangible asset may be impaired, the Company makes an assessment of the recoverability of the net carrying value of the asset over its remaining useful life. If this assessment indicates that the intangible asset is not recoverable, based on the estimated undiscounted future cash flows of the technology over the remaining amortization period, the Company reduces the net carrying value of the related intangible asset to fair value and may adjust the remaining amortization period. There were no impairment charges in 2019 or 2018.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

The Company assesses potential impairment to its long-lived assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized when the carrying amount of the long-lived assets is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Any required impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value and is recorded as a reduction in the carrying value of the related asset and a charge to operating results. There were no impairment charges in 2019 or 2018.

Warrants to Purchase Common Stock

Warrants to Purchase Common Stock

Warrants are accounted for in accordance with the applicable accounting guidance as either derivative liabilities or as equity instruments depending on the specific terms of the agreements. Liability-classified instruments are recorded at fair value at each reporting period with any change in fair value recognized as a component of change in fair value of derivative liabilities in the consolidated statements of operations.

All warrants issued in 2019 and 2018 qualified for classification within stockholders’ equity and, therefore, did not require liability accounting.

Fair Value Measurements

Fair Value Measurements

The carrying amount of financial instruments consisting of cash, trade accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses, accrued compensation and current portion of long-term debt included in the Company’s consolidated financial statements are reasonable estimates of fair value due to their short maturities. Based on the borrowing rates currently available to the Company for loans with similar terms, management believes the fair value of long-term debt approximates its carrying value.

Authoritative guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Aside from the warrants issued alongside the Squadron amendment that are classified within prepaid and other assets on the consolidated balance sheet, the Company does not maintain any financial assets that are considered to be Level 1, Level 2 or Level 3 instruments as of December 31, 2019. The fair value of the contingent consideration liability assumed in the SafeOp acquisition was recorded as part of the purchase price consideration of the acquisition. The contingent consideration related to the SafeOp acquisition was classified within Level 3 of the fair value hierarchy as the Company was using a probability-weighted income approach, utilizing significant unobservable inputs including the probability of achieving each of the potential milestones and an estimated discount rate related to the risks of the expected cash flows attributable to the milestones. All the contingent milestones were achieved as of December 31, 2019. During the second quarter of 2019, the Company issued a liability classified equity award to one of its executive officers. The award will be earned over a 4 year vesting period and upon a specific market condition. As the award will be cash settled, it is classified as a liability within Level 3 of the fair value hierarchy as the Company is using a probability-weighted income approach, utilizing significant unobservable inputs including the probability of achieving the specified market condition with the valuation updated at each reporting period. The full fair value of the cash settled award was $1.7 million as of December 31, 2019 and is being recognized ratably as the underlying service period is provided.

The following table provides a reconciliation of liabilities measured at fair value using significant unobservable inputs (Level 3) for the year ended December 31, 2018 and 2019 (in thousands):

	Level 3 Liabilities
Balance at December 31, 2017	$	—
Contingent consideration liability recorded upon acquisition of    SafeOp		3,200
Settlement of milestone #1		(1,446	)
Change in fair value measurement		846
Balance at December 31, 2018		2,600
Settlement of milestone #2		(2,889	)
Change in fair value measurement- milestone #2		289
Straight line recognition of liability classified equity award		173
Change in fair value measurement- equity award		93
Balance at December 31, 2019	$	266

During the year ended December 31, 2019, the Company achieved the second of the two milestones related to the acquisition of SafeOp, which was settled through the issuance of 886,843 shares of the Company’s common stock. See Note 8 for further information.

Research and Development Expenses

Research and Development Expenses

Research and development expense consists of costs associated with the design, development, testing, and enhancement of the Company’s products. Research and development costs also include salaries and related employee benefits, research-related overhead expenses, fees paid to external service providers. Research and development costs are expensed as incurred.

Transaction-related Expenses

Transaction-related Expenses

The Company expensed certain costs related to the SafeOp acquisition, which primarily include third-party advisory and legal fees.

Litigation-related Expenses

Litigation-related Expenses

Litigation-related expenses are costs incurred for the ongoing litigation, primarily with NuVasive, Inc. See Note 6 for further information.

Product Shipment Cost

Product Shipment Cost

Product shipment costs are included in sales and marketing expense in the accompanying consolidated statements of operations. Product shipment costs totaled $4.0 million and $2.5 million for the years ended December 31, 2019 and 2018, respectively.

Stock-Based Compensation

Stock-Based Compensation

The Company accounts for stock-based compensation under provisions which require that share-based payment transactions with employees be recognized in the financial statements based on their fair value and recognized as compensation expense over the vesting period. The amount of expense recognized during the period is affected by subjective assumptions, including estimates of the future volatility of the Company’s stock price, the expected term for its stock options, the number of options expected to ultimately vest, and the timing of vesting for the Company’s share-based awards.

The Company uses a Black-Scholes option pricing valuation model to estimate the fair value of its stock option awards. The calculation of the fair value of the awards using the Black-Scholes option pricing model is affected by the Company’s common stock price on the date of grant as well as assumptions regarding the following:

• Estimated volatility is a measure of the amount by which the Company’s common stock price is expected to fluctuate each year during the expected life of the award. The Company’s estimated volatility through December 31, 2019 was based on a weighted-average volatility of its actual historical volatility over a period equal to the expected life of the awards.

• The expected term represents the period of time that awards granted are expected to be outstanding. Through December 31, 2019, the Company calculated the expected term using a weighted-average term based on historical exercise patterns and the term from option date to full exercise for the options granted within the specified date range.

• The risk-free interest rate is based on the yield curve of a zero-coupon U.S. Treasury bond on the date the stock option award is granted with a maturity equal to the expected term of the stock option award.

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

The Company used historical data to estimate the number of future stock option forfeitures. Stock-based compensation recorded in the Company’s consolidated statements of operations is based on awards expected to ultimately vest and has been reduced for estimated forfeitures. The Company’s estimated forfeiture rates may differ from its actual forfeitures which would affect the amount of expense recognized during the period.

The Company accounts for stock option grants to non-employees in accordance with provisions which require that the fair value of these instruments be recognized as an expense over the period in which the related services are rendered.

Stock-based compensation expense of awards with performance conditions is recognized over the period from the date the performance condition is determined to be probable of occurring through the time the applicable condition is met. Determining the likelihood and timing of achieving performance conditions is a subjective judgment made by management which may affect the amount and timing of expense related to these share-based awards. Share-based compensation is adjusted to reflect the value of options which ultimately vest as such amounts become known in future periods.

Stock-based awards with market conditions are valued using the Monte Carlo valuation technique which requires management to make significant estimates and assumptions that are not observable from the market. Stock based compensation for awards with both service and market conditions that contain one vesting date are recognized on a straight line basis over the longer of the derived service period or the requisite service period.  For awards with both service and market conditions with various vesting dates, stock based compensation is recognized utilizing an accelerated expense model over the longer of the derived service period or the requisite service period.

Valuation of Stock Option Awards

Valuation of Stock Option Awards

The weighted average assumptions used to compute the stock-based compensation costs for the stock options granted during the years ended December 31, 2019 and 2018 are as follows:

	Year Ended December 31,
	2019			2018
Risk-free interest rate		2.00	%		2.85	%
Expected dividend yield		—			—
Weighted average expected life (years)		6.09			6.08
Volatility		80.76	%		78.54	%

Stock-Based Compensation Costs

Stock-Based Compensation Costs

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

	Year Ended December 31,
	2019		2018
Cost of revenues	$	146	$	73
Research and development		752		351
Sales, general and administrative		10,058		4,880
Total	$	10,956	$	5,304

Income Taxes

Income Taxes

The Company accounts for income taxes in accordance with provisions which set forth an asset and liability approach that requires the recognition of deferred tax assets and deferred tax liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. In making such determination, a review of all available positive and negative evidence must be considered, including scheduled reversal of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance.

The Company recognizes interest and penalties related to uncertain tax positions as a component of the income tax provision.

Net Loss per Share

Net Loss per Share

Basic earnings per share (“EPS”) is calculated by dividing the net income or loss available to common stockholders by the weighted average number of shares of common stock outstanding for the period without consideration for common stock equivalents. Diluted EPS is computed by dividing the net income or loss available to common stockholders by the weighted average number of shares of common stock 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, common stock issuable upon conversion of preferred shares, options 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 sets forth the computation of basic and diluted loss per share (in thousands, except per share data):

	Year Ended December 31,
	2019			2018
Numerator:
Net loss, basic and diluted	$	(57,002	)	$	(42,463	)
Denominator:
Weighted average common shares outstanding		52,520			35,402
Weighted average unvested common shares subject to repurchase		(286	)		(87	)
Weighted average common shares outstanding - basic and diluted		52,234			35,315
Net loss per share, basic and diluted	$	(1.09	)	$	(1.20	)

The anti-dilutive securities not included in diluted net loss per share were as follows calculated on a weighted average basis (in thousands):

	Year Ended December 31,
	2019		2018
Options to purchase common stock		4,215		4,682
Warrants to purchase common stock		26,557		22,302
Series A convertible preferred stock		67		2,022
Unvested restricted stock awards		6,727		3,270
Convertible notes		—		988
		37,566		33,264

Recent Accounting Pronouncements

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), 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 and interim reporting periods in fiscal years beginning after December 15, 2018. The Company adopted the guidance effective January 1, 2019 and elected the optional transition method to account for the impact of the adoption with a cumulative-effect adjustment in the period of adoption and did not restate prior periods. The Company elected certain practical expedients permitted under the transition guidance. As part of the adoption, the Company recorded a ROU asset and liability upon adoption of the guidance pertaining to its long-term real estate lease for its corporate facilities. No cumulative-effect adjustment was needed.

Recently Issued Accounting Pronouncements

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other, which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. The standard has tiered effective dates, starting in 2020 for calendar-year public business entities that meet the definition of an SEC filer. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The Company is in the process of determining the impact the adoption will have on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15,Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40), which aligns the accounting for cloud computing implementation costs with that of costs to develop or obtain internal-use software, meaning such costs that are part of the application development stage are capitalized as an asset and amortized over the term of the arrangement, otherwise, such costs are expensed as incurred. It also clarifies the classification of amounts related to capitalized implementation costs in the financial statements. ASC 2018-15 is effective for annual reporting periods beginning after December 15, 2019, including interim reporting periods within those annual reporting periods. Early adoption is permitted.  The Company is in the process of determining the impact the adoption will have on its consolidated financial statements.

In November 2019, the FASB issued ASU No. 2019-08, Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606), which clarifies that an entity must measure and classify share-based payment awards granted to a customer by applying the guidance in Topic 718. ASC 2019-08 is effective for annual reporting periods beginning after December 15, 2019, including interim reporting periods within those annual reporting periods. The Company is in the process of determining the impact the adoption will have on its consolidated financial statements.

SafeOp Convertible Notes

Beneficial Conversion Feature

Beneficial Conversion Feature – SafeOp Convertible Notes

In March 2019, the Company’s convertible notes outstanding reached maturity and allowed for the noteholders to elect settlement in cash or shares of the Company’s common stock. As the Convertible Notes provided the holders the benefit to convert to shares of common stock, a BCF with a calculated intrinsic fair value at issuance of $0.2 million existed as of the date the Convertible Notes were able to be converted into shares of the Company’s common stock. Although the holders elected for cash settlement, the BCF was required to be recognized as interest expense on the Company’s consolidated statement of operations and within additional paid-in-capital within the Company’s consolidated statement of stockholders’ equity for the year ended December 31, 2019.

Series B Preferred Stock

Beneficial Conversion Feature

Beneficial Conversion Feature – Series B Preferred Stock

In March 2018, the Company completed a private placement of equity securities to certain institutional and accredited investors, providing for the sale by the Company of newly designated Series B Convertible Preferred Stock, which shares of preferred stock were automatically converted into 14.3 million shares of our common stock upon approval by the Company’s stockholders. As the Series B Convertible Preferred Stock provided the holder the benefit to convert to shares of common stock, a beneficial conversion feature (“BCF”) with a calculated intrinsic fair value at issuance of $13.5 million existed as of the date the shares of Series B Convertible Preferred Stock were able to be converted into shares of common stock. This one-time, non-cash deemed dividend impacts net loss attributable to common stockholders and net loss per share on the Company’s consolidated statement of operations for the year ended December 31, 2018.

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CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Dec. 31, 2019	Dec. 31, 2018
Redeemable preferred stock, par value (dollars per share)	$ 0.0001	$ 0.0001
Redeemable preferred stock, shares authorized	20,000,000	20,000,000
Redeemable preferred stock, shares issued	3,319,000	3,319,000
Redeemable preferred stock, shares outstanding	3,319,000	3,319,000
Common stock, par value (dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized	200,000,000	200,000,000
Common stock, shares issued	61,718,000	43,518,000
Common stock, shares outstanding	61,400,000	43,368,000
Common stock, unvested shares	318,000	150,000
Treasury stock, shares	2,000	2,000
Series A Convertible Preferred Stock
Convertible preferred stock, par value (dollars per share)	$ 0.0001	$ 0.0001
Convertible preferred stock, shares authorized	15,000	15,000
Convertible preferred stock, shares issued	0	4,000
Convertible preferred stock, shares outstanding	0	4,000
Series B Convertible Preferred Stock
Convertible preferred stock, par value (dollars per share)	$ 0.0001	$ 0.0001
Convertible preferred stock, shares authorized	45,000	45,000
Convertible preferred stock, shares issued	0	0
Convertible preferred stock, shares outstanding	0	0

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Parenthetical) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Statement Of Stockholders Equity [Abstract]
Common and preferred stock and warrants offering costs		$ 2.6
Warrants issuance cost		$ 0.1
Common stock public offering cost	$ 3.8

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Equity - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Thousands				1 Months Ended	12 Months Ended
	Aug. 02, 2019	Mar. 08, 2018	Dec. 31, 2011	Mar. 31, 2017	Dec. 31, 2019	Dec. 31, 2018	Jun. 30, 2019	Mar. 31, 2018
Subsidiary Sale Of Stock [Line Items]
Net proceeds from offering					$ 1,977	$ 51,902
Redeemable preferred stock carrying value					$ 23,603	$ 23,603
Redeemable preferred stock authorized					20,000,000	20,000,000
Redeemable preferred stock, price per share					$ 0.0001	$ 0.0001
Preferred stock convertible to common stock								14,300,000
Warrant outstanding					26,557,180
Stock-based compensation					$ 10,956	$ 5,304
Patrick S. Miles
Subsidiary Sale Of Stock [Line Items]
Number of warrants issued (in shares)						1,327,434
Exercise price of warrants						$ 5
Warrant expiration period						5 years
Stock-based compensation						$ 1,400
SiliconValley Bank (SVB)
Subsidiary Sale Of Stock [Line Items]
Number of warrants issued (in shares)			7,812
Exercise price of warrants			$ 19.20
Amendment fee amount waived			$ 200
Warrant term			10 years
Squadron Capital
Subsidiary Sale Of Stock [Line Items]
Number of warrants issued (in shares)						845,000	4,838,710
Exercise price of warrants						$ 3.15	$ 2.17
Warrant outstanding							5,683,710
Warrant expiration period						7 years
2017 Common Stock Warrants
Subsidiary Sale Of Stock [Line Items]
Exercise price of warrants					$ 2.00
Warrant outstanding					3,232,000
Proceeds from exercise of warrant					$ 1,100	$ 4,000
Number of warrants exercised					500,000	1,900,000
2017 Common Stock Warrants | Maximum
Subsidiary Sale Of Stock [Line Items]
Beneficial ownership limitation percentage					4.99%
Beneficial ownership, limitation option, percentage					9.99%
Beneficial ownership limitation notification period					61 days
2017 Banker Warrants
Subsidiary Sale Of Stock [Line Items]
Exercise price of warrants					$ 2.50
Warrant outstanding					148,554
2018 Common Stock Warrants
Subsidiary Sale Of Stock [Line Items]
Number of warrants issued (in shares)					1,800,000
Exercise price of warrants					$ 3.50
Warrant outstanding					13,770,488
Warrant expiration period					5 years
2018 Common Stock Warrants | Maximum
Subsidiary Sale Of Stock [Line Items]
Beneficial ownership limitation percentage					4.99%
Beneficial ownership, limitation option, percentage					9.99%
Beneficial ownership limitation notification period					61 days
Redeemable Preferred Stock
Subsidiary Sale Of Stock [Line Items]
Redeemable preferred stock carrying value					$ 23,600	$ 23,600
Redeemable preferred stock authorized					20,000,000	20,000,000
Redeemable preferred stock redemption, price per share					$ 9.00	$ 9.00
Redeemable preferred stock, price per share					$ 7.11	$ 7.11
Series A Convertible Preferred Stock
Subsidiary Sale Of Stock [Line Items]
Number of preferred shares converted					3,909	1,274
Number of preferred shares outstanding for being conversion					135
Common Stock
Subsidiary Sale Of Stock [Line Items]
Common stock issued					12,535,000
Number of preferred shares converted to common stock					1,954,000	14,986,000
Common Stock | Series A Convertible Preferred Stock
Subsidiary Sale Of Stock [Line Items]
Number of preferred shares converted to common stock					1,954,334	636,997
Number of preferred shares outstanding for being conversion to common stock					67,338
August 2019 Offering
Subsidiary Sale Of Stock [Line Items]
Net proceeds from offering	$ 53,900
August 2019 Offering | Common Stock
Subsidiary Sale Of Stock [Line Items]
Common stock issued	12,535,000
Shares issued price per share	$ 4.60
Shares issued of underwriters option to purchase additional shares	1,635,000
2017 Private Placement | 2017 Common Stock Warrants
Subsidiary Sale Of Stock [Line Items]
Exercise price of warrants					$ 2.00
2017 Private Placement | 2017 Banker Warrants
Subsidiary Sale Of Stock [Line Items]
Exercise price of warrants					$ 2.50
2017 Private Placement | 2017 Banker Warrants | Maximum
Subsidiary Sale Of Stock [Line Items]
Number of warrants issued (in shares)					471,600
2017 Private Placement | Series A Convertible Preferred Stock
Subsidiary Sale Of Stock [Line Items]
Shares issued price per share				$ 1,000
Preferred stock, shares issued				15,245
2017 Private Placement | Common Stock
Subsidiary Sale Of Stock [Line Items]
Issuance of common stock upon securities purchase agreement				1,809,628
Common stock purchase price per share				$ 2.00
2017 Private Placement | Common Stock | 2017 Common Stock Warrants | Maximum
Subsidiary Sale Of Stock [Line Items]
Number of warrants issued (in shares)					9,432,000
2017 Private Placement | Common Stock | Series A Convertible Preferred Stock
Subsidiary Sale Of Stock [Line Items]
Preferred stock convertible to common stock				7,622,372
2018 Private Placement
Subsidiary Sale Of Stock [Line Items]
Exercise price of warrants		$ 3.50
Warrant expiration period		5 years
Aggregate gross proceeds for private placement		$ 45,200
2018 Private Placement | 2017 Common Stock Warrants
Subsidiary Sale Of Stock [Line Items]
Exercise price of warrants		$ 2.00
Warrant outstanding		2,400,000
Proceeds from exercise of warrant						$ 4,800
2018 Private Placement | 2017 Banker Warrants
Subsidiary Sale Of Stock [Line Items]
Warrant outstanding					148,554
Proceeds from exercise of warrant					$ 100	$ 800
Number of warrants exercised					18,864	304,182
2018 Private Placement | 2018 Common Stock Warrants
Subsidiary Sale Of Stock [Line Items]
Warrant outstanding					13,770,488
Proceeds from exercise of warrant					$ 600
Number of warrants exercised					200,000	0
2018 Private Placement | Series A Convertible Preferred Stock
Subsidiary Sale Of Stock [Line Items]
Shares issued price per share		$ 1,000
Preferred stock, shares issued		45,200
2018 Private Placement | Common Stock | Maximum
Subsidiary Sale Of Stock [Line Items]
Number of warrants issued (in shares)		12,196,851
2018 Private Placement | Common Stock | Series A Convertible Preferred Stock
Subsidiary Sale Of Stock [Line Items]
Preferred stock convertible to common stock		14,349,236

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Stock Benefit Plans and Stock-Based Compensation - Summary of Information about Restricted Stock Awards, Restricted Stock Units and Performance-Based Restricted Units Activity (Detail) - Restricted Stock - $ / shares shares in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Shares, Unvested beginning balance	3,270
Shares, Awarded	4,802
Shares, Vested	(1,224)
Shares, Forfeited	(121)
Shares, Unvested ending balance	6,727	3,270
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Abstract]
Weighted average grant date fair value, Unvested beginning balance	$ 2.94
Weighted average grant date fair value, Awarded	1.92	$ 2.87
Weighted average grant date fair value, Vested	2.83
Weighted average grant date fair value, Forfeited	3.11
Weighted average grant date fair value, Unvested ending balance	$ 2.17	$ 2.94
Weighted average remaining recognition period (in years)	2 years 3 months 25 days

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Balance Sheet Details - Intangible Assets (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Finite Lived Intangible Assets [Line Items]
Intangible assets, Gross	$ 54,593	$ 54,593
Less accumulated amortization	(28,988)	(28,185)
Intangible assets, net	$ 25,605	26,408
Developed product technology
Finite Lived Intangible Assets [Line Items]
Useful lives	10 years
Intangible assets, Gross	$ 26,976	26,976
Intellectual property
Finite Lived Intangible Assets [Line Items]
Intangible assets, Gross	$ 1,004	1,004
License agreements
Finite Lived Intangible Assets [Line Items]
Useful lives	1 year
Intangible assets, Gross	$ 5,536	5,536
Trademarks and trade names
Finite Lived Intangible Assets [Line Items]
Intangible assets, Gross	$ 792	792
Customer-related
Finite Lived Intangible Assets [Line Items]
Useful lives	5 years
Intangible assets, Gross	$ 7,458	7,458
Distribution network
Finite Lived Intangible Assets [Line Items]
Useful lives	4 years
Intangible assets, Gross	$ 4,027	4,027
In process research and development
Finite Lived Intangible Assets [Line Items]
Useful lives	19 years
Intangible assets, Gross	$ 8,800	$ 8,800

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Balance Sheet Details - Accounts Receivable, Net (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Balance Sheet Related Disclosures [Abstract]
Accounts receivable	$ 16,436	$ 15,291
Less allowance for doubtful accounts	(286)	(196)
Accounts receivable, net	$ 16,150	$ 15,095

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Discontinued Operations - Additional Information (Details) $ in Thousands		3 Months Ended	12 Months Ended
	Sep. 01, 2016 option	Mar. 31, 2019	Dec. 31, 2019 USD ($)	Dec. 31, 2018 USD ($)
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Contracts revenue			$ 113,427	$ 91,694
Cost of revenues			35,833	28,457
Supply agreement
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Contracts revenue			5,200	8,000
Cost of revenues			$ 4,800	$ 7,500
Discontinued operations, disposed of by sale | International Operations
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Supply commitment term	3 years
Supply agreement, number of annual options to extend | option	2
Supply agreement, extended term		12 months
Supply agreement, extended period		2020-08

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Subsequent Event - Additional Information (Details) $ / shares in Units, $ in Millions	Feb. 28, 2020 USD ($) $ / shares shares	Feb. 28, 2020 € / shares	Dec. 31, 2019 $ / shares shares	Dec. 31, 2018 $ / shares shares
Subsequent Event [Line Items]
Common stock, shares | shares			61,718,000	43,518,000
Common stock, par value | $ / shares			$ 0.0001	$ 0.0001
Subsequent Event | Commitment Letter | Perceptive Credit Holdings III, LP
Subsequent Event [Line Items]
Secured debt financing | $	$ 130
Subsequent Event | Commitment Letter | Perceptive Credit Holdings III, LP | Refinancing Warrants
Subsequent Event [Line Items]
Percentage of warrant price per share	50.00%
Volume weighted average price, period	5 days
Warrant floor price per share | $ / shares	$ 4.60
Percentage of remaining warrant price per share	50.00%
Percentage of warrant premium	12.50%
Subsequent Event | Commitment Letter | Perceptive Credit Holdings III, LP | Tender Offer Warrants
Subsequent Event [Line Items]
Percentage of warrant price per share	50.00%
Volume weighted average price, period	5 days
Warrant floor price per share | $ / shares	$ 4.60
Percentage of remaining warrant price per share	50.00%
Percentage of warrant premium	12.50%
Subsequent Event | Commitment Letter | Perceptive Credit Holdings III, LP | Supplemental Warrants
Subsequent Event [Line Items]
Percentage of warrant price per share	50.00%
Volume weighted average price, period	5 days
Warrant floor price per share | $ / shares	$ 4.60
Percentage of remaining warrant price per share	50.00%
Percentage of warrant premium	12.50%
Subsequent Event | Commitment Letter | Refinancing Portion | Perceptive Credit Holdings III, LP
Subsequent Event [Line Items]
Percentage of aggregate principal amount	18.50%
Subsequent Event | Commitment Letter | Refinancing Portion | Perceptive Credit Holdings III, LP | Maximum
Subsequent Event [Line Items]
Secured debt financing | $	$ 60
Subsequent Event | Commitment Letter | Tender Offer Portion | Perceptive Credit Holdings III, LP
Subsequent Event [Line Items]
Secured debt financing | $	$ 70
Percentage of aggregate principal amount	9.00%
Subsequent Event | Commitment Letter | Tender Offer Portion | Perceptive Credit Holdings III, LP | Maximum
Subsequent Event [Line Items]
Secured debt financing | $	$ 100
Subsequent Event | Commitment Letter | Supplemental Portion | Perceptive Credit Holdings III, LP
Subsequent Event [Line Items]
Percentage of aggregate principal amount	9.00%
Subsequent Event | Commitment Letter | Supplemental Portion | Perceptive Credit Holdings III, LP | Maximum
Subsequent Event [Line Items]
Secured debt financing | $	$ 15
Subsequent Event | Tender Offer Agreement | EOS Imaging S.A
Subsequent Event [Line Items]
Share price | € / shares		€ 0.01
Tender offer price | (per share)	$ 3.08	2.80
Common stock, shares | shares	0.50
Common stock, par value | $ / shares	$ 0.0001
Subsequent Event | Tender Offer Agreement | OCEANEs | EOS Imaging S.A
Subsequent Event [Line Items]
Tender offer price | (per share)	$ 7.71	€ 7.01

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Income Taxes - Summary of Changes to Unrecognized Tax Benefits (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Reconciliation of Unrecognized Tax Benefits, Excluding Amounts Pertaining to Examined Tax Returns [Roll Forward]
Unrecognized tax benefit at the beginning of the year	$ 4,334	$ 4,440
Reductions as a result of lapse of applicable statute of limitations	(1,882)	(106)
Unrecognized tax benefits at the end of the year	$ 2,452	$ 4,334

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Commitments and Contingencies - Future Minimum Annual Lease Payments (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Mar. 31, 2019
Commitments And Contingencies Disclosure [Abstract]
2020	$ 1,488
2021	921
2022	42
Total undiscounted lease payments	2,451
Less: present value adjustment	(212)
Operating lease liability	2,239	$ 2,900
Less: current portion of operating lease liability	(1,314)
Operating lease liability, less current portion	$ 925

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Debt - MidCap Facility Agreement (Details) - USD ($)			12 Months Ended
	Nov. 06, 2018	Mar. 08, 2018	Dec. 31, 2019	Dec. 31, 2018
Line of Credit Facility [Line Items]
Unamortized debt discount			$ 7,393,000	$ 3,857,000
Amended credit facility with MidCap
Line of Credit Facility [Line Items]
Unamortized debt discount			$ 900,000
Minimum liquidity covenant amount		$ 5,000,000
Latest effective date of minimum liquidity covenant	2020-03	2019-03
Amended credit facility with MidCap | Maximum
Line of Credit Facility [Line Items]
Effective date of financial covenants of amended credit facility	2020-04	2019-04
Amended credit facility with MidCap | Minimum
Line of Credit Facility [Line Items]
Effective date of financial covenants of amended credit facility	2019-04	2018-04
Amended credit facility with MidCap | Line of Credit | Maximum
Line of Credit Facility [Line Items]
Debt default, interest rate increase			5.00%
Amended credit facility with MidCap | Revolving credit facility
Line of Credit Facility [Line Items]
Maximum borrowing capacity			$ 22,500,000
Line of credit			$ 12,800,000
Line of credit, expiration month and year			2022-12
Interest rate			7.69%
Amended credit facility with MidCap | Revolving credit facility | LIBOR
Line of Credit Facility [Line Items]
Interest rate description			("LIBOR") plus 6.0%
Basis spread			6.00%
Amended credit facility with MidCap | Term Loan
Line of Credit Facility [Line Items]
Maximum borrowing capacity			$ 5,000,000

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Debt - Other Debt Agreements (Details)	12 Months Ended
	Dec. 31, 2019 Agreement
Debt Disclosure [Abstract]
Capital leases interest percentage	6.40%
Number of capital lease agreement	1

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Summary of Significant Accounting Policies - Additional Information (Details)		1 Months Ended	3 Months Ended				12 Months Ended
	Mar. 08, 2018 shares	Mar. 31, 2019 USD ($)	Mar. 31, 2019 USD ($) shares	Sep. 30, 2018 shares	Jun. 30, 2018 shares	Mar. 31, 2018 USD ($) shares	Dec. 31, 2019 USD ($) customer shares	Dec. 31, 2018 USD ($) customer shares	Sep. 30, 2019 USD ($)
Significant Accounting Policies [Line Items]
Accounts receivable payment terms							30 days
Accounts receivable related to products and services							$ 16,150,000	$ 15,095,000
Operating lease, ROU asset		$ 2,400,000	$ 2,400,000				1,860,000
Operating lease liability		2,900,000	$ 2,900,000				2,239,000
Removal of deferred rent									$ 600,000
Goodwill and intangible asset impairment charge							0
Impairment charges of Long-lived assets disposition							0	0
Impairment charges of Long-lived assets held for use							0	0
Sales, general and administrative							101,714,000	72,640,000
Preferred stock convertible to common stock | shares						14,300,000
Recognition of beneficial conversion feature series B preferred stock						$ 13,500,000		13,488,000
Recognition of beneficial conversion feature SafeOp convertible notes		$ 200,000
Product Shipment
Significant Accounting Policies [Line Items]
Sales, general and administrative							$ 4,000,000	$ 2,500,000
SafeOp Surgical, Inc.
Significant Accounting Policies [Line Items]
Preferred stock convertible to common stock | shares	987,578
SafeOp Surgical, Inc. | Common Stock
Significant Accounting Policies [Line Items]
Stock issued for acquisition | shares	2,975,209		886,843	174,302	115,621		886,843	443,421
Fair value, inputs, level 3
Significant Accounting Policies [Line Items]
Vesting period							4 years
Fair value of the cash settled award							$ 1,700
Minimum
Significant Accounting Policies [Line Items]
Estimated useful lives of property and equipment							3 years
Minimum | Acquired Technology, Customer Relationships, Manufacturing Know-how, Licensed Technology, Supply Agreements and Certain Trade Names and Trademarks
Significant Accounting Policies [Line Items]
Intangible assets, amortization period							1 year
Maximum
Significant Accounting Policies [Line Items]
Estimated useful lives of property and equipment							7 years
Maximum | Acquired Technology, Customer Relationships, Manufacturing Know-how, Licensed Technology, Supply Agreements and Certain Trade Names and Trademarks
Significant Accounting Policies [Line Items]
Intangible assets, amortization period							20 years
Sales | Customer Concentration Risk
Significant Accounting Policies [Line Items]
Concentration risk, number of customers | customer							0	0
Accounts Receivable | Customer Concentration Risk
Significant Accounting Policies [Line Items]
Concentration risk, number of customers | customer							0	0

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Stock Benefit Plans and Stock-Based Compensation (Tables)

12 Months Ended

Dec. 31, 2019

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Summary of Stock Option Activity

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):

	Shares			Weighted average exercise price		Weighted average remaining contractual term (in years)		Aggregate intrinsic value
Outstanding at December 31, 2018		4,723		$	3.64
Granted		195		$	4.41
Exercised		(161	)	$	2.75
Forfeited		(542	)	$	7.00
Outstanding at December 31, 2019		4,215		$	3.27		7.80	$	17,961
Options vested and exercisable at December 31, 2019		2,238		$	3.71		7.40	$	9,438
Options vested and expected to vest at December 31, 2019		4,028		$	3.29		7.77	$	17,177

Summary of Information about Restricted Stock Awards, Restricted Stock Units and Performance-Based Restricted Units Activity (Detail)

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):

	Shares			Weighted average grant date fair value		Weighted average remaining recognition period (in years)
Unvested at December 31, 2018		3,270		$	2.94
Awarded		4,802		$	1.92
Vested		(1,224	)	$	2.83
Forfeited		(121	)	$	3.11
Unvested at December 31, 2019		6,727		$	2.17		2.32

Summary of Common Stock Reserved for Future Issuance

Common stock reserved for future issuance consists of the following (in thousands):

	December 31, 2019
Stock options outstanding		4,215
Unvested restricted stock awards		6,727
Employee stock purchase plan		117
Series A convertible preferred stock		67
Warrants outstanding		26,557
Authorized for future grant under the Distributor and Development Services plans		3,908
Authorized for future grant under the Management Objective Strategic Incentive Plan		445
Authorized for future grant under the Plans		1,628
		43,664

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Summary of Significant Accounting Policies - Computation of Basic and Diluted Loss Per Share (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Numerator:
Net loss, basic and diluted	$ (57,002)	$ (42,463)
Denominator:
Weighted average common shares outstanding	52,520	35,402
Weighted average unvested common shares subject to repurchase	(286)	(87)
Weighted average common shares outstanding - basic and diluted	52,234	35,315
Net loss per share, basic and diluted	$ (1.09)	$ (1.20)

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Discontinued Operations

12 Months Ended

Dec. 31, 2019

Discontinued Operations And Disposal Groups [Abstract]

Discontinued Operations

4. Discontinued Operations

In connection with the sale of the International Business, the Company entered into a product manufacture and supply agreement (the “Supply Agreement”) with Globus, pursuant to which the Company supplies 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. During the first quarter of 2019, Globus notified the Company that it will exercise the option to extend the agreement an additional twelve months through August 2020. In accordance with authoritative guidance, sales to Globus are reported under continuing operations as the Company has continuing involvement under the Supply Agreement.

During the year ended December 31, 2019, the Company recorded $5.2 million in revenue and $4.8 million in cost of revenue from the Supply Agreement in continuing operations and during the year ended December 31, 2018, the Company recorded $8.0 million in revenue and $7.5 million in cost of revenue in continuing operations. General and administrative expenses pertaining to discontinued operations on the Company’s consolidated statements of operations were immaterial for the years ended December 31, 2019 and 2018.

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Acquisition of SafeOp Surgical, Inc.

12 Months Ended

Dec. 31, 2019

Business Combinations [Abstract]

Acquisition of SafeOp Surgical, Inc.

8.Acquisition of SafeOp Surgical, Inc.

On March 8, 2018, the Company acquired SafeOp, a privately-held provider of neuromonitoring technology designed to enable effective intra-operative nerve health assessment. At the time of the acquisition, SafeOp had FDA 510(k) approval for a somatosensory evoked potential (“SSEP”) monitoring technology. The Company has developed a product that will allow for both free run and triggered specific recording of muscle activity, also known as Electromyography (“EMG”). The Company received FDA clearance for SafeOp’s EMG technology in February 2019 to complement the SSEP solution, and anticipates commercialization of the combined technology solution in mid-2019. In addition to expanding the Company’s market presence in lateral spine surgery, the Company believes that the SafeOp solution will allow it to integrate neuromonitoring into its broader product portfolio and accelerate the transition to procedural integration of the entire portfolio.

Under the term of the definitive merger agreement, the Company paid $15.1 million in cash and issued 3,265,132 shares of common stock. The Company paid the full $15.1 million in cash consideration during the year ended December 31, 2018. On March 8, 2018, the Company issued 2,975,209 shares of common stock valued at $9.8 million, based on the closing share price of $3.30, and issued an additional 115,621 shares of common stock during the second quarter of 2018 and the remaining 174,302 during the third quarter of 2018.

In March 2018, the Company also issued $3.0 million in convertible notes that were convertible into a total of 987,578 shares of common stock, which included total interest incurred, and issued warrants to purchase 2.2 million shares of common stock at an exercise price of $3.50 per share and contain a five year life. The convertible notes matured on March 9, 2019 and were settled in cash. Upon maturity, the Company recognized the value associated with the beneficial conversion feature calculated at issuance of $0.2 million within interest expense on the Company’s consolidated statement of operations for the year ended December 31, 2019. Shares of common stock were issued upon achievement of post-closing milestones as described further below. The warrants remain outstanding as of December 31, 2019.

The first of the two milestones was achieved during the year ended December 31, 2018 and resulted in the issuance of 443,421 shares of common stock as payment. The second milestone pertaining to regulatory approval was achieved and the Company issued 886,843 shares of common stock as payment during the three months ended March 31, 2019. Prior to achievement, the contingent consideration was recorded as a liability and measured at fair value using a probability-weighted income approach, utilizing significant unobservable inputs including the probability of achieving each of the potential milestones and an estimated discount rate related to the risks of the expected cash flows attributable to the milestones. The fair value of the contingent consideration, and the associated liability relating to the contingent consideration at each reporting date, was re-assessed with the changes in fair value reflected in earnings. For the year ended December 31, 2019, the fair value for the contingent consideration increased by $0.3 million due to the proximity of the achievement of the milestone. The amount was recorded within research and development expense on the consolidated statement of operations and a corresponding increase in the liability on the Company’s consolidated balance sheet. The full liability was relieved upon achievement of the remaining milestone during the period.